South Carolina Dept. of Social Services v. Bowen, 88-3032

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation866 F.2d 93
Docket NumberNo. 88-3032,88-3032
PartiesSOUTH CAROLINA DEPARTMENT OF SOCIAL SERVICES, Petitioner, v. Otis R. BOWEN, in his official capacity as Secretary, United States Department of Health and Human Services; Office of Child Support Enforcement, United States Department of Health and Human Services; Departmental Grant Appeals Board, United States Department of Health and Human Services, Respondents.
Decision Date20 January 1989

James Emory Smith, Jr., Asst. Atty. Gen., Augusta, Me., (N. Bruce Holland, Gen. Counsel, S.C. Dept. of Social Services) on brief, for petitioner.

Robert David Kamenshine (John R. Bolton, Asst. Atty. Gen., William Kanter, Appellate Staff, Civil Div., U.S. Dept. of Justice, Washington, D.C., on brief), for respondents.

Before ERVIN, and WILKINSON, Circuit Judges, and BOYLE, United States District Judge for the Eastern District of North Carolina, sitting by designation.

WILKINSON, Circuit Judge:

The Secretary of Health and Human Services moves to dismiss South Carolina's petition for judicial review of an agency order denying federal reimbursement for certain Child Support Program expenditures made by the state. The funds represent the federal government's share of interest earned on child support obligations collected by South Carolina's Department of Social Services pursuant to the Child Support Enforcement Act, 42 U.S.C. Secs. 651-62. The Secretary asserts that the agency's order is not properly before this court because it represents a "disallowance" determination which is not subject to direct review under 42 U.S.C. Sec. 1316. We think that the Secretary's characterization of these determinations should ordinarily be controlling and we therefore dismiss South Carolina's petition for want of subject matter jurisdiction.


The Child Support Enforcement Program provides federal financial assistance to the states "[f]or the purpose of enforcing the support obligations owed by absent parents to their children ..., locating absent parents, establishing paternity, and obtaining child and spousal support...." 42 U.S.C. Sec. 651. The Act establishes a program--known as the IV-D program--which is a joint federal and state undertaking administered in coordination with the Aid to Families with Dependent Children program. A state wishing to participate in the AFDC program also is required to implement a IV-D program, which is designed to provide AFDC recipients with certain child support services. 42 U.S.C. Sec. 602(a)(27). See generally S.Rep. No. 93-1356, 93d. Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 8133, 8145-48.

In order to participate in the IV-D program, a state must submit a plan to the Secretary of Health and Human Services which conforms to the requirements of 42 U.S.C. Sec. 654. The Secretary is required to review state IV-D plans, evaluate their implementation, and ensure that states comply with federal IV-D standards. 42 U.S.C. Sec. 652(a). The Secretary also is authorized to audit state programs to ensure their continuing conformity with relevant statutory and administrative requirements. 42 U.S.C. Sec. 652(a)(4). See also 42 C.F.R. Sec. 305. The federal government reimburses the states for a percentage of the administrative costs of a state's IV-D program according to a statutory formula. 42 U.S.C. Sec. 655(a). If the Secretary determines, however, that certain sums should have been excluded from claimed expenditures by a particular state, HHS offsets those sums against subsequent reimbursements to that state. 42 U.S.C. Sec. 655(a)(1)(B). The Office of Child Support Enforcement (OCSE) is the HHS administrative unit charged with overseeing state IV-D programs. The South Carolina Department of Social Services (DSS) administers an approved child support program in South Carolina.


On November 24, 1986, the Audit Division of OCSE issued a report on interest earned by South Carolina on AFDC child support collections for the period October 1, 1981 through June 30, 1986. The audit revealed that interest earned on child support collections for the period totaled $1,110,571.59. The federal share of this earned interest income was determined to be $777,745.62.

On January 12, 1987, OCSE notified South Carolina that $777,746.00 in federal financial participation was being disallowed. According to OCSE, the disallowance was intended as an offset for interest earned on child support collections which was not used to reduce South Carolina's reimbursable expenses as required by 42 U.S.C. Sec. 655(a)(1)(B) and 45 C.F.R. Sec. 304.50(b). The Director of OCSE and the HHS Departmental Grant Appeals Board upheld the disallowance determination. South Carolina then petitioned for review of the Departmental Grant Appeals Board decision pursuant to 42 U.S.C. Sec. 1316(a)(3). The Secretary moved to dismiss the petition, arguing that the federal circuit courts lack subject matter jurisdiction to review the agency's determination on direct appeal.

South Carolina also filed an action in the United States District Court for the District of South Carolina seeking to enjoin the Secretary's disallowance. The district court found that it had subject matter jurisdiction, see 5 U.S.C. Sec. 702, and granted South Carolina's motion for preliminary relief. The district court proceedings have been stayed pending resolution of this appeal.


Whether the Secretary's determination with respect to the $777,746.00 is a "disallowance" determination under 42 U.S.C. Sec. 1316(d) or a finding of plan-nonconformity under Sec. 1316(a) has jurisdictional significance. While Sec. 1316 authorizes direct review in the courts of appeals of plan-nonconformity determinations in many federal welfare programs, it does not provide for initial review in the courts of appeals of a disallowance determination. Jurisdiction over disallowance determinations is available, however, in the district courts. See Bowen v. Massachusetts, --- U.S. ----, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988); Oregon Dep't of Human Services v. Dep't of Health & Human Services, 727 F.2d 1411, 1413 (9th Cir.1983); Illinois Dep't of Public Aid v. Schweiker, 707 F.2d 273, 277 (7th Cir.1983).

A plan-nonconformity determination ordinarily involves a finding by the Secretary that a state's IV-D program fails to satisfy the applicable statutory or administrative standards. See Georgia Dep't of Medical Assistance v. United States Dep't of Health & Human Services, 708 F.2d 627, 628 (11th Cir.1983). If the Secretary determines that a state's IV-D program is not in compliance, he may withhold a percentage of the quarterly AFDC payments due to that state. See 42 U.S.C. Secs. 604(d) & 603(h). A disallowance determination, on the other hand, is generally characterized as a finding that a particular state expenditure will not be reimbursed by the federal government. See Massachusetts v. Departmental Grant Appeals Bd. of the United States Dep't of Health & Human Services, 698 F.2d 22, 25 (1st Cir.1983). A disallowance finding normally arises from a routine audit, and generally will not have a wide-ranging impact on the ongoing administration of a state's IV-D program. Oregon, 727 F.2d at 1414. There is little likelihood, for example, that a disallowance finding will result in the cut-off of all federal funds to a state's IV-D program.

Despite these general principles, distinguishing between disallowance and plan-nonconformity determinations can be difficult. Illinois, 707 F.2d at 276. South Carolina argues that this case is properly before this court because the dispute involves a plan-nonconformity question. The Secretary, on the other hand, characterizes this matter as a disallowance dispute and urges this court to dismiss South Carolina's petition for want of jurisdiction.


The central question is who should decide whether a particular determination is a matter of plan-nonconformity or disallowance. We hold that ordinarily the Secretary's characterization of the dispute is controlling.

Some courts have rejected this bright-line test and chosen instead a "functional" approach to the jurisdictional question. The First Circuit, for example, examines whether the Secretary's determination "is of such a character, by reason of its generality and importance, as to point towards inclusion under the compliance rather than the disallowance rubric." Massachusetts, 698 F.2d at 27. The Eleventh Circuit draws the distinction "with reference to the character of the administrative determination," viewed in light of the...

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