Edwards v. Heckler, s. 82-4156
| Decision Date | 13 September 1985 |
| Docket Number | Nos. 82-4156,83-1652 and 83-1672,s. 82-4156 |
| Parties | Mildred M. EDWARDS, both individually and on Behalf of all others similarly situated, Plaintiffs-Appellees-Cross-Appellants, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant-Appellant-Cross-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Barbara Midtbo, Senior Citizens Legal Services, Eureka, Cal., Eileen P. Sweeney, Nat. Senior Citizens Law Center, Washington, D.C., Neal S. Dudovitz, Peter Komlos-Hrobsky, Nat. Senior Citizens Law Center, Los Angeles, Cal., for plaintiffs-appellees-cross-appellants.
Joseph P. Russoniello, U.S. Atty., San Francisco, Cal., Richard K. Willard, Acting Asst. Atty. Gen., Robert S. Greenspan, Frank A. Rosenfeld, Attys., Washington Appeal from the United States District Court for the Northern District of California.
D.C., for defendant-appellant-cross-appellee.
Before WRIGHT, PREGERSON and POOLE, Circuit Judges.
Mildred M. Edwards applied for Social Security retirement insurance benefits in 1978. The Secretary denied her application because she did not have sufficient quarters of coverage to establish eligibility for the benefits. The Secretary relied upon 42 U.S.C. Sec. 411(a)(5)(A) which governs the allocation in community property states of self-employment income from a family business between husbands and wives. That section provides that
[i]f any of the income derived from a trade or business * * * is community income under community property laws applicable to such income, all of the gross income and deductions attributable to such trade or business shall be treated as the gross income and deductions of the husband unless the wife exercises substantially all of the management and control of such trade or business, in which case all of such gross income and deductions shall be treated as the gross income and deductions of the wife[.]
42 U.S.C. Sec. 411(a)(5)(A) (emphasis added). Because the Secretary found that Edwards had not demonstrated that she had exercised substantially all of the management and control of the business, she could not receive credit for her earnings in that business.
On October 20, 1980, Edwards filed this action against the Secretary on behalf of herself and others similarly situated. Edwards challenged the constitutionality of 42 U.S.C. Sec. 411(a)(5)(A) as violative of the Equal Protection Clause of the Fifth Amendment because it unlawfully discriminates against women on the basis of their gender. Three courts had previously held the statute unconstitutional, see Carrasco v. Secretary of HEW, 628 F.2d 624, 630 (1st Cir.1980); Hester v. Harris, 631 F.2d 53, 54 (5th Cir.1980); and Becker v. Harris, 493 F.Supp. 991, 997 (E.D.Cal.1980). The constitutionality of the statute is no longer in issue because the Attorney General has decided not to seek further review in these cases.
After the Secretary notified the district court of the Attorney General's decision, the Secretary sought to remand Edwards' individual case. Edwards then filed motions for summary judgment on the issue of liability and for certification of a nationwide class. On May 22, 1981, the district court granted Edwards' motions and denied the Secretary's. 1 Edwards then asked the district court to determine the new standard for treating self-employment income of a husband-wife business that will replace the unconstitutional standard, rather than leave that determination to the Secretary. The court urged the Secretary to develop a standard and to determine mechanisms for notifying individuals injured by the unconstitutional standard. After the parties were unable to agree on a standard, the court ordered the parties to brief the issues remaining.
The court ordered that the new standard should allow a husband and wife to split the income from the business if they can show that a "co-proprietorship" existed, rejecting the Secretary's position that a partnership between them must be shown. The court also ordered that the income be split on the basis of the amount of labor each spouse contributed. In addition, the court ordered that the new standard apply retroactively to the beginning of the self- At oral argument before this court the parties' positions on some of the issues did not appear to be significantly different. By order dated December 13, 1984, we requested counsel to advise us whether they had come to any agreement as to the issues raised at oral argument. This case was submitted to this panel for decision after the parties informed us that they were unable to agree on the resolution of all of the issues before us. They were able to agree, however, that the partnership-in-fact test proposed by the Secretary 2 is the proper standard to replace the unconstitutional standard of 42 U.S.C. Sec. 411(a)(5)(A). Therefore that issue is no longer before us.
employment program in 1950, with the unlimited right to amend earnings records. In order to assure that this retroactive application not be highly inequitable, the court ordered that no husband lose benefits already calculated to be owing him when some of his income is shifted to his wife's earnings records, and that each wife be allowed to elect to apply the old standard rather than the new one if that would yield higher benefits. Lastly, the court awarded $29,759 in attorney's fees. The Secretary appeals the judgment establishing the new standard and the parties cross-appeal the attorney's fee award.
The first issue remaining before us is whether the new standard which replaces 42 U.S.C. Sec. 411(a)(5)(A) should be applied prospectively or retroactively to the beginning of Social Security coverage of self-employed individuals in 1950. In determining whether to apply a decision nonretroactively, we generally consider three factors:
[f]irst, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, * * * or by deciding an issue of first impression whose resolution was not clearly foreshadowed * * *. Second, * * * "we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation." * * * Finally, we [weigh] the inequity imposed by retroactive application, for "[w]here a decision * * * could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the 'injustice or hardship' by a holding of nonretroactivity."
Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355-56, 30 L.Ed.2d 296 (1971) (citations omitted).
We agree with the district court that retroactive application of the new standard is appropriate. 3 First, the strong line of gender discrimination cases decided Second, retroactive application will further the purpose of the new partnership-in-fact standard to eliminate the effect of the unconstitutional presumption in favor of the husband and to permit both spouses to participate in the Social Security program by allocating income earned in a family business between them when the requisite intent jointly to operate the business is shown.
by the Supreme Court in the last decade 4 "clearly foreshadowed" the holding that section 411(a)(5)(A) was unconstitutional.
Third, a balancing of the equities favors retroactive application. The Secretary initially objected that retroactive application was inequitable. 5 She argued that reallocation of income may reduce some males' quarters of coverage so as to make them ineligible or reduce their benefits, and that some women may be better off with their share of their husbands' accounts than with their own. The Secretary argued that the danger of upsetting the couples' retirement plans weighed heavily against retroactivity. Cf. Heckler v. Mathews, 465 U.S. 728, 104 S.Ct. 1387, 1398-1400, 79 L.Ed.2d 646 (1984) ().
The district court concluded that retroactivity was still appropriate, however, because it could fashion a remedy to avoid these inequities. The court ordered that, despite recomputation, no current recipient shall have his benefits reduced, and that women who would benefit more from the former system may elect to remain under the original allocation.
The Secretary has withdrawn her objection to retroactive application of the new standard on a case-by-case basis to permit class members who would benefit more from the former system to remain under the original allocation. Thus, those whom retroactive application would harm are protected under the district court's order. 6 She continues to object, however, to that part of the order which requires that a husband's benefits remain the same even though part of his self-employment income is allocated to his wife and her benefits accordingly increased. The Secretary describes this as a windfall and argues that the court cannot disregard the conditions set by Congress for entitlement to benefits even when doing so might be equitable, Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed.2d 685 (1981). We agree with the Secretary that this part of the order is improper. The couples should have to choose between reallocating the income to increase the wife's benefits and maintaining the status quo so that the husband's benefits remain the same. Otherwise the couples would receive more benefits than the statute provides.
The Secretary next argues that, if the new rule...
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