Skalet v. Finch, 20093.

• Decision Date: 10 September 1970
• Docket Number: No. 20093.,20093.
• Citation: 431 F.2d 452
• Parties: Morris SKALET, Plaintiff-Appellee, v. Robert H. FINCH, Secretary of Health, Education and Welfare, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

431 F.2d 452 (1970)

Morris SKALET, Plaintiff-Appellee, v. Robert H. FINCH, Secretary of Health, Education and Welfare, Defendant-Appellant.

No. 20093.

United States Court of Appeals, Sixth Circuit.

September 10, 1970.

Patricia S. Baptiste, Department of Justice, Washington, D.C., William D. Ruckelshaus, Asst. Atty. Gen., Kathryn H. Baldwin, Atty., Department of Justice, Washington, D.C., John L. Bowers, U. S. Atty., Knoxville, Tenn., on the brief, for appellant.

Lewis S. Howard, Knoxville, Tenn., Elliott D. Adams, Knoxville, Tenn., on the brief, for appellee.

Before PHILLIPS, Chief Judge, and WEICK and PECK, Circuit Judges.

PHILLIPS, Chief Judge.

This case arises under the Social Security Act. The claimant, Morris Skalet, was denied retirement insurance benefits by the Secretary on the grounds that he had received "excess earnings from self-employment." On review the District Court reversed the decision of the Secretary. The Secretary appeals. We reverse the judgment of the District Court and reinstate the decision of the Secretary.

Mr. Skalet owned and operated a pawnshop and jewelry store in Knoxville, Tennessee, in which his unmarried son, Victor, worked full time at a salary of $4500 per year and his wife worked part time at no salary.

Mr. Skalet reached age 65 in 1967. In January of that year, as evidenced by a bill of sale, he entered into an agreement with his wife and son, whereby he transferred to them as partners his sole proprietorship which he had operated over twenty years. As consideration for the transfer Victor and his mother signed two notes, both unsecured, one for $835.20 due December 1, 1967 (which was paid) and a second for $14,500 with four per cent interest payable on demand. Together the notes equalled the book value of the business. Under the agreement Mr. Skalet's wife and son were to retain him as an employee of the company and pay to him $125 per month as compensation for his services and advice.

The statute requires that an applicant for old age benefits who has earnings in any month must demonstrate "to the satisfaction of the Secretary" that he was not engaged in self employment and did not render substantial services for wages in excess of the statutory maximum. 42 U.S.C. § 403(f) (4) (A). The Secretary has authority to consider the substance of any transaction over its form. Ludeking v. Finch, 421 F.2d 499 (8th Cir.). See also, Dondero v. Celebrezze, 312 F.2d 677 (2d Cir.) (scheme for shifting wages from the claimant); Newman v. Celebrezze, 310 F.2d 780 (2d Cir.) (shifting corporate income from father to son); and Flemming v. Lindgren, 275 F.2d 596 (9th Cir.) (reconstruction of a reasonable corporate income under all the circumstances).

The findings of fact of the Secretary, if supported by substantial evidence, are conclusive. Walters v. Gardner, 397 F.2d 89 (6th Cir.). The case is not tried de novo in the District Court. Finality extends both to facts and inferences reasonably drawn therefrom when supported by substantial evidence. Domanski v. Celebrezze, 323 F. 2d 882 (6th Cir.), cert. denied, 376 U.S. 958, 84 S.Ct. 980, 11 L.Ed.2d 976.

In the present case there was an evidentiary hearing at which Mr. Skalet testified, as well as a supplemental hearing where the wife and son testified. Their attorney was present at both hearings and participated in the proceedings. The hearing examiner, in a decision which became the final decision of the Secretary, concluded that for purposes of the Social Security Act Mr. Skalet had made no valid transfer to Mrs. Skalet, but merely was attempting to shift his income to her. It was ruled that Mr. Skalet had received income from self employment in excess of the statutory maximum for ten months of 1967.¹

The Secretary based his conclusion upon the following facts and inferences:

Before the transfer Mr. Skalet signed all checks drawn on the company's accounts, handled about fifty per cent of the loans and made most of the bookkeeping entries on the records of the firm. His son's duties had been increasing for a number of years, and prior to the sale the son made the other fifty per cent of the loans and ordered all new merchandise and supplies. Following the sale Mr. Skalet's duties decreased, although he still spent some 24 hours per week in the store, making some loans, waiting on customers and performing custodial and other chores. There was a corresponding increase in the duties of the son, who now made ninety per cent of the loans and maintained the...