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ENMRSH, Inc. v. Berryhill

United States District Court, D. New Mexico

April 28, 2017

ENMRSH, INC., Plaintiff,
NANCY A. BERRYHILL, Acting Commissioner of the Social Security Administration, Defendant.



         This matter comes before the Court on Plaintiff's Motion to Reverse or Remand the Agency Decision. Doc. 17. I have reviewed the parties' briefing on the motion (docs. 18, 27, 32) and considered oral argument from the parties at a motion hearing held on March 14, 2017. Doc. 35. For the reasons explained below, I recommend finding that the ALJ and Appeals Council erred by finding that Plaintiff was not without fault for the overpayment of benefits to the beneficiary Sharlene K. Iddings between February 1999 and March 2003. I further recommend finding that it would be against equity and good conscience to hold Plaintiff liable for repayment due to the undisputed fact that Plaintiff did not misuse the funds. Therefore, I recommend that the Court grant Plaintiff's Motion and reverse the decision of the Commissioner without remanding this action for further proceedings.

         I. Background

         Plaintiff is a non-profit organization offering comprehensive services to people with intellectual disabilities, and such services often include managing their clients' Social Security disability benefits. AR at 39. In February 1999, Plaintiff was appointed by the Social Security Administration (SSA) to serve as representative payee for the intellectually disabled beneficiary Sharlene K. Iddings. AR at 15.

         Ms. Iddings had been receiving disability benefits since April 1990. AR at 15, 271. In June 1997, Ms. Iddings began working at Wal-Mart under a “sheltered workshop, ” such that her earnings at that position were not considered substantial gainful activity (SGA) which would disqualify her from benefits under the SSA regulations. AR at 272-73, 294-95; see also 20 C.F.R. § 404.1573(c) (explaining that work done under special conditions, such as in a sheltered workshop environment, may not be considered SGA). By November 1998, Ms. Iddings's work at Wal-Mart was no longer in a sheltered workshop context, and she was earning above the permissible SGA levels. AR at 264, 272-75. The SSA allows a grace period during which a beneficiary may perform substantial gainful activity yet remain entitled to receive benefits for the month she began earning above SGA levels plus the following two months. AR at 260, 278. Consequently, Ms. Iddings was no longer entitled to receive benefits as of February 1, 1999. The SSA appointed Plaintiff as Ms. Iddings's representative payee on or after this date. AR at 15, 34.[1]

         Plaintiff served as Ms. Iddings's representative payee until March 2003, when Ms. Iddings's friend Bonnie Light became her representative payee. AR at 15. During the time it served as representative payee, Plaintiff reported all of Ms. Iddings's wages to Defendant as required by the SSA regulations. AR at 295. Nonetheless, Ms. Iddings continued to erroneously receive benefits payments until May 2005, when Defendant discovered its error and sought to recover the overpayments that occurred between February 1999 and May 2005, totaling $61, 263.30. AR at 256-59. On May 18, 2005, Defendant notified Ms. Iddings and Ms. Light of the overpayments and its intent to seek reimbursement, but did not notify Plaintiff. Doc. 18 at 5; AR at 260-65. Ms. Iddings requested a waiver of the overpayment recovery, which was denied on the basis that she could afford to repay the agency despite a finding that she was without fault for the overpayment due to reporting her wages. AR at 252-53.

         Facing financial difficulties, Ms. Iddings again requested a waiver of overpayment recovery in 2009, which was the catalyst of the events underlying the present action. AR at 235-42. When her second waiver request was denied, Ms. Iddings requested a hearing before an Administrative Law Judge (ALJ), which took place on July 20, 2012. AR at 226-29, 369-419. Plaintiff received no notice of the July 2012 hearing. During that hearing, the ALJ determined that because Plaintiff served as representative payee during a portion of the time period when Ms. Iddings was overpaid, a supplemental hearing was necessary to determine Plaintiff's liability for the overpayment. AR at 407-08, 410. Plaintiff received notice of the supplemental hearing and its potential liability on June 12, 2013, which was the first notice Plaintiff received of the overpayment at issue. AR at 125. The supplemental hearing took place on July 23, 2013. AR at 287-368. Barbara Marion, Plaintiff's Vice President, and Janelle Moore, Plaintiff's accounting manager, appeared to testify. AR at 289, 290. Ms. Marion and Ms. Moore had both been employed by Plaintiff during the relevant time period, and they testified regarding the organization's general practices when serving as a representative payee for a client receiving disability benefits as well as their knowledge of the relevant regulations governing such benefits. AR at 293-302. No counsel appeared to represent Plaintiff.

         The ALJ issued her decision on December 5, 2013, finding that both Ms. Light and Plaintiff were liable for the overpayments that occurred during the respective time periods in which they served as Ms. Iddings's representative payees. AR at 15-23. Since Plaintiff was held liable for the overpayments that occurred between February 1999 and March 2003, the ALJ held that Plaintiff owed $38, 098.30 to the agency. AR at 23.

         Plaintiff appealed the ALJ's decision to the Appeals Council, which issued its decision on September 25, 2015. AR at 6-9. The Appeals Council upheld the ALJ's finding that Plaintiff was not without fault for the overpayments that occurred between February 1999 and March 2003 and was thus liable to repay those funds to the agency. AR at 8. However, by the time of the ALJ's December 2013 decision, Ms. Iddings had already repaid a total of $10, 143.57 to the agency, bringing the current balance owed to $51, 119.73. AR at 23, 15. Initially, the ALJ deducted that amount solely from the portion owed by Ms. Light and did not credit any of the repaid funds to Plaintiff. AR at 23. The Appeals Council overturned that aspect of the ALJ's decision and credited the $10, 143.57 already repaid in a proportional fashion to the amounts owed by Plaintiff and Ms. Light, resulting in a final determination that Plaintiff owed $31, 790.24.[2] AR at 8-9. Plaintiff filed suit in this court on November 24, 2015, seeking judicial review of the Appeals Council's decision. Doc. 1.

         II. Standard of Review

         Pursuant to 42 U.S.C. § 405(g), a court may review a final decision of the Commissioner only to determine whether it (1) is supported by “substantial evidence” and (2) is grounded in an evaluation of the evidence that comports with the proper legal standards. Casias v. Sec'y of Health & Human Servs., 933 F.2d 799, 800-01 (10th Cir. 1991). “In reviewing the ALJ's decision, we neither reweigh the evidence nor substitute our judgment for that of the agency.” Bowman v. Astrue, 511 F.3d 1270, 1272 (10th Cir. 2008) (citation and internal quotations omitted).

         Substantial evidence is “more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Casias, 933 F.3d at 800. “The record must demonstrate that the ALJ considered all of the evidence, but an ALJ is not required to discuss every piece of evidence.” Clifton v. Chater, 79 F.3d 1007, 1009-10 (10th Cir. 1996). “[I]n addition to discussing the evidence supporting his decision, the ALJ also must discuss the uncontroverted evidence he chooses not to rely upon, as well as significantly probative evidence he rejects.” Id. at 1010. “The possibility of drawing two inconsistent conclusions from the evidence does not prevent [the] findings from being supported by substantial evidence.” Lax v. Astrue, 489 F.3d 1080, 1084 (10th Cir. 2007) (citation omitted).

         A reviewing court is generally bound by the Commissioner's findings of fact if they are supported by substantial evidence. Byron v. Heckler, 742 F.2d 1232, 1234 (10th Cir. 1984). Where the Commissioner has either failed to apply the correct legal standard or to provide the court with a sufficient basis for determining that the law was correctly applied, however, the court is not so limited in its scope of review, and such failure constitutes grounds for reversal. Id. at 1235; see also Casias, 933 F.2d at 801.

         Generally, other avenues of judicial review of final decisions of the Commissioner are foreclosed by the text of the Social Security Act itself. See 42 U.S.C. § 405(h). Where constitutional questions are raised, however, “the availability of judicial review is presumed” despite the directive of 42 U.S.C. § 405(h) that the final decision of the Commissioner may only be reviewed as provided by the Social Security Act. Califano v. Sanders, 430 U.S. 99, 108-09 (1977).

         III. Parties' Positions

         Plaintiff asserts that: (1) Plaintiff's due process rights were violated by the irregular procedures followed by Defendant in seeking overpayment recovery from Plaintiff; (2) Defendant did not apply correct legal principles in determining that Plaintiff was liable for the overpayment; and (3) Defendant's finding that Plaintiff was liable was not supported by substantial evidence. See generally doc. 18. Plaintiff argues that these considerations warrant reversal or remand of the Commissioner's decision. Id. at 21. Defendant asserts that: (1) Plaintiff's ability to be heard at the supplemental hearing before the ALJ and to subsequently appeal the adverse decision to the Appeals Council afforded Plaintiff sufficient due process; (2) the ALJ and Appeals Council correctly applied the relevant legal principles in determining Plaintiff's liability; and (3) the Appeals Council's decision was supported by substantial evidence. See generally doc. 27.

         Ultimately, I recommend finding that the Appeals Council's decision must be reversed because (1) the determination of Plaintiff's liability was founded on an incorrect application of the SSA regulations governing fault for overpayments and (2) Plaintiff should not be held liable as a matter of law. Thus, I do not address the constitutional issue. See Califano v. Yamaski, 442 U.S. 682, 692 (1979) (Where, as here, a plaintiff brings both constitutional and statutory challenges to the Commissioner's finding of liability, the Court “usually should pass on the statutory claim before considering the constitutional question.”).

         IV. Legal Standard

         A. Representative Payee Responsibilities

         When an adult beneficiary is legally incompetent or either mentally or physically incapable of managing her own benefit payments, the SSA appoints a representative payee to receive benefits on her behalf. 20 C.F.R. § 404.2010(a). A representative payee has six responsibilities under the regulations, including to:

(a) Use the benefits received on [the beneficiary's] behalf only for [the beneficiary's] use and benefit in a manner and for the purposes he or she determines . . . to be in [the beneficiary's] best interests;
(b) Keep any benefits received on [the beneficiary's] behalf separate from his or her own funds and show [the beneficiary's] ownership of these benefits . . .;
(c) Treat any interest earned on the benefits as [the beneficiary's] property;
(d) Notify [the SSA] of any event or change in [the beneficiary's] circumstances that will affect the amount of benefits [the beneficiary] receive[s], [the beneficiary's] right to receive benefits, or how [the beneficiary] receive[s] them;
(e) Submit to [the SSA], upon [the SSA's] request, a written report accounting for the benefits received on [the beneficiary's] behalf, and make all supporting records available for review if requested by [the SSA]; and
(f) Notify [the SSA] of any change in his or her circumstances that would affect performance of his/her ...

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