Deel v. Jackson, 86-1693

• Decision Date: 08 December 1988
• Docket Number: No. 86-1693,86-1693
• Citation: 862 F.2d 1079
• Parties: Anna R. DEEL; Onnie Dale Adcock, on her own behalf and as mother and next friend of Tamatha Adcock and Patricia Adcock, Plaintiffs-Appellants, v. Larry D. JACKSON, Commissioner of Virginia Department of Social Services; Otis R. Bowen, Secretary of Health and Human Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1079

862 F.2d 1079

57 USLW 2371

Anna R. DEEL; Onnie Dale Adcock, on her own behalf and as mother and next friend of Tamatha Adcock and Patricia Adcock, Plaintiffs-Appellants, v. Larry D. JACKSON, Commissioner of Virginia Department of

Social Services; Otis R. Bowen, Secretary of

Health and Human Services, Defendants-Appellees.

No. 86-1693.

United States Court of Appeals, Fourth Circuit.

Argued June 9, 1988.

Decided Dec. 8, 1988.

Margaret Tuttle Schenck (Martin Wegbreit, Client Centered Legal Services of Southwest Virginia, Inc., Melvin Hill, James Cromwell, Virginia Legal Aid Soc., on brief), for plaintiffs-appellants.

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

Before WINTER, Chief Judge, and RUSSELL, WIDENER, HALL, PHILLIPS, MURNAGHAN, SPROUSE, ERVIN, CHAPMAN, WILKINSON and WILKINS, Circuit Judges, sitting in banc.

WILKINSON, Circuit Judge:

This appeal involves a challenge to Virginia's transfer of assets rule, a part of its program of Aid to Families with Dependent Children. The rule denies eligibility to persons who within two years of their application have transferred real or personal property for less than adequate compensation for the purpose of becoming eligible for AFDC benefits. We agree with the federal and state agencies responsible for administration of the program that the transfer of assets rule is a permissible state anti-fraud measure, and we affirm the district court's decision upholding the rule.

I.

The plaintiffs in this case, Anna R. Deel and Onnie Dale Adcock, applied for benefits under the Virginia Aid to Families with Dependent Children program. Their applications were denied on the basis of Virginia's transfer of assets rule. Deel's application was denied because she transferred a 59 acre parcel of land to her daughter and son-in-law for less than fair market value two days prior to applying for AFDC benefits. Adcock's request for benefits was rejected because she sold her interest in a mobile home to her brother-in-law for less than adequate compensation a short time after submitting her application. Administrative hearing officers and the State Board of Review denied the plaintiffs' administrative appeals.

Deel filed this 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 October 1985, seeking declaratory and injunctive relief. Adcock intervened as a plaintiff. The suit alleged that the transfer of assets rule violated the "availability principle" derived from the Social Security Act, which requires that only assets currently available to an applicant may be considered in determining eligibility.

There were no disputed factual issues, and both parties filed motions for summary judgment confined to the legal issue of the validity of the transfer of assets rule. The district court granted summary judgment for the defendants, holding that the Virginia rule was a valid state anti-fraud device, consistent with the Social Security Act. Deel v. Lukhard, 641 F.Supp. 784 (W.D.Va.1986). A divided panel of this court reversed the district court, ordering the entry of summary judgment for the plaintiffs. Deel v. Lukhard, 830 F.2d 1283 (4th Cir.1987). The court granted rehearing en banc, and we now affirm the judgment of the district court. ¹

II.

The AFDC program was established by Title IV of the Social Security Act of 1935 to provide financial assistance to needy dependent children and the parents or relatives who live with them. See 42 U.S.C. Sec. 601. AFDC aid is administered by the states, and the federal government reimburses participating states with a portion of the funds they expend. 42 U.S.C. Sec. 603. In order to qualify for reimbursement, state plans must be approved by the Secretary of Health and Human Services. 42 U.S.C. Sec. 601. The Secretary must approve state plans that satisfy the requirements for plan administration and recipient eligibility specified in 42 U.S.C. Sec. 602(a). 42 U.S.C. Sec. 602(b).

The Secretary has approved Virginia's AFDC plan as consistent with section 602 of the Social Security Act. One aspect of the plan approved by the Secretary is the transfer of assets rule at issue here. This regulation disqualifies an applicant from receiving AFDC benefits for a specified period of time if the applicant "improperly disposes of his/her legal or equitable interest in real or personal property without adequate compensation within two years of application" for the purpose of becoming eligible for benefits. ² The presumption that the transfer was improper is a rebuttable one. An applicant will not be disqualified from receiving benefits due to a transfer for inadequate compensation if the applicant can show that the transfer was not made for the purpose of establishing AFDC eligibility and can show that other resources were available at the time of the transfer to meet the applicant's needs. See Virginia ADC Manual Sec. 303.5(A). Transfers for fair market value have no effect on an individual's AFDC application. Id. at Sec. 303.5(C).

Plaintiffs contend the transfer of assets rule violates the AFDC specification in 42 U.S.C. Sec. 602(a)(7). Section 602(a)(7)(A) provides that state AFDC administration "shall, in determining need, take into consideration any other income and resources of any child or relative claiming aid to families with dependent children." Current federal AFDC regulations require that in determining eligibility, state plans must provide that

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)(D) (1986). Courts have construed this language, in conjunction with legislative history and administrative regulations, to stand for the proposition that AFDC eligibility determinations may be based only on assets that are actually available to the applicant for assistance. See, e.g., Heckler v. Turner, 470 U.S. 184, 105 S.Ct. 1138, 84 L.Ed.2d 138 (1985); Bell v. Massinga, 721 F.2d 131, 133 (4th Cir.1983). The purpose that courts have long attributed to this limitation on state AFDC policy, commonly known as the availability principle, is "to prevent the States from relying on imputed or unrealizable sources of income artificially to depreciate a recipient's need." Turner, 470 U.S. at 201, 105 S.Ct. at 1147.

III.

Plaintiffs contend that the availability principle requires that Virginia's transfer of assets rule be struck down as inconsistent with the Social Security Act. We do not agree. The analysis of this case presented by the plaintiffs runs counter to the approach to state AFDC initiatives set forth by the Supreme Court. Further, plaintiffs' argument rests on a rigid view of the availability principle that ignores both the source of the principle and the policy that it seeks to advance.

A.

The proper starting point for review of any state initiative in AFDC administration is a recognition of the fact that AFDC is a "scheme of cooperative federalism." King v. Smith, 392 U.S. 309, 316, 88 S.Ct. 2128, 2133, 20 L.Ed.2d 1118 (1968). AFDC is largely financed by the federal government, but the states bear the primary responsibility for administering the program. This is reflected in the AFDC regulations, which give states authority to:

Impose conditions upon applicants for and recipients of public assistance which, if not satisfied, result in the denial or termination of public assistance, if such conditions assist the State in the efficient administration of its public assistance programs, or further independent State welfare policy, and are not inconsistent with the provisions and purposes of the Social Security Act.

45 C.F.R. Sec. 233.10(a)(1)(ii)(B) (1986). It has long been recognized that "the area of greatest flexibility allowed the ... States is in the determination of eligibility requirements for recipients." U.S. Advisory Commission Report on Intergovernmental Relations, Statutory and Administrative Controls Associated with Federal Grants for Public Assistance 30 (1964).

The Supreme Court has emphasized the value of the state role in AFDC administration. In New York State Department of Social Services v. Dublino, 413 U.S. 405, 93 S.Ct. 2507, 37 L.Ed.2d 688 (1973), for example, the Court upheld New York AFDC rules requiring able applicants to register for training and employment against a claim that the rules conflicted with federal law. The Court stated that "[t]he problems confronting our society in [the area of welfare administration] are severe, and state governments, in cooperation with the Federal Government, must be allowed considerable latitude in attempting their resolution." Id. at 413, 93 S.Ct. at 2513. The Court's opinion in Dublino underscores the fact that Congress cannot prescribe every detail of a program as complex as AFDC. If it could, state agencies would serve no independent purpose. The reality, however, is that state flexibility allows the development of specifically tailored solutions to specific problems, and provides fifty state proving grounds in which the efficacy of administrative innovations can be tested. This reality in turn underlies the Court's admonition that state rules are not to be lightly displaced:

If Congress is authorized to act in a field, it should manifest its intention clearly. It will not be presumed that a federal statute was intended to supersede the exercise of the power of the state...