State v. U.S. Dep't of Educ., Nos. 20-1016 & 20-1115

• Decision Date: 12 November 2020
• Docket Number: Nos. 20-1016 & 20-1115
• Citation: 980 F.3d 558
• Parties: State of Wisconsin, DEPARTMENT OF WORKFORCE DEVELOPMENT–DIVISION OF VOCATIONAL REHABILITATION, Petitioner-Appellee, v. UNITED STATES DEPARTMENT OF EDUCATION and Betsy DeVos, in her official capacity as Secretary of Education, Respondents-Appellees, and Theresa Taylor, Respondent-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

980 F.3d 558

State of Wisconsin, DEPARTMENT OF WORKFORCE DEVELOPMENT–DIVISION OF VOCATIONAL REHABILITATION, Petitioner-Appellee,

v.UNITED STATES DEPARTMENT OF EDUCATION and Betsy DeVos, in her official capacity as Secretary of Education, Respondents-Appellees,andTheresa Taylor, Respondent-Appellant.

Nos. 20-1016 & 20-1115

United States Court of Appeals, Seventh Circuit.

Argued September 21, 2020

Decided November 12, 2020

Steven C. Kilpatrick, Attorney, Office of the Attorney General, Wisconsin Department of Justice, Madison, WI, for Petitioner-Appellee.

Susan Rockwood Gashel, I, Esq., Attorney, Law Offices of Susan Rockwood Gashel, Honolulu, HI, for Respondent-Appellant Theresa Taylor.

Megan R. Stelljes, Attorney, Office of the United States Attorney, Madison, WI, for Respondents-Appellees Betsy DeVos, United States Department of Education.

Before Wood, Brennan, and Scudder, Circuit Judges.

Brennan, Circuit Judge.

The Randolph-Sheppard Act provides economic opportunities by granting blind persons priority to operate vending facilities at certain government properties. When a blind vendor, Jocelyn Belsha, was awarded certain vending operations in Racine County, Wisconsin, a different blind vendor, Theresa Taylor, became unhappy and challenged the award.

The Act is a federal law administered by state licensing agencies, so Taylor's challenge traveled first through Wisconsin's regulatory process, and then through federal administrative proceedings. Eventually an arbitration panel, convened to resolve Taylor's federal grievance, awarded her money damages and a permanent vending machine services contract for a site in Racine. Federal courts review such an award as a final action of a federal agency under the Administrative Procedure Act.

The district court vacated the arbitration panel's decision, ruling that there were no material deficiencies in the choice of Belsha for the Racine site, the arbitration panel's key factual findings were not supported by substantial evidence, and the arbitration panel's ultimate conclusion was arbitrary and capricious. We agree with the district court and affirm its decision for the state licensing agency and against Taylor.

I

A. Regulatory Overview

The Randolph-Sheppard Act (the "Act") "provid[es] blind persons with remunerative employment, enlarg[es] the economic opportunities of the blind, and stimulat[es] the blind to greater efforts in striving to make themselves self-supporting[.]" 20 U.S.C. § 107(a). Under the Act, states license blind persons to operate vending facilities through state licensing agencies. See 20 U.S.C. § 107(b). The federal government—specifically, the U.S. Department of Education ("the Department")—does not directly administer this blind vendor program. Instead, states do so through state licensing agencies. Id. ). Here, the Wisconsin Department of Workforce Development, Division of Vocational Rehabilitation ("DWD") administers the program. WIS. ADMIN. CODE DWD § 60.01.

This arrangement triggers both state and federal regulatory procedures. After vending operations at a site are awarded, an unsuccessful applicant may challenge that decision and ask the state licensing agency to provide an evidentiary hearing. 20 U.S.C. § 107d-1(a) ; WIS. ADMIN. CODE DWD § 60.05(3). That hearing occurs before a panel that makes a recommendation to the administrator of the DWD, who then decides the dispute. WIS. ADMIN. CODE DWD § 60.06(3). After the state's administrative procedure has been completed, a vendor who wishes to challenge the state licensing agency's handling of an award may request that a federal arbitration panel, convened by the Department, consider the grievance. 20 U.S.C. § 107d-1(a). Federal courts review that arbitration panel's decision as a final agency action under the Administrative Procedure Act (the "APA"). 20 U.S.C. § 107d-2 ; 5 U.S.C. § 701.

B. Factual Background

Back in October 2007, Respondent-Appellant Theresa Taylor accepted the DWD's invitation to run the vending machines at three southeastern Wisconsin correctional facilities on an interim basis: the Racine Correctional Institution, the Sturtevant Transitional Facility,¹ and the Racine Youthful Offender Correctional Facility. The DWD considered the first two a single "stand-alone" facility ("Racine/Sturtevant") because together they provided full-time employment for a single vending operator. The DWD considered the third site ("Racine Youthful Offender") an "add-on" to be run in addition to an operator's existing sites. Taylor served as interim operator of these three sites for four years, but DWD always planned to bid out these sites on a permanent basis.

In July 2011, the DWD bid out the vending operations at the Racine Youthful Offender site on a permanent basis. Taylor and another licensed blind vendor, Jocelyn Belsha—who initially trained Taylor—interviewed with the DWD. On the interview questions, Taylor outscored Belsha, and the DWD awarded operation of the vending at the Racine Youthful Offender site to Taylor.

The central dispute in this case concerns the award of the stand-alone site at Racine/Sturtevant. In August 2011, Taylor and Belsha also interviewed to run the vending at that location. An interview panel individually scored and graded each candidate, although its objectivity was called into question because the scores contained cross-outs and rewrites without explanation. Belsha outscored Taylor, and the DWD awarded the Racine/Sturtevant site to Belsha. Doubt also emerged about the award process because Greg Feypel, who administered the award of vending sites through the DWD's business enterprise program, had earlier called Taylor about the Racine/Sturtevant bid. The parties dispute what each said during the call: Feypel contends he and Taylor discussed the distinction between "stand-alone" and "add-on" sites, while Taylor asserts Feypel asked her to give a site to the struggling Belsha so the DWD could "even out" things.

The award of the Racine/Sturtevant site to Belsha led Taylor to file a grievance with the DWD. According to Taylor, the DWD violated WIS. ADMIN. CODE DWD § 60.08(1), which requires that it select "the licensee deemed to be best suited for an available business enterprise[.]" The DWD held a hearing on Taylor's grievance, and its acting administrator denied it. So in December 2011, Taylor requested a full evidentiary hearing under 20 U.S.C. § 107d-1(a) and Wis. Stat. § 47.03. That took place in May 2012, and the evidentiary hearing panel found issues with the bidding process for the Racine/Sturtevant site. As a result, that panel made a number of recommendations to the acting administrator of the DWD, including that Belsha's selection be set aside. Those recommendations were largely adopted, but Belsha—not Taylor—was allowed to continue as interim operator of the Racine/Sturtevant vending operations.

Notwithstanding this outcome on the state level, Taylor shifted her challenge to the federal regulatory process. As noted above, a dissatisfied applicant may file a complaint with the Secretary of Education. 20 U.S.C. § 107d-1(a) ; see WIS. ADMIN. CODE DWD § 60.05(4). Upon receipt of the complaint, the Department convenes an arbitration panel to resolve the dispute. 20 U.S.C. § 107d-1(a).² In June 2012, Taylor filed such a complaint alleging discrimination and retaliation in violation of the "best-suited" blind vendor provision. WIS. ADMIN. CODE DWD § 60.08(1). She requested she be named the permanent operator of the Racine/Sturtevant vending site and receive financial compensation.

While Taylor's federal complaint was pending, however, the DWD issued new selection rules for stand-alone sites on the state level. When doing so, the DWD sought and received comments from a pool of blind vendors and a coordination committee. Belsha served on that committee, and administrator Feypel still worked for the business enterprise program throughout that comment period. Meanwhile, the Department acknowledged receipt of Taylor's complaint and notified the acting administrator of the DWD that the complaint was under review on the federal level.

In June 2013, under the new state selection rules, the DWD invited the four applicants for the Racine/Sturtevant site to reinterview, a process that unfolded parallel with Taylor's complaint to the Department. Taylor contacted the business enterprise program director, Lorie Lange, and asked how the reinterviews would be administered, and whether candidates would be evaluated based on their business status as of the original 2011 Racine/Sturtevant interview. One of Lange's deputies ultimately told Taylor of the new selection procedures, and informed her that the reinterview process would use business data from 2013 rather than 2011.

Rather than participate in the reinterview process, Taylor withdrew due to her pending federal complaint. She strongly disagreed with the reinterview, arguing it ran contrary to the decision rendered by the panel members at the evidentiary hearing. Taylor also found it unacceptable to conduct a reinterview for a site bid out two years previously and based on a vending operator's current business status. The reinterviews proceeded without Taylor, and the DWD again awarded the Racine/Sturtevant site to Belsha.

In October 2013, Taylor filed an amended complaint with the Department. She added in her objections to the reinterview process, including taking issue with the use of business data from 2013 and not 2011. In July 2015, the Department notified Taylor and the DWD that it planned to convene a three-member arbitration panel to hear Taylor's grievance. And in September 2017, that arbitration finally took place.

The arbitration panel rendered its decision in February 2018, splitting 2-1 in favor of Taylor. That panel found that the DWD "acted in an arbitrary, capricious and biased manner" when it failed to award Taylor the Racine/Sturtevant site during the two selection processes. According to the arbitration panel, Taylor had...