MARGARET M. HECKLER, SECRETARY OF HEALTH AND HUMAN SERVICES, PETITIONER v. SANDRA TURNER, ET AL. No. 83-1097 In The Supreme Court Of The United States October Term, 1984 On Writ Of Certiorari To The United States Court of Appeals For The Ninth Circuit Application For A Stay Of Injunction In Light Of Recently Enacted Legistlation Pursuant to Rules 43 and 44 of the Rules of this Court and 28 U.S.C. 1651(a), the Solicitor General, on behalf of Margaret M. Heckler, Secretary of Health and Human Services, applies for a stay pending review of the permanent injunction entered by the United States District Court for the Northern District of California on July 29, 1982, and affirmed by the United States Court of Appeals for the Ninth Circuit. The requested stay is appropriate in light of the recent enactment of the Deficit Reduction Act of 1984, Pub. L. No. 98-369. By amending the provision of the Aid to Families with Dependent Children (AFDC) statute involved in this case, the Deficit Reduction Act has superseded the lower courts' prospective injunction. Accordingly, a stay of that injunction is warranted. 1. This Court granted our petition for a writ of certiorari on February 27, 1984, to resolve a conflict in the circuits over whether the term "earned income" in Section 402(a)(8) of the AFDC statute (42 U.S.C. (Supp. V) 602(a)(8)) means net income or gross income. More specifically, the question presented is whether the $75.00 standard work expense disregard in Section 402(a)(8), which is deducted from "income" under Section 402(a)(7) of the Act (42 U.S.C. (Supp. V) 602(a)(7)) in determining AFDC eligibility and benefits, encompasses all work expenses including mandatory payroll deductions. Our brief on the merits fully sets forth the background of the relevant statutory provisions (at pages 4-7, 16-22) and the history of this litigation (at pages 7-9). The district court ruled that the term "income" in the statute, as it existed at that time, meant net income, and therefore that mandatory payroll deductions were not included in the $75.00 work expense disregard but instead had to be deducted from total income in determining the net income figure to which the disregard would be applied. On that basis the court entered a permanent injunction prohibiting state and federal officials from including state and local income taxes, Social Security taxes (F.I.C.A.) and state disability insurance within the definition of "income" in interpreting and applying that term as used in Section 602(a)(7)(A) of Title 42 of the United States Code (Section 402(a)(7)(A) of the Social Security Act). Pet. App. 48a. The court of appeals affirmed. 2. On July 18, 1984, the President signed into law the Deficit Reduction Act of 1984, Pub. L. No. 98-369. Section 2625(a) of that Act, entitled "Clarification of Earned Income Provision," amends Section 402(a)(8) of the Social Security Act by providing "that in implementing (Section 402(a)(8)) the term 'earned income' shall mean gross earned income, prior to any deductions for taxes or for any other purposes." In addition, Section 2625(b) states that "(t)he amendments made by subsection (a) shall become effective on the date of the enactment of this Act." /1/ The legislative history of the Deficit Reduction Act makes clear that Section 2625 is directed to the very issue of statutory construction that is presented in this case. The Conference Report states that "(t)he AFDC statute was amended in 1981 (in the Omnibus Budget Reconciliation Act, Pub. L. No. 97-35, Stat. 357) to change the way in which earned income is counted for purposes of determining eligibility and benefit amounts" and that (c)ourts in several States have been asked to interpret whether the term "earned income" refers to the gross amount earned by an individual before deductions are taken (for income taxes, insurance, FICA, support payments, or other items, regardless of whether the deduction is voluntary or involuntary), or whether the term refers to net earnings, after such deductions are taken. Regulations issued by the Department of Health and Human Services require that the term be interpreted as referring to gross earnings. The 3rd and 4th Circuit Courts of Appeal have ruled in the Department's favor. However, the 9th Circuit Court of Appeals has ruled that the term must be interpreted as referring to net earnings. The Supreme Court recently agreed to hear the case. H.R. Conf. Rep. 98-861, 98th Cong., 2d Sess. 1394-1395 (1984), reprinted in 130 Cong. Rec. H6369, H6748 (daily ed. June 22, 1984). Against this background the Report explains (ibid.) that Section 2625 "(a)mends the AFDC statute to make clear that the term 'earned income' means the gross amount of earnings, prior to the taking of payroll or other deductions" and that this provision becomes "(e)ffective on enactment." Likewise, the Senate Report, in addition to containing the above discussion, further notes that Section 2625 "(c)larifies existing law with regard to the definition of the term 'earned income'" by making a "technical clarification()" and that (t)he provisions in the AFDC statute which require that specified amounts of earned income be disregarded in determining eligibility and benefits have historically been interpreted as requiring that such amounts be deducted from gross, rather than net, earnings. The Committee agrees with the Department that there was no intention to change this interpretation when it approved the 1981 AFDC amendments. The Committee notes that when the Congressional Budget Office estimated the savings expected to be derived from the changes in 1981, it followed the interpretation shared by the Department and the Committee that the proposed disregards would apply to gross earnings. S. Comm. Print 98-169 (vol. I), S. Comm. on Finance, 98th Cong. 2d Sess., Explanation of the Provisions Approved by the Committee on Mar. 4, 1984, 98th Cong., 2d Sess. 79, 88, 982 (1984). /2/ 3. Section 2625 of the Deficit Reduction Act supersedes the injunction in this case and requires a stay of its prospective prohibitions. Whatever the propriety of that injunction from the time it was entered until July 18, 1984 -- and, for the reasons fully stated in our brief, we submit that it was legally erroneous -- the enactment and immediate effective date of Section 2625 make it inappropriate and inequitable to continue to apply the injunction on an ongoing basis. As the Court has recognized, "an injunction deals primarily, not with past violations, but with threatened future ones" and is "issue(d) to prevent future wrong." Swift & Co., v. United States, 276 U.S. 311, 326 (1928); see also United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953) ("(t)he purpose of an injunction is to prevent future violations"). Furthermore, in reviewing an injunction, the appellate court "must * * * (apply) presently existing * * * law, not the law in effect at the time that judgment was rendered." Fusari v. Steinberg, 419 U.S. 379, 387 (1975); see also Beltran v. Myers, 451 U.S. 625 (1981). It is well settled that a court has the power and obligation to modify an injunction in light of intervening changes in the applicable law. See System Federation No. 91 v. Wright, 364 U.S. 642, 647 (1961); United States v. Swift & Co., 286 U.S. 106, 114-115 (1932). Thus, a court must modify the terms of a decree "when a change in law brings those terms in conflict with statutory objectives. * * * The court must be free to continue to further the objectives of (the statute) when its provisions are amended." Wright, 364 U.S. at 651. A court of equity "will not continue to exercise its powers * * * when a change in law or facts has made inequitable what was once equitable" (id. at 652). See also Firefighters Local Union No. 1784 v. Stotts, No. 82-206 (June 12, 1984), slip op. 13 n.9, 20 n.17; Pasadena City Bd. of Education v. Spangler, 427 U.S. 424, 437-438 (1976); Dombrowski v. Pfister, 380 U.S. 479, 492 (1965); Pennsylvania v. Wheeling & Belmont Bridge Co., 59 U.S. (18 How.) 421 (1855); cf. Fleming v. Rhodes, 331 U.S. 100, 106-107 (1947). In this case passage of the Deficit Reduction Act requires that the outstanding injunction be given no further prospective effect. /3/ Congress has determined how the AFDC work expense disregard should be applied in the future, and thereby has obviated the continuing validity of the injunction that was based on a construction of the AFDC statute as it existed in 1982. By its terms, Section 2625 directs that the work expense disregard be deducted from gross earnings; in contrast, the injunction orders that the disregard be applied against net earnings. Thus, the standard imposed by the district court is directly and irreconcilably contrary to Section 2625. Furthermore, Section 2625 became effective immediately upon its enactment on July 18, 1984. In these circumstances, a stay of the prospective injunction is necessary to avoid any doubt concerning the propriety of federal and state compliance with the statute recently adopted by Congress that specifically addresses the very issue of the definition of "earned income." To leave the lower courts' prospective injunction in place would effectively enjoin implementation of Section 2625. /4/ For the foregoing reasons, it is respectfully submitted that the injunction in this case should be stayed. /5/ REX E. LEE Solicitor General JULY 1984 /1/ A copy of Section 2625 of the Deficit Reduction Act is attached hereto. As amended Section 402(a)(8) now provides in pertinent part: (A) * * * (I)n making the determination (of income) under paragraph (7), the State agency -- * * * * * (C) (shall) provide that in implementing this paragraph the term "earned income" shall mean gross earned income, prior to any deductions for taxes or for any other purposes. /2/ Similar explanations were also offered for comparable or predecessor provisions of Section 2625. See S. Rep. 98-300, 98th Cong., 1st Sess. 32, 34, 167-168 (1983); H.R. Rep. 98-664, 98th Cong., 2d Sess. 6, 13, 15 (1984). As H.R. Rep. 98-664 plainly states (at 15), "the $75 work expense allowance is deducted from gross earnings prior to the taking of any payroll deductions." In their brief on the merits (at 47-49) filed on July 23, 1984, respondents advert to Section 2625 and suggest that it may not apply to the issue in this case because it relates to the definition of "earned income" in Section 402(a)(8) and not to the definition of "income" in Section 402(a)(7). However, the central question here is whether, in deducting the standardized $75 work expense disregard from "earned income" under Section 402(a)(8), an adjustment is also to be made for mandatory payroll withholdings. In enacting Section 2625, Congress made clear that the standard disregard is to be taken from gross rather than net pay and that no additional adjustment is to be made for mandatory withholdings. Furthermore, as discussed above and as respondents acknowledge (Br. 48), the legislative history of Section 2625 specifically refers to this litigation and demonstrates that Congress intended to resolve for the future the issue of statutory construction presented in this case. Finally, and most importantly, respondents' view renders Section 2625 meaningless; there is no conceivable purpose in Congress's recent and conscious enactment of Section 2625 other than to answer this statutory question. /3/ We are advised that state and federal officials estimate, based on the affidavit (at Exh. A, p.2) of California Director of Finance Mary Ann Graves previously filed in this case (a copy of which is attached hereto), that continued application of the injunction will result in total monthly AFDC payments of approximately $2.6 million that are unauthorized and improper under Section 2625; approximately one-half of this amount represents federal funds. Similarly, Section 2625 was forecasted to reduce annual federal AFDC expenditures by approximately $24 million in those few states, like California, where a contrary standard was being applied as a result of judicial decisions. See S. Comm. Print. 98-169, S. Comm. on Finance, 98th Cong., 2d Sess., Explanation of Provisions Approved by the Committee on Mar. 24, 1984 (vol. I), at 104, 983, 1008; S. Rep. 98-300 98th Cong., 1st Sess., at 38, 168 (1983); H.R. Rep. 98-664, at 32. It is unlikely, as a practical matter, that such erroneous payments, once made, could be recouped. Of course, if respondents were ever found to be entitled to more generous treatment of their work expenses after July 18 notwithstanding Section 2625, they would receive full retroactive benefits. /4/ Indeed, even where a federal statute has been enjoined as unconstitutional, a stay of the injunction may be issued under the "established rule that courts of equity will not exercise their power to enjoin the enforcement of an act of Congress except under the most imperative or exigent circumstances." Katzenbach v. McClung, 85 S. Ct. 6, 7 (1964) (Black, Circuit Justice). See also Schweiker v. McClure, 452 U.S. 1301, 1303 (1981) (Rehnquist, Circuit Justice); New Motor Vehicle Board v. Orrin W. Fox Co., 434 U.S. 1345, 1351, 1352 (1977) (Rehnquist, Circuit Justice); Marshall v. Barlow's, Inc., 429 U.S. 1347, 1348 (1977) (Rehnquist, Circuit Justice). In this case, where there is no challenge to the validity of the Deficit Reduction Act, it is even clearer that the new statute should be allowed to take immediate effect -- as Congress specified it should -- and be in operation pending this Court's review of the Injunction entered below. /5/ Because the case is currently before this Court on writ of certiorari, there is a serious question whether a lower court would have jurisdiction to stay or modify the outstanding injunction. See 11 Wright & Miller, Federal Practice and Procedure: Civil Section 2873 (1973 and 1983 Supp.); 7 Moore's Federal Practice Paragraph 60.31(2) (1983); cf. United States v. Cronic, No. 82-660 (May 14, 1984), slip op. 19 n.42. In order to avoid such jurisdictional disputes, we have filed this application in the first instance and have not sought relief from the lower courts. Compare Sup. Ct. R. 44.4. APPENDIX