Crow Tribal Hous. Auth. v. U.S. Dep't of Hous. & Urban Dev.

• Decision Date: 26 March 2015
• Docket Number: No. 13–35284.,13–35284.
• Citation: 781 F.3d 1095
• Parties: CROW TRIBAL HOUSING AUTHORITY, Plaintiff–Appellee, v. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

781 F.3d 1095

CROW TRIBAL HOUSING AUTHORITY, Plaintiff–Appellee

v.U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendant–Appellant.

No. 13–35284.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 9, 2014.

Filed March 26, 2015.

Jonathan H. Levy (argued) and Michael S. Raab, Attorneys, Appellate Staff; Stuart F. Delery, Assistant Attorney General; Michael W. Cotter, United States Attorney, Civil Division, Department of Justice, Washington, D.C.; and Victoria L. Francis, Assistant United States Attorney, Office of the United States Attorney, Billings, MT, for Defendant–Appellant.

Dennis M. Bear Don't Walk (argued) and Roger J. Renville, Office of Legal Counsel, Crow Nation Executive Branch, Crow Agency, MT, for Plaintiff–Appellee.

Before: RAYMOND C. FISHER, MORGAN CHRISTEN, and JACQUELINE H. NGUYEN, Circuit Judges.

OPINION

CHRISTEN, Circuit Judge:

This case arises from a dispute involving Indian housing block grants made under the Native American Housing Assistance and Self–Determination Act of 1996 (“NAHASDA”), 25 U.S.C. §§ 4101 –4243. Since 1998, Crow Tribal Housing Authority (“Crow Housing” or “the Tribe”),¹ located in Montana, has received NAHASDA grant payments from the Department of Housing and Urban Development (“HUD”). In 2001, HUD realized that it had overpaid Crow Housing and sought to recover the overage through deductions from future grants. HUD did not provide Crow Housing with a hearing at which these deductions could be contested, and this appeal concerns whether that was improper. The district court held that HUD acted under 25 U.S.C. § 4161 and § 4165, and that it violated the Tribe's right to notice and a hearing. This appeal followed.

Because the record establishes that HUD's actions triggered 25 U.S.C. § 4165 but did not violate that section's hearing requirement, we reverse the district court's judgment.

BACKGROUND

I. Statutory and Regulatory Framework

NAHASDA was enacted primarily to “provid[e] affordable homes in safe and healthy environments” for members of Indian tribes, in a way that “recognizes the right of Indian self-determination and tribal self-governance.” 25 U.S.C. §§ 4101(5), (7). It replaced several disparate housing assistance programs with the Indian Housing Block Grant Program. The Act authorizes HUD to allocate grants among recipient tribes. Id. § 4152(a)(1). Because all tribes receive grants from the same finite pool of funds, see 25 U.S.C. § 4151, overpayments to one tribe directly reduce the funds available for other tribes.

HUD uses an allocation formula that considers a tribe's Formula Current Assisted Stock (FCAS) and need. 24 C.F.R. § 1000.310. The FCAS is the product of multiplying a fixed subsidy by the number of low-income housing units a tribe owns or operates. Id. § 1000.316. FCAS accounts for certain lease-to-own housing units until a tribe “no longer has the legal right to own, operate, or maintain the unit[s], whether such right is lost by conveyance, demolition, or otherwise.” Id. § 1000.318(a). To ensure FCAS accuracy, HUD requires recipient tribes to update the status of their housing units in an annual Formula Response Form, and to remove units no longer eligible for inclusion in the formula. Id. §§ 1000.315, 1000.319. Because HUD uses these updates to calculate annual grants, removal of units directly reduces a tribe's annual grant amount. See id. §§ 1000.312, 1000.314.

If a tribe fails to comply with NAHASDA, the Act provides for certain remedies. 25 U.S.C. § 4161. Subsection 4161(a) requires HUD to offer “reasonable notice and opportunity for hearing” before finding that a tribe “has failed to comply substantially” and before imposing those remedies.

Remedial action is mandatory upon a finding of substantial noncompliance under this section. Id. § 4161(a)(1).

Under 25 U.S.C. § 4165, HUD may also adjust a tribe's grant amount after an audit or review, but adjustments imposed pursuant to § 4165 are not mandatory.

II. Factual Background and Administrative Proceedings

a. 2001 Inspector General Audit

In August 2001, HUD's Office of the Inspector General (“OIG”) issued a report indicating that it had “performed a nationwide audit to evaluate [NAHASDA] program implementation.”² During the audit, OIG “performed on-site visits at 17 Housing Entities within four of the six Office of Native American Programs (ONAP) regions.” Though the audit was described as “nationwide,” the map of the entities visited shows that OIG performed no on-site visits in the Northern Plains region, which covers Montana and Crow Housing. OIG's “objective was not to audit the tribes but to assess NAHASDA program performance as a whole.” During the on-site visits, OIG “tested the accuracy of HUD's FCAS data to determine if the Housing Entities received correct funding.” OIG discovered FCAS inaccuracies, and determined that HUD had “over funded some Housing Entities and under funded others.” The report references recommendations OIG made to ONAP in May 2001, when it suggested that the office “[a]udit the [FCAS] for all Housing Entities,” “[r]ecover over funding,” and “reallocate the recovery to recipients that were under funded.”

ONAP responded to the recommendations within 60 days:

The ONAP has taken several actions to ensure that tribes are reporting accurate information on Formula Current Assisted Stock (FCAS).... This includes guidances to both tribes and Area ONAP staff, the annual Formula Response Form and a letter to tribal leaders. We have incorporated the monitoring of FCAS in our on-site monitoring. However, resources are not adequate to provide on-site monitoring to each grantee.

b. HUD's Correspondence with Crow Housing

The record contains no evidence that HUD performed on-site monitoring of Crow Housing in 2001, or at any point before 2004. But by some means, in 2001 HUD discovered that from 1998 through 2001, it had overpaid Crow Housing for lease-to-own units that were no longer eligible for FCAS consideration. In a September 2001 letter, HUD informed Crow Housing it had been overpaid because several units had “been conveyed or were eligible for conveyance.” The letter gave notice to Crow Housing that HUD planned to recover the overpayments, and that the Tribe should contact HUD “within 30 days of the date of th[e] letter” if it disagreed.

Crow Housing did not respond. In January 2002, HUD sent a second letter indicating it had not heard from the Tribe, and that it was writing “to confirm ... agreement with [HUD's] information and to determine a repayment plan to recover any over-allocated funds.” Because it needed to finalize the matter, HUD informed Crow Housing that if it did not respond within 30 days, HUD would assume it acceded to repayment.

Crow Housing's silence persisted. In June 2002, HUD sent a third letter enclosing copies of its two previous letters and stating that the agency had updated the calculations and determined the overpayment amount. HUD also set forth a schedule to recoup that amount through adjustments to Crow Housing's grants over the course of five subsequent fiscal years.

More than a year passed. In November 2003, Crow Housing provided its first response on the issue. It requested copies of the first two HUD letters and indicated it would “make the substantive argument against HUD's position” upon receipt of those letters. HUD supplied copies of its earlier letters and informed Crow Housing that although it had made deductions to the Tribe's 2002 and 2003 allocations, the agency failed to remove the ineligible units from its subsequent calculations, resulting in continued overpayments. HUD added the additional overpayments to the balance—resulting in a total of $1,244,837—and invited Crow Housing to establish a new repayment plan within 30 days.

c. On–Site Review and Administrative Appeal

Crow Housing met with HUD in April 2004 and asked the agency to suspend the repayment schedule until HUD performed an on-site review. HUD agreed. In August 2004 it conducted a three-day “on-site monitoring review” of the Tribe's FCAS, and determined a new outstanding balance of $1,300,043 for Crow Housing's overpayments. In October 2005, HUD informed Crow Housing of its decision and of the Tribe's right to appeal. Crow Housing asked HUD to reconsider, claiming that the agency “unlawfully [sought] to terminate, reduce and/or limit [the Tribe's] federal funding.” Crow Housing did not argue that HUD deprived it of a hearing, nor did it request one.

HUD denied Crow Housing's request for reconsideration.

III. District Court Proceedings

Crow Housing filed a complaint in the District of Montana, alleging that HUD violated NAHASDA by finding the Tribe to be in “substantial noncompliance” with the Act's provisions without offering an opportunity for hearing. Both parties agreed there had been no hearing, and in February 2013 the district court ruled on the parties' cross-motions for summary judgment.

First, the district court granted partial summary judgment to HUD, holding that the agency acted within its statutory authority when it adjusted Crow Housing's FCAS account. The court concluded HUD properly reduced the number of FCAS-eligible units under 24 C.F.R. § 1000.318.³ Crow Housing has not appealed that decision.

Second, the district court granted partial summary judgment to Crow Housing, ruling that HUD acted under 25 U.S.C. § 4161 and § 4165 when it sought to recover the overpayments. The district court concluded that HUD's action was arbitrary and capricious because “it violated [Crow Housing's] right to NAHASDA's Notice and Hearing requirements for substantial noncompliance.” Notably, the district court held that HUD violated the notice and hearing requirements under both 25 U.S.C. § 4161(a) and § 4165 and remanded the matter to HUD for a hearing.⁴

HUD timely appealed the second portion of the district court's summary judgment ruling. HUD argues that it may recover overpayments without a formal hearing if it does not rely on a finding of “substantial noncompliance” ...