Brown v. Secretary of Health and Human Services

• Decision Date: 04 May 1994
• Docket Number: No. 93-2369,93-2369
• Citation: 46 F.3d 102
• Parties: Ellen BROWN, et al., Plaintiffs, Appellees, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 102

46 F.3d 102

63 USLW 2454

Ellen BROWN, et al., Plaintiffs, Appellees, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant, Appellant.

No. 93-2369.

United States Court of Appeals First Circuit.

Heard May 4, 1994.

Decided Jan. 17, 1995.

Christine N. Kohl, Attorney, Appellate Staff, Civ. Div., U.S. Dept. of Justice, with whom Frank W. Hunger, Asst. Atty. Gen., Paul M. Gagnon, U.S. Atty., and Barbara C. Biddle, Attorney, Appellate Staff, Civ. Div., U.S. Dept. of Justice, Washington, DC, were on brief, for appellant.

Victoria Pulos with whom Deborah Schachter and New Hampshire Legal Assistance, Manchester, NH, were on brief, for appellees.

Before BREYER, ^* Chief Judge, CAMPBELL, Senior Circuit Judge, and CYR, Circuit Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

This is a class action challenging as arbitrary and capricious an Aid to Families With Dependent Children ("AFDC") regulation promulgated by the Secretary of Health and Human Services ("HHS") in 1982. The regulation, called the "automobile resource exemption," limits to $1,500 the equity value of the automobile a family may own before the automobile's equity value affects the family's qualification to receive AFDC benefits. 45 C.F.R. Sec. 233.20(a)(3)(i)(B)(2) (1993). The district court denied defendant's motion for summary judgment and granted plaintiffs' motion for summary judgment, striking down the regulation as arbitrary and capricious. We reverse.

I.

AFDC is a joint federal-state program designed to provide financial assistance to needy, dependent children and their families. 42 U.S.C. Sec. 601 (1988). Although states, as the primary administrators of the program, are given broad discretion to define benefit levels and eligibility requirements, state programs must conform with federal laws and regulations in order to receive matching federal funds. Id. Federal HHS regulations set maximum limits on the resources a family may own and still qualify to receive AFDC benefits. Under the regulations in effect before 1975, families with more than $2,000 in real and personal property did not qualify for AFDC benefits. 45 C.F.R. Sec. 233.20(a)(3) (1974). These early regulations exempted from the calculation of family resources the value of certain assets, including, without limitation, the value of one automobile. Id.

In 1975, the Secretary of the Department of Health, Education and Welfare (the predecessor to HHS) amended the regulations and, for the first time, attempted to place a cap on the automobile exemption. The new regulation set the cap at $1,200 retail market value--any market value in an automobile exceeding the $1,200 limit would now count toward the overall resource limit. 40 Fed.Reg. 12,507 (1975). The D.C. Circuit, however, subsequently struck down the regulation in National Welfare Rights Org. v. Mathews, 533 F.2d 637, 643 (D.C.Cir.1976). ¹ Thus after 1976, the automobile exemption was once again governed by the prior version of the regulation, which completely exempted the value of one automobile from the calculation of family resources. See 41 Fed.Reg. 30,647 (1976).

In 1981, Congress enacted the Omnibus Budget Reconciliation Act of 1981 ("OBRA"), which amended the AFDC program by statutorily reducing from $2,000 to $1,000 the maximum resource limit for AFDC recipients. ² Pub.L. No. 97-35, 95 Stat. 357, 843 (1981); 42 U.S.C. Sec. 602(a)(7)(B) (Supp. V 1993). The purpose of this amendment was to cut costs and to limit AFDC benefits to only the most needy. See Champion v. Shalala, 33 F.3d 963, 967 (8th Cir.1994). At the same time, Congress allowed states to exclude from calculation of the overall resource limit "so much of the family member's ownership interest in one automobile as does not exceed such amount as the Secretary may prescribe." 42 U.S.C. Sec. 602(a)(7)(B)(i) (Supp. V 1993) (emphasis added). Pursuant to this delegation of authority, the Secretary of HHS in 1982 promulgated a regulation setting the automobile resource exemption at $1,500. 45 C.F.R. Sec. 233.20(a)(3)(i)(B)(2) (1993). ³ Any equity value ⁴ in an automobile that exceeded this amount would now be counted toward the $1,000 overall resource limit, which, if exceeded, leaves a family ineligible for AFDC.

The automobile resource exemption has since remained at $1,500, although it has received some attention from both Congress and the Secretary. In 1988, the House of Representatives passed, as part of the Family Support Act of 1988, Pub.L. No. 100-485, 102 Stat. 2343, 2356 (1988), a bill containing a provision that would have allowed some states to experiment with a $4,500 automobile resource exemption. The Senate version of the bill did not contain such a provision. The conference committee adopted the Senate version, but directed the Secretary to review the automobile resource regulations "and to revise them if he determines revision would be appropriate." H.R.Conf.Rep. No. 998, 100th Cong., 2d Sess. 189 (1988), reprinted in 1988 U.S.C.C.A.N. 2776, 2879, 2976-77. After reviewing the regulation, the Secretary in 1991 declined to revise the figure. 55 Fed.Reg. 44,524 (1990); 56 Fed.Reg. 17,358 (1991). In a 1992 letter to Senator Dennis DeConcini, the Secretary explained that increasing the exemption to $3,000 would have cost the federal government more than $200 million and would have required corresponding offsets in other programs. See Frederick v. Shalala, 862 F.Supp. 38, 40 (W.D.N.Y.1994).

II.

Plaintiffs are a class of New Hampshire residents who own vehicles with equity values in excess of $1,500 and, but for the Secretary's automobile resource regulation, would be entitled to receive AFDC benefits. The named plaintiffs in this case, Ellen Brown and Mary Smith ⁵, are two mothers on low incomes who were denied AFDC benefits in 1991 and 1992, respectively, because they owned vehicles whose equity values exceeded the automobile resource exemption, thus placing them over the general resource limit. Brown owned a 1989 Toyota Celica, Smith a 1990 Mercury Topaz. Both Brown and Smith live in rural areas of New Hampshire, where there is no adequate public transportation and an automobile is a practical necessity.

Plaintiffs filed suit against the Secretary of HHS, challenging the $1,500 automobile resource exemption as arbitrary and capricious on two grounds. They argued: (1) that the regulation was arbitrary and capricious when promulgated in 1982; and (2) that the Secretary's failure to adjust the figure for inflation has made it arbitrary and capricious today. Plaintiffs sought declaratory and injunctive relief. Since there were no disputed issues of material fact, the parties filed cross-motions for summary judgment.

The district court denied the Secretary's motion for summary judgment and granted plaintiffs' motion for summary judgment, finding the $1,500 automobile resource exemption arbitrary and capricious today given the Secretary's failure to adjust it for inflation. The court wrote: "To use a fourteen-year old standard as a criteria [sic] of the equity in a motor vehicle in 1979 is an anachronism considering the purchasing power of a dollar today." The court enjoined the Secretary from further relying upon the regulation to deny benefits to otherwise-eligible New Hampshire residents. The Secretary now appeals.

III.

The issues in this appeal have been the subject of considerable litigation in the federal courts. The two courts of appeals that have considered the regulation have upheld it. Champion v. Shalala, 33 F.3d 963 (8th Cir.1994); Falin v. Sullivan, 776 F.Supp. 1097 (E.D.Va.1991), aff'd per curiam, 6 F.3d 207 (4th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1551, 128 L.Ed.2d 200 (1994). Four district courts have also upheld the regulation. Noble v. Shalala, 870 F.Supp. 304 (D.Colo.1994); Frederick v. Shalala, 862 F.Supp. 38 (W.D.N.Y.1994); Gamboa v. Rubin, No. 92-00397, 1993 WL 738386 (D.Hawaii Nov. 4, 1993), appeal filed, No. 94-15302 (9th Cir. Jan. 26, 1994); Hall v. Towey, No. 93-1780-CIV-T-21B, 1993 WL 738454 (M.D.Fla. Dec. 10, 1993). Two district courts, not including the district court in this case, have struck down the regulation. Lamberton v. Shalala, 857 F.Supp. 1349 (D.Ariz.1994); Hazard v. Sullivan, 827 F.Supp. 1348 (M.D.Tenn.1993), appeal filed sub nom. Hazard v. Shalala, No. 93-6214 (6th Cir. Sept. 17, 1993).

We find the opinions of the Fourth Circuit in Falin and Eighth Circuit in Champion to be persuasive. We agree with them that the regulation was not arbitrary and capricious when promulgated and is not arbitrary and capricious today.

A. Regulation Valid When Promulgated

Our standard of review is very deferential. In enacting OBRA, Congress explicitly delegated to HHS the authority to set the figure for the automobile resource exemption; the states could exempt only "so much of the family member's ownership interest in one automobile as does not exceed such amount as the Secretary may prescribe." 42 U.S.C. Sec. 602(a)(7)(B)(i) (Supp. V 1993) (emphasis added). No standard was legislatively set to guide the Secretary in prescribing the exemption. Where the delegation of authority is this complete, a court can overturn the regulation only if it is "arbitrary, capricious, or manifestly contrary to the statute." Chevron v. Natural Resources Defense Council, 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984); see 5 U.S.C. Sec. 706(2)(A) (1988).

If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.

Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2782; see McDonald v. Secretary of Health and Human Serv., 795 F.2d 1118, 1122 n. 5 (1st Cir.1986). A regulation will be arbitrary and capricious where:

the agency relied on factors which Congress has...