Gallegos v. Lyng

• Citation: 891 F.2d 788
• Decision Date: 15 December 1989
• Docket Number: Nos. 88-1367,88-1370,s. 88-1367
• Parties: Lou GALLEGOS, Secretary, New Mexico Human Services Department, Plaintiff-Appellant, Cross-Appellee, v. Richard LYNG, Secretary-Designate of the United States Department of Agriculture, Defendant-Appellee, Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 788

891 F.2d 788

Lou GALLEGOS, Secretary, New Mexico Human Services

Department, Plaintiff-Appellant, Cross-Appellee, v. Richard LYNG, Secretary-Designate of the United States

Department of Agriculture, Defendant-Appellee,

Cross-Appellant.

Nos. 88-1367, 88-1370.

United States Court of Appeals,

Tenth Circuit.

Dec. 15, 1989.

Submitted on the Briefs: ^*

Jennifer A. Salisbury, Gen. Counsel, and Dale S. Morritz, Asst. Gen. Counsel, New Mexico Human Services Dept., Santa Fe, N.M., on the briefs, for plaintiff-appellant, cross-appellee.

John R. Bolton, Asst. Atty. Gen., John Koch, Office of Gen. Counsel, Dept. of Agriculture, Washington, D.C.; William L. Lutz, U.S. Atty., Albuquerque, New Mexico; William Kanter and Bruce G. Forrest, Dept. of Justice, Washington, D.C., on the briefs, for defendant-appellee, cross-appellant.

Before MOORE, ANDERSON and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

This is an appeal and cross-appeal from an order granting summary judgment of the United States District Court for the District of New Mexico. Appellant/Cross-Appellee, Lou Gallegos, Secretary of the New Mexico Human Services Department and Plaintiff below, appeals the district court's ruling that the Department of Agriculture's food stamp mail loss tolerance regulation, 7 C.F.R. § 274.3(c)(4), is not arbitrary and capricious and was promulgated in accordance with law. Appellee/Cross-Appellant, Richard Lyng, Secretary of the United States Department of Agriculture and Defendant below, appeals the court's order prohibiting him from charging the State of New Mexico interest on the unpaid amounts assessed under the regulation. This court agrees that the contested regulation is not arbitrary and capricious and was promulgated lawfully, but reverses on the interest issue.

The food stamp program is a federal-state cooperative endeavor established by 7 U.S.C. §§ 2011-2030 (1988). Section 2013(c) authorizes the Secretary of Agriculture to issue such regulations "as he deems necessary or appropriate for the efficient administration" of the food stamp program. Food stamp regulations must be promulgated according to the notice and comment requirements of the Administrative Procedure Act. 5 U.S.C. § 553 (1988). The Food and Nutrition Service ^S of the Department of Agriculture sets eligibility and benefits standards for participation in the program. 7 U.S.C. § 2014(b). Under FNS regulations, participating states can choose among several delivery systems, including mail delivery, for distributing coupons to recipients.

Under prior rules, FNS assumed full financial liability for replacing coupons lost in the mail. Current regulations, however, establish essentially a cost-sharing approach, under which participating states are liable to FNS for coupons lost in the mails in excess of certain tolerance levels. See 7 C.F.R. § 274.3 (1988). FNS established the tolerance levels after studying mail loss data for the years 1979-81. The thresholds were established "to give State agencies a significant and realistic incentive to reduce [mail] losses." 47 Fed.Reg. 50,682 (1982). FNS received several comments on the proposed regulations urging that the states should not be liable for mail losses "directly related to Postal Service operations." 48 Fed.Reg. 15,223, 15,225 (1983). The final rule rejected that proposal, but FNS stated in its preamble to the final regulations that the issue would be reexamined in the future "to determine if regulatory changes are needed." Id. at 15,225. FNS also rejected a suggestion that mail losses be reported on a statewide basis. FNS favored reporting on the basis of smaller units because that would serve better to identify the source of the mail losses. See 48 Fed.Reg. at 15,22 4. The current regulation provides that FNS will work with the state agency to identify an appropriate subdivision below the state level for reporting purposes. FNS "reserves the right to make the final determination on reporting requirements and on administrative divisions within the state for the purpose of determining and assessing liability for mail issuance losses." 7 C.F.R. § 274.3(c)(4)(v).

The State of New Mexico has incurred mail losses that exceed the tolerance level. Brief of Appellee/Cross-Appellant at 7 and n. 6. The state Human Services Department brought this suit for declaratory and injunctive relief challenging the FNS regulation as arbitrary and capricious, alleging that the regulatory scheme is counter to the governing statute. The State contends the regulation improperly attempts to shift food stamp costs from the federal government to the states and to impose liability on the states even though no loss to the federal government has occurred and in spite of the lack of any fault of the states. New Mexico also charges that the regulation was promulgated unlawfully in that FNS failed adequately to consider important aspects of the mail loss problem.

The trial court, in a judgment issued without opinion on motions for summary judgment filed by both parties, rejected New Mexico's challenges to the rule but ordered that the Secretary of Agriculture could not collect interest from the State on the sums it owed FNS for excess mail losses.

The parties agree that there are no "genuine issue[s] of material fact"; thus, in reviewing the grant of summary judgment, this court must determine "whether the substantive law was correctly applied.... [W]e may affirm the granting of summary judgment if any proper ground exists to support the district court's ruling." Hokansen v. United States, 868 F.2d 372, 374 (10th Cir.1989) (quoting Setliff v. Memorial Hosp. of Sheridan County, 850 F.2d 1384, 1391-92 (10th Cir.1988)). ¹ Although this court reviews de novo the district court's legal determinations, our review of FNS's administrative action is rather narrowly confined by the Administrative Procedure Act, 5 U.S.C. § 553. The "arbitrary and capricious" standard of review is a narrow one, which does not allow the court to substitute its judgment for the agency's. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971); New Mexico Envtl. Improvement Div. v. Thomas, 789 F.2d 825, 831 (10th Cir.1986). We must affirm the agency's action if there is a rational basis for its decision. Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 290, 95 S.Ct. 438, 444, 42 L.Ed.2d 447 (1974). "Where the empowering provision of a statute states simply that the agency may 'make ... such rules and regulations as may be necessary to carry out the provisions of this act,' ... the validity of a regulation promulgated thereunder will be sustained so long as it is 'reasonably related to the purposes of the enabling legislation.' " Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 369, 93 S.Ct. 1652, 1660, 36 L.Ed.2d 318 (1973) (footnote and citations omitted).

I. Mail Loss Regulation Is Not Arbitrary and Capricious

The State of New Mexico contends that FNS's food stamp mail loss regulation is arbitrary and capricious because it contravenes congressional intent in the Food Stamp Act that the federal government be responsible for the cost of the food stamps themselves, while the states and federal government share the administrative costs of running the program. New Mexico contends that the mail issuance liability program is not designed to achieve the most effective distribution method but rather is merely an attempt by the federal government to shift the cost of benefits to the states. The State concedes that the regulations may be "technically consistent with § 2016(f) of the Food Stamp Act," ² but it nevertheless contends that the rule is inconsistent with the overall scheme of the Food Stamp Act, i.e., that "the federal government pay for the benefits themselves, while the states ... pay for a portion of the administrative costs." Brief of Appellant at 6 (quoting Stewart v. Butz, 356 F.Supp. 1345, 1350 (W.D.Ky.1973), aff'd, 491 F.2d 165 (6th Cir.1974) (emphasis in original)). Essentially, New Mexico argues that, if only the replacement stamps, not the original stamps lost in the mail, are redeemed, the federal government has incurred no financial loss in providing a second set of stamps to the recipient. Therefore, in holding the state liable for the mail loss, the federal government is improperly shifting liability for the cost of the benefit to the state.

New Mexico further contends that the regulations are arbitrary and capricious because they impose strict liability on the states for mail losses, while § 2016(f) of the Food Stamp Act excludes mail issuance losses from those financial losses for which the states are held strictly liable. The full text of 7 U.S.C. § 2016(f) provides:

Notwithstanding any other provision of this chapter, the State agency shall be strictly liable to the Secretary for any financial losses involved in the acceptance, storage and issuance of coupons, including any losses involving failure of a coupon issuer to comply with the requirements specified in section 2020(e)(20) of this title, except that in the case of losses resulting from the issuance and replacement of authorizations for coupons and allotments which are sent through the mail, the State agency shall be liable to the Secretary to the extent prescribed in the regulations promulgated by the Secretary.

(Emphasis added.) The State argues that the language of the statute makes it clear that Congress considered but rejected the possibility of strict liability for mail issuance losses and directed that the Secretary of Agriculture promulgate rules imposing something less than strict liability for this category of losses. The balance of New Mexico's argument is devoted to a discussion of the unfairness of holding states liable regardless of fault and of imposing penalties for mail losses even when mail issuance remains the most cost effective method of disbursing food...