Vogel v. Sullivan

• Decision Date: 22 February 1990
• Docket Number: No. 89 C 740.,89 C 740.
• Parties: Raymond VOGEL, Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — Northern District of Illinois

735 F. Supp. 1353

Raymond VOGEL, Plaintiff, v. Louis W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant.

No. 89 C 740.

United States District Court, N.D. Illinois E.D.

February 22, 1990.

Sheldon R. Waxman, South Haven, Mich., for plaintiff.

Anton R. Valukas, U.S. Atty., Frederick Branding, Asst. U.S. Atty., Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

On December 1, 1988, defendant Louis Sullivan ("Secretary") denied the application of plaintiff Raymond Vogel ("Vogel") for old-age insurance benefits. Vogel now seeks review of this decision, arguing that the Secretary's conclusion that Vogel did not qualify for benefits on the basis of insufficient quarterly earnings is not supported by substantial evidence. Before this court are motions for summary judgment filed by both parties. For the following reasons, we grant the Secretary's motion and deny Vogel's.

FACTS

Vogel was born on July 24, 1921. To qualify for full old-age insurance coverage under 42 U.S.C. § 402(a) (1982 & Supp. V 1987), both parties agree, Vogel needs 32 quarters of coverage — one for each year between 1950 and 1983, the year he reached age 62. 42 U.S.C. § 414(a).¹ When Vogel first attempted to secure social security retirement benefits in 1984, the Secretary credited him with only 25 quarters of coverage, earned prior to 1982,² and on that basis denied his claim (A.R. 62-67). Although Vogel claimed to be employed by the Post Construction Company for seven additional quarters between 1982 and 1984, the Secretary found that Vogel did not have a valid employment relationship with the company, and therefore payments received pursuant to this arrangement were deleted from Vogel's earnings. Vogel did not appeal this ruling at the time, nor does he now contest it.

Since 1958, Vogel has owned an eight-unit apartment building at 1517 Bonnie Brae, River Forest, Illinois, and has rented out seven of those units, retaining the eighth for his own occupancy. In the wake of the Secretary's 1984 denial of his application for retirement benefits, Vogel formed the 1517 Bonnie Brae Building Corporation, allegedly on the advice of his accountant for tax purposes, and has served as its sole stockholder and officer since its inception. According to its Articles of Incorporation, the 1517 Bonnie Brae Building Corporation was formed "to acquire, own, use, lease as lessor or lessee, convey and otherwise deal in and with real property and any interest therein" as well as "to engage in any lawful act or activities for which corporations may be organized under the Illinois Close Corporation Act, relative to the foregoing" (A.R. 103). As an employee of this corporation, Vogel drew $300 a month but was responsible for the same duties that he performed without remuneration prior to incorporation; those duties consisted of collecting rents from the tenants, paying bills and keeping books, doing minor repairs, and arranging for the maintenance of the building (A.R. 26-28). The corporation additionally employed a handyman, who had worked for Vogel for approximately 30 years prior to incorporation, to mow the lawn, clean hallways, perform minor clean-up jobs, and do some repairs when Vogel was unavailable. On the basis of the additional quarters of coverage that Vogel's $300-a-month salary arguably translates into, he filed a new application for old-age insurance benefits on April 4, 1986.

Although Vogel was initially notified that this second application was successful, the Secretary soon realized that this determination of eligibility assumed, contrary to his 1984 ruling, that Vogel had earned seven quarters of coverage from his affiliation with the Post Construction Company. Vogel consequently was informed by letter dated September 11, 1986, that the benefits had been incorrectly awarded and that he was to return the payments already received (A.R. 84). Alleging that his employment relationship with the 1517 Bonnie Brae Building Corporation entitled him to coverage, Vogel filed a request for reconsideration of this decision on September 16, 1986. This third appraisal of his case, however, ultimately yielded the same result as the second (A.R. 175-80), despite an interim "special determination" by a claims representative that Vogel's claim was meritorious (A.R. 172-73). Vogel's next strategy was to seek a de novo administrative hearing before an administrative law judge ("ALJ"), which was granted and held on January 21, 1988, but which failed to persuade the ALJ that Vogel qualified for benefits.

Predictably unhappy with this result, Vogel requested — and was granted — review of the ALJ's ruling by the Appeals Council of the Department of Health and Human Services. The Appeals Council notified Vogel on August 30, 1988, of its proposed conclusion, which was essentially the same as the ALJ's, and invited further argument and the submission of additional evidence (A.R. 189-90). Vogel's lawyer, responding to this request, submitted a letter in which he reemphasized Vogel's position that the 1517 Bonnie Brae Building Corporation earnings entitled him to old-age benefits. Through his lawyer, Vogel additionally asserted that the Secretary had under-credited him for the pre-1982 period by attributing to him but 25 of the 28 quarters of coverage that he had allegedly earned. Vogel's lawyer requested an explanation of how the Secretary had arrived at the "25" figure, but rather than submit any evidence to contest the Secretary's calculations, he merely advised the Appeals Council that Vogel had "provided him with copies of tax returns from 1951 through and including 1956 and one for 1958" and offered to "provide the tax returns upon request" (A.R. 193). With respect to Vogel's claim that he had earned seven quarters of coverage by virtue of his employment relationship with the 1517 Bonnie Brae Building Corporation, the Appeals Council used slightly different legal analysis but adopted the ALJ's findings of fact and ultimate conclusion that Vogel did not qualify for benefits. The Appeals Council similarly rejected Vogel's claim of 28 quarters of coverage prior to 1982, explaining that the Secretary's records lacked documentation of self-employment income for 1956 and 1957 and that unless the claimant provides evidence proving otherwise, these records are conclusive. The decision of the Appeals Council is the final decision of the Secretary and, pursuant to 42 U.S.C. § 405(g) (1982), Vogel filed an action in this court on January 30, 1989, seeking review of the Secretary's decision.

DISCUSSION

Rather than make de novo findings of fact, this court must adhere to any factual determination that is supported by substantial evidence, Davis v. Califano, 603 F.2d 618, 624-25 (7th Cir.1979), 42 U.S.C. § 405(g), and uphold the decision if the record as a whole contains substantial evidence to support it, Garfield v. Schweiker, 732 F.2d 605, 607 (7th Cir.1984), provided there has been no error of law, which would warrant reversal "irrespective of the volume of evidence supporting the factual findings." Schmoll v. Harris, 636 F.2d 1146, 1150 (7th Cir.1980). Evidence is "substantial" if "`a reasonable mind might accept it as adequate to support the conclusion.'" Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971) (citing Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126 (1938)).

A. Income from the 1517 Bonnie Brae Building Corporation

Under the Social Security Act, 42 U.S.C. § 301 et seq. (1982 & Supp. V 1987), an individual is eligible for old-age insurance benefits upon earning a specified amount in wages or self-employment income over a certain period of time. 42 U.S.C. §§ 413, 414. Excluded from self-employment earnings for the purpose of determining eligibility, however, is income from the rental of real estate and from personal property leased with the real estate, unless such income is "received in the course of a trade or business as a real estate dealer." 42 U.S.C. § 411(a)(1); see also 20 C.F.R. § 404.1082(a) (1989); Delno v. Celebrezze, 347 F.2d 159, 162 (9th Cir.1965). Regulations promulgated by the Social Security Administration provide further that rental income is not excluded to the extent that "services are also provided to the occupant" where such services are "primarily for the occupant's convenience and are other than those usually provided in connection with the rental of rooms or other space for occupancy only." 20 C.F.R. § 404.1082(d)(2) (1989). The rationale behind this exception for passive rental income is informed by the underlying purpose of old-age insurance; the system purports "to protect workers and their dependents from the risk of loss of income due to the insured's old age," and therefore an exclusion is made for "the receipt of income from the investment of capital," which old age would presumably not interrupt. Delno, 347 F.2d at 161; Joyce v. Mathews, 569 F.2d 1039, 1041 (8th Cir. 1978).

This regulatory scheme certainly excludes Vogel's rental earnings from the units at 1517 Bonnie Brae prior to its incorporation in 1984; Vogel argues, however, that the $300 monthly salary that he drew subsequently from the 1517 Bonnie Brae Building Corporation, a valid corporation under Illinois law, constituted wages rather than self-employment income and thus is not subject to the rental income exclusion. In denying Vogel's claim for benefits the Appeals Council rejected the argument that incorporation automatically transforms self-employment income into wages and instead inquired into whether the formation of the 1517 Bonnie Brae Building Corporation represented a change in substance as well as form. Because the Council found there to be no change in Vogel's duties or services performed, it concluded that his affiliation with the corporation did not amount to "a valid employer-employee relationship" and that income "received from the...