Corrao v. Shalala

• Decision Date: 07 April 1994
• Docket Number: No. 92-55581,92-55581
• Parties: , Unempl.Ins.Rep. CCH (P) 17696A Raymond CORRAO, Plaintiff-Appellant, v. Donna E. SHALALA, * Secretary of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 943

20 F.3d 943

44 Soc.Sec.Rep.Ser. 150, Unempl.Ins.Rep. CCH (P) 17696A

Raymond CORRAO, Plaintiff-Appellant, v. Donna E. SHALALA, ^* Secretary of Health and Human

Services, Defendant-Appellee.

No. 92-55581.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Oct. 7, 1993.

Decided Feb. 2, 1994.

As Modified on Limited Grant of Rehearing April 7, 1994.

Thomas Garrett Roche, Ernecoff & Roche, San Diego, California, for the plaintiff-appellant.

Donna W. Anderson, Department of Health & Human Services, San Francisco, California, for the defendant-appellee.

Appeal from the United States District Court for the Southern District of California.

Before: FLETCHER and D.W. NELSON, Circuit Judges, and WILL, ^** District Judge.

FLETCHER, Circuit Judge:

Raymond Corrao appeals the district court's grant of summary judgment in favor of the Secretary of Health and Human Services (the "Secretary"), who found that Corrao is not entitled to supplemental security income. We reverse.

BACKGROUND

Raymond Corrao was born on March 16, 1938. He has a tenth grade education. On April 5, 1989, Corrao applied for supplemental security income ("SSI"), alleging disability due to mental illness, drug dependency, and lack of energy. Corrao's application indicates that his disabling condition began in 1950 and that this condition made him stop working in 1972.

Corrao's application was initially denied and was brought before an ALJ. At the hearing, Corrao testified that he uses 1 1/2 grams of heroin on a daily basis and that he has used heroin for thirty-five years. He drinks several six packs of beer and a half pint of whisky daily. He has lost consciousness on many occasions and has lost jobs due to his drug and alcohol problem. Corrao leaves his home daily to go to the methadone treatment clinic, where he is tested for drug usage. Although he would be permitted to take methadone home if he tested clean for drugs, he has never tested clean.

Corrao testified that he obtains the heroin he uses by purchasing heroin for others and receiving some of the purchased drugs in return. He purchases up to $600 worth of heroin daily for up to three people per day. In return, he receives approximately 1 1/2 grams of heroin in total, worth about $150 per day. This heroin is consumed by Corrao. To obtain the heroin, Corrao has his clients pick him up and he directs them to a given location. The clients wait for him to complete his purchase and then return him home. The entire transaction takes approximately thirty to forty-five minutes.

Both Corrao's former parole officer and a medical expert testified at the hearing. Mr. Snedden, the parole officer, stated that Corrao has difficulty getting along with people, has frequent outbursts, and has not maintained employment due to his problems accepting authority figures. Dr. Wilson, the medical expert, testified that Corrao's heroin intoxication was ongoing and that in his opinion, Corrao's behavior and characteristics met the regulatory requirements for listed impairments due to substance abuse. The administrative record also contains psychiatric evaluations from several doctors, all of whom diagnosed heroin intoxication or addiction in addition to other secondary personality disorders.

On June 25, 1990, the ALJ found that Corrao was not disabled within the meaning of the regulations. This decision became the final decision of the Secretary when the Appeals Council declined to review the ALJ's decision on January 1, 1991. Corrao then commenced this proceeding in federal district court. The district court upheld the Secretary's final decision, granting the Secretary's motion for summary judgment in an order and judgment entered on February 21, 1992 and February 27, 1992, respectively. Corrao timely appealed the district court's denial of his claim.

JURISDICTION AND STANDARD OF REVIEW

The district court exercised jurisdiction under 42 U.S.C. Secs. 405(g) and 1383(c). We have jurisdiction of the appeal pursuant to 28 U.S.C. Sec. 1291.

We review the propriety of the district court's grant of summary judgment de novo. Jones v. Union Pac. R. Co., 968 F.2d 937, 940 (9th Cir.1992). Whether illegal activity may constitute substantial gainful activity is a construction of agency regulations that we review de novo. Dotson v. Shalala, 1 F.3d 571, 575 (7th Cir.1993). In determining

whether the district court was correct in upholding the Secretary's decision to deny Corrao SSI, we review the Secretary's decision to ensure that the Secretary applied the correct legal standards and the entire administrative record to ascertain whether its findings are supported by substantial evidence. Young v. Sullivan, 911 F.2d 180, 183 (9th Cir.1990).

DISCUSSION

In determining whether a claimant is disabled, the Secretary follows a five-step sequential evaluation process. 42 U.S.C. Sec. 1382c(a)(3); 20 C.F.R. Sec. 416.920 (1993); Pitzer v. Sullivan, 908 F.2d 502, 504 (9th Cir.1990). First, the Secretary must determine whether the claimant is currently performing "substantial gainful activity"; if so, the claimant will be found not disabled "regardless of [his] medical condition or [his] age, education, and work experience." See 20 C.F.R. Secs. 416.920(a) & (b) (1993). If the claimant is not performing substantial gainful activity, the Secretary will determine whether the claimant has a severe impairment. If there is no severe impairment, the Secretary will find that the claimant is not disabled. 20 C.F.R. Sec. 416.920(c) (1993). If the claimant has an impairment that meets or is equivalent to an impairment listed in the regulations, the claimant is considered disabled. 20 C.F.R. Sec. 416.920(d) (1993). If the claimant does not have such a listed impairment, the Secretary considers whether the impairment, when considered along with other factors, prevents the claimant from doing past work. The Secretary finally considers whether the claimant can perform other work. 20 C.F.R. Secs. 416.920(e) & (f) (1993). If the Secretary finds that a claimant is disabled or is not disabled at any point in this process, the review process is terminated. See 20 C.F.R. Sec. 416.920 (1993).

In the present case, the Secretary determined that Corrao's activities in procuring heroin constitute "substantial gainful activity" within the meaning of the regulations, and thus that Corrao is not disabled. The Secretary alternatively concluded that even if these actions are not considered substantial gainful activity, the nature of the activities Corrao performs demonstrate that "he has the physical and mental stamina necessary to run a business and no evidence of a 'severe' impairment." (Admin. Record at 11). We disagree with both of these conclusions.

I. Illegal activities as substantial gainful activity

On appeal, the Secretary contends that the illegal nature of Corrao's activities does not affect their characterization as substantial gainful activity ("SGA"). Whether illegal activities may be considered SGA is an issue of first impression in our circuit.

The Secretary argues that the fact that an activity is illegal is not a sufficient reason to exempt it from the reach of civil law. She also argues that the claimant's motive is irrelevant to the concept of whether he is earning income, and that it is against public policy to grant SSI benefits to those who obtain income illegally.

The only federal circuit court to address this issue is the Seventh Circuit, which held that illegal activity can constitute SGA. Dotson v. Shalala, 1 F.3d 571, 576 (7th Cir.1993). ¹ The Dotson court properly noted that the regulatory definition of SGA does not distinguish between legality and illegality, but instead focuses on the nature of the claimant's activities. Specifically, an activity must be both "substantial" and "gainful." See 20 C.F.R. Sec. 416.972 (1993). Work activity is "substantial" if it "involves doing significant physical or mental activities." Id. at Sec. 416.972(a) (1993). It is "gainful" if it is "the kind of work usually done for pay or profit, whether or not a profit is realized." Id. at Sec. 416.972(b) (1993). The claimant's activities need only be of the type that normally results in pay or profit. Conceivably, the claimant's activities may be gainful even if the claimant does not earn income. 20 C.F.R. Sec. 416.972(b) (1993); Callaghan v We agree with the Seventh Circuit's analysis that nothing in the regulations suggests that illegal activity cannot be SGA. To the contrary, there clearly exist illegal activities that are both "substantial" and "gainful." Tax fraud, for example, involves significant mental activity, and the completion of tax forms is an activity that normally results in a benefit to the individual completing the forms. As a matter of policy, we see no reason to prefer claimants who earn a living by illegal means over those who survive without violating the law by suggesting that the illegal activity is neither substantial nor gainful. See Dotson, 1 F.3d at 576.

Shalala, 992 F.2d 692, 695-96 (7th Cir.1993) (financially unsuccessful sandwich shop business and upholstery business are gainful activities). Because the regulations require an ALJ to focus on the nature of the claimant's activities and the skills required to perform them, the Dotson court concluded that whether activities are illegal is irrelevant to the analysis.

Our conclusion that illegal activity can constitute SGA receives support from the principle in taxation law that unlawful earnings are considered taxable "gross income." See id. at 577. The tax laws clearly recognize that it is incongruous to have "the gains of the honest laborer taxed and the gains of the dishonest immune." ² Id. (citing James v. United States, 366 U.S. 213, 218, 81 S.Ct. 1052, 1055, 6 L.Ed.2d 246 (1961)).

Corrao argues that the proper distinction is not between illegal and legal activities, but between addicted individuals and other individuals. He argues that...