Petry v. Block, No. 83-1612

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtBefore WALD, BORK and STARR; STARR
Citation737 F.2d 1193
PartiesJoanna PETRY, et al., Appellants, v. John BLOCK, Secretary of Agriculture, et al.
Docket NumberNo. 83-1612
Decision Date29 June 1984

Page 1193

737 F.2d 1193
238 U.S.App.D.C. 46
Joanna PETRY, et al., Appellants,
v.
John BLOCK, Secretary of Agriculture, et al.
No. 83-1612.
United States Court of Appeals,
District of Columbia Circuit.
Argued Feb. 8, 1984.
Decided June 29, 1984.

Page 1194

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-01682).

Kathleen A. McKee, Alexandria, Va., for appellants.

Freddi Lipstein, Atty., Dept. of Justice, Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., Stanley S. Harris, U.S. Atty., Washington, D.C. (at the time the brief was filed), and Robert E. Kopp, Atty. Dept. of Justice, Washington, D.C., were on the brief, for appellees.

Leonard Schaitman and Nicholas S. Zeppos, Attys., Dept. of Justice, Washington, D.C., also entered appearances, for appellees.

Paula Roberts and Barbara Milstein, Washington, D.C., were on the brief of amicus curiae urging reversal.

Before WALD, BORK and STARR, Circuit Judges.

Opinion for the Court filed by Circuit Judge STARR.

STARR, Circuit Judge:

This case presents procedural and substantive challenges to a rule implementing reductions in federal spending which were mandated by Congress in the summer of 1981. Appellants are participants in the Child Care Food Program, a federal financial assistance program administered by the United States Department of Agriculture. They brought this action in June 1982, challenging a regulation 1 adopted by the Secretary of Agriculture to implement certain provisions of the watershed Omnibus Budget Reconciliation Act of 1981 ("OBRA"). 2

At the outset of this litigation, plaintiffs moved for a preliminary injunction to set aside the new regulation, on the theory that the Department had misinterpreted the relevant provisions of OBRA. Instead

Page 1195

of mandating a reduction in certain Child Care Food Program expenditures, the statute, plaintiffs argued, required only a reduction in the maximum allowable rates payable. 3 The District Court agreed and granted the preliminary injunction on June 28, 1982. By order dated August 31, 1982, this court stayed the preliminary injunction pending appeal.

In Petry v. Block, 697 F.2d 1169 (D.C.Cir.1983), this court reversed the District Court's decision and remanded the case. Our decision "upheld the Secretary [of Agriculture's] interpretation of [OBRA's] amendment" of the Child Care Food Program ("CCFP") statute, but noted that "issues remain for resolution by the District Court relating to the manner in which the challenged regulation was promulgated and its reasonableness in the light of facts presented." Id. at 1171. On remand, appellants argued that the Department's adoption of this regulation ran afoul of both OBRA and Administrative Procedure Act ("APA") 4 requirements. They moved for summary judgment, requesting that the new regulation be invalidated and the entire matter remanded to the Department for promulgation of a new regulation.

In a Memorandum Opinion and Order dated March 29, 1983, the District Court denied appellants' motion, and granted summary judgment in favor of the appellees. Appellants now seek review of that decision. We affirm.

I

The Child Care Food Program provides financial assistance to the several States to defray the cost of meals served to needy children in child care centers and day care facilities. CCFP also reimburses a portion of administrative expenses incurred by sponsoring organizations, which supervise day-care homes and assist in the administration of the program. 5

OBRA, a widely publicized measure passed in 1981, was aimed at reducing the level of federal expenditures. The measure was designed, in relevant part, to make numerous changes in the funding of federal welfare programs, including the program here in question. To this end, OBRA amended the CCFP statute to require a ten percent reduction in amounts paid by the Secretary of Agriculture as reimbursement for sponsoring organizations' administrative expenses. 6 As the case comes to us, no curtailments other than for administrative expenses are at issue.

In the spirit of the day, OBRA placed administrative agencies on an unusually fast track to implement the mandated changes. Accordingly, the measure provided for, among other things, expedited implementation of the reduction in CCFP administrative reimbursements. Specifically, section 820(c) of OBRA directed the Secretary to promulgate implementing regulations "[n]ot later than 60 days after the date of enactment" of OBRA. 7 Because OBRA was signed into law on August 13, 1981, the statute had the effect of requiring

Page 1196

the Secretary to promulgate new reimbursement regulations on or before October 12, 1981. OBRA further provided that the new reimbursement system was to take effect on January 1, 1982. See section 820(a)(6) of OBRA, 42 U.S.C. Sec. 1753 note (Supp. V 1981). The stage was thus set for the events that led to this litigation.

The responsibility for developing new reimbursement regulations fell upon the shoulders of the Department's Food and Nutrition Service ("FNS"), which is charged with administering CCFP and other federally funded child nutrition programs. Espying OBRA's likely passage on the horizon, FNS collected data during the summer of 1981 with respect to reimbursement practices, but determined that nothing beyond preliminary steps could be taken prior to OBRA's actual passage. Declaration of George Braley, Deputy Administrator for Special Nutrition Programs, FNS, paragraphs 5-6 ("Braley Declaration"). 8

The timing of FNS' labors on the new regulation is not disputed by the parties, although the appellants argue vigorously that the Secretary, through FNS, failed to work with sufficient diligence and dispatch in this task. FNS completed the first draft of the regulation in good measure on September 17, 1981. Braley Declaration p 10. After this auspicious beginning, the proposed rule entered FNS' internal clearance procedure on October 2, 1981. Defendants' Response to Plaintiffs' Interrogatories and Request for Production of Documents, reprinted in Appendix ("App."), at 36a. The review of the draft regulation continued in early October, at which point storm clouds of delay loomed large. "[I]t appeared unlikely to FNS that clearance and publication of the proposed rule, allowance for a sixty-day comment period, analysis of comments, and publication of a final rule would be possible by January 1, 1982 ...." Braley Declaration p 10. As a result, FNS withdrew the regulation from the clearance process and redrafted it as an interim rule. The proposed interim rule was placed in the clearance process on October 22, 1981.

These well-laid plans then went awry. In November 1981, an error was discovered in the reimbursement formula set forth in the proposed interim rule which would have resulted in an overreduction of reimbursements. The clearance procedure was again aborted, and the draft regulation reworked to eliminate the error contained in the formula. As the calendar fatefully moved toward New Year's Day, a new draft was completed on December 8, 1981, and promptly placed into FNS' internal clearance procedures.

Clearance proved to be a six-week process. After subsequently gaining agency and OMB clearance, the regulation was finally published on January 26, 1982 as an interim rule. 47 Fed.Reg. 3539-41 (1982). 9 The new rule was, however, made effective retroactively as of January 1, 1982, which will be recalled was the effective date mandated

Page 1197

by OBRA. 10 The notice of the interim rule also announced a sixty-day comment period. During this ensuing period, the Department received 125 comments. After reviewing the comments, the Secretary determined that no change was warranted in the rule before its adoption in final form. On June 25, 1982, the final rule, identical to the interim rule announced in the preceding January, was published. 47 Fed.Reg. 27,540-44 (1982).
II

In light of this procedural history, appellants mount an attack against the new reimbursement regulation on three grounds. First, they argue that the initial issuance of the regulation in January 1982 as an interim rule--with retroactive effect--violated the requirement of section 553(b) of the APA that prior notice be given of a proposed rulemaking and public comment procedures followed. As a second prong of this initial ground of attack, appellants strenuously argue that the circumstances presented here do not justify invocation of the section 553(b)(B) "good cause" exemption from the section 553(b) requirement. 11

Appellants claim, secondly, that appellees breached their APA obligation to disclose a summary of the information and data relied upon in drafting the regulation sufficient to enable interested parties to submit "meaningful" comments on the interim regulation. Third and finally, appellants charge that the Department's decision to adopt the final rule was arbitrary and capricious, in that the Department failed to consider all relevant evidence in reaching its decision.

We first address the latter two objections, which go to the final rule now in effect, and then consider the "good cause" question, which goes only to the promulgation in 1982 of the now superceded interim rule.

A

Appellants claim that the Secretary failed to describe adequately the "information and data relied upon in drafting" the interim rule, Appellants' Brief at 28, and that this asserted error fatally infects the rule as adopted. We disagree. 12

In support of their argument, appellants rather unfairly characterize the information set forth in the January 26, 1982 notice of the interim rule. This notice cited the Department's "review of available data" and information generated by a nationwide study of the Program conducted for the Department by ABT Associates, a private consulting firm, as support for (1) the Department's view of economies of scale in the sponsoring organizations, (2) the...

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