Minott v. Sebelius, Case No. 1:12-cv-00909-TWP-DML

CourtUnited States District Courts. 7th Circuit. United States District Court (Southern District of Indiana)
Writing for the CourtTanya Walton Pratt
Docket NumberCase No. 1:12-cv-00909-TWP-DML
PartiesDEBRA F. MINOTT, in her official capacity as Secretary of the Family and Social Services Administration, and LANCE RHODES, in his official capacity as Director of the Division of Family Resources, Plaintiffs, v. KATHLEEN SEBELIUS, in her capacity as Secretary, U.S. Department of Health and Human Services, Defendant.
Decision Date30 September 2013

DEBRA F. MINOTT, in her official capacity as Secretary
of the Family and Social Services Administration,
and LANCE RHODES, in his official capacity as Director
of the Division of Family Resources, Plaintiffs,
KATHLEEN SEBELIUS, in her capacity as Secretary,
U.S. Department of Health and Human Services, Defendant.

Case No. 1:12-cv-00909-TWP-DML


Date: September 30, 2013


This matter is before the Court on the Indiana Family and Social Services Administration's ("FSSA") and Indiana Division of Family Resources' request for judicial review of the United States Department of Health and Human Service's ("DHHS") decision denying in part FSSA's request for federal reimbursement of non-recurrent, short-term benefits in the amount of $26,762,466.00 for fiscal years 2009 and 2010. The parties have filed cross-motions for summary judgment (Dkts. 23 and 25), which is the proper vehicle for judicial review. See Journey v. Sebelius, No. 1:12-cv-00748-SEB-TAB, 2012 WL 5985592, at *5 (S.D. Ind. Dec. 21, 2012). For the reasons stated herein, the parties' Motions for Summary Judgment are each GRANTED in part and DENIED in part.


A. Legal Background

The parties' briefs contain a detailed legal background of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, which created Temporary Assistance for Needy

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Families ("TANF") program. The Court will summarize only the relevant background here. On February 13, 2009, in direct response to the nation's economic crisis and at the urging of President Obama, Congress passed the American Recovery and Reinvestment Act of 2009 ("ARRA"), commonly referred to as the Stimulus or Recovery Act. The ARRA included a TANF Emergency Contingent Fund ("Emergency Fund") provision which created a $5 billion fund to help states, territories and tribes, in Fiscal Years 2009 and 2010 with specified types of expenditures due to the severe economic downturn. The provision provided for states to receive up to 80% of qualified increased costs for three types of expenditures: 1) basic assistance, 2) non-recurrent short-term benefits, and 3) subsidized employment. See Pub. L. No. 111-5 123 Stat. 115. Just as with regular TANF monies, expenditures must accomplish a TANF purpose, which are defined by statute as: 1) providing "assistance to needy families so that children may be cared for in their own homes or in the homes of relatives;" 2) ending the "dependence of needy parents on government benefits by promoting job preparation, work, and marriage;" 3) preventing and reducing "the incidence of out-of-wedlock pregnancies" and establishing "annual numerical goals for preventing and reducing the incidence of these pregnancies;" and 4) encouraging "the formation and maintenance of two-parent families." 42 U.S.C. § 601(a).

To receive an allocation of TANF funds, a state must demonstrate it meets a maintenance-of-efforts ("MOE") requirement, meaning that it spends a certain level of funds on certain benefits and services to eligible families that are reasonably calculated to accomplish a TANF purpose. Not all expenditures qualify for reimbursement. States are not reimbursed for avoided costs such as purchase price discounts, rebates, and credits that a State receives; or foregone revenue, such as waivers, deductions, exemptions, or nonrefundable tax credits. For example, costs of illegal or unauthorized immigrants receiving TANF benefits do not qualify for

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reimbursement. However, MOE expenditures may include qualified costs borne by third parties if certain requirements are met. Particularly relevant, third-party costs must be verifiable and meet applicable criteria in 45 C.F.R. §§ 92.3 and 92.24, as well as the requirement that there be an agreement between states and third parties. 45 C.F.R. § 263.2(e)(1), (e)(2).

B. Case Background

In Indiana, TANF is managed by the Administration for Children and Families ("ACF") of the DHHS. The Indiana FSSA submitted an application for $26,762,466.00 from the TANF Emergency Fund for increased expenditures by third parties for non-recurrent short term benefits. The claimed expenditures consisted of:

1) Emergency "charity care" health care services to non-Medicaid/SCHIP covered children and families below 250% of poverty provided through three major hospital groups; ["Charity Care"]
2) United Way of Central Indiana created a Community Economic Relief Fund (Community Relief) and issued grants to nearly 50 community organizations to provide short-term direct assistance that stabilizes families, prevents homelessness or disruptions in employment, including food, housing, utilities, transportation, medical or child care or other interventions that keep families working and stable;
3) Feeding Indiana's Hungry, Inc. (FIsH) includes the value of food and volunteer time of Indiana's Food Banks to distribute food through food pantries to families with children 18 years of age or younger; and
4) Township Assistance is the value of emergency benefits provided by Indiana townships to help families with housing, utilities, food, health care, funerals, burials and other individualized supportive benefits, until regular TANF, SNAP, Medicaid and public housing benefits are provided. ["Township Assistance"]

A.R. at 293. FSSA supported its application with estimates coupled with available actual expenditures, and converted annual data to quarterly data. To estimate qualified expenditures, FSSA relied upon United States Census data ("Census data"), which showed that 50.3% of families below 250% of poverty include children under the age of 18. FSSA further relied upon two studies showing that roughly 1.9% of the population consisted of illegal or unauthorized

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immigrants. These percentages were used to calculate the total amount of expenditures requested.

Specifically, for Community Relief, FSSA reduced total expenditures by 52% by using income data collected by United Way agencies and Census data so that FSSA claimed only costs for eligible families with children, excluding non-qualified aliens. For Township Assistance, FSSA also reduced total expenditures by 52% to ensure only costs for eligible families were claimed. For Charity Care, FSSA used the actual uncompensated emergency medical services provided by the three hospital groups to indigent patients. FSSA reduced the total amount of expenditures by 48%, relying on Census data and excluding non-qualified immigrants. Finally, for FIsH, FSSA used socio-economic data captured for Hunger in America 2010.

Upon receipt of FSSA's application, ACF followed-up with FSSA with a series of questions. In part, the first round of questions asked FSSA why estimation methodologies were used and why FSSA found them appropriate and reasonable. FSSA responded to ACF's inquiries. In September 2010, ACF granted FSSA's FIsH application in the amount of $5,097,281.00. To secure the remaining amounts in the event FSSA's application was approved, ACF conditionally awarded FSSA funds in the amount of $21,665,185.00, pending final approval. ACF then posed additional questions to FSSA that expressed further concerns with FSSA's estimation methodologies. FSSA was asked to explain why its estimates were reasonable, because it was not apparent to ACF based on the application and previous responses. FSSA answered the questions and offered to further correspond with ACF.

On August 17, 2011, ACF issued its final determination denying FSSA's application for funds for Community Relief, Township Assistance, and Charity Care. In a letter, ACF stated, "we have determined that charity care under the Indiana application is not a TANF MOE

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expenditure. In addition, we have determined, the estimating methodologies for all three programs do not yield a reasonable estimate." A.R. at 415. In denying the application, the ACF explained it applied the following principles:

. . . States must: (1) use actual data if reasonably available; (2) demonstrate that actual data are not reasonably available, if the State reaches that conclusion; and (3) describe the methodology and explain why it is reasonable (both in estimating the share of families it claims and the associated expenses), if the State seeks to use an estimation methodology. Please note that the limited scenarios in which we have allowed estimates are those in which requiring actual data would be infeasible or materially affect the ability to deliver the benefit or service.

A.R. at 415. Indiana appealed the decision to the DHHS Department of Appeals Board ("Appeals Board") pursuant to 42 U.S.C. § 610(b).

On April 4, 2012, the Appeals Board affirmed ACF's denial of FSSA's application. The Appeals Board found that the principles in the ACF denial letter were not new legislative rules subject to notice and comment procedure; that FSSA failed to show that actual data were unavailable; that FSSA's estimation methodologies were not reasonable; and that Charity Care expenditures were forgone revenue. Thereafter, FSSA sought judicial review in this Court of the Appeals Board's decision pursuant to 42 U.S.C. § 610(c)(1).


Under the Administrative Procedure Act ("APA"), a district court reviews the agency's action to determine if it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Applying this standard requires the court to evaluate whether the agency's decision "was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Marsh v. Or. Natural Res. Council, 490 U.S. 360, 378 (1989) (citation omitted). The scope of the court's review under the arbitrary and

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capricious standard is "narrow" and the court "is not to substitute its judgment for that of the agency." Judulang v. Holder, — U.S. —, —, 132 S.Ct. 476, 483 (2011) (citations...

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