Tello v. McMahon, CIV. S-86-0532 LKK.

• Decision Date: 29 January 1988
• Docket Number: No. CIV. S-86-0532 LKK.,CIV. S-86-0532 LKK.
• Citation: 677 F. Supp. 1436
• Court: U.S. District Court — Eastern District of California
• Parties: Sheila TELLO and Albert Merrill, Plaintiffs, v. Linda McMAHON, in her capacity as Director of the California Department of Social Services; and Jessie R. Huff, in his capacity as Director of the Department of Finance, Defendants.

677 F. Supp. 1436

Sheila TELLO and Albert Merrill, Plaintiffs, v. Linda McMAHON, in her capacity as Director of the California Department of Social Services; and Jessie R. Huff, in his capacity as Director of the Department of Finance, Defendants.

No. CIV. S-86-0532 LKK.

United States District Court, E.D. California.

January 29, 1988.

John K. Van de Kamp, Atty. Gen., Dennis Eckhart, Deputy Atty. Gen., Sacramento, Cal., for defendants.

Edward Barnes, Legal Aid Society of Alameda County, Oakland, Cal., James Stoepler, Napa County Legal Assistance Agency, Napa, Cal., Mark Greenberg, Western Center on Law and Poverty, Los Angeles, Cal., Timothy J. Casey, Mary R. Mannix, Center on Social Welfare Policy and Law, New York City, Charles Greenfield, Legal Aid Society of Santa Clara County, San Jose, Cal., for plaintiffs.

ORDER

KARLTON, Chief Justice.

Plaintiffs in this class action challenge California's policy of reducing assistance to working recipients of Aid to Families With Dependent Children ("AFDC") as a penalty for filing an "untimely" report of earnings. Plaintiffs assert that the State's policy is based on an erroneous interpretation of a federal statute. The parties stipulated to undisputed facts and filed cross-motions for summary judgment, whereupon the court took the matter under submission. The motions are disposed of herein.

I STANDARDS FOR SUMMARY JUDGMENT UNDER RULE 56

Summary judgment is appropriate when it is demonstrated that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Poller v. Columbia Broadcasting System, 368 U.S. 464, 468, 82 S.Ct. 486, 488, 7 L.Ed.2d 458 (1962); Allen v. Scribner, 812 F.2d 426, 430 (9th Cir.), amended, 828 F.2d 1445 (9th Cir.1987); Loehr v. Ventura County Community College Dist., 743 F.2d 1310, 1313 (9th Cir.1984).

The parties' Stipulation to Undisputed Facts demonstrates that there are no genuine issues as to any material fact. Each party argues that it is entitled to judgment as a matter of law. Accordingly, the court turns to an examination of the statutes to be construed.

II THE STATUTORY AND REGULATORY SCHEME

A. The Statutes

The AFDC program was established by Title IV of the Social Security Act of 1935 "to provide financial assistance to needy dependent children and the parents or relatives who live with and care for them." Shea v. Vialpando, 416 U.S. 251, 253, 94 S.Ct. 1746, 1750, 40 L.Ed.2d 120 (1974). The Supreme Court has described the program as one "`based on a scheme of cooperative federalism.'" Heckler v. Turner, 470 U.S. 184, 189, 105 S.Ct. 1138, 1141, 84 L.Ed.2d 138 (1985) (quoting King v. Smith, 392 U.S. 309, 316, 88 S.Ct. 2128, 2133, 20 L.Ed.2d 1118 (1968)). The federal government reimburses each State that chooses to participate, on a percentage basis, and in return the State must administer its assistance program pursuant to a State plan that conforms to federal statutes and regulations. 42 U.S.C. §§ 602, 603; Turner, 470 U.S. at 189, 105 S.Ct. at 1141. States are largely free to determine standards of need and level of benefits, Rosado v. Wyman, 397 U.S. 397, 408, 90 S.Ct. 1207, 1216, 25 L.Ed.2d 442 (1970); King, 392 U.S. at 318-19, 88 S.Ct. at 2134; LaMadrid v. Hegstrom, 830 F.2d 1524, 1526 (9th Cir.1987), as well as specific procedures to be employed, Kitchens v. Bowen, 825 F.2d 1337, 1340 (9th Cir.1987).

Among the federal provisions that bind participating States, there are several that are relevant to the present controversy. As an initial matter, the State plan must provide that aid "shall ... be furnished with reasonable promptness to all eligible individuals." 42 U.S.C. § 602(a)(10)(A). The State "shall, in determining need, take into consideration any other income and resources of any child or relative claiming aid," except as otherwise provided. 42 U.S. C. § 602(a)(7)(A). One of the exceptions is a requirement that States disregard from earned income a flat amount of $75 per month to offset work expenses. 42 U.S.C. § 602(a)(8)(A)(ii). States must also disregard an amount equal to actual expenditures for child care, up to $160 per month per child. 42 U.S.C. § 602(a)(8)(A)(iii). As a special "work incentive," additional amounts of income are disregarded during the first year of a working parent's employment, although the amount decreases after the first four months. 42 U.S.C. §§ 602(a)(8)(A)(iv) and 602(a)(8)(B)(ii). The parties refer to these provisions¹ in the vernacular as "income disregards," and the court adopts that term as a matter of convenience.

At the heart of the present controversy is the provision that States shall not apply the income disregards created by section 602(a)(8)(A)(ii) (the flat $75 for work expenses), (iii) (actual child care expenses up to the maximum), and (iv) (the special first-year work incentive) if the person who earned the income "failed without good cause to make a timely report (as prescribed by the State plan pursuant to paragraph (14)) to the State agency of earned income received in such month." 42 U.S.C. § 602(a)(8)(B)(i)(III).

Section 602(a)(14) requires that a State plan must

with respect to families in the category of recent work history or earned income cases (and at the option of the State with respect to families in other categories), provide (A) that the State agency will require each family to which it furnishes aid ... to report, as a condition to the continued receipt of such aid ..., each month to the State agency on —

(i) the income received, family composition, and other relevant circumstances during the prior month; and

(ii) the income and resources it expects to receive, or any changes in circumstances affecting continued eligibility or benefit amount, that it expects to occur, in that month (or in future months)....

42 U.S.C. § 602(a)(14).

B. The Regulations

The federal agency responsible for administering the AFDC program is the Department of Health and Human Services ("HHS"). The HHS has promulgated regulations that delineate how monthly reports are to be treated by State agencies and specify what notices are required. 45 C.F. R. § 233.37. If a recipient files a "timely" and complete report, the income disregards are applied. 45 C.F.R. § 233.37(a). If an incomplete report is filed, or no report is filed at all, or a complete report is filed late, the State must send a written notice of discontinuance of benefits, giving the recipient 10 days to file a report and request reinstatement, although the income disregards will not be applied even if reinstatement is granted, unless good cause is found. 45 C.F.R. § 233.37(b) and (c).

The federal regulations do not define "timely," nor do they provide any guidelines as to what constitutes a "timely" report. Rather, HHS leaves the determination of what constitutes timeliness to each State. 45 C.F.R. § 233.7(b). The HHS model plan form includes this sentence: "The monthly report of earned income is not timely if it is received later than — days from the end of the budget month." The State enters the number of its choice, subject to HHS approval.

C. The California System

In California, overall responsibility for the AFDC program is vested in the Department of Social Services ("Department"), although the program is actually administered by the county welfare departments.

The Department requires all AFDC recipients to file monthly reports, as a State is free to do pursuant to 42 U.S.C. § 602(a)(13) and (14). Each month is thus a "report month" for California AFDC recipients. The Department's monthly reporting form, called a "CA-7," requires information about income earned during the previous month, which is referred to as the "budget month." AFDC grants are issued in the "payment month," which is the month following the report month. This three-month system (budget month, report month, and payment month) complies with federal law. See 42 U.S.C. § 602(a)(13) and (14).

In California's plan, which has been approved by the HHS, the 11th day is the deadline for monthly reporting without loss of income disregards in the absence of good cause shown. If an AFDC recipient has not filed a complete CA-7 by the 11th day of the report month, the county agency sends the recipient a notice that benefits will be discontinued for failure to file, unless a complete CA-7 is filed by the first working day of the next month (the payment month). If a completed CA-7 is received by the first working day of the payment month, but after the 11th of the report month, the agency does not discontinue benefits, but it does not apply the income disregards in calculating the recipient's grant entitlement, unless the agency determines that the recipient had good cause for not reporting earlier. The same penalty is imposed if the recipient files a report before the 11th day of the report month, and the report does not fully report and substantiate earned income. Stipulation of Undisputed Facts at 2-5. The California system provides for 10-days advance notice of action.

III PLAINTIFFS' CONTENTIONS AND THE CONSEQUENCES OF UNTIMELY FILING UNDER THE CALIFORNIA SYSTEM

A. Plaintiffs' Contentions

Plaintiffs assert that the State's policy concerning income disregards is based on an erroneous interpretation of 42 U.S.C. § 602(a)(8)(B)(i)(III). First Amended Complaint at 2. The statute makes AFDC income disregards unavailable when income is not reported "timely." Plaintiffs contend that a report of income is timely if it is submitted in time for the earnings to be considered in the Department's payment computation. Plaintiffs' interpretation of the statute is based on the premise that the penalty provision is intended to affect only recipients who abuse the program by failing to report earnings in time for consideration, thereby causing overpayments and necessitating...