Holy Cross Sch. v. Fed. Emergency Mgmt. Agency F EMA, 2:21-CV-01658

• Court: United States District Courts. 5th Circuit. United States District Court (Eastern District of Louisiana)
• Parties: HOLY CROSS SCHOOL Plaintiff v. FEDERAL EMERGENCY MANAGEMENT AGENCY FEMA and DEANNE CRISWELL, IN HER CAPACITY AS ADMINISTRATOR OF FEMA
• Decision Date: 03 January 2023
• Docket Number: 2:21-CV-01658

HOLY CROSS SCHOOL Plaintiff
v.
FEDERAL EMERGENCY MANAGEMENT AGENCY FEMA and DEANNE CRISWELL, IN HER CAPACITY AS ADMINISTRATOR OF FEMA

No. 2:21-CV-01658

United States District Court, E.D. Louisiana

January 3, 2023

DIVISION: L(1)

ORDER AND REASONS

Before the Court are Plaintiff Holy Cross College, Inc.'s (“Holy Cross”) Motion for Summary Judgment and Defendants Federal Emergency Management Agency and Deanne Criswell, in Her Capacity as Administrator of FEMA's (collectively “FEMA”) Cross-Motion for Summary Judgment. Having reviewed the parties' arguments, the applicable law, and the administrative record, the Court rules as follows.

I. BACKGROUND

Holy Cross is a private, nonprofit, college-prep middle and high school for boys. AR4118.1. Hurricane Katrina destroyed its former campus in the Ninth Ward of New Orleans in August 2005. Id. Because of this extensive storm damage, Holy Cross was eligible for public-assistance grant funding from FEMA under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121-5207 (the “Stafford Act”). AR2119. Under the Stafford Act, the State or a state agency acts as the “grantee” for public-assistance grant funding. 44 C.F.R. § 206.201(m). Eligible subgrantees, which include state/local government and

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agencies, Indian tribal governments, and private nonprofit organizations, then apply for assistance from FEMA under the grantee's grant. 44 C.F.R. §§ 206.201(a); (o). In this case, the State of Louisiana Governor's Office of Homeland Security and Emergency Preparedness (GOHSEP) was the grantee after Hurricane Katrina. AR4118.

FEMA determined that all four of Holy Cross's buildings were eligible for replacement. Id. Holy Cross relocated from the Ninth Ward to the Gentilly neighborhood of New Orleans and began campus construction there in 2008. AR4119. Holy Cross completed four permanent buildings - the middle-school and high-school buildings in August 2009, an administration building in March 2010, and the central services building (CSB)/student activity center (SAC) in February 2011. Id. Although the facilities are connected in a single facility, the SAC was a capped, improved project under Stafford Act regulations and policy, whereas the CSB was an uncapped, at-cost replacement project. AR1049, 2903, 2884-85, 2954, 6075.

In 2015, the Department of Homeland Security (DHS) Office of Inspector General (OIG), completed an audit of Holy Cross's receipt of $89.3 million in grant funding from FEMA under the Stafford Act. AR4116-41. The audit concluded that “Holy Cross did not follow Federal procurement standards in awarding 21 contracts totaling $82.4 million.” AR4117. The OIG recommended that FEMA “disallow $82,360,247 as ineligible contract costs, unless FEMA grants an exemption for all or part of the costs as provided for in 2 C.F.R. Part 215.4.”^[1] AR4130. In accordance with that regulation and in response to the OIG audit findings, FEMA “performed a detailed analysis to determine if the claimed costs were reasonable and allowable for the level of effort required to perform the eligible work.” AR6074. FEMA's audit found the disallowed

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amount reduced from the OIG's $82,360,247 to $7,998,081. AR6075. The de-obligated amount consisted, in part, of an “ineligible scope of work and costs associated with the permanent construction,” consisting of what FEMA found were improvements to Holy Cross's campus, rather than approved replacements of the structures destroyed in Hurricane Katrina. AR6076. Accordingly, FEMA recalculated eligible architectural and engineering (A&E) fees based on the scope of eligible work. Id. This resulted in a $1,063,234.25 de-obligation for A&E expenses. Id. FEMA performed similar analyses and de-obligation calculations for the project manager (PM) and construction manager (CM) fees, resulting in de-obligations of $804,373.17 and $899,250.00, respectively. AR6076-78. FEMA acknowledged that “Holy Cross may supply additional documentation during final inspection and closeout for FEMA to reconsider the submitted costs.” AR6078.

Holy Cross endeavored to do just that in its first appeal of FEMA's de-obligation determination. AR601-19. FEMA considered Holy Cross's arguments and issued two requests for supplemental information, requesting additional documentation from Holy Cross “to support [its] claim [that] the submitted costs associated with the replacement of the facilities at appeal were reasonable and necessary to restore the predisaster design, capacity, and function of the damaged facilities.” AR3418. FEMA granted Holy Cross's first appeal in part, finding that Holy Cross demonstrated that it incurred an additional $3,158,985.10 in reasonable costs. AR2117. But after reviewing Holy Cross's arguments and responses to its two requests for supplemental information, FEMA concluded that Holy Cross's modifications had resulted in changes that enhanced and/or expanded equipment and systems, and reconfigured the physical layout of exterior and interior spaces within the Facilities beyond what existed before the disaster, and beyond the FEMA approved scope of work for restoration. Thus, FEMA denied-in-part Holy

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Cross's first appeal of the remaining de-obligated amount, consisting of $5,231,223.43. AR2117, 2129, 6076.

Holy Cross took a second appeal from FEMA's denial-in-part. AR2887-2991. Holy Cross reiterated many of the same arguments from its first appeal, but also asserted, for the first time, that 42 U.S.C. § 5205(c) of the Stafford Act prevented FEMA from de-obligating funds. AR2990. § 5205(c) provides that “State or local government shall not be liable for reimbursement. . . made under the [Stafford A]ct if” (1) “the payment was authorized by an approved agreement specifying the cost;” (2) “the costs were reasonable; and” (3) “the purpose of the grant was accomplished.”

FEMA denied Holy Cross's second appeal, sustaining the findings of its resolution of Holy Cross's first appeal. AR3406-12. FEMA also found that § 5205(c) was inapplicable to Holy Cross, as the school is a private nonprofit, and not a state or local government. AR3412. As a result, Holy Cross filed the instant case under the APA, arguing that FEMA's final de-obligation determination was arbitrary, capricious, an abuse of discretion, or contrary to law. Rec. Doc. 1 at 20. Holy Cross timely moved for summary judgment, Rec. Doc. 48, and FEMA filed in response a combined opposition memorandum and Cross-motion for Summary Judgment under FED. R. CIV. P. 56(a), R. Doc. 54. Holy Cross filed a memorandum in opposition to FEMA's Cross-motion for Summary Judgment, R. Doc. 61, and FEMA filed a reply brief, R Doc. 61.

II. PRESENT MOTIONS

In its Motion for Summary Judgment, Holy Cross argues that 42 U.S.C. § 5205(c) does indeed apply to Holy Cross, notwithstanding the plain language of the statute limiting that provision to state and local governments, and that as a result FEMA is barred from de-obligating

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funds received by Holy Cross because it has fulfilled all three of the statute's requirements. R. Doc. 48-1 at 12-18. In the alternative, it argues that FEMA is barred from de-obligating those funds because Holy Cross is a mere subgrantee, and the grantee itself, GOHSEP, is undeniably a state government agency. Id. at 18-21. Should the Court agree with FEMA that § 5205(c) is inapplicable, Holy Cross argues that FEMA's de-obligation of funds in this instance is an abuse of its discretion as arbitrary and capricious and not in accordance with the law. Id. at 21-28. Finally, should the Court reject its other arguments, Holy Cross argues that FEMA should be permitted to de-obligate no more than $441,212.42 from the funds it received for reconstruction of the CSB, rather than FEMA's “irrational calculation” of $3,202,166.71. Id. at 31.

In response, in its Cross-motion for Summary Judgment, FEMA argues that 42 U.S.C. § 5205(c) does not apply to Holy Cross as it is not a state or local government agency and that § 5205(c) does not prevent it from de-obligating funds from Holy Cross as the subgrantee just because the grantee, GOHSEP, is a state government agency. R. Doc. 54-3 at 7-14. It argues that even if the Court were to find that § 5205(c) does cover Holy Cross, Holy Cross has not met the three criteria requited by that statute. Id. at 14-15. Finally, FEMA argues that its de-obligation does not violate the APA. Id. at 16-21.

III. LEGAL STANDARD

A. Summary Judgment

Under Rule 56, a court normally considers whether the record, viewed in the light most favorable to the non-moving party, evinces a genuine dispute of material fact. FED. R. CIV. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986); Hill v. London, Stetelman, & Kirkwood, Inc., 906 F.2d 204, 207 (5th Cir. 1990). “This formula adjusts, however, when it arises in the context of judicial review of an administrative agency's decision.” Town of Abita Springs v. U.S. Army Corps of Eng'rs, 153 F.Supp.3d 894, 903 (E.D. La. 2015)

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(citation omitted). In such cases, the “motion for summary judgment...