State of PA v. Secretary of Dept Ed ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
5-15-1996
State of PA v. Secretary of Dept Ed
Precedential or Non-Precedential:
Docket 95-3308
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 95-3308
___________
STATE OF PENNSYLVANIA
Petitioner,
vs.
RICHARD W. RILEY, Secretary of the United
States Department of Education,
Respondent.
___________
APPEAL FROM THE DECISION
OF THE UNITED STATES DEPARTMENT OF EDUCATION
(No. 93-136-R)
(No. 93-44-R)
___________
ARGUED JANUARY 23, 1996
BEFORE: MANSMANN and LEWIS, Circuit Judges
and RESTANI, Judge, Court of International Trade.
(Filed: May 15, 1996)
___________
Michael Brustein
Kristin E. Hazlitt (ARGUED)
Brustein & Manasevit
3105 South Street, N.W.
Washington, DC 20007
Attorneys for Respondent
Lynette E. Charboneau (ARGUED)
United States Department of Education
600 Independence Avenue, S.W.
Washington, DC 20202
Attorney for Respondent
___________
OPINION OF THE COURT
___________
LEWIS, Circuit Judge.
The Commonwealth of Pennsylvania's Department of
Eduction ("PDE") appeals from a final decision of the United
States Secretary of Education requiring Pennsylvania to refund
$3,082,088.95 to the United States. PDE argues that the
Secretary erred in denying PDE an evidentiary hearing, and that
the Secretary's decision violates Pennsylvania's sovereign right
to interpret its own statutes. For the following reasons, we
will affirm the decision of the Secretary.
I.
The underlying facts of this case involve the interplay
between federal and state programs which fund vocational
education, and the requirements states must meet in order to
receive federal funding. Under the Perkins Vocational Education
Act, 20 U.S.C. 2301-2471 (1988) ("Perkins Act"), federal grants
are issued to the states to "assist the States to expand,
improve, modernize, and develop quality vocational education
programs in order to meet the needs of the Nation's existing and
future work force for marketable skills and to improve
productivity and promote economic growth." 20 U.S.C. 2301(1).
The Perkins Act defines vocational education as:
organized educational programs which are
directly related to the preparation of
individuals in paid or unpaid employment in
such fields as agriculture, business
occupations, home economics, health
occupations, marketing and distributive
occupations, technical and emerging
occupations, modern industrial and
agriculture arts, and trades and industrial
occupations, or for additional preparation
for a career in such fields, and in other
occupations, requiring other than a
baccalaureate or advanced degree and
vocational student organization activities as
an integral part of the program; and for
purposes of this paragraph, the term
"organized education program" means only (A)
instruction (including career guidance and
counseling) related to the occupation or
occupations for which the students are in
training or instruction necessary for
students to benefit from such training, and
(B) the acquisition (including leasing),
maintenance, and repair of instructional
equipment, supplies, and teaching aids; but
the terms do not mean the construction,
acquisition, or initial equipment of
buildings, or the acquisition or rental of
land.
20 U.S.C. 2471(31) (emphasis added).
Funding under the Perkins Act, however, is contingent
upon the state maintaining or exceeding its own level of
financial support for these programs. According to the Act:
No payments shall be made under this
chapter for any fiscal year to a State unless
the Secretary determines that the fiscal
effort per student or the aggregate
expenditures of such State for vocational
education for the fiscal year preceding the
fiscal year for which the determination is
made, equaled or exceeded such effort or
expenditures for vocational education for the
second preceding year.
20 U.S.C. 2463(a). This requirement is reflected in the Act's
implementing regulations which provide that:
[t]he Secretary may not make a payment under
the Act to a State for any fiscal year unless
the Secretary determines that the fiscal
effort per student, or the aggregate
expenditures of that State, from State
sources, for vocational education for the
fiscal year (or program year) preceding the
fiscal year (or program year) for which the
determination is made, at least equaled its
effort or expenditures for vocational
education for the second preceding fiscal
year (or program year).
34 C.F.R. 401.22(a) (1990). Thus, in order to receive federal
funding under the Perkins Act, a state must maintain or increase
its level of financial support for vocational education within
the state to qualify for funding for the next year. As the
federal funding is provided to the states before the Secretary
determines whether the state qualifies under this section,
actions brought by the Secretary take the form of actions for
refunds.
The dispute in this case involved whether a particular
Pennsylvania program, the Customized Job Training Program
("CJT"), is a vocational education program for the purpose of
Perkins Act funding. According to the legislative intent, the
CJT was created:
to meet the training needs of the State's new
and expanding business by enhancing the
skills of workers of this Commonwealth. In
so doing, funding shall be dedicated towards
training projects which result in net new
full-time employment opportunities,
significant wage improvements, the retention
of otherwise lost jobs or other conditions
which would offer substantial economic
benefit to this Commonwealth. Recognizing
that many regions of the State remain
economically distressed, customized job
training programs should attempt to meet the
special job training needs of these areas.
App. at 54 (emphasis added). During the period at issue, the PDE
had the primary responsibility for approving applications and
drafting regulations under the CJT. The program, however, was
administered by an inter-agency advisory task force comprised of
representatives from the Pennsylvania Departments of Labor and
Industry, Commerce, Education, and the Economic Development
Committee of the Cabinet.
The United States Department of Education concluded
that during fiscal years ("FY") 1989 and 1991, Pennsylvania
failed to maintain its level of effort on either a per-student or
aggregate basis. According to the United States, Pennsylvania's
aggregate expenditures declined from $67,322,560 in FY 1987 to
$60,436,193 in FY 1988, and its per-student expenditures declined
from $283.95 in FY 1987 to $283.04 in FY 1988. App. at 161, 163,
165-66. Pennsylvania's aggregate expenditures also declined from
$64,026,598 in FY 1989 to $59,917,439 in FY 1990, and its per-
student expenditures declined from $348.41 in FY 1989 to $332.39
in FY 1990. These decreases were discovered during audits
conducted ending in FY 1989 and FY 1991, and resulted from
Pennsylvania's decision not to include the CJT program in its
maintenance of effort after having done so for five years.
Pursuant to the Perkins Act, the auditors questioned
the total amount of federal vocational education funds expended
during FY 1989 ($41,827,000) and FY 1991 ($39,603,000). App. at
154, 159. After reviewing further information provided by
Pennsylvania, the Assistant Secretary sustained the finding that
Pennsylvania failed to maintain its level of fiscal effort in
FY's 1989 and 1991, but only demanded a refund of the amounts
Pennsylvania failed to maintain on a per-student basis, totaling
$3,082,088.95. Pennsylvania appealed to the Office of
Administrative Law Judges.
Before the ALJ, Pennsylvania presented evidence,
consisting of nineteen exhibits including affidavits, and legal
arguments in seeking to establish that it had complied with the
maintenance of effort requirement for FY's 1989 and 1991.
Pennsylvania's theory was that the CJT costs should not have been
included in the calculations as state funds spent on vocational
education because: (1) it was within the sole discretion of the
state to determine whether the CJT program was a vocational
education program for the purposes of determining its maintenance
of effort; and (2) the CJT program did not fall under the
definition of "vocational education" as set forth in the Perkins
Act. 20 U.S.C. 2471(31).
Pennsylvania requested an evidentiary hearing before
the ALJ, alleging that factual issues remained in dispute. PDE
claimed that an evidentiary hearing was necessary in order to
understand the nature of the CJT program, and with its brief and
reply brief attached a list of ten witnesses, three affidavits,
and other documentary evidence to support its claim. The ALJ
held a prehearing conference in which he requested stipulations
to certain proposed evidence. After the conference, the ALJ
allowed PDE to submit an amended witness list which included a
brief statement as to why each proposed witness' testimony was
important to the determination. According to PDE, the witnesses'
testimony would support its claim that the purpose of CJT was to
provide incentives to businesses and promote economic development
in Pennsylvania, rather than to provide vocational education to
adults.
The ALJ then issued his initial decision. He found
that PDE had failed to maintain its fiscal efforts for the year
in question and that an evidentiary hearing was unnecessary. The
decision concluded that federal rather than state law controls
which state activities fall within the federal definition of
vocational education for calculating maintenance of effort, and
that the CJT funds fell within the federal definition. The ALJ
further found that Pennsylvania's characterization of the CJT
program as a business incentive program was consistent with
vocational education under the Perkins Act, and that the funds,
therefore, had to be included in determining Pennsylvania's
maintenance of effort. As to the evidentiary hearing, the ALJ
concluded, based upon the completeness of the record, the briefs
and his review of the appropriate submissions,
that an evidentiary hearing would serve no
useful purpose, and . . . is not needed to
resolve any material factual issue in
dispute. In view of the conceded facts, what
we have remaining is more in the nature of a
dispute as to a matter of law, i.e., the
application of specific Federal statutory and
regulatory definitions in the face of mainly
agreed facts.
App. at 11 (ALJ's Decision) (emphasis in original). The
Secretary certified the ALJ's decision as a final decision of the
Department, and this appeal followed.
On appeal, Pennsylvania "is not requesting that this
Court reconsider the Department's application of the federal
definition of vocational education, or that the Court consider
the questions of fact surrounding the State CJT program.
Pennsylvania only asks the Court to consider the propriety of the
issuance of the Department's Decision without an evidentiary
hearing and without fully considering the evidence in the record
regarding the State's interpretation of the CJT program."
Appellant's Br. at 3-4.
II.
We have jurisdiction to review the Secretary's decision
under 20 U.S.C. 1234g. In general, when reviewing the
Secretary's decision, we must determine whether the Secretary's
findings of fact are supported by substantial evidence and
reflect the application of the proper legal standards. Bell v.
New Jersey, 461 U.S. 773, 792 (1983); Jones v. Sullivan, 954 F.2d
125, 127-28 (3d Cir. 1991). The Secretary's decision to grant an
evidentiary hearing is discretionary, however, and will only be
reversed if it is arbitrary and capricious. California v.
Bennett, 843 F.2d 333, 340 (9th Cir. 1988); Bell Telephone Co. of
Pa. v. FCC, 503 F.2d 1250, 1267 (3d Cir. 1974).
III.
A.
Pennsylvania argues that the ALJ's failure to hold an
evidentiary hearing denied it the opportunity to present complete
factual evidence as to the nature of the CJT program. Whether
an evidentiary hearing is necessary, however, is left to the
Secretary's sound discretion. An administrative agency need not
provide an evidentiary hearing when there are no disputed
material issues of fact, Moreau v. F.E.R.C., 982 F.2d 556, 568
(D.C. Cir. 1993); Altenheim German Home v. Turnock, 902 F.2d 582,
584 (7th Cir. 1990); California v. Bennett, 843 F.2d at 340; Bell
Telephone Co. of Pennsylvania v. FCC, 503 F.2d at 1267-68; or
when the dispute can be adequately resolved from the paper
record. Puerto Rico Aqueduct & Sewer Auth. v. E.P.A., 35 F.3d
600, 606 (1st Cir. 1994); Louisiana Ass'n of Indep. Producers and
Royalty Owners v. FERC, 958 F.2d 1101, 1113-15 (D.C. Cir. 1992);
City of St. Louis v. Department of Transp., 936 F.2d 1528, 1534
n.1 (8th Cir. 1991). The Secretary will abuse its discretion
only when the complaining party demonstrates that the failure to
provide an evidentiary hearing denied the party "the opportunity
to speak meaningfully to the issues before the [Secretary]."
Bell Telephone, 503 F.2d at 1268.
The relevant portions of the Department of Education's
regulations provide that:
an ALJ conducts the hearing entirely on the
basis of briefs and other written submissions
unless --
(1) The ALJ determines, after reviewing
all appropriate submissions, that an
evidentiary hearing is needed to resolve a
material factual issue in dispute.
34 C.F.R. 81.6(b)(1). Proceedings before the Office of
Administrative Law Judges, therefore, are generally conducted on
the basis of a written record alone. Evidentiary hearings are
authorized, but only when the ALJ determines that one is "needed"
to resolve a material factual issue. Consequently, the narrow
predicates for an evidentiary hearing may be summarized simply
and succinctly as: (1) a disputed material issue of fact; and
(2) a need to resolve it.
The Secretary's decision that no evidentiary hearing
was necessary was not arbitrary and capricious.
First, there is simply no dispute as to any material
issues of fact in this case. Neither the Secretary nor the ALJ
challenged Pennsylvania's "factual" claim that the CJT is "viewed
. . . as a labor and economic development program," Appellant's
Br. at 17. For example, the ALJ noted that:
Certainly, it should not be surprising that a
vocational education program would (also)
serve "the needs of industry," and notbenefit "only" individuals
entering fields
not requiring baccalaureates or advanced
degrees. This would appear to be true of
virtually any vocational education program.
App. at 9 (ALJ Decision) (emphasis in original). In fact, the
Perkins Act, itself, was enacted, inter alia, "to improve
productivity and promote economic growth." 20 U.S.C. 2301(1).
Similarly, despite Pennsylvania's remonstrances over the goals
and objectives of the program, there was no dispute over any of
the specific job training activities carried out under CJT
funding, and PDE offered no evidence to demonstrate that the job
training activities funded by the CJT program did not fit the
Perkins Act's definition of vocational education. Accordingly,
we find that the ALJ was correct in concluding that "[i]n view of
the conceded facts, what we have remaining is more in the nature
of a dispute as to a matter of law, i.e., the application of
specific Federal statutory and regulatory definitions in the face
of mainly agreed facts." App. at 11 (ALJ Decision).
Second, even if there were disputed material issues of
fact, the written record was adequate to resolve any remaining
issues. Pennsylvania was permitted to submit substantial
evidence on several occasions to the effect that the CJT was a
business incentive rather than vocational education program.
Even assuming that "oral testimony provides a far more complete
and persuasive analysis of disputed facts than written
documentation," as PDE contends, there is absolutely nothing
before us to demonstrate that the written record was inadequate.
Three of the proposed witnesses filed affidavits, and PDE's
argument was expounded upon at great length in its submissions.
Indeed, the testimony of the potential witnesses appears to be
cumulative at best. Given the breadth and depth of the written
record, we cannot say that the ALJ's conclusion that "[t]he
opinions and credibility of lay witnesses (e.g., Pennsylvania
state employees) explored on direct or cross-examination as to
the State's intentions and objectives in administering the CJT
program would add nothing material to the limited issues involved
in this proceeding," App. at 11 (ALJ Decision), was arbitrary and
capricious.
But in the end, Pennsylvania's characterization of the
program as non-vocational is irrelevant in any event. The
Perkins Act, not the Commonwealth of Pennsylvania, defines what
constitutes vocational education under the Act. 20 U.S.C.
2471(31). Thus, Pennsylvania's complaint boils down to nothing
more than a simple dissatisfaction with the conclusion reached by
the ALJ after applying the uncontested law to undisputed material
facts. Surprisingly, however, Pennsylvania does not challenge
the Secretary's substantive conclusion or its factual
underpinnings. Under these circumstances, the opportunities
provided by the Secretary permitted Pennsylvania to speak
meaningfully to any factual issues presented in this matter. As
such, the Secretary's determination that an evidentiary hearing
was unnecessary was not arbitrary and capricious.
B.
Pennsylvania's final argument is that the Secretary's
decision impinges upon its right to interpret its own laws.
According to Department of Education precedent, "it is a
wellsettled maxim of federalism that Federal tribunals should
defer to a state's interpretation of its own laws." In re Oregon
State System of Higher Education, No. 92-25-SP, Final Decision,
at 22, 1993 WL 452646, at *11 (Educ. Appeals Bd., Apr. 5, 1993).
PDE argues that the ALJ's conclusion that the CJT program is a
vocational education program as provided by the Perkins Act
conflicts with Pennsylvania's right to characterize the CJT
program as a business incentive program. We disagree. We
conclude that the ALJ's determination does not in any way
infringe upon Pennsylvania's sovereign authority.
Unlike the cases cited by the PDE in its brief, this
case does not involve a federal agency telling a state how to
interpret and implement a state statute as would occur, for
example, if the state interpreted the word "shall" in a state
statute to be discretionary, and despite this interpretation, the
Secretary interpreted it as mandatory. See In re Gulf Coast
Trades Center, No. 89-16-S, Decision of the Secretary, at 2-3
(Oct. 19, 1990) (concluding that the Secretary had to accept the
state's interpretation of the statute despite the plain reading
of the text). PDE quotes Arkansas Power & Light Co. v. Federal
Power Comm'n, 156 F.2d 821, 833 (D.C. Cir. 1946), rev'd 330 U.S.
802 (1947), for the proposition that:
Even if it be said that the [agency] has the
right to exercise the judicial function of
interpreting its own organic act, it could
hardly be added that that agency also
possesses the exclusive right to interpret a
statute of one of the States of the Union,
and to decide the relation between that state
legislation and its own Act.
While this language appears to lend some support for PDE's
argument, the quote is taken out of context. The quoted portion
of the opinion does not stand for the principle that an agency
must defer to the state when interpreting a state statute in
conjunction with federal law. Instead, it stands for the
proposition that a sovereign state need not "appear before a
federal administrative body in order to have determined the legal
effect of one of its statutes considered in connection with a
related federal statute." Id. In other words, administrative
agencies do not have exclusive jurisdiction when it comes to
interpreting state law in conjunction with federal law. But
neither of these circumstances is presented in this case. The
Secretary merely applied the federal definition of vocational
education for the purposes of the Perkins Act to determine
whether or not the activities carried out under the CJT program
fit within that definition. Pennsylvania can characterize its
program anyway it pleases. If, however, the Commonwealth wishes
to receive federal funding under the Perkins Act, it will be
subject to the requirements established by federal law.
The Perkins Act explicitly defines the activities that
constitute vocational education under the Act, and vests in the
Secretary the responsibility for determining whether or not a
state program funds vocational education for the purposes of
determining the eligibility to receive federal funding under the
Act. 20 U.S.C. 2463(a). In this context, the Secretary's
application of federal law to the undisputed facts does not
impinge upon the State's authority to interpret its own laws.
See In re Webster Career College, Inc., No. 91-39-SP, Decision of
the Secretary (July 23, 1993) (concluding that the State's
authority is not being impinged because federal law made the
Secretary responsible for defining the term "academic year").
The Secretary, not the state, is responsible for interpreting
federal law, and in cases which involve an agency's
interpretation of federal law and its own regulations, we must
defer to the Secretary. Chevron, USA, Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 843-45 (1984); Passaic
Valley Sewerage Comm'n v. Department of Labor, 992 F.2d 474, 478
(3d Cir. 1993).
IV.
For the foregoing reasons, we will affirm the decision
of the Secretary of the United States Department of Education.