SSR 71-45c: SECTION 224(a) (42 U.S.C.A. 424(a)). -- DISABILITY INSURANCE BENEFITS -- REDUCTION FOR RECEIPT OF WORKMEN'S COMPENSATION -- "REDEMPTION SETTLEMENT" UNDER MICHIGAN STATUTE

20 CFR 404.408

SSR 71-45c

Lofty v. Cohen , 325 F.Supp. 285 (E.D. Mich. 1970); Affirmed ,

U.S. Ct. of Appeals (6th Cir., 3/4/71) (CCH U.I.R., Vol. 1A, Fed. Par.

16,186)

THORNTON, District Judge:

Plaintiff brings this suit to review a final decision of the Secretary of

Health, Education, and Welfare under the provisions of 42 U.S.C.A. §

405(g). Briefly stated, it is plaintiff's position that the decision is

erroneous in four respects. First , plaintiff contends that his

disability dates from a period prior to June 1965 (the effective date of

certain reduction provisions of the Social Security Act, as amended). Second , plaintiff contends that the lump sum settlement entered

into in lieu of periodic payments to which he became entitled under the

provisions of the Michigan Workmen's Compensation Act was not such a

"commutation of, or substitute for periodic payments" (42 U.S.C.A. §

424(b)) as to be subject to the reduction provisions of the amended Act. Third , plaintiff contends that the reduction or crediting

provisions of the Act for workmen's compensation benefits are

unconstitutional. Fourth , plaintiff contends that if such

reductions are to be made the formula applicable should be different from

the one here employed.

The factual background of this case is succinctly set forth in the

Hearing Examiner's Decision. We quote verbatim the paragraph from that

decision setting forth such background:

ions of the Act for workmen's compensation benefits are

unconstitutional. Fourth , plaintiff contends that if such

reductions are to be made the formula applicable should be different from

the one here employed.

The factual background of this case is succinctly set forth in the

Hearing Examiner's Decision. We quote verbatim the paragraph from that

decision setting forth such background:

The application for disability was filed March 29, 1966, alleging

inability to engage in "substantial gainful activity" from January 19,

1966. This was allowed. In computing the benefits to which plaintiff

thereby became entitled, the reduction provisions of the 1965 Amendments

to the Social Security Act were applied because of benefits plaintiff had

received from workmen's compensation. Plaintiff then sought and received a

hearing before the Hearing Examiner contesting the application of the 1965

Amendments to his Social Security benefits. At that hearing plaintiff

amended his application to allege that the onset date of his disability

was December 1963, rather than January 19, 1966. This brings us to a

consideration of plaintiff's First contention.

In order for plaintiff to successfully establish the onset of disability

date as December 1963, it must be established that from that date on he

was unable to engage in "substantial gainful activity." 42 U.S.C.A. §

416(i)(1)(A). The fine lines that have been drawn by those courts which

have been confronted with the determination of ability to engage in

"substantial gainful activity" in the plethora of reported disability

cases are hardly relevant to the circumstances present here. Plaintiff

here denies the existence of that which is. No amount of rationalization

that we may employ can render negative that which is positive. Plaintiff

testified that from January 1964 to January 1966 he had worked forty to

fifty hours a week

engage in

"substantial gainful activity" in the plethora of reported disability

cases are hardly relevant to the circumstances present here. Plaintiff

here denies the existence of that which is. No amount of rationalization

that we may employ can render negative that which is positive. Plaintiff

testified that from January 1964 to January 1966 he had worked forty to

fifty hours a week. The fact that he worked on small parts since he could

not lift heavier ones does not affect the "substantiality" of his activity

in light of a forty- to fifty-hour work week. His earnings record from

1962 through 1965 reflects not only gainful activity but upwardly gainful

activity. For the four years 1962 through 1965 his earnings, respectively,

were: $4,280.93, $5,965.77, $6,926.71 and $8,117.27. His contention that

he was unable to engage in "substantial gainful activity" in 1964 and 1965

is so patently ridiculous as to be meritless on its face. Thus, even

though an enumeration of the medical findings might initially lead to the

conclusion that impairments have been established of such proportions that

engagement in work activity is highly unlikely, if in fact a claimant has

engaged in employment which can reasonably be classified as "substantial

gainful activity," he is thereby precluded by the definition of

"disability" from obtaining benefits under the Act. Marshall v.

Gardner , 298 F.Supp. 542, 545 (S.D. W.Va. 1968), affirmed 408

F.2d 883 (C.A. 4, 1969). Plaintiff is, therefore, not a pre-1965 amended

Social Security Act claimant. The decision of the Secretary in this

respect is supported by substantial evidence.

ubstantial

gainful activity," he is thereby precluded by the definition of

"disability" from obtaining benefits under the Act. Marshall v.

Gardner , 298 F.Supp. 542, 545 (S.D. W.Va. 1968), affirmed 408

F.2d 883 (C.A. 4, 1969). Plaintiff is, therefore, not a pre-1965 amended

Social Security Act claimant. The decision of the Secretary in this

respect is supported by substantial evidence.

Plaintiff's Second contention is that the settlement of his

workmen's compensation rights was a "redemption settlement" not a

commutation or a substitute for periodic payments within the meaning of 42

U.S.C.A. § 424(b). A copy of the State of Michigan Workmen's Compensation

settlement order of May 19, 1966 is included in the Certification of

defendant, attached to the Answer herein -- Exhibit No. 11, page 118 of

the Certification. It is denominated Redemption Order, and it is to the

effect that the employer's entire liability is redeemed by the agreement

"by a single payment in lieu of weekly payments and all medical benefits."

The net sum payable to the plaintiff was $10,722.00. The Michigan statute

pursuant to which the lump-sum award was made clearly contemplates that

such a lump-sum payment is a substitute for plaintiff's claim for future

periodic payments. See Walters v. Flemming , 185 F.Supp. 288 (D.

Mass. 1960); see also Wohmeier v. W. E. Wood Co. , 377 Mich. 176

(1966). The defendant's determination in this respect is supported both by

law and reason and is not erroneous.

We now reach plaintiff's Third contention which he states, in his

February 2, 1970 brief, as follows: "We maintain that Section

224 [1] which imposes a formula

for reducing social security disability benefits when the claimant is

receiving workmen's compensation is demonstrably repugnant to the due

process clause of the Fifth Amendment." The statute reads as follows:

Both plaintiff and defendant cite Flemming v. Nestor , 363 U.S. 603

states, in his

February 2, 1970 brief, as follows: "We maintain that Section

224 [1] which imposes a formula

for reducing social security disability benefits when the claimant is

receiving workmen's compensation is demonstrably repugnant to the due

process clause of the Fifth Amendment." The statute reads as follows:

Both plaintiff and defendant cite Flemming v. Nestor , 363 U.S. 603

(1960) as supportive of their respective contentions. Plaintiff quotes

from Nestor the test of permissible classification -- "[W]e must

recognize that the Due Process Clause can be thought to interpose a bar

only if the statute manifests a patently arbitrary classification, utterly

lacking in rational justification." Nestor, supra , at page 611. As

to the facts in Nestor and the holding therein, a summary was made

by Circuit Judge Gerald McLaughlin in Price v. Flemming , 280 F.2d

956, 958 (C.A. 3, 1960), which we here set forth.

And further:

The court also held that:

It is the fact that Nestor, as stressed by both appellant and the amicus

curiae, was not eligible for benefits under the Act until after the

statute covering deportation because of past Communist membership became

effective. Nestor, states appellant, therefore had no accrued property

right. But the Supreme Court did not decide Nestor on that narrow ground.

It expressly rejects the concept of accrued property rights as being a

part of the Social Security System. It describes in terms certain the

identical benefit with which we are dealing as "a noncontractual benefit

under a social welfare program."

ffective. Nestor, states appellant, therefore had no accrued property

right. But the Supreme Court did not decide Nestor on that narrow ground.

It expressly rejects the concept of accrued property rights as being a

part of the Social Security System. It describes in terms certain the

identical benefit with which we are dealing as "a noncontractual benefit

under a social welfare program."

It is plaintiff's contention that the benefit reduction provision of

Section 224 is so patently arbitrary and so utterly lacking in rational

justification as to constitute discrimination that is unconstitutional.

Defendant refers to the Senate Finance Committee report prior to the

enactment of Section 224 stating that a purpose of the legislation is to

prevent the payment of excessive combined benefits. Another objective of

the legislation is to avoid duplication of public benefits. Plaintiff

argues that there is, however, no provision for reduction of social

security benefits for a claimant who receives private disability benefits

or who receives a tort damage award. Plaintiff is saying that Section 224,

in effect, has singled out claimants receiving workmen's compensation

benefits as a target for reduced social security benefits, but not

claimants who may be receiving benefits of entirely different types.

Defendant argues that the social security program is to "provide a

substitute, at least in part, of an individual's loss of earnings when he

either retires or becomes disabled." Helvering v. Davis , 301 U.S.

619 (1937); Nierotko v. Social Security Board , 327 U.S. 358 (1946).

It is, therefore, reasonable to preclude a claimant from receiving

amounts, as a result of retirement or disability, far in excess of his

earnings received while working

rovide a

substitute, at least in part, of an individual's loss of earnings when he

either retires or becomes disabled." Helvering v. Davis , 301 U.S.

619 (1937); Nierotko v. Social Security Board , 327 U.S. 358 (1946).

It is, therefore, reasonable to preclude a claimant from receiving

amounts, as a result of retirement or disability, far in excess of his

earnings received while working. Viewed in this light section 224 is

analogous to section 203(b) of the Act providing for the imposition of

deductions upon an individual's receipt of social security benefits due to

excess earnings." * * * Defendant cites and quotes from Judge McLaughlin's

opinion, quoted above herein in part, for the proposition that Congress

has the power to impose deductions against retirement benefits in light of

earnings in excess of amounts permitted by statute. It seems to us that

the classification described in Section 224 includes all individuals

receiving benefits under any federal or state workmen's compensation law,

and to that extent it is not patently arbitrary in light of the purpose of

social security benefits. The justification for such treatment is to

prevent unequal benefits for those persons who would otherwise receive

duplicate benefits. In this respect it seems to us to be rational. The

limitation was enacted to prevent the situation which had existed where a

social security beneficiary received full social security benefits plus

state or federal workmen's compensation benefits, compared to one who was

not receiving state or federal workmen's compensation benefits. The

reduction provision attempts to equalize that which was unequal. Plaintiff

contends that it does just the opposite.

s enacted to prevent the situation which had existed where a

social security beneficiary received full social security benefits plus

state or federal workmen's compensation benefits, compared to one who was

not receiving state or federal workmen's compensation benefits. The

reduction provision attempts to equalize that which was unequal. Plaintiff

contends that it does just the opposite.

The Court of Appeals for the Second Circuit, in an opinion written by

Circuit Judge Robert P. Anderson, dealt with the theory advanced by a

social security beneficiary that a certain discrimination in the Social

Security Act was violative of due process and equal protection. In Gruenwald v. Gardner , 390 F.2d 591 (C.A. 2, 1968) plaintiff

Gruenwald took issue with the "different and discriminatory criteria"

established by Congress for the "computation of benefits for men and women

at age 62 as a result of the application of 42 U.S.C. § 415(b)(3)." The

Court said that plaintiff disputes "the unequal treatment of two

individuals solely because of sex," and said that plaintiff argued that a

"classification must rest upon a difference which is real." Judge Anderson

did not fail to point out that the difference is real. He also said, at

page 592:

We hold that the benefit reduction provision of Section 224 is not

arbitrary classification, that it has rational justification and that it

is not violative of due process.

With respect to plaintiff's Fourth contention, we set it forth

verbatim as expressed in his first brief. It is as follows:

With respect to (a) above, the Hearing Examiner's Decision contains the

answer which is dispositive of he point. In his CONCLUSIONS, paragraph

(2), the Hearing Examiner sets forth Section 224(a), subsections (1)

through (5). We have previously herein set forth subsections (1) through

aintiff's Fourth contention, we set it forth

verbatim as expressed in his first brief. It is as follows:

With respect to (a) above, the Hearing Examiner's Decision contains the

answer which is dispositive of he point. In his CONCLUSIONS, paragraph

(2), the Hearing Examiner sets forth Section 224(a), subsections (1)

through (5). We have previously herein set forth subsections (1) through

(4).

The Hearing Examiner concludes as

follows: [2]

We can say it no better.

Again, with respect to (4)(b) of plaintiff's Fourth contention,

the Hearing Examiner's determination is entirely supportable and is

confirmed by us. He states that:

The procedure employed was in accordance with Section 224(b) which

reads:

Lastly is plaintiff's contention that defendant should somehow allocate

41.5 per cent of the workmen's compensation settlement to medical expense

and prorate the 58.5 per cent against the Social Security payment. There

is just no basis, legal or practical, for such a procedure. It would be

contrary to Section 224(b). In addition, there was no breakdown in the

Redemption Order indicating that any particular percentage thereof was for

medical expenses. The lump sum was a substitute for periodic payments and

subject to the applicable statutory provisions.

For the reasons hereinabove set forth, defendant's motion for summary

judgment will be granted. An appropriate order may be presented.

[1] 42 U.S.C.A. § 424(a), as

amended in 1965.

[2] "(5) 80 percentum of his

'average current earnings'," or * * *

For purposes of clause (5), an individual's average current earnings

means the larger of (A) the average monthly wage used for purposes of

computing his benefits under section 423 of this title, or (B)

one-sixtieth of the total of his wages and self-employment income * * *

for the five consecutive calendar years after 1950 for which such wages

and self-employment income were highest. * * *"