Bell v. New Jersey Brief for the Lawyers' Committee for Civil Rights Under Law as Amicus Curiae in Support of Petitioners

    No. 81-2125

In  The

(Emrrt itf tl)i> Imtpft §tatPB
October Term, 1982

T. H. Bell, Secretary op E ducation,
Petitioner,V.

State of New J ersey> 1 .

On Writ of Certiorari to the United States Court of Appeals 
for the Third Circuit

BRIEF FOR THE LAWYERS’ COMMITTEE FOR 
CIVIL RIGHTS UNDER LAW AS AMICUS CURIAE  

IN SUPPORT OF PETITIONERS

Maximilian  W. Kem pner  
R ichard C. Dinkelspiel  

Co-Chairmen 
W illiam  L. Robinson 
Beatrice R osenberg 
N orman J. Ch a c h k in  *
Ruth  E. Gordon 

Lawyers’ Committee for 
Civil R ights U nder Law 

733 15th Street, N.W.
Suite 520
Washington, D.C. 20005 
(202) 628-6700

Attorneys for Amicus Curiae 

♦Counsel of Record

W i l s o n  ■• E f e s  P r i n t i n g  C o . ,  I n c . -  7 8 9 - 0 0 9 6  -  W a s h i n g t o n , D . C .  2 0 0 0 1



TABLE OF CONTENTS
Page

Table of Authorities ..... ..... ...... ......... -.... -............. .......  ii

Interest of Amicus C uriae-------------------- -- —-  ----  1

Statement — ....-..... -......... — .... ...... .... ......... ..............  8

Summary of Argum ent----- -----—--- ---- ------- ----------- 5

Argument --------------- --- ------------------------- ----------  8

I. The Duty to Make Restitution for Misused Funds
Inheres in the Terms Under Which the Funds 
Were Granted to the S ta tes .............. - ...............  8

II. Since Its Inception, the Elementary and Second­
ary Education Act Has Given the Federal Gov­
ernment the Power to Conduct Audits and De­
mand Repayment of Funds Determined to Have 
Been M isspen t ------- -----—-...... - ..................  10

III. Even if the Department of Education Has Not 
Always Had Authority to Demand Repayment,
Its Present Statutory Authority to Do So Should
be Applied to the Audits in the Instant Case-----  17

IV. There Are Strong Policy Reasons for Requiring
Repayment in the Instant Case ............ ....... ......  If

Conclusion.............. ..... ............. ------ ---- ------------------- 23



11

TABLE OF AUTHORITIES
CASES Page

Bradley v. School Bd. of Richmond, 416 U.S. 696
(1974) ............... ............. -..................... -----.....-........

Brown v. General Services Admin., 507 F.2d 1300
(2d Cir. 1974), aff’d, 425 U.S. 820 (1976).......

Bush v. State Industries, Inc., 599 F.2d 780 (6th
Cir. 1979)________ __ _______

Cort v. Ash, 422 U.S. 66 (1975)----- --- -.......-  .......
Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473

(1981) ............ .......................... .............. ..................
Hallowell v. Commons, 239 U.S. 506 (1916) .......
Roger v. Ball, 497 F.2d 702 (4th Cir. 1974).......... 17n, 18
Mahroom v. Hook, 563 F.2d 1369 (9th Cir. 1977),

cert, denied, 436 U.S. 904 (1978) --------------....... 18m
Montana Power Co. v. Federal Power Comm’n, 445 

F.2d 739 (D.C. Cir. 1970), cert, denied, 400 U.S.
1013 (1971)----------- ------------------ ----- -----------  18n

Pennhurst State School v. Halderman, 451 U.S. 1
(1981) _________ ______-..... ....................... ......... 8, 9

Sikora v. American Can Co., 622 F.2d 1116 (3rd
Cir. 1980) _____ ________ ________- --------------  17n

Thorpe v. Housing Auth. of Durham, 393 U.S.
268 (1969) ___________ __-.............. -......- ..........  18

United States v. Blue Sea Line, 553: F.2d 445 (5th

18

18n

17n
18

18
17

Cir. 1977) ______________________________ _ 17n
United States v. Mechem, 509 F.2d 1193 (10th Cir.

1975)---------------- ------------------------------- ---- - 18n
United States v. Vanella, 619 F.2d 384 (5th Cir.

1980) ------------ ----------------------- -----.......... -.......... 17m, 18
Womack v. Lynn, 504 F.2d 267 (D.C. Cir. 1974)-... 18n

STATUTES
The Elementary & Secondary Education Act,

§ 185, 20 U.S.C.S. § 2835 (Supp. 1982) ..13-14,15,19, 21
20 U.S.C.S. § 1221 et seq. (Supp. 1982) -------------- Hn
20 U.S.C.S. § 1234 (Supp. 1982) ...... ........... .■4n, 17n, 19n
20 U.S.C.S. § 1234b (Supp. 1982)  ........................  21n
20 U.S.C.S. § 1234c (Supp. 1982) ....... ..................... 2 In
20 U.S.C.S. § 1234d (Supp. 1982) ..... - .........-14n, 17 ,19n



Ill

TABLE OF AUTHORITIES—Continued
Page

20 U.S.C.S. § 1234e (Supp. 1982) ..................... -...... 20
20 U.S.C.S. § 2836 (Supp. 1982) ............................  21n
Pub. L. No. 95-561, 92 Stat. 2143 (codified as 

amended at 20 U.S.C.S. § 2701 (Supp. 1982) . ..2, 4n, 13,
16n

Pub. L. No. 93-380, 88 Stat. 484, reprinted in
[1974] U.S. Code Cong. & Ad. News 541... lOn, 13 ,16n

Pub. L, No. 91-230, 84 Stat. 121, reprinted in
[1970] U.S. Code Cong. & Ad. News 133 ..........  11

Pub. L. No. 89-10, 79 Stat. 27, reprinted in [1965]
U.S. Code Cong. & Ad. News 29 ........-..........  3n, 8n, 9n

REGULATIONS
44 Fed. Reg. 43,807 (1979) ----- -----------------  ----- 4n
37 Fed. Reg. 23,002 (1972) ........ .......................... -  4n, 13

LEGISLATIVE MATERIALS
Reports

H.R. Rep. No. 95-1137, 95th Cong., 2d Sess., re­
printed in  [1978] U.S. Code Cong. & Ad. News
4971 ________ __________-......-.......-.......- ........-15,16,19

H.R. Rep, No. 93-805, 93rd Cong., 2d Sess,, re­
printed in [1974] U.S. Code Cong. & Ad. News
4093 ........................................................  13

S. Rep. No. 91-634, 92nd Cong., 2d Sess., reprinted
in [1970] U.S. Code Cong. & Ad. News 2768...... 12

Debates
124 Cong. Ree. (1978) ....  ........-............ ........... ........ 16

OTHER AUTHORITIES
National Institute of Education, Administration of

Compensatory Education (1977) ........................ 16n
R. Silverstein, A Description and Analysis of H.R. 

10891—A Bill Reorganizing & Amending Title I 
of the Elementary & Secondary Education Act 
(1978) .........- .............................-.............................  16n



In  The

Bnpvm? (Emtrt nf %  Intfpii States
October Term, 1982

No. 81-2125

T. H. Bell, Secretary of E ducation,
Petitioner, v. ’

State of N ew Jersey., <=*-•

On Writ of Certiorari to the United States Court of Appeals 
for the Third Circuit

BRIEF FOR THE LAWYERS’ COMMITTEE FOR 
CIVIL RIGHTS UNDER LAW AS AMICUS CURIAE  

IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE
The Lawyers’ Committee for Civil Rights Under Law 

was organized in 1963 at the request of the President of 
the United States to involve private attorneys in the 
national effort to assure civil rights for all Americans. 
The Committee has, over the past 19 years, enlisted the 
services of over a thousand members of the private bar 
in addressing the legal problems of minorities and the 
poor.

The Lawyers’ Committee has had a long-standing in­
terest in Title I of the Elementary and Secondary Edu­
cation Act because of the statutory emphasis upon meet­
ing the needs of poor and disadvantaged children. In the 
early 1970’s the Committee began to monitor federal 
administration of the Title I program, in order to deter­
mine whether states and local school districts were using



2

their grants to operate projects which carried out this 
basic purpose. These activities greatly intensified in 
1975 with the creation of the Committee’s Federal Edu­
cation Project. This Project has become a major infor­
mational resource for parents of Title I participants and 
Title I staff in local educational agencies, and it has 
provided legal representation to parents of Title I stu­
dents in litigation and administrative complaint proceed­
ings. In 1976, pursuant to a contract with the National 
Institute of Education, the Lawyers’ Committee estab­
lished a separately staffed unit, the Legal Standards 
Project, to conduct research on the legal framework of 
Title I. This project subsequently provided extensive 
recommendations for legislative changes, many of which 
were incorporated in the Education Amendments of 1978, 
P.L. 95-561. The Congress’ reliance upon the work of 
the Legal Standards Project is acknowledged in the legis­
lative history of the 1978 amendments.

Throughout this long involvement with Title I, the 
Lawyers’ Committee has been concerned with vigorous 
enforcement of the programmatic and fiscal restrictions 
embodied in the federal statute and regulations. Com­
pliance with these requirements is essential, in our judg­
ment, to insuring the educational effectiveness of com­
pensatory instruction funded by the federal government; 
and experience demonstrates that full compliance depends 
in significant part upon the expectation that disregard 
of statutory conditions upon the expenditure of funds will 
be followed by audit and meaningful sanctions. Thus, 
the Committee is alarmed by the holding below that New 
Jersey and Pennsylvania need not reimburse the federal 
government for grant funds admittedly misexpended in 
prior years’ Title I programs. We file this brief amicus 
curiae* in order to share these concerns with the Court

* Letters of consent by all parties to the submission of this brief 
are being filed with the Clerk in accordance with Rule 36.1 of the 
Rules of this Court.



3

and to give the Court the benefit of our long and close 
association with the statute in question—experience which 
leads us to the conclusion that the ruling below is con­
trary to the language of the statute and to the consistent 
intent of Congress since its initial enactment in 1965.

STATEMENT
In 1965, Congress enacted Title I of the Elementary 

and Secondary Education Act (ESEA)1 to provide fed­
eral funds to local school districts for programs meeting 
the needs of educationally deprived children in areas 
with high concentrations of low-income families. In order 
to ensure that Title I funds reach their intended benefi­
ciaries, the statute includes specific provisions with which 
state education agencies (SEAs) and local education 
agencies (LEAs) must comply. Title I funds may not 
be used to replace local school funds, but must be used 
to provide supplemental services above those normally 
provided. State and federal audits are authorized to 
assess local compliance with statutory criteria.

New Jersey and Pennsylvania (“States” ) have partici­
pated in the Title I program since its inception and 
were aware of the various statutory and regulatory re­
quirements for participation. In the early 1970’s audits 
conducted by the United States Department of Health, 
Education and Welfare Audit Agency (HEWAA) deter­
mined that both States had misapplied substantial 
amounts of federal Title I funds during prior years.

Although these cases did not go through the appeals 
process simultaneously, each involved the same proce­
dural steps. Final audit reports were issued in April 
(Pennsylvania) and June (New Jersey) of 1975. The 
Deputy Commissioner for Elementary and Secondary 
Education in the Office of Education, in May (Pennsyl-

1 Pub. L. No. 89-10, 79 Stat. 27, reprinted in [1965] U.S. Code 
Cong. & Ad, News 29.



4

vania) and June (New Jersey) of 1976, issued final 
determination letters sustaining the findings and order­
ing both States to refund the amounts determined to 
have been misspent. The States then filed applications 
for review with the Title I Audit Hearing Board.2 After 
hearings, the successor Education Appeal Board con­
cluded that both States should repay the funds found by 
the HEWAA to have been misspent, although the original 
amounts were reduced pursuant to the five-year statute 
of limitations on repayment of misspent funds. The 
Board’s decisions were subject to a comment period dur­
ing which the Secretary declined to review them. Accord­
ingly, the Board’s decisions became the final decisions of 
the Department.

New Jersey and Pennsylvania then filed petitions for 
review with the United States Court of Appeals for the 
Third Circuit. Although the petitions were never for­
mally consolidated, the Third Circuit issued a single 
opinion reversing the orders of the Department of Edu­
cation. The court of appeals held that even if the funds 
were misspent, the government did not have the statutory 
authority, before 1978, to require repayment through 
administrative proceedings.3 The Court expressed con-

2 The Title I Audit Hearing Board was established by the Depart­
ment of Education in 1972 to provide state education agencies with 
an impartial tribunal to hear audit appeals. 37 Fed. Reg. 23,002 
(1972). On June 29, 1979, the Education Appeal Board (EAB), 
created by Pub. L. No. 95-561, 92 Stat. 2143, 2347 (1978) (codified at 
20 U.S.C.S. § 1234) assumed jurisdiction of all cases then pending 
before the Title I Audit Hearing Board. 44 Fed. Reg. 43,807 (1979).

3 The government also argued that it had a common law right, 
independent of statutory authority, to recover money distributed 
contrary to law or under a mistake of fact. The court did not decide 
this issue. The court found that this governmental right of recovery 
is administratively exercised by set-offs and that the advance fund­
ing method of distributing Title I funds does not lend itself to this 
means of enforcement. Thus, the court held, even if the government 
retains its common law right, it may enforce such right only by 
maintaining a civil action in a court of competent jurisdiction.



5

cern that the intended beneficiaries of Title I monies 
would lose valuable Title I services if New Jersey and 
Pennsylvania were now forced to repay misspent funds.

SUMMARY OF ARGUMENT
I.

The federal government, under Title I, gave the states 
money for specific, defined purposes, and for no other. 
When the states used such funds for their own, unau­
thorized, purposes, they were in the same position as a 
trustee who converts trust funds to his own use. Under 
such circumstances, there should be no serious question 
as to the duty of the states to make restitution for mis­
used funds. That duty is inherent in the terms under 
which the funds were received and need not be spelled 
out in the statute.

Congress showed its understanding that misspent funds 
were subject to repayment by the states when in 1974 it 
enacted a five-year statute of limitations on the repay­
ment obligation of the states.

II.

Since the duty to repay misused funds is clear, the 
real issue here is how that obligation may be enforced. 
The Third Circuit erred in holding that, prior to 1978, 
the federal government lacked authority to recover mis­
spent Title I grant funds through audit, administrative 
determination, and demand for restitution.

Since the Title I program began, the Department of 
Education (or its predecessor agencies) have audited 
state and local projects and demanded repayment of 
funds determined to have been misspent. Congress has 
always been fully aware of these activities and has re­
peatedly enacted legislation to facilitate the audit- 
collection process. In 1970 the statute was amended to 
specify what records grant recipients were required to



6

keep to facilitate effective audits, and to give the Comp­
troller General and Commissioner of Education access to 
those records for the purpose of conducting audits. The 
legislative history of this provision demonstrates Con­
gressional understanding that the audit process would 
end in repayment of funds to the federal government if 
the audits revealed unauthorized expenditures. A 1974 
amendment, which placed a five-year statute of limita­
tions on the repayment obligation of grantees, was based 
upon Congressional acceptance of the existing administra­
tive process.

The 1978 amendments, which explicitly gave the Com­
missioner of Education authority to demand repayment 
of misspent funds, were enacted in response to a well- 
documented decline in audit and recovery activity on the 
part of the Office of Education. Contrary to the Third 
Circuit’s holding, these statutory changes did not give 
the Department authority which it did not previously 
possess; rather, they were designed to establish manda­
tory standards for the audit process and to authorize 
judicial review in the Court of Appeals.

III.
Even if the Department lacked explicit statutory au­

thority, prior to 1978, administratively to demand re­
payment of misspent funds, it clearly has this authority 
now. The 1978 statutory amendments should be applied 
to the audits in the instant case, pursuant to the well- 
settled rule that a court must apply the law in effect at 
the time it renders its decision, unless to do so would 
result in manifest injustice or there is statutory direc­
tion or legislative history to the contrary.

There would be no injustice in applying the 1978 
amendments to the instant case. New Jersey and Penn­
sylvania (like all other participating states) were very 
much aware (especially in light of the 1970 and 1974 
statutory amendments) that the Department historically



7

was auditing programs and administratively demanding 
repayment of funds determined to have been misspent. 
Since the duty to repay misspent funds inheres in the 
terms on which the grant was made, the 1978 amend­
ments made procedural, not substantive changes.

IV.

Strong policy justifications exist for requiring repay­
ment of the funds at issue in this case. Unless the De­
partment can impose a penalty for misexpenditures, 
states and local districts may ignore statutory restric­
tions which are critical to assuring that categorical funds 
reach their intended beneficiaries. This is particularly 
the case in a time of fiscal constraint when local school 
administrators will be pressured to use federal grants 
to fill revenue gaps.

The Third Circuit’s decision was obviously influenced 
by a fear that educationally deprived children living in 
poor areas of Pennsylvania and New Jersey will suffer 
if repayment is ordered in this case. However, repay­
ment would be the least onerous form of penalty avail­
able to the Department in this case. The 1978 amend­
ments to the law permit the Secretary to return up to 
75% of funds repaid by state or local education agencies 
to the states, to be used to provide additional compensa­
tory services to educationally deprived children. With­
holding of future grants, on the other hand, would reduce 
the level of funds otherwise available for remedial pro­
grams. Thus administrative repayment vindicates the 
rights of the statute’s intended beneficiaries.



8
ARGUMENT

I. THE DUTY TO MAKE RESTITUTION FOR MIS­
USED FUNDS INHERES IN THE TERMS UNDER 
WHICH THE FUNDS WERE GRANTED TO THE 
STATES

It is undisputed that Title I funds are granted by the 
federal government to state agencies only for programs 
which contribute to meeting the needs of educationally 
deprived children in areas where there are large con­
centrations of children from low-income families.4 From 
its inception, the statute was constructed to make certain 
that the funds were used only for the intended purposes. 
Schools, attendance areas and children had to meet very 
specific statutory criteria to obtain Title I funds and 
states had to submit assurances that the funds would be 
administered in accordance with all applicable statutes 
and regulations.6 Thus states receiving funds under Title 
I took them for specific purposes and for no other. When, 
therefore, the states used such funds for their own, un­
authorized purposes, they breached the condition under 
which the funds were granted. Their position is like that 
of a trustee who has received money for one purpose and 
wrongfully converts it to his own use. It is inherent in 
the condition of trusteeship that funds so converted would 
be subject to repayment. So here, it is inherent in the 
restricted terms on which the grant of funds was made 
that funds converted to unauthorized uses must be repaid.

The states argue, and the court below, without specifi­
cally deciding the issue, seems to have accepted, the prop­
osition that, under the “overarching principle” of Penn- 
hurst State School v. Halderman, 451 U.S. 1 (1981), the 
states had no obligation to repay misused funds because

4 Elementary and Secondary Education Act of 1965, Pub. L. No. 
89-10, 79 Stat. 27, reprinted in [1965] U.S. Code Cong. & Ad. 
News 29.

5 Pub. L. No. 89-10, § 206, 79 Stat. 27, reprinted in [1965] U.S. 
Code Cong. & Ad. News 29, 34.



9
the duty to repay was not specifically spelled out in the 
statute until the 1978 amendments. They suggest that 
the inclusion in the statute of other remedies for misuse, 
such as the right to withhold future grants,6 indicates 
that no other remedy for misuse was intended. Such rem­
edies are not, however, inherent in the conditions of the 
grant, as is the basic principle that funds converted from 
their intended purpose must be repaid. The fact that 
Congress did not find it necessary to spell out this funda­
mental principle of law cannot be taken as evidencing an 
intent to render it inapplicable. If a contract of em­
ployment specified theft as a reason justifying discharge, 
this would not give the employee the right to keep the 
money he had stolen. So here, the fact that Congress 
specified that future grants could be withheld does not 
indicate an intent to immunize the states from the basic 
duty to repay funds which were received for one purpose 
and diverted to the states’ own uses.

This Court’s opinion in Permhurst State School v. 
Halderman, supra, does not compel a different conclusion. 
Pennhurst involved a statute which failed adequately to 
inform states participating in the program which it 
created of the operating conditions attached to receipt of 
a grant; the instant matter concerns the sanctions which 
attend violation of statutory conditions which have at all 
times been known to participating states.

The fact that Congress in 1978 specially spelled out the 
duty to repay misused funds does not mean that such 
duty did not previously exist. As we develop in more 
detail below, the 1978 amendments were enacted in re­
sponse to a well-documented decline in audit and recov­
ery activity on the part of the Office of Education. They 
were designed to establish mandatory standards for the 
audit process. In such a comprehensive detailing of the 
procedure for audit and review, it was natural to spell

6 Pub. L. No. 89-10, §210, 79 Stat, 27, reprinted in [1965] U.S. 
Code Cong. & Ad. News 29, 36.



io

out the obligation to pay as well as the procedure for 
enforcing payment. Caution and redundancy on the part 
of lawyers and legislators are not uncommon. Reaffirma­
tion of the duty to repay misused funds cannot, there­
fore, be taken as a sign that Congress previously intended 
to abrogate the fundamental duty to repay misused funds. 
To the contrary, as the legislation discussed in Point II 
of this brief makes clear, Congress always recognized that 
misspent funds were subject to recovery by the federal 
government. Indeed, in 1974, Congress enacted a five- 
year statute of limitations on the right of the federal gov­
ernment to recover misspent funds from the states.7 (See 
infra, p. 13) It is thus evident that Congress never 
deemed it necessary to spell out the basic concept that 
misspent funds should be repaid. That it did so in 1978 
in the course of an attempt to strengthen the administra­
tive efforts at enforcement neither adds to nor changes 
the fundamental duty which already existed. States 
which obtained money for a specific, limited, purpose are 
properly held to the knowledge that they must repay 
funds converted from that purpose to their own use.

II. SINCE ITS INCEPTION, THE ELEMENTARY AND 
SECONDARY EDUCATION ACT HAS GIVEN THE 
FEDERAL GOVERNMENT THE POWER TO CON­
DUCT AUDITS AND DEMAND REPAYMENT OF 
FUNDS DETERMINED TO HAVE BEEN MIS­
SPENT

Since the duty of the states to repay misused funds is 
clear, the only issue in this case is how that duty may be 
enforced. We agree with the government that, even with­
out statutory authority, the government would have the 
right to enforce payment by appropriate and reasonable 
means, including deducting or withholding the amount 
due from other sums otherwise payable to the recipient.

7 Pub. L. No. 93-380 (Education Amendments of 1974), § 106, 88 
Stat. 484, reprinted, in [1974] U.S. Code Cong. & Ad. News 541, 576.



i i

We rely on the government’s argument on that point. 
Here we deal only with the proposition that from the en­
actment of the statute, Congress authorized and affirmed 
the use of administrative methods to determine the extent 
of misused funds and to enforce repayment thereof.

Since the Title I program began, the Department of 
Education (or its predecessor agencies) have audited 
state and local projects and demanded repayment of funds 
determined to have been misspent. Congress has always 
been aware of these activities and has enacted legislation 
to facilitate the audit-collection process.

Section 424 of the General Education Provisions Act,8 
Pub. L. No. 91-230,® enacted in 1970, prescribed specific 
procedures for keeping and retaining records to deter­
mine expenditures. It also authorized access by the Sec­
retary and Comptroller General or their duly authorized 
representative to make “effective audit.” 10 The author-

8 The General Education Provisions Act (GEPA), 20 U.S.C.S. 
§ 1221 et seq., contains general provisions regarding planning, evalu­
ation, operation and administration of federal education programs. 
Its provisions ai*e part of ESEA and applicable to Title I.

9 (Education Amendments of 1970) 84 Stat. 121, reprinted in 
[1970] U.S. Code Cong. & Ad. N ews 133, 191.

10 The statute provides:
Records and Audit

See. 424. (a) Each recipient of funds from a grant or con­
tract under any applicable program shall keep such records as 
the Commissioner shall prescribe, including records which fully 
disclose the amount and disposition by such recipient of the 
proceeds of such grant, the total cost of the project or under­
taking in connection with which such grant or contract is given 
or used, and the amount of that portion of the cost of the 
project or undertaking supplied by other sources and such 
other records as will facilitate an effective audit.
(b) The Secretary and the Comptroller General of the United 
States, or any of their duly authorized representatives, shall 
have access for the purpose of audit and examination to any



12

ity of the administrative agency to determine whether 
there had been misuse of restricted funds was thus clearly 
established. Congress could not, as the court below sug­
gested, have intended the audit procedure to be merely a 
way of getting information. If misapplication were 
found, the agency would be duty bound to take action to 
remedy the situation. Demand for repayment of misex- 
penditures is the obvious choice.

That Congress expected the agency to take action to 
recover misapplied funds uncovered as a result of an 
audit is confirmed by legislative history accompanying 
this provision.

S. Rep. No. 91-634, 92d Cong., 2d Sess., reprinted in 
[1970] U.S. Code Cong. & Ad. N ews 2768, 2827 states:

Audit reports on Title I of the Elementary and 
Secondary Education Act have been valuable to the 
committee in its review of that program. The com­
mittee notes that exceptions have been taken to cer­
tain expenditures of title I during the initial years 
of the program and, to the extent this committee has 
reviewed those exceptions, they appear to be well 
founded. Even though there may be difficulties aris­
ing from recovery of improperly used funds, those 
exceptions must be enforced if the Congress is to 
carry out its responsibility to the taxpayer.

This shows that, contrary to the opinion below, Con­
gress did not enact the audit provisions merely to obtain 
information. It knew that the agency was determining 
misapplication of funds and enforcing repayment and ex­
pected the agency to continue to do so.

Subsequent developments make this even clearer. In 
1972, at the suggestion of the grantees, the Secretary, 
under his rulemaking power, established the Title I Audit

books, documents, papers, and records of the recipients that are 
pertinent to the grant or contract received under any applicable 
program.



13
Hearing Board (AHB) to review determinations of mis­
application found as the result of audits (37 Fed. Reg. 
23002-03). In 1974 Congress enacted amendments to 
ESEA, which contained a five-year statute of limitations 
on liability for the refund of misspent Title I funds. Pub. 
L. No. 93-380 (Education Amendments of 1974), § 106, 
88 Stat. 484, reprinted in  [1974] U.S. Code Cong. & Ad. 
News 541, 576, provides :

S ta tu te  o f L im itations on R efund  of Paym ents
No state or local educational agency shall be liable 
to refund any payment made to such agency under 
this Act (including Title I  o f this A ct)  which was 
subsequently determined to be unauthorized by law, 
if such payment was made more than five years 
before such agency received final written notice that 
such payment was unauthorized, (emphasis added)

The period of limitations was made to run back from 
the time the state or local agency received “final written 
notice” that such payment was unauthorized. In explain­
ing what was meant by “final written notice” the House 
Report reviewed the various steps then existing in the 
administrative process and stated:

The Committee intends “final written notice” to be 
that notice which is given after the State or local 
agency has been notified of the audit exception by 
HEW and after the Office of Education has deter­
mined that it does intend to collect on that audit 
exception.

H.R. Rep. No>. 93-805, 93rd Cong., 2d Sess., reprinted in  
[1974] U.S. Code Cong. & Ad. News 4093, 4160.

Congress thus sanctioned the use of administrative pro­
ceedings to enforce the duty to repay misspent funds.

In 1978 Congress enacted Section 185,11 (Pub. L. No. 
95-561, 92 Stat. 2143, 2190 (codified as amended at 20

11 Audits and, Audit Resolution
Sec. 185. (a) Auditing.—The Inspector General of the Depart­
ment of Health, Education, and Welfare shall make provision



14

U.S.C.S. § 2835 (Supp. 1982)) of Title 1 which directs 
the Inspector General to conduct audits, and directs the 
Commissioner to adopt procedures to assure “timely and 
appropriate” resolution of audit findings. That statute 
provides that where “under such procedures” the audit 
resolution requires repayment of misspent funds, the 
Commissioner “shall require the repayment.” It then 
specifies how repayment may be made.

At the same time it enacted Section 185, Congress 
amended the General Education Provisions Act (GEPA) 
to clarify the procedures for audit, including the provi­
sion invoked by the states here for judicial review of a 
final decision by the Court of Appeals.12

The Third Circuit held that enactment of Section 185 
and other audit provisions in GEPA would not have been 
necessary if Congress had meant to give this power to 
the Office of Education (OE) before 1978; that if the

for audits of grants made under this title to determine, a t a 
minimum, the fiscal integrity of grant or subgrant financial 
transactions and reports, and the compliance with applicable 
statutes, regulations, and terms and conditions of the grant or 
subgrant.
(b) Audit Resolution and Repayment. The Commissioner shall 
adopt procedures, to assure timely and appropriate resolution of 
audit findings and recommendations arising out of audits pro­
vided for in subsection (a). Such procedures shall include time­
tables for each step of the audit resolution process and an audit 
appeals process. Where, under such procedures, the audit reso­
lution process requires the repayment of Federal funds which 
were misspent or misapplied, the Commissioner shall require 
the repayment of the amount of funds under this title which 
have been finally determined through the audit resolution 
process to have been misspent or misapplied. Such repayment 
may be made from funds derived from non-Federal sources or 
from Federal funds no accountability for which is required to 
the Federal Government. Such repayments may be made in 
either a single payment or in installment payments over a period 
not to exceed three years.

«20  U.S.C.S. § 1234d (Supp. 1982).



15

power to make and enforce administrative determinations 
previously existed, Congress was, in the 1978 statute, per­
forming a redundant act. It is, however, evident from 
the face of Section 185 itself that Congress was not creat­
ing new rights or even basically new procedures. It was 
merely directing the strengthening of existing procedures 
and regulating an already existing administrative proc­
ess, For example, the power to conduct audits had, as 
noted above, been given to the Secretary in 1970. Section 
185 did not confer new powers; it merely directed that 
audits be conducted by the Inspector General. Similarly, 
subsection (b) of Section 185 assumes the existence of an 
administrative process; it merely directs a speeding up 
of that process by requiring timetables and by specifying 
methods of repayment. Particularly when read with the 
amendments of GEPA relating to the administrative proc­
ess, Section 185 is properly understood as clarifying an 
old process, not establishing a new one.

The legislative history of § 185 and the enforcement 
provisions of GEPA show that Congress enacted these 
amendments to correct what it regarded as inadequate 
enforcement by the Office of Education.

H.E. Rep. No. 95-1137, 95th Cong., 2d Sess., reprinted 
in [1978] U.S. Code Cong. & Ad. N ews 4971, 5023-24 
states in p a rt:

The Committee is disturbed by the aforementioned 
NIE findings concerning the decline in the level of 
HEW audit activity focused on Title I. The Com­
mittee wishes to emphasize that the Inspector Gen­
eral of HEW should insure that Title I programs are 
audited on a regular basis. . . .
The Committee has in the past expressed its dis­
satisfaction with the Title I audit resolution process. 
Adequate improvement has not been forthcoming. 
The Committee directs the Commissioner to promul­
gate regulations describing each step of the audit 
resolution process and deadlines for its completion.



16
The Committee expects that such regulation will 
reflect the relationships among the various OE re­
sponsible offices and the Office of the Inspector Gen­
eral. The Committee notes that the HEW Sanction 
Study states that . . as of this writing it may be 
said that coordination among the various responsible 
OE offices (BESE, Audit Liaison and Coordination 
Office, Audit Hearing Board, and Finance Division) 
is poor. Their roles are not clearly defined and writ­
ten procedures have yet to be finalized.”

The National Institute of Education (NIE) reports 
referred to by the Committee 18 contained a detailed anal­
ysis of the monitoring and enforcement of Title I and 
concluded that, for various reasons, there had been a 
marked decline in the monitoring of the use of Title I 
funds. The Committee, finding the quality of the research 
by NIE to be excellent, relied on these reports in formu­
lating amendments to Title I. H.R. Rep. No. 95-1137, 
95th Cong., 2d Sess., reprinted in [1978] U.S. Code 
Cong. & Ad. N ews 4971, 4975. See also, 124 Cong. Rec. 
27,317 (1978) (statement of Sen. Pell). The Committee 
also relied on recommendations for clarifying and simpli­
fying the statute prepared by The Legal Standards Proj­
ect of the Lawyers’ Committee for Civil Rights Under 
Law, many of which were incorporated into S. 1753 and 
H.R. 15. (The House bill was passed in lieu of the Sen­
ate bill.)14 All this material indicates that Congress and

13 See National Institute of Education, Administration of Com­
pensatory E ducation (1977). The NIE prepared six reports pur­
suant to the Education Amendments of 1974, Pub. Law 93-380. 
NIE had been directed by Congress to conduct a comprehensive 
three-year study of Title I.

14 A comparison of the language in the Lawyers’ Committees’ 
recommendations on § 185 and its accompanying legislative history 
(see R. Silverstein, A Description and Analysis of H.R. 10891— 
A B ill Reorganizing and Amending T itle I of th e  E lementary 
and Secondary E ducation Act, 354-57 (1978)) and the language 
included in Pub. L. 95-561 and H. Rep. No. 95-1137 reveals that the 
Lawyers’ Committees’ recommendations on this section were adopted 
almost verbatim by the Committee.



17

its consultants did not think of their efforts as creating 
new rights or new procedures but as clarifying and cor­
recting an existing process.

III. EVEN IF THE DEPARTMENT OF EDUCATION 
HAS NOT ALWAYS HAD AUTHORITY TO DE­
MAND REPAYMENT, ITS PRESENT STATUTORY 
AUTHORITY TO DO SO SHOULD BE APPLIED TO 
THE AUDITS IN THE INSTANT CASE

As discussed in Point I of this brief, there can, in our 
view, be no serious doubt of the basic obligation of states 
to repay funds which were given to them for a specific 
purpose but converted by them for their own unauthor­
ized uses. The review of the audits here involved were 
conducted by the Educational Appeal Board, created by 
the 1978 amendments as successor to the prior adminis­
tratively created Board.1,5 Review of the audits were ini­
tiated by the states in the Court of Appeals pursuant to 
the 1978 amendments (20 U.S.C.S. § 1234d(Supp. 1982)). 
Under these circumstances the 1978 statutory amend­
ments should be applied to the audits in the instant case. 
The 1978 amendments did not create any new obligation 
on the part of states; at most the 1978 amendments de­
fined an administrative method (with right of judicial 
review) for enforcing an existing obligation. The change, 
if it was a change, was procedural, not substantive.

It is an established rule of statutory construction that 
changes in procedure or remedies, which do not take away 
substantive rights, are applicable to cases pending at 
the time of enactment. See Hallowell v. Commons, 239 
U.S. 506, 508 (1916).16 Similarly, the general rule is

is 20 U.S.C.S. § 1234 (Supp. 1982).
is See also United States v. Vanella, 619 F.2d 384, 386 (5th Cir. 

1980) ; Bush v. State Industries, Inc., 599 F.2d 780, 786 n.9 (6th 
Cir. 1979); United States v. Blue Sea Line, 553 F.2d 445, 448 (5th 
Cir. 1977) ; Roger v. Ball, 497 F.2d 702, 706 (4th Cir. 1974); and 
see generally Sikora v. American Can Co., 622 F.2d 1116, 1119 (3rd



18
that a court must apply the law in effect at the time it 
renders its decision, Gulf Offshore Co. v. Mobil Oil Corp., 
453 U.S. 473, 486 (1981); Cort v. Ash, 422 U.S. 66, 77 
(1975) ; Bradley v. School Bd. of Richmond, 416 U.S. 696, 
711 (1974). This rule applies with equal force where 
the change is made by an administrative agency acting 
pursuant to legislative authorization. Thorpe v. Housing 
Auth. of Durham, 393 U.S. 268, 282 (1969). Neither rule 
will, however, be applied when to do so would result in 
manifest injustice or there is statutory direction or legis­
lative history to the contrary. Cort v. Ash, 422 U.S. at 
77; Bradley v. School Bd. of Richmond-, 416 U.S. 711; 
United States v. Vanella, 619 F.2d 384, 386 (5th Cir. 
1980) ; Roger v. Ball, 497 F.2d 702, 706 (4th Cir. 1974).

It would not be manifestly unjust to apply the 1978 
amendments regarding audits to pre-1978 audits. Not 
only did the obligation to repay misspent funds exist from 
the time the funds were converted from their intended 
use, but even the procedures for collection were in gen­
eral well known to the states before 1978. Audits and 
recoupment of misspent funds had been taking place 
since the program began. In 1970 when the statute was 
amended to include recordkeeping requirements which 
would facilitate effective audits, the states must have ex­
pected some consequences if an audit revealed misapplica­
tion of funds. The 1974 statute of limitations, which ran 
the period back from the final administrative decision, put 
the states on notice that administrative methods of en­
forcement were in progress.

As discussed above, the 1978 amendments on their face 
reveal an intent, reinforced by the legislative history, to

Cir. 1980); Mahroom v. Hook, 563 F.2d 1369, 1373 (9th Cir. 1977), 
cert, denied, 436 U.S. 904 (1978); United States v. Mechem, 509 
F.2d 1193 (10th Cir. 1975); Womack v. Lynn, 504 F.2d 267, 269 
(D.C. Cir. 1974); Brown v. General Services Admin., 507 F.2d 1300 
(2d Cir. 1974), aff’d, 425 U.S. 820 (1976); Montana Power Co. v. 
Federal Power Comm’n, 445 F.2d 739, 747 (D.C. Cir. 1970), cert, 
denied, 400 U.S. 1013 (1971).



19

clarify and strengthen existing procedures. The legisla­
tive history of § 451 of GEPA,17 creating the Education 
Appeal Board (EAB) indicates that Congress fully ex­
pected the new Board to build upon the existing Title I 
Audit Hearing Board. H. Rep. No. 95-1137, 95th Cong., 
2d Sess., reprinted in [1978] U.S. Code Cong. & Ad. 
News 4971, 5111. Thus, it is apparent that Congress did 
not intend the 1978 amendments to have only prospective 
effect. Rather, the 1978 amendments, including Section 
185, were procedural changes, properly applied to pend­
ing cases. Indeed the states themselves so recognized 
when they sought review of the audits in the Court of 
Appeals pursuant to section 455;18 hence the procedures 
of the 1978 amendments, including Section 185, are 
properly applied here.

IV. THERE ARE STRONG POLICY REASONS FOR RE­
QUIRING REPAYMENT IN THE INSTANT CASE

The Third Circuit’s decision was obviously influenced 
by its fear that requiring repayment in the instant case 
would cause educationally deprived children living in poor 
areas to suffer. In light of the 1978 amendments to 
GEPA, however (which, as we have shown, are properly 
applied here), there is no basis for this fear.

Requiring repayment of misspent or misapplied Title 
I funds is not a penalty, but rather restitution of funds 
which were improperly used. If restitution is not made, 
the educationally deprived children who failed to receive 
the benefits of the misspent funds are the parties who 
are penalized. Any hardship on States and/or local edu­
cation agencies (LEAs) can be mitigated, and the equita­
ble rights of educationally deprived children to the bene­
fits of these funds substantially preserved, by use of the 
75% payback provision added to ESEA in the 1978 edu-

1T 20 U.S.C.S. § 1234 (Supp. 1982).
18 20 U.S.C.S. § 1234d (Supp. 1982).



20

cation amendments (§ 456, 20 U.S.C.S. § 1234e (Supp. 
1982)).10 Pursuant to this section up to 75% of mis-

19 This section states:
Use of recovered funds
(a) Whenever the Commissioner has recovered funds following 
a final audit determination with respect to any applicable pro­
gram, he may consider those funds to be additional funds avail­
able for that program and may arrange to repay to the State 
or the local agency affected by that action not to exceed 75 per­
cent of those funds upon his determination that—

(1) the practices or procedures of the State or local agency 
that resulted in the audit determination have been corrected, 
and that the State or the local agency is in all other respects in 
compliance with the requirement of that program;

(2) the State or the local agency has submitted to the Com­
missioner a plan for the use of those funds pursuant to the 
requirements of that program and, to the extent possible, for 
the benefit of the population that was affected by the failure to 
comply or by the misexpenditures that resulted in the audit 
exception; and

(3) the use of those funds in accordance with that plan would 
serve to achieve the purposes of the program under which the 
funds were originally granted.
(b) Any payments by the Commissioner under this section, 
shall be subject to such other conditions as the Commissioner 
deems necessary to accomplish the purposes of the affected 
programs, including—-

(1) the submission of periodic reports on the use of funds 
provided under this section, and

(2) consultation by the State or local agency with parents or 
representatives of the population that will benefit from the 
payments.
(c) Notwithstanding any other provisions of law, the Commis­
sioner may authorize amounts made available under this section 
to remain available for expenditures, subject to such conditions 
as he deems appropriate, for up to three fiscal years following 
the fiscal year in which the audit determination referred to in 
subsection (a) was made.
(d) At least thirty days prior to entering into an arrangement 
under this section, the Commissioner shall publish in the Fed-



21
applied funds may be returned to the state or LEA for 
approved Title I programs.

Recovered funds must come from non-federal (or un­
restricted federal) grants, see § 185 (20 U.S.C.S. § 2835), 
and thus would augment funds otherwise available for 
Title I purposes. A withholding action, which the states 
urge as a penalty, would deny Title I children the mis­
applied funds not only when they are spent but also any 
or all future payments, rather than just the misspent 
portion, thereby penalizing them twice. Use of the repay­
ment sanction, on the other hand, would assure that the 
intended beneficiaries of the Title I program, originally 
harmed by the misexpenditure, would now benefit by ob­
taining a large portion of the original misspent amount.

Even without these special considerations, repayment 
for misspent funds is proper. There must be some pen­
alty for misusing Title I funds to insure that States and 
localities do not ignore statutory proscriptions. Unless 
there is an effective penalty for misuse of funds granted 
for a particular purpose, the temptation to misuse such 
funds will not be restricted, particularly in times of eco­
nomic stringency.

Other remedies for noncompliance, such as withhold­
ings,20 compliance agreements,21 and cease and desist 
orders,22 are effective only if noncompliance is discovered 
when it first occurs. In a program as large as Title I, 
under which 14,000 school districts receive funds annu-

eral Register a notice of his intent to do so and the terms and 
conditions under which payments will be made. Interested 
persons shall have an opportunity for at least thirty days to 
submit comments to the Commissioner regarding the proposed 
arrangement.
20 U.S.C.S. § I234d (Supp. 1982); 20 U.S.C.S. § 2836 (Supp. 

1982).
21 20 U.S.C.S. § 2836(c) (Supp. 1982).
22 20 U.S.C.S. § 1234c (Supp. 1982).



22

ally, it is impossible to discover all violations at the time 
they occur. Enforcement through post-expenditure audit 
findings is therefore essential.

To excuse pre-1978 violations would allow New Jersey, 
Pennsylvania, and other states with cases still on appeal 
to avoid the requirements of the law.23 Such a result 
would encourage state and local districts to take program 
requirements less seriously. It would be unfair to states 
which have not violated program restrictions and states 
which, having been found in violation, have voluntarily 
recognized their accountability and paid their debts. The 
interests of Title I children and the taxpayer will suffer 
if States are allowed with impunity to spend funds out­
side of the purview of the program. These interests will 
be doubly impaired: first, because funds were diverted 
from those the program was intended to help, and again 
when these funds are not recovered. The rights of the 
program beneficiaries can be vindicated by repayment of 
the misspent funds. With the 75% payback provision, 
most of this money can then be directed to those for 
which it was originally intended—educationally deprived 
children.

23 If the Third Circuit’s opinion is. affirmed, it is very likely that 
other federal agencies will be challenged, in their efforts to recoup 
misspent funds, if there is no explicit statutory authority to demand 
repayment.



23

CONCLUSION

The judgment below should be reversed and the ease 
remanded to the Court of Appeals for determination of 
the issues remaining in the case.

Respectfully submitted,

Maximilian  W. Kem fner  
R ichard C. D inkelspiel  

Co-Chairmen 
W illiam L. Robinson 
Beatrice Rosenberg 
N orman J. Ch achk in  *
R uth E. Gordon 

Lawyers’ Committee for 
C ivil R ights U nder Law 

733 15th Street, N.W.
Suite 520
Washington, D.C. 20005 
(202) 628-6700

Attorneys for Amicus Curiae

*Counsel of Record