Filed: Apr. 26, 2013
Latest Update: Mar. 28, 2017
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1764 SOUTH CAROLINA DEPARTMENT OF EDUCATION; SOUTH CAROLINA STATE SUPERINTENDENT OF EDUCATION MITCHELL ZAIS, Petitioners, v. ARNE DUNCAN, Secretary of Education; UNITED STATES DEPARTMENT OF EDUCATION, Respondents. On Petition for Review of an Order of the Department of Education. (EDUC-1) Argued: March 22, 2013 Decided: April 26, 2013 Before NIEMEYER, AGEE, and THACKER, Circuit Judges. Petition for review granted and case rem
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1764 SOUTH CAROLINA DEPARTMENT OF EDUCATION; SOUTH CAROLINA STATE SUPERINTENDENT OF EDUCATION MITCHELL ZAIS, Petitioners, v. ARNE DUNCAN, Secretary of Education; UNITED STATES DEPARTMENT OF EDUCATION, Respondents. On Petition for Review of an Order of the Department of Education. (EDUC-1) Argued: March 22, 2013 Decided: April 26, 2013 Before NIEMEYER, AGEE, and THACKER, Circuit Judges. Petition for review granted and case rema..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1764
SOUTH CAROLINA DEPARTMENT OF EDUCATION; SOUTH CAROLINA
STATE SUPERINTENDENT OF EDUCATION MITCHELL ZAIS,
Petitioners,
v.
ARNE DUNCAN, Secretary of Education; UNITED STATES
DEPARTMENT OF EDUCATION,
Respondents.
On Petition for Review of an Order of the Department of
Education. (EDUC-1)
Argued: March 22, 2013 Decided: April 26, 2013
Before NIEMEYER, AGEE, and THACKER, Circuit Judges.
Petition for review granted and case remanded by published
opinion. Judge Niemeyer wrote the opinion, in which Judge Agee
and Judge Thacker joined.
ARGUED: Shelly Bezanson Kelly, SOUTH CAROLINA DEPARTMENT OF
EDUCATION, Columbia, South Carolina, for Petitioners. Alisa
Beth Klein, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Respondents. ON BRIEF: Wendy Bergfeldt Cartledge,
Barbara Drayton, Karla Hawkins, SOUTH CAROLINA DEPARTMENT OF
EDUCATION, Columbia, South Carolina, for Petitioners. Philip H.
Rosenfelt, Deputy General Counsel Delegated to Perform the
Functions and Duties of the General Counsel, Joan DeLise Bardee,
Attorney, Department of Education, Stuart F. Delery, Principal
Deputy Assistant Attorney General, Mark B. Stern, Attorney,
Appellate Staff, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Respondents.
2
NIEMEYER, Circuit Judge:
The Individuals with Disabilities Education Act (“IDEA”)
provides for grants of federal funds to States for the education
of disabled children. To meet the eligibility requirements for
the full amount of funds allocated to a State, that State must
not reduce the amount of its own financial support for special
education “below the amount of that support [it provided] for
the preceding fiscal year.” 20 U.S.C. § 1412(a)(18). If the
State fails to meet this “maintenance-of-effort” condition, as
it is referred to, the Secretary of the U.S. Department of
Education (“USDOE”) must reduce the level of federal funding to
the State in subsequent years by the amount of the funding
shortfall. Id. Alternatively, the Secretary may grant a waiver
of the maintenance-of-effort condition if doing so “would be
equitable due to exceptional or uncontrollable circumstances
such as a natural disaster or a precipitous and unforeseen
decline in the financial resources of the State.” Id.
South Carolina requested a waiver of its maintenance-of-
effort condition for approximately $67.4 million for its fiscal
year ended 2010. The Secretary granted the waiver in part, but
denied it to the extent of $36.2 million. Accordingly, he
advised the State that the USDOE was reducing the State’s
allocation for fiscal year 2012 by $36.2 million. When South
Carolina sought to have a hearing on the Secretary’s
3
determination, the Secretary advised the State that the IDEA did
not provide for such a hearing.
South Carolina filed this petition for review, challenging
the Secretary’s denial of its request for a full waiver and its
request for a hearing. The Secretary filed a motion to dismiss,
contending that this court does not have jurisdiction to
consider the State’s petition.
We conclude that the Secretary’s action in partially
denying South Carolina’s request for a waiver was a
determination made “with respect to the eligibility of the
State” for funding and that therefore we have jurisdiction to
consider the State’s petition for review. See 20 U.S.C. §
1416(e)(8)(A). We also conclude that the Secretary’s denial of
the State’s request for a full waiver was a determination that
South Carolina was “not eligible to receive a grant” in the
amount of $36.2 million and that therefore the Secretary was
required to provide the State with notice and an opportunity for
a hearing before he made a final determination with respect to
the waiver request. Id. § 1412(d)(2). Accordingly, we grant
the petition for review and remand to allow the Secretary to
provide South Carolina with notice and an opportunity for a
hearing before he makes a final determination on South
Carolina’s waiver request.
4
I
The IDEA provides federal funding to States for the
education of disabled children. To be eligible for this
funding, a State must submit a plan to the Secretary of the
USDOE that “provides assurances to the Secretary that the State
has in effect policies and procedures to ensure that the State
meets each of [25 stated] conditions.” 20 U.S.C. § 1412(a). In
addition to requiring that the State provide an appropriate
public education to all children with disabilities, the
conditions require that the State “not reduce the amount of
State financial support for special education and related
services for children with disabilities . . . below the amount
of that support for the preceding fiscal year.” Id. §
1412(a)(18)(A). This maintenance-of-effort condition, however,
may be waived under two circumstances, including if the
Secretary determines that doing so “would be equitable due to
exceptional or uncontrollable circumstances such as a natural
disaster or a precipitous and unforeseen decline in the
financial resources of the State.” 1 Id. § 1412(a)(18)(C)(i).
Without such a waiver, the statute provides that “[t]he
1
The Secretary may also waive the maintenance-of-effort
requirement if “the State provides clear and convincing evidence
that all children with disabilities have available to them a
free appropriate public education.” 20 U.S.C. § 1412(a)(17)(C).
South Carolina did not seek a waiver under this standard.
5
Secretary shall reduce the allocation of funds . . . for any
fiscal year following the fiscal year in which the State fails
to comply with [the maintenance-of-effort condition] by the same
amount by which the State fails to meet the requirement.” Id. §
1412(a)(18)(B).
After experiencing “severe and precipitous” reductions in
state tax revenues, South Carolina advised the USDOE of the
reduced revenues and South Carolina’s need to reduce funding for
special education by $67.4 million. In a letter to the agency,
dated February 26, 2010, South Carolina requested a waiver of
the maintenance-of-effort condition for fiscal year 2010. The
State also provided the agency with supporting financial
information.
In an eight-page opinion letter dated June 17, 2011, then-
Assistant Secretary for Special Education and Rehabilitative
Services Alexa Posny found that the submitted financial
information indicated that “the State did not treat special
education and related services in an equitable manner when
compared to State agencies as a whole.” She noted that the
State reduced its support for special education by 12.02%,
whereas its average reduction in appropriations across all
agencies was 7.55%. For this reason, she denied the request for
a waiver of the full $67.4 million amount. After recalculating
the reductions in an “equitable” manner, however, Posny granted
6
the State’s waiver request to the extent of $31.2 million and
denied it to the extent of $36.2 million. She stated:
The State’s submissions to the [USDOE] in support of
its waiver request establish that it has failed to
maintain financial support for special education and
related services for FY 2010 by $36,202,909 . . . .
Thus, the State has a $36,202,909 shortfall in the
amount of State financial support for FY 2010.
The letter encouraged the State “to take action to restore
funding for special education and related services for FY 2011.”
On South Carolina’s request for reconsideration, Deputy
Secretary Anthony Miller affirmed the decision.
Even though the USDOE informed South Carolina that it was
not entitled to a hearing, South Carolina filed an appeal from
Assistant Secretary Posny’s decision on August 1, 2011, with the
Office of Hearings and Appeals, requesting a hearing. After
receiving no status reports or information regarding the appeal,
South Carolina filed a motion to expedite. When the request for
a hearing was presented to the Secretary, he issued an order
dated May 22, 2012, denying the request for a hearing and
explaining that while the IDEA provides for notice and an
opportunity for a hearing “prior to (1) issuance of the
Department’s final agency decision rejecting the eligibility of
a State for IDEA grant funding or (2) a withholding of IDEA
funds,” (emphasis added), the agency’s partial denial of South
Carolina’s request for a waiver was neither a decision rejecting
7
eligibility nor a decision withholding funds. Thus, he ruled,
“no right to a hearing attached.” The Secretary’s opinion
reasoned that because South Carolina was not challenging the
conclusion that it did not meet the maintenance-of-effort
condition and because South Carolina was never deemed ineligible
for a grant, this was not a case of an agency decision rejecting
eligibility. He also stated that the agency decision did not
involve a “withholding” of grant funds under the IDEA because
“[s]uch a withholding action can only occur after [the Office of
Special Education and Rehabilitative Services] has made a
determination that a State has substantially failed to comply
with an IDEA eligibility condition.” But here “[that Office]
never determined the State substantially failed to comply with
the IDEA’s [maintenance-of-effort] requirement -- the State
concedes that it did not.” Finally, the Secretary noted that
the General Education Provisions Act (“GEPA”), 20 U.S.C. §
1234d(b) (requiring a hearing before the Secretary withholds
payment under an education program), does not provide South
Carolina with a right to a hearing because the specific terms of
the IDEA, which require a reduction of funds, supersede the
general terms of the GEPA.
The South Carolina Department of Education and its
Superintendent, Mitchell Zais, filed this petition for review of
the Secretary’s denial of South Carolina’s request for a waiver
8
and request for a hearing, naming the Secretary and the USDOE as
respondents. In its petition, South Carolina also requested an
order that the Secretary restore, during the pendency of the
hearing procedures, the $36.2 million in funding that the
Secretary reduced from South Carolina’s fiscal year 2012
allocation. In addition to its petition, South Carolina filed a
motion to stay the reduction of its IDEA funds pending appeal.
The USDOE filed a motion to dismiss the petition for lack
of jurisdiction, contending that its waiver determination was a
final agency action subject to review only in the district court
under the Administrative Procedure Act, not in the court of
appeals under the IDEA or GEPA.
By order dated August 13, 2012, we denied the State’s
motion for a stay pending appeal and deferred ruling on the
USDOE’s motion to dismiss until after oral argument.
In this appeal, we are thus presented with two procedural
questions: (1) whether we have jurisdiction to consider South
Carolina’s petition for review, and (2) whether South Carolina
is entitled to an opportunity for a hearing on the USDOE’s
determinations that South Carolina had “failed to maintain
financial support for special education and related services for
FY 2010 by $36,202,909” and consequently that South Carolina’s
grant for fiscal year 2012 be reduced by that amount.
9
II
To justify our jurisdiction over its petition for review,
South Carolina relies principally on IDEA’s provision
authorizing a State to file a petition for review in a court of
appeals when the “State is dissatisfied with the Secretary’s
action with respect to the eligibility of the State under
section 1412 of this title.” 20 U.S.C. § 1416(e)(8)(A).
Alternatively, it relies on the GEPA’s provision for review by
courts of appeals of agency decisions to withhold payments for
failing to comply substantially with any requirement of law
applicable to such funds. Id. § 1234g.
Although South Carolina contends that both the IDEA and
GEPA provide subject-matter jurisdiction over its petition, we
will look first to the IDEA, the more specific statute and the
statute pursuant to which the underlying action in this case was
taken. Cf. Morales v. Trans World Airlines, Inc., 504 U.S. 374,
384 (1992) (looking to ERISA instead of the more general Federal
Aviation Act saving clause because “it is a commonplace of
statutory construction that the specific governs the general”).
Under the IDEA, any State “dissatisfied with the
Secretary’s action with respect to the eligibility of the State
under section 1412 of this title . . . may . . . file with the
United States court of appeals for the circuit in which such
State is located a petition for review of that action.” 20
10
U.S.C. § 1416(e)(8)(A). Our jurisdiction under this provision
thus turns on whether South Carolina is appealing an “action
with respect to . . . eligibility.” Because South Carolina
seeks review of the USDOE’s decision denying a full waiver of
the maintenance-of-effort condition for fiscal year 2010 imposed
by § 1412(a)(18) (as well as the Secretary’s decision not to
grant South Carolina a hearing before making that decision), we
must evaluate whether the maintenance-of-effort waiver
determination was an “action with respect to eligibility.”
South Carolina’s primary argument on why a maintenance-of-
effort waiver determination is an eligibility determination is
that “[maintenance-of-effort] is one of the twenty-five
eligibility requirements” and therefore “[b]y not waiving [the
maintenance-of-effort condition] for the 2009-10 year, the
Secretary found that South Carolina did not meet the eligibility
requirements for a grant.”
The USDOE argues to the contrary, contending that “South
Carolina [had already been] found eligible for grants under IDEA
Part B because its State’s plan provided the required
assurances” and, instead, that the cut in funding was due to a
“[f]ailure to administer the grant in compliance with grant
11
assurances.” (Emphasis added). 2 It argues that South Carolina
was not found ineligible for a grant under the IDEA because, had
it been so found, it would not have received any funding.
The USDOE’s position rests ultimately on the distinction
between a finding of ineligibility and a finding of non-
compliance. Explaining the difference, it states:
If South Carolina had not provided one or more of the
required assurances [contained in § 1412(a)], the
[USDOE] would have found the State ineligible for a
grant and would have provided the State with notice
and opportunity for a hearing in connection with that
finding. The State’s failure to comply with any of
these grant assurances in the administration of its
federal grant is a basis for finding of noncompliance
and may cause the Department to take enforcement
action. But, under the IDEA’s direct-review
provision, only a finding of ineligibility is subject
to direct review in the court of appeals.
The distinction that the USDOE makes is indeed meaningful.
A condition of eligibility looks forward such that its failure
leads to ineligibility. A finding of non-compliance, on the
other hand, is an evaluation that looks backward in an
assessment of performance.
Thus, as § 1412(a) sets forth the conditions to
eligibility, it includes the forward-looking consequence of fund
reductions, albeit not necessarily a complete funding reduction.
2
The USDOE also contends that its interpretation is
entitled to deference under Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984). Because
we find the statute to be clear, however, we do not reach the
question of deference.
12
Section 1412(a) provides that the consequence for failing to
satisfy the maintenance-of-effort condition is a directly
related reduction in the future allocation of grant funds. See
20 U.S.C. § 1412(a)(18)(B). The requirement thus operates an
ongoing condition as to the State’s eligibility for allocated
grant funds, and as a condition of eligibility, a failure to
satisfy the condition leads to proportionate ineligibility. In
this manner, a failure to meet the maintenance-of-effort
condition to the extent of $1,000 leads to a comparable
reduction of future funds in the amount of $1,000. Non-
compliance, on the other hand, is addressed in § 1416 pursuant
to an evaluation of past performance following the State’s
submission of a “performance plan.” Id. § 1416(b). The finding
of a compliance failure under § 1416 can lead to the Secretary’s
provision of “assistance,” “intervention,” “substantial
intervention,” or even “withholding funds.” Id. § 1416(e).
To be sure, a State’s failure to appropriate funds for
special education as provided in the IDEA might lead either to
the failure of a condition to funding eligibility under § 1412
or to non-compliance enforcement under § 1416. Consequently, it
is necessary to determine the precise course that is implicated
by either the State or the USDOE’s actions and to apply the
procedures that Congress prescribed for that course.
13
The course implicated in this case is not in question.
There was no assessment of the State’s performance plan, nor was
there any finding that the State needed assistance,
intervention, or substantial intervention as would occur under §
1416(e)(1)-(3). Although a determination that a State failed to
comply with its plan could lead to the USDOE, under §
1416(e)(3), to recover funds, using GEPA; to withhold funds
(after a hearing); to refer the case to the USDOE’s Office of
the Inspector General; or to refer the matter for appropriate
enforcement action, no such actions were undertaken and none of
the § 1416(e) remedies were invoked. Instead, South Carolina
requested a waiver of the maintenance-of-effort condition to
eligibility in § 1412(a)(18), and the USDOE acted accordingly.
The USDOE addressed the request under § 1412(a)(18)(C) to
determine whether the maintenance-of-effort condition should be
waived.
More specifically, South Carolina requested a waiver of the
maintenance-of-effort condition under § 1412(a)(18)(C)(i), which
allows for a waiver based on “a precipitous and unforeseen
decline in the financial resources of the State.” The Secretary
responded to the request, applying the criteria provided by the
same provision, finding that the State “had failed to maintain
financial support for special education and related services for
FY 2010 by $36,202,909” and reducing grant money for the
14
following fiscal year to the same extent. Thus, both South
Carolina’s request and the USDOE’s response employed § 1412,
which in its entirety is directed to “State eligibility.” The
Secretary’s waiver determination was accordingly (1) a
determination whether to remove an eligibility condition, and
(2) a reduction of the State’s eligibility for future funding.
Because removing an eligibility condition imposed by § 1412
is an “action with respect to the eligibility of the State under
section 1412,” we readily conclude that we have jurisdiction to
consider South Carolina’s petition for review. 20 U.S.C. §
1416(e)(8)(A) (emphasis added).
The USDOE nonetheless argues that we lack jurisdiction
because “South Carolina was not found ineligible for a grant
under IDEA Part B” because, though funding for fiscal year 2012
was reduced, South Carolina continued to receive some funding.
The USDOE claims that “only a finding of ineligibility is
subject to direct review in the court of appeals,” implying that
the statute requires complete ineligibility before implicating
our jurisdiction. But the text of § 1416(e)(8)(A) forecloses
such a claim. Under that section, our jurisdiction does not
depend on whether a State was found completely ineligible for
funding. Rather, it depends on whether an action was taken
“with respect to eligibility.” (Emphasis added). A partial
reduction in funding based on the failure to satisfy an
15
eligibility condition is as much an “action with respect to
eligibility” as is a full reduction of funding. Here, the
Secretary used § 1412(a)(18)(B)-(C) to conclude that South
Carolina was ineligible to receive $36.2 million in federal
funding.
We therefore have jurisdiction over South Carolina’s
petition for review under § 1416(e)(8)(A) and need not reach
South Carolina’s other jurisdictional arguments.
III
We turn next to South Carolina’s contention that it is
entitled to notice and an opportunity for a hearing before the
Secretary makes his final determination whether to grant South
Carolina a full waiver of the maintenance-of-effort condition
for fiscal year 2010. South Carolina contends that it is
entitled to a hearing under either (1) IDEA § 1412(d)(2) because
the Secretary found that the State was not eligible for the
$36.2 million portion of its allocated grant under the IDEA; or
(2) IDEA § 1416(e)(4)(A) and GEPA § 1234d(b) because the
Secretary’s reduction of South Carolina’s grant following its
denial of a full waiver was a “withholding.”
For the same reasons the USDOE gave in challenging our
jurisdiction, it contends that the Secretary’s partial denial of
South Carolina’s waiver request was not an eligibility
16
determination and also that the consequent reduction of its
grant to South Carolina was not a withholding under either the
IDEA or the GEPA so as to trigger notice and an opportunity for
a hearing.
Paralleling our jurisdictional analysis, we look first to
the language of the IDEA, which is the more specific statute
relevant to this issue.
The IDEA entitles a State to notice and an opportunity for
a hearing in two situations, both of which South Carolina
claims are relevant. First, § 1412(d)(2) mandates that “[t]he
Secretary shall not make a final determination that a State is
not eligible to receive a grant under this subchapter until
after providing the State (A) with reasonable notice; and (B)
with an opportunity for a hearing.” Similarly, § 1416(e)(4)(A)
mandates notice and an opportunity for a hearing “[p]rior to
withholding any funds under this section.” Because our
jurisdiction exists on the basis of a decision made with respect
to eligibility, we look first to whether § 1412(d)(2)’s hearing
provision is applicable.
Both the basis for our jurisdiction and the basis for a
right to a hearing depend on the Secretary’s making a
determination relating to eligibility, but the IDEA uses
slightly different language for each. As addressed in Part II
above, we have jurisdiction over “the Secretary’s action[s] with
17
respect to the eligibility of the State,” 20 U.S.C. §
1416(e)(8)(A) (emphasis added), but South Carolina is entitled
to a hearing only when the Secretary “make[s] a final
determination that a State is not eligible” for funding, id. §
1412(d)(2). At oral argument, the USDOE treated these two
provisions as equivalent, stating that if we found that we had
jurisdiction, we should also conclude that South Carolina was
entitled to an opportunity for a hearing.
While the USDOE may be correct in that position, the
distinction in statutory language persuades us not to adopt a
blanket rule that if we have jurisdiction under 1416(e)(8), the
State should also be entitled to notice and an opportunity for a
hearing under § 1412(d)(2). Nonetheless, we do agree that in
this case, the partial denial of the maintenance-of-effort
waiver not only provides us with jurisdiction under § 1416(e)(8)
but also amounts to a “determination that a State is not
eligible” for funding under § 1412(d)(2), albeit only to the
extent of $36.2 million.
Section 1412(a)(18)(B) provides for a reduction in the
USDOE’s grant to a State when the State fails to meet its
maintenance-of-effort condition, while § 1412(a)(18)(C) removes
this consequence and allows the State to become eligible for
funding despite its failure to satisfy the condition. When the
USDOE decided that South Carolina was only entitled to a partial
18
waiver under § 1412(a)(18)(C) and that its eligibility would
therefore be partially reduced under § 1412(a)(18)(B), it made a
determination that the “State [was] not eligible” for the
funding it otherwise would have received. 20 U.S.C. §
1412(d)(2). Thus, under § 1412(d)(2), South Carolina was
entitled to notice and an opportunity to be heard before a final
determination on its waiver request was made. Id.
Because we conclude that the Secretary’s determination
could not have been final until after the USDOE provided the
State with notice and an opportunity for a hearing, we also
conclude that South Carolina remains eligible for its full
funding until that final determination is made. Only if and
when the USDOE finally denies South Carolina’s waiver request
can it reduce the federal funding grant to South Carolina, and
then it can implement the reduction in “any fiscal year
following [FY 2010].” 20 U.S.C. § 1412(a)(18)(B).
For the same reason, the Secretary may not, until he makes
a final determination on the waiver request, redistribute to
other States the amount of his proposed reduction of South
Carolina’s grant for fiscal year 2012, as directed by § 1514 of
the Consolidated and Further Continuing Appropriations Act, Pub.
L. No. 113-6, 127 Stat. 198, 425 (2013) (providing that “the
Secretary shall distribute to all other States . . . any amount
by which a State’s allocation under [Part B] . . . is reduced
19
under [the maintenance-of-effort penalty provision, §
1412(a)(18)(B)]”).
Because we conclude that South Carolina is entitled to an
opportunity for a hearing on the waiver determination, it is
premature for us to address its challenge to the Secretary’s
decision to deny a full waiver. Likewise, we need not address
South Carolina’s argument that denying a hearing was a violation
of due process.
PETITION FOR REVIEW IS
GRANTED AND CASE REMANDED
WITH INSTRUCTIONS.
20
