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In Begoun, the court found it significant that the ALJ failed to question the claimant to further develop the record regarding his awareness of the work period reporting requirements. "[H]ad the ALJ confronted Claimant with the August 23, 1996 notice letter as the lynchpin of his analysis of whether Claimant was aware of the trial work period reporting requirements, and depending upon Claimant's response to that inquiry, the ALJ might have further developed the record on the issue of whether Claimant knew or should have known about his reporting obligations concerning the trial work period."
Summary of this case from Barnett v. ColvinOpinion
No. 09 C 1555.
January 28, 2011
MEMORANDUM OPINION AND ORDER
Claimant Ethan D. Begoun ("Claimant") brings this action under 42 U.S.C. § 405(g), seeking reversal or remand of the decision by defendant Michael J. Astrue, Commissioner of Social Security ("Commissioner"), denying Claimant's request for waiver of repayment of an overpayment of disability insurance benefits under Title II of the Social Security Act, 42 U.S.C. § 404(a). An overpayment of disability insurance benefits occurs when a recipient receives more than the amount he is entitled to receive and becomes obligated to refund the excess amount to the Social Security Administration ("SSA"). 42 U.S.C. § 404(a). The SSA may waive the recovery of an overpayment only if both of the following are true: (1) the recipient is without fault in causing the overpayment, and (2) recovery either defeats the purposes of the Social Security Act or goes against principles of equity and good conscience. 42 U.S.C. § 404(b).
This matter is before the Court on Claimant's motion for summary judgment or remand [Dkt. #19]. Claimant argues that the Administrative Law Judge's ("ALJ") decision denying his request for waiver of repayment of overpayment should be reversed and/or that the case should be remanded for further proceedings. Claimant raises the following issues: (1) whether the ALJ erred in failing to recognize as reasonable Claimant's subjective belief regarding the computation of his trial work period; (2) whether the ALJ erred in failing to consider the impact of Claimant's ongoing medical conditions upon his understanding of his reporting responsibility concerning his trial work period at the time the overpayments occurred; and (3) whether the ALJ's finding that Claimant is able to repay the overpayment is supported by substantial evidence. For the reasons set forth below, Claimant's motion is granted. The decision of the Commissioner of Social Security is reversed, and this matter is remanded to the SSA for further proceedings consistent with this Memorandum Opinion and Order.
I. BACKGROUND
A. Procedural History
Claimant applied for disability insurance benefits on January 23, 1992, alleging he was disabled since April 28, 1990. (R.24-27). Claimant was granted disability insurance benefits beginning in January 1991. (R.17). Claimant received disability insurance benefits from January 1991 until August 2002. (R.7, 54-56). The SSA determined on June 20, 2002, however, that Claimant had demonstrated the ability to engage in substantial gainful activity, that his disability had ceased in January 1997 after he had completed a nine-month trial work period comprised of periods when he was employed by others and self-employed, and that his eligibility for disability insurance benefits ended three months later on March 31, 1997. (R.17, 47-49, 50-52). The SSA stopped making payments to Claimant in August 2002 and determined on September 9, 2002 that, for the months of April 1997 through July 2002, Claimant had been overpaid $64,309 and each of his two children had been overpaid $16,058 for a total overpayment to his children of #32,116. (R.17).
The total of more than $96,000 apparently includes more than 50 social security disability benefit checks that Claimant received but did not cash and eventually returned to the SSA. See note 2 infra.
In October 2002, following receipt of the SSA's September 9, 2002 letter, Claimant notified the SSA that he was requesting a waiver of recovery of the overpayment. (R. 17). Claimant asserted that he was without fault in causing the overpayment and could not afford to repay to the SSA the overpayment he had received. (R.63-65, 66-73). In the fall of 2002, Claimant also began refunding $10 per month to the SSA. (R.22).
In June 2003, an Administrative Claims Representative from the SSA made a preliminary determination that recovery from Claimant of the overpayment could not be waived. (R.17, 139-140). After conducting a personal conference with Claimant and his attorney in March 2004 and allowing Claimant time to submit additional evidence, the SSA determined in May 2004 that it could not waive recovery of the overpayment. (R.17, 152-161). After receiving notice of the SSA's personal conference decision in May 2004, Claimant timely filed a request for a hearing before an ALL. (R.17, 162).
ALJ Edward Pappert conducted a hearing on May 26, 2005 at which Claimant appeared and testified with his attorney present. (R.349-375). After the hearing, Claimant's counsel submitted additional information, including an affidavit from Claimant's wife, in July 2005 and May 2006. (R.316-337). On September 29, 2006, the ALJ issued a decision finding Claimant was not without fault in causing the overpayment of disability insurance benefits and denied his request for waiver of repayment. (R.17-23). On January 30, 2009, the Appeals Council denied a request for review, making the ALJ's decision the final decision of the Commissioner. (R.5-8). Claimant subsequently filed suit in this Court pursuant to 42 U.S.C. § 405(g), seeking review of the ALJ's decision denying waiver of repayment of the overpayment of disability insurance benefits.
B. Factual History
Claimant applied for disability insurance benefits on January 23, 1992, alleging he had been disabled since April 28, 1990 as a result of multiple back surgeries. (R.24-27). Claimant was granted disability insurance benefits beginning in January 1991. (R.17). Claimant did not work at all from 1991 through 1995. (R.225). He attempted to return to work beginning in April 1996. (R.205-08). During the nine-month period of time between April 1996 and the end of December 1996, Claimant worked briefly for Pasquesi Plumbing and Glenview Plumbing and then apparently was self-employed in a business he began and operated with his wife called Ethon's Home Maintenance ("EHM"). (R.196, 225, 321-322).
On April 10, 1996, Claimant completed a Work Activity Report for the SSA detailing his employment at Pasquesi Plumbing. (R.205-208). In that Work Activity Report, Claimant also articulated his then-understanding of the trial work period and requested that someone from the SSA contact him to explain how the trial work period was applied. (R.207). He explained:
I was told by social sec. that I would be able to continue to try and work for up to nine months and still receive benefits. If I can make it, working nine months then I would discontinue social security. Can you please have someone contact me on how a trail [sic] work period works.
(R.207). On June 17, 1996, Claimant filed another Work Activity Report noting that his employment at Pasquesi Plumbing ended on June 7, 1996. (R.196). Later that year, Claimant worked for a short time for Glenview Plumbing, earning only $720. (R.225).
The Commissioner contends that Claimant was sent and he received a notice letter dated August 23, 1996, acknowledging three completed months of his trial work period and his continuing disability. (R.201). That letter also explained the trial work period as follows:
The 9 months may be continuous or separated by periods when you do not work at all. In general, any month you earn over $75 in wages or are active in self-employment counts as a trial work month. At the end of the 9 months, a decision is made as to whether your work is substantial and gainful. If it is and work continues, benefits are stopped after an additional 3-month adjustment period. If it is not, benefits continue.
(R.202).
The record is silent as to whether Claimant received this letter. The copy of the letter in the record is addressed to Claimant at a Wilmette, Illinois address. That was Claimant's address at least as of June 10, 1996, when he submitted a Work Activity Report stating that his employment with Pasquesi Plumbing had ceased. (R.196). But the record does not disclose whether Claimant resided at that address in August 1996. At some point, Claimant moved to Northbrook, Illinois, which is the address shown on his 1997 tax return. (R.241). During oral argument on the pending motion, Claimant's counsel said she was not sure when Claimant moved from Wilmette to Northbrook, Illinois. In response to the Commissioner's argument that the August 23, 1996 letter is clear and unambiguous (Commissioner's Resp. [Dkt. #24], at 4), Claimant argues that there is no evidence in the record he received that letter. (Claimant's Reply [Dkt. #28], at 2). Claimant was not asked about the August 23, 1996 letter by the ALJ at the hearing in May 2005 nor was he questioned about where he lived at the time the letter supposedly was sent to him.
The record also is not clear as to when Claimant and his wife began operating EHM. (R.225). In her affidavit, Claimant's wife states that they began operating EHM in the mid to late 1990s. (R.321-322). SSA records show Claimant had self-employment earnings beginning in calendar year 1996. (R.28-30, 224-227). It appears from Claimant's IRS tax returns that he was self-employed from sometime in 1996 through at least 1999. (R.238-315). Claimant, however, did not notify the SSA of his self-employment until June 5, 1999 when he submitted a Work Activity Report detailing his self-employment with EHM. (R.208-210). In that report, Claimant also stated, however, that EHM did not make any money. (R.208, 210). It is unclear what motivated Claimant to submit the Work Activity Report for his self-employment in June 1999.
In 2000, Claimant started working for Merchant's Environmental Industries ("MEI"). (R.226, 363). Following Claimant's ninth consecutive month working at MEI, he contacted the SSA to cancel his disability insurance benefits. (R.74, 362). The SSA, however, continued to send Claimant benefit checks through 2001 and into 2002 which Claimant did not cash and ultimately returned uncashed to the SSA. (R.17). Claimant thus received disability insurance benefits from April 1997 until August 2002 (R.17, 54-56) though he did not cash over 50 benefit checks he received from July 2001 through July 2002 (R.74-136, 360).
On June 20, 2002, the SSA sent Claimant a letter stating that although Claimant rightly received disability insurance benefits from January 1991 through March 31, 1997, the SSA had concluded, upon review of his work history, that his disability ceased in January 1997. The SSA determined that Claimant's nine-month trial work period began in April 1996 and ended in December 1996 (R.48), a period during which he worked at Pasquesi Plumbing and Glenview Plumbing and commenced self-employment with EHM. (R.196, 225, 321-322). The SSA thus determined that Claimant's eligibility for disability insurance benefits ceased in January 1997 and that he no longer was eligible to receive benefits as of March 31, 1997, three months after the end of his trial work period. (R.17, 47-49, 50-52). The SSA sought repayment of the overpayment of benefits paid to Claimant from April 1997 through July 2002. (R.17). Claimant does not dispute the SSA's calculation of his combined wages and self-employment income between April 1996 and December 1999 or that these amounts exceeded the regulatory thresholds. (R.21). On September 9, 2002, the SSA notified Claimant of the overpayment and demanded repayment for the benefits he and his children had received from April 1997 through July 2002. (R.17, 57).
C. The Hearing and Record Before the ALJ
ALJ Edward Pappert conducted a hearing on May 26, 2005. Claimant testified at the hearing that he believed he did not complete his trial work period until he had worked nine consecutive months. (R.370-371). When Claimant completed working nine consecutive months for MEI in 2000, he notified the SSA that he had completed his trial work period and was no longer eligible for benefits. (R.360). Claimant articulated his understanding of the trial work period as follows: "[t]hey gave you nine consecutive months, if you can work nine consecutive months, then call up your social security office and tell them you can work." (R.370-371). Claimant claimed that he acted consistent with that understanding when he refused to cash more than 50 benefit checks he had received in 2001 and 2002 after he had notified the SSA he had completed working nine consecutive months at MEI. (R.220, 361).
When the ALJ questioned Claimant about his self-employment earnings during 1997, 1998 and 1999, Claimant testified that it was his understanding at the time, based on what he was told by his accountant and his recollection of that time period, that EHM did not make any money. (R.321, 365-373). EHM was a "matchmaker" or middleman of sorts between people who needed home repair services and tradesmen or handymen who could do the work. (R. 19, 322, 362-363) According to Claimant, "[b]y the numbers, as you can see, it's not a living, but I tried that for a number of years on loans . . . on you know, money borrowed from my dad. For a couple of years we just tried to make that work. It didn't pan out." (R.363).
Claimant testified that neither he nor his wife believed EHM was making money. (R.321-22, 367). Both Claimant and his wife testified that money generated by EHM primarily was used to pay-off loans from Claimant's parents or was put back into the business. (R.321-322, 371-372). Claimant testified that when they needed money, his wife would call the accountant, who was a friend of Claimant's parents, and he would tell her how much they could take out of the business. (R.371-372). Claimant further testified that he could not really describe the process of how and when they would take money from the business because "that period is such a blur to me" as a result of the narcotic pain medication he was taking for his back. (R.372-373).
Claimant's wife described their involvement with EHM and their dealings with the accountant who kept the books for the business as follows:
In order to set up the business and keep it going we borrowed a tremendous amount of money from our parents. Money that came in was either put back into the business or used to pay back the parents. The books for the business and all of the tax preparation was done by the accountant. He prepared the forms and told us where to sign and we signed. The accountant was a personal friend to my in-laws, so it never occurred to us to question him or his skills. We assumed he had our best interest at heart. Every so often the accountant would allow us to draw some money from the business to pay for necessities such as groceries but never very much and we were told by the accountant that the business was losing money. We had no reason to doubt the accountant's word that the business was not making money because we indeed were not getting by, and had to continue living on credit.
(R.321-322) (emphasis added).
Claimant also testified that all financial documents for EHM were handled by the accountant, including tax returns, and he had no detailed knowledge of EHM's financial status. (R.371-372). According to Claimant's wife, they often signed documents prepared by the accountant without reading them. (R.321). Copies of Claimant's federal tax returns in the record indicate that Claimant and his wife had reportable business income from EHM years 1997, 1998, and 1999 of $13,680, $21,904, and $9,413, respectively. (R.241, 261, 295). The tax returns, however, also show that Claimant and his wife had no net taxable income in 1997 and 1999 and that they received tax refunds in those years. (R.242, 296).
Finally, Claimant's wife testified that her family was unable to repay the overpayment to the SSA. She said. "[W]e need all of our monthly income to pay for our bills and to slowly try to payoff all of our outstanding debt including medical bills, credit cards, and family loans." (R.322).
D. The ALJ's Decision
On September 29, 2006, the ALJ issued his decision finding Claimant was not without fault in causing the overpayment of disability insurance benefits and denied his request for waiver of repayment. (R. 17-23). The ALJ was not persuaded by Claimant's argument that he did not understand the trial work provisions of the Social Security Act. (R.20). The ALJ found that the SSA's August 23, 1996 letter to Claimant contained a full and clear explanation of the trial work period provisions. (R.20). The ALJ concluded that "[s]ince the Administration's letter [dated August 23, 1996] clearly stated that the 9 months of the trial work period either could be continuous or separated by periods in which claimant did not perform any work, the burden of reporting any subsequent work activity shifted to claimant after he received the necessary reporting instructions." (R.20).
The ALJ also found no merit in Claimant's purported lack of knowledge that EHM was profitable as a justification for Claimant's failure to report his self-employment work activities. (R.21). The ALJ concluded, "[s]ince claimant and his wife were both required to sign their Federal tax returns in order to file them, they would have known at least by the date on which they signed the tax returns not only that the business was profitable but also that the amount of the profit was substantial." (R.21).
In addition, the ALJ found that even if Claimant was without fault in causing the overpayment, repayment did not defeat the purpose of Title II, and therefore, Claimant also failed the second step of the waiver analysis. (R.21). The ALJ determined that Claimant's family's current average monthly income exceeded the average monthly expenses of the household by a substantial amount, and therefore, repayment would not deprive the family of income required for ordinary and necessary living expenses. (R.21). Although Claimant reported that his family's monthly food expense was $1,300, the ALJ found that a more reasonable estimate of the cost of food for a family of four is $800 per month (based on an average of $200 per person). (R.21). After excluding the difference of $500 per month from Claimant's monthly expenses, the ALJ determined that Claimant's monthly income exceeded his expenses by $300. (R.21).
On January 30, 2009, the Appeals Council denied a request for review, making the ALJ's decision the final decision of the Commissioner. (R.5-8). Claimant filed suit in this Court, seeking review of the denial of waiver of repayment. The parties have submitted briefs on Claimant's motion for summary judgment or remand, and the Court heard oral argument on November 29, 2010. This matter is ripe for decision.
II. STANDARD OF REVIEW
A. Standard of Review
The "findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive." 42 U.S.C. § 405(g). A decision by an ALJ becomes the Commissioner's final decision if the Appeals Council denies a request for review. Sims v. Apfel, 530 U.S. 103, 106-07 (2000). Judicial review is limited to determining whether the decision is supported by substantial evidence in the record and whether the ALJ applied the correct legal standards in reaching his decision. Nelms v. Astrue, 553 F.3d 1093, 1097 (7th Cir. 2009).
Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401 (1971). A "mere scintilla" of evidence is not enough. Scott v. Barnhart, 297 F.3d 589, 593 (7th Cir. 2002). Even when there is adequate evidence in the record to support the decision, however, the findings will not be upheld if the ALJ does not "build an accurate and logical bridge from the evidence to the conclusion." Berger v. Astrue, 516 F.3d 539, 544 (7th Cir. 2008). If the ALJ's decision lacks evidentiary support or adequate discussion of the issues, it cannot stand. Villano v. Astrue, 556 F.3d 558, 562 (7th Cir. 2009). Moreover, a reviewing court cannot uphold the ALJ's decision based on evidence in the record upon which the ALJ did not rely unless the decision is so "overwhelmingly supported by the record" that remand for further consideration of the evidence would be a waste of time. Spiva v. Astrue, ___ F.3d ___, 2010 WL 4923563, at *7 (7th Cir. 2010).
Though the standard of review is deferential, a reviewing court must "conduct a critical review of the evidence." Eichstadt v. Astrue, 534 F.3d 663, 665 (7th Cir. 2008). It may not, however, "displace the ALJ's judgment by reconsidering facts or evidence, or by making independent credibility determinations." Elder v. Astrue, 529 F.3d 408, 413 (7th Cir. 2008). The reviewing court may enter a judgment "affirming, modifying, or reversing the decision of the [Commissioner], with or without remanding the cause for a rehearing." 42 U.S.C. § 405(g).
B. Legal Standard for Waiver of Recovery of Overpayment
An overpayment of disability insurance benefits occurs when a recipient receives more than the amount he is due and thereby becomes obligated to refund the excess amount to the SSA. 42 U.S.C. § 4(4)(a); 20 C.F.R. §§ 404.501-502. The SSA may waive the recovery of an overpayment only if both of the following are true: (1) the recipient is without fault in causing the overpayment; and (2) recovery either defeats the purposes of the Social Security Act or goes against principles of equity and good conscience. 42 U.S.C. § 404(b); 20 C.F.R. § 404.506; see also Banuelos v. Apfel, 165 F.3d 1166, 1173 (7th Cir. 1999) (overruled on other grounds by Johnson v. Apfel, 189 F.3d 561 (7th Cir. 1999)).
An individual is not without fault when the overpayment resulted from either (1) an incorrect statement made by the recipient that he knew or should have known was false, (2) failure to furnish information that the recipient knew or should have known was material, or (3) acceptance of a payment that he knew or could have been expected to know was not the correct amount. 20 C.F.R. § 404.507(a)-(c). When determining whether a recipient is without fault in causing the overpayment of benefits, the SSA must take into account any physical, mental, educational, or linguistic limitations such individual may have, including any lack of facility with the English language. 42 U.S.C. § 404(b); 20 C.F.R. § 404.507. "`The decision which must be reached in a fault determination is highly subjective, highly dependent on the interaction between the intentions and state of mind of the claimant and the peculiar circumstances of his situation.'" Lozano v. Apfel, 1999 WL 731702, at *4 (N.D. Ill. 1999) (emphasis original), citing Jefferson v. Bowen, 794 F.2d 631, 633 (11th Cir. 1986) (quoting Harrison v. Heckler, 746 F.2d 480, 482 (9th Cir. 1984)).
If a recipient is without fault, the SSA may waive recovery of the overpayment only if repayment also would defeat the purpose of the Social Security Act or go against principles of equity and good conscience. 42 U.S.C. § 404(b). Recovery of an overpayment defeats the purpose of the Social Security Act if it would deprive the individual of funds needed for ordinary and necessary living expenses. 20 C.F.R. § 404.508. In addition, repayment of the overpayment would be against equity and good conscience if the individual either (1) changed his position for the worse, or relinquished a valuable right, because of reliance on a notice that a payment would be made or because of the overpayment itself, or (2) was living in a separate household from the overpaid person at the time of the overpayment and did not receive the overpayment. 20 C.F.R. § 404.509(a). The individual's financial circumstances are immaterial to the question of whether repayment would run "against equity and good conscience." 20 C.F.R. § 404.509(b).
While the SSA has the burden of proving the existence of an overpayment, Wilkening v. Barnhart, 2004 WL 1005718, at *5-6 (N.D. Ill. 2004), affirmed, 139 Fed. Appx. 715, 2005 WL 1317327 (7th Cir. 2005), the recipient has the burden of proving that he is entitled to a waiver of repayment of an overpayment. Banuelos, 165 F.3d at 1173; Pliley v. Sullivan, 892 F.2d 35, 39 (6th Cir. 1989). Even if the SSA is at fault in making the overpayment, the recipient is not absolved of liability if he is found to be at fault in causing or accepting the overpayment. See 20 C.F.R. § 404.507.
III. ANALYSIS
It is a serious matter to order someone to repay the Government a substantial sum of money he mistakenly was overpaid over a period of years when he claims he did not understand he was being overpaid and would suffer economic hardship if compelled to pay back the money he received. On the other hand, if the person who received the overpayment is not without fault in causing the overpayment to occur, the law demands he repay it. That is the case even if the SSA also bears some responsibility for the overpayment.
In this case, the ALJ's order compelling Claimant to repay the overpayment rests primarily on two pieces of evidence in the record: (1) an August 23, 1996 letter addressed to Claimant there is no evidence he received, and (2) Claimant's tax returns for the period in question, prepared by an accountant, that Claimant and his wife say they did not read and that the ALJ found contained information about the profitability of Claimant's business that is different than Claimant and his wife testified was their understanding at the time the tax returns were filed. As discussed below, the ALJ did not adequately address or develop fully the record concerning Claimant's subjective beliefs and state of mind concerning his reporting responsibility for his trial work period or the purported profitability of the business Claimant and his wife operated out of their home. The ALJ also did not address all the relevant evidence in the record including evidence that does not support his ultimate conclusions, and he failed to build a logical bridge to his conclusions from the evidence in the record upon which he does rely. To the extent the ALJ's decision rests on a determination that Claimant's testimony was not credible, that conclusion is not supported by substantial evidence and is patently wrong based on the evidence upon which the ALJ does rely.
This is not to say that the Court believes there is no set of facts or reasoning that could lead the ALJ to the conclusions he reached. The evidence cited by the ALJ, and the reasoning process articulated in his decision, however, does not pass muster when measured against the applicable legal standards. Accordingly, for the reasons set forth below, the Court reverses the ALJ's decision and remands this case to the SSA for further proceedings consistent with this Memorandum Opinion and Order.
A. The Existence and Amount of Overpayment
B. The ALJ's Determination that Claimant Is Not Without Fault in Causing or Accepting the Overpayment Is Not Supported by Substantial Evidence
Bosnich v. Astrue2009 WL 2241803Wilkening2004 WL 1005718 Lozano1999 WL 731702
Having said this, the record does not disclose the amount of the net overpayment Claimant is required to repay. The ALJ noted that the amount of the overpayment had been reduced not only by the amount of more than 50 checks that Claimant received but did not cash, but also by the payments Claimant had refunded to the SSA beginning in the fall of 2002 at the rate of $10.00 per month. (R.22). There is some indication that the net amount of the refund the SSA claimed was due from Claimant for the overpayments at the time of the hearing was $34,620 to him and $9,536 to each of his two children for a total of $53,692. (Commissioner's Resp. [Dkt. #24], at 1-2; R.139).
The ALJ found that Claimant knew or should have known he was required to report to the SSA his work activity during 1996, 1997, 1998 and 1999 (R.20), including his self-employment with EHM, because Claimant received a notice explaining fully and clearly his trial work period reporting obligations and he knew or should have known that EHM was profitable. (R.21). Therefore, the ALJ concluded that Claimant accepted disability benefit payments for several years that he knew or could have been expected to know were incorrect. The relevance of the ALJ's finding that Claimant should have known EHM was profitable presumably is that Claimant knew or should have known that the information concerning his self-employment, that he was not reporting to the SSA, was material in that it showed he was or may have been engaged in substantial gainful work activity.
1. The SSA's August 23, 1996 notice letter and Claimant's subjective belief regarding his reporting obligations.
In reaching his conclusion that Claimant knew or should have known that he was required to report to the SSA his self-employment work activity, the ALJ relied upon the SSA's August 23, 1996 notice letter. (R.20-21). The August 23, 1996 letter explained that "[t]he 9 months [of the trial work period] may be continuous or separated by periods when you do not work at all. In general any month you earn over $75 in wages or are active in self-employment counts as a trial work month. At the end of the 9 months, a decision is made as to whether your work is substantial and gainful. If it is and work continues, benefits are stopped after an additional 3-month adjustment period. If it is not, benefits continue." (R.202) (emphasis added). The ALJ found that the language in the August 23, 1996 letter is clear and refutes Claimant's purported subjective belief that the trial work period needed to be composed of nine consecutive months of employment. (R.20). The ALJ stated that since the language in this letter was clear, "the burden of reporting any subsequent work activity shifted to claimant after he received the necessary reporting instructions." (R.20).
There is no evidence in the record, however, that the August 23, 1996 letter actually was sent to Claimant at his then-current residence or that he received it. The ALJ did not ask Claimant about the August 23, 1996 letter during the May 2005 hearing. Although the Commissioner argues that "in August 1996, Plaintiff received [the August 23, 1996] letter from SSA" (Commissioner's Resp. [Dkt. #24], at 4), there is no evidence in the record to support the statement that Claimant received that notice letter and the Commissioner points to none. Similarly, while Claimant testified that he read everything he received from the SSA (R.373), the significance of that admission depends on some proof that he received the August 23, 1996 letter.
Given the weight the ALJ placed on the August 23, 1996 letter, it would have been helpful if the ALJ had asked Claimant about that letter at the hearing or afterwards. After the hearing, the ALJ did direct follow-up questions to Claimant, through his counsel, about other evidence but not about the August 23, 1996 letter. Of course, had the ALJ done so, Claimant may have said he did not remember whether he received that letter nine or ten years earlier when he was recovering from multiple back surgeries and taking narcotic pain medication. Or, Claimant may have explained when he moved from the address in Wilmette, Illinois (where the August 1996 letter purportedly was sent) to the address in Northbrook, Illinois (where he lived in 1997 according to his tax returns), which may have supported a conclusion that it was more likely than not that Claimant did or did not receive the August 1996 letter.
For example, the ALJ sent Claimant's counsel a letter dated March 22, 2006, ten months after the hearing, seeking further clarification about a bank statement regarding interest paid to Claimant in 1998 (R.335), and Claimant's counsel responded to that inquiry by letter dated May 15, 2006 (R.336).
More importantly for the purpose of reviewing the ALJ's decision here, had the ALJ confronted Claimant with the August 23, 1996 notice letter as the lynchpin of his analysis of whether Claimant was aware of the trial work period reporting requirements, and depending upon Claimant's response to that inquiry, the ALJ might have further developed the record on the issue of whether Claimant knew or should have known about his reporting obligations concerning the trial work period. The ALJ has a responsibility to develop the record adequately (Ferguson v. Barnhart, 67 Fed. Appx. 360, 366, 2003 WL 21259753, at *6 (7th Cir. 2003)), and that is true even when a claimant is represented by counsel. Ray v. Bowen, 843 F.2d 998, 1007 (7th Cir. 1988). Further, although Claimant was represented by counsel at the hearing before the ALJ, the controlling significance the ALJ would place on the August 23, 1996 letter did not become clear until after the ALJ issued his decision on September 29, 2006.
As it stands, however, the August 23, 1996 letter is the sole evidence the ALJ cites for his conclusion that Claimant was aware of his reporting obligations and that letter does not support the weight the ALJ places upon it. The Commissioner attempts to bolster the ALJ's decision by pointing to evidence in the record to support the ALJ's conclusion that Claimant knew or should have known that he was required to furnish the SSA with information concerning his work activity, including his self-employment. For example, the Commissioner argues that when he first applied for disability benefits in January 1992, Claimant received a notice that said, among other things, he agreed to notify the SSA if "I go to work whether as an employee or a self-employed person." (Commissioner's Resp. [Dkt. #24], at 6; R. 24-27). But the ALJ did not reference this letter in his decision, so we do not know what weight, if any, the ALJ would have ascribed to it. The Commissioner cannot cure the ALJ's failure to deal with this evidence by relying upon it now to create the logical bridge that must exist to support the ALJ's decision. Spiva, 2010 WL 4923563, at *7.
At the May 2005 hearing, the ALJ did say he would take "judicial notice" that the SSA sends out every year a notice of the rights and responsibilities of someone receiving benefits, one of which is to report income or changes in income to the SSA. (R.358). The ALJ did not, however, state how or whether this judicially noticed fact figured in his ultimate decision, or how it relates to Claimant who contends that he subjectively believed he did not have reportable income during the period in question (R.367-368, 371-372).
The Commissioner also argues that Claimant and his wife had the "cognitive, intellectual, and reasoning abilities to operate a home repair business [so] it is reasonable to conclude that [Claimant] could understand the August 1996 letter explaining a trial work period." (Commissioner's Resp. [Dkt. #24], at 5). The ALJ may or may not have considered this line of reasoning in reaching his ultimate conclusion, but he did not articulate this rationale for his decision to reject Claimant's contention that he did not understand the components or operation of a trial work period as applied to him. Therefore, the Commissioner cannot rely upon it now to uphold the ALJ's decision because we do not know if that was part of the ALJ's decision-making process. Spiva, 2010 WL 49234563, at *7.
The ALJ also failed to address (other than to mention it in passing) the evidence that Claimant refused to cash more than 50 benefit checks he received after reporting to the SSA in 2000 that he had completed nine consecutive months of work as an employee of MEI. (R.22). This is some evidence that Claimant's contention he believed the trial work period was triggered only after nine consecutive months of employment in which he was earning money is not a recent invention to evade repaying the overpayment. Claimant kept these checks rather than cash them even after repeated communications to the SSA that he had completed his trial work period fell on deaf ears. Further, Claimant's written inquiry to the SSA in April 1996 asking that someone contact him to explain how a "trail [sic] work period works" also is evidence of his then-existing state of mind. (R.207). The ALJ did not explain how he weighed this evidence in the record against the impact upon Claimant's state of mind of a letter that there is no evidence Claimant received.
It is the ALJ's responsibility to weigh all relevant evidence and build a logical bridge to his conclusion. Berger, 516 F.3d at 544; Ray, 843 F.2d at 1002. While the Seventh Circuit has said that remand for a fuller development of the record may be unnecessary when "it is predictable with great confidence that the agency will reinstate its decision on remand because the decision is overwhelmingly supported by the record though the agency's original opinion failed to marshal that support" ( Spiva, 2010 WL 4923563, at *7), that concern in inapposite here. The record evidence in this case is not overwhelming that Claimant understood or even had notice of the trial work period reporting rules as they related to "the peculiar circumstances of his situation." Lozano, 1999 WL 731702, at *4. Moreover, as discussed below, the ALJ's decision in this case also is deficient because it discounts, without the required analysis, Claimant's credibility on the issue of whether he believed his self-employment was profitable and, thus, required reporting to the SSA.
2. Claimant's tax returns as evidence of what he knew or should have known regarding the profitability of EHM.
The ALJ found no merit in Claimant's contention that he was not at fault for his failure to report his self-employment work activities because he did not believe that EHM was profitable. (R.21). The ALJ based this conclusion solely on his review of Claimant's tax returns for calendar years 1997, 1998 and 1999. Those tax returns, according to the ALJ, show that Claimant's business "made a profit during each year and that the profit from the business was shown as income on line 12 of the Form 1040." (R.21). The ALJ went on to say that "[s]ince the Claimant and his wife both were required to sign their Federal tax returns in order to file them, they would have known at least by the date on which they signed the returns not only that the business was profitable but also that the amount of profit was substantial." (R.21). The ALJ thus rejected Claimant's testimony that he did not understand his business was profitable, that his accountant told him the business was not profitable, that he did not realize substantial income from his self-employment during the time he operated EHM out of his home, and that his parents basically paid for everything during that time period including groceries for his family. (R.367-368, 371-372).
The ALJ apparently chose to disbelieve Claimant solely on the basis of what the ALJ gleaned from Claimant's tax returns about the profitability of his self-employment. But the conclusive significance of Claimant's tax returns on the issue of whether he knew or should have known that his self-employment was profitable work activity is undercut by the fact that in two of the three years referenced by the ALJ ( i.e., 1997 and 1999), Claimant's tax returns also show that he had no taxable income on IRS Form 1040 line 38 (R.242) and IRS Form 1040 line 39 (R.296), respectively, and that Claimant and his wife received tax refunds in those years. (R.296). This is consistent with Claimant's testimony that although his accountant told him he had to make estimated tax payments, which he did, he would get that money back at the end of the year because his business was not making any money. (R.372).
Moreover, while the ALJ may be correct that Claimant and his wife signed their tax returns before they were filed, the copies of the tax returns in the record are signed only by Claimant's accountant and are stamped "Client's Copy" without any signature by Claimant or his wife. (R.238-315). Claimant was not asked about the tax returns during the hearing because they were submitted to the ALJ at his request by Claimant's attorney two months after the hearing. (R.316). Without more, the tax returns are an insufficient foundation to support the ALJ's conclusion that Claimant knew or should have known that his self-employment was work activity that demanded reporting to the SSA and triggered a trial work period that would disqualify him from receiving disability benefits.
Moreover, it is dangerous business to rely on tax returns for the purpose of distilling from them a taxpayer's actual financial or cash flow situation. That is not the purpose of a tax return. In fact, 20 C.F.R. § 404.1575(a)(2) implicitly recognizes that the income line on an IRS Form 1040 may be the beginning, but is not the end, of the analysis for purposes of determining whether a person's self-employment is substantial gainful activity. That regulation provides, in relevant part: "[w]e will not consider your income alone because the amount of income you actually receive may depend on a number of different factors, such as capital investment and profit-sharing agreements." 20 C.F.R. § 404.1575(a)(2). That regulation also states that in determining "countable net income" from self-employment, the SSA will "deduct the reasonable value of any significant amount of unpaid help furnished by your spouse, children or others" and will "deduct unincurred business expenses paid for by another individual." 20 C.F.R. § 404.1575(c)(1). The ALJ engaged in no such analysis here. Accordingly, the ALJ's conclusion that Claimant should have known from one line on his federal income tax returns that his business was profitable is not supported by substantial evidence in the record or the relevant SSA regulations.
The ALJ also engaged in no analysis why Claimant's tax returns reasonably should have put Claimant on notice that his business was profitable when his accountant told him EHM was not making any money and he was living on loans from his parents. While the ALJ's point may be that Claimant knew or should have known from his tax returns alone that he should have reported his self-employment activity to the SSA and let that agency determine whether he had satisfied his trial work period, that goes back to whether Claimant knew or should have known about, and understood, the explanation of the trial work period contained in the August 23, 1996 letter that Claimant may or may not have received.
Claimant's failure to challenge today the fact of the overpayment or the amount of his combined wages and self-employment earnings between 1996 and 1999 as determined by the SSA (R.21) also does not mean that he knew or should have known, or subjectively appreciated, the significance of those facts at the time the Commissioner contends he should have reported them to the SSA.
Although the ALJ did not make any specific credibility determination in his decision, he implicitly found that Claimant was not credible in saying that he did not know his self-employment by EHM was profitable and thus constituted work activity that could trigger his trial work period. In reaching his decision, an ALJ is entitled to make credibility determinations ( Wilkening, 2004 WL 1005718, at *7), and this Court must defer to such determinations unless they are "patently wrong." Zurawski v. Halter, 245 F.3d 881, 887 (7th Cir. 2001) (quoting Powers, 207 F.3d at 435). An ALJ, however, may not summarily assert that proffered testimony or other evidence is not credible, or simply ignore that evidence in rendering his ruling. Id.; Schmidt v. Barnhart, 395 F. 3d 737, 746-47 (7th Cir. 2005). Instead, according to Social Security Ruling 96-7, an ALJ must set forth the specific reasons for his credibility determinations. Steele v. Barnhart, 290 F.3d 936, 941-42 (7th Cir. 2002). An ALJ cannot ignore evidence or discount a claimant's testimony as less than credible without articulating his reasons for doing so. Schmidt, 395 F.3d at 746-47.
To the extent the ALJ implicitly made a credibility determination with respect to Claimant's testimony concerning his understanding that his business was not profitable, that credibility determination is "patently wrong" because the sole reason given by the ALJ is his interpretation of Claimant's tax returns, and the tax returns do not support the ALJ's conclusion. The ALJ needed to do more to discredit Claimant's understanding that his business was not profitable other than rely on his interpretation of Claimant's tax returns particularly given Claimant's testimony that the entire period during which he operated EHM was a "blur" to him because of his surgeries and the narcotic pain medication he was taking for his back. (R.372-373).
The ALJ did not inquire about or develop Claimant's testimony that his faculties were impaired by the narcotic pain medication he was taking during the time he was charged with responsibility for reporting his self-employment activity. Rather, the ALJ simply ignored that evidence in finding that Claimant should have appreciated the supposed significance of some of the information contained in his tax returns and its impact upon his obligation to report self-employment work activity. This is contrary to the statutory directive that the ALJ specifically take into account any physical, mental, educational, or linguistic limitation an individual may have in determining whether he or she is without fault in causing the overpayment. 42 U.S.C. 404(b); 20 C.F.R. § 404.507; Wilkening, 2004 WL 1005718, at *8.
Accordingly, for all of these reasons, the ALJ's determination that Claimant was not without fault in causing or accepting the overpayment is not supported by substantial evidence.
C. The ALJ's Finding That Claimant Is Able To Repay The Overpayment Is Not Supported By Substantial Evidence
Claimant also argues that the ALJ's finding that he is able to repay the overpayment is not supported by substantial evidence. As discussed above, the explicit language of 42 U.S.C. § 404(b) requires both that the recipient of an overpayment of benefits be without fault and that the recoupment be "against equity and good conscience" in order for the repayment to be waived. 42 U.S.C. § 404(b). Recovery of an overpayment defeats the purpose of the Social Security Act if it deprives a claimant of income required for ordinary and necessary living expenses. 20 C.F.R. § 404.508.
Ordinary and necessary expenses are defined as: (1) fixed living expenses, such as food and clothing, rent, mortgage payments, utilities, maintenance, insurance; (2) medical, hospitalization, and other similar expenses; (3) expenses for the support of others for whom the individual is legally responsible; and (4) other miscellaneous expenses which may reasonably be considered as part of the individual's standard of living. 20 C.F.R. § 404.508.
Claimant argues that requiring him to repay the overpayment would defeat the purpose of the Social Security Act because he needs substantially all of his income to meet the ordinary and necessary living expenses for his family. Claimant specifically argues that recoupment would defeat the purpose of the Social Security Act because his monthly living expenses of $7,030 exceed his monthly income of $6,945.55. (Claimant's Memorandum of Law [Dkt. #20], at 11; R.234-236).
After reviewing Claimant's SSA Form 632, which identified Claimant's monthly income and expenses, the ALJ determined that Claimant's monthly income exceeded his monthly expenses. (R.21, 234-236). Specifically, the ALJ rejected Claimant's monthly food expenses of $1,300 stating that the average cost of food for a family of four is $800 per month, based on an average of $200 per person. (R.21, 234-236). After adjusting the monthly expenditures to reflect this calculation, the ALJ determined that Claimant's monthly income exceeds his expenditures by $300 per month. (R.21). Based on this, the ALJ concluded that recovery of the overpayment would not defeat the purpose of the Social Security Act because Claimant's total financial resources would allow him to retain sufficient resources to meet living expenses and still repay the overpayment. (R.21). We disagree.
The ALJ's assertion that the average cost of food for one individual is $200 per month is purely speculative and not supported by any evidence in the record. In addition, the ALJ failed to explain how he calculated this number or provide any support for his conclusion that the average cost of food for a family of four is $800 per month. When an ALJ fails to "build an accurate and logical bridge between the evidence and the result," the decision cannot be upheld. Sarchet v. Chater, 78 F.3d 305, 207 (7th Cir. 1996). Accordingly, the ALJ's decision on this issue also is not supported by substantial evidence.
IV. CONCLUSION
For the reasons stated in this Memorandum Opinion and Order, Claimant Ethon Begoun's motion for summary judgment or remand [Dkt. #19] is granted. The decision of the Commissioner of Social Security is reversed, and this case is remanded to the Social Security Administration for further proceedings consistent with this Memorandum Opinion and Order. This is a final and appealable order.
It is so ordered.
Dated: January 28, 2011