Appeal Timeliness – 705(c)

Appeal Brief

Summary

Appeal Letter

Appeal Analysis

Background

During the incident period of October 23 through November 18, 2005, Hurricane Wilma caused strong winds and flooding to inundate Miami-Dade County and its surrounding areas.  Following the disaster, FEMA prepared Project Worksheet (PW) 8096 to document disaster related damages suffered by the East Ridge Retirement Village (Applicant), a private nonprofit entity that ran a critical private nonprofit facility.[1]  FEMA obligated a total of $180,203.24[2] in Public Assistance (PA) funding to complete permanent restoration work through Version 0 of the PW. 

Subsequently, FEMA approved PW 8096 (Version 3), deobligating $113,003.24[3] of the previously awarded $180,203.24 in PA funding.  In a letter to the State of Florida Division of Emergency Management (Grantee) dated November 2, 2010, FEMA confirmed the close-out of PW 8096, and attached its Voucher Analysis, also dated November 2, 2010, which demonstrated that FEMA deobligated $113,003.24 in PA funding from PW 8096 (Version 3) due to a cost underrun resulting from actual documented costs being lower than the original PW estimated amount, and the deduction of actual insurance proceeds. 

By way of a letter dated November 4, 2010, the Grantee forwarded the project application summary package for PW 8096 (Version 3) to the Applicant, thus notifying it of the deobligation of PA funding.  Moreover, it advised the Applicant of its appeal rights and appeal procedural requirements pertaining to FEMA’s determination.  In addition, the Grantee forwarded FEMA’s close-out letter and Voucher Analysis to the Applicant via a December 6, 2010 letter.    

First Appeal

The Applicant appealed FEMA’s decision to deobligate PA funding via a December 2, 2010 letter.  It stated the Applicant’s insurance recovery was $214,665.93, not the $297,683.10 FEMA deducted from the project.  Therefore, it argued it only owed FEMA $29,986.07 in reimbursement, not $113,003.24, a difference of $83,017.17.  In a letter dated January 23, 2011, the Grantee recommended FEMA approve the appeal.[4]  The Grantee transmitted its letter and the first appeal for PW 8096 to FEMA Region IV via an August 15, 2014 email.

On February 17, 2015, FEMA issued a Basic Request for Information (RFI) to the Grantee and the Applicant, requesting the final and most recent Statement of Loss, along with a copy of the most current and final Proof of Loss for the entire claim.  The Grantee forwarded a response by way of an August 23, 2016 letter, attaching a Statement of Loss, dated May 4, 2006, and a letter from the Applicant’s engineer to the Applicant’s insurance company, dated May 17, 2007, with accompanying photographs of the damaged area.

On July 18, 2017, FEMA transmitted a Final RFI to the Grantee and the Applicant, notifying them that the record did not appear to contain sufficient information documenting that the Grantee submitted the Applicant’s appeal within 60 days of receipt, as required by Title 44 Code of Federal Regulations (44 C.F.R.) § 206.206(c).[5]  Specifically, FEMA noted that the Applicant’s first appeal letter was dated December 2, 2010, and although the Grantee’s first appeal transmittal letter was dated January 23, 2011, FEMA did not receive the Grantee’s letter or the first appeal submission until August 15, 2014, approximately 42 months beyond the 60 day regulatory timeframe.  As a result, FEMA requested they provide documentation supporting the assertion that the Applicant’s and the Grantee’s appeal letters were filed within the required 60 day timeframe.

The Applicant responded to the Final RFI via a letter dated August 16, 2017, providing a federal express tracking number to demonstrate it submitted its first appeal to the Grantee on December 2, 2010.  The Grantee responded in a letter dated August 21, 2017, confirming the Applicant filed its first appeal with the Grantee on December 2, 2010.  It conceded it did not have additional documentation demonstrating it submitted the appeal to FEMA within the 60 day time limit, but asserted that a showing of submission within 60 days by the Grantee was not necessary, since FEMA was barred from deobligating the funding by Section 705(c) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) of 1988.[6]  It argued that Section 705(c) is a statutory bar, not an affirmative defense, which means that FEMA has the burden of demonstrating the requirements of Section 705(c) have not been met; the Applicant need not assert 705(c) as a defense.  The Grantee contended the Applicant had not exhausted its administrative right to a first appeal as FEMA had yet to demonstrate the required Section 705(c) analysis.

On November 13, 2017, the FEMA Region IV Regional Administrator (RA) denied the appeal.  The RA noted that the Grantee did not forward the first appeal until August 15, 2014, 42 months 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.

Second Appeal

By letter dated January 12, 2018, the Applicant appeals FEMA’s decision to deny the Applicant’s request to reinstate $83,017.17 in PA funding based on the Grantee’s untimely appeal submission.  The Applicant argues that FEMA’s decision is inconsistent with Stafford Act § 423 and 44 C.F.R. § 206.206(c)(1) and (2).  It contends that basing the timeliness of an Applicant’s appeal on the actions of the Grantee (a third-party over which the Applicant has no control) violates Stafford Act § 423(a), which gives the applicant the right to appeal as long as it files an appeal within 60 days of receipt of notice of the appealable action.[7]  Moreover, it asserts that FEMA’s interpretation of 44 C.F.R. § 206.206(c)(2) is erroneous, insisting that the regulation is not intended to be read conjunctively with 44 C.F.R. § 206.206(c)(1).  To demonstrate, the Applicant notes 44 C.F.R. § 206.206(c)(1) and (2) are not joined by the word “and,” which is typically included when provisions of a regulation are intended to be read together.  Therefore, the absence of “and” indicates the sections are independent of one another and are not meant to be read together.  Furthermore, the Applicant emphasizes the inclusion of “must” in 44 C.F.R. § 206.206(c)(1) to describe the appellant’s appeal submission obligation, versus the use of “will” in 44 C.F.R. § 206.206(c)(2) to reference the grantee’s appeal transmittal obligation, which suggests the former is the dominant provision, to demonstrate the timeliness of the appeal is determined based on the action of the initiating party, i.e., the appellant.  Finally, it asserts that an appellant has timely filed its appeal as long as it files the appeal to the grantee within 60 days after receiving notice of FEMA’s determination.  It disputes the RA’s finding that an appeal is untimely based upon a grantee’s untimely transmittal.

Next, the Applicant states that FEMA’s first appeal decision is inconsistent with Section 423(c) of the Stafford Act,[8] as (1) the Applicant had no control over the Grantee’s transmittal of the appeal, and (2) the Applicant was the only entity in compliance with federal regulation, because both the Grantee and FEMA did not complete actions in accordance with the timeframes set forth in 44 C.F.R. § 206.206(c)(2) and (3).  The Applicant contends it is the only entity out of the three discussed who experiences a negative consequence as a result of the denial, and therefore, FEMA’s decision is neither fair nor impartial.    

The Applicant then argues that FEMA’s action of denying appeals based solely on a grantee’s untimely transmission violates Stafford Act § 325, which requires public notice and comment for any new or modified PA policy that could result in a significant reduction of assistance.  The Applicant asserts an increasing frequency of appeal denials based on grantee timeliness since 2017, which it contends constitutes a change in program policy that FEMA has applied retroactively and without public notice and comment.

Lastly, the Applicant states that FEMA’s deobligation of PA funding is contrary to Stafford Act § 705(c).  It argues that Stafford Act § 705(c) is unrelated to Stafford Act § 423(a), asserting the two sections are independent of one another.  Therefore, FEMA’s determination concerning the inapplicability of Section 705(c) based on the untimeliness of the first appeal submission lacks merit.  Moreover, it essentially reiterates the Grantee’s argument raised on first appeal, that Section 705(c) is a statutory bar, not an affirmative defense, which means that FEMA has the burden of demonstrating the requirements of Section 705(c) have not been met.  Finally, while the Applicant concedes it is not a State or local government, it argues a private nonprofit entity is nonetheless entitled to the protection of Section 705(c) as there is no rational reason for disparate treatment.  It states that it has demonstrated the presence of all three conditions of Section 705(c), and thus, is afforded its protection. 

The Grantee forwarded the appeal to FEMA by way of a March 12, 2018 letter, requesting FEMA reverse its first appeal decision and consider the merits of the appeal.  While it acknowledges that it only forwarded the Applicant’s first appeal letter, administrative record, and the Grantee’s letter of recommendation on August 15, 2014, it argues that Section 705(c) of the Stafford Act prohibits FEMA from deobligating the PA funding because all three prongs of the section are satisfied.  Furthermore, as Section 705(c) specifically applies to a State, it certainly protects and applies to the Grantee, which therefore bars recovery of the PA funding.  In addition, it contends late submission of an appeal does not affect Section 705(c), as the section is a statutory bar, not an affirmative defense.  Moreover, while it concedes Section 705(c) does not explicitly reference private nonprofit organizations, it asserts Section 705(c) is applicable because private nonprofit entities, even more than a State or local government, are most affected by a sudden loss in funding.  Unlike a State or local government, a private nonprofit organization does not have the ability to generate revenue for disaster recovery through taxing authority.  Consequently, the Grantee argues the absence of a reference to private nonprofit organizations within the section should not be construed as a denial of protection.  Lastly, the Grantee emphasizes that FEMA did not render its first appeal decision within the 90 day timeframe outlined by 44 C.F.R. § 206.206(c)(3).  The Grantee argues that the purpose of such timeframes was therefore defeated, and FEMA should render a determination on the merits of this appeal rather than issue a decision based on timeliness.

Discussion

Appeal Timeliness

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.[9]  If either the applicant or the grantee fail to meet these deadlines, the appeal is untimely and the applicant’s appeal rights lapse.[10]  Neither the Stafford Act nor Title 44 of the Code of Federal Regulations authorize FEMA to grant time extensions for filing appeals.[11]

The Grantee acknowledges it received the Applicant’s first appeal letter on December 2, 2010.  Therefore, the Grantee had until January 30, 2011 (60 days from receipt of the first appeal) to transmit the appeal to FEMA.  While the Grantee’s first appeal transmittal letter is dated January 23, 2011, the administrative record only reflects transmission of that letter and the appeal on August 15, 2014, when the Grantee emailed them to FEMA.  Moreover, the Grantee concedes in its second appeal letter that it did not forward the first appeal until August 15, 2014.  Therefore, as the Grantee submitted the first appeal more than 42 months beyond the 60 day timeframe required by 44 C.F.R. § 206.206(c)(2), the appeal is untimely.[12]

FEMA’s Regulatory Implementation of Stafford Act § 423

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.[13]  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.[14]  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.[15]  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.[16]  Therefore, 44 C.F.R. § 206.206(c)(2) does not abrogate an applicant’s statutory right of appeal.

Notice and Comment Requirements – Stafford Act § 325(a)

Section 325(a) of the Stafford Act provides for a notice and comment period for any new or modified policy that governs implementation of the PA program and that could result in “significant reduction of assistance under the program.”  Furthermore, if FEMA implements such a policy, FEMA cannot apply it retroactively, i.e., to disasters that took place before the date that the policy takes effect.[17] 

FEMA’s policy for adjudicating PA grant program appeals has not changed over the last year, as the Applicant asserts.  FEMA has enforced submission timeframes that apply to both the applicant and the grantee for years.  Moreover, nearly thirty years ago, a notice and comment period was provided for the very section at issue, 44 C.F.R. § 206.206, and neither the regulations nor statute governing the appeal period have changed since that time.[18]  Consequently, the Applicant’s assertion that FEMA has instituted a new policy, without a notice and comment period, and applied it retroactively, is without merit.

Stafford Act § 705(c)

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.[19]  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.[20]

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.[21]  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.[22]  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.[23]  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.[24]

As discussed above, the Applicant’s first appeal was untimely.  Accordingly, its appeal rights concerning Version 3 of PW 8096 lapsed, resulting in that determination becoming the final administrative decision concerning the actual insurance proceeds’ issue raised on this appeal.  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 under PW 8096 (Version 3).[25]  

Additionally, setting the appeal timeliness matter aside, as the Applicant is a private nonprofit entity, Section 705(c) is not applicable.[26]  While Section 705(c) explicitly provides that a “State or local government shall not be liable for reimbursement” when the three prongs described above are satisfied, it does not mention profit nonprofit organizations.  This omission is viewed as purposeful because where Congress intended to include private nonprofit entities in the Stafford Act, it did so explicitly (e.g., Sections 406 and 407).[27]

Conclusion

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 8096 (Version 3), Stafford Act § 705(c) is not applicable.  Timeliness aside, however, Section 705(c) is additionally not applicable because it does not apply to private nonprofit entities.  For all these reasons, the second appeal is denied.