Unpublished Dispositioncincinnati Eta, Ohio; Cincinnati Zoo, Petitioners, v. Nancy Coomer; Secretary of Labor; United States Departmentof Labor, Respondents, 770 F.2d 165 (6th Cir. 1985)

This is an appeal from a final decision of the Secretary of Labor disallowing costs of $111,659.69 incurred by the City of Cincinnati as prime sponsor of employment programs under the Comprehensive Employment and Training Act (CETA), 29 U.S.C.A. Sec. 801, et seq. (1975).¹ 

In 1978, respondent Coomer filed a complaint with the Employment and Training Administration (ETA), alleging, inter alia, that ineligible participants were being employed in certain of Cincinnati's CETA programs. Following an investigation, the City's Grant Officer determined that 11 program participants were ineligible,²  and issued a Notice of Initial Determination and Opportunity for Informal Resolution on March 26, 1981, disallowing all costs associated with the ineligible participants.

The City objected to the Grant Officer's initial determination, solely on the basis that liability for payments to ineligible participants had been shifted to OBES pursuant to 29 C.F.R. Sec. 99.43(c),³  by virtue of a Cost Reimbursement Contract between the City and the Ohio Bureau of Employment Services (OBES), executed January 9, 1978, and covering the period from October 1, 1977, through September 30, 1978, inclusive. Section One of the contract specified that OBES would perform the services described in the attached Statement of Work. Part A of the Statement of Work, headed 'PROGRAM GOALS,' stated that OBES 'will provide intake, selection and referral, monitoring and evaluation . . . for CETA . . . eligible applicants to PSE jobs developed by the City of Cincinnati.' Part B, headed 'ELIGIBILITY CRITERIA,' delineated the eligibility requirements for applicants to Title II & VI jobs. See note 3 supra. Part C, headed 'TYPES OF SERVICES AND ACTIVITIES,' provided, in pertinent part:

1. OBES/UI will be responsible for identifying claimants who have been receiving unemployment compensation for (15) weeks of the last 20 weeks for determining their interest in PSE jobs and screening for the lower living standard income level criteria.

2. ES will ascertain from the eligible applicant interest [sic] in the CETA VI PSE Program whether he/she is registered. If the applicant is registered, the ES Office will forward an up-dated ES-511 to the 'Central Intake Unit'. If the applicant is not registered, the ES Office will call the applicant into the office to complete an ES-511.

3. The WIN Program will be responsible for referring eligible, interested WIN recipients to the 'Central Intake Unit'. Along with each referral, the WIN Office will send an ES-511.

4. CETA subgrantees and the City of Cincinnati will send their interested referrals to the Parkway ES Office or to the Cincinnati Claims North Office for eligibility determination.

5. ES will primarily be responsible for determining eligibility of recently separated veterans interested in CETA VI PSE jobs.

6. All local offices and ES are to post a notice to inform all individuals of the availability of CETA VI PSE opportunities. Local office will be responsible for eligibility determinations of 'walk-ins'. . . .

On April 21, 1981, the Grant Officer issued his final determination, disallowing all costs associated with the ineligible participants. He focused on p C.1. of the Statement of Work, concluding:

By stating that OBES/UI will identify claimants who have been receiving unemployment compensation for 15 of the last 20 weeks, it would seem that an agreement for verification of the receipt of unemployment compensation for the requisite period may have existed . . .. This would constitute verification of the eligibility criteria in 99.42(a) (1) (i) in part.

Four individuals were found ineligible, based in whole or in part on the lack of the qualifying period of unemployment . . .. None of the four were shown as unemployment compensation recipients or exhaustees; but the OBES agreement did not provide for verification of the length of unemployment, where persons were not unemployment compensation recipients.

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Thus, it is agreed that the Prime Sponsor would not be liable for costs resulting from reliance on OBES verification of the eligibility requirements pertinent to employment compensation status, cited in 99.42(a) (1) (i), if the arrangements [sic] incorporated in its agreement with OBES for such verification were described and approved in its Title VI grant.

The Grant Officer made no explicit finding as to whether the contract was described in the City's Title VI grant, presumably because even if it was, the City did not demonstrate that it had relied on an erroneous OBES verification with respect to the four individuals ineligible on the period of employment criteria.

The City requested a hearing before an ALJ to contest the Grant Officer's final determination. In its prehearing statement, the City stated that the sufficiency of its contract with OBES was a legal issue, which could be decided by the ALJ on the existing record and supplemental briefs. In its brief, filed October 29, 1981, the City reasserted its position that its contract with OBES was sufficient to protect it from liability under 29 C.F.R. Sec. 99.43(c). It argued that the Grant Officer erred in focusing solely on p C.1. of the Statement of Work to the exclusion of paragraphs C.4.-C.6. It also argued that ' [a]dmittedly, the Appellant may have omitted setting forth such an arrangement in its Title VI Grant,' but that the existence of the agreement complied with 'the spirit, if not the letter of the law,' and that to impose liability on the City 'because of a technicality . . . is patently unfair and flies in the face of the spirit of the regulatory section in question.'

The Grant Officer's Brief to the ALJ, filed June 30, 1983, reiterated his interpretation of the contract, based upon p C.1., concluding that since the agreement in question did not specifically indicate that OBES was to determine the residence, income level and length of unemployment of applicants, it 'does not qualify under Section 99.43(c) (1) or (2) and, therefore, is not sufficient to protect the prime sponsor from liability as contemplated by section 99.43(c) (3).' The Grant Officer contended in the alternative that the agreement failed to meet the requirements of Sec. 99.43(c) (3) because it had not been 'described and approved in the Title VI Grant' (emphasis in original).

The ALJ upheld the determination of the Grant Officer, concluding that, although the City-OBES contract was broad enough to cover most or all potential participants, it did not require that OBES determine all necessary elements of eligibility, as prescribed by 29 C.F.R. Sec. 99.42(a) (1), nor was it described in the City's approved grant, as required by Sec. 99.43(c) (3). The ALJ reasoned that the contract was designed to limit the responsibility of OBES in such a way that, if both the City and OBES succeeded in their intentions, neither could be held responsible for the erroneous determinations at issue.

The City petitioned the Secretary for reversal of the ALJ's decision, contending that 'review of additional documentation . . . and the contract establishes a contractual relationship which satisfies 29 C.F.R. Section 99.43.' The City also objected to the amount of the ALJ's repayment order, contending, pursuant to 29 C.F.R. Sec. 99.43(b), that it should not be liable for certain wages paid ineligible participants. The Secretary did not respond to the City's petition, and, by virtue of 20 C.F.R. Sec. 676.91(f), the ALJ's decision became the final decision of the Secretary, from which the City appeals. The City contends on appeal that the Secretary erred in concluding that its contract with OBES did not satisfy the requirements of Sec. 99.43(c); and that, even if the contract was technically insufficient to satisfy the requirements of the regulation, the case should be remanded to the ALJ to consider the equities of requiring the City to pay all disallowed expenses, and for recomputation of the amount disallowed in light of Sec. 99.43(b).

The interpretation of a written document such as a contract is a question of law to be determined by the courts. While courts may approve and adopt an agency's contruction of such a document, they are not bound to do so. Danks v. Fields, 696 F.2d 572, 575 (8th Cir. 1982); Federal-Mogul Corp. v. N.L.R.B., 566 F.2d 1245, 1256 (5th Cir. 1978) (citing cases).⁴  Greater deference may be due administrative agencies 'even on matters of law like the meaning of contracts, . . . where the understanding of the documents involved is enhanced by technical knowledge of industry conditions and practices,' Columbia Gas Transmission Corp. v. F.P.C., 530 F.2d 1056, 1059 (D.C. Cir. 1976), or 'where underlying issues of fact or policy are involved.' North Atlantic Westbound Freight Association v. Federal Maritime Commission, 397 F.2d 683, 685 (D.C. Cir. 1968); see also Western Transportation Co. v. Wilson & Co., 682 F.2d 1227, 1230-31 (7th Cir. 1982). In the instant case, however, the Secretary's decision, although concerned with furthering the policy of insuring that CETA funds are recoverable if not expended in accordance with the requirements of the Act, was based purely on its construction of the language of the City-OBES contract, not on the exercise of judgment regarding policy or technical knowledge within the agency's area of expertise. See Danks, supra.

By far the most natural and reasonable interpretation of the involved agreement is that it provides that OBES assumes full responsibility for verifying all Title II & VI eligibility criteria, as specified in Part B of the Statement of Work. The Secretary's reliance on p C.1., as specifically limiting the eligibility determination obligation assumed by OBES, is a strained and artificial reading of the contract. That paragraph makes no reference to eligibility determination. It refers to the identification of 'claimants who have been receiving unemployment compensation for fifteen (15) weeks of the last 20 weeks for determining their interest in PSE jobs' (emphasis added). As such, it pertains to identification and referral of persons interested in CETA VI PSE jobs, not verification of eligibility.⁵  Paragraphs 4, 5 and 6 refer explicitly to determination of eligibility, without qualification. The logical reading of these paragraphs is that determination of eligibility by OBES was to be guided by the eligibility criteria fully set forth in Part B.

The Secretary also found, however, that the agreement in question was not legally effective to shift liability because it was not 'described in an approved grant,' as provided in subsection (c) (3). The ALJ stated that the latter point 'appears to be conceded' by the City. There is no indication from the record that the ALJ's conclusion was based upon an examination of the grant in question, or that the grant document was ever part of the administrative record.⁶  Nor is the City's Title VI grant contained in the record before us.

Eligible applicants for Title VI grants must include in their grant applications a Comprehensive Title VI Plan. 29 C.F.R. Sec. 99.12(c). This Plan must in turn include a Narrative Description of the Title VI Program. 29 C.F.R. Sec. 99.14(a). The Narrative Description must ' [d]escribe . . . the method which will be used to verify [low-income AFDC recipients and long-term unemployed] persons' eligibility for the program.' 29 C.F.R. Sec. 99.14(b) (3) (v). However, Sec. 99.43(c) does not require that a verification agreement be 'described in an approved grant,' prior to initial approval of the grant, to be effective. By reference, Title VI grant modification procedures follow those set forth in 29 C.F.R. Sec. 95.21. 29 C.F.R. Sec. 99.21. That regulation requires prior regional office approval of significant changes in the systems and procedures set forth in the narrative description of the plan. 29 C.F.R. Sec. 95.21(a) (2) (ii). Thus, approved modifications become part of the approved grant.

The City asserts in its brief to this Court that ' [t]he involved grant, Grant No. 39-5066-60, states on the first page ' [A] contract is now being written with the local SESA for immediate implementation of this program.' Narrative Title VI, p. 1.' It then contends that correspondence between the City and ETA Associate Regional Administrator Lewis F. Nicolini, proffered by the City for the first time with its petition to the Secretary to reverse the decision of the ALJ, demonstrates that its contract once executed was approved as a modification to its grant. This correspondence consists of two letters. The first, dated December 9, 1977, is designated as 'Appendix J,' and acknowledges receipt of proposed Modification #14. It states that ' [p]rior to execution of this modification, additional information or clarification is needed.' There follow references to specific modifications under headings denoting specific parts of the grant. Under the heading, 'Narrative', the letter states: 'See detailed comments on your OJT proposal in Attachment I.' It is clear from Attachment I that this proposal is or includes the contract at issue. The Secretary assumes as much in arguing that this correspondence supports the ALJ's opinion, emphasizing the recommendation in the attached comments that 'the contract should spell out OBES responsibility for certifying eligibility,' and the statement, 'I cannot reiterate too strongly the need to redraft this contract to clearly specify the statement of work . . ..'

However, the second letter, dated March 3, 1978, and designated as 'Attachment K,' states: 'Enclosed is an executed copy of Modification No. 14 to your Title VI Grant No. 39-5066-60.' It then refers to the various changes made in the proposed modification prior to execution, including the statement: 'Your commitment (on page 2 of the narrative) to implement new internal controls to prevent unauthorized, inaccurate or incomplete enrollment counts in the program is most welcome.'

The Secretary contends that these letters were never presented to the ALJ and hence are not properly before and should not be considered by this Court. See 20 C.F.R. Sec. 676.90(f); Commonwealth of Massachusetts v. United States Department of Labor, 683 F.2d 568, 570 (1st Cir. 1982). In the 'hearing' before the ALJ,⁷  the Secretary, as 'proponent' of the Grant Officer's Final Determination, bore the burden of presenting a prima facie case in support of that 'order.' 5 U.S.C. § 556(d); State of Maine v. United States Department of Labor, 669 F.2d 827, 829-30 & n.5 (1st Cir. 1982). The Grant Officer made no specific finding in his Final Determination that the arrangement with OBES was not described in the City's approved grant, nor is there any indication that the ALJ did anything more than rely on the equivocal 'concession' in the City's prehearing brief in making this finding. See note 6 supra and accompanying text. This is not sufficient to satisfy the Secretary's burden of production. Whether or not the grant as approved and modifications thereto were ever actually included in the administrative record, they are so fundamental to the question of whether the arrangement at issue was described in the City's approved grant, that this question cannot be answered without them.⁸ 

This Court, 'for good cause shown, may remand the case to the Secretary to take further evidence, and the Secretary may thereupon make new or modified findings of fact and may modify his previous action, and shall certify to the court the record of the further proceedings.' 29 U.S.C.A. Sec. 819(b) (emphasis added); see Quechan Indian Tribe v. United States Department of Labor, 723 F.2d 733, 736 (9th Cir. 1984). In light of the discussion above, this case must be remanded to the Secretary on the question of whether the City-OBES agreement, as interpreted by this Court, was described in the City's approved grant. On remand, the Secretary is directed to consider the approved grant, the correspondence discussed above relating to Modification No. 14, and any other evidence that the Secretary considers pertinent. See Bethlehem Steel Corp. v. EPA, 638 F.2d 994, 1000 (7th Cir. 1980) ('It is clear that this court has the legal authority and power to order the supplementation of the record where 'anything material to any party is omitted from the record,' Fed.R.App.Pro. 16(b), or where the supplementation is necessary for effective judicial review of the agency's actions.' (citing cases)). Since this question, if answered in the affirmative, would most likely resolve this litigation,⁹  and since the record of the proceedings must otherwise be certified to this Court, it is unnecessary at this time to address the remainder of appellants' contentions.

The Secretary's finding that the City is liable for disallowed costs associated with the single employee who was paid but for whom there was no evidence that he had performed any work, see note 2 supra, is affirmed.

Although the City may fairly be characterized as the 'prevailing party' on this appeal, its failure to provide this Court with an adequate record for the purposes of review, apart from its confused presentation of its case to the Secretary, has needlessly complicated and prolonged this case. Therefore, costs on appeal will be assessed against appellants. See Wilkerson v. Johnson, 699 F.2d 325, 330 (6th Cir. 1983).

It is so ordered.