Berlin v. McMahon

Page 427

31 Cal.Rptr.2d 427

26 Cal.App.4th 66

Marie BERLIN, Plaintiff and Appellant, v. Linda McMAHON, John D. Healy, etc., Defendants and Respondents.

No. B076133.

Court of Appeal, Second District, Division 6, California.

June 10, 1994.

Rehearing Denied June 23, 1994.

Robert K. Miller, M. Carmen Ramirez, Grant R. Specht, Barbara Jacri-Ortiz, Andrew Koenig, Channel Counties Legal Services Ass'n, Oxnard, for plaintiff and appellant.

Daniel E. Lungren, Atty. Gen., Charlton G. Holland, Asst. Atty. Gen., John H. Sanders, Supervising Deputy Atty. Gen., Robin T. Gertler, Deputy Atty. Gen., for defendants and respondents.

YEGAN, Associate Justice.

Marie Berlin appeals after the superior court denied her mandamus petition to set aside a Department of Social Services (DSS) administrative decision reducing her grant for Aid to Families with Dependent Children (AFDC). (Code Civ.Proc., § 1094.5; Welf. & Inst. Code, § 10963.) ¹ Appellant receives AFDC benefits and operates a custom T-shirt business out of her home. The amount of the AFDC grant is based on appellant's net business income.

DSS reduced appellant's AFDC grant from $1,057 to $731 for the month of June 1990 because appellant received income from her business. The trial court, in denying the petition for writ of mandate, ruled that appellant could not use an accrual accounting system to defer reportable business income and expenses. We affirm.

The instant appeal arises out of two administrative hearings concerning appellant's June 1990 AFDC grant. In May 1990, the Ventura County Welfare Department (County) proposed to reduce the grant from $1,057 to $731. (§ 11004, subd. (e).) Appellant brought an administrative appeal, claiming that the county had miscalculated her net business income and AFDC grant. (§ 10950.)

The administrative law judge (ALJ), in a written decision, determined that the County had correctly computed the amount of the grant based on appellant's net business income. On August 20, 1990, DSS adopted the decision. (§ 10959.) Appellant brought a petition for writ of mandate. (§ 10962.) The superior court remanded the matter with directions to take additional evidence and make further findings. (Berlin v. McMahon, Ventura County Super.Ct., No. 112484.)

At the second administrative hearing, evidence was presented that appellant and her family had received AFDC benefits for 10 years. In 1989 appellant asked a county welfare worker whether she could start a business. Appellant was told that an AFDC recipient can be self-employed but must report business income and expenses on a monthly basis. The case worker gave appellant a work sheet listing what business expenses could be deducted from gross income.

Appellant and her husband started the business in April 1989. Business receipts and expenses were reported on a cash basis. In April 1990 husband devised an accrual accounting system to carry forward business expenses and carry back business income. Appellant claimed no business income for the months of March, April and May 1990 based on the following accrual adjustments: (1) a customer paid $202.75 in April but the payment was listed as March income because the payment was due in March, (2) a $200 bill for shirt labels was listed as an April business expense but paid in May, and (3) $107 was deducted from gross receipts in April because appellant overcharged a customer and credited the customer's account in May.

Appellant and her husband testified that they had no prior bookkeeping experience. Husband stated that he made the accrual type entries to "build up a bank account" and save money for business equipment. A case worker told him that he could have $1,000 in savings and still be eligible for AFDC benefits.

Appellant also called a bookkeeper, Glenn Hevenstrike, to testify. ² Hevenstrike stated that the bookkeeping entries for March, April and May was "a combination of cash and accrual.... [I]t's basically cash with some adjustments made. This adjustment for $202.75 is an accrual adjustment ..., but basically everything gets reported when they pay for it, which is characteristics [sic] of a cash basis accounting system."

Evidence was presented that the County received appellant's Monthly Eligibility Report (form CA 7) on May 11, 1990. Appellant's gross earnings ($2,827.21) exceeded business expenses ($2,217.55). Applying the standard work expense deductions, the County determined that appellant received $326.44 income during the month of April. Appellant's AFDC grant was reduced from $1,057 to $731 for the month of June 1990.

The ALJ found that the County had no duty to advise appellant how to structure her business accounting system. "The AFDC Program does not dictate the type of accounting system a business is to use. It simply looks to the income and expenses that actually occur in the budget month, irrespective of the business' choice of accounting systems." The ALJ determined that the County's grant computations were correct. In doing so, the ALJ rejected appellant's argument that the County was equitably estopped from reducing the amount of the grantor collecting the $326 overpayment.

DSS adopted the decision on June 11, 1992. Appellant was ordered to reimburse the County $326 for excess AFDC benefits paid pending the administrative appeal.

Appellant filed a petition for writ of mandate challenging the second decision. The trial court independently reviewed the evidence and determined that appellant used a cash accounting system to run the business. It ruled that the AFDC regulations were based upon a cash accounting system and that appellant could not use accrual-type adjustments to change her reportable income. It also rejected the argument that the County had a duty to teach appellant proper accounting procedures before it reduced the AFDC grant. The trial court concluded that "[i]t's not an estoppel case, because there is nothing they actually relied on. No statements made or documents that would indicate that you had to have a cash system, so--or could use an accrual system. So they didn't really rely on anything to turn it into an estoppel case."

In reviewing the DSS decision the trial court reweighed the evidence, exercised its independent judgment, and made its own findings of fact. (Frink v. Prod (1982) 31 Cal.3d 166, 173-174, 181 Cal.Rptr. 893, 643 P.2d 476.) Appellate review of the trial court's factual findings is governed by the substantial evidence test, but issues of law and statutory construction are reviewed de novo. (Ruth v. Kizer (1992) 8 Cal.App.4th 380, 385, 10 Cal.Rptr.2d 274.) "All conflicts in the evidence must be resolved and all inferences drawn in favor of the judgment. [Citations.]" (Anthony v. Kizer (1991) 230 Cal.App.3d 990, 993, 281 Cal.Rptr. 516.)

The AFDC program is a federal-state cooperative program to provide assistance "... to needy dependent children and the parents or relatives with whom they are living...." (42 U.S.C. § 601; King v. Smith (1968) 392 U.S. 309, 316, 88 S.Ct. 2128, 2133, 20 L.Ed.2d 1118, 1125.) States participating in the program must meet federal statutory and regulatory requirements and use a "retrospective budgeting" system to calculate the amount of the recipient's grant. (42 U.S.C., § 602, subd. (a)(13)(A); 45 C.F.R. § 233.25; Daniels v. McMahon (1992) 4 Cal.App.4th 48, 52, 5 Cal.Rptr.2d 404.) The amount of aid payable for a particular month (the "payment month") is based on the recipient's income in the prior "budget month." (45 C.F.R. § 233.25; Dept. of Social Services Manual of Policies and Procedures, Eligibility and Assistance Standards (MPP), §§ 44-313.2, 44-315.34.) ³

In California, the budget month is two months before the payment month. (MPP, § 44-313.2.) "Thus, if a family receives income other than AFDC in January, its AFDC grant for March will be reduced by the amount [of] its income in January...." [p] "Before an AFDC grant can be reduced or terminated, the family must be given advance notice of the proposed action and a right to request a hearing before the reduction or termination takes place. [Citations.] If the family requests a hearing, aid continues uninterrupted until after the hearing is held. [Citation.]" (Daniels v. McMahon, supra, 4 Cal.App.4th 48, 52, 5 Cal.Rptr.2d 404.)

Appellant contends that the trial court erred when it found that accrual accounting methods may not be used to calculate business income. We disagree. DSS regulations define income as "any benefit in cash or in kind which is in fact currently available to the individual or is received by him as a result of [current] or past labor or services, business activities...." (MPP § 44-101.) The regulations provide that business income "... shall be considered currently available during the month received...." (MPP, § 44-102.)

Appellant asserts that a grant recipient may set aside business income without reducing his or her AFDC grant if the income is earmarked for future business expenses. Not so. Federal and state regulations require that all resources currently available to the recipient be considered in calculating the amount of the grant. (45 CFR § 233.20, subd. (a)(3)(ii)(D); MPP, § 44-101.) The trial court properly concluded that appellant could not use an accrual accounting system to carry back or carry forward business income. Business income received in the month of April had to be offset by business expenses. (MPP, § 44-113.212.) ⁴

Appellant argues that she was unaware of the AFDC regulations governing cash-basis reporting and did not "wilfully" refuse to comply with them. Contrary to appellant's claim, there need not be a "wilful" refusal to comply with welfare rules and regulations before aid can be reduced. Nothing in Jennings v. Jones (1985) 165 Cal.App.3d 1083, 212 Cal.Rptr. 134 requires us to so hold. The record shows that in 1989 the County told appellant that she had to report business income and expenses on a monthly basis. Appellant and her husband...