WILLIAM E. BROCK, SECRETARY OF LABOR, PETITIONER V. PIERCE COUNTY No. 85-385 In the Supreme Court of the United States October Term, 1985 On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit Reply Brief for the Petitioner Lost in the variety of convoluted arguments advanced by respondent and the amici curiae supporting respondent is the basic fact that the issue in this case is whether Section 106(c) of the Comprehensive Employment and Training Act (CETA), 29 U.S.C. (Supp. V 1981) 816(b), should be interpreted in a manner that excuses respondent, and all similarly situated CETA grant recipients, from their obligation to repay to the United States grant funds disbursed in violation of the substantive standards governing the CETA program. Cf. Bennett v. Kentucky Department of Education, No. 83-1798 (Mar. 19, 1985), slip op. 5 ("(respondent) gave certain assurances as a condition for receiving the federal funds, and if those assurances were not complied with, the Federal Government is entitled to recover amounts spent contrary to the terms of the grant agreement"). Although respondent and amici pay lip service to the goal of enforcing the CETA program's statutory and regulatory requirements, their obvious interest is in avoiding this obligation to repay misspent grant funds. Indeed, respondent states its position with remarkable candor. Objecting to our conclusion that the remedy for a violation of Section 106(b) should be an order directing the Secretary to act expeditiously, respondent states that "(c)ommon sense suggests no one would invoke such a rule." Br. 8; see also St. Regis Mohawk Tribe Br. 6. And that precisely is our point; grant recipients such as respondent are considerably less interested in the expeditious processing of audit results than in seizing on a procedural error to escape the remedy for their improper expenditures of federal funds. 1. Respondent first suggests (Br. 10-11) that the question presented in this case concerning the meaning of Section 106(b) may be resolved on the basis of the plain language of the statute. But the statute itself is silent regarding the proper remedy in the event the Secretary should fail to act within the 120-day period established by Section 106(b); the statute certainly does not provide that the Secretary is divested or jurisdiction after the 120 days have elapsed. Thus, as respondent itself admits (Br. 11), the Court "could readily find that the statute is not entirely clear, and therefore it is appropriate to review (other materials) * * * to discern congressional intent." /1/ As we discuss in our opening brief (at 12-22), the application of a well-settled principle of statutory construction demonstrates that the time limitation set forth in Section 106(b) does not divest the Secretary of his authority to act in the public interest. This Court consistently has required an express indication of congressional intent before construing a statutory time limit in a manner that restricts the government's authority. Accordingly, a statutory time limit relating to agency action should not be interpreted to restrict the agency's enforcement authority unless it "'both expressly requires an agency or public official to act within a particular time period and specifies a consequence for failure to comply with the provision.'" St. Regis Mohawk Tribe v. Brock, 769 F.2d 37, 41 (2d Cir. 1985), petition for cert. pending, No. 85-949 (emphasis in original; citation omitted). Since Section 106(b) sets forth no such consequence for failure to comply with the 120-day time period, it does not bar subsequent enforcement action by the Secretary. See Pet. Br. 16-17. /2/ Respondent contends that this general rule of statutory construction does not apply here because "the role played by the government is not sovereign, but proprietary" (Br. 27); some of the amici assert that the rule of construction applies only when the government is acting to protect the rights of individual third parties (see St. Regis Mohawk Tribe Br. 7-8; City of Detroit Br. 14). These arguments completely misconceive the nature of the CETA program. CETA was a federal grant program that provided job training funds for unemployed or underemployed persons (see Pet. Br. 2-3); it cannot be classified as a proprietary government activity. /3/ In United States v. Wurts, 303 U.S. 414, 415-416 (1938), this Court utilized the general rule of construction discussed above in interpreting a statutory time limit relating to the government's authority to recover erroneously paid tax refunds. The same rule should be applied in assessing the Secretary's authority to recoup misspent federal grant funds. The fact that this case does not involve the rights of specific third parties similarly does not bar utilization of this general principle of statutory construction. Indeed, it would be most peculiar if the government had greater enforcement authority in vindicating the statutory rights of isolated individauls than in effectuating the right of the public at large to ensure that federal funds are properly spent. Moreover, amici's concession that statutory time limits such as Section 106(b) should not be interpreted to terminate the government's authority to act upon third-party complaints undercuts their construction of Section 106(b). The statutory time limit in Section 106(b) by its terms applies only to complaints filed by third parties and, although the present case involves a government audit and not a third-party complaint, the statutory language provides no basis for distinguishing between complaints and audits. The same rule regarding the Secretary's authority therefore must apply in both situations, and amici's own theory indicates that Section 106(b) should not be interpreted to limit the Secretary's enforcement authority. See also page 8, infra. /4/ 2. We showed in our opening brief (at 22-32) that the legislative history of Section 106(b) eliminates any doubt regarding the proper interpretation of the statute. We agree with respondent that Congress was concerned about delay in enforcing CETA requirements, but this concern was part of Congress's general desire to promote enforcement and eliminate fraud and abuse. The question here is whether respondent is correct that Congress's desire for expeditious administrative action should outweigh its plain intention that misspent funds must be repaid to the United States. In our view, the statute should be interpreted in a manner that gives effect to both of these congressional policies, by permitting interested parties to obtain an order directing the Secretary to act with expedition when he fails to issue a final determination within the 120-day period. /5/ Respondent and amici complain that our interpretation of the statute ignores Congress's desire for prompt administrative action, but our interpretation actually promotes that policy by enabling an interested party to obtain an order directing the Secretary to act more expeditiously. See Milwaukee County v. Donovan, 771 F.2d 983, 985 (7th Cir. 1985), petition for cert. pending, No. 85-1109. The interpretation of the statute pressed by respondent and amici, on the other hand, would sacrifice completely the strong congressional policy favoring the enforcement of CETA standards. Indeed, the only legislative history expressly relating to this issue makes clear that "if the determination is not made in a specified time it shall not affect the Secretary's jurisdiction in the matter." 124 Cong. Rec. 25230-25231 (1978) (remarks of Rep. Hawkins); see also Pet. Br. 25-27. /6/ a. Respondent and several amici (Br. 20-23; St. Regis Mohawk Tribe Br. 7-8; National Association of Counties, et al. Br. 16-17 & n. 18) seek to distinguish between investigations triggered by audits and investigations triggered by complaints, and argue that the former -- but not the latter -- are barred by Section 106(b) if a final determination is not issued within 120 days. However, Section 106(b) refers only to "complaints"; assuming that the provision even applies to investigations triggered by audits (see Pet. Br. 24-25 n. 10), it would be illogical to interpret Section 106(b) to permit further action regarding complaints, which are expressly made subject to the statutory time limitation, and bar further action regarding audits, which are not mentioned in the statute. As respondent acknowledges (Br. 20-22), the legislative history indicates that Congress considered Section 106(b) only with reference to complaints, and Congress therefore could not have intended that the provision would apply with even greater force to investigations initiated pursuant to audits. b. Several amici contend (City of Detroit Br. 6-9, National Association of Counties, et al. Br. 20-23) that our interpretation of Section 106(b) might lead to unfair results. Of course, these arguments provide no basis for overriding Congress's determination that a time limitation restricting the Secretary's enforcement authority was not warranted in this context. Congress knew when it enacted Section 106(b) that 120 days was a short time for the investigation of audit results (Pet. Br. 29-32); if the purpose of the provision were to guard against prejudice, Congress plainly would have enacted a longer time period more closely resembling a conventional statute of limitations. Moreover, the claims of unfairness are overstated. It is most unlikely that any unfairness would result from delay by the grant officer because the event that triggers the grant officer's investigation -- his receipt of the audit -- puts the grant recipient on notice that an investigation is underway. See 20 C.F.R. 676.86(d) (grant officer must "promply transmit" the audit report to the grant recipient). The grant recipient thus is aware that the relevant records must be preserved until the conclusion of the administrative proceedings; if the first phase of the administrative proceeding lasts longer than 120 days, the grant recipient's knowledge of the need to preserve relevant evidence would not be affected. /7/ In addition, as we discuss in our opening brief (at 20-21, 27), a grant recipient concerned about delay in the resolution of the audit can seek an order directing the Secretary to proceed with expedition. /8/ It may be possible that, in a particular case, a grant recipient that had attempted to obtain an expeditious resolution of an audit inquiry could show that it was prejudiced because of delay in the audit resolution process. This remote possibility does not justify interpreting Section 106(b) to bar recoupment of misspent federal funds in the vast majority of cases. /9/ Instead, the administrative law judge or the court of appeals would retain authority in such an especially egregious case to relieve the grant recipient of its obligation to repay misspent grant funds. See Occidental Life Insurance Co. v. EEOC, 432 U.S. 355, 373 (1977); cf. United States v. $8,850, 461 U.S. 555 (1983). 3. Amici National Association of Counties, et al. do not attempt to defend the reasoning of the court of appeals' decision; they instead advance an entirely different rationale, not presented or considered below, for interpreting Section 106(b) to bar the recovery of misspent grant funds (see Br. 9-10). They suggest that Section 106(b) was an element of the contractual relationship between the Secretary and grantees such as respondent and that the provision "must therefore be viewed as a contractual statute of limitations" (Br. 11). As a threshold matter, amici's theory could not possibly apply in the present case because Section 106(b) was not in effect at the time the Secretary and respondent entered into and performed the grants at issue here. Since amici's entire theory rests on their view that "grants are like contracts, which fix rights and liabilities at the time that the contract is made" (Br. 12), respondent obviously cannot obtain any "contractual" benefit from Section 106(b). More importantly, this Court's decisions make clear that amici's contract theory is incorrect. In Bennett v. New Jersey, No. 83-2064 (Mar. 19, 1985), the Court did refer to the similarity between grants and contracts (slip op. 6) in concluding that "changes in substantive requirements for federal grantees should not be presumed to operate retroactively." Id. at 5 (emphasis added); see Pennhurst State School & Hospital v. Halderman, 451 U.S. 1, 17 (1981). The Court has cautioned, however, that "(a grant) program cannot be viewed in the same manner as a bilateral contract governing a discrete transaction. * * * Unlike normal contractual undertakings, federal grant programs originate in and remain governed by statutory provisions expressing the judgment of Congress concerning desirable public policy." Bennett v. Kentucky Department of Education, No. 83-1798 (Mar. 19, 1985), slip op. 11-12. Amici make a creative attempt to avoid the Court's square rejection in Kentucky Department of Education of the contract theory for which they contend. They take the view (Br. 12-13) that the contract theory is settled law and that this Court's recent rejection of that theory is simply a precedent to be distinguished. In fact, of course, there is no such settled contract doctrine; the Court twice simply has mentioned a contract analogy in passing while applying more traditional principles of statutory interpretation. See Bennett v. New Jersey, slip op. 5-12; Pennhurst State School & Hospital v. Halderman, 451 U.S. at 18-26. Kentucky Department of Education therefore forecloses amici's contract argument. /10/ Moreover, there are independent reasons why amici's contract theory is inapplicable here. The Court has mentioned a contract analogy in construing substantive standards applicable to federal grant recipients, but here the question is the proper interpretation of a procedural requirement governing the enforcement of grant conditions. While it might be inequitable to measure a grant recipient's conduct against new substantive standards, the same considerations do not weigh against the application of a procedural rule governing the Secretary's evaluation of audit results. Thus, all parties in the present case agree that Section 106(b) applies to grants performed before the statute's effective date. The Court in Bell v. New Jersey, 461 U.S. 773 (1983), specifically distinguished the imposition of "a new obligation for participating States" from "the remedies available against a noncomplying state" (461 U.S. at 790 n.17), and interpreted the procedural statute at issue in that case by applying traditional rules of statutory construction (id. at 782-790). The same result is appropriate here. Finally, the most basic flaw in amici's contract theory is that amici simply assume (Br. 16) that Section 106(b) should be interpreted as a contractual limitations provision that bars subsequent enforcement action by the Secretary. But analogizing Section 106(b) to a contract provision offers no help in answering the basic question of interpretation that is at issue in this case -- the proper remedy for a violation of the time limitation set forth in Section 106(b). Even a "contractual" interpretation of Section 106(b) must take into account the principles of statutory construction and expressions of congressional intent upon which we rely. Amici's contract theory therefore does nothing to alter the appropriate analysis; the relevant factors still conclusively demonstrate that Section 106(b) should not be interpreted to limit the Secretary's authority to recover misspent federal funds. For the foregoing reasons and the reasons stated in our opening brief, the judgment of the court of appeals should be reversed. Respectfully submitted. CHARLES FRIED Soliciter General GEORGE R. SALEM Deputy Solicitor of Labor MARCH 1986 /1/ Respondent also contends (Br. 11-19) that regulations implemented under the CETA program and explanatory materials issued by the Secretary show that the Secretary has interpreted the statute to bar the recovery of misspent grant funds when the Secretary fails to issue a final determination within 120 days. But the regulations and other materials simply reiterate the statutory requirement; they do not indicate that the effect of a violation of Section 106(b) is to eliminate the Secretary's enforcement authority. Milwaukee County v. Donovan, 771 F.2d 983, 989-990 n.5 (7th Cir. 1985), petition for cert. pending, No. 85-1109. Indeed, the only administrative interpretation of Section 106(b) addressing the question presented here is the Secretary's determination in this and similar cases that Section 106(b) does not divest the Secretary of enforcement authority when a final determination is not issued within 120 days. /2/ Respondent argues (Br. 29) that the decisions that establish this general principle of statutory interpretation are inapposite because they concern the applicability to the government of general statutory time limits. At bottom, however, the issue in those cases is the same as the issue here -- whether a statutory time limit should be interpreted to restrict the government's authority to act in the public interest. The same principle of statutory interpretation therefore should apply. Respondent also suggests (Br. 29-30) that this general rule is irrelevant because the Secretary's failure to comply with the 120-day period was not the result of negligence. It is not immediately apparent, and respondent does not explain, why a finding of negligence in the tort law sense should be a prerequisite for the application of this rule of statutory construction. Any failure by a government official to comply with a statutory time limitation should be sufficient to invoke this rule because such a failure always has the effect of thwarting the public interest that would be served by the challenged government action. And there is no support in the record for respondent's intimation that the Secretary's delay in this case was a result of bad faith; it seems quite clear that the Secretary could not comply with the 120-day time limit because of the tremendous backlog of CETA enforcement actions (see Pet. Br. 31-32). Finally, amicus City of Detroit argues (Br. 10) that the requisite indication of congressional intent is supplied by the statutory requirement that a final determination should be issued "not later than" 120 days after receipt of the relevant information by the grant officer. But this portion of the statute simply establishes the time limitation; it cannot constitute the additional indication of congressional intent required to preclude untimely government action. Otherwise, any statutory time limitation automatically would be deemed to bar such government action. /3/ The Court has rejected this government/proprietary distinction in other contexts. See Garcia v. San Antonio Metropolitan Transit Authority, No. 82-1913 (Feb. 19, 1985), slip op. 10-14; FCIC v. Merrill, 332 U.S. 380, 383-384 (1947). /4/ Respondent contends (Br. 25-26) that even if Section 106(b) does not establish a jurisdictional time limitation, it constitutes a statute of limitations barring subsequent enforcement action by the Secretary. However, the general principle of statutory construction upon which we rely also precludes the interpretation of Section 106(b) in this manner because the result would be the same -- the limitation of the government's authority to act in the public interest. Zipes v. Trans World Airlines, Inc., 455 U.S. 385 (1982), which is cited by respondent, is not to the contrary. That case concerned a limitations period applicable to private parties, and the rule of statutory construction relating to the maintenance of the government's enforcement authority accordingly did not apply in that case. In addition, if Section 106(b) were interpreted as a statute of limitations rather than a jurisdictional requirement, it would have the effect of immunizing CETA grant recipients from financial liability, because the statute would bar an enforcement action in all circumstances in which equitable tolling factors were not present. Respondent's suggestion (Br. 26) that this Court could "adopt a 'sliding scale' of applications" of Section 106(b) depending on the facts of the particular claim is completely unprecedented. The tolling rules and other equitable defenses that apply with respect to statutes of limitations generally do not include a component that varies the limitations period based on the character of the underlying claim. /5/ Amici National Association of Counties, et al. suggest (Br. 15-16, 25-29) that interpreting Section 106(b) to bar actions to recover misspent grant funds will not preclude the Secretary from enforcing the CETA's substative requirements. First, amici's assertion (Br. 15-16) that a grant officer could juggle the date of the receipt of an audit in order to delay the start of the 120-day period demonstrates only that grant recipients are concerned less with delay than with obtaining an interpretation of Section 106(b) that will limit their liablity. In lieu of the approach suggested by amici, it would be more straightforward to interpret the statute to permit enforcement actions where the issuance of the final determination has been delayed. Second, amici's assertion that the Secretary will be free to pursue cases involving actual fraudulent conduct appears to be an inaccurate statement of the relevant legal principle; the statute of limitations would be tolled only in the reletively few cases in which the grant recipient fraudulently concealed from the Secretary its misuse of federal funds. Finally, amici's suggestion that the Secretary would be required to depend upon the willingness of the grant recipient -- the target of the investigation -- to extend the 120-day deadline shows how severely enforcement efforts would be hampered under this interpretation of Section 106(b). Indeed, respondent points out that other enforcement methods exist (Br. 24), but acknowledges that its construction of Section 106(b) would bar enforcement action in "routine" cases. /6/ Respondent cites (Br. 22 n.10) a passage of the conference report stating that another provision of Section 106 "shall not operate as a statute of limitations," and contends that the absence of a similar statement with reference to Section 106(b) indicates that the latter provision was intended by Congress to operate as a statute of limitations. There is, however, no support for respondent's negative inference; other time limitations -- such as the 60-day period for the resolution of grievances by a grant recipient -- similarly are not accompanied by such legislative history, but it is most unlikely that Congress intended to permit a grant recipient to terminate a complaint by delaying the resolution of the matter. The conference committee probably decided that the authoritative colloquy on the House floor regarding Section 106(b) provided a sufficient guide to legislative intent, especially in view of the fact that the conferees simply adopted the House version of Section 106(b). See Pet. Br. 25-27. Respondent's position regarding the remedy for a violation of Section 106(b) is most surprising in view of the absence of any transition provision in the 1978 CETA Amendments, which included Section 106(b). Congress was well aware that at the time Section 106(b) was enacted the Secretary was not processing audits in an expeditious manner (Pet. Br. 31). Interpreting the statute in the fashion advocated by respondent would impute to Congress the intent to require all of these pending investigations to be completed within 120 days of the effective date of Section 106(b). /7/ Moreover, certain specific record retention requirements were imposed upon CETA grant recipients. See 20 C.F.R. 676.35; 41 C.F.R. 29-70.203-3(b) (1984). /8/ Amici National Association of Counties, et al. suggest (Br. 21-22) that delay might preclude a grant recipient from recovering misspent funds from its subgrantees. As we have discussed, a grantee in this situation would be able to seek an order directing the Secretary to act expeditiously. Moreover, it is not clear that the grantee's contract claim against a subgrantee would accrue before the grantee itself was required to repay the misspent funds. If the claim did not accrue, the grantee could not possibly be prejudiced by delay. Even if such a claim did accrue, the grantee could protect itself by commencing an action against the subgrantee prior to the conclusion of the administrative action /9/ It bears repeating that in each of the cases pending before this Court, the administrative law judge rejected respondent's claim of prejudice. See Pet. Br. 5-6. /10/ Amici assert (Br. 13) that rules of contract interpretation apply in construing Section 106(b) because the provision is "a clear procedural rule," grantees were not at fault in failing to obtain a clarification of Section 106(b), and public policy does not support an exception to their theory of contract interpretation. In fact, this case demonstrates that the remedy for a violation of Section 106(b) is not clear from the face of the statute, and a grant recipient could have sought clarification of the Secretary's view of the effect of Section 106(b) upon his enforcement authority. Finally, the public policy favoring the preservation of enforcement authority in general, and of authority to recoup misspent federal funds in particular, weighs heavily against the interpretation of Section 106(b) advocated by amici.