contravened either the Food Stamp regulations or the Food Stamp Act, the Court does now find that it is reasonably likely that the plaintiffs may prevail on one or both of these claims.
The plaintiffs also claim that the credit program violated the Equal Protection Clause of the Fourteenth Amendment invidiously discriminating between non-public assistance by recipients whose income was indefinitely suspended and who were reauthorized food stamps to reflect the non-receipt of the suspended income and not on any credit arrangement and the treatment of these plaintiffs. As this claim has neither been briefed or discussed in oral argument by either counsel and necessarily is dependent on a decision regarding whether the plaintiffs had income under the regulations involved, the Court will refrain from further discussion of the issue until after the hearing for a permanent injunction.
The second claim put forth by the plaintiffs to support their motion for a preliminary injunction is the argument that the recoupment provisions of the Department of Public Welfare's credit program are not authorized by the Food Stamp Act, 7 U.S.C. § 2011 et seq., the Social Security Act, 42 U.S.C. § 301 et seq., or the regulations promulgated under these acts. Apparently, the plaintiffs are correct in their assertion that the regulations and the acts do not explicitly authorize this recoupment plan. Under the Food Stamp regulations there is no provision for recoupment if excess free coupons are issued; rather a demand must be made asking the recipient to return the excess. 7 C.F.R. 271.7(f). Under the Social Security Act regulations, generally recoupment of an overpayment is not allowed 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." 45 C.F.R. 233.20 (12)(i)(A)(1). As it seems the Department has not made the determination required by 45 C.F.R. 233.20(12)(i)(A)(1) regarding these plaintiffs, it could not recoup the claimed extra payment under this regulation. Under 45 C.F.R. § 233.20(12)(i)(A)(2) a recoupment without such a determination is allowed if there is an overpayment caused by the recipient's willful withholding of information and then only under paragraph (f) of that section if it limits the payments that may be deducted at any one time so as not to cause undue hardship on recipients. This latter provision in the regulations does not appear to apply in this case. Furthermore, there does not seem to be any explicit authorization to recoup food stamp overpayments from public assistance checks.
However, the lack of specific authorization for recovery of the outlaid funds in this case does not resolve the question of whether the recoupment provisions in the Department's credit food stamp program are permissible. Defendants' witnesses in the September 1, 1977 hearing before Judge Van Artsdalen asserted that this credit food stamp program cost the government three million dollars. Thus, it is understandable that if the food stamps were correctly issued on credit, rather than for no consideration, the defendants would have a substantial interest in recovering the expended funds. The defendants assert that the recoupment regulations found in the Food Stamp and Social Security Act regulations do not fit the peculiar circumstances of this emergency program. This in fact might be the case. In Hagans v. Berger, 536 F.2d 525 (2d Cir. 1976), the New York State Department of Social Services had promulgated a regulation which allowed the state to make advance allowances of rent subsidies to recipients before the time when their allowances were due, in order to prevent the eviction of recipient families. This program was instituted because numerous recipients diverted shelter allowances to other purposes, became delinquent in rental payments, and were thereby threatened with eviction. Under the regulations, these advances were only allowed if the recipient requested such advances in writing and also requested that his or her grant be reduced to reflect the advance in equal amounts over the next six months. When this regulation was challenged under the recoupment procedures of the Social Security Act and its regulations, the Second Circuit found that the recoupment provisions did not apply since the regulations spoke to recoupment of an "overpayment" and an overpayment was defined under the regulations as a "financial assistance payment received by or for an assistance unit, for the review month, which is in excess by at least $5.00 of the amount that should have been paid to such assistance unit." 45 C.F.R. 205.40(a)(4). The Court found that the advance allowance could not be characterized as an "excess over the amount that should have been paid," Hagans v. Berger, 536 F.2d 525 at 532, as the state intentionally authorized the advance. Hagans may give this Court instruction on how to reconcile the recoupment provisions under the regulations with the program for recovery of the credit food stamps in this case. Again, this issue will be resolved in later proceedings, but Hagans puts substantial doubt on whether the plaintiffs' claim on this issue is meritorious.
However, it still should be recognized that even if the Court finds that it is possible for the Department to seek recovery from the plaintiffs without specific authorization by the regulations, it would appear to this Court that the method chosen to recover the amount expended by the government should be subjected to some type of testing to determine whether it is consistent with the Food Stamp and Social Security Acts. In Hagans, the defendants sought to recover the allowance over a six month period; here the defendants seek to secure repayment to the Commonwealth by reducing one assistance check. As stated above, while generally the Social Security regulations do not allow recoupment from assistance checks unless the state can show that the recipient has other income equal to the amount sought to be recouped, even when recoupment is allowed from assistance checks because there has been a withholding of information by the recipient, the state is required to insure that the recoupment does not visit undue hardship upon the recipient. Furthermore, when prior regulations that generally authorized recoupment from public assistance checks without a showing of current ability to sustain such a reduction were challenged in the courts, they were struck down as inconsistent with the policy of the Social Security Act since these regulations did not reflect a concern with the present ability of the recipient to financially manage the burden of a present reduction. See National Welfare Rights Organization v. Weinberger, 377 F. Supp. 861 (D.D.C. 1974). There appears then to be a recognition that although a recipient may have received an overpayment in the past, when recoupment is sought that person, who once received a bonus, may not have the present ability to repay the bonus and such a burden may be placed upon that person if he was required to make present full repayment as to be contrary to the intent of the Social Security Act. Thus, although the plaintiffs have not shown a likelihood of success on their claim that as the recoupment provisions were not authorized by the regulations plaintiffs are entitled to judgment, there still remains a strong possibility that the recoupment program designed by the Department of Public Welfare could not be sustained under the Social Security Act. Further discussion and information (such as what percentage of a recipient's present public assistance check will be recouped under the state's program) appears necessary to finally resolve this issue.
Finally, plaintiffs move for a preliminary injunction on the grounds that the procedural protections afforded the plaintiffs, and the class they seek to represent, when the Department began reducing assistance checks failed to meet the standards established by the applicable Social Security regulations and that they also violated the Due Process Clause of the Fourteenth Amendment. When the Department of Public Welfare began reducing the checks of recipients they failed to give any notice to recipients of the action being taken, the reasons for it and the recipients' rights to hearings about the action. In fact, the defendants admit that such recipients did not receive such notice until after September 16, 1977; however, the state claims that the failure to give notice was inadvertent and that after the discovery of this error they developed a special computer program and mailed the notices out. Of course, it should be noted that as the plaintiffs filed this suit on August 24, 1977, the defendants had notice of their own error as of that date and the mistake was not corrected for three weeks.
Plaintiffs' claim that the failure to give notice violated the regulations appears to have substantial merit. Under the Social Security regulations, generally, timely notice is required when the intended official action is to discontinue, terminate, suspend or reduce assistance. 45 C.F.R. 205.10(a)(4)(i). Timely notice requires that notice be mailed at least ten (10) days prior to the date on which the action of the Department will become effective. 45 C.F.R. 205.10(a)(4)(A). In certain cases, adequate notice is sufficient. Adequate notice is a written notice, given prior to or contemporaneous with the intended action, that includes a statement of what action the agency intends to take, the reasons for that action, the regulations supporting the action, and the right to request a hearing. 45 C.F.R. 205.10(a)(4)(i)(B). In this case neither timely nor adequate notice was given and therefore it appears that plaintiffs will likely succeed on this claim.
However, it will be important to resolve whether adequate or timely notice is required. Unlike adequate notice, timely notice, which gives the recipient more time to plan for the intended agency action, also allows the recipient to continue receiving assistance at its present level pending a decision after a hearing, if the recipient requests such a hearing. Plaintiffs argue that timely notice was required in this case. Defendants contend that as the adequate notice procedures received prior approval by the United States Department of Agriculture such notice is sufficient. It is unclear to this Court why such prior approval would remedy a deficiency in notice requirements under the regulations, if there was one, and this Court would ask the defendants for further explanation. Assuming that such prior approval by the federal agency does not allow for judgment in the defendant's favor on this issue, the question is whether timely or adequate notice is required under the regulations. Although, there are several exceptions to the timely notice requirement, the only one that would appear possibly applicable in this case is stated in 45 C.F.R. 205.10(a)(4)(i)(B)(4) which provides that timely notice may be suspended with and adequate notice will be sufficient when
the agency receives a clear written statement, signed by a recipient that he no longer wishes assistance, or that gives information which requires termination or reduction of assistance and the recipient has indicated, in writing, that he understands that this must be the consequence of supplying such information.
Plaintiffs claim that their case does not fall within this exception, even though they gave a written statement giving information which could cause their assistance checks to be reduced. This Court finds that it is likely that their claim is meritorious. Prior to the time when this regulation was promulgated previous regulations attempting to delineate when adequate notice was sufficient had been struck down by the courts. When this regulation was promulgated, the issuing agency sought ratification of it by the enjoining court. In passing on the constitutionality of this section the Court in Harrell v. Harder, 369 F. Supp. 810 (D. Conn. 1974), outlined the premise upon which the regulation was approved: "Needless to say, such statements must be voluntary and not coerced in any way." Id. at 821. Given the circumstances under which these written statements were executed, i.e., the plaintiffs, without any assistance checks, were in desperate need for free food stamps when asked to sign the statement, it would be hard to say that the plaintiffs' assertion that this exception to the timely notice requirement is inapplicable is without substantial merit.
Plaintiffs further contend that under the due process standard outlined in Goldberg v. Kelly, 397 U.S. 254, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970), the defendants were constitutionally required to give timely notice and an opportunity for a hearing prior to the reduction of these checks. In Goldberg, the Supreme Court held that due process required timely notice and an opportunity for a hearing as well as other procedural rights prior to termination of welfare assistance. Such procedural protections have been extended to actions for reductions of assistance checks. See Caldwell v. Laupheimer, 311 F. Supp. 853 (E.D. Pa. 1969). In Brower v. Wohlgemuth, 371 F. Supp. 863 (E.D. Pa. 1974) and Brown v. Wohlgemuth, 371 F. Supp. 1035 (W.D. Pa. 1974), plaintiffs' public assistance checks were withheld by the state, because earlier that month the state claimed that the plaintiffs had been issued two checks rather than one check as scheduled. The Courts in Brower and Brown found that the plaintiffs were entitled to notice and a hearing prior to the withholding of the assistance checks. While the defendants attempt to distinguish the case before the Court from Brown and Brower on the basis that in Brower the Court had been particularly concerned with persons who had not realized that the Commonwealth had made a mistake and spent the money in good faith, it should be noted that in Brown the Court instructed that without giving the procedural protections afforded in Goldberg,
The state cannot withhold or suspend grants of aid to needy, dependent children in order to recoup prior duplicate assistance payments made in error by the state, even if the parent or other eligible recipient has fraudulently acquired the duplicate payment. Brown v. Wohlgemuth, 371 F. Supp. 1035 (E.D. Pa. 1974).
Here the plaintiffs were not afforded such procedural protections. In Harrell v. Harder, 369 F. Supp. 810 (D. Conn. 1974), the Court, relying on the instructions given in Goldberg, pointed out that
The pretermination procedural requirements have one function only: "to produce an initial determination of the validity of the welfare department's grounds for discontinuance of payments in order to protect a recipient against an erroneous termination of his benefits." Goldberg v. Kelly, 397 U.S. at 267, 90 S. Ct. at 1020. Thus, if dispensing with timely notice (and, perforce, discontinuing assistance before the hearing) will neither affect the likelihood of the agency's rendering an erroneous decision nor subject the recipient to "brutal need," the necessity for provision of such notice is eliminated. Harrel v. Harder, 369 F. Supp. at 820.