“The Georgia and Maine Stories” Impact on Recent Judicial Precedent on Federal Grants Management www.bruman.com Michael Brustein, Esq. Bonnie Graham, Esq. mbrustein@bruman.com bgraham@bruman.com

Brustein & Manasevit, PLLC © 2018. All rights reserved. Moral of the Story! Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Focus Effort on Front End, not Back End Brustein & Manasevit, PLLC © 2018. All rights reserved.

Opportunities to Impact Findings: Audit Exit Conference Draft Audit Report Final Audit Report Mgmt Letter (PDL) OGC Input OALJ Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Georgia Department of Education v. United States Department of Education U.S. Court of Appeals for 11th Circuit 2-28-2018 Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. The Eclipse of Equitable Offset ??? Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. What is Equitable Offset? Brustein & Manasevit, PLLC © 2018. All rights reserved.

The Genesis of Equitable Offset The Tangipahoa Parish case New York State Education Department – Time and Effort Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Equitable Offset Doctrine of Fairness/Equity Integral part of administrative law ED issued NPRM Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. What is the impact on MOE/Match/Supplanting if Equitable Offset triggered? Brustein & Manasevit, PLLC © 2018. All rights reserved.

Prelude: The Philadelphia Story – Part 2 Brustein & Manasevit, PLLC © 2018. All rights reserved.

Overlapping Timelines Philadelphia Audit Issued Jan. 2010 PDL March 2011 ALJ decision Feb. 2014 Secretary decision Dec. 2014 Established new test Limits holding to parties Third Circuit March 2016 Georgia Audit Issued Jan. 2008 PDL May 2012 ALJ decision (stayed for PA appeal) Jan. 2016 Secretary decision Nov. 2016 Eleventh Circuit Feb. 2018 Brustein & Manasevit, PLLC © 2018. All rights reserved.

The Philadelphia Story Part 2 New Test (Secretary Decision): Severity of the violation (honest or clerical error v. more serious violation) Whether grantee acted in “good faith” in response to the issue Whether the Department opposes the request for offset Brustein & Manasevit, PLLC © 2018. All rights reserved.

Factual Underpinnings to Georgia “[State auditors] uncovered evidence indicating a complex fraud scheme was in place, involving several GDOE employees, certain members of the independent external peer review panel, and a number of community- based organizations, to manipulate the outcome of the 21st Century grant competition in favor of these community-based organizations.” -PDL May 2012 Brustein & Manasevit, PLLC © 2018. All rights reserved.

Factual Underpinnings to Georgia 2006-2007 award year 54 grant applications; 29 awarded $29k paid to peer reviewers $10.7 million in total awards 17 awardees that were not qualified Totaling $5.66 million $3.6 million barred by statute of limitations Brustein & Manasevit, PLLC © 2018. All rights reserved.

How to Measure Harm to Federal Interest Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. GEPA Section 1234b “A recipient … shall be required to return funds in an amount that is proportionate to the extent of the harm its violation caused[.]” Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Do non-federal expenditures made by a grantee that could have been charged to the federal grant, but weren’t, “reduce the harm” to the federal interest? Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. OALJ Decision: Equitable offset is inconsistent with GEPA. Secretary Decision: Equitable offset is permitted under GEPA, but only if ED believes it is warranted given the circumstances. “In this case, I find that the nature and scope of GDE’s violation is too serious to warrant an equitable offset.” Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. 11th Circuit Court Decision: Noting that its review is “exceedingly deferential”, the Court determined that “the Secretary properly considered the circumstances of the underlying fraud … in denying the equitable offset remedy.” Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. The Eclipse of Equitable Offset ??? Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Coastal Counties Workforce, Inc. v. Paul LePage U.S. District Court District of Maine 1-3-2018 Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Just the Facts! Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Significant impact on authority of pass-through to impose conditions on federal funds Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. “OMB regulations do contemplate additional conditions imposed by a state at the subaward stage, but these are limited to financial and accounting measures.” 2 CFR 200.331 (a)(3) Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. “There is no indication in these regulations that state governments, as pass-through entities, may impose new substantive conditions on the receipt of funds absent noncompliance with the regulations by the recipient.” Brustein & Manasevit, PLLC © 2018. All rights reserved.

Brustein & Manasevit, PLLC © 2018. All rights reserved. Disclaimer This presentation is intended solely to provide general information and does not constitute legal advice or a legal service.  This presentation does not create a client-lawyer relationship with Brustein & Manasevit, PLLC and, therefore, carries none of the protections under the D.C. Rules of Professional Conduct.  Attendance at this presentation, a later review of any printed or electronic materials, or any follow-up questions or communications arising out of this presentation with any attorney at Brustein & Manasevit, PLLC does not create an attorney-client relationship with Brustein & Manasevit, PLLC.  You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. Brustein & Manasevit, PLLC © 2018. All rights reserved.