Petition for Writ of Certiorari — Reddington v. Bowen

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

JOHN P. REDDINGTON,

Petitioner,

“OTIS R. BOWEN, Secretary of

Health and Human Services,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JACK BENJAMIN CRAWLEY, JR.

200 Bracken Court

Post Office Box 97155

Raleigh, NC 27624-7155

Telephone: (919) 847-2354

Counsel of Record

for the Petitioner

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

A onlin, | Be sien) ~ Spare

QUESTIONS PRESENTED FOR REVIEW

I. SHOULD THE SECRETARY OF HEALTH AND

HUMAN SERVICES’ REGULATIONS BE INTER-

PRETED TO ALLOW THE SECRETARY TO “RE-

OPEN” PETITIONER’S FAVORABLE SOCIAL SE-

CURITY BENEFIT DETERMINATION AFTER THE

SIXTY-DAY PERIOD FOR “REVIEW” OF THAT

DETERMINATION HAD EXPIRED?

Il. IF THE SECRETARY’S REGULATIONS ARE

INTERPRETED TO ALLOW THE SECRETARY TO

“REOPEN” PETITIONER’S SOCIAL SECURITY

BENEFIT DETERMINATION AFTER THE SIXTY-

DAY PERIOD FOR “REVIEW” OF THAT DETER-

MINATION HAD EXPIRED, WOULD AN “ERROR

OF LAW” OR “ABUSE OF DISCRETION” BY THE

ADMINISTRATIVE LAW JUDGE CONSTITUTE

“GOOD CAUSE” TO REOPEN THE DETERMINA-

TION FAVORABLE TO THE PETITIONER?

III. SHOULD PETITIONER’S EARNINGS RECORD

FOR SOCIAL SECURITY OLD-AGE INSURANCE

BENEFITS HAVE BEEN CREDITED WITH HIS

EARNINGS DERIVED FROM HIS WORK ACTIV-

ITIES AS MANAGER AND SUPERVISOR OF A

PARTNERSHIP THAT OWNED AND OPERATED

AN APARTMENT COMPLEX WHEN PETITIONER

WAS A PARTNER IN-THAT PARTNERSHIP?

IV. SHOULD PETITIONER’S EARNINGS RECORD

FOR SOCIAL SECURITY OLD-AGE INSURANCE

BENEFITS BE CREDITED WITH QUARTERS OF

COVERAGE HE EARNED PRIOR TO 1951?

(i)

TABLE OF CONTENTS

‘QUESTIONS PRESENTED FOR REVIEW --------

sali aenieinices aches estab asad shimeeaege-aeenintioemaest

Racal arinmaemnam cmmncaaa cman a

STATUTES AND REGULATIONS INVOLVED-_----

STATEMENT OF THE CASE ._------------------

REASONS FOR ALLOWING THE WRIT.-_--------

I. THE SECRETARY OF HEALTH AND HU-

II.

ITI.

MAN SERVICES’ REGULATIONS SHOULD

NOT BE INTERPRETED TOG ALLOW THE

SECRETARY TO “REOPEN” PETITIONER’S

FAVORABLE SOCIAL SECURITY BENEFIT

DETERMINATION AFTER THE SIXTY-DAY

PERIOD FOR “REVIEW” OF THAT DETER-

MINATION HAD EXPIRED.-_-_-_--_-_-_-___-

EVEN IF THE SECRETARY’S REGULA-

TIONS ARE INTERPRETED TO ALLOW

THE SECRETARY TO “REOPEN” PETI-

TIONER’S SOCIAL SECURITY BENEFIT

DETERMINATION AFTER THE SIXTY-DAY

PERIOD FOR “REVIEW” OF THAT DETER-

MINATION HAD EXPIRED, AN “ERROR OF

LAW” OR “ABUSE OF DISCRETION” BY

THE ADMINISTRATIVE LAW JUDGE DOES

NOT CONSTITUTE “GOOD CAUSE” TO RE-

OPEN THE DETERMINATION FAVORABLE

Be SESE ees ..

PETITIONER’S EARNINGS RECORD FOR

SOCIAL SECURITY OLD-AGE INSURANCE

BENEFITS SHOULD HAVE BEEN CRED-

ITED WITH HIS EARNINGS DERIVED

FROM HIS WORK ACTIVITIES AS MAN-

AGER AND SUPERVISOR OF A PARTNER-

SHIP THAT OWNED AND OPERATED AN

APARTMENT COMPLEX WHEN PETI-

TIONER WAS A PARTNER IN THAT PART-

EE ede cakwanidudcdanemutinen=

TABLE OF CONTENTS—Continued

Page

IV. PETITIONER’S EARNINGS RECORD FOR

SOCIAL SECURITY OLD-AGE INSURANCE

BENEFITS SHOULD BE CREDITED WITH

QUARTERS OF COVERAGE HE EARNED

EE SEE BOT co nintcsrdscen crtpteeeneinnaeiaaa miele 16

sen em eee EMER Toe oe Ie 18

APPENDICES:

A. Unpublished Opinion of the United States Court of

Appeals for the Fourth Circuit dated July 23, 1987_ la

B. Published Opinion of the United States District

Court for the Eastern District of North Carolina

filed on August 4, 1986 (640 F.Supp. 1005) .-___-- 4a

C. Favorable decision of Administrative Law Judge,

Social Security Administration, Department of

Health & Human Services, mailed May 23, 1983,

holding that Petitioner was entitled to old-age in-

SE: TEE sai nce ncanasuuniowien 17a

D. Decision of Appeals Council, Social Security Ad-

ministration, Department of Health & Human

Services, dated January 24, 1984, reversing the

favorable decision of the Administrative Law

pNP AUIS Smite ote ESE ERO a EA iA a 30a

E. Order filed on August 26, 1987 in the United States

Court of Appeals denying Petition for Rehearing

and Suggestion for Rehearing in Bare ______-__~_ 39a

F. Judgment filed in the United States District Court

for the Eastern District of North Carolina on Au-

FR pet ccis heh Riles cine cndanineeemneiniaeadiapie 4la

TABLE OF AUTHORITIES—Continued

Letter dated December 9, 1983 to Petitioner from

the Appeals Council, Social Security Administra-

tion, Department of Health and Human Services,

advising Petitioner that the May 23, 1983 deci-

sion of the Administrative Law Judge was be-

ing re-opened under 20 C.F.R. 404.988(b) and

404.989 (a) (3)

Memorandum dated June 20, 1983 from the Office

of the Director of Operations, Northeastern Pro-

gram Service Center, Reconsideration Branch,

Social Security Administration to the Department

of Health and Human Services, Social Security

Administration, Office of Hearings and Appeals

referring the Administrative Law Judge’s May 23,

1983 decision for review

ee we ae ae a a a a a ee eee ee

Page

43a

TABLE OF AUTHORITIES

CASES: Page

Butterworth v. Bowen, 796 F.2d 1379 (11th Cir.

SOBER). .cinniodadndiinddsuaebaeattiian 10, 11

Call v. Heckler, 647 F.Supp. 560 (D.Mont. 1986)__ 12, 14

Cieutat v. Bowen, 824 F.2d 348 (5th Cir. 1987)___ 11, 12

Delno v. Celebreeze, 347 F.2d 159 (9th Cir. 1965) — 14

Delong v. Heckler, 771 F.2d 266 (7th Cir. 1985) —- 12

Higginbotham v. Heckler, 767 F.2d 408 (8th Cir.

pI eee ee SEA 12

McCuin v. Secretary of Health and Human Serv-

ices, 817 F.2d 161 (1st Cir. 1987) ._..__-- 9,10, 11,12

Munsinger v. Schweiker, 709 F.2d 1212 (8th Cir.

SIE ceven:<s:tp-tacesynscnenaoeestappecditealanseaamaaaandad mannan 12

Reddington v. Bowen, 640 F.Supp. 1005 (E.D.N.C

TEE anon natthnenatnnaidinn kde 2

Silvis v. Heckler, 578 F.Supp. 1401 (W.D.P.A.

TREE) .nhnnndnnnmnenimenmennamnaammiiiae 12

Zimmerman v. Heckler, 774 F.2d 615 (4th Cir.

EE. ctettcence dares eadigunilid@oniindtionmud 9,12

STATUTES AND RULES:

Be EOD tincinicncncmndacadndenntnmtie 10

ee ID ioe cr enccitnre nani entinninsrinneaniinneciaiiahidation 2

GR Th: GEN srtcecncccnnnnnnmenmannttinmin 2

ee Gb eennncnctccunnnccesnanbinian 16

Ge ite nnitceccnccnnsennnnneindutiin 8

Social Security Act .............--..---.-.-- 2, 4, 12, 15

Supreme Court Rule 17.1(a)-___-__-_________--_- 10

Supreme Court Rule 20.2 __.__________ 10

Supreme Court Rule 20.4 _____.-___- 10

REGULATIONS:

ED kcenocncucncuncouncncamnnenite 2,11

Be Gl SD own accunnnecunssndenacmanned 3, 14

Be Ce GEE wieneensccanenunesuensecanae 3, 12, 13

BG Bt EE tittincnnncnnnadannnncaceanill 4,7,9,11

20 C.F.R. 404.989(a) -..----.--------------- 4, 7, 12,14

OTHER AUTHORITY:

8 N.C. Index 3d, Master & Servant ____________-_ 13

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No.

JOHN P. REDDINGTON,

Petitioner,

Otis R. BOWEN, Secretary of

Health and Human Services,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

The petitioner, John R. Reddington, respectfully prays

that a writ of certiorari issue from this Court to review

the judgments, opinions and orders of the United States

Court of Appeals for the Fourth Circuit, entered in this

proceeding on July 23, 1987 and August 26, 1987.

OPINIONS BELOW

The unpublished opinion of the Fourth Circuit Court of

Appeals is reproduced in Appendix A, infra, at pp. la-3a.

The unpublished Order of the Fourth Circuit Court of

Appeals, filed August 26, 1987, denying the petition for

rehearing and suggestion for rehearing in banc is re

produced as Appendix E, infra, p. 39a. The published

decision of the United States District Court for the

Eastern District of North Carolina is published, see

Reddington v. Bowen, 640 F.Supp. 1005 (E.D.N.C.

1986), and reproduced as Appendix B, infra, at pp. 4a-

16a.

JURISDICTION

The decision in the United States Court of Appeals

was decided and entered on July 23, 1987 (Appendix A,

infra, pp. la-3a). The Order of the Court of Appeals de-

nying the petition for rehearing and suggestion for re-

hearing in banc was filed on August 26, 1987 (Appendix

E, infra, p. 39a).

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

STATUTES AND REGULATIONS INVOLVED

This case involves those portions of the Social Security

Act granting the Secretary

“full power and authority to make rules and regula-

tions and to establish procedures, not inconsistent

with the provisions of [the disability benefits pro-

gram of the Act], which are necessary or appropri-

ate to carry out such provisions” and directs him to.

adopt “rules and regulations to regulate and provide

for the nature and extent of the proofs and evidence

and the method of taking and furnishing the same”

in disability cases (42 U.S.C. 405(a).”

The Secretary’s regulations, as follows, also are

involved :

404.969 Appeals Council initiates review

“Anytime within 60 days after the date of a hear-

ing decision or dismissal, the Appeals Council itself

may decide to review the action that was taken. If

the Appeals Council does review the hearing decision

or dismissal, notice of the action will be mailed to

all parties at their last known address.” (20 C.F.R.

404.969)

404.970 Cases the Appeals Council will review.

“(a) The Appeals Council will review a case if—

(1) There appears to be an abuse of discretion

by the administrative law judge; .

(2) There is an error of law;

(8) The action, findings or conclusions of the

administrative law judge are not supported by

substantial evidence; or

(4) There is a broad policy or procedural issue

that may affect the general public interest.

(b) If new and material evidence is submitted with

the request for review, the Appeais Council shal!

evaluate the entire record. It will then review the

case if it finds that the administrative law judge’s

action, findings, or conclusion is contrary to the

weight of the evidence currently in the record.” (20

C.F.R. 404.970)

404.987 Reopening and reviewing determinations and

decisions.

“(a) General. Generally, if you are dissatisfied with

a determination or decision made in the administra-

tive review process, but do not request further re-

view within the stated time period, you lose your

right to further review. However, a determination

or decision made in your case may be reopened and

revised. After we reopen your case, we may revise

the earlier determination or decision.

(b) Procedure for reopening and revision. You

may ask that a determination or a decision to which

you were a party be revised. The cenditions under

which we wil] reopen a previous determination or

aecision are explained in 404.988.” (20 C.F.R.

404.987)

404.988 Conditions for reopening.

“A determination, revised determination, decision, or

revised decision may be reopened—

(a) Within 12 months of the date of the notice of

the initial determination for any reason;

(b) Within four years of the date of the notice

of the initial determination if we find good cause,

as defined in 404.989, to reopen the case; or “(20

C.F.R. 404.988)

404.989 Good Cause for reopening

Good cause for reopening exists when:

“(1) New and material evidence is furnished;

(2) A clerical error in the computation or

recomputation of benefits was made; or

(3) The evidence that was considered in

making the determination or decision clearly

shows on its face that an error was made.”

(20 C.F.R. 404.989(a).

STATEMENT OF THE CASE

On December 16, 1981 Petitioner applied for retire-

ment insurance in anticipation of retirement upon his

reaching the age of 62 on March 14, 1982. His claim for

benefits, however, was denied initially and on recon-

sideration because he supposedly lacked sufficient quarters

of coverage to be “fully insured” under the Social Se-

curity Act (hereafter the “Act’’?). His claim was denied

based upon a determination that his income for the years

1978, 1979 and 1980 was net earnings from the rentals

of real estate and could not be the basis for the award

of quarters of coverage for those years. Petitioner made

a timely request for a hearing, and the Administrative

Law Judge (“ALJ”) stated that the issue before him at

that hearing was:

“ . . Whether the claimant is entitled to old-age

insurance benefits which depends, in part, on whether

he had the prerequisite quarters of coverage to be

fully insured for such benefits. Specifically at issue

is whether the claimant’s earnings record may be

credited with wages or self employment income for

the years 1978, 1979 and 1980.” (Appendix C, in-

fra, p. 19a)

Following the hearing conducted by the ALJ on Feb-

ruary 25, 1983 the decision of the ALJ, favorable to the

claimant, was mailed on May 23, 1983. (Appendix C,

infra, pp. 17a-29a). In this decision the ALJ made and

reached the following findings and conclusions:

“The Administrative Law Judge concludes that Mr.

Reddington was, in effect, an employee of the part-

nership with respect to his duties as a manager. He

does not believe that a partner can never be an

employee of a partnership. In this situation, Mr.

Reddington performed duties which were not per-

formed by the other partners, for which he received

specific compensation as set out in the partnership

agreement. Mr. Reddington has been somewhat in-

consistent in his own characterization of the rela-

tionship but at times he has characterized his in-

come as wages and salary. GMA has been somewhat

inconsistent with respect to how it reports its pay-

ments to Mr. Reddington for tax purposes but, the

accountant, Ms. Dees, stated that the payments to

Mr. Reddington were made along with the other

expenses of GMA, separate from and prior to any

distribution to the partners. The factors indicating

that Mr. Reddington was not an independent con-

tractor tend to indicate that he was an employee.

The fact that GMA paid Mr. Reddington as it paid

its other employee, the fact that Mr. Reddington

was provided an apartment to use as an office, and

the fact that Mr. Reddington deducted only his per-

sonal expenses for tax purposes, all tend to support

this conclusion. In addition, Mr. Reddington ac-

knowledged that he prepares weekly and monthly

reports to the other partners (Exhibit 15). The

ultimate test of whether a business relationship is

one of employee and employer is that of control.

Mr. E. C. Powell testified at the hearing that he

had never given Mr. Reddington an Order. The

real issue is whether Mr. Powell could control Mr.

Reddington’s activities as a manager if he chose to

do so. The partnership agreement for GMA gives

the Powells authority to discharge Mr. Reddington

from his manager role on 60 days notice with no

other requirements despite the fact that Mr. Red-

dington is a partner. This fact of the ultimate con-

trol, in combination with the other factors identified

above, support the Administrative Law Judge’s con-

clusion that Mr. Reddington was an employee of

GMA. The complexity and vagueness of the role

that Mr. Reddington played with the partnership do

not result in an overwhelmingly clear picture of the

relationship but the factors above establish that the

relationship of an employee to an employer is more

likely and more logical than the other possibilities.

Thus, Mr. Reddington’s income for the years 1978,

1979, and 1980, was wages and was more than suffi-

cient to give him quarters of coverage to meet the

“fully insured” ee. (Appendix C, infra,

pp. 27a-28a).

As has been noted previously, the ALJ’s decision was

rendered and mailed to the Petitioner on May 23, 1983.

It appears that, under a memorandum dated June 20,

1983, the Office of the Director of Operations for the

Northeastern Program Service Center of the Reconsid-

eration Branch sent the Department of Health and

Human Services, Social Security Administration Office

of Hearings and Appeals a communication noting that

the ALJ’s “decision is clearly contrary to the act and

regulations”. (Appendix H, infra, pp. 46a-47a). It ap-

pears, however, that the Appeals Council failed to com-

municate with Petitioner until November 8, 1983 with

a status report advising Petitioner that the Appeals

Council was considering whether the ALJ’s decision

should be reopened, citing as its authority 20 C.F.R. Sec-

tion 988(b) and Section 404.989. By letter dated De-

cember 9, 1983 the Appeals Council advised Petitioner

that it was reopening the ALJ’s decision of May 23,

1983 under authority of section 404.988(b) and 404.989

(a) (3) of Social Security Administrations Regulations

No. 4 (20 C.F.R. 404.988(b) and 404.989(a) (3), be-

cause the ALJ’s decision “contains an error on the face

of the evidence on which it was based.” (Appendix G,

infra, pp. 43a-45a). The Appeals Council, on January

24, 1984, issued its decision reversing the ALJ’s decision

of May 23, 1983. (Appendix D, infra, pp. 32a-38a).

From that adverse decision of the Appeals Council the

Petitioner, after time had been extended by the Appeals

Council, instituted this action in the District Court on

October 3, 1984 petitioning for review of administrative

action and for relief ‘in the nature of mandamus to com-

pel the Secretary to commence payment of his Social

security retirement insurance benefits in accordance with

the ALJ’s decision that had been rendered on May 23,

1983. The complaint sought relief in the nature of

mandamus because the appeals Council had failed to act

within sixty (60) days after rendition of the decision

of the ALJ, and the petition further alieged that the

Appeals Council had improperly computed Claimant’s

quarters of coverage for the years 1978, 1979 and 1980

by applying erroneous legal standards. Finally, the

petition alleged that the final decision of the Secretary

was not supported by substantial evidence. Motions for

summary judgment, supported by memoranda and the

required transcript of administrative proceedings were

filed and the District Judge conducted a hearing on the

eross-motions for summary judgment on March 14, 1986.

On August 4, 1986 the District Judge’s Order granting

the Secretary’s Motion for Summary Judgment was filed,

and the decision of the Secretary, in the form of the

decision of the Appeals Council, was affirmed. (Appendix

B, infra, pp. 4a-16a). ars

In his Order the District Judge acknowledged the

difficult issues presented by this case and noted:

“Tt is a close question whether GMA’s income for

the years 1978 through 1980 constitute self-employ-

ment income or rental income. The tedious task of

discerning between services rendered to occupants

and services rendered solely to make space available

for occupancy is further compounded by case law

which is neither clear nor exhaustive in treating this

particular subject matter.” (Appendix B, infra, p.

13a).

The District Court then went on to uphold the Sec-

retary’s denial of benefits to Petitioner on a separate

legal ground that had not been discussed in the decisions

of either the Appeals Council or the ALJ. The District

Court discussed its reasoning as follows:

“However, the court need not resolve these com-

plex issues. There exists a separate legal ground

which mandates that the Secretary’s denial of bene-

fits be affirmed. Therefore, the court affirms the Ap-

peals Council decision on a separate and distinct

legal ground.

3. Computation of Claimant’s NESE for 1978-1980

Assuming, arguendo, that claimant’s income for the

years 1978 through 1980 is “self-employment in-

come,” as that term is defined in the Act, the court

must proceed to determine whether claimant’s NESE

was of a sufficient amount for these years to entitle

him to quarters of coverage for that time period. A

close view of the record in this case reveals that for

at least 1979 and 1980 claimant’s guaranteed pay-

ments were offset by his distributive share of losses

incurred from partnerships of which he was a mem-

ber. See 42 U.S.C. 411(a). Accordingly, claimant at

most is entitled to four quarters of coverage for the

years 1978 through 1980. This number would pro-

vide claimant with at most twenty-eight quarters of

coverage, still leaving him ineligible to receive social

security old-age insurance benefits. Accordingly, the

Secretary’s decision must be affirmed on this separate

legal ground.” (Appendix B, infra, p. 14a).

From that District Court decision Petitioner duly noted

his appeal to the United States Court of Appeals for the

Fourth Circuit on September 26, 1986. In an unpub-

lished opinion filed on July 23, 1987 the decision of the

District Court was affirmed. (Appendix A, infra, pp.

la-3a). One of the Judges on that panel, however, noted

in a concurring opinion:

“In Zimmermann v. Heckler, 774 F.2d 615 (4th

Cir. 1985), this Court permitted the Appeals Coun-

cil to reopen the decision of the Administrative Law

Judge, holding—

The Appeals Council, however, is empowered to

reopen, within four years of the date of the

notice of the initial determination, any determi-

nation if ‘good cause’ exists, 20 C.F.R. 404.988

(b) (1985).

In McCuin v. Secretary of Health and Human Services,

817 F.2d 161 (1st Cir. 1987), the Court clearly states

that the right to reopen for ‘good cause’ is restricted to

the claimant.

Thus, a conflict in circuits has arisen. No individual

panel of this Court may overrule a prior holding of the

Court. Since I am bound by the Zimmermann ruling, I

concur.” (Appendix A, infra, p. 3a).

Because of the conflict in the circuits concerning the

Secretary’s right to reopen administrative decisions after

expiration of the sixty (60) day review period, Peti-

tioner timely filed a petition for rehearing and sugges-

tion for rehearing ir. banc in the Court of Appeals; none-

theless, in an Order filed on August 26, 1987 the petition

for rehearing and suggestion for rehearing in banc were

denied. (Appendix E, infra, pp. 39a-40a). Petitioner’s

motion that the mandate be stayed pending application to

this Court for a writ of certiorari based upon the conflict

in the circuits also was denied. As provided in 28 U.S.C.

210(c) and Rules 20.2 and 20.4 of the Supreme Court

Rules this petition for certiorari is being filed within

ninety (90) days from August 26, 1987, the date on

which the petition for rehearing and suggestion for re-

hearing in banc were denied.

REASONS FOR ALLOWING THE WRIT

I. THE SECRETARY OF HEALTH AND HUMAN

SERVICES’ REGULATIONS SHOULD NOT BE IN-

TERPRETED TO ALLOW THE SECRETARY TO

“REOPEN” PETITIONER’S FAVORABLE SOCIAL

SECURITY BENEFIT DETERMINATION AFTER

THE SIXTY-DAY PERIOD FOR “REVIEW” OF

THAT DETERMINATION HAD EXPIRED.

The unpublished per curiam decision of the Fourth

Circuit Court of Appeals herein on July 23, 1987 is in

direct conflict with both the decision of the First Circuit

Court of Appeals in McCuin v. Secretary of Health and

Human Services, 817 F.2d 161 (1st Cir. 1987) and the

decision of the Eleventh Circuit Court of Appeals in

Butterworth v. Bowen, 796 F.2d 1379 (11th Cir. 1986).

In his concurring opinion Judge Hoffman noted this con-

flict.

Rule 17 of the Supreme Court Rules discusses consid-

erations governing review on certiorari as follows:

“1, A review on writ of certiorari is not a matter

of right, but of judicial discretion, and will be

granted only when there are special and important

reasons therefor. The following, while neither con-

trolling nor fully measuring the Court’s discretion,

indicate the character of reasons that will be con-

sidered.

(A) When a federal court of appeals has ren-

dered a decision in conflict with the decision of

another federal court of appeals on the same

matter;...”

Moreover, the First Circuit’s decision in McCuin v. Sec-

retary of Health and Human Services, supra, was based

on “special and important reasons’’, because it held, for

the first time in a United States Court of Appeals,

“in view of the serious substantive and procedural

due process problems that would result from the Sec-

retary’s reading of the regulations, we conclude that

they should be interpreted as allowing reopening only

on the basis of motions by claimants.” (Emphasis

supplied) (817 F.2d at 174).

Recently, the Fifth Circuit Court of Appeals joined

the Fourth and Eighth Circuits in adopting the Secre-

tary’s interpretation of section 404.988 that the Appeals

Council may reopen determinations upon its own initia-

tive after expiration of the sixty-day time limit for “re-

view” pursuant to 20 C.F.R. Section 404.969. See Cieutat

v. Bowen, 824 F.2d 348 (5th Cir. 1987). In its analysis

of the issue the Fifth Circuit described the conflict in the

circuits as follows:

“Other circuits that have faced this issue have

reached irreconcilable conclusions about how the reg-

ulations should be interpreted.” (824 F.2d at 356).

It appears that between August 14, 1986 and August

3, 1987 this issue has been the subject of four cases in

four different circuits: see Butterworth v. Bowen, 796

F.2d 1379 (11th Cir. 1986); McCuin v. Secretary of

Health and Human Services, supra; the decision to which

this petition for writ of certiorari is directed; and

Cieutat v. Bowen, supra. Unquestionably, a question of

obvious national importance is presented, for the Social

Security System is sacrosanct and there is an overriding

need for uniform interpretation of the regulations prom-

ulgated by the Secretary to carry out the provisions of

the Act.

There are at least four different interpretations taken

on the question of who may initiate the reopening proce-

dure described in 20 C.F.R. section 404.987-989. First,

there is the position to which this application for writ of

certiorari is directed that the Appeals Council may “re-

open” of its own accord. In addition to the Fourth Cir-

cuit below and in Zimmermann v. Heckler, supra, this

position has been adopted by the Eighth Circuit in

Munsinger v. Schweiker, 709 F.2d 1212 (8th Cir. 1983)

and Higginbotham v. Heckler, 767 F.2d 408, 410 (8th

Cir. 1985) and the Fifth Circuit in Cieutat v. Bowen,

supra. Second, there is the interpretation that only the

claimants may initiate the reopening procedure adopted

by the courts in McCuin v. Secretary of Health and

Human Services, supra; and Silvis v. Heckler, 578 F.

Supp. 1401 (W.D.Pa. 1984). Cf., Delong v. Heckler, 771

F.2d 266 (7th Cir. 1985). Third, there is the “com-

ponents” analysis adopted by the Eleventh Circuit in

Butterworth v. Bowen, supra, that while the Social Se-

curity Administration could initiate reenening, only that

component of the Administration which had made the

decision or which had the decision properly before it for

review could initiate the reopening procedure. Fourth,

courts have attempted to distinguish between errors of

fact and error of law. See Call v. Heckler, 647 F. Supp.

560 (D. Mont. 1986). Under this interpretation the Ap-

peals Council could reopen on its own initiative on the

basis of errors of fact, but would be barred from sua

sponte reopening for errors of law.

In McCuin v. Secretary of Health and Human Serv-

ices, supra, the Court observed

“We note that the Social Security Act, under whose

authority the regulations were promulgated, is a

remedial statute, to be broadly construed and lib-

erally applied in favor of beneficiaries . . . We find

that it would frustrate congressional objective in

passing such a statute if the ambiguity in the regu-

lations were to be resolved in favor of putting claim-

ants in a state of limbo for at least four years, un-

certain of the final outcome of their cases. In effect,

the Secretary seeks to interpret 404.987’s statement

that “you,” the claimant, may seek reopening as

meaning that “we,” the Appeals Council, may do so

as well. This interpretation results in lack of final-

ity and in the issuance of inevitably misleading no-

tices constructed through selective quotation of am-

biguous regulations. This significantly negates the

beneficient purposes of the statute.” (Citations omit-

ted) (817 F.2d at 174)

Because of the pronounced conflict in the circuits, the

frequency with which this question is being presented,

the obvious need for a uniform national interpretation,

and the “beneficent purposes” of the Act, this Court

should allow the writ of certiorari.

II. EVEN IF THE SECRETARY’S REGULATIONS ARE

INTERPRETED TO ALLOW THE SECRETARY TO

“REOPEN” PETITIONER’S SOCIAL SECURITY

BENEFIT DETERMINATION AFTER THE SIXTY-

DAY PERIOD FOR “REVIEW” OF THAT DETER-

MINATION HAD EXPIRED, AN “ERROR OF LAW”

OR “ABUSE OF DISCRETION” BY THE ADMINIS-

TRATIVE LAW JUDGE DOES NOT CONSTITUTE

“GOOD CAUSE” TO REOPEN THE DETERMINA-

TION FAVORABLE TO THE PETITIONER.

The ALJ carefully and painstakingly reviewed all the

evidence and he properly focused on the factor of control

in the business relationship among petitioner and his

partners. That factor of the right to control is determina-

tive under North Carolina law of the relationship be-

tween the parties. See 8 N. C. Index 3d, Master &

Servant 3. The memorandum which prompted the Ap-

peals Council to reopen the ALJ’s decision is dated June

20, 1983, less than 30 days after the ALJ’s May 23,

1983 decision, but the Appeals Council waited until De-

cember 9, 1983 to advise Petitioner that it was reopening

the ALJ’s May 23, 1983 decision. (Appendices G & H,

infra, pp. 43a-47a). The basis of the Appeals Council’s

decision was its reversal of the ALJ’s conclusion that

Petitioner “was, in effect, an employee of the partner-

ship with respect to his duties as a manager. He [the

ALJ] does not believe that a partner can never be an

employee of a partnership.” (Appendix C, infra, p. 27a).

This conclusion by the ALJ involved a question of law,

not a factual finding; hence, it was reviewable by the

Secretary under 20 C.F.R. 404.970(a) (2), if at all. The

only other ground for review would have been an abuse

of discretion by the ALJ which would have been review-

able under 20 C.F.R. 404.970(a) (1).

With timely notice that the ALJ had determined that

the claimant had been paid wages as an employee of the

partnership of which he was a partner for the years in

question the Appeals Council failed to initiate a review

within 60 days of the hearing decision, and the Secretary

should not be permitted to avoid the 60-day time limit on

sua sponte reviews by attempting to stretch the re-

opening regulations to embrace the express grounds for

review set forth in 20 C.F.R. 404.970(a) (1) and (a) (2).

Under 20 C.F.R. 404.989, the reopening regulation, the

Appeals Council simply should not be empowered to re-

view an error of law or an abuse of discretion by the

ALJ. See Call v. Heckler, supra.

III. PETITIONER’S EARNINGS RECORD FOR SOCIAL

SECURITY OLD-AGE INSURANCE BENEFITS

SHOULD HAVE BEEN CREDITED WITH HIS

EARNINGS DERIVED FROM HIS WORK ACTIVI-

TIES AS MANAGER AND SUPERVISOR OF A

PARTNERSHIP THAT OWNED AND OPERATED

AN APARTMENT COMPLEX WHEN PETITIONER

WAS A PARTNER IN THAT PARTNERSHIP.

In Delno v. Celebreeze, 347 F.2d 159, 9th Cir. 1965),

the Ninth Circuit discussed the purposes of the old-age in-

surance provisions of the Act and the construction of the

“service to occupant” exception as follows:

ne |

“The general purpose of the old-age, survivor and

disability insurance provisions of Title II of the So

cial Security Act is to protect workers and their de-

pendents from the risk of loss of income due to the

insured’s old age, death, or disability. Aceordingly,

entitlement to benefits is based upon the receipt of

income from labor, which old age, death, or disability

would interrupt; and not upon the receipt of income

from the investment of capital, which these events

would presumably not affect. The ultimate problem

in this case is to determine whether the statutory

provisions and interpretative regulations which have

been drawn with this general distinction in mind re-

quire that the payment which appellant received be

treated as investment income rather than income

from labor. (347 F.2d at 161).

After acknowledging the complexity of the issues pre-

sented by claimant’s case, the District Judge affirmed the

Secretary’s denial of benefits for Petitioner on the sep-

arate legal ground that for at least 1979 and 1980, claim-

ant’s guaranteed payments from GMA were offset by his

distributive share of losses incurred from partnerships

of which he was a member. This ground was one that

had not been discussed in the decision of the Appeals

Council.

The ALJ made critical findings of fact after hearing

and observing the demeanor of the witnesses at the hear-

ing. His conclusion that Petitioner “was, in effect, an

employee of the partnership with respect to his duties as

a manager” correctly reflects Petitioner’s status and the

character of the income he received for his labor in man-

aging the day-to-day operations of the apartment com-

plex.

IV. PETITIONER’S EARNINGS RECORD FOR SOCIAL

SECURITY OLD-AGE INSURANCE BENEFITS

SHOULD BE CREDITED WITH QUARTERS OF

COVERAGE HE EARNED PRIOR TO 1951.

The Court of Appeals declined to rule on Petitioner’s

contention that he is entitled to 11 quarters of coverage

for years prior to 1951 observing that Petitioner “is not

precluded from seeking correction of his earnings records

for those years prior to 1951 pursuant to 42 U.S.C.A.

405(c)”. (Appendix A, infra, p. 3a). At oral argu-

ment in the Court of Appeals the Secretary’s counsel ar-

gued, however, that Petitioner would be barred from seek-

ing correction of his earnings records prior to 1951. To

prevent injustice to Petitioner this Court should deter-

mine, based upon the Secretary’s own records, that Peti-

tioner is entitled to 11 quarters of coverage for years

prior to 1951.

In his evaluation of the evidence, the ALJ determined

that:

“Prior to the elimination of the quarters of coverage

awarded for 1978, 1979 and 1980, Mr. Reddington’s

certified earnings record (Exhibit 9), showed that

he had at least 36 quarters of coverage, counting

quarters of coverage at issue in this case for the

years 1978, 1979 and 1980. (Appendix C, infra,

p. 21a).

The Appeals Council disagreed with the ALJ on the

total number of quarters of coverage with which Peti-

tioner should be credited, stating in its decision:

“The Appeals Court notes that the crediting of 12

quarters of coverage for 1978 through 1980 would

result in the claimant having only 27 of the 31 quar-

ters of coverage he needs to be fully insured.” (Ap-

pendix D, infra, p. 35a).

The Appeals Council made a finding that “the claim-

ant has acquired only 15 quarters of coverage through

1980, whereas he needs 31 quarters of coverage to be

fully insured.” ( Appendix D, infra, p. 37a).

The Appeals Council and the ALJ agree that Peti-

tioner is entitled to credit for 15 quarters of coverage for

1974, 1975, 1976 and 1977. Disregarding the 12 quarters

of coverage at issue for the years 1978, 1979 and 1980,

the difference in these calculations concerns the quarters

of coverage for which Petitioner should be credited prior

to 1974.

Petitioner’s military service prior to 1951 was deter-

mined not creditable for Social Security purposes inas-

much as Petitioner was receiving a benefit from another

federal agency on the basis of that service. What the

Appeals Council and the Social Security Administration

in its Reconsideration Decision ignored, however. was Pe-

titioner’s quarters of coverage earned for his employ-

ment prior to his military service. Based upon Petition-

er’s Transcript of Earnings Record, it appears that he

was entitled to credit for one (1) quarter of covered em-

ployment in 1938; four (4) quarters in 1939; and four

(4) quarters in 1940 for a total of nine (9) quarters of

coverage prior to 1974. These nine (9) quarters of cov-

erage are the difference between the findings of the ALJ

and those of the Appeals Council, for the Appeals Council

noted that if Petitioner were credited with the twelve

(12) quarters of coverage for 1978, 1979 and 1980, he

would have had twenty-seven (27) quarters of coverage

while the ALJ found that he had at least thirty-six (36)

quarters of coverage. It further appears that the ALJ

disregarded quarters of coverage in 1941 and 1943 for

which Petitioner might have been entitled to credit to

insure that no part of the military service that served as

a basis of a benefit Petitioner was receiving from another

federal agency would be included in the quarters of cov-

erage creditable for Petitioner’s Social Security purposes:

hence, the ALJ determined that Petitioner “had at least

thirty-six quarters of coverage, counting quarters of cov-

erage he earned before 1951”. (Appendix C, infra, p.

21a). The Act does provide that individuals can be cred-

ited with quarters of coverage for each year after 1936,

and Petitioner received benefits from federal agencies

other than the Social Security Administration for his

military service and his service as a foreign service offi-

cer for a 33-year period that ended on March 31, 1974.

It thus appears that the ALJ’s determination that Peti-

tioner “had at least 36 quarters of coverage, including

quarters of coverage he earned before 1951 and the twelve

,. quarters of coverage at issue in this case for the years

1978, 1979 and 1980” is correct based upon “the evidence

that was considered in making the determination or deci-

sion”. In view of this express determination by the ALJ

it is difficult to understand why the District Court and

the Court of Appeals declined “to rule on this issue since

it was not properly raised in the administrative proceed-

ings.” (Appendix A, infra, p. 3a; and see Appendix B,

infra, p. 9a (Note 3)).

CONCLUSION

Because of the conflict in the circuits concerning the

interpretation of the Secretary’s regulations governing

“review” and “reopening” of Social Security benefit de-

terminations and for the reasons above set forth, the Peti-

tioner respectfully prays that this Court issue its writ of

certiorari to review the judgment and opinion entered in

this case by the United States Court of Appeals for the

Fourth Circuit.

This the 21st day of November, 1987.

JACK BENJAMIN CRAWLEY, JR.

200 Bracken Court

Post Office Box 97155

Raleigh, NC 27624-7155

Telephone: (919) 847-2354

Counsel of Record

for the Petitioner

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APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 86-3625 —

JOHN P. REDDINGTON,

Plaintiff-Appellant

OTIS R. BOWEN,

Defendant-A ppellee

Appeal from the United States District Court

for the Eastern District of North Carolina, at New Bern

Terrence W. Boyle, District Judge—(CA-85-82-2)

Argued: May 5, 1987 Decided: July 23, 1987

Before HALL and WILKINS, Circuit Judges, and

HOFFMAN, United States District Judge for the East-

ern District of Virginia, sitting by designation.

Jack Benjamin Crawley, Jr. (Walter J. Early; Early

& Chandler on brief) for Appellant; Stanley Ericsson,

Office of the General Counsel, Department of Health &

Human Services (Richard K. Willard, Assistant, Attor-

ney General; Donald A. Gonya, Assistant General Coun-

Counsel; Randolph W. Gaines, Deputy Assistant General

Counsel for Litigation; John M. Sacchetti, Chief, Retire-

ment and Survivors Insurance Litigation Branch on

brief) for Appellee.

PER CURIAM:

John P. Reddington appeals from the order of the dis-

trict court affirming‘the denial by the Secretary of old-

age insurance benefits on the basis that he is not fully

insured. We affirm.

To be fully insured and eligible for benefits, Redding-

ton must have 31 quarters of coverage. It is uncontested

that he has 15 quarters for the period from 1974 to 1976.

In dispute are 12 quarters for the years 1978 through ,

1980 and 11 quarters fo employment prior to 1951.

The administrative law judge found that Reddington

was entitled to the 12 quarters for 1978 through 1980

and 9 quarters prior to 1951 and concluded that he was

fully insured with at least 36 quarters of coverage. ‘The

Appeals Council reopened the case on its own motion and

denied benefits, finding that Reddington had only 15

quarters of coverage and was thus not fully insured. The

district court found that the Appeals Council properly

reopened the decision of the ALJ and affirmed the denial

of benefits. t

On appeal, Reddington asserts that the Secretary did

not have the authority to reopen the case and that he is

entitled to the 12 quarters ef coverage for 1978 through

1980. We affirm on the séund reasoning of the district

court. Reddington v. Bowen, 640 F.Supp. 1005 (E.D.N.C.

1986).

Reddington also contends on appeal that he is entitled

to 11 quarters of coverage for years prior to 1951. We

decline to rule on this issue since it was not properly

raised in the administrative proceedings. See Redding-

ton, 640 F. Supp. at 1108 n.3. Reddington is not pre-

cluded from seeking correction of his earnings records for

those years prior to 1951 pursuant to 42 U.S.C.A. § 405

reapply for benefits and seek entitlement for any quar-

ters of coverage acquired since 1980.

AFFIRMED.

HOFFMAN, District Judge, concurring:

In Zimmerman v. Heckler, 774 F.2d 615 (4th Cir.

1985), this Court permitted the Appeals Council to

reopen the decision of the Administrative Law Judge,

holding—

The Appeals Council, however, is empowered to re-

open, within four years of the date of the notice of

the initial determination, any determination if “good

cause” exists. 20 C.F.R. § 404.988(b) (1985).

In McCuin v. Secretary of Health and Human Services,

. 817 F.2d 161 (1st Cir. 1987), the Court clearly states

that the right to reopen for “good cause” is restricted to

the claimant.

Thus, a conflict in circuits has arisen. No individual

panel of this Court may overrule a prior holding of the

Court. Since I am bound by the Zimmerman ruling,

I concur.

APPENDIX B

Note: Reported in 640 F. Supp. 1005.

IN THE UNITED STATES DISTRICT COURT FOR

THE EASTERN DISTRICT OF NORTH CAROLINA

NEW BERN DIVISION

No. 84-104-CIV-4

JOHN P. REDDINGTON,

Petitioner,

Otis R. BOWEN, Secretary, Health and Human Services,

Respondent.

[Filed Aug. 4, 1986]

ORDER

Petitioner John P. Reddington (claimant) filed this

action pursuant to 42 U.S.C. § 405(g) challenging the

final decision of the Secretary of Health and Human

Services denying him old-age insurance benefits under

Title II of the Social Security Act (the Act). The claim-

ant also seeks mandamus relief pursuant to 28 U.S.C.

§ 1361. The case is before the court on the parties’ cross-

motions for summary judgment. Because the court finds

that substantial evidence supports the Secretary’s final

decision, in the form of an Appeals Council’s ruling,

respondent’s motion for summary judgment is granted

and the Secretary’s decision is affirmed.

1 Dr. Otis R. Bowen is substituted as a party in this suit in place

of Margaret Heckler pursuant to Rule 25(d) of the Federal Rules .

of Civil Procedure.

Claimant applied for Social Security old-age insurance

benefits on December 16, 1981. A claimant must be “fully

insured” in order to receive these benefits. 42 U.S.C.

$402(a). A claimant becomes “fully insured” by ac-

cumulating a réguisite number of “quarters of coverage”

in employment covered under the Act. 42 U.S.C. § 414.

Only self-employment and wage income are considered

in determining how many quarters of coverage an in-

dividual has accumulated. 42 U.S.C. § 413. All parties

agree that claimant needs thirty-one quarters of coverage

in employment covered by the Act in order to be fully

insured within the meaning of § 402.

Claimant’s application for benefits was denied by the

Social Security Administration and he was granted a

hearing before an Administrative Law Judge (ALJ) in

May, 1983. The ALJ concluded that claimant was fully

insured, finding that he possessed at least thirty-six quar-

ters of coverage. The ALJ noted that the issue before him

was whether claimant’s income during,the years 1978

through 1980 was “wages” or self-employment income so

as to entitle claimant to twelve additional quarters of

coverage. The judge found claimant entitled to fifteen

quarters of coverage for the years 1974 through 1976,

nine quarters for employment prior to 1951, and twelve

quarters for the years 1978 through 1980.

The ALJ’s decision was handed down on May 23, 1983.

The Social Security Administration (SSA) did not appeal

from this determination. Approximately six months later,

in December, 1983, the Office of Hearings and Appeals

notified claimant that the Appeals Council was reopening

his case sua sponte on the grounds that evidence con-

sidered by the ALJ clearly showed that an error was

made in adjudicating claimant’s claim. See 20 C.F.R.

§§ 404.988(b), 404.989 (a) (3). On January 24, 1984, the

Appeals Council reviewed the ALJ’s ruling and held that

the claimant was not entitled to old-age benefits because

he did not possess the necessary quarters of coverage.

The Appeals Council found that claimant possessed only

fifteen quarters of coverage, i.e, from March, 1974

through December, 1977. Claimant then commenced the

present civil action in this court on October 3, 1984.

Il.

The court is called upon to determine whether the Ap-

peals Council properly computed claimant’s quarters of

coverage for the fiscal years 1978, 1979 and 1980. Claim-

ant maintains that the ALJ correctly included these

twelve quarters in computing his total number of quar-

ters of coverage. The Secretary contends that substantial

evidence exists in the record to support the Appeals

Council’s exclusion of these twelve quarters.

During the years 1978, 1979 and 1980, Reddington per-

formed services in connection with the operation of apart-

ment complexes owned by a partnership doing business as

Greenmount Associates (GMA). Claimant was a general

partner in this partnership, as well as in two other

partnerships, i.e., Rose Hill Associates (RHA) and Rose

Hill Associates Water Company (RHAWC) during the

years 1978, 1979 and 1980. Pursuant to a partnership

agreement dated October 15, 1975, claimant received

specific payments from GMA for-managing the apart-

ment complexes in addition to receiving a distributive

share of the profits or losses incurred by the partnership.

Claimant’s specific payments for his services were pay-

able without regard to partnership income and did not

affect his distributive share of partnership income or loss.

Claimant’s income tax records indicate he received pay-

ments for services from GMA in the amounts of $15,360,

$14,080 and $16,640 for the years 1978, 1979 and 1980,

respectively. GMA operated at a loss for the fiscal years

1978 through 1980. RHWAC operated at a loss for the

fiscal years 1979 and 1980.

aaa

The ALJ determined that the relationship between

claimant and GMA was that of employer and employee

notwithstanding claimant’s status as a general partner

in the employer-partnership. On these facts, the ALJ

found the income for claimant’s employment during the

years 1978, 1979 and 1980 to be “wages” qualifying the

claimant for an additional twelve quarters of coverage

towards the thirty-one needed for eligibility.

The Appeals Council reopened and reversed the ALJ

and found that the claimant’s income for the years 1978,

1979 and 1980 could not be characterized as “wages” be-

cause claimant, as a general partner of GMA, was the

employer and therefore could not be an employee of the

partnership. The Appeals Council also ruled that income

reported for these years was not self-employment income

under the Act. The Appeals Council found that GMA’s

income was “rental income” within the meaning of 42

U.S.C. §411(a)(1). The Council then concluded that

GMA’s payments to claimant for his managerial efforts

were merely “guaranteed payments” of the same nature

and quality as GMA’s partnership income, i.e., “rental

income.” Thus, the Appeals Council excluded those pay-

ments from self-employment earnings pursuant to 42

U.S.C. §411(a) (1) and 20 C.F.R. § 404.1082(d).

ITI.

This case presents several issues for resolution. The

first issue is whether the Appeals Council can reopen a

decision sua sponte when that decision was resolved in

a claimant’s favor. Second, the court must determine

whether claimant’s income for the years 1978, 1979 and

1980 was properly excluded in computing his quarters of

coverage for old-age insurance purposes. Third, the court

must determine whether mandamus relief is warranted

in this case.

A. Reopening of Cases Sua Sponte

The first issue is quickly resolved. The Appeals Council

is empowered to reopen a case sua sponte within four

years of the date of initial determination if “good cause”

exists. 20 C.F.R. § 404.988(b) (1985). See also Zimmer-

man v. Heckler, 774 F.2d 615, 617 (4th Cir. 1985). Good

cause to reopen exists when “[t]he evidence that was con-

sidered in making the determination or decision clearly

shows on its face that an error was made.” 20 C.F.R.

§ 404.989(a)(3) (1985). The error may be legal or

factual in nature. Musinger v. Schweiker, 709 F.2d 1212,

1215-16 (8th Cir. 1983) .*

As will be explained below, the ALJ clearly erred in

characterizing the claimant as an “employee” of GMA.

The ALJ also erred in relying on Exhibit 9 in concluding

that claimant earned nine quarters of coverage for pre-

1951 employment. He described Exhibit 9 as a certified

earnings record that included pre-1974 covered earnings.

In fact, Exhibit 9 consists of partially completed “re

quests for scouting” forms which report earnings from

1974 through 1976. The Appeals Council properly re-

opened the ALJ’s decision given these errors.

Claimant also argues that the ALJ’s findings are sup-

ported by substantial evidence. However, judicial review

of a final decision of the Secretary which is at odds in its

factual findings with that of an ALJ focuses upon the

Secretary’s final decision rather than upon the ALJ’s.

Kellough v. Heckler, 785 F.2d 1147 (4th Cir. 1986).

Courts in judicial review must uphold an Appeals Coun-

cil decision if it is supported by substantial evidence.

Id. at 1151. The ALJ’s findings are not binding on the

Appeals Council. Lovejoy v. Heckler, 790 F.2d 1114, 1116

(4th Cir. 1986). Since the Appeals Council properly re-

2 Of course, any reopening for legal error must be based on an

incorrect interpretation of the law as construed at the time of the

administrative hearing. See 20 C.F.R. § 404.989(b) (1985).

EEE

opened this case and did not exceed its authority, this

court’s review of the Council’s decision is confined to as-

certaining whether its factual findings are supported by

substantial evidence. See Lovejoy, 790 F.2d at 1116, cit-

ing 42 U.S.C. § 405(g). See also Kellough, 785 F.2d at

1149 n. 2.

Federal courts review the Secretary’s factual findings

to establish that those findings are supported by substan-

tial evidence. Yet the courts also must assure that the

Secretary’s ultimate conclusions are legally correct.

Myers v. Califano, 611 F.2d 980, 982 (4th Cir. 1980).

The entire record is examined to insure that the Secre-

tary has applied correct legal standards. Keeney v. Heck-

ler, 568 F. Supp. 1145, 1148 (D. Md. 1983). The Appeals

Council decision in this case contained factual findings

consistent to a great extent with the ALJ’s. The Council

incorporated most of the ALJ’s evidentiary findings into

its own decision. The Secretary’s final decision differed

from the ALJ’s most notably in the legal conclusions

drawn from these basically undisputed facts.’

* There is some factual discrepancy as to whether vel non claim-

ant’s employment prior to 1951 entitles him to nine additional!

Quarters of coverage for old-age insurance purposes. A review of

the administrative decisions in this case and the hearing transcript

reveals that this issue was not explicitly presented by claimant

before either the ALJ or the Appeals Council. The ALJ framed the

specific issue before him as whether the claimant’s earnings record

may be credited with wages or self-employment income for the

years 1978, 1979 and 1980. There is no evidence indicating that the

claimant contested the SSA’s initial determination that he was not

entitled to any quarters of coverage for employment prior to 1974.

In fact, claimant did not press his claim for nine additional quarters

of coverage relating to pre-1951 employment prior to filing a reply

brief in this case. The court therefore is hesitant to address this

particular issue, given claimant’s failure to raise this specific claim

in administrative proceedings. See United States v. Ome 1971

Mercedes Benz, 542 F.2d 912 (4th Cir. 1976).

Furthermore, the court need not address the merits of this issue

at this time. Since the court affirms the Secretary’s final decision

for the reasons given hereafter, claimant at most possesses twenty-

10a

All agree that the claimant served as exclusive manager

of Greenmount Associates’ apartment complexes pursuant

to a partnership agreement executed in 1975. They also

agree on the compensation claimant received for his man-

agerial services. The question is whether that compensa-

tion is to be treated as “wages” or self-employment in-

come. Because the Appeals Council interpreted federal

tax law as precluding claimant from characterizing this

compensation as “wages,” this characterization is a legal

conclusion. In contrast, the Secretary’s determination

that GMA’s income from the apartment complex was

“rental income” presents a mixed question of fact and

law. The parties agree on the specific services claimant

provided in his capacity as apartment manager. The

characterization of income derived from these services as

“rental income” is a legal conclusion. The court must

apply different standards of review in resolving the

“wages” and “rental income” issues.

B. The Quarters of Coverage Question

While the Appeals Council’s findings are supported by

substantial evidence in the record, it is less certain

whether the Secretary applied pertinent legal standards

in concluding that claimant’s income fell within § 411

(a) (1)’s “rental income” exclusionary provision. How-

ever, because another legal theory exists which prevents

claimant from receiving at least eight quarters of cover-

age, the Secretary’s final decision must be affirmed.

1. Wages v. Self-Employment Income

Entitlement to quarters of coverage flows from “wages”

earned in employment or from net earnings from self-

eight quarters of coverage, including the nine quarters of coverage

for pre-1951 employment. Since this total falls short of the thirty-

one quarters required to entitle claimant to old-age benefits, the

inclusion of these additional quarters would still not entitle claimant

to benefits at this time.

lla

employment under the Act. It is undisputed that the

claimant was a general partner in the GMA partnership

for the years 1978 through 1980. Federal tax law pro-

vides that claimant could not be simultaneously classified

as both an employee and a general partner of GMA.

Bona fide members of a partnership are not employees of

the partnership within the meaning of the Federal Insur-

ance Contributions Act. IRS Revenue Ruling 69-184.

A partner who devotes his time and energies to providing

services to the partnership is a self-employed individual

rather than an employee. Jd. Any fixed salary received

by a partner for his services rendered to the partnership

is not “wages” with respect to employment but rather is

a “guaranteed payment” which is includable in the re-

cipient partner’s gross income subject to self-employment

tax. Jd.; IRS Revenue Ruling 56-676. Therefore, the

ALJ erred as a matter of law in characterizing claim-

ant’s income for the years 1978 through 1980 as

“wages.” #

2. Claimant’s Income As “Rental Income”

Given that claimant’s income for the three years in

question is not “wages,” claimant can qualify for quar-

ters of coverage only if that income can be qualified as

net earnings from self-employment (NESE) under the

Act. The Act defines NESE as:

“The gross income, as computed under Subtitle A

of the Internal Revenue Code of 1954, derived by an

individual from any trade or business carried on by

such individual, less the deductions allowed under

such subtitle which are attributable to such trade or

business, plus his distributive share (whether or not

distributed) of income or loss .. . from any trade

or business carried on by a partnership of which he

* The court notes that at least in one year, i.e., 1980, claimant

characterized his fixed salary as guaranteed payments and included

the same in a Schedule K-1 “Partner’s Share of Income” form.

12a

is a member; except that in computing such gross

income and deductions and such distributive share of

partnership ordinary income or loss—

(1) There shall be excluded rentals from real es-

tate and from personal property leased with the real

A as

42 U.S.C. § 411(a). The Appeals Council found that any

income which GMA derived from operation of its apart-

ment complex was “rental income” excluded in deter-

mining claimant’s NESE.

Only those services provided for the occupant’s con-

venience may be included in computing one’s net earnings

from self-employment. 20 C.F.R. § 404.1082(d). Services

provided solely in connection with the rental of rooms for

occupancy are not included in the Act’s definition of

NESE. Hotel services and the use of space in parking

lots, warehouse or storage garages are considered to be

services provided to occupants. 20 C.F.R. § 404.1082

(d) (2) (i) (1985). SSA regulations further provide that

“we do not consider the furnishing of heat and light, the

cleaning of public entrances, exists, stairways and lobbies

and the collection of trash, as services provided to the

occupant.” 20 C.F.R. § 404.1082 (d) (2) (ii) (1985).

There is no dispute as to the particular services claim-

ant performed in his capacity as apartment manager for

GMA’s several apartment complexes. The record reveals

that claimant’s responsibilities included providing leases,

repairs, replacement and cleaning of rugs, instruction to

tenants regarding proper cleaning of rugs, ground main-

tenance and maintenance of heating and air cooling sys-

tems. Claimant also received and answered service calls.

Among the miscellaneous services provided by GMA

through claimant was the servicing of plugged drains and