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January 31, 1992


The opinion of the court was delivered by: SHIRLEY WOHL KRAM


 This is a class action *fn1" challenging the constitutionality of Section 8001 of the Omnibus Budget Reconciliation Act of 1990, 38 U.S.C. § 3205, *fn2" in which plaintiffs seek injunctive relief as well as a declatory judgment pursuant to 28 U.S.C. § 2201. Plaintiffs now move, pursuant to Rule 65 of the Federal Rules of Civil Procedure, for an order preliminarily enjoining application of Section 3205. Plaintiffs contend that the Section is facially unconstitutional in that it denies them equal protection of the laws and due process of law in violation of the Fifth Amendment of the U.S. Constitution. The complaint also alleges that Section 3205 effects an improper taking without just compensation under the Fifth Amendment. Enforcement of the Section, according to plaintiffs, works sufficient irreparable harm to warrant the requested preliminary injunctive relief.

 The defendant United States Department of Veterans Affairs (the "VA") cross-moves, pursuant to Rules 12(b)(1) and (6), for an order dismissing the complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted. In the alternative, the VA moves, pursuant to Rule 12(c), for judgment on the pleadings. On November 8, 1991, the Court heard oral argument on the motions and now enters the following findings of fact and conclusions of law.


 1. Background

 The disability compensation scheme embodied in Title 38 of the United States Code is a variant of traditional workers' compensation law. Under the VA's compensation program, veterans are entitled to receive monthly compensation from the VA if they possess a service connected disability. *fn3" The purpose of such disability compensation is to "compensate for impaired earning capacity." See 38 U.S.C. § 355; Rose v. Rose, 481 U.S. 619, 630, 95 L. Ed. 2d 599, 107 S. Ct. 2029 (1987). The amount of compensation to which a veteran is entitled depends on the degree to which the veteran's earning capacity has been impaired by a service-connected disability.

 Section 3205 was proposed by the VA in early 1990 in a form substantially similar to that enacted. As enacted, the section provides, in pertinent part, as follows:

 (a) In any case in which a veteran having neither spouse, child, nor dependent parent is rated by the Secretary in accordance with regulations as being incompetent and the value of the veteran's estate (excluding the value of the veteran's home) exceeds $ 25,000, further payment of compensation to which the veteran would otherwise be entitled may not be made until the value of such estate is reduced to less than $ 10,000.

 (b)(1) Subject to paragraph (2) of this subsection, if a veteran denied payment of compensation pursuant to subsection (a) is subsequently rated as being competent, the Secretary shall pay to the veteran a lump sum equal to the total of the compensation which was denied the veteran pursuant to such paragraph. The Secretary shall make the lump-sum payment as soon as practicable after the end of the 90-day period on the date of the competency rating.

 (2) A lump sum payment may not be made under paragraph (1) to a veteran who, within such 90-day period, dies or is again rated by the Secretary as being incompetent.

 * * *

 38 U.S.C. § 3205.

 Section 3205 thus terminates compensation for a discrete group of veterans: those deemed mentally incompetent by the VA who (1) have no spouse, minor child *fn4" or dependent parent, (2) are not institutionalized at public expense and (3) have estates (excluding the value of each veteran's home, if any) in excess of $ 25,000; and compensation is terminated until such a veteran's estate is reduced to $ 10,000.

 Section 3205 overlays an existing statute, Section 3203(b)(1)(A), which terminates compensation to certain disabled veterans found mentally incompetent by the VA and who live in publicly funded institutions at public expense. *fn5" Section 3205 thus affects non-institutionalized incompetent disabled veterans as well as incompetent disabled veterans residing in private institutions.

 Section 3205 went into effect on November 1, 1990. In January 1991, the VA notified veterans whose compensation would be subject to suspension that termination of benefits was scheduled to begin in April 1991.

 2. Fiduciaries

 The vast majority of the mentally incompetent veterans receiving compensation have fiduciaries who manage their money and provide other services. In some cases, the fiduciary is a close relative such as a parent, sibling or adult child. In others, private attorneys, financial institutions or government agencies serve as fiduciaries. Typically, fiduciaries receive a fee based on a small percentage of the income to, or value of, a veteran's estate.

 If there is little or no income to a veteran's estate or if the estate becomes too small, it generally is no longer economically viable for fiduciaries, especially financial institutions and private attorneys, to provide fiduciary services. It is also likely that certain state agencies will be forced to discontinue fiduciary services as a consequence of fees lost as a result of Section 3205's termination of compensation. During 1990, the VA was forced to find alternate fiduciaries for several hundred incompetent veterans when one institutional fiduciary expressed its intention not to take on more cases or to withdraw from its duties when the estates were not of a sufficient size to make them economically viable to manage. See Affidavit of Joanne D'Alcomo dated August 9, 1991 ("D'Alcomo Aff."), Tab 14K at 346. The VA itself has acknowledged serious difficulties finding and retaining private fiduciaries in the past, and has admitted that Section 3205 will probably make the condition even worse. Id.

 Fiduciaries are responsible for paying incompetent veterans' bills for housing, meals and clothing and, in certain cases, must issue funds on a weekly or daily basis. Fiduciaries also handle an array of exigencies such as payment for repairs of cars and homes, arrangements for travel to visit sick relatives or to attend funerals and provision of cash when spending money has been lost or stolen. Some incompetent veterans have drug or alcohol problems which require varying kinds of immediate attention, and fiduciaries on occasion have been required to post bail bonds in order to secure an incompetent veteran's release from jail.

 3. Legislative History

 Section 3205's legislative history is limited. The VA proposed the legislation in early 1990 in a form substantially similar to that enacted. D'Alcomo Aff., Tabs 14G-H. A hearing was held in May 1990, but the bill remained dormant until the fall of 1990, when Congress rushed to produce a sweeping proposal to reduce the federal deficit. Id., Tab 14I, Tab 14M at 15629. Working under "a very short deadline," a House-Senate Conference Committee assembled a 1200-page report that proposed the Omnibus Budget Reconciliation Act of 1990. Id., Tab 14M at 15629, Tab 14N at 17494. There was virtually no debate in either the House or Senate on Section 3205.

 The limited legislative history, however, indicates that Section 3205 has one of four permissible objectives: (1) to reduce the federal budget deficit; *fn6" (2) to prevent non-dependent heirs of disabled veterans from inheriting the estates of such veterans; *fn7" (3) to prevent remote heirs of disabled veterans from inheriting estates from such veterans; *fn8" and (4) to prevent nondependent or remote heirs of disabled veterans from inheriting estates consisting of VA compensation. *fn9"

 a. Deficit Reduction

 The budgetary impact on Section 3205's target group, if arguably significant in real dollars, is quite small when compared to the total VA compensation budget. In fiscal 1990, the Government spent 10.7 billion on veterans' compensation. Congress projected that in fiscal 1991, Section 3205 would save $ 125 million. Thus, by abolishing payments under Section 3205, Congress expected to save about one percent of the total compensation paid to veterans in 1990. The remaining compensation to 99% of the compensation recipients remains unaffected.

 b. Impeding Inheritances of Disabled Veteran's Estate's by Non-Dependent Heirs

 By eliminating compensation only to incompetent disabled veterans with no spouse, minor child or dependent parent, Section 3205 ignores most of the universe of disabled veterans who also have no such immediate dependents but whose non-dependent heirs will continue to inherit without diminution. As compared with the 20,500 mentally incompetent disabled veterans with no immediate dependents and the 13,500 of these affected by Section 3205, the total number of disabled veterans with no immediate dependents is at least 263,000 and as much as 611,700. Those veterans targeted by Section 3205 -- 13,500 -- amount to only 2 to 5 percent of the total number of disabled veterans without immediate dependents. In other words, although there are 13,500 mentally incompetent disabled veterans without immediate dependents, there are at least 263,000 and as many as 611,700 similarly situated competent disabled veterans. Section 3205 leaves the estates of these competent veterans unimpaired although they greatly outnumber their incompetent counterparts and are without immediate dependents.

 On the present record, the only characteristic distinguishing the disabled veterans without immediate dependents whose compensation is terminated by Section 3205, is their VA-rated mental incompetence.

 c. Impeding Inheritances of Disabled Veterans' Estates by Remote Heirs

 On the present record, the status of incompetence makes it no more likely that an incompetent veteran's estate will be inherited by a remote heir than will the estate of a competent veteran. A VA rating of incompetence does not mean that a disabled veteran is incapable of executing a will. Incompetent veterans can and do have wills, as do members of the plaintiff class. See, e.g., Affidavit of Lyall Fraser dated July 19, 1991 ("Fraser Aff."), Tab 10, para. 12; Affidavit of Michael D'Arco dated July 19, 1991 ("D'Arco Aff."), Tab 8, para. 29; Affidavit of Ada L. Savory dated July 19, 1991 ("Savory Aff."), Tab 3, para. 29; Affidavit of Sidney Gimple dated July 19, 1991, ("Gimple Aff."), Tab 6, para. 10; Affidavit of Robert Greene dated July 31, 1991 ("Greene Aff."), Tab 7, para. 23. Even if an incompetent disabled veteran presently lacks testamentary capacity, the veteran may have possessed testamentary capacity in the past, and may have executed a valid will. ...

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