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Georgia Department of Education v. United States Department of Education

United States Court of Appeals, Eleventh Circuit

February 28, 2018


         Petition for Review of a Decision of the Department of Education Agency Docket No. 12-35-R

          Before JULIE CARNES and JILL PRYOR, Circuit Judges, and CONWAY, [*] District Judge.

          CONWAY, District Judge:

         The Georgia Department of Education petitions the Court to review the final decision of the Secretary of Education ("the Secretary") ordering Georgia to repay approximately $2.1 million of federal grant funds to the United States Department of Education. The Secretary denied Georgia an equitable offset for the amount of funds due to be repaid following an audit. For the reasons that follow, we deny the petition to review the Secretary's decision.

         I. BACKGROUND

         The United States Department of Education ("the Department") awarded a $10.7 million grant to the Georgia Department of Education ("Petitioner") to be distributed to local education entities in 2007 under the 21st Century Community Learning Centers grant program, which targeted students at high-poverty, low performing schools. Following the Department's award of the federal grant, Georgia held a competition to award subgrants to local education agencies and community-based non-profits that provide academic enrichment opportunities such as tutorial services to help students during non-school hours. The competition required an eligible entity to submit an application, and Petitioner used a peer-review process to award the subgrants.

         Following receipt of a "suspicious activity report" in May 2007 from a bank for one of the local grant recipients, state auditors ultimately uncovered evidence of a "complex fraud scheme" involving several Georgia Department of Education employees as well as members of the independent external peer review panel and some of the subgrant recipients who manipulated the outcome of the grant competition. As "a result of apparent collusion and management override of internal controls, " the auditors found the grant competition was "severely flawed." The auditors determined that three of Petitioner's employees had inappropriately overridden internal controls and intentionally altered the results of the independent external peer-reviewed competition so that seventeen lower-scoring applicants received subgrants even though other, unfunded applicants had received higher scores. The auditors noted that the highest-ranking applicants, as determined by the independent external peer review panel, received reduced funding and, in some cases, no funding. Petitioner's internal audit found employees had manipulated the outcome of the 2007 grant competition in favor of certain community-based organizations who were connected to one of Petitioner's employees.[1]

         In May 2012, the Department responded with a preliminary determination letter finding that Petitioner had failed to follow its own procedures when conducting the grant competition, and the harm to the federal interest was the total amount of funds awarded to sixteen entities that did not qualify for funding and a seventeenth entity that received more funds than the amount for which it qualified. The Department demanded that Petitioner refund the full $5.7 million diverted to the lower-scoring programs; the parties subsequently stipulated to the reduced amount of $2.1 million based on the relevant statute of limitations.

         Petitioner appealed the Department's $2.1 million refund demand to the Office of Administrative Law Judges, requesting an "equitable offset" for the entirety of the amount demanded, arguing it had spent non-federal grant funds that aided beneficiaries in the same manner Congress had intended in enacting the legislation governing the grant program. The Department objected to any equitable offset or reduction because of the extent of the fraud. The administrative law judge denied Petitioner's request for an equitable offset, as did the Secretary of Education. Petitioner seeks review of the agency's final decision, arguing that the Secretary erred by denying Petitioner any equitable offset.[2]


         Petitioner argues the Secretary's consideration of the underlying fraud scheme as reason to deny the equitable offset violates the statute's "proportional- to-harm" recovery rule and invokes what Petitioner characterizes as an "unclean-hands" defense without a principled explanation for the change in course.

         A. Standard of Review

         This Court reviews the Secretary's decision to determine whether the Secretary's findings are supported by substantial evidence and whether they reflect the application of proper legal standards. Bell v. New Jersey, 461 U.S. 773, 792, 103 S.Ct. 2187, 2198, 76 L.Ed.2d 312 (1983); Bennett v. Kentucky Dep't of Educ., 470 U.S. 656, 666, 105 S.Ct. 1544, 1550, 84 L.Ed.2d 590 (1985); see 20 U.S.C. § 1234g(c) (factual findings are conclusive "if supported by substantial evidence"). Substantial evidence is "such relevant evidence as a reasonable person would accept as adequate to support a conclusion." Moore v. Barnhart, 405 F.3d 1208, 1211 (11th Cir. 2005). It is "more than a scintilla, but less than a preponderance." Hale v. Bowen, 831 F.2d 1007, 1011 (11th Cir. 1987) (internal quotation marks omitted). The "limited" substantial evidence review "precludes deciding the facts anew, making credibility determinations, or re-weighing the evidence." Moore, 405 F.3d at 1211; see also Dyer v. Barnhart, 395 F.3d 1206, 1211 (11th Cir. 2005).

         The court may set aside the Department's final decision only if is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The arbitrary and capricious standard is "exceedingly deferential." Sierra Club v. Van Antwerp, 526 F.3d 1353, 1360 (11th Cir. 2008) (quotation marks omitted). An agency's decision will not be overturned as long as the agency "examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a rational connection between the facts found and the choice made." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (the standard is "narrow, and a court is not to substitute its judgment for that of the agency"). Agency actions are arbitrary and capricious when the agency "has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ...

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