Deel v. Lukhard, Civ. A. No. 85-0337-A.

• Decision Date: 25 August 1986
• Docket Number: Civ. A. No. 85-0337-A.
• Citation: 641 F. Supp. 784
• Parties: Anna R. DEEL; Oni Dale Adcock, on her own behalf and as mother and next friend of Tamatha Adcock and Patricia Adcock, Plaintiffs, v. William L. LUKHARD, Commissioner, Virginia Department of Social Services, and Otis R. Bowen, Secretary, Department of Health and Human Services, Defendants.
• Court: U.S. District Court — Western District of Virginia

641 F. Supp. 784

Anna R. DEEL; Oni Dale Adcock, on her own behalf and as mother and next friend of Tamatha Adcock and Patricia Adcock, Plaintiffs, v. William L. LUKHARD, Commissioner, Virginia Department of Social Services, and Otis R. Bowen, Secretary, Department of Health and Human Services, Defendants.

Civ. A. No. 85-0337-A.

United States District Court, W.D. Virginia, Abingdon Division.

August 25, 1986.

Margaret T. Schenck, Castlewood, Va., Melvin L. Hill, James R. Cromwell, Lynchburg, Va., for plaintiffs.

Mark Claytor, Abingdon, Va. and Thomas J. Czelusta, Asst. Attys. Gen., Richmond, Va., Javier Arrastia, Philadelphia, Pa., E. Montgomery Tucker, Asst. U.S. Atty., Roanoke, Va., for defendants.

MEMORANDUM OPINION

GLEN M. WILLIAMS, District Judge.

This case involves a dispute over whether plaintiffs qualify for payments from the Commonwealth of Virginia under the federal-state Aid to Dependent Children Program (ADC). Plaintiffs brought this action alleging illegalities in Virginia's ADC program arising out of the use of a transfer of assets rule to determine eligibility for ADC payments. Defendants William L. Lukhard and Otis R. Bowen are sued in their official capacities as Commissioner of the Virginia Department of Social Services (VDSS) and Secretary of the Department of Health and Human Services (HHS) respectively.

Plaintiffs seek a court order declaring Virginia's transfer of assets rule invalid and enjoining further application of the rule. Jurisdiction of this court as to the state defendant is derived from 42 U.S.C. § 1983 and 28 U.S.C. §§ 1343 and 1331. As to the federal defendant, jurisdiction is appropriate under 28 U.S.C. § 1331. The case has been submitted for decision by motions for summary judgment pursuant to Fed.R.Civ.P. 56 by all parties.

I.

ADC is a scheme of cooperative federalism authorized by the Social Security Act. 42 U.S.C. §§ 601-76; King v. Smith, 392 U.S. 309, 316, 88 S.Ct. 2128, 2132, 20 L.Ed.2d 1118 (1968). In essence the program was established "to provide financial assistance to needy dependent children and the parents or relatives who live with and care for them." Shea v. Vialpando, 416 U.S. 251, 253, 94 S.Ct. 1746, 1750, 40 L.Ed.2d 120 (1974).

Under the program eligible households receive payments from the state. The federal government reimburses the participating states for a portion of the funds expended. 42 U.S.C. § 603. In return the state must comply with federal statutory provisions and HHS regulations. 42 U.S.C. § 602. In fact, once a state submits a plan, if the Secretary of HHS determines that the plan meets all the requirements of Title 4(A) of the Social Security Act and the regulations promulgated under that Section, the Secretary of HHS must approve the plan. 42 U.S.C. § 602(b).

At issue in the case at bar is the validity of Virginia's ADC transfer of assets rule set forth in § 303.5 of Virginia's ADC Manual. The Secretary of HHS has approved Virginia's plan pursuant to 42 U.S.C. § 602(b). In pertinent part the transfer of assets regulation disqualifies an applicant for receipt of ADC benefits who:

Improperly transfers or otherwise improperly disposes of his/her legal or equitable interest in real or personal property without adequate compensation within 2 years of application for ADC. A recipient is ineligible for a specified period of time if an improper transfer or other improper disposition of legal or equitable interest in real or personal property occurred within 2 years of discovery of the transfer or disposition. An improper transfer of property will result in the ineligibility of the assistance unit for 2 years from the date of transfer if the uncompensated value was $12,000 or less. The period of ineligibility will be increased 2 months for $1,000 or part thereof of uncompensated value in excess of $12,000. The amount of the uncompensated value is the fair market value or the disputed value per 303.4 of the property or the client's interest in the property less the amount of any compensation received for the property. Exceptions to this provision occur when:

A. A transfer of property was not made in an effort to become or remain eligible for ADC....

B Retention of the property would have no effect on eligibility.

C. The transfer of property resulted in compensation to the client which approximates the fair market value of the property....

D. Payment has been made on the cost of medical care which approximates the equity value of the property.

E. Disposition was the result of actions by another person ...

Virginia ADC Manual § 303.5.

The Commissioner of Virginia's Department of Social Services has declared both plaintiffs ineligible to receive ADC benefits under this regulation.¹ The events leading to determinations of ineligibility under this rule with respect to each plaintiff are as follows.

Plaintiff Deel resides in Buchanan County, Virginia with her husband and one minor child. On May 29, 1985 Mr. and Mrs. Deel transferred title to fifty-nine acres of land to the couple's daughter and son-in-law. At the time of transfer, the property was assessed at $15,700.00 and encumbered by a mortgage of $5,035.74. The consideration for the transfer was stated to be the amount of the mortgage balance.

On May 31, 1985 plaintiff Deel applied for ADC benefits with the Buchanan County Department of Social Services. Mrs. Deel's application was denied, and she requested a hearing. The hearing officer found that the Deels had improperly transferred assets prior to their application. However, the hearing officer also found that Mrs. Deel had not been informed of her right to dispute the assessed value of the property. Accordingly the matter was remanded to the local agency to give Mrs. Deel the opportunity to challenge the assessed value of the property. The State Board of Social Services affirmed the hearing officer on appeal. Eventually a second hearing was held before the hearing officer, and the local agency's denial of benefits was upheld. This decision was affirmed by the State Board of Welfare on February 27, 1986.

Plaintiff Adcock lives with two minor children in Amherst County, Virginia. Ms. Adcock applied for ADC benefits on December 3, 1984. Subsequent to making an application for benefits, Ms. Adcock permitted her estranged husband to sell a jointly-titled mobile home to his brother. The mobile home had been purchased approximately three years earlier for $3,300.00. The mobile home was sold for $1,000.00, one-half of which Ms. Adcock received.

On January 18, 1985 the local agency denied Ms. Adcock's ADC application. A hearing was held before a hearing officer on March 11, 1985. The hearing officer denied benefits finding that Ms. Adcock had improperly transferred assets. The State Board of Welfare reviewed this decision and ultimately affirmed the hearing officer's determination.

Plaintiff Deel filed an action in this court on October 17, 1985 seeking relief from the administrative actions. By order of this court on November 20, 1985, plaintiff Adcock was permitted to intervene as party plaintiff pursuant to Fed.R.Civ.P. 24(b).

The court will now address the merits of the plaintiffs' arguments.

II.

Plaintiffs do not contest the manner in which Virginia's ADC transfer of assets rule was applied to the particular facts of this case. Rather plaintiffs challenge the validity of the transfer of assets rule itself.

Plaintiffs first contend that the transfer of assets rule is an invalid state-imposed eligibility requirement. Plaintiffs assert that Congress must provide specific authorization for states to impose eligibility requirements that individuals must meet in order to qualify for federal welfare assistance. Cf. Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975), and Shea v. Vialpando, 416 U.S. 251, 94 S.Ct. 1746, 40 L.Ed.2d 120 (1974). However, within certain limitations states may condition disbursement of federal welfare funds on eligibility requirements not expressly authorized by Congress. New York State Department of Social Services v. Dublino, 413 U.S. 405, 420-22, 93 S.Ct. 2507, 2516-17, 37 L.Ed.2d 688 (1973).

This court must decide whether Virginia's transfer of assets rule is a permissible state imposed eligibility requirement for receipt of federal welfare funds not expressly authorized by Congress. In asserting that Virginia's transfer of assets rule is an improper state eligibility requirement, plaintiffs rely principally upon three cases that they contend set forth a per se rule that a transfer of assets rule establishes an eligibility requirement inconsistent with the Social Security Act. This court agrees that these cases are the most instructive authority for purposes of resolving this issue. The following are summaries of the pertinent portions of plaintiffs' cited cases.

In Udina v. Walsh, 440 F.Supp. 1151 (E.D.Mo. 1977), the court struck down a Missouri transfer of assets rule pertaining to ADC eligibility as an improper requirement for ADC assistance. The court explained:

The Missouri statute applies both to individuals who transferred property in order to receive benefits, and to those who transferred property for reasons unconnected with the receipt of benefits. Were the statute applicable only to those who had transferred property in order to receive benefits, thus introducing the element of fraud, a different issue would be presented.

440 F.Supp. 1155 (Citations omitted).

In Buckner v. Maher, 424 F.Supp. 366 (D.Ct.1976), aff'd 434 U.S. 898, 98 S.Ct. 290, 54 L.Ed.2d 184 (1977), a Connecticut transfer of assets rule was found to be an impermissible eligibility requirement for receipt of ADC benefits. The Connecticut rule denied ADC benefits to anyone who for any reason within seven years of application transferred or otherwise disposed of property without "reasonable consideration." 424 F.Supp. 370. The district court stated that "a state may indisputably employ reasonable rules...