San Juan Legal Services, Inc. v. Legal Services Corp.

• Citation: 655 F.2d 434
• Decision Date: 16 July 1981
• Docket Number: 80-1756,Nos. 80-1710,s. 80-1710
• Parties: SAN JUAN LEGAL SERVICES, INC., Plaintiff-Appellant, v. LEGAL SERVICES CORPORATION, et al., Defendants-Appellees. SAN JUAN LEGAL SERVICES, INC., Plaintiff-Appellee, v. LEGAL SERVICES CORPORATION, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 434

655 F.2d 434

SAN JUAN LEGAL SERVICES, INC., Plaintiff-Appellant, v. LEGAL SERVICES CORPORATION, et al., Defendants-Appellees.

SAN JUAN LEGAL SERVICES, INC., Plaintiff-Appellee, v. LEGAL SERVICES CORPORATION, et al., Defendants-Appellants.

Nos. 80-1710, 80-1756.

United States Court of Appeals, First Circuit.

Argued April 8, 1981.

Decided July 16, 1981.

Harry Anduze Montano, Santurce, P. R., for Legal Services Corp., Inc. Hector G. Oliveras, San Juan, P. R., on brief, for San Juan Legal services.

Before CAMPBELL, BOWNES and BREYER, Circuit Judges.

BOWNES, Circuit Judge.

Both parties appeal from a judgment of the district court upholding the decision of a hearing examiner that the Legal Services Corporation should terminate funding for San Juan Legal Services. San Juan's appeal challenges the standard of review applied by the district court to the findings of the hearing examiner, claims that it was denied an impartial hearing at the administrative level, alleges that the district court failed to address the question of whether San Juan was given an opportunity to take corrective action, and that the court decided the case on the basis of memoranda submitted by the parties without reviewing the record of the hearing and the exhibits. Although Legal Services states that it is appealing only the question of jurisdiction under 28 U.S.C. § 1331(a), ¹ it also challenges plaintiff's standing to sue and further asserts that plaintiff has no right to judicial review of the decision of Legal Services to terminate its funding.

Plaintiff San Juan is a nonprofit corporation organized under the laws of Puerto Rico. It began operating on January 24, 1974, under the aegis of and with funds furnished by the Office of Economic Opportunity (OEO). Defendant Legal Services is a nonprofit corporation organized under the laws of the District of Columbia. It was created by Act of Congress on July 24, 1974. 42 U.S.C. § 2996. Legal Services succeeded OEO as the parent body of San Juan and became responsible for overseeing its operations. There is no question that Legal Services has the statutory authority to terminate the funding of one of its grantees if the grantee does not meet the requirements of the statute and the guidelines promulgated pursuant to it. 42 U.S.C. § 2996e(b)(1)(A). ² Legal Services is under a statutory duty to monitor and provide for independent evaluations of the legal services programs of its grantees so as to ensure that the provisions of the statute and the guidelines are being carried out. 42 U.S.C. § 2996f(d). ³

Two separate evaluations of San Juan's program were made, one in 1975, which was initiated by the OEO, and one in 1977. Both recommended that the funding for San Juan be terminated because of serious deficiencies in its program. A preliminary determination to terminate funding was made by Legal Services, and San Juan was duly notified. San Juan then asked for a hearing before an independent hearing examiner pursuant to 42 U.S.C. § 2996j. ⁴ The hearing was held in San Juan, Puerto Rico; it started on October 2, 1978, and terminated on October 20. Nineteen witnesses testified and 107 exhibits, many of them voluminous, were put in evidence. The hearing examiner issued a forty-page opinion on February 9, 1979, which recommended, based on his findings, that Legal Services terminate the funding for San Juan. Legal Services made a final decision to terminate funding on April 26, 1979, and San Juan was so notified.

San Juan, on May 17, 1979, brought a complaint in the District Court for the District of Puerto Rico asking for injunctive relief and a declaratory judgment. It also sought a preliminary injunction restraining the defendants from cutting off funds pending a hearing on the merits. Plaintiff based jurisdiction on 28 U.S.C. §§ 1331 (federal question) and 1332 (diversity) and also on 42 U.S.C. § 2996 and 45 C.F.R. § 1606 et seq., the regulations promulgated by Legal Services pursuant to 42 U.S.C. § 2996g(e).

In a thoughtful and comprehensive opinion, the district court denied the petition for temporary relief on December 26, 1979. Judgment on the merits in favor of defendant Legal Services was issued on September 16, 1980. These appeals followed.

Jurisdiction

Under 28 U.S.C. § 1331(a), the question is whether the matter in controversy arises under the laws of the United States. The applicable law is clear.

A suit to enforce a right which takes its origin in the laws of the United States is not necessarily, or for that reason alone, one arising under those laws, for a suit does not so arise unless it really and substantially involves a dispute or controversy respecting the validity, construction or effect of such a law, upon the determination of which the result depends.

Shulthis v. McDougal, 225 U.S. 561, 569, 32 S.Ct. 704, 706, 56 L.Ed. 1205 (1912). The federal law under which the claim arises must be a direct and essential element of plaintiff's cause of action. Smith v. Grimm, 534 F.2d 1346, 1350 (9th Cir.), cert. denied, 429 U.S. 980, 97 S.Ct. 493, 50 L.Ed.2d 589 (1976). The controversy must be disclosed upon the face of the complaint and "(t)he right or immunity must be such that it will be supported if the Constitution or laws of the United States are given one construction or effect, and defeated if they receive another." Gully v. First Nat'l Bank, 299 U.S. 109, 112, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936). And the question must be neither "wholly insubstantial" nor "obviously frivolous." Hagans v. Lavine, 415 U.S. 528, 537, 94 S.Ct. 1372, 1379, 39 L.Ed.2d 577 (1974).

An examination of the complaint shows that there is federal question jurisdiction. Stripped to its essentials, the twenty-seven page complaint alleges that the two evaluations were biased, prejudiced, incomplete and unfair, that San Juan was not notified properly of the 1975 evaluations, that the evaluations were not carried out in accord with Legal Services' own regulations, that the hearing was not conducted in accord with the statutory and regulatory requirements, and that the decision of the hearing examiner was not based on the evidence, was contrary to the evidence and was arbitrary and capricious. What San Juan wants is a review of the hearing and the decision to terminate funding. Although there is no provision in the statute for judicial review, the questions of whether San Juan is entitled to such a review and what standard should be applied, if there is a right of judicial review, depend upon the construction given 42 U.S.C. § 2996. The federal law is the only element of plaintiff's cause of action: the resolution of its claim depends upon the construction given that law, and the questions are neither "wholly insubstantial" nor "obviously frivolous." We find subject matter jurisdiction under 28 U.S.C. § 1331(a). ⁵ See Spokane County Legal Services, Inc. v. Legal Services Corp., 614 F.2d 662, 667 (9th Cir. 1980); Neighborhood Legal Services v. Legal Services Corp., 466 F.Supp. 1148, 1151 (D.Conn.1979).

Standing

The pertinent law on standing has been summarized by the Supreme Court:

The essence of the standing inquiry is whether the parties seeking to invoke the court's jurisdiction have "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions." Baker v. Carr, 369 U.S. 186, 204 (82 S.Ct. 691, 703, 7 L.Ed.2d 663) (1962). As refined by subsequent reformulation, this requirement of a "personal stake" has come to be understood to require not only a "distinct and palpable injury," to the plaintiff, Warth v. Seldin, 422 U.S. 490, 501 (95 S.Ct. 2197, 2206, 45 L.Ed.2d 343) (1975), but also a "fairly traceable" causal connection between the claimed injury and the challenged conduct.

Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 72, 98 S.Ct. 2620, 2630, 57 L.Ed.2d 595 (1978).

Legal Services contends that San Juan, as its grantee, lacks the direct personal interest necessary to challenge the funding decision because the statute was enacted for the sole benefit of "persons financially unable to afford legal assistance." 42 U.S.C. § 2996b(a). This misses the point of plaintiff's claim: that specific procedural rights guaranteed to it under the statute and regulations were violated by defendants and, as a result, its corporate existence is being terminated. We think that San Juan has alleged a "distinct and palpable injury" that is directly attributable to the challenged conduct of defendant and, therefore, has standing to sue.

Judicial Review

The final preliminary question is whether plaintiff has a right to judicial review of the decision. The section of the statute authorizing a hearing before termination of funding, 42 U.S.C. § 2996j, is silent as to recourse to the courts. Statutory silence, however, does not indicate a legislative intent to preclude judicial review. Stark v. Wickard, 321 U.S. 288, 309-10, 64 S.Ct. 559, 570-571, 88 L.Ed. 733 (1944). "There is no presumption against judicial review and in favor of administrative absolutism (see Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681) unless that purpose is fairly discernible in the statutory scheme." Data Processing Service v. Camp, 397 U.S. 150, 157, 90 S.Ct. 827, 831-832, 25 L.Ed.2d 184 (1970). And the preclusion of judicial review "is not lightly to be inferred." Barlow v. Collins, 397 U.S. 159, 166, 90 S.Ct. 832, 837, 25 L.Ed.2d 192 (1970). ⁶

We have found nothing in the statute or its legislative history even remotely suggesting that judicial review of a hearing held pursuant to § 2996j is precluded. The only legislative history on the question is to the contrary. During the House debate on the 1977 amendments, the Honorable M. Caldwell Butler spoke as follows:

My second point of dissent...