Holman, Roger D. v. RRRB ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-3816
ROGER D. HOLMAN,
Petitioner,
v.
UNITED STATES RAILROAD
RETIREMENT BOARD,
Respondent.
Petition for Review of a Decision of the
United States Railroad Retirement Board
Argued April 5, 2001--Decided June 13, 2001
Before BAUER, RIPPLE, and EVANS, Circuit
Judges.
EVANS, Circuit Judge. Roger D. Holman
petitions for review of the United States
Railroad Retirement Board’s computation
of his railroad retirement widower’s
annuity benefits. The Board concluded
that Holman did not qualify for
additional payments in his widower’s
annuity because he was not receiving at
least 50 percent of his support from his
wife in the year before her death. On
this petition for review, Holman argues
that the Board’s use of a dependency
requirement violates his constitutional
right to equal protection under the law
because only men are required to
demonstrate dependency to qualify for
additional benefits. He also contends
that the Board did not follow its own
regulations when it disregarded household
services rendered by his wife in
determining that he was not one-half
dependent on her for support. The first
of these two issues occupies most of the
space devoted to this opinion.
Holman and his wife Mary Ann were
lifelong employees of the Burlington
Northern Railroad. Mrs. Holman began
working as a railroad clerk at Burlington
Northern in October 1955 at the age of
19. Mr. Holman began working at the same
railroad as a switchman at the age of 20.
Both were employed at Burlington Northern
for their entire working lives.
In June 1994 Mrs. Holman was diagnosed
with cancer. She retired in May 1996 and
Mr. Holman retired a month later. Mrs.
Holman passed away on October 17, 1997.
Eleven days later Mr. Holman applied for
widower’s annuity benefits based upon his
deceased wife’s earnings under the
Railroad Retirement Act of 1974, 45
U.S.C. sec. 231 et seq. Under 45 U.S.C.
sec. 231a(d)(1)(i), a widower of a
qualified deceased railroad employee is
entitled to annuity benefits if he is at
least 60 years old and has not remarried.
See Crown v. United States R.R.
Retirement Bd., 811 F.2d 1017, 1019 (7th
Cir. 1987).
Widower annuity amounts under 45 U.S.C.
sec. 231c consist of two tiers. The first
tier is the amount of insurance benefits
to which the widower would have been
entitled under the Social Security Act if
the deceased employee’s service as an
employee after December 31, 1936, had
been included in the term of employment
as defined in that Act. See 45 U.S.C.
sec. 231c(f)(1). In other words, this
first tier is the amount of the widower’s
benefits payable under the Social
Security Act based upon the same earnings
period. See Crown, 811 F.2d at 1019. The
Social Security Act has its own
entitlement section, 42 U.S.C. sec. 402,
which entitles Mr. Holman to an annuity
equal to the primary insurance amount of
his deceased wife. Id. This amount,
however, must be reduced by the amount of
retirement benefits the widower is
receiving. See 45 U.S.C. sec. 231c(i)(2).
Here, Mr. Holman’s tier one retirement
benefits exceeded his widower’s benefits,
and so his tier one benefit total was a
net zero.
The second tier provides for certain
increases in the annuity amount derived
from the tier one calculation. See 45
U.S.C. sec. 231c(g). This second tier is
an amount computed solely on the basis of
the deceased employee’s individual
railroad employment. Under this
computation a widower is entitled to an
additional annuity amount that is 50
percent of the deceased worker’s tier two
amount. Crown, 811 F.2d at 1019-20.
The Railroad Retirement Act also
provides for a "restored amount" to be
added to the tier two component of the
annuity of a widower who would have
qualified for an annuity under the
Railroad Retirement Act of 1937 as
administered on December 31, 1974. 45
U.S.C. sec. 231c(g)(4). Section 4(g)(4)
governs the payment of a "restored
amount":
If a . . . widower of a deceased employee
is entitled to an annuity under section
231a(a)(1) of this title and if either
such . . . widower or such deceased
employee will have completed 10 years of
service prior to January 1, 1975, the
amount of the annuity of such . . .
widower . . . shall be increased by an
amount equal to the amount, if any, by
which (A) the . . . widower’s insurance
annuity to which such . . . widower would
have been entitled, upon attaining age
65, under section 5(a) of the Railroad
Retirement Act of 1937 as in effect on
December 31, 1974 . . . exceeds (B) the
total of the annuity amounts to which
such . . . widower was entitled . . . .
45 U.S.C. sec. 231c(g)(4). This "restored
amount" is the difference between what
the widower would have received under the
Railroad Retirement Act of 1937 (where
there would have been no reduction for
entitlement to a second annuity) and what
the widower did receive under the Act
(after the tier one calculation is
reduced due to the widower’s receipt of a
railroad retirement employee’s annuity).
Crown, 811 F.2d at 1021. Section 5(l)(i)
of the 1937 Act, however, conditions
eligibility for a restored amount upon
the widower’s (but not a widow’s) receipt
of at least one-half of his support from
his wife. Id. at 1020.
Here, Mr. Holman submitted an
"Application for Widower’s Annuity." Male
applicants must submit a "Statement
Regarding Contributions and Support"
demonstrating one-half dependence on
their deceased spouse. Holman stated on
his application that he was dependent on
his wife for 50 percent of his necessary
living expenses. The award that Holman
ultimately received, however, did not
contain a "restored amount," and after
his motion for reconsideration was
denied, he appealed to the Board’s Bureau
of Hearings, arguing that the tier two
portion of his annuity should be
increased because he was dependent upon
his wife for one-half of his support at
the time of her death. The hearings
officer denied his appeal. Holman then
appealed to a three-member panel of the
Board, which remanded the case to the
hearings officer to make further findings
based on additional evidence newly
submitted. The hearings officer evaluated
the additional evidence and again denied
Holman’s claim for a restored amount.
On appeal for the second time, Holman
submitted additional information
regarding his ordinary and necessary
living expenses. Once again, the Board
remanded the case, concluding that the
hearings officer erred by using a "pooled
income" theory, which examines the
relative incomes of the parties. The
Board instructed the hearings officer to
determine whether Holman received regular
contributions from his wife that were at
least one-half of his ordinary and
necessary living expenses. Under 20
C.F.R. sec. 222.43, that determination
requires an evaluation of the
reasonableness of Holman’s claimed
expenses. On remand the second time, the
hearings officer again ruled that Holman
did not demonstrate a sufficient level of
dependency for the year before his wife’s
death.
On appeal for the third time, Holman
argued that it is unconstitutional to
require a widower, but not a widow, to
establish dependency. The Board summarily
rejected that argument, stating only that
its "application of section 4(g)(4) to
widowers was upheld in Crown v. U.S.
Railroad Retirement Bd., 811 F.2d 1017(7th Cir. 1987)." Next, Holman argued
that the hearings officer incorrectly
interpreted the Board’s regulations by
discounting the value of household
services performed by Mrs. Holman. Holman
had claimed that his wife contributed
nearly $48,000 in household services
(through laundry, cooking, and cleaning),
but the Board, citing Social Security
Ruling 60-23 (1960), concluded that such
personal services are not the type of
services that should be considered in
making a support determination.
Consequently, the Board affirmed
thehearings officer’s decision that
Holman was not entitled to the "restored
amount." He now petitions for review of
that decision pursuant to 45 U.S.C. sec.
231g, which gives us jurisdiction to
entertain his plea.
Our review is limited to determining
whether the Board’s decision is supported
by substantial evidence and has a
reasonable basis in law. Wassenberg v.
United States R.R. Retirement Bd., 75
F.3d 294, 296 (7th Cir. 1996). The
Board’s interpretation of the Act and its
own regulations, if reasonable, are
entitled to deference. Id.Holman first argues that the Board’s
application of sec. 231c(g)(4) violates
equal protection because it requires
widowed spouses of retired female
employees, but not widowed spouses of
retired male employees, to prove actual
dependency in order to qualify for a
"restored amount" in the annuity
calculation. In support of his position
Holman cites two cases that struck down
similar dependency requirements on equal
protection grounds: Califano v. Goldfarb,
430 U.S. 199 (1977), and a case from the
Sixth Circuit, Kalina v. Railroad
Retirement Board, 541 F.2d 1204 (6th Cir.
1976), aff’d, 431 U.S. 909 (1977). In
Goldfarb, the Supreme Court held that a
provision in the Social Security Act
requiring husbands, but not wives, to
prove dependency on their insured spouse
in order to receive spousal social secur
ity benefits violated the Fifth
Amendment. 430 U.S. at 206-07. The Court
concluded that the provision’s gender
classification rested upon "old notions"
and "’archaic and overbroad’
generalizations" that offend the
prohibitions against denial of equal
protection of the law. Id. at 211.
In Kalina, decided before Goldfarb, the
Sixth Circuit concluded that the 1937
Act’s dependency requirement violated
equal protection because it treated
similarly situated men and women
differently, without a legally sufficient
basis for doing so. Kalina, 541 F.2d at
1205. The 1937 Act, in identifying
persons eligible for an annuity, defined
"spouse" to include only husbands who
were receiving at least one-half of their
support from their wives. Id. at n.1.
"The legislative history of the provision
of the Railroad Retirement Act challenged
here suggests no reason for the
discriminatory treatment of male and
female employees with respect to the
spouse’s annuity." Id. at 1208. The Sixth
Circuit noted that the provision
primarily aimed to increase benefits to
retired workers and their families. Id.
The court noted that "it is not
unreasonable to conclude" that when
Congress confined benefits to only those
husbands who were one-half dependent on
their wives, it embraced the overbroad
(and unconstitutional) generalization
that male workers’ earnings necessarily
sustained their families, but female
workers’ earnings did not. Id. Finally,
the court noted that the 1937 Act’s
definition was borrowed from the Social
Security Act, 42 U.S.C. sec.
402(c)(1)(C), and that several courts had
struck down that provision on equal
protection grounds. Id.
Holman argues that under Goldfarb and
the persuasive authority of Kalina, the
Board’s decision improperly denied him a
"restored amount" by operation of
dependency requirements that violate the
Fifth Amendment. The Board’s
incorporation of the dependency
requirement through sec. 231c(g)(4),
Holman asserts, improperly attempts to
grandfather an unconstitutional
provision. He argues that "an
unconstitutional law is ’in legal
contemplation, as inoperative as though
it had never passed.’" Gebbie v. United
States R.R. Retirement Bd., 631 F.2d 512,
516 (7th Cir. 1980) (citing Norton v.
Shelby County, 188 U.S. 425, 442 (1886)).
Finally, Holman argues that although sec.
231c(g)(4) may appear gender-neutral on
its face, it necessarily requires the
application of unconstitutional gender-
based dependency requirements.
In response to Holman’s position, the
Board argues that our decision in Crown
already upheld the constitutionality of
sec. 231c(g)(4). In Crown, we affirmed
the benefit computations made for a
petitioner in the same position as
Holman. We concluded that under the 1937
Act, Crown could not have qualified for a
widower’s annuity because he was a
nondependent male. Crown, 811 F.2d at
1020-21. The Board argues that Crown
"could not have been decided in the
Board’s favor without the Court’s
approval of the application of the half-
support requirement contained in section
4(g)(4) of the Act." Whether this is true
or not we need not resolve, for the
Board’s primary argument is that sec.
231c (g)(4) is not a gender-based
classification but is instead a neutral,
rational provision aimed at reducing the
cost of "restored amounts" by limiting
their payment to those individuals who
would have reasonably expected to receive
both an employee annuity and a survivor’s
annuity under the 1937 Act without the
offset enacted in the Railroad Retirement
Act. In a nutshell, the Board argues that
provisions like sec. 231c(g)(4) do not
classify according to sex, but instead
operate to revive a past interpretation
of law for the legitimate purpose of
protecting annuitants’ expectations prior
to changes in the law. The Board points
out that sec. 231c (g)(4) was added to
the Act in 1976 as a technical amendment
to preserve dual benefit expectations of
beneficiaries who would receive more than
one benefit under the law. See H.R. No.
1465, 94th Cong., 2d Sess. 7, reprinted
in 1976 U.S.C.C.A.N. 5601, 5606-07. To
preserve those expectations, sec.
231c(g)(4) requires that a widower’s
annuity be calculated under the law in
effect on December 31, 1974. According to
the Board, sec. 231c(g)(4) does not
violate the Fifth Amendment because it is
gender-neutral on its face (the provision
only requires annuity calculations to be
administered under the law in effect on
December 31, 1974) and is rationally
related to the nondiscriminatory purpose
of preserving the expectations of a
certain class of individuals. Thus, the
Board argues that Holman can expect to
receive a "restored amount" only if he
can demonstrate dependency, which
preserves what his entitlement would have
been in 1974.
The Board cites two cases to bolster its
argument that sec. 231c(g)(4) does not
violate equal protection: Frock v. United
States Railroad Retirement Board, 685
F.2d 1041 (7th Cir. 1981), and Heckler v.
Mathews, 465 U.S. 728 (1984). Frock
outlines briefly post-Goldfarb
developments regarding annuity
eligibility. In response to Goldfarb, the
Board changed its policy and provided all
workers with spousal social security
benefits. Frock, 685 F.2d at 1043. But at
the same time, the Board reduced workers’
railroad annuity benefits by an amount
equal to their spousal social security
benefits, based on sec. 231b(m), which
precludes the payment of dual benefits
(consisting of both employee annuity and
spousal social security benefits). Id.
Section 3(h)(6) precludes the payment of
dual benefits unless the individual’s
eligibility had been determined by August
13, 1981, under sec. 231b(h)(3) and (4).
Id. at 1045. Like sec. 231c(g)(4) in our
case, the Board read sec. 231b(h)(3) and
(4) to mandate the restoration of dual
benefits to female railroad retirees and
male retirees able to prove dependency.
Id. at 1043. The petitioners in Frock
argued that the Board’s action was an
attempt to "grandfather in" an
interpretation of 45 U.S.C. sec.
231b(h)(3) and (4), which violated the
Fifth Amendment. Id. at 1047-48. Section
231b(h)(3) and (4) contained the same
language as sec. 231c(g)(4), allowing
increases in annuity benefits equal to
the amount of social security benefits
accruing to them under the Social
Security Act as in effect on December 31,
1974. Id.
In Frock we rejected the petitioners’
argument and upheld the Board’s
interpretation of the statute. In doing
so, we rejected a "strict standard"
analysis, concluding that sec. 3(h)(6) is
facially neutral and "clearly
explainable" in terms of a
nondiscriminatory purpose. By enacting
the statute, Congress eliminated dual
benefits while ensuring continued
benefits to those who were receiving
them. Id. at 1048-49. "[S]ection 3(h)(6)
cannot rationally be explained as an
effort to discriminate on the basis of
gender. The class of persons excluded
from dual benefits under this section
will be composed of [dependent] men and
women." Id. at 1049.
In Heckler, the Supreme Court
unanimously upheld the constitutionality
of a provision in the Social Security Act
(similar to sec. 231c(g)(4)) that revived
a dependency requirement. In 1977, as
part of a general reform of the Social
Security system, Congress repealed
dependency requirements for widowers and
husbands. Congress concluded, however,
that elimination of the dependency test
would create a serious fiscal problem--
costing the system as much as $190
million in 1979--by increasing the number
of individuals entitled to unreduced
spousal benefits. Id. at 732. In 1977,
before these contemplated changes took
effect, retired civil servants could
receive dual benefits (both spousal and
employee benefits). Id. To avoid this
significant fiscal drain, Congress
included a "pension offset" requiring
that the amount of spousal benefits be
reduced by the amount of employee
pensions (analogous to the Railroad
Retirement Act’s tier one component). Id.
Congress estimated that 90 percent of the
savings resulting from this pension
offset would be achieved by reducing
payments to nondependent husbands and
widowers who had not been entitled to any
benefits before Goldfarb. Id. at 732-33.
But the remaining savings would come from
those individuals who had retired in
reliance on their entitlement under pre-
1977 law to spousal benefits unreduced by
employee benefits. Id. at 733. This group
included women and dependent men. Id. To
protect the reliance interests of this
group, Congress established a 5-year
grace period, from January 1977 to
December 1982, exempting such individuals
from the pension offset requirement. Id.
at 742. Thus, these changes to the Social
Security Act, like sec. 231c(g)(4),
revived the dependency requirements that
were struck down in Goldfarb.
The Supreme Court in Heckler upheld the
gender-based classification. First, the
Court, unlike our court in Frock,
acknowledged that the provision was a
gender-based classification. Id. at 744.
Next, the Court concluded that the offset
exception, though temporarily reviving
the gender-based eligibility requirements
invalidated in Goldfarb, reflected a
legitimate purpose to protect reliance
expectations. Id. "Congress accomplished
its aim by incorporating the eligibility
criteria as they existed in January 1977;
its choice of this approach rather than
an explicit adoption of new gender-based
standards confirms that its purpose was
to protect reliance on prior law, not to
reassert the sexist assumptions rejected
in Goldfarb." Id. at 745-46. The Court
noted that it has recognized in a number
of contexts "the legitimacy of protecting
reasonable reliance on prior law even
when that requires allowing an
unconstitutional statute to remain in
effect for a limited period of time." Id.
at 746. Finally, the Court concluded that
the statute is substantially related to
the achievement of that legitimate
purpose and is narrowly tailored to
protect only those individuals who were
eligible in 1977. Id. at 749.
Resolving our case is not a difficult
task. Under Goldfarb, dependency
requirements violate the Equal Protection
Clause. But Heckler recognized that such
a requirement may be revived if it is
substantially related to a legitimate
purpose and narrowly tailored to achieve
that goal. Under our reasoning in Frock,
sec. 231c(g)(4) is gender-neutral and
rational; it generally incorporates the
law as it existed in Goldfarb, and its
purpose is to protect widowers’
expectations. But Heckler recognized that
a provision similar to sec. 231c(g)(4)
that revived a provision featuring a
gender-based dependency requirement is a
gender-based classification and not
gender-neutral. Moreover, the Heckler
Court, in concluding that such a
provision was narrowly tailored,
emphasized the temporary nature of the
social security provision at issue. In
our case, although the dependency
requirement endures to this day; it is
clearly running out of gas. It is
difficult to imagine that there are many
married couples who, like the two
Hecklers, started working for a railroad
some 45 years ago. Under Heckler,
although sec. 231c(g)(4) is a gender-
based classification, it is one narrowly
tailored to the legitimate purpose of
protecting the reliance interests of
railroad retirees and, thus, not
violative of the Fifth Amendment. It also
is not an "accidental byproduct of a
traditional way of thinking about
females" that reflected "old notions" and
"’archaic and overbroad’ generalizations"
about the roles and relative abilities of
men and women. Goldfarb, 430 U.S. at 211,
217 & 223.
The final issue relates to the Board’s
determination that Holman did not
demonstrate dependency. Holman argues
that the Board misapplied its own
regulations, which "command contemplation
of services rendered by Mary Ann without
restriction or condition." Specifically,
he argues that the Board failed to follow
20 C.F.R. sec. 222.42(a), which guides
the Board’s support determination:
An employee is contributing to the
support of a person if the employee gives
cash, goods, or services to help support
such person. Support includes food,
clothing, housing, routine medical care,
and other ordinary and necessary living
expenses. The value of any goods which
the employee contributes shall be based
upon the replacement cost of those goods
at the time they are contributed. If the
employee provides services that would
otherwise require monetary payment, the
cash value of the employee’s services may
be considered a contribution to support.
20 C.F.R. sec. 222.42(a). In addition, 20
C.F.R. sec. 222.43(a) provides that
contributions may be in cash, goods, or
services. Under Social Security Ruling
60-23 (1960), which interprets the
analogous Social Security Regulation, see
20 C.F.R. sec. 404.366, the value of the
care normally furnished personally by one
individual to another does not
significantly influence the determination
of support. Under S.S.R. 60-23, it is
generally necessary to exclude personal
services in calculating support unless
such services are purchased. In rejecting
Holman’s claim for a "restored amount,"
the Board (1) concurred with the hearings
officer’s rejection of Holman’s claim
that he would pay $48,000 for personal
services which he claims were performed
by his wife because he could provide such
services for himself; and (2) concluded
that his claimed personal services are
not the type of services that should be
considered in making a support
determination.
The Board’s interpretation of the
Railroad Retirement Act and its own
regulations are entitled to deference if
it has a reasonable basis in law. Itel
Corp. v. United States R.R. Retirement
Bd., 710 F.2d 1243, 1245 (7th Cir. 1983).
Holman acknowledges that the Board may
consider 20 C.F.R. sec. 404.366 in making
its determination and that S.S.R. 60-23
interpreted that provision. See, e.g.,
Aspros v. United States R.R. Retirement
Bd., 904 F.2d 384, 387 (7th Cir. 1990).
Thus, the Board properly considered
Holman’s claim for personal services as
"support" by evaluating the
reasonableness of his expenses in light
of that ruling. Moreover, S.S.R. 60-23 is
not inconsistent with sec. 222.42; it
merely provides guidance for how to
determine the value of those services.
Accordingly, the Board’s determination
has a reasonable basis in law.
AFFIRMED.