Strom v. Cardona

Background

The plaintiffs were three parents and five charter schools. They sued Linda McMahon, in her official capacity as Secretary of the U.S. Department of Education, and the Department. The opinion explains that McMahon was substituted for former Secretary Cardona after McMahon became Secretary.

The schools had received subgrants from the New York State Education Department (NYSED) under a federal Charter School Program grant awarded in fiscal year 2011. Some funds remaining from that grant expired and reverted to the U.S. Treasury before NYSED reimbursed the schools for allowable expenses. NYSED later asked the Department for permission to use $886,655 from a separate fiscal year 2018 Charter School Program grant to reimburse expenses connected to the earlier grant.

The Department denied the request. It stated that the requested transfer would conflict with the federal appropriations “Purpose Statute,” which provides that appropriated money must be used only for the purposes for which Congress appropriated it. The Department also cited regulations and federal grant-cost rules concerning the use of funds and the prohibition on charging costs from one federal award to another merely to cover a funding shortfall.

Claims and arguments

The plaintiffs sought review under the Administrative Procedure Act (APA), the federal law governing judicial review of many agency actions. They argued that the Department’s denial was arbitrary and capricious because the Department misunderstood federal appropriations law and wrongly believed it lacked authority to approve the requested transfer. They also argued that the decision was inconsistent with the Department’s past treatment of similar waiver requests.

The defendants argued that the waiver decision was committed to agency discretion and therefore could not be reviewed under the APA. They alternatively argued that the Department reasonably concluded that it lacked authority to transfer money between grants established under different federal laws and appropriations.

Court’s analysis

The court first held that the Department’s decision was reviewable. The Department’s denial letter said that the Secretary lacked administrative authority over the federal appropriations requirement and therefore had to reject the request. The court characterized that as a legal determination, rather than an unreviewable discretionary choice. Because the court found the decision reviewable on that basis, it did not decide whether the waiver authority was otherwise committed to agency discretion.

On the merits, the court held that the Department had correctly interpreted the law. The waiver provision allowed the Secretary to waive statutory or regulatory requirements over which the Secretary exercised administrative authority. It did not authorize the Secretary to disregard federal appropriations law. The court concluded that the Secretary did not exercise administrative authority over the Purpose Statute.

The court also rejected the plaintiffs’ reliance on federal grant regulations and the Office of Management and Budget’s Uniform Guidance. Those authorities could allow certain cost shifts only when consistent with existing statutes, regulations, and grant terms. They did not authorize transferring funds appropriated for one grant to cover expenses incurred under a different grant. The court therefore concluded that approving NYSED’s request would violate federal appropriations law.

Because the Department correctly determined that it lacked authority to approve the transfer, the court did not address the plaintiffs’ argument about the Department’s past practices.

Disposition

The court held that the Department’s denial was not arbitrary and capricious. Judge Jennifer H. Rearden denied the plaintiffs’ motion for summary judgment and granted the defendants’ cross-motion for summary judgment. The court directed the Clerk to enter judgment for the defendants and close the case.