COM. OF MASS., ON BEHALF OF DPW v. US, Civ. A. No. 86-2132-Y.

Decision Date27 April 1990
Docket NumberCiv. A. No. 86-2132-Y.
Citation737 F. Supp. 120
PartiesCOMMONWEALTH OF MASSACHUSETTS, on behalf of the DEPARTMENT OF PUBLIC WELFARE OF the COMMONWEALTH, Plaintiff, v. UNITED STATES of America, Richard E. Lyng, Secretary of the United States Department of Agriculture, Orval Kerchner, George Marienthal, and Lawrence Slagle, members of the State Food Stamp Appeals Board, Robert E. Leard, Administrator of the Food and Nutrition Service, U.S. Department of Agriculture, and Harold T. McLean, Regional Administrator of the Northeastern Regional Office of the Food and Nutrition Service, U.S. Department of Agriculture, Defendants.
CourtU.S. District Court — District of Massachusetts

Douglas H. Wilkins, Asst. Atty. Gen., Boston, Mass., for plaintiff.

Asst. U.S. Atty. Jeffrey Martin, Steven Zelinger, U.S. Dept. of Justice, Washington, D.C., for defendants.

MEMORANDUM OF DECISION CONCERNING THE FOOD STAMP QUALITY CONTROL AND SANCTION PROCESS

YOUNG, District Judge.

The plaintiff Commonwealth of Massachusetts (the "Commonwealth" or "Massachusetts") has filed a motion for summary judgment to set aside a decision of the United States Department of Agriculture (the "Department") imposing a monetary sanction on Massachusetts for excessive errors in the Commonwealth's administration of the Food Stamp Program (or the "Program"). Specifically, Massachusetts claims that the sanction is void because the Department violated its own regulations and reviewed too many sample cases in determining the Commonwealth's error rate. In addition to arguing that the Commonwealth's motion should be denied, the United States maintains that it should be granted partial summary judgment on the issue of whether the monetary sanction is void because of the Department's oversampling.

The Food Stamp Program is administered at the national level by the Food and Nutrition Service ("Service" or "FNS") of the Department. At the state level, each participating state is responsible, through its agencies, for certifying applicant households and coordinating the distribution of monthly benefits. While the federal government reimburses the states for the full value of the food stamp benefits distributed, it pays only part of a state's administrative expenses associated with that distribution. 7 U.S.C. sec. 2025(a) (1982).1 The Service may reduce the percentage of administrative expenses paid by the federal government upon finding that a state has failed to comply with a Program requirement. 7 C.F.R. sec. 275.25(d)(1) (1982). Noncompliance is reflected by the payment error rate assigned to each state agency by the Service.

One way that the Service may properly reduce federal funding is through application of its quality control and sanction process (sometimes referred to as "QC"). 7 U.S.C. sec. 2025(d). Through its quality control procedures, the Service assigns to each state agency administering the Food Stamp Program a "target" payment error rate.2 From time to time, the Service calculates an actual payment error rate that purports to reflect cases in which the state agency determined a family to be eligible for benefits when it was not, or authorized benefits in excess of those to which a family was entitled. To determine the actual error rate, the state agency is required to select a sample of all cases and review them to determine whether they were correctly decided by the case worker. 7 C.F.R. secs. 275.10-11 (1982). Based on the sample, the state agency makes a determination of how many cases were decided erroneously, counts those erroneous decisions as errors, and calculates an error rate for that state.

The Service then selects a subsample of the state agency's sample and reviews it for accuracy. 7 C.F.R. sec. 275.3 (1982). If the Service determines that a case which the state agency has found to be correct is in error, there is a "federal difference" which is resolved by an arbitration review procedure. 7 C.F.R. sec. 275.3(c)(3)-(4). Those "federal differences" that are upheld in arbitration are weighed and, along with the other errors, are computed through a regression formula in order to arrive at a state's error rate. 7 C.F.R. sec. 275.25. This error rate, expressed as a percentage, is an estimate of the total number of errors present in a state's entire Food Stamp case-load. If a state's error rate exceeds the target error rate, it receives a sanction in the form of reduced federal reimbursement of its expenses associated with administering the Program. 7 C.F.R. sec. 275.25.

The Commonwealth here seeks further review of a $1,585,034 Food Stamp quality control penalty imposed upon it with respect to its 1982 administration of the Food Stamp Program. This appeal was first heard on March 27, 1986 by the State Food Stamp Appeals Board (the "Board"), the Department's administrative tribunal. In a decision dated June 23, 1986, the Board upheld $1,368,893 of the 1982 penalty.

Since that time, the Board has vacated penalties against other states on the grounds that the Service failed to comply with federal regulations and quality control manuals mandating the size of the federal subsample. According to the Board's more recent rulings, the federal subsample must be exactly one hundred and eighty (180) cases for the time period covered by the regulation relevant to that time period. The Board has held invalid and unenforceable quality control penalties based on more than 180 cases (oversampling)3 as well as less than 180 cases (undersampling). In re: Louisiana, Administrative Review No. 5-87 (1988); In re: Pennsylvania, Administrative Review No. 8-87 (1988); In re: Utah, Administrative Review No. 21-85 (1986). In light of these favorable Board decisions, the Commonwealth prepared a motion to vacate a similar 1983 Food Stamp quality control penalty. That motion proved unnecessary because the Service voluntarily withdrew with prejudice the Commonwealth's 1983 penalty. With respect to the Commonwealth's 1982 penalty, however, the Service concedes that more than 180 cases were sampled, but now refuses to vacate the penalty, maintaining that it is valid and enforceable.

The Commonwealth here seeks to have the Board's 1986 decision reviewed, reversed, and the 1982 penalty vacated in its entirety.4

The disputed regulation, 7 C.F.R. sec. 275.3(c)(1), provides:

Validation of States' Payment ... Error Rates. FNS shall validate each State's reported payment error rate during each 6-month quality control (QC) reporting period. Each validation review shall consist of the following actions.
(1) FNS will select a subsample of a State's completed sample. The Federal review sample size for completed active cases is determined by the following equation:
n1 = .14n + 50.31 where
n1 is the subsample size (maximum 180), and
n is the State's minimum required active sample size as determined by sec. 275.11(d)(1).
This number (n1) represents the minimum number of Federal review sample cases which must be selected and reviewed by a Regional office when conducting a validation review.

The dispute between the Commonwealth and the United States is over the numerical value to be assigned to n1. The position of the United States, as articulated by the Secretary of Agriculture (the "Secretary"), is that the regulation should be interpreted to mean that the Service need not review more than 180 cases in a sample (due to scarce resources), not that the agency is precluded from reviewing more than 180. On the other hand, both Massachusetts and the former Board maintain that the regulation requires that the Service select a subsample of exactly 180 cases.

The ultimate issue facing the Court is whether the 1982 penalty imposed on the Commonwealth is valid and enforceable, in light of the undisputed fact that the Service calculated the error rate from a subsample of greater than 180 cases. Before confronting that issue, however, the Court must work its way through a thicket of preliminary issues. First, the Court must determine whether there is an authoritative Departmental interpretation of the regulation concerned with subsample size. Second, if such an interpretation exists, the Court must determine how much deference to give it. It is only after making these determinations that the Court can determine the validity of the 1982 penalty imposed on the Commonwealth.

As to the first issue, the Court concludes that there is, in fact, an authoritative Departmental interpretation of 7 C.F.R. sec. 275.3(c)(1). That interpretation is the one initially accepted by the former Board: viz. that 7 C.F.R. sec. 275.3(c)(1) requires that the Service select subsamples of exactly 180 cases, neither more nor less. The former Board interpreted section 275.3(c)(1) pursuant to authority delegated to it by the Secretary of Agriculture in 7 C.F.R. sec. 276.7 (1982) and Departmental Regulation No. 1044-1 (September 18, 1981), which provides in relevant part that "the decision of the Appeals Board .... constitutes the final administrative determination of the Department of Agriculture and is binding on all parties." USDA Departmental Regulation No. 1044-1 at para. 7; see also 7 C.F.R. sec. 276.7. Because the Secretary delegated to the Board the final decision-making authority vested in him by the Food Stamp Act of 1977, 7 U.S.C. sec. 2023 (1982), including the duty to apply regulations defining the size of the Service's subsample, the interpretation of the former Board is in fact the final Departmental interpretation notwithstanding the Secretary's disavowal of it in this case.

Confirming this analysis, the relevant case law is firmly settled that in a dispute such as this one between an agency head and an agency tribunal to which the agency head has delegated decision-making authority, such delegation precludes the agency head from exercising that authority independently of the tribunal. United States v. Nixon, 418 U.S. 683, 694-97, 94 S.Ct. 3090, 3100-102, 41 L.Ed.2d 1039 (1974); Vitarelli v. Seaton,...

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