Schroeder v. Hegstrom
| Decision Date | 13 June 1984 |
| Docket Number | Civ. No. 84-289-PA. |
| Citation | 590 F. Supp. 121 |
| Parties | Sana SCHROEDER, et al., Plaintiffs, v. Leo HEGSTROM, et al., Defendants and Third-Party Plaintiffs, v. Margaret M. HECKLER, Secretary of Health and Human Services, Third-Party Defendant. |
| Court | U.S. District Court — District of Oregon |
Richard H. Hart, Jr., Roberta J. Lindberg, Lane County Legal Aid Service, Eugene, Or., Amy Veranth, Michael H. Marcus, Legal Aid Service, Portland, Or., for plaintiffs.
Dave Frohnmayer, Atty. Gen., William F. Gary, Deputy Atty. Gen., Salem, Or., for defendants and third-party plaintiffs.
Charles H. Turner, U.S. Atty., Judith D. Kobbervig, Asst. U.S. Atty., Portland, Or., for third-party defendant.
Plaintiffs are welfare families who challenge certain policies and practices by which eligibility and benefits are determined under Oregon's Aid to Dependent Children (ADC) program. Defendants are Leo Hegstrom, Director of the Department of Human Resources of the State of Oregon, and Keith Putnam, Administrator of the Adult and Family Services Division of the State of Oregon (AFS). Plaintiffs allege that the challenged policies violate federal statutes and regulations, and the due process guarantee of the fourteenth amendment. They seek declaratory and injunctive relief.
Defendants have filed a third-party complaint against Margaret Heckler, Secretary of the United States Department of Health and Human Services. The Department of Health and Human Services administers the federal Aid to Families with Dependent Children (AFDC) program. The third-party complaint seeks to enjoin the Secretary from refusing to allow and pay federal financial participation moneys to defendants/third-party plaintiffs pursuant to a preliminary injunction entered by this court against defendants/third-party plaintiffs. The Secretary has not filed an answer to the third-party complaint, and this matter has not been briefed by the parties. I therefore order the third-party action bifurcated from the principal case. Trial on the merits will be held at a later date.
Plaintiffs make three claims. First, they contend that defendants' policy and practice of counting plaintiffs' mandatory payroll deductions as income in determining ADC eligibility and payment levels violates Congressional mandates contained in 42 U.S.C. §§ 601, 602(a)(7), and 602(a)(8). This claim has been designated the "earned income" claim. Second, plaintiffs contend that defendants' policy and practice of counting plaintiffs' income tax refunds as income for purposes of ADC violates 42 U.S.C. § 602(a)(7), 45 C.F.R. § 233.20(a)(3)(ii)(D) and (E), and the due process guarantee of the fourteenth amendment, when those funds have been previously counted as income when withheld from earnings. This claim has been referred to as the "double-counting" claim. Third, plaintiffs assert that defendants do not provide adequate notice of proposed adverse action on ADC benefits due to receipt of earned income, nor an adequate opportunity for hearing before benefits are reduced, suspended, or terminated. Plaintiffs contend defendants' current procedures violate 42 U.S.C. § 601, et seq., 45 C.F.R. §§ 205.10 and 233.37, and the due process clause of the fourteenth amendment. This claim has been designated the "notice and hearing" claim.
On March 30, 1984, I granted plaintiffs' motion for class certification. I certified two overlapping classes of plaintiffs. The "earned income" class is comprised of all ADC applicants or recipients with a family member who has or will have earned income. The "double-counting" class is comprised of all ADC applicants or recipients with a family member who has received or will receive a refund of income taxes withheld in 1983 which taxes were considered in determining their ADC eligibility or benefits at the time the taxes were withheld.
I also granted a preliminary injunction enjoining defendants from counting for ADC purposes income tax refunds received by plaintiffs on or after April 1, 1984, or finally determined as income by AFS on or after April 1, 1984, where the money, in the form of mandatory payroll deductions, had been previously treated as income in the ADC program.
Plaintiffs now seek final injunctive and declaratory relief on their earned income, double-counting, and notice and hearing claims. A trial on the merits was held on April 18, 1984. For the reasons set forth below, I hold that plaintiffs are entitled to prevail on each of their three claims. This opinion shall constitute findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).
Aid to Families with Dependent Children is a jointly funded federal-state public assistance program authorized by the Social Security Act. Participating states give assistance to needy families that include a dependent child. A portion of the funds expended by the state is reimbursed by the federal government. In return, states are required to administer their programs according to federal statutes and Department of Health and Human Services regulations. See 42 U.S.C. §§ 601-07; Turner v. Prod, 707 F.2d 1109, 1111 (9th Cir.1983), cert. granted sub nom., Heckler v. Turner, ___ U.S. ___, 104 S.Ct. 1412, 79 L.Ed.2d 739.
In determining an AFDC family's benefits, state programs are required to take into account the amount necessary for essentials, the level of benefits the state is willing to pay, and the family's income and resources. Pursuant to long-standing administrative policy, only income actually available was considered in calculating a family's need. Under this interpretation, funds mandatorily deducted from a worker's paycheck for such items as federal and state income taxes were not treated as income. See Turner, 707 F.2d at 1114-16.
In 1981, Congress passed the Omnibus Budget Reconciliation Act (OBRA), bringing significant changes to the AFDC program. The purpose of OBRA was to reduce federal spending. "Views of the Committee on the Budget," Senate Report No. 97-139 (June 17, 1981), reprinted in 1981 U.S.Code Cong. & Ad.News 396, 397, cited in Turner, 707 F.2d at 1111. OBRA amended 42 U.S.C. § 602(a)(7) and § 602(a)(8), the provisions that describe the method by which state programs are to determine a family's need for AFDC benefit purposes. The pertinent portions of the statute, as amended, provide:
The enactment of OBRA raised the question whether Congress intended to change the definition of "income" in section 602(a)(7) from income actually available to gross income, by subsuming tax withholdings under the standardized work expense disregard of section 602(a)(8)(A)(ii). There is a division among the circuits on this issue.
In Turner v. Prod, 707 F.2d 1109 (9th Cir.1983), cert. granted sub nom., Heckler v. Turner, ___ U.S. ___, 104 S.Ct. 1412, 79 L.Ed.2d 739, the Ninth Circuit concluded that the pertinent legislative and administrative history demonstrates that "income" for the purposes of section 602(a)(7) should be construed as income net of mandatory payroll deductions such as local, state, and federal income taxes. 707 F.2d at 1124. Turner is currently on appeal to the United States Supreme Court. The parties in this case have stipulated that the California policy at issue in Turner is essentially the same as the policy at issue here.
Several courts have reached the same conclusion as the Ninth Circuit: Nishimoto v. Sunn, 561 F.Supp. 692 (D.Hawaii 1983); Williamson v. Gibbs, 562 F.Supp. 687 (W.D.Wa.1983); RAM v. Blum, 564 F.Supp. 634 (S.D.N.Y.1983); and Clark v. Helms, 576 F.Supp. 1095 (D.N.H.1983).
The First, Third, and Fourth circuits have reached a contrary result, holding that state programs may now consider mandatory payroll deductions within the definition of "income" for purposes of determining AFDC eligibility and benefits. Dickenson v. Petit, 728 F.2d 23 (1st Cir. 1984); James v. O'Bannon, 715 F.2d 794 (3rd Cir.1983); Bell v. Massinga, 721 F.2d 131 (4th Cir.1983).
The opinions in Turner and James thoroughly set forth the disparate views. Although the analysis in James is thoughtful and well-reasoned, it is appropriate that I follow the holding of the Ninth Circuit in Turner pending resolution of the issue by the United States Supreme Court. Thus, I hold that plaintiffs are entitled to injunctive relief on their earned income claim. I further hold that if defendants choose to use standardized monthly tables to estimate tax withholdings, plaintiffs must be provided with notice of the use of such tables, and an opportunity to rebut the presumptions incorporated within them. I also hold that defendants may not count as income union dues where such dues are mandatorily withheld from wages pursuant to a collective bargaining agreement.
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