Appendix — Massachusetts Department of Public Welfare v. United States

Supreme Court brief1993

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92-1254

In the Supreme Court of the’. © p

United States} JUN ~4 jg93

October Term, 1993 DEEICE-OF- Tig a

COMMONWEALTH OF MASSACHUSETTS,

DEPARTMENT OF PUBLIC WELFARE,

Petitioner,

THE UNITED STATES OF AMERICA,

SECRETARY OF THE UNITED STATES DEPARTMENT OF

AGRICULTURE, MEMBERS OF THE STATE FOOD STAMP

APPEALS BOARD, ADMINISTRATOR OF THE FOOD AND

NUTRITION SERVICE, U.S. DEPARTMENT OF AGRICULTURE,

AND THE REGIONAL ADMINISTRATOR OF THE

. NORTHEASTERN REGIONAL OFFICE OF THE FOOD AND

NUTRITION SERVICE, U.S. DEPARTMENT OF AGRICULTURE,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

APPENDIX TO PETITION

FOR A WRIT OF CERTIORARI

SCOTT HARSHBARGER

ATTORNEY GENERAL

OF MASSACHUSETTS

Douglas H. Wilkins*

Assistant Attorney General

Government Bureau

One Ashburton Place

Boston , Massachusetts 02108

*Counsel of Record (617) 727-2200 ext. 2066

TABLE OF CONTENTS

Commonwealth of Massachusetts,

Department of Public Welfare v.

’

984 F. 2d 527 (ist Cir. 1993),

January 22, 1993. .cccecceccceees A-1 to 56

Appendix B

Commonwealth of Massachusetts, on

Behalf of the Department of Public

Welfare of the Commonwealth v.

United States of America, et al.,

737 F. Supp. 120 (D.Mass. 1990),

April ade pk) Pee eeeeeee B-1 to 36

Appendix C

setts, and

Massachusetts Department of Public

Welfare v. United States of America,

United States Secretary of

-, 788 F.Supp.

1267 (D.Mass. 1992),

ee ee ree C-1 to 38

(lst Cir.) (order denying rehearing and

rehearing en banc),

March 9, 1993 .ccccccccccccccsecce D-1 to 3

Appendix A

984 F. 2d 527

United States Court of Appeals

For the First Circuit

No. 92-1539

COMMONWEALTH OF MASSACHUSETTS,

DEPARTMENT OF PUBLIC WELFARE,

Plaintiff, Appellant,

Vv.

SECRETARY OF AGRICULTURE, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE DISTRICT OF

MASSACHUSETTS

{[Hon. William G. Young,

U.S. District Judge)

Selya, Circuit Judge,

Higginbothan, * Senior Circuit Judge,

* Of the Third Circuit, sitting by

designation.

and Cyr, Circuit Judge.

Douglas H. Wilkins, Assistant

Attorney General, with whom Scott

Harshbarger, Attorney General, was on

brief, for appellant.

Arvid E. Roach, II, with whom

Virginia G. Watkin, Thomas H. Odom, and

j were on brief, for

States of Alabama, California, Florida,

Georgia, Illinois, Kentucky, Louisiana,

Nebraska, Ohio, Oklahoma, West Virginia

and Wisconsin, amici curiae.

Deborah Ruth Kant, Attorney, Civil

Division, United States Department of

Justice, with whom Stuart M. Gerson,

Assistant Attorney General, A. John

Pappalardo, United States Attorney, and

Barbara C. Biddle, Attorney, Civil

Division, were on brief, for appellees.

January 22, 1993

SELYA, Circuit Judge. In federal

fiscal year (FY) 1982, lasting from

October 1, 1981 through September 20,

1982, the Commonwealth of Massachusetts

distributed food stamps far exceeding

A-2

the margin of error allowable under

applicable federal regulations.

Consequently, Food and Nutrition Service

(FNS), the branch of the United States

Department of Agriculture responsible

for overseeing the food stamp progran,

imposed a punitive sanction.

Massachusetts unsuccessfully

appealed the sanction to the Food Stamp

Appeal Board (the Board). It then

sought judicial review in federal

district court. See 7 U.S.C. § 2023

(1982). The court granted summary

judgment in favor of the defendants,2+/

2/ The Commonwealth named a host of

federal defendants in its suit,

including the United States, the

Secretary of Agriculture, the Department

of Agriculture, the Board, and FNS. For

ease in reference, we treat the appeal

as if the appellees were a single entity.

albeit in two steps. See Massachusetts

v. United States, 737 F. Supp. 120 (D.

Mass. 1990) (Massachusetts 1);

Massachusetts v. United States, 788 F.

Supp. 1267 (D. Mass. 1992)

(Massachusetts II).

Finding the penalty hard to swallow,

the Commonwealth serves up a gallimaufry

of issues for appellate mastication.

Although these issues contain some food

for thought, they lack true nutritive

value. Consequently, we affirm the

judgment below.

I. FACTUAL PRELUDE

Congress designed the Food Stamp Act

of 1964, Publ. L. No. 88-525, 78 Stat.

103 (1964), codified as amended, 7

U.S.C. §§ 2011-2030 (1982), to provide

low-income families with access to

government-subsidized foodstuffs.

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Although the coupons were actually

disbursed by the participating states,

FNS paid fifty percent of the

administrative costs and one hundred

percent of the food subsidy costs. In

time, the federal govenment’s generosity

produced an unfortunate side effect;

because overpayments were charged to the

federal tab, states had little incentive

to keep distributions in line. To curb

this profligacy, Congress eventually

enacted a quality control program (QCP)

“to ensure more accurate food stamp

distribution. The first QCP took effect

in 1977. Pub. L. No. 96-113, § 16, 91

Stat. 976 (1977).

From that point forward, Congress

persistently tinkered with the QCP’s

features. During FY 1982, the QCP

required that each state survey a sample

of its food stamp cases in order to

estimate in what percentage of them it

had distributed the wrong number of food

stamps. After receiving the states’

tallies, FNS would set a target error

rate (the TER), take a subsample of each

state’s cases, recheck them for errors,

and employ regression analysis to blend

the federal and state estimates of state

error rates into a single estimated

error rate (the EER) for the state. See

7 U.S.C.A. § 2025(g) (West Supp. 1981);

94 Stat. 363 (1980); see also 7 C.F.R. §

275.25(da) (6) (1982). If the state’s EER

surpassed the TER, as determined by FNS,

the federal government imposed a

monetary sanction.£/ Such fines were

2/ We discuss infra Part IV the

circumstances in which the imposition of

a monetary sanction might be waived.

calculated by multiplying the total

dollar value of state-issued food stamps

for the fiscal year times the difference

between the state’s EER and its TER.

See 7 C.F.R. § 275.25(d) (3) (1982). If,

however, the state’s EER was below five

percent, the state received a bonus: the

federal government increased its

contribution to the program’s

administrative costs from fifty percent

to sixty percent. See 7 C.F.R. §

275.25(c) (2) (i) (1982).

In FY 1982, FNS set Massachusetts’

TER at 14.88 percent. After the two

sovereigns completed their sampling and

resolved some mathematical bevues by

negotiation, FNS figured the EER to be

i aaa aati

roughly 16.35 percent and, accordingly,

fined the Commonwealth $1,323,864. The

penalty survived scrutiny by both the

Board and the district court.

In this appeal, Massachusetts makes

four principal claims: (1) that the

quality control provisions on which the

sanction rested were no longer in effect

when FNS imposed the sanction; (2) that

FNS’s sampling methodology was so biased

as to offend the Food Stamp Act; (3)

that FNS’s use of too large a sample

skewed the results; and (4) that FNS

erred in refusing to grant a good-cause

waiver. We treat these asseverations in

sequence.

II. LACK OF STATUTORY AUTHORITY

Massachusetts and the amici join in

urging that FNS had no authority to levy

sanctions for FY 1982 because Congress

repealed the QCP effective October l,

1982. This claim stems from passage of

the Omnibus Budget Reconciliation Act

(OBRA), Pub. L. No. 97-253, 96 Stat. 763

(1982), enacted in September of 1982.

OBRA completely revamped the Food Stamp

Act’s approach to quality control. The

legislation repealed the previously

existing QCP and fashioned a new regimen

effective October 1, 1982 (the first day

of FY 1983). Massachusetts contends

that this legislative legerdemain

undermined FNS’s authority thereafter to

impose sanctions for FY 1982.3/

3/ Since we can find no indication in

the record that Massachusetts raised

this issue before the Board, the point

is at least arguably waived. But,

because the issue goes to the Board’s

jurisdiction and because the appellees

have not advanced a claim of waiver, we

choose to address it, notwithstanding

the possible incidence of procedural

default.

It is a hoary rule of the common law

that the repeal of a statute eliminates

any inchoate liability for penalties

under the repealed statute. See, e.g.,

United States v. Reisinger, 128 U.S.

398, 401 (1888). In order to ameliorate

this rule, Congress passed a general

savings statute providing in pertinent

part that the "repeal of any statute

shall not have the effect to release or

extinguish any penalty, forfeiture, or

liability incurred under such statute .

- -" 1 U.S.C. § 109 (1982). On its

face, section 109 seems adequate to

preserve the authority by which FNS

purposed to sanction the Commonwealth.

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In an effort to escape the savings

statute’s web, Massachusetts notes that

the QCP allowed waivers of liability

premised on subsequent corrective

measures. See, e.g., 7 C.F-.R. §

275.25(da) (5) (1982). From this datun,

Massachusetts deduces that it could not

have “incurred" liability until such a

waiver was denied - an event which took

place well after October 1, 1982. The

court below found this argument

unpersuasive. See Massachusetts II, 788

F. Supp. at 1269 n.3. So do we. The

mere fact that Congress grants an agent

the power to waive sanctions does not

turn back the clock and eradicate the

reality of the underlying violation.

Thus, we do not believe Congress

intended that liability would be deemed

"incurred" under federal law, 1 U.S.C. §

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109, only when all opportunities for

special dispensations had been exhausted

and a previously imposed penalty had

become irreversible. See, e.g.,

Standard Oil Co. v. Federal Energy

Admin., 612 F.2d 1291, 1294 n.3 (Temp.

Emer. Ct. App. 1979) (explaining why

costs should be deemed "incurred" even

before the amount has become certain).

Rather, we think Congress intended that

states incur liability for their food

stamp errors at the conclusion of the

six-month monitoring period, 7 U.S.C.A.

§ 2025(g)(1) (West Supp. 1981) - a

period which, in this case, ended

September 30, 1982.

We have two main reasons for

interpreting the interface between the

Food Stamp Act and the savings statute

in this way. In the first place, it

A-12

appears well established that the

savings statute was designed to prevent

exactly the sort of lapse that

Massachusetts argues occurred here.

See, e.g., Hamm v. City of Rock Hill,

379, U.S. 306, 314 (1964) ("The federal

saving statute ... was meant to obviate

mere technical abatement such as... a

substitution of a new statute with a

greater schedule of penalties .. .")?

United States v. Holley, 818 F.2d 351,

353 (5th Cir. 1987) (similar). Reading

the savings statute to release from

liability any party who had not yet

exhausted after-the-fact remediation

would hamper the law’s goal, contravene

the Supreme Court’s longstanding

interpretation of how the statute should

be applied, and encourage violators to

petition willy-nilly for discretionary

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administrative relief in the hope that

the statutory scheme might be changed

betweentimes.

In the second place, the statutory

structure predicates waiver on precedent

liability. See 7 U.S.C.A. § 2025(g) (1)

(West Supp. 1981) (providing that, under

the Food Stamp Act’s liability progran,

an offending state shall pay the imposed

fine unless the Secretary determines

that good cause exists for waiver). We

do not think Congress placed the cart to

the horse’s rear by accident. Had

Congress wished waiver considerations to

be part and parcel of a liability

determination, it would simply have

written the Food Stamp Act to premise

liability on the absence of those

factors that allow the granting of

good-cause waivers. Congress chose to

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structure the statute differently,

however, and we must honor its bipartite

design in our interpretation. See,

e.g., Ingersoll-Rand Co. v. McClendon,

111 S. Ct. 478, 482 (1990); Greenwood

Trust Co. v. Massachusetts, 971 F.2d

818, 824 (1st Cir. 1992), cert. denied,

61 U.S.L.W. 3478 (U.S. 1993).

We note, too, that legislative

statements surrounding the 1982 repeal

of the QCP, while admittedly less than

pellucid, indicate no discernable intent

to exonerate states for pre-1983

administrative errors. Quite the

opposite: the legislative history

suggests Congress intended to increase

the certainty of penalties beginning

with FY 1983. See S. Rep. No. 504, 97th

Cong., 2d Sess. 70-71, reprinted in 198.

U.S.C.C.A.N. 1641, 1708-09:

A-15

[T)he . . . major flaw in the

existing system [is that] [t]he

current penalty .. . has proven

difficult to apply in practice

because of the relatively large

amounts involved and, as a result,

the Secretary has [frequently]

chosen to waive its application.

The sanctions established [by the

new statute] .. . should not be

waived except when unusual

circumstances intervene.

Given this purpose, it seems unlikely

that Congress intended the 1982 repeal

to preclude enforcement of the earlier

regulations for 1981 and 1982 in

instances where good-cause reviews were

imminent or ongoing, but had not yet

been decided.

For these reasons, we reject the

Commonwealth’s claim that FNS lacked

statutory authority to impose the

sanctions in question.

IItl. STATISTICAL METHODOLOGY

Having confirmed the vitality of the

sanction provision, we turn next to the

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Commonwealth’s double-jointed challenge

to the statistical methodology that FNS

employed. Before reaching

Massachusetts’s two substantive

arguments, we think it is useful to

explicate the applicable standard of

judicial review.

A. Standard of Review.

The Food Stamp Act provides for de

novo review of final administrative

determinations in the district court.4

However, this searching

4/ The statute provides in pertinent

part:

[A] State agency . . -. may obtain

judicial review [of a

final administrative

determination] by filing a complaint

against the United States in the

United States court for the district

in which it resides or is engaged in

business .... The suit...

shall be a trial de novo by the

court in which the court shall

determine the validity of the

questioned administrative action in

issue.

7 U.S.C. § 2023(a) (1982).

A-17

standard is restricted to liability

determinations. See Broad St. Food

Mkt., Inc. v. United States, 720 F.2d

217, 220 (1st Cir. 1983); Collazo v.

United States, 668 F.2d 60, 65 (lst Cir.

1981). It does not spill over to

penalty determinations. See Kulkin v.

Bergland, 626 F.2d 181, 184 (lst Cir

1980) (holding that, under the Food

Stamp Act, "administrative remedies or

sanctions are subject to a very limited

judicial review"). A court scrutinizing

administrative remedies or sanctions

imposed under the Food Stamp Act may

only overturn those actions that appear

arbitrary, capricious, or contrary to

A-18

law. See Haskell v. United States Dep’t

of Agric., 930 F.2d 816, 820 (10th Cir.

1991); Woodard v. United States, 725

F.2d 1072, 1077-78 (6th Cir. 1984);

Broad St., 720 F.2d at 219-21; Hough v.

United States Dep’t of Agric.. 707 F.2d

866, 869 (5th Cir. 1983); Kulkin, 626

F.2d at 184-85.

To be sure, both Broad St. and

Kulkin involved (1) factual findings

anent the culpability of food store

owners who accepted food stamps as

compensation for prohibited goods, and

(2) determinations about what sanctions

were condign, given the identities of

the violators and the nature of the

violations. See Broad St., 720 F.2d at

219; Kulkin, 626 F.2d at 182-83. The

question in the instant case is more

complex because the two parts of the

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calculus - liability and sanctions - are

imbricated: FNS’s determination that

Massachusetts’s EER was unacceptably

high essentially determined both the

Commonwealth’s liability and the amount

of the resultant sanction. ons 7 OS. FR.

§ 275.25(da) (3) (1982) (explicated supra

pp. 3-4).

Notwithstanding this conflation of

liability and remediation, a reviewing

court’s path remains clear. Where

liability is at issue, section 2023(a)

requires that courts review

administrative determinations de novo.

If this statutory bedrock is to endure,

inexorably mixed issues of liability and

sanctions must likewise be assessed de

novo, even if such a penetrating

standard of judicial review intrudes to

some extent into agency decisionmaking

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in the sanctions area. Thus, insofar as

the Commonwealth’s assignments of error

implicate the validity of the EER and,

therefore, the amount of the penalty

levied, plenary review is indicated.

We are quick to remark, however,

that de novo review in cases of this

genre does not give courts an entirely

free hand. Where, as here, the issues

before the court are legal in nature, de

novo review of an administrative matter

does not mean that the district court

must devise an entirely new regulatory

scheme. Rather, in respect to liability

issues, the court must ensure that the

agency has followed its own regulations

and that those regulations do not exceed

the scope of the agency’s mandate. With

these precepts in mind, we now address

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the Commonwealth’s statistical

arguments. =2/

B. Statistical Bias.

In order to estimate Massachusetts’s

food stamp error rate and thereby

determine what (if any) sanction might

be appropriate, FNS sampled 194 of the

Commonwealth’s cases for compliance.

Massachusetts and the amici urge that

the appellees’ sampling methodology is

unlawful because the risk of error

inherent in FNS’s approximation is not

2/ Because the court of appeals and the

district court are constrained to apply

exactly the same standards of judicial

review in these situations, we cede no

deference to the district court’s

views. See Lloyd v. Georgia Gulf Corp.,

961 F.2d 1190, 1193 (5th Cir. 1992);

Vv.

Terry A. Lambert Plumbing, Inc.

Western Sec. Bank, 934 F.2d 976, 979

(8th Cir. 1991).

A-22

evenly shared between the state and the

federal government. Because FNS’s

statistical method effectively

determines the Commonwealth’s liability

as well as the amount of the sanction to

be imposed, our review of the

statistical bias claim is plenary.

We start with the obvious: FNS’s

sampling is no different than any other

statistical sampling in that it cannot

produce results that reflect the actual

error rate with unerring accuracy.

Thus, whatever sampling technique is

used, the EER will sometimes

underestimate and sometimes overestimate

a state’s actual error rate.

Massachusetts recognizes this fact of

statistical life but complains that it

must foot the bill for overestimations

by paying sanctions although if

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underestimations occur it reaps no

corresponding benefit (e.qg., credits

that could be used to offset future

penalties). As a matter of pure

mathematics, the Commonwealth’s theory

appears to hold water. Under the

federal scheme, the risk of error causes

the penalty provision to weigh more

heavily on the states than on the

federal government. &/ Nonetheless, we

do not see how this circumstance renders

the scheme unlawful.

The Food Stamp Act provides that a

state is liable for "the dollar value

S/ of course, the states profit from a

Similar bias when FNS awards bonuses for

lower error rates. In that instance,

the federal government bears the cost of

underestimating state error rates but

gains no offsetting advantage from

overestimates.

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equivalent of the State agency’s payment

error rate, as determined by the

Secretary," to the extent it exceeds the

higher of the national payment rate or

the state error payment rate minus the

national rate of error reduction. 7

U.S.C.A. § 2025(g) (West Supp. 1981).

There are a number of mechanisms by

which FNS could implement this statutory

directive, each with incumbent

advantages and disadvantages.

Massachusetts suggests that this court’s

right to review liablity determinations

de novo leaves us free to rethink the

regulatory choice among the various

options.

We do not agree. The power of

plenary judicial review does not obviate

the devoir of persuasion in a food stamp

case in which a plaintiff challenges the

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validity of the regulatory mosaic. See

Kulkin, 626 F.2d at 183. To carry its

burden, the plaintiff must still show

that the federal agency exceeded its

statutory or constitutional authority.

An attempt to make such a showing must

frankly recognize that the art of

regulation involves line-drawing. When

Congress entrusts an agency with the

responsibility for drawing lines, and

the agency exercises that authority in a

reasonable way, neither the fact that

there are other possible places at which

the line could be drawn nor the fact

that the administrative scheme might

occasionally operate unfairly from a

particular participant’s perspective is

sufficient, standing alone, to undermine

the scheme’s legality. See Knebel v.

Hein, 429 U.S. 288, 294 (1977) (holding

A-26

that the availability of more equitable

food stamp regulations does not render

the Secretary’s particular regulatory

scheme invalid); Louisiana v- Black, 694

F.2d 430, 431-32 (5th Cir. 1982) (same);

see also Valley Citizens, 886 F.2d at

469 (observing that "the place to attack

standard methodology, at least in the

first instance, is before the agency,

not before a reviewing court").

A second reason for applying strict

rules of procedural default in the

administrative context is to promote

judicial economy. A claim seasonably

presented to the appropriate

administrative body has an appreciable

chance of being put to rest, or at least

narrowed, before it depletes the heavily

burdened resources of the federal

courts. Massachusetts, the amici, and

the court below all relate previous

instances where there were problems with

sample sizes and, consequently, the

Board overturned FNS sanctions. See,

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— se... ee

e.g., Massachusetts I, 737 F. Supp. at

122. Thus, raising the issue before the

Board might well have led to its

resolution, once and for all.

Finally, enforcing procedural

default solidifies the agency’s autonomy

by allowing it the opportunity to

monitor its own mistakes and by ensuring

that regulated parties do not simply

turn to the courts as a tribunal of

first resort. A double whammy would

result if Article III judges encouraged

such end runs by demonstrating a

willingness to hear all challenges to

regulatory action regardless of whether

the parties raised those challenges

before the affected agency: power

would drain from the agencies and

administrative appeals would flood the

federal courts.

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To be sure, there are exceptional

circumstances under which a court might

dispense with the raise-or-waive rule in

the administrative law context. Cf.,

e.g., United States v. La Guardia, 902

F.2d 1010, 1012-13 (list Cir. 1990)

(explaining why, in a criminal case, the

court of appeals would exercise its

discretion to review a particular

constitutional claim that had not been

raised in the trial court). Asa

general matter, however, courts will not

entertain an issue that the parties

failed to raise in the proper

administrative venue unless the issue is

jurisdictional in nature or some other

compelling reason exists. See Tucker

Truck Lines, 344 U.S. at 38; Rana v.

United States, 812 F.2d 887, 889-90 &

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n.2 (4th Cir. 1987). The Commonwealth

tenders no such justification here.

Whether FNS appropriately followed

its own regulations in regard to

sampling, and the effect and

consequences of any failure to do so,

are matters which in no way implicate

jurisdictional concerns. On the

contrary, they present the sort of

problems routinely within the Board’s

purview and at the heart of its

expertise. The Commonwealth has

advanced no palatable excuse for failing

to raise the oversampling issue at the

proper time and in the proper forum.

Under these cicumstances, we cannot

justify any relaxation of the customary

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rule. The Commonwealth waived the

oversampling issue. 2/

IV. GOOD-CAUSE WAIVERS

Massachusetts argues that it was

entitled to a good-cause waiver as a

matter of right and that the district

court erred in summarily rejecting its

beseechment. We do not agree.

Unlike questions of statistical

propriety, see supra Part III, the

2/ Incident to this procedural default

is the Commonwealth’s quest for reversal

on the ground of inconsistent

administrative positions. But here, the

Commonwealth is hoist with its own

petard. It did not bring the

oversampling issue before the Board,

thus depriving the Board of the chance

to explore the issue in a zoetic context

informed by both case-specific facts and

administrative precedents. Because we

cannot judge the Board’s consistency on

an issue it did not adjudicate, we deem

this related claim to be waived as well.

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ee ae ee

matter of a good-cause waiver is not

imbricated with a fundamental

determination of the appropriate

sanction. Thus, the Food Stamp Act’s

provision for de novo review of

liability findings does not apply .22/

Instead, we review the waiver denial to

29/ Indeed, the legislative history

reveals that Congress explicitly

rejected the de novo judicial review

that Massachusetts would have us indulge

on this issue:

Every State against which the

Secretary asserted a claim would

have the right to seek

administrative and judicial review

of the claim in accordance with

procedures contained in section 14

of the Act. None of these

procedures would be applicable to

the Secretary’s review of the

State’s contention that it had good

cause for its failure to meet the

appropriate level of error.

H.R. Rep. No. 788, 96th Cong., 2d Sess.

74 (1980), reprinted in 1980

U.S.C.C.A.N. 843, 907.

A-41

see whether it was arbitrary,

capricious, or contrary to law. Broad

St., 720 F.2d at 220; Kulkin, 626 F.2d

at 184. In so doing, we recognize that

an administrative agency enjoys great

latitude to interpret its own rules as

long as those interpretations are

reasonable. See Martin v. Occupational

Safety & Health Rev. Comm’n, 111 S. Ct.

1170, 1175-76 (1991) (explaining that an

"“agency’s construction of its own

regulations is entitled to substantial

deference") (quoting Lyng v. Payne, 476

U.S. 926, 939 (1986)); accord Udall v.

Taliman, 380 U.S. 1, 16-17 (1965);

Federal Labor Relations Auth. v. United

States Dep’t of the Navy, 941 F.2d 49,

59 (list Cir. 1991); Dunn v. Secretary of

United States Dep’t of Agric., 921 F.2d

365, 366-67, 369 (lst Cir. 1990).

A-42

It is in the Secretary’s realm to

grant or deny a good-cause waiver. 22/

See 7 U.S.C.A. § 2025(g) (West Supp.

1981). To obtain such a waiver, a state

must show, at a bare minimum, that one

of the following events occurred: (1)

natural disasters, civil disorders,

labor unrest, or other circumstances

beyond the state’s control, adversely

affecting program operations; (2)

significant caseload growth; (3)

legislative changes adversely affecting

program management; (4) misapplication

of federal policy with erroneous

approval from FNS; or (5) exemplary

efforts to reduce the error rate. See 7

11/ te Secretary has delegated this

power to FNS. See 7 C.F.R.

§ 275.25(d)(5) (1982).

A-43

C.F.R. § 275.25(da)(5)(A)-(G). Whereas a

threshold showing along these lines may

qualify a state for a good-cause waiver,

the Secretary can still deny the waiver

if he finds the state’s showing

insufficient either because other

factors overshadow the applicant’s

compendium of exculpatory factors or

because a particular event or events

listed by the applicant cannot withstand

objective scrutiny .22/ Id.

i2/ the regulations also provide for an

"automatic" waiver in certain limited

circumstances. See 7 C.F.R. §

275.25(da) (5) (G) (1982). In order to

receive such a waiver, a state must have

implemented an FNS-approved corrective

action program in the six months before

the period during which the excessive

error rate materialized, and must meet

specially reduced target error rates

thereafter. The record does not

indicate that Massachusetts ever claimed

eligibility for an automatic waiver

applicable to FY 1982.

A-44

Massachusetts sought a good-cause

waiver on three grounds, viz., caseload

growth, changes in federal laws, and

good faith efforts to reduce its error

rate. FNS denied the waiver. In so

doing, it took much of the wind from

Massachusetts’s sails. Specifically,

FNS explained that Massachusetts ’s

caseload growth was not a sufficient

excusatory fact because the figure was

bloated by one-time social security

"“cash-ins"; that new legislation was not

a factor because the state had four

months to adapt to changes in the law;

and that Massachusetts’s efforts to

reduce errors were anything but

"exemplary." Additionally, FNS brought

{

an independent set of considerations to

bear, stressing the Commonwealth’s

steady history of failing to meet

program deadlines and requirements. The

Board approved the agency’s decision to

withhold a waiver on this ground and the

district court affirmed by summary

judgment.

Massachusetts and FNS attempt to

rejoin this point-counterpoint before

us. Our role in this setting, however,

is not to weigh the factual averments

and assess, on balance, the merits of a

waiver. Rather, "(i)f the court upholds

the agency’s finding of violation, the

court’s only remaining task is to

examine the sanction imposed in light of

the administrative record to judge

whether the agency properly applied its

regulations ... ." Broad St., 720

A-46

F.2d at 220. In fine, a reviewing court

may only overturn agency sanction

determinations that are arbitrary and

capricious, see id., which is to say,

“unwarranted in law... or without

justification in fact." Butz v. Glover

Livestock Comm’n Co., 411 U.S. 182,

185-86 (1973) (citation omitted) ; accord

Collazo, 668 F.2d at 65.

In the posture of this case, the

idiosyncratic nature of summary judgment

practice gives a slightly different

twist to the operation of the familiar

“arbitrary-and-capricious" standard.

Because we are scrutinizing the district

court’s disposition of a motion filed

under Fed. R. Civ. P. 56(c), we must

approach the record "in the light most

hospitable to the party Opposing summary

judgment, indulging all reasonable

A-47

inferences in that party’s favor."

Grigas-Ryan v- Smith, 904 F.2d 112, 115

(lst Cir. 1990). In order to prevail,

therefore, the Commonwealth must

persuade us that the record evinces a

genuine dispute over some material

fact. Emphasizing the items set forth

in support of its waiver application,

Massachusetts says that such a dispute

existed. But, this perspective

overlooks the relevant point: the real

question is not whether the facts set

forth in support of the waiver

application are disputed, but, rather,

whether the administrative record, now

closed, reflects a sufficient dispute

concerning the factual predicate on

which FNS relied in denying the waiver

to support a finding that the agency

acted arbitrarily or capriciously. We

explain briefly.

On a motion for summary judgment, a

fact is material if it "might affect the

outcome of the suit under the governing

law"; a dispute is "genuine" if a

reasonable jury could resolve it in

favor of the nonmoving party. United

States v. One Parcel of Real Property,

Etc., 960 F.2d 200, 204 (1st Cir. 1992)

(citing Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986)). Because the

law allows FNS to exercise discretion as

long as it has minimally adequate

justification in fact for doing so, the

facts material to the propriety of

summary judgment on the good-cause

waiver question are those facts that

relate to whether FNS’s denial of the

waiver was arbitrary and Capricious -

A-49

not the facts on which a plea for

issuance of a waiver might have rested.

See Villanueva v. Wellesley College, 930

F.2d 124, 129 (lst Cir.) (noting that an

appellate tribunal must review summary

judgment in light of the plaintiff’s

ultimate burden at trial), cert. denied,

112 S. Ct. 181 (1991). In a nutshell,

then, a bona fide skirmish over the

veracity and importance of ancillary

facts which the Commonwealth thinks

support its waiver application does not

egest the possibility of summary

judgment, for it is the basis underlying

the agency’s denial of a waiver upon

which a reviewing court must focus. See

Town of Norfolk v. United States Army

Corps of Eng’rs, 968 F.2d 1438, 1448

(lst Cir. 1992) (upholding a grant of

summary judgment on the basis that, if

A-50

ee et ee ee

an agency determination is "reasonably

supported by the administrative record,

[a reviewing court’s) inquiry must

end"); see also Villanueva, 930 F.2d at

131 (ruling that summary judgment is

proper when a plaintiff disputes some

facts, but does not adduce sufficient

evidence from which the trier could

conclude that the defendant failed to

meet the applicable legal standard).

The district court noted that the

facts upon which the Commonwealth

relied, "though qualifying it for

enbadtewek ton for a waiver, and indeed

possibly warranting a waiver, [did] not

entitle it to a waiver as a matter of

right." Massachusetts II, 788 F. Supp.

at 1275. We agree with this

assessment. We add, moreover, that, as

this court has recognized for many

A-51

years, simply rearguing the merits of an

agency’s discretionary decision will not

forestall summary judgment on such on

issue. See, e.g., Concerned Citizens on

I-190 v. Secretary of Transp., 641 F.2d

1, 7 (lst Cir 1981). Although we, like

the district court, assume for

argument’s sake that the subsidiary

facts on which the Commonwealth’s waiver

application rested are true, the record

nevertheless reveals that FNS weighed

these facts against, and eventually

based its denial on, other uncontested

facts (e.g., the contribution of Social

Security "cash-ins" to caseload growth,

the superior performance of other states

under much the same circumstances, and

Massachusetts’ checkered history of

noncompliance with food stamp program

directives). Regarding this latter set

of subsidiary facts, there is no

dispute. See Massachusetts II, 788 F.

Supp. at 1274.

Let us be perfectly clear. We do

not suggest that courts should

rubber-stamp agency decisions under the

guise of "arbitrary-and-capricious"

review. Had FNS, in this case, rejected

the waiver application on a ground that

its regulations did not contemplate, or

without considering the applicant’s

stated basis for relief, or in reliance

on a manifestly inadequate factual

showing, there might well be room for a

court to find the agency’s actions

arbitrary and capricious. But, nothing

of the kind transpired here. Rather,

the record reveals a situation in which

FNS carefully considered the whole and

a~$3

declined - rationally, if not inevitably

- to grant discretionary relief.

In the final analysis, Congress

elected to delegate the discretion to

award or withhold good-cause waivers of

food stamp penalties to the Secretary -

not to the federal courts. Where, as

here, the legislature has conferred

re tinea

generous discretion upon an agency, a

reviewing court must contemplate the

administrative record with due regard

for that discretion and gauge the

reasonableness of agency action in that

light. Given the low quantum of actual

justification necessary to deny a

discretionary waiver under section

2025(g), we are constrained to conclude

that, since FNS’s denial of the waiver F

was based upon a plausible and

essentially uncontested set of reasons

A-54

documented in the record and consistent

with existing regulations, the district

court correctly ruled in its favor,

notwithstanding that the case was at the

summary judgment stage. See Valley

Citizens, 886 F.2d at 469; see also

Citizens to Preserve Overton Park, Inc.

v. Volpe, 401 U.S. 402, 416 (1971) ("The

Court is not empowered to substitute its

judgment for that of the agency.").

V. CONCLUSION

We need go no further. The

Commonwealth’s asseverational array

announces an abundance of red meat and

strong drink; yet, its table is spread

with far less hearty fare. Because

appellant’s arguments afford scant

sustenance for its position, the

disputed sanction must stand. On the

record before it, the district court did

A-55

not err in entering summary judgment in

favor of the Secretary.

A-56

APPENDIX B

737 F. Supp. 120

COMMONWEALTH OF MASSACHUSETTS, ON BEHALF

OF THE DEPARTMENT OF PUBLIC WELFARE OF

the COMMONWEALTH, Plaintiff

Vv.

UNITED STATES of America, Richard E.

Lyng, Secretary of the United States

Department of Agriculture, Orval

Kerchner, George Marienthal, and

Lawrence Slagle, members of the State

Food Stamp Appeals Board, Robert E.

Leard, Administrator of the Food and

Nutrition Srvice, U.S. Department of

Agriculture, and Harold T. McLean,

Regional Administrator of the

Northeastern Regional Office of the Food

and Nutrition Service, U.S. Department

of Agriculture, Defendants.

Civ. A. No. 86-2132-Y.

United States District Court,

D. Massachusetts.

April 27, 1990

Douglas H. Wilkins, Asst. Atty.

Gen., Boston, Mass., for plaintiff.

Asst. U.S. Atty. Jeffrey Martin,

Steven Zelinger, U.S. Dept. of Justice,

Washington, D.C., for defendants.

MEMORANDUM OF DECISION CONCERNING

THE FOOD STAMP QUALITY CONTROL AND

SANCTION PROCESS

YOUNG, District Judge.

B-1

The plaintiff Commonwealth of

Massachusetts (the "Commonwealth" or |

"Massachusetts") has filed a motion for

summary judgment to set aside a decision :

of the United States Department of

Agriculture (the "Department") imposing

a monetary sanction on Massachusetts for

excessive errors in the Commonwealth’s

adminstration of the Food Stamp Program

(or the "Program"). Specifically,

Massachusetts claims that the sanction |

is void because the Department violated

its own regulations and reviewed too

many sample cases in determining the

Commonwealth’s error rate. In addition

to arguing that the Commonwealth’s

Ce ee

motion should be denied, the United

States maintains that it should be

granted partial summary judgment on the

issue of whether the monetary sanction

B-2

is void because of the Department’s

oversampling.

The Food Stamp Program is

adminstered at the national level by the

Food and Nutrition Service ("Service" or

"FNS") of the Department. At the state

level, each participating state is

responsible, through its agencies, for

certifying applicant households and

coordinating the distribution of monthly

benefits. While the federal government

reimburses the states for the full value

of the food stamp benefits distributed,

it pays only part of a state’s

administrative expenses associated with

that distribution. 7 U.S.C. sec.

2025 (a) (1982) .2/ The Service may

2/ References to both the United States

Code and the Code of Federal Regulations

sections in this memorandum are to the

statutes and regulations in effect for

April-September 1982.

B-3

reduce the percentage of administrative

expenses paid by the federal government

upon finding that a state has failed to

comply with a Program requirement. 7

C.F.R. sec. 275.25(d)(1) (1982).

Noncompliance is reflected by the

payment error rate assigned to each

state agency by the Service.

One way that the Service may

properly reduce federal funding is

through application of its quality

control and sanction process (sometimes

referred to as "QC"). 7 U.S.C. sec.

2025(d). Through its quality control

procedures, the Service assigns to each

state agency administering the Food

Stamp Program a "target" payment error

rate.2/ From time to time, the Service

calculates an actual payment error rate

that purports to reflect cases in which

the state agency determined a family to

be eligible for benefits when it was

not, or authorized benefits in excess of

those to which a family was entitled.

To determine the actual error rate, the

state agency is required to select a

sample of all cases and review them to

determine whether they were correctly

decided by the case worker. 7 C.F.R.

secs. 275.10-11 (1982). Based on the

sample, the state agency makes a

2/ The target error rate is determined

from estimates of the state error rate

and the national error rate in the base

period in a prior fiscal year. 7 C.F.R.

sec. 275.25(d) (2) (1982).

determination of how many cases were

decided erroneously, counts those

erroneous decisions as errors, and

calculates an error rate for that state.

The Service then selects a subsample

of the state agency’s sample and reviews

it for accuracy. 7 C.F.R. sec. 275.3

(1982). If the Service determines that

a case which the state agency has found

to be correct is in error, there is a

- “federal difference" which is resolved

by an arbitration review procedure. 7

C.F.R. sec. 275.3(c)(3)-(4). Those

"federal differences" that are upheld in

arbitration are weighed and, along with

the other errors, are computed through a

regression formula in order to arrive at

a state’s error rate. 7 C.F.R. sec.

275.25. This error rate, expressed as a

percentage, is an estimate of the total

number of errors present in a state’s

entire Food Stamp case load. If a

state’s error rate exceeds the target

error rate, it receives a sanction in

the form of reduced federal

reimbursement of its expenses associated

with administering the Program. 7

C.F.R. sec. 275.25.

The Commonwealth here seeks further

review of a $1,585,034 Food Stamp

quality control penalty imposed upon it

with respect to its 1982 administration

of the Food Stamp program. This appeal

was first heard on March 27, 1986 by the

State Food Stamp Appeals Board (the

"Board"), the Department’s adminstrative

tribunal. In a decision dated June 23,

1986, the Board upheld $1,368,893 of the

1982 penalty.

Since that time, the Board has

vacated penalties against other states

on the grounds that the Service failed

to comply with federal regulations and

quality control manuals mandating the

size of the federal subsample.

According to the Board’s more recent

rulings, the federal subsample must be

exactly one hundred and eighty (180)

cases for the time period covered by the

regulation relevant to that time

period. The Board has held invalid and

unenforceable quality control penalties

based on more than 180 cases

(oversampling) 2/ as well as less than

3/ In appealing its 1982 penalty to the

Board, Massachusetts does not appear to

have raised the oversampling issue. See

Plaintiff’s Statement of the Material

Facts as to which There is No Genuine

Issue to be Tried, paras. 14 and 18.

A tans aero ere

180 cases (undersampling). in re:

Louisiana, Adminstrative Review No. 5-87

(1988); In re: Pennsylvania,

Administrative Review No. 8-87 (1988);

in.re: Utah, Adminstrative Review No.

21-85 (1986). In light of these

favorable Board decisions, the

Commonwealth prepared a motion to vacate

a similar 1983 Food Stamp quality

control penalty. That motion proved

unnecessary because the Service

voluntarily withdrew with prejudice the

Commonweaith’s 1983 penalty. With

respect to the Commonwealth’s 1982

penalty, however, the Service concedes

that more than 180 cases were sampled,

but now refuses to vacate the penalty,

maintaining that it is valid and

enforceable.

The Commonwealth here seeks to have

the Board’s 1986 decision reviewed,

reversed, and the 1982 penalty vacated

in its entirety .4/

4/ In view of the Service’s concession

that oversampling is present here, one

might have expected the Commonwealth

tactically to have sought

reconsideration of the imposition of the

1982 penalty from the Board itself in

view of the above cited Board decisions

condemning oversampling. It is perhaps

a comment on the ever proliferating

"Judiciary" within the executive branch

that the Department--apparently stung by

the reversals just cited--has replaced

the Board wholesale with new personnel.

See June 30, 1989 Memorandum of Acting

Assistant Secretary for Food and

Consumer Services, USDA ("Correction of

SFSAB Erroneous Interpretation of 7 CFR

Section 273.3(c)(1) 180-Case Subsample

Regulation"), and letters from former

Secretary Lyng and his successor,

Secretary Yeutter, appointing new

members of the Board.

B-10

The disputed regulation, 7 C.F.R.

sec. 275.3(c)(1), provides:

’

- FNS shall validate each

State’s reported payment error rate

during each 6-month quality control

( (QC) reporting period. Each

Validation review shall consist of

the following actions. (1) FNS will

select a subsample of a State’s

completed sample. The Federal

review sample size for completed

active cases is determined by the

following equation:

n- = .14n + 50.31 where

n? is the subsample size (maximum

180), and

n is the State’s minimum required

active sample size as determined by

sec. $75~12(@) {2) .

This number (n“) represents the

minimum number of Federal review

sample cases which must be selected

and reviewed by a Regional office

when conducting a validation review.

The dispute between the Commonwealth and

the United States is over the numerical

value to be assigned to n?. The

position of the United States, as

articulated by the Secretary of

Agriculture (the "Secretary"), is that

the regulation should be interpreted to

B-11

mean that the Service need not review

more than 180 cases in a sample (due to

scarce rescources), not that the agency

is precluded from reviewing more than

180. On the other hand, both

Massachusetts and the former Board

maintain that the regulation requires

that the Service select a subsample of

exactly 180 cases.

The ultimate issue facing the Court

is whether the 1982 penalty imposed on

the Commonwealth is valid and

enforceable, in light of the undisputed

fact that the Service calculated the

error rate from a subsample of greater

than 180 cases. Before confronting that

issue, however, the Court must work its

way through a thicket of preliminary

issues. First, the Court must determine

whether there is an authoritative

B-12

Departmental interpretation of the

regulation concerned with subsample

Size. Second, if such an interpretation

exists, the Court must determine how

much deference to give it. It is only

after making these determinations that

the Court can determine the validity of

the 1982 penalty imposed on the

Commonwealth.

As to the first issue, the Court

concludes that there is, in fact, an

authoritative Departmental

interpretation of 7 C.F.R. sec.

275.3(c)(1). That interpretation is the

one initially accepted by the former

Board: viz. that 7 C.F.R. sec.

275.3(c)(1) requires that the Service

select subsamples of exactly 180 cases,

neither more nor less. The former Board

intepreted section 275.3(c) (1) pursuant

B-13

to authority delegated to it by the

Secretary of Agriculture in 7 C.F.R. sec

276.7 (1982) and Departmental Regulation

No. 1044-1 (September 18, 1981), which

provides in relevant part that "the

decision of the Appeals Board ....

constitutes the final administrative

determination of the Department of

Agriculture and is binding on all

parties." USDA Departmental Regulation

No. 1044-1 at para. 7; see also 7 C.F.R.

sec. 276.7. Because the Secretary

delegated to the Board the final

decision-making authority vested in him

by the Food Stamp Act of 1977, 7 U.S.C.

sec. 2023 (1982), including the duty to

apply regulations defining the size of

the Services’s subsample, the

interpretation of the former Board is in

fact the final Departmental

B-14

interpretation notwithstanding the

Secretary’s disavowal of it in this case.

Confirming this analysis, the

relevant case law is firmly settled that

in a dispute such as this one between an

agency head and an agency tribunal to

which the agency head has delegated

decision-making authority, such

delegation precludes the agency head

from exercising that authority

independently of the tribunal. United

States v. Nixon, 418 U.S. 683, 694-97,

94 S.Ct. 3090, 3100-102, 41 L.Ed.2d 1039

(1974); Vitarelli v. Seaton, 359 U.S.

535, 79 S.Ct. 968, 3 L.Ed.2d 1012

(1959); Service v. Dulles, 354 U.S. 363,

77 S.Ct. 1152, 1 L.Ed.2d 1403 (1957);

United States ex rel. Accardi v.

Shaughnessy, 347 U.S. 260, 266, 74 S.Ct.

499, 502, 98 L.Ed. 681 (1954). In

B-15

essence, the former Board’s decisions

with respect to the interpretation of

section 275.3(c)(1) are binding upon the

Secretary as the authoritative agency

interpretation, regardless of whether he

adopts a contrary position. GTE

International, Inc. v. Hunter, 649

F.Supp. 139 (D.P.R.1986).

There is no evidence that the

Secretary has rescinded his delegation

of interpretative authority to the

Board. While the Court expresses no

opinion as to whether "it is

theoretically possible for the

[Secretary] to amend or revoke the

{[Board’s) authority," it does point out

that, in this instance, “he has not done

so." Nixon, 418 U.S. at 696, 94 S.Ct.

at 3101. Nor has the Secretary

attempted to supplant the Board’s

B-16

interpretation of section 275.3(c) (1)

through a rule-making proceeding in

accordance with section 4(c) of the Food

Stamp Act, 7 U.S.C. sec. 2013(c), and

section 553 of the Administrative

Procedure Act, 5 U.S.C. sec. 553, as was

done when he revised the regulation

pertaining to Federal Subsamples taken

after 1983. Cf. Batterton v. Marshall,

648 F.2d 694, 705-06 (D.C. Cir.1980)

(holding that notice and comment

rulemaking are required when an agency

adopts a statistical methodology that

"prescribes the regulatory structure

through which the critical variable in

the [agency’s program} formula is

attained"). Because the Secretary has

made no attempt to overturn the former

Board’s interpretation pursuant to the

relevant statutes and regulations, the

B-17

former Board’s interpretation must stand

as the authoritative Departmental

interpretation of : C.F.R. sec.

275.3(c) (1).

Second, the court must determine how

much deference to give the authoritative

Departmental interpretation of the

regulation it has just derived.

Although this Court has held that the

interpretation of the former Board is

the authoritative agency construction,

the Court is of course not unmindful of

the fact that the Secretary’s

construction is now, and apparently

always has been, diametrically opposed

to that of the former Board. While this

Court is not swayed by the Secretary’s

construction in determining what

constitutes the authoritative

Departmental interpretation, it

B-18

acknowledges that the instant case is

not one in which the agency speaks with

a single voice. Therefore, in analyzing

the case law to determine how much

deference is to be given the

authoritative Department interpretation,

this case must be distinguished from

those in which there was no dispute

within the agency as to the

interpretation of the regulation.

Accordingly, the Court gives less .

deference to the authoritative

Departmental interpretation than courts

generally give to agency intepretations

of their own agency regulations

precisely because of this interpretative

dispute between the Secretary and the

former Board. See Immigration &

Cardoza-Fonseca, 480 U.S. 421, 446-47 n.

B-19

30, 107 S.Ct. 1207, 1221 n. 30, 94

L.Ed.2d 434 (1987) ("An agency

interpretation ... which conflicts with

the agency’s earlier interpretation is

‘entitled to considerably less

deference’ than a consistently held

agency view.") Massachusetts v.

e ta ° e ices,

899 F.2d 53, 58 (lst Cir. March 19,

1990); Immigration and Naturalization

Service v. Cardoza-Fonseca, 480 U.S.

421, 446-47, 107 S.Ct. 1207, 1221 n. 30,

94 L.Ed.2d 434 (1987); cf. Mayburg v.

Secretary of Health & Human Services,

740 F.2d 100, 105 (lst Cir.1984)

(holding that the decisions of the

Supreme Court do not always compel

deference to agency interpretations of

statutes, and that "sometimes a

B-20

different, and more independent judicial

attitude is appropriate") .2/

2/ In Mayburg, Judge Breyer makes two

critical points with respect to the

‘ issue of whether a court should defer to

an agency interpretation of a statute.

First, “under [ P

323 U.S. 134, 65 S.ct. 161, 89 L.Ed. 124

(1944)] the agency ultimately must

depend upon the persuasive power of its

argument. The simple fact that the

agency has a position, in and of itself,

is of only marginal Significance." Jaq.

at 106. Second, the less important the

question of interpretation, the more

likely that Congress would have intended

that the courts defer to the agency’s

interpretation. Id.

In this case, because of the

interpretive conflict between the

Secretary and the former Board, and for

the reasons detailed infra at 125-26,

the Court finds little persuasive power

in the position of the former Board. In

addition, because the monetary sanction

at issue here is in excess of one

million dollars and embodies the

congressional intent to spur accuracy in

the adminstration of the Food Stamp

Program, the Court is unable to conclude

that this interpretive question is

unimportant.

B-21

It is well recognized doctrine that

deference is to be given to the

statutory interpretation made by an

agency charged with enforcement of a

statute. E.G., Udall_v. Tallman, 380

U.S. 1, 16, 85 S.Ct. 792, 801, 13

L.Ed.2d 616 (1965); cf. Wilcox v. Ives,

864 F.2d 915, 924-26 (lst Cir. 1988)

(validity of agency’s statutory

interpretation must be determined

through analysis of language, purpose,

and history of the statute).

When the construction of an

adminstrative regulation rather than

a statute is in issue, deference is

even more clearly in order. ‘Since

this involves an interpretation of

an administrative regulation a court

must necessarily look to the

adminstrative construction of the

regulation if the meaning of the

words used is in doubt....[T)he .

ultimate criterion is the

administrative interpretation, which

becomes of controlling weight unless

it is plainly erroneous or

inconsistent with the regulation. ’

Tallman, 380 U.S. at 16-17, 85 S.Ct. at

B-22

801 (quoting Bowles v. Seminole Rock

Co., 325 U.S. 410, 413-14, 65 S.Ct.

1215, 1217, 89 L.Ed. 1700 (1945)

(emphasis added); Massachusetts v.

Secretary of Health and Human Services,

899 F.2d at 61-64.

Analysis by the Court of the

language of 7 C.F.R. sec. 275.3(c) (1)

reveals that "the meaning of the words

used is in doubt." Tallman, 380 U.S. at

16, 85 S.Ct. at 801. On the one hand,

the regulation states that "n! is the

sample size (maximum 180)" and that

"(t)his number (n?) represents the

minimum number of Federal review sample

cases which must be selected and

reviewed by a Regional office when

conducting a validation review." 7

C.F.R. sec. 275.3(c)(1) (emphasis

added). Because of the use of "maximum"

B-23

and "minimum," the above passage,

standing alone, would appear capable of

no interpretation other than that the

federal subsample must be exactly 180

cases. On the other hand, the same

regulation also states that

(tjhe Federal review sample size for

completed active cases is determined

by the following equation:

n~ = .14n + 50.31 where ...

n is the State’s minimum required

active sample size as determined by

‘ sec. 275.11(d) (1).

7 C.F.R. sec. 275.3(c) (1).

According to sec. 275.11(d)(1), n,

the sample size, is determined in the

following manner:

(ad) Sample Size. (1) The

number of active cases to be

selected and reviewed by each

State agency during a six-month

reporting period shall be

determined by the average

monthly caseload as follows:

B-24

Average monthly Required semiannual

households sample size

60,000 and over... nh = 1200

10,000 to 59,999.. n = 150 + 0.021

(N - 10,000)

Under 10,000..... n = 150

where...

(ii) N is the anticipated average

monthly participating caseload

subject to quality control review .

- «© « «7 C.F.R. sec. 275.11(d) (1).

To the mathematically minded, the

inconsistency may be obvious. It is the

duty of this Court, however, to assay an

explanation. The part of 7 C.F.R. sec.

275.3(c)(1) first discussed above

appears to require that nt equal exactly

180 cases, while the part of that same

regulation discussed thereafter states

that n+ is determined by means of the

provided formula after first determining

the value for n. If the provided

formula is applied after first

B-25

determining n, however, then it is only

by coincidence that n? would equal 180.

In fact, there is only one case in which

application of the provided formula

yields the result of n equal to 180.

That result only occurs when n, the

sample size, equals 926, and n will

equal 926 only when the number of

average monthly households equals

46,952. In any other situation where

the number of average monthly households

does not equal 46,952, application of

the formula produces an n? that does not

equal 180.8/

§/ the equations which support these

conclusions are as follows. First, we

start with n~ equal to 180 and plug that

value into the equation at 7 C.F.R. sec.

275.3{¢) (1) in order to solve for n.

n* = .14n + 50.31

180 = .14n + 50.31

129.69 = .14n

n = 926.35714 (approximately = 926)

The value for n just calculated is

plugged into the equation at 7 C.F.R.

B-26

In sum, a common-sense,

straightforward reading of 7 C.F.R. sec.

275.3(c)(1) reveals that it seems to

state both that (a) the value of n? must

equal exactly 180 and (b) the value of

n? will vary as the value of n varies,

as n is determined by the number of

average monthly households for a state.

Therefore, because the meaning of the

language of the regulation is in doubt,

the Court must next consider the

“adminstrative interpretation, which

sec. 275.11(d)(1) in order to solve for

N, the number of average monthly

households.

926 = 150 + 0.021(N - 10,000)

0.021N = 926 - 150 + 210

0.021N = 986

N = 46,952

B-27

becomes of controlling weight unless it

is plainly erroneous or inconsistent

with the regulation." Tallman, 380 U.S.

at 16-17, 85 S.Ct. at 801 (emphasis

added).

Here, however, the authoritative

Departmental interpretation derived from

the decisions of the former Board (i.e.,

that n+ must equal exactly 180) is

"plainly ... inconsistent with the

regulation. " Id. First, as already

stated, that interpretation is

inconsistent with the forumula provided

in 7 C.F.R. sections 275.3(c)(1) and

275.11(d)(1). See supra note 6.

Second, that interpretation is

inconsistent with the history of the

regulation. While it may be true that

the proposed initial rule on the Food

Stamp error-rate sanction system did not

B-28

provide a definition of the Federal

subsample size, see 45 Fed. Reg. 65,932

(1980), and that the Service accepted

the view of commenting states that "the

Federal sample size ... should be valid

and specified in the final regulations

together with a description of the

Federal review process, " 46 Fed. Reg.

7,261 (1981), there is no evidence to

suggest that the Service intended to

limit itself to subsamples of exactly

180 cases. On the contrary, one of the

statisticians who has been working with

quality control in the Food Stamp

Program since 1977 states:

If the formula resulted in sample

sizes of more than 180 the formula

was to be ignored and the minimum

required sample size was to be 180

(thus the "maximum" 180). Our

intentions in adding the word

maximum was [sic] not to restrict

the regions from selecting more than

180 cases but to keep them from

being required to select more than

B-29

180 cases as the formula would have

required if a "cap" was not

imposed. We never intended nor gave

out interpretations that said 180

was an absolute maximum not to be

exceeded. At the time the

regulations were being written this

is what we wanted as the

requirements for Federal subsampling.

Affidavit of Nicholas J. Manthos

attached to Memorandum In Opposition to

Louisiana’s Motion to Vacate Sanction,

In re Louisiana, Administrative Review

No. 5-87 (1988).

Third, the authoritative

Departmental interpretation is

inconsistent with the purpose of the

regulation. Because the federal

government reimburses the states for up

to half of the eligible state and local

expenses associated with administering

the Food Stamp Program, 7 U.S.C. sec.

2025, Congress, as an incentive to the

states to administer the Food Stamp

Program efficiently and accurately,

B-30

required the Department to impose

monetary sanctions on states for

excessive, erroneous payments of food

stamp benefits.// The purpose of 7

C.F.R. sections 275(c)(1) and

275.11(d)(1) is to create a procedure by

which the Service can determine each

state’s error rate efficiently and

L/ See, e.g., Food Stamps Act

Amendments of 1980, H.R.Rep. No. 788,

96th Cong., 2d Sess., reprinted in 1980

U.S.Code Cong. & Admin. News 843,

910-11; id., 1980 U.S.Code Cong. &

Admin. News at 902 ("(T)he Committee

would like to improve the management of

the program and increase public

confidence in its conduct both by

rewarding those States that make

acceptable efforts to reduce their error

rates ... and by penalizing those States

that fail to make satisfactory

progress. The Committee is convinced

that this combined approach will

substantially improve program operations

and will, therefore, considerably reduce

the cost of errors to taxpayers as well

as to participating households...").

B-31

accurately. In this case, the Service

appears to have selected a subsample of

194 cases®/ instead of 180 cases, a

deviation of less than 10%. Therefore,

the accuracy of the error rate

determined from that subsample would

theoretically be greater--and thus

presumably more favorable to the

Commonwealth--than it would have been if

the subsample size had been 180 case. 2/

8/ See Defendant’s Statement of

Disputed Facts, para. 12.

2/ Basic statistical theory--which

applies irrespective of the statistical

model used--holds that the greater the

subsample size, the smaller the

variance, and the greater the precision

of the statistical measurement. E.g.,

D. Harnett, j

Methods 191 (2d ed. 1975) ("collecting a

larger sample usually results[s]) ina

more representative sample"); D.

Freedman, R. Pisani & R. Purves.

Statistics 355 (1978) ("A large

population is given. It is desired to

estimate the percentage of people in the

whole population who have a given

quality... The accuracy of this

estimate depends mainly on the absolute

B-32

The selection by the Service of a

subsample size of slightly more than 180

cases, of itself, was entirely

consistent with the efficient and

accurate determination of the

Commonwealth’s error rate.20/

size of the sample, larger samples being

more accurate").

10/ the court takes issue with the

Commonwealth’s argument that the Service

is not treating the states consistently

unless it takes subsamples of exactly

180 cases for each state, regardless of

the number of a state’s average monthly

households. On the contrary, the most

consistent method for taking subsamples

is to vary the size of the subsample

with the size of the sample taken by

each state (as is done by following the

procedure set forth in 7 C.F.R. sections

275.3[c])[1] and 275.11[{d][1]), thus

ensuring that the subsample is a fixed

percentage of the sample. If the

subsample always equals 180 cases, it

would not remain a fixed percentage and,

consequently, each state would be

treated differently, depending on its

number of average monthly households.

B-33

Therefore, the authoritative

Departmental interpretation, which would

require dismissing a monetary sanction

imposed by Congress in order to

encourage accurate state administration

of the Food Stamp Program solely on the

grounds that the subsample size was

greater than 180 cases without requiring

a showing that a state had been

prejudiced in some way by the inclusion

of the additional cases, is inconsistent

with the purpose of the regulation.

CONCLUSION

The Court holds that the

interpretation of 7 C.F.R. sec.

275.3(c) (1) advanced by the Commonwealth

B-34

is the authoritative Departmental

interpretation, but that it is "plainly

--- inconsistent with the regulation."

Tallman at 16-17, 85 S.Ct. at 801.

Because of this inconsistency, the Court

gives little deference to the

authoritative Departmental

interpretation and instead concludes

that 7 C.F.R. sec. 275.39(c)(1) does not

require that the subsample to be

reviewed by the Service contain exactly

180 cases. As a result, the Court

denies the Commonwealth’s motion for

summary judgment and grants the United

States’ motion for partial summary

judgment on the issue of whether the

1982 monetary sanction imposed on

Massachusetts by the Service is invalid

and unenforceable because the subsample

B-35

reviewed by the Service exceeded 180

cases.

SO ORDERED.

PDL APRIL LEED SAY AR NE ROM ey eh

B-36

Appendix C

788 F.Supp. 1267

COMMONWEALTH OF MASSACHUSETTS, and

Massachusetts Department of Public

Welfare, Plaintiffs,

Vv.

UNITED STATES of America, United States

Secretary of Agriculture, Massachusetts

State Board of Food Appeals, and United

States Department of Food & Nutrition

Service, Defendants.

Civ. A. No. 86-2132-Y.

United States District Court,

D. Massachusetts.

April 6, 1992.

Douglas H. Wilkins, Asst. Atty.

Gen., Boston, Mass., for plaintiffs.

Jeffrey Martin, Asst. U.S. Atty.,

Steven Zelinger, U.S. Dept. of Justice,

Washington, D.C., for defendants.

MEMORANDUM AND ORDER

YOUNG, District Judge.

The Commonwealth of Massachusetts

appeals from a determination by the Food

Stamps Appeals Board ("Appeals Board")

that Food and Nutrition Services ("Food

and Nutrition"), the adminstrator of the

food stamps program, 2/ properly levied

sanctions totaling $1,323,864 for

violations from April to September 1982

of the Food Stamp Act of 1964 ("the

Act"), 7 U.S.C. §§ 2011-2030. The

parties have filed cross-motions for

summary judgment on the validity of the

agency action. The Commonwealth

additionally seeks judgment that it is

entitled to a "good cause" penalty

waiver.2/

4/ Food and Nutrition Service is the

delegated administrator of the food

stamps program, pursuant to the ;

Secretary of Agriculture’s power to

delegate responsibility under 7 U.S.C.

§ 2013 (1988).

2/ This Court, in its Memorandum and

Order of April 27, 1990, denied the

motion of the Commonwealth for summary

judgment against the Imposition of the

penalty and granted the cross motion of

the United States for partial summary

judgment, thus disposing of one of the

defenses raised against the imposition

of the penalty.

Commonwealth of Mass.

, 737 F.Supp. 120, 126

(D.Mass.1990). This opinion addresses

C-2

The Commonwealth agrees that the

mathematical computations involved

comply with the applicable regulations,

but it argues that the regulations

themselves are biased against states in

their choice of a sampling-type

computation method.2/ The Appeals

the remaining issues.

3/ The Commonwealth challenges the

authority of Food and Nutrition to levy

sanctions, based on the Food Stamp Act

Amendments of 1982, Pub.L. 97-253, which

repealed old section (g) and replaced it

with a new section. This argument is

without basis in law. The General

Savings Clause, 1 U.S.C. § 109 (1985),

requires that penalties assessed on a

repealed or amended statute remain in

effect unless the repealing act provides

otherwise. See Moorehead v. Hunter, 198

F.2d 52, 53-54 (10th Cir. 1952); United

, 123 F.Supp. 920, 923

(S.D.N.Y. 1954), aff'd 227 F.2d 958 (2a

Cir. 1955), cert. denied, 353 U.S. 961,

77: S.Ct. 870, 1 L.Ed.2d 912 (1957); In

, 103 B.R. 610

(E.D.Pa.1989). Since October 1, 1982,

was the effective date of the 1982

Amendments, penalties arising under old

section (g) remained effective.

C=-3

Board affirmed the validity of the

sanctions, finding that the sampling

methods were “consistent with currently

recognized approaches outlined in

statistical texts and practices used in

other governmental erosrens.* See

Letter from Orval Kerchner to Michael

Putnam ("Kerchner Letter") at 1978. The

Appeals Board ruled that the denial of a

"good cause" penalty waiver was also

proper, because Massachusetts did not

exhibit any “exemplary effort" to reduce

its error rate. Id. at 1979.

I. The Food Stamp Act of 1964

Congress, in an attempt to

supplement the nutritional needs of low

income families and "[t]o alleviate ...

hunger and malnutrition," 7 U.S.C. §

2011, enacted the Food Stamp Act of

1964. The Act provides for food stamp

distribution to eligible families in

order to increase their food purchasing

power. The Secretary of Agriculture was

empowered to formulate regulations

consistent with the Act, including

uniform eligibility requirements. 7

U.S.C. § 2013(c). The Secretary

delegated nation-wide supervision of the

program to Food and Nutrition. The

states that choose to participate in the

plan are required to designate an agency

responsible for day-to-day operations.

see 7 C.F.R. § 272.2 (1990). In

Massachusetts, the Department of Public

Welfare ("the Department") administers

the food stamp program. The

Commonwealth and the federal government

share the administrative costs equally.

See 7 U.S.C. § 2025(a).

A. Error Rates

In order to verify state compliance

with the program, the federal government

imposes a target error rate each year.

The target error rate provides a margin

for error within which there is no

liability for administrative errors. If

the official error rate exceeds the

target error rate, then liability

results. Indeed, the federal government

is empowered to reduce food stamp

funding by five percent for every |

percentage point by which the official

error rate exceeds the range of the |

target error rate. 7 C.F.R. §

275.23(d) (3) (i) (1991). Any

over-issuance of food stamps, either an

issuance to ineligible households or an

issuance of excessive amounts to

eligible households, results in

liability.

Rather than compile actual

percentages based on the Department’s

distribution to individual households,

Food and Nutrition uses a "sampling

method" in which a cross-section or

sub-sample of the households is

evaluated in order to determine the

official or actual error rate. 7 C.F.R.

§ 275.10-11. First, the state

determines its own official error rate

using a statistical sample, then Food

and Nutrition chooses a sub-sample from

the state’s larger sample and reviews

the official error rate.

The target rate computation is set

out in 7 C.F.R. § 275.23(e)(2). For

1983 and subsequent years, the

regulations enumerate the target error

rates. For the relevant period--April

to September of 1982--however, the

regulations provided a choice between

two formulae for calculating the target

error rate. These are the higher of

either the national standard payment

error rate during the first-half of 1981

or the state’s actual payment error rate

for the same period, with a mathematical

allowance factored in. The parties do

not dispute that the computed target

error rate for the base period was 14.88

percent. 4/

4/ The rate shifted from 14.86 to 14.88

in order to reflect a change in the base

period rate. Maddox Affidavit q 19.

Massachusetts’ official payment

error rate for the period was 16.35,

exceeding the target rate by 1.47

percent. 2/ Food and Nutrition assessed

the penalty for the period at

$1,323,864. The Commonwealth does not

dispute that Food and Nutrition

accurately computed the penalty based on

the regulations promulgated by the

Secretary. Instead, Massachusetts calls

3/ Again, the official error rate was

adjusted several times in order to

account for incomplete samples. The

initial official error rate was 16.36

percent on November 8, 1984; 16.62

percent on November 21, 1984; 16.38

percent on February 24, 1986; and

finally, 16.35 percent on April 11,

1986. These adjustments reflected

changes in status from complete to

incomplete cases of some sample

households. See Declaration of Janice

Austin q4@ 13-21.

into question the validity of the

regulations themselves as biased in

favor of the federal government and

against the states.

B. Standard of Review

This Court is called upon to review

the Appeals Board’s approval of the

action taken by Food and Nutrition.

Pursuant to 7 U.S.C. § 2023, the

Commonwealth is entitled to a trial de

novo before this Court to review the

actions of the Appeals Board.£/ The

§/ In pertinent part, 7 U.S.C. §

2023(a) provides:

The suit in the United States

district court or State court shall

be a trial de novo by the court in

which the court shall determine the

validity of the questioned

administrative action in issue. If

the court determines that such

administrative action is invalid, it

shall enter such judgment or order

as it determines is in accordance

with the law and the evidence.

During the pendency of such judicial

review, or any appeal therefrom, the

administrative action under review

C-10

Court is not limited to reviewing the

record presented to the Appeals Board;

the Court must examine all evidence and

make its own findings of fact and

conclusions of law. Modica v. United

States, 518 F.2d 374, 376 (Sth Cir.

1975); Ramirez v. United States, 514

F.Supp. 759, 763 (D.P.R.1981). See also

Dunn _v. Secretary of U.S. Dep’t of

Agric., 921 F.2d 365, 366 (1st Cir.

1990), citing New England Legal Found.

v. Massachusetts Port Auth., 883 F.2d

157, 167 (1st Cir. 1989). This Court

cannot, however, simply ignore the

findings of the Appeals Board. Kulkin

shall be and remain in full force

and effect.

C-11

v. Bergland, 626 F.2d 181, 185 (1st Cir.

1980) ("We think that the de novo

judicial review provision, a procedure

for determining facts, is not aimed at

displacing the agency’s role"); see also

Redmond v. United States, 507 F.2d 1007,

1011 (5th Cir. 1975).

The First Circuit has adopted a

bifurcated standard of review in food

stamp cases, applying a de novo standard

to the determination of the violation

and a limited administrative review

standard to the sanction imposed. See

e.g., Kulkin, 626 F.2d at 184; Broad St.

Food Mkt., Inc. v. United States, 720

F.2d 217, 220 (lst Cir. 1983). In Broad

St., for example, the First Circuit

explained that review of the imposition

of sanctions takes place under the

"arbitrary and capricious" standard

C-1i2

germane to the Administrative Procedure

Act, 5 U.S.C. §§ 701-706, while review

of agency fact finding takes place under

a de novo standard. In that case, Food

and Nutrition had suspended the food

stamps program at a market for one

year. The market did not challenge the

finding of violations, but, on de novo

review, it submitted new evidence that

the sanction of disqualification was

onerous to the surrounding community.

The federal government objected to the

new evidence. New evidence, the First

Circuit held, is generally admissible in

a de novo review, but the District Court

had overstepped its bounds by examining

new evidence regarding the choice of

C-13

sanction. The sanction review// was

limited to an examination of "the

sanction imposed in light of the

administrative record to judge whether

the agency properly applied its

regulations." Broad St., 720 F.2d at

220. This is the standard imposed by.

the Administrative Procedure Act and

espoused by the Supreme Court in Butz v.

Glover Livestock Comm. Co., 411 U.S.

182, 185-86, 93 S.Ct. 1455, 1457-58, 36

L.Ed.2d 142 (1973). See also Kulkin,

626 F.2d at 184-85 (adopting the Butz

L/ Generally, discussion of the

severity of the sanction or the type of

sanction employed is impermissible. See

Broad St., 720 F.2d at 220, rejecting

Fourth Circuit reasoning in Cross v.

United States, 512 F.2d 1212, 1218 (4th

Cir. 1975) (en banc).

C-14

standard for review of assessed

sanctions).

This bifurcated approach gives

appropriate controlling weight to the

discretion of the administrative agency

in choosing a sanction. Broad St., 72°

F.2a at 220 (quoting Kulkin, 626 F.2d at

184 [choice of sanction is “peculiarly a

matter for administrative competence"

and may be overturned only if it results

from “arbitrary or capricious" agency

action or is “unwarranted in law and in

fact"]). Moreover, the Act’s

legislative history supports this

bifurcated approach. See H.R.Rep. No.

464, 95th Cong., 1st Sess. 397-98,

reprinted in 1977 U.S.C.C.A.N. 1705,

1978, 2326-27 "The trial de novo as set

forth in [7 U.S.C. 2023] should be

limited to a determination of the

c-15

validity of the administrative action,

but not of the severity of the

sanction. Review of the factual

determination is normal grist for the

courts’ review of the length of highly

discretionary a [sic] sentence of

disqualification is not").

_ If the sanction is not warranted in

law or fact, or if the Department of

Agriculture acted in an "arbitrary and

capricious" manner in imposing

sanctions, this Court may reduce the

penalty or instruct the agency to review

the penalty. 7 U.S.C. § 2025(a); see

also Broad St., 720 F.2d at 220.

Summary judgment is an appropriate

remedy if no genuine issues of material

fact exist for trial. Modica, 518 F.2d

at 376.

C-16

Cc. The Sampling Method and Penalty

pias

The stratified sampling method

employed by Food and Nutrition is a

reasonable and efficient method for

determining the official error rate.

See Hansen and Tepping Joint Declaration

q 16.8/ Though alternative methods

exist, the two defense experts hail the

8/ wr. Hansen is now deceased, so

arguably his affidavit, although in

standard form for consideration upon a

motion for summary judgment, is now

inadmissible hearsay. Fed.R.Evid. 802.

The United States, however, represents

that Mr. Tepping is capable of defending

the Joint Declaration and further

asserts that the declaration is

admissible because it was made in good

faith and based upon personal knowledge

of the declarant Hansen. The Court need

not address this latter assertion since

Mr. Tepping is a competent witness

regarding the matters covered in the

joint declaration. \

C=-17

Food and Nutrition choice2/ as having a

statistical advantage over other

methods. Id. It is undisputed, though,

that some bias against the states does

arise from the use of the stratified

sampling method. The experts disagree

on the impact that the bias has upon

state liability levels. Hansen and

Tepping describe the bias as "trivial,"

although in Massachusetts the bias

represent 0.15 percent of federal "

administrative costs or 9.8 percent of

the assessed liability. Jd. at qq 10,

11. The Commonwealth proffers the

affidavit of Dr. William Fairley,

prepared for similar litigation in the

2/ “The choice {of statistical method]

is a matter of policy rather than

statistical theory...." Joint

Declaration § 14.

C-18

state of Utah. See In re Utah Dep’t of

Social Serv., Adminsitrative Review No.

9-87. Dr. Fairley explains that

“imprecise estimates" are germane to the

statistical sampling method, and a

combination of sampling and measurement

variations creates a "penalty bias" that

favors the federal government. Fairley

Affidavit at 5. This bias is

aggravated, he says, by an extreme value

bias that results when variable

estimates from different universes are

compared, such as when mid-season

baseball averages are compared with

season-long averages. Id. at 15.

The bias could be alleviated in

several ways, Dr. Fairley asserts. The

federal government could: (1) allow

credit in a year in which the state

remains within its target error rate,

Cc-19

thereby equalizing the effect of a

penalty year against a credit year; (2)

average error rates over time; (3)

increase sampling sizes; or (4) use a

lower level "confidence interval," which

estimates a range within which the true

error rate falls, rather than the

currently used "point interval," which

estimates the error rate from the

sampling method. Fairley Affidavit at

10; see also Tepping Declaration q 14.

In short, Dr. Fairley suggests using a

true value methodology, rather than a

stratified sampling method. Dr.

Tepping, in a second affidavit,

discounts the alternative methods

proposed, pointing out that while they

may reduce the bias, they do not

eliminate it and, indeed, may merely

C-20

shift the bias to the federal

government. Tepping Declaration q 5.

The Appeals Board reasoned that the

sampling methods were "consistent with

currently recognized approaches outlined

in statistical texts and practices —"

in other governmental programs."

Kerchner Letter at 1978. The basic

methodology employed by Food and

Nutrition “involves acceptable

statistical procedures and is consistent

with Federal regulations. " Id. at

1979. This Court agrees.

The Court’s duty is to review agency

action and to enforce the Congressional

mandate with which both this Court and

the agency must comply. Chevron USA,

Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 842-43, 104

S.Ct. 2778, 2781-82, 81 L.Ed.2d 694

C-21

(1984). Only an agency interpretation

that directly conflicts with the statute

is invalid. Regulations are thus given

"controlling weight unless they are

arbitrary, capricious, or manifestly

contrary to the statute." Id. at 844,

104 S.Ct. at 2782. Here, Congress

conferred broad powers of construction

upon the Secretary to implement the food

stamp program:

The Secretary shall issue such

regulations consistent with this

chapter as the Secretary deems

necessary or appropriate for the

effective and efficient

administration of the food stamp

program and shall promulgate all

such regulations in accordance with

--- section 553 of Title 5. In

addition, prior to issuing any

regulation, the Secretary shall

provide the Committee of Agriculture

of the House of Representatives and

the Committee of Agriculture,

Nutrition, and Forestry of the

Senate a copy of the regulation with

a detailed statement for justifying

it.

7 U.S.C. § 2013(c).

C-22

This language permits wide latitude

in devising vequiations that promote the

overall purpose of the Act. Knebel v.

Hein, 429 U.S. 288, 293, 97 S.Ct. 549,

553, 50 L.Ed.2d 485 (1977). This

latitude limits judicial review to

determining whether the Secretary

reasonably exercised his statutory power

in promulgating the regulations. Id. at

294 n. 14, 295, 97 S.Ct. at 553 n. 14,

554. The low threshold requirement for

upholding agency action is simply a

rational basis between the agency

regulation and the Act’s purpose. Id.

at 296, 97 S.Ct. at 554; see also

Commonwealth v. Yeutter, 756 F.Supp. 48,

52 (D.Mass.), aff'd, 947 F.2d 537 (1st

Cir.1991). The Secretary exercises a

range of discretion in the choices he

makes when he administers the food stamp

C-23

program. Thus, the existence of

arguably more equitable alternatives is

unimportant in the analysis; Congress

empowered the Secretary to administer

the program, and the courts cannot

second-guess his policy choices.

Knebel, 429 U.S. at 294 n. 14, 97 S.Ct.

at 553 n. 14 (food stamp regulations

limiting deductions to certain types of

expenses were valid, even though

somewhat unfair, as valid exercise of

the Secretary’s power); see also

Hettleman v. Bergland, 642 F.2d 63, 66

(4th Cir. 1981).

Applying these principles, this

Court need not address the efficiency or

fairness of the proposed alternative

methods. Doctors Tepping and Hansen

have established the efficiency of the

sampling method in determining the

C-24

official error rates and the ensuing

liability. This Court must defer to the

discretion exercised by Food and

Nutrition in choosing a method of

computation that complies with the

statutory scheme.

II. Good Cause Waiver

Once liability is determined and a

sanction derived, the state may seek a

penalty waiver pursuant to 7 C.F.R. §

275.23(da)(5)(i). The state must show

good cause for its excessive error rate

by proving one or more of the following:

(1) natural disasters or civil disorders

that adversely affect program

operations; (2) strikes by the state

staff who determine eligibility and who

process changes; (3) significant

caseload growth (15 percent) for a six

month period; (4) amendments to the

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federal or state programs that adversely

affect management of the program; (5)

misapplication of federal policy,

erroneously approved by Food and

Nutrition; (6) circumstances beyond the

state’s control; or (7) the state’s good

faith exemplary efforts to reduce its

error rate. 7 C.F.R. §§

275.23(e) (5) (A)-(F), 276.6. Congress

intended that the Secretary exercise its

discretion in determing penalty waivers

by weighing the above factors. 1980

U.S.C.C.A.N. at 843, 906. Food and

Nutrition may reduce or eliminate the

state’s liability accordingly. 7 C.F.R.

§§ 275.23(e) (5) (F) (ii), 276.6(b).

The standard of judicial review for

denial of a penalty waiver appears to be

a matter of first impression. This

Court must first determine whether

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Congress, in enacting 7 U.S.C. § 2023,

intended that a de novo standard apply

to judicial review of penalty waiver

denials. The Commonwealth asserts that

the de novo standard applies to all

matters before this Court. The federal

government replies that the “arbitrary

and capricious" standard of the

Administrative Procedure Act applies.

This Court first examines the

express language of the Act in order to

ascertain its plain meaning.

Massachusetts Fin. Serv., Inc. v. Sec.

Investor Protection Corp., 545 F.2d 754,

756 (ist Cir.1976); see also United

States v. Vest, 639 F.Supp. 899, 908

(D.Mass. 1986), aff’d 813 F.2d 477 (1st

Cir. 1987). In pertinent part, 7 U.S.C.

§ 2023(a) reads:

[Sjuch information as may be

submitted ... as well as such other

Ce-27

information as may be available,

shall be reviewed by the person or

persons designated by the Secretary,

who shall, subject to the right of

judicial review hereinafter

provided, make a determination which

shall be final.... If the ... State

agency feels aggrieved by such final

determination, it may obtain

judicial review thereof....

(emphasis added). See note 6, supra

(quoting additional relevant language

from this sub-section).

Surely, a denial of the penalty

waiver qualifies as a "final

determination" for which the State

agency "feels aggrieved." The judicial

review to which the Commonwealth is thus

entitled would, however, seem to be

limited to determining whether the

Secretary’s denial of a penalty waiver

is "arbitrary and capricious." This is

the First Circuit’s instruction for

reviewing sanctions imposed on states in

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these circumstances. See, e.g., Broad

St., 720 F.2d at 220; Kulkin, 626 F.2d

at 184. The legislative history

confirms this view: "none of these

[administrative and judicial review)

procedures would be applicable to the

Secretary’s review of ... good cause

[for a penalty waiver]." 1980

U.S.C.C.A.N. at 843, 907. This Court

rules that Congress did not intend de

novo review of penalty waivers .20/

22/ this Court cannot conclude, however,

that Congress meant for the Secretary to

have unfettered, non-reviewable

discretion in determining penalty

waivers. Only clear and convincing

evidence can support such an

assumption. Abbott Lab v. Gardner, 387

U.S. 136, 141, 87 S.Ct. 1507, 1511, 18

L.Ed.2da 681 (1967). Absent any such

indication--and there is none here--this

Court concludes that judicial review of

penalty waiver denials is to take place

under the "arbitrary and capricious"

standard of review of the Administrative

Procedure Act.

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Food and Nutrition denied the

Commonwealth’s good cause waiver because

Massachusetts chronically failed to

abide by program deadlines and

requirements. See generally Declaration

of Lynda Silva, Food and Nutrition

Director. Ms. Silva attests that the

federal government warned the

Commonwealth on several occasions about

its failure to implement program

requirements properly. Corrective

measures in some cases took as long as

17 months, rather than the required 30

Gays. Silva Declaration qq 20, 12.

Notwithstanding these general program

deficiencies, Massachusetts did not work

diligently to reduce its error rate,

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preferring to place its corrective

resources into the Aid to Families with

Dependent Children program rather than

the food stamp program. Id. 44 74-75.

The Appeals Board affirmed the

action of Food and Nutrition in denying

the penalty waiver, based on the failure

of Massachusetts to exercise exemplary

efforts to reduce the error rate.

It is the Board’s considered opinion

that all the actions taken by

Massachusetts were no greater than

are to be expected of a state which

is properly managing the food stamp

Program. Program managers are

continually confronted with growth,

caseload shifts, regulatory changes,

computer capabilities, budget

limitations and operation. The

Board finds no particular or unique

circumstances in the State’s

argument regarding problem areas to

justify a finding of good cause.

Therefore, the full claim made by

Food and Nutrition Service remains

the State’s liability.

Kerchner Letter at 1979.

The Commonwealth does not contest

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these improprieties, but it asserts that

it is nonetheless entitled to a penalty

waiver based on: (1) a 15 percent

caseload growth; (2) Congressional

changes in the food stamp program that

adversely affected administration of the

program; and (3) the Commonwealth’s

institution of exemplary corrective

measures as a good faith effort at

reducing the error rate. See generally

Declaration of Bruce Goodro, Director of

Quality Evaluation at the Department of

Public Welfare. The Court will address

in turn each of the three factors relied

upon by the Commonwealth.

A. Substantial Caseload Growth

The Secretary recognized that

substantial caseload growth could

adversely affect administration of the

program and, subsequently, the error

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rate. Fifteen percent growth is the

suggested level for a good cause

waiver. 7 C.F.R. § 275.23(e) (5) (C).

Mr. Goodro asserts that the

Massachusetts growth rate was 18 percent

during the seven months prior to April

1982.41/ The federal government

disputes this conclusion, arguing that

the Commonwealth’s growth rate is

misleading because it is based on

Supplemental Security Income "cash-ins"

that account for a 13.58 percent growth

in a single month, October 1981. Record

at 1545.

21/ mr. Goodro estimates that the 18

percent growth rate is 20 percent

greater than the required 15. Goodro

Affidavit 4 4. The federal government

notes that the applicable period is six

months, not seven. Record at 1545.

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B. Adverse Impact of New Programs

or Legislation

The Commonwealth next contends that

passage of the Omnibus Budget

Reconciliation Act of 1981 ("Omnibus

Act") adversely affected the state’s

ability to administer the food stamp

program efficiently. Goodro Affidavit

qq 5-6. While the Omnibus Act

apparently did cause confusion and

errors in assessing reporting and

eligibility requirements, and it is true

that 7 C.F.R. § 275.23(e)(5)(D) allows a

penalty waiver for "changes in the food

stamps program or other federal or state

programs that have a substantial adverse

impact upon management of the state’s

food stamp Program," the United States

responds that the Omnibus Act became

effective in December of 1981, a full

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four months before the penalty period.

The United States thus argues that the

Commonwealth had plenty of time to work

out any alleged glitches.

C. Good Faith Efforts to Reduce

Error Rate

Massachusetts contends that it

devised and implemented several programs

aimed at reducing its official error

rate, including installation of computer

terminals, institution of a monthly

reporting system, a photo identification

program to frustrate fraud, supervisor

review and quality review processes, and

issuance of several performance and

progress review reports. See generally

Goodro Affidavit. Mr. Goodro attests

that the Massachusetts management people

were sincerely committed to reducing the

error rate. Jd. at § 11. The federal

C-35

government counters that this is all

well and good, but that good faith

efforts must be exemplary in order to

qualify for penalty waiver. 7 C.F.R. §

275.25(d) (5) (G).

The facts alleged by the

Commonwealth, though qualifying it for

cnsideration for a waiver, and indeed

possibly warranting a waiver, do not

entitle it to a waiver as a matter of

right. Congress specifically provided

the Secretary with discretion to permit

or deny waivers after a balancing of the

requisite factors. Here, the Appeals

Board rendered a reasoned opinion after

a full appreciation of the facts and

issues. This Court can discern no

arbitrary or capricious act by the

Appeals Board or Food and Nutrition in

denying the penalty waiver.

C-36

Accordingly, the sanctions are upheld as

a proper exercise of statutory

authority, and the penalty waiver denial

withstands challenge. The motion of the

United States for summary judgment

C=-37

regarding the validity of the sampling

method is GRANTED, and the

Commonwealth’s motion for summary

judgment as to the denial of the penalty

waiver is DENIED.

SO ORDERED.

C-38

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 92-1539

COMMONWEALTH OF MASSACHUSETTS,

DEPARTMENT OF PUBLIC WELFARE,

Plaintiff, Appellant,

Vv.

SECRETARY OF AGRICULTURE, ET AL.,

Defendants, Appellees.

Vv.

BEFORE

Breyer, Chief Judge,

Torruella, Selya, Cyr ang Stahl,

Circuit Judges .

ORDER OF COURT

Y/ circuit Judge Boudin did not

participate in the en banc request.

Entered: March 9, 1993

The panel of judges that rendered

the decision in this case having voted

to deny the petition for rehearing and

the suggestion for the holding of a

rehearing en banc having been carefully

considered by the judges of the Court in

regular active service and a majority of

said judges not having voted to order

that the appeal be heard or reheard by

the Court en banc,

It is ordered that the petition for

rehearing and the suggestion for

rehearing en banc be denied.

The motion of the Amici Curiae for

leave to file a memorandum in support of

the Commonwealth of Massachusetts’

petition for rehearing is denied.

By the Court:

FRANCIS P. SCIGLIANO, CLERK.

By s/

Chief Deputy Clerk

[cc: Messrs: Wilkins, Roach, Odom

and Ms. Kant]

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.