Muscogee (Creek) Nation Division of Housing v. United States Department of Housing & Urban Development

FILED
United States Court of Appeals
Tenth Circuit

October 30, 2012
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

MUSCOGEE (CREEK) NATION
DIVISION OF HOUSING,
Plaintiff–Appellant,
v. No. 11-7040
UNITED STATES DEPARTMENT OF
HOUSING AND URBAN
DEVELOPMENT; SHAUN DONOVAN,
in his official capacity; SANDRA
HENRIQUEZ, in her official capacity; C.
WAYNE SIMS, in his official capacity,
Defendants–Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
(D.C. No. 6:10-CV-00193-JHP)

Michael A. Simpson (Galen L. Brittingham with him on the briefs) of Atkinson, Haskins,
Nellis, Brittingham, Gladd & Carwile, P.C., Tulsa, Oklahoma, for Appellant.

Helen L. Gilbert, Attorney, Appellate Staff Civil Division, Department of Justice, (Tony
West, Assistant Attorney General; Sheldon J. Sperling, United States Attorney; and
Michael S. Raab, Attorney, Appellate Staff Civil Division, Department of Justice, with
her on the briefs), Washington, D.C., for Appellees.

Before LUCERO, McKAY, and GORSUCH, Circuit Judges.

McKAY, Circuit Judge.
 The dispute in this case involves interest earned on block grants made to Indian

tribes pursuant to the Native American Housing Assistance and Self-Determination Act

of 1996, 25 U.S.C. §§ 4101-4243. Specifically, Appellant Muscogee (Creek) Nation

Division of Housing challenges both a regulation placing a two-year limit on the

investment of grant funds and two notices issued by the U.S. Department of Housing and

Urban Development stating that any interest accrued after the expiration of this two-year

period must be returned to the Department. In its complaint, the Nation sought

declaratory relief invalidating the regulation and notices as well as an injunction to

prevent HUD from recouping interest earned on grant funds. The Nation also sought

recoupment of the approximately $1.3 million of earned interest it wired to HUD after

HUD sent a letter threatening an enforcement action based on the Nation’s investment of

grant funds for longer than two years. The district court dismissed the complaint, holding

that HUD’s sovereign immunity was not waived by the Administrative Procedures Act

and, in the alternative, that the Nation had failed to state a claim on which relief could be

granted because HUD’s interpretation of the statute was permissible. The Nation

challenges these conclusions on appeal.

BACKGROUND

Congress enacted the Native American Housing Assistance and Self-

Determination Act of 1996 in order to “help[] tribes and their members to improve their

housing conditions and socioeconomic status.” 25 U.S.C. § 4101(5). Under NAHASDA,

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tribes can receive funding through Indian housing block grants. These funds must be

used “for affordable housing activities” as defined by the statute. 25 U.S.C. § 4111(g).

As pertinent here, the statute permits a grant recipient to “invest grant amounts for the

purposes of carrying out affordable housing activities in investment securities and other

obligations as approved by the Secretary.” 25 U.S.C. § 4134(b). The Secretary referred

to in this statute is the Secretary of the Department of Housing and Urban Development,

which is the agency responsible for administering NAHASDA. See 25 U.S.C. §

4103(20).

NAHASDA requires regulations implementing its provisions to be adopted

pursuant to a negotiated rulemaking process. 25 U.S.C. § 4116(b)(2). Accordingly, a

committee including HUD officials and tribal representatives prepared a comprehensive

set of regulations, finalized in 1998. One of these regulations, 24 C.F.R. § 1000.58, sets

limitations on investments of Indian housing block grant funds. After explaining the

requirements for a tribe to obtain authorization to invest grant funds, defining the types of

permitted investments, and setting the amount of a grant that may be invested, the

regulation provides that “[i]nvestments under this section may be for a period no longer

than two years,” 24 C.F.R. § 1000.58(g).

In 1999, HUD issued a notice regarding administrative requirements for investing

Indian housing block grant funds. Inter alia, this notice stated that “[i]nvestments may be

for a period no longer than two years” and that “[t]he recipient shall maintain a schedule

evidencing that the proposed investments will mature on the approximate dates the funds

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will be needed and that investment maturity dates do not exceed two years.” (Appellant’s

App. at 71-72.) From 2000 through 2004, HUD issued a notice each year that simply

reissued and extended the 1999 notice. In 2007, HUD issued a new notice regarding

administrative requirements for investing grant funds. This notice elaborated on the two-

year limitation, stating in part:

Investments may be for a period no longer than 2 years. The 2-year period
starts on the date the recipient draws down funds for investment purposes.
The 2-year requirement is the maximum period of time that any amount
drawn down for investment can be invested before disbursement on an
affordable housing activity.

Prior to drawing down funds for investment purposes, the recipient
should do an analysis of anticipated cash needs for this 2-year period, and
identify those acceptable investment options or instruments with varying
dates of maturity (shorter and longer term) within the projected 2-year
period. . . . .

When an investment instrument matures, the funds made available
should be expended for an affordable housing activity. Disbursement for
this purpose means actual expenditure, not just the obligation of funds. If
the funds are not needed for an activity at that time, the funds could be
reinvested as long as on the 2-year anniversary of the drawdown from [the
tribe’s Line of Control Credit System account], all funds drawn down for
investment purposes have been disbursed for affordable housing activities.
Any invested funds not expended on affordable housing activities by the 2-
year anniversary would have to be returned to LOCCS by the recipient.
Any interest accrued prior the expiration of the 2-year period is program
income. Because the regulation at 24 CFR § 1000.58(g) restricts the
investment period to 2 years, any interest accrued after the expiration of the
2-year period must be returned to the Department.

(Appellant’s App. at 81.) The 2007 notice was reissued in 2009.

In 2006, HUD conducted an on-site performance review of the Nation’s

NAHASDA activities. In 2007, HUD issued a draft monitoring report regarding this

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performance review. In the report, HUD identified several concerns, one of which was

the Nation’s investment of funds for periods longer than two years, contrary to the

regulatory requirements. In 2009, after the Nation had sought and been denied a waiver,

HUD sent the Nation a formal letter of warning, stating:

As a grant recipient, the Muscogee (Creek) Nation is responsible for
ensuring compliance with all program and OMB Circular A-133
requirements. According to 24 CFR § 1000.530, if the Muscogee (Creek)
Nation fails to address this identified program, HUD may impose remedies,
as prescribed in 24 CFR § 1000.532 and/or 24 CFR § 1000.538. Section
1000.532 authorizes HUD to adjust future grant funds to zero. Upon
HUD’s determination that the Muscogee (Creek) Nation failed to comply
substantially with any provision of the Native American Housing
Assistance and Self-Determination Act, 24 CFR § 1000.538 authorizes
HUD to terminate, reduce, or limit grant payments, or replace the recipient.

If the Muscogee (Creek) Nation does not submit the $1,315,702
which is the interest earned on invested amounts after the two year
expiration period through June 19, 2009 based on a review of the
documentation for IHBGs 02, 03, 04, and 05 and any additional interest
earned after June 16, 2009 until the funds are returned to the Department of
Treasury within 15 days from receipt of this letter, HUD will consider
taking the necessary actions, pursuant to 24 CFR § 1000.532 and 24 CFR §
1000.538 to enforce this requirement. After that time has expired, in
accordance with these regulatory provisions, the Muscogee (Creek) Nation
will be provided with an opportunity for an informal meeting; and if the
issue remains unresolved, the Muscogee (Creek) Nation will be provided
with the opportunity for a hearing.

(District Ct. Doc. No. 2-2 at 2.) A HUD official also allegedly told the Principal Chief of

the Muscogee (Creek) Nation that HUD would initiate a Department of Justice

investigation if the Nation did not comply with this demand.1 The Nation apparently did

1
As explained in the regulations cited by HUD in its warning letter, “HUD may
refer the matter to the Attorney General of the United States, with a recommendation that

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not proceed to the informal meeting and formal hearing steps of the enforcement process

as listed in the regulations and in HUD’s letter of warning; instead, it simply wired the

disputed funds to HUD under protest.

The Nation then filed suit, seeking injunctive and declaratory relief regarding the

validity of 24 C.F.R. § 1000.58(g) and the interest repayment requirement of the 2007 and

2009 notices. The Nation also sought return of the funds it had sent to HUD under

protest. The district court dismissed the action based on the federal government’s

sovereign immunity, concluding in the alternative that the Nation’s complaint failed to

state a claim upon which relief could be granted. This appeal followed.

DISCUSSION

We review de novo the district court’s conclusion that it lacked subject matter

jurisdiction based on principles of sovereign immunity. See Fostvedt v. United States,

978 F.2d 1201, 1202 (10th Cir. 1992). We also review de novo the district court’s

conclusion that the complaint failed to state a claim upon which relief could be granted.

See Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).

The Nation relies on the judicial review provisions of the Administrative

Procedures Act, 5 U.S.C. §§ 701-08, to establish a waiver of sovereign immunity. The

appropriate civil action be instituted,” if it “has reason to believe that the recipient has
failed to comply substantially with any provisions of NAHASDA.” 24 C.F.R. §
1000.538(d); see also 25 U.S.C. § 4161(c) (providing statutory authorization for this
referral and permitting the Attorney General to bring a civil action “for such relief as may
be appropriate, including an action to recover the amount of the assistance furnished
under this chapter that was not expended in accordance with it”).

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APA allows for judicial review of “[a]gency action made reviewable by statute and final

agency action for which there is no other adequate remedy in a court.” 5 U.S.C. § 704.

However, the APA’s waiver of sovereign immunity does not apply “to the extent that

either—(1) statutes preclude judicial review; or (2) agency action is committed to agency

discretion by law.” 5 U.S.C. § 701(a). The latter exception is a narrow one that applies

when “the statute is drawn so that a court would have no meaningful standard against

which to judge the agency’s exercise of discretion.” Heckler v. Chaney, 470 U.S. 821,

830 (1985). HUD argued, and the district court agreed, that the Nation’s complaint was

barred by principles of sovereign immunity because the agency actions challenged in the

complaint were “committed to agency discretion by law.”

We consider this question first in the context of the Nation’s challenge to 24

C.F.R. § 1000.58(g), the regulatory requirement that investments of block grant funds not

exceed two years in length. The Nation contends this regulation is ultra vires and invalid

because HUD has no authority to set timing restrictions on investments, being instead

only authorized to approve certain types of investments. The Nation cites to 25 U.S.C. §

4134(b), which provides that “[a] recipient may invest grant amounts for the purposes of

carrying out affordable housing activities in investment securities and other obligations as

approved by the Secretary.” 25 U.S.C. § 4134(b). The Nation contends this provision

only authorizes the Secretary to approve specific types of investments but not to place any

other limitations, including temporal restrictions, on a tribe’s investment of grant funds.

However, we are not persuaded that the statutory provision for “approv[al] by the

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Secretary” precludes HUD from defining other investment parameters besides investment

type. We thus conclude that HUD did not exceed its statutory authority when it

promulgated 24 C.F.R. § 1000.58(g) through the negotiated rulemaking procedure.

Moreover, we agree with the district court that the statute commits questions

regarding permissible investment parameters to the agency’s discretion by law. The

statute is so drawn that there is “no meaningful standard against which to judge the

agency’s exercise of discretion.” Heckler, 470 U.S. at 830. The statute does not place

any constraints on the Secretary’s approval authority. It sets forth no factors the

Secretary must consider or abide by in determining whether to approve certain investment

activities, simply stating that a tribe may invest grant funds for carrying out affordable

housing activities “as approved by the Secretary.” Nor does the Nation point to any other

statutes or regulations that limit the Secretary’s discretion in setting time limitations on

the investment of grant funds. The Nation argues the Secretary’s discretion in setting

investment restrictions is limited by NAHASDA’s “guiding principle[],” 24 C.F.R. §

1000.2, of providing federal assistance “in a manner that recognizes the right of Indian

self-determination and tribal self-governance by making such assistance available directly

to the Indian tribes,” 25 U.S.C. § 4101(7). However, such a broad statutory mandate

“does not provide meaningful or substantive standard for us to review” the agency

decision unless the agency action can be considered “irreconcilable” with this statutory

mandate. Sierra Club v. Yeutter, 911 F.2d 1405, 1414 (10th Cir. 1990). While there may

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be reasons why a longer investment window would be preferable,2 we are not persuaded

that a two-year investment window is “irreconcilable” with NAHASDA’s intent to

recognize the right of Indian self-determination and tribal self-governance. The district

court therefore correctly dismissed the Nation’s challenge to the regulation for lack of

jurisdiction because HUD’s authority to approve investment activities is committed to

agency discretion as a matter of law.

We turn next to the Nation’s challenge to the 2007 and 2009 notices, which stated

that interest earned after the two-year investment window had expired would need to be

returned to HUD. The Nation contends that, even if 24 C.F.R. § 1000.58(g) validly limits

investments to a two-year period, HUD still lacks the authority to enforce this provision

by demanding remittance of interest. In essence, then, this is a challenge to HUD’s

authority to impose such a consequence for a violation of 24 C.F.R. § 1000.58(g).

We conclude that there are meaningful standards for us to apply in evaluating

whether HUD was authorized to demand remittance of interest earned in violation of 24

C.F.R. § 1000.58(g), and we therefore hold that we have subject matter jurisdiction to

consider this question. However, we agree with the district court that Plaintiff’s

challenge to the 2007 and 2009 notices fails on the merits, since nothing about these

2
Indeed, we note that HUD has proposed an amendment to extend the time
restriction on investments to a five-year restriction, “given the nature of construction
projects, which are often completed in subsequent fiscal years.” Proposed Rules,
Department of Housing and Urban Development, 76 Fed. Reg. 71474-01, 71485
(proposed Nov. 18, 2011) (to be codified at 24 C.F.R. § 1000.58). This proposed
amendment does not affect our analysis of the legal issues in this case.

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notices is inconsistent with the pertinent statutes and regulations.

One of NAHASDA’s implementing regulations provides that tribes receiving

Indian housing block grants must comply with several provisions of 24 C.F.R. part 85,

“Uniform Administrative Requirements for Grants and Cooperative Agreements to State,

Local, and Federally Recognized Indian Tribal Governments.” One of these applicable

sections, 24 C.F.R. § 85.21(i), provides in part that, “[e]xcept for interest earned on

advances of funds exempt under the Intergovernmental Cooperation Act (31 U.S.C. 6501

et seq.) and the Indian Self-Determination Act (23 US.C. 450), grantees and subgrantees

shall promptly, but at least quarterly, remit interest earned on advances to the Federal

agency.” This regulation stems from the “general rule that interest earned by a grantee on

funds advanced by the United States belongs to the United States rather than the grantee

and must be paid to the United States, except as otherwise provided by law.” In re

Agency for Int’l Dev.—Interest Earned on Grant Funds by Foreign Gov’t, 64 Comp. Gen.

103, 106 (1984). Indeed, “[a]gencies do not have the authority to agree to allow the

grantee to earn and retain interest on grant funds prior to their expenditure unless such

authority is expressly provided.” Id.

The Comptroller General decision of In re Interest Earned on Unauthorized Loans

of Federal Grant Funds, 71 Comp. Gen. 387 (1992), considered how this general rule

should apply where Congress had authorized grantees to retain interest earned on grant

funds but, after the funds were purportedly used for grant purposes, the disbursement was

later deemed not to comply with the program requirements. If the grant funds had been

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used for an authorized grant purpose, they could have been retained by the grantee.

However, the Comptroller General concluded “any interest earned on grant funds when

those funds are not used for authorized grant purposes must be considered interest earned

on grant advances, and hence, belongs to the United States.” Id. at 388. “To hold

otherwise would contradict the rationale behind the general rule that grant funds may not

be used for earning income where to do so would be inconsistent with the purposes of the

grant.” Id. at 389. Concluding that the agency lacked discretion to permit the grantee to

retain interest earned on loans deemed ineligible under the federal program, the

Comptroller General stated the agency should “take appropriate collection action and

deposit the interest collected in the Treasury as miscellaneous receipts.” Id.

The Nation argues the Comptroller General’s decision is distinguishable because

the funds in that case were spent on an ineligible purpose: “In other words, the controlling

factor was what the grant funds were spent on, not when they were spent.” (Appellant’s

Opening Br. at 29.) The Nation further argues the Comptroller General’s reasoning

should not apply so long as funds are ultimately spent on an authorized grant purpose.

Thus, the Nation argues, even if funds are invested for longer than the regulatory two-

year period, interest earned on such investments need not be returned so long as it is

ultimately committed to or spent on a valid NAHASDA purpose. We find these

arguments unpersuasive. The controlling factor in the Comptroller General’s decision

was the use of grant funds in an unauthorized fashion, and that same factor is present in

the instant case. Under the Indian housing block grant program, tribes are not authorized

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to invest grant funds for longer than two years After the two-year period has expired,

funds still kept in investments are no longer being used for an authorized grant purpose.

Whether or not the grant funds are later transferred to an authorized grant purpose,

interest earned on investments that fail to comply with the regulatory requirements is not

interest earned through an authorized grant purpose. Under the Comptroller General’s

reasoning, interest earned by this unauthorized use of grant funds must be returned to the

Treasury. Indeed, the agency lacks the discretion to permit a tribe to retain such interest.

The Nation argues that this general principle is trumped by 25 U.S.C. § 4114(a)(1),

which provides:

[A] recipient may retain any program income that is realized from any grant
amounts under this chapter if—
(A) such income was realized after the initial disbursement of the
grant amounts received by the recipient; and
(B) the recipient has agreed that it will utilize the program income
for affordable housing activities in accordance with the provisions of
this chapter.

The Nation notes that “program income” is defined by regulation to include “payments of

principal and interest earned on grant funds prior to disbursement,” 24 C.F.R. §

1000.62(a), and the Nation therefore argues that HUD may not demand remittence of

interest earned on grant funds. Although we do not decide this matter today, we question

whether the definition of “program income” should include income earned in violation of

applicable regulatory requirements. Moreover, even if it is so defined, we are not

persuaded § 4114(a)(1) prevents HUD from demanding remittance of interest earned on

noncompliant investments of grant funds. Under subsection (a)(1)(A), the general rule

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regarding retention of program income only applies when “such income was realized after

the initial disbursement of the grant amounts received by the recipient.” The purported

program income at issue in the 2007 and 2009 notices is interest earned on grant funds

prior to their disbursement to subgrantees, and it is thus not subject to the general rule

permitting recipients to retain program income realized on grant amounts.

The Nation argues the “initial disbursement” referred to in subsection (a)(1)(A)

must refer to the agency’s disbursement of grant funds to a tribe, not the tribe’s

disbursement to subgrantees. However, such a definition would completely read the

exception out of the statute—a tribe cannot realize program income on grant amounts it

has not yet received. This provision only has meaning if it is construed to apply to

program income earned by a tribe after it receives grant funds but before it disburses such

funds to subgrantees. The regulatory definition of “program income” to include “interest

earned on grant funds prior to disbursement,” 24 C.F.R. § 1000.62(a), likewise indicates

that the “disbursement” referred to in the statute must be the disbursement by a tribe to its

subgrantees, not the agency’s disbursement of funds to the tribe. While “interest earned

on grant funds prior to disbursement” is included in the definition of program income, it

is not “income realized after the initial disbursement of the grant amounts received by the

recipient,” and § 4114(a)(1) therefore does not preclude the recovery of interest earned in

violation of the regulatory investment requirements.

Although we note the Comptroller General’s decision is not binding on this court,

see Ramah Navajo Chapter v. Salazar, 644 F.3d 1054, 1064 n.4 (10th Cir. 2011), we see

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no reason why this persuasive authority should be disregarded or otherwise held not to

apply to interest earned from the investment of Indian housing block grant funds in

violation of 24 C.F.R. § 1000.58(g). We thus conclude that HUD’s decision to demand

repayment of interest earned after the expiration of the regulatory two-year period was

consistent with federal law. We further conclude that the 2007 and 2009 notices did not

set forth new substantive obligations but simply reiterated regulatory requirements and

long-standing principles of federal appropriations law. We therefore agree with the

district court that the notices were interpretive, rather than substantive, legal rules that did

not violate the APA’s notice and comment procedures. See Defenders of Wildlife v. EPA,

415 F.3d 1121, 1127-28 (10th Cir. 2005). Thus, although we conclude that the district

court should not have dismissed the Nation’s challenge to the 2007 and 2009 notices for

lack of jurisdiction under the APA, we affirm the district court’s alternative holding that

this challenge fails to state a claim upon which relief may be granted.

For the foregoing reasons, we conclude that HUD was authorized to promulgate a

regulation limiting the time period for investments, and we further conclude that HUD

was authorized—indeed, required—to demand remittence of interest earned in violation

of this regulation. We therefore conclude that the Nation is not entitled to recoupment of

the interest it paid to HUD pursuant to HUD’s enforcement of these principles.

CONCLUSION

The district court’s order granting Defendants’ motion to dismiss is AFFIRMED.

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