Sylvester v. Inland Bay ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
12-4-1996
Sylvester v. Inland Bay
Precedential or Non-Precedential:
Docket 96-3699
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 95-3699
____________
COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE,
Appellant
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; UNITED
STATES OF AMERICA
___________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
____________________
(D.C. Civil No. 94-01689)
Argued September 30, 1996
Before: ALITO and McKEE, Circuit Judges,
and GREEN Senior District Judge*
(Opinion Filed: December 4, 1996)
____________________
OPINION OF THE COURT
____________________
John A. Kane
Chief Counsel
Jason W. Manne (Argued)
Assistant Counsel
Office of Attorney General
of Pennsylvania
Department of Public Welfare
300 Liberty Avenue
1403 State Office Building
Pittsburgh, PA 15222
Counsel for Appellant
* The Honorable Clifford Scott Green, Senior District Judge for
the Eastern District of Pennsylvania, sitting by designation.
Frank W. Hunger
Assistant Attorney General
Frederick W. Thieman
United States Attorney
Barbara C. Biddle
Irene M. Solet (Argued)
Attorneys, Appellate Staff
United States Department
Of Justice
Civil Division, Room 3617
10th & Pennsylvania Avenue, N.W.
Washington, D.C. 20530-0001
Counsel for Appellees
ALITO, Circuit Judge:
This case arises out of a debt of $800,885 that the
Pennsylvania Department of Public Welfare ("Pennsylvania") owed
the United States Department of Health and Human Services
("HHS"). HHS notified Pennsylvania of the debt in June 1991.
(App. 235a-239a) Pennsylvania initially balked at having to pay,
but eventually, in June 1993, paid the entire principal amount.
(App. 16a) The dispute that remains is over the interest on the
debt. HHS charged Pennsylvania interest at the private consumer
rate of 15.125%, which was significantly higher than the rate
usually charged by federal agencies to states, the current value
of funds rate of 8%. Pennsylvania refused to pay the allegedly
exorbitant interest and brought this action, claiming primarily:
(a) that HHS's use of the private consumer rate was not only
arbitrary and capricious but inconsistent with the common law and
(b) that HHS did not follow the proper procedures in enacting its
interest rate regulation. The district court found
Pennsylvania's substantive claims to be without merit and its
procedural challenges to be time-barred. We affirm.
I.
Until January 1987, HHS had a policy of not charging
states interest on disallowances under the Aid to Families with
Dependent Children program ("AFDC"). (Dist. Ct. Op. at 2) On
January 5, 1987, however, HHS repealed the existing regulation
and put in place a new policy under which all of its debtors,
including states and local governments, were to be charged a rate
of interest based on the prevailing private consumer rates.
(App. 202a & Dist. Ct. Op. at 2) HHS's action was in response to
congressional enactment of the Debt Collection Act of 1982
("DCA"), which aimed at increasing the efficiency of government
efforts to collect debts owed to the United States. See S. Rep.
No. 378, 97th Cong. 378, 2d Sess. (1982), reprinted in 1982
U.S.C.C.A.N. 3377. Although the DCA expressly excluded states
and local governments from its ambit, see 31 U.S.C. § 3701
(1983), it did not limit HHS's ability to assess interest under
the common law, see United States v. Texas, 507 U.S. 529, 530
(1993). Accordingly, with certain exceptions not at issue here,
HHS's regulations called for the imposition of interest on debts
owed by states and local agencies in the same way as it was
imposed on other debtors. (App. 202a) See 52 Fed. Reg. 261
(1987) (codified at 45 C.F.R. § 30.13).
Under the HHS regulations at issue, interest on debts
owed to HHS accrues from the date notice of the debt is mailed to
the debtor, unless the debt is paid within 30 days of the notice.
See 45 C.F.R. § 30.13(a). The regulations provide that the rate
to be charged shall be the "rate of interest as fixed by the
Secretary of the Treasury after taking into consideration private
consumer rates of interest." Id. The regulations do not
provide for administrative review of the imposition of interest,
but allow the Secretary to waive the interest if: (i) the debt or
interest "resulted from the agency's error, action or inaction .
. . and [is] without fault on the part of the debtors" or (ii)
collection "would defeat the overall objectives of a Departmental
program." 45 C.F.R. § 30.13(h).
At issue is interest on a sum of $800,885 that was owed
by Pennsylvania to HHS. HHS gave Pennsylvania notice of the debt
in June 1991. (App. 235a-239a) Pennsylvania, however, chose not
to reimburse the federal government within 30 days, which would
have enabled it to avoid any and all interest payments. (App.
10a) By the time Pennsylvania paid the principal amount in July
1993, $232,173.22 in interest charges had accumulated, and
interest was continuing to accrue at 15.125% per annum. (App.
14a & Dist. Ct. Op. at 2).
Pennsylvania sought administrative review of the
interest assessment, but HHS's Departmental Appeals Board
informed it that it lacked jurisdiction to review the interest
assessment. (App. 18a-21a) The Board noted, however, that the
form of administrative review available to Pennsylvania was a
request to the Secretary for a waiver of interest, but
Pennsylvania had not sought such a waiver. (App. 21a).
Pennsylvania commenced this action in October 1994,
alleging that HHS's imposition of interest on it was arbitrary
and violative of the common law. (App. 9a-13a) Pennsylvania
also attacked the procedures by which HHS promulgated its
interest rate regulations as inadequate. (App. 9a-13a) In
February 1995, HHS responded with a motion for partial dismissal
and summary judgment, arguing that Pennsylvania's substantive
challenges were meritless and that its procedural challenges were
time-barred. The district court granted the motion, adopting as
its own opinion the Report and Recommendation of Chief Magistrate
Judge Mitchell. Pennsylvania appeals.
II.
A. Challenges to the Application of the Regulation
Pennsylvania makes three attacks on HHS's application
of the interest rate regulation. It argues: (i) that charging it
interest without making an individualized determination as to the
appropriateness of the charge was violative of the common law;
(ii) that charging it the private consumer rate as opposed to the
current value of funds rate was arbitrary and violative of
government-wide policies; and (iii) that the use of a rate
certified by the Treasury for a different federal program
contravened HHS's own regulations on how the applicable interest
rate should be determined.
(i) Violation of the Common Law
Pennsylvania argues that HHS's interest rate regulation
violates the common law because it fails to require a case-by-
case determination of whether or not interest is appropriate and,
if so, how much interest should be charged. We find no support
for this argument in the law that Pennsylvania cites.
The parties do not dispute that the federal government
is permitted to charge states interest on their debts. SeeUnited States
v. Texas, 507 U.S. 529, 530 (1993) (United States
has a federal common law right to collect prejudgment interest on
debts owed to it by the states). Instead, the dispute is over
the process by which interest can be charged. Pennsylvania
points to the Supreme Court's decision in Texas as support for
its argument. Specifically, Pennsylvania points to language in
Texas that says that "courts," in awarding prejudgment interest,
are to "weigh competing federal and state interests." Id. at
536.
But Texas does not help Pennsylvania. In that case,
where there was an "individual case" in front of a district
court, the Supreme Court said that the court considering the
question "should weigh the federal and state interests involved."
Id. at 533. But the Court neither said, nor implied, anything
about whether or not an agency could pre-specify the rate it was
going to charge states that were delinquent on a particular class
of debts.
Pennsylvania asserts that the general holding of Texaswas that
Congress, in enacting the DCA, intended to hold states
to a more lenient standard than private debtors. However, the
mere fact that Congress intended to exempt states from
mandatorily having to pay at least the minimum rate specified by
the DCA does not show that Congress either intended to exempt
states from interest payments altogether, an argument rejected in
Texas, see id. at 539, or that Congress intended to impose on
federal agencies the costly task of an individualized
consideration of the appropriateness of the rate to be applied in
every case where a state is delinquent on its payments. Cf. id.
at 537-38 ("[I]t does not at all follow that because Congress did
not tighten the screws on the States, it therefore intended that
the screws be entirely removed").
In sum, Pennsylvania has not given us a basis to read
into the federal government's common law right to charge the
states interest the costly and cumbersome obligation that a
federal agency make an individualized determination as to the
appropriate interest rate in every case where a state owes a
debt. To impose such additional costs on federal agencies would
undermine their right to charge interest by significantly
increasing the cost of charging such interest.
In addition, the regulation in question allows the
state to ask for a waiver of the interest charged. It states:
Waivers. The Secretary may waive collecting
all or part of interest, administrative costs
or late payment penalties, if-
(1) The debt or the charges resulted from the
agency's error, action or inaction (other
than normal processing delays) and without
fault on the part of the debtors; or
(2) Collection in any manner authorized under
this regulation would defeat the overall
objectives of a Departmental program.
45 C.F.R. § 30.13(h).
Even assuming that there is an obligation on the part
of a federal agency to allow room for discretionary
determinations as to how much interest to charge, the waiver
provision would appear to satisfy such a requirement. Under
Section 30.13(h)(2), the Secretary has the ability to choose not
to charge any or part of the interest due (especially if the
state presents a compelling case). 45 C.F.R. § 30.13(h)(2).
Pennsylvania, however, has explicitly stipulated that it does not
meet the requirements for a waiver, (Pennsylvania Br. at 10) even
though, to us, the class of cases that could fit into the waiver
category appears very broad.
(ii) Arbitrary and Inconsistent with Government-Wide Policies
Pennsylvania argues that government-wide policies
require the use of the current value of funds rate, and that HHS
acted arbitrarily and capriciously in charging the private
consumer rate. We are not empowered to substitute our judgment
for that of the agency unless its action was irrational, not
based on relevant factors, or outside statutory authority. SeeCitizens to
Preserve Overton Park v. Volpe, 401 U.S. 402, 416
(1971). We find none of those conditions present here.
The government-wide policy specific to interest rates
is set out in the Federal Claims Collection Standards, which
state in relevant part:
The rate of interest assessed shall be the
rate of the current value of funds to the
U.S. Treasury (i.e., the Treasury tax and
loan account rate), as prescribed and
published by the Secretary of the Treasury in
the Federal Register and the Treasury Fiscal
Requirements Manual Bulletins annually or
quarterly, in accordance with 31 U.S.C. [§]
3717. An agency may assess a higher rate if
it reasonably determines that a higher rate
is necessary to protect the interests of the
United States.
4 C.F.R. § 102.13 (emphasis added).
The language of the regulation unambiguously allows HHS
to charge a rate higher than the current value of funds rate, so
long as it is reasonably in the government's interest. In this
case, HHS charged the market rate of interest. That is almost
per se reasonable, but is doubly so where the agency in question
is seeking to provide its debtors with incentives to clear their
debts promptly.
(iii) Inconsistent with Internal Regulations
Pennsylvania's next argument is that HHS's charging it
the private consumer rate was inconsistent with HHS's own
regulations authorizing that the private rate be charged. At
issue is the language in the regulation that "the Secretary shall
charge an annual rate of interest as fixed by Secretary of the
Treasury after taking into consideration private consumer rates
of interest prevailing on the date that the Department becomes
entitled to recovery." 45 C.F.R. 30.13(a)(1). Here, HHS did use
a rate fixed by the Secretary of the Treasury. But Pennsylvania
argues that HHS was not permitted to use a rate determined in
conjunction with a different federal program.
Pennsylvania's argument is unavailing. We owe
"substantial deference to an agency's construction of its own
regulation." Elizabeth Blackwell Health Center For Women v.
Knoll, 61 F.3d 170, 183 (3d Cir. 1995), cert. denied, 116 S. Ct.
816 (1996) (citing Martin v. Occupational Safety and Health
Review Comm'n, 499 U.S. 144, 150-51 (1991)). We "must defer to
the Secretary's interpretation unless an ``alternative reading is
compelled by the regulation's plain language or by other
indications of the Secretary's intent at the time of the
regulation's promulgation.'" Thomas Jefferson Univ. v. Shalala,
114 S. Ct. 2381, 2386-87 (1994) (quoting Gardebring v. Jenkins,
485 U.S. 415, 430 (1988)). The plain language of the regulation
here does not compel Pennsylvania's suggested reading. Nor has
Pennsylvania pointed to any indications of the Secretary's intent
at the time of promulgation that support its reading. Relying on
an approximation of the private interest rate on the market that
was determined for a different federal program was reasonable
under the regulation. We cannot say that HHS violated its own
regulation.
B. Procedural Challenges to the Regulation
Statute of Limitations
Pennsylvania asserts that HHS's interest rate
regulation, adopted over eight years ago, is invalid because it
was adopted pursuant to inadequate notice and comment procedures.
The applicable statute of limitations for civil actions against
the United States under the Administrative Procedures Act ("APA")
is six years. See, e.g., Dougherty v. United States Navy Bd.,
784 F.2d 499, 500-01 (3d Cir. 1986). The regulation at issue was
promulgated in final form in January 1987, and this suit was
brought in October 1994. Hence, Pennsylvania has to demonstrate
that the statute of limitations was tolled for its claim to
survive. We agree with the district court that Pennsylvania
failed this task.
The essence of Pennsylvania's argument that the statute
of limitations has not run is that its claim was not "ripe" until
less than six years before suit was filed. Ripeness is largely a
prudential doctrine designed "to prevent the courts, through
avoidance of premature adjudication, from entangling themselves
in abstract disagreements over administrative policies, and also
to protect the agencies from judicial interference until an
administrative decision has been formalized and its effects felt
in a concrete way by the challenging parties." Abbott
Laboratories v. Gardner, 387 U.S. 136, 148-49 (1967). In
conducting a ripeness analysis, the court must consider whether
or not the question is purely legal and easy to resolve, whether
the agency or court has an interest in postponing review, and the
extent to which the parties will be caused hardship if review is
withheld. See Eagle-Picher Indus., Inc. v. EPA, 759 F.2d 905,
915 (D.C. Cir. 1985); Erwin Chemerinsky, Federal Jurisdiction, §§
2.4.2 & 2.4.3, 116-125 (1994); Cf. Artway v. Attorney General of
N.J., 81 F.3d 1235, 1247 (3d Cir. 1996).
Pennsylvania provides us with little assistance in
evaluating its ripeness challenge. Its opening brief does not
even mention the term "ripeness," let alone make a substantial
argument as to why its claim was not ripe at the time of
promulgation of the regulation. Instead, Pennsylvania's opening
brief merely states conclusorily that suit could not have been
realistically brought at the time of promulgation of the
regulation because there was no "substantial threat" of "real or
immediate" harm at that time. (Pennsylvania Br. at 23) The
first time that Pennsylvania mentioned the term "ripeness" was in
its reply brief, but once again that brief contains nothing
except a conclusory assertion that there was no substantial
threat of real and immediate enforcement of the regulation at the
time of its promulgation. (Pennsylvania Reply Br. at 9) These
conclusory assertions are not enough. We hold the ripeness
argument waived. See Laborers' Int'l Union of N. Am. v. Foster
Wheeler Corp., 26 F.3d 375, 398 (3d Cir.) ("An issue is waived
unless a party raises it in its opening brief, and for those
purposes ``a passing reference to an issue . . . will not suffice
to bring that issue before this court.'" (citation omitted)
(ellipsis in original)), cert. denied, 115 S. Ct. 356 (1994);
Service Employees Int'l Union v. Local 1199 N.E., 70 F.3d 647,
653 n.7 (1st Cir. 1995) (argument mentioned in passing, but not
squarely argued, is waived).
In any event, Pennylvania's ripeness challenge fails on
its merits. As a threshold matter, we note that the ripeness
challenge here arises in an unusual setting. Pennsylvania's
argument isn't the typical argument that its claim is ripe today
and should be adjudicated. Rather, the argument is that
Pennsylvania's claim was not ripe in 1987, when HHS's interest
rate regulation was promulgated. In effect, Pennsylvania wants
us to conduct a hypothetical retrospective ripeness analysis. As
a general matter, courts are not well suited to decide
hypothetical questions about what they might have done in the
past. See Eagle-Picher, 759 F.2d at 914. If courts were to
"routinely conduct retrospective ripeness analyses where a late
petitioner offers no compelling justification for not having
filed his claim in a timely manner, [it]. . . would wreak havoc
with the congressional intention that repose be brought to final
agency action." Id.
In this case, however, we can make the ripeness
determination easily. The Abbott Laboratories ripeness test
involves consideration of: (I) the hardship to the parties of
withholding consideration and (II) the fitness of the issues for
judicial decision. 387 U.S. at 149; Pic-A-State Pa., Inc. v.
Reno, 76 F.3d 1294, 1298 (3d Cir. 1996). We evaluate these
factors in light of the circumstances that were in existence at
the time of the promulgation of HHS's interest rate regulation.
(I) Hardship to the Parties
The central question here is the extent to which
denying the plaintiff judicial review would cause it hardship.
See Chemerinsky, Federal Jurisdiction § 2.4.2, 116-23. We
conclude that had Pennsylvania made its procedural challenges at
the time of the promulgation of the regulation, a federal court
would have determined that postponing review would cause
Pennsylvania hardship.
At the outset, we note that Pennsylvania does not
dispute that it had notice of HHS's regulations more than six
years before October 1994, when the instant suit was commenced.
HHS had proposed the repeal of its former regulation in the
Federal Register in 1985 and had received public comment on its
proposed rule changes that same year. (Dist. Ct. Op. at 3 n.2)
Further, in April 1988, HHS issued an Action Transmittal
Memorandum to all state agencies administering programs under
Title IV of the Social Security Act (which covers AFDC), alerting
them that, in accordance with its regulations, HHS was going to
charge interest on disallowed paid claims for which states had
received federal financial participation. (Dist. Ct. Op. at 3
n.2).
Pennsylvania argues that its claim was not ripe at the
time of promulgation of the regulation because it had no
outstanding debts at the time and hence was not immediately
subject to an interest charge. In essence, the claim is that
there was no hardship at the time of the promulgation of the
regulation. That is like saying that an increase in the interest
rate charged for late payments on a credit card presents no
hardship to the customer because the customer has not yet made a
delayed payment under the new and higher interest rate. We
disagree with that premise. Instead, we think it more likely
that the customer will have to change his behavior at the time he
is informed of the rate hike in order to avoid the risk of having
to pay the higher interest rate and hence will suffer a direct
hardship at the time of the rate hike. The fact that the new,
higher interest rate is a contingent future charge does not
preclude it from causing harm to the party at the time it is put
into place. Cf. Riva v. Massachusetts, 61 F.3d 1003, 1012 (1st
Cir. 1995) (fact that harm from adoption of a plan negatively
affected payments that plaintiff was to receive many years into
the future did not preclude adjudication of claim at the current
time; the plan concretely harmed plaintiff in creating
uncertainty regarding his future income stream); cf. also Lorance
v. AT & T Technologies, Inc., 490 U.S. 900, 906-08 (1989) (in
suit challenging a seniority system that allegedly discriminated
against women, Court ruled that plaintiffs could sue at the time
the system was put into place without waiting for the system's
adverse effects because the very adoption of the plan imposed a
concrete harm on the plaintiffs).
Had Pennsylvania challenged the regulation at the time
of its promulgation, that would have eliminated the uncertainty
as to its obligations thereunder. The elimination of this
uncertainty as to whether or not it could be charged a rate of
interest as high as the rate applicable on the private consumer
market would have made it easier for Pennsylvania to decide how
long it wanted to delay on payments it owed HHS. Concurrently,
HHS would also have benefitted from the resolution of uncertainty
regarding the validity of its regulation.
(II) Fitness of the Issues for Resolution
Once again we look retrospectively to the time of
promulgation of the regulation. The question is whether the
issues were fit to be resolved at the time and whether the agency
or court would have had an interest in postponing review. SeeEagle-
Picher, 759 F.2d at 915; see also Artway, 81 F.3d at 1249
("The more that the question presented is purely one of law, and
the less that additional facts will aid the court in its inquiry,
the more likely the issue is to be ripe, and vice-versa.")
Pennsylvania's challenge would have been to whether HHS followed
the proper notice and comment procedures in the enactment of its
regulation. All the facts pertaining to such a challenge would
have been fully developed and available at the time of the
promulgation of the regulation. Delay would not have allowed the
development of additional facts, and would only have served to
make the relevant facts harder to retrieve.
In sum, the "injury" to Pennsylvania occurred at the
time of the alleged procedural improprieties, and Pennsylvania
was "aggrieved" at the time of promulgation of the regulation.
See JEM Broadcasting v. FCC, 22 F.3d 320, 326 (D.C. Cir. 1994);
Shiny Rock Mining Corp. v. United States, 906 F.2d 1362, 1365-66
(9th Cir. 1990). Hence, Pennsylvania's procedural challenge
should have been brought within six years of the promulgation of
the regulation.
C. Exclusion of Documents and Incomplete Rulemaking
Record
In addition to challenging HHS's notice and comment
procedures, Pennsylvania argues that the district court erred in
excluding certain documents from the record on the ground of
privilege and in granting summary judgment on an incomplete
rulemaking record. From what we can discern, the documents
Pennsylvania seeks pertain to the rulemaking process and not the
application of the rule. Pennsylvania has failed to apprise us
of how these documents or a more complete rulemaking record would
change or influence our conclusions as to HHS's application of
the regulation. Therefore, we see no basis for reversing the
decision of the district court.
III.
The decision of the district court is affirmed. Costs
are awarded to the appellee, the United States.