Hazard v. Shalala

• Decision Date: 11 January 1995
• Docket Number: 93-6260,Nos. 93-6214,s. 93-6214
• Parties: , Medicare & Medicaid Guide P 43,002, 1995 Fed.App. 12P Sharon HAZARD, et al., Plaintiffs-Appellees, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant-Appellant (93-6214), Robert Grunow, Commissioner of Tennessee Department of Human Services, et al., Defendants-Appellants (93-6260).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 399

44 F.3d 399

46 Soc.Sec.Rep.Ser. 347, Medicare & Medicaid Guide

P 43,002,

1995 Fed.App. 12P

Sharon HAZARD, et al., Plaintiffs-Appellees, v. Donna E. SHALALA, Secretary of Health and Human Services Defendant-Appellant (93-6214) Robert Grunow, Commissioner of Tennessee Department of Human Services, et al., Defendants-Appellants (93-6260).

Nos. 93-6214, 93-6260.

United States Court of Appeals Sixth Circuit.

Argued Sept. 19, 1994.

Decided Jan. 11, 1995.

Lenny L. Croce, Paul E. Drozdowski (argued and briefed), Rural Legal Services of Tennessee, Oak Ridge, TN, Gordon Bonnyman, Legal Services of Middle Tennessee, Inc., Nashville, TN, for plaintiffs-appellees Sharon Hazard, for Kristopher Hazard, Jeffrey Hazard, for Kristopher Hazard, Kristopher Hazard, Billy Joe Melton, for Connie Marie Melton, Anna Louise Melton, for Connie Marie Melton, Connie Marie Melton, Reba Sherrill, for Emily Outlaw and Brenna Outlaw, Huey Outlaw, for Emily Outlaw and Brenna Outlaw, Emily Outlaw, Brenna Outlaw, Donna Jones, for Jessica Solomon and Aaron Jones, Jessica Solomon, Aaron Jones.

Michael L. Roden, Asst. U.S. Atty., Office of U.S. Atty., Nashville, TN, David W. Carpenter, Dept. of Health and Human Services, Office of Gen. Counsel, Atlanta, GA, Christine N. Kohl (argued), U.S. Dept. of Justice, Civ. Div. Appellate Staff, Malcolm L. Stewart (briefed), U.S. Dept. of Justice, Civ. Div., Barbara C. Biddle (briefed), U.S. Dept. of Justice, App. Staff, Civ. Div., Washington, DC, for defendant-appellant Donna E. Shalala, Secretary of Health and Human Services.

Sue A. Sheldon (argued and briefed), Office of Atty. Gen., Gen. Civ. Div., Nashville, TN, for defendants-appellants Robert Grunow, as Com'r of Tenn. Dept. of Human Services, Russell White, as Com'r of Tenn. Dept. of Health.

Before: SUHRHEINRICH, SILER, and BATCHELDER, Circuit Judges.

SUHRHEINRICH, Circuit Judge.

I. Introduction

This appeal involves a challenge to the $1500 "automobile resource exemption" set by the Secretary of Health and Human Services ("Secretary"), for recipients of Aid to Families with Dependent Children ("AFDC"). See 45 C.F.R. Sec. 233.20(a)(3)(i)(B)(2) (1993). ¹ Plaintiffs in this case were all denied AFDC and/or Medicaid benefits solely because they each own a vehicle worth more than $1500. Plaintiffs challenged both the Secretary's initial decision to set the automobile resource exemption at $1500 as well as her subsequent failure to adjust that figure for inflation. The district court declined to rule on the first issue, and agreed with the plaintiffs on the second, granting summary judgment to plaintiffs and enjoining enforcement of the regulation. ² Both the federal and state defendants appeal.

The issues raised here already have been considered in several jurisdictions with mixed results. Three other appellate courts have ruled in the Secretary's favor, see Brown v. Shalala, 46 F.3d 102 (1st Cir.1995), ³ Champion v. Shalala, 33 F.3d 963 (8th Cir.1994) (affirming district court's decision upholding the exemption); Falin v. Shalala, 6 F.3d 207 (4th Cir.1993) (per curiam opinion adopting wholesale decision of district court), cert. denied, --- U.S. ----, 114 S.Ct. 1551, 128 L.Ed.2d 200 (1994), as have several district courts. See Gamboa v. Rubin, No. 92-00397, 1993 WL 738386 (D.Haw. Nov. 4, 1993) (upholding regulation), appeal filed, No. 94-15302 (9th Cir. Jan. 26, 1994); see also Frederick v. Shalala, 862 F.Supp. 38 (W.D.N.Y.1994) (denying plaintiff's motion for preliminary injunction on grounds that plaintiff was not likely to succeed on merits); Hall v. Towey, No. 93-1780-CIV-T-21B, 1993 WL 738454 (M.D.Fla. Dec. 10, 1993)(same) (unpublished). In contrast, in addition to the one at hand, three district courts have concluded that the regulation is arbitrary and capricious. See Lamberton v. Shalala, 857 F.Supp. 1349 (D.Ariz.1994); Brown v. Shalala, 868 F.Supp. 405 (D.N.H.1993), reversed, 46 F.3d 102 (1st Cir.1995); We Who Care, Inc. v. Sullivan, 756 F.Supp. 42 (D.Me.1991). We agree with those courts that have upheld the regulation, and REVERSE.

II. Facts

A. Plaintiffs

Plaintiff Sharon Hazard suffers from Ehlers-Danlos syndrome, a severe connective tissue disease. She is unable to use her legs or her left arm and is confined to a wheelchair. Sharon's son, Kristopher Hazard, is also afflicted with a severe abnormal platelet aggregation disorder. At the time of their application for benefits in 1990, the Hazards owned a pickup truck valued at $8250. The community donated proceeds used to purchase the truck. The Hazards were denied benefits in February 1991 solely because they exceeded the automobile resource limit. The Hazards allegedly use the truck to transport Ms. Hazard's 225-pound wheelchair, carry Sharon and Kristopher to doctors' appointments and for medical emergencies. The Hazards live in a rural area that lacks public transportation.

Plaintiff Anna Louise Melton, a registered nurse, has diabetes mellitus and needs continuous medical care. Her husband, plaintiff Billy Joe Melton, suffers from Black Lung disease, and requires regular treatment at the Black Lung Clinic. The Meltons were denied Medicaid benefits solely because their pickup truck valued at $9250 exceeded the automobile limit. They, too, use the vehicle to get to doctors' appointments as public transportation is unavailable.

Plaintiff Reba Sherrill and her husband, plaintiff Huey Outlaw, have two daughters. In July 1990, Sherrill allegedly was stricken by a series of incapacitating illnesses related to a failure of her immune system identified as idiopathic anaphylaxis. She is unable to work, and her family's current income is $50 a month. Sherrill was denied benefits because her Acura, purchased when both she and her husband were working, was valued at $11,000 at the time of the application.

Plaintiffs filed suit pursuant to 5 U.S.C. Secs. 702 and 706, 42 U.S.C. Sec. 1983, and Title XIX of the Social Security Act. They sought a declaratory judgment that the vehicle resource exemption is arbitrary and capricious, that it was promulgated in violation of the Administrative Procedure Act, 5 U.S.C. Sec. 553, and that the state's application of this limitation to the state Medicaid scheme violated the Medicaid Act, 42 U.S.C. Sec. 1396 et seq. They also sought a permanent injunction ⁴ against further use of the asset limit in both the AFDC and Medicaid context.

B. District Court Proceedings

The district court granted summary judgment for the plaintiffs and enjoined the enforcement of 45 C.F.R. Sec. 233.20(a)(3)(i)(B)(2). The court opted not to rule on the rationality of the automobile resource limitation at the time of its enactment in 1982. It did conclude, however, that even if the regulation initially was rational, the Secretary's failure to adjust it periodically to factor in inflation negated the Secretary's purpose of "set[ting] an asset exclusion amount that would not in itself lead to application denials but would rather keep the 'vast majority' of recipients in the program." 827 F.Supp. at 1352 (relying on the published explanation made by the Secretary at the time of the regulation's enactment). Thus, in the district court's view, the rise in automobile costs due to inflation, "without a concurrent adjustment in the level of the automobile exclusion, means that the Secretary's stated purpose is now thwarted.... The regulation has now become a tool for denying applications, instead of a tool for protecting self-sufficiency...." Id.

Although it acknowledged that Congress, in OBRA, did not mandate a review of regulations in light of inflation, the district court believed that the "Secretary himself rendered this silence unimportant by promulgating a rationale for the regulation that implied sensitivity to changing financial conditions," id. at 1353, and that "where a regulation's rationality is dependent on current socioeconomic conditions periodic review is essential to preserve that rationality." Id.

As for the Medicaid regulations, the court held that the $1500 limit is also arbitrary and capricious, as no separate rationale had been proffered to justify the limit's application to Medicaid. Id.

III. Statutory and Regulatory Background

A. Federal

In 1935, Congress established the AFDC program by Title IV of the Social Security Act of 1935. See Pub.L. No. 94-271, Title IV, Secs. 401 et seq., 49 Stat. 627 (1935). The AFDC program is a cooperative federal-state program designed:

[f]or the purpose of encouraging the care of dependent children in their own homes or in the homes of relatives by enabling each State to furnish financial assistance and rehabilitation and other services, as far as practicable under the conditions in such State, to needy dependent children and the parents or relatives with whom they are living to help maintain and strengthen family life and to help such parents or relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care and protection....

42 U.S.C.A. Sec. 601 (West 1991). Participating states receive matching funds as long as the state plan satisfies the requirements of 42 U.S.C. Sec. 602 ⁵ and any regulations promulgated by the Secretary. See 45 C.F.R. Sec. 233.10.

The Secretary began imposing income and resource limitations upon the states in 1955. See Champion, 33 F.3d at 965; National Welfare Rights Org. v. Mathews, 533 F.2d 637, 643 (D.C.Cir.1976). Prior to 1981, the resource limit was $2000, without regard to the value of one automobile. Frederick, 862 F.Supp. at 40. In 1981, Congress passed the Omnibus Budget and Reconciliation Act ("OBRA"), which amended portions of the AFDC program, see 42 U.S.C. Sec. 602 (West Supp.1993), and imposed the first statutory limitations on allowable resources under the AFDC. OBRA of 1981 cut in half the $2000 resource limitation figure previously adopted by the Secretary. See Pub.L. 97-35,...