Opinion ID: 658774
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Disallowance Constituted A Termination Under 42 U.S.C. Sec. 9841(a)(3)

Text: 27 The issue presented is whether HHS' disallowance of certain costs charged to SLCAP's Head Start grant constituted a termination of financial assistance within the meaning of 42 U.S.C. Sec. 9841(a)(3). If it did, then SLCAP was entitled to contest the validity of the disallowance in a full hearing before an ALJ. If it did not, the DAB's jurisdiction was perfectly proper. 28 In cases of pure statutory construction, the court must try to determine congressional intent, using 'traditional tools of statutory construction.' If [it] can do so, then that interpretation must be given effect.... NLRB v. United Food & Commercial Workers Union, Local 23, 484 U.S. 112, 123, 108 S.Ct. 413, 416, 98 L.Ed.2d 429 (1987) (quoting INS v. Cardoza-Fonseca, 480 U.S. 421, 446, 107 S.Ct. 1207, 1221, 94 L.Ed.2d 434 (1987)). If  'the statute is silent or ambiguous with respect to the specific issue,'  then the court defers to the agency's construction, so long as it is rational and consistent with the statute. Id. (quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984)). 29 [I]t is only legislative intent to delegate such authority that entitles an agency to advance its own statutory construction for review under the deferential second prong of Chevron. See Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2781-82. If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority.... Sometimes the legislative delegation to an agency on a particular question is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency. Id. 30 Natural Resources Defense Council v. Reilly, 983 F.2d 259, 266 (D.C.Cir.1993) (quoting Kansas City v. Department of Housing & Urban Dev., 923 F.2d 188, 191-92 (D.C.Cir.1991)). 31 In this case, we find an implicit delegation from Congress to HHS to interpret termination under 42 U.S.C. Sec. 9841(a)(3). Accordingly, we hold that the District Court erred in concluding, contrary to HHS' regulations, that the routine fiscal disallowance at issue here constituted a termination of financial assistance requiring a full hearing before an ALJ. The District Court was wrong in suggesting that our precedent compels such a result; thus, we defer to the agency's reasonable construction of the governing statute.
32 Congress has provided Head Start grantees with a procedural safeguard against arbitrary termination or reduction of grant funds. The Act provides that: 33 [t]he Secretary shall prescribe procedures to assure that ... financial assistance under this subchapter shall not be terminated or reduced, an application for refunding shall not be denied, and a suspension of financial assistance shall not be continued for longer than 30 days, unless the recipient has been afforded reasonable notice and opportunity for a full and fair hearing. 34 42 U.S.C. Sec. 9841(a)(3). While the Act does not itself define termination, HHS regulations define termination of a grant to mean permanent withdrawal of the grantee's authority [304 U.S.App.D.C. 194] to obligate previously awarded grant funds before that authority would otherwise expire. 45 C.F.R. Sec. 1303.2 (1992). In accordance with the Act, HHS regulations empower the agency to terminate financial assistance to a grantee in whole or in part for failure to comply with any requirement, but only pursuant to reasonable notice and the opportunity for a full and fair hearing. 45 C.F.R. Sec. 1303.33(a) (1992). 35 Head Start grantees are subject to the DAB appeals procedure for all matters other than suspension, termination and denial of refunding. See 45 C.F.R. Sec. 1301.34 (1992) (emphasis added); see also 45 C.F.R. Sec. 1301.10 (1992) (except as provided in Sec. 1301.34, the Department grant appeals process set out in 45 C.F.R. Part 16 shall apply to all grants made under the [Head Start] Act). HHS plainly does not consider fiscal disallowances of the sort at issue here to constitute terminations of financial assistance of section 9841(a)(3), for the DAB is granted jurisdiction to review disallowance[s] or other determination[s] denying payment of an amount claimed under an award, or requiring return or setoff of funds already received. 45 C.F.R. Part 16, App. A, Sec. (C)(a)(1).
36 HHS argues that routine fiscal disallowances do not constitute terminations under section 9841 and that its interpretation of termination, as embodied in its regulations, is entitled to deference. For its argument that a full and fair hearing is required, SLCAP relies almost exclusively (as did the District Court) on this court's decision in East Arkansas Legal Services v. Legal Services Corp., 742 F.2d 1472 (D.C.Cir.1984), cert. denied, 470 U.S. 1028, 105 S.Ct. 1395, 84 L.Ed.2d 784 (1985). East Arkansas, discussed more fully below, analyzed an identical statutory provision and held that an agency's setoff of carryover grant funds against a subsequent grant constituted a termination. The District Court here found East Arkansas controlling because, in its view, that case had decided that a partial recovery of funds already paid by an agency in an analogous situation constitutes a termination. Salt Lake Community Action Program, 785 F.Supp. at 1014. 37 The language of section 9841, standing alone, is only somewhat instructive. Because the statute distinguishes between suspensions of financial assistance and terminations, the latter must, at a minimum, involve a permanent reduction or cessation of funding. HHS' definition of termination embodies this understanding: it defines termination to mean permanent withdrawal of the grantee's authority to obligate previously awarded grant funds before that authority would otherwise expire. 45 C.F.R. Sec. 1303.2. This definition is not unreasonable, and neither SLCAP nor the District Court argued that it is. 38 Thus, under HHS' definition, a disallowance facially is not a termination, because HHS assures the court that if SLCAP 39 had other allowable program expenditures for th[e] grant year [in which costs were improperly charged] that it did not claim because it had already exceeded the amount of the grant, it could substitute those costs for the unallowable rental costs up to the amount of the grant. 40 Brief for Appellants at 17. Thus, a disallowance does not operate to permanently withdraw the grantee's authority to spend grant funds--it merely mandates that the grantee spend the funds differently. 41 It is precisely for this reason that East Arkansas is distinguishable. East Arkansas presented the issue whether an agency's setoff of the amount of excess unspent funds from a previous grant against the grant for a subsequent year, constituted a termination of financial assistance that triggered a full hearing. As here, the underlying statute provided for reasonable notice and a full and fair hearing before such termination. See East Arkansas, 742 F.2d at 1477. The regulations also were analogous in defining termination of assistance to mean a decision that financial assistance to a recipient will be permanently terminated in whole or in part prior to expiration of the recipients' current grant or contract. Id. 42 Thus, in East Arkansas, as here, for agency action to constitute a termination, the action must have had a permanent impact on the grantee's ability to use grant funds at a time when the grantee still possessed the ability or right to obligate those funds. In East Arkansas, that condition clearly was met because a setoff reduced the net amount of each monthly installment the grantee would receive in the upcoming year. See id. at 1478. By contrast, in the instant case, a determination of disallowance does not result in funds being entirely withdrawn from the grantee's purse. The grantee still can allocate those funds to any allowable, but uncharged, costs incurred in the same grant year. There is therefore no permanent withdrawal of the grantee's authority to obligate previously awarded grant funds and no termination within the meaning of the statute. 43 SLCAP's argument that HHS' interpretation of the statute is unreasonable because it relegates SLCAP to an administrative process that is incapable of providing it complete relief, proves too much. Brief for Appellee at 16. The mere possibility that a Head Start grantee might have constitutional or other objections to the application of a particular regulation within the DAB's jurisdiction does not render that jurisdiction invalid ab initio. Because the District Court erred in holding that a routine fiscal disallowance constitutes a termination of financial assistance triggering a full hearing, we reverse its decision.