Colorado Dept. of Social Services v. U.S. Dept. of Health and Human Services, 93-1145

• Decision Date: 22 June 1994
• Docket Number: No. 93-1145,93-1145
• Citation: 29 F.3d 519
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: COLORADO DEPARTMENT OF SOCIAL SERVICES, Plaintiff-Appellant, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Donna Shalala, in her official capacity as Secretary of the Department of Health and Human Services; Judith A. Ballard, Cecilia Sparks Ford, and Donald F. Garrett, in their official capacities as members of the Departmental Appeals Board of the Department of Health and Human Services, Defendants-Appellees.

Page 519

29 F.3d 519

COLORADO DEPARTMENT OF SOCIAL SERVICES, Plaintiff-Appellant, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES;

Donna Shalala, in her official capacity as Secretary of the

Department of Health and Human Services; Judith A. Ballard,

Cecilia Sparks Ford, and Donald F. Garrett, in their

official capacities as members of the Departmental Appeals

Board of the Department of Health and Human Services,

Defendants-Appellees.

No. 93-1145.

United States Court of Appeals, Tenth Circuit.

June 22, 1994.

Joyce K. Herr, Sr. Asst. Atty. Gen., Human Resources Section (Gale A. Norton, Atty. Gen., Raymond T. Slaughter, Chief Deputy Atty. Gen., Timothy M. Tymkovich, Sol. Gen., Paul Farley, Deputy Atty. Gen., and Wade Livingston, First Asst. Atty. Gen., with her on the briefs), Denver, CO, for plaintiff-appellant.

Patricia L. Bossert, Asst. Regional Counsel, Dept. of Health and Human Services (James R. Allison, Interim U.S. Atty., Chalk S. Mitchell, Asst. U.S. Atty., of counsel: Ronald S. Luedemann, Chief Counsel, Region VIII, Dept. of Health and Human Services; and Jay A. Swope, Associate Chief Counsel, Dept. of Health and Human Services, with her on the brief), Denver, CO, for defendants-appellees.

Before WHITE, Associate Justice (Ret.), ^* LOGAN and EBEL, Circuit Judges.

LOGAN, Circuit Judge:

I

The Colorado Department of Social Services (Colorado) appeals the district court order affirming the final agency action of the Department of Health and Human Services (HHS). That action sustained in part and remanded in part disallowances of Colorado's revised claims for federal reimbursement of its administrative costs incurred in a foster care and adoption assistance program under Title IV-E of the Social Security Act, 42 U.S.C. Secs. 670-679a. Although there is a jurisdictional problem with the remanded claim, the principal issue on appeal is whether the Health and Human Services Departmental Appeals Board was arbitrary and capricious in denying the revised claims.

The Social Security Act provides for federal reimbursement of a percentage of state payments under certain approved public assistance programs. In addition to reimbursement of direct payments, states are entitled to partial reimbursement for the expenses of administering such federal programs, including Title IV-E. Administrative expenses often are associated with more than one federally-funded program; therefore, states are required to develop a cost allocation plan (CAP)--"a narrative description of the procedures that the State agency will use in identifying, measuring, and allocating all State agency costs incurred in support of all programs administered or supervised by the State agency." 45 C.F.R. Sec. 95.505. The CAP must

[c]ontain sufficient information in such detail to permit the Director, Division of Cost Allocation, after consulting with the Operating Divisions, to make an informed judgment on the correctness and fairness of the State's procedures for identifying, measuring, and allocating all costs to each of the programs operated by the State agency.

Id. Sec. 95.507(a)(4). The CAP must be approved by the HHS Division of Cost Allocation (DCA) as a prerequisite to obtaining reimbursement. Id. Sec. 95.511; 42 U.S.C. Sec. 671(a). A state must amend its CAP if the procedures shown in the existing CAP become outdated, a material defect in the plan is discovered, or other changes occur that make the allocation basis or procedures in the previously approved CAP invalid. 45 C.F.R. Sec. 95.509. A CAP amendment is effective on the first day of the calendar quarter after that event, unless "[a]n earlier date is needed to avoid a significant inequity to either the State or the Federal Government." ¹ Id. Sec. 95.515(a).

Because Colorado participates in several federal programs, each year Colorado submits its CAP, which includes a Time Analysis Reporting System (TARS) to record the time county social workers spend on each federal program. The TARS uses "cluster sampling" of randomly-selected three-day periods each quarter, and the data collected in each quarter is used to claim federal funds for the following quarter.

Colorado participates in both Title IV-E and Title XX programs. The Title IV-E program deals with social services for children who would be entitled to financial assistance from the Aid to Families With Dependent Children (AFDC) program except that they have been placed in foster or certain adoptive homes. In its Title XX program Colorado provides similar services to children in foster care who are not eligible for the AFDC program. Federal reimbursement to states for Title XX programs is subject to a ceiling but reimbursement for Title IV-E is not. The ceiling limited Colorado's reimbursements under Title XX.

Colorado noted that its reported administrative costs for Title IV-E were significantly lower per case than for Title XX, even though it believed the time spent by social workers on each Title IV-E case was at least as much as for a Title XX case. See R. 1363- 71, 1605. Colorado officials thought that caseworkers were erroneously recording time spent on Title IV-E cases as time spent on Title XX cases. ² In an attempt to improve accuracy of TARS data, in June 1986 Colorado submitted to the DCA modifications in its TARS, including changes in the coding procedure that employees use to report their time. The TARS modifications eliminated some of the social services codes and provided new descriptions for others. ³ Also, the reporting form ⁴ for county employees was condensed substantially. Colorado also revised its procedures handbook for county employees, including the instructions on how to complete the coding form. See R. 1393. Colorado informed DCA that it planned to implement the new procedures for the quarter ending December 31, 1986. The DCA director treated the state's submission as a request for an amendment of its CAP. In June 1988, DCA approved the amendment to apply retroactively to July 1, 1987.

In March 1988, Colorado made revised claims for Title IV-E administrative costs for the period from October 1, 1985, to June 30, 1987. The revised claims employed data collected during the first three quarters in 1987 under the revised TARS, and applied this data retroactively. See R. 451-52. The revised claims had the effect of shifting approximately $6.6 million in administrative costs from Title XX to Title IV-E. For example, Colorado's Title IV-E administrative claim jumped from $5,250 based on the approved CAP for the first quarter of 1987 to $594,019 for the second quarter of 1987, more than a hundredfold increase. Because Colorado had substantially exceeded its Title XX cap the reallocations did not reduce Colorado's Title XX claims. R. 1436-37; Appellant's App. 15 n. 4 (Departmental Appeals Board Decision).

Within HHS the Title IV-E program is operated by the Administration for Children, Youth and Families (ACYF). The ACYF commissioner disallowed the revised claims, finding that they did not conform to Colorado's CAP approved for the applicable time period, ⁵ see 45 C.F.R. Sec. 95.517(a), and that the methodology used to calculate the revised claims was flawed. Colorado appealed the disallowance to the Departmental Appeals Board (Board), which conducted a hearing. The Board upheld the ACYF commissioner's decision to disallow Colorado's revised claims for October 1, 1985, to March 31, 1987, for $3,327,162 and remanded the state's revised claim for the second quarter of 1987 of $594,019 to ACYF for further consideration and consultation with the DCA. ⁶

Colorado then appealed to the district court, alleging that the final administrative decision of the Board was arbitrary, capricious, an abuse of discretion, and contrary to law. ⁷ The district court referred the case to a magistrate judge. That judge's detailed report stated that the revised claims for October 1, 1985, through March 31, 1987, were made pursuant to a proposed TARS which had not yet been approved under the CAP. The magistrate judge treated 45 C.F.R. Sec. 95.515 as creating a presumption against retroactive CAP adjustments. He determined that Colorado could not use the data from its sample period because it failed to show the data was reliable and that the "Title IV-E program remained essentially the same in the sample period as it was during the earlier" quarters. Appellant's App. 45. He also questioned Colorado's assumption that county employees had accounted for time spent on Title IV-E programs using Title XX codes. Thus, he recommended upholding the final administrative decision disallowing Colorado's revised claims for January 1, 1986, to March 31, 1987. He would find that the revised claim for April 1, 1987, to June 30, 1987 was not properly before the court because there was not a final administrative decision on that claim. The district court adopted the magistrate judge's recommendation, and it is from that judgment that Colorado has appealed.

II

A

We agree that the district court properly declined to address the validity of the revised claim for the second quarter of 1987. The Board remanded that claim to ACYF for further consideration. Even if the Board's remand to ACYF is in effect the agency reserving to itself the right to reconsider, as Colorado argues, there is no final agency determination of the claim. Neither do we agree with Colorado's argument that somehow the government is estopped from reconsidering this issue, or must be deemed to have approved the claim by its delay. Colorado has been paid the whole amount of its claim, and the issue before ACYF is whether all or some part of that $594,019 is to be repaid or credited against future payments due to Colorado. We agree with the district court that there is no federal court jurisdiction to address the claim for the second quarter of 1987. See 5 U.S.C. Sec. 706.

B

The issue that we properly have before us on the merits is whether the Board acted in an arbitrary...