State of Colo. v. Veterans Administration

• Decision Date: 11 May 1977
• Docket Number: Civ. A. No. 76-F-1114.
• Citation: 430 F. Supp. 551
• Parties: STATE OF COLORADO et al., Plaintiffs, v. VETERANS ADMINISTRATION et al., Defendants.
• Court: U.S. District Court — District of Colorado

430 F. Supp. 551

STATE OF COLORADO et al., Plaintiffs, v. VETERANS ADMINISTRATION et al., Defendants.

Civ. A. No. 76-F-1114.

United States District Court, D. Colorado.

April 5, 1977.

As Amended May 11, 1977.

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J. D. MacFarlane, Atty. Gen. of State of Colo., David E. Engdahl, Asst. Atty. Gen., Joseph N. DeRaismes, First Asst. Atty. Gen., Denver, Colo., for plaintiffs.

James L. Treece, U. S. Atty., Jerre W. Dixon, Asst. U. S. Atty., Denver, Colo., Douglas D. Doane, Veterans Administration, Denver, Colo., for defendants.

MEMORANDUM OPINION

SHERMAN G. FINESILVER, District Judge.

This suit is brought by the State of Colorado and two public junior college districts against the Veterans' Administration and its administrator and certain other employees in their official capacities. Plaintiffs complain that the actions of defendants in enforcing purported liability on the part of plaintiffs' several institutions of higher education, pursuant to 38 U.S.C. § 1785, are unlawful. Plaintiffs seek declaratory relief to the effect that 38 U.S.C. § 1785 is unconstitutional, that regulations promulgated pursuant to that statute are in violation of 38 U.S.C. § 1782, that the assertion of overpayment liability against plaintiffs while waiving liability as to the recipients of gratuities violates 38 U.S.C. § 3102(d), and that defendants' procedures for determining liability must conform to the provisions of the Administrative Procedure Act, 5 U.S.C. §§ 501, et seq. Jurisdiction has been properly invoked under 28 U.S.C. § 1331.

Plaintiffs' motions for a preliminary injunction and temporary restraining order were denied after a hearing on December 3, 1976. A pretrial conference was held on January 12, 1977 and the parties agreed to an expedited briefing and hearing schedule. A trial on the merits was held on March 31, 1977 at which time the Court rendered a preliminary bench ruling and indicated that it would supplement the oral ruling with a written opinion. The bench ruling of March 31, 1977 is fully incorporated into this Memorandum Opinion and Order.

FINDINGS OF FACT

This action arises from requests by the Veterans' Administration for reimbursement from Colorado educational institutions of overpayments made by the VA to veterans and other eligible persons under the Educational Assistance Program, Chapters 34, 35 and 36 of Title 38 U.S.C. Under the program a school certifies to the VA that the person eligible for benefits is enrolled in the school in a course of study that has been approved by the state approving agency. 38 U.S.C. § 1771. On the basis of the written certification the VA authorizes payments directly to the student. If the student satisfactorily continues training as certified, all payments are proper and no liability arises. If the student drops out of school, reduces training, takes unapproved courses, or in some other way becomes no longer entitled to the full monthly VA payment, the payments should be stopped or reduced.

There is a duty on the student to advise the VA of his change in status and if this is not done the student is responsible for repayment of the benefits received in excess of entitlement. Pursuant to a contract entered into between the State of Colorado and the Veterans' Administration, the State has assumed the duty to approve the courses of study and to assure that the student will promptly report to the VA any change in status. The individual educational institution is paid an annual reporting fee which is computed on a per capita-veteran attendance basis. This fee is paid by the VA to defer the expenses involved in the eligibility certification and monitoring of students attending the school who receive VA educational gratuities.

The schools have the duty to timely report to the VA any change in the student's status. The VA relies on the information given it by the school to determine the amount of payment to which the student is entitled. When, for example, a student ceases to attend school and both the school and the student fail to inform the VA, the VA payments continue to the student even though he is no longer eligible. The excess payment to the student is termed an "overpayment." Congress has directed in 38 U.S.C. § 1785 that:

Whenever the Administrator finds that an overpayment has been made to an eligible person or veteran as the result of (1) the willful or negligent failure of an educational institution to report as required ... to the Veterans Administration excessive absences from a course, or discontinuance or interruption of a course by the eligible person or veteran, or (2) false certification by an educational institution, the amount of such overpayment shall constitute a liability of such institution, and may be recovered in the same manner as any other debt due the United States.

Defendants are now engaged in administrative proceedings under 38 U.S.C. § 1785 to determine plaintiffs' liability for the amounts of certain overpayments not recouped from the students who received the gratuities. As of October 8, 1976, shortly before this suit was filed, defendants had claims against 43 educational institutions in Colorado in relation to some 1,393 overpayment cases. The total amount claimed at that time was $1,414,054.51. By the time of the trial defendants had withdrawn charges of liability against 41 of the 43 institutions. The total number of individual cases and the dollar amount in dispute had been reduced by about one third.¹

The first notification given to the schools of an overpayment assessment is by a form letter which fails to indicate the matters of fact and law asserted against the school. The letter has a series of boxes which an agent of defendants checks as he thinks appropriate. The form letter provides four choices for the reasons for the asserted liability which give only a general indication of the schools' deficiency. A fifth box, described only as "other", is also on the form. Upon occasion, a school will receive a form indicating the amount of the asserted liability, the name of the student involved, and the "other" box checked. No further indication as to the basis of liability is provided.

Liability determinations are made according to 38 C.F.R. § 21.4009(b), promulgated pursuant to 38 U.S.C. § 1785. That regulation provides a "rule of prima facie evidence" whereby:

If a school is required to make periodic or other certifications, failure to report facts which resulted in an overpayment will be considered prima facie evidence of willfulness or negligence. Similarly, the submission of an incorrect certification as to fact will be considered prima facie evidence of a false certification. In either case the prima facie showing is subject to rebuttal. (emphasis added)

The regulations also provide that a student's change in status must be reported within 30 days after the change of status.² This 30 day reporting requirement has caused plaintiffs to change their internal procedures for monitoring student class attendance and progress. In most cases, the schools have been forced to acquire the use of computers to monitor class attendance at 20 to 30 day intervals. Instructors have been required to take daily attendance reports which are forwarded to school administration for introduction into the computer program.

The initial form letter, termed the prima facie liability letter, informs defendants that unless a hearing is requested a final liability determination will be entered. Oftentimes the prima facie liability letter applies to overpayments made to numerous students and provides no useful information about the basis of the liability claim.

Appeal from the prima facie liability determination is to the Field Station Committee on Waivers and Compromises, a VA inter-body. The members of the committee are responsible to or subject to the supervision and direction of the person who pursues the investigation and collection of overpayments. Several members of the committee are persons who perform investigatory functions with regard to overpayments and had participated in the initial prima facie liability determination.

If an appeal to the Field Station Committee results in a continued determination of plaintiffs' liability, the committee sends a computer generated "form letter" to the school. These letters indicate that "If payment is not received within 60 days we will withhold payment from any future claim payments to your institution, e. g., reporting fees, and apply to this overpayment." Essentially, this is a threat that defendants will apply a set-off of unrecouped overpayments against any sums owed by VA to the school. The school may request an administrative review of the Field Station Committee's decision by the Central Office Committee on Waivers and Compromises in Washington, D.C.

Upon review by the Central Office Committee the results of the review are forwarded to the regional VA office. The Regional Office then sends a computer generated "form letter" to the educational institution. This letter informs the school of the amount of liability remaining after exhaustion of the administrative remedies, but does not include any statement of the facts upon which the final decision was based or the statutes or regulations which were applied to the facts.

The normal pattern for collection of overpayment liabilities is to first approach the student who received the overpayment. If collection cannot be accomplished from the student, defendants can proceed under 38 U.S.C. § 1785 to determine the liability of the educational institution. If liability is found, the schools will be liable for all overpayments not recouped from the student.³ Recoupment from the schools can proceed in at least two ways: (1) forwarding the claim to the General Accounting Office for collection by lawsuit in federal court; and (2) off-setting the overpayment liability against amounts due the school under...