Holden v. Califano

Citation641 F.2d 405
Decision Date21 October 1980
Docket NumberNo. 78-1446,78-1446
PartiesRollie M. HOLDEN, Plaintiff-Appellant, v. Joseph A. CALIFANO, Secretary of Health, Education and Welfare, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

Scott Daniel and D. C. Daniel, Jr., Murfreesboro, Tenn., for plaintiff-appellant.

Hal D. Hardin, U. S. Atty., Margaret M. Huff and Robert J. Washko, Nashville, Tenn., for defendant-appellee.

Before ENGEL, KEITH and MERRITT, Circuit Judges.

KEITH, Circuit Judge.

This case presents a claim for Social Security Retirement Benefits. On May 6, 1974, upon turning 65, claimant Rollie M. Holden applied for Retirement Insurance Benefits from the Social Security Administration. The SSA awarded benefits to the plaintiff beginning in May 1974. Two months later, however, the SSA rescinded its award of benefits. The SSA ruled that Mr. Holden was not eligible for benefits because he was rendering "substantial services" to a trade or business, contrary to 42 U.S.C. § 403(f). The SSA's determination was endorsed by an administrative law judge. The ALJ's decision was upheld by the district court, the Hon. L. Clure Morton. We affirm.

FACTS

Rollie M. Holden owned and operated Holden Hardware as a sole proprietorship for approximately 25 years. His wife, Katherine Holden, also worked in the store 4 to 5 hours a day, occasionally waiting on customers. At night Mrs. Holden handled the store's bookkeeping.

Mr. Holden did not own the premises on which the hardware store was located. He rented the store from his mother-in-law. When Mr. Holden's mother-in-law died in 1968, title passed to Mrs. Holden.

On May 31, 1974, Mr. Holden sold his business to his wife. On June 1, 1974, Mrs. Holden received all assets and liabilities of the store in exchange for her unsecured note for $48,000. The note included Mrs. Holden's promise to pay $48,000, with no interest, at the rate of $500 per month. In addition, Mrs. Holden agreed to make a "gift" to her husband of $3,000 per year for four years.

Mr. Holden ordinarily worked 40 hours a week at his hardware store. After he sold the store to his wife, he reduced his hours to 20-25 hours a week. He received a "salary" of from $100 to $230 per month from June of 1974 to January of 1976.

After the sale of the business, Mrs. Holden increased her average work day at the store from 4-5 to 6-7 hours. Her salary was approximately $500 per month. She also received the profits of the business, but refused to tell the ALJ what they were.

After he sold the store to his wife, Mr. Holden testified that he continued to purchase the hardware goods on behalf of the store. He also stated that he waited on customers when the other employees were busy. However, Mr. Holden steadfastly maintained that his wife made all management decisions after he sold the store to her.

Throughout their marriage Mr. and Mrs. Holden had separate personal bank accounts. Before the sale of the business, both Mr. and Mrs. Holden were authorized to write checks on the Holden Hardware account. After the sale only Mrs. Holden could write checks on the business account. There is no question that Holden Hardware was properly sold to Mrs. Holden and that she is now the legal owner of the business.

The law which controls this case is not in dispute. A wage earner who is eligible for social security benefits may not work or engage in self-employment which results in income to him of over a certain amount per year. 1 If the wage earner earns more than the set amount, he may not receive social security benefits.

The claimant in this case was paid a salary of from $100 to $230 per month for his work in the store from 1974 to 1976. This amount did not violate the earnings test. 2 The ALJ found, however, that Mr. Holden was ineligible for benefits because he was rendering "substantial services" to his wife's hardware store within the meaning of 42 U.S.C. § 403(f)(4)(A). 3

The Secretary, by regulation, has defined the substantial services test as follows:

In general, the substantial services test is one of whether, in view of all the services rendered by the individual and the surrounding circumstances, the individual can reasonably be considered retired in the month in question. Even though an individual performs some services in a trade or business in a month, such services are not substantial where the evidence establishes to the satisfaction of the Administration that the individual may reasonably be considered retired in that month. In determining whether an individual has or has not performed substantial services in any month, the following factors are considered:

(1) The amount of time the individual devoted to all trades and businesses;

(2) The nature of the services rendered by the individual;

(3) The extent and nature of the activity performed by the individual before he allegedly retired as compared with that performed thereafter;

(4) The presence or absence of an adequately paid manager, partner, or family member who manages the business;

(5) The type of business establishment involved;

(6) The amount of capital invested in the trade or business; and

(7) The seasonal nature of the trade or business.

20 C.F.R. § 404.446(a)

In a more elaborate regulation, 20 C.F.R. § 404.447, reprinted in the margin 4, the Secretary has established a presumption that a wage earner who devotes more than 45 hours a month to a trade or business is engaging in substantial employment. The ALJ relied on this presumption, together with an overall evaluation of Mr. Holden's post-retirement services to the hardware store, to reach the conclusion that Mr. Holden was indeed providing substantial services to the store and was not actually retired.

I.

The petitioner first argues that 20 C.F.R. § 404.447(a)(2), regarding more than 45 hours a month devoted to a trade or business, is unconstitutionally vague and overbroad. We see nothing vague or overbroad in this regulation. The regulation could hardly be more specific. It established a 45 hour per month presumption of substantial services, and then outlines seven specific factors to be considered in determining whether services rendered are substantial. Petitioner characterizes 20 C.F.R. § 404.447(a)(2) as "doubletalk". We disagree. The regulation merely establishes a presumption that a person who works more than 45 hours per month is rendering substantial services. See Gordon v. Finch, 437 F.2d 253, 255 (8th Cir. 1971).

Petitioners claim that the regulation is overbroad is really a claim that the regulation is not justified by the statute. We disagree. An agency has broad authority to promulgate regulations. See e. g. Marshall v. Whirlpool, 593 F.2d 715 (6th Cir. 1979), aff'd, 445 U.S. 1, 7, 100 S.Ct. 883, 888, 63 L.Ed.2d 154 (1980). Regulations are entitled to deference. Id. The regulations in question here are specifically authorized by statute, 42 U.S.C. § 403(f)(4)(A) and, we think, are a reasonable interpretation of the statute.

II.

Petitioner next argues that the hearing before the ALJ was unfairly conducted. Petitioner was not represented by counsel at the hearing. While the absence of counsel might cause us to scrutinize the record with care, it alone is not a grounds for reversal or remand. See Sykes v. Finch, 443 F.2d 192, 194 (7th Cir. 1971).

We have carefully examined the record. The petitioner and his wife are not uneducated or ignorant. Nor are they timid. The record reveals that they have been loudly demanding the benefits to which they think they are entitled throughout the administrative proceedings. In response to petitioner's demands, the SSA sent him a notice of the issues involved in this case, together with copies of the relevant statutes and regulations. At the hearing it was clear that petitioner and his wife understood the basic issue involved: whether he had effectively transferred his business to his wife, and was no longer performing substantial services in the business.

It is true that at some points in the hearing petitioner or his wife appeared to be under the misapprehension that a legal transfer of the business for tax and ownership purposes was also sufficient for social security purposes. However, this did not affect the petitioner's complete presentation of his case, including a recitation of his and his wife's duties and activities before and after the sale of the business. Our examination of the transcript reveals a fairly conducted hearing in which the ALJ displayed careful concern and even-handedness.

We find no merit in petitioner's contention that the ALJ should have, sua sponte, subpoenaed witnesses who could testify about whether Mr. Holden participated in the hiring of an employee after his alleged retirement. See 20 C.F.R. § 404.926. In light of Mr. Holden's testimony that he participated in the decision to hire the employee, we fail to see the need for additional witnesses. Petitioner's contention that the hearing was unfair is without merit.

III.

The key issue on appeal is whether substantial evidence supports the ALJ's determination that the petitioner was still providing substantial services to Holden Hardware. The petitioner argues that he was indeed retired and not providing substantial services to the business. The petitioner also argues that the ALJ's decision was based on unconstitutional sex-based criteria in that the ALJ assumed that the petitioner's wife, because of her sex, could not truly be in charge of the business.

A.

As indicated above, there is no doubt that Holden Hardware was legally transferred to the petitioner's wife. However, the Secretary has the right to examine the substance of the transfer for purposes of the Social Security Act. Gordon v. Finch, 437 F.2d 253 (8th Cir. 1971); Skalit v. Finch, 431 F.2d 452 (6th Cir. 1970). The fact that the Internal Revenue Service has no problem with the sale does not affect the Secretary's right to reject it for social security purposes.

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