Malloy v. Eichler, 88-3094

Decision Date18 July 1988
Docket NumberNos. 88-3094,88-5149,No. 88-3094,No. 88-,88-3094,88-,s. 88-3094
Citation860 F.2d 1179
CourtU.S. Court of Appeals — Third Circuit
Parties, Medicare&Medicaid Gu 37,497 Brenda MALLOY and Nereida Gutierrez, on their own behalf and as parents and next friends of Curtis Malloy, Timothy Malloy and William Gutierrez, their minor children, and Carolyn Marsh and Esperanza Rodriquez, et al. v. Thomas EICHLER, in his official capacity as the Secretary of the Delaware Department of Health and Social Services, and Phyllis Hazel, in her official capacity as Director of the Department's Division of Economic Services, et al. Appeal of SECRETARY OF the DEPARTMENT OF HEALTH AND HUMAN SERVICES of the United States of America, inMaria ROSADO, Priscilla Golden, Angelica Saldana, Sharon Thomas, Norma Taylor, Nydia Cruz, each individually and on behalf of their respective plaintiff minor children and on behalf of all other persons in New Jersey similarly situated v. Otis R. BOWEN, Secretary of Health and Human Services, and Gregory S. Perselay, Acting Commissioner of the New Jersey Department of Human Services. Appeal of Otis R. BOWEN, Secretary of Health and Human Services, in5149. . Submitted Pursuant to Third Circuit Rule 12(6)

Beverley Dennis, III, Chief Counsel, Region III, James C. Newman, Supervisory

Asst. Regional Counsel, Javier A. Arrastia, Asst. Regional Counsel, Dept. of Health & Human Services, Philadelphia, Pa., William C. Carpenter, U.S. Atty., Kent A. Jordan, Asst. U.S. Atty., D. Del., Wilmington, Del., Samuel A. Alito, Jr., U.S. Atty., Cornelia E. Dude, Asst. U.S. Atty., D. N.J., Newark, N.J., for appellant.

Harris David, Legal Services of New Jersey, New Brunswick, N.J., Richard Foard, Michaelene Loughlin, Essex-Newark Legal Services ACLU of New Jersey, Newark, N.J., Jack Fitzgerald, Warren County Legal Services, Belvidere, N.J., for appellees.

Before HIGGINBOTHAM, BECKER and ROSENN, Circuit Judges.

OPINION OF THE COURT

A. LEON HIGGINBOTHAM, Jr., Circuit Judge.

This is a consolidated appeal from the judgments in two separate class actions, Malloy v. Eichler, 628 F.Supp. 582 (D.Del.1986), reprinted in Joint Appendix (hereinafter Jt.App.) at 6, and Rosado v. Bowen, 698 F.Supp. 1191 (D.N.J.1987), reprinted in Jt.App. at 56. Both plaintiff classes sought to enjoin the state and federal officials who administer the Medicaid program from using section 2640 of the Deficit Reduction Act of 1984 ("DEFRA"), 42 U.S.C. Sec. 602(a)(38)) (Supp.1988) (hereinafter section 2640), an amendment to the AFDC statute, to determine eligibility for Medicaid coverage. The district courts granted these injunctions. We will affirm.

I.

In Malloy, plaintiffs filed a proposed class action against the Delaware state officials responsible for administering and for supervising the administration of the Medicaid program in Delaware ["Delaware state defendants"]. Plaintiffs asked the court to enjoin Delaware's practice of terminating Medicaid benefits for Delaware children and their caretaker relatives who would have been eligible for AFDC but for section 2640 of DEFRA. The District Court granted the Delaware state defendants' motion to add the Secretary as a necessary party defendant. The court then entered an order and a declaratory judgment holding that the Secretary's "practice or policy of deeming the income of siblings or grandparents to individual Medicaid applicants or recipients pursuant to Sec. 2640(a) of DEFRA ... violates Medicaid law now codified at 42 U.S.C. Sec. 1396a(a)(17) and the regulations promulgated thereunder." Malloy v. Eichler, Judgment and Order Against the Federal Defendant, reprinted in Jt.App. at 48-50. Only the Secretary chose to appeal this judgment.

In Rosado, plaintiffs filed a proposed class action directly against the Secretary and against Geoffrey S. Perselay, the Acting Commissioner of the New Jersey Department of Human Services, as the officials responsible for administering the New Jersey AFDC and Medicaid programs. Unlike the plaintiffs in Malloy, plaintiffs in Rosado challenged the constitutionality of Sec. 2640 of DEFRA as well as its application to Medicaid eligibility. The Supreme Court upheld the constitutionality of Sec. 2640 in Bowen v. Gilliard, --- U.S. ----, 107 S.Ct. 3008, 97 L.Ed.2d 485 (1). Accordingly, the District Court granted summary judgment to the Secretary on that issue. Rosado, reprinted in Jt.App. at 66-69, 88-89. However, the Rosado court agreed with the Malloy court that one of the Medicaid eligibility provisions, 42 U.S.C. Sec. 1396a(a)(17)(D), specifically prohibited the use in the Medicaid context of section 2640's assumption that the income of any child in the family was available to the whole household as income. Malloy, reprinted in Jt.App. at 83-86.

II.

The Medicaid program was established under Title XIX of the Social Security Act, 42 U.S.C.A. Secs. 1396-1396s (Supp. 1). It is a cooperative program whereby the federal and state governments share the costs of medical treatment for needy individuals. States are not obligated to participate, but, if a state chooses to do so, it must comply with the federal requirements for the program. In return, it receives substantial federal matching funds.

Participating states must provide assistance to all individuals specified as "categorically needy." 42 U.S.C. Sec. 1396a(a)(10)(A). This group includes, among others, AFDC recipients, under Title IV-A of the Social Security Act, 42 U.S.C.A. Sec. 601 et seq. However, persons who would be eligible for AFDC except for an eligibility requirement used in the AFDC program that is specifically prohibited under Medicaid have historically been eligible for Medicaid. 42 C.F.R. Sec. 435.113 (1982). Medicaid eligibility is thus closely linked to, but not perfectly coextensive with, AFDC assistance. How coextensive is what is at issue in this case.

III.

The Secretary argues that Congress' amendment of the AFDC program to treat sibling income as available to all members of a family receiving AFDC should control family income determinations for Medicaid eligibility as well. Understanding the Secretary's contentions thus requires an understanding of the AFDC eligibility requirements. Like Medicaid, AFDC is funded cooperatively by the federal and state governments, with states administering the program locally and complying with federal requirements in return for federal funding. AFDC is available to dependent children in households where one parent is absent or is physically or mentally incapacitated.

A family applies for AFDC as a family "filing unit." To qualify for assistance, a filing unit must meet specified standards of financial need. 42 U.S.C.A. Sec. 606(a)(1). Prior to DEFRA, a family could apply as a filing unit for assistance without including all of its members in the filing unit. At that time, families routinely excluded children with significant incomes from the AFDC filing unit to avoid reducing a family's overall eligibility for benefits. This practice had a legal basis. The normal sources of outside income for children in these households is court-ordered child support or Social Security payments received by a child on behalf of a deceased parent. Prior to DEFRA, caretaker relatives could not legally spend Social Security income to satisfy the needs of anyone except the beneficiary child, see Jt.App. at 122, 125, and state law often required a caretaker relative to use child support only to the benefit of the supported child, Bowen v. Gilliard, --- U.S. ----, 107 S.Ct. 3008, 3016 n. 14, 97 L.Ed.2d 485(1). Permitting families to exclude children with dedicated income from filing units recognized these legal strictures. A minor parent living with her own parents was also permitted to apply with her child(ren) as a filing unit, omitting details of her own parents'--the child(ren)'s grandparents'--financial needs and resources.

Among other changes in AFDC eligibility requirements, Section 2640 of DEFRA amended Sec. 402(a)(38) of the Social Security Act, 42 U.S.C. Sec. 602(a)(38) (Supp.1988) to provide, in pertinent part:

"A State plan for aid and services to needy families with children must--

* * *

"(38) provide that in making the determination under paragraph (7) with respect to a dependent child and applying paragraph (8), the State agency shall (except as otherwise provided in this part) include--

"(A) any parent of such child, and

"(B) any brother or sister of such child, such brother or sister meets the conditions described in clauses (1) and (2) of section 606(a) of this title, if such parent, brother, or sister living in the same home as the defendent child and any income of or available for such parent, brother, or sister shall be included in making such determination and applying such paragraph with respect to the family (notwithstanding section 405(j) of this title, in the case benefits provided under subchapter II of this chapter)...."

State AFDC officials now automatically treat Social Security benefits or child support benefits received on behalf of one child, as well any grandparent income in three-generation households including a minor parent, as available to the whole family. As a result, many families no longer receive AFDC. Under the Secretary's regulations, families whose total income makes them ineligible for AFDC benefits are also no longer eligible for Medicaid coverage.

The Secretary argues that his official interpretation of section 2640--that its inclusion of sibling and grandparent income in an applicant's resources extends to Medicaid eligibility decisions--was issued pursuant to Congress's broad delegation of authority to him to determine the amount of income available to Medicaid applicants. Appellant's Brief at 9-13. However, in our review, we must determine whether the Secretary properly construed the scope of his statutory authority in making his decision. See Citizens to Preserve Overton Park,...

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