Vermeulen v. Kheder, K 82-135.

• Citation: 599 F. Supp. 1217
• Decision Date: 05 December 1984
• Docket Number: No. K 82-135.,K 82-135.
• Parties: Cindy J. VERMEULEN, on behalf of herself, her children and all others similarly situated, Plaintiff, v. Noble KHEDER, Acting Director of the Michigan Department of Social Services and Richard Schweiker, Secretary of Health and Human Services, Defendants.
• Court: U.S. District Court — Western District of Michigan

599 F. Supp. 1217

Cindy J. VERMEULEN, on behalf of herself, her children and all others similarly situated, Plaintiff,
v.
Noble KHEDER, Acting Director of the Michigan Department of Social Services and Richard Schweiker, Secretary of Health and Human Services, Defendants.

No. K 82-135.

United States District Court, W.D. Michigan, S.D.

December 5, 1984.

599 F. Supp. 1218

Edward Hoort, Detroit, Mich., Richard Kupferschmidt, Kalamazoo, Mich., for plaintiff.

Martin Palus, Asst. U.S. Atty., Grand Rapids, Mich., Wendy Kloner, U.S. Dept. of Justice, Washington, D.C., William Basinger, Asst. Atty. Gen., Lansing, Mich., for defendants.

OPINION

ENSLEN, District Judge.

This case presents a challenge to the "lump sum rule" whereby recipients of Aid to Families with Dependent Children benefits are denied eligibility if they acquire non-recurring lump sums. 42 U.S.C. § 602(a)(17); 45 CFR 233.20(a)(3)(ii)(D) (1982). The lawsuit was filed by a destitute mother, Cindy Vermeulen, and a welfare rights group, the Michigan Welfare

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Rights Organization. The Court previously granted Plaintiff's Motion for a Preliminary Injunction enjoining the Defendant officials from applying the lump sum rule to Ms. Vermeulen pending the outcome of this litigation.¹ In a Memorandum Opinion, the Court denied Plaintiff's Motion for Class Certification and dismissed the welfare rights group as a party.² The case is now before the Court on the parties' cross Motions for Summary Judgment

The Complaint framed by Plaintiff contains five counts. (1) That the lump sum rule as administered violates the purpose of the Social Security Act and violates the statutory method of determining need, 42 U.S.C. § 602(a)(7), by treating unavailable finances as available; and (2) that the Defendants violate the legislative intent of Congress in applying the lump sum rule to those without earned income; and (3) that the Defendants' administration of the lump sum rule violates the due process clause of the Fifth and Fourteenth Amendments because it punishes persons for the acts of others by holding households responsible for money that has been lost, squandered, or stolen by others; and (4) that the administration of the rule by the Defendants violates the due process clauses of the Fifth and Fourteenth Amendments by establishing an irrebuttable presumption of availability of finances, regardless of actual availability; and (5) that the administration of the rule by the Defendants violates the equal protection clauses of the Fifth and Fourteenth Amendments by distinguishing between those persons who have applied for benefits and those who have not applied for benefits at the time the lump sum is dissipated.

I. Plaintiff's Constitutional Claims

The constitutional claims raised by Plaintiff appear to have little merit ab initio. The equal protection claim likely would run afoul of the judiciary's general aversion to finding equal protection violations in the setting of economic legislation. See, Dandridge v. Williams, 397 U.S. 471, 495, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970). Legislative regulation of AFDC expenditures is well within the constitutional Article I power of Congress. Walker v. Adams, 741 F.2d 116, 119-20 (CA6 1984). Though all such legislation must be rationally related to legitimate governmental interests, the allocation of scarce resources to the most needy is rational. Sweeney v. Affleck, 560 F.Supp. 1118, 1125 (DC R.I. 1983), rev'd sub. nom., Sweeney v. Murray, 732 F.2d 1022 (CA1 1984).

Plaintiff's due process claims are directed at the legislation, per se, and not at the procedure by which the welfare agency applies the rules, so are not related to the analysis of Goldberg v. Kelley, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).³ Again, minimal scrutiny would indicate the constitutionality of the legislation. See, e.g., Walker v. Adams, supra at 120.

Finally, the courts are instructed to avoid reaching constitutional issues where there exists a sound statutory basis on which to decide the controversy. Wolston v. Readers

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Digest Association, Inc., 443 U.S. 157, 160-161, fn. 2, 99 S.Ct. 2701, 2703, fn. 2, 61 L.Ed.2d 450 (1979). In this case, resolution based on statutory analysis is appropriate and closer inquiry into the constitutional issues is unwarranted

II. Plaintiff's Earned Income Argument

The lump sum rule, 42 U.S.C. § 602(a)(17), was enacted as § 2304 of the Omnibus Budget Reconciliation Act of 1981 (OBRA)⁴, and was implemented pursuant to 45 CFR 233.20(a)(3)(ii)(D) (1982). Prior to the enactment of the lump sum rule, an AFDC recipient's lump sum windfall was counted as income in determining his or her need only in the month it was received, and in subsequent months if the sum were actually available. Once the sum was expended, agency officials did not offset AFDC payments by the lump sum amount.

Congress enacted the lump sum rule in order both to promote responsible budgeting by AFDC recipients who received lump sum windfalls, and to reduce AFDC disbursements. Walker v. Adams, supra, at 120; Sweeney v. Murray, supra at 1027. Under the new rule, once the AFDC family receives the lump sum, it must budget to stretch the sum over a number of months computed by dividing the family's standard of need into the lump sum. If the AFDC recipient fails to budget the sum and expends it all before the expiration of the months computed by the agency, the recipient remains ineligible for AFDC benefits.

Immediately after its enactment, the lump sum rule was attacked in numerous district court cases with varying results. Cf. Harris v. Heckler, 576 F.Supp. 915 (D.C.N.J.1983) and Faught v. Heckler, 577 F.Supp. 1180 (D.C.Iowa 1983). In almost every case, the plaintiff's attack has focused on statutory construction; i.e. whether the Congress intended the lump sum rule to be applied to AFDC recipients who do not have earned income. Plaintiffs argued that when Congress passed the lump sum rule, at 42 U.S.C. § 602(a)(17), the wording of the statutory section referred to another section, § 602(a)(8)(A)(i) and (ii), which only pertained to those with earned income. The reference to 8(A)(i) and (ii), argued the plaintiffs, should be read to limit the applicability of the lump sum rule to those recipients who have earned income in addition to the lump sum windfall.

Plaintiff's counsel in this case has argued that point well, and in fact has focused the Court's inquiry on the "earned income" issue. Extensive and close analysis of the scanty legislative history has been provided.⁵ All counsel working on this case have kept the Court apprised of all legislative developments, and have provided advance sheets and other materials. In her supplemental brief, filed September 10, 1984, Plaintiff continues to argue, in part based on the June 18, 1984 amendments to the lump sum rule, that Congress initially intended that the rule should only apply to those with earned income.⁶

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Plaintiff argues that the amendment of the lump sum rule indicates, as do all other data, that the lump sum rule, as applied to Ms. Vermeulen in 1982, should have been limited to AFDC recipients with earned income. However well-made Plaintiff's earned income argument may be, the argument is clearly wrong. It is the law in this Circuit that the lump sum rule was not and is not limited to AFDC recipients with earned income, and is applicable to all AFDC recipients. Walker v. Adams, supra. There remains some question about how large a savings Congress intended to enjoy by passing the lump sum rule, Sweeney v. Affleck, supra, and the suffering of affected welfare recipients is unmistakably "harsh", Walker v. Adams, supra, but there is no doubting Congressional intent to enjoy the savings across the board as of the date of enactment. Id.; Sweeney v. Murray, supra; Faught v. Heckler, 736 F.2d 1235, (C.A.8 1984).

III. Plaintiff's Availability Argument

A. Introduction

Generally speaking, the facts of a lawsuit may be de-emphasized either because the parties choose to sing the Siren's song of landmark theory, or because there truly is applicable principle so compelling as to preclude variance based on fact. In this case, the Siren call was strong. The lump sum/earned income argument predominated in the case, and because that argument is largely legalistic, the facts of Ms. Vermeulen's Complaint were not emphasized. Thus, although an argument over "availability", a factually oriented argument, was made, it was flawed by the paucity of facts and the beguiling echo of the central earned income argument.

B. The Stipulated Facts

The pertinent facts to which the parties stipulated are as follows:

Plaintiff, Cindy Vermeulen, was a recipient of AFDC from approximately May of 1981 through December 1981. Plaintiff received AFDC on behalf of herself, her husband, and her three minor children. In early December, 1981, Plaintiff's husband received an inheritance of approximately $5,700. Plaintiff's husband paid approximately $1,000 in household bills and gave Plaintiff approximately $100 for Christmas. Later in December, after paying the $1,100 Plaintiff left the household. In March, 1982, Plaintiff was determined to be ineligible for AFDC through August of 1982, pursuant to the lump sum rule.

C. Facts Elicited at the Preliminary Injunction Hearing

The stipulated facts convey the sense...