The opinion of the court was delivered by: LUONGO
In August, 1978, this action was filed against the City of Philadelphia and individual City officials under 42 U.S.C. § 1983, challenging the City's administration of the Supplemental Food Program for Women, Infants, and Children (WIC), 42 U.S.C. § 1786.
Plaintiffs sought injunctive relief and damages related to the City's decision to institute the priority program described in the regulations, 7 C.F.R. § 246.7, which resulted in the removal from the WIC program of all four-year-olds in the Priority V group. Plaintiffs also challenged the City's failure to provide removed recipients with either the notice prescribed by the regulations, 7 C.F.R. § 246.24, or process which would meet the requirements of the due process clause.
On August 8 and 10 and September 5, hearings were held on the preliminary injunction issue. The hiatus in the hearings was due to settlement negotiations which ultimately failed to resolve the dispute. My reasons for denying the preliminary injunction were discussed in detail in Alexander v. Polk, 459 F. Supp. 883 (E.D. Pa. 1978). That opinion details the facts of this case and they will be repeated here only in summary form.
On December 19, 1978, after the denial of the preliminary injunction, plaintiffs amended their complaint to include several Commonwealth of Pennsylvania defendants and the Pennsylvania Department of Health. The Commonwealth, under whose aegis the City administered the WIC program, had been a participant in the failed negotiations between the parties. Plaintiffs' complaint attacked the Commonwealth's failure to provide adequate notice and hearings.
In February, 1979, I certified a class of all four-year-old children who were terminated from the WIC program pursuant to the priority program without written notice and an opportunity to be heard.
Plaintiffs and the City defendants then engaged in discovery and the plaintiffs and Commonwealth defendants negotiated and formulated the guidelines for notice and hearing required by the WIC statute. Because these negotiations were successful in producing the desired procedures, plaintiffs seek no further relief from the Commonwealth defendants.
The City stopped making terminations under the priority program on November 27, 1978 and shortly thereafter discontinued administering the WIC program altogether. Plaintiffs, therefore, no longer seek injunctive relief against the City defendants. The City defendants and plaintiffs agree that, at this time, only one issue remains to be resolved
-- the City's liability for damages for its failure to provide the process required by the WIC statute and by the Constitution for those removed from the program under the City's institution of the priority program. On March 16, 1983, I conducted a trial on this issue. Except for the testimony of one witness, the trial consisted of the submission of stipulations relating to material, for the most part, already in the record. For this reason, I will incorporate the findings of fact and conclusions of law made in the earlier Alexander opinion into this opinion, and make new findings and conclusions, or reiterate existing ones, in narrative form as permitted by Fed.R. Civ.P. 52(a) and only as they relate to the remaining issue in the case.
The WIC program was enacted by Congress in 1972 as an amendment to the Child Nutrition Act of 1966 to provide supplemental nutritious foods to pregnant women, infants, and young children, for whom, Congress had found, inadequate nutrition constituted a special health risk. The program was entirely federally funded and was administered by the Food and Nutrition Service (FNS) of the United States Department of Agriculture (USDA). The Secretary of Agriculture made cash grants to participating state health agencies which, in turn, contracted with local health agencies serving needy populations for delivery of benefits to eligible participants. To be eligible for benefits, an individual had to: reside within the area serviced by the local agency; have met income criteria set by the state agency; and have been found to be in nutritional need by a competent professional authority. 7 C.F.R. § 246.7(b). Only pregnant women, postpartum women, and children under five years of age were eligible for the program. 42 U.S.C.A. § 1786(g).
In Pennsylvania, from late 1974 through February 1, 1979, the Commonwealth Department of Health administered the program state-wide and the Philadelphia Department of Public Health administered the program locally. The City operated the program as an adjunct to an existing health care program using both City health care facilities and facilities operated by subcontractors to run the program and issue food prescription vouchers to recipients. These vouchers could be used as cash to purchase prescribed foods at specified food stores.
The contract at issue in this case was between the City and the Commonwealth for the short fiscal year from October 1, 1977 to June 1, 1978. Under the contract, the Commonwealth limited the City to $300,000 in food expenditures monthly with a ceiling of $2,700,000 for that fiscal year with additional funds to cover administrative expenses. Alexander at 888. The contract also provided a monthly case load allocation of 15,000 which was to be used as a guideline for the expenditure of funds. If participation reached 15,000 people and additional money remained, the contract authorized the City to serve more recipients up to the maximum food money allocation.
The Commonwealth monitored vouchers cashed and informed local agencies of their expenditures. Unfortunately there was a time delay of two to six months between the issuance of vouchers in any month and a local agency's receipt of its expenditure report for that month.
For this reason, in November, 1977, the City conducted a manual tally of all those who had been issued food vouchers within the previous three or six months.
The tally showed that there were 19,666 people in this category, 4,666 more than the 15,000 monthly guideline. The City made no adjustment in this figure for people who would become ineligible -- reach the age of five, move from the service area, no longer be in nutritional need, physically or financially and therefore be removed from the program; for those who only sporadically procured vouchers; or for vouchers never redeemed.
Based on this head count, and its belief that program enrollment tended to mushroom, the City feared that it would overspend its allocation if it did not implement the priority program authorized in 7 C.F.R. § 246.7(b)(2)(ii) (1978).
This program consisted of six categories of nutritional need which were to be served in order of priority when a local program reached its maximum participation level so that those most in need would be assured of continuing benefits.
On December 20 and 30, 1977, Dr. Pearl Pitt, City WIC Coordinator, instituted the priority program by directing local health directors and subcontractors to not only stop certifying new non-lactating postpartum women, Priority VI, and four-year-olds from Priority V (those with no medical problems), but also to remove currently enrolled recipients in these categories from the program.
The four-year-old cutoff was selected because Dr. Pitt felt it was unnecessary to remove all Priority V recipients in order to remain within budget limitations. Additionally, Dr. Pitt believed the risk of anemia was reduced as children grew older,
particularly after age three. N.T. 121 (August 8, 1978).
The Commonwealth objected to the City's implementation of the priority program and ordered the City to discontinue the program. Exhibits P-1, D-23. The City refused to comply.
When those recipients designated for termination appeared for their regularly scheduled visits, they received vouchers for the current month but were orally informed that they were going to be removed from the program. It is conceded by the City that these persons received no written notice of their impending removal and were not informed that they had a right to a fair hearing. During this period, January through November, 1978, the Commonwealth Department of Health had not published any procedures providing a hearing in accordance with the WIC regulations.
After instituting the priority program, the City did not determine how many recipients had been removed from each priority class, did not maintain a continuous count of program participants in order to compensate for the deficiencies it found in the Commonwealth's accounting system, and did not reevaluate program participation until September, 1978 when it performed another head count of the June, 1978 participation, for which the count was 15,791.
In October the City began keeping a monthly tally. Effective November 27, 1978, the City no longer denied WIC benefits based on the priority program. In February, 1979, the City stopped administering the WIC program.
The computer reports compiled by the Commonwealth after June, 1978 showed that the actual value of vouchers redeemed during the October 1, 1977 to June 30, 1978 contract was $2,228,335, and underspending of $471,665 for the fiscal year. It is necessary, however, to keep in mind my earlier caveat, Alexander at 896, that the actions involved in this litigation must be judged not with the benefit of hindsight but with the information that was available to the parties at the time the decision was made. In December, 1977, the City Health Department officials believed that if they were to exceed their budgetary allotment under the WIC program, they would not be reimbursed by the Commonwealth. City officials were aware that, because of the time delay, the Commonwealth's accounting reports could not be relied upon and that their own tally showed an unsupportable number of recipients. The City was, therefore, forced to strike a balance between currently providing services to all eligible recipients on one hand and protecting its fiscal integrity and risking the possibility of a more severe limitation of benefits in the future on the other.
Unfortunately for the intended recipients of WIC benefits, neither the City nor the Commonwealth officials charged with administering the program exercised the degree of control needed to keep expenditures as close as possible to the maximum permitted under the program. The Commonwealth failed to provide an adequate accounting system and refused to guarantee the City that, if the City complied with the Commonwealth's request that it not institute the priority program, the Commonwealth would reimburse the City for any overspending. Alexander at 897. City officials chose a questionable methodology for their head count and failed to monitor program participation until nine months later. With the benefit of hindsight, it is possible to argue that this inefficient management deprived eligible recipients of their benefits. Such inefficient management, however, is not illegal unless it rises to the level of unreasonable or arbitrary action. Plaintiffs have not argued
that the defendants' actions meet this standard and it is clear that they do not. While hindsight shows that the City may have been mistaken,
I decided in Alexander that the City's choice was permissible and reasonable at the time.
When the City Department of Health contracted with the Commonwealth to administer the WIC program, it expressly agreed to conform to the requirements of the WIC statute and the federal regulations, Exhibit D-2 at para. 32, but even without that agreement, the City would have been subject to similar compliance, 7 C.F.R. § 246.3(d); Eder v. Beal, 609 F.2d 695, 700 (3d Cir. 1979) (Commonwealth of Pennsylvania, once it decided to participate in a Title XX program, had to act in compliance with federal law); Budnicki v. Beal, 450 F. Supp. 546, 550-51 (E.D. Pa. 1978) (Commonwealth must conform its medical assistance program to the requirements of Title XIX of the Social Security Act).
Plaintiffs allege that the City failed to live up to that obligation because it did not provide written notification to recipients of the reasons for their termination and of their right to a fair hearing as required by 7 C.F.R. §§ ...