Court Opinion

ID: 3038369
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:58:24.096732+00
Date Added: 2024-06-11T09:55:05.378983
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 04-3164
                                   ___________

Dennis G. Sunde,                       *
                                       *
             Plaintiff-Appellant,      *
                                       * Appeal from the United States
      v.                               * District Court for the
                                       * District of Minnesota.
Jo Anne B. Barnhart, Commissioner      *
of Social Security,                    *
                                       *
             Defendant-Appellee.       *
                                  ___________

                             Submitted: May 13, 2005
                                Filed: August 15, 2005
                                 ___________

Before MORRIS SHEPPARD ARNOLD, LAY, and MURPHY, Circuit Judges.
                         ___________

LAY, Circuit Judge.

       This appeal arises out of the Social Security Commissioner’s (Commissioner)
decision to deny an exclusion of attorney’s fees from the federal offset in Disability
Insurance Benefits (DIB) required under the Social Security Act (Act). See 42 U.S.C.
§ 424a(a); 20 C.F.R. § 404.408. The issue in this case is whether attorney’s fees may
be allocated to a time period different from that during which the fees were actually
paid. We conclude they cannot.

      The Act limits the amount of DIB an individual may receive when
simultaneously receiving Workers’ Compensation (WC) benefits. See 42 U.S.C.
§ 424a(a); 20 C.F.R. § 404.408(a). When an individual’s combined DIB and WC
benefits exceed eighty percent of the individual’s pre-disability earnings, the Act
requires a reduction in DIB – called a DIB “offset.” See 42 U.S.C. § 424a(a); Berger
v. Apfel, 200 F.3d 1157, 1159 (8th Cir. 2000).

     Certain expenses are “excluded,” or essentially deducted, from the offset
computation:

      Amounts paid or incurred, or to be incurred, by the individual for . . .
      legal . . . expenses in connection with the claim for public disability
      payments (see § 404.408(a) and (b)) or the injury or occupational
      disease on which the public disability award or settlement agreement is
      based, are excluded in computing the reduction under paragraph (a) of
      this section [i.e., 42 U.S.C. § 424a(a)] to the extent they are consonant
      with the applicable Federal, State, or local law or plan and reflect either
      the actual amount of expenses already incurred or a reasonable estimate,
      given the circumstances in the individual’s case, of future expenses.
      Any expenses not established by evidence required by the
      Administration . . . will not be excluded. . . .

20 C.F.R. § 404.408(d) (emphasis added).

       The federal offset does not apply where state law allows an employer to take
a “reverse offset.” See 42 U.S.C. § 424a(d). Minnesota is one such state. See Minn.
Stat. Ann. § 176.101 sub. 4 (West 1993 & Supp.). After a Minnesota worker receives
$25,000 in weekly permanent total disability WC benefits, the Social Security
Administration (SSA) pays the full DIB amount while the employer reduces its WC
payments to the injured employee, paying only enough to meet the eighty percent
ceiling. In this way, the federal “offset” is “reversed.”

       The Appellant in this case, Dennis Sunde, is a Minnesota resident who
sustained work-related injuries in 1979 and 1992. He received WC benefits for

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temporary disability through the end of 1996. Later, Sunde applied for concurrent
Social Security DIB. An Administrative Law Judge (ALJ) found that Sunde was
permanently disabled and entitled to begin receiving DIB as of July 27, 1995. After
the ALJ issued that decision, Sunde filed a WC petition for permanent total disability
benefits. He then reached a settlement with his employer in January 2000 regarding
WC benefits, which contained three stipulations relevant to this matter.

     First, Sunde and his employer stipulated that Sunde had been reclassified as
permanently disabled (as opposed to temporarily disabled) as of December 1, 1995.
They agreed Sunde was entitled to a lump-sum payment based on the difference
between the temporary disability WC benefits he had previously received and the
permanent disability WC benefits to which he became entitled as of January 1, 1996.

       Second, the parties stipulated that Sunde had received $25,000 in WC
permanent disability benefits by November 20, 1996. Thus, the employer was
eligible for the Minnesota reverse offset on that day. One ramification of this
stipulation was that the period from January 1, 1996 through November 19, 1996
became the only period during which Sunde’s DIB could possibly be vulnerable to
a federal offset due to his concurrent receipt of federal DIB and state WC benefits.

       Third, the parties stipulated Sunde had incurred $6,500 in attorney’s fees as a
result of pursuing his WC claim. They agreed to allocate the fees to the period dated
January 1 through November 19, 1996, and to exclude (or deduct) the fees from the
federal DIB offset computation during that period. This allocation had the effect of
increasing the amount of DIB Sunde could receive from the federal government from
January 1 through November 19. The stipulation stated unequivocally that this
“settlement [was] intended to maximize the employee’s entitlement to Social Security
disability benefits.”

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       The parties forwarded their settlement to the SSA. It agreed to apply the
reverse offset as of November 20, 1996, and pay Sunde’s maximum allowable DIB
from that date forward. However, the SSA rejected the stipulation’s allocation of
attorney’s fees to the period dated January 1 through November 19. The SSA claimed
Sunde’s attorney’s fees were not actually paid during that time, and said it would
allocate fees only to those months in which the fees were actually paid. The SSA
added that if Sunde provided evidence showing he indeed paid attorney’s fees during
the claimed period, it would adjust his benefits accordingly. Sunde never produced
this evidence. Since Sunde could not allocate his attorney’s fees to the period he
desired, he received less money (in the form of DIB) from January 1 through
November 19 than he would have under the terms of the stipulation.

       Sunde sought administrative review. An ALJ decided that Sunde was not
entitled to a retroactive allocation of attorney’s fees because the $6,500 in attorney’s
fees were not actually paid to Sunde’s WC attorney during the period claimed. Thus,
the allocation of attorney’s fees to that period was illusory. The Appeals Counsel
denied Sunde’s request for review, leaving the ALJ’s decision as the final decision
of the Commissioner.

       Sunde requested judicial review, arguing that (1) the Commissioner’s decision
to disregard the terms of the stipulation was not based on substantial evidence, and
(2) the Commissioner’s finding that the allocation of attorney’s fees was “retroactive”
was incorrect. Both parties submitted cross-motions for summary judgment. Chief
Magistrate Judge Jonathan Lebedoff (MJ) of the U.S. District Court for the District
of Minnesota recommended that Sunde’s motion for summary judgment be denied
and the Commissioner’s decision be affirmed. United States District Court Judge
Joan N. Ericksen of the U.S. District Court for the District of Minnesota adopted the
MJ’s recommendation in full and granted the Commissioner’s motion for summary
judgment. Sunde appeals.

                                          -4-
       We review de novo the district court’s decision ruling that the SSA need not
honor the stipulated allocation of attorney’s fees. See Hensley v. Barnhart, 352 F.3d
353, 355 (8th Cir. 2003). We also review the Commissioner’s final decision, but do
so in a deferential manner, looking only to ensure that it was supported by substantial
evidence and free of legal error. See 42 U.S.C. § 405(g); Hensley, 352 F.3d at 355.

       Sunde argues that the plain language of 20 C.F.R. § 404.408(d) allows legal
expenses to be incurred either in the past or future and does not require fees to be
allocated in a time-specific manner. He claims his reading of § 404.408(d) is
supported by the Commissioner’s Program Operations Manual System (POMS)
sections DI 52001.535(4)(b) and 52001.555(H). We disagree. Neither the text of
§ 404.408(d) nor the POMS actually address whether Sunde may allocate legal fees
already paid to an illusory date.

      The Commissioner contends that her decision to reject the allocation of fees
under the stipulated agreement was supported by substantial evidence because Sunde
never produced proof that he paid attorney’s fees during the period claimed. We
agree; Sunde’s lack of evidentiary proof is fatal to his case. See 20 C.F.R.
§ 404.408(d) (stating “expenses not established by evidence required by the
Administration . . . will not be excluded”).

       The Commissioner further argues that she applied the correct legal standards
in rejecting the stipulated allocation of fees; accepting the allocation would have
contravened the purpose of the statute governing the federal offset, 42 U.S.C. § 424a,
which was created to prevent the duplication of benefits inherent in the overlap
between federal and state compensation programs for injured workers. We agree with
the Commissioner, and hold that her decision was consistent with the purposes
underlying section 42 U.S.C. § 424a. In rejecting Sunde’s stipulated allocation of
attorney’s fees, the Commissioner essentially construed § 404.408(d) to prohibit a
WC settlement stipulation from allocating paid legal expenses to a time period

                                         -5-
different from that in which the expenses were actually paid, where evidence
indicated the stipulation was designed solely for the purpose of circumventing the
federal offset provision. When this situation exists, we agree that the Commissioner
need not strictly honor the portion of the stipulation identifying the allocation period.1

       Several authorities provide an amalgam of support for our decision. First, the
SSA has already held that it maintains a policy “of not being bound by the terms of
a second, or amended, stipulation that would circumvent the workers’ compensation
offset provisions of section 224 of the Social Security Act.” Social Security Ruling
97-3, 62 Fed. Reg. 51923, 51924 (1997). The SSA evaluates “the terms of both the
original stipulations and the amendments to stipulations for settlements . . . in light
of the Federal statute and its underlying policy to avoid duplication of benefits.” Id.
at 51925. If the amended terms appear to be a sham created solely to circumvent the
federal offset, then the SSA disregards them. Id.

       Social Security Ruling 97-3 addressed a second (or amended) stipulation, but
the policy of refusing to be bound by the terms of a stipulation that provides an end-
run around the federal offset seems equally applicable to an original stipulation. We
see no basis for binding the SSA to the terms of an original stipulation that essentially
increases an individual’s maximum allowable DIB by creating an illusory payment
period for attorney’s fees. If Sunde did not have to pay a WC attorney from January 1
through November 19, then he was entitled to lower federal DIB than the stipulation
contemplated for that time period. We cannot allow social security recipients to
soften the effects of the federal offset by allocating the payment of attorney’s fees to
any date they wish.

      1
       This holding only applies to legal expenses “paid or incurred” and does not
apply to expenses yet “to be incurred.” 20 C.F.R. § 404.408(d). We express no
opinion on how future expenses not yet incurred may be allocated.

                                           -6-
       A holding that construes § 404.408(d) in a manner that hedges against
circumvention of the federal offset is in concert with Berger, supra. In Berger, the
parties to the WC settlement clearly intended to structure the settlement so that the
amount of the injured worker’s Social Security benefits would not be lowered by the
federal offset. See 200 F.3d at 1159-60. We held that a “bare intent to evade the
offset” was an insufficient basis upon which to bind the SSA to the terms of the
settlement. Id. at 1161. In Sunde’s case, evidence of a bare intent to evade the offset
is clear. The stipulation stated unequivocally that the “settlement [was] intended to
maximize the employee’s entitlement to Social Security disability benefits.”

      For the above reasons, Sunde’s appeal is denied and the district court’s
decision is AFFIRMED.
                    ______________________________

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