Kollett v. Harris, s. 79-1453

• Decision Date: 18 April 1980
• Docket Number: Nos. 79-1453,79-1455,s. 79-1453
• Citation: 619 F.2d 134
• Parties: Edward KOLLETT, by his next friend, Constance Gomes, Plaintiff, Appellee, v. Patricia Roberts HARRIS, as Secretary of Health, Education and Welfare, Defendant, Appellant. Frances MARDEROSIAN, o/b/o Peter Marderosian, Plaintiff, Appellee, v. Patricia Roberts HARRIS, as Secretary of Health, Education and Welfare, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 134

619 F.2d 134

Edward KOLLETT, by his next friend, Constance Gomes, Plaintiff, Appellee, v. Patricia Roberts HARRIS, as Secretary of Health, Education and Welfare, Defendant, Appellant.

Frances MARDEROSIAN, o/b/o Peter Marderosian, Plaintiff, Appellee, v. Patricia Roberts HARRIS, as Secretary of Health, Education and Welfare, Defendant, Appellant.

Nos. 79-1453, 79-1455.

United States Court of Appeals, First Circuit.

Argued Jan. 10, 1980.

Decided April 18, 1980.

Bruce G. Forrest, Atty., Dept. of Justice, Washington, D. C., with whom Alice Daniel, Acting Asst. Atty. Gen., Washington, D. C., Paul F. Murray, U. S. Atty., Providence, R. I., and Ronald R. Glancz, Atty., Dept. of Justice, Washington, D. C., were on brief, for appellant.

William Rutzick, Providence, R. I., with whom Barbara Hurst, Providence, R. I., and Gary Powers, Woonsocket, R. I., were on brief, for appellees.

Before ALDRICH, CAMPBELL and BOWNES, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

Plaintiffs are disabled children who are eligible for cash assistance payments under the Supplemental Security Income (SSI) program, 42 U.S.C. §§ 1381 et seq. Believing the benefits allowed them by the Secretary were lower than those to which they were entitled, plaintiffs appealed the Secretary's final decisions to the district court pursuant to 42 U.S.C. § 405(g). The Secretary's present appeals to us are from the district court's judgments in those cases.

This dispute over benefits arises from plaintiffs' discontent with the Secretary's regulations attributing to a disabled child certain income of his parents or stepparents whether or not that income is actually available to the child. As an individual's benefit level is tied to his income and resources, augmentation of a child's income by the "deemed" or attributed parental income reduces the amount of SSI benefits the child receives. In the court below, plaintiffs challenged both the procedural and substantive validity of the Secretary's deeming regulations. The district court concluded the regulations were invalid and ordered a new rulemaking.

I. The regulations and the district court opinion.

The challenged regulations implement 42 U.S.C. § 1382c(f)(2), which provides,

"For purposes of determining eligibility for and the amount of benefits for any individual who is a child under age 21, such individual's income and resources shall be deemed to include any income and resources of a parent of such individual (or the spouse of such a parent) who is living in the same household as such individual, whether or not available to such individual, except to the extent determined by the Secretary to be inequitable under the circumstances."

The Secretary's first set of interim regulations to implement section 1382c(f) (2) was published in the federal register on January 22, 1974. 39 Fed.Reg. 2487. These regulations went into immediate effect and were to be applied by the Secretary in administering the SSI program from its effective date, January 1, 1974, ¹ until the adoption of final regulations. Generally, the regulations provided that all income of a parent or stepparent living with the child would be treated as the child's income with three main exceptions. Deductions were made for (1) the work expenses of the parent or stepparent ("expenses attributable to the earning of . . . income"), (2) the living expenses of the parent and/or stepparent, and (3) the living expenses of other children in the same household. 39 Fed.Reg. 2487, § 416.1185. These deductions were set amounts; determinations to meet individualized circumstances were not made. Thus, for example, a disabled child was not allowed to show that the regulatory figures were insufficient to cover his parents' living or work expenses and therefore income which was not actually available to him was deemed to him. Amendments to the interim regulations were published on January 18, 1977 with an immediate effective date. 42 Fed.Reg. 3316. The amendments liberalized the deeming rules in certain respects. 42 Fed.Reg. 3316. Final regulations for deeming, substantially the same as the 1977 regulations, were published on September 6, 1978. 43 Fed.Reg. 39564; 20 C.F.R. § 416.1185.

Plaintiffs Kollett and Marderosian argued before the district court that the amounts of the various exclusions under both the interim and final regulations were arbitrary and inadequate, and plaintiff Kollett, in addition, challenged the Secretary's deeming to him the income of his stepfather who, under state law, was not obligated to support him. ²

The district court first addressed the constitutionality of deeming to a child income not actually available to him. The court observed that but for the clause "except to the extent determined by the Secretary to be inequitable under the circumstances," 42 U.S.C. § 1382c(f)(2) would conclusively presume that a child's needs were reduced by the amount of the stepparent's or parent's income. Believing this presumption might be so irrational as to be unconstitutional, at least with respect to a child whose stepparent had no legally enforceable support obligation, the court construed the statute to avoid this presumed constitutional problem. Consequently, the court interpreted section 1382c(f)(2) as delegating to the Secretary "the power to exempt from the deeming provision income of a parent or stepparent without restriction as to whether or not it is actually available, but guided by the standard of equity." "So long as the Secretary appropriately exercises his power in this manner," the court stated, "the statute is constitutional."

The court then proceeded to determine whether the deeming regulations were "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The court concluded that the regulations, both interim and final, were invalid because the Secretary had failed to give consideration to all "relevant factors" under the standard of Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). The court reasoned as follows:

"(O)nce (the Secretary) undertook to exercise his statutory authority, the Secretary was under an obligation to do so in accordance with the statutory standard. Consequently, the Secretary's action must be measured against the standard of equity under the circumstances.

"Equity . . . is a term which admits of no precise definition, and . . . such a standard provides the Secretary with a considerable degree of discretion. The ultimate determination whether it is inequitable to deem income, given a particular set of circumstances, is within the Secretary's discretion. However, it is clear that there are limits to this discretion. . . . There must be some indication that consideration has been given to whether deeming is equitable under the various circumstances; a decision cannot conceivably be equitable unless all the relevant factors are considered."

The court then proceeded to enumerate the factors which it felt were relevant. The court stated,

"There can be little question . . . that because a relevant factor is whether it is equitable to deem income which is not actually available, a relevant factor in formulating regulations under section (1382c(f)(2)) is whether income of a stepparent not obligated to support a stepchild should be deemed to the stepchild when that income is not actually available. The Secretary's failure to consider such a clearly relevant factor constitutes an abuse of his discretion and alone justifies this court in setting aside the challenged regulations."

The court next turned to the various exceptions from deeming. It found the parental living allowance exception, set at an amount equal to the maximum federal SSI benefit, arbitrary. The court stated,

"(O)nce (the Secretary) recognized the specific inequity of not excepting from deeming an amount 'which would be considered necessary to meet the living needs of the person who has the income and resources,' he was under a duty to select an amount that is not arbitrary and capricious by considering the factors relevant to a determination of an individual's living needs. . . . There is no question that the amount of income generated by the basic federal SSI rate is wholly inadequate as a measure of individual living expenses."

Because persons receiving SSI do not necessarily live on those benefits alone but may also receive state supplements to SSI, medicaid, and food stamps, the court concluded that the value of these supplementations should be considered in calculating the parental living allowance exception.

The court found similar deficiencies with respect to the exclusion for the living expenses of the other children living in the same household the figure set by the regulations failed "to reflect any consideration of regional variations in the cost of living, of the cost of medical care, or of the cost of paying full price for food rather than utilizing food stamps."

The work expense exclusion of the 1974 proposed regulations, set at $65, was also held invalid. (Plaintiffs did not challenge the validity of the 1977 or current work expense formula.) Because there was no indication that the $65 figure "was based on either an examination of actual work expenses or adoption of a congressionally determined amount," the court concluded the $65 figure was "arbitrary, capricious, (and) an abuse of discretion."

The court ordered the Secretary to consider factors it had enumerated in a new rule-making procedure and to apply the subsequent rules retroactively to plaintiffs.

II. The challenges to the statute and regulations.

Plaintiffs' so far successful challenge to the Secretary's program in this area has three principal lines of attack. They argue (1) 42 U.S.C. § 1382c(f) (2), (and, concomitantly, the deeming regulation adopted thereunder), is unconstitutional insofar as it is construed to permit the Secretary to deem...