Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

The Inspector General of the Social Security Administration,
Petitioner,
v.
Richard Lee Carlson,
Respondent.
Docket No. C-14-1220
Decision No. CR4064

Date: July 24, 2015
DECISION

The Inspector General (IG) of the Social Security Administration (SSA) charges that
Respondent, Richard Lee Carlson, violated section 1129 of the Social Security Act (Act)
because he returned to work while receiving Social Security disability benefits, without
reporting his work activities to SSA. In fact, he repeatedly and falsely told SSA that he

ad not worked since his disability began in June 2002. SSA wants to impose against
im a $20,000 penalty plus a $59,488 assessment in lieu of damages, for a total civil
money penalty (CMP) of $79,488.

For the reasons set forth below, I agree that Respondent Carlson violated section 1129,
because he collected disability insurance benefits while he worked, and he knowingly
withheld that material fact from SSA. When asked, he falsely claimed that he had not
performed any work activity. I find the proposed CMP reasonable.

Background
Section 1129(a)(1) of the Act subjects to penalty any person who

(A) makes, or causes to be made, a statement or
representation of a material fact, for use in determining any
initial or continuing right to or the amount of monthly
insurance benefits under title II or benefits or payments under
title .. . XVI, that the person knows or should know is false
or misleading,’

(B) makes such a statement or representation for such use
with knowing disregard for the truth, or

(C) omits from a statement or representation for such use, or
otherwise withholds disclosure of, a fact which the person
knows or should know is material to the determination of any
initial or continuing right to or the amount of monthly
insurance benefits under title II or benefits or payments under
title . . . XVI, if the person knows, or should know, that the
statement or representation with such omission is false or
misleading or that the withholding of such disclosure is
misleading ....

See also 20 C.F.R. § 498.102(a) (authorizing the IG to impose a penalty against any
person who has made a statement or representation of a material fact for use in
letermining any initial or continuing right to or amount of Title II or Title XVI benefits,
and who knew, or should have known, that the statement or representation was false or
misleading, or who omitted a material fact, or who made such a statement with “knowing
isregard for the truth.”).

The Act defines a material fact as one that “the Commissioner of Social Security may
consider in evaluating whether an applicant is entitled to benefits under title II. . . or
eligible for benefits or payments under title XVI.” Act § 1129(a)(2); 42 C.F.R.

§ 498.101.

[he Commissioner of Social Security has delegated to the IG the authority to impose
penalties under section 1129. See 20 C.F.R. § 498.102.

' Title II of the Act governs the Social Security disability insurance program, and Title
XVI governs the Supplemental Security Income (SSI) program.
In this case, the IG contends that, while receiving Social Security disability insurance
benefits, Respondent Carlson returned to work for his long-time employer, a company
called Anderson Excavating. He was paid in cash and deliberately concealed his work
activity from SSA.

On March 27, 2014, the IG sent Respondent Carlson a letter advising him of the IG’s
determination and the proposed CMP, which the IG then set at $97,990 (a $20,000
penalty plus a $77,990 assessment in lieu of damages).” SSA Ex. 25. Respondent
Carlson requested a hearing.

The parties submitted briefs (IG Br.; R. Br.) and proposed exhibits, including written
declarations of witnesses. Neither party objected to my admitting any of the exhibits, so,
following a March 4, 2015 prehearing conference, I admitted into evidence SSA Exhibits
(SSA Exs.) 1-27, and Respondent’s Exhibits (R. Exs.) 1-15. Order Summarizing Pre-
hearing Conference at 2 (March 4, 2015) (Order).

Each party submitted the written direct testimony of his witnesses (the IG has three
witnesses; Respondent Carlson has ten witnesses), but neither party asked that any
witness be produced for cross-examination at an in-person hearing. An in-person hearing
would therefore serve no purpose. Order at 2; see Acknowledgment and Prehearing
Order at 4 § 6 (June 2, 2014).

I left the record open so that the parties could submit additional briefing and suggested
they address the impact on this case, if any, of two recent Departmental Appeals Board
decisions (Salvatore Cappetta, DAB No. 2606 (2014) and Michelle Valent, DAB No.
2604 (2014)). Order at 2. The IG filed a Supplemental Brief (IG Supp. Br.), and
Respondent filed a reply (R. Reply).*

Issues

The issues before me are:

> The IG subsequently lowered to $59,488 the amount of the proposed assessment in lieu
of damages because SSA recovered some of its lost money by withholding benefits. See
Discussion, Finding 2, below.

> Initially, based on the ALJ decisions in Cappetta and Valent, Respondent argued that
his work activity was not material because SSA may not consider work activity as
evidence that an individual is no longer disabled. R. Br. at 16-19. The Board reversed
the ALJ’s conclusions in Cappetta and Valent, and Respondent has abandoned the
arguments. R. Reply at 1.
1) Did Respondent Carlson make, or cause to be made, to SSA, a statement or
representation of a material fact that he knew or should have known was false and
misleading, for SSA’s use in determining his right to Social Security disability
insurance benefits, and/or the amount of those benefits, or did he omit a material
fact or make such a statement with knowing disregard for the truth; and

2) if so, is the proposed CMP of $79,488, consisting of a $20,000 penalty and a
$59,488 assessment in lieu of damages, reasonable.

Discussion

1. The IG may impose a CMP because: 1) Respondent Carlson worked while
collecting Social Security disability insurance benefits; 2) he deliberately
withheld that information from SSA; and 3) when asked, he falsely told SSA
that he had not worked since June 2002 (the onset date of his disability)?

Regulations governing eligibility for Social Security disability insurance benefits (Title II
of the Act) are found at 20 C.F.R. Part 404. An individual is disabled if he is unable to
perform any “substantial gainful activity” because of a “medically determinable physical
or mental impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months.” 20 C.F.R.

§§ 404.1505(a), 416.905(a).

In assessing whether an individual is disabled, SSA first considers his work activity. An
individual who engages in substantial gainful activity is not disabled, no matter how
severe his physical or mental impairments. 20 C.F.R. § 404.1520(a)(4)(i).. Work activity
is considered “substantial” if it involves significant physical or mental activities, even if
performed on a part-time basis and even if the individual is paid less or has less
responsibility than before. 20 C.F.R. § 404.1572(a). Work activity is considered
“gainful” if it is “the kind of work usually done for pay or profit, whether or not a profit
is realized.” 20 C.F.R. § 404.1572(b).

Thus, an individual’s work activity is material to SSA’s determining his continuing right
to disability insurance benefits.

+ My findings of fact/conclusion of law are set forth, in italics and bold, in the discussion
captions of this decision.
In this case, Respondent Carlson applied for disability insurance benefits on July 22,
2002, alleging that he became unable to work because of a disabling condition (coronary
disease) on June 4, 2002. As part of his application, he agreed to notify SSA if he went
to work “whether as an employee or a self-employed person.” SSA Ex. 1; SSA Ex. 6 at 2
(Dostal Decl. § 4).

SSA found him disabled, with a June 4, 2002 onset date, and awarded him disability
insurance benefits. See SSA Ex. 22 at 5.° However, according to the IG, Respondent
Carlson returned to work in November 2005, without reporting that fact to SSA. SSA
Ex. 25 at 1.° Indeed, he deliberately and repeatedly concealed his work activity. Ina
report he completed and signed on December 8, 2008, he reported that he had not worked
since June 2002. The document warned that “making a false statement or representation
of a material fact for use in determining a right to payment under” the Act is “a crime
punishable under federal law.” SSA Ex. 2. Ina separate report, completed the same day,
he wrote “I am not working at all.” This document also warned against making false
statements. SSA Ex. 3. Ona third work activity report, which he completed and signed
on December 22, 2010, Respondent again denied that he had worked since his disability
onset date. That document also warned against making false statements. SSA Ex. 4.

The accusation. In December 2008, an individual contacted the SSA district office in
Council Bluffs, Iowa, to complain that Respondent Carlson was collecting disability
benefits while working as a mechanic at Anderson Excavating Company. The informant
reported that Respondent Carlson had been working there full time for about three years
and was “paid under the table.” SSA Ex. 5; SSA Ex. 6 at 1-2 (Dostal Decl. § 3).
Anderson Excavating is a large company that provides excavation services on multi-
million dollar projects. SSA Ex. 6 at 2 (Dostal Decl. § 3); see SSA Ex. 6 at 3 (Dostal
Decl. {| 6).

The IG began a years-long, intensive, and thorough investigation.

> No one disputes that, but for his work activity, Respondent Carlson is eligible for
disability insurance benefits.

® In fact, the evidence establishes that Respondent Carlson returned to work in December
2002, but SSA considers his work activity from then until May 2005 a “trial work
period,” during which he could work and still be eligible for disability benefits. 20
C.F.R. § 404.1592; SSA Ex. 22 at 7. Of course, he should have reported that work
activity to SSA, but the IG has not pressed this point.
Surveillance. On January 6, 2009, IG Special Agent Brian Dostal conducted surveillance
of Anderson Excavating. He observed Respondent Carlson driving a white GMC Sierra
pickup truck owned by the company. SSA Ex. 6 at 2 (Dostal Decl. § 5); see SSA Ex. 16
at 3, 4 (conceding that Carlson drove a company truck and that the company paid for its
fuel and maintenance).

On June 17, 18, and 19, 2009, Agent Dostal conducted surveillance of Respondent
Carlson’s residence. On the evening of June 17, he observed the white pickup parked in
Respondent’s driveway. At 6:35 the following morning, he saw Respondent Carlson
drive away in the truck. The respondent returned at 6:09 p.m. and parked the company
truck in his driveway. The next morning, he left home at 6:39 a.m., again driving away
in the company truck. SSA Ex. 6 at 6-7 (Dostal Decl. J 16).

Pursuant to a court order, on August 21, 2009, Special Agent Dostal installed a GPS
tracking device on the white pickup. The device remained in place and — except for two
occasions when its battery died — functioned until November 13, 2009.” A GPS tracking
log shows — in excruciating detail — the truck’s movements. Virtually every workday
(Monday through Friday), the truck left Respondent Carlson’s home at about 6:30 a.m.
and returned home between 5:30 p.m. and 6:00 p.m. The truck made regular stops at
Anderson Excavating work sites and construction equipment supply centers, as well as
“Nebraska Machinery Company,” a retailer of Caterpillar construction equipment. From
August 21 through September 25, the truck stopped at Anderson Excavating’s corporate
offices (19" & Dorcas) every Friday between 4:45 and 5:00 p.m., which corresponds with
the time that the company paid its employees. SSA Ex. 6 at 7-8 (Dostal Decl. § 17); SSA
Ex. 7 at 2, 7, 14, 20, 27, 32; see SSA Ex. 12 at 3.

On one occasion during this time of GPS tracking, Special Agent Dostal personally
witnessed Respondent Carlson driving the pickup and making stops. On September 16,
Respondent Carlson left his house at 6:23 a.m., stopped briefly at a convenience store,
and then drove on to the Nebraska Machinery Company, where, at 6:49 a.m., Agent
Dostal watched him park the truck and go into the business. He emerged about 15
minutes later, pushing a cart full of items, which he loaded into the back of the pickup.
He returned the cart to the business and drove off. SSA Ex. 6 at 8 (Dostal Decl. § 18);
SSA Ex. 8; see SSA Ex. 7 at 23-24. According to the GPS surveillance log, the
respondent stopped at a mall and then drove to the Anderson Excavating “yard.” SSA
Ex. 7 at 24.

7 The device stopped working after 1:51 p.m. on September 10. Its battery was replaced
during the early morning hours of September 11. SSA Ex. 7 at 19. That battery died
sometime after 5:11 p.m. on September 30 and was not replaced until October 16. SSA
Ex. 7 at 37.
Employee statements. Agent Dostal interviewed current and former employees of
Anderson Excavating and others who did business with the company; he obtained the
following information:

e Dean Teten (February 12, 2009 interview). Dean Teten told Agent Dostal that,
since about 2004 or 2005, he had been working part-time as a superintendent for
Anderson Excavating. He reported that, throughout this time, Respondent Carlson
worked there as a mechanic and continued to work there. SSA Ex. 6 at 3 (Dostal
Decl. 7); SSA Ex. 9.

In a written declaration, Dean Teten does not deny making this statement to Agent
Dostal but suggests that he has not been in a position to know what Respondent
was doing at Anderson Excavating. He refers to Respondent Carlson’s “building
his models” at the shop. He also admits that he would call the respondent “on a
cellphone provided to [Carlson] by [Anderson Excavating]” when equipment his
crew used failed. Respondent Carlson would respond, sometimes telling him how
to fix broken equipment. R. Ex. 9 at 2 (Teten Decl. {§ 5, 7, 9).

e James Wilson (February 13, 2009 interview). From 1994 through 2005, James
Wilson worked at Anderson Excavating in various capacities, including
estimating, purchasing, superintendent, and general labor. He told Agent Dostal
that, when he started at Anderson Excavating, Respondent Carlson was working
there as a mechanic and was still working there in 2005, when Mr. Wilson left the
company. Mr. Wilson believed that Respondent Carlson continued to work at
Anderson Excavating. SSA Ex. 6 at 3 (Dostal Decl. § 8); SSA Ex. 10.

e Virgil Anderson (February 19, 2009 interview). Virgil Anderson, the company’s
owner and chief executive officer (CEO), learned from Dean Teten that the IG was
investigating Respondent Carlson’s work activities. Virgil Anderson told Special
Agents Dostal and Jason Albers that he owned Anderson Excavating and that he
and Respondent Carlson had been good friends for many years. He conceded that
Respondent Carlson “hung around” the business and occasionally acted as a
consultant for the company, explaining how to fix equipment problems. He told
the agents that Carlson worked on Caterpillar equipment as a hobby and that he
also built small machines. He denied paying Carlson for work but admitted that
Respondent Carlson “provides the services that he provides in order to pay back
the money [$30,000] that [I] loaned him to pay off [a] government debt.” SSA Ex.
6 at 3-4 (Dostal Decl. 4] 9).

CEO Anderson confirmed that Respondent drove a company vehicle and that the
company paid for its fuel. He also admitted that the company provided
Respondent Carlson with a cell phone. SSA Ex. 6 at 4 (Dostal Decl. 4 9); SSA Ex.
16.
In a written statement, signed by CEO Anderson on February 19, 2009, he
repeated that “Rich Carlson is repaying me in consulting information for paying
his taxes,” but asserted that, from 2003 to this day, “I have not paid Rich Carlson
any money .... From 2003 forward, Rich has done consulting . . . for no pay,
directly or indirectly.” SSA Ex. 16, Attach. A.

Eighteen months later, the investigation continued. Agent Dostal and his colleagues
interviewed more Anderson employees, with similar results. Virtually everyone said that
Respondent Carlson continued working at Anderson Excavating after June 2002:

¢ Gerald Seffron (August 18, 2010 interview). Gerald Seffron was a carpenter, who
had worked at Anderson Excavating for approximately 22 years. He told Special
Agents Dostal and Albers that Respondent Carlson worked for Anderson
Excavating. He said that Respondent Carlson ran the company’s maintenance
program, but he believed that Respondent Carlson had left the company 7 or 8
months earlier. SSA Ex. 6 at 13 (Dostal Decl. § 31); SSA Ex. 12 at 1-2.

In a written declaration, Gerald Seffron denies telling the agents that Respondent
Carlson left the company 7 or 8 months earlier, but claims to have said that he last
saw the respondent 7 or 8 months earlier. He claims that he “assumed” that
Respondent Carlson was not employed at the company, because he saw him
working on models, but he did not know whether Respondent Carlson worked at
the company or not. R. Ex. 12 at 2 (Seffron Decl. ff 3, 4, 5, 6).

e Jose Aguero-Chavarria (August 18, 2010 interview). Jose Aguero-Chavarria was
employed at Anderson Excavating as a general laborer and had been there for
about 20 years. He told the agents that Respondent Carlson (whom he called
“Rich”) was a mechanic who also supervised the other mechanics. He estimated
that “Rich” had worked at Anderson for about 20 years. Mr. Aguero confirmed
that the respondent drove a white company pickup truck. SSA Ex. 6 at 13 (Dostal
Decl. §] 32); SSA Ex. 12 at 2.

e Martin Almazan (August 18, 2010 interview). Martin Almazan had been
employed by Anderson Excavating for about 25 years. He told Agents Dostal and
Albers that he knew Respondent Carlson, who had been at the company almost
that long. He believed that Respondent Carlson had worked full-time as a
maintenance worker until about 1 years earlier, when he reduced his hours
because of heart problems. He thought that Respondent Carlson searched the
internet and ordered parts needed for company equipment. The respondent
delivered the parts to job locations so that they could be installed on the
equipment. Mr. Almazan identified Randy Miller as Carlson’s supervisor and

named two other mechanics with whom Respondent Carlson worked: “Travis”
(who was the stepson of company owner, Virgil Anderson) and “White.” SSA Ex.
6 at 13-14 (Dostal Decl. § 33); SSA Ex. 12 at 2-3.

Linda Holmes (August 19, 2010 interview). Linda Holmes told Special Agent
Dostal that, from about August 2005 until March 2006, she worked as a
receptionist at Anderson Excavating. She confirmed that Respondent Carlson was
employed there, and she believed that he was a supervisor in the company’s
maintenance shop. She remembered his coming into the office on Friday
afternoons to pick up the payroll checks for the mechanics in his department. SSA
Ex. 6 at 14 (Dostal Decl. § 34); SSA Ex. 12 at 3.

Debbie Miller (January 26, 2011 interview). Debbie Miller, who was the daughter
of company owner Virgil Anderson, worked in the office at Anderson Excavating
from 2000 until 2007. She had been Linda Holmes’s supervisor. She told Special
Agents Dostal and Joel Ferris that Respondent Carlson was a mechanic at
Anderson Excavating and was on the payroll until he had his heart attack. But
when Special Agent Dostal told her that the heart attack was in 2002, she said that
she thought it had occurred later, closer to the time she left the company. SSA Ex.
6 at 14 (Dostal Decl. § 35); SSA Ex. 12 at 3; SSA Ex. 13.

Related interviews. The special agents also interviewed employees of businesses that the
GPS tracking device indicated Respondent Carlson frequented. Those individuals
consistently reported that the respondent stopped to purchase machine parts, which he
subsequently delivered to Anderson Excavating work sites. They also said that
Respondent Carlson ordered the parts on behalf of Anderson Excavating and that the
businesses billed Anderson for them.

Dave Thomas (October 19, 2009 interview). Dave Thomas was an assistant
manager in the parts department of Nebraska Machinery Company. He told
Agents Dostal and Albers that he had known Respondent Carlson for about 15
years in Carlson’s capacity as the head mechanic for Anderson Excavating.
Respondent Carlson regularly ordered parts from Nebraska Machinery, then
picked them up and delivered them to Anderson Excavating’s various job sites.
Mr. Thomas told the agents that, prior to Respondent Carlson’s heart problems, he
had been a hands-on mechanic, but now he trained the other mechanics, ordered
parts, and delivered the parts to the job sites. SSA Ex. 6 at 10 (Dostal Decl. 4 23);

10

e SSA Ex. 11 at 1-2; see SSA Ex. 7 at 1, 6, 7, 9, 10, 11, 12, 13, 14 (showing stops at
Nebraska Machinery, referred to as “Caterpillar,” followed by stops at the
Anderson main yard and work sites).*

e Jana Dalton (October 19, 2009 interview). Jana Dalton worked in the parts
department at Murphy Tractor and Equipment Company. She told Agents Dostal
and Albers that she thought Respondent Carlson worked as a mechanic at
Anderson Excavating because he was “dirty like a mechanic” when he came to the
office. She said that he usually arrived at about the time that the business opened
up in the morning. He ordered parts and came to the company to pick them up for
delivery to the Anderson Excavating job sites. She was not aware of anyone else
who picked up parts for Anderson Excavating. She also said that Respondent
Carlson signed Anderson invoices for the parts. She gave the agents the last three
such invoices, dated August 28, September 1, and September 10, 2009. SSA Ex. 6
at 10-11 (Dostal Decl. § 24); SSA Ex. 11 at 2; see SSA Ex. 7 at 6, 7, 12, 17, 18.

e Darren Gatlin (October 19, 2009 interview). Darren Gatlin was a sales associate
at Airgas North Central. He knew “Rich” Carlson as an Anderson Excavation
employee and told the agents that the respondent had been coming to his business
once or twice a month for as long as Mr. Gatlin had worked there (2 years).
Airgas billed Anderson Excavating for the products Respondent Carlson picked
up. Mr. Gatlin also reported that Respondent Carlson had been training someone
named “‘Santos,” a welder at Anderson Excavating. SSA Ex. 6 at 11 (Dostal Decl.
4 25); SSA Ex. 11 at 2-3; see SSA Ex. 7 at 12.

e Ted Christensen (October 19, 2009 interview). Ted Christensen was a salesman in
the parts department at Road Builders Machinery and Supply Company. He told
Agents Dostal and Albers that Respondent Carlson ordered parts and came to the
business to pick them up and distribute them to Anderson Excavating work sites.
Mr. Christensen said that he had been working at Road Builders for about four
years and that Respondent Carlson had been ordering and picking up parts that
entire time. Before he started working at Road Builders, Mr. Christensen worked
at Nebraska Machinery, from whom Respondent Carlson also ordered and picked
up parts. SSA Ex. 6 at 11 (Dostal Decl. § 26); SSA Ex. 11 at 3; see SSA Ex. 7 at
6, 22.

® The tracking log refers to the Nebraska Machinery location as “Hwy 370 & I-80,”
while Agent Dostal gives its address as “11002 Sapp Brothers Drive.” Highway 370 and
1-80 form the southern and eastern borders of the business property, and Sapp Brothers
Drive is the western border.
11

Pat Bivens (October 19, 2009 interview). Pat Bivens was a service manager at
Road Builders Machinery and Supply Company. He told Agents Dostal and
Albers that Respondent Carlson worked for Anderson Excavating as a mechanic.
Although they did not have much contact, he remembered Respondent Carlson
coming into the business during the fall of 2008 or spring of 2009 to look at a
piece of equipment that Virgil Anderson wanted to buy. SSA Ex. 6 at 11-12
(Dostal Decl. § 27); SSA Ex. 11 at 3.

Neal McGrath (October 19, 2009 interview). Neal McGrath worked at the front
counter of Allied Oil & Supply Company, Inc., selling equipment lubricants. He
told Agents Dostal and Albers that Respondent Carlson worked for Anderson
Excavating, ordering and distributing parts and supplies to Anderson’s work sites.
He said that, for the twelve years he (Mr. McGrath) had been working there,
Respondent Carlson had been coming in two or three times per week. Respondent
Carlson usually had with him a purchase order number from Anderson
Excavating. If not, Mr. McGrath contacted Anderson Excavating and got it. SSA
Ex. 6 at 12 (Dostal Decl. § 28); SSA Ex. 11 at 3-4; see SSA Ex. 7 at 3, 5, 20.

Clyde Schulte (October 19, 2009 interview). Clyde Schulte owned and managed
Roe Machine and Pattern Works. He identified Respondent as a “maintenance
man” for Anderson Excavating and told the special agents that Respondent
Carlson, acting on behalf of Anderson Excavating, brought him items in need of
repair, most recently, a wheel hub. Mr. Schulte then billed Anderson Excavating
for his repair services. He estimated that Respondent Carlson had been doing this
for more than ten years. SSA Ex. 6 at 12 (Dostal Decl. § 29); SSA Ex. 7 at 3, 5,
13, 16; SSA Ex. 11 at 4.

Tools and documents seized or recorded. On October 16, 2009, Special Agent Dostal

and other agents executed search warrants on Respondent Carlson’s residence and the
Anderson-owned pickup truck that he drove. The agents seized a long list of items,
including equipment belonging to Anderson Excavating, receipts, notebooks, and parts
inventories. SSA Ex. 6 at 9 (Dostal Decl. § 20); SSA Ex. 6, Attach. A; SSA Exs. 14, 15.

The items seized were too numerous to list in this decision, but they included:

A notebook marked “security alarms,” with codes for the alarms on Anderson
Excavating work sites. The notebook also contained the names of employees with
access to the “code books,” and “Rich Carlson” was one of those names. SSA Ex.
6, Attach. A at 1; SSA Ex. 14 at 9-10.
12

e A file folder containing specification sheets for pieces of Anderson Excavating
equipment and a handwritten listing of parts. A fax cover sheet to “Chrissie” from
“Tom Kueh!” identifies the documents as “Rich’s list.” Respondent Carlson
admitted that the handwriting was his own. SSA Ex. 6, Attach. A at 1; SSA Ex.
14 at 1-8.

e A spiral notebook with company identification numbers and parts numbers in
Respondent Carlson’s handwriting. SSA Ex. 6, Attach. A at 1; SSA Ex. 14 at 14-
21.

e Parts receipts and invoices identifying “Rich” or “Rich Carlson” as the contact
person or person ordering. SSA Ex. 6, Attach. A at 1; SSA Ex. 14 at 25-30.

e A rolodex containing telephone numbers, most for Omaha-area parts vendors.
SSA Ex. 6, Attach. A at 1; SSA Ex. 14 at 31-35.

Respondent’s cell phone documents. Respondent Carlson had a company cell phone and
incurred thousands of dollars in cell phone bills that Anderson Excavating paid. Most of
the calls were to or from other Anderson employees, who also had company phones, or to
equipment and parts vendors, such as Nebraska Machinery. From December 8, 2002,
until October 18, 2009, Respondent Carlson logged a monthly average of 39 cell phone

ours on Anderson’s behalf. SSA Ex. 6 at 9 (Dostal Decl. 4] 22); SSA Ex. 17; see SSA
Ex. 16 at 3 (admitting that the company provided Respondent with a cell phone).

Respondent’s police statement. On February 11, 2003, Respondent Carlson was in an
accident while driving the company-owned pickup truck. The Omaha Police Department
cited him for driving without a valid operator’s license. According to the accident report,
Respondent told the police officer that he worked “days” and identified his business as
Anderson Excavating. SSA Ex. 6 at 6 (Dostal Decl. 4 15); SSA Ex. 18 at 4.”

Bank records/spending habits. Agent Dostal reviewed Respondent Carlson’s bank
records as well as records from creditors. Respondent and his wife had a checking
account at First Nebraska Educators Credit Union. SSA Ex. 6 at 6 (Dostal Decl. § 13);
SSA Ex. 19 at 6-11. Respondent’s disability benefits were deposited into that account, as
were monthly checks from the State of Nebraska, payable to his wife (apparently for

° Even though it occurred during his trial work period, the statement is relevant. It
shows the ongoing nature of his work and, because a trial work period is limited, the fact
that he was working in 2003 affects his eligibility for benefits in 2005 and beyond. I note
that Respondent asserts that the incident occurred in 2005. See discussion below.
13

providing daycare for her grandchildren), and multiple, unexplained cash deposits. SSA
Ex. 6 at 6, 9 (Dostal Decl. §§ 13, 21); SSA Ex. 19. Notwithstanding the checking
account, documentation established that the Carlsons regularly paid their bills with cash.
SSA Ex. 6 at 9 (Dostal Decl. § 21); SSA Ex. 15; SSA Ex. 19 at 1-3.

Respondent’s defenses. Respondent argues that he was not employed by Anderson
Excavating because he was no longer capable of repairing heavy equipment, which was
the work he did before he became disabled. R. Ex. | at 2 (Carlson Decl. § 7); see R. Ex.
4 at 3 (Virginia Anderson Decl. § 11) (maintaining that Respondent has a “very sharp
mind and a lot of experience with the mechanical operations of the machines, but he
cannot perform the physical labor.”). Whether he could return to his prior job is
irrelevant; no one argues that he could. The question is whether he was performing work
activities without reporting that fact to SSA.

Respondent characterizes his activities at Anderson Excavating as “hobbies” and “social
programs,” which do not constitute substantial gainful activity and thus would not affect
his eligibility for benefits. R. Br. at 10, 12-13. But, whether his work activity constituted
substantial gainful activity, which would have disqualified him from eligibility for
disability benefits, is also irrelevant to the question of whether he falsely reported his
work activities.'° A disability claimant must describe accurately any activities
performed, and SSA then determines whether those activities constitute the type of work
that would preclude a finding of disability. A claimant is not free to determine on his
own whether his activities are disqualifying, reporting only his conclusion to SSA. Ina
similar context, the Departmental Appeals Board agreed:

Had Respondent cooperated with SSA’s inquiries by
providing accurate information about his work activities, then
SSA would have been able to determine whether or not those
activities demonstrated a capacity for gainful employment.
By concealing the extent of his work . . . Respondent
deprived SSA of the ability to evaluate those facts along with
medical evidence [if necessary] to make that determination.

' Tn a decision issued March 22, 2012, an administrative law judge for the Social
Security Administration determined that Respondent Carlson completed his trial work
period in May 2005 and began performing substantial gainful activity as of August 1,
2005. SSA Ex. 22 at 8-14. Although neither party addressed this issue, that decision is
arguably entitled to res judicata effect. United States v. Utah Constr. & Mining Co., 384
USS. 394, 422 (1966) (“[w]hen an administrative agency is acting in a judicial capacity
and resolves disputed issues of fact properly before it, which the parties have had an
adequate opportunity to litigate, the courts have not hesitated to apply res judicata to
enforce repose.”).
14

Social Security Administration, Office of the Inspector General v. Anthony
Koutsogiannis, DAB CR1569, at 17 (2007), aff’d, DAB, A-07-81 (2007); accord, Social
Security Administration, Office of the Inspector General v. Deliece L. White and Joseph
R. O'Lone, DAB CR1298, at 13 (2005), aff'd, DAB A-05-89 (2005); see 20 C.F.R.

§ 404.1571 (advising beneficiaries that all work must be reported: “Even if the work you
have done was not substantial gainful activity, it may show that you are able to do more
work than you actually did.”).

Thus, Respondent was bound to report his activities, regardless of whether they
constituted disqualifying substantial gainful activity. In any event, the services he
provided were plainly the types of services usually done for pay or profit. See 20 C.F.R.
§ 404.1572(b). In fact, ordering parts from vendors and advising/supervising less skilled
employees were some of the job duties he performed prior to the onset of his disability.
R. Ex. 1 at 2 (Carlson Decl. 4).

Respondent admits (as he must) that, after the onset of his disability, he regularly went to
the Anderson Excavating shop but claims that he did so in order to visit his friends and to
work on his hobby — building models of construction equipment. R. Br. at 2, 13; R. Ex. 1
at 3 (Carlson Decl. ff 10, 11). Virgil Anderson and the company president, Virginia
Anderson (who are husband and wife), concede that Respondent Carlson continued to
come into the shop after he had his heart attack, but they claim that he did so to work on
his models. R. Ex. 4 at 2 (Virginia Anderson Decl. fff 5, 9); R. Ex. 5 at 2 (Virgil
Anderson Decl. 4 4, 9). Other Anderson Excavating employees refer to seeing
Respondent Carlson spending time in the company’s workshop but say that he was not
capable of returning to his old job and suggest that he was working on his hobby. This
testimony is significantly weakened by their assertions that they really didn’t know what
he was doing, R. Ex. 9 at 2 (Teten Decl. ¥ 5, 7); R. Ex. 12 at 2 (Seffron Decl. 4 6), or by
their describing his actual work activities. R. Ex. 9 at 2 (Teten Decl. § 8); R. Ex. 10 at 2
(Schoening Decl. §§ 7, 9, 10); R. Ex. 11 at 2 (Davis Decl. §§ 7, 8, 9, 10).

Everyone, including Respondent Carlson, concedes that he drove a company pickup
truck. Respondent claims that CEO Anderson allowed him to use the truck out of
friendship and that he was not the only person to drive that truck. R. Ex. 1 at 3 (Carlson
Decl. § 12). Again, the Andersons echo his assertion, adding that they intended the truck
for his personal use. R. Ex. 4 at 2 (Virginia Anderson Decl. § 7); R. Ex. 5 at 2 (Virgil
Anderson Decl. § 6).

Everyone also agrees that the company provided Respondent Carlson with a cell phone
and company credit card. Respondent Carlson claims that Virgil Anderson gave the cell
phone to him “so that if I had heart problems that I could call 911.” R. Ex. 1 at 4
(Carlson Decl. § 14). The Andersons claim that they gave him the company phone out of
friendship and that it was for his own personal use. R. Ex. 4 at 2 (Virginia Anderson
Decl. | 7); R. Ex. 5 at 2 (Virgil Anderson Decl. § 6). They justify his access to the
15

company credit card by asserting that the card was used to fuel multiple “vehicles or
pieces of equipment used by the company. In fact, on the back of the credit card were the
words, ‘Shop Use.”” R. Ex. 1 at 5 (Carlson Decl. § 17(d)). This hardly furthers
Respondent’s case. Rather, it suggests that the Andersons gave him a company credit

card to use for company business, and the evidence establishes that he did just that.

Using an interesting — and potentially revealing — choice of words, the Andersons say that
they allowed Respondent and “other employees” to use a company credit card “for gas
and services related to the vehicles and equipment.” R. Br. at 15; R. Ex. 4 at 2 (Virginia
Anderson Decl. 4] 7); R. Ex. 5 at 2 (Virgil Anderson Decl. § 6). Taken literally, this
verbiage suggests that Respondent was one among the company’s other employees.
However, I consider the statement inartfully drafted rather than an admission that the
respondent was among the company employees. Nevertheless, this language underscores
an already strong inference: the respondent’s use of a company vehicle, cell phone, and
credit card establishes that he was employed by the company.

Significantly, Respondent Carlson, the Andersons, and other company employees
concede that he engaged in work activity for the company, including running errands,
picking up and delivering supplies, offering equipment advice, and teaching younger
employees. According to the Andersons, he did so voluntarily, without hopes of
compensation, so that he could visit with his friends at the parts dealers and on the job
sites. R. Br. at 6, 13; R. Ex. | at 4 (Carlson Decl. § 16); R. Ex. 4 at 2, 3 (Virginia
Anderson Decl. {ff 8, 11); R. Ex. 5 at 2 (Virgil Anderson Decl. § 8); R. Ex. 10 at 2
(Schoening Decl. ¥§ 7, 9, 10); R. Ex. 11 at 2 (Davis Decl. §§ 7, 8, 9, 10). I note that not
one of the outside vendors suggested to the IG special agents that Respondent Carlson
ad stopped by for a friendly visit. They consistently maintained that he came to their
businesses to do business — mainly, purchasing parts for Anderson Excavating, which he
subsequently delivered to job sites.

Ultimately, the problem with Respondent’s explanations is that the overwhelming
evidence establishes that he used the truck, phone, and credit card primarily for company
business. The surveillance logs, the cell phone records, and the sheer volume of order
forms, equipment inventories, receipts, and other records belie his claims that he only
occasionally performed the work activities.

With respect to the police statement, Respondent Carlson previously acknowledged
aving two accidents in Anderson Excavating vehicles, including one in 2003. SSA Ex.
6 at 9 (Dostal Decl. § 19). He and CEO Anderson now appear to claim that the 2003
accident happened in 2005. Inasmuch as the IG produced a 2003 accident report, I
suspect that Respondent Carlson and CEO Anderson are mistaken in their written
testimony. In any event, the respondent denies telling the police officer on the scene that
e “worked days.” According to Respondent Carlson, he told the officer that he was not
working at Anderson Excavating at the time, but, because he was driving a commercial

16

vehicle, the officer told him that he “was required to put something down regarding my
employment,” so he wrote that the respondent was working. R. Ex. | at 3-4 (Carlson
Decl. § 13); R. Ex. 5 at 2 (Virgil Anderson Decl. § 7). Ido not find this credible.

Finally, Respondent denies receiving, and the Andersons deny paying him wages or
“cash under the table.” R. Ex. | at 2, 5 (Carlson Decl. §§ 8, 18); R. Ex. 4 at 2 (Virginia
Anderson Decl. §] 6); R. Ex. 5 at 2 (Virgil Anderson Decl. § 5). He attributes all of his
suspicious cash transactions to an arrangement that he and his wife had with her adult
children: the children charged purchases on the Carlsons’ credit card and repaid the
Carlsons in cash. R. Ex. 1 at 5-6 (Carlson Decl. J 18); R. Ex. 6 at 2-3 (D. Carlson Decl.
49). Respondent also claims that, in 2005, his wife’s ex-husband gave them $5,000 in
cash to cover the costs of a son’s legal fees. R. Ex. 6 at 3 (D. Carlson Decl. § 10); R. Ex.
8 at 2 (Rolfe Decl. § 5).

These explanations do not fully answer the questions raised by all the cash transactions
found by the IG investigators. First, Respondent has not provided a full and
comprehensive accounting of his cash receipts. See SSA Ex. 19. Second, even accepting
the dubious proposition that Respondent and those who gave him money dealt strictly in
cash and created no records of their transactions, the undisputed evidence establishes that
Respondent Carlson was compensated for at least some of his work activities. CEO
Anderson volunteered, and Respondent has not challenged, that he repaid a substantial
lebt by providing his services to Anderson Excavating. SSA Ex. 6 at 4 (Dostal Decl.
9); SSA Ex. 16, Attach. A. Third, work may be disqualifying so long as it is “the kind
of work usually done for pay or profit, whether or not a profit is realized.” 20 C.F.R.

§ 404.1572(b). Respondent was obligated to report his work activities, whether he was
paid or not.

Thus, the reliable — and largely unrebutted — evidence establishes that, while he was
receiving disability insurance benefits, Respondent Carlson engaged in work activities.
He deliberately withheld that information from SSA and, when asked, he repeatedly and
falsely denied any work activity. He is therefore subject to penalty under section 1129 of
the Act.

2. The IG proposes a reasonable CMP against Respondent Carlson.

Penalty. The statute allows the IG to impose a penalty of not more than $5,000 for each
false statement or misrepresentation and $5,000 for each receipt of benefits or payments
while withholding disclosure of material facts. Act §1129(a)(1); 20 C.F.R.

§§ 498.102(a), 498.103(a).

As discussed above, in assessing a penalty, the IG disregards Respondent Carlson’s work
activity prior to March 2008 and relies solely on the 21 months — from March 2008
through November 2009 — that Respondent collected benefits while working. IG Br. at
17

13; SSA Ex. 25 at 1; SSA Ex. 27 at 2 (Bungard Decl. § 6). This alone could subject him
to a penalty of $105,000 ($5,000 x 21). In addition, in three separate reports — two dated
December 8, 2008, and one dated December 22, 2010 — he affirmatively represented that
he was “not working at all.” Those three statements could add an additional $15,000 to
his penalty. SSA Exs. 2-4.

Thus, the IG’s proposed penalty, $20,000, represents a fraction of Respondent’s potential
liability.

Assessment in lieu of damages. The IG may also impose an assessment in lieu of
damages of not more than twice the amount of benefits or payments paid as a result of the
false statements or misrepresentations or the withholding of disclosure. Act § 1129(a)(1);
20 C-F.R. § 498.104.

Between November 2005 and November 2009, SSA paid Respondent Carlson $74,421 in
benefits to which he was not entitled plus it paid $3,569.40 in Medicare premiums on his
behalf, to which he was not entitled, totaling $77,990.40 in overpayments. SSA Ex. 21 at
1; IG Br. at 1 n.1. The agency subsequently recouped some of that overpayment by
withholding benefits, which reduced the amount of the overpayment to $59,488. IG Br.
at 13; R. Br. at 19; R. Ex. 1 at 7. The IG now seeks an assessment in lieu of damages of
$59,488, which represents SSA’s actual losses. SSA Ex. 27 at 2-3 (Bungard Decl. 7);
IG Br. at 13. Again, the proposed assessment is much lower than the maximum
authorized by statute.

Respondent Carlson does not specifically challenge SSA’s calculation of the
overpayment, the assessment in lieu of damages, or the penalty amount. Rather, he
argues that the proposed CMP is “unreasonable based upon [his] financial position,
personal history, and the underlying facts of this case.” R. Br. at 20. Specifically,
Respondent claims that he lacks significant income, assets, or earning potential, has no
history of fraud, and has a low degree of culpability because he did not attempt to conceal
his work activity at Anderson Excavating. R. Br. at 19-20.

Regulatory criteria. I now apply the regulatory criteria to assess whether the amount of
the CMP is appropriate. I am specifically authorized to affirm, deny, increase, or reduce
the penalties proposed by the IG. 20 C.F.R. § 498.220(b). I must consider: 1) the nature
of the statements and representations and the circumstances under which they occurred;
2) the degree of culpability of the person committing the offense; 3) the history of prior
offenses of the person committing the offense; 4) the financial condition of the person
committing the offense; and 5) such other matters as justice may require. 20 C.F.R.

§ 498.106(a).
18

The IG does not contend that Respondent Carlson has a history of prior offenses,
although he points out that Respondent’s deception continued for a substantial period of
time. IG Br. at 14.

With respect to the respondent’s financial condition, he has limited resources and income,
which must be considered in determining a reasonable CMP. IG Br. at 14; SSA Ex. 24.
Because of his financial limitations, the IG has limited the assessment to SSA’s actual
losses and proposed a penalty that represents a fraction of the statutorily-authorized
maximum.

As to the other factors, Respondent Carlson engaged in deception that lasted for years,
much longer than the 21 months for which the IG is holding him accountable. During
that time, he knowingly withheld material information from SSA and, when questioned
directly about his work activities, he deliberately misled the agency. Nor was he straight-
forward with the IG investigators, admitting only that he “would occasionally look at a
piece of equipment and give his advice on how to fix it.” SSA Ex. 16 at 4; see SSA Ex.
16, Attach. B. He did not mention that he regularly ordered and purchased parts, which
he picked up and delivered to the work sites. His culpability is substantial and more than
justifies the CMP imposed here.

Finally, I note that the integrity of the disability system depends on each claimant or
beneficiary accurately describing his work activities, so that SSA can determine whether
he qualifies or continues to qualify for benefits. Where, as here, a beneficiary
deliberately misrepresents his work activities, he undermines the integrity of that system.

Conclusion

Respondent Carlson violated section 1129 of the Act because he collected disability
insurance benefits while he continued to perform work activities; then, he knowingly
withheld and misrepresented that material fact. I consider the $79,488 CMP reasonable.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

The Inspector General of the Social Security Administration,
Petitioner,
v.
Aretha Harris,
Respondent.
Docket No. C-14-1659
ALJ Ruling No. 2015-14

Date: July 23, 2015

RULING

This Ruling summarizes procedural matters, the resolution of which has been delayed by
the Inspector General (IG) of the Social Security Administration’s (SSA) failure to
comply with my orders. For the reasons below, I conclude that two witnesses called by
Respondent may not be treated as adverse witnesses when questioned at hearing.
However, Respondent may renew her request to ask leading questions of these witnesses
at the hearing. Further, although the SSA IG failed to respond to an order to brief the
question as to whether the witnesses referenced above ought to be considered adverse,
and failed to timely respond to my Order to Show Cause, I will not impose a sanction on
the SSA IG. However, I warn the SSA IG that future non-compliance with my orders
may result in the imposition of sanctions.

I. Background
On March 18, 2015, I issued an order scheduling a prehearing conference in this case. I

instructed the parties that they should be prepared to discuss the posture of certain
witnesses whom Respondent sought to examine using leading questions, Dr. Hasan Assaf
and Dr. Michael Faust, even though Respondent was calling these witnesses. After the
prehearing conference, I issued an order on April 13, 2015, in which I instructed the SSA
IG to file written argument discussing whether the witnesses should be considered
adverse witnesses.' My office provided an electronic courtesy copy of the order to
counsel for the SSA IG. I gave the SSA IG 30 days to file its written argument and gave
Respondent the opportunity to file a reply 15 days thereafter.

The SSA IG did not file any written argument, in contravention of my order. Therefore, I
issued an Order to Show Cause on May 28, 2015. I gave the SSA IG 30 additional days
to show cause why it should not be subject to sanction pursuant to section 1129(b)(4) of
the Social Security Act (42 U.S.C. § 1320a-8(b)(4)) and 20 C.F.R. § 498.214 for its
failure to comply with my April 13, 2015 order. My office again provided an electronic
courtesy copy of the order to counsel for the SSA IG. The SSA IG did not respond to my
Order to Show Cause.

II. Respondent’s Motion to Dismiss and the SSA IG’s Response

As a result of the SSA IG’s failure to show cause, on July 7, 2015, Respondent submitted
a motion to dismiss this case as a sanction for the SSA IG’s silence. Respondent
submitted her motion to dismiss by electronic mail to the attorney-advisor assisting me
with the case. Also on July 7, 2015, counsel for the SSA IG submitted a response by
electronic mail in which she professed to be unaware of my original order to submit
briefing, unaware of my order to show cause, and suggested that another attorney from
her office may have been handling the case on behalf of the SSA IG. Counsel went on to
explain, seemingly in response to my original order to provide briefing, that the SSA IG
did not believe the witnesses are hostile, but she did not address whether they were
adverse, which was the issue I ordered the SSA IG to brief. On July 8, 2015, the
attorney-advisor assisting me provided a second electronic copy of the Order to Show
Cause to counsel for the SSA IG at her request and informed her that she is the only
attorney from the Office of Counsel to the SSA IG who has filed a notice of appearance
in this case.

In regard to the motion to dismiss and the response to the motion, both parties appear to
have ignored the version of the Civil Remedies Division Procedures (CRDP) that I
adopted in my August 19, 2014 Acknowledgment and Prehearing Order and provided to
them by mail. The CRDP plainly states that parties are prohibited from filing documents

' As I related in the April 13, 2015 order, I was satisfied that the witnesses could not be
deemed hostile at that time, but whether they should be considered adverse was a
different matter entirely. Because the SSA IG had not stated a position on whether they
should be deemed adverse (as opposed to hostile), I ordered briefing on this issue.
by e-mail.” CRDP § 5 (“Service by facsimile or e-mail is not acceptable unless
authorized by the ALJ in advance. Written material is considered filed when placed in the
U.S. mail or with an express delivery service ....”). While parties are always
encouraged to provide electronic courtesy copies of documents that they properly file,
providing an electronic courtesy copy does not constitute proper filing of the document.

Because Respondent has not properly filed her motion to dismiss, I will not rule on it.
Even if I were to consider it, however, dismissal is not a sanction that “reasonably
relate[s] to the severity and nature of the [SSA IG’s] failure” to comply with my order to
submit briefing and failure to show cause. 42 U.S.C. § 1320a-8(b)(4). Neither will I
consider the SSA IG’s response to the motion to dismiss which, in addition to being
improperly filed, neither addressed the original issue I ordered addressed, nor sufficiently
showed cause for the failure to file the briefing I ordered.

III. Witnesses Dr. Hasan Assaf and Dr. Michael Faust

I ordered the SSA IG to brief the issue of whether Drs. Assaf and Faust should be
considered adverse to Respondent because their relationships with SSA were and are
somewhat ambiguous. In the brief (SSA IG Br.) it filed as part is its prehearing
exchange, the SSA IG stated that Drs. Assaf and Faust performed physical and
psychological consultative examinations (CE) respectively of Respondent. SSA IG Br. at
8. While the SSA IG maintains that the doctors performed CE’s of Respondent, it does
not state the capacities in which the doctors did so. The SSA Program Operations
Manual System (POMS) defines a “consultative examination” as “a physical or mental
examination or test purchased from a medical source, at the [SSA’s] request and expense,
to provide evidence for a claimant’s disability or blindness claim.” POMS § DI
22510.001(A)(1); see also 20 C.F.R. § 404.1519 (“A consultative examination is a
physical or mental examination or test purchased for you at our request and expense from
a treating source or another medical source ... .”). As such, some doctors who perform
consultative examinations appear to be no more than vendors of SSA. There is, however,
another class of individuals who can perform CE’s called “medical consultants” who are
Disability Determination Services (DDS) employees or contractors to whom SSA conflict
of interest protocols apply. POMS § DI 39569.100(A)(1). Medical consultants can also
perform CE’s with “prior approval.” POMS § DI 39569.100(B)(1). Therefore, I sought
to determine whether Drs. Assaf and Faust were more akin to vendors whose services
SSA purchased or employees or contractors of SSA by ordering the SSA IG to brief

> The Civil Remedies Division of the Departmental Appeals Board has subsequently
updated its Procedures, effective January 1, 2015. Because the newest version of the
CRDP differs substantively with respect to filing documents, I have quoted the prior
version, which are applicable to this case.
whether I should consider the doctors adverse to Respondent. In her Witness List and
Exhibit List, Respondent described the doctors as “agents” of SSA without any support
for that characterization.

In light of the absence of any evidence to conclude that Drs. Assaf and Faust are
employees or contractors of SSA, I have decided that, at this time, Drs. Assaf and Faust
should not be considered adverse to Respondent. As I indicated in my April 13, 2015
order, the Federal Rules of Evidence provide non-binding guidance in SSA civil
monetary penalty cases. 20 C.F.R. § 498.217(b). Looking to Federal Rule of Evidence
611 for guidance, I note that Rule 611 states generally that I have discretion related to the
examination of witnesses. Rule 611(c) is directly applicable to the question of how
Respondent may question Drs. Assaf and Faust. Rule 611(c) states that I should not
generally permit a party to ask leading questions on direct examination, but should permit
leading questions “when a party calls a hostile witness, an adverse party, or a witness
identified with an adverse party.” Fed. R. Evid. 611(c)(2).

The question before me is whether Drs. Assaf and Faust are either adverse parties or
“witnesses identified with an adverse party.” For instance, Rule 611(c) “assumes that
witnesses who are adverse parties or identified with one may be presumed predisposed
against the direct examiner without requiring a demonstration of that fact. 28 Wright &
Miller, Federal Practice and Procedure § 6168, *1 (2d ed. 1993); see also U.S. v. Bryant,
461 F.2d 912, 918-19 (6th Cir. 1972) (observing that the risk from asking leading
questions does not exist when a party opposed to the government is permitted to ask
leading questions during direct examination of a government agent or witness closely
identified with the interest of the government). Because the SSA IG relies on the truth of
the reports Drs. Assaf and Faust filed, Respondent has presumably called the doctors to
undermine their previous reports. It seems fair to believe that Drs. Assaf and Faust
would be predisposed to defend the veracity of their reports and, thereby, to resist
Respondent’s likely questioning. Conversely, courts have typically limited their
application of Rule 611(c)(2) to employees, former employees, and close relations of an
opposing party. See, e.g., Ellis v. City of Chicago, 667 F.2d 606 (7th Cir. 1981); Stahl v.
Sun Microsystems, Inc., 775 F.Supp. 1397 (D. Colo. 1991); Vanemmerik v. The Ground
Round, Inc., 1998 WL 474106, *1 (E.D. Pa. 1998) (collecting cases).

While this is a difficult issue that further briefing would have helped clarify, I do not
believe that I can deem Drs. Assaf and Faust “adverse” to Respondent or “witnesses
identified with an adverse party” at this time. I will, however, reserve the right to deem
Drs. Assaf and Faust at the hearing based on their responses to Respondent’s direct
examination. Respondent will begin her questioning of Drs. Assaf and Faust without
using leading questions and may move to treat them as adverse or hostile based on her
ability to obtain answers during direct examination. Further, Respondent may first voir
dire the doctors to determine their exact relationship to SSA and, if appropriate, renew
her motion to treat the doctors as adverse witnesses.
IV. The SSA IG’s Failure to Comply with Orders

As discussed, the SSA IG has missed two deadlines in this case. I have the authority to
“[rjegulate . . . the conduct of representatives [and] parties” in this case. 20 C.F.R.

§ 498.204(b)(8). I have the statutory authority to sanction a party or attorney where that
party or attorney does not comply with my orders or when the party’s misconduct
interferes with the “speedy, orderly, or fair conduct of the hearing.” 42 U.S.C. § 1320a-
8(b)(4). In this case, the SSA IG’s conduct qualifies on both counts. By neglecting to
provide the briefing I ordered, the SSA IG has delayed my decision regarding whether
Drs. Assaf and Faust are adverse to Respondent and wasted valuable time. Moreover,
counsel’s position that she was unaware that I had issued an Order to Show Cause is
troubling because my office sent counsel a courtesy copy of the Order to Show Cause by
email to the same address from which counsel responded to Respondent’s motion to
dismiss. Counsel indicated that she was on detail, and if this impacted her ability to
receive my orders,’ then the SSA IG ought to have substituted counsel in this case.

Despite the SSA IG’s conduct in the present case, I will not formally impose a sanction
on the SSA IG. However, future failures by the SSA IG to comply with my orders may
subject the SSA IG or counsel to sanctions. It is my hope that the issue of sanctions will
never again arise.*

/s/

Scott Anderson
Administrative Law Judge

> Counsel’s contention that she was unaware of this case’s status because she did not
have access to the Departmental Appeals Board’s electronic filing system while on detail
is confusing, since neither party is filing documents electronically in this case.

* This warning is not made lightly. However, it is necessary because this is not the first
case in which the SSA IG has not complied with my orders. Such conduct impedes my
ability to adjudicate the cases on my docket.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Carla Elaine Schick,
(OI File No.: H-14-42712-9),
Petitioner,
v.
The Inspector General.
Docket No. C-15-1308
Decision No. CR4059

Date: July 22, 2015

DECISION

Petitioner, Carla Elaine Schick, is a registered nurse, licensed to practice in Indiana, who
was convicted on one felony count of obtaining a controlled substance by fraud or deceit.
Pursuant to section 1128(a)(4) of the Social Security Act (Act), the Inspector General
(1.G.) has excluded her from participating in Medicare, Medicaid, and all federal health
care programs for a period of five years. Petitioner appeals the exclusion.

For the reasons discussed below, I find that the I.G. is authorized to exclude Petitioner
and that the statute mandates a minimum five-year exclusion.

Background

Ina letter dated January 30, 2015, the I.G. advised Petitioner Schick that she was
excluded from participating in Medicare, Medicaid, and all federal health care programs
because she had been convicted of a criminal offense related to the unlawful
manufacture, distribution, prescription, or dispensing of a controlled substance. LG.
Ex. 1. Petitioner requested review.
The L.G. has submitted its brief (I.G. Br.), nine exhibits (I.G. Exs. 1-9), and a reply brief
(LG. Reply). Petitioner, who is appearing pro se, did not submit a brief but, in addition
to her hearing request, filed seven one-page documents, which she did not mark, along
with a one-page document, marked P. Ex. 8, in which she explains that she uploaded
seven exhibits into evidence. The documents are quarterly compliance reports from the
Indiana State Nursing Assistance Program, which show that she complied with her
recovery monitoring agreement.

The L.G. objects to my admitting Petitioner’s exhibits because they were not marked in
accordance with Civil Remedies procedures and because they are irrelevant. That the
documents were not properly marked is unfortunate but hardly justifies excluding them,
particularly since the LG. is not in any way prejudiced by that oversight. Each document
is plainly identified with an exhibit number in the list of electronically-filed documents.
However, I agree that the documents are irrelevant. I am required to exclude irrelevant or
immaterial evidence. 42 C.F.R. § 1005.17(c).

I therefore admit into evidence I.G. Exs.1-9 and decline to admit Petitioner’s exhibits.

I directed each party to indicate in its brief whether an in-person hearing would be
necessary, and, if so, to describe the testimony it wishes to present, the names of the
witnesses it would call, and a summary of each witness’s proposed testimony. I also
specifically directed the parties to explain why the testimony would be relevant. Order
and Schedule for Filing Briefs at 2 § 3 (April 2, 2015); Informal Brief of Petitioner at 2-3
4 Il; Informal Brief of Inspector General at 3-4 III. The LG. indicates that an in-person
hearing is not necessary. I.G. Br. at 10. Petitioner did not respond to that question, but
she does not contend that an in-person hearing is necessary, and she lists no potential
witnesses. I therefore decide this case based on the written record.

Discussion

Because Petitioner was convicted of a felony relating to
the unlawful manufacture, distribution, prescription, or
dispensing of a controlled substance, she must be
excluded from program participation for at least five
years. Act § 1128(a)(4), ()(3)(B).!

Section 1128(a)(4) of the Act mandates that the Secretary of Health and Human Services
exclude from program participation any individual or entity convicted of a felony
criminal offense “relating to the unlawful manufacture, distribution, prescription, or
dispensing of a controlled substance.”

'T make this one finding of fact/conclusion of law.
Here, Petitioner Schick was unquestionably convicted of a drug-related felony, at least
initially. On July 17, 2013, she pled guilty to one felony count of a two-count indictment
and was convicted of obtaining a controlled substance by fraud or deceit, in violation of
1.C. 35-48-4-14(c). IG. Exs. 3, 4, 5. She admitted that she intentionally acquired
possession of a controlled substance, Clonazepam, by forgery. I.G. Ex. 3.

The state court accepted her plea and entered judgment against her on the same day. The
court sentenced her to 540 days with the Department of Corrections, with all but the time
served (27 days in home detention) suspended, and 18 months of probation. LG. Ex. 5.
As part of its judgment, the court authorized her participation in Indiana’s Alternative
Misdemeanor Sentencing program, which allowed her to ask that her felony conviction
be reduced to a misdemeanor after she successfully completed her period of probation.
LG. Ex. 5.

On January 9, 2015, Petitioner represented to the court that she had “successfully
completed” all requirements of her probation and had not committed any subsequent
criminal offenses. She asked the court to reduce her felony conviction to a misdemeanor.
On January 14, 2015, the court granted Petitioner’s request. I.G. Ex. 7.

Petitioner suggests that, because the court reduced her felony conviction to a
misdemeanor, she was not convicted of a felony and is not subject to a mandatory
exclusion. Hearing Request (February 13, 2015).

The statute and regulations provide that a person is “convicted” when “a judgment of
conviction has been entered,” regardless of whether that judgment has been expunged or
otherwise removed. Act § 1128(i)(1); 42 C.F.R. § 1001.2(a)(2). Further, individuals who
participate in “deferred adjudication or other program or arrangement where judgment of
conviction has been withheld” are also “convicted” within the meaning of the statute.

Act § 1128(i)(4); 42 C.F.R. § 1001.2(d). Based on these provisions, the Departmental
Appeals Board characterizes as “well established” the principle that a “conviction”
includes “diverted, deferred and expunged convictions regardless of whether state law
treats such actions as a conviction.” Henry L. Gupton, DAB No. 2058, at 8 (2007), aff'd
sub nom. Gupton v. Leavitt, 575 F. Supp. 2d 874 (E.D. Tenn. 2008).

Petitioner’s conviction falls squarely within the statutory and regulatory definitions of
“convicted.” Because she was convicted of a felony criminal offense “relating to the
unlawful manufacture, distribution, prescription, or dispensing of a controlled substance,”
she is subject to exclusion. An exclusion brought under section 1128(a)(4) must be for a
minimum period of five years. Act § 1128(c)(3)(B); 42 C.F.R. § 1001.2007(a)(2).
Conclusion
For these reasons, I conclude that the I.G. properly excluded Petitioner Schick from

participation in Medicare, Medicaid, and all federal health care programs, and I sustain
the five-year exclusion.

/s/

Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Spring Creek Health Care,
(CCN: 18-5005),

Petitioner,
v.
Centers for Medicare & Medicaid Services
Docket No. C-14-1714
Decision No. CR4053

Date: July 21, 2015

DECISION

I find that the preponderance of the evidence establishes that Petitioner, Spring Creek
Health Care, complied substantially with Medicare participation requirements. For that
reason I impose no remedies against Petitioner.

I. Background

Petitioner is a skilled nursing facility in the State of Kentucky. The Centers for Medicare
& Medicaid Services (CMS) determined that Petitioner failed to comply substantially
with Medicare participation requirements relating to an allegation of resident abuse. It
imposed remedies against Petitioner including civil money penalties totaling $61,850 and
loss of a nurse aide training and competency evaluation program. Petitioner requested a
earing to challenge CMS’s determination. I held a hearing on April 2, 2015. At that
earing I heard the cross-examination testimony of several witnesses. I received into
evidence exhibits from CMS, identified as CMS Ex. 1 — CMS Ex. 20, and exhibits from
Petitioner, identified as P. Ex. 1 — P. Ex. 13. The exhibits included the written direct
testimony of those witnesses who were cross-examined at the hearing.

IL. Issue, Findings of Fact and Conclusions of Law
A. Issue

The issue is whether Petitioner failed to comply substantially with two participation
requirements.’ These requirements are contained in 42 C.F.R. §§ 483.13(c) and 483.75.
CMS alleges multiple instances of noncompliance with 42 C.F.R. § 483.13(c).
Specifically, it contends that Petitioner failed to: thoroughly and appropriately investigate
allegations of resident abuse; take necessary and immediate action to prevent further
abuse while investigating allegations of abuse; and failed to implement its own anti-abuse
policy. CMS alleges additionally that Petitioner’s multiple instances of noncompliance
with 42 C.F.R. § 483.13(c) and (c)(3) established a failure of management in
contravention of 42 C.F.R. § 483.75.

B. Findings of Fact and Conclusions of Law

The multiple non-compliance allegations all center on an alleged incident of abuse
involving a resident identified as Resident # 1. On April 17, 2014, at about 1:45 p.m.,
this resident complained to a supervisor on Petitioner’s staff that unnamed individuals
had abused her physically. She asserted that, in the course of being served lunch by these
individuals they had hit her hand, pulled her arm, and slapped her face. She alleged that
every time she reached for her food these unnamed persons would hit her hand. She
averred that they had stuck an empty spoon in her mouth. Resident #1 stated she could
not identify the individual(s) because they did not speak. CMS Ex. 10 at 15 — 19; P. Ex.
3. The licensed social worker on Petitioner’s staff interviewed Resident # 1 shortly
thereafter. During this interview the resident essentially repeated the allegations that she
had made previously but added that the perpetrators would stick her hand with
something. P. Ex. 7. In subsequent interviews the resident amplified her allegations,
contending that the staff had pulled on her ear and hair and that the staff had stuck her
hand with something that felt specifically like a needle. CMS Ex. 12 at 4, 6; P. Ex. 8.

As of April 17, 2014, Resident # 1 was 72 years old. She had resided at Petitioner’s
facility for about two years. Her medical diagnoses included diabetes, an unspecified
paranoid disorder, short-term memory loss, and impaired decision making. She was
legally blind and was hard of hearing. CMS Ex. 10 at 20 — 37. The resident had a history
of threatening members of Petitioner’s staff and being verbally aggressive towards the
staff. For this reason Petitioner required that there be two staff members in the resident’s
room at all times when care was being given to the resident. Jd.

' Had I found noncompliance I would have addressed additional issues including
whether the noncompliance was so egregious as to comprise immediate jeopardy for
Petitioner’s residents and whether CMS’s remedy determination is reasonable.
Petitioner reacted to the resident’s allegations by investigating them immediately. The
staff conducted a skin assessment of Resident # 1. There was no evidence that the
resident had suffered any physical injury. CMS Ex. 10 at 15 — 19; P. Ex. 3. Petitioner’s
management identified three certified nursing assistants who had attended to Resident # 1
during the time period covered by the resident’s abuse allegations. All three of the
assistants were interviewed. Each of them averred that the resident had become volatile
and rude towards Petitioner’s staff during her lunch period and that she had cursed at one
of them for speaking too loudly. P. Exs. 3, 4,5, 6. All of the assistants denied abusing
the resident or witnessing any inappropriate behavior toward Resident #1. Id.

A registered nurse and Petitioner’s director of nursing met with Resident # 1 beginning at
about 2:35 p.m. on April 17, and this meeting lasted about 45 minutes. The resident was
unable to identify the perpetrator(s) of the alleged abuse. Nor could she recall whether
her alleged abuser(s) were male or female. CMS Ex. 12 at 6; P. Ex. 8. Petitioner also
interviewed all other staff that worked in the vicinity of the resident’s room. None of
them recalled hearing anything unusual coming from the room during the period when
the resident had been served lunch. /d.; P. Ex. 3. Petitioner’s staff also reviewed the care
that had been provided to other residents who lived in Resident # 1’s unit on April 17 and
nothing unusual was observed. P. Ex. 3.

The regulations governing a skilled nursing facility’s responsibility to deal with abuse
allegations require a facility to develop and to implement written policies and procedures
that prohibit mistreatment, neglect and abuse of residents. 42 C.F.R. § 483.13(c).
Additionally, these regulations require a facility to assure that all allegations of abuse are
thoroughly investigated and that the facility protect its residents from abuse while
allegations of abuse are being investigated. 42 C.F.R. § 483.13(c)(3). The regulations
are not specific as to what precisely a facility must say in its anti-abuse policy nor do they
prescribe the specific measures that a facility must take in order to investigate abuse
allegations or to protect its residents from abuse while an investigation is pending. The
regulations thus repose considerable discretion in the facility to develop and implement
anti-abuse policies. See Somerset Nursing & Rehab. Facility, DAB No. 2353, at 23
(2010).

That said, it is implicit in the regulations that whatever a facility does, those actions must
be effective in protecting residents against abuse. The regulations do not give facilities
carte blanche to develop and implement inadequate policies, to conduct slipshod
investigations into abuse allegations, or to take halfhearted measures to protect their
residents.

Here, the case turns on the specific actions that Petitioner took in the wake of
Resident # 1’s allegations. CMS identifies the following alleged failures by Petitioner to
comply with regulatory requirements.
e Petitioner did not suspend, pending its investigation into abuse allegations, the
three nursing assistants whom it identified as having provided care to Resident # 1.
CMS points to Petitioner’s anti-abuse policy which, at the time of the alleged
incident, stated that supervisory personnel “should ask the person in which the
allegation was made against to leave the facility immediately pending an
investigation . . .” and argues that Petitioner plainly failed to comply with this
policy in not suspending the three nursing assistants while it investigated the
resident’s complaints. Thus, according to CMS, the three assistants were allowed
to continue to provide care and, potentially, to put residents at risk, while
Petitioner investigated the allegations of abuse.

e Petitioner failed to protect Resident # 1 against additional abuse because it did not
place her under close observation or otherwise ensure that she was insulated from
the three alleged miscreants.

e Petitioner did not adequately investigate the allegations of abuse, because its
management interviewed only Resident # | and the three nursing assistants who
allegedly perpetrated the abuse. Other residents were not systematically
interviewed nor were they examined to determine whether they had been abused.

Petitioner acknowledges that the three nursing assistants were not suspended pending the
outcome of the investigation into Resident # 1’s allegations. It argues that it was not
obligated to do so because the language of its anti-abuse policy did not, at the time of the
incident, require suspension but said only that the facility “should” suspend individuals
who are alleged to have committed abuse. Petitioner contends that it made a legitimate
discretionary determination that made sense given the facts surrounding Resident # 1’s
allegations.

It is obvious that Petitioner’s decision not to suspend the three nursing assistants was
deliberate. That is made apparent by the fact that on April 17, 2014, the same day that
Resident # 1 made her allegations of abuse, Petitioner amended its anti-abuse policy to
clarify that the facility administration had discretion to suspend or not suspend an
employee who is the target of an abuse allegation. CMS Ex. 2 at 8. Clearly, Petitioner
implemented that change in order to buttress its decision not to suspend the employees.

I conclude that Petitioner — either by virtue of its policy or pursuant to regulatory
requirements — was not obligated to suspend the three nursing assistants while it
investigated Resident # 1’s allegations. Petitioner’s original anti-abuse policy did not
mandate suspension. “Should” does not necessarily mean “must.” The policy vested
discretion in Petitioner’s management as to what to do with a staff member who is the
target of an abuse allegation. Furthermore, there is no requirement at all in governing
regulations that mandates suspension of an employee who is accused of engaging in
abuse.

But, even though suspension of the employees wasn’t mandatory, there still remains the
issue of whether Petitioner should have suspended them pending the outcome of its
investigation. Whether Petitioner ought to have done so depends on the credibility of the
allegations and the potential risk that keeping the employees on duty posed for
Petitioner’s residents. There certainly will be instances where suspension of an alleged
abuser is not only appropriate, but in fact, necessary. For example, where the abuse has
been witnessed, where there is corroborating physical evidence such as bruising, where
the allegations of abuse are credible, suspension is imperative.

None of those factors were present here. To begin with, Resident # 1 was not a credible
accuser. She suffered from paranoia and impaired memory and judgment. She was hard
of hearing, refused to wear a hearing aid, and legally blind. She had a history of
behaving aggressively towards Petitioner’s staff, so much so that Petitioner’s
management had ordered that staff members should not interact with the resident without
assistance. At the very least, this history suggests that the resident would be an unreliable
witness. More than that, it suggests that the resident might make fanciful or malicious
allegations about Petitioner’s staff.

Resident # 1’s complaints were suspect on their face given the resident’s medical
conditions and her history of hostility towards staff. Even so, the fact that the resident
was not a reliable reporter does not give Petitioner the excuse to ignore her complaints. I
would not be sympathetic had Petitioner’s management simply brushed them off. But,
that is not the case here. The staff, including supervisory personnel, interviewed the
resident multiple times on April 17, 2014, including an interview by a licensed social
worker and one by the director of nursing that lasted for about 45 minutes, attempting to
determine the truth of the resident’s allegations. Despite the lengthy interviews, the
resident never came up with anything more than vague accusations about the people who
allegedly perpetrated the abuse which became more fanciful with each interview.

Second, there was no evidence that corroborated anything that the resident alleged. She
asserted that she’d been slapped and hit by someone and that unnamed individuals had
stuck her hand with a sharp object. However, the resident displayed no signs whatsoever
of physical abuse. Her skin was intact and there was no bruising. P. Ex. 3 at 2. She
alleged that staff placed an empty spoon in her mouth, yet there was no evidence that

staff offered cutlery to the resident based on her long-term preference to eat only with her
hands. P. Exs. 3-6. Additionally, the contemporaneous interviews indicated that during
lunch, Resident #1 was agitated and complained that staff was speaking too quietly and
then too loudly. Finally, no staff member — including the three employees who were

> Instead, the social worker found Resident #1’s allegations consistent with her history of
paranoia. P. Ex. 7 at 4.
alleged to have committed abuse — heard or saw anything remarkable on the day in
question. Id.

So, what the allegations of abuse boil down to is uncorroborated and not credible
assertions made by an unreliable witness. Given that, Petitioner’s management did not
act unreasonably in deciding not to suspend the three nursing assistants who provided
care to Resident # 1. There simply is no evidence that would militate in favor of
suspension.

Petitioner’s efforts to investigate Resident # 1’s allegations support my conclusion that it
thoroughly investigated the allegations of abuse consistent with regulatory requirements.
As I have discussed, there is no instruction in the regulations as to what is a thorough
investigation. What is needed to get to the bottom of abuse allegations will depend on
the circumstances: the strength of the allegations, the presence of witnesses, and
supporting evidence.

Here, Petitioner’s staff was confronted with allegations made by an unreliable witness
who, based on her past behavior, was motivated to bring false charges against Petitioner’s
staff. Nonetheless, these allegations were treated seriously. Multiple members of
Petitioner’s staff and management interviewed Resident # 1 at length. Management
identified the three nursing assistants who provided care to the resident at the time of the
alleged incident, and it interviewed all of them. Each of these employees denied
witnessing or perpetrating abuse.’ Eight additional staff members — employees who were
in the vicinity of the resident’s room when the abuse allegedly occurred — were also
interviewed.* The resident’s skin was assessed for signs of physical injury. None of this
investigation turned up any evidence that the resident had been abused.

> CMS suggests that the three employees colluded in producing exculpatory statements.
It claims that the employees — contrary to Petitioner’s representations that they were
interviewed separately and separately prepared and signed statements — actually prepared
their statements collectively, citing the hearing testimony of one of the three nursing
assistants. See Tr. at 83. I have reviewed that portion of the transcript and I find nothing
there to support CMS’s assertion. The employee testified only that she prepared and
signed a statement in the office of Jennifer Fannin, a supervisor at Petitioner’s facility.
That is entirely consistent with Petitioner’s representation of how the statements were
obtained and suggests absolutely nothing sinister.

* CMS challenges the credibility of Petitioner’s assertion that its management spoke with
the eight employees, asserting that the discussions were not cited in the report that
Petitioner prepared of its investigation. The fact that Petitioner did not specifically refer
to those discussions in its report does not mean that they did not occur. I find that the
testimony of Ms. Fannin, the employee who was a party to these discussions, is credible.
P. Ex. 3.
I find it entirely reasonable that Petitioner concluded that the investigation it conducted
was sufficient to establish that Resident # 1’s allegations were without foundation. There
was simply no evidence produced by the primary sources of information — the resident
and the three nursing assistants — to suggest that any abuse had occurred. Indeed, the
evidence obtained by the facility suggests otherwise. The resident’s complaints amount
to an accusation that she was assaulted by one or more nursing assistants. As I have
noted, there is no physical evidence to support that claim. Furthermore, none of the staff
in the vicinity of the resident’s room reported hearing or observing something unusual on
the day and time in question. One would have expected that the staff would have heard
something emanating from the resident’s room if, in fact, she was being assaulted by
staff. In light of that, pursuing additional avenues of inquiry strikes me as pointless.

CMS asserts that Petitioner should have conducted a more intensive investigation. It
argues that Petitioner should have interviewed all of the residents whose rooms were on
the same wing as Resident # 1’s room in order to determine whether they’d witnessed
any abuse. I do not agree with this assertion. Nothing in the regulations explicitly
requires that degree of intensity. Furthermore, in this case none of the primary sources of
evidence had produced even a shred of evidence to suggest that the resident had been
abused. Digging more deeply, under the circumstances, was unnecessary.

CMS argues also that Petitioner’s staff should have done skin assessments immediately
of every resident whose room was in proximity to that of Resident # 1 in order to
determine whether residents had been serially abused. But, there was no credible
evidence of any abuse based on the allegations of Resident # 1, and she showed no signs
of physical abuse whatsoever. In light of that, I do not understand why Petitioner would
have had to assume that there was serial abuse of other residents. Nonetheless, Petitioner
conducted assessments of a number of residents in the same unit, finding no
irregularities. P. Ex. 3 at 3, 5.

CMS argues also that Resident # 1 should have been kept under close observation for
several days after the alleged abuse — or at least until Petitioner sent its report of its
investigation to the Kentucky State Agency — in order to protect her against the
possibility of additional abuse. As with other assertions made by CMS about what
Petitioner should have done there is no regulatory requirement that Petitioner maintain
that degree of surveillance of the resident. Resident # 1 was closely monitored
throughout the nursing shift during which she made her abuse allegations. This is
sufficient given the absence of any evidence to support them. Moreover, the evidence
demonstrates that the resident’s bed was in a high traffic area and that Petitioner reported
the event to the state ombudsman, adult protective services, and the office of inspector
general, within three hours of the resident’s complaint. P. Ex. 7 at 5.
At bottom, I find CMS’s assertions of what Petitioner ought to have done to be
unnecessarily rigid given the reality of what occurred. Petitioner acted reasonably and
appropriately in the face of allegations of abuse that turned out to have no evidentiary
support. A resident such as Resident # 1 — with her history of paranoia, her deficient
short-term memory, and her repeated hostility towards Petitioner’s staff — has the
capacity to engage in highly disruptive behavior. The resident would have had the ability
to hold Petitioner and its staff hostage to her allegations of abuse if Petitioner had to react
to what were so evidently baseless allegations with the urgency that CMS demands. That
demanded level of response was simply unrealistic in the context of the resident’s
allegations.*

/s/
Steven T. Kessel
Administrative Law Judge

> CMS’s allegation that Petitioner was not efficiently managed and that it thus
contravened the requirements of 42 C.F.R. § 483.75 derives entirely from the other
allegations that CMS made and that I have discussed in this decision. I find no basis for
the mismanagement allegation in light of my findings that Petitioner was in compliance
with the other regulatory requirements that are at issue here.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
The Inspector General of the Social Security Administration,
v.
Gregory F. Antone,
Respondent.
Docket No. C-15-652
Decision No. CR4051
Date: July 20, 2015

DECISION

I impose civil money penalties against Respondent, Gregory F. Antone, totaling
$31,000 plus an assessment of $87,414.07. The penalties and assessments, in
combination, are but a fraction of the maximum allowed by law and I find them to
be reasonable under the circumstances of this case.

I. Background

This is an action brought by the Inspector General of the Social Security
Administration (SSA I.G.), Petitioner, to impose penalties and an assessment
against Respondent based on his false reporting of information to SSA concerning
his eligibility for Supplemental Security Income (SSI). On April 21, 2015, I
entered a ruling in favor of the SSA LG. granting it partial summary judgment on
the issue of liability. Ruling Granting in Part the SSA-OIG’s Motion for Summary
Judgment and Directing Respondent to Comply With Discovery Request (Ruling).
Theld in my Ruling that undisputed facts established that, over a period of 62
months, Respondent had knowingly made or perpetrated false statements to SSA
concerning his resources. More specifically, I held that Respondent had failed
deliberately to disclose that he was residing with his spouse in a home that they
owned jointly.
I reserved judgment on the issue of remedy. I noted in my ruling that the SSA I.G.
had not briefed the remedy issue in its motion and that Respondent had not had the
opportunity to defend against any arguments that the SSA I.G. might make. I
ordered the parties to complete their pre-hearing exchanges on the remedy issue.

The SSA LG. subsequently filed a brief addressing the issue of remedy plus
supporting exhibits that augment the exhibits that the SSA I.G. filed previously.
In total, the exhibits filed by the SSA L.G. are identified as P. Ex. 1 — P. Ex. 9. P.
Ex. 6 — P Ex. 9 address the remedy issue. Respondent filed a total of 23 exhibits.
With his response to the SSA L.G.’s motion for summary judgment, Respondent
filed exhibits that are identified as R. Ex. 1 — R. Ex. 16 plus a declaration from his
wife that I identify as R. Ex. 17. In response to the SSA I.G.’s discovery request,
Petitioner submitted documents consisting of his tax returns and information
relating to his vehicles. I identify these documents as R. Ex. 18. With his
response to the SSA I.G.’s brief addressing the issue of remedy, Respondent filed
various attachments, and I identify them as R. Ex. 19 —R. Ex. 23. I receive all of
the parties’ exhibits into the record.

Neither party provided testimony on the issue of remedy. I conclude that there is
no basis for me to convene an in-person hearing in this case given that there is no
testimony addressing the remedy issue and that I have previously entered partial
summary judgment on the issue of liability. Therefore, I decide the remaining
issue in this case based on the parties’ written filings including the parties’
exhibits.

II. Issue, Findings of Fact and Conclusions of Law
A. Issue

The sole remaining issue in this case is the reasonableness of civil money penalties
and an assessment as remedies for Respondent’s willfully false statements.

B. Findings of Fact and Conclusions of Law

The SSA LG. brought this case pursuant to the provisions of section 1129 of the
Social Security Act (Act). In relevant part, that section allows for the imposition
of civil money penalties and assessments against an individual who knowingly
makes a false statement (or omits a material fact) to SSA concerning his eligibility
for Social Security benefits or for SSI. The section allows for the imposition of
civil money penalties of up to $5000 for each false statement or representation and
the imposition of an assessment in lieu of damages of up to double the amount of
funds obtained by virtue of false statements or materially omitted facts. Act

§ 1129(a)(1); 20 C.F.R. §§ 498.103, 498.104. The Act provides that each month
during which a claimant or beneficiary fails to notify SSA of a material fact
constitutes a violation. Act § 1129(a)(1).

The evidence offered by the SSA LG. and not rebutted by Respondent establishes
that, for a period of 62 months, Respondent knowingly concealed the fact that he
and his wife lived together in a home that they owned jointly.' P. Ex. 2; P. Ex. 3.
I note that the SSA I.G. contends that Respondent knowingly concealed his home
ownership for a period of 67 months and the SSA I.G.’s civil money penalty
determination and assessment is based on penalties of $500 per month for each
month of this 67-month period.” However, the fact is that because Respondent
admitted to SSA that he and his wife jointly owned a home in November 2013, the
total period of concealment is 62 and not 67 months. P. Ex. 3. Thus, I base civil
money penalties on the 62-month period and sustain penalties totaling $31,000 as
opposed to the $33,500 sought by the SSA LG.

The concealed facts are material because had they been disclosed, Respondent
would have been ineligible to receive SSI during the entire period. The total
amount of SSI paid to Respondent during this period is about $40,000. P. Ex. 9.

The Act and regulations allow for maximum civil money penalties in this case of
more than $300,000. I sustain penalties totaling $31,000 or only about ten percent
of the maximum allowable amount. That is a tiny fraction of what Respondent
potentially could have been held liable for. I find these penalties to be entirely
reasonable given his culpability. Respondent has never offered a legitimate
defense for his knowingly false statements. There is nothing in the record of this
case that mitigates the fact that he willfully misstated his resources in an evident
attempt to obtain something — SSI — to which he plainly was not entitled. That
level of culpability more than justifies the penalty amount.

The SSA LG. also determined to impose an assessment of $94,463.60. It
constitutes — as liquidated damages — double the amount of SSI benefits that
Respondent obtained during the 67-month period for which the SSA I.G. seeks to

' Respondent’s misrepresentations actually extend back to March 1999, when he
first applied for SSI. However, the six-year statute of limitations precludes
imposing remedies for a period that is greater than the period for which the SSA
1.G. seeks to impose them.

> The SSA L.G. determined to impose civil money penalties totaling $33,500.00
($500 x 67 months of allegedly false statements) plus an assessment of $94,463.60
(based on SSI payments made over a 67-month period).
impose a remedy. An assessment of double the payments made to Respondent is a
reasonable recompense to SSA for the injury to the program caused by
Respondent and for the efforts necessitated to rectify that injury. However, the
assessment must cover a 62-month period rather than 67 months inasmuch as the
period of concealment is actually 62, and not 67 months, as contended by the I.G.
1 impose an assessment of $87,414.07, which is 62/67 of that which the I.G. seeks.

I gave Respondent ample opportunity to provide evidence to establish that the
penalties and assessment are unreasonable. Respondent failed to provide any
material facts showing that his financial condition precludes him from paying the
penalties and assessment. He has not challenged the evidence filed by the SSA
1.G. Furthermore, the SSA LG. filed evidence proving that Respondent’s income
and resources are, in fact, considerable. He jointly owns a home with his wife.
His jointly filed income tax returns for the years 2009 — 2013 show that in none of
these years was the income that he and his spouse earned less than $44,000.
Moreover, Respondent and his spouse have owned four automobiles during the
period. See Petitioner’s Brief in Support of the Inspector General’s Decision to
Impose a Civil Monetary Penalty of $127,963.60 at 8 nn.3-4.

Respondent filed various documents which I have identified as exhibits and made
part of the record of this case. None of them prove that Respondent lacks the
wherewithal to pay the penalties and assessment that I determine to be reasonable.
To the contrary, those documents, consisting in the main of copies of
Respondent’s tax returns and information pertaining to his motor vehicles, confirm
that Respondent is capable of paying the penalties and assessment.

/s/
Steven T. Kessel
Administrative Law Judge