T. H. BELL, SECRETARY OF EDUCATION, PETITIONER V. KENTUCKY DEPARTMENT OF EDUCATION No. 83-1798 In the Supreme Court of the United States October Term, 1984 On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit Reply Memorandum for the Petitioner 1. Despite repeated references to the alleged ambiguity of the statutory and regulatory anti-supplanting provisions, neither respondent nor the amici urging affirmance of the judgment below have responded to the invitation in our opening brief (at 36) to identify the language in the statute or regulations that is ambiguous. Still less have they cited any language that would permit the particular supplanting violation that occurred here -- the use of Title I funds to pay for the basic education services the eligible children would have received in the absence of the federal grant. Respondent and amici instead point to problems in the interpretation of the supplanting prohibition in unrelated contexts. We do not deny that other types of supplanting violations and other factual circumstances might present more difficult issues of statutory and regulatory interpretation. In such circumstances, which may well involve technical or unanticipated violations of Title I, the Secretary obviously would use administrative discretion and common sense in deciding whether to pursue recoupment of the misspent funds (and in exercising his grantback authority (see Pet. Br. 23 n.15)). But respondent's and amici's focus on these distinguishable situations should not be allowed to obscure or justify the clear and substantial violation in this case, which went to the heart of the Title I program. Similarly, while respondent observes that the Education Appeal Board found "'some merit to (respondent's) contention that it had no notice * * * of precisely what was required of it'" (Resp. Br. 26 (emphasis in original)), respondent fails to note that the Board went on to conclude that "there is evidence in the record that (respondent) was more fully aware of its obligation to prevent supplanting * * * than it wishes to admit in retrospect" (Pet. App. 27a). Indeed, had the LEAs given the assurance required by respondent's own project application forms -- that Title I services be supplemental for the participating children -- "and adhered to it, (respondent) would have been protected from an audit of this nature." Ibid. As the Board stated, "were this a closer case, (one might) be inclined to sympathize with (respondent's) predicament." Ibid. Amici National Association of Counties, et al. (NAC), attempt to manufacture support for respondent's claim of ambiguity by stating that Department officials have "found three different -- and inconsistent -- ways to apply anti-supplanting rules to Kentucky's readiness program." NAC Br. 9. This argument is specious. /1/ The auditors, the Board, and the Secretary disagreed in part in determining the amount of state and local funds supplanted by Title I funds, and as a result, the Secretary finally reduced the required refund from $704,237 to $338,034. But there was no disagreement among these officials on whether a supplanting violation had occurred, /2/ and most importantly, there was no disagreement among these officials that the supplanting prohibition applied to the children participating in the Title I program, rather than just to the grade, school, or school district level as alleged by respondent. /3/ Thus, as we explained in our opening brief (at 15-16 n.7, 37-38), this case does not involve either a "technical violation * * * or * * * a new regulation or construction of the (Title I) statute." Bell v. New Jersey, No. 81-2125 (May 31, 1983), slip op. 2 (White, J., concurring). /4/ Nor, as respondent appears to suggest (Resp. Br. 10, 21-22), did the Court in Bell v. New Jersey require the development of a special standard of review for Title I cases. Instead, as with other cases involving judicial review of administrative action, the Administrative Procedure Act, 5 U.S.C. 706(2)(A), provides the correct standard of review. Accordingly, once the court of appeals concluded that the Secretary's interpretation of the anti-supplanting provision was reasonable, it was required under this standard to uphold the agency action. /5/ 2. Respondent and amici nevertheless argue that such deference is inappropriate here, relying on the principle ("contra proferentem") that ambiguous contract terms are to be interpreted against their author. Even if the anti-supplanting provisions had been ambiguous, this argument would be unpersuasive. Although, as the Court noted in Pennhurst State School & Hospital v. Halderman, 451 U.S. 1, 17 (1981), federal grants are "much in the nature of a contract," the analogy is not perfect. /6/ While contracts govern only the relations between the parties to them, legislation and regulations further public policies. A principle that statutory or regulatory ambiguities are to be construed against the government would frustrate those policies and thus would be flatly inconsistent with the principle that legislation is to be interpreted "'in light of the purposes Congress sought to serve.'" Norfolk Redevelopment & Housing Authority v. Chesapeake & Potomac Telephone Co., No. 81-2332 (Nov. 1, 1983), slip op. 5 (quoting Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 608 (1979) ). See also Watt v. Western Nuclear, Inc., No. 81-1686 (June 6, 1983) (noting the inherent ambiguity of the statutory term "mineral," but nevertheless concluding that gravel is a mineral reserved to the United States under the Stock Raising Homestead Act of 1916 in light of the purposes of that Act). Moreover, in contrast to a contract, which normally is drafted to address specific conduct in a norrow context, legislation (and its implementing regulations) must necessarily address a wide range of conduct and cannot anticipate and deal specifically with every situation likely to arise thereunder. As the Court stated in Heckler v. Community Health Services, No. 83-56 (May 21, 1984), slip op. 12, "(t)here is simply no requirement that the Government anticipate every problem that may arise in the administration of a complex (federal grant) program * * *." This does not, of course, mean that grantees must interpret ambiguous legislative or regulatory provisions at their peril. Rather, as we explained in our opening brief (at 30-31), grantees can and should seek an authoritative administrative interpretation of such provisions when they are uncertain how to proceed. /7/ Respondent and amici Texas, et al., baldly assert that such a request would have been futile in this case (Resp. Br. 28-29; Texas Br. 14-15), /8/ but they do not claim that any such request was actually made. Indeed, under respondent's submission, a grantee would rarely have any incentive to seek clarification of a vague grant condition. As participants in the Title I program, respondent and other SEAs have "a duty to familiarize (themselves) with the (governing) legal requirements." Heckler v. Community Health Services, slip op. 12. But they do not operate the Title I program in a vacuum. The Department has actively sought to ensure that SEAs understand Title I legal requirements by promulgating regulations (which the Board found here were "clear, even to the point of repetition" (Pet. App. 25a)), issuing numerous program guides, holding annual conferences with state personnel, and conducting program reviews. There is continuous communication between Title I program officials at various levels, and technical assistance is provided when requested. In fact, as respondent repeatedly points out, Departmental program review teams were in Kentucky during this period, providing respondent with a convenient opportunity to seek clarification of the alleged ambiguities in the statute and regulations. /9/ In addition, the record in this case reflects that in a subsequent year, when respondent finally sought advice from the Department on how to operate this type of program properly, an acceptable funding arrangement was worked out between federal and state officials. /10/ Thus, respondent's own experience belies its remarkable suggestion (Resp. Br. 29) that "this Court could probably take judicial notice of the fact federal education officials are not much help in responding to questions." For the foregoing reasons and the reasons stated in our opening brief, the judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General DECEMBER 1984 /1/ Amici assert (NAC Br. 3) that Kentucky's interpretation of the anti-supplanting provision "held sway in the Department's highest reaches as late as 1977." They cite no official interpretation in support of this assertion; it is certainly not supported by the statute or the Department's regulations. Instead, they refer to program guides issued in 1968 -- before the anti-supplanting provision was incorporated into Title I (see Pet. Br. 34-35) -- finding it significant that the examples given therein did not include the type of supplanting violation involved here. The 1977 date is derived from a report by the National Institute of Education, Administration of Compensatory Education (NIE Report)), which criticized the Department for an internal disagreement about the practicality of and methods for enforcing the anti-supplanting provisions at the level of the individual student (NAC Br. 16-21); the report led to the legislative re-affirmation of the need for the enforcement of precisely those controls. Moreover, the NIE Report indicates that despite whatever misgivings one mid-level Department official (the Associate Commission for Compensatory Education Programs) may have had about the methodology for determining supplanting violations in other contexts, he approved the final determination letter to respondent in this very case (NIE Report 40-41 n.30). Apparently, therefore, there was no internal disagreement about the conclusion that respondent's readiness programs violated the anti-supplanting requirements. Furthermore, any internal disagreement only concerned the methodology for enforcing the anti-supplanting provisions and "the proper role of the Federal Government in implementing educational policy" (NIE Report 35-36); the existence of a disagreement of this nature hardly supports the assertion of respondent and amici that the statutory and regulatory requirements were ambiguous. In any event, respondent could not have relied on any "internal disagreements" reported in 1977 when the challenged expenditures were made in FY 1974. /2/ Thus, the Board's "uneasiness about the manner in which the claim was calculated (did) not extend to the question of whether a supplanting violation occurred." Pet. App. 19a-20a. The Board found "ample evidence in the record to sustain that finding." Ibid. Likewise, the Secretary's action in reducing the refund amount was based on the supplemental benefit provided to readiness students as a result of the reduced pupil-teacher ratio in those classes, and not on any interpretation of the statute and regulations contrary to that expressed by the auditors and the Board. See Pet. App. 38a-42a. /3/ Even the NIE Report relied on by amici NAC agreed with the basic principle, disputed by respondent and amici, that the anti-supplanting requirement applies at the level of the individual child. In describing the Title I anti-supplanting requirement, this report explained (NIE Report 10 (footnote omitted)): Supplement not supplant requirements apply at the child level and to the use of funds. They are intended to insure that Title I funds are added to, and not used to replace, state and local funds. Children in Title I programs must receive the level of state and local funds they would have received if Title I did not exist. The supplanting provisions of the statute and the regulations add significantly to the restrictions on local spending behavior contained in the maintenance of effort and comparability requirements. Maintenance of effort refers to district-level expenditures, while the comparability requirements relate to services provided at the school level. The supplanting provision, in contrast, requires that Title I funds be used to provide supplementary programs for individual, educationally disadvantaged children. /4/ The statute and regulations violated by respondent were in effect several years prior to 1974, and the Secretary's interpretation is based on the clear language of those provisions. As amici Texas, et al., acknowledge (Br. 26), "this is not a substantial compliance case * * *. If Kentucky should have known that its program was violative of the supplanting regulations then that violation was clearly substantial." /5/ The same interpretation can hardly be both not "'unreasonable'" (Pet. App. 8a-9a) and reversible as "arbitrary, capricious, (or) an abuse of discretion" under 5 U.S.C. 706(2)(A). /6/ Indeed, even the court below concluded that the Secretary's interpretation of the allegedly ambiguous term should govern all future expenditures. In this regard, even assuming the validity of a ruling that the same grant terms mean one thing for past expenditures and another for future expenditures, it is difficult to understand why the dividing line should be the date on which the Sixth Circuit placed its judicial imprimatur on the Secretary's concededly reasonable interpretation of the anti-supplanting provisions. The better analogy in this context is with cases like United States v. Michigan, 190 U.S. 379, 401 (1903) (citations omitted), in which the Court construed federal legislation granting property to the state to facilitate the construction of a canal. The Court there stated: "where words are ambiguous, legislative grants must be interpreted most strongly against the grantee and for the Government * * *. Any ambiguity must operate against the grantee and in favor of the public. This rule of construction obtains in grants from the United States to States or corporations in aid of the construction of public works." It also, we submit, obtains in grants from the United States to states or private entities in aid of other federal policies, such as aid to education. See Grove City College v. Bell, No. 82-792 (Nov. 29, 1983), slip op. 13; North Haven Board of Education v. Bell, 456 U.S. 512, 522 n.12 (1982). /7/ As the Board pointed out in its initial decision (Pet. App. 27a), if respondent "had some uncertainty about precisely how far it had to go in an operational sense (to comply with the anti-supplanting requirement) it should have sought further interpretation from the (agency) at the time." /8/ In this and other respects, amici Texas, et al., have larded their brief with strident complaints about the Department of Education's administration of the Title I program in general, and the audit process in particular, based in large part on their highly partisan account of a pending audit dispute (which concerns a different Title I requirement). There is no justification for interjecting these matters into this case; they certainly do not assist in the reasoned consideration of the issues involved here. Accordingly, while we have not responded to these charges, we do not, of course, concede that they are in any respect accurate. /9/ The Board specifically found that "(t)here is no evidence in the record * * * that these teams actually reviewed the fiscal arrangements under which the readiness programs were financed" (Pet. App. 23a). Although respondent does not challenge this finding, amici NAC (Br. 6) suggest the contrary by pointing to a vague comment made by a state official at the oral argument before the Board (Transcript of Oral Argument -- Agency Document 25, at 50). Because this comment was made at oral argument -- not at an evidentiary hearing -- after the evidentiary record was closed, counsel for the Department objected (id. at 51) and the Board properly gave no weight to this remark. The Board decided that "it would be pointless to reopen the record on this point" because there was not even an "allegation of affirmative misconduct" on the part of the program review team or any other federal official. Pet. App. 28a. /10/ Under this funding arrangement, state and local funds paid for 55% of the cost of similar programs while Title I paid for the remaining 45%. Transcript of Oral Argument -- Agency Document 25, at 18-19. This is in stark contrast to the FY 1974 readiness programs at issue, where Title I funds paid for virtually the entire cost of the programs.