In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 02-1476

SCOTT STONE and MARIAN REDELL,

on their own behalf and on behalf

of those similarly situated,

Plaintiffs-Appellants,

v.

JOHN M. HAMILTON, in his official capacity

as Secretary of the Indiana Family and

Social Services Administration,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 01 C 564—Larry J. McKinney, Chief Judge.

____________

ARGUED SEPTEMBER 4, 2002—DECIDED OCTOBER 18, 2002

____________

Before BAUER, ROVNER, and EVANS, Circuit Judges.

ROVNER, Circuit Judge. Prior to 1996, the federal Food

Stamp Act prohibited a state from collecting a food stamp

overissuance that was due to its own administrative error

(“agency error overissuance”) by involuntarily reducing

a food stamp recipient’s food stamp allotment. States were

permitted, but not required, to recoup overissuances by

other means. In 1996, Congress amended the statute to

require states to collect agency error overissuances by involuntary means, including by involuntarily reducing
2 No. 02-1476

1 Prior to August 1996, the statute stated,

* * *

(b) Reduction of allotment; cash payments; collection by

State agencies

(continued...)

a food stamp recipient’s food stamp allotment. A class of

food stamp recipients (“recipients”) sued the Secretary of

the Indiana Family and Social Services Agency (“State”),

challenging the State’s ability to involuntarily reduce a

recipient’s food stamp allotment to collect for overissuances made prior to the 1996 amendment to the Food

Stamp Act. The district court denied the plaintiffs’ motion for summary judgment and granted summary judgment in favor of the defendant. We reverse and remand for

further proceedings.

I.

In order to alleviate hunger and malnutrition among

the economically disadvantaged, the federal government

funds a program to provide food stamps to low-income

individuals. 7 U.S.C. § 2011. Although funded by the federal government, each state must administer the program in compliance with the Federal Food Stamp Act and

the accompanying regulations. 7 U.S.C. § 2020, 7 C.F.R.

§ 273.18(a)(2)-(3). The state’s agencies in charge of doling

out food stamps occasionally err and issue more food

stamps than a recipient is entitled to receive. The state

has always been entitled to collect from recipients who,

due to agency error, received an overissuance of food

stamps (7 U.S.C. § 2022(a)), but prior to 1996, the state

could not do so by involuntarily reducing a recipient’s

current food stamp allotment. 7 U.S.C. § 2022(b)(2) (1995).

The overissuances could only be collected by “other means.”

7 U.S.C. § 2022(b)(2)(B) (1995).1

 The problem for the states,
No. 02-1476 3

1 (...continued)

* * *

(2)(A) State agencies shall collect any claim against a

household arising from the overissuance of coupons,

other than . . . claims arising from an error of the State

agency, by reducing the monthly allotments of the

household . . . .

(B) State agencies may collect any claim against a

household arising from the overissuance of coupons,

other than claims collected pursuant to paragraph (1) or

subparagraph (A), by using other means of collection.

* * *

(d) Recovery of overissuance of coupons

The amount of an overissuance of coupons as determined

under subsection (b) of this section and except for claims

arising from an error of the State agency, that has not

been recovered pursuant to such subsection may be recovered from Federal pay (including salaries and pensions) as authorized by section 5514 of Title 5.

7 U.S.C. § 2022 (1995).

of course, was that the recipients from whom they might

collect were impoverished and thus had few, if any assets

from which to collect “by other means.” All of that changed,

however, when Congress amended the Food Stamp Act

by enacting the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193,

§ 844, 110 Stat. 2105 (Aug. 22, 1996). Where before the

states were prohibited from using food stamp allotment

reduction as a method for collecting agency error over

issuances, the new Act required the state to use involuntary means, including food stamp allotment reduction, to

collect from recipients in these cases. 7 U.S.C. § 2022(b)

(2002). The regulations implementing the amendment

require states to recoup overissuances by involuntarily

reducing a recipient’s food stamp allotment. 7 C.F.R.
4 No. 02-1476

2 After August 22, 1996, the statute stated,

(b) Collection of overissuances

(1) In general

Except as otherwise provided in this subsection, a

State agency shall collect any overissuance of coupons issued to a household by—

(A) reducing the allotment of the household;

(B) withholding amounts from unemployment

compensation from a member of the household under subsection (c) of this section;

(C) recovering from Federal pay or a Federal

income tax refund under subsection (d) of

this section; or

(D) any other means.

7 U.S.C. § 2022 (2002).

§ 273.18(g)(1) (2002). Suddenly the states were not only

required to collect for their errors, but they also had an

effective means of doing so.2

After enactment of the amendment, the State began

sending out notices that it would be reducing food stamp

allotments to collect for agency error overissuances. Some

of these notices went to persons who had received the

overissuances long before Congress enacted the new

amendment. For instance, in a Notice of Action mailed on

September 1, 2000, the State informed Marian Redell that

it was now going to collect—by reducing her monthly food

stamp allotment—for an overissuance of food stamps that

she received in 1988.

In 1988, the State wrote to Ms. Redell asking for voluntary repayment of the overissuance but stated in bold capitalized letters, “BECAUSE THE ERROR WAS MADE

BY OUR AGENCY YOU ARE NOT REQUIRED TO

AGREE TO REPAY THE OVERISSUED BENEFITS.”
No. 02-1476 5

(R. Doc. 30). It warned Ms. Redell, however, that it was

reserving the right to pursue other collection methods

permitted by federal law. Despite the warning, for approximately twelve years, the State took no action to collect from

Ms. Redell.

Similarly, in January 1986, the State informed Scott

Stone that, due to its error, in August 1984 and in February through December 1985, he had received $233 in food

stamps that he was not entitled to receive. The notification

asked Stone to voluntarily pay back the amount of the

overissuance. Mr. Stone paid back $98 over the course of

two years from 1986 to 1988, but then paid nothing further. As with Ms. Redell, from December 1988, when Mr.

Stone stopped making payments, through September 2000,

the State did nothing further to collect for the overpayments. On September 1, 2000, the State sent Mr. Stone

a notice informing him that it was going to begin recouping the balance due on the overpayment by reducing his

food stamp allotment.

Mr. Stone and Ms. Redell sued the State in district court,

challenging its ability to reduce current food stamp allotments to collect for overissuances which occurred prior to

the effective date of the amendment. The district court

certified the case as a class action in which Mr. Stone and

Ms. Redell represent a class of “all individuals in the State

of Indiana who received an overissuance of food stamps

due to an agency error at any time prior to August 22,

1996.” The plaintiffs filed a motion for summary judgment

asking the district court to grant a permanent injunction prohibiting the State from retroactively applying the

amendments to the Food Stamp Act. Shortly thereafter,

the defendant filed its motion for summary judgment.

The district court granted summary judgment in favor of

the defendant, the Secretary of the Indiana Family and

Social Services Administration. The food stamp recipients

appeal.
6 No. 02-1476

3 The State asks us to defer to the Secretary of Agriculture’s

comments to the final regulations implementing the amendment.

In these comments, the Secretary expresses a belief that the

(continued...)

II.

We review the district court’s ruling on summary judgment de novo, construing the record in the light most

favorable to the nonmovant. Oconomowoc Residential Programs Inc. v. City of Milwaukee, 300 F.3d 775, 777 (7th Cir.

2002). Summary judgment is appropriate where there is

no genuine issue of material fact and the moving party

is entitled to judgment as a matter of law. Fed. R. Civ. P.

56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23

(1986).

The sole issue presented by the parties is whether the

application of the Food Stamp Act amendments to pre-1996

overissuances constitutes an impermissible retroactive

application of the law. We begin with the recognition that

the law disfavors a retroactive application of a statute.

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988).

“Thus, congressional enactments and administrative rules

will not be construed to have retroactive effect unless

their language requires this result.” Id. The first step in

determining whether a law applies to conduct occurring

prior to the passage of an act is to ascertain whether

Congress has expressly prescribed the statute’s reach.

Landgraf v. USI Film Prod., 511 U.S. 244, 280 (1994). In

this case it is apparent from the face of the amended

statute, and both parties agree, that Congress has not

expressly stated whether the new provisions of the Act

apply to agency error overissuances which occurred prior

to enactment of the amendment. The relevant food stamp

regulations issued by the Secretary of Agriculture are

likewise silent on this question. See 7 C.F.R. § 273.18.3
No. 02-1476 7

3 (...continued)

amendment could apply to agency error overissuances that

occurred prior to enactment. See 65 Fed. Reg. 41752, 41766 (July

6, 2000). Although a court must give great deference to an

agency’s reasonable regulatory interpretations embodied in formal regulations, it need not pay the same heed to less formal

statements that do not necessarily reflect the deliberative focus

of the entire agency. Pennington v. Didrickson, 22 F.3d 1376,

1383 (7th Cir. 1994). The Secretary in this case has not issued

any regulations regarding the retroactive application of the

statute.

4 Prior to Landgraf, 511 U.S. 244, and Martin, 527 U.S. 343, some

courts took an overly rigid approach to determining retroactivity by examining whether a statute was procedural or substantive. See e.g. Alexander v. Robinson, 756 F.2d 1153, 1155 (5th Cir.

(continued...)

Where there is no congressional directive as to whether

the statute should be applied retroactively the court must

determine whether the application has a retroactive effect. Martin v. Hadix, 527 U.S. 343, 357 (1999). Deciding

whether a statute operates retroactively is not always a

simple or mechanical task. Landgraf, 511 U.S. at 268. A

statute does not have a retroactive effect merely because

it applies to conduct occurring before the statute’s enactment. Id. at 269. A statute has a retroactive effect when

it “takes away or impairs vested rights acquired under

existing laws, or creates a new obligation, imposes a new

duty, or attaches a new disability, in respect to transactions or considerations already past.” Id. In making its

evaluation, this court must apply a “commonsense, functional judgment about whether the new provision attaches

new legal consequences to events completed before its

enactment. This judgment should be informed and guided

by familiar considerations of fair notice, reasonable reliance, and settled expectations.” Martin, 527 U.S. at 357-58

(internal citations omitted).4
8 No. 02-1476

4 (...continued)

1985). In Alexander, the Fifth Circuit assessed the retroactive

application of a similar Food Stamp Act amendment that required the involuntary reduction of a food stamp allotment for

food stamp recipients who, due to their own non-fraudulent error

(as opposed to agency error, as is the case here) received an

overissuance of food stamps. Id. at 1154. The Fifth Circuit concluded that the amendment was “procedural and remedial” and

thus could be applied retroactively. Id. at 1156. Since that time,

the Supreme Court has taken “pains to dispel the suggestion that

concerns about retroactivity have no application to procedural

rules.” Martin, 527 U.S. at 358. Courts may no longer merely

rely upon the label of “procedural” or “remedial” to determine

whether a statute operates retroactively. Id. We therefore have

analyzed the retroactive effect of the amendment at issue in

this case using the more recent “commonsense, functional” judgment standard dictated by the Martin decision. Id. at 357-58.

5 The State also asserts that prior to the enactment of the

amendment it could have collected for an agency error over-

(continued...)

Even before the enactment of the amendment, persons

who received an overissuance of food stamps due to agency

error were liable for the value of any overissuance of

coupons. 7 U.S.C. § 2022(a)(2) (1995). Due to the indigence

of food stamp recipients, however, prior to 1996 it was

virtually impossible—or at the very least, highly impractical—for the government to recoup agency error overissuances. Although prior to 1996, the State could collect

for agency error overissuance by “other means,” (7 U.S.C.

§ 2022(b)(2)(B) (1995)), the statute does not articulate

the other means that might be available. We know from

Mercer v. Magnant, 40 F.3d 893, 898 (7th Cir. 1994), that a

state could intercept and reduce a taxpayer’s state tax

refund by the amount owed for the overissuance. In addition, a state could initiate a collection action in state court.

The State, however, was unlikely to successfully collect

from indigent recipients using either method.5

 In short,
No. 02-1476 9

5 (...continued)

issuance by intercepting unemployment compensation. However,

we agree with the food stamp recipients’ interpretation that

7 U.S.C. § 2022(c) (1995) (referring to 7 U.S.C. § 2015(b)) allows

interception of unemployment compensation benefits only in

cases where the overissuance was due to recipient fraud or misrepresentation.

prior to the amendments, for all intents and purposes, there

were no legal consequences to the overissuance because

the indigent recipients were judgment proof or had no

state tax refunds to intercept.

Since the enactment, collection is almost guaranteed.

Despite the fact that the plaintiffs remained liable for the

overissuances both before and after the enactment of the

amendments, viewing the effect of the amendment in a

commonsense and functional manner, since the enactment of the amendment, the food stamp recipients face

increased legal consequences. By changing the remedies

for collecting for overpayments from ineffective and discretionary to highly effective and mandatory, the amendment has increased the recipients’ liability for past conduct.

Although the dollar amount of liability the food stamp

recipients faced never changed, a new statute can increase the legal consequences to the affected party without necessarily increasing the dollar amount of liability.

For example, in Hughes Aircraft Co. v. United States, 520

U.S. 939 (1997) the Supreme Court reviewed a 1986

amendment to the False Claims Act that permitted private qui tam actions where they had been previously

precluded. Prior to the amendment, the False Claims act

permitted private parties to sue anyone who had submitted a false claim to the government, but only if the

information upon which they were basing their claim

was not already in the government’s possession. Id. The
10 No. 02-1476

1996 amendment removed the bar (which was, in fact, a

significant one) to private suits based on information in

the government’s possession. Id. at 946. Both before and

after the amendment, the False Claims Act made it illegal to knowingly submit a false claim for payment to the

United States. Id. at 947. The amendment did not “alter

a defendant’s exposure for a false claim by even a single penny.” Id. at 948. It simply widened the realm of

potential plaintiffs who could sue for the false claim. Id. at

949-50. By doing so, however, the amendment significantly increased the likelihood that the defendant would

be subject to an action for illegal behavior. Id. The Court

found that this significant extension “attached a new

disability, in respect to transactions and considerations

already past,” and as such could not be applied retroactively. Id. at 948.

Our inquiry into whether a statute operates retroactively must also be “informed and guided by familiar considerations of fair notice, reasonable reliance, and settled

expectations.” Martin, 527 U.S. at 358 (internal citations

omitted). The State itself created settled expectations

when, under the old system, it sent out notices to overpaid

recipients describing its limited ability to collect for

agency error overissuances. The recipients may have relied

on the government’s inability to collect when deciding

not to agree to a voluntary reduction in their food stamps

under the old system. Relying on the language in the

State’s notice, recipients may have opted not to appeal the

overpayment or not to seek judicial review of an unsuccessful administrative appeal. In other scenarios, overpaid

recipients may have taken a calculated chance to protect

their most indispensable resource—their food stamps—

knowing that, if necessary, they could more readily part

with other assets that the government might seek in a

collection action or otherwise. Prior to 1996, overpaid
No. 02-1476 11

recipients had the benefit of protecting their food stamp

supply. After 1996, they lost that benefit.

It is true that the food stamp recipients relied on a

mere likelihood that they would not be held accountable

for the overissuance. There was always a possibility, no

matter how remote, that the State would attempt to collect for the overissuance. Reliance on a chance, however,

can constitute reliance nonetheless. In INS v. St. Cyr, 533

U.S. 289 (2001), convicted criminal defendants challenged a new statute that removed the government’s discretion to waive deportation of resident aliens convicted

of certain crimes. Criminal defendants who had entered

into plea agreements assuming that they would be eligible for discretionary relief from deportation—relief that had

been granted liberally in the past—were shocked to learn

that they were now subject to automatic deportation. The

Court found that such a retroactive application of the

statute was contrary to notions of fair notice, reasonable

reliance, and settled expectations. Id. at 323-24. In particular, the Court dismissed the idea that the discretionary nature of the relief precluded review stating, “there

is a clear difference, for the purposes of retroactivity analysis, between facing possible deportation and facing certain deportation.” Id. at 325. In this case, there is a clear

difference between facing a remote chance that the State

will initiate a collection action in state court or intercept a tax refund, and facing a certain reduction in the

amount of food stamps issued. For years the food stamp

recipients have reasonably relied on the settled expectation that their food stamp allotment would be relatively

safe from forfeiture. Although the State may change the

rules going forward, it would be contrary to familiar

considerations of fair notice, reasonable reliance, and

settled expectations to alter the rules applied to agency

error overissuances which occurred prior to the enactment

of the new amendment.
12 No. 02-1476

6 The food stamp recipients contend that such a collection action would be subject to Indiana’s six-year statute of limitations

for actions on accounts and contracts not in writing. The State

denies that food stamps are analogous to an account or contract subject to a six-year statute of limitations, but offers no

alternative statute of limitations for such a collection action. We

need not decide whether the food stamp recipients are correct

about the length of the statute of limitations. In the case of

the named plaintiffs, the State waited approximately twelve

to fifteen years before deciding to take action on the agency er-

(continued...)

These same notions of fair notice, reasonable reliance,

and settled expectations act to bar actions by the State

so long after the agency error occurred. Fairness dictates

that food stamp recipients, like any liable party, must

have “the right to be free of stale claims” after a reasonable amount of time has passed. American Pipe and

Constr. Co. v. Utah, 414 U.S. 538, 766 (1974). Although this

case does not involve a literal retroactive expansion of

a statute of limitations, it certainly is analogous and the

amendment increases the legal consequences for the food

stamp recipients in much the same manner. See Hughes

Aircraft, 520 U.S. at 950 (“extending a statute of limitations after the pre-existing period of limitation has expired impermissibly revives a moribund cause of action”);

Chenault v. United States Postal Serv., 37 F.3d 535, 539

(9th Cir. 1994) (“a newly enacted statute that lengthens

the applicable statute of limitations may not be applied

retroactively to revive a plaintiff’s claim that was otherwise barred under the old statutory scheme because to do

so would ‘alter the substantive rights’ of a party and ‘increase a party’s liability’ ”). In the case of the named plaintiffs, the State failed to initiate any action to collect for

overissuances for approximately twelve to fifteen years—

long after the statute of limitations for filing a collection action in state court would have run.6

 Although the
No. 02-1476 13

6 (...continued)

ror overissuance. We assume that any collection action filed in

state court would be stale so long after the fact. See Ind. Code

§ 34-11-2-1 through 34-11-2-12 (describing specific state statutes of limitations, all but one of which are between two and ten

years).

USCA-02-C-0072—10-18-02

State could have collected after the statute of limitations

had run by intercepting tax refunds, for the reasons

described above, that possibility was exceedingly remote.

Certainly after more than a dozen years of state inaction,

the food stamp recipients were entitled to a reasonable

expectation that they would no longer be accountable for

the agency error.

III.

For the reasons stated above, we reverse the district

court’s grant of summary judgment and remand to the

district court for further proceedings consistent with this

opinion.

REVERSED.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit