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South Carolina Department of Education v. Duncan, No. 12-1764

Decided:  April 26, 2013

The Fourth Circuit granted South Carolina’s petition for review and remanded the case to allow the Secretary of the U.S. Department of Education (“USDOE”) to provide South Carolina with notice and an opportunity for a hearing before making a final decision on South Carolina’s waiver for reducing its financial support for special education below the preceding fiscal year in order to receive federal funding under the Individuals with Disabilities Education Act (“IDEA”).

IDEA provides for grants of federal funding to States for the education of disabled children.  In order to be eligible, States cannot reduce the amount of its own funding for special education below the amount that was provided by the State the previous year.  If a State fails to meet this “maintenance-of-effort” condition, as it has been defined, then the Secretary of USDOE has to reduce the level of federal funding for subsequent years by the amount of the shortfall.  In 2011, South Carolina requested a wavier of its “maintenance-of-effort condition” under the IDEA for approximately $67.4 million for the fiscal year ending in 2010.  The Secretary of USDOE granted a partial waiver and denied it “to the extent of $36.2 million.”  South Carolina then sought a hearing on the decision, but was advised by the USDOE that IDEA does not provide for such a hearing because such a hearing was only limited to situations where the USDOE rejected eligibility of a State for funding or the withholding of funds – neither of which occurred here.  South Carolina then filed a petition for review to the Fourth Circuit challenging the denial of the request for a full waiver and requesting a full hearing.  The USDOE filed a motion to dismiss and asserted that the Fourth Circuit did not have jurisdiction to consider the petition because the waiver determination was “a final agency action” and “subject to review only in the district court” pursuant to the Administrative Procedure Act (APA).

The Fourth Circuit first addressed the issue of whether it had jurisdiction to consider the petition.  South Carolina argued that IDEA’s provisions allows a State to file a petition for review in the court of appeals when the State is arguing an issue with respect to eligibility of the State to receive funding under IDEA.  The USDOE asserted that South Carolina was challenging was a USDOE action that did not involve an issue of “eligibility,” but rather death with an issue regarding South Carolina’s “compliance” under the statute.  The court held that the language of the statute indicates that conditions on eligibility deal with forward-looking consequences of fund reductions, whereas a condition of non-compliance requires an evaluation of past performance.  In this case, the court held that South Carolina’s petition for review of a full waiver of the “maintenance-of-effort” is an “action with respect to eligibility” because it results in the loss of future funding.  The court further asserted that a State does not have to be found “completely” ineligible for funding for the court to have jurisdiction.  It is enough that the action was based on a partial reduction of funding based on a failure to satisfy an eligibility condition like the “maintenance-of-effort” condition.  The court next turned to whether South Carolina was entitled to notice and an opportunity for a hearing.  On this second issue, the USDOE again argued that South Carolina’s waiver request was not an eligibility determination and did not involve a withholding and, as such, the statute did not require notice and a hearing.  Based largely on its prior reasoning, the court held that the partial denial of the maintenance-of-effort waiver does constitute an eligibility action and, therefore, South Carolina is entitled to notice and a hearing.  The court’s logic focused on the fact that “[w]hen the USDOE decided that South Carolina was only entitled to partial wavier . . . it made a determination that the ‘State was not eligible’ for the funding it otherwise would have received.”  Therefore, South Carolina was entitled to notice and a hearing.

Full Opinion

– John G. Tamasitis