Reed v. Health and Human Services

• Citation: 774 F.2d 1270
• Decision Date: 10 October 1985
• Docket Number: 84-2168 and 84-2187,Nos. 84-2167,s. 84-2167
• Parties: , 3 Fed.R.Serv.3d 178 Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook; Stella King, and all others similarly situated, Appellees, v. HEALTH AND HUMAN SERVICES, Appellant, and William L. Lukhard, Commissioner of the Virginia Department of Welfare, Defendant. Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook; Stella King, and all others similarly situated, Appellees, v. HEALTH AND HUMAN SERVICES, Defendant, and William L. Lukhard, Commissioner of the Virginia Department of Welfare, Appellant. Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook; Stella King, and all others similarly situated, Appellants, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, William L. Lukhard, Commissioner of the Virginia Department of Welfare, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1270

774 F.2d 1270

54 USLW 2226, 3 Fed.R.Serv.3d 178

Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook;

Stella King, and all others similarly situated, Appellees, v. HEALTH AND HUMAN SERVICES, Appellant, and William L. Lukhard, Commissioner of the Virginia Department

of Welfare, Defendant.

Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook;

Stella King, and all others similarly situated, Appellees, v. HEALTH AND HUMAN SERVICES, Defendant, and William L. Lukhard, Commissioner of the Virginia Department

of Welfare, Appellant.

Ona Mae REED; Sallie Long; Ruth Wilcher; Opal Mae Cook;

Stella King, and all others similarly situated, Appellants, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, William L. Lukhard,

Commissioner of the Virginia Department of

Welfare, Appellees.

Nos. 84-2167, 84-2168 and 84-2187.

United States Court of Appeals, Fourth Circuit.

Argued May 6, 1985.

Decided Oct. 10, 1985.

Jill Hanken, Richmond, Va. (Virginia Poverty Law Center, Claire Curry, Charlottesville-Albemarle Legal Aid Society, Charlottesville, Va., Martin Wegbreit, Client Centered Legal Services of Southwest Virginia, Inc., Castlewood, Va., Holly Peters, Legal Aid Society of Roanoke Valley, Roanoke, Va., John Saxon, Virginia Legal Aid Society, Danville, Va., on brief), for appellants.

Charlotte Hardnett, Asst. Regional Atty., Washington, D.C., Thomas J. Czelusta, Asst. Atty. Gen., Verona, Va. (Gerald L. Baliles, Atty. Gen., John A. Rupp, Sr. Asst. Atty. Gen., Richmond, Va., John P. Alderman, U.S. Atty., Roanoke, Va., Beverly Dennis, III, Regional Attorney, Philadelphia, Pa., on brief), for appellee.

Before WIDENER and PHILLIPS, Circuit Judges, and WARD, United States District

Judge for the Middle District of North Carolina, sitting by designation.

JAMES DICKSON PHILLIPS, Circuit Judge:

This case is before us on cross-appeals from an order of the district court, 591 F.Supp. 1247 (D.C.Va.1984), enjoining the state defendant William Lukhard, Commissioner of the Virginia Department of Welfare, from treating compensation derived from personal injuries as income for the purposes of determining eligibility for Aid to Families with Dependent Children (AFDC) benefits but denying the class of plaintiffs an award of retroactive benefits withheld under Virginia's application of the "lump sum rule" set out in 42 U.S.C. Sec. 602(a)(17) and 45 C.F.R. Sec. 233.20(a)(3)(ii)(D). The Department of Health and Human Services and Lukhard appeal the grant of summary judgment to plaintiffs that personal injury awards are not to be considered as income under the lump sum rule. The plaintiffs cross-appeal the district court's denial of retroactive benefits, its refusal to rule on a petition for attorneys fees, and the form of notice ordered to members of the class. We affirm the order of the district court in all respects.

I

The AFDC program is a cooperative federal-state assistance program established by Congress in the Social Security Act, 49 Stat. 627, codified at 42 U.S.C. Secs. 601-615. The program is administered at the state level by agencies such as the state defendant in the case at bar. The state agency develops a plan which must be approved by the federal defendant HHS. The federal government then reimburses the state for a percentage of the benefits paid and the administrative costs incurred. One element of the plan is the establishment of eligibility for benefits based on need.

In determining an applicant's eligibility the administrative agency distinguishes between income and resources. Some resources, such as a home or an automobile may be totally or partially exempt from consideration in determining an applicant's need for benefits. See 45 C.F.R. Sec. 233.20(a)(3)(i). Cash may be considered as a resource in some instances and may be included in the $600 maximum of non-exempt resources which are not considered in determining eligibility in Virginia. The distinction is important because all income is considered in the eligibility assessment.

Before 1981, lump sums of money from whatever source were treated as income in the month of receipt and as a resource in succeeding months. Congress changed that treatment with the passage of the "lump sum rule" as part of the Omnibus Budget Reconciliation Act of 1981, 95 Stat. 357 (1981), pertinent provision codified at 42 U.S.C. Sec. 602(a)(17). The lump sum rule provides that lump sum income is to be considered in determining eligibility for a number of months calculated by dividing the amount of the lump sum income by the state's monthly standard of need. Thus, if the state's standard is $300 per month, a $15,000 payment would render the applicant ineligible for 50 months. See 45 C.F.R. Sec. 233.20(a)(3)(ii)(D). ¹

Virginia initially implemented the rule by considering lump sums from any unearned source, including insurance settlements, as lump sum income. Joint Appendix at 143. The Virginia regulation was subsequently amended to provide that money derived from the conversion of an exempted resource into cash was not to be treated as lump sum income. Joint Appendix at 37. A later amendment broadened the regulation's scope to conversion of any real or personal property, whether an exempt resource or not, into cash. Joint Appendix 27-30, 37. Thus, a payment under a fire insurance policy covering a recipient's home or personal property would be considered a resource, rather than lump sum income, and would not affect the recipient's eligibility once the cash had dissipated below the allowable resource level. A settlement or damage award from personal injury, however, continued to be treated as lump sum income.

This action brought under 42 U.S.C. Sec. 1983 and 5 U.S.C. Sec. 701, was filed by three named plaintiffs in June 1983 to challenge the treatment of personal injury awards as lump sum income. ² The district court granted the plaintiffs a preliminary injunction prohibiting further application of the lump sum rule against them. In December 1983 two more plaintiffs were allowed to intervene, and the injunction was extended to grant them relief.

On the merits of the case, the district court granted the plaintiffs' motion for summary judgment, holding that the treatment of personal injury awards as lump sum income was unreasonable. It certified the action as a class action under Rule 23 of the Federal Rules of Civil Procedure and ordered further proceedings to determine appropriate relief. The federal defendant appealed.

After an evidentiary hearing, the district court entered a permanent injunction against treating compensation for personal injury as lump sum income and ordered the defendants to pay current benefits to named plaintiffs and to members of the class, but denied plaintiffs' request for retroactive payment of benefits. The district court ordered that notice of the decision be given to members of the class. ³ All relief except payment of current benefits to the named plaintiffs was stayed pending appeal, and the court made no ruling on plaintiffs' petition for attorneys fees and costs. These appeals followed.

II

We affirm the grant of summary judgment to the plaintiffs on the primary question whether personal injury awards are "income" for the purpose of applying the "lump sum" rule set forth in 42 U.S.C. Sec. 602(a)(17). The facts in this case were not disputed, thus the case was before the district court on a question of law--the construction of the statute.

Neither the statute itself nor the implementing regulation defines "income." The starting point for construing the statute is therefore an examination of the ordinary meaning of the undefined term; "[w]here Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms." NLRB v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981), citing Perrin v. United States, 444 U.S. 37, 42-43, 100 S.Ct. 311, 314-315, 62 L.Ed.2d 199 (1979). Taking that as its starting point, the district court held that personal injury awards would not be considered "income" as that term is ordinarily understood. Reed v. Lukhard, 591 F.Supp. 1247, 1256 (W.D.Va.1984). Personal injury awards serve to make one whole, in effect restoring one to the status quo before the injury was suffered. See Lilley v. Simmons, 200 Va. 791, 108 S.E.2d 245 (1959); 22 Am.Jur.2d, Damages Sec. 85 (1965). Income on the other hand represents a "gain or profit," 42 C.J.S. Income (1944), and is ordinarily understood to be a return on the investment of labor or capital, thereby increasing the wealth of the recipient. See Blacks Law Dictionary 687 (5th ed. 1979); see also Eisner v. Macomber, 252 U.S. 189, 207, 40 S.Ct. 189, 193, 64 L.Ed. 521 (1920).

The defendants argue that the district court erred in looking to contexts other than the AFDC program for a definition of income. We disagree. As we noted, the AFDC statute does not define income. While other statutes' definitions do not control our inquiry, it is instructive that Congress as well as the Department of Health and Human Services and other agencies have defined income in other contexts to exclude personal injury awards. See 26 U.S.C. Sec. 104 (defining income for federal income tax purposes); 7 C.F.R. Sec. 273.9(c)(8) (Department of Agriculture Food Stamp Program); 48 Fed.Reg. 7010-11 (Feb. 17, 1983) (annual poverty guidelines promulgated by HHS). These definitions indicate the meaning that has come to be associated with income, and in light of the absence of a definition within the AFDC statute, we believe they give the best indication of the meaning intended by Congress in this context.

We do not lightly adopt an interpretation of the statute contrary to the interpretation advanced by the agency. Courts must give deference to the agency's interpretation of its own regulations; we may not reject the agency's...