State of Cal. v. Block

• Decision Date: 18 November 1981
• Docket Number: No. 78-3645,78-3645
• Citation: 663 F.2d 855
• Parties: STATE OF CALIFORNIA, et al., Plaintiffs-Appellees, v. John R. BLOCK, * Secretary of the United States Department of Agriculture, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 855

663 F.2d 855

STATE OF CALIFORNIA, et al., Plaintiffs-Appellees, v. John R. BLOCK, ^* Secretary of the United States Department of Agriculture, et al., Defendants-Appellants.

No. 78-3645.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 10, 1980.

Decided Nov. 18, 1981.

Al J. Daniel, Washington, D. C., argued, for defendants-appellants; Leonard Schaitman, Washington, D. C., on brief.

John J. Klee, Jr., San Francisco, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of California.

Before KENNEDY and NORRIS, Circuit Judges, and McNICHOLS, ^** District Judge.

KENNEDY, Circuit Judge:

This case involves an attempt by the Secretary of Agriculture to collect money from the State of California for alleged misadministration of the food stamps program. Section 10(g) of the Food Stamp Act of 1964 provided that if a state had been guilty of gross negligence or fraud in the administration of the program, the Secretary could demand return of monies to the federal government. The major issue for our consideration is whether a regulation, 39 Fed.Reg. 26,005 (1974), codified at 7 C.F.R. § 271.7(a) (Appendix to 7 C.F.R. § 276 (1980)), was within the Secretary's statutory authority under section 10(g) of the Food Stamp Act. ¹ Invoking the challenged regulation, the Secretary made a determination that Los Angeles and Santa Clara counties had run the federal program in violation of its regulation, and the Secretary demanded repayment of significant sums of money by California to the federal government.

California filed this action in district court seeking injunctive and declaratory relief. It moved for summary judgment, contending the regulation justifying the action was issued in excess of statutory authority. The Secretary filed a cross-motion for summary judgment, asserting that the regulation was valid and that his determination of gross negligence was not arbitrary or capricious. The court granted the State's motion and found the regulation invalid. ² For the reasons we state, the judgment is affirmed in part, reversed in part, and the case remanded.

By enactment of the Food Stamp Act, Congress specifically authorized the Secretary of Agriculture to "formulate and administer" the food stamp program. 7 U.S.C. § 2013(a) (1976). The Act envisioned voluntary participation by the states. Upon submittal of an acceptable state plan of operation, eligible households within the state would be issued coupon allotments for food stamps used to purchase food from approved retail stores. Id.; 7 U.S.C. § 2015(b) (1976). The Act further provided that the "Secretary shall issue such regulations, not inconsistent with this chapter, as he deems necessary or appropriate for the effective and efficient administration of the food stamp program." 7 U.S.C. § 2013(c) (1976).

The states were charged with administering the program and thus assumed "responsibility for the certification of applicant households and for the issuance of coupons." 7 U.S.C. § 2019(b) (1976). Administration of the program could be delegated to local or state agencies, but the ultimate responsibility for operation of the plan remained with the state.

The Act provided for sanctions, both criminal and administrative, against persons or entities violating provisions of the Act. Approved retail food stores may be disqualified from participating in the program if found in violation of any regulations or provisions. 7 U.S.C. § 2020 (1976). Persons illegally possessing, using, or transferring the coupons were guilty of a felony. 7 U.S.C. § 2023 (1976). Judicial review of any administrative action or decision was permitted by filing a complaint in a district court, whereupon the court would conduct a de novo trial to determine the validity of the questioned administrative action. 7 U.S.C. § 2022 (1976).

States were also subject to sanctions for failure to comply with the Act, and it is that aspect of the statute which concerns us here. Section 10(f) of the Act fixed a sanction on the state for substantial noncompliance with the federal program. If the Secretary were to determine that a state agency has failed "to comply substantially with the provisions of this chapter, or with the regulations issued pursuant to this chapter, or with the State plan of operation, he shall inform such State agency of such failure and shall allow the State agency a reasonable period of time for the correction of such failure." 7 U.S.C. § 2019(f) (1976). Should the state fail to remedy the problems within the prescribed time period, the Secretary "shall direct that there be no further issuance of coupons in the political subdivisions where such failure has occurred until such time as satisfactory corrective action has been taken." Id.

The bill as reported by the House contained only the foregoing provision as a penalty for state mismanagement of the program. The Senate added what became section 10(g), 7 U.S.C. § 2019(g) (1976). That section, the one at issue in this case, provided:

If the Secretary determines that there has been gross negligence or fraud on the part of the State agency in the certification of applicant households, the State shall upon request of the Secretary deposit into the separate account authorized by section 2016 of this title, a sum equal to the amount by which the value of any coupons issued as a result of such negligence or fraud exceeds the amount that was charged for such coupons under section 2016(b) of this title.

Id.

The legislative history surrounding the adoption of this amendment is sparse. According to the Senate Report, the intent behind its enactment was "to impress upon the States the equal responsibility they share with the Federal Government for limiting the program to those households of low income which cannot afford to purchase a low-cost nutritionally adequate diet." S.Rep.No.1124, 88th Cong., 2d Sess. 12 (1964), reprinted in (1964) U.S.Code Cong. & Ad.News 3275, 3286. Colloquies between and statements by Senators on the floor reveal that either gross negligence or fraud was intended to be the necessary predicate for state liability. 110 Cong.Rec. 15431, 15433, 15438-39 (1964). ³

To implement the remedy of section 10(g), the Secretary of Agriculture at first issued a regulation merely restating the provision. Amended in 1971 to reflect the latest changes in the source of eligibility requirements, the regulation again reiterated the statute's language:

If FNS determines that there has been gross negligence or fraud on the part of the State agency in the initial certification of applicant households, the recertification of households, or the issuance of coupons, the State shall, on demand by FNS, pay to FNS a sum equal to the amount of any free coupons issued as a result of such negligence or fraud.

36 Fed.Reg. 14,110 (1971) (codified at 7 C.F.R. § 271.7(a) (1974)).

The instant dispute concerns provisions in a further amendment to the regulation, issued on July 25, 1974. The addition significantly altered the prior regulation by defining certain circumstances that were to be treated as "gross negligence":

If FNS determines that there has been gross negligence or fraud on the part of the State agency in the initial certification of households, any subsequent certification of households, or the issuance of coupons, the State shall, on demand by FNS, pay to FNS a sum equal to the amount of any free coupons issued as a result of such negligence or fraud. Gross negligence shall include those State agency actions in connection with certification and coupon issuance which are in substantial noncompliance with the provisions of this subchapter and which result in a loss of Federal funds. It shall also include those State agency actions with respect to certification and coupon issuance which would not be considered grossly negligent in themselves, but which, after previous admonition by FNS and the lapse of a reasonable period of time to take corrective measures, continue to result in substantial losses of Federal funds.

39 Fed.Reg. 26,005 (1974) (codified at 7 C.F.R. § 271.7(a) (Appendix to 7 C.F.R. § 276 (1980)) (emphasis added).

California contests the validity of the italicized portion of this regulation on the ground that it equates substantial noncompliance with gross negligence and thus impermissibly combines two statutory sanctions intended to be distinct. Section 10(f) mandated termination of coupon distribution to any state in substantial noncompliance with the Act. Section 10(g) required a state to reimburse the federal government for the amount of bonus stamps issued as a result of fraud or gross negligence on the part of the state. The State argues that section 271.7(a), by equating substantial noncompliance with gross negligence, compounds the sanction of 10(f) with that of 10(g) without reference to any standard of care, thereby thwarting the will of Congress. The district court agreed and ruled the regulation invalid.

Our inquiry must focus on the language, structure, and legislative history of the Food Stamp Act. Whirlpool Corp. v. Marshall, 445 U.S. 1, 11, 100 S.Ct. 883, 890, 63 L.Ed.2d 154 (1980). In reviewing the district court's ruling, we need not defer to its interpretation of the regulation, for the issue is purely one of law. Washington State Farm Bureau v. Marshall, 625 F.2d 296, 302 (9th Cir. 1980).

At the outset, we note that the regulation was issued pursuant to the general enabling section of the Act, ⁴ which has been construed by the Supreme Court as conferring a broad grant of authority to the Secretary of Agriculture. Knebel v. Hein, 429 U.S. 288, 292-93, 97 S.Ct. 549, 552-53, 50 L.Ed.2d 485 (1977). See Hettleman v. Bergland, 642 F.2d 63, 66 (4th Cir. 1981). It is well-settled, moreover, that the regulation need only be reasonably related to the purposes of the enabling legislation to be upheld. Mourning v. Family Publication...