Finley v. Commissioner of Social Security Administration ( 2020 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Brian E Finley, No. CV-18-04674-PHX-MTL 10 Plaintiff, ORDER 11 v. 12 Commissioner of Social Security 13 Administration, 14 Defendant. 15 At issue is whether Plaintiff Brian Finley is liable for an overpayment of $35,413.00 16 in Social Security Benefits that he received as the representative payee for his son, R.F. 17 The Court has reviewed the briefs (Docs. 7, 22, 23, 26) and Administrative Record (Doc. 18 16, R.). The Court reverses the Administrative Law Judge’s (“ALJ”) decision and remands 19 for further proceedings consistent with this Order.1 20 I. BACKGROUND 21 A. Theft Conviction and Finding of Overpayment 22 Plaintiff filed for Social Security disability benefits on November 1, 2005, as a result 23 of a disability that arose in 2003. (R. at 215); (Pl. Br. at 4.) The same day,2 Plaintiff filed 24 an application for his son, R.F., to receive child’s benefits,3 and an application to serve as 25 26 1 The issues are fully briefed and the Court concludes that oral argument would not have aided its decisional process. See Fed. R. Civ. P. 78(b); LRCiv 7.2(f). 27 2 There is no support in the record for the ALJ’s factual finding that Plaintiff filed the application for child’s benefits on May 20, 2009. (R. at 15.) 28 3 The dependent minor child of an individual entitled to disability benefits shall be entitled to a child’s insurance benefit. See 20 C.F.R. 404.350. 1 R.F.’s representative payee.4 (R. at 215.) In November 2008, an ALJ found that Plaintiff 2 had been disabled since April 21, 2003, and that his entitlement to monthly benefits began 3 in November 2004. (R. at 104–09, 215.) On May 21, 2009, the Social Security 4 Administration (“SSA”) granted the application for R.F. to receive child’s benefits and 5 appointed Plaintiff as R.F.’s representative payee. (R. at 104–09, 215.) 6 The next day the SSA issued Plaintiff a check in the amount of $16,220.00 for R.F.’s 7 retroactive benefits. (R. at 22, 40–42, 179, 216.) In March 2010, the SSA issued Plaintiff 8 a second check in the amount of $10,997.00 for R.F.’s remaining retroactive benefits. (R. 9 at 179, 217, 233.) From July 2009 through June 2010, Plaintiff received $683.00 per month 10 for R.F.’s benefits. (R. at 179, 218–29.) In total, the SSA calculated that Plaintiff received 11 $36,096.00 as R.F.’s representative payee. (R. at 15.) 12 In a letter dated June 28, 2010, after an investigation apparently instigated by R.F.’s 13 mother (Pl. Br. at 6), the SSA notified Plaintiff that he would no longer be the 14 representative payee for R.F. (R. at 33.) 15 In February 2012, Plaintiff pled guilty to Theft, a class 6 undesignated felony, for 16 inappropriately spending $2,500.00 of R.F.’s benefits. (R. at 83–92.) At sentencing, the 17 Superior Court ordered Plaintiff to pay $2,500.00 in restitution to the SSA. (R. at 24–27, 18 35–38.) Plaintiff paid the restitution amount in full, and the Superior Court designated 19 Plaintiff’s offense a misdemeanor. (R. at 89.) 20 After that, the SSA informed Plaintiff that he had received an overpayment of 21 $36,096.005 in Social Security benefits for R.F. and that he was liable for its complete 22 repayment. (R. at 117–18); 20 C.F.R. § 404.502(a). The SSA also informed Plaintiff that 23 “waiver [was] no longer available because the fraud conviction precludes a finding of 24 ‘without Fault.’” (R. at 117.) The SSA further indicated that it would begin withholding 25 26 4 Child’s insurance benefits may be made to a representative payee where the SSA determines that the child’s best interest would be served by representative payment, rather 27 than direct payment of benefits, and where the child is under the age of eighteen. 20 C.F.R. § 404.2001. 28 5 As discussed below, the ALJ correctly determined that the actual amount disbursed to Plaintiff for R.F.’s benefits was $35,413.00. (R. at 15.) 1 100 percent of Plaintiff’s own monthly disability benefits until the overpayment was fully 2 recovered. (R. at 117.) 3 B. Requests for Waiver and Denials 4 In May 2012, Plaintiff filed a Request for Reconsideration and Request for Waiver 5 of his repayment obligation, asserting that he was not at fault in causing the overpayment. 6 (R. at 39–50.) Plaintiff argued that the full amount of loss sustained by the SSA was 7 $2,500.00, which Plaintiff had already paid as part of his restitution in the criminal case. 8 (R. at 39–50.) Plaintiff also objected to the SSA’s determination that he had been convicted 9 of fraud. (R. at 40). Apart from the $2,500.00, Plaintiff argued that he properly spent R.F.’s 10 benefits on R.F. (R. at 42.) 11 The SSA denied Plaintiff’s Request for Reconsideration, finding that there had been 12 a “misuse overpayment.” (R. at 126.) On November 15, 2012, Plaintiff submitted a 13 supplement to his request for waiver and provided documentation of his claimed monthly 14 expenses. (R. at 51.) Later that month Plaintiff submitted another request for waiver and a 15 letter demonstrating that the court-ordered restitution in his criminal case had been paid. 16 (R. at 73–79, 81–82.) On December 5, 2012, the SSA again denied Plaintiff’s request for 17 waiver, finding that because Plaintiff pled guilty to theft for misusing social security funds, 18 he could not be found without fault. (R. at 127–29.) 19 C. First Administrative Hearing 20 In March 2013, Plaintiff requested an administrative hearing before an ALJ. (R. at 21 141.) The administrative hearing occurred in September 2013. (R. at 293.) At the hearing, 22 Plaintiff testified that he was injured in 2003 and that R.F. was born in September 2004. 23 (R. at 308.) R.F. lived with Plaintiff and R.F.’s mother in a two-bedroom apartment until 24 June 2007. (R. at 309.) R.F.’s mother moved out of the apartment in June 2007, and R.F. 25 continued to live full-time with Plaintiff in the apartment until March 2008. (R. at 309–10.) 26 Plaintiff testified that from the time R.F. was born until March 2008, Plaintiff was the sole 27 source of financial support for R.F. (R. at 310.) In March 2008, Plaintiff became homeless 28 and R.F. went to live with his mother. (R. at 309–13, 40.) 1 In May 2009, Plaintiff regained a home and paid $500 a month in extra rent so that 2 he could have a bedroom for R.F. to stay in when R.F. came to visit, which Plaintiff claimed 3 was three or four times a week, but sometimes more frequently. (R. at 300–01, 315–16.) 4 Plaintiff did not keep an accounting of how he spent R.F.’s benefits. (R. at 301–02.) But 5 he claims that the $16,220.00 check in May 2009 was primarily spent on back expenses 6 that he had already incurred from being homeless and caring for R.F. (R. at 300, 312.) 7 Plaintiff testified that he purchased a boat when he received approximately $40,000.00 in 8 back payments for his own injuries. (R. at 301, 317.) 9 R.F.’s mother obtained representative payee status for R.F.’s child’s benefits in July 10 2010. (R. at 319.) Thereafter, Plaintiff stopped receiving funds for R.F. (R. at 319.) 11 Plaintiff continued to share joint custody of R.F., however, and maintained a room at his 12 home for R.F. even though he no longer served as R.F.’s representative payee. (R. at 300, 13 319–20.) 14 At the conclusion of the administrative hearing, over Plaintiff’s objection, the ALJ 15 entered the application for child’s benefits and an agency statement summarizing payments 16 made to Plaintiff into the record. (R. at 180–81.) The ALJ issued a decision, finding that 17 Plaintiff properly spent $18,642.00 in retroactive benefits because it was undisputed that 18 R.F. resided with Plaintiff full-time between November 2004 and March 2008. (R. at 188.) 19 However, because R.F. was not in Plaintiff’s care between April 2008 and July 2010, the 20 ALJ found that Plaintiff received an overpayment of $17,454.00. (R. at 188.) Relying 21 largely on Plaintiff’s Theft conviction,6 the ALJ found that Plaintiff did not prove that he 22 had properly used all of R.F.’s benefits on R.F. or that he was entitled to waiver of the 23 overpayment. (R. at 190–91.) 24 D. Appeals Council Review 25 On January 3, 2014, Plaintiff appealed the ALJ’s decision to the Appeals Council. 26 (R. at 194–200.) On April 23, 2015, the Appeals Council vacated the ALJ’s decision and 27 28 6 The ALJ also noted that there was evidence Plaintiff owed gambling receipts to a casino in the amount of $11,178.00. (R. at 191.) 1 remanded the case for further proceedings. (R. at 203.) The Appeals Council found that 2 Plaintiff was not entitled to use R.F.’s retroactive benefits to reimburse Plaintiff for prior 3 expenses that Plaintiff incurred to care for R.F. (R. at 204.) The Appeals Council further 4 held that 20 C.F.R. § 404.2040 required Plaintiff to use the retroactive benefits on R.F.’s 5 current needs. (R. at 204.) Because there was no indication in the record that Plaintiff used 6 the money for R.F.’s current needs, the Appeals Council remanded the case for the ALJ to 7 complete the administrative record and “decide the period for which [Plaintiff] received 8 the overpayment in child’s insurance benefits on behalf of [R.F.], the cause of 9 overpayment, and the amount of the overpayment.” (R. at 205.) 10 E. Second Administrative Hearing 11 A second administrative hearing occurred before the ALJ in July 2016. (R. at 266.) 12 At this hearing, Plaintiff testified that he purchased food, clothing, shelter, a bed, sheets, a 13 dresser, and bathroom items for R.F. when he regained a home in May 2009. (R. at 274.) 14 Plaintiff also reiterated that he used the $16,220.00 check, which Plaintiff received in May 15 2009, to pay debts and loans that Plaintiff had incurred to care for R.F. prior to May 2009. 16 (R. at 273–75, 285–86.) According to Plaintiff, he used the second check of $10,997.00 to 17 pay for furnishings, including a dining room table, and “kitchen stuff, like pots and pans,” 18 which Plaintiff maintained was all for the benefit of R.F. (R. at 285–86.) Plaintiff also 19 testified that he pled guilty to Theft because he used some of R.F.’s funds to buy a car and 20 he believed that pleading guilty would resolve all issues related to overpayment. (R. at 21 287.) Finally, Plaintiff testified that he did not recall receiving letters from the SSA 22 requesting an accounting, that he did not keep any receipts for purchases made with R.F.’s 23 benefits, and that most of the money went toward housing, rent, and paying off back debts. 24 (R. at 288.) 25 In August 2017, the ALJ issued its second decision, finding that 20 C.F.R. 26 §§ 404.2040(a) and (d) did not permit Plaintiff to use R.F.’s retroactive child’s benefits to 27 offset prior costs that Plaintiff incurred to provide food and shelter for R.F. (R. at 17.) The 28 ALJ found that Plaintiff was solely permitted to use the retroactive benefits for R.F.’s 1 current needs. (R. at 17.) For the monthly benefits received from June 2009 to May 2010, 2 the ALJ concluded that Plaintiff failed to demonstrate that the funds were used to meet 3 R.F.’s current needs. (R. at 17.) The ALJ rejected Plaintiff’s argument that the criminal 4 restitution order capped the amount of overpayment available for recovery by the SSA. (R. 5 at 18.) And the ALJ found that Plaintiff made intentionally false statements or 6 representations that rendered waiver inappropriate. (R. at 19.) The ALJ concluded that 7 Plaintiff is liable to repay $35,413.00—the entire amount he received as R.F.’s 8 representative payee—but that the SSA must account for the $2,500.00 already tendered 9 to the SSA by Plaintiff as part of the criminal restitution order. (R. at 19.) 10 F. Appeals Council Review 11 Plaintiff requested review of the ALJ’s second decision, but on October 9, 2018, the 12 Appeals Council denied review, finding no basis to change the ALJ’s decision. (R. at 4– 13 8.) 14 II. LEGAL STANDARD 15 In determining whether to reverse an ALJ’s decision, the district court reviews only 16 those issues raised by the party challenging the decision. See Lewis v. Apfel, 236 F.3d 503, 17 517 (9th Cir. 2001). The Court may set aside the Commissioner’s finding of overpayment 18 and liability for repayment only if the determination is not supported by substantial 19 evidence or is based on legal error. Orn v. Astrue, 495 F.3d 625, 630 (9th Cir. 2007). 20 Substantial evidence is more than a scintilla, but less than a preponderance; it is relevant 21 evidence that a reasonable person might accept as adequate to support a conclusion 22 considering the record as a whole. Id. To determine whether substantial evidence supports 23 a decision, the Court must consider the record as a whole and may not affirm simply by 24 isolating a “specific quantum of supporting evidence.” Id. Generally, “[w]here the evidence 25 is susceptible to more than one rational interpretation, one of which supports the ALJ’s 26 decision, the ALJ’s conclusion must be upheld.” Thomas v. Barnhart, 278 F.3d 947, 954 27 (9th Cir. 2002) (citations omitted). 28 1 III. ANALYSIS 2 A. There is substantial evidence of the $35,413.00 overpayment. 3 A representative payee must use the beneficiary’s funds for the beneficiary’s current 4 maintenance, including costs incurred in obtaining food, shelter, clothing medical care, and 5 personal comfort items. 20 C.F.R. § 404.2040(a)(1). “[M]issue of benefits by a 6 representative payee occurs in any case in which the representative payee receives 7 payment . . . for the use and benefit of another person and converts such payment, or any 8 part therefor, to a use other than for the use and benefit of such other person.” 42 U.S.C. 9 § 1383(a)(2)(A)(iv). A representative payee who misuses a beneficiary’s benefits is 10 responsible for repaying the misused funds so that the SSA can return the misused benefits 11 to the beneficiary. 20 C.F.R. § 404.2041(a). 12 Generally, an “overpayment” is the difference between the amount paid to the 13 beneficiary and the amount of payment to which the beneficiary was actually entitled. 20 14 C.F.R. § 404.504. Where a beneficiary’s benefits are paid to a representative payee, see 20 15 C.F.R. § 404.2001, any misuse of the benefits by the representative payee will be treated 16 as an overpayment to that representative payee. 20 C.F.R. § 404.2041(f). 17 Here, the ALJ found that Plaintiff misused all of R.F.’s benefits that Plaintiff 18 received as the representative payee between May 2009 and June 2010. (R. at 18.) 19 According to the ALJ, this misuse resulted in a $35,413.00 overpayment to Plaintiff 20 ($16,220.00 + $10,997.00 in retroactive benefits + $8,196.00 in monthly benefits from July 21 2009 to June 2010). (R. at 15.) Plaintiff makes numerous objections to the ALJ’s analysis. 22 The Court addresses each in turn. 23 1. Misuse of monthly benefits received between July 2009 and June 24 2010 25 Plaintiff argues that he used R.F.’s monthly benefits to care for R.F., except for the 26 $2,500.00 he spent on a car. (Pl. Br. at 9.) The ALJ found, however, that R.F. did not live 27 with Plaintiff after May 2009. (R. at 17.) And because Plaintiff failed to provide “receipts, 28 bank account summaries, or any indication as to what the benefits were actually spent on,” 1 the ALJ concluded that the evidence failed to show that the monthly funds were used to 2 meet R.F.’s current needs. (R. at 17.) Substantial evidence supports the ALJ’s conclusion 3 that Plaintiff misused R.F.’s monthly benefits between July 2009 and June 2010. For 4 example, R.F. was not living with Plaintiff when he received R.F.’s benefits (R. at 139); 5 Plaintiff admitted that he had no accounting of how he spent R.F.’s money (R. at 301); a 6 friend with whom Plaintiff resided between May and November 2009 said that R.F. stayed 7 with Plaintiff only one or two times a month (R. at 22); and Plaintiff was unable to prove 8 when he purchased R.F.’s bedroom and bathroom decorations (R. at 260–61). The Court 9 defers to the ALJ’s decision on this issue. 10 2. Misuse of retroactive child’s benefits 11 Plaintiff argues there was no misuse of the retroactive child’s benefits because he 12 used those benefits to reimburse himself for prior childcare-related expenses. (Pl. Br. at 13 10.) A representative payee may use funds to pay for debts incurred by a beneficiary before 14 the first benefit payment only if the beneficiary’s current and reasonably foreseeable needs 15 are met. 20 C.F.R. § 404.2040(d). A representative payee meets the current maintenance 16 of a beneficiary when the funds are used for obtaining food, shelter, clothing, medical care, 17 and personal comfort items for the beneficiary. 20 C.F.R. § 404.2040(a). Because 18 substantial evidence supports the ALJ’s conclusion that Plaintiff did not use R.F.’s monthly 19 benefits to meet R.F.’s current needs between July 2009 and June 2010, see supra, the ALJ 20 properly concluded that Plaintiff was not entitled to spend any of R.F.’s retroactive child 21 benefits. Therefore, the Court defers to the ALJ’s decision that Plaintiff misused the 22 retroactive child’s benefits. 23 3. Significance of the Theft conviction 24 Plaintiff asserts that the ALJ used “Plaintiff’s guilty plea to a $2,500.00 theft 25 charge . . . [to] infer that all the funds received by him for his son were misused.” (R. at 2.) 26 But the ALJ did no such thing. The ALJ concluded, after a “[t]horough review of the 27 evidence,” that Plaintiff did not use any of R.F.’s funds to meet R.F.’s current needs. (R. 28 at 17.) The ALJ’s conclusion was based on the absence of documentation for the purported 1 expenditures, not the Theft conviction. (R. at 17.) The Court consequently defers to the 2 ALJ’s decision that Plaintiff misused $35,413.00 of R.F.’s benefits, which amounted to an 3 overpayment of $35,413.00 to Plaintiff. See 20 C.F.R. § 404.2041(f). 4 B. Waiver 5 Plaintiff disagrees with the ALJ’s finding that waiver of repayment is not available. 6 (Pl. Br. at 2, 5–8.) Plaintiff argues waiver should be granted because [i] recovery would 7 defeat the purpose of Title II of the Social Security Act, [ii] the ALJ improperly reviewed 8 waiver under 20 C.F.R. § 404.502 instead of conducting a fault analysis, and [iii] the ALJ 9 did not properly consider whether Plaintiff understood his accounting obligations as the 10 representative payee.7 (Pl. Br. at 2, 5–9.) 11 The Social Security Act authorizes the SSA to promulgate rules on and execute the 12 collection of overpayments. 42 U.S.C. § 404(a)(1). The regulations provide that a 13 representative payee’s misuse of funds is treated as an overpayment to the representative 14 payee, 20 C.F.R. § 404.2041(f), but the SSA may waive collection of the overpayment 15 when (1) the individual is found to be without fault for causing the overpayment, and (2) 16 “the recovery would defeat the purpose of Title II … or be against equity and good 17 conscience.” 20 C.F.R. § 404.506(a). The person seeking waiver of recovery bears the 18 burden of proving that he was without fault. Anderson v. Sullivan, 914 F.2d 1121,1122 (9th 19 Cir. 1990). 20 To determine whether an individual is without fault and eligible for waiver of 21 recovery of overpayment, the ALJ must conduct a full fault analysis as prescribed by 20 22 C.F.R. § 404.507. Harzewski v. Chater, 977 F.Supp. 217, 223 (W.D.N.Y. 1997). In 23 determining whether an individual is at fault for an overpayment, the ALJ must consider 24 “all pertinent circumstances, including the individual’s age and intelligence, and any 25 physical, mental, educational, or linguistic limitations” and the claimant’s good faith. 20 26 27 7 See also 20 C.F.R. § 404.2035(b) (noting that a representative payee has a responsibility to keep the beneficiary’s benefits separate from his or her own funds unless the representative payee is the 28 beneficiary’s spouse or natural or adoptive parent or stepparent and lives in the same household as the beneficiary). 1 C.F.R. § 404.507; Califano v. Yamasaki, 442 U.S. 682, 697 (1979). 2 What constitutes fault depends on whether the facts show that “the incorrect 3 payment to the individual . . . resulted from: (a) [a]n incorrect statement made by the 4 individual which he knew or should have known to be incorrect; or (b) [f]ailure to furnish 5 information which he knew or should have known to be material; or (c) [w]ith respect to 6 the overpaid individual only, acceptance of a payment which he either knew or could have 7 been expected to know was incorrect.” 20 C.F.R. § 404.507. If a fault determination is 8 made that is contrary to the plaintiff’s testimony, the ALJ must also make explicit findings 9 about the plaintiff’s credibility, beyond simply relying on written submissions. Yamasaki, 10 442 U.S. at 697 (requiring “an assessment of the recipient’s credibility … to distinguish a 11 genuine hard luck story from a fabricated tale”). Finally, if an overpaid individual fails to 12 establish that he or she is without fault, it is unnecessary for the ALJ to address whether 13 recovery would defeat the purpose of Title II or be against equity and good conscience. 14 Yankun v. Barnhart, 473 F. Supp. 2d 147, 150 (D. Mass. 2006). 15 The ALJ erred as a matter of law by conducting a waiver analysis under 20 C.F.R. 16 § 404.502(c)(2), which solely addresses adjustments to overpayments. (R. at 18-19.) The 17 ALJ did not conduct a fault analysis pursuant to 20 C.F.R. § 404.507. Therefore, this Court 18 vacates the ALJ’s decision and remands for a proper and full fault analysis under 20 C.F.R. 19 § 404.507. On remand the ALJ must take into consideration all pertinent circumstances, 20 including Plaintiff’s “intelligence, and any physical, mental, educational, or linguistic 21 limitations” that may have contributed to Plaintiff’s ability to comprehend what was 22 required of him as representative payee. 23 C. Conflicting ALJ decisions 24 Plaintiff asserts that the ALJ’s decision (R. at 14–19) should be reversed because it 25 is inconsistent with the first decision (R. at 186–191.) But the Appeals Council vacated 26 the ALJ’s decision and remanded the case for further proceedings. (R. at 203.) Whether 27 the vacated decision conflicts with the ALJ decision before this Court is irrelevant. The 28 Court defers to the ALJ’s decision (R. at 14–19) that is properly before this Court. 1 D. Whether the ALJ erred in admitting evidence after the first hearing 2 Plaintiff challenges the ALJ’s consideration of exhibits that were admitted into evidence after the September 2013 hearing. Plaintiff argues that the exhibits should not 4|| have been admitted because one or both documents contained hearsay, were unsigned, or || included statements other than Plaintiffs direct verbiage. (Pl. Br. at 2-3); (R. at 181-82.) 6|| The exhibits consisted of a document titled “Application Summary for Child’s Insurance 7|| Benefits—Life Claim” and a statement from Field Office Personnel regarding the 8 || breakdown of the overpayment. (R. at 186); (Def. Br. at 8.) 9 Plaintiffs evidentiary objections are unfounded. An ALJ may receive any evidence at an SSA hearing and is not bound by the strict rules of evidence applied in court 11]| proceedings. 20 C.F.R. § 404.950(c); Richardson y. Perales, 402 U.S. 389, 400 (1971). 12|| Finally, ALJ’s are not required to decline written evidence submitted after a hearing. 20 C.F.R. § 416.1435. IV. CONCLUSION 15 IT IS ORDERED denying Plaintiffs request for oral argument (part of Doc. 22). 16 IT IS FURTHER ORDERED reversing the August 23, 2017 decision of the Administrative Law Judge (AR 14-19) and remanding for proper analysis as directed || above. 19 IT IS FURTHER ORDERED directing the Clerk to enter final judgment 20 || consistent with this Order and close this case. 21 Dated this 13th day of March, 2020. Wicked T dbus Michael T. Liburdi 24 United States District Judge 25 26 27 28 -ll-