OnPath Fed. Credit Union v. U.S. Dep't of Treasury
| Docket Number | 22-30080 |
| Decision Date | 05 July 2023 |
| Citation | 73 F.4th 291 |
| Parties | ONPATH FEDERAL CREDIT UNION, Plaintiff—Appellant, v. UNITED STATES DEPARTMENT OF TREASURY, COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND, Defendant—Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Eastern District of Louisiana, USDC No. 2:20-CV-1367, Sarah S. Vance, U.S. District Judge
Charles Phillip Buffington, Jr. (argued), Adams & Reese, L.L.P., Ridgeland, MS, George Robert Parrott, II, Adams & Reese, L.L.P., New Orleans, LA, for Plaintiff—Appellant.
Peter M. Mansfield (argued), Kevin G. Boitmann, Diane Hollenshead Copes, Esq., Assistant U.S. Attorneys, U.S. Attorney's Office, Eastern District of Louisiana, New Orleans, LA, for Defendant—Appellee.
Before Dennis, Elrod, and Ho, Circuit Judges.
When an application for federal funding contains materially false information, it's reasonable for the federal agency to want the money back. And that is so even if it turns out that the recipient might've been eligible to receive the funds on some other basis not presented in the application. No harm, no foul may be appropriate in sports—but it's not a rule that judges may unilaterally impose on the funding decisions of federal agencies. We accordingly affirm the district court and hold that the agency here did not abuse its discretion by requiring repayment under these circumstances.
The Treasury Department administers the Community Development Financial Institutions Fund. The Fund supports financial institutions that serve low-income clients and communities. See 12 U.S.C. § 4701(b). To be eligible for funding, a financial institution must apply for and receive certification. See 12 C.F.R. § 1805.200(a)(2). As part of its certification application, the institution must show that it serves either (1) an Investment Area or (2) a Targeted Population. See id. § 1805.201(b)(3)(i).
An Investment Area is a geographic unit defined by its objective economic distress or its designation by the Internal Revenue Code. See id. § 1805.201(b)(3)(ii). A Targeted Population is a group of individuals who are low-income or lack access to financial services. Id. § 1805.201(b)(3)(iii). Under the terms of the certification application, an applicant institution must prove that it directs at least 60% of its activities toward either an Investment Area or a Targeted Population. If an applicant does not meet this 60% threshold, it will not be certified.
In 2005, OnPath Federal Credit Union submitted a certification application. Its application stated that OnPath did not serve an Investment Area, but that it did serve a Targeted Population. Using year-end 2004 data, OnPath indicated that it served a Low-Income Targeted Population in three regions of Louisiana. In these areas, OnPath explained, it directed more than 60% of its activities toward a Low-Income Targeted Population.
The Fund certified OnPath in January 2006. As a result, OnPath received over $12 million in awards over the next several years.
The Inspector General of the Treasury Department subsequently started an audit of OnPath. Based on this detailed, multi-year audit, the Inspector General issued a report concluding that OnPath had "submitted invalid information in its Certification Application and Assistance Applications" and had received certification "based on invalid information." The report focused on three problems with the application. First, OnPath inaccurately categorized its members' zip codes—which is notable because low-income thresholds can vary by zip code. Second, OnPath improperly classed members as low-income by assuming that any member who lacked income information automatically counted as low-income. Finally, OnPath artificially lowered its members' incomes by consistently choosing to use the lower of two possible income values.
Based on the Inspector General's report, the Fund determined that, "as a result of [OnPath] submitting invalid information in its . . . Certification Application, the . . . awards made to [OnPath] constitute improper payments." OnPath was therefore "not eligible to receive [the] . . . awards." So the agency "require[d] [OnPath] to repay the CDFI Fund for the . . . awards," totaling some $12 million.
OnPath brought this action to challenge the agency's findings and its demand for repayment. The district court denied OnPath's motion to supplement the administrative record. The district court then granted summary judgment to the agency, rejecting OnPath's arbitrariness challenge under the Administrative Procedure Act. OnPath now appeals.
We review de novo the district court's grant of summary judgment to the agency. See Bd. of Miss. Levee Comm'rs v. EPA, 674 F.3d 409, 417 (5th Cir. 2012). "The court shall grant summary judgment 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).
Although we review the district court's grant of summary judgment de novo, we review the underlying agency action under the Administrative Procedure Act's arbitrariness standard. Thus, we "hold unlawful and set aside agency action, findings, and conclusions" when we find them to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A).
"Arbitrary and capricious review focuses on whether an agency articulated a rational connection between the facts found and the decision made." Mexican Gulf Fishing Co. v. Dep't of Commerce, 60 F.4th 956, 971 (5th Cir. 2023) (quoting ExxonMobil Pipeline v. Dep't of Transportation, 867 F.3d 564, 571 (5th Cir. 2017)). "In reviewing that explanation, we must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Texas v. EPA, 983 F.3d 826, 835 (5th Cir. 2020) (quoting Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)).
We conclude that the agency considered the relevant factors and made no clear error in judgment. There was a rational connection between the material falsehoods the agency found in the funding application and the agency's decision to seek repayment from OnPath.
OnPath argues that it was arbitrary and capricious to demand repayment because the agency "failed to objectively test . . . whether OnPath was in fact eligible for . . . certification."
Recall that there are two different ways to qualify as a Community Development Financial Institution: (1) the Investment Area route and (2) the Targeted Population route. See 12 C.F.R. § 1805.201(b)(3)(i). OnPath only applied via the Targeted Population route. It concedes that there were errors in its application to qualify through that route. But OnPath contends it would nonetheless have qualified through the Investment Areas route.
Accordingly, OnPath argues that the agency needed to consider OnPath's eligibility for funding based on Investment Areas before demanding repayment. The agency did not do so. So OnPath contends that the agency "fail[ed] to consider an important aspect of the problem." M.D. Anderson Cancer Center v. HHS, 985 F.3d 472, 475 (5th Cir. 2021) (quoting State Farm, 463 U.S. at 43, 103 S.Ct. 2856).
We reject this contention. For starters, OnPath made errors that were material to its eligibility through the Targeted Population route, and those errors were fatal to its application.
Under the agreement between OnPath and the agency, the Treasury can hold an awardee in default if it discovers materially "inaccurate, false, incomplete or misleading" facts in the application. And once an awardee is in default, the agency can "require . . . repayment" of funds. As we explain, the agency had good reason to conclude that OnPath's data was materially inaccurate. So it was reasonable for the agency to demand repayment.
OnPath's application sought to show that at least 60% of its members came from a Low-Income Targeted Population. As OnPath concedes, its application assumed that any member with unknown income was low income. The agency sensibly rejected OnPath's assumption on the ground that there are plenty of other reasons why income data could be missing. No income information doesn't necessarily mean low income.
Moreover, when an OnPath member had two potential income values, OnPath consistently opted for the lower value. Yet, as the agency noted, OnPath could provide no rationale for always lowering (and never raising) incomes. The agency reasonably concluded that, by consistently picking the lower of two possible income values, OnPath was fudging its Low-Income Targeted Population numbers.
Having made material errors in its application via the Targeted Population route, OnPath cannot rehabilitate its application by invoking the Investment Areas route years later in litigation. OnPath nevertheless contends that, by ignoring the possibility that it was eligible through the Investment Areas route, the Treasury failed to consider "an important aspect of the problem." State Farm, 463 U.S. at 43, 103 S.Ct. 2856.
But consider the following analogy: A law review accepts law students with either (1) the highest grades or (2) the highest essay competition scores. Students can apply through either path. And applicants must certify that the law review may remove them from the journal if it discovers material inaccuracy in their applications. So suppose a student submits a plagiarized essay and is admitted to the law review through the essay competition path, without ever submitting his transcript. Later, the journal investigates the essay plagiarism and removes the student.
Even if the student would have qualified for membership based on grades alone, removing him for his plagiarized essay would surely be reasonable. The journal only needs to consider whether the student cheated on the essay. It need not consider the student's excellent grades.
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