MICHELLE VALENT, Pеtitioner, v. COMMISSIONER OF SOCIAL SECURITY, Respondent.
No. 17-2109
United States Court of Appeals for the Sixth Circuit
Decided and Filed: March 20, 2019
19a0048p.06
Before: GILMAN, KETHLEDGE, and BUSH, Circuit Judges.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b). Petition for Review of a Civil Money Penalty of the Social Security Administration. C-13-984—Social Security Administration; A-15-104—Departmental Appeals Board. Argued: October 3, 2018.
COUNSEL
ARGUED: Christopher P. Desmond, JOHNSON LAW, PLC, Detroit, Michigan, for Petitioner. Patricia Gaedeke, UNITED STATES ATTORNEY‘S OFFICE, Detroit, Michigan, for Respondent. ON BRIEF: Paul F. Doherty, JOHNSON LAW, PLC, Detroit, Michigan, for Petitioner. Laura Anne Sagolla, Patricia Gaedeke, UNITED STATES ATTORNEY‘S OFFICE, Detroit, Michigan, for Respondent.
GILMAN, J., delivered the opinion of the court in which BUSH, J., joined. KETHLEDGE, J. (pp. 13–19), delivered a separate dissenting opinion.
RONALD LEE GILMAN, Circuit Judge. The Commissioner of Social Security imposed an assessment of $51,410 and a civil monetary penalty of $75,000 on petitioner Michelle Valent after the Social Security Administration found that Valent failed to disclose that she had engaged in paid work activity while receiving Social Security disability benefits. Valent argues that
She therefore contends that her failure to disclose her paid work activity was not a material omission, such an omission being a prerequisite for the Administration to impose an assessment and a penalty under
I. BACKGROUND
A. Statutory framework
The Social Security Act provides for the payment оf benefits to individuals with a “disability,” which, as relevant here, is defined as a “medically determinable physical or mental impairment” that prevents a person from doing “any substantial gainful activity” for at least 12 months.
Once an individual qualifies for benefits, the Commissioner must periodically verify that the beneficiary continues to be eligible for the program, a process called a “continuing disability review.”
B. Factual background
Valent applied for Social Security disability benefits in October 2003. The Administration found that she was disabled since March 2003, based primarily on various psychological problems, including depression. The Commissioner conducted a continuing-disability review in 2010 and found that Valent remained disabled.
But in January 2012, the Administration‘s Office of Inspector General (IG) received a tip that Valent had been working since 2009 at the War Erа Veterans Alliance, an organization founded and owned by her brother and sister-in-law. A month later, the IG began an investigation into whether Valent had indeed worked at the Alliance. Valent signed forms during that investigation affirming that she had not earned income since 2003 or worked since 2004.
The IG, to the contrary, concluded that Valent had been working at the Alliance since 2009 and that her failure to report her paid work activity was an omission of a “material fact.” See
Valent requested a hearing before an administrative law judge (ALJ), who heard testimony from the tipster and from Valent‘s brother, among others. Her brother testified that he had assigned Valent simple tasks and paid her about $400 per week, essentially as an act of charity. In a June 2014 decision, the ALJ agreed with the IG‘s finding that Valent had indeed workеd for and been paid by the Alliance, her brother‘s motivation notwithstanding. But the ALJ disagreed with the IG that Valent‘s unreported work activity was an omission of a “material fact” because, according to the ALJ,
The Departmental Appeals Board (the Board) reversed the ALJ‘s ruling in November 2014, concluding that the ALJ‘s interpretation of
On remand, the ALJ reiterated his opinion that
Once more, the Board reversed the ALJ‘s decision. It noted that constructive knowledge that an omission of fact is material is sufficient under
II. ANALYSIS
A. Standard of review
We review the Administration‘s interpretation of law under the framework established in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). That framework requires us to engage in a two-step inquiry. “First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842–43. We engage in step two “if the statute is silent or ambiguous with respect to the specific issue.” Id. at 843. Then, “the question for the court is whether
For agency determinations that are not interpreting a statute, we will set them aside only if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Steeltech, Ltd. v. EPA, 273 F.3d 652, 655 (6th Cir. 2001) (quoting
B. Section 421(m) of the Social Security Act is ambiguous, and the Administration‘s interpretation of that section is based on a permissible construction of the statute.
The key interpretive question before us is whether the failure of an individual who receives Social Security disability benefits to report work activity that generates earnings constitutes the omission of a “material fact” under
Under step one of the Chevron framework, Congress has not “directly spoken to the precise question at issue.” See Chevron, 467 U.S. at 842. Specifically, the Social Security Act is ambiguous with respect to the question at issue because
The Second Circuit in Cappetta v. Commissioner of Social Security Administration, 904 F.3d 158 (2d Cir. 2018), addressed this very question and held that “although § 421(m)(1) makes ‘work activity’ irrelevant as both a reason to conduct a continuing disability review, and as evidence in such a review, the statute just as clearly permits the [Administration] to consider substantial gainful activity to terminate benefits.” Id. at 168. In Cappetta, the court resolved the issue at step one of the Chevron framework, holding that “the Commissioner may properly consider a failure to report work activity that generates profit or pay ‘material’ for purposes of § 1320a-8, and that the plain text of the statute authorizes the Commissioner to do so.” Id. (The term “profit or pay” comes from the Administration‘s definition of “substantial gainful activity.” See
Although we disagree with the Second Circuit‘s holding that the statute unambiguously
Having determined that the statutory scheme is ambiguous, we now move on to the second step of the Chevron framework: “whether the agency‘s answer is based on a permissible construction of the statute.” See Chevron, 467 U.S. at 843. The Board concluded that the Administration can consider a beneficiary‘s “work activity for purposes of determining whether she had earnings from that work activity at the substantial gainful activity level, making information about her work material for purposes of [42 U.S.C] section [1320a-8](a)(1).” In support of this position, the Commissioner argues that the Administration can consider work activity for the “vocational” element of disability, a term that she defines as synonymous with the recipient “engaging in substantial gainful activity.” The Commissioner in essence acknowledges that the Administration cannot take work activity into account to conclude that a beneficiary like Valent is no longer suffering from a medical disability. But, the Commissioner argues, the Administration can take work activity into account in determining whether a beneficiary is engaging in substantial gainful activity. According to the Administration, a failure to report work activity that generates profit or pay is a material omission under
We conclude that the Administration‘s interpretation is a permissible construction of the statute. Valent‘s position is that the Administration can consider “substantial gainful activity” but not “work” or “work activity.” As the Commissioner argues, however, this construction of the statutory scheme “makes no sense” and “would be impossible to implement.” The Administration would be unable to examine a beneficiary‘s substantial gainful activity without considering the beneficiary‘s work activity that generates profit or pay.
Nor does the Administration‘s interpretation read out or ignore
The Administration‘s interpretation of the statutory scheme is further supported by the legislative history of
As the Second Circuit held in Cappetta, “[t]hose observations support the Commissioner‘s reading of the statute, because they demonstrate Congress‘s clear intent to continue making substantial gainful activity—which the SSA assesses by looking primarily at earnings derived from work—relevant and applicable to SSDI beneficiaries.” Cappetta, 904 F.3d at 169 (emphasis in original). In sum, we defer to the Administration‘s permissible construction of
C. The Administration‘s imposition of an assessment and a penalty in this case is consistent with its permissible construction of the Social Security Act.
This leaves the question of how to apply the above principles to the present case. Both the IG and the Board found that Valent made a material omission under
But the dissent overlooks the Administration‘s conclusion that work activity is a necessary component of substantial gainful activity, which is a proper ground for terminating benefits under
The dissent also contends that “the Commissioner imposed the sanction based solely on Valent‘s failure to report ‘work activity’ period—without regard to whether she received any earnings from that activity.” Dissenting Op. 15 (emphasis in original). We respectfully disagree. In the IG‘s June 3, 2013 letter to Valent, the IG states that Valent “failed to report to [the Administration] that [she] worked at the War Era Veterans Alliance” and that her brother, the coowner of the Alliance along with Valent‘s sister-in-law, “paid [her] $400 per week.” Valent was thus being paid for her work, and the Administration took this fact into account when it imposed an assessment and a penalty. Whether the Administration can impose an assessment and a penalty on a beneficiary who fails to disclose unpaid work activity is not a question before us because Valent engaged in and failed to disclose her paid work activity with the Alliance.
D. Valent had constructive notice that her failure to report her work activity that generated profit or pay was a material omission that misled the Administration.
As we concluded earlier (see Part II.B. above), we defer to the Administration‘s permissible determination that a failure to report work activity that generates profit or pay is a material omission under
We agree with the Board that the statutory scheme and the Administration‘s regulations put Valent on constructive notice that her failure to report was material. As the ALJ held on remand, “[t]he Administrative Procedure Act requires publication of legislative rules adopted by federal agencies and, based on that publication[,] the public has at least constructive, if not actual knowledge of the requirements of the regulations.” Several regulations put Valent on notice of her need to report work activity that generated profit or pay, and that a fаilure to do so would mislead the Administration.
“Substantial gainful activity” is defined in
If you are currently entitled to disability insurance benefits as a disabled worker . . . and at the time we are making a determination on your case you have received such benefits for at least 24 months, we will not consider the activities you perform in the work you are doing or have done during your current period of entitlement based on disability if they support a finding that your disability has ended.
The regulation is consistent with the position advanced by the Administration in this case. In particular, the regulation states that the Administration “will not consider the activities you perform in the work you are doing.” Id. This means that the Administration cannot use the activities that a beneficiary performs during work to demonstrate that the beneficiary is no longer medically disabled. But it can use that work activity, if that activity generates profit or pay, as evidence that the beneficiary engaged in substantial gainful activity.
E. The issues raised in Valent‘s supplemental brief are not reviewable.
This brings us to one final matter to be decided, which is based on our request that the parties file supplemental briefs to address the Second Circuit‘s decision in Cappetta. In the course of doing so, Valent raised three new issues in her supplemental brief: (1) whether the Board can impose an assessment and penalty in the first instance, (2) whether the assessment and penalty are supported by substantial evidence, and (3) whether the Administration considered the fact that it suffered no actual loss. But these new arguments are not properly before us because they were not raised in Valent‘s opening brief. See Island Creek Coal Co. v. Wilkerson, 910 F.3d 254, 256 (6th Cir. 2018) (“Appellants must raise any challenge to a district court or administrative decision in their opening brief.“). In addition, Valent did not challenge the amount of the assessment and penalty before the Board, and our jurisdiction is limited to issues raised administratively. See
III. CONCLUSION
For all of the reasons set forth above, we DENY Valent‘s petition for review and AFFIRM the judgment of the Board.
MICHELLE VALENT, Petitioner, v. COMMISSIONER OF SOCIAL SECURITY, Respondent.
No. 17-2109
United States Court of Appeals for the Sixth Circuit
Decided and Filed: March 20, 2019
DISSENT
KETHLEDGE, Circuit Judge, dissenting. In every case where an Article III court defers to the Executive‘s interpretation of a statute under Chevron, our constitutional separation of powers is surely disordered. That disorder, the Supreme Court has said, is constitutionally permissible. But it is disorder nonetheless. For whenever a federal court declares a statute ambiguous and then hands over to an executive agency the power to say what the statute means, the Executive exercises a power that the Constitution has assigned to a different branch.
One can conceive of this transfer in two ways. As Chevron itself conceives of it, the executive branch resolves the ambiguity by
Under Chevron itself, courts should ensure that this disorder happens as rarely as it lawfully can. Chevron directs courts to exhaust all the “traditional tools of statutory construction“—and there are many of them—before surrendering to some putative ambiguity and thereby allowing the Executive to exercise power belonging to another branch. See 467 U.S. at 843 n.9. For just as the separation of powers “safeguard[s] individual liberty,” N.L.R.B. v. Noel Canning, 573 U.S. 513, 525 (2014), so too the consolidation of power in the Executive plainly threatens it. In short, an Article III court should not defer to an executive agency‘s pronouncement of “what the law is” unless the court has exhaustively demonstrated—and not just recited—that every judicial tool has failed.
But that is hardly what happens in reality. Instead, the federal courts have become habituated to defer to the interpretive views of executive agencies, not as a matter of last resort but first. In too many cases, courts do so almost reflexively, as if doing so were somehow a virtue, or an act of judicial restraint—as if our duty were to facilitate violations of the separation of powers rather than prevent them.
In this case, respectfully, the tools of statutory construction are hardly employed. Rather than analyze the interpretive issue, the majority merely frames it. And the agency‘s interpretation—now the law of our circuit—construes the words of the statute in a manner that no ordinary speaker of the English language would recognize. (Agencies are experts at policy, but not necessarily at statutory interpretation.) Meanwhile, the majority overlooks more case-specific grounds on which Valent is entitled to relief.
I.
The question presented by this case is whether the Social Security Act authorized the Commissioner to sanction Valent for her failure to report her “work activity.” The Act allows the Commissioner to impose certain penalties and assessments for each instance in which a person “omits from a statement or representation . . . or otherwise withholds disclosure of, a fact which the person knows or should knоw is material to the determination of any initial or continuing right” to disability insurance benefits.
The Commissioner imposed the assessment and penalty (hereinafter, “the sanction“) against Valent based solely on her failure to disclose her “work activity” at the Alliance. R. 18 at 835; see also R. 18 at 119. Valent argues that her work activity could not be “material” because the Commissioner could not use it as evidence against her. Section § 421(m)(1)(B) provides in relevant part:
(m) Work activity as basis for review
(1) In any case where an individual entitled to disability insurance benefits . . . has received such benefits for at least 24 months—
. . .
(B) no work activity engaged in by the individual may be used as evidence that the individual is no longer disabled[.]
As an initial matter, the majority repeatedly misstates the basis on which the Commissioner imposed the sanction at issue here. The Commissioner did not, as the majority recites throughout its opinion, impose the sanction based on Valent‘s failure to report “work activity that generates earnings” or “work activity that generates profit or pay[.]” Maj. Op. at 6, 8 (emphasis added). That characterization distorts the question presented by blending a fact that the agency may use as evidence against a beneficiary (i.e., her earnings) with a fact the agency may not (i.e., her work activity). Instead, the Commissioner imposed the sanction based solеly on Valent‘s failure to report “work activity” period—without regard to whether she received any earnings from that activity. For example, the ALJ on remand noted: “It is important to recognize that the [Inspector General] did not charge [Valent] with failure to report earnings or failure to report substantial gainful activity, both of which are material facts. The [IG] cited failure to report work activity as the basis for the [sanction.]” R. 18 at 124 (emphasis added). The Board likewise wrote that the Inspector General had proposed the sanction for Valent‘s “failure to disclose that she had worked while receiving [benefits.]” R. 18 at 10. The Commissioner‘s brief to this court likewise recited that Valent had “withheld information that she was engaged in work activity while receiving disаbility benefits.” Comm‘r Br. at 21. True, as the majority points out, the IG‘s letter to Valent recited that she had received a stipend from her brother in exchange for her work activity. But the fact remains that the Commissioner‘s stated basis for imposing the sanction was solely her work activity. The Commissioner‘s counsel expressly conceded the point at oral argument:
COURT: As I understand the record here, the Commissioner sought this penalty and repayment of benefits solely on the ground of her failure to disclose work activity, not substantial gainful or earnings. GOVERNMENT: That‘s correct.
COURT: Why in the world did the Commissioner do that?
GOVERNMENT: I don‘t know.
Oral Arg. at 28:02.
Working from this mistaken understanding of the basis for the Commissioner‘s action, the majority then says that the statute is ambiguous because §§ 421(m)(1)(B) and (2)(B) “appear to conflict with one another.” Maj. Op. at 6. That two provisions apрear to conflict, however, does not mean they are ambiguous. Instead that means we must use all the tools of statutory construction, if at all possible, to interpret the statute as “an harmonious whole.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S 120, 133 (2000) (internal quotation marks omitted). That does not happen here: the majority instead goes on to say that it disagrees with the Second Circuit‘s reading of this statute, and that “another circuit‘s differing interpretation of the very statute at issue is evidence of ambiguity in the statutory scheme.” Maj. Op. at 6. In Chevron cases especially, that assertion cannot be right: that two circuits disagree as to the interpretation of a statute does not mean the Executive gets to interpret it. Sometimes one of the circuit courts is simply wrong. That is why we havе a Supreme Court; and that Court, not the Executive, is the arbiter of circuit splits.
More to the point, on the basis of a conclusory statement about the two provisions at issue, and the mere fact of another court‘s conflicting decision, the majority moves past Chevron‘s “step one” and allows the Executive to assume the judicial role. A court more vigilant about the constitutional separation of powers might instead observe that the verbs in the operative provisions here are different: section 421(m)(1)(B) says that a beneficiary‘s work activity may not be “used as evidence that [she] is no longer disabled,”
II.
Valent is also entitled to relief for a simpler reason: the agency has failed to show that she knew or had reason to know that her work activity was material. The majority finds this element of the sanction met for the same reason the Board did in its second decision: that (in their view) an agency regulation required her to report her work activity. See Maj. Op. at 10 (citing
Under the Administrative Procedure Act, we set aside agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
Hеre, neither the agency in its brief in this appeal, nor the Board in its second decision, has offered any explanation as to why the Board‘s position in its first decision was wrong. And yet—in conflict with that position—the Board has proceeded to impose a sanction exceeding $100,000. On this record, therefore, the agency‘s determination as to this element was arbitrary and capricious.
Finally, a more pertinent regulation—unmentioned by the Commissioner in her brief—seriously undermines the agency‘s position here. Specifically, in response to the enactment of § 421(m), the Commissioner promulgated a regulation, entitled “How we will determine whether your disability
If you are currently entitled to disability insurance benefits as a disabled worker . . . and at the time we are making a determination on your case you have received such benefits for at least 24 months, we will not consider the activities you perform in the work you are doing or have done during your current period of entitlement based on disability if they support a finding that your disability has ended.
I respectfully dissent.