Opinion ID: 730842
Heading Depth: 2
Heading Rank: 1

Heading: Challenges to the Application of the Regulation

Text: 8 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. 9 (i) Violation of the Common Law 10 Pennsylvania argues that HHS's interest rate regulation violates the common law because it fails to require a case-by-case 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. 11 The parties do not dispute that the federal government is permitted to charge states interest on their debts. See United States v. Texas, 507 U.S. 529, 530, 113 S.Ct. 1631, 1632, 123 L.Ed.2d 245 (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, 113 S.Ct. at 1635. 12 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, 113 S.Ct. at 1633. 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. 13 Pennsylvania asserts that the general holding of Texas was 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, 113 S.Ct. at 1637, 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, 113 S.Ct. at 1636 ([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). 14 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. 15 In addition, the regulation in question allows the state to ask for a waiver of the interest charged. It states: 16 Waivers. The Secretary may waive collecting all or part of interest, administrative costs or late payment penalties, if-- 17 (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 18 (2) Collection in any manner authorized under this regulation would defeat the overall objectives of a Departmental program. 19 45 C.F.R. § 30.13(h). 20 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. 21 (ii) Arbitrary and Inconsistent with Government-Wide Policies 22 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. See Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971). We find none of those conditions present here. 23 The government-wide policy specific to interest rates is set out in the Federal Claims Collection Standards, which state in relevant part: 24 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. [s] 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. 25 4 C.F.R. § 102.13 (emphasis added). 26 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. 4 27 (iii) Inconsistent with Internal Regulations 28 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. 29 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, --- U.S. ----, 116 S.Ct. 816, 133 L.Ed.2d 760 (1996) (citing Martin v. Occupational Safety and Health Review Comm'n, 499 U.S. 144, 150-51, 111 S.Ct. 1171, 1175-76, 113 L.Ed.2d 117 (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, 512 U.S. 504, ---- - ----, 114 S.Ct. 2381, 2386-87, 129 L.Ed.2d 405 (1994) (quoting Gardebring v. Jenkins, 485 U.S. 415, 430, 108 S.Ct. 1306, 1314-15, 99 L.Ed.2d 515 (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. 5 We cannot say that HHS violated its own regulation.