Florida Agency for Workforce Innovation v. United States Department of Labor

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 05-11664 APRIL 24, 2006
________________________ THOMAS K. KAHN
CLERK
DOL Nos. ARB 04-168 & ALJ 99-JTP-16
FLORIDA AGENCY FOR WORKFORCE INNOVATION,
Petitioner,
versus
UNITED STATES DEPARTMENT OF LABOR,
Respondent.
________________________
Petition for Review of a Decision of the
Department of Labor
_________________________
(April 24, 2006)
Before CARNES, WILSON and PRYOR, Circuit Judges.
PER CURIAM:
Appellant Florida Agency for Workforce Innovation (“Florida”)1 petitions
for review of the United States Department of Labor (“DOL”) Administrative
Review Board’s (“ARB”) decision disallowing $11,419,499 in federal funds
granted to Florida under the Job Training Partnership Act (“JTPA”), Pub. L. No.
97-300, 96 Stat. 1322 (codified as amended at 29 U.S.C. § 1501 et seq.) (repealed
2000). Pursuant to an audit conducted by the DOL’s Office of Inspector General
(“OIG”), a DOL Grant Officer (“GO”) determined that Florida’s expenditure of the
federal monies did not comport with JTPA requirements, and therefore disallowed
the entire $11.4 million. Florida then sought a hearing before a DOL
administrative law judge (“ALJ”), who ultimately reversed the GO’s decision and
found that Florida had expended the JTPA funds lawfully. The ARB, however,
accepted DOL’s petition for further review and reversed the ALJ, affirming the
GO’s decision to disallow and recover the $11.4 million. Florida now petitions
this Court to reverse the ARB’s decision, arguing that the decision misconstrued
statutory language, was not supported by substantial evidence, and deprived
Florida of due process. We deny the petition and affirm the ARB.
I. BACKGROUND
1
Petitioner is the successor agency to the Florida Department for Labor and Employment
Security, which was the pertinent state entity during much of the relevant time period in this
case. We intend the term “Florida” to encompass both Petitioner and its predecessor.
2
In the mid-1990s, DOL’s Employment and Training Administration
(“ETA”) granted the State of Florida millions of dollars in JTPA federal funds to
assist disadvantaged youths (Title II) and retrain dislocated workers (Title III).
Forty percent of these monies were held in a discretionary “Governor’s Reserve”
fund administered at the state level.2 Florida then used a portion of these reserve
funds, in combination with lottery funds and general revenues, to support its
Performance Based Incentive Fund (“PBIF”). PBIF, a state program developed in
1994, was designed to reward community colleges and school district programs for
retraining certain qualified students, including JTPA Title III eligible “dislocated
workers.” See, e.g., Fla. Stat. Ann. § 239.249(3) (1995) (repealed 2000).
Participating colleges and school districts received various “incentive” payments as
their eligible students met certain performance benchmarks (e.g., enrolling,
completing certain courses and finding placement in higher-paying jobs). See id.These payments increased for each successive level of performance reached, and
were higher for an eligible JTPA dislocated worker or other qualified student, as
opposed to a general student.3
2
Florida allocated the other 60% of the funds among several local service delivery areas
known as Regional Workforce Development Boards (“RWDBs”) or Private Industry Councils
(“PICs”), which used the funds to recruit dislocated workers to enroll in community college and
school district retraining programs, and to pay their annual tuition. The GO did not challenge
Florida’s expenditure of these JTPA Title III funds.
3
In 1994, Florida asked ETA to review the draft PBIF legislation. DOL Assistant
Secretary Doug Ross responded with a letter cautioning that “the procurement of any services
3
When PBIF was initiated, Florida law capped the amount of a student’s
annual tuition at 10% or 25% of the prior year’s cost of completion, depending
upon the program involved. See Fla. Stat. Ann. § 239.117(4)(a), (5)(a) (1994).
Florida would then attempt, on an annual basis, to calculate the amount of funds
necessary to cover the projected remainder of students’ instructional costs, though
the state legislature had the final say on actual appropriations. Sometimes this
calculation used the previous year’s number of full time equivalent (“FTE”)
students and was based on the average instructional cost per FTE student. If an
entity’s portion of appropriated funds proved insufficient to cover the remaining
costs incurred during a given year, the entity would not be appropriated additional
funds to cover the excess costs.4 Although PBIF payments were not factored into
the annual appropriations, an entity could not receive PBIF payments until (1) it
had exhausted its state appropriated funds, and (2) its level of performance
(enrollments, course completions, and placements) in serving qualified students
matched the level of performance from the base year (i.e., the year before PBIF’s
utilizing federal funds” would have to comply with § 164 of the JTPA and applicable regulations
(i.e., the services purchased had to be “reasonable and cost effective”), duplicate payments
would not be allowed, and JTPA Title III reporting and record keeping requirements would
apply with respect to eligible dislocated workers who received Title III funded services.
4
Community colleges were required to admit all applicants, regardless of whether the
appropriations were sufficient. Once school districts and community colleges exhausted their
annual appropriations, they could still charge any additional students (the “overcap” population)
for the tuition portion of costs.
4
implementation).5 Even though PBIF payments for targeted groups (such as
eligible dislocated workers) were higher than for other groups, the payments were
designed never to exceed the actual costs of instruction.
In 1996, ETA received complaints that Florida was not spending JTPA
funds lawfully–namely, that PBIF was not using JTPA funds to provide any
services to JTPA eligible students which were not already available to that group
as a result of general state appropriations. At ETA’s request, OIG audited PBIF
program activities from March 1, 1995 through June 9, 1998. OIG’s audit report
concluded that PBIF payments violated the JTPA in three principal ways: (1) funds
were not used “for activities which are in addition to those which would otherwise
be available in the area in the absence of such funds,” as required by JTPA §
141(b), because schools “received incentive payments for serving JTPA
participants, yet did not provide them with instruction or assistance distinguishable
from that available to the general student population”; (2) costs were not
“necessary and reasonable for proper and efficient administration of the program,”
as required by JTPA § 164(a)(2)(A), because the State was already obliged to
cover the non-tuition costs of JTPA eligible students; and (3) funds were used to
improve programs available to all students who met enrollment requirements, but
5
In addition, PBIF participants were required to put a portion of their annual
appropriations “at risk” by placing that portion in the PBIF fund and then “earning” it back
before receiving any additional PBIF monies.
5
JTPA § 164(a)(2)(C) requires that costs “not be a general expense required to carry
out the overall responsibilities of State . . . governments . . . .”
In response, Florida asserted that the auditors were operating under two
misconceptions:
First of all, PBIF was never intended to fund special services for any
sub-set of its clientele . . . . Great pains are taken within Florida’s
educational programs to treat students equally and equitably and not
to label and stigmatize students with an association to this program or
that program. Who pays for the tuition, the transportation to get the
student to class, or the day-care for the student’s child is transparent to
the instructor. . . . The second misperception that the auditors held is
that the state vocational education system has boundless capacity and
that if the student has money for tuition from JTPA or whatever
source, it is the obligation of the state to serve that student. Equal and
equitable access to programs is an obligation of the state. Unlimited
access is not. Vocational education in Florida is not an entitlement
program.
The real benefits obtained by JTPA funds, Florida argued, are realized “not in
tracking the individual dollars of any one source of revenue, but rather [in]
examining the overall funding of Florida’s vocational education program and that
of PBIF.” PBIF “expanded service capacity and program production of Florida’s
high skills/high wage programs,” particularly “for JTPA Title III and other
disadvantaged students.” PBIF payments were neither unnecessary nor
unreasonable, because they were constructed never to exceed the actual cost of
service and were made only for successful performance by students. Finally,
Florida argued, auditors should consider the following: (1) PBIF took advantage of
6
economies of scale, because the fixed costs of various programs were already
covered by general revenue funding, and those programs could therefore be
expanded at a lower variable cost rate; (2) PBIF payments were delayed during its
first year in effect, so educational institutions had to cover costs with “loans” from
budget areas “where payments could be deferred as capital outlay,” which is why
PBIF funds were later used to purchase equipment and meet other deferred general
costs; and (3) PBIF encouraged educational entities to initiate or expand high
skill/high wage programs by offering them up to $25,000 (in general revenue or
lottery funding) if they were able to secure a private sector match by an employer
who hired students from that high skill/high wage program.
OIG was not persuaded. Under Florida’s own description of PBIF, the audit
report replied, JTPA funds were not used specifically to assist eligible members of
the requisite target groups. Given that JTPA-eligible students were “transparent,”
they were “entitled to have a share of their educational costs borne by the State, as
occurred for others in the general student population.” OIG also questioned
Florida’s suggestion that, but for PBIF, schools would not have been able to serve
JTPA eligible students or obligated to refocus on high wage/high skill programs.6
6
OIG further disputed the performance data presented in Florida’s response, which
showed considerable increases in enrollments, completions and placements for Title III eligible
students from 1995-97. According to the audit report, Florida “counted students that enrolled in
successive years,” which essentially inflated enrollment counts. In fact, OIG stated, “discrete
counts of the numbers of new JTPA students enrolling in vocational educational courses
7
Ultimately, the audit report recommended that ETA recover $11,419,499 in
“misspent” JTPA funds.
Based on the audit report, the GO issued an Initial Determination (“ID”)
tentatively disallowing the $11.4 million. The ID stated in relevant part:
The grantee’s response to the draft audit report did not provide
information to refute the auditors’ position that the uses to which the
PBIF program put JTPA funds were unallowable.
....
The documentation provided is not sufficient to allow the costs. The
audit has stated that the incentive payments were used to subsidized
[sic] Florida’s state and local adult educational costs. JTPA funds are
to be used in addition to what is already available, not to carry-out
[sic] the overall responsibilities of the State.
In response to the ID, Florida stressed that PBIF payments were structured so that
the payments never exceeded actual costs, even for JTPA eligible participants.
Florida also noted that “many of the schools detailed in writing things that were
done to attract Title III eligible students.” The GO’s Final Determination (“FD”)
nevertheless reaffirmed the $11.4 million disallowance, responding to Florida’s
costs argument as follows: “Aggregate cost figures are inadequate as a basis for
determining whether any of the questioned costs can be allowed. To document the
allowability of these costs, the State must provide documentation of actual costs
incurred and paid for with the JPTA Title III funds.” (emphasis omitted). With
respect to activities done to attract Title III students, the FD stated:
indicates the numbers declined.”
8
The documents that were provided suggest that some of these funds
were spent on recruiters, brochures and fliers, as well as on the costs
of creating or expanding curricula for high skill/high wage
occupational skills training. A portion of these costs may very well be
allocable to the Title III JTPA program. Before any costs can be
determined to be allowable, the State must provide actual
documentation of the costs incurred as well as the basis for allocating
a portion of those costs to JTPA Title III.
(emphasis omitted).
Shortly after the FD issued, Florida sought a hearing on the disallowance
before the ALJ. See 20 C.F.R. §§ 627.800(a), 627.801. DOL moved for a
summary decision, making arguments similar to those raised by the OIG and GO.
After conducting a hearing the ALJ denied the motion, stating that “both the
supply side and the demand side must be evaluated in assessing, under Section
141(b), the ‘availability’ of an activity to the JTPA participant.” Whether Florida’s
training courses were “available” to JTPA eligible persons in the absence of PBIF,
the ALJ found, was a fact-dependent issue not amenable to summary decision. He
then proceeded to conduct a three-day hearing, receiving into evidence numerous
exhibits and the testimony of six witnesses. In July of 2004, the ALJ issued a
lengthy decision reversing the GO’s FD and allowing the $11.4 million in costs.
At its heart, the ALJ stated, DOL’s case rested upon an interpretation of JTPA §§
141(b) and 164 that rendered PBIF’s expenditure of JTPA funds inherently
unlawful. The ALJ considered this interpretation too narrow in light of the
9
pertinent regulatory framework, which sought not merely to avoid duplicate or
overlapping payments, but also to “ensure that the best mix of programs and funds
is available to the JTPA participant.” 59 Fed. Reg. 45,760, 45,767 (Sept. 2, 1994).
While “essentially the same educational services were ‘available’ to dislocated
workers before the State legislature adopted the PBIF program,” the ALJ
acknowledged, and the State did provide funds to cover non-tuition costs, before
the creation of PBIF
the State apparently lacked the focus on the particular target
population Congress singled out for special attention in the JTPA.
Thus, the level of “availability” as measured by the participation of
dislocated workers in the pre-PBIF State system, including funding
above tuitions, was not meaningful for the class of outsourced and
dislocated workers Congress intended to benefit. Witnesses in this
proceeding cited studies indicating that dislocated workers simply
were not being re-trained and re-employed in significant numbers.
The PBIF program, to a large extent, changed that. Considered in
context, the “activity” in addition to those that were otherwise
“available” in the area within the meaning of Sections 141(b) and 164
was the PBIF program itself.
Under this interpretation, and considering the safeguards employed by Florida, the
ALJ concluded, Florida’s PBIF expenditures did not violate §§ 141 or 164 of
JTPA. Notably, the ALJ commented that “[d]ocumentation of individual costs as
they related to individual levels of student achievement in moving through the
process of re-training and finding a job or dropping out was not a focus of this
proceeding.”
10
DOL appealed the ALJ’s decision to the ARB, which was authorized to
render a final agency decision in the matter.7 The ARB reversed the ALJ’s
decision, characterizing the overall issue as
whether the evidence is adequate to establish that the JTPA Title III
funds that Florida’s PBIF disbursed provided services to Title III
eligible students “in addition” to those services already provided to
general students in accordance with JTPA Section 141(b) or were
spent lawfully for the costs of instruction of Title III students that
were ‘necessary and reasonable’ because they were not costs that state
appropriated funds already covered in accordance with JTPA Section
164(a)(2)(A).
Reviewing the ALJ’s decision de novo, the ARB concluded that Florida misspent
JTPA Title III funds because “Florida’s records are inadequate to show that JTPA
Title III funds were spent lawfully pursuant to Sections 141(b) and 164(a)(2)(A),”
and “Florida has not adduced convincing evidence to the contrary.” Nor did
Florida meet the burden of showing that the disallowed costs were otherwise
expended for lawful JTPA purposes through other means, because “the record
demonstrates that the JTPA Title III funds which Florida’s PBIF disbursed were
spent to fund costs or a ‘general expense’ that was the responsibility of the State
and not for any specific JTPA purpose in violation of JTPA Section 164(a)(2)(C) .
7
The JTPA allows a party dissatisfied with an ALJ’s decision to request further review
by the Secretary of Labor, within certain time limitations. See JTPA § 166(b), 29 U.S.C.
§ 1576(b) (1999). The Secretary has delegated to the ARB the authority and responsibility to
resolve such matters. See 67 Fed. Reg. 64,272, 64,272 (Oct. 17, 2002).
11
. . .”8 The ARB therefore ordered Florida to repay DOL the $11.4 million pursuant
to 29 U.S.C. § 1574. Florida now petitions this Court to reverse the decision of the
ARB.
II. STANDARD OF REVIEW
The JTPA permits a party aggrieved by a final order of the Secretary “with
respect to a corrective action or sanction imposed under section 1574 of [title 29]”
to “obtain review of such final order in the United States Court of Appeals having
jurisdiction over the applicant or recipient of funds.” 29 U.S.C. § 1578(a)(1)
(1999).9 We have jurisdiction “to make and enter a decree affirming, modifying,
8
The ARB noted that the ALJ did not “address or apply the relevant framework
regarding the parties’ evidentiary burdens in this case,” as set forth in 20 C.F.R. § 627.802(e).
The GO has a burden of production to offer prima facie evidence sufficient for a reasonable
person to conclude that a recipient spent JTPA funds unlawfully. See 20 C.F.R. § 627.802(e);
Tex. Dep’t of Commerce v. U.S. Dep’t of Labor, 137 F.3d 329, 332 (5th Cir. 1998). If the
recipient’s records are inadequate to show that it spent the JTPA funds lawfully, the GO meets
his burden by establishing the inadequacy of evidentiary records. Tex. Dep’t of Commerce, 137
F.3d at 332. If the GO carries this burden, the recipient challenging the GO’s determination then
has the burden of persuasion. See 20 C.F.R. § 627.802(e). Overcoming a prima facie case
requires the grantee to present cogent evidence and argument on how it has either met the
specific requirements imposed by the JTPA or otherwise compensated for any deficiencies. See
In re Massachusetts, ARB Nos. 02-211, 02-201, 2002 WL 1482177, at *7 n.7 (Dep’t of Labor
June 13, 2002).
9
The Workforce Investment Act of 1998 (“WIA”), 29 U.S.C. § 2801 et seq., repealed the
JTPA effective July 1, 2000. See Workforce Investment Act, Pub. L. 105-220, § 199, 112 Stat.
936, 1058-59 (1998). Title 1 U.S.C. § 109, however, provides:
The repeal of any statute shall not have the effect to release or extinguish any
penalty, forfeiture, or liability incurred under such statute, unless the repealing Act
shall so expressly provide, and such statute shall be treated as still remaining in force
for the purpose of sustaining any proper action or prosecution for the enforcement
of such penalty, forfeiture, or liability.
12
or setting aside the order of the Secretary in whole or in part.” Id. at § 1578(b).
The scope of our review, however, is limited. See State of La., Dep’t of Labor v.
U.S. Dep’t of Labor, 108 F.3d 614, 617 (5th Cir. 1997). Section 1578(a)(3)
provides that “[n]o objection to the order of the Secretary shall be considered by
the court unless the objection shall have been specifically and timely urged before
the Secretary. Review shall be limited to questions of law and the Secretary’s
findings of fact shall be conclusive if supported by substantial evidence.” 29
U.S.C. § 1578(a)(3).
III. DISCUSSION
Florida seeks reversal on three principal grounds: (1) the ARB misconstrued
JTPA § 141(b); (2) the ARB’s decision is not supported by substantial evidence;
and (3) the ARB improperly based its ruling on a theory of liability different than
that advanced by DOL at the administrative hearing before the ALJ. We address
these arguments in turn.
A. Section 141(b)
1 U.S.C. § 109. The parties do not identify, and we do not find, anything in the WIA that would
release or extinguish any “penalty, foreiture, or liability” of Florida under the JTPA, or eliminate
our jurisdiction to hear Florida’s petition.
13
Where, as here, we review an agency interpretation of a statute that it is
responsible for administering,10 we apply the two-step test set forth in Chevron
U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43, 104 S. Ct. 2778,
2781-82, 81 L. Ed. 2d 694 (1984). See Sierra Club v. Johnson, 436 F.3d 1269,
1274 (11th Cir. 2006). If Congress has directly spoken to the precise question at
issue and its intent is clear from the statutory language, we must give effect to that
unambiguously expressed intent. See id. However, if the statute is ambiguous or
silent with respect to the specific issue, we simply decide whether the agency based
its interpretation on a permissible construction of the statute. See id. “We need not
conclude that the agency construction was the only one it permissibly could have
adopted or even that we would have interpreted the statute the same way that the
agency did.” Id. (internal quotes omitted).
JTPA § 141(b) states:
(b) No duplication of services
Funds provided under this chapter shall only be used for activities
which are in addition to those which would otherwise be available in
the area in the absence of such funds.
29 U.S.C. § 1551(b) (1999). Florida challenges the ARB’s determination that
§ 141(b) required Florida to show that PBIF “provided services to Title III eligible
10
The JTPA empowers the Secretary of Labor to “prescribe such rules and regulations . .
. as the Secretary deems necessary,” and authorizes administrative adjudication by DOL. See 29
U.S.C. §§ 1576, 1579 (1999).
14
students ‘in addition’ to those services already provided to general students . . . .”
According to Florida, the ARB’s reading “changes the meaning of the statute from
one which prohibits funding for activities currently available to JTPA participants
from other funding sources, to a [sic] one which forbids any payments to JTPA
participants for activities which, though never available to them, were previously
available to general students.” Florida’s argument, DOL counters, rests on the
false premise that JTPA eligible students were somehow excluded from the general
student population prior to the creation of PBIF. In DOL’s view, § 141(b)
prohibits the use of JTPA funds for services that would have been available to a
JTPA eligible student in the absence of JTPA funds. JTPA eligible students, DOL
contends, were covered by state appropriated funds like any other general students,
with access to the same services. Given that Florida nevertheless paid out JTPA
funds (through PBIF) based on the enrollment and performance of Title III eligible
students, DOL reasons, the ARB properly questioned whether those funds were
used to provide a service to those students beyond what was already “available” to
them by virtue of state appropriated funds.
This understanding of “availability,” Florida responds, is too narrow.
Florida points to the ALJ’s determination that “the level of ‘availability’ as
measured by the participation of dislocated workers in the pre-PBIF State system,
including funding above tuitions, was not meaningful for the class of outsourced
15
and dislocated workers Congress intended to benefit.” A proper construction of
“availability,” the ALJ argued, must include not merely the theoretical “supply
side” availability of a given activity, but also “demand side” factors such as the
likelihood that dislocated workers would pursue the activity in the absence of
PBIF. He found that
[i]n this instance, the dislocated worker population which traditionally
was not served by the existing State funded adult education programs
received a considerable boost by the PBIF program. Considering the
term “availability” as used in Section 141(b) of the Act, it would be
difficult to avoid concluding in a broader more meaningful sense that
the PBIF program as a whole was an activity “in addition to” those
which had had little success in serving the target population.
Florida also notes that the ALJ relied on pertinent regulatory materials in
construing § 141(b). See, e.g., 20 C.F.R. § 627.220(a) (stating that certain state
and sub-state entities “shall establish coordination procedures and contractual
safeguards to ensure that JTPA funds are used in addition to funds otherwise
available in the area and are coordinated with these funding sources”); 59 Fed.
Reg. 45,760, 45,767 (Sept. 2, 1994) (“The purpose of coordination requirements is
to preclude duplicate or overlapping payments among Federal, State, and local
programs to participants and training institutions and to ensure that the best mix of
programs and funds is available to the JTPA participant.”).
The ARB, however, rejected the ALJ’s interpretation, emphasizing that “the
PBIF program . . . was not the same as a JTPA program.” PBIF, the ARB noted,
16
“commingled a variety of funds, only a portion of which included JTPA Title III
funds, and disbursed ‘incentive’ payments to serve a variety of disadvantaged
students, only a portion of whom were JTPA Title III dislocated workers.” The
disbursement of incentive payments from commingled funds to serve a variety of
disadvantaged students, the ARB stated, “does not establish how the purpose of
JTPA Section 141(b) Title III, to provide additional retraining services to
dislocated workers, was served.” In other words, the ARB read § 141(b) more
narrowly than the ALJ, as requiring that JTPA Title III funds be used specifically
to provide services to Title III dislocated workers that would not otherwise be
available to those workers as a result of other funding.
Florida asserts that the language of § 141(b) unambiguously favors its
position. We disagree, for § 141(b) is susceptible to several plausible
constructions, depending upon how broadly or narrowly one interprets the terms
“activities,” “in addition to,” and “would otherwise be available,” none of which is
defined by the JTPA. See PDK Labs. v. U.S. D.E.A., 362 F.3d 786, 796 (D.C. Cir.
2004) (“That a statute is susceptible of one construction does not render its
meaning plain if it is also susceptible of another, plausible construction . . . .”).
Given this ambiguity, we must defer to the ARB’s interpretation if it is based on a
permissible construction of the statute. See Sierra Club, 436 F.3d at 1264. The
ARB’s interpretation meets this standard, for it does not exceed the bounds of the
17
statutory language, does not conflict with pertinent regulations, and accords with
other funding restrictions set forth in the statute. As noted above, 20 C.F.R.
§ 627.220, which references § 141(b), requires the establishment of coordination
procedures and contractual safeguards “to ensure that JTPA funds are used in
addition to funds otherwise available in the area and are coordinated with these
funding sources.” 20 C.F.R. § 627.220(a) (emphasis added). Although the ALJ
emphasized that this requirement was intended not merely to preclude “duplicate
or overlapping payments,” but also to ensure the “best mix of programs and
funds,” that “best mix” is meant for “the JTPA participant.” 59 Fed. Reg. at 45,767
(emphasis added). The ALJ, however, found that PBIF satisfied § 141(b) even
though the beneficiaries of PBIF funds were not necessarily JTPA participants.
The ARB’s interpretation avoids this inconsistency. Likewise, the ARB’s
interpretation of § 141(b) complements JTPA §§ 107(b) and 141(h), both of which
prohibit the use of JTPA funds “to duplicate facilities or services available in the
area . . . from Federal, State, or local sources, unless it is demonstrated that the
JTPA-funded alternative services or facilities would be more effective or more
likely to achieve performance goals . . . .” 20 C.F.R. § 627.420(a)(5) ; see 29
U.S.C. §§ 1517(b), 1551(h) (1999).11
11
For example, under the ARB’s interpretation § 141(b) prohibits a state from using
JTPA funds to pay, on behalf of a JTPA Title III eligible dislocated worker, the costs of a
retraining class at a state university when those costs are already covered by state appropriated
18
Florida insists that the ARB’s reading of § 141(b) is unreasonable, because it
ignores the “truism” that “[s]ervices cannot be deemed available to those who lack
meaningful access to them.” As the ARB found, however, “[t]he [Regional
Workforce Development Boards] used . . . JTPA Title III funds to recruit
dislocated workers to enroll in community colleges and school district programs
for retraining and to pay for their annual tuition costs.” DOL did not challenge
these expenditures. Thus, Florida’s claim that dislocated workers lacked
“meaningful access” to retraining services in the absence of PBIF assistance is
unpersuasive. Accordingly, we defer to the interpretation of the ARB.
B. Substantial Evidence
Florida contends the ARB’s decision that Florida misspent JTPA funds in
violation of §§ 141(b) and 164(a)(2)(A) is not supported by substantial evidence.
“‘Substantial evidence’ is defined as ‘such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.’” State of La., 108 F.3d at 617(quoting Consol. Edison Co. v. N.L.R.B., 305 U.S. 197, 229, 59 S. Ct. 206, 217, 83
L. Ed. 126 (1938)); see Am. Tower LP v. City of Huntsville, 295 F.3d 1203, 1207
(11th Cir. 2002) (explaining that traditional “substantial evidence” standard
funds. JTPA §§ 107(b) and 141(h) then further prohibit the use of JTPA funds to establish an
identical, separate retraining class for JTPA Title III eligible dislocated workers only, unless it is
shown that such an action would prove “more effective or more likely to achieve . . .
performance goals.” See 29 U.S.C. § 1517(b); 29 U.S.C. § 1551(h).
19
“requires more than a mere scintilla but less than a preponderance”). “[T]he mere
fact that a different conclusion might be drawn from the evidence does not
necessarily preclude a determination that an administrative decision was supported
by substantial evidence.” State of La., 108 F.3d at 617. However, “when the
Board does not accept the findings of an ALJ, the evidence and findings of the
Board must be examined more critically than if the two had been in agreement.”
NLRB. v. Ridgeway Trucking Co., 622 F.2d 1222, 1224 (5th Cir. 1980) (per
curiam).12
As noted above, the GO has a burden of production to offer prima facie
evidence sufficient for a reasonable person to conclude that Florida spent JTPA
funds unlawfully. See 20 C.F.R. § 627.802(e); Tex. Dep’t of Commerce, 137 F.3d
at 332. The record, Florida argues, does not support such a conclusion, and in any
event it presented evidence sufficient to defeat any prima facie showing. We
disagree. JTPA § 165(a)(1) requires grant recipients to keep records sufficient “to
permit the tracing of funds to a level of expenditure adequate to insure that the
funds have not been spent unlawfully.” 29 U.S.C. § 1575(a)(1) (1999). Thus, the
GO could make a prima facie case by establishing the inadequacy of Florida’s
records. See Tex Dep’t of Commerce, 137 F.3d at 332; State of La., 108 F.3d at
12
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), we
adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to the
close of business on September 30, 1981.
20
617-18. Here, the ID and FD consistently stated that Florida had not provided
documentation sufficient to show that JTPA funds were spent in accord with
§ 141(b); that is, that JTPA funds were used specifically to cover costs incurred by
Title III eligible students for services not already available to those students by
virtue of other funds. The ARB identified substantial evidence to support this
conclusion, including: (1) Florida’s admission in response to the audit that “PBIF
was never intended to fund special services for any sub-set of its clientele”; (2)
testimony from PBIF director Steve Campora that PBIF was not designed to
document any additional services provided to Title III dislocated workers and that
he did not know whether additional services provided to Title III participants were
ever “quantified”; (3) testimony from PBIF administrator Lenny Larson that
Florida simply did not try to distinguish between Title III eligible persons and
other participants in providing services, or to quantify services provided to the
Title III participants; (4) testimony from Robert O’Leary, who helped design PBIF,
that higher payments were made for providing a service to a Title III dislocated
worker than for providing the same service to a general student; and (5) testimony
from Linda Hartnig, who helped implement PBIF, that there was no documentation
that additional services were provided to Title III participants. As the ARB further
recognized, the GO’s determination that Florida’s records were inadequate to show
compliance with JTPA § 164(a)(2)(A) was based on similar reasoning: if there was
21
“no apparent distinction” between Title III eligible students and general students
with respect to services, and those services were already covered by state
appropriated funds, then the “costs” to which JTPA funds were applied were not
“necessary and reasonable” under § 164(a)(2)(A). See 29 U.S.C. § 1574(a)(2)(A)
(1999).
In response, Florida challenges the predicate that state appropriated funds
covered all relevant costs. Even if Title III eligible students received the same
“services” as general students, Florida contends, “the actual costs of instruction
that tuition did not cover exceeded the state’s annual appropriation[,] because more
JTPA Title III eligible students were served due to the PBIF program during the
three years at issue than were served prior to the initiation of PBIF.” To that
extent, Florida argues, Title III students did receive a service “in addition to” what
would have otherwise been available, and the costs covered by JTPA funds were
“necessary and reasonable.” DOL concedes that, “[t]o the extent . . . community
colleges and vocational education schools incurred additional non-tuition costs for
over-cap students, Florida might be able to claim a proportional share of those
costs attributable to JTPA-eligible students.” However, DOL argues, Florida
produced insufficient documentation of these costs. Indeed, the ARB found that
Florida’s evidence was “not sufficient or adequate to establish how much Title III
student enrollment increased during the three year period,” and did not show that
22
“any increased costs of instruction, over and above the amount of the state’s annual
appropriation, were specifically caused by an increase in the number of Title III
students served because of the PBIF program.” Florida disagrees, arguing the
record shows that, during the years covered by the audit: (1) enrollments increased
by several thousand, nearly doubling, with placements and completions increasing
as well; (2) 3,000 additional economically disadvantaged students were served
each year, due to PBIF; (3) by DOL’s own count, there were over 13,000 new
JTPA enrollees, who cost (theoretically) $38 million per year based on FTE costs;
and (4) PBIF certified courses increased from 179 at 39 institutions to 238 at 47
institutions. However, the ARB cited record evidence indicating that there was an
unresolved conflict between Florida’s enrollment figures and OIG’s enrollment
figures, which showed that Title III enrollments actually decreased between the
first and second years of PBIF.13 Although Florida submitted a table indicating the
degree to which non-tuition costs of instruction attributable to “Group 3” students
exceeded the FTE cap on state appropriated funds, Linda Hartnig testified that
“Group 3” was not limited to Title III eligible students, but rather included all adult
vocational students. Hartnig conceded that she could not specifically attribute the
unfunded FTEs to Title III students. Robert O’Leary testified that he “anticipated”
13
Notably, the ALJ’s opinion indicates that Florida, unlike DOL, “counted multiple
performances by students such as dual enrollments or placements.”
23
and “expected” that Title III students would incur additional costs, but could not
point to any documentation showing that such costs were actually incurred.
Similarly, Lenny Larson could not “quantify” any additional costs incurred to
recruit Title III students.
Any lack of documentation is irrelevant, Florida argues, because the
following safeguards incorporated into PBIF rendered it “incapable” of violating
JTPA requirements: (1) state appropriations were not reduced because of JTPA
funding; (2) PBIF payments were designed never to exceed actual costs of
instruction; (3) PBIF prohibited payment until a school exceeded pre-PBIF
performance; (4) PBIF prohibited payment until a school exhausted its annual state
appropriation; and (5) JTPA payments were authorized only to reimburse for JTPA
certified programs and on behalf of JTPA qualified students.14 The ARB, however,
cited record evidence that schools “purchased equipment and services that they
couldn’t directly relate to JTPA with the proceeds from PBIF[,] which was
substantially funded by JTPA . . . .” Lenny Larson testified that the PBIF incentive
payments essentially “reversed” costs for services already rendered, and could be
used in “whatever fashion” a school desired, so long as the expenditures were for a
14
At oral argument, Florida’s counsel stated that, under the statute authorizing PBIF, no
JTPA funds could be provided to a school for JTPA students unless it could be demonstrated that
they were for high wage/high skill positions. However, counsel could not identify any specific
record evidence establishing that PBIF actually functioned in this way.
24
workforce program. Similarly, Steve Campora testified that schools could use
PBIF money anywhere in post-secondary vocational education.15 As the ARB
indicated, such expenditures appear contrary to JTPA § 164(a)(2)(C), which
prohibits the use of JTPA funds to cover “a general expense required to carry out
the overall responsibilities of State . . . governments, except as specifically
provided by this chapter.” 29 U.S.C. § 1574(a)(2)(C) (1999).
For the reasons stated, the ARB’s determination–that the GO met its burden
of production to offer prima facie evidence of unlawful expenditures, and that
Florida failed to carry its burden of persuasion to establish that the expenditures
were ultimately lawful–is supported by substantial evidence. Although, as the
ARB acknowledged, Florida was not required to produce documentation tracing
each JTPA expenditure to “a specific, identified individual,” Tex. Dep’t
Commerce, 137 F.3d at 332, funds must still be traceable “to a level of expenditure
adequate to insure that the funds have not been spent unlawfully.” 29 U.S.C. §
1575(a)(1) (1999). “Unless the burden of producing the required documentation is
placed on recipients, federal grantees would be free to spend funds in whatever
way they wished and obtain virtual immunity from wrongdoing by failing to keep
15
For example, the ALJ noted the PBIF funds were used to purchase “mannequins, cars,
or ammunition which were not necessarily used by the JTPA participants who generated the
payment.”
25
required records.” Montgomery County v. Dep’t of Labor, 757 F.2d 1510, 1513
(4th Cir. 1985).
C. Shifting Theories
Florida also contends that the ARB decided this case on a theory different
than that presented by DOL at the administrative hearing before the ALJ, and
therefore deprived Florida of due process. “We review constitutional challenges to
agency orders de novo.” See Ala. Power Co. v. FCC, 311 F.3d 1357, 1367 (11th
Cir. 2002).
“The fundamental fairness inherent in administrative due process cannot
permit [an administrative official] to plead a certain charge, insist at hearing that
only that charge is being litigated, and then raise a related, but more onerous
charge only after the hearing record is closed.” NLRB v. Homemaker Shops, Inc.,
724 F.2d 535, 544 (6th Cir. 1984); see 5 U.S.C. § 554(b)(3) (requiring, under the
Administrative Procedure Act (“APA”), that a person entitled to notice of an
agency hearing be informed of “the matters of fact and law asserted”); Bendix
Corp. v. FTC, 450 F.2d 534, 542 (6th Cir. 1971) (“This court repeatedly has held
that an administrative agency must give a clear statement of the theory on which a
case will be tried.”); Rodale Press, Inc. v. FTC, 407 F.2d 1252, 1256 (D.C. Cir.
1968) (“[I]t is well settled that an agency may not change theories in midstream
without giving respondents reasonable notice of the change.”). At the outset of the
26
administrative hearing in the instant case, Florida claims, “DOL counsel took the
position on the record that ‘the entire disallowance’ was premised on the theory
that Florida ‘had committed itself by statute to cover the costs’ beyond tuition.”
By doing this, Florida contends, “DOL made it clear that the adequacy of
documentation was not an issue.” Thus, Florida argues, the ARB deprived Florida
of due process and violated the APA when it reversed the ALJ on the basis of
insufficient documentation.
In response, DOL points out that the ID and FD warned from the beginning
that Florida had not presented sufficient documentation to establish compliance
with JTPA §§ 141 and 164. This does not matter, Florida argues, because like the
Complaint Counsel in Bendix, DOL counsel limited DOL to a different theory of
disallowance at the administrative hearing. See Bendix, 450 F.2d at 541.
Specifically, Florida points to several exchanges between DOL counsel and the
ALJ that occurred during DOL counsel’s opening statement. Counsel asserted that
Florida had obligated itself under Fla. Stat. § 239.117 to calculate and provide for
non-tuition educational costs incurred by all students. Thus, counsel argued, “there
was no justification for using governor’s reserve JTPA funds for payments to
Florida schools where they were pegged to costs that the state had already
committed itself by law to bear.” Shortly thereafter the ALJ asked whether, if
counsel’s statutory interpretation was incorrect and the costs were not covered
27
through lottery funds or general revenues, counsel’s analysis would still apply in
the same way. Counsel responded: “No, Your Honor. It would make a very real
difference because if indeed, there was no obligation on the part of the state to
educate those citizens, but for the availability of JTPA funds, then the facts would
be contrary to the disallowance of the eleven point four million dollars.” The ALJ
then asked whether, if Florida’s opposing interpretation of § 239.117 was correct,
DOL had a problem with the way Florida had documented or calculated costs (that
exceeded those covered by tuition). When counsel responded that DOL had not
looked at the case “from that standpoint,” and had not made eligibility or cost
analysis an issue, the ALJ restated his question: “Do I correctly understand then,
that you are not concerned about the manner in which they documented those
costs?” A confusing exchange followed, with counsel finally stating that, “at this
point, I would not say that we have expressed such a concern.”
While this colloquy does provide some support for Florida’s argument, we
are not persuaded that Bendix is instructive here. In that case, a complaint was
made that Bendix Corporation’s acquisition of Fram Corporation would violate
numerous provisions of the Clayton and Federal Trade Commission Acts. See
Bendix, 450 F.2d at 534-35. However, the Complaint Counsel then decided to
drop several charged theories of illegality and reformulate his case, ultimately
presenting only three theories of illegality to the Hearing Examiner. See id. at 535-
28
36. The Hearing Examiner rejected each of these theories, but the Federal Trade
Commission (the “Commission”) nevertheless found against Bendix on the basis
of an entirely separate “toehold” theory of illegality. See id. The Commission’s
action violated the APA, the Sixth Circuit concluded, because the toehold theory
“was never charged, raised, nor tried during the administrative hearing; never
presented for consideration by the Hearing Examiner; and not raised as an issue or
discussed by Complaint Counsel in the appeal to the Commission from the order of
the Hearing Examiner dismissing the Complaint.” Id. at 537. In the instant case,
however, the very ID and FD that led Florida to seek an administrative hearing
stated that Florida’s documentation was insufficient to establish compliance with
the JTPA. Likewise, in its motion for summary decision DOL argued that the
documents submitted by Florida did not show that Title III participants had
received any “additional” services. Thus, Florida did not lack pre-hearing notice
that documentation was at issue.
Although Florida contends, based on the colloquy described above, that
DOL nevertheless “limited” its theory of the case at the administrative hearing
solely to a question of statutory interpretation, this claim is inconsistent with the
remainder of the hearing record as a whole.16 As is clear from the discussion in
16
Florida claims that to prevail, it needed only to show that (contrary to the claims of
DOL counsel) Fla. Stat. § 239.117 did not obligate Florida to cover those educational costs for
general students which were not encompassed by tuition. The crucial question for purposes of
29
part B, supra, there are numerous instances of testimony at the administrative
hearing as to the absence or inadequacy of documentation establishing that Florida
complied with JTPA §§ 141 and 164. In addition, towards the end of the hearing
the ALJ asked DOL counsel whether there was “any value in implementing the
JTPA” aside from the payment of tuition. Counsel responded that such value had
not been “quantified” and that DOL had “continually expressed a willingness to
receive documentation that would show that allowable expenses [and] costs were
incurred,” but that “[w]e have not to this point received any such documentation.”
When the ALJ, referencing his earlier statements, stated that he thought
documentation of costs was not an issue, counsel responded that the documentation
of costs was “certainly an issue in so far as Florida has asserted that there was extra
effort made with respect to JTPA individuals,” and that “no such costs have been
supported at this time.” Counsel for Florida, however, did not then object and
this case, however, is whether Florida did in fact appropriate state funds to cover non-tuition
costs, not whether § 239.117 specifically required it to do so. While DOL has receded from the
position that § 239.117 specifically created such an “obligation” on the part of Florida, all parties
appear to agree that, during the years in question, Florida did in fact appropriate state funds
annually (using the FTE formula, for example) to cover projected non-tuition educational costs
for general students, up to a certain point. Thus, we need not address further Florida’s
arguments as to the proper interpretation of § 239.117. For similar reasons, Florida overstates
the significance of DOL counsel’s statement that “if indeed, there was no obligation on the part
of the state to educate those citizens, but for the availability of JTPA funds, then the facts would
be contrary to the disallowance of the eleven point four million dollars.” While Florida focuses
on the issue of statutory “obligation,” the more important language, considering the record as a
whole, is “but for the availability of JTPA funds”; i.e., to what extent would Title III eligible
dislocated workers not have received training “but for the availability of JTPA funds?”
30
suggest that DOL had already limited its theory of the case, or claim that Florida
should be permitted to introduce additional evidence as to documentation. Nor did
Florida raise the matter in its post-hearing briefing. Furthermore, in its Statement
of Exceptions to the ALJ’s decision and briefing to the ARB, DOL repeatedly
argued that the record evidence was insufficient (or insufficiently substantiated) to
establish that JTPA eligible individuals received services, as a result of PBIF, that
they would not have received otherwise.17 Florida did not respond by raising due
process or APA concerns, or by arguing that the ARB could not reach the matter of
documentation.18
In light of the foregoing, the instant case is not one where the agency
“change[d] theories in midstream,” Rodale Press, 407 F.2d at 1256, or issued a
final decision based on a theory not raised at the administrative hearing. See
Bendix, 450 F.2d at 537; Homemaker Shops, 724 F.2d at 544. Thus, Florida has
17
The ALJ stated in his decision that “[d]ocumentation of individual costs as they related
to individual levels of student achievement . . . was not a focus of this proceeding.” Again, as
the ARB properly recognized, while the JTPA does not require that each expenditure be traced to
a specific, identifiable individual, see Tex. Dep’t of Commerce, 137 F.3d at 332, a recipient must
still be able to produce evidence sufficient to establish that JTPA funds were not spent
unlawfully. See Part B, supra. The ALJ’s narrow reference to “individual costs as they related
to individual levels of achievement” simply did not address the issue of documentation in this
broader sense.
18
Florida did argue that certain issues were “stipulated as issues not in dispute” before
the ALJ, and that DOL should not be permitted to “resurrect” them before the ARB. While
Florida identified several of these issues as “the increased number of eligible participants PBIF
served, educated and trained,” “enrollment of the eligible participants,” and “the costs of
educating the eligible population,” the portions of the hearing transcript to which Florida cites do
not in fact contain any “stipulations” on the part of DOL.
31
not shown that the ARB deprived it of due process. Even if a due process violation
did occur, however, Florida would also have to show that “there would have been
[a] difference in defending the action” under the theory urged at the hearing, as
compared to the theory employed by the ARB. See Bendix, 450 F.2d at 541.
Florida’s conclusory statement that “the pre-trial witness and exhibit lists” show it
“could have introduced testimonial and documentary evidence further detailing the
additional services provided and the reasonableness of the costs” does not suffice
to establish prejudice in this regard. Moreover, witnesses such as Linda Hartnig
testified to Florida’s lack of documentation in terms of the services specifically
provided to JTPA Title III participants.19
IV. CONCLUSION
For the reasons stated, we conclude that the ARB’s construction of JTPA
§ 141(b) is entitled to deference, that substantial evidence supports the ARB’s
decision to reverse the ALJ and affirm the disallowance of $11,419,499 in JTPA
funds, and that Florida has not established a due process violation. Accordingly,
we deny Florida’s petition and affirm the order of the ARB.
AFFIRMED.
19
When confronted with the prejudice issue at oral argument, Florida’s response was
equivocal at best. Counsel declined to concede that there was no additional documentation to
produce, but could not identify any such documentation either, and instead asserted that the
answer would depend on the type of documentation DOL was seeking.
32