DATE: September 29, 1993
CASE NOS. 83-CTA-15
85-CPA-15
IN THE MATTER OF
CALIFORNIA INDIAN MANPOWER
CONSORTIUM, INCORPORATED,
PLAINTIFF,
v.
UNITED STATES DEPARTMENT OF LABOR,
RESPONDENT.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
This case arises under the Comprehensive Employment and
Training Act (CETA), 29 U.S.C. §§ 801-999 (Supp. V
1981) and
the regulations at 20 C.F.R. Parts 675-689 (1990). [1] The
case results from the Grant Officer's determination that the
California Indian Manpower Consortium, Incorporated (CIMC),
the administrative agency of the California Indian Manpower
Consortium, the CETA grantee, was liable for the repayment of
disallowed costs fraudulently charged to its CETA grants. [2]
The two cases arose from subsequent audits of the same CETA
grants, and were consolidated prior to the hearing. T. at 4-6,
11-12.
The Administrative Law Judge's (ALJ) Decision and Order
(D. and O.) affirmed the Grant Officer's disallowance of costs
and holding CIMC responsible for the repayment of $28,548. This
amount is the balance of disallowed costs after a partial
restitution by CIMC's subgrantee. D. and O. at 1, n. 2. The ALJ
also determined that only the Secretary had the discretionary
authority to allow disallowed costs pursuant to 29 U.S.C.
§ 816(d)(2). D. and O. at 14. The Grant Officer excepted
to the ALJ's interpretation of Section 816(d)(2), and CIMC
excepted to
[PAGE 2]
the ALJ's finding that it was liable for repayment of the
disallowed costs.
BACKGROUND
CIMC entered into worksite agreements with the Pala Band of
Mission Indians (Pala Band) to place eligible Public Service
Employment (PSE) and Work Experience participants in the Pala
Band's Alfalfa Project. The terms of the agreements and CETA
regulations required PSE and Work Experience participants work in
only non-profit activities. The participants were specifically
prohibited from working for private, for-profit organizations.
During the period from June 13, 1977 to September 30, 1979, three
participants were diverted from working on the Alfalfa Project to
work on lands belonging to a private, commercial agricultural
nursery located on the Pala reservation owned by Lawrence
Blacktooth, who at that time was the Chairman of the Board of
CIMC, as well as the Chairman of the Pala Band.
In mid-September 1979, CIMC learned of the illegal
diversion, and immediately took action to remove the participants
from Blacktooth's nursery and to place them on the eligible
worksite. CIMC notified the Department of Labor of its finding
and its actions. Blacktooth was indicted after investigations by
the Department's Office of the Inspector General (OIG) and the
Federal Bureau of Investigation. Blacktooth subsequently pleaded
guilty to a misdemeanor, and as part of the plea agreement,
signed a stipulation of judgment. The Government collected
$5,325 against that judgment, which the Grant Officer applied to
the total amount disallowed against CIMC.
DISCUSSION
CIMC contends that the Department is precluded from
recouping the disallowed costs from it under the doctrines of res
judicata and collateral estoppel because of the Government's
criminal and civil proceedings against Blacktooth. CIMC contends
that the Government's recoupment effort is restricted to only
such funds which it accepted as restitution from Blacktooth.
CIMC argues that the Government is equitably estopped from
proceeding against it since CIMC staff relied on statements made
by OIG staff to its detriment, not to proceed against Blacktooth
once the Government commenced criminal proceedings against him.
Finally, CIMC urges the Secretary to allow the disallowed costs
pursuant to his authority under CETA Section 816(d)(2) and the
regulations at 20 C.F.R. § 676.88(c).
CIMC's misapprehends the doctrines of res judicata and
collateral estoppel and their application to this case. The
doctrine of res judicata bars subsequent suits between the same
parties on the same cause of action after a final judgment on the
merits. United States v. Mendoza, 464 U.S. 154, 158
(1984); Montana v. United States, 440 U.S. 147,
153 (1979). It does not
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bar a party from pursuing a claim against a third party merely
because the second claim arose from the same factual
circumstances. CIMC erroneously attempts to equate the
Government's criminal and civil proceedings against Blacktooth to
the Department's effort to recover misspent funds from it as a
CETA grantee. Neither the parties nor the causes of action in
either case are the same, therefore a defense of res judicata is
not applicable.
The criminal proceeding and consequent civil recovery action
against Blacktooth pertain to his fraudulent actions converting
the work of the three CETA participants from the Pala Alfalfa
Project to his personal benefit. At no time was CIMC implicated
in any way with Blacktooth's fraudulent activities. The present
case is an action to recover misspent grant funds from CIMC as a
CETA grantee.
CIMC's defense of collateral estoppel likewise fails, for
the issues in the cases are markedly different. The issue in the
proceedings against Blacktooth was his fraudulent actions, in
this case it was CIMC's responsibility to repay misspent CETA
funds which it expended as a result of Blacktooth's fraudulent
activities. The CETA statute, at Section 106(k), 29 U.S.C.
§ 816(k), and the case law favoring such recovery is well
established. Brock v. Pierce County, 476 U.S. 253, 265
(1986); Chicano Education and Manpower Services v. U.S. Dep't
of Labor, 909 F.2d 1320, 1328 (9th Cir. 1990); Birmingham
Area Manpower Consortium v. U.S. Dep't of Labor and Carpenters
District Council, JATC v. U.S. Dep't of Labor, Case Nos.
88-CPA-1, 87-CTA-16, Sec Dec., Oct. 26, 1992, slip op. at 5-6.
CIMC's contention that the Government is equitably estopped
from recouping the misspent funds from it because it relied on
statements by OIG staff when it stopped its recovery actions
against Blacktooth is not persuasive. More than a year elapsed
between the time CIMC knew of Blacktooth's misappropriation
of CETA grant funds until the commencement of the criminal
proceedings. CIMC failed to adequately protect its interest by
seeking restitution from Blacktooth during the intervening time
then, and can not now shift the responsibility for its inaction
to the Department. D. and O. at 13.
Nor is it appropriate to waive recoupment of the misspent
costs pursuant to Section 816(d)(2). Although the ALJ perceived
that only the Secretary had the authority to consider allowing
the misspent costs pursuant to § 816(d)(2), D. and O. at 14,
she nevertheless considered her recommendations to the Secretary
within the context of the implementing regulations. Chicano
Education, 909 F.2d at 1327 (Secretary promulgated 20 C.F.R.
§ 676.88(c) to implement the "special circumstances"
language of Section 106(d)(2)); seeBlackfeet Tribe v.
U.S. Dep't of Labor,
[PAGE 4]
Case No. 85-CPA-45, Sec. Dec., Dec. 2, 1991, slip op. at 5-6.
The ALJ found the testimony of CIMC's witnesses regarding
the inherent difficulties in monitoring projects on the Pala
reservation unpersuasive. She recommended that the Secretary
affirm the Grant Officer's determination that CIMC had an
inadequate monitoring system and did not satisfy the third
requirement of § 676.88(c). [3] D. and O. at 8-10.
The ALJ also found that the underlying fraud which gave rise
to the disallowance does not comply with the first requirement of
§ 676.88(c), see n. 3 above, even though the Grant Officer
did not give that as a reason when he declined to waive repayment
under the regulation. D. and O. at 8. I agree that the facts in
this case do not support allowing the misspent costs pursuant to
the regulations at 20 C.F.R § 676.88(c).
The ALJ erred in concluding that only the Secretary has the
authority to waive recoupment under CETA § 816(d)(2).
Although Section 106(d)(2) authorizes the Secretary to waive
repayment of misspent funds provided the questioned costs pertain
to PSE programs, [4] the regulation at 20 C.F.R. §
676.91(c) explicitly provides: "[t]he Administrative Law Judge
shall have the full authority of the Secretary in ordering
relief, . . . ." The regulation at 20 C.F.R. § 676.88(c),
delegates the authority to allow misspent costs to the Grant
Officer, which further lends weight to the interpretation that
the statute's discretionary authority does not belong exclusively
to the Secretary. I reverse the ALJ's interpretation that
discretionary authority to allow these misspent costs vests
solely with the Secretary, however, such error does not adversely
affect the rights of the parties.
ORDER
The ALJ's decision ordering the California Indian Manpower
Consortium, Incorporated, to repay to the Department of Labor
disallowed costs in the sum of $28,548 IS AFFIRMED. This payment
shall be from non-Federal funds. Milwaukee County, Wisconsin
v. Donovan, 771 F.2d 983, 993 (7th Cir. 1985), cert.
denied, 476 U.S. 1140 (1986).
SO ORDERED
________________________________
Secretary of Labor
Washington, D.C.
[ENDNOTES]
[1] CETA was repealed by the Job Training Partnership Act, 29
U.S.C. §§ 1501-1791 (1988), on October 13, 1982, but
CETA administrative and judicial proceedings pending on that date
were not affected. 29 U.S.C. § 1591(e).
The last year that the CETA regulations were printed in the
Code of Federal Regulations was 1990.
[2] The relationship between the consortium and CIMC is set out
in the Hearing Transcript (T.) at 20-24.
[3] 20 C.F.R. § 676.88(c) entitled [i]nitial and final
determinations; request for hearing at the Federal level"
provides:
(c) Allowability of certain questioned costs.
In any case in which the Grant Officer
determines that there is sufficient evidence that funds
have been misspent, the Grant Officer shall
disallow the costs, except that the costs associated
with ineligible participants and public service
employment programs may be allowed when the
Grant Officer finds:
(1) the activity was not fraudulent
and the violation did not take
place with the knowledge of the
recipient or the subrecipient;
. . .
(3) Eligibility determination
procedures, or other such
management systems and
mechanisms required in these
regulations, were properly followed
and monitored; . . . .
(emphasis added).
It is noted that not all of the disallowed funds were
associated with PSE participants. T. at 12-13. That sum
associated with the wrongfully employed Work Experience
participant would not be eligible for waiver under the
regulation.
[4] CETA Section 106(d)(2) provides:
If the Secretary concludes that a public
service employment program is being conducted
in violation of [enumerated sections of the Act],
or regulations promulgated pursuant to such
sections, the Secretary shall, pursuant to
paragraph (1) of this subsection, . . . order
the repayment of misspent funds . . .
(unless, in view of special circumstances as
demonstrated by the recipient, the Secretary
determines that requiring repayment would not
serve the purpose of attaining compliance with
such sections), . . . .
29 U.S.C. § 816(d)(2) (emphasis added).
