Action for Boston Community Development, Inc. v. Shalala

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 97-1834
ACTION FOR BOSTON COMMUNITY DEVELOPMENT, INC.,

Plaintiff, Appellant,
v.

DONNA E. SHALALA, AS SHE IS THE
SECRETARY OF THE UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES,
AND THE UNITED STATES DEPARTMENT
OF HEALTH AND HUMAN SERVICES,
ADMINISTRATION FOR CHILDREN,
AND FAMILIES, REGION I,
Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge]

Before

Torruella, Chief Judge,

Boudin, Circuit Judge,

and Woodlock,* District Judge.

Janet Steckel Lundberg with whom Richard M. Bluestein, Krokidas &

Bluestein, Garrick F. Cole and Smith & Duggan were on brief for

appellant.
David S. Mackey, Assistant United States Attorney, with whom

Donald K. Stern, United States Attorney, was on brief for the United

States.

February 9, 1998

*Of the District of Massachusetts, sitting by designation.

BOUDIN, Circuit Judge. In form, this appeal seeks

review of the district court's refusal to grant injunctive

relief to the plaintiff, Action for Boston Community

Development ("ABCD"), a major provider of Head Start services

in Boston. In substance, this is an administrative review

proceeding by which ABCD seeks to overturn the decision by

the Department of Health and Human Services ("HHS") to select

a different grantee to receive funds for a new Head Start

project in Boston. The pertinent facts are undisputed.

The Head Start program is designed to deliver social

services to economically disadvantaged children and their

families. 42 U.S.C. 9831. To provide such services, HHS

makes grants to private entities, like ABCD. ABCD is a

longstanding Head Start grantee in Boston, responsible for a

number of diverse programs, and it tells us that in a recent

year its grants exceeded $20 million.

From 1982 to 1995, the year it lost its funding,

Esquelita Aquebana, Inc. operated a Head Start program in a

Boston area known as Uphams Corner, comprising a portion of

Roxbury, Dorchester and the South End of Boston. In January

1996, HHS announced that a grant would be made to a

replacement provider of services in Uphams Corner in an

amount somewhat exceeding $500,000. Two of the three

applicants for the funds were ABCD and Dimmock Community

Health Center ("Dimmock").

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For many years, Congress has provided that HHS must give

"priority" to Head Start agencies which were receiving Head

Start funds on August 13, 1981, "unless [in the current

phrasing] the Secretary makes a finding that the agency

involved fails to meet program, financial management, and

other requirements established by the Secretary." 42 U.S.C.

9836(c)(1). HHS apparently took no account of this

priority since its announcement said that the funding was "to

be competitively awarded." In any case, HHS established an

independent panel to review the applicants and on May 13,

1996, the panel awarded ABCD 419 points; Dimmock, 354 points;

and the third applicant, 266 points.

At the same time, HHS was undertaking a regular review

of all of ABCD's 26 Head Start program sites. HHS completed

its review of ABCD's Parent Child Center, a special

demonstration program providing services for infants and

toddlers, on May 10, 1996. The review of this program

revealed serious deficiencies in the health, disability,

parental involvement and social service components. HHS

summarized the problem as one of "inadequate agency capacity

to plan, and manage the delivery of Head Start services."

Head Start programs are run through the HHS

Administration for Children and Families. On August 2, 1996,

the local regional administrator, Hugh Galligan, announced

the selection of Dimmock as the Head Start agency for the

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Uphams Corner program. Galligan reported to his superior

that "[w]hile ABCD's [periodic review] results are generally

positive, a recent review of its Parent Child Center (PCC)

program showed it was seriously deficient." This report also

stated that Dimmock was running a Head Start program in good

standing and that both Galligan's organization and its

Massachusetts state counterpart "agreed that the Dimmock

proposal more clearly responded to the opportunity for

creative, comprehensive and flexible programming."

On August 14, 1996, ABCD brought this case in the

district court, seeking to enjoin the award of funds to

Dimmock on the ground that HHS had failed to respect the

statutory priority to which ABCD was conditionally entitled

under 9836(c)(1). When the administrative record was

lodged, the district court found no record of a ruling on

ABCD's right to a priority. On December 19, 1996, the court

ordered HHS to determine explicitly whether ABCD was entitled

to a priority and to explain the reasons for the HHS

determination.

In response, HHS filed a declaration of Hugh Galligan

stating that ABCD did not qualify for the statutory priority

"because of the May 10 finding that ABCD fails to meet

program, financial management, and other requirements

established by the Secretary," and reaffirming his previous

award of the grant to Dimock. HHS also filed a memorandum

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dated March 21, 1997, from Olivia Golden, then Principal

Deputy Assistant Secretary, Administration for Children and

Families, ratifying Galligan's selection of Dimock. ABCD

then challenged the authority of Golden and Galligan to make

this decision. On June 9, 1997, Golden issued a second

memorandum, further ratifying all decisions and actions taken

by Galligan in the matter up to that date.

On July 2, 1997, the district court filed an opinion,

Action for Boston Community Development, Inc. v. Shalala,

1997 WL 677447 (D. Mass. 1997), granting final judgment in

favor of HHS. The court ruled that even if Galligan had

lacked the necessary authority at the outset, that gap had

been filled by the subsequent ratification. On the merits,

the district court found that the decision to withhold the

priority was neither in violation of law nor unreasonable

under the standards usually applied in reviewing agency

action.

On the appeal now before us, ABCD's first and most

extensive argument is that the decision to withhold the

priority, even if properly ratified (which ABCD denies),

rested on legal errors. The main thrust of its argument is

that the statute does not permit HHS "to deny ABCD its

priority . . . on the basis of temporary, program-specific

deficiency findings with respect to one of the twenty-six

Head Start program sites that ABCD operates, a site that

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constitutes only a small part of ABCD's overall Head Start

program activities."

So far as ABCD's issue presents a question of statutory

construction--and in some respects it does--our review is de

novo, tempered by whatever deference is to be accorded to the

Secretary's construction of the statute under the Chevron

doctrine or otherwise. See Chevron, U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984). Even

without full-scale Chevron deference, courts usually give a

respectful hearing to the agency charged with administering a

statute. Because our own view of the statute accords with

that of HHS, we need go no further than that in the present

case.

We agree with ABCD that Congress made a considered

decision to give a priority to any Head Start agency

receiving funds on August 13, 1981. The expressed rationale-

-to give preference to stability and experience--may not seem

to jibe with the selection of the single, now increasingly

ancient date. But choices of this kind are always somewhat

arbitrary, and Congress has maintained this priority date,

altering the statutory language only slightly over a lengthy

period.

On this premise, ABCD concludes that Congress therefore

must have intended that the condition for denying priority--

"that the agency involved fails to meet program, financial

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management, and other requirements established by the

Secretary"--be based on a "overall" failure to the Head Start

agency to meet HHS standards. What ABCD means by "overall"

is not entirely clear, but ABCD makes its arguments somewhat

more concrete by asserting that the failure of a single

program, conducted by a multi-program Head Start agency,

cannot be an "overall" failure. Congress could have written

the statute in this manner but did not do so.

The word "overall" simply does not appear anywhere in

the priority provision (section 9836(c)). Given the

congressional purpose, we agree that the failure to meet

standards would certainly have to be substantial and relevant

as opposed to slight or inconsequential. But there is

nothing in the language of the priority provision that

requires that the failure be one that affects all or many of

the programs the agency may be supervising.

Further, the failure to manage properly an individual

program might be very informative as to the agency's ability

to take on new responsibilities. Deficiencies within a

single program might be more important to HHS than a single

deficiency--say in some aspect of bookkeeping--that infected

all of the programs run by a Head Start agency. Whether the

failures in ABCD's Parent Child Center were of great

magnitude is a different question to which we return below.

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One could argue, with a better footing in the statutory

language, that there must be at least multiple failures of

different kinds, since the statute calls for a finding that

the agency "fails to meet program, financial management, and

other requirements established by the Secretary." Section

9836(c)(1) (emphasis added). The word "and" usually denotes

the conjunctive, but the rule is not absolute when

contradicted by context, Reiter v. Sonotone Corp., 442 U.S.

330, 338 (1979), as we think it is here. Especially in light

of the catch-all category "other requirements," the term

"and" certainly was intended to mean "and/or."

This is borne out by common-sense considerations. If a

Head Start agency failed utterly in the delivery of program

services, Congress could not have intended that its

meticulously kept books would assure it a statutory priority

as to new programs. As it happens, here Galligan did

expressly find, in a determination later ratified by the

Acting Assistant Secretary, that ABCD had failed to meet

"program, financial management, and other requirements."

Finally, there is little mileage for ABCD in its claim

that the deficiency cannot be merely "temporary."

Practically all deficiencies can be made "temporary" by

discovering and rectifying them. The question is whether

their existence is a warning signal that the Head Start

agency ought to be correcting the deficiencies that exist

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before it takes on new programs--which might further stretch

management resources already shown to be inadequate.

ABCD argues that its reading of section 9836 is

supported by section 9836a enacted by Congress in 1994. Pub.

L. No. 103-252, 108, 108 Stat. 631. Whereas section 9836

involves the designation of Head Start agencies, section

9836a requires HHS to establish quality standards for Head

Start agencies and to monitor such agencies and programs.

The deficiencies in the Parent Child Center found in the May

10, 1996 report, which Galligan invoked in denying ABCD

priority, derived from a monitoring program carried out under

the newly enacted section 9836a.

ABCD argues that an "overall" failure is required under

section 9836(c)(1) because section 9836a refers at one point

to the need for the Secretary to promulgate "minimum levels

of overall accomplishment" that a Head Start agency must

achieve to meet the primary "standards" to be established by

the Secretary for program services, for administrative and

financial management, and for many other subjects,

9836a(a)(1), (2), and because elsewhere the Secretary is

required to conduct a "full review" of each agency at least

once every three years. Id. subsection (c)(1)(A). This kind

of wrenching words out of context is not persuasive:

"overall accomplishment" and "full review" make sense in

context, and neither phrase has the same meaning as "overall

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failure"--the phrase ABCD would like to substitute for the

word "failure" in the prior section of the statute.

ABCD next objects to HHS' use of the findings made in a

periodic review as the basis for denying a statutory

priority. ABCD points out that other provisions of section

9835a address the correction of deficiencies found in a

periodic review by quality improvement plans and the

termination of the agency if the deficiencies are not

corrected. But nothing in these provisions prevents HHS from

considering the findings of a periodic review in determining

under the prior section whether the Head Start agency should

lose its priority.

If this were an ordinary agency review proceeding, we

would now reach the usual question whether the agency had a

rational basis for its action or whether, contrariwise, its

action was arbitrary, capricious or unreasonable. And, one

would expect ABCD to explain why the findings of deficiency

relied on by HHS were mistaken or unsupported or why, to the

extent they might be correct and adequately supported, they

were not sufficiently serious, even taken as a whole, to

justify the significant step of the denial of priority.

If such an attack were made, we would take it seriously.

Agencies are entitled to considerable deference in their

formal fact finding and in the application of general

standards to specific facts within their expertise, but in

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neither case is deference unlimited. Congress has, as ABCD

argued, treated the priority as a matter of importance

(although the condition attached to it is also important).

This court has been willing enough even in fairly technical

areas to overturn agency decisions which appeared to us to be

unreasonable or inadequately supported. See, e.g., Puerto

Rico Sun Oil Co. v. EPA, 8 F.3d 73, 76-77 (1st Cir. 1993).

ABCD has chosen not to make such an attack, and we

therefore have no occasion to review in detail the findings

of the May 10, 1996, review of the Parent Child Center which

are summarized in the district court's decision. 1997 WL

677477 at *19. It is enough to say that the criticisms are

not narrowly confined or limited to trivial matters. And

while ABCD has stressed that the Parent Child program was a

small portion of its budget, it implies that the figure is 4

percent of $22 million--most would not regard a million-

dollar program as small change.

ABCD's next line of argument contests the authority of

Galligan to make the priority decision at all. We condense

the background which is discussed at length in the district

court decision. 1997 WL 677447 at *6-13. The gist of the

matter is that, as Regional Administrator, Galligan had from

the outset the authority to award Head Start grants, but the

Commissioner of Youth and Family Services--then Olivia

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Golden--had the authority to designate new Head Start

agencies.

The district court deemed it unclear which of the two

officials had the authority to grant or deny the priority,

but found that it did not matter. It concluded that even if

Galligan had lacked the authority in August 1996, Golden had

explicitly ratified his actions in June 1997. By that time,

Golden was Principal Deputy Assistant Secretary and had been

nominated for the vacant Assistant Secretary position.

We agree with the district court that as the Principal

Deputy and nominee, Golden could exercise the powers of an

assistant secretary. ABCD admits that the proper assistant

secretary had the authority to make priority decisions but

argues that Golden was nominated for an assistant

secretaryship other than the one with authority to decide the

issue. Despite some confusion over titles, we adopt the

district court's reasoning for rejection of this argument.

Id. at *12.

ABCD's more interesting argument is that Golden could

not ratify Galligan's decision "retroactively." All

ratifications are retroactive in the sense that they purport

to validate a prior action that might otherwise be

unauthorized. But ABCD relies here on an HHS administrative

procedural manual that refers to ratification of prior

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actions being permissible in "special circumstances" and

"with the approval" of the general counsel's office.

We know almost nothing about the scope of this

provision, or the legal significance of the manual, because

ABCD did not make this argument in the district court.

ABCD's objection is therefore waived. See McCoy v.

Massachusetts Institute of Technology, 950 F.2d 13, 22 (1st

Cir. 1991). Accordingly, we do not reach HHS' alternative

argument that the record shows that the general counsel's

office informally acquiesced in the ratification.

Finally, ABCD says that the ratification is an invalid

"post hoc rationalization." This epithet has been used by

courts in various ways but most often to prevent agency

lawyers from providing in briefs necessary findings or

reasoning omitted from the agency's decision. See Motor

Vehicle Mfrs. Ass'n v. State Farm Mut. Automobile Ins. Co.,

463 U.S. 29, 50 (1983); Burlington Truck Lines, Inc. v.

United States, 371 U.S. 156, 168-69 (1962). Nothing of the

sort is presented here: both Galligan and Golden agreed,

respectively in May and June 1997, that ABCD was properly

denied the priority based on information available to them

from the time the grant was originally made to Dimock.

Thus, the usual concern of courts--that the

decisionmaker may not have made the necessary determinations-

-is absent here. Further, it was the district court itself

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that ordered HHS to make its priority determination explicit

and explain its reasons. See Pension Benefit Guaranty Corp.

v. LTV Corp., 496 U.S. 633, 653-54 (1990). Finally, nothing

in the 1997 redeterminations violated any procedural

requirements: We have been pointed to nothing in the statute

or regulations that requires any specific procedures before a

priority is denied. See Dubois v. United States Dep't of

Agric., 102 F.3d 1273, 1289 (1st Cir. 1996), cert. denied,

117 S. Ct. 2510 (1997).

Affirmed.

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