King Cnty. v. Azar

Citation: 320 F. Supp. 3d 1167Docket: CASE NO. C18–0242–JCC

Court: District Court, W.D. Washington; May 29, 2018; Federal District Court

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King County's motion for a preliminary injunction and summary judgment was granted by the U.S. District Court, while the Defendants, Alex Azar and the U.S. Department of Health and Human Services (HHS), had their cross-motion for summary judgment denied. The Teen Pregnancy Prevention (TPP) Program was established by Congress in 2010 to fund effective programs aimed at reducing teen pregnancy, administered by HHS's Office of Adolescent Health. The program includes Tier 1 grants for established programs and Tier 2 grants for innovative approaches. King County received a Tier 2B grant in 2015 for its FLASH curriculum, requiring annual continuation applications to secure funding. King County's continuation applications were initially approved, but in July 2017, HHS unexpectedly shortened the project period from June 30, 2020, to June 30, 2018, without explanation. King County appealed this decision, which it viewed as unlawful and arbitrary, but received no response. Meanwhile, Congress allocated year-four funds for the TPP Program in March 2018. King County contends that HHS's actions were not only arbitrary but also an unlawful withholding of agency action, while Defendants argue that King County was not entitled to the five-year grant and that HHS acted within its discretion.

King County seeks summary judgment on its claim that the Department of Health and Human Services (HHS) improperly terminated its grant, alleging a violation of the Administrative Procedure Act (APA) (Count I). The County also requests a preliminary injunction for HHS to process its year-four non-competing continuation application (Count II). HHS has filed a cross-motion for summary judgment to dismiss the complaint. The dispute is identified as purely legal, allowing the Court to adjudicate King County's APA claim, which renders the injunction request moot.

Under the APA, judicial review is available for individuals adversely affected by final agency actions when no other adequate remedy exists (5 U.S.C. §§ 702, 704). In cases involving purely legal questions, summary judgment can resolve APA challenges. The Court's role is to assess whether the administrative record supports the agency's decision.

The crux of the matter lies in how HHS's action is characterized. King County argues that HHS's action constituted a premature grant termination without proper explanation, violating HHS regulations regarding terminations (45 C.F.R. § 75.372). Conversely, HHS characterizes its action as a withholding of future funding, based on its Grant Policy Statement, which allows withholding for reasons such as inadequate federal funds or unsatisfactory grantee progress.

Defendants claim that this language grants HHS discretion in managing grant funds, arguing that prior courts have rejected similar interpretations. The Court plans to explore threshold issues concerning the nature of the contested action and its reviewability before addressing the substantive APA claims made by King County.

HHS's decision to shorten the project period is classified as an award termination under HHS regulations, which define termination as ending a Federal award before its planned conclusion (45 C.F.R. 75.2). The project period's end date of June 30, 2020, was explicitly stated in King County's Notice of Award (NOA), confirming that HHS terminated the grant by discontinuing it prior to this date. Defendants' argument that the period of performance refers solely to the budget period contradicts the regulations, which define the period of performance as the time in which a non-Federal entity can incur obligations related to the Federal award. The regulations allow for obligations to extend beyond individual budget periods, and the absence of references to "budget period" in the relevant regulatory definitions further supports this interpretation. Additionally, closeout procedures required at the end of a performance period would not apply at the end of a budget period, reinforcing the distinction between the two. Internal HHS documents and practices also indicate that the agency considers periods of performance as extending beyond budget periods. Therefore, based on the clear regulatory language and established agency practice, the Court finds that HHS properly terminated King County's grant.

Defendants argue that equating project period with period of performance risks violating the Anti-Deficiency Act (ADA), which prohibits government obligations for payment without prior appropriation (31 U.S.C. 1341(a)(1)(B)). However, the Court concludes that the Health and Human Services (HHS) project period model meets ADA standards. Citing *Leiter v. United States*, Defendants assert that they must retain the right to terminate grants yearly to comply with the ADA. In *Leiter*, the Supreme Court emphasized that multi-year contracts depend on annual funding appropriations and government agreement continuation (271 U.S. 204, 206-07, 46 S.Ct. 477, 70 L.Ed. 906 (1926)). The TPP Program aligns with this by requiring annual applications for continuation based on available funds. Although HHS regulations limit when it can refuse to continue awards, the Court finds that this approach does not violate the ADA. HHS's historical use of this grant model has seen no past violations, and it has been endorsed by the Government Accountability Office and federal courts. Such contingent multi-year awards are permissible when necessary for statutory objectives. Cooperative agreements signify HHS's commitment to act lawfully during the project period without creating obligations for unappropriated funds. The Court dismisses Defendants' ADA arguments as unconvincing.

Additionally, Defendants attempt to leverage the GPS and King County's NOA to circumvent agency regulations. The Court finds these documents preempted and factually irrelevant. Defendants claim the GPS grants HHS excessive discretion in renewing grant funding, citing that future support depends on the federal government's interests. However, these GPS terms conflict with and are superseded by agency regulations, which take precedence in case of inconsistencies. Both the GPS and the NOA affirm that regulatory requirements prevail over any conflicting terms. HHS regulations further assert supremacy over all non-regulatory materials that contradict their standards (45 C.F.R. 75.105).

Defendants assert that there is no conflict between GPS and HHS regulations; however, the Court has determined that HHS regulations regarding award termination govern the contested action, superseding any conflicting policy guidance. HHS's decision-making must adhere to its established regulations, despite Defendants' claims that HHS's actions constituted a withholding as defined by GPS. HHS's actions were framed as decisions regarding future awards in the context of a continuation award for the current competitive segment, and there was no application from King County for the upcoming year. The Court notes that at the time, there were no funds available for HHS to withhold. 

Regarding reviewability under the Administrative Procedure Act (APA), Defendants contend that HHS's decision to shorten the grant project period is not subject to judicial review. The APA favors judicial review unless the agency's decision is committed to discretion by law, a standard not met in this case. The Court concludes that agency regulations provide clear standards for review, and that HHS's choice to shorten the TPP Program awards does not fall within the category of decisions typically reserved for agency expertise. Defendants' reliance on previous case law does not exempt HHS's actions from scrutiny.

The Court finds that King County's case is not relevant as it does not involve a targeted appropriation or regulations that restrict the agency's discretion to terminate grants. The Defendants' cited cases do not provide a standard for reviewing grant determinations or terminations, and their characterization of HHS's action as an allocation decision is inaccurate. HHS made a definitive decision to terminate the Teen Pregnancy Prevention (TPP) Program grants without considering King County's continuation application, which does not involve assessing the merits of various research grants. The re-competition for TPP Program funds does not change the nature of HHS's 2017 decision.

The review of agency action must adhere to the standard that it cannot be arbitrary, capricious, or contrary to law. Although the review is deferential, the agency must provide a logical decision-making process. HHS failed to provide a satisfactory explanation for shortening King County's project period and did not communicate any rationale to the County. The Defendants' argument that HHS could decline to renew funding for any reason is rejected, as the Court has determined this standard does not apply. Furthermore, the policy concerns raised by the Defendants are not part of the administrative record and cannot be considered as justifications. HHS's lack of explanation for its actions constitutes arbitrary and capricious behavior warranting reversal. Additionally, HHS's action violated its own regulations, which stipulate that termination can only occur under specific circumstances that did not apply to King County, resulting in action contrary to law.

The Court vacates the agency's unlawful decision to shorten the project period and finds that HHS's termination of King County's grant without adhering to regulatory requirements was illegal. HHS's refusal to consider King County's future non-competing continuation applications constitutes unlawful withholding of agency action under the APA (5 U.S.C. 706(1)). King County’s motion for summary judgment is granted for Counts I and II, but denied as moot for Count III, alongside a denial of the motion for a preliminary injunction. The Court orders HHS to process King County’s year-four continuation application as if the grant had not been terminated, following regulations in 45 C.F.R. section 75, with a requirement for funding availability by August 1, 2018. The case is directed to be closed. The Court clarifies that "grant" is synonymous with "cooperative agreement." King County refrained from arguing that HHS acted against specific appropriations acts due to HHS's announcement to re-compete funds for FY18, leading the Court to avoid addressing these issues. Count III related to equitable relief has been rendered moot by HHS's agreement to not obligate TPP Program funds until August 31, 2018. The Court emphasizes that King County seeks compliance with the APA and its regulations, not guaranteed additional funding.

Defendants claim that the County's interpretation allows it to receive appropriated funds as long as it adheres to grant terms. However, this perspective overlooks the Department of Health and Human Services (HHS)'s authority to terminate grants for cause and amend regulations to adopt a best interest standard, which the Defendants advocate. The relevant regulations were established in 2014 and modified in 2016, while the Grant Proposal Standards (GPS) were created in 2007. The 2016 amendments did not incorporate the GPS's proposed best interest standard for termination. The Court has determined that these regulations take precedence over the GPS, establishing the standard for reviewing the contested action. Consequently, the Court will not evaluate the reviewability based on the Defendants' best interest standard. Additionally, while Defendants reference a concurrence in Cal. Human Dev. Corp. v. Brock to argue that grant fund allocation is at the agency's discretion, the majority opinion contradicts this, affirming the possibility of judicial review grounded in the statute and agency regulations.