Commonwealth of Massachusetts v. Lyng

893 F.2d 424 (1990) | Cited 17 times | First Circuit | January 9, 1990

BOWNES, Circuit Judge.

These appeals, from a summary judgment denying declaratory relief sought by the Commonwealth of Massachusetts, involve the treatment, for the purpose of calculating federal food stamp benefits, of a specially appropriated clothing allowance paid by the Commonwealth to recipients of Aid to Families with Dependent Children ("AFDC") or on General Relief ("GR").

The basic matter before us is the district court's decision upholding the agency's interpretation of the pertinent statute that the clothing allowance payments must be included as income of the recipients in determining food stamp benefits.

Appellants are the Commonwealth, on behalf of its Department of Public Welfare, and the Coalition for Basic Human Needs, an organization of welfare recipients committed to improving their economic and social situation. Appellees are Richard E. Lyng in his capacity as Secretary of Agriculture; S. Anna Kondratas, Acting Administrator of the Food and Nutrition Service; and Linda Silva, Regional Director, Family Nutrition Program, Northeast Region.


The Food Stamp Program is designed to raise nutrition levels among low-income households by providing needy people with coupons with which to buy food through normal channels of trade. 7 U.S.C. § 2011. Determination of eligibility and calculation of specific benefits depends on household size, income, resources (assets), and compliance with work registration requirements. Participation in the program is limited to those households whose income and other financial resources "are determined to be a substantial limiting factor in permitting them to obtain a more nutritious diet." 7 U.S.C. § 2014(a).

The Food Stamp Program is administered at the federal level by the U.S. Department of Agriculture's Food and Nutrition Service (FNS). Each state choosing to participate in the program designates an agency which carries out the state's responsibilities under the Act, including certifying applicant households and issuing monthly benefits to them. 7 U.S.C. §§ 2012(n), 2020(a). The federal government pays for the full cost of food stamp benefits, its own administrative costs, and at least 50% of eligible state administrative expenses. 7 U.S.C. § 2025(a).

The Food Stamp Act of 1977, Pub. L. 95-113, 91 Stat. 962, directed the Secretary of Agriculture to develop a quality control system aimed at reducing errors on the part of state agencies in administering the program. The Act was subsequently amended by Pub.L. 97-253, § 180, 96 Stat. 782 (1982), to establish specific error rate liability targets. At the time this suit was initiated, the error rate target was five percent. 7 U.S.C. § 2025(d)(2)(A) (1982), replaced by Pub.L. 100-435, § 604(2), 102 Stat. 1675 (1988). If a state's error rate exceeded this percentage, the federally-funded share of its administrative costs was reduced. Id. A state could appeal payment error rate liability claims filed against it, and seek judicial review of the final determination by the Secretary. 7 U.S.C. § 2023(a), amended by Pub.L. 100-435, § 603, 102 Stat. 1674 (1988). The Secretary could not initiate collection against states for payment errors until after the completion of these procedures. 7 U.S.C. § 2025(d)(6) (1982), as amended by Pub.L. 99-198, § 1537(a)(2) (1985), replaced by Pub.L. 100-435, § 604(2), 102 Stat. 1675 (1988).

The Food Stamp Act defines income for the purpose of calculating benefits as "all income from whatever source." It then specifically excludes eight categories of items from the broad net cast. 7 U.S.C. § 2014(d). One of these categories is:

(8) moneys received in the form of nonrecurring lump-sum payments, including, but not limited to, income tax refunds, rebates, or credits, cash donations based on need that are received from one or more private nonprofit charitable organizations, but not in excess of $300 in the aggregate in a quarter, retroactive lump-sum social security payments or railroad retirement pension payments and retroactive lump-sum insurance settlements: Provided, That such payments shall be counted as resources, unless specifically excluded by other laws. (Emphasis added).

7 U.S.C. § 2014(d)(8).

The regulatory provision implementing the statute reads:

(c) Income Exclusions. Only the following items shall be excluded from household income . . . (8) Money received in the form of a nonrecurring lump-sum payment, including, but not limited to, income tax refunds, rebates or credits; retroactive lump-sum social security, SSI, public assistance, railroad retirement benefits, or other payments; lump-sum insurance settlements; or refunds of security deposits on rental property or utilities. These payments shall be counted as resources in the month received, in accordance with § 273.8(c) unless specifically excluded from consideration as a resource by other Federal laws.

7 C.F.R. § 273.9(c)(8).1 Massachusetts claims that FNS' determination that the clothing allowance is not a nonrecurring lump-sum payment and must be counted as income contravenes these provisions and therefore is incorrect as a matter of law.


In federal fiscal year 1981, the Massachusetts Legislature authorized funds in its annual budget for a one-time clothing allowance for AFDC recipients, on the condition that the grants would not be counted as income under the food stamp program. Mass. St. 1981, c. 351, 4403-2000. Each year since FY 1981 the Legislature has similarly appropriated available funds. Since FY 1983 the Legislature has also allotted clothing money for GR recipients. The grants, most recently in the amount of $150 per AFDC child and $115 per GR child or adult, have been paid in a lump-sum in September in order to enable recipients to buy clothes at the beginning of the children's school year and prior to the onset of cold weather.

From FY 1981 to 1984, FNS approved Massachusetts' exclusion of the allowance from the calculation of a household's income for the purpose of determining food stamp benefit levels, relying on the nonrecurring lump-sum payment exclusion. In 1984 FNS excluded the payments, but advised that "in the future it [would] be difficult for us to continue considering these payments as nonrecurring because they are becoming an annual issue." The Commonwealth appropriated and distributed clothing allowances again in 1985 and 1986. FNS advised that the 1985 payments would be counted as income but took no action against the Commonwealth. The next year FNS cited Massachusetts for alleged payment errors based, in part, on Massachusetts' exclusion of the allowances from its income calculations for food stamp eligibility.


The Commonwealth appealed its payment error rate for 1986 through the two administrative avenues available to it, arbitration and a good cause waiver request. The arbitration avenue has been exhausted. FNS has not ruled on plaintiff's good cause waiver request for 1986.2 In May 1987, after requesting arbitration but before filing its good cause waiver request, the Commonwealth filed this action for declaratory judgment. Similar administrative appeals had been initiated by Massachusetts relative to its FY 1987 error rate prior to the time the district court heard this case.

The district court permitted the Coalition and an individual food stamps recipient to intervene. Defendants then moved to dismiss on the grounds that the plaintiffs' claims were not ripe for judicial review and that plaintiffs had not exhausted their administrative remedies. The court denied defendants' motion to dismiss in a published opinion. Commonwealth of Mass. v. Lyng, 681 F. Supp. 91 (D. Mass. 1988). The parties then filed cross motions for summary judgment. On January 17, 1989, the court granted summary judgment for the defendants. It held that because of the deference due the agency's interpretation of the statute, its ruling that the Massachusetts clothing allowance must be included as income for food stamp recipients should stand. The Commonwealth and the Coalition appeal. They contend that the district court erred as a matter of law in deferring to the Secretary because the intent of Congress was clear as to the applicability of the exclusion and the agency's interpretation is not reasonable.


Appellees (FNS or Secretary) claim that the district court should not have exercised its jurisdiction because appellants (Massachusetts or Commonwealth) have failed to exhaust their administrative remedies. We agree with the district court's determination of the exhaustion issue as explained in its denial of FNS' motion to dismiss which was based on the same grounds. The district court found that "on balance, the need of the Department and intervenors to resolve this dispute outweighs the agency's interest in completing the very last steps of a process which is not meant to address the question of how to define nonrecurring lump-sum payment." Commonwealth of Mass. v. Lyng, 681 F. Supp. at 95.

As recently summarized by this Court,

The exhaustion of administrative remedies doctrine has long been held to mean that "no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted." Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 82 L. Ed. 638, 58 S. Ct. 459 (1938). This doctrine enables the agency to develop a factual record, to apply its expertise to the problem, to exercise its discretion, and to correct its own mistakes, and is credited with promoting accuracy, efficiency, agency autonomy, and judicial economy. See McKart v. United States, 395 U.S. 185, 194, 23 L. Ed. 2d 194, 89 S. Ct. 1657 (1969); Ezratty v. Commonwealth of Puerto Rico, 648 F.2d 770, 774 (1st Cir. 1981). But, where agency proceedings will be futile, such benefits do not accrue. Therefore the exhaustion doctrine "is not to be applied inflexibly." McGee v. United States, 402 U.S. 479, 483, 29 L. Ed. 2d 47, 91 S. Ct. 1565 (1971). (Parallel citations omitted).

Christopher W. v. Portsmouth School Comm., 877 F.2d 1089, 1093-94 (1st Cir. 1989). A court is free to use its discretion, applying the doctrine, or not, in accordance with its purposes. Ezratty v. Commonwealth of Puerto Rico, 648 F.2d 770, 774 (1st Cir. 1981) (citing cases). "When the various interests served pull in the direction of exhaustion, it is required, but where they pull in different directions, analysis of the particular case at hand is necessary." Id. at 775. See generally, K. Davis, 4 Administrative Law Treatise, § 26.1 et seq. (2d ed. 1983).

Our analysis of this case convinces us that it was not necessary for the federal agency to have made a final decision on the Commonwealth's good cause waiver request before the Commonwealth could seek a declaratory judgment. We note first that contrary to FNS' assertion, the scheme of the food stamp statute does not require exhaustion. Section 2023(a) of the Act outlines the procedure for judicial review of specific administrative decisions taken in relation to a state agency (or a retail or wholesale food concern). It neither expressly nor impliedly precludes an action for declaratory judgment concerning interpretation of the federal enabling statute.

Since exhaustion is not statutorily mandated, application of the doctrine was within the discretion of the district court. Accion Social de Puerto Rico, Inc. v. Viera Perez, 831 F.2d 365, 369 (1st Cir. 1987). As the court below noted, the good cause waiver hearing still pending is "not designed to review the agency's interpretation of the clothing allowance as includable income" but to determine the Commonwealth's liability for payment errors in its administration of the Food Stamp Program. Commonwealth of Mass. v. Lyng, 681 F. Supp. at 95. The dispute between Massachusetts and the federal agency transcends the sanctions imposed for 1986 or 1987. The Commonwealth needs to know how to calculate food stamp allotments. Even if Massachusetts' liability for errors in 1986 or 1987 is reduced or eliminated, the Commonwealth risks incurring new liability until the statute's construction is settled.

Furthermore, since determination of Massachusetts' claim involves statutory interpretation and not fact-finding, the agency is not deprived of the opportunity to develop a factual record or to apply its expertise to the problem. The only facts which were arguably in need of further development at the time appellants initiated this action are those concerning the administrative burden to the Commonwealth if the Secretary's interpretation of the statute is upheld, facts which the agency considers immaterial to the controversy. See FNS Brief, p. 38, n.15. Exhaustion is not mandated where the issue is a matter of law as to which specialized administrative understanding plays little role, or where further agency proceedings would be futile. Ezratty v. Commonwealth of Puerto Rico, 648 F.2d at 774.

For all of these reasons, we agree with the district court that "in this case, review of the statute would not prematurely interrupt the administrative process." Commonwealth of Mass. v. Lyng, 681 F. Supp. at 95.

FNS also claims in a footnote that the court has no jurisdiction over the Coalition's appeal because the individual intervenor is not party to this appeal and the organization has not established a sufficient basis for standing in its own right. We find that the Coalition has satisfied the criteria for standing as an association. See International Union v. Brock, 477 U.S. 274, 91 L. Ed. 2d 228, 106 S. Ct. 2523 (1986); Hunt v. Washington State Apple Advertising Comm., 432 U.S. 333, 343, 53 L. Ed. 2d 383, 97 S. Ct. 2434 (1977).


Having disposed of the jurisdictional questions, we turn to the applicable standards of review. We begin with the standard of review of a summary judgment. As demonstrated by the parties' cross motions for summary judgment, there are no genuine issues of material fact in dispute. Rather, the question on appeal is whether, as Massachusetts contends, the district court erred as a matter of law. New England Legal Found. v. Massachusetts Port Auth., 883 F.2d 157, 167 (1st Cir. 1989). "The standard of review for questions of law decided by a district court is, of course, de novo scrutiny, as the conclusions of law of a trial court are not binding on the reviewing court." Id.

Our review of the Secretary of Agriculture's interpretation of the Food Stamps Act is governed by the two-step test annunciated by the Supreme Court in Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984).

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue.

If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

* Of the Second Circuit, sitting by designation.

1. 7 C.F.R. § 273.9(c)(8) has been redesignated § 273.9(c)(9) in 53 Fed.Reg. 22292 (June 15, 1988).

2. In 1988 Congress revised certain aspects of the Food Stamp Program's quality control system, retroactive to 1986. Hunger Prevention Act of 1988, Pub. L. No. 100-435, 102 Stat. 1645. FNS has informed the Commonwealth that revised error rates must await appropriate agency rulemaking.

3. That this is a matter for determination by the agency seems now to be conceded by Massachusetts which stated in its reply brief: Although none of the parties' initial briefs addressed the point, the de novo judicial review for state error rate sanction[s] appears to have been replaced by "review on the administrative record" for fiscal year 1986 and thereafter. P.L. No. 100-435, § 603(2), 701(5)(c). The Commonwealth therefore withdraws its argument that it will be entitled to a de novo review under 7 U.S.C. § 2023. This does not mean that the District Court could lawfully ignore the plaintiff's affidavits, however. Massachusetts Reply Brief, p. 9 n. 5.

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