Amicus Curiae Brief — Lukhard v. Reed

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Supreme Court. U.S.

iL ED

IN THE SEP 30 1986

Supreme Court of the United States ~~

JOSEPH F. SPAR

OCTOBER TERM, 1986 _——_-...

WILLIAM L. LUKHARD, COMMISSIONER,

VIRGINIA DEPARTMENT OF SOCIAL SERVICES,

. Petitioner,

ONA MAE REED, SALLIE LONG, RUTH WILCHER,

OPAL MAE Cook, STELLA KING, AND ALL

OTHERS SIMILARLY SITUATED,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF AMICUS CURIAE OF

LEGAL SERVICES OF NORTH CAROLINA

ON BEHALF OF ITS CLIENTS

IN SUPPORT OF RESPONDENTS

ONA MAE REED ET AL.

Of Counsel Davin H. HARRIS, JR.

RICHARD M. TAYLOR, JR. SUSAN M. PERRY *

Executive Director — Carolina Legal

Legal Services of North Carolina ervices

112 S. Blount Street a eye

Raleigh, N.C. 27611 ilson, N.C. 27893

C.D (919) 291-6851

WILLIE C. DAWSON ;

; ; Att

Executive Director orneys for Amicus Curiae,

Legal Services of

Pamlico Sound Legal Services — . .

P.O. Box 1167 North Carolina

New Bern, N.C. 28560 * Counsel of Record

Peccy S. LEVIN

Eastern Carolina Legal Services

P.O. Box 2688

Wilson, N.C. 27893

CAMILLA McCLAIN

Pamlico Sound Legal Services

P.O. Box 7283

Greenville, N.C. 27834

WILSON - Eres Printine Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

CONTENTS

Page

po) 8 ER BS, eae ii

STATEMENT OF INTEREST ........ Fee eR Oe 1

INTRODUCTION AND SUMMARY OF ARGU-

ntsc deell 6

DN, EE 7

I. CONGRESS INTENDED THE EXCLUSION

OF PERSONAL INJURY AWARDS FROM

THE DEFINITION OF INCOME IN THE

I sc hicnrticinnnsitesitictnistinted bepisaamiosatibemunies 7

Il. THE SECRETARY’S INTERPRETATION OF

THE OBRA LUMP SUM AMENDMENT IS

NOT ENTITLED TO DEFERENCE ................ 11

GRAIG ccnncestcnnnnnntieienniinsin sain senelllalictisaibsianaamiiibits 15

TABLE OF AUTHORITIES

CASES Page

American Shipbuilding Co. v. NLRB, 380 U.S.

4 IRARIENI ISSR ear A eee ee 12

Batterton v. Francis, 432 U.S. 416 (1977) ............. 12

Bowen v. Fidelity Banks, 209 N.C. 140, 183 S.E.

BR I aki lachlan ilciaiitalideacain 8

Bureau of Alcohol, Tobacco and Fire Arms v. Fed-

eral Labor Relations Authority, 104 S.Ct. 439

RRL a TA ee es Ne 12

Carolina Power and Light Company v. Paul, 261

N.C. 710, 136 S.E.2d 108 (1964) ......................... ~

Eisner v. Macomber, 252 U.S. 189 (1919) —............ 8

Finch v. Kirk, No. 86-90-CIV-5 (E.D.N.C. Jan. 21,

Eee ae eee eee Le 2

NLRB v. Amax Coal Co., 453 U.S. 322 (1981) ....... ds)

Heckler v. Turner, 105 §.Ct. 1138 (1986) .............. 9

Reed v. Lukhard, 774 F.2d 1270 (4th Cir. 1985),

aff’g 591 F. Supp. 1247 (W.D. Va. 1984) _.......... 2, 8,9

Richards v. United States, 369 U.S. 1 (1962) _...... 8

Securities Industry Association v. Board of Gov-

ernors, 104 S.Ct. 2979 (1984) ...........00000000 14

Shea v. Vialpando, 416 U.S. 251 (1974) —............... 10

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ......... 13

St. Martin Evangelical Lutheran Church v. South

I GI i UU CUED cccccccceccenceecesecssccccooes 13

Southeastern Community College v. Davis, 442 U.S.

EES A SR A a 12

Teamsters v. Daniel, 439 U.S. 551 (1979) ............... 12

United States v. Locke, 105 S.Ct. 1785 (1985) ......... 8

Watkins v. Blinzinger, 789 F.2d 474 (7th Cir.

1986), aff’g 610 F. Supp. 1443 (S.D. Ind. 1985) .. 6

Yuckert v. Heckler, 774 F.2d 1365 (9th Cir. 1986) .. 14

STATUTES:

Omnibus Budget Reconciliation Act of 1981, Pub.

L. 97-35, 95 Stat. 358, et seg. (1981) —.......0000..... 7

RS 14

REST As a 9

42 U.S.C. § 601 et seq. (Social Security Act) ............. 14

iii

’

TABLE OF AUTHORITIES—Continued

Page

a 7,9

eS eee 7,9,12

45 CFR § 233.20 (a) (3) (ii) (F) ......-.-.....-.-......... 5, 11, 13, 15

rr ee, nsssbeonnsontseucvanes 13

LEGISLATIVE HISTORY: Page

S. Rep. No. 139, 97th Cong., Ist Sess. 505 (1981),

reprinted in 1981 U.S. Code Cong. & Ad. News,

EIS ITC TA A 7

OTHER AUTHORITIES:

Blacks Law Dictionary, 352, 687 (5th Ed. 1979)... 8,9

Davis, Administrative Law § 503 (3rd Ed. 1972). 13

Dobbs, Remedies § 3.1 (1978) .....................-...--------- ~

25 C.J.S. Damages § 17 (1966) ...... PE ae Ee 8,9

42 C.J.S. Income § 531 (1944) ..........................-....... 8

IN THE

Siywreme Court of the United States

OCTOBER TERM, 1986

No. 85-1358

WILLIAM L. LUKHARD, COMMISSIONER,

VIRGINIA DEPARTMENT OF SOCIAL SERVICES,

a Petitioner,

ONA MAE REED, SALLIE LONG, RUTH WILCHER,

OPAL MAE CooK, STELLA KING, AND ALL

OTHERS SIMILARLY SITUATED,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

BRIEF AMICUS CURIAE OF

LEGAL SERVICES OF NORTH CAROLINA

ON BEHALF OF ITS CLIENTS

IN SUPPORT OF RESPONDENTS

ONA MAE REED ET AL.

STATEMENT OF INTEREST

Amicus, Legal Services of North Carolina (LSNC) in-

cluding two of its affiliate programs, is deeply and inti-

mately concerned about the outcome of this case. LSNC

files this brief on behalf of its clients. Two affiliate pro-

grams of LSNC currently represent AFDC recipients in

an action filed against the North Carolina Department of

Human Resources and the United States Department of

Health and Human Services, Finch v. Kirk, No. 86-90-

CIV-5 (E.D.N.C. Jan 21, 1986), challenging state and

federal regulations that treat personal injury awards

as “income” rather than as “resources” in determining

AFDC eligibility. Class certification is pending in that

action.

LSNC is a statewide program responsible for civil

representation of low income persons in eighty-three of

North Carolina’s one hundred counties. Overall, 1.3 mil-

lion persons in North Carolina are governmentally de-

fined as eligible for legal services. Generally, to be eli-

gible, a family’s annual gross income must be less than

125% of the federal poverty line. Legal Services pro-

grams in North Carolina receive more than 35,000 re-

quests for assistance from eligible, low income persons

each year and provide service to approximately 25,000 of

these persons. In North Carolina, 180,000 people receive

AFDC benefits. Many of these AFDC recipients rely

upon LSNC to protect their interest in continued finan-

cial assistance when eligibility criteria are met.

AFDC regulations provide that, when a member. of an

AFDC household receives non-recurring “lump sum”’ in-

come, a period of ineligibility is imposed during which

AFDC benefits are denied to the entire family. The set

period of ineligibility continues even though the lump

sum may be exhausted, leaving the family in desperate

need of AFDC benefits to meet the basic costs of survival.

Although the United States Court of Appeals for the

Fourth Circuit held in Reed v. Lukhard, 774 F.2d 1270

(4th Cir. 1985), aff'g 591 F. Supp. 1247 (W.D. Va.

1984) that “the lump sum rule may not be applied to

personal injury awards to render AFDC recipients in-

eligible for benefits,” the State of North Carolina con-

tinues to deny, reduce, or terminate AFDC benefits on

this basis, thereby depriving many low income families of

resources desperately needed for survival.

In the Finch action filed by LSNC, plaintiff Finch

alleged that she and her minor child were receiving

AFDC benefits of $176 per month in June, 1985. She

received her monthly AFDC check on June 1, 1985 and

spent the check for monthly expenses. On June 4, 1985,

Ms. Finch received a $1,200 lump sum insurance settle

ment for bodily injury sustained in an automobile acci-

dent on September 15, 1984. Ms. Finch used part of the

money to repay outstanding loans and bills. She also

spent her award for transportation expenses, clothing

and a few inexpensive toys for her child, and non-Food

Stamp items such as cleaning supplies.

Ms. Finch promptly reported the personal injury

award to Social Services. Social Services then determined

she would be ineligible for June, July and August, 1985

AFDC benefits. It found she would be eligible for partial

benefits in September, 1985. However, before termina-

tion of her benefits, she had expended her award. Dur-

ing the time that Ms. Finch’s AFDC benefits were ter-

minated, she had to pawn part of her furniture in order

to meet her living and medical expenses for July and

August, 1985.

Upon appeal, the State Department of Human Re-

sources affirmed the termination of her AFDC benefits.

It concluded as a matter of law that personal injury

awards are income rather than resource and thus are

subject to the lump-sum rule.

Plaintiff Hardy and her two minor children were re-

ceiving AFDC benefits of $246 per month in November,

1985. The AFDC benefits constituted the family’s only

source of income aside from $50 per month in support

payments from the children’s father. Ms. Hardy received

her monthly AFDC check on November 1, 1985 and spent

the check for monthly expenses. On November 25, 1985,

she received a $1,783 lump sum insurance settlement

for bodily injury sustained in an automobile accident on

May 22, 1985. She had received medical treatment for

her injuries from May through October, 1985.

Ms. Hardy received notice in January 1986, that pur-

suant to North Carolina’s lump-sum policies, her AFDC

grant would be reduced from $246 to $184, representing

partial benefits for March, 1986. Additionally, a period

of recoupment, at a minimum of 10% of the monthly

grant, or $24 per month, for approximately the next 40

months, would follow until the AFDC benefits provided

to Ms. Hardy for November and December, 1985, and

January and February, 1986 were fully reimbursed. The

County determined she was ineligible during these

months.

Prior to receiving this notice of ineligibility and the 40

month recoupment, Ms. Hardy had completely expended

the personal injury award. In November, 1985, Ms.

Hardy’s mother, who is disabled, received an eviction

notice from her landlord. Ms. Hardy spent substantial

portions of her personal injury award on moving expenses

for her mother and her family. Ms. Hardy later moved

into her mother’s apartment with her children to reduce

family expenses. Approximately $300 of the money was

spent on the purchase of groceries during November and

December, 1985 for the combined households. Part of the

money was also spent on the repayment of an outstand-

ing loan to her grandmother. Another portion of the

funds was spent on the purchase of necessary items and

basic living expenses such as winter clothing for herself

and her children. By December, 1985, the entire insur-

ance settlement had been exhausted, leaving no money to

pay the winter’s heating and utility bills or non-food

items such as soap, detergent and toilet articles.

Plaintiff Little and her minor child were receiving

AFDC benefits of $214 per month in 1985. She re-

ceived her monthly AFDC checks in December, 1985 and

January, 1986, and spent the checks for monthly ex-

penses. On December 4, 1985, she received a $749 lump

sum settlement for bodily injury sustained in a slip and

fall accident at a grocery store on August 15, 1984.

After reporting her personal injury award to Social

Services, she was informed by written notice dated De-

cember 17, 1985, that she was ineligible to receive the

December, 1985 and January, 1986 AFDC checks. She

appealed this decision and the original decision of in-

eligibility was upheld whereby the AFDC benefits for

those two months were ordered recouped. Ms. Little is

dependent on the continued receipt of her AFDC pay-

ments in order to meet her needs and those of her minor

child.

In each of the above situations, the imposition of the

lump sum rule resulted in harsh inequities to the families

involved. An adverse decision in this case would leave

these families and many other families who receive per-

sonal injury awards without the means to obtain food,

clothing and shelter. A principle interest of Amicus is

the protection and preservation of the court decision be-

low to ensure that needy children and their families can

receive financial assistance.

The Secretary of the United States Department of

Health and Human Services has issued a new regulation

which purports to treat all lump sum payments, includ-

ing “windfalls” (which would include personal injury

awards), as “income” to be counted under the lump sum

rule. 52 Fed. Reg. 9191, 96 (March 18, 1986) (to be

codified at 45 C.F.R. § 233.20(a) (3) (ii) (F)). The Sec-

retary has filed a Brief as Respondent Supporting Pe-

titioner in which he argues that the March 18, 1986

final regulation is dispositive of the entire issue and re-

quires reversal of the decision below. The State of North

Carolina has joined in an amicus brief with seven other

states in support of petitioner’s position. Therefore,

LSNC’s interest in this case is considerable and justified.

INTRODUCTION AND SUMMARY OF ARGUMENT

Amicus, Legal Services of North Carolina on behalf

of its clients, urges affirmance of the judgment of the

United States Court of Appeals for the Fourth Circuit.

Petitioner argues that the opinion of the United States

Court of Appeals for the Seventh Circuit in Watkins v.

Blinzinger, 789 F.2d 474 (7th Cir. 1986), aff'g 610 F.

Supp. 1443 (S.D.Ind. 1985), best construes the AFDC

statute and furthers legislative intent. Respondents and

Amicus, however, strongly urge the Court to hold that

the purpose of the AFDC statute and Congressional in-

tent support the exclusion of personal injury awards

from the definition of “income.”

Amicus argues (Point I) that, given the legislaiive

history and clearly established rules of statutory con-

struction, Congressional intent dictates the exclusion of

personal injury awards from the term “income” under

the lump sum rule. Since Congress did not indicate that

it intended to use a definition of “income” that is broader

than the traditional legal definition, it is clear that Con-

gress did not intend to include personal injury awards

as “income” under the AFDC statute. Amicus further ar-

gues (Point II) that the Court should not give deference

to the Secretary’s interpretation of the lump sum rule,

becausc it is inconsistent with Congressional intent and

his own prior pronouncements, and defeats the very pur-

pose of the AFDC Act. Therefore, the judgment below

should be affirmed.

ARGUMENT

I. CONGRESS INTENDED THE EXCLUSION OF PER-

SONAL INJURY AWARDS FROM THE DEFINI-

TION OF INCOME IN THE AFDC STATUTE.

The Court of Appeals for the Fourth Circuit correctly

determined that personal injury awards must be ex-

cluded from the definition of “income” in the AFDC

statute. The Fourth Circuit carefully analyzed the “lump

sum” rule of the Omnibus Budget Reconciliation Act of

1981 (OBRA) in making its determination. Congress

passed the lump sum rule to encourage AFDC recipients

to budget large payments of income to meet ongoing

needs of their households.

Before 1981, 42 U.S.C. § 602(a)(7) stated that “...

the State agency shall in determining need take into con-

sideration any other income and resources. .. .” When

Congress implemented OBRA, it did not alter its lan-

guage. Rather, Congress changed the method by which

income would be counted. Under pre-1981 law, “[any]

payments that [met] the definition of income... [were]

counted as income in the month of receipt and any of

the payment that [was] not spent in that month [was]

usually considered as a resource in the months there-

after.” In the 1981 Act, “income received in a month

[would] be considered available as income in the month

it is received and also in future months.” S. Rep. No.

139, 97th Cong., 1st Sess. 505, reprinted in 1981 USS.

Code & Ad. News, 396, 702, 771. See also 42 U.S.C.

§ 602(a) (17) (before and after OBRA).

The court helow correctly reasoned that the 1981

amendment changed the treatment of income, but did

not change the definition of income. In fact, it found

that OBRA did not even define “income.” In the absence

of a definition of income, the court concluded that Con-

gress intended to include as income only those large pay-

ments of money that would ordinarily be considered in-

come. Reed, 774 F.2d at 1274-75. This Court set forth

that principle when it stated that “deference to the

supremacy of the legislature, as well as recognition that

congressmen typically vote on the language of a bill,

generally require[s] us to assume that ‘the legislative

purpose is expressed by the ordinary meaning of the

words used.’” United States v. Locke, 105 S.Ct. 1785,

1793 (1985) (quoting Richards v. United States, 369

US. 1, 9 (1962) ).

Based on the ordinary meaning of the term “income,”

personal injury awards should not be included as income

‘under the lump sum rule. As this Court determined,

“where Congress uses terms that have accumulated

settled meaning under either equity or the common law,

a court must infer, unless the statute otherwise dictates,

that Congress means to incorporate the established mean-

ing of these terms.” NLRB v. Amax Coal Co., 453 U.S.

322, 329 (1981) (emphasis added).

The term “income” has accumulated settled meaning.

“Income” represents a “gain or profit,” 42 C.J.S. Income

§ 531 (1944), and is ordinarily understood to be a return

on the investment of labor or capital, thereby increasing

the wealth of the recipient. See Blacks Law Dictionary

687 (5th ed. 1979). See also Eisner v. Macomber, 252

U.S. 189, 207 (1919).

On the other hand, “{pljersonal injury awards serve

to make one whole, in effect, restoring one to the status

quo before the injury was suffered.” See Bowen v. Fi-

delity Banks, 209 N.C. 140, 183 S.E. 266 (1936); Caro-

lina Power and Light Company v. Paul, 261 N.C. 710,

136 S.E. 2d 103 (1964) ; 25 C.J.S. Damages § 17 (1966).

“The damages award is substitutionary relief, that is, it

gives the plaintiff money mainly by way of compensation,

to make up for some loss that was not, originally, a

money loss, but one that ordinarily may be measured in

money.” D. Dobbs, Remedies § 3.1 (1973). See also 25

C.J.S. Damages § 17; Black’s Law Dictionary 352 (5th

ed. 1979). Hence, personal injury awards do not represent

a return on investment of labor or capital. See also The

Internal Revenue Code, 26 U.S.C. § 104 which states that

gross income does not include “the amount of any dam-

ages received ... on account of personal injuries or sick-

ness.” Rather, as the Fourth Circuit found, personal in-

jury awards replace losses due to pain and suffering.

See Reed, 774 F.2d at 1275.

Congress was well aware of the common meaning of

“income” when it redrafted 42 U.S.C. § 602(a)(7) and

(17). If Congress had intended to radically change the

definition of “income” to include damages in such a way

as to be repugnant to 200 years of American law, it

would have clearly so stated.

In total contradiction to these established principles,

the Secretary argues that the term “income” refers to the

gross receipts an AFDC family has available to meet its

monthly needs. The Secretary relies upon Heckler v.

Turner, 105 S.Ct. 1188 (1985) to support his theory

that the gross receipts available to an AFDC family for

support are income. Significantly, Heckler v. Turner did

not address personal injury awards. Rather, the opinion

centers on mandatory tax withholdings from wages or

salary. Unlike personal injury awards, mandatory tax

withholdings represent wages and fall within the ordi-

nary meaning of “income.” The Secretary’s reading of

Heckler v. Turner is overly broad. The case cannot be

cited for the proposition that personal injury awards

come within the purview of term “income.” With his

misplaced reliance on Heckler v. Turner, the Secretary,

in effect, seeks to overturn a whole body of tort law.

When he implemented his expansive definition of ‘“‘in-

come,” the Secretary substantially rewrote the statute in

disregard of Congressional intent. These actions are

clearly arbitrary, capricious and repugnant to a whole

body of American jurisprudence.

Not only does the Secretary’s contrived definition of

income contradict Congressional intent, but it also frus-

trates the very policy that Congress sought to implement.

The situation the Secretary envisions is far removed from

the financial realities confronting many AFDC families.

The Secretary blinks at reality and blatantly ignores the

fact that often personal injury victims sustain injuries

that result in physical and mental impairments extend-

ing beyond the receipt of the personal injury award.

Although the Secretary discounts prior medical expenses

in determining a disqualification period, he fails to recog-

nize the frequent existence of future expenses relating

to the injury. Contrary to the Secretary’s assumption,

the personal injury award may not be available to meet

the ongoing needs of the AFDC family. When additional

expenses arise, the disqualified AFDC household is often

forced to use its personal injury award to seek proper

medical care, leaving no money for food, shelter and

other survival needs of the family.

The Secretary correctly points out that Congress in-

tended for AFDC benefits to be provided only to needy

families. See Shea v. Vialpando, 416 U.S. 251 (1974).

He then argues that the most sensible reconcilation of the

concepts of “income” and “resources” is “. . . one that

best encourages a family to budget its income and re-

sources to take care of itself. ... [T]he Secretary’s treat-

ment of personal injury . . . awards gives the statutory

language its congressionally intended effect.” See Brief

for the Secretary of Health and Human Services as Re-

spondent Supporting Petitioner at 13. However, his new

regulation utterly fails to achieve this Congressional pur-

pose. Not only does the Secretary refuse to recognize the

ordinary meaning of “income,” but he denies AFDC

recipients the opportunity to budget their personal injury

awards for future expenses.

For example, in the class action pending in North

Carolina, one plaintiff alleged she was forced during her

—

period of disqualification to pawn part of her furniture,

and to sleep on the floor with her minor child, in order

to purchase food for her child and to obtain medical care

for herself. See p. 3, supra. Hence, circumstances be-

yond her control dictated that she could not budget her

personal injury award as “income” in the manner the

Secretary contemplates. In this case and many similar

cases, in addition to thwarting the Congressional purpose

of encouraging budgeting by the AFDC recipient, the

application of state and federal regulations purporting to

interpret the lump sum rule utterly defeats the purpose

of the AFDC statute which is to assist needy families.

Both the Secretary’s regulation and his interpretation

of the statute ignore the ordinary meaning of the term

“income,” thereby imposing harsh inequities upon needy

parents and their children. Congress intended that per-

sonal injury awards be excluded from the definition of

income in the AFDC statute. In order to fulfill the Con-

gressional intent to encourage budgeting and to assist

the needy, Health and Human Services’ new regulation

must be declared invalid. Only by affirming the decision

in Reed will these families be afforded the means to meet

their basic needs of survival as Congress intended.

II. THE SECRETARY’S INTERPRETATION OF THE

OBRA LUMP SUM AMENDMENT IS NOT EN-

TITLED TO DEFERENCE.

The Secretary of Health and Human Services, by en-

acting 45 C.F.R. § 223.20(a) (3) (ii) (F), has impermissi-

bly rewritten the OBRA lump sum statute. He now asks

the Court to legitimate his nonconformance with Congres-

sional intent by holding that his interpretation of the

OBRA lump sum rule is “reasonable” and, as such, is

entitled to deference. The Secretary’s interpretation of

OBRA as expressed in his new regulation and in his brief

is not entitled to deference since his interpretation is in-

consistent with Congressional intent and his own prior

pronouncements, and defeats the very purpose of the

AFDC Act.

Although it is true that the Secretary’s interpretation

of the Social Security Act would be entitled to deference,

this deference does not abrogate the Court’s duty to in-

terpret the Act in a manner consistent with Congres-

sional intent. Federal courts, not administrative agen-

cies are the final arbiters of statutory construction. This

Court has held that “ ‘deference owed to [agency inter-

pretation of statutes they are empowered to administer ]

cannot be allowed to slip into judicial inertia which

result in the unauthorized assumption by an agency of

major policy decisions properly made by Congress.’ ”

Bureau of Alcohol, Tobacco and Fire Arms v. Federal

Labor Relations Authority, 104 S.Ct. 439, 444 (1983)

(quoting American Shipbuilding Co. v. NLRB, 380 U.S.

300, 318 (1965)). This Court further mandates that

courts must not rubber-stamp administrative decisions;

rather, they must insure that these decisions are con-

sistent with the statutory mandate and do not frustrate

Congressional policy underlying the statute. 104 S.Ct. at

444.

Ordinarily, administrative interpretations of statutory

terms are given important—but not controlling—sig-

nificance. Batterton v. Francis, 482 U.S. 416 (1977).

However, deference that the Secretary seeks is con-

strained by this Court’s “obligation to honor the clear

meaning of a statute, as revealed by its language, pur-

pose, and history.” Southeastern Community College v.

Davis, 442 U.S. 397, 411 (1979) (quoting Teamsters v.

Daniel, 439 U.S. 551, 566 (1979) ).

The obvious inconsistency of the new lump sum regula-

tion with Congressional intent can readily be seen from

the legislative history of OBRA. When it revised 42

U.S.C. § 602(a) (17), Congress did not expahd, constrict

or otherwise alter the definition of “income.” See p. 7,

supra. The language of the lump sum rule and the

history surrounding it in no way suggest that Congress

intended to change anything other than the treatment of

lump sum “income.”

The weight afforded to agency interpretative regula-

tions “depend[s] upon the thoroughness evident in its

consideration, the validity of its reasoning, its consistency

with earlier and later pronouncements, and all those

factors which give it power to persuade, if lacking power

to control.” Skidmore v. Swift & Co., 323 U.S. 134, 140

(1944) (emphasis added). See also St. Martin Evan-

gelical Lutheran Church v. South Dakota, 451 U.S. 772,

783, n. 18 (1981); K. Davis, Administrative Law, § 5.03

(3rd Ed. 1972). In this case, there has been a gross lack

of consistency by the Secretary interpretating the OBRA

lump sum rule. Previously, but long after enactment of

OBRA, the Secretary had propounded the policy of treat-

ing as “resource,” not “income,” damage to a “resource”

such as a car. (J.A. 46-47) Now, with the enactment

of the final regulation 45 C.F.R. § 223.20(a) (3) (ii) (F),

the Secretary requires states to treat resource damage

awards as “income” and to be counted under the lump

sum rule. Brief for the Secretary of Health and Human

Services as Respondent Supporting Petitioner at 19.

Furthermore, the Secretary previously permitted the

states to treat personal injury awards as either “income”

or “resource.”’ (J.A. 62) Then, while cases on this issue

were pending throughout the country, the Secretary is-

sued proposed new regulations which would require all

states to treat all “windfalls” as “income” under the

lump sum rule. 49 Fed. Reg. 45558 (November 14,

1984). No mention of personal injury awards was made

in his definition of “windfall.’”’ However, when the final

regulation was issued—after a Third Circuit decision

unfavorable to the Secretary’s position and while this

case was pending before this Court on petition for a

writ of certiorari—the Secretary specifically included

personal injury awards in the definition of “income.”

50 Fed. Reg. 9205 (March 18, 1986) (to be codified at

45 C.F.R. § 233.20(a) (3) (ii) (F). |

Not only has the Secretary vacillated in his rulings,

but he has conveniently contrived new versions of the

lump sum rule to meet the objections raised in the

various court cases. This type of blatant manipulation

of agency regulation by the Secretary is not entitled to

deference.

Under the Secretary’s interpretation of OBRA, Con-

gressional intent is badly frustrated. The AFDC pro-

gram was created to encourage “the care of dependent

children in their own homes... . by enabling each State

to furnish financial assistance .. . to needy depending

children . . . to help maintain and strengthen family, life

and ... maximum self support... .” 42 U.S.C. § 601.

Yet, by improper operation of the lump sum rules, this

purpose is thwarted, leaving AFDC families destitute.

See, p. 11, supra.

Therefore, the Secretary’s regulation contradicts the

provisions of the statute and frustrates congressional

intent. Further, the regulation exceeds the Secre-

tary’s statutory authority and is arbitrary and capri-

cious. Therefore, the regulation is not entitled to any

deference whatsoever. Securities Industry Association v.

Board of Governors, 104 S.Ct. 2979 (1984); 5 U.S.C.

§ 706; see also Yuckert v. Heckler 774 F.2d 1365 (9th

Cir. 1986). Where, as in this case, the regulation is in-

valid, it is the intention of Congress as interpreted by

the Court that must prevail. Id.

The Secretary attempts to set a dangerous precedent.

He seeks to insure that the Court will adopt his position

by issuing a regulation at the eleventh hour of this

litigation by arguing that this regulation is “[a] reason-

able interpretation of {the AFDC] statute... .” Brief

for the Secretary of Health and Human Services as Re-

spondent Supporting Petitioner at 10. This backdoor ap-

proach to law making is repugnant to the judiciary’s

role in statutory interpretation. As this Court accurately

noted in Securities Industry Association v. Board of

Governors:

[D]eference is not a device that emasculates the

significance of judicial review. Judicial deference to

an agency interpretation of a statute “only sets the

significance of judicial analysis; it does not dispell

it.” A reviewing court “must reject administrative

construction of [a] statute, rather reached by ad-

judication or by rulemaking that [is] inconsistent

with the statutory mandate or that frustrates the

policy that congress sought to implement.”

104 S.Ct. at 2983 (1984) (citations omitted).

The Secretary’s self-serving interpretation of OBRA

is unreasonable and clearly disregards congressional in-

tent as well as judicial power. Therefore, the Court

should not accord any deference to the Secretary’s inter-

pretation of the OBRA lump sum amendment as ex-

pressed in 45 C.F.R. § 233.20(a) (3) (ii) (F).

CONCLUSION

For the reasons stated above, the Court should affirm

the decision of the United States Court of Appeals for

the Fourth Circuit.

Respectfully submitted,

Of Counsel DAVID H. HARRIS, JR.

RICHARD M. TAYLOR, JR. SUSAN M. PERRY *

Executive Director Eastern Carolina Legal

Legal Services of North Carolina Services

112 S. Blount Street P.O. Box 2688

Raleigh, N.C. 27611 Wilson, N.C. 27893

(919) 291-6851

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