United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 17, 2005 Decided January 27, 2006

No. 04-5429

STATE OF NEBRASKA DEPARTMENT OF HEALTH AND HUMAN

SERVICES,

APPELLEE

v.

DEPARTMENT OF HEALTH AND HUMAN SERVICES AND

MICHAEL O. LEAVITT, SECRETARY OF THE DEPARTMENT OF

HEALTH AND HUMAN SERVICES,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 03cv01873)

Wendy M. Keats, Attorney, U.S. Department of Justice,

argued the cause for appellants. With her on the briefs were

Peter D. Keisler, Assistant Attorney General, Kenneth L.

Wainstein, U.S. Attorney, and Barbara C. Biddle, Assistant

Director. Claire M. Whitaker, Michael J. Ryan, and R. Craig

Lawrence, Assistant U.S. Attorneys, entered appearances.

Phyllis D. Thompson argued the cause for appellee. With

her on the brief was Jon C. Bruning, Attorney General, Attorney

General’s Office of State of Nebraska.
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Before: GINSBURG, Chief Judge, and GARLAND and

BROWN, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The United States Department of

Health and Human Services (HHS) appeals from a judgment of

the district court vacating three policy announcements for lack

of notice and comment rulemaking and ordering approval of a

cost allocation plan (CAP) submitted by the State of Nebraska

Department of Health and Human Services (Nebraska). Because

Nebraska challenged only HHS’s rejection of its proposed CAP,

the district court erred in vacating the announcements. The

court also abused its discretion when it determined the CAP

should be approved rather than remanding the matter for the

Department to reconsider its decision without reference to the

policy announcements.

I. Background

The Congress has enacted several statutes aimed at

improving child welfare services provided by the several States.

Title IV-E of the Social Security Act, 42 U.S.C. § 670 et seq.,

makes funds available to state programs that offer “foster care

and transitional independent living programs for children” and

“adoption assistance for children with special needs.” Id. § 670.

Title IV-B of the Act, id. § 620 et seq., offers federal funds to

“State public welfare agencies in [order to] establish[], extend[],

and strengthen[] child welfare services.” Id. § 620(a). The

amount of money a State may receive under Title IV-B is

capped, see id., whereas under Title IV-E a State may obtain

reimbursement without limit for 75% of the costs it incurs to

train employees, see id. § 674(a)(3)(A).

In order to obtain reimbursement under Title IV-E, a State
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must submit to the HHS Division of Cost Allocation (DCA) a

CAP detailing the State’s expenditures. See 45 C.F.R. §

95.517(a) (limiting financial assistance to that provided “in

accordance with [a State’s] approved [CAP]”). A question that

arises when a State prepares its CAP is how it should allocate

expenditures that benefit more than one federal program. See id.

§ 95.507(a)(4) (DCA evaluates “correctness and fairness” of

State procedures for “allocating all costs to each of the programs

operated by the State agency”). For example, each child

protection and safety worker (PSW) in Nebraska handles cases

under Title IV-B and, we are told, is “expected to handle” cases

under Title IV-E. Nebraska therefore must determine how to

allocate the costs of training PSWs between the two programs.

Title IV-E cases constitute only 21.5% of all child welfare cases

the PSWs manage but, left to its own devices, Nebraska could

allocate all PSW training costs to Title IV-E and thus avoid the

cap on reimbursement under Title IV-B.

Not surprisingly, therefore, allocation decisions have been

constrained by those who pay the piper. The federal Office of

Management and Budget has instructed the States to allocate

their costs so as to produce “an equitable result in consideration

of relative benefits derived” by each federal program. Cost

Principles for State, Local and Indian Tribal Governments, 60

Fed. Reg. 26,484, 26,492 (May 17, 1995). The Administration

for Children and Families (ACF, formerly ACYF) within HHS,

which oversees Title IV-E programs, adopted a similar

requirement of proportional allocation in three policy

announcements, Allowable Administrative Costs of the Foster

Care Program Under Title IV-E of the Social Security Act,

ACYF-PA-87-05 (Oct. 22, 1987); Federal Financial

Participation in the Costs of Training for Employees of the State

Title IV-E Agency, Foster Parents, Adoptive Parents and

Employees of Private Child Placing and Child Care Agencies,

ACYF-PA-90-01 (June 14, 1990); and Allocation of Costs for
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All Training Under the Title IV-E Program, ACF-IM-91-15

(July 24, 1991), each requiring that States allocate the costs of

training child welfare workers “to Title IV-E, State foster care

and other State/Federal programs in such a manner as to assure

that each participating program is charged its proportionate

share of the costs.”

Despite the ACF’s repeated instruction to allocate costs

proportionately, Nebraska submitted a CAP that allocated all the

costs of training its PSWs to Title IV-E and the DCA approved

it in 1993. In 1996, the DCA realized its mistake and directed

Nebraska henceforth to allocate training costs among all

benefitting programs. Nebraska submitted a new CAP but

continued to charge all training costs for 1996 through 1999 to

Title IV-E. The DCA responded in 1999, invoking the three

ACF announcements and directing the State to allocate its

expenditures proportionately among all benefitting programs.

Instead, Nebraska challenged the DCA’s disapproval before the

Departmental Appeals Board (DAB), where it argued the three

ACF announcements were invalid because they had been issued

without the notice and comment required for rulemaking by the

Administrative Procedure Act, 5 U.S.C. § 553. The Board

rejected this argument and upheld the DCA’s decision, after

which Nebraska sought review in the district court.

The State sought declaratory and injunctive relief from the

court, to wit: (1) “a declaration that DCA’s disapproval action

and the Board’s decision upholding DCA’s action are contrary

to law,” and (2) “an injunction restraining HHS from

disapproving the State’s CAP and from refusing to pay 75% of

the total costs that Nebraska incurs to train its foster care

workers.” Compl. ¶ 10. The court granted summary judgment

in favor of Nebraska on the ground that HHS had treated the

ACF announcements as “binding rule[s]” without having

followed the requisite notice and comment procedure. Although
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*

See Memorandum from Dodie Livingston, Commissioner,

Administration for Children, Youth and Families, to William Acosta,

Regional Administrator, OHDS, and Tommy Sullivan, Regional

Program Director, ACYF (Oct. 7, 1985); Letter from Nicholas

Cordasco, Director, Office of Fiscal Operations, to Robert J. Donahue,

Director, Office of Human Resource Development, New York State

Department of Social Services (June 14, 1984).

Nebraska had not challenged the future applicability of the ACF

announcements, the court said in a memorandum opinion that it

would vacate the three announcements and “reinstate the

agency’s previous practice of approving primary program cost

allocation plans” until HHS lawfully promulgated a new

regulation. In its separate order, however, the court did not

vacate the announcements, which caused some confusion.

The district court also determined it could itself “fully

resolve[] the issue of the approvability of Nebraska’s disputed

CAP provision.” In order to determine what HHS’s “previous

practice” of approval had been, the court consulted a 1985

policy memorandum written by the Commissioner of the ACYF

and a 1984 letter to New York State written by another HHS

official.*

 Based upon those documents the court concluded

Nebraska’s CAP should have been approved.

II. Analysis

On appeal HHS does not challenge the district court’s ruling

that the announcements were invalidly promulgated. Rather it

makes three arguments concerning the relief ordered by the

court. First, HHS maintains the district court did not actually

vacate the three policy announcements because vacatur is not

specified in the order accompanying its memorandum opinion.

Alternatively, if the district court did vacate the announcements,

then it erred. Finally, the district court should have remanded to
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HHS, rather than deciding itself, the ultimate question whether

to approve Nebraska’s CAP in view of the invalidity of the

announcements.

A. Were the Announcements Vacated?

Despite the discussion of vacatur in the district court’s

memorandum opinion, HHS maintains that, because Federal

Rule of Civil Procedure 58(a)(1) requires “[e]very judgment ...

[to] be set forth on a separate document,” the court’s failure to

vacate the announcements in a separate order “raises the

question whether [vacatur] was actually granted.” The question

is, as Nebraska points out, not a hard one. The Supreme Court

has made clear that the “separate document” requirement “is not

designed as a trap for the inexperienced. ... [It] should be

interpreted to prevent loss of the right of appeal, not to facilitate

[it].” Bankers Trust Co. v. Mallis, 435 U.S. 381, 386 (1978)

(internal quotation marks omitted). In this case the district court

in its memorandum opinion “clearly evidenced its intent” to

vacate the announcements, id. at 387; therefore, they were

vacated notwithstanding the court’s failure so to state in the

judgment.

B. Should the Announcements Have Been Vacated?

HHS next argues the district court erred in vacating the

policy announcements because Nebraska did not seek an order

striking down the announcements “on their face[s].” According

to HHS, because Nebraska sought only to overturn the DAB’s

adjudicatory decision concerning its CAP, the proper remedy

was to set aside the Board’s decision and remand the CAP to

HHS for further proceedings. Nebraska, on the other hand,

argues vacatur “is the normal remedy for an unlawful agency

rule” and was proper in this case, for which point it cites

CropLife America v. EPA, 329 F.3d 876 (D.C. Cir. 2003). We
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review the district court’s decision to vacate, as we do any

decision to grant or withhold equitable relief, for abuse of

discretion. See Massachusetts v. Microsoft Corp., 373 F.3d

1199, 1207 (D.C. Cir. 2004).

As is evident from Nebraska’s complaint, the final agency

action challenged in this case was the decision of the Board

upholding, on the basis of the three announcements, the DCA’s

rejection of Nebraska’s CAP. See Compl. ¶¶ 37, 44, 48 (failure

to approve CAP is “inconsistent with congressional intent” and

DAB’s decision “should be reversed”). Hence the State asked

the court to enjoin HHS from rejecting the proposed CAP and

from refusing to pay 75% of the costs Nebraska incurred

training PSWs. Id. ¶ 10. Nowhere in its complaint did

Nebraska request vacatur of the announcements, presumably for

good and sufficient reasons. See, e.g., Fair Employment Council

of Greater Wash., Inc. v. BMC Mktg. Corp., 28 F.3d 1268, 1273

(D.C. Cir. 1994) (no standing to pursue injunction where

plaintiffs failed to allege likelihood defendant would violate

their rights in the future).

We have long held that “[a]n injunction must be narrowly

tailored to remedy the specific harm shown.” Aviation

Consumer Action Project v. Washburn, 535 F.2d 101, 108 (D.C.

Cir. 1976); see also Va. Soc’y for Human Life, Inc. v. FEC, 263

F.3d 379, 393 (4th Cir. 2001) (district court should not have

enjoined agency from applying challenged regulation to any

party when “[a]n injunction covering [plaintiff] alone adequately

protects it from the feared prosecution”); Meinhold v. U.S. Dep’t

of Def., 34 F.3d 1469, 1480 (9th Cir. 1994) (error to enjoin DOD

from applying regulation to all military personnel where

plaintiff “sought only to have his discharge voided and to be

reinstated”); Gulf Oil Corp. v. Brock, 778 F.2d 834, 842-43

(D.C. Cir. 1985) (injunction overbroad where it prohibited

disclosure not only of plan in question but also of all
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“substantially similar” documents). Because Nebraska did not

challenge the validity of the ACF announcements apart from

their application as binding rules in the case before the Board,

and accordingly did not make out a case for continuing relief,

the district court abused its discretion in vacating them.

Nebraska’s reliance upon CropLife America is misplaced.

In that case, the petitioners challenged directly, and we vacated,

a “directive” the EPA had issued without notice and comment

rulemaking. 329 F.3d at 878-79. Although vacatur may or may

not be appropriate when a rule has been held invalid on a

procedural ground, see Allied-Signal, Inc. v. U.S. Nuclear

Regulatory Comm’n, 988 F.2d 146, 150-51 (D.C. Cir. 1993), no

analysis of “the seriousness of the [rule’s] deficiencies” and the

“disruptive consequences of an interim change,” id. (internal

quotation marks omitted), is either necessary or relevant here,

because only the decision, not the rule on which it depends, was

challenged.

C. Should the CAP Have Been Remanded?

Finally, HHS argues the district court should have

remanded to it the question whether Nebraska’s proposed CAP

would have been approved under its “previous practice,” as set

forth in the 1984 Letter and the 1985 Memorandum upon which

the district court relied. Nebraska insists the court did not need

to remand the issue because “[t]he record establishes beyond

legitimate dispute ... [that the CAP] was approvable.”

When a final agency action is challenged in the district

court, that court “sits as an appellate tribunal .... [If it]

determines that [the] agency made an error of law, the court’s

inquiry is at an end: the case must be remanded to the agency

for further action consistent with the corrected legal standards.”

PPG Indus., Inc. v. United States, 52 F.3d 363, 365 (D.C. Cir.
9

1995) (internal quotation marks omitted); see also Esch v.

Yeutter, 876 F.2d 976, 993 (D.C. Cir. 1989) (court should not

“mak[e] the substantive decision” itself). Therefore, it is clear

the district court erred when it ordered approval of Nebraska’s

CAP. The agency must be given the first opportunity to

determine whether Nebraska’s program meets the standard that

was in place before the announcements were issued. As the

Supreme Court has explained, because “agency decisions are

frequently of a discretionary nature or frequently require

expertise, the agency should be given the first chance to exercise

that discretion or to apply that expertise.” McKart v. United

States, 395 U.S. 185, 194 (1969).

The wisdom of this course is brought home by examination

of Nebraska’s claim that the proposed CAP certainly would

have been approved under the HHS guidelines previously in use.

Although the 1985 Memorandum allows training to be charged

entirely to Title IV-E when at least 85% of that training is

“directed toward” a Title IV-E program, that crucial phrase may

be susceptible to more than one interpretation. And it is for

HHS to interpret its own policies in the first instance, see

Aulenback, Inc. v. FHA, 103 F.3d 156, 162-63 (D.C. Cir. 1997),

subject only to quite deferential review by the courts, Carus

Chem. Co. v. EPA, 395 F.3d 434, 439 (D.C. Cir. 2005). The

district court’s decision to approve the CAP was inconsistent

with this allocation of authority between the agency and the

court.

III. Conclusion

The district court erred when it ordered relief beyond

prohibiting the DCA and the DAB from relying upon the three

ACF announcements in determining whether to approve
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Nebraska’s CAP. Therefore, we remand this case to the district

court for further proceedings consistent with this opinion.

So ordered.