by When providing public assistance benefits, the State may reasonably rely upon the applicant’s assertions in the application form, despite access to an independent source of information concerning the applicant’s financial condition. Maxwell v. State of Oregon, No. 18-1286 (B.A.P. 9th Cir. March 27, 2019) (unpublished).
Antionette Maxwell was employed at Oregon Health and Science University, yet she was still entitled to various public assistance benefits, including SNAP benefits, Temporary Assistance for Needy Families, and Employment Related Day Care Program. At some point, the State conducted an investigation into Ms. Maxwell’s income and found that she had failed to list income she had earned as an occasional domestic worker, and that she received in child support payments. The State sought to recover the resulting overpayment of benefits in the amount of over $16,000. Ms. Maxwell filed for chapter 7 bankruptcy, and the bankruptcy court found the overpayment was nondischargeable under section 523(a)(2)(B) as having been acquired by fraud.
Ms. Maxwell’s appeal was limited to the issue of whether the State’s reliance on her application form was reasonable in the absence of evidence that the State exercised any caution or prudence in its reliance and in light of the State’s access to accurate information from its data bases.
The bankruptcy appellate panel for the Ninth Circuit began by noting that “reasonable reliance,” under section 523(a)(2)(B), is a more stringent requirement than “justifiable reliance” under section 523(a)(2)(A), and the Ninth Circuit applies a totality-of-circumstances test to the issue of reasonableness.
The panel found that the context of public assistance benefits is significantly different from the typical creditor/debtor relationship where the creditor’s reliance may be subject to greater scrutiny. In the case of public assistance benefits, the applicant is frequently in need of immediate financial assistance, and imposing a delay while the State investigates the application would bog the system down. The panel was persuaded that the State’s practice of relying on the truth of the applicant’s representations, made under threat of penalty of perjury, was therefore reasonable.
In sum, the panel stated: “The fact that State had access to a database with information about her employers or child support payments does not negate the reasonableness of State’s reliance on Ms. Maxwell’s benefit applications. Absent patent falsity, or prior knowledge of the falsity of a representation, or circumstances that would have aroused suspicion as to her earned and unearned income in the mind of a reasonable person, State had no duty to affirmatively investigate and determine for itself whether or not the debtor is telling the truth.”