Henderson v. Flemming

• Decision Date: 23 November 1960
• Docket Number: No. 18386.,18386.
• Parties: Rosalie HENDERSON and Joe N. Poole, as Executors of the Will of Jessie Poole, Deceased, Appellants, v. Arthur S. FLEMMING, Secretary of Health, Education and Welfare, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

283 F.2d 882 (1960)

Rosalie HENDERSON and Joe N. Poole, as Executors of the Will of Jessie Poole, Deceased, Appellants, v. Arthur S. FLEMMING, Secretary of Health, Education and Welfare, Appellee.

No. 18386.

United States Court of Appeals Fifth Circuit.

November 23, 1960.

Calvin Poole, Greenville, Ala., for appellants.

Albert E. Byrne, Asst. U. S. Atty., Hartwell Davis, U. S. Atty., Montgomery, Ala., for appellee.

Before RIVES, Chief Judge, and BROWN and WISDOM, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

The question we have to determine is the one which the Secretary through the decision of the Appeals Council posed:

"Actually, the simple issue as it was aptly stated * * * to the Appeals Council * * * is whether, in order to qualify for social security benefits, this claimant Mrs. Poole had to personally supervise her farming operations, or whether such operations could be carried on through agents or employees."¹ (Emphasis in original.)

Before us the Secretary perhaps seeks to escape from this delineation by suggesting that more properly the question is whether on the record as a whole the fact findings (including inferences) are sustained by substantial evidence. This is, of course, the test prescribed by § 205(g), 42 U.S.C.A. § 405(g); Boyd v. Folsom, 3 Cir., 1958, 257 F.2d 778, 781; Carqueville v. Flemming, 7 Cir., 1959, 263 F.2d 875, 877; Hobby v. Burke, 5 Cir., 1956, 227 F.2d 932. But running through that whole concept as a principal thread is the idea that the fact findings are acceptable only where it is evident that the correct legal standard has been employed by the trier of the fact. Cf. Galena Oaks Corp. v. Scofield, 5 Cir., 1954, 218 F.2d 217; Mitchell v. Raines, 5 Cir., 1956, 238 F.2d 186; United States v. Williamson, 5 Cir., 1958, 255 F.2d 512, 515.

Our answer to that query is contrary to that of the Secretary. We conclude that what was done constituted "material participation by the owner of a farm * * * in the production or the management of the production of" an agricultural commodity. In reaching that conclusion we do not reject any evidence credited by the Secretary or credit any that the Administrator rejected. Indeed, we regard the evidence both on the underlying factual details as well as the critical statutory inferences to be undisputed.

The playback approach, this time on legislative development is again helpful. Mitchell v. Hooper Equipment Co., Inc. et al., 5 Cir., 1960, 279 F.2d 893. In 1950 self-employed persons were first brought under the Old Age and Survivors Insurance Program. Prior to the 1954 Amendments, it was established that all self-employed farmers were excluded from coverage under the Act. This exclusion was accomplished by excepting from "net earnings from self-employment" such income derived by a self-employed individual from a business which if carried on by employees would constitute agricultural labor. In the 1954 Amendments, self-employed farm operators were brought under the Act by deleting the exception from net earnings from self-employment relative to agricultural labor. Congress was careful, however, to continue to exclude as self-employment income any amounts received as "rentals from real estate and from personal property leased with the real estate" whether such rental was paid in cash or as a share in crops.² In 1956 it was again amended to broaden coverage to include farm owners or farm tenants if there was a "material participation by the owner or tenant in the production or the management of the production of * * * agricultural * * * commodities * * *."³

It was, to be sure, stated somewhat awkwardly by an exception to an exclusion. But we regard this as of no moment and treat it as another instance of Congressional English, Commissioner of Internal Revenue v. Acker, 1959, 361 U.S. 87, 95, 80 S.Ct. 144, 4 L.Ed.2d 127 (dissent), as Congress weaves and rips the Penelopean tax garment, United States v. Bond, 5 Cir., 1958, 258 F.2d 577, 584, to meet the undulating underlying changes in legislative policy.

The social security benefits were sought by Mrs. Jessie Poole then 91 years of age and who unfortunately did not survive the administrative determination of her eligibility to governmental benefits which came into statutory being during her 90th year. She must have witnessed many changes from 1867, including those on a cotton plantation. But the record leaves one with the definite conviction that for many, many years cotton farming on her farm went along the same. Nothing changed in 1956-1957 on the farm, or in what she did, or what her son, Joe Poole, did. What changed was the law. The question then is whether what she did those years (and had been doing for many more) was the sort of farm operation Congress had in mind as it broadened coverage by excepting the exclusion, see note 3, supra.

In 1907 Mrs. Poole's husband died leaving her with four children and a life interest in an 1100-acre plantation of which some 600 were suited for cultivation. Since about 1912 her son, Joe, has farmed 400 of these acres for his own account. The rental value under current conditions would be approximately $2500 per year. The remaining 200 acres have been farmed for Mrs. Poole's account. Probably during most of this time, and certainly in the years 1956-1957 and just previously, all of the management from an owner's standpoint has been by Joe. Mrs. Poole was an invalid and physically unable to oversee farming operations from her wheelchair. Joe has considered that the rent-free use of the 400 acres was more than ample consideration for the management of his mother's operations. Each operation was kept distinct and separate and at no time was there any partnership.

The 200 acres were actually farmed by sharecropping tenants selected by her son, Joe, who thereafter made all significant operating decisions. After a prefatory statement that "the evidence shows that for more than 40 years her farm was actually operated and managed by her son as her agent" the Appeals Council summarized his activities this way. "The evidence shows that he selected the land the sharecroppers were to work, that he decided when the land was to be planted, how much fertilizer was to be used, when the crops were to be cultivated, when the plants were to be sprayed, when the crops were to be harvested and when they were to be sold."

Under the sharecropping arrangements effected in her behalf by Joe, Mrs. Poole, of course, furnished the land. But there was much more. She was required to bear a considerable financial risk and contribution. She furnished the planting seed and bore one-half the cost of insecticide which ran in the neighborhood of $1100 per year. She was required to "break ground" and plant the crop. This was done for her by her son, Joe, on a contract basis, the charges being based upon the out-of-pocket labor and fuel expense for the operation of the expensive farm machinery and depreciation thereon. This was a substantial item and for the two years in question was in the neighborhood of $2500 to $4000. The sharecropping tenants, on the other hand, were required to bear one-half the cost of insecticides, the entire cost of fertilizer, as well as the labor and simple farm tools for harvesting. Actually, of course, Mrs. Poole had to finance the cost of fertilizer which would run several thousands of dollars and her reimbursement would come as a back-charge against the tenants' share when and as the cotton was harvested, ginned and sold. After deducting back charges due by the sharecropper tenants, the proceeds of the cotton were split 50/50.⁴

In dealing with these undisputed facts much difficulty was encountered in the administrative process. We summarize these difficulties as well as their shifting nature, not to suggest that a correct position finally reached is undermined by any supposed errors of the past. Rather it is to emphasize the lack of basis for the ultimate conclusion that despite material participation, it was still rental, not farm, income because Mrs. Poole's non-financial contributions were through an agent, her son, Joe, and not personally.

The claim was first rejected in the Bureau by the Claims Auditor on the grounds that her "Material participation was performed by the son * * * who was not an employee * * * but was an independent contractor." This disallowance was approved by the Claims Authorizer on the same ground. On appeal to the Chief of Claims Authorization, the disallowance was affirmed because the earnings from the farm "are rentals from real estate and were not received in the course of a trade or business as a real estate dealer" and the "material participation was performed by your son who was not your employee but was an Independent Contractor." This disallowance was upheld by the Chief of Area Office on the ground that it was farm rental and on the further ground that the Claimant "did not materially participate in the production or management of the crops either personally or through an employee." Next came the Referee's Decision made after a rather extended hearing in which Joe Poole testified and all of the prior papers were incorporated into the record. The Referee faced squarely up to the issue which he first delineated (see note 1, supra). After finding that "claimant had established upon the Record that she furnished substantial portion of machinery, implements, etc. * * which were used in the production of the commodity here involved; and that she also advanced cash or assumed financial responsibility for a substantial part of the expenses involved, she certainly did not periodically inspect the production activities on the land," he then answered in categorical terms the issue he had framed. He declared, "as this Referee interprets the meaning of the statute, such inspection cannot be validly exercised by an individual through delegation to an agent. It must be personal. It cannot be delegated!" He made it doubly...