GAB Decision 685
August 22, 1985
Nevada Department of Human Resources;
Garrett, Donald F.; Tietz, Alexander G. Ballard, Judith A.
Docket No. 85-16
DECISION
The Nevada Department of Human Resources (State) appealed the decision
of the Office of Human Development Services (Respondent or Agency)
disallowing $37,954 in federal financial participation (FFP) claimed for
the costs of physical changes made to a residential building. The major
issues in dispute are (1) whether federal funds are available under
Public Law 95-602 for the costs, and (2) whether the Agency was estopped
by its actions from disallowing the $37,954.
For the reasons stated below, we conclude that federal funds are not
available under Public Law 95-602 and that the State did not prove an
estoppel defense. This decision is based on the written record.
Background
On June 22, 1979, the State awarded $50,605 to the Churchill County
Association for Retarded Citizens (CCARC) to renovate a residential
structure so that it could be used as a group home for developmentally
disabled persons. The State claimed reimbursement of $37,954 in federal
funds for the work under the Rehabilitation, Comprehensive Services, and
Developmental Disabilities Amendments of 1978 (Public Law 95-602).
Although previous federal statutes authorizing developmental
disabilities (DD) grants to states had allowed some part of the State's
overall DD allotment to be used for "construction," the 1978 Act did
not. /1/
42 U.S.C. 6064, as amended by the 1978 Act, stated:
From each State's (DD) allotments for a fiscal year under section
6062 of this title, the State shall(2) be paid the Federal share of the
expenditures, other than expenditures for construction, incurred during
such year under its State plan approved under this subchapter.
42 U.S.C. 6064; Pub. L. 95-602, section 514 (emphasis added).
The term "construction," as used in 42 U.S.C. 6064, and pertinent
to
this appeal, was defined very broadly at 42 U.S.C. 6001(4) as including:
Construction of new buildings, acquisition, expansion, remodeling,
and alteration of existing buildings, and initial equipment of any such
buildings. . . .
(Emphasis added) /2/
The Agency disallowed the State's claim on grounds that the work was
"construction" within the meaning of Public Law 95-602, and funds
were
not available under 95-602 for construction.
Were federal funds available to the State under Public Law 95-602 for
the cost of the work?
The State asserted that Public Law 95-602 was not as clear about funds
not being used for construction as the Agency would have the Board
believe. The State argued that, in fact, the only change made by Public
Law 95-602 to 42 U.S.C. 6064 was the deletion of the word "construction"
from its heading. The implication was that the text still provided for
payments for construction and, thus, the amendments were at best
ambiguous.
We reject this argument. Public Law 95-602 did not merely delete the
term "construction" from the heading of 42 U.S.C. 6064 but also, and
more significantly, deleted subsection (b), a provision which, among
other things, had allowed payments to a state for work "performed upon
a
construction project." (See Pub. L. 94-103, Sec. 113 and Sec. 302) This
left only the "no construction" provision (formerly subsection (a)
of
the law). Thus, rather than(3) creating ambiguity, Public Law 95-602,
in fact, clarified that funds were available only for expenditures
"other than" construction.
Was the work "renovation" and, therefore, an allowable expense under
the
Grants Administration Manual?
The State also argued that the work was "renovation," and "renovation"
was not prohibited by the statute. Appellant argued that "renovation"
was different from "remodeling" and "alteration," terms
included in the
definition of construction under 42 U.S.C. 6001(4), and that
"renovation" was a specifically allowable expense under the HHS Grants
Administration Manual (GAM), Chapter 1-44.
The Agency argued that there was no difference between "renovation"
and
"remodeling" or "alteration"; therefore, the work was "construction"
and federal funds were not available under the statute. The Agency also
argued that GAM Chapter 1-44 did not apply to this case, since, by its
own terms, Chapter 1-44 applied only in instances where a statute was
silent with regard to building work.
The State has failed to convince us that there is a distinction between
"renovation" and "remodeling" or "alteration".
The fact that the
statute used the terms "remodeling" and "alteration" while
the GAM used
the term "renovation" is not sufficient to establish a difference
in
meaning. The dictionary indicates that the words "remodel" and
"renovate" are synonyms. (See RANDOM HOUSE COLLEGE DICTIONARY (1973)
at
pp. 39, 1116). The State has not argued that there was a technical
definition that should have been applied here. Moreover, the State has
not submitted any support for the proposition that Congress intended
that funds be used for "renovation" but not "remodeling"
or
"alteration." Also, a description of the work to be performed under
the
subgrant indicates that the work readily fits the concepts of
"remodeling" and "alteration." (See Agency Response to Appellant's
Statutory Argument, May 3, 1985, Tab E). Finally, the GAM itself
indicates that the words "renovation and alteration" are linked.
Section 1-44-30 states: "(a)lteration and renovation is defined as work
required to change the interior arrangements or other physical
characteristics of an existing facility. . . ." Nothing in the GAM
provides a basis for distinguishing this definition from the concepts of
"remodeling" and "alteration," as included in the statutory
definition
of "construction."
Even were the Board to accept that "renovation" was different from
"remodeling" or "alteration," the GAM still would not apply
in this
instance. A careful reading of GAM Chapter 1-44 makes clear(4) that
renovation is allowed only where applicable legislation is silent on the
question of whether building work is permitted. Section 1-44-30 states:
For purposes of this policy, a further distinction is made between
(1) limited, grant-essential alteration and renovation that can be
deemed allowable under legislation that makes no reference to building
work, and (2) more extensive alteration and renovation which, because of
the scope of the work, cannot be funded by the Department unless it is
explicitly authorized by legislation. (Emphasis added)
The statute here clearly makes "a reference to building work." Thus,
assuming the changes made to the residential facility under the subgrant
were "limited, grant-essential" work, they would not be allowable
under
this GAM provision. Moreover, assuming the changes were "more
extensive," (which it appears these changes were), they would not be
allowable since Public Law 95-602 did not "explicitly authorize" it.
Nowhere does Chapter 1-44 purport to cover the situation, such as that
presented in this case, where the statute authorizes grant funds only
for expenditures "other than construction." The reason for this is
that
the GAM is a document setting forth policy to cover situations not
specifically covered by statute. The GAM, in any event, cannot take
precedence over a statute since the Department has no authority to act
contrary to law. For example, assuming Chapter 1-44 contained
provisions which stated that funds could be used for construction even
though the statute prohibited it, the statutory provision would take
precedence over the GAM.
Did Agency documents published after Public Law 95-602 authorize
construction?
The State argued that two documents published after the passage of
Public Law 95-602 continued to authorize construction projects. The
first was Grants Administration Manual Chapter 6-180, which on September
30, 1982 replaced GAM Chapter 1-44. The State asked why Chapter 6-180
would have continued to allow for alteration and renovation, but not new
construction, if Public Law 95-602 prohibited alteration and renovation.
The second document was a draft of proposed revisions to the DD
regulations effecting changes brought about by Public Law 95-602. The
State pointed out that the proposed revisions continued to refer to
"construction" in the title of the relevant section.
The Board is not persuaded by the State's argument that the GAM Chapter
6-180 or the draft DD regulations continued to authorize construction.
As for GAM Chapter 6-180, the State failed to(5) recognize that this
Chapter has limited application. Chapter 6-180 paralleled Chapter 1-44
insofar as it stated that limited "alterations and renovation" were
allowed under statutes which were silent on the issue of construction
while new construction and large scale alteration and renovation were
not. (See section 6-180-00 A.) Finally, 6-180, on its face, applied
only to discretionary grant programs, whereas the DD funds in question
here are formula grant funds. (See Section 6-180-10) Thus, the
publication of Chapter 6-180 after the effective date of Public Law
95-602 is not inconsistent with the disallowance here.
As for the State's argument regarding the proposed revisions to the DD
regulations, the State itself admitted that the revisions were merely
proposals. On the face of the draft were the words "Working Copy".
(Appellant's July 22, 1985 Reply to Equitable Estoppel Argument, Ex.
C.) Thus, the draft regulations clearly did not "authorize" anything.
Moreover, the draft revision reflected the deletion of the previous
authority permitting some DD funds to be used for construction. (See
Ex. C; compare 42 CFR Parts 1385 and 1386, as published at 42 Fed.
Reg. 5276 (Jan. 27, 1977)) In light of this, the mere failure to delete
the word "construction" from a section heading cannot reasonably be
read
as meaning the statute continues funding authority for construction.
Was the Agency estopped by its conduct from disallowing the $37,954?
The doctrine of equitable estoppel precludes a party from establishing
an essential element of its claim because of that party's own
misrepresentations on which the opposing party relied to its detriment.
Here, the State asserted that the Agency must be estopped from
disallowing the funds in question because the State relied in good faith
on the Agency's "approval" of the subgrant award on three occasions
prior to the majority of funds being spent. These occasions, as
described by the State, were:
(1) A July 30, 1979 site visit by Agency officials to review the DD
program; materials made available to the officials included the grant
award in question.
(2) A September 28, 1979 letter from Agency officials approving the
State's FY 79 State Plan; documentation in the State plan included
references to the project.
(3) A February 7, 1980 letter from an Agency official which stated
that federal funds were still available under the amendments of Public
Law 95-602 for the work.
The Agency argued that it could not be estopped in this case since no
federal official has authority to act contrary to statute and the
statute here clearly prohibited the use of funds for the(6) project.
The Agency also argued that, even if it could have been estopped in this
instance, the State had failed to establish the necessary elements for
an estoppel defense.
Analysis
The elements of equitable estoppel are:
(1) the Agency must know the facts;
(2) the Agency must have intended that the State act on the Agency's
conduct;
(3) the State must have been ignorant of the true facts;
(4) the State must have relied on the Agency's conduct to the State's
injury.
Vermont Agency of Human Services, Decision No. 599, December 10, 1984,
p. 6, and cases cited therein.
It is doubtful whether the Federal Government may ever be estopped by
the misrepresentations of an employee. It is not clear that even
"affirmative misconduct" on the part of an employee will suffice.
In
any event, the Federal Government clearly may not be estopped on the
same terms as any other litigant. See Heckler v. Community Health
Services of Crawford County, 104 S.Ct. 228 (1984) and Schweiker v.
Hansen, 450 U.S. 785 (1981).
Furthermore, it is a fundamental principle that no agency official has
the authority to act contrary to a federal statute. Federal Crop
Insurance v. Merrill, 332 U.S. 380 (1974). "The rationale is that a
single official cannot override a statute or regulation. . . ." Multen,
Allen and Williams, Inc. V. Harris, 613 F.2d 1176, 1178 (D.C. Cir.
1980). Even if the Agency could be estopped from taking the
disallowance, the State would have to prove the elements necessary to
establish estoppel against the government. Below we discuss the
Agency's actions and conclude that the State has not shown that all
elements of traditional estoppel are present and that, in any event, the
actions cannot be deemed "affirmative misconduct."
General considerations
Before discussing each of the three events outlined above individually,
we note two general ways in which State failed to prove its case.
First, the State failed to establish that it spent funds in reliance on
any of the three events. They all took place after the State had
already awarded the subgrant to CCARC. The State presented no evidence
or argument to establish that the subgrant was in any way made
contingent on federal funding, so we conclude that the (7) State's
obligation to provide funds to CCARC for the project was fixed at the
time of the award of the subgrant on June 22, 1979, prior to the events
and not in reliance on them.
Second, the State failed to establish injury. The State argued that
disabled citizens of the State would be injured by the disallowance
since money would have to be diverted from other parts of the State's
federal DD allotment to pay back the Federal Government for the project.
A similar argument was dismissed by the Supreme Court in Heckler v.
Community Health Services of Crawford, 104 S. Ct. 2228, (1984). In that
case, a health care provider sued, challenging attempted recoupment of
overpayments made under medicare cost reimbursement procedures. The
provider argued that it was injured in that it would have to curtail its
operations. The court concluded that even if the services were reduced
below the level provided before the provider improperly received the
funds, there still was no injury. The Court stated at p. 2225:
. . . the record does not foreclose the possibility that the
aggregate advantage to the community stemming from respondent's use of
the money have more than offset the actual hardship associated with now
being required to restore these funds. Respondent cannot raise an
estoppel without proving that it will be significantly worse off than if
it never had obtained the . . . funds in question.
In this case, the State did not show that the aggregate advantage to the
community stemming from the project did not more than offset any
hardship arising to the DD program from having to pay back the funds
now. Thus, the State failed to prove estoppel since it did not show
that it was significantly worse off than if it had never used the DD
funds for the project.
1) The July 30, 1979 site visit.
The State averred that the site visit team reviewed the grant award and
the State plan, which contained references to the project. As support,
the State cited pages 7, 8, and 10 of its Appeal File. The State argued
that by reviewing documents containing references to the project and not
objecting to it, the team "effectively approved" the project.
Pages 7 and 8 of the Appeal File are part of an August 27, 1979 report
on the site visit. Page 8 contains a statement that the team reviewed
the State Plan. Page 10 is a copy of a page of documentation submitted
with the Plan which, under the heading "Ongoing Service Grants FY 1979,"
noted that $37,994 was to be used for the project.(8)
The activities surrounding the July 30 site visit are not sufficient to
establish an estoppel defense. First, the State's documentation does
not establish that the team reviewed the subgrant award. Nowhere on
pages 7 and 8 of the August 27, 1979 report or in the documentation at
page 10 is there any statement that the team reviewed the information at
page 10 containing a reference to the project is insufficient to
establish estoppel. The State failed to establish that the Agency
intended the State to rely on its review of documentation submitted with
the State plan in claiming FFP in costs of the project. Thus, the State
failed to establish the elements of either reliance or intent necessary
for traditional estoppel.
2) The September 28, 1979 letter approving the State Plan.
The State averred that regional officials specifically approved the
State Plan by this letter and that materials submitted with the plan
contained a reference to the project as being for "renovation." We
note
that the September 28 letter, in fact, approved an amendment to the
State Plan rather than a new State Plan. The State cited the same page
10 of its Appeal File as discussed above.
For the same reasons as discussed above, review of the State Plan (or
amendment) does not establish estoppel. Moreover, the modification is
described in the materials submitted with the amendments as a change in
service objectives, so Agency review could understandably have failed to
focus on the project descriptions. (Appellant's Reply Brief, May 22,
1985, Ex. I) Furthermore, the description of the CCARC project appears
under a heading ("Ongoing Service Grants FY 1979") which incorrectly
indicated that the subgrant was a "service" rather than a "construction"
grant. Pertinent DD statutory definitions at 42 U.S.C. 6001 clearly
distinguished between the various types of DD-related "services" (see,
e.g., 6001(8) (A)-(F))and "construction." Accordingly, including the
project under the category of "service grants" (for which FFP continued
to be available under the DD program after the amendments made by Public
Law 95-602) was misleading. Also, the term "ongoing" in the heading
may
have lead the Agency to believe that funding had already been awarded
under the authority of a previous statute which allowed funds to be used
for construction. We think that it would not have been reasonable for
the State to have relied on Agency approval of the plan amendment as
approval of federal funding for the project, particularly where the
project was mischaracterized in these ways.
3) February 7, 1980 letter from Agency official.
The State argued that a February 7, 1980 letter from the then Director,
Management Division, Rehabilitation Services Administration,(9)
"expressly authorized the grant award representing that it did not
violate existing law applicable to such grants." (Appellant's Reply
Brief, May 22, 1985, p. 5)
In that letter the Director accurately stated that Public Law 95-602 did
not authorize funds for construction in FY 79. However, he inaccurately
stated that funds were available for the project. He based this
statement on his conclusion that "the date of the award (June 79)
preceded the effective date (August 79) of P.L. 95-602." /3/ In fact,
the effective date of Public Law 95-602 was October 1978, rather than
August 1979, and, therefore, well before the date of the grant award.
While it is clear from the record that the Director did state that
federal funds would be available for the project, this fact,
nevertheless, does not support the estoppel defense since the State
failed to establish that it relied on the statement. The record shows
that the February 7 letter was written after several important events
which clearly show that the State had previously decided to proceed with
the project. Prior to the February 7, 1980, letter the State had
awarded the subgrant (June 22, 1979) and the subgrantee had requested
bids (December 5, 1979), selected a contractor (January 11, 1980), and
secured a building permit (January 30, 1980). (See Respondent's Brief,
June 21, 1985, Tab K; and Respondent's Brief, May 8, 1985, Tab C)
The State's assertion that it relied on the Director's letter is further
weakened when the letter is viewed in context. There is an indication
in the record that the letter was written in response to an inquiry from
the State about "matching funds." There is no evidence in the record
that the letter was written in response to any inquiry from the State
about whether federal funds were(10) available for the project. Rather,
the unsolicited advice about federal funds apparently was offered by way
of a caution against changing the original proposal (since only then,
the Director mistakenly thought, would the FY 79 restriction come into
play).
Summary
We conclude that the Agency's actions do not form a basis for applying
estoppel here. First, the State did not establish that it undertook or
continued the project in reliance on any Agency's actions. Furthermore,
in light of the specific statutory exception, we do not think the State
could have reasonably relied on the Agency's action.Second, the State
has not shown that it was injured as a result of relying on the Agency's
actions. Although the State alleged it would suffer if it had to repay
funds it spent on the project, it provided no evidence that it was worse
off than if it had never undertaken the project. Third, the State did
not meet its burden of showing that the Agency intended its actions be
relied on. Finally, not only did the State fail to establish injury,
reliance, and intent, it failed to provide any evidence that any of the
Agency's actions deliberately or recklessly misled the State, and, thus,
constituted affirmative misconduct.
In summary, the statute requires that the Agency take the position it
did and equitable estoppel does not apply. The State has not shown that
every element of estoppel is present or that the Agency actions
constitute "affirmative misconduct."
Should the disallowance be reversed on grounds that it is "unfair"
to
penalize the State when the Agency itself was confused about the effect
of Public Law 95-602?
Finally, the State argued that the GAM Chapter 6-180 and the draft
revised DD regulations, both discussed on pp. 4-5 above, and two
additional documents from Agency officials were evidence of the Agency's
confusion about whether construction was an allowable expense under
Public Law 95-602. The first additional document was the February 7,
1980 letter which, based on an incorrect understanding of the effective
date of Public Law 95-602, stated that funds were available for the
construction project. The second was a November 3, 1982 memorandum,
from the then Acting Regional Program Director, which stated that the
project may be allowable under GAM Chapter 6-180. The State argued
that, technicalities of estoppel aside, it simply was not fair to
penalize the State when the Agency itself was unsure about the effect of
Public Law 95-602.(11)
We are not persuaded by the State's argument. First, as discussed on
pp. 4-5 above, GAM Chapter 6-180 simply does not reveal Agency
confusion. Next, while the draft revisions to the DD regulations did
retain the word "construction" in the relevant section heading, this
may
well have been a mere oversight rather than an indication of confusion.
Finally, even if the Board were to agree that the February 7, 1980
letter and November 3, 1982 memorandum (or, for that matter, the draft
regulations) indicated some confusion on the part of some Agency
officials, vague allegations of unfairness do not present a sufficient
legal basis on which to overturn the disallowance in the face of what we
have found to be an unambiguous statute. Moreover, while it is
regrettable that federal officials did not specifically inform the State
that funds would not be available for the project, we believe the State
shares a responsibility for assuring that its projects qualify for
funding. Further, the disallowance does not appear so unjust when we
consider that the State benefitted from the project.
Conclusion
Based on the foregoing, we uphold the $37,954 disallowance. /1/ Prior
to the effective date of the 1978 Act, not more than 10% of a
State's DD allotment could be used for "construction." See Pub. L.
94-103, section 111(7), October 4, 1975. Still earlier, from 1970 to
1975, up to 50% of such allotments could be devoted to "construction."
See Pub. L. 91-517, section 101(b). /2/ See footnote 1, which
notes that prior to the 1978 Act certain portions of the State DD
allotments could be used for "construction." For purposes relevant
here,
the all-encompassing operative definition of "construction" was the
same
in the earlier Public Law 91-517 (not more than 50%) and 94-103 (not
more than 10%) versions as the current Public Law 95-602 (no
construction) version codified at 42 U.S.C. Sec. 6001( 4). See also the
definition of this term at 45 CFR 1385.2(a)(2) (1977). /3/ The
State argued that the Director probably thought that Public Law 95-602
was not effective until August of 1979 "because that date is when the
first publication of P.L. 95-602 took place." (Appellant's Reply Brief,
May 22, 1985, p. 7) The State submitted the cover sheet of a committee
print compiling "Rehabilitation, Comprehensive Services and
Developmental Disabilities Legislation" dated August 1979. (Appellant's
Reply Brief, May 22, 1985, Ex. H) The State concluded from this that the
first notice of the changes in the DD Law was in August 1979, two months
after the date of the subgrant award. While this date on the committee
print may have explained the Director's mistake, we disagree with the
State that it constitutes "the first notice" of the changes. The State
has an obligation to be aware of changes in any program under which it
seeks funds; surely the State knows that the law, enacted in November
1978, would have been published elsewhere prior to being included in
this compilation.
JANUARY 14, 1986