Bahnmiller v. Derwinski
| Decision Date | 10 January 1991 |
| Docket Number | No. 90-1712,90-1712 |
| Citation | 923 F.2d 1085 |
| Parties | Michael T. BAHNMILLER; Richard W. Frye; the Vietnam Veterans of America, Inc., Plaintiffs-Appellants, v. Edwin J. DERWINSKI, Secretary of the Department of Veterans Affairs; U.S. Department of Veterans Affairs; United States of America, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Bruce Sutherland Deming, Van Ness, Feldman & Curtis, P.C., Washington, D.C., argued (Barton F. Stichman, National Veterans Legal Services Project, Washington, D.C., and Richard Crouch, Arlington, Va., of counsel), for plaintiffs-appellants.
John Samuel Koppel, Civ.Div., U.S. Dept. of Justice, Washington, D.C., argued (Stuart M. Gerson, Asst. Atty. Gen., William Kanter, Civ. Div., U.S. Dept. of Justice, Washington, D.C., Henry E. Hudson, U.S. Atty., Alexandria, Va., Michael A. Leonard, Office of General Counsel, Dept. of Veterans Affairs, Washington, D.C., of counsel), for defendants-appellees.
Before CHAPMAN and WILKINSON, Circuit Judges, and JOE F. ANDERSON, Jr., District Judge for the District of South Carolina, sitting by designation.
Two veterans and a veterans' organization brought this action seeking a determination as to whether the attorneys' fee limitations of the present and former versions of 38 U.S.C.A. Secs. 3404 and 3405 apply to administrative debt collection proceedings by the Department of Veterans Affairs ("DVA"). 1 The district court held that the statutes' restrictions do apply in such proceedings and granted the DVA's motion for summary judgment. Bahnmiller v. Derwinski, 724 F.Supp. 1208 (E.D.Va.1989). Changes made subsequent to the decision of the district court have accorded the plaintiffs much of the relief they seek in this action. As to that part of the controversy which has become moot, we vacate the decision below and dismiss the appeal. As to that part which remains in controversy, we affirm.
This case has a somewhat complex procedural history. The action was initiated by former plaintiff James M. Sullivan and the associational plaintiff, Vietnam Veterans of America ("VVA"), in June 1988. Before the matter could be heard, two events occurred which necessitated a rebriefing of the issues and a substitution of plaintiffs. First, on November 18, 1988, Congress enacted the Veterans Judicial Review Act ("VJRA"), Pub.L. No. 100-687, 102 Stat. 4105 (1988), which amended sections 3404 and 3405, the statutory provisions in dispute in this litigation. Second, Sullivan's claim became moot when the DVA decided not to proceed with the collection action against him. The district court permitted the VVA to substitute as new co-plaintiffs the present appellants, Bahnmiller and Frye, who respectively sought to challenge the present and former versions of the statute. Thereafter, the court granted defendants' motion for summary judgment and held that both the old and new versions of the fee statute apply to DVA debt collection proceedings. 724 F.Supp. at 1218. After the district court rendered its decision, the DVA's Office of General Counsel issued O.G.C. Precedent 19-89, in an effort to "clarify and implement" the current fee statutes. As will be seen, the General Counsel went beyond the scope of the district court decision, and endeavored to provide additional guidance in the area of the home loan guarantee program. This additional guidance establishes significant exceptions to the DVA's prior policy on attorneys' fees restrictions in debt collection cases.
The statutes at issue here govern representation of veterans before the DVA. The statute in effect prior to November 1988 ("the old statute") provides in relevant part that fees may be paid to attorneys "in allowed claims for monetary benefits under the laws administered by the [DVA]" but that such fees "shall not exceed $10 with respect to any one claim." 38 U.S.C.A. Sec. 3404(c) (West Supp.1987). Related provisions in section 3405 impose criminal sanctions upon persons who pay or receive attorneys' fees in excess of the $10 limit. Passage of the VJRA significantly amended and repealed portions of 38 U.S.C.A. Secs. 101 et seq. The VJRA ("the new statute") made significant changes to section 3404, by providing that no attorneys' fees may be paid in "proceedings ... with respect to benefits under laws administered by the [DVA]." Significantly, this new statute does not prevent the employment of an attorney, subject to certain exceptions not applicable here, for representation in administrative or judicial proceedings that follow an initial final decision by the Board of Veterans Appeals ("BVA"). Amended section 3405 is essentially the same, although the new version designates a violation of the statute as a misdemeanor rather than a felony.
The regulations implementing the new statute are found at 38 C.F.R. Secs. 14.626 et seq. Section 14.627 defines a "claim" as any "application ... for entitlement to [DVA] benefits, reinstatement, continuation, or increase in benefits, or the defense of a proposed agency adverse action concerning benefits." 38 C.F.R. Sec. 14.627(f) (emphasis added).
Veterans charged with owing money to the DVA are permitted to dispute the amount or existence of the debt. 38 C.F.R. Sec. 1.911(c). Additionally, they are entitled to argue that collection of the debt would be against equity and good conscience and may request a waiver of the debt before a DVA Regional Committee on Waivers and Compromises ("Regional Committee"). 38 C.F.R. Secs. 1.911(c), 1.955, 1.962-1.964 (1988). If a veteran's defenses are rejected by the Regional Committee, he or she may appeal the matter to the BVA within one year. 38 C.F.R. Secs. 1.911(c)(3), 19.129.
The DVA's position on the statutes in dispute has taken many turns in recent decades. In 1976, the agency expressly exempted debt collection proceedings from the attorneys' fee restriction. Department of Veterans' Benefits Manual M21-1--Adjudication Procedure, February 20, 1976. In 1986, the DVA removed the portion of the benefits manual that exempted debt collection actions from the fee limitation. Between 1976 and 1986, the DVA took positions inconsistent with the position announced in its own manual. See Veterans' Administration Op. G.C. 11-86. 2 Finally, as noted earlier, the DVA again reversed its position, in part, on December 12, 1989, after the decision below was announced. See O.G.C. Prec. 19-89.
The DVA dispenses various benefits to veterans and their dependents. Included among these are disability compensation for service connected injuries, pensions for non-service related injuries, education benefits, home loan guarantees, and medical and other services. Both the old and new versions of sections 3404 and 3405 are clearly applicable to claims for these benefits. The constitutionality of the fee statutes, as applied to these types of claims, was upheld in Walters v. National Ass'n of Radiation Survivors, 473 U.S. 305, 105 S.Ct. 3180, 87 L.Ed.2d 220 (1985).
Occasionally, the DVA determines that a veteran has incurred indebtedness to the government in connection with his or her receipt of veterans' benefits. Frequently, such an indebtedness arises in connection with the DVA's home loan guaranty program. Other situations, such as an overpayment of benefits, or the erroneous payment of benefits to one who is not entitled to them, may also result in a claim by the DVA, against the veteran, for reimbursement.
The DVA's claims against Bahnmiller and Frye arose in the home loan guaranty context. In 1985, the DVA initiated administrative debt collection proceedings against Frye, seeking to recover $7,209.67 allegedly due by reason of a deficiency judgment obtained in connection with a home formerly owned by Frye. Frye had obtained a DVA guaranteed loan on his home and sold the home to a third party. When the purchaser subsequently defaulted, the lienholder foreclosed upon the mortgage, and a deficiency judgment arose when the sale of the home did not bring enough to satisfy the mortgage indebtedness. Because Frye had not been released from the mortgage when he sold the home, the DVA was entitled to, and did, seek to collect the deficiency judgment from him. Frye requested a release from liability or a waiver of payment. Frye's administrative claim is still pending before the DVA, and is governed by the old statute.
In 1988, Bahnmiller received notice of an alleged debt of $27,658.83, also arising out of a DVA home loan guarantee. He too challenged the existence of the debt and alternately requested its waiver. Bahnmiller's administrative claim is still pending before the DVA and is governed by the new statute.
Both Frye and Bahnmiller alleged in their complaint that they were unable to obtain representation in connection with the defense of the claim made against them. Frye asserts that the $10 limit of the old statute effectively prevented any attorney from taking the case. Bahnmiller complains because the plain language of the new statute prohibited the use of any attorney while the claim was still at the administrative level. Frye and Bahnmiller thus challenge the applicability of the fee statutes to debt collection efforts arising out the home loan guaranty program.
The parties cross-moved for summary judgment. In a thorough and well-reasoned opinion, the district court, concluding that the fee statutes do apply to administrative debt collection actions through what it termed "Stage One" of the DVA debt collection process, granted defendants' motion for summary judgment. The court further held that the fee limitation does not apply "when the [DVA] seeks legal remedies beyond the administrative context." 724 F.Supp. at 1216.
In the opinion of the district court, a Stage One proceeding, which is characterized by a "benevolent administrative scheme," does not...
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