The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ONPATH FEDERAL CREDIT UNION CIVIL ACTION
VERSUS NO. 20-1367
UNITED STATES DEPARTMENT OF SECTION “R” (2)
TREASURY, COMMUNITY
DEVELOPMENT FINANCIAL
INSTITUTIONS FUND
ORDER AND REASONS
Before the Court are cross-motions for summary judgment by
defendant the United States Department of Treasury, Community
Development Financial Institutions Fund (“the CDFI Fund”),1 and plaintiff
OnPath Federal Credit Union (“OnPath”).2 Each party opposes the other’s
motion.3
Because the CDFI Fund’s repayment demand was not arbitrary and
capricious, the Court grants defendant’s motion, and denies plaintiff’s
motion.
1 R. Doc. 19.
2 R. Doc. 52.
3 R. Docs. 34 & 56.
I. BACKGROUND
This case involves a demand by the Treasury Department that OnPath
Federal Credit Union repay approximately twelve million dollars in awards
that it received from the Treasury’s CDFI Program for fiscal years (“FYs”)
2006 through 2009, 2011, and 2012. The facts in the case are essentially
undisputed.
The Treasury Department’s CDFI Fund supports financial institutions
that serve low-income and historically underserved individuals and
communities.4 Institutions seeking support from the CDFI Fund must apply
for and receive CDFI certification in order to become eligible to apply for
awards. 12 C.F.R. § 1805.200(a)(2). To become certified as a CDFI, an
institution must, among other regulatory criteria, serve a “Target Market.”
Id. § 1805.201(b)(3). An applicant may show that it serves a Target Market
by demonstrating in its application that it provides financial products or
services to at least one (a) “Investment Area,” or (b) “Targeted Population.”
Id. § 1805.201(b)(3)(i).
An “Investment Area” is a geographic unit that either (a) meets certain
regulatory criteria for economic distress, and “has significant unmet needs”
for financial products and services; or (b) encompasses or is wholly located
4 R. Doc. 19-4 at 144 (OIG Audit Report).
within an Empowerment Zone or Enterprise Community designated in the
Internal Revenue Code. See id. § 1805.201(b)(3)(ii). A “Targeted
Population” includes individuals who are low-income or lack adequate
access to financial products and services. See id. § 1805.201(b)(3)(iii). The
CDFI Fund’s certification application divides Targeted Populations into
Low-Income Targeted Populations (“LITPs”) and Other Targeted
Populations (“OTPs”). LITPs consist of individuals whose family income is
not more than: for metropolitan areas, 80% of the area median family
income; or, for non-metropolitan areas, the greater of 80% of the area
median family income or 80% of the statewide non-metropolitan area
median family income.5 OTPs consist of individuals in certain racial and
ethnic groups, as well as other demographically defined groups, if such
individuals have unmet needs for financial products and services.6
The CDFI Fund’s certification application indicates that, to meet the
Target Market criterion, an applicant must show that it directs at least 60%
or more of its activities to a Target Market, defined with reference to either
Investment Areas or Targeted Populations.7 The applicant must also explain
5 Id. at 19 (OnPath’s Application for CDFI Certification).
6 Id. at 21.
7 Id. at 20-22.
the methodology it used to calculate this percentage.8 To determine whether
the Target Market requirement is satisfied, the CDFI Fund relies on the data
and methodology provided by the applicant.9 The application states that, if
an applicant does not meet the 60% threshold, then it has “not . . .
demonstrated that it meets the Target Market Requirement[,] and will not
be certified” as a CDFI.10
In the fall of 2005, OnPath, a federal credit union based in Louisiana,11
began the application process for CDFI certification.12 Early correspondence
from OnPath to the CDFI Fund indicates that OnPath set out to meet the
Target Market requirement by using Investment Areas, but had technical
difficulties. Specifically, OnPath wrote to the CDFI Fund that it had
imported over 80,000 of its members’ addresses to the CDFI Fund’s system,
8 Id. at 145 (OIG Audit Report).
9 Id.
10 Id. at 21 (OnPath’s Application for CDFI Certification).
11 Documents and communications from this period refer to OnPath as
ASI Federal Credit Union (“ASI”). ASI changed its name to OnPath in
2019. See Press Release, ASI Federal Credit Union rebrands as OnPath
Federal Credit Union (Nov. 22, 2019),
https://www.cuinsight.com/press-release/asi-federal-credit-union-
rebrands-as-%EF%BB%BFonpath-federal-credit-union. For
consistency’s sake, this Order and Reasons refers to plaintiff as
“OnPath,” and, as needed, alters using brackets any quoted material
containing “ASI.”
12 R. Doc. 34-4 at 1 (Email from Sarah Taylor to CDFI Fund) (Oct. 20,
2005).
but that, when it attempted to “geocode the addresses,” it received “error
messages stating that the format [was] invalid.”13 OnPath ultimately decided
not to rely on Investment Areas in its certification application,14 and instead
submitted that it satisfied the Target Market requirement by virtue of serving
LITP individuals.15
On December 22, 2005, OnPath submitted its certification application
to the CDFI Fund.16 OnPath indicated that it served LITP individuals17 in
three areas of Louisiana: (i) the Metairie-Kenner-New Orleans metropolitan
statistical area (“MSA”), (ii) the Houma-Bayou Cane-Thibodaux MSA, and
(iii) non-metropolitan areas of Louisiana.18 OnPath identified these three
areas as comprising its Target Market, and indicated that it directed a
sufficient amount of financial products and services to LITP individuals in
these areas. OnPath submitted figures demonstrating that it met the 60%
threshold as to each of six distinct metrics related to membership and
financial activities. The table below summarizes OnPath’s Target Market
13 Id.
14 R. Doc. 19-4 at 19 (OnPath’s Application for CDFI Certification) (“Does
the Applicant serve an Investment Area(s)?” . . . “No”).
15 Id. (“Does the Applicant serve a Low-Income Targeted Population(s)?
Yes.”).
16 Id. at 4.
17 Id. at 19.
18 See id. at 32-33.
contributions by area, as submitted in its certification application. All data
correspond to FY 2004.19
Percentage corresponding to LITP in the area
Metairie- Houma-Bayou
Non-Metro
Metric Kenner-New Cane-Thibodaux
Areas
Orleans MSA MSA
Number of loans 79% 74% 69%
Loan balances 64% 63% 61%
Number of
78% 66% 60%
deposit accounts
Deposit account
63% 64% 62%
balances
Number of
83% 73% 65%
members
Number of
80% 64% 61%
member accounts
OnPath also explained in its application how it determined whether a
member satisfied the LITP criteria, and, in turn, how it calculated the above
percentages so as to meet the Target Market requirement. Specifically,
OnPath wrote that it
verified distribution of financial products and services to the
designated target market by running [Marketing Customer
Information File (“MCIF”)] reports based on members’ zip
codes. Through this process, [it was] able to determine how
many households, members, accounts, loans and loan dollars,
19 Id.
deposits and deposit dollars, . . . fell within each designated Low
Income Targeted Population.20
The third-party MCIF data contained member income levels, allowing
OnPath to match financial activity with income, and classify certain
members and transactions as corresponding to LITP individuals in each
geographic area.21
On January 24, 2006, OnPath received CDFI certification.22 It
received technical and financial assistance awards from the CDFI Fund for
FYs 2006, 2007, 2008, and 2009,23 and had its CDFI certification extended
on March 20, 2009.24 Following this extension, OnPath again received
technical and financial assistance awards for FYs 2011 and 2012.25 The CDFI
Fund recertified OnPath in 2013, but the FY 2013 certification application
and the CDFI awards postdating 2012 are not at issue in this litigation.
On October 6, 2014, the Treasury Office of Inspector General (the
“OIG”) began an audit of OnPath’s CDFI applications and awards.26 The
20 Id. at 20.
21 Id. at 149 (OIG Audit Report).
22 Id. at 131 (OnPath’s CDFI Certification) (Jan. 24, 2006).
23 See id. at 146 (OIG Audit Report).
24 Id. at 133 (Notice of Extension of CDFI Certification Expiration Date)
(Mar. 20, 2009).
25 Id. at 146 (OIG Audit Report). OnPath did not receive an award for FY
2010. Id.
26 R. Doc. 34-8 (OIG Engagement Memorandum) (Oct. 6, 2014).
audit “was initiated based on information the OIG received regarding
allegations that [OnPath] had not engaged in eligible activities” as required
by the CDFI Program.27 Over the course of the ensuing five years, the OIG,
the CDFI Fund, and OnPath engaged in discussions regarding the
information submitted by OnPath in its applications for CDFI certification
and CDFI awards, as well as OnPath’s receipt and use of CDFI funds. The
investigation included meetings between the OIG and OnPath, both by
teleconference,28 and in person at OnPath’s headquarters in Harahan,
Louisiana;29 internal meetings between the OIG and the CDFI Fund;30
written explanations by OnPath of the methodology underlying its 2005
certification application;31 and substantive email correspondence among the
parties.32 As part of the audit, OnPath was given an opportunity to review
27 R. Doc. 19-4 at 177 (CDFI Repayment Demand Letter to OnPath).
28 R. Doc. 34-14 at 40 (OIG Follow-Up Interview Write-Up) (Mar. 29,
2017); id. at 50 (Exit Interview Write-Up) (June 25, 2018).
29 Id. at 8 (Entrance Conference Minutes) (Apr. 6, 2015).
30 Id. at 17 (Working Meeting Interview Write-Up) (Apr. 23, 2015); id. at
23 (Interview Write-Up) (Nov. 5, 2015); id. at 46 (Interview Write-Up)
(Apr. 26, 2017).
31 Id. at 28 (OnPath’s 2006 Validation Methodology) (Mar. 27, 2017).
32 See R. Doc. 34-7 (Emails between Sonya Jarvis and OIG) (Mar. 17,
2017); R. Doc. 34-9 (Emails between Sonya Jarvis and OIG) (May 21,
2018).
and comment on drafts of the OIG’s audit report, both through
management33 and through counsel.34
On July 11, 2019, the OIG issued a final audit report on its findings.35
It concluded that “the CDFI Fund certified [OnPath] . . . in January 2006
based on invalid information” in OnPath’s original application for CDFI
certification.36 The OIG applied the methodology purportedly supporting
OnPath’s 2005 certification application, and identified three specific
problems. First, the OIG found that OnPath’s geographic categorization of
its members and financial products was unsupportable.37 For instance,
OnPath submitted in its application that it had 157,381 member accounts in
the non-metro portions of Louisiana,38 but OIG’s analysis of OnPath’s
records revealed that it only had 5,380 such accounts.39 The OIG found that
this and other discrepancies owed largely to the fact that OnPath improperly
categorized 67 ZIP codes in the New Orleans-Metairie-Kenner MSA as falling
33 R. Doc. 34-9 at 1-3 (Emails between Sonya Jarvis and OIG) (May 10-
21, 2018).
34 R. Doc. 19-4 at 168-71 (Letter from Phil Buffington, Jr. to OIG) (Dec.
19, 2018).
35 See id. at 135-176 (OIG Audit Report).
36 Id. at 140.
37 Id. at 150-152.
38 Id. at 33 (OnPath’s Application for CDFI Certification).
39 Id. at 151 (OIG Audit Report).
into the non-metro area.40 The OIG explained that this improper
categorization impacted the calculation of the LITP percentages, “[b]ecause
low income thresholds vary depending on the geographic location of a
member.”41 Accordingly, “the geographic location has to be accurate.”42
Second, the OIG found that OnPath improperly categorized certain
members and their associated products as low income. The OIG “identified
22,863 of 78,229 members (approximately 30 percent) with deposit
accounts and 4,801 of 23,832 members (approximately 20 percent) with
loan accounts . . . [who] lacked income classifications” in the third-party
MCIF data that OnPath relied on for its member-income information.43
OnPath classified all of these individuals, who had unknown incomes, as low-
income. OnPath told the OIG that
[OnPath’s] former management assumed these members were
low income because MCIF income information was collected
using public records that must be verified three times by the third
party to populate income classifications. The absence of income
classifications indicated that members tried to access credit less
than three times in their lifetime.44
40 Id. at 152.
41 Id.
42 Id.
43 Id. at 153 (emphasis added).
44 Id.
OnPath assumed that those members’ thin credit file meant that all of those
members were low-income. But the OIG found that this assumption was not
supported and not disclosed to the CDFI Fund in OnPath’s certification
application. As to the substance of the assumption, in October of 2005,
OnPath asked the MCIF vendor whether the assumption was supportable.
The vendor responded that it was not, because income data could be missing
for a variety of reasons, and not just because the individual may be low
income.45 The OIG found that OnPath’s assumption was “unreasonable,”46
and its nondisclosure “significant.”47
Third, the OIG found that OnPath manually adjusted the income of
certain members to place them below the LITP threshold. Specifically,
OnPath compared MCIF income data with its internal income data, and, if a
member had an MCIF income above the LITP threshold, and an internally
recorded income below the LITP threshold, OnPath relied on the lower value
and categorized the member as low-income.48 OnPath estimated that its
former management manually lowered the income classifications of
45 Id.
46 Id.
47 Id. at 154.
48 Id. at 153-154; R. Doc. 34-14 at 31-32 (OnPath’s 2006 Validation
Methodology) (Mar. 27, 2017).
approximately 35% of members with incomes above the 2005 LITP cutoff.49
And members were only adjusted downward; no members were adjusted
upward, to above the LITP threshold. OnPath was unable to explain why the
adjustments occurred in only one direction. The OIG further found that
OnPath did not disclose this methodology to the CDFI Fund in its
certification application.50
Based on these findings, the OIG recommended that the Director of the
CDFI Fund “determine whether [OnPath] was in default of its . . . Assistance
Agreements as a result of submitting invalid information in its Certification
Application and Assistance Agreements.”51 It further recommended that the
CDFI Fund “take appropriate action which may include requiring [OnPath]
to reimburse the CDFI Fund” for certain awards received.52
On November 13, 2019, the Program Manager of the CDFI Fund
notified OnPath that, based on the OIG’s audit, the CDFI Fund had
“determined that, as a result of [OnPath] submitting invalid information in
its 2006 Certification Application, the FYs 2006 through 2009, 2011 and
2012 awards made to [OnPath] constitute improper payments in accordance
49 R. Doc. 19-4 at 154 (OIG Audit Report).
50 Id.
51 Id. at 160.
52 Id.
with the Improper Payments Elimination and Recovery Improvement Act of
2012 (31 U.S.C. [§] 3321).”53 It therefore “terminate[d] the Assistance
Agreements” for those years’ awards, and “require[d] [OnPath] to repay the
CDFI Fund for the aforementioned awards, which total[] $12,298,806.”54
On May 4, 2020, OnPath filed suit against the CDFI Fund, seeking this
Court’s review under the Administrative Procedure Act (“APA”).55 OnPath
seeks a declaratory judgment that the CDFI Fund wrongfully terminated the
Assistance Agreements, and that OnPath is entitled to the awards that the
Fund now demands to be repaid.56
On May 26, 2021, the CDFI Fund filed a motion for summary
judgment, contending that its repayment demand was not arbitrary and
capricious based on the administrative record.57 On August 11, 2021, OnPath
filed a cross-motion for summary judgment, asserting the opposite.58
Specifically, OnPath contends that the CDFI Fund’s repayment demand was
arbitrary and capricious because: (i) the CDFI Fund relied on the OIG’s
erroneous comparison of data from mid-year 2005 with data from year-end
53 Id. at 178 (CDFI Repayment Demand Letter to OnPath) (Nov. 13,
2019).
54 Id.
55 R. Doc. 1 ¶ 3.
56 Id. ¶ 92.
57 R. Doc. 19.
58 R. Doc. 52.
2004;59 (ii) OnPath was actually eligible for CDFI certification,60 but the OIG
and the CDFI Fund failed to assess OnPath’s actual eligibility, and instead
attempted to replicate the faulty methodology underlying OnPath’s original
application;61 and (iii) both the OIG and the CDFI Fund failed to account for
significant errors made by the CDFI Fund during the review and approval of
OnPath’s applications for certification and assistance.62
The Court considers the parties’ arguments below.
II. LEGAL STANDARD
Under the APA, the Court must “hold unlawful and set aside agency
actions, findings, and conclusions found to be . . . arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2). The reviewing court will find an agency action arbitrary or
capricious “if the agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs counter to the
evidence before the agency, or is so implausible that it could not be ascribed
59 R. Doc. 52-3 at 16-17.
60 Id. at 23-24.
61 Id. at 17-21.
62 Id. at 21-23.
to a difference in view or the product of agency expertise.” La. Env’t Action
Network v. E.P.A., 382 F.3d 575, 582 (5th Cir. 2004) (quoting Tex. Oil & Gas
Ass’n v. E.P.A., 161 F.3d 923, 934 (5th Cir. 1998)). The Fifth Circuit has
explained that, “under this deferential standard, a court reviewing an agency
action may not substitute its own judgment for that of the agency.” Id. This
is because agencies “have expertise and experience . . . that no court can
properly ignore.” Univ. of Tex. M.D. Anderson Cancer Ctr. v. United States
Dep’t of Health & Hum. Servs., 985 F.3d 472, 475 (5th Cir. 2021) (quoting
Judulang v. Holder, 565 U.S. 42, 53 (2011)).
An agency passes muster under the arbitrary-and-capricious standard
if it “has considered the relevant factors and articulated a rational connection
between the facts found and the choice made.” Sierra Club v. Glickman, 67
F.3d 90, 97 (5th Cir. 1995). The scope of the reviewing court’s inquiry is
limited to “determining if the agency’s judgment conforms to minimum
standards of rationality.” La. Env’t Action Network, 382 F.3d at 582.
The court’s review is limited to an examination of the administrative
record before it. Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985).
III. DISCUSSION
The Court finds that the CDFI Fund’s decision to demand repayment
of OnPath’s awards, based on the findings of the OIG’s audit, was not
arbitrary and capricious. As detailed above, the OIG conducted a thorough,
years-long investigation into OnPath’s certification application, among other
issues. The OIG communicated extensively with both the CDFI Fund and
OnPath throughout the process. OnPath had numerous opportunities to
answer the OIG’s questions, to respond to its concerns, to explain and
support the information submitted in the 2005 application, and to contest
the intermediate findings of the OIG, including by reviewing multiple draft
audit reports. OnPath submitted detailed descriptions of its 2005
methodology, both in writing and through verbal communications. The OIG
analyzed and replicated this methodology as a core part of its audit. The
record makes clear that the OIG attempted to understand certain
unexplained and troubling aspects of OnPath’s methodology, and, as a result
of the investigation, found that OnPath’s original application for CDFI
certification in 2005 was deficient in multiple ways. Based on those
problems, the OIG recommended that the CDFI Fund decide whether to seek
recoupment of the awards received pursuant to that certification. The CDFI
Fund decided to do so. The administrative record contains ample support
for that decision.
And while OnPath disagrees with the CDFI Fund’s decision, this
Court’s review is limited to the APA’s deferential arbitrary-and-capricious
standard. The CDFI Fund’s decision quite easily withstands that scrutiny.
The essential fact pattern here is that a federal-funding applicant submitted
invalid information in its application, received funds based on the
application’s approval, and, upon discovery of the problems with the
application, has been instructed to repay those funds. Based on the record
before the CDFI Fund, this Court cannot find that the agency’s judgment fails
to “conform[] with minimum standards of rationality.” La. Env’t Action
Network, 382 F.3d at 582. Nor can the Court find that the agency has failed
to “articulate[] a rational connection between the facts found and the choice
made.” Sierra Club, 67 F.3d at 97. Indeed, the CDFI Fund’s explanation for
the repayment demand is completely consistent with the OIG’s findings and
the record evidence supporting those findings. The explanation for the
decision is neither “implausible,” nor “counter to the evidence” in the record.
La. Env’t Action Network, 382 F.3d at 582. Tellingly, OnPath does not cite
any case in which a court set aside an agency’s decision to demand repayment
following an audit—much less an audit of this length and magnitude.
Because the CDFI Fund “has considered the relevant factors and
articulated a rational connection between the facts found and the choice
made,” Sierra Club, 67 F.3d at 97, the Court finds that its decision to seek
recoupment of funds received by OnPath for FYs 2006-2009, 2011, and 2012
is not arbitrary and capricious under the APA. See 5 U.S.C. § 706(2).
A. Comparison of 2004 Data with 2005 Data
OnPath’s arguments to the contrary are without merit. OnPath first
contends that the OIG erroneously compared two distinct sets of loan data.63
Specifically, OnPath’s certification application was based on loan data as of
the end of FY 2004, but the OIG conducted its audit using loan data from
mid-year 2005.64 OnPath asserts that this mismatch “leaves the OIG’s
central finding upon which the CDFI . . . based its decision . . . without any
supporting evidence.”65
This argument is unconvincing for multiple reasons. First, OnPath
gives the Court no reason to believe that the two datasets—separated by a
period of approximately six months—differ meaningfully from one another.
63 R. Doc. 52-3 at 16-17.
64 R. Doc. 34-14 at 29 (“It should be noted that this data file is from July
of 2005. The original . . . CDFI application was completed using data
as of December 31, 2004.”).
65 R. Doc. 52-3 at 17.
And even if there were moderate changes in OnPath’s membership or
financial activities during that period, it strains reason to suggest that six
months’ time would account for percentage discrepancies on the order of
one-thousand to two-thousand percent.66
Second, the record indicates that the reason the OIG used mid-year
2005 data for its analysis is because OnPath could not locate its year-end
2004 data. For instance, on May 21, 2018, OnPath’s CEO stated in an email
to the OIG that the year-end 2004 data “is no longer available,” and
“inaccessible,” and that “July 2005 data would have to be used as a proxy.”67
Similarly, in a letter from OnPath’s counsel on December 19, 2018, OnPath
conceded its “inability to find the underlying data used in completing the
applications for CDFI.”68 OnPath does not assert that it provided the year-
end 2004 data to the OIG or the CDFI Fund at any point during the five-year
audit.
Finally, even if this objection held any water, it would tend to
undermine only one out of the three problems that the OIG identified in
66 See R. Doc. 19-4 at 151 (OIG Audit Report) (indicating, inter alia, a
difference of 2,825% in reported number of member accounts in non-
metro portions of Louisiana).
67 R. Doc. 34-9 at 1 (Email from Sonya Jarvis to OIG) (May 21, 2018).
68 R. Doc. 19-4 at 169 (Letter from Phil Buffington to OIG) (Dec. 19,
2018).
OnPath’s certification application. Specifically, while it would compromise
the OIG’s conclusions derived from its comparison of the geographic
information in OnPath’s application (the 2004 data) with internal data
reviewed during the audit (the 2005 data), it would not affect the OIG’s other
two conclusions, regarding OnPath’s unreasonable classification of certain
individuals as low-income. The income-classification concerns emanate
exclusively from OnPath’s summary of its 2005 methodology, and other
items in the administrative record. These two problems, as identified and
described by the OIG, do not facially turn on any comparison of the 2004
and 2005 datasets.
For all of these reasons, the OIG’s comparison of data from mid-year
2005 with data from year-end 2004 does not render the CDFI Fund’s
decision to seek repayment of funds arbitrary and capricious.
B. Failure to Independently Test OnPath’s Eligibility
OnPath dedicates much of its briefing to the contention that, as part of
the audit, the OIG should have “objectively test[ed]” whether OnPath was “in
fact eligible” for CDFI certification.69 According to OnPath, the OIG and the
CDFI Fund improperly limited their inquiry to “the specific data submitted
69 R. Doc. 52-3 at 17-18.
in the 2005 Certification Application,” and thereby “shifted the audit
exercise from an objective test of CDFI eligibility to a subjective test of
‘validity.’”70
But despite all its protestation around this issue, OnPath has not
provided any reason—whether rooted in statute, regulations, or even general
principles of fairness—why the OIG’s audit required an inquiry into, and
independent determination of, OnPath’s actual eligibility. And the Court
does not find any reason to impose such a requirement. By way of analogy,
an employer who finds that its employee submitted invalid information in
his job application may fairly terminate the employee without determining
whether he was “in fact” qualified for the job. So too may a federal fund
demand repayment from a fund recipient based on an invalid application,
without testing the applicant’s “in fact” eligibility.
And critically, in asserting that it was in fact eligible for CDFI
certification, OnPath does not rely on the information or methods actually
used in its certification application. Instead, OnPath contends that it is by
virtue of “Investment Areas”—the other route to satisfy the Target Market
criterion—that it was in fact CDFI-eligible.71 OnPath claims that “[a]n
70 Id. at 18.
71 Id. at 23-24.
analysis of all loans issued by OnPath in FY2004 shows that OnPath would
have fully met the Target Market requirement based solely on qualified
Investment Areas in Louisiana without necessitating any income-based
analysis.”72 But the fact is that OnPath used an “income-based analysis” in
its certification application. The OIG spent years attempting to validate that
analysis—using OnPath’s data and the methodology that OnPath described—
and found the application deficient in multiple ways. Whether an application
using Investment Areas would have been similarly deficient is unknowable.
To attempt an “objective test” of OnPath’s eligibility using Investment Areas
would be to conduct a hypothetical inquiry into a hypothetical certification
application that OnPath did not submit. The OIG and CDFI Fund acted
reasonably in refraining from such an exercise.
Accordingly, the decision not to conduct an independent investigation
into OnPath’s actual eligibility for CDFI certification, without reference to
the application that OnPath actually submitted, does not render the CDFI
Fund’s repayment demand arbitrary and capricious.
72 Id.
C. Failure to Account for the CDFI Fund’s Mistakes
OnPath further argues that the OIG and the CDFI Fund failed to
account for the CDFI Fund’s own errors in the application and certification
process. OnPath points to a series of asserted missteps and mistakes,
including “mistaken guidance on target market selection, misinterpretation
of mapping requirements, misunderstanding of credit union charters, and
miscalculation of target market activities.”73
Issues like these could render the agency’s action arbitrary and
capricious, because the Court’s APA review asks in part whether the agency
“entirely failed to consider an important aspect of the problem.” La. Env’t
Action Network v. E.P.A., 382 F.3d at 582. But here, the issues cited by
OnPath do not amount to “an important aspect of the problem.” Id.
OnPath’s complaint centers on the CDFI Fund’s ultimate certification
of a Target Market that was smaller than what OnPath submitted, and
excluded nearly one-third of OnPath’s members.74 OnPath points to
confusing communications in which the CDFI Fund asked “a series of
questions about board accountability” to the geographic regions identified in
OnPath’s application, which suggested that “each map represented a distinct
73 Id. at 21.
74 Id. at 21-22.
Investment Area.”75 The CDFI Fund also asked about member
concentrations in certain areas, but ultimately excluded those areas from the
Target Market that was certified.76
But while these communications may reflect an imperfect
understanding of OnPath’s application at the time, they do not amount to
misguidance by the CDFI Fund or even “significant errors” bearing on the
problems identified by the OIG. As discussed above, two of the three issues
that the OIG found with OnPath’s application pertain exclusively to OnPath’s
means of classifying certain members as low-income. None of the
correspondence cited by OnPath touches on this issue. Nowhere does
OnPath explain to the CDFI Fund that, in its application, it (i) assumed that
all members with unknown incomes were low-income, or that it (ii) moved
35% of its non-low-income members to the low-income category in
calculating its LITP percentages. Needless to say, the record contains no
indication that the CDFI Fund encouraged, approved of, or acquiesced to this
methodology.
75 Id. at 22; see also R. Doc. 34-4 at 3-36 (Emails between OnPath and
the CDFI Fund) (Jan. 2006).
76 R. Doc. 52-3 at 22.
D. Other Issues
Finally, throughout its submissions, OnPath raises a series of
miscellaneous issues and arguments, none of which alter the Court’s
conclusions. For instance, OnPath contends that the OIG failed to consider
certain norms and practices in the industry at the time of OnPath’s 2005
certification application, as well as changes in the intervening period.77 But
OnPath’s unsupportable assumptions in its application are not remedied, or
even explained, by the picture it paints of a young and underdeveloped
industry in 2005. For example, the general fact that “there [was] not one
acceptable methodology” for meeting the CDFI Fund’s Target Market
criterion does not justify OnPath’s unreasonable maneuvers in categorizing
its members as low-income. Nor does the CDFI Fund’s decision to measure
loan activity based on loans issued, rather than outstanding loans, bear on
OnPath’s invalid LITP methodology in 2005. In sum, none of OnPath’s
concerns about industry practice, changes in CDFI policy, or the youth of the
industry, undermines the OIG’s findings or makes the CDFI Fund’s
repayment demand arbitrary and capricious.
OnPath also protests that that the CDFI Fund did not conduct its own
review and investigation apart from the OIG’s audit. OnPath writes that
77 Id. at 11-12.
“[t]he CDFI Fund’s decision is based solely on the OIG’s finding that OnPath
submitted invalid information in its 2005 Certification Application,” and
that the “CDFI Fund accepted the OIG’s finding at face value and made no
attempt to investigate the issues raised in the Audit Report.”78 The Court
soundly rejects this suggestion. Not only does OnPath provide no authority
for the proposition that a federal agency housing an internal Office of
Inspector General must conduct an independent review of the OIG’s
findings, but also, it is plain from this record that the CDFI Fund was
intimately involved with the audit. The Court’s arbitrary-and-capricious
review does not license it to make such a demand on the CDFI Fund.
Finally, OnPath contends that the OIG and the CDFI Fund did not take
into account the special consideration and exceptions afforded to entities
serving areas affected by Hurricane Katrina in 2005.79 OnPath points to a
Notice of Funds Availability (“NOFA”) in the Federal Register stating that,
for FY 2006 applications, the CDFI Fund will suspend certain requirements
for institutions affected by Hurricanes Katrina and Rita. See Funding
Opportunity Title: Revised Notice of Funds Availability (NOFA) Inviting
Applications for the FY 2006 Funding Round and the FY 2007 Funding
78 Id. at 14.
79 Id. at 20-21.
Round of the Community Development Financial Institutions Program, 70
Fed. Reg. 75860, 75864 (Dec. 21, 2005). But OnPath does not explain what
these exceptions have to do with its 2005 application, or in what ways the
CDFI Fund allegedly contravened the stated exceptions. And the Court’s
review of the notice reveals no relevant provision that bears on the OIG’s and
CDFI Fund’s actions in this case. The NOFA is beside the point.
OnPath also cites the CDFI Fund’s FY 2006 Policies and Procedures,
which states that “the Fund will give special consideration to” any applicant
that is located in or serves an area declared by FEMA to be a major disaster
area as a result of Hurricanes Katrina or Rita.80 But again, OnPath fails to
explain how the CDFI Fund acted inconsistently with this nebulous policy,
much less how such a failure would make the CDFI Fund’s decision in this
case arbitrary and capricious. The Court finds that OnPath’s concerns
regarding Hurricane Katrina are without merit.
In sum, none of the issues raised by OnPath, whether individually or
collectively, render the CDFI Fund’s decision to demand repayment of
OnPath’s CDFI awards arbitrary and capricious under § 706 of the APA.
80 R. Doc. 52-6 at 8 (CDFI Program FY2006 Policies and Procedures).
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS the CDFI Fund’s motion
for summary judgment, and DENIES OnPath’s motion for summary
judgment. Plaintiffs complaint is hereby DISMISSED.
New Orleans, Louisiana, this _28th_ day of January, 2022.
bern Varner
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
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