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Newark Pre-School Council, Inc. v. United States Department of Health and Human Services

United States District Court, District of Columbia

August 19, 2016

Newark Pre-School Council, Inc., Plaintiff/Counterclaim Defendant,
United States Department of Health and Human Services, et al., Defendants/Counterclaim Plaintiffs.


          Amit P. Mehta United States District Judge


         This matter is before the court on Defendants/Counterclaim Plaintiffs United States Department of Health and Human Services (HHS) and the Secretary of HHS, Sylvia Mathews Burwell’s (collectively “Defendants”), Motion for a Temporary Restraining Order and a Preliminary Injunction. HHS is the federal agency responsible for administering the Head Start program and its grant funding. Defendants seek to compel Plaintiff Newark Pre-school Council, Inc., to allow new Head Start grantee, La Casa de Don Pedro, Inc., access to certain properties owned and controlled by Plaintiff, in which the federal government has a property interest.

         Upon consideration of Defendants’ Counterclaim, the pleadings, the oral representations of counsel, and the evidence submitted, the court grants Defendants’ Motion for a Temporary Restraining Order and a Preliminary Injunction.


         A. Statutory and Regulatory Framework

         1. The Head Start Program

         The Head Start Program (“Head Start” or “the Program”) was established in 1965. 42 U.S.C. § 9831 et seq. (2007).[1] It is administered by the Office of Head Start, which is part of the Administration for Children and Families (itself a component of HHS). Head Start awards grants to local public, non-profit, and for-profit entities-known as “Head Start Agencies” (“HSAs”)-to provide “comprehensive child development services, ” with an emphasis on enabling preschool children to develop skills necessary to succeed in school. Id. To qualify as an HSA eligible for Head Start funding, an organization must meet certain minimum service requirements. 42 U.S.C. § 9836(d)(2).

         Once an organization qualifies as an HSA, it is eligible to receive federal financial assistance for up to 80% of any Head Start project costs, with the other 20% acquired by the HSA from non-federal sources. 42 U.S.C. § 9835(b). An HSA may use these grant funds only for federally approved activities, which include purchasing, constructing, financing, and renovating the facilities and equipment used by the HSA to provide Program services. 42 U.SC. §§ 9839(f)(1) and (2), (g)(2)(A) and (B). The HSA is required to keep project cost records that track the use of federal funds, 42 C.F.R. §§ 74.219(b)(2) and (b)(7), and is required to provide those records upon request for periodic audits, see 31 U.S.C. § 7502 et seq. and Office of Management and Budget Circular A-133. In addition to periodic audits, the Administration for Children and Families conducts quality reviews of each HSA in order to monitor the HSA’s continued compliance with Program standards and will issue deficiency findings where appropriate. 42 U.S.C. § 9836a(c)(1) and (c)(2). If an HSA is issued a deficiency finding, its grant is not automatically renewed at the end of the five-year grant period and the HSA must instead compete for renewal of grant funding. 45 C.F.R. § 1307.7(a).

         2. HHS Head Start Act Regulations

         The parties’ dispute centers on two regulations governing the procurement and disposition of real property used to provide Head Start services, 42 C.F.R. § 1309 and 45 C.F.R. § 74. HHS regulation 45 C.F.R. § 1309 “prescribes the procedures for applying for Head Start grant funds to purchase, construct, or make major renovations to facilities in which to operate Head Start programs” and “also details the measures which must be taken to protect the federal interest in such facilities.” Under these regulations, the federal government retains an interest in all property “acquired”-defined to include the purchase or construction of facilities in whole or in part, id. § 1309.3-“or upon which major renovations have been undertaken” with Head Start funds, id. § 1309.21(a). An HSA using federal funding for facility investments must file a Notice of Federal Interest, id. § 1309.21(d)(2), and may not sell or transfer the property without HHS’ consent, id. § 1309.21(b) and (c).

         Further, under 45 C.F.R. § 74 (2014), [2] all property either “acquired or improved with” HHS funding “shall be held in trust by the recipients as trustee for the beneficiaries of the project.” When such property is no longer needed for administering the federal program, HHS may order the grantee to, among other things, “transfer title to the property to the Federal Government or to an eligible third party provided that, in such cases, the [grantee] shall be entitled to compensation for the [grantee’s] attributable percentage of the current fair market value of the property.” Id. § 74.32(c)(1)-(3). In such cases, the former grantee is required to provide all financial records relating to the property “within 90 calendar days after the date of completion of the [grant]” such that HHS can deliver “prompt payments to a recipient for allowable reimbursable costs under the award being closed out.” Id. § 74.71

         B. Factual Background and Procedural History

         Plaintiff/Counterclaim Defendant in this case, Newark Pre-school Council, Inc., is a former HSA that provided Head Start services in the Newark, New Jersey, area from 1965 to 2014. See Pl.’s Compl., ECF No. 1 [hereinafter Compl.], ¶¶ 31-32. In 2012, as part of its required periodic quality review, the Administration for Children and Families (“ACF”) documented deficiencies in Plaintiff’s provided services. Id. ¶ 33. As a result of the findings, ACF informed Plaintiff, by letter dated January 14, 2013, that it would be required to compete for renewal of its Head Start funding. Id. ¶ 37; Compl. Ex. 2, ECF No. 1-2. Plaintiff then competed against other organizations for a new grant for the Newark service area, but was not selected as a grant recipient. Defs.’ Counterclaim, ECF No. 7 [hereinafter Counterclaim], ¶ 20 & n.2.

         As a result of losing its HSA status, ACF officials informed Plaintiff in a meeting held on June 9, 2014, that it would need to begin the process of closing out and transitioning its grant to the interim Head Start service provider, Community Development Institute, by the end of the 2014 school year. Compl. ¶¶ 49-53; Counterclaim ¶ 22. As part of the close out process, ACF issued disposition instructions pursuant to 45 C.F.R. § 74, by letter dated June 13, 2014, for seven properties that ACF asserted Plaintiff owned subject to a federal interest (the “Properties”). Compl. ¶¶ 54-56; Compl. Ex. 5, ECF No. 1-5. The letter instructed Plaintiff to ensure that title for the Properties was transferred to Community Development Institute within 10 days for the continued provision of Head Start services and directed Plaintiff to submit any records supporting its reimbursable interest in the Properties. Id. Plaintiff informed ACF that it disputed the federal interest in several of the Properties. Compl. ¶ 57. It also continued to control the Properties and, in an attempt to avoid any Head Start service disruptions during the course of the dispute, negotiated a lease agreement for the Properties with the interim service provider. Id. ¶¶ 58-60. Since July 1, 2014, Community Development Institute has paid rent to Plaintiff for use of the Properties. Counterclaim ¶¶ 44-45.

         On September 23, 2014, ACF initiated a second competition for grant funding to provide Head Start programming in the Newark service area (“Second Grant Competition”). Compl. ¶ 66. Plaintiff again competed for the grant, and again it was not selected. Id. ¶¶ 67, 73; Counterclaim ¶ 46. One of the winning ...

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