Commonwealth of Pennsylvania, Dep't of Pub. Welfare v. Sebelius

Decision Date15 March 2012
Docket NumberNo. 10–4584.,10–4584.
PartiesCommonwealth of PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, Appellant v. Kathleen SEBELIUS, Secretary of Health and Human Services.
CourtU.S. Court of Appeals — Third Circuit

OPINION TEXT STARTS HERE

Jason W. Manne, Esq., (Argued), Office of General Counsel, Department of Public Welfare, Pittsburgh, PA, for Appellant.

Lindsey Powell, Esq., (Argued), United States Department of Justice, Appellate Section, Mark B. Stern, Esq., United States Department of Justice, Civil Division, Washington, DC, for Appellee.

Before: FISHER, VANASKIE and ROTH, Circuit Judges.

OPINION

VANASKIE, Circuit Judge.

The Pennsylvania Department of Public Welfare (DPW) appeals a decision of the United States District Court for the Western District of Pennsylvania that sustained a directive of the United States Department of Health and Human Services (“HHS”) that DPW must remit to the federal government more than $5.6 million in overpayments recovered by DPW under the Aid to Families with Dependent Children (“AFDC”) program. DPW also appeals the District Court's dismissal of a Freedom of Information Act (FOIA) claim for lack of standing. Discerning no error in the District Court's rulings, we will affirm its judgment.

I.
A. Statutory and Regulatory Framework

The Aid to Families with Dependent Children (“AFDC”) program was established by Title IV–A of the Social Security Act of 1935, 42 U.S.C. §§ 601–617, to assist states in providing aid to needy children and their families. The AFDC program provided for federal reimbursement of a percentage of all qualifying state expenditures, which were calculated and reported on a quarterly basis. 42 U.S.C. § 603(a)(1994). The AFDC was considered an “open-ended entitlement program” because there was no cap on the amount of federal funds a state could receive in a fiscal year, and states were reimbursed for all qualifying expenditures.

The AFDC program also established a procedure for recovering and accounting for payments that states made to recipients who were ineligible to receive them. The program required states to recover these overpayments, either by collecting direct cash repayments from the recipients, or through offsets to a future cash assistance payment. 45 C.F.R. § 233.20(a)(13). Because the AFDC recipients were needy, states generally recovered overpayments in installments over a period of time. Once the overpayments were recovered, states were required to report the amounts collected in their quarterly financial reports to HHS, which was responsible for administering the program. 45 C.F.R. § 201.5(a)(3). Federal payments for future quarters were then reduced pro rata by the federal share of the amount recovered by the state in the prior quarter. 42 U.S.C. § 603(b)(2) (1994).

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (“PRWORA”), Pub.L. No. 104–193, 110 Stat. 2105 (1996) (codified at 42 U.S.C. §§ 601 et seq.), which replaced the AFDC program with the Temporary Assistance for Needy Families (“TANF”) grant program. TANF was designed to give states greater flexibility in administering their welfare programs while reducing total federal welfare spending. States that are eligible to participate in TANF receive an annual “block grant” from HHS, and thus, unlike the AFDC program, TANF imposes a cap on the total federal funds each participating state is entitled to receive annually.

PRWORA § 116(b)(3) establishes guidelines for the close-out of state AFDC programs during the transition to TANF. In relevant part, it provides:

Claims made with respect to State expenditures under a State plan approved under part A of title IV of the Social Security Act (as in effect on September 30, 1995) with respect to assistance or services provided on or before September 30, 1995, shall be treated as claims with respect to expenditures during fiscal year 1995 for purposes of reimbursement even if payment was made by a State on or after October 1, 1995. Each State shall complete the filing of all claims under the State plan (as so in effect) within 2 years after the date of the enactment of this Act. The head of each Federal department shall—(A) use the single audit procedure to review and resolve any claims in connection with the close out of programs under such State plans.

PRWORA, Pub.L. No. 104–193, § 116(b)(3), 110 Stat. 2105 (1996).

The “single audit procedure” to which reference is made in § 116(b)(3) is established by the Single Audit Act of 1984 (“SAA”), 31 U.S.C. §§ 7501–7507. Under the SAA, [e]ach non-Federal entity” that expends at least $300,000 of Federal awards in a fiscal year “shall have either a single audit or a program-specific audit made for such fiscal year in accordance with the requirements of this chapter.” 31 U.S.C. § 7502(a)(1)(A).

The Administration for Children and Families (“ACF”), the division of HHS responsible for administering the former AFDC and current TANF programs, interpreted § 116 in a series of program instructions (“PI”s) that clarified ACF policy for the recovery of AFDC overpayments and provided the states with directions for closing out their AFDC accounts in accordance with § 116. On March 9, 1999, ACF issued PI 99–2, which required states to remit to HHS the federal share of recovered overpayments made to recipients on or before September 30, 1996, but permitted states to retain the full amount of recovered overpayments of AFDC or TANF funds paid to recipients after October 1, 1996, with the recovered overpayments to be applied towards TANF program costs. PI 99–2 also provided that states must submit the federal share of overpayments to the ACF in quarterly checks. On May 1, 2000, ACF issued PI 99–2 (Revised), which permitted states to retain the full amount of recovered overpayments but stated that “the amounts recovered must be credited against the current grant in the fiscal year in which the overpayment was recovered.” (A. 122–23.)

On September 1, 2000, ACF issued PI 2000–2, which rescinded PI 99–2 and PI 99–2 (Revised) and replaced them with a new overpayment recovery policy. PI 2000–2 reiterated the continuing requirement to remit the federal share of recovered AFDC overpayments. PI 2000–2 required the states to remit the federal share of pre-October 1, 1996 overpayments to ACF by check, and provided the states with instructions for making these repayments going forward. It also provided that it was only “effective for recoveries made after 9/30/96,” and that [r]ecoveries made prior to the date of this transmittal [ i.e., September 1, 2000] will be evaluated on reasonable interpretation of statutory requirements or any previous guidance provided by ACF.” (A. 125.)

B. Factual and Procedural Background

In August 2007, the HHS Office of Inspector General (“OIG”) conducted a nationwide audit to determine whether states were complying with the requirements to reimburse the federal share of recovered AFDC overpayments made before October 1, 1996. According to the OIG report, of the 43 states reviewed, 24 states had complied with the federal requirements and reimbursed ACF for overpayment recoveries from July 2002 through June 2006, while 19 states and the District of Columbia continued to collect overpayments, but did not reimburse ACF $28.7 million for the federal share of recoveries. The OIG report recommended that ACF collect the federal share of the overpayments from the states that had not complied with the reimbursement requirements.

The OIG audit found that the Pennsylvania DPW, the state agency responsible for administering the former AFDC and current TANF programs, had recovered $10,598,095 in AFDC overpayments from October 1, 1996 through June 30, 2006, but had not reimbursed ACF for the federal share of $5,609,572. Pursuant to this audit, on June 26, 2008, the OIG sent a letter to DPW requesting remittance of the federal share of $5,609,572 by check made payable to HHS within 30 days.

DPW appealed this reimbursement request, or “disallowance,” to the HHS Departmental Appeals Board (“DAB” or “Board”). DPW did not contest the OIG audit findings with respect to either the amount of AFDC overpayments recovered or the calculation of the federal share. Rather, it challenged HHS' authority to conduct the audit. It argued that PRWORA § 116(b) designates the SAA as providing the exclusive audit procedure for the close-out of the AFDC program, and thus precludes HHS from requiring reimbursement based on the results of its own audit. DPW submitted declarations stating that its federal programs, including TANF, had been subject to SAA audits since 1996, and that none of the audits had taken any “exception ... or finding ... relative to DPW's retention of overpayment recoveries from the [AFDC] program.” (A. 161.) DPW argued that HHS was bound by the results of these audits.

DPW also argued that it was entitled to retain the recovered overpayments under HHS policies. It contended that PI 2000–2 permitted it to retain the overpayments collected before September 1, 2000, because “it was not unreasonable for the State to interpret” PRWORA as allowing it to do so. (A. 69.) It also claimed that it was entitled to retain the overpayments collected after September 1, 2000, because even if its retention of overpayments violated ACF policy in the various PIs, § 116 prohibited ACF from issuing such guidance documents to the states. DPW also advanced a separate argument that the DAB could not give stare decisis effect to its prior decisions addressing AFDC overpayments in the TANF period because the agency had not properly indexed those decisions in accordance with the Freedom of Information Act (FOIA) requirements that agencies maintain published indices of their final decisions. 5 U.S.C. § 552(a)(2).

In a decision issued on April 16, 2009, the DAB rejected each DPW argument and upheld the HHS determination requiring DPW to remit the federal share of...

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