UNITED STATES COURT OF APPEALS FOR VETERANS CLAIMS

NO. 10-1375

MICHAEL V. CLENNAN, APPELLANT,

V.

ERIC K. SHINSEKI,

SECRETARY OF VETERANS AFFAIRS, APPELLEE.

On Appeal from the Board of Veterans' Appeals

(Argued November 13, 2012 Decided January 24, 2013)

Kenneth M. Carpenter, of Topeka, Kansas, for the appellant.

Timothy D. Sirhal, with whom Will A. Gunn, General Counsel; R. Randall Campbell,

Assistant General Counsel; and Nisha C. Wagle, Deputy Assistant General Counsel, all of

Washington, D.C., were on the brief, for the appellee.

Before HAGEL, LANCE, and DAVIS, Judges.

HAGEL, Judge: Michael V. Clennan appeals through counsel a January 4, 2010, Board of

Veterans' Appeals (Board) decision in which the Board concluded that a September 1997 VA

regional office determination that he is incompetent to handle the disbursement of funds was not

nullified or negated by the subsequent payment of benefits directly to him under VA's supervised

direct pay program. Mr. Clennan's Notice of Appeal was timely and the Court has jurisdiction to

review the Board decision pursuant to 38 U.S.C. § 7252(a). 

This matter was referred to a panel of the Court to determine whether VA provided Mr.

Clennan adequate procedural due process in June 2005 when it appointed a fiduciary to receive his

VA disability compensation payments and authorized the fiduciary to charge a 4% fee payable out

of his disability compensation. Although neither party requested it, the Court held oral argument to

assist in resolving the appeal and also ordered post-oral argument supplemental briefing. Because

the Court concludes that the Board properly interpreted the provisions of law relevant to this case
and provided adequate procedural due process, the Court will affirm the January 2010 Board

decision.

I. FACTS

Mr. Clennan served on active duty in the U.S. Navy from June 1972 to February 1973. In

a September 1996 rating decision, the regional office awarded him non-service-connected pension

benefits for schizophrenia in partial remission with encephalopathy secondary to birthing anoxia,

anxiety neurosis, affect disorder, and an inadequate personality. The award of pension benefits was

made effective May 17, 1996, and a letter sent to Mr. Clennan in October 1996 informed him that

his monthly benefit payment would be $217.

In a May 1997 special outpatient report, a VA psychiatrist stated that Mr. Clennan had "been

having difficulties in functioning" and had poor judgment, which the examiner explained were

probably caused by his bipolar disorder and regular use of marijuana. Record (R.) at 2508. The

psychologist opined that the "continued cannabis use [was] detrimental to [Mr. Clennan's] further

progress and need[ed] to be stopped." Id. He suggested that Mr. Clennan was using his Social

Security and VA pension benefits to purchase the marijuana and therefore proposed that he "have

his competency removed for the use of his funds" and be assigned "a conservator of funds." Id.

In July 1997, the VA medical and regional office center sent Mr. Clennan a letter that, based

on the May 1997 VA psychiatrist's report, proposed to find him incompetent to manage his pension

benefit payments, which had recently been reduced to $155 per month. The letter informed Mr.

Clennan that, if he was declared incompetent for VA purposes, "a fiduciarymay be appointed to help

[him] manage [his] VA benefits," in which case "[p]ayment of any money due [to him would] be

made directly to [his] fiduciary." R. at 2502. The letter also informed Mr. Clennan that he could 1

request a hearing at which he could provide witness testimony and that he was entitled to

representation by a veterans service organization representative or an attorney. The letter advised

him that if he did not respond within 60 days, a decision would be made on the evidence already of

 "Federal fiduciary" is a term used by VA and defined as "a person or legal entity authorized by VA to serve 1

as payee for the VA benefits of an incompetent beneficiary." VA Adjudication Procedures Manual Rewrite M21-1MR

(M21-1MR), Pt. XI, Ch. 2, sec. E, topic 28(a). 

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record. The letter was accompanied by a proposed rating decision declaring Mr. Clennan

incompetent to handle the disbursement of his VA benefit funds. R. at 2504.

The parties agree that Mr. Clennan did not respond to this letter and, in September 1997, the

regional office issued a rating decision finding him incompetent to handle his VA benefit payments. 

That decision was accompanied by a letter informing Mr. Clennan that he had a right to appeal the

decision, as well as by VA Form 4107, which described the appeal process. Although he was then

represented by the same attorney who continues to represent him in this appeal to the Court, Mr.

Clennan did not appeal the regional office's incompetency determination, and that decision therefore

became final. 

The letter sent to Mr. Clennan with the September 1997 regional office decision also stated

that VA would find someone to manage his VA benefits for him. However, the parties agree that

no fiduciary was appointed at that time, and a handwritten note on a February 1998 VA

incompetency report indicates that Mr. Clennan was on "supervised direct pay." R. at 2490. Under

the supervised direct pay program, disability benefit payments are made directly to the incompetent

veteran, who is supervised through "periodic" field examinations conducted byVA field examiners.2

M21-1MR, pt. XI, ch. 2, sec. E, topic 27(c). Mr. Clennan continued to receive supervised direct

payment of his benefits until June 2005, as discussed further below.

In June 2003, the Board awarded Mr. Clennan VA benefits for a psychiatric disability, to

include post-traumatic stress disorder. In August 2003, the regional office implemented that decision

and assigned a 100% disability rating effective February 26, 1998. As a result, Mr. Clennan was

entitled to a large–$128,189.59–retroactive award of benefits and a new monthly disability

compensation benefit payment in excess of $2,000. 

The record contains a partially completed September 1, 2003, VA Form 21-4716a, "Adult

Beneficiary - Field Examination Request and Report," that lists Mr. Clennan as a supervised direct

payment program participant for his disability compensation benefits. R. at 3115. Although this

form is not signed, the parties do not dispute that a field examination was, in fact, initiated. The

Field examiners are authorized to examine witnesses on matters within the jurisdiction of VA, take affidavits, 2

administer oaths, and aid claimants in the preparation of claims. 38 C.F.R. § 13.2(a) (2012). VA conducts field

examinations in matters involving the welfare of beneficiaries who are under legal disability or in need of supervision

by the Veterans Service Center Manager. 38 C.F.R. § 13.2(b).

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record also contains a March 19, 2004, report of contact that reflects that a VA field examiner spoke

with Mr. Clennan's parents and his current counsel about the need to appoint a "payee" to manage

his VA benefits, given the large retroactive award and substantial increase in his monthly payments. 

R. at 3114. The report of contact also indicates that the field examiner encouraged Mr. Clennan's

parents to become his "conservator." The field examiner also outlined the procedures the family 3

could take if they wished to establish Mr. Clennan's competence to handle his VA funds. Finally,

the field examiner noted that Mr. Clennan's parents appeared to be commingling their own funds

with their son's disability compensation benefit payments in a single trust account and that VA

objected to this because Mr. Clennan was participating in the supervised direct pay program.

Over a year later, in April 2005, the field examiner sent Mr. Clennan a letter stating: "Per our

phone conversation of 4-22-2005[,] as well as before, I am required to verify the assets of the veteran

who is currently on a SDP (supervised direct pay) status. Please furnish recent copies of financial

institution statements so that I can verify all liquid assets of the veteran." R. at 2868. This request 4

triggered a flurry of correspondence between Mr. Clennan's current counsel and VA. Initially, in

April 2005, Mr. Clennan's counsel sent the field examiner a letter contending that VA had no

"statutory or regulatory authority" to place Mr. Clennan on "supervised direct pay" status and that

the Clennans therefore would not comply with the accounting request. R. at 214. The letter further

stated "VA considers [Mr.] Clennan [either] competent or incompetent to receive his VA benefits

directly or via court[-]appointed fiduciary or a VA[-]appointed fiduciary" and that, by providing

direct payments to Mr. Clennan for many years, VA made "a de facto determination that [he] is

competent to receive direct payment of his VA benefits." R. at 214. Mr. Clennan's counsel further

stated that if VA believed that Mr. Clennan was incompetent to directlyreceive his benefit payments,

it should initiate new proceedings to make such a finding.

It appears that, in this case, VA uses the terms fiduciary, payee, and conservator interchangeably to mean 3

"some third party responsible for receiving and disbursing Mr. Clennan's disability compensation benefit payments." 

As noted in footnote 1 above, however, fiduciary has a specific legal meaning within VA, and such informality in

language should be avoided.

 There is no evidence in the record of any prior requests for an accounting of the periodic payments or of the

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$128,189.59 retroactive payment that had been made directly to Mr. Clennan. 

4
VA responded byletter dated May 12, 2005, stating that the regional office's September 1997

incompetency determination remained valid and that,

[u]nder the authority given by Congress [pursuant to] 38 U.S.C. [§] 5502 and

38 C.F.R. § 13.56(a)[,] VA benefits payable to a veteran rated incompetent may be

paid directly to the veteran in such amount as the Veterans Service Center Manager

determines the veteran is able to manage with continuing supervision bythe Veterans

Service Center Manager, provided a fiduciary is not otherwise required.

R. at 210. The letter further stated that, "[w]hen VA benefits of a substantial nature are being paid

to an incompetent beneficiary, VA must verify assets to assist in determining if a federal fiduciary

or court-appointed fiduciary is needed. This would include the use of retroactive award funds." Id. 

Finally, the letter stated that VA preferred that a capable family member act as a fiduciary on Mr.

Clennan's behalf, but that if there was no cooperation from his family, another person would be

appointed. R. at 210-11. Later in May 2005, the regional office entered into an agreement with

Thomas Shadoin, an attorney, to act as Mr. Clennan's fiduciary.

On June 23, 2005, Mr. Clennan's attorney filed a Notice of Disagreement with the May 2005

VA letter. In the Notice of Disagreement, he argued that "VA's decision to send directly to Mr.

Clennan his VA benefits, as a matter of fact and law, nullifies and negates the VA's 1997 decision

that Mr. Clennan was not competent to handle the disbursement of his VA benefits." R. at 205. 

The following day, VA sent Mr. Clennan a letter notifying him that Mr. Shadoin had been

appointed as his fiduciary and that Mr. Shadoin would be paid a commission out of Mr. Clennan's

benefits for this service, not to exceed 4% of the annual amount paid. Several days later, on June

29, 2005, VA sent Mr. Clennan's counsel a letter in response to his June 23, 2005, Notice of

Disagreement, explaining that it interpreted the Notice of Disagreement as "a request to have Mr.

Clennan's rating changed to competent to handle his own VA affairs." R. at 189. VA therefore

requested that Mr. Clennan submit evidence to show that he was, in fact, now competent to handle

his own funds. 

In August 2005, Mr. Clennan's attorney filed another Notice of Disagreement, again

reiterating his theory that the September 1997 incompetency determination was "effectively and

legally reversed" by the payment of VA benefits directly to Mr. Clennan, meaning that any

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subsequent action that treated Mr. Clennan as incompetent constituted a new and appealable

incompetency determination. R. at 183. 

That same month, VA provided Mr. Clennan with a VA mental disorders examination. After

a lengthy discussion of Mr. Clennan's symptoms and the manner in which they impaired his ability

to function, the examiner stated:

Regarding capacity to manage financial affairs, based on my examination I believe

that the patient is not capable of managing his own financial affairs. He needs

extensive help with managing money[,] which includes rent and utilities paid by his

payee[ and an] inability to manage basic needs like buying groceries on his own. [He]

continues to struggle with alcohol abuse and has very poor insight into [the e]ffect

of alcohol on his psychiatric illness. He is currently functioning only verymarginally

with extensive support from family members and [his Continuous Supported

Self-Care Program] caseworker.

R. at 165-66.

In September 2005, the regional office issued a Statement of the Case finding that the April

2005 letter sent to the VA field examiner by Mr. Clennan's counsel was the first indication that Mr.

Clennan disagreed with the September 1997 regional office decision declaring him incompetent and

that the incompetency determination had become final due to Mr. Clennan's failure to timely file a

Notice of Disagreement within one year of that decision. Additionally, a September 2005 decision

review officer decision reopened the September 1997 decision, but confirmed the incompetency

determination on the basis of the VA examiner's August 2005 opinion.

In October 2005, Mr. Clennan's attorneysubmitted a Substantive Appeal from the September

2005 Statement of the Case, contending yet again that VA's continued direct payments to Mr.

Clennan negated the September 1997 incompetency determination.

In September 2006, VA filed a petition in the Third Judicial District Court in Shawnee

County, Kansas, seeking the appointment of Mr. Shadoin, Mr. Clennan's VA-appointed federal

fiduciary, as curator to receive Mr. Clennan's VA disability benefits. R. at 3047. Shortly thereafter, 5

Mr. Clennan and his parents were served with a Notice of Hearing advising them of VA's petition

and notifying them of the hearing date, October 4, 2006. That notice stated: "[I]f you fail to appear

Under Kansas law, a curator is "any person acting as a fiduciary for a pensioner." KAN. STAT. ANN. § 73-501 5

(2012).

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and voice concerns or objections, the matter will be addressed by the Court without further notice

of the proceedings." R. at 3054. On October 4, 2006, the Third Judicial District Court issued an

order noting that neither Mr. Clennan nor any representative had appeared, granting VA's petition, 6

and appointing Mr. Shadoin as Mr. Clennan's curator, an appointment he holds to this day. R. at

3056-58.

In November 2007, the Board issued a decision, finding that Mr. Clennan did not timely

appeal the September 1997 regional office decision that found him incompetent and that it therefore

became final. In March 2008, Mr. Clennan's counsel moved for reconsideration, arguing that the

Board "failed to address the issue appealed by Mr. Clennan." R. at 58. This motion was denied in

August 2008, but the Board nevertheless issued a supplemental decision in December 2008 that

found that the regional office failed to address Mr. Clennan's argument that direct payment of

benefits to him nullified or negated the September 1997 incompetency determination. The Board

therefore remanded the matter to the regional office to provide a Statement of the Case on this issue.

In February 2009, the regional office issued the Statement of the Case, finding that, pursuant

to 38 U.S.C. § 5502 and 38 C.F.R. § 13.56, VA is authorized to make payments directly to an

incompetent beneficiarywith VA supervision when it is determined that a fiduciary is not otherwise

required. The regional office therefore concluded that continued direct payment of Mr. Clennan's

benefits did not negate or nullify the September 1997 incompetency determination. Mr. Clennan

appealed to the Board in April 2009, leading to the January 2010 decision now on appeal in which

the Board concluded that section 5502 and § 13.56 "establish[] that the [regional office] has the

authority to make benefit payments directly to a [v]eteran rated incompetent" and that Mr. Clennan's

argument was therefore without merit. R. at 10.

At oral argument, Mr. Clennan's current counsel, who has also represented himbefore VA since at least 1997,

6

informed the Court that Mr. Clennan never notified him of the Kansas state proceedings and that he was not involved

in those proceedings in any capacity.

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II. ANALYSIS

On appeal, Mr. Clennan makes two arguments, one related to statutory and regulatory

interpretation, the other founded upon the Due Process Clause of the Fifth Amendment of the U.S.

Constitution. The Court will address each argument in turn.

A. Interpretation of Relevant Provisions of Law

First, Mr. Clennan continues to rely on a variant of the argument he presented to VA

regarding the continuing validity of the regional office's September 1997 decision that found him

incompetent for purposes of managing his VA benefits. This argument is premised on his

interpretation of section 5502 and § 13.56(a) and presents a question of law that this Court reviews

de novo. 38 U.S.C. § 7261(a)(1); see Smith v. Gober, 14 Vet.App. 227, 230 (2000).

Chapter 55 of title 38, U.S. Code, governs payments to and supervision of fiduciaries for

minors, incompetents, and other wards who are VA beneficiaries. Section 5502(a)(1) provides, in

pertinent part:

Where it appears to the Secretary that the interest of the beneficiary would be served

thereby, payment of benefits under any law administered by the Secretary may be

made directly to the beneficiary or to a relative or some other fiduciary for the use

and benefit of the beneficiary, regardless of any legal disability on the part of the

beneficiary.

38 U.S.C. § 5502(a). Thus, this provision expressly authorizes the Secretary to paybenefits "directly

to the beneficiary" or to certain third parties when the beneficiary has been deemed incompetent, if

the Secretary determines that doing so is in the best interest of the beneficiary.

Pursuant to this authority, VA has promulgated various regulations to address issues related

to disbursing VA benefits to incompetent veterans. As a threshold matter, VA defines a "mentally

incompetent person" as "one who[,] because of injury or disease[,] lacks the mental capacity to

contract or to manage his or her own affairs, including disbursement of funds without limitation." 

38 C.F.R. § 3.353(a) (2012). When a VA rating agency determines that a veteran is incompetent,

the Veterans Service Center Manager is charged with selecting "the person or legal entity best suited

to receive Department of Veterans Affairs benefits in a fiduciary capacity" for that veteran. 

38 C.F.R. § 13.55(a) (2012). Further, VA has provided a list of authorized payees in these instances,

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including, and consistent with section 5502(a), the beneficiary himself and "[t]he beneficiary under

supervision (supervised direct payment)." 38 C.F.R. § 13.55(b)(1), (2). 

Section 13.56 governs instances in which the Veterans Service Center Manager determines

that direct payment to the incompetent beneficiary is in the best interest of the beneficiary. In

particular, subsection (a) controls instances in which the direct pay beneficiary is the veteran. It

provides: 

Department of Veterans Affairs benefits payable to a veteran rated incompetent may

be paid directly to the veteran in such amount as the Veterans Service Center

Manager determines the veteran is able to manage with continuing supervision by the

Veterans Service Center Manager, provided a fiduciary is not otherwise required. If

it is determined that an amount less than the full entitlement is to be paid, such

payment shall be for a limited period of time, generally 6 months, but in no event to

exceed 1 year, after which full payment will be made and any funds withheld as a

result of this section will be released to the veteran, if not otherwise payable to a

fiduciary.

38 C.F.R. § 13.56(a).

Mr. Clennan's first argument focuses on the interplay between this regulation, particularly

the second sentence, and section 5502. Mr. Clennan does not argue that this provision is in any way

invalid. Instead, he contends that, under a correct interpretation of section 5502 and § 13.56(a), VA

may not directly pay an incompetent veteran benefits to which he is entitled for more than one year

without appointing a fiduciary. He contends that this is preciselywhat happened in this case and that

the September 1997 incompetencydetermination was therefore "negated" or "nullified" byoperation

of law. However, his analysis is seriously flawed in several respects.

First, it appears that Mr. Clennan contends that, pursuant to the second sentence of

§ 13.56(a), when VA does not appoint a fiduciary to act as a payee for an incompetent veteran within

one year of an incompetency determination, the veteran's benefits necessarily are "not otherwise

payable to a fiduciary" at the end of this one-year period and VA must therefore pay future

disbursements directly to the veteran. He seems to argue that, when this occurs, VA has effectively

determined that the veteran is competent to manage his VA benefits and, further, that if VA wants

to continue supervised direct payment after one year, it must make a new incompetency

determination. See Appellant's Brief (Br.) at 10. 

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However, the plain and unambiguous language of the second sentence of § 13.56(a)indicates

that it only applies "[i]f it is determined that an amount less than the full entitlement is to be paid"

directly to the incompetent beneficiary. 38 C.F.R. § 13.56(a); see Jones v. Brown, 41 F.3d 634, 638

(Fed. Cir. 1994) (quoting Ardestani v. INS, 502 U.S. 129, 136 (1991) and explaining that, "[i]n

determining the plain meaning of statutorylanguage, 'legislative purpose is expressed bythe ordinary

meaning of the words used'"). Here, as the record indicates–and as Mr. Clennan freely admits, both

in his briefs and at oral argument–Mr. Clennan continued to receive the full amount of benefits to

which he was owed for more than seven years after the September 1997 incompetency

determination, up until a fiduciary was appointed for him in May 2005. See Appellant's Br. at 9 ("In

this case[,] it was never determined by the VA that 'an amount less than the full entitlement is to be

paid.'" (quoting 38 C.F.R. § 13.56(a)). Accordingly, the second sentence of § 13.56(a) is simply

inoperable in this case. 

Further, even if the second sentence were somehow applicable to the facts of this case, it in

no way suggests that a previous incompetency determination is negated or nullified where the

veteran-beneficiary is placed on supervised direct pay and a fiduciary is not appointed within one

year. Rather, it permits the Veterans Service Center Manager to withhold a portion of the benefits

otherwise payable to the incompetent veteran for a limited period of time, not to exceed one year,

after which time the balance of the benefits must be paid to the veteran if they are not otherwise

payable to a fiduciary. Accordingly, the provision allows the Veterans Service Center Manager to 7

"test," in a supervised setting, an incompetent veteran's ability to responsibly manage a portion of

his benefits, while at the same time safeguarding the unpaid balance of the benefits. Indeed, this is

precisely how VA has interpreted this portion of § 13.56(a) in its Adjudication Procedures Manual

(M21-1MR), which states that: (1) supervised direct pay "may be used as a temporary method for

a trial period to provide the beneficiary an opportunity to demonstrate his/her capacity, or lack of

capacity, to handle benefits payable;" (2) "[d]uring this trial period, an amount sufficient to provide

the beneficiary with an opportunity to demonstrate an ability to handle funds is released directly;"

For example, if, during the period of supervised direct payment of less than the full amount of benefits, a

7

fiduciarywas appointed to receive the veteran's benefits going forward, the withheld funds would be paid to the fiduciary,

not the veteran, at the end of the limited period of time.

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(3) "[a]t the end of the trial period, the fund usage is reviewed and re-evaluated for the purpose of

determining whether all benefits should be released directly to the beneficiary, either with or without

future supervision, or to a fiduciary;" and (4) when supervised direct pay is used "for a trial period[,

it] is not intended as a long-term payment arrangement." M21-1MR, pt. XI, ch. 2, sec. E, topic 8

27(a) (first emphasis added). However, nothing in § 13.56(a) or the M21-1MR suggests that, if, at

the end of the maximum one-year trial period, VA continues to believe that the appointment of a

fiduciary is not in the veteran's best interest, it has effectively determined that the veteran is no

longer incompetent for VA purposes.

Instead, VA has promulgated a regulation that details the circumstances under which the

regional office must consider whether a veteran previously adjudged incompetent should be rated

competent. Specifically, after a veteran is deemed incompetent, the Veterans Service Center

Manager is required to, among other things, "develop information as to the beneficiary's social,

economic and industrial adjustment; . . . select a method of disbursing payment as provided in

§ 13.56 . . .; and authorize disbursement of the benefit." 38 C.F.R. § 3.353(b)(2).

If in the course of fulfilling the[se] responsibilities . . . the Veterans Service Center

Manager develops evidence indicating that the beneficiary may be capable of

administering the funds payable without limitation, he or she will refer that evidence

to the rating agency with a statement as to his or her findings. The rating agency will

consider this evidence, together with all other evidence of record, to determine

whether its prior determination of incompetency should remain in effect.

38 C.F.R. § 3.53(b)(3). Further, a medical reexamination of the veteran's condition maybe requested

to assist in this determination. Id. 

Of course, there is nothing to prohibit a veteran who has been deemed incompetent from

submitting evidence of his competency and requesting that the earlier incompetency determination

be revisited. Indeed, in the present case, the record indicates that the regional office interpreted

various documents submitted by Mr. Clennan's counsel as just such a request, provided him a new

VA mental disorders examination to determine whether he remained incompetent for purposes of

managing his benefits, and, in September 2005, reopened its September 1997 decision finding him

It has not escaped the Court's notice that, by VA's own admission, supervised direct pay is recommended for 8

no longer than 36 months (3 years). See M21-1MR, pt. XI, ch. 2, sec. E, topic 27(e). The Secretary would do well to

investigate why Mr. Clennan received benefits under the supervised direct pay program for more than seven years.

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incompetent. Ultimately, however, the regional office concluded that the new evidence continued

to indicate that Mr. Clennan remained incompetent to manage his own funds.

Mr. Clennan asserts that his interpretation of § 13.56(a)is supported by section 5502 because

"[t]he statute provides for payment 'directly to the beneficiary or to a relative or some other fiduciary

for the use and benefit of the beneficiary.'" Appellant's Br. at 9 (quoting 38 U.S.C. § 5502(a)(1)). 

Although not entirely clear, it appears that Mr. Clennan argues that this provision indicates that

payment to a relative or fiduciary is indicative of VA's determination that the veteran is incompetent

to manage his benefit payments, while payment directly to the beneficiary is indicative of VA's

determination that the veteran is competent to manage his benefit payments. 

This argument, however, ignores that the title of chapter 55, within which section 5502 is

codified, indicates that it applies to "[m]inors, [i]ncompetents, and [o]ther [w]ards." Thus, section

5502 necessarilyapplies to situations in which the beneficiaryis a minor, incompetent, or some other

type of ward. See Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 47 (2008)

(quoting Porter v. Nussle, 534 U.S. 516, 528 (2002) to explain that "statutory titles and section

headings 'are tools available for the resolution of a doubt about the meaning of a statute'" and holding

that the placement of a particular statutory provision within a subchapter that contained a heading

that limited the scope of the subchapter also limited the scope of the specific statutory provision). 

In other words, the portion of section 5502(a)(1) upon which Mr. Clennan focuses actually provides

that VA may continue to make payments to an incompetent beneficiary when it determines that "the

interest of the beneficiarywould be served" by such direct payments, not that such payments suggest

that the beneficiary is competent. 38 U.S.C. § 5502(a)(1).

In light of this discussion, the Court concludes that Mr. Clennan's arguments that rely upon

his interpretation of section 5502 and § 13.56(a) are without merit.

B. Due Process

Mr. Clennan's second argument is premised on the Fifth Amendment's Due Process Clause. 

He asserts that, "[a]t no time, until VA's notice on June 24, 2005, . . . advising [him] that an attorney,

Thomas Shadoin, had been appointed as the payee or fiduciary for the receipt of his VA benefits, had

[he] received notice that his property rights in his VA benefits would be impaired." Appellant's Br.

at 11. He contends that he "had a constitutional right to prior notice and an opportunity to be heard

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before . . . VA discontinued its direct payment . . . of his VA benefits." Id. In other words, Mr.

Clennan argues that VA did not provide him with sufficient procedural due process prior to

appointing Mr. Shadoin as his fiduciary and authorizing the payment of 4% of his yearly disability

compensation benefits to Mr. Shadoin as a fiduciary fee.

1. Process Already Provided 

At the outset, the Court notes that Mr. Clennan's argument proceeds from an incorrect factual

premise. Although he asserts that VA did not provide any notice prior to June 2005 that his property

rights in his VA benefits could be constrained, the record indicates that he was, in fact, provided a

great deal of earlier process. First and foremost, in July 1997, he was provided notice of VA's intent

to declare him incompetent for purposes of handling his benefit payments based on the findings of

the VA psychiatrist in May1997. This notice expresslyinformed him of the consequences that could

flow from a finding that he was incompetent to manage his funds, including that "a fiduciary may

be appointed to help . . . manage [his] VA benefits," in which case "[p]ayment of any money due

[to him would] be made directly to [his] fiduciary." R. at 2502. The letter further informed Mr.

Clennan that he was entitled to contest the proposed incompetency decision and that, upon request

within 60 days, he would be provided a hearing at which he would be entitled to representation by

an attorney and an opportunity to present testimony. Mr. Clennan, who–again–was represented by

his current counsel, opted not to contest VA's proposed finding.

Further, when Mr. Clennan did not contest the proposed rating decision or request a hearing,

VA issued a rating decision declaring him incompetent and notified him of his right to appeal that

decision. The notice that accompanied this decision also informed him that a fiduciary would be

appointed to help him manage future benefit payments, although the parties agree that this did not

happen until many years later. Importantly, Mr. Clennan chose not to avail himself of the appeal

process, despite having the assistance of his current counsel. The decision finding him incompetent

therefore became final.

Finally, in May2005,in response to correspondence sent byMr. Clennan's counsel contesting

VA's authority to demand an accounting of assets, the regional office informed Mr. Clennan that an

accounting was necessary to determine whether the appointment of a fiduciary was necessary. This

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letter further stated that VA preferred that a family member act as a fiduciary, but that if none were

willing, it would be forced to appoint someone else. 

Given this backdrop, the Court interprets Mr. Clennan's argument as one that due process

required that VA provide him additional notice and an opportunity to be heard once VA determined

that a fiduciary was, in fact, necessary, and to provide that notice prior to the official appointment

of the fiduciary and discontinuation of direct payments. Although Mr. Clennan did not specifically

raise this argument below, the Court holds that it has jurisdiction to consider it under the larger

umbrella of whether VA generally provided adequate process concerning Mr. Clennan's

incompetency determination and payment method. See Robinson v. Peake, 21 Vet.App. 545, 551

(2008) (holding that the Court's jurisdiction flows from the Board's decision on a particular claim,

not on a particular argument or theory offered in support of that claim), aff'd sub nom. Robinson v.

Shinseki, 557 F.3d 1355 (Fed. Cir. 2009).

2. Procedural Due Process

a. Property Interest

"To raise a due process question, the claimant must demonstrate a property interest entitled

to such protections." Cushman v. Shinseki, 576 F.3d 1290, 1296 (Fed. Cir. 2009). In this regard,

it is now well established that a veteran's "entitlement to [VA] benefits is a property interest

protected by the Due Process Clause of the Fifth Amendment to the United States Constitution." Id.

at 1298. Accordingly, the Court "next decides what process, if any, . . . was due" to Mr. Clennan. 

Edwards v. Shinseki, 582 F.3d 1351, 1355 (Fed. Cir. 2009).

b. Requirements

"The requirements of procedural due process vary 'depending upon the importance attached

to the interest and the particular circumstances under which the deprivation may occur.'" Id.(quoting

Walters v. National Ass'n of Radiation Survivors, 473 U.S. 305, 320 (1985)). As outlined above, Mr.

Clennan argues that due process requires that VA notify a veteran of its intent to discontinue direct

supervised payment of the benefits to which he is entitled prior to the time when it appoints a

fiduciary or other payee and begins making payment to the third-party payee. He also contends that

due process requires VA to provide "a fair opportunity to be heard on the question of the VA's

discontinuation of . . . direct receipt of . . . VA benefits." Appellant's Br. at 12. 

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The U.S. Supreme Court has explained that, when there is a question as to precisely how

much process is owed an individual in connection with the government's interference with a property

interest, three factors must be considered:

First, the private interest that will be affected by the official action; second, the risk

of an erroneous deprivation of such interest through the procedures used, and the

probable value, if any, of additional or substitute procedural safeguards; and finally,

the Government's interest, including the function involved and the fiscal and

administrative burdens that the additional or substitute procedural requirement would

entail.

Mathews v. Eldridge, 424 U.S. 319, 335 (1976). 

i. Private Interest Affected 

In addressing each of these factors in this case, the analysis contained in McGrath v.

Weinberger, 541 F.2d 249 (10th Cir. 1976), is informative. In McGrath, the appellant, a recipient

of Social Security benefits, relied on the Fifth Amendment's Due Process Clause to challenge the

procedures formerly used by the Social Security Administration to appoint a representative payee

when the agency determined that the beneficiary was no longer competent to manage his or her

benefit payments. Id. at 250. It was undisputed "that at no time was [the appellant] given notice of

or an opportunity for a hearing prior to the determination that he was incapable of managing his

benefit payments." Id. at 251. Like Mr. Clennan here, the appellant in McGrath argued "that the

Due Process Clause demands that prior notice and an opportunity for a hearing be afforded Social

Security beneficiaries who are determined to be incapable of managing their benefits." Id. at 253. 

In addressing this argument, the U.S. Court of Appeals for the Tenth Circuit (Tenth Circuit)

followed the analysis outlined by the Supreme Court in Eldridge. First, it characterized the private

interest affected by the Social Security Administration's actions as "the free use of Social Security

benefits" and concluded that "a deprivation of free use of benefits" is not as severe as the temporary

deprivation of benefits that was at issue in Eldridge, where the Supreme Court ultimately concluded

that a pre-deprivation hearing was not necessary prior to termination of the benefits. Id. The Tenth

Circuit therefore concluded that "it would be an unwarranted departure . . . to hold that due process

requires prior notice and an opportunity for a hearing where there has been no termination of

benefits." Id.

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As in McGrath, the primary private interest here is Mr. Clennan's continued "free use" of the

disability compensation benefits that he was due. Unlike in McGrath, VA provided Mr. Clennan

with notice and an opportunity to be heard prior to its incompetency determination. VA further

provided him advance notice of the ramifications of its proposed incompetency

determination–namely, that a third-party payee might be appointed to manage his benefits for him. 

Simply put, the procedures followed by VA in this case were more extensive than those that were

found to weigh against a finding of a due process violation in McGrath. 

It is true that Mr. Clennan also has a property interest in the benefits he has lost as a result

of the commission paid to the appointed fiduciary. See Freeman v. Shinseki, 24 Vet.App. 404, 417

n.9 (2011) ("[A] property right of the veteran is clearly potentially affected by any payment from his

benefits to a fiduciary."). However, although VA is authorized to pay a commission to an appointed

fiduciary where there is not someone who is capable and willing to undertake the task for free, it is

not permitted to do so until incompetency proceedings have been completed. Thus, prior to any

taking of the portion of the veteran's disability compensation benefits that is commissioned to the

appointed fiduciary, the veteran is entitled to a full array of procedural safeguards, including notice

and an evidentiary hearing. Further, any such commission is capped by statute at 4% of the veteran's

annual benefits, see 38 U.S.C. § 5502(a)(2), a figure sufficiently small to lead the Court to conclude

that, at least in Mr. Clennan's case, his private interest in these withheld funds is not so great that

additional process is necessary, as a loss of this amount is not likely to deprive him of the means by

which to live. See Eldridge, 424 U.S. at 340 (explaining that, in Goldberg v. Kelly, 397 U.S. 254

(1970), the Supreme Court determined that an evidentiary hearing was necessary in advance of the

deprivation of a government entitlement benefits because "welfare assistance is given to persons on

the very margin of subsistence"). Indeed, at no time has Mr. Clennan asserted that the payment of

slightly more than $1,000 of his disability compensation benefits to Mr. Shadoin each year has 9

placed him in anything approaching dire financial straits.

The record does not reveal the current monthly amount of Mr. Clennan's VA compensation benefit payment. 9

The most recent figure in the record is $2,193.00, as of December 1, 2002. R. at 386. Using that figure, 4% of the

benefits paid in a 12-month period is $1,052.64.

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In reaching this conclusion, the Court notes that the record of proceedings in this case

indicates that VA attempted to avoid the appointment of a paid federal fiduciary for Mr. Clennan by

(1) placing him on supervised direct pay for a long period of time, and (2) informing him and his

counsel that it preferred to appoint a capable familymember to act as his fiduciary, see R. at 210-11,

and encouraging his parents to act as his "conservator," see R. at 3114. However, the record further

indicates that, under advice of counsel, (1) Mr. Clennan and his family refused to provide an

accounting of past benefit payments (which precipitated, in part, the termination of Mr. Clennan's

participation in the supervised direct payprogram) and (2) Mr. Clennan's parents repeatedlydeclined

to serve as Mr. Clennan's fiduciary, citing their fragile relationship with their son.

ii. Risk of Erroneous Deprivation

With regard to the second factor outlined by the Supreme Court in Mathews, in McGrath,

the Tenth Circuit concluded that "the risk of an erroneous deprivation of the beneficiary's interest

in the free use of his benefits appear[ed] to be relatively slight" because the agency's incompetency

determination was "based primarily on evaluations by psychologists and staff members who . . .

observed the beneficiary" and, "[i]n the event . . . that one ha[d] been wrongly denied the free use

of his benefits[,] the procedures available for reviewing such a decision appear[ed] . . . to be fair and

adequate." McGrath, 541 F.2d at 253-54. 

In this case, the risk to Mr. Clennan also appears to be slight because VA has promulgated

regulations that safeguard against an erroneous finding of incompetency. These regulations mandate

that, "[u]nless the medical evidence is clear, convincing[,] and leaves no doubt as to the person's

incompetency," VA may not make a finding of incompetency "without a definite expression

regarding the question by the responsible medical authorities." 38 C.F.R. § 3.353(c). 

Further,"[w]here reasonable doubt arises regarding a beneficiary's mental capacity to contract or

manage his or her own affairs," there is a regulatory presumption in favor of competency. 38 C.F.R.

§ 3.353(d). Moreover, not only is a beneficiary who is deemed incompetent entitled to all of the

appellate procedure associated with other regional office decisions, as noted above, he is also entitled

to a pre-deprivation hearing if he so requests. 

Additionally, even after the beneficiary is found to be incompetent, as discussed in part II.A.

above, VA has empowered the Veterans Service Center Manager, in appropriate circumstances, to

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test an incompetent veteran-beneficiary's ability to manage his own funds by placing him on

supervised direct pay, as was done in Mr. Clennan's case. This system provides an additional layer

of protection against the erroneous deprivation of the veteran's control over his disability

compensation benefit payments and the consequent loss of up to 4% of those benefits as a

commission to any fiduciary that is appointed. 

Finally, an incompetent beneficiary who believes that VA did not follow all applicable

procedures in selecting a fiduciarymay appeal this determination to the Board and then to the Court. 

See Freeman, 24Vet.App. at 417. Collectively, these procedures suggest that no additional process 10

is necessary to safeguard against the risk of the erroneous deprivation of a beneficiary's control over

his benefits. 

iii. Government Interest

Finally, with regard to the third consideration the Supreme Court identified in Mathews, the

Tenth Circuit in McGrath concluded that the government had a substantial interest in not being

required to provide a pre-deprivation hearing because, if it were required to do so, the government

would be placed in the untenable position of deciding whether to pay benefits to a beneficiary who

appeared to be incompetent or stop payment of all benefits until such a hearing could be provided.

McGrath, 541 F.2d at 254. 

Here, of course, VA's procedures provide advance notice and an opportunity to be heard to

a beneficiary whom it proposes to declare incompetent. VA is a heavily burdened agency with a

large backlog of claims. See generally GreggZoroya, Backlog Buries Veterans' Claims, USA Today

(April 7, 2011, 12:19 AM), http://www.usatoday.com/news/military/2011-04-07-1Abacklog07_

ST_N.htm (last visited Jan. 22, 2013). It would therefore be a substantial burden to also require VA

to provide a second notice and an additional opportunity for a hearing before it takes the additional

Prior to Freeman, VA's position was that fiduciary appointments were not appealable decisions. That 10

Freeman–which held for the first time that fiduciary appointments are appealable–was decided several years after Mr.

Clennan was informed that Mr. Shadoin had been appointed as hisfiduciary is inapposite. Mr. Clennan was represented

by current counsel at the time of the June 2005 notice that Mr. Shadoin had been appointed, and he was free to challenge

VA's position on the appealability of that determination. The Court notes, however, that the VA Adjudication Procedure

Manual still states that the appointment of a fiduciary is final and unappealable. See M21-1MR, pt. XI, ch. 2, sec. E,

topic 26(b) ("The designation and removal of a fiduciary are responsibilities resting solely within [VA]. These actions

are not subject to appeal."). This is no longer a correct statement of the law, and the Secretary would do well to amend

the M21-1MR to reflect the current reality.

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step of appointing a fiduciary or other third party as payee. Further, to do so would be to place VA

in the absurd position of continuing direct payment of benefits to a beneficiarywho, after substantial

procedural meanderings, has been found to be incapable of responsibly managing his or her own

funds.

In sum, the Court concludes that the procedure provided by VA prior to the deprivation of

Mr. Clennan's right to directly control his benefits was sufficient. 

C. Impact of State Court Proceedings

As a final matter, even if the Court were to conclude that a second round of notice, along

with a new opportunity to be heard, was required prior to the appointment of Mr. Shadoin in this

case, we conclude that any error on the part of VA in that respect is nonprejudicial for the period

after October 2006 because Mr. Clennan received notice and an opportunity to be heard in the

Kansas curatorship proceedings and opted not to contest the appointment of Mr. Shadoin as his

curator to receive and disburse his VA disability compensation benefit payments. See Conway v.

Principi, 353 F.3d 1369, 1374 (Fed. Cir. 2004); see also 38 U.S.C. § 7261(b)(2) (requiring the Court

to "take due account of the rule of prejudicial error"). 

Although, in response to the Court's post-oral argument briefing order, Mr. Clennan asserts

that the Kansas process of appointing Mr. Shadoin curator was somehow tainted or inadequate, that

is a matter arising under the laws of the state of Kansas, not laws administered by VA or affecting

the payment of VA benefits. Accordingly, those arguments are not properly before this Court. 

Moreover, that Mr. Clennan's current counsel–who was also his representative in 2006–now objects

to the procedure undertaken in the Kansas proceedings strikes the Court as opportunistic, given that

he raises the purported inadequacies of the Kansas proceedings only in response to the Court's postoral argument briefing order. He did not raise the issues in the briefs he filed with the Court (to be

sure, neither party discussed the Kansas proceedings in its briefs or otherwise brought them to the

Court's attention until oral argument), nor did he raise them when specifically questioned about the

Kansas proceedings at oral argument. It is also clear that he has not attempted, in the more than six

years since the appointment of Mr. Shadoin as curator, to challenge the alleged deficiencies in the

Third Judicial District Court in Kansas. Therefore, the Court finds, because there is no evidence to

the contrary, that the Kansas proceedings unfolded in the proper manner.

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As discussed in Part I, above, in October 2006, the Third Judicial District Court in Shawnee

County, Kansas, granted VA's petition to have Mr. Shadoin appointed as Mr. Clennan's curator. 

There is no dispute that Mr. Clennan received notice of the petition and that the notice advised him

of the date of the hearing and informed him that he could appear to contest the appointment. There

is also no dispute that he did not do so. 

That Mr. Clennan did not inform his current counsel of that notice and that he was not

represented in the Kansas proceedings is of no moment. Mr. Clennan has only been adjudged

incompetent to handle his funds; he has not been adjudged incompetent generally. Despite his best

efforts, counsel for Mr. Clennan cannot have it both ways: Mr. Clennan cannot be both competent

to handle his VA funds without the need for a VA-appointed fiduciary and so incompetent that he

was incapable of understanding the September 2006 notice or participating in the October 2006

Kansas proceedings without the assistance of counsel. Mr. Clennan was served with notice of the

hearing and commanded to appear. He was advised that if he failed to appear, the case would

proceed without him "without further notice of the proceedings." R. at 3054. Again, the Court finds,

because there is no evidence to the contrary, that Mr. Clennan understood the notice he received and

chose not to exercise the rights afforded to him.

III. CONCLUSION

Upon consideration of the foregoing, the January 4, 2010, Board decision is AFFIRMED.

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