Guertin v. United States

• Decision Date: 26 February 2014
• Docket Number: No. 13–186.,13–186.
• Citation: 743 F.3d 382
• Parties: Richard GUERTIN, Plaintiff–Appellant, v. UNITED STATES of America, Department of Housing and Urban Development, Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

743 F.3d 382

Richard GUERTIN, Plaintiff–Appellant,

v.UNITED STATES of America, Department of Housing and Urban Development, Defendants–Appellees.

No. 13–186.

United States Court of Appeals, Second Circuit.

Argued: Oct. 31, 2013.

Decided: Feb. 26, 2014.

Robert N. Isseks, Middletown, NY, for Plaintiff–Appellant.

Michael J. Byars (Emily E. Daughtry, Benjamin H. Torrance on the brief), Assistant United States Attorneys, for Preet Bharara, United States Attorney, United States Attorney's Office for the Southern District of New York, New York, NY, for Defendants–Appellees.

Before: WALKER, CABRANES, and LOHIER, Circuit Judges.

JOHN M. WALKER, JR., Circuit Judge:

This appeal arises out of the refusal by the United States Department of Housing and Urban Development (“HUD”) to authorize reimbursement of the defense costs of plaintiff Richard Guertin, who in 2004 was Corporation Counsel for the City of Middletown, New York. Guertin incurred these costs successfully defending criminal charges stemming from a series of transactions that involved Middletown's use of funds it received from HUD. Invoking the Administrative Procedure Act, 5 U.S.C. §§ 701–706 (the “APA”), and his Due Process and Equal Protection Rights under the United States Constitution, Guertin sought an order in the District Court for the Southern District of New York (Kenneth M. Karas, J.) overturning HUD's decision. The district court affirmed HUD's decision. We REVERSE and ORDER HUD to authorize reimbursement.

BACKGROUND

Between 1997 and 2004, the City of Middletown received funds under HUD's Community Development Block Grant (“CDBG”) program, which provides federal grants to local governments to promote the “the development of viable urban communities.” 42 U.S.C. § 5301(c). Congress delegated the day-to-day administration of the CDBG program, including the actual expenditure of federal funds, to the grant recipients. See Dixson v. United States, 465 U.S. 482, 486, 104 S.Ct. 1172, 79 L.Ed.2d 458 (1984). As Corporation Counsel for the City of Middletown, Guertin had oversight responsibilities of CDBG fund expenditures.

On August 30, 2004, New York State indicted Guertin—along with Middletown Mayor Joseph DeStefano and Middletown Community Development Director Neil Novesky—on a variety of charges tied to the alleged misuse of CDBG funds. The essence of these allegations was that, as Corporation Counsel, Guertin had conspired with DeStefano and Novesky in an illegal scheme by which Mayor DeStefano had personally benefitted from the loans made from CDBG funds. Following a bench trial, plaintiff, DeStefano and Novesky were found not guilty of all charges against them.¹

In rendering the bench verdict, the trial judge found that Novesky simply “did his job” as Director of the Office of Economic and Community Development, and that there was “no credible evidence that he was involved in any illegal scheme.” Verdict Transcript, Joint App'x 195. With regard to Mayor DeStefano, the judge found one of the eight loans from CDBG funds to be “troubling.” Id. at 197. Although a third-party had originally sought the loan to renovate a building, the loan constituted “an indirect pecuniary benefit” to DeStefano and created a “prohibited conflict.” Id. at 202. The judge, however, found that DeStefano had not acted with the mens rea mandated by New York's conflict of interest statute,² which requires, in addition to illegality, some evil purpose or plan.

Of relevance to this appeal, the judge found that Guertin had negotiated this prohibited transaction “ostensibly in his private capacity” as DeStefano's private lawyer. Id. at 198. But because there was no evidence that Guertin “was seen in contact or consult or conversation with either of his two co-defendants at any time,” id. at 205–06, the judge found that Guertin's involvement did not amount to participation in a criminal conspiracy. The judge stated that, “like it or not, attorney Guertin did wear two hats. And in his zeal to represent his private client DeStefano, he was blinded to his obligation to the City of Middletown and he should have exercised more due care.... So Mr. Guertin did his job as attorney for a private citizen, DeStefano. Perhaps he didn't do his job quite as well as corporate counsel for the City of Middletown.” Id. at 206–07.

Following his acquittal, Novesky's attorney asked HUD if federal regulations allowed Middletown to reimburse Novesky from CDBG funds for the legal fees he had incurred in defending against the criminal charges. HUD concluded that reimbursement of Novesky's legal fees from CDBG funds was permitted because the “proceedings resulted from actions undertaken in the ordinary course of [Novesky's] employment” and because the legal expenses were incurred pursuant to “the administration of the CDBG program.” Letter from HUD Associate General Counsel to Novesky's Attorney (Sept. 7, 2007), Joint App'x 69–70.

Naturally, Guertin and Mayor DeStefano then sought HUD's approval for reimbursement of their legal fees from HUD funds, but Elton Lester, HUD's Associate General Counsel, denied their requests. Whereas Novesky's actions had been “undertaken in the ordinary course of the employee's position,” in his letter denying reimbursement, Lester stated that the actions of Guertin and Mayor DeStefano that had led to their prosecution were “of a personal nature,” Letter from HUD Associate General Counsel to Guertin's Attorney (Jun. 12, 2008), Joint App'x 77. In HUD's view, “legal expenses arising from a mayor's private business dealings, as well as those arising from advising the mayor on such matters, are not required in the city's administration of the CDBG program,” and, therefore, are not reimbursable. Id.

After unsuccessful attempts to get HUD to reconsider its decision, Guertin filed an action in the district court alleging, among other things, that HUD's decision to deny reimbursement was impermissibly arbitrary and violated the Due Process and Equal Protection Clauses of the Fifth Amendment. The parties cross-moved for summary judgment and, based on the undisputed administrative record, the district court granted the government's motion, and denied Guertin's. See Guertin v. United States, 913 F.Supp.2d 1 (S.D.N.Y.2012).

This appeal followed.

DISCUSSION

We review a district court's grant of summary judgment de novo. Natural Res. Defense Council, Inc. v. U.S. Food and Drug Admin., 710 F.3d 71, 79 (2d Cir.2013). Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “In considering the evidence, the court must resolve all ambiguities, and credit all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment even if contrary inferences might reasonably be drawn.” Natural Res. Defense Council, 710 F.3d at 79 (internal quotation marks and citation omitted).

The APA limits judicial review of agency action. As relevant to this dispute, the APA provides that a reviewing court shall only “hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706. “Under this deferential standard of review, we must assess, among other matters, whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” Bechtel v. Admin. Review Bd., 710 F.3d 443, 446 (2d Cir.2013) (internal quotation marks omitted). In doing so, we “may not substitute [our] judgment for that of the agency”; however the “record must show that the agency examined the relevant data and articulated a satisfactory explanation for its action.” Natural Res. Defense Council, Inc. v. U.S. Envtl. Prot. Agency, 658 F.3d 200, 215 (2d Cir.2011) (citations and internal quotation marks omitted). An agency decision will thus only be set aside if it “has relied on factors which Congress had not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Bechtel, 710 F.3d at 446 (quoting Nat'l Assoc. of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 658, 127 S.Ct. 2518, 168 L.Ed.2d 467 (2007)).

As relevant here, the CDBG program was created by statute in 1974 as part of an effort to promote the “development of viable urban communities, by providing decent housing and a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income.” 42 U.S.C. § 5301(c). The municipal grantee of CDBG funds is largely in control of disbursement. While this control is extensive, it is not unlimited. The statute provides that permissible expenditures include the “payment of reasonable administrative costs related to establishing and administering federally approved enterprise zones and payment of reasonable administrative costs and carrying charges related to ... the planning and execution of community development and housing activities.” Id. § 5305(13).

HUD's regulations are more specific. See24 C.F.R. §§ 570.200–570.206. HUD's criteria include that any costs incurred must conform to the Office of Management and Budget's Circular A–87, “Cost Principles for State, Local, and Indian Tribal Governments,” revised May 10, 2004 (“OMB Circular A–87”). 24 C.F.R. § 570.200(a)(5). OMB Circular A–87 states, under the heading “[d]efense and prosecution of criminal and civil proceedings, and claims,” that “[l]egal expenses required in the administration of [f]ederal programs are allowable. Legal expenses for prosecution of claims against the [f]ederal [g]overnment are unallowable.” OMB Circular No. A87, attach. B, § 10(b). In...