Petition — McGraw v. Berger

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FILED

DEC 14 1976

Suprenve Court, U. x }

IN THE

Supreme Court of the United States

Octroser Term 1976

i dinaleneal 76-810

JOSEPHINE McGraw, et al.,

Petitioner,

Vv.

SrrpHen Benrcer, individually and as Commissioner of the

New York State Department of Social Services, vt al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Joun C. Gray, Jr.

Luoyp Epwarp Constantine, Of Counsel

Brooklyn Legal Services Corp. B

152 Court Street

Brooklyn, New York 11201

(212) 855-8003

Attorneys for Petitioner

INDEX

OPINIONS BELOW......... ee er

SE. 5. cetccsuntedioecececss Et

QUESTIONS PRESENTED.......-e-eeceeeee 3

CONSTITUTIONAL PROVISIONS, STATUTES,

RULES, AND REGULATIONS INVOLVED..... 4

STATEMENT OF THE CASE.....ccccccceee /

REASONS FOR GRANTING THE WRIT....... 14

1. Recoupment of Non-Fraudu-

lent AFDC Overpayments From

Earnings Disregarded Pursu-

ant to 42 U.S.C. §602(a) (8)

Is Inconsistent With The

Social Security Act and

Congress’ Mandatory Work

Incentive Policy........... 14

2. HEW's Current Position

Approving The Challenged

Practice Is Not Entitled

To Deference Because The

Agency's Interpretation Is

Inconsistent With The Act,

Other HEW Regulations And

HEW's Previous Interpreta-

tion of §602(a)(8)'s Man-

GO. occccesecsceseeescesese OF

INDEX

Page

3. The Decision Of The Court

Below Conflicts With The

Two Other Federal Prece-

dents, Resulting In The

Inconsistent Administra-

tion Of The Act..... Jeeasee OO

4. When a District Court

Determines That All The

Requirements Of F.R.C.P.

23(a), (b)(2) Have Been

Fulfilled It Has No Power

To Deny Class Action Cer-

tification...... svecee re

CONCLUSION..... eeeereeeensneeee#e. eeenee#+on#e: 42

Appendix A - Opinion of the United

States Court of Appeals, Second

Circuit eeeeeneeneeeneeee eee eweeenee#ent##ee#ee#e#e#e?#e¢ A-1

Appendix B - Opinion and Order of

the United States District Court

for the Southern District of New

Appendix C - Judgment of the United

States Court of Appeals, Second

Circuit, Affirming The Order of

the United States District Court..A-38

Appendix D - Order of the United

States Court of Appeals, Second

Circuit, Denying Petition for

ROMSSTIRRs cc ccccccccccces ~TTTTTTT

INDEX

Appendix E - Regulations and Rules

of Court Involved

AUTHORITIES

Page

Cases:

Bradford v. Juras, 331 F.Supp. 167

(D. Ore., three-judge court, 1971).. 36

Engelman v. Amos, 404 U.S. 23

CUFT A) ccccecce seeesecs 16, 17, 21, 33, 36

Se Galle Ue Cet es eseccccccssaceees 27

Franks v. Bowman Transport Co.,

Inc., 424 U.S. 747 (1976)........ coe

Fujishima v. The Board of Education,

460 F.2d 1355 (7th Cir., 1972)...... 40

Galvan v. Levine, 490 F.2d 1255

Cee Gellcs BOP EP ee ccecccesoveseeeses — |

Jefferson v. Hackney, 406 U.S. 535

(1972). e*e7e3#ee#ees e*eeeeenseeeee34s+e#eee#se’. e*eeee#ees . 8

Johnson v. Likins, No. 4-75-Civ.-

318 (D. Minn., October 10, 1975)....

ceeoeesecee peoceesecces cease Sie Sey 2t

McGraw v. Berger, 410 F.Supp. 1042

(S.D.N.Y., 1976) e*eeees e*eee#e#ee e*eeee#ee#e#e#e 2

McGraw v. Berger, 537 F.2d 719 (2nd

Cir., Dt cis 6 Chend diene enbanan ee 35

Page Page

Morton v. Ruiz, 415 U.S. 199 (1973). 27 Gomstitutions: Provisions:

N.W.R.O. v. Mathews, 533 F.2d 637 Uasees States Constitution

@.C. Cit. EUPagusicteucdunens 27, 33 . capeaeney Cseuse (Ast. Vi,

(jj) eee eed eesecesooeceoeeces 4

N.W.R.O. v. Weinberger, 377 F.Supp. ‘ ;

B61 (D.D.C., 1974).seceee 19, 27, 32, 33 Statutes:

Rosado v. Wyman, 397 U.S. 397 ' Federal Statutes:

SOFOD< occccseeutsssuae ne

a at Ee 28 U.S.C. §1254(1)...eceeeeeeee 3

S Ss. i

osna_v. Lowa, 419 U.S. 393 (1975).. 40 28 U.S.C. §1343(3)....--- isae 13

Steere v. Minnesota, 243 N.W.2d 112

(Minn., 1976)...... PAIR ic 36 42 U.S.C. $404......000eeeeeee. 18

ee Nn. ccs cedeecees 8

D.N.H., November 29, 1976)..29, 33, 34

( , ’ P ) 35. 36, 37. 42 U.S.C. §602(a)(7).3, 4, 6, 8, 9,

16, 19, 32, 37

U.S. v. Nat. Ass'n of Securities

7. ; 42 U.S.C. §602(a)(8)....3, 4, 5, 9,

Dealers, Inc., 422 U.S. 694 (1975).. 27 is. 16, 26, 27°

32, 34, 36, 37

Vulcan Society of N.Y. City Fire ,

Dept. v. Civil Service Commission,

490 F.2d 387 (2nd Cir., 1973)....--+. 39 42 U.S.C. $1383 (bd)... eeeeeeeee 18

X_v. McCorkle, 333 F. Supp. 1109 New York Statutes:

(D.N.J., three-judge court, 1970), :

aff'd sub. nom. Engelman v. Amos, New York Social Services Law

404 0.5. 23 (IVE). cccasaceuens a” AS 2 8

Page

Regulations:

Federal Regulations:

45 C.F.R. §233.20(a) (3) (i)..... 34

45 C.F.R. §233.20(a)(3)(ii)..7, 10,

16, 18, 21

45 C.F.R. §233.20(a)(7)...... Veo Ws

45 C.F.R. §233.20(a) (12) (i)..7, 11,

19, 28, 37

Proposed 45 C.F.R. §235.15,

41 Fed. Reg. 8067-8068 (Febru-

GEG Ben SaPOPccoceescoosess —

New York Regulations:

18 N.Y.C.R.R. §352.31\d)....... 11

18 N.Y.C.R.R. §352.31(d) (1)

(12) cccccccccccccccces 3, 4, 5, 11

Rules of Court:

Supreme Court Rule 19(1)(b).......

Federal Rules of Civil Procedure:

Rule 23(a), (b)(2)........ a

39, 40, 41

Rule 2396). cccccccccccovcsece 4, 13

Miscellaneous:

Characteristics of AFDC Families

in New York State, January 1973,

N.Y.D.S.S., Pub. No. 1188 (August,

BGFOp occccesccocccceceseceesococeee Oe

Disposition of Public Assistance

Cases Involving Questions of Fraud,

HEW, SRS, NCSS, Report E-7 (FN-72)

COURS U9, EFF Speccceccsccocese scoce OO

Eligibility Audit Reports, July l-

December 31, 1975, January 1-June

30, 1975, July 1-December 31, 1974,

July 1-December 31, 1972, New York

State Department of Social Ser-

WEOOB ec cccccce TYTTT TYTTTTTTT TS TTT ~

Brief for United States as Amicus

Curiae, Engelman v. Amos, 404 U.S.

BS Chee EP cccesecocsooeceeeeos eeothe 2

Handbook of Public Assistance

Administration, Part IV, Section

3120 (April 10, 1967)....... eeeeed 18

Handbook of Public Assistance

Administration, Part IV, Section

3120 (June 20, 1968)...... ecccosee

Quality Control Charts, Analysis

of Eligibility and Income Payments

in AFDC, SRS-73-21210 (January 19,

LOTS) ccccccccescecs WPTTTTIT TT TTT

Page

Brief for United States as Amicus

Curiae, Johnson v. Likins, No.

- 4-75-Civ.-318 (D. Minn. October

By, Bev evcccceccosvescccesoae Oe Oe

Senate Report No. 744, 90th Cong.

lst Sess. (1967), 1967 U.S. Code

Cong. and Admin. News, pp. 2981,

rr ee scosevce FF

IN THE

SUPREM™ COURT OF THE UNITED STATES

OCTOBER TERM, 1976

No.

JOSEPHINE McGRAW, et al.,

Petitioner,

Vv.

STEPHEN BERGER, individually and as

Commissioner of the New York State

Department of Social Services, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

Petitioner” prays that a writ of cer-

tiorari issue to review the judgment of the

1-Petitioner is JOSEPHINE McGRAW, in-

dividually and on behalf of her nine minor

children and all persons similarly situated.

Respondents are STEPHEN BERGFR, indi-

vidually and as Commissioner of the New York

United States Court of Appeals for the Sec-

| ond Circuit in the above styled case, which

affirmed an order granting partial summary

judgment against petitioner by the United

States District Court for the Southern Dis-

trict of New York.

OPINIONS BELOW

The opinion of the Court of Appeals

for the Second Circuit is reported at 537

F.2d 719 (1976) and is attached hereto as

Appendix A. The opinion of the District

Court for the Southern District of New York

is reported at 410 F. Supp. 1042 (1976) and

is attached hereto as Appendix B.

JURISDICTION

The judgment of the Court of Appeals

State Department of Social Services, JAMES

DUMPSON, individually and as Commissioner

of the New York City Department of Social

Services, and THE NEW YORK STATE DEPARTMENT

OF SOCIAL SERVICES.

for the Second Circuit was entered on July

2, 1976. A copy is attached hereto as

Appendix C. A timely petition for rehear-

ing was denied in an order entered on Sep-

tember 15, 1976. A copy is attached hereto

as Appendix D. The jurisdiction of this

Court is sevehed under 28 U.S.C. §1254(1).

IONS EN

42 U.S.C. §§602(a)(7) & (8) and imple-

menting regulations of the Department of

Health, Education, and Welfare require that

the first $30 and 1/3 of the remaining gross

monthly earnings of a working recipient of

Aid to Families with Dependent Children

(AFDC) be “disregarded” in determining the

need for and the amount of AFDC payments.

("$30 and 1/3 disregard") Title 18 New York

Code of Rules and Regulations (NYCRR)

§352.31(d)(1)(ii) requires the withholding

of the "$30 and 1/3 disregard" to recoup

previous AFDC overpayments caused by agency

Or non-willful recipient error. The ques-

tions presented are:

1. Whether 18 NYCRR §352.31(d)(1) (ii)

violates 42 U.S.C. §§602(a)(7) & (8) and is

therefore void under the Supremacy Clause of

the United States Constitution?

2. Whether a District Court may re-

fuse to certify a class pursuant to F.R.C.P.

Rule 23(c) after having determined that all

requirements of F.R.C.P. Rule 23(a), (b) (2)

are fulfilled?

CONSTITUTIONAL PROVISIONS, STATUTES,

RULES AND REGULATIONS INVOLVED

Article VI, Clause 2 of the Constitu-

tion of the United States:

This Constitution, and the Laws

of the United States which shall

be made in Pursuance thereof; and

all Treaties made, or which shall

be made, under the Authority of

the United States, shall be the

supreme Law of the Land; and the

Judges in every State shall be

bound thereby, any Thing in the

Constitution or Laws of any State

to the Contrary notwithstanding.

Title 18 New York Code of Rules and

Regulations (18 NYCRR) Section 352.31(d) (2)

(ii) appears in the official compilation of

Codes, Rules and Regulations of the State of

New York, Volume 18, Page 166.

18 NYCRR §352.31(d)(1) (ii):

(d) Recoupment of overpayments.

(1) Except as provided in para-

graph (2) of this subdivision,

recoupment of overpayments of

assistance including overpayments

resulting from assistance paid

pending a hearing decision shall

be treated as follows:

(ii) Recoupment of any over-

payment made to a recipient shall

not be required unless the recipi-

ent has currently available inccne

or resources, exclusive of the

current assistance payment. Ex-

empted income and disregards shall

be considered as being currently

available.

Social Security Act §402(a)(8)(A), 42

USC §602(a)(8) (A):

(a) A State plan for aid and

services to needy families with

children must

(8) provide that, in making the

determination under clause (7),

the State agency--

(A) shall with respect to any

month disregard--

(i) all of the earned income

of each dependent child receiving

aid to families with dependent

children who is (as determined

by the State in accordance with

standards prescribed by the Sec-

retary) a full-time student or

part-time student who is not a

full-time employee attending a

school, college, or university,

or a course of vocational or

technical training designed to

fit him for gainful employment,

and

(ii) in the case of earned

income of a dependent child not

included under clause (i), a

relative receiving such aid, and

any other individual (living in

the same home as such relative

and child) whose needs are taken

into account in making such deter-

mination, the first $30 of the

total of such earned income for

such month plus one-third of the

remainder of such income for such

month (except that the provisions

of this clause (ii) shall not

apply to earned income derived

from participation on a project

maintained under the programs

established by section 632(b)(2)

and (3) of this title); and

Social Security Act §402(a)(7), 42 USC

§602(a)(7):

§602 State plans for aid and

services to needy families with

children; contents; approval by

Secretary

(a) A state plan for aid and

services to needy families with

children must

(7) except as may be other-

wise provided in clause (8), pro-

vide that the State agency shall,

in determining need, take into

consideration any other income

and resources of any child or

relative claiming aid to families

with dependent children, or of

any other individual (living in

the same home as such child and

relative) whose needs the State

determines should be considered

in determining the need of the

child or relative claiming such

aid, as well as any expenses rea-

sonably attributable to the earn-

ing of any such income;

45 Code of Federal Regulations (CFR)

§§233.20(a)(3)(ii) (A) & (bd), 233.20(a)(7),

233.20(a)(12)(i), proposed 45 CFR §235.15,

41 Fed. Reg. 8067-8068, and Federal Rules

of Civil Procedure 23(a), (b)(2) are set

forth in pertinent part in Appendix E.

S NT O CA

Petitioner Josephine McGraw has worked

for the last four years as a cook's helper.

Before she began working, Ms. McGraw and

her nine minor dependent children were

completely supported by a grant of Aid to

Families with Dependent Children ("AFDC"),

42 USC §601 et. seg. Presently, Ms. McGraw's

family of ten is supported by her earnings

and a supplementary grant of AFDC adminis-

tered by respondents.

Eligibility for AFDC is determined by

comparing a family's “available" income with

a Statewide standard of need related to fam-

ily size. New York Social Services Law

§13l-a; 42 USC §602(a)(7). If “available"

income is less than the Statewide AFDC pay-

ment standard, the deficit is paid as an

AFDC grant. Social Services Law §13l-a 2.

New York's Statewide "need" and payment

standards are now identical, but they need

not be, and were not prior to 1974 when the

payment standard was set at 90% of "need".

Rosado v. Wyman, 397 U.S. 397 (1970);

Jefferson v. Hackney, 406 U.S. 535 (1972).

Prior to July 1969 the Social Security

Act ("the Act") required only that the income

of working recipients be supplemented up to

the level paid in outright grants to non-

working AFDC recipients. In 1968, 42 USC

§§602(a)(7) & (8) (pages 5-7, supra) were

amended to require the States to disregard

the first $30 and 1/3 of the remainder of a

working recipient's monthly earnings ("$30

)**, this provision was

and 1/3 disregard"

enacted to provide an incentive for AFDC

recipients to find and retain gainful em-

ployment. Senate Report No. 744, 90th Cong.

lst Sess. (1967), 1967 U.S. Code Cong. and

Admin. News, pp. 2981, 2982, 2994, 2995.

42 USC §§602(a)(7) & (8) and the implement-

ing regulations of the Department of Health,

Education, and Welfare ("HEW"), 45 CFR

“+42 USC §602(a)(8)(A)(i) requires the

disregard of "all of the earned income of

each dependent child” receiving AFDC who is

a student and not a full time employee. The

challenged regulation also authorizes re-

coupment of these “disregarded earnings."

a recipients subjected to recoupment

from § 02(a)(8) (A) (4) earnings are within

the purported class.

§§233.20(a)(7) and 233.20(a)(3)(ii) (A) &

(B) (A-42-43) require "$30 and 1/3" to be

disregarded in determining “need and the

amount of the assistance payment." 45 CFR

§233.20(a)(7), Emphasis supplied.

From July 1974 to April 1975, the New

York City Department of Social Services

made errors resulting in AFDC overpayments

to the McGraw family totaling $990. 36.2"

"There is no dispute that the agency was

responsible for this error, and no conten-

tion that Ms. McGraw in any way caused or

even noticed the mistake." Second Circuit,

opinion below (A-6). Upon realizing the

error, the agency notified the petitioner

that her family's AFDC payments would be

suspended until the overpayment was recouped.

The determination to recoup was upheld by

Respondent Commissioner of the New York

3* The overpayment provided each member

of the McGraw family with a daily windfall

of 31¢, unwittingly expended by the family

during this period.

State Department of Social Services.

New York and HEW recoupment regulations

distinguish between overpayments caused by

recipient fraud and those not caused by

recipient fraud. 18 NYCRR §352.31(d); 45

CFR §233.20(a)(12)(i). Fraudulently induced

Overpayments may be recouped by reduction of

the AFDC grant whether or not the recipient

still has the overpayment. Overpayments

caused by agency or non-willful recipient

error may not be recouped by grant reduction

under these regulations unless the recipient

still has the overpayment or other "avail-

able" income in excess of the level of the

AFDC grant.

The challenged New York regulation, 18

NYCRR §352.31(d)(1)(ii), permits recoupment

of agency caused Overpayments by grant re-

duction when the recipient is working and a

beneficiary of the'"'$30 and 1/3 disregard."

The regulation defines the disregarded work

incentive income as "currently available

income...., exclusive of the current assist-

ance payment," and authorizes reduction of

the assistance payments in amounts equal to

all or part of the statutory disregard un-

til the overpayment is recouped.

Recoupment has not been effected in

petitioner's case. With respondents’ con-

sent, District Judge William C. Connor

issued orders staying recoupment pending

his determination of motions for summary

judgment and thereafter pending determina-

tion of the appeal in the Second Circuit.

Recoupment is presently stayed pending

Supreme Court review by stipulation of all

the parties.

Petitioner McGraw filed her complaint

in the United States District Court for the

Southern District of New York on September

25, 1975, seeking a declaratory judgment

that the challenged regulation violated the

Social Security Act and the equal protec-

tion and due process clauses of the Four-

teenth Amendment to the United States Con-

stitution. Petitioner also sought an in-

junction against the regulation's enforce-

ment. On September 25, 1975 petitioner

moved for class certification and a prelimi-

nary injunction. In a memorandum and order

dated February 25, 1976 and entered Febru-

ary 27, 1976, Judge Connor determined that

petitioner's constitutional claims were sub-

stantial and that the court had jurisdiction

under 28 USC §1343(3). Judge Connor granted

summary judgment for respondents on peti-

tioner's statutory claims and deferred con-

vening a three-judge court to determine the

constitutional claims pending review of the

statutory decision. (A-17 - A-37). Judge

Connor determined that all the requirements

of Rule 23(a), (b)(2) F.R.C.P. had been ful-

filled but declined to certify a class pur-

suant to F.R.C.P. Rule 23(c). (A-22).

Petitioner appealed from Judge Connor's

order to the United States Court of Appeals

14 15

for the Second Circuit. In an order dated payment levels, Rosado v. Wyman, supra; Con-

and entered July 2, 1976 that court affirmed gress required that States allow working

the order of the district court. (A-38).

Ms. McGraw's petition for rehearing was

denied by the Second Circuit in an order

dated and entered September 15, 1976. (A-40).

This petition for certiorari was filed within

90 days thereafter.

In 1968, deeply concerned about mount-

ing AFDC expenditures, Congress adopted a

simple provision to give families totally

relying on AFDC a monetary incentive to

find and retain gainful employment. While

allowing the States considerable latitude

to set their own standards of need and

recipients to retain "$30 and 1/3" of their

earnings above the level of payment made to

otherwise identically situated unemployed

recipients. Although the Second Circuit ob-

served in this case that "the tangle of fed-

eral and state statutes and regulations in

the welfare area now rivals the Internal

Revenue Code and its attendant regulations

as a marvel of complexity,” (A-3), the

earnings disregard provision is a model of

simplicity in mechanism and purpose. It

provides a mathematically precise monetary

work incentive to all working AFDC recipi-

ents in ali but specified circumstances. *°

Shortly after passage of the earnings

disregard, HEW promulgated clear and

**42 usc §§602(a)(8)(C)(i) & (44) dis-

qualifies from receiving the benefit of the

disregard persons quitting work, voluntar-

ily reducing earnings, and refusing employ-

ment without good cause.

unequivocal regulations requiring that "$30

and 1/3” of a working recipient's earnings

be disregarded whenever “need" was deter-

mined or an AFDC payment made. In their

present form these regulations are 45 CFR

§§233.20(a)(7) and 233.20(a)(3)(ii)(A) &

(B) (A-42 - A-43), the regulatory analogues

of 42 USC §602(a)(8) and §602(a)(7).

The Courts have struck down State pro-

visions deviating from the specific manda-

tory disregard formula of the Act. In Xv.

McCorkle, 333 ¥. Supp. 1109 (D.N.J. three-

judge court, 1970), aff'd sub nom Engelman

v. Amos, 404 U.S. 23 (1971), New Jersey's

“administrative income ceiling”, which pro-

vided a monetary incentive for recipients

to work but departed from the statutory "30

and 1/3" formula, was invalidated. The

three-judge district court carefully re-

viewed the legislative history of §602(a)(8)

and concluded that each working recipient

"$30 and 1/3" of his earned income above

the state's AFDC payment level. 333 F.

Supp. at 1115-1117. This Court affirmed

in a unanimous per curiam opinion. Engel-

man _v. Amos, supra.

The "$30 and 1/3 disregard" remained

inviolate forall AFDC purposes until 1973,

when it became entangled with the issue of

recoupment and State demands that HEW give

them broad powers to recover Overpayments

from recipients. Although petitioner here

only contests the legality of overpayment

recoupment from “disregarded” earnings, she

notes that Title IV does not now, nor has

it ever, contained any language permitting

recoupment or any provision whatsoever for

recovery of overpayments by reduction or

suspension of AFDC payments." Until 1967

>* this is in direct contrast to other

Social Security Act programs, where Congress

has specifically provided for recovery of

overpayments by payment reduction. For ex-

ample, such provisions are contained in the

must be permitted to actually retain exactly new Supplemental Security Income legislation

HEW issued no regulations permitting recoup-

ment. In 1967 HEW entirely prohibited re-

coupment of previously expended AFDC over-

payments. Handbook of Public Assistance

Administration, Part IV, Section 3120 (April

10, 1967). In 1968, however, HEW changed

its regulations to allow recoupment from

AFDC grants for overpayments caused by

recipient fraud. Handbook of Public Assist-

ance Administration, Part IV, Section 3120

(June 20, 1968); 45 CFR §233.20(a) (3) (ii) (a),

34 Fed. Reg. 1394 (January 29, 1969). In

1973 HEW went further and promulgated a

regulation which permitted recoupment of

previously expended AFDC overpayments from

current assistance payments, regardless of

where culpability for the error lay. 45

CFR §233.20(a)(12), 38 Fed. Reg. 22010

at 42 USC $1383(b) and for the Title II

OASDI programs programs at 42 USC §404.

Furthermore, these titles contain provi-

sions for waiver of recovery when, as in

petitioner's case, the recipient was not

at fault and the overpayment had already

been unwittingly expended.

(August 15, 1973) .°° This regulation was

invalidated in N.W.R.O. v. Weinberger, 377

F. Supp. 861 (D.D.C., 1974), in which the

court held that recoupment of non-fraudulent

previously expended overpayments violated

the Act. Such recoupment was held violative

of 42 USC §602(a)(7), which governs the

“determination of need.”

In retreat from the invalidation of its

recoupment regulation, HEW adopted its cur-

rent regulation, 45 CFR §233.20(a) (12) (i)

(A)(1) (4-44), which prohibits recoupment

of non-fraudulent overpayments, unless the

recipient has “currently available income"

“exclusive of the current assistance pay-

ment." Although the regulation itself is

unclear, HEW has taken the position that the

O- «me amended regulation was issued

at the request of many State welfare agen-

cies and the National Council of State Ad-

ministrators of the American Public Welfare

Association, on we er of all State welfare

agencies.” N. r, 377 F.

Supp. 861, 8 oer 197

"$30 and 1/3 disregard" is income "currently

available" for recoupment, and thus permits

the practice challenged in this case. (A-14).

In addition, HEW has published a proposed

regulation which clearly permits the chal-

lenged practice. Proposed 45 CFR §235.15

(>) (1)(ii)(A)(2), 41 Fed. Reg. 8067-8068

(Feb. 24, 1976) (A-45). The challenged New

York regulation, like these HEW regulations,

defines the "$30 and 1/3", which the Act

makes unavailable in calculating "need" and

the assistance payment, as "currently avail-

able income” “exclusive of the current

assistance payment."

Thwarted by the federal courts in its

attempt to facilitate recoupment, HEW seized

upon the simple work incentive disregard

procedure and reinterpreted it into a “mar-

vel of complexity." (A-4) The simple

truth for petitioner is that her family's

AFDC payment could not be reduced but for

the fact that Congress gave her a monetary

reward for working. Otherwise identically

Situated non-working recipients are immune

from recoupment.

The district court recognized that the

recoupment procedure constituted a failure

to apply the disregard in the payment of

assistance, but accepted respondents’ argu-

ment that:

-+. in its recoupment of overpay-

ments, the welfare agency does

not “determine need” when it pro-

ceeds indirectly against the al-

ready-honored disregard by adjust-

ment of the ultimate AFDC payment.

(A-28).

The district court was simply wrong. 45

CFR §§233.20(a)(7) & 233.20(a)(3)(ii)(A) &

(B) both interpret the Act as requiring the

"$30 and 1/3" to be disregarded in calcu-

lating both “need" for and the amount of

the ultimate assistance payment. HEW

addressed this same fallacious “need -- pay-

ment" distinction in its brief amicus curiae

to the Supreme Court in Engelman v. Amos,

supra. ("“Engelman amicus") HEW stated:

New Jers that S$ jon

Lo2la 2 USC 02

a)(7) and (8 Ovi _S1

for benefits, including the stand-

ards of assistance, the considera-

tion of income and resources,

applicable disregards of income

and resources, and determination

0 ount o ayment. Engel-

man amicus pp. 7-5. Emphasis

added. )

In affirming the district court's order

in this case, the Second Circuit also accep-

ted the fallacious “need - payment" distinc-

tion.

Even

The court stated:

The earned income disregard is

required in determining an appli-

cants need but New York's recoup-

ment provisions only affect the

amount. of payment (A-10 - A-11l).

See also A-ll, par. 2).

though it accepted this distinction be-

tween “need” and payment, fallacious in this

context, the Second Circuit was forced to

admit

-»ethat any use of the disregarded

earnings to reduce the amount paid

to a recipient detracts in some

degree from the Congressional pur-

pose of providing an incentive to

AFDC recipients to seek employ-

ment, eee (A-12) .

However, the Court went on to balance the

admitted infringement of Congressional pol-

icy against the State's claims of adminis-

trative convenience and necessity (A-13).

The district court in X v. McCorkle, supra,

forcefully demonstrated that such a balanc-

ing approach is inappropriate when interpret-

ing this mandatory provision. The court

stated:

Rosado v. Wyman provides an analo-

gous situation for interpreting a

federal statutory requirement.

The question in Rosado was whether

New York had violated 42 USC §602

(23), the “cost of living” provi-

sion of the Social Security Act.

Once the Court arrived at the

meaning of the provision, the

statute was strictly applied and

New York's contentions of admin-

istrative convenience and effici-

ency were rejected. 333 F. Supp.

at 1117.

Employing this improper balancing

approach, the Second Circuit resolved what

it characterized as a "close" issue in

favor of a recoupment policy, which has no

basis in the Act, over Congress’ explicit

and mandatory work incentive policy.

HEW and the courts below have asserted

that the admitted nullification of Congres-

sional work incentive policy, effected by

the challenged practice, is sustainable

because it is only a partial nullification

effecting only part of the AFDC population,

and because the work incentive policy must

be balanced with other legitimate state in-

terests. These assertions are factually

and legally specious.

The challenged practice deprives a

great number and percentage of the working

poor of work incentive income that Congress

mandated they have. Respondent's statistics

for the period when Ms. McGraw's family re-

ceived the agency caused overpayments show

an Overpayment error in 29.6% of all AFDC

cases in New York, with 43.1% of these

Overpayments due to agency error. ’' Ex-

trapolation with respondents' statistics on

the size and composition of New York's AFDC

6. sndicates that there will be

population

agency caused Overpayments in the families

of 4,616 working mothers encompassing

16,804 recipients in any given six-month

?*Bligibility Audit Report, July l-

December 31, 1974, New York State Depart-

ment of Social Services, pp. 16, 28-34.

The audit report for the period January 1l-

June 30, 1975 shows an agency error over-

payment rate of 42%, for July 1-December

31, 1972, 56.9%, and for the most recent

period, July 1-December 31, 1975, 46.3%.

HEW analysis shows a national agency error

Overpayment rate of 45.7%. Qua ity Con-

trol Charts, Analysis of Eligibility and

Income Payments in AFDC, SRS-73-21210

(January 19, 1973), Chart 9.

8. mere are approximately 36,187 work-

ing AFDC mothers encompassing families with

131,720 recipients in New York. Character-

istics of AFDC Families in New York State,

January 1973, N.Y.D.S.S., Pub. No. 1188

(August, 1974).

period. ”'

All of these working families

are subject to recoupment under the chal-

lenged regulation. Nationally, this prac-

tice deprives hundreds of thousands of the

working poor of work incentive income that

Congress mandated they have.

The legislative history of §602(a) (8)

shows that Congress expected the provisions

to reduce both State and Federal AFDC ex-

penditures by inducing people to work rather

than rely completely on AFDC payments. If

Congress was correct, an apparent saving

effected by the challenged practice may

well be more than offset as recipients

respond to the implicit work disincentive.

7+ Mis does not include the recipients

in families of other working AFDC recipients

who are also entitled to the earnings dis-

regard. Neither do these figures include

Overpayments resulting from non-willful

recipient errors. HEW statistics show that

there is evidence of fraud in less than

one-half of 1% of all AFDC cases. Disposi-

tion of Public Assistance Cases Involving

Questions of Fraud, HEW, SRS, NCSS Report

E-7 (FN-72), (June 19, 1973), Table C.

In any event neither HEW nor the courts be-

low should have substituted their judgment

for that of the Congress.

2. HEW's Current Position Approv-

ing The natitenzed : =

: No 4 20 Oo Le = =e

The courts below deferred to an agency

interpretation which was neither contempo-

raneous with the enactment of §602(a)(8)

nor represented a long standing and consis-

tent administrative interpretation. U.S.

Vv. : - ° Inc.»

422 U.S. 694 (1975). When an agency has

taken inconsistent positions and its inter-

pretation is contrary to the statute, a

court should not defer to it. See Morton

v. Ruiz, 415 U.S. 199, 237 (1974); Espinoza

v. Farah Mfg. Co., Inc., 414 U.S. 86 (1973);

W.R.O. Wein » Supra; N.W.R.O. v.

Mathews, 533 F.2d 637 (D.C. Cir. 1976).

However, the courts below deferred to HEW's

endorsement of the challenged practice

without even fully understanding the agen-

cy's rationale for that support.

The district court's deference to the

federal agency was so unreasoned that it could

not discern which HEW regulation authorized

10. To avoid simi-

the challenged practice.

lar confusion in the Second Circuit, peti-

tioner requested that HEW file a brief

amicus curiae. The court was aware of the

agency's refusal of petitioner's request,

but did not ask the agency to file an amicus

brief.

HEW's newly adopted interpretation

10+ at a-29 the court sets out 45 CFR

§233.20(a)(12)(i)(f) and characterizes it

as HEW's “most pertinent" regulation on

the issue. However, this regulation refers

to recoupment in fraud cases. 45 C.F.R.

§233.20(a)(12)(i)(A)(1) governs the chal-

lenged practice and was cited and briefed

by petitioner at numerous stages of the

district court proceedings.

that §602(a)(8) neither authorizes nor pro-

hibits the challenged practice is set forth

in its brief amicus curiae to the district

court in Johnson v. Likins, No. 4-75-Civ.-

318 (D. Minn., October 10, 1975), ("Johnson

amicus”) and is repeated in its memorandum

of points and authorities to the district

court in Swasey v. Whalen, No. 76-209

(D.N.H., November 29, 1976).74* In Johnson,

the district court has preliminarily enjoined

a statewide regulation substantially identi-

cal to the challenged New York regulation.

In Swasey, the HEW regulation authorizing

the challenged practice and a New Hampshire

regulation essentially identical to the

challenged New York regulation were declared

11-counsel for petitioner inquired of

the Clerk of the Supreme Court whether it

was necessary to reproduce as appendices

these two briefs, the two unreported deci-

sions in Jo and and the brief

us cu to the Supreme Court in

. » all of which petitioner

has cited to in this petition. The Clerk's

office responded that this was neither nec-

essary nor advisable.

invalid as contrary to 42 USC §§602(a)(7)

and (8).

In the Johnson amicus, HEW exposes the

erroneous bases of the decision below, re-

affirming that §602(a)(8) income is neither

“available” for determining “need” nor for

determining the assistance payment. See 45

CFR §233.20(a)(3)(ii) (A-42). However, HEW

dichotomizes the concept of “availability”

asserting that disregarded earnings are

available for recoupment purposes even

though they are not available for purposes

of determining “need" and payment. HEW's

contention that recoupment is a separate

process not affecting the assistance pay-

ment is a classic example of double-talk.

The agency says, for example:

Thus for the state to deduct the

amount of the recoupment from the

benefit check does not constitute

a reduction in the amount of the

grant. The income received which

had been disregarded for purposes

of determining the grant is avail-

able to the recipient in lieu of

the amount recouped from the grant

check to meet the need standard

or portion thereof which the state

has undertaken to provide. John-

Son amicus, p. 6.

The agency further states that:

for purposes of administrative

convenience, the state has chosen

to reduce the amount of the assis-

tance check and to tell the recipi-

ent that the remainder of this

assistance payment is located in

the equivalent amount of the disre-

garded income that he already

possesses. Johnson amicus, p. l4.

HEW directs the recipient to find the

amount of money taken from her payment in

her work incentive income which, ‘tie agency

admits, could not be considered in comput-

ing that same AFDC payment. HEW converts

a work incentive payment into a meaningless

accounting procedure and justifies this

blatant violation of Congressional will in

terms of "administrative convenience.”

Even accepting, Weeuendo. HEW's contention

that overpayment recoupment is a process

distinct from the payment of assistance, -*"

it is nevertheless a process involving a

"determination of need," and thus, the spe-

cified earnings must be disregarded.

N.W.R.O. v. Weinberger, supra, explicitly

decided that recoupment of a non-fraudulent

Overpayment embodies a determination of

"need." 377 F. Supp. at 868. HEW's recoup-

ment regulation was invalidated because it

conflicted with §602(a)(7), the clause gov-

erning the "need" determination. The chal-

lenged recoupment is premised on a determi-

nation that the working recipient does not

"need" the "30 and 1/3", which by definition

must be disregarded in determining "need."

§§602(a)(7) and (8). HEW admitted this in

the Engelman amicus, stating:

»+ethe court below was correct in

12-me Second Circuit accepted this

position stating that the challenged prac-

tice may be upheld because rather than a

payment reduction it “arguably” constitutes

a proceeding against the disregarded earnings

effected by a “shorthand method." (A-11-12).

concluding that [New Jersey's ad-

ministrative income ceiling] em-

bodies a recalculation of need

in a manner forbidden by Section

402(a)(8) [42 USC §602(a)(8)].

»eelt operates by considering a

family's total resources, and em-

bodies a judgment that it needs

no more.... The point is that Con-

gress has determined, for important

reasons of public policy, that

families earning income should

have only a specified part of that

income considered in determining

their need for benefits. Engelman

amicus, pp. 9-10.

HEW has simply reversed the interpreta-

tion of §602(a)(8)"s mandate that it offered

to this Court in Engelman v. Amos, supra,

and has adopted an interpretation violative

of the spirit and letter of the statute and

the Court's decision in Engelman. The agen-:

cy's position was formulated in retreat from

N.W.R.O. v. Weinberger, supra, and has con-

tinued a pattern of misinterpretation of

"current availability" which the courts have

had to rectify. See N.W.R.O. v. Mathews,

533 F.2a 637 (D.C. Cir. 1976);+3* swasey v.

13+th N.W.R.O. v. Mathews, su » the

Court of Appeals invalidated 45 CFR §233.20

Whalen, supra.

The Second Circuit deferred to HEW's

interpretation in what it characterized as

"this highly complex and technical area"

(A-13, see also A-10, par. 2). Failing to

understand that the complexity they per-

ceived in the issues was contrived by HEW

to accommodate its inconsistent interpreta-

tions of §602(a)(8)'s mandate, the courts

below simply abdicated their role of statu-

tory interpretation in deference to HEW's

position.-*°

(a) (3) (i) which treated resources as “cur-

rently available" according to their fair

market value without regard to encumbrance.

Thus, an AFDC family having $100 equity in

a $2,000 item could be charged with having

$2,000 in “currently available resources".

This could in turn result in their AFDC

grant being terminated for excess resources.

ery Swasey v. Whalen, supra, the court

criticized the deference granted to HEW by

the Second Circuit in this case, stating:

It was this policy that convinced

the Second Circuit Court of Appeals

to uphold the recoupment policy and

regulations of New York State ina

case which this one tracks in all

3. The Decision Of The Court Be-

fe}

low Conflicts With The Tw

Other Federal Precedents, Re-

1ti I Inconsi n

Administration Of The Act

The two other federal courts which have

addressed the issues in this case have en-

joined State recoupment regulations which

authorized recoupment of previously expended

non-fraudulent?>" Overpayments from one-hairl®:

essentials. McGraw v. B r.

537 F.2d 719 (2d Cir. 1976).

With all due respects to the Sec-

ond Circuit Court of Appeals, I

must point out that, in some in-

stances, deference to the agency

interpretation may result in con-

travening the Congressional intent

and the basic policy of the statute.

Swasey Decision, p. 6.

15+me Johnson case is limited to agen-

cy caused overpayments, and did not decide

the issue with respect to non-willful recipi-

ent caused Overpayments. Both the HEW and

New York regulations draw the line of dis-

tinction between fraudulent and non-fraudu-

lent overpayments. Agency caused and non-

willful recipient caused overpayments are

treated identically.

16-me New York and HEW regulations

make the entire "disregard" available for

recoupment.

17 «

of the "$30 and 1/3 disregard". Johnson

v. Likins, supra; Swasey v. Whalen, supra.

In Johnson, the district court reviewed

the legislative history and mandatory lan-

guage of §602(a)(8) and held that recoupment

of disregarded earnings violates the statute

when premised on the State's determination

that “disregarded” income is not “needed"

by the recipient. Furthermore, the court

concluded that “Congress intended that the

1? *me courts below both dismissed

reliance on Bradford v. Juras, 331 F.Supp.

167 (D. Ore. three-judge court, 1971).

Bradford held that fraudulently induced

overpayments (not at issue in this case)

could be recouped from disregarded income,

but only because it determined that §602

(a)(8) was not mandatory. The basis of the

decision was later discredited by Ingelman

- Bradford also held that recoupment

below the level of the assistance payment

violated the Act, even when overpayments

were fraudulently induced. The leading

state court case, e v. Mi ota, 243

N.W.2d 112 (Minn. 1976) similarly involves

a recipient's willful failure to account

for outside income. 243 N.W.2d at 124. In

this fraud related situation the court per-

mitted recoupment from the disregard, ex-

pressly disavowing any criticism of the

— Johnson v. Likins federal litiga-

ion.

disregarded income be disregarded whenever a

an AFDC payment is made". Johnson decision,

p. 29.

In Swasey, the court characterized the

instant case as "a case which this one tracks

in all essentials," and criticized the Sec-

ond Circuit for deferring to an HEW interpre-

tation "contravening the Congressional in-

tent and basic policy of the statute."

Swasey decision, p. 6. The court found that

the challenged recoupment constitutes a fail-

ure to disregard §602(a)(8) earnings "in the

formula for determining need," and held that

45 CFR §233.20(a)(12)(i)(A)(1) violates 42

USC §§602(a)(7) and (8). Swasey decision,

pp. l, 9, 10.

The conflict of these decisions with

those of the courts below means that the law

is being administered under a dual system.

In Minnesota and New Hampshire disregarded

earnings are not available for recoupment,

but such recoupment is permitted in all

Other states. The conflict of decisions

among courts in the First, Second, and

Eighth Circuits and the inconsistent admin-

istration of the Act is a compelling reason

for granting certiorari at this time.

4, When a District Court Deter-

mines That All

Has No Power To

Action Certification

In denying petitioner's motion for

class certification, the district court

stated:

As the parties were advised at

their conference with this Court,

the class action designation

sought by plaintiff would consti-

tute, at b»st, procedural surplus-

age. This is not to say that the

Court entertains any doubt that

plaintiff might adequately repre-

sent the interests of those wel-

fare recipients who, like herself,

are immediately and intimately

affected by the recoupment of

agency Overpayments from earned

income disregards. Nor does the

documentation supplied by the

parties leave any basis for ques-

tioning the numerosity of a class

that would consist of plaintiff

and others similarly situated

with respect to the issues pres-

ently before the Court. (A-22-

23).

The court's refusal to certify a class after

it had determined that all the requirements

of Rule 23(a), (b)(2) had been fulfilled

was in accordance with the Second Circuit's

holdings in Galvan v. Levine, 490 F.2d 1255,

1261 (2nd Cir. 1973) and Vulcan Society

of N.Y. City Fire Dept. v. Civil Service

Commission, 490 F.2d 387, 399 (2nd Cir.

1973) 18:

trict court to deny class action status, in

These decisions permit the dis-

a 23(a), (b)(2) action, when it is deemed

“unnecessary,” because the court believes

that individual declaratory and injunctive

18...

In this case the Second Circuit

affirmed the denial of class certification,

stating that the issue was moot. The issue

is not moot. The Second Circuit admitted

that petitioner's constitutional claims are

unresolved and must be determined by a

three-judge court. (A-16, note 19.

relief against a governmental body will

automatically run to the benefit of all

similarly situated in the purported class.

The Second Circuit's rule is in direct

conflict with both the plain meaning and

intent of Rule 23 and with the decision of

the Seventh Circuit in Fujishima v. The

Board of Education, 460 F.2d 1355, 1360 (7th

Cir. 1972). There, in a 23(a), (b)(2) ac-

tion, the Seventh Circuit stated, "If the

prerequisites and conditions of F.R.C.P. 23

are met, a Court may not deny class status

because there is no need for it." The con-

flict of the Second Circuit's rule with the

decision of the Seventh Circuit is a com-

pelling reason to grant certiorari at this

time. Supreme Court Rule 19(1)(b).

Furthermore, in Sosna v. Iowa, 419 U.S.

393, 399 (1975) and Franks v. Bowman Trans-

port Co. Inc., 424 U.S. 747 (1976), this

Court held that mootness of the claims of

named plaintiffs did not warrant dismissals

because of the interests acquired by the

classes upon certification. Those decisions

emphasized the importance of class certifi-

cation and the timing of such determination.

In this case, petitioner's purported class

may well be prejudiced if during the pen-

dency of this lengthy litigation her indi-

vidual claim becomes moot. Depending on

the disposition of this petition for cer-

tiorari, petitioner's constitutional claims

may be brought to a three-judge court, whose

decision is directly appealable to this

Court. (A-16, note 19; A-37). Class cer-

tification is necessary to protect the in-

terests of a class petitioner has a right

to represent.

Since the district court determined

that Rule 23(a), (b)(2)'s requirements were

fulfilled, it had no power to deny class

action status.

CONCLUSION

For all the foregoing reasons, peti-

tioner Josephine McGraw prays that a writ

of certiorari issue to review the judgment

of the United States Court of Appeals for

the Second Circuit entered in this case on

July 2, 1976.

Respectfully submitted,

JOHN C. GRAY, JR.

LLOYD EDWARD CONSTANTINE,

Of Counsel

Brooklyn Legal Services

Corporation B

152 Court Street

Brooklyn, New York 11201

Attorneys for Petitioner

A-1

APPENDIX A

UNITED STATES COURT OF APPEALS

- For tee Sscoxrp Crcvorr

— ww

——_

No. 1167—September Term, 1975.

(Argued June 11, 1976 Decided July 2, 1976.)

Docket No. 76-7102

JOSEPHINE McGraw, individually and on behalf of her minor

dependent children and all persons similarly situated,

Plaintiff s-A ppellants,

—against—

StepHenx Bercer, individually and as Commissioner of the

New York State Department of Social Services,

James Dumpson, individually and as Commissioner of the

New York City Department of Social Services, and

Tae New Yor State Departmert or Sociat SEEVICEs,

Defendants-Appellees.

Before:

Frrenp_y, Fernserc and Van GRaaFEILAND,

Circuit Judges.

Appeal from decision of United States District Court

for the Southern District of New York, William C. Conner,

J., that 18 N.Y.C.R.R. § 352.31(d)(1) (ii), permitting de-

fendants to recoup AFDC overpayments to plaintiffs

caused by agency error out of earnings disregarded in

4741

A-2

calculating plaintiffs’ welfare needs pursuant to 42 U.S.C.

§ 602(a)(8)(A) (ii), is not inconsistent with that statute.

Affirmed.

Luorp Constantine, Brooklyn, N.Y. (John C.

Gray, Jr., Brooklyn Legal Services Corp. B,

Brooklyn, N.Y., on the brief), for Plaintiff s-

Appellants.

Jupitx A. Gorpox, Assistant Attorney General

(Louis J. Lefkowitz, Attorney General of

the State of New York; Samuel A. Hirsho-

-witz, First Assistant Attorney General;

Rosalind Fink, Assistant Attorney General,

on the brief), for Defendants-Appellees.

= wn

Fernserc, Circuit Judge:

Josephine McGraw and her nine minor dependent chil-

dren, recipients of public assistance benefits from New

York State under the Aid to Families with Dependent

Children (AFDC) program, appeal from a decision of the

United States District Court for the Southern District of

New York, William C. Conner, J., granting summary judg-

ment for defendants, various New York welfare officials.’

Plaintiffs seek to invalidate a New York welfare regula-

tion, 18 N.Y.C.R.R. § 352.31(d) (1) (ii),? which permits the

1 The defendants are the Gommissioners of the New York State and

New York City Departments of Social Services, and the New York State

Department of Social Services. For convenience, we will refer to the

defendants collectively as the State.

2 18 N.Y.C.R.R. §352.31(d) provides, in pertinent part:

(d) Becoupment of overpayments. (1) Except as provided in para-

graph (2) of this subdivision, recoupment of overpayments of as-

sistance including overpayments resulting from assistance paid pend-

ing a hearing decision shall be treated as follows:

4742

A-3

State to recoup overpayments of welfare benefits caused

by agency errors out of the portion of a recipient’s earn-

ings that is disregarded in calculating welfare needs under

42 U.S.C. § 602(a)(8)(A)(ii),? as inconsistent with that

statute. For reasons set forth below, we affirm.

The tangle of federal and state statutes and regulations

in the welfare area now rivals the Internal Revenue Code

(i) Recoupment shall be limited to overpayments made dur-

ing the 12 months preceding the month in which the overpay-

ment was discovered.

(ii) Recoupment of any overpayment made to a recipient

shal] not be required unless the recipient has currently available

income or resources, exclusive of the current assistance pay-

ment. Exempted income and disregards shall be considered as

being currently available.

(2) Where overpayments were occasioned or caused by a recip-

ient’s willful withholding of information concerning his income,

resources, or other circumstances which may have affected the

amount of the public assistance payment, recoupment of prior over-

payments from current assistance grants shal] be made irrespective

of current income and resources. In such cases, recoupment shall

not be limited to overpayments made during the 12 months pre-

ceding the month in which the overpayment was discovered.

8 This statute requires state AFDC plans to

(8) provide that, in making the determination under clause (7),

the State agency—

(A) shall with respect to any month disregard— ...

(ii) in the case of earred income of a dependent child not

included under clause (i), a relative receiving such aid, and

any other individual (living in the same home as such relative

and child) whose needs are taken into account in making such

determination, the first $30 of the total of such earned income

for such month plus one-third of the remainder of such income

for such month (except that the provisions of this clause (ii)

shal] not apply to earned income derived from participation on

a project maintained under the programs established by section

632(b)(2) and (3) of this title).

The reference to “clause (7)” is to 42 U.S.C. § 602(a)(7), set out in

note 5 infra.

4743

A-4

and its attendant regulations as a marvel of complexity.

The issues involved in this case will perhaps be easier to

understand if put in the context of the structure of the

AFDC program, as it particularly affects the McGraw

“— “AFDC program, established under Title IV-A of

the Social Security Act, 42 T.S.C. $§ 601-10, aims to pro-

vide financial assistance to needy dependent children and

the adults who care for them. The program is financed iD

large part by federal funds on a matching basis, but is

administered by the states, which have “broad discretion

in determining both the standard of need and the level

of benefits.” Shea v. Vialpando, 416 U.S. 251, 253 (1974).

State plans, however, must conform to the requirements

laid down by the Social Security Act and the regulations

of the Department of Health, Education and Welfare

(HEW). .

“Onder HEW regulations all AFDC plans must specify

a statewide standard of need, which is the amount deemed

necessary by the State to maintain a hypothetical family

at a subsistence level. Both eligibility for AFDC assis-

tance and the amount of benefits to be granted an indivi

ual applicant are based on a comparison of the State .

standard of need with the income and resources available

to that applicant.” Id. The “standard of need” set by New

York Social] Services Law $131-a(2) for a family of ten

is $284 semi-monthly, plus an allowance for shelter that,

under the applicable New York regulations, amounts for

the McGraws to $59 semi-monthly.‘ This total of $343 is

then compared with the “income and resources” of the

family, in this case Ms. McGraw’s earnings from her job

as a cook’s helper in a day care center.

4 New York provides the actual amount of rent up to

limits according to locality and family size. 18 N.Y.CE.R. § 352.3(a).

4744

A-5

Ms. McGraw earns $265.84 semi-monthly. Under 42

U.S.C. § 602(a)(7)* and 45 C.F.R. § 233.20(a) (3) (iv) (a),

“expenses reasonably attributable to the earning of [this]

income” must be deducted from this amount. In Ms. Mc-

Graw’s case $49.77 is deducted under this provision. In

addition, a further deduction, known as the “earned in-

come disregard,” is made. Under 42 U.S.C. § 602(a) (8)

(A) (ii), the first $30 per month, and one-third of the re-

mainder, of a working adult AFDC recipient’s earnings

are disregarded in calculating the family’s “income and

resources.” This deduction amounts to $98.61 in Ms. Mc-

Graw’s case.‘

_As already indicated, the amount of the assistance pay-

ment is based on the difference between the applicant’s

resources and the state’s standard of need, 45 C.F.R.

§§ 233.20(a)(2), (3), but the state is not required to pay

the full amount, or any particular amount or percentage,

of that “budget ceficit.” Jefferson v. Hackney, 406 U.S.

935, 541 (1972); Rosado v. Wyman, 397 U.S. 397, 408-09

(1970). However, since New York does currently pay 100

per cent of the standard of need, New York Social Services

Law §131-a(3); Hagans v. Berger, slip op. 3995, 3998 (2d

Cir. June 2, 1976), the amount of assistance provided semi-

monthly to Ms. McGraw and her family is $225.54, ar-

5 § 602(a)(7) requires state AFDC plans to provide, subject to § 602

(a) (8), note 2 supra, that

the State agency shall, in determining need, take into consideration

any other income and resources of any child or relative claiming

aid to families with dependent children, or of any other individual

(living in the same home as such child and relative) whose needs

the State determines should be considered in determining the need

of the child or relative claiming such aid, as well as any expenses

reasonably attributable to the earning of any such income.

6 The earned income disregard is not applied when the earned income

exceeds the applicant's standard of need, unless the applicant received

AFDC assistance at some time during the preceding four months. 42

U.8.C. § 602(a)(8)(D). . ' | ;

4745

A-6

rived at as follows: $343 (the total standard of need)

minus $117.46 (Ms. MceGraw’s earnings of $265.84 less $49.77

work-related expenses and $98.61 earned income disre-

gard).

Not surprisingly, in the course of making this intricate

calculation, the agency made an error resulting in an over-

payment of $47.16 to the McGraws in each semi-monthly

pay period for some ten months, for a total overpayment

of $990.36. There is no dispute that the agency was respon-

sible for this error, and no contention that Ms. McGraw

in any way caused or even noticed the mistake.’ In April

1975, the New York City Department of Social Services

notified the family of the overpayment, and of its inten-

tion to recoup the loss. This determination was upheld

by the State Department of Social Services after a hear-

ing in August 1975.

The New York regulations concerning recoupment dis-

tinguish between errors caused by wilful withholding of

information by a recipient and other errors. In the former

case, 18 N.Y.C.R.R. §352.31(4)(2), see note 2 supra, permits

recoupment from current assistance grants even if those

grants are the recipient’s only source of income. Thus, if

a family comparable to the McGraws, with a state stan-

dard of need of $343 and no earnings or other resources,

had wilfully misrepresented its circumstances so as to

receive an additional $50 in aid, a state would be per-

mitted under he regulation to reduce future grants below

the level to which the family would otherwise be entitled

until the amount overpaid was recovered.’ When, how-

7 The state informs us that according to ite surveys, about 42% of

all overpayments are agency caused. Such agency-caused errors cost

the state approximately $26.8 million in one six-month period.

& The amount by which future grants could be reduced is limited by

18 N.Y¥.C.R.R. §352.31(d)(4), which provides:

(4) The proportion of the current assistance grant that may be

deducted for recoupment purposes shall be limited on a case-by-case

4746

A-7

ever, the error was not caused by the wilful misconduct

of the recipient, recoupment from the grant itself has

been held inconsistent with the Social Security Act. Na-

tional Welfare Riglits Organization v. Weinberger, 377 F.

Supp. 861 (D.D.C. 1974). Accordingly, the applicable reg-

ulation permits recoupment only when “the recipient has

currently available income or resources, exclusive of the

current assistance payment.” 18 N.Y.C.R.R. $352. 31(4)(1)

(ii). The regulation further provides that “Exempted in-

come and disregards shall be considered as being currently

available.” Thus, in Ms. McGraw’s case, the State sought

to recoup its overpayment from the part of Ms. McGraw’s

earnings that was disregarded under 42 U.S.C. § 602(a)

(8)(A) (ii) in caleulating the amount of her family’s AFDC

grant.

This recoupment is effected by deducting $34.30 from

each semi-monthly AFDC payment.’ Thus, the McGraws’

basis so as not to cause undue hardship, and in no case shall exceed

10 percent of the household needs, and shall continue until such

time as the excess payments have been recovered, except that where

two or more recoupments are made simultaneously for different

reasons or arising from different circumstances, the tota) reduction

in the assistance grant shal] not exceed 15 percent of the house-

hold’s needs. In the event the amount required to be reduced hereby

is greater than the amount of the current grant payments, such

payments shall be withheld until] the amount of the excess grants

has been recouped.

9 The extent to which the New York regulations permit recoupment is

unclear. Before us, the State takes the position that 18 N.Y.C.RE.

$352. 31(d)(4), mote 8 supra, applies to recoupment of agency-caused

overpayments as wel! as of fraudulent ones, and indeed, in Ms. McGraw’s

case the amount of recoupment has been limited, in accordance with

that regulation, to 10% of household needs, or $34.30 per semi-monthly

check. On the other hand, the language of the regulation, which refers

to recoupment from “the current assistance grant” can be interpreted

as applying only to reconpmert of overpayments caused by wilful re-

cipient misconduct under $352. 31(d)(2) (“recoupment . . . from current

assistance grants”), and not to recoupment of innocent overpayments

under §252.31(d)(1)(ii) (mo recoupment from “the current assistance

payment”). Plaintiffs point as well to an interpretive memorandum of

4747

A-8

income for a given semi-monthly period consists of the

reduced AFDC grant of $191.24 ($225.54 minus the re-

coupment amount of $34.30), plus her earnings of $216.07

($265.84 minus $49.77 in work-related expenses), for a total

of $407.31. The family thus has $64.31 more than the state

standard of need, which they would receive if Ms. McGraw

did not work. If it were not for the recoupment provi-

sions, the family’s total income would exceed the standard

of need by $98.61, the full amount of the disregard.

This brings us, at last, to the crux of this lawsuit:

whether the recoupment here conflicts with the earned

income disregard provision of the Social Security Act.

In the district court, plaintiffs argued that the State

regulation, see note 2 supra, violates the Act in two ways.

First, defining disregarded earnings as income “currently

available” to replace the portion of the assistance pay-

ment withheld for recoupment is improper because those

earnings must be disregarded in computing the amount of

the assistance payment. Second, congressional intent that

working AFDC recipients have additional income, in the

exact amount of $30 plus one-third of the remainder of

their earnings beyond that received by non-working re-

cipients, is violated by recoupment of overpayments from

that additional income.”

the New York City Department of Social Services, ILM. # 16/75, which

refers to the§352. 31(d)(4) limitation only in the eontext of §352. 31(d)(2)

recoupment, and notes that while recoupment against Ms. Mctiraw has

in fact been limited, the agency initially threatened her with broader

recoupment. Since plaintiffs have only been subjected to the more

limited recoupment, and argue that any recoupment against the earned

income disregard is illegal, we do not have to resolve this problem.

10 Plaintiffs also argued that the regulation is unconstitutional The

district court held that these arguments were substantial enough to

require s three-judge court, then proceeded to deal with the pendant

statutory claims. See Hagans v. Lavine, 415 U.8. 528, 543-45 (1974).

4748

A-9

On the first argument, Judge Conner ruled that plain-

tiffs confused the determination of need with the amount

of the welfare payment. Congress only required the dis-

regard of a portion of recipients’ earnings “in making

the determination under clause (7),” that is, “in deter-

mining need.” 42 U.S.C. §§ 602(a)(8), (7); see notes 3

and 5 supra. But as the discussion ef the AFDC pro-

gram above indicates, a state is permitted to set the

amount of the payment at a level less than need. Thus,

the district court held that recoupment is a separate

process affecting the amount of the assistance payment,

and resort to the disregarded earned income in this pro-

cess does not detract from the state’s earlier compliance

with the statutorily-required disregard of that income in

calculating need.

As to the second argument, Judge Conner held that

while Congress clearly required that states in determin-

ing need disregard exactly as much earned income as

specified in the statute, X v. McCorkle, 333 F. Supp. 1109

(D. N.J. 1970), aff'd per curiam sub nom. Engelman v.

Amos, 404 U.S. 23 (1971),

the legislative history . . . nowhere bespeaks a con-

gressional purpose to shield “$30 + 14” of earned

income under all circumstances and against every

State exigency.

The district court concluded that the New York recoup-

ment procedure had a limited effect on the congressional

purpose of providing work incentives to welfare recip-

ients, while meeting a compelling state need to recover

erroneous overpayments.

In addition to this analysis of plaintiffs’ arguments,

Judge Conner relied on HEW’s support of defendants’

position. Rejecting all of plaintiffs’ contentions, the dis-

4749

A-10

trict court held that the challenged State regulation does

not violate the federal statute. This appeal followed.

In this court, plaintiffs essentially repeat the conten-

tions made below. Their arguments and those of the

State, outlined in more detail below, each represent im-

portant policies. On balance, however, we find the argu-

ments of the State more convincing, particularly because

its position is supported by the agency responsible for

the execution of the complex federal statutory scheme.

There is considerable force to plaintiffs’ claim that the

State may not, consistently with the Social Security Act,

define earned income that has been disregarded in cal-

culating eligibility as “exclusive of” the current assistance

grants and as “currently available” income apart from

the AFDC payment. See note 2 supra. According to

plaintiffs, it is irrational to say that the disregarded

earned income is “exclusive of” the welfare payment

when the disregard of that income is a necessary step in

calcnlating the amount of the payment. Therefore, the

State cannot permit recoupment of non-fraudulent over-

‘parments from the disregarded earned income.

The State responds that this argument confuses the

state standard of need with the amount of the payment.”

As noted above, the states are free not only to set the

standard of need under the AFDC program, but also to

determine how much of an applicant’s admitted need is

to be met. States may set the amount of AFDC assis-

tance at some percentage of need, or grant 100 per cent

of need up to a certain dollar limit. The earned income

11 Such confusion is understandable in the case of New York, hecause

it pays AFDC assistance at 100% of need, so that the two amounts are

usually identical.

4750

A-11

disregard is required in determining an applicant’s need,

but New York’s recoupment provisions only affect the

amount of payment. Therefore, the State argues, its re-

coupment regulations deal with an area the Social Secur-

ity Act does not reach.

There is, howeve:, a significant limitation to the State’s

argument. Surely, as the district court noted, a state

may not calculate an applicant’s need in accordance with

the requirements of section 602(a)(8)(A)(ii), but cir-

cumvent these requirements by providing that AFDC pay-

ments will be limited, in the case of working recipients, to

an amount equal to the calculated need minus the amount

of the earned income disregard. Nevertheless, with that

qualification in mind, the State is correct that its recoup-

ment provisions are not literally reached by the federal

statute. The statute does not deal with recoupment in

any way, and by its terms requires the earned income dis-

regard only in the calculation of need.** To this extent

at least, the State’s distinction between the calculation

of need and the amount of the payment received by the

recipient has validity. The New York regulation chal-

lenged here only utilizes the disregarded income in the

context of recoupment, and does not circumvent the work

incentive provisions of the statute by ignoring or limiting

the earned income disregard for all AFDC payments.

Moreover, in this case, the State may plausibly argue

that even the amount of the assistance payment is not

being reduced. Although plaintiff’s are correct that the

check received by an AFDC recipient is smaller because

of the recoupment, the State practice of reducing the

12 We note that income from certain other sources is subject to much

broader disregard provisions. For example, Congress has provided that

aid under the Food Stamp Act of 1964 “shal] not be considered to be

income or resources for any purpose under any Federal or State laws

.+" 7 UBC. § 2016(e).

4751

A-12

amount of the assistance check is the functional equivalent

of paying the same amount of assistance and proceeding

separately against the income earned by the recipient in

order to recoup sums previously overpaid. Unlike the

situation in such cases as King v. Smith, 392 U.S. 309

(1968), this earned income concededly™ represents actual

cash in plaintiffs’ possession in excess of the standard of

need, not merely supposed or hypothetical assets. Unless

the legislative intent were clear, we would be reluctant to

conclude that Congress intended to prohibit the State from

attempting to recover its losses by attaching otherwise

disregarded earnings of welfare recipients who owed it

money. The State’s recoupment procedure here is a short-

hand method of reaching ‘hat result.

Plaintiffs argue that Congress intended every working

AFDC recipient, including those from whom past over-

payments are being recouped, to have exactly “$30 and

144” more than a similarly situated unemployed recipient.

Certainly that was the amount of the work incentive that

Congress provided, and a state may not provide a lesser

amount. X v. McCorkle, supra. But the legislative history

of the earned income disregard reveals only the general

purpose of the provision, and gives no indication that Con-

gress considered the impact of the disregard on recoup-

ment. See, e.g., S. Rep. No. 90-744, 90th Cong., 1st Sess.,

2 U.S. Code Cong. & Admin. News 2981-82, 2994-96 (1967).

Thus, the wording of section 602(a)(8)(A) (ii) does not

specifically prohibit the utilization of disregarded earned

income as a source of recoupment, and the legislative his-

tory indicates that Congress did not focus on the question.

We must therefore consider the policies underlying the —

statute. Granted that any use of the disregarded earnings

to reduce the amount paid to a recipient detracts in some

18 Reply Brief of Plaintiffs-Appellants, at 3-4.

4752

A-13

degree from the congressional purpose of providing an

incentive to AFDC recipients to seek employment, that

does not end the inquiry. The underlying policies of the

statute as a whole must also be considered. In this regard,

the district court correctly pointed to the states’ authority

to set the amount of payment below the amount of need

as evidence that

The AFDC grant is ... a function not only of the

recipient’s need, but also of the administrative im-

peratives that may be dictated by a State’s limited

fiscal resources.

In this case, the State arrues that permitting recoupment

out of disregarded earnings is a legitimate reconciliation

of the policy of work incentives underlying the disregard

with the State’s need to protect its limited resources de-

voted to AFDC by recovering erroneous overpayments.

The State’s interest is great, and the impact on the work

incentive is limited, because it is felt by a small propor-

tion of recipients, and only for a limited period.

We find the State’s arguments persuasive, but the issue

remains a close one. Cf. Johnson v. Likins, No. 4-75-Civ-318

(D. Minn. Oct. 10, 1975)."* In these circumstances, the posi-

tion of HEW, as the federal administrative agency re-

sponsible for enforcing the provisions of the federal

statute in this highly complex and technical area, seems

to us particularly significant. Plaintiffs concede that HEW

regulations permit the practice followed by New York.

These regulations are not a model of clarity.* 45 C.F.R.

14 In Johnson, the court held, on a motion for a preliminary injunction,

that Minnesota’s recoupment regulations, analogous to the New York

regulation challenged here, violated the Social Security Act.

15 Indeed, the court in Johnson v. Likins concluded that such a recoup-

ment policy was contrary to the federal regulations. HEW has since

4753

A-14

§ 233.20(a)(12)(i)(A)(1) provides that, as to non-fraud-

ulent overpayments,

(A) The State may not recoup any overpayment

previously made to a recipient:

(1) Unless the recipient has income or resources

exclusive of the current assistance payment currently

available in the amount by which the agency proposes

to reduce payments:

This language does not speak directly to the critical issue

in this case, which is whether the State may consider the

earned income disregard as “income or resources exclusive

of the current assistance payment currently available.”

HEW, however, has clarified its position by actions

subsequent to the adoption of this regulation. A depart-

ment memorandum cited by defendants states that:

In cases where the overpayment did not result from

fraud or wilful withholding of information, this sec-

tion of the regulation is interpreted to provide that

a State welfare agency may recoup from any exempt

income or resources that are available.**

Moreover, HEW submitted a brief amicus curiae to the

court in Johnson v. Likins, supra, supporting the position

of the state defendants in that case, whose regulation is

similar to that challenged here. See note 15 supra. HEW

has also authorized the parties to submit that brief to this

court, presumably as an accurate statement of HEW’s

filed an amicus brief in that case expressing the view that regulations

permitting recoupment of earned income disregarded in calculating need

are not in conflict with the federa) statute or regulations.

16 Memorandum from James 8. Wright, Jr., Administrator, Socia) and

Rehabilitation Service, HEW, to Neil P. Fallon, Regional Commissioner,

SRS, Boston, dated August 27, 1974.

4754

A-15

views. Finally, HEW has proposed a new regulation, which

quite clearly authorizes the challenged New York regula-

tion, by permitting a state to define “income currently

available” to “include . . . disregarded income.” Proposed

45 C.F.R. § 235.15(b)(1)(ii)(A), 235.15(b)(2), 41 Fed.

Reg. 8068 (Feb. 24, 1976).

We agree with the State and the district court that when

the agency entrusted with the execution of a federal statute

has interpreted that statute, it is entitled to considerable

deference. Red Lion Broadcasting Co. v. FCC, 395 U.S.

367, 381 (1969). The Supreme Court has applied this rule

to HEW interpretations of the Social Security Act. New

York Department of Social Services v. Dublino, 413 U.S.

405, 421 (1973). As indicated above, we believe that HEW’s

position is a reasonable one, which attempts to accom-

modate differing policies without doing violence to the

congressional intent. Under all the circumstances, we con-

17 The proposed regulation provides:

(b) Conditions applicable to recoupment from current assistance.

(1) The State agency may recoup from current assistance pay-

ments: ...

(ii) On the State agency's initiative, without seeking the recip-

ient’s consent, only if:

(A) The recipient has income exclusive of current assistance and

of the income that was considered in determining the amount of

such assistance. (ie. countable non-exempt income) or resources,

currently available in the amount by which the agency proposes

to reduce assistance: ...

(2) For purposes of paragraph (b)(1)(ii)(A) of this section,

the “income currintly available” may include income set aside for

future needs of a child or for carrying out a plan of rehabilita-

tion, and disregarded income [with certain exceptions not here

relevant. }

18 Although HEW’s position is not yet clearly embodied in regulations,

its consistent interpretation of the present regulation and the position

it has taken in litigation, together with the regulation it has pronosed,

seem to us a sufficiently official expression of its interpretation of the

statute to be entitled to deference.

4755

A-16

A-17

clude that the challenged New York regulations does not

conflict with the Social Security <Act.’®

The judgment of the district court is affirmed.

APPENDIX B

Josephine McGRAW, Individually and

on behalf of her minor dependent chil- .

dren and all persons sanccaped situat- ©

ed, Plaintiff,

— . P i, So.

- b

. Ve - es i

Stephen BERGER, Individually and as

Commissioner of the New York State

Department of Social om, et al,

Defendants.

No. 75 Civ. 4682 (WCC).

United States District Court,

S. D. New York.

Feb. 25, 1976. -_ a. ae

a ais. _ .

—< i

Action was brought challenging

- New York State welfare regulation au-

thorizing the State to recoup aid to fam- -

ilies with dependent children grant over-

payments from what is commonly de-

nominated as earned income “disregard” -

where such overpayment is not occa--

siened by the recipient’s willful act or

omission. Plaintiff sought. declaratory

. judgment as well as preliminary and per-

manent injunctive relief. The District-

Court, Conner, J., held that since plain-

tiff’s constitutional claims were at least

arguable the court had subject matter

jurisdiction and could consider the pen-

dent statutory claim, that the budget

deficit and the ultimate AFDC grant are

not functionally identical and that re-

couping the ~overpayment out of the

earned income “disregard” was not in

_ violation of provision of Social Security

Act that in determining need a State is

to disregard the first $30 and one-third

of the remainder of earned income, espe-

cially since instant, recoupment would

19 This disposition makes it unnecessary for us to decide whether the

district court erred in refusing to certify a class action. Since summary

judgment for the defendants was proper, the class action question is

moot. If the action now proceeds to a three-judge court to consider

plaintiffs’ constitutional claims, plaintiffs may seek class action status

in that forum.

4756

480—7-7-76 . USCA—4187

MEILEN PRESS INC., 445 GREENWICH ST., NEW YORK, N. Y, 10013, (212) 966-4177

<— 2

“BEST COPY AVAILABLE

A-18

cancelor reduce the effect of the disre- .

. gard for only a limited period and would —

not thwart congressional intent in enact-

ing the work incentive provision.

. -- os

1. Courts @1015(4) Ors

Since constitutional claims concern-

‘ing New York regulations authorizing

recoupment of aid to families with de-

pendent children -grant overpayments |

from earned income “disregard” were at

least arguable, district court had subject

matter jurisdiction and, hence, could con-

sider pendent Social Security Act claim

without convening a three-judge court

unless the statutory claim proved not to

_ be dispositive. Social Security Act,

§ 401 et seq., 42 US.C.A. § 601 et seq.;

(BUSCA. § 1343(3). ; - i

2. Federal Civil Procedure ¢=181

. Action challenging validity of New

York regulation authorizing the state to

recoup aid to families with dependent

children grant overpayments from what

is commonly denominated as an earned

income “disregard” would not be certi-

fied for class action status since certifi-

cation would add no force to the prospec-

tive effects of a declaratory judgment.

and could not serve to implement any

meaningfut retroactive relief in which

members of such class might share. So-.

cial Security Act, § 401 et seq., 42 U.S.

C.A. § 601 et seq.; Fed.Rules Civ.Proc.

rule 23(c), 28 U.S.C.A.

3. Social ‘Security and Public —

_ e194 -

” District court is without geuer

retroactively award welfare benefits,

such as benefits in nature of aid to fami-

lies with dependent children. Social Se-

curity Act, § 401 et seq. 42 USCA.

§ 601 et seq.

BST COPY AVAILABLE |

A-19

4. Social Security and Public Welfare

1445

Although states have outiuatts

latitude im allocating their aid to families

with dependent children grant resources,

in that each state is free to set its own

standard of need and to determine the

level of benefits, a participating state

must abide by federal directive . where-

Congress has chosen to speak in manda-

tory terms. Social Security Act, § 401 et

seq., 42 U.S.C.A. § 601 et seq.

5. Social Security and Public Welfare

oat |

An overpayment caused other than

by fraud of a recipient of aid to families

with dependent children cannot be re-

couped where to do so would reduce the

family’s means below the level of the

family’s standard of need. Social Securi-

7 oe eo SULLA. 5

et seq. _ -

6. Secial Security and Public Welfare

- 194 -

The budget deficit and the ultimate

aid to families with dependent children

grant are not functionally identical, al-

though they may prove to be equivalent

in amount; the budget deficit represents

the “basis” of the AFDC grant only to

the extent that the latter may not ex-

ceed one hundred per cent of the former,

although the State may compute the

grant as a lesser percentage of the budg-

et deficit; the AFDC grant is thus a

function not only of the recipient's need,

but also of the administrative impera-_

tives that may be dictated by a State’s

limited fiscal resources. Social Security

Act, § 401 et seq., 42 U.S.C.A. § 601 et

seq.

7. Social Security and Public Welfare

e144

Although a state may fix the aid to

A-20

families with dependent children grant

at something less than one hundred per

‘cent of the budget deficit, a state may

not circumvent the mandate that in de-.

termining need it is to disregard the

first $30 and one-third of the remainder

of earned income simply by reducing the -

grant to reflect a systematic and auto-

matic subtraction of .such portions of

earning income from the initially com-

puted budget deficit; such operation

would constitute in effect a redetermina-

tion of need without allowance for the .

disregard; to such ‘extent, a state may

not achieve by indirection what it is for-

bidden to accomplish directly. Social Se-

curity Act, §§ 401 et seq., 402(aX7, 8), 42

U.S.C.A. §§ 601 et seq., 602(aX(7, 8).

8 Social Security and Public Welfare

eo@194 - . _—

New York’s recouping aid to f.ami-

lies with dependent children grant over-

payment, which was not occasioned by

recipient’a willful act or omission, from

amount mandated by Social Security Act

to be disregarded in determining need, i.

e., the first $30 and one-third of the re- -

mainder of earned income, would not vi-

olate such earned income “disregard,” es-

pecially where the recoupment cancelled

or reduced the effect thereof for-only a

limited period and there was no thwart-

ing of congressional intent in enacting

the work incentive provision. Social Se-

curity Act, §§ 401 et seq., 402(aX(7, 8), 42

- U.S.C.A. §§ 601 et seq., 602(aX7, 8).

Brooklyn Legal Services Corp., Brook-

~ N. Y., for plaintiff; John C. Gray,

.. Lioyd E. Constantine, Brooklyn, N.

¥ "of counsel.

Louis J. Lefkowitz, Atty. Gen. ‘of N.

Y., New York City, for defendants; Ro-

salind Fink, Asst. Atty. Gen., New York

City, of counsel.

A=-21

MEMORANDUM AND ORDER

CONNER, District Judge:

Plaintiff Josephine McGraw and her

nine dependent children are recipients of

public assistance benefits under the Aid

to Families with Dependent Children

(AFDC) program, 42 U.S.C. § 601 et seq.

The .individual defendants are public of-

ficials legally responsible for administra-

tion of the AFDC program in New York.

AFDC is-among the categorical -assist-

ance programs established under the So-

cial Security Act and is financed by the

_Federal Government and participating

States on a matching-fund basis.

The present action represents a chal-

lenge to the validity and continued en-

- forcement of 18- New York Code of

Rules and Regulations § 352.31(d\1 ii)!

(the New York regulation). That chal-

lenge extends to so much of the New

York regulation as authorizes the de-

fendant New York State Department of”

Social Services (the State agency) to re-

coup a past AFDC grant overpayment—

where such overpayment is..not occa- .

sioned by the recipient’s wilful act~or _

omission—from what is commonly de-

nominated as an earned income “disre- -

gard.” i eS

i's a ° Tag &

1) Alleging that the New York reg- fs

ulation stands in contravention of the ~

Social Security Act and operates in dero-~

gation of due process and equal protec-

tion under the Fourteenth Amendment,

_1. The New York regulation reads as follows:

“Recoupment of any overpayment made to

a recipient shall not be required unless the

recipient has currently available income or

resources, exclusive of the current assist-

ance payment. Exempted income and disre-

Sor ee be consitesed on Celagremventy

availabie.”

A-22

plaintiff brought this suit for a declara-

tory judgment and preliminary and per-

- Manent injunctions pursuant to 23 U.S.C.

§§ 2201 and 2202, Rules 57 and 65, F.R.

Civ.P. and 42 U.S.C. § 1983. Because

plaintiff's constitutional claims, whatev-

er their ultimate merits, are at the least °

arguable, this Court concludes that it has

subject matter jurisdiction under 28 -

U.S.C. § 1343(3) and therefore may con-

sider the pendent statutory claim, United

Mine Workers v. Gibbs, 383 U.S. 715, 86 .

S.Ct. 1130, 16 L.Ed.2d 218 (1966), with-

out need to convene a three-judge court

unless the statutory claim proves not to

Py yy Hagans v. Lavine, 415 -

US. , 94 S.Ct. 1372, 9 LBs S77

ono. oP

Ata pretrial ontuae shined to

“plaintiff's motions for a temporary re- .

straining order? preliminary injunction,

and class action certification, this Court -

determined that, in-the absence of issues -

of material fact demanding an evidentia-

ry hearing or trial, the parties: paper -

submissions would be treated as applica-

tions for summary judgment under Rule ~

56, F.R.Civ.P., allowing for plenary relief

on the merits. The parties therefore

were directed to file a statement of »

agreed facts pursuant to Rule %g) of the

General Rules of this Court.

As the parties were advised at~their

conference with this Court, the class ac-

tion designation sought by plaintiff

would constitute, at best, procedural sur-

plusage. ‘This is not to say that the

Court entertains any doubt that plaintiff

might adequately represent the interests

of those welfare recipients who, like her-

2. At that conference, the Court ordered de-

fendants temporarily restrained from recoup-

_ing overpayments to the McGraw family from

A-23

self, are immediately and intimately af-.

fected by the recoupment of agency

overpayments from earned income disre-

gards. Nor does the documentation sup-

plied by the parties leave any basis for

questioning the numerosity of a class

that would consist of plaintiff.and others

similarly situated with respect to the is-

sues presently before the Court.

[2,3] Nonetheless, within the frame of

the present case, certification of class ac-

tion status would add no force to the

prospective effects of a declaratory judg-

ment and could not serve to implement

any meaningful retroactive relief in

which members. of such a class might

share: under the ruling of Edelman v.

Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39

L.Ed.2d 662 (1974), this Court is without

power to award welfare benefits retroac-

tively. The Court thus declines to certi-'

fy this action under Rule 23(c) F.R.Civ.P,

=n Site S

For the sake of clarity, the issues in-

volved in this action are, in the discus-

sion that follows, raised in relief from

the background .of plaintiff's personal

welfare case history. Mrs. McGraw-and

her family have received semi-monthly

AFDC payments for an unspecified num-

ber ‘of years. Unemployed when she

first became an AFDC recipient, Mrs.

McGraw secured a job as a cook’s helper

more than three years ago, an employ-

ment _that she has retained to -date.

Throughout that same period, the

McGraw family has continued to receive

AFDC assistance as a supplement to

Mrs. McGraw’s earned income.

In the fixing of AFDC benefits to be

paid to the McGraws, the key point of

reference is the “standard of need,” an

amount calculated by the State to be

necessary to sustain a family of the

A-24

McGraws’ size; federal law itself neither

prescribes the components nor targets

the level of such standards. As the Su- ~-

prerre Court has recently observed,

“Under [the] HEW regulations [that .

implement Title IV.) * * * [b}oth

eligibility for AFDC assistance and the -

amount of benefits to be granted an

individual applicant are based on a

comparison ‘of the State’s standard of

need with the income and resources

available to that applicant. 45 C.F.R.:

§ 233.20(aX2\Xi). The ‘income and re-

sources’ attributable to an applicant

* * * ~ consist generally of ‘only

such net income as is actually availa-

ble for current use on a regular basis

* * * and only currently available

resources.’ 45 CFR § . 233-

2WaX3XiiXe). * * *. If, [after con-

sideration of certain deductions and

exemptions], the net amount of

‘earned income’ is less than the prede-

termined statewide standard of need,

the applicant is eligible for participa-

tion in the program and the amount of

the assistan.e payments will be based

upon that difference. 45 C.F.R.

§ 233.20(aX3\iiXa) and (c).” Shea v.

Vialpando, 416 U.S. 251, 253-54, 94

S.Ct. 1746, 1750, 40 L.Ed.2d 120, wm

ioe °° * -<,° Was

The difference nepenin the applicable

‘standard of need and the AFDC recipi-

ent’s “income and resources” is common-

ly referred to as the “budget deficit.”

When Mrs. McGraw became a wage

. earner, her family’s own budget deficit

was thereby affected in two ultimately

measurable respects, in accordance with —

the commands of Section 402{a\7) and

(8) of the Social Security Act, 42 U.S.C,

§ 602(aX7) and (8). The relevant por-

tions of those clauses read as follows:

“§ 602

(a) A State plan for aid and services

—————

A-25

to needy families with children must

wise provided in clause (8), provide

‘that the State agency shall, in deter-.

mining need, take into consideration -

any other..income and resources of any

child or relative claiming aid * ***;

(8) provide that, in making the deter-

mination under clause (7), the State

agency— |

(A) shall with respect to any month

(ii) in the case of earned income of

a dependent child not included under

clause (i), a relative receiving such aid,

and any other individudl °* *

whose needs are taken into account in

making such determination, the first

$30 of the total of such earned income

for such month plus one-third of the

remainder of such income for such

month * * oo

Thus, by operation of Section 402(a\X7),

the McGraws’ budget deficits—and the

AFDC grants based upon them—have

been necessarily reduced by the fact of

an income regularly generated by Mrs.

McGraw’s employment. However, — by

force of Section 402(a\8), the consequent

reductions are, again necessarily, limited

by the “$30 and %” disregards.

At the end of April 1975, a notice

‘from the New York City Department of

Social Services (the City agency) advised

the McGraw family that,

“Your [semi-monthly] income from the

period July, 1974 to present should

have been $127.59, not $80.43 as previ-

ously budgeted. This. resulted in

. $990.36 in overpayment for this period.

(The New York regulation] permit{s)

recoupment on amounts up to the total

exempted income. Since your budget

A-26

deficit is less than your exempted in-

come your case will be suspended for -

13 issue{s} until this amount is re-

couped.”

At Mrs. McGraw’s request, the State

agency held a “fair hearing” for review

the City agency’s intended recoup-

ment measures. In a decision rendered

on August 6, 1975, defendant Berger an-

nounced the following determinations:

1) The McGraws had received, through

agency error, an AFDC overpayment.

2) That overpayment could be re

couped in accordance with federal law

only if the McGraws -had available in-

come and/or resources in excess of

their AFDC grant.-. :

3) Plaintiff's “$30 and %” disregard

represented such excess income and

thus was subject to recoupment under -

the New York regulation. wee

As a result of that decision, the City

agency proceeded to reduce ~ the

McGraws’ semi-monthly AFDC payments .

by “withholding” a portion of the earned

income disregards; the agency's depar-

ture from its initial intention to suspend -

ite payments to the McGraws remains, to

date, unexplained.

Sanat enw etixitds Qink t ont*:

that, at least where overpayments have

not been occasioned by the fraud of -

AFDC recipients, the earned income dis-

regard established under Section

402(a\8) stands beyond the reach of de-:

fendants’ recoupment. Defendants for .

their part insist that a fair reading on -

the Social Security Act and a due defer- .

ence to the policies of the Department af

Health, Education and Welfare (HEW)

compel the conclusion that the recoup-

ment of disregards wholly comports =

federal law. :

A-27

Viewed in the abstract, defendants’

posture in this litigation commands a°

reasonable sympathy. By invoking the.

New York regulation at. issue, defend- -

ants have sought no more than to. re-

trieve for the unhappily finite - public -

treasury monies received without entitle-.

ment. In drawing upon the earned in-

_come disregard for that purpose, defend- .

ants have looked to a source that, by

definition, lies beyond the minimum~

standard established as necessary for the .

AFDC recipient’s subsistence: in New

York, AFDC grants are as a rule calcu-

lated to compensate for the recipient’s

entire budget deficit. Thus, even if re--

duced by an amount representing the

full measure of the earned income disre--

gard, such a grant would still raise the |

recipient to the level of his determined

standard of need. Moreover, in effect--

ing recoupments, defendants act under

the State’s regulatory admonition that |

“(t]he ‘proportion of the current assist-

ance grant that may be deducted for

recoupment purposes shall be limited on

a case-by-case basis so as not to cause

undue hardship * * *°.” 18 N.Y.C.

RR. § 35231(dK4)-

[4] Nevertheless, the present litiga-

tion cannot be put to rest by the mere

recitation of defendants’ salutary objec-

tives. For, although “there is no ques-

tion that States have considerable lati-

tude in allocating their AFDC resources,

since each State is free to set its own

standard of need and to determine the

level of benefits,” King v. Smith, 392

U.S. 309, 318-19, 88 S.Ct. 2128, 2134, 20

L.Ed.2d 1118, 1126 (1968), it is just as

certain that a participating State. under

Title IV, must abide by federal directive.

A-28 A-29

regulation may be permitted to stand [5] Defendants concede that an over- |

only if it is consistent with the congres- payment caused other than by an AFDC

siona] mandate embodied in Section recipient's fraud cannot be recouped _

402(aX8), i e, that the first thirty dol- where to do so would reduce an AFDC

lars -of an individual’s earned inccine ; family’s means below the level of that

plus one-third of the — be disre- family’s standard of need. See National

~~ y Bw ar ey or Welfare Rights Organization ¥. Weinber-

° t u need. v. 7 ger, 377 F.Supp. 861 (D.D.C.1974). De-.

ey ~ a —~ (D.N.J.1970), fendants urge, however, that the earned

irmed sub nom. man v. Amos, income disregard represents an available

404 U.S. 23, 2 S.Ct. 181, 80 LEA2d 143 asset that—at least in New York—is in

* (1971). > : ; excess of the standard of need and thus ~

: aa i for recoupment.

Aualyeed ta the shetwest, dstintiasts ow oS

argument that recoupment of overpay- Defendants’ construction of Section

ments from earned income disregards 402%(a)(8) is reinforced by the apparent

does not offend the literal import of Sec- support of HEW, the federal agency

tion 402(aX8) exerts a considerable force. charged by statute with execution of the

Thus, defendants assert, the statutory Social Security Act. To be sure, that

disregard extends—in terms—no farther support is not clearly reflected on the

than the bounds of a State’s “determina- face of HEW’s implementing regula. -

tion of need,” a determination that, ac- tions. Thus, the most pertinent of those-.

cording to defendants, involves no more . ; regulations provides no more than that

than an identification of those who are “{[ajny recoupment of overpayments

eligible for AFDC benefits and a calcula- permitted by paragraph (a\12\iXa\2) j

tion of the AFDC family’s budget defi- ; of this section [referring only to over- -

cit. Once having made such a determi- payments wilfully caused by AFDC re- ~ -

nation in accordance with, inter alia, the cipients] may be made from available

earned income disregard prescribed by income and resources (including disre-

Section 402(aX8), the State is thereafter : garded, set-aside or reserved items) or

free, defendants emphasize. to establish from current assistance payment or

its own level of benefits and, conse- from both” 45 CFR § 233--

_ quently, to reduce below the budget-defi- n 20(a 12, iXf). . :

cit figure the amount of assistance that However, plaintiff herself represents

_an AFDC family will receive. Jefferson - that, in the wake of the decision in Na-

v. Hackney, 406 U.S. 535, 92 S.Ct. 1724, tional Welfare Rights Organization v.

32 L.Ed.2d 435 (1972); Dandridge v. Wil- . Weinberger, supra, “consultation be-

-liams, 397 U.S. 471, 90 S.Ct 1153, 25 tween attorneys for N.W.R.O.. and

L.Ed.2d 491 (1970); see Rosado v. Wy- H.E.W. indicated that H.EW. allow/(s]

man, 397 U.S. 397, 413, 90 S.Ct. 1207, ; the practice challenged herein.” Plain-

1218, 25 L.Ed2d 442, 456 (1970). Thus, tiff's Supplementary Brief at 11. It may

defendants reason, in its recoupment of hardly be gainsaid that HEW’s acknowl-

overpayments, the welfare agency does edged alignment with defendants’ posi-

not “determine need” when it proceeds tion stands as a formidable hurdle for

indirectly against the already-honored plaintiff's case, since “the construction of.

disregard by adjustment of the ultimate a statute by those charged with its exe-

AFDC payment. , cution should be followed unless there

A-30

are compelling indications that it is

wrong.” Red Lion Broadcasting Co. v.

FCC, 395 U.S. 367, 381, 89 S.Ct. 1794,

1802, 23 L.Ed.2d 371, 384 (1969); see e

g-, New York State Department of So-

cia] Services v. Dublino, 413 U.S. 405,

421, 93 S.Ct. 2507, 2516, 37 L.Ed.2d 688,

699 (1973); Dandridge v. Williams,

supra, 397 U.S. at 481-82, 90 S.Ct at

1160, 25 LEd2d at 500; Snell v.

- Wyman, 281 F.Supp. 853, 868 (S.D.N.Y.

1968), affirmed, 393 U.S. 423, 89 S.Ct

553, 21 L.Ed.2d 511 (1949).

Plaintiff in effect invites this Court to

conclude that an initial deference to

HEW’s apparent construction of Section

402(a\8) must inevitably give way to the

alleged fact of “compelling indications”

that the federal agency, with respect to

the issues raised herein, is. simply

“wrong.” Plaintiff notes in passing that

this Court would not be the- first to

refuse to adopt a stance expressly or im- -

pliedly assumed by HEW.. See, e. g.,

Philbrook v. Glodgett; 421 U.S. 707, 95.

S.Ct.. 1893, 44 L.Ed.2d 525, 48 US.LW..

4702 (1975); Carleson v. Remillard, 406 -

U.S. 598, 92 S.Ct. 1932, 32 L.Ed 2d 532 _

(1972); Townsend v. Swank, 404 US.

282, 92 S.Ct. 502, 30 L.Ed.2d 448 (1971);

National Welfare Rights Organization v.

Weinberger, supra; Gasaway ~v..

McMurray, 356 F.Supp. 1194 (S.D.N.Y.

1973). P

This Court must nevertheless decline |

plaintiff's invitation. It does so notwith-

standing the recent case of Johnson v.

Likens, Civ. No. 4~75-318 (D.Minn.1975)

(unreported decision), in which the Dis- -

trict Court of Minnesota has ruled that

the statutory disregard stands protected

against recoupment of agency-caused.

overpayments. Admittedly, Johnson is

A-31

to date the case most squarely on point,’

and thus its authority would ordinarily

be persuasive. Nonetheless, Johnson’s

precedential value is seriously under-

mined adr the oy erroneous premises

- --

3. Although the parties herein have cited nu-

merous decisions addressed to the Social Se-

curity Act and involving actually available ver-

does Bradford v. Juras, 331 F.Supp. 167 (D.Ore.

1971), in which Section 602(a)(8) was read in a

_ light favorable~to the position of defendants

herein, provide a firm platform from which to

launch analysis in this case: that reading was

poe See So Se Se eee

sion in In re De Luca v. D’Elia, (October 21,

A-32

on which the Johnson court rested its

decision.

Thus, for example, via a atin

but somewhat strained analysis of HEW

regulations, the Johnson court concluded

that “HEW would appear not to allow -

recoupments from disregard income in

cases of agency error or non-wilful recip-

ient error.” Jd. at 35. As already indi-

cated, it has been conceded that HEW’s

actual position is just the opposite. ~

Moreover, in its attempt to gauge the

breadth of the Section “%2(a\8) refer-

ence to “determination of need,” the

Johnson court asserted that —

“The United States Supreme Court, in

explicating § 602(a\7) and the regula-

tions which implement it, noted that

the amount an applicant .is paid is

based on a § 602({aX7) determination,

and upon a determination of need.

(Thus) ~ |

‘If * * * the net amount of

“earned income” is less than the pre-

determined statewide standard of

need, the applicant is eligible for

participation in the program and the

amount of the assistance payments

' > will be based upon that difference.

The § 602(aX7) operation is the opera--

tion by which the amount of the as-

sistance payment is calculated. By-

saying in § 602(aX8) that the income

disregard shall not be considered in

the (a7) determination, Congress was

1975). In that decision, the claim that the

New York regulation conflicts with Section

A-33

stating that the income shall be disre-

garded in determining the amount of

the assistance payment.” Id. at 29 (ci-

tations omitted) (emphasis added).

{6} Such reasoning obliquely reflects

a basic misapprehension of the relation

between the budget deficit and the ulti-

mate AFDC grant. The two are not, as

the Johnson court apparently assumed,

functionally identical—although, as is

currently true in New York, they may

prove to be equivalent in amount. The

budget deficit represents the “basis” of

the AFDC grant only to the extent that

the latter may not exceed one hundred

per cent of the former, although the

State may compute the grant as a lesser

percentage of the budget deficit. -The

AFDC grant is thus a function not only ~

of the recipient’s need, but aiss of the

administrative imperatives that may be

dictated by a: State’s limited fiscal re-

sources. ) _ >. =

[7] This is not to say that the State

may circumvent the disregard mandate -

simply by reducing the AFDC grant to ~

reflect a systematic and automatic sub- -

traction of “$30 +.%” of earned income

from the initially computed budget defi-—

cit; such operation would constitute in

effect a redetermination of need without

allowance for the disregard. To that ex-

tent, this Court agrees with the observa-

tion in Johnson that the State muy not ~

achieve by indirection what it is forbid-

den to accomplish directly. See Johnson

v. Likens, supra, at 29, 32.

However, I believe that the Johnson

court read into Section 402(aX8) more

than Congress said or intended. John-

son’s reading of the statute as saying

that “$30 + %” of earned incore “sha!l

be disregarded in determining the

at 29 (emphasis added), goes too —far.

That section instead states only that this

portion of the earned income should be

A-34

disregarded in determining the appli- -

cant’s need which, as we have seen, may

as eye & & Gate oe oe oe

ance pageant. i Tie

The Senin curt based its auduien

in part upon its reading of congressional

work incentive is absolutely essential to

the total AF.D.C. program- *_* *°.”

Id. at 32. It is indeed a familiar rule -

that, “[ijn expounding -a “statute, we

must not be guided by a single sentence

or member of a senténce, but [must] look

to the provisions of the whole law and to

its object and policy.” United States v..

’ Heirs of Boisdore, 49 U.S. 113, 12, 8

How. 113, 122, 12 LEd. 1009 (1850).

Thus, how far the disregard mandate ex-

tends may be accurately gauged only -

after reference is made to the co

sional intent that underlies the less-

definitive language of Section 402(a)8). !

With reference to the legislative pur-

pose, an earlier Court has observed that

the statutory disregard

was intended as an incentive to wel-

fare recipients to seek employment.

It was part of a congressional effort

made to ensure that an applicant not

find it more advantageous to remain

on welfare than to seek employment.

The legislative history reveals a con-

cern among the Congressmen that one

of the stated goals of the [AFDC] pro-

gram—‘to help such parents or rela-

tives to attain or retain capability for

the maximum self-support and person-

al independence consistent with the

maintenance of continuing parental

care’—was not being achieved.

The Senate Finance Committee stat-

ed that disregarding. some portion of

earned income was essential to imple-

ment this objective. The Committee

in its report explained: ‘A key ele

A-35

ment in any program for work and

training for assistance recipients is an

incentive for people to take employ-

ment. If all the earnings of a needy

person are deducted from his assist-

ance payment, he has no gain for his

effort.’

The report continued to state that,

‘the committee believes that this provi-

sion will furnish incentives for mem-

bers of public assistance families to

take employment and, in many cases,

increase their earnings to the point

_— they become self-supporting.’”

McCorkle, supra, at 1116 (foot-

fe omitted).

It seems clear that Congress intended

that, in the ordinary course of AFDC

administration, the earned income disre-

gard should be preserved to the wage

earner, intact and undiminished, as a_

measured impetus to gainful employ-

‘ment. However, the legislative history

retraced and recited above nowhere be-

speaks a congressional purpose to shield

“$30 + %” of earned income under all

exigency. In that silence, this Court is

left to the guidance of the statutory lan-

guage as it is informed by “thcse com-"

mon-sense assumptions that must be

made in determining direction without a

compass,” Rosado v.. Wyman, supra, 397 -

US. at 412, 90 S.Ct at 1218, 25 LEd2d

at 455.

{8} If, in the process of recoupment,

the State’s resort to the disregard as an

asset “in excess of need” were, as plain-

tiff urges, a per se “determination of

need” and hence invalid under Section -

#02(aX(8), the State would be reduced to

the status of a creditor peculiarly dis-

abled from recovering against a debtor

who by definition is able to repay. Com-

A-36

mon sense inexorably directs this Court

to assume that Congress would not have

settled on such result without having en-

gaged in at least some evidenced debate |

or without projecting that intent via

clear statutory directive. In the absence

of such markings of an extra-ordinary

legislative will, common sense. further

compels this Court’s conclusion that Con-

gress did not intend Section 402(aX8) to ~

disallow the limited sacrifice of “$30 +

%” of earned income for the compelling -

sake of overpayment: recoveries‘ and a

consequently fair apportionment of baa |

limited AFDC funds. . >

Certainly, as it is applied in the.

present case, in which the recoupment

cancels or reduces the effect of the dis-

_regard for only a limited period, there is

no destruction of the work incentive, but

only a temporary diminution or suspen-

sion thereof, and thus no thwarting of

congressional intent. It would be easy

to imagine more voracious recoupment

practices which would effectively kill in-

centive. but we need not borrow trouble

by imagining evils*; we need only rule

A-37

upon the case at hand and upon the par-

.ticular regulation under challenge. ~

The Court is impelled to rule that the

New York regulation does not offend the

Social Security Act. Whether the regu-

lation can survive plaintiff's remaining

constitutional challenges must be left to

the determination of a three-judge court,

whose convention must await the appeal

of this ruling® ~~ .

~ SO ORDERED.

Cir. 1974), reversed on other grounds sub nom.

with jurisdiction, it is proper for a single judge

to decide the question under pendent

jurisdiction * * * and, if he sustains it, to

A-38

APPENDIX C

UNITED STATES COURT OF APPEALS

for the

SECOND CIRCUIT

At a stated Term cf the United States

Court of Appeals for the Second Circuit,

held at the United Stases Courthouse in the

City of New York, on the second day of July

one thousand nine hundred and seventy-six.

Present: HON. HENRY J. FRIENDLY

HON. WILFRED FEINBERG

HON. ELLSWORTH A. VAN GRAAFEILAND,

Circuit Judges,

Josephine McGraw, individually

and on behalf of her minor

dependent children and all per-

sons similarly situated,

Plaintiff-Appellant

Vv.

Stephen Berger, individually

and as Commissioner of the New

York State Department of Social

Services, James Dumpson, indi-

vidually and as Commissioner of

the New York City Department of

Social Services, The New York

State Department of Social Ser-

vices,

76-7102

Defendants-Appellees.

A-39

Appeal from the United States District

Court for the Southern District of New York.

This cause came on to be heard on the

transcript of record from the United States

District Court for the Southern District of

New York, and was argued by counsel.

ON CONSIDERATION WHEREOF, it is now

hereby ordered, adjudged, and decreed that

the order of said District Court be and it

hereby is affirmed in accordance with the

Opinion of this court with costs to be taxed

against the appellants.

A. DANIEL FUSARO,

Clerk

by: /s/ Vincent A. Carlin

Chief Deputy Clerk

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

FILED

JUL 2 1976

A. DANIEL FUSARO, CLERK

A-40

APPENDIX D

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Present:

HON. WILFRED FEINBERG,

HON. ELLSWORTH A. VAN GRAAFEILAND

HON. HENRY J. FRIENDLY,

Circuit

JOSEPH MCGRAW, individually

and on behalf of her minor

dependent children and all

persons similarly situated,

Plaintiff-Appe) lant

Vv.

STEPHEN BERGER, individually

and as Commissioner of the

New York State Department of

Social Services, JAMES DUMP-

SON, individually and as

Commissioner of the New York

City Department of Social

Services, THE NEW YORK STATE

DEPARTMENT OF SOCIAL SERVICES,

Defendants-Appellees

A petition for a rehearing having been

Judges.

Docket No.

76-7102

filed herein by counsel for the plaintiff-

A-41

appellant, JOSEPH MCGRAW,

Upon consideration thereof, it is

Ordered that said petition be and

hereby is denied.

/s/ A. Daniel Fusaro

A. DANIEL FUSARO,

Clerk

by /s/ Vincent A. Carlin

Chief Deputy Clerk

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

FILED

SEP 15 1976

A. DANIEL FUSARO, CLERK

A-42 A-43

APP I be considered in relation to the

State's need standard, or the State's

45 CFR §§233.20(a)(3)(ii)(A) and (B):

payment standard;

(a) Requirements for State Plans:

A State Plan for...AFDC...must,

4S CFR §233.20(a)(7) (i):

as specified below: ;

(a) Requirements for State Plans.

(3) Income and resources; ...

A State Plan for...AFCD...must,

(ii) Provide that, in determining

as specified below:

(7) Disregard of earned income;

method. (i) Provide that the follow-

need and the amount of the assistance

payment, after all policies governing

the reserves and allowances and disre-

ing method will be used for disregard-

gard or setting aside of income and ,

ing earned income: The applicable

resources referred to in this section ‘ ; :

amounts of earned income to be disre-

have been uniformly applied:

garded will be deducted from the gross

(A) in determining need, all re- -

° amount of “earned income,” and all

maining income and resources shall be

> work expenses, personal and non-per-

considered in relation to the State's

sonal, will then be deducted. Only

need standard; ; :

the net amount remaining will be

(B) in determining financial eligi-

: applied in determining need and the

bility and the amount of the assistance :

amount of the assistance payment.

payment, all remaining income and re-

sources may, at the State's option,

A-44

45 CFR §233.20(a)(12)(i)(A):

(a) Requirements for State Plans.

A State Plan for...AFDC...must,

as specified below:

(12) Recoupment of overpayments

and co io ‘

Specify uniform Statewide policies

for:

(i) Recoupment of overpayments of

assistance, including certain overpay-

ments resulting from assistance paid

pending hearing decisions.

(A) The State may not recoup any

overpayment previously made to a re-

cipient:

(1) Unless the recipient has in-

come or resources exclusive of the

current assistance payment currently

available in the amount by which the

agency proposes to reduce payments:

except that,

(2) Where such overpayments were

A-45

{

occasioned or caused by the recipi-

ent's willful withholding of infor-

mation concerning his income, re-

sources or other circumstances which

may affect the amount of payment, the

State may recoup prior overpayments

from current assistance grants irre-

spective of current income or re-

sources.

Proposed 45 CFR §235.15(b) (1) (ii) (A) (2):

§235.15 Recoupment of overpayments;

State plan requirements and options.

A State plan under title. . . IV-A

» « « Of the Social Security Act must

specify uniform Statewide policies on

recoupment of overpayments of assist-

ance, as defined in §205.40 of this

chapter.

(b) Conditions applicable tc re-

coupment from current assistance.

(1) The State agency may recoup from

A-46

current assistance payments:

(ii) On the State agency's initiative,

without seeking the recipient's con-

sent, only if:

(A) The recipient has income exclu-

Sive of current assistance and of the

income that was considered in deter-

mining the amount of such assistance,

(i.e. countable non-exempt income) or

resources, curremtsay available in the

amount by which the agency proposes

to reduce payments;. . .»

(2) For purposes of paragraph (b) (1)

(ii) (A) of this section, "inco

current available” i in-

come set aside for future needs of a

child or for carrying out a plan of

rehabilitation, and disregarded income

except for income disregarded pursuant

to §233.20(a)(4) (ii) (a), (a), (£) and (i)

of this chapter, which are not avail-

able for recoupment under specific

A-47

language of the respective statutes.

(d) Later recovery. Where recoup-

ment under paragraph (b)(1)(ii)(A) of

this section is not possible at the

time the overpayment becomes known,

the State agency may recoup later,

when income or resources become avail-

able. (Emphasis added) 41 Fed. Reg.

8067-8068, Feb. 24, 1976

Federal Rules of Civil Procedure 23(a),(b)(2)

(a) Prerequisites to a Class Action.

One or more members of a class may sue

or be sued as representative parties

on behalf of all only if (1) the class

is so numerous that joinder of all men-

bers is impracticable, (2) there are

questions of law or fact common to the

class, (3) the claims or defenses of

the representative parties are typical

of the claims or defenses of the class,

and (4) the representative parties will

A-48

fairly and adequately protect the in-

terests of the class.

(b) Class Actions Maintainable.

An action may be maintained as a class

action if the prerequisites of subdivi-

sion (a) are satisfied, and in addi-

tion:

% * *

(2) the party opposing the class

has acted or refused to act on grounds

generally applicable to the class,

thereby making appropriate final in-

junctive relief or corresponding

declaratory relief with respect to the

class as a whole; or

* *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.