Healthy Teen Network v. Azar
Healthy Teen Network v. Azar
Opinion of the Court
The plaintiffs, Healthy Teen Network and the Mayor and City Council of Baltimore ("Baltimore City") have sued the defendants, Alex M. Azar II, Secretary of the U.S. Department of Health and Human Services, and the Department of Health and Human Services itself, (collectively "HHS"), claiming that the defendants' decision to end their grant award under the Teen Pregnancy Prevention, ("TPP"), program early is contrary to the agency's regulations and arbitrary and capricious. Healthy Teen Network and Baltimore City now move for a preliminary or permanent injunction. HHS opposes the motion, and has cross moved for dismissal for failure to state a claim or for summary judgment. Because both parties agree that there are no disputed issues of fact, and that the plaintiffs' case presents pure issues of law, the plaintiffs' motion will be treated as a motion for summary judgment.
Regulatory Background
Although administered through the Office of Adolescent Health in HHS, (Defs.' Mot., ECF No. 27, Ex. B, p. 3), the TPP program is a creature of Congress. For the first time in the Consolidated Appropriations Act of 2010, Congress directed that of the funding appropriated to HHS:
$110,000,000 shall be for making competitive contracts and grants to public and private entities to fund medically accurate and age appropriate programs that reduce teen pregnancy and for the Federal costs associated with administering and evaluating such contracts and grants, of which not less than $75,000,000 shall be for replicating programs that have been proven effective through rigorous evaluation to reduce teenage pregnancy, behavioral risk factors underlying teenage pregnancy, or other associated risk factors, of which not less than $25,000,000 shall be available for research and demonstration grants to develop, replicate, refine, and test additional models and innovative strategies for preventing teenage pregnancy, and of which any remaining amounts shall be available for training and technical assistance, evaluation, outreach, and additional program support activities.
Consolidated Appropriations Act, 2010, Pub. L. No. 111-117,
As a result of this funding, HHS announced two funding opportunities-labelled Tier 1 and Tier 2-in April 2010. (Am. Compl. at ¶ 23). Tier 1 grants were to be awarded to tried and true program models that had already shown promise in reducing teen pregnancy and delaying sexual activity. (Id. ) Tier 2 grants were to break ground, and fund new research and programs for reducing teenage pregnancy. (Id. )
Five years later, HHS expanded its funding opportunities, this time adding Tier 1B and 2B grants. Tier 1B grants were awarded to "replicate evidence-based TPP programs to scale in communities with the greatest need." (Defs.' Mot., ECF No. 27, Ex. B, p. 3). And Tier 2B grants were designed to test "new or innovative approaches to prevent teen pregnancy." (Id. ). These two grants provided funding to Baltimore City and Healthy Teen Network.
To support what HHS anticipated would be "substantial programmatic involvement ... between OAH and the grantee during performance of the project," (Am. Compl. at ¶ 34), Tier 1B and Tier 2B awards were distributed over two periods. The first is called the budget period, and refers to the funding successful applicants were guaranteed for one fiscal year. (Defs.' Mot., ECF No. 27, Ex. B, I-34). The second is called the project period-the amount of funding successful applicants could expect over the course of a five year project plan. (Id. ) Successful applicants were not guaranteed funding for the entire project period, but were required to submit a non-competing continuation application-which had to include a "progress report for the current budget year, and work plan, budget and *651budget justification for the upcoming year"-for each of the four budget periods, after the initial award year, during the project period. (Id. )
Each award required grantees to "comply with all terms and conditions outlined in their grant awards," and with HHS's Grants Policy Statement. (Defs.' Mot., ECF No. 27, City of Baltimore 2015-16 Notice of Award, Ex. A at 68).
contingent on satisfactory progress, the availability of funds, and the continued best interests of the Federal government. They are not guarantees that the project or program will be funded or will be funded at those levels, and they create no legal obligation to provide funding beyond the ending date of the current budget period.
(Defs.' Mot. ECF No. 27, Grants Policy Statement, U.S. Dep't of Health & Human Servs., Ex. B at I-34). The Statement further warns that HHS may decide not to "make a non-competing continuation award" because (1) "[a]dequate Federal funds are not available to support the project;" (2) "[a] recipient failed to show satisfactory progress in achieving the objectives of the project;" (3) "[a] recipient failed to meet the terms and conditions of a previous award;" or (4) "[f]or whatever reason, continued funding would not be in the best interests of the Federal government." (Id. at II-89).
Grant termination is the last piece of this case's regulatory puzzle. HHS regulations define "termination" as "the ending of a Federal award, in whole or in part at any time prior to the planned end of period of performance."
HHS may only terminate a grant award if: (1) the grantee failed "to comply with the terms and conditions of the award;" (2) "for cause;" (3) "with the consent" of the grantee; or (4) if the grantee requests termination and provides written notification of the reasons for such termination.
Factual Background
Healthy Teen Network and Baltimore City both were awarded funding under the TPP program in 2015 for five-year project periods ending in 2020.
Baltimore City
On June 29, 2015, Baltimore City was awarded an $8.745 million grant over a five year project period, with $1.749 million anticipated for each budget period. (Pls.' Mot., ECF No. 18, Ex. 2, ¶ 9). The award noted that Baltimore City was guaranteed funding for the first year (the budget period) of the project period, and that projected future funding (over the project period) was "subject to the availability of funds and satisfactory progress of the project." (Id. ) After submitting non-competing applications, Baltimore City was granted funding through year two of the project period. On July 3, 2017, however, Baltimore City received a notice of award for the third budget period, which explained the award and warned that "this award also shortens the project period to end on June 30, 2018," two years earlier than was projected when Baltimore City won funding in 2015. (Id. at ¶ 24). The notice did not *652explain HHS's decision to cut the project period short, although Baltimore City is sure that it "complied with all program requirements throughout the grant," (id. ), and HHS has not stated otherwise.
Baltimore City appealed the termination of the grant in August of 2017 without response. (Id. at ¶ 25). Indeed, HHS still has not provided Baltimore City with any specific reason for its decision to end the City's project period by two years. (Id. at ¶ 24).
Healthy Teen Network
On July 1, 2015, Healthy Teen Network was awarded $3.6 million in funding over a five year project period, with $723,000 anticipated for each one year budget period.
* * *
After ending Baltimore City's and Healthy Teen Network's project periods early, HHS later provided two public explanations for its decision. It claimed: (1) "that there was strong evidence of negative impact or no impact by the funded projects;" and (2) that because the President's proposed budget for Fiscal Year 2018 eliminated funding for the TPP program, HHS anticipated it would lack funding for the projects and terminated them early. (Am. Compl. at ¶¶ 107-08). Healthy Teen Network and Baltimore City contend that these explanations are merely pretense undercut by HHS's longstanding praise for their work, which persisted even after their funding was terminated, (Pls.' Mot., ECF No. 18, Ex. 2, ¶¶ 22, 26); by the Tier 1B grants themselves, which were only awarded to programs that had demonstrated positive results in reducing teen pregnancy; and by the fact that, despite what the President's budget might have suggested, only Congress possesses the power to eliminate funding for the TPP program, (Am. Compl. at ¶¶ 107-10).
The plaintiffs sued HHS on February 15, 2018, and subsequently moved for a preliminary or permanent injunction. HHS cross-moved for dismissal under Federal Rule of Civil Procedure 12(b)(6) or for summary judgment under Rule 56. The court heard oral argument on the motions on April 19, 2018.
Standard of Review
Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) (emphases added). "A dispute is genuine if 'a reasonable jury could return a *653verdict for the nonmoving party.' " Libertarian Party of Va. v. Judd ,
Analysis
The plaintiffs have moved for a permanent injunction, here treated as a motion for summary judgment, on the grounds that HHS's decision to end their project periods early was unlawful under the Administrative Procedure Act,
I. Termination
Baltimore City and Healthy Teen Network argue that HHS's decision to end their project periods two years early constituted a termination, an action that may only be taken if one of four conditions is met. And because HHS did not comply with those conditions when it terminated the plaintiffs' project periods early, the action was unlawful. HHS concedes that it did not comply with the regulations governing "termination" but argues that those regulations are not applicable here and that Baltimore City's and Healthy Teen Network's interpretation of "termination" runs counter to the established practice of grant funding.
As further explained below, however, the clear text of the regulations defines the challenged action as a termination. "The [regulatory framework] says what it says-or perhaps better put here, does not say what it does not say." Cyan, Inc. v. Beaver County Employees Retirement Fund , --- U.S. ----,
HHS regulations define "termination" as "the ending of a Federal award, in whole or in part at any time prior to the planned end of period of performance."
Unconvinced by the clarity of its own regulations, HHS asserts several arguments, extraneous to the express text of those regulations, to prove that the "period of performance" is not the "project period" but the "budget period." When facing clear text, however, the court is not free to alter its interpretation based on "legislative history, purpose, and post-enactment practice." See N.L.R.B. v. SW General, Inc. , --- U.S. ----,
Ignoring the fact that nowhere do the regulations suggest that the budget period is the period of performance, HHS argues that the "budget period" makes more sense as the "period of performance" because it represents guaranteed funding, whereas the "project period" provides merely an expectation of future funding. HHS insists that there can be no obligation of funds that have not yet been awarded. But there can be obligations contingent on future funding.
Nevertheless, HHS argues that its Grants Policy Statement supports its view that the budget period makes more sense as the period of performance by stating that: "the amount of Federal funds authorized for obligation and any future-year commitments, is issued for each budget period in the approved project period." (Defs.' Opp., Ex. B, HHS Grant Policy Statement, I-33). Thus, in the agency's view, a grantee can only incur obligations during the budget period and as a result that is the period of performance.
But the Grants Policy Statement is merely a guidance document, and, even if it says what HHS believes it says, does not control over the agency's regulations. Putting that aside, the very next sentence after the part of the Statement quoted by the agency seems to contemplate grantees obligating funds even before their budget period: "until an awarding office has issued a [Notice of Award] for the initial budget period, any costs incurred by the applicant for the project are incurred at its own risk." And the document defines "obligations" much the same way HHS's regulations do: "[t]he amounts of orders placed, contract and subawards, goods and services received, and similar transactions by a recipient during a budget period that will require payment during the same or a future budget period. " (Id. at B-7) (emphasis added).
Next, the agency argues that the court's interpretation would violate the Anti-Deficiency Act. The Act prohibits "[a]n officer or employee of the United States Government" from "mak[ing] or authoriz[ing] an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation" or from "involv[ing] [the] government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law."
*656Reading "period of performance" as including at least the "project period," as the text clearly commands, means only that the grantee could obligate funding projected in its project period, and not that HHS would be required to provide that funding. Indeed, as the Grants Policy Statement puts it, such obligations would be done at the grantee's own risk-it may or may not receive funding to cover the obligation, but the obligation itself does not affect the discretionary nature of HHS's funding decisions under the TPP program.
Ending on a practical note, HHS insists that "termination" is not one of a number of ordinary functions carried out during a grant funding program but rather best considered as a sanction, used only in limited circumstances such as where the agency fails to comply with the conditions of its award. (See, e.g. , Transcript of Oral Argument, pp. 35-36). Treating project periods as the "period of performance" runs counter to long running agency practice, according to HHS, and would threaten the use of project periods-which no one doubts provides a helpful framework for awarding funds-across all grant awarding agencies.
At base, the agency would have the court ask, "Notwithstanding the clear text of its regulations, does the plaintiffs' interpretation make sense as a practical matter?" But the court may not ignore clear text based on past agency practice or prudential considerations, N.L.R.B. ,
On the merits of HHS's counter argument, nothing about the court's ruling would permanently affect the project period system of awarding grants. HHS remains free to amend its regulations to make the period of performance the budget period rather than the project period, and thus line up its governing regulations with what it claims to be ordinary practice. What it cannot do, however, is act as if its regulations say something other than what they say. The period of performance includes the project period.
* * *
Thus, the agency's decision to end Baltimore City's and Healthy Teen Network's project periods constituted a termination. HHS was therefore required to comply with at least one of the four conditions for termination: (1) the grantee failed "to comply with the terms and conditions of the award;" (2) "for cause;" (3) "with the consent" of the grantee; or (4) if the grantee requests termination and provides written notification of the reasons for such termination.
II. Arbitrary and Capricious Review
Even if HHS's decision to end Baltimore City's and Healthy Teen Network's grants was not a termination, the plaintiffs claim the decision was still arbitrary and capricious and thus unlawful. Because (1) HHS's decision to end the plaintiffs' project periods early is reviewable; (2) post hoc rationalizations cannot cure a decision unreasoned at the time it was made; and (3) the agency failed to consider relevant factors when making its decision, the plaintiffs are granted summary judgment as to this claim as well.
A
As a threshold matter, HHS argues that its decision to recompete Baltimore City's and Healthy Teen Network's funding is a decision committed to agency discretion by law because the appropriations acts that have funded the TPP program delegate broad discretion to HHS to determine how best to spend the money. But the relevant congressional act does impose restrictions on how HHS may distribute TPP funding, and the court has manageable standards to ensure that it acts accordingly.
The APA provides that "[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof."
In the context of congressional appropriations, the Supreme Court has determined that courts have "no leave to intrude" on the agency's chosen method of achieving the congressionally determined objects of the appropriation, so "long as the agency" acts within "permissible statutory" bounds. Lincoln ,
Eliding this distinction, HHS insists that Baltimore City and Healthy Teen Network, in demanding that the agency provide reasons for its decision, are really challenging the agency's ability to determine *658how best to spend TPP program funding.
The appropriations act for the TPP program required that HHS use the appropriation to (1) "fund medically accurate and age appropriate programs that reduce teen pregnancy;" (2) to "replicat[e] programs that have been proven effective through rigorous evaluation to reduce teenage pregnancy, behavioral risk factors underlying teenage pregnancy, or other associated risk factors;" and (3) "to develop, replicate, refine, and test additional models and innovative strategies for preventing teenage pregnancy." Consolidated Appropriations Act, 2010, Pub. L. No. 111-117,
Demanding that a "recipient agency ... distribute [its] funds among some or all of the permissible objects" identified by the relevant appropriations act does not break new ground. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of America v. Donovan ,
In sum, the TPP program appropriation gave HHS discretion to act within congressionally imposed restrictions, such as that HHS consider teenage pregnancy prevention when making funding decisions. The court has no business second-guessing the agency's decision to fund one program over another, but the court does have the authority to ensure that when making that decision HHS considers statutory restrictions. And in doing so the court applies manageable standards.
B
Turning now to the merits of the plaintiffs' claim, Baltimore City and Healthy Teen Network argue that because HHS did not provide reasons for ending their grants, the action was arbitrary and capricious within the meaning of the APA.
Section 701 of the Administrative Procedure Act instructs courts to set aside an agency action if it is arbitrary and capricious. Arbitrary and capricious review "is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co. et al. ,
As explained below, HHS's decision was arbitrary and capricious. The agency has not shown that it considered relevant congressional factors when making its decision to end the plaintiffs' project periods early, and post hoc rationalizations cannot rehabilitate a decision unreasoned at the time it was made.
Congress declared that funding for the TPP program shall be used to (1) "fund medically accurate and age appropriate programs that reduce teen pregnancy;" (2) to "replicat[e] programs that have been proven effective through rigorous evaluation to reduce teenage pregnancy, behavioral risk factors underlying teenage pregnancy, or other associated risk factors;" and (3) "to develop, replicate, refine, and test additional models and innovative strategies for preventing teenage pregnancy." Consolidated Appropriations Act, 2010, Pub. L. No. 111-117,
*660HHS has not shown that it considered any of these congressionally prescribed factors when making its decision to end the plaintiffs' program periods early, as it did not provide any contemporaneous reasons for its decision.
Sidestepping its obligation to provide reasoned decisionmaking, HHS argues that its discretion over the project periods is so broad that it did not have to provide any reason at all for ending the plaintiffs' project periods early. (See, e.g. , Transcript of Oral Argument, p. 37-40). But even if that were not true, HHS insists, it did in fact give reasons for its decision, specifically that the programs funded were not performing as HHS expected.
To begin, both parties concede that HHS eventually offered public reasons for ending TPP grants early, and HHS asserts that those reasons are good reasons. They may be, but that is beside the point, because an agency may not justify an action through post hoc rationalization. See Burlington Truck Lines, Inc. v. U.S. ,
Falling back, HHS asserts that those post hoc rationalizations were unnecessary in any case because the Grants Policy Statement warned grantees that their project periods may be cut short if "[f]or whatever reason, continued funding would not be in the best interests of the Federal government." (Defs.' Mot., ECF No. 27, Grants Policy Statement, Ex. B at II-89). Thus, HHS asserts any reason for its decision would suffice. There are two problems with this view.
The first is that HHS ignores the second, narrowing, clause of the condition it is quoting. HHS cannot provide just any reason for its decision, that reason must be a change in the federal interest. HHS provides no evidence a change in the federal interest motivated its decision here.
The second, and more fundamental, problem with HHS's view is that the "federal *661interest" does not necessarily mean "the federal interest as determined by HHS." The ultimate touchstone for all agency action is not its own guidance documents, or even regulations, but the power delegated to it by Congress. HHS misses this point by not once considering the appropriation act funding the TPP program, and provides no evidence that Congress authorized HHS to determine the federal interest in the area of teen pregnancy or that Congress had nevertheless indicated itself that the federal interest in this area has changed. But still more, by failing to consider Congress's grant of authority, HHS has not shown that an unanchored federal interest is even a relevant factor in distributing grant funding under the TPP program. In fact, congressional appropriations for funding the TPP program, as stated above, suggest that the federal interest must be anchored in, among other things, the prevention of teenage pregnancy. Thus, even under the framework HHS proposes, not only was the agency required to provide reasons for its decision, those reasons had to be related to the relevant factors in the congressional appropriation.
In sum, the text of Congress's appropriations act suggests that HHS was to provide and end grants with some reference to their success in preventing teen pregnancy. HHS may have had a sufficient, lawful reason, for terminating the plaintiffs' project period early, but because it failed to provide a reason in this case, or to meaningfully explain the factors it considered relevant to its decision, it is impossible to determine what was motivating the agency and whether that motivation was relevant at all. HHS's decision was, therefore, arbitrary and capricious.
Conclusion
For the reasons stated above, the plaintiffs will be granted summary judgment. HHS's decision to terminate the Baltimore City's and Healthy Teen Network's project periods will be vacated, and the agency will be ordered to process the plaintiffs' non-compete applications consistent with this opinion. A separate order follows.
In light of the parties' agreement, there is no need to address in detail the elements for granting a permanent injunction, but it is clear that the plaintiffs have met them. The plaintiffs have shown (1) irreparable harm, (Pls.' Mot., ECF No. 18, Ex. 3 Paluzzi Decl. ¶¶ 23-26; ECF No. 18, Ex. 2, Wen Decl. ¶ 33, 35); (2) that the remedies available at law are inadequate because HHS intends to recompete the funding that might otherwise be awarded to them; (3) "that, considering the balance of hardships between the plaintiff[s] and defendants, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction." eBay Inc. v. MercExchange, LLC ,
Whether these grants were funded through the budget and project period system-further explained below-is unclear from the parties' briefing.
The defendants assert that drawing down awarded funds constitutes acceptance of the award's terms.
Healthy Teen Network also received a sub-award from Baltimore City-to increase capacity and provide training for the City's project-and a sub-award from the South Carolina Campaign to Prevent Teen Pregnancy-to help several organizations provide pregnancy prevention programming to teens in juvenile justice or foster care. (Pls.' Mot., ECF No. 18, Ex. 3, ¶ 16).
In a ruling from the bench on April 19, 2018, Judge Jackson of the District Court for the District of Columbia reached a similar judgment, holding that "HHS terminated plaintiffs' federal grants within the meaning of the regulations." Policy & Research, LLC, et al. v. Department of Health and Human Services , Civil Action No. 18-346, Transcript of Oral Ruling at pp. 13, 23. Judge Jackson granted summary judgment, as the court does here, after the parties agreed that a judgment on the merits was appropriate.
This cross-reference is a recent, and considered, addition to HHS regulations. In 2014 HHS amended its regulations to adopt the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards promulgated by the Office of Management and Budget. See Federal Awarding Agency Regulatory Implementation of Office of Management and Budget's Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,
To be sure, in cases where the plain meaning of a statute or regulation would lead to absurd results the court may appropriately "treat the text as if it were ambiguous." See Lamie v. U.S. Trustee ,
Plaintiffs do not suggest a contractual obligation to the funds. They concede that if Congress failed to fund the TPP program, they would have no claim on federal money.
If the court considers extraneous documents related to the TPP program, it also should consider the Funding Opportunity Announcement, which contemplates that the period of performance may be longer than one year. (Defs.' Opp., Ex. A, Funding Opportunity Announcement, p. 33) (stating in full, "Period of Performance: Not to exceed 5 years").
HHS also asserts that Leiter v. U.S. ,
HHS does not agree that its decision constituted a termination, but also does not challenge the court's ability to review whether the agency complied with its own regulations if the court determines that its decision was a termination. (See Defs.' Mot., ECF No. 27). An agency has no discretion to decide whether and when to abide by its own regulations. See Citizens to Preserve Overton Park, Inc. v. Volpe ,
The Supreme Court also has withheld judicial review of agency decisions "not to institute enforcement proceedings;" "an agency's refusal to grant reconsideration of an action because of material error;" and agency decisions "to terminate an employee in the interests of national security." Lincoln ,
Indeed, the cases cited in HHS's briefing focus on this issue. See, e.g. , Alan Guttmacher Inst. v. McPherson ,
Thus this case is unlike Speed Mining, Inc. v. Federal Mine Safety & Health Review Com'n ,
As previously noted, all consolidated appropriations acts since the one passed in 2010 use the same language to fund the TPP program. See, e.g. , Consolidated Appropriations Act, 2017, Pub. L. No. 115-31,
To be sure, HHS may well receive deference on its own interpretation of the relevant factors in the appropriations act, Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. ,
To be clear, the court does not claim authority to judge how the agency applies these factors. Such decisions are squarely within the agency's expertise. But the court can ensure that HHS considers them when making TPP program funding decisions.
The plaintiffs offer contrary evidence that indicates HHS praised the performance of their programs even after the programs were terminated. (Pls.' Mot., ECF No. 18, Ex. 2, ¶¶ 22, 26).
Reference
- Full Case Name
- HEALTHY TEEN NETWORK v. Alex M. AZAR II
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- 5 cases
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- Published