ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 94-01689) District Judge: The Honorable William L. Standish
Before: ALITO and McKEE, Circuit Judges, and GREEN Senior District Judge *fn*
Argued September 30, 1996
Opinion Filed: December 4, 1996
This case arises out of a debt of $800,885 that the Pennsylvania Department of Public Welfare ("Pennsylvania") owed the United States Department of Health and Human Services ("HHS"). HHS notified Pennsylvania of the debt in June 1991. (App. 235a-239a) Pennsylvania initially balked at having to pay, but eventually, in June 1993, paid the entire principal amount. (App. 16a) The dispute that remains is over the interest on the debt. HHS charged Pennsylvania interest at the private consumer rate of 15.125%, which was significantly higher than the rate usually charged by federal agencies to states, the current value of funds rate of 8%. *fn1 Pennsylvania refused to pay the allegedly exorbitant interest and brought this action, claiming primarily: (a) that HHS's use of the private consumer rate was not only arbitrary and capricious but inconsistent with the common law and (b) that HHS did not follow the proper procedures in enacting its interest rate regulation. The district court found Pennsylvania's substantive claims to be without merit and its procedural challenges to be time-barred. We affirm.
Until January 1987, HHS had a policy of not charging states interest on disallowances under the Aid to Families with Dependent Children program ("AFDC"). (Dist. Ct. Op. at 2) On January 5, 1987, however, HHS repealed the existing regulation and put in place a new policy under which all of its debtors, including states and local governments, were to be charged a rate of interest based on the prevailing private consumer rates. (App. 202a & Dist. Ct. Op. at 2) HHS's action was in response to congressional enactment of the Debt Collection Act of 1982 ("DCA"), which aimed at increasing the efficiency of government efforts to collect debts owed to the United States. See S. Rep. No. 378, 97th Cong. 378, 2d Sess. (1982), reprinted in 1982 U.S.C.C.A.N. 3377. Although the DCA expressly excluded states and local governments from its ambit, *fn2 see 31 U.S.C. Section(s) 3701 (1983), it did not limit HHS's ability to assess interest under the common law, see United States v. Texas, 507 U.S. 529, 530 (1993). Accordingly, with certain exceptions not at issue here, HHS's regulations called for the imposition of interest on debts owed by states and local agencies in the same way as it was imposed on other debtors. (App. 202a) See 52 Fed. Reg. 261 (1987) (codified at 45 C.F.R. Section(s) 30.13).
Under the HHS regulations at issue, interest on debts owed to HHS accrues from the date notice of the debt is mailed to the debtor, unless the debt is paid within 30 days of the notice. See 45 C.F.R. 30.13(a). The regulations provide that the rate to be charged shall be the "rate of interest as fixed by the Secretary of the Treasury after taking into consideration private consumer rates of interest." *fn3 Id. The regulations do not provide for administrative review of the imposition of interest, but allow the Secretary to waive the interest if: (i) the debt or interest "resulted from the agency's error, action or inaction . . . and [is] without fault on the part of the debtors" or (ii) collection "would defeat the overall objectives of a Departmental program." 45 C.F.R. Section(s) 30.13(h).
At issue is interest on a sum of $800,885 that was owed by Pennsylvania to HHS. HHS gave Pennsylvania notice of the debt in June 1991. (App. 235a-239a) Pennsylvania, however, chose not to reimburse the federal government within 30 days, which would have enabled it to avoid any and all interest payments. (App. 10a) By the time Pennsylvania paid the principal amount in July 1993, $232,173.22 in interest charges had accumulated, and interest was continuing to accrue at 15.125% per annum. (App. 14a & Dist. Ct. Op. at 2).
Pennsylvania sought administrative review of the interest assessment, but HHS's Departmental Appeals Board informed it that it lacked jurisdiction to review the interest assessment. (App. 18a-21a) The Board noted, however, that the form of administrative review available to Pennsylvania was a request to the Secretary for a waiver of interest, but Pennsylvania had not sought such a waiver. (App. 21a).
Pennsylvania commenced this action in October 1994, alleging that HHS's imposition of interest on it was arbitrary and violative of the common law. (App. 9a-13a) Pennsylvania also attacked the procedures by which HHS promulgated its interest rate regulations as inadequate. (App. 9a-13a) In February 1995, HHS responded with a motion for partial dismissal and summary judgment, arguing that Pennsylvania's substantive challenges were meritless and that its procedural challenges were time-barred. The district court granted the motion, adopting as its own opinion the Report and Recommendation of Chief Magistrate Judge Mitchell. Pennsylvania appeals.
A. Challenges to the Application of the Regulation
Pennsylvania makes three attacks on HHS's application of the interest rate regulation. It argues: (i) that charging it interest without making an individualized determination as to the appropriateness of the charge was violative of the common law; (ii) that charging it the private consumer rate as opposed to the current value of funds rate was arbitrary and violative of government-wide policies; and (iii) that the use of a rate certified by the Treasury for a ...