State v. U.S. Department of Health & Human Services

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
November 17, 2006
for the Fifth Circuit
Charles R. Fulbruge III
Clerk
No. 05-30927
STATE OF LOUISIANA, DIVISION OF ADMINISTRATION,
Plaintiff-Appellant,
VERSUS
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES;
MICHAEL O. LEAVITT, Secretary of the U.S. Department of
Health and Human Services,
Defendants-Appellees;
Appeal from the United States District Court
for the Middle District of Louisiana
(3:03-CV-856)
Before GARZA, DeMOSS, and STEWART, Circuit Judges.
PER CURIAM:*
The State of Louisiana, Division of Administration
(the “State”) appeals a decision of the district court
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined
that this opinion should not be published and is not
precedent except under the limited circumstances set
forth in 5TH CIR. R. 47.5.4.
granting summary judgment to the U.S. Department of
Health and Human Services (“HHS”) on the State’s claims
for declaratory and injunctive relief with respect to two
adverse decisions rendered by HHS. We affirm.
In early September 2003, HHS determined that from
1997-2000, the State had charged the federal government
for certain costs associated with state-administered
federal programs that were not allowable under the
relevant federal guidelines. HHS also determined that the
State was not entitled to reimbursement for various
allowable costs that the State had incurred but failed to
bill to the federal government during the years 1989-
1998.1 Pursuant to these determinations, HHS requested an
immediate cash refund from the State of $19.2 million.
The State appealed this decision to HHS’s Departmental
Appeals Board, which affirmed the agency’s decision.
Later, in early November 2003, HHS determined that the
State owed it an additional $8.7 million for similar
1
However, HHS allowed the State a $387,044 reimbursement
for allowable costs that the State had incurred but
failed to bill to the federal government during the years
1999-2000.
2
overages, resulting in a total debt of approximately
$27.8 million. The State did not appeal this decision.2
In late November 2003, the State filed suit against
HHS and its Secretary, seeking (1) a declaration that the
agency’s decisions were arbitrary and capricious, an
abuse of discretion, and contrary to law and (2) an
injunction to prevent HHS from recovering the money owed.
The parties filed cross-motions for summary judgment,
which were referred to a magistrate judge. The magistrate
judge recommended that the court deny the State’s motion
for summary judgment and grant HHS’s motion, reasoning
that HHS’s decisions were not arbitrary and capricious,
an abuse of discretion, or contrary to law under the
relevant standard of review. The district court adopted
the magistrate’s report and recommendation without
opinion, granted summary judgment in HHS’s favor, and
entered final judgment against the State. The State
timely appealed.
2
However, the letter containing the decision advised the
State that the decision would constitute a final decision
if the State did not appeal. Accordingly, the decision
was a “final agency action” subject to judicial review
under 5 U.S.C. § 704.
3
On appeal, we review a grant of summary judgment de
novo, applying the same standard as the district court.
City of Shoreacres v. Waterworth, 420 F.3d 440, 445 (5th
Cir. 2005). Agency decisions are reviewed under the
standard set forth in the Administrative Procedures Act;
therefore, we will “hold unlawful and set aside” HHS’s
decisions only if we determine that they were
“‘arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.’” Id. (quoting
Administrative Procedures Act § 706(2)(A), 5 U.S.C.
§ 706(2)(A) (2000)). This so-called “arbitrary and
capricious” standard of review is highly deferential, and
it requires us to “accord the agency’s decision[s] a
presumption of regularity.” Pension Benefit Guar. Corp.
v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362, 366 (5th
Cir. 2004) (internal quotation marks omitted). “[W]e are
prohibited from substituting our judgment for that of
the agency.” Id. (internal quotation marks omitted).
Further, to sustain an agency action, only a rational
connection between the facts found and the decisions made
is required, and “[i]t is well-established that an
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agency’s action must be upheld if at all, on the basis
articulated by the agency itself.” Id. at 366-67(internal quotation marks omitted).
The State’s primary argument, as we read it, is that
the district court erred in upholding HHS’s decisions
because they were arbitrary and capricious: the decisions
obligated the State to repay its debt immediately in
cash--as opposed to permitting the State to credit the
debt against future billings or adjust future billings to
reflect the debt--and prohibited the State from obtaining
an offset of $28.9 million for allowable costs that the
State incurred but did not charge to the federal
government. The State also argues that we should reverse
the district court because the court did not conduct a de
novo review of contested portions of the magistrate
judge’s report and recommendation and because the court,
by adopting the magistrate judge’s report and
recommendation, improperly accorded great deference and
controlling weight to HHS’s rationale for its decisions.
Having carefully reviewed the briefs, the record, and
the oral argument, we affirm the decision of the district
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court essentially for the reasons articulated by HHS.
HHS’s decisions were not arbitrary and capricious.
Further, we cannot agree with the State that the district
court failed to conduct a de novo review,3 and we find no
error with respect to the district court’s deferential
review of HHS’s rationale for its decisions.
AFFIRMED.
3
Contrary to the State’s allegations on appeal, the
district court had access to the administrative record.
Also, there is no requirement that the district court
explicitly state that it is reviewing contested portions
of a magistrate judge’s report and recommendation de
novo. See Bannister v. Ullman, 287 F.3d 394, 399 (5th
Cir. 2002).
6