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MERIDEN COMMUNITY ACTION AGENCY v. SHALALA

March 17, 1995

MERIDEN COMMUNITY ACTION AGENCY, et al., Plaintiffs,
v.
DONNA E. SHALALA, Defendant. CAMPESINOS UNIDOS, INC., Plaintiff, v. DONNA E. SHALALA, Defendant.



The opinion of the court was delivered by: PAUL L. FRIEDMAN

 This case came before the Court on March 9, 1995, for argument on plaintiff Meriden Community Action Agency's motion for summary judgment, plaintiff Campesinos Unidos, Inc.'s motion for a preliminary injunction, which by stipulation of the parties is being treated as a motion for summary judgment, and defendant's cross motion for summary judgment. The Court finds that there are no genuine disputes of material facts and that defendant is entitled to judgment as a matter of law.

 I. BACKGROUND

 The Head Start Act and the regulations promulgated thereunder establish a program that provides comprehensive educational, health, nutritional, social and other services to low income children and their families. 42 U.S.C. §§ 9831 et seq.; 45 C.F.R. Part 1301 (1994). Under the Program, the Administration for Children and Families ("ACF"), which is a component of the United States Department of Health and Human Services ("HHS"), makes grants to local private nonprofit and public agencies that in turn furnish Head Start services to its beneficiaries. In 1992, HHS issued rules amending the regulations that implement the provisions of the Head Start Act. One amendment changed the procedures by which, prior to denial of an application for refunding, a Head Start grantee is provided with a hearing. 45 C.F.R. § 1303.15 (1994). Another changed the regulation relating to the payment of attorneys' fees from grant funds in connection with such hearings. 45 C.F.R. § 1303.3(a) (1994). Plaintiffs in these consolidated cases request the Court to set aside the 1992 amendments to the regulations as being arbitrary, capricious, an abuse of discretion and not in conformity with law.

 On July 28, 1994, ACF informed plaintiff CUI that it was denying CUI's request for continued funding of its migrant Head Start program because an on-site program review conducted by ACF showed that CUI had failed to comply with Head Start performance standards. See Exhibit 13 to CUI's Motion for Preliminary Injunction ("CUI's Mot."). On August 2, 1994, CUI appealed ACF's decision to the DAB. CUI's Mot. at Ex. 14. On September 8, 1994, CUI filed a motion with the DAB to dismiss ACF's decision because, it argued, ACF had failed to provide CUI with an opportunity to cure the purported deficiencies uncovered in the on-site program review. CUI's Mot. at Ex. 15. The DAB denied CUI's motion, but ordered ACF to provide a more definite statement of how CUI failed to comply with performance standards. CUI's Mot. at Ex. 16. The DAB is scheduled to conduct a hearing on CUI's appeal later this month.

 Plaintiff MCAA brought this suit on August 31, 1994, seeking, among other relief, a declaration that the 1992 amendments to 45 C.F.R. Part 1303 are arbitrary, capricious, an abuse of discretion and in violation of law and therefore are null and void. On November 15, 1994, the Court denied MCAA's motion for a preliminary injunction. Plaintiff CUI brought its action on January 13, 1995, and also seeks a declaration that the amended regulations are arbitrary, capricious, an abuse of discretion and in violation of law and that they therefore may not be applied in the upcoming hearing.

 II. DISCUSSION

 HHS' 1992 Head Start regulations were promulgated under the informal rulemaking procedures of the Administrative Procedure Act. 5 U.S.C. § 553. HHS therefore was required to provide notice to the public of its proposed rules, give the public an opportunity to comment on the proposed rules and, after considering the relevant matters presented, issue the rules along with a "concise general statement of their basis and purpose." 5 U.S.C. §§ 553(b), (c). An agency's action in promulgating rules under section 553 may be set aside if found to be "arbitrary, capricious, an abuse of discretion, or otherwise contrary to law." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971). In considering a challenge on this basis, the Court must determine "whether the decision was based on consideration of the relevant factors and whether there has been a clear error of judgment." Id. at 416. The Court must make a "searching and careful" inquiry, but "the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." Id. Whether an agency's action was arbitrary and capricious is determined on the basis of the administrative record that was before the agency when it acted and not on the basis of "some new record made initially in the reviewing court." Camp v. Pitts, 411 U.S. 138, 142, 36 L. Ed. 2d 106, 93 S. Ct. 1241 (1973).

 The plaintiffs challenge two sections of the 1992 regulations: section 1303.3(a)(1), which allows Head Start grantees to use some federal grant funds to pay the attorneys' fees incurred in an administrative appeal of a proposed denial of refunding, and section 1303.15(b)(1), which sets out the procedures by which an appeal of a proposed denial of refunding is conducted. For the reasons that follow, the Court concludes that HHS did not act arbitrarily, capriciously or in violation of the law. Plaintiffs' challenges therefore must fail.

 A. Attorneys' Fees Issue

 Plaintiffs argue that by rescinding the rule that permitted HHS to waive the $ 100.00 per day attorney's fee limit HHS changed its settled course of behavior. Plaintiffs have offered several examples of HHS' granting waivers upon request. See MCAA's Mot. at Exs. 6, 7, 7a, and 8-8b; see also, Deposition of Robert A. Dublin ("Dublin Dep.") at 6-15. Plaintiffs argue that their evidence demonstrates that HHS had a long-standing policy to routinely grant such waivers.

 Defendant responds that no consistent, agency-wide policy with respect to waivers existed under the prior regulations. She asserts that requests were handled in varying manners by HHS regional offices rather than on a consistent basis by HHS headquarters. For example, there were regional variations in the amount of fees that could be charged to the program grant pursuant to a waiver. See Dublin Dep. at 6-15. Furthermore, she asserts that many grantees did not request waivers of the fee limit. Id. On the other hand, counsel for defendant conceded in open court that, at least in recent years, whenever a waiver was requested, it was granted.

 Where an agency changes a settled course of behavior "by rescinding a rule[, it] is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance." Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42, 77 L. Ed. 2d 443, 103 S. Ct. 2856 (1983). There is a presumption "against changes in current policy that are not justified by the rulemaking record." Id. To make out their claimed APA violations, plaintiffs therefore must prove that there was a settled course of behavior, that there has been a change in the settled course of behavior, and that the change was not sufficiently justified in the record.

 The Court does not believe that defendant has sufficiently rebutted plaintiffs' evidence that HHS consistently granted waivers upon request. The Court therefore concludes that the existence of the waiver rule and the consistent practice of permitting waivers upon request establishes a settled course of conduct by HHS. Because the new regulations do not permit a waiver of the maximum attorneys' fees, they change this settled course of conduct. The Court nevertheless agrees with defendant that even though HHS changed a settled course of behavior, HHS gave rational reasons for the policy change in both the Notice of Proposed Rulemaking and in the preamble to the Final Rule, and that the policy change is justified by the rulemaking record. Motor Vehicles Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. at 42. The Court is satisfied that the Department has articulated permissible reasons for its ...


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