Joint Consideration - Legal Fees, DAB No. 349 (1982)

GAB Decision 349

September 30, 1982 Joint Consideration - Legal Fees; Action for Boston
Community Development, Inc.; Docket No. 82-21; Health Systems Agency of
Northeast Florida, Area III, Inc.; Docket No. 82-29; Health Systems
Agency of East Central Florida, Inc.; Docket No. 82-43 Garrett, Donald;
Teitz, Alexander Settle, Norval

Action for Boston Community Development, Inc. (ABCD); the Health
Systems Agency of Northeast Florida, Area III, Inc. (Northeast); and
the Health Systems Agency of East Central Florida, Inc. (East Central)
each appealed decisions by the Public Health Service (Agency). The
parties agreed to joint consideration of the appeals since they involve
a common question of law.

In each case the issue is whether the applicable cost principle
allows certain legal fees to be charged to grants awarded by the Agency.
/1/ The grantees incurred the fees in the course of litigation against
the federal government, concerning their federal grants. The Agency
disallowed the costs, stating that 45 CFR Part 74, Appendix F, section
G.31(d) precluded payment from federal funds of any legal fees resulting
from litigation conducted against the federal government. The appellants
argued for a more narrow reading of the cost principle. Below, we first
discuss the validity of the Agency's interpretation of the cost
principle under the circumstances of these appeals, and the weight to be
given that interpretation. We then evaluate the reasonableness of the
parties' positions and consider the applicability of certain case law
put forth by the appellants. We conclude that the Agency's position is
reasonable and supported by applicable case law, and that the rationale
developed in the case law offered by the appellants does not apply to
Department of Health and Human Services (HHS) grants. Therefore, we
uphold the Agency decisions.

(2) Background

I. ABCD

ABCD received federal funding until August 1979, under the Community
Health Centers Act (42 U.S.C. Sec. 254c), for the operation of the
Columbia Point Health Center. In September 1978, ABCD submitted its
grant proposal for fiscal year (FY) 1979, requesting the same amount of
funding it had received for FY 1978 ($547,000). ABCD received
notification in February 1979 (after the start of the fiscal year) that
its grant would be funded in a reduced amount of $463,000 for FY 1979.
In March 1979 ABCD filing suit in U.S. District Court to enjoin the
reduction of funding. In June 1980, the court dismissed ABCD's suit as
moot, on the grounds that ABCD had relinquished its interest in the
grant in August 1979. /2/ ABCD v. Montminy, D. Mass., Civ. Action No.
79-600-T. ABCD incurred legal fees in the amount of $12,600 in
connection with that litigation.

II. East Central and Northeast Health Systems Agencies

East Central and Northeast are non-profit entities known as Health
Systems Agencies (HSAs), established and funded under Title XV of the
National Health Planning and Resources Development Act of 1974 (the
Act). Each HSA funded under the Act is required to assemble and analyze
health care data in its area, establish long- and short-range plans to
assure the availability of quality health care services at reasonable
cost, and review the need for proposed new institutional health care
services. 42 U.S.C. 300l$N-2.

In September 1975, the Secretary of Health, Education, and Welfare
(now HHS) established and published the boundaries of the areas served
by the HSAs. In February 1978, the Secretary changed the boundaries of
the areas served by East Central and Northeast by transferring one
county from East Central to Northeast. Both grantees sued in U.S.
District Court to enjoin the Secretary's action, on the basis that the
realignment of the boundaries for the two HSAs was improper and violated
the Act. The court concluded that the Secretary had acted outside the
scope of his (3) authority. /3/ The Secretary did not challenge the
court's decision. Northeast incurred $28,117.05 in legal costs, while
East Central incurred $15,801.

Analysis

All three appellants asserted that these legal fees were costs
allocable to their grants. The Agency disallowed the costs. The
regulation relied on by the Agency as the basis for all three
disallowances is found at 45 CFR Part 74, Appendix F, section G.31(d)(
1980):

Costs of legal, accounting, and consulting service, and related
costs, incurred in connection with organization and reorganization,
defense of anti-trusts suits, and the prosecution of claims against the
Government, are unallowable. Costs of legal, accounting and consulting
services, and related costs, incurred in connection with patent or
copyright infringement litigation, are unallowable unless otherwise
provided for in the grant or contract.

The Agency asserted that the legal fees in question were incurred in
connection with the "prosecution of claims against the Government."

The Agency has never issued an interpretation of the regulation, or
any guidelines regarding its application, to legal fees incurred in
court litigation. /4/ Furthermore, the regulation has not been the
subject of direct judicial interpretation, although a virtually
identical provision in the Armed Services Procurement Regulations
(ASPR), section 15.204-31(d), which addresses the allowability of legal
fees as a contract cost, has been interpreted by the Court of Claims.
We discuss this interpretation below.

The Agency has taken the position, in these disallowances and
litigation in federal court, /5/ that "claims against the Government"
should (4) be interpreted broadly to include all litigation, in court,
against the federal government. The appellants have argued that its
meaning should be limited to demands for money or property, and should
not include suits for equitable relief, even where monetary relief was
indirectly involved.

I. Status of the Agency's Interpretation

The appellants asserted that the Agency position should be accorded
little weight since it was announced during litigation rather than
promulgated as a rule and published as an official Agency position. An
agency should have the first opportunity to construe it own regulations.
FTC v. Atlantic Richfield Co., 567 F. 2d 96 (D.C. Cir. 1977). Thus,
our first question must be whether the position articulated by the
Agency here and in other litigation is an official interpretation of its
regulations.

Agencies may announce and apply interpretations of existing
regulations in an administrative proceeding. These interpretations are
subject to review for abuse of discretion, i.e, whether the application
of the new principles to a particular case is unfair. Nicholson v.
Brown, 599 F. 2d 639, 648 (5th Cir. 1979). Thus, we find that the
Agency's position is an official construction of its regulation.We do
not think the Agency action here was unfair. The status of attorneys'
fees as allowable costs in grants or contracts has been unsettled for a
number of years. /6/ Awards of attorneys' fees in litigation in federal
court were not allowed under 28 U.S.C. 2412 prior to that provision's
amendment by the Equal Access to Justice Act in 1980, and even now are
awarded only under certain circumstances. The appellants could not have
assumed that a narrow interpretation would be applied because the
general issue has been unsettled. Thus, the position is not unexpected
and cannot constitute a surprise for the appellants. Nicholson, supra,
at 649.

Northeast argued that the Agency's method of articulating its
interpretation of the cost principle did not comply with 5 U.S.C. 552(
a)(1)(D), which requires publication, in the Federal Register, of
statements of general policy or interpretations of general applicability
formulated and adopted by an agency. Here, the Agency has previously
published all of Part 74, including this particular cost principle, and
it is included in the Code of Federal Regulations. The question is
whether the Agency's statement of how one portion of that cost principle
will be applied should be invalidated because it was not published. In
Lewis v. Weinberger, 415 F. Supp. 652, 659 (D.N.M. 1976), the court
defined "statements of general policy and interpretations of general
applicability" as those where agencies"... adopt new rules or
substantially modify existing rules... and thereby cause a direct and
significant impact upon the (5) substantive rights of the general public
or a segment thereof." Here, the rule itself is not new and the Agency's
interpretation cannot be considered a modification since there is no
allegation that the Agency has ever applied the rule in any other
fashion. Moreover, we cannot see how advance publication of the
Agency's position would have impacted significantly upon the appellants.
Attorneys' fees incurred in litigation against the federal government
could be considered an unusual or extraordinary cost which the grantee
has no basic substantive right to charge to federal funds. Furthermore,
the record does not indicate that any of the appellants made their
decisions to litigate based on the assumption that the legal fees they
would incur would be allowable costs of their grants, or that they would
not have pursued their suits if they had known the legal costs were
unallowable. Therefore, we conclude that the Agency's interpretation of
"claims against the government" may be considered a clarification of how
a potentially ambiguous phrase will be applied to particular
circumstances, and need not be invalidated for lack of publication.

The appellants further argued that the interpretation is invalid
because the Agency did not use the rulemaking procedures of the
Administrative Procedure Act (APA), 5 U.S.C. 553. There is no reason,
however, to think that an interpretation of one portion of the cost
principle must be considered a rule within the meaning of the APA.
Moreover, section 553 applies only to "substantive rules." Where there
is more than one possible interpretation of a word contained in a rule
already published, explanation of the meaning of the word would, at
most, be considered an interpretative rule, or a general statement of
policy, either of which would normally be exempted from the notice and
comment requirements. 5 U.S.C. 553(b). Pacific Gas and Electric Co.
v. FPC, 506 F. 2d 33, 37, n. 14 (D.C. Cir. 1974). Thus, an agency need
not conduct notice and comment rulemaking in order to adopt one of the
possible reasonable meanings of a word in an already-published
regulation. Some courts have articulated the policy that interpretative
rules having a substantial impact on the substantive rights of those
subject to the rule may require notice and comment rulemaking. Even if
we were to accept that policy, we have already concluded that the
interpretation did not substantially impact on the appellants because it
did not change existing rights and obligations, nor even any reasonable
expectations. Noel v. Chapman, 508 F.2d 1023, 1030 (2d Cir), cert.
denied, 423 U.S. 824 (1975).

II. Weight Accorded the Agency Interpretation

It is a principle of administrative law that an administrative
agency's construction of its own regulation is entitled to deference if
it is not clearly erroneous or inconsistent with the regulation. U.S.
v. Larionoff, 431 U.S. 864 (1977); Ford Motor Credit Co. v. Milhollin,
444 U.S. 555 (1980); Miller v. Bond, 641 F. 2d 997 (D.C. Cir. 1981);
Ashland Exploration, Inc. v. FERC, 631 F. 2d 1018 (D.C. Cir. 1980),
cert. denied, Tema (6) Oil Co. v. FERC, 450 U.S. 915 (1981). The
deference afforded to the agency's construction "is not total however."
Pacific Coast Medical Enterprises v. Harris, 633 F. 2d 123, 131 (9th
Cir. 1980). This is particularly true when the Agency's interpretation
of its own regulation is not based on expertise in its particular field,
but is based on general common law principles. Edwards v. Califano,
619 F. 2d 865 (10th Cir. 1980); Jicarilla Apache Tribe v. FERC, 578 F.
2d 289 (10th Cir. 1978).

The interpretation of this cost principle is not one to which
programmatic expertise is applicable; rather, the Agency relied on
general case law to support its position. Therefore, we do not perceive
a need to defer on that basis. Furthermore, the interpretation is a
recent one which was not contemporaneous with the promulgation of the
principle and, thus, may not be entitled to as much weight as it
otherwise might be accorded. Udall v. Tallman, 380 U.S. 1 (1965). The
standards generally articulated for determining whether to defer to an
agency's construction of its regulation under such circumstances are as
follows. The interpretation must be examined in light of the language
of the regulation. "The words must be reasonable susceptible to the
construction placed upon them by the Secretary...." Pacific Coast
Medical, supra, at 131. We need not find that the administrative
construction is the only reasonable one or even that it is the result we
would have reached on first impression. Rather, the persuasiveness of
the interpretation depends upon "the thoroughness evident in its
consideration, the validity of its reasoning," and other persuasive
factors. Paden v. U.S. Department of Labor, 562 F. 2d 470, 473 (7th
Cir. 1977). Furthermore, where the Agency has relied on general
principles of common law as support for its construction, the validity
of the interpretation should be judged on the basis of the applicability
of those legal principles. Jicarilla, supra, at 293. Applying these
standards to this appeal, then, the weight given to the Agency's
interpretation of the term "claim," as used in Part 74, Appendix F,
Section G.31(d), depends on the reasonableness of the interpretation as
well as the applicability of the legal principles put forth by the
parties.

III. The Agency's Interpretation of the Term "Claim"

There is no statute which forms the basis for the cost principle, nor
is there a generally articulated government-wide interpretation of the
principle. We discuss the parties' arguments and evaluate them in light
of the standard of deference discussed above. That standard provides
for deference where the Agency interpretation is legally supportable and
(7) reasonable.The term "claim" is a general term /7/ which is
susceptible of varying interpretations, most of them plainly
encompassing the actions here. The Agency argued that the term "claim"
may be interpreted broadly in the context of a suit against the United
States, and that all legal fees incurred in court litigation against the
government are unallowable. The appellants argued for a narrow
interpretation of the term.

The Agency cited as support O'Brien Gear & Machine Co. v. United
States, 591 F.2d 666 (1978). In that case, the Court of Claims, in a
per curiam opinion adopting the trial court's decision, addressed the
possible meanings of the term "claim":

An application for a passport or an anti-trust clearance letter, a
suit for mandatory transfer of public land, a declaratory judgment as to
the applicability of a registration act, or a money judgment for a
commercial debt - all might reasonably be described as claims against
the United States. The "claim against the United States" to which
consequences are ascribed in a statute is a claim for only money or
property when, and only when, the statutory context and purpose so
require. O'Brien Gear, supra, at 676.

IV. The Reasonableness of the Agency Interpretation

Both Northeast and East Central argued that the litigation in which
these legal fees were incurred was an appropriate action by the
appellants because of their obligations as HSAs, and was necessary to
the performance of the HSAs' functions, and, therefore, that the HSA
regulations allowed such costs.42 CFR 122.208(b)(2) and (3)(1980). The
Agency argued that the HSA regulations did not specifically authorize
payment of attorneys' fees from HSA grant funds, and that HSA funds may
be used solely for carrying out their activities in accordance with the
Act, HSA regulations, the terms and conditions of the grant, and 45 CFR
Part 74, Subpart Q. 42 CFR 122.208(a)9 The appellants argued that
detailed lists of every allowable cost would result in cumbersome
regulations, and that not all allowable costs are specifically listed in
Agency regulations. While this is true, the cost principles stated in
Part 74 are general cost principles and apply to all HHS grant awards to
non-profit organizations, including HSA grants. The cost principles
address the allowability of the (8) questioned costs, and, thus, are
more specific than the general language in 42 CFR 122.208(b), which
provides broad areas for which HSA funds may be spent. The cost
principles, therefore, should control on this point.

The appellants also argued that the Agency's position for a broad
regulatory interpretation is undermined by the specific listing of
particular types of legal expenses stated in section G.31(d). The
appellants argued that because other forms of litigation were listed in
addition to "claims," the term could not be interpreted broadly to mean
all litigation against the government. But, of the items listed in
section G.31(d), neither "organization or reorganization" nor "defense
of anti-trust suits" can be considered litigation prosecuted against the
government. The other legal expenses mentioned in section G.31(d) --
certain costs incurred in connection with patent or copyright
infringement litigation -- are allowable only if specifically provided
for in the grant or contract. In our opinion, this reflects specialized
treatment of the patent area and does not undermine the basic position
of the Agency. Therefore, the phrase "prosecution of claims against the
government" could very well encompass a broad area despite the other
forms of legal action included in the prohibitive principle.

The appellants contended that the judicial interpretation of a
virtually identical procurement regulation (discussed below) should
control the Board's decision on this grant regulation. Furthermore, the
appellants pointed out that the Department had stated, at the time it
published the principles, that they were translations into the hospital
and non-profit organization context of the "precedents established by
pre-existing Government wide cost principles." 38 Fed. Reg. 26274
(September 19, 1973), as quoted by Northeast in its Reply Brief, p. 2.

Even though the HHS regulation is similar to the other government
regulations addressing legal fees as unallowable costs and even though
they all may share a common origin, we do not believe that all must have
the same interpretation when the circumstances vary to which they apply.
Although the Agency adopted pre-existing government-wide cost
principles, it did state that they were translations into the context of
hospitals and non-profit organizations, thereby implying that
differences in context would affect the translation of the principles.
Furthermore, the Agency generally has recognized that the
government-wide cost principles do have varying meanings, depending on
the context in which they are applied, and has promulgated a complete
set of principles, rather than incorporating by reference other existing
statements.

ABCD contended that the disallowance occurred because it chose to
seek relief in federal court rather than before this Board. ABCD
alleged that the Board would have had jurisdiction to hear its appeal
regarding the reduction of funding, had ABCD chosen to appeal to the
Board, and that both parties would have taken the same position before
the Board that they (9) took in the Montminy suit. Therefore, ABCD
concluded, since the costs of legal fees for an appellant's appearance
before the Board are allowable as costs to a federal grant, /8/ the
Agency's decision to disallow court-related legal fees is arbitrary and
illogical. The federal government has taken the position in previous
litigation, Grumman, infra, p. 590, and the Agency argued here, that
there is a distinction between actions before an administrative review
board and court litigation. The distinction made by the Agency was that
an agency decision is not final until after administrative review has
occurred, and that administrative review can be viewed as negotiation
pending a final decision, rather than as prosecution of a claim within
the meaning of the cost principle. We believe that this position is
reasonable.

After analyzing the parties' arguments, we conclude that the Agency
has demonstrated the reasonableness of its interpretation of the term
"claim." We must now decide if the interpretation argued by the
appellants may be applied to these cases.

V. The Applicability of a Narrow Definition of the Term "Claim"

The appellants alleged that the ASPR regulation, section 15.204-31(
d), considered by the Court of Claims in Grumman Aerospace Corporation
v. United States, 579 F. 2d 586 (1978), and the HHS cost principle
"derive from the same source and carry the same interpretive gloss."
Reply Brief, HSA of Northeast Florida, p. 2. The two regulations
contain virtually identical language. Therefore, the appellants
asserted, the Court of Claims' interpretation must apply to the HHS cost
principle. In Grumman, the Court of Claims concluded that a "claim
against the Government," in the context of the ASPR regulation, was
limited to a demand for money or property. The court found that legal
and accounting fees incurred by Grumman in contract renegotiation
litigation were "claims" and, thus, unallowable. However, the court
determined that Grumman's Freedom of (10) Information Act suit was not a
claim against the government within the meaning of the ASPR regulation
and held that the legal fees incurred in connection with that suit were
reimbursable. Grumman, supra, at 597.

The Court of Claims distinguished two forms of action against the
Government, pecuniary and equitable. The court pointed out that a
Treasury Department regulation /9/ served as the genesis for the ASPR
regulation. At the time the Treasury Regulation was formulated,
non-monetary suits against the Government involving contract matters
(i.e. for injunctive or other specific relief) were almost non-existent.
Therefore, the court concluded, language drafted at that time must
necessarily have referred only to monetary actions. Furthermore, the
court stated that the usual understanding of a "claim against the
Government" after the formulation of the Treasury Regulation was a
demand for money or property. The court stated that the traditional
understanding of the phrase "claim against the Government" was reflected
in its name (Court of Claims) and the fact that its jurisdiction is
limited to "judgments for money." Grumman, supra, at 595-596.

The appellants have not articulated any reason for translating the
Court of Claims' rationale to the broad area of federal assistance
programs administered by HHS, except the possibility that both the ASPR
and HHS regulations originated in the same way. The rationale
articulated by the Court of Claims is a very technical one, based
primarily on procurement situations. Grantees under federal programs do
seek equitable remedies as well as monetary relief, and often seek
relief in U.S. District Court and the U.S. Court of Appeals. These
courts offer equitable as well as monetary relief, and, in fact, the U.
S. District Courts have some jurisdiction concurrent with the Court of
Claims. The fact that the Court of Claims has a limited jurisdiction
does not necessarily mean that the term "claim" is always limited to the
definition that applies to those suits brought before the Court of
Claims.

The Agency argued that contractors are in business to make a profit.
Therefore, an interpretation of government contract rules must generally
allow contractors to recover their cost of performance and more. On the
other hand, the Agency argued, a grantee does not necessarily expect to
recoup from the federal government all the costs of its operation;
indeed, the grantee is generally expected to share in the costs of
assisted activity. With the rapid growth of social programs in recent
years and corresponding increase in federal funds expended on those
programs, many suits by grantees involve efforts to force the government
to accept certain charges to their grant awards. Thus, it is reasonable
for the (11) Agency to limit the use of federal program funds to those
costs which are directly expended to implement the programs, rather than
subsidizing attempts to gain additional federal program funds through
suits against the government.

The appellants argued that Grumman should apply rather than O'Brien,
supra, because Grumman was the later decision. We think the two cases
are reconcilable because O'Brien can be read as the more general case,
stating that the meaning of the term "claim" can vary depending on the
context in which it is used. Grumman provides a narrow meaning limited
to a procurement contract context. /10/

The Agency also pointed out the difficulty in applying the
distinction made by the court in Grumman. The Agency contended that some
suits seeking injunctive or declaratory relief are in fact seeking
federal funds. For example, a suit seeking an injunction against a
grant termination or decrease in funds would be using an equitable
remedy to achieve monetary relief. The Agency argued that applying the
holding of Grumman to the facts in these appeals would have inconsistent
results. The HSA challenging the loss of one of its counties (East
Central) could be considered to have a monetary claim against the
government, since the loss of a county would mean a reduction in grant
funds. Under the Grumman principle, that HSA would not be allowed to
recover its legal fees from grant funds. However, the other HSA
(Northeast) might be allowed to expend grant funds for legal expenses
because its suit was initiated to have the unwelcome county removed from
its boundaries and was, under the Grumman rationale, not specifically a
monetary claim. Thus, two grantees suing on the same set of facts,
seeking no more than maintenance of the status quo, could encounter
directly opposite results. In the case of ABCD, the appellant sought an
injunction against a decrease in its award, which could be considered a
claim for money. While we do not necessarily agree that the two suits
by the HSAs must be viewed as varying in whether they are claims for
money, we do agree with the basic proposition that the Grumman principle
would, at times, be difficult to apply in the area of federal grants.

(12) The appellants also cited Hamilton, supra, at n. 4, for the
proposition that the phrase "claims against the Government" refers only
to monetary claims. In Hamilton, the plaintiff, an attorney, sued the
HSA to recover his legal fees incurred in litigation resulting from the
Agency's decision not to renew the HSA. When the HSA confessed
judgment, the United States intervened, claiming that payment to
Hamilton would violate 28 U.S.C. 2412. (Prior to 1980, section 2412
prevented a federal court from awarding attorneys' fees.) The District
Court reviewed the facts underlying Hamilton's suit and determined that
it was "... an action for breach of contract, and not a request for fees
or costs that is governed by Sec. 2412." Although the District Court
discussed the question of the meaning of a claim against the government,
the court did not directly address the issue of the allowability of
legal fees as grant costs, nor did it provide a definitive
interpretation of section G.31(d). /11/

In summary, the term "claim" may have a variety of interpretations,
most of them plainly encompassing the actions here. In the context of
procurement, the Court of Claims has interpreted the term narrowly. Of
all the cases cited by the parties, only O'Brien and Grumman have
directly addressed the meaning of the term "claim." We believe that the
narrow definition of "claim" put forth in Grumman should not apply here
because we do not find the rationale articulated by the Court of Claims
necessarily appropriate outside the procurement context of that case.

VI. Equitable Considerations

The Agency decisions rendered under 42 CFR Part 50, Subpart D, for
the appeals of both Northeast and East Central, recognized the inequity
of forcing these appellants to expend their own money for the cost of a
suit resulting from what was determined by the courts to be an illegal
act by the Agency. The appellants had argued that the Secretary's
action had backed them into a corner, hindering their ability to pursue
their federal mandate until the consequences of the Secretary's actions
(13) were subjected to judicial scrutiny. The appellants contended
before this Board that equity requires a reversal of the disallowances.
Like the Agency decisionmakers, we recognize the possible hardships the
HSAs, and ultimately the populace which they serve, may have to endure
as the result of these disallowances. We also note that if the HSAs'
suits had been brought after the Equal Access to Justice Act of 1980 was
enacted, they might possibly have received a court award of their fees,
since the HSAs were the prevailing parties. 28 U.S.C. 2412(b).
However, the Agency's position is a reasonable one and is supported by
the general definition of the term "claim." The appellants have not
offered any legal basis for determining that the interpretation they
argue is more reasonable as a general policy for HHS, and we believe
that the distinction made by the court in Grumman is a technical one
which would be arbitrary outside of the procurement area. We are bound
by applicable regulations, 45 CFR 16.14 (1981), and we have concluded
that the Agency's application of the regulation to these costs is
reasonable. The equitable considerations in these appeals do not
outweigh the reasonableness of that application.

Conclusion

Based on the foregoing analysis, we uphold the disallowances in these
cases. /1/ ABCD also challenged the Agency finding that it had
improperly charged the legal fees as indirect costs rather than as
direct costs. Since we uphold the disallowance, we do not find it
necessary to address the manner in which ABCD charged those costs to its
grants. /2/ ABCD voluntarily relinquished its interest in the
grant because it believed it could not continue to operate the project
at the reduced level of funding. The City of Boston's Department of
Health and Hospitals assumed responsibility for the administration of
the grant immediately after ABCD's withdrawal. /3/ Health Systems
Agency of East Central Florida, Inc. v. Califano, C.A. No.
78-240-Orl-Civ.-B (M.D. Fla.); and Health Systems Agency of Northeast
Florida, Area III, Inc. v. Califano, C.A. No. 78-175-Civ.-J-B (M.D.
Fla.), (April 20, 1981). /4/ Although we refer to the Public
Health Service as Agency for purposes of this decision, the position the
Public Health Service took was based on an Office of the General
Counsel, Department of Health and Human Services legal memorandum and is
a department-wide position. /5/ Hamilton v. Northeast Kansas
Health Systems Agency, Inc., D. Kan., No. 79-4199 (July 1, 1980),
appeal docketed, C.A. No. 80-2161 (U.S.C.A. 10th Cir.). /6/
See, Allowability of Attorneys' Fees, Dees, Public Contract Newsletter,
Vol. 14, No. 1, p. 9, (October 1978). /7/ Black's Law Dictionary, (5th
Ed., 1979), defines "claim" as follows: To demand as one's own
or as one's right; to assert; to urge; to insist. Cause of action.
Means by or through which claimant obtains possession or enjoyment of a
privilege or thing. Demand for money or property. /8/ The
Director, Office of Grant and Contract Financial Management, Office of
Grants and Procurement, by letter dated September 26, 1980, responded to
a general inquiry from a law firm representing grantees before this
Board, that the costs of legal fees in an appeal before this Board could
be considered allowable costs, chargeable to federal grants awarded by
HHS. The rationale presented in that correspondence for the
Departmental policy was that since the Department's regulations provide
that grantees have the right to appeal certain actions to this Board,
there is no final agency action which may be appealed to the courts
until such appeals are complete. Thus, proceedings before the Board
represent appeals within the Department, not claims against the federal
government. /9/ T.D. 5000, 1940-2 Cum. Bull. 397. /10/
The Agency cited a decision of the Armed Services Board of Contract
Appeals (ASBCA), Hayes International Corporation, ASBCA No. 18447, 75-1
BCA P11,076 (1975), applying a limited definition of the term "claim."
We do not believe that the ASBCA opinion in Hayes should impact upon our
finding here in view of the later Court of Claims decision interpreting
the regulation. See, Grumman, supra; see also, Litigants Pay Their Own
Way Before The Armed Services Board of Contract Appeals, Ladino, Public
Contract Newsletter, Vol. 14, No. 4, p. 9, (July 1979). /11/ The
Agency contended National Council of Community Mental Health Centers v.
Matthews, 546 F.2d 1003 (1976), (NCCMHC); and National Association of
Regional Medicaid Programs v. Matthews, 551 F.2d 340 (1976), cert.
denied, 431 U.S. 930 (1977), (NARMP), were clearer interpretations of
section G.31(d), and, therefore, more persuasive in this matter.
However, both NCCMHC and NARMP involved 28 U.S.C. 2412, which is not a
factor in the present appeals. The question of the allowability of fees
as a cost chargeable to a federal grant is not the same as whether one
party to a legal suit should pay the other party's fees. In both NCCMHC
and NARMP the references to section G.31(d) were cursory, and the cost
principle was not relied upon or extensively analyzed. NCCMHC, supra, at
1007; NARMP, supra, at 343.

SEPTEMBER 22, 1983