                       UNITED STATES DISTRICT COURT
                       FOR THE DISTRICT OF COLUMBIA
__________________________________
                                   )
ELDER CARE SERVICES, INC.,         )
                                   )
            Plaintiff,             )
                                   )
      v.                           )    Civil Action No. 17-1634 (RMC)
                                   )
CORPORATION FOR NATIONAL           )
AND COMMUNITY SERVICE,             )
                                   )
            Defendant.             )
_________________________________  )

                                MEMORANDUM OPINION

              The Corporation for National and Community Service (CNCS) alleges regulatory

noncompliance by its grantee Elder Care Services, Inc. with CNCS regulations requiring timely

background checks for all Elder Care volunteers and employees. CNCS has levied a $400,000

cost disallowance, which Elder Care considers a fine. Elder Care argues that its noncompliance

should not result in the cost disallowance imposed, because CNCS acted arbitrarily and

capriciously in imposing the disallowance and because various issues should excuse the

noncompliance.

                                   I.      BACKGROUND

              Plaintiff Elder Care is a non-profit organization providing support services to the

elderly in the Tallahassee, Florida area. Defendant CNCS is a federal government agency that

promotes volunteering, service, and civic engagement. Elder Care receives a significant amount

of grant money from CNCS to fund its work in the community. At issue in this case are three

grants awarded in 2012 (total value $2,859,646): one grant awarded on or about March 5, 2012

for a three-year performance period beginning April 1, 2012, and two grants awarded on or about




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December 13, 2012 for a three-year performance period beginning January 1, 2013. Compl.

[Dkt. 1] ¶¶ 4-5.

               On October 5, 2012, after the award of the first grant but before the award of the

second and third, CNCS adopted a regulation modifying, as relevant, the requirements for

background checks of grantee staff members and volunteers working with seniors. Id. ¶ 3; see

also 77 Fed. Reg. 60922 (codified at 45 C.F.R. § 2540.200 et seq.). The 2012 regulation

established new procedures regarding criminal history and sex-offender registry status checks; it

became effective on January 1, 2013. Compl. ¶ 7. Grantee Elder Care, and most of the grantee

population, had questions about the new procedures and CNCS periodically distributed

information and guidance regarding implementation of the 2012 regulation. Id. ¶ 8. Evidently

this period of change and the related confusion among grantees prompted CNCS to open an

“assessment period” in late 2014—essentially a period of amnesty during which grantees could

review their files, complete background checks that were incomplete, and correct noncompliance

issues without penalty. Id. ¶ 9.

               In February 2015, the CNCS Office of the Inspector General (OIG) opened an

investigation into Elder Care’s performance under the Senior Volunteer Program, one of the

programs covered by a CNCS grant, based on issues raised by a disgruntled former employee.

Id. ¶ 10. In June 2015, the CNCS OIG issued its report, finding that Elder Care had not

complied with § 2540.203(b) in running background checks on affiliated individuals because

most of the checks it performed were limited to local or statewide data but not national

information. Id. ¶ 12. The OIG report recommended that CNCS disallow Elder Care costs in the

amount of $29,500 for the three grants at issue here. Id.




                                                2
               In August 2015, CNCS released its National Service Criminal History Check

Interim Disallowance Guide (NSCHC Guide or Guide) to notify grantees of how CNCS would

enforce compliance with the 2012 regulation. Id. ¶ 14. The Guide included a Risk-Based

Disallowance Matrix (Matrix) that set fixed, per-violation fines based on an uncleared

individual’s access to vulnerable populations and the level of CNCS-determined mitigation

exhibited by the grantee in performing background checks or some portion thereof. Id.; see also

Ex. 2, Def.’s Mot. to Dismiss (MTD) [Dkt. 13], National Service History Check Interim

Disallowance Guide [Dkt. 13-2] at 4. 1

               Sometime after the OIG report was released, CNCS conducted another, broader

compliance review of Elder Care files, including files for individuals who had been staff or

volunteers for many years as well as for individuals who no longer worked for Elder Care. 2

Compl. ¶ 14. This broader review resulted in the assessment of a Matrix-devised cost

disallowance of $400,000: $19,500 for noncompliance for staff associated with all three grants;

$160,500 for volunteers or staff associated with the Senior Companions program; and $220,000

for people associated with the Foster Grandparents program. Id. ¶ 15.



1
  Plaintiff argues that the Court may not consider the Matrix in the context of a motion to dismiss
because it was not attached to the Complaint. However, Plaintiff references the Matrix
throughout the Complaint and the Court deems it incorporated by reference and subject to
consideration on a motion to dismiss. See Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059
(D.C. Cir. 2007). The Court has reviewed and considered Exs. 1-5 to the Motion to Dismiss and
finds that all five exhibits are incorporated by reference based on the allegations set forth in
Plaintiff’s Complaint. See Ex. 1, MTD, Guidance and Instructions [Dkt. 13-1]; Ex. 2, MTD,
Matrix [Dkt. 13-2]; Ex. 3, MTD, 9/7/16 Debt Collection Letter [Dkt. 13-3]; Ex. 4, MTD,
Response to Request for Review Letter (Review Letter) [Dkt. 13-4]; Ex. 5, MTD, CNCS
Response to OIG Investigation of Elder Care [Dkt. 13-5].
2
  It is unclear from the Complaint precisely when CNCS undertook the broader Elder Care
compliance review in relation to the periodic clarifications that CNCS is alleged to have issued,
although the Court understands that all occurred after the “assessment period” had concluded.
See Compl. ¶¶ 9-10, 12, 15.


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                Elder Care appealed the Matrix-based cost disallowances to CNCS; the agency

reduced the amount from $400,000 to $396,000 and denied the further request for

reconsideration. On August 14, 2017, Elder Care filed its complaint in this Court, alleging that

CNCS acted arbitrarily and capriciously and deprived Elder Care of due process in imposing the

cost disallowance. CNCS moves to dismiss for failure to state a claim under Rule 12(b)(6). See

MTD; see also Fed. R. Civ. P. 12(b)(6).

                The Court has jurisdiction under 28 U.S.C. § 1331. See 28 U.S.C. § 1331 (“The

district courts shall have original jurisdiction of all civil actions arising under the Constitution,

laws, or treaties of the United States.”). Though the Administrative Procedure Act (APA), 5

U.S.C. § 702 et seq., does not provide an independent basis for subject matter jurisdiction, see

Califano v. Sanders, 430 U.S. 99, 107 (1977), final agency action is subject to judicial review

when there is no other adequate remedy. 5 U.S.C. § 704. “Agency action made reviewable by

statute and final agency action for which there is no other adequate remedy in a court are subject

to judicial review.” Oljato Chapter of Navajo Tribe v. Train, 515 F.2d 654, 663 (D.C. Cir. 1975)

(citing 5 U.S.C. § 704). Venue is proper in the United States District Court for the District of

Columbia because Defendant CNCS is headquartered in the District. See 28 U.S.C.

§ 1391(e)(1).

                                   II.     LEGAL STANDARD

                Federal Rule of Civil Procedure 12(b)(6) requires a complaint to be sufficient “to

give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). Although a complaint

does not need detailed factual allegations, a plaintiff’s obligation to provide the grounds of his

entitlement to relief “requires more than labels and conclusions, and a formulaic recitation of the




                                                   4
elements of a cause of action will not do.” Id. The facts alleged “must be enough to raise a right

to relief above the speculative level.” Id. A complaint must contain sufficient factual matter to

state a claim for relief that is “plausible on its face.” Id. at 570. When a plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged, then the claim has facial plausibility. See Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009). “The plausibility standard is not akin to a probability requirement, but it asks for

more than a sheer possibility that a defendant has acted unlawfully.” Id. A court must treat the

complaint’s factual allegations as true, “even if doubtful in fact.” Twombly, 550 U.S. at 555; see

also Oberwetter v. Hilliard, 639 F.3d 545, 549 (D.C. Cir. 2011). But, a court need not accept as

true legal conclusions set forth in a complaint. Iqbal, 556 U.S. at 678.

               In deciding a motion under Rule 12(b)(6), a court may consider the facts alleged

in the complaint, documents attached to the complaint as exhibits or incorporated by reference,

and matters about which the court may take judicial notice. See Abhe & Svoboda, 508 F.3d at

1059.

                                        III.    ANALYSIS

               The first issue to consider is the government’s authority to “demand[] repayment”

if the recipient of a federal grant violates the grant’s requirements, in part, but shows no bad

faith. The Supreme Court long ago answered this question in the affirmative, although that

answer is not without certain limitations. See Bennett v. Ky. Dep’t of Educ., 470 U.S. 656, 658

(1985). Bennett involved grants under Title I of the Elementary and Secondary Education Act of

1965, 20 U.S.C. § 2701 et seq., which were used by Kentucky to supplant, not merely

supplement, local costs, contrary to the terms of the Title I grants. The Supreme Court disagreed

with the Sixth Circuit Court of Appeals that Kentucky’s “substantial compliance with legal




                                                  5
requirements affect[ed] liability.” Bennett, 470 U.S. at 663. “Nor” did it think “that the absence

of bad faith absolve[d] the State from liability if funds were in fact spent contrary to the terms of

the grant agreement.” Id. at 664. Finally, where there was no ambiguity with respect to

limitations on use of the grant monies, the government is not limited to recovering “misused

federal funds only if every improper expenditure has been specifically identified and proscribed

in advance.” Id. at 666 (emphasis omitted).

                  The Title I school grants at issue in Bennett began after “Congress in 1965

articulated the general goals of Title I,” but failed to “precisely outline the permissible means for

implementing those goals,” which resulted in considerable uncertainty among grantees. Id. at

667. After some years, Congress amended the statute in 1978 and “directed the [Office of

Education] to prepare a policy manual compiling the applicable statutes, regulations, advisory

opinions, and other materials . . . to ‘ensure that federal officials uniformly interpret, apply, and

enforce Title I requirements throughout the country.’” Id. at 668-69. 3

                  Within this evolving enforcement scheme, the Court refused to find that the States

“guaranteed that their performance under the grant agreements would satisfy whatever

interpretation of the terms might later be adopted by the Secretary [of Education].” Id. at 670.

To the contrary, Kentucky “agreed to comply with, and its liability is determined by, the legal

requirements in place when the grants were made. Consequently, in evaluating past

expenditures, the Secretary’s interpretation of the requirements of Title I should be informed by

the statutory provisions, regulations, and other guidelines provided by the Department at that

time.” Id.



3
 “The Office of Education was the predecessor to the present Department of Education and was responsible for the
administration of Title I until 1980.” Bennett, 470 U.S. at 674 n.1 (citing Bell v. New Jersey, 461 U.S. 773, 776 n.1
(1983)).


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               While the parties spend significant space on Bennett in briefing, both appear to

have missed the most salient issues in its application to the case at hand. The 2012 regulation

became effective January 1, 2013; at that time, all three relevant grants had already been

awarded to Elder Care. The parties do not address the implications of the fact that the regulation

and related enforcement scheme evolved after the relevant grants were awarded, or explain the

prior regulatory regime and its potential bearing on CNCS’s assessment of the cost disallowance.

Further information is required to determine the impact of Bennett on the cost disallowance at

issue here.

                                     IV.    CONCLUSION

               For the aforementioned reasons, the Court will deny CNCS’s Motion to Dismiss,

Dkt. 13, without prejudice. The Court will also direct the parties to meet and confer and propose

a schedule for briefing consistent with this Court’s Memorandum Opinion.



Date: September 28, 2018                             _________________________
                                                     ROSEMARY M. COLLYER
                                                     United States District Judge




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