Bahnmiller v. Derwinski

• Citation: 724 F. Supp. 1208
• Decision Date: 08 November 1989
• Docket Number: Civ. A. No. 88-0732-A.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Michael P. BAHNMILLER, Richard W. Frye, and The Vietnam Veterans of America, Inc., Plaintiffs, v. Edward J. DERWINSKI, Secretary of Veterans' Affairs, The United States Department of Veterans' Affairs, and The United States of America, Defendants.

724 F. Supp. 1208

Michael P. BAHNMILLER, Richard W. Frye, and The Vietnam Veterans of America, Inc., Plaintiffs, v. Edward J. DERWINSKI, Secretary of Veterans' Affairs, The United States Department of Veterans' Affairs, and The United States of America, Defendants.

Civ. A. No. 88-0732-A.

United States District Court, E.D. Virginia, Alexandria Division.

November 8, 1989.

Richard Crouch, Arlington, Va., and Bruce S. Deming, Van Ness, Feldman, Sutcliffe & Curtis, Washington, D.C., for plaintiffs.

Robert C. Erickson and Paula M. Potoczak, Asst. U.S. Attys., Alexandria, Va., for defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

Introduction

For more than a century, statutory fee limitations have effectively excluded lawyers from the veterans' benefits claims arena.¹ Congress quite clearly intended the fee limitation to have this effect, the object being to prevent veterans' benefits from being diverted to attorneys.² Less clear is whether Congress intended to restrict the application of the fee limitation provision to this arena or to apply it as well where the Department of Veterans' Affairs (the "VA") pursues a claim or debt against a veteran. Precisely this question is presented here. Section 3404 of Title 38, United States Code, prior to its 1988 revision (the "Old Statute"), limits attorneys to a $10 fee for legal services rendered in connection with veterans' "claims for monetary benefits."³ The revised Section 3404 (the "New Statute") prohibits any fee for legal services in connection with "a proceeding ... with respect to benefits" until the Board of Veterans Appeals ("BVA") makes a final decision on the matter. And, under both the Old and New Statutes, Section 3405 establishes criminal sanctions for violations of Section 3404's fee limitations. There is no dispute that both versions of Sections 3404 and 3405 apply where a veteran affirmatively seeks a VA benefit.⁴ Disputed here, however, is whether either or both versions of the statute also apply where the VA pursues a claim against a veteran.

Background

Plaintiffs Richard Frye and Michael Bahnmiller are veterans subject to administrative debt collection proceedings initiated by the VA. The proceedings against Frye arose under the Old Statute, whereas the proceedings against Bahnmiller arose under the New Statute.⁵ Under the VA's interpretations of both versions of the Act, neither plaintiff is permitted to pay an attorney for assistance in defending against the VA's administrative collection efforts, other than as provided in 38 U.S.C. § 3404. Plaintiffs dispute this interpretation and while they concede that the restrictions of Sections 3404 and 3405 apply to benefit claims proceedings⁶, they assert the provisions are not applicable in the context of debt collection. An explanation of the VA's debt collection procedures under both the Old and New Statutes helps sharpen the focus on this dispute.

Debt Collection Proceedings

1. The Old Statute

In connection with its many benefits programs, the VA occasionally discovers that a benefits recipient has been overpaid, has received benefits to which the recipient is not entitled, or has otherwise incurred indebtedness to the government in connection with the receipt of benefits. The VA, by regulation, is then obligated to "take aggressive action ... on a timely basis with effective follow-up, to collect all claims for money or property arising from its activities". 38 C.F.R. § 1.910 (1987). Thus, the VA must promptly demand, in writing, payment of the alleged debt and notify the veteran of the veteran's rights and remedies in connection with the debt, as well as the consequences of a failure to cooperate with collection efforts. 38 C.F.R. § 1.911(b) (1987). After this point, the VA's debt collection proceedings can be divided into two distinct stages. The first stage ("Stage 1") includes all proceedings within the VA through the first administrative appeal. Hospitable and supportive treatment of veterans' claims and defenses is the significant and congressionally mandated hallmark of first stage proceedings. Second stage proceedings ("Stage 2"), namely all those following a veteran's unsuccessful administrative appeal, do not share this hallmark. During this stage, as is typical of litigants to any disputed claim, an adversarial relationship prevails between the VA and the veteran. A more detailed description of the two stages is helpful.

Stage 1 commences with notice to the veteran of the alleged debt. At this point, the veteran is entitled to (i) dispute the debt's existence or amount, (ii) request a waiver of the collection of the debt, (iii) have a hearing on the waiver request, and (iv) appeal the VA's decision underlying the debt through the VA administrative process. 38 C.F.R. § 1.911(c) (1987). Importantly, the statutory scheme contemplates that throughout this stage, the VA will "fully and sympathetically develop the veteran's claim to its optimum before deciding it on the merits." H.R.Rep. No. 100-963, 100th Cong., 2d. Sess. 13, reprinted in 1988 U.S.Code Cong. & Admin. News 5782, 5795. To this end, the VA provides the veteran with specially trained personnel to assist in the preparation and submission of claims (38 C.F.R. § 3.103(a) (1984)), affords the veteran a hearing on any issue involved in a claim, at any time (38 C.F.R. § 3.103(c) (1984)) and directs that all reasonable doubts with respect to a claim must be resolved in favor of the veteran (38 C.F.R. § 3.102 (1984)). The veteran is also afforded appellate rights to the BVA upon receipt of any initial adverse ruling. 38 C.F.R. § 1.911a(c)(3), 38 C.F.R. § 19.129 (1987).

If the BVA denies the appeal, Stage 2 commences. Now the VA may offset the debt against other benefits the veteran is receiving, 38 C.F.R. § 1.912(a) (1987), or, if the veteran is receiving no other benefits, the VA may initiate collection proceedings. Such proceedings may include reporting the debt to credit reporting agencies, 31 U.S.C. § 3711(f)(1), 38 C.F.R. § 1.980 (1987), attaching the veteran's federal tax refund, 26 U.S.C. § 6402(d), 26 C.F.R. § 301.6402-6T (1987), garnishing up to fifteen percent (15%) of a veteran's salary if the veteran is a federal employee, 5 U.S.C. § 5514, 38 C.F.R. § 1.980, or causing the Justice Department to institute judicial proceedings against the veteran for repayment, 31 U.S.C. § 3711, 38 C.F.R. § 1.950. If the VA seeks to offset the debt against other benefits the veteran is entitled to receive, the VA is required to provide the veteran with notice and additional hearing rights with regard to the proposed offset. 38 C.F.R. § 1.912. In an offset hearing, however, the veteran is not accorded the same favorable evidentiary presumption and treatment that prevail in Stage 1. Indeed, the contrary is true. Since the veteran has already been afforded an adjudication of the issue, complete with appeal rights, the hearing administrator in an offset hearing is directed to uphold the VA's findings unless determined to be erroneous by a preponderance of the evidence. 38 C.F.R. § 1.987. The administrator's written decision in the matter is then final. 38 C.F.R. § 1.991(b). Under the Old Statute, final agency decisions rendered by the BVA or other hearing administrator are presumptively outside the scope of judicial review. 38 U.S.C. § 211(a) ("The decisions of the Administrator on any question of law or fact under benefits for veterans ... shall be final and conclusive and no ... court of the United States shall have power or jurisdiction to review any such decision."); see also Johnson v. Robison, 415 U.S. 361, 94 S.Ct. 1160, 39 L.Ed.2d 389 (1974).

2. The New Statute

Debt collection procedures under the New Statute are essentially the same as those under the Old with two major exceptions. First, effective June 1, 1989, a newly created Court of Veterans' Appeals (the "CVA"), is given exclusive jurisdiction to review and affirm, modify, reverse or remand decisions by the BVA. 38 U.S.C. § 4052.⁷ Therefore under the New Statute, even after the BVA makes a final decision, the veteran may pursue an appeal to the CVA. 38 U.S.C. § 4066.

Second, under the New Statute, all decisions by the CVA concerning legal issues are subject to judicial review by the Court of Appeals for the Federal Circuit in conformity with 5 U.S.C. § 553, the judicial review provision of the Administrative Procedure Act. 38 U.S.C. § 223.

Proceedings to Date

In the instant case, plaintiffs' claims arise out of debt collection proceedings instituted under both the Old and New Statutes. By letter dated November 1, 1985, plaintiff Frye received notice of an alleged indebtedness of $7,209.67. This alleged debt pertained to a home loan foreclosure on the purchaser to whom Frye sold his home. On November 21, Frye wrote the VA requesting a release of liability or, in the alternative, a waiver of payment. The VA denied Frye's request and thereafter, on March 24, 1986, Frye filed a notice of disagreement with the VA. Because this filing occurred prior to the passage of the Veterans' Judicial Review Act, Frye's case is governed by the Old Statute.

Plaintiff Bahnmiller received his notice of an alleged debt of $27,658.83 by letter dated March 28, 1988. This, he claims, was the first notice of the debt. The letter warned that the Department of Navy, Bahnmiller's employer, would immediately begin garnishing fifteen percent (15%) of his active duty pay until the debt was paid. He requested a hearing to dispute the existence of the debt or, alternatively, to request its waiver. June 16, 1988, the VA notified Bahnmiller that his "request for waiver" was pending before the VA. Given this time frame, Bahnmiller is subject to the attorneys' fee limitations of the New Statute.

Both Frye and Bahnmiller contacted a number of attorneys to obtain legal advice and representation in defending against the VA's collection actions. These efforts failed. All of the attorneys contacted...