Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_03-cv-02480/USCOURTS-cand-3_03-cv-02480-0/pdf.json

Nature of Suit Code: 864
Nature of Suit: Social Security - SSID Title XVI
Cause of Action: 42:405 Review of HHS Decision (SSID)

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

 

ALEXANDER ALPER,

Plaintiff, 

 No 03-2480 VRW

v

 ORDER

JO ANNE B BARNHART,

Commissioner of Social Security, 

 Defendant. 

_______________________________/

This social security appeal under 42 USC § 405(g) presents

the issue whether, under the Social Security Administration’s

(SSA’s) regulation at 20 CFR § 416.1130(b), an arrangement in which

unrelated co-tenants share an apartment’s market-rate rent unevenly

between them constitutes a grant of in-kind support and maintenance

(ISM) income by the tenant who pays more in favor of the tenant who

pays less. Plaintiff’s disabled status is not at issue. 

Plaintiff Alexander Alper appeals a decision by the SSA’s

Appeals Council holding that because his rent-sharing agreement with

his roommate is not a “business arrangement,” he is deemed to

receive ISM income equaling the difference between half of the total

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rent and his actual contribution. The financial impact of the

decision was a reduction of approximately $200 per month in

plaintiff’s supplemental security income (SSI) benefits. 

Administrative Record (AR) Doc #20 at 5-6, 30. The parties have

filed cross-motions for summary judgment. Doc ## 22, 23. 

I

Plaintiff, a disabled Russian immigrant, knew Sofya

Akselrud in Moscow before they both immigrated to the United States. 

AR 27. The two did not initially keep in touch after moving to the

United States. Id. When plaintiff first immigrated from Russia, he

lived in California with his mother and brother. AR at 65. After

they both died, plaintiff decided to leave California. Meeting

Akselrud again during a visit to New York, he decided to move in

with her. AR 27. Plaintiff could not otherwise afford the

expensive housing in New York and Akselrud was reportedly

“satisfied” with the arrangement. Id. While in New York, plaintiff

paid less than half of the total rent —— $450 out of $1050 in total

rent —— but paid for his share of utilities and his own food,

clothing and other expenses. AR 65-66. In New York, he received a

full award of SSI benefits. AR 66.

In May 2002, plaintiff and Akselrud both moved to

California and after a search, rented a one-bedroom apartment in San

Jose from AvalonBay Communities, Inc (AvalonBay). Id. The lease

required that all persons eighteen years of age or older who would

be residing at the apartment be listed and sign the lease. AR 41. 

Both plaintiff and Akselrud signed the lease, thus becoming jointly

and severally liable for the rent. AR 41-43. The total rent was

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$1405, out of which plaintiff paid $500 to the landlord and Akselrud

$905. AR 15, 38, 41. Plaintiff also paid about $50 toward

utilities. AR 28, 38, 47. Plaintiff paid for his own food,

clothing and other expenses. AR 38. Plaintiff and Akselrud did not

have a “formal agreement” between them. AR 26.

On June 24, 2002, plaintiff filed with the SSA a statement

to determine continuing eligibility for SSI payments in which he

stated that he lived in an apartment, shared a household with his

non-relative roommate and paid $500 of the monthly rent of $1405 and

$50 toward utilities. AR 37-38. He also stated that he bought his

own food separately from Akselrud. Id. Based on this statement,

the SSA determined that plaintiff was receiving ISM income from

Akselrud and reduced his monthly SSI benefit from $750.00 to

$568.34. AR 12. Plaintiff timely requested reconsideration, AR 47,

but the SSA affirmed its decision to reduce benefits. AR at 58. 

Plaintiff then made a timely request for a hearing before an

administrative law judge (ALJ). AR 63.

The ALJ held a hearing on December 11, 2002 at which

plaintiff appeared with his attorney and a translator. AR 23. At

the hearing, plaintiff testified that he and Akselrud decided to

continue living together in California because “she couldn’t find

the apartment —— any housing cheaper,” AR 28, that he and Akselrud

had been unable to afford a two-bedroom apartment and instead

decided to rent a one-bedroom apartment for which Akselrud would pay

$900 and plaintiff would pay $500. AR 26. Plaintiff testified that

while they were both satisfied with the arrangement, he would prefer

cheaper subsidized housing and was trying to obtain it. AR 29-30. 

Plaintiff further testified that Akselrud paid the water bill while

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he paid the electricity bill, and that he paid for his own food and

clothing. AR 28. 

On January 30, 2003, the ALJ issued a favorable decision

finding that a “business arrangement” within the meaning of 20 CFR §

416.1130(b) existed between plaintiff and Akselrud and that

plaintiff was therefore not receiving ISM income from his roommate. 

AR 16. Relying on dictionary definitions of the term “business,”

ALJ found that a “business arrangement” existed because “[w]hen two

or more people make an arrangement for housing to their mutual

financial advantage, they are clearly engaging in ‘activity for

gain, benefit, or advantage,’” —— that is, business —— and the

living arrangement was “an agreement mutually advantageous to both.”

AR 13. The ALJ commented that the regulations’ explanation of when

a “business arrangement” exists was “straightforward” and did not

require that rent be paid in equal shares or impose other burdens

not specifically stated, only that “the amount of monthly rent

required to be paid equals the current market rental value.” AR 13. 

The ALJ further commented that “SSA living arrangement

determinations often appear to rely on an invalid perception or

interpretation of the law,” often mandating pro rata share

requirements that appear “arbitrary and without legal authority.” 

AR 14. The ALJ reasoned that a pragmatic approach was instead

necessary to carry out the purposes of Title XVI:

Financial reality should be the principal

consideration in making determinations about living

arrangements. Individuals attempting to live on an

SSI budget must make creative arrangements for

housing and other essentials. There is nothing in

the record which indicates that the claimant and Ms

Akselrud did not engage in an arms-length

negotiation regarding housing and arrive at the

bargain described. That this arrangement is a

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hybrid requiring Mr Alper to pay what amounts to a

lesser portion of the monthly rent does not negate

the fact that he is paying a flat fee for room. 

This business arrangement requires that the

claimant pay a not insubstantial amount for room

and an additional amount for other expenses. 

Moreover, the amount paid by Mr Alper ($500

monthly) is similar to what an individual might pay

to rent a room in the area. 

AR 14. In support of the latter finding, the ALJ relied on the

classified advertisements in the local San Jose newspaper. AR 16.

The ALJ determined that the SSA’s approach was not consistent with

the statute or its regulations: 

Had Congress intended to impose an onerous burden

of proof on claimants who have made arrangements to

secure affordable housing, it would have stated

this intent in the statute * * *. Nor is there any

part of the law or regulations supporting the

notion that individuals not fortunate enough to

find lodging in low-income housing should be

deprived of a portion of their meager SSI payment

because the housing arrangements they have made are

perceived as not meeting some POMS guideline or

‘policy’ statement.

AR 15. The ALJ concluded that plaintiff’s living arrangement fell

within the business arrangement criteria of 20 CFR § 416.1130(b)

and ordered his benefits revised accordingly. Id. 

In response to a memorandum from the San Francisco

regional office on March 25, 2003, the SSA’s Appeals Council

elected to review the ALJ’s decision. AR 5. In a brief decision

dated May 12, 2003, the Appeals Council concluded that the ALJ had

applied 20 CFR § 416.1130(b) incorrectly. Id. The Appeals Council

set forth its reasoning thusly: 

[t]he record does not indicate that the claimant is

renting a room from Sofya Akselrud in her apartment

under a business arrangement, or under any other

arrangement, or that the claimant is paying her any

rent. Rather, the record establishes that the

claimant and Ms Akselrud are joint tenants in an

apartment owned by AvalonBay Communities, Inc. * * *

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Presumably, [the monthly rent] equals the current

market value of the apartment. Thus the claimant *

* * has a “business arrangement” only with AvalonBay

Communities, Inc., and receives no in-kind support

and maintenance from AvalonBay Communities. [sic]

Inc. in accordance with 20 CFR 416.1130(b).

AR 5-6. The Appeals Council next discredited the plaintiff’s

assertion that he paid a portion of the utilities, stating that

there was “no evidence corroborating” such payments. AR 6. 

Accordingly, the Appeals Council then reasoned that “the claimant’s

portion of the household shelter costs [rent plus utilities] is

$727.50 per month ($1455.00 divided by 2) and the record documents

that he pays only $500.00 per month, * * * the difference, $227.50,

is in-kind support and maintenance” from Ms Akselrud. AR 6. The

Appeals Council ordered plaintiff’s benefits reduced the maximum

monthly amount allowed under 20 CFR 416.1140 —— $201.66 for 2002

and $204.00 for 2003. 

Plaintiff filed this timely appeal seeking judicial

review of the Appeals Council’s decision.

II 

Under 42 USC § 405(g), a decision to deny benefits may be

overturned if the decision is not supported by substantial evidence

or if the decision is based on legal error. Thomas v Barnhart, 278

F3d 947, 954 (9th Cir 2002). “Substantial evidence means more than

a scintilla but less than a preponderance.” Id. “Substantial

evidence is relevant evidence which, considering the record as a

whole, a reasonable person might accept as adequate to support a

conclusion.” Id. The Appeals Council’s decision constitutes the

\\

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SSA’s final decision and is the sole subject of review on this

appeal. Taylor v Heckler, 765 F2d 872, 875 (9th Cir 1985). 

Under Title XVI of the Social Security Act, blind, aged

or disabled individuals are eligible to receive SSI benefits based

on need, as determined from each individual’s total income. See 42

USC § 1381(a). “Income” is defined as anything that a recipient

receives in cash or in kind that can be used to meet the

recipient’s needs for food, clothing and shelter. 20 CFR §

416.1102. The regulation defines ISM as 

any food or shelter that is given to you or that you

receive because someone else pays for it. Shelter

includes room, rent, mortgage payments, real

property taxes, heating fuel, gas, electricity,

water, sewerage, and garbage collection services.

20 CFR § 416.1130(b). Section 416.1130(b) further states that a

recipient is not receiving ISM income in the form of rent if the

recipient is “paying the amount charged under a business

arrangement.” A “business arrangement” exists where the amount of

monthly rent required to be paid “equals the current market rental

value” of the recipient’s accommodations. See § 416.1130(b). The

regulations define “current market value” as “the price of an item

on the open market in your locality.” 20 CFR § 416.1101.

In nearly all federal judicial circuits including the

Ninth, 20 CFR § 416.1130(b) provides that if the SSI recipient’s

actual rent is not equivalent to the current market rental value of

his accommodations, there is no “business arrangement” and the

recipient is deemed to be receiving ISM income in the form of rent. 

(Under an alternate rule applicable only in the Seventh Circuit, if

the amount of rent the recipient is required to pay is not

equivalent to the presumed maximum value of the accommodations,

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there is no “business arrangement.”) Once a recipient is found to

be receiving ISM income, the regulations require determination of

whether the recipient resides in his own household or the household

of another and benefits are reduced accordingly. 20 CFR § 1130(c). 

If the recipient is determined to be living in the household of

another who provides the beneficiary with food and shelter,

benefits are reduced by one-third. Id. If the recipient lives in

his own household, the “presumed value rule” requires a reduction

of at a presumed “maximum value” of benefits according to a

specific formula; the claimant may seek exemption from the presumed

value rule by presenting evidence that the value of ISM received is

lower than the presumed value. 20 CFR § 416.1140. 

III

Plaintiff challenges the Appeals Council’s decision that

he was not paying rent pursuant to a “business arrangement,”

arguing that (1) the Appeals Council’s factual finding of no

“business arrangement” was not supported by substantial evidence;

or, alternatively (2) the Appeals Council interpreted the

regulation’s use of the term “business arrangement” in a manner

contrary to the governing statute. Pl Reply (Doc #25) at 2-3.

Federal courts generally defer to an agency’s reasonable

interpretation of its statute and regulations. Campbell ex rel

Campbell v Apfel, 177 F3d 890, 893 (9th Cir 1999); Chevron USA, Inc

v Natural Resources Defense Council, Inc, 467 US 837, 842 (1984). 

“[P]rovided an agency's interpretation of its own regulations does

not violate the Constitution or a federal statute, it must be given

‘controlling weight unless it is plainly erroneous or inconsistent

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with the regulation.’” Stinson v United States, 508 US 36, 45

(1993)(quoting Bowles v Seminole Rock & Sand Co., 325 US 410, 414

(1945)). This deference does not, however, amount to a judicial

rubber-stamp of the agency’s interpretation. 

The existing jurisprudence around 20 CFR § 416.1130(b)

interprets whether an SSI recipient is receiving ISM income in one

of two factual scenarios not present in this case. One category of

cases considers whether the difference between the market-rate rent

and the rent actually charged to an SSI recipient by a landlord who

is a relative constitutes ISM income. See Antoniolli v Harris,624

F2d 78 (9th Cir 1980)(difference between property taxes paid by SSI

recipient on behalf of landlord-relative and market rate rent for

the dwellings deemed ISM income); Jackson v Schweiker, 683 F2d 1076

(7th Cir 1982)(“business arrangement” found between claimant and 

landlord-relative when rent charged equaled such a large percentage

of federal benefits the claimant derived no “actual economic

benefit” by the arrangement); Ruppert v Bowen, 871 F2d 1172 (2d Cir

1989)(adopting the Jackson “actual economic benefit” analysis in

like factual scenario); Ragsdale v Apfel, 999 F Supp 814 (EDVA 1998)

(applying the Jackson “actual economic benefit” test to find 

married SSI recipients not receiving ISM from their landlord-son

when the difference between the market-rate rent and rent actually

paid provided the SSI recipients with no actual economic benefit). 

 The second category of cases applying 20 CFR §

416.1130(b) considers whether payment of a portion of a SSI

recipient’s market rate rent by a third party who is not a cotenant constitutes ISM income. See Ellis v Apfel, 147 F3d 139 (2d

Cir 1998)(no “business arrangement” found where an unrelated third

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party not living on the premises or obliged to pay rent paid a

portion of the SSI recipient’s rent); Hecht v Barnhart, 217 F Supp

2d 356 (EDNY 2002)(disbursements from SSI recipient’s Supplemental

Needs Trust to pay room and board constituted ISM); but see

Beckless v Chater, 909 F Supp 575 (ND Ill 1995)(third party’s

partial payment of market-value rent was not ISM where the amount

of rent paid by the SSI recipient exceeded the presumed maximum

value of the apartment). 

 The court has found no published opinion addressing 20

CFR § 416.1130(b)’s applicability where, as here, unrelated cotenants have agreed to split a market rate rent unevenly between

them. For the reasons stated below, the court concludes after

careful review that the Appeals Council’s interpretation of 20 CFR

§ 416.1130(b) is clearly erroneous and requires remand to correct

an interpretation that imposes additional burdens on claimants that

are not explicitly or implicitly required by the regulation and are

contrary to the intent of Title XVI of the Social Security Act. 

First, the Appeals Council interpreted the “business

arrangement” exception to § 416.1130(b) as potentially existing

only between a claimant and a landlord or other entity to whom the

claimant pays rent. It found that, because plaintiff “and Ms

Akselrud are joint tenants in an apartment owned by AvalonBay” and

the amount of rent paid “equals the current market value of the

apartment,” plaintiff has a “business arrangement” only with

AvalonBay. AR 5-6. The logical underpinning of this syllogism is

not apparent to the court. 

Second, the Appeals Council decision concluded that

plaintiff was receiving ISM because he paid less than half of the

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total household expenses. This conclusion rested on the implicit

assumption that if two people inhabit the same apartment, the

current market value of each individual’s shelter can only be

exactly half of the total rent. Based on its finding that “the

claimant’s portion of the household shelter costs is $727.50 per

month ($1455.00 divided by 2) and the record documents that he paid

only $500 per month * * * the difference, $227.50, is in-kind

support and maintenance under 20 CFR 416.1121(h) and 416.1141 that

the claimant receives from Ms Akselrud,” AR 6, the Appeals Council

found that the roommates’ decision to divide their market-rate rent

unevenly between them necessarily negated the applicability of the

“business arrangement" exception. For the reasons stated below,

the court finds this interpretation of the regulation to be plainly

erroneous.

Third, when computing the amount of ISM plaintiff was

deemed to have received from Akselrud, the Appeals Council appears

to have first computed all of plaintiff’s “shelter” costs as

defined in § 416.1130(b) as part of its determination that a

“business arrangement” existed. The plain language of the

regulation, however, asks whether the rent paid is equal to the

current market rental value. See 416.1130(b). Whether the

plaintiff pays an equal share of utilities, while relevant to other

statutory inquiries (see, for example, § 416.1133(c) (including

utilities within the definition of household operating expenses)),

is irrelevant to the question whether, pursuant to the rent-sharing

agreement, plaintiff is paying market-rate rent. The Appeals

Council erred by including utilities in its analysis whether

plaintiff paid rent pursuant to a business arrangement.

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In its decision, the Appeals Council acknowledged that

the total rent paid in this case is the “current market value.” 

The remaining —— and as yet unanswered —— question is whether the

amount of rent the plaintiff paid pursuant to his agreement with

Akselrud equals the current market rental value of his individual

accommodations within the apartment. 

Returning to the question of allocating shared rent, the

court finds error in the Appeals Council’s implicit legal

conclusion that the “current market rental value” of each

resident’s individual accommodations within a shared apartment is

determined by dividing the total rent for the apartment by the

total number of residents. Essentially, the Appeals Council wrote

a new, unwarranted requirement into the regulation: that cotenants must divide rent equally or the one paying less will be

deemed to be receiving ISM income. When determining whether a

recipient is receiving ISM income within the meaning of §

416.1130(b), the relevant inquiry is whether the individual is

paying rent equivalent to “current market rental value.” The

regulations define the “current market rental value” not as a pro

rata share of total household expenses, but as “the price of an

item on the open market in your locality.” 20 CFR § 416.1101. 

In addition to contradicting the regulation’s definition

of the term, the Appeals Council’s assumption that the current

market rental value can automatically be equated with the pro rata

share of the total household expenses ignores the reality that

separate accommodations, even within the same apartment, are often

unequal, and as such have differing market values. As plaintiff

points out, it is not uncommon for roommates to pay different rents

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in acknowledgment of the superiority of one room’s view, the fact

that one room has its own bathroom or that one room is bigger than

the other. 

The facts of the instant case illustrate the error of the

Appeals Council’s assumption. Plaintiff and Akselrud share a onebedroom apartment. AR at 26. They are not married and there is no

indication in the record that they share the apartment’s one

bedroom. It is therefore logical to assume that one roommate’s

living situation is inferior to the other’s; perhaps one resides in

the bedroom and the other on a couch, and the respective rents paid

by each reflects this. Unfortunately, no factual record was

developed to enable such an inquiry. But neither does the record

suggest, however, that Akselrud had any motivation to bestow

significant financial gifts on plaintiff. Unlike the factual

scenarios in most of the above-cited cases discussing 20 CFR §

416.1130(b), plaintiff and Akselrud are unrelated. Moreover,

plaintiff’s testimony at the hearing stating that he had applied

for several subsidized housing situations (AR at 29-30) suggests

that financial considerations predominated in plaintiff’s and

Akselrud’s decision to share habitations. This scant evidence in

the record points more strongly to the conclusion that plaintiff is

paying the current market rental value of his accommodation than

that Akselrud is subsidizing his housing. There is no evidence in

the record supporting the Appeals Council’s assumption that the

rent paid by plaintiff is not “the current market value” of the

accommodations that he rents; rather, the Appeals Council applied

an unwarranted presumption that awkwardly stood in for the missing

substantial evidence necessary to support its decision. 

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Nor does the Appeals Council’s decision comport with the

aims of Title XVI. The Ninth Circuit upheld the SSA’s ISM

regulation as “reasonably related to the purposes of the enabling

legislation,” Title XVI, because they tend to “equalize the status

of SSI recipients who live in quarters owned by friends or

relatives, paying little or no rent, and those who must obtain

housing in the marketplace.” Antoniolli, 624 F2d 78 (9th Cir

1980). The controlling factor underlying the court’s opinion,

however, was fairness to participants in the program. In the

instant case, the SSA appears, contrary to the intent of Title XVI,

to have placed its own administrative convenience ahead of fairness

to SSI recipients. 

What the Appeals Council has done is to adopt a short-cut

to determining the existence of ISM income that both works to the

disadvantage of SSI recipients and avoids making the inquiry as

required by the regulation into whether the claimant’s rent fairly

represents the “current market rental value” of the claimant’s

accommodation. This short-cut is supported neither by substantial

evidence in the record nor by the plain language of the regulations

and their enabling statute. Unless the SSA determines that

plaintiff’s smaller portion of the rent paid on his shared

accommodation is less than the “current market rental value” of his

individual accommodations, the SSA may not deem the discrepancy to

be ISM income. 

IV

The record does not make it possible to make a finding

regarding the dispositive issue on this appeal: whether the rent

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paid by plaintiff pursuant to his agreement with Akselrud reflected

the current market value of his individual accommodations. The

ALJ’s finding that $500 per month was consistent with listings in

the local paper advertising rooms for rent (AR 16) is helpful, but

does not constitute substantial evidence in the record. 

If further development of the record discloses that

plaintiff’s rent payment reflected the current market value of his

accommodations, then the SSA must conclude that plaintiff was

“paying the amount charged under a business arrangement” with

Akselrud within the meaning of 20 CFR § 416.1130(b) and must

restore the withheld benefits. If not, then some portion of the

discrepancy may be considered ISM and deducted from plaintiff’s

benefits. In neither event is it appropriate for the SSA for mere

reasons of convenience to presume, without the support of

substantial evidence in the record, that the fair market value of

an individual claimant’s share of a shared accommodation is an

equal portion of the total rent. 

This matter is remanded to the SSA for further

proceedings in accordance with this decision. The clerk is

directed to close the file and terminate all pending motions. 

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

Case 3:03-cv-02480-VRW Document 28 Filed 07/20/06 Page 15 of 15