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Com. of Pa., Dept. of Public Welfare v. U.S. Dept. of Health and Human Services

April 4, 1996




Before: SLOVITER, Chief Judge, SCIRICA and McKEE, Circuit Judges

McKEE, Circuit Judge


Argued: July 20, 1995

Filed April 4, 1996)


The Commonwealth of Pennsylvania appeals from a ruling of the United States Department of Health and Human Services ("HHS") Appeals Board. The Board upheld a ruling by the Secretary of HHS that reduced the amount of funding for child support enforcement activities in Pennsylvania by the total amount of revenue generated by a Judicial Computerization Fee ("JCP Fee") assessed on each child support case filed in the Commonwealth.

The district court granted summary judgment against the Commonwealth of Pennsylvania ("DPW" or "Commonwealth") and in favor of HHS, the United States, and the HHS Appeals Board (collectively the "defendants"), and this appeal followed. For the reasons that follow, we will affirm the ruling of the district court.


In 1975, Congress enacted the Child Support Enforcement Act, which is incorporated into the Social Security Act as "Title IV-D." See 42 U.S.C. Section(s) 651 et seq. Under Title IV-D, the federal government provides funding through HHS to participating states to assist in obtaining and enforcing child and spousal support obligations, locating absent parents, and establishing paternity. See 42 U.S.C. Section(s) 651, 655. The United States currently pays each state 66 percent of the "total amounts expended by such State during such quarter for the operation of the plan," and 90 percent of other specified expenses. 42 U.S.C 655(a)(1)(A), (a)(1)(B), (a)(1)(C), and (a)(2)(C). The Title IV-D program complements the federal-state Aid to Families with Dependant Children program under Title IV-A of the Social Security Act ("AFDC") and is intended to reduce state and federal expenditures often necessitated by the failure of non-custodial parents to meet their support obligations.

In order to participate in the Child Support Enforcement program, each state must submit a plan for HHS approval in which the state designates the specific organizational unit or agency responsible for administering the program -- i.e. "the IV-D agency." See 42 U.S.C. Section(s) 654(3). The plan must provide, inter alia, that the state will undertake, when necessary, to establish the paternity of children, to locate absent parents, and to collect financial support for children through various means, such as wage withholding, property liens, withholding of unemployment compensation, and interception of tax refunds. See 42 U.S.C. Section(s) 654(4), (5), (6); 664; 666(a)(1), (3), (4), (b)(1), (8).

The Commonwealth of Pennsylvania is a participant in the Child Support Enforcement program and thus receives Title IV-D funding from the federal government. The Pennsylvania Department of Public Welfare ("DPW") is the designated IV-D agency under the Commonwealth's operating plan. However, Pennsylvania's Title IV-D program is administered by the Domestic Relations Section of each county Court of Common Pleas under a cooperative agreement with the Department of Public Welfare.

In 1981, Congress enacted Section(s) 455(a) of the Social Security Act, 42 U.S.C. Section(s) 655(a), which requires states participating in the Child Support Enforcement program to reduce their claims for Title IV-D reimbursement by an amount "equal to the total of any fees collected or other income resulting from services provided under the plan approved under this part." Thereafter, the Secretary of HHS promulgated a regulation implementing this "program income" exclusion of 42 U.S.C. 655(a)(1). See 45 C.F.R. Section(s) 304.50. That regulation provides that:

The IV-D agency must exclude from its quarterly expenditure claims an amount equal to:

(a) All fees which are collected during the quarter under the title IV-D State plan; and

(b) All interest and other income earned during the quarter resulting from services provided under the IV-D State plan. 45 C.F.R. Section(s) 304.50.

In 1990, the Pennsylvania Legislature enacted a law that imposes the aforementioned $5.00 JCP fee on all initial court filings. That fee was enacted in order to provide a dedicated funding source for the computerization of Pennsylvania's courts. In child support cases, the JCP fee is collected by either the Domestic Relations section of the particular court, or the Prothonotary, and these offices hold the fee in trust for the Pennsylvania Supreme Court. The parties here agree that this fee cannot be used for child support purposes and must, instead, be transferred to the Pennsylvania Department of Revenue which makes the money available to the Supreme Court for computerization of the courts. This court computerization program does not, however, include the computerization of the child support system which is funded by other sources.

Upon learning of the JCP fee, the Secretary of HHS announced that she would consider the fee collected on IV-D cases to be "program income" under the Title IV-D program because the fee "resulted from" child support services. Accordingly, in 1993, the Secretary notified the Commonwealth that HHS was disallowing a total of $102,241 in claims that Pennsylvania had made for federal funding under the Child Support Enforcement program. The Secretary's disallowance letters explained that because this extra $5.00 court filing fee is collected "as a direct result of the applicant's request for IV-D services, the fee results from services provided under the IV-D State plan." The letters further explained that, in accordance with 42 U.S.C. Section(s) 655(a)(1) and 45 C.F.R. 304.50, HHS was treating the JCP fees collected in connection with child support and paternity actions as program income that reduces net expenditures for purposes of funding under the Title IV-D program.

The Commonwealth appealed these disallowances to the HHS Appeals Board. The Commonwealth challenged the Secretary's conclusion that the funds in question were "program income" as the funds could only be used for computerization, and furthermore, the computerization did not even include computerization of the court's domestic relations activities. The Commonwealth also challenged the Board's authority to adjudicate the appeal. The Commonwealth argued that the members of the Board were appointed in violation of the Appointments Clause of the United States Constitution, U.S.C.A. Const. Art 2, Section(s) 2, cl.2., and that the appointment was also in violation of civil service regulations thus invalidating any action taken by the Board.

A. Proceedings Before the HHS Appeals Board.

The Secretary of HHS created the HHS Appeals Board in the early 1970's by a regulation promulgated under 45 C.F.R. Part 16. The regulation gave the Board the responsibility of resolving disputes such as the one now before us. Congress thereafter gave the Board additional authority including the ability to resolve quality control disputes under the AFDC program of Title IV-A. See 42 U.S.C. Section(s) 608(j). The Appeals Board is comprised of a Chairperson and four full-time Board members. The Secretary appoints each of the members of the Board.

The Appeals Board rejected the Commonwealth's challenge to its authority, and also rejected the Commonwealth's argument that the JCP fee is not IV-D "program income" under 42 U.S.C. Section(s) 655(a)(1), and 45 C.F.R. Section(s) 304.50. The Board reasoned that 45 C.F.R. Section(s) 304.50 merely restates Title IV-D's requirement that fees collected from services provided under a state's Child Support Enforcement plan are income that must be excluded from any claim for federal funding. The Board concluded that the JCP fees in dispute "were charged as initial filing fees in conjunction with IV-D child support cases" and thus "directly generated by IV-D services." (App. 20a) The Board also noted that the Commonwealth treats other court filing fees received in connection with IV-D services as program income. (App. 181a-182a). Accordingly, the Board upheld the disallowances.

The Board relied in part upon its own precedent to reject the Commonwealth's claim that 45 C.F.R. Section(s) 74.41(c)(1) applies to this case. At the time of the Board's decision, that regulation stated: "[r]evenues raised by a government recipient under its governing powers, such as taxes, special assessments, levies, and fines" are not considered program income. 45 C.F.R. Section(s) 74.41(c)(1) (1993). The parties stipulated that the JCP fees at issue constituted "special assessments", but the Board ruled that the more restrictive income exclusion provision of the statute takes precedence over the general language of the regulation. See 42 U.S.C. Section(s) 655(a)(1). The Board concluded that "the proper focus is on the receipt of income from grant-related activities, not on how the funds are expended." App. at 23a.

Nor did the Board believe that 45 C.F.R. Section(s) 304.21(b)(1) supported the Commonwealth's position. That regulation provides that federal funding is not available for court filing fees unless the court participating in the cooperative agreement with the state IV-D agency ordinarily pays such fees itself. The Board found that the Commonwealth failed to present any evidence that either the Department of Public Welfare or the Domestic Relations Sections pay court filing fees; rather, the Board concluded that the fees are paid by the litigants. After its original ruling, the Board upheld an additional disallowance of $24,861 in federal funding to the Commonwealth on the same grounds.

B. Proceedings Before the District Court

The Commonwealth subsequently filed a complaint in the district court seeking judicial review of the Appeals Board's decision upholding the disallowances. In that complaint, the Commonwealth also sought declaratory and injunctive relief on the ground that the members of the Appeals Board were appointed in violation of both the Appointments Clause of the United States Constitution and civil service laws and regulations. The district court entered summary judgment for the defendants on all counts, and denied a Commonwealth motion for remand to allow the Appeals Board to consider a belatedly discovered HHS policy memorandum. The court held that the agency's construction of the statute at issue is entitled to deference and that the Board's rulings were based on a reasonable construction of that statute. The court refused to find that the Board's composition was improper. This appeal followed.

II. Discussion

A. The Appointments Clause

The Commonwealth first contends that the members of the HHS Appeals Board were appointed in violation of the Appointments Clause of the United States Constitution. ...

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