# Petition — McGraw v. Berger > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1004%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 429 U.S. 1095 ## Text 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* 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 18 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. 19 (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 20 "$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 21 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 "$30 and 1/3" to be disregarded in calcu- lating both “need" for and the amount of the ultimate assistance payment. HEW addressed this same fallacious “need -- pay- ment" distinction in its brief amicus curiae to the Supreme Court in Engelman v. Amos, supra. ("“Engelman amicus") HEW stated: 22 New Jers that S$ 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 23 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. 24 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 25 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). 26 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. 27 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. 28 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. 29 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. 30 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 31 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 32 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). 33 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 é "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 34 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 35 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. 36 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. 37 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 38 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 39 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. 4O 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 41 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. 42 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 oe 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. ew 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 Se 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. I 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. I 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. I 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 : ; 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 Fe i F 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. -° * © Shea v. Vialpandi °° °.’ 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 amount ©f, the assistance payment,” id. 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 intent, i. e, that “the income disregard © 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. B | r) . : § . 2 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 * * --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1004%3A1. Public record. Not legal advice.