Court Opinion

ID: 4555198
Source: CourtListenerOpinion
Date Created: 2020-08-13 07:00:26.357677+00
Date Added: 2024-06-11T08:44:02.041784
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________

Nos. 19-3011 & 19-3125
TYLER N. JAXSON,
                               Plaintiff-Appellee, Cross-Appellant,

                                 v.

ANDREW SAUL, COMMISSIONER OF SOCIAL SECURITY,
                      Defendant-Appellant, Cross-Appellee.
                    ____________________

        Appeals from the United States District Court for the
          Northern District of Illinois, Western Division.
        No. 17 CV 50090 — Lisa A. Jensen, Magistrate Judge.
                    ____________________

       ARGUED JUNE 5, 2020 — DECIDED JUNE 26, 2020
             — AMENDED AUGUST 12, 2020
                ____________________

   Before EASTERBROOK, HAMILTON, and SCUDDER, Circuit
Judges.
    EASTERBROOK, Circuit Judge. David Daugherty, an admin-
istrative law judge hearing disability-beneﬁts applications
for the Social Security Administration, supplemented his
salary by taking bribes. Eric Conn, who represented many
claimants, paid Daugherty $400 per favorable decision; Conn
himself received $5,000 or more per case out of the beneﬁts
2                                      Nos. 19-3011 & 19-3125

that Daugherty awarded to Conn’s clients. Four physicians,
including Frederic Huﬀnagle, submided evaluations to sup-
port Daugherty’s decisions. Daugherty told Conn what kind
of evidence he wanted to see. Conn wrote the reports, which
one of the physicians would sign without change even if the
applicant for beneﬁts failed to appear for examination. Huﬀ-
nagle’s “medical suite” was in Conn’s oﬃce.
   After the scheme came to light, Conn and Daugherty
pleaded guilty to several federal felonies. Bradley Adkins,
one of the physicians, was convicted by a jury. Huﬀnagle
died before he could be prosecuted. The total cost to the
United States of beneﬁts granted by Daugherty exceeds $500
million, and Conn reaped more than $5 million in legal fees.
Many details of this scam are recounted in U.S. Senate
Commidee on Homeland Security and Governmental
Aﬀairs, Staﬀ Report, How Some Legal, Medical, and Judicial
Professionals Abused Social Security Disability Programs for the
Country’s Most Vulnerable: A Case Study of the Conn Law Firm
(Oct. 7, 2013).
   The agency’s Inspector General formally notiﬁed it in
2015 of “reason to believe that fraud was involved in th[e]
applications for Social Security beneﬁts” of 1,787 named per-
sons from January 2007 through May 2011. That notice, giv-
en under 42 U.S.C. §1320a–8(l), set in motion a process for
redetermination of the beneﬁts awarded to those persons.
Two statutes, one covering disability payments and the other
covering supplemental-security income, say that redetermi-
nation is mandatory if there is reason to believe that fraud
played a role, and they add that in conducting this redeter-
mination the agency “shall disregard any evidence if there is
reason to believe that fraud or similar fault was involved in
Nos. 19-3011 & 19-3125                                       3

the providing of such evidence.” We put the full text of these
statutes in an appendix.
    Tyler Jaxson is among the people named by the Inspector
General. He applied for both disability and supplemental-
security-income beneﬁts in 2009, and the agency deemed his
evidence insuﬃcient. He failed to appear for any of the three
examinations by specialists retained by the agency. Conn
presented Jaxson’s request for reconsideration, supported by
a report that Huﬀnagle signed, and asked for a hearing. ALJ
Daugherty awarded beneﬁts less than three weeks later, on
June 1, 2010. He did not hold a hearing and wrote only a
cursory evaluation.
    A week after receiving the Inspector General’s report, the
agency sent Jaxson a leder telling him that it would redeter-
mine his eligibility for beneﬁts. The leder said that the agen-
cy “must disregard any evidence from one of the medical
providers above [including Huﬀnagle] when the information
was submided by representative Eric C. Conn or other rep-
resentatives associated with Mr. Conn’s law oﬃce.” The
leder also stated that the agency believes that Jaxson’s claim
lacks support, after disregarding Huﬀnagle’s report. So the
agency told Jaxson that his claim would be sent to an ALJ
and that he could submit any new evidence that concerned
his medical status on or before June 1, 2010. A hearing was
held on April 4, 2016. Jaxson appeared with counsel, testi-
ﬁed, and submided other evidence, but the ALJ rejected his
claim for beneﬁts. After the Appeals Council denied his re-
quest for review, he ﬁled this suit under 42 U.S.C. §§ 405(g),
1383(c)(3). With the parties’ consent, the case was assigned to
a magistrate judge. 28 U.S.C. §636(c).
4                                       Nos. 19-3011 & 19-3125

    Most suits about Social Security disability beneﬁts con-
test the ALJ’s ﬁndings or reasoning. Jaxson’s does not. He
concedes that the ALJ was right, given the evidence he con-
sidered. But he asserts that the ALJ should have considered
Huﬀnagle’s report too, and that the ALJ declined to do so
only because an internal claims-processing manual and rul-
ing say that an ALJ cannot accept evidence that the Inspector
General found is likely a product of fraud. See Hearings, Ap-
peals, and Litigation Law Manual (HALLEX) §I-1-3-25 (2016);
Social Security Ruling (SSR) 16-1p, 81 Fed. Reg. 13,436 (Mar.
14, 2016). Relying on a divided decision of the Sixth Circuit,
see Hicks v. Commissioner, 909 F.3d 786 (6th Cir. 2018), the
district court held that the summary exclusion of Huﬀ-
nagle’s report violated the Due Process Clause of the Fifth
Amendment. 2019 U.S. Dist. LEXIS 132766 (N.D. Ill. Aug. 7,
2019). The court remanded to the agency for further pro-
ceedings, and the agency appealed. Jaxson ﬁled a cross-
appeal that we discuss at the end of this opinion.
   It was inappropriate for the district court to start with a
constitutional issue. Constitutional adjudication is supposed
to be a last resort, after all other grounds have been ex-
plored. See, e.g., New York City Transit Authority v. Beazer, 440
U.S. 568 (1979). If a statute, or a regulation with the force of
law, required the exclusion of this evidence, then a court
would need to determine the law’s validity. Yet no one con-
tends that any law makes the Inspector General’s view con-
clusive. The statutes in the appendix require the agency to
redetermine every case that it ﬁnds may have been touched
by fraud. But they do not say that this step also requires the
exclusion of evidence. They say, instead, that evidence is in-
admissible “if there is reason to believe that fraud or similar
Nos. 19-3011 & 19-3125                                         5

fault was involved in the providing of such evidence.” Who
makes that decision, and how, the statutes leave open.
    The leder that Jaxson received told him ﬂatly that the
agency “must disregard any evidence from one of the medi-
cal providers above [including Huﬀnagle] when the infor-
mation was submided by representative Eric C. Conn or oth-
er representatives associated with Mr. Conn’s law oﬃce”
(emphasis added). It did not say why. True, the Manual and
Ruling 16-1p say this, but neither document carries legal
force. They tell people how the agency plans to carry out its
duties, but they do not aﬀect the legal rights of private par-
ties such as Jaxson. That’s why they did not need to be
adopted through rulemaking. See 5 U.S.C. §553(b)(A) (ex-
cluding “interpretative rules, general statements of policy, or
rules of agency organization, procedure, or practice” from
rulemaking requirements). At oral argument, the Commis-
sioner’s lawyer acknowledged that the Manual and Ruling
16-1p lack the force of law.
     The statutes do not prescribe procedures for redetermi-
nations. The agency oﬀered Jaxson an opportunity to have a
hearing before an ALJ, and at the hearing—though less for-
mal than judicial trials, see Richardson v. Perales, 402 U.S. 389
(1971); Biestek v. Berryhill, 139 S. Ct. 1148 (2019)—Jaxson was
represented by counsel, as was his right. Even in informal
adjudication, certain norms apply. One of these is that the
parties get to present their positions to the administrative
law judge or other hearing oﬃcer. Social Security proceed-
ings have been characterized as inquisitorial, see Sims v. Ap-
fel, 530 U.S. 103, 110–11 (2000) (plurality opinion), but they
are not ex parte, with only one side’s perspective heard. Per-
ales and Biestek permit some shortcuts compared with hear-
6                                       Nos. 19-3011 & 19-3125

ings in federal court, but they do not permit important as-
pects of the proceedings to be entirely one-sided.
    Some language in the Sixth Circuit’s opinion, and some
in the district court’s, suggests that the only alternative to
unilateral decision by the agency is a full-ﬂedged eviden-
tiary proceeding to determine whether “there is reason to
believe that fraud or similar fault was involved in the
providing of [Huﬀnagle’s] evidence.” Yet that is not how
federal courts conduct their own decisionmaking about evi-
dence. Under Fed. R. Evid. 104(a), a federal judge rules on
the admissibility of evidence without submiding the subject
to the trier of fact. See also United States v. Martinez de Ortiz,
907 F.2d 629 (7th Cir. 1990) (en banc). Normal practice is for
one side to oﬀer evidence, the other to object, and the judge
to rule—summarily when the outcome is clear, after argu-
ment when the outcome is not. Motions before trial (“in
limine”) may be handled on the papers. One side explains
why it deems a particular thing admissible (or not), and the
other responds in writing. A judge often listens to oral
presentations by counsel, but rare is the motion that requires
the taking of other evidence. Indeed, many lawsuits con-
clude on the merits without evidentiary hearings. Only dis-
putes about material issues of fact make hearings or trials
necessary.
   To decide whether “there is reason to believe that fraud
or similar fault was involved in the providing of [Huﬀ-
nagle’s] evidence” an ALJ needs to hear from Jaxson. The
ALJ also can consider the Inspector General’s report and the
Senate’s compilation of evidence about how Daugherty,
Conn, and Huﬀnagle conducted their dealings. Jaxson’s
lawyer can reply with any available reason to think that
Nos. 19-3011 & 19-3125                                        7

Huﬀnagle gave an honest medical opinion. Jaxson needs a
powerful argument, for under the statute any “reason to be-
lieve” that the report is fraudulent requires its exclusion. The
ALJ need not ﬁnd that fraud is more likely than not. If an
applicant is disabled, it should be possible to provide other
evidence to that eﬀect; excluding one potentially tainted re-
port need not be dispositive, and erring on the side of exclu-
sion, as the statute requires, seems a prudent precaution.
    Jaxson may have a hard time persuading an ALJ that
there is not even “reason to believe” that Huﬀnagle’s report
is fraudulent. But he is entitled to try, and we aﬃrm the dis-
trict court’s decision—though under ordinary norms of ad-
ministrative law rather than a constitutional command. The
agency’s decisional process comes within 42 U.S.C.
§405(b)(1), which requires a “reasonable notice and oppor-
tunity for a hearing”, and the word “hearing” means a pro-
cedure at which a claimant can present views about poten-
tially dispositive maders.
    Jaxson’s cross-appeal contends that proceedings on re-
mand must be treated as hearings “on the record” governed
by the Administrative Procedure Act. 5 U.S.C. §554(a). The
district court deemed this argument forfeited because it had
not been adequately developed. That was not an abuse of
discretion. What’s more, for the reasons we have given,
treating a redetermination as one governed by §554 would
not do Jaxson any good. Even the most formal procedures,
those used by federal judges, do not guarantee evidentiary
hearings on disputes about the admissibility of evidence.
The APA provides that “[w]hen an agency decision rests on
oﬃcial notice of a material fact not appearing in the evidence
in the record, a party is entitled … to an opportunity to show
8                                               Nos. 19-3011 & 19-3125

the contrary.” 5 U.S.C. §556(e). We’ve concluded that this is
also part of the procedures ordinarily used in informal adju-
dication: each party is entitled to be heard. The APA would
not add to Jaxson’s rights.
                                                                 AFFIRMED

                               Appendix
   42 U.S.C. §405(u), which covers disability-insurance ben-
eﬁts, provides:
    Redetermination of entitlement.
    (1)
          (A) The Commissioner of Social Security shall immediately
          redetermine the entitlement of individuals to monthly in-
          surance beneﬁts under this subchapter if there is reason to
          believe that fraud or similar fault was involved in the appli-
          cation of the individual for such beneﬁts, unless a United
          States adorney, or equivalent State prosecutor, with juris-
          diction over potential or actual related criminal cases, certi-
          ﬁes, in writing, that there is a substantial risk that such ac-
          tion by the Commissioner of Social Security with regard to
          beneﬁciaries in a particular investigation would jeopardize
          the criminal prosecution of a person involved in a suspect-
          ed fraud.
          (B) When redetermining the entitlement, or making an ini-
          tial determination of entitlement, of an individual under
          this subchapter, the Commissioner of Social Security shall
          disregard any evidence if there is reason to believe that
          fraud or similar fault was involved in the providing of such
          evidence.
    (2) For purposes of paragraph (1), similar fault is involved with
    respect to a determination if—
          (A) an incorrect or incomplete statement that is material to
          the determination is knowingly made; or
Nos. 19-3011 & 19-3125                                                     9

         (B) information that is material to the determination is
         knowingly concealed.
   (3) If, after redetermining pursuant to this subsection the enti-
   tlement of an individual to monthly insurance beneﬁts, the
   Commissioner of Social Security determines that there is insuﬃ-
   cient evidence to support such entitlement, the Commissioner of
   Social Security may terminate such entitlement and may treat
   beneﬁts paid on the basis of such insuﬃcient evidence as over-
   payments.

   42 U.S.C. §1383(e)(7), which covers supplemental-
security income, provides:
   (A)
         (i) The Commissioner of Social Security shall immediately
         redetermine the eligibility of an individual for beneﬁts un-
         der this subchapter if there is reason to believe that fraud or
         similar fault was involved in the application of the individ-
         ual for such beneﬁts, unless a United States adorney, or
         equivalent State prosecutor, with jurisdiction over potential
         or actual related criminal cases, certiﬁes, in writing, that
         there is a substantial risk that such action by the Commis-
         sioner of Social Security with regard to recipients in a par-
         ticular investigation would jeopardize the criminal prosecu-
         tion of a person involved in a suspected fraud.
         (ii) When redetermining the eligibility, or making an initial
         determination of eligibility, of an individual for beneﬁts
         under this subchapter, the Commissioner of Social Security
         shall disregard any evidence if there is reason to believe
         that fraud or similar fault was involved in the providing of
         such evidence.
   (B) For purposes of subparagraph (A), similar fault is involved
   with respect to a determination if—
         (i) an incorrect or incomplete statement that is material to
         the determination is knowingly made; or
         (ii) information that is material to the determination is
         knowingly concealed.
10                                              Nos. 19-3011 & 19-3125

     (C) If, after redetermining the eligibility of an individual for ben-
     eﬁts under this subchapter, the Commissioner of Social Security
     determines that there is insuﬃcient evidence to support such el-
     igibility, the Commissioner of Social Security may terminate
     such eligibility and may treat beneﬁts paid on the basis of such
     insuﬃcient evidence as overpayments.