Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 79-C-213 -- Allen Sharp, Judge.
Cudahy, Circuit Judge, Fairchild, Senior Circuit Judge, and Wesley E. Brown,**fn** Senior District Judge.
In this class action, plaintiff Madgey Jackson ("Jackson") appeals from a judgment in favor of the defendant Secretary of Health and Human Services (the "Secretary") arising from Jackson's challenge to the Secretary's termination of her Supplemental Security Income ("SSI") benefits. The specific issue presented by this appeal concerns the validity of the Secretary's regulations governing SSI eligibility which impute as unearned income to SSI recipients the difference between the fair market rental value and the rent actually paid for shelter. We vacate the summary judgment and remand to the district court for further proceedings because we find that the Secretary's formula for imputation of income to class members in certain specifically limited situations is not consistent with certain other of the Secretary's regulations properly construing the controlling statute.
On July 27, 1978, the Social Security Administration ("SSA"), acting on behalf of the Secretary, determined that Jackson was eligible due to her disability to receive SSI benefits. SSI is a program for the aged, blind and disabled designed to insure that the income of eligible recipients does not fall below a minimum amount or "floor". In 1978, this floor amount for a person in Jackson's position was set at $189.40 per month. Jackson received a monthly Veterans Administration ("VA") pension of $133.00 and a monthly benefit of $100.08 under a state housing allowance program. The latter benefit was excluded by statute from the income counted for determining SSI eligibility. Thus, Jackson's SSI benefit amounted to the difference between $189.40 and $133.00, or $56.40.
Sometime in September, 1978, Jackson moved into a house owned by her sister. She lived alone and paid her sister a monthly rent of $145.00. After Jackson moved in, her sister contacted the local SSA office to request an increase in Jackson's benefit. During this conversation, Jackson's sister informed the SSA that she would charge a tenant who was not a relative rent of $250.00 per month for the house. Shortly thereafter, SSA terminated Jackson's SSI benefit because Jackson's income for SSI purposes (including "in-kind" income representing the difference between the rent actually paid by Jackson and the fair market rental value of her sister's home, which was added to Jackson's $133.00 VA pension) now exceeded the $189.40 cut-off amount, below which SSI was payable.*fn1 Jackson's request for reconsideration was denied. She subsequently appealed this determination to an Administrative Law Judge (ALJ), but the ALJ upheld the SSA action. Jackson's request for review by the Appeals Council was also denied on June 22, 1979.
On July 25, 1979, Jackson filed the class action that is the subject of this appeal. She claimed that the Secretary's practice of considering as income to the recipient the difference between fair market rental value and the actual rent paid by an SSI recipient was inconsistent with the statute, created an irrebuttable presumption violating the due process clause of the fifth amendment, invidiously discriminated between similarly situated recipients in violation of the equal protection clause of the fifth amendment, and lacked both a substantial and rational relation to the statutory goal in violation of due process. On November 19, 1979, the district court denied Jackson's motion for class certification for failure to demonstrate that class members had exhausted their administrative remedies under 42 U.S.C. § 405(g) (1976). Jackson v. Harris, 84 F.R.D. 602 (N.D. Ind. 1979). The district court subsequently modified its November 19 order sua sponte to hold that Jackson's motion for class certification was denied for failure to satisfy the numerosity requirement of Fed. R. Civ. P. 23(a) (1), but that exhaustion of administrative remedies for each class member was not necessarily required. 84 F.R.D. at 606; see Wright v. Califano, 603 F.2d 666, 669-70 (7th Cir. 1979), cert. denied, 447 U.S. 911, 100 S. Ct. 2999, 64 L. Ed. 2d 862 (1980).
Upon Jackson's motion for reconsideration, the district court entered an order on April 10, 1980, certifying Jackson as class representative under Fed. R. Civ. P. 23(a) and 23(b) (2) to represent the class
of all recipients of and applicants for [SSI] in the State of Indiana who have had, or will have, SSI benefits reduced, terminated or denied because of the application of 20 C.F.R. § 416.1125  insofar as it requires that the difference between the fair market value and the actual price paid by an SSI recipient or applicant for a necessity of life be considered as countable, in-kind income.
Jackson v. Harris, 86 F.R.D. 452, 454 (N.D. Ind. 1980).
Both parties thereafter moved for summary judgment. On January 15, 1981, the district court issued its memorandum opinion and order rejecting Jackson's claims that the Secretary's regulations violated the statute and the Constitution and granting the Secretary's motion for summary judgment. While the motions for summary judgment were pending before the district court, the court, at the Secretary's request, remanded to the Secretary for further proceedings the specific case involving Jackson. The reason for this remand is unclear from the record, although it was mentioned at oral argument that a question may have arisen as to the true fair market value of the home rented by Jackson; the record further indicates that Jackson moved from her sister's home and thus may have again become eligible for SSI.
We have not been informed whether the Secretary has reinstated Jackson's benefits or recomputed her benefits based on a lower market rental value for her sister's house. Thus, we are unable to determine whether her individual case is currently moot. Notwithstanding this potential mootness, we believe that the claims of the certified class members present a sufficient case or controversy and that the named plaintiff on this appeal has adequately represented the interests of the class pursuant to Fed. R. Civ. P. 23. See Franks v. Bowman Transportation, Inc., 424 U.S. 747, 47 L. Ed. 2d 444, 96 S. Ct. 1251 (1976). However, we leave for further consideration by the district court whether Jackson should continue to represent the certified class in the proceedings on remand that are contemplated by our opinion on the merits. See section IV infra ; 3B J. Moore, Moore's Fed. Prac. para. 23.04, at 135-37 (1982). In any event, at this juncture we have before us the claims of the certified class of all those SSI recipients described above.
The parties on appeal, however, have continued to use the specific facts of Jackson's case to demonstrate how the Secretary's regulations are typically applied. Moreover, Jackson relies on the specific facts of her case to argue that the application of the Secretary's regulations to members of the certified class violate both the statute and the Constitution. Although we may be unable to grant any specific relief to Jackson, we believe that the facts of her case present particular circumstances in which the Secretary's application of this regulation imputing unearned income to SSI recipients as defined in the class certification order does not comport with other valid SSI regulations designed to insure that only income "actually available" to meet "basic needs" is attributed to a recipient. Hence, we shall set out in ...