Tyler Jaxson v. Andrew Saul ( 2020 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 19-3011 & 19-3125
TYLER N. JAXSON,
Plaintiff-Appellee, Cross-Appellant,
v.
ANDREW SAUL, COMMISSIONER OF SOCIAL SECURITY,
Defendant-Appellant, Cross-Appellee.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Western Division.
No. 17 CV 50090 — Lisa A. Jensen, Magistrate Judge.
____________________
ARGUED JUNE 5, 2020 — DECIDED JUNE 26, 2020
____________________
Before EASTERBROOK, HAMILTON, and SCUDDER, Circuit
Judges.
EASTERBROOK, Circuit Judge. David Daugherty, an admin-
istrative law judge hearing disability-benefits applications
for the Social Security Administration, supplemented his
salary by taking bribes. Eric Conn, who represented many
claimants, paid Daugherty $400 per favorable decision; Conn
himself received $5,000 or more per case out of the benefits
2 Nos. 19-3011 & 19-3125
that Daugherty awarded to Conn’s clients. Four physicians,
including Frederic Huffnagle, submided evaluations to sup-
port Daugherty’s decisions. Daugherty told Conn what kind
of evidence he wanted to see. Conn wrote the reports, which
one of the physicians would sign without change even if the
applicant for benefits failed to appear for examination. Huff-
nagle’s “medical suite” was in Conn’s office.
After the scheme came to light, Conn and Daugherty
pleaded guilty to several federal felonies. Bradley Adkins,
one of the physicians, was convicted by a jury. Huffnagle
died before he could be prosecuted. The total cost to the
United States of benefits granted by Daugherty exceeds $500
million, and Conn reaped more than $5 million in legal fees.
Many details of this scam are recounted in U.S. Senate
Commidee on Homeland Security and Governmental
Affairs, Staff Report, How Some Legal, Medical, and Judicial
Professionals Abused Social Security Disability Programs for the
Country’s Most Vulnerable: A Case Study of the Conn Law Firm
(Oct. 7, 2013).
The agency’s Inspector General formally notified it in
2015 of “reason to believe that fraud was involved in th[e]
applications for Social Security benefits” of 1,787 named per-
sons from January 2007 through May 2011. That notice, giv-
en under 42 U.S.C. §1320a–8(l), set in motion a process for
redetermination of the benefits awarded to those persons.
Two statutes, one covering disability payments and the other
covering supplemental-security income, say that redetermi-
nation is mandatory if there is reason to believe that fraud
played a role, and they add that in conducting this redeter-
mination the agency “shall disregard any evidence if there is
reason to believe that fraud or similar fault was involved in
Nos. 19-3011 & 19-3125 3
the providing of such evidence.” We put the full text of these
statutes in an appendix.
Tyler Jaxson is among the people named by the Inspector
General. He applied for both disability and supplemental-
security-income benefits in 2009, and the agency deemed his
evidence insufficient. He failed to appear for any of the three
examinations by specialists retained by the agency. Conn
presented Jaxson’s request for reconsideration, supported by
a report that Huffnagle signed, and asked for a hearing. ALJ
Daugherty awarded benefits less than three weeks later, on
June 1, 2010. He did not hold a hearing and wrote only a
cursory evaluation.
A week after receiving the Inspector General’s report, the
agency sent Jaxson a leder telling him that it would redeter-
mine his eligibility for benefits. The leder said that the agen-
cy “must disregard any evidence from one of the medical
providers above [including Huffnagle] when the information
was submided by representative Eric C. Conn or other rep-
resentatives associated with Mr. Conn’s law office.” The
leder also stated that the agency believes that Jaxson’s claim
lacks support, after disregarding Huffnagle’s report. So the
agency told Jaxson that his claim would be sent to an ALJ
and that he could submit any new evidence that concerned
his medical status on or before June 1, 2010. A hearing was
held on April 4, 2016. Jaxson appeared with counsel, testi-
fied, and submided other evidence, but the ALJ rejected his
claim for benefits. After the Appeals Council denied his re-
quest for review, he filed this suit under 42 U.S.C. §§ 405(g),
1383(c)(3). With the parties’ consent, the case was assigned to
a magistrate judge. 28 U.S.C. §636(c).
4 Nos. 19-3011 & 19-3125
Most suits about Social Security disability benefits con-
test the ALJ’s findings or reasoning. Jaxson’s does not. He
concedes that the ALJ was right, given the evidence he con-
sidered. But he asserts that the ALJ should have considered
Huffnagle’s report too, and that the ALJ declined to do so
only because an internal claims-processing manual and rul-
ing say that an ALJ cannot accept evidence that the Inspector
General found is likely a product of fraud. See Hearings, Ap-
peals, and Litigation Law Manual (HALLEX) §I-1-3-25 (2016);
Social Security Ruling (SSR) 16-1p, 81 Fed. Reg. 13,436 (Mar.
14, 2016). Relying on a divided decision of the Sixth Circuit,
see Hicks v. Commissioner, 909 F.3d 786 (6th Cir. 2018), the
district court held that the summary exclusion of Huff-
nagle’s report violated the Due Process Clause of the Fifth
Amendment. 2019 U.S. Dist. LEXIS 132766 (N.D. Ill. Aug. 7,
2019). The court remanded to the agency for further pro-
ceedings, and the agency appealed. Jaxson filed a cross-
appeal that we discuss at the end of this opinion.
It was inappropriate for the district court to start with a
constitutional issue. Constitutional adjudication is supposed
to be a last resort, after all other grounds have been ex-
plored. See, e.g., New York City Transit Authority v. Beazer, 440
U.S. 568 (1979). If a statute, or a regulation with the force of
law, required the exclusion of this evidence, then a court
would need to determine the law’s validity. Yet no one con-
tends that any law makes the Inspector General’s view con-
clusive. The statutes in the appendix require the agency to
redetermine every case that it finds may have been touched
by fraud. But they do not say that this step also requires the
exclusion of evidence. They say, instead, that evidence is in-
admissible “if there is reason to believe that fraud or similar
Nos. 19-3011 & 19-3125 5
fault was involved in the providing of such evidence.” Who
makes that decision, and how, the statutes leave open.
The leder that Jaxson received told him flatly that the
agency “must disregard any evidence from one of the medi-
cal providers above [including Huffnagle] when the infor-
mation was submided by representative Eric C. Conn or oth-
er representatives associated with Mr. Conn’s law office”
(emphasis added). It did not say why. True, the Manual and
Ruling 16-1p say this, but neither document carries legal
force. They tell people how the agency plans to carry out its
duties, but they do not affect the legal rights of private par-
ties such as Jaxson. That’s why they did not need to be
adopted through rulemaking. See 5 U.S.C. §553(b)(A) (ex-
cluding “interpretative rules, general statements of policy, or
rules of agency organization, procedure, or practice” from
rulemaking requirements). At oral argument, the Commis-
sioner’s lawyer acknowledged that the Manual and Ruling
16-1p lack the force of law.
The statutes do not prescribe procedures for redetermi-
nations. The agency offered Jaxson an opportunity to have a
hearing before an ALJ, and the hearing—though less formal
than judicial trials, see Richardson v. Perales, 402 U.S. 389
(1971); Biestek v. Berryhill, 139 S. Ct. 1148 (2019)—was adver-
sarial. Jaxson was represented by counsel, as was his right.
Even in informal adjudication, certain norms apply. One of
these is that the adversaries get to present their positions to
the administrative law judge or other hearing officer. Adver-
sarial proceedings are, well, adversarial rather than ex parte,
with only one side’s perspective heard. Perales and Biestek
permit some shortcuts compared with hearings in federal
6 Nos. 19-3011 & 19-3125
court, but they do not permit important aspects of the pro-
ceedings to be entirely one-sided.
Some language in the Sixth Circuit’s opinion, and some
in the district court’s, suggests that the only alternative to
unilateral decision by the agency is a full-fledged eviden-
tiary proceeding to determine whether “there is reason to
believe that fraud or similar fault was involved in the
providing of [Huffnagle’s] evidence.” Yet that is not how
federal courts conduct their own decisionmaking about evi-
dence. Under Fed. R. Evid. 104(a), a federal judge rules on
the admissibility of evidence without submiding the subject
to the trier of fact. See also United States v. Martinez de Ortiz,
907 F.2d 629 (7th Cir. 1990) (en banc). Normal practice is for
one side to offer evidence, the other to object, and the judge
to rule—summarily when the outcome is clear, after argu-
ment when the outcome is not. Motions before trial (“in
limine”) may be handled on the papers. One side explains
why it deems a particular thing admissible (or not), and the
other responds in writing. A judge often listens to oral
presentations by counsel, but rare is the motion that requires
the taking of other evidence. Indeed, many lawsuits con-
clude on the merits without evidentiary hearings. Only dis-
putes about material issues of fact make hearings or trials
necessary.
To decide whether “there is reason to believe that fraud
or similar fault was involved in the providing of [Huff-
nagle’s] evidence” an ALJ needs to hear from both sides. The
agency’s lawyer can submit the Inspector General’s report
and the Senate’s compilation of evidence about how Daugh-
erty, Conn, and Huffnagle conducted their dealings. Jaxson’s
lawyer can reply with any available reason to think that
Nos. 19-3011 & 19-3125 7
Huffnagle gave an honest medical opinion. Jaxson needs a
powerful argument, for under the statute any “reason to be-
lieve” that the report is fraudulent requires its exclusion. The
ALJ need not find that fraud is more likely than not. If an
applicant is disabled, it should be possible to provide other
evidence to that effect; excluding one potentially tainted re-
port need not be dispositive, and erring on the side of exclu-
sion, as the statute requires, seems a prudent precaution.
Jaxson may have a hard time persuading an ALJ that
there is not even “reason to believe” that Huffnagle’s report
is fraudulent. But he is entitled to try, and we affirm the dis-
trict court’s decision—though under ordinary norms of ad-
ministrative law rather than a constitutional command. The
agency’s decisional process comes within 42 U.S.C.
§405(b)(1), which requires a “reasonable notice and oppor-
tunity for a hearing”, and the word “hearing” means a pro-
cedure at which both sides can give their views on potential-
ly dispositive maders.
Jaxson’s cross-appeal contends that proceedings on re-
mand must be treated as hearings “on the record” governed
by the Administrative Procedure Act. 5 U.S.C. §554(a). The
district court deemed this argument forfeited because it had
not been adequately developed. That was not an abuse of
discretion. What’s more, for the reasons we have given,
treating a redetermination as one governed by §554 would
not do Jaxson any good. Even the most formal procedures,
those used by federal judges, do not guarantee evidentiary
hearings on disputes about the admissibility of evidence.
The APA provides that “[w]hen an agency decision rests on
official notice of a material fact not appearing in the evidence
in the record, a party is entitled … to an opportunity to show
8 Nos. 19-3011 & 19-3125
the contrary.” 5 U.S.C. §556(e). We’ve concluded that this is
also part of the procedures ordinarily used in informal adju-
dication: each side is entitled to be heard. The APA would
not add to Jaxson’s rights.
AFFIRMED
Appendix
42 U.S.C. §405(u), which covers disability-insurance ben-
efits, provides:
Redetermination of entitlement.
(1)
(A) The Commissioner of Social Security shall immediately
redetermine the entitlement of individuals to monthly in-
surance benefits under this subchapter if there is reason to
believe that fraud or similar fault was involved in the appli-
cation of the individual for such benefits, unless a United
States adorney, or equivalent State prosecutor, with juris-
diction over potential or actual related criminal cases, certi-
fies, in writing, that there is a substantial risk that such ac-
tion by the Commissioner of Social Security with regard to
beneficiaries in a particular investigation would jeopardize
the criminal prosecution of a person involved in a suspect-
ed fraud.
(B) When redetermining the entitlement, or making an ini-
tial determination of entitlement, of an individual under
this subchapter, the Commissioner of Social Security shall
disregard any evidence if there is reason to believe that
fraud or similar fault was involved in the providing of such
evidence.
(2) For purposes of paragraph (1), similar fault is involved with
respect to a determination if—
(A) an incorrect or incomplete statement that is material to
the determination is knowingly made; or
Nos. 19-3011 & 19-3125 9
(B) information that is material to the determination is
knowingly concealed.
(3) If, after redetermining pursuant to this subsection the enti-
tlement of an individual to monthly insurance benefits, the
Commissioner of Social Security determines that there is insuffi-
cient evidence to support such entitlement, the Commissioner of
Social Security may terminate such entitlement and may treat
benefits paid on the basis of such insufficient evidence as over-
payments.
42 U.S.C. §1383(e)(7), which covers supplemental-
security income, provides:
(A)
(i) The Commissioner of Social Security shall immediately
redetermine the eligibility of an individual for benefits un-
der this subchapter if there is reason to believe that fraud or
similar fault was involved in the application of the individ-
ual for such benefits, unless a United States adorney, or
equivalent State prosecutor, with jurisdiction over potential
or actual related criminal cases, certifies, in writing, that
there is a substantial risk that such action by the Commis-
sioner of Social Security with regard to recipients in a par-
ticular investigation would jeopardize the criminal prosecu-
tion of a person involved in a suspected fraud.
(ii) When redetermining the eligibility, or making an initial
determination of eligibility, of an individual for benefits
under this subchapter, the Commissioner of Social Security
shall disregard any evidence if there is reason to believe
that fraud or similar fault was involved in the providing of
such evidence.
(B) For purposes of subparagraph (A), similar fault is involved
with respect to a determination if—
(i) an incorrect or incomplete statement that is material to
the determination is knowingly made; or
(ii) information that is material to the determination is
knowingly concealed.
10 Nos. 19-3011 & 19-3125
(C) If, after redetermining the eligibility of an individual for ben-
efits under this subchapter, the Commissioner of Social Security
determines that there is insufficient evidence to support such el-
igibility, the Commissioner of Social Security may terminate
such eligibility and may treat benefits paid on the basis of such
insufficient evidence as overpayments.