Strickland v. Commissioner, Maine Dept. of Human Services
| Citation | 48 F.3d 12 |
| Decision Date | 09 December 1994 |
| Docket Number | No. 94-1783,94-1783 |
| Parties | Nancy STRICKLAND, et al., Plaintiffs, Appellees, v. COMMISSIONER, MAINE DEPARTMENT OF HUMAN SERVICES, Defendant, Appellee, v. SECRETARY, U.S. DEPARTMENT OF AGRICULTURE, Third-Party Defendant, Appellant. . Heard |
| Court | United States Courts of Appeals. United States Court of Appeals (1st Circuit) |
Jennifer H. Zacks, Attorney, Civ. Div., Dept. of Justice, with whom Frank W. Hunger, Asst. Atty. Gen., Mark B. Stern, Attorney, Civ. Div., Dept. of Justice, Washington, DC, and Jay P. McCloskey, U.S. Atty., Portland, ME, were on brief, for appellant.
Rufus E. Brown, Portland, ME, with whom Jack Comart, Pat Ende, and Pine Tree Legal Assistance, Augusta, ME, were on brief, for appellees.
Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.
This suit questions the validity of a regulation promulgated by the Secretary of Agriculture in connection with his management of the Food Stamp Act, 7 U.S.C. Secs. 2011-2025 (1988) (the Act). Answering the question requires us to explore the frontiers of Chevron deference. See Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Because we believe that proper respect for the Secretary's interpretation of the applicable statute validates the regulation, we reverse the district court's order barring its enforcement.
The Act harks back to 1964. Congress passed it "to safeguard the health and well-being of the Nation's population by raising levels of nutrition among low-income households." 7 U.S.C. Sec. 2011. The Act creates a federally funded, but state administered, program designed to distribute food stamps according to income and family size. The recipient can use these stamps to purchase food at local markets. Participating retailers accept the stamps as if they were cash, for the government redeems them at face value. The Secretary of Agriculture is charged with overseeing the federal aspects of the food stamp program. See id. at Sec. 2013. Agencies selected by the several states administer the state aspects of the program. The Department of Human Services (DHS) performs this function in Maine.
Congress originally restricted eligibility for food stamps to families of limited means but made no attempt to define income (leaving that chore to the states). In 1971, Congress directed the Secretary to establish uniform standards of eligibility. The Secretary then promulgated regulations that defined net income as gross income less "the cost of producing that income," but excluded depreciation as a component of this deduction. See 36 Fed.Reg. 14102, 14107 (July 29, 1971) (enacting former 7 C.F.R. Sec. 273.1(c)(1)(b)).
In 1977, Congress retrofitted the Act. In a comprehensive, detailed revision of the statute, Congress specified that, for purposes of program eligibility, income was not to include the "cost of producing self-employed income." 7 U.S.C. Sec. 2014(d)(9). Although the 1977 amendments did not define the term "cost," the House Committee on Agriculture reported that "the Department would be expected to revise its regulations in this regard to allow some form of depreciation in arriving at 'net' business income." H.R.Rep. No. 464, 95 Cong., 1st Sess. 25 (1977), reprinted in 1977 U.S.C.C.A.N. 1978, 2001-02. The Secretary revisited the topic in 1978 and promulgated regulations allowing depreciation as a cost in calculating self-employment income. See 43 Fed.Reg. 47846, 47912 (Oct. 17, 1978).
In 1980, a report produced by a joint House-Senate conference committee muddied the waters. The conference committee report accompanied the Food Stamp Act Amendments of 1980 (the FSAA), Pub.L. No. 96-249, 94 Stat. 357 (1980), which, among other things, decreased the aggregate value of non-excludable assets that a family might own while retaining food stamp eligibility. The report memorialized the conferees' "inten[tion] that the Secretary no longer permit depreciation to be subtracted in determining net self-employment income." H.R.Conf.Rep. No. 957, 96th Cong., 2d Sess. 29 (1980), reprinted in 1980 U.S.C.C.A.N. 1057, 1070. Despite this statement of congressional intent, however, the FSAA made no change in the text of the statutory provision that allowed a deduction for the "cost of producing self-employed income," 7 U.S.C. Sec. 2014(d)(9).
Hard on the heels of this conference committee report, the Secretary proposed regulations aimed at eliminating depreciation from the computation of the cost of producing self-employment income. In the proposal, the Secretary stated:
The regulations implementing the 1977 Act included a provision allowing depreciation as a cost of doing business for self-employed households (Sec. 273.11(a)(4)(ii)). This was done in compliance with the legislative history, H.R.Rep. No. 95-464, p. 25. The Conference Report accompanying the 1980 Amendments suggests that the Secretary delete depreciation, H.R.Rep. No. 96-957, p. 29. Allowing such costs when determining net self-employment income results in an exemption of amounts not constituting "actual costs" to the household; households are, in a sense, given a deduction in advance for the cost of capital goods which is otherwise not allowed. Appropriate changes are being proposed to Sec. 273.11(a) to correspond to the Conference Report's suggestion.
46 Fed.Reg. 4642, 4646 (Jan. 16, 1981). The final regulation, 7 C.F.R. Sec. 273.11(a)(4)(ii) (1994), mimicked the proposal and instructed the states to disregard depreciation in calculating net self-employment income.
Nancy and Lyle Strickland reside in Belgrade, Maine. They ran a successful construction business until 1990, when the recession forced them to downsize. Although they remained in business, their profits dwindled. At about this time, they applied for, and were granted, food stamp assistance. On their 1992 federal tax return, they reported a business loss of $4,686, largely due to claimed depreciation ($24,380) on construction equipment. 1 In 1993, the DHS informed the Stricklands that they would no longer receive food stamps because, based on their tax return, they had annual self-employment income, without regard to depreciation, of $19,694. This equalled net income of $1,641.16 per month--more than twice the food stamp eligibility limit for a two-person household. See Stipulated Record at 5 (); see generally 7 C.F.R. Sec. 273.9 (1994) ().
Disappointed by the finding of ineligibility, the Stricklands sued DHS in Maine's federal district court. They challenged the Secretary's amended regulation, 7 C.F.R. Sec. 273.11(a)(4)(ii) (1994), which excluded depreciation on business equipment from the allowable "costs of doing business" in determining a household's eligibility for food stamps, as offensive to the mandate of 7 U.S.C. Sec. 2014(d)(9). DHS filed a third-party complaint against the Secretary of Agriculture. The plaintiffs then obtained leave to amend, and asserted claims directly against the Secretary. 2 The parties stipulated to the relevant facts and the district court certified the Stricklands as representatives of a class comprising all Maine food stamp applicants or recipients adversely affected by the amended regulation on or after July 1, 1992.
On April 8, 1994, the court granted the plaintiffs' motion for judgment on the stipulated record. See Strickland v. Commissioner, 849 F.Supp. 818 (D.Me.1994). The court framed the decisive legal issue in the following way: "Can Congress change the law, simply by directing that it be so in legislative history, without amending the pertinent statutory language?" Id. at 818. Judge Hornby answered this loaded question in the negative. He then ruled that the amended regulation could not stand because the Secretary had promulgated it in response to a perceived congressional directive, not embodied in a duly enacted statute, rather than in the authentic exercise of administrative discretion. See id. at 820. The Secretary now appeals.
Applicable Legal Principles
Interpreting a statute or a regulation presents a purely legal question subject to de novo review. See McCarthy v. Azure, 22 F.3d 351, 354 (1st Cir.1994); Liberty Mut. Ins. Co. v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir.1992). Nevertheless, the availability of plenary judicial review "does not obviate the devoir of persuasion in a food stamp case in which a plaintiff challenges the validity of the regulatory mosaic." Massachusetts v. Secretary of Agric., 984 F.2d 514, 521 (1st Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 81, 126 L.Ed.2d 49 (1993). An inquiring court--even a court empowered to conduct de novo review--must examine the Secretary's interpretation of the statute, as expressed in the regulation, through a deferential glass. See id.
Judicial review of an agency's construction of a statute that it administers involves two separate but interrelated questions, only the second of which furnishes an occasion for deference:
First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.
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