ABCD, Inc. v. Shalala

• Court: Court of Appeals for the First Circuit
• Decided: February 10, 1998
• Docket: 97-1834
• Status: Published

Opinion

USCA1 Opinion

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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