Hester v. Harris, 79-2592

• Decision Date: 19 November 1980
• Docket Number: No. 79-2592,79-2592
• Citation: 631 F.2d 53
• Parties: Joan S. HESTER, Plaintiff-Appellant, v. Patricia Roberts HARRIS, Secretary of Health and Human Services, Defendant-Appellee. . Unit A
• Court: U.S. Court of Appeals — Fifth Circuit

Page 53

631 F.2d 53

Joan S. HESTER, Plaintiff-Appellant, v. Patricia Roberts HARRIS, Secretary of Health and Human Services, Defendant-Appellee.

No. 79-2592.

United States Court of Appeals, Fifth Circuit.

Unit A

Nov. 19, 1980.

Holly G. Crampton, Robert G. Estrada, Wichita Falls, Tex., for plaintiff-appellant.

Kenneth J. Mighell, U. S. Atty., William L. Johnson, Jr., Asst. U. S. Atty., Fort Worth, Tex., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before WISDOM, GARZA and REAVLEY, Circuit Judges.

WISDOM, Circuit Judge:

This appeal challenges the constitutionality of the presumption in the Social Security Act, 42 U.S.C. § 401 et seq., that in a community property state income from a trade or business (other than one conducted by a partnership) is the husband's income, unless the wife exercises substantially all of the management and control of the business. 42 U.S.C. § 411(a)(5)(A) (§ 211(a)(5) (A) of the Act). We hold, as the Court of Appeals for the First Circuit recently held, that the presumption discriminates against women in violation of the equal protection element of the due process clause of the Fifth Amendment. See Carrasco v. Secretary of Health, Education, and Welfare, 1st Cir., 1980, 628 F.2d 624. ¹

I.

To be eligible for disability benefits under the Social Security Act, § 423(c) (1)(B)(i) requires an individual to have had at least twenty "quarters of coverage"-a term defined to mean, for self-employed individuals, a quarter of a year for which the individual has been credited with over $100 of self-employment income. 42 U.S.C. § 413(a)(2). The question whether an individual is entitled to have particular self-employment income credited to his earnings record is governed by 42 U.S.C. § 411. In general, all gross income (in the income tax sense) derived from a "trade or business carried on by" an individual is credited to him for Social Security purposes. 42 U.S.C. § 411(a). An important exception to this rule, for community property states, is 42 U.S.C. § 411(a)(5)(A). This provides:

If any of the income derived from a trade or business (other than a trade or business carried on by a partnership) 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. (Emphasis added.)

The claimant challenges this provision. The case comes from Texas, a community property state.

The claimant, Joan Hester, was married to John Hester from 1961 until 1974. During two years early in her marriage (1965-67) and during the years after her divorce from her husband (1973-75), she was employed as a licensed vocational nurse. From 1967 until August 1973 the Hesters operated small businesses-Sonotone of Wichita Falls and Hester's Hearing Aid Center. These were "Mom-and-Pop" enterprises. From 1967 to 1969 Joan Hester, by then a licensed hearing aid fitter and dispenser, ran the office and kept the books; Tom Hester was often in the field. In 1969-73 Mrs. Hester was in and out of the office, principally as a consultant. She received no salary; they had no agreement over division of the profits; the business had one checking account, on which either could draw. In short, the Hesters conducted the business like thousands of other small family businesses are conducted.

Mrs. Hester applied for disability benefits on August 16, 1976, alleging an onset date of December 6, 1975 for disability resulting from a back injury, arachnoiditis, and scarring at the root of her spine. The Secretary of Health, Education and Welfare disallowed coverage from 1971 to August 1973, a period when the claimant served as office consultant for Hester's Hearing Aid Center. That cut her covered quarters down to 17, three short of the 20 needed to qualify. During their marriage the Hesters had filed joint tax returns, but had listed their business as a sole proprietorship on Schedule C, and only Mr. Hester had filed a Schedule SE, which is the form used to calculate self-employment tax. ² At an administrative hearing, Mrs. Hester advanced two theories under which she claimed credit for earned income. (1) Their hearing aid business was a partnership. She was therefore entitled to credit for her earnings as a partner. (2) § 411(a)(5)(A) is unconstitutional, and since she had worked for the enterprise she was entitled to credit for self-employment income. The Administrative Law Judge rejected the partnership theory on the ground that the evidence did not show a partnership; there was "no substantial evidence, other than self-serving statements of the parties, that any significant amount of work was in fact performed by the wife in her husband's business". He held that § 411(a)(5)(A) was constitutional in a single sentence stating simply that the claimant had submitted no authority "which has clearly ruled upon the law and the regulations here pertinent and their application to (the) facts". The reviewing district court summarily affirmed.

On appeal, Hester does not directly challenge the ALJ's finding that no partnership existed; instead she points to Rasmussen v. Gardner, 10 Cir. 1967, 374 F.2d 589 as a way to circumvent § 411(a)(5)(A). She also challenges the constitutionality of that statutory presumption.

II.

The identical constitutional issue involving § 411(a)(5)(A) came up recently in the Court of Appeals for the First Circuit in a case from Puerto Rico, a civilian jurisdiction with, of course, a community property system. Carrasco v. Secretary of Health, Education, and Welfare, 1980, 628 F.2d 624. In Carrasco the claimant was allowed 19 quarters of coverage when she became too disabled to work. She had owned four head of cattle at the time she began living in concubinage with her future husband. The little herd increased to six head. The profit, such as it was, was the family's profit. And there was no doubt that she had furnished the cattle and had done most of the work, until she became disabled; after she was disabled, she was still furnishing the capital for their joint venture. After living in concubinage for twenty years she had married her paramour. That was unfortunate for her Social Security claim. The Secretary applied the statutory presumption treating all of the income from the cattle business as the husband's; she could not show after the marriage that she had "exercised substantially all of the management and control" of the little business for a twentieth quarter. The Court of Appeals held that the general classification favoring the husband in § 411(a)(5)(A) was in violation of the equal protection element of the due process clause of the Fifth Amendment, vacated the district court judgment, and remanded the case to the Secretary.

In reaching that conclusion the Court discussed and relied on Craig v. Boren, 1976, 429 U.S. 190, 197, 97 S.Ct. 451, 50 L.Ed.2d 397; Weinberger v. Wiesenfeld, 1975, 420 U.S. 636, 95 S.Ct. 1225, 43 L.Ed.2d 514. Califano v. Goldfarb, 1977, 430 U.S. 199, 97 S.Ct. 1021, 51 L.Ed.2d 270; Califano v. Webster, 1977, 430 U.S. 313, 97 S.Ct. 1192, 51 L.Ed.2d 360; and Califano v. Westcott, 1979, 443 U.S. 76, 99 S.Ct. 2655, 61 L.Ed.2d 382.

It seems clear to us that Carrasco was correctly decided. As the Court of Appeals for the First Circuit stated:

The plain effect of the section is to favor the husband by giving him the benefit of a statutory presumption crediting him with all of the community income from a trade or business; the wife is ineligible for benefits unless she can prove that she "exercised substantially all of the management and control of such a trade or business".

Again:

(T)he community property provision did not constitute an irrebuttable presumption. The presumption, however, cannot be rebutted unless the wife can prove that she exercised substantially all of the control and management of a community business. A wife who exercises some or a large degree of control and management cannot overcome the presumption and will not be credited with any of the income. Moreover, the provision is unconstitutional even as to cases where it can be rebutted. It nevertheless discriminates between the sexes, placing on a wife the burden of proving that she does substantially all of the work in a community business. (Emphasis added.)

A similar conclusion was reached in Becker v. Harris, E.D.Cal., 1980, 493 F.Supp. 991, which held § 411(a)(5)(A) unconstitutional and remanded the case to the Secretary "to determine plaintiff's entitlement to disability and/or old age benefits under the Social Security Act, without regard to the provisions of section 211(a)(5)(A) (§ 411(a)(5)(A))".

III.

On appeal, the claimant also relies on Rasmussen v. Gardner, 10 Cir. 1967, ...