Reply Brief — Favreau v. United States, 124 S. Ct. 50 (2003) (No. 02-1466)

Supreme Court. Us

FILED

No. 02-1466 JUL 2 2 2003

IN THE

Supreme Court of the Anited States

BERTRAND R. FAVREAU, II, ET AL.,

Petitioners,

.

UNITED STATES,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Federal Circuit

PETITIONERS’ REPLY

MICHAEL A. FELDMAN ScoTT L. NELSON

14 Lincoln Street Counsel of Record

Brunswick, ME 04011 BRIAN WOLFMAN

(207) 729-2660 PUBLIC CITIZEN LITIGATION

GROUP

1600 20th Street, N.W.

Washington, D.C. 20009

(202) 588-7724

Attorneys for Petitioners

July 2003

i

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Page(s)

CASES

Barnhart v. Sigmon Coal Co., 534 U.S. 438

(HIDE) -visccrnneesenissiionnepiiveaipaasiiaanishiiniliieaamniiiisimaimiiil 4

Bowles v. Seminole Rock & Sand Co., 325 U.S.

Fee niacin conciadpniuiinsalbaciamneninedilcieia 6

Crane v. Secretary of Army, 92 F. Supp. 2d 155

CW EDA. F . OED ccicsicsnnssimmainiimesinaniinpaciaimaniionn 6

Fina Oil and Chemical Co. v. Norton, 332 F.3d

O72 CDA, CE, FIR vvniscriisnsncaiiaiaiilnninpiiiiaamaniatl 6

Gonzaga University v. Doe, 536 U.S. 273

6 |< ST TE Te EEE 4

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S.

SEP CHE Div nicinessiseiiiisiaedcciapaaiaaiaianhaiiaaandiendiiabasiansibaaiisnitiial -

Heffron v. International Society for Krishna

Consciousness, 452 U.S. 640 (1981) ........eeicssccesecsseeeeeees 4

Hensala v. Department of the Air Force, 148 F.

a. BE Fae Ce CE. Bt ceriineitcicnesennssnneetanennninsensnins 3

Iliff v. Schlesinger, 539 F.2d 1275 (10th Cir.

POPUP cnccnivinistiennesccaeiaiiasionsunaisiaidaaisdsacdaiibadctamlditabilininnvagiaaii 3

King v. St. Vincent’s Hospital, 502 U.S. 215

RIPE Di evcssscisisiiiintnisianclaeiiale’ shes iinet -

Morton v. Ruiz, 415 U.S. 199 (1974)........cccccccscssssosesscsssscsees 7

Murphy Bros., Inc. v. Michetti Pipe Stringing,

Fg FI EE: FO a csnsinineciiainhataishiibciiiiasasevisiiniaisaaie 4

Newport v. Fact Concerts, Inc., 453 U.S. 247

CSTE Dnsischsiiensscesivecintciinntuibeiceaielaaiiieieletainisiaaielainalogtniintiascuiniesied 2

Ranger Cellular v. FCC, _ F.3d __, 2003 WL

SEMIS USS DOL. Ce, FARE 1, BO rcewivcntentensnvsinsevesennnianne 8

ill

Schumacher v. Aldridge, 665 F. Supp. 41

si

United States v. Gears, 835 F. Supp. 1093 (N.D.

es PE i iiielceh iain ineaninasbablidicnnlieniniaicvomnvencomninn

Yee v. City of Escondido, 503 U.S. 519 (1992)...........44

STATUTES AND REGULATIONS

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DOI 6 iiss sscn cscs ssnsnssssieecsanvesss

37 U.S.C. § 308(A)(1) cescccsssecescssssssseeses Ait thE DOE

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Pub. L. 96-342, § 804, 94 Stat. 1077, 1092

ST ae

Department of Defense Financial Management

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LEGISLATIVE HISTORY

Historical and Statutory Notes to 37 U.S.C.

HLR. Rep. No. 93-857 (1974), reprinted in 1974

I I oe cthessonsetanisusriensvcersc

H.R. Rep. No. 99-81 (1985), reprinted in 1985

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S. Rep. No. 82-935 (1951), reprinted in 1951

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iv

S. Rep. No. 96-850 (1980), reprinted in 1980

WSCA, BESS cevcessesesetonsgervetiannsonenivatienninsenmenions

PETITIONERS’ REPLY

The government’s insistence that the decision of the Fed-

eral Circuit in this case does not merit review rests princi-

pally on a reading of the lower courts’ opinion that alters that

opinion almost beyond recognition. The government suggests

that the lower courts merely held that service members who

“willfully” failed to comply with weight or fitness require-

ments may be deemed to have been discharged “voluntarily.”

And it asserts that the courts reached this conclusion simply

by applying normal interpretive techniques to “construe”

ambiguous statutory and regulatory language.

What the lower courts actually held, however, is that the

Defense Department may treat all weight or fitness dis-

charges as “voluntary,” regardless of how hard a service

member tried to comply with the services’ standards. They .

did so based not on any construction of the applicable agency

regulation, but on the substitution of unpublished memoranda

for the terms of the regulation. Although this is the most

striking feature of the opinions below, the government virtu-

ally ignores it and completely fails to defend it. The brief in

opposition cites not one precedent that permits elevation of

unpublished agency documents over published regulations.

Nor does it convincingly reconcile the outcome below with

the governing statute or its legislative history. The Court

should grant review of this case, which is of great importance

to thousands of men and women who served their country in

its armed forces, not only to resolve the proper interpretation

of the statutes at issue, but also to address the lower courts’

extreme departure from basic administrative-law precedents

governing review of agency actions by the federal courts.

1. The recoupment statutes require service members

who, “voluntarily, or because of [their] misconduct,” do not

fulfill their service obligation to refund portions of their en-

listment and reenlistment bonuses. 37 U.S.C. § 308(d)(1).

The government distorts the meaning of the statutes, its own

practices, and the record when it contends that a weight or

2

fitness discharge rfiust be deemed “voluntar[y]” under the

statutes because “[t]here is no reason why a service member

who willfully engages in conduct (or refrains from conduct)

knowing that it will result in his separation from the Service

... does not ‘voluntarily’ fail ‘to complete the term of enlist-

ment.’” Govt. Br. 10-11. The government’s argument is ir-

relevant because neither the government’s practice of seeking

recoupment from discharged service members nor the ruling

of the courts below is limited to members whose failure to

meet weight or fitness standards is “willful.”

As explained in our petition (at 6), and nowhere denied in

the government’s brief (see S. Ct. R. 15.2), it is undisputed

that the petitioners were not discharged for failing to make a

good faith effort to comply with applicable weight or fitness

standards. Thus, petitioners did not engage in “willful” con-

duct “knowing” it would cause them to fail. Indeed, they

~were not discharged for engaging in (or refraining from) any

conduct at all, but simply because their otherwise satisfactory

efforts to comply with weight or fitness standards did not ul-

timately succeed.’ Under the government’s reasoning, any

lawyer who failed a bar exam could be said to have “volun-

tarily” failed to join the bar because (1) he knew the conse-

quences of failing the exam, and (2) he might have passed if

he had studied harder. The government’s assertion that any

failure to meet the armed forces’ rigorous weight and fitness

standards is necessarily “voluntary” (and even “willful’”)

merely because “volitional” conduct (for example, eating and

exercising) affects service members’ ability to comply with

those standards reflects not only an unreasonable reading of

the statute, but also a basic ignorance of human nature.

' The government’s suggestion that it “benefitted” petitioners by not

discharging them for “misconduct,” Govt. Br. 12 n.7, is downright offen-

sive. There is no possible basis in the record for concluding that they en-

gaged in “misconduct” under the statute. See Pet. App. 9a n.9. Indeed,

anyone who did is excluded from the plaintiff class. See Pet. 7.

3

2. The government’s assertion that there is no disagree-

ment among the courts over the interpretation of the statute is

equally untenable. The courts below said that they “respect-

fully disagree with the court in Jliff v. Schlessinger, 539 F.2d

1275 (10th Cir.1976).” Pet. App. 19a-20a, n.18. In contrast to

the lower courts here, which accepted the government’s ar-

gument that the statutory term “voluntarily” is ambiguous,

the Tenth Circuit in Jliff agreed with the government’s asser-

tion there that the ordinary meaning of the term refers to the

member’s departure from the service, not to whether the con-

duct that led to the discharge was volitional. See also J.A.

525-26 (government brief in J/iff). Whatever the factual dif-

ferences between the cases, they reflect directly opposed

views of the meaning of the statute.

The government’s assertion (Govt. Br. 14 n.9) that the re-

sult below «an be reconciled with United States v. Gears, 835

F. Supp. 1093 (N.D. Ind. 1993), is also wrong. Although the

court there mentioned that the service member had not been

warned ‘hat his weight problem could lead to discharge, its

holding was based on its rejection of the government’s the-

ory, adopted by the lower courts in this case, that a discharge

is “voluntary” for recoupment purposes whenever it is related

to conduct that is “volitional in that it was not caused by dis-

ease or physical defect.” Jd. at 1093. Moreover, the govern-

ment apparently concedes that the interpretation of the statute

below is inconsistent with that in Hensala v. Department of

the Air Force, 148 F. Supp. 2d 988 (N.D. Cal. 2001), for it

makes no effort to reconcile them. See Govt. Br. 14 n.9. Hen-

sala, consistent with Jliff, held that a service member’s inten-

tion to bring about his own discharge is essential to any “voi-

untary” discharge under the recoupment statutes — a holding

that would require a different result in this case.

The government claims that these divergent results in the

district courts should not affect this Court’s decision whether

to grant certiorari because district court decisions “have no

precedential effect.” Govt. Br. 14 n.9. But this Court has of-

4

ten viewed divergent district court decisions as indicating a

need for guidance, especially where important federal stat-

utes or policies are at issue. See, e.g., Gonzaga University v.

Doe, 536 U.S. 273, 278 & n.2 (2002); Murphy Bros., Inc. v.

Michetti Pipe Stringing, Inc., 526 U.S. 344, 349 & n.2

(1999); King v. St. Vincent's Hospital, 502 U.S. 215, 218 n.7

(1991); Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473,

477 n.3 (1981); Newport v. Fact Concerts, Inc., 453 U.S.

247, 257 n.14 (1981); Heffron v. International Society for

Krishna Consciousness, 452 U.S. 640, 646 n.9 (1981). As

these examples show, the district courts’ disagreement with

the courts below, coupled with the disagreement between the

circuits, reinforces the need for review.

3. The government repeatedly says legislative history

supports its view that the statutes require recoupment from

service members discharged for weight and fitness reasons.

But although the statutory term “voluntarily” may admit

some ambiguity at the margins, it cannot be stretched to en-

compass concededly involuntary discharges of members

who, far from seeking to be discharged, have made good

faith efforts to remain in the service. Even if the government

correctly characterized the legislative history, legislative

history cannot alter a statute’s unambiguous terms. Barnhart

v. Sigmon Coal Co., 534 U.S. 438, 450, 456-62 (2002).

In any event, the government’s legislative history argu-

ment is wrong. The relevant language has been used repeat-

edly not only in the statutes at issue, but also in others re-

quiring refunds when members leave the services early. E.g.,

10 U.S.C. § 2005(a)(3); 37 U.S.C. § 309; 38 U.S.C. § 7432;

38 U.S.C. § 7458. Congress has referred to this language as

“the standard provision for a refund.” H.R. Rep. No. 93-857

(1974), reprinted in 1974 U.S.C.C.A.N. 2984, 2997. Despite

the long history of congressional use of this language, the

only support the government offers for its position is a single

phrase in a 1951 committee report. That report, discussing a

prior version of one of the recoupment statutes, does not ad-

5

dress weight, fitness or similar involuntary discharges and

_ does not even purport to interpret the language actually en-

acted by Congress — it merely characterizes a communica-

tion from the Bureau of the Budget. See S. Rep. No. 82-935

(1951), reprinted in 1951 U.S.C.C.A.N. 2464, 2466.

Nowhere does the government acknowledge that the only

legislative history that specifically addresses the issue before

the Court is a 1980 Senate report citing the Defense Depart-

ment’s assurance that it was “not the intent of this proposal to

include situations where an individual is discharged ... be-

cause of ... failure to meet physical standards or hardship.”

S.Rep. No. 96-850 at 8 (1980), reprinted in 1980

U.S.C.C.A.N. 2833, 2840 (emphasis added). That same year,

the very Congress that received that assurance amended and

extended the terms of the bonus statutes, which contained the

identical recoupment language. See Pub. L. 96-342, § 804, 94

Stat. 1077, 1092 (Sept. 8, 1980). Thereafter, Congress re-

peatedly amended, extended, and reenacted both statutes. See

Historical and Statutory Notes to 37 U.S.C. § 308. The gov-

ernment points to nothing in the legislative history of these

enactments that would contradict the unequivocal statement

in the 1980 report that the language was not intended to per-

mit recoupment for physical fitness discharges.

Thus, in the half century of congressional use of the

“voluntarily, or because of misconduct” standard, the only

legislative history that expressly addresses this issue directly

contradicts the government’s position. Whatever the Con-

gress that first used this language in 1951 may have thought,

the evidence as to the intentions of the Congresses that have

reenacted it since 1980 — which are the only ones whose

intentions are relevant in this case — points in one direction

only: toward petitioners’ common-sense reading of the stat-

ute. The government’s brief in opposition not only fails to

account for this embarrassing fact; it fails even to address it.

4. Consistent with the statute’s limitation of recoupment

to discharges that are “voluntar[y]” or because of “miscon-

6

duct,” the Defense Department’s published Financial Man-

agement Regulations (FMRs) provide for recoupment in the

case of a weight or fitness discharge when the discharge is

“upon the application or interest of the member.” FMR

090503. Contending that the regulation is “ambiguous” be-

cause it does not expressly foreclose recoupment when a

weight or fitness discharge is not requested by the service

member, the government argues that the lower courts’ reli-

ance on unpublished agency memoranda and litigation affi-

davits merely reflects a conventional exercise of deference to

an agency’s construction of its own ambiguous regulation.”

The government, however, is unable to explain how a

construction that requires recoupment for al] weight and fit-

ness discharges — thus dispensing altogether with (and ren-

dering entirely superfluous) the phrase “upon the application

or interest of the member” — could possibly be a permissible

“construction” of any “ambiguity” in the relevant FMR. See

Fina Oil and Chemical Co. v.Norton, 332 F.3d 672, 678

(D.C. Cir. 2003) (rejecting agency construction of regulation

that rendered critical language superfluous or meaningless);

see also Bowles v. Seminole Rock & Sand Co., 325 U.S. 410,

414 (1945) (court may not defer to agency construction that

is “plainly erroneous or inconsistent with the regulation’”’).

The government attempts to evade this principle by con-

tending that it is the regulation itself that is meaningless be-

cause, according to the government, members may not apply

for weight or fitness discharges. In fact, service regulations

permit members to apply for discharge for any reason. E.g.,

J.A. 405, 481. But even if they did not formally provide for

such applications, nothing in them forbids a member to ask

for or express an “interest” in receiving such a discharge. In-

deed, in Crane v. Secretary of Army, 92 F. Supp. 2d 155

(W.D.N.Y. 2000), the government argued that a service

? Of course, the agency’s regulatory construction, even if proper,

could not prevail over the unambiguous language of the statute.

7

member had requested that the basis for his discharge be

changed to failure to meet weight standards — which would

be impossible if, as the government now contends, members

were forbidden to request such discharges in any fashion.

5. Most critically, the government’s brief in opposition

ignores that neither the decision below nor the Defense De-

partment’s recoupment policy even purports to reflect a

“construction” of the published regulation. Rather, the lower

courts accepted the government’s argument that the unpub-

lished Korb and Jehn memoranda are themselves regulations

that prevail over the terms of the published regulation, which,

according to the Defense Department, unaccountably fails to

reflect accurately the intent of the memoranda as a result of

an “apparent oversight.” Govt. C.A. Br. 11.

As detailed in the petition for certiorari, the proposition,

advanced by the government and accepted by the Federal

Circuit below, that individuals may be adversely affected by

the terms of unpublished regulations is contrary both to a

federal statute (5 U.S.C. § 552(a)) and to this Court’s holding

in Morton v. Ruiz, 415 U.S. 199 (1974). The government's

- brief in opposition offers no response at all on this point.

The closest the government comes to addressing this is-

sue is to say that the Korb and Jehn memoranda were not re-

quired to undergo notice-and-comment rulemaking under 5

U.S.C. § 553 — a point petitioners have acknowledged.

Compare Govt. Br. 20-21 n.15 with Pet. 17. But § 553’s re-

quirement that some rules be put out for public comment be-

fore they are issued is wholly separate from § 552(a)’s re-

quirement that any rule that adversely affects a member of

the public be published before it is applied. The government

points to no legal principle that would excuse the Korb and

Jehn memoranda from this basic administrative-law precept.’

> The government concedes the memoranda were unpublished but

says they were not “secret” because one was cited in the FMR’s bibliog-

raphy. But the government itself was not aware of the memo’s contents

(Footnote continued)

| |

Indeed, the government’s brief in opposition is bereft of

citation to any authority of any kind for what the Federal Cir-

cuit did in this case: namely, subordinate a published agency

regulation to substantially different unpublished memoranda.

Even the government admits that the published regulation

“inartfully” reflects the unpublished memoranda (Govt. Br.

19, n.12) — a considerable understatement, to say the least.

But the government cites not a single precedent that permits

the terms of unpublished, internal agency memoranda to dis-

place those of published regulations whenever the regulations

are “inartfully” drawn. As one court has put it, “[a]lthough

Congress gave the Secretary discretion in adopting appropri-

ate regulations, it assuredly did not license the Secretary to

publish one set of criteria and to apply another.” Schumacher

v. Aldridge, 665 F. Supp. 41, 53 (D.D.C. 1987).

6. The government denies that the lower courts’ deci-

sion granted Chevron-Mead deference to an interpretation set

forth only in litigation affidavits. Govt. Br. 16 n.10. But the

courts did just that. The opinion below makes clear that the

until this case. J.A. 384. Its bare citation did not make its contents public

and thus did not satisfy § 552(a) as to it, let alone as to the other one.

* The government also has no answer to the points that the published

FMR was promulgated by the Under Secretary of Defense (who is not a

subordinate of the long-departed Assistant Secretaries whose memoranda

the government claims have the force of law) and that the FMR expressly

supersedes all prior directives, which includes the memoranda. The gov-

ernment’s claim that the “supersession argument” was not timely raised

(Govt. Br. 19 n.13) is absurd. Throughout this litigation, petitioners have

= claimed that the published regulation governs. The argument that it ex-

pressly supersedes all other directives is additional support for that claim,

not an issue requiring separate preservation. Yee v. City of Escondido, 503

U.S. 519, 534 (1992). Moreover, the government’s view that a party’s

failure to raise an argument can justify a court in applying a superseded

regulation is erroneous. As Judge Ginsburg of the D.C. Circuit recently

observed, applying the wrong law because of a party’s waiver would lead

the courts to “til[t] at a non-existent windmill.” Ranger Cellular v. FCC,

__F.3d_,__, 2003 WL 21495159 (D.C. Cir. July 1, 2003).

9

courts considered both the published FMR and the unpub-

lished Korb and Jehn memoranda too ambiguous to support

the position taken by the agency. Pet. App. 20a-21a. Only by

considering the agency’s affidavits were the courts able to

discern the agency’s view (Pet. App. 21a), to which they then

proceeded to defer — not as a construction of the agency’s

own regulation, but as a construction of the governing statute

under Chevron and Mead. Pet. App. 21a-22a.

Tellingly, not even the government is willing to argue

that granting Chevron-Mead deference to such materials is

proper and or to deny that doing so would conflict with deci-

sions of other circuits. See Govt. Br. 16-17 n.10; see also Pet.

19 (citing authority refusing deference to such materials).

Thus, once the government’s unconvincing denial that the

lower courts afforded deference to these materials is set

aside, it has no further defense to offer on this point.

7. Ina final attempt to deny that this case merits review,

the government lamely asserts that the Department of De-

fense has “advised” that it “plans to revise the FMR” to con-

form to its view of the statute. Govt. Br. 21. Of course, the

Department has had ample opportunity to revise its regula-

tion since being alerted by this litigation to the FMR’s “inart-

ful” expression of the Department’s position, but, astonish-

ingly, the Department repromulgated the FMR unchanged in

2002 (after the decision of the Court of Federal Claims). The

Department’s belated resolution to clean up its act only when

faced with a petition for certiorari is hardly reassuring.

In any case, revision of the regulation will not alter the

fact that the Department’s recoupment practices are incom-

patible with the statutes, and it will do nothing to resolve the

disagreement among the lower courts over the proper inter-

pretation of the statutes. Nor will it rectify the impropriety,

under the existing FMR as well as the statutes, of the De-

partment’s recoupment of bonuses from the thousands of

members of this class. And, perhaps most significantly,

amendment of the regulation will have no effect on the im-

10

portance of reviewing and correcting the precedent set by the

Federal Circuit in this case, which sharply departs from es-

tablished administrative law principles in giving unpublished

memoranda precedence over published regulations and af-

fording Chevron-Mead deference to internal and litigation-

generated agency materials.

CONCLUSION

Through bonus payments, the government induced peti-

tioners and thousands like them to join or remain in the

armed forces, knowing that the bonuses were critical to pro-

viding them “the means to place a down payment on a home,

to pay tuition bills, or to make necessary family purchases.”

H.R. Rep. No. 99-81, at 230 (May 10, 1985), reprinted in

1985 U.S.C.C.A.N. 472, 505. Despite their willingness to

serve, their undoubted ability to serve usefully in many ca-

pacities, and their efforts to meet the services’ physical stan-

dards, the services then not only expelled them, but sought to

reach into their pockets on the fiction that they quit “volun-

tarily.” The proper treatment of these thousands of former

service members, as well as the correct reading of the statutes

and the application of fundamental principles of administra-

tive law, are important matters that this case presents for

resolution by this Court.

The petition for a writ of certiorari should be granted.

Respectfully submitted,

Michael A. Feldman Scott L. Nelson

14 Lincoln Street Counsel of Record

Brunswick, ME 04011 Brian Wolfman

(207) 729-2660 Public Citizen Litigation Group

1600 20th Street, N.W.

Washington, D.C. 20009

(202) 588-1000

Attorneys for Petitioners

July 2003