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March 14, 1961

Abraham A. RIBICOFF, Secretary of Health, Education and Welfare

The opinion of the court was delivered by: LORD

This is an action under § 205(g) of the Social Security Act of August 14, 1935; 49 Stat. 624, 42 U.S.C.A. § 405(g), as amended (hereinafter referred to as the Act), which provides for judicial review of the final decision of the Secretary of Health, Education and Welfare (hereinafter referred to as the Secretary).

Both parties have filed motions for summary judgment. The parties admit that there is no substantial disagreement as to any matters of fact, and that the case is a proper one for summary judgment here.

 History of the Case

 The plaintiff was born on September 15, 1886. On November 24, 1936, while working as a law clerk in the law office of his brother, the plaintiff applied for a Social Security Account Number. He continued to work for his brother in employment covered by the Act until about September, 1951, when he commenced practicing law as a self-employed attorney. On August 29, 1951, the plaintiff applied for Old-Age Insurance Benefits under the Act, and was awarded $ 68.50 per month, effective September 19, 1951. On August 26, 1954, the plaintiff's wife applied for a wife's insurance benefits under the provisions of the Act, as amended, and was awarded a monthly benefit in the amount of $ 44.30 effective September, 1954. The plaintiff and his wife received monthly benefits under the Act and its amendments until and including December, 1956. The plaintiff had been, for a number of years, a silent partner in Infanta Knitting Mills. He continued as such in 1955 and 1956, but also continued -- as he had in the past -- to exercise no voice in the conduct of the partnership business and to take no part in its operations. However, he received a share of the net profits and realized at least $ 37,000 therefrom in 1955. Furthermore, in 1955 plaintiff's net earnings from his law practice amounted to $ 1,030.50 and in 1956 his net earnings from said practice amounted to $ 4,604.60. On March 1, 1957, the plaintiff was notified by the Bureau of Old Age and Survivors Insurance that deductions were being imposed against the benefits paid to him and his wife in 1955 and 1956 (except for those paid for the month of August, 1956) in the full amount of the benefits so paid. The reason given was that his earnings during those years had exceeded the amount which under the Act would permit any payment to be made to him or to his wife for those years. Accordingly, the plaintiff and his wife were instructed to refund the respective amounts of benefits erroneously paid to them. The plaintiff protested this notice and requested that the Bureau reconsider its action in imposing the said deductions. The Bureau affirmed its determination and on July 18, 1957, the plaintiff requested a hearing before a Referee.

 That hearing was granted, and was held on February 20, 1958 -- plaintiff appearing with counsel. On March 12, 1958, the Referee rendered his decision in which he found that the plaintiff and his wife were liable for a refund of the payments made to him and his wife during the year 1956 with the exception of the payment made to them in August, 1956, and that no deductions should be imposed against the benefits paid to him and his wife in 1955.

 On March 26, 1958, the plaintiff requested of the Appeals Council that it review the Referee's decision insofar as it ordered a refund, and also with regard to the Referee's interpretation of the effect of the 'deductions' provision of the 1954 and 1955 amendments to the Act, as applied to the plaintiff's benefits. The Appeals Council had already decided on its own motion to review the decision of the Referee, and the plaintiff and his attorney appeared before the Appeals Council on May 22, 1958, and argued:

 1. That the Act, correctly interpreted, provides that only the income from a business in which the beneficiary actively participates by performing 'substantial services' is includable as earnings for deduction purposes.

 3. That if the Act, as amended, is held to apply to the plaintiff, it would deprive him of property without due process of law.

 4. That, if deductions are properly imposable so that the payments in question constitute 'over-payments', recovery of such overpayments should be waived.

 The Appeals Council rendered a decision on June 30, 1958. As to the 1956 payments, it affirmed the Referee's decision which had held that plaintiff and his wife were liable for a refund of the payments made to him and his wife during that year with the exception of the payment made in August of 1956.

 As to the 1955 payments, however, the Appeals Council reversed the Referee, and held that plaintiff's earnings during 1955, when calculated in accordance with the provisions of the Act, were also of an amount sufficient to require 'deductions' for that year -- with the result that the overpayments for these years should be refunded.

 Pursuant to plaintiff's request, the Appeals Council on July 10, 1958, revised or amended its decision, stating as its purpose:

 '* * * to make it clear that the claimant did not concede that the Secretary had the right to impose deductions, regardless of the amount of his net earnings, because he had not waived his right to raise the constitutional question which was decided adversely to him in the referee's decision.' (Tr. 7.)

 Thereafter the plaintiff filed his Complaint in this Civil Action. On September 24, 1958, the Chairman of the Appeals Council certified a transcript of the proceedings relating to the claim of Benjamin Bernstein in this case. It is this transcript of the Record to which references will hereafter be made -- as in the passage quoted above -- as TR., followed by the page number.

 On May 27, 1959, the Government's motion for summary judgment was filed. Subsequently, the plaintiff in turn filed his motion for summary judgment. It is these motions which are presently before this Court.

 The questions of law raised by the motions (and, as said before, there are no questions of fact to be decided) will be applied to a somewhat narrower scope than the matters necessarily recounted in this history. Thus, the questions of law at hand do not apply to the eligibility benefits of the wife of Benjamin Bernstein -- being briefed and argued solely on the law as applicable to plaintiff, Benjamin Bernstein.

 Furthermore, there has been no occasion to devote separate discussion to the matter of plaintiff's 1956 benefits. In that year he earned more than $ 4,600 from the practice of law and can succeed only if he is able to maintain his position under the first division of the argument which follows. That is, only by prevailing in his constitutional argument (that plaintiff's rights became vested prior to the 1954 amendments, and were in the nature of contractual insurance annuity benefits, and that deprivation thereof is a taking of property without due process of law in violation of the Fifth Amendment) may the decision of the Referee and the Appeals Council as to 1956 be overturned.

 The first question is:

 1. Were plaintiff's rights to benefits vested before the 1954 Amendments, and are they analogous to rights under a private contract of insurance?

 This question has been stated two ways. The Government takes the affirmative view that

 'The 1954 Amendments to the Social Security Act apply to individuals who were entitled to benefits under the Act prior to January 1, 1955, the effective date of said amendments.'

 'Amendatory statutes to the Social Security Act of 1935 may not be applied by the Social Security Administration to deprive of benefits those who qualified for them prior to the effective dates of the Amendments.'

 And develops the point as follows:

 'Plaintiff, the claimant, is a self-employed attorney who, in September, 1951, became entitled to, and was awarded, old age benefits under the Social Security Act by reason of his former employment as a wage earner.

 'Prior to January 1, 1955, a claimant in plaintiff's situation could not be deprived of his old age benefits unless he derived earnings in excess of $ 1200 from covered self-employment in which he performed substantial services. The practice of law was not such covered self-employment.

 'From 1951 to 1955, plaintiff received income from the active practice of law and also from a knitwear business wherein he was a silent, inactive partner. Old age benefits were properly paid to him during this period, because his active practice of law was not covered self-employment, and the income derived from the knitwear partnership did not disqualify him from receiving benefits because he performed no personal services whatsoever for that firm.

 'The Social Security Act Amendments of 1954, effective January 1, 1955, changed the provisions pertaining to the loss by a claimant of old age benefits by providing that earnings of over $ 1200 from even non-covered employment, for which substantial services were performed, would disqualify a claimant from benefits.'

 Since plaintiff's next statement contains a reference to 'the $ 2,080 figure' it is appropriate to quote part of Section 203(b) (42 U.S.C.A. § 403(b)) in order to explain subsection (e) from which the $ 2,080 figure derives.

 ' § 203(b) Deductions * * * shall be made from any payment * * * to which an individual is entitled * * * for any month --

 '(1) in which such individual is under the age of seventy-two and for which month he is charged with any earnings under the provisions of subsection (e) of this section; * * *.'

 Subsection (e) provides, with respect to the periods here involved, that when an individual's earnings for a taxable year exceed $ 1,200, the excess above that figure is 'charged' at the rate of $ 80 per month. The result is that if his earnings for the year exceed ...

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