Katz v. Sullivan

• Decision Date: 20 December 1991
• Docket Number: No. CV 89-3538.,CV 89-3538.
• Citation: 791 F. Supp. 968
• Parties: Helen B. KATZ, Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Eastern District of New York

791 F. Supp. 968

Helen B. KATZ, Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant.

No. CV 89-3538.

United States District Court, E.D. New York.

December 20, 1991.

Stephen C. Herman, Hempstead, N.Y. (Bernard C. Medintz, of counsel), for plaintiff.

Andrew J. Maloney, U.S. Atty., E.D. New York, Brooklyn, N.Y., Stephen J. Riegel, Asst. U.S. Atty., for defendant.

MEMORANDUM OF DECISION AND ORDER

MISHLER, District Judge.

Louis W. Sullivan, M.D., Secretary of Health and Human Services ("Secretary"), defendant, having moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), in accordance with the Secretary's final determination dated August 21, 1989, and

Magistrate Judge Michael L. Orenstein having filed his report dated October 2, 1990, and

The Secretary having objected to the finding that the Secretary's March 30, 1987 determination reinstating the Secretary's determination of May 31, 1986, holding that Katz's net earnings from self-employment for 1985 were $10,993.00 is the final determination,¹ it is hereby

ORDERED that the Secretary's objections be and the same are overruled, and it is further

ORDERED that the report of Magistrate Judge Michael L. Orenstein be and the same is adopted as the findings of the court, and it is further

ORDERED that the Clerk of the Court enter judgment in favor of the Secretary and against Helen A. Katz, plaintiff, affirming the Secretary's determination that plaintiff's earnings from self-employment for 1986 were $15,128, and it is further

ORDERED that the Secretary's determination that plaintiff's earnings from self-employment for 1985 were $15,480 is reversed and the case is remanded to the Secretary to grant the relief to which plaintiff is entitled based on net earnings of $10,993.05 for the year 1985.

REPORT

ORENSTEIN, United States Magistrate Judge.

PRELIMINARY STATEMENT

This is an appeal taken pursuant to § 205(g) of the Social Security Act (the "Act"), as amended by 42 U.S.C. § 405(g), to review a final determination of the Secretary of Health and Human Services (the "Secretary"). The Secretary found that claimant's deductions of S corporation¹ losses from net earnings from self-employment were improper under the Act. As a result, claimant had earnings in excess of the amount retirees are allowed to earn. Consequently, the Secretary imposed "work deductions" against claimant's oldage benefits.

This action is before the court upon defendant's motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure.

STATEMENT OF FACTS

Claimant, Helen Katz, became entitled to retirement insurance benefits effective January, 1985. During the years 1985 and 1986, claimant worked as an insurance broker² and was a shareholder in the Hamilton Agency Inc. ("Hamilton"), an S corporation. Claimant's 1985 and 1986 federal income tax returns indicate that she reduced her taxable income by deducting losses incurred by Hamilton — the S corporation. For the years 1985 and 1986, claimant reported on her federal income tax returns adjusted gross income of $15,480.00 and $15,128.00, respectively, which included deductions in the amount of $4,904.00 and $4,223.00 representing losses by Hamilton, the S corporation.³

For the years 1985 and 1986, claimant reported to the Social Security Administration ("SSA") "net earnings from self-employment" of $10,993.06 and $9,719.00, respectively. These amounts represented her annual business income less S corporation losses.⁴ Claimant alleges that as a shareholder and a "self-employed" individual working for Hamilton losses charged to the S corporation can be used by the individual claimant to offset her "net earnings from self-employment."

The Secretary on May 31, 1986, through its Northeastern Program Service Center, initially determined that Katz' "net earnings from self-employment" for 1985 was $10,993.00 — an amount which reflected the 1985 S corporation loss. (Ex.2). Thereafter, on March 7, 1987, the Secretary, approximately nine and one-quarter months later, reopened and reversed that initial determination of benefits and denied the S corporation deduction⁵. (Ex.3).

Apparently, the claimant thereafter filed a reconsideration appeal based on the March 7, 1987 decision denying S corporation losses.⁶ On the basis of the reconsideration appeal, the Secretary reversed itself a second time on March 30, 1987 and found as was originally determined in the Northeastern Program Service Center's May 31, 1986 notice that the claimant's "net earnings from self-employment" for 1985 should be $10,994.00⁷. Accordingly, S corporation losses would be credited against Katz' "net earnings from self-employment." (Ex.4).

Notwithstanding the two prior reversals, on February 26, 1988, almost two years after Secretary's initial determination, the Secretary reversed⁸ itself one more time finding that S corporation losses should not be credited against Katz' "net earnings from self-employment." (Ex.7). Consequently, the Secretary found claimant's "net earnings from self-employment" for 1985 and 1986 to be $15,898.00 and $13,942.00. As a result, the Secretary found that claimant's adjusted net earnings for 1985 and 1986 exceeded the amount allowable for retirees. See 42 U.S.C. § 403(f)(8)(D). Therefore, the Secretary imposed work deductions against her benefits to recover the overpayments made in those years.

On April 26, 1988, claimant filed a request for reconsideration. The Secretary's determination on reconsideration was affirmed on November 7, 1988. On December 7, 1988, claimant requested an oral hearing before an Administrative Law Judge ("ALJ"), but later waived her right to personally appear and requested that a decision be made based upon the evidence in the record. On May 8, 1989, the ALJ affirmed the Secretary's decision on reconsideration. The ALJ rejected claimant's S corporation deductions and found her "net earnings from self-employment" for 1985 and 1986 to be $15,897.00 and $13,942.00, respectively. The Appeals Council affirmed the ALJ's decision on August 21, 1989.

Thereafter, claimant filed a complaint in the United States District Court for the Eastern District of New York. The instant case was assigned to District Judge Jacob Mishler and referred to the undersigned for a report and recommendation.

Based upon the reasons set forth below, I recommend that the defendant's motion for judgment on the pleadings be affirmed in part and denied in part.

DISCUSSION

I. Standard of Review

The deference accorded to an administrative agency's interpretations depends on the extent to which the matters at issue depend peculiarly on the agency's field of expertise. See McCuin v. Secretary of Health & Human Services, 817 F.2d 161, 168 (1st Cir.1987); Powell v. Heckler, 789 F.2d 176, 178 (3d Cir.1986). In Gutierrez v. Bowen, 702 F.Supp. 1050, 1058 (S.D.N.Y.1989), rev'd on other grounds, 898 F.2d 307 (2d Cir.1990), the district court reviewed regulations similar to the "reopening and revision" regulations (the "reopening and revision" regulations) at issue here and gave

the Secretary's interpretation ... less deference, because these regulations engage issues not particularly within the expertise of the agency, as the McCuin⁹ court correctly pointed out.

Id. at 1058 footnote added. Although, the Second Circuit reversed the district court, the Second Circuit agreed with both the district court and McCuin court in regard to the proper standard of review noting that

the Social Security Act, under whose authority the regulations were promulgated, is a remedial statute, to be broadly construed and liberally applied in favor of beneficiaries. See, e.g. Cutler v. Weinberger, 516 F.2d 1282, 1285 (2d Cir. 1975). We find that it would frustrate congressional objectives in passing such a statute if the ambiguity in the regulations were to be resolved in favor of putting claimants in a state of limbo for at least four years, uncertain of the final outcome of their cases.

Gutierrez v. Bowen, 898 F.2d 307, 310 n. 3 (2d Cir.1990) (quoting McCuin, 817 F.2d at 174); see Bersani v. Robichaud, 850 F.2d 36, 45 (2d Cir.1988), cert. denied, 489 U.S. 1089, 109 S.Ct. 1556, 103 L.Ed.2d 859 (1989). As a result, this court in accordance with the above, will give less deference to the SSA's interpretation of the "reopening and revising" regulations.

II. 1985 S corporation loss: Can the Secretary reopen the March 30, 1987 determination?

A. What regulations govern the reopening of claimant's case?

Katz contends the Secretary's sua sponte reopening of her initial benefits determination approximately twenty-one months¹⁰ after a favorable determination by the Secretary was improper because it violated section 404.989(a)(3). According to claimant, the Administrative Law Judge's decision of May 8, 1989 (the "ALJ Decision") and the Appeals Council's Order of August 21, 1989 (the "Appeals Council's Order") were incorrect in reopening a prior favorable determination more than one year after the initial determination because such determination did not clearly show on its face that an error had been made. 20 C.F.R. § 404.989(a)(3).

Sections 20 C.F.R. §§ 404.987 et seq. govern "the reopening and revising of determinations and decisions" by the Secretary in connection with old-age insurance benefits. 20 C.F.R. § 404.987. However, the reopening provisions do not specifically refer to which level of the SSA they apply, (e.g. field office, regional office, program service center, office of disability determinations, central office, ALJ hearing, and Appeals Council).

The regulations governing "reopening and revisions" are not ambiguous; there is simply a total absence of references to any regulation governing SSA "reopenings and revisions" of determinations¹¹ below the level of the ALJ and Appeals Council. Thus, the SSA's position, as is evidenced in the ALJ Decision and the Appeals Council's Order, that...