BORMEY v. SCHWEIKER

GARWOOD, Circuit Judge:

This is an appeal from a summary judgment upholding the appellee's decision to reduce appellant's Supplemental Security Income benefits by one third pursuant to 42 U.S.C. § 1382a(a)(2)(A), because she was living in the household of her parents and receiving support and maintenance from them. The principal question is whether this statutory one-third reduction was applicable. We hold that it was not, as to a part of the time in issue, and remand the case for further proceedings.

I.

The material facts are undisputed. Appellant Neima Bormey ("Bormey") was born on January 10, 1958. She suffers from a degenerative disease of the legs and arms, which has rendered her permanently disabled, and she lives at home with her parents and two sisters. In July 1974, the district office of the Social Security Administration determined that Bormey was eligible for full Supplemental Security Income ("SSI") benefits as a disabled child. The administrative record shows that Bormey was paid full benefits because her parents told the district office that they had no income.

On November 8, 1977, when Bormey was 19, she made an application with the district office to be made the payee of her SSI benefits. On November 10, 1977, the district office, having learned that her father had worked and earned income as a painter for the past five years, notified Bormey that her SSI benefits were being suspended effective December 1977. The district office maintained that she was ineligible to receive those benefits because her father's income was deemable to her since she was under 21 and a student.

Bormey, who was represented by counsel and continued to be throughout all the subsequent administrative proceedings, requested a hearing before an administrative law judge ("ALJ"). On August 19, 1978, the ALJ ordered reinstatement of her benefits. He found that Bormey was an adult, and was not a regular student, and that, as such, her father's income was not deemable to her. No party has challenged this determination. The ALJ remanded the case to the district office for recalculation of benefits.

Under the regulations, "a child under age 21" living with one or both parents may have "deemed" to the child the income of a parent who is ineligible for SSI benefits. See 20 C.F.R. § 416.1165 (1982). Under section 416.1101 (1982) a "child" is defined as an unmarried person, not the head of a household, who either is "under age 18 or is under age 22 and a student." So far as is here relevant, these same regulatory provisions were applicable to Bormey at all pertinent times. Since Bormey was unmarried, was not the head of a household, was living with her parents and was over 18 and under 21, her status as a "child" whose father's income could be "deemed" to her depended on whether she was "a student." She attended school, but did so irregularly. The ALJ determined that her school attendance was not sufficiently regular so as to constitute her a "student"; since she was over 18 and not a "student," she was not "a child"; since she was not a "child" her parents' income could not be "deemed" to her, and denial of her benefits on the basis of such "deeming" was accordingly held to be erroneous.

On October 2, 1978, the district office, following the August 1978 remand by the ALJ, determined that because Bormey was not contributing any money toward the household expenses, she was living in the household of her parents and receiving support and maintenance from them, and that accordingly the SSI benefits payable to her commencing in December 1977 must be reduced by one third pursuant to 42 U.S.C. § 1382a(a)(2)(A) and the then implementing regulation, 20 C.F.R. § 416.1125 (now sections 416.1130-416.1145).

Bormey had been paid no SSI benefits during the period December 1977 through September 1978. In October 1978, she was paid in a lump sum ($1,208.58) benefits, reduced by one third on account of the support and maintenance she had received, for that period, and monthly payments to her were resumed at the rate of $126.27, also reflecting the one-third reduction.

Although it is undisputed that Bormey received full SSI benefits from July 1974 to November 1977, there is no direct evidence of the dollar amount of those payments as actually made to Bormey. However, it is indicated that full benefits were to be at the following monthly rates: from 7/1/74 to 6/30/75, $146.00; from 7/1/75 to 6/30/77, $157.70; from 7/1/77 to 6/30/78, $177.80; from 7/1/78, $189.40.

On January 22, 1979, Bormey requested another hearing before an ALJ. At this hearing, which was held on May 7, 1979, both Bormey and her father testified that before her benefits were terminated, she contributed $100 a month toward the household expenses; that she lived in her parents' house with her mother and father and two sisters; that during the time her benefits were terminated, she had no income and was therefore unable to make any contributions; that after her benefits were resumed in October 1978, she again contributed $100 a month to the household expenses; that monthly household expenses totaled $697.10, of which $400 was for food and the balance for mortgage payments and utilities; that her pro rata share of the total household expenses was $139 per month; and that were she to receive full benefits, she would pay her pro rata share of all the household expenses.

The ALJ held that the one-third statutory reduction in Bormey's benefits was proper, and his decision was affirmed by the Administration's Appeals Council, thus becoming a final decision of the appellee, the Secretary of Health, Education, and Welfare (now the Secretary of Health and Human Resources), who administers the SSI program.

Having exhausted her administrative remedies, Bormey filed suit against the appellee in federal district court under 42 U.S.C. § 405(g) seeking judicial review of the adverse decision. Both parties filed motions for summary judgment. The district court referred the matter to a magistrate, who conducted a hearing and recommended that appellee's motion for summary judgment be granted. The district court accepted the magistrate's recommendation and rendered summary judgment for appellee.

The district judge's April 27 order granting appellee's motion for summary judgment, and denying that of appellant, recites that notice of the filing (on April 9) of the magistrate's Findings and Conclusions was given the parties and "no objections thereto have been filed." This, however, does not prevent review of the judgment below under Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 1982) ( en banc). There is no showing that the parties had been informed that objections must be filed within ten days of filing of the magistrate's report, as required by Nettles. Id. at 408. Moreover, "[t]he Nettles bar only prevents one from challenging factual findings that have been adopted or accepted by the district court." Tijerina v. Estelle, 692 F.2d 3, 5 n. 1 (5th Cir. 1982). Here, appellant does not challenge the magistrate's, or the district court's, resolution of any disputed factual issues.

II.

Our review is ordinarily limited to determining whether the record as a whole contains substantial evidence to support the appellee's findings. Thomas v. Schweiker, 666 F.2d 999, 1001 (5th Cir. 1982). However, we must also determine whether appellee applied the proper legal standard in reducing Bormey's SSI benefits, and whether the proceedings below were conducted in conformity with the applicable statutes and regulations. See Strickland v. Harris, 615 F.2d 1103, 1108 (5th Cir. 1980); Ferran v. Fleming, 293 F.2d 568, 571 (5th Cir. 1961); Chamberlain v. Schweiker, 518 F. Supp. 1336, 1338 (C.D.Ill. 1981).

The first question raised by Bormey is whether, upon becoming an adult, she had a right to the standard (or full) SSI payment without regard to any support or maintenance she had received, or was receiving, from her parents before or at the time she became an adult. Bormey, in effect, argues that unearned income received by a recipient while he or she is a child cannot be used to reduce SSI benefits once the recipient becomes an adult, even though after becoming an adult that income is still being received. We disagree.

The statutes which govern the SSI program plainly show it was Congress's intent that SSI benefits be paid only to the extent an individual's minimum income level is not being met from other sources. See H.R. Rep. No. 92-231, 92d Cong., 2d Sess., reprinted in U.S. Code Cong. Ad. News 4989, 5135-36. See also Weiss v. Schweiker, 519 F. Supp. 763, 765 (S.D.N Y 1981). Under 42 U.S.C. § 1381a, a disabled individual's eligibility for SSI benefits is determined "on the basis of his income and resources." Under 42 U.S.C. § 1382a, income is defined as including both earned and unearned income, and unearned income includes "support and maintenance furnished in kind" to the individual. If the individual lives in the household of another and receives both maintenance and support from that person, then the amount payable to the individual is reduced by one third. 42 U.S.C. § 1382a(a)(2)(A).

42 U.S.C. § 1381a provides:

42 U.S.C. § 1382a provides, in part:

It has long been recognized that in questions of statutory interpretation, the construction of a statute by an agency charged with its administration is entitled to some deference. Dennard v. Richards Group, Inc., 681 F.2d 306, 315 (5th Cir. 1982). The appellee has interpreted these statutes to require that an individual's income be an important factor in determining his or her initial or continuing eligibility for SSI benefits and the amount thereof. See 20 C.F.R. §§ 416.202 and 416.203. Eligibility for SSI benefits and the amount payable is therefore based on the actual need of the individual whether at the time he or she makes an initial application for benefits or whether he or she already receives them. It follows that the actual needs of a recipient will be considered even when he or she becomes an adult. Thus, the income received by a child, which he or she still receives after becoming an adult, will be considered in determining eligibility for, and the amount of, SSI benefits.

20 C.F.R. § 416.202 (1982) provides:

The "benefit anomalies" described by Bormey in her brief which may occur as a result of this construction flow from the differences in the level of generosity of the applicant's or recipient's relatives or friends, and the statute was fashioned to recognize those generosity differences in determining initial and continuing eligibility for, and the amount of, SSI benefits. See Usher v. Schweiker, 666 F.2d 652, 659 (1st Cir. 1981). We hold that the unearned income being received by a recipient at the time he or she becomes an adult must be considered by the Social Security Administration in determining eligibility for, and the amount of, SSI benefits at that time.

The next question raised by Bormey is whether the unearned income, in the form of support and maintenance, received by her from her parents triggered the statutory one-third reduction in her SSI benefits.

Before October 3, 1980, the application of the statutory one-third reduction was governed by 20 C.F.R. § 416.1125, which was originally adopted on January 29, 1974. 39 Fed.Reg. 3674 (1974). This regulation was, however, amended on July 7, 1978, and subpart K of the amended regulation provided that its provisions would be effective with January 1974, unless specifically indicated to the contrary. Effective October 3, 1980, the regulation was revised and reorganized. 45 Fed.Reg. 65541 (1980). The substantive provisions, however, remain essentially the same as the 1978 version and now appear as sections 416.1130-416.1145.

The original (January 1974) version of 20 C.F.R. § 416.1125 provided:

Section 416.1125, as amended in 1978, was in effect when Bormey's case was heard by the ALJ in May 1979. The ALJ, however, applied the original (1974) version, and held that the statutory one-third reduction was applicable. This holding was based on the ALJ's finding that Bormey's contribution was less than her pro rata share of the household expenses, and on his conclusion that she was therefore living in the household of her parents and receiving support and maintenance from them. The magistrate who considered the motions for summary judgment on October 15, 1980, applied the amended (1978) version of section 416.1125, but he also determined that Bormey's benefits should be reduced by the statutory one-third reduction.

The provisions of section 416.1125(b), as amended in 1978, became effective October 1, 1976 for all new and pending claims and for all redetermined cases which do not receive lower payments solely because of the amendment. Even if revised subsection (b) did not apply, the result in Bormey's case is the same under original subsection (b) insofar as the inapplicability of the statutory one-third reduction is concerned. See section 416.1124(f) of original regulation. Under either version, subsection (d) of the amended (1978) section 416.1125, which became effective with SSI payments for December 1974, applied ( see note 12, infra).

Applying the amended regulation to the facts found by the ALJ, we hold that although there is substantial evidence to uphold his factual findings, both the ALJ and the magistrate erred in their legal conclusion that the SSI benefits payable to Bormey were subject to the statutory one-third reduction.

Under section 416.1125(b)(1) as amended in 1978, the standard payment amount for an eligible individual who (1) lives in another person's household and (2) receives both support and maintenance in kind from such person, is to be reduced by one third, in lieu of determining the actual dollar value of such support and maintenance as unearned income to the eligible individual. This one-third reduction is statutory, 42 U.S.C. § 1382a(a)(2)(A), and when applicable, is irrebuttable regardless of any payment the individual may make toward his or her support and maintenance. Section 416.1125(b)(1). See also 43 Fed. Reg. 29277, 29278-29279 (1978).

20 C.F.R. 416.1125(b), as amended in 1978, provided:

See note 5, supra.

The first question is whether Bormey lived in the household of another. An eligible individual is presumed to be living in another person's household whenever the household has at least one other member who is not the eligible individual's spouse, minor child, or a person whose income is deemable to the individual, section 416.1125(b)(2), unless the eligible individual has an ownership interest in the home, is liable to the landlord for payment of any portion of the rental charges, is living in a substitute home in the form of a noninstitutional care situation, or is paying at least a pro rata share of the average monthly total household operating expenses. Section 416.1125(b)(3).

The evidence shows that Bormey lived with her parents and two sisters; that none of their income was deemable to her; and that she failed to satisfy any of the exceptions of section 416.1125(b)(3). We therefore hold that the ALJ and the magistrate correctly determined that Bormey was living in the household of another.

The second question is whether Bormey received both support and maintenance from her parents. Under section 416.1125(a), support and maintenance in kind is defined as encompassing food, clothing, and shelter. When an eligible individual lives in another person's household he or she is presumed to be receiving in-kind support and maintenance in the form of both food and shelter from that person, and the one-third reduction applies unless the presumption is rebutted. Section 416.1125(b)(4). The applicability of the one-third reduction may be rebutted by showing, among other things, that an eligible individual does not receive both food and shelter from the person in whose household he or she lives. Section 416.1125(b)(6)(iii).

20 C.F.R. § 416.1125(a), as amended in 1978, provided:

"(a) General. Unearned income includes support and maintenance furnished in cash or in kind unless otherwise excluded under this subpart K. Support and maintenance in kind encompasses food, clothing, and shelter or any portion of any or all of such items. Unless otherwise specified herein, the value of in-kind support and maintenance refers to its current market value. For purposes of this subpart K, the term standard payment amount refers to the Federal payment rate as described in §§ 416.410-416.413."

Bormey proved that before her SSI benefits were erroneously suspended in December 1977, and after they were resumed in October 1978, she contributed $100 a month toward the payment of the household expenses. The evidence shows that as of May 1979 the pro rata monthly cost of Bormey's food was $80 and that of her shelter was $59. The evidence does not indicate whether Bormey's $100 payment was earmarked for food or for shelter. This $100 amount, however, was sufficient to cover the entire cost of one item and part of the other. The reasoning of the appellee, the ALJ, and the magistrate presumes that the $100 payment covered only part of each. We reject this presumption. Where a payment is capable of covering the entire cost of each item (whether food or shelter) considered separately, as well as part of the other, we presume that it was intended as such, in the absence of any indication to the contrary. We hold that Bormey rebutted the presumption that the statutory one-third reduction applied by showing that she did not receive, without paying therefor, both food and shelter from her parents.

When an eligible individual lives in a household of another and receives from that person only food or shelter in kind, such support or maintenance is unearned income. Section 416.1125(d). In such case, effective with payments for December 1974, the maximum value of such support or maintenance is presumed to be one third of the applicable payment standard. The individual may rebut this presumption by establishing that the current market value of such support or maintenance, less any payment he or she makes therefor, is lower than the presumed value. Section 416.1125(d).

20 C.F.R. § 416.1125(d), as amended in 1978, provided:

"(d) Valuation of support and maintenance for individuals in household situations. When an eligible individual (or eligible spouse) lives in a household (i.e., is not in an institution), the reduction in the payment standard described in paragraph (b) of this section is inapplicable, and the provisions of §§ 416.1185 (see paragraph (c)(3)) and 416.1190 do not apply, any support and maintenance received in kind but not received in lieu of cash wages (see § 404.429(c) of this chapter) is unearned income. In such cases effective with payments for December 1974, the maximum value of such support and maintenance is presumed to be that amount which, for an individual or a couple with no other income, would result in payment at two-thirds of the applicable payment standard; i.e., the value is presumed to be one-third of the payment standard, plus the exclusion applicable to unearned income. This presumption will be applied in determining the benefits payable unless it is rebutted by the individual's establishing that the current market value of such support and maintenance, less any payment he makes therefor, is lower than the presumed value. This rule will apply in the following circumstances:

"(1) When an eligible individual (or eligible individual and eligible spouse) lives in the household of another and receives from that other person only support or maintenance in kind as described in paragraph (c)(1) of this section. . . .

"(2) When an eligible individual (or eligible spouse) lives in his own household, including a commercial establishment, and receives support and maintenance in kind." (Emphasis added, except for section heading.)

Because the ALJ and the magistrate erred in determining that the statutory one-third reduction applied, no determination was made as to whether, and if so to what extent, the then current market value of Bormey's food or shelter, less any payment made therefor, was lower than the presumed value. The case must therefore be remanded to the appellee for further proceedings to determine the proper amount of benefits due Bormey since October 1978, when she recommenced making her payments to her father.

Each party shall be afforded an opportunity to present additional evidence, if desired, on the question of the then current market value of the food and shelter furnished Bormey, less any payment made for same.
We express some doubt as to the validity of the amount of presumptive reduction of section 416.1125(d). When an individual living in the household of another pays the cost neither of his or her food nor of his or her shelter, the statutory one-third reduction applies. If the individual pays either for his or her food or for his or her shelter, one might logically assume that a rebuttable one-sixth (or other fraction smaller than one third) reduction in benefits would be in order. The appellee, however, presumes a full one-third reduction even though one item of support and maintenance is being paid by the individual. Unlike the statutory one-third reduction, there appears to be no statutory basis for this regulatory presumptive one-third reduction. On remand, we invite the appellee and Bormey to consider the validity of the presumptive one-third reduction of section 416.1125(d). Our doubts are apparently not shared by the Ninth Circuit, although it may not have directly addressed the above-indicated concerns. Young v. Schweiker, 680 F.2d 680, 682 (9th Cir. 1982).

As to the period from December 1977 through September 1978, when Bormey was unable to make any payments to her parents because of the erroneous suspension of her benefits, she claims that appellee is estopped to apply the statutory one-third reduction. Bormey argues that if she had been paid her benefits during this time she would have used them to continue her $100-a-month payments to her parents for her food or shelter.

There is some surface appeal to Bormey's argument, but we must reject it. At the May 1979 hearing Bormey, through her attorney, made it quite clear that she had not paid any of the lump-sum payment she received in October 1978 to her parents, and that she considered herself under no obligation to do so. Her position was that while her benefits were suspended she did not, expressly or impliedly, agree to reimburse her parents, either absolutely or conditionally on her receipt of benefits, for any of the food or shelter they furnished her during this period. Nor, according to her, did any such obligation arise as a matter of law. Her estoppel argument is based on the premise that if she had timely received the benefit checks she would have used them to pay for her support or maintenance. But what she seeks to achieve by estoppel is to force the government to now put her in a better position than she would have been in if matters had proceeded as she says they should and would have but for the erroneous suspension of her benefits. Even if she had received full benefits ($1,611.52) throughout this ten-month suspension period, and had accordingly continued to pay $100 a month ($1,000) to her parents for support or maintenance, she would have been left with only $611.52, as opposed to the $1,208.58 she eventually received in a lump sum and asserts she is entitled to fully retain. Bormey has not suffered any ultimate financial prejudice by reason of the erroneous suspension of her benefits. Moreover, there is no assertion, nor any indication in the record, that the suspension of benefits was for any invidious reason or consideration, or was anything other than a bona fide, and quite understandable, factual error. In these circumstances, we do not believe that the considerations of "justice and fair play," United States v. Lazy F C Ranch, 481 F.2d 985, 988 (9th Cir. 1973), weigh so heavily as to authorize an estoppel against the government. See Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed.2d 685 (1981); Augusta Aviation, Inc. v. United States, 671 F.2d 445, 448-50 (11th Cir. 1982). Accordingly, we uphold the statutory one-third reduction of benefits applicable to the period December 1977 through September 1978, during which Bormey's parents, in whose house she lived, furnished her support and maintenance without any reimbursement.

At the May 1979 hearing, Bormey's attorney stated to the ALJ:

"I think for the period in which the payments were suspended, I think the full benefit will be, got to be paid because the Administration is estopped from raising the issue that she was not contributing to household expenses, because the Administration with its action was claiming that position. But we don't raise in connection with that point any specific issues that claimant is going to repay Mr. Bormey [her father]. What we're trying to say is, from now on, if she gets full benefits, if she gets full benefit, she will contribute, she will contribute to the household expenses for instance starting from this point right now, not to the past. I think in the past we cannot go back and see was any obligation between the father and the claimant to pay or not to pay. They supported, at that time, without any obligation and nobody is asking for that money, I mean we're not asking for that money for claimant to repay Mr. Bormey. I think she's entitled to that during the period in which the payment[s] were suspended, she's entitled to the full benefits."

This position was never modified or retracted.

Indeed, to have been entitled to full benefits, without any reduction for the value of any unreimbursed food or shelter, she would have had to pay more than $100 a month, as the foregoing portions of this opinion reflect.

Nor have her parents been shown to have suffered legal prejudice as a result of such suspension. There was no claim or showing that they were legally obligated to support Bormey. Even if they were, the increased benefits Bormey seeks, she seeks for herself, not for them. See note 14, supra. Moreover, the administrative record reflects that Bormey successfully sought to have herself determined not a "child" in order to avoid having her father's income "deemed" to her, thus rendering her ineligible for any benefits. By its erroneous suspension of benefits, the government may have "imposed" upon the generosity of Bormey's parents, but a certain amount of such "imposition" is in any event inherent in the statutory scheme of reducing benefits for support and maintenance donated by others. The remedy for this instance of erroneous "imposition" on her parents is surely not to grant Bormey a greater net financial recovery than she could have possibly obtained had the error she complains of not occurred.

We reverse the judgment of the district court and remand the case to that court with directions to further remand the case to appellee for a redetermination of Bormey's benefits for October 1978 and subsequent months in accordance with this opinion.

REVERSED AND REMANDED.