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September 24, 1987

Garrick B. by his parents Gary and Linda B., Plaintiffs
Curwensville Area School District, and D. Kay Wright, Acting Secretary of Education, Commonwealth of Pennsylvania, Defendants

The opinion of the court was delivered by: CALDWELL


 Before the court is an appeal of a decision of the Pennsylvania Secretary of Education under the Education of the Handicapped Act, ("EHA"), 20 U.S.C. § 1401 et seq. The parties have filed motions for judgment pursuant to 20 U.S.C. § 1415(e). The record is complete, briefs have been filed, and the motions are ripe for disposition.


 Garrick B. is a 15 year old exceptional student who attends school in the Curwensville Area School District. His educational program has been the subject of dispute for a number of years. While in first grade, Garrick was classified as an educable mentally retarded ("EMR") student and was subsequently placed in an EMR program operated by Central Intermediate Unit 10 ("CIU 10"). Garrick's parents objected to the classification and special education program, claiming that Garrick was not retarded, but learning disabled ("LD"). In February 1984, a hearing officer appointed by the Secretary of Education determined that the District's classification was appropriate, but that a new individualized education program ("IEP") was needed for the 1984-85 school year. During that year, Garrick remained in a part-time elementary EMR program.

 For the 1985-86 school year, the District recommended that Garrick be placed in a mixed category, LD/EMR class (LD & EMR students in the same classroom), and proposed a new IEP. His parents agreed to the placement for a 13 day trial period, at the end of which they objected to both the mixed category program and the EMR classification. A hearing was scheduled for January, 1986. Prior to the hearing, the parties agreed that Garrick would be placed in a self-contained LD class at Curwensville School.

 At the close of the 1985-86 school year, the parents were not satisfied with the placement and the hearing was reconvened on June 3, 1986. The District contended that Garrick was correctly classified EMR and that a LD/EMR class at Curwensville School was appropriate. The parents claimed that Garrick was not EMR but was either LD or brain damaged and that a mixed category placement was not appropriate. They sought full-time residential placement in an approved private school. Following two days of testimony and the introduction of over 100 exhibits, the hearing officer found that Garrick is not mentally retarded, has a medical diagnosis of brain damage ("BD"), and is educationally a BD/LD student in accordance with state standards at 22 Pa. Code § 341. He recommended that Garrick be placed in a secondary level, part-time, mixed category (LD/EMR) program operated by CIU 10. Garrick was so enrolled.

 Both parties filed with the Department of Education exceptions to the hearing officer's report. The District sought reversal of the decision on classification and the parents sought placement at a residential school for BD/LD students. On October 15, 1986, the Secretary of Education adopted the hearing officer's decision and dismissed the exceptions. She found that Garrick was properly classified as a LD student, and that the proposed placement in the LD/EMR program was appropriate and in accordance with the priority order of placement set forth in 22 Pa. Code § 13.11(d).

 Garrick's parents filed this action alleging that the Secretary and the District violated the EHA, 20 U.S.C. § 1414; the regulations issued pursuant thereto, 34 C.F.R. §§ 300.300 et seq.; the Public School Code of 1949, 24 P.S. § 13-1372 et seq.; and the regulations issued thereunder, 22 Pa. Code §§ 13.1 et seq. They seek a finding that the Secretary's decision upholding the recommendation of the hearing officer is not supported by a preponderance of the evidence in the record, an order directing that Garrick be placed in a full-time residential school for LD children, attorney's fees and costs. The District has filed counter and cross claims seeking a reversal of the Secretary's classification of Garrick, an order directing that it be changed to EMR, and fees and costs.

 The parties have filed motions for disposition pursuant to 20 U.S.C. § 1415(e)(2). The District has also filed a motion to dismiss for lack of subject matter jurisdiction. The record is complete and the court has before it the records of the administrative proceedings and supplemental affidavits submitted by the parties. The parties have waived hearing, filed briefs, and reserved the question of attorneys' fees and costs. *fn1"


 A. Subject Matter Jurisdiction

 The district contends that the court lacks subject matter jurisdiction to adjudicate this action, brought in accordance with the procedure outlined in 20 U.S.C. § 1415. Paragraphs (2) and (4) of subsection (e) are clear in their pronouncement that the district courts of the United States shall have jurisdiction of such actions. But the district claims that § 1415 does not apply to it because it does not "receive assistance" under the EHA. In support of this assertion, the District superintendent has filed an affidavit stating that the District has not received any "federal funds" for special education purposes.

 The District's contention that in order to "receive assistance" it must directly receive federal funds is not supported by the language of the Act or the accompanying regulations. Section 1415(a) provides:

(a) Any State educational agency, any local educational agency, and any intermediate educational unit which receives assistance under this subchapter shall establish and maintain procedures in accordance with subsection (b) through subsection (e) of this section to assure that handicapped children and their parents or guardians are guaranteed procedural safeguards with respect to the provision of free appropriate public education by such agencies and units.

 20 U.S.C. § 1415(a) (emphasis added). To ensure a "free appropriate public education" for handicapped children, the EHA provides subsidies to states meeting certain eligibility requirements. 20 U.S.C. § 1412. Local and intermediate educational agencies are then entitled to share those funds upon approval by the state educational agency. 20 U.S.C. §§ 1411 & 1414. The state is authorized to withhold payment to local agencies and divert such payments to regional or state agencies which provide services directly to handicapped children in the local agency's area. Thus a local agency can receive federal assistance indirectly.

 In Pennsylvania, school districts bear primary responsibility for identifying and educating exceptional children. 24 P.S. §§ 13-1371 & 13-1372. The districts may provide the education directly or through intermediate units. 24 P.S. § 13-1372; 22 Pa. Code § 13.11(b). The District does not deny that it has used the services of an intermediate unit, and in fact Garrick has participated in a CIU 10 EMR program. Therefore, when CIU 10 receives EHA funds the District is the indirect recipient of the federal assistance. See Grove City College v. Bell, 465 U.S. 555, 104 S. Ct. 1211, 79 L. Ed. 2d 516 (1984).

 This conclusion is supported by the federal regulations promulgated by the Department of Education. 34 C.F.R. § 300.2 provides in part:

(a) States. This part applies to each State which receives payments under Part B of the Education of the Handicapped Act.
(b) Public agencies within the State. The annual program plan is submitted by the State educational agency on behalf of the State as a whole. Therefore, the provisions of this part apply to all political subdivisions of the State that are involved in the education of handicapped children. These would include:
(1) The State educational agency, (2) local educational agencies and intermediate educational units. . . .

 The comment to this section provides that the "requirements of this part are binding on each public agency that has direct or delegated authority to provide special education and related services in a State that receives funds under Part B of the Act, ...

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