Kirk v. Comm'r of Soc. Sec. Admin.

• Decision Date: 04 February 2021
• Docket Number: No. 19-1989, No. 19-2028,19-1989
• Citation: 987 F.3d 314
• Parties: Gary KIRK, Plaintiff - Appellee, v. COMMISSIONER OF SOCIAL SECURITY ADMINISTRATION, Defendant - Appellant. Larry Kermit Taylor, Plaintiff - Appellant, v. Andrew Saul, Commissioner of Social Security, Defendant - Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

987 F.3d 314

Gary KIRK, Plaintiff - Appellee,

v.COMMISSIONER OF SOCIAL SECURITY ADMINISTRATION, Defendant - Appellant.

Larry Kermit Taylor, Plaintiff - Appellant,

v.Andrew Saul, Commissioner of Social Security, Defendant - Appellee.

No. 19-1989

No. 19-2028

United States Court of Appeals, Fourth Circuit.

Argued: October 26, 2020

Decided: February 4, 2021

ARGUED: Thomas Gary Pulham, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant Commissioner of Social Security Administration and Appellee Andrew Saul. Alexandra Tucker Stewart, WILMERHALE LLP, Washington, D.C., for Appellee Gary Kirk and Appellant Gary Taylor. ON BRIEF: Joseph H. Hunt, Assistant Attorney General, Mark B. Stern, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; A. Lance Crick, Acting United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Greenville, South Carolina, for Appellant Commissioner of Social Security and Appellee Andrew Saul. Ned Barry Pillersdorf, PILLERSDORF, DEROSSETT & LANE, Prestonburg, Kentucky; John M. Leiter, LAW OFFICES OF JOHN M. LEITER, PA, Myrtle Beach, South Carolina; Wolodymyr Cybriwsky, Prestonburg, Kentucky, for Appellee Gary Kirk. Daniel S. Volchok, Aprit K. Garg, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington, D.C., for Appellee Gary Kirk and Appellant Larry Taylor.

Before WYNN, HARRIS, and QUATTLEBAUM, Circuit Judges.

19-1989 affirmed, and 19-2028 reversed by published opinion. Judge Wynn wrote the opinion, in which Judge Harris joined. Judge Quattlebaum wrote a dissenting opinion.

WYNN, Circuit Judge:

Plaintiffs Gary Kirk and Larry Taylor are former recipients of Social Security disability benefits and former clients of Eric Conn, an attorney who orchestrated one of the largest fraud schemes in the history of the Social Security Administration ("SSA").

In 2015, SSA redetermined the benefits eligibility of 1,787 individuals formerly represented by Conn—including Plaintiffs—based on its suspicion that their disability determinations were rooted in fraudulent evidence submitted by Conn. Upon redetermination, SSA terminated the benefits of nearly half of those individuals, including Plaintiffs, after finding them not to be disabled.

In these consolidated appeals, Plaintiffs argue that SSA's categorical exclusion of allegedly fraudulent medical evidence during the redetermination process was unlawful because they were never afforded any opportunity to rebut the allegation that their evidence was tainted by fraud. The two other circuits that have considered substantially similar challenges each concluded that SSA's redetermination procedures are unlawful.¹

For the reasons set forth below, we agree with our sister circuits and therefore hold that SSA's redetermination procedures violate the Administrative Procedure Act ("APA") and the Due Process Clause of the Fifth Amendment.²

I.

Kirk and Taylor applied for Social Security disability benefits in November 2008 and July 2010, respectively.³ When their initial applications were denied, they each hired Conn, a Social Security disability attorney, and sought reconsideration of their claims and, subsequently, review by an Administrative Law Judge ("ALJ"). In preparation for the ALJ's review, Conn arranged for Kirk to be medically examined by Dr. Frederic Huffnagle and for Taylor to be seen by Dr. Srinivas Ammisetty. Soon afterward, ALJ David Daugherty reviewed each Plaintiff's claim and issued fully favorable decisions on the record (i.e. , without holding a hearing) in both cases, finding Plaintiffs disabled and granting them benefits.

Kirk and Taylor received their benefits for years. But in May 2015, SSA notified them that it would be redetermining their eligibility for benefits. As it turned out, Conn had planned and executed one of the largest fraud schemes in SSA history, costing the agency over $550 million.

Conn's scheme was simple. He would arrange for a client to be seen by one of four hand-picked doctors, including Drs. Huffnagle and Ammisetty. He would then provide the doctor with a pre-completed template form describing the client's Residual Functional Capacity.⁴ The doctor would sign the form without changes, and Conn would submit it to SSA in support of his client's application. Then, ALJ Daugherty—whom Conn was bribing—would flag the case, assign it to himself, and swiftly issue a favorable decision without a hearing. Notably, SSA has never alleged that Plaintiffs knew anything about the fraud that triggered their redeterminations.

Although SSA had become aware of "possible wrongdoing involving [ALJ] Daugherty and Conn as far back as 2006," it took no action for years. Hicks , 909 F.3d at 793. But finally, in May 2015, SSA notified 1,787 of Conn's former clients—including Plaintiffs—that it would redetermine their eligibility for benefits because its Office of the Inspector General had "reason to believe" that fraud was involved in their applications for benefits. J.A. 73, 106–07, 270–71.⁵ In particular, the Office of the Inspector General suspected that Conn had submitted pre-completed and fraudulent Residual Functional Capacity forms in support of those individuals’ applications.

Under the Social Security Act, SSA must "immediately redetermine the entitlement of individuals to monthly insurance benefits ... if there is reason to believe that fraud" was involved in their applications. 42 U.S.C. § 405(u)(1)(A). And "[w]hen redetermining the entitlement," the agency must "disregard any evidence if there is reason to believe that fraud ... was involved in the providing of such evidence." Id. § 405(u)(1)(B).

Accordingly, the redetermination notices sent to the 1,787 beneficiaries explained that SSA would be disregarding "any evidence from [any] of the [four] medical providers" associated with Conn's fraud if the evidence was submitted by Conn. See, e.g. , J.A. 106, 270. For Plaintiffs, that meant SSA would not consider any evidence in their records from Dr. Huffnagle or Dr. Ammisetty, even though the Office of the Inspector General suspected only that the Residual Functional Capacity forms completed by those doctors were tainted by fraud.⁶

The redetermination notices further stated that SSA's Appeals Council had conducted a preliminary review of each of their cases to see if the other, non-disregarded evidence in the record supported a finding of disability. But because the record did not support such a finding, the agency opted to "set aside the favorable decision[s]" and send each case "back to a different [ALJ] for more action and a new decision." J.A. 107, 271.

At Plaintiffs’ redetermination hearings in 2016, the ALJs did not consider any evidence produced by Dr. Huffnagle or Dr. Ammisetty. Additionally, Plaintiffs were not permitted to challenge the Office of the Inspector General's reason-to-believe determinations that triggered the categorical exclusion of such evidence. The ALJs did consider all other evidence relating to the relevant period, including new, additional evidence submitted by Plaintiffs.

Shortly afterward, both Plaintiffs received unfavorable decisions. In both cases, the ALJs concluded that "there was insufficient evidence" to support "a finding of disability" as of the dates of Plaintiffs’ original favorable decisions. J.A. 66, 233. Accordingly, the ALJs ordered that Plaintiffs’ benefits be terminated and further concluded that SSA "may treat any benefits previously received as an overpayment." Id .

Plaintiffs appealed the ALJs’ decisions, but the Appeals Council denied review. Having exhausted their administrative remedies, they each filed suit in federal district court, raising several statutory and constitutional claims. But the core contention below—as here—was that SSA should have afforded Plaintiffs an opportunity to challenge the fraud allegations that led to the exclusion of evidence during the redetermination process.

In Kirk's case, the district court held that "SSA's redetermination process violates the minimal requirements of due process" because it categorically excludes potentially critical evidence based on fraud allegations that beneficiaries cannot challenge. Kirk v. Berryhill , 388 F. Supp. 3d 652, 662, 664–65 (D.S.C. 2019). SSA timely appealed that decision.

In contrast, a different district court ruled against Taylor, rejecting his claims that SSA's redetermination procedures "violated his due process rights, the Social Security Act or regulations and the APA." Taylor v. Berryhill , No. 1:16cv00044, 2018 WL 1003755, at *22 (W.D. Va. Feb. 21, 2018). Taylor timely appealed. On Plaintiffs’ unopposed motions, we consolidated their cases for purposes of this appeal.⁷

II.

We review legal issues, including claims of APA or due process violations, de novo . See Defs. of Wildlife v. N.C. Dep't of Transp. , 762 F.3d 374, 393 (4th Cir. 2014) (APA); United States v. Shealey , 641 F.3d 627, 633 (4th Cir. 2011) (due process).

III.

Plaintiffs argue that SSA's redetermination procedures violate the Administrative Procedure Act. They contend that it is arbitrary and capricious for the agency to deny beneficiaries an opportunity to contest the Office of the Inspector General's fraud allegations as to their cases, while permitting other similarly situated beneficiaries to challenge similar allegations arising from SSA's own investigations. We agree.⁸

Under the APA, courts must "set aside agency action[s], findings, and conclusions found to be ... arbitrary [or] capricious." 5 U.S.C. § 706(2)(A). Plaintiffs argue that SSA violates this prohibition on arbitrariness and capriciousness by employing redetermination procedures that differ depending on the origin of the underlying fraud allegation.

Specifically, when SSA develops a "reason to believe" that fraud was involved in a particular application based on a referral from the Office of the Inspector General—as was the case for Plaintiffs—"adjudicators do not have discretion to reconsider the issue of whether the identified evidence should be...