Court Opinion

ID: 866698
Source: CourtListenerOpinion
Date Created: 2013-05-06 03:18:19.09088+00
Date Added: 2024-06-11T09:34:30.204849
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
             FOR THE FOURTH CIRCUIT

SOUTH CAROLINA DEPARTMENT OF         
EDUCATION; SOUTH CAROLINA STATE
SUPERINTENDENT OF EDUCATION
MITCHELL ZAIS,
                      Petitioners,
                v.                        No. 12-1764

ARNE DUNCAN, Secretary of
Education; UNITED STATES
DEPARTMENT OF EDUCATION,
                     Respondents.
                                     
            On Petition for Review of an Order
             of the Department of Education.
                         (EDUC-1)

                 Argued: March 22, 2013

                 Decided: April 26, 2013

       Before NIEMEYER, AGEE, and THACKER,
                   Circuit Judges.

Petition for review granted and case remanded by published
opinion. Judge Niemeyer wrote the opinion, in which Judge
Agee and Judge Thacker joined.
2    SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
                         COUNSEL

ARGUED: Shelly Bezanson Kelly, SOUTH CAROLINA
DEPARTMENT OF EDUCATION, Columbia, South Caro-
lina, for Petitioners. Alisa Beth Klein, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for
Respondents. ON BRIEF: Wendy Bergfeldt Cartledge, Bar-
bara Drayton, Karla Hawkins, SOUTH CAROLINA
DEPARTMENT OF EDUCATION, Columbia, South Caro-
lina, for Petitioners. Philip H. Rosenfelt, Deputy General
Counsel Delegated to Perform the Functions and Duties of the
General Counsel, Joan DeLise Bardee, Attorney, Department
of Education, Stuart F. Delery, Principal Deputy Assistant
Attorney General, Mark B. Stern, Attorney, Appellate Staff,
UNITED STATES DEPARTMENT OF JUSTICE, Washing-
ton, D.C., for Respondents.

                          OPINION

NIEMEYER, Circuit Judge:

    The Individuals with Disabilities Education Act ("IDEA")
provides for grants of federal funds to States for the education
of disabled children. To meet the eligibility requirements for
the full amount of funds allocated to a State, that State must
not reduce the amount of its own financial support for special
education "below the amount of that support [it provided] for
the preceding fiscal year." 20 U.S.C. § 1412(a)(18). If the
State fails to meet this "maintenance-of-effort" condition, as
it is referred to, the Secretary of the U.S. Department of Edu-
cation ("USDOE") must reduce the level of federal funding to
the State in subsequent years by the amount of the funding
shortfall. Id. Alternatively, the Secretary may grant a waiver
of the maintenance-of-effort condition if doing so "would be
equitable due to exceptional or uncontrollable circumstances
such as a natural disaster or a precipitous and unforeseen
decline in the financial resources of the State." Id.
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN         3
   South Carolina requested a waiver of its maintenance-of-
effort condition for approximately $67.4 million for its fiscal
year ended 2010. The Secretary granted the waiver in part, but
denied it to the extent of $36.2 million. Accordingly, he
advised the State that the USDOE was reducing the State’s
allocation for fiscal year 2012 by $36.2 million. When South
Carolina sought to have a hearing on the Secretary’s determi-
nation, the Secretary advised the State that the IDEA did not
provide for such a hearing.

   South Carolina filed this petition for review, challenging
the Secretary’s denial of its request for a full waiver and its
request for a hearing. The Secretary filed a motion to dismiss,
contending that this court does not have jurisdiction to con-
sider the State’s petition.

   We conclude that the Secretary’s action in partially denying
South Carolina’s request for a waiver was a determination
made "with respect to the eligibility of the State" for funding
and that therefore we have jurisdiction to consider the State’s
petition for review. See 20 U.S.C. § 1416(e)(8)(A). We also
conclude that the Secretary’s denial of the State’s request for
a full waiver was a determination that South Carolina was
"not eligible to receive a grant" in the amount of $36.2 million
and that therefore the Secretary was required to provide the
State with notice and an opportunity for a hearing before he
made a final determination with respect to the waiver request.
Id. § 1412(d)(2). Accordingly, we grant the petition for
review and remand to allow the Secretary to provide South
Carolina with notice and an opportunity for a hearing before
he makes a final determination on South Carolina’s waiver
request.

                               I

   The IDEA provides federal funding to States for the educa-
tion of disabled children. To be eligible for this funding, a
State must submit a plan to the Secretary of the USDOE that
4       SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
"provides assurances to the Secretary that the State has in
effect policies and procedures to ensure that the State meets
each of [25 stated] conditions." 20 U.S.C. § 1412(a). In addi-
tion to requiring that the State provide an appropriate public
education to all children with disabilities, the conditions
require that the State "not reduce the amount of State financial
support for special education and related services for children
with disabilities . . . below the amount of that support for the
preceding fiscal year." Id. § 1412(a)(18)(A). This
maintenance-of-effort condition, however, may be waived
under two circumstances, including if the Secretary deter-
mines that doing so "would be equitable due to exceptional or
uncontrollable circumstances such as a natural disaster or a
precipitous and unforeseen decline in the financial resources
of the State."1 Id. § 1412(a)(18)(C)(i). Without such a waiver,
the statute provides that "[t]he Secretary shall reduce the allo-
cation of funds . . . for any fiscal year following the fiscal year
in which the State fails to comply with [the maintenance-of-
effort condition] by the same amount by which the State fails
to meet the requirement." Id. § 1412(a)(18)(B).

   After experiencing "severe and precipitous" reductions in
state tax revenues, South Carolina advised the USDOE of the
reduced revenues and South Carolina’s need to reduce fund-
ing for special education by $67.4 million. In a letter to the
agency, dated February 26, 2010, South Carolina requested a
waiver of the maintenance-of-effort condition for fiscal year
2010. The State also provided the agency with supporting
financial information.

  In an eight-page opinion letter dated June 17, 2011, then-
Assistant Secretary for Special Education and Rehabilitative
    1
    The Secretary may also waive the maintenance-of-effort requirement
if "the State provides clear and convincing evidence that all children with
disabilities have available to them a free appropriate public education." 20
U.S.C. § 1412(a)(17)(C). South Carolina did not seek a waiver under this
standard.
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN         5
Services Alexa Posny found that the submitted financial infor-
mation indicated that "the State did not treat special education
and related services in an equitable manner when compared
to State agencies as a whole." She noted that the State reduced
its support for special education by 12.02%, whereas its aver-
age reduction in appropriations across all agencies was
7.55%. For this reason, she denied the request for a waiver of
the full $67.4 million amount. After recalculating the reduc-
tions in an "equitable" manner, however, Posny granted the
State’s waiver request to the extent of $31.2 million and
denied it to the extent of $36.2 million. She stated:

    The State’s submissions to the [USDOE] in support
    of its waiver request establish that it has failed to
    maintain financial support for special education and
    related services for FY 2010 by $36,202,909 . . . .
    Thus, the State has a $36,202,909 shortfall in the
    amount of State financial support for FY 2010.

The letter encouraged the State "to take action to restore fund-
ing for special education and related services for FY 2011."
On South Carolina’s request for reconsideration, Deputy Sec-
retary Anthony Miller affirmed the decision.

   Even though the USDOE informed South Carolina that it
was not entitled to a hearing, South Carolina filed an appeal
from Assistant Secretary Posny’s decision on August 1, 2011,
with the Office of Hearings and Appeals, requesting a hear-
ing. After receiving no status reports or information regarding
the appeal, South Carolina filed a motion to expedite. When
the request for a hearing was presented to the Secretary, he
issued an order dated May 22, 2012, denying the request for
a hearing and explaining that while the IDEA provides for
notice and an opportunity for a hearing "prior to (1) issuance
of the Department’s final agency decision rejecting the eligi-
bility of a State for IDEA grant funding or (2) a withholding
of IDEA funds," (emphasis added), the agency’s partial denial
of South Carolina’s request for a waiver was neither a deci-
6    SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
sion rejecting eligibility nor a decision withholding funds.
Thus, he ruled, "no right to a hearing attached." The Secre-
tary’s opinion reasoned that because South Carolina was not
challenging the conclusion that it did not meet the
maintenance-of-effort condition and because South Carolina
was never deemed ineligible for a grant, this was not a case
of an agency decision rejecting eligibility. He also stated that
the agency decision did not involve a "withholding" of grant
funds under the IDEA because "[s]uch a withholding action
can only occur after [the Office of Special Education and
Rehabilitative Services] has made a determination that a State
has substantially failed to comply with an IDEA eligibility
condition." But here "[that Office] never determined the State
substantially failed to comply with the IDEA’s [maintenance-
of-effort] requirement—the State concedes that it did not."
Finally, the Secretary noted that the General Education Provi-
sions Act ("GEPA"), 20 U.S.C. § 1234d(b) (requiring a hear-
ing before the Secretary withholds payment under an
education program), does not provide South Carolina with a
right to a hearing because the specific terms of the IDEA,
which require a reduction of funds, supersede the general
terms of the GEPA.

   The South Carolina Department of Education and its Super-
intendent, Mitchell Zais, filed this petition for review of the
Secretary’s denial of South Carolina’s request for a waiver
and request for a hearing, naming the Secretary and the
USDOE as respondents. In its petition, South Carolina also
requested an order that the Secretary restore, during the pen-
dency of the hearing procedures, the $36.2 million in funding
that the Secretary reduced from South Carolina’s fiscal year
2012 allocation. In addition to its petition, South Carolina
filed a motion to stay the reduction of its IDEA funds pending
appeal.

  The USDOE filed a motion to dismiss the petition for lack
of jurisdiction, contending that its waiver determination was
a final agency action subject to review only in the district
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN           7
court under the Administrative Procedure Act, not in the court
of appeals under the IDEA or GEPA.

  By order dated August 13, 2012, we denied the State’s
motion for a stay pending appeal and deferred ruling on the
USDOE’s motion to dismiss until after oral argument.

   In this appeal, we are thus presented with two procedural
questions: (1) whether we have jurisdiction to consider South
Carolina’s petition for review, and (2) whether South Carolina
is entitled to an opportunity for a hearing on the USDOE’s
determinations that South Carolina had "failed to maintain
financial support for special education and related services for
FY 2010 by $36,202,909" and consequently that South Caro-
lina’s grant for fiscal year 2012 be reduced by that amount.

                                II

    To justify our jurisdiction over its petition for review,
South Carolina relies principally on IDEA’s provision autho-
rizing a State to file a petition for review in a court of appeals
when the "State is dissatisfied with the Secretary’s action with
respect to the eligibility of the State under section 1412 of this
title." 20 U.S.C. § 1416(e)(8)(A). Alternatively, it relies on
the GEPA’s provision for review by courts of appeals of
agency decisions to withhold payments for failing to comply
substantially with any requirement of law applicable to such
funds. Id. § 1234g.

   Although South Carolina contends that both the IDEA and
GEPA provide subject-matter jurisdiction over its petition, we
will look first to the IDEA, the more specific statute and the
statute pursuant to which the underlying action in this case
was taken. Cf. Morales v. Trans World Airlines, Inc., 504 U.S.
374, 384 (1992) (looking to ERISA instead of the more gen-
eral Federal Aviation Act saving clause because "it is a com-
monplace of statutory construction that the specific governs
the general").
8       SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
   Under the IDEA, any State "dissatisfied with the Secre-
tary’s action with respect to the eligibility of the State under
section 1412 of this title . . . may . . . file with the United
States court of appeals for the circuit in which such State is
located a petition for review of that action." 20 U.S.C.
§ 1416(e)(8)(A). Our jurisdiction under this provision thus
turns on whether South Carolina is appealing an "action with
respect to . . . eligibility." Because South Carolina seeks
review of the USDOE’s decision denying a full waiver of the
maintenance-of-effort condition for fiscal year 2010 imposed
by § 1412(a)(18) (as well as the Secretary’s decision not to
grant South Carolina a hearing before making that decision),
we must evaluate whether the maintenance-of-effort waiver
determination was an "action with respect to eligibility."

   South Carolina’s primary argument on why a maintenance-
of-effort waiver determination is an eligibility determination
is that "[maintenance-of-effort] is one of the twenty-five eligi-
bility requirements" and therefore "[b]y not waiving [the
maintenance-of-effort condition] for the 2009-10 year, the
Secretary found that South Carolina did not meet the eligibil-
ity requirements for a grant."

   The USDOE argues to the contrary, contending that "South
Carolina [had already been] found eligible for grants under
IDEA Part B because its State’s plan provided the required
assurances" and, instead, that the cut in funding was due to a
"[f]ailure to administer the grant in compliance with grant
assurances." (Emphasis added).2 It argues that South Carolina
was not found ineligible for a grant under the IDEA because,
had it been so found, it would not have received any funding.

    The USDOE’s position rests ultimately on the distinction
    2
   The USDOE also contends that its interpretation is entitled to defer-
ence under Chevron, U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). Because we find the statute to be clear, how-
ever, we do not reach the question of deference.
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN           9
between a finding of ineligibility and a finding of non-
compliance. Explaining the difference, it states:

    If South Carolina had not provided one or more of
    the required assurances [contained in § 1412(a)], the
    [USDOE] would have found the State ineligible for
    a grant and would have provided the State with
    notice and opportunity for a hearing in connection
    with that finding. The State’s failure to comply with
    any of these grant assurances in the administration of
    its federal grant is a basis for finding of noncompli-
    ance and may cause the Department to take enforce-
    ment action. But, under the IDEA’s direct-review
    provision, only a finding of ineligibility is subject to
    direct review in the court of appeals.

   The distinction that the USDOE makes is indeed meaning-
ful. A condition of eligibility looks forward such that its fail-
ure leads to ineligibility. A finding of non-compliance, on the
other hand, is an evaluation that looks backward in an assess-
ment of performance.

   Thus, as § 1412(a) sets forth the conditions to eligibility, it
includes the forward-looking consequence of fund reductions,
albeit not necessarily a complete funding reduction. Section
1412(a) provides that the consequence for failing to satisfy
the maintenance-of-effort condition is a directly related reduc-
tion in the future allocation of grant funds. See 20 U.S.C.
§ 1412(a)(18)(B). The requirement thus operates an ongoing
condition as to the State’s eligibility for allocated grant funds,
and as a condition of eligibility, a failure to satisfy the condi-
tion leads to proportionate ineligibility. In this manner, a fail-
ure to meet the maintenance-of-effort condition to the extent
of $1,000 leads to a comparable reduction of future funds in
the amount of $1,000. Non-compliance, on the other hand, is
addressed in § 1416 pursuant to an evaluation of past perfor-
mance following the State’s submission of a "performance
plan." Id. § 1416(b). The finding of a compliance failure
10   SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
under § 1416 can lead to the Secretary’s provision of "assis-
tance," "intervention," "substantial intervention," or even
"withholding funds." Id. § 1416(e).

   To be sure, a State’s failure to appropriate funds for special
education as provided in the IDEA might lead either to the
failure of a condition to funding eligibility under § 1412 or to
non-compliance enforcement under § 1416. Consequently, it
is necessary to determine the precise course that is implicated
by either the State or the USDOE’s actions and to apply the
procedures that Congress prescribed for that course.

   The course implicated in this case is not in question. There
was no assessment of the State’s performance plan, nor was
there any finding that the State needed assistance, interven-
tion, or substantial intervention as would occur under
§ 1416(e)(1)-(3). Although a determination that a State failed
to comply with its plan could lead to the USDOE, under
§ 1416(e)(3), to recover funds, using GEPA; to withhold
funds (after a hearing); to refer the case to the USDOE’s
Office of the Inspector General; or to refer the matter for
appropriate enforcement action, no such actions were
undertaken and none of the § 1416(e) remedies were invoked.
Instead, South Carolina requested a waiver of the
maintenance-of-effort     condition      to    eligibility   in
§ 1412(a)(18), and the USDOE acted accordingly. The
USDOE addressed the request under § 1412(a)(18)(C) to
determine whether the maintenance-of-effort condition should
be waived.

   More specifically, South Carolina requested a waiver of the
maintenance-of-effort condition under § 1412(a)(18)(C)(i),
which allows for a waiver based on "a precipitous and unfore-
seen decline in the financial resources of the State." The Sec-
retary responded to the request, applying the criteria provided
by the same provision, finding that the State "had failed to
maintain financial support for special education and related
services for FY 2010 by $36,202,909" and reducing grant
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN         11
money for the following fiscal year to the same extent. Thus,
both South Carolina’s request and the USDOE’s response
employed § 1412, which in its entirety is directed to "State
eligibility." The Secretary’s waiver determination was accord-
ingly (1) a determination whether to remove an eligibility
condition, and (2) a reduction of the State’s eligibility for
future funding.

   Because removing an eligibility condition imposed by
§ 1412 is an "action with respect to the eligibility of the State
under section 1412," we readily conclude that we have juris-
diction to consider South Carolina’s petition for review. 20
U.S.C. § 1416(e)(8)(A) (emphasis added).

   The USDOE nonetheless argues that we lack jurisdiction
because "South Carolina was not found ineligible for a grant
under IDEA Part B" because, though funding for fiscal year
2012 was reduced, South Carolina continued to receive some
funding. The USDOE claims that "only a finding of ineligibil-
ity is subject to direct review in the court of appeals," imply-
ing that the statute requires complete ineligibility before
implicating our jurisdiction. But the text of § 1416(e)(8)(A)
forecloses such a claim. Under that section, our jurisdiction
does not depend on whether a State was found completely
ineligible for funding. Rather, it depends on whether an action
was taken "with respect to eligibility." (Emphasis added). A
partial reduction in funding based on the failure to satisfy an
eligibility condition is as much an "action with respect to eli-
gibility" as is a full reduction of funding. Here, the Secretary
used § 1412(a)(18)(B)-(C) to conclude that South Carolina
was ineligible to receive $36.2 million in federal funding.

   We therefore have jurisdiction over South Carolina’s peti-
tion for review under § 1416(e)(8)(A) and need not reach
South Carolina’s other jurisdictional arguments.

                               III

   We turn next to South Carolina’s contention that it is enti-
tled to notice and an opportunity for a hearing before the Sec-
12   SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
retary makes his final determination whether to grant South
Carolina a full waiver of the maintenance-of-effort condition
for fiscal year 2010. South Carolina contends that it is entitled
to a hearing under either (1) IDEA § 1412(d)(2) because the
Secretary found that the State was not eligible for the $36.2
million portion of its allocated grant under the IDEA; or (2)
IDEA § 1416(e)(4)(A) and GEPA § 1234d(b) because the
Secretary’s reduction of South Carolina’s grant following its
denial of a full waiver was a "withholding."

   For the same reasons the USDOE gave in challenging our
jurisdiction, it contends that the Secretary’s partial denial of
South Carolina’s waiver request was not an eligibility deter-
mination and also that the consequent reduction of its grant to
South Carolina was not a withholding under either the IDEA
or the GEPA so as to trigger notice and an opportunity for a
hearing.

   Paralleling our jurisdictional analysis, we look first to the
language of the IDEA, which is the more specific statute rele-
vant to this issue.

   The IDEA entitles a State to notice and an opportunity for
a hearing in two situations, both of which South Carolina
claims are relevant. First, § 1412(d)(2) mandates that "[t]he
Secretary shall not make a final determination that a State is
not eligible to receive a grant under this subchapter until after
providing the State (A) with reasonable notice; and (B) with
an opportunity for a hearing." Similarly, § 1416(e)(4)(A)
mandates notice and an opportunity for a hearing "[p]rior to
withholding any funds under this section." Because our juris-
diction exists on the basis of a decision made with respect to
eligibility, we look first to whether § 1412(d)(2)’s hearing
provision is applicable.

   Both the basis for our jurisdiction and the basis for a right
to a hearing depend on the Secretary’s making a determina-
tion relating to eligibility, but the IDEA uses slightly different
     SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN          13
language for each. As addressed in Part II above, we have
jurisdiction over "the Secretary’s action[s] with respect to the
eligibility of the State," 20 U.S.C. § 1416(e)(8)(A) (emphasis
added), but South Carolina is entitled to a hearing only when
the Secretary "make[s] a final determination that a State is not
eligible" for funding, id. § 1412(d)(2). At oral argument, the
USDOE treated these two provisions as equivalent, stating
that if we found that we had jurisdiction, we should also con-
clude that South Carolina was entitled to an opportunity for
a hearing.

   While the USDOE may be correct in that position, the dis-
tinction in statutory language persuades us not to adopt a
blanket rule that if we have jurisdiction under § 1416(e)(8),
the State should also be entitled to notice and an opportunity
for a hearing under § 1412(d)(2). Nonetheless, we do agree
that in this case, the partial denial of the maintenance-of-effort
waiver not only provides us with jurisdiction under
§ 1416(e)(8) but also amounts to a "determination that a State
is not eligible" for funding under § 1412(d)(2), albeit only to
the extent of $36.2 million.

   Section 1412(a)(18)(B) provides for a reduction in the
USDOE’s grant to a State when the State fails to meet its
maintenance-of-effort condition, while § 1412(a)(18)(C)
removes this consequence and allows the State to become eli-
gible for funding despite its failure to satisfy the condition.
When the USDOE decided that South Carolina was only enti-
tled to a partial waiver under § 1412(a)(18)(C) and that its eli-
gibility would therefore be partially reduced under
§ 1412(a)(18)(B), it made a determination that the "State
[was] not eligible" for the funding it otherwise would have
received. 20 U.S.C. § 1412(d)(2). Thus, under § 1412(d)(2),
South Carolina was entitled to notice and an opportunity to be
heard before a final determination on its waiver request was
made. Id.

  Because we conclude that the Secretary’s determination
could not have been final until after the USDOE provided the
14   SOUTH CAROLINA DEPARTMENT OF EDUCATION v. DUNCAN
State with notice and an opportunity for a hearing, we also
conclude that South Carolina remains eligible for its full fund-
ing until that final determination is made. Only if and when
the USDOE finally denies South Carolina’s waiver request
can it reduce the federal funding grant to South Carolina, and
then it can implement the reduction in "any fiscal year follow-
ing [FY 2010]." 20 U.S.C. § 1412(a)(18)(B).

   For the same reason, the Secretary may not, until he makes
a final determination on the waiver request, redistribute to
other States the amount of his proposed reduction of South
Carolina’s grant for fiscal year 2012, as directed by § 1514 of
the Consolidated and Further Continuing Appropriations Act,
Pub. L. No. 113-6, 127 Stat. 198, 425 (2013) (providing that
"the Secretary shall distribute to all other States . . . any
amount by which a State’s allocation under [Part B] . . . is
reduced under [the maintenance-of-effort penalty provision,
§ 1412(a)(18)(B)]").

   Because we conclude that South Carolina is entitled to an
opportunity for a hearing on the waiver determination, it is
premature for us to address its challenge to the Secretary’s
decision to deny a full waiver. Likewise, we need not address
South Carolina’s argument that denying a hearing was a vio-
lation of due process.

                              PETITION FOR REVIEW IS
                        GRANTED AND CASE REMANDED
                                  WITH INSTRUCTIONS.