1

See 29 U.S.C. §§ 1576, 1578. 

 

2

29 U.S.C. §§ 1501-1781. 

United States Court of Appeals,

Fifth Circuit.

No. 95-60288.

MISSISSIPPI DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT,

Petitioner,

v.

UNITED STATES DEPARTMENT OF LABOR, Respondent.

Aug. 1, 1996.

Petition for Review of an Order of the United States Department of Labor.

Before REAVLEY, KING and EMILIO M. GARZA, Circuit Judges.

REAVLEY, Circuit Judge:

The Mississippi Department of Economic and Community Development (MDECD) appeals

a final order1of the Secretary of Labor, ordering t he reimbursement to the federal government of

certain funds provided under the Job Training Partnership Act (JTPA or Act).2 We affirm.

BACKGROUND

The Act provides federal funding to state governments for job training and placement

programsfor economicallydisadvantaged persons. MDECD is the designated agent of the Governor

of Mississippi for receipt of federal funding under the Act. The Mississippi Service Delivery Area

(MSDA) is a division or office of the MDECD and received funding for programs under the Act

serving most ofthe counties ofMississippi. In 1984 MSDA and the Mississippi Employment Service

Commission (MESC), a subdivision ofthe state, negotiated a contract wherebyMESC would receive

funding to provide job training and referralservicesfor qualified participants. The contract provided

that MESC would receive a fixed unit price of $2000 per participant for on-the-job training contracts.

At MESC's request the following clause was added to the contract: "To assure that MESC will not

operate at a loss, this fixed unit price will be renegotiated if factors result in costs in excess of those
 

3

29 U.S.C. § 1574(d). 

 

4

Id. § 1579(a). 

recognized in the development of unit price." This clause was never invoked.

At the end of 1984, MESC had made a pro fit, i.e., revenues in excess of expenditures, of

slightly more than $1.5 million from these fixed unit price contracts, of which $500,000 was

reimbursed to MESC. These profits were placed in a general fund. As a result of the profit for 1984,

contracts for future years stipulated for lower fixed unit prices. The contracts for later years did not

include the renegotiation clause.

In 1987 MESC developed a program called "Project Upgrade." The purpose of the program

was to use some profits from the fixed-price contracts to allow employers to upgrade individuals

currently employed to a higher skill level and to fill the positions vacated by the upgraded employees

with other participants. MESC would use some of its funds to reimburse the employer for one-half

of each ungraded individual's salary. Project Upgrade ran for part of 1987 and 1988. MESC used

$686,432 in profits to fund the program.

An audit by the office of inspector general of the Department of Labor (DOL) challenged

MESC profits for the years 1984-87. An administrative law judge (ALJ) ruled that the 1984 profits

were not properlyearned and ordered theirreimbursement to federalgovernment, along with interest,

in the total amount of $976,600.35. After the Secretary of Labor denied a request for review by

MDECD, this appeal was brought.

DISCUSSION

A. Liability Under the Act

The Act provides that "[e]very recipient shall repay to the United States amounts found not

to have been expended in accordance with this [Act]."3 The Act authorizes the Secretary of Labor

to "prescribe such rules and regulations (including performance standards) as the Secretary deems

necessary."4 Pursuant to its rulemaking authority, the Secretary promulgated 20 C.F.R. § 629.37(a)

(1983), which provides:

To be allowable, a cost must be necessary and reasonable for proper and efficient
 

5

29 U.S.C. § 1578(a)(3). 

 

6Garcia v. Secretary of Labor, 10 F.3d 276, 279 (5th Cir.1993). 

 

7

See 20 C.F.R. § 629.38(e)(2) (1983). 

administration of the program, be allocable thereto under these principles, and, except as

provided herein, not be a general expense required to carry out the overall responsibilities of

the Governor or subrecipient. Costs charged to the program shall be consistent with those

normallyallowed inlike circumstancesinnonfederallysponsored activities andwith applicable

State and local law, rules or regulations, as determined by the Governor.

The Act further provides that our review of the Secretary's final order "shall be limited to

questions of law and t he Secretary's findings shall be conclusive if supported by substantial

evidence."5 Substantial evidence means such evidence as reasonable minds might accept as adequate

to support a conclusion.6

We conclude that substantial evidence supportsthe ALJ'sfinding that profits earned in 1984

were not, under the regulation quoted above, "necessary and reasonable for proper and efficient

administration of the program." Perhaps the best proof was the undisputed evidence that the $2000

per participant fixed contract generates substantially more revenue for MESC than it needed to

perform its job training services under the Act.

Evidence was also presented showing that the state agencies had not engaged in any kind of

serious cost analysis in arriving at the $2000 fixed cost per contract for on the job training in 1984.

The DOL auditors were unable to reconstruct how the state agencies had arrived at this figure.

MESC and MDECD were unable to offer coherent testimony or documentation in support of the

$2000 figure. The ALJ also noted that the original figure was based on two "inflation" factors of 5%

each which the state agencies could not explain. MDECD does not dispute that MESC in fact earned

profits far in excess of its costs in 1984.

MDECD focuses on a part of the ALJ decision discussing the fixed price aspect of the

contract withMESC. The ALJ discussed the renegotiation clause of the 1984 contract, which (unlike

the later contracts) provided that the parties could renegotiate contract prices if "factors result in

costs in excess of those reco gnized in the development of the unit price." The ALJ reasoned that

even though fixed-price contracts are allowed under the Act,7the 1984 contract was not a true fixed
 

8

See 29 U.S.C. § 1603. 

contract, since this clause allowed the parties to agree to a higher price if costs exceeded the

agreed-upon price, thuslimiting any incentive to keep costs under control. MDECD argues that the

clause was never invoked, but thisfact does not alter our conclusion that the ALJ'sruling issupported

by substantial evidence. The ALJ correctly noted that this was not a true fixed cost contract.

Moreover, even if the 1984 contract had been a fixed-cost contract, the ALJ was still entitled to

disallow the excess fixed price as not "necessary and reasonable for proper and efficient

administration of the program" under 20 C.F.R. § 629.37.

MDECD also complains that it was subjected to a penalty or sanction retroactively because

the DOL had no policies or interpretations regarding fixed unit price contracts at the time, and only

later proposed requirementsforsuchcontracts, including the requirement that an "adequate cost price

analysis" be performed. We are not persuaded by this argument. As discussed above, at the time the

Act plainly required recipientsto repay amountsfound not to have been spent in accordance with the

Act and authorized the Secretaryto prescribe rules and regulations, including performance standards,

as the Secretary deemed necessary. By regulation costs had to be necessary and reasonable for

proper and efficient administration of the program.

MDECD complains that the extra profits earned in 1984 were properly spent on Project

Upgrade in later years. The ALJ disallowed this use of profits because MDECD failed to

demonstrate that the upgraded individuals under the program were "economically disadvantaged"

individuals so as to qualify for JTPA funding.8 We see no error here by the ALJ.

B. Limitations

MDECD claims that this action is barred by limitations, arguing that the agency issued its

final determination from its grant officer on July 25, 1990. MDECD maintains that the general

limitations provision of 28 U.S.C. § 2462 governs. It states that:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the

enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five yearsfrom the date when the claim first accrued....

We assume without deciding that MDECD preserved this defense below, and that the DOL's action
 

9

635 F.2d 337 (5th Cir.), cert. denied, 454 U.S. 1081, 102 S.Ct. 635, 70 L.Ed.2d 615 (1981). 

 

10Id. at 339 (citations omitted). 

 

11470 U.S. 656, 105 S.Ct. 1544, 84 L.Ed.2d 590 (1985). 

 

12Id. at 662-64, 105 S.Ct. at 1549. 

 

13479 U.S. 305, 107 S.Ct. 702, 93 L.Ed.2d 639 (1987). 

 

14Id. at 309-313, 107 S.Ct. at 706-07 (citations omitted). 

was "commenced" more than five years after its claim "accrued."

In United States v. City of Palm Beach Gardens,9 we explained that "[i]t is well established

that Congress may create a right of action without restricting the time within which the right must

be exercised. Moreover, courts have long held that the United States is not bound by any limitations

period unless Congress explicitly directs otherwise."10

In Bennett v. Kentucky Dep't of Educ.,11 the Supreme Court held that a demand by a federal

agency for the refund of federal funds improperly spent by a state agency "is more in the nature of

an effort to collect upon a debt than a penalsanction."12 Although Bennett did not involve a statute

of limitations defense, we are persuaded that the repayment action here does not involve a claim for

a civil fine, penalty, or forfeiture under § 2462. It is instead an action in the nature of one to collect

on a debt. Accordingly we reject this defense.

C. Prejudgment Interest

MDECD also challenges the award of prejudgment interest by the ALJ. In West Virginia v.

United States,13 the Court held that when a state is contractually obligated on a debt to the federal

government, the award of prejudgment interest is appropriate, even though no statute specifically

provided for the payment of that interest. The Court noted that "[p]rejudgment interest is an element

of complete compensation," and that "[b]ecause States have no sovereign immunity as against the

Federal Government, any rule exempting a sovereign from the payment of prejudgment interest not

only does not apply of its own force to the State's obligation to the Federal Government, but also

does not represent a policy the federal courts are obliged to further."14 We are persuaded that the

same reasoning is applicable here. Although this is not a breach of contract case, the action here is
"in the nature of an effort to collect upon a debt," as Bennett teaches, and the award of prejudgment

interest here is an element of full compensation.

AFFIRMED.