Dugan v. Sullivan, 90-3240
| Decision Date | 18 March 1992 |
| Docket Number | No. 90-3240,90-3240 |
| Citation | 957 F.2d 1384 |
| Parties | , Unempl.Ins.Rep. (CCH) P 16525A, 2 NDLR P 274 James C. DUGAN, Plaintiff-Appellant, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
A. Robert Kassin, Edwardsville, Ill. (argued), for plaintiff-appellant.
Robert C. Stephens, Dept. of Health and Human Services, Region V, Office of the General Counsel, Chicago, Ill. (argued), for defendant-appellee.
Before CUDAHY and RIPPLE, Circuit Judges, and ENGEL, Senior Circuit Judge. *
James Dugan, a disabled Vietnam veteran, received Social Security disability benefits until he was incarcerated for a period of two years. After Dugan's release from incarceration, the Secretary of Health and Human Services reinstated his benefits. Two years following the reinstatement, Dugan was notified that he had been overpaid to the tune of $40,000 because he had engaged in disqualifying employment seven years earlier (in connection with the scheme underlying his conviction). The administrative law judge and the district court rejected Dugan's challenges to the Secretary's retroactive termination of Dugan's disability benefits. Because we hold that the Secretary's termination decision is barred by administrative res judicata, we reverse.
James Dugan suffered injuries in the Vietnam War resulting in the amputation of both legs above the knee. He was first awarded Social Security disability benefits in June 1967. Those benefits continued until November 1973, when Dugan's disability was found to have ceased following a successful trial work period. He reapplied the next year, and the Secretary again granted benefits effective July 1974; this period of benefits lasted until May 1981. On March 27, 1981, Dugan was convicted in the United States District Court for the Southern District of Illinois on RICO and tax evasion charges involving a scheme to distribute marijuana. 1 Dugan's conviction was based on a guilty plea, which he contends was entered as an "Alford plea." 2 By letter dated July 24, 1981, the Secretary informed Dugan that his benefits were suspended as of May 1, 1981, when Dugan began serving his sentence. Dugan was released from prison on parole on July 27, 1983. Just over two months later, the Secretary notified him that his benefits were being reinstated effective August 1983.
In May 1985 the Secretary informed Dugan that his entitlement to disability benefits was terminated effective March 31, 1978. On the basis of Dugan's criminal conviction, and in particular his signed plea agreement, the Secretary had determined that in January 1978 Dugan had returned to work as a self-employed person engaged in "substantial gainful activity" and was therefore not entitled to benefits as of that time. The indictment and information charged that Dugan received income of $115,706.80 in a marijuana distribution enterprise during the calendar year 1978. The Secretary concluded that Dugan had been overpaid $36,330.30 in benefits between April 1978 and May 1985. Upon learning of the retroactive termination of his benefits, Dugan reapplied and was granted a new period of disability effective June 1984 (12 months prior to the date of his new application--the maximum period for benefits awarded retroactively). Dugan's new period of disability reduced his overpayment to $28,511.70.
Dugan initially raised several challenges to the Secretary's retroactive termination of benefits. An administrative law judge rejected his challenges and found that his illegal activities in 1978 constituted substantial gainful activity. After the Appeals Council denied review of the ALJ's decision, Dugan sought review in the district court. A magistrate recommended that the Secretary's decision be reversed on the alternative grounds that illegal activity is not substantial gainful activity and that the ALJ's finding of substantial gainful activity was not supported by substantial evidence. The district court rejected the magistrate's recommendation and affirmed the decision of the Secretary.
The Social Security Act provides that we are to review decisions of the Secretary only to determine whether substantial evidence supports the Secretary's findings of fact and whether there has been an error of law. 42 U.S.C. § 405(g); Stuckey v. Sullivan, 881 F.2d 506, 508 (7th Cir.1989). Our function is not to reweigh the evidence or to decide whether the claimant was actually disabled. Id.
Dugan's initial argument (and the only one we need to consider) is that the Secretary's 1985 termination decision, based on work activity in 1978, is precluded by administrative res judicata under the Secretary's regulations.
At the outset, we must consider the Secretary's contention that Dugan waived the res judicata issue by failing to raise it below. We disagree with the Secretary. It is noteworthy that Dugan was unrepresented by counsel at each stage of the administrative proceedings. Such proceedings are already less formal than adversarial judicial proceedings. These considerations counsel against an overly strict approach to the waiver of issues on appeal. Our review of the record convinces us that Dugan did adequately raise the issue of res judicata several times before the Secretary. 3 Dugan also adequately raised the issue before the district court. 4
The res judicata inquiry involves two steps. First, is the Secretary's 1983 decision the type of decision that is subject to administrative res judicata in the first place? Second, if it is, has the Secretary met the requirements for reopening such a determination?
The regulations promulgated under the Social Security Act establish a scheme for ensuring finality in the Secretary's determinations. 20 C.F.R. §§ 404.905, 404.987-404.989. It is by now well established that these regulations embody fundamental and familiar principles of res judicata. See Draper v. Sullivan, 899 F.2d 1127, 1130 (11th Cir.1990); Lively v. Secretary of Health & Human Services, 820 F.2d 1391, 1392 (4th Cir.1987).
Under 20 C.F.R. § 404.902(b), a decision about "reentitlement to benefits" is an "initial determination," which in turn counts as a "determination" under § 404.901. As a "determination," it is subject to the res judicata provisions of §§ 404.987-404.989. The Secretary's 1983 decision to reinstate Dugan's disability benefits would initially appear to qualify as such a reentitlement decision. The Secretary argues, however, that the 1983 decision was merely a resumption of benefits following their suspension during Dugan's incarceration, and did not involve a binding eligibility determination.
In addition to being in some tension with the language of the regulations just quoted, the Secretary's argument is belied by the agency's own operating rules. The Social Security Administration's Programs Operations Manual System (POMS) requires the agency to review the cases of individuals whose benefits are terminated during incarceration for a felony to determine whether they continue to qualify for benefits:
A CDR [Continuing Disability Review] will be conducted in the customary manner taking into account information developed by the DO [District Office] on any newly discovered felony case. Evidence will be secured and evaluated in accordance with DI 00401.636.-00401.639., and a determination made as to whether disability is continuing.
POMS § DI 401.875.B. Even more to the point is the agency's procedure for reinstatement of benefits after incarceration:
If otherwise entitled, an individual whose benefits have been suspended pursuant to the foregoing shall be reinstated effective with the first full month of nonconfinement.... If a possible medical issue exists (e.g., there is an indication of medical improvement or a medical reexam diary is outstanding), process in accordance with DI 00504.050. If there is work activity, process in accordance with DI 00504.001 [regulations on Continuing Disability].
POMS § DI A202.840.E (emphasis added).
The Secretary does not deny what seems an inevitable interpretation of these provisions--that benefits are to be reinstated following incarceration only if the claimant is determined to be eligible. Further, it appears that in the present case an eligibility review was in fact conducted before Dugan's benefits were reinstated by the Secretary. 5 In any event, because the Secretary's regulations provide for such an eligibility review, we conclude that the Secretary's 1983 reinstatement of Dugan's benefits was a "reentitlement" determination subject to administrative res judicata.
Turning to the second stage of the res judicata inquiry, we must decide whether the Secretary's 1983 reinstatement was properly reopened under the regulations. If it was, then the Secretary's 1985 termination decision is not barred. The Secretary urges three potential grounds for reopening: fraud or similar fault; new and material evidence; and clear error on the face of the evidence. All three grounds are specified in the reopening regulations at 20 C.F.R. §§ 404.987-404.989.
This court, in dicta, has questioned whether the regulations even allow for reopenings initiated by the Secretary. Section 404.987(a) 6
could be read to make the reopening of a disability case a remedy of the disappointed applicant.... The word "However" in the quoted passage is particularly suggestive that reopening is intended to be for the benefit of the disappointed applicant only--though of course we need not decide in this case whether it must be limited so.
DeLong v. Heckler, 771 F.2d 266, 267-68 (7th Cir.1985). The First Circuit has explicitly held, primarily on the basis of due process concerns, that only a claimant may initiate reopening. McCuin v. Secretary of Health & Human Services, 817 F.2d 161, 174 (1st Cir.1987). Several other circuits disagree. See Sheppard v....
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