Gamboa v. Rubin

80 F.3d 1338, 1996 WL 162329

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 9, 1996
• Docket: Nos. 94-15302, 94-15303
• Status: Published

Opinions

Opinion

PREGERSON, Circuit Judge:

Paul M. Gamboa, on behalf of a certified class of low income people, appeals the district court’s grant of summary judgment in favor of defendants Donna Shalala, Secretary of Health and Human Services (“the Secretary”), and, in part, in favor of Winona Rubin, director of the Hawaii Department of Human Services (“DHS”). The district court upheld a $1500 automobile equity limit for recipients of Aid for Families with Dependent Children (“AFDC”), but found that Hawaii was incorrectly applying that limit to determine Medicaid eligibility for certain individuals. We have jurisdiction under 28 U.S.C. § 1291. We affirm in part, reverse in part, and remand.

BACKGROUND

Paul Gamboa and members of the plaintiff class assert that the automobile equity limit set by the Secretary in 1982 is invalid. Plaintiffs contend that the $1500 limit was arbitrary and capricious when the Secretary issued it, and remains so because the Secretary has not adjusted the figure for inflation. The plaintiffs also argue that the Hawaii Department of Human Services improperly calculated the automobile equity allowed for certain recipients of Medicaid.

A. Facts and Prior Proceedings.

In November 1991, plaintiff Paul Gamboa had an operation to remove a brain tumor. Since then, he has been subject to disabling seizures. Gamboa owes approximately $40,-000 in medical bills. He uses his ear, a Buick, to take his two minor children to school, to go to the doctor’s office, and to run errands.

On November 25, 1991, Gamboa applied for AFDC and Medicaid for himself and his two children. On December 31, 1991, DHS denied Paul Gamboa’s application because the equity in his car exceeded the regulatory limit of $1500 set by the United States Department of Health and Human Services (“HHS”) for AFDC recipients.¹

Gamboa appealed the decision to a Hawaii state court, naming Winona E. Rubin, DHS Director, as the defendant. Because an HHS regulation was at issue, Rubin filed a third-party complaint against the Secretary of HHS. The Secretary then removed the action to the United States District Court for the District of Hawaii. In district court, Gamboa filed an amended complaint, adding the Secretary as a defendant and seeking certification of the case as a class action. The class, which includes all individuals who are ineligible for benefits because the equity in their automobiles exceeds $1500, was certified on October 6,1992.

All parties filed cross motions for summary judgment. On November 4, 1993, the district court upheld the $1500 equity limit, granting HHS’s motion for summary judgment and denying the plaintiffs’ motion for summary judgment. The court also granted in part and denied in part DHS’s motion for summary judgment. The court granted DHS’s motion with respect to the $1500 equity limit, but denied it with respect to Hawaii’s Medicaid regulations. On November 29, 1993, the district court granted the plaintiffs’ motion for summary judgment on the Medicaid issue. Gamboa, plaintiffs, and Rubin now appeal.

B. Statutory Framework.

1. AFDC.

In 1935, Congress established the Aid to Families with Dependent Children (“AFDC”) program. AFDC is a cooperative federal-state program which provides monetary assistance to needy, dependent children. The federal government prescribes eligibility criteria for AFDC recipients and provides states with matching funds for distribution. The states administer the program according to plans approved by HHS. See 45 C.F.R. §§ 201.2 & 233.10(b)(1); 42 U.S.C. § 601.

In 1955, the Secretary of the Department of Health, Education and Welfare (“DHEW”), HHS’s predecessor, began imposing income and resource limitations on the states. See Hazard v. Shalala, 44 F.3d 399, 402 (6th Cir.1995). Under the regulations effective before 1975, families could qualify for AFDC benefits if they had less than $2000 in property. See Brown v. Secretary of Health and Human Servs, 46 F.3d 102, 104 (1st Cir.1995). These early regulations exempted the value of one automobile, regardless of its value, from the calculation of family resources. Id.

In 1975, the Secretary of DHEW issued a regulation that for the first time placed a cap on the automobile exemption. The regulation provided, that to the extent that a ear’s market value exceeded $1200, the difference would count toward a family’s overall resource limit of $2000. Id. The District of Columbia Circuit struck down the regulation in National Welfare Rights Org. v. Mathews, 533 F.2d 637, 647-48 (D.C.Cir.1976), because the regulation failed to consider encumbrances on automobiles and because the administrative record gave no empirical basis for the limits the Secretary had chosen. As a result of the decision in National Welfare Rights, the automobile exemption reverted to the previous regulation which allowed the exemption of one car, regardless of its value. See Brown, 46 F.3d at 104.

In the Omnibus Budget Reconciliation Act of 1981 (“OBRA”), Congress for the first time imposed a statutory limitation on the amount of resources that an AFDC family may have. Pub.L. No. 97-35 § 2302, 95 Stat. 357, 844-5 (codified at 42 U.S.C. § 602(a)(7)(B)). OBRA amended the AFDC provisions, reducing the overall resource limit from $2000 to $1000 per family. The statute also provides that any state may exempt “so much of the family member’s ownership interest in one automobile as does not exceed such amount as the Secretary may prescribe.” 42 U.S.C. § 602(a)(7)(B)(i) (emphasis added).

In 1982, HHS adopted a regulation that set the automobile equity limit at $1500. 45 C.F.R. § 233.20(a)(3)(i)(B)(2). Under the regulation, an AFDC family can have only up to $1500 in equity in a car, and any amount over this equity limit is counted towards the $1000 statutory resource limit. The $1500 automobile equity limit was based on data from a 1979 survey of food-stamp recipients contained in a report submitted to Congress in 1981. The Secretary of HHS has not adjusted the $1500 equity limit for inflation since its adoption in 1982.

2. Medicaid.

Medicaid is a federal program that provides funds for medical assistance to indigent persons. See 42 U.S.C. § 1396 et seq. As with the AFDC program, states, like Hawaii, that participate in the Medicaid program must comply with federal regulations. Medicaid is a need-based program. As a result, Hawaii demands that Medicaid recipients satisfy certain resource limits.

ANALYSIS

A. Standing.

We review questions of standing de novo. See Wedges/Ledges of Cal., Inc. v. Phoenix, 24 F.3d 56, 61 (9th Cir.1994). Article III of the United States Constitution limits the jurisdiction of our court to actions that present “cases” or “controversies,” a requirement that is analyzed through the doctrine of standing. The Supreme Court articulated the requirements for Article III standing in Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992):

First, the plaintiff must have suffered an “injury in fact”-an invasion of a legally-protected interest which is (a) concrete and particularized and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical.’ ” Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be “fairly ... trace[able] to the challenged action of the defendant, and not ... the result [of] the independent action of some third party not before the court.” Third, it must be “likely,” as opposed to merely “speculative,” that the injury will be “redressed by a favorable decision.”

Id. at 560-61, 112 S.Ct. at 2136 (citations omitted).

Plaintiffs maintain they have standing to challenge the $1500 automobile equity limit because they allege that, but for this limit, they would have been eligible for AFDC benefits. Defendant Rubin asserts that plaintiffs’ alleged injury will not “likely” be redressed with a favorable ruling. Defendant Rubin relies on Coakley v. Sunn, 895 F.2d 604 (9th Cir.1990). That case, however, is inapposite.

In Coakley, this court held that plaintiffs, who had received personal injury awards, did not have standing to challenge Hawaii’s interpretation of the federal “lump sum” rule, 42 U.S.C. § 602(a)(17), which provides that AFDC recipients are ineligible for AFDC benefits when they receive a lump sum of income. 895 F.2d at 607. We reasoned that striking down Hawaii’s regulation would not redress plaintiffs’ injuries because the statute did not require states to provide any exception to the “lump sum” rule. Id. The statute at issue in Coakley provides that any “[sjtate may at its option recalculate the period of ineligibility ... [if] the income received has become unavailable to the members of the family for reasons that were beyond the control of such members.” 42 U.S.C. § 602(a)(17) (emphasis added).

In this case, by contrast, the statute limits the states’ discretion to exempt an applicant’s equity in a car by the amount the Secretary prescribes as the automobile equity limit. See 42 U.S.C. § 602(a)(7)(B)(i). Thus, there is no question that a favorable ruling by this court will redress plaintiffs’ injury-their denial of AFDC benefits. See Hazard, 44 F.3d at 403. If plaintiffs prevail, the regulation will be struck down until the Secretary promulgates a new regulation. During this interim period, the rule in existence before the $1500 limit was set will govern-namely that AFDC recipients may own one ear regardless of its value. See National Welfare Rights, 533 F.2d at 647-648. And, when the Secretary sets the new automobile equity limit, that figure will be adjusted for inflation because this court would have struck down the $1500 limit as arbitrary and capricious. Plaintiffs therefore have standing to bring this action.

B. The $1500 Automobile Equity Limit.

The majority of courts that have examined the $1500 automobile equity limit regulation have upheld it. See Brown v. Secretary of Health and Human Servs, 46 F.3d 102 (1st Cir.1995); Hazard v. Shalala, 44 F.3d 399 (6th Cir.1995); Champion v. Shalala, 33 F.3d 963 (8th Cir.1994) (Heany, J., dissenting); Falin v. Shalala, 6 F.3d 207 (4th Cir.1993) (per curiam), cert. denied, — U.S. -, 114 S.Ct. 1551, 128 L.Ed.2d 200 (1994). We agree with these courts that the $1500 limit was valid when first established in 1982. We do not agree, however, that the $1500 limit, which has not been adjusted for inflation, continues to be valid.

This case raises the difficult issue of whether there are any constraints on the federal government’s ability to cut costs and save money on one of its means-tested programs. We believe that there is one important constraint: an agency’s budgetary decisions must maintain a rational relation to Congress’s stated purposes for the means-tested program that is being cut. As will be discussed below, the Secretary’s failure to adjust the automobile equity $1500 limit for inflation since its adoption almost 15 years ago has thwarted Congress’s purpose in establishing the AFDC program and the Secretary’s own rationale for adopting the $1500 limit.

1. Standard of Review.

We review a grant of summary judgment de novo. Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). We must determine whether the evidence viewed in the light most favorable to the non-moving party presents any genuine issues of material fact and whether the district court correctly applied the relevant law. Id.

We must give significant deference to an agency’s decision, especially here, where Congress has explicitly delegated to the Secretary the authority to issue implementing regulations. Under OBRA, Congress directed the Secretary to set the automobile resource exemption. 42 U.S.C. § 602(a)(7)(B)(i). We must not substitute our judgment for that of the agency. See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983). Though our deference must be great, it is not unbounded. If the regulation is “arbitrary, capricious, or manifestly contrary to the statute” then we need not give it “controlling weight.” Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). The agency has a duty to consider all “important aspeet[s] of the problem” and render a plausible decision that is the “product of agency expertise.” State Farm, 463 U.S. at 43, 103 S.Ct. at 2867. Our inquiry, though narrow, must be “searching and careful.” Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 378, 109 S.Ct. 1851, 1861, 104 L.Ed.2d 377 (1989) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971)).

2. Validity of the Regulation When Promulgated.

The plaintiffs’ first contention is that the $1500 eligibility requirement was invalid when it was promulgated in 1982. Plaintiffs offer three reasons for their position: (1) that the data of a 1979 food stamp survey relied upon by the Secretary did not apply to AFDC recipients; (2) that the 1979 survey was missing key data; and (3) that the Secretary did not respond properly to public commentary on the regulation. These arguments do not convince us.

a. Food Stamp Survey Applied to AFDC Population.

The Secretary based the $1500 equity limit almost exclusively on a 1979 survey of food-stamp recipients contained in a 1981 report submitted to Congress.² Plaintiffs argue that using the 1979 survey to determine the AFDC automobile equity limit led to the adoption of an arbitrary and capricious rule. According to the plaintiffs, the data about food-stamp recipients is not applicable to the AFDC program. Plaintiffs further contend that the Secretary never offered any evidence to show that there was an overlap between the AFDC and food-stamp recipient populations.

To be sure, the Secretary could have used data on AFDC families rather than food-stamp recipients. And the Secretary could have drawn a better connection between the data he used and the final rule. But we do not review for a perfect or ideal rule-making process. We look instead to whether the Secretary has acted reasonably, and we think he did. See Brown, 46 F.3d at 109.

After announcing the final rule on the automobile equity limit, the Secretary stated that HHS

chose $1,500 as the maximum equity value for an automobile on the basis of a Spring 1979 survey of food stamp recipients. Data from that survey suggest that 96 percent of all food stamp recipients who own cars had equity value in them of $1,500 or less. In that the Federal maximum limit should be set within the range of the vast majority of current recipients and given that the food stamp population tends to be, on the average, more affluent than AFDC recipients, this limit appears reasonable and supportable.

47 Fed.Reg. 5657 (1982).

The district court, referring to a declaration of Paul Bordes, a director of research at HHS, found that there was a “substantial overlap” between the AFDC and food-stamp recipient populations-80% in 1979 and 87% today. Those figures, which other courts also have cited, reflect the number of AFDC recipients who also receive food stamps. See, e.g., Brown, 46 F.3d at 109. But those figures are not useful in evaluating whether a survey of food-stamp recipients is representative of the AFDC population. For that determination, we must know instead the percentage of food-stamp recipients who receive AFDC benefits. According to the Bordes declaration, that figure is much lower: 41% in 1993.

Even though the 1979 survey did not accurately reflect the conditions of AFDC families, the Secretary acted reasonably in relying upon it. First, according to the Bordes declaration, resource data on aid recipients was scarce in 1982. Second, according to Bordes, the non-AFDC food-stamp recipients included in the survey were, on average, more affluent. Therefore, the automobile equity limit was based on a population that was likely to have more expensive cars.

Plaintiffs challenge this conclusion, noting that the food-stamp program had an automobile equity limit of $4500 already in place when the survey was done, unlike the AFDC program at the time. They argue that the limit may have been higher if it had been derived from data of AFDC recipients alone. But as the Sixth Circuit noted in Hazard, “the 1979 vehicle asset limitation for food stamp recipients excluded only a small percentage of individuals who otherwise would have been eligible receive food stamps.” 44 F.3d at 405. Therefore, the $4500 limit probably did not have a significant effect on the limit.³

The plaintiffs further argue that using the 1979 survey undermined a goal of the AFDC program: to allow individuals to be self-reliant and independent. We think it was reasonable for the Secretary to conclude from the 1979 survey that, in 1981, a $1500 auto equity limit would allow AFDC recipients to own functional cars. Other courts have agreed. See, e.g., Hazard, 44 F.3d at 405; Brown, 46 F.3d at 108-09; Champion, 33 F.3d at 966.⁴

b. Improper Data.

Plaintiffs also contend that the 1979 study relied on stale and incomplete data. Plaintiffs, however, offer no evidence for their theory that the three-year-old data was not sufficient to support the Secretary’s finding that the overwhelming majority of food-stamp recipients owned automobiles with equity of $1500 or less in 1982.

More convincing is plaintiffs’ claim that the data from the food-stamp survey is incomplete. Plaintiffs note that in the 1979 study about 35% of the recipients surveyed did not know the value of the equity they had in their automobiles. Therefore, in concluding that 96% of food-stamp recipients who owned automobiles had equity of $1500 or less, the Secretary must have assumed that the individuals who did not know the amount of equity in their automobiles mirrored that of the survey participants who did know the amount of equity they had. But there is no evidence in the record to support this assumption. The Secretary also included in the 96% figure people who did not own any cars at all.

Plaintiffs cite St. James Hosp. v. Heckler, 760 F.2d 1460, 1468 (7th Cir.1985), cert. denied, 474 U.S. 902, 106 S.Ct. 229, 88 L.Ed.2d 228 (1985), for the proposition that an agency cannot rely on inadequate data when it makes a rule. While the data used by the Secretary in fashioning the $1500 limit may have been incomplete, the Secretary did not commit “a clear error of judgment” in relying on the incomplete data in setting the $1500 figure. Id. at 1468.

c. Secretary’s Response to Public Comment.

Plaintiffs also claim that the equity limit was invalid when the Secretary adopted it in 1982 because the Secretary allegedly failed to respond adequately to criticisms of the figure during the rule-making process. The Secretary received numerous comments that criticized the $1500 equity limit. For example, the National Urban League commented that:

In setting this standard, the Secretary ignores at least one important factor, namely what minimum value is necessary to assure the ability to retain a car which is in good enough mechanical order to provide satisfactory and safe transportation without constant repair costs.

In response to all the comments, the Secretary stated:

We stand by our original position. The choice of $1,500 as the maximum equity value for an automobile was based on the data from a Spring 1979 survey of food stamp recipients. We regard the limit of $1,500 equity value in an automobile as reasonable and supportable.

47 Fed.Reg. at 5657. Plaintiffs contend that the Secretary’s brief response to the comments violated the notice and comment provisions of the Administrative Procedure Act, 5 U.S.C. § 553(c).⁵ We disagree.

An agency must state why the criticisms it received were invalid “where apparently significant information has been brought to its attention, or substantial issues of policy or gaps in its reasoning raised....” Natural Resources Defense Council, Inc. v. United States Nuclear Regulatory Comm’n, 547 F.2d 633, 646 (D.C.Cir.1976), rev’d on other grounds sub nom., Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed.2d 460 (1978). An agency must give a “reasoned response” in which the agency points to evidence in the record supporting its view. Id.; see also Kenneth Culp Davis & Richard J. Pierce, Jr., I Administrative Law Treatise 312 (1994) (“If a comment criticizes in detail some characteristic of the agency’s proposed rule, and the agency retains that characteristic in the final rule without including in its statement of basis and purpose a relatively detailed response to that criticism, a reviewing court is likely to hold the rule unlawful on the grounds that ... the rule is arbitrary and capricious”). The agency bears the burden of showing that the regulations it formulates are well considered. See St. James Hosp., 760 F.2d at 1467 n. 5 (“[I]t is an agency’s duty to establish the statistical validity of the evidence before it prior to reaching conclusions based on that evidence, not the public’s duty to inform the agency of statistical invalidities in its evidence”). Commentators are not required to supply their own data to refute an agency’s findings.

We, however, agree with the First Circuit’s conclusion in Brown that “[g]iven the nature of the comments ... the Secretary’s brief response [was not] so inadequate as to violate § 553(c).” 46 F.3d at 110. Indeed, only one dozen comments were submitted, and they were all brief and general. Id.

3. Failure to Adjust for Inflation.

Plaintiffs next contend that even if the Secretary properly set the $1500 equity limit in 1982, the figure is no longer reasonable as it fails to account for more than fourteen years of inflation. In support of their position, plaintiffs point out that $1500 in 1979 is the equivalent of $3242 in 1993, and that for the average urban household, the price of a used car more than doubled during that time period.⁶ Further, $1,500 in 1992 represented just 9% of the average selling price of a new domestic ear. Cars worth only $1500 are now between ten and fifteen years old and have more than 85,000 miles on them. Compared to newer cars, these cars are unreliable as well as more costly in terms of gas and repairs.⁷ Based on these changed economic circumstances, we find that in 1996, there is “ ‘no rational connection between the facts found and the choice made’ ” by the Secretary in 1982. State Farm, 463 U.S. at 43, 103 S.Ct. at 2866 (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)).

Although many courts have noted that the $1500 automobile equity limit may be now unfair, see, e.g., Dist. Ct. Op. at 12-13, 14, 1993 WL 738386; Falin, 776 F.Supp. at 1101; Champion, 33 F.3d at 968, these courts have upheld the regulation because they found that the decision whether or not to adjust for inflation was within the Secretary’s sole discretion. See, e.g., Falin, 776 F.Supp. at 1102; Champion, 33 F.3d at 967. However, whether the Secretary has properly exercised its discretion in not adjusting the automobile equity limit for inflation, depends on what Congress intended when it granted the Secretary the authority to establish the automobile equity limit.

This inquiry is complicated by the existence of two acts of Congress that pertain to the automobile equity limit. The first is the Social Security Act of 1935 which created the AFDC program and authorized the Secretary to administer it. See Pub.L. No. 94-271, 49 Stat. 627 (1935). Congress established AFDC to provide financial assistance

to needy dependent children and the parents or relatives with whom they are living to help maintain and strengthen family life and to help such parents or relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care....

42 U.S.C. § 601.

The second legislation relevant to congressional intent is the Omnibus Budget Reconciliation Act of 1981 (“OBRA”), which directed the Secretary to establish the AFDC automobile equity limit. Pub.L. No. 97-35 § 2302. The purpose of that statute was “to reduce federal spending.” Minnesota v. Heckler, 739 F.2d 370, 375 (8th Cir.1984).

Some courts have found it proper for the Secretary to use the purpose behind OBRA as the primary indicator of congressional intent because OBRA was the statute that directed the Secretary to establish the automobile equity limit. See, e.g., Brown, 46 F.3d at 111; Falin, 776 F.Supp. at 1101. These courts hold that on the basis of OBRA alone, the Secretary’s failure to account for inflation is reasonable because as inflation diminishes the value of $1500, fewer people are eligible for AFDC, and thus federal spending is reduced.

But this analysis is overly simplistic and not supported by the record. While it is true that the purpose of OBRA was to reduce spending, there is no evidence to suggest that Congress intended to cut spending progressively past 1981. Congress accomplished its goal of cutting costs when it reduced the resource limit from $2000 to $1000. There is also no indication in OBRA or its legislative history that Congress intended to use the automobile equity limit itself as a cost-cutting measure. Therefore, to discern Congress’s intent, we must look beyond OBRA and consider the general purposes of the AFDC program. We must interpret a statute’s provision in a way that is consistent with the policies of other provisions. See United Sav. Ass’n v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371, 108 S.Ct. 626, 630, 98 L.Ed.2d 740 (1988) (“[statutory construction ... is a holistic endeavor”). The position that we should focus primarily or exclusively on the cost-cutting purpose behind OBRA’s amendments to AFDC and not on the general purpose of the AFDC program to foster “self-suppoit and personal independence” for needy families runs afoul of this canon of statutory interpretation. To the extent that the Secretary can further both purposes-reduee federal spending for the AFDC program in 1981 and also encourage self-sufficiency and independence among AFDC recipients-that is the only course that effectuates Congress’s multiple intentions. We believe that periodically adjusting the automobile equity limit for inflation is the only reasonable way to achieve Congress’s competing goals.

Instead of following this course, the Secretary has ignored the general purpose of AFDC program and allowed the automobile equity limit to serve as a cost-cutting measure. Although Congress may have wanted to prevent AFDC recipients from having expensive cars-because before OBRA’s passage there was no limit on automobile equity-Congress did not necessarily want to exclude from the AFDC program needy families that owned safe, functioning cars. We believe that by granting the Secretary the discretion to set the automobile equity limit Congress wanted to ensure that needy families would not be cut from the AFDC program simply because they owned automobiles. In fact, at oral argument, the Secretary conceded that it has never been the Secretary’s position that the $1500 limit was set and not adjusted for inflation to make it more difficult for needy families to qualify for AFDC benefits.

Thus, allowing the automobile equity limit to be progressively diminished by inflation has rendered meaningless Congress’s statutory purpose in recognizing the need for an automobile equity exception to the resource limit. Because inflation has lowered the value of the $1500 limit, functioning cars have increasingly cost more than $1500. As a result, more and more families have been disqualified from receiving AFDC benefits. Because the $1500 limit automatically eliminates otherwise eligible families from the AFDC program, the regulation is no longer reasonable and therefore is arbitrary and capricious.

Further, by failing to adjust the automobile equity limit for inflation the Secretary also has thwarted the reasoning that HHS itself advanced for the figure when it was established in 1982. The Secretary set the automobile equity limit at an amount that would not eliminate otherwise eligible families from the AFDC program. As the Secretary explained, “the Federal maximum limit should be set within the range of the vast majority of current recipients.” 47 Fed.Reg. at 5657.

We should defer to the Secretary’s interpretation of the purpose for the automobile equity limit. See Dioxin/Organochlorine Center v. Clarke, 57 F.3d 1517, 1525 (9th Cir.1995) (“[a] court should accept the ‘reasonable’ interpretation of a statute chosen by an administrative agency except when it is clearly contrary to the intent of Congress”). We believe that the Secretary reasonably interpreted Congress’s purpose in establishing the automobile equity limit to be to preserve eligibility and not to- cut costs.

In addition, “an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.” State Farm, 463 U.S. at 50, 103 S.Ct. at 2870. The effect of more than fourteen years of inflation means that the Secretary’s stated purpose no longer supports the $1500 limit and provides a separate basis to vacate the regulation.

The fact that there is no mandate in OBRA that the Secretary review the automobile equity limit and adjust it for inflation is not dispositive. We are reluctant to read any meaning into Congress’s silence on the issue of whether periodic review of the effects of inflation on the automobile equity limit is necessary. We have recognized that an agency “is obligated to reevaluate its policies when circumstances affecting its rule-making proceedings change.” See California v. FCC, 905 F.2d 1217, 1230 (9th Cir.1990). Even if that were not so, when, as here, a regulation’s rationality depends on economic conditions, periodic review is essential.

The Secretary responds that Congress did revisit the automobile equity limit and decided not to adjust it for inflation. In 1987, Congress considered a proposal for experiments in a few states to explore using the $4500 food stamp automobile equity exemption for AFDC families. But the resulting 1987 OBRA did not contain such a provision. See Pub.L. No. 100-203, 101 Stat. 1330 (1987). Again in 1988, Congress considered the proposal, but made no change to the $1500 limit. Instead, a conference committee directed the Secretary to revise the regulation “if he determines revision would be appropriate.” H.R. Conf. Rep. No. 998, 100th Cong., 2nd Sess. 188-89, reprinted in, 1988 U.S.C.C.A.N. at (102 Stat.) 2776, 2977. The Secretary conducted a review, but did not change the regulation. See Champion, 33 F.3d at 967.

Other circuits have interpreted this inaction to mean that inflation adjustments are not necessary under OBRA. See Brown, 46 F.3d at 111-12; Champion, 33 F.3d at 967. We, however, do not. The Supreme Court instructs us that inaction by Congress “lacks persuasive significance.” Brown v. Gardner, — U.S.-,-, 115 S.Ct. 552, 557, 130 L.Ed.2d 462 (1994) (quoting Central Bank of Denver, N.A. v. First Interstate Bank of Denver, — U.S.-,-, 114 S.Ct. 1439, 1453, 128 L.Ed.2d 119 (1994)). Thus, the decision by Congress not to increase the $1500 limit does not change our view that the Secretary’s failure to adjust the $1500 automobile equity limit for inflation has rendered the regulation unreasonable.

We also note that the Secretary has allowed various states to waive the $1500 limit and set a higher automobile equity limit. Apparently, California has raised the automobile equity limit to $4500, while Virginia and Colorado, among others, exempt one vehicle entirely regardless of its value. Such waivers are not only a recognition that in many states the $1500 limit is unreasonable but, more importantly, are consistent with this court’s view that the purpose of the automobile equity limit is not to reduce federal spending but to ensure that eligible families are not excluded from the AFDC program simply because they own a reliable car.

C. Motion to Strike.

We review evidentiary decisions for an abuse of discretion and will generally not reverse absent some showing of prejudice. McGonigle v. Combs, 968 F.2d 810, 818 n. 6 (9th Cir.1992), cert. dismissed, 506 U.S. 948, 113 S.Ct. 399, 121 L.Ed.2d 325 (1992). In the district court, plaintiffs made an oral motion to strike the affidavits of Alan Yaffe and Diann Dawson, HHS employees, because, plaintiffs claimed, the statements did not comply with F.R.C.P. 56(e) for various reasons. The district court did not rule explicitly on the motion, but did refer to the declarations and did rely on them in its order granting the Secretary’s motion for summary judgment.

Even if the affidavits were improper, any resulting error was likely to be harmless. The district court engaged in a lengthy analysis of the plaintiffs’ claims and only referred to the affidavits at the end of its order, in making the point that Congress had considered raising the $1500 limit but did not. In light of the rest of the court’s findings, that point was not necessary to the court’s conclusion. We affirm the district court’s ruling.

D. The Medicaid Claim.

1. Background.

The district court granted summary judgment on behalf of the plaintiffs on their claim that Hawaii’s use of the AFDC auto equity exemption in calculating Medicaid eligibility is contrary to Haw.Rev.Stat. § 346-29. Wi-nona Rubin, Director of the Hawaii Department of Human Services (“DHS”), appeals.

When DHS calculates whether an applicant is eligible for Medicaid, it exempts some assets from consideration. There are essentially two types of Medicaid coverage: categorical coverage, which is given automatically to recipients of AFDC and Supplemental Security Income (“SSI”), and “medically needy” coverage which provides medical benefits to those who cannot pay their medical bills, but who have extra income that disqualifies them from the other benefit programs.

In Hawaii, the resource limits for categorical Medicaid are the same as the limits for the federal SSI program. H.R.S. § 346-29(4) — (5). The Hawaii program for “medically-needy” Medicaid for families with dependent children uses the AFDC auto equity exemption of $1500. However, the State applies a more generous auto equity exemption regulation to applicants for “medically-needy” Medicaid who are aged, blind or disabled and who qualify for medical assistance. Plaintiffs argue, and the district court agreed, that Haw.Rev.Stat. § 346-29 requires DHS to use SSI resource standards in all Medicaid programs, including “medieally-needy” Medicaid for families with dependent children.

2. Eleventh Amendment.

As a threshold matter, Rubin argues that she is immune from suit under the Eleventh Amendment. Whether there is immunity from suit under the Eleventh Amendment is a question of law we review de novo. Harrison v. Hickel, 6 F.3d 1347, 1352 (9th Cir.1993). The district court did not address Rubin’s Eleventh Amendment defense.

The Eleventh Amendment, as interpreted, generally acts to bar plaintiffs from suing state governments in federal court for violations of state law. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 106, 104 S.Ct. 900, 911, 79 L.Ed.2d 67 (1984). The Eleventh Amendment does not prevent federal court jurisdiction, however, when a state waives its immunity. Id. at 99, 104 S.Ct. at 907.

The plaintiffs argue that we have jurisdiction to decide the Medicaid claim because Hawaii waived its immunity.⁸ Plaintiffs argue that Rubin waived Eleventh Amendment immunity by raising it only in her Answer (not at trial), by filing an affirmative claim against the Secretary in state court, and by filing a cross motion for summary judgment in federal court.

A court may not infer a waiver of immunity lightly. Rarely have courts found immunity waived absent an explicit waiver by the state or express language by Congress. See Edelman v. Jordan, 415 U.S. 651, 673, 94 S.Ct. 1347, 1360-61, 39 L.Ed.2d 662 (1974); Atascadero State Hosp. et al. v. Scanlon, 473 U.S. 234, 238 n. 1, 105 S.Ct. 3142, 3145 n. 1, 87 L.Ed.2d 171 (1985). Recently, however, “the [Supreme] Court has ... recognized that Eleventh Amendment immunity ... may even be forfeited by the State’s failure to assert it.” ITSI TV Productions, Inc. v. Agricultural Ass’ns, 3 F.3d 1289, 1291 (9th Cir.1993) (discussing Blatchford v. Native Village of Noatak, 501 U.S. 775, 111 S.Ct. 2578, 115 L.Ed.2d 686 (1991)). In Blatchford, 501 U.S. at 785 n. 3, 111 S.Ct. at 2584 n. 3, the Supreme Court noted that in another case, Moe v. Confederated Salish and Koote-nai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976), Montana had waived its immunity because it “had not objected in this Court on sovereign immunity grounds.” But this glimmer of hope for the plaintiffs is unavailing because here Hawaii has objected “in this court on sovereign immunity grounds.” That Hawaii did not raise the issue in the district court except in its answer does not amount to a waiver of immunity. See Edelman, 415 U.S. at 677-78, 94 S.Ct. at 1362-63.

In the face of this well-established rule that states cannot easily waive their immunity, Vargas v. Trainor, 508 F.2d 485, 491-92 (7th Cir.1974), cert. denied 420 U.S. 1008, 95 S.Ct. 1454, 43 L.Ed.2d 767 (1975), does not provide the authority plaintiffs need to support their claim. The Seventh Circuit held that the Illinois Department of Public Aid waived its immunity when, in a memorandum to the court, it agreed to comply with the court’s decision on the merits if the court did not grant an injunction against it pending appeal. The court found that: “A representation made in a judicial proceeding for the purpose of inducing the court to act or refrain from acting satisfies the [waiver] requirements_” Id. at 492. This case does not provide a sufficient basis on which to find a waiver. While Hawaii did ask the court to resolve certain issues in its cross motion for summary judgment, it did so to defend itself from suit. It did not, as did the defendant in Vargas, guarantee to the court that it would comply with its final judgment.

We therefore conclude that the Medicaid claim against Rubin is barred by the Eleventh Amendment. Accordingly, we reverse the district court’s holding on this claim. Because this case was originally removed from state court, we direct the district court on remand to remand the Medicaid claim to Hawaii state court. See Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 351-53, 108 S.Ct. 614, 619-21, 98 L.Ed.2d 720 (1988).

E. Exhaustion of Administrative Remedies.

A final issue, not addressed by the parties, is whether the district court should have dismissed this action on its own motion because of plaintiffs’ failure first to petition the Secretary for an amendment to the $1500 AFDC exemption. Generally, exhaustion is required under section 553(e) of the Administrative Procedure Act, which provides that “[e]ach agency shall give an interested person the right to petition for issuance, amendment, or repeal of a rule.” 5 U.S.C. § 553(e). See Brown, 46 F.3d at 113.

However, in a case involving the same issues raised by this appeal, the First Circuit held that “[w]hile petitioning the agency would have been the better course, ... strict adherence to the doctrine of administrative exhaustion” was not required. Brown, 46 F.3d at 113. We agree with the First Circuit that “[t]he doctrines of administrative exhaustion and primary jurisdiction are judge-made rules to be applied on a ease-by-ease basis.” 46 F.3d at 114.

We will not require plaintiffs to petition the Secretary for a change in the $1500 automobile equity limit before deciding this appeal. At stake in this case are primarily issues of law, which courts are equipped to handle. Moreover, the Secretary has not objected to the lack of such a petition in this case. In fact, the Secretary has defended its failure to adjust the $1500 automobile equity exemption for inflation in several other circuits without raising the exhaustion issue. We find that in these circumstances requiring plaintiffs first to exhaust their administrative remedies would be futile and a waste of judicial resources. See Brown, 46 F.3d at 114-115.

CONCLUSION

As set forth above, we affirm in part, reverse in part, and remand. First, we conclude that although the $1500 automobile equity limit was valid when first adopted it is no longer valid because the Secretary has failed to adjust this figure for inflation since its adoption almost fifteen years ago. We, therefore, reverse the district court’s holding on this issue and vacate the $1500 automobile equity limit regulation. Second, we affirm the district court's denial of the plaintiffs’ motion to strike certain affidavits from the record. Third, we reverse the district court’s holding on the state law Medicaid claim. We conclude that Rubin is immune from suit under the Eleventh Amendment. However, because this action was filed originally in state court, we direct the district court on remand to remand the Medicaid claim to state court.

Costs awarded to Plaintiff-Appellanb-Cross-Appellee Gamboa.

AFFIRMED IN PART, REVERSED IN PART, and REMANDED.

1 . Gamboa's Buick had an appraised value of $8635. Gamboa claims that he bought the car with money he borrowed from his uncle. DHS, however, refused to consider the loan because Gamboa's uncle was not on the title of the car as a lienholder.

2 . The report was entitled Assets of Low Income Households: New Findings on Food Stamp Participants and Nonparticipants, Report to the Congress, January 1981, Food and Nutrition Service, U.S. Department of Agriculture.

3 . These excluded survey participants would have been significant to the Secretary's conclusion only in the unlikely case that many of them owned cars with equity in excess of $4500, but were still eligible for AFDC benefits.

4 . Plaintiffs' reliance on Maine Ass'n of Interdependent Neighborhoods v. Petit, 659 F.Supp. 1309 (D.Me.1987) is misplaced. Congress had directed the Secretary of HHS to exclude from a resource calculation the assets of potential recipients which were essential to self-support. The court invalidated the resulting federal regulation because it found that the Secretary had relied on a study that was logically flawed and provided no foundation for the regulation the Secretary adopted. Id. at 1322. The defects in the 1979 survey in the instant case are not as severe.

5 .5 U.S.C. § 553(c) provides that:

After notice required by this section, the agency shall give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments .... After consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose.

6 . See Peter S. Fisher, Addendum to 1990 Report 1-2 (1993) at E.R. 104.

7 . See Peter S. Fisher, An Economic Investigation into the Basis for and Consequences of the H.H.S. Rule Eliminating from Eligibility for AFDC Benefits Families who have over $1500 Equity on a Motor Vehicle 1-20 (1990) at E.R. 81; Peter S. Fisher, Addendum to 1990 Report 3, 8-9 (1993) at E.R. 104.

8 . The plaintiffs do not argue that we have jurisdiction over the Medicaid claim because it is pendant to the federal law claim and because they are suing Rubin in her individual capacity. We have found jurisdiction on this basis in the past. See Pena v. Gardner, 976 F.2d 469, 474 (9th Cir.1992) (‘‘[T]he eleventh amendment will not bar pendent state claims ... against state officials acting in their individual capacities."). We do not pursue this possibility here because Rubin does not appear to have acted beyond the scope of her statutorily designated authority. See id. at 474 (T.G. Nelson, J., concurring); see also Pennhurst, 465 U.S. at 107-111, 104 S.Ct. at 911-14.