Appeal Timeliness – 705(c)

 

As a result of Hurricane Jeanne, the Applicant sustained damage to 13 school building roofs, and FEMA obligated $7,726,184.25 in Public Assistance (PA) funding through Project Worksheet (PW) 2311 for restoration work.  In 2015, however, FEMA deobligated $192,357.75 due to unreasonable material costs.  On October 8, 2015, within 60 days of receipt of notice of the deobligation, the Applicant appealed the determination, requesting FEMA reinstate $93,712.75 of the previously awarded PA funding.  The Grantee transmitted its letter of recommendation and the Applicant’s appeal to FEMA on March 25, 2016.  As a result, the FEMA Region IV Regional Administrator (RA) denied the appeal, noting that the Grantee forwarded the appeal more than 100 days beyond the 60-day timeframe required by 44 C.F.R. § 206.206(c)(2).  Therefore, the RA concluded that because the Grantee submitted the appeal after expiration of the 60-day timeframe, the Applicant’s first appeal rights had been exhausted, and the protections of Stafford Act § 705(c) were not applicable.  The Applicant argues in its second appeal that (1) FEMA’s interpretation of 44 C.F.R. § 206.206(c)(2) abrogates an Applicant’s statutory right of appeal, (2) FEMA’s deobligation of PA funding violates Stafford Act § 705(c), and (3) the Applicant’s appeal rights are not exhausted as they are not triggered until FEMA conducts a section 705(c) analysis and demonstrates it is not applicable on the merits.   

 

 

     Authorities and Second Appeals

 

From September 24 through November 17, 2004, high winds, flying debris, and heavy rain resulting from Hurricane Jeanne struck Palm Beach County, damaging 13 school building roofs of the School District of Palm Beach County (Applicant).  Consequently, FEMA obligated multiple versions of Project Worksheet (PW) 2311, providing Public Assistance (PA) funding for permanent restoration.  FEMA approved PW 2311 (Version 2) on October 7, 2010, obligating a total of $7,726,184.25 in PA funding for restoration work.  However, on March 19, 2015, the Department of Homeland Security Office of Inspector General (OIG) issued a memorandum to the FEMA Region IV Regional Administrator (RA), confirming that as a result of an audit, the OIG recommended FEMA deobligate $98,645.00 in PA funding from PW 2311.  The recommendation was based on unreasonable costs that resulted from a contractor overcharging the Applicant for plywood; the OIG noted that the Applicant paid more for plywood than the agreed-upon contract price. 

 

As a result of the OIG’s memorandum, FEMA conducted its own cost analysis and determined the reasonable cost for the plywood was actually less than both what the contractor ultimately billed for, as well as the price agreed to in the contract.  Consequently, on July 31, 2015, FEMA deobligated $192,357.75 in PA funding in Version 3 of PW 2311.  Accordingly, in a letter dated August 13, 2015, the State of Florida Division of Emergency Management (Grantee) notified the Applicant of its appeal rights and the appeal procedural requirements regarding the determinations made in PW 2311 (Version 3), and additionally transmitted the project application summary package, which outlined the determination underlying the PW.

 

 

The Applicant appealed FEMA’s decision to deobligate PA funding by way of a letter to the Grantee dated October 8, 2015.  It requested FEMA reinstate $93,712.75 in PA funding, as this was the difference between the $192,357.75 FEMA deobligated in PW 2311 (Version 3), and the $98,645.00 the OIG had recommended be deobligated in its memorandum.  It highlighted that the OIG did not question the reasonableness of the contract price, only the additional amount that was charged and paid above the contract price.  Moreover, it acknowledged that it could not provide documentation concerning the negotiated price increase and as a result, understood the need to deobligate PA funding for the amount paid above the contract price.  However, it disputed FEMA’s determination that the reasonable costs were less than the amount agreed to in the contract, resulting in more PA funding being deobligated than the amount recommended by the OIG.

 

In a letter dated March 25, 2016, the Grantee recommended FEMA approve the appeal and reinstate the PA funding requested by the Applicant.  The Grantee emailed this letter and the Applicant’s appeal to FEMA the same day, March 25, 2016.  It disputed FEMA’s determination that the costs were unreasonable, stating contracting costs increase in the time immediately following a disaster anywhere from 10 to 15 percent for single events, and therefore, it was not unreasonable to expect the costs would increase by an even greater percentage considering this disaster was the fourth major hurricane to strike the State of Florida within six weeks.  Furthermore, it asserted section 705(c) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) of 1988[1] prohibited FEMA from deobligating the funding, as: (1) all funding was authorized by an approved agreement, i.e., the obligated PW, specifying the costs, (2) the costs were reasonable at the time the PW was written, and (3) the purpose of the grant was accomplished.   

 

On January 9, 2017, FEMA issued a Basic Request for Information (RFI) to the Grantee and the Applicant, notifying them that the record did not appear to contain sufficient information documenting that the appeal was submitted to FEMA within the time limits required by Title 44 Code of Federal Regulations (44 C.F.R.) § 206.206(c).[2]  As a result, FEMA requested they provide documentation supporting the assertion that the appeal was filed within the regulatory deadlines.  The administrative record does not contain a response from either the Applicant or the Grantee.

 

On October 26, 2017, FEMA transmitted a Final RFI to the Grantee and the Applicant, again notifying them that the record did not appear to contain sufficient information documenting that the appeal complied with the timeframes set forth in 44 C.F.R. § 206.206(c).  The Applicant responded via a letter dated November 17, 2017, providing screenshots from the Grantee’s online PA grants management system (database)[3] that it stated demonstrated, (1) the Grantee notified the Applicant of the deobligation of funds from PW 2311 (Version 3) and its appeal rights concerning that determination on August 17, 2015, and (2) the Applicant submitted its appeal to the Grantee by uploading it on the database on October 8, 2015.  The Grantee responded in a letter dated November 20, 2017, agreeing that it notified the Applicant of the deobligation of funds and appeal rights on August 17, 2015, and that the Applicant subsequently timely submitted its appeal to the Grantee on October 8, 2015.  The Grantee acknowledged, however, that it did not forward the Applicant’s appeal to FEMA until March 25, 2016, and conceded it did not have additional information to support its submission of the appeal to FEMA was timely.  Lastly, the Grantee argued that section 705(c) is a statutory bar, not an affirmative defense, meaning that FEMA has the burden of demonstrating the requirements of section 705(c) have not been met; the Applicant need not assert it as a defense.  In essence, the Grantee contended the Applicant had not exhausted its administrative right to a first appeal as FEMA had yet to perform the required section 705(c) analysis.   

 

On December 15, 2017, the FEMA Region IV RA denied the appeal, noting that the Grantee forwarded the first appeal and its letter of recommendation more than 100 days beyond the 60-day timeframe required by 44 C.F.R. § 206.206(c)(2).  Therefore, the RA noted that because the appeal was untimely, the substantive issues raised would not be considered.  Furthermore, the RA concluded that because the Grantee submitted the appeal after expiration of the 60-day timeframe, the Applicant’s first appeal rights had been exhausted.  Consequently, the RA determined that the protections of Stafford Act § 705(c) were not applicable.

 

 

By letter dated February 12, 2018, the Applicant appeals FEMA’s decision to deny the Applicant’s request to reinstate $93,712.75 in PA funding based on the Grantee’s untimely appeal submission.  It requests FEMA reverse its first appeal decision and consider the merits of the appeal.  The Applicant concedes that the Grantee forwarded the appeal to FEMA beyond the 60-day timeframe allotted, but notes that the Stafford Act does not include language that requires the Grantee to forward the Applicant’s appeal within 60 days of receipt; Stafford Act § 423(a) only references the “applicant for . . . assistance” as the entity who has 60 days to appeal a denial of an award after notification.  The Applicant then emphasizes the inclusion of “must” in 44 C.F.R. § 206.206(c)(1), which describes the appellant’s appeal submission obligation, versus the use of “will” in 44 C.F.R. § 206.206(c)(2) and (c)(3),[4] which references the grantee’s appeal transmittal obligation and FEMA’s disposition obligation, respectively, to demonstrate the appeal submission timeframe assigned to appellants is intentionally stricter than the appeal timeframes designated to grantees and FEMA.  Moreover, the Applicant notes that in addition to the Grantee, FEMA also did not take action on the first appeal within the timeframe outlined in 44 C.F.R. § 206.206(c), as it did not issue a response, i.e., the January 9, 2017 Basic RFI, until almost 300 days after FEMA received the appeal.  Therefore, the Applicant argues it should not be penalized with a denial when it was the only entity to adhere to the appeal deadlines. 

 

The Grantee forwarded the appeal to FEMA by way of an April 2, 2018 letter, recommending FEMA approve the appeal.  The Grantee argues that Stafford Act § 705(c) statutorily bars the deobligation, asserting all three prongs of section 705(c) are satisfied.  Moreover, it contends timeliness of the appeal is not relevant as section 705(c) is a statutory bar, not an affirmative defense, and that FEMA must conduct a section 705(c) analysis before it deobligates funding.  Thus, the Grantee argues that the Applicant has not yet exhausted its appeal rights with respect to the deobligation, because appeal rights are not triggered until FEMA performs the analysis and demonstrates to the Applicant and the Grantee that section 705(c) does not apply on the merits.  Lastly, the Grantee points out that FEMA did not issue its Basic RFI within the timeframe outlined in 44 C.F.R. § 206.206(c)(3), to further support its request that FEMA issue a determination on the merits.

 

 

 

Section 423(a) of the Stafford Act provides that “any decision regarding eligibility for . . . assistance under this title may be appealed within 60 days after the date on which the applicant for such assistance is notified of the award or denial of award of such assistance.”  Within 60 days of receiving an applicant’s appeal, a grantee will review and forward the appeal to FEMA with a written recommendation.[5]  If either the applicant or the grantee fail to meet these deadlines, the appeal is untimely and the applicant’s appeal rights lapse.[6]  Neither the Stafford Act nor 44 C.F.R. authorize FEMA to grant time extensions for filing appeals.[7]

 

Both the Applicant and the Grantee acknowledge that the Grantee received the Applicant’s first appeal letter on October 8, 2015.  Accordingly, the Grantee had until December 7, 2015 (60 days from receipt of the first appeal) to transmit the appeal to FEMA.  However, both the Applicant and the Grantee concede the Grantee did not forward the appeal with its recommendation letter to FEMA until March 25, 2016.  Therefore, the Grantee submitted the first appeal more than 100 days beyond the 60-day timeframe required by 44 C.F.R. § 206.206(c)(2).  Consequently, the appeal is untimely.[8]

 

 

The term “applicant” is broad and is inclusive of both grantees and subgrantees; therefore, the 60-day timeframe applies to both applicants and grantees separately.[9]  A contrary interpretation would absolve grantees from complying with a basic grant management function that they receive funding to complete and legally agreed to perform by signing the FEMA State Agreement.[10]  Moreover, inclusion of grantees within the appeal process is necessary because grantees, as the recipient of the grant award, are legally accountable for use of the funds.[11]  As grantees are responsible for any resulting financial outcome of an award, excluding them from the appeal process would not comport with the Stafford Act.[12]  Therefore, 44 C.F.R. § 206.206(c)(2) does not abrogate an applicant’s statutory right of appeal.

 

 

Section 705(c) of the Stafford Act bars FEMA from deobligating funding from a State or local government if (1) the payment was authorized in an approved agreement specifying the costs, (2) the costs were reasonable, and (3) the purpose of the grant was accomplished.  FEMA issued Recovery Policy FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, to establish the criteria necessary to implement section 705.[13]  If all of the section 705(c) criteria are met, FEMA is prohibited from recouping grant funds, even if it later determines that it made an error in determining eligibility.[14]

 

However, section 705 must be read in context with all sections of the Stafford Act,  including section 423 as described above in the previous section.[15]  After the 60-day timeframe allowed by section 423 ends, an applicant’s right to appeal FEMA’s eligibility determination is exhausted, the opportunity to seek remedy through the administrative PA appeal process lapses, and FEMA’s decision becomes final.[16]  An applicant’s appeal rights are similarly exhausted, and FEMA’s decision is similarly final, if a grantee fails to forward an appeal in the 60-day period allowed by regulation.[17]  Consistent with this element of finality, FP 205-081-2 provides that the section 705(c) prohibition against recoupment of funds does not apply to PWs where the applicant’s appeal rights have lapsed and FEMA has made a final administrative decision.[18]

 

As discussed above, the Applicant’s first appeal was untimely.  Accordingly, its appeal rights concerning the determination of PW 2311 (Version 3) lapsed.  Therefore, per FP 205-081-2, and as the RA noted in the first appeal determination, the section 705(c) prohibition against recoupment of funds is not applicable.  Consequently, FEMA is not precluded from recouping PA funds associated with the deobligation of funding in PW 2311 (Version 3).[19]  

 

 

The Applicant’s first appeal is untimely because the Grantee submitted the appeal beyond the 60-day timeframe required by 44 C.F.R. § 206.206(c)(2).  Moreover, because the Applicant exhausted its appeal rights regarding the deobligation effectuated by PW 2311 (Version 3), Stafford Act § 705(c) is not applicable.  For both of these reasons, the second appeal is denied.