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Schneider v. Whaley

decided: August 20, 1976.


Appeal from an order of the United States District Court for the Southern District of New York (John M. Cannella, J.) dated July 1, 1976, granting a preliminary injunction against the municipal defendants enjoining defunding by New York City of 49 day care centers and partial defunding of a number of others, and requiring the municipal defendants to conduct certain hearings prior to the defundings. Modified and remanded.

Meskill and Waterman, Circuit Judges, and Bartels, District Judge.*fn*

Author: Bartels

BARTELS, District Judge:

Plaintiffs, whose children attend day care centers funded under Title XX of the Social Security Act (42 U.S.C. §§ 1397 et seq.), pursuant to the New York State plan, N.Y. Social Services Law § 410(a) (McKinney 1972), appeal on behalf of themselves and their minor children and all others similarly situated from an order of the United States District Court for the Southern District of New York (Cannella, J.) granting plaintiffs' application for class certification and for a preliminary injunction. The order enjoined the defendants from defunding 49 day care centers funded by New York City and also from the partial defunding of 15 other day care centers prior to holding a group hearing or a series of group hearings to be attended by parents of children attending the defunded day care programs. Defendants appeal from the granting of the injunction. Plaintiffs cross-appeal from the decision below to the extent that the hearing ordered by the district court was not required to be a "fair hearing" allegedly mandated by federal and state regulations and they seek at the same time a modification of the said order to require such "fair hearings." Jurisdiction is predicated upon 42 U.S.C. § 1983 and 28 U.S.C. § 1343(3) and (4) and 28 U.S.C. § 1331.


Although the facts are set forth in the opinion of the district court, a brief summary of the statutory framework is necessary. Day care services in New York City are not mandated but are funded under Title XX of the Social Security Act (42 U.S.C. §§ 1397 et seq.), pursuant to which the federal government participates in up to 75% of the expenditures for day care services provided by the state to eligible parents subject to a $150 million ceiling. New York State contributes 12.5% of the cost and New York City contributes the remaining 12.5%. Day care services are administered by the Agency for Child Development of the City of New York ("ACD"), which is a division of the Human Resources Administration ("HRA") of the City of New York, and these services are rendered at day care centers which are non-profit corporations which are reimbursed for their expenses by ACD on the basis of an annual budget. Because of the $150 million ceiling federal funds do not cover 75% of all day care services and in many instances the City has been providing those services without reimbursement from either federal or state funds. It is admitted that ACD, the City and the State are in a "financial crunch" and that ACD's limited funding requires at least a redistribution of funds. In response to this fiscal crisis ACD was required to reduce its budget by $30.8 million or 16%.

After considering various alternative methods ACD determined that the best method of accomplishing this reduction was to defund 49 day care programs and 7 mini-family care programs and partially defund 15 day care centers, resulting in the closing of centers providing services for more than 3,000 children. Accordingly, on June 1, 1976, ACD sent a written notice of intended closings to each day care center scheduled for defunding. Prior to July 1, 1976, meetings were held with ACD staff and sponsoring boards of defunded programs requesting a conference, at which ACD explained the reason and the criteria for the closings. While the record to date is unclear ACD projects that by the end of August, 1976, all the affected children will have been placed in alternative centers. In addition ACD has pledged that in making the new placements it will "accord geographic considerations the highest priority."*fn1 It further estimates that between 75% and 85% of the children affected will be offered placement in centers within 15 to 20 blocks of their present center.*fn2 Although 1,000 parents made a written demand for a hearing pursuant to 18 N.Y.C.R.R. pt. 358, no such hearing has been granted.

Upon this state of facts plaintiffs moved for a preliminary injunction enjoining the defendants from defunding the centers until (1) such time as the parents receive a "fair hearing" as described in state and federal regulations; (2) all persons in the same geographic areas and category receive similar day care services; and (3) the defendants give public notice of amending their state plan.

In its opinion below, the court noted that 45 C.F.R. § 205.10(a)(6)(A) permits defunding while a hearing is conducted if a determination is made at the hearing that the "sole issue is one of State or Federal law or policy . . . and not one of incorrect grant computation." Concluding that in this case the question of defunding in response to the fiscal budget crisis was such a policy determination, the district court held that compliance with the federal regulations would "not be dispositive of plaintiffs' claim for relief" and proceeded to consider the constitutional claim raised. In referring to New York State's participation in the federal program (42 U.S.C. § 1397a) pursuant to New York State Social Services Law § 410-b and the creation of ACD by the City of New York, the court concluded, however, that the plaintiffs "acquired a specific and legitimate expectation that they will be able to send their children to a day care center" which as a matter of statutory entitlement fell within the due process requirements of Goldberg v. Kelly, 397 U.S. 254, 262, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970). See also Goss v. Lopez, 419 U.S. 565, 572-74, 42 L. Ed. 2d 725, 95 S. Ct. 729 (1975); Board of Regents v. Roth, 408 U.S. 564, 577, 33 L. Ed. 2d 548, 92 S. Ct. 2701 (1972); Caramico v. Secretary of H.U.D., 509 F.2d 694 (2d Cir. 1974); Burr v. New Rochelle Municipal Housing Authority, 479 F.2d 1165 (2d Cir. 1973). Thereupon the court on July 1, 1976, certified the class action and enjoined the defunding of the day care programs prior to a group hearing or a series of group hearings upon five days' notice, affording parents an opportunity to present their views, without requiring ACD to present any evidence and at the same time ordering service upon the plaintiffs of its written decision articulating the facts underlying and the reasons for its decision. Accordingly, ACD had intensive hearings at which plaintiffs aired their grievances and protests and made suggestions, and at which ACD gave its reasons for rejecting the suggestions and explained its criteria for defunding. After the "Decision Pursuant to Group Hearings" was filed by ACD, the district court decided in a memorandum-decision dated July 21, 1976, that the group hearings complied with the court's order of July 1, 1976 and declined to further stay the defunding of the day care centers. This Court affirmed with opinion to follow.

Since the preliminary injunction has been dissolved, the defendants' appeal has become moot. What remains, however, is plaintiffs' cross-appeal. They claim the procedure employed in defunding the day care centers denies them due process and violates the Social Security Act and regulations of the United States Department of Health, Education and Welfare ("HEW") insofar as they were denied a "fair hearing" before termination or reduction of benefits.


From the admitted facts, no serious question can be raised that a substantial constitutional claim has been asserted and, in addition, that the statutory claim is predicated upon the common nucleus of operative law and fact required by United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). The district court properly held that the statutory claim was pendent, and further that both claims present common questions of law and fact, and that the plaintiffs could fairly and adequately represent those claims, thus authorizing certification of the class suit. The district court at the threshold considered the pendent claims, but decided that they were not "dispositive" and necessitated a consideration of the constitutional issue. We cannot agree with this conclusion, and believe a fuller consideration of the pendent statutory claim first would have rendered it unnecessary for the court to have reached the constitutional issue. Hagans v. Lavine, 415 U.S. 528, 94 S. Ct. 1372, 39 L. Ed. 2d 577 (1974); Rosado v. Wyman, 397 U.S. 397, 90 S. Ct. 1207, 25 L. Ed. 2d 442 (1970); Wyman v. Rothstein, 398 U.S. 275, 90 S. Ct. 1582, 26 L. Ed. 2d 218 (1970); Almenares v. Wyman, 453 F.2d 1075 (2d Cir. 1971), cert. denied, 405 U.S. 944, 92 S. Ct. 962, 30 L. Ed. 2d 815 (1972).

Considering then, as we must, the statutory claim first, we note that HEW has promulgated regulations as authorized by the Social Security Act, 42 U.S.C. § 1302 (1969) expressly requiring a state plan to provide a hearing which would meet the Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970), due process standards and also the standards set forth in 45 C.F.R. § 205.10.*fn3 Sections 205.10(a)(4), (a)(9), and (a)(13) specifically provide, among other things, that in cases of intended action to discontinue, terminate, suspend, or reduce assistance, the state agency is required to give adequate notice, to provide for a hearing conducted by an impartial official or designee of the agency, to afford the claimant an opportunity to examine the contents of the case file and documents before the agency prior to the hearing, to permit the claimant to (i) present his case himself or with the aid of an authorized representative, (ii) bring witnesses, (iii) establish facts, (iv) advance arguments, (v) confront and ...

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