DuPage Regional Office of Educ v. EDUC

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 21-3339

DUPAGE REGIONAL OFFICE OF

EDUCATION,

Petitioner,

v.

UNITED STATES DEPARTMENT OF

EDUCATION,

Respondent.

____________________

Petition for Review of an Order of the Department of Education.

No. 21-36-CP

____________________

ARGUED SEPTEMBER 15, 2022 — DECIDED JANUARY 23, 2023

____________________

Before SYKES, Chief Judge, RIPPLE, and KIRSCH, Circuit

Judges.

RIPPLE, Circuit Judge. In September 2020, Albert Sanchez

filed a whistleblower complaint with the United States De-

partment of Education’s Office of the Inspector General

(“OIG”) against his former employer, DuPage Regional Office

of Education (“DuPage”). Sanchez alleged that, after he made

two protected disclosures to DuPage, he suffered five

2 No. 21-3339

reprisals in violation of § 828 of the National Defense Author-

ization Act of 2013, 41 U.S.C. § 4712.

The OIG investigated Sanchez’s complaint, determined

his claims to be unsubstantiated, and submitted a report to

the Department for a final agency decision. On October 21,

2021, an administrative law judge (“ALJ”) in the Depart-

ment’s Office of Hearings and Appeals determined, contrary

to the findings of the OIG, that Sanchez was entitled to relief

for all five alleged reprisals. The ALJ ordered DuPage to pay

Sanchez compensatory damages in the amount of $210,000.

DuPage filed a petition for review of the ALJ’s order as au-

thorized by 41 U.S.C. § 4712(c)(5). For the reasons set forth in

this opinion, we now grant the petition for review and re-

mand the case to the Department of Education for further pro-

ceedings consistent with this opinion.

BACKGROUND

A. Sanchez’s Employment at DuPage

DuPage Regional Office of Education is a public education

entity based in Wheaton, Illinois. Illinois’s regional offices of

education serve as intermediaries between the Illinois State

Board of Education (“ISBE”) and local school districts within

1

their county or counties. School Code §§ 3-0.01, 3-14.2, 3-14.7.

They are “established by” the ISBE and subject to its “rules

and regulations.” Id. § 2-3.62. Each office is headed by a su-

perintendent who is elected by the citizens of the area over

2

which they have cognizance.

1 The Illinois School Code is found at 105 ILCS 5/1-1 et seq.

2 Cook County represents a special situation. It is divided into several In-

termediate Service Centers—one serves the City of Chicago, and the

No. 21-3339 3

In September 2017, the Department of Education awarded

DuPage two multi-year federal grants. DuPage received a

$4 million Education Innovation and Research Grant (“EIR

grant”). It also was a subgrantee of a separate $12 million Sup-

porting Effective Educator Development Grant (“SEED

grant”) that was administered by Illinois State University

(“ISU”). Both grants were designed to support local educators

and leaders through research on professional development

structures. Because of the grants’ overlapping subject matter

and purposes, DuPage and ISU collaborated closely in their

work under the two grants. This collaboration made it neces-

sary to monitor expense allocations between the grants to en-

sure compliance with federal rules and regulations.

DuPage hired Albert Sanchez in October 2017 to assist

with grant management. Initially brought on as a contractor,

Sanchez assumed a full-time position as a budget and data

analyst several months later in January 2018. His role was to

set up financial systems and budget tools for managing both

the EIR and SEED grants. Although the precise details of the

supervisory chain were unclear, Sanchez answered primarily

to three officials at DuPage and ISU: Dr. Darlene Ruscitti, the

elected Regional Superintendent of DuPage and Sanchez’s

top-line supervisor; Dr. Alicia Haller, DuPage’s EIR grant di-

rector and Sanchez’s primary supervisor; and Dr. Erika Hunt,

ISU’s SEED grant director who had no official supervisory

role over Sanchez.

During his employment with DuPage, Sanchez made two

protected whistleblower disclosures and experienced what he

others serve the portions of Cook County that are outside the City of Chi-

cago. Ill. Admin. Code tit. 23, §§ 525.30, 525.40; School Code § 2-3.62.

4 No. 21-3339

alleged were five reprisals in response. Under the relevant

whistleblower statute, 41 U.S.C. § 4712(a)(1), a recipient of a

federal grant is prohibited from retaliating against an em-

ployee who has disclosed “information that the employee rea-

sonably believes is evidence of … a violation of law, rule, or

regulation related to a Federal … grant.” Employers who vio-

late § 4712(a)(1) are subject to the administrative remedies

specified in § 4712(c)(1).

Sanchez made his first disclosure around April 2018 when

Hunt submitted an invoice to him for a roughly $10,000 break-

fast expense, to be paid from the SEED grant. Sanchez told

Hunt that the invoice was not an allowable expense under

federal grant rules and refused to pay the invoice despite her

insistence that he do so. Haller and Dr. Jeremy Dotson, the

Assistant Regional Superintendent of Business at DuPage,

later confirmed Sanchez’s view that the breakfast expense

was unallowable.

A few weeks after he had refused to pay the expense ten-

dered by Hunt, Sanchez experienced what he claimed was his

first reprisal. Haller informed him that, due to a change in pol-

icy at ISU, he was being removed from the invoice review pro-

cess for the SEED grant. According to Sanchez, Haller told

him that ISU officials had decided they did not want non-ISU

employees approving SEED grant invoices. During the OIG

investigation, Hunt stated that ISU’s change in budget policy

applied across the board and was not directed at DuPage or

any of its staff.

Sanchez alleges that a second reprisal unfolded over a pe-

riod from December 2018 to March 2019. In December 2018,

Hunt told Haller and Ruscitti that she wanted to reduce

No. 21-3339 5

3

Sanchez’s involvement with data infrastructure work and to

transition those duties to an outside contractor. Hunt and

Haller were concerned that Sanchez lacked the technical com-

petence and professional connections to undertake that work

effectively. To make use of Sanchez’s strengths, they decided

to shift his duties from data infrastructure to grant develop-

ment. Although Hunt indicated in a January 2019 email her

concern that Sanchez might be “upset” to have data infra-

structure work taken away from him, Haller understood

Sanchez to be pleased with the shift toward grant develop-

ment: Sanchez emailed Haller later that month, “I’m very ex-

4

cited about this strand of the work.” Sanchez’s new job de-

scriptions were finalized in March 2019. Although the OIG

never identified any evidence that Sanchez objected to this

change of duties, Sanchez now points to this development as

an adverse employment action.

Sanchez made his second disclosure around January and

February 2019. Haller submitted a contract for Sanchez’s ap-

proval, asking that it be applied to the EIR grant, but Sanchez

refused to do so. He told Haller that, because the work on that

contract was to be performed for the SEED grant, it would

3 It appears from the record that this work was aimed at creating a statis-

tical model of supply and demand for educators by region. As an initial

matter, this effort required building relationships with different education

actors in the state—including the ISBE, the Illinois Association of Regional

School Superintendents, other regional offices of education, and the gov-

ernor’s office—to obtain relevant data. Beyond that, the work demanded

facility with software development and technical statistical concepts. App.

110, 184–85, 196–97. Citations to “App.” refer to DuPage’s appendix con-

taining the administrative record.

4 App. 198, 201–04, 343.

6 No. 21-3339

violate federal grant rules to run the contract invoices through

the EIR grant. Haller disagreed with Sanchez’s view that her

request would amount to a misallocation of grant funds be-

cause she believed the arrangement already had been ap-

proved by DuPage’s program officer at the Department of Ed-

ucation. Nonetheless, on February 22, 2019, DuPage held a

conference call with its program officer to clarify the issue,

and the program officer cleared DuPage to continue with in-

voicing in the manner Haller had planned. It appears that,

prior to the call, there were tensions among DuPage staff con-

cerning whether Sanchez would be permitted to speak on the

call. Ultimately, he did not speak.

The third alleged reprisal occurred on March 11, 2019,

when DuPage placed Sanchez on an employee performance

plan (“EPP”), to run from March 11 to September 30, 2019.

Although the EPP was reportedly issued on March 11 during

a meeting with Sanchez, there is some uncertainty as to when

Sanchez received a copy of the EPP: His signature on the doc-

ument is dated April 26, 2019, and he denied receiving a copy

of it before that date. The stated purpose of the EPP was to

“allow the employee the opportunity to demonstrate compe-

5

tency and commitment” to his work. It listed areas of demon-

strated strength and areas for further improvement, with sec-

tions addressing performance goals, resources, and expecta-

tions. The document noted in closing that “[f]ailure to meet or

exceed these expectations, keep accurate records of work

5 Id. at 344.

No. 21-3339 7

completed, or violate [sic] any DuPage ROE policy, will result

6

in disciplinary action—up to and including termination.”

The issuance of the EPP was preceded by serious discus-

sions among DuPage and ISU staff concerning problems with

Sanchez’s performance. The record includes emails from De-

cember 2018, January 2019, and March 2019 detailing Haller’s

ongoing frustrations with Sanchez’s communication skills, or-

ganization, work product, work hours, and accounting

7

knowledge. Haller began formally documenting her con-

cerns with Sanchez’s performance as early as March 3, 2019,

including one instance in which she claimed Sanchez created

expense tracking spreadsheets “that were off by hundreds of

8

thousands of dollars.”

The EPP was more immediately precipitated by a March

4, 2019 meeting between Sanchez, Ruscitti, Haller, Hunt, and

Dotson. Although the participants’ impressions of the meet-

ing varied somewhat, it appears that the meeting was aimed

at providing clarity as to Sanchez’s supervisory chain, his

roles and responsibilities, and expectations surrounding com-

munication and performance. The decision to place Sanchez

on an EPP was apparently made after Sanchez had left this

9

meeting. It appears that Haller took the lead on drafting the

EPP, with input from Hunt and Ruscitti and possibly Dr. Mi-

chael Robey, DuPage’s Assistant Superintendent of

6 Id. at 347.

7 Id. at 365–69, 371, 373, 375, 389, 390, 392, 403, 415–17.

8 Id. at 127.

9 Id. at 114, 218.

8 No. 21-3339

10

Operations. Haller did not view the EPP as a disciplinary

11

action, and Hunt shared in that understanding. Sanchez,

however, believed that Haller and Hunt did not want him to

succeed in the EPP process and that the document was meant

12

to justify his eventual termination. In the months that fol-

lowed, Haller continued to document communications with

13

Sanchez and frustrations with his performance.

The fourth alleged reprisal stemmed from an email to

Hunt from an ISU employee, Emilie Shoop, on August 14,

2019. The email detailed three incidents. Shoop stated in her

email that, shortly after Sanchez had joined DuPage, she was

helping him with a Zoom conference call login when his

14

username appeared on the screen as “Hot Sex Puma.” She

also stated that, earlier that summer (2019), another ISU em-

ployee had told her that she experienced a similar incident

with Sanchez, but that the Zoom username “was something

15

like Sex Panther.” Finally, Shoop explained that a third inci-

dent that had occurred the previous day prompted her to

send her email: She was assisting Sanchez with his laptop

when she observed the phrase “Disturbing Men

10 Id. at 114–15, 175, 187, 314.

11 Id. at 115, 187.

12 Id. at 74.

13 Id. at 114, 133–34, 137–40.

14 Id. at 163.

15 Id.

No. 21-3339 9

16

Masturbating” autofill on his browser. Hunt promptly for-

warded Shoop’s email to Haller, who said DuPage would in-

vestigate. Haller referred the matter to Ruscitti and Dotson.

After learning of Shoop’s email, Ruscitti, Dotson, and

Robey exchanged emails discussing whether Sanchez had vi-

olated DuPage’s harassment or acceptable use policies. Dot-

son and Robey arranged for a disciplinary meeting with

Sanchez on August 20, 2019, with a follow-up meeting on Au-

gust 29, 2019. They issued Sanchez a formal reprimand in the

form of a personnel action report (PAR). The PAR identified

the three incidents from Shoop’s email as events that “vio-

lated [DuPage’s] Acceptable Use Policy” and stated that these

events made other employees “very uncomfortable and could

17

be considered sexual harassment.” The PAR noted that

Sanchez “acknowledged” the first incident, claiming that the

sexually explicit username belonged to a friend who had bor-

18

rowed his computer. It then noted that Sanchez “did not re-

19

call” the second username incident. The PAR did not say

whether Sanchez admitted, denied, or did not recall the third

incident, but it did state that this incident was witnessed by

several individuals at a meeting at ISU. Robey later reported

16 Id.

17 Id. at 318.

18 Id.

19 Id.

10 No. 21-3339

to the OIG that Sanchez had admitted to all three of the inci-

20

dents.

In late September 2019, Haller, Ruscitti, Robey, and Dot-

son exchanged emails in preparation for a performance ap-

praisal meeting to close Sanchez’s EPP period. In these emails,

Haller compiled a large record of documents showing

Sanchez’s unsatisfactory performance. Ruscitti gave her ap-

proval for the meeting and for his termination on September

23, 2019. On September 30, 2019, Haller and Robey led

Sanchez’s performance appraisal meeting, informed him that

his performance on the EPP was not satisfactory, and gave

him the option of resigning or being terminated. He did not

exercise the option of resigning. Sanchez was terminated on

October 4, 2019, for the stated reason that he was “rated un-

21

satisfactory with no defense given.” Sanchez points to his

termination as the fifth act of reprisal.

B. Administrative Proceedings

1. The OIG Report

On September 23, 2020, Sanchez filed a whistleblower

complaint against DuPage with the Department’s Office of

the Inspector General. The OIG conducted a year-long inves-

tigation in which it interviewed eight individuals and com-

22

piled roughly 1,000 pages of documentary evidence.

20 Id. at 313–14.

21 Id. at 1002.

22 Under 41 U.S.C. § 4712(b)(1), Sanchez filed a complaint with the OIG,

which was in turn required to “investigate the complaint and, upon

No. 21-3339 11

The OIG framed its report in terms of the burden-shifting

scheme employed under the whistleblower statute. 41 U.S.C.

§ 4712(c)(6) (directing adjudicators to apply the scheme in

5 U.S.C. § 1221(e)). Sanchez had the initial burden of showing

that a disclosure was a “contributing factor” in a decision to

take a personnel action. 5 U.S.C. § 1221(e)(1). He could meet

that burden with circumstantial evidence, such as evidence

that “the official taking the personnel action knew of the dis-

closure” and that “the personnel action occurred within a pe-

riod of time such that a reasonable person could conclude that

the disclosure or protected activity was a contributing factor

in the personnel action.” Id. § 1221(e)(1)(A)–(B). If Sanchez

were to meet his burden, DuPage could avoid liability by

showing “by clear and convincing evidence that it would

have taken the same personnel action in the absence of such

disclosure.” Id. § 1221(e)(2). Applying that framework, the

OIG found that all of Sanchez’s alleged reprisals were unsub-

stantiated.

a.

First Reprisal. As to the first alleged reprisal around April

2018, the OIG found that Sanchez’s disclosure concerning un-

allowable catering expenses was a contributing factor in his

removal from SEED grant financial oversight duties based on

Hunt’s knowledge of the disclosure and the temporal prox-

imity of the action. But the OIG also determined that ISU’s

change in budget policy—a decision to limit SEED grant fi-

nancial oversight to ISU employees—constituted “clear and

completion of such investigation, submit a report of the findings” to the

agency for a final determination.

12 No. 21-3339

convincing evidence that [DuPage] would have removed his

23

financial duties regardless of this disclosure.”

b.

Second Reprisal. The OIG determined that Sanchez’s disclo-

sures were not a contributing factor in his change of duties

between December 2018 and March 2019. The OIG found that

none of the officials involved in this change—Haller, Hunt, or

24

Ruscitti —had any knowledge of the catering disclosure of

April 2018. And because this personnel action “occurred or

was initiated likely prior to his second protected disclosure”

in January and February 2019, that disclosure “could not have

25

been a contributing factor.” In any case, the OIG determined

that the change of duties was simply a result of Sanchez’s de-

ficient performance on the data infrastructure work.

c.

Third Reprisal. Because of the temporal proximity to the

second disclosure and the knowledge of the officials in-

volved—Haller, Hunt, Ruscitti, and Dotson—the OIG deter-

mined that Sanchez’s disclosure was a contributing factor to

his placement on an EPP on March 11, 2019. The OIG further

found, however, that “numerous e-mails and witness testi-

mony” from DuPage personnel showed that Sanchez had

“significant performance issues” and that DuPage had

23 App. 33.

24 Id. at 34. The OIG report misstated its finding here. A page earlier, the

OIG found that Hunt did have knowledge. Id. at 33. And Sanchez stated

that he made the disclosure directly to Hunt. Id. at 69.

25 Id. at 34–35.

No. 21-3339 13

accordingly shown by clear and convincing evidence that it

would have placed Sanchez on an EPP regardless of his dis-

26

closures.

d.

Fourth Reprisal. The OIG did not clearly state whether it

thought Sanchez had met his initial burden with respect to

issuance of the PAR. But the OIG found, in any case, that Du-

Page had “clear and convincing evidence the PAR would

have been issued based on the multiple, repeat incidents of

27

inappropriate conduct.” The OIG further noted its finding

that the PAR was issued in accordance with DuPage policy

and shortly after the complaint was received.

e.

Fifth Reprisal. Finally, as to Sanchez’s termination, the OIG

determined that the disclosures were a contributing factor to

the extent of Haller’s and Ruscitti’s involvement in the deci-

sion, but not as to Robey’s involvement. Nonetheless, the OIG

concluded that there was clear and convincing evidence that

DuPage would have terminated Sanchez even without the

disclosures. It noted DuPage’s “documentation, including

emails and memos, that demonstrated Sanchez’s numerous

28

performance issues throughout his employment.”

26 Id. at 37.

27 Id. at 38.

28 Id. at 40.

14 No. 21-3339

2. ALJ Decision

After the OIG submitted its report, the case was referred

to an ALJ within the Department’s Office of Hearings and Ap-

peals who had been delegated authority to render a final

agency decision. DuPage and Sanchez waived a hearing with

testimony before the ALJ and agreed to proceed on written

submissions. Both parties submitted briefs, and Sanchez filed

some additional documents. The ALJ also received an unre-

dacted copy of the OIG’s report.

On October 20, 2021, the ALJ issued a decision and order.

She disagreed with the OIG’s determinations, found that Du-

Page had retaliated against Sanchez on five occasions in vio-

lation of § 4712, and ordered DuPage to pay Sanchez compen-

satory damages in the amount of $210,000.

a.

First Reprisal. On the first alleged reprisal—the removal of

Sanchez’s SEED grant oversight duties—the ALJ agreed with

the OIG in finding that Sanchez’s disclosure of unallowable

catering expenses was a contributing factor. The ALJ found

that Haller “[c]learly” had knowledge of the disclosure “con-

temporaneously with the events” and that the reprisal “oc-

29

curred nearly simultaneously with [the] disclosure.” But un-

like the OIG, the ALJ did not think that DuPage met its shifted

burden. Although she did not explain why, the ALJ appar-

ently did not credit DuPage’s defense that the removal of du-

ties was the result of a change in policy at ISU that was appli-

cable to all non-ISU employees. The ALJ also did not discuss

29 Id. at 1127.

No. 21-3339 15

whether or how DuPage should be held responsible for a de-

cision made by ISU officials.

b.

Second Reprisal. The ALJ also believed that at least one of

Sanchez’s disclosures was a contributing factor in the decision

to transition him away from data infrastructure duties from

December 2018 to March 2019. Contrary to the OIG’s findings,

the ALJ believed that Sanchez’s second disclosure in January

and February 2019 was a factor in this personnel action: Alt-

hough the disclosure occurred “after [DuPage] began to con-

sider a job change” in December 2018, it was “before

[Sanchez’s] new job description … was created and imple-

30

mented” in March 2019. In the ALJ’s view, this timing was

sufficient to show that the second disclosure was a contrib-

uting factor in the change of duties that was finalized in

March 2019. It was not clear whether the ALJ also thought the

first disclosure from April 2018 was a contributing factor.

The ALJ then found that DuPage had failed to carry its

burden of showing that it would have implemented this

change of duties even without Sanchez’s disclosure(s). Alt-

hough DuPage had argued that it took this action because

Sanchez lacked the knowledge and professional connections

necessary to perform the data infrastructure work effectively,

the ALJ did not address this argument. Instead, the ALJ

simply reiterated her view that the temporal sequence of

events did not bar a finding that the second disclosure was a

contributing factor in the change of duties.

30 Id. at 1130.

16 No. 21-3339

c.

Third Reprisal. Like the OIG, the ALJ concluded that at least

one of Sanchez’s disclosures was a contributing factor to the

issuance of an EPP on March 11, 2019. The ALJ appeared to

base this finding on the temporal proximity between the EPP

issuance and the second disclosure. Unlike the OIG, however,

the ALJ found that DuPage failed to meet its shifted burden.

The ALJ discussed extensively accounts of the March 4, 2019

meeting that precipitated the EPP, and she seemingly found

it relevant that participants had varying impressions of the

tone of the meeting. The ALJ also noted that, although the EPP

period began on March 11, there was no documented evi-

dence that Sanchez received a copy of the EPP document until

April 26, 2019. Sanchez claimed that he did not receive a copy

until that date. Ultimately, in the ALJ’s view, the vagueness

surrounding these events reduced the probative value of Du-

Page’s assertions that the EPP was aimed at improving

Sanchez’s performance issues, so DuPage failed to carry its

burden.

d.

Fourth Reprisal. The ALJ found that Sanchez’s disclosures

were a contributing factor in DuPage’s formal reprimand of

Sanchez for the three reported incidents of sexually explicit

language appearing on his computer. According to the deci-

sion, the PAR’s descriptions of the incidents were inconsistent

with the descriptions in the Shoop email because the PAR ex-

aggerated their significance, misidentified the timing of the

events, and misreported that the events were witnessed by

several individuals. Although the PAR noted Sanchez’s

acknowledgement of the first incident and his lack of recollec-

tion of the second, it did not state whether he acknowledged,

No. 21-3339 17

denied, or did not recall the third. Thus, despite the seven

months’ time between the second disclosure and the PAR, the

ALJ found that there was “still reason to conclude” that

31

Sanchez had met his initial burden.

The ALJ did not think that DuPage met its shifted burden

to show that it would have issued the PAR even without the

disclosures. She found that Robey’s description to the OIG of

the PAR process was inconsistent with the document: Robey

told the interviewer that Sanchez admitted to all three inci-

dents, but the PAR only noted his acknowledgement of the

first. And she reiterated her finding that the PAR exaggerated

the seriousness of the reported incidents. Finally, the ALJ de-

termined that the two officials involved, Robey and Dotson,

were each downplaying their role in the action.

e.

Fifth Reprisal. Once again, the ALJ disagreed with the

OIG’s finding and instead concluded that Sanchez’s termina-

tion was retaliatory. The ALJ’s reasoning rested on how

closely tied the termination was to the EPP, which she had

already concluded was a reprisal: Sanchez was terminated

based on his unsatisfactory rating at the end of the EPP pe-

riod, on September 30, 2019, and so the EPP formed the basis

for his termination. Thus, in the ALJ’s view, Sanchez’s con-

tributing factor showing on the EPP essentially extended tran-

sitively to the termination as well.

The ALJ then found that DuPage failed to carry its shifted

burden. She reviewed documentation that DuPage had pro-

vided which, she found, discussed Sanchez’s performance

31 Id. at 1135.

18 No. 21-3339

failures “in excruciating detail,” but she concluded that, in de-

veloping all of its documentation, DuPage was simply “mi-

cromanaging” Sanchez rather than supporting his perfor-

32

mance. And, in the ALJ’s view, DuPage’s defense that the

termination was based on deficient performance was under-

cut by her findings that DuPage had failed to provide Sanchez

regular performance assessments, as required by policy, and

that there was significant uncertainty as to Sanchez’s proper

supervisory chain throughout his employment.

f.

Damages Order. The ALJ determined that Sanchez should

33

be compensated for “lost wages due to the acts of reprisals.”

Finding that Sanchez would have been compensated in the

amount of $105,000 per year for the period of October 5, 2019,

through the date of her order, October 20, 2021, she ordered

DuPage to pay Sanchez damages in the amount of $210,000.

The ALJ noted that, although § 4712 permitted awarding costs

and attorney’s fees, she did not find it reasonable to do so.

DuPage petitioned for review as authorized by

§ 4712(c)(5).

DISCUSSION

DuPage raises two arguments in its petition for review. As

an initial matter, it submits that it enjoys sovereign immunity

as an arm of the State of Illinois, that its immunity has not

been abrogated or waived, and that the Department’s order

was therefore barred by sovereign immunity. See Fed. Mar.

32 Id. at 1136.

33 Id. at 1138.

No. 21-3339 19

Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 747, 760 (2002).

Alternatively, DuPage contends that even if sovereign im-

munity does not bar a federal proceeding against it, the De-

partment’s decision should be vacated as arbitrary and capri-

cious and unsupported by substantial evidence. We address

each argument in turn.

Eleventh Amendment Immunity

A.

Under the Eleventh Amendment, the states, including

those entities that can be considered “arms of the state,” are

generally immune from suit in federal court. This immunity

does not extend, however, to other political or municipal en-

tities created by states. Alden v. Maine, 527 U.S. 706, 756 (1999).

The Supreme Court recognized this exception for local enti-

ties in Lincoln County v. Luning, 133 U.S. 529 (1890), a case

dealing with whether a local county enjoyed immunity. The

Court wrote:

[W]hile the county is territorially a part of the

state, yet politically it is also a corporation cre-

ated by, and with such powers as are given to it

by, the state. In this respect, it is a part of the

state only in that remote sense in which any city,

town, or other municipal corporation may be

said to be a part of the state.

Id. at 530; see also Moor v. Alameda Cnty., 411 U.S. 693, 717–21

(1973).

A line of case law has developed to identify entities which

bear a closer relationship to the state and therefore operate as

“arms of the state.” The anchor Supreme Court case in this

jurisprudence is Mt. Healthy City School District Board of

20 No. 21-3339

Education v. Doyle, 429 U.S. 274 (1977). In evaluating a school

district’s invocation of Eleventh Amendment immunity, the

Supreme Court explained that the issue was “whether the Mt.

Healthy Board of Education is to be treated as an arm of the

State partaking of the State’s Eleventh Amendment immun-

ity, or is instead to be treated as a municipal corporation or

other political subdivision to which the Eleventh Amendment

does not extend.” Id. at 280. “The answer depends,” the Court

held, “at least in part, upon the nature of the entity created by

state law.” Id. Looking to Ohio law, the Court noted that the

“many local school boards” within the state were “subject to

some guidance from the State Board of Education” and “re-

ceive[d] a significant amount of money from the State.” Id. At

the same time, the school boards had “extensive powers to is-

sue bonds” and “to levy taxes within certain restrictions of

state law.” Id. Consequently, “[o]n balance,” the local school

board was “more like a county or city than … like an arm of

the State.” Id. It was not entitled to immunity.

We first applied Mt. Healthy’s arm-of-the-state analysis in

Mackey v. Stanton, 586 F.2d 1126 (7th Cir. 1978). There we ad-

dressed the immunity of the Elkhart County Department of

Public Welfare. Noting Mt. Healthy’s statement that the im-

munity issue “depends, at least in part, upon the nature of the

entity created by state law,” we also noted that, “[a]lthough

the Court did not express its reasons for reaching this result,”

it was “inferable … that the Court was impressed with the

statutory power of the local school district to raise its own

funds when the need arose.” Id. at 1130. Moreover, we in-

ferred, the Court “may have found” it “particularly signifi-

cant” that the school district was authorized “to collect money

to pay judgments against it, indicating that the state treasury

would not have to pay such judgments.” Id.

No. 21-3339 21

Turning to the Indiana statutes, we decided that the

county’s Department of Public Welfare was like the Mt.

Healthy school board “[i]n all respects that the Supreme Court

seemed to consider significant.” Id. at 1131. We explained:

Although both are subject to state supervision

and depend heavily on state funds, they per-

form their duties on a local level. More im-

portant, both have the power to raise their own

funds by tax levy and by bond issuance. Signif-

icantly, [the Indiana statute] is analogous to [the

statute in Mt. Healthy], providing a manner for

payment of judgments without resort to the

state treasury.

Id.

We returned to this issue in Kashani v. Purdue University,

813 F.2d 843 (7th Cir. 1987). In considering whether Purdue

University was an arm of the State of Indiana, we divided our

analysis into two parts. First, “[t]he most important factor

[was] the extent of the entity’s financial autonomy from the

state.” Id. at 845. Evaluation of this factor required that we ex-

amine “the extent of state funding, the state’s oversight and

control of the university’s fiscal affairs, the university’s ability

independently to raise funds, whether the state taxes the uni-

versity, and whether a judgment against the university would

result in the state increasing its appropriations to the univer-

sity.” Id. Second, we considered “the general legal status of

the university.” Id. at 846–47 (citing Mt. Healthy, 429 U.S. at

280). This “general legal status” inquiry “cannot be resolved

by simple reference to Indiana statutory definitions”; instead,

we “must look to substance rather than form.” Id. Here, we

found it significant that the Governor of Indiana appointed

22 No. 21-3339

the university’s governing council. Id. We held that, in view

of these two considerations, Purdue University was an arm of

the State of Indiana.

In 2008, we read Kashani as presenting a two-factor test:

“To determine if a particular entity is an arm of the state,

courts look primarily at two factors: (1) the extent of the en-

tity’s financial autonomy from the state; and (2) the ‘general

legal status’ of the entity.” Burrus v. State Lottery Comm’n of

Ind., 546 F.3d 417, 420 (7th Cir. 2008) (citing Kashani, 813 F.2d

at 845–47). The financial autonomy inquiry is the “most im-

portant factor,” and, among the subfactors identified in

Kashani, the most probative evidence of financial autonomy is

whether judgments against the entity would be paid by the

entity itself or by the state treasury. Id. (quoting Peirick v. Ind.

Univ.-Purdue Univ. Indianapolis Athletics Dep’t, 510 F.3d 681,

695 (7th Cir. 2007)).

Because we have encountered the arm-of-the-state issue

on relatively few occasions, we have examined the decisions

of our sister circuits to ensure that our approach is within the

heartland of the national approach. Cf. Hess v. Port Auth.

Trans-Hudson Corp., 513 U.S. 30, 48 (1994) (noting with ap-

proval that the courts of appeals “have recognized the vulner-

ability of the State’s purse as the most salient factor” in arm-

of-the-state analysis). The Third Circuit has articulated “three

major criteria” for assessment: “(1) whether the payment of

the judgment would come from the state, (2) what status the

entity has under state law, and (3) what degree of autonomy

the entity has.” Febres v. Camden Bd. of Educ., 445 F.3d 227, 229

(3d Cir. 2006). The Fifth Circuit examines six factors:

(1) whether the state statutes and caselaw view

the agency as an arm of the state; (2) the source

No. 21-3339 23

of the entity’s funding; (3) the entity’s degree of

local autonomy; (4) whether the entity is con-

cerned primarily with local, as opposed to

statewide, problems; (5) whether the entity has

the authority to sue and be sued in its own

name; and (6) whether the entity has the right to

hold and use property.

Black v. N. Panola Sch. Dist., 461 F.3d 584, 596 (5th Cir. 2006)

(quoting United States ex rel. Barron v. Deloitte & Touche, L.L.P.,

381 F.3d 438, 440 (5th Cir. 2004)). That court “give[s] the most

weight” to the source of funding, with special attention first

to “whether the state would be liable for a judgment against

the defendant and then to whether the state would be liable

for the defendant’s general debts and obligations.” Id. (quot-

ing Barron, 381 F.3d at 440). Our neighbor to the east, the Sixth

Circuit, considers four factors:

(1) the State’s potential liability for a judgment

against the entity; (2) the language by which

state statutes and state courts refer to the entity

and the degree of state control and veto power

over the entity’s actions; (3) whether state or lo-

cal officials appoint the board members of the

entity; and (4) whether the entity’s functions fall

within the traditional purview of state or local

government.

Ernst v. Rising, 427 F.3d 351, 359 (6th Cir. 2005) (citations omit-

ted). It identifies “the state treasury’s potential legal liability

for the judgment” as “the foremost factor.” Id. The Ninth Cir-

cuit considers five factors:

24 No. 21-3339

(1) whether a money judgment would be satis-

fied out of state funds; (2) whether the entity

performs central governmental functions;

(3) whether the entity may sue or be sued;

(4) whether the entity has the power to take

property in its own name or only in the name of

the state; and (5) the corporate status of the en-

tity.

Holz v. Nenana City Pub. Sch. Dist., 347 F.3d 1176, 1180 (9th Cir.

2003) (cleaned up). These factors are to be analyzed “in light

of the way [state] law treats the governmental agency.” Id. at

1181 (quoting Belanger v. Madera Unified Sch. Dist., 963 F.2d

248, 251 (9th Cir. 1992)). The Tenth Circuit employs a two-step

process. Hennessey v. Univ. of Kan. Hosp. Auth., 53 F.4th 516,

528 (10th Cir. 2022). First, it evaluates four primary factors:

(1) “the character ascribed to the entity under state law,”

(2) “the degree of control the state exercises over the entity,”

(3) “the amount of state funding the entity receives” and

“whether the entity has the ability to issue bonds or levy taxes

on its own behalf,” and (4) “whether the entity in question is

concerned primarily with local or state affairs.” Id. (quoting

Steadfast Ins. Co. v. Agric. Ins. Co., 507 F.3d 1250, 1253 (10th Cir.

2007)). “If these factors are in conflict and point in different

directions,” it then “proceed[s] to the second step and con-

sider[s] the ‘twin reasons’ underlying the Eleventh Amend-

ment—avoiding an afront to the dignity of the state and the

impact of a judgment on the state treasury.” Id. (citations

omitted). “Of these twin reasons, the foremost reason for sov-

ereign immunity is avoiding state liability for any judgment

against the entity.” Id. (citations and internal quotation marks

omitted). The Eleventh Circuit evaluates four factors:

“(1) how state law defines the entity; (2) what degree of

No. 21-3339 25

control the State maintains over the entity; (3) where the en-

tity derives its funds; and (4) who is responsible for judg-

ments against the entity.” Lightfoot v. Henry Cnty. Sch. Dist.,

771 F.3d 764, 768 (11th Cir. 2014) (quoting Manders v. Lee, 338

F.3d 1304, 1309 (11th Cir. 2003)).

Notably, most circuits identify legal liability for money

judgments as the most significant factor or subfactor in the

analysis. See, e.g., Burrus, 546 F.3d at 420; Holley v. Lavine, 605

F.2d 638, 644 (2d Cir. 1979); Belanger, 963 F.2d at 251 (describ-

ing legal liability as the “most important factor”); Thomas v.

St. Louis Bd. of Police Comm’rs, 447 F.3d 1082, 1084 (8th Cir.

2006) (“[C]ourts assess the agency’s degree of autonomy and

control over its own affairs and, more importantly, whether a

money judgment against the agency will be paid with state

funds.”). The significance of the legal liability factor seems to

stem from the principle articulated in Edelman v. Jordan, 415

U.S. 651, 663 (1974), that “a suit by private parties seeking to

impose a liability which must be paid from public funds in

the state treasury is barred by the Eleventh Amendment.” See,

e.g., Unified Sch. Dist. No. 480 v. Epperson, 583 F.2d 1118, 1122

(10th Cir. 1978) (citing Edelman, 415 U.S. 651) (“[I]t is agreed

that if the money judgment sought to be entered against a

board or agency will be satisfied out of the state treasury, then

the board is immune from suit under the Eleventh Amend-

ment.”); Ronwin v. Shapiro, 657 F.2d 1071, 1073 (9th Cir. 1981)

(citing Edelman, 415 U.S. at 664) (“[A] crucial question … is

whether the named defendant has such independent status

that a judgment against the defendant would not impact the

state treasury.”).

As the courts of appeals have developed this well-trod

path, the Supreme Court has confirmed the primacy of legal

26 No. 21-3339

liability in the analysis, observing that “prevention of federal-

court judgments that must be paid out of a State’s treasury”

was the “impetus for the Eleventh Amendment.” Hess, 513

34

U.S. at 48. Therefore, the Court has instructed that “[w]hen

indicators of immunity point in different directions, the Elev-

enth Amendment’s twin reasons for being”—protecting

States’ dignity and financial solvency—“remain our prime

guide.” Id. at 39–40, 47.

B.

We now focus our lens on public school entities. In line

with our general approach, which is certainly well within the

heartland of the national approach, we have held that a “local

school district ordinarily is not a ‘State’ and hence may be

sued in federal court.” Gary A. v. New Trier High Sch. Dist. No.

203, 796 F.2d 940, 945 (7th Cir. 1986). In Gary A., the plaintiffs

brought an action against an Illinois school district, its board,

and the State Board of Education. Although we determined

that the State Board was entitled to Eleventh Amendment im-

munity, we rejected the local defendants’ claim to immunity.

Id. at 944, 946. The local defendants rested their argument on

two financial realities: first, the school district received a “sig-

nificant amount of money from the state,” and second, the

state had decided to reimburse the local defendants if judg-

ment were to be entered against them in the suit. Id. at 944–45

(quoting Mt. Healthy, 429 U.S. at 280). In our view, neither ra-

tionale was persuasive. As to the first, we noted that in Mt.

Healthy it was “irrelevant” that the state provided funds to the

34 The Court also demonstrates in Hess that this conclusion was compati-

ble with the original intent of the Amendment. See also Petty v. Tenn.–Mo.

Bridge Comm’n, 359 U.S. 275, 276 n.1 (1959).

No. 21-3339 27

local entity, some of which could be used to pay judgments.

Id. at 945. Rather, what was important was that the school

boards had “extensive powers to issue bonds and levy taxes”

and that they “usually pa[id] their own judgments.” Id. As in

Mt. Healthy, the Illinois school board in Gary A. had such pow-

ers. Id. As to the second—the state’s decision to reimburse the

school board—we determined this argument was fundamen-

tally mistaken: “A state’s decision to indemnify a state em-

ployee or subdivision does not grant that employee or subdi-

vision constitutional immunity” because a state “may not, by

state law, expand a limited constitutional immunity.” Id. Of

course, if the state had created an entity that had the “nature”

of an arm of the state—such as “a single state agency to con-

trol all public education”—then it might have been entitled to

immunity. Id. at 945 n.9. However, because the school board

was local in nature, the judgment would “run against the local

defendants only,” regardless of what decisions the state then

made regarding reimbursement. Id. at 945.

More recently, in Parker v. Franklin County Community

School Corp., 667 F.3d 910 (7th Cir. 2012), the plaintiffs brought

suit under 42 U.S.C. § 1983 against fourteen Indiana public

school corporations. The school corporations there argued

that they were arms of the state and, as such, not “persons”

within the meaning of § 1983. Id. at 926. We read Mt. Healthy

as laying out four factors for analysis: “(1) the characterization

of the district under state law; (2) the guidance and control

exercised by the state over the local school board; (3) the de-

gree of state funding received by the district; and (4) the local

board’s ability to issue bonds and levy taxes on its own be-

half.” Id. at 927 (citing Mt. Healthy, 429 U.S. at 280). We further

noted the Supreme Court’s instruction to look to “legal liabil-

ity” to determine whether “the state is the real, substantial

28 No. 21-3339

party in interest.” Id. (quoting Regents of the Univ. of Cal. v. Doe,

519 U.S. 425, 429, 431 (1997)).

Beginning with the “most salient factor,” legal liability, we

observed that it was the local defendants, not the State of In-

diana, who would be obligated to pay a judgment in the in-

stant case. Id. Although Indiana funded “a significant portion

of the schools’ budget, school corporations still ha[d] the

power to levy taxes and issue bonds under certain circum-

stances for non-operating funds.” Id. at 928. Additionally, the

state guaranteed school corporations’ debts, but “only to the

extent of the amounts appropriated for the school” by the

General Assembly. Id. We also noted that “the general legal

status of school corporations” was “political subdivisions

with locally elected school board members and superinten-

dents (not gubernatorial appointments) who serve local com-

munities (not the State of Indiana as a whole).” Id. They were

“independent corporate bodies” with the ability to “sue and

be sued and enter into contracts.” Id. In sum, despite the

state’s provision of substantial funding to the school corpora-

tions, their “political” and “operational” independence and

their “ability to raise their own funds for purposes of paying

judgments” led us to characterize them as “persons” under

§ 1983 rather than as arms of the state. Id. at 929.

Helpfully, decisions in other circuits shed light on the

characterization of educational bodies under different states’

statutory structures. In Febres v. Camden Board of Education, 445

F.3d 227, 229 (3d Cir. 2006), the Third Circuit evaluated a

board of education’s classification employing three criteria—

legal liability for judgments, the entity’s status under state

law, and the degree of autonomy the entity possessed. It de-

cided that the board’s “status” clearly “militate[d] against

No. 21-3339 29

immunity”: The board could sue or be sued, was separately

incorporated, and was not immune from state taxation. Id. at

230. The “autonomy” factor, on the other hand, “weigh[ed]

only slightly in favor” of immunity: The board was required

to deliver its meeting minutes to the governor, who had lim-

ited veto powers over its actions, and the governor had lim-

ited powers to appoint members to the board. Id. at 231. Be-

cause those two factors pointed in different directions, the le-

gal liability factor was “particularly significant.” Id. at 232.

The district court had ruled for the board on this issue on the

ground that, because of the “magnitude of the state’s fund-

ing” to the board, any judgment against it would inevitably

be paid with state funds. Id. at 232–33. But the Third Circuit

found this reasoning misguided: The real issue was not

whether state funds would be used, but rather “the nature of

the state’s financial contributions” to the board. Id. at 233. It

was not relevant whether the board satisfied a judgment with

funds “which had initially been provided by the state” be-

cause there was no suggestion that the state “retain[ed] own-

ership or control of the funds appropriated” to the board. Id.

at 234. And the record indicated that the board received some

funds from some non-state sources and had the ability to

“raise revenues through taxes.” Id. at 233–34. Finally, as we

had reasoned in Gary A., the Third Circuit found it irrelevant

that the state would likely increase appropriations to the

board to offset the cost of a court judgment against it. Id. at

234. Such a “discretionary subsidy” was not indicative of a

“legal obligation” on the part of the state to satisfy the board’s

30 No. 21-3339

judgments. Id. On balance, the court concluded, the board was

35

not an arm of the state. Id. at 237.

The Eleventh Circuit addressed the issue in Lightfoot v.

Henry County School District, 771 F.3d 764 (11th Cir. 2014). The

court identified four factors for consideration: (1) state law’s

definition of the entity; (2) the state’s degree of control; (3) the

source of the entity’s funds; and (4) legal liability for judg-

ments against the entity. Id. at 768 (citing Manders, 338 F.3d at

1309). At the outset of the discussion, it observed that “the Su-

preme Court and the vast majority of appellate courts that

have considered the issue have found that school districts and

school boards are not entitled to Eleventh Amendment im-

munity.” Id. at 768–69. Although the court found that all four

factors weighed against immunity, its analysis of the second

factor is particularly noteworthy for its exacting standard on

state control.

On the first factor, the court noted that Georgia courts had

described county boards of education—which governed each

county’s school district—as agencies through which the coun-

ties, as subdivisions of the state, act in school matters. Id. at

35 In 2017, the Third Circuit again had occasion to consider the status of

Camden’s school district. See Denkins v. State Operated Sch. Dist. of City of

Camden, 715 F. App’x 121, 124 (3d Cir. 2017). In Denkins, the court ex-

plained that because of “factual changes since Febres—specifically, the full

state takeover and the relocation of responsibilities from the Board to the

state-appointed Superintendent”—it was necessary to reassess arm-of-

the-state status. Id. In view of this assertion of state control, the court con-

cluded that the analysis now favored treating Camden’s school district as

an arm of the state. Id. at 124-26. However, Denkins did not disturb the

reasoning of Febres as applied to the facts of that case and indeed relied on

Febres in its own analysis. See id.

No. 21-3339 31

769. Additionally, the court observed that Georgia’s constitu-

tion and code grouped school districts together with counties,

municipalities, and other political subdivisions. Id. at 770. On

the second factor, the court found that Georgia school districts

were “largely under local control” because they were subject

to the management of locally elected county boards of educa-

tion. Id. at 771–72. Moreover, districts had “substantial auton-

omy over their affairs,” could “sue and be sued,” and could

“purchase property, borrow money, enter contracts, and issue

bonds.” Id. at 772. And, in the Eleventh Circuit’s view, the

state’s significant control over education policy and regula-

tion—including the establishment of basic education require-

ments, teaching standards, and budget reviews—did not

amount to “the requisite control for Eleventh Amendment

purposes.” Id. at 772–73. On the third factor, the school district

had strictly limited powers to tax, issue bonds, and borrow

money; it relied “heavily” on state funding for the remaining

65% of its budget. Id. at 775. Nonetheless, the Eleventh Circuit

deemed the school district’s “local fundraising capabilities

similar to the school board in Mt. Healthy.” Id. at 777. On the

final factor, the court observed that the school board’s “fiscal

autonomy means that it cannot be said that a judgment

against [it] will come from state funds.” Id. at 778 (cleaned

up). Thus, all four factors weighed against classifying the

school district as an arm of the state.

In Woods v. Rondout Valley Central School District Board of

Education, 466 F.3d 232, 239–40 (2d Cir. 2006), the Second Cir-

cuit pointed out the need to distinguish between a school dis-

trict and a school district’s board of education, which had

“separate corporate existences” under New York law. With

that distinction in mind, the court laid out its six-factor test:

32 No. 21-3339

(1) how the entity is referred to in the docu-

ments that created it; (2) how the governing

members of the entity are appointed; (3) how

the entity is funded; (4) whether the entity’s

function is traditionally one of local or state gov-

ernment; (5) whether the state has a veto power

over the entity’s actions; and (6) whether the en-

tity’s obligations are binding upon the state.

Id. at 240 (quoting Mancuso v. N.Y. State Thruway Auth., 86

F.3d 289, 293 (2d Cir. 1996)). If the six factors all pointed in

one direction, the court’s inquiry was “complete.” Id. If they

pointed in different directions, the court would then focus “on

the twin reasons for the Eleventh Amendment” as identified

in Hess—protecting the state’s dignity and fiscal integrity. Id.;

see Hess, 513 U.S. at 39–40. “If the outcome still remains in

doubt, then whether a judgment against the governmental en-

tity would be paid out of the state treasury generally deter-

mines the application of Eleventh Amendment immunity.”

Woods, 466 F.3d at 241. The Second Circuit found that its six

factors weighed against immunity. First, New York law iden-

tified boards of education as “bod[ies] corporate,” and it de-

fined school districts as “public corporation[s].” Id. at 243–44

(quoting N.Y. Educ. Law § 1701; N.Y. Const. art. X, § 5). It was

thus “reasonable to infer that a board of education, like the

district it governs, is a municipal corporation.” Id. at 244. Sec-

ond, board members were elected locally. Id. Third, the school

district’s funds—which were administered and expended by

the board—were drawn both from state appropriations and

from local property taxes. Id. at 245. This was sufficient to

weigh against arm-of-the-state status. Id. Fourth, although

“New York views public education as a state rather than local

function,” it remained the case that “many of the functions

No. 21-3339 33

performed by boards of education” were “generally regarded

as connected with local government,” so this factor could not

support the claim to be an arm of the state. Id. at 245–46 (quot-

ing Lanza v. Wagner, 183 N.E.2d 670, 675 (N.Y. 1962)). Fifth,

the state did not possess veto power over the board’s actions.

Although the state education commissioner possessed “un-

doubtedly broad” powers over boards—including the power

“to remove for cause any school officer, including a member

of a board of education, and to withhold funds from a school

district under certain circumstances”; “to review various offi-

cial acts by a board of education”; and “to institute proceed-

ings … to enforce any law pertaining to the school system”—

these powers did not “unequivocally equate to veto author-

ity.” Id. at 248. Sixth, New York law required the board to

maintain a reserve fund to cover property loss and liability

claims, and it further provided that if such fund proved insuf-

ficient to satisfy a judgment, the board would have to obtain

additional funds by levying a tax within the district. Id. at 249–

50. Thus, a judgment against the board was not binding on

the state. The board was not an arm of the state.

We have found two federal appellate decisions concluding

that a local education entity was an arm of the state. In Bel-

anger v. Madera Unified School District, 963 F.2d 248 (9th Cir.

1992), the Ninth Circuit evaluated the status of a California

school district. Although the court found that parts of its five-

factor test were a close call, the first and most important fac-

tor—legal liability—clearly favored classification as an arm of

the state. Id. at 251. The court observed that, “[u]nlike most

states, California school districts have budgets that are con-

trolled and funded by the state government rather than the

local districts.” Id. California’s “centralized control of school

funding” resulted in a system in which “state and local

34 No. 21-3339

revenue is commingled in a single fund under state control,

and local tax revenue lost to a judgment must be supplanted

by the interchangeable state funds already in the district

budget.” Id. at 251–52. Thus, any judgment against a school

district would, in fact, be directly covered by state funds. Un-

der this unique funding scheme, California’s school districts

were arms of the state. In Perez v. Region 20 Education Service

Center, 307 F.3d 318 (5th Cir. 2002), the Fifth Circuit found that

a Texas education service center was an arm of the state. Ap-

plying its six-factor test, the court considered it significant

that Texas case law treated the centers as arms of the state and

that, although locally selected, the centers’ boards of directors

were subject to supervision and removal by the state educa-

tion commissioner. Id. at 328, 330. The state education com-

missioner also approved the appointment of each center’s ex-

ecutive director and could remove an executive director for

poor performance. Id. at 330. Despite circuit case law to the

contrary, the court did not closely scrutinize whether Texas

had a legal obligation to pay judgments or debts of a center and

instead was satisfied that it was “likely that a judgment”

against a center “would be paid in large portion by the state.”

Id. at 328–29; cf. Vogt v. Bd. of Comm’rs of Orleans Levee Dist.,

294 F.3d 684, 693 (5th Cir. 2002) (emphasizing that the proper

inquiry is whether the state has an obligation to pay a judg-

ment).

Despite the various formulations found in the case law of

the circuits, the basic approach is very similar, looking to fac-

tors such as control, state-law characterizations, and funding

sources. Most importantly, these cases make clear that legal

liability is the primary factor in considering the status of local

education entities. These cases also clarify that it is not the ul-

timate source of the funds paid to a judgment that is significant

No. 21-3339 35

but rather whether the state has an obligation to satisfy the

judgment.

C.

To ascertain the role that the regional offices of education

play in public education, we begin by examining the content

of Illinois law. Illinois law divides the state into thirty-five re-

gional offices of education, each of which encompasses one or

more counties and serves the school districts within its geo-

graphical area. Ill. Admin. Code tit. 23, §§ 525.10, 525.20;

36

School Code § 2-3.62.

Illinois’s regional offices of education occupy an interme-

diate position within the State’s public education system, be-

tween school districts on the one hand and the Illinois State

37

Board of Education (ISBE) on the other. The ISBE is created

by the state constitution and is vested with powers to “estab-

lish goals, determine policies, provide for planning and eval-

uating education programs and recommend financing.” Ill.

Const. art. X, § 2. The regional offices are authorized by the

36 As noted earlier, Cook County and the City of Chicago are subject to a

special organizational arrangement. See supra note 2.

37 See Ill. Ass’n of Reg’l Superintendents of Schs., Directory, July 1, 2020 –

June 30, 2021, at 5, https://iarss.org/wp-content/uploads/2020/10/IARSS-

Directory_2020_2021_web-1.pdf (“As an intermediate agency between the

Illinois State Board of Education and local school districts, the office of the

Regional Superintendent performs regulatory functions as directed by the

Illinois School Code.”).

36 No. 21-3339

School Code, §§ 2-3.62, 3A-4, and the regions are defined ad-

38

ministratively by the ISBE, Ill. Admin. Code tit. 23, § 525.20.

39

The purpose of the regional offices of education is gener-

ally to coordinate and provide state-sponsored services to

38 The regional offices of education are to be distinguished from school

boards—which govern most school districts—and from regional boards

of school trustees—which generally have jurisdiction over territory coex-

tensive with the regional offices of education but which exercise separate

powers.

The regional board of school trustees is “a body politic and corporate”

with “perpetual existence” and the “power to sue and be sued.” School

Code § 6-2. The regional superintendent is ex-officio secretary of the re-

gional board. Id. § 6-17; see also id. § 7-6(a). The basic purpose of the re-

gional board is to “hear[] and determine[] whether school district annex-

ation petitions should be granted or denied.” 32A Ill. L. & Prac. Schools

§ 83; School Code § 7-1; see generally Bd. of Educ. of Bloomington v. Cnty. Bd.

of Sch. Trs. of McLean Cnty., 222 N.E.2d 343 (Ill. App. Ct. 1966). In 1979, the

Illinois Attorney General issued an opinion concluding that members of a

regional board were not county officials, in part because the regional

board had a “separate corporate identity” and was “distinct and separate

from other bodies.” 1979 Ill. Att’y Gen. Op. No. 56, 1979 WL 21193; see also

1982 Ill. Att’y Gen. Op. No. 18, 1982 WL 42766 (A regional board “is a local

governmental entity distinct from the county or counties comprising it.”).

A school board, for its part, is “a body politic and corporate created to

perform governmental functions relating to education of children in its

district.” Evans v. Benjamin Sch. Dist. No. 25, 480 N.E.2d 1380, 1384–85 (Ill.

App. Ct. 1985); see also 32A Ill. L. & Prac. Schools § 87; School Code § 1-3.

It has broad powers, including to “appoint all teachers and fix the amount

of their salaries,” School Code § 10-20.7, to make contracts, id. § 10-20.21,

and to levy taxes and borrow money, within limits, e.g., id. §§ 11E-85, 17-

2, 19-1, 19-3.

39 The School Code frequently uses the term “educational service center”

or “educational service region.” See, e.g., School Code § 2-3.62. These are

synonymous with “regional office of education.” Section 3-0.01 states that

a “regional superintendent” shall be the “chief administrative officer” of

No. 21-3339 37

schools within their regions, including by assisting with

“planning, implementation and evaluation of … computer

technology education [and] mathematics, science and reading

resources for teachers”; providing “continuing education, in-

service training and staff development”; and providing

“training, technical assistance, coordination and planning in

other program areas such as school improvement, school ac-

countability, financial planning,” health programming, and

alternative and special education. School Code § 2-3.62. In car-

rying out their functions, the regional offices are subject to the

“rules and regulations” promulgated by the ISBE “delin-

eat[ing] the scope and specific content” of their programs “as

well as the specific planning, implementation and evaluation

services to be provided by” the regional offices. Id.; see also Ill.

Admin. Code tit. 23, § 525.60 (providing for annual evalua-

tions by the ISBE).

Each regional office of education has as its chief adminis-

trative officer a regional superintendent. School Code

40

§ 3-0.01. The regional superintendent is elected by voters

within the region and takes an oath prescribed by the state

each “educational service region” and that his or her office is to be referred

to as the “regional office of education.” See also Ill. Admin. Code tit. 23,

§ 525.10(a) (referring to the entities described in § 2-3.62 of the School

Code as “Regional Offices of Education”).

40 The School Code refers to this position variously as “regional superin-

tendent” and “county superintendent.” Section 3-0.01 provides that any

reference to “county superintendent” means the “regional superinten-

dent.” See also Ill. Att’y Gen. File No. 92-007 (1992), 1992 WL 469746 (“The

title of the office was changed from ‘county superintendent of schools’ to

‘regional superintendent’ by Public Act 79–1057, effective October 1,

1975.”).

38 No. 21-3339

constitution. Id. §§ 3-1, 3-2. In addition to carrying out the pur-

poses of the regional office as elaborated in the School Code

and the Administrative Code, see id. § 2-3.62; Ill. Admin. Code

tit. 23, § 525.10, the regional superintendent has broad super-

visory powers over the school districts in the region to ensure

compliance with the ISBE’s requirements. School Code

§ 3-14.2 (“supervision and control”). These powers include:

giving teachers and school officers direction in teaching meth-

ods, id. § 3-14.6; acting as “official adviser and assistant of the

school officers and teachers,” in performance of which duty

he or she “shall carry out the advice of [the ISBE],” id. § 3-14.7;

notifying school districts of the amount of money he or she

has distributed to them, id. § 3-14.17; inspecting school build-

ings for health and safety compliance, id. § 3-14.21; recom-

mending that the ISBE impose or remit a withholding-of-

funds penalty, id. §§ 3-15.2, 2-3.24; directing “in what manner

school treasurers shall keep their books and accounts,”

id. § 3-15.3; and removing “any member of a school board

from office for willful failure to perform his official duties,”

id. § 3-15.5.

The regional superintendent also has certain duties both

to the State and to the county. With respect to the State, the

superintendent is required: to present “all financial state-

ments, books, vouchers and other records required” to the Il-

linois Auditor General pursuant to that office’s rules,

id. § 3-6.1; to collect financial reports from school districts and

provide those reports to the ISBE, id. § 3-15.1; and to present

annually to the ISBE “such information relating to schools in

his region as [the ISBE] may require,” id. § 3-15.8. With respect

to the county, the regional superintendent must: quarterly

present to the county board a report of all official acts, includ-

ing a list of schools visited, id. § 3-5; report annually to the

No. 21-3339 39

county board financial books, which include balance on hand,

receipts, amounts distributed to each school treasurer, and

books and vouchers for expenditures, id. § 3-6; apportion and

distribute as directed all moneys he or she receives that are

due to local school districts, id. § 3-9; and provide an “opinion

and advice” in “all controversies arising under the school

law,” certifying a “written statement of facts” if an appeal is

taken to the ISBE, id. § 3-10. If the regional superintendent

fails or refuses to make required reports to the county board

or otherwise engages in “any palpable violation of law or

omission of duty,” the county board may remove him or her

from office. Id. § 4-10. Additionally, the county board is re-

quired to examine the regional superintendent’s financial

statements. Id. § 4-7. Board members are liable “individually

to the fund injured and to the sureties” of the regional super-

intendent “for all damages occasioned by neglect” of this ex-

amination duty. Id.

The funding sources for the regional offices are mixed.

Each regional superintendent, along with any assistant re-

gional superintendents he or she is authorized to appoint, re-

ceives a salary set by the School Code and payable monthly

by the ISBE out of the state education budget. Id. § 3-2.5. The

Illinois Appellate Court, however, has suggested that the

source of an officer’s salary has little probative value on his or

her categorization as a state officer or a county officer. See Sub-

urban Cook Cnty. Reg’l Off. of Educ. v. Cook Cnty. Bd., 667 N.E.2d

1064, 1068–70 (Ill. App. Ct. 1996).

Notably, county boards are permitted to “provide for ad-

ditional compensation” for regional superintendents if they

wish. School Code § 3-2.5. The regional superintendent also

may employ additional persons as needed to discharge the

40 No. 21-3339

office’s duties, but these employees are paid by the county

and are subject to the approval of the county board.

Id. §§ 3-15.6, 4-6. The county has a duty to provide the re-

gional superintendent with “a suitable office with necessary

furniture and office supplies,” id. § 4-2, and it may cover “rea-

sonable traveling expenses” for the office as it deems appro-

priate, id. § 4-4. Beyond these sources, the regional offices

must seek grants from the ISBE for funding of their programs

and work. Id. § 2-3.62(d). For legal representation, the re-

gional superintendent is entitled to rely on the services of the

state’s attorney for the county where the regional office is lo-

cated. Id. § 3A-15.

We find helpful insight on the very important question of

liability in a 1992 opinion of the Illinois Attorney General. See

Status of Regional Superintendent of Schools, Ill. Att’y Gen. File

41

No. 92-007 (1992), 1992 WL 469746. That opinion addressed

the question of “whether a regional superintendent of schools

is considered a State employee, for purposes of indemnifica-

tion and representation” under the State Employee Indemni-

fication Act, “or, alternatively, whether a regional superinten-

dent is considered a county employee, whom the county is

responsible for indemnifying or insuring against liability.” Id.

Reviewing both the State Employee Indemnification Act and

the Local Governmental and Governmental Employees Tort

Immunity Act, the Attorney General concluded that a

41 The statutory provisions discussed in that letter and in this paragraph

have been recodified. The relevant provisions are now found at 745 ILCS

10/1-206 (defining “local public entity” to include an “educational service

region”) and 5 ILCS 350/1 (“The term ‘State’ means the State of Illinois …

or any other agency or instrumentality of the State,” but it “does not mean

any local public entity as that term is defined in [745 ILCS 10/1-206].”).

No. 21-3339 41

regional superintendent was neither a state nor a county em-

ployee. Id. The latter statute defined an “educational service

42

region” (synonymous with a regional office of education) as

a “local public entity.” Thus, on the one hand, “because the

regional superintendent is the chief administrative officer of

a local public entity, rather than an agency or instrumentality

of the State,” he or she was not a state employee. Id. But, on

the other hand, even though “the regional superintendent

performs certain duties with respect to the county board” and

“the county board also performs certain duties with respect

to the regional superintendent,” the Local Governmental and

Governmental Employees Tort Immunity Act “clearly differ-

entiates between educational service regions and counties.”

Id. And under the statute, “an educational service region is

empowered to protect itself and its employees and officers

against liability.” Id. In sum, the Attorney General’s opinion

suggests that Illinois law treats a regional office as a local en-

tity that is neither an “instrumentality” of the State nor an ex-

43

tension of a county.

42 See supra note 39.

43 The School Code has an express provision treating enforcement of judg-

ments against school boards and regional boards of school trustees. Sec-

tion 22-3 of the School Code provides that a court enforcing such judg-

ments “shall enter an order commanding the directors, trustees and school

treasurer to cause” the appropriate amount “to be paid … out of any mon-

eys of the township or district unappropriated, or if there are no such

moneys, out of the first moneys applicable to the payment of the kind of

services or indebtedness for which the judgment is entered which shall be

received for the use of the township or district.” Moreover, the enforcing

court may “requir[e] such board to levy a tax for the payment of the

42 No. 21-3339

D.

A study of the Illinois School Code gives us a basic idea of

the role of the regional office of education, but it hardly pro-

vides sufficient information to establish that, as a matter of

federal law, such an entity is an “arm of the state.” There is a

pronounced ambiguity on the key question of whether the

State would incur the legal liability to pay any monetary judg-

ment against the regional office. Indeed, DuPage admits in its

brief that, although it does not have the authority to raise

taxes to pay an adverse judgment, any damages would likely

be paid using local registration fees and “evidence-based

44

funding dollars” from the State.

The weight of authority—including this court’s deci-

sions—views the State’s legal liability as the most important

factor. Courts do not look to the source of funds that will be

used to pay a judgment but instead to whether the State bears

some obligation to satisfy judgments against the entity. E.g.,

Gary A., 796 F.2d at 944–45; Parker, 667 F.3d at 927–28; Febres,

45

445 F.3d at 235–37; cf. Belanger, 963 F.2d at 252. Additionally,

judgment.” Id. There appears to be no similar provision applicable to the

regional offices of education.

44 Pet’r’s Br. 8–9.

45 We note that, in Perez, the Fifth Circuit evaluated a Texas entity with a

similar legal status to that of an Illinois regional office and found it to be

an arm of the state. 307 F.3d at 331. Perez, however, did not apply an ex-

acting standard of legal liability; rather, it found that it was sufficient to

show that a judgment against the education entity there “likely … would

be paid in large portion by the state.” Id. at 329. Consistent with our and

most circuits’ precedents, we expect an entity asserting arm-of-the-state

No. 21-3339 43

when an entity facially appears to be local or regional rather

than statewide, the entity will need to make a stronger show-

ing to establish itself as an arm of the state. For instance, in

Lightfoot, 771 F.3d at 771–73, the court held that Georgia’s ex-

tensive regulation of education policy in local school districts

did not amount to sufficient state control to turn the school

districts into arms of the state. Similarly, Woods, 466 F.3d at

248, found that the New York State education commissioner’s

broad powers to remove local education officials and review

school boards’ actions did not amount to a veto power under

that court’s precedent. By contrast, in Sturdevant, 218 F.3d at

1167–71, the Tenth Circuit conceded that the State Board for

Community Colleges had a significant degree of autonomy,

but it relied heavily on the fact that it served the State as a

whole to conclude that it was an arm of the state.

DuPage’s inability to establish that the State of Illinois

would be liable for any monetary judgment, combined with

its inability to demonstrate that a regional office of education

is anything other than an important but local administrator of

status to show that the State bears a legal obligation to satisfy a judgment

or debt against it.

Further, we note that the education service centers in Perez are distin-

guishable from Illinois regional offices in other important respects.

Whereas an executive director of an education service center is subject to

approval and removal by the state education commissioner, id. at 330, an

Illinois regional superintendent is elected solely by local voters and re-

movable by county officials. Moreover, the Illinois Attorney General has

opined that a regional superintendent is not a state officer, and Illinois

statutes treat regional offices as local entities for purposes of employee in-

demnification. By contrast, Perez observed that Texas case law treated a

lawsuit against an education service center as a lawsuit against the state.

Id. at 328.

44 No. 21-3339

the local school systems, makes clear that it has not shoul-

dered its burden of establishing that it is an “arm of the state.”

See Woods, 466 F.3d at 237–38 (“[T]he governmental entity in-

voking the Eleventh Amendment bears the burden of demon-

strating that it qualifies as an arm of the state entitled to share

in its immunity.”). Because DuPage has not shown that it was

entitled to immunity from the Department’s adjudication of

Sanchez’s whistleblower complaint, we turn to the merits of

46

the ALJ’s decision.

The Merits

A.

We begin our consideration of the merits of this case by

setting forth the statutory landscape.

To protect public funds from waste, fraud, and abuse,

Congress established certain requirements, applicable to all

federal contractors and grantees, to encourage the reporting

of misuse of federal funds. The case before us today requires

that we review the Department of Education’s application of

a key provision of that congressional effort, Section 4712 of

Title 41. This section prohibits federal contractors and grant-

ees from discharging, demoting, or otherwise discriminating

against an employee for making a “disclosure.” The statute

defines a protected disclosure as “information that the em-

ployee reasonably believes is evidence of gross mismanage-

ment of a Federal contract or grant, a gross waste of Federal

funds, an abuse of authority relating to a Federal contract or

46 Because DuPage has not met its burden of showing that it is an arm of

the state, we need not reach the issue of whether there was a waiver of

sovereign immunity.

No. 21-3339 45

grant, … or a violation of law, rule, or regulation related to a

Federal contract … or grant.” 41 U.S.C. § 4712(a)(1). The dis-

closure must be made to an individual or a body specified in

the statute, including an Inspector General or a management

official. See id. § 4712(a)(2).

To obtain relief under this provision, an employee must

(1) make a protected disclosure (2) to a person specified in the

statute, and (3) suffer a reprisal for making the protected dis-

closure. After establishing these three elements, the employee

must further demonstrate that the protected disclosure was a

“contributing factor” in the personnel action that was taken

against the employee. The employer must then demonstrate

by clear and convincing evidence that it would have taken the

same action even if the disclosure had not occurred. In this

respect, the statute adopts the legal burdens of proof set forth

in the Whistleblower Protection Act. See id. § 4712(c)(6)

(adopting the burdens of proof of 5 U.S.C. § 1221(e)).

The statute also sets forth the administrative and judicial

framework in which the employee must seek relief. An em-

ployee may submit a complaint to the Inspector General of the

agency. Id. § 4712(b)(1). That officer will then undertake an in-

vestigation and submit a report to the head of the agency. Id.

The agency head must either issue an order denying relief or

take action to remedy the injury. Id. § 4712(c)(1). A remedial

order may include a direction to abate the reprisal, to grant

reinstatement with back pay and benefits, and to restore other

terms and conditions of employment that would have applied

if the reprisal had not been taken. Id. Costs and expenses in-

curred by the employee, including attorneys’ fees, also may

be granted. Id.

46 No. 21-3339

An employee denied relief by the agency may bring a de

novo action for relief in the appropriate district court. Id.

§ 4712(c)(2). Alternatively, any person adversely affected by

the agency order may seek relief in the court of appeals. Pro-

ceedings in the court of appeals are governed by the provi-

sions of the Administrative Procedure Act. Id. § 4712(c)(5)

(adopting the review provisions of Chapter 7 of Title 5).

In evaluating Sanchez’s claims, the ALJ employed the bur-

den-shifting scheme required by the whistleblower statute.

See id. § 4712(c)(6) (directing adjudicators to apply the scheme

in 5 U.S.C. § 1221(e)). Sanchez therefore had the initial burden

of showing by a preponderance of the evidence that a disclo-

sure was a “contributing factor” in a decision to take a per-

sonnel action. 5 U.S.C. § 1221(e)(1). He could meet that bur-

den with circumstantial evidence, such as evidence that “the

official taking the personnel action knew of the disclosure”

and that “the personnel action occurred within a period of

time such that a reasonable person could conclude that the

disclosure or protected activity was a contributing factor in

the personnel action.” Id. § 1221(e)(1)(A)–(B). If Sanchez were

to meet his burden, DuPage could avoid liability by showing

“by clear and convincing evidence that it would have taken

the same personnel action in the absence of such disclosure.”

Id. § 1221(e)(2).

It is important to note, at the outset, two characteristics of

the whistleblower provisions that we have just set out. First,

with respect to the first prong of the statutorily mandated

analysis, Congress has made very clear that this “contributing

factor” element may be met with circumstantial evidence,

such as evidence that the retaliating official “knew of the dis-

closure … and … the personnel action occurred within a

No. 21-3339 47

period of time such that a reasonable person could conclude”

that the disclosure was a contributing factor in it. Id.

§ 1221(e)(1)(A)–(B); see Kewley v. Dep’t of Health & Hum. Servs.,

153 F.3d 1357, 1361–62 (Fed. Cir. 1998) (describing Congress’s

explicit correction of an earlier misapprehension of the neces-

sary quantum of evidence in Clark v. Dep’t of the Army, 997

F.2d 1466 (Fed. Cir. 1993)). We have described this “contrib-

uting factor” standard as requiring “something less than a

substantial or motivating” factor standard. Addis v. Dep’t of

Lab., 575 F.3d 688, 691 (7th Cir. 2009). This element therefore

does not impose upon the complainant a high hurdle: “[T]he

circumstantial evidence of knowledge of the protected disclo-

sure and a reasonable relationship between the time of the

protected disclosure and the time of the personnel action will

establish, prima facie, that the disclosure was a contributing

factor to the personnel action.” Horton v. Dep’t of the Navy, 66

F.3d 279, 284 (Fed. Cir. 1995). As the court in Kewley noted,

Congress has suggested that “an action taken within the same

performance evaluation period w[ill] normally be considered

within a ‘reasonable time.’” Kewley, 153 F.3d at 1363 (quoting

S. Rep. No. 100-413, at 15 (1988)). Thus, Congress has given

clear guidance that the adjudicators within the agency are to

“use this reasonable time standard liberally.” Id.

The second notable characteristic of this statutory lan-

guage is that, in affording the employer the opportunity to

rebut the prima facie showing, the statute requires explicitly

that the employer must meet the “clear and convincing”

standard, not the simple preponderance standard. Congress

employed this standard because the rebuttal case only comes

into play once the prima facie case has been established and

because the employer usually holds all the evidentiary cards.

See Whitmore v. Dep’t of Lab., 680 F.3d 1353, 1367 (Fed. Cir.

48 No. 21-3339

2012) (quoting 135 Cong. Rec. H747–48 (daily ed. Mar. 21,

1989)). As the court in Kewley noted, Congress, in employing

this standard, sought to accommodate two competing consid-

erations: It wanted to ensure that an employer would not be

able to rely on “any possible flaw in an employee’s work rec-

ord as an excuse for retaliation”; at the same time, it did not

intend that “employees who are poor performers escape sanc-

tion by manufacturing a claim of whistleblowing.” Kewley,

153 F.3d at 1363 (quoting S. Rep. No. 100-413, at 15 (1988)).

In determining whether the employer has met its shifted

burden, the factors articulated in Carr v. Social Security Admin-

istration seem to have garnered wide approval. Thus, courts

look to

the strength of the [employer’s] evidence in sup-

port of its personnel action; the existence and

strength of any motive to retaliate on the part of

the [personnel] who were involved in the deci-

sion; and any evidence that the [employer] takes

similar actions against employees who are not

whistleblowers but who are otherwise similarly

situated.

185 F.3d 1318, 1323 (Fed. Cir. 1999). In evaluating each of these

factors, the decision-maker must consider all of the record ev-

idence. “Evidence only clearly and convincingly supports a

conclusion when it does so in the aggregate considering all

the pertinent evidence in the record, and despite the evidence

that fairly detracts from that conclusion.” Whitmore, 680 F.3d

at 1368.

The standards governing our own review are also clearly

set forth in the statute. Section 4712(c)(5) incorporates the

No. 21-3339 49

judicial review provisions of the Administrative Procedure

Act. Therefore, we will not disturb the agency’s legal deter-

minations “as long as they are not arbitrary or capricious, and

are in accordance with the law.” Israel v. U.S. Dep’t of Agric.,

282 F.3d 521, 526 (7th Cir. 2002). Under that deferential stand-

ard, “we must uphold the action if the agency considered all

of the relevant factors and we can discern a rational basis for

the agency’s choice.” Id. The agency’s factual findings are re-

viewed for substantial evidence, meaning “such relevant evi-

dence as a reasonable mind might accept as adequate to sup-

port the conclusion” it reached. Huck Store Fixture Co. v.

NLRB, 327 F.3d 528, 533 (7th Cir. 2003). While this standard is

obviously a deferential one, we are unable to fulfill our re-

sponsibility when the agency adjudicator “fails to provide an

in depth review and full discussion of the facts to explain its

reasoning.” Whitmore, 680 F.3d at 1368. “If considerable coun-

tervailing evidence is manifestly ignored,” the decision must

be vacated and remanded. Id.

B.

With this statutory landscape in mind, we now turn to the

justifications offered by the Department of Education for its

determination.

1.

First Reprisal.

As we noted earlier, Sanchez made his first disclosure

around April 2018 when Hunt submitted an invoice to him

for a roughly $10,000 breakfast expense, to be paid from the

SEED grant. Sanchez told Hunt that the invoice was not an

allowable expense under federal grant rules and, despite

Hunt’s insistence, refused to pay the invoice.

50 No. 21-3339

The OIG found that Sanchez’s disclosure concerning unal-

lowable catering expenses was a contributing factor in his re-

moval from SEED grant financial oversight duties based on

Hunt’s knowledge of the disclosure and the temporal prox-

imity of the action. Although the OIG did not accept that

Ruscitti or Haller had knowledge of Sanchez’s disclosure at

the time, Hunt did have knowledge, and “Hunt removed

47

these duties only one month” after the disclosure. The OIG

also took the view, however, that ISU’s change in budget pol-

icy—a decision to limit SEED grant financial oversight to ISU

employees—constituted “clear and convincing evidence that

[DuPage] would have removed his financial duties regardless

48

of this disclosure.” Thus, the removal was not retaliatory.

Like the OIG, the ALJ found that Sanchez’s disclosure

about catering expenses was a contributing factor to his re-

moval of SEED grant duties. The ALJ first noted that the al-

leged reprisal “occurred nearly simultaneously with [the] dis-

49

closure.” The ALJ also found that “[c]learly” Haller had

knowledge of the disclosure “contemporaneously with the

events”: Haller said she only learned of the events “after they

occurred,” but the ALJ apparently did not credit that because

Haller’s interview notes failed to provide an estimate of when

50

she knew of them. In the ALJ’s view, DuPage’s claim that it

47 App. 33.

48 Id. at 33–34.

49 Id. at 1127.

50 Id.

No. 21-3339 51

lacked knowledge of the disclosure was “completely contra-

51

dicted by” Dotson’s interview.

The ALJ did not address directly whether DuPage had met

its burden of establishing by clear and convincing evidence

that the same decision about Sanchez’s continued participa-

tion in the SEED program would have been reached if he had

not made the disclosure. Although the issue was squarely be-

fore her, the opinion contains no substantive discussion of the

issue. In its submission to the ALJ, DuPage had pointed out

that ISU was a separate entity from DuPage, that the SEED

grant was administered by ISU, that Sanchez made his disclo-

sure to Hunt (an ISU employee), and that ISU chose to remove

Sanchez (and all non-ISU employees) from grant oversight

positions. DuPage contended that these facts precluded a de-

termination that Sanchez’s disclosure was a contributing fac-

tor in any action by DuPage.

DuPage did not control ISU. ISU’s decision to remove all

DuPage personnel from financial oversight of the grant ad-

ministered by ISU would have resulted in Sanchez’s removal

from these duties regardless of any disclosure to DuPage. The

ALJ’s failure to consider, in any meaningful way, the signifi-

cance of ISU being a separate entity from DuPage—which

calls into question how DuPage could be responsible for ISU’s

decision to remove Sanchez from those duties—is a major

flaw in its analysis. To put it mildly, the question whether Du-

Page could even be liable for ISU’s decision was an exceed-

ingly “relevant factor.” Israel, 282 F.3d at 526. The ALJ’s fail-

ure to grapple with it prevents us from discerning “a rational

basis for the agency’s choice.” Id. If the ALJ had applied

51 Id. at 1128.

52 No. 21-3339

carefully the Carr factors, she would have assessed not only

the strength of the evidence supporting a personnel decision

and the existence of any retaliatory motive but also, as a

threshold matter, whether the decision was even attributable

to DuPage. Carr, 185 F.3d at 1323. We therefore cannot sustain

the determination.

2.

Second Reprisal.

The OIG determined that Sanchez’s disclosures were not

a contributing factor in his change of duties between Decem-

ber 2018 and March 2019. The OIG found that none of the of-

ficials involved in this change—“to include Haller, Hunt or

Ruscitti”—had any knowledge of the catering disclosure from

52

April 2018. And because this personnel action “occurred or

was initiated likely prior to his second protected disclosure”

in January and February 2019, that disclosure “could not have

53

been a contributing factor.” The OIG concluded that, in any

case, the change of duties was simply a result of Sanchez’s de-

ficient performance on the data infrastructure work.

The ALJ disagreed. She noted that the change of duties oc-

curred over a period of months: Hunt decided in December

2018 that she intended to bring in a data infrastructure con-

sultant; the planned change of duties was communicated to

Sanchez in December 2018 or January 2019; and Sanchez’s

new job description was finalized in March 2019. The ALJ

52 Id. at 34. As noted earlier, the OIG misstated its finding here. Hunt

plainly knew of the April 2018 catering disclosure, as the OIG found in its

discussion of the first alleged reprisal. See id. at 33.

53 Id. at 34–35.

No. 21-3339 53

therefore found the temporal proximity between the second

disclosure (January 2019) and the change of duties to be dis-

positive. Although the disclosure occurred “after [DuPage]

began to consider a job change,” it was “before the new job

description … was created and implemented. This timing is

sufficient to establish the second disclosure is a contributing

54

factor for this personal [sic] action.”

In the ALJ’s view, DuPage also did not carry its burden of

showing that it would have changed Sanchez’s duties even

absent the disclosure(s). DuPage had argued that (a) the

change of duties was the “direct and sole result” of Sanchez’s

lack of skills and professional connections necessary to per-

form the work and (b) the OIG’s finding that the second dis-

closure occurred after the change in duties meant it could not

55

possibly be a contributing factor. The ALJ did not address

the first claim but rejected the second claim because Sanchez’s

new duties were not finalized until March 2019, after the sec-

ond disclosure. “That alone” was enough to show that Du-

56

Page did not meet its burden.

Even if we accept that the ALJ addressed adequately Du-

Page’s second argument (regarding the change of duties), we

cannot say the same with respect to the first (regarding

Sanchez’s competence). The ALJ simply noted the first argu-

ment and disposed of it by repeating her reasoning for accept-

ing the second argument. Even under the deferential standard

of review that we employ in these cases, this oversight simply

54 Id. at 1130.

55 Id.

56 Id.

54 No. 21-3339

cannot pass muster. DuPage’s view of Sanchez’s abilities, if

credited, would have been a satisfactory defense. But the ALJ

did not explain whether she credited those claims or, if not,

why she did not. Instead, the ALJ stated that her rejection of

the timeline argument “alone” was “enough” to find that Du-

57

Page had not met its burden. Had the ALJ adhered to the

well-established Carr factors, she would have explored vigor-

ously the “strength of [DuPage’s] evidence in support of its

personnel action.” Carr, 185 F.3d at 1323. Instead, the ALJ

failed to grapple with record evidence demonstrating Du-

Page’s serious concerns that Sanchez lacked the skills and

58

professionalism to perform these duties competently. This

approach constitutes a failure to consider a relevant factor

and rendered the ALJ’s decision on this point arbitrary and

capricious.

3.

Third Reprisal.

As noted earlier, the third alleged reprisal occurred on

March 11, 2019, when DuPage placed Sanchez on an EPP that

59

ran from March 11 to September 30. The stated purpose of

57 Id.

58 E.g., id. at 104, 185.

59 Although the EPP was reportedly issued on March 11 during a meeting

with Sanchez, there is some uncertainty as to when Sanchez received a

copy of the EPP. His signature on the document is dated April 26, 2019,

and he denied receiving a copy of it before that date. Id. at 114–15, 144,

1094.

No. 21-3339 55

the EPP was to “allow the employee the opportunity to

60

demonstrate competency and commitment” to his work.

The OIG concluded that the temporal proximity of the EPP

to the second disclosure and the knowledge of the officials in-

volved—Haller, Hunt, Ruscitti, and Dotson—demonstrated

that Sanchez’s disclosure was a contributing factor to his

placement on an EPP on March 11, 2019. The OIG further

found, however, that “numerous e-mails and witness testi-

mony” from DuPage personnel showed that Sanchez had

“significant performance issues” and that DuPage had ac-

cordingly shown by clear and convincing evidence that it

would have placed Sanchez on an EPP regardless of his dis-

61

closures.

The ALJ had little difficulty with the first prong on the

statutory analysis. She found that Sanchez’s disclosures were

contributing factors to his placement on an EPP. That deter-

mination is supported by the record. We will pretermit exten-

sive discussion of this conclusion; given the lenient standard

of proof mandated by the statutory language, there was suffi-

cient circumstantial evidence of DuPage’s knowledge of the

disclosures and sufficient temporal proximity between the

second disclosure and the start of the EPP to justify the De-

partment’s determination.

The second prong of the statutory analysis, dealing with

DuPage’s burden to establish by clear and convincing evi-

dence that it would have implemented the EPP even in the

absence of the disclosure, gives us significant pause. The ALJ

60 Id. at 344.

61 Id. at 37.

56 No. 21-3339

declined to credit DuPage’s justifications. She pointed to what

she deemed to be inconsistencies in the record concerning the

lead-up to the EPP, “vagueness regarding key details of when

the EPP was created,” and a suspicious delay in Sanchez’s

62

signing the EPP. The ALJ concluded that these inconsisten-

cies and ambiguities “reduce[d] the probative value of the ev-

idence” DuPage offered to support its defense that the EPP

63

“was only to help improve [Sanchez’s] work performance.”

As we have noted earlier, it is well established that, in

making its determination, the agency must take into consid-

eration all the evidence of record. Whitmore, 680 F.3d at 1368.

Here, the ALJ’s analysis fails to establish that it paid adequate

consideration to the detailed evidence that, prior to his being

placed on the EPP, Sanchez’s overall job performance had

raised serious concerns. Haller, who certainly acted as his de

facto supervisor, detailed those concerns in her statement to

the OIG. She noted that, with respect to a funded project that

included other regional offices of education, he had responsi-

bility for “supporting development efforts in the other [re-

gional offices] and the data infrastructure work that will sup-

64

port the entire project.” Yet, despite her asking him several

times to contact the coordinators in these organizations and

to get baseline information on what data they collected, he

had not contacted those coordinators and, indeed, had not

even identified them, much less visited them.

62 Id. at 1132–33.

63 Id. at 1133.

64 Id. at 127.

No. 21-3339 57

Haller also expressed concern about Sanchez’s lack of or-

ganization and his failure to adopt work habits that permitted

65

smooth communication with other staff members. After ac-

cepting assignments or making commitments to others, he

would fail to follow through on those obligations and cause

66

lapses in the organization’s reliability and productivity. He

failed to fix a spreadsheet even after he realized that it was

producing outdated and inaccurate data that had to be cor-

67

rected by others. One of the consequences of his failure to

work in an organized manner was the production of

“[e]xpense tracking spreadsheets that were off by hundreds

68

of thousands of dollars.” His communications with individ-

uals outside the organization often lacked professionalism.

Attempts to improve his accountability within the organiza-

69

tion faltered because of his lack of cooperation.

Haller attributed this poor performance to a lack of

knowledge and capacity with technology and a lack of under-

70

standing of basic accounting principles. She recognized that

there was a need to improve the definition of his role within

the organization, but also noted that efforts toward

65 E.g., id. at 375–76, 389–90, 392–93, 399, 403, 449–52.

66 E.g., id. at 365–66, 377, 395–97, 415–17.

67 Id. at 415.

68 Id. at 127.

69 E.g., id. at 365.

70 Id. at 110, 112.

58 No. 21-3339

clarification had been thwarted by Sanchez’s refusal to

acknowledge the leadership role of the project directors.

The ALJ’s focus on the procedure employed at the March

2019 meeting where the leadership decided to place Sanchez

on an EPP and the subjective impression of the meeting’s par-

ticipants fails to grapple in any significant way with the hard

evidence that DuPage had solid, and to a great degree unre-

butted, reasons to seek a substantial improvement in Sanchez’s

performance. The ALJ’s failure to confront that evidence ren-

ders her decision arbitrary and capricious and unsustainable

as a matter of law.

4.

Fourth Reprisal.

As we noted earlier, the fourth alleged reprisal stemmed

from a complaint by an ISU employee. That employee de-

tailed three incidents when Sanchez’s computer displayed in-

appropriate sexual material to a coworker in a work-related

situation. When this matter came to the attention of DuPage

officials, the Assistant Regional Superintendent for Business

and the Assistant Superintendent for Operations issued a

PAR stating Sanchez’s deviations from DuPage policies and

setting forth remedial action that Sanchez had to take to avoid

similar deviations in the future.

The ALJ’s reasoning in finding Sanchez’s disclosures a

contributing factor in the issuance of the PAR is problematic.

The ALJ first laid out her factual findings about the content of

the PAR, including her view that the PAR “misreport[ed]”

71

one of the incidents described in Shoop’s email. But when

71 Id. at 1135.

No. 21-3339 59

determining whether the disclosures were a contributing fac-

tor in the issuance of the PAR, she merely stated that the PAR

was issued during the EPP period and that, “[a]though [it] oc-

curred about seven months after [DuPage] had knowledge of

the second disclosure, there [wa]s still reason to conclude”

72

that it was a contributing factor. Despite her view that the

PAR misreported one of the incidents (an assertion for which

she gave little elucidation), the ALJ did not say whether this

factor informed her conclusion that the disclosures were a

contributing factor in its issuance. Apart from a conclusory

73

view that the PAR was “directly tied” to the EPP, we are

given no basis for her conclusion that the disclosures were in

any way tied to Sanchez’s failure to conform to the computer

policies of DuPage.

The ALJ’s determination that DuPage did not carry its

shifted burden is especially problematic. She pointed out, cor-

rectly, discrepancies in the record concerning Assistant Su-

perintendent Robey’s claim that Sanchez admitted to all the

incidents. However, the ALJ also mischaracterized Robey’s

interview notes while evaluating the PAR meeting, suggest-

ing that Robey and Dotson each tried to pin responsibility for

the PAR on the other. While the ALJ accurately noted that

74

Dotson pointed to Robey as the main actor in this process,

Robey did not similarly point to Dotson. The ALJ quoted

Robey as saying that Dotson “sat down with [Sanchez] … and

72 Id.

73 Id.

74 Compare id. (ALJ decision) with id. at 218 (Dotson’s interview notes).

60 No. 21-3339

75

ultimately issued a written remand [sic].” In fact, the inter-

view notes for Robey say Robey “recalled that he and Dotson

sat down with Sanchez … and ultimately issued a written rep-

76

rimand.” Both accounts indicate that Robey and Dotson

were present, and Robey’s account does not contradict Dot-

son’s statement that Robey took the lead.

The reasoning of the ALJ cannot support the conclusion

that the PAR was retaliatory.

5.

Fifth Reprisal.

This reprisal is predicated on Sanchez’s final termination.

The ALJ determined that Sanchez had met his burden of

showing one or both of his disclosures contributed to his ter-

mination because the termination was “closely tied” to the

EPP, itself an act of reprisal: His termination was “purport-

edly implemented based on the unsatisfactory rating” at the

end of the EPP period, on September 30, 2019, and so the EPP

77

formed the basis for his termination. Thus, Sanchez’s show-

ing on the EPP essentially extended transitively to the termi-

nation as well.

The ALJ also determined that DuPage failed to carry its

shifted burden. After reviewing documentation DuPage pro-

vided that discussed Sanchez’s performance failures “in ex-

cruciating detail,” the ALJ concluded “that by developing all

75 Id. at 1135.

76 Id. at 313 (emphasis added).

77 Id. at 1136.

No. 21-3339 61

these notes, [DuPage] was micromanaging [Sanchez’s] work

activities more than they were supporting his performance

78

while he was subject to the EPP.” The ALJ also found that

DuPage did not follow all its policies related to performance

assessments—specifically, there was no evidence that Du-

Page conducted formal performance assessments as required

by policy until the end of the EPP period on September 30,

2019, at which point the decision was made to terminate

Sanchez’s employment. Finally, the ALJ found it troubling

that there was significant uncertainty concerning Sanchez’s

chain of supervision throughout his employment. This uncer-

tainty “undercut[]” DuPage’s assertion that it followed its

policies requiring an employee’s supervisor to participate in

79

EPPs and performance appraisals.

Because we have determined that the record will not sup-

port the ALJ’s determination that issuance of the EPP was an

act of retaliation, we cannot accept the ALJ’s conclusion that

the termination was retaliatory because it was based on the

EPP. For this reason alone, that determination cannot stand.

We note, however, several additional problems with the ALJ’s

reasoning that preclude our accepting, even under a deferen-

tial standard of review, her conclusion. First, the ALJ notes

that Sanchez was never afforded the initial review sessions

required by DuPage policy. But the ALJ never points to any

evidence supporting why these sessions are relevant to the

problems that precipitated later discontent with Sanchez’s

performance, many of which involved a lack of basic

78 Id.

79 Id. at 1137–38.

62 No. 21-3339

professional skills. The ALJ also relies on what she considers

a lack of clarity about Sanchez’s chain of supervision but does

not explore how that supposed lack contributed to the partic-

ular deficiencies that troubled DuPage management. Indeed,

she criticizes, again in conclusory fashion, management for

“micromanaging” Sanchez during the EPP period but does

not explain why “micromanaging” a struggling employee is

problematic.

But the fundamental flaw in the ALJ’s treatment of this al-

leged reprisal is the failure to come to grips, in any meaning-

ful way, with the very significant record evidence of

Sanchez’s performance failures both before the EPP and dur-

ing the EPP period. This evidence is central to the case but

received scant attention by the ALJ. The ALJ’s failure to deal

in a meaningful way with this core issue renders the decision

arbitrary and capricious.

CONCLUSION

The petition for review is granted. The decision of the De-

partment of Education is vacated and the case is remanded to

the Department for further proceedings consistent with this

80

opinion.

The decision as to whether to assign this matter to another

ALJ rests, at least initially, with the Department. We respect-

fully suggest that the Department follow that course. See Del-

gado v. U.S. Dep’t of Just., 979 F.3d 550, 562 (7th Cir. 2020).

80 Because we must remand this case to the Department for further pro-

ceedings, we will pretermit any discussion of the Department’s decision

on the matter of remedy.

No. 21-3339 63

Petition for Review Granted; Decision Vacated; Case Re-

manded.