County of Alameda v. Carleson

Opinion

These consolidated cases involve questions of interpretation of certain provisions of the Social Security Act ( 42 U.S.C. § 602 , subd, (a)), which set forth the requisites for a state plan for aid and services to needy families with children (AFDC program). At issue is the important question whether California’s plan, as set forth in the Welfare and Institutions Code and implemented by regulations promulgated by the California Department of Social Welfare, conforms to the provisions of the federal Act.^[1]

In S.F. 22820 (hereafter “the Alameda action”) plaintiff counties brought an action in February 1971 for declaratory and injunctive relief in Alameda County against defendant Carleson, Director of the Department of Social Welfare, contending that certain departmental regulations pertaining to eligibility for AFDC grants were invalid as interpreted and applied by Carleson. Since the effect of a judgment in counties’ favor would be

Pursuant to the judgment and writ of mandate in the Alameda action, Carleson had, on April 29, adopted an emergency regulation to become effective June 1, which would have the effect of terminating AFDC grants to certain recipients. In an attempt to enjoin Carleson from carrying that regulation into effect, CWRO (and three different welfare recipients) on May 17, initiated an action (Sac. 7898, hereafter “the Sacramento action”), against Carleson in Sacramento County, seeking injunctive and other extraordinary relief. The trial court on May 25 issued a temporary restraining order enjoining Carleson from “instituting” the emergency regulation, and an alternative writ of mandate compelling Carleson to rescind that regulation or to show cause on June 10 why such relief should not be granted. On June 1, Carleson noticed his appeal from the temporary restraining order. We transferred that appeal to this court and, on June 14, stayed the operation of that order pending appeal. Thereafter, on June 23, we stayed further enforcement of Carleson’s emergency regulation pending our determination of the proceedings.

In S.F. 22816, counties (plaintiffs in the Alameda action) sought prohibition to restrain further proceedings in the Sacramento action, alleging that the court was without jurisdiction to proceed further in that action. We transferred the matter to this court and issued an alternative writ of prohibition to the Sacramento court.

1. Procedural Matters

We have consolidated the foregoing cases so that this court might decide the important substantive issues common to each of them. Since the Alameda action proceeded to trial and judgment, and since the other actions now before us were filed either directly or indirectly in response to that judgment, the appeal therefrom provides the most appropriate vehicle for review of those issues, and our determination of that appeal would render moot the three remaining actions.

As indicated above, however, defendant Carleson chose not to appeal from the judgment obtained by counties in the Alameda action. Thus, the question arises whether CWRO, denied the status of intervener, had standing to appeal from that judgment. We have concluded that CWRO, by moving to vacate the judgment, made itself a party to the Alameda action for purposes of taking an appeal.

“Any aggrieved party” may appeal from an adverse judgment. (Code Civ. Proc., § 902.) It is generally held, however, that only parties of record may appeal; consequently one who is denied the right to intervene in an action ordinarily may not appeal from a judgment subsequently entered in the case. (Braun v. Brown, 13 Cal.2d 130 , 133-134 [ 87 P.2d 1009 ]; In re Veterans’ Industries, Inc., 8 Cal.App.3d 902 , 916 [ 88 Cal.Rptr. 303 ].) Instead, he may appeal from the order denying intervention. (Id.)^[4] Nevertheless, one who is legally “aggrieved” by a judgment may become a party of record and obtain a right to appeal by moving to vacate the judgment pursuant to Code of Civil Procedure section 663. (Eggert v. Pac. States S. & L. Co., 20 Cal.2d 199 , 201 [ 124 P.2d 815 ]; Elliott v. Superior Court, 144 Cal. 501 , 509 [ 77 P. 1109 ]; Estate of Partridge, 261 Cal.App.2d 58 , 60-63 [ 67 Cal.Rptr. 433 ]; Butterfield v. Tietz, 247 Cal. App.2d 483 , 484-485 [ 55 Cal.Rptr, 577 ]; Estate of Sloan, 222 Cal.App.

In the instant case, the judgment in the Alameda action, and the peremptory writ of mandate issued pursuant thereto, ordered defendant Carleson to amend or reinterpret his regulations in a manner which would, and did,^[5] have the effect of terminating AFDC grants to welfare recipients such as the individual applicant-interveners and others represented by CWRO. The Alameda judgment was the initial essential step in the process ultimately resulting in the termination of benefits which, as noted in Goldberg v. Kelly, 397 U.S. 254 , 262 [ 25 L.Ed.2d 287 , 295-296, 90 S.Ct. 1011 ], “are a matter of statutory entitlement for persons qualified to receive them. Their termination involves state action that adjudicates important rights.” (See also £n. 8 at p. 262 [25 L.Ed.2d at pp. 295-296].) Accordingly, it seems without question that CWRO^[6] and its members were legally “aggrieved” by the Alameda judgment, which had an immediate, pecuniary and substantial effect upon their right to AFDC benefits.

The trial court ordered CWRO’s motion to vacate “stricken” rather than simply denying it, evidently on the basis that such a motion is unavailable to review judicial error.^[7] It is true that ordinarily a trial court cannot correct judicial, as distinguished from clerical, error except in accordance with statutory procedures. (Greene v. Superior Court, 55 Cal.2d 403 , 405-406 [ 10 Cal.Rptr. 817 , 359 P.2d 249 ]; Duff v. Duff, 256 Cal.App.2d 781 , 785 [ 64 Cal.Rptr. 604 ]; Douglas v. Douglas, 164 Cal.App.2d 225 , 228-

One of the requirements of the Act is that each state, in determining whether a particular family qualifies for aid, “. . . shall with respect to any month disregard . . . the first $30 of the total of [the family’s] earned income for such month plus one-third of the remainder of such income for such month . . . except that, with respect to any month, the State agency shall not disregard any earned income ... [of the persons in the family] if with respect to such month the income of the persons so specified . . . was in excess of their need as determined by the State agency . . . [without considering the $30 plus one-third disregard of earned income], unless, for any one of the four months preceding such month, the needs of such persons were met by the furnishing of aid under the plan. . . .” (Italics added; 42 U.S.C. § 602 , subd. (a)(8); see 45 C.F.R. § 233.20 , subd. (a) (11) (ii) (b) (2).)

With the exception of the italicized clause, the parties are in agreement regarding the correct interpretation of this provision. In essence, it requires the state to disregard the specified portion of a family’s earned income in determining eligibility for, and amount of, an AFDC grant. The exclusion is available to all families except those whose earned income exceeds their standard of need (as determined by the state), and whose “needs” have not been met by an AFDC payment within the past four months.^[8]

The primary dispute between the parties herein involves the application of the statutory disregard to families whose earned income exceeds their

The trial court agreed with the counties’ interpretation of the Act and ordered Carleson to “amend SDSW-EAS 44-111.25 (or alter the interpretation of that regulation) so as to provide that an employed applicant for AFDC aid must first demonstrate eligibility without a deduction from his earned income of the ‘disregard,’ but with a deduction of his ‘work-related expenses,’ such eligibility being then determined by comparing the net income so derived to the appropriate standard of need established by defendants; and that if four successive months have passed when an employed recipient would not have been eligible for aid as an applicant, then commencing with the fifth month such recipient shall be required to re-establish eligibility as an applicant (as provided in this paragraph) and not as a recipient . . . ,”^[11]

The trial court’s interpretation of section 602, subdivision (a) (8), was based, at least in part, upon its determination that a contrary interpretation would deny equal protection to other applicants for AFDC aid, and would constitute an illegal gift of public funds. Before we consider these issues, we'first must determine whether the court correctly interpreted the Act.

It seems reasonably clear that the court’s interpretation was erroneous. As we shall point out, the income-disregard provisions were adopted by

It is, of course, proper for the court to consider the legislative history underlying the adoption of the income-disregard provision." (See Mooney v. Pickett, 4 Cal.3d 669 , 677, and fn. 9 [ 94 Cal.Rptr. 279 , 483 P.2d 1231 ].) That history discloses that this provision was to be available as an incentive toward employment to all recent (i.e., within the past four months) recipient families, even though their current earned income exceeds their standard of need. The Senate committee report states that “A key element in any program for work and training for assistance recipients is an incentive for people to take employment. If all the earnings of a needy person are deducted from his assistance payment, he has no gain for his effort .... The committee believes that this provision [the income-disregard provision] will furnish incentives for members of public assistance families to take employment and, in many cases, increase their earnings to the point where they become self-supporting. [Par.] . . . The earnings exemption provisions will apply to the AFDC program only if for any one of the past 4 months the family was eligible for a payment. This provision gives people an opportunity to try employment without worrying about forfeiting their eligibility to receive assistance if their employment terminates quickly.” (Italics added; 1967 U.S. Code Cong. & Admin. News, pp. 2994-2995; see pp. 2861, 3118.)

The trial court’s interpretation of section 602 would deprive certain •recipients of the benefit of the income-disregard provisions even though they had been eligible for an AFDC payment in the past four months, contrary to the foregoing legislative intent. Moreover, that interpretation would impede, rather than promote, the employment incentives which he at the heart of the disregard device since, as the committee noted, “If all the

Aside from the legislative history, at least one court has assumed, without expressly deciding the point, that the four months’ limitation under section 602 “limits eligibility for the income exclusion benefits of those whose income exceeds their needs to those who received aid in one of the preceding four months and denies the benefit of the income exclusion provision to those who have not received such aid within one of the past four months.” (Italics added; Conner v. Finch (N.D.Ill. 1970) 314 F.Supp. 364 , affd. sub nom. Conner v. Richardson (1971) 400 U.S. 1003 [ 27 L.Ed.2d 618 , 91 S.Ct. 575 ].)^[13] Thus, as to those families whose earned income exceeds their standard of need, it is the prior receipt of aid which determines the availability of the disregard. That such a family has continued to require assistance is, under federal law, indicative that it has not yet attained self-sufficiency and requires continued employment incentives.^[14]

Finally, it is apparent that the interpretation of the trial court would conflict with the mandate of oúr Legislature to permit the exclusion of earned income “To the maximum extent permitted by federal law” (Welf. & Inst. Code, § 11008). Section 11008 declares that “In order that recipients of public assistance may become self-supporting and productive members of their communities, it is essential that they be permitted to earn money without a proportionate deduction in their aid grants. It is the intention of the Legislature to promote this objective to the extent possible within the limitations imposed by federal law, and the department, in implementing public assistance laws, is directed to do so in the light of this objective .... [Par.] To the maximum ¿xtent permitted by federal law,

The Alameda court found two constitutional impediments to interpreting section 602 as allowing all prior AFDC recipients the benefits of the income-disregard provision even though their employment income exceeded their standard of need. First, the court held that such favored treatment would unlawfully discriminate against initial applicants for aid.^[15]

There is conclusive evidence, however, that Congress was aware of the difference in treatment afforded prior recipients and initial applicants for aid, and that Congress purposely sanctioned the distinction in order to carry out the overriding legislative policy to limit the number of persons joining welfare rolls, and to foster employment incentives for existing welfare recipients. Thus, the Senate committee report states that: “The bill contains provisions which will prevent increasing the number of persons receiving AFDC as a result of the earnings exemptions. The provisions discussed above are to-become available for AFDC only with respect to persons whose income was not in excess of their needs as determined by the State agency without the application of this provision itself. That is, only if a family’s total income falls below the standard of need will the earnings exemption be available. One possible result of this provision is that one family, who started out below assistance levels, will have some grant payable at certain earnings levels because of the exemption of earnings received after going on the rolls while another family which already had the same earnings will not be eligible for an assistance grant. The committee appreciates the objections to this type of situation which can be made; but the alternative would have increased the costs of the proposal by about $160 million a year by placing people on the AFDC rolls who now have earnings in excess of their need for pubfic assistance as determined under their State plan. In short, the various provisions included in the committee’s bill are designed to get people off AFDC rolls not put them on.” (1967 U.S. Code Cong. & Admin. News, supra, pp. 2995-2996.)

Initially, it is evident that the trial court misinterpreted the actual effect of the income-disregard provisions. That effect is not to require payment of AFDC benefits in perpetuity; the statutory exclusion becomes unavailable if the recipient has, during the past four months, failed to qualify for and receive a payment.^[16] True, as an incentive to maintain his employment status, the recipient is given the benefit of the income-disregard provisions in determining whether he qualified during that period. However, given the legitimacy of the incentive device, that benefit does not result in any “artificial dependency” or “inequitable distribution” of public funds.

Article XIH, section 25, of the state Constitution provides that “The Legislature shall have no power ... to make any gift or authorize the making of any gift ... of any public money or thing of value to any individual . . . ; provided, that nothing in this section shall prevent the Legislature granting aid pursuant to Section 21 of this article . . . .” Section 21 of article XIII (formerly art. IV, § 22), permits, among other things, grants of aid to institutions conducted for the support of minor orphans, abandoned children, children of a father incapacitated for gainful work by a permanent disability, or indigent aged persons, and authorizes direct grants to needy blind or physically handicapped persons. Since section 21 does not expressly exempt AFDC grants from the provisions of section 25, we must determine whether the making of such grants in the manner specified by the Act, as interpreted by Carleson, constitutes an unlawful gift of public funds.

It is generally held'that in determining whether an appropriation of public funds is to be considered a gift, the primary question is whether the funds are to be used for a “public” or “private” purpose; the benefit to the state from an expenditure for a public purpose is in the nature

In the Janssen case, supra, this court upheld legislation aimed at releasing certain liens against property owned by indigent recipients of aid for the reason that the Legislature could reasonably have determined that such legislation was.in the best interests of the general public welfare; a release of liens could remove the necessity for additional direct aid to the property owner and thereby relieve the public treasury. Similarly, with respect to AFDC grants, the Legislature could reasonably conclude (as it did in Welf. & 'Inst. Code, § § 11008 and 11205) that employment incentives are essential to accomplish the goal of self-sufficiency, and that the income-disregard provision was a necessary and proper device for encouraging employment, toward the ultimate goal of getting people off of welfare rolls.^[17] And though there may occur isolated instances in which this provision fails to accomplish its purpose and relatively non-needy individuals are given public assistance,^[18] the Legislature could have reasonably determined that the risk

We conclude that California’s compliance with the income-disregard provisions of the Act, as we have interpreted them, would result in neither a denial of equal protection to other AFDC applicants nor an unlawful gift of public funds.

b. The work-related, expenses deduction

In addition to disregarding a portion of earned income, as discussed above, a state AFDC plan must also provide that the state agency shall take into consideration in determining need “any other income and resources [of any claimant] ... as well as any expenses reasonably attributable to the earning of any such income . . . .” ( 42 U.S.C. § 602 , subd. (a)(7); see 45 C.F.R. § .233.20, subd. (a)(3)(iv)(a).)

In the Alameda action, counties took the position that Carleson’s existing regulations interpreting and implementing the foregoing provision (see regulations EAS 44-113, 44-114, 41-309) improperly permitted AFDC applicants to deduct from their earned income all work-related expenses actually incurred, without regard to the reasonableness of the amount expended. The counties also contended that Carleson’s regulations improperly permitted the exclusion from income of certain involuntary deductions, such as income tax withholding and pension fund contributions, without provision for including such amounts when ultimately refunded or paid to the employee. Finally, counties objected to Carleson’s allowance of a standard deduction (ranging from $6. to $25 per month) for work-related food, clothing and incidental expenses, whether or not the employee had actually incurred expenses in that amount, The trial court held Carleson must amend or reinterpret his regulations to provide for the deduction of only a reasonable amount of work-related expenses actually incurred in producing income, up to certain maximum levels, and for the inclusion as deferred income of monies ultimately refunded or returned to the employee. We have concluded that the trial court erred in both respects.

The legislative history underlying the work-related expenses deduction

In addition to the legislative history, HEW regulations provide that in determining eligibility for aid, “only such net income as is actually available for current use on a regular basis will be considered . . . .” (Italics added; 45 C.F.R., § 233.20 , subd. (a) (3) (n) (c).) The legislative history, together with these regulations (which have been adjudged to “clearly comport” with the Act, King v. Smith, supra, 392 U.S. 309 , 319 [ 20 L.Ed.2d 1118 , 1126]; Lewis v. Martin, supra, 397 U.S. 552 , 555 [ 25 L.Ed.2d 561 , 565]), compel the conclusion that all work-related expenses must be considered in determining eligibility, for those expenses necessarily reduce the net'income “actually available” for current support needs. To disallow a portion of those expenses as “unreasonable” would undermine the primary purpose of the deduction to provide further incentives toward employment. Moreover, Congress might well have concluded that the administrative costs of attempting to determine or review the reasonableness of any particular work-related expenditure outweighed the cost to the AFDC program of permitting the occasional deduction of excessive expenses.^[20]

A similar issue was raised in Williford v. Laupheimer (E.D.Pa. 1969) 311 F.Supp. 720 , wherein the State of Pennsylvania attempted to impose a $50 maximum upon the work-related expenses deduction under section 602, subdivision (a). The court agreed that the limitation was not permitted by the Act and HEW regulations thereunder, and concluded as follows:

“And although we may sympathize with the state’s attempt to alleviate the unquestionably and increasingly heavy burden of programs such as AFDC, the solution of such problems resides in Congress. To date, it has not seen fit to impose any limitation of work-related income deductions; the states are not free to do otherwise.” (P. 722.)

Of course, our interpretation of the Act and regulations thereunder does not foreclose the state from disallowing in whole or in part those expenses which are not reasonably attributable to the production of income. For example, if an automobile were not required by the nature of one’s employment, or if other feasible means of transportation were available, the state could properly disallow at least a portion of the expense of acquiring and maintaining an automobile, not because the amount expended was unreasonable, but because the type of expenditure was not a bona fide work-related expense subject to the statutory deduction.

With respect to such involuntary deductions as tax withholding of pension plan contributions, it seems clear that such deductions from income are proper since only net income available for current use on a regular basis should be considered in determining eligibility. ( 45 C.F.R., § 233.20 , subd. (a)(3)(ii)(c).) The question arises whether, upon refund or repayment of these funds to the employee, the amounts refunded or repaid should then be considered as income. California has heretofore distinguished between nonrecurring lump sum payments (considered as personal property, rather than income, for purposes of eligibility),^[21] and payments recurring over a period of two or more months (treated as income). (Regulation EAS 41-309.) Contrary to the trial court’s holding in the Alameda action that all such payments be treated as deferred income, the HEW regulation cited above permits the state to consider as income only those funds received “oh a regular basis.” Consequently, California’s distinction between recurring and non-recurring payments comports fully with the federal requirements.

We conclude that Carleson’s original interpretation and implementation of the income-disregard exclusion and work-related expense deduction were in conformity with the Social Security Act and HEW regulations promulgated thereunder, and were not constitutionally infirm. Accordingly the judgment in the Alameda action (S.F. 22820) is reversed in its entirety, and the Alameda County Superior Court is instructed to vacate the peremptory writ of mandate issued therein and to order defendant Carleson to rescind emergency regulation EAS 44-111.25 promulgated pursuant thereto