Deel v. Lukhard

Decision Date09 October 1987
Docket NumberNo. 86-1693,86-1693
PartiesAnna R. DEEL; Onnie Dale Adcock, on her own behalf and as mother and next friend of Tamatha Adcock and Patricia Adcock, Plaintiffs-Appellants, v. William L. LUKHARD, Commissioner of Virginia Department of Social Services; Otis R. Bowen, Secretary of Health and Human Services, Defendants-Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Margaret Tuttle Schenck (Martin Wegbreit, Client Centered Legal Services of Southwest Virginia, Inc., on brief), for plaintiffs-appellants.

Thomas James Czelusta, Asst. Atty. Gen. (Mary Sue Terry, Atty. Gen. of Va., on brief), Javier Arrastia (Beverly Dennis, III, Office of the Gen. Counsel, Dept. of Health & Human Services, John Alderman, E. Montgomery Tucker, on brief), for defendants-appellees.

Before ERVIN and WILKINSON, Circuit Judges, and MOTZ, United States District Judge for the District of Maryland, sitting by designation.

ERVIN, Circuit Judge:

Plaintiffs Anna R. Deel and Onnie Dale Adcock appeal the district court's grant of summary judgment in favor of the defendants in this case challenging Virginia's administration of the Aid to Families with Dependent Children program. Because we find that the plaintiffs were entitled to judgment as a matter of law on their cross-motion for summary judgment, we reverse the decision of the district court.

I.

Anna R. Deel and Onnie Dale Adcock are Virginia residents who applied for benefits under the Aid to Families with Dependent Children ("AFDC") program, which is jointly administered by the federal and state governments. Deel and Adcock were denied benefits under Virginia's transfer of assets rule, which prohibits applicants from receiving AFDC benefits if they improperly transfer real or personal property without adequate compensation within two years of their applications for benefits. Deel was rendered ineligible for benefits because she transferred real property to her daughter and son-in-law for inadequate consideration two days before she applied for AFDC benefits. Adcock was rendered ineligible because she transferred her interest in a mobile home to her brother-in-law for less than adequate compensation shortly after she applied for AFDC benefits.

After being denied benefits, Deel filed suit against the Commissioner of the Virginia Department of Social Services and the Secretary of the United States Department of Health and Human Services in the United States District Court for the Western District of Virginia. Adcock was permitted to intervene in this suit as a party plaintiff. Deel and Adcock sued on behalf of themselves and a class consisting of all persons in Virginia who had been denied AFDC benefits pursuant to Virginia's transfer of assets rule. The complaint alleged that the transfer of assets rule constituted an invalid state-imposed eligibility requirement for receipt of AFDC benefits, in that it violated the Social Security Act's requirement that only those assets available to an applicant can be considered in determining eligibility for benefits. Deel and Adcock sought declaratory and injunctive relief.

The parties filed cross-motions for summary judgment. There were no disputed factual issues; the district court had only to decide the questions of law presented by the parties. The court granted summary judgment for the defendants, finding that Virginia's transfer of assets rule was valid and authorized under the Social Security Act. See Deel v. Lukhard, 641 F.Supp. 784 (W.D.Va.1986). In a subsequent order, the district court denied Deel and Adcock's petition for class certification. Deel and Adcock appeal the district court's grant of summary judgment in favor of the defendants and its denial of their petition for class certification. 1

II.

The AFDC program is a cooperative federal-state program pursuant to which states pay benefits to needy dependent children and their families so that needy dependent children may be cared for in their own homes. See 42 U.S.C. Sec. 601 (1982). A state is eligible for partial reimbursement of its AFDC benefits payments from the federal government if it "has an approved plan for aid and services to needy families with children...." Id. Sec. 603. State plans are approved by the Secretary of Health and Human Services. The Secretary must approve state plans that comply with the requirements of 42 U.S.C. Sec. 602(a) and applicable regulations of the Department of Health and Human Services. See 42 U.S.C.A. Sec. 602(b) (West Supp.1987). The regulations provide that state plans must impose the conditions of eligibility for receipt of benefits required by the Social Security Act. See 45 C.F.R. Sec. 233.10(a)(1)(i) (1986). Additionally, state plans may impose other conditions of eligibility, "if such conditions assist the State in the efficient administration of its public assistance programs, or further an independent State welfare policy, and are not inconsistent with the provisions and purposes of the Social Security Act." Id. Sec. 233.10(a)(1)(ii)(B).

Virginia has adopted a plan for aid and services to needy families with children which has been approved by the Secretary of Health and Human Services. As part of this plan, the Virginia Department of Social Services has promulgated a regulation concerning transfers of assets by applicants for AFDC benefits. The regulation renders an applicant ineligible for AFDC benefits for specified periods of time if, for the purpose of obtaining benefits, the applicant transfers or disposes of any legal or equitable interest in real or personal property without adequate compensation within two years of applying for AFDC benefits. 2 It is the validity of this regulation that is at issue in this case.

III.

Deel and Adcock contend that the Virginia transfer of assets rule is invalid because it violates the "availability principle" embodied in the Social Security Act. In the AFDC context the availability principle is derived from 42 U.S.C.A. Sec. 602(a)(7)(A) (West Supp.1987), which provides that states administering AFDC programs "shall, in determining need, take into consideration any other income and resources of any child or relative claiming aid to families with dependent children...." The terms "income" and "resources" as used in Sec. 602(a)(7)(A) have consistently been interpreted to mean that states may consider only income and resources that are available to applicants in determining AFDC eligibility. See Bell v. Massinga, 721 F.2d 131, 133 (4th Cir.1983), cert. denied, 470 U.S. 1050, 105 S.Ct. 1746, 84 L.Ed.2d 812 (1985). The regulations promulgated under the statute incorporate this availability principle. The regulations require that state AFDC plans must

[p]rovide that in determining need and the amount of the assistance payment ... (D) Income ... and resources available for current use shall be considered. To the extent not inconsistent with any other provision of this chapter, income and resources are considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has the legal ability to make such sum available for support and maintenance.

45 C.F.R. Sec. 233.20 (a)(3)(ii) (1986). As the Supreme Court has noted, the purpose of the availability principle "is to prevent the States from relying on imputed or unrealizable sources of income artificially to depreciate a recipient's need." Heckler v. Turner, 470 U.S. 184, 201, 105 S.Ct. 1138, 1148, 84 L.Ed.2d 138 (1985).

Deel and Adcock argue that the Virginia transfer of assets rule violates the availability principle, because it allows Virginia to consider assets that are not available to AFDC applicants in determining eligibility for benefits. As Deel and Adcock point out, the transfer of assets rule permits Virginia to deny benefits to applicants on the basis of assets that have been transferred and are no longer available to the applicants. In granting the defendants' motion for summary judgment in this case, the district court recognized the existence of the availability principle, but held that recent amendments to the Social Security Act enacted as part of the Deficit Reduction Act of 1984 ("DEFRA") had modified the availability principle to an extent sufficient to render the Virginia transfer of assets rule valid. We disagree.

In upholding the Virginia transfer of assets rule, the district court relied on 42 U.S.C. Sec. 602(a)(7)(B) (West Supp.1987), as amended by DEFRA. The amended statute provides in pertinent part:

A State plan for aid and services to needy families with children must--

* * *

(7) ... provide that the State agency--

* * *

(B) shall determine ineligible for aid any family the combined value of whose resources (reduced by any obligation or debts with respect to such resources) exceeds $1,000 or such lower amount as the State may determine, but not including as a resource for purposes of this subparagraph ... (iii) for such period or periods of time as the Secretary may prescribe, real property which the family is making a good-faith effort to dispose of, but any aid payable to the family for any such period shall be conditioned upon such disposal, and any payments of such aid for that period shall (at the time of the disposal) be considered overpayments to the extent that they would not have been made had the disposal occurred at the beginning of the period for which the payments of such aid were made....

The district court extrapolated from this statutory provision the rule that states should "include, for purposes of determining [AFDC] eligibility, the value of real property of which the family is not making a good faith effort to dispose." Deel, 641 F.Supp. at 789. In the district court's view, "the critical question [was] whether Virginia's transfer of assets rule properly defines what is a bad faith effort to dispose of real property." Id. Finding that Virginia had...

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