1

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

DARRIN LENALD COOPER,

Debtor.

BAP No. WW-23-1098-CBS

Bk. No. 2:20-bk-11937-MLB

MEMORANDUM∗

DARRIN LENALD COOPER, 

Appellant,

v.

SOCIAL SECURITY ADMINISTRATION,

Appellee.

Appeal from the United States Bankruptcy Court

for the Western District of Washington

Marc L. Barreca, Bankruptcy Judge, Presiding

Before: CORBIT, BRAND, and SPRAKER, Bankruptcy Judges.

INTRODUCTION

The Social Security Administration (the “Agency”) overpaid Darrin 

Cooper (“Cooper”) disability insurance benefits. Subsequently, Cooper filed for 

relief pursuant to chapter 71 of the Bankruptcy Code. After Cooper received a 

discharge, the Agency proceeded to deduct the prepetition overpayment from 

Cooper’s post-petition disability insurance benefits. Cooper reopened his 

∗ This disposition is not appropriate for publication. Although it may be cited for 

whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, 

see 9th Cir. BAP Rule 8024-1.

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy 

Code, 11 U.S.C. §§ 101-1532.

FILED

JAN 16 2024

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
2

bankruptcy case and moved to hold the Agency in contempt for violating the 

discharge injunction by collecting the prepetition overpayment after entry of his 

bankruptcy discharge. The bankruptcy court, in applying the equitable doctrine 

of recoupment, denied Cooper’s motion and Cooper appealed. Because we 

discern no error, we AFFIRM.

FACTS

A. Pre-bankruptcy events 

In 2007 Cooper was injured while he worked for Boeing Company. 

Cooper began receiving workers’ compensation benefits through the 

Washington State Department of Labor & Industries. Cooper received monthly 

workers’ compensation benefits of $4,862.25 or more. 

In May 2017, Cooper applied to the Agency for Social Security Disability 

Insurance Benefits (“SSDI”) 2 and Supplemental Security Income (“SSI”).

Cooper’s application summary indicated that Cooper had stated that he had 

been unable to work since February 9, 2009, and that he had “filed or intend[ed] 

to file for workers’ compensation . . . but [he was] not receiving benefits.” 

Cooper’s 2017 SSDI application was denied. 

Cooper, with the assistance of counsel, appealed the denial decision. After 

an administrative hearing, an administrative law judge (“ALJ”) issued Cooper a

fully favorable decision on April 30, 2019. 

2 SSDI payments are part of the program that most people simply call “Social 

Security,” which provides “old age,” survivors, and disability insurance benefits. 42 U.S.C. 

§§ 401-434.
3

1. Fully favorable decision

In the decision, the ALJ found that Cooper had been disabled as defined 

in 42 U.S.C. § 1382(a)(3)3 since December 1, 2014 (Cooper’s amended onset 

disability date). The ALJ decision also informed Cooper that the Agency would 

let Cooper know if he would receive SSI in addition to SSDI payments. The ALJ 

decision warned Cooper that the “workers’ compensation offset provisions at 

20 CFR 404.408 may be applicable.” 

2. Workers’ compensation/public disability benefit questionnaire

On May 1, 2019, after receiving his favorable SSDI decision, Cooper faxed 

his responses to the Agency’s questionnaire regarding workers’ compensation

and public disability benefits to the Agency’s field office in Everett, 

Washington. The questionnaire specifically requested information from Cooper 

regarding any other disability payments he was receiving. Cooper disclosed he 

was receiving workers’ compensation from the state of Washington and 

attached a payment summary.

Although it was the Agency’s field office in Everett, Washington that sent 

the questionnaire and solicited the information, its Western Program Service 

Center, in Richmond, California (“Western PSC”) was responsible for 

3 The “Social Security Act” is codified at 42 U.S.C. §§ 301-1397mm. It has become a 

sprawling statute and provides for a myriad of benefit programs. Title II of the Social 

Security Act contains the provisions for “Federal Old-Age, Survivors, and Disability 

Insurance Benefits.” For a list of the provisions of the Social Security Act, see the Table of 

Contents to the Compilation of the Social Security Laws 

https://www.ssa.gov/OP_Home/ssact/ssact-toc.htm (last accessed Jan. 12, 2024).
4

approving Cooper’s SSDI claim on May 3, 2019 (based on the ALJ’s fully 

favorable decision). 

Unfortunately, because the Everett Office failed to correctly process 

Cooper’s responses to the workers’ compensation/public disability benefit 

questionnaire, the Western PSC did not know that Cooper was receiving 

additional disability benefits. Consequently, the Western PSC calculated 

Cooper’s SSDI benefits based on the erroneous belief that Cooper was not 

receiving any other disability compensation. 

3. Notice of Award and receipt of SSDI funds

On May 10, 2019, the Agency informed Cooper that based on the ALJ’s 

favorable SSDI decision, he was entitled to SSDI payments of approximately 

$1,800 per month beginning May 2016. The notice stated that the Agency would 

hold Cooper’s past due SSDI benefits, approximately $73,355.50 (representing 

retroactive SSDI payments Cooper should have received May 2016 through 

April 2019), pending a determination of whether Cooper had also received SSI 

benefits during that time. The notice instructed that if he had also received SSI 

benefits then his retroactive SSDI benefits would be reduced accordingly. 

The notice of award also informed Cooper that if he received workers’ 

compensation benefit payments, the Agency might have to reduce his SSDI. The 

notice warned Cooper in bold text: “you may have to pay back any Social 

Security benefits that you were not due. Please let us know the decision on the 

[workers’ compensation] claim right away.”

The Agency ultimately determined that Cooper did not get SSI money for 

May 2016 through April 2019 and sent a notice of change in benefits. The notice 
5

informed Cooper that the Agency would be sending Cooper a check for 

$67,355.50 representing his retroactive SSDI benefits for May 2016 through April 

2019, less a $6,000 payment to his legal representative and Medicare premiums.

In August 2019, the Agency sent Cooper the check for $67,355.50. At the 

same time, Cooper began receiving monthly SSDI payments of approximately 

$2,000. 

B. Cooper’s bankruptcy

On July 21, 2020, Cooper filed a chapter 7 bankruptcy petition.4 Cooper’s 

Schedule I listed monthly social security payments of $1,999.00 and monthly 

pension or retirement income of $925.5 Cooper did not list the Agency as a 

creditor, and thus the Agency did not receive notice of Cooper’s bankruptcy 

filing. After the chapter 7 trustee determined it was a no-asset case, Cooper 

received a discharge on October 21, 2020, and the case was closed on October 

30, 2020. 

C. Agency’s overpayment

Subsequently, the Agency requested additional evidence related to 

Cooper’s receipt of workers’ compensation. On December 26, 2020, Cooper

responded to the Agency’s “2nd Request for Evidence . . . Request for Workers’ 

4 We exercise our discretion to take judicial notice of documents electronically filed in 

the bankruptcy court, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re 

Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

5 It appears that Cooper included his workers’ compensation payments under line 8g. 

“pension or retirement income” which is understandable given that the payments were 

referred to as pension payments in some documents. However, Cooper stated it was $925 per 

month even though his workers’ compensation payments were always between $3,800-$4,500 

per month.
6

Compensation Information.” Cooper responded that he was receiving workers’ 

compensation payments. Cooper’s response included records showing that he 

had been receiving workers’ compensation benefits through the Washington 

State Department of Labor and Industries for a period that included at least

February 2016 through November 2020. Cooper also sent a notice of his 

bankruptcy discharge with a note stating that “any funds I may owe Social 

Security Adm. is [sic] included in the bankruptcy.” 

After processing the information about Cooper’s other disability benefit 

payments, the Agency issued Cooper a notice of change in benefits dated 

October 30, 2022. The notice explained that because Cooper received workers’ 

compensation payments from May 2016 through May 2019, the period during 

which Cooper received both SSDI and unreduced workers’ compensation 

benefits, the Agency had overpaid Cooper $73,112.90. The notice further 

explained, “[w]e adjusted your past-due benefit amount due to your workers’ 

compensation payments. You or your representative did not provide proof of 

your workers’ compensation when your claim was adjudicated. Therefore, you 

. . . are overpaid.” 

Cooper was given the option to repay the overpayment, or the Agency 

would recover the overpayment by withholding his benefit payments starting 

in January 2023. Cooper was also notified he could: (i) request a waiver; (ii) 

request the Agency withhold less than his full monthly benefit based on his 

financial needs; and/or (iii) could appeal the Agency’s decision that he was 

overpaid.
7

Cooper did not seek a waiver or appeal the Agency’s decision regarding 

the overpayment. Instead, Cooper’s attorney moved to reopen Cooper’s 

bankruptcy case and filed a motion for an order to show cause why the Agency 

“should not be held in contempt for violating the automatic stay 11 U.S.C. 

§ 362” (the “Motion”).

D. Motion to hold Agency in contempt

Although the Motion caption indicated that Cooper sought an order 

finding the Agency in contempt for violating the automatic stay, the body of the 

Motion argued that the Agency had violated the bankruptcy discharge

injunction “by continuing to recoup [Cooper’s] discharged pre-petition Social 

Security overpayment from his current payments.” 

Cooper asserted that the overpayment was due to the Agency’s error in 

failing to properly communicate between offices that he was also receiving state 

workers’ compensation benefits because of his disability. Cooper explained that 

he was unaware of the overpayment at the time he filed his bankruptcy and 

thus, the Agency was not listed as a creditor. Cooper argued that “debts owed 

to creditors in a no-asset Chapter 7 case are still discharged even when they are 

not listed in a debtor’s schedules.” Cooper concluded that the overpayment 

debt to the Agency was discharged regardless of whether the Agency had 

notice of his bankruptcy. Cooper sought an order holding the Agency in 

contempt for violating the discharge injunction by continuing to collect on a 

discharged debt. 

In the Agency’s opposition to the Motion, it argued that “[e]quitable

recoupment is a well-recognized exception to both the discharge injunction and 
8

automatic stay that the Ninth Circuit has applied in closely analogous cases.” 

The Agency argued that it was statutorily required to recover any overpayment

and Cooper’s legal entitlement to ongoing SSDI payments depended on 

whether he had received any SSDI overpayments. The Agency concluded that it 

had properly invoked equitable recoupment and its recovery of the 

overpayment from Cooper’s continuing stream of SSDI payments did not 

violate either the discharge injunction or automatic stay. 

After a hearing and supplemental briefing, the bankruptcy court provided 

an oral ruling on May 10, 2023. The single issue was whether the Agency 

properly invoked the equitable remedy of recoupment to recover the SSDI 

overpayment from Cooper’s future SSDI payments. If recoupment was 

authorized, the Agency’s withholding from Cooper’s post-petition SSDI 

payments did not violate the discharge injunction. 

In its oral ruling, the bankruptcy court first explained that recoupment is 

an equitable doctrine that, although not explicitly addressed in the Bankruptcy

Code, permits one party to recover an obligation from a second party because 

the second party owes a countervailing obligation to the first party, so long as 

both obligations arise out of the same “transaction or occurrence.” The 

bankruptcy court noted that the Ninth Circuit applies a “logical relationship” 

test when determining whether countervailing obligations arise from the same 

transaction. 

The bankruptcy court next determined that regardless of fault, Cooper’s 

“prepetition overpayment occurred regarding the same prepetition SSDI

entitlement as the post-bankruptcy SSDI entitlement payments the Agency 
9

seeks to recoup against.” Therefore, the bankruptcy court determined there was 

a “very strong logical relationship,” between the prepetition SSDI overpayment 

and the ongoing post-discharge SSDI payments. 

Based on its findings and conclusions, the bankruptcy court denied 

Cooper’s Motion, determining that the “Agency’s recoupment of [Cooper’s] 

prepetition overpayment is neither a violation of the discharge order or the 

automatic stay, and therefore, not subject to civil contempt sanctions.” The 

bankruptcy court entered an order memorializing its oral ruling.

Cooper timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 

ISSUES

Did the bankruptcy court err in allowing the Agency to apply equitable 

recoupment to recover the overpayment?

Was the application of recoupment equitable?

STANDARDS OF REVIEW

When, as here, “the historical facts are established, the rule of law is 

undisputed . . . and the issue is whether the facts satisfy the legal rule,” there is 

a mixed question of law and fact. Murray v. Bammer (In re Bammer), 131 F.3d 788, 

792 (9th Cir. 1997). In such situations we review mixed questions de novo. Id.; 

Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997). De novo 

means that we review a matter anew, as if no decision previously had been 

rendered. Dawson v. Marshall, 561 F.3d 930, 933 (9th Cir. 2009).
10

However, because recoupment is an equitable doctrine and its use by the 

bankruptcy court is permissive, we review the bankruptcy court’s decision to 

apply recoupment for an abuse of discretion. Aalfs v. Wirum (In re Straightline 

Invs., Inc.), 525 F.3d 870, 882 (9th Cir. 2008). A bankruptcy court abuses its 

discretion if it applies the wrong legal standard or if “its application of the 

correct legal standard to the facts was illogical, implausible, or without support 

in inferences that may be drawn from the facts in the record.” USAA Fed. Sav. 

Bank v. Thacker (In re Taylor), 599 F.3d 880, 887-88 (9th Cir. 2010).

DISCUSSION

A. Equitable Doctrine of Recoupment

“Equitable recoupment is a common law doctrine that is not expressly 

recognized in the Bankruptcy Code, but is preserved through judicial 

decisions.” Aetna U.S. Healthcare, Inc. v. Madigan (In re Madigan), 270 B.R. 749, 

753-54 (9th Cir BAP 2001); see also Reiter v. Cooper, 507 U.S. 258, 265 n.2 (1993) 

(“It is well settled . . . that a bankruptcy defendant can meet a plaintiff-debtor’s 

claim with a counterclaim arising out of the same transaction, at least to the 

extent that the defendant merely seeks recoupment.”).

As it applies in bankruptcy law, the equitable doctrine of recoupment 

allows a creditor to withhold funds owed to the debtor to offset a claim that 

arises from the same transaction as the debtor’s claim, without reliance on, or 

limited by, the setoff provisions of § 553. See Gardens Reg’l Hosp. & Med. Ctr.

Liquidating Tr. v. Cal. (In re Gardens Reg'l Hosp. & Med. Ctr., Inc.), 975 F.3d 926, 

933 (9th Cir. 2020). Because recoupment only reduces a debt, rather than 

constituting an independent basis for a debt, there is no claim against estate 
11

property, and recoupment is not subject to the automatic stay or the discharge 

injunction. In re Madigan, 270 B.R. at 754; Oregon v. Harmon (In re Harmon), 188 

B.R. 421, 425 (9th Cir. BAP 1995). Furthermore, because recoupment allows the 

creditor to use the discharged debt defensively, despite the discharge 

injunction, the doctrine essentially allows a creditor to recover a prepetition 

debt out of payments owed to the debtor post-petition. See Newbery Corp. v. 

Fireman’s Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir. 1996). 

However, the “‘limitation of recoupment that balances [these] 

advantage[s]’ under bankruptcy law ‘is that the claims or rights giving rise to 

recoupment must arise from the same transaction or occurrence that gave rise 

to the liability sought to be enforced by the bankruptcy estate.’” In re Gardens 

Reg'l Hosp. & Med. Ctr., Inc., 975 F.3d at 934 (quoting Sims v. U.S. Dep’t of Health 

& Human Servs. (In re TLC Hosps., Inc.), 224 F.3d 1008, 1011 (9th Cir. 2000))

(emphasis in original). The term “transaction” is given a liberal and flexible 

construction, and may comprehend a series of many occurrences, “depending 

not so much upon the immediateness of their connection as upon their logical 

relationship.” In re Madigan, 270 B.R. at 755 (citing Moore v. N.Y. Cotton Exch., 

270 U.S. 593, 610 (1926)).

To determine whether the “same transaction” requirement of recoupment 

is satisfied, the Ninth Circuit instructs bankruptcy courts to apply the “logical 

relationship test.” See In re TLC Hosps., Inc., 224 F.3d at 1012; Newbery Corp., 95 

F.3d at 1403. This “logical relationship test” asks whether the creditor’s claim 

arises out of the same aggregate set of operative facts as the debtor’s claim. In re 

Madigan, 270 B.R. at 755 (citing Pinkstaff v. United States (In re Pinkstaff), 974 F.2d 
12

113, 115 (9th Cir. 1992)). As stated in In re Gardens Reg'l Hosp. & Med. Ctr., Inc., 

975 F.3d at 934, the “test remains whether the relevant rights being asserted 

against the debtor are sufficiently logically connected to the debtor’s 

countervailing obligations such that they may be fairly said to constitute part of 

the same transaction.” (Citation omitted).

B. The logical relationship test

In applying the logical relationship test in equitable recoupment cases, 

“courts have permitted a variety of obligations to be recouped against each 

other, requiring only that the obligations be sufficiently interconnected so that it 

would be unjust to insist that one party fulfill its obligation without requiring 

the same of the other party.” In re Madigan, 270 B.R. at 755. Although no Ninth 

Circuit cases are directly on point, the Ninth Circuit has held the doctrine of 

equitable recoupment applied in similar cases including the overpayments of 

both federal6 and state Medicaid,7 and state retirement benefits.8

For example, a BAP panel held that a state pension provider’s recoupment 

of its overpayment from the debtor’s ongoing pension payments did not violate

the automatic stay. In re Williamson, 2018 WL 4926430, at *3. Similar to this case, 

the debtor received an overpayment of benefits prepetition and the creditor 

attempted to recoup the prepetition overpayment by reducing debtor’s ongoing post-petition payments. Id. at *2. The BAP panel agreed with the 

6 In re TLC Hosps., Inc., 224 F.3d at 1012-1015.

7 In re Gardens Reg’l Hosp. & Med. Ctr., Inc., 975 F.3d at 937-940.

8Williamson v. PARS (In re Williamson), BAP No. CC-17-1375-LSF, 2018 WL 4926430 (9th 

Cir. BAP Oct. 10, 2018), aff’d, 795 F. App’x 537 (9th Cir. 2020).
13

bankruptcy court’s determination that the “logical relationship test was met 

because the . . . [overpayment] and the benefits owed [to debtor] arose from the 

same set of operative facts.” Id. at *3. 

The Ninth Circuit affirmed, holding that “the party seeking recoupment 

‘may recoup its overpayments by applying them against its post-petition 

underpayment liabilities to [debtor], without being affected by the automatic 

stay.’” In re Williamson, 795 F. App’x at 538 (quoting In re TLC Hosps. Inc., 224 

F.3d at 1014). 

However, in another case involving the overpayment of disability 

benefits, a BAP panel found the facts did not satisfy the logical relationship test, 

and the creditor could not use recoupment to recover the overpayment from 

debtor’s post-petition disability payments. See In re Madigan, 270 B.R. at 761. 

In Madigan, the debtor was employed by a company that participated in a 

long-term disability (“LTD”) program administered by a private disability 

benefit insurer. 270 B.R. at 751-52. The debtor applied for and began receiving 

LTD. The insurer later determined it had overpaid debtor because debtor was 

also receiving Social Security benefits. Id. at 752. The debtor declined the 

insurer’s demand to repay the overpayment. Id. Soon thereafter debtor returned 

to work and filed a chapter 7 petition that listed the insurer as an unsecured 

creditor. Id. The debtor subsequently received a discharge and his no-asset 

bankruptcy case was closed. Id.

After working for a couple of years, the debtor applied a second time for 

LTD. Id. The debtor was approved for benefits, but the insurer “informed the 

debtor that it would continue to adjust future benefits to recover the . . . 
14

prepetition” overpayment. Id. In other words, the overpayment occurred during 

the first disability period, but the creditor attempted to recoup the overpayment 

by reducing debtor’s disability payments during the second disability period. 

Id. Debtor reopened his bankruptcy case and argued that the insurer’s reduction 

in his payments had violated the discharge injunction. Id.

The bankruptcy court agreed. Id. at 753. It determined that regardless of 

whether debtor’s disability was the same for both disability periods, “the 

overpayment for the first disability claim was not ‘logically related’ to . . . 

[insurer’s] reimbursement rights relative to the second disability claim, and 

therefore the ‘same transaction’ requirement for equitable recoupment had not 

been met.” Id. Accordingly, the bankruptcy court found that the insurer’s 

withholding payments due in the second disability period to reduce the 

overpayment made during the first disability period violated the discharge 

injunction. Id. 

The BAP panel agreed finding the fact the debtor’s benefits and 

overpayment arose from the same insurance policy was insufficient to establish 

the necessary logical relationship. Id. at 756-57. The panel reasoned that the 

overpayment and benefits were not part of the same transaction because the 

debtor had two different reimbursement agreements, two disability periods, 

and two claims separated by a two-year period of employment. Id. at 755-57. 

The panel held that, under these facts, even if the claims for benefits arose from 

the same injury or recurring illness, the two disability periods were not logically 

related because “the operative facts for the first disability claim were separate 

and distinct from those for the second claim.” Id. at 760. Accordingly, the panel 
15

affirmed the bankruptcy court’s application of the logical relationship test to 

deny recoupment. Id. at 760-61.

C. The application of the logical relationship test

Cooper argues that the bankruptcy court erred in applying recoupment 

because “the Agency cannot show that its pursuit of the $73,112.90 pre-filing 

overpayment arises from the same transaction or occurrence.” Cooper asserts 

that his on-going entitlement to SSDI payments requires periodic renewed 

findings by the Agency that he is disabled. Therefore, his current entitlement to 

SSDI did not arise from the same transaction or occurrence as the overpayment. 

We disagree. 

Unlike the debtor in Madigan, no facts suggest that Cooper’s disability 

payments arose from multiple disability periods. Indeed, Cooper has not stated 

that an intervening period of time existed in which he returned to work and 

was no longer considered disabled. Nor has Cooper stated that he had one 

disability at the time of the overpayment but now has a different disability. 

Rather, the record indicates that Cooper has suffered from the same disability 

since his entitlement to his first SSDI payment. Although Cooper may have to 

furnish the Agency with periodic updates as to his disability status, the 

bankruptcy court did not clearly err in determining that this requirement did

not sever the logical relationship between the SSDI overpayment and his 

current right to on-going SSDI payments. 

Consequently, the Agency’s obligation to pay Cooper SSDI and Cooper’s 

debt for prior overpayments “logically relate to one another as they both arise 

from the same aggregate set of operative facts.” In re Williamson, 795 F. App'x at
16

538 (internal quotation marks, citation, and alteration omitted); see also In re 

Harmon, 188 B.R. at 426. 

Furthermore, a legal relationship exists between the overpayment and 

Cooper’s continuing SSDI payments. Applicable to this case, the Social Security 

Act provides that if a person who has worked long enough, has paid taxes into 

the system, and is “under a disability,” the person “shall be entitled to a 

disability insurance benefit (i) for each month beginning with the first month 

after his waiting period . . . in which he becomes so entitled to such insurance 

benefits[.]” 42 U.S.C. § 423(a)(I)(E). The Social Security Act also provides that, 

when a recipient has been overpaid benefits, “recovery shall be made” by 

decreasing the benefit payments to which that person may be entitled. 42 U.S.C. 

§ 404(a). An overpayment occurs when “an individual has received 

more . . . than the correct payment due under title II of the Act.” 20 C.F.R. 

§ 404.501(a). 

Thus, Cooper’s right to continued SSDI payments and the Agency’s 

obligation to recover any SSDI overpayments to Cooper stem from the same 

statutory scheme and common fund.

Accordingly, based on the factual and legal logical relationship, the 

bankruptcy court did not err in finding that the Agency could recoup its 

prepetition SSDI overpayment by reducing Cooper’s ongoing post-petition 

SSDI payments without violating the discharge injunction. 

D. The application of recoupment was equitable.

Equitable recoupment is permissible only where mutual debts arise from 

“the same transaction,” and where “it would . . . be inequitable for the debtor to 
17

enjoy the benefits of that transaction without meeting its obligations.” See 

Newbery Corp., 95 F.3d at 1399, 1403 (citations omitted). Cooper argues at length 

that the Panel should find the bankruptcy court erred in applying recoupment 

because it is inequitable to make him pay for the Agency’s mistake. 

Furthermore, Cooper argues that it would not offend equitable principles if he 

retained the overpayment.

Although Cooper’s equity argument resonates, we are bound by contrary 

Ninth Circuit law and by Cooper’s failure to utilize the remedies afforded by 

the Social Security Act. 

As discussed above, the Social Security Act requires the Agency to recover 

an overpayment. 42 U.S.C. § 404(a)(1)(A). However, the statute explains that

recovery of the overpayment may be partially or completely waived if the 

payee establishes that: (1) he is “without fault” for the overpayment, and (2) 

recovery would either (a) defeat the purpose of the Act or (b) be against equity 

and good conscience. 42 U.S.C. § 404(b); 20 C.F.R. § 404.506(a). Recovery of an 

overpayment defeats the purpose of the Act if it would “deprive a person of 

income required for ordinary and necessary living expenses.” 20 C.F.R. 

§ 404.508(a).

In this case, Cooper could have, but did not, appeal the overpayment 

ruling. An appeal of the overpayment ruling would have been the appropriate 

forum for Cooper to make some of the arguments he makes before this Panel 

(i.e., that he needs the SSDI payments to meet current ordinary and necessary 

living expenses). The issue before the bankruptcy court was not whether the 
18

overpayment should be recovered, it was solely whether the Agency properly 

utilized the equitable remedy of recoupment. 

Accordingly, the bankruptcy court and this Panel are obligated to follow 

Ninth Circuit precedent unless that precedent was overturned by the Supreme 

Court. Deitz v. Ford (In re Deitz), 469 B.R. 11, 22 (9th Cir. BAP 2012) (citing United 

States v. Martinez-Rodriguez, 472 F.3d 1087, 1093 (9th Cir. 2007)). As discussed 

above, equitable recoupment is an established doctrine in the Ninth Circuit, and 

if the logical relationship test is met, equitable recoupment does not violate the 

discharge injunction.

Cooper’s reliance on the Third Circuit’s holding in Lee v. Schweiker, 739 

F.2d 870 (3d Cir. 1984) is unavailing. Cooper argues that the Panel should 

follow Lee’s holding and determine that “social welfare payments . . . are

‘statutory entitlements’ rather than contractual rights” and that recoupment, 

despite its utility in the context of contract disputes, is not suitable in the context 

of social entitlements. Lee, 739 F.2d at 875-76. The Ninth Circuit has previously 

considered and rejected the reasoning in Lee because the Third Circuit does not 

apply the logical relationship test–it applies a narrower interpretation to the 

term “same transaction” than that utilized in the Ninth Circuit. Newbery Corp., 

95 F.3d at 1403; In re Madigan, 270 B.R. at 755-56. In the Ninth Circuit, 

recoupment is not limited to the contractual context. In re Madigan, 270 B.R. at 

758.

Cooper also argues that the bankruptcy court failed to properly consider 

the equity in allowing the Agency to apply recoupment. However, this 

argument is belied by the record. The record reveals that the bankruptcy court 
19

held an evidentiary hearing at which both parties had the opportunity to testify. 

The bankruptcy court then solicited additional briefing. Thus, the parties had 

the opportunity to fully present their evidence and argument, including 

arguments regarding equity. In its oral ruling, after determining that the 

elements of recoupment were satisfied, the bankruptcy court acknowledged the 

hardship recoupment might create, and encouraged the Agency to exercise 

fairness. Although Cooper may receive less income from the SSDI payments 

than he would have received had the Agency not paid that income prematurely, 

the reduced future payments are a function of what Cooper has been paid 

subject to adjustment to reflect accurately the amount and timing of payments 

he is due. The bankruptcy court properly considered the equities. Based on the 

record, we cannot find the application of the equitable doctrine of recoupment 

was an abuse of discretion.9

CONCLUSION

For the reasons stated above, we AFFIRM.

9 We caution the parties that we (and the bankruptcy court) only determined that 

recoupment is appropriate under the facts of this case. Importantly, the Agency is recouping 

the overpayment of SSDI solely from Cooper’s ongoing SSDI payments. Although the Social 

Security Act may give the Agency authority to cross-recover the overpayment by charging 

against another type of social security benefit to which Cooper may receive, such as SSI or 

old age benefits, this decision is not so broad as to approve such a charge.