Thigpen v. USA
Filing
30
MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 9/30/2018. Mailed notice. (mgh, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re JAMES THIGPEN,
Debtor.
_____________________________________________
JAMES THIGPEN,
Appellant,
vs.
UNITED STATES OF AMERICA,
Appellee.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Chapter 13
_______________________
17 C 7222
Judge Gary Feinerman
Appeal from: No. 17 B 10161
MEMORANDUM OPINION AND ORDER
James Thigpen appeals the bankruptcy court’s orders granting the Government’s motion
to amend its judgment and denying his motion to enforce the automatic stay. Docs. 1, 1-3, 1-4.
The bankruptcy court’s ruling is vacated and the case is remanded for consideration of the
Government’s motion for relief from the automatic stay.
Background
The pertinent facts are undisputed. In May 2009, Thigpen pleaded guilty to violating 18
U.S.C. § 641 by fraudulently obtaining Supplemental Security Income (“SSI”) benefits, which
are intended to provide income security to qualifying persons with disabilities. Doc. 6-2 at 99108; see United States v. Thigpen, No. 06 CR 779 (Manning, J.). The district court sentenced
him to two years’ probation and ordered him to pay $49,327.17 in restitution to the Social
Security Administration (“SSA”) “in increments of 10% of [his] net, monthly income.” Doc. 6-2
at 117-122. Each month for almost eight years, Thigpen paid SSA approximately ten percent of
1
his monthly Social Security Old-Age, Survivors, and Disability Insurance (“OASDI”) benefits,
his only source of income during that time. Doc. 8 at 7-8; see Doc. 6-2 at 32, 36-37.
In March 2017, SSA began withholding 100 percent of Thigpen’s OASDI benefits. Doc.
6-2 at 183; Doc. 8 at 6; Doc. 10 at 7. Thigpen quickly filed for Chapter 13 bankruptcy. Doc. 6-2
at 7-72. Citing the equitable recoupment doctrine, the Government moved the bankruptcy court
to confirm that the automatic stay, see 11 U.S.C. § 362(c)(3)(A), did not apply to its withholding
of Thigpen’s OASDI benefits or, alternatively, for relief from the automatic stay. Doc. 6-2 at 78122. While the motion was pending, the bankruptcy court confirmed a Chapter 13 plan
providing that Thigpen would pay SSA $100 per month, just over 10% of the total benefit, in
restitution. Id. at 2-4, 141, 172; Doc. 8 at 6.
The bankruptcy court denied the Government’s motion regarding the automatic stay.
Doc. 6-2 at 183; Doc. 6-3 at 1-3. The bankruptcy court reasoned, in pertinent part, that the
district court’s criminal restitution order mandating payment “in increments of 10% of
defendant’s net, monthly income” was res judicata and precluded the bankruptcy court from
authorizing SSA to withhold 100 percent of Thigpen’s benefits. The Government moved to
amend the bankruptcy court’s judgment, Doc. 6-3 at 5-25, and Thigpen cross-moved for an order
compelling SSA to pay the OASDI benefits that SSA was continuing to withhold, id. at 27-29.
The bankruptcy court granted the Government’s motion, denied Thigpen’s motion, and vacated
its prior order. Docs. 1-3, 1-4. Citing In re Wernick, 2016 WL 7212508 (N.D. Ill. 2016), the
bankruptcy court held that SSA’s withholding of Thigpen’s OASDI benefits constituted
recoupment and thus was not subject to the automatic stay, and also that the criminal restitution
order was not res judicata. Ibid. Thigpen timely appealed. Doc. 1.
2
Discussion
Thigpen offers several challenges to the bankruptcy court’s order, but it is necessary to
consider only one—that SSA’s withholding of Thigpen’s OASDI benefits is not recoupment and
thus does not fall outside the scope of the automatic stay. As the Government agreed at the
argument on this appeal, Doc. 13, if the recoupment doctrine does not apply, then SSA’s
withholding of Thigpen’s OASDI benefits is subject to the automatic stay. This court reviews de
novo the bankruptcy court’s decision on the recoupment issue. See In re Terry, 687 F.3d 961,
963 (8th Cir. 2012); In re Holyoke Nursing Home, Inc., 372 F.3d 1, 3 (1st Cir. 2004); Matter of
Kosadnar, 157 F.3d 1011, 1013 (5th Cir. 1998).
Filing a bankruptcy petition “operates as a stay, applicable to all entities, of … any act to
collect, assess, or recover a claim against the debtor that arose before the commencement of the
[bankruptcy] case … .” 11 U.S.C. § 362(a)(6). “[T]he setoff of any debt owing to the debtor
that arose before the commencement of the case under this title against any claim against the
debtor” is also stayed. Id. § 362(a)(7); see Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 20
(1995) (recognizing that 11 U.S.C. § 362 imposes a “restriction upon when an actual setoff may
be effected—which is to say, not during the automatic stay”); In re Univ. Med. Ctr., 973 F.2d
1065, 1079-80 (3d Cir. 1992). Property subject to the recoupment doctrine, by contrast, is
exempt from the automatic stay. See In re Malinowski, 156 F.3d 131, 133 (2d Cir. 1998) (“The
distinction between set-off and recoupment is crucial because set-off claims are subject to the
automatic stay of 11 U.S.C. § 362 … .”); In re McMahon, 129 F.3d 93, 96 (2d Cir. 1997)
(“While a ‘setoff’ is subject to the automatic stay provision of 11 U.S.C. § 362, a recoupment is
not.”); United States v. Consumer Health Servs. of Am., Inc., 108 F.3d 390, 395 (D.C. Cir. 1997)
(noting that the recoupment doctrine “exempts a debt from the automatic stay when the debt is
3
inextricably tied up in the post-petition claim”); Matter of U.S. Abatement Corp., 79 F.3d 393,
398 (5th Cir. 1996); In re Davidovich, 901 F.2d 1533, 1537 (10th Cir. 1990).
The dispositive question here is whether SSA’s withholding of Thigpen’s OASDI
benefits to cover the debt he owes from SSA’s prior overpayment of SSI benefits qualifies as a
recoupment or merely a setoff. The difference between the two doctrines is this: Recoupment
applies only if the debtor’s and the party’s mutual obligations arise out of the “same transaction,”
N. Tr. Co. v. Peters, 69 F.3d 123, 135 (7th Cir. 1995); see also Consumer Health, 108 F.3d at
395 (noting that the recoupment doctrine “exempts a debt from the automatic stay when the debt
is inextricably tied up in the post-petition claim”), while setoff applies if the obligations arise
from different transactions, see Univ. Med. Ctr., 973 F.2d at 1079-80. Whether the mutual
obligations here—Thigpen’s pre-petition obligation to repay his ill-gotten SSI benefits to SSA,
and SSA’s ongoing post-petition obligation to pay Thigpen OASDI benefits—arise out of the
same transaction turns on the governing statutes and regulations. See Consumer Health, 108
F.3d at 395 (in a case concerning the withholding of Medicare payments to the debtor Medicare
provider, noting that “[i]n determining whether the pre-petition and post-petition services should
be thought of as one transaction, the key to us is the Medicare statute”); see also Holyoke
Nursing Home, 372 F.3d at 4; In re TLC Hospitals., 224 F.3d 1008, 1013 (9th Cir. 2000). After
all, as the Seventh Circuit explained in a different context: “Property interests … are created and
their dimensions are defined by existing rules or understandings that stem from an independent
source such as state law-rules or understandings that secure certain benefits and that support
claims of entitlement to those benefits.” Hussey v. Milwaukee Cnty., 740 F.3d 1139, 1142-43
(7th Cir. 2014) (internal quotation marks omitted).
4
The D.C. Circuit’s opinion in Consumer Health, which considered whether the
recoupment doctrine applied to the government’s withholding payment for post-petition
Medicare services to recover pre-petition overpayments to the debtor provider, illustrates how
the analysis should be conducted. 108 F.3d at 394-96. The D.C. Circuit began by noting that the
statute defining the debtor’s entitlement to payment instructed the Secretary of Health and
Human Services to determine how much providers “shall be paid” for services, “with necessary
adjustments on account of previously made overpayments or underpayments.” Id. at 394
(quoting 42 U.S.C. § 1395g(a)). The court held that the Secretary’s withholding payment for
post-petition services was a recoupment, reasoning: “Since [the Medicare statute] requires the
Secretary to take into account pre-petition overpayments in order to calculate a post-petition
claim … Congress rather clearly indicated that it wanted a provider’s stream of services to be
considered one transaction for purposes of any claim the government would have against the
provider.” Id. at 395; see also Holyoke Nursing Home, 372 F.3d at 4 (adopting the D.C.
Circuit’s reasoning and result); TLC Hospitals, 224 F.3d at 1013 (same).
The bankruptcy court relied exclusively on Wernick in holding that the recoupment
doctrine covered SSA’s withholding of Thigpen’s post-petition OASDI benefits to recover the
pre-petition debt he owes SSA for his fraudulent receipt of SSI benefits. Docs 1-3, 1-4. Wernick
considered whether the recoupment doctrine covered SSA’s post-petition withholding of OASDI
benefits to compensate for the debtor’s pre-petition fraudulent receipt of OASDI benefits. 2016
WL 7212508, at *1. The district court observed that the statute authorizing SSA to withhold
such benefits, 42 U.S.C. § 404, helped to define the debtor’s entitlement to those benefits. Id. at
*4. The court also noted that, in cases where the earlier benefits were obtained fraudulently,
§ 404 and its implementing regulations require SSA to withhold ongoing benefits rather than
5
leaving the decision to the agency’s discretion. Id. at *3; see 42 U.S.C. § 404(a)(1)(A) (requiring
SSA to reduce benefits to account for prior overpayments); id. § 404(b) (permitting SSA to relax
the requirement where the overpayment was without fault, but not when the overpayment was
with fault); 20 C.F.R. § 404.502(a)(1) (requiring SSA to reduce benefits to account for
overpayments); id. § 404.502(c)(2) (eliminating the discretion to withhold a lesser amount “if the
overpayment was caused by the individual’s intentional false statement or representation, or
willful concealment of, or deliberate failure to furnish, material information”). Given this
statutory and regulatory backdrop, the court held that SSA’s withholding ongoing OASDI
benefits to account for prior fraudulent OASDI payments was part and parcel of the debtor’s
entitlement to ongoing OASDI benefits, and therefore that the debtor’s debt to SSA for the prior
OASDI overpayments and SSA’s ongoing obligation to pay OASDI benefits were “elements of
one unified transaction subject to recoupment.” Id. at *4.
There is a key distinction between Wernick and this case: In both cases, SSA withheld
OASDI benefits from the debtor, but in Wernick, the debtor owed SSA for prior OASDI
overpayments, while here, Thigpen owes SSA for prior SSI overpayments. That distinction
makes a difference, for § 404 and its implementing regulations—the provisions upon which
Wernick relied—authorize SSA to withhold OASDI payments to compensate only for
overpayments made “under this subchapter,” that is, Title 42, Chapter 7, Subchapter II of the
United States Code, or Title II of the Social Security Act, which concerns OASDI benefits. 42
U.S.C. § 404(a)(1); see also 20 C.F.R. § 404.501 (providing that the term “overpayment” in 20
C.F.R. §§ 404.501-545 describes only overpayments under Title II or specific sections of Title
II); cf. Dotson v. Shalala, 1 F.3d 571, 574 (7th Cir. 1993) (“Title II of the [Social Security] Act
governs the payment of Old-Age, Survivors, and Disability Insurance (‘OASDI’) benefits to
6
disabled persons who have contributed to the Social Security program. 42 U.S.C. § 401 et
seq.”). Here, by contrast, Thigpen received overpayments under the SSI program, which is
governed by Title XVI of the Social Security Act (Title 42, Chapter 7, Subchapter XVI of the
United States Code), not Title II. See 42 U.S.C. § 1381 et seq.; Heckler v. Day, 467 U.S. 104,
106 (1984) (“Disability benefits … are payable under the Supplemental Security Income (SSI)
program established by Title XVI of the Act, 76 Stat. 197, as amended, 42 U.S.C. § 1381.”). It
follows that § 404 and its implementing regulations do not authorize SSA to withhold Thigpen’s
OASDI benefits, and therefore that they do not speak to whether SSA’s withholding is a
recoupment or merely a setoff.
SSA’s authority to withhold Thigpen’s OASDI benefits arises from 42 U.S.C.
§ 1320b-17, entitled “Cross-program recovery of overpayments from benefits.” Section 1320b17(a) states:
[W]henever the Commissioner of Social Security determines that more than
the correct amount of any payment has been made to a person under a
program described in subsection (e) of this section [including SSI benefits, id.
§ 1320b-17(e)(3)], the Commissioner of Social Security may recover the
amount incorrectly paid by decreasing any amount which is payable to such
person under any other program specified in that subsection [including
OASDI, id. § 1320b-17(e)(1)].
Id. § 1320b-17(a) (emphasis added). Section 1320b-17(b)(1) limits the amount that SSA may
withhold under § 1320b-17(a) in cases where the overpayment recipient was not at fault. Id.
§ 1320b-17(b)(1) (“In carrying out subsection (a) of this section, the Commissioner of Social
Security may not decrease the monthly amount payable to an individual under a program
described in subsection (e) of this section [by more than a set amount, which varies depending on
the program].”). Section 1320b-17(b)(2) permits, but does not require, SSA to disregard those
limits in cases where the recipient received the overpayment as a result of fraud. Id.
§ 1320b-17(b)(2)(A) (“[Section 1320b-17(b)(1)] shall not apply if … the person or the spouse of
7
the person was involved in willful misrepresentation or concealment of material information in
connection with the amount incorrectly paid.”). Section 1320b-17’s implementing regulation,
entitled “How much will we withhold from your title II and title VIII benefits to recover a title
XVI overpayment?”, states that SSA will “collect the overpayment by withholding the lesser of
the overpayment balance or the entire amount of title II benefits and title VIII benefits payable to
you,” and warns that SSA “will not collect at a lesser rate.” 20 C.F.R. § 416.573(d).
Section 1320b-17 differs from the overpayment recovery statutes at issue in Consumer
Health and Wernick. One significant difference is that § 1320b-17 allows for cross-program cost
recovery—permitting SSA to withhold OASDI payments to recover prior SSI overpayments—
while the statutes in Consumer Health and Wernick allowed withholding only where the prior
and ongoing payments were made pursuant to the same program. See Consumer Health, 108
F.3d at 394; Wernick, 2016 WL 7212508, at *2. In this respect, the Government’s position in
Consumer Health and Wernick mirrored the quintessential recoupment defense: In contracts
cases, creditors are most successful in asserting a recoupment defense where the creditor’s
obligations to the debtor and the debtor’s obligations to the creditor arise from the same contract.
See, e.g., N. Tr. Co., 69 F.3d at 135 (“[Recoupment] involves the right of the defendant to have
the plaintiff’s monetary claim reduced by virtue of a claim by the defendant against the plaintiff
arising out of the same contract.”); Kosadnar, 157 F.3d at 1015 (“When all claims arise out of
one contract between the parties, application of the recoupment doctrine is appropriate.”);
McMahon, 129 F.3d at 96 (“Often, recoupment seeks to avoid the unjust result that would occur
if a debtor who has been overpaid pre-petition by a party in a contract is permitted post-petition
to make a claim under the contract against that party without regard to the overpayment it has
received.”); U.S. Postal Serv. v. Dewey Freight Sys., Inc., 31 F.3d 620, 623 (8th Cir. 1994)
8
(“Prior recoupment cases have allowed bankruptcy creditors to offset pre-petition overpayments
against a debtor's claim for post-petition work under the same contracts … .”); In re B & L Oil
Co., 782 F.2d 155, 157 (10th Cir. 1986) (“A typical case applying the recoupment doctrine in
bankruptcy permitted a claim for damages for alleged breach of a construction contract to reduce
the balance due under the contract.”) (collecting other typical cases).
The parties’ respective obligations in this case do not arise under the same program or
statute. The distinction between the Social Security statutes here and in Wernick are subtle, as
SSA administers both the SSI and OASDI programs. But the programs are separately funded,
have different eligibility criteria, and serve different populations. See Johnson v. Heckler, 769
F.2d 1202, 1209 (7th Cir. 1985) (“The SSI program grew out of state-administered programs and
is not an offshoot of OASDI … .”), vacated on other grounds sub nom. Bowen v. Johnson, 482
U.S. 922 (1987); Reed v. Heckler, 756 F.2d 779, 781 n.1 (10th Cir. 1985) (“The [OASDI]
program is . . . administered by the SSA, but is totally separate from SSI, and operates pursuant
to different statutory authority and with separate funding.”). Specifically, payroll taxes finance
the OASDI program, see 42 U.S.C. § 401; Dotson v. Shalala, 1 F.3d 571, 574 (7th Cir. 1993)
(“Title II of the [Social Security Act] governs the payment of [OASDI] benefits to disabled
persons who have contributed to the Social Security program.”); Bubble Room, Inc. v. United
States, 159 F.3d 553, 554-55 (Fed. Cir. 1998), while Congress appropriates funds from general
revenue for the SSI program, see 42 U.S.C. § 1381; Splude v. Apfel, 165 F.3d 85, 87 (1st Cir.
1999) (“[SSI] is a social welfare program funded out of general taxpayer revenues.”). To qualify
for OASDI benefits, a claimant must pay Social Security taxes for a certain number of quarters
and be either disabled or at least 62 years old, see 42 U.S.C. §§ 402, 416(i); Clark v. Astrue, 602
F.3d 140, 142 (2d Cir. 2010), while SSI benefits are available to indigent persons who have a
9
disability or are age 65 or older regardless of whether they have paid Social Security taxes, see
42 U.S.C. §§ 1382, 1382c(a)(1)(A); Dotson, 1 F.3d at 574; Strickland v. Harris, 615 F.2d 1103,
1105 (5th Cir. 1980) (“Essentially, the Title XVI [SSI] provisions of the Social Security Act …
were designed to provide benefits for persons not covered under the Title II social security
benefits.”). The circumstances here, then, are more analogous to cases where the parties’
obligations arise out of different contracts, circumstances that typically do not give rise to a
recoupment defense. See Folger Adam Sec., Inc. v. DeMatteis/MacGregor JV, 209 F.3d 252,
263 (3d Cir. 2000) (“To the extent the amount being claimed by [the plaintiff] and the amount of
reduction sought by [the defendant] arise from the same contract, [the defendant’s] defense will
be one of recoupment. However, to the extent the amount being claimed by [the plaintiff] and
the amount of reduction sought by [the defendant] arise from different contracts, [the
defendant’s] defense will be one of setoff.”); In re Anes, 195 F.3d 177, 182-83 (3d Cir. 1999)
(holding that a creditor could not raise a recoupment defense where “[the plaintiff’s] debt arises
from the loan she obtained from the Retirement System, whereas the [creditor’s] obligation to
pay her salary arises from her contract of employment and performance of her job”); In re
Davidovich, 901 F.2d 1533, 1538 (10th Cir. 1990) (holding that a creditor could not recoup debts
arising out of a separate contract from the contract giving rise to the creditor’s obligations to the
debtor, and noting that “courts have generally only found this ‘same transaction’ requirement to
be satisfied when the debts to be offset arise out of a single, integrated contract or similar
transaction”).
Another significant difference concerns how the relevant statutes define and measure the
recipient’s entitlement to payment. The statutes in Consumer Health and Wernick measure such
payment with explicit reference to the agency’s ability to seek recovery for past overpayments.
10
See 42 U.S.C.A. § 1395g(a) (“[T]he provider of services shall be paid … the amounts so
determined, with necessary adjustments on account of previously made overpayments or
underpayments … .”); 42 U.S.C. § 404(a) (providing for adjustment of OASDI benefits to
account for prior overpayment as part of a series of consecutive provisions that, together,
describe the process for calculating benefits, id. §§ 402-405). Consumer Health and Wernick
cite that very feature in holding that the debtor’s pre-petition debt and the agency’s post-petition
payment obligation arose from the same transaction. See Consumer Health, 108 F.3d at 395
(“Since [the Medicare statute] requires the Secretary to take into account pre-petition
overpayments in order to calculate a post-petition claim … Congress rather clearly indicated that
it wanted a provider's stream of services to be considered one transaction … .”); Wernick, 2016
WL 7212508, at *4 (“[T]he adjustment of social security benefits to recover prior overpayments
constitutes an integral part of the statutory process for calculating the social security benefits
owed to an individual.”). Here, by contrast, the statutes that entitle Thigpen to OASDI benefits,
see 42 U.S.C. §§ 402-405, do not allow SSA to withhold Thigpen’s OASDI benefits to recover
the past SSI overpayments; a different statute does that, see id. § 1320b-17.
Yet another significant difference concerns the relevant agency’s discretion, or lack
thereof, to withhold current benefits to recover past overpayments. The withholding provisions
in Consumer Health and Wernick were mandatory, a feature that both courts cited in holding that
the recipient’s pre-petition debt to the agency was part of the same transaction as the agency’s
post-petition obligation to the recipient. See Consumer Health, 108 F.3d at 395 (“Since [the
Medicare statute] requires the Secretary to take into account pre-petition overpayments in order
to calculate a post-petition claim … Congress rather clearly indicated that it wanted a provider’s
stream of services to be considered one transaction … .”) (emphasis added); Wernick, 2016 WL
11
7212508, at *3 (“[T]he statute expressly provides for the withholding of benefits to recoup prior
overpayments … [and while] [t]he statute … provides [SSA] with discretion to suspend the
recovery of overpayments that did not result from fault … [t]he statue contains no similar
exception for overpayments resulting from fault.”). The Government itself stressed the
importance of this feature in this case. Doc. 10 at 8 (arguing that § 404 “conditions the right to
benefits on the beneficiary’s repayment of all fraud overpayments … [thereby] link[ing] the
benefits and overpayment closely enough to count as recoupment”) (first emphasis added); ibid.
(“[S]tatutorily mandated benefits withholding is recoupment … .”) (emphases added); id. at 10
(“Where a statutory scheme mandates benefits withholding to recover overpayments, that is
recoupment according to a plurality of federal circuit courts.”) (emphases added); id. at 11
(“SSA’s benefits withholding is recoupment for the same reason the First, Ninth, and D.C.
Circuits concluded Medicare overpayment recovery is recoupment[:] a statutory mandate
requires it.”) (emphases added); id. at 12 (“Recoupment to recover fraud overpayments is more
than consistent with the Act, which mandates 100% withholding in fraud cases”). Section
1320b-17, by contrast, allows but does not require SSA to withhold current benefits under one
Social Security program to recover past overpayments under another Social Security program,
even where, as here, the overpayment arose from the recipient’s fraud. See 42 U.S.C.
§ 1320b-17(a) (“[W]henever the Commissioner of Social Security determines that more than the
correct amount of any payment has been made to a person under a program described in
subsection (e) of this section, the Commissioner of Social Security may recover the amount
incorrectly paid by decreasing any amount which is payable to such person under any other
program specified in that subsection.”) (emphasis added); id. § 1320b-17(b)(2)(A) (providing
12
that the § 1320b-17(b)(1) limits on how much SSA may collect do not govern fraud cases, but
not requiring SSA to collect the maximum amount).
In sum, the circumstances that led Consumer Health and Wernick to hold that the
agency’s ongoing obligation to pay benefits and the debtor’s obligations to repay past
overpayments were part of a single transaction, and thus that the recoupment doctrine applied,
are not present here. An examination of the governing statutes reveals that the nexus between
SSA’s ongoing obligation to pay OASDI benefits to Thigpen, on the one hand, and Thigpen’s
obligation to repay the SSI overpayments to SSA, on the other hand, is too loose to satisfy the
same transaction test. See McMahon, 129 F.3d at 97 (“In light of the Bankruptcy Code’s strong
policy favoring equal treatment of creditors and bankruptcy court supervision over even secured
creditors, the recoupment doctrine is a limited one and should be narrowly construed.”); In re
Peterson Distrib., Inc., 82 F.3d 956, 959 (10th Cir. 1996) (“Recoupment is narrowly construed in
bankruptcy cases because it violates the basic bankruptcy principle of equal distribution to
creditors.”); Univ. Med. Ctr., 973 F.2d at 1081 (“[A] non-statutory, equitable exception to the
automatic stay [like recoupment], should be narrowly construed.”). It follows that SSA’s
withholding of Thigpen’s OASDI benefits to recover its prior SSI overpayments is a setoff, not a
recoupment, and therefore that SSA’s withholding is not exempt from the automatic stay.
In pressing the opposite result, the Government argues that § 1320b-17’s implementing
regulation—which provides that SSA “will collect” the maximum benefits allowed under
§ 1320b-17(a), 20 C.F.R. § 416.573(d)—establishes the requisite connection between SSA’s and
Thigpen’s respective obligations. Doc. 10 at 11. As SSA explained, the regulation “reflect[s]
[SSA’s] … authority” to collect overpayments and adopts a policy of collecting to the full extent
of the law. Expanded Authority for Cross-Program Recovery of Benefit Overpayments, 70 Fed.
13
Reg. 16111-01, 16111 to 12 (Mar. 30, 2005). Contrary to the Government’s submission in this
case, SSA’s policy to fully utilize its statutory authority to collect prior overpayments does not
speak, one way or the other, to whether its ongoing payment obligation to Thigpen under the
OASDI program is part of the same transaction as Thigpen’s obligation to repay the prior SSI
overpayments. And even if the regulation provided some slight support for the Government’s
position, it would not weigh heavily enough to tip the scales in favor of recoupment given the
many features, described above, that point strongly in the opposite direction.
The result reached here holds under either of the two tests that have emerged to
implement the “same transaction” test in the bankruptcy context. The Second, Third, Eighth, and
Tenth Circuits hold that the agency’s and debtor’s mutual obligations satisfy the “same
transaction” test only if they arise from a “single integrated transaction.” Terry, 687 F.3d at 963;
see also In re Beaumont, 586 F.3d 776, 781 (10th Cir. 2009); Malinowski, 156 F.3d at 133; Univ.
Med. Ctr., 973 F.2d at 1082. For the reasons given above, it cannot be said that Thigpen’s and
SSA’s mutual obligations arise from a single integrated transaction.
The Ninth Circuit implements the “same transaction” test by asking whether the agency’s
and the debtor’s obligations have a “logical relationship” to one another. See TLC Hospitals.,
224 F.3d at 1012. The Ninth Circuit has warned that the “logical relationship” analysis “is not to
be applied so loosely that multiple occurrences in any continuous commercial relationship would
constitute one transaction.” Ibid. Consistent with this admonition, lower courts applying the
analysis examine whether the creditor’s claim “arises from the same aggregate set of operative
facts as” the debtor’s claim. In re Madigan, 270 B.R. 749, 755 (B.A.P. 9th Cir. 2001). Here,
SSA’s pre-petition claim against Thigpen and Thigpen’s post-petition claim against SSA, while
arising from a continuous relationship between the parties, involve materially different operative
14
facts: Thigpen owes SSA for overpaid benefits because he falsely claimed to have met the
eligibility criteria for the SSI program, while SSA owes Thigpen retirement benefits because he
paid taxes into a separate program throughout his working life and now meets the eligibility
criteria for that program. Accordingly, even under the Ninth Circuit’s more forgiving approach
to the “same transaction” test, Thigpen’s and SSA’s mutual obligations do not arise from the
same aggregate set of operative facts. See id. at 759 (holding that there was no “logical
relationship” between claims on an insurance policy for two separate periods of disability, where
the claims were “administered separately” and were “memorialized in separate contractual
agreements”); cf. In re Azevedo, 497 B.R. 590, 600 (Bankr. D. Idaho 2013) (holding that the
logical relationship test was satisfied where the case involved “but a single agreement that
contemplated several future milk deliveries, and several deductions from milk payments”).
All this does not leave SSA without a remedy. Thigpen concedes that his debt to SSA is
nondischargable, Doc. 8 at 9, and he has agreed as part of his confirmed plan to pay SSA $100
per month in restitution while the automatic stay remains in place, Doc. 6-2 at 4, 141, 172.
Moreover, the bankruptcy court ultimately did not rule on the Government’s motion for relief
from the automatic stay. Doc. 1-4. The Government thus argues, and Thigpen does not dispute,
that if the bankruptcy court’s recoupment holding is vacated, a remand is appropriate to allow
that court to consider the motion for relief from the automatic stay. Doc. 10 at 20.
Conclusion
For the foregoing reasons, SSA may not withhold Thigpen’s OASDI benefits under the
equitable recoupment doctrine while the automatic stay is in place. The bankruptcy court’s
orders granting the Government’s motion to amend and denying Thigpen’s motion to enforce
15
accordingly are vacated, and the case is remanded to the bankruptcy court for consideration of
the Government’s motion for relief from the automatic stay.
September 30, 2018
/s/ Gary Feinerman
United States District Judge
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?