Stone, Scott v. Hamilton, John , 308 F.3d 751 ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1476
SCOTT STONE and MARIAN REDELL,
on their own behalf and on behalf
of those similarly situated,
Plaintiffs-Appellants,
v.
JOHN M. HAMILTON, in his official capacity
as Secretary of the Indiana Family and
Social Services Administration,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 01 C 564—Larry J. McKinney, Chief Judge.
____________
ARGUED SEPTEMBER 4, 2002—DECIDED OCTOBER 18, 2002
____________
Before BAUER, ROVNER, and EVANS, Circuit Judges.
ROVNER, Circuit Judge. Prior to 1996, the federal Food
Stamp Act prohibited a state from collecting a food stamp
overissuance that was due to its own administrative error
(“agency error overissuance”) by involuntarily reducing
a food stamp recipient’s food stamp allotment. States were
permitted, but not required, to recoup overissuances by
other means. In 1996, Congress amended the statute to
require states to collect agency error overissuances by invol-
untary means, including by involuntarily reducing
2 No. 02-1476
a food stamp recipient’s food stamp allotment. A class of
food stamp recipients (“recipients”) sued the Secretary of
the Indiana Family and Social Services Agency (“State”),
challenging the State’s ability to involuntarily reduce a
recipient’s food stamp allotment to collect for overissu-
ances made prior to the 1996 amendment to the Food
Stamp Act. The district court denied the plaintiffs’ mo-
tion for summary judgment and granted summary judg-
ment in favor of the defendant. We reverse and remand for
further proceedings.
I.
In order to alleviate hunger and malnutrition among
the economically disadvantaged, the federal government
funds a program to provide food stamps to low-income
individuals. 7 U.S.C. § 2011. Although funded by the fed-
eral government, each state must administer the pro-
gram in compliance with the Federal Food Stamp Act and
the accompanying regulations. 7 U.S.C. § 2020, 7 C.F.R.
§ 273.18(a)(2)-(3). The state’s agencies in charge of doling
out food stamps occasionally err and issue more food
stamps than a recipient is entitled to receive. The state
has always been entitled to collect from recipients who,
due to agency error, received an overissuance of food
stamps (7 U.S.C. § 2022(a)), but prior to 1996, the state
could not do so by involuntarily reducing a recipient’s
current food stamp allotment. 7 U.S.C. § 2022(b)(2) (1995).
The overissuances could only be collected by “other means.”
7 U.S.C. § 2022(b)(2)(B) (1995).1 The problem for the states,
1
Prior to August 1996, the statute stated,
***
(b) Reduction of allotment; cash payments; collection by
State agencies
(continued...)
No. 02-1476 3
of course, was that the recipients from whom they might
collect were impoverished and thus had few, if any assets
from which to collect “by other means.” All of that changed,
however, when Congress amended the Food Stamp Act
by enacting the Personal Responsibility and Work Oppor-
tunity Reconciliation Act of 1996, Pub. L. No. 104-193,
§ 844, 110 Stat. 2105 (Aug. 22, 1996). Where before the
states were prohibited from using food stamp allotment
reduction as a method for collecting agency error over
issuances, the new Act required the state to use involun-
tary means, including food stamp allotment reduction, to
collect from recipients in these cases. 7 U.S.C. § 2022(b)
(2002). The regulations implementing the amendment
require states to recoup overissuances by involuntarily
reducing a recipient’s food stamp allotment. 7 C.F.R.
1
(...continued)
***
(2)(A) State agencies shall collect any claim against a
household arising from the overissuance of coupons,
other than . . . claims arising from an error of the State
agency, by reducing the monthly allotments of the
household . . . .
(B) State agencies may collect any claim against a
household arising from the overissuance of coupons,
other than claims collected pursuant to paragraph (1) or
subparagraph (A), by using other means of collection.
***
(d) Recovery of overissuance of coupons
The amount of an overissuance of coupons as determined
under subsection (b) of this section and except for claims
arising from an error of the State agency, that has not
been recovered pursuant to such subsection may be re-
covered from Federal pay (including salaries and pen-
sions) as authorized by section 5514 of Title 5.
7 U.S.C. § 2022 (1995).
4 No. 02-1476
§ 273.18(g)(1) (2002). Suddenly the states were not only
required to collect for their errors, but they also had an
effective means of doing so.2
After enactment of the amendment, the State began
sending out notices that it would be reducing food stamp
allotments to collect for agency error overissuances. Some
of these notices went to persons who had received the
overissuances long before Congress enacted the new
amendment. For instance, in a Notice of Action mailed on
September 1, 2000, the State informed Marian Redell that
it was now going to collect—by reducing her monthly food
stamp allotment—for an overissuance of food stamps that
she received in 1988.
In 1988, the State wrote to Ms. Redell asking for volun-
tary repayment of the overissuance but stated in bold cap-
italized letters, “BECAUSE THE ERROR WAS MADE
BY OUR AGENCY YOU ARE NOT REQUIRED TO
AGREE TO REPAY THE OVERISSUED BENEFITS.”
2
After August 22, 1996, the statute stated,
(b) Collection of overissuances
(1) In general
Except as otherwise provided in this subsection, a
State agency shall collect any overissuance of cou-
pons issued to a household by—
(A) reducing the allotment of the household;
(B) withholding amounts from unemployment
compensation from a member of the house-
hold under subsection (c) of this section;
(C) recovering from Federal pay or a Federal
income tax refund under subsection (d) of
this section; or
(D) any other means.
7 U.S.C. § 2022 (2002).
No. 02-1476 5
(R. Doc. 30). It warned Ms. Redell, however, that it was
reserving the right to pursue other collection methods
permitted by federal law. Despite the warning, for approxi-
mately twelve years, the State took no action to collect from
Ms. Redell.
Similarly, in January 1986, the State informed Scott
Stone that, due to its error, in August 1984 and in Febru-
ary through December 1985, he had received $233 in food
stamps that he was not entitled to receive. The notification
asked Stone to voluntarily pay back the amount of the
overissuance. Mr. Stone paid back $98 over the course of
two years from 1986 to 1988, but then paid nothing fur-
ther. As with Ms. Redell, from December 1988, when Mr.
Stone stopped making payments, through September 2000,
the State did nothing further to collect for the over-
payments. On September 1, 2000, the State sent Mr. Stone
a notice informing him that it was going to begin recoup-
ing the balance due on the overpayment by reducing his
food stamp allotment.
Mr. Stone and Ms. Redell sued the State in district court,
challenging its ability to reduce current food stamp allot-
ments to collect for overissuances which occurred prior to
the effective date of the amendment. The district court
certified the case as a class action in which Mr. Stone and
Ms. Redell represent a class of “all individuals in the State
of Indiana who received an overissuance of food stamps
due to an agency error at any time prior to August 22,
1996.” The plaintiffs filed a motion for summary judgment
asking the district court to grant a permanent injunc-
tion prohibiting the State from retroactively applying the
amendments to the Food Stamp Act. Shortly thereafter,
the defendant filed its motion for summary judgment.
The district court granted summary judgment in favor of
the defendant, the Secretary of the Indiana Family and
Social Services Administration. The food stamp recipients
appeal.
6 No. 02-1476
II.
We review the district court’s ruling on summary judg-
ment de novo, construing the record in the light most
favorable to the nonmovant. Oconomowoc Residential Pro-
grams Inc. v. City of Milwaukee, 300 F.3d 775, 777 (7th Cir.
2002). Summary judgment is appropriate where there is
no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986).
The sole issue presented by the parties is whether the
application of the Food Stamp Act amendments to pre-1996
overissuances constitutes an impermissible retroactive
application of the law. We begin with the recognition that
the law disfavors a retroactive application of a statute.
Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988).
“Thus, congressional enactments and administrative rules
will not be construed to have retroactive effect unless
their language requires this result.” Id. The first step in
determining whether a law applies to conduct occurring
prior to the passage of an act is to ascertain whether
Congress has expressly prescribed the statute’s reach.
Landgraf v. USI Film Prod., 511 U.S. 244, 280 (1994). In
this case it is apparent from the face of the amended
statute, and both parties agree, that Congress has not
expressly stated whether the new provisions of the Act
apply to agency error overissuances which occurred prior
to enactment of the amendment. The relevant food stamp
regulations issued by the Secretary of Agriculture are
likewise silent on this question. See 7 C.F.R. § 273.18.3
3
The State asks us to defer to the Secretary of Agriculture’s
comments to the final regulations implementing the amendment.
In these comments, the Secretary expresses a belief that the
(continued...)
No. 02-1476 7
Where there is no congressional directive as to whether
the statute should be applied retroactively the court must
determine whether the application has a retroactive ef-
fect. Martin v. Hadix, 527 U.S. 343, 357 (1999). Deciding
whether a statute operates retroactively is not always a
simple or mechanical task. Landgraf, 511 U.S. at 268. A
statute does not have a retroactive effect merely because
it applies to conduct occurring before the statute’s enact-
ment. Id. at 269. A statute has a retroactive effect when
it “takes away or impairs vested rights acquired under
existing laws, or creates a new obligation, imposes a new
duty, or attaches a new disability, in respect to transac-
tions or considerations already past.” Id. In making its
evaluation, this court must apply a “commonsense, func-
tional judgment about whether the new provision attaches
new legal consequences to events completed before its
enactment. This judgment should be informed and guided
by familiar considerations of fair notice, reasonable reli-
ance, and settled expectations.” Martin, 527 U.S. at 357-58
(internal citations omitted).4
3
(...continued)
amendment could apply to agency error overissuances that
occurred prior to enactment. See 65 Fed. Reg. 41752, 41766 (July
6, 2000). Although a court must give great deference to an
agency’s reasonable regulatory interpretations embodied in for-
mal regulations, it need not pay the same heed to less formal
statements that do not necessarily reflect the deliberative focus
of the entire agency. Pennington v. Didrickson, 22 F.3d 1376,
1383 (7th Cir. 1994). The Secretary in this case has not issued
any regulations regarding the retroactive application of the
statute.
4
Prior to Landgraf, 511 U.S. 244, and Martin, 527 U.S. 343, some
courts took an overly rigid approach to determining retroactiv-
ity by examining whether a statute was procedural or substan-
tive. See e.g. Alexander v. Robinson, 756 F.2d 1153, 1155 (5th Cir.
(continued...)
8 No. 02-1476
Even before the enactment of the amendment, persons
who received an overissuance of food stamps due to agency
error were liable for the value of any overissuance of
coupons. 7 U.S.C. § 2022(a)(2) (1995). Due to the indigence
of food stamp recipients, however, prior to 1996 it was
virtually impossible—or at the very least, highly impracti-
cal—for the government to recoup agency error over-
issuances. Although prior to 1996, the State could collect
for agency error overissuance by “other means,” (7 U.S.C.
§ 2022(b)(2)(B) (1995)), the statute does not articulate
the other means that might be available. We know from
Mercer v. Magnant, 40 F.3d 893, 898 (7th Cir. 1994), that a
state could intercept and reduce a taxpayer’s state tax
refund by the amount owed for the overissuance. In addi-
tion, a state could initiate a collection action in state court.
The State, however, was unlikely to successfully collect
from indigent recipients using either method.5 In short,
4
(...continued)
1985). In Alexander, the Fifth Circuit assessed the retroactive
application of a similar Food Stamp Act amendment that re-
quired the involuntary reduction of a food stamp allotment for
food stamp recipients who, due to their own non-fraudulent error
(as opposed to agency error, as is the case here) received an
overissuance of food stamps. Id. at 1154. The Fifth Circuit con-
cluded that the amendment was “procedural and remedial” and
thus could be applied retroactively. Id. at 1156. Since that time,
the Supreme Court has taken “pains to dispel the suggestion that
concerns about retroactivity have no application to procedural
rules.” Martin, 527 U.S. at 358. Courts may no longer merely
rely upon the label of “procedural” or “remedial” to determine
whether a statute operates retroactively. Id. We therefore have
analyzed the retroactive effect of the amendment at issue in
this case using the more recent “commonsense, functional” judg-
ment standard dictated by the Martin decision. Id. at 357-58.
5
The State also asserts that prior to the enactment of the
amendment it could have collected for an agency error over-
(continued...)
No. 02-1476 9
prior to the amendments, for all intents and purposes, there
were no legal consequences to the overissuance because
the indigent recipients were judgment proof or had no
state tax refunds to intercept.
Since the enactment, collection is almost guaranteed.
Despite the fact that the plaintiffs remained liable for the
overissuances both before and after the enactment of the
amendments, viewing the effect of the amendment in a
commonsense and functional manner, since the enact-
ment of the amendment, the food stamp recipients face
increased legal consequences. By changing the remedies
for collecting for overpayments from ineffective and dis-
cretionary to highly effective and mandatory, the amend-
ment has increased the recipients’ liability for past conduct.
Although the dollar amount of liability the food stamp
recipients faced never changed, a new statute can in-
crease the legal consequences to the affected party with-
out necessarily increasing the dollar amount of liability.
For example, in Hughes Aircraft Co. v. United States, 520
U.S. 939 (1997) the Supreme Court reviewed a 1986
amendment to the False Claims Act that permitted pri-
vate qui tam actions where they had been previously
precluded. Prior to the amendment, the False Claims act
permitted private parties to sue anyone who had sub-
mitted a false claim to the government, but only if the
information upon which they were basing their claim
was not already in the government’s possession. Id. The
5
(...continued)
issuance by intercepting unemployment compensation. However,
we agree with the food stamp recipients’ interpretation that
7 U.S.C. § 2022(c) (1995) (referring to 7 U.S.C. § 2015(b)) allows
interception of unemployment compensation benefits only in
cases where the overissuance was due to recipient fraud or mis-
representation.
10 No. 02-1476
1996 amendment removed the bar (which was, in fact, a
significant one) to private suits based on information in
the government’s possession. Id. at 946. Both before and
after the amendment, the False Claims Act made it ille-
gal to knowingly submit a false claim for payment to the
United States. Id. at 947. The amendment did not “alter
a defendant’s exposure for a false claim by even a sin-
gle penny.” Id. at 948. It simply widened the realm of
potential plaintiffs who could sue for the false claim. Id. at
949-50. By doing so, however, the amendment signifi-
cantly increased the likelihood that the defendant would
be subject to an action for illegal behavior. Id. The Court
found that this significant extension “attached a new
disability, in respect to transactions and considerations
already past,” and as such could not be applied retroac-
tively. Id. at 948.
Our inquiry into whether a statute operates retroac-
tively must also be “informed and guided by familiar con-
siderations of fair notice, reasonable reliance, and settled
expectations.” Martin, 527 U.S. at 358 (internal citations
omitted). The State itself created settled expectations
when, under the old system, it sent out notices to overpaid
recipients describing its limited ability to collect for
agency error overissuances. The recipients may have relied
on the government’s inability to collect when deciding
not to agree to a voluntary reduction in their food stamps
under the old system. Relying on the language in the
State’s notice, recipients may have opted not to appeal the
overpayment or not to seek judicial review of an unsuc-
cessful administrative appeal. In other scenarios, overpaid
recipients may have taken a calculated chance to protect
their most indispensable resource—their food stamps—
knowing that, if necessary, they could more readily part
with other assets that the government might seek in a
collection action or otherwise. Prior to 1996, overpaid
No. 02-1476 11
recipients had the benefit of protecting their food stamp
supply. After 1996, they lost that benefit.
It is true that the food stamp recipients relied on a
mere likelihood that they would not be held accountable
for the overissuance. There was always a possibility, no
matter how remote, that the State would attempt to col-
lect for the overissuance. Reliance on a chance, however,
can constitute reliance nonetheless. In INS v. St. Cyr, 533
U.S. 289 (2001), convicted criminal defendants chal-
lenged a new statute that removed the government’s dis-
cretion to waive deportation of resident aliens convicted
of certain crimes. Criminal defendants who had entered
into plea agreements assuming that they would be eligi-
ble for discretionary relief from deportation—relief that had
been granted liberally in the past—were shocked to learn
that they were now subject to automatic deportation. The
Court found that such a retroactive application of the
statute was contrary to notions of fair notice, reasonable
reliance, and settled expectations. Id. at 323-24. In par-
ticular, the Court dismissed the idea that the discretion-
ary nature of the relief precluded review stating, “there
is a clear difference, for the purposes of retroactivity anal-
ysis, between facing possible deportation and facing cer-
tain deportation.” Id. at 325. In this case, there is a clear
difference between facing a remote chance that the State
will initiate a collection action in state court or inter-
cept a tax refund, and facing a certain reduction in the
amount of food stamps issued. For years the food stamp
recipients have reasonably relied on the settled expecta-
tion that their food stamp allotment would be relatively
safe from forfeiture. Although the State may change the
rules going forward, it would be contrary to familiar
considerations of fair notice, reasonable reliance, and
settled expectations to alter the rules applied to agency
error overissuances which occurred prior to the enactment
of the new amendment.
12 No. 02-1476
These same notions of fair notice, reasonable reliance,
and settled expectations act to bar actions by the State
so long after the agency error occurred. Fairness dictates
that food stamp recipients, like any liable party, must
have “the right to be free of stale claims” after a reason-
able amount of time has passed. American Pipe and
Constr. Co. v. Utah, 414 U.S. 538, 766 (1974). Although this
case does not involve a literal retroactive expansion of
a statute of limitations, it certainly is analogous and the
amendment increases the legal consequences for the food
stamp recipients in much the same manner. See Hughes
Aircraft, 520 U.S. at 950 (“extending a statute of limita-
tions after the pre-existing period of limitation has ex-
pired impermissibly revives a moribund cause of action”);
Chenault v. United States Postal Serv., 37 F.3d 535, 539
(9th Cir. 1994) (“a newly enacted statute that lengthens
the applicable statute of limitations may not be applied
retroactively to revive a plaintiff’s claim that was other-
wise barred under the old statutory scheme because to do
so would ‘alter the substantive rights’ of a party and ‘in-
crease a party’s liability’ ”). In the case of the named plain-
tiffs, the State failed to initiate any action to collect for
overissuances for approximately twelve to fifteen years—
long after the statute of limitations for filing a collec-
tion action in state court would have run.6 Although the
6
The food stamp recipients contend that such a collection ac-
tion would be subject to Indiana’s six-year statute of limitations
for actions on accounts and contracts not in writing. The State
denies that food stamps are analogous to an account or con-
tract subject to a six-year statute of limitations, but offers no
alternative statute of limitations for such a collection action. We
need not decide whether the food stamp recipients are correct
about the length of the statute of limitations. In the case of
the named plaintiffs, the State waited approximately twelve
to fifteen years before deciding to take action on the agency er-
(continued...)
No. 02-1476 13
State could have collected after the statute of limitations
had run by intercepting tax refunds, for the reasons
described above, that possibility was exceedingly remote.
Certainly after more than a dozen years of state inaction,
the food stamp recipients were entitled to a reasonable
expectation that they would no longer be accountable for
the agency error.
III.
For the reasons stated above, we reverse the district
court’s grant of summary judgment and remand to the
district court for further proceedings consistent with this
opinion.
REVERSED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
6
(...continued)
ror overissuance. We assume that any collection action filed in
state court would be stale so long after the fact. See Ind. Code
§ 34-11-2-1 through 34-11-2-12 (describing specific state stat-
utes of limitations, all but one of which are between two and ten
years).
USCA-02-C-0072—10-18-02