Opinion ID: 554907
Heading Depth: 2
Heading Rank: 2

Heading: Debt Collection Activities of the DVA

Text: 10 The DVA dispenses various benefits to veterans and their dependents. Included among these are disability compensation for service connected injuries, pensions for non-service related injuries, education benefits, home loan guarantees, and medical and other services. Both the old and new versions of sections 3404 and 3405 are clearly applicable to claims for these benefits. The constitutionality of the fee statutes, as applied to these types of claims, was upheld in Walters v. National Ass'n of Radiation Survivors, 473 U.S. 305, 105 S.Ct. 3180, 87 L.Ed.2d 220 (1985). 11 Occasionally, the DVA determines that a veteran has incurred indebtedness to the government in connection with his or her receipt of veterans' benefits. Frequently, such an indebtedness arises in connection with the DVA's home loan guaranty program. Other situations, such as an overpayment of benefits, or the erroneous payment of benefits to one who is not entitled to them, may also result in a claim by the DVA, against the veteran, for reimbursement. 12 The DVA's claims against Bahnmiller and Frye arose in the home loan guaranty context. In 1985, the DVA initiated administrative debt collection proceedings against Frye, seeking to recover $7,209.67 allegedly due by reason of a deficiency judgment obtained in connection with a home formerly owned by Frye. Frye had obtained a DVA guaranteed loan on his home and sold the home to a third party. When the purchaser subsequently defaulted, the lienholder foreclosed upon the mortgage, and a deficiency judgment arose when the sale of the home did not bring enough to satisfy the mortgage indebtedness. Because Frye had not been released from the mortgage when he sold the home, the DVA was entitled to, and did, seek to collect the deficiency judgment from him. Frye requested a release from liability or a waiver of payment. Frye's administrative claim is still pending before the DVA, and is governed by the old statute. 13 In 1988, Bahnmiller received notice of an alleged debt of $27,658.83, also arising out of a DVA home loan guarantee. He too challenged the existence of the debt and alternately requested its waiver. Bahnmiller's administrative claim is still pending before the DVA and is governed by the new statute. 14 Both Frye and Bahnmiller alleged in their complaint that they were unable to obtain representation in connection with the defense of the claim made against them. Frye asserts that the $10 limit of the old statute effectively prevented any attorney from taking the case. Bahnmiller complains because the plain language of the new statute prohibited the use of any attorney while the claim was still at the administrative level. Frye and Bahnmiller thus challenge the applicability of the fee statutes to debt collection efforts arising out the home loan guaranty program. 15 The parties cross-moved for summary judgment. In a thorough and well-reasoned opinion, the district court, concluding that the fee statutes do apply to administrative debt collection actions through what it termed Stage One of the DVA debt collection process, granted defendants' motion for summary judgment. The court further held that the fee limitation does not apply when the [DVA] seeks legal remedies beyond the administrative context. 724 F.Supp. at 1216. 16 In the opinion of the district court, a Stage One proceeding, which is characterized by a benevolent administrative scheme, does not involve an adversarial relationship between the veteran and the agency. This stage includes all administrative proceedings up to and including a decision by the BVA. Once the BVA renders a decision, under both the old and new statutes, Stage Two proceedings begin, and the veteran may retain and pay an attorney a reasonable fee for services rendered. In Stage Two, the DVA, in the words of the district court, takes off the gloves and attorney participation is appropriate and authorized for these proceedings. 17 One month after the district court opinion, and while this appeal was pending, the DVA General Counsel issued O.G.C. Precedent 19-89, purporting to clarify its 1986 opinion in light of the guidance provided by the district court opinion in this case. Far from clarifying the DVA position, however, the policy announced in O.G.C. Precedent 19-89 undermines the bright line two-step analysis employed by the district court and calls into question the standing of Frye and Bahnmiller to challenge the statutes at issue in this case. The precedent adopts the finding of the court that the 1988 VJRA amendments to the fee statutes do not change the statutes' applicability to debt collection proceedings. It also adopts, in principle, the court's two-step analysis of the applicability of the fee statutes to debt collection proceedings. The precedent goes on to apply the analysis to debt collection actions involving home loan guarantees. When a veteran challenges the existence or amount of a home loan guarantee debt, no Stage One proceeding is available. Instead, the veteran goes directly to Stage Two and may immediately employ an attorney. 18 The rationale behind the DVA's position is that when the DVA makes a claim against the veteran based upon a contractual agreement, an adversarial relationship between the DVA and the veteran exists from the start. A benevolent administrative scheme, including appeal to the BVA, is not appropriate. Accordingly, these proceedings are Stage Two proceedings from the outset. The two-step analysis remains applicable, however, in home loan guaranty cases when the veteran seeks a waiver of the indebtedness and in all debt collection actions for other veterans programs, such as compensation, pension, and education programs. 19 As applied to Bahnmiller and Frye, the DVA's change in position means that they may both employ attorneys for all aspects of their respective disputes with the DVA except for their requests for administrative waiver. The DVA's post judgment concession of a large part of the relief sought by individual appellants Frye and Bahnmiller renders this controversy moot in part. To remain a justiciable controversy, a suit must remain alive throughout the course of litigation, to the moment of final appellate disposition. 13A C. Wright, A. Miller, and E. Cooper, Federal Practice and Procedure Sec. 3533 at 211 (2d ed. 1984). Although neither party in the case before us raises the mootness issue, the court is obligated to raise it because it implicates the court's jurisdiction. S-1 v. Spangler, 832 F.2d 294, 297 (4th Cir.1987). 20 Withdrawal or alteration of administrative policies can moot an attack on those policies. See, e.g., Alabama Hosp. Ass'n v. Beasley, 702 F.2d 955, 961 (11th Cir.1983); Relf v. Weinberger, 565 F.2d 722 (D.C.Cir.1977); Utz v. Cullinane, 520 F.2d 467, 474 n. 9 (D.C.Cir.1975). Here, events have simply overtaken the pace of this litigation. Because Bahnmiller and Frye are now free to employ attorneys for all aspects of their disputes except their waiver requests the case is moot except as to the waiver question. In such a situation, the proper course of action is to dismiss the appeal in part, vacate the judgment below as to the part of the case which is moot, and decide the remaining live issues on appeal. See CIA v. Holy Spirit Ass'n of the Unification of World Christianity, 455 U.S. 997, 102 S.Ct. 1626, 71 L.Ed.2d 858 (1982).