U.S. Department of Labor
Agency decision
Ask Donna
What actually matters in this document.
Text
U.S. Department of Labor
Office of Administrative Law Judges
800 K Street, NW, Suite 400-N
Washington, DC 20001-8002
(202) 693-7300
(202) 693-7365 (FAX)
May 2, 2011
Edited by: Seena Foster
Judges’Deskbook for the
Comprehensive Employment and Training Act (CETA),
Job Training Partnership Act (JTPA), and
Workforce Investment Act of 1998 (WIA)
These enactments cover varying periods of time and are related in purpose.
Generally, these statutes are designed to provide procedures through which federal grant
monies may be expended to assist in training and employing people. Upon issuance of a
decision and order by the administrative law judge, the aggrieved party has the right to
appeal within 20 days to the Administrative Review Board (“
ARB”or “
Board”
). 20 C.F.R. §
667.830(b) (regulations implementing the WIA).
The style of the case is
________________, Complainant v. U.S. Dep’
t. of Labor, Respondent.
Table of Contents
I. Statutory and regulatory authority
A. Comprehensive Employment and Training Act
B. Job Training Partnership Act
C. Workforce Investment Act
II. Jurisdiction
A. Time period for filing exceptions to the ALJ’
s decision
1. Appeal untimely; no jurisdiction
2. Extraordinary administrative delay
B. Effect of acceptance of appeal of ALJ’
s decision
C. Appealable final order of the Secretary under 29 U.S.C. § 1578(a)(1)
D. Interlocutory appeals
1. Impact of a stay order
2. Review of discovery orders
3. Acceptance of appeal while motion for reconsideration is pending
4. ALJ’
s refusal to dismiss case upon request of parties; voluntary dismissal proper
E. Issue of constitutionality
F. Mootness
G. Failure to satisfy procedural requirements
H. Lack of jurisdiction–miscellaneous
1. By the ARB
2. By the district court
I. Grant Officer's authority
1. Requirement of issuance of final determination within 180 days not jurisdictional
2. Grant Officer has authority to issue "revised" final determination while case
pending before the OALJ
III. Standard of review
A. By the ALJ
B. By the ARB
IV. Evidence
A. Burden of proof, generally
B. Expenditures
1. Government burden to establish prima facie unlawful expenditure
[a] Established
[b] Not established
2. Burden to timely submit documentation upon grant applicant
3. Burden shifts to recipient—burden of persuasion
C. Designation of Native American grantee under the WIA
D. Admissibility of evidence withheld during discovery
E. Grantee bound by terms of the grant
V. Discovery
A. Privileges
1. Deliberative process
[a] Requirements
[b] Improper assertion; adverse inference
2. Informant’
s and self-evaluative
B. In camera inspection
C. Default judgment
D. Subpoena authority
VI. The selection process
A. Standard for experience review
B. Selection of grantee
1. Native Americans
[a] Properly included on federal list
[b] Non-selection
i. Based on failure to repay CETA debt
ii. Based on lack of qualifications
iii. Failure to timely submit documentation
[c] “
Highest priority for designation”
2. Size of the population to qualify for “
service delivery area”
3. Incumbents
[a] “
Scores-within-a-close-competitive-range”theory
[b] Non-selection due to fraud
[c] Impoper use of “
cut-off score”
[d] Selection of incumbent based on prior performance
4. Improper involvement of “
Program Office”
5. Misapplication of solicitation of grant applications (SGA) criteria
VII. Allowances and disallowances by the grant officer
A. Under the CETA; administrative costs
B. Costs of employment generating activities allowed
C. Costs of economic development activities not allowed
D. Single unit charge contractors
1. Costs allowed
Page 2 of 43
2. Profits disallowed; no arms-length negotiation
E. Over-expenditure of contract amount; attempt to shift costs to subsequent contract
year not permitted
F. Profits disallowed; cannot fund “
duplicate”services
1. No arm’
s length negotiation
2. Not necessary and reasonable
G. Use of Dictionary of Occupational Titles
VIII. Retaliation
IX. Relief
A. Statute of limitations at 28 U.S.C. § 2462 to recover JTPA overpayment
B. Repayment of misspent funds
1. Statute in effect at time of grant award controlling in recovery of misspent funds
2. No willful disregard or gross negligence
[a] Offset against federal funds
[b] Offset against non-JTPA or non-WIA funds
3. Waiver permitted under limited circumstances
4. Fraud established
Repayment by cash required
C. Interest allowed
1. Willful violation
2. Pre-judgment interest
D. Money to be used only after grant awarded
E. Equal Access to Justice Act (EAJA) applicable
F. Rule 11 Sanctions
X. Types of dispositions
A. Dismissal
1. Based on submitted settlement
2. Voluntary dismissal under Fed.R.Civ.P. 41 permitted; no requirement to submit
settlement
3. Mootness
4. Based on untimely hearing request
B. Withdrawal of request for hearing
C. Default judgment
D. Contempt proceedings
Premature
I. Statutory and regulatory authority
A. Comprehensive Employment and Training Act
Enacted in 1973 and codified at 29 U.S.C. § 801 et seq. (repealed in 1982, to be replaced
by JTPA).
B. Job Training Partnership Act
1.
Enacted in 1982 and codified at 29 U.S.C. § 1501 et seq. (repealed in 1998, to be
replaced by WIA)
2.
29 C.F.R. Part 34 (non-discrimination regulations); 20 C.F.R. Parts 626-631 and 638
Page 3 of 43
(implementing regulations)
C. Workforce Investment Act
1.
seq.
Enacted August 7, 1998 to replace the JTPA and is codified at 29 U.S.C. § 2911 et
2.
29 C.F.R. Part 37 (non-discrimination regulations); 20 C.F.R. Parts 661-671
(implementing regulations). The hearing procedures for most proceedings are located at
20 C.F.R. §§ 667.800-667.860.
II. Jurisdiction
A. Time period for filing exceptions to the ALJ’
s decision
The implementing regulations for CETA and JTPA allowed 30 days for the aggrieved
party to submit exceptions to the ALJ's decision. The WIA, however, provides for a
shortened time period of 20 days for an aggrieved party to file exceptions. 20 C.F.R. §
667.830(b). The ALJ's decision will constitute the final action of the agency in the absence
of a timely filing of exceptions.
1. Appeal untimely; no jurisdiction
In Gamble v. Wisconsin Counties of Racine, Walworth, and Kenosha, 1994CET-1 (ARB,
June 28, 1996), the ARB declined to assert jurisdiction because the
dissatisfied party failed to file exceptions to the ALJ's decision within the 30-day time limit
pursuant to 20 C.F.R. § 676.91(f). Although the CETA regulations had been removed from
the Code of Federal Regulations in 1990, the Department of Labor asserted that these
regulations would continue to apply to litigation arising under CETA. 55 Fed. Reg. 12995.
As a result, the ARB held that Gamble's compliance with the JTPA procedural rules was not
material. It concluded that the time period for filing exceptions to the ALJ's decision was
jurisdiction and could not be waived.
In Carmona v. Office of the Governor of Puerto Rico, 1999-JTP-18 (ALJ, Aug.
18, 1999), the ALJ declined to accept jurisdiction based upon the respondents' failure to
timely request a hearing pursuant to 29 C.F.R. § 34.51. This regulatory provision provides,
inter alia, that a failure to timely request a hearing results in the waiver of a hearing and
the waiver of a hearing, in turn, results in the Grant Officer's final determination becoming
the final decision of the Secretary of Labor.
2. Extraordinary administrative delay; no jurisdiction
Page 4 of 43
In Gamble v. Wisconsin Counties of Racine, Walworth, and Kenosha, 1994CET-1 (ARB, June 28, 1996), the ARB held that it would not accept jurisdiction over a claim
where "the extraordinary administrative delay of 17 years in bringing this matter to
conclusion presents a manifest injustice to the Respondent's ability to defend against claims
regarding their liability in this case." See also Bradley v. Richmond School Board, 416
U.S. 696, 711 (1976).
In the decision below, Gamble v. The Wisconsin Counties of Racine, Walworth
and Kenosha, 1994-CET-1 (ALJ, Jan. 26, 1996), the employee filed a grievance alleging
that he had been terminated from employment in June of 1978 for discriminatory reasons.
The prime sponsor found in favor of the employee, and the sub-recipient appealed to the
ETA, which sustained the prime sponsor's ruling. Conciliation efforts failed, and DOL issued
a Notice of Final Determination upholding the finding in December 1980. The sub-recipient
requested a hearing before an ALJ. Before the hearing took place, the sub-recipient filed for
bankruptcy. In January 1984, the ALJ dismissed the matter, the sub-recipient having
decided not to pursue the appeal. The ALJ concluded that the prime sponsor was now liable
for any corrective action, and remanded the matter to the Grant Officer for a determination
of what sanctions should be imposed against the prime sponsor. The Department of Labor
made a settlement offer in November 1984, which was apparently rejected. Nearly nine
years later, in September 1993, the Office of Civil Rights issued an Initial Determination,
setting back pay at over $28,000 and accumulated interest of almost $300,000. The matter
again went to hearing before a different ALJ in June 1995. The ALJ in the second
proceeding found that Department's failure to issue a Final Determination until 1993
deprived him of subject matter jurisdiction because, under regulations existing at the time
of the first ALJ's order, that order became final 30 days following its issuance because no
party appealed. See 20 C.F.R. 676.91(f) (now removed). The first ALJ's order provided for
no specific relief. Thus, the case was now "dead."
The ALJ further stated, assuming arguendo that the Department's enforcement
action was not barred for lack of subject matter jurisdiction, the complaint must
nevertheless be dismissed. He concluded that no relief was appropriate in the case before
him where the delays in the case resulted in such a large accumulation of interest and the
delays were largely the fault of the Department. Namely, the ALJ noted that the entities
involved had changed over the years, the proposed remedy was too high given the
employees' post-discharge employment history, and there was only speculative evidence
presented concerning one employee's possibility of promotion had he continued with the
sub-recipient.
The ALJ also took into account policy considerations and, though noting that the
employee had been wronged, the ALJ observed that there was no credible evidence that the
entities involved had purposefully delayed the proceedings to avoid its obligation to pay
restitution, and no evidence that the differing parties had merely emerged from bankruptcy
or other means as re-formulations of the same entities. He noted that the prime sponsor
attempted to rectify the termination of the employee (and had waited in vain for the
Department to provide an assessment of liability which it could accept or deny), and that
enforcement now that the amount sought had escalated would be
essentially "massive
retaliation" for misstep by an entity which had become involved with a program for the
purpose of assisting the disadvantaged.
The ALJ noted that the employee was an innocent bystander who possibly stood to
suffer financial loss due to the termination and the failure of Department to properly and
timely prosecute its case. However, the ALJ found that the proposed remedy sought by the
Office of Civil Rights was so severe as to have no basis in equity, with no correlation
Page 5 of 43
between the proposed remedy and the loss. The amount sought, totaling $28,000 in back
pay and $300,000 in interest, would constitute a windfall, rather than a "make-whole"
remedy. The ALJ noted that he had unsuccessfully encouraged settlement, but suggested
continued efforts in that regard, especially since the named counties appeared to recognize
a moral obligation to pay the employee the amount owed between termination and
subsequent employment.
B. Effect of acceptance of appeal of ALJ’
s decision
In Nebraska Indian Inter-Tribal Development Corp. v. U.S. Dep't. of Labor,
1987-JTP-19 (Sec'y., May 23, 1988), the Secretary held that, where an ALJ's decision has
been accepted for review, it "has the status only of a recommended decision, and has no
force and effect of its own until the passage of 180 days without issuance of a decision by
the Secretary." As a result, the Secretary concluded that the ALJ was without authority to
order that the "Grant Officer to take any action notwithstanding the pendency of appeals."
Slip op. at 3.
C. Appealable final order of the Secretary under 29 U.S.C. § 1578(a)(1)
In Texas Dept. of Commerce v. U.S. Dept. of Labor, 1990-JTP-5 (Sec'y, Nov. 1,
1993), the Secretary concluded that the ALJ properly affirmed the Grant Officer's
disallowance of certain costs. The Secretary's decision, however, also required that the
Grant Officer make additional determinations.
On November 30, 1993,
Complainant/Intervener petitioned the Fifth Circuit for review. On June 7, 1994, the Grant
Officer submitted to the Secretary a memorandum on the additional determinations. The
Fifth Circuit dismissed the appeal, without opposition, on August 17, 1994 after finding that
the Secretary's November 1, 1993 decision was not a final order as required by Section
168(a)(1) of the JTPA, 29 U.S.C. § 1578(a)(1). See also Jobs, Training, and Services,
Inc. v. U.S. Dep't. of Labor, 50 F.3d 1318 (5th Cir. 1995) (the district court held that it
lacked jurisdiction to adjudge claims against the Department of Labor as there was no
reviewable "final agency action").
D. Interlocutory appeals
1. Impact of a stay order
In Cherokee Nation of Oklahoma v. U.S. Dep't. of Labor and Delaware Tribe
of Indians, 1997-JTP-12 (ARB, May 7, 1998), the ALJ issued an order staying proceedings
until the federal district court ruled on whether the Delaware Tribe of Indians was properly
included on the list of federally recognized Indian tribes by the Secretary of Interior. The
ARB held that it ordinarily "would not review an interlocutory order such as a Stay Order,
however, in this case, the practical impact of the Stay Order is the equivalent of a final
order with regard to the funding of the JTPA program for Program Year 1998, which
start[ed] on July 1, 1998." As a result, the ARB concluded that it had jurisdiction to address
the complainant's petition for review.
2. Review of discovery orders
In Midwest Farmworker v. U.S. Dep't. of Labor, 1997-JTP-20, 1997-JTP-21,
1997-JTP-22 (ARB, July 23, 1998), the ARB accepted the Respondent's request for
emergency review of the ALJ's denial of a motion for protective order and motion to compel
discovery. Respondent alleged that it opposed Complainant's requests to depose certain
Page 6 of 43
individuals who were involved in the decision-making process of selecting grantees for JTPA
funds based upon deliberative process privilege and attorney-client privilege. The ARB
noted that, whether the deliberative process and attorney-client privileges apply to
particular witnesses or documents constitutes a mixed question of fact and law. In seeking
to challenge the disclosure of certain discovery based on the privileges, the ARB held that it
is insufficient for the Department to merely allege that disclosure will have a "‘
chilling
effect'" on agency personnel or their counsel. Citing to In re Subpoena Duces Tecum
Served on the Office of the Comptroller of the Currency, 1998 WL 336518 (D.C. Cir.
June 26, 1998) and Swindler & Berlin v. United States, 118 S.Ct. 2081 (June 25, 1998),
the ARB concluded that the Department failed to "identify the particulars of the grant
application decisional process that make the deliberative process or attorney client
privileges relevant and, if relevant, sufficient to justify non-disclosure."
3. Acceptance of appeal while motion for reconsideration is pending
In Central Valley Opportunity Center, 1995-JTP-9 (ARB, Dec. 23, 1997), the ARB
accepted jurisdiction over the Grant Officer's appeal in order to protect his right to request
review of the ALJ's decision pending the outcome of reconsideration by the ALJ.
4. ALJ’
s refusal to dismiss case upon request of parties;
voluntary dismissal proper
In Indiana Dep't. of Workforce Development v. U.S. Dep't. of Labor, 1997JTP-15 (ARB, Aug. 20, 1998), the ARB asserted jurisdiction and stayed proceedings before
the ALJ where the ALJ refused to dismiss the case based on a Stipulation of Dismissal
received by the parties.1 The ALJ determined that the submission did not comply with the
requirements of 29 C.F.R. § 18.9(c) for a dismissal based on a settlement of the parties. By
Final Order dated December 8, 1998, the ARB reversed the ALJ's order denying dismissal of
the case. The Board noted that the parties advised that a settlement had been reached and
the ALJ subsequently requested that a copy of the executed settlement agreement be
submitted. The parties submitted only a Stipulation of Dismissal without the settlement
agreement and the Grant Officer advised the ALJ that the "agreement expressly prohibited
disclosure of the agreement's contents to the ALJ." The Grant Officer then argued that
dismissal was proper under the voluntary dismissal provisions at Rule 41(a)(1)(ii) of the
Federal Rules of Civil Procedure as well as 29 C.F.R. § 18.9(c).
The ARB agreed that the regulatory provisions at 29 C.F.R. § 18.9(c) were applicable
to JTPA cases through 29 C.F.R. § 627.805. However, it noted that neither party invoked
the provisions at § 18.9(c) by requesting time to pursue a settlement agreement and the
ARB found that the parties were not required to comply with § 18.9(c) as they "reached a
settlement without the need for deferral or judicial supervision." From this, the ARB
reasoned that it was error for the ALJ to conclude that Fed.R.Civ.P. 41(a) was inapplicable.
Because the implementing regulations of the JTPA and the procedural regulations at 29
C.F.R. Part 18 did not address the type of dismissal sought in this case, Fed.R.Civ.P. 41
applied. The ARB noted that the JTPA does not require Secretarial review of settlements
entered into between the Grant Officer and a grantee, unlike settlement agreements
reached in whistleblower cases under the Energy Reorganization Act. See Hoffman v. Fuel
1
In a footnote, the ARB noted that it was not bound by the "‘
final decision' rule,"
which is applicable to Article III courts; however, it stated that appeals from interlocutory
orders are not normally accepted. In this case, the ARB found that the ALJ's refusal to
dismiss the case qualified as an exception under the collateral order doctrine.
Page 7 of 43
Economy Contracting, 1987-ERA-33 (Sec'y., Aug. 4, 1989). As a result, the ALJ's finding,
that public interest requires his review of a settlement resolving an audit dispute, was
incorrect. As a result, the ARB directed that the complaint be dismissed with prejudice
pursuant to Fed.R.Civ.P. 41(a)(1)(ii).
E. Issues of constitutionality
In The Lower Muskogee Creek Tribe v. U.S. Dep't. of Labor, 1997-JTP-11 (ALJ,
Aug. 21, 1998), Complainant argued that the provisions of the JTPA were unconstitutional.
The ALJ concluded, however, that he was without authority to rule on such an issue. See
also Narragansett Indian Tribe v. U.S. Dep't. of Labor, 2000-WIA-6 (ALJ, Dec. 20,
2000), aff'd. ARB Case No. 01-027 (July 20, 2001) ("[s]ince administrative law judges do
not have the inherent authority possessed by Article III judges to rule on the validity of the
Secretary's regulations, and since the WIA and its implementing regulations do not
expressly give administrative law judges such authority, I lack authority to address NIT's
allegation that section 668.210(a) is invalid . . ..").
F. Mootness
As under the JTPA regulations, the implementing provisions for the WIA at 20 C.F.R.
§ 667.825(b) provides, in part, the following:
If the ALJ rules that the organization should have been selected and the
organization continues to meet the requirements of 20 C.F.R. part 668 or part
669, the Department will select and fund the organization within 90 days of
the ALJ's decision unless the end of the 90-day period is within six (6) months
of the end of the funding period.
20 C.F.R. § 667.825(b).
In Job Service of North Dakota v. U.S. Dep't. of Labor, 1997-JTP-23 (ARB, Apr.
27, 1999), the ARB held that the case before it was moot because the limited remedy
available at 20 C.F.R. § 633.205(e) for migrant and seasonal workers was no longer
available. Specifically, under the JTPA, if it is determined that a non-selected applicant
should have been selected for a grant, then the regulation at § 633.205(e) provides that
"the Department selects and funds that applicant so long as the 90-day period for the
transfer of the grant will not end within six months of the end of the funding period." In the
case before it, the ARB noted that less than three months remained in the program year
such that, even if it "agreed with the merits of the Job Service's challenge, (it) would have
no authority under the regulations to issue a final decision designating a different grantee."
The ARB further rejected a request by Job Service that the improperly selected grantee "be
denied the possibility of a waiver of competition for the next grant period." The ARB held
that it does not have authority to award prospective relief. It acknowledged that dismissal
of the appeal for lack of jurisdiction appears "harsh" in light of the fact that the delays in
adjudication were attributable to the Department and not the applicants, but the
circumstances of the case rendered it moot.
See also Midwest Farmworker Employment and Training, Inc. v. U.S. Dep't.
of Labor, 200 F.3d 1198 (8th Cir. 2000) (case was rendered moot when relief was sought
within last nine months of the grant year; claim not subject to the exception to mootness
doctrine of being "capable of repetition, yet evading review" because the company did not
seek expedited review and the complaint addressed problems in one grant award as
Page 8 of 43
opposed to departmental policies in management of the program–"[a] claim based on
peculiar facts, such as the typographical error in the scoring of the competition and the
alleged violation of ethical rules by the program director in this case, who has since retired,
is not particularly likely to recur"); Campesinos Unidos, Inc. v. U.S. Dep't. of Labor,
803 F.2d 1063, 1069 (9th Cir. 1986) ("[b]ecause the grant periods have expired, retroactive
remedies were not requested, nor could we fashion any under the applicable statutes and
regulations" and "[b]ecause the petitioner does not fall withing the ‘
capable of repetition yet
evading review' exception and we are without authority to provide any meaningful
prospective relief, we dismiss the appeal as moot"); Cherokee Nation of Oklahoma v.
U.S. Dep't. of Labor, 1997-JTP-12 (ARB, Feb. 12, 1999) (because the funding period
would expire in six months, the proceeding was moot pursuant to § 632.12(a)); Midwest
Farmworker Employment & Training, Inc. v. U.S. Dep't. of Labor, 1997-JTP-20, 1997JTP-21, 1997-JTP-22 (ARB, Mar. 31, 1999); Illinois Migrant Council, Inc. v. U.S. Dep't.
of Labor, 1984-JTP-10 (Sec'y. July 17, 1986) (case cannot be preserved as an exception to
the mootness doctrine as "‘
capable of repetition, yet evading review'" because there was no
evidence presented to establish a "reasonable expectation" or "demonstrated probability"
that the same problem would reoccur).
In Maine v. Sec'y. of Labor, 770 F.2d 236 (1st Cir. 1985), the circuit court noted
that DOL applied a "scores-within-a-competitive-range-are-not-final" theory to award JTPA
funds to an incumbent provider whose scores were three points lower than the competitor.
The ALJ had concluded that this amounted to "a bonus for incumbents; and, under existing
procedures, such a bonus was improper." The DOL maintained that it had the authority to
consider incumbency or "‘
being in place'" as a factor in selecting a recipient for funds under
the JTPA. The circuit court declined to rule on the issue for two reasons. First, it noted that
the DOL had recently changed its grant procedures "so that applicants are now on notice
that the ‘
high scorer' may not always receive the grant." Second, the court found that the
grant period at issue had expired such that case before it was rendered moot.
G. Failure to satisfy procedural requirements
In Hitek Learning Systems, Inc. v. South Carolina Employment Security
Commission, Case No. 2001-JTP-2 (ALJ, Jan. 25, 2002), the ALJ dismissed Complainant's
case on grounds that Complainant failed to seek a final determination from the Grant
Officer.
H. Lack of jurisdiction–miscellaneous
1. By the ARB
In Koger v. Directorate of Civil Rights and U.S. Dep't. of Labor, 1999-JTP-20
(ARB, Dec. 3, 1999), Complainant alleged discrimination in violation of the JTPA. Although
he identified the Department's Directorate of Civil Rights as the Respondent, the ARB
concluded that his case was based upon employment with the Commonwealth of
Pennsylvania's Allegheny County Department of Federal Programs, which ended in 1989. As
a result, the ARB declined to accept the case for review.
2. By the district court
In City of New Orleans v. U.S. Dep't. of Labor, 825 F. Supp. 120 (E.D. La. 1993),
the district court held that it lacked subject matter jurisdiction where the City of New
Orleans moved for a temporary restraining order and preliminary injunction to halt an
administrative hearing in a JTPA case. The hearing was to be held to adjudicate an
Page 9 of 43
accounting dispute between the Department of Labor and, ultimately, the City of New
Orleans. The district court found that the City's alleged "irreparable harm" was apparently
due to its refusal to participate in the administrative proceeding, rather than as the result of
its exclusion from the proceeding.
I. Grant Officer's authority
1. Requirement of issuance of final determination within 180 days not
jurisdictional
In Florida Dep't of Labor & Employment Security v. U.S. Dep't. of Labor,
1992-JTP-21 (ALJ, May 26, 1993), the Secretary held that the ALJ properly cited to Brock
v. Pierce County, 176 U.S. 253 (1986) to hold that the JTPA requirement that a Final
Determination be issued within 180 days after receipt of a final approved audit report was
not jurisdictional. See also American Indian Community House, Inc. v. U.S. Dep't. of
Labor, 2003-JTP-3 (ALJ, Feb. 14, 2007) (revised Final Determination issued almost 11
months after audit report).
2. Grant Officer has authority to issue "revised" final determination
while case pending before the OALJ
In American Indian Community House, 2003-JTP-3 (ALJ, Feb. 14, 2007), the ALJ
cited to Florida Dep't. of Labor & Employment Security v. U.S. Dep't. of Labor, 1992JTP-21 (Sec'y. Aug. 16, 1994) to hold that the Grant Officer has authority to reconsider
his/her Final Determination prior to full adjudication by the ALJ. Here, an OIG audit
revealed $293,419 in questionable costs by the Complainant. The Grant Officer, however,
issued a Final Determination on October 4, 2002 allowing $269,420 of the questioned costs
and disallowing $23,999 in costs. Complainant requested a hearing and, on December 18,
2002, the Grant Officer issued a Revised Determination disallowing the original amount of
$293,419 in costs.
On motion of the Grant Office, the ALJ dismissed 2003-JTP-2, which was based on
Complainant's hearing request of the October 2002 Determination. The ALJ then noted
assignment of case number 2003-JTP-3 for the hearing request stemming from the revised
December 2002 Determination. The ALJ concluded that, "[a]lthough a Grant Officer's
reconsideration and revision of a Final Determination prior to final adjudication by the ALJ
should not be the normal procedure. However, in the present case, the grantee is only
denied the opportunity to limit its liability based on a possibly egregious mistake made by
the Grant Officer in the original Determination. The ALJ explained that Complainant "will
still be afforded a full and fair opportunity in an adjudicatory setting to establish that the
disallowances were erroneous."
III. Standard of review
Page 10 of 43
A. By the ALJ
In Commonwealth of Puerto Rico v. U.S. Dep’
t. of Labor and Rural
Opportunities, Inc., Case No. 2008-WIA-4 (ALJ, Sept. 26, 2008), the administrative law
judge cited to 20 C.F.R. § 667.825(a) to state that, in reviewing a Grant Officer’
s decision,
he must determine whether “
there is a basis in the record to support the [Grant Officer’
s]
decision.” Further, the judge cited to United Tribes of Kansas v. U.S. Dep’
t. of Labor,
ARB Case No. 01-026 (ARB, Aug. 6, 2001) wherein the Board held that the judge’
s standard
of review is “
highly deferential” and similar to the “
arbitrary and capricious” standard
utilized by federal courts. Therefore, the judge held that he could not substitute his own
judgment for that of the Grant Officer nor could he undertake de novo review of the Grant
Officer’
s decision.
In Municipality of San Juan v. Human Resources Occupational Development
Council, 371 F.Supp.2d 52 (D. Puerto Rico 2005), the district court dismissed Plaintiff's
complaint on grounds that it failed to exhaust administrative remedies. Plaintiff alleged that
the Department of Labor denied it due process of law and engaged in discrimination based
on political affiliation when it decided to audit Plaintiff's WIA programs. The district court
noted that, under WIA, the Grant Officer's determination is, on request, reviewed by an
administrative law judge and then the Department's Administrative Review Board before
judicial review by the appropriate court of appeals. The district court cited to McCarthy v.
Madigan, 503 U.S. 140 (1992) to state that exhaustion of remedies "serves the twin
purposes of protecting administrative agency authority and promoting judicial efficiency."
As a result, Plaintiff's complaint was dismissed without prejudice.
B. By the ARB
On appeal, in United Urban Indian Council, Inc. v. U.S. Dep't. of Labor, ARB
Case No. 01-025, 2000-WIA-4 (ARB, May 18, 2001), the ARB held that its review of the
ALJ's decision was limited to a determination of "whether there is a basis in the record to
support the Department's decision." See 20 C.F.R. § 667.825.(a). In reviewing the facts of
the case, the ARB stated that it was a well-settled principle of administrative law that an
agency's construction of its own regulations is entitled to "substantial deference." As a
result, the ARB held that the Grant Officer has "wide latitude in effectuating the purposes of
the WIA INA regulations; we will not substitute our judgment for that of the agency which
wrote the regulations at issue and must apply them in sometimes widely different
circumstances." See also Commonwealth of Puerto Rico v. U.S. Dep't. of Labor, 2007WIA-10 (ALJ, Nov. 13, 2007), appeal dismissed, ARB No. 08-019 (ARB, Feb. 6, 2008) (a
decision by the grant officer "must be affirmed unless the party challenging the decision can
demonstrate that the decision lacked any rational basis); United Tribes of Kansas and
Southeast Nebraska, Inc. v. U.S. Dep't. of Labor, ARB Case No. 01-026 (ARB, Aug. 6,
2001).
C.
By the circuit court
In Arizona Dep't. of Economic Security v. U.S. Dep't. of Labor, 125 F.3d 857 (9th
Cir. 1997), the circuit court held it would accord "substantial deference" to the ARB's
findings, which resulted in a determination that the grantee committed fraud.
Page 11 of 43
IV. Evidence
A. Burden of proof, generally
Under the implementing regulations to the WIA at 20 C.F.R. § 667.810(e), the
following is provided regarding the burden of production and persuasion:
The Grant Officer has the burden of production to support his or her decision.
To this end, the Grant Officer prepares and files an administrative file in
support of the decision which must be made a part of the record. Thereafter,
the party or parties seeking to overturn the Grant Officer's decision has the
burden of persuasion.
20 C.F.R. § 667.810(e). See also Westchester-Putnam Counties Consortium for
Worker Education and Training, Inc., ARB Case No. 10-081, Case No. 2007-WIA-7
(ARB, Oct. 18, 2010); Commonwealth of Massachusetts v. U.S. Dep't. of Labor, Case
No. 1998-JTP-6 (ALJ, Oct. 29, 2001), aff'd., ARB Case No. 04-170 (ARB, Mar. 11, 2005),
aff'd. sub nom. Edmonds v. Chao, 449 F.3d 51 (1st Cir. 2006) (similar regulatory
framework under JTPA at 20 C.F.R. § 627.802(e)).
B. Expenditures
1. Government burden to establish prima facie unlawful expenditure
[a] Established
In Illinois Dep't. of Commerce and Community Affairs v. U.S. Dep't. of Labor,
1999-JTP-15 (ALJ, Apr. 21, 2000), the ALJ held that the Grant Officer met its burden of
production under 20 C.F.R. § 627.802(e) to establish that state agency failed to expend its
funds in a lawful manner. The ALJ further noted that the agency "has not established that
the Grant Officer's determination of the disallowed amount or the basis for that finding
should be overturned" and "[i]n fact, (the agency) had never challenged those elements."
As a result, the ALJ proceeded to determine the propriety of imposing the sanction of
repayment.
See also Westchester-Putnam Counties Consortium for Worker
Education and Training, Inc., ARB Case No. 10-081, Case No. 2007-WIA-7 (ARB, Oct.
18, 2010) (reliance on testimony of the OIG’
s auditor in charge was proper);
Commonwealth of Massachusetts v. U.S. Dep't. of Labor, ARB Case Nos. 02-011 and
02-021, 1998-JTP-6 (ARB, June 13, 2002), aff'd., ARB Case No. 04-170 (ARB, Mar. 11,
2005), aff'd. sub nom. Edmonds v. Chao, 449 F.3d 51 (1st Cir. 2006); State of
Louisiana Dep't. of Labor v. U.S. Dep't. of Labor, 108 F.3d 614 (5th Cir. 1997) (the
circuit court affirmed an ALJ's order that disallowed costs be repaid by the state to the
federal government where substantial evidence supported a finding that accurate and
reliable records, in compliance with the JTPA, were not maintained by the grant recipient).
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1993-JTP-2 (ARB, May 13, 1998), the ARB held that Complainant failed to produce
documentation of the "necessary specificity" to establish that certain claimed costs were
allowable under its JTPA contract. As a result, the ARB affirmed the Grant Officer's
Page 12 of 43
disallowance of costs and Complainant was ordered to repay the amount disallowed to the
"United States Department of Labor in non-Federal funds."
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
ARB Case No. 04-168, 1999-JTP-16 (ARB, Feb. 28, 2005), aff'd., Case No. 05-11664 (11th
Cir. Apr. 24, 2006), the Board held that, if a recipient's records are inadequate to
demonstrate that it spent funds lawfully, then the Grant Officer "meets the burden (of
establishing a prima facie case) by establishing the inadequacy of the records." The Board
further noted that, "[i]n presenting a prima facie case, a Grant Officer should demonstrate
an understanding of statutory and regulatory requirements that are imposed on the
recipient."
[b] Not established
In Commonwealth of Puerto Rico v. U.S. Dep't. of Labor, 2000-JTP-6 (ALJ, Dec.
21, 2001), the ALJ concluded that the Grant Officer failed to carry its burden of establishing
a prima facie case to disallow certain costs. In particular, the ALJ noted the following:
At the least, the changes in the Grant Officers' positions show the
arbitrariness of their determinations in disallowing these (on-the-job-training)
costs as excessive. At worst, by retroactively applying a newly created theory
of cost disallowance against DHLR and not informing DLHR of the legal basis
for that theory until the second day of the hearing, DHLR has been denied
due process.
Slip op. at 10. The ALJ further noted that the Grant Officer "frequently changed" positions
with regard to the disallowance of costs and had never used the Dictionary of Occupational
Titles to determine the time limits for on-the-job-training. The ALJ stated that Respondent
"failed to articulate even a colorable rationale, either legally or factually, to support its
disallowance of" Complainant's on-the-job-training costs. As a result, the disallowance of
costs was reversed.
In Texas Dep't. of Commerce v. U.S. Dep't. of Labor, 1994-JTP-20, slip op. at 910 (ARB, Dec. 11, 1996), the ARB determined that the ALJ misapplied the holding in
Director, OWCP v. Greenwich Collieries, 114 S. Ct. 2251 (1998), to the burden of proof
required in JTPA cases. In Greenwich Collieries, the Court addressed a narrow area of
administrative law and emphasized that the government could not presume that a
defending party had violated the law. Because the burden of parties in JTPA cases has been
provided for by statute, that general premise is not applicable. Twenty C.F.R. § 636.10(g)
"provides the most rational allocation of burdens that would be consistent with the JTPA
statutory scheme, viz., the burden of producing the basis for disallowed costs falling on the
Secretary's designee and the burden of persuasively challenging such disallowances falling
on the grant recipient who seeks to have the Grant Officer's decision overturned." Slip op.
at 10.
However, on appeal in Texas Dep't. of Commerce v. U.S. Dep't. of Labor, 137
F.3d 329 (5th Cir. 1998), the circuit court held that the Department failed to establish a
prima facie case that Texas Commerce expended JTPA funds unlawfully and it reversed the
Department's decision. The circuit court noted that the ARB determined that the burden of
persuasion lie with Texas Commerce which was "required to trace expenditures for
employment generating activities to specific, identifiable individuals before those
Page 13 of 43
expenditures could be charged to participant support."
parties, the circuit court stated the following:
In assessing the burdens of the
Texas Commerce was required to maintain records adequate to show that
JTPA funds were spent lawfully. These records enable the DOL to audit these
JTPA programs to determine which expenditures should be allowed. Texas
Commerce does not bear the initial burden of justifying its expenditures
before the ALJ, however. That burden rests upon the DOL which must
produce evidence sufficient to establish a prima facie case. This requires
evidence sufficient for a reasonable person to conclude that JTPA funds were
spent unlawfully. If the records of Texas Commerce were inadequate to show
that JTPA funds were spent lawfully, the DOL could meet its burden by
establishing the inadequacy of the records. The DOL maintains that these
records were inadequate because they did not trace expenditures for
employment generating activities to specific, identifiable individuals. We find
that the DOL and the Board, which accepted the DOL's argument, are in
error.
Participant support costs are those costs that directly benefits JTPA-eligible
individuals by assisting them in their participation in JTPA training programs.
These costs may include ‘
transportation, health care, special services and
materials for the handicapped, child care, meals, temporary shelter, financial
counseling, and other reasonable expenses for participation in the training
program.' Although these expenses are all ones that benefit individuals,
there is not support in the statute or the regulations that each expenditure
must be traced to a specific, identified individual. The DOL's interpretation is
not a reasonable one to which we must defer.
The ALJ found that the DOL failed to establish a prima facie case that JTPA
funds were spent unlawfully. We agree. The DOL auditors conceded that the
challenged employment generating activities expenditures directly benefitted
JTPA-eligible individuals. The DOL did not review the Texas Commerce
records to determine whether these legitimate employment generating
activity expenditures were ones that could be charged to participant support.
Instead, the DOL relied upon faulty legal interpretations to justify the denials.
Slip op. at 3 (italics in original; footnote references omitted).
In Arizona Dep't of Economic Security v. U.S. Dep't. of Labor, 1994-JTP-18
(ARB, June 7, 1996), aff'd. (9th Cir. 1997)(table), the ALJ ruled that the Department failed
to carry its initial burden of production because the record did not contain evidence
sufficient to establish a case under § 164(e)(1) of the JTPA, which was the only JTPA section
referenced in the Grant Officer's final
determination. The ALJ opined that a prima facie
case might have been presented had the Grant Officer referenced § 164(d). The Board
disagreed and held that "[a] notification that references § 164(e)(1)
implicitly and
necessarily incorporates a finding of liability under § 164(d)." Slip op. at 6. Therefore, the
ALJ erred in "presum[ing] that §§ 164(d) and 164(e)(1) rely on different theories of liability.
[Rather] liability under § 164(e)(1) is premised on a finding under § 164(d) that funds
were not expended in accordance with the JTPA." Id. The Board also found that the sole
citation of § 164(e)(1) did not deny Complainant due process.
2. Burden to timely submit documentation upon grant applicant
Page 14 of 43
In ‘
Nato Indian Nation v. U.S. Dep't. of Labor, 1997-JTP-13 (ALJ, Oct. 7, 1998),
the Grant Officer did not select Complainant for a JTPA grant based upon its failure to
provide all specifically requested documentation with its Final Notice of Intent. Complainant
did submit the documentation with a motion for reconsideration, but the Grant Officer
refused to consider it. In approving of the Grant Officer's refusal to consider newly
submitted evidence on reconsideration, the ALJ found that his "testimony indicated that
‘
NATO's application and additional information was treated no differently than would any
other applicants in a similar position." The ALJ determined that the Grant Officer's "actions
were consistent with the express wording of the implementing regulations" and that he
"properly refused to consider ‘
NATO's additional information, regardless of content,
submitted with their motion for reconsideration."
See also Westchester-Putnam
Counties Consortium for Worker Education and Training, Inc., ARB Case No. 10-081,
Case No. 2007-WIA-7 (ARB, Oct. 18, 2010) (the Grant Officer gave the recipient “
the
opportunity to provide . . . documentation regarding whether costs were properly classified
as program costs versus administrative costs”
); Commonwealth of Massachusetts v.
U.S. Dep't. of Labor, Case No. 1998-JTP-6 (ALJ, Oct. 29, 2001), aff'd., ARB Case Nos. 02011 and 02-021 (ARB, June 13, 2002) as well as a subsequent decision issued by the Board
in the same case at ARB Case No. 04-170 (ARB, Mar. 11, 2005), aff'd. sub nom. Edmonds
v. Chao, 449 F.3d 51 (1st Cir. 2006).
3. Burden shifts to recipient –burden of persuasion
Once the Grant Officer meets the initial burden of production showing that funds
were unlawfully spent, the burden then shifts to the recipient "who shall have the ‘
burden of
persuasion' to offer persuasive evidence to the contrary." The Board held:
Overcoming a prima facie case of ‘
misspent' funds requires the grantee to
present cogent evidence and argument regarding how it has either met the
specific requirements the JTPA imposes or has compensated for any
deficiencies through other means.
Slip op. at 7-8. Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of
Labor, ARB Case No. 04-168, 1999-JTP-16 (ARB, Feb. 28, 2005), aff'd., Case No. 05-11664
(11th Cir. Apr. 24, 2006). The same holds true for WIA-related cases. WestchesterPutnam Counties Consortium for Worker Education and Training, Inc., ARB Case No.
10-081, Case No. 2007-WIA-7 (ARB, Oct. 18, 2010).
C. Designation of Native American grantee under the WIA
In United Urban Indian Council, Inc., ARB Case No. 01-025, 2000-WIA-4 (ARB,
May 18, 2001), the ARB upheld the Grant Officer's interpretation of the regulations and use
of U.S. Bureau of Census data to determine which Native American tribe had "legal
jurisdiction" over a particular area for the purpose of receiving grant monies. See 20 C.F.R.
§ 668.296(b)(3).
D. Admissibility of evidence withheld during discovery
In United Tribes of Kansas and Southeast Nebraska, Inc. v. U.S. Dep't. of
Labor, ARB Case No. 01-026 (Aug. 6, 2001), United Tribes attempted, through discovery,
"to obtain the identity of review panelists and information regarding their purported
expertise, the documents on which the panel members relied in making their
recommendation, the analysis and deliberations of the panel, and the panelists' scores and
Page 15 of 43
recommendations." ETA asserted that such information was protected by the deliberative
process privilege and did not disclose the information. However, certain parts of the
information were admitted during the course of the hearing. The ARB held that the
evidentiary rule at 20 C.F.R. § 667.810(d) "is clear: unless the documentation sought to be
introduced at the hearing has been made available to the opposing party for review
pursuant to the procedures set forth therein, its use at the hearing is barred." However, the
Board held that, because United Tribes "was already aware of virtually all of the information
that ETA introduced during the hearing over United Tribes' objection," the error in admitting
such withheld evidence was harmless.
E. Grantee bound by terms of the grant
In Westchester-Putnam Counties Consortium for Worker Education and
Training, Inc., ARB Case No. 10-081, Case No. 2007-WIA-7 (ARB, Oct. 18, 2010), the
Board held that the Consortium was bound by terms of the grant, which limited
administrative expenditures to ten percent of the grant amount.
As a result, the
Administrative Law Judge properly affirmed the Grant Officer’
s disallowance of $91,939.00
in administrative costs as being in excess of the ten percent cap.
V. Discovery
A. Privileges
1. Deliberative process
[a] Requirements
In United Tribes of Kansas and Southeast Nebraska, Inc. v. U.S. Dep't. of
Labor, 2000-WIA-3 (ALJ Order, Nov. 17, 2000), aff'd. in relevant part, ARB Case No. 01026 (ARB, Aug. 6, 2001), the government sought to invoke the deliberative process
privilege "related to the disclosure of materials and information about a review panel which
had made recommendations to the Grant Officer concerning grant applications." The ALJ
held that, pursuant to 20 C.F.R. § 667.800(a), Complainant had a right to inquire as to the
constitution of the review panel. However, the government asserted that such information
was protected by the "deliberative process privilege."
In determining whether the deliberative process privilege would apply, the ALJ noted
that three threshold requirements must be met: (1) the head of the agency or authorized
high-ranking subordinate must personally review the subject material and invoke the
privilege; (2) the material covered by the privilege must be specifically described; and (3)
the reasons for asserting the privilege must be articulated. See Midwest Farmworker v.
U.S. Dept. of Labor, 1997-JTP-20 and 22 (ARB, July 23, 1998). Citing to FTC v. Warner
Communications, Inc., 742 F.2d 1156, 1161 (9th Cir. 1984) and First Eastern Cor. v.
Page 16 of 43
Mainwaring, 21 F.3d 465, 468 n. 5 (D.C. Cir. 1994), the ALJ stated that, even where the
privilege applies, "nondisclosure is not automatic." Rather, competing interests must be
weighed.
In the case before him, the ALJ concluded that the deliberative process privilege did
not apply "to the identity of the panel members, their qualifications, and information or
documents related to any potential conflicts of interest on their part." The ALJ reasoned
that the case did not present simple enforcement issues where the government's actions
would not normally be in question; it involved the subjective decision-making of panel
members. The ARB stated that deliberative process privilege "contemplates a particular
means of assertion":
First, there must be a formal claim of privilege lodged by the head of the
department that has control over the matter, after actual consideration by
that officer. Second, the responsible agency official must provide precise and
certain reasons for asserting the confidentiality over the information or the
documents. Third, the government information or documents sought to be
shielded must be identified and described.
Slip op. at 6, n. 5. The ARB then concluded that ETA's assertion of the privilege was
"clearly inadequate" because ETA merely stated that "‘
[a]ny documents which reflect the
identity, analysis, discussion or deliberations of the panel have been withheld, because they
are properly protected from disclosure under the deliberative process privilege.'" Slip op. at
7, n. 5.
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1999-JTP-16 (ALJ, Aug. 7, 2000), rev'd. on other grounds, ARB Case No. 04-168 (ARB, Feb.
28, 2005), aff'd., Case No. 05-11664 (11th Cir. Apr. 24, 2006), the government refused to
disclose certain documents asserted the deliberative process, informant's, and selfevaluative privileges. The ALJ held that three threshold requirements must be met before
the deliberative process privilege could properly be asserted:
[T]he head of the agency or a high ranking subordinate with proper
delegation must personally review the subject material and invoke the
privilege. In addition, the assertion of the privilege must specifically describe
the material covered, and finally, the reason for preserving the confidentiality
of the requested documents must be articulated. See, Coastal States Corp.
v. Dep't. of Energy, 617 F.2d 854 (D.C. Cir. 1980); Charlesgate Constr.
Co., Case No. 1996-BCA-2, 1997 DOL BCA LEXIS 2 at 7-8 (BCA, Mar. 7,
1997).
The ALJ concluded that the Acting Inspector General, in the case before him, complied with
these requirements. Citing to Mapother v. Dep't. of Justice, 3 F.3d 1533 (D.C. Cir. 1993)
and NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 151 (1975), the ALJ stated that, if
material is pre-decisional in nature and is generated as part of a continuing process of
agency decision-making, then it may be protected as part of the deliberative process
privilege. Upon review of the documents requested by Complainant, the ALJ held the
following:
FDLES demands production of Project Proposal 1997.
This four page
document anticipates an audit of FDLES' discretionary expenditures of the
JTPA Title III funds. It contains ‘
allegations received by OIG . . . subjective
impressions of the Florida program . . . the manner and means by which the
Page 17 of 43
OIG could conduct an audit, the project time and cost, and . . . possible scope
of findings . . ..' The Acting IG describes the report as ‘
very preliminary' and
typical of the types of report audit managers use to decide what audits to
perform. This document is predecisional and deliberative in nature, and, in
addition contains the identity or details which could lead to the identification
of informants who communicated with the IG.
FDLES then sought a seven page independent review of the audit report of the IG. The ALJ
stated that "[t]he IG's affidavit explains that the General Accounting Office and internal OIG
procedures require independent review of audits prior to issuance." Citing to U.S. v.
Weber Aircraft Corp, 465 U.S. 792, 802 (1984), the ALJ determined that the deliberative
process privilege is sustained where a third-party communication "is necessary to ensure
efficient governmental operations." In this vein, the ALJ concluded that the document was
not only pre-decisional, but it "ensures compliance by the OIG with proper audit standards,
and this process clearly promotes governmental efficiency in the public interest."
Finally, the ALJ held that the deliberative process privilege applied to six early
electronic drafts of the audit report. The Inspector General asserted that the drafts were
different from the final audit report. The ALJ noted that the designation of a document as a
"draft" did not end the inquiry; rather, in this case, "a comparison of the draft versions with
the final product would reveal the evolution of the thought processes and the policy
judgments of the decision-makers which is "precisely the sort of information the deliberative
process privilege is designed to shield." The ALJ then stated that FDLES had the burden to
overcome the deliberative process privilege by "demonstrating a compelling need for the
documents being withheld." As the FDLES asserted that the documents "may aid in its
defense of its expenditures," the ALJ held that it failed to provide a "specific enough" reason
to require disclosure of the privileged information.
In Midwest Farmworker v. U.S. Dep't. of Labor, 1997-JTP-20, 1997-JTP-21,
1997-JTP-22 (ARB, July 23, 1998), the ARB accepted the Respondent's request for
emergency review of the ALJ's denial of a motion for protective order and motion to compel
discovery. Respondent alleged that it opposed Complainant's requests to depose certain
individuals who were involved in the decision-making process of selecting grantees for JTPA
funds based on the deliberative process privilege and attorney-client privilege. The ARB
noted that, whether the deliberative process and attorney-client privileges apply to
particular witnesses or documents constitutes a mixed question of fact and law. In seeking
to challenge the disclosure of certain discovery based on the privileges, the ARB held that it
is insufficient for the Department to merely allege that disclosure will have a "‘
chilling
effect'" on agency personnel or their counsel. Citing to In re Subpoena Duces Tecum
Served on the Office of the Comptroller of the Currency, 1998 WL 336518 (D.C. Cir.
June 26, 1998) and Swindler & Berlin v. United States, 118 S.Ct. 2081 (June 25, 1998),
the ARB concluded that the Department failed to "identify the particulars of the grant
application decisional process that make the deliberative process or attorney client
privileges relevant and, if relevant, sufficient to justify non-disclosure."
[b] Improper assertion; adverse inference
In Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of
Labor, 2003-WIA-5 (ALJ, Jan. 20, 2004), the ALJ held that the Department improperly
attempted to invoke the "deliberative process privilege" to quash production of panel rating
sheets. The ALJ noted that counsel, "and no one at the agency itself, elected to assert the
deliberative process privilege." The ALJ concluded that counsel's refusal to provide the
panel rating sheets, in light of improper involvement in the selection process by the
Page 18 of 43
Program Office, "supports an inference that (the rating sheets) reflected unfavorably on the
Respondent."
2. Informant’
s and self-evaluative
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1999-JTP-16 (ALJ, Aug. 7, 2000), rev'd. on other grounds, ARB Case No. 04-168 (ARB, Feb.
28, 2005), aff'd., Case No. 05-11664 (11th Cir. Apr. 24, 2006), the government refused to
disclose certain documents asserted the deliberative process, informant's, and selfevaluative privileges. FDLES sought a seven page independent review of the IG's audit
report. The ALJ stated that "[t]he IG's affidavit explains that the General Accounting Office
and internal OIG procedures require independent review of audits prior to issuance." Citing
to U.S. v. Weber Aircraft Corp, 465 U.S. 792, 802 (1984), the ALJ determined that the
deliberative process privilege is sustained where a third-party communication "is necessary
to ensure efficient governmental operations." In this vein, the ALJ concluded that the
document was not only pre-decisional, but it "ensures compliance by the OIG with proper
audit standards, and this process clearly promotes governmental efficiency in the public
interest." Moreover, the ALJ concluded that the process by which the government seeks
independent review of its audit reports is inherently "self-evaluative" in nature. He
determined that, to the extent the self-evaluative privilege exists, it would apply to the
independent review. See, Bredice v. Doctors Hosp., Inc., 50 F.R.D. 249 (D.D.C. 1970);
Morgan v. Union Pacific Railroad Co., 182 F.R.D. 261 (N.D. Ill. 1998); Resnick v.
American Dental Ass'n., 95 F.R.D. 372 (N.D. Ill. 1982); O'Conner v. Chrysler Corp., 86
F.R.D. 211 (D. Mass. 1980); Sheppard v. Consolidated Edison Co., 89 F. Supp. 6
(E.D.N.Y. 1995); Reichhold Chemicals v. Textron, Inc., 157 F.R.D. 522 (N.D. Fla. 1994);
Dowling v. American Hawaii Cruises, Inc., 971 F.2d 423 (9th Cir. 1992). The ALJ
stated, however, that an in camera inspection of the requested documents would be
required because the documents were not dated and, therefore, it could not be determined
whether the independent review was "pre-decisional."
B. In camera inspection
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1999-JTP-16 (ALJ, Aug. 7, 2000), rev'd. on other grounds, ARB Case No. 04-168 (ARB, Feb.
28, 2005), aff'd., Case No. 05-11664 (11th Cir. Apr. 24, 2006), the ALJ noted that in camera
inspection of documents is permitted by 29 C.F.R.. §§ 18.15(a)(5) and 18.46 as well as by
the Freedom of Information Act at 5 U.S.C. § 552(a)(4)(b). However, he further stated that
an in camera inspection is within the discretion of the ALJ and is used under exceptional
circumstances. Where the affidavit asserting a privilege blocking disclosure of a document
is sufficiently detailed for the fact-finder to assess whether the privilege should be applied,
and in the absence of bad faith, an in camera inspection is unnecessary. The ALJ concluded
that an "in camera review is not invoked merely on the theory that ‘
it can't hurt.'" Applying
these standards, the ALJ determined that he would conduct an in camera review of undated
documents before him in order to determine whether they were pre-decisional such that the
deliberative process privilege asserted by the government would be invoked.
C. Default judgment
In Opportunities Industrialization Centers of America, Inc. v. U.S. Dep't. of
Labor, 1998-JTP-4 (ALJ, Mar. 29, 1999), the ALJ entered an order of default judgment
against Complainant for its failure to respond to the "Notification of Receipt of Request for
Page 19 of 43
Hearing and Prehearing Order." See 29 C.F.R. § 18.6(d)(2)(v). As a result, Complainant
was ordered to pay the disallowed costs.
D. Subpoena authority
Pursuant to § 667.810(c) of the regulations implementing the WIA, the ALJ has
authority to issue subpoenas:
Subpoenas necessary to secure the attendance of witnesses and the
production of documents or other items at hearings must be obtained from
the ALJ and must be issued under the authority contained in section 183(c) of
the Act, incorporating 15 U.S.C. § 49.
20 C.F.R. § 667.810(c).
VI. The selection process
A. Standard for experience review
In Tennessee Opportunity Program v. U.S. Dep't. of Labor, 1995-JTP-1 (ALJ,
June 18, 1996), Complainant argued that the Grant Officer could only consider experience
that applicants had attained in providing services to migrant and seasonal farm workers
under Title IV. The ALJ held, to the contrary, that consideration of other experience was
appropriate and consistent with the JTPA. The solicitation for the grant application stated
that the applicant should describe its experience in administering employment and training
programs in general, not only experience in administering programs related to migrant and
seasonal farmworkers.
In The Lower Muskogee Creek Tribe v. U.S. Dep't. of Labor and Florida
Governor's Council on Indian Affairs, Inc., 1997-JTP-11 (ALJ, Aug. 21, 1998), the ALJ
concluded that the Grant Officer did not abuse his discretion in awarding a grant to the
Council as opposed to Complainant on the following grounds: (1) the Council had staff in
place to execute the requirements of the grant award whereas the Tribe did not; and (2) the
Tribe did not demonstrate experience in employment and training programs.
B. Selection of grantee
1. Native Americans
[a] Properly included on federal list
In Cherokee Nation of Oklahoma v. U.S. Dep't. of Labor and Delaware Tribe
of Indians, 1997-JTP-12 (ARB, May 7, 1998), the ALJ issued an order staying JTPA
proceedings pending the outcome of a circuit court case regarding whether the Delaware
Page 20 of 43
Tribe of Indians was properly included on the list of federally recognized Indian tribes by the
Secretary of Interior. The ARB reversed the stay order and directed further proceedings to
address the "substantive legislation embedded in the 1992 Department of the Interior and
Related Agencies Appropriations Act, which appears to restrict any federal funding within
the Cherokee Nation jurisdictional service area solely to the Cherokee Nation." The ARB
reasoned that this issue must be resolved, notwithstanding the outcome of the district court
litigation as to the status of the Delaware Tribe of Indians. But see ‘
Nato Indian Nation v.
U.S. Dep't. of Labor, 1997-JTP-13 (ALJ, Oct. 7, 1998) (Native American tribe submitted
documentation to support that they had their own reservation with a motion for
reconsideration after its grant application was denied; the ALJ held that the Grant Officer
properly declined to consider the late evidence and ‘
NATO was not awarded the grant).
[b] Non-selection
i. Based on failure to repay CETA debt
In St. Croix Tribal Council v. U.S. Dep't. of Labor, 1985-JTP-9 (Sec'y., Nov. 14,
1986), the Secretary concluded that Complainant was prohibited from challenging an
established CETA debt three years after the final determination was made in an effort to
overturn its non-designation for a JTPA grant. Specifically, because the Tribal Council had
not repaid a debt owed under CETA, the Grant Officer did not select it to receive JTPA grant
monies. The Secretary held that the Grant Officer's decision was proper as "[t]he JTPA
regulations deny financially non-responsible grantees the opportunity to repeat their
unsatisfactory management through new grants." See 20 C.F.R. § 632.10(c).
ii. Based on lack of qualifications
In MaChis Lower Creek Indian Tribe of Alabama v. U.S. Dep't. of Labor, 2000WIA-2 (ALJ, Oct. 5, 2000), the ALJ held that it was not arbitrary, capricious, or an abuse of
discretion for the Grant Officer to not select Complainant for a grant award. The ALJ found
that the record supported the Grant Officer's finding that Complainant "did not present
evidence of any experience in operating an employment and training program, or ability to
operate such a program" as required in the solicitation.
iii. Failure to timely submit documentation
In ‘
Nato Indian Nation v. U.S. Dep't. of Labor, 1997-JTP-13 (ALJ, Oct. 7, 1998),
the ALJ found that Complainant submitted documentation to support that they had their
own reservation with a motion for reconsideration after their grant application was denied.
The ALJ held that the Grant Officer properly declined to consider the late evidence and
‘
NATO was not awarded the grant.
[c]
“Highest priority for designation”
The regulations implementing the WIA at 20 C.F.R. § 668.210(a) provide that Indian
tribes and Alaska native entities are to be accorded the "highest priority for designation" of
grant monies:
Federally-recognized Indian tribes, Alaska native entities, or consortia that
include a tribe or entity will have the highest priority for designation. To be
designated, the organizations must meet the requirements in this Subpart.
These organizations will be designated for those geographic areas over which
they have legal jurisdiction. (WIA section 166(c)(1)).
Page 21 of 43
20 C.F.R. § 668.210(a).
In United Tribes of Kansas and Southeast Nebraska, Inc. v. U.S. Dep't. of
Labor, 2000-WIA-3 (ALJ, Dec. 18, 2000), aff'd. in relevant part, ARB Case No. 01-026
(Aug. 6, 2001), the ALJ noted that, under 20 C.F.R. § 668.210(a), neither the grantee and
Complainant were entitled to the "highest priority of designation." As a result, the ALJ held
that the Grant Officer property exercised her discretion to utilize the competitive procedures
at 20 C.F.R. § 668.250(b) and require that the applicants undergo panel review. Upon
consideration of the record, the ALJ concluded that it supported the Grant Officer's decision
to select a new WIA grantee over a "well-performing incumbent." The ARB agreed that
neither applicant was entitled to "highest priority of designation." In a footnote, the ARB
stated the following:
Federally-recognized tribes or other enumerated organizations receive the
‘
highest priority' over any other organization if they possess the capability to
administer the program and to meet eligibility and regulatory requirements;
the priority extends only to areas over which the organizations exercise ‘
legal
jurisdiction,' such as their reservations. 20 C.F.R. § 668.210. See United
Urban Indian Council, Inc. v. U.S. Dep't. of Labor, ARB No. 01-025, ALJ No.
2000-WIA-4 (ARB, May 18, 2001).
Slip op. at 3, n. 2. The ARB also upheld the Grant Officer's selection of a new applicant over
an incumbent as "the Grant Officer explained that she considered the question of continuity
of service and fragmentation of service areas, but declined to re-designate an incumbent
simply to avoid service disruptions, especially given the fact that the Wyandottes'
application outscored the United Tribes' application by 23 points." Slip op. at 10.
2. Size of the population to qualify for “service delivery area”
In Cruz v. Sec'y. of Labor, Case No. 85-1375 (1st Cir. 1985) (unpub.), the
Secretary argued that Congress gave the Department of Labor discretion to determine
"factual population questions" such that the Department's denial of JTPA funding for three
small Puerto Rican towns, which it determined were too small to constitute a service
delivery area, was proper. The circuit court disagreed with the Secretary to state that it had
the authority to review agency decisions, including factual populations questions, for abuse
of discretion. However, the court found that the denial of funding was lawful. It concluded
that the Department's use of official Census Bureau/Planning Board numbers with regard to
the populations of the towns, over preliminary projections made by a Planning Board, was
reasonable and not arbitrary and capricious. See also Narragansett Indian Tribe v. U.S.
Dep't. of Labor, 2000-WIA-6 (ALJ, Dec. 20, 2000), aff'd. ARB Case No. 01-027 (July 20,
2001).
3. Incumbents
[a] “Scores-within-a-close-competitive-range”theory
In Maine v. Sec'y. of Labor, 770 F.2d 236 (1st Cir. 1985), the circuit court noted
that DOL applied a "scores-within-a-competitive-range-are-not-final" theory to award JTPA
funds to an incumbent provider whose scores were three points lower than the competitor.
The ALJ concluded that this amounted to "a bonus for incumbents and, under existing
procedures, such a bonus was improper." The DOL maintained that it had the authority to
Page 22 of 43
consider incumbency or "being in place" as a factor in selecting a recipient for funds under
the JTPA. The circuit court declined to rule on the issue for two reasons. First, it noted that
the DOL had recently changed its grant procedures "so that applicants are now on notice
that the ‘
high scorer' may not always receive the grant." Second, the court found that the
grant period at issue had expired such that case before it was rendered moot.
[b] Non-selection due to fraud
In Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of
Labor, 2003-WIA-5 (ALJ, Jan. 20, 2004), NOWCAP applied for a grant as an incumbent in
the service area for more than 26 years "without current programmatic or audit problems."
Respondent did not provide the individual panel rating sheets in the administrative file and
refused to produce them in discovery based on the deliberative process privilege. The ALJ
ordered that the panel sheets be produced and noted the following:
Ms. Boyd testified that [name omitted], counsel for Respondent asked her to
search for the original panel score sheets, and she subsequently provided him
with copies of them. She then received a phone message from [name
omitted], also counsel for Respondent, asking her to ‘
redact' the rating
sheets. She could not recall the specifics of this message, but understood
only that she was supposed to make the sheets ‘
clear.' On one set of panel
rating sheets, the original numbers had been scratched out, and different
numbers written down, resulting in the total score being changed from 82 to
59. In order to make this sheet ‘
neat,' Ms. Boyd cut out a section of a blank
panel rating sheet, placed it over the scratched out rating sheet, and used a
copy machine to create a new blank copy. She then wrote the numbers on
this copy, and provided it to counsel. She testified that she did not change
any of the numbers.
The ALJ concluded that this conduct was clearly improper and lent further support to the
impropriety of the Department's non-selection of the incumbent.
[c] Improper use of a “cut-off”score
In Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of
Labor, 2003-WIA-5 (ALJ, Jan. 20, 2004), the ALJ found that the Department used a "cut-off
score of 80" in determining not to award the grant to Complainant. The ALJ concluded that
this was illegal and stated the following:
This in itself is sufficient grounds to overturn Ms. Saunders' determination.
As the Complainant correctly points out, there is nothing in the SGA or in the
WIA that establishes a panel score of 80, or any other number, as the basis
for disqualification of an applicant.
The ALJ further determined that the use of a cut-off score "improperly convert[ed] the
process into a nationwide competition."
[d] Selection of incumbent based on prior performance
In Lifelines Foundations, Inc. v. U.S. Dep't. of Labor, 2004-WIA-2 (ALJ, Mar.
23, 2005), Complainant and incumbent received low panel scores and, although the
Page 23 of 43
incumbent received the lowest score, it was determined that the Grant Officer properly
awarded the grant to the incumbent. Both applicants received scores well below the cut-off
of 70 and, as permitted by the SGA, the Grant Officer had the option of not selecting either
applicant. However, the Grant Officer concluded that non-selection would result in an area
not being serviced and, therefore, he permissibly sought a "responsibility review of the
applicants" by the Division of Indian and Native American Programs (DINAP). Based on
DINAP's input, the Grant Officer awarded the grant to the incumbent, even though
Complainant received a higher panel score. In affirming the Grant Officer's decision, the
ALJ reasoned:
[O]nce (the panel scoring) process has concluded with no applicant scoring
higher than the cutoff, the application phase is essentially concluded. At that
point, the Grant Officer's focus changes to a search for an established service
provider with demonstrated capabilities to administer the grant.
The ALJ upheld the Grant Officer's selection of the incumbent, which had a proven track
record in administering WIA programs according to DINAP. The ALJ concluded that such a
selection was "reasonable, not arbitrary or capricious, an abuse of discretion, or not in
accordance with the law."
In Commonwealth of Puerto Rico v. U.S. Dep’
t. of Labor and Rural
Opportunities, ARB Case No. 09-011 and 09-013, Case No. 2008-WIA-4 (ARB, Apr. 10,
2009), the Board reversed the ALJ’
s decision to vacate the Grant Officer’
s decision to award
Rural Opportunities, Incorporated (ROI) the grant at issue. The Grant Officer’
s stated
reasons for selecting ROI were: (1) “
I have found that it is in the best interests of the
participants being served to have the continuity of service from the current provider”
; (2)
he had verified that the current provider (ROI) was “
performing successfully”
; (3) there was
“
no other organization that is clearly superior in serving the needs of the participants”
; and
(4) he could not “
justify a change in service provider if that change would not significantly
benefit the participants”
). The ALJ concluded that these constituted invalid bases for
awarding the grant to ROI.
The ARB held, to the contrary, and agreed with the Department of Labor and ROI
that “
the ALJ, without citing any legal authority, invented a distinction between performance
under a valid versus an invalid grant award.” Consequently, the ARB concluded that the
Grant Officer properly considered the foregoing factors in awarding the grant to the
incumbent, ROI. Specifically, the ARB concluded that “
the grant officer did not abuse his
discretion in awarding the grant to ROI on the basis of its demonstrated successful
performance.”
Moreover, the ALJ determined that information received by the Grant Officer from
the Program Office was “
of questionable value and could not reasonable form the basis for
(the) decision.” The ARB disagreed and concluded that the ALJ had impermissibly
substituted his opinion for the Grant Officer’
s opinion. The Board concluded that “
neither an
ALJ nor the Secretary may reverse the (Grant Officer’
s) determination merely because he
might weigh the same information and call the balance differently.”
4. Improper involvement of the “Program Office”
In Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of
Labor, 2003-WIA-5 (ALJ, Jan. 20, 2004), the ALJ noted that applications for a grant are
reviewed by a panel of technical experts, who assign scores based on certain criteria. The
Grant Officer reviews the panel ratings and applications and requests a "pre-award
Page 24 of 43
clearance on the applicants, referred to as a ‘
responsibility review,' to ensure that there are
no problems with fraud, debt collection problems, or disallowed costs on audit." The ALJ
found, however, that the Grant Officer improperly relied on information from the
Department of Labor’
s Program Office, which Respondent refused to divulge based on
deliberative process privilege. In addition to finding that the privilege was not properly
asserted, the ALJ cited to Commonwealth of Puerto Rico v. U.S. Dep't. of Labor, 1997JTP-24 (ALJ, Dec. 10, 1997), wherein a government official testified that the Program Office
should not be involved in decisions of the Grant Officer "to insure that the Grant Officer's
decision is the Grant Officer's decision, that the Grant Officer may not be bullied by or
intimidated by or have undue pressure by people outside of the procurement process. It is
to keep it clean." The ALJ noted that NOWCAP was not selected for a grant based, in part,
on improper outside input from the Department's Program Office.
5. Misapplication of solicitation of grant applications (SGA) criteria
In Commonwealth of Puerto Rico v. U.S. Dep't. of Labor, 2007-WIA-10 (ALJ,
Nov. 13, 2007), appeal dismissed, ARB No. 08-019 (ARB, Feb. 6, 2008), the ALJ vacated
the selection of a grant applicant ROI on grounds that a competing applicant's
"disqualification was not based on a rational and legitimate record." Specifically, the ALJ
found that the selection panel misapplied the criteria contained in the Solicitation of Grant
Applications to disqualify the competing applicant and the Grant Officer's decision was based
on the panel's actions. On appeal to the ARB, ROI withdrew its challenge to the ALJ’
s
decision and the appeal was dismissed.
VII. Allowances and disallowances by the grant officer
A. Under the CETA; administrative costs
In U.S. Dep't. of Labor v. City of Detroit, Michigan, 1983-CTA-084, 158, 193,
201, 1984-CTA-080,174, 1985-CTA-070,110,113,120 (Sec'y., July 31, 1995), the Secretary
addressed the allowance of administrative costs under the CETA. The Secretary's findings
were as follows:
1. In this case, the City charged administrative costs from every city agency
employing CETA employees to the CETA grant. The City incorrectly believed
that, because CETA employees worked in each of the agencies, the indirect
cost of each agency was recoverable. However, the Secretary informed the
City that only an agency listed as grantee may charge administrative costs to
CETA.
Indirect CETA administrative costs must be "necessary and
reasonable" for proper and efficient administration of the program and are
limited to those necessary to effectively operate the program.
2. CETA does not allow for costs incurred by agencies other than the grantee.
It excludes costs of "supervision of a general natural such as that provided by
the head of a department and his staff assistant not directly involved in
operations." Federal Management Circular 74-4, Attach. A § c(1).
3. Under CETA, a grantee may claim only the central service costs which it
has included as part of its central service cost allocation plan.
Page 25 of 43
4. The City was obligated to account for and keep records to document the
proper allocation of costs charged to the CETA grant.
5.
Overhead costs could not be charged as administrative costs under CETA.
B. Costs of employment generating activities allowed
Under the implementing regulations for the WIA at § 667.267, the following is stated
with regard to allowable costs:
(a) Under WIA section 181(e), WIA title I funds may not be spent on
employment generating activities, economic development, and other similar
activities, unless they are directly related to training for eligible individuals.
For purposes of this section, employer outreach and job development
activities are directly related to training for eligible individuals.
20 C.F.R. § 667.267(a).
Under the JTPA program, in Texas Dep't. of Commerce v. U.S. Dep't. of Labor,
137 F.3d 329 (5th Cir. 1998) (1994-JTP-20), the circuit court held that the ALJ correctly
determined that the grantee's activities at issue constituted "employment generating
activities," as opposed to "economic development
activities," where the expenditure of
funds benefited JTPA participants by providing placement in jobs at specific businesses
whose development was aided by the funds. Economic development activities are broadbased efforts that are not chargeable to JTPA grant funds. On the other hand, employment
generating activities are allowed pursuant to section 204(19) of the Act, 29 U.S.C. §
1604(19), if the grantee demonstrates that the activity directly resulted in the placement of
JTPA eligible individuals and participants into jobs created by the activities. 20 C.F.R. §
629.37(a).
The circuit court held, however, that Texas Commerce was not required to trace
expenditures to a specific, identified individual in order to allow costs associated with
employment generating activities.
In this vein, the court noted that "DOL auditors
conceded that the challenged employment generating activities expenditures directly
benefitted JTPA-eligible individuals." Consequently, it determined that the "DOL relied upon
faulty legal interpretations to justify the denials" and it did not sustain its burden of
establishing a prima facie case that JTPA funds were spent unlawfully.
In Commissioner, Employment Security of the State of Washington v. U.S.
Dep't. of Labor, 1990-JTP-29, 1991-JTP-11, 1992-JTP-34 (ALJ, Jan. 1, 1995), the ALJ
examined whether Section 123 of the JPTA permitted expenditure of eight percent of funds
on employment generating activities, or whether such expenditures were confined to
payments for services specifically directed to enrolled participants under the Act. The JTPA
defines a participant as one who is enrolled and receiving services under the grant program.
The ALJ held that the eight percent of funds expended under Section 123 on "related
services" under Title II should be limited to services benefitting participants. 29 U.S.C. §
1533(c)(1). Further, he stated that employment generating activities should be considered
as "related services" if the expenditure of eight percent funds benefits participants.
Incubator and loan packaging projects that create financing for businesses are acceptable
employment generating activities when these projects provide a benefit, i.e., increased job
opportunity for its participants.
Page 26 of 43
C. Costs of economic development activities not allowed
Under the implementing regulations for the WIA at § 667.267, the following is stated
with regard to allowable costs:
(a) Under WIA section 181(e), WIA title I funds may not be spent on
employment generating activities, economic development, and other similar
activities, unless they are directly related to training for eligible individuals.
For purposes of this section, employer outreach and job development
activities are directly related to training for eligible individuals.
20 C.F.R. § 667.267(a).
Under the JTPA, economic development activities were considered to be broad-based
efforts which were not chargeable to grant funds. In State of Texas Dep't. of Commerce
v. U.S. Dep't. of Labor, 1994-JTP-20, slip op. at 5-6 (ARB, Dec. 11, 1996), the ARB held
that funds spent on the identification of products and industries, rather than on the creation
of jobs for JTPA participants, should have been disallowed as economic development
activities. It further held that the ALJ erred in relying on the development of a truck driving
program, resulting from the sub-grantee's research contract, to conclude that the contract
resulted in the creation of jobs for JTPA individuals. The ARB noted that providing training
with the intent of preparing participants to perform jobs is distinguishable from the actual
creation of jobs. Thus, the funds at issue were disallowed.
D. Single unit charge contractors
1. Costs allowed
Citing Texas Dep't. of Commerce and Forth Worth Consortium v. U.S. Dep't
of Labor, 1990-JTP-5 (Sec'y., Nov. 1. 1993), the ARB held that, when single unit charge
agreements do not comply with the specific requirements of 20 C.F.R. § 629.38(e)(2), they
fail to qualify for the regulatory exception to allocate costs by category and are subject to
the statutory administrative cost limitation. Florida Dep't. of Labor and Employment
Security v. U.S. Dep't. of Labor, 1993-JTP-2, slip op. at 5 (ARB, Nov. 27, 1996). A
single unit charge contractor must provide training and place participants who completed
the training in unsubsidized employment in the occupation trained for to qualify for the
regulatory exception. Slip op. at 4.
The ARB reversed the ALJ's disallowance of costs
claimed by FDLES and its subcontractors under the contracts funded by JTPA. Under the
facts presented, FDLES had entered into a series of single unit charge contracts with a
number of Service Delivery Areas (SDAs), which solicited training and employment
opportunities for JTPA participants.
They provided pre-employment assessment and
employment placement services, but did not provide specific occupational training to
participants. However, the ARB found that their activities complied with the regulatory
requirements of § 629.38(e)(2) such that the costs were allowed. Slip op. at 4, 5.
2. Profits disallowed; no arms-length negotiation
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1992 -JTP-17 (Sec'y., Dec. 5, 1994), aff'd. on recon., (Sec'y., Jan. 20, 1995), aff'd., 83 F.3d
435 (11th Cir. 1996)(table), the issue presented was whether the State of Florida, through
its employment security department, operated "‘
a vertical monopoly over the federal JTPA
funds with respect to the contracts in question, thereby creating an obvious conflict of
Page 27 of 43
interest.'" The Secretary noted that, although the state produced its contracting procedures
for the record, "this production does not rebut a presumption of a potential conflict of
interest with the concomitant less than arm's length contract negotiations, given the pattern
of significant profits earned by a unit of a State agency contracting with another unit of the
same State agency." The Secretary found that the "fixed unit price" mode of contracting
was permissible during the years in question and there was no question that "an
entrepreneurial service provider would be allowed to made a profit if it was able to satisfy
the terms of the contract for less cost than the negotiated amount." However, the
Secretary also held that such a mode of contracting requires arm's-length negotiation and
that "[w]here . . . the contracting parties are organizationally linked, there has to be of
necessity, a punctilious showing that the contracts were rigorously negotiated at arm's
length." Slip op. at 5. The Secretary determined that such a showing was not made by the
state in this case and, because the state failed to comply with the provisions of 20 C.F.R. §
629.38(e)(2), the Grant Officer properly disallowed $961,003 in profits.
E. Over-expenditure of contract amount; attempt to shift costs to subsequent
contract year not permitted
Under the facts of Central Valley Opportunity Center v. U.S. Dep't. of Labor,
1995-JTP-9 (ARB, June 22, 1998), Complainant contractor was awarded grants under
Section 402 of the JTPA to provide training and employment services to migrant and
seasonal farm workers in 1991 and 1992. Upon auditing Complainant's records, the Grant
Officer disallowed $33,008 in over-expenditures, where Complainant billed the overexpenditures from the 1991 grant award against the 1992 grant award without first
obtaining permission from the Grant Officer. The ALJ concluded that the costs should be
allowed since Complainant was not required to re-compete for the 1992 grant award.
The ARB held to the contrary and stated that "[t]he relevant cost principle does not
allow costs allocable to one award period to be shifted to another award period, absent the
approval of the grant agency." The ARB noted that the Grant Officer's Notice of Obligation
did not contain language permitting the carry-over of funds from one year to the next and,
even though he had the authority to give a single grant award for two program years under
§ 633.205(a) of the regulations, he elected not to do so in this case. In dicta, the ARB
noted stated that "in the practical world of program administration it is possible that such
carry-over expenditures might be approved, had the request been timely." It further stated
that the record demonstrated that the total expenditure of funds by Complainant did not
exceed the total amount of the grant awards for both years and that the funds were spent
for proper purposes. In this vein, the ARB maintained the following:
Although such negligent behavior by a grantee (in failing to timely request
approval for carry-over of expenditures) cannot be condoned, under the facts
before us we see little advantage to the Department or to the public in
imposing on a non-profit agency the substantial sanction advanced by the
Grant Officer in this instance, if such shifting of costs ordinarily would have
been authorized by the Grant Officer in response to a timely request by a
grantee.
Slip op. at 6. Although the ARB ordered that Complainant repay the Department of Labor
the amount of $33,008, it directed the Grant Officer to review, de novo, Complainant's
request to shift the 1991 over-expenditure to the 1992 grant award and "[t]o the extent
Page 28 of 43
any such shifting of costs might have been approvable if timely requested, the Grant Officer
is directed to reduce the monies assessed against (Complainant) accordingly."
In Commonwealth of Pennsylvania, Dep't. of Labor and Industry v. U.S.
Dep't. of Labor, 1992-JTP-12 (Sec'y., Mar. 5, 1995), errata (Apr. 5, 1995), the Secretary
affirmed the ALJ's decision ordering Pennsylvania to repay over $500,000 from non-Federal
funds based his findings that the Northwest Pennsylvania Training Partnership Consortium,
Inc. (NPTPC) misspent 1985 grant funds by its inclusion of costs incurred in the 1983-1984
transition period; that NPTPC willfully disregarded JPTA regulations by the unilateral
modification of certain subcontracts to get around the impermissibility of shifting costs from
one grant period to another; and that the state failed to demonstrate that it substantially
complied with the requirements set forth in Section 164(e)(2)(A)-(D) of the JPTA, 29 U.S.C.
§ 1574(e)(3).
F. Profits disallowed; cannot fund “duplicate”services
1. No arm’
s length negotiation
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
1992 -JTP-17 (Sec'y., Dec. 5, 1994), the issue presented was whether the State of Florida,
through its employment security department, operated "‘
a vertical monopoly over the
federal JTPA funds with respect to the contracts in question, thereby creating an obvious
conflict of interest.'" The Secretary noted that, although the state produced its contracting
procedures for the record, "this production does not rebut a presumption of a potential
conflict of interest with the concomitant less than arm's length contract negotiations, given
the pattern of significant profits earned by a unit of a State agency contracting with another
unit of the same State agency."
The Secretary found that the "fixed unit price" mode of contracting was permissible
during the years in question and there was no question that "an entrepreneurial service
provider would be allowed to made a profit if it was able to satisfy the terms of the contract
for less cost than the negotiated amount." However, the Secretary also held that such a
mode of contracting requires arm's-length negotiation and that "[w]here . . . the
contracting parties are organizationally linked, there has to be of necessity, a punctilious
showing that the contracts were rigorously negotiated at arm's length." Slip op. at 5. The
Secretary determined that such a showing was not made by the state in this case and,
because the state failed to comply with the provisions of 20 C.F.R. § 629.38(e)(2), the
Grant Officer properly disallowed $961,003 in profits.
2. Not necessary and reasonable
In Mississippi Dep't. of Economic & Community Development v. U.S. Dep't. of
Labor, 90 F.3d 110 (5th Cir. 1996) (1990-JTP-32), the Fifth Circuit found that substantial
evidence supported the ALJ's finding that profits earned by a state subdivision under a
negotiated contract, whereby that subdivision received funding to provide job training and
referral services for qualified participants, were not "necessary and reasonable for proper
and efficient administration of the program" pursuant to 20 C.F.R. § 629.37(a). Section
629.37(a) implements 29 U.S.C. § 1574(d), which requires repayment to the United States
of amounts not expended in accordance with the JTPA. Section 629.37(a) only allows costs
that are "necessary and reasonable for proper and efficient administration of the program . .
.." The ALJ's finding that the profits earned were not "necessary and reasonable for proper
administration of the program" was based primarily on undisputed evidence that fixed
contract amount of $2,000 per participant generated substantially more revenue for the
Page 29 of 43
state subdivision than it needed to perform its job training services under the JTPA. It was
proper, therefore, for the ALJ to conclude that profits in the amount of $976,600.35 be paid
to the federal government, along with interest.
The court was not persuaded by the grantee's argument that the Department had no
policies or interpretations regarding fixed unit price contracts at the time it entered into
such a contract. The court found, to the contrary, that the JTPA "plainly required recipients
to repay amounts found not have been spent in accordance with the Act . . .." The court
also affirmed the ALJ's disallowance of the use of the profits by the subdivision on a "Project
Upgrade" in later years (the purpose of which was to allow employers to upgrade individuals
to higher skill levels and make room for other participants) because the Respondent did not
demonstrate that the upgraded individuals were "economically disadvantaged." See 29
U.S.C. § 1603.
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
ARB Case No. 04-168, 1999-JTP-16 (ARB, Feb. 28, 2005), aff'd., Case No. 05-11664 (11th
Cir. Apr. 24, 2006), the Board concluded that Complainant misspent JTPA funds where it
developed an "incentive award" program using general JTPA funds as additional revenue for
area community colleges and school districts.
The Board disagreed with the ALJ's
conclusion that the "incentive" program "provided Florida's community colleges and school
district programs the incentive to take on the added costs, which state appropriations did
not cover, to serve more JTPA Title III eligible students." To the contrary, the Board noted
that one of Complainant's witnesses "conceded that JTPA Title III students and other
(incentive award) eligible disadvantaged students were not excluded from the total number
of FTE students considered when determining the annual (state) appropriation." Slip op. at
15 (emphasis added). Moreover, the Board found that Complainant's officials conceded that
"the schools could use the JTPA Title III funds for any vocational education purpose,
whether it served a JTPA Title III eligible student or any other student enrolled in vocational
education, including a general student or any other (incentive award) eligible student."
Consequently, the Board held that, because incentive awards using JTPA funds were
disbursed to cover costs that were the responsibility of the State and, not for a specific JTPA
purpose, the funds were misspent in violation of JTPA section 164(a)(2)(c). Complainant
was liable for repayment of $11,419,499 in misspent funds.
G. Use of Dictionary of Occupational Titles
In Commonwealth of Puerto Rico v. U.S. Dep't. of Labor, 2000-JTP-6 (ALJ, Dec.
21, 2001), the ALJ noted that the Grant Officer used the Dictionary of Occupational Titles for
the first time to disallow costs charged by Complainant for on-the-job-training.
In
particular, the Grant Officer determined that, based on the DOT, the training of youths and
unskilled, economically disadvantaged adults in certain farming occupations should take no
longer than one month, i.e. 30 days. Therefore, the Grant Officer maintained that
Complainant improperly charged for training which lasted in excess of one month and these
costs were disallowed. Complainant argued that the training received was more complex,
thus requiring more time. The ALJ noted that, when the JTPA was originally enacted in
1982, there was no time limit for on-the-job-training. By 1993, the Act was amended to
provide a time limit of six months for such training pursuant to § 141(g)(2). The ALJ
rejected the Grant Officer's use of 20 C.F.R. § 653.103, which references the Dictionary of
Occupational Titles and it was "promulgated under the Wagner-Peyser Act, not the JTPA,
and has absolutely nothing to do with duration of training or (on-the-job-training)
contracts." The ALJ found that "[n]one of the (on-the-job-training) for which costs have
been disallowed in this case exceeded six months" set forth in the statute. As a result, the
Grant Officer's determination to disallow $732,232 in on-the-job-training costs was
Page 30 of 43
reversed. The ALJ cautioned against using the DOT in determining the reasonableness of
costs charged. He noted the following: (1) the DOT is not intended to be used to set
mandatory standards; (2) the DOT may not contain occupational codes for the jobs in which
the participants were receiving training; and (3) the specific vocational preparation listings
cannot be applied to JTPA participants.
H.
Subrecipient and subgrantee
In Westchester-Putnam Counties Consortium for Worker Education and
Training, Inc., ARB Case No. 10-081, Case No. 2007-WIA-7 (ARB, Oct. 18, 2010), the
Board addressed the issue of “
subrecipients”and “
subgrantees”
:
[T]he Consortium argues that because the grant indicates that the
Consortium had a contractual relationship with the NADAP to implement the
programs provided for under the grant, the NADAP is a subrecipient of the
grant as defined at 20 C.F.R. § 660.300. Thus, the Consortium asserts that
the NADAP, as a subrecipient, is not subject to the grant’
s 10% administrative
cost limitation the grant imposed in accordance with 20 C.F.R. § 667.210(b),
as the NADAP performed both administrative functions and programmatic
functions under the grant and not just solely administrative functions. In
such circumstances, all of the subrecipient’
s costs are considered program
costs and not administrative costs under 20 C.F.R. § 667.220(c)(1) and (4).
The Board disagreed with this argument and stated:
Because the Consortium had a contract with the NADAP to implement the
programs provided for under the grant, the NADAP could be considered ‘
an
entity to which a subgrant is awarded.’ However, to be considered a
subrecipient as defined under section 660.300, the NADAP also must be
accountable to the Consortium, the recipient of the grant. The Grant Officer
agreed with the OIG audit’
s finding that the NADAP cannot be considered a
subrecipient because the Consortium did not provide sufficient documentation
that it monitored the NADAP’
s grant activities as required under the WIA’
s
implementing regulations or held the NADAP ‘
accountable’as also required
under section 660.300.
Specifically, the Grant Officer noted that the
Consortium did not provide sufficient documentation to show how the grant
funds were expended, such as documentation of invoices that the NADAP
submitted to the Consortium for payment, minutes from joint ConsortiumNADAP meetings, or documentation showing how the Consortium monitored
the NADAP.
Instead, the Grant Officer and the ALJ agreed with the OIG audit’
s finding that
the NADAP acted and performed administrative functions as if it were the
prime grantee or recipient. Thus, they concluded that the NADAP was
functionally indistinguishable from the Consortium and, therefore, was not
subrecipient as defined under the section 660.300 that was accountable to
the Consortium, the recipient of the grant. Consequently, the Consortium’
s
administrative costs were improperly claimed as the NADAP’
s program costs.
Slip op. at 11-13.
Page 31 of 43
VIII. Retaliation
In Felix Lugo v. Office of the Governor of Puerto Rico, 1999-JTP-5 (ALJ, Dec.
11, 2001), the ALJ found that Complainants engaged in protected activity, which was a
motivating factor in their discharge by Respondent. In particular, the ALJ noted that
Complainants were "engaged in conduct protected by the First Amendment, in that they
were actively and publicly involved in the defeated PDP political party." It was noted that
the NPP political party controlled the Office of the Governor. The ALJ found that "[p]ublic
identification with the defeated political party makes employees ‘
especially conspicuous
targets' for discrimination." Citing to Acevado-Diaz v. Aponte, 1 F.3d 62, 68 (1st Cir.
1993), the ALJ concluded that political activities, including planning campaign appearances,
organization or participating in political rallies, serving as party coordinators for women and
youth committees, and serving as polling unit officers or electoral college representatives,
constituted "sufficient proof of protected conduct." Slip op. at 9. The ALJ further concluded
that the protected conduct was a motivating factor in the termination of Complainants'
employment. The ALJ found that many of the complainants were discharged after only a
cursory review of their personnel record, but some of them had performed their jobs for five
years. Thus, their length of service and the manner of their discharges supported a finding
of retaliation. The ALJ further noted that the proximity in time between the change in
political parties and Complainants' dismissals supported a finding that political affiliation
discrimination occurred. Moreover, the ALJ noted that NPP affiliates were hired to fill the
Complainants' positions. As a result, the ALJ concluded that Complainants were subjected
to illegal retaliation and their discharges constituted adverse employment actions. The ALJ
then found that Respondent's defense that it was undergoing a reduction in force and was
reorganizing was pretextual. The ALJ stated the following:
The timing and circumstances of the Complainants' dismissals, along with
their public identification with the PDP party and the ‘
highly charged' political
atmosphere, raise an inference that the Complainants' political affiliation was
a substantial or motivating factor for their dismissals.
...
The Respondent asserted that the Complainants were dismissed due to a
reduction in force and reorganization which was implemented to increase
efficiency in the office. However, the weight of the evidence refutes this
assertion and show this to be nothing more than a pretext for illegal
discriminatory animus. [D]uring the time of the downsizing, the Respondent
actively attempted to hire new employees to fill the Complainants' positions.
Moreover, the timing and manner in which the dismissals were implemented
show that the alleged reduction in force is a ‘
sham.' The evidence shows that
the Complainants were summarily dismissed soon after the election. The
quality of Complainants work was not taken into consideration. Moreover, the
Complainants were not recalled to fill vacancies which became available after
their discharge. Furthermore, at no time were the Complainants told that
they were being discharged because of a reduction in force. In fact, shortly
before the terminations, the Complainants had been assured of their job
security by the new administration.
Page 32 of 43
Slip op. at 12-13. The ALJ concluded that Complainants were entitled to back pay, interest,
and reinstatement as permitted at 29 C.F.R. § 34.44(b)(2). The ALJ further ordered that
the $1,278,038.67 in back pay and interest could not be paid out of any federal funding for
JTPA or WIA grants.
IX. Relief
A. Statute of limitations at 28 U.S.C. § 2462 to recover JTPA overpayment
In Mississippi Dep't. of Economic & Community Development v. U.S. Dep't. of
Labor, 90 F.3d 110 (5th Cir. 1996) (1990-JTP-32), the Fifth Circuit rejected the
Respondent's argument that 28 U.S.C. § 2462 barred the Department's action to recover a
JTPA overpayment. The overpayment at issue occurred in 1984 and the Grant Officer's
final determination was issued on July 25, 1990. Section 2462 provides that, "[e]xcept as
otherwise provided by Act of Congress, an action, suit or proceedings for the enforcement of
any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless
commenced within five years from the date when the claim first accrued." The court,
assumed arguendo that the Department's action was commenced more than five years after
it accrued and noted that it previously held that "Congress may create a right of action
without restricting the time within which the right may be exercised" and that "courts have
long held that the United States is not bound by any limitations period unless congress
explicitly directs otherwise." Id. (quoting United States v. City of Palm Beach Gardens,
635 F.2d 337 (5th Cir.), cert. denied, 454 U.S. 1081 (1981)). Finally, the court noted that
the repayment action involved in the instant case was not a claim for a civil fine, penalty, of
forfeiture under section 2462; rather it was in the nature of a suit to collect a debt. See
also United States v. Native American Educational Services, Inc., 2007 WL 917384
(N.D. Ill. 2007) (the Department's April 5, 2004 lawsuit to collect a debt of misspent funds
stemmed from the Grant Officer's April 1, 1998 Final Determination and was not timebarred).
B. Repayment of misspent funds
1. Statute in effect at time of grant award controlling in recovery of
misspent funds
In Florida Dep't. of Labor and Employment Security v. U.S. Dep't. of Labor,
ARB Case No. 04-168, 1999-JTP-16 (ARB, Feb. 28, 2005), aff'd., Case No. 05-11664 (11th
Cir. Apr. 24, 2006) the Board noted that, although WIA superceded the JTPA, under 1
U.S.C. § 109 the "JTPA is treated as remaining in effect for purposes of the Grant Officer's
action to recover misspent JTPA funds."
2. No willful disregard or gross negligence
Page 33 of 43
[a] Offset against federal funds
Section 667.740(a)(2) of the regulations implementing the WIA provides that the
"Grant Officer may approve an offset request . . . if the mis-expenditures were not due to
willful disregard of the requirements of the Act and regulations, gross negligence, failure to
observe accepted standards of administration or a pattern of mis-expenditure."
Similarly, under the JTPA, in Job Service of North Dakota v. U.S. Dep't. of
Labor, 1991-JTP-5 (Sec'y., June 30, 1992), the ALJ affirmed the Grant Officer's denial of a
request for a waiver of liability for $877.71 in disallowed costs submitted by North Dakota.
However, instead of ordering repayment from non-Federal funds, the ALJ ordered that the
funds be offset against other federal funds to which North Dakota would be entitled under
the JTPA. Citing to 29 U.S.C. § 1574(d), Secretary may require an offset of the amount
"against any other amount to which the recipient is or may be entitled under this chapter"
unless the mis-expenditure was due to a "willful disregard" of JTPA's requirements in which
case repayment must be made through use of non-Federal funds. Under the facts of this
case, the Secretary turned to 29 U.S.C. § 1574(e)(2) for guidance. Although this section
addresses waiver of recoupment of misspent funds, "the standards offer a useful guide in
formulating appropriate sanctions for recovering mis-expended JTPA funds" and these
standards include prompt corrective action and diligent monitoring activities. The Secretary
then found that the Grant Officer did not challenge the ALJ's characterization of North
Dakota's mis-expenditure of funds as "‘
good faith errors'" and that the errors were
discovered through North Dakota's own internal monitoring procedures. In light of the
small amount of funds at issue as well as the facts of the case, the Secretary affirmed the
ALJ's order that the funds be offset against other federal funds to which North Dakota may
be entitled under the JTPA.
On the other hand, in Commonwealth of Massachusetts v. U.S. Dep't. of Labor,
ARB Case No. 04-170, 1998-JTP-6 (ARB, Mar. 11, 2005) aff'd. sub nom. Edmonds v.
Chao, 449 F.3d 51 (1st Cir. 2006), the Board cited to 29 U.S.C. § 1574(e)(1) and ordered
repayment of $8,925,381 in disallowed costs from non-federal funds.
[b] Offset against non-JTPA or non-WIA funds
In Illinois Dep't. of Commerce and Community Affairs v. U.S. Dep't. of Labor,
1999-JTP-15 (ALJ, Apr. 21, 2000), the ALJ held that it must be determined whether the four
"gateway" criteria at 29 U.S.C. § 1574(e)(2) are met to support imposition of the sanction
of repayment. First, the ALJ considered whether the agency "adhered to an appropriate
system for the award and monitoring of contracts with sub-grantees which contain(ed)
acceptable standards for ensuring accountability." In this vein, he concluded that, although
the agency's staff members conducted "timely and frequent monitoring visits," the agency
did not have an appropriate system for the award of contracts with sub-grantees in place.
The ALJ found that the sub-grantee in this case had a management system which "reflected
conflicts of interest" in that the Director of the sub-grantee employed his daughter and her
husband. There were other conflicts of interest noted by the ALJ. He noted that "Frierson
was both the Union President and (the sub-grantee's) Director while the Union was (the
sub-grantee's) creditor." The ALJ found that this sub-grantee was a "high risk."
With regard to the second element, the ALJ found that the agency had demonstrated
that it entered into a written contract with the sub-grantee and the contract contained "clear
goals and obligations on unambiguous terms." However, the ALJ found that the agency did
not comply with the third element at § 1574(e)(2), i.e. the agency "did not adequately
Page 34 of 43
demonstrate that it had acted with due diligence to monitor the implementation of the subgrantee contract, including the carrying out of appropriate monitoring activities at
reasonable intervals, because (the agency) did not show it had a system whereby claimed
costs are compared and verified with costs actually paid, it was seemingly unconcerned with
the red flag raised by (the sub-grantee's) activities with the Grant requirements, it did not
audit (the sub-grantee) and it failed to ensure (that the sub-grantee) conducted a required
audit." With regard to the final criterion, the ALJ found that the agency did not present
evidence sufficient to demonstrate that it took prompt and appropriate corrective action
upon being made aware of the sub-grantee's violations of the Act and implementing
regulations.
In determining whether an offset against federal funds or repayment from non-JTPA
funds would be appropriate, the ALJ stated that it must first be determined whether the
mis-expenditure of funds was due to willful disregard of the Act's requirements, gross
negligence, or a failure on the part of the agency to observe accepted standards of
administration. The parties agreed that willful disregard and gross negligence were not at
issue; rather, it must only be determined whether the agency failed to observe accepted
standards of administration. The ALJ concluded that the agency did fail to observe accepted
standards of administration in failing to conduct a proper financial audit of the sub-grantee
which was "compounded by (the agency's) failure to enforce the audit requirement and its
lack of internal communications . . .." As a result, the ALJ ordered repayment of
$40,870.00 in misspent funds from non-JTPA or non-WIA funds. See also Felix Lugo v.
Office of the Governor of Puerto Rico, 1999-JTP-5 (ALJ, Dec. 11, 2001).
3. Waiver permitted under limited circumstances
Section 667.720 of the regulations implementing the WIA provide for a waiver of
liability under certain circumstances:
(a) A recipient may request a waiver of liability, as described in WIA section
184(d)(2), and a Grant Officer may approve such a waiver under WIA section
184(d)(3).
(b)(1) When the debt for which a waiver of liability is desired was established
in a non-Federal resolution proceeding, the resolution report must accompany
the request.
(2) When the waiver request is made during the ETA Grant Officer
resolution process, the request must be made during the informal
resolution period described in § 667.510(c) of this part.
(c) A waiver of the recipient's liability shall be considered by the Grant Officer
only when:
(1) the misexpenditure of WIA funds occurred at the subrecipient's
level;
(2) The misexpenditure was not due to willful disregard of the
requirements of title I of the Act, gross negligence, failure to observe
accepted standards of administration, or did not constitute fraud;
(3) If fraud did exist, it was perpetrated against the
recipient/subrecipients; and
(i) The recipient/subrecipients discovered, investigated,
reported, and cooperated in any prosecution of the perpetrator
of the fraud; and
(ii) After aggressive debt collection action, it has been
documented that further attempts at debt collection from the
perpetrator of the fraud would be inappropriate or futile;
Page 35 of 43
(4) The recipient has issued a final determination which disallows the
misexpenditure, the recipient's appeal process has been exhausted,
and a debt has been established; and
(5) The recipient requests such a waiver and provides documentation
to demonstrate that it has substantially complied with the
requirements of section 184(d)(2) of the Act, and this section.
(d) The recipient will not be released from liability for misspent funds under
the determination required by section 184(d) of the Act unless the Grant
Officer determines that further collection action, either by the recipient or
subrecipients, would be inappropriate or would prove futile.
20 C.F.R. § 667.720.
The JTPA also provided for a waiver of the imposition of sanctions against the
recipient due to a sub-grantee's misappropriation of funds, if the recipient adequately
demonstrated that it substantially complied with the requirements set forth in Section
164(e)(2) of the JTPA. 29 U.S.C. § 1574(e)(3); 20 C.F.R. § 627.704 (1996-97). The
statute, however, could not be read as foregoing the collection of a debt that was incurred
by the impermissible actions of the recipient. In Commissioner, Employment Security
of the State of Washington v. U.S. Dep't. of Labor, 1990-JTP-29, 1991-JTP 11 and
1992-JTP-34 (Sec'y., Sept. 13, 1995), the Secretary held that the state's own policies,
which permitted sub-grantees to expend eight percent funds without a concomitant
guarantee that these activities would be targeted for the benefit of program participants,
precluded waiver of sanctions.
The ALJ had waived repayment of certain disallowed costs based on the premise that
the state would not have misspent the funds but for the Department's confusing and
inconsistent administration of the JTPA. The Secretary disagreed that this was a ground to
support waiver given that the JTPA is unambiguous in only allowing costs that are directly
attributable to participant activity. The Secretary noted that despite the ALJ's unflattering
characterization of the Department's administration of the JTPA, he did not suggest that the
Grant's Officer's inaction rose to the threshold of estoppel. The Secretary, however, did
adopt the ALJ's recommendation that the state should be permitted to augment the case
record with regard to the possibility of using excess matching funds as stand-in costs for the
disallowed costs.
See, in regard to the definition of stand-in costs, USDOL ETA Field Memorandum 7882 (Apr. 28, 1982). See also, in regard to allowance of excess costs as stand-in for
disallowed costs, Comptroller General Decision b-208871.2 (Feb. 9, 1989); 20 C.F.R. §§
626.5, 627.481(b) (1994) (both post-dating the period in question in the instant case).
See also Commonwealth of Massachusetts v. U.S. Dep't. of Labor, Case No. 1998-JTP6 (ALJ, Oct. 29, 2001), aff'd., ARB Case Nos. 02-011 and 02-021 (ARB, June 13, 2002) and
by subsequent decision of the Board in ARB Case No. 04-170 (ARB, Mar. 11, 2005), aff'd.
sub nom. Edmonds v. Chao, 449 F.3d 51 (1st Cir. 2006) (the ALJ concluded "that the
Commonwealth has not demonstrated that it adhered to an appropriate system for the
award and monitoring of contracts with its subgrantees as required by section 164(e)(2)(A)"
and that "[h]aving failed to comply with its own monitoring policies, the Commonwealth
cannot avail itself of the JTPA's waiver of repayment provisions").
In Commonwealth of Massachusetts v. U.S. Dep't. of Labor, ARB Case No. 04170 (ARB, Mar. 11, 2005), aff'd. sub nom. Edmonds v. Chao, 449 F.3d 51 (1st Cir. 2006),
the Board concluded that waiver is proper "when, despite the recipient's having established
Page 36 of 43
appropriate oversight standards and having diligently adhered to those standards, the
recipient could not prevent the sub-recipient from violating the Act."
In Commonwealth of Pennsylvania, Dep't. of Labor and Industry v. U.S.
Dep't. of Labor, 1992-JTP-12 (Sec'y., Mar. 5, 1995), errata (Apr. 5, 1995), the Secretary
affirmed the ALJ's decision ordering Pennsylvania to repay over $500,000 from non-Federal
funds based his findings that the Northwest Pennsylvania Training Partnership Consortium,
Inc. (NPTPC) misspent 1985 grant funds by its inclusion of costs incurred in the 1983-1984
transition period; that NPTPC willfully disregarded JPTA regulations by the unilateral
modification of certain subcontracts to get around the impermissibility of shifting costs from
one grant period to another; and that the state failed to demonstrate that it substantially
complied with the requirements set forth in Section 164(e)(2)(A)-(D) of the JPTA, 29 U.S.C.
§ 1574(e)(3). On review, the Secretary considered the authority to forego collection of the
debt as inappropriate pursuant to 20 C.F.R. § 629.44(d)(5). The Secretary held that
"[w]hen the Act and implementing regulations are read in context, they require the recovery
of misspent program funds by the Secretary except when specific requirements are met."
The Secretary further stated that "[t]hese requirements were not met and, therefore, the
Secretary is precluded from granting the State permission to forego debt collection from
NPTPC." The Secretary explained that the state failed to act with due diligence in
monitoring the sub-recipient's contract.
The regulations at 20 C.F.R. § 629.44(d)(4) provide that the Secretary may forego
collection of misspent funds from a sub-recipient, where the sub-recipient was not at fault
with respect to the liability requirements set forth at Section 164(e)(2)(A)-(D) of the Act.
In effect, the regulations extend the waiver provision, which pertains to recipients in the
Act, to sub-recipients who might otherwise be subjected to the recovery of funds due to the
impermissible actions of its sub-grantees. The regulations cannot be read as foregoing the
collection of a debt that was incurred by the actions of the sub-recipient. This interpretation
is supported by the reference to paragraph (d)(3) at § 629.44(d)(4) which provides for the
Governor to describe and assess the sub-recipient's actions to collect the misspent funds
from its sub-grantees. Therefore, within the context of the Act and the pertinent
regulations, the word "inappropriate," as it appears in subsection (d)(5), pertains to a
waiver of liability with regard to a sub-recipient insofar as a sub-grantee misspent program
funds, provided the sub-recipient acted in a manner consonant with the Act at §
164(e)(2)(A)-(D). Slip op. at 4-6.2
4. Fraud established
Repayment by cash required
In Arizona Dep't. of Economic Security v. U.S. Dep't. of Labor, 1994-JTP-18
(ARB, June 7, 1996), aff'd., 125 F.3d 857 (9th Cir. 1997)(table), the ARB held that "[i]t is
clearly within the Secretary's authority to require cash repayments in those instances where
the mis-expenditure is the result of fraud." In the instant case, two employees of a
subcontractor were found to have fraudulently schemed to claim the placement of 34
ineligible persons into JTPA funded positions, which resulted in approximately $80,000 in
wrongful payments. The grantee sought Departmental approval of a repayment plan
2
The Secretary noted that the JPTA regulations were revised in 1992, and that the
pertinent regulations for this case were last published in the 1992 edition of the Code of
Federal Regulations.
Page 37 of 43
whereby the subcontractor would submit in-kind services in lieu of repayment of the misexpended funds. The Department, however, rejected the offer and informed the grantee
that repayment of mis-expenditures that arose from fraud must be remitted in cash from
non-Federal sources.
The ARB disagreed with the ALJ's finding that the Grant Officer's failure to plead §
164(d) rendered liability determinable only under § 164(e)(1), but found that even under §
164(e)(1) -- which would require the Grant Officer to prove that the grantee had
“
extraordinarily mal-administered” the program before wrongful expenditures could be
recouped -- Complainant was liable. The ARB found that the subcontractor's administrative
personnel failed to conduct even rudimentary oversight. The ARB's decision was affirmed by
the Ninth Circuit in Arizona Dep't. of Economic Security v. U.S. Dep't. of Labor, 125
F.3d 857 (9th Cir. 1997) wherein the court held it would accord "substantial deference" to
the ARB's findings which resulted in a determination that the grantee committed fraud. See
also United States v. Orr, 129 F.3d 1265 (6th Cir. 1997)(table) (a qui tam relator filed a
claim under the False Claims Act at 31 U.S.C. §§ 3729, 3730(b)(1), and 3732 alleging that
a city employment training agency made fraudulent statements and violated provisions of
the JTPA; the circuit court dismissed the claim under the doctrine of res judicata).
C. Interest allowed
1. Willful violation
In Commonwealth of Massachusetts v. U.S. Dep't. of Labor, 1985-JTP-1
(Sec'y., Nov. 26, 1985), Massachusetts retained five percent of a JTPA grant award, or over
$1,000,000, for state monitoring and administration of the Summer Youth Employment and
Training Programs. Notwithstanding several requests by Department of Labor officials for
Massachusetts to allocate all JTPA funding to its Service Delivery Areas (SDAs), the state
refused to do so on grounds that the JTPA and its implementing regulations permitted its
retention of five percent of the funding. After a hearing, the ALJ found that the state was in
"willful disregard" of the JTPA's requirements and he ordered repayment of the $1,000,000,
with interest, "of the misspent funds from funds other than those received under JTPA."
Massachusetts argued that the JTPA does not provide for the assessment of interest on any
amount owed and the Debt Collection Act of 1982, at 31 U.S.C. §§ 3701-3717, prohibited
the charging of interest against a state government for a debt owed to the United States
government. The Secretary held, to the contrary, that the Debt Collection Act did not
prohibit an award of interest on an obligation owed by the state to the federal government.
He reasoned that "[h]ere, Massachusetts has had the use of money which should have been
allocated to the service delivery areas, the use which Congress intended, or returned to the
United States Treasury where it would have earned interest." Consequently, the Secretary
affirmed the ALJ's assessment of nine percent simple interest on the amount owed by
Massachusetts.
2. Pre-judgment interest
In Mississippi Dep't. of Economic & Community Develop. v. U.S. Dep't. of
Labor, 90 F.3d 110 (5th Cir. 1996) (1990-JTP-32), the Fifth Circuit held that prejudgment
interest is properly awarded in a Department of Labor suit to collect an overpayment under
the JTPA. See also Commonwealth of Massachusetts v. U.S. Dep't. of Labor, 1985JTP-1 (Sec'y., Nov. 26, 1985).
D. Money to be used only after grant awarded
Page 38 of 43
In Commonwealth of Virginia v. U.S. Dep't. of Labor, 1993-JTP-24 (ALJ, May
19, 1995), the ALJ held that the Unemployment Insurance Automation Support Account
Grant could only be used for expenditures incurred after the grant was awarded.
E. Equal Access to Justice Act (EAJA) applicable
In Indian Human Resource Center, Inc. v. U.S. Dep't. of Labor, 1983-JTP-4
(Sec'y. Jan. 2, 1986), the Secretary remanded an ALJ's award of attorney's fees under EAJA
to state that the ALJ improperly awarded an hourly rate of $85.00, contrary to the hourly
rate limitation of $75.00 set forth at 5 U.S.C. § 504(b)(1)(A). The Secretary agreed,
however, that the Resource Center was entitled to attorney's fees incurred for
representation in contesting the appeal as well as reasonable costs necessary in pursuing
the action. See 29 C.F.R. § 16.107(a)(2).
F. Rule 11 Sanctions
In Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of
Labor, 2003-WIA-5 (ALJ, Jan. 20, 2004) (order), the ALJ ordered that the Department
show cause why Claimant's attorney's fees and costs should not be awarded against the
Department. The ALJ noted that actions of the Department's counsel reflected, "at best, a
cavalier attitude toward their obligations as officers of the court and advocates for an
agency of the United States." The ALJ cited to counsels' (1) misleading statements to Chief
Judge Vittone regarding the status of the grants at issue, (2) use of "doctored panel rating
sheet" as “
evidence”in the case, and (3) attempted concealment of material subject to
discovery. See also Black Hills v. U.S. Dep't. of Labor, 2003-WIA-6 (ALJ, Feb. 2, 2004)
(order) (order to show cause why Rule 11 sanctions should not be awarded against
Respondent where it originally argued that Complainant's appeal based on non-selection
was "premature" because no determination letter had been sent with regard to the grant
but ALJ later learned that the Grant Officer "had already made her determination and had
signed a contract with another applicant").
In these cases, the ALJ subsequently determined that express authority to award
Rule 11 sanctions was not conferred by the WIA or its implementing regulations.
Northwest Community Action Programs of Wyoming, Inc. v. U.S. Dep't. of Labor,
2003-WIA-5 (ALJ, Oct. 15, 2004); Black Hills v. U.S. Dep't. of Labor, 2003-WIA-6 (ALJ,
Oct. 15, 2004).
X. Types of Dispositions
A. Dismissal
1. Based on submitted settlement
Page 39 of 43
Under § 667.840 of the regulations implementing the WIA, the following is provided
regarding settlements:
(a) Parties to a complaint which has been filed according to the requirements
of § 667.800 of this part may choose to waive their rights to an
administrative hearing before the OALJ. Instead, they may choose to transfer
the settlement of their dispute to an individual acceptable to all parties who
will conduct an informal review of the stipulated facts and render a decision in
accordance with applicable law. A written decision must be issued within 60
days after submission of the matter for informal review.
(b) The waiver of the right to request a hearing before the OALJ will
automatically be revoked if a settlement has not been reached or a decision
has not been issued within 60 days provided in paragraph (a) of this section.
(c) The decision rendered under this informal review process will be treated
as a final decision of an Administrative Law Judge under section 186(b) of the
Act.
20 C.F.R. § 667.840.
In Cantu v. North American Indian Ass'n., 1995-JTP-23 (ALJ, July 15, 1998), a
claim was dismissed with prejudice under the JTPA based upon a settlement reached by the
parties. See also Commonwealth of Puerto Rico v. United States, 49 Fed. Cl. 24 (Fed.
Cl. 2001) (addressing interpretation and enforcement of terms of settlement agreement);
Commonwealth of Massachusetts v. U.S. Dep't. of Labor, 1985-JTP-1 (Sec'y., Jan. 7,
1986); State of Georgia v. U.S. Dep't. of Labor, 1995-JTP-22 (ALJ, Jan. 4, 1999). See
20 C.F.R. § 636.10(c); 29 C.F.R. § 18.9(c)(2).
2. Voluntary dismissal under Fed.R.Civ.P. 41 permitted;
no requirement to submit settlement
In Indiana Dep't. of Workforce Development v. U.S. Dep't. of Labor, 1997JTP-15 (ARB, Aug. 20, 1998), the ARB asserted jurisdiction and stayed proceedings before
the ALJ where the ALJ refused to dismiss the case based upon a Stipulation of Dismissal
received by the parties. The ALJ determined that the submission did not comply with the
requirements of 29 C.F.R. § 18.9(c) for a dismissal based on a settlement of the parties.3
By Final Order dated December 8, 1998 in the same case, the ARB reversed the ALJ's order
denying dismissal of the case. Under the facts of the case, the parties advised that a
settlement had been reached and the ALJ subsequently requested that a copy of the
executed settlement agreement be submitted. The parties submitted only a Stipulation of
Dismissal without the settlement agreement and the Grant Officer advised the ALJ that the
"agreement expressly prohibited disclosure of the agreement's contents to the ALJ." The
Grant Officer then argued that dismissal was proper under the voluntary dismissal
provisions at Rule 41(a)(1)(ii) of the Federal Rules of Civil Procedure as well as 29 C.F.R. §
18.9(c).
3
In a footnote, the ARB noted that it was not bound by the "‘
final decision' rule"
which is applicable to Article III courts; however, it stated that appeals from interlocutory
orders are not normally accepted. In this case, the ARB found that the ALJ's refusal to
dismiss the case qualified as an exception under the collateral order doctrine.
Page 40 of 43
The ARB agreed that the regulatory provisions at 29 C.F.R. § 18.9(c) were applicable
to JTPA cases through 29 C.F.R. § 627.805. However, it noted that neither party invoked
the provisions at § 18.9(c) by requesting time to pursue a settlement agreement and the
ARB found that the parties were not required to comply with § 18.9(c) as they "reached a
settlement without the need for deferral or judicial supervision." From this, the ARB
reasoned that it was error for the ALJ to conclude that Fed.R.Civ.P. 41(a) was inapplicable.
Because the implementing regulations of the JTPA and the procedural regulations at 29
C.F.R. Part 18 did not address the type of dismissal sought in this case, Fed.R.Civ.P. 41
applied. The ARB noted that the JTPA does not require Secretarial review of settlements
entered into between the Grant Officer and a grantee, unlike settlement agreements
reached in whistleblower cases under the Energy Reorganization Act. See Hoffman v. Fuel
Economy Contracting, 1987-ERA-33 (Sec'y., Aug. 4, 1989). As a result, the ALJ's finding
that public interest requires review of a settlement resolving an audit dispute to be reviewed
by an ALJ was incorrect. Based on this determination, the ARB directed that the complaint
be dismissed with prejudice pursuant to Fed.R.Civ.P. 41(a)(1)(ii). See also Role Models of
America, Inc., 2002-WIA-6 (ALJ, Nov. 27, 2006); Maui Economic Opportunity, Inc.,
2005-WIA-3 (ALJ, Dec. 13, 2005) (case dismissed with prejudice; although Complainant not
selected as grantee of program funds, the state contracted with Complainant to provide the
same services); Vega Baja Computer Corp., 2005-WIA-1 (ALJ, Mar. 8, 2005) (the ALJ
dismissed case with prejudice).
3. Mootness
In Job Service of North Dakota v. U.S. Dep't. of Labor, 1997-JTP-23 (ARB, Apr.
27, 1999), the ARB held that the case was moot because the limited remedy available at 20
C.F.R. § 633.205(e) for migrant and seasonal workers was no longer available. Specifically,
under the JTPA, if it is determined that a non-selected applicant should have been selected
the regulation at § 633.205(e) provides, generally, that "the Department selects and funds
that applicant so long as the 90-day period for the transfer of the grant will not end within
six months of the end of the funding period." In the case before it, the ARB noted that less
than three months remained in the program year such that, even if it "agreed with the
merits of the Job Service's challenge, (it) would have no authority under the regulations to
issue a final decision designating a different grantee." The ARB further rejected a request
by Job Service that the improperly selected grantee "be denied the possibility of a waiver of
competition for the next grant period." The ARB held that it does not have authority to
award prospective relief.
It acknowledged that dismissal of the appeal for lack of
jurisdiction appears "harsh" in light of the fact that the delays in adjudication were
attributable to the Department and not the applicants, but the circumstances of the case
rendered it moot.
See also Midwest Farmworker Employment and Training, Inc. v. U.S. Dep't.
of Labor, 200 F.3d 1198 (8th Cir. 2000) (case was rendered moot when relief was sought
within last nine months of the grant year; claim not subject to the exception to mootness
doctrine of being "capable of repetition, yet evading review" because the company did not
seek expedited review and the complaint addressed problems in one grant award as
opposed to departmental policies in management of the program–"[a] claim based on
peculiar facts, such as the typographical error in the scoring of the competition and the
alleged violation of ethical rules by the program director in this case, who has since retired,
is not particularly likely to recur"); Campesinos Unidos, Inc. v. U.S. Dep't. of Labor,
803 F.2d 1063, 1069 (9th Cir. 1986) ("[b]ecause the grant periods have expired, retroactive
remedies were not requested, nor could we fashion any under the applicable statutes and
regulations" and "[b]ecause the petitioner does not fall within the ‘
capable of repetition yet
evading review' exception and we are without authority to provide any meaningful
Page 41 of 43
prospective relief, we dismiss the appeal as moot"); Cherokee Nation of Oklahoma v.
U.S. Dep't. of Labor, 1997-JTP-12 (ARB, Feb. 12, 1999) (because the funding period
would expire in six months, the proceeding was moot pursuant to § 632.12(a)); Midwest
Farmworker Employment & Training, Inc. v. U.S. Dep't. of Labor, 1997-JTP-20, 1997JTP-21, 1997-JTP-22 (ARB, Mar. 31, 1999); Illinois Migrant Council, Inc. v. U.S. Dep't.
of Labor, 1984-JTP-10 (Sec'y. July 17, 1986) (case cannot be preserved as an exception to
the mootness doctrine as "capable of repetition, yet evading review" because there was no
evidence presented to establish a "reasonable expectation" or "demonstrated probability"
that the same problem will reoccur).
4. Based on untimely hearing request
In Powhaten Renape Nation v. U.S. Dep't. of Labor, 2000-JTP-8 (ALJ, Dec. 7,
2000), the ALJ dismissed a JTPA complaint on grounds that the hearing request was
untimely filed. In an Order to Show Cause which preceded a dismissal order, the ALJ noted
that 20 C.F.R. § 636.10 requires that a hearing request be filed within 21 days of receipt of
a grant officer's final determination. The ALJ noted that the hearing request before her was
filed two months after receipt of the final determination.
B. Withdrawal of request for hearing
In Oklahoma Tribal Assistance Program, Inc. v. U.S. Dep't. of Labor, 2000WIA-1 (ALJ, June 5, 2000), the ALJ noted that Complainant filed a request for
administrative hearing pursuant to the provisions at 20 C.F.R. § 660.844 "as an appeal to
Respondent's denial of its application for designation as a Workforce Investment Act, Title I,
Section 166 grantee for Program years 2000 and 2001." Complainant subsequently sought
to withdraw its hearing request and the Department did not object. As a result, the ALJ
approved of the withdrawal of its request for hearing.
C. Default judgment and summary judgment
In Opportunities Industrialization Centers of America, Inc. v. U.S. Dep't. of
Labor, 1998-JTP-4 (ALJ, Mar. 29, 1999), the ALJ entered an order of default judgment
against Complainant for its failure to respond to the "Notification of Receipt of Request for
Hearing and Prehearing Order." See 29 C.F.R. § 18.6(d)(2)(v). As a result, Complainant
was ordered to pay the disallowed costs. See also McDowell County Action Network v.
U.S. Dep't. of Labor, 2005-WIA-6 (ALJ, Aug. 10, 2006) (the Department's motion for
summary judgment was granted and $50,000 in costs were disallowed where "[t]he
evidence show(ed) that despite opportunities available at multiple stages of these
proceedings, Complainant . . . consistently failed to provide any evidence to support its
position that the funds in question should not be disallowed").
See also Rocky
Mountain/Hawaii Regional Consortium v. U.S. Dep’
t. of Labor, Case No. 2007-WIA-6
(ALJ, June 12, 2008) (the ALJ granted Respondent’
s motion for summary judgment
pursuant to 29 C.F.R. § 18.40(d); no genuine issue of material fact, Complainant failed to
file a timely response, and Respondent demonstrated that the “
Grant Officer is not required
to award a grant to organizations that have failed to demonstrate the capability to
effectively administer grant funds for a housing assistance program as reflected in their
proposals”
).
D. Contempt proceedings
Premature
Page 42 of 43
In Commonwealth of Puerto Rico v. U.S. Dep’
t. of Labor and Rural
Opportunities, Inc., Case No. 2007-WIA-10 (ALJ, Dec. 4, 2007), the ALJ, in previous
proceedings, had vacated a grant award to Rural Opportunities after finding that Right to
Employment Administration (REA) should have been found qualified to compete for the
grant at issue. The judge then directed that another competition be held to determine
whether Rural Opportunities, Inc. (ROI) or REA would receive the grant. In response, REA
moved for immediate termination of grant funding to Rural Opportunities. The Department,
however, concluded that “
ROI would continue as the grantee for Puerto Rico while the new
grantee selection process is underway, to maintain continuity for migrant and seasonal
farmworkers.”
The judge noted that the applicable regulations do not “
mandate a specific timeframe
for those actions and certainly does not direct immediate termination of grant funding.” He
further observed that “
this case does not involve a situation in which a valid grantee has
been designated so that a transition may occur.” Consequently, the ALJ concluded that “
the
motion for an order directing immediate termination of grant funding to ROI, as a precursor
to the initiation of contempt proceedings under 29 C.F.R. § 18.29(b), is premature and
denied at this time.” (emphasis in original).
Page 43 of 43
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.