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Parties Involved:
Department of Labor
Respondent
Oro Development Corporation
Petitioner

Document Text:

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

FI LED 

Uoited Statft Court of Appeals 

'f enth Cb:uit 

I ''J 1 r, 1qqQ v ,._if · .. _ 0 ..._.~ 

ROBERT L. HOECKER 

ORO DEVELOPMENT CORPORATION, 

Clerk 

) 

Petitioner, 

v. 

UNITED STATES DEPARTMENT OF 

LABOR, 

Respondent. 

) 

) 

) 

) No. 84-2370 

) (U.S. Department of Labor 

) No. 81-CTA-283) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before HOLLOWAY, Chief Judge, MOORE, and TACHA, Circuit Judges. 

I. 

Petitioner ORO Development Corporation (ORO) is an Oklahoma 

nonprofit corporation which administers federal, state, and other 

programs for low income farmworkers. Beginning in 1975, ORO 

received grants from the United States Department of Labor (DOL) 

to administer programs under Title III, Section 303, of the 

Comprehensive Employment and Training Act (CETA), 29 U.S.C. § 801, 

et seq. (repealed 1982) • 1 Petitioner appeals from an 

* 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

1 

CETA has now been repealed and replaced by the Job Training 

(Footnote continued on next page) 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 1 
administrative decision of the Secretary of Labor (Secretary) 

requiring it to repay $43,759 in allegedly misspent CETA funds. 

We affirm the decision of the Secretary. 2 

In July 1979 DOL contracted with R. D. Hunter & Co. to 

perform an audit of ORO's CETA grants for the period January 1, 

1977, through June 30, 1979. On September 14, 1979, the auditors 

issued a final audit report which questioned or recommended for 

disallowance grant costs incurred by ORO totalling $1,089,571. On 

May 8, 1981, approximately 20 months after receiving the final 

audit report from DOL's auditors, the responsible DOL grant 

officer issued an "Initial Determination" adopting the auditor's 

recommendations disallowing the full $1,089,571 in costs from 

ORO's grants. The grant officer based the recommended 

disa_llowance on ORO's alleged failure to maintain adequate 

documentation to support and justify the propriety of expenditures 

made. Over the next 18 months, through protracted negotiation and 

review, the amount recommended for disallowance was reduced to 

$62,892. 

A hearing was held before an Administrative Law Judge (ALJ) 

in December 1982. In August 1984 the ALJ issued an Order and 

Decision which further reduced the amount to be disallowed to 

$43,759, the amount in question in this review proceeding. The 

(Footnote continued): 

Partnership Act, 29 U.S.C. § 1501 (1988), et seq. The 

jurisdictional provisions of CETA are, however, made applicable to 

this Petition for Review pursuant to Section 108 of the Job 

Training Partnership Act. 29 U.S.C. § 159l(e) (1988). 

2 

We are aware that the inadvertent oversight of the appeal 

after its abatement to await the decision in Brock v. Pierce 

County, 476 U.S. 253 (1986), and relocating the record relating to 

this Petition for Review have caused a regrettable delay. 

2 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 2 
ALJ's Decision became final when the Secretary declined to take 

jurisdiction to review ORO's exceptions. 

ISSUES 

ORO raises several issues for review, issues in large part 

relating to the manner in which the audit report and the 

subsequent CETA costs disallowances were handled: 

issue a Final Determination 

release of the audit report 

bar to any action taken to 

1. Did the failure to 

within 120 days of the 

constitute a jurisdictional 

recoup the CETA funds? 

2. Did the delay in issuing a Final Determination 

unduly prejudice ORO? 

3. Were the findings that the 

disallowed clearly erroneous or 

interpretations of the regulations? 

costs 

based 

were 

on 

properly 

incorrect 

4. Were the equities properly considered by the ALJ? 

II. 

ORO contends that the failure to issue a final determination 

of the appropriateness of the CETA grantee's expenditures within 

120 days of the release of the audit report, as required by CETA § 

106(b), 29 U.S.C. § 816(b) (repealed 1982), constitutes a 

jurisdictional bar to any action to recoup allegedly misspent CETA 

funds. We held disposition of this review proceeding in abeyance 

pending the Supreme Court's decision in Brock v. Pierce County, 

476 U.S. 253 (1986), addressing that very issue. That decision is 

determinative of this issue. 

In Pierce County, the Supreme Court held that the 120-day 

limit set out in the statute does not impose a jurisdictional 

limit on the Secretary's enforcement powers to recover misspent 

CETA funds. The Court concluded: 

We hold that CETA's requirement that the Secretary 

'shall' take action within 120 days does not, standing 

3 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 3 
alone, divest the Secretary of jurisdiction to act after 

that time. There is simply no indication in the statute 

or its legislative history that Congress intended to 

remove the Secretary's enforcement powers if he fails to 

issue a final determination on a complaint or audit 

within 120 days ..... 

476 U.S. at 266. 

III. 

ORO next argues that even if the 120-day limit set out in § 

106(b) of the Act may not bar the Secretary's attempts to recover 

CETA funds, the delay of approximately 39 months between the 

issuance of the final audit report on September 14, 1979, and the 

date on which the case was finally submitted to an Administrative 

Law Judge for hearing on December 9, 1982, constitutes undue 

prejudice. ORO's contention is that the delay in resolving the 

question of disallowance has worked to ORO's disadvantage in that 

relevant files had been relocated, lost or destroyed, and that 

significant witnesses were no longer conveniently available. The 

prejudice was so great as to make the matter unenforceable. 

In a review proceeding factually similar to the case before 

this court, the State of South Carolina argued that it was unduly 

prejudiced by an almost four year delay in the release by DOL of a 

final determination. State of South Carolina v. United States 

Department of Labor, 795 F.2d 375 (4th Cir. 1986). The Fourth 

Circuit held that, notwithstanding possible prejudice to CETA 

grant recipients, "the grant recipient has the burden to preserve 

and maintain adequate records in order to aid the federal 

government in administering the CETA program." Id. at 378. In 

accord with this holding is Montgomery County, Maryland v. 

Department of Labor, 757 F.2d 1510 (4th Cir. 1985), where the CETA 

grantee could only guarantee to DOL that some of the CETA funds 

4 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 4 
were spent to further CETA aims. By failing to comply with CETA 

record keeping requirements, the CETA grantee misspent federal 

funds within the meaning of statutory provisions. "Unless the 

burden of producing the required documentation is placed on 

recipients, federal grantees would be free to spend funds in 

whatever way they pleased and obtain virtual immunity from 

wrongdoing by failing to keep required records." Id. at 1513. 

The maintenance and preservation of such records as the Secretary 

may require is such an obligation identified in 29 U.S.C. § 835(a) 

(repealed 1982), but carried forth in the statutory successor, 29 

U.S.C. § 1575(a) (1988). 

The mere passage of time does not eliminate the grant 

recipient's obligation to maintain and preserve adequate records. 

The passage of time, likewise, does not bar the Secretary from 

attempting to recoup misspent CETA funds. See City of Camden, New 

Jersey v. United States Department of Labor, 831 F.2d 449, 451 (3d 

Cir. 1987), (delay of six years by the Secretary in ordering a 

repayment was not found to work undue prejudice to the CETA 

recipient). 

grant 

While the delay 

authorities we find 

ORO 

ORO's 

faced was 

contention 

substantial, under the 

to be without merit. 

Moreover, the generalized claims of prejudice without any showing 

of particular damage to ORO's defense are not persuasive. In sum, 

this remaining claim of error based on delay is without merit. 

IV. 

ORO further challenges the ALJ's findings as erroneous and 

argues that his interpretations of the regulations were incorrect. 

5 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 5 
CETA costs were disallowed in two general areas: (1) where 

the ALJ determined that ineligible CETA participants were enrolled 

or that existing documentation was inadequate to support or 

justify certain CETA participants' enrollment; and (2) where the 

Secretary determined that ORO staff employees were improperly paid 

salaries and fringe benefits. We are not persuaded that the 

findings were clearly erroneous or that they were premised on 

erroneous interpretations of the regulations. 

ORO asks this court to determine whether the Administrative 

Law Judge correctly interpreted the definition of a "seasonal 

farmworker" as contained in 29 C.F.R. § 97.203 (1979) (now 

repealed). 3 This definition has a material bearing on the 

majority of the disallowed CETA funds. At the time relevant to 

this grant disallowance, eligibility to participate in the migrant 

and seasonal farmworkers program was limited to farmworkers and 

their dependents who, during the 18 months preceding their 

application for enrollment, received at least 50 percent of their 

total income as agricultural workers during any consecutive 12-

month period, had been employed in agriculture on a seasonal 

basis, and had been identified as economically disadvantaged. 29 

C.F.R. § 97.232 (1979) (now repealed). A "seasonal farmworker" 

was specifically defined at 29 C.F.R. § 97.203 (1979), for CETA 

§ 303 purposes, as a person who during the preceding twelve months 

3 

Revised eligibility requirements for seasonal farmworkers 

took effect on May 25, 1979. The present definition of "seasonal 

farmworker" is codified at 20 C.F.R. § 633.104 (1988). Although 

these requirements were changed during the audit period, the 

relevant definitions for eligibility remain those provisions in 

effect at the time of the participants' enrollment. 

6 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 6 
worked at least 25 days in farm work and worked less than 150 

consecutive days at any one establishment. 

The ALJ interpreted the 150 consecutive day requirement to 

mean 150 consecutive work days. ORO Development Corporation, 

Oklahoma, 81-CTA-283 at 5-6 (1984). Thus, any person who was 

employed at one farming establishment for more than 150 

consecutive days, and during that time worked every work day, 

except for occasional absences due to illness or other legitimate 

reasons, would not be eligibile for CETA benefits. Petitioner 

urges a more literal interpretation of the 150 consecutive day 

requirement. Under petitioner's interpretation, only those CETA 

enrollees who worked during a period of more than 150 consecutive 

calendar days, without a break, at one establishment, would be 

ineligible for benefits. Petititoner contends that it's standard 

for eligibility would better serve the Act's purpose of aiding in 

the provision of employment opportunities to needy farmworkers. 

The interpretation by the Secretary of regulations 

promulgated under the authority of CETA is entitled to substantial 

deference. Blum v. Bacon, 457 U.S. 132, 141 (1982); see also 

American Farm Lines, Inc. v. United States, 684 F.2d 697 (10th 

Cir. 1982); Morrison and Morrison, Inc. v. Secretary of Labor, 626 

F.2d 771 (10th Cir. 1980). Therefore "the Secretary's decision 

will be upheld unless he failed to consider all relevant factors 

and articulate a rational connection between the facts found and 

the choice made." (citations omitted). Action, Inc. v. Donovan, 

789 F.2d 1453, 1457 (10th Cir. 1986). 

We therefore uphold the administrative interpretation as to 

the eligibility of CETA benefits recipients. The interpretation 

7 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 7 
of the ALJ that the 150 consecutive day requirement is to be 

defined in the employment context is reasonably related to the 

employment 

designed to 

relief objectives of the Act. The CETA provisions are 

provide relief to recipients who, as occasional 

farmworkers, are only able to work less than full-time in 

agriculture, and who suffer from chronic seasonal unemployment and 

underemployment in the agricultural industry. 29 C.F.R. 

§ 97.20l(a) (1979). This regulation has been recodified at 20 

C.F.R. § 633.102(a) (1988), under authority of the Joint Training 

Partnership Act, but expressly furthers this nation's deep-felt 

concern for economically disadvantaged agricultural workers. We 

feel the interpretation made and its application of funds were in 

harmony with the purposes of the Act. 

In addition to those expenditures disallowed by the Secretary 

due to participant ineligibility or inadequate documentation to 

support CETA enrollment decisions, the Secretary disallowed $6,852 

in expenditures made for ORO staff salaries and fringe benefits 

and for costs incurred in reclassifying certain staff members for 

salary purposes. Petitioner ORO contends that the grantee of CETA 

funds is free to pay periodic salary increases to its employees, 

and to reclassify employees originally improperly classified, so 

long as the grantee does not exceed the total budget for the six 

allowable costs categories and five program activities identified 

in 29 C.F.R. §§ 97.255(d) and 97.260 (1979). The Secretary 

contends that the budgetary amount listed for a particular job 

position represents the maximum amount which can be paid for that 

position at any time during the grant term, as the ALJ held. ORO 

Development Corporation, Oklahoma, 81-CTA-283 at 9 (1984). The 

8 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 8 
Secretary's position is based on an interpretation of 29 C.F.R. § 

97.262(h)(3) (1979), a regulation intended to systematize the 

salary and wage schedules of CETA grantees. Any changes or 

modifications in these salary and wage schedules would be subject 

to the major modification provisions of 29 C.F.R. § 97.220 (1979). 

The decision of the Secretary is again entitled to 

substantial deference. Blum v. Bacon, 457 U.S. at 141. We are 

persuaded that such deference is warranted here and that the ALJ 

reasonably interpreted the specific provisions promulgated to 

govern salaries and fringe benefits paid to employees of CETA 

grantees. CETA 

fringe benefit 

grantees remain subject to specific salaries and 

schedules identified at the time a grant is 

awarded. Modifications made to these salary and wage schedules 

must conform to provisions of 29 C.F.R. § 97.220 (1979). 

Petitioner ORO further contends that the ALJ improperly 

rejected of ORO's 

witnesses. 

uncontroverted and unimpeached 

We find this contention to be 

testimony 

without merit. CETA 

grantees are required to maintain adequate documentation in order 

to establish the propriety of CETA fund commitments. The ALJ's 

disallowance decision was grounded, in substantial part, on ORO's 

inadequate documentation. The burden of proving and justifying 

expenditures rests with the CETA grantee here requesting the 

hearing. State of Maine v. United States Department of Labor, 669 

F.2d 827, 832 (1st Cir. 1982). On review, this court will not 

reweigh the evidence presented or reject reasonable inferences 

simply because other inferences might also have been reasonably 

drawn based on the recited testimony. Laird v. Interstate 

Commerce Commission, 691 F.2d 147, 150 and n.4 (3d Cir. 1982); 

9 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 9 
Cagle v. Califano, 638 F.2d 219 (10th Cir. 1981). The petitioner 

has not shown that the ALJ's findings were clearly erroneous or 

that any prejudicial procedural error was made by him. 

v. 

Finally, petitioner ORO contends that the ALJ erred in 

failing to consider all the equities as a basis for waiving 

repayment of the disallowed costs as mandated by Quehan Indian 

Tribe v. United States Department of Labor, 723 F.2d 733 (9th Cir. 

1984), and 29 U.S.C. § 816, 4 inter alia. ORO says there was not 

the slightest indication of fraud or wrongdoing by ORO; the 

amount of disallowed costs is minimal when compared to the total 

amount of grants covered by the audit (7/l0ths of 1% of some $6 

million in total ORO grants); and the expenditures in question 

did not violate the integrity of the CETA program. ORO points out 

that the statute, see note 4, confers broad authority to allow 

technically "unallowable" costs, also citing 20 C.F.R. § 676.88(c) 

(1979), 5 and 20 C.F.R. § 676.9l(c)(l979). Hence ORO says the ALJ 

4 

While ORO cites 29 U.S.C. § 816(b), we believe reference was 

intended to 29 U.S.C. § 816(d)(2) (1976 Edition Supp. II), which 

provided in part for ordering repayment as follows: 

... (unless, in view of special circumstances as 

demonstrated by the recipient, the Secretary determines 

that requiring repayment would not serve the purposes of 

attaining compliance with such sections), . 

While this statute was later repealed, it was in force with 

respect to this proceeding. 

5 

The regulation provided in part: 

( C) 

any case 

there is 

misspent, 

Allowability of certain questioned costs. In 

in which the Grant Officer determines that 

sufficient evidence that funds have been 

the Grant Officer shall disallow the ·costs, 

(Footnote continued on next page) 

10 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 10 
,., should have waived repayment of the remaining "unallowable" costs 

and the order should be set aside. Brief of Petitioner at 22-25. 

The ALJ addressed the type of considerations which ORO relies 

on in the last portion of his order: 

Issue No. 3 - Whether Technically Disallowable Costs 

Should Be Allowed. 

20 C.F.R. §676.SS(c) provides that costs associated 

with ineligible participants may be allowed if certain 

requirements are met. To qualify for relief under this 

section, the grantee must have taken immediate action to 

remove the ineligible participants and remedy the 

problem causing the ineligibility. 20 C.F.R. 

§676.88(c)(2),(4). However, the grantee did not remove 

any of the ineligible participants or alter its 

procedures for determining eligibility. Rather, the 

grantee continued to interpret the 150 consecutive day 

requirement incorr.ectly and could not produce 

documentation regarding several participants. If any 

ineligible participants were removed it was only because 

their enrollments ended or the program became defunct. 

Therefore, it is found that the grantee is not entitled 

to relief under 20 C.F.R. §676.SS(c). 

Where a substantial argument for the exercise of discretion 

to waive repayment is made, the Secretary must respond, setting 

forth the reasons for his exercise or lack of exercise of 

discretion. Action, Inc. v. Donovan, 789 F.2d 1453, 1460 (10th 

(Footnote continued): 

except that costs associated with ineligible 

participants and public service employment programs may 

be allowed when the Grant Officer finds: 

(1) The activity was not fraudulent and the 

violation did not take place with the knowledge of the 

recipient or subrecipient: and 

(2) Immediate action was taken to remove the 

ineligible participant: and 

(3) Eligibility determination procedures, or other 

such management systems and mechanisms required in these 

regulations, were properly followed and monitored: and 

(4) Immediate action was taken to remedy the 

problem causing the questioned activity or 

ineligibility: and 

(5) The magnitude of questioned costs or 

activities is not substantial. 

20 C.F.R. § 676.SS(c) (1979). 

11 

Appellate Case: 84-2370 Document: 010110036835 Date Filed: 06/18/1990 Page: 11 
Cir. 1986). Here, however, we are persuaded that the ALJ's order, 

as quoted above, sufficiently demonstrated consideration of the 

equities. Colorado Department of Labor and Employment v. United 

States Department of Labor, 875 F.2d 791, 802 (10th Cir. 1989). 

And we are not persuaded that ORO has demonstrated an abuse of 

discretion by the ALJ in not waiving the remaining portion of the 

repayment ordered here. 

We are not persuaded that there was any error in the thorough 

findings and conclusions of the Administrative Law Judge, and hold 

that no reversible error was committed. Accordingly, the Decision 

and Order . is AFFIRMED. 

Entered for the Court 

William J. Holloway, Jr. 

Chief Judge 

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