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Tenth Circuit: HUD Illegally Recaptured Grant Funds from Recipients

On July 25, 2017, the Tenth Circuit Court of Appeals found that HUD had illegally recaptured, via administrative offset, $19.5 million in affordable housing grants that the agency allegedly overpaid to certain Native American tribes (the “Tribes”), but held that HUD’s sovereign immunity precluded the lower court from directing the agency to return the recaptured funds to the Tribes if HUD had already distributed those funds to other tribes.

As background, Congress enacted the Native American Housing Assistance and Self–Determination Act (NAHASDA) to help Native American tribes provide affordable housing for their members.  HUD allocates NAHASDA grant funds among recipient tribes each year and relies on tribes to provide an accurate count of their housing units.

HUD alleged that the Tribes inflated their housing unit counts and, in turn, received overpayment of NAHASDA grant funds for several years.  When HUD discovered these overpayments, it recouped the funds by deducting them from the Tribes’ subsequent yearly NAHASDA allocations.  The Tribes sued HUD to return those funds and argued that HUD lacked authority to recapture the funds without conducting administrative hearings.  The district court agreed and ordered HUD to return the funds to the Tribes.

On appeal, HUD advanced three challenges to the district court’s ruling.  First, HUD asserted that it was not required to hold hearings before it recaptured the funds because the only statutes and regulations that might require hearings did not apply to this matter.  Second, HUD argued that in the absence of an applicable statute or regulation, it was empowered to recapture the overpayments under the common law doctrine of payment by mistake.  Third, HUD stated that even if it lacked common law authority to recapture the overpayments, the district court nevertheless erred in ordering HUD to return the funds because such an order amounts to an award of money damages and, therefore, violates sovereign immunity.

The Tenth Circuit agreed with HUD’s first challenge and reversed the portion of the lower court’s ruling that concluded that HUD was required to conduct hearings before recapturing the overpayments.  The court held that the agency had not taken the funds back under a statute or regulation that imposes a hearing requirement.  However, the Tenth Circuit agreed with the lower court that HUD lacked the authority to recover the overpayments, rejecting the agency’s argument that it was able to take the funds back under its common law authority to recover payments made by mistake and affirming the portion of the lower court’s order that characterized the agency’s actions as illegal.  But the court went on to state that the victory for the Tribes is “largely a hollow one” because “HUD enjoys sovereign immunity from claims for money damages” and “at least some of the district court’s orders directing HUD to repay the Tribes appear to award money damages.”  The court explained that HUD cannot return the recaptured funds to the Tribes if it had already distributed those funds to other tribes, and if the agency repays them using “all available sources,” as directed by the lower court, that constitutes money damages.  The court of appeals therefore remanded the case for factual findings regarding whether any of the recaptured funds remain in HUD’s possession.

The full opinion can be found at: https://www.ca10.uscourts.gov/opinions/14/14-1313.pdf.