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«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»

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6. OIG’s Interpretation of LDA Section 18 Is Not Authoritative Even if the meaning of LDA Section 18 were not plain and unambiguous, and underscored by the statutes legislative history, if EPA adopted OIG’s interpretation of the statute, that interpretation would be entitled to little or no deference in a court of law. The Supreme Court and various Federal Circuit Courts have made clear that deference is to be accorded to an administrative agency’s interpretation of a statute only if such agency has been specifically and exclusively charged with the administration of that statute.14 The Courts reason that it is appropriate to ?pay particular attention to the views of an expert agency where they represent ‘specialized expertise.’? 15 Conversely, where an agency has not been specifically charged with the administration of a particular statute, no deference to the agency’s statutory interpretation is called for. LDA Section 18, by its very nature, is applied by all federal agencies that make grants to non-governmental entities. As far as we are aware, EPA has not been specifically or exclusively charged with its administration.

The Federal courts have consistently declined to defer to any one agency’s construction of a statute that is designed to be implemented by multiple agencies.16 Finally, deference is normally accorded to agency interpretations of law when those interpretations have been applied on a consistent basis over time. As noted below, EPA adoption of the OIG interpretation of LDA Section 18 would be an abrupt departure from what appears to be EPA’s current position.

Therefore, EPA’s authority to adopt OIG’s interpretation of LDA Section 18 is

See, e.g., Hoffman Plastic Compounds v. NLRB, 122 S.Ct. 1275 (2002) (extending the reasoning of the Chevron decision on the degree of deference due to statutory construction by administrative agencies) See Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144 (1991).

See, e.g., Saleh v. Chrisotpher, 85 F. 3d 689 (D.C. Cir. 1996); Rapoport v. Department of Treasury, 59 F. 3d 212 (D.C. Cir. 1995); Avenue of the Americas Associates v. RTC, 22 F. 3d 494 (2d Cir. 1994).

Appendix B

SONENTHAL AND OVERALL P.C.

Mr. Stephen Brobeck January 20, 2004 Page 12 questionable in three respects: [i] the interpretation departs from the plain and unambiguous meaning of the statute; [ii] EPA does not have LDA enforcement authority, or any special expertise that would require the courts to accord any special consideration to its views; and [iii] the OIG interpretation is not well-established at EPA; on the contrary, it reverses a position that EPA took with respect to LDA Section 18 in 1996 and 1997 and again, as recently as late 2002.

7. Retroactive Enforcement

In this section, we assume, for the sake of argument, that a federal court has approved OIG’s proposed interpretation of LDA Section 18, has identified and adopted a legal standard defining the ?degree of separation? between 501(c)(3) recipients and their 501(c)(4) affiliates required by LDA Section 18, and has determined that, under the adopted standard, that the Foundation and CFA did not have the required ?degree of separation.? Even in these circumstances, however, a court is likely find a disallowance based on the OIG interpretation of the section to be ?arbitrary, capricious and contrary to law? because [i] the expansion of Section 18 to 501(c)(3) recipients would be a departure from EPA’s established practice; [ii] the Foundation relied on that established practice each time it agreed, at EPA’s specific request, to perform services for EPA under a cooperative agreement; [iii] retroactive application of an expanded Section 18 would impose a serious financial penalty on the Foundation U.S. Court of Appeals set aside a National Labor Relations Board (?NLRB?) decision applying retroactively a new rule that was contrary to a ?well settled? rule on which the respondent employer had relied. The issue before the court was whether retroactive application was ?arbitrary, capricious or contrary to law.?

–  –  –

The application of LDA Section 18 to the Foundation is not a case of first impression, at least not for EPA. In fact, as recounted in the Response, at the time EPA transferred CFA’s programs to the Foundation (1996/1997), it appears that EPA [i] clearly understood the nature of the relationship between the Foundation and CFA — including the specific facts and circumstances on which OIG bases its claim that the Foundation is ineligible under LDA Section 18; [ii] considered the implications of that relationship for the Foundation’s eligibility under LDA Section 18; and [iii] determined that the relationship did not render the Foundation ineligible to receive Federal funds.17 EPA confirmed that initial determination repeatedly thereafter - each time it awarded a new CA, added funding to an existing CA, or simply disbursed funds to the Foundation thereunder. More recently, in 2002, EPA suspended performance of all five of the Foundation’s CAs pending clarification of certain legal and regulatory compliance issues. One of those issues was the relationship on-going relationship between the Foundation and CFA. In May 2002, after full disclosure and discussion, but without any change in the Foundation/CFA relationship, EPA lifted the suspension and began once again to make disbursements under each of the five CAs. EPA would not have restarted its disbursements to the Foundation and continued those disbursements through the end of 2002 if it had not made a determination that the Foundation was an eligible recipient under LDA Section 18. (Indeed, if the OIG interpretation of LDA Section 18 is correct, all EPA’s disbursements to the Foundation in 2002 were illegal.) Accordingly, if EPA adopts the OIG’s interpretation of LDA Section 18, and applies that interpretation to the Foundation, the result would qualify as ?an abrupt departure? by EPA from its established interpretation of LDA Section 18, the interpretation under which it had, on numerous occasions, determined the Foundation to be an eligible CA recipient. The change is not likely to qualify as an ?attempt to fill a void in an unsettled area of law? - e.g., the clarification of ambiguous language in the statute. See Retail, Wholesale and Department Store Union v. NLRB, supra, 466 F.2d at 391. As noted above, the statute is not unclear or ambiguous, and the proposed OIG interpretation reaches organizations that the plan and unambiguous terms of the statute do not cover.





With respect to reliance and injury: There can be no question that the Foundation specifically relied on EPA’s determination that the Foundation was an eligible recipient under Section 18 when it agreed to accept the CAs transferred to it from CFA at EPA’s

–  –  –

behest. It relied as well on EPA’s implicit confirmation of its eligibility each time EPA approached the Foundation to take on a new CA, or to accept additional funding under an existing CA. Similarly, the extraordinary burden that a change in EPA policy with respect to LDA Section 18 would impose on the Foundation — namely, a $4.7 million disallowance and refund — is too obvious to require comment.

Finally, it is difficult to see what statutory purpose would be served by apply the OIG interpretation retroactively, and many equitable arguments to the contrary. On the contrary, it is fair to say that the Foundation acted in good faith and in the absence of any guidance in law, regulation or precedent suggesting that its relationship with CFA might make it ineligible for Federal funding. Under the circumstances, retroactive enforcement of the OIG interpretation would not vindicate any public interest, penalize the misuse of Federal funds for lobbying activities, or lead to the recovery any funds for which the Government, and the general public, did not receive full value. As noted in Retail, Wholesale and Department Store Union v. NLRB, ?[a] distinction must... be made between the purpose of the statute and the necessity of a particular remedy to effectuate that purpose.? 466 F.2d at 392. Here, it does not appear that the “particular remedy” sought by OIG -– a $4.7 million forfeiture — is reasonably necessary to support the purposes of the statute.

The Foundation does not contest EPA’s right to change its policies, and to insist that its recipients conform to those policies prospectively. Indeed, when the EPA Grants Management Office first raised the question of the Foundation’s LDA Section 18 eligibility in March 2002, the Foundation and CFA hastened to arrange a corporate reorganization to respond to EPA’s concerns. However, EPA would not have the authority to enforce that new policy retroactively against a party that relied in good faith on the old policy, now discarded, and would suffer extreme hardship if the policy were enforced.

* * * * B. COMPETITION of SUBAWARDS..

In the DAR, OIG criticizes the Foundation for its failure to use the competitive procedures required by 40 CFR Part 30 to award subagreements under three of its CAs.18 According to IOG

–  –  –

The first sentence in the quote above may well be an accurate statement of EPA policy with respect to ?the award of cooperative agreements.? However, we are aware of no regulation, policy or practice that requires the recipient of a cooperative agreement to compete - ?to the maximum extent practicable? or otherwise - in the award of sub-agreements.

OIG supports the sub-award competition requirement by citing Section 30.5 of the EPA financial assistance regulation, 40 CFR 30.5. By its terms, Section 30.5 makes the provisions of OMB Circular A-110 applicable to certain ?subrecipients performing work under awards.? It does not speak to the obligations of recipients, either in general, or with reference to the award of subagreements.

40 CFR Part 30 is EPA’s version of the OMB common rule for administration of cooperative agreements and grants to institutions or higher education, hospitals and other non-profit organizations. The requirements of the regulation rule are uniform across agencies and therefore difficult to change. For example, under the common rule agencies ?may not impose additional or inconsistent requirements? on their recipients and grantee without obtaining a deviation from the agency (case-by-case deviations) or from OMB (class deviations), or unless specifically required by Federal statute or Executive Order.

These provision of the common rule are incorporated in 40 CFR 30.1 and 30.4.

Consequently, absent a provision in 40 CFR Part 30 requiring the use of competitive procedures to award subagreements, or a formal deviation from 40 CFR Part 30 imposing such an obligation, EPA is not required to do so. Furthermore, to impose that requirement as a matter of EPA policy, as suggested by OIG would be a violation of EPA’s own regulations — i.e., 40 CFR 30.1, cited above.

–  –  –

EPA Headquarters Director, Grants Administration Division (3903R) (responsible for report distribution to recipient) Director, Office of Grants and Debarment (3901R) Comptroller (2731A) Agency Followup Official (the CFO) (2710A) Agency Audit Followup Coordinator (2724A) Associate Administrator for Congressional and Intergovernmental Relations (1301A) Associate Administrator for Public Affairs (1101A) Audit Followup Coordinator (GAD) Deputy Assistant Administrator for Air and Radiation (6101A) EPA Office of Inspector General Inspector General (2410)



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