Rebak v. Matthews

• Decision Date: 21 July 1977
• Docket Number: No. 75 Civ. 3695.,75 Civ. 3695.
• Citation: 438 F. Supp. 668
• Parties: Hannah REBAK, party in interest in the case of Julius Rebak, Claimant, Plaintiff, v. David MATTHEWS, Secretary of Health, Education and Welfare of the United States of America, Defendant.
• Court: U.S. District Court — Southern District of New York

438 F. Supp. 668

Hannah REBAK, party in interest in the case of Julius Rebak, Claimant, Plaintiff, v. David MATTHEWS, Secretary of Health, Education and Welfare of the United States of America, Defendant.

No. 75 Civ. 3695.

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

July 21, 1977.

Goldberg & Weprin, New York City, for plaintiff; Robert N. Hochberg, New York City, of counsel.

Robert B. Fiske, Jr., U. S. Atty., for the Southern District of New York, New York City, for defendant; Victor J. Zupa, Asst. U. S. Atty., New York City, Borge K. Varmer, Regional Atty., Alice L. Litter, Asst. Regional Atty., New York City, Dept. of Health, Ed. and Welfare, of counsel.

OPINION

GAGLIARDI, District Judge.

This action is brought pursuant to Section 205(g) of the Social Security Act, as amended, 42 U.S.C. § 405(g) (1970), to review the final determination of the Secretary of Health, Education and Welfare ("the Secretary") denying plaintiff's application for certain retirement insurance benefits for the years 1970 through 1973. All administrative remedies have been exhausted¹ and the plaintiff, who is suing as party in interest in the case of her deceased husband, Julius Rebak, has properly brought this action in this court.² 42 U.S.C. § 405(g). Plaintiff has moved for summary judgment pursuant to Rule 56, Fed.R. Civ.P., and the defendant Secretary has cross-moved for judgment on the pleadings pursuant to Rule 12(c). Upon a review of the pleadings and the transcript of the administrative record of the claimant's proceedings before the Social Security Administration, including the decision of the Appeals Council which was adopted by the Secretary, plaintiff's motion is denied and defendant's motion is granted.

On March 27, 1970 Julius Rebak ("the claimant") filed an application for retirement benefits, as provided by 42 U.S.C. § 402(a).³ Although the application was initially granted, four years later it was finally determined that the claimant had never in fact retired as he had alleged. The Appeals Council concluded that the claimant had rendered services for wages in excess of the amount allowed by the Act, that benefit overpayments totalling $4,661.60 had been made to him, and that deductions were imposable to recover the amount overpaid. The Appeals Council based its decision on 42 U.S.C. § 403, which at all relevant times provided that a qualified individual over 62 could earn $1680 in a taxable year without having deductions imposed against the retirement benefits to which he was entitled.⁴ However, if his total "earnings," defined by 42 U.S.C. § 403(f)(5)(A) as the sum of his wages⁵ plus net earnings from self-employment,⁶ exceeded $1680, his benefits would be offset in certain increments by such excess earnings.⁷ No benefits were to be withheld for a month in which a beneficiary neither engaged in self-employment nor rendered services for wages in excess of $140.

Following this statutory scheme and concluding that the claimant had not in fact retired, the Appeals Council determined that he had been paid excess wages in all months of 1970, 1971 and 1972 and that deductions in the amount of $4,661.60 were properly imposed under 42 U.S.C. § 404(a) to recover the overpayment of benefits to which the claimant was not entitled. The Appeals Council further held that recovery of the overpayments could not be waived under 42 U.S.C. § 404(b) because the claimant was not "without fault."⁸ This decision was adopted by the Secretary as his final determination.

In seeking review of the Secretary's final determination, the plaintiff raises two separate claims of error. First, the plaintiff argues as a matter of fact that the claimant did retire from his paid position in 1970 and that consequently no excess wages were paid him such as would justify termination of benefits and imposition of deductions. In addition, plaintiff contends that even if the claimant did receive certain earnings subsequent to his claimed retirement, those earnings were self-employment earnings derived from rentals from real estate, and, pursuant to 42 U.S.C. § 411(a), footnote 5, supra, were specifically excluded from computation of earnings.

In considering plaintiff's contention that the Secretary erred in determining that the claimant had not retired and had received excess wages, this Court is guided by the undisputed rule that the findings of the Secretary must be accepted as conclusive if supported by substantial evidence. 42 U.S.C. § 405(g); Richardson v. Perales, 402 U.S. 389, 390, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971); Herbst v. Finch, 473 F.2d 771 (2d Cir. 1972); Levine v. Gardner, 360 F.2d 727 (2d Cir. 1966); Stevenson v. Flemming, 200 F.Supp. 705 (S.D.N.Y.1960) (Kaufman, D. J.), aff'd on opinion below, 297 F.2d 811 (2d Cir. 1961). Inferences and conclusions drawn by the Secretary from the basic evidentiary facts are equally conclusive if reasonably reached upon due consideration of all relevant issues after all parties have been given a fair hearing. Walker v. Altmeyer, 137 F.2d 531, 533-34 (2d Cir. 1943); Beane v. Richardson, 457 F.2d 758 (9th Cir.), cert. denied, 409 U.S. 859, 93 S.Ct. 144, 34 L.Ed.2d 105 (1972); Julian v. Folsom, 160 F.Supp. 747 (S.D.N.Y.1958). Reviewed under these standards, the administrative record establishes the following facts.

When the claimant filed his application for retirement insurance benefits in 1970 he was the president and sole stockholder of the Rebak Realty Corporation ("Rebak Realty"), a family corporation incorporated in 1956 of which his wife and two sons were also officers.⁹ Rebak Realty owned a commercial building at 2550 Broadway, New York, New York in which office and garage space were leased to numerous tenants. Its corporate office was located in the claimant's home. For many years the claimant had controlled the operation of the corporation and had made all managerial decisions concerning rent collection, lease terms, tenant selection, insurance, and corporate and real estate tax matters. In 1966 and 1967 the claimant received an annual salary of $6600 from Rebak Realty, in 1968 he was paid $7800 and in 1969 his compensation was $10,000.

In his 1970 application for retirement insurance, the claimant initially estimated that his 1970 earnings would approximate $7800, but later he revised his estimate and calculated he would earn only $3000 that year. He asserted that the lower earnings figure reflected the reduction in his work activity due to poor health and his wife's assumption of the managerial duties he had previously performed. On the basis of this representation the application was approved and the claimant was granted retirement benefits effective January, 1970. Thereafter the claimant informed the Bureau of Retirement and Survivor's Insurance ("the Bureau") that his yearly earnings from Rebak Realty constituted his sole compensation, and he reported that these earnings amounted to $3,000 in each of 1970 and 1971, and $1,600 in 1972. These figures were similarly reported in Rebak Realty's corporate tax returns, which also reported that the claimant's wife was paid wages of $5,000 in each of 1970 and 1971, and $8,000 in 1972.

Subsequent investigation into the claimant's business-related activities and income, however, led the Bureau, and ultimately the Secretary, to conclude that after 1970 the claimant's wife did not take over the management of the corporation, that the claimant did not cease exercising the same control or performing the same managerial tasks that he had before his alleged retirement, and that he received indirect compensation from Rebak Realty through sham wage payments to his wife. There is substantial evidence in the record to support these conclusions. It was admitted that the responsibilities of the wife after 1970 consisted almost entirely of collecting the rent, which was mailed by the tenants on a routine monthly basis to the claimant's home, and paying the bills, with which she was assisted by the claimant. All bookkeeping for Rebak Realty was done by an accountant. Although the claimant asserted that his wife had taken over all checkwriting and "paperwork", cancelled checks introduced into the record show that the claimant continued to sign checks on the corporate account after 1970, and he conceded that his ongoing practice was to advise his wife and review her record-keeping. The claimant further admitted that he continued making all major decisions affecting the corporation. Equally indicative of the lack of any bona fide change in the claimant wife's responsibilities is the fact that although she had been doing clerical work and had been authorized to write checks on the Rebak Realty account since 1956, she was never paid any reported wages for this work until 1970, in which year the claimant allegedly retired and she began receiving at least $5,000 in annual compensation. Plaintiff does not dispute that after 1970 the claimant continued as president and sole owner of Rebak Realty, and the evidence outlined above supports the Secretary's conclusion that he continued in fact to bear the burden of managing the corporation in the same executive capacity that he had before 1970.

It is thus clear that the reduction in the claimant's reported compensation from Rebak Realty as of 1970 did not correspond to an actual reduction in the managerial services which he rendered to the corporation. It is similarly evident that the compensation paid to the claimant's wife in 1970, 1971 and 1972 did not reflect an actual increase in her authority or the extent of her services to the corporation. Therefore, the Secretary was justified in concluding that this "payment to her may be regarded under the circumstances as a sham and self-serving device." Here the Secretary has determined that the claimant created a fictitious salary arrangement by remaining the controlling force in his corporation's business affairs while reducing his own reported compensation and...