Government Contracts Monitor

Agency Cannot Use Common Law Offsets To Recoup Overpayments When Not Authorized By Statute

September 10, 2012

In Lummi Tribe Of The Lummi Reservation v. United States, No. 08-848C (Ct. Cl. Aug. 21, 2012), the U.S. Court of Federal Claims ruled that a federal agency was required to use available statutory remedies and could not use federal common law remedies of offset to recoup alleged overpayments.  This case, placing limits on federal agency self-help, arises in a rather arcane context:  grants from the Department of Housing and Urban Development (“HUD”) to Indian Tribes under the Native American Housing Assistance and Self-Determination Act of 1996 (“NAHASDA”).  HUD misapplied a grant formula and overpaid several Indian Tribes millions of dollars for housing projects that did not qualify for grants under the NAHASDA.  HUD then sought to recoup the overpayments.  Instead of initiating the NAHASDA’s prescribed notice and hearing procedures, HUD simply used traditional common law concepts of “offset” to reduce underpayments and future year grants by the outstanding overpayment to each tribe.

The Court of Federal Claims found that HUD was not allowed to use federal common law offset to recoup the overpayments, but was instead required to use the statutory scheme set up by Congress.  Most interestingly, however, the Court ruled

We need not reach the issue of whether a common law right to recover money erroneously paid, through administrative offset, exists in situations not covered by the statute (as, for instance, where the agency makes a unilateral mistake by erroneously inserting an additional digit into a payment amount) or whether, as plaintiffs maintain, NAHASDA displaces any such right “through the establishment of a comprehensive regulatory program supervised by an expert administrative agency.” . . . We therefore do not accept the contention that NAHASDA’s enumeration of certain remedies necessarily precludes the exercise of an additional, common law remedy in all circumstances. Rather, “[t]he test for whether congressional legislation excludes the declaration of federal common law is simply whether the statute speaks directly to the question at issue.” 

In other words, the Court was not willing to issue a blanket rule that agencies are prohibited from using offset remedies whenever there was a statute providing remedies.  Instead, the Court instructed that it should conduct a careful review of each statute to determine whether Congress intended to preclude agencies from using federal common law remedies.

The bottom line – next time a federal agency tries to “offset” any overpayments previously made against future payments, pay close attention.  The agency might be violating the law.

 

Michael J. Schrier is the attorney responsible for the content of this article.