Fenix v. Celebrezze, Civ. A. No. 1750.

• Decision Date: 22 June 1965
• Docket Number: Civ. A. No. 1750.
• Parties: Frank G. FENIX, Plaintiff, v. Anthony J. CELEBREZZE, Secretary of Health, Education, and Welfare, Defendant.
• Court: U.S. District Court — Western District of Missouri

243 F. Supp. 816

Frank G. FENIX, Plaintiff, v. Anthony J. CELEBREZZE, Secretary of Health, Education, and Welfare, Defendant.

Civ. A. No. 1750.

United States District Court W. D. Missouri, Southwestern Division.

June 22, 1965.

Robert E. Seiler, of Seiler, Blanchard & VanFleet, Joplin, Mo., for plaintiff.

F. Russell Millin, U. S. Atty., by John Harry Wiggins, Asst. U. S. Atty., Kansas City, Mo., for defendant.

BECKER, District Judge.

This is an action under the Social Security Act to review a final decision of the Secretary of Health, Education, and Welfare denying to plaintiff old-age insurance benefits provided by Section 402(a) of Title 42, U.S.C.A., and requiring the repayment by plaintiff and his wife of benefits previously received by them. Jurisdiction exists under Section 405(g) of Title 42, U.S.C.A. Unless otherwise designated, all statutes cited hereinafter are contained in Title 42, U.S.C.A.

STATUTES INVOLVED

Section 402(a) requires that plaintiff be a "fully insured individual" to qualify for old-age insurance benefits. Section 414(a) defines the term "fully insured individual". This definition, applied to the plaintiff, requires that the plaintiff have a minimum of six quarters of coverage in order that he be a fully insured individual.

Section 413(a) (1) provides:

"The term `quarter' * * * means a period of three calendar months ending on March 31, June 30, September 30, or December 31." Section 413(a) (2) provides:

"The term `quarter of coverage' means a quarter in which the individual has been paid $50 or more in wages * * * or for which he has been credited (as determined under section 412 of this title) with $100 or more of self-employment income, * * *."

The term "self-employment income" as used in Section 413(a) (2) means income from a trade or business carried on by an individual, and does not include investment or rental income. Section 411(a) and (b).

Section 412 requires self-employment income of plaintiff in a taxable calendar year to be credited equally to each quarter of that year.

Section 409 defines the term "wages" used in Section 413(a) (2) as "* * * remuneration * * * for employment * * *."

Prior to 1961, services performed by an individual in the employ of his son (or other relatives not material here) were excluded from the definition of employment by Section 410(a) (3), so remuneration for such services did not constitute wages under Section 413(a) (2). This exclusion is sometimes designated as the family employment exclusion.

PRINCIPAL ISSUE IN DISPUTE

The principal disputed issue in the decision under review is what portion, if any, of plaintiff's employment from January 1, 1955, to September 30, 1956, was family employment.

PRIOR ADMINISTRATIVE PROCEEDINGS

On September 7, 1956, plaintiff, then 69 years old, applied for old-age insurance benefits. The Bureau of Old-Age and Survivors Insurance of the Social Security Administration ("Bureau" hereinafter) determined that plaintiff was entitled to benefits of $104.50 a month.

On January 21, 1957, plaintiff's wife applied for wife's insurance benefits under Section 402(b), which provides that the wife of a fully insured individual is entitled to benefits at age 65. The Bureau determined that she was entitled to benefits of $52.30 a month as of November 1956, the month in which she became 65 years old.

Benefits were paid to plaintiff for the months of October 1956 to May 1959, inclusive, in the total sum of $3,381.50. Benefits were paid to plaintiff's wife for the months of November 1956 to May 1959, inclusive, in the total sum of $1.639.80.

The Bureau's determinations that plaintiff and his wife were entitled to benefits were based on a finding that plaintiff's employment from January 1, 1955, to September 30, 1956, was by the St. Regis Mining Company, a Missouri partnership, of which plaintiff's son, Gilbert (also known as G. J.) Fenix, and Russell Prigg ("Prigg" hereinafter), unrelated to plaintiff, were the only copartners.

Later the Bureau found that the St. Regis Mining Company was owned solely by plaintiff's son after February 7, 1955. Based on this finding it was concluded by the Bureau that after February 7, 1955, plaintiff's employment was family employment. Under this later finding and conclusion, plaintiff would not have the required six quarters of coverage. So the payment of benefits to plaintiff and his wife was terminated by the Bureau.

Plaintiff and his wife made further applications for benefits on July 31, 1959. These applications were based on alleged self-employment income of the plaintiff during the years 1957 and 1958. The Bureau denied plaintiff and his wife benefits on these applications on the finding that plaintiff's income in 1957 and 1958 was investment and rental income, not derived from a trade or business carried on by plaintiff.

The Bureau then reconsidered and affirmed the denials of benefits to plaintiff and his wife on all prior applications. Thereupon plaintiff requested a de novo hearing. After plaintiff's request for a hearing, the Bureau directed plaintiff and his wife to repay the total of $5,021.30 in benefits received by them.

A de novo hearing was held, following which the Hearing Examiner rendered his decision denying benefits. The Appeals Council denied plaintiff's request for review. So the findings, conclusions, and decision of the Hearing Examiner constitute the final decision of the defendant subject to review in this action.

EVIDENCE BEFORE THE HEARING EXAMINER

Plaintiff's son, Gilbert Fenix, testified that he has been in mining or related businesses since he graduated from high school; and that on July 11, 1950, he obtained a ten year lease on lead and zinc mining property near Joplin, Missouri, known as the St. Regis Mine.

Gilbert Fenix and Prigg both testified that in 1950 they entered into an oral partnership agreement to operate the St. Regis Mine and certain other leased mining properties with 75 percent and 25 percent as their respective interests; and that they did business as the St. Regis Mining Company.

Gilbert Fenix further testified that the St. Regis Mine flourished during the Korean conflict and was very profitable; that ore prices dropped after the Korean conflict and mining operations of the St. Regis Mining Company were closed; and that a watchman was hired to look after the mining properties after the closing.

Plaintiff testified that he has been in some phase of mining all of his working life; that he knew the St. Regis Mining Company was a partnership between Gilbert Fenix and Prigg; that he was hired as caretaker of the mining properties of the St. Regis Mining Company by Gilbert Fenix; that his employment as caretaker began on January 1, 1955, and continued until September 30, 1956; that his salary was $350 a month before tax deductions; and that his first salary check, received February 1, 1955, was in the amount of $300.40 after tax deductions.

On February 7, 1955, a bill of sale was executed by Prigg, the material portions of which are quoted below:

"* * * RUSSELL H. PRIGG * * * party of the First Part, for and in consideration of the sum of Five Thousand Two Hundred and no/100 ______ ($5,200.00) DOLLARS to him in hand paid * * * by G. J. FENIX party of the Second Part, the receipt whereof is hereby acknowledged, having granted, bargained, sold and delivered, and by these presents do grant, bargain, sell and deliver unto the said G. J. FENIX his executors, administrators and assigns, the following described personal property, to wit: All of my right, title and interest in the partnership between myself and the said G. J. Fenix, known as St. Regis Mines, and all of the property and assets of said partnership, including, but not limited to, land, buildings, equipment, trucks, pumps, supplies, cash, notes, accounts receivable, claims and choses in action.

"Said consideration of $5200.00 has been paid in the following manner:

$2,000.00 in cash, receipt of which is hereby acknowledged; and endorsement of credit in the sum of $3200.00 on the note heretofore executed by first party to Frank G. Fenix, which note is now held by second party.

"It is understood that in the event party of the Second Part, shall, within five (5) years from the date hereof, elect to conduct mining operations on the Bullfrog property, or on the St. Regis property, or on lands heretofore leased from American Zinc, Lead & Smelting Company adjoining said Bullfrog property, party of the First Part shall have the right to share in any such mining operations to the extent of a one-fourth interest therein by paying one-fourth of the costs and expenses thereof, including a like part of the costs and expenses of dewatering and preparing for such mining."

Prigg, Gilbert Fenix, and Paul E. Bradley, the partnership attorney who prepared the bill of sale, stated that the bill of sale was not intended to dissolve the partnership and that the final quoted paragraph thereof was added at Prigg's insistence to remove any doubt about the continuation of the partnership. The purposes of the bill of sale, as expressed by the testimony of Prigg and Gilbert Fenix, were (1) to provide Gilbert Fenix sole ownership of the mining equipment, for which he had a use in another business venture, and (2) to provide Prigg money, for which, at that time, he had a pressing need. Mr. Bradley stated that articles of dissolution, instead of a bill of sale, would have been prepared if Gilbert Fenix and Prigg had wished to end their partnership.

No timely partnership tax returns were filed by the St. Regis Mining Company after 1953. Partnership returns for the years 1954 to 1958, inclusive, were filed in 1960. These returns allocated profits and losses of St. Regis Mining Company according to Gilbert Fenix's and Prigg's respective interests in the partnership. However, Gilbert Fenix testified that during those years he claimed the profits and losses and deducted all of plaintiff's salary...