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FLEMING v. CALIFANO

January 11, 1980

Myron T. FLEMING
v.
Joseph CALIFANO, Jr., Secretary of Health, Education and Welfare.



The opinion of the court was delivered by: POLLAK

MEMORANDUM

This action was brought under Section 205(g) of the Social Security Act, 42 U.S.C. § 405(g), to review a final decision of the Secretary of Health, Education and Welfare. Plaintiff challenges the decision of the Administrative Law Judge, which became final after review was denied by the Appeals Council, in regard to the following determinations: (1) that plaintiff had received a total of $ 1,453.30 in retirement insurance overpayments for February, March, April and June, 1976, and that he was not entitled to receive payments in 1977, because he had rendered substantial services as a highly skilled professional consultant; and (2) that recoupment from the plaintiff would not defeat the purposes of the Act, nor be against equity and good conscience. Both sides have moved for summary judgment.

 I

 Myron Fleming became entitled to retirement insurance benefits when he attained the age of 65, but his continued work as an engineer resulted in excess earnings which precluded the receipt of benefits through 1975. In January 1976, Fleming reported a reduction in his self-employment activities to the Social Security Administration and his belief that he was eligible for benefits. He received benefits from February through June of 1976 while he continued to do some engineering consulting work, including 21 hours in February and 56 hours in March of that year. In June 1976, Fleming notified the Social Security Administration that he had entered into an employment contract which would again make him ineligible to receive benefits, and from June 1 through December 1, 1976, pursuant to that contract, he received $ 2,000 per month for working four seven-hour days per week as a consultant to a shirt manufacturing firm. From December 1, 1976 to December 31, 1977, Fleming continued to work for the same firm under a basic employment contract requiring one seven-hour work-day per week for $ 1,000 monthly in basic compensation. In addition to the agreed weekly work-days, Fleming occasionally worked additional days, for which he received compensation at a rate of approximately $ 200 per day.

 There is no dispute that Fleming had excess earnings for both the 1976 and 1977 benefit years. However, pursuant to Section 203(f)(1)(E) of the Act, no part of excess earnings under the statutory formula would be chargeable to months in which he neither engaged in self-employment nor rendered services for wages beyond a specified amount. 42 U.S.C. § 403(f)(1)(E).

 The Administrative Law Judge determined that Fleming had rendered substantial services, and hence was self-employed, in every month of 1976 and 1977 except May, 1976 (a month in which Fleming performed no services), and as such was not entitled to have received benefits for those months. In arriving at this determination, the Administrative Law Judge focused on Section 203 of the Act which provides, in relevant part, 42 U.S.C. § 403(f)(4):

 
(4) For purposes of clause (E) of paragraph (1)
 
(A) An individual will be presumed, with respect to any month, to have been engaged in self-employment in such month until it is shown to the satisfaction of the Secretary that such individual rendered no substantial services in such month with respect to any trade or business . . . The Secretary shall by regulations prescribe the methods and criteria for determining whether or not an individual has rendered substantial services with respect to any trade or business.

 Pursuant to that section, the Secretary has offered the following definition, 20 C.F.R. § 404.446:

 
(a) General. In general, the substantial services test is one of whether, in view of all the services rendered by the individual and the surrounding circumstances, the individual can reasonably be considered retired in the month in question. Even though an individual performs some services in a trade or business in a month, such services are not substantial where the evidence establishes to the satisfaction of the Administration that the individual may reasonably be considered retired in that month . . .

 Section 404.447 of the Regulations, 20 C.F.R. § 404.447, provides that, in evaluating whether an individual's services are substantial, first consideration is to be given to the amount of time the self-employed individual devotes to all trades or businesses, and then specifies the sequence in which other factors are to be considered:

 
(a)(1) Forty-five hours or less in a month devoted to trade or business. Where the individual establishes that the time devoted to his trades and businesses during a calendar month was not more than 45 hours, the individual's services in that month are not considered substantial unless other factors (see paragraphs (b), (c), and (d) of this section), make such a finding unreasonable. For example, an individual who worked only 15 hours in a month might nevertheless be found to have rendered substantial services if he was managing a sizeable business or engaging in a highly skilled occupation. However, the services of less than 15 hours rendered in all trades and businesses during a calendar month are not substantial.
 
(2) More than 45 hours in a month devoted to trades and businesses. Where an individual devotes more than 45 hours to all trades and businesses during a calendar month, it will be found that the individual's services are substantial unless it is established that the individual could reasonably be considered retired in the month and, therefore, that such services were not, in fact, substantial.

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