Opposition Brief — Reddington v. Bowen

A ie

In the Supreme Court of the United States

OCTOBER TERM, 1987

JOHN P. REDDINGTON, PETITIONER

Vv.

Otis R. BOWEN, SECRETARY OF

HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

JOHN F. DALY

Attorney

Department of Justice

_ Washington, D.C. 20530

(202) 633-2217

Ab?

\

QUESTIONS PRESENTED

1. Whether the Appeals Council properly reopened

the Administrative Law Judge’s decision finding petitioner

eligible for old-age insurance benefits under the Social

Security Act, based on its finding of a clear error in the

ALJ’s decision.

2. Whether the Appeals Council correctly determined

that petitioner had not accrued sufficient quarters of

covered employment to be eligible for old-age insurance

benefits.

(I)

TABLE OF CONTENTS

Page

Opinions below .. BM sR ee se ie ae l

er ena dv yine Bi ceuawks See eeceeen l

ee. Ls cee nd wots OR en oe 1

et a wat hw cl bain & 6.45 RRE ROA EE OS 5004.0 0's 5

tas eee CE tis Wily wecebseutes 19

TABLE OF AUTHORITIES

Cases:

Bowen v. Yuckert, No. 85-1409 (June 8, 1987) .......... 13

Butterworth v. Bowen, 796 F.2d 1379 (11th Cir. 1986)... 6, 9,

12, 16, 17

Califano v. Sanders, 430 U.S. 99 (1977) ............... 9, 15

Califano v. Yamasaki, 442 U.S. 682 (1979) ............. 13

Call v. Heckler, 647 F. Supp. 560 (D. Mont. 1986) ...... 17

Cieutat v. Bowen, 824 F.2d 348 (Sth Cir. 1987) ......... 6, 7,

9, 16

DeLong v. Heckler, 771 F.2d 266 (7th Cir. 1985) ........ 9-10

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555

ee SE Se Th ap waere es cckeed cages 6

Fox v. Bowen, No. 86-3608 (6th Cir. Dec. 28, 1987) ..... 6, 7,

8, 12, 14

Heckler v. Campbell, 461 U.S. 458 (1983) .............. 13

Higginbotham v. Heckler, 767 F.2d 408 (8th Cir. 1985) .. 6

McCuin v. Secretary of Health & Human Services, 817

oe A, ISS ae eS 5, 6,

7, 8, 11, 12, 13, 14, 17

Munsinger v. Schweiker, 709 F.2d 1212 (8th Cir 1983)... 6,7

Udall v. Tallman, 380 U.S. 1 (1965) ................... 6

United States v. Larionoff, 431 U.S. 864 (1977) ......... 6

‘Zimmermann v. Heckler, 774 F.2d 615 (4th Cir. 1985) ... 4, 5, 6

Constitution, statute., regulations and rules:

U.S. Const. Amend. V (Due Process Clause) ........... 13

Federal Insurance Contributions Act, 26 U.S.C. (& Supp.

ee sie as LU oy ebiew oF Khire wae Oa ns 8 42 3

(III)

IV

Statutes, regulations and rules — Continued: Page

Social Security Act, Tit. Il, 42 U.S.C. (& Supp. IID

401 ef seq.:

A ok bec cava os ca ceccncsnsdvstucens 2

I sak ae nce odd c0cceenssan ees eau 13

EEE Rae od ina ee no8k én ccncscosecesss 43

42 U.S.C. (& Supp. III) 405(b) ....... 6. ee ee eee 13

42 U.S.C. (Supp. III) 405(b)(1) ....-. ee eee ee ee 12

42 U.S.C. (& Supp. III) 405(c) ...... 6-6... eee eee 19

Oe RR Gino cs haces sccscdccccaccse rans 9

BD TREE coc cadccecnscatmvcesevee 2, 4, 5, 18

Biv k bos Sade cay en Gewtenad cacys 8

Polis Fk, | PP PerreeT Tins Cre TT ee 9

RE ED icin ccc ncccccvcccedeseroceses 9

Petia Ue, GG rb lS Serres 9

42 U.S.C. (Supp. II) 423(f)(4) ..... 66 eee eee ee 10-11

Social Security Disability Amendments of 1980, Pub. L.

No. 96-265, SO Stat. SEE occ ccc esc cccccccccccens ae

§ 304(c), 94 Stat. 455 ........ cece cece cece ee eeee 9

Social Security Disability Benefits Reform Act of 1984,

Pub. L. No. 98-460, 98 Stat. 1794 .............-545- 10

20 C.F.R.:

Section 403.7111(b) (1940) ...........-----0 eee 11, 16, 17

Satins AA DOR CN IED ook ss ice nc ccd neces teense 11

Sartinms BOG BST CIGTE) noo occ cect ccc cacccavess 11

ES oo as ob sa he ood e eae en aietavean 3,8

Section SO4.S7OlAM2) ..... wn ccc cc cscs cecisesesacss 16

eg wb aw eas caceanseeaseewseds 7

ee ID ong cob ac vist acaccdace Sanneees 7

a I oS nn dg wa ew an sab owes ed Seas 7

SESS Ee ne ener Onis ease 3, 6, 7

De I goon vc ccdeeewbbctciencesee¥s 7

I ID gn onc occ cvenscotancceseneses 4,7

I on ina oa vs Kanda nnd eae cccealans 7

i IED 6 bcc ccc nccseccccsacesssass 7

Eg aN e Sy dna eemaa 4

er ES oo ea cake cece secre ewawass 4,17

Fed. R. Civ. P.:

S| SSP Pr rer ree ey rr Pe rer re es Cree 9, 13

NE od Vv cagenreowemisavandns ee selena Ne 10

Vv

Miscellaneous: Page

5 Fed. Reg. (1940):

IE ns Soros c Gatvewee asa cocseecasnreTt 11

nk es Chae Kb ehdene d anaes 11, 16, 17

FF I ob da ccc tdccccsnccdisteses 8, 11-12

52 Fed. Reg. (1987):

Do es ana bee hice bees 14

Ce A RR AI i a hoi ee Ree 14, 16

H.R. Conf. Rep. 96-944, 96th Cong., 2d Sess. (1980) .... 10

H.R. Rep. 98-618, 98th Cong., 2d Sess. (1984) .......... 1]

IRS Rev. Rul. 69-184, 1969-1 C.B. 256 ................ 3

S. Rep. 96-408, 96th Cong., Ist Sess. (1979) ............ 10

SSA, Office of Hearings and Appeals Handbook ....... 12, 17

. .

In the Supreme Court of the Gnited States

OCTOBER TERM, 1987

a

No. 87-875

JOHN P. REDDINGTON, PETITIONER

Vv.

Otis R. BOWEN, SECRETARY OF

HEALTH AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-3a) is

reported at 825 F.2d 408 (Table). The order of the district

court (Pet. App. 4a-16a) is reported at 640 F. Supp. 1005.

JURISDICTION

The judgment of the court of appeals was entered on

July 23, 1987, and a petition for rehearing was denied on

August 26, 1987 (Pet. App. 39a-40a). The petition for a

writ of certiorari was filed on November 24, 1987. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

STATEMENT

1. a. In order to be eligible for old-age insurance

benefits under the Social Security Act, an individual must

have a sufficient number of quarters of covered employ-

(1)

2

ment to be “fully insured.” 42 U.S.C. 402(a). Petitioner’s

application was denied by the Social Security Administra-

tion (SSA) at the initial determination and reconsideration

stages on the ground that he did not have 31 quarters of

coverage, as required by 42 U.S.C. 411(a)(1). Pet. App.

Sa, 21a. p

Petitioner then sought a hearing before an Ad-

ministrative Law Judge (ALJ) in SSA’s Office of Hearings |

and Appeals. The ALJ held that petitioner had 36 quarters

of coverage and therefore was entitled to benefits (Pet.

App. 19a-29a). Critical to this determination was the

ALJ’s inclusion of 12 quarters for the years 1978, 1979 and

1980 (id. at 28a-29a). During those years, petitioner re-

ceived payments from a partnership, Greenmouni

Associates (GMA), of which he was a general partner (id.

at 6a, 22a, 25a-26a). GMA owned and operated apartment

complexes, and the partnership agreement provided for

guaranteed payments to petitioner in return for manage-

ment services (id. at 6a, 14a-15a). At the initial determina-

tion and reconsideration stages, SSA had concluded that

this income was either sental income, which is excluded

from coverage (see 42 U.S.C. 41i(a)(1)), or self-

employment income that, because of offsetting losses,

yielded no net income giving rise to covered quarters (Pet.

App. 23a-24a). The ALJ agreed that if petitioner was a

self-employed “independent contractor” during this

period, as petitioner contended (id. at 26a), he would have

no net income (and thus no quarters of coverage) for that

period, because of offsetting expenses and losses (id. at

27a). However, the ALJ concluded that petitioner was an

employee of GMA from 1978 through 1980; that his in-

come should be regarded as “wages” (with no offset for ex-

penses and losses); and that he therefore was entitled to 12

quarters for those years (id. at 27a-29a).

a

3

b. The ALJ’s decision was rendered on May 23, 1983

(Pet. App. 29a). A covering notice informed petitioner

that the Appeals Council could, on its own motion, grant

review of the ALJ’s favorable decision within 60 days (id.

at 17a-18a, citing 20 C.F.R. 404.969) and that the Appeals

Council could reopen and revise the ALJ’s decision even

after 60 days if new and material evidence was discovered,

if a clerical error had been made, or if “there is an error as

to the decision on the face of the evidence on which it is

based” (Pet. App. 18a, citing 20 C.F.R. 404.988).

The Appeals Council did not choose to review the ALJ’s

decision on its own motion within 60 days. But the Ap-

peals Council subsequently did decide to reopen the ALJ’s

decision, because an error was brought to the Appeals

Council’s attention by the Northeastern Program Service

Center, the component of SSA responsible for completing

the paperwork necessary to determine the amount, if any,

of benefits that would be payable pursuant to the ALJ’s

decision. By memorandum dated June 20, 1983, the Serv-

ice Center referred the case back to the Office of Hearings

and Appeals because, in its view, the ALJ’s decision was

“clearly contrary to the act and regulations” (Pet. App.

46a). The memorandum explained that under IRS Rev.

Rul. 69-184, 1969-1 C.B. 256, which construed the provi-

sions of the Federal Insurance Contributions Act (FICA),

26 U.S.C. (& Supp. III) 3101 et seq. that address the sub-

ject of payments made to a partner, members of a partner-

ship are not to be treated as employees of the partnership,

and income received by a partner who performs services

for the partnership therefore cannot be treated as wages

but instead must be treated as either income from a trade

or business or self-employment income (Pet. App. 47a).

By letter dated December 9, 1983, the Appeals Council

notified petitioner that, after considering the June 20,

1983, memorandum from the Service Center, it was

4

reopening the ALJ’s decision because it was erroneous on

its face (Pet. App. 43a-45a).' After affording petitioner an

opportunity to submit additional evidence or legal

arguments on the coverage question (id. at 44a), the Ap-

peals Council rendered a new decision on January 24, 1984

(id. at 32a-38a). The Appeals Council concluded that peti-

tioner did not have the requisite number of covered

quarters because: (i) under FICA, a partner cannot be

treated as an employee of the partnership; (ii) income

received by a partner for services rendered to the partner-

ship may be considered self-employment income only if

the partnership is engaged in a trade or business; and (iii)

in this case, the only income received by GMA (and

therefore by petitioner) was rental income, which is ex-

cluded from self-employment earnings by 42 U.S.C.

411(a)(1) (Pet. App. 36a-37a).

2. a. Petitioner then sought judicial review in the

United States District Court for the Eastern District of

North Carolina, which granted summary judgment in

favor of the Secretary (Pet. App. 4a-16a). Relying on Zim-

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

the court rejected petitioner’s contention that the Appeals

Council was without authority to reopen the ALJ’s deci-

sion on its own motion (Pet. App. 8a). The court ex-

' Under 20 C.F.R. 404.988(b), SSA, on the basis of a finding of

“good cause,” may reopen a decision within four years of the initial

determination on the claim for benefits. The four-year period runs

from the date of the initial determination even where, as here, the

claimant sought review of the initial determination by requesting

reconsideration and an ALJ hearing. The standards for finding “good

cause” to reopen are contained in 20 C.F.R. 404.989. In this case, the

Appeals Council relied on 20 C.F.R. 404.989(a)(3), which provides

that good cause will be found if “[t]he evidence that was considered in

making the determination or decision clearly shows on its face that an

error was made.”

\

5

plained that the Secretary’s regulations provide for

reopening within four years of the initial determination

for “good cause,” and that in this case there was “good

cause” because the ALJ “clearly erred in characterizing the

claimant as an ‘employee’ of GMA” (ibid.). On the merits,

the district court stated that it was a close question

whether petitioner’s income from GMA must be excluded

as rental income under 42 U.S.C. 411(a)(1) (Pet. App.

lla-14a). But the court found it unnecessary to resolve

that question, because offsetting losses from GMA and

other partnerships would in any event prevent petitioner

from being credited with any net self-employment income

(and therefore with any quarters of coverage) for 1979 and

1980 (id. at 15a).

b. The court of appeals affirmed (Pet. App. la-3a;

825 F.2d 408 (Table)), adopting “the sound reasoning of

the district court” with respect to both the Appeals Coun-

cil’s reopening authority and petitioner’s failure to

establish coverage for the years 1979 and 1980 (id. at 2a).

District Judge Hoffman, sitting by designation, concurred

in the panel’s ruling on the question of the Appeals Coun-

cil’s reopening authority because he was bound by the

Fourth Circuit’s prior decision in Zimmermann. However,

he noted that the First Circuit held in McCuin v. Secretary

of Health & Human Services, 817 F.2d 161 (1987), that

only the claimant may request reopening. Pet. App. 3a.

ARGUMENT

The courts below correctly held that the Appeals Coun-

cil was authorized, on its own motion, to reopen the ALJ’s

decision finding petitioner entitled to old-age insurance

benefits. The majority of the courts of appeals have sus-

tained the Secretary’s interpretation of his own regulations

to permit reopening on the Secretary’s motion as well as on

"SER Ono

the motion of the claimant. By contrast, the First Circuit

held in McCuin that the regulations should be construed to

permit only the claimant to request reopening. However,

this circuit conflict does not warrant review, because the

Secretary has announced his intention to revise the govern-

ing regulations to make clear that a decision may be

reopened on the Secretary’s own motion in appropriate

circumstances.

1. Contrary to petitioner’s contention (Pet. 10-13), the

court of appeals was clearly correct in sustaining the

Secretary’s interpretation of his own regulations to permit

reopening of a decision on the Secretary’s motion as well

as on the motion of the claimant. This Court has con-

sistently held that judicial deference to administrative

determinations is at its height where, as here, the question

concerns the interpretation of the agency’s own regula-

tions. See Ford Motor Credit Co. v. Milhollin, 444 U.S.

555, 566 (1980); United States v. Larionoff, 431 U.S. 864,

872 (1977); Udall v. Tallman, 380 U.S. 1, 16 (1965). Such

deference is especially warranted in this case, because the

Secretary’s interpretation is manifestly reasonable and is

supported by the decisions of three other courts of ap-

peals. See Fox v. Bowen, No. 86-3608 (6th Cir: Dec. 28,

1987), slip op. 6; Cieutat v. Bowen, 824 F.2d 348, 352-353

(Sth Cir. 1987); Higginbotham v. Heckler, 767 F.2d 408,

410 (8th Cir. 1985); Munsinger v. Schweiker, 709 F.2d

1212, 1214-1215 (8th Cir. 1983); Zimmermann v. Heckler,

774 F.2d 615, 617 (4th Cir. 1985). See also Butterworth v.

Bowen, 796 F.2d 1379, 1384-1385 (11th Cir. 1986).

a. The language of the basic reopening regulation does

not support petitioner’s contention that only the claimant

may request reopening. The relevant regulation, 20 C.F.R.

404.988, provides that a determination or decision “may

be reopened” within 12 months of the initial deter-

-

mination for any reason (20 C.F.R. 404.988(a)), within

four years for good cause (20 C.F.R. 404.988(b)), and at

any time for certain enumerated reasons, such as if the

decision was obtained by fraud or fault (20 C.F.R.

404.988(c)). In conferring this authority, Section 404.988

does not refer only to those determinations or decisions

that are adverse to the claimant (the ones that claimants

presumably would seek to have reopened); it refers

without limitation to the reopening of any “determination,

revised determination, decision, or revised decision.” See

Cieutat, 824 F.2d at 353. Moreover, some of the condi-

tions for reopening, such as where the prior decision was

obtained by fraud (20 C.F.R. 404.988(c)(1)), would almost

invariably be invoked only by SSA on its own motion.

Fox, slip op. 7; Cieutat, 824 F.2d at 356 n.12; Munsinger,

709 F.2d at 1215.

b. Contrary to the view of petitioner (Pet. 12-13) and

the First Circuit in McCuin (817 F.2d at 174), this inter-

pretation of the basic reopening regulation is not under-

mined by the preceding regulation, 20 C.F.R. 404.987.

Subsection (a) of Section 404.987 informs the claimant

that he must seek Appeals Council review of the ALJ’s

decision within0 days. But it further states that “a deter-

mination or a decision made in your case may be reopened

and revised” even after 60 days have passed. As in 20

C.F.R. 404.988, this language is not limited to those deter-

minations and decisions that are adverse to the claimant or

to situations in which the claimant might request reopen-

ing. Subsection (b) of 20 C.F.R. 404.987 then informs the

claimant: “You may ask that a determination or a decision

to which you were a party be revised.” In McCuin, the

First Circuit read the reference to “You” as an indication

that the Secretary intended to vest the claimant with ex-

clusive control over reopening. See 817 F.2d at 174. But as

8

~~

the Sixth Circuit has recognized, “[t}hedanguage in the sec-

tion directed to ‘you’ was adopted in the 1980 recodifica- n

tion in an effort to make the regulations clearer and easier |

for public use” (Fox, slip op. 7, citing 45 Fed. Reg. 52078

(1980)). This statement of the c/aimant’s rights in no way

limits the authority of SSA to take action (such as the

reopening in this case) that is not dependent upon any ac-

tion by the claimant.

c. Nor does SSA’s authority to reopen an ALJ deci-

sion render superfluous the provision in 20 C.F.R. 404.969

allowing the Appeals Council to review an ALJ decision

within 60 days, as suggested by petitioner (Pet. 7, 9, 11,

14) and the First Circuit in McCuin (817 F.2d at 169-170).

The reopening regulations apply to determinations and

decisions rendered at any level of the four-stage ad-

ministrative review process; by contrast, the Appeals

Council’s authority to review a decision on its own motion

within 60 days applies only to decisions that were rendered

by an ALJ. Any potential overlap between the two pro- |

cedures therefore exists for only a small percentage of

SSA’s decisions. At the initial determination and recon-

sideration stages, there is no provision for own-motion

review by an appellate body like the Appeals Council.

Therefore, if SSA’s own-motion reopening authority were

read out of the regulations, as petitioner proposes, SSA

would be deprived of the only means by which it can cor-

rect erroneous awards of benefits at the initial determina-

tion and reconsideration stages. ?

2 Congress recognized the need for the Secretary to revise deter-

minations rendered at the first two stages of the administrative review

process when it enacted the Social Security Disability Amendments of

1980, Pub. L. No. 96-265, 94 Stat. 441. Under the disability pro-

grams, a state agency decides at the initial determination and recon-

sideration stages whether a person is under a disability. 42 U.S.C.

421(a). However, a decision by the state agency that a person is under

9

Moreover, Own-motion reopening authority does not

render own-motion review authority meaningless even at

the ALJ stage. Direct review and reopening are separate

procedural devices that are governed by distinct regulatory

provisions and have differing purposes and timetables.

The 60-day limitation on Appeals Council review of an

ALJ’s decision serves to fix the point at which the ALJ’s

decision becomes final; reopening permits correction of a

substantial error in an otherwise final decision. Direct

review is a routine procedure; reopening is an extraor-

dinary one. Cieutat, 824 F.2d at 355-356 & nn.9-11; But-

terworth, 796 F.2d at 1385. See also Califano v. Sanders,

430 U.S. 99, 101-102, 107-109 (1977). The difference be-

tween the two procedures is thus analogous to the dif-

ference in a civil case between an appeal and a motion for

relief from judgment under Fed. R. Civ. P. 60(b). Review

and reopening also differ greatly in their practical opera-

tion. We have been informed by the Department of Health

and Human Services that the Appeals Council currently

has the resources to screen only between 5% and 15% of

all unappealed ALJ decisions for possible own-motion

review within 60 days. This sample approach enables the

Appeals Council to exercise some direct supervision and

quality control over ALJ decisions within the 60-day

period. See DeLong v. Heckler, 771 F.2d 266, 268

a disability is actually implemented by SSA, which has the independ-

ent responsibility for determining whether the claimant satisfies other

criteria (such as being fully insured under Titie II) before certifying the

claims for payment under 42 U.S.C. 405(i). In Section 304(c) of the

1980 Amendments (94 Stat. 455), Congress directed SSA to review

65% of the state disability determinations in favor of the claimant

before those determinations are implemented by SSA. See 42 U.S.C.

421(c)(2) and (3). In addition, Congress made clear in 42 U.S.C.

421(c)(1) that the Secretary may, “on his own motion,” review any

determination by a state agency, either in favor of or adverse to the

claimant and either “before or after any action is taken to implement

such determination.”

10

(7th Cir. 1985); H.R. Conf. Rep. 96-944, 96th Cong., 2d

Sess. 57-58 (1980); S. Rep. 96-408, 96th Cong., Ist Sess. 53

(1979). But it does not foreclose the Appeals Council from

thereafter correcting an error in an individual ALJ deci-

sion that was not screened for possible review but instead

was brought to its attention by another component of SSA

that discovered the error in the course of implementing the

ALJ’s decision, as in this case.

d. An interpretation of the regulations that permitted

only a claimant to seek to reopen a prior decision also

would introduce anomalies and asymmetry into the

regulatory scheme. It is inconceivable, for example, that

the Secretary intended to preclude SSA from reopening

and revising a decision that the claimant procured by

fraud, and yet the logic of petitioner’s position would seem

to require that conclusion. Similarly, it would be in-

congruous to suppose that the Secretary intended to af-

ford the claimant a right to have SSA reopen a facially er-

roneous adverse decision, but to deny SSA the authority to

reopen a decision that is favorable to the claimant if it con-

tains a comparably obvious and serious error. That is

especially so in light of the fact that a decision finding a

claimant eligible for old-age, survivors or disability

benefits typically results in monthly payments to the

claimant for the indefinite future. There is no reason to

believe that the Secretary intended to sbligate SSA to

perpetuate an error in a determination of entitlement by

continuing to pay benefits even after the error has become

apparent. Compare Fed. R. Civ. P. 60(b)(5) (providing

for relief from judgment when “it is no longer equitable

that the judgment should have prospective application”).3

> For this very reason, when Congress enacted the Social Security

Disability Benefits Reform Act of 1984, Pub. L. No. 98-460, 98 Stat.

1794, it specifically provided that SSA may terminate benefits if it

concludes that the prior finding of disability “was in error” (42 U.S.C.

2 Wns,

ANA Nem ie te 8 gO

1]

e. If there could be any remaining doubt regarding the

proper construction of the reopening regulations, it is

dispelled by the consistent administrative practice for vir-

tually the entire history of the Social Security program. In

1940, the Social Security Board promulgated regulations

to establish the four-stage administrative review process

that remains in effect to this day. 5 Fed. Reg. 4169-4174.

The 1940 regulations also contained a separate subsection

providing for reopening and revision of decisions that had

been rendered at any of the four stages of review. As rele-

vant here, that subsection provided that “[a]ny decision of

a referee or the Appeals Council * * * may be revised by

the Appeals Council, either upon the motion of the Ap-

peals Council or upon the petition of any party, when it

clearly appears that there was an error of fact or law in

such decision or that such décision was procured by fraud

or misrepresentation” (20 C.F.R. 403.711(b) (emphasis

added), as added, 5 Fed. Reg. 4174 (1940)).

This own-motion reopening authority in the 1940

regulation was carried forward over the next four decades.

In fact, the First Circuit acknowledged in McCuin that

“[p]rior to 1980, the regulations clearly gave the Appeals

Council the right to reopen on its own initiative after the

sixty-day time limit” (817 F.2d at 174, citing 20 C.F.R.

404.956, 404.957 (1978)). The First Circuit also

acknowledged in McCuin that when the procedural regula-

tions were revised in 1980 to make them more understand-

able, the Secretary stressed that “ ‘no substantive changes

have been made’ ” (817 F.2d at 174, quoting 45 Fed. Reg.

(Supp. II1) 423(f)(4)). See H.R. Rep. 98-618, 98th Cong., 2d Sess. 12

(1984) (“benefits which were improperly allowed originally should not

be continued”). A fortiori, the procedural framework does not

obligate SSA to pay benefits to an ineligible recipient even where the

error is identified before any benefits have been paid.

12

52078 (1980)). This disclaimer refutes any notion that the

current regulations should be construed to have dispensed,

sub silentio, with SSA’s longstanding authority to reopen

decisions on its own motion. See Fox, slip op. 7; Butter-

worth, 796 F.2d at 1385.4

f. The court of appeals’ ruling in this case is consistent

with the rulings by three other courts of appeals that the

Secretary may reopen an administrative decision on his

own motion. See cases cited at page 6, supra. The First

Circuit reached a contrary conclusion in McCuin.

However, for a number of reasons, this circuit conflict

does not warrant review by the Court at this time:

First, the question presented concerns the interpretation

of the Secretary’s regulations. There is no suggestion that

the Social Security Act itself bars the Secretary from

reopening a decision on his own motion. To the contrary,

42 U.S.C. (Supp. III) 405(b)(1), which directs the

Secretary to hold hearings upon request, also provides that

“[t]he Secretary is further authorized, on his own motion,

* * * to conduct such investigations and other proceedings

as he may deem necessary or proper for the administration

* SSA’s intention to retain own-motion reopening authority under

the current regulations is evident in other respects as well. For exam-

ple, the Office of Hearings and Appeals Handbook explains that “{i]n

certain situations there are equitable reasons for both the claimant and

SSA for reopening a determination or decision after it has become

‘final and binding’ ” (id. § 1-920). The OHA Handbook further states

that an ALJ’s decision may be reopened and revised by the ALJ on the

ALJ’s own motion or on the motion of a party and that “[{aJn ALJ’s

decision may also be reopened and revised by the AC [Appeals Coun-

cil]” (id. § 1-925; see also id. §§ 1-922-30 and 1-922-31). Moreover, the

standard notice that was sent to petitioner informed him that the Ap-

peals Council could review the ALJ’s favorable decision on its own

motion within 60 days and that even after 60 days the Appeals Council

could reopen the decision if, inter alia, there was a clear error on the

face of the evidence (Pet. App. 17a-18a).

13

of [the Act]” (emphasis added). Moreover, 42 U.S.C.

405(a) confers on the Secretary “ ‘exceptionally broad

authority’ ” to establish implementing procedures, and

those regulations must be sustained unless they are ar-

bitrary and capricious. Bowen v. Yuckert, No. 85-1409

(June 8, 1987), slip op. 6-7 (quoting Heckler v. Campbell,

461 U.S. 458, 466 (1983)). At the very least, the reopening

regulations at issue here are not an arbitrary or capricious

means for implementing the Secretary’s duty under 42

U.S.C. (& Supp. III) 405(b) to conduct investigations and

proceedings on his own motion to ensure the “proper” ad-

ministration of the Act.°

5 The First Circuit in McCuin suggested that due process concerns

would be raised in some circumstances if the regulations were con-

strued to permit the Secretary to reopen a decision on his own motion,

because that interpretation would deprive administrative decisions of

their finality. See 817 F.2d at 171-175. With all respect, we believe that

the First Circuit’s due process concerns are without merit, at least in

the vast majority of cases to which the reopening regulations are ap-

plied. The analogous provisions for relief from judgment under Fed.

R. Civ. P. 60(b) plainly do not violate the Due Process Clause merely

because they may result in the reopening of a judgment that had

become “final” when the time-for taking an appeal expired. Further-

more, to the extent that the First Circuit was concerned about possible

unfairness to a claimant as a result of the reopening of a decision after

benefits were paid, any such unfairness may be remedied by waiver of

recoupment of overpayments where recovery would defeat the pur-

poses of the Act or “be against equity and good conscience.” 42

U.S.C. 404(b). See Califano v. Yamasaki, 442 U.S. 682 (1979).

In any event, there can be no plausible claim in this case that the

Appeals Council’s reopening of the ALJ’s decision violated

petitioner’s due process rights, especially since the notice transmitting

the ALJ’s decision specifically informed him of that possibility. In

fact, petitioner does not appear to argue that his due process rights

were violated; he merely quotes a passage from the McCuin decision

that discusses certain due process issues as a general matter. See Pet.

11. It would, moreover, be premature for the Court to address any

possible due process issues that could arise from particular applica-

14

Second, because the question on which the courts of ap-

peals are divided concerns the interpretation of the

Secretary’s own regulations, that question can be con-

clusively resolved by the Secretary by amending the regula-

tions, without any need for intervention by this Court. It

was for this reason that the Solicitor General, with the

concurrence of the Secretary, chose not to ask the Court to

review the First Circuit’s decision in McCuin, even though

McCuin conflicted with decisions of other courts of ap-

peals and was, in our view, clearly wrong. Instead, as the

Sixth Circuit noted in Fox v. Bowen, the Secretary has for-

mally announced his intention “to revise his regulations to

make it clear that the Social Security Administration may

reopen a final decision on its own initiative.” Slip op. 7,

citing 52 Fed.-Reg. 14270 (1987); see also id. at 40296.

When the regulations are revised, the circuit conflict re-

garding the interpretation of the current regulations will

be of no continuing importance.

Third, petitioner was not subjected to any novel or un-

fair procedure in this case, because the decision below

merely sustains the exercise of authority that has existed

since 1940 and because petitioner was specifically notified

in advance of that authority. The decision in McCuin, by

contrast, did constitute a marked departure from past

practice. The fact that the Secretary chose to forgo peti-

tioning for certiorari in McCuin—and therefore chose to

tolerate the curtailment of his reopening authority in the

First Circuit pending his revision of the governing regula-

tions — does not create any fundamentally unfair disparity

in the treatment of claimants in different circuits. That is

especially so in light of the discretionary nature of re-

tions of the reopening regulations in other circumstances, especially in

view of the Secretary’s plans to revise those regulations.

15

opening (see Califano v. Sanders, 430 U.S. at 108) and the

availability of other measures for correcting at least some

errors even in the First Circuit—e.g., by devoting more

resources to screening ALJ decisions for possible own-

motion review by the Appeals Council within 60 days, or

by terminating benefits on the basis of a mew decision

rather than reopening and revising the original decision.

Fourth, the substantive basis for the reopening in this

case likewise was neither unreasonable nor unfair to peti-

tioner. The Appeals Council reopened the ALJ’s decision

because, as the district court observed, “the ALJ erred as a

matter of law in characterizing [petitioner’s] income for

the years 1978 through 1980 as ‘wages’ ” (Pet. App. 11a).

Indeed, petitioner contended before the ALJ that he per-

formed services for GMA not as an employee, but as a

self-employed independent contractor (id. at 26a). And in

1980, petitioner “characterized his fixed salary as

guaranteed payments and included the same in a Schedule

K-1 ‘Partner’s Share of Income’ form” (id. at lla n.4).

Moreover, although petitioner now asserts (Pet. 14-15)

that the ALJ’s “findings of fact” support the notion that

he was an employee of GMA, petitioner does not address

the Appeals Council’s holding, which was affirmed by the

district court and court of appeals, that SSA is foreclosed

as a matter of law from treating petitioner as an employee

of his partnership. Because petitioner therefore has essen-

tially conceded the correctness of that legal ruling, the ef-

fect of the court of appeals’ holding on the reopening issue

in this case is merely to protect the Secretary’s ability to

prevent petitioner from receiving old-age insurance

benefits to which he is not entitled. That result presents no

occasion for this Court to grant review.

16

g. Petitioner also suggests (Pet. 10, 12) that review is

warranted because the decision below conflicts with the

Eleventh Circuit’s decision in Butterworth. However,

there, as here, the court rejected the contention that the

current regulations prohibit the Secretary from reopening

a decision on his own motion. 796 F.2d at 1384-1385. To

be sure, the Eleventh Circuit went on to hold in Butter-

worth that any reopening of an ALJ’s decision after 60

days must be accomplished by the ALJ, not the Appeals

Council. 796 F.2d at 1385-1389. In our view, however, this

latter holding was clearly erroneous (see also Cieutat, 824

F.2d at 356-357 n.13), because the Appeals Council, from

its inception in 1940, has had the authority to reopen an

ALJ’s decision. See 20 C.F.R. 403.711(b), as added, 5

Fed. Reg. 4174 (1940) (quoted at page 11, supra). Indeed,

petitioner does not actually argue in favor of the Butter-

worth rule. In any event, the question of which component

in SSA can exercise the Secretary’s reopening authority is

even less worthy of review at this time than is the question

whether the Secretary has that authority at all under ex-

isting regulations. The allocation of reopening authority

within SSA (and specifically to the Appeals Council) is a

matter to be addressed in the Secretary’s intended revision

of the reopening regulations. See 52 Fed. Reg. 40296

(1987).

2. Petitioner argues (Pet. 13-14) that even if the Ap-

peals Council is authorized to reopen an ALJ’s decision

after 60 days, the Appeals Council exceeded its authority

in this case because the reopening was based on a deter-

mination that the ALJ erred as a matter of law in con-

cluding that petitioner was an employee of GMA from

1978 to 1980. In petitioner’s view, errors of law can be cor-

rected only by direct review within 60 days under 20

C.F.R. 404.970(a)(2). However, petitioner’s reliance on

vy

17

that regulation is nothing more than a variant of his basic

(albeit erroneous) contention that the Appeals Council’s

reopening authority is governed by the limitations on its

review authority.

The relevant reopening regulation, 20 C.F.R.

404.989(a)(3), states that good cause for reopening will be

found if an error clearly appears on the face of the

evidence. Nothing in that provision suggests that reopen-

ing is limited to situations in which the ALJ committed a

clear error of fact rather than law. Past administrative

practice also refutes such a distinction, because the 1940

version of the reopening regulations expressly provided

that a hearing decision could be revised on the Appeals

Council’s own motion “when it clearly appears that there

was an error of fact or law in such decision” (20 C.F.R.

403.711(b), as added, 5 Fed. Reg. 4174 (1940)), and that

practice has been followed ever since. See OHA Hand-

book § 1-922-30. Nor would such a distinction make

sense: where the undisputed facts render the claimant in-

eligible under the Act itself, there is no reason to believe

that the Secretary nevertheless intended to bind SSA to

pay benefits out of the Trust Fund. In any event, peti-

tioner’s alternative construction of the reopening authority

does not warrant this Court’s attention, because it has not

been adopted by any court of appeals and it was specifical-

ly rejected by the First Circuit in McCuin (817 F.2d at

171).°

3. Petitioner presents virtually no argument on the

merits of the coverage issue. He does state in passing that

6 Contrary to petitioner’s contention (Pet. 12, 14), the district court

in Call v. Heckler, 647 F. Supp. 560 (D. Mont. 1986), did not hold

that errors of law can never support own-motion reopening. The court

held only that the Secretary cannot reopen a prior decision on the

ground that the ALJ abused his discretion. See 647 F. Supp. at 562.

18

the ALJ’s decision that he was an employee of GMA

rested on “findings of fact.” See Pet. 14-15. That observa-

tion is irrelevant, however, because the Appeals Council

set aside the ALJ’s decision not on the basis of any

disagreement with his factual findings, but because of the

ALJ’s erroneous /ega/ conclusion that a partner in peti-

tioner’s position may be treated as an employee of the

partnership (Pet. App. 10a). As noted above (see pages

4-5, 15, supra), both courts below sustained this ruling by

the Appeals Council, and petitioner does not address it

here. There accordingly is no occasion for this Court to

consider that issue.’

4. Finally, petitioner contends (Pet. 16-18) that the

courts below should have decided whether he is entitled to

quarters of coverage for employment prior to 1951.

’? Petitioner also does not challenge the rationale of the Appeals

Council’s decision after the case was reopened —i.e., that petitioner

was ineligible for quarters of coverage as a self-employed independent

contractor because the only income derived by GMA (and therefore

by petitioner) was rental income from real estate, which is specifically

excluded from the definition of self-employment income under 42

U.S.C. 411(a)(1). See Pet. App. 37a. Petitioner does point out (Pet.

15) that the district court did not resolve the rental-income issue and

instead affirmed the Appeals Council’s decision on the ground that

petitioner did not in any event have nef self-employment income

giving rise to covered quarters in 1979 and 1980. See Pet. App.

14a-15a. But petitioner likewise makes no effort to challenge this rul-

ing by the district court. He merely observes (Pet. 15) that this ground

for rejecting petitioner’s claim was not discussed in the Appeals Coun-

cil’s decision. But it was discussed by the ALJ, who found that

because of offsetting losses and expenses, petitioner had no net self-

employment income if he was an independent contractor from 1978 to

1980 (Pet. App. 27a). The Appeals Council did not overturn that find-

ing. As a result, the courts below did not dispose of the case on a

ground that was rejected or not considered in the administrative pro-

ceedings. This factbound issue therefore does not warrant further

review

19

However, petitioner fails to answer the finding by the

district court and court of appeals that this issue was not

properly preserved in administrative proceedings (Pet.

App. 2a-3a, 9a n.3). Moreover, as the district court

observed, it makes no difference for present purposes

whether petitioner should be credited with nine quartegs of

coverage for pre-1951 employment, because the exclusion

of the eight quarters for 1979 and 1980 renders him ineligi-

ble for old-age insurance benefits in any event (Pet. App.

9a-10a n.3). Finally, the court of appeals made clear that

its decision does not foreclose petitioner from seeking cor-

rection of his earnings records for years prior to 1951, pur-

suant to 42 U.S.C. (& Supp. III) 405(c) (Pet. App. 3a).

Especially in the absence of any ruling by the courts

below, petitioner’s claims concerning his employment

prior to 1951 do not warrant review at this time.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

JOHN F. DALY

Attorney

FEBRUARY 1988 °

vs: U.S. GOVERNMENT PRINTING OFFICE: 1988— 202-037/60271