Hilliards v. Jackson

COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Fitzpatrick, Judge Benton and
Senior Judge Duff
Argued at Alexandria, Virginia

KATHERINE D. HILLIARDS
OPINION BY
v. Record No. 2460-97-4 JUDGE CHARLES H. DUFF
NOVEMBER 10, 1998
LARRY D. JACKSON, COMMISSIONER,
VIRGINIA DEPARTMENT OF SOCIAL SERVICES

FROM THE CIRCUIT COURT OF PAGE COUNTY
Porter R. Graves, Jr., Judge

John E. Whitfield (Blue Ridge Legal Services,
Inc., on briefs), for appellant.

Donald G. Powers, Assistant Attorney General
(Mark L. Earley, Attorney General; Ashley L.
Taylor, Jr., Deputy Attorney General;
Siran S. Faulders, Senior Assistant Attorney
General, on brief), for appellee.

Katherine D. Hilliards appeals the Page County Circuit

Court's decision affirming an administrative decision of the

Virginia Department of Social Services. The Department ruled

that Hilliards was eligible to receive ten dollars per month in

food stamps. Hilliards contends the Department erroneously

included the proceeds from the sale of her mobile home as income

when calculating her food stamp benefits. For the following

reasons, we reverse.

I.

On December 10, 1990, Hilliards and her husband bought a

mobile home, which they financed with a $15,000 consumer note
from Crestar Bank. 1 They subsequently moved from Shenandoah

County to Page County and, on April 23, 1992, sold the mobile

home to Virginia Tusing for its fair market value of $10,000. At

the time, the Hilliards had no equity in the mobile home, which

was fully encumbered by the Crestar note. Tusing was unable to

obtain credit to purchase the mobile home, so the parties entered

into a contract, which provided, in pertinent part:
1. That the purchase price shall be Ten
Thousand Dollars ($10,000.00), which shall be
paid by the Purchaser by the assumption of
the obligations under that note dated
December 10, 1990, made by the Sellers and
Payable to Crestar Bank.
2. That the Purchaser shall make all
payments on such note as they become due and
payable, such installments being in the
amount of Two Hundred Fourteen and 92/100
Dollars ($214.92); and further that if any
payment is not made in a timely manner, the
Purchaser shall be responsible for any late
charges and collection costs.

Tusing was responsible for providing and paying for all

utilities. The parties also agreed to execute any other

documents necessary to perfect the transaction, including, but

not limited to, an application for transfer of title. Tusing

also contracted with Hilliards to rent the lot on which the
2
mobile home was located for $85.08 per month.
1
The 1990 Crestar note included the refinancing of a
pre-existing debt and was secured by the mobile home, the
Shenandoah County property on which the mobile home was located,
and a truck.
2
Hilliards does not challenge the Department's finding that
the lot rent was unearned rental income attributable to her.

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 On October 6, 1992, Hilliards, her husband, and Tusing

executed a modification agreement "to more clearly reflect their

original intentions without changing the substance of the

original transaction." 3 The modification agreement specified

that Tusing was responsible for paying all property taxes

assessed on the mobile home. The agreement also explained as

follows:
[I]n in the event of default, the
Purchaser shall in all respects hold all of
the rights and be responsible for all of the
liabilities of the Sellers, as set forth in
the various provisions of the [Crestar Bank]
note and security agreement . . . as well as
the provisions of Article Nine of the Uniform
Commercial Code as enacted by the
Commonwealth of Virginia.

Crestar was not a party to either agreement. The Department

concedes that Hilliards did not enter into this agreement with

the intent to evade food stamp eligibility limits.

On April 27, 1992, Hilliards applied for food stamp benefits

in Page County. The local Department of Social Services included

neither the mobile home nor the property on which it was located

as resources for purposes of calculating Hilliards' eligibility.

The Department did, however, treat Tusing's monthly payments of

$214.92 as unearned rental income attributable to Hilliards. The

Department advised Hilliards that she was entitled to deduct her
3
The original Crestar note included a balloon payment not
addressed by the initial agreement executed by Hilliards and
Tusing. The modification agreement makes it clear that Tusing
was only assuming that portion of the obligation that financed
the mobile home.

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interest expenses from this "income," but Hilliards failed to

provide documentation to support any such deduction.

Hilliards appealed the Department's initial determination to

an administrative hearing officer. The hearing officer found

that Tusing's payments constituted vendor payments because she

was making payments on a household expense directly to Hilliards'

creditor. But, because Tusing's payment was "legally obligated

and otherwise payable to the household," it was not excludable

from Hilliards' income. Without providing any rationale, the

hearing officer affirmed the Department's initial determination

that the sale proceeds constituted unearned rental income. The

State Board of Social Services and the Page County Circuit Court

both subsequently affirmed the hearing officer's decision.
II.

Under the Virginia Administrative Process Act, Code

§§ 9-6.14:1 through 9-6.14:25, the party complaining of an agency

action has the burden of demonstrating an error of law subject to

review. See Code § 9-6.14:17. See also Johnston-Willis, Ltd. v.

Kenley, 6 Va. App. 231, 241, 369 S.E.2d 1, 6 (1988). The

appellate court must review the facts in the light most favorable

to the agency, with due consideration of "the presumption of

official regularity, the experience and specialized competence of

the agency, and the purposes of the basic law under which the

agency has acted." Code § 9-6.14:17. See also Bio-Medical
Applications of Arlington, Inc. v. Kenley, 4 Va. App. 414, 427,

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358 S.E.2d 722, 729 (1987). A review of the agency's decision

regarding a claimant's eligibility for food stamps "shall be

based solely upon the agency record, and the court shall be

limited to ascertaining whether there was evidence in the agency

record to support the case decision of the agency acting as the

trier of fact." Code § 9-6.14:16(B).

We accord great deference to an administrative agency's

interpretation of the regulations it is responsible for

enforcing. See Arellano v. Pam E. K's Donuts Shop, 26 Va. App.

478, 483, 495 S.E.2d 519, 521 (1998). See also Jackson v. W., 14

Va. App. 391, 400-01, 419 S.E.2d 385, 390 (1992). Our review is

limited to determining whether the administrative agency's

interpretation of its own rules was reasonable. See Classic

Floors, Inc. v. Guy, 9 Va. App. 90, 93, 383 S.E.2d 761, 763

(1989). But "the reviewing courts should not abdicate their

judicial function and merely rubber-stamp an agency

determination." Johnston-Willis, 6 Va. App. at 243, 369 S.E.2d

at 7-8. We will overturn the Department's interpretation of the

rules and regulations governing food stamp eligibility if it is

arbitrary and capricious. See Life Care Center of New Market v.

Dept. of Medical Assistance Services, 25 Va. App. 513, 521, 489

S.E.2d 708, 712 (1997).

The facts in this case are not in dispute. The issue is the

agency's application of the food stamp eligibility regulations to

Hilliards' situation. Because this is an area within the special

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expertise of the Department, we owe deference to its

interpretation of the eligibility requirements. Nevertheless, to

determine whether the Department correctly applied the law to the

facts in this case, we must look to the laws and regulations

governing food stamp eligibility.

III.

The purpose of the food stamp program is to provide

assistance to individuals with limited incomes and resources to

ensure that their basic nutritional needs will be met. See 7

U.S.C.A. §§ 2011 and 2014(a). In determining whether an

individual is eligible for food stamps, the Department must look

to the applicant's resources, see 7 C.F.R. § 273.8, and income.

See 7 C.F.R. § 273.9. 4 "Household income for purposes of the

food stamp program shall include all income from whatever source

. . . ." 7 U.S.C.A. § 2014(d). The statute specifically

excludes from income "any gain or benefit which is not in the

form of money payable directly to a household." 7 U.S.C.A.

§ 2014(d)(1).

The statutory definition of income is mirrored by the

definition of income found in the food stamp regulations

promulgated by the United States Department of Agriculture.

"Income" includes the gross income from any self-employment

enterprise, and the ownership of rental property is considered a
4
Unless otherwise noted, all citations to the Code of Federal
Regulations and the Department's food stamp policy manual are to
the versions included in the Joint Appendix filed with this Court.

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self-employment enterprise. See 7 C.F.R. § 273.9(b)(1)(ii). If

an individual is actively engaged in managing the rental property

less than twenty hours each week, then the rental income is

considered as unearned income. See id.

The regulations provide that the only permissible exclusions

from income are those specifically identified by regulation. See

7 C.F.R. § 273.9(b) and (c). The federal regulations list those

items that are excluded from an applicant's income, and provide

that "[o]nly [these] items shall be excluded from household

income and no other income shall be excluded." 7 C.F.R.
§ 273.9(c).

One exclusion identified in the regulations is for "vendor

payments." See 7 C.F.R. § 273.9(c)(1). "Money payments that are

not payable directly to a household, but are paid to a third

party for a household expense, are vendor payments . . . ." See

id. "For example, if a relative or friend, who is not a

household member, pays the household's rent directly to the

landlord, the payment is considered a vendor payment and is not

counted as income to the household." 7 C.F.R. § 273.9(c)(1)(i).

But the regulations include as income payments "legally

obligated and otherwise payable to the household, but which are

diverted by the provider of the payment to the third party for a

household expense." 7 C.F.R. § 273.9(c)(1)(iv). An example of

such an "obligatory" vendor payment is an employer who, instead

of paying an employee directly for wages owed, diverts those

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wages to the employee's landlord to pay the employee's rent. See

id.

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 IV.

Without any explanation, the Department classified Tusing's

payments as rental income. We were unable to find any definition

of "rent" or "rental income" in the regulations or the statutes

governing food stamps. Accordingly, we must look to the everyday

and ordinary meaning of these terms. See Virginia Employment

Comm'n v. Fitzgerald, 19 Va. App. 491, 495, 452 S.E.2d 692, 694

(1995). Black's Law Dictionary (6th ed. 1990) defines rent as

"[c]onsideration paid for use or occupation of property. In a

broader sense, it is the compensation or fee paid, usually

periodically, for the use of any rental property, land,

buildings, equipment, etc." Id. at 1297.

Hilliards was not renting the mobile home to Tusing. She

sold her ownership interest in the mobile home to Tusing. The

fact that the purchase was structured on an installment basis

with monthly payments due and payable to Crestar Bank did not

transform the contract of sale into a rental agreement. We hold,

therefore, that the Department's ruling classifying the sale

proceeds as rental income was arbitrary and capricious.

We also reject the Department's conclusion that Tusing's

payments under the contract of sale constituted vendor payments

includable as income to Hilliards. The Department found that

Tusing was paying a "household expense." But Hilliards sold to

Tusing the asset underlying the obligation to Crestar. By

contract, Tusing purchased all the rights to and responsibilities

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for the mobile home and obtained equitable title to it. Once

Hilliards executed the contract with Tusing, the payments on the

loan were no longer a "household expense" of Hilliards. Rather,

Hilliards became a de facto surety on the loan. Since Tusing was

not paying a "household expense," the transaction was not an

obligatory vendor payment that would be includable as income.

This case is distinguishable from the examples of includable

vendor payments provided in the regulations. For example, where

an employer diverts wages owed to an employee to pay the

employee's rent or mortgage, the employer gains no right of

possession or ownership over the employee's residence. Likewise,

the Hilliards-Tusing transaction bears no resemblance to a

garnishment. See 7 C.F.R. § 273.9(c)(1)(iv).

We conclude that the nature of the transaction entered into

between Tusing and Hilliards was not one contemplated by the

Department of Agriculture when it promulgated the regulations

regarding vendor payments. Accordingly, the Department's

classification of this sale as a vendor payment includable as

income was arbitrary and capricious. Moreover, our review of the

pertinent regulations reveals no other regulation addressing the

purchase arrangement entered into between Hilliards and Tusing.

We must, therefore, return to the federal statute for guidance.

See Ledbetter v. McDonald, 434 S.E.2d 763, 764 (Ga. App. 1993)

("Because no exclusion found in 7 CFR § 273.9(c) applies, we must

look to the controlling statute.").

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 The statutory definition of income excludes "any gain or

benefit which is not in the form of money payable directly to a

household." 7 U.S.C.A. § 2014(d)(1). In exchange for a

depreciating asset, Tusing assumed the Crestar note payments and

relieved Hilliards of a significant monthly expense. Although

Tusing's assumption of the note constituted a "gain or benefit"

for Hilliards, the payments were not "in the form of money

payable directly to the household." Accordingly, Tusing's

payments on the Crestar note were not income attributable to

Hilliards, and the Department erred when it included these

payments when calculating Hilliards' eligibility for food stamp

benefits.
For the reasons stated above, the decision of the circuit

court is reversed. The matter is remanded to that court with

instructions to direct the Page County Department of Social

Services to proceed in a manner consistent with this decision.

Reversed and remanded.

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