Com. of Pa., Dept. of Public Welfare v. U.S., s. 85-5186

Decision Date21 March 1986
Docket NumberNos. 85-5192,Nos. 85-5186,Nos. 85-,s. 85-5186,s. 85-5192,s. 85-
Citation781 F.2d 334
PartiesCOMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE and Cohen, Walter W., Secretary of Public Welfare v. UNITED STATES of America; U.S. Dept. of Agriculture and Block, John, Secretary of Agriculture. Appeal of COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, in/87/88/89/90/91/93/94/96/97. Appeal of UNITED STATES of America, et al., in/95/98,5269/70/71. to 85-5198 and 85-5269 to 85-5271.
CourtU.S. Court of Appeals — Third Circuit

Leroy S. Zimmerman, Atty. Gen., Calvin R. Koons, Deputy Atty. Gen., Jason W. Manne (Argued), Asst. Counsel, Dept. of Public Welfare, Office of Legal Counsel, Harrisburg, Pa., for appellants.

Richard K. Willard, Acting Asst. Atty. Gen., David D. Queen, U.S. Atty., William Kanter, Freddi Lipstein (Argued), Attorneys, Appellate Staff, Civ. Div. Dept. of Justice, Washington, D.C., for appellees/cross-appellants.

Before ADAMS, Acting Chief Judge, and GIBBONS and STAPLETON, Circuit Judges.

OPINION OF THE COURT

ADAMS, Acting Chief Judge.

The Food Stamp Program is designed to serve beneficial purposes, improving the nutrition and diet of less advantaged Americans and promoting the distribution and growth of this nation's agricultural products. 7 U.S.C. Sec. 2011 (1982). It is financed and administered by the federal government, but participating states share considerable responsibility for managing the program.

These appeals present two important questions concerning this shared responsibility: the extent of state liability to the federal government for certain erroneous issuances of food stamp benefits, and state liability for interest on debts owed to the federal government pursuant to billings for program mistakes. We conclude that the Secretary of Agriculture, the federal official charged with administering the program, acted within his discretion in holding the Commonwealth of Pennsylvania strictly liable for the program errors at issue here. We further decide that absent specific authorization in the Food Stamp Act the Secretary may not assess interest on amounts owed by the Commonwealth for these mistakes.

As the district court reached the same conclusions, its judgment will be affirmed.

I.

Primary state responsibilities in the administration of the Food Stamp Program are to certify the eligibility of individual households and to issue food stamp coupons. 7 U.S.C. Sec. 2020(a) (1982). These coupons are then redeemed at face value by approved retail food stores. Id. at Sec. 2013(a). Pennsylvania, instead of issuing the coupons directly to recipients, distributes Authorization to Purchase (ATP) cards. Individuals take these cards to particpating banks, which disburse the amount of coupons authorized on the card. This distribution method, permitted by the federal government, is designed to enhance the security of food stamp disbursements.

The present appeals arise from the improper redemption of ATPs at various Pennsylvania banks. Although the ATP cards bear an expiration date, the name of the state of the recipient household, and other indicia of authenticity, banks occasionally issue coupons in return for expired ATPs, out-of-state ATPs, and duplicate ATPs that should never have been issued. 1 The Food and Nutrition Service S of the United States Department of Agriculture, the agency that operates the program, holds states strictly liable for the amount of such improper coupon issuances. It also charges interest on such debts beginning on the 31st day after the initial billing. Here, the FNS billed the Commonwealth approximately $565,387 plus interest pursuant to these policies.

Pennsylvania objected to the legal basis of these assessments, and appealed to the State Food Stamp Appeals Board (SFSAB), an impartial tribunal within the Department of Agriculture. 2 The board upheld FNS' imposition of liability, and refused to consider the interest issue. The state then filed actions for review de novo in the district court. That court granted summary judgment to the federal defendants on the liability issue, held that FNS could not collect prejudgment interest, and issued a permanent injunction against assessment of such interest against the Commonwealth. Both parties filed appeals.

II.

The appeals and cross-appeals originated in five separate district court cases that were consolidated for purposes of disposition. This procedural history is further complicated by an amended judgment issued by the district court. It is therefore necessary, as a preliminary matter, to clarify our appellate jurisdiction.

Challenged in the first suit is an FNS billing for erroneous redemptions of ATPs. Later, the state received a bill for interest due on the amount at issue in the suit and, instead of amending its complaint, it filed a second civil action to contest the interest claim. Plaintiffs' third, fourth, and fifth suits were filed after later billings, and these complaints referred to any interest that would be charged on the amounts at issue.

In its order of January 10, 1985, the district court entered summary judgment for defendants in the first case; dismissed the second case for lack of subject matter jurisdiction; and in the third, fourth and fifth actions ruled for the defendants on the liability issue, and against it on the interest issue. The Commonwealth appealed in all five cases, and the defendants cross-appealed in the latter three.

Inadvertently, the district court's January 10 order entered judgment only in the first two cases. Notified of this defect, on March 4, 1985 the district court amended its order to enter the appropriate judgments in the other three cases. Again, the parties filed five appeals and three cross-appeals relating to all cases.

The initial filings adequately conferred jurisdiction on this Court in all cases, as a notice of appeal filed after the announcement of a decision or order but before entry of the judgment is not defective as premature, but rather will be treated as filed after such entry and on the date thereof. Fed.R.App.P. 4(b). The later appeals were therefore unnecessary; accordingly, we will dismiss the second group of appeals. 3

Another issue emerging from this procedural thicket is the propriety of the Commonwealth's second civil action, 4 the only case to involve solely a challenge to an interest assessment. The SFSAB ruled against the Commonwealth on the underlying debt on July 6, 1983, and plaintiffs filed their first suit two days later. On July 18, they received an interest assessment, and appealed immediately to the Board. In a letter dated July 29, the Board responded: "The Food Stamp Program Regulations do not provide for an administrative review of the interest accrued on a decision rendered by the Board." On August 26, the Commonwealth filed its second suit.

Ostensibly, this filing fell within the 30-day deadline for seeking judicial review of adverse agency determinations. 7 U.S.C. Sec. 2023(a)( West Supp.1985). However, the district court adopted the magistrate's conclusion that the assessment of interest follows logically from the initial billing, and the time to seek review of both began with the SFSAB's July 6 ruling. We agree with this analysis; the interest charge was not decided by the agency independently of the underlying debt, and the state had notice of FNS' intention to charge interest on all state liabilities. See FNS Policy Memorandum FM 82-3 (July 28, 1982). Thus, plaintiffs' second suit was untimely, and despite our ruling on the merits of the interest issue, this Court has no jurisdiction to affect the interest charged by FNS on the debt at issue in the first billing.

III.

Another preliminary issue pertains to the Commonwealth's charge that improper communications between FNS officials and the SFSAB prejudiced its right to a fair hearing.

Shortly before the administrative proceedings challenged here began, the FNS administrator passed on to the Board a complaint from an FNS regional office concerning earlier decisions involving the Commonwealth. According to plaintiffs, in those decisions the Board held against the federal agency in cases similar to the present matters, but following the communication the Board reversed its position and issued the rulings on appeal here. The district court not only rejected the contention of prejudice, but also refused to allow plaintiffs to conduct extensive discovery on the matter.

Plaintiffs support their claim by citing Ward v. Village of Monroeville, 409 U.S. 57, 93 S.Ct. 80, 34 L.Ed.2d 267 (1972). There, a mayor, sitting as judge, convicted the petitioner of two traffic offenses. The Supreme Court held that because the mayor, as an official responsible for revenue production, had a financial stake in the outcome, the judicial scheme abridged due process. In addition, the availability of appeal and a trial de novo in county court did not cure the unfairness; "[p]etitioner is entitled to a neutral and detached judge in the first instance." Id. at 61-62, 93 S.Ct. at 84.

Ward, however, involved a criminal proceeding. Not only is the present matter strictly administrative, but because de novo review is available the Administrative Procedure Act's (APA) restrictions on ex parte communications do not apply. 5 U.S.C. Sec. 554(a)(1) (1982); see also id. at Sec. 554(d) (rules on ex parte communications); 7 U.S.C. Sec. 2023(a) (West Supp.1985) (providing for de novo judicial review of SFSAB decisions). Thus, even if the communications here were improper--a debatable proposition, since they did not concern a pending case--plaintiffs apparently have no legal cause to complain.

The Commonwealth claims that even if judicial precedent and the APA are not applicable, prejudice to it is real nevertheless. The SFSAB ruling is important, plaintiffs contend, because federal courts must...

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