Smith v. Sullivan

• Decision Date: 30 December 1992
• Docket Number: No. 92-1430,92-1430
• Citation: 982 F.2d 308
• Parties: , Unempl.Ins.Rep. (CCH) P 17166A Albert G. SMITH, Appellee, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 308

982 F.2d 308

39 Soc.Sec.Rep.Ser. 633, Unempl.Ins.Rep. (CCH) P 17166A

Albert G. SMITH, Appellee, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Appellant.

No. 92-1430.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 18, 1992.

Decided Dec. 30, 1992.

Shushma Soni (argued), and Stuart M. Gerson, Charles A. Banks, Mark B. Stern and Nancy E. Friedman, Washington, DC, on the brief, for appellant.

Counsel who presented argument on behalf of the appellee was Lewis Huddle (argued), Little Rock, Ark., Sam Boyce, Newport, Ark., on the brief, for appellee.

Before McMILLIAN, WOLLMAN and LOKEN, Circuit Judges.

WOLLMAN, Circuit Judge.

The Secretary of Health and Human Services (the "Secretary") appeals from the district court's order reversing the Secretary's reduction of Albert G. Smith's social security disability benefits to zero. We reverse.

I.

The facts of this case are not in dispute. Mr. Smith, now fifty-nine years old, worked as a self-employed farmer from 1951 until June 1986. In addition, he worked for the federal government from May 1962 until June 1986. Smith spent his last thirteen years in government service as a substitute mail carrier for the United States Postal Service.

During his years of employment, Smith paid social security taxes on the income that he derived from farming but not on his civil service earnings. Instead, Smith paid premiums to the Civil Service Retirement System ("CSRS") on his government earnings. For purposes of the Social Security Act (the "Act"), earnings upon which an individual pays social security taxes are "covered" earnings and those upon which an individual pays no social security tax are "noncovered."

In June 1986, Smith was forced to retire due to arteriosclerotic heart disease. He filed a claim for civil service disability benefits based on his work for the federal government. He also filed a claim for social security disability benefits.

In September 1986, Smith began collecting approximately $721 per month in civil service disability benefits. In December 1986, the Social Security Administration ("SSA") found that Smith qualified for disabled status within the terms of the Act and awarded him approximately $430 per month in social security disability benefits retroactive to November 1986.

In October 1987, the SSA notified Smith that his social security disability benefits were being reduced to zero because the total amount of his civil service and social security disability benefits exceeded the applicable limit. The SSA informed Smith that he had been overpaid $4260 from November 1986 through August 1987. ¹ The SSA stated that section 224 of the Act, 42 U.S.C. § 424a, required that Smith's civil service disability benefits be offset against his social security disability benefits. The SSA asserted that because Smith's civil service disability benefits of $721 per month exceeded the limit of $622.40 that Smith was entitled to receive under the social security offset provision, no social security disability benefits were payable.

Smith asked for reconsideration of the SSA's initial determination. The SSA reasserted its position that 42 U.S.C. § 424a's offset provision required Smith's social security disability benefits be reduced to zero.

Smith then requested a hearing before an administrative law judge ("ALJ"). Following a hearing, the ALJ agreed with the SSA that the amount Smith received in civil service disability benefits alone exceeded section 424a's combined disability benefit limit, which determines a claimant's entitlement to social security disability benefits. The ALJ held that the SSA had correctly calculated the benefit limit and had properly reduced Smith's social security disability benefits to zero. When the Appeals Council denied Smith's request for further review, the ALJ's ruling became the final, appealable decision of the Secretary.

Smith appealed the ALJ's decision to the district court. With the consent of the parties, the district court referred the case to a magistrate judge, who held that the Secretary had erred in computing the applicable disability benefit limit under section 424a's offset provision. Specifically, the magistrate judge held that the Secretary had erroneously concluded that section 424a required the exclusion of Smith's noncovered government earnings from the calculation of his "average current earnings," which determines an individual's benefit limit. The magistrate judge rejected the Secretary's argument that the term "wages" in section 424a must be given the definition listed in another section of the Act, 42 U.S.C. § 409(a), which excludes government earnings. The magistrate judge looked instead to the legislative history of the offset provision in an attempt to divine Congress's intent. Relying on language from a Fifth Circuit opinion that section 424a "requires an offset of Social Security disability payments against workers' compensation benefits so that the total benefits received by the worker under the two programs do not exceed 80% of his pre-disability income," Freeman v. Harris, 625 F.2d 1303, 1306 (5th Cir.1980) (emphasis added), the magistrate judge concluded that the "[i]nclusion of [Smith's] wages as a postal worker in 'average current earnings' is in keeping with the purpose of section 424a and ensures that [Smith's] disability benefits are not reduced to a level far below his pre-disability income," (D.Ct.Mem. & Order of May 10, 1991, at 7). Accordingly, the magistrate judge remanded the case to the Secretary with directions to include Smith's noncovered civil service earnings in a recalculation of his benefit limit.

The Secretary filed a timely appeal of the magistrate judge's order. The sole question before us is whether we should give the term "wages" in section 424a the technical meaning set forth in section 409(a), or whether we should construe it in a vernacular sense as a synonym for "income."

II.

We review a denial of benefits by the Secretary to determine whether the denial is supported by substantial evidence on the record as a whole, see 42 U.S.C. § 405(g), and whether the Secretary and the district court applied the proper legal standard in reaching their results. See Brooks v. Sullivan, 882 F.2d 1375, 1378 (8th Cir.1989). In the instant case, the issue for our review is a legal question of statutory interpretation, and therefore we address it de novo, with appropriate deference to the Secretary's interpretation of the Act. Dep't of Social Servs. v. Bowen, 804 F.2d 1035, 1037 (8th Cir.1986); see also Sierra Club v. Robertson, 960 F.2d 83, 85 (8th Cir.1992) (noting the Eighth Circuit's "usual practice of reviewing de novo a district court's application of law to undisputed facts").

The Act provides disability benefits for individuals who qualify as disabled under the Act's definitions. See Locher v. Sullivan, 968 F.2d 725, 727 (8th Cir.1992) (describing the five-step procedure employed to determine disability status). After an individual has established disabled status, the Secretary determines the individual's "primary insurance amount" ("PIA") by applying a percentage set forth in 42 U.S.C. § 415(a) to the claimant's "average indexed monthly earnings." See 20 C.F.R. §§ 404.211-12 (1992) (calculating average indexed monthly earnings on the basis of "wages, compensation, self-employment income, and deemed military wage credits ... that are creditable to [the claimant] for social security purposes for years after 1950").

The percentage used to calculate a claimant's PIA may be lowered if the claimant also receives a monthly periodic payment based in whole or in part on the claimant's earnings from service that does not qualify as "employment" under 42 U.S.C. § 410. 42 U.S.C. § 415(a)(7). This percentage reduction is commonly known as the "windfall reduction." The individual's PIA, as adjusted under the windfall reduction of section 415(a)(7) if required, determines the amount of monthly disability benefits payable to the claimant. See 42 U.S.C. § 415(a). In Smith's case, the Secretary used the lower percentage mandated by the windfall reduction provision to determine Smith's PIA and monthly benefit.

The Act also contains a disability benefit offset provision that the Secretary applies after he has determined an individual's PIA and monthly social security disability benefit. See 42 U.S.C. § 424a (entitled "Reduction of disability benefits"). ² Section 424a provides that an individual's social security disability benefits will be reduced, or offset, to a specified limit when the individual also receives another federal disability benefit. Section 424a supplies alternative methods of calculating the offset, but requires the utilization of the method that yields the highest benefit limit.

In this case, the parties do not dispute the appropriate method of calculating the offset. The parties agree that the offset method producing the greatest benefit limit is the "average current earnings" method. That method would reduce Smith's social security disability benefits to a level where the sum of the social security disability benefits and civil service disability benefits equals eighty percent of Smith's "average current earnings" prior to his disability.

The "average current earnings" method itself contains three alternatives. Section 424a defines "average current earnings" in three ways and requires that the definition which produces the largest "average current earnings" be utilized. ³ In Smith's case, the largest "average current earnings" results from the use of alternative (B), which determines the monthly average of the five highest consecutive years of "wages and self-employment income." (This alternative is commonly known as the "High Five" definition.)

In calculating Smith's "High Five" average, the Secretary included only Smith's self-employment farming income, because the Secretary concluded that Smith's civil service...