Marguerite Kelley v. Comm Social Security ( 2009 )

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
5-15-2009
Marguerite Kelley v. Comm Social Security
Precedential or Non-Precedential: Precedential
Docket No. 08-1652
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 08-1652
_____________
MARGUERITE P. KELLEY,
Appellant,
v.
COMMISSIONER OF SOCIAL SECURITY
_______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(Civil No. 2:07-cv-1628)
District Judge: Honorable Lawrence F. Stengel
______________
Argued January 8, 2009
________________
Before: CHAGARES, HARDIMAN, Circuit Judges, and ELLIS,
Senior District Judge.*
(Opinion Filed: May 15, 2009)
______________
*
The Honorable T. S. Ellis III, Senior District Judge,
United States District Court for the Eastern District of Virginia,
sitting by designation.
SCOTT A. DYE (Argued)
Cohen, Fluhr & Gonzalez
1429 Walnut Street
Suite 1500
Philadelphia, PA 19102
Counsel for Appellant
ERIC P. KRESSMAN
Acting Regional Chief Counsel
PATRICIA M. SMITH
Acting Supervisory Regional Counsel
Social Security Administration
Office of the General Counsel
P.O. Box 41777
Philadelphia, PA 19101
LAURA MAGID
Acting United States Attorney
BEVERLY H. ZUCKERMAN (Argued)
Special Assistant United States Attorney
Eastern District of Pennsylvania
615 Chestnut Street
Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
______________
OPINION OF THE COURT
______________
ELLIS, Senior District Judge.
This social security appeal presents the novel question
whether the proceeds of the sale of a marital home—placed in
escrow by divorcing parties—are a countable resource for purposes
of assessing eligibility to receive Supplemental Security Income
(“SSI”) benefits. The Commissioner of Social Security denied
Marguerite Kelley’s application for SSI benefits on the ground that
these proceeds were a countable resource rendering her ineligible
2
for SSI benefits. The District Court upheld this decision. We
agree and affirm.
I.
Marguerite Kelley suffers from chronic pain and fatigue
secondary to Crohn’s disease. On March 5, 2003, Kelley applied
for Disability Insurance Benefits (“DIB”) under Title II of the
Social Security Act, 42 U.S.C. §§ 401–434. This claim was denied
on May 23, 2003, and Kelley then requested an administrative
hearing. On August 6, 2003, Kelley filed an application for SSI
under Title XVI of the Social Security Act, 42 U.S.C. §§
1381–1383f. On February 24, 2005, an administrative law judge
(“ALJ”) held a hearing to review both her DIB and SSI claims.
At the time of the hearing, Kelley was involved in divorce
proceedings. She and her husband had sold their marital home
approximately two years earlier, and by agreement they placed the
proceeds of the sale in an escrow account until they could reach a
further agreement on distribution.1 During the hearing, the ALJ
indicated that he would leave the record open for two weeks during
which time Kelley could submit any additional materials. Kelley’s
counsel submitted a brief, attached to which was an affidavit from
the attorney who represented Kelley in her divorce. 2 Yet, it is
1
During the hearing, Kelley stated first that there was a
court order with regard to the escrow, but then indicated that she
and her husband created the escrow because they could not initially
agree on an equitable distribution of the proceeds from the home’s
sale. (A.R. at 545–46.) Kelley has submitted no evidence showing
that the escrow account was created by court order or that a court
order precluded her from accessing the funds.
2
In the affidavit, which does not reflect the year it was
executed, Kelley’s divorce attorney stated that (i) the funds from
the sale of the Kelley’s marital home had been placed in an escrow
account; (ii) the current balance of the escrow account was
$42,088.44; (iii) Kelley had no access to those funds; (iv) the funds
would be subject to equitable distribution in the divorce action; (v)
Kelley would, “in all likelihood, not have a claim in excess of 60%
3
unclear from the record whether the affidavit was submitted within
the allotted two weeks and, according to the Commissioner, the
ALJ excluded it as untimely.3
On March 24, 2005, the ALJ issued a decision denying
Kelley’s claim for DIB and SSI.4 The ALJ determined, in pertinent
part, that Kelley’s “share of the proceeds from the sale of the
marital home are a countable resource notwithstanding the fact that
the proceeds are presently being held in an escrow account” and
accordingly concluded that Kelley was not eligible for SSI. (A.R.
at 18–19.) Kelley requested review by the Appeals Council and
submitted to the Appeals Council the same affidavit she had sent
to the ALJ following the hearing. On March 2, 2007, the Appeals
Council denied Kelley’s request, making the ALJ’s decision the
Commissioner’s final decision. See 20 C.F.R. § 416.1481 (stating
that the ALJ’s decision is binding if the Appeals Council denies a
claimant’s request for review); see also Welch v. Heckler, 808 F.2d
264, 267 (3d Cir. 1986) (noting that the ALJ’s decision becomes
final and eligible for judicial review when approved by the Appeals
Council). In the course of denying Kelley’s request for review, the
Appeals Council noted that the additional evidence Kelley
submitted provided no basis for reversing the ALJ’s decision.
Kelley then filed this civil action pursuant to 42 U.S.C. §
405(g). In support of her request for review, Kelley submitted
of the funds;” and (vi) Kelley had outstanding debts in excess of
$100,000. (A.R. 510.) The affidavit does not include the escrow
agreement nor does it describe its terms or provenance.
3
The accompanying brief is stamped as having been
received on March 15, 2005, a fact the Commissioner points to as
showing that the affidavit was not timely submitted and thus not
part of the record before the ALJ. Yet, the brief is dated March 10,
2005, and indicates that it was being transmitted by fax and first-
class mail, facts Kelley relies on to argue that the materials were
submitted within two weeks of the hearing.
4
Kelley did not appeal the DIB portion of the ALJ’s
decision.
4
three additional documents: (i) a copy of her divorce decree, which
shows that she and her husband signed a property settlement
agreement on November 1, 2006, and that their divorce was
finalized on December 27, 2006; (ii) a letter dated June 7, 2007,
from her divorce attorney to her mother indicating that Kelley’s
portion of the escrowed funds had been used to repay her mother,
who had paid for most of Kelley’s legal fees, and to pay “for other
fee balances, medical insurance and other bills associated with the
children” (Appellee’s Supp. App. at 2); and (iii) a July 23, 2007,
notice of award letter from the Social Security Administration
indicating that Kelley was eligible to receive SSI as of July 1,
2007.5 The matter was then referred to a magistrate judge,
pursuant to 28 U.S.C. § 636(b)(1)(B), who issued a report and
recommendation concluding (i) that the ALJ correctly determined
that the escrowed proceeds from the sale of Kelley’s marital home
constituted a countable resource and (ii) that none of the materials
submitted by Kelley after the administrative hearing warranted a
different conclusion. On January 3, 2008, after considering
Kelley’s request for review and the Commissioner’s response and
reviewing the report and recommendation, the District Court
denied Kelley’s request for review and entered judgment in favor
of the Commissioner. Kelley timely appealed, and we have
jurisdiction pursuant to 28 U.S.C. § 1291.
II.
The sole issue on appeal is whether the proceeds from the
sale of Kelley’s marital home, placed in an escrow account by
Kelley and her then-husband pending equitable distribution, were
properly deemed to be a resource for the purpose of determining
Kelley’s eligibility for SSI. This issue, for which there is no
directly apposite authority in this circuit or elsewhere, is a legal
question, and our review is accordingly plenary. Schaudeck v.
Comm’r of Social Sec. Admin., 181 F.3d 429, 431 (3d Cir. 1999).
5
The letter indicates that Kelley had reapplied for SSI on
June 1, 2007, making July 2007 the first month she could receive
benefits based on that application. See 20 C.F.R. § 416.335.
5
Under the Social Security Act, an individual is eligible for
SSI benefits if (i) she is aged, blind, or disabled and (ii) her
countable income and resources fall below certain statutory limits.
42 U.S.C. § 1382(a).6 Since 1989, individuals not residing with a
spouse have been obliged to show that their countable resources do
not exceed $2,000 as part of establishing their eligibility for SSI
benefits. Id. The Social Security Administration has defined
resources as “cash or other liquid assets or any real or personal
property that an individual (or spouse, if any) owns and could
convert to cash to be used for his or her support and maintenance.”
20 C.F.R. § 416.1201(a). Significantly, another regulation
provides that
[i]f an individual (and spouse, if any) moves out of
his or her home without the intent to return, the
home becomes a countable resource because it is no
longer the individual’s principal place of residence.
. . . The individual’s equity in the former home
becomes a countable resource effective with the first
day of the month following the month it is no longer
his or her principal place of residence.
Id. § 416.1212(c). The regulation further states that proceeds from
the sale of a home may only be excluded from an individual’s
countable resources to the extent the proceeds “are intended to be
used and are, in fact, used to purchase another home . . . within 3
months of the date of receipt of the proceeds.” Id. §
416.1212(d)(1). Thus, under this regulation, it is clear the ALJ
properly considered the proceeds from the sale of Kelley’s marital
home to be a countable resource for the purpose of calculating her
SSI eligibility.
Nor is this conclusion altered because Kelley agreed to place
the proceeds from the sale of her former home in an escrow
6
The statue provides that resources listed in 42 U.S.C. §
1382b(a) may properly be excluded when calculating a claimant’s
resources. 42 U.S.C. § 1382(a)(1)(B). The parties correctly do not
argue that § 1382b(a) is applicable here.
6
account pending equitable distribution in her divorce. The Social
Security Act addresses the treatment of trusts in 42 U.S.C. §
1382b(e), which defines the term “trust” as including “any legal
instrument or device that is similar to a trust.” 42 U.S.C. §
1382b(e)(6)(A). Because an escrow account is similar to a trust,
the escrow account Kelley created with her husband is
appropriately treated as a trust under § 1382b(e).7 That subsection,
enacted in 1999 as part of the Foster Care Independence Act, Pub.
L. No. 106-169, 113 Stat. 1822, separately addresses revocable and
irrevocable trusts. First, it provides that if an individual has
established a revocable trust, “the corpus of the trust shall be
considered a resource available to the individual.” Id. §
1382b(e)(3)(A). 8 In the case of an irrevocable trust, the statute
7
This conclusion is confirmed by the Social Security
Administration’s Program Operating Manual System (“POMS”).
The POMS represent “the publicly available operating instructions
for processing Social Security claims.” Wash. State Dep’t of Soc.
& Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371,
385 (2003). The Supreme Court has stated that “[w]hile these
administrative interpretations are not products of formal
rulemaking, they nevertheless warrant respect.” Id. (citing
Skidmore v. Swift & Co., 323 U.S. 134, 139–40 (1944); United
States v. Mead Corp., 533 U.S. 218, 228, 234–35 (2001)). The
applicable POMS section reasonably interprets the statutory phrase
“any legal instrument or device that is similar to a trust” as
covering any instrument, device, or arrangement that involves (i)
a grantor; (ii) “who transfers property (or whose property is
transferred by another);” (iii) “to an individual or entity with
fiduciary obligations;” (iv) “with the intention that it be held,
managed or administered by the individual or entity for the benefit
of the grantor or others.” POMS SI 01120.201B.5; see also POMS
SI 01120.201G.1. The POMS also explicitly list escrow accounts
as an example of a legal instrument or device similar to a trust. Id.;
see also POMS SI 01120.201G.2.
8
Another provision in the subsection explains that “an
individual shall be considered to have established a trust if any
assets of the individual (or of the individual’s spouse) are
transferred to the trust other than by will.” Id. § 1382b(e)(2)(A).
7
further provides that
if there are any circumstances under which payment
from the trust could be made to or for the benefit of
the individual (or of the individual’s spouse), the
portion of the corpus from which payment to or for
the benefit of the individual (or of the individual’s
spouse) could be made shall be considered a
resource available to the individual.
Id. § 1382b(e)(3)(B).9
The Social Security Act’s treatment of trusts and trust-like
instruments compels the conclusion that the escrowed funds were
The term “asset” is further defined as including
(iii) any other payment or property to which the
individual (or of [sic] the individual’s spouse) is
entitled but does not receive or have access to
because of action by—
(I) the individual or spouse;
(II) a person or entity (including a court) with
legal authority to act in place of, or on behalf of,
the individual or spouse; or
(III) a person or entity (including a court) acting
at the direction of, or on the request of, the
individual or spouse.
Id. § 1382b(e)(6)(C). Thus, even if the escrow was created by a
court, it would still fall within the terms of the statute.
9
In explaining this provision, the relevant POMS states that
“if a payment can be made to or for the benefit of the individual
under any circumstance, no matter how unlikely or distant in the
future, the general rule . . . applies (i.e., the portion of the trust
[from which payment could be made] that is attributable to the
individual is a resource . . . ).” POMS SI 01120.201D.2.b.
8
appropriately deemed to be one of Kelley’s resources. 10 Because
the terms of the escrow agreement are not in the record, it is
impossible to determine definitively whether the escrow account
should be deemed more akin to a revocable or irrevocable trust.
Yet, the conclusion that the proceeds held in escrow were properly
counted holds regardless of whether the escrow account is treated
as a revocable or irrevocable trust. If Kelley’s escrow account was
more similar to a revocable trust, the statute’s unqualified
command that “[i]n the case of a revocable trust established by an
individual, the corpus of the trust shall be considered a resource
available to the individual” applies. Id. § 1382b(e)(3)(A). Even
assuming the escrow account is properly considered an irrevocable
trust, it is clear that the escrowed funds were correctly categorized
as a countable resource given that there were certainly
“circumstances under which payment from the [escrow account]
could be made to or for the benefit of” Kelley. Id. §
1382b(e)(3)(B). Although the exact terms of the escrow agreement
were never made a part of the record, Kelley and her then-husband
clearly created the escrow account with the understanding that
when they had agreed on an equitable distribution of the proceeds
from the sale of their marital home and their divorce had been
finalized, they would each receive either payments from the
account or the benefit of payments from the account.11 Given this,
10
Not addressed here is whether the ALJ appropriately
counted only Kelley’s share of the proceeds in escrow or whether
the entire proceeds from the sale of Kelley’s marital home
constituted a countable resource because, in either event, Kelley’s
countable resources would have exceeded the $2000 threshold,
thereby rendering her ineligible for SSI benefits.
11
Indeed, the June 7, 2007, letter from Kelley’s divorce
attorney, submitted only to the District Court, demonstrates that
this is exactly what happened; Kelley’s share of the funds were
used to repay a loan from her mother and to pay “for other fee
balances, medical insurance, and other bills associated with the
children.” (Appellee’s Supp. App. at 2.) It is important to note that
we do not rely on this letter, or any of the other materials not part
of the record before the ALJ, in reaching our conclusion; the
materials that were before the ALJ provide ample support.
9
it is clear that on this record, even assuming the escrow account is
properly treated as an irrevocable trust, the escrowed funds were
properly counted as a resource for SSI purposes.
Kelley advances three arguments against this conclusion,
none of which persuades. First, Kelley asserts that the escrowed
funds should not be considered a resource because she had no
access to the funds. In support of this argument, Kelley relies on
20 C.F.R. § 416.1201(a), which defines the term resources as “cash
or other liquid assets or any real or personal property that an
individual (or spouse, if any) owns and could convert to cash to be
used for his or her support and maintenance” and further provides
that “[i]f the individual has the right, authority or power to
liquidate the property or his or her share of the property, it is
considered a resource.” Yet, Kelley’s attempt to draw from this
language the principle that funds are not a countable resource under
the Social Security Act unless a claimant is able to access the funds
at will is misguided.12 Although it is certainly true that an asset is
generally not an individual’s resource if the individual does not
have the legal right to use the asset for her support and
maintenance, the regulation defining “resource” must be read in
Additionally, there is no need to remand to the Commissioner
pursuant to the sixth sentence of 42 U.S.C. § 405(g) because the
materials Kelley submitted after the ALJ’s decision support, rather
than undermine, that decision. See Matthews v. Apfel, 239 F.3d
589, 593 (3d Cir. 2001) (“[W]hen the claimant seeks to rely on
evidence that was not before the ALJ, the district court may remand
to the Commissioner but only if the evidence is new and material
and if there was good cause why it was not previously presented to
the ALJ . . . .”); see also Szubak v. Sec’y of Health & Human
Servs., 745 F.2d 831, 833 (3d Cir. 1984) (noting that a sixth-
sentence remand under § 405(g) requires the claimant to show “that
there [is] a reasonable possibility that the new evidence would have
changed the outcome of the Secretary’s determination”).
12
Miranda v. Barnhart, No. SA-00-CA-1195, 2002 U.S.
Dist. LEXIS 25892 (W.D. Tex. Mar. 29, 2002), the sole authority
on which Kelley relies for this interpretation of 20 C.F.R. §
416.1201(a), is neither controlling nor on point.
10
tandem with the later-enacted statutory provision addressing how
to count the resources of an individual whose assets have been
transferred to a trust or a legal instrument similar to a trust. And
that provision makes clear that an individual’s countable resources
include assets that have been transferred to a trust-like instrument
to the extent payment from the instrument “could be made to or for
the benefit of the individual,” regardless of whether the individual
has access to the funds. See 42 U.S.C. § 1382b(e). Because on this
record it is clear that there were circumstances under which
payments could be made from the escrow account to Kelley or for
her benefit, the question whether she could access the escrowed
funds at will is immaterial.
Kelley’s second argument, which also relies on 20 C.F.R. §
416.1201(a), is that the funds in the escrow account should not
have been counted as a resource because they could not have been
used for her “support and maintenance” given that her outstanding
debts exceeded the escrowed funds. This argument also fails.
Again, even assuming the escrow account is properly treated as an
irrevocable trust, the pertinent question under § 1382b(e)(3)(B) is
whether “there are any circumstances under which payment from
the trust could be made to or for the benefit of the individual.”
Here, payments were eventually made from the escrow account to
pay her outstanding debts, a clear benefit to Kelley. See POMS SI
01120.201F.1 (“[C]onsider payments to be made . . . to or for the
benefit of an individual[] if payments of any sort from the corpus
or income of the trust are paid to another person or entity so that
the individual derives some benefit from the payment.”). Thus,
given the applicable statutory language, the fact that her
outstanding debts exceeded the amount of funds in escrow is
irrelevant.
Finally, Kelley argues that the conclusion reached by the
ALJ is contrary to the underlying beneficent purpose of Title XVI
of the Social Security Act. The primary purpose of SSI “is to
assure a minimum level of income for people who are age 65 or
over, or who are blind or disabled and who do not have sufficient
income and resources to maintain a standard of living at the
established Federal minimum income level.” 20 C.F.R. § 416.110.
Despite Kelley’s argument to the contrary, the result reached here
11
does not undermine that basic purpose. Rather, according to the
House Committee on Ways and Means’s report on the section of
the bill that became § 1382b(e), Congress amended the Social
Security Act to address specifically how assets in trusts should be
counted because of concern that individuals with resources could
qualify for SSI by sheltering their assets in trust-like instruments.
See H.R. Rep. No. 106-182(I) (1999), 1999 WL 387373, at *34.
The committee report first states that under the law as it existed at
the time “[a]ssets placed in a trust in which individuals have no
ownership and to which they have no access no longer meet the
definition of a resource for SSI purposes” because “SSI regulations
define resources as cash or other liquid assets, or any real or
personal property . . . that an individual (or spouse) owns and could
convert to cash to be used for support and maintenance (i.e., for
food, clothing, or shelter).” Id. The report then notes that the bill
would change this treatment of assets held in trust because “[a]
principle underlying virtually all Federal welfare programs is that
recipients meet a test of low income and low assets” and “to allow
individuals to protect resources in a trust that could be used to meet
their needs violates the principle of welfare.” Id.
This citation to the legislative history of § 1382b(e) is not
intended to suggest that Kelley was attempting to hide her assets
when she agreed to place the proceeds from the sale of her marital
home in an escrow account. Indeed, there is no indication in the
record of any fraudulent intent. Nonetheless, § 1382b(e) reflects
Congress’s judgment that when an individual’s assets are
transferred to a trust-like instrument, those assets should generally
be counted as a resource in determining SSI eligibility because of
the potential for fraud. Additionally, Congress tempered the effect
of § 1382b(e) by exempting special needs trusts and pooled trusts
and by providing that “[t]he Commissioner of Social Security may
waive the application of this subsection with respect to an
individual if the Commissioner determines that such application
would work an undue hardship (as determined on the basis of
criteria established by the Commissioner) on the individual.” 42
12
U.S.C. § 1382b(e)(4)–(5).13 Subsection § 1382b(e) thus represents
the balance Congress struck in its assessment of how best to count
the assets of an individual that have been transferred to a trust or
trust-like device in determining that individual’s eligibility for SSI,
and we are bound by that judgment here.
III.
For the foregoing reasons, we agree that the ALJ properly
counted the proceeds from the sale of Kelley’s marital home,
placed in escrow pending equitable distribution, as a resource that
rendered her ineligible for SSI. Accordingly, we affirm the
judgment of the District Court.
13
The criteria established by the Commissioner provide that
“undue hardship exists in a month if [(i)] failure to receive SSI
payments would deprive the individual of food or shelter; and [(ii)]
the individual’s available funds do not equal or exceed the Federal
benefit rate (FBR) plus federally administered State supplement, if
any.” POMS 1120.203.C.1. Kelley has never argued that she
satisfied the undue hardship criteria and was therefore eligible for
a waiver.
13