Pearce v. Director, Office of Workers' Compensation Programs, U.S. Dept. of Labor, 79-2257

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Writing for the Court: Before FAIRCHILD, Chief Judge, SWYGERT, Circuit Judge, and SKELTON; SKELTON
• Citation: 647 F.2d 716
• Parties: Gerry E. PEARCE, Petitioner, v. DIRECTOR, OFFICE OF WORKERS' COMPENSATION PROGRAMS, UNITED STATES DEPARTMENT OF LABOR and McDonnell Douglas Corporation and Industrial Indemnity Company, Respondents.
• Docket Number: No. 79-2257,79-2257
• Decision Date: 08 April 1981

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647 F.2d 716 Gerry E. PEARCE, Petitioner,
v.
DIRECTOR, OFFICE OF WORKERS' COMPENSATION PROGRAMS, UNITED
STATES DEPARTMENT OF LABOR and McDonnell Douglas
Corporation and Industrial Indemnity
Company, Respondents. No. 79-2257. United States Court of Appeals,
Seventh Circuit. Argued Sept. 22, 1980.
Decided April 8, 1981.

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E. Bruce Nangle, Nangle & Nangle, Clayton, Mo., for petitioner.

Catherine A. Giacona, U. S. Dept. of Labor, Washington, D. C., for respondents.

Before FAIRCHILD, Chief Judge, SWYGERT, Circuit Judge, and SKELTON, Senior Judge. ^*

SKELTON, Senior Judge.

The basic facts in this case are set forth in the briefs of the parties as follows, with minor changes and additions.

Petitioner-Appellant Gerry E. Pearce, a covered employee under the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901-950 (1970 and Supp. V, 1975) (the Act) as extended by the Defense Base Act, 42 U.S.C. §§ 1651, et seq. (1970) pursuant to § 21(c) of the Longshoremen's Act, 33 U.S.C. § 921(c) (Supp. V, 1975), was injured in an accident near a United States Air Force Base in Thailand on November 14, 1970, while working for McDonnell Douglas Corporation. ¹ He filed a claim for compensation with the United States Department of Labor 15th Compensation District, which is headquartered in Hawaii. Before the Hawaii office acted on the claim, Pearce moved to Chicago, and, for the convenience of all parties, the United States Office of Workers' Compensation Programs (OWCP) transferred his claim to the Chicago office for investigation and resolution in accordance with 33 U.S.C. § 939(b) (1972). Pearce did not contest the transfer.

A period of evaluation followed this transfer, and on December 17, 1974, the deputy commissioner entered his order awarding Pearce compensation benefits for temporary total disability from November 5, 1970, to May 28, 1973, and for permanent total disability from May 29, 1973, "and continuing." This action was taken without a hearing as none of the interested parties requested one and the deputy commissioner did not consider a hearing necessary. Thereafter, Pearce secured the assistance of present counsel and filed, on or about July 23, 1975, a "motion for modification * * * of the award * * * and (an) award granting (Pearce) a lump sum payment." ² This motion was filed with the same deputy commissioner

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who had made the initial award. Attached to the motion was a certain Long Term Group Disability Insurance Policy, Number MCP 5090, issued by General American Life Insurance Company, under which Appellant claimed he could qualify for benefits if granted the lump sum award as prayed. The motion urged, in substance, that commutation of Pearce's compensation entitlement would restore his eligibility for benefits under such disability insurance policy, which provided for an offset of periodic workers' compensation benefits. ³ In the same motion, Pearce requested for the first time an evidentiary hearing on the issues raised. The deputy commissioner responded that he no longer had authority to hold hearings ⁴ and also advised:

I should mention that over the years the Office of Workers' Compensation Programs policy has been against the approval of lump sum payments except in rare and exceptional circumstances where it can be documented that lump sum payment will facilitate the rehabilitation of the injured worker and afford lasting economic betterment for him.

On advice of the deputy commissioner, Pearce submitted a form application for a lump sum award on September 2, 1975. By letter of September 23, 1975, the deputy commissioner requested further information from Pearce, including the answers to these two questions:

(1) What specific benefits under the policy would Mr. Pearce receive and for how long in the event he is paid in a discounted lump sum?

(2) Is it an absolute guaranteed certainty that policy benefits per (1) would be paid after a lump sum award?

Pearce's answer of October 1, 1975, was that, after offset of social security benefits, ⁵ which were expected to decrease within the next three years as a result of his children attaining majority, his benefits would be $383.10 per month, and that the policy was an enforceable contract. Other correspondence followed. ⁶

On February 9, 1976, McDonnell Douglas and its workers' compensation carrier, the Industrial Indemnity Company, ⁷ filed a memorandum opposing Pearce's application for commutation. The memorandum points out that the disability policy also sets off

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benefits under a retirement plan towards which the employer contributes ⁸ and argues that it is unlikely, even assuming that commuting the compensation benefits would immunize Pearce from their offset, that Pearce would ever collect any money under the disability policy particularly in light of the general tendency of social security benefits to be increased.

On February 16, 1976, Pearce replied to the memorandum filed by McDonnell Douglas. Pearce reiterated that his social security benefits would soon be decreased when his youngest child attained "his social security majority" and urged that even with the offset of the retirement plan benefits, he would still receive $134.74 per month on the disability policy if his compensation benefits were commuted. In sum, then, the dispute amounted to this: Pearce argued that, under commutation, he would get $134.74 per month more under the policy whose benefits he had earned by paying premiums, and McDonnell Douglas argued that that difference would most likely soon be absorbed by increases in social security benefits. ⁹

On August 1, 1976, Pearce filed a "motion for judgment on evidence previously submitted." On August 27, 1976, the deputy commissioner rejected Pearce's application for commutation, upon the following findings:

1. The claimant seeks a lump sum which he proposes to invest in certificates of deposit with an expected 6 to 7 percent return and that by obtaining a lump sum he would qualify for certain benefits under a disability income insurance policy.

2. That compensation payable under the terms of the compensation awards provides the claimant guaranteed, risk-free benefits currently at the rate of $107.00 per week; that he qualifies for statutory increases in such weekly rate proportionate to applicable percent increases in the National Average Weekly Wage each October as provided in section 10(f) and in the event of his death from causes other than the injury certain benefits would continue for a surviving widow and/or children under section 9 of the Act.

3. The Deputy Commissioner has considered the evidence presented by the claimant in support of his application, including the claimant's current financial assets and monthly income from combined sources, and concludes that a lump sum award for the purpose requested is not in the interest of justice.

Pearce thereupon appealed to the Benefits Review Board urging essentially (1) that the deputy commissioner should have ordered a hearing on the matter "at least for his own record" and that the insurer on the disability policy should have been present and that the deputy commissioner's denial of Pearce's application for commutation was irrational, arbitrary, capricious, and an abuse of discretion, and also insufficiently explained and unsupported by substantial evidence. Pearce's arguments on the latter point were chiefly that it was unjust for the deputy commissioner to deprive Pearce of the benefits for which he had paid premiums under the policy by refusing to commute the compensation award and, to the extent that the deputy commissioner's findings suggested an assumption that the periodic compensation benefits

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were more risk-free than Pearce's proposed investment of the lump sum, and less certain to ensure Pearce's economic betterment, that such an assumption was generally unwarranted, particularly in the absence of any consideration of the relative tax advantages of the two possibilities.

The Board issued its decision affirming the deputy commissioner's decision on March 14, 1977, in 5 BRBS 573. The Board ruled that the deputy commissioner's decision declining to commute Pearce's benefits was reversible only for abuse of discretion and concluded:

* * * (T)he claimant has failed to meet his burden of proving that the deputy commissioner's rejection of a lump sum application was unreasonable, arbitrary, capricious, or not "in the interest of justice." 5 BRBS at 577.

As to Pearce's request for an evidentiary hearing, the majority of the Board members reasoned:

It is also our opinion that, contrary to claimant's contention, no formal hearing by the deputy commissioner is required in the case now before the Board. The Board may, therefore, review the record created by the deputy commissioner in his investigation of the case and determine whether there has been an abuse of discretion on his part. The record here shows that both the claimant and the employer were allowed to submit pleadings and documents to the deputy commissioner. Based upon those submissions, and after a period of investigation, the deputy commissioner denied claimant's application for the reasons outlined in his order. We find no abuse of discretion in the deputy commissioner's action in rejecting claimant's application for a lump sum award without conducting a formal hearing. 5 BRBS at 578.

Following the adverse decision of the Board, Pearce filed this appeal in the United States Court of Appeals for the Ninth Circuit, alleging that the decision of the Board was an abuse of discretion, was irrational, arbitrary, capricious and unsupported by substantial evidence, and that the Board erred in not affording him a hearing. The defendant alleged that the Ninth Circuit Court of Appeals was without jurisdiction to hear the appeal. That court, in a thorough and comprehensive opinion held in Pearce v. Director, OWCP, 603 F.2d 763 (9th Cir. 1979)...