913 F. Supp. 2d 1
S.D.N.Y.2012Background
- Guertin served as Middletown City Counsel; DeStefano was mayor and Novesky was community development director.
- All three were indicted in 2004 on public corruption charges related to HUD CDBG funds; Guertin was charged on eight counts.
- After trial, Guertin and Novesky were acquitted on all charges; DeStefano was convicted on two counts later overturned on appeal.
- HUD reimbursed Novesky for legal fees, but denied reimbursement for Guertin and DeStefano, deeming their conduct personal and outside the CDBG administration.
- Plaintiff filed an APA suit challenging HUD’s denial as arbitrary and capricious; the administrative record was the sole basis for summary judgment, with no discovery.
- HUD’s final position, including the Lester letters and 2011–2012 communications, maintained that CDBG funds could reimburse legal costs for actions in the ordinary course of administration only for certain personnel, not for Guertin as alleged here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is HUD’s denial of Guertin’s reimbursement arbitrary and capricious under the APA? | Guertin argues HUD misapplied the ordinary-course standard and relied on the private-retainer finding. | HUD followed its longstanding interpretation that defense costs are reimbursable only when tied to the administration of the CDBG program and that Guertin’s actions were personal. | No; HUD’s decision was not arbitrary or capricious given the record and rationale. |
| Does HUD’s differential treatment of Novesky versus Guertin/DeStefano rest on a rational, non-arbitrary basis? | Novesky and Guertin/DeStefano are identically situated; denial for Guertin mirrors Novesky’s acquittal. | HUD’s factual distinctions—Novesky acting within the ordinary course vs. Guertin acting in a private capacity—were rational. | Yes; the distinction rests on a rational interpretation of the facts and the applicable regulation. |
| Does plaintiff have standing to challenge HUD’s decision under the APA? | HUD’s denial caused concrete injury because Middletown would reimburse Guertin with federal funds; exclusion of reimbursement is final agency action. | Injury is indirect given Middletown could fund defense costs otherwise; standing arises from the agency action affecting reimbursement. | Yes; plaintiff has standing to challenge HUD’s final agency action. |
Key Cases Cited
- Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (establishes the narrow, reasoned-decisionmaking standard for arbitrary and capricious review)
- Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359 (1998) (adjudication subject to reasoned decisionmaking; cannot substitute court’s view for agency’s)
- Island Creek E. Pipeline Co. v. McCarthy, 525 F.3d 141 (2d Cir. 2008) (requires searching review to ensure reasoned explanation and factual basis)
- New England Health Care Emps. Union v. NLRB, 448 F.3d 189 (2d Cir. 2006) (applies State Farm’s reasoned decisionmaking to regulatory adjudication)
- Natural Res. Def. Council v. EPA, 658 F.3d 200 (2d Cir. 2011) (emphasizes cannot substitute judgment for agency and must uphold rational decisionmaking)
- Mullins v. City of New York, 653 F.3d 104 (2d Cir. 2011) (explains deference to agency interpretation of its own regulations)
- Camp v. Pitts, 411 U.S. 138 (1973) (early articulation of reviewing the administrative record in APA actions)