Agency’s Failure to Follows Its Own Regulations Rendered Determination Arbitrary and Capricious

The Third Department determined that the NYS Education Department did not follow its own regulations in calculating the amounts due petitioner for special education services for preschool children with disabilities.  Failure to follow the regulations rendered the calculation “arbitrary and capricious:”

Petitioner contends that respondent failed to follow its own regulations and otherwise acted arbitrarily primarily by relying upon unaudited information from the municipalities, disregarding petitioner’s audited CFR [Consolidated Fiscal Report] and financial data, and refusing to consider petitioner’s explanation for the discrepancies between its audited information and the municipalities’ data. Our review of an administrative agency’s determination is limited to “ascertain[ing] whether there is a rational basis for the action in question or whether it is arbitrary and capricious” …, and we have previously recognized that respondent has “broad discretion in setting the reconciliation rate” … . However, an agency determination arrived at in a manner inconsistent with its own regulations is not supported by a rational basis … . Although “an agency’s interpretation of its own regulation is entitled to deference” … , “courts are not required to embrace a regulatory construction that conflicts with the plain meaning of the promulgated language” … . * * *

The intent of the regulations, consistent with common sense and good government, is to gather and use correct data; hence, the repeated directives that service providers submit information — CFRs and financial statements — that has been independently audited and certified by an appropriate professional (see 8 NYCRR 200.9 [e] [1] [i] [a] [1]; [ii] [a]). The regulations provide no authority for relying solely on unaudited information from municipalities. This does not lead to the conclusion that such information from a municipality has no role. It can be considered to require clarification or explanation from a service provider and, if adequately verified, even incorporated in the calculus. However, at a minimum, a service provider that has adhered to the regulations and provided a CFR and financial statement, both audited, should be afforded a reasonable opportunity to explain and/or reconcile its information with the unaudited information of a municipality. Consistent with its own regulations, respondent cannot simply reject audited information by reason of the existence of less reliable information without some articulable rational basis. Matter of Mid Is. Therapy Assoc., LLC v New York State Educ. Dept., 2015 NY Slip Op 04707, 3rd Dept 6-4-15