The opinion of the court was delivered by: THOMAS F. HOGAN
The Court held a hearing on the pending motions on April 23, 1990. After careful consideration of the parties' briefs and supplemental pleadings, and after review of the oral arguments and the entire record in this case, the Court shall deny the motion by the Connecticut Department of Children and Youth Services to set aside and shall grant the motion by the United States Department of Health and Human Services for judgment of affirmance for the reasons that follow.
On January 28, 1987, the Department of Health and Human Services (HHS) notified the Connecticut Department of Child and Youth Services (DCYS) that it was ineligible to retain the $ 747,925 in title IV-B of the Social Security Act funds that had been awarded to the state during fiscal year 1985 based on the state's self certification of eligibility for those funds. Connecticut filed a notice of appeal with the HHS's Grant Appeals Board on February 6, 1987. On April 14, 1987, HHS notified Connecticut that, based upon the same review, the state also was ineligible to retain $ 722,433 in title IV-E funds that had been awarded in FY 1985.
On June 2, 1987, Connecticut filed an appeal with the HHS Grant Appeals Board on both disallowances. On May 3, 1988, the Grant Appeals Board upheld the disallowance of $ 747,925 of funds awarded to Connecticut during federal fiscal year 1985, upholding the finding of the agency that Connecticut was ineligible to receive those title IV-B funds because the state failed to meet the § 427 foster care program requirements in a sufficient number of cases to achieve the 90% compliance rate required by HHS. The Grant Appeals Board also upheld the compliance review process used by the Agency. The Grant Appeals Board initially remanded the title IV-E portion of the case to the agency. However, on October 20, 1988, the Grant Appeals Board issued a second final agency decision that granted HHS's request for a reconsideration, and ruled that § 472(d) of the Act required the disallowance of all title IV-E funds. On July 1, 1988, Connecticut filed this action appealing the decisions of the Grant Appeals Board.
Essentially, Connecticut argues that the May 3, 1988 and October 20, 1988 decisions by the Grant Appeals Board were arbitrary and capricious, an abuse of discretion, and were unsupported by substantial evidence.
The Adoption Assistance and Child Welfare Act, enacted in 1980, amended title IV of the Social Security Act. The goal of the Act was to provide fiscal incentives to states to encourage more active monitoring of children in the foster care system. Specifically, § 427 of the 1980 Act provided a special incentive for states to ensure that all foster children under the care of the state receive a case review every six months. The title IV-B program provides funds to states for the improvement of child welfare services and establishes the title IV-E program. The title IV-E program provides reimbursement to the states for foster care maintenance and adoption assistance payments made by the states on behalf of eligible children.
Congress authorized annual appropriations of $ 266 million, out of which each state would receive a proportionate share of the first $ 141 million. For a state to be eligible under title IV-E to receive a share of IV-B funds above the initial $ 141 million base, the state must certify, inter alia, that it:
(2) has implemented and is operating to the satisfaction of the Secretary--
(B) a case review system (as defined in section 675(5) of this title) for each child receiving foster care under the supervision the State. . . .
A case review system is defined as a procedure that assures
(A) each child has a case plan designed to achieve placement in the least restrictive (most family like) setting available and in close proximity to the parents' home, consistent with the best interest and special needs of the child,
(B) the status of each child is reviewed periodically but no less frequently than once every six months by either a court or by administrative review . . .,
(C) with respect to each such child, procedural safeguards will be applied, among other things, to assure each child in foster care under the supervision of the state of a dispositional hearing to be held . . . no later than eighteen months after the original placement . . . [to] determine the future status of the child. . . .
To be eligible for title IV-E funds, a state must have
a plan approved by the Secretary which -- . . . (16) provides for the development of a case plan (as defined in section 675(1) of this title) for each child receiving foster care maintenance payments under the State plan and provides for a case review system which meets the requirements described in section 675(5)(B) of this title with respect to each such child. . . .
Failure to comply with the standards subjects a state to sanctions under § 471(b) of the Social Security Act, 42 U.S.C. § 671(b). That provision allows the secretary of HHS to stop payments to the state or to reduce such payments by an amount the secretary deems appropriate if the secretary determines that the state's plan is not in compliance with the requirements of the Act or if the secretary determines that in ...