Everhart v. Bowen

• Citation: 853 F.2d 1532
• Decision Date: 12 August 1988
• Docket Number: No. 87-1839,87-1839
• Parties: , 22 Soc.Sec.Rep.Ser. 577, Unempl.Ins.Rep. CCH 14101A Sandra EVERHART, Thomas Everhart, and Myron Zenick, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, Berline Wise and Emil S. Zweizen, Plaintiffs-Intervenors-Appellees, v. Otis R. BOWEN, M.D., Secretary of Health and Human Services, and Dorcas Hardy, Commissioner of the Social Security Administration in their official capacities, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1532

853 F.2d 1532

11 Fed.R.Serv.3d 1357, 22 Soc.Sec.Rep.Ser. 577,

Unempl.Ins.Rep. CCH 14101A

Sandra EVERHART, Thomas Everhart, and Myron Zenick, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees Berline Wise and Emil S. Zweizen, Plaintiffs-Intervenors-Appellees, v. Otis R. BOWEN, M.D., Secretary of Health and Human Services and Dorcas Hardy, Commissioner of the Social Security Administration in their official capacities Defendants-Appellants.

No. 87-1839.

United States Court of Appeals Tenth Circuit.

Aug. 12, 1988.

Michael Kimmel (Richard K. Willard, Asst. Atty. Gen., Washington, D.C., Robert N. Miller, U.S. Atty., Denver, Colo., and William Kanter with him on the brief), Dept. of Justice, Washington, D.C., for defendants-appellants.

Linda J. Olson (Daniel M. Taubman, Colorado Coalition of Legal Services Programs, Denver, Colo., and R. Eric Solem with her on the brief), Legal Aid Society of Metropolitan Denver, Denver, Colo., for plaintiffs-appellees.

Before HOLLOWAY, Chief Judge, TIMBERS ^* and BALDOCK, Circuit Judges.

BALDOCK, Circuit Judge.

The primary issue presented in this appeal concerns the methodology employed by the Social Security Administration (SSA) to calculate net overpayments and underpayments of Title II and Title XVI Social Security benefits. Filed as a class action, plaintiffs-appellees' complaint sought declaratory and injunctive relief against defendants-appellants the Secretary of the Department of Health and Human Services (the Secretary) and the Commissioner of the SSA. The plaintiffs challenged the SSA's policy of offsetting underpayments of benefits against overpayments, which they alleged violated their rights under the Social Security Act and denied them due process of law under the fifth amendment to the United States Constitution. The district court entered summary judgment in favor of the plaintiffs, ruling that the netting regulations promulgated by the Secretary are inconsistent with the waiver of recoupment provisions of the Act. The court remanded the named plaintiffs' cases to the SSA and entered a statewide injunction prohibiting the Secretary from applying the regulations to all other Title II and Title XVI beneficiaries.

The Secretary now raises the following issues: 1) whether the netting regulations constitute a reasonable exercise of his authority to implement the Social Security Act; and 2) whether the district court erred in granting statewide injunctive relief when it had not made a determination on the question of class certification. We affirm in part and reverse in part.

As discussed more fully below, both Title II of the Social Security Act, which controls the operation of the Old Age, Survivors and Disability Insurance (OASDI) programs and Title XVI, which controls the Supplemental Security Income (SSI) program, contain mandatory provisions calling for the Secretary to make payment of amounts due to underpaid recipients and to recover excess amounts received by overpaid recipients. Both titles also contain waiver of recoupment provisions, pursuant to which the Secretary shall not recover from an overpaid recipient who is without fault when to do so would defeat the purpose of the Act or be against equity and good conscience. The disputed netting regulations establish the methodology by which the SSA determines whether a recipient has been overpaid or underpaid. Pursuant to those regulations, the SSA offsets any overpayments against any underpayments to arrive at a single net amount.

The original plaintiffs all received checks for net underpayments. When Sandra and Thomas Everhart were married in September 1984, Sandra was receiving Title II and SSI benefits, while Thomas was receiving SSI benefits. In early 1985, the SSA determined that from their marriage until that time the Everharts together had incurred a net underpayment of $407. Because there was no net overpayment, the SSA considered the statutory recoupment and waiver of recoupment provisions to be inapplicable.

Myron Zenick began receiving Title II benefits in 1976. In September 1983, the SSA advised Zenick that his disability benefits were being terminated and that he had been overpaid since 1980. Upon Zenick's reapplication for benefits, an ALJ found that he had been disabled since 1982. In March 1985, the SSA notified Zenick that he would be paid $4,402 for net underpayments accruing during the years 1980 to 1985. Again, the SSA deemed the recoupment and waiver of recoupment procedures to be inapplicable.

The intervening plaintiffs both received favorable ALJ waiver decisions which were reversed by the Appeals Council. Berline Wise began receiving Title II disability benefits in 1975. Her benefits were terminated in June 1983; however, she subsequently was awarded old-age benefits as of September 1980. In December 1983, the SSA determined that Wise had received a net overpayment of $14,500 for the years 1976 through 1983. Because she had been overpaid, the SSA provided Wise an opportunity to seek a waiver of recovery of the net overpayment. Wise instead challenged the netting regulations on the basis that her overpayments and underpayments should be treated separately. The ALJ agreed, but the Appeals Council upheld the net overpayment figure and the application of the waiver procedure to that amount. The Appeals Council also found that Wise was at fault in receiving the overpayment and hence did not qualify for a waiver of recoupment.

Emil Zweizen began receiving Title II old-age benefits in 1977. The SSA later determined that during the years 1977 through 1984 Zweizen had received a net overpayment of $5,107. An ALJ held that the overpayment should be waived, but the Appeals Council considered Zweizen to be at fault.

On December 12, 1986, the original plaintiffs, on behalf of themselves and others similarly situated, filed this action challenging the netting methodology employed by the SSA. The parties stipulated that the netting regulations had been applied to the named plaintiffs and filed cross motions for summary judgment. At a hearing on those motions, the district court ruled from the bench that the regulations contravene the waiver of recoupment provisions of the Social Security Act by denying recipients notice and a hearing on the issue of waiver of recovery of overpayments. Rec. vol. II at 2-5. In so ruling, the court expressly adopted the dissenting opinion in Lugo v. Schweiker, 776 F.2d 1143, 1153-56 (3d Cir.1985) (Gibbons, J., dissenting). Rec. vol. II at 5. Stating that the merits of the case should be appealed "as soon as possible," the court then decided to forego determining whether the class should be certified. Id. at 6-7.

In its subsequent order granting the plaintiffs' motion for summary judgment, the court remanded their claims to the Secretary to recalculate their overpayments and underpayments without utilizing the netting methodology and to accord the plaintiffs their procedural rights under the statute. Rec. vol. I, doc. 6 at 2. The court further ordered that the Secretary be "enjoined from applying the above-referenced [netting] methodology to all other beneficiaries under Title II and/or Title XVI of the Social Security Act in the State of Colorado." Id. The statewide injunctive relief was stayed pending this appeal.

I.

The Secretary contends that the regulations employed to determine past payment errors, through the netting of a recipient's entitlements and payments during the entire period during which any payment errors have occurred, constitute a reasonable and permissible construction of the Social Security Act as well as a sound and equitable exercise of his authority to implement the Act.

Resolution of this legal issue requires us to determine whether the netting regulations constitute a valid exercise of the Secretary's authority under the statute. Because the Social Security Act expressly entrusts the Secretary with the responsibility of implementing the Act by regulation, our review of the disputed regulations is limited to determining whether the regulations are arbitrary and capricious or are inconsistent with the statute. Heckler v. Campbell, 461 U.S. 458, 466, 103 S.Ct. 1952, 1956, 76 L.Ed.2d 66 (1983); Hansen v. Heckler, 783 F.2d 170, 174 (10th Cir.1986).

42 U.S.C. Secs. 404(a)(1) ¹ and 1383(b)(1) ² address overpayments and underpayments of Title II and SSI benefits respectively. Both contain language providing that payment shall be made to a beneficiary receiving less than the correct amount and that overpayments shall be recovered from a beneficiary receiving more than the correct amount. The Title II waiver of recoupment provision, Sec. 404(b), ³ qualifies the Secretary's right to recovery or adjustment under Sec. 404(a)(1)(A) by mandating forgiveness of any repayment of overpaid amounts if the recipient is without fault and recovery would defeat the purpose of the statute or would be against equity and good conscience. The SSI waiver provision, Sec. 1383(b)(1)(B), ⁴ also directs the forgiveness of overpayments in appropriate situations. Those recipients who do not request a waiver of repayment, or who are denied a waiver, are subject to the recoupment provisions set out in Secs. 404(a)(1)(A) and 1383(b)(1)(A).

The disputed netting regulations, promulgated by the Secretary to implement the payment error provisions of the Act, establish a general methodology and accounting period for determining whether, and to what extent, a beneficiary has received a net overpayment or a net underpayment. The SSI netting regulation, 20 C.F.R. Sec. 416.538, provides in pertinent part:

The amount of an underpayment or overpayment is the difference between the amount paid to a recipient and the amount of payment actually due such recipient for a given period. An overpayment or underpayment period begins with the first month for which there is a difference between the amount paid and the amount actually...