ENMRSH, Inc. v. Social Security Administration et al
Filing
36
PROPOSED FINDINGS AND RECOMMENDED DISPOSITION by Magistrate Judge Gregory B. Wormuth recommending the Court grant 17 Plaintiff's Motion to Reverse or Remand the Agency Decision and recommending reversal of the Commissioner's decision wit hout remand. Objections to PFRD due by 5/12/2017. Add 3 days to the deadline if service is by mailing it to the person's last known address (or means described in Fed. R. Civ. P. 5(b)(2)(D) and (F)); if service is by electronic means, no additional days are added. (Fed. R. Civ. P. 6(d); Fed. R. Crim. P. 45(c).) (km)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
ENMRSH, INC.,
Plaintiff,
v.
Civ. No. 15‐1077 JCH/GBW
NANCY A. BERRYHILL, Acting
Commissioner of the Social Security
Administration,
Defendant.
PROPOSED FINDINGS AND RECOMMENDED DISPOSITION
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
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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
There is no evidence in the Administrative Record documenting the precise date of Plaintiff’s
appointment as representative payee for Ms. Iddings. However, Defendant does not dispute that the
appointment occurred in February 1999. Doc. 27 at 1‐2.
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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
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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
The Appeals Council did not provide this specific figure, but Plaintiff was determined to be liable for
$38,098.30, or 62.18%, of the total overpayment amount of $61,263.30. AR at 8. According to the
instructions of the Appeals Council, the amount owed by Plaintiff should be reduced by 62.18% of
$10,143.57, resulting in a reduction of $6,308.06 from $38,098.30 and a final amount of $31,790.24. See AR
at 9.
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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. §
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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)
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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 payee responsibilities.
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20 C.F.R. § 404.2035.
B. Liability for Overpayments
When a representative payee receives an overpayment of benefits on behalf of a
beneficiary, both the beneficiary and payee may be held jointly and individually liable
for the overpayment. SSR 64‐7, 1964 WL 3608, at *2 (1964). Under the SSA regulations,
when the SSA determines that an overpayment has occurred and decides to seek
recovery of the overpayment, the individual from whom the SSA seeks the recovery is
immediately notified. 20 C.F.R. § 404.502a. Such notice should contain—among other
information—the overpayment amount; how and when it occurred; explanations
regarding the individual’s right to request reconsideration of the overpayment
determination and right to seek waiver of overpayment recovery; how to seek waiver;
and the procedures that such waiver request entails, including automatic file review
and access to a pre‐recovery hearing after the file review. Id.
Under the Social Security Act, “in any case in which more than the correct
amount of payment has been made, there shall be no adjustment of payments to, or
recovery by the United States from, any person who is without fault if such adjustment
or recovery would defeat the purpose of this title or would be against equity and good
conscience.” 42 U.S.C. § 404(b)(1); see also 20 C.F.R. § 404.506. Thus, determining
liability for overpayment requires a two‐pronged analysis of (1) whether the person
from whom recovery is sought is without fault for overpayment; and (2) whether
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recovery would defeat the purpose of the Social Security Act or be against equity and
good conscience.
i. Fault
In considering whether a person was without fault for the overpayment, the SSA
will consider “all pertinent circumstances . . . .” 20 C.F.R. § 404.507. The SSA will find
that the person from whom recovery is sought was not without fault if “the facts show
that the incorrect payment . . . resulted from” one of three causes:
(a) An incorrect statement made by the individual which he knew or
should have known to be incorrect; or
(b) Failure to furnish information which he knew or should have known
to be material; or
(c) With respect to the overpaid individual only, acceptance of a payment
which he either knew or could have been expected to know was incorrect.
Id. § 404.507(a)‐(c). When the SSA also bears fault for making the overpayment, that fact
will not relieve from liability any individual who is found to be not without fault under
this regulation. Id. § 404.507. According to the SSA guidance regarding fault, “[a]ny
individual who demonstrates either a lack of good faith or failure to exercise a high
degree of care in reporting circumstances which may affect entitlement to or the amount
of benefits will be found at fault for the overpayment.” POMS GN 02250.005.
However, the degree of care that is expected by the agency “varies with the complexity
of the circumstances giving rise to the overpayment and the capacity of the individual
to realize that he/she is overpaid.” Id.
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ii. Defeating the Purpose of the Act or “Against Equity and Good Conscience”
In the context of recovery of overpayments from a representative payee, the SSA
has explained that this second waiver prong is met where the representative payee
“used the amounts received for the benefit of the beneficiary[.]” SSR 64‐7, 1964 WL
3608, at *2. District courts applying this prong have held that it would be against equity
and good conscience to recover overpayments from a representative payee who did not
“personally benefit[]” from acting as payee, “absent clear evidence that [the payee] was
at fault[.]” Harzewski v. Chater, 977 F. Supp. 217, 225‐26 (W.D.N.Y. 1997); see also
Greenberg v. Comm’r of Soc. Sec., No. 3:95CV593 (AWT), 1998 WL 229849, at *6 (D. Conn.
Mar. 30, 1998) (citing Harzewski for the proposition that “recovery would be against the
broader definition of equity and good conscience [where] the record contained no
evidence that the representative payee had ever misused the funds or derived any
personal benefit from them.”).
V.
RATIONALE OF ALJ AND APPEALS COUNCIL
In explaining her decision that Plaintiff was not entitled to waiver, the ALJ first
explained that Plaintiff is an organization “that is in the business of handling money for
its clients,” and noted that it was presently acting as a representative payee for more
than one hundred people. AR at 21. The ALJ next cited testimony from Plaintiff’s
representatives at the supplemental hearing that they were unaware of the SGA
earnings limits, that they were unaware that the disability benefit statements from the
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SSA contained “an explanation about what to do if a claimant was working” on the
reverse side, and that they assumed that reporting Ms. Iddings’s wages fulfilled
Plaintiff’s responsibilities as representative payee. Id. The ALJ further cited testimony
that the representatives were unaware of whether any of Plaintiff’s employees had
questioned the SSA about the payments. Id.
In ultimately concluding that Plaintiff “was not diligent in following up with [the
SSA] about the claimant’s work at Wal‐Mart[,]” the ALJ wrote that the statements from
the SSA “clearly indicate where to get information if a claimant returns to work” and
explained that because Plaintiff is “in the business of managing [SSA] payments,” it
“should have known about the claimant’s earning restrictions while collecting disability
benefits.” Id. Finally, the ALJ found that recovery of the overpayment from Plaintiff
would not defeat the purpose of the Act because Plaintiff “needs to be held responsible
for its actions,” and noted that a former CEO of the organization earned more than
$900,000 compensation per year. AR at 22‐23. The ALJ credited only Ms. Light with the
repayments that had already been made by Ms. Iddings on the basis that Plaintiff’s fault
was greater than Ms. Light’s fault “because [Ms. Light] is not a professional money‐
managing corporation.” AR at 23.
On appeal, the Appeals Council reiterated the ALJ’s finding that Plaintiff is the
representative payee for more than one hundred people, and stated that the ALJ
therefore did not find the testimony of Plaintiff’s representatives that they were
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unaware of SGA earnings limits to be credible. AR at 8. In adopting the ALJ’s finding
that Plaintiff was not without fault for the overpayment, the Appeals Council simply
stated that this finding “meet[s] the substantial evidence standard of review.” Id. The
Appeals Council explicitly declined to adopt the ALJ’s findings that Plaintiff should be
held “responsible for its actions” as well as her reference to the alleged compensation of
Plaintiff’s former CEO. Id. The Appeals Council also overturned the ALJ’s decision to
credit only Ms. Light’s overpayment liability by the amount already repaid by Ms.
Iddings. Id. at 8‐9.
VI.
ANALYSIS
A. Overview Regarding Fault
As noted above, the first question is whether the person from whom recovery is
sought is “at fault” for the overpayment. Defendant concedes that for Plaintiff to be “at
fault,” the cause of the overpayment must fall into one of the three categories set out in
20 C.F.R. § 404.507. See doc. 35 at 5‐6. Defendant contends that fault can be established
here under subsection (c).3 See id. Subsection (c) applies where “the facts show that the
At oral argument, Defendant’s counsel also contended that Plaintiff could be found at fault under
subsection (b). See doc. 35 at 5‐6. However, this was not the basis for fault offered by the Commissioner,
and this argument was never raised in the briefing. See AR at 6‐10, 15‐23; docs. 18, 27, 32. The Court may
not accept post‐hoc justifications of the Commissioner’s decision. Allen v. Barnhart, 357 F.3d 1140, 1145
(10th Cir. 2004) (citing SEC v. Chenery Corp., 318 U.S. 80 (1943)). Moreover, counsel pointed to no material
information Plaintiff failed to furnish, as required to support a finding of fault under subsection (b). See
doc. 35 at 5‐6. The argument is therefore waived. See, e.g., Wall v. Astrue, 561 F.3d 1048, 1066 (10th Cir.
2009) (insufficiently developed arguments are waived); Franklin Sav. Corp. v. United States, 180 F.3d 1124,
1128 n.6 (10th Cir. 1999) (superficially developed arguments are waived); see also Rosenbaum v. Colvin, No.
2:12‐CV‐01035‐DBP, 2013 WL 4881664, at *3 (D. Utah Sept. 12, 2013) (issues not raised in an opening brief
are generally considered to be waived) (citing Anderson v. U.S. Dep’t of Labor, 422 F.3d 1155, 1174‐75 (10th
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incorrect payment . . . resulted from acceptance of a payment which he knew or could
have been expected to know was incorrect.” 20 C.F.R. § 404.507(c) (emphasis added).4
I conclude that the record is devoid of any evidence that Plaintiff knew that the
benefits paid to Ms. Iddings were incorrect. Indeed, this appears to be undisputed as
the ALJ relies exclusively on the argument that Plaintiff should have known Ms.
Iddings was not eligible for benefits rather than arguing that it did know, and the
Appeals Council adopted her finding in that regard without citing to any additional
evidence. AR at 21, 8. Defendant’s arguments before this Court also do not contend
that Defendant had actual knowledge of the ineligibility. See generally docs. 27, 35.
Therefore, Plaintiff’s “fault” under the regulation hinges on whether it “could
have been expected to know” that the payments to Ms. Iddings were incorrect. 20
C.F.R. § 404.507(c). In other words, did Plaintiff have constructive knowledge of the
incorrectness of the payments?
To uphold the Commissioner’s decision to find Plaintiff at fault, her evaluation must be
grounded in an evaluation of the evidence comporting with the proper legal standards
Cir. 2005)); Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256, 1268‐69 (10th Cir. 2016)
(explaining that the purpose of the waiver rule as applied to opening briefs is to ensure that the opposing
party has proper notice and an opportunity to respond).
4 The application of subsection (c) is explicitly limited to “the overpaid individual only.” 20 C.F.R. §
404.507(c). Plaintiff argues that a representative payee such as itself is not “the overpaid individual,” and
thus subsection (c) cannot serve as a basis for its liability. See Morency v. Bowen, 677 F. Supp. 260, 263
(D.N.J. 1988). Defendant, however, points out that a representative payee stands in the shoes of the
beneficiary, and thus for all purposes under the regulation is the “overpaid individual.” See 20 C.F.R. §
404.2001. As explained below, I conclude that, even assuming its applicability to representative payees,
Plaintiff was not at fault under subsection (c). Therefore, I make no recommendation on this matter of
law.
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and must reveal “substantial evidence” supporting a finding of fault under the
constructive knowledge prong of subsection (c). See Casias, 933 F.2d at 800‐01.
Unfortunately, it fails on both points.
B. Failure to Establish Comportment with Proper Legal Standards
First, it is impossible to determine whether the Commissioner’s evaluation
comported with the proper legal standards because neither the ALJ nor the Appeals
Council set out the standard they applied. See AR at 15‐23, 6‐10. As noted above,
Defendant’s counsel concedes that a finding of fault must be based on one of the three
circumstances set out in 20 C.F.R. § 404.507. Yet neither the ALJ nor the Appeals
Council cited to that regulation, let alone identified under which of the three
circumstances fault could be attributed to Plaintiff. While Defendant’s counsel argues
that subsection (c) supports a finding of fault, there is no way to know if that subsection
was the basis for the Commissioner’s evaluation here. That uncertainty is particularly
problematic here where it is unclear whether subsection (c) ever applies to
representative payees given the clause limiting its application to “overpaid
individual[s] only” and, in the past, the agency has conceded that it does not. See
Morency v. Bowen, 677 F. Supp. 260, 263 (D.N.J. 1988); see also supra p. 14, n.4. Under
these circumstances, I cannot conclude that the Commissioner’s evaluation comported
with the proper legal standards. On that basis alone, I would recommend overturning
the decision.
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C. No Constructive Knowledge Considering Duties of Representative Payee
Even assuming the Commissioner’s decision was premised on an application of
20 C.F.R. § 404.507(c), the record does not include substantial evidence to support a
finding of Plaintiff’s fault under that regulation. As described above, the ALJ and
Appeals Council relied on certain facts about Plaintiff to impute constructive
knowledge to Plaintiff. However, constructive knowledge inquiries are not limited to
facts. They are intertwined with an analysis of the duties imposed upon the individual
to whom knowledge is being imputed. See, e.g., Rueli v. Baystate Health, Inc., 835 F.3d 53,
63 (1st Cir. 2016) (“The constructive knowledge inquiry is not limited to facts—it is
intertwined with an analysis of the employer’s duty to inquire into what workers are
doing, and what reasonable diligence the employer must perform to ensure that
unauthorized hours are not being worked.”). Where, as here, a regulatory provision
has specifically enumerated the duties of that individual, it is reasonable to parse what
such individual is “expected to know” in light of those duties. See id. (explaining that
an employer could rely on provisions specifying that employee work hours cannot be
changed without permission to show that the employer had no duty to inquire into
employees’ hours worked where no requests for permission to work additional hours
had been made).
This relationship between constructive knowledge and duty is identified most
clearly in the Restatement (Second) of Torts which defines its concept of constructive
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knowledge – a fact a person “should know” – as a fact that a person … would ascertain
… in the performance of his duty to another.” RESTATEMENT (SECOND) OF TORTS ch. 1, §
12(2) (AM. LAW INST. 1965); see also RESTATEMENT (SECOND) OF CONTRACTS § 19 cmt. b
(AM. LAW INST. 1981) (“’Should know’ imports a duty to others to ascertain facts”). The
requisite connection between a duty which, if performed, would have led to
knowledge, and consequently charging the individual with constructive knowledge is
apparent throughout the law. See, e.g., Matter of Rubarts, 896 F.2d 107, 113 (5th Cir. 1990)
(“[A] lender, although without actual notice of a debtor’s plan to evade the state’s
homestead provisions, can be charged with constructive knowledge by operation of the
duty of inquiry.”); N & N Contractors, Inc. v. Occupational Safety & Health Review Comm’n,
255 F.3d 122, 127 (4th Cir. 2001) (“An employer has constructive knowledge of a
violation if the employer fails to use reasonable diligence to discern the presence of the
violative condition. Factors relevant in the reasonable diligence inquiry include the
duty to inspect the work area and anticipate hazards, the duty to adequately supervise
employees, and the duty to implement a proper training program and work rules.”
(internal citation omitted)); Bock v. Computer Assoc. Int’l, 257 F.3d 700, 709 (7th Cir. 2001)
(Employee’s constructive knowledge about severance plan could not be based solely on
fact that employer furnished summary of severance plan to employee, where employee
testified he could not recall when he first read summary, and employee was under no
duty to read it); New Regency Prod., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101, 1107‐
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08 (9th Cir. 2007) (“[A]rbitrator’s lack of actual knowledge of the presence of a conflict
does not excuse non‐disclosure where the arbitrator had a duty to investigate, and thus
had constructive knowledge of, the conflict.”); Denver & Rio Grande W. R.R. Co. v.
Conley, 293 F.2d 612, 613 (10th Cir. 1961) (“[T]here was ample proof that the rail had
become dangerously deteriorated after more than 30 years use, and the duty the law
imposed upon the railroad to inspect the tracks over which it moves its trains imputes
to it constructive knowledge of the unsafe condition.”).
Put another way, an analysis of an individual’s duties is required to fairly
determine what that individual “could have been expected to know” in a given
circumstance. 20 C.F.R. § 404.507(c). For example, a person without a duty to inquire
cannot be expected to know something notwithstanding that he could have learned it
with a simple question. The duties imposed on a person under the circumstances are
what create the expectation that they should know a given fact. Therefore, to evaluate
whether Plaintiff had constructive knowledge that Defendant was making incorrect
payments to Ms. Iddings, one must examine the duties imposed upon Plaintiff in its
position as a representative payee.
As quoted above, SSA imposes six responsibilities on representative payees.
Three of those responsibilities deal with ensuring that all benefits accrue to the
beneficiary and not the representative payee. 20 C.F.R. § 404.2035(a)‐(c). Another
responsibility is the submission of an accounting of benefits if requested by the SSA. 20
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C.F.R. § 404.2035(e). A further responsibility is to notify the SSA of a change in
circumstances that would affect the representative payee’s performance. 20 C.F.R. §
404.2035(f). Finally, the representative payee is responsible to “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.” 20 C.F.R. § 404.2035 (d). The question therefore is
whether there is substantial evidence that, in performance of these duties of
representative payee for Ms. Iddings, Plaintiff could have been expected to know that
the benefits being paid to Ms. Iddings were incorrect. I conclude that the answer is
“no.”
As noted above, Ms. Iddings’s entitlement to benefits ended because (i) she was
no longer working in a sheltered work environment, and (ii) she was earning more than
the permissible SGA‐ level at her Wal‐Mart job. Given these circumstances, there is no
reason to conclude that Plaintiff would have ascertained that Ms. Iddings was ineligible
for benefits even assuming perfect compliance with the duties of representative payees
under the regulations. It is obvious that fulfilling most of the duties listed above would
have no impact on discerning a beneficiary’s loss of eligibility under such
circumstances. Indeed, in arguing that Plaintiff was rightly held at fault for the
overpayment, Defendant relies on only one duty which it claims that Plaintiff failed to
fulfill. See doc. 27 at 8; doc. 35 at 4 (Defendant concedes breach of only duty from
19
subsection (d)). Specifically, Defendant contends that Plaintiff failed to “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.” 20 C.F.R. § 404.2035(d).
However, it is apparent on close inspection that Plaintiff did not breach this duty.
Ms. Iddings stopped working in the sheltered work environment in November
1998. Pursuant to SSA policy, she was permitted to continue to receive benefit
payments for a grace period including the remainder of November 1998 and two
additional months. AR at 260, 278. Thus, her entitlement to benefits ended months
prior to Plaintiff’s appointment as her representative payee, and even her grace period
expired before or concomitantly with the appointment. Defendant has offered no
reasonable grounds on which to conclude that Plaintiff failed to notify the SSA about a
change affecting benefits when, based on this record, the only material change occurred
prior to its appointment as representative payee. Put another way, Plaintiff could have
fulfilled its duty to notify SSA of any change in circumstances affecting Ms. Iddings’s
benefits without thereby ascertaining Ms. Iddings’s ineligibility, because no such
material change occurred during the time it had that duty. Therefore, Plaintiff cannot
be charged with constructive knowledge of Ms. Iddings’s ineligibility.
Accepting Defendant’s argument and the rationale of the ALJ would
impermissibly expand the duties of a representative payee beyond those listed in the
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regulation. The duties do not include any duty to police a beneficiary’s entitlement to
benefits and to take some action to decrease or stop undue payments, as such a
requirement would transform a representative payee into an arm of the agency rather
than a representative of the beneficiary. See generally 20 C.F.R. § 404.2035. Rather, the
duties of the representative payee in the context of SSDI payments do not go beyond
notifying the agency of events or changes in circumstances that will have a bearing on
entitlements. See id. § 404.2035(d). As explained above, no changes occurred and it is
undisputed that Plaintiff reported Ms. Iddings’s wages throughout the time period that
it served as her representative payee. AR at 295; see also doc. 35 at 6.
The decisions of the ALJ and the Commissioner contain no consideration of the
duties of a representative payee when evaluating whether Plaintiff was “at fault.”5
Therefore, even assuming the decision was premised on an application of 20 C.F.R. §
404.507(c), the ALJ’s finding of Plaintiff’s fault and the Appeals Council’s adoption of it
failed to comport with the proper legal standards. Furthermore, when the duties are
properly considered, the record lacks any substantial evidence to support a finding of
fault on the part of Plaintiff. Thus, I recommend rejecting the finding of fault.
At the supplemental hearing, the ALJ did opine that part of a representative payee’s duty is to exercise a
high degree of care which “includes being aware … of the regulations regarding actual payment of
benefits for people for whom you are acting as a payee.” AR at 312. However, no analysis of duty
appears in her opinion, let alone an explanation of how a duty to report a change in circumstances which
might affect entitlement implies a duty to actively investigate changes in circumstances which predate the
representative payee’s appointment.
5
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D. Even Under a Broader Interpretation of Constructive Knowledge, the
Decision Is Not Supported by Substantial Evidence
Defendant argues that the duty of a representative payee to police a beneficiary’s
entitlement to benefits and to return undue benefits is subsumed within the duties
listed in § 404.2035, as a representative payee cannot notify the agency of circumstances
that will affect entitlement without a thorough understanding of which circumstances
would be pertinent. See doc. 35 at 4, 5. As explained above, I am not persuaded that this
broad policing duty has been imposed on representative payees. Assuming arguendo
that the duty to police a beneficiary’s entitlements and return undue payments is
indeed implied by § 404.2035, fault still may not be attributed to Plaintiff on the basis of
violating that duty without first evaluating whether Plaintiff failed to exercise the
requisite degree of care. See 20 C.F.R. § 404.511(a); see also POMS GN 02250.005. The
ALJ correctly stated during the supplemental hearing that as a representative payee,
Plaintiff was “required by law to exercise a high degree of care” in preventing
overpayments. AR at 312. However, the degree of care expected “varies with the
complexity of the circumstances giving rise to the overpayment[.]” POMS GN
02250.005. Under the facts of this case, there is not substantial evidence that Plaintiff
failed to exercise the appropriate degree of care.
The circumstances underlying Ms. Iddings’s loss of entitlement to disability
benefits were complex—so complex, in fact, that neither counsel for Plaintiff nor
Defendant correctly identified the reason why Ms. Iddings was no longer entitled to
22
benefits beginning in November 1998. Both parties provided briefing and oral
argument regarding the complexity of the regulations governing trial work periods and
extended periods of eligibility. See doc. 35 at 5; doc. 18 at 20; doc. 27 at 9‐10. However,
Ms. Iddings’s trial work period ended in March 1991 and her 36‐month extended period
of eligibility began in April 1991, presumably ending in April 1994. AR at 271. Ms.
Iddings’s loss of entitlement to benefits therefore was unrelated to the trial work period
or extended period of eligibility, and was instead related to the regulations governing
what kind of work constitutes substantial gainful activity such that her “countable
earnings” exceeded permissible SGA levels. See 20 C.F.R. § 404.1573(c); AR at 272‐75.
Those countable earnings began exceeding permissible SGA levels in November 1998
once her Wal‐Mart position was no longer under a sheltered workshop. AR at 273, 294‐
95.
Thus, the error underlying the overpayments in this case could not have been
avoided solely with knowledge of permissible SGA limits generally, as Ms. Iddings was
eligible to receive benefits for over a year while earning beyond those limits due to the
fact that her work was done under special conditions. See AR at 273 (showing total
monthly earnings of $934.01 ‐ $985.70 from July 1997 to October 1998, but countable
monthly earnings of only $261.52 ‐ $276.00 during the same period). Plaintiff’s
experience as a representative payee was exclusive to beneficiaries with intellectual
disabilities. AR at 7, 39. The SSA specifically accommodates people with such
23
disabilities by permitting them to do work under special conditions that might earn
them gross wages beyond permissible SGA limits, but reducing their “countable
earnings” according to the actual value of work performed. 20 C.F.R. § 404.1573(c); see
also SSR 83‐33, 1983 WL 31255, at *2–*4. The regulations give specific examples of the
special conditions that the SSA may find do not show a beneficiary has the ability to do
SGA despite earning above SGA limits, including beneficiaries who require special
assistance from other employees in performing their work and beneficiaries permitted
to work at a lower standard of productivity or efficiency than other employees. 20
C.F.R. § 404.1573(c)(1), (c)(5). Thus, Plaintiff’s decades of experience in serving as a
representative payee for intellectually disabled beneficiaries would not necessarily
indicate constructive knowledge that Ms. Iddings did not qualify for benefits due to her
level of earnings, as it is not only plausible but likely that Plaintiff represented many
beneficiaries over time who earned gross wages above the SGA limits but whose
countable earnings were far less than the SGA limits. Indeed, Ms. Iddings herself fell
into that category from June 1997 until November 1998. See AR at 273, 294‐95.
However, neither the ALJ nor Appeals Council ever explained why Plaintiff
should be charged with constructive knowledge that Ms. Iddings’s countable earnings
had increased to above permissible SGA levels two months prior to their appointment
as her representative payee, or even made note of the circumstances leading to her
ineligibility. See AR at 6‐9, 15‐23. Ms. Iddings’s ineligibility as of November 1998
24
would not have been readily apparent. It did not result from a shift from
unemployment to employment. It did not involve a change of employer. Nor did it
involve any change in the amount of pay. AR at 273‐74.6 Perhaps if even one of these
circumstances—a return to work, a new employer, or an earnings increase—were
present, and accepting Defendant’s argument that representative payees have a broad
duty to police the eligibility of beneficiaries, Plaintiff could be charged with constructive
knowledge that it was accepting benefits on behalf of Ms. Iddings to which she was not
entitled. Lacking those facts, I conclude that the evidence of constructive knowledge is
deficient.
Even more troubling, the ALJ made several material factual errors which
undermine her findings on the issue of fault. First, several statements in the ALJ’s
decision indicate that the ALJ believed that Ms. Iddings began working at Wal‐Mart
during the time period when Plaintiff served as her representative payee. For example,
the ALJ cites to Ms. Light’s hearing testimony that she “believes the overpayment was
caused by [Plaintiff] because [it was] the representative payee when the claimant began
working at Wal‐Mart.” AR at 20. Furthermore, in discussing the factual basis for
finding Plaintiff at fault, the ALJ cites to hearing testimony from Plaintiff’s
representatives that “[t]hey felt by reporting the wages, they did their part . . . . They
Ms. Iddings’s total earnings remained at $985.70 per month throughout 1998 until they increased by
approximately 6% to $1,047.00 per month throughout 1999; only her countable earnings increased in
November 1998. AR at 273‐74.
6
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were not aware if anyone ever inquired with Social Security about why her benefits did
not decrease as her wages increased.” AR at 21. Finally, the ALJ also states that
Plaintiff “was not diligent in following up with Social Security about the claimant’s
work at Wal‐Mart” because the benefits statements the SSA sent to representative
payees such as Plaintiff “clearly indicate where to get information if a claimant returns
to work.” AR at 21. Implicit in each of these points are fundamental factual mistakes.
Contrary to the ALJ’s implications, Ms. Iddings never “returned to work” while
Plaintiff was her representative payee. Rather, she began working at Wal‐Mart in June
1997, eighteen months prior to Plaintiff’s appointment as her representative payee. AR
at 15, 189. In addition, Ms. Iddings’s wages did not significantly increase while Plaintiff
served as her payee. AR at 273‐75. Ms. Iddings was earning $1,047.00 per month when
Plaintiff was appointed as her payee in February 1999, and continued earning that
amount every month until January 2000, when her monthly wages increased to
$1,162.55 per month for the following year. AR at 273‐74. Throughout the remaining
period when Plaintiff served as her payee, Ms. Iddings’s wages fluctuated on a monthly
basis from $735.78 to $1,929.95, but generally remained between $1000 and $1,200 per
month. See AR at 274‐75.7 These wages were reported to the SSA. AR at 295; see also
doc. 35 at 6.
Ms. Iddings earned no more than $1,221.75 in 21 of the 27 remaining months of Plaintiff’s tenure as her
payee.
7
26
The erroneous factual findings of the ALJ suggest that the circumstances
surrounding Ms. Iddings’s ineligibility should have been obvious to Plaintiff as an
experienced representative payee, and they were thus essential to the Commissioner’s
imputation of constructive knowledge to Plaintiff underlying the finding of fault.8 Yet
in reality, those circumstances were complex and not readily apparent. Therefore, even
under a broader interpretation of constructive knowledge than the undersigned has
adopted above, the finding of Plaintiff’s fault was not based on substantial evidence.
Consequently, I again recommend rejecting that Plaintiff was at fault for the
overpayments to Ms. Iddings.
E. Recovery from Plaintiff Is Against Equity and Good Conscience
Rejecting the finding of fault does not end the inquiry. A person who is without
fault for an overpayment may still be liable for repayment if recovery would not defeat
the purpose of the Act and would not be against equity and good conscience. See 42
U.S.C. § 404(b)(1); see also 20 C.F.R. § 404.506. However, the law is clear that a
representative payee “is not liable if [it] used the amounts received for the benefit of the
beneficiary and was without fault with regard to overpayment.” SSR 64‐7, 1964 WL
3608, at *2.; see also Harzewski, 977 F. Supp. at 225‐26 (against equity and good
conscience to recover overpayments from a representative payee who did not
“personally benefit[]” from acting as payee, “absent clear evidence that [the payee] was
While the Appeals Council addressed other errors in the ALJ’s opinion, it did not address these errors
and appeared to accept them as correct.
8
27
at fault[.]”); Greenberg, 1998 WL 229849, at *6 (citing Harzewski for the proposition that
“recovery would be against the broader definition of equity and good conscience
[where] the record contained no evidence that the representative payee had ever
misused the funds or derived any personal benefit from them.”). Defendant does not
contend, and there is no evidence to suggest, that Plaintiff ever misused Ms. Iddings’s
benefit payments. See, e.g., doc. 18 at 20‐21; doc. 27 at 10 (Defendant does not dispute
Plaintiff’s contention that it never misused the funds, but asserts that such argument is
“misplaced” where fault was properly attributed to Plaintiff). Therefore, should the
Court adopt the recommended finding that Plaintiff was without fault for the
overpayment, the decision to hold Plaintiff liable cannot stand.
F. Reversal or Remand?
Having concluded that the Commissioner’s decision must be overturned, the
final question is whether the case should be reversed and terminated, or remanded for
further proceedings. Plaintiff asks the Court to “reverse or remand the Social Security
Administration’s decision that ENMRSH is liable for repayment of benefits overpaid to
Sharlene Iddings and that ENMRSH is not entitled to a waiver of any repayment
obligation.” Doc. 18 at 21. Unfortunately, Plaintiff provides no standard or argument
pertaining to selecting between these two alternatives. For its part, Defendant argues
28
for affirmance of the decision, but makes no argument in its briefing on the
appropriateness of reversal or remand should the Court disagree. See generally doc. 27.9
The instant action is brought pursuant to 42 U.S.C. § 405. Subsection (g) of that
statute provides that the “court shall have power to enter, upon the pleadings and
transcript of the record, a judgment affirming, modifying, or reversing the decision of
the Commissioner of Social Security, with or without remanding the cause for a
rehearing.” 42 U.S.C. § 405(g). Ordinarily, the choice between remand and a final order
arises in an applicant’s appeal of a denial of benefits, but the factors relevant in such
cases also appear relevant here. Those factors include the length of time a matter has
been pending, see, e.g., Sisco v. U.S. Depʹt of Health & Human Servs., 10 F.3d 739, 746 (10th
Cir. 1993), the conduct of the agency in adjudicating the action, see id., and whether or
not given the available evidence, remand for additional fact‐finding would serve any
useful purpose. See, e.g., Harris v. Secʹy of Health & Human Servs., 821 F.2d 541, 545 (10th
Cir. 1987) (citing Talbot v. Heckler, 814 F.2d 1456, 1466 (10th Cir. 1987)).
Balancing these factors, I recommend final reversal without a remand for further
proceedings. First, I note the length of time between the overpayments and the instant
action. As of now, the earliest overpayments were made more than eighteen years ago
and the nearest in time more than fourteen years ago. Given this passage of time and
At oral argument, counsel for Defendant argued that remand would be appropriate in any case for
analysis of the second prong of the waiver inquiry—i.e., whether recovery would be against equity and
good conscience—as the Commissioner’s decision did not include a finding on that prong. See doc. 35 at
9. For the reasons already explained, that argument is not supported by the governing law. See supra p.
28.
9
29
the fact that the Plaintiff long ago transferred or spent all the funds on behalf of Ms.
Iddings, forcing Plaintiff to attempt to defend itself on issues of actual or constructive
knowledge of the circumstances surrounding Ms. Iddings’s ineligibility would be
unfair.10 Second, the agency is directly responsible for this exceptionally long gap given
its failure to seek recovery from Plaintiff until more than eight years after it discovered
overpayments had been made. Moreover, I am persuaded that the agency’s failure to
comply with own regulations regarding notice contributed to the unclear record before
the ALJ and the ALJ’s inaccurate understanding of the facts. See 20 C.F.R. § 404.502a
(requiring that the agency immediately notify any individual from whom overpayment
recovery is sought of the overpayment when it is identified, and providing for a multi‐
step waiver request process which would thoroughly develop the facts in a usual case).
Finally, while I conclude that the ALJ applied the wrong legal standard in determining
fault, I have also considered the facts assuming a broad concept of constructive
knowledge. Even under that standard, I am doubtful that additional fact‐finding could
lead to substantial evidence supporting a finding of fault by Plaintiff.
VII.
CONCLUSION
For the foregoing reasons, I recommend finding that the Commissioner’s final
decision was founded on a misapplication of the pertinent legal principles and that
Such unfairness is only compounded by the fact that Plaintiff is an organizational entity, whose
institutional memory erodes rapidly with the passage of time. See, e.g., AR at 296‐97, 302‐311 (testimony
from Plaintiff’s representatives reflects gaps in memory, lack of personal familiarity with Ms. Iddings’s
case requiring testimony from Ms. Iddings on key factual points, and a reasonable institutional policy to
retain bank statements for only seven years).
10
30
Plaintiff is entitled to waiver of overpayment recovery. Therefore, I recommend that
Plaintiff’s Motion to Reverse or Remand (doc. 17) be GRANTED, and that the
Commissioner’s decision be REVERSED without a remand for further proceedings.
____________________________________
GREGORY B. WORMUTH
United States Magistrate Judge
THE PARTIES ARE FURTHER NOTIFIED THAT WITHIN 14 DAYS OF
SERVICE of a copy of these Proposed Findings and Recommended Disposition they
may file written objections with the Clerk of the District Court pursuant to 28 U.S.C. §
636(b)(1). A party must file any objections with the Clerk of the District Court within
the fourteen‐day period if that party wants to have appellate review of the proposed
findings and recommended disposition. If no objections are filed, no appellate
review will be allowed.
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