UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
decided: November 4, 1987.
DONALD L. BLINZINGER, IN HIS CAPACITY AS ADMINISTRATOR OF THE INDIANA STATE DEPARTMENT OF PUBLIC WELFARE, LISA A. SEYFRIED AND ELSE THOMAS, ON BEHALF OF THEMSELVES AND ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
RICHARD E. LYNG, IN HIS CAPACITY AS UNITED STATES SECRETARY OF AGRICULTURE; ROBERT LEARD, IN HIS CAPACITY AS ADMINISTRATOR OF UNITED STATES FOOD AND NUTRITION SERVICE; VIRGIL CONRAD, IN HIS CAPACITY AS DEPUTY ADMINISTRATOR OF UNITED STATES FOOD AND NUTRITION SERVICE; DUSTAN VAN VLEET, IN HIS CAPACITY AS REGIONAL DIRECTOR OF FAMILY NUTRITION PROGRAM, USDA; MONROE WOODS, IN HIS CAPACITY AS REGIONAL ADMINISTRATOR OF FOOD AND NUTRITION SERVICE, USDA; AND UNITED STATES DEPARTMENT OF AGRICULTURE, DEFENDANTS-APPELLEES
Appeals from the United States District Court for the Northern District of Indiana, Hammond Division at Lafayette. No. L 85-72 -- Allen Sharp, District Judge.
Coffey, Ripple, and Manion, Circuit Judges.
COFFEY, Circuit Judge.
The Federal Food Stamp Act of 1977, as amended by the Food Security Act of 1985, 7 U.S.C. § 2014, provides that income (for the purpose of calculating a person's entitlement to participation in the food stamp program) does not include a benefit which is in a form other than money payable directly to a household. An exception to this rule provides that money paid to a third party on behalf of a needy household is income if it is paid in lieu of a benefit payable to the household under a state or local general assistance program. In this case, we must determine whether the Secretary of Agriculture's policy of treating Indiana's poor relief benefits -- paid to third-party vendors who in turn provide families with certain goods and/or services--as income for food stamp calculation purposes is consistent with a reasonable interpretation of the Act. We affirm the decision of the district court.
Indiana's "poor relief" program is administered at the local level by Township trustees pursuant to state-wide guidelines and is designed to provide general assistance to indigent families. Poor relief is provided by these Indiana townships for a variety of purposes: it ensures that families obtain adequate housing, utilities, food, medical care, clothing, school textbooks and the like. I.C. § 12-2-1-10. The unique aspect of the program (although other states such as Illinois have similar programs) is that under Indiana law, the assistance cannot be paid in cash directly to the needy household. Instead, the particular good or service itself is provided directly to the family by a local vendor.*fn1
In contrast to this local program, the food-stamp program*fn2 is administered at the federal level through the Department of Agriculture, which acts in cooperation with state agencies. The amount of food stamps a family receives, while dependent upon a variety of factors, depends in particular on the income in the household. Other factors being equal, households with a higher income will receive fewer monthly food coupons. See 7 U.S.C. § 2017(a).
Two of the recipients of food stamps*fn3, six township trustees, and the state of Indiana commenced this action in an attempt to preclude the federal government form including the Indiana benefits received under the "poor relief" program in their income calculations. At the time this action was initiated, the Food Stamp Act of 1977 and its implementing regulations contained an all-encompassing definition of income as "all income form whatever source," 7 U.S.C. § 2014(d); 7 C.F.R. § 273.9(b), including "a public assistant grant to which a household is legally entitled." 7 C.F.R. § 273.9(c)(1)(iii). The Act, on the other hand, also contained a provision that excluded from income " . . . any gain or benefit which is not in the form of money payable directly to a household . . . ." 7 U.S.C. § 2014(d)(1). Still, because other types of income--such as general assistance payments to vendors--are used to pay for a family's ordinary living expenses, the Secretary of Agriculture determined that all general assistance payments should be treated as "income" under the Food Stamp Act.
At least two lawsuits other than the one at hand challenged the Secretary's interpretation.*fn4 While these lawsuits were pending, Congress drafted the Food Security Act of 1985, which included an amendment classified by both the House and Senate as "a clarifying provision." See S. Rep. No. 145, 99th Congress, 1st Sessions, 234 (Sept. 30, 1985), reprinted in 1985 U.S. Code Cong. & Admin. News 1676, 1900; H.R. Rep. No. 271, Part 1, 99th Congress, 1st Session, 310 (Sept. 13, 1985), reprinted in 1985 U.S. Code Cong. & Admin. News 1103, 1414. The amendment provides, in pertinent part:
"Assistance provided to a third party on behalf of the household by a state or local government shall be considered money payable directly to the household if the assistance is provided in lieu of . . . (B) a benefit payable to the household for living expenses under -- (i) a state or local general assistance program; or (ii) another basic assistance program comparable to general assistance (as determined by the Secretary)."
7 U.S.C. § 2014(k). The Senate report accompanying the Act explains that Congress wrote the clarifying provision to "assure that the federal government's position is upheld in the pending lawsuits." S. Rep. No. 145 at 234.
Based upon this intervening legislation, the government moved to dismiss for failure to state a claim upon which relief could be granted. Fed.R.Civ.P. 12(b)(6). The government maintained, inter alia, that the clarifying amendment demonstrates the reasonableness of the Secretary's policy. The district court granted the motion, and this appeal followed.
We begin with a review of the standards that guide our analysis. The first is well known: because the district court ruled upon a motion to dismiss, we must assume that the allegations in the complaint are true and view them, along with the reasonable inferences that may be drawn therefrom, in the light most favorable to the plaintiffs. Doe on behalf of Doe v. St. Joseph's Hospital, 788 F.2d 411, 414 (7th Cir. 1986); Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985). Our resolution of this appeal does not require a detailed factual discussion. Instead, the reasonableness of the Secretary's position presents a question of law, which we review de novo. See Thornburgh v. American College of Obstetricians, 476 U.S. 747, 106 S. Ct. 2169, 2177, 90 L. Ed. 2d 779 (1986).
Nevertheless, the other standard applicable to this case requires us to accord a considerable level of deference to the Secretary's interpretation of the Act's definition of "income." Zenith Radio Corp. v. United States, 437 U.S. 443, 450, 98 S. Ct. 2441, 2445, 57 L. Ed. 2d 337 (1977). The is especially true where an administrative practice "involved a contemporaneous construction of a statute by the [persons] charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new." Id. (quoting Norwegian Nitrogen Products Company v. United States, 288 U.S. 294, 315, 53 S. Ct. 350, 358, 77 L. Ed. 796 (1933). Still, the Secretary's ruling can neither be arbitrary, nor capricious, nor an abuse of discretion, nor otherwise contrary to law. See Internal Revenue Service v. Federal Labor Relations Authority, 717 F.2d 1174, 1177 (7th Cir. 1983) (Flaum, J. concurring). Applying these principles, we must determine whether or not the Secretary's interpretation is both reasonable and consistent with the Act's legislative history; if it is, the level of deference required by Zenith controls the outcome of this case.
As the appellants correctly note, the starting point for any inquiry into congressional intent is the statute itself; if it is clear on its face, there is no need to resort to outside sources for its meaning. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842, 104 S. Ct. 2778, 2781, 81 L. Ed. 2d 694 (1984). The government admits that at the time this action was filed, there arguably was an ambiguity in the Act. Initially, the Act (and its implementing regulations) contained an all-encompassing definition of income as "all income from whatever source," 7 U.S.C. § 2014(d); 7 C.F.R. § 273.9(b), including "a public assistance grant to which a household is legally entitled." 7 C.F.R. § 273.9(c)(1)(iii). It also contained a provision excluding from income " . . . any gain or benefit which is not in the form of money payable directly to a household . . . . " 7 U.S.C. § 2014(d)(1). The ambiguity is apparent: what if a public assistance grant (which is income) is not in the form of money payable directly to the household, i.e., to a third party (which is not income)?
The so-called "clarifying" amendment was intended to answer the question. It provides, in pertinent part:
"(k) . . . [A]ssistance provided to a third party on behalf of a household by a state or local government shall be considered money payable directly to the household if the assistance is provided in lieu of . . . (B) a benefit payable to the household for living expenses under--(i) a state or local general assistance program; or (ii) another basic assistance program comparable to general assistance (as determined by the Secretary)."
7 U.S.C. § 2014(k) (emphasis added). The district court held that under subsection (k), assistance provided by the township to a third party on behalf of the household constitutes income if it is paid "in lieu of" or "instead of" a direct payment to the household. Because payments to third parties under Indiana's poor relief program are in lieu of direct payments to a household, the court concluded that the assistance must be treated as income.
The district court's interpretation squares with both the statutory language and its legislative history. The Senate report accompanying P.L. 99-198 explains that the amendment was enacted specifically with the idea of approving the Secretary's practice of treating all assistance payments to third parties as income:
"The Committee has included this provision to help assure that the Federal Government's position is upheld and congressional intent is served.
In some cases, general assistance may be provided as third-party payments only, with no payments going directly to households. Under the Committee's provision, none of these distinctions would matter, since any governmental payment made to the provider of goods or services on behalf of a household (in lieu of a payment made directly to the household) would be included as income unless specifically excluded by regulations promulgated under the authority provided to the Secretary.
The provision will reinforce Congress' historical intent that payment from government assistance programs be included as income regardless of their form and insure equity between groups of individuals who receive assistance in various forms."
S.Rep.No. 145 at 233-34 (emphasis added). Despite this clear statement of congressional intent, the appellants maintain that the statutory phrase "provided in lieu of a benefit payable to the household" does not apply to Indiana's poor relief program. Appellants argue, inter alia, that Indiana's poor relief aid cannot be treated as "assistance provided to a third-party on behalf of a household . . . in lieu of . . . a benefit payable to the household for living expenses," 7 U.S.C. § 2014(k) (emphasis added), because Indiana households have never received direct cash payments as general assistance. Their construction would limit the statutory exception to those states whose programs employ third-party payments in addition to their ordinary direct cash payments. In such states, they argue, payments to third parties are in fact a substitute for (and hence, "in lieu of") their normal procedure of paying households directly in cash. Because Indiana has never provided assistance directly, they contend that their poor relief aid is not a substitute for direct cash payments.
In our opinion, appellant's construction of § 2014(k) is unduly restrictive. "In lieu of" is defined as "in place of; instead of." American Heritage Dictionary 728 (2nd ed. 1982). The plain remaining of the phrase does not support appellants' view that subsection (k) applies only to those states that actually substitute third-party payments for certain pre-existing direct cash payments. Instead, the phrase can reasonably be interpreted to encompass third-party payments that perform the same function as direct cash payments and which would otherwise be paid in cash to the needy household. Therefore, because the Secretary's construction of subsection (k) fits within the ordinary meaning of the phrase "in lieu of," it meets the test of reasonableness set forth in Zenith, supra.*fn5
Moreover, there is no support in the legislative history for the construction proposed by appellants. In fact, their reading of the provision that subsection (k) applies only to states that substitute third-party payments for direct cash payments would lead to the very result that Congress expressly sought to avoid when it enacted the amendment in question.
Under the appellant's interpretation, a state that provided needy families with some direct cash assistance would treat all general assistance as income regardless of its form; while a state that provided its families with third-party payments only, would not treat that assistance as income. Were we to adopt this reasoning, Indiana residents would receive a larger share of food stamp benefits than similarly situated applicants in other states. This is the problem Congress sought to avoid, as the Senate report establishes: "the provision will . . . insure equity between groups of individuals who receive assistance in varying forms." S. Rep. No. 145 at 234.*fn6 Congress's desire to insure nationwide uniformity in its food stamp eligibility requirements supports the Secretary's interpretation that all general assistance payments, regardless of their form, be treated as income.
Finally, appellants maintain that treating vendor payments as income would unfairly decrease the dollar value purchasing power of food stamps available to a household without giving the household any choice as to the form of assistance it receives. As the Secretary points out, while Indiana poor relief recipients lose some control over the purpose for which their assistance may be used, direct vendor payments allow a household's funds to be used for other purposes, including the purchase of food. In fact, the extent to which a recipient "controls" the form of his assistance has been rejected by Congress as the operative consideration in defining income. See Knebel v. Hein, 429 U.S. 288, 295-96, 97 S. Ct. 549, 554, 50 L. Ed. 2d 485 (1977) (recognizing that third-party payments give a household greater food-purchasing power than another household which receives no vendor payments but incurs similar expenses); H. R. Rep. No. 464 at 27.*fn7 The mere fact that Indiana chooses to funnel its general assistance payments to needy households' creditors, rather than allowing beneficiary's to budget the assistance themselves, does not, in our view, require the federal government to extend that state preferential treatment under the federal food stamp program.
Where to strike the balance between the policies involved in determining whether to provide payment to vendors or to provide payments directly to a household is more properly a matter for the legislature, not for the Court. State legislatures are knowledgeable for the needs and problems of the poor within their states and are better equipped to make the necessary policy decisions in this area as the legislative process, by its very nature, allows all interested parties, state, local governmental representatives, economists, social workers, food stamp recipients, etc., to present their respective views before proper legislative committees. Thereafter, the committees formulate the policy and forward the proposed law to the full legislative body who in turn engage in a thorough debate of the subject matter before coming to a reasoned conclusion. In our system of checks and balances, we the independent judiciary lack both the time and the necessary tools to achieve this end. Therefore, our duty is to merely decide on the constitutionality of the legislation and/or the reasonableness and compliance of the law with congressional intent. We have reviewed the facts and law applicable thereto and hold that because the Secretary's interpretation of the Act, treating all general assistance payments as income regardless of their form, is both reasonable and in compliance with Congressional intnet, we must defer to that interpretation of legislative judgment.