2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-15-2009

Marguerite Kelley v. Comm Social Security

Precedential or Non-Precedential: Precedential

Docket No. 08-1652

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Recommended Citation

"Marguerite Kelley v. Comm Social Security" (2009). 2009 Decisions. Paper 1272.

http://digitalcommons.law.villanova.edu/thirdcircuit_2009/1272
 The Honorable T. S. Ellis III, Senior District Judge, *

United States District Court for the Eastern District of Virginia,

sitting by designation.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 08-1652

_____________

MARGUERITE P. KELLEY,

 Appellant,

 v.

COMMISSIONER OF SOCIAL SECURITY

_______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(Civil No. 2:07-cv-1628)

District Judge: Honorable Lawrence F. Stengel

______________

Argued January 8, 2009

________________

Before: CHAGARES, HARDIMAN, Circuit Judges, and ELLIS,

Senior District Judge.*

(Opinion Filed: May 15, 2009)

______________
2

SCOTT A. DYE (Argued)

Cohen, Fluhr & Gonzalez

1429 Walnut Street

Suite 1500

Philadelphia, PA 19102

Counsel for Appellant

ERIC P. KRESSMAN

Acting Regional Chief Counsel

PATRICIA M. SMITH

Acting Supervisory Regional Counsel

Social Security Administration

Office of the General Counsel

P.O. Box 41777

Philadelphia, PA 19101

LAURA MAGID

Acting United States Attorney

BEVERLY H. ZUCKERMAN (Argued)

Special Assistant United States Attorney

Eastern District of Pennsylvania

615 Chestnut Street

Suite 1250

Philadelphia, PA 19106

Counsel for Appellee

______________

OPINION OF THE COURT

______________

ELLIS, Senior District Judge.

This social security appeal presents the novel question

whether the proceeds of the sale of a marital home—placed in

escrow by divorcing parties—are a countable resource for purposes

of assessing eligibility to receive Supplemental Security Income

(“SSI”) benefits. The Commissioner of Social Security denied

Marguerite Kelley’s application for SSI benefits on the ground that

these proceeds were a countable resource rendering her ineligible
 During the hearing, Kelley stated first that there was a 1

court order with regard to the escrow, but then indicated that she

and her husband created the escrow because they could not initially

agree on an equitable distribution of the proceeds from the home’s

sale. (A.R. at 545–46.) Kelley has submitted no evidence showing

that the escrow account was created by court order or that a court

order precluded her from accessing the funds.

 In the affidavit, which does not reflect the year it was 2

executed, Kelley’s divorce attorney stated that (i) the funds from

the sale of the Kelley’s marital home had been placed in an escrow

account; (ii) the current balance of the escrow account was

$42,088.44; (iii) Kelley had no access to those funds; (iv) the funds

would be subject to equitable distribution in the divorce action; (v)

Kelley would, “in all likelihood, not have a claim in excess of 60%

3

for SSI benefits. The District Court upheld this decision. We

agree and affirm.

I.

Marguerite Kelley suffers from chronic pain and fatigue

secondary to Crohn’s disease. On March 5, 2003, Kelley applied

for Disability Insurance Benefits (“DIB”) under Title II of the

Social Security Act, 42 U.S.C. §§ 401–434. This claim was denied

on May 23, 2003, and Kelley then requested an administrative

hearing. On August 6, 2003, Kelley filed an application for SSI

under Title XVI of the Social Security Act, 42 U.S.C. §§

1381–1383f. On February 24, 2005, an administrative law judge

(“ALJ”) held a hearing to review both her DIB and SSI claims. 

At the time of the hearing, Kelley was involved in divorce

proceedings. She and her husband had sold their marital home

approximately two years earlier, and by agreement they placed the

proceeds of the sale in an escrow account until they could reach a

further agreement on distribution. During the hearing, the ALJ 1

indicated that he would leave the record open for two weeks during

which time Kelley could submit any additional materials. Kelley’s

counsel submitted a brief, attached to which was an affidavit from

the attorney who represented Kelley in her divorce. Yet, it is 2
of the funds;” and (vi) Kelley had outstanding debts in excess of

$100,000. (A.R. 510.) The affidavit does not include the escrow

agreement nor does it describe its terms or provenance. 

 The accompanying brief is stamped as having been 3

received on March 15, 2005, a fact the Commissioner points to as

showing that the affidavit was not timely submitted and thus not

part of the record before the ALJ. Yet, the brief is dated March 10,

2005, and indicates that it was being transmitted by fax and firstclass mail, facts Kelley relies on to argue that the materials were

submitted within two weeks of the hearing.

 Kelley did not appeal the DIB portion of the ALJ’s 4

decision.

4

unclear from the record whether the affidavit was submitted within

the allotted two weeks and, according to the Commissioner, the

ALJ excluded it as untimely. 

3

On March 24, 2005, the ALJ issued a decision denying

Kelley’s claim for DIB and SSI. The ALJ determined, in pertinent 4

part, that Kelley’s “share of the proceeds from the sale of the

marital home are a countable resource notwithstanding the fact that

the proceeds are presently being held in an escrow account” and

accordingly concluded that Kelley was not eligible for SSI. (A.R.

at 18–19.) Kelley requested review by the Appeals Council and

submitted to the Appeals Council the same affidavit she had sent

to the ALJ following the hearing. On March 2, 2007, the Appeals

Council denied Kelley’s request, making the ALJ’s decision the

Commissioner’s final decision. See 20 C.F.R. § 416.1481 (stating

that the ALJ’s decision is binding if the Appeals Council denies a

claimant’s request for review); see also Welch v. Heckler, 808 F.2d

264, 267 (3d Cir. 1986) (noting that the ALJ’s decision becomes

final and eligible for judicial review when approved by the Appeals

Council). In the course of denying Kelley’s request for review, the

Appeals Council noted that the additional evidence Kelley

submitted provided no basis for reversing the ALJ’s decision.

Kelley then filed this civil action pursuant to 42 U.S.C. §

405(g). In support of her request for review, Kelley submitted
 The letter indicates that Kelley had reapplied for SSI on 5

June 1, 2007, making July 2007 the first month she could receive

benefits based on that application. See 20 C.F.R. § 416.335.

5

three additional documents: (i) a copy of her divorce decree, which

shows that she and her husband signed a property settlement

agreement on November 1, 2006, and that their divorce was

finalized on December 27, 2006; (ii) a letter dated June 7, 2007,

from her divorce attorney to her mother indicating that Kelley’s

portion of the escrowed funds had been used to repay her mother,

who had paid for most of Kelley’s legal fees, and to pay “for other

fee balances, medical insurance and other bills associated with the

children” (Appellee’s Supp. App. at 2); and (iii) a July 23, 2007,

notice of award letter from the Social Security Administration

indicating that Kelley was eligible to receive SSI as of July 1,

2007. The matter was then referred to a magistrate judge, 5

pursuant to 28 U.S.C. § 636(b)(1)(B), who issued a report and

recommendation concluding (i) that the ALJ correctly determined

that the escrowed proceeds from the sale of Kelley’s marital home

constituted a countable resource and (ii) that none of the materials

submitted by Kelley after the administrative hearing warranted a

different conclusion. On January 3, 2008, after considering

Kelley’s request for review and the Commissioner’s response and

reviewing the report and recommendation, the District Court

denied Kelley’s request for review and entered judgment in favor

of the Commissioner. Kelley timely appealed, and we have

jurisdiction pursuant to 28 U.S.C. § 1291.

II.

The sole issue on appeal is whether the proceeds from the

sale of Kelley’s marital home, placed in an escrow account by

Kelley and her then-husband pending equitable distribution, were

properly deemed to be a resource for the purpose of determining

Kelley’s eligibility for SSI. This issue, for which there is no

directly apposite authority in this circuit or elsewhere, is a legal

question, and our review is accordingly plenary. Schaudeck v.

Comm’r of Social Sec. Admin., 181 F.3d 429, 431 (3d Cir. 1999).
 The statue provides that resources listed in 42 U.S.C. § 6

1382b(a) may properly be excluded when calculating a claimant’s

resources. 42 U.S.C. § 1382(a)(1)(B). The parties correctly do not

argue that § 1382b(a) is applicable here.

6

Under the Social Security Act, an individual is eligible for

SSI benefits if (i) she is aged, blind, or disabled and (ii) her

countable income and resources fall below certain statutory limits.

42 U.S.C. § 1382(a). Since 1989, individuals not residing with a 6

spouse have been obliged to show that their countable resources do

not exceed $2,000 as part of establishing their eligibility for SSI

benefits. Id. The Social Security Administration has defined

resources as “cash or other liquid assets or any real or personal

property that an individual (or spouse, if any) owns and could

convert to cash to be used for his or her support and maintenance.”

20 C.F.R. § 416.1201(a). Significantly, another regulation

provides that 

[i]f an individual (and spouse, if any) moves out of

his or her home without the intent to return, the

home becomes a countable resource because it is no

longer the individual’s principal place of residence.

. . . The individual’s equity in the former home

becomes a countable resource effective with the first

day of the month following the month it is no longer

his or her principal place of residence.

Id. § 416.1212(c). The regulation further states that proceeds from

the sale of a home may only be excluded from an individual’s

countable resources to the extent the proceeds “are intended to be

used and are, in fact, used to purchase another home . . . within 3

months of the date of receipt of the proceeds.” Id. §

416.1212(d)(1). Thus, under this regulation, it is clear the ALJ

properly considered the proceeds from the sale of Kelley’s marital

home to be a countable resource for the purpose of calculating her

SSI eligibility.

Nor is this conclusion altered because Kelley agreed to place

the proceeds from the sale of her former home in an escrow
 This conclusion is confirmed by the Social Security 7

Administration’s Program Operating Manual System (“POMS”).

The POMS represent “the publicly available operating instructions

for processing Social Security claims.” Wash. State Dep’t of Soc.

& Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371,

385 (2003). The Supreme Court has stated that “[w]hile these

administrative interpretations are not products of formal

rulemaking, they nevertheless warrant respect.” Id. (citing

Skidmore v. Swift & Co., 323 U.S. 134, 139–40 (1944); United

States v. Mead Corp., 533 U.S. 218, 228, 234–35 (2001)). The

applicable POMS section reasonably interprets the statutory phrase

“any legal instrument or device that is similar to a trust” as

covering any instrument, device, or arrangement that involves (i)

a grantor; (ii) “who transfers property (or whose property is

transferred by another);” (iii) “to an individual or entity with

fiduciary obligations;” (iv) “with the intention that it be held,

managed or administered by the individual or entity for the benefit

of the grantor or others.” POMS SI 01120.201B.5; see also POMS

SI 01120.201G.1. The POMS also explicitly list escrow accounts

as an example of a legal instrument or device similar to a trust. Id.;

see also POMS SI 01120.201G.2. 

 Another provision in the subsection explains that “an 8

individual shall be considered to have established a trust if any

assets of the individual (or of the individual’s spouse) are

transferred to the trust other than by will.” Id. § 1382b(e)(2)(A).

7

account pending equitable distribution in her divorce. The Social

Security Act addresses the treatment of trusts in 42 U.S.C. §

1382b(e), which defines the term “trust” as including “any legal

instrument or device that is similar to a trust.” 42 U.S.C. §

1382b(e)(6)(A). Because an escrow account is similar to a trust,

the escrow account Kelley created with her husband is

appropriately treated as a trust under § 1382b(e). That subsection, 7

enacted in 1999 as part of the Foster Care Independence Act, Pub.

L. No. 106-169, 113 Stat. 1822, separately addresses revocable and

irrevocable trusts. First, it provides that if an individual has

established a revocable trust, “the corpus of the trust shall be

considered a resource available to the individual.” Id. §

1382b(e)(3)(A). In the case of an irrevocable trust, the statute 8
The term “asset” is further defined as including 

(iii) any other payment or property to which the

individual (or of [sic] the individual’s spouse) is

entitled but does not receive or have access to

because of action by—

(I) the individual or spouse; 

(II) a person or entity (including a court) with

legal authority to act in place of, or on behalf of,

the individual or spouse; or 

(III) a person or entity (including a court) acting

at the direction of, or on the request of, the

individual or spouse.

Id. § 1382b(e)(6)(C). Thus, even if the escrow was created by a

court, it would still fall within the terms of the statute.

 In explaining this provision, the relevant POMS states that 9

“if a payment can be made to or for the benefit of the individual

under any circumstance, no matter how unlikely or distant in the

future, the general rule . . . applies (i.e., the portion of the trust

[from which payment could be made] that is attributable to the

individual is a resource . . . ).” POMS SI 01120.201D.2.b.

8

further provides that 

if there are any circumstances under which payment

from the trust could be made to or for the benefit of

the individual (or of the individual’s spouse), the

portion of the corpus from which payment to or for

the benefit of the individual (or of the individual’s

spouse) could be made shall be considered a

resource available to the individual.

Id. § 1382b(e)(3)(B).9

The Social Security Act’s treatment of trusts and trust-like

instruments compels the conclusion that the escrowed funds were
 Not addressed here is whether the ALJ appropriately 10

counted only Kelley’s share of the proceeds in escrow or whether

the entire proceeds from the sale of Kelley’s marital home

constituted a countable resource because, in either event, Kelley’s

countable resources would have exceeded the $2000 threshold,

thereby rendering her ineligible for SSI benefits.

 Indeed, the June 7, 2007, letter from Kelley’s divorce 11

attorney, submitted only to the District Court, demonstrates that

this is exactly what happened; Kelley’s share of the funds were

used to repay a loan from her mother and to pay “for other fee

balances, medical insurance, and other bills associated with the

children.” (Appellee’s Supp. App. at 2.) It is important to note that

we do not rely on this letter, or any of the other materials not part

of the record before the ALJ, in reaching our conclusion; the

materials that were before the ALJ provide ample support.

9

appropriately deemed to be one of Kelley’s resources. Because 10

the terms of the escrow agreement are not in the record, it is

impossible to determine definitively whether the escrow account

should be deemed more akin to a revocable or irrevocable trust.

Yet, the conclusion that the proceeds held in escrow were properly

counted holds regardless of whether the escrow account is treated

as a revocable or irrevocable trust. If Kelley’s escrow account was

more similar to a revocable trust, the statute’s unqualified

command that “[i]n the case of a revocable trust established by an

individual, the corpus of the trust shall be considered a resource

available to the individual” applies. Id. § 1382b(e)(3)(A). Even

assuming the escrow account is properly considered an irrevocable

trust, it is clear that the escrowed funds were correctly categorized

as a countable resource given that there were certainly

“circumstances under which payment from the [escrow account]

could be made to or for the benefit of” Kelley. Id. §

1382b(e)(3)(B). Although the exact terms of the escrow agreement

were never made a part of the record, Kelley and her then-husband

clearly created the escrow account with the understanding that

when they had agreed on an equitable distribution of the proceeds

from the sale of their marital home and their divorce had been

finalized, they would each receive either payments from the

account or the benefit of payments from the account. Given this,

11
Additionally, there is no need to remand to the Commissioner

pursuant to the sixth sentence of 42 U.S.C. § 405(g) because the

materials Kelley submitted after the ALJ’s decision support, rather

than undermine, that decision. See Matthews v. Apfel, 239 F.3d

589, 593 (3d Cir. 2001) (“[W]hen the claimant seeks to rely on

evidence that was not before the ALJ, the district court may remand

to the Commissioner but only if the evidence is new and material

and if there was good cause why it was not previously presented to

the ALJ . . . .”); see also Szubak v. Sec’y of Health & Human

Servs., 745 F.2d 831, 833 (3d Cir. 1984) (noting that a sixthsentence remand under § 405(g) requires the claimant to show “that

there [is] a reasonable possibility that the new evidence would have

changed the outcome of the Secretary’s determination”).

Miranda v. Barnhart, No. SA-00-CA-1195, 2002 U.S. 12

Dist. LEXIS 25892 (W.D. Tex. Mar. 29, 2002), the sole authority

on which Kelley relies for this interpretation of 20 C.F.R. §

416.1201(a), is neither controlling nor on point.

10

it is clear that on this record, even assuming the escrow account is

properly treated as an irrevocable trust, the escrowed funds were

properly counted as a resource for SSI purposes.

Kelley advances three arguments against this conclusion,

none of which persuades. First, Kelley asserts that the escrowed

funds should not be considered a resource because she had no

access to the funds. In support of this argument, Kelley relies on

20 C.F.R. § 416.1201(a), which defines the term resources as “cash

or other liquid assets or any real or personal property that an

individual (or spouse, if any) owns and could convert to cash to be

used for his or her support and maintenance” and further provides

that “[i]f the individual has the right, authority or power to

liquidate the property or his or her share of the property, it is

considered a resource.” Yet, Kelley’s attempt to draw from this

language the principle that funds are not a countable resource under

the Social Security Act unless a claimant is able to access the funds

at will is misguided. Although it is certainly true that an asset is 12

generally not an individual’s resource if the individual does not

have the legal right to use the asset for her support and

maintenance, the regulation defining “resource” must be read in
11

tandem with the later-enacted statutory provision addressing how

to count the resources of an individual whose assets have been

transferred to a trust or a legal instrument similar to a trust. And

that provision makes clear that an individual’s countable resources

include assets that have been transferred to a trust-like instrument

to the extent payment from the instrument “could be made to or for

the benefit of the individual,” regardless of whether the individual

has access to the funds. See 42 U.S.C. § 1382b(e). Because on this

record it is clear that there were circumstances under which

payments could be made from the escrow account to Kelley or for

her benefit, the question whether she could access the escrowed

funds at will is immaterial.

Kelley’s second argument, which also relies on 20 C.F.R. §

416.1201(a), is that the funds in the escrow account should not

have been counted as a resource because they could not have been

used for her “support and maintenance” given that her outstanding

debts exceeded the escrowed funds. This argument also fails.

Again, even assuming the escrow account is properly treated as an

irrevocable trust, the pertinent question under § 1382b(e)(3)(B) is

whether “there are any circumstances under which payment from

the trust could be made to or for the benefit of the individual.”

Here, payments were eventually made from the escrow account to

pay her outstanding debts, a clear benefit to Kelley. See POMS SI

01120.201F.1 (“[C]onsider payments to be made . . . to or for the

benefit of an individual[] if payments of any sort from the corpus

or income of the trust are paid to another person or entity so that

the individual derives some benefit from the payment.”). Thus,

given the applicable statutory language, the fact that her

outstanding debts exceeded the amount of funds in escrow is

irrelevant.

Finally, Kelley argues that the conclusion reached by the

ALJ is contrary to the underlying beneficent purpose of Title XVI

of the Social Security Act. The primary purpose of SSI “is to

assure a minimum level of income for people who are age 65 or

over, or who are blind or disabled and who do not have sufficient

income and resources to maintain a standard of living at the

established Federal minimum income level.” 20 C.F.R. § 416.110.

Despite Kelley’s argument to the contrary, the result reached here
12

does not undermine that basic purpose. Rather, according to the

House Committee on Ways and Means’s report on the section of

the bill that became § 1382b(e), Congress amended the Social

Security Act to address specifically how assets in trusts should be

counted because of concern that individuals with resources could

qualify for SSI by sheltering their assets in trust-like instruments.

See H.R. Rep. No. 106-182(I) (1999), 1999 WL 387373, at *34.

The committee report first states that under the law as it existed at

the time “[a]ssets placed in a trust in which individuals have no

ownership and to which they have no access no longer meet the

definition of a resource for SSI purposes” because “SSI regulations

define resources as cash or other liquid assets, or any real or

personal property . . . that an individual (or spouse) owns and could

convert to cash to be used for support and maintenance (i.e., for

food, clothing, or shelter).” Id. The report then notes that the bill

would change this treatment of assets held in trust because “[a]

principle underlying virtually all Federal welfare programs is that

recipients meet a test of low income and low assets” and “to allow

individuals to protect resources in a trust that could be used to meet

their needs violates the principle of welfare.” Id. 

This citation to the legislative history of § 1382b(e) is not

intended to suggest that Kelley was attempting to hide her assets

when she agreed to place the proceeds from the sale of her marital

home in an escrow account. Indeed, there is no indication in the

record of any fraudulent intent. Nonetheless, § 1382b(e) reflects

Congress’s judgment that when an individual’s assets are

transferred to a trust-like instrument, those assets should generally

be counted as a resource in determining SSI eligibility because of

the potential for fraud. Additionally, Congress tempered the effect

of § 1382b(e) by exempting special needs trusts and pooled trusts

and by providing that “[t]he Commissioner of Social Security may

waive the application of this subsection with respect to an

individual if the Commissioner determines that such application

would work an undue hardship (as determined on the basis of

criteria established by the Commissioner) on the individual.” 42
The criteria established by the Commissioner provide that 13

“undue hardship exists in a month if [(i)] failure to receive SSI

payments would deprive the individual of food or shelter; and [(ii)]

the individual’s available funds do not equal or exceed the Federal

benefit rate (FBR) plus federally administered State supplement, if

any.” POMS 1120.203.C.1. Kelley has never argued that she

satisfied the undue hardship criteria and was therefore eligible for

a waiver.

13

U.S.C. § 1382b(e)(4)–(5). Subsection § 1382b(e) thus represents 13

the balance Congress struck in its assessment of how best to count

the assets of an individual that have been transferred to a trust or

trust-like device in determining that individual’s eligibility for SSI,

and we are bound by that judgment here.

III.

For the foregoing reasons, we agree that the ALJ properly

counted the proceeds from the sale of Kelley’s marital home,

placed in escrow pending equitable distribution, as a resource that

rendered her ineligible for SSI. Accordingly, we affirm the

judgment of the District Court.