1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

12-4-1996

Sylvester v. Inland Bay

Precedential or Non-Precedential:

Docket 96-3699

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Recommended Citation

"Sylvester v. Inland Bay" (1996). 1996 Decisions. Paper 5.

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 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ____________ 

 

 No. 95-3699 

 ____________ 

 

 COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE, 

 Appellant 

 

 v. 

 UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; UNITED 

 STATES OF AMERICA 

 ___________________ 

 

 ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

 FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

 ____________________ 

 

 (D.C. Civil No. 94-01689) 

 Argued September 30, 1996 

 Before: ALITO and McKEE, Circuit Judges, 

 and GREEN Senior District Judge* 

 

 (Opinion Filed: December 4, 1996) 

 ____________________ 

 OPINION OF THE COURT 

 ____________________ 

 

 John A. Kane 

 Chief Counsel 

 Jason W. Manne (Argued) 

 Assistant Counsel 

 Office of Attorney General 

 of Pennsylvania 

 Department of Public Welfare 

 300 Liberty Avenue 

 1403 State Office Building 

 Pittsburgh, PA 15222 

 Counsel for Appellant 

 

* The Honorable Clifford Scott Green, Senior District Judge for 

the Eastern District of Pennsylvania, sitting by designation. 
 Frank W. Hunger 

 Assistant Attorney General 

 Frederick W. Thieman 

 United States Attorney 

 Barbara C. Biddle 

 Irene M. Solet (Argued) 

 Attorneys, Appellate Staff 

 United States Department 

 Of Justice 

 Civil Division, Room 3617 

 10th & Pennsylvania Avenue, N.W. 

 Washington, D.C. 20530-0001

 Counsel for Appellees 

ALITO, Circuit Judge: 

 This case arises out of a debt of $800,885 that the 

Pennsylvania Department of Public Welfare ("Pennsylvania") owed 

the United States Department of Health and Human Services 

("HHS"). HHS notified Pennsylvania of the debt in June 1991. 

(App. 235a-239a) Pennsylvania initially balked at having to pay, 

but eventually, in June 1993, paid the entire principal amount. 

(App. 16a) The dispute that remains is over the interest on the 

debt. HHS charged Pennsylvania interest at the private consumer 

rate of 15.125%, which was significantly higher than the rate 

usually charged by federal agencies to states, the current value 

of funds rate of 8%. Pennsylvania refused to pay the allegedly 

exorbitant interest and brought this action, claiming primarily: 

(a) that HHS's use of the private consumer rate was not only 

arbitrary and capricious but inconsistent with the common law and 

(b) that HHS did not follow the proper procedures in enacting its 

interest rate regulation. The district court found

Pennsylvania's substantive claims to be without merit and its 

procedural challenges to be time-barred. We affirm. 

 I. 

 Until January 1987, HHS had a policy of not charging 

states interest on disallowances under the Aid to Families with 

Dependent Children program ("AFDC"). (Dist. Ct. Op. at 2) On 

January 5, 1987, however, HHS repealed the existing regulation 

and put in place a new policy under which all of its debtors, 

including states and local governments, were to be charged a rate 

of interest based on the prevailing private consumer rates. 

(App. 202a & Dist. Ct. Op. at 2) HHS's action was in response to 

congressional enactment of the Debt Collection Act of 1982 

("DCA"), which aimed at increasing the efficiency of government 

efforts to collect debts owed to the United States. See S. Rep. 

No. 378, 97th Cong. 378, 2d Sess. (1982), reprinted in 1982 

U.S.C.C.A.N. 3377. Although the DCA expressly excluded states 

and local governments from its ambit, see 31 U.S.C. § 3701 

(1983), it did not limit HHS's ability to assess interest under 
the common law, see United States v. Texas, 507 U.S. 529, 530 

(1993). Accordingly, with certain exceptions not at issue here, 

HHS's regulations called for the imposition of interest on debts 

owed by states and local agencies in the same way as it was 

imposed on other debtors. (App. 202a) See 52 Fed. Reg. 261 

(1987) (codified at 45 C.F.R. § 30.13). 

 Under the HHS regulations at issue, interest on debts 

owed to HHS accrues from the date notice of the debt is mailed to 

the debtor, unless the debt is paid within 30 days of the notice. 

See 45 C.F.R. § 30.13(a). The regulations provide that the rate 

to be charged shall be the "rate of interest as fixed by the 

Secretary of the Treasury after taking into consideration private 

consumer rates of interest." Id. The regulations do not 

provide for administrative review of the imposition of interest, 

but allow the Secretary to waive the interest if: (i) the debt or 

interest "resulted from the agency's error, action or inaction . 

. . and [is] without fault on the part of the debtors" or (ii) 

collection "would defeat the overall objectives of a Departmental 

program." 45 C.F.R. § 30.13(h). 

 At issue is interest on a sum of $800,885 that was owed 

by Pennsylvania to HHS. HHS gave Pennsylvania notice of the debt 

in June 1991. (App. 235a-239a) Pennsylvania, however, chose not 

to reimburse the federal government within 30 days, which would 

have enabled it to avoid any and all interest payments. (App. 

10a) By the time Pennsylvania paid the principal amount in July 

1993, $232,173.22 in interest charges had accumulated, and 

interest was continuing to accrue at 15.125% per annum. (App. 

14a & Dist. Ct. Op. at 2). 

 Pennsylvania sought administrative review of the 

interest assessment, but HHS's Departmental Appeals Board 

informed it that it lacked jurisdiction to review the interest 

assessment. (App. 18a-21a) The Board noted, however, that the 

form of administrative review available to Pennsylvania was a 

request to the Secretary for a waiver of interest, but 

Pennsylvania had not sought such a waiver. (App. 21a). 

 Pennsylvania commenced this action in October 1994, 

alleging that HHS's imposition of interest on it was arbitrary 

and violative of the common law. (App. 9a-13a) Pennsylvania 

also attacked the procedures by which HHS promulgated its 

interest rate regulations as inadequate. (App. 9a-13a) In 

February 1995, HHS responded with a motion for partial dismissal 

and summary judgment, arguing that Pennsylvania's substantive 

challenges were meritless and that its procedural challenges were 

time-barred. The district court granted the motion, adopting as 

its own opinion the Report and Recommendation of Chief Magistrate 

Judge Mitchell. Pennsylvania appeals. 

 II. 

 A. Challenges to the Application of the Regulation 

 Pennsylvania makes three attacks on HHS's application 

of the interest rate regulation. It argues: (i) that charging it 

interest without making an individualized determination as to the 

appropriateness of the charge was violative of the common law; 

(ii) that charging it the private consumer rate as opposed to the 

current value of funds rate was arbitrary and violative of 
government-wide policies; and (iii) that the use of a rate 

certified by the Treasury for a different federal program 

contravened HHS's own regulations on how the applicable interest 

rate should be determined. 

(i) Violation of the Common Law 

 Pennsylvania argues that HHS's interest rate regulation 

violates the common law because it fails to require a case-bycase determination of whether or not interest is appropriate and, 

if so, how much interest should be charged. We find no support 

for this argument in the law that Pennsylvania cites. 

 The parties do not dispute that the federal government 

is permitted to charge states interest on their debts. SeeUnited States 

v. Texas, 507 U.S. 529, 530 (1993) (United States 

has a federal common law right to collect prejudgment interest on 

debts owed to it by the states). Instead, the dispute is over 

the process by which interest can be charged. Pennsylvania 

points to the Supreme Court's decision in Texas as support for 

its argument. Specifically, Pennsylvania points to language in 

Texas that says that "courts," in awarding prejudgment interest, 

are to "weigh competing federal and state interests." Id. at 

536. 

 But Texas does not help Pennsylvania. In that case, 

where there was an "individual case" in front of a district 

court, the Supreme Court said that the court considering the 

question "should weigh the federal and state interests involved." 

Id. at 533. But the Court neither said, nor implied, anything 

about whether or not an agency could pre-specify the rate it was 

going to charge states that were delinquent on a particular class 

of debts. 

 Pennsylvania asserts that the general holding of Texaswas that 

Congress, in enacting the DCA, intended to hold states 

to a more lenient standard than private debtors. However, the 

mere fact that Congress intended to exempt states from 

mandatorily having to pay at least the minimum rate specified by 

the DCA does not show that Congress either intended to exempt 

states from interest payments altogether, an argument rejected in 

Texas, see id. at 539, or that Congress intended to impose on 

federal agencies the costly task of an individualized 

consideration of the appropriateness of the rate to be applied in 

every case where a state is delinquent on its payments. Cf. id. 

at 537-38 ("[I]t does not at all follow that because Congress did 

not tighten the screws on the States, it therefore intended that 

the screws be entirely removed"). 

 In sum, Pennsylvania has not given us a basis to read 

into the federal government's common law right to charge the 

states interest the costly and cumbersome obligation that a 

federal agency make an individualized determination as to the 

appropriate interest rate in every case where a state owes a 

debt. To impose such additional costs on federal agencies would 

undermine their right to charge interest by significantly 

increasing the cost of charging such interest. 

 In addition, the regulation in question allows the 

state to ask for a waiver of the interest charged. It states: 

 Waivers. The Secretary may waive collecting 
 all or part of interest, administrative costs 

 or late payment penalties, if- 

 (1) The debt or the charges resulted from the 

 agency's error, action or inaction (other 

 than normal processing delays) and without

 fault on the part of the debtors; or 

 (2) Collection in any manner authorized under 

 this regulation would defeat the overall 

 objectives of a Departmental program. 

45 C.F.R. § 30.13(h). 

 Even assuming that there is an obligation on the part 

of a federal agency to allow room for discretionary

determinations as to how much interest to charge, the waiver 

provision would appear to satisfy such a requirement. Under 

Section 30.13(h)(2), the Secretary has the ability to choose not 

to charge any or part of the interest due (especially if the 

state presents a compelling case). 45 C.F.R. § 30.13(h)(2). 

Pennsylvania, however, has explicitly stipulated that it does not 

meet the requirements for a waiver, (Pennsylvania Br. at 10) even 

though, to us, the class of cases that could fit into the waiver 

category appears very broad. 

(ii) Arbitrary and Inconsistent with Government-Wide Policies 

 Pennsylvania argues that government-wide policies 

require the use of the current value of funds rate, and that HHS 

acted arbitrarily and capriciously in charging the private 

consumer rate. We are not empowered to substitute our judgment 

for that of the agency unless its action was irrational, not 

based on relevant factors, or outside statutory authority. SeeCitizens to 

Preserve Overton Park v. Volpe, 401 U.S. 402, 416 

(1971). We find none of those conditions present here. 

 The government-wide policy specific to interest rates 

is set out in the Federal Claims Collection Standards, which 

state in relevant part: 

 The rate of interest assessed shall be the

 rate of the current value of funds to the 

 U.S. Treasury (i.e., the Treasury tax and 

 loan account rate), as prescribed and 

 published by the Secretary of the Treasury in 

 the Federal Register and the Treasury Fiscal 

 Requirements Manual Bulletins annually or 

 quarterly, in accordance with 31 U.S.C. [§] 

 3717. An agency may assess a higher rate if 

 it reasonably determines that a higher rate 

 is necessary to protect the interests of the 

 United States. 

4 C.F.R. § 102.13 (emphasis added). 

 The language of the regulation unambiguously allows HHS 

to charge a rate higher than the current value of funds rate, so 

long as it is reasonably in the government's interest. In this 

case, HHS charged the market rate of interest. That is almost 

per se reasonable, but is doubly so where the agency in question 

is seeking to provide its debtors with incentives to clear their 
debts promptly. 

(iii) Inconsistent with Internal Regulations 

 Pennsylvania's next argument is that HHS's charging it 

the private consumer rate was inconsistent with HHS's own 

regulations authorizing that the private rate be charged. At 

issue is the language in the regulation that "the Secretary shall 

charge an annual rate of interest as fixed by Secretary of the 

Treasury after taking into consideration private consumer rates 

of interest prevailing on the date that the Department becomes 

entitled to recovery." 45 C.F.R. 30.13(a)(1). Here, HHS did use 

a rate fixed by the Secretary of the Treasury. But Pennsylvania 

argues that HHS was not permitted to use a rate determined in 

conjunction with a different federal program. 

 Pennsylvania's argument is unavailing. We owe 

"substantial deference to an agency's construction of its own 

regulation." Elizabeth Blackwell Health Center For Women v. 

Knoll, 61 F.3d 170, 183 (3d Cir. 1995), cert. denied, 116 S. Ct. 

816 (1996) (citing Martin v. Occupational Safety and Health 

Review Comm'n, 499 U.S. 144, 150-51 (1991)). We "must defer to 

the Secretary's interpretation unless an `alternative reading is 

compelled by the regulation's plain language or by other 

indications of the Secretary's intent at the time of the 

regulation's promulgation.'" Thomas Jefferson Univ. v. Shalala, 

114 S. Ct. 2381, 2386-87 (1994) (quoting Gardebring v. Jenkins, 

485 U.S. 415, 430 (1988)). The plain language of the regulation 

here does not compel Pennsylvania's suggested reading. Nor has 

Pennsylvania pointed to any indications of the Secretary's intent 

at the time of promulgation that support its reading. Relying on 

an approximation of the private interest rate on the market that 

was determined for a different federal program was reasonable 

under the regulation. We cannot say that HHS violated its own 

regulation. 

 B. Procedural Challenges to the Regulation 

Statute of Limitations 

 Pennsylvania asserts that HHS's interest rate 

regulation, adopted over eight years ago, is invalid because it 

was adopted pursuant to inadequate notice and comment procedures. 

The applicable statute of limitations for civil actions against 

the United States under the Administrative Procedures Act ("APA") 

is six years. See, e.g., Dougherty v. United States Navy Bd., 

784 F.2d 499, 500-01 (3d Cir. 1986). The regulation at issue was 

promulgated in final form in January 1987, and this suit was 

brought in October 1994. Hence, Pennsylvania has to demonstrate 

that the statute of limitations was tolled for its claim to 

survive. We agree with the district court that Pennsylvania 

failed this task. 

 The essence of Pennsylvania's argument that the statute 

of limitations has not run is that its claim was not "ripe" until 

less than six years before suit was filed. Ripeness is largely a 

prudential doctrine designed "to prevent the courts, through 

avoidance of premature adjudication, from entangling themselves 

in abstract disagreements over administrative policies, and also 

to protect the agencies from judicial interference until an 

administrative decision has been formalized and its effects felt 
in a concrete way by the challenging parties." Abbott 

Laboratories v. Gardner, 387 U.S. 136, 148-49 (1967). In 

conducting a ripeness analysis, the court must consider whether 

or not the question is purely legal and easy to resolve, whether 

the agency or court has an interest in postponing review, and the 

extent to which the parties will be caused hardship if review is 

withheld. See Eagle-Picher Indus., Inc. v. EPA, 759 F.2d 905, 

915 (D.C. Cir. 1985); Erwin Chemerinsky, Federal Jurisdiction, §§ 

2.4.2 & 2.4.3, 116-125 (1994); Cf. Artway v. Attorney General of 

N.J., 81 F.3d 1235, 1247 (3d Cir. 1996). 

 Pennsylvania provides us with little assistance in 

evaluating its ripeness challenge. Its opening brief does not 

even mention the term "ripeness," let alone make a substantial 

argument as to why its claim was not ripe at the time of 

promulgation of the regulation. Instead, Pennsylvania's opening 

brief merely states conclusorily that suit could not have been 

realistically brought at the time of promulgation of the 

regulation because there was no "substantial threat" of "real or 

immediate" harm at that time. (Pennsylvania Br. at 23) The 

first time that Pennsylvania mentioned the term "ripeness" was in 

its reply brief, but once again that brief contains nothing 

except a conclusory assertion that there was no substantial 

threat of real and immediate enforcement of the regulation at the 

time of its promulgation. (Pennsylvania Reply Br. at 9) These 

conclusory assertions are not enough. We hold the ripeness 

argument waived. See Laborers' Int'l Union of N. Am. v. Foster 

Wheeler Corp., 26 F.3d 375, 398 (3d Cir.) ("An issue is waived 

unless a party raises it in its opening brief, and for those 

purposes `a passing reference to an issue . . . will not suffice 

to bring that issue before this court.'" (citation omitted) 

(ellipsis in original)), cert. denied, 115 S. Ct. 356 (1994); 

Service Employees Int'l Union v. Local 1199 N.E., 70 F.3d 647, 

653 n.7 (1st Cir. 1995) (argument mentioned in passing, but not 

squarely argued, is waived). 

 In any event, Pennylvania's ripeness challenge fails on 

its merits. As a threshold matter, we note that the ripeness 

challenge here arises in an unusual setting. Pennsylvania's 

argument isn't the typical argument that its claim is ripe today 

and should be adjudicated. Rather, the argument is that 

Pennsylvania's claim was not ripe in 1987, when HHS's interest 

rate regulation was promulgated. In effect, Pennsylvania wants 

us to conduct a hypothetical retrospective ripeness analysis. As 

a general matter, courts are not well suited to decide 

hypothetical questions about what they might have done in the 

past. See Eagle-Picher, 759 F.2d at 914. If courts were to 

"routinely conduct retrospective ripeness analyses where a late 

petitioner offers no compelling justification for not having 

filed his claim in a timely manner, [it]. . . would wreak havoc 

with the congressional intention that repose be brought to final 

agency action." Id. 

 In this case, however, we can make the ripeness 

determination easily. The Abbott Laboratories ripeness test 

involves consideration of: (I) the hardship to the parties of 

withholding consideration and (II) the fitness of the issues for 
judicial decision. 387 U.S. at 149; Pic-A-State Pa., Inc. v. 

Reno, 76 F.3d 1294, 1298 (3d Cir. 1996). We evaluate these 

factors in light of the circumstances that were in existence at 

the time of the promulgation of HHS's interest rate regulation. 

(I) Hardship to the Parties 

 The central question here is the extent to which 

denying the plaintiff judicial review would cause it hardship. 

See Chemerinsky, Federal Jurisdiction § 2.4.2, 116-23. We 

conclude that had Pennsylvania made its procedural challenges at 

the time of the promulgation of the regulation, a federal court 

would have determined that postponing review would cause 

Pennsylvania hardship. 

 At the outset, we note that Pennsylvania does not 

dispute that it had notice of HHS's regulations more than six 

years before October 1994, when the instant suit was commenced. 

HHS had proposed the repeal of its former regulation in the 

Federal Register in 1985 and had received public comment on its 

proposed rule changes that same year. (Dist. Ct. Op. at 3 n.2) 

Further, in April 1988, HHS issued an Action Transmittal 

Memorandum to all state agencies administering programs under 

Title IV of the Social Security Act (which covers AFDC), alerting 

them that, in accordance with its regulations, HHS was going to 

charge interest on disallowed paid claims for which states had 

received federal financial participation. (Dist. Ct. Op. at 3 

n.2). 

 Pennsylvania argues that its claim was not ripe at the 

time of promulgation of the regulation because it had no 

outstanding debts at the time and hence was not immediately 

subject to an interest charge. In essence, the claim is that 

there was no hardship at the time of the promulgation of the 

regulation. That is like saying that an increase in the interest 

rate charged for late payments on a credit card presents no 

hardship to the customer because the customer has not yet made a 

delayed payment under the new and higher interest rate. We 

disagree with that premise. Instead, we think it more likely 

that the customer will have to change his behavior at the time he 

is informed of the rate hike in order to avoid the risk of having 

to pay the higher interest rate and hence will suffer a direct 

hardship at the time of the rate hike. The fact that the new, 

higher interest rate is a contingent future charge does not 

preclude it from causing harm to the party at the time it is put 

into place. Cf. Riva v. Massachusetts, 61 F.3d 1003, 1012 (1st 

Cir. 1995) (fact that harm from adoption of a plan negatively 

affected payments that plaintiff was to receive many years into 

the future did not preclude adjudication of claim at the current 

time; the plan concretely harmed plaintiff in creating 

uncertainty regarding his future income stream); cf. also Lorance 

v. AT & T Technologies, Inc., 490 U.S. 900, 906-08 (1989) (in 

suit challenging a seniority system that allegedly discriminated 

against women, Court ruled that plaintiffs could sue at the time 

the system was put into place without waiting for the system's 

adverse effects because the very adoption of the plan imposed a 

concrete harm on the plaintiffs). 

 Had Pennsylvania challenged the regulation at the time 
of its promulgation, that would have eliminated the uncertainty 

as to its obligations thereunder. The elimination of this 

uncertainty as to whether or not it could be charged a rate of 

interest as high as the rate applicable on the private consumer 

market would have made it easier for Pennsylvania to decide how 

long it wanted to delay on payments it owed HHS. Concurrently, 

HHS would also have benefitted from the resolution of uncertainty 

regarding the validity of its regulation. 

 (II) Fitness of the Issues for Resolution 

 Once again we look retrospectively to the time of 

promulgation of the regulation. The question is whether the 

issues were fit to be resolved at the time and whether the agency 

or court would have had an interest in postponing review. SeeEaglePicher, 759 F.2d at 915; see also Artway, 81 F.3d at 1249 

("The more that the question presented is purely one of law, and 

the less that additional facts will aid the court in its inquiry, 

the more likely the issue is to be ripe, and vice-versa.") 

Pennsylvania's challenge would have been to whether HHS followed 

the proper notice and comment procedures in the enactment of its 

regulation. All the facts pertaining to such a challenge would 

have been fully developed and available at the time of the 

promulgation of the regulation. Delay would not have allowed the 

development of additional facts, and would only have served to 

make the relevant facts harder to retrieve. 

 In sum, the "injury" to Pennsylvania occurred at the 

time of the alleged procedural improprieties, and Pennsylvania 

was "aggrieved" at the time of promulgation of the regulation. 

See JEM Broadcasting v. FCC, 22 F.3d 320, 326 (D.C. Cir. 1994); 

Shiny Rock Mining Corp. v. United States, 906 F.2d 1362, 1365-66 

(9th Cir. 1990). Hence, Pennsylvania's procedural challenge 

should have been brought within six years of the promulgation of 

the regulation. 

 C. Exclusion of Documents and Incomplete Rulemaking 

 Record 

 In addition to challenging HHS's notice and comment 

procedures, Pennsylvania argues that the district court erred in 

excluding certain documents from the record on the ground of 

privilege and in granting summary judgment on an incomplete 

rulemaking record. From what we can discern, the documents 

Pennsylvania seeks pertain to the rulemaking process and not the 

application of the rule. Pennsylvania has failed to apprise us 

of how these documents or a more complete rulemaking record would 

change or influence our conclusions as to HHS's application of 

the regulation. Therefore, we see no basis for reversing the 

decision of the district court. 

 III. 

 The decision of the district court is affirmed. Costs 

are awarded to the appellee, the United States.