Tyler v. U.S. Dep't of Educ. Rehab. Servs. Admin.
Opinion
The Oklahoma Department of Rehabilitation Services ("ODRS") appeals from the district court's affirmance of an arbitration decision rendered under the Randolph-Sheppard Act (the "RSA"),
In accordance with the statute, the Department of Education ("DOE") convened an arbitration panel (the "Panel") to hear the grievances of David Altstatt, a blind vendor, challenging ODRS's selection of another blind vendor, Robert Brown, for a particular vending assignment. Both Mr. Altstatt and Mr. Brown had applied for the assignment. The Panel found for Mr. Altstatt and ordered ODRS to remove Mr. Brown from the disputed assignment, appoint Mr. Altstatt in Mr. Brown's place, and pay damages and attorney fees to Mr. Altstatt.
ODRS brought suit in district court against DOE, seeking to vacate the Panel's decision, which the Randolph-Sheppard Act subjects to judicial review as a final agency action under the Administrative Procedure Act (the "APA"),
Exercising jurisdiction under
I. BACKGROUND
This section provides background on: (A) the RSA, (B) Mr. Altstatt's grievances against ODRS, (C) the Panel's decision in favor of Mr. Altstatt, and (D) the federal district court proceedings.
A. The Randolph-Sheppard Act
The RSA,
As amended in 1974, the RSA establishes a two-tiered scheme for resolving blind vendors' grievances arising from SLAs' operation of the RSA program. First, SLAs must hear and render a decision on a blind vendor's grievance. 20 U.S.C. § 107d-1(a). Second, a vendor who is dissatisfied with the SLA's decision may then request arbitration by a panel convened by DOE.
B. Mr. Altstatt's Grievances against ODRS
ODRS, Oklahoma's designated licensing agency, issues licenses to blind vendors and assigns them to manage vending contracts with the federal government.
See
After Mr. Brown's selection, Mr. Altstatt filed a grievance with ODRS, complaining about the Committee's selection procedures. He argued that Mr. Brown's selection was null and void because the Committee had not considered a required scoring factor under ODRS's regulations. 1 ODRS, after a full evidentiary hearing, ordered the Committee to reconvene within 30 days to consider the previously omitted factor. In the meantime, ODRS appointed Mr. Brown as the interim Contract manager so that he could begin preparations to operate Fort Sill's vending facility. ODRS also assigned each candidate a score for the previously omitted factor based on the available data and provided this information to the Committee. The reconvened Committee considered the additional scores and again recommended Mr. Brown for the Contract *1172 assignment. ODRS again accepted the Committee's recommendation.
Following ODRS's interim appointment of Mr. Brown and again after ODRS's permanent re-selection of Mr. Brown, Mr. Altstatt filed grievances with ODRS to challenge these actions. He complained, among other things, that (1) ODRS's re-selection process was "infirm," App., Vol. 7 at 1227, (2) one of the Committee members-Charles Pride-was biased, and (3) Mr. Brown was ineligible for the Contract assignment because he was delinquent on his taxes. Mr. Altstatt also filed a complaint with DOE to request arbitration of his grievances against ODRS.
ODRS granted Mr. Altstatt a second full evidentiary hearing. After the hearing, it affirmed Mr. Brown's interim and permanent appointments, concluding that they "complied with the applicable regulations and due process." App., Vol. 4 at 718-19. Dissatisfied with ODRS's decision, Mr. Altstatt filed a second complaint with DOE requesting arbitration of his grievances.
C. The Panel's Decision
In July 2014, DOE notified the parties that it was consolidating Mr. Altstatt's requests for arbitration and "authoriz[ing] the convening of [the Panel] to hear and render a decision on the issues raised in the two complaints." App., Vol. 5 at 766, 768. DOE stated that "[t]he central issue is whether [ODRS]'s process for selecting a blind vendor for the Ft. Sill food service contract violated the
Randolph-Sheppard Act
, implementing regulations and state rules and regulations."
In his second complaint to DOE, Mr. Altstatt had specified that he sought the following relief: "that the selection process for the putative winner, Robert Brown, be declared invalid and that Altstatt be awarded the current Contract and profits which he would have received during the period of time in which he would have been operating the Contract from ODRS." App., Vol. 4 at 715. DOE's notices to the parties incorporated this language by reference: "A complete statement of ... the relief sought is contained in this complaint for arbitration." App., Vol. 5 at 765, 767. The notices did not advise the parties of any limitations on the types of relief the Panel could award.
In January 2016, after a hearing in November at which "[c]ounsel for the parties presented opening statements and then called witnesses to give sworn testimony," the Panel rendered a decision in favor of Mr. Altstatt. App., Vol. 4 at 635, 643. As relevant to this appeal, the Panel concluded that ODRS's re-selection of Mr. Brown for the Contract assignment was invalid because (1) "[ODRS's] utiliz[ation] of the same ... Committee again after it had violated its own rules deprived Altstatt of due process and was fundamentally unfair," (2) "one of the committee members (Pride) was personal friends with Brown and was known to socialize with him," and (3) "Brown was not eligible [for the Contract assignment] by the clear meaning of the words set forth in the [Announcement]" for having been delinquent in his taxes in the relevant time period.
*1173 D. Federal District Court Proceedings
ODRS sued DOE in the U.S. District Court for the Western District of Oklahoma, seeking judicial review of the Panel's decision. Mr. Altstatt intervened as a defendant and counterclaimant, requesting that the court affirm the arbitration decision. After filing the administrative record of the Panel proceedings, DOE obtained the parties' stipulation that it "is a nominal defendant in terms of the rights, claims and remedies sought to be reviewed [in the case]." Dist. Ct. Doc. 21 at 4. The court accepted the parties' stipulation and designated DOE a nominal defendant, such that it "[was] not required to participate in any substantive proceedings ... unless [specifically] directed to do so."
Disallowing any discovery, the court ordered ODRS and Mr. Altstatt to submit briefs on all of the issues. In its brief, ODRS attacked, as arbitrary or capricious and unsupported by substantial evidence, the Panel's following bases for concluding that its permanent selection of Mr. Brown for the Contract assignment was contrary to the RSA: (1) the re-selection process was infirm, (2) Mr. Pride and Mr. Brown were friends at the relevant time, and (3) Mr. Brown was ineligible for the Contract Assignment because of his tax delinquency. ODRS also challenged each type of relief granted by the Panel: (1) the removal of Mr. Brown from the Contract assignment as violating Mr. Brown's due process, (2) the appointment of Mr. Altstatt to the Contract assignment as exceeding the scope of the Panel's remedial authority under the RSA and alternatively as arbitrary or capricious, (3) the damages award as barred by sovereign immunity, and (4) the attorney fee award as exceeding the scope of the Panel's remedial authority under the RSA and alternatively as barred by sovereign immunity.
After receiving briefs from ODRS and Mr. Altstatt on these issues, the district court upheld the Panel's decision in favor of Mr. Altstatt and all relief granted. The court rejected on the merits all but one of ODRS's claims-the due process challenge to the Panel's order to remove Mr. Brown from the Contract assignment. The court determined that ODRS lacked standing to assert the rights of Mr. Brown, a non-party to the litigation, through this claim. The court later entered final judgment, in which it affirmed the "Findings of Fact and Conclusions of Law set forth in the [Panel's decision] ... in favor of [Mr.] Altstatt." App., Vol. 8 at 1384. It further ordered ODRS to remove Mr. Brown as the Contract manager, replace him with Mr. Altstatt, and pay damages and attorney fees to Mr. Altstatt as provided for in the Panel's decision.
ODRS appealed from the district court's affirmance of the Panel's decision, reasserting all of the arguments it presented below. After oral argument, we ordered the parties, including DOE, to submit supplemental briefs on issues pertaining to sovereign immunity and the scope of the Panel's remedial power under the RSA. DOE attached to its supplemental brief a document titled "Revised Interim Policies and Procedures for Convening and Conducting an Arbitration Pursuant to Sections 5(a) and 6 of the Randolph-Sheppard *1174 Act as Amended" ("RSA Arbitration Policies"). This document, which the Commissioner of DOE's Rehabilitation Services Administration approved in 1978, establishes the policies and procedures governing the arbitration of blind vendors' grievances against SLAs under the RSA.
II. DISCUSSION
We begin with our standard of review. We then turn to ODRS's various challenges to the Panel's decision, providing additional background as needed.
A. Standard of Review
"We review de novo a district court's decision in an APA case."
Biodiversity Conservation All. v. Jiron
,
To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law , interpret constitutional and statutory provisions , and determine the meaning or applicability of the terms of an agency action. The reviewing court shall-
...
(2) hold unlawful and set aside agency action, findings, and conclusions found to be-
(A) arbitrary , capricious , an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity ;
(C) in excess of statutory jurisdiction, authority , or limitations, or short of statutory right;
(D) without observance of procedure required by law; [or]
(E) unsupported by substantial evidence in a case ... reviewed on the record of an agency hearing provided by statute ....
B. ODRS's Challenges under the APA
ODRS raises various APA challenges to (1) the Panel's conclusion that ODRS's permanent selection of Mr. Brown for the Contract assignment violated the RSA, and (2) specific types of relief awarded to Mr. Altstatt, whom the Panel determined should have received the Contract assignment instead of Mr. Brown. We affirm the district court's decision as to the Panel's order to remove Mr. Brown from the Contract assignment and replace him with Mr. Altstatt, but we reverse as to the Panel's award of damages and attorney fees.
We first review the Panel's conclusion that Mr. Brown's selection violated the RSA. ODRS attacks as arbitrary or capricious or as unsupported by substantial evidence the Panel's reasons for this conclusion: infirmity in ODRS's re-selection process, the friendship between Mr. Brown and Mr. Pride, and Mr. Brown's ineligibility. We need only consider ODRS's arguments regarding the Panel's third reason-Mr. Brown's ineligibility for the Contract assignment due to tax issues. Based on our review of the record, we conclude that the Panel's finding of ineligibility was not arbitrary or capricious or unsupported by substantial evidence. Because this reason alone supports the Panel's conclusion that Mr. Brown's selection violated the RSA, we do not consider ODRS's arguments regarding the Panel's remaining reasons.
We then turn to the Panel's remedies awarded to Mr. Altstatt. ODRS challenges: (a) Mr. Altstatt's appointment to the Contract assignment as exceeding the scope of the Panel's remedial authority under the RSA and as arbitrary or capricious; (b) the damages award as violating *1175 sovereign immunity; and (c) the attorney fee award as exceeding the scope of the Panel's remedial authority and as violating sovereign immunity. 4 We conclude that (a) the Panel had statutory authority to order Mr. Altstatt's appointment to the Contract; (b) ODRS is entitled to sovereign immunity from the damages award; and (c) the Panel exceeded its statutory authority in awarding Mr. Altstatt attorney fees. 5
1. The Panel's Conclusion that ODRS Violated the RSA
Under the APA, the reviewing court must "hold unlawful and set aside agency action,"
We (a) summarize the evidence before the Panel relating to the tax eligibility requirement for the Contract assignment and Mr. Brown's tax issues; (b) provide legal background on the federal contracting regulations ODRS relies on to challenge the Panel's finding that Mr. Brown was tax delinquent and therefore ineligible for the Contract assignment; and (c) analyze the Panel's finding in light of the administrative record and conclude that the finding was neither unsupported by substantial evidence, nor was it arbitrary or capricious.
a. Relevant evidence in the administrative record
We summarize the evidence relating to (i) the Contract assignment's tax eligibility requirement and (ii) Mr. Brown's tax issues in the period leading up to ODRS's selection process.
i. The tax eligibility requirement
The Announcement for the Contract assignment enumerated several "eligibility criteria," including that applicants must not "have had any delinquency on taxes for the past 3 years." App., Vol. 7 at 1139.
The administrative record contains the affidavit of Michael Jones, who served as ODRS's Division Administrator from July 2011 to April 2013. App., Vol. 7 at 1124-25. In his affidavit, Mr. Jones stated that he "wrote the applicant requirements for the [Announcement]."
At the arbitration hearing, ODRS called Mike Hamrick, its Operations Coordinator for the RSA Program, to testify. He testified that the tax eligibility requirement is not in ODRS's rules and regulations but instead "comes from the DFARS." App., Vol. 6 at 1049. He also testified that ODRS had not undertaken to check whether the candidates for the Contract assignment satisfied the tax eligibility requirement, "since it w[as] the Army's [rather than ODRS's own] requirement[ ]."
ii. Mr. Brown's tax issues
The administrative record contains notices of two federal tax liens filed against Mr. Brown's property within the three years preceding the application due date for the Contract assignment, December 21, 2012. App., Vol. 7 at 1141-42. In both notices, the Internal Revenue Service (the "IRS") stated that "taxes ... have been assessed against [Mr. Brown and his wife]" and that the United States "ha[s] made a demand for payment of this liability, but it remains unpaid."
The administrative record also contains Mr. Brown's sworn affidavit, in which he states that he had entered into an installment payment plan for his unpaid taxes with the IRS before ODRS selected him for the Contract assignment:
At the time that I received the invitation to apply [for the Contract assignment] I was concluding negotiation of a payment plan with the U.S. Internal Revenue Service for certain personal income taxes that had not been properly filed on my behalf in prior years. I did enter into an agreed payment plan before the [ODRS] selection process had concluded. My monthly payments at an agreed amount began in February, 2013. To the extent that the IRS has filed any liens relating to taxes owed by me, those claimed taxes due are covered by the repayment plan and I have been assured that the IRS will not attempt any collection or treat me as a delinquent taxpayer while I am making the agreed payments according to the agreed payment plan.
In his affidavit, Mr. Brown also stated that he had "discussed the above matter with Division Manager Mike Jones before applying for the selection process" and that Mr. Jones had "referred to particular U.S. Army regulations for contracting (DFARS) as the reason for including in the [Announcement] a section stating that the successful applicant would need to be clear of any tax delinquency."
Mr. Jones's affidavit corroborated Mr. Brown's affidavit. In his affidavit, Mr.
*1177
Jones stated: "Prior to submitting his application for the [Contract assignment], Robert Brown advised me that he had learned that he had some unpaid federal taxes but that he had previously entered into a payment plan to satisfy his tax obligations and was making his payments as agreed."
Mr. Brown also testified at the arbitration hearing regarding unpaid taxes and his installment plan with the IRS. He elaborated on the plan's terms: "I was to pay back a set amount monthly, and then if there were ever any issues where I might [ ] be late, then they needed me to make sure I contacted them so that I would continue to be considered in good standing." App., Vol. 6 at 1031.
b. Legal background
The Federal Acquisition Regulations System ("FARS") is a set of regulations jointly promulgated by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration to establish "uniform policies and procedures for acquisition by all executive agencies."
Under FARS, a federal contractor may be debarred "based upon a preponderance of the evidence" for, among other things, "[d]elinquent Federal taxes in an amount that exceeds $3,500."
(A) Federal taxes are considered delinquent for purposes of this provision if both of the following criteria apply:
(1) The tax liability is finally determined. The liability is finally determined if it has been assessed . A liability is not finally determined if there is a pending administrative or judicial challenge . In the case of a judicial challenge to the liability, the liability is not finally determined until all judicial appeal rights have been exhausted.
(2) The taxpayer is delinquent in making payment. A taxpayer is delinquent if the taxpayer has failed to pay the tax liability when full payment was due and required . A taxpayer is not delinquent in cases where enforced collection action is precluded.
(B) Examples.
...
(2) The IRS has filed a notice of Federal tax lien with respect to an assessed tax liability, and the taxpayer has been issued a notice under I.R.C. § 6320 entitling the taxpayer to request a hearing with the IRS Office of Appeals contesting the lien filing, and to further appeal to the Tax Court if the IRS determines to sustain the lien filing. In the course of the hearing, the taxpayer is entitled to contest the underlying tax *1178 liability because the taxpayer has had no prior opportunity to contest the liability. This is not a delinquent tax because it is not a final tax liability . Should the taxpayer seek tax court review, this will not be a final tax liability until the taxpayer has exercised all judicial appeal rights .
(3) The taxpayer has entered into an installment agreement pursuant to I.R.C. § 6159 . The taxpayer is making timely payments and is in full compliance with the agreement terms. The taxpayer is not delinquent because the taxpayer is not currently required to make full payment .
...
c. Analysis
The Panel's finding that Mr. Brown was ineligible for the Contract assignment because he had a tax delinquency during the relevant time period was neither unsupported by substantial evidence, nor arbitrary or capricious. 7 Because this finding alone supports the Panel's conclusion that ODRS violated the RSA in selecting Mr. Brown, we need not address ODRS's challenges to the Panel's other bases for it conclusion. 8
The administrative record adequately supports the Panel's finding that Mr. Brown had tax delinquencies in the three-year period before the Announcement's publication in December 2012 and was therefore ineligible for the Contract assignment. ODRS's Announcement expressly "deemed as [an] eligibility criteri[on]" an applicant's not having "had any delinquency on taxes
for the past 3 years
." App., Vol. 7 at 1139 (emphasis added). ODRS contends that the term "delinquency" as used in the Announcement should be given the same meaning it has under FARS debarment rules. But even accepting the FARS definition, the Panel did not err in concluding that Mr. Brown had a delinquency sometime in the three years before December 2012. In Mr. Brown's notices of federal tax lien, the IRS stated that it had "assessed" tax liabilities against Mr. Brown in tax years 2008, 2009, and 2010 and that Mr. Brown failed to comply when the IRS had previously "made a demand for payment."
*1179
Mr. Brown's installment plan to repay his taxes does not compel a contrary conclusion. Under FARS, a taxpayer who "has entered into an installment agreement" and "is making timely payments and is in full compliance with the agreement terms" is not delinquent.
2. The Relief Granted to Mr. Altstatt by the Panel
Having rejected ODRS's challenges to the Panel's conclusion that Mr. Brown's selection violated the RSA, we now turn to ODRS's challenges to the types of relief the Panel granted to Mr. Altstatt, whom the Panel determined should have received the Contract assignment instead. Providing additional legal background as needed, we address (a) the Panel's order to appoint Mr. Altstatt to the Contract, (b) the Panel's award of damages to Mr. Altstatt, and (c) the Panel's award of attorney fees to Mr. Altstatt.
a. Order to appoint Mr. Alstatt to the Contract
Under the APA, the reviewing court must "hold unlawful and set aside agency action,"
We begin with legal background on arbitration panels' power to grant prospective, or injunctive, relief to aggrieved blind vendors under the RSA. We then analyze whether the Panel's order to appoint Mr. Altstatt to the Contract assignment exceeded the scope of the Panel's authority and conclude that it did not.
*1180 i. Legal background
This court has not previously considered what forms of relief arbitration panels may grant aggrieved blind vendors under the RSA. Although this question has received limited judicial attention, the approaches to prospective relief in three out-of-circuit cases help inform our analysis: (1)
Delaware Department of Health & Social Services v. United States Department of Education
,
1) Delaware Department of Health and Social Services -interpreting the RSA in light of established arbitration principles
In
Delaware Department of Health and Social Services
, the Third Circuit considered whether the RSA authorizes arbitration panels to grant retrospective relief to aggrieved blind vendors. The district court had vacated an arbitration award of retrospective damages based on its "conclu[sion] that prospective arbitral relief against Delaware was clearly within the authority of the arbitrators ..., but that ... Congress could not have intended that the arbitrators have the authority to award retrospective relief."
The Third Circuit reversed, holding that "the district court erred in concluding that the arbitrators in a Randolph-Sheppard arbitration were not authorized to award compensatory damages."
The court further considered that, in enacting the 1974 amendments, "Congress was surely aware that arbitrators proceeding under the authority of the Federal Arbitration Act or under the authority of the Uniform Arbitration Act, as a matter of course awarded retrospective compensatory relief in appropriate cases."
Although Delaware also "contend[ed] that even prospective relief was improper," the Third Circuit did not address that question because the arbitration was limited to the claims of the blind vendor, who did not seek prospective relief.
2) Georgia Department of Human Resources -interpreting the RSA in view of the differences between §§ 107d-2(b)(1) and 107d-2(b)(2)
In
Georgia Department of Human Resources
, the Eleventh Circuit considered whether the RSA authorizes arbitration
*1181
panels to award damages to a blind vendor "based on [the SLA's] failure to complain when a federal entity closed a vending stand located on property under its control."
The Eleventh Circuit reversed, holding that "the district court ha[d] misinterpreted the statute" and that such a "cause of action is inconsistent both with the Act's express language and its remedial structure."
Sections 107d-2(b)(1) and 107d-2(b)(2) of the RSA, which respectively establish procedures for vendor-versus-SLA and SLA-versus-federal entity arbitrations, mirror each other in structure-with one notable exception. The last sentence in § 107d-2(b)(2), which lacks a counterpart in § 107d-2(b)(1), provides:
If the [arbitration panel appointed to hear an SLA's complaint] finds that the acts or practices of [the federal entity] are in violation of [the RSA or any implementing regulation], the head of any such [entity] shall cause such acts or practices to be terminated promptly and shall take such other action as may be necessary to carry out the decision of the panel.
20 U.S.C. § 107d-2(b)(2).
Relying on the inclusion of this sentence in § 107d-2(b)(2) and not in § 107d-2(b)(1), the Eleventh Circuit determined that "the [arbitration] panel's
remedial powers
vary under the two [types of arbitration]."
Ga. Dep't of Human Res.
,
The court summarized the differences in the panel's remedial powers in the two types of arbitrations:
Whatever the exact limits of a [vendor-versus-SLA] panel's remedial powers, its powers are qualitatively different from those of a [SLA-versus-federal entity] panel. The Act gives [vendor-versus-SLA] panels authority to impose remedies directly on the state licensing agency . The [SLA-versus-federal entity] panel, however, under the Act's express terms, has no remedial powers whatsoever.
*1182 It may determine that certain of the federal entity's acts violate the Act, but the Act leaves responsibility for remedying the violation to the federal entity itself.
3) Wisconsin Department of Workforce Development -interpreting the RSA's arbitration provisions to effectuate congressional intent
In
Wisconsin Department of Workforce Development
, the federal district court reviewed an RSA arbitration decision granting an aggrieved blind vendor both retroactive money damages and prospective relief. The court vacated the damages award on the basis of sovereign immunity but upheld the injunctive relief. In doing so, it reasoned that "the arbitration panel must have the authority to grant some relief to blind licensees in order to give meaning to the arbitration provisions."
ii. Analysis
The Panel acted within its remedial power under the RSA in ordering ODRS to appoint Mr. Altstatt as the Contract manager. 11 Confronted with silence as to the remedies available to aggrieved blind vendors in the RSA's text, and implementing regulations, we find instructive the interpretive approaches other courts have applied to the statute. 12 And ODRS has not offered-nor have we identified-a competing approach to interpreting the RSA's remedial provisions.
Each of the three approaches to interpreting the RSA in the cases discussed above lends support to the conclusion that the RSA broadly authorizes arbitration panels to fashion prospective remedies for aggrieved blind vendors.
13
The first approach-interpreting the RSA in light of established commercial arbitration principles at the time Congress enacted
*1183
the arbitration scheme in 1974-provides support because, under the American Arbitration Association rules, an arbitrator could "grant any remedy or relief which he deems just and equitable." Martin Domke,
The Law and Practice of Commercial Arbitration
, § 30:01 (1968) (quotations omitted). The second approach-interpreting the RSA by comparing its provisions pertaining to the two types of arbitration proceedings-offers support because, although Congress included language limiting the arbitration panel's remedial power in SLA-versus-federal entity arbitrations, 20 U.S.C. § 107d-2(b)(2), no such language appears for vendor-versus-SLA arbitrations,
see
Drawing on these various approaches to interpreting the RSA's remedial provisions, we conclude that the Panel acted within its remedial power in ordering ODRS to appoint Mr. Altstatt as the Contract manager. 15
b. Award of damages to Mr. Altstatt
Under the APA, the reviewing court must "hold unlawful and set aside agency
*1184
action,"
We begin with legal background on sovereign immunity's application to agency adjudications and standards governing waiver of sovereign immunity as to money damages. We then proceed to analyze whether sovereign immunity bars the Panel's damages award. Guided by the Supreme Court's decisions in
Federal Maritime Commission v. South Carolina State Ports Authority
,
i. Legal background
"Sovereign immunity is the privilege of the sovereign not to be sued without its consent."
Va. Office for Prot. & Advocacy v. Stewart
,
The Eleventh Amendment, which constitutionalizes the doctrine of sovereign immunity, provides that "[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI. The Supreme Court "has repeatedly held that the sovereign immunity enjoyed by the States extends beyond the literal text of the Eleventh Amendment."
Fed. Mar. Comm'n
,
We discuss (1) sovereign immunity's application to agency adjudications and (2) the standards governing waiver of sovereign immunity as to money damages.
1) Sovereign immunity's application to agency adjudications: Federal Maritime Commission
In
Federal Maritime Commission
, the Supreme Court addressed for the first time whether a state's sovereign immunity extends to federal agency adjudications of private complaints against state agencies. In this instance, the Federal Maritime Commission (the "FMC") adjudicated a complaint filed by a private company against the South Carolina State Ports Authority, which had denied the company permission to berth a cruise ship at the state's port facilities.
In its analysis, the Court examined "whether [FMC adjudications] are the type of proceedings from which the Framers would have thought the States possessed
*1185
immunity when they agreed to enter the Union."
In light of the foregoing, the Court concluded that "the similarities between FMC proceedings and civil litigation are overwhelming."
*1186 2) Waiver of sovereign immunity as to money damages: Sossamon
"A State ... may choose to waive its [sovereign] immunity ... at its pleasure."
Sossamon
, 563 U.S. at 284,
In
Sossamon
, the Supreme Court addressed the standards governing states' waiver of sovereign immunity as to money damages.
Sossamon
presented the question of "whether the States, by accepting federal funds, consent to waive their sovereign immunity to suits for money damages under the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA)."
Id. at 280,
Based on this language, the Court held that states do not waive sovereign immunity by accepting federal funds under RLUIPA.
ii. Analysis
ODRS's assertion of sovereign immunity as to the Panel's damages award presents two questions of first impression before this court: (i) whether sovereign immunity extends to RSA arbitrations of vendor complaints, and, if so, (ii) whether ODRS's participation in the RSA Program effectuates a waiver of sovereign immunity as to damages. Guided by Federal Maritime Commission and Sossamon , we conclude that sovereign immunity bars the Panel's damages award because (i) sovereign immunity extends to RSA arbitration proceedings, and (ii) ODRS's participation in the RSA Program does waive not its sovereign immunity from damages awards. 19
*1187 1) Sovereign immunity extends to RSA arbitration proceedings
We first address whether sovereign immunity extends to arbitrations of vendor complaints against SLAs under the RSA. Our analysis proceeds in two parts. First, we examine the Supreme Court's rationale for extending sovereign immunity to FMC adjudications and conclude that it supports doing so in the RSA context as well. Second, we discuss some notable differences between RSA arbitrations and FMC adjudications and conclude that they do not materially distinguish the two types of proceedings for purposes of state sovereign immunity.
a) Federal Maritime Commission 's rationale extends to the RSA context
The Supreme Court based its holding in
Federal Maritime Commission
-that sovereign immunity applies in the context of FMC adjudications-on the need "to accord States the dignity that is consistent with their status as sovereign entities" and on "the strong similarities between FMC proceedings and civil litigation."
i) Need to accord dignity
As with FMC adjudications, RSA arbitrations of private complaints affront the states' dignity as sovereign entities. In
Federal Maritime Commission
, the Supreme Court explained: "[I]f the Framers thought it an impermissible affront to a State's dignity to be required to answer the complaints of private parties in federal courts, we cannot imagine that they would have found it acceptable to compel a State to do exactly the same thing before the administrative tribunal of an agency, such as the FMC."
Furthermore, the Supreme Court suggested in
Federal Maritime Commission
that "[o]ne, in fact, could argue that allowing a private party to haul a State in front of ... an administrative tribunal constitutes a greater insult to a State's dignity than requiring a State to appear in an Article III court presided over by a judge with life tenure nominated by the President ... and confirmed by the ... Senate."
*1188 ii) Similarities to Article III proceedings
As with FMC adjudications, RSA arbitrations share in common with Article III judicial proceedings many of the features noted by the Supreme Court as supporting the application of sovereign immunity. For example, RSA arbitrations are "adversary in nature."
Fed. Mar. Comm'n
,
b) Differences do not materially distinguish RSA and FMC proceedings for purposes of sovereign immunity
Our analysis thus far points to the extension of Federal Maritime Commission 's holding to the RSA context. On the other hand, four notable characteristics distinguish RSA arbitrations from the FMC adjudications at issue in Federal Maritime Commission . We first identify these differences and then explain why they do not compel us to reject sovereign immunity in the RSA context.
i) Differences between RSA and FMC proceedings
(1)
Decisionmaker
-In contrast to FMC proceedings before ALJs, RSA proceedings
*1189
are not necessarily decided by a "federal officer,"
Fed. Mar. Comm'n
,
(A) one individual designated by the State licensing agency;
(B) one individual designated by the blind licensee; and
(C) one individual, not employed by the State licensing agency or, where appropriate, its parent agency, who shall serve as chairman, jointly designated by the members appointed under subparagraphs (A) and (B).
If any party fails to designate a member under subparagraph (1)(A), (B), or (C), the Secretary shall designate such member on behalf of such party.
Additionally, unlike ALJs (and also Article III judges), who "may issue subpoenas,"
Fed. Mar. Comm'n
,
(2)
Agency's Role in Screening Complaints
-Unlike the FMC, which "does not even have the discretion to refuse to adjudicate complaints brought by private parties,"
Fed. Mar. Comm'n
,
After the complaint has been docketed it will be reviewed by [DOE's] Division for the Blind and Visually Impaired. ...
(a) If the complaint alleges sufficient relevant and material facts which, if proved, would entitle the blind licensee to any of the relief sought and if any of the relief sought is within the authority of the arbitration panel to grant, ... an ad hoc arbitration panel will be convened.
(b) If the complaint fails to allege sufficient relevant and material facts which, if proved, would entitle the blind licensee to any of the relief sought; or, if none of the relief sought is within the authority of the arbitration panel to grant, the blind licensee will be so notified ... and given an opportunity to amend the complaint ....
(d) If ... the amended complaint fails to allege sufficient relevant and material facts or ... none of the relief sought is within the power of the arbitration panel to grant, ... the complaint is dismissed.
(e) If the complaint does not allege facts which indicate dissatisfaction with all or part of the decision rendered [by the SLA] as a result of a full evidentiary hearing, or action taken as a result of a full evidentiary hearing, ... the complaint is dismissed.
(f) If ... the complaint is specious or ... has been filed solely for the purpose of harassment, ... the complaint is dismissed.
RSA Arbitration Policies at 2-3.
(3)
Default Judgments
-Whereas "default judgment may be entered on behalf of the plaintiff" in an FMC adjudication, should the defendant fail to respond to the complaint,
Fed. Mar. Comm'n
,
(4)
Formality of Procedures and Rules
-The procedures and rules governing the conduct of RSA arbitrations are generally more informal and ad hoc than those governing FMC adjudications. For example, whereas "discovery in FMC adjudications largely mirrors discovery in federal civil litigation,"
Fed. Mar. Comm'n
,
ii) Why differences do not compel rejection of sovereign immunity in the RSA context
Despite the foregoing differences, and guided by Federal Maritime Commission , we nevertheless conclude that RSA arbitrations are materially indistinguishable from FMC adjudications for purposes of state sovereign immunity. We address each in turn:
(1) Decisionmaker -The differences between RSA arbitration panels and FMC ALJs do not compel the conclusion that sovereign immunity extends only to the latter.
Although ad hoc panels-rather than ALJs-arbitrate vendor complaints under the RSA, the role of the RSA panel-like that of the ALJ-is " 'functionally comparable' to that of a judge."
Fed. Mar. Comm'n
,
Additionally, RSA arbitration panels, like ALJs, have powers that "are often, if not generally, comparable to those of a trial judge."
Fed. Mar. Comm'n
,
(2)
Agency's Role in Screening Complaints
-DOE's authority to deny arbitration under certain circumstances does not defeat
Federal Maritime Commission
's logical extension to the RSA context. DOE's authority to dismiss complaints is limited and does not "convert an [RSA arbitration] initiated and pursued by a private party into one initiated by the Federal Government."
Id. at 764,
In other words, "the only duty assumed by [DOE], and hence the United States, in conjunction with a private complaint is to assess its merits in an impartial manner."
Fed. Mar. Comm'n
,
(3)
Default Judgments
-DOE's inability to enter default judgments against SLAs is not at odds with our conclusion that sovereign immunity applies in the RSA context. Notwithstanding this feature of RSA arbitrations, "[an SLA] seeking to contest the merits of a complaint filed against it by a [blind vendor] must defend itself in front of the [arbitration panel] or substantially compromise its ability to defend itself at all."
Fed. Mar. Comm'n
,
Once an arbitration panel has rendered a decision, that decision is "final and binding on the parties." 20 U.S.C. § 107d-1(a). Although the SLA may seek judicial review, failure to participate in the arbitration proceeding would hamper its ability to challenge the panel's decision in federal court. The Supreme Court has previously established "a general rule that courts should not topple over administrative decisions unless the administrative body not only has erred but has erred against objection
*1192
made at the time appropriate under its practice."
United States v. L.A. Tucker Truck Lines, Inc.
,
To the extent the general rule against courts' considering objections not made in the agency proceeding also applies here, failure to appear before the RSA arbitration panel would severely constrain an SLA's ability to appeal the merits. And even if the court were to consider the merits, the APA's judicial review standards would, as a practical matter, limit the scope of the appeal.
See
Council Tree Inv'rs, Inc. v. FCC
,
(4)
Formality of Procedures and Rules
-The relative informality of RSA arbitrations' procedures and rules does not undermine
Federal Maritime Commission
's application to the RSA context. In that case, the Supreme Court said that its "review of the FMC's Rules of Practice and Procedure
confirms
that FMC administrative proceedings bear a remarkably strong resemblance to civil litigation in federal courts."
Fed. Mar. Comm'n
,
* * * *
In sum, as in
Federal Maritime Commission
, the "interest in protecting States' dignity and the strong similarities between [RSA] proceedings and civil litigation" compel us to conclude that state sovereign immunity bars RSA arbitration panels from adjudicating complaints filed by a private party against a nonconsenting State.
2) ODRS has not waived sovereign immunity as to money damages
Having determined that state sovereign immunity applies to RSA arbitrations, *1193 we now address whether ODRS has nevertheless consented to suit for money damages by participating in the RSA Program.
Guided by
Sossamon
, we conclude that the RSA is insufficiently explicit to render state participation in the RSA Program a waiver of sovereign immunity from an RSA arbitration panel award for damages.
25
Like RLUIPA, which authorizes private parties to sue states for "appropriate relief," the RSA does not expressly enumerate the types of remedies available to private parties aggrieved by a state.
Compare
42 U.S.C. § 2000cc-2(a)
with
20 U.S.C. §§ 107d-1(a), 107d-2(a) - (b)(1). In
Sossamon
, the Supreme Court held that states, by accepting federal funding under RLUIPA, do not waive sovereign immunity as to damages because the term "appropriate relief" is too "open-ended and ambiguous about what types of relief it includes." 563 U.S. at 286,
Under these circumstances, ODRS has not waived its sovereign immunity to a damages award from an RSA arbitration panel.
But see
Del. Dep't of Health & Soc. Servs.,
c. Award of attorney fees to Mr. Altstatt
Under the APA, the reviewing court must "hold unlawful and set aside agency action,"
We begin with legal background on the "American Rule" regarding the recovery of attorney fees in civil litigation and its application to administrative proceedings. We then proceed to analyze whether the American Rule bars the Panel's attorney fee award and conclude that it does.
i. Legal background
"Our basic point of reference when considering the award of attorney's fees is the bedrock principle known as the American Rule: Each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise."
Baker Botts L.L.P. v. ASARCO LLC
, --- U.S. ----,
"[The Supreme Court] ha[s] recognized departures from the American Rule only in 'specific and explicit provisions for the allowance of attorneys' fees under selected statutes.' "
Although this court has not addressed the American Rule's application to administrative proceedings, the D.C. Circuit has held that it applies equally in that context.
See
Unbelievable, Inc. v. NLRB
,
ii. Analysis
The Panel exceeded its remedial authority under the RSA in awarding attorney fees to Mr. Altstatt. We agree with the D.C. Circuit that the American Rule applies in administrative proceedings, and we see no reason to depart from it here. The RSA's text makes no mention of attorney fees, litigation costs, prevailing parties, or other related terms. Indeed, the statute is wholly silent as to what relief an arbitration panel may grant an aggrieved blind vendor, and it provides only that "the decision of such panel shall be final and binding on the parties" and "subject to appeal and review as a final agency action." 20 U.S.C. §§ 107d-1(a), 107d-2(a). 26 The RSA is thus insufficiently explicit to authorize arbitration panels to award attorney fees to aggrieved blind vendors who prevail in arbitration against their SLA.
III. CONCLUSION
The Panel complied with the APA when it determined that the ODRS violated the RSA by awarding the Contract to Mr. Brown despite his tax delinquency. It acted within its authority under the RSA and complied with the APA when it determined that Mr. Altstatt should have received the Contract assignment and ordered that Mr. Altstatt replace Mr. Brown as the Contract vendor.
The Panel violated state sovereign immunity when it awarded damages to Mr. Altstatt and against ODRS, and it exceeded the scope of its remedial authority when it awarded attorney fees to Mr. Altstatt and against ODRS.
We therefore affirm the district court's decision upholding the Panel's determination that the ODRS violated the RSA by awarding the Contract to Mr. Brown and its order to replace Mr. Brown with Mr. Altstatt as the Contract vendor. We reverse the district court's judgment as to the Panel's award of damages and attorney fees and remand for further proceedings consistent with this opinion.
At the relevant time, ODRS regulations provided that selection committees' scoring of applicants "shall be based on" four "factors," one of which was called "[m]onthly location reviews and annual evaluation."
The Panel ordered ODRS to pay Mr. Altstatt damages "in an amount equal to Brown's net revenue share during the time that he served as the Interim and Permanent [Contract manager] along with interest at the legal rate." App., Vol. 4 at 643-45. At the arbitration hearing, Mr. Altstatt had called a damages expert to testify. The Panel had rejected the expert's calculations, which were based on the historical financial statements of Mr. Brown's predecessor. Following the Panel's decision, Mr. Altstatt filed a motion requesting the Panel to set a specific amount of damages and to rely on the expert's damages calculations or to order the production of and independently review Mr. Brown's financial statements. App., Vol. 4 at 653-57. The Panel denied this motion, stating that it "set the damages in its original order with parameters sufficient to calculate the amount of damages and has no authority to hear additional evidence or modify said order."
Mr. Brown did not seek to intervene in the district court proceedings at any point. After the entry of final judgment, Mr. Brown filed a motion in this court to intervene in ODRS's appeal. We denied this motion as untimely.
ODRS also challenges the Panel's removal of Mr. Brown as violating Mr. Brown's due process rights.
See
Aplt. Br. at 28-31. We decline to address this claim, which the district court dismissed for lack of standing. App., Vol. 8 at 1372 n.28 ("Ordinarily a litigant may only assert its own constitutional rights and a plaintiff cannot sue for the deprivation of another's civil rights; the Court therefore has disregarded this argument."). On appeal, ODRS fails to address its standing to bring the due process claim, both in its opening brief and in its reply brief, even after Mr. Altstatt argued lack of standing in his response brief. Under these circumstances, ODRS has waived any argument that it has standing to pursue a due process claim on Mr. Brown's behalf, and we therefore do not entertain such a claim.
See
Colorado Outfitters Ass'n v. Hickenlooper
,
We do not address ODRS's contention that sovereign immunity bars the attorney fee award because we conclude the RSA does not authorize attorney fees. We reverse the district court's affirmance of the Panel's attorney fee award on this basis alone.
"Debarment means action taken ... to exclude a contractor from Government contracting and Government-approved subcontracting for a reasonable, specified period; a contractor that is excluded is 'debarred.' "
We address both ODRS's substantial evidence and arbitrary or capricious challenges together because "[t]he arbitrary and capricious standard of review has been equated to the substantial evidence test."
AllCare Home Health, Inc. v. Shalala
,
Under the RSA, participating SLAs must "[t]ake effective action ... to carry out full responsibility for the supervision and management of each vending facility in its program in accordance with its established rules and regulations, [DOE regulations], and the terms and conditions governing the permit [for each vending facility]."
Under FARS, a tax liability is not a delinquency "if there is a pending administrative or judicial challenge."
Taken together, §§ 9.406-2(b)(1)(v)(A)(1) and 9.406-2(b)(1)(v)(B)(2) mean that an assessed tax liability is not a delinquency only to the extent the taxpayer pursues an administrative or judicial challenge. Here, the administrative record does not show that Mr. Brown pursued such a challenge. Despite Mr. Brown's participation in the arbitration hearing as a witness, he never mentioned such a challenge. Instead, he testified that he did not learn of his tax liabilities until "the 2012 time frame," App., Vol. 6 at 1028, despite the IRS's filing notice of tax lien in February 2011 based on unpaid taxes from 2008 and 2009, App., Vol. 7 at 1141. He further testified that after he learned of the liabilities, rather than pursue a challenge, he began negotiating an installment plan with the IRS. App., Vol. 6 at 1030-31. In light of this record, we conclude that "a reasonable mind would consider the evidence adequate to support the [Panel's] conclusion."
Jake's Fireworks Inc.
,
We describe these decisions, not to opine on their holdings or results, but to detect approaches to remedial authority that may help us in deciding whether the injunctive relief awarded in this case was proper.
In its supplemental brief, DOE said "the RSA authorizes arbitration panels to issue all forms of prospective equitable relief." Aplee. DOE Suppl. Br. at 6. We need not decide whether DOE's interpretation of the statute is entitled to deference because, as we explain below, we agree with DOE even under de novo review. In any event, DOE has not claimed any entitlement to deference.
See
Hydro Res., Inc. v. U.S. EPA
,
The sparse legislative history on this issue points to the result reached here. The purpose of the RSA's vendor-versus-SLA arbitration procedures is to provide aggrieved vendors with an effective means to resolve their grievances against SLAs. See, e.g. , S. Rep. No. 98-937, at 20 (1974) ("It is the expectation of the Committee [on Labor and Public Welfare] that the arbitration and review procedures ... will provide the means by which aggrieved vendors ... may obtain a final and satisfactory resolution of disputes." (emphasis added) ). One of the "conditions [that] prompted the inclusion of these [arbitration procedures] ... [was that] blind vendors ha[d] considered previously available legal procedures to be inadequate." 121 Cong. Rec. 16,227 (1975) (speech on RSA Amendments of 1974 inserted into the record by Rep. John Brademas).
We see no reason why such authority should not extend to the specific form of relief at issue here-the order to appoint Mr. Altstatt to the Contract assignment. ODRS contends that, under the RSA, "the Arbitration Panel had no authority to preempt [its] rules concerning how to select managers for a particular facility" and that "[i]ts only authority was to review and judge the selection process that had been conducted." Aplt. Br. at 34. We agree that the RSA delegates authority to SLAs to promulgate rules governing their operation of the RSA Program, see 20 U.S.C. § 107b(5), including the selection of blind vendors for particular vending assignments. But the RSA nowhere prohibits an arbitration panel from remedying violations of such rules by ordering the offending SLA to appoint the aggrieved blind vendor to the disputed assignment should it find that, but for the violation, the vendor would have received the assignment.
Blind vendors ordinarily may not obtain compensatory relief for their grievances because, as we explain below, SLAs enjoy sovereign immunity from damages awarded to a blind vendor by an RSA arbitration panel.
ODRS primarily challenges the order to appoint Mr. Altstatt as exceeding the scope of the Panel's statutory authority. But ODRS also appears to bring a separate, albeit cursory, challenge to the order as arbitrary and capricious.
As discussed above, the Panel properly found that Mr. Brown was ineligible for the Contract assignment because of his tax delinquency. Mr. Altstatt received the next highest total score of all the candidates and thus presumably should have received the Contract assignment. App., Vol. 7 at 1231 (Mr. Altstatt received a total score of 300.75, whereas the remaining two candidates received 239.25 and 266.75). ODRS appears to contend, however, that the Panel's consideration of the candidates' total scores-comprised of the scores from the original selection process supplemented with the scores for the previously omitted factor, as later calculated by ODRS during the re-selection process-was arbitrary and capricious given the Panel's determination that the original selection process was flawed. Aplt. Br. at 33. We disagree.
Apart from Mr. Brown's ineligibility, the Panel identified two other flaws in the original selection process: (1) the omission of a required scoring factor, and (2) Mr. Pride's friendship with Mr. Brown. But neither flaw rendered the Panel's consideration of the original scores arbitrary or capricious because Mr. Altstatt had the next highest score with or without the scores for the previously omitted factor and with or without the scores given by Mr. Pride. See App., Vol. 7 at 1231 (subtracting the previously omitted "Annual Evaluation Score[s]" from the total scores, Mr. Altstatt received 290.75, whereas the remaining two candidates received 226.25 and 251.75; subtracting Mr. Pride's scores from the total scores, Mr. Altstatt received 246.75, whereas the remaining two candidates received 183.25 and 206.75).
The Court clarified that "[s]overeign immunity does not merely constitute a defense to monetary liability or even to all types of liability" but rather "provides an immunity from suit."
Fed. Mar. Comm'n
,
The Court said:
"There can be little doubt that the role of the modern federal hearing examiner or administrative law judge ... is 'functionally comparable' to that of a judge. His powers are often, if not generally, comparable to those of a trial judge: He may issue subpoenas, rule on proffers of evidence, regulate the course of the hearing, and make or recommend decisions. More importantly, the process of agency adjudication is currently structured so as to assure that the hearing examiner exercises his independent judgment on the evidence before him, free from pressures by the parties or other officials within the agency."
Fed. Mar. Comm'n
,
The Court said:
"[F]ederal administrative law requires that agency adjudication contain many of the same safeguards as are available in the judicial process. The proceedings are adversary in nature. They are conducted before a trier of fact insulated from political influence. A party is entitled to present his case by oral or documentary evidence, and the transcript of testimony and exhibits together with the pleadings constitute the exclusive record for decision. The parties are entitled to know the findings and conclusions on all of the issues of fact, law, or discretion presented on the record."
Fed. Mar. Comm'n
,
ODRS has not asserted sovereign immunity from RSA arbitration proceedings generally or from any other type of relief, apart from money damages and attorney fees. As we explain below, the RSA does not authorize attorney fees in any event. We therefore do not decide whether ODRS's participation in the RSA Program, although not a waiver of sovereign immunity as to damages, nevertheless waives sovereign immunity from RSA arbitration proceedings generally or from other forms of relief.
Four justices and several commentators have criticized the Court's dignity rationale in
Federal Maritime Commission
as confusing or unworkable in application.
See
Fed. Mar. Comm'n
,
Notwithstanding such criticisms, we are bound to apply Supreme Court precedent. Because we discern no reason why RSA arbitrations would pose a lesser affront to a state's dignity than FMC adjudications, we conclude that the dignity rationale favors extending sovereign immunity to the former.
The parties to an arbitration of a blind vendors' complaint are "the complainant blind licensee and the State licensing agency." RSA Arbitration Policies at 1. The arbitration is party-driven, with the parties presenting evidence and making arguments in support of their respective positions. See id. at 4-5.
The Supreme Court has said that, "[i]n ratifying the Constitution, the States consented to suits brought ... by the Federal Government. ... Suits brought by the United States itself require the exercise of political responsibility for each suit prosecuted against a State, a control which is absent from a broad delegation to private persons to sue nonconsenting States."
Alden v. Maine
,
As noted above, the applicable policies and procedures appear to contemplate that an RSA arbitration of a blind vendor's complaint would proceed whether or not the SLA files an answer. See RSA Arbitration Policies at 3.
One other related distinction between FMC and RSA proceedings bears noting here. Unlike the FMC, which "may impose monetary penalties for each day of noncompliance" with an FMC order,
Fed. Mar. Comm'n
,
This case presents no opportunity to address the extent to which we may look beyond the relevant statute to determine whether a state has waived sovereign immunity by participating in a federal program. Here, neither the RSA's implementing regulations nor the RSA Arbitration Policies contain any mention of money damages, and the parties have not provided us with any other material that sheds light on the terms of ODRS's participation in the RSA Program.
DOE's implementing regulations and the RSA Arbitration Policies likewise do not enumerate what relief may be granted, and the parties have not provided us with any other materials relevant to the American Rule's application.
Reference
- Full Case Name
- Noel TYLER, as Interim Director of the Oklahoma Department of Rehabilitation Services, Plaintiff Counter Defendant - Appellant, v. UNITED STATES DEPARTMENT OF EDUCATION REHABILITATION SERVICES ADMINISTRATION, Defendant - Appellee, and David Altstatt, Sr., Intervenor Defendant Counterclaimant - Appellee.
- Cited By
- 11 cases
- Status
- Published