author: HORACE T. WARD, District Judge.

text:
    Velma SMITH, Plaintiff, v. AMERICAN SERVICE COMPANY OF ATLANTA, INC., Defendant.
    Civ. A. No. C82-428A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Sept. 7, 1984.

      David Sweat, Martha Pearson, Athens, Ga., for plaintiff.
    Harry Bassler, Atlanta, Ga., for defendant.
   MEMORANDUM OPINION

HORACE T. WARD, District Judge.

This is a race discrimination action founded on 42 U.S.C. § 2000 et seq. (Title VII of the 1964 Civil Rights Act) and on 42 U.S.C. § 1981. Plaintiff alleges that she was an applicant for the position of receptionist at the defendant’s Weems Road facility in Tucker, Georgia. She claims that her non-selection was the result of racial discrimination.

Plaintiff advances two theories of recovery. First, plaintiff claims that her non-selection was the result of the use of a discriminatory selection device which, although neutral on its face, has an adverse impact on black persons.

Secondly, plaintiff contends that she was the victim of disparate treatment in that a white applicant of lesser or equal qualifications was selected instead of her and that racial discrimination was a substantial motivating factor in plaintiff’s non-selection.

The matter came before this court for trial on the merits on February 13, 1984. The following constitutes the court’s findings of fact and conclusions of law.

FINDINGS OF FACT

Plaintiff Velma Smith is a black female citizen of the United States, and a resident of Dougherty County, Georgia. Defendant American Service Company of Atlanta, Inc. (hereinafter “ASCA”) is a corporation authorized to transact business in the state of Georgia with a principal place of business located at 2006 Weems Road, Tucker, Georgia. ASCA is an employer engaged in business affecting commerce. Plaintiff moved from Albany to Atlanta seeking employment.

Around May of 1980, plaintiff was employed by a temporary service, Tempo Temps. As a part of her employment duties, she was assigned to the defendant ASCA as a receptionist. She performed in this capacity for a period of approximately two and one-half months. During this time, her performance was satisfactory. There was some testimony about minor complaints regarding plaintiff’s handling of phone calls, but the court does not find any significant evidence of less than adequate job performance by plaintiff.

ASCA decided to fill the temporary position of receptionist with a permanent employee on or about October, 1980. Plaintiff was invited to submit an application, which she did on October 23, 1980. In early November plaintiff learned that the company was advertising in the Atlanta newspaper for applicants for the receptionist job. Approximately fourteen individuals responded to the ad in early November, each of whom filled out an application form given to them by plaintiff. Each applicant was then interviewed by the executive secretary, Betty Roistacher, who referred three of the most qualified applicants to the company’s President, Everett Thomas, for a second interview.

Plaintiff’s application was handled differently. She was interviewed only by Larry Wallace, Vice President of the company. Mr. Wallace did not interview the other applicants. Defendant explains this difference in procedure by stating that the company was familiar with Smith’s job performance and saw no need to screen her. The reason given for the president not interviewing her was that he did not feel he could be objective after working with plaintiff.

Plaintiff and one white female, Jackie Ray, were selected as the two most qualified candidates, and were referred to Staples and Associates, an independent company, for a preemployment polygraph examination. At least partly on the basis of this polygraph examination the white female was selected over plaintiff. The polygraph examination is required by ASCA for all employees because of their concern about employees’ trustworthiness. Each employee is given a key to the place of business; many employees work inside people’s homes. (ASCA provides heating and air conditioning service.)

In early November, 1980 Tempo Temps was notified that defendant would not need Velma Smith’s services as of November 14, 1980. On December 15, 1980, Smith filed a charge of discrimination with the Equal Employment Opportunity Commission (hereinafter “EEOC”). On October 7, 1981 the EEOC issued its determination, in which it found that there was reasonable cause to believe the charge was true. The EEOC issued to Smith a Notice of Right to Sue on December 10, 1981. Smith filed this action against ASCA on March 2, 1982.

The record is not as complete as the court would like for it to be as to what transpired with the plaintiff after she ceased working for the defendant on November 14, 1980. Shortly thereafter the plaintiff returned to Albany, Georgia, testifying that this was due to her inability to find suitable employment in the Atlanta area. She further testified that she filed for employment compensation and was out of work until sometime in 1982. It further appears from the evidence that the plaintiff became interested in cosmetology at a point in time in 1981, enrolled in a course of study for that line of work and was licensed as a cosmetologist in December, 1982. Evidence further revealed that she later worked in this vocation. At the trial, the plaintiff testified that she had been unemployed since November, 1983 due to injuries sustained in an automobile accident. Plaintiff further testified that the acts, conduct and behavior of defendant in failing to hire her have caused her emotional stress and mental anguish.

Plaintiff’s case is based upon two theories: 1) that the use of the polygraph examination, and specifically the inquiry into applicant’s arrest record, has an adverse impact on minorities and 2) that plaintiff was the most qualified applicant for the job and that the failure to hire her was due to disparate treatment.

Adverse Impact

Plaintiff’s adverse impact claim is based on the selection procedures used by the company. The polygraphs in this case were conducted by Staples & Associates. The “Confidential Report of Polygraph Examination” provided by Staples & Associates gives the employer information on twelve areas and provides a recommendation as to whether or not the applicant should be hired. Of the twelve items, six of the items, marital status, physical and mental health, military history, education, driving record, and employment history are items which are inquired about on the defendant’s employment application form.

Additionally, the confidential polygraph report inquires into areas which are not on the defendant’s employment application: arrest record, use of drugs, drinking and gambling habits, indebtedness, undetected crimes, and thefts from former employers. The defendant routinely inquires into an applicant’s alcohol and drug use prior to the polygraph examination.

It is the inquiry into arrest records that plaintiff claims has an adverse impact on black persons, generally, and which she claims specifically impacted upon her non-selection for the vacancy at issue.

It is uncontroverted that the defendant utilized the information obtained from the polygraph examination given by Staples & Associates in making hiring decisions. In the case of plaintiff, she and a white female were referred to Staples & Associates for a polygraph examination as the last step prior to selection by the defendant. The evidence concerning these polygraph examinations reveals that the successful white applicant showed deception on the polygraph with regard to use of drugs. Plaintiff was found by the polygraph examiner to have been deceptive with regard to her arrest record and thefts from former employers.

Defendant now asserts that the failure to hire plaintiff was based upon several factors, only one of which was the polygraph test (e.g., her job record, instability and financial problems). With regard to the polygraph results, defendant claims its reservations about plaintiff were due to the evidence of deception, not the fact that she had an arrest record. This assertion carries little weight in view of the fact that Jackie Ray, the white applicant selected for the position, also exhibited signs of deception on her polygraph. Defendant distinguishes between the types of deception. Testimony was presented to show that the examiner considered Ms. Ray’s deception to have been sufficiently explained in her post-test interview. There is no evidence that plaintiff was ever given a similar opportunity.

The defendant’s statement of the reasons for not hiring plaintiff are unclear. Several different explanations have been offered at different times. Plaintiff testified that she was told the reason she was not hired was that the white female had greater accounting abilities than did plaintiff. This reason is not borne out by the record. The representative of the defendant in the proceedings before EEOC, attorney Gregory Sturgeon, stated that the defendant wished to withdraw that reason.

The defendant made numerous statements to the EEOC that the reason plaintiff was not hired was because of the results of the polygraph examination. In response to the determination of the EEOC issued on October 7, 1981 counsel for defendant stated:

She was fairly considered for the position and denied an employment opportunity because of possible deception in a polygraph examination concerning thefts of money and merchandise from former employers.

(Plaintiff’s Exhibit 7).

After vacillating previously about the reasons for not hiring plaintiff the company settled upon this reason, denying any reliance on the polygraph results concerning arrest record. It is clear that counsel understood that reliance on the arrest record could constitute a violation of Title VII. The evidence does not show that the arrest record was relied upon as a factor in the decision not to hire plaintiff.

Disparate Treatment

The evidence shows that plaintiff was treated differently during the selection process. As discussed previously, she was not screened by Ms. Roistaeher, and was interviewed by the vice president rather than the president of the company. None of the plaintiff’s references were checked. These facts are not necessarily indicative of discrimination in view of plaintiff’s prior experience with ASCA, which none of the other applicants had.

Other facts are not as easily explained. The evidence shows that Betty Roistaeher, hired as an executive secretary after working at ASCA on a temporary basis, also exhibited deception during her polygraph examination (regarding thefts from former employers). Ms. Roistaeher was hired for a position of responsibility despite this result. Jackie Ray, the woman hired for the position which plaintiff sought, also exhibited deception on her polygraph.

Defendant explains the hiring of these individuals by stating that hiring decisions are based on many factors, not only the polygraph results. This conflicts with the reason given to the EEOC for the failure to hire Velma Smith.

The evidence received concerning the relative qualifications of plaintiff and the white female hired by defendant indicates that plaintiff was better qualified for the position of receptionist. Plaintiff had successfully performed in the position of receptionist for a period of two and one-half months prior to applying for the permanent receptionist position. The evidence shows that there was no difference in the job responsibilities of a temporary receptionist and the permanent receptionist position. Plaintiff had previous work experience as a receptionist, including duties as a PBS phone operator and teletype operator. Additionally, plaintiff had either one and one-half or two and one-half years of college credits toward a degree in Business Administration. (Plaintiff’s application for employment states that she had 2lh years of college, which corresponds to her trial testimony. The preemployment form used by Staples & Associates shows IV2 years of college.)

The white female selected for the job had no experience as an office receptionist nor as a telephone operator. Rather, Jackie Ray’s experience was in the field of interior design and sales. Ms. Ray had some college credit toward a degree in Interior Design. She had never been employed by the defendant company and had never held a similar position with any company.

The evidence shows that plaintiff was treated differently in regard to the interview and hiring procedure, that she was the person most qualified for the position, and that a less qualified white female was selected for the position.

The evidence regarding defendant’s hiring of minorities is unclear. The EEOC record shows that there were no minority clerical employees at ASCA during the period from August 1, 1980 to December 31, 1980 and that all vacancies filled during that period were filled by whites. (Plaintiff’s Exhibits 2 and 7.) The information supplied by defendant to the EEOC shows that in November of 1980 the company employed five blacks and one American Indian, all as field workers. There were fifty-six total employees at that time. (Plaintiff’s Exhibit 4.)

Everett Thomas testified that in 1980 there were blacks employed in maintenance and installation, but that he had no records on employees’ races and could not give precise figures. He stated that there were six blacks (out of 27) employed in the company’s office at the time of trial. Larry Wallace testified that there have always been black employees and that at trial time there were nine black and two hispanic field employees (out of 32). There were no blacks in managerial positions. Betty Roistacher (hired October 20, 1980) testified that there have been two black receptionists and one black secretary during her employment at ASCA. According to plaintiff, there was one other black applicant for the receptionist position in the fall of 1980.

CONCLUSIONS OF LAW

This court has jurisdiction over the parties based upon 42 U.S.C. § 1981 and 42 U.S.C. § 2000e (Title VII of the 1964 Civil Rights Act).

Adverse Impact

In a case alleging adverse impact, a three-step analysis is employed.' First, the plaintiff has the burden of proving that the facially neutral selection factor has an adverse impact on a protected class. The employer then must show that the neutral factor is a business necessity. The plaintiff then has the opportunity to show that there exist alternative selection devices which would serve the employer’s interest but which would not have a similar undesirable impact on the protected group. Griggs v. Duke Power, 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975). In this case, plaintiff has not carried the burden of showing that the defendant’s selection procedure has a disparate impact on black persons in the state of Georgia.

In order to establish a prima facie case of disparate impact, plaintiff must show that defendant has a policy of rejecting applicants for the reason plaintiff was rejected. EEOC v. Local 638, et al., 401 F.Supp. 467, 482 (S.D.N.Y.1975); Green v. Missouri Pacific Railroad Company, 523 F.2d 1290 (8th Cir.1975). There are three recognized ways to establish a prima facie case: 1) to show that blacks as a class are excluded by the practice in question at a higher rate than whites; 2) to compare the percentage of black and white applicants actually excluded by the company in question or 3) to compare the percentage of blacks employed by the company to the percentage in the relevant geographical area. Green, supra at 1293-1294. The court finds that plaintiff has not made a prima facie case under any of these methods.

Plaintiff relies on well-settled case law invalidating the use of arrest records as a selection technique. Gregory v. Lit ton Systems, 316 F.Supp. 401 (C.D.Cal.1970), aff'd, 472 F.2d 631 (9th Cir.1972); Reynolds v. Sheet Metal Workers’ Local 102, 498 F.Supp. 952 (D.C.D.C.1980); Green v. Missouri Pacific Railroad Co., 523 F.2d 1290 (8th Cir.1975); Johnson v. Goodyear Tire and Rubber Co., 491 F.2d 1364 (5th Cir.1974). In each of these cases, the defendant company had a set policy of inquiring about an applicant’s arrest record and rejecting all applicants who had significant arrest records. This policy is illegal because it has been shown to eliminate black applicants at a higher rate than white applicants and is usually irrelevant as a predictor of job performance.

The present case does not fit the pattern of the cases cited above for several reasons. First, there has been no showing that ASCA has a policy of excluding applicants with arrest records, or even applicants whose polygraph results reflect deception concerning arrest records. Betty Roistacher was hired despite the indication of deception on her polygraph.

In this case, the practice under attack is not the exclusion of applicants with arrest records. In fact, the defendant did not even know if Velma Smith actually had an arrest record when they refused to hire her. The practice complained of is the use of a polygraph examination which inquires into the applicant’s arrest record.

Velma Smith’s polygraph reflected deception in response to the inquiry about prior arrests. It is the deception which defendants assert was a reason for their failure to hire her. There is no evidence in the record that the failure to hire was based on the possibility that Velma Smith had been arrested.

This case is factually comparable to Jimerson v. Kisco Company, Inc., 404 F.Supp. 338 (E.D.Mo.1975), affirmed, 542 F.2d 1008 (8th Cir.1976) where the Court rejected plaintiff's adverse impact claim since he was excluded for falsifying his application and not because of his arrest record. The Court stated that in order to establish a prima facie case of adverse impact, plaintiff would have to show that blacks as a class were excluded for falsification at a higher rate than whites, which was not demonstrated. 542 F.2d at 1010. Neither has it been demonstrated here.

In the present case, plaintiff’s statistical evidence was addressed to the adverse impact of rejecting applicants based on their arrest records. It has been conclusively established that blacks are arrested at a significantly higher rate than whites. It has not been established that defendant automatically excludes applicants who have been arrested. More importantly, it has not been established that plaintiff was refused employment solely on the basis of the results of her polygraph examination.

Although the use of polygraph examinations is highly controversial, it has not been shown that their use disparately impacts upon minorities. To make such a prima facie showing, plaintiff would have to demonstrate that the procedure selects applicants in a racial pattern significantly different from that of the applicant pool. Ramirez v. City of Omaha, 678 F.2d 751, 753 (8th Cir.1982). The only evidence of this nature in the record shows that there were two black applicants out of fourteen (the name of the second is not known) for the receptionist position and that a white was selected. There is also evidence that two blacks have been hired since plaintiff was rejected, presumably after submitting to the required polygraph examinations. In short, there is insufficient evidence to conclude that defendant’s selection procedure has or did have a disparate impact on blacks.

Disparate Treatment

The legal elements of a claim under Title VII are identical to those under § 1981. Lincoln v. Board of Regents, 697 F.2d 928, 935 (11th Cir.1983). The order and allocation of proof in a disparate treatment case is that set forth in McDonnell Douglas v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). In order to establish a prima facie case of racial discrimination in selection decisions, a plaintiff must show: 1) that he belonged to a protected group; 2) that he applied and was qualified for a job for which the employer was seeking applicants; 3) that despite his qualifications he was rejected; 4) that other employees with similar qualifications who were not members of the protected group were selected for the position.

Once a prima facie case has been shown, the defendant has the duty to articulate a legitimate nondiscriminatory reason for the employment decision made. Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981). This is a burden of production, not persuasion. Bell v. Birmingham Linen Service, 715 F.2d 1552, 1556 (11th Cir.1983). After the defendant has articulated a legitimate nondiscriminatory reason for its doctrine, the plaintiff has the burden of showing by a preponderance of the evidence that the defendant’s reason is a pretext for a discriminatory decision. Perryman v. Johnson Products Co., 698 F.2d 1138 (11th Cir.1983). The burden of showing pretext “merges” with plaintiff’s ultimate burden of proving unlawful discrimination. Burdine, 450 U.S. at 256, 101 S.Ct. at 1095.

The court finds that plaintiff has clearly established a prima facie case of discrimination based upon the evidence in the record. Plaintiff is black, she applied for the receptionist position for which she was qualified, she was rejected, and a white applicant with equal or lesser qualifications was hired.

The burden of rebutting this prima facie case shifts at this point. The defendant must produce evidence sufficient to raise a genuine issue of fact as to whether it discriminated against plaintiff. The reasons articulated for the hiring decision must be “legally sufficient to justify a judgment for the defendant.” Lincoln v. Board of Regents of University System, 697 F.2d 928, 937 (11th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 97, 78 L.Ed.2d 102 (1983), citing Burdine, supra. In the present case the court finds that defendant has failed to meet this burden.

The defendant has not clearly articulated a reason for selecting the white person over the plaintiff. The initial reason given was that the white persons had more “accounting experience.” The defendant then retracted this reason and stated that the polygraph results were determinative. The defendant has not relied on any one factor, but points to the overall qualifications of both plaintiff and the white female to justify the selection. The fact that defendant has not clarified the basis for its decision essentially constitutes a failure to articulate a legitimate nondiscriminatory reason for that decision.

Even if the court were to find that defendant has articulated a legitimate reason for not hiring plaintiff, its explanations lack credibility. Although plaintiff’s polygraph examination reflected some deception, which might otherwise be a legitimate reason for refusing to hire, the evidence shows that Jackie Ray also exhibited deception in her polygraph and was nevertheless hired. Therefore, the polygraph results cannot be considered a legitimate basis for defendant’s hiring decision. Further, plaintiff’s overall qualifications were better than Jackie Ray’s. The defendant’s explanations for failure to hire plaintiff are inconsistent with the evidence and therefore unpersuasive. Where the defendant’s explanation lacks credibility or where discrimination is the more likely motive, a case is made for pretext. Clark v. Huntsville City Bd. of Educ., 717 F.2d 525, 527 (11th Cir.1983), citing Burdine, 450 U.S. at 256, 101 S.Ct. at 1095.

In a disparate treatment case, plaintiff always bears the ultimate burden of persuading the court that defendant intentionally discriminated against her. Eastland v. Tennessee Valley Authority, 704 F.2d 613, 619 (11th Cir.1983); Lanphear v. Prokop, 703 F.2d 1311, 1314 (D.C.Cir.1983). Plaintiff must prove that race was a significant factor in defendant’s decision. Lincoln, 697 F.2d at 938. Under the Supreme Court’s Burdine guidelines, when a defendant fails to produce sufficient credible evidence to rebut a prima facie case, plaintiff will prevail without any further showing. Burdine, 450 U.S. at 254, 101 S.Ct. at 1094. The court is permitted to infer discriminatory motive, which is extremely difficult to prove directly.

The court has concluded that plaintiff should prevail on her disparate treatment claim. The evidence shows that plaintiff was better qualified for the receptionist job than the white person who was selected. The evidence also shows that plaintiff was treated differently from the other applicants during the selection process. Although plaintiff exhibited signs of deception in her polygraph test, the person selected for the job also exhibited deception, as did the executive secretary hired a few weeks earlier.

There are several other factors which indicate that plaintiff was discriminated against. The EEOC determined that there was reasonable cause to believe plaintiff’s charge was true. This finding is “highly probative of the ultimate issue.” Bell v. Birmingham Linen Service, 715 F.2d 1552, 1554 n. 4, quoting Smith v. Universal Seros., Inc., 454 F.2d 154, 157 (5th Cir.1972). The court also notes the apparent absence of any objective hiring standards used by defendant. “The failure to establish fixed or reasonably objective standards or procedures for hiring is a discriminatory practice.” Watson v. National Linen Service, 686 F.2d 877, 881 (11th Cir.1982); Harris v. Birmingham Board of Educ., 712 F.2d 1377, 1383 (11th Cir.1983). Finally, the court notes that there were no blacks employed by defendant in its office at the time plaintiff applied for the receptionist job. At that time approximately 10% of ASCA’s employees were black, and all were field workers. Statistics introduced by plaintiff show that 28.2% of Atlanta’s population was black in 1980. (Plaintiff’s Exhibit 15.) There is no evidence that defendant had ever employed blacks in its office prior to 1980.

RELIEF TO BE GRANTED

The plaintiff seeks multiple relief in this case, including, instatement in the position of receptionist or a position comparable, back pay, compensatory damages for mental and emotional suffering, punitive damages, and injunctive relief. After a careful consideration of the facts and circumstances as revealed by the record, it appears to the court that the plaintiff is only entitled to recover a back pay award in this case. There is no basis for injunctive relief as the court has not found that the manner in which the defendant utilized polygraph examination and arrest information was illegal. Further, the evidence does not establish a sufficient basis upon which compensatory damages or punitive damages could be awarded. It has not been shown that the failure or refusal to hire the plaintiff as a full time receptionist was the proximate cause of any mental and emotional stress or pain that the plaintiff might have suffered. Punitive damages is not an appropriate award in this case as the evidence does not show that the defendant acted with malice, wilfullness or reckless disregard for plaintiff’s federally protected rights.

In view of the fact that the plaintiff was never employed in the job that she was seeking (full time receptionist) she has no claim for reinstatement or related benefits which might accrue to a person on the job. She only held the position of receptionist as a temporary employee through the auspices of Tempo Temps. The law does allow a plaintiff who has been refused employment for racially discriminatory reasons to seek, and in an appropriate case, be granted affirmative relief of being hired by the employer if there is an opening or be placed in a preferred position among other applicants where there is no opening. It does not appear to the court that such relief would be mandatory or feasible under the facts and circumstances of this case. There is the matter as to whether the same type of job is open and available at this time. More significantly, the plaintiff has moved away from the area and has studied for and become engaged in a new line of work as a cosmetologist. Because of these factors and other matters, such as passage of time, and the small number of persons employed by defendant company, the court would decline to grant the affirmative relief requested by the plaintiff.

There still remains the matter of how much back pay the plaintiff is entitled to recover in this case. It seems clear to the court that she is at least entitled to recover the amount of lost earnings sustained at least until she began working as a cosmetologist. It must be taken into consideration that any earnings plaintiff may have earned by the exercise of reasonable and proper diligence following the failure to hire her could operate to reduce any award of back pay.

CONCLUSION

As indicated hereinabove, the court has concluded that the plaintiff has made out a ease that the defendant intentionally discriminated against her on the basis of race with respect its refusal to hire her as receptionist. The proof offered sustains the case in favor of the plaintiff on the disparant treatment claim only. Plaintiff has proved discrimination under both Title VII and § 1981. In accordance with the guidelines set forth in this memorandum opinion, the plaintiff is entitled to a recovery of back pay, reasonable attorney’s fees and court costs, all of which will be set forth in an appropriate judgment at a later date. In the meanwhile, within twenty days from this date of this opinion, the attorneys for the parties are to confer in an effort to reach a consensus on a back pay award and shall promptly submit the same in writing to the court. In the event no agreement is reached, the parties are to submit their respective positions to the court with recommendations as to how this phase of the case might be resolved. Within the same period of time, the attorney for the plaintiff shall submit a claim for attorney’s fees together with an affidavit and any other pertinent information; the defendant having ten days after service to respond to the attorney’s fees claim.


source: Caselaw Access Project

author: LYNCH, District Judge.

license: Public Domain

text:
    Alfred MATA, Plaintiff, v. SOUTHERN PACIFIC TRANSPORTATION COMPANY, Defendant.
    No. C-82-3088 EFL.
    United States District Court, N.D. California.
    Sept. 13, 1984.

      Howard Moore, Jr., Oakland, Cal., for plaintiff.
    George S. Duesdieker, San Francisco, Cal., for defendant.
   MEMORANDUM DECISION

LYNCH, District Judge.

Plaintiff’s claim based on 42 U.S.C. § 1981 was tried by a jury which rendered its verdict in favor of the defendant. This Court tried plaintiff’s claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq., based on all the evidence presented to the jury. As to the Title VII action, this Court renders judgment in favor of the defendant for the reasons set out below.

The basis of plaintiff’s action is that the defendant terminated his employment because of plaintiff being of Hispanic origin and that such act and policy deprived him of equal employment opportunity in violation of federal law.

Law: To prove a prima facie case plaintiff has the burden of proving that (1) he belongs to a racial minority; (2) he was fired from his job; and (3) a non-minority person involved in the same conduct for which he was fired was treated differently. International Brotherhood of Teamsters v. United States, et al., 431 U.S. 324, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977); McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). If a prima facie case is established, defendant must establish a legitimate nondiscriminatory reason for its actions. McDonnell Douglas Corp. v. Green, supra. If defendant so establishes a legitimate reason, then plaintiff must prove that the employer articulated nondiscriminatory reason for its action which was a pretext for discrimination. Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981).

The recent United States Supreme Court case of United States Postal Service v. Aikens, 460 U.S. 711, 103 S.Ct. 1478, 75 L.Ed.2d 403 (1983) reaffirmed the above stated law as long as the prima facie case method was not used in a mechanical or rigid manner.

The Court stated:

But when the defendant fails to persuade the district court to dismiss the action for a lack of a prima facie case, and responds to the plaintiff’s proof by offering evidence of the reason for plaintiff’s rejection, the fact finder must then decide whether the rejection was discriminatory within the meaning of Title VII. At this stage, the McDonnell-Burdine presumption “drops from the case,” and “the factual inquiry proceeds to a new level of specificity.” After Aikens presented his evidence to the district court in this case, the Postal Service’s witnesses testified that he was not promoted because he had turned down several lateral transfers that would have broadened his Postal Service experience. The district court was then in a position to decide the ultimate factual issue in the case.
The “factual inquiry” in a Title VII case is “whether the defendant intentionally discriminated against the plaintiff.” In other words, is “the employer ... treating ‘some people less favorably than others because of their race, color, religion, sex, or national origin.’ ” The prima facie case method established in McDonnell Douglas was “never intended to be rigid, mechanized, or ritualistic. Rather it is merely a sensible, orderly way to evaluate the evidence in light of common experience as it bears on the critical question of discrimination.” Where the defendant has done everything that would be required of him if the plaintiff had properly made out a prima facie case, whether the plaintiff really did so is no longer relevant. The district court has before it all the evidence it needs to decide whether “the defendant intentionally discriminated against the plaintiff.”
On the state of the record at the close of the evidence, the District Court in this case should have proceeded to this specific question directly, just as district courts decide disputed questions of fact in other civil litigation. As we stated in Burdine:
“The plaintiff retains the burden of persuasion. [H]e may succeed in this either directly by persuading the court that a discriminatory reason more likely motivated the employer or indirectly by showing that the employer’s proffered explanation is unworthy of credence.”

The case of United States Postal Service v. Aikens, supra also reaffirms the rule that the alleged discrimination against plaintiff, did not have to show direct evidence of discrimination, the plaintiff could prove his case by circumstantial evidence of discrimination. In summary, the duty of the trier of fact is to determine whether the defendant intentionally discriminated against the plaintiff because of plaintiff’s national origin and to use all of the evidence in the case, both direct and circumstantial, to determine this issue.

Facts: Plaintiff was employed by the defendant on April 12, 1978, as a laborer and was terminated effective August 31, 1981, for insubordination.

On July 9, 1981, the plaintiff injured his hand while working for Southern Pacific. He claimed his hand was cut, bruised and bleeding. He immediately went to the Port Medical Center and saw a physician who gave him a tetanus shot, took X-rays, and bandaged the wound. He then proceeded back to the defendant’s yard and reported to his superintendent, L.R. Holsinger, to whom he gave the medical slip. The doctor’s slip indicated that he could go back to work on a full-time basis on Monday, July 13, and he could work on light duty the next day, Friday, July 10. The plaintiff testified that he told Holsinger that he was going to make an appointment to see his own personal physician. He agreed that Holsinger ordered him to come back to the office the next day (July 10) and fill out the accident report. Plaintiff claimed he could not fill out the accident report that day as his hand was sore. The plaintiff did not report to work to sign the accident report on July 10 and remained off work until Monday, July 20- Plaintiff contended this was on the advice of his own personal physician, Dr. Derr. Contrary to plaintiff’s statement, the Court finds that plaintiff clearly was able to come to work on Friday, July 10 to sign the accident report.

Holsinger’s testimony was that the accident happened to the plaintiff while he was working as a helper to another Southern Pacific employee, E.L. Johnson, who is white. He testified that the plaintiff’s cut did not look very serious, but the plaintiff said “I’ll take four or five days off for this injury and then everything will be lovely.”

Because of plaintiff’s failure to report to work the next day to sign the accident report, Holsinger initiated charges of insubordination against plaintiff. The Court finds Holsinger to be a credible witness and further determines that plaintiff did tell him that he wanted to take four to five days off, and in fact, that was plaintiff’s motive for going to his own personal physician, namely, to use this minor injury as an excuse to take a paid holiday.

Dr. Harikian, who treated plaintiff at the Port Medical Center, testified that his specialty is occupational medicine and that when he saw the plaintiff, he had a small abrasion and that the injury was minimal.

Plaintiffs physician, Dr. Derr, testified that plaintiffs injury was simple and that he leaves it up to his patients, within reason, to choose when they should return to work. He prescribed no type of pain pills.

Mr. E.L. Johnson testified that he filled out the accident report on Monday rather than Friday as plaintiff wasn’t there on Friday.

Mr. M.D. Ongerth, the superintendent of the Western Division at Southern Pacific, made the decision to fire plaintiff for violation of Southern Pacific’s Rule 801, insubordination. He testified that this was based on plaintiff’s insubordination re Holsinger’s order plus the plaintiff’s dismal personnel record which included a violation of Rule 801 the year before when he was involved in a fight and at that time, after suspending plaintiff, he allowed him to come back to work.

Leslie Scherling, the labor relations officer of Southern Pacific, testified that he reviewed Ongerth’s decision to determine whether the firing for insubordination should stand. He testified that this was plaintiff’s second dismissal in a year and that he saw no reason to overturn Ongerth’s decision. An interrogatory indicated that this witness did not even know the plaintiff was Hispanic. He testified that Johnson was not disciplined for not filing the accident report on Friday, as the urgency was not the same with non-injured people.

The Court finds that the plaintiff did put on a prima facie case under the aforestated facts. However, the Court also finds that the defendant established a legitimate nondiscriminatory reason for its actions, namely, insubordination, a prior poor disciplinary record, and in particular, a suspension for insubordination within the past year. The Court also finds that plaintiff did not bear his burden of proof that this articulated nondiscriminatory reason for defendant’s actions was merely a pretext for discrimination. In addition, the Court finds, as set out by Justice Rehnquist in the United States Postal Service v. Aikens, supra, that the plaintiff was not intentionally discriminated against by the defendant, i.e., that the defendant did not fire the plaintiff because of plaintiff’s race or national origin. The Court finds that race did not enter into the defendant’s decision to terminate the plaintiff’s employment, and while defendant’s decision to terminate him for failing to come into the office to fill out the report was somewhat harsh, it clearly was not based on race or national origin.

Accordingly, for the reasons stated in this opinion, the Court renders judgment in favor of the defendant, with each side to bear its attorney’s fees and costs.

The above shall constitute the required findings of fact and conclusions of law required under Rule 52 of the Federal Rules of Civil Procedure.


author: MINER, District Judge.

text:
    Cesar A. PERALES, Commissioner of the New York State Department of Social Services, Plaintiff, v. Margaret M. HECKLER, as Secretary of the United States Department of Health and Human Services, Defendant.
    No. 83-CV-900.
    United States District Court, N.D. New York.
    Oct. 1, 1984.

      Robert Abrams, Atty. Gen. of N.Y., Albany, N.Y., for plaintiff; James McSparron, Robert B. Keyes, Asst. Attys. Gen., Albany, N.Y., of counsel.
    Frederick J. Scullin, Jr., U.S. Atty., Albany, N.Y., Juan A. del Real, Office of the Gen. Counsel, Dept. of Health and Human Services, Baltimore, Md., for defendant; William P. Fanciullo, Asst. U.S. Atty., Albany, N.Y., Ann T. Hunsaker, Asst. Gen. Counsel, Thomas K. Stuber, Baltimore, Md., of counsel.
   MEMORANDUM-DECISION and ORDER

MINER, District Judge.

I

This action, seeking judicial review of a final decision of the Departmental Grant Appeals Board (“GAB”) of the United States Department of Health and Human Services (“HHS”), challenges a decision by HHS disallowing certain of plaintiff’s claims for Federal Financial Participation (“FFP”) arising from overpayments under the Medical Assistance Program, more commonly known as Medicaid, found in Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396p. The action, which seeks declaratory and injunctive relief, is brought pursuant to 5 U.S.C. §§ 702, 703 and 28 U.S.C. §§ 2201, 2202. Jurisdiction is predicated upon 28 U.S.C. § 1331. Before the Court is defendant’s motion for judgment on the pleadings, Fed.R.Civ.P. 12(c), and plaintiffs motion for judgment on the pleadings, or, in the alternative, for summary judgment, Fed.R.Civ.P. 56(a).

II

A. Statutory Background

Title XIX of the Social Security Act, 42 U.S.C. §§ 1896-1396p, provides for the establishment of cooperative federal/state programs, called “Medicaid,” to provide payments for “necessary medical services” rendered to certain needy individuals “whose income and resources are insufficient to meet the costs of ... [such] services ____” 42 U.S.C. § 1396. States are not required to institute a Medicaid program but, upon choosing to do so, they must submit to the Secretary of HHS a satisfactory “State plan for medical assistance” that fulfills all requirements of the Social Security Act. 42 U.S.C. §§ 1396, 1396a. The Secretary must approve a state plan that meets all requirements of Title XIX of the Social Security Act and its implementing regulations. 42 U.S.C. § 1396a(b). The state thereby becomes entitled to FFP in expenditures that it makes to provide specific types of medical assistance to eligible individuals in accordance with the approved state plan and federal law. 42 U.S.C. § 1396b.

The State of New York participates in Medicaid pursuant to N.Y.Soc.Serv.Law §§ 363-369 (McKinney 1983), in accordance with its federally approved state plan. Under that plan, rates for residential health care facilities are established prospectively through the use of fiscal and statistical data relating to a facility’s past cost history. The federal government shares in the costs of the program by reimbursing the state for expenditures made for medical assistance under the plan. The amount of FFP is calculated according to the federal medical assistance percentage, 42 U.S.C. § 1396b(a)(l), and is, in New York, approximately fifty percent of the total expenditures for participation medical assistance. For a state to receive FFP payments, it must make proper expenditures pursuant to its federally approved plan. If the Secretary finds that the state plan or the administrator thereof fails to comply with § 1396a, the Secretary may withhold federal funds from the state. 42 U.S.C. § 1396c.

Under this statutory scheme, the Secretary makes quarterly payments to the state, subject to later adjustment to the extent of any overpayment or underpayment which the Secretary determines was made to the state for any prior quarter. 42 U.S.C. § 1396b(d)(l), (2). Thirty days after the end of each quarter, the state must submit to the Health Care Financing Administration (“HCFA”), the constituent agency of HHS charged with administering the Medicaid program, a report of its actual quarterly expenditures. After review of the quarterly statement, the Secretary determines which of the state’s actual expenditures were properly allowable for FFP and then determines the extent to which the state’s quarterly estimate was greater or less than the amount of properly allowable actual expenditures. When the Secretary finds that the state’s prior quarterly estimate exceeds the amount which the state expended for allowable costs, the Secretary reduces future FFP to the state in order to adjust for the amount of the state’s overestimate for any prior quarter. 42 U.S.C. § 1396b(d). If a state disputes the amount of the disallowance, it may request reconsideration by GAB. 42 U.S.C. § 1316(d).

B. Factual Background

The New York State Department of Social Services (“DSS”) has been designated as the single state agency empowered to supervise the administration of New York’s medical assistance program. In fulfilling its functions, DSS shares responsibility for identifying and recouping Medicaid over-payments with the Office of New York State’s Deputy Attorney General for Medicaid Fraud Control (“DAG”).

On November 10, 1981, HCFA, acting through the Federal Office of the Inspector General Audit Agency (“OIGAA”), completed an audit of DAG’s actions covering the period January 10, 1975 to April 30, 1980. The audit findings were set forth in a report entitled “Report on Review of Credits Due the Federal Government Under the Medical Assistance Program Resulting from Audits and Investigations of the Deputy Attorney General for Medicaid Fraud Control” (“Audit Report”). See Administrative Record at 76-105 [hereinafter cited as. “AR”]. Based on the Audit Report, HCFA determined that the State of New York had been overpaid $1,550,644 in FFP and requested that DSS make a decreasing adjustment for that amount in the next quarterly expenditure report.

The determination by HCFA was predicated upon the Medicaid investigative and recovery efforts of DAG and the specific identification by DAG of improper payments to various long-term health care providers, over ninety percent of which were nursing homes. By March 31, 1980, DAG had established $2,570,996.in overpayments which it was in the process of recovering. It was on this amount, unrecovered by the time of the Audit Report, that HCFA required a return of FFP, computed to be $1,274,865. HCFA also determined that an additional amount of $275,779 was refundable to the federal government based on a recomputation of the rate of FFP used by the state in making certain refunds of recovered overpayments. This latter determination, however, was reversed on appeal to GAB and is not in issue here.

Despite what appear to have been intensive efforts by DAG to recover vast over-payments, and notwithstanding the Audit Report's conclusion that “generally, the procedures followed by the DAG and DSS to recoup and report Medicaid over-payments identified by the DAG were adequate ...,” AR at 83, OIGAA recommended that the federal government recover its full share of the $2,570,996 in over-payments. That recommendation was adopted by HCFA in a decision dated November 10, 1981. AR at 106-09. That decision was appealed to GAB pursuant to 45 C.F.R. Part 16. On June 16, 1982, GAB issued a final decision affirming HCFA’s disallowance of FFP for the unrecovered provider overpayments totaling $2,570,996. The matter was remanded to HCFA, however, to recompute the outstanding balance of the unrecovered overpayments under the applicable rate.

On August 3, 1982, HCFA implemented the GAB decision and recouped $1,182,568 (the amount of FFP recomputed on remand) by an adjustment to the Medicaid grant to the state for the quarterly period April 1,1982 to June 30, 1982. A review of that determination is the subject of the present suit.

C. Plaintiffs Claims

Apparently, plaintiff does not dispute the impropriety of the state's overpayments, or the total dollar amount involved. Rather, “the dispute revolves around only one question of law: whether the State must refund or credit the Federal share of these overpayments ... to the Federal Government prior to the State’s recovery of these funds from the providers.” Defendant’s Memorandum in Support of Motion for Judgment on the Pleadings at 8. GAB, of course, determined that New York must credit the federal share of overpayments based upon 42 U.S.C. § 1396b(d)(2). Plaintiff’s complaint raises three distinct challenges to that determination. First, plaintiff contends that GAB’s decision “is contrary to 42 U.S.C. § 1396b(d)(3), which allows the Secretary to effect a recovery of FFP by decreasing adjustment to the quarterly Medicaid grant pursuant to 42 U.S.C. § 1396b(d)(2) only by the net amount actually recovered by the State from the provider.” Complaint, 1121. Second, plaintiff contends that GAB’s decision “is contrary to the design, principles and purposes of the Medicaid program under Title XIX as a jointly financed and cooperative federal/state venture to help persons in need of medical assistance.” Id., 1122. Finally, plaintiff urges that

[t]he decision of the Board [GAB] sustains a previously unannounced policy by the Secretary, whereby the Secretary effectively recoups FFP from States where overpayments are identified but not recovered from providers of assistance, notwithstanding efforts to recover such overpayments, which policy is contrary to 42 U.S.C. § 1396b(d)(3) and to the design, principles and purposes of Title XIX. Insofar as such policy may be found to be in conformity with Title XIX, such policy, nevertheless, is invalid, since it was not effected by rule promulgated in accordance with the rule-making notice and other procedural requirements of the Administrative Procedure Act, 5 U.S.C. § 553 and did not comply with the information and publication requirements of the Freedom of Information Law [sic], 5 U.S.C. § 552.

Id., 1123. Both parties now move for judgment on the pleadings based on the administrative record.

Ill

The applicable standard of review here entails determination of whether the action complained of was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A). See Michigan Department of Social Services v. Schweiker, 563 F.Supp. 797, 798 (W.D.Mich.1983). While the ultimate standard of review is a narrow one, both because the Court is not empowered to substitute its judgment for that of the agency, see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), and because the agency decision is entitled to a presumption of regularity, id. at 415, 91 S.Ct. at 823, the Court must still engage in a “substantial inquiry,” id., and must determine whether the agency’s decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.

A. Recovery of Overpayments

The present controversy centers upon the Secretary’s allegedly improper interpretation and application of 42 U.S.C. § 1396b(d). That section provides, in relevant part:

(2) The Secretary shall then pay to the State, in such installments as he may determine, the amount so estimated, reduced or increased to the extent of any overpayment or underpayment which the Secretary determines was made under this section to such State for any prior quarter and with respect to which adjustment has not already been made under this subsection. Expenditures for which payments were made to the State under subsection (a) of this section shall be treated as an overpayment to the extent that the State or local agency administering such plan has been reimbursed for such expenditures by a third party pursuant to the provisions of its plan in compliance with section 1396a(a)(25) of this title.
(3) The pro rata share to which the United States is equitably entitled, as determined by the Secretary, of the net amount recovered during any quarter by the State or any political subdivision thereof with respect to medical assistance furnished under the State plan shall be considered an overpayment to be adjusted under this subsection.

According to plaintiff, § 1396b(d)(3) limits the federal government’s recoupment of its share of overpayments by a state to a provider to the net amount of such overpayment that the state actually recovers. Pláintiff claims that the GAB ignored the plain language of that section and allowed the recoupment of FFP in unrecovered overpayments by erroneously relying on § 1396b(d)(2). In particular, plaintiff argues that that section,

in providing that the Secretary shall make an adjustment in the quarterly grant ' to the extent of any “overpayment” made to the State in any previous quarter, simply provides for the reconciliation between prior estimates and actual expenditures. The term “overpayment,” as used in section 1396b(d)(2) does not by itself apply to State claims for overpayment made against a provider.

Memorandum of Law in Support of Plaintiffs Motion for Judgment on the Pleadings at 11. Plaintiff concludes, therefore, that it is “only by virtue of section 1396b(d)(3) that the net amount of over-payments recovered by the State, ‘shall be considered an overpayment to be adjusted under this subsection.’ ” Id. The analysis provided by plaintiff in support of this position is meager at best. Indeed, Plaintiff is content simply to rely on the decision of Massachusetts v. Heckler, 576 F.Supp. 1565 (D.Mass.1984), which held that where a change in the interim rate of reimbursement results in state overpayments to providers, FFP is not subject to recoupment by the federal government until the state itself has effected a recovery of such over-payments from the providers. Based on that case, plaintiff argues that “there is no evidence to establish that the State payments, made to providers in good faith pursuant to the approved State Plan can be considered as overpayments under section 1396b(d)(2) ... [since] [t]he fact that at some later time, it turned out that the State had made overpayments, does not retroactively change the nature of the original payments as medical assistance payments under Title XIX.” Id. at 12-13.

After a review of the statutory language, the relevant legislative history, and the sparse case law, this Court is persuaded that the Secretary’s determination is a reasonable one and must therefore be upheld.

A number of factors convincingly support this conclusion. First, the language of § 1396b(d)(2) is clear in providing that “[t]he secretary shall then pay to the State ... the amount estimated, reduced or increased to the extent of any overpayment or underpayment____” There is simply no indication from that language that recovery of the federal share is somehow to be made contingent upon the state’s prior recovery of any overpayments. The second sentence of § 1396b(d)(2), providing that “[e]xpenditures for which payments were made to the State under subsection (a) of this section shall be treated as an overpayment to the extent that the State or local agency administering such plan has been reimbursed for such expenditures by a third party ...,” while supportive of the state’s general position that federal recovery should be tied to a prior state recovery, is simply inapplicable in the present context. That sentence, as the legislative history makes clear, was intended to allow for recovery of the federal share of funds obtained by states from third parties who were liable for the medical care of a Medicaid recipient. It was not intended to cover overpayments of the type at issue here.

(K) Payment for services by a third party — It is obvious that many people need medical care because of an accident or illness for which someone else has fiscal liability; for example, a health insurer or a party who is determined by a court to have legal liability. In order to make certain that the State and the Federal Governments will receive proper reimbursement for medical assistance paid to an eligible person when such third-party liability arises, a new requirement would be included in Title XIX. Under this provision, the State or local agency will have to take all reasonable measures to ascertain the legal liabilities of third parties to pay for covered services. Where the legal liability is known it would be treated as a resource of the recipient. In addition, if medical assistance is granted and legal liability of a third party is established later, the State or local agency must seek reimbursement from such party. The Federal Government would receive its share of any reimbursement received.

H.R.Rep. No. 544, 90th Cong., 1st Sess. 123 (1967).

It is also clear that, contrary to plaintiff’s contention, § 1396b(d)(3) does not limit federal recovery of overpayments to situations where the state has already effected its own recovery. Section 1396b(d)(3) provides:

The pro rata share to which the United States is equitably entitled, as determined by the Secretary, of the net amount recovered during any quarter by the State or any political subdivision thereof with respect to medical assistance furnished under the State plan shall be considered an overpayment to be adjusted under this subsection.

In rejecting plaintiff’s argument, GAB summarized its views as follows:

—Section 1903(d)(3) does not by its terms relate back to all overpayments contemplated by section 1903(d)(2).
—Since 1903(d)(3) refers to amounts recovered with respect to “medical assistance furnished under the State plan,” it reasonably may be viewed as referring only to state payments which are allowable “medical assistance” costs, under section 1905(a) of the Act,
—The legislative history supports the Agency’s position that section 1903(d)(3) was designed to authorize the Secretary to adjust in situations where a question might have existed as to a state’s liability to repay the federal share or the Agency’s ability to recoup the share by an offset to future claims.
—Neither the Agency nor the courts have ever interpreted section 1903(d)(3) to prevent adjustment under section 1903(d)(2) of an amount determined by the Secretary to be an overpayment, merely because the state has not recovered the amount from a provider.

AR at 435-36 (footnote omitted). GAB then concluded that the flaw in the state’s argument was that

the specific subject of (d)(3) is not “recovery of overpayments” as the State alleged, but treatment of certain recoveries as overpayments. The plain language of (d)(3) concerns amounts which would not ordinarily be considered “over-payments” because they were “medical assistance furnished under the State plan” and, therefore, were allowable, when made. When such amounts are recovered, (d)(3) describes the extent to which the federal share is to “be considered an overpayment” for purposes of adjustment under (d)(2). Thus, (d)(3) does not constitute a limiting definition of the term “overpayment” in (d)(2). Contrary to the State’s assertion, the Agency interpretation does not render (d)(3) superfluous, ineffective, or insignificant, but, rather, gives effect to both provisions and is supported by the statutory scheme as a whole.

AR at 436-37 (footnote omitted). This Court agrees with GAB’s sound conclusion, as it is amply supported by the statutory language.

A number of other factors speak persuasively to the correctness of GAB’s determination. First, it is to be noted that federal funding under the Social Security Act may only be provided for “medical assistance.” Section 1396b(a)(l) provides that “the Secretary ... shall pay to each State ... an amount equal to the Federal medical assistance percentage ... of the total amount expended ... as medical assistance under the State plan.” “Medical assistance” is defined by 42 U.S.C. § 1396d(a) as “payment of part or all of the cost of [covered] care and services----” There can be no doubt that overpayments of the type at issue here do not fall within the definition of medical assistance and therefore are not reimbursable expenses. The federal government cannot be held responsible for the state’s improper payments. See Florida v. Heckler, No. TCA 82-0935, (N.D.Fla. Jan. 5,1984).

Additional support for GAB’s decision is found in the Secretary’s regulations, which, although not discussed by GAB, demonstrate that plaintiff is not entitled to have the federal government share in the costs of overpayments. 45 C.F.R. § 201.5(a)(3) (1983) provides for the submission of quarterly statements of State expenditures which are to include “expenditures not properly subject to Federal financial participation which are acknowledged by the State agency or have been revealed in the course of an audit.” 45 C.F.R. § 201.13 (1983) also requires that adjustments be made for claims in which it is determined that the federal government may not participate. That section provides:

After consideration of a State agency’s appeal [of proper audit exceptions] by the Administrator, [HCFA] advises the State agency of any expenditures in which the Federal Government may not participate and requests it to include the amount as adjustments in a subsequent statement of expenditures. Expenditures in which it is found the Federal Government may not participate and which are not properly adjusted through the State’s claim will be deducted from subsequent grants made to the State agency.

These regulations are generally consistent with the regulations applicable to the administration of all federal grants and the principles for determining costs applicable to activities assisted by HHS grants. For example, 45 C.F.R. part 74, Appendix E, Part IX, § B.2 (1983) expressly provides that costs arising from bad debts are not allowable: “Losses arising from uncollectible accounts and other claims and related collection and legal costs are unallowable.” Finally, 42 C.F.R. § 447.296, which was in effect during the time period involved in this suit, indicates that New York is required to refund overpayments to the federal government regardless of recovery by the state. That regulation provided that “[t]he [state] agency must account for overpayments found in audits on the quarterly statement of expenditures no later than the second quarter following the quarter in which the overpayment was found.” A similar regulation was discussed in Jacquet v. Westerfield, 569 F.2d 1339 (5th Cir.1978), involving a state’s recovery from a recipient’s grant of Aid to Families with Dependent Children, under a federal regulation that required the recoupment of overpayments when the overpayment had been obtained by fraud. In upholding the challenged regulation, the court noted the “broad grant of power given to the Secretary ... if [the regulations] are ‘reasonably related to the purposes of the enabling legislation’ and if they are not inconsistent with the Act.” Id. at 1341. The court rejected plaintiffs argument that the regulation was inconsistent with the Act, noting that nothing in the Act expressly forbade the recoupments at issue. The court also noted that nothing in the Act expressly authorized recovery. Id. at 1342. Here, however, the Medicaid statute expressly directs that the Secretary recover excess payments. 42 U.S.C. § 1396b(d)(2). Finally, the court noted that recovery of over-payments only had the effect of providing the state with the amount of assistance that should have been provided in the first place. 569 F.2d at 1344. The situation here is no different — recovery of the excess amounts of federal payments to the state leaves it with the amount to which it was actually entitled, since once the over-payments were established, the state had no entitlement to the federal share of those amounts.

Although the case law in this area is sparse, it too supports the Secretary’s position. In Florida v. Heckler, No. TCA 82-0935 (N.D.Fla. Jan. 5, 1984), in which overpaid Medicaid providers were bankrupt and therefore unable to repay state over-payments made to them, Florida argued that it should not be required to bear the burden of the overpayments because the Medicaid program was a federal/state partnership and the statute did not permit the Secretary to recover FFP related to over-payments absent prior recovery by the state. In rejecting those arguments, the court concluded that HHS may “require Florida to bear the entire burden in the collection of overpayments it made to providers notwithstanding bankruptcy.” Slip, op. at 6. The court reasoned that:

Title 42 U.S.C. § 1396b(2) requires the Secretary to reduce current payments made to the State in excess of allowable costs made in any prior quarter. Title 42 U.S.C. § 1396b(d) does not provide an exception for uncollectible payments made by the State. A contrary finding would allow Florida to obtain funds in excess of the amount it uses for legitimate medical assistance. This Court finds that Florida’s overpayments were not legitimate Medicade [sic] expenditures and the HHS is entitled to offset such sums.

Slip op. at 4-5.

Also of relevance is Massachusetts v. Heckler, 576 F.Supp. 1565 (D.Mass.1984). There, the court reversed a decision by GAB that had sustained a disallowance against Massachusetts. The disallowance had been based upon the state’s failure to recoup payments made on an interim basis to providers that exceeded final rates determined by Massachusetts under its state plan. HCFA had taken the position that once final payment rates were determined, the state was entitled to federal matching only up to that final rate and that any excess constituted an overpayment. Significantly, the court agreed with HCFA that it need not await recoveries by a state to recover overpayments. Specifically, the court noted that “HHS is correct in stating that where there is an overpayment, there need be no recovery by the state before the overpayment can properly be disallowed.” At 1568. The court went on to conclude, however, that HHS had “not provided any evidence to establish that payment to a state at a higher interim rate than final rate constitutes an overpayment for purposes of § 1396b(d)(2),” and therefore held that “[i]n the absence of such proof and in light of the policies underlying the Medicaid Act [it could] not accept HHS’ position.” Id. at 1568.

Plaintiff attempts to latch on to this aspect of the Massachusetts holding, arguing that in the present case there also is no evidence to establish that the state payments, made to providers in good faith pursuant to the approved state plan, can be considered as overpayments under § 1396b(d)(2). Without deciding the correctness of the Massachusetts court’s holding that interim overpayments might not constitute overpayments under the statute, this Court is persuaded that the over-payments at issue here are sufficiently distinguishable so as to be considered the type of overpayment contemplated by the statute. Unlike the setting of interim rates, which are necessarily based on historical costs and are therefore incapable of being gauged in advance with total accuracy, fraudulent overpayments, even when made by the state in good faith, remain entirely within the control of the state paying agency. Because the state, as the ultimate dispenser of funds, is in the best position to guard against injudicious payments, part of its partnership obligation with the federal government must be to assure the propriety of all payments made. Shifting the loss burden to the federal government could only invite increased involvement and supervision by the federal government in what is now essentially a state-run program. By requiring the state to suffer alone the consequences of erroneous payment, great incentive is maintained to assure efficiency and propriety in the allocation of Medicaid funds.

Because the Secretary’s determination is fully supported by the statutory language, the regulatory provisions, and relevant case law, and because that decision is neither arbitrary nor capricious, it must be upheld.

B. Violation of the “Financial Compact”

As a “second claim for relief,” plaintiff argues that “recoupment of FFP prior to the State’s recovery of overpayments is contrary to the financial compact between the states and the federal government underlying the Medicaid program.” Memorandum of Law in Support of Plaintiff’s Motion for Judgment on the Pleadings at 15. Relying on the language of Harris v. McRae, 448 U.S. 297, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980), plaintiff argues that GAB’s decision is contrary to and destructive of the Act’s principles of “cooperative federalism” in that it makes the state bear the burdens of financial responsibility alone. In rejecting this argument, GAB itself sensibly noted that these general considerations did not justify adopting

the State’s strained reading of section 1903(d)(3), particularly where the Agency position is consistent with statutory provisions specifying the costs in which FFP will be available. Moreover, while it is true that Congress devised the Medicaid program as a joint federal-state endeav- or, the states have the primary responsibility for administering the program, including the duty to take steps to prevent improper payments in the first instance and to identify and recover over-payments in a timely manner when they do occur.

AR at 438. GAB then concluded that “[vjiewing the program as a whole, therefore, we think that the Agency is not unreasonable in requiring the states to bear the burden of unrecovered overpayments.” Id. Those conclusions are entitled to great deference and this Court sees no basis upon which to overturn them. While plaintiff is entirely correct in its characterization of Medicaid as a federal/state partnership, there is no basis to believe that some of the partners’ obligations are not to be borne alone. As discussed above, precisely because the state is in the best position to detect and prevent Medicaid fraud, it must be charged with the responsibility for its prevention. To allow the state to shift the cost of its own errors, however innocent they may be, could only lessen the efficiency of the entire program. The partnership upon which plaintiff relies does not in and of itself entitle the state to disclaim or abdicate its own obligations in order to make its own responsibilities easier to bear. While partnership losses are generally considered to be shared between the partners, those at issue here properly are borne exclusively by the state.

C. Consistency of the Secretary’s Position

Plaintiffs final claim for relief is predicated upon the argument that GAB’s decision was based upon a policy, implementation of which allegedly ensued without any prior notification, asserted not to have been consistently applied in the past. According to plaintiff, this policy found its origins in a June 10, 1980 United States General Accounting Office report entitled “States Should Intensify Efforts to Promptly Identify and Recover Medicaid Overpayments and Return The Federal Share,” AR at 30. According to plaintiff, the “report itself gives dramatic evidence that the federal policy on recoupment of overpayment was in shambles [sic].” Memorandum of Law in Support of Plaintiff’s Motion for Judgment on the Pleadings at 17. Plaintiff points to a number of statements contained in the report, including GAO’s conclusion that “as a matter of practice, HEW [now HHS] is not usually requiring the States to refund the Federal share of overpayment recoveries until after collection is made____” AR at 52.

Plaintiff then concludes that the Secretary’s statement of policy on recoupment of overpayments is a substantive rule within the meaning of the Administrative Procedure Act (“APA”), 5 U.S.C. § 551(1), implementation of which requires promulgation in accordance with the rule-making requirements of the APA, see 5 U.S.C. § 553, and contends that defendant’s failure to comply with the APA requires overturning the Secretary’s decision. This Court does not agree.

First, plaintiff’s characterization of the Secretary’s policy as inconsistent simply is not accurate. As noted in GAB’s decision:

In Massachusetts, the Agency alleged that its interpretation of the relationship of section 1903(d)(2) and (d)(3) of the Act had been consistently applied for sixteen years in its regulations and fiscal procedures. We noted in our decision that Massachusetts did not dispute this claim. Although arguing here that Agency policy had not been consistent, New York did not cite to any Agency policy statement setting out an interpretation that adjustment of the federal share of payments determined by the Agency to be unallowable was contingent on collection. Instead, New York relied primarily on statements made in a report issued by the United States General Accounting Office____ Specifically, the State cited to page 2 of the report, which states:
HCFA had not established consistent policies and guidelines for States to use in administering overpayment recovery activities. Also, HCFA did not have a clear policy explaining when and under what circumstances Federal financial participation in outstanding overpayments would be denied.
We think the State’s reliance on this report is misplaced. The statement concerning a lack of consistent policies relates to state administration of overpayment recovery activities, which is not at issue here. With respect to Agency policy governing denial of FFP in outstanding overpayments, the General Accounting Office (GAO) report merely states that the policy is not clear as to the timing and circumstances of such denial.
As we have discussed in previous Board decisions, any consideration of Agency policy in this area must recognize legitimate differences in treatment of various kinds of Medicaid “overpayments,” and reasons why the Agency might wait for recovery, allow a reasonable time for recovery, or require immediate adjustment. Florida, cited above, at p. 12.; New York, Decision No. 284, cited above, at pp. 7-8. The GAO report covered a broad range of overpayments, and we do not think it considered these differences. Regarding the specific situation here, where the Agency itself has determined through an audit that FFP has been claimed by the State for improper provider payments, the clear Agency policy has been to disallow the costs and to require the state to adjust immediately (or on an installment plan) when the dis-allowance decision is final. See 45 CFR 201.14(e) (1977-1981); 45 CFR 201.66 (1977-1981); State of Georgia v. Califano, 446 F.Supp. 404 (N.D.Ga.1977). Although a number of states have argued before the Board that the Agency should wait until recovery before disallowing, no state has called to Board attention any instance in which the Agency construed its disallowance authority to be contingent on recovery.
Accordingly, we conclude that the disallowance for unrecovered provider over-payments firmly established by the DAG should be upheld.

AR at 439-40. This Court finds no reason to disturb those findings.

With respect to the APA, because plaintiff failed to raise that argument before the agency itself, review here is inappropriate. See Federal Power Commission v. Colorado Interstate Gas Co., 348 U.S. 492, 498-99, 75 S.Ct. 467, 471, 99 L.Ed. 583 (1955); Unemployment Compensation Commission of Territory of Alaska v. Aragon, 329 U.S. 143, 155, 67 S.Ct. 245, 251, 91 L.Ed. 136 (1946) (“A reviewing court usurps the agency’s function when it sets aside the administrative determination upon a ground not theretofore presented— ”); Toy Manufacturers of America, Inc. v. Consumer Product Safety Commission, 630 F.2d 70, 73 n. 5 (2d Cir.1980); Getty Oil Co. v. Andrus, 607 F.2d 253, 256 (9th Cir.1979); Cisternas-Estay v. Immigration and Naturalization Service, 531 F.2d 155, 160 (3d Cir.), cert. denied, 429 U.S. 853, 97 S.Ct. 145, 50 L.Ed.2d 127 (1976).

IV

On balance, in light of the deferential standard of review applicable here, the Court is unable to conclude that GAB’s determination was arbitrary, capricious, or not otherwise in accordance with law. Accordingly, defendant’s motion for judgment on the pleadings must be granted and plaintiff’s complaint hereby is dismissed. Plaintiff’s motion for judgment on the pleadings or in the alternative for summary judgment is denied.

It is so Ordered.

      . Specifically, plaintiff argues that GAB’s decision "in effect requires the State of New York to bear alone, without federal financial aid, the full cost of unrecovered overpayments which were payments the State then made in good faith to providers, and which were then properly federally participating and which the State has now fully attempted in good faith to recover.” Complaint, ¶ 22.

      . Plaintiff notes that the Massachusetts court, "perceiving an ambiguity between section 1396b(d)(2) and section 1396b(d)(3) resolved the ambiguity in favor of the State,” Memorandum of Law in Support of Plaintiffs Motion for Judgment on the Pleadings at 11, when it held:
      A careful reading of the statute exposes the ambiguity. The first sentence of § 1396b(d)(2) permits the Secretary to reduce the amount of FFP to the extent of any overpayment for any prior quarter; § 1396b(d)(3) indicates, however, that certain payments are not to be considered overpayments until the state has recovered the money from the health care provider. Since the term "overpayment” is nowhere defined in the statute nor in the regulations, it is not clear which subsection applies in the present case.
      In the event that the state recovers the excess payment from the provider, the pro rata share of HHS in that recovery will be considered an overpayment under § 1396b(d)(3). Until such recovery occurs, however, HHS is not entitled to treat its payments to a state at an interim rate in excess of the final rate as overpayments.
      At 1568, 1569.

      . In a footnote, GAB noted:
      While the legislative history of section 1903(d) does not explicitly explain the relationship of (d)(2) and (d)(3), it does state that the provisions of section 1903(d) are similar to those "under the existing public assistance titles of the act.” H.R.Rep. 213, 89th Cong., 1st Sess. 188 (1964). The legislative history of the comparable provisions shows that the purpose was to treat recoveries of certain otherwise allowable costs as overpayments in order to permit the federal share to be recouped through an offset against the state’s next award of funds. See H.R.Rep. 728, 76th Cong., 1st Sess. 29, 33, 56, 75-76 (1939); see also Message of the President of the United States transmitting Report of the Social Security Board recommending changes in the Social Security Act, 76th Cong., 1st Sess., Document No. 110; House Committee on Ways and Means, Hearings relative to Social Security Act Amendments of 1936; 76th Cong., 1st Sess., Vol. 3, 2412-2417.
      AR at 436 n. 2.

      . Defendant has pointed out to the Court that this aspect of the Massachusetts decision has been appealed to the First Circuit, Docket No. 84-1197.

      . The language quoted consists of the following: The Medicaid program created by Title XIX is a cooperative endeavor in which the Federal Government provides financial assistance to participating States to aid them in furnishing health care to needy persons, ... [a] system of "cooperative federalism”____ The cornerstone of Medicaid is financial contribution by both the Federal Government and the participating State. Nothing in Title XIX as originally enacted, or in its legislative history, suggests that Congress intended to require a participating State to assume the full costs of providing any health services in its Medicaid plan. Quite the contrary, the purpose of Congress in enacting Title XIX was to provide federal financial assistance for all legitimate state expenditures under an approved Medicaid plan.
      448 U.S. at 308, 100 S.Ct. at 2683.

      . It is not at all clear whether the APA is in fact here relevant. Plaintiff argues that the APA rule-making requirements are applicable notwithstanding the exceptions which pertain to matters involving grants, see 5 U.S.C. § 553(a)(2) ("This section applies, according to the provisions thereof, except to the extent that there is involved — ... a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts”), because the Secretary has waived such exception. See Humana of South Carolina, Inc. v. Calif ano, 590 F.2d 1070, 1084 (D.C.Cir.1978). The Humana decision, however, noted that the waiver was effected in 1971 and found that the challenged regulations before it were issued in 1966, prior to any waiver. So too here, the challenged policy, according to GAB’s decision, dated back some 16 years, also prior to 1971.