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October 31, 1986

STEPHANIE AHRENS and GLADYS McCABE, individually and on behalf of all others similarly situated, Plaintiffs,
OTIS BOWEN, M.D., individually and as Secretary of the Department of Health and Human Services, et al., Defendants; CESAR A. PERALES, as Commissioner of the New York State Department of Social Services, Plaintiff, v. OTIS BOWEN, M.D., as Secretary of the Department of Health and Human Services, Defendant

The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

MISHLER, District Judge

 Plaintiffs Ahrens and McCabe move for summary judgment pursuant to Fed.R.Civ.P. 56. Cesar A. Perales (successor to Barbara Blum) *fn1" as Commissioner of New York State Department of Social Services ("Commissioner") joins plaintiffs in seeking a declaration that it was arbitrary and capricious for the Secretary of the Department of Health and Human Services ("the Secretary") to refuse to disregard an award of punitive damages by recipients of the Supplemental Security Income program ("SSI") in calculating eligibility for SSI benefits.

 The Secretary moves for an order to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(1) and (6) based on: (1) lack of jurisdiction over the subject matter and (2) failure to state a claim upon which relief can be granted. The Secretary further moves for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c).

 Complaint of Plaintiff Ahrens

 When the complaint was filed in February 1982 Stephanie Ahrens was a 75 year old recipient of SSI. In the first quarter of 1981, Ahrens received monthly SSI payments of $271.96. In January 1981, Ahrens received the sum of $556 as punitive damages as a result of a lawsuit brought by Ahrens against owners of the adult home where she resided. The award of punitive damages was made pursuant to New York Social Services Law ("SSL") § 131-o *fn2" because the defendant adult home owner had wrongfully withheld several monthly "personal allowance" payments from Ahrens in violation of § 131.o.

 The Social Security Administration ("SSA") considered the award of punitive damages as countable income which reduced plaintiff's need for SSI benefits and for state supplemental payments. Accordingly, SSA determined that Ahrens had been overpaid in the amount of $556 during the first quarter of 1981. However, since she received her SSI check for January before she received the punitive damage proceeds of the action, SSA decided to recoup only $370.66, representing two-thirds of the overpayment of $556. The decision was affirmed by the Appeals Council of the Social Security Administration.

 Complaint of Plaintiff McCabe

 When the complaint was filed, Gladys McCabe was an 81 year old recipient of SSI benefits and a resident in an adult facility. McCabe received the sum of $648.20 in January 1981 as punitive damages in the action in which she joined Ahrens against the proprietor of the adult facility. Considering this payment as countable income, SSA used the same formula to recoup the overpayment as was applied to Ahrens. SSA recouped two-thirds of the overpayment in the amount of $432.12.

 McCabe also sought reconsideration in a petition to the Social Security Administration. The petition was denied and the decision denying reconsideration was affirmed by the Appeals Council of the Social Security Administration.

 Class Certification

 Ahrens and McCabe brought this action for themselves and others similarly situated *fn3" on the ground that the punitive damages award which they received in January 1981 was not income for the purpose of determining their eligibility for the receipt of SSI. Plaintiffs have not moved for class certification and this court has not certified the class.

 Plaintiffs' Claims and Causes of Action

 The first cause of action of the named plaintiffs alleges that the Commissioner is under a duty pursuant to § 34(3)(e) *fn4" and § 131-o of the New York State Social Security Law, to take affirmative action to amend the agreement made with the Secretary under 42 U.S.C. § 1382e(a) *fn5" and (b) to disregard "punitive damage awards [received] from personal allowance litigation in determining eligibility for the state supplement to SSI . . . ." (Complaint par. 39 at 21-22). The complaint seeks a declaration that the Commissioner breached his duty in failing to secure this provision in the agreement and also seeks a mandatory injunction directing the Secretary and Commissioner to amend the agreement "to provide for disregard of punitive damages recovered under New York State [Social Security Law] § 131-o." (Complaint par. 5 at 25).

 The second cause of action, stating a claim for the named plaintiffs only, seeks reversal of the Secretary's determination that plaintiffs were overpaid SSI benefits because punitive damages, recoverable under New York State Social Security Law ("S.S.L.") § 131-o, are considered income in determining eligibility.

 Alternatively, the third cause of action seeks a finding of a waiver by the Secretary of his right to recoupment on the ground that under 42 U.S.C. § 1383(b) plaintiffs were without fault in receiving or failing to return the SSI and that recoupment would be inequitable and violative of New York State's public policy to punish proprietors of adult homes for depriving recipients of their personal allowance. Plaintiffs also seek attorney's fees under 28 U.S.C. § 2412 and/or 5 U.S.C. § 504.

 The Secretary's answer denies the material allegations and affirmatively alleges (1) lack of subject matter jurisdiction, (2) lack of standing by the named plaintiffs, and (3) failure to state a claim upon which relief can be granted.

 The claim against the Commissioner was dismissed as a pendent state claim for a determination of the duty of the Commissioner to seek an amendment of the agreement between the Secretary and the Commissioner. Ahrens v. Schweiker, CV 82-0287, Memorandum of Decision and Order filed December 29, 1982. The Commissioner filed a claim on June 25, 1982 against the Secretary cast in terms of a request to the Secretary to modify the existing Federal/State agreement so that punitive damages, received by recipients of SSI benefits, would not be considered income for eligibility purposes. This action was consolidated with the actions of plaintiffs Ahrens and McCabe by order dated July 9, 1982. The Commissioner further seeks a determination that the Secretary's refusal to modify the agreement is violative of 42 U.S.C. §§ 1382e(b)(2) and 1382e(c)(2) and is arbitrary and capricious. The Commissioner thus is in the same position as plaintiffs in seeking a modification of the agreement.

 The Federal-State SSI Program

 Title XVI, the Federal SSI provisions of the Social Security Act, became effective on January 1, 1974. These provisions were incorporated into the Social Security Act in order to establish a "national program to provide supplemental security income to individuals who have attained age 65 or are blind or disabled. . . ." 42 U.S.C. § 1381. Under the program recipients receive a flat grant. The amount of the grant depends on the category into which the recipient falls. *fn6" The program provides uniform benefits for recipients of the same level throughout the nation. It permits the state to supplement the federal grant and encourages such supplemental payments by excluding them from countable income in calculating eligibility for SSI, § 1382a(b)(6), 1382e(a) and by providing that the Secretary administer the optional state supplementation. § 1382e(a), (b).

 Agreements between the Secretary and the State for state and federal SSI benefits are provided for in § 1382e(a), (b). New York S.S.L. § 211 authorizes the New York Department of Social Services to enter into an agreement with the Secretary for the administration of the state supplemental program by the Secretary. 42 U.S.C. § 1382e(b)(2) requires that the agreement shall provide "such other rules with respect to . . . amount of the supplementary payments . . . as the Secretary finds necessary . . . to achieve efficient and effective administration [of the program]." S.S.L. § 211(2) provides that the Secretary may determine eligibility for state supplements including the "amounts of earned or unearned income to be disregarded in determining eligibility . . . in accordance with . . . federal law and regulations."

 Since 1977 New York State has provided recipients of SSI benefits, who reside in state licensed adult homes, a personal allowance as part of the state supplement. As of July 1, 1980 the monthly personal allowance granted to an SSI beneficiary receiving residential care was $33.33, S.S.L. § 131-o(1)(b). This sum was intended to cover the cost of clothing, personal hygiene items and other supplies and services not otherwise available in the home.

 S.S.L. § 131-o(3) provides that where such funds are misappropriated or withheld by the home, the resident may maintain an action to recover the amount withheld together with "additional punitive damages in an amount equal to twice the amount misappropriated or withheld." The New York statute further provides that:

 Any funds obtained as a result of such an action shall be disregarded in determining such individual's eligibility for or amount of benefits available pursuant to this chapter, to the ...

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