When FEMA Says No: Strategic Considerations After an Adverse FEMA Public Assistance First Appeal Decision

For years, applicants receiving an unfavorable FEMA first appeal decision often viewed the next step as automatic: file a second appeal and continue through FEMA's administrative process. That is no longer the only path for many Public Assistance applicants.

Section 423 of the Stafford Act provides a right of arbitration for Public Assistance applicants who dispute a FEMA determination related to eligibility for assistance or repayment of assistance. The CBCA acts for the federal government to arbitrate those disputes. The option, added by Congress in 2018 through passage of the Disaster Recovery Reform Act (DRRA), is a meaningful fork in the road: continue with FEMA through a second appeal, or move the dispute to an independent arbitration forum.

The choice should not be treated as a procedural afterthought. It can mean significant and meaningful differences in the pace of the dispute, the type of presentation required, and the degree of independence from the agency.

Arbitration Eligibility: The Threshold Requirements

A Public Assistance applicant should confirm arbitration eligibility before making any forum-selection decision. FEMA's Public Assistance Arbitration Fact Sheet¹ identifies three threshold conditions for arbitration eligibility:

The filing deadline is equally important. If FEMA issues a first appeal decision, the applicant must file a Request for Arbitration within 60 calendar days from the date of the Regional Administrator's first appeal decision. If FEMA does not issue a first appeal decision within 180 calendar days after receiving the first appeal, the applicant may withdraw the first appeal and file the Request for Arbitration within 30 calendar days of withdrawal.

Applicants should also account for finality and election-of-remedies issues. FEMA states that, if an applicant submits a request for arbitration, it may not submit a second appeal for the same matter. Likewise, if an applicant submits a second appeal, it may not withdraw that second appeal to request arbitration instead. A majority decision from the CBCA panel is final, binding, and not subject to further administrative review.²

Understanding the Fork in the Road

After FEMA denies a first appeal, an applicant generally faces two options:

1. File a second appeal through the recipient for review by FEMA headquarters; or
2. Request arbitration before the CBCA, if the dispute satisfies the eligibility requirements described above.

The critical point is that the applicant typically does not get a second chance to choose. The decision should be made only after reviewing the first appeal decision, the administrative record, the amount in dispute, and the applicant's ability to prove both eligibility and cost support.

When a Second Appeal May Make Sense

A second appeal may be the better route when the case would benefit from additional agency review, additional explanation of FEMA policy, or further development of the administrative record. It is also appropriate when the amount in dispute does not meet the arbitration threshold or when the matter is outside the Public Assistance arbitration framework. Some examples where second appeal may make sense:

• The dispute turns primarily on FEMA policy interpretation, and the applicant believes FEMA headquarters may correct the regional decision.
• The applicant has located approvals issued in other regions or has located second appeal approvals issued by headquarters on the same issue.
• The first appeal decision misunderstood or overlooked documentation already in the record.
• The applicant has additional documentation that can directly answer FEMA's stated reasons for denial.
• The funding at issue is below the applicable arbitration threshold.
• The matter involves a program or dispute type for which arbitration is not available, such as mitigation under Section 404 of the Stafford Act.

The downside is obvious: FEMA headquarters remains within the same agency that issued the disputed determination. A strong second appeal must therefore do more than repeat the first appeal. It should directly engage with the reasons for denial and show FEMA the legal, factual, and policy path to a favorable decision.

When Arbitration May Be the Better Option

Arbitration may be more attractive when the dispute is large enough, the record is thorough, and the applicant would benefit from presenting the case to an independent tribunal rather than continuing solely within FEMA's administrative structure. Some examples where arbitration may make sense:

• The first appeal decision rests on an overly narrow or inconsistent application of FEMA policy.
• The applicant has a strong documentary record and can clearly connect the claimed costs to eligible work.
• The dispute involves legal or procedural issues that may benefit from independent review.
• The amount at stake justifies a litigation-style presentation and the associated preparation.
• The dispute centers around a technical issue and could benefit from additional expert analysis (engineer, architect, subject matter expert).

Arbitration is not simply a faster version of an appeal. It requires a disciplined presentation of the record, a clear statement of authority, organized exhibits, and a persuasive explanation of why FEMA's determination was inconsistent with law, regulation, policy, or the evidence.

The Most Common Mistake: Underestimating Documentation

Regardless of forum, documentation remains the central issue in most FEMA funding disputes. Applicants often focus on whether the work was eligible while underestimating whether the record proves eligibility and cost support with sufficient specificity.

Before choosing arbitration or second appeal, applicants should test the record against the questions FEMA and the CBCA are likely to ask:

• Who performed the work?
• What specific work was performed?
• When and where was the work performed?
• Why was the work required by the declared incident?
• How much was claimed, and how is that amount tied to eligible work?
• Do the records separate eligible and ineligible costs?
• Do procurement, contract, labor, equipment, and invoice records support the claimed costs?

An applicant with strong facts but weak documentation may face the same result as an applicant with a weak claim. The forum decision should therefore be made only after a candid assessment of the record.

Four Questions to Ask Before Choosing a Forum

1. Is the factual record complete? If key documents are missing but available, a second appeal may provide a better opportunity to supplement and organize the record. If additional technical documentation is needed, arbitration may be the more appropriate path.

2. Is FEMA's denial primarily factual, legal, or procedural? Legal and procedural disputes may be better suited for arbitration while factual gaps that can be easily rectified may be more appropriate for second appeal.

3. Does the first appeal decision explain FEMA's reasoning? If FEMA's reasoning is conclusory or internally inconsistent, arbitration may offer a stronger opportunity to challenge the decision.

4. What is the practical value of the dispute? The amount in controversy is important. Projects with significant funding in dispute are typically better candidates for arbitration, ensuring an independent review.

Bottom Line

The choice between FEMA arbitration and a second appeal is a strategic decision that can shape the entire trajectory of a Public Assistance funding dispute. Arbitration may provide an independent forum and a final, binding decision, but it is available only when statutory and regulatory eligibility requirements are met and the record is strong enough to support the claim. A second appeal may remain the better route when the applicant needs additional agency review, additional record development, or does not satisfy the arbitration threshold.

Applicants should evaluate the issue immediately after receiving an adverse first appeal decision. In many cases, the most important question is not simply whether FEMA was wrong, but which forum gives the applicant the best opportunity to prove they are right.

For more information on this, please contact Charles F. Schexnaildre or any member of Baker Donelson's Disaster Recovery and Government Services team.

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¹ fema-pa-arbitration-fact-sheet.pdf.

² Under 9 U.S.C. § 10(a), a federal court may only vacate a CBCA arbitration award under highly narrow, specified grounds: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear pertinent and material evidence, or other prejudicial misbehavior; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award was not made.