Hill v. Utah State Department of Workforce Services

Filing 30

ORDER AND MEMORANDUM DECISION denying 10 Motion for Summary Judgment; granting 13 Motion for Summary Judgment. Signed by Judge David Nuffer on 8/15/12 (alt)

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
WILLIAM HILL,
Plaintiff,
vs.
UTAH STATE DEPARTMENT OF
WORKFORCE SERVICES,

ORDER AND MEMORANDUM
DECISION GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
AND DENYING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
Case No. 2:11cv00739 DN

Defendant.
Judge David Nuffer

On August 15, 2011, this case was removed from the Third Judicial Court in Salt Lake
City, Utah. 1

Defendant Utah State Department of Workforce Services (“Defendant” or

“Department”) moved for Summary Judgment 2 and, simultaneously, Plaintiff William Hill
(“Plaintiff” or “Hill”) moved for Summary Judgment. 3 In this case de novo judicial review of
final administrative agency action of the decision of the Department, dated June 20, 2011,
regarding the proper calculation of Plaintiff’s food stamp entitlement was sought. Defendant
asserted that Plaintiff was properly denied food stamp benefits, and Plaintiff asserted that
Defendant improperly included excludable items in his income in rendering a determination as to
Plaintiff’s food stamp eligibility. Both Plaintiff and Defendant conceded that the following
material facts were undisputed:

1

Docket no. 1, filed August 15, 2011.

2

Docket no. 10, filed March 13, 2012.

3

Docket no. 13, filed March 13, 2012.

4817-8556-7504.3

1.

Hill and his wife are disabled individuals under the terms of Social Security, the

Medicaid Program (“Medicaid”) and Food Stamp Program (“Food Stamp Program”)
(collectively the “Programs”). In addition, Hill is over 60 years of age, thus qualifying him as an
elderly individual under the Programs pursuant to 7 C.F.R. § 273.9(a). 7 C.F.R. § 273.9(a)
causes Hill to be entitled to the “net income” eligibility standards of the Programs.
2.

In late 2010, Hill’s mother died leaving him a small inheritance. Hill transferred

$45,000 of the inheritance to the Utah SNAP Fund Inc. (the “Trust”) a pooled fund supplemental
needs trust set up and qualified pursuant to 42 U.S.C. § 1396 p(d)(4)(C), which excludes assets
and income held in the Trust from being included in calculations for determining eligibility for
Medicaid for disabled persons.
3.

On January 19, 2011, Hill applied for food stamps. Hill was verbally advised that

his application was being denied because the Department had concluded that his net income
exceeded the Food Stamp Program’s net income limit, but written notice of denial was not
provided.
4.

In reaching its conclusion that Hill’s income exceeded the Food Stamp Program’s

net income limit, the Department identified and counted the following transactions as unearned
income:
a.

Transfers within the Trust account. The trustee maintains two accounts within the

Trust, a pooled investment account into which all Trust participants’ funds are deposited for
investment purposes.

The pooling of assets allows the trustee to maximize returns to the

participants through economies of scale. The second account is a Trust sub-trust checking
account within the Trust into which funds are transferred from the investment account from time-

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to-time to pay Trust expenses, administration expenses and make vendor payments and to
reimburse expenses incurred by participants. The Department counted as unearned income the
transfer of $2,000 in January 2011 and $500 in February 2011 from the investment account to
the Trust checking account.
b.

Transactions within the Trust sub-account. The amount of $215.24 was paid for

Trust administrative expenses. Payments were for printing of bank checks, online banking fees,
postage and trustee fees. The amount of $947.41 was paid for reimbursement of medical
expenses which were for medications.

The amount of $1,197.83 was paid for vendor

reimbursements. These vendor reimbursements were for one month of telephone service, two
months of cable TV service, three month’s premiums for a life insurance policy on Hill’s life,
and a one-month bus pass. Reimbursements were paid to Hill in the amounts of $105 and $180
for clothing purchased by Hill in January and February, respectively. All of the foregoing
amounts were counted as unearned income to Hill.
5.

Pursuant to the terms of the Trust, Hill cannot control the administration of the

Trust nor direct distributions of Trust assets.
6.

Based upon the verbal denial by the Department, the trustee of the Trust obtained

legal assistance for Hill and on April 20, 2011, Hill filed a request for fair hearing. On May 4,
2011, the Department issued a written notice of denial of Hill’s application for food stamps for
the month of January 2011. On May 11, 2011, the Department issued a denial notice for food
stamps for the month of February 2011.
7.

June 15, 2011, an informal hearing was held before an administrative law judge,

Valerie Argyle, to consider Hill’s appeal of the Department’s denial of his application for food

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stamps. The administrative law judge issued a hearing decision and order dated June 20, 2011
upholding the determination of the Department and giving Hill notice of his right to appeal the
decision by filing a complaint with the Department or the District Court within 30 days.
8.

July 15, 2011, Hill sought de novo judicial review of the administrative law

judge’s decision by commencing this action.
ANALYSIS
The Food Stamp program is established and provided for under the Farm Security and
Rural Investment Act of 2002 (the “Act”) and the Secretary of Agriculture is granted authority to
issue regulations necessary for its administration.

7 U.S.C. § 2013(a), (c).

The program

provides nutritional assistance to eligible households by issuing at no charge to the households,
“food stamps” that can be redeemed for food items at retail stores participating in the program. 7
U.S.C. §§ 2013(a) 2017, 2018.

Although the Food Stamp Program is administered at the

national level by the Department of Agriculture, it is administered by state agencies at the local
level. 7 U.S.C. §§ 2012(n), 2013(a), 2020. The state agencies are responsible for determining,
in accordance with Uniform National Standards, which applicant households are eligible for the
issuance of food stamps in the amount of an eligible household’s monthly allotment. 7 U.S.C.
§§ 2014(b), 2017, 2020(a). 7 U.S.C. § 2014(b) provides that:
[E]xcept as otherwise provided in this chapter, the secretary shall
establish Uniform National Standards of eligibility . . . for
participation by households in the food stamp program in
accordance with the provisions of this section. No plan of
operation submitted by a state agency shall be approved unless the
standards of eligibility meet those established by the secretary, and
no state agency shall impose any other standards of eligibility as a
condition of participating in the program.

4

The regulations promulgated by the Secretary of Agriculture and implementing the Act are found
at 7 C.F.R. Part 273.
Eligibility for the food stamp program and the amount of benefits a household receives is
based on “income” of the household. 7 U.S.C. §§ 2014, 2017 see also 7 C.F.R. § 273.10. When
household income reaches a certain level, the household will not be eligible for food stamps, and
as income of the eligible household increases, the food stamp monthly allotment will decrease.
The Act defines household income to include “all income from whatever source”. 7 U.S.C.
§ 2014(b).

That said, the Act lists specific exclusions and deductions that reduce or are

otherwise not counted in calculating “all income from whatever source.”

See 7 U.S.C.

§ 2014(d). These exclusions include, in pertinent part:
(1)
Any gain or benefit which is not in the form of money
payable directly to a household. . . .
(5)
Reimbursements which do not exceed expenses actually
incurred and which do not represent a gain or a benefit to the
household . . . ”
7 U.S.C. § 2014(d).
The regulations also address the status of supplemental needs trusts such as the SNAP
Trust Fund. Specifically, special needs trusts are exempt from being counted as an asset for
purposes of food stamp qualification. 7 C.F.R. § 273.8(e)(8). In calculating Hill’s eligibility for
food stamps, the Department included as unearned income the transfer of $2,000 in January 2011
and $500 in February 2011 from the Trust investment account to the Trust checking sub-account,
of which Hill had no legal ability or right to control. Hill did not receive any gain or benefit
from this transaction (directly, indirectly or functionally), nor were any funds actually available
to him as they were held in Trust and he had no legal ability to control such funds. Further, no

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funds were paid to him or for his benefit and no debt or expense was eliminated. Accordingly,
the Department should not have imputed the intra-trust transfers as unearned income to Hill
under 7 C.F.R. § 273.9(b)(2)(vi).
Further, the Department included as unearned income to Hill, transfers within the Trust
accounts reimbursing the trustee for Trust expenses including bank check printing expenses,
online bank fee charges, postage, and trustee fees. Again there was no gain or benefit to Hill or
any money payable directly to the household.
The regulations promulgated pursuant to the Act list several exclusions to income,
including “any gain or benefit which is not in the form of money payable directly to the
household.” 7 C.F.R. § 273.9 (c)(1).
Nevertheless, the Department in support of its position that the transactions should be
included in Hill’s unearned income calculation, cited to a regulation which provides “unearned
income shall include . . . monies which are withdrawn or dividends which are or could be
received by a household from trust funds considered to be an excludable resource under Section
273.8(a)(8).” 7 C.F.R. § 273.9(b)(2)(vi). However, the regulation goes on to provide “such trust
withdrawals shall be considered to be income in the month received, unless otherwise exempt
under the provisions of (c) of this section.” Id.
The Department further argued the transactions should be counted as income under
Section 273.9(c)(1)(vii), a catchall provision which provides
Other third party payments. Other third party payments shall be as
follows: monies legally obligated and otherwise payable to the
household which are diverted by the provider of the payment to a
third party for a household expense shall be counted as income and
not excluded. If a person or organization makes a payment to a

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third party on behalf of a household using funds that are not owed
to the household, the payment shall be excluded from income. . . .
However, Section 273.9(c)(1)(v) also provides: “Vendor payments that are reimbursements.
Reimbursements made in the form of vendor payments are excluded on the same basis as
reimbursements paid directly to the household in accordance with paragraph (c)(5) of this
section.”
Section 273.9(c)(5) provides an exclusion from income as follows:
Reimbursements for past or future expenses, to the extent they do
not exceed actual expenses, and do not represent a gain or benefit
to the household. Reimbursements for normal household living
expenses such as rent or mortgage, personal clothing, or food eaten
at home are a gain or a benefit and therefore are not excluded. To
be excluded, these payments must be provided specifically for an
identified expense, other than normal living expenses, and used for
the purpose intended. When a reimbursement, including a flat
allowance, covers multiple expenses, each expense does not have
to be separately identified as long as none of the reimbursements
cover normal living expenses.
The amount by which a
reimbursement exceeds the actual incurred expense shall be
counted as income.
Neither the Food Stamp Act nor the regulations promulgated thereunder define or explain the
term “normal household living expenses” beyond items “such as rent or mortgage, personal
clothing or food eaten at home.” 7 C.F.R § 273.9(c)(5).
There are two lines of cases that discuss 7 C.F.R § 273.9(c)(5). The first line of cases
involves challenges to the USDA’s inclusion of income from educational grants in determining
food stamp eligibility. The plaintiffs in those cases argued that Section 2014(d)(3) of the statute
exempted educational loans and grants from being counted as income and required the exclusion
of funds paid directly to a student. The courts concluded that so long as money was earmarked
for a specific required fee or expense, the money could be excluded and not counted as income.

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To the extent that money could be used for normal household expenses, the money was
includable in income for food stamp purposes. See Shaffer v. Block, 705 F.2d 805 (1983), Spicer
v. Com., Dep’t of Public Welfare, SE Pa. Commonwealth 558 (1981) 428 A.2d 1008.
The second line of cases dealt with the inclusion into food stamp income of “energy
reimbursements.” Under 2014(d)(11), payments or reimbursements for energy assistance are
excluded from food stamp income. The USDA included reimbursements from the Department
of Housing and Urban Development (HUD), Farmers Home Administration (FHA) and Public
Housing Authority (PHA) as income received by food stamp beneficiaries for food stamp
eligibility. The courts generally found that to the extent that money was paid directly to service
providers for energy related utilities, heating and cooling, and not directly to food stamp
beneficiaries, the funds could be excluded. See Estey v. Commissioner, Maine Dep’t of Human
Services, 21 F.3d 1198 (1994), Baum v. Yeutter, 750 F. Supp. 845 (1990), Baum v. Espy,
840 F. Supp. 943 (1993).
While all of the cases cite and make reference to “normal household living expenses”
none of them go beyond the express language of the regulation to identify items other than “rent
or mortgage, personal clothing, or food eaten at home.”
In supplemental briefs requested by this Court, the Department argued that in O’Bryant v.
Idaho Dept. of Health & Welfare, 841 F. Supp. 991 (D. Id. 1993), the court recognized public utility
expenses as non-excludable expenses. However, this Court concluded that the case dealt with
unrestricted checks paid to a food stamp applicant and does not apply here.

8

7 C.F.R. § 273.9(c) provides examples of reimbursements which are not considered to be
a gain or benefit to the household. One of those examples of excludable reimbursements,
273.9(c)(5)(i)(C), include “medical or dependent care reimbursements.”
Also, as noted in the statutory definition of excluded income and the regulations,
transactions which are of no benefit or gain to Hill and are not money paid directly to the
household cannot be counted as income to Hill.
The trustee of the Trust reimbursed vendors for past and future expense amounts which
did not exceed the actual expenses, and which were not for normal household expenses. The
applicable regulations, both 273.9(c)(1) and 273.9(c)(5), identify normal household living
expenses as items “such as rent, mortgage, personal clothing and food eaten at home.” The
vendor reimbursements the Department counted as income included the reimbursement of three
months premiums on a life insurance policy on Hill’s life, reimbursement for two months of
cable television and one month of telephone service and a one month bus pass. Also counted as
income were reimbursements for medications for Hill. The Trust also reimbursed Hill for $105
for clothing in January and $180 in February, which Hill concedes was a normal household
living expense and was properly includable as unearned income for those months. In this case
the vendor payments and reimbursements, other than for clothing, were not “normal household
living expenses” as that term is used in 7 CFR § 273.9(c)(5), and therefore should have been
excluded from Hill’s unearned income calculation under 7 C.F.R. §§ 273.9(c)(1)(v) and
273.9(c)(5).
The Department also cites as support for its position that the intra-trust transfers for
vendor payments and reimbursements should be imputed as income, an email exchange between

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the Food and Nutrition Service of the U.S. Department of Agriculture (“FNS”) and the
Department, regarding inquiry about the handling of Hill’s case, wherein FNS opined, “We
believe UT handled this case correctly.”

The email exchange includes a document titled

Attachment 10 to Policy Letter 09-03 – Subject: Treatment of Payments Made from a Special
Needs Trust (“Policy Letter”). The Department submitted the email exchange, including the
Policy Letter, as attachments to the Affidavit of Erin Cockerham, which was enclosed as part of
the Memorandum in Support of Defendant’s Motion for Summary Judgment (Docket no. 11).
The email and Policy Letter are disregarded by the Court under the hearsay rule, for failure to
disclose the identity of a potential expert witness within the discovery period, and under Fed. R.
Evid. 702.
ORDER
IT IS HEREBY ORDERED, that Defendant’s Motion for Summary Judgment 4 is
DENIED and Plaintiff’s Motion for Summary Judgment 5 is GRANTED.
IT IS FURTHER ORDERED THAT:
1.

Defendant shall recalculate Plaintiff’s food stamp eligibility accordingly, excluding

intra-trust transfers, vendor payments and reimbursements for medical expenses, telephone service,
cable TV service, life insurance premiums and the bus pass from unearned income calculations, and
providing all deductions for which Plaintiff qualifies.

2.

The pretrial set August 14, 2012 and the trial set August 27, 2012 are

STRICKEN.

4

Docket no. 10, filed March 13, 2012.

5

Docket no. 13, filed March 13, 2012.

10

3.

The Clerk of the Court is directed to close this case.

Dated August 15, 2012.
BY THE COURT:

____________________________
David Nuffer
United States District Judge

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