Martin v. Sullivan, 88-6249

• Decision Date: 01 March 1990
• Docket Number: No. 88-6249,88-6249
• Citation: 894 F.2d 1520
• Parties: , 28 Soc.Sec.Rep.Ser. 430, Unempl.Ins.Rep. CCH 15402A Ted MARTIN, Plaintiff-Appellant, v. Louis W. SULLIVAN, Secretary of the Department of Health and Human Services, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1520

894 F.2d 1520

102 A.L.R.Fed. 1, 28 Soc.Sec.Rep.Ser. 430,

Unempl.Ins.Rep. CCH 15402A

Ted MARTIN, Plaintiff-Appellant, v. Louis W. SULLIVAN, Secretary of the Department of Health and Human Services, Defendant-Appellee.

No. 88-6249.

United States Court of Appeals, Eleventh Circuit.

March 1, 1990.

Lyle D. Lieberman, Miami, Fla., Ronald J. Feibus, Roswell, Ga., for plaintiff-appellant.

Dexter W. Lehtinen, U.S. Atty., Miami, Fla., Dennis R. Williams, Office of the General Counsel, DHHS, Atlanta, Ga., Suzann Ponzoli, Asst. U.S. Atty., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before FAY and KRAVITCH, Circuit Judges, and THOMPSON ^*, District Judge.

FAY, Circuit Judge:

This case establishes for the Eleventh Circuit the standards for piercing the veil of fictitious family salary arrangements for the purpose of obtaining Social Security benefits. Specifically, we must determine if plaintiff-appellant Ted Martin was retired from his closely held family corporation on January 1, 1985. Following appropriate proceedings by the Social Security Administration (SSA), the Secretary of Health and Human Services (Secretary) concluded that Martin was not eligible for Social Security payments because he was not retired as he had claimed. Pursuant to Martin's requested review of the denial of Social Security benefits, the district court upheld the decision of the Secretary. This appeal ensued. From our review of the Secretary's findings of fact and conclusions of law, we also have determined that Martin was not retired, and therefore not entitled to Social Security benefits. Accordingly, we affirm.

I. FACTS: TRYING TO DANCE TO THE BEAT OF THE MUSIC MAN

A. Overture

Martin, born November 25, 1921, has been a self-employed musician and bandleader throughout his working life. Ultimately, he managed his own band-orchestra business, which included hiring musicians and soliciting bookings for musical engagements. Martin operated his sole proprietorship from his home in North Miami Beach, Florida. His wife performed clerical duties. She has no recollection of whether or not she was paid for her services while Martin's music business was a sole proprietorship. R1-5-43.

On September 14, 1982, Martin incorporated his music business as Ted Martin Enterprises, Inc., for the express purpose of obtaining retirement benefits. R1-5-31. The address of the corporation remained the Martin residence. Martin was president and his wife was secretary-treasurer. They were the directors and each owned fifty percent of the corporate stock. After incorporation, Martin continued to manage the music business and his wife remained responsible for clerical duties. The corporate tax return for fiscal year 1982, September 14, 1982 to August 31, 1983, shows gross receipts of $186,683.00, with Martin's full-time salary as $22,254.00 and his wife's part-time salary as $5,215.00. R1-5-156-57.

B. The First Tune

Martin filed his first claim for retirement benefits with the SSA on September 28, 1983. R1-5-53-56. He stated that his total earnings in 1982 were $35,886.00 and that his expected earnings in 1983 and 1984 would be $24,000.00 and $5,000.00, respectively. R1-5-53, 55. Therefore, he claimed that he would be retired effective January 1, 1984, with monthly earnings in 1984 of no more than $430.00. R1-5-55. Martin's statement to the SSA represented that, when he retired in 1984, he would do "less actual work," but that he would "continue making all major decisions." R1-5-111.

In response to an SSA contact, Martin represented that his wife would assume the duties of booking engagements, but he also conceded that she merely obtained information over the telephone and that he remained the decision maker regarding bookings. R1-5-57-58. The contact report concluded that Martin had failed to prove his intention of future retirement, and that his retirement appeared "remote." R1-5-58. The SSA Special Determination, issued on October 11, 1983, denied retirement benefits to Martin because he had not established his retirement or reduction in work activity. ¹ Martin did not appeal this SSA determination.

C. Same Song, Second Verse

On January 5, 1984, Martin filed his second application for retirement benefits with the SSA. R1-5-60-63. Therein, he stated that his total earnings for 1982 were $21,000.00, and that his expected earnings for 1983 and 1984 would be $19,000.00 and $2,000.00, respectively. R1-5-62. Thus, Martin again claimed that he would retire effective January 1, 1984, earning no more than $430.00 a month in 1984. R1-5-62. In response to the application question asking if he had "ever filed an application for Social Security benefits," Martin answered "No." R1-5-60. The SSA contact report shows that Martin had not supported his claims of reduction in his corporate income and services, and that his intention to make his wife corporate president was "absurd," since she was not a musician and performed "very little meaningful work" in the business. R1-5-64.

The SSA Special Determination again denied retirement benefits to Martin because he had not verified his reduction in services. ² Martin did not appeal this SSA decision. By letter on January 12, 1984, the SSA reminded Martin that he had filed a claim for retirement benefits in September, 1983, and that his second application would be treated as a duplicate claim; therefore, no action would be taken on the second request. R1-5-67. The SSA contact report on January 17, 1984, documents Martin's failure to provide information for a current and future earnings determination as follows: "It appears apparent that W/Es [wage earner's] sole intent is to avoid work deductions to get his payments. He is indefinite as to what he will earn and only states that it will (his earnings) be under the allowed amount since he knows payments could be initiated by saying so." R1-5-68. The corporate tax return for 1983, September 1, 1983 to August 31, 1984, shows gross receipts of $236,742.00 and Martin's full-time salary as $7,200.00 and his wife's part-time salary as $16,800.00. R1-5-148-49.

D. A Different Melody

The corporate tax return for 1984, September 1, 1984 to August 31, 1985, shows gross receipts of $213,142.00, Martin's full-time salary as $4,050.00, and his wife's part-time salary as $9,250.00. R1-5-171-72. On September 9, 1985, Martin's counsel sent to the SSA requested corporate tax returns for fiscal years 1982 and 1983, and the Martins' personal tax return for 1984. R1-5-124. Additionally, the corporate minutes of January 7, 1985 were enclosed in order to substantiate the change in corporate officers and Martin's retirement. Those minutes show that, effective January 7, 1985, Martin's wife became the new president of the corporation at a salary of $150.00 per week and that Martin became the new vice president-secretary at a salary of $100.00 per week. R1-5-130.

On November 22, 1985, the SSA issued a Special Determination that Martin was not entitled to retirement benefits because the wages proportioned to him and his spouse were not commensurate with their respective value to the corporation. ³ This determination was communicated to Martin in a letter dated November 26, 1985. R1-5-72. The letter also informed Martin that he could request reconsideration within sixty days as well as submit additional evidence.

On December 9, 1985, Martin requested a SSA hearing and stated his disagreement with the SSA determination as to his retirement as follows: "The value of my 1984 wages are irrelevant. I am alleging retirement since January 1, 1985. I am not alleging retirement at any time between November 25, 1983, upon attaining age 62, and December 31, 1984." R1-5-73. Therefore, Martin changed his song from his two previous, unsuccessful applications for retirement benefits by abandoning his prior claims of retirement on January 1, 1984, and asserting a new retirement date of January 1, 1985. ⁴

On January 21, 1986, an administrative law judge in the SSA Office of Hearings and Appeals dismissed Martin's request for a hearing as premature, since he had not requested and obtained the requisite reconsidered determination. R1-5-76. Martin further was advised that, if he disagreed with the dismissal of his hearing request, then he had the right to request the Appeals Council to review the decision within sixty days. R1-5-75. On January 23, 1986, Martin's counsel completed a SSA Request for Reconsideration application, alleging Martin's retirement as of January 1, 1985. R1-5-78.

The SSA Reconsideration Review Section independently reviewed the evidence upon which the original SSA determination of Martin's ineligibility for retirement benefits was based. In affirming the initial decision, the Reconsideration Determination, issued on April 15, 1986, carefully detailed the record examination and reasoning under the applicable regulations. R1-5-80-85. The Reconsideration Determination explains the close SSA scrutiny required when an individual arranges his business affairs to acquire Social Security benefits that he would not obtain otherwise:

There is no question that an individual is free to arrange his business affairs in any way he wishes even if his purposes [sic] is to thereby gain greater Social Security benefits than would otherwise be available. However, where it is apparent that an individual has acted with this particular purpose in mind, it is incumbent upon the Secretary to closely scrutinize the transaction and subsequent relationship of the parties involved to assure that that purported method of operation is one of substance and not merely form. It is well established that where the Secretary finds that the realities of the situation [sic] do not accord with the alleged arrangements, the parties are to be treated as reality dictates. Detemination [sic] of an indivdual's [sic] earnings for Social Security purposes must be...