                                                United States Court of Appeals
                                                         Fifth Circuit
                                                      F I L E D
               UNITED STATES COURT OF APPEALS
                                                     November 17, 2006
                    for the Fifth Circuit
                                                  Charles R. Fulbruge III
                                                          Clerk

                        No. 05-30927


      STATE OF LOUISIANA, DIVISION OF ADMINISTRATION,

                                        Plaintiff-Appellant,


                           VERSUS


    U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES;
MICHAEL O. LEAVITT, Secretary of the U.S. Department of
              Health and Human Services,

                                       Defendants-Appellees;



       Appeal from the United States District Court
           for the Middle District of Louisiana

                       (3:03-CV-856)

Before GARZA, DeMOSS, and STEWART, Circuit Judges.

PER CURIAM:*

      The State of Louisiana, Division of Administration

(the “State”) appeals a decision of the district court



  *
   Pursuant to 5TH CIR. R. 47.5, the Court has determined
that this opinion should not be published and is not
precedent except under the limited circumstances set
forth in 5TH CIR. R. 47.5.4.
granting      summary   judgment      to    the    U.S.   Department    of

Health and Human Services (“HHS”) on the State’s claims

for declaratory and injunctive relief with respect to two

adverse decisions rendered by HHS. We affirm.

      In early September 2003, HHS determined that from

1997-2000, the State had charged the federal government

for   certain    costs    associated        with    state-administered

federal    programs      that   were       not    allowable   under    the

relevant federal guidelines. HHS also determined that the

State   was    not   entitled    to    reimbursement        for   various

allowable costs that the State had incurred but failed to

bill to the federal government during the years 1989-

1998.1 Pursuant to these determinations, HHS requested an

immediate cash refund from the State of $19.2 million.

The State appealed this decision to HHS’s Departmental

Appeals Board, which affirmed the agency’s decision.

Later, in early November 2003, HHS determined that the

State owed it an additional $8.7 million for similar


  1
   However, HHS allowed the State a $387,044 reimbursement
for allowable costs that the State had incurred but
failed to bill to the federal government during the years
1999-2000.
                                   2
overages, resulting in a total debt of approximately

$27.8 million. The State did not appeal this decision.2

      In late November 2003, the State filed suit against

HHS and its Secretary, seeking (1) a declaration that the

agency’s decisions were arbitrary and capricious, an

abuse of discretion, and contrary to law and (2) an

injunction to prevent HHS from recovering the money owed.

The parties filed cross-motions for summary judgment,

which were referred to a magistrate judge. The magistrate

judge recommended that the court deny the State’s motion

for summary judgment and grant HHS’s motion, reasoning

that HHS’s decisions were not arbitrary and capricious,

an abuse of discretion, or contrary to law under the

relevant standard of review. The district court adopted

the   magistrate’s   report    and     recommendation    without

opinion, granted summary judgment in HHS’s favor, and

entered   final   judgment   against    the   State.   The   State

timely appealed.

  2
   However, the letter containing the decision advised the
State that the decision would constitute a final decision
if the State did not appeal. Accordingly, the decision
was a “final agency action” subject to judicial review
under 5 U.S.C. § 704.
                               3
       On appeal, we review a grant of summary judgment de

novo, applying the same standard as the district court.

City of Shoreacres v. Waterworth, 420 F.3d 440, 445 (5th

Cir.    2005).   Agency      decisions    are    reviewed    under       the

standard set forth in the Administrative Procedures Act;

therefore, we will “hold unlawful and set aside” HHS’s

decisions     only      if    we   determine       that      they     were

“‘arbitrary,     capricious,       an    abuse    of   discretion,       or

otherwise not in accordance with law.’” Id. (quoting

Administrative       Procedures     Act    §    706(2)(A),    5     U.S.C.

§    706(2)(A)   (2000)).      This     so-called      “arbitrary        and

capricious” standard of review is highly deferential, and

it requires us to “accord the agency’s decision[s] a

presumption of regularity.” Pension Benefit Guar. Corp.

v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362, 366 (5th

Cir. 2004) (internal quotation marks omitted). “[W]e are

prohibited from         substituting our judgment for that of

the agency.” Id. (internal quotation marks omitted).

Further, to sustain an agency action, only a rational

connection between the facts found and the decisions made

is   required,    and     “[i]t    is    well-established         that    an

                                    4
agency’s action must be upheld if at all, on the basis

articulated       by    the   agency      itself.”   Id.    at    366-67

(internal quotation marks omitted).

       The State’s primary argument, as we read it, is that

the district court erred in upholding HHS’s decisions

because they were arbitrary and capricious: the decisions

obligated the State to repay its debt immediately in

cash--as opposed to permitting the State to credit the

debt against future billings or adjust future billings to

reflect the debt--and prohibited the State from obtaining

an offset of $28.9 million for allowable costs that the

State    incurred       but   did   not    charge    to    the   federal

government. The State also argues that we should reverse

the district court because the court did not conduct a de

novo    review    of    contested   portions    of    the   magistrate

judge’s report and recommendation and because the court,

by     adopting        the    magistrate     judge’s       report    and

recommendation, improperly accorded great deference and

controlling weight to HHS’s rationale for its decisions.

       Having carefully reviewed the briefs, the record, and

the oral argument, we affirm the decision of the district

                                    5
court essentially for the reasons articulated by HHS.

HHS’s   decisions   were   not       arbitrary   and   capricious.

Further, we cannot agree with the State that the district

court failed to conduct a de novo review,3 and we find no

error with respect to the district court’s deferential

review of HHS’s rationale for its decisions.

AFFIRMED.




  3
   Contrary to the State’s allegations on appeal, the
district court had access to the administrative record.
Also, there is no requirement that the district court
explicitly state that it is reviewing contested portions
of a magistrate judge’s report and recommendation de
novo. See Bannister v. Ullman, 287 F.3d 394, 399 (5th
Cir. 2002).
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