Petition for Writ of Certiorari — Peggy Berg, Petitioner v. Social Security Administration

Supreme Court briefNov 15, 2018

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NO.

In the Supreme Court of the United States

PEGGY A. BERG,

Petitioner,

SOCIAL SECURITY ADMINISTRATION,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Seventh Circuit

PETITION FOR WRIT OF CERTIORARI

Keith Hanson

Counsel of Record

Kyle Hanson

Hanson Law Group LLP

1000 Hart Road, Suite 300

Barrington, IL 60010

keithhanson@hansonlawgrp.com

kylehanson@hansonlawgrp.com

Main: (847) 277-9988

Fax: (847) 277-7339

Kyle Hanson Direct: (847) 282-0003

Attorneys for Petitioner Peggy Berg

Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001

QUESTION PRESENTED

Under Bankruptcy Code Section 553(b), regarding

when “a creditor offsets a mutual debt owing” and “the

date of such setoff,” does this require that the debt be

“absolutely owed” (as the Fifth Circuit held) or can a

setoff occur at some earlier time, even where conditions

such as continued disability and survival through a

later date have not yet occurred (as the Third and

Seventh Circuits held)?

PARTIES TO THE PROCEEDING

Petitioner, Debtor-Appellant below, is Peggy Berg.

Respondent, Appellee below, is the Social Security

Administration, an agency of the federal government.

iii

TABLE OF CONTENTS

QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . i

PARTIES TO THE PROCEEDING . . . . . . . . . . . . . ii

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . v

OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATUTORY PROVISIONS INVOLVED . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . 2

REASONS FOR GRANTING THE PETITION . . . . 3

There is a conflict among the Circuits. . . . . . 3

II.

Cases of this kind are common but involve

small amounts of money and so are rarely

litigated through appeals. As such, this issue

merits the Court’s review. . . . . . . . . . . . . . . . 4

III.

The Seventh Circuit’s rule conflicts with the

statutory language. . . . . . . . . . . . . . . . . . . . . 7

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

APPENDIX

Appendix A Opinion in the United States Court of

Appeals for the Seventh Circuit

(August 17, 2018) . . . . . . . . . . . . . App. 1

Appendix B Memorandum Decision, Order, and

Judgment in the United States

Bankruptcy Court, Western District of

Wisconsin

(June 15, 2017) . . . . . . . . . . . . . . App. 16

Appendix C Pretrial Statement in the United

States Bankruptcy Court, Western

District of Wisconsin

(February 17, 2017) . . . . . . . . . . App. 37

TABLE OF AUTHORITIES

CASES

Ames v. Quimby,

106 U.S. 342 (1882) . . . . . . . . . . . . . . . . . . . . . . . 7

Berg v. Social Security Administration,

900 F.3d 864 (7th Cir. 2018) . . . . . . . . . . . . . . . . 1

In re Berg,

569 B.R. 755 (W.D. Wis. Bankr. 2017) . . . . . . . . 1

Bible v. United Student Aid Funds, Inc.,

799 F.3d 633 (7th Cir. 2015) . . . . . . . . . . . . . . . . 7

Braniff Airways, Inc. v. Exxon Co., U.S.A.,

814 F.2d 1030 (5th Cir. 1987) . . . . . . . . . . . . . . . 3

In re Eggemeyer,

75 B.R. 20 (Bankr. S.D. Ill. 1987) . . . . . . . . . . . . 3

In re Goodman,

Case No. 11-02760-8-JRL, Dkt. #51 (2012 Bankr.

LEXIS 546) (E.D.N.C. Bankr., filed Feb. 17,

2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Lee v. Schweiker,

739 F.2d 870 (3d Cir. 1984) . . . . . . . . . . . . . . . . . 3

In re Pleasant,

320 B.R. 889 (Bankr. N.D. Ill. 2004) . . . . . . . . . . 3

In re Radcliffe,

563 F.3d 627 (7th Cir. 2009) . . . . . . . . . . . . . . . . 7

In re Rozel Ind., Inc.,

120 B.R. 944 (Bankr. N.D. Ill. 1990) . . . . . . . . 3, 4

Scott v. Majors,

980 P.2d 214 (Ct. App. Utah, 1999) . . . . . . . . . . 3

STATUTES AND REGULATIONS

11 U.S.C. § 553(b) . . . . . . . . . . . . . . . . . . . . . . . 1, 3, 7

20 C.F.R. § 404.320(b)(4) . . . . . . . . . . . . . . . . . . . . 6, 7

28 U.S.C. § 157 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

28 U.S.C. § 1334 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

28 U.S.C. § 2101(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 1

42 U.S.C. § 404(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . 5

42 U.S.C. § 423(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 6, 7

42 U.S.C. § 423(c)(2) . . . . . . . . . . . . . . . . . . . . . . . 6, 7

OTHER AUTHORITIES

4 Collier on Bankruptcy, ¶ 553.10(2

(15th ed. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

www.ssa.gov/improperpayments/SSI_majorCauses.

html . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

www.ssa.gov/improperpayments/SSI_progStats.

html . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 5

www.ssa.gov/oact/cola/SSI.html . . . . . . . . . . . . . . . . 5

www.uscourts.gov/news/2018/04/26/bankruptcyfilings-continue-decline . . . . . . . . . . . . . . . . . . 5, 6

OPINIONS BELOW

In re Berg, 569 B.R. 755 (W.D. Wis. Bankr. 2017),

App. B.

Berg v. Social Security Administration, 900 F.3d

864 (7th Cir. 2018), App. A.

JURISDICTION

The Seventh Circuit opinion that should be

reviewed is dated August 17, 2018. Id. This Court has

jurisdiction to issue a writ of certiorari to Seventh

Circuit pursuant to 28 U.S.C. § 2101(c).

STATUTORY PROVISIONS INVOLVED

11 U.S.C. Section 553(b):

(1)

Except with respect to a setoff of a

kind described in section 362(b)(6), 362(b)(7),

362(b)(17), 362(b)(27), 555, 556, 559, 560, 561,

365(h), 546(h), or 365(i)(2) of this title, if a

creditor offsets a mutual debt owing to the

debtor against a claim against the debtor on or

within 90 days before the date of the filing of the

petition, then the trustee may recover from such

creditor the amount so offset to the extent that

any insufficiency on the date of such setoff is

less than the insufficiency on the later of—

(A) 90 days before the date of the filing of the

petition; and

(B) the first date during the 90 days

immediately preceding the date of the filing

of the petition on which there is an

insufficiency.

(2)

In this subsection, “insufficiency”

means amount, if any, by which a claim against

the debtor exceeds a mutual debt owing to the

debtor by the holder of such claim.

STATEMENT OF THE CASE

The parties agreed and stipulated as follows:

The facts in this case are undisputed. The

only dispute is the legal effect of those facts, and

so all that is needed is legal argument for the

Court to make its determination.

SSA paid Berg benefits from June 1994

through December 2003, although Berg notified

SSA of her re-employment in mid-2002. That

resulted in an overpayment of $25,690.60 as of

December 2003; pursuant to a payment plan,

Berg paid that debt down to $19,400 as of July

2014. Berg petitioned for bankruptcy relief on

August 7, 2014. Berg made a separate claim for

benefits in the first half of 2014, and SSA

awarded Berg forward benefits (that are not at

issue) plus $20,307 in back-paid benefits – but

SSA did not pay that full amount, but rather

subtracted the prior debt of $19,400, paying the

difference of $907.

The question present is whether or not SSA

owes Berg that $19,400. Was the debt

discharged pursuant to the Court’s Chapter 7

discharge order entered January 9, 2015? Do

Sections 553(b) and 522(h) apply to allow Berg to

recover that insufficiency setoff, or do those

provisions not apply in this situation? Berg

asserts that she is entitled to recover that

$19,400. SSA asserts that it was entitled to take

that setoff.

Appendix B. The lower courts had jurisdiction

pursuant to 28 U.S.C. §§ 157 and 1334.

REASONS FOR GRANTING THE PETITION

There is a conflict among the Circuits.

There is a conflict between the Third, Fifth, and

Seventh Circuits’ interpretation of Section 553(b),

specifically, when a prior debt becomes “owing” and

thus subject to the section’s offset prohibitions. The

Fifth Circuit’s rule is that a debt must be “clearly

owed” and “absolutely owed” to come within Section

553(b).1 The Third2 and Seventh Circuit3 hold that clear

or absolute liability is not required, that even a

“contingent” debt is already “owing.”

The Fifth Circuit’s rule is also the law in a state

court of appeals and U.S. District Courts which wrote

that “substantial case law” and a “significant amount

of legal authority” holds that “owing” debts for Section

553(b) purposes must be “absolutely owing,” that is,

when a “definite liability has accrued.”4

Braniff Airways, Inc. v. Exxon Co., U.S.A., 814 F.2d 1030, 1036

(5th Cir. 1987).

Lee v. Schweiker, 739 F.2d 870, 877 (3d Cir. 1984).

The opinion below: Appendix A, 12-13.

Scott v. Majors, 980 P.2d 214, 219-20 (Ct. App. Utah, 1999); In re

Pleasant, 320 B.R. 889, 892 (Bankr. N.D. Ill. 2004) (citing in re

Eggemeyer, 75 B.R. 20, 21-22 (Bankr. S.D. Ill. 1987)); in re Rozel

A bankruptcy court in the Fourth Circuit not only

uses this “absolutely owing” test but also did so with

essentially the same operative facts and came to the

opposite conclusion as the opinion below.5 That case, in

re Goodman, held that the SSA’s offset occurred upon

the SSA’s decision and notice of offset.6 Berg argues

that this is the correct interpretation.

II.

Cases of this kind are common but involve

small amounts of money and so are rarely

litigated through appeals. As such, this

issue merits the Court’s review.

This issue is important because it involves the

SSA’s nationwide administration regarding billions of

dollars of overpayments. Still, because of the small

monthly payments due to any individual, few are

motivated to litigate or prosecute an appeal – making

this case an uncommon opportunity to give guidance on

an issue rarely addressed by appeals courts.

According to the SSA’s own statistics for 2016 (the

most recent year of record), nationwide the SSA’s

overpayments (called supplemental security income or

“SSI”) totaled $4,323,930,000.7 This is 7.62% of the

Ind., Inc., 120 B.R. 944, 949 (Bankr. N.D. Ill. 1990) (citing 4 Collier

on Bankruptcy, ¶ 553.10(2 (15th ed. 1982)); in re Goodman, Case

No. 11-02760-8-JRL, Dkt. #51 (2012 Bankr. LEXIS 546) (E.D.N.C.

Bankr., filed Feb. 17, 2012).

In re Goodman, Case No. 11-02760-8-JRL, Dkt. #51 (2012 Bankr.

LEXIS 546) (E.D.N.C. Bankr., filed Feb. 17, 2012)

Id. at *6.

www.ssa.gov/improperpayments/SSI_progStats.html

total payments made.8 This is worse than the prior two

years: overpayments totaled $3.4 billion (6.06%) in

2015 and $3.9 billion (6.95%) in 2014.9 These

overpayments accrue and remain subject to

recoupment indefinitely.10 A major cause of such

overpayments is a under-estimation of the recipient’s

wage income, where the SSA’s payments did not

decrease to properly take that into account.11 This is

the same issue that impacted Berg.12 These

overpayments are spread over a very large number of

people: standard monthly payments are $771 for

individuals and $1,157 for couples.13 Depending on the

precise amounts per month and number of months, this

amounts to hundreds of thousands or millions of people

becoming liable for overpayments each year.

There are hundreds of thousands of individuals

filing for Chapter 7 (no-asset) bankruptcy each year.14

Chapter 7 (no-asset) bankruptcy filers are

disproportionately those receiving SSI: by their nature,

Id.

See 42 U.S.C. § 404(a)(1)(A) (requiring repayment from “such

overpaid person or his estate” such as via recoupment/offset from

future SSI payments or even tax refunds).

www.ssa.gov/improperpayments/SSI_majorCauses.html

Appendix B

www.ssa.gov/oact/cola/SSI.html

www.uscourts.gov/news/2018/04/26/bankruptcy-filings-continuedecline

SSI is paid only to those with little or no wages and

little or no assets.15 All SSI recipients are subject to at

least a 6-month waiting period, after applying for

benefits and before being eligible for any payments.16

This equates to thousands of people per year who

would benefit from the Court’s guidance, under the

assumptions that 10% of the hundreds of thousands of

Chapter 7 (no-asset) bankruptcy filings per year are

liable to repay an SSI overpayment, and 10% of those

are being pursued for the overpayment. Though this

analysis is imprecise, the conclusion is that this is a

widespread problem.

Perhaps the most important takeaway from these

statistics is the small amounts at issue in each case,

giving little incentive for benefit recipients to exhaust

their litigation options with result to such matters. It

takes a clear case with undisputed facts, like this one,

for the circumstances to reasonably permit the

prosecution of appeals. The Court should take this

opportunity to provide guidance on this topic.

A finding in Berg’s favor would yield benefits to

perhaps thousands of the poorest citizens of our nation

each year. Even if the Court takes this case and

affirms, the clarity provided would be valuable to a

host of SSI-benefit recipients in similar circumstances.

A uniform rule would also assist the SSA by

See id. (Payments are improper when an individual has more

than $2000 in resources available. Actual wages also decrease SSI

payments. Still, both of these remain major causes of SSI

overpayments.)

42 U.S.C. § 423(a)(1), (c)(2); 20 C.F.R. § 404.320(b)(4).

harmonizing the treatment of SSI recipients

nationwide, rather than subjecting different people to

different rules depending on where they live.

III.

The Seventh Circuit’s rule conflicts with

the statutory language.

The effects of when “a creditor offsets” depends on

“the date of such setoff.” 11 U.S.C. § 553(b). The

Seventh Circuit’s rule practically eliminates this

consideration. This erroneous rule ignores the reality

that recipients are not entitled to any benefits unless

and until they wait and survive until the end of a 6month waiting period.17 This erroneous rule ignores the

fact that the SSA did not give any notice of benefits or

notice of setoff until the opening of the same 90-day

window,18 thus failing to give any meaning to Section

553(b)’s language being triggered when “a creditor

offsets.”

The rule is also inconsistent with dicta in this and

other courts’ rulings noting that a setoff requires some

amount of action or notice by the offsetting party. Ames

v. Quimby, 106 U.S. 342, 343 (1882) (noting in a nonbankruptcy case that a setoff is taken “with a notice of

setoff”); Bible v. United Student Aid Funds, Inc., 799

F.3d 633, 648 (7th Cir. 2015) (summarizing federal

offset programs that require notice before the taking of

a setoff); in re Radcliffe, 563 F.3d 627, 631 (7th Cir.

2009) (noting a creditor announced its offset decision

via letter giving notice). These are not direct conflicts,

42 U.S.C. § 423(a)(1), (c)(2); 20 C.F.R. § 404.320(b)(4).

Appendix B.

but they support the need for the Court’s guidance in

this area.

CONCLUSION

The Court should review the underlying decision to

resolve a circuit split and provide guidance on this

important issue affecting thousands of people

nationwide each year.

Respectfully Submitted,