author: ROTHSTEIN, District Judge.

text:
    SEATTLE PACIFIC UNIVERSITY, Free Methodist Church of North America, the Pacific Northwest Conference of the Free Methodist Church of North America, Plaintiffs, v. Catherine HAAS, et al., Defendants.
    No. C84-1787R.
    United States District Court, W.D. Washington, Seattle Division.
    Aug. 30, 1985.
    Denying Plaintiffs’ Motion to Alter or Amend Oct. 7, 1985.

      Chi-Dooh Li, Steven T. McFarland, Estep & Li, Seattle, Wash., for plaintiffs.
    Winslow Whitman, Office of the Atty. Gen., Seattle, Wash., for defendants.
   ORDER GRANTING DEFENDANT EEOC’S MOTION TO DISMISS AND GRANTING IN PART PLAINTIFFS’ MOTION TO FILE A SECOND AMENDED COMPLAINT

ROTHSTEIN, District Judge.

THIS MATTER comes before the court on defendant Equal Employment Opportunity Commission’s motion for dismissal or summary judgment and on plaintiffs’ motion for leave to file a second amended complaint. Also before the court is the Equal Employment Opportunity Commission’s motion for an order striking plaintiffs’ supplemental pleading or for leave to reply. The court has carefully considered the memoranda and other materials submitted in support of and in opposition to each motion.

I. FACTUAL BACKGROUND

Seattle Pacific University (“SPU”) is an educational institution affiliated with the Free Methodist Church of North America. As to both faculty and staff personnel, SPU’s express policy is to hire only “evangelical Christians.”

On August 4, 1983, Orin C. Church, Jr., sought employment as a warehouse person at SPU. At the SPU personnel office, Church was told that SPU hires only evangelical Christians. As Church was not an evangelical Christian, he did not submit an employment application.

On August 10, 1983, Church filed a complaint against SPU with the Washington State Human Rights Commission (“WSHRC”), which forwarded a copy of the complaint to the Equal Employment Opportunity Commission (“EEOC”). Exhibit A to Complaint for Declaratory and Injunctive. Relief (“Complaint”). In this complaint, Church alleges employment discrimination based on creed. Id. Under the Washington law against discrimination, RCW 49.60.010-330, WSHRG is authorized to investigate complaints of employment discrimination and seek enforcement of the law against discrimination before an administrative law judge. Under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2000e-17 (1982), EEOC is authorized to investigate such complaints and seek enforcement of Title VII in federal court.

On September 6, 1983, EEOC sent SPU a form notice that EEOC had received a discrimination charge against SPU. Exhibit C to Complaint. The notice indicates that EEOC will defer to WSHRC but will “assume jurisdiction” after 60 days or upon termination of WSHRC proceedings, whichever occurs first. Id.

WSHRC investigated the Church complaint. EEOC has continued to defer to WSHRC and has never investigated the Church complaint. Exhibit 1 to EEOC’s Memorandum in Support of Motion to Dismiss or Alternatively for Summary Judgment.

On October 3, 1984, and November 6, 1984, WSHRC issued determinations of reasonable cause to believe that SPU has engaged in unlawful employment discrimination against Church. Exhibits A & B to Plaintiffs’ Memorandum in Opposition to EEOC’s Motion to Dismiss or Alternatively for Summary Judgment (“Plaintiffs’ Mem. Opp.”). In these determinations, WSHRC expressly “asserts jurisdiction in this matter” under the Washington law against discrimination. Id. On November 15, 1984, the responsible WSHRC officer informed plaintiffs’ counsel that she planned to refer the matter for litigation. Exhibit C to Plaintiffs’ Mem.Opp.

For purposes of the law against discrimination, the term “employer” is defined to exclude “any religious or sectarian organization, not organized for private profit.” RCW 49.60.040. In effect, such organizations are exempt from the law’s prohibition of employment discrimination. In the determinations of reasonable cause, however, WSHRC takes the position that the equal protection and establishment clauses of the United States Constitution require that the religious organizations exemption be construed to apply only to employment that is religious in nature. Exhibits A & B to Plaintiffs’ Mem.Opp. This position is based at least in part on Amos v. Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-Day Saints, 594 F.Supp. 791 (D.Utah 1984).

EEOC has not yet taken any position as to whether Title VII applies to SPU in general or to the alleged discrimination against Church in particular.

On January 8, 1985, plaintiffs SPU, Free Methodist Church of North America, and the Pacific Northwest Conference of the Free Methodist Church of North America filed this action for declaratory and injunctive relief. According to plaintiffs, the conduct of WSHRC and EEOC in this matter violates plaintiffs’ constitutional and statutory rights. Plaintiffs seek (1) a declaratory judgment that under relevant constitutional and statutory provisions SPU is exempt from “any complaint, investigation, proceeding or action alleging employment discrimination on the basis of religion or creed,” and (2) an injunction requiring defendants to dismiss the Church complaint and prohibiting defendants from “entertaining any complaint, conducting any investigation, or maintaining any proceeding or lawsuit” with respect to employment discrimination by SPU on the basis of religion or creed.

II. MOTION FOR DISMISSAL OR SUMMARY JUDGMENT

EEOC seeks dismissal or summary judgment on the grounds that, inter alia, the controversy as against EEOC is not ripe for review. As the court agrees that the controversy is not ripe for review, the court does not consider the other possible grounds for dismissal or summary judgment raised by EEOC.

Under the ripeness doctrine, declaratory and injunctive relief are generally not granted in a controversy that is not “ripe” for review. Abbott Laboratories v. Gardner, 387 U.S. 136, 148, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967). In order to determine whether a controversy is ripe for review, a court must consider “both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration.” Id. at 149, 87 S.Ct. at 1515. In the context of a challenge to an administrative action, the requisite fitness for judicial decision depends in part on whether the challenged action is “final agency action” under Section 10 of the Administrative Procedure Act (“APA”), 5 U.S.C. § 704 (1982). Id. at 149-52, 87 S.Ct. at 1515-17. See also Federal Trade Comm 'n v. Standard Oil Co. of Cal., 449 U.S. 232, 238-47, 101 S.Ct. 488, 492-97, 66 L.Ed.2d 416 (1980) (agency action not final, hence not ripe for review). The requisite hardship is a dilemma between disadvantageous compliance with a final agency action and the risk of prosecution and penalties. 387 U.S. at 152-53, 87 S.Ct. at 1517.

Plaintiffs seek declaratory and injunctive relief as to the Church complaint and all future charges of discrimination based on religion or creed. Plaintiffs claim that they are entitled to such relief under the United States Constitution and under certain exemptions provided by Title VII.

Clearly, plaintiffs’ claims are not fit for review. EEOC has taken no position with respect to the Church complaint or to any possible future charges; there is no action, final or otherwise, to review. The relief plaintiffs seek is a judgment to “hold in readiness” against possible EEOC action. See Public Serv. Comm’n v. Wycoff Co., Inc., 344 U.S. 237, 245-46, 73 S.Ct. 236, 241, 97 L.Ed. 291 (1952). Such a judgment would preempt EEOC’s determination of its own jurisdiction and thereby improperly encroach on EEOC’s internal procedures. Id. at 246, 73 S.Ct. at 241.

Plaintiffs’ only hardship is the same hardship experienced by anyone who must act without the guidance of a definitive interpretation of the law. Whatever dilemma plaintiffs face arises from the mere existence of Title VII, not from any action by EEOC. The mere existence of a statute does not create a controversy ripe for review. Boating Ind. Ass’ns v. Marshall, 601 F.2d 1376, 1384 (9th Cir.1979).

The court concludes that plaintiffs’ claims against EEOC for permanent insulation from investigation or prosecution for discrimination based on religion or creed are not ripe for review. These claims must therefore be dismissed.

III. MOTION FOR LEAVE TO AMEND

Plaintiffs move for leave to file a second amended complaint. The proposed amendments are as follows: (1) addition of the Oregon Conference of the Free Methodist Church of North America and the Columbia River Conference of the Free Methodist Church of North America as plaintiffs; (2) addition of Charles Huey, recently appointed WSHRC Commissioner, as a defendant; (3) addition of WSHRC as a defendant; (4) addition of all WSHRC Commissioners as defendants in their individual capacities; (5) addition of all EEOC Commissioners as defendants in their official and individual capacities; (6) deletion of Orin C. Church, Jr., as a defendant; and (7) addition of an allegation of irreparable injury and no adequate remedy at law.

Under Fed.R.Civ.P. 15(a), leave to amend a complaint is “freely given when justice so requires.” Under certain circumstances, however, leave may be denied.

The propriety of a motion for leave to amend is generally determined by reference to several factors: (1) undue delay; (2) bad faith; (3) futility of amendment; and (4) prejudice to the opposing party.

Hum v. Retirement Fund Tmst of Plumbing, Heating and Piping Ind. of So. Cal., 648 F.2d 1252,1254 (9th Cir.1981). In opposition to plaintiffs’ motion, defendants argue delay and futility.

A. Undue Delay

The WSHRC Commissioners assert that many of plaintiffs’ amendments could have been accomplished at an earlier time. As this action was filed on January 8,1985, and plaintiffs’ motion for leave to amend was filed on May 16, 1985, plaintiffs’ delay has been at most a few months. Such delay provides no basis on which to deny leave to amend.

B. Futility of Amendment

1. EEOC

EEOC objects to the inclusion of EEOC Commissioners in their individual capacities. As the court has determined in Part II of this Order that plaintiffs’ claims against EEOC must be dismissed, addition of claims against EEOC Commissioners in their individual or official capacities would be futile and should not be allowed.

2. WSHRC Commissioners

The WSHRC Commissioners object to their inclusion as defendants in their individual capacities. The court understands the objection as based on futility. In essence, the WSHRC Commissioners assert that plaintiffs state no claim against them in their individual capacities.

Plaintiffs point out that government officials may be personally liable for official acts that violate clearly established constitutional or statutory rights. See Harlow v. Fitzgerald, 457 U.S. 800, 818-19, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982). Although plaintiffs do not claim damages anywhere in the proposed second amended complaint, they do claim attorneys’ fees as against WSHRC Commissioners and such other relief as the court may deem appropriate. Plaintiffs assert that damages may be appropriate as against the WSHRC Commissioners as individuals because plaintiffs’ rights are clearly established.

The court concludes that inclusion of the WSHRC Commissioners in their individual capacities is futile and should not be allowed. Plaintiffs’ only allegations against the WSHRC Commissioners involve an official act of law enforcement: the assertion of jurisdiction over SPU hiring practices. The Commissioners’ assertion of jurisdiction cannot be considered unreasonable. There is legal authority for the Commissioner’s position and the law concerning employment discrimination by religious institutions is far from settled.

C. Conclusion

The court sees no reason to deny leave to amend as to all proposed amendments except those adding EEOC Commissioners as defendants and those adding WSHRC Commissioners as defendants in their individual capacities. With these exceptions, therefore, leave to file the proposed second amended complaint will be granted.

IT IS NOW, THEREFORE, ORDERED as follows:

1. EEOC’s motion for dismissal or summary judgment is GRANTED. This action is dismissed without prejudice as to EEOC.

2. Plaintiffs’ motion for leave to file a second amended complaint is DENIED as to addition of EEOC Commissioners as defendants and addition of WSHRC Commissioners as defendants in their individual capacities. The motion is GRANTED in all other respects.

3. EEOC’s motion for an order striking plaintiffs’ supplemental pleading or for leave to reply is STRICKEN as moot.

IT IS SO ORDERED.

The Clerk of the Court is directed to forward copies of this Order to counsel of record.

ORDER DENYING PLAINTIFFS’ MOTION TO ALTER OR AMEND OR FOR RELIEF FROM ORDER

THIS MATTER comes before the court on plaintiffs’ motion to alter or amend the court’s Order of August 30, 1985. The court has carefully considered the memoranda submitted in support of and in opposition to this motion, together with the relevant file and records.

By the Order of August 30, 1985, the court granted defendant EEOC’s motion to dismiss and granted in part plaintiffs’ motion for leave to amend their complaint. Plaintiffs were denied leave to amend insofar as they sought to add as defendants the WSHRC Commissioners in their individual capacities.

The court’s denial of leave to add the WSHRC Commissioners in their individual capacities was based on the qualified immunity of government officials. It is undisputed that government officials such as the WSHRC Commissioners are immune from liability for damages in connection with official acts, except insofar as such acts may violate clearly established constitutional or statutory rights. Since the only allegations against the WSHRC Commisioners involved assertion of jurisdiction over SPU hiring practices, and the court felt that this assertion of jurisdiction could not be considered unreasonable, the court concluded that addition of the WSHRC Commissioners in their individual capacities was futile and should not be allowed.

Plaintiffs now move to alter or amend the Order of August 30, 1985, so as to allow claims against the WSHRC Commissioners in their individual capacities. In support of this motion, plaintiffs raise three arguments.

First, plaintiffs assert that leave to amend a complaint can be denied on grounds of futility only if proposed allegations fail to state a claim on which relief can be granted. Since qualified immunity is an affirmative defense, plaintiffs argue, the court cannot consider possible qualified immunity on a motion for leave to amend a complaint. The court rejects this argument because a motion for leave to amend addresses the discretion of the court. It is clearly within the court’s discretion to deny leave to amend where the proposed allegations cannot prevail against an immunity defense. Smith v. Commanding Officer, Air Force Accounting & Finance Center, 555 F.2d 234 (9th Cir.1977).

Second, plaintiffs assert that the merits of a qualified immunity defense involve factual and legal issues that the court cannot resolve on a motion for leave to amend. The court rejects this argument for two reasons: (1) The Order of August 30, 1985, resolved no factual issues. The court assumed the truth of plaintiffs’ allegations. Among these allegations were that WSHRC received from one Orin C. Church, Jr., a complaint stating that he had inquired at SPU about a position as a warehouse person and that SPU had discriminated against him on the basis of creed; and that WSHRC found reasonable cause to believe that SPU had unlawfully discriminated against Church and asserted jurisdiction over the Church complaint. (2) The resolution of the chief legal issue was entirely appropriate. In Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982), the Supreme Court held that the validity of a qualified immunity defense depends on the objective reasonableness of an official’s conduct, as measured by reference to clearly established law. The Harlow decision plainly contemplates that the state of the law and the objective reasonableness of an official’s conduct are issues for the court. If the court determines that the relevant law is not clearly established, then the defense prevails. In the present case, the court concluded that the law relevant to WSHRC jurisdiction over the Church complaint was not clearly established at the time WSHRC asserted jurisdiction. The only reason to have postponed this determination would have been to receive more exhaustive briefs from counsel, and the court considered such briefs unnecessary.

Third, plaintiffs assert that the court was simply wrong and that, contrary to the court’s conclusion, the WSHRC Commissioner’s assertion of jurisdiction over SPU hiring practices violated clearly established statutory rights. Specfically, plaintiffs assert that SPU, as a religious or sectarian organization, is exempt from WSHRC jurisdiction under RCW 49.60.040. It is true that the language of RCW 49.60.040 supports plaintiffs’ position. At the time the WSHRC Commissioners asserted jurisdiction over the Church complaint, however, there was certain case authority indicating that exemption of religious organizations from employment discrimination laws was constitutional only as to employment that is religious in nature. See Amos v. Corporation of the Presiding Bishop of the Church of Jesus Christ of the Latter-Day Saints, 594 F.Supp. 791 (D.Utah 1984). Plaintiffs cite no contrary authority in existence at the time. The court believes that the position taken by the WSHRC Commissioners was reasonable in light of contemporary authority. It is commendable that these officials should wish to behave in accordance with current interpretation of the Constitution. Therefore, the WSHRC Commissioner’s qualified immunity defense will prevail as a matter of law, and the proposed claims against the WSHRC Commissioners in their individual capacities are futile.

IT IS NOW, THEREFORE, ORDERED that plaintiffs’ motion to alter or amend or for relief from an order is DENIED.

The Clerk of the Court is directed to forward copies of this Order to counsel of record.

      . Plaintiffs assert that under Abbott, 387 U.S. at 149, 87 S.Ct. at 1515, fitness for review also depends on whether purely legal issues are presented. However, the court does not read Abbott to approve judicial review of interlocutory agency action merely because such action evokes concern over legal issues. The federal courts are not empowered to issue advisory opinions. See Federal Communications Comm'n v. Pacifica Found., 438 U.S. 726, 734-35, 98 S.Ct. 3026, 3032-33, 57 L.Ed.2d 1073 (1978).

      . Plaintiffs point out that, on September 6, 1983, EEOC sent SPU a form notice that EEOC had received the Church complaint and that EEOC would “assume jurisdiction” no later than 60 days hence. Exhibit C to Complaint. The 60-day period is the required period of deferral to certified state agencies such as WSHRC. See 42 U.S.C. § 2000e-5(c) (1982). The reference to this period and the assumption of "jurisdiction” is standard and merely reflects that EEOC cannot address a complaint until this period ends. The reference does not indicate any decision or contemplated action on the part of EEOC. Plaintiffs also argue that WSHRC, as EEOC’s agent, has issued determinations of reasonable cause and referred the Church complaint for litigation. This argument is without merit. WSHRC is not an agent of EEOC because WSHRC conducts no business on EEOC’s behalf. The actions of WSHRC serve to enforce state law, which is not EEOC's concern.

      . Plaintiffs suggest that under Abbott, 387 U.S. at 152-56, 87 S.Ct. at 1517-19, hardship may be found wherever a person’s actions are governed by a statute that may not be entirely clear or that may be affected by constitutional provisions. A person whose actions are so governed, they argue, faces a dilemma of possible violation of the law or disadvantageous compliance with the prevailing interpretation. As the court reads Abbott, however, claims for declaratory and injunctive relief against an administrative agency are ripe only if the plaintiffs dilemma arises from overt agency action or a positive threat of agency action. See Air California v. United States Dept. of Transp., 654 F.2d 616, 622 (9th Cir.1981); Boating Ind. Ass'ns v. Marshall, 601 F.2d 1376, 1384. Otherwise, the agency is not an adverse party and no true controversy exists.


source: Caselaw Access Project

author: NOLAND, Chief Judge.

license: Public Domain

text:
    Kay SEBAN, and June Yockey, et al., Plaintiffs, v. John R. BLOCK, et al., Defendants.
    No. IP 83-1065-C.
    United States District Court, S.D. Indiana, Indianapolis Division.
    Sept. 10, 1985.

      Chris Sautter, Marsha R. Bradford and Susan A. Failey, Legal Services Organization of Indiana, Inc., Bloomington, Ind., for plaintiffs.
    Charles Goodloe, Jr., Asst. U.S. Atty., Gary Shaw, Deputy Atty. Gen., Indianapolis, Ind., Elizabeth Pugh, U.S. Dept. of Justice, Washington, D.C., for defendants.
   MEMORANDUM ENTRY

NOLAND, Chief Judge.

I.

INTRODUCTION

This cause is before the Court on cross-motions for summary judgment and on plaintiffs’ motion for class certification. The plaintiffs, Seban and Yockey, are beneficiaries of both the Food Stamp Act, 7 U.S.C. §§ 2011 et seq. and the Low Income Housing Energy Assistance Act (“LIHEAA”), 42 U.S.C. §§ 8621 et seq. Block and Van Vleet (“the federal defendants”), and Blinzinger and Green (“the state defendants”) are in charge of administering the food stamp program in Indiana.

In this action the plaintiffs are challenging the defendants’ policy of disallowing some energy cost deductions, which results in a reduction of food stamp benefits for some, but not all, LIHEAA beneficiaries. The plaintiffs claim that this policy violates both the LIHEAA, 42 U.S.C. § 8624(f), and their rights to equal protection. This Court now rules in favor of the plaintiffs and holds that the defendants’ policy violates 42 U.S.C. § 8624(f). Having so held, the Court does not reach the plaintiffs’ equal protection claim.

The ultimate issue in this case is the reconciliation of the following two statutory provisions:

LIHEAA, 42 U.S.C. § 8624(f) :

Notwithstanding any other provision of law, the amount of any home energy assistance payments or allowances provided to an eligible household ... shall not be considered income or resources of such household ... for any purpose under any Federal or State law, including any law relating to ... food stamps____ (Emphasis added.)

Food Stamp Act, 7 U.S.C. § 2014(e):

Households ... shall also be entitled, with respect to expenses other than expenses paid on behalf of the household by a third party, to ... an excess shelter expense deduction____ (Emphasis added.)

The reconciliation of the statutes turns on the meaning of “income or resources” in § 8624(f).

The defendants have interpreted these statutes such that food stamp benefits remain unchanged for LIHEAA beneficiaries who receive a direct energy payment from the government. However, food stamp benefits are decreased for LIHEAA beneficiaries whose LIHEAA benefits are sent directly to the energy vendors. This difference arises because the defendants do not allow the plaintiffs to take an energy expense deduction for the energy expenses paid by the government to the vendor. The plaintiffs argue that under the correct interpretation of these statutes, LIHEAA payments cannot affect the beneficiaries’ energy deduction for food stamp purposes. An understanding of both programs and the defendants’ interpretation of the statutory provisions is necessary to resolve this dispute.

II.

FACTUAL BACKGROUND

A recipient’s food stamp benefits are calculated by deducting certain expenses from her gross income to arrive at a net income figure. This net income figure and the size of the recipient’s family determine her food stamp benefits. 7 C.F.R. § 273.9(a). (The benefit is the difference between the face value of the food stamp coupons the recipient can buy and the amount she must pay to get the coupons.)- Gross income includes both earned and ordinary unearned income (including benefits from pensions, Social Security, and Unemployment Compensation.) 7 C.F.R. § 273.9(b). The allowable deductions are: an excess shelter expense deduction (which includes energy expenses and other continuing charges such as rent or mortgage payments, cooking fuel, electricity, water and sewage, the fee for one basic phone, and some repair costs), a standard deduction, a percentage of earned income, excess medical expenses, and the cost of dependent care for people who work. 7 C.F.R. § 273.9(d). Expenses paid by a third party (someone not in the family unit applying for food stamps) cannot be deducted. 7 U.S.C. § 2014(e).

The other benefit program involved in this case is the LIHEAA, which provides energy assistance to low income families. The Secretary of Health and Human Services provides grants to the states, which then disburse the funds either by direct payments to the beneficiaries (“direct payments”) or by payments made to the energy suppliers (“vendor payments”). In Indiana the LIHEAA is implemented through Project SAFE. The LIHEAA provides that any benefits from this program will not be included as income or resources for any purpose under any federal or state law, including any law relating to food stamps. 42 U.S.C. § 8624(f). If not for this provision, LIHEAA benefits would be included as ordinary unearned income, and therefore as gross income, for food stamp benefit determinations.

Based on their interpretation of 7 U.S.C. § 2014(e), defendants classify LIHEAA vendor payments as third party payments for food stamp benefit determinations, and thus do not allow the plaintiffs to deduct those energy bills paid by Project SAFE through vendor payments. However, the defendants allow direct payment beneficiaries to claim an energy expense for the full amount they pay for energy even though some or all of the money paying the expense is from the government. (The defendants do not include either type of LIHEAA payment in recipients’ gross income. 42 U.S.C. § 8624(f) clearly prohibits them from doing otherwise.) Thus, the difference in manner of LIHEAA payment results in a disparity in food stamp benefits. For example, a $30 per month disparity in food stamp benefits results when two hypothetical four person families have identical income and expenses, but one receives its $100 per month LIHEAA benefit as a direct payment from Project SAFE and the other receives it as a vendor payment. (See calculations and chart submitted on page 9 of Memorandum Of Plaintiff In Support Of Motion For Summary Judgment.)

The facts are undisputed in the case before the Court. The plaintiffs are both certified food stamp recipients whose food stamp benefits were reduced as a result of LIHEAA benefits which they received in the form of vendor payments. The plaintiffs applied for energy assistance grants for the 1982-83 winter months through the Indiana Project SAFE program. On or about January 29, 1983, Project SAFE notified the plaintiffs that their applications for SAFE assistance had been approved, that they were eligible to receive credit for utility expenses, and that their utility suppliers would be paid directly for those utility expenses covered by Project SAFE. One month to six weeks later, the Bartholomew County Department of Public Welfare (“County Department”) notified the plaintiffs that their food stamp benefits would be reduced because Project SAFE was paying their utilities. The plaintiffs appealed said reductions, and on May 4, 1983, the Indiana Department of Welfare (“Indiana Department”) held a fair hearing on their appeal. On May 31, 1983, the Indiana Department notified Yockey that her appeal of the County Department’s decision had been denied because the County Department had properly excluded, as a shelter expense, the utility expenses for which Yockey received Project SAFE assistance. On June 8, 1983, the Indiana Department notified Seban that her appeal was denied for the same reason. Plaintiffs subsequently filed.this action on July 22, 1983.

III.

SUMMARY JUDGMENT

This case is properly decided on summary judgment motions. As required by Fed. R.Civ.P. 56, there is no genuine issue of material fact and the plaintiffs are entitled to judgment as a matter of law. (The only fact in dispute is whether any Indiana citizens receive LIHEAA payments direct from the State or whether all Indiana LIHEAA recipients receive their LIHEAA benefit in the form of a vendor payment. This factual dispute is not relevant to the determination of the plaintiffs’ claim that the defendants are violating 42 U.S.C. § 8624(f). It might be relevant to the plaintiffs’ equal protection claim, which the Court is not ruling upon.)

Although the ultimate issue the Court must reach is how to reconcile § 8624(f) of the LIHEAA with § 2014(e) of the Food Stamp Act, the major issue before this Court is determining what Congress meant when it said that LIHEAA payments are not to be considered “income or resources ... for any purpose.” Congress supplied the Court with the answer to the ultimate issue of reconciliation when it enacted § 8624(f) and stated that it was to be followed “[notwithstanding any other provision of law.” Thus, once the Court determines the meaning of § 8624(f), the two sections are reconciled by following the directives in § 8624(f) in any instance where they conflict with provisions in § 2014(e).

The Court finds that “income or resources” should be interpreted broadly so as to effectuate Congress’ intent that LIHEAA payments would not affect food stamp benefits. In so finding, the Court realizes that the Secretary’s interpretation of a statute he is charged with administering is entitled to substantial deference. U.S. v. Rutherford, 442 U.S. 544, 553, 99 S.Ct. 2470, 2476, 61 L.Ed.2d 68 (1979). However, for the reasons set forth herein, the Court finds that the Secretary’s interpretation is not what Congress intended.

Section 8624(f) is ambiguous, so the Court must look beyond the clear language of the statute. The Court has reached the conclusion that the broad definition of “income or resources” was intended because that definition gives § 8624(f) a sensible meaning, is consistent with the context in which the phrase appears, and is supported by the legislative history.

A. The Clear Language.

The Court must start with the language of the statute itself in analyzing § 8624(f). Bread Political Action Comm. v. Fed. Election Comm’n, 455 U.S. 577, 580, 102 S.Ct. 1235, 1237, 71 L.Ed.2d 432 (1982). If the statute is plain and unambiguous, the Court’s duty is to give effect to the terms and go no further. U.S. v. Rutherford, 442 U.S. at 551, 99 S.Ct. at 2475. Unfortunately, § 8624(f) is not clear because the LIHEAA does not define “income or resources,” and that phrase is subject to two conflicting interpretations. The defendants argue that the phrase should be interpreted narrowly so as to include gross income. The plaintiffs argue that the phrase should be interpreted broadly so as to include only net income. Under this broad definition, deductions could not be decreased as a result of LIHEAA benefits because that would increase net income.

The defendants argue that “income or resources” should be given its usual definition of gross income or resources because Congress did not define the phrase otherwise in the LIHEAA and because, in case anyone doubted it, one look at the Tax Code, 26 U.S.C. §§ 161 et seq., shows that Congress knows how to say “deduction.” Even if the Court were to accept the defendants’ claim that “income or resources” usually means gross income or resources, the Court would not be required to hold that definition binding on the LIHEAA. This Court has some basis for adopting the broad rather than the “usual meaning of [a statute’s] words where acceptance of that meaning would lead to absurd results ... or would thwart the obvious purpose of the statute____” In Re Trans Alaska Pipeline Rate Cases, 436 U.S. 631, 643, 98 S.Ct. 2053, 2061, 56 L.Ed.2d 591 (1978), quoting Comm’r v. Brown, 380 U.S. 563, 571, 85 S.Ct. 1162, 1166, 14 L.Ed.2d 75 (1965) (citations omitted). As discussed below, the narrow meaning of “income or resources” produces the absurd result of § 8624(f) rewarding recipients who misuse energy payments and thwarts the apparent purpose of the statute as shown by legislative history and the context in which “income or resources” appears.

The defendants, while arguing that § 8624(f) is clear, suggest that the Court should solve the problem of interpreting “income or resources” by looking at the definition given in the Food Stamp Act, 7 U.S.C. § 2014(d). Although the definition may be relevant and/or persuasive, it is not controlling. To determine the clear meaning of a phrase in the LIHEAA, the Court must look to the LIHEAA, not to the Food Stamp Act, even though the Court is trying to reconcile the two statutes. The fact that the defendants point to an outside statute to define “income or resources” in the LIHEAA is further evidence that the statute is not clear by itself.

B. Each Section Of A Statute Should Have Meaning.

In construing a statute, the courts assume that Congress intends each section to have meaning. See, e.g., FAA v. Robertson, 422 U.S. 255, 261, 95 S.Ct. 2140, 2145, 45 L.Ed.2d 164 (1975). The Court assumes that by adding § 8624(f), a section that is not required by law and that is not in other federal grant programs {e.g., Aid to Families with Dependent Children, 42 U.S.C. §§ 601 et seq., and Lower-Income Housing Assistance Program, 42 U.S.C. § 1437f), Congress intended to change the normal procedures that would otherwise be followed.

If the narrow definition of “income or resources” is used, a vendor payment beneficiary’s income is not increased, but her deductions are decreased, which causes a decrease in her food stamp benefits. Although the calculations are slightly different, this is the same bottom line that would have been reached if Congress had not added § 8624(f) to the LIHEAA. However, neither a direct payment beneficiary’s income nor her deductions would be changed by § 8624(f) and the broad definition. Using the narrow definition, as urged by the Secretary, produces the absurd result of rewarding (with greater food stamp benefits) those households which use government energy assistance payments for expenses other than that for which they were intended. Dept. of Health and Welfare, State of Idaho v. Block, No. 84-1106, slip op. at 8 (D.Idaho 12/21/84) appeal filed. Although, arguably, this narrow definition gives § 8624(f) meaning, it does not give said section a sensible meaning.

If the broad definition of “income or resources” is used, income is not increased and deductions are not decreased, therefore, food stamp benefits remain constant for both direct and vendor payment beneficiaries. The bottom line using the broad definition is different from what would have been reached without § 8624(f). Thus, the broad definition of “income or resources” gives meaning to § 8624(f).

Section 2014(e) is meaningful when either the narrow or broad definition is used. Section 2014(e) does not allow deductions for third-party payments. When the narrow definition of “income or resources” is used, § 2014(e) remains completely intact. When the broad definition is used, § 2014(e) remains intact for all third party payments except LIHEAA vendor payments. Although the broad definition of “income or resources” narrows the applicability of § 2014(e), it in no way renders the section meaningless.

C. The Context.

When a court attempts to determine the meaning of a phrase, it is necessary to look at the context in which the phrase appears. U.S. v. Bishop, 412 U.S. 346, 356, 93 S.Ct. 2008, 2015, 36 L.Ed.2d 941 (1973). The context of “income or resources” supports the use of a broad definition of the phrase.

Other phrases in the section in question are broad and appear to be all-inclusive. The section takes effect “[njotwithstanding any other provision of law.” LIHEAA payments are not to be considered income or resources “for any purpose under any Federal or State law.” (Emphasis added.) The wording of § 8624(f) evidences Congressional intent to ensure that LIHEAA benefits would not decrease a recipient’s benefits under any other law. A broad definition of “income or resources” effectuates this intent, while a narrow definition frustrates it.

Additionally, § 8624(f) impacts benefit calculations for numerous state and federal grant programs. It is reasonable to assume that Congress decided to use broad, general terms to accomplish its purpose, rather than specifically stating how benefits would be calculated under each of these programs. Dept. of Health and Welfare, State of Idaho v. Block, No. 84-1106, slip op. at 6 (D.Idaho 12/21/84) appeal filed.

D. Legislative History.

The Court hesitates to give much weight to the legislative history in this case. Although legislative history can be enlightening, it is very easily manipulated and is never voted on or passed by Congress. It is particularly difficult to divine Congressional intent from legislative history when, as is the case here, there are two pieces of legislative history, both directly on point, that are in direct conflict with each other. However, the legislative history of the LIHEAA is slightly more relevant, and therefore, slightly more persuasive. Thus, to the extent that the legislative history carries any weight, it weighs in favor of a broad definition of “income or resources.” The legislative history of the LIHEAA specifically says that Food Stamp benefits will not be reduced when a household receives LIHEAA vendor payments. The conference committee report states:

6. The conference agreement requires that fuel assistance payments or allowances provided under this title will not be considered income or resources of an eligible household for any purpose under a Federal or State law. The conferees wish to emphasize that this provision applies regardless of whether the fuel assistance is paid directly to the household or to the supplier of energy to the household. Thus, under any law, such as the Food Stamp Act of 1977, which provides that benefits may depend on the expenditures of the household for fuel, any portion of these expenditures which may be paid by the fuel assistance program authorized in this conference agreement will not be considered a resource available to the household, even if the payment is made directly to the energy supplier. Thus, under such a law, benefits will be computed as if the total cost of the fuel, including the amount of assistance provided, had been paid by the household.

H.R.Conf.Rep. No. 817, 96th Cong., 2d Sess. 154, reprinted in 1980 U.S.Code Cong. & Ad.News 642, 705-06.

Defendants fail in their attempt to discredit this legislative history by arguing that it is ambiguous because the word “deduction” is not used. The report very clearly expresses a Congressional intent that could only be followed if a broad definition of “income or resources” was used.

On the other hand, the legislative history of amendments to the Food Stamp Act shows that Congress intended that households not be allowed deductions for the energy costs covered by vendor payments and that a narrow definition of “income or resources” should be used. The House Committee on Agriculture, in its report on what became the 1980 amendments to the Food Stamp Act of 1977, considered the effect of the LIHEAA. After noting that the purpose of this provision was to guarantee that food stamp recipients would be held harmless and lose neither their program eligibility nor part of their allotment because of the receipt of energy assistance payments, the Committee stated that “[t]he new exclusion [of LIHEAA payments] would not affect the method of calculating deductions.” H.R.Rep. No. 788, 96th Cong., 2d Sess. 123, reprinted in 1980 U.S. Code Cong. & Ad.News 843, 956. The House Committee on Agriculture further provided that:

[W]here the energy allowance or grant takes the form of a vendor payment, as under existing law, no deductible ex pense would be incurred, since the regulations specifically provide that “an expense covered by an excluded reimbursement or vendor payment shall not be deductible”, 7 C.F.R. § 273.10(d)(1).

H.R.Rep. No. 788, 96th Cong., 2d Sess. 123-24, reprinted in 1980 U.S.Code Cong. & Ad.News 843, 956-57 (emphasis added).

If the legislative history of the Food Stamp Act amendments was as relevant as that of the LIHEAA, the Court would call it a draw and not give any weight at . all to the legislative history. However, the primary problem facing the Court is determining the meaning of § 8624(f) of the LIHEAA. In interpreting the LIHEAA, the legislative history of that same act is obviously more relevant than that of the Food Stamp Act amendments. Therefore, the legislative history, on balance, weighs in favor of a broad definition of “income or resources,” although it is far from definitive.

E. Income Or Deduction — Same Effect On The Bottom Line.

Finally, the Court is further persuaded that Congress intended a broad definition of “income or resources” because decreasing deductions is the same as increasing income, and increasing income is clearly forbidden by § 8624(f). Schmiege v. Sec. ofAg., 693 F.2d 55, 56 (8th Cir.1982). The defendants plausibly argue that “income or resources” are distinct and separate from “deductions.” In so arguing, the defendants are using mathematical sleight of hand to create the illusion of abiding by § 8624(f). It is only an illusion, though, because “the bottom line controlling the amount of benefits is the same whether income is increased or deductions decreased.” Schmiege, 693 F.2d at 56 (footnote omitted).

F. Conclusion.

The Court holds that the defendants’ policy of disallowing, for purposes of calculating food stamp benefits, an energy expense deduction for the amount of a household’s energy costs met by LIHEAA vendor payments violates § 8624(f) of the LIHEAA. For the reasons discussed above, the Court finds that Congress intended “income or resources,” as used in § 8624(f), to be interpreted broadly, such that LIHEAA payments would not affect food stamp benefits. This provision in § 8624(f) overrides the contrary provisions in § 2014(e) of the Food Stamp Act because § 8624(f) is to be followed “[notwithstanding any other provisions of law.” The defendants’ policy of disallowing energy deductions decreases a LIHEAA vendor payment beneficiary’s food stamp benefits, and in so doing, violates § 8624(f).

In so holding, this Court joins the four other courts which have ruled on the legality of the defendants’ policy. The Eighth Circuit, in Schmiege v. Sec. of Ag., 693 F.2d 55 (1982), affirmed the District Court of Minnesota’s decision, Schmiege v. Noot, No. 4-81-288 (6/11/81), holding that § 8624(f) precluded the government from disallowing energy expense deductions for LIHEAA vendor payments. More recently, the District Court in Idaho, in a suit brought by the State of Idaho, stated, “It seems clear that Congress intended that the LIHEAA payments would have no impact whatsoever on a food stamp recipient’s (or prospective recipient’s) eligibility or level of benefits.” Dept. of Health and Welfare, State of Idaho v. Block, No. 84-1106, slip op. at 8 (12/21/84) appeal filed. Most recently, the District Court in Montana permanently enjoined defendant Block and others from disallowing energy costs reimbursed by payments under the LIHEAA in the computation of excess shelter expense provided in 7 U.S.C. § 2014(e). Harkins v. Block, No. CV-84-124-M, slip op. (D.Mont. 5/22/85).

There being no questions of material fact, the Court finds that the plaintiffs are entitled to judgment as a matter of law, and therefore, SUMMARY JUDGMENT shall be entered in favor of the plaintiffs and against the defendants. It is adjudged and decreed that the defendants’ policy of excluding the amount of LIHEAA vendor payments from the excess shelter expense deduction when computing food stamp eligibility is in violation of 42 U.S.C. § 8624(f).

At this time the Court will not enter judgment nor rule on the type of relief to be granted the plaintiffs. The parties are requested to submit both a proposed judgment which will grant appropriate relief and a supporting brief.

IV.

CLASS CERTIFICATION

The plaintiffs have moved for certification of a class defined as all individuals in the State of Indiana who have had, now have, or will have their food stamp benefits reduced because of receipt of energy assistance grants through the LIHEAA. The Court finds that it would be unwise and unnecessary to certify the class. As noted above, the Court has requested the parties to submit a proposed judgment which will incorporate an appropriate remedy for joint LIHEAA and food stamp recipients.

      . 42 U.S.C. § 8624(f) replaced the nearly identical provision found in the Home Energy Assistance Act of 1980, 42 U.S.C. § 8612(c), which read:
      Notwithstanding any other provision of law, the amount of any fuel assistance payments or allowances provided to an eligible household under this chapter shall not be considered income or resources of such household (or any member thereof) for any purpose under any Federal or State law, including any law relating to taxation, public assistance or welfare program.

      . This holds true for all LIHEAA and food stamp beneficiaries across the country except those living in the Eighth Judicial Circuit. Beneficiaries in the Eighth Circuit can claim deductions for energy expenses paid by LIHEAA vendor payments pursuant to Schmeige v. Sec. of Ag., 693 F.2d 55 (1982). This Court is unaware of any similar change made in the federal defendants’ policy in Idaho pursuant to Dept. of Health and Welfare, State of Idaho v. Block, No. 84-1106 (D.Idaho 12/21/84) appeal filed or in Montana pursuant to Harkins v. Block, No. CV-84-124-M (D.Mont. 5/22/85).

      . Courts in the past have been able to rely on legislative history for important insights into Congressional intent. Without implying that this is no longer the case, we note that interest groups who have failed to persuade a majority of the Congress to accept particular statutory language often are able to have inserted in the legislative history of the statute statements favorable to their position, in the hope that they can persuade a court to construe the statutory language in light of these statements____

        National Small Shipments Traffic Conf. v. CAB, 618 F.2d 819, 828 (D.C.Cir.1980), quoted in Ruhe v. Block, 507 F.Supp. 1290, 1297 (E.D.Va. 1981), aff'd sub nom. Ruhe v. Bergland, 683 F.2d 102 (4th Cir.1982).

      . The legislative history is actually that of § 8612(c) of the HEAA, which § 8614(f) of the LIHEAA replaced. As shown in footnote 2, supra, § 8612(c) and § 8624(f) are virtually identical.


author: SCOTT D. WRIGHT, Chief Judge.

text:
    Rochelle PAYNE, Trevenio Davis, by his next friend, Rhonda Payne, Janese Littlejohn, Ardella Walker, Felecia E. Jones, Martha K. Hopkins, Martha A. Evans, Linda Simpson, Carol Paxton, Plaintiffs, v. Barrett TOAN, Individually and as Director of the Missouri Department of Social Services, Joseph J. O’Hara, Individually and as Director of the Missouri State Division of Family Services, and Margaret M. Heckler, Secretary of the Department of Health and Human Services, Defendants.
    No. 84-4085-CV-C-5.
    United States District Court, W.D. Missouri, C.D.
    Sept. 16, 1985.
    On Motion to Alter or Amend Oct. 15, 1985.

      Richard F. Halliburton, Effie F. Day, James Marshall Smith, Kansas City, Mo., for plaintiffs.
    Paul T. Keller, Jefferson City, Mo., for State defendants.

      Judith Strong, Asst. U.S. Atty., Kansas City, Mo., for defendant Heckler.
   ORDER

SCOTT D. WRIGHT, Chief Judge.

Pending before the Court are cross-motions for summary judgment. The plaintiffs are Missouri residents who have been recipients of benefits under the Aid to Families with Dependent Children (AFDC) program, established under 42 U.S.C. § 602 et seq., and codified by the State of Missouri at Mo.Rev.Stat. § 208.050 (1982). The State defendants are the Directors of Missouri’s Department of Social Services, and Division of Family Services. The Federal defendant is the Secretary of the United States Department of Health and Human Services. At issue is the interpretation of the “lump sum rule” enacted by the Omnibus Budget Reconciliation Act of 1981 (OBRA), found at 42 U.S.C. § 602(a)(17). The lump sum rule provides that when any child or relative applying for AFDC receives a payment of a non-recurring lump sum income which exceeds the family’s need standard, the family of which such person is a member will be considered ineligible for AFDC benefits for a period of time. The plaintiffs, for various reasons, have had their AFDC payments temporarily terminated under this lump sum rule, and they seek injunctive and declaratory relief pursuant to 5 U.S.C. § 701-706 and 42 U.S.C. § 1983.

The Court has previously issued a temporary restraining order, and the parties have submitted stipulated facts. Plaintiffs challenge the Federal and State defendants' interpretation of the lump sum rule on four grounds: (1) the rule cannot be applied to personal injury awards or life insurance settlements because such lump sum payments are resources and not income; (2) in light of the Deficit Reduction Act of 1984 and cases interpreting it, the rule cannot apply to lump sum Social Security benefits received by a representative payee prior to October 1, 1984; (3) the rule should not apply to members of a family assistance unit who are removed by a court order from the disqualified family and who have no control over expenditure of the lump sum; and (4) the lump sum rule cannot apply to AFDC assistance units which were not receiving “earned income” at the time they received their non-recurring lump sum payment.

Personal Injury Settlements

By its own language, the lump sum rule applies only to income received in excess of the standard of need, not to resources. 42 U.S.C. § 602(a)(17). However, Congress has never explicitly defined the term “income” as it pertains to public assistance legislation. On the other hand, various federal agencies do not consider personal injury awards as income; for example, the Food Stamp Program under 7 C.F.R. § 273.9(c)(8) and the Internal Revenue Service under 26 U.S.C. § 104 both exclude compensation for personal injury.

The courts have been split on the issue of considering personal injury awards for AFDC eligibility. Because of this split, and because the Eighth Circuit has not addressed this issue, this Court finds the plaintiffs’ argument more persuasive. A personal injury award is not a gain or profit to the recipient; it is an attempt to compensate the person for his injuries and put him in the same position he was prior to the injury. In fact, in the Missouri Income Maintenance Manual, a lump sum is defined to exclude compensation for loss of resources. It would be incongruous to exclude settlements on a damaged material resource, such as a car or house, and include settlements on damage to a person’s body. Accordingly, the Court will grant relief requested by the plaintiffs as it applies to personal injury awards.

Life Insurance Awards

This issue appears to be one of first impression, and certainly presents a more troublesome question. A person may be named the beneficiary of life insurance policy whether they are a family member, a distant relative or just a friend. Depending on the circumstances, receipt of such an award may be an unexpected windfall or a meager attempt to replace the breadwinner of a family.

In the situation before the Court, plaintiff Simpson was the victim of a fire that totally destroyed her house and its contents, and two of her minor children and her father died in the fire. She had no insurance other than the three life insurance policies that amounted to $12,086.95. Within three months, all the money was spent. The Division of Family Services gave Simpson a $3,300.00 offset, allowing for burial expenses, some rent payments, and the cost of a car needed for transportation to seek medical treatment. However, the rest of the money which was used to replace necessary household and personal items, as well as pay for medicine and medical care, was deemed income, and Simpson and her family were rendered ineligible under the lump sum rule for 29 months. Without AFDC benefits, Simpson’s sole income for herself and her three surviving children is $253.00 a month in Food Stamp benefits. In this case the life insurance was clearly not a windfall, rather it was used to replace resources destroyed in connection with the same event causing deaths of those-insured. To the extent life insurance awards are used in this particular manner, they should be considered resources and not income. The relief granted for this plaintiff should be considered limited to this type of exceptional situation.

Social Security Benefits

Prior to enactment of the Deficit Reduction Act of 1984 (DEFRA), in particular Section 2640(a), the Eighth Circuit affirmed this Court’s order enjoining state officials from counting OASDI benefits until Title II of the Social Security Act as income available to the OASDI beneficiary’s dependent child when determining AFDC eligibility. Cunningham v. Toan, 728 F.2d 1101 (8th Cir.1984). However, the Supreme Court vacated that judgment and remanded the case for further consideration in light of DEFRA. Toan v. Cunningham, — U.S. -, 105 S.Ct. 896, 83 L.Ed.2d 912 (1985). The Eighth Circuit then modified this Court’s order by holding that Social Security benefits paid to a representative payee will be income available for the purpose of AFDC eligibility, if the representative payee lives in the same household. If the representative payee does not live in the same household, then the benefits are considered income only to the extent they are available to the beneficiary. Cunningham v. Toan, 762 F.2d 63 (8th Cir.1985).

The two plaintiffs in question have received the disqualifying benefits, prior to October 1, 1984, the effective date of DE-FRA. The issue before the Court is whether this section of DEFRA changed the law and should be applied retroactively, or whether it merely clarified existing law. Cases relied upon by defendant are those interpreting Section 2632(b) and will be discussed later in this order. While one section of DEFRA may have been clarifying rather than changing the law, this analysis does not necessarily hold true for the entire Act.

By comparing Cunningham I and Cunningham II, there is clearly a change in the law precipitated by DEFRA. Had plaintiffs Walker and Jones’ cases been tried under Cunningham I, the Social Security benefits would have been improperly considered available to the entire family unit. To retroactively apply Cunningham II would result in a manifest injustice, and so this Court will apply the law in effect prior to October 1, 1984, DEFRA’s effective date, and grant plaintiffs’ requested relief as to this issue.

Family Members Removed by Court Order

This issue concerns interpretation of 42 U.S.C. § 602(a)(17)(A). This section provides that if an individual receives income which exceeds the state standard of need applicable to the family of which he is a member, the income shall render the whole family ineligible. The Court must determine whether the term “family” should be construed to include children who have been removed from the home by a court order and have become part of another household.

In the specific situation presented to the Court, a woman, who had been receiving AFDC benefits for herself and three children, was awarded a cash settlement of $22,938.00 in April of 1983. In a matter of months this woman spent the entire amount, none of it going towards necessities or life-threatening circumstances for the children. On July 28, 1983, by order of the Juvenile Court of Jackson County, Missouri, two of the children were placed with one aunt, and the third child placed with another aunt. Subsequently, these two aunts applied for AFDC benefits, but these children were found ineligible for 55.4 months on the basis of their mother’s lump sum.

There is no case law on point and the only guidance by the Department of Health and Human Services is found at 47 F.R. 5656 (Feb. 5, 1982) where it commented: “After a State makes a determination of future ineligibility based on this provision, future changes in family composition or other relevant circumstances do not change or alter the period of ineligibility for the members of the assistance unit which has been determined ineligible.” While this interpretation is entitled to deference, the comment would be most appropriately applied to voluntary changes in family composition. Clearly, AFDC recipients cannot avoid the lump sum rule by shuffling their children to other friends or relatives.

However, when children are removed by court order, the change is involuntary. Under these circumstances, it makes no sense to penalize the children for over four years because of their mother’s lack of responsibility. Under the limited facts of this case, the plaintiffs’ request for relief is granted.

No Earned Income Families

The final issue concerns application of the lump sum rule to AFDC recipients notwithstanding their lack of any earned income at the time their lump sums were received. When DEFRA was passed in 1984, § 2632(b) amended § 402(a)(17) and made the lump sum rule applicable to all AFDC families, even those with unearned income. As with the Social Security benefits issue discussed above, the plaintiffs argue that § 2632(b) is a change in the law and should not be applied retroactively, and defendants argue that the section is merely a clarification.

However, unlike the Social Security benefits issue where Eighth Circuit decisions indicated a change had in fact taken place, here the Eighth Circuit had an opinion consistent with the new section. In Faught v. Heckler, 736 F.2d 1235 (8th Cir.1984), the court held that the lump sum rule applied to all AFDC families. In further support of the defendants’ argument, all the cases addressing this issue have held that § 2632(b) is a clarification and not a change. Barnes v. Cohen, 749 F.2d 1009, 1016 (3rd Cir.1984); Malone v. Johansen, 600 F.Supp. 199, 201 (D.V.I.1985); Davis v. Coler, 601 F.Supp. 444, 450 (N.D.Ill.1984). Therefore, plaintiffs’ request for relief will not be granted on this issue.

Conclusion

In accordance with the reasons stated herein, it is hereby

ORDERED that plaintiff’s motion for summary judgment is granted, and defendants’ motion for summary judgment is denied in the following respects:

(1) The State defendants, their agents, employees and successors, are permanently enjoined from counting money received from personal injury settlements, and life insurance awards, to the extent the money is used to replace resources destroyed in connection with the same event causing deaths of those insured, as “income” rather than as resources in calculating eligibility for AFDC benefits under the lump sum rule of 42 U.S.C. § 602(a)(17);

(2) The State defendants, their agents, employees and successors, are permanently enjoined from applying the lump sum provision of 42 U.S.C. § 602(a)(17) to receipt of Social Security benefits made to representative payees prior to October 1, 1984;

(3) The State defendants, their agents, employees, and successors are permanently enjoined from applying 42 U.S.C. § 602(a)(17)(A) and RSMo. § 208.050(3)(a) to make children ineligible for AFDC benefits when they have been removed from the ineligible family assistance unit by a court order.

It is further

ORDERED that the defendants’ motion for summary judgment is granted and the plaintiffs’ motion for summary judgment is denied as to the defendants’ policy of applying the lump sum provision of 42 U.S.C. § 602(a)(17) to all AFDC recipients, regardless. of unearned income. It is further

ORDERED that the federal defendant is permanently enjoined from applying any sanctions against State defendants’ implementation of the lump sum provisions of 42 U.S.C. § 602(a)(17). It is further

ORDERED that the federal government shall bear the costs of this action.

On Motion to Alter or Amend

Pending before the Court is the federal defendant’s motion to alter or amend its order enjoining the State defendants from applying the lump sum provision of 42 U.S.C. § 602(a)(17) to receipt of Social Security benefits made to representative payees prior to October 1, 1984. In question are benefits paid to plaintiff Jones and plaintiff Walker. While this court still finds that these benefits were not available to these two assistance units, it does agree with the federal defendant’s point that the holding of Cunningham v. Toan, 728 F.2d 1101 (8th Cir.1984), did allow for benefits actually available to a dependent child to be considered in calculating the child’s eligibility.

Accordingly, it is hereby

ORDERED that this Court’s order of September 16, 1985 is amended in part to read: the State defendants, their agents, employees and successors, are permanently enjoined from applying the lump sum provision of 42 U.S.C. § 602(a)(17) to receipt of Social Security benefits made to representative payees prior to October 1, 1984, except to the extent that the benefits are actually available to the dependent children. It is further

ORDERED that this amendment does not affect either plaintiff Walker or plaintiff Jones.

      . Three plaintiffs received personal injury settlements: Martha Evans received $6,000.00 and her family assistance unit was declared ineligible for 19 months; Martha Hopkins received $1,140.17 and was declared ineligible for 3 months; Carol Paxton received $1,189.18 and was declared ineligible for 4 months.

      . Plaintiff Linda Simpson received $12,086.95 in life insurance proceeds after a fire destroyed her house and killed two of her children and her father. Her assistance unit was declared ineligible for 29 months.

      . Cunningham v. Toan, 728 F.2d 1101 (8th Cir. 1984); vacated and remanded, — U.S.-, 105 S.Ct. 896, 83 L.Ed.2d 912 (1985); modified, 762 F.2d 63 (8th Cir. 1985).

      . Two plaintiffs received Social Security benefits in a lump sum: Ardella Walker received $2,007.00 and was declared ineligible for 4.84 months; Felicia Jones received $2,865.50 and was declared ineligible for 6.31 months.

      . Three children of Diane Davis, Trevenio Davis, Sammy Payne and Jescinta Davis, were removed by court order after Diane Davis received a lump sum of $22,938.00 and the family was declared ineligible for 54.4 months.

      . Although the parties do not address plaintiff Janese Littlejohn's particular situation, she apparently fits into this category. She received a lump sum of $1,688.48 through a retirement plan and was declared ineligible for 6 months.

      . Courts which excluded personal injury awards from the definition of income: Barnes v. Cohen, 749 F.2d 1009, 1018 (3rd Cir.1984); LaMadridv. Hegstrom, 599 F.Supp. 1450, 1454 (D.Ore.1984); Reed v. Lukhard, 591 F.Supp. 1247, 1255 (W.D.Va.1984).
      Courts which have included such awards: Jackson v. Guissinger, 589 F.Supp. 1288 (W.D. La.1984); Betson v. Cohen, 587 F.Supp. 121 (E.D.Pa.1983); Davis v. Coler, 601 F.Supp. 444 (N.D.Ill.1984).

      . The stipulation of facts does not address what kind of settlement this was, but the plaintiffs do not argue it is a personal injury award, or life insurance award that would fit under the Court’s earlier holding.


author: RICE, District Judge.

text:
    CUPAC, INC., Plaintiff, v. MID-WEST INSURANCE AGENCY, INC., et al., Defendants.
    No. C-3-83-135.
    United States District Court, S.D. Ohio, W.D.
    Sept. 18, 1985.
    See also 100 F.R.D. 440.
    Francis S. McDaniel, Dayton, Ohio, for plaintiff.
    Robert J. Fogerty, Cleveland, Ohio, for defendants, Mid-West Insurance Agency, Inc. and Richard E. Bundschuh.
    Charles J. Faruki, Dayton, Ohio, Lawrence W. Pollack, John T. Patterson, New York City, for defendants Underwriters at Lloyd’s London, named herein as Lloyd’s of London and The Sovereign Marine and Gen. Ins. Company, Ltd.
   DECISION AND ENTRY SUSTAINING MOTION FOR SUMMARY JUDG- • MENT OF DEFENDANTS UNDERWRITERS AT LLOYD’S, LONDON AND SOVEREIGN MARINE AND GENERAL INSURANCE COMPANY, LTD.; CLERK DIRECTED TO ENTER FINAL JUDGMENT ON PLAINTIFF’S CLAIMS AGAINST DEFENDANT UNDERWRITERS AT LLOYD’S, LONDON AND DEFENDANT SOVEREIGN MARINE AND GENERAL INSURANCE COMPANY, LTD., THE COURT CONCLUDING THAT THERE IS NO JUST REASON FOR DELAY, FED.R.CIV.P. 54(b); OTHER MOTIONS DEEMED MOOT; STAY OF PROCEEDINGS AGAINST REMAINING DEFENDANTS PENDING APPEAL

RICE, District Judge.

This case arises out of an allegedly fraudulent scheme committed by Defendants Richard F. Bundschuh (“Bundschuh”) and Mid-West Insurance Agency, Inc. (“Mid-West”). The Plaintiff is engaged in the business of insurance premium financing. Plaintiff alleges that Bundschuh and Mid-West defrauded it by submitting at least 362 forged applications for premium finance loans on behalf of non-existent insureds. Plaintiff seeks to impose liability upon Defendants Underwriters at Lloyd's, London (“Lloyd’s”) and the Sovereign Marine and General Insurance Company Limited (“Sovereign”) on the basis of agency. See Plaintiff’s Complaint (Doc. # 1) at Ml 18-30. Specifically, Plaintiff alleges in “Count Three” of the Complaint (Doc. # 1, Ml 18-23) that Lloyd’s contracted with Mid-West, whereby Mid-West became authorized to act as an agent for Lloyd’s, with respect to the business of insurance by issuing insurance contracts and certificates of insurance to insureds, collecting premiums from insureds, and adjusting claims. Further, Plaintiff alleges that Lloyd’s provided Mid-West “actual and/or apparent authority” to act as Lloyd’s agent for the purpose of submitting applications for premium financing on behalf of customers of Lloyd’s and that Plaintiff relied on this authority. Doc. # 1 at ¶ 20. Plaintiff alleges that the premium financing applications were forged and as a result it suffered damages. In “Count Four” of the Complaint, Plaintiff makes similar allegations against Sovereign. Doc. #1 at MI 24-30.

This cause is before the Court on Lloyd’s and Sovereign’s Motions for Summary Judgment. Doc. # 46. In their Motion for Summary Judgment, Lloyd’s and Sovereign argue that the questions of whether Mid-West and Bundschuh had actual or apparent authority from Lloyd’s or Sovereign to deal in the business of insurance premium financing do not raise genuine issues of material fact. Lloyd’s and Sovereign assert that Bundschuh and Mid-West were without such authority; consequently, Lloyd’s and Sovereign contend that they are entitled to judgment as a matter of law. In ruling on this motion, initially the Court will restate certain universal principles which govern the resolution of motions for summary judgment. Then the Court will address the issues raised by the present motion.

“The most basic rule of summary judgment practice is that judgment may not be granted if there is a genuine issue with respect to any material fact.” County of Oakland v. City of Berkley, 742 F.2d 289, 297 (6th Cir.1984). However, a court shall sustain a motion for summary judgment when the moving party demonstrates that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Rule 56(c). In ruling on a motion for summary judgment, the papers of the moving party must be scrutinized while the papers of the party opposing the summary judgment are to be treated indulgently. Bohn Aluminum & Brass Corp. v. Storm King, 303 F.2d 425, 427 (6th Cir.1962). Nonetheless, when a motion for summary judgment is properly supported, the opposing party may not rest upon the mere allegations of his complaint, but rather, he must set forth, by affidavit or otherwise, specific facts which show that there is a genuine issue for trial. Rule 56(e); Glen Eden Hospital v. Blue Cross & Blue Shield of Michigan, 740 F.2d 423, 427 (6th Cir.1984).

As stated above, Plaintiff would impose liability on Lloyd’s and Sovereign for the misrepresentations made to it by Mid-West and Bundschuh in connection with insurance premium financing. For purposes of the present motion, the Court will assume, as Lloyd’s and Sovereign concede for similar purposes, that Mid-West and Bundschuh made material misrepresentations which Plaintiff relied upon to its detriment, causing it damages. The question remains whether Lloyd’s or Sovereign can be held liable for these misrepresentations. To resolve that question, the Court must examine Mid-West’s authority.

The express authority which Lloyd’s and Sovereign conférred upon Mid-West was set forth in contracts between the parties which are attached as exhibits to the Motion for Summary Judgment (Doc. # 46). Although each contract gives Mid-West very broad authority for the conduct of the business of insurance, nowhere in either contract is there a grant of authority to engage in premium financing. Plaintiff does not argue otherwise. Additionally, the Court notes that there are no disputed facts regarding the express authority which Lloyd’s and Sovereign conferred upon Mid-West. Hence, even if Plaintiff argued otherwise, the Court would resolve the issue as a matter of law and conclude that no express authority to engage in premium financing exists.

Apparent authority is defined as “[t]he power to effect the legal relations of another person by the transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons.” Restatement, 2d, Agency § 8. The touchstone of apparent authority is the principal’s conduct toward a third party and not the agent’s. Logsdon v. Main-Nottingham Investment Co., 103 Ohio App. 233, 242, 141 N.E.2d 216 (1956); Meyer v. Klensch, 114 Ohio App. 4, 6, 175 N.E.2d 870, 872 (1961). Herein, the only conduct by Lloyd’s or Sovereign which would be construed as directed toward Plaintiff, the third party, were the acts of entering into contracts with Mid-West. Otherwise, Lloyd’s and Sovereign had no contact with Plaintiff. Because the contracts between Mid-West and Lloyd’s, and Mid-West and Sovereign do not authorize Mid-West to engage in premium financing, it must follow that the contracts do not provide a basis for concluding that Lloyd’s or Sovereign’s conduct toward Plaintiff endowed Mid-West with apparent authority to engage in premium financing on behalf of Lloyd’s or Sovereign. Lloyd’s and Sovereign did nothing, either by way of ratification of their agent’s acts or expressly or impliedly with reference to the Plaintiff, from which the Plaintiff could assume that the agents (Bundschuh and Mid-West) had the apparent authority to act in Lloyd’s and Sovereign’s behalf with reference to premium financing. Accordingly, the Court concludes that Mid-West was without express or apparent authority to engage in premium financing.

In its memorandum in opposition to the motion for summary judgment (Doc. # 49), Plaintiff presents a number of arguments which the Court will address. Initially, Plaintiff argues that by virtue of the express written authority contained in the contracts between Lloyd’s, Sovereign and Mid-West, Mid-West was endowed with implied actual authority to deal with the public in all respects which are incidental to, usual and reasonably necessary for Mid-West to sell Lloyd’s and Sovereign’s insurance. This is of course true. However, in Spengler v. Sonnenberg, 88 Ohio St. 192, 200-01, 102 N.E. 737 (1913), the Ohio Supreme Court addressed the question of an agent’s incidental authority and said “the incidental authority which the agent has by implication is only such as is necessary to carry into effect the power actually conferred upon him.” See also, Chesapeake & Ohio Ry. Co. v. Ringstaff, 67 F.2d 482, 484 (6th Cir.1933) (“[An agent’s] implied authority embraces nothing except the powers necessary to carry into effect the purposes of the agency.”).

Based on the evidence before it, the Court concludes that there is not a genuine issue of fact as to the relationship between the business of premium financing and the business of writing and selling insurance policies. All evidence before the Court demonstrates that the business of premium financing is not incidental to or necessary to the business of writing and selling insurance policies. There is no evidence, such as an affidavit, which would tend to raise an issue of fact about whether the business of premium financing is inextricably interwoven with the business of writing and selling insurance policies. Accordingly, this case presents a purely legal question for the Court; there being no factual disputes for a jury to resolve. The Court concludes that the business of premium financing is not inextricably interwoven with the business of writing and selling insurance policies.

Plaintiffs employees recognize that insurance premium financing is distinct from the business of insurance. Ronald E. Dewey, vice president and treasurer of Plaintiff, testified that he did not consider premium financing to be carrying on the business of insurance. Dep. of Dewey at 31. James E. Reagan, executive vice president of Plaintiff, made the same statement. Reagan Dep. at 18. George Reedy, Plaintiff's president, stated that the functions of premium financing and insurance are separate and distinct and that premium financing is not the business of insurance; it is financing. Reedy Dep. at 8, 32. Diane Powers, a new business reviewer in Plaintiffs Illinois office, stated that the Illinois office did not deal in any type of underwriting or anything in insurance; they were a finance institute. Powers Dep. at 30. Dianne Salza Thomas, operations manager at Plaintiffs Illinois branch office, stated that she did not consider premium' financing to be carrying on the business of insurance. Thomas Dep. at 14. John E. Glavan, formerly a regional marketing manager with' Plaintiff, also said that he considered the business of premium financing to be separate and distinct from the business of insurance. Glavan Dep. at 8.

Under Ohio’s regulatory scheme, insurance premium financing is recognized as distinct from the business of insurance. Insurance is comprehensively regulated in Ohio Rev.Code Title 39. Premium financing is regulated by Ohio Rev.Code §§ 1321.71-1321.82. Indeed, insurance companies are exempted from the regulations of premium financing. Ohio Rev. Code § 1321.72(A).

Based upon the uncontroverted evidence before it, and the regulatory framework adopted by the Ohio General Assembly, this Court concludes that the question of whether engaging in the business of premium financing is a necessary, reasonable and usual incident to the business of writing and selling insurance policies does not raise a genuine issue of fact. As a matter of law, the Court concludes that premium financing is not incidental to the business of insurance. Accordingly, the Court concludes that Lloyd’s and Sovereign did not endow Mid-West with implied actual authority to engage in the business of premium financing, merely because of their grant to Mid-West of express, written authority to Mid-West to engage in the business of insurance.

Alternatively, the Plaintiff argues that Mid-West had implied actual authority, incidental to its express written authority to represent to insureds that certificates of insurance did exist, insuring named insured, and that the named insured had signed documents in connection with the insurance including applications for loans to finance the premiums of such insurance. Doc. #49 at 9. This argument is without merit. As discussed above, Mid-West’s authority, express, implied or apparent, did not extend to the business of premium financing. It is apparent that Plaintiff is merely attempting to argue, in another manner, that Mid-West had authority to engage in premium financing. The representations that were made to Plaintiff, that certificates of insurance had been issued to named insureds and that the premium financing applications had been filled out by the named insured, were made in connection with premium financing and not the business of insurance. It was not within the scope of Mid-West’s implied actual authority to engage in the business of premium financing. Therefore, Lloyd’s and Sovereign cannot be held liable for the misrepresentations of their agent made in the connection with that business.

The Court’s conclusion that the business of premium financing is not inextricably interwoven with the business of insurance is supported by much if not all of the analogous case law. For instance, in National Premium Budget Plan Corp. v. National Fire Ins. Co., 106 N.J.Super. 238, 254 A.2d 819 (1969), the court held that a principal/insurer was not liable for the misappropriation of premium finance loans by its agent. The court noted that the agent was not an agent of the insurer when it was arranging loans, rather that he was acting on his own behalf or that of the insureds when he so acted. Id. 254 A.2d at 820. Similar results have been reached by other courts. See First Trust & Deposit Co. v. Middlesex Mutual Fire Ins. Co., 259 App.Div. 80, 18 N.Y.S.2d 936, affd, 284 N.Y. 747, 31 N.E.2d 510 (1940); Acceptance Premium Finance Co. v. R.M. Cochran Co. (unreported Tenn.App.1974). There is some authority which could be considered contrary. However, for various reasons, this Court does not find same to be persuasive. For example, in Baker & Company v. Preferred Risk Mutual Ins. Co., 569 F.2d 1347 (5th Cir.1978), the court affirmed a jury award, against an insurer and in favor of a premium finance company, based on a fraud, similar to the one alleged herein, committed by an agent of the insurer. In reaching its conclusion, the court noted that the insurer conceded that the agent had authority to perform premium financing. Id. at 1349. As this Court has discussed, no such authority exists herein. Similarly, in Industrial Ins. Co. of New Jersey v. First Nat. Bank of Miami, 57 So.2d 23 (Fla.1952), the insurer was held liable for the defalcations of its agent in a premium financing scheme; however, it is apparent that the insurer had authorized the premium financing system. In New England Accept. Corp. v. American Mfrs. M.I. Co., 4 Mass.App. 172, 344 N.E.2d 208 (1976), affd, 373 Mass. 594, 368 N.E.2d 1385 (1977), the court imposed liability on an insurer, as a matter of law. Therein, the court held that an agent’s arranging for premium financing came within the broad authority. 344 N.E.2d at 212. In part, the court’s decision therein was based on a Massachusetts statute which authorized agents to accept notes as payment of insurance premiums and provided that the sale or negotiation of such a note was part of the process of selling insurance. Id., 344 N.E.2d at 213. Ohio does not have a similar statute. Therefore, this Court does not consider New England Acceptance Corp. to be persuasive.

Plaintiff also relies on two portions of the Ohio statutes regulating insurance premium finance companies, Ohio Rev.Code §§ 1321.81 and 1321.78(A)(2). Neither of these statutes even remotely imposes a duty upon an insurer to answer for the fraud that its agent commits on an insurance premium financing company. Consequently, neither section provides a basis for holding Lloyd’s and Sovereign liable.

Based upon the foregoing, the Court hereby sustains Defendant’s Lloyd’s and Sovereign’s Motion for Summary Judgment. (Doc. # 46). Moreover, pursuant to Rule 54(b), the Court finds that there is no just cause for delay. Accordingly, the Court hereby directs the clerk to enter final judgment in favor of Defendants Lloyd’s and Sovereign and against Plaintiff on Plaintiff’s claims set forth in the third and fourth counts of the Complaint against Lloyd’s and Sovereign. The entering of final judgment will allow an immediate appeal of this Court’s decision to the Sixth Circuit Court of Appeals.

Two discovery motions are also pending, to wit: Plaintiffs Motion to Compel Discovery or in the Alternative for Orders Pursuant to Rule 23.2 (Doc. # 30) and Lloyd’s and Sovereign’s Motion to Compel Production of Documents (Doc. # 36). As a result of its ruling on Lloyd’s and Sovereign’s motion for summary judgment, the Court concludes that these motions are moot. Accordingly, same will not be ruled upon. The Court notes that there can be no prejudice from this ruling. Defendants’ motion for summary judgment has been sustained, and Plaintiff’s discovery motion is directed at the capacity of Defendant Lloyd’s to be sued, as a result of its status as an unincorporated association. The Plaintiff’s motion to compel has absolutely no relevance to the issues raised by the motion for summary judgment.

Likewise, the motion of Defendants Lloyd’s and Sovereign for a continuance (Doc. # 57), and the Plaintiff’s motions for judgment on the pleadings (Doc. # 58) and motion in limine (Doc. # 59) are moot. Accordingly, these three motions will not be ruled upon.

In view of the fact that final judgment has been entered in favor of the Defendants Lloyd’s and Sovereign, the Court having found there is no just reason for delay, Fed.R.Civ.P. 54(b), and, further, since Plaintiff’s counsel has advised this Court of its intention to file an immediate appeal of this Court’s decision herein, the Plaintiff’s action against the remaining Defendants (Bundschuh and Mid-West) is stayed pending appeal.

      . Lloyd’s and Sovereign move for summary judgment only on the third and fourth counts of Plaintiff's Complaint, the only ones which assert claims for relief against these Defendants.

      . "Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.” Restatement, 2d, Agency § 7. Authority can be express or implied. Id. at Comment c.

      . A copy of this unreported decision is attached to the motion for summary judgment.

      . In New England Acceptance Corp., insureds would make notes to pay for their insurance policy. The agent would then discount the notes with companies such as the plaintiff therein. The suit arose over one agent’s practice of discounting forged notes.

      . Counsel for Lloyd’s and Sovereign have informed the Court that they will dismiss, without prejudice, their counterclaim against Plaintiff. Plaintiff, in turn, will waive the statute of limitations so that Lloyd's and Sovereign can reassert their counterclaim, within forty days of any decision of the United States Court of Appeals for the Sixth Circuit which reverses this Court’s order herein and thus reinstates the Plaintiffs claims against them.