Marcello v. Regan

• Decision Date: 08 November 1983
• Docket Number: Civ. A. No. 83-0252 S.
• Citation: 574 F. Supp. 586
• Parties: Kenneth MARCELLO, John Dubois, and Cathy Whittaker, Plaintiffs, v. Donald REGAN, in his official capacity as United States Secretary of the Treasury, John A. Affleck, in his official capacity as Director of the Rhode Island Department of Social & Rehabilitative Services, George A. Moriarty, Chief Supervisor, Rhode Island Bureau of Family Support and Domestic Relations, Defendants.
• Court: U.S. District Court — District of Rhode Island

574 F. Supp. 586

Kenneth MARCELLO, John Dubois, and Cathy Whittaker, Plaintiffs, v. Donald REGAN, in his official capacity as United States Secretary of the Treasury, John A. Affleck, in his official capacity as Director of the Rhode Island Department of Social & Rehabilitative Services, George A. Moriarty, Chief Supervisor, Rhode Island Bureau of Family Support and Domestic Relations, Defendants.

Civ. A. No. 83-0252 S.

United States District Court, D. Rhode Island.

November 8, 1983.

John H. Hines, Jr., Smithfield, R.I.; Stephen M. Miller, John Marks, Providence, R.I., for plaintiffs.

Dennis J. Roberts, III, Atty. Gen., Donald H. Elbert, Alan R. Tate, Asst. Attys. Gen., Wm. M. Walsh, Sp. Asst. Atty. Gen., Providence, R.I., for the State defendants.

Paul D. Barker, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., Lincoln C. Almond, U.S. Atty., Everett C. Sammartino, Asst. U.S. Atty., Providence, R.I., for federal defendants.

OPINION

SELYA, District Judge.

The plaintiffs, Kenneth Marcello, John Dubois, and Cathy Whittaker, are Rhode Island residents and wage-earners. Each of them overpaid his or her 1982 federal income tax. Marcello and Dubois also are allegedly delinquent in spousal or child support payments, as is Mrs. Whittaker's husband. Pursuant to the tax refund intercept mechanism authorized by 26 U.S.C. § 6402(c),¹ the federal government transferred all or some material part of the tax overpayment theretofore made by each such plaintiff to the State of Rhode Island. The intercept approach was enacted to provide the states with a simple and straightforward method for recovering, at least in part, amounts paid by the states in welfare benefits to families with dependent children when support-obligated individuals failed to make payments as required. While the program is national in scope, its effectuation has necessarily been on a state-by-state basis.

The plaintiffs contend that the implementation of the intercept program in Rhode Island was accomplished without adequate procedural safeguards and, therefore, deprived the plaintiffs of their constitutional right to due process of law, in breach of the fifth and fourteenth amendments to the United States Constitution. The plaintiffs further claim that the scheme violates the Civil Rights Act of 1871, 42 U.S.C. § 1983. The plaintiffs have moved for certification of this case as a class action pursuant to Fed.R.Civ.P. 23(b)(2); they seek to represent the class of all persons whose income tax refunds have been or will be withheld and paid over to the state pursuant to 26 U.S.C. § 6402(c).

The defendants are all government officials sued in their official capacities.² The defendants argue that this action is barred by 26 U.S.C. § 6305(b) and that, to the extent that the plaintiffs seek equitable and declaratory relief, subject-matter jurisdiction is wanting by reason of both the Anti-Injunction Act, 26 U.S.C. § 7421(a), and the Declaratory Judgment Act, 28 U.S.C. § 2201. In addition, the federal defendant asserts that the doctrine of sovereign immunity bars the action against him. Finally, all of the defendants maintain that the program as implemented affords all of the process which is due.

Immediately following the institution of the action, the court, with the consent of the parties, advanced the trial on the merits, consolidated the trial with the hearing on preliminary injunction, see Fed.R.Civ.P. 65(a)(2), and assigned the merged proceedings to go forward on June 30, 1983. The hearing resulted in the submission of the cause essentially on an agreed statement of facts, supplemented in certain respects by the verified amended complaint, documentary exhibits, discovery materials, and a modest quantum of live testimony. The matter has been extravagantly briefed by all parties. After due consideration of these materials, the court grants class certification as indicated post and holds that the implementation of the tax refund intercept program under the joint aegis of the federal government and the State of Rhode Island abridges the class members' due process rights. This opinion sets forth the court's findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a).

I. Background

The tax refund intercept arrangement is designed to function on an abecedarian plane. Recipients of welfare benefits under the Aid to Families with Dependent Children ("AFDC") program must assign their past-due support obligations to the state as a precondition to receipt of AFDC payments. 42 U.S.C. §§ 602(a)(26)(A), 656(a). In accordance with § 464 of the Social Security Act, 42 U.S.C. § 664,³ the state is empowered to certify to the Secretary of the Treasury a compendium of names of delinquent obligors. If any person so listed is entitled to a refund of his or her federal income tax overpayment, the Secretary, pursuant to 26 U.S.C. § 6402(c),⁴ shall reduce the amount of that refund by the amount of any such past-due support and remit that sum to the state. The Secretary is also required, under the statute, to notify the affected taxpayer that the amount of such metachronistic support has been set off from the anticipated tax refund in this fashion. In Rhode Island, welfare recipients assign their overdue support obligations to the Bureau of Family Support of the Department of Social & Rehabilitative Services ("Bureau"); and the Bureau acts for the state in respect to the § 464 certification process.

On or before October 1, 1982, the Bureau certified to the Treasury Secretary the names of 2,542 persons allegedly delinquent in support payments.⁵ The amount of past-due support claimed from the persons spotlighted was substantial (aggregating $6,724,051.00). Sometime after October 1, 1982 and before December 15, 1982, the Bureau transmitted the delinquency census to the Department of Health and Human Services ("HHS"). Moreover, in October, 1982, the Bureau mailed a first-notice form letter (the "initial letter") to each of the persons who it had determined, in accordance with Family Court records provided to the Bureau, owed either child or spousal support (or both). The text of the initial letter is set forth in the margin;⁶ in sum, it stated that the Bureau had referred the addressee's name to the Service and that the addressee's tax refund (if any) might be retained to satisfy, wholly or partially, a past-due support obligation. This initial letter also noted the amount claimed to be past-due and cautioned the addressee to contact the Bureau no later than November 24, 1982 if the amount was incorrect. The initial letter was forwarded only to those persons whose names had been certified by the Bureau to the Treasury Department; spouses of those persons were neither separately nor jointly addressed.

Between October and December 15, 1982, the Bureau was responsible for dealing with taxpayers—including the plaintiffs—who responded by telephone or in person to the initial letter. Upon receipt of such an inquiry, Bureau investigators invariably informed the individual whether the amount claimed was or was not correct according to a cursory cross-matching of the individual's receipt records and the Bureau's files. The Bureau would then mail to all who had inquired a second letter which stated either that the person's name would be deleted from the intercept census because the amount of the arrearage was in question⁷ or that the name would remain on the list because the Bureau, in its infinite wisdom, had determined that the amount claimed was correct.⁸ No formal record of such proceedings was constituted, and the Bureau's procedure in this regard was inherently antipathetic to any meaningful judicial review of its administrative doings.

Because a typical joint federal tax return, standing alone, fails to furnish sufficient data to the Service upon which to base an intelligent determination of the proportion or amount of any refund which may be due to a nonobligated husband or wife, the Service, commencing on or about March 28, 1983, dispatched tax statement notifications to affected taxpayers. No separate notices went forward to nonobligated spouses who had filed joint returns; rather, in such circumstances, a single notice was mailed to both spouses. Under the rubric "Overpaid tax applied to past-due support obligation," the notice explained, in substance, that the Service had retained, and would pay to the designated state agency, all or part of the taxpayers' overpayment in order to satisfy a past-due support obligation. The notice also informed the taxpayers that nonobligated spouses who had filed joint returns could object to having their share of the refund amount applied in this manner, and that the Service would bifurcate the overpayment if a 1040X amended federal individual income tax return was filed demonstrating each spouse's share and contribution to the overpayment. Again, the standard text of the notice is commemorated in the margin.⁹ Nothing was mentioned as to when the monies would be shifted to the state, or as to any time parameters within which amended returns would have to be filed in order to avert transfer of the funds. Rhode Island formulated no procedure to resolve the dilemma of a nonobligated person who filed a joint return. Instead, the state took the course of least resistance and routinely referred questions and complaints from nonobligated spouses to the Service.

Plaintiff Dubois and his spouse filed a 1982 joint federal income tax return which reflected a $650.73 overpayment. On March 2, 1983, the Service transferred $593.00 to the Bureau and, sometime later, refunded the balance of $57.73 to the taxpayers. Plaintiff Whittaker and her spouse filed a 1982 joint return which showed a withholding tax credit of $898.88, an earned income credit of $78.00,¹⁰ and a tax due of $237.00. The Service intercepted the entire $739.88 net overpayment and, on March 14, 1983, disbursed it to the Bureau. Plaintiff Marcello filed a 1...