Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-04683/USCOURTS-cand-3_05-cv-04683-2/pdf.json

Parties Involved:
Jo Anne B. Barnhart
Defendant
Ryan Handley
Plaintiff

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

RYAN HANDLEY,

Plaintiff,

v.

JO ANNE B. BARNHART, Commissioner,

Social Security Administration, 

Defendant. 

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No. C-05-04683 SC

ORDER DENYING 

PLAINTIFF'S MOTION

FOR SUMMARY JUDGMENT

AND GRANTING

DEFENDANT'S 

CROSS-MOTION FOR 

SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff Ryan Handley ("Claimant") filed this action against

Defendant, Jo Anne B. Barnhart, Social Security Administration

("SSA")Commissioner ("Defendant" or "SSA"), under 42 U.S.C. §§

405(g) and 1383(c)(3), seeking judicial review of the SSA's

decision to partially reduce Claimant's retroactive Supplemental

Security Income ("SSI") benefits. 

Claimant now moves for summary judgment, arguing the SSA made

errors of law at two stages in its determination to reduce

Claimant's retroactive benefits: by the Appeals Council in the

formulation of its remand instructions to an Administrative Law

Judge ("ALJ"); and by ALJ James Kaplan ("ALJ Kaplan")in the manner

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1

 As discussed below, Claimant also vaguely alleges, but does

not argue, errors of fact by the SSA.

2 In the numerous proceedings which followed this application,

Ryan Handley and his father, Max Handley, on Ryan's behalf, are

alternatively listed in relevant documents as petitioners before

the SSA and the courts. For the sake of clarity, the Court will

not maintain this distinction, but rather will identify Ryan

2

in which he reached his determination.1 Defendant has responded

with a cross-motion for summary judgment, seeking a final

dismissal of this case. Because the Court finds that 1) the Court

lacks the subject matter jurisdiction to evaluate the the Appeals

Council's remand instructions, and 2) the ALJ Kaplan correctly

conducted the hearing before him and any error committed by ALJ

Kaplan in the manner in which he formulated his decision was

harmless, the Court hereby DENIES, in whole, Claimant's motion for

summary judgment, GRANTS Defendant's Cross-Motion For Summary

Judgment, and AFFIRMS the decision of the SSA. 

II. BACKGROUND 

The history of this case is long and multifaceted, involving

several decisions, appeals, grants, denials, and remands. Thus,

while the instant complaint involves only the most recent set of

actions by the SSA, the Court believes that it is proper to lay

out the entire background of the dispute between the parties. The

following facts are based on the Administrative Record ("AR").

First Application for Benefits

On April 1, 1995, Claimant filed his first application for

SSI benefits, under sections 1602 and 1614(a)(3)(A) of the Social

Security Act, alleging an inability to work due to a psychological

disorder ("First Application").2 AR at 44. On September 1, 1995,

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Handley as the "Claimant," regardless whether a particular action

was initiated by him directly or on his behalf, and will refer to

Max Handley, when acting other than as Ryan's representative in

initiating an action before the SSA or the courts, as "Max Handley"

or "Max."

3

the SSA denied the application and, on January 25, 1996, denied it

again on reconsideration. Id. On September 18, 1997, after a

hearing, an ALJ denied Claimant's appeal of the decision. Id. On

the same day, Claimant timely requested the Appeals Council review

of the ALJ's decision. Id. 

Second Application for Benefits

On November 24, 1997, while his request for an Appeals

Council review of the First Application's denial was pending,

Claimant filed a second application for SSI benefits ("Second

Application"). Id. at 45. This time, the SSA found that Claimant

was disabled and so eligible for benefits, but only as of the date

on which the Second Application was filed, November 24, 1997.

Renewed First Application

On May 7, 1999, the Appeals Council granted Claimant’s

pending request for review of the denial of his First Application,

and remanded the case to ALJ John Flanagan ("ALJ Flanagan"). AR

at 44. In light of the SSA's decision granting Claimant's Second

Application, ALJ Flanagan was called on to determine only whether

the Claimant was eligible for retroactive SSI benefits for the

period from April 1, 1995 (the date when Claimant filed his First

Application) to November 24, 1997 (the date from which the SSA

found, on the basis of Claimant's Second Application, that

Claimant was eligible for benefits). Id. at 45.

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3ALJ Flanagan found that Claimant suffered from personality

disorder, organic brain syndrome, and substance addiction disorder. 

AR at 45

4

On July 30, 1993, ALJ Flanagan issued a decision based on

evidence presented at a pre-trial hearing on July 23, 1993 ("ALJ

Flanagan's Decision"). Id. at 44. The decision found that

Claimant was disabled between April 1, 1995 and November 24, 1997

("Interim Period"), and so was eligible for SSI benefits during

this period.3

 AR at 47. 

Reduction of Retroactive Benefits by the SSA

In an application dated September 2, 1999, Claimant

requested, pursuant to ALJ Flanagan's Decision, payment of

retroactive benefits for the Interim Period. Id. at 57-69. The

application appears to have been filled out by an SSA employee but

signed by Max Handley on August 31, 1999. Id.

In its relevant parts, the application reflects an

acknowledgment by Max Handley that he provided food and shelter to

the Claimant worth $1,000.00 a month ("Interim In-Kind Support"). 

Id. at 60. Though the application lists only "4/95," as the date

of support, id., handwritten notes elsewhere on the form state

that Max Handley provided Claimant this support every month of the

Interim Period in the form of rent sent directly to Claimant's

landlords and provision of food directly to Claimant. Id. at 68. 

Those notes also reflect Max Handley's agreement with the value of

$1,000.00 per month assigned to the Interim In-Kind Support and

his acknowledgment that the SSA will reduce Claimant's benefits as

a result of the support. Id. 

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Notes of the SSA from a subsequent conversation with Max

Handley similarly reflect that Max paid rent directly to

Claimant's landlords, and the SSA's decision to award Claimant

$14,967.50 in retroactive benefits. Id. at 84. On September 21,

1999, the SSA sent Claimant a letter stating the SSA's decision to

award him this amount in retroactive benefits and informing him

that, based on this amount, Claimant's attorney was only allowed

to charge him $3,741.87 in fees. Id. 

A letter sent by Claimant's attorney to ALJ Catherine Lazuran

("ALJ Lazuran") in the context of a subsequent proceeding

discussed below, describes the above outlined interactions between

Max Handley and SSA as follows:

SSA called [Max Handley] in and [he] told the worker

that he expected to be repaid for the money loaned

during the appeal period. The worker[,] I guess,

disbelieved him and denied the loan status, deducting

$183 per month for "in kind support." 

Id. at 135. Neither the application for retroactive benefits nor

any other contemporary documentation reflect that Max Handley ever

made such a statement to an SSA representative or that such a

statement was disbelieved by an SSA representative.

First Appeal of the Decision to Reduce Retroactive Benefits

On November 2, 1999, Claimant timely requested

reconsideration of the SSA's decision to reduce the amount of

retroactive benefits due to him. Id. at 99. The stated reason

for the request was that the Interim In-Kind Support was a loan

rather than a gift, and so the benefit reduction decision was

erroneous. Id. Attached to the request was a declaration signed

by Max Handley, dated "October ___ 1999" ("Declaration of Max

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Handley"). Id. at 100. The declaration states inter alia that

the Interim In-Kind Support “WAS A LOAN,” and that if anything

else was understood by the SSA as a result of Max Handley’s

conversation with them, it “was a misunderstanding.” Id.

On March 27, 2000, the SSA issued a notice of reconsideration

affirming the benefit reduction decision. The notice stated the

following reason for its decision: “We could not consider the

payments made by you to Ryan as a loan because he did not have a

valid means of repaying you.” Id. at 125. On April 4, 2000,

Claimant made a timely request for a hearing by an ALJ. Id. at

129. 

On December 5, 2000, a hearing was held before ALJ Lazuran;

neither the Claimant nor Max Handley attended. Id. at 9. In

their absence, Claimant's attorney described the situation as he

understood it, and offered to ALJ Lazuran two documents to support

Claimant's contention that the Interim In-Kind Support was a loan

rather than a gift: the Declaration of Max Handley and a

promissory note concluded by Claimant for the benefit of Max

Handley on November 30, 2000, six days before the hearing

(“Promissory Note”). Id. at 17. 

The Promissory Note purports to “reaffirm[] former oral

promise to pay made in April of 1995 as and for funds received by

Maker from that date to the present and promises to pay to Max

Handley . . . the principal sum of TWENTY THOUSAND FIVE HUNDRED

DOLLARS with NO interest thereon.” Id. at 142. It further states

that this promise is given in exchange “[f]or value received.” 

Id.

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4 The Court notes that Cal. Civ. Code 1624(a)(1), more

precisely, requires such an agreement to be memorialized in a

writing "subscribed by the party to be charged or by his agent." 

7

On June 25, 2001, ALJ Lazuran issued a decision finding inter

alia that: 1) Max Handley provided Claimant with in-kind support

and maintenance in the approximate amount of $1,000.00 per month

between April 1995 and November 1997; and 2) Max Handley's

provision of the Interim In-Kind Support did not constitute a loan

for SSI purposes, because “no bona fide loan agreement existed

regarding the repayment of this money” ("ALJ Lazuran's Decision"). 

Id. at 11. 

ALJ Lazuran purported to base the latter finding on

California contract law, which “finds invalid ‘an agreement that

by its terms is not to be performed within a year from the making

thereof.’” Id. (quoting Cal. Civ. Code 1624(a)(1)).4 According to

ALJ Lazuran, Claimant’s monthly income from SSI payments prevented

Claimant from possibly being able to perform his purported

obligation to repay Mr. Handley within a year, and thus any

alleged loan agreement regarding the Interim In-Kind Support was

invalid. Id.

On August 17, 2001, Claimant made a timely request for review

to the Appeals Council of the Third ALJ Decision. The request

alleged that ALJ Lazuran “impermissibly ignored the California law

when determining that ‘no bona fide loan agreement existed,’” and

that ALJ Lazuran is “biased against this claimant.” Id. at 6.

On January 30, 2003, the Appeals Council denied Claimant’s

request for review and adopted ALJ Lazuran’s decision as the

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decision of the SSA ("Third Appeals Council Decision"). The

Appeals Council found that ALJ Lazuran had displayed no bias

against Claimant, and that she was correct in determining that no

bona fide loan agreement existed. In reaching the latter

decision, the Appeals Council backed away slightly from ALJ

Lazuran's reasoning. Instead, the Appeals Council pointed to the

testimony of Claimant’s representative before ALJ Lazuran, which,

in the Appeals Councils' determination, evidenced that Claimant’s

obligation to repay Max Handley was conditional, and thus “the

loan was not entered into in good faith which is a requirement for

establishing a bona fide loan agreement.” Id. at 4.

Court’s December 2004 Stipulated Remand Order

On January 28, 2003, Claimant timely filed a complaint with

this Court for review of the Third Appeals Council Decision. 

After a lengthy briefing period, during which Claimant

unsuccessfully tried repeatedly to transform his claim into a

class action, the parties agreed, on December 21, 2004, to a

stipulated order remanding the case to the SSA. Id. at 166.

The Stipulation and Order of Remand (“Court’s Stipulated

Remand”) stated in its relevant part: 

Upon remand, the Appeals Council will remand this case

to an Administrative Law Judge (ALJ) and instruct him or

her to further consider whether the claimant was

receiving in-kind support and maintenance from his

father during the period from April, 1995, to November,

1997; whether there was a valid loan agreement under

California law between the claimant and his father as

defined in Social Security Ruling 92-8p and Ceguerra v.

Sec’y of HHS, 933 F.2d 735 (9th Cir. 1991); and, if so,

the effective date of the valid loan agreement. 

Id. at 167-68.

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Appeals Council 2005 Remand Order

On January 31, 2005, as instructed by the Court’s Stipulated

Remand, the Appeals Council remanded the case to an ALJ. Id. at

171. The Order of Appeals Council Remanding Case to

Administrative Law Judge ("Appeals Council 2005 Remand Order”)

contains instructions to the ALJ that reiterated, almost verbatim,

the above quoted language of the Court’s Stipulated Remand. Id.

It further states:

In making the above determination, the Administrative

Law Judge will consider whether or not it was the actual

intent of the parties that repayment would be made or

whether there was an understanding that repayment was

not expected and would not be pursued. The

Administrative Law Judge will obtain the testimony of

the claimant and his father/representative payee and

will question them closely regarding the terms of the

original oral loan, subsequent “reaffirmations”[sic],

and, finally, the written loan document. 

Id.

May 2005 ALJ Hearing

On May 11, 2005, a hearing was held before ALJ Kaplan. This

time, both Claimant and Max Handley attended, and, in accordance

with the Appeals Council 2005 Remand Order, ALJ Kaplan elicited

the testimony of both. Id. at 207. 

The first substantive questioning was by Claimant's attorney

of Max Handley. The questioning focused on when Claimant began

receiving SSI benefits, Claimant's condition at that time and

before, any assistance given by Max Handley to Claimant prior to

Claimant receiving benefits, and, finally, the circumstances

surrounding the creation of the Promissory Note. Regarding the

assistance he gave to Claimant, Max Handley stated: 

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I supported Ryan. I not only paid his rent, but

provided money for his well-being and food. I didn't

have enough for health insurance, but I realized that he

needed help, so I helped him.

Id. at 211. When Claimant's attorney asked Max whether this

support was given "with an understanding that [Claimant] would

repay [Max] if [Claimant] could," Max replied, "Yes, we talked

about that." Id. 

Regarding the Promissory Note, Max expressed a fairly vague

recollection of its conclusion, and a conditional expectation that

Claimant would perform according to its terms. Id. at 211-12. 

ALJ Kaplan interjected to inquire as to the basis on which Max

expected Claimant to perform. Id. at 211. Max responded: 

Well if Ryan comes, if he's at some point in time able

to hold down a full-time job and earn a good living, I

expect him to repay this amount. If he comes to an

inheritance, that would be nice. I hope that happens to

him.

Id. In follow-up questioning, Claimant's attorney clarified that,

other than what Max planned to leave Claimant (which Max admitted

"won't do me any good"), Max had no basis for an expectation that

Claimant would inherit any money. Id. at 213. Finally, Max

admitted that Claimant had not yet made any payments to Max in

satisfaction of Claimant's purported debt to him. Id. at 212. 

ALJ Kaplan began his formal questioning of Max Handley with

an examination of the circumstances surrounding the creation of

the Promissory Note. He first asked, "what were the circumstances

that precipitated the creation of the document of November 2000,

the promissory note?" Id. at 214. Max responded with a

description of a discussion he had with Claimant that repaying Max

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"at some point in time . . . would be the right thing to do" and

Max's expectation that Claimant would do so, "if [Claimant] [was]

capable of repaying this money." Id. Max finished with the

statement, "I try to make [Claimant] responsible." Id.

His question regarding the circumstances surrounding the

creation of the Promissory Note unanswered, ALJ Kaplan asked it

again. Id. 214-15. Max again responded vaguely:

Well that's a good question. It was probably due to the

fact that I didn't want to continue, you know,

supporting [Claimant] with no regard to him having

responsibility to pay me back. It slid for a few years,

but at one point in time, and I guess this would have

been around the year that you mentioned[,] 2000, that I

expected that he should be responsible to pay back [,]

in part, some of the money that I loaned him for his

support.

Id. 

In response, ALJ Kaplan tried again to get at the specific

circumstances surrounding the creation of the Promissory Note by

leading Max through yes and no questions:

ALJ Kaplan: In with [sic] respect to this promissory

note of November 2000, now it's a legal document. Who

prepared it?

Max Handley: Ian Sammi [Claimant's attorney].

ALJ Kaplan: And at that time you had pending a request

for review, for a request for a hearing before [an]

Administrative Law Judge with respect to the same issue

that I am hearing today, is that correct?

Max Handley: That's correct.

ALJ Kaplan: Well[,] is it fair to say that the document

was prepared in order to facilitate making -- promoting

the position you were taking in that pending legal

matter?

Max Handley: Yes.

 Id. at 216-17. When ALJ Kaplan asked Max to explain this last

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answer, he, again explained vaguely that because Max had been

supporting Claimant before he received SSI benefits, Max 

"believ[ed] that [Claimant] should repay this money to me". Id.

at 217. 

Having still not received an answer to his question, ALJ

Kaplan stated: "I'm still not clear as to what was intended to be

accomplished through the promissory note." Id. 218. To this,

Claimant's attorney interjected with a lengthy response that

ended: "So as to answer, the note was created to facilitate or

help the appeal that was beginning, was correct [sic]." Id. at

219. Max Handley's final and most specific statement regarding

the circumstances surrounding the Promissory Note discusses the

amount which the Promissory Note recites as promised to Max: 

I probably could have come up with a larger figure, but

I figured that was sufficient. I mean[,] I realize

that, you know, [Claimant] is going to be hard pressed

to pay that back so, but I still wanted to, just felt it

was right to make him accountable.

Id. at 220. 

Following this lengthy exchange, ALJ Kaplan moved his

examination of Max Handley as to the circumstances of the support

Max provided Claimant. After establishing that Max regularly sent

checks to the landlords of the locations where Claimant stayed

during the Interim Period, ALJ Kaplan asked Max, "But what was

your understanding in terms of what it was you were doing with

these checks?" Id. at 222. To this, Max responded:

Well[,] he's my child, so I was basically keeping him

from being on the street, being homeless. So I provided

for his welfare, which any parent would probably do

under the circumstances.

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Id. at 222. 

When, ALJ Kaplan responded that this statement was "a little

bit at odds" with Max's prior statements about how the support he

provided to Claimant was a loan, Max replied "Yeah." Id. at 223. 

ALJ Kaplan, subsequently gave Max Handley more opportunities to

explain his "understanding at [the] time" he was providing

Claimant the Interim In-Kind Support. Id. at 223. Max Handley's

responses consistently displayed a very general or vague

expectation or hope that Claimant would repay Max, "when he was

able to," a motivating desire by Max to provide the support so as

to keep Claimant "out of harm's way," and a belief that requiring

Claimant to pay him back would help Claimant "be responsible." 

Id. at 224. 

In reaction to this last sentiment, ALJ Kaplan queried Max

Handley about whether supporting Claimant caused Max any financial

hardship. Max responded that it had, and, in fact, that he had to

"take another job to support him, which was okay." Id. at 225. 

ALJ Kaplan queried him whether that had any relationship to Max's

desire that Claimant pay him back:

And so there may have been, it was not a irrelevant

financially [sic], but your primary reasons seem to be

more in the area of you thought it was appropriate, that

he repay you possibly, correct?

Id. at 225. To this, Max replied, "Yes." Id. 

Following this exchange, and with a brief intermission during

which ALJ Kaplan and Claimant's attorney discussed applicable law,

ALJ Kaplan continued to get at Max's intention at the time he

provided the In-Kind Interim Support to Claimant and, to an

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extent, Claimant's reactions to the payments as Max perceived

them. Max described Claimant as "grateful" and with the intent to

reimburse Max. Id. at 233. Regarding Max's intention at the time

of his provision of the In-Kind Interim Support, Max responded

affirmatively to ALJ Kaplan's final summary that Max's provision

of support to Claimant was primarily to keep Claimant off the

street and secondarily to make Claimant responsible for his own

benefit. Further, Max confirmed that he had no real expectation

of Claimant being able to repay him from resources inherited nor a

"realistic expectation," at the time or now, "of repayment, based

on [Claimant's] work history to date." Id. at 235. 

Claimant was then examined. His attorney first briefly had

Claimant confirm that the signature on the Promissory Note was

Claimant's, that Claimant had received support from Max Handley

during the Interim Period, and that Claimant had had discussions

with Max about repaying him for this support when he could. Id.

at 237. 

ALJ Kaplan then attempted to examine Claimant, but quickly

Claimant became uncooperative, confused, or both. Asked whether

he recalled when and where discussions regarding repayment

occurred, Claimant responded several times with requests to his

attorney to answer for him. Id. at 237-38. When the request was

denied and the question renewed, Claimant responded, "You're

asking me a question that I'm taking the Fifth Amendment on." Id.

at 238. Claimant subsequently respond affirmatively to questions

seeking confirmation that Max provided support to him for six

years and that Claimant appreciated it. Id. But when asked

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whether he ever stated anything regarding paying Max back for this

support, he replied again, "I take the Fifth Amendment." Id. 

Claimant's attorney and ALJ Kaplan explained to Claimant that

taking the Fifth was not appropriate in this context. Id. at 239. 

Seeming to understand, Claimant changed his response and confirmed

that he had at some point during the time he was receiving the

Interim In-Kind Support stated to Max his intention to pay Max

back, but could not recall when or where. Id. at 239-40. The

only basis he was able to give for how he intended to make such

repayment was that he would be able to do so once his attorney

"successfully represented [his] SSI Disability Claim." Id. at

241.

ALJ Kaplan's Decision Affirming Reduction of Retroactive Benefits

On August 6, 2005, ALJ Kaplan issued a decision which

reaffirmed the SSA's decision to reduce Claimant's retroactive

benefits, based on his determination that Claimant had "not

sustained his burden of proving that payments made by his father

on behalf of claimant constitute a loan" (ALJ Kaplan's Decision"). 

Id. at 164. In reaching this conclusion, ALJ Kaplan engaged in a

kind of two and a half part analysis based on his understanding of

SSR 92-8p and Hickman v. Bowen, 803 F.2d 1377 (5th Cir. 1986) and

Ceguerra v. Secretary of Health and Human Services, 933 F.2d 735

(9th Cir. 1991) decisions on which SSR 92-8p is founded.

ALJ Kaplan's Decision states first "[a]s to issues concerning

the application of California law, I am ruling in favor of

claimant's contentions. Nothing in California law precludes

finding a loan to exist under the circumstances of this case." 

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Id. at 158. However, he continued, "[d]etermining whether a loan

agreement exists under SSR-8p and supporting case law is more

difficult to resolve." Id. 

The decision then identifies "generally the understanding or

intent of the parties to a transaction" as the "dispositive

issue," and lays out a two-part criteria, based on SSR 92-8p, for

determining it: "(1) A loan 'means' an advance that a borrower

'must repay' and (2) when money is given and accepted based on any

understanding other than that it is to be repaid 'no loan

exists.'" Id. at 158. 

ALJ Kaplan disposed of the second part of this criteria as

follows: "I find based on the totality of the evidence in this

case--and without a rigid application of the SSR 92-8p assignment

of the burden of proof to a claimant--that the record does not

establish an understanding that the advance of money from Mr.

Handley to claimant is not a loan." Id. at 158. Having so

decided, ALJ Kaplan determined that he was left only with "the

question of whether the payments are an advance claimant must

repay." Id. 

To answer this question, ALJ Kaplan began with a

consideration of the Promissory Note, which begins with: "I do

not find [the Promissory Note] to constitute evidence having

substantial weight as to the issue whether [the Interim In-Kind

Support] constituted a loan." Id. In support of this conclusion,

the decision details Max Handley's ambiguous response to ALJ

Kaplan's questions regarding why the Promissory Note was concluded

(detailed supra pp. 10-14), and Max's testimony that the

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Promissory Note was drafted by Claimant's attorney to improve

Claimant's legal position in his then upcoming hearing before ALJ

Lazuran (detailed supra p. 11). Id. at 158-59. 

ALJ Kaplan did not, however, formally find that the

promissory note was a sham; rather, the decision states "that the

note was prepared in order to satisfy what counsel believed to be

the legal requirement for a written contract to be found for SSI

purposes." Id. at 159. On this basis, and because no such 

requirement exists, ALJ Kaplan subsequently ruled that the

Promissory Note's only relevance "is its reference to reaffirming

an oral promise purportedly made in 1995," but that its late

creation made its weight in this regard slight. Id. 

Having thus disposed of the Promissory Note, the remainder of

the decision focuses on the testimony given by Max Handley and, to

a lesser extent, Claimant regarding the circumstances under which

Max provided the Interim In-Kind Support and the alleged oral

agreement that Claimant would repay Max for it. This testimony,

ALJ Kaplan found, failed to prove that the Interim In-Kind Support

constituted an advance which Claimant "must repay." Id. Rather,

he found that the testimony of Max Handley in particular,

demonstrated a conditional "hope" on Max's part that Claimant

would at some point be able to pay the money back. Id. at 162 

This hope was based, further, not on an expectation that Claimant

would fulfill a binding promise made to Max, but instead "a

father's well meaning desire to see his son's mental state improve

to the point where he would be able to work, with the incidental

potential for repayment." Id. 

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ALJ Kaplan "accord[ed] no probative weight to claimant's

testimony." Id. at 163. In particular, the decision states:

In the context of his refusal to answer questions or

provide details, his vague reference to discussions and

"an understanding" about repayment fail to provide

support for finding the existence of a loan based on

payments that "must" be made.

Id. The decision further cites, in support of ALJ Kaplan's

negative credibility assessment of Claimant, Claimant's decision

to "answer[] only questions of his choosing, his refusal to

testify fully and his obvious ability to understand and take

advantage of subtle facts . . . and testify when it was suitable

and advantageous to him." Id. 

Finally, ALJ Kaplan noted that while Claimant has now begun

to receive SSI benefits, Claimant, unlike the beneficiary in

Ceguerra, has not yet made any payments to Max Handley pursuant to

the terms of the Promissory Note. Id. 

The particular findings of the decision state inter alia

regarding the nature of the Interim In-Kind Support:

5. California law does not preclude finding a loan to

exist based on the facts of this case.

6. The record does not establish that the payments do

not constitute a loan within the meaning of SSR 92-8p.

7. The record does not establish that the payments

represent a loan that must be repaid within the meaning

of SSR 92-8 [sic].

8. Claimant has failed to sustain the burden of proving

that a loan exists.

9. No valid loan agreement existed regarding the in

kind advance pursuant to SSR 92-8p and Secretary of HHS

v. Ceguerra, 933 F.2d (9th Cir. 1991) [sic].

Id. at 163-64.

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On September 23, 2005, Claimant timely appealed ALJ Kaplan's

decision to the Appeals Council, claiming both an error of law by

ALJ Kaplan and bias. Id. at 149-51. The Appeals Council denied

the appeal on October 21, 2005, and adopted ALJ Kaplan's decision

as that of the SSA. Id. at 146-48. On November 10, 2005,

Claimant filed the instant complaint, timely appealing the latter

decision, but no longer making any allegation of bias.

III. LEGAL STANDARD

The Court will reverse the SSA's decision to reduce SSI

benefits only "if it is not supported by substantial evidence or

based on legal error." Burch v. Barnhart, 400 F.3d 676, 679 (9th

Cir. 2005) (internal quotation omitted). "Substantial evidence is

more than a mere scintilla but less than a preponderance; it is

such relevant evidence as a reasonable mind might accept as

adequate to support a conclusion." Sandgathe v. Charter, 108 F.3d

978, 980 (9th Cir. 1995). Credibility determinations of witness

testimony are left to the ALJ, Lewis v. Apfel, 236 F.3d 503, 509

(9th Cir. 2001), but like all findings of fact must be supported

by substantial evidence in the record. Ceguerra v. Sec'y of

Health and Human Serv., 933 F.2d 735, 738 (9th Cir. 1991). 

Finally, "[a] decision of the ALJ will not be reversed for errors

that are harmless," Burch, 400 F.3d at 679, and a reviewing court

has "the power to enter, upon pleadings and transcript of the

record, a judgment affirming, modifying, or reversing the decision

of the Commissioner of Social Security, with or without remanding

the cause for a rehearing." 42 U.S.C. 405(g).

As with any motion for summary judgment, the movant "always

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bears the initial responsibility of informing the District Court

of the basis for its motion, and identifying those portions of the

pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, which it believes

demonstrate the absence of a genuine issue of material fact." 

Celotex v. Catrett, 377 U.S. 317, 323 (1986). 

IV. DISCUSSION

Though far from models of clarity, Claimant's Motion for

Summary Judgment ("MSJ") and Claimant's Opposition to Defendant's

Cross Motion for Summary Judgment ("Claimant's Opposition")

together contain two main arguments for overturning the SSA's

decision: 1) the Appeals Council's instructions to the ALJ

(ultimately ALJ Kaplan) contained in the Appeals Council 2005

Remand Order constituted a reverseable error of law; and 2) ALJ

Kaplan's taking of the testimony of Max Handley and Claimant to

determine whether a valid loan agreement existed under California

law concerning the Interim In-Kind Support did as well. See MSJ;

Claimant's Opposition. The Government's Cross-Motion for Summary

Judgment ("Cross-Motion"), in response, refutes both contentions

and requests that ALJ Kaplan's decision be affirmed. See CrossMotion. 

For the reasons discussed below, the Court finds that: 

1) the Appeals Council 2005 Remand Order does not constitute a

final decision of the SSA, and so is not reviewable by this Court;

2) ALJ Kaplan was correct in taking the testimony of Claimant and

Max Handley to determine whether a valid loan agreement under

California law existed concerning the Interim In-Kind Support, and

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5

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challenge to this claim of error by Claimant, subject matter

jurisdiction is unwaivable and the Court is obligated to address

such issues sua sponte, if necessary.

21

any error committed by ALJ Kaplan in the manner in which he

formulated his decision was harmless. Claimant's MSJ is therefore

DENIED, the Government's Cross-Motion GRANTED, and the decision of

the SSA is AFFIRMED. 

A. Appeals Council 2005 Remand Order

Claimant’s first claim of error is that the instructions

contained in the Appeals Council 2005 Remand Order constituted a

reverseable error of law. See MSJ; Claimant's Opposition. The

Court dismisses this claim on the ground that the Appeals Council

2005 Remand Order constitutes a non-final decision of the SSA, to

which the Court has no subject matter jurisdiction to hear

challenges. Matlock v. Sullivan, 908 F.2d 492, 493 (9th Cir.

1990).5

Claimant characterizes the legal error allegedly committed by

Appeals Council alternatively as failing to follow the "rule of

mandate" or as violating the "law of the case." In particular,

Claimant points to instructions in the Appeals Council 2005 Remand

Order which instruct the ALJ upon remand to "obtain the testimony

of the claimant and his father/representative payee and will

question them closely regarding the terms of the original oral

loan, subsequent 'reaffirmations', and, finally, the written loan

document." AR at 171. According to Claimant this "misrepresented

California law," Claimant's Opposition at 4, and thus constituted

a failure to follow the Court's Stipulated Remand Order, a failure

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6 Section 404.983 gives the Appeals Council the discretion,

upon remand of a case from a Federal court, to make a decision

itself or to remand the case to an ALJ. 20 C.F.R. § 404.983. 

22

which Claimant describes as violation of the "law of the case"

and/or "rule of mandate." MSJ at 4. For the sake of clarity, the

Court notes that Claimant's claim of error in this regard is more

properly characterized as simply an error of law. Sullivan v.

Hudson, 490 U.S. 877, 886 (1989) ("Deviation from the court's

remand order in the subsequent administrative proceedings is

itself legal error, subject to reversal on further judicial

review.") 

But regardless how Claimant might choose to characterize his

claim of an error by the Appeals Council in its formulation of its

2005 Remand Order, it fails, because that order is a non-final

decision by the SSA which this Court cannot review. "The Social

Security Act ("Act") limits judicial review to 'final decision[s]

of the Secretary made after a hearing.'" Matlock 908 F.2d at 493

(quoting 42 U.S.C. § 405(g) and additionally citing 42 U.S.C. §

405(h)). As the court in Matlock noted, the Act does not

establish what constitutes a "final decision," but rather leaves

it to SSA to "flesh out by regulation." Id. (internal citation

omitted). Section 404.984 of the Social Security Regulations

states, “[i]n accordance with § 404.983, when a case is remanded

by a Federal court for further consideration, the decision of the

administrative law judge will become the final decision of the

Commissioner after remand on your case unless the Appeals Council

assumes jurisdiction of the case.” 20 C.F.R. § 404.948.6 The

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7

 Claimant’s own pleadings, in fact, admit that the ultimate

location of the alleged legal error, if any, rests with ALJ Kaplan: 

“Because the ALJ relied on the Appeals Councils [sic] rendering of

California law, the Appeals Council’s error became the ALJ’s

failure to follow the ‘rule of mandate’ because the charge to the

Appeals Council and ultimately to the ALJ was to make the

determination following California law.” Claimant's Opposition at

4 (emphasis added). It thus is not only proper under the law, but

also makes logical sense, for the Court to judge whether the SSA

committed the alleged legal error where that error, if any,

actually occurred, viz., in the context of the decision by ALJ

Kaplan.

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Appeals Council did not assume jurisdiction when it remanded the

case to ALJ Kaplan, and so ALJ Kaplan's decision, after it was

adopted by the Appeals Council on October 21, 2005, AR. at 146-48,

became the final decision of the SSA. It is therefore ALJ

Kaplan's decision, and not the Appeals Council 2005 Remand Order,

which is reviewable by this Court. See Pallotta v. Barnhart, 144

Fed. Appx. 938, 940 (3rd Cir. 2005); Bowman v. Secretary of Health

& Human Services, 986 F.2d 1426 (10th Cir. 1993)(table decision).7

B. ALJ Kaplan’s Determination

Claimant raises, in his MSJ and Opposition, and to a greater

and lesser degree argues, various reasons why ALJ Kaplan's

decision should be over-turned. Rather than spend the time

outlining each, the court will deal (and dispose of) each in turn. 

1) Alleged Errors of Fact

Twice in its papers, Claimant makes bald assertions that ALJ

Kaplan made factual errors in his determination: "Commissioner's

actions, findings and conclusions were not supported by

substantial evidence," MSJ at 2; "Plaintiff alleges that the ALJ

has unfairly and inaccurately summarized the facts in his decision

August 26, 2005." Claimant's Opposition at 2. The Court can

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perceive of no support for these allegations in the record. 

Furthermore, Claimant has itself offered no argument to support

them. The Court, thus, denies that part of Claimant's MSJ based

on these allegations. See Celotex 377 U.S. at 323. 

2) Alleged Legal Errors

Claimant, more or less clearly, also makes two claims of

reverseable legal error by ALJ Kaplan. Both fail. 

a) ALJ Kaplan's Provisional Determination

Claimant first argues ALJ Kaplan's finding that "[n]othing in

California law precludes finding a loan to exist under the

circumstances of this case," MSJ at 5 (quoting AR at 158),

constitutes a finding that "the memorialization was a valid loan

under California law and thus binding on the parties which was

sufficient under Defendant's own Rule SSR 92-8p." Id.

This argument first fails for the plain reason that the

finding was preliminary and provisional: ALJ Kaplan's ultimate

finding was that "[n]o valid loan agreement existed." AR at 164. 

Though it is unfortunate that ALJ Kaplan was not clearer in this

regard, ALJ Kaplan appears to have made this provisional finding

in response to clauses in SSR 92-8p which make clear the

requirement that a loan be "enforceable under State law" is to be

interpreted as broadly as the applicable state law allows. SSR

92-8p(1). In this regard, Section 1 of the ruling states that "as

long as it is enforceable under State law," a loan may be "cash or

an in-kind advance," it can be a "commercial or non-commercial

loan (between relatives, friends or others)," and the agreement on

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8

 The Court notes in this regard that the SSA issued SSR 92-8p

to supercede its former ruling on the subject, SSR 78-26, in

response to the decisions of the Fifth Circuit Court of Appeals in

Hickman v. Bowen 803 F.2d 1377 (5th Cir. 1986) and Ninth Circuit

Court of Appeals in Ceguerra 933 F.2d 735, which both found inter

alia that SSR 78-26 improperly excluded advances of in-kind support

in its definition of qualifying loans. SSR 92-8p, Background. 

25

which it is based "may be oral or written." SSR 92-8p(1).8 ALJ

Kaplan's provisional finding constituted only a determination

that, as an initial matter, California law recognized the

possibility of an enforceable loan existing, if the circumstances

were as alleged. 

While, for reasons explained below, this does not affect the

Court's ultimate decision to affirm ALJ Kaplan's decision, the

Court does agree with Claimant's implicit argument--which the

Government seems also to implicitly accept--that the key

determination for ALJ Kaplan was whether the Interim In-Kind

Support constituted an enforceable loan under California law. 

The two times the Ninth Circuit Court of Appeals has been called

on to determine what constitutes a loan for the purposes of

deciding whether an SSI beneficiary's benefits should be reduced

under 20 C.F.R. § 416.1103–first under former ruling SSR 78-26 and

second under current SSR 92-8p--it has focused the inquiry on

whether the alleged loan was "enforceable under state law." 

Sharma v. Barnhart,32 Fed. Appx. 236, 238 (9th Cir. 2002);

Ceguerra 933 at 739-40. This is supported by the text of SSR 92-

8p, which defines a loan twice in its Section 1 by reference to

whether the alleged loan is enforceable under state law, SSR 92-

8p(1), and refers back to Section 1 in subsequent sections, when

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the result turns on whether something is a loan. See SSR 92-

8p(2), (4). Thus, ALJ Kaplan's somewhat convoluted and confusing

parsing of Section 1 of SSR 92-8p and reference to Section 3 of

SSR 92-8p was unnecessary and incorrect. See supra p. 16. The

only inquiry which ALJ Kaplan was required to conduct under SSR

92-8p and the Court's Stipulated Remand Order was whether there

existed a valid loan agreement covering the Interim In-Kind

Support, enforceable under California law. However, as explained

below, ALJ Kaplan committed no legal error in the manner in which

he conducted his hearing, and his ultimate determination that no

such valid loan agreement existed was also correct, thus any error

ALJ Kaplan committed by formulating his decision in the manner he

did was harmless.

b) ALJ Kaplan's Consideration of Parol Evidence

Claimant's other claim that ALJ Kaplan committed a

reverseable legal error mirror's Claimant's misplaced argument

regarding the Appeals Council 2005 Remand Order discussed above: 

ALJ Kaplan improperly considered parol evidence, specifically the

testimony by Claimant and Max Handley, in reaching his

determination that there was no valid loan agreement covering the

Interim In-Kind Support. This argument also fails.

As an initial matter, Claimant’s argument demonstrates a

fundamental misunderstanding of the task which ALJ Kaplan was

given and thus the law which applies to it. Claimant, citing the

existence of a written instrument in the form of the Promissory

note, states that ALJ Kaplan was required, under California law,

to first "determine whether the language of the written contract

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was ‘reasonably susceptible’ to an interpretation of more than one

meaning," before he made recourse to extrinsic evidence. 

Claimant's Opposition at 4. However, the Court’s Stipulated

Remand Order, the Appeals Council 2005 Remand Order, and ALJ

Kaplan’s decision all make clear that the issue before ALJ Kaplan

was not the interpretation of the alleged loan agreement but its

validity. AR at 166, 171, 156. California law specifically

allows the introduction of extrinsic evidence to determine the

validity of an agreement, written or otherwise. “Where the

validity of the agreement is the fact in dispute, this section

does not exclude evidence relevant to that issue.” Cal. Code.

Civ. Prod. § 1856(f); see also Cal. Code. Civ. Prod. § 1856(g)

(allowing consideration of extrinsic evidence to, inter alia,

establish allegations of the fraudulent nature of an agreement). 

Thus, some of the cases cited by Claimant do support the

proposition that California law places some restrictions on

recourse to extrinsic evidence when interpreting a written

agreement. See, e.g., MSJ at 7 (quoting City of Hope National

Medical Center v. Genetch, Inc., 123 Cal. Rptr. 3d 234, 246-247

(Cal. App. 2005) ("The test of admissibility if extrinsic evidence

to explain the meaning of a written instrument . . . If the

language is in fact fairly susceptible to two interpretations.")

(modifications and emphasis added). But Claimant is incorrect in

its assertion that the proposition applies here where the issue is

not the interpretation of a loan agreement covering the Interim

In-Kind Support but rather its existence and validity.

The fact that the written agreement in this case is the

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Promissory Note which alleges to “reaffirm” a prior oral promise

by the Claimant somewhat complicates, but does not fundamentally

change the situation. AR at 142. The Promissory Note is held by

Max Handley, rather than a holder in due course, and thus its

enforcement is subject to the same defenses as apply to the

enforcement of a simple contract. Cal. Com. Code § 3305(a)(2). 

And in evaluating these defenses, ALJ Kaplan was subject to the

same general rules regarding the admissibility of extrinsic

evidence discussed above. FPI Development, Inc. v. Nakashima, 231

Cal. App. 3d 367, 376 (3d Dist. 1991). 

Thus, ALJ Kaplan was free to test the validity of the

Promissory Note by taking extrinsic evidence to determine whether

the note was fraudulent or a "sham." FPI Development, Inc. 231

Cal. App. 3d at 401 (“Where the defense is that the writing is a

sham, i.e., no jural act at all, the parol evidence rule, strictly

speaking, has no application. That the writing is a promissory

note affords no categorical basis for exception.”) (internal

citations omitted); Cal. Code. Civ. Prod. § 1856(g). And ALJ 

Kaplan was free to test the Promissory Note's validity by taking

extrinsic evidence to determine whether it was given for

consideration. Saks v. Charity Mission Baptist Church, 90 Cal.

App. 4th 1116, 1134 (2d Dist. 2001) (“[T]he absence of

consideration is always a defense to a suit on a promissory note

and since an instrument lacking in consideration is invalid this

fact may be shown by extrinsic evidence.”) (internal citations

omitted); Colorado National Bank v. Bohm, 286 F.2d 494, 496 (9th

Cir. 1961); Cal. Code. Civ. Prod. § 1856(f). A pre-existing debt,

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or “antecedent claim,” can constitute sufficient consideration to

support the validity of a promissory note, Cal. Com. Code 

§ 3303(a)(3), (b), and therefore can be tested, as any other claim

of consideration, by recourse to extrinsic evidence. See,

generally, McKay v. Security-First Nat. Bank of Los Angeles, 35

Cal. App. 2d 349, 354 (2d Dist. 1939).

Thus, it was completely proper for ALJ Kaplan to query

Claimant and Max Handley regarding the circumstances under which

the Promissory Note was concluded, including the fact that it was

drafted five years after the oral promise allegedly took place and

on the eve of a proceeding before the SSA and for the admitted

purpose of helping Claimant's position in that proceeding. See

supra ¶. 10-12, 14-15. Such an inquiry goes to whether the

Promissory Note was a sham, and thus its validity. FPI

Development, Inc. 231 Cal. App. 3d at 401. It was also proper for

ALJ Kaplan to query Claimant and Max regarding the alleged oral

promise that the Promissory Note purports to affirm. See supra ¶.

13-15. As discussed above, a pre-existing debt can constitute

sufficient consideration for a promissory note, thus ALJ Kaplan

was wholly within the law to inquire whether Claimant really owed

Max Handley a pre-existing debt flowing from an oral agreement

regarding the Interim In-Kind Support made at the time it was

given. Further, as ALJ Kaplan correctly noted, there is no

requirement under California law, and thus SSR 92-8p, that a loan

agreement be written, thus the validity of the alleged oral loan

agreement was potentially independently dispositive. For either

purpose, it was unquestionably proper for ALJ Kaplan to examine

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9 As noted above, Claimant's arguments regarding the Appeals

Council's and/or ALJ Kaplan's failure to follow the "rule of

mandate" or the "law of the case" are more properly characterized

as an argument that the SSA failed to follow the terms of the

Court's Stipulated Remand Order, which, if proved, would constitute

an error of law. Because the Court finds no error under California

law in the manner in which ALJ Kaplan conducted the hearing on

remand, it finds that ALJ Kaplan did not violate the terms of the

Court's Stipulated Remand Order.

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both Claimant and Max Handley so as to determine whether an oral

loan agreement manifesting their mutual intent was ever formed. 

Banner Entertainment, Inc. v. Superior Court, 62 Cal. App. 4th.

348, 358-59 (2d Dist. 1998).9 

As the Court noted above, while it finds no error in the

manner in which ALJ Kaplan conducted the hearing just described,

it does not approve of the way he subsequently formulated his

decision. ALJ Kaplan, properly, should have drafted his decision

along the lines which the above discussion suggests. First, he

should have made a finding one way or another whether the

Promissory Note was a sham. Second, he should have made a finding

whether there was a valid oral agreement under California law

which covered the Interim In-Kind Support: either as the basis

for Claimant's alleged oral promise which the Promissory Note

purports to reaffirm and which is therefore alleged to form the

consideration for the Promissory Note; or, if he found the

Promissory Note was a sham, as an independent basis for finding

the Interim In-Kind Support was a loan.

It would, however, be needless formalism to remand the case

back to ALJ Kaplan or another ALJ for this reason. The Court is

comfortable on the basis of the Record, including ALJ Kaplan's

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very competent questioning of Max Handley and the Claimant, to

determine for itself, as it is free to, that there was no valid

oral agreement under California law covering the Interim In-Kind

Support, either to support the Promissory Note or to provide an

independent basis for finding a loan. However, the Court sees no

need to do so. 

Though his wording could have been more precise, ALJ Kaplan

made more than adequate findings to support the conclusion that

there was no valid oral loan agreement, which was necessary, in

any event, to reach his formal finding that "[n]o valid loan

agreement existed regarding the in kind advance pursuant to SSR

92-8p and Secretary of HHS v. Ceguerra, 933 F.2d (9th Circuit

1991) [sic]." AR at 164. These include the specific finding

"that the advance was not made with the understanding that there

must be repayment." Id. at 162. This finding is directly at odds

with a determination that Max Handley and Claimant shared a

"[m]utual intent" at the time the Interim In-Kind Support was

provided that the support constituted an enforceable loan. Banner

Entertainment, Inc., 62 Cal. App. 4th at 358. Such "[m]utual

intent is determinative of contract formation," and thus its

absence defeats Claimant's assertion that a valid oral loan

agreement was concluded between Claimant and Max Handley regarding

the Interim In-Kind Support, "because there is no contract unless

the parties thereto assent." Id. 

This, and ALJ Kaplan's other related findings, are based on

substantial evidence garnered from Max Handley's testimony, much

of which ALJ Kaplan quotes extensively in his decision. ALJ

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Kaplan's determination that Claimant's contrary assertions were

not credible are fully explained in his decision and are more than

substantially supported by the evidence in the Record. AR at 163.

V. CONCLUSION

For the aforementioned reasons, Claimant's Motion for Summary

Judgment is hereby DENIED in full, Defendant's Cross-Motion for

Summary Judgment is hereby GRANTED, and the decision of the SSA is

AFFIRMED.

IT IS SO ORDERED.

Dated: July 28, 2006

 

UNITED STATES DISTRICT JUDGE

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