Court Opinion

ID: 9918875
Source: CourtListenerOpinion
Date Created: 2024-01-16 20:01:24.188492+00
Date Added: 2024-06-11T08:06:27.775211
License: Public Domain

FILED
                            NOT FOR PUBLICATION                                     JAN 16 2024
                                                                               SUSAN M. SPRAUL, CLERK
          UNITED STATES BANKRUPTCY APPELLATE PANEL                                U.S. BKCY. APP. PANEL
                                                                                  OF THE NINTH CIRCUIT

                    OF THE NINTH CIRCUIT

 In re:                                              BAP No. WW-23-1098-CBS
 DARRIN LENALD COOPER,
             Debtor.                                 Bk. No. 2:20-bk-11937-MLB

 DARRIN LENALD COOPER,
              Appellant,
 v.                                                  MEMORANDUM∗
 SOCIAL SECURITY ADMINISTRATION,
              Appellee.

               Appeal from the United States Bankruptcy Court
                   for the Western District of Washington
                Marc L. Barreca, Bankruptcy Judge, Presiding

Before: CORBIT, BRAND, and SPRAKER, Bankruptcy Judges.

                                    INTRODUCTION

      The Social Security Administration (the “Agency”) overpaid Darrin

Cooper (“Cooper”) disability insurance benefits. Subsequently, Cooper filed for

relief pursuant to chapter 7 1 of the Bankruptcy Code. After Cooper received a

discharge, the Agency proceeded to deduct the prepetition overpayment from

Cooper’s post-petition disability insurance benefits. Cooper reopened his

      ∗ This disposition is not appropriate for publication. Although it may be cited for

whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value,
see 9th Cir. BAP Rule 8024-1.
        1 Unless specified otherwise, all chapter and section references are to the Bankruptcy

Code, 11 U.S.C. §§ 101-1532.
                                                 1
bankruptcy case and moved to hold the Agency in contempt for violating the

discharge injunction by collecting the prepetition overpayment after entry of his

bankruptcy discharge. The bankruptcy court, in applying the equitable doctrine

of recoupment, denied Cooper’s motion and Cooper appealed. Because we

discern no error, we AFFIRM.

                                           FACTS

A.    Pre-bankruptcy events

      In 2007 Cooper was injured while he worked for Boeing Company.

Cooper began receiving workers’ compensation benefits through the

Washington State Department of Labor & Industries. Cooper received monthly

workers’ compensation benefits of $4,862.25 or more.

      In May 2017, Cooper applied to the Agency for Social Security Disability

Insurance Benefits (“SSDI”) 2 and Supplemental Security Income (“SSI”).

Cooper’s application summary indicated that Cooper had stated that he had

been unable to work since February 9, 2009, and that he had “filed or intend[ed]

to file for workers’ compensation . . . but [he was] not receiving benefits.”

Cooper’s 2017 SSDI application was denied.

      Cooper, with the assistance of counsel, appealed the denial decision. After

an administrative hearing, an administrative law judge (“ALJ”) issued Cooper a

fully favorable decision on April 30, 2019.

      2
        SSDI payments are part of the program that most people simply call “Social
Security,” which provides “old age,” survivors, and disability insurance benefits. 42 U.S.C.
§§ 401-434.
                                             2
       1.     Fully favorable decision

       In the decision, the ALJ found that Cooper had been disabled as defined

in 42 U.S.C. § 1382(a)(3)3 since December 1, 2014 (Cooper’s amended onset

disability date). The ALJ decision also informed Cooper that the Agency would

let Cooper know if he would receive SSI in addition to SSDI payments. The ALJ

decision warned Cooper that the “workers’ compensation offset provisions at

20 CFR 404.408 may be applicable.”

       2.     Workers’ compensation/public disability benefit questionnaire

       On May 1, 2019, after receiving his favorable SSDI decision, Cooper faxed

his responses to the Agency’s questionnaire regarding workers’ compensation

and public disability benefits to the Agency’s field office in Everett,

Washington. The questionnaire specifically requested information from Cooper

regarding any other disability payments he was receiving. Cooper disclosed he

was receiving workers’ compensation from the state of Washington and

attached a payment summary.

       Although it was the Agency’s field office in Everett, Washington that sent

the questionnaire and solicited the information, its Western Program Service

Center, in Richmond, California (“Western PSC”) was responsible for

       3
        The “Social Security Act” is codified at 42 U.S.C. §§ 301-1397mm. It has become a
sprawling statute and provides for a myriad of benefit programs. Title II of the Social
Security Act contains the provisions for “Federal Old-Age, Survivors, and Disability
Insurance Benefits.” For a list of the provisions of the Social Security Act, see the Table of
Contents to the Compilation of the Social Security Laws
https://www.ssa.gov/OP_Home/ssact/ssact-toc.htm (last accessed Jan. 12, 2024).
                                                 3
approving Cooper’s SSDI claim on May 3, 2019 (based on the ALJ’s fully

favorable decision).

      Unfortunately, because the Everett Office failed to correctly process

Cooper’s responses to the workers’ compensation/public disability benefit

questionnaire, the Western PSC did not know that Cooper was receiving

additional disability benefits. Consequently, the Western PSC calculated

Cooper’s SSDI benefits based on the erroneous belief that Cooper was not

receiving any other disability compensation.

      3.    Notice of Award and receipt of SSDI funds

      On May 10, 2019, the Agency informed Cooper that based on the ALJ’s

favorable SSDI decision, he was entitled to SSDI payments of approximately

$1,800 per month beginning May 2016. The notice stated that the Agency would

hold Cooper’s past due SSDI benefits, approximately $73,355.50 (representing

retroactive SSDI payments Cooper should have received May 2016 through

April 2019), pending a determination of whether Cooper had also received SSI

benefits during that time. The notice instructed that if he had also received SSI

benefits then his retroactive SSDI benefits would be reduced accordingly.

      The notice of award also informed Cooper that if he received workers’

compensation benefit payments, the Agency might have to reduce his SSDI. The

notice warned Cooper in bold text: “you may have to pay back any Social

Security benefits that you were not due. Please let us know the decision on the

[workers’ compensation] claim right away.”

      The Agency ultimately determined that Cooper did not get SSI money for

May 2016 through April 2019 and sent a notice of change in benefits. The notice
                                         4
informed Cooper that the Agency would be sending Cooper a check for

$67,355.50 representing his retroactive SSDI benefits for May 2016 through April

2019, less a $6,000 payment to his legal representative and Medicare premiums.

      In August 2019, the Agency sent Cooper the check for $67,355.50. At the

same time, Cooper began receiving monthly SSDI payments of approximately

$2,000.

B.    Cooper’s bankruptcy

      On July 21, 2020, Cooper filed a chapter 7 bankruptcy petition. 4 Cooper’s

Schedule I listed monthly social security payments of $1,999.00 and monthly

pension or retirement income of $925.5 Cooper did not list the Agency as a

creditor, and thus the Agency did not receive notice of Cooper’s bankruptcy

filing. After the chapter 7 trustee determined it was a no-asset case, Cooper

received a discharge on October 21, 2020, and the case was closed on October

30, 2020.

C.    Agency’s overpayment

      Subsequently, the Agency requested additional evidence related to

Cooper’s receipt of workers’ compensation. On December 26, 2020, Cooper

responded to the Agency’s “2nd Request for Evidence . . . Request for Workers’

      4
         We exercise our discretion to take judicial notice of documents electronically filed in
the bankruptcy court, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
       5 It appears that Cooper included his workers’ compensation payments under line 8g.

“pension or retirement income” which is understandable given that the payments were
referred to as pension payments in some documents. However, Cooper stated it was $925 per
month even though his workers’ compensation payments were always between $3,800-$4,500
per month.
                                                5
Compensation Information.” Cooper responded that he was receiving workers’

compensation payments. Cooper’s response included records showing that he

had been receiving workers’ compensation benefits through the Washington

State Department of Labor and Industries for a period that included at least

February 2016 through November 2020. Cooper also sent a notice of his

bankruptcy discharge with a note stating that “any funds I may owe Social

Security Adm. is [sic] included in the bankruptcy.”

      After processing the information about Cooper’s other disability benefit

payments, the Agency issued Cooper a notice of change in benefits dated

October 30, 2022. The notice explained that because Cooper received workers’

compensation payments from May 2016 through May 2019, the period during

which Cooper received both SSDI and unreduced workers’ compensation

benefits, the Agency had overpaid Cooper $73,112.90. The notice further

explained, “[w]e adjusted your past-due benefit amount due to your workers’

compensation payments. You or your representative did not provide proof of

your workers’ compensation when your claim was adjudicated. Therefore, you

. . . are overpaid.”

      Cooper was given the option to repay the overpayment, or the Agency

would recover the overpayment by withholding his benefit payments starting

in January 2023. Cooper was also notified he could: (i) request a waiver; (ii)

request the Agency withhold less than his full monthly benefit based on his

financial needs; and/or (iii) could appeal the Agency’s decision that he was

overpaid.

                                         6
     Cooper did not seek a waiver or appeal the Agency’s decision regarding

the overpayment. Instead, Cooper’s attorney moved to reopen Cooper’s

bankruptcy case and filed a motion for an order to show cause why the Agency

“should not be held in contempt for violating the automatic stay 11 U.S.C.

§ 362” (the “Motion”).

D.   Motion to hold Agency in contempt

     Although the Motion caption indicated that Cooper sought an order

finding the Agency in contempt for violating the automatic stay, the body of the

Motion argued that the Agency had violated the bankruptcy discharge

injunction “by continuing to recoup [Cooper’s] discharged pre-petition Social

Security overpayment from his current payments.”

     Cooper asserted that the overpayment was due to the Agency’s error in

failing to properly communicate between offices that he was also receiving state

workers’ compensation benefits because of his disability. Cooper explained that

he was unaware of the overpayment at the time he filed his bankruptcy and

thus, the Agency was not listed as a creditor. Cooper argued that “debts owed

to creditors in a no-asset Chapter 7 case are still discharged even when they are

not listed in a debtor’s schedules.” Cooper concluded that the overpayment

debt to the Agency was discharged regardless of whether the Agency had

notice of his bankruptcy. Cooper sought an order holding the Agency in

contempt for violating the discharge injunction by continuing to collect on a

discharged debt.

     In the Agency’s opposition to the Motion, it argued that “[e]quitable

recoupment is a well-recognized exception to both the discharge injunction and
                                        7
automatic stay that the Ninth Circuit has applied in closely analogous cases.”

The Agency argued that it was statutorily required to recover any overpayment

and Cooper’s legal entitlement to ongoing SSDI payments depended on

whether he had received any SSDI overpayments. The Agency concluded that it

had properly invoked equitable recoupment and its recovery of the

overpayment from Cooper’s continuing stream of SSDI payments did not

violate either the discharge injunction or automatic stay.

     After a hearing and supplemental briefing, the bankruptcy court provided

an oral ruling on May 10, 2023. The single issue was whether the Agency

properly invoked the equitable remedy of recoupment to recover the SSDI

overpayment from Cooper’s future SSDI payments. If recoupment was

authorized, the Agency’s withholding from Cooper’s post-petition SSDI

payments did not violate the discharge injunction.

     In its oral ruling, the bankruptcy court first explained that recoupment is

an equitable doctrine that, although not explicitly addressed in the Bankruptcy

Code, permits one party to recover an obligation from a second party because

the second party owes a countervailing obligation to the first party, so long as

both obligations arise out of the same “transaction or occurrence.” The

bankruptcy court noted that the Ninth Circuit applies a “logical relationship”

test when determining whether countervailing obligations arise from the same

transaction.

     The bankruptcy court next determined that regardless of fault, Cooper’s

“prepetition overpayment occurred regarding the same prepetition SSDI

entitlement as the post-bankruptcy SSDI entitlement payments the Agency
                                        8
seeks to recoup against.” Therefore, the bankruptcy court determined there was

a “very strong logical relationship,” between the prepetition SSDI overpayment

and the ongoing post-discharge SSDI payments.

      Based on its findings and conclusions, the bankruptcy court denied

Cooper’s Motion, determining that the “Agency’s recoupment of [Cooper’s]

prepetition overpayment is neither a violation of the discharge order or the

automatic stay, and therefore, not subject to civil contempt sanctions.” The

bankruptcy court entered an order memorializing its oral ruling.

      Cooper timely appealed.

                                  JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                      ISSUES

      Did the bankruptcy court err in allowing the Agency to apply equitable

recoupment to recover the overpayment?

      Was the application of recoupment equitable?

                           STANDARDS OF REVIEW

      When, as here, “the historical facts are established, the rule of law is

undisputed . . . and the issue is whether the facts satisfy the legal rule,” there is

a mixed question of law and fact. Murray v. Bammer (In re Bammer), 131 F.3d 788,

792 (9th Cir. 1997). In such situations we review mixed questions de novo. Id.;

Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997). De novo

means that we review a matter anew, as if no decision previously had been

rendered. Dawson v. Marshall, 561 F.3d 930, 933 (9th Cir. 2009).
                                          9
      However, because recoupment is an equitable doctrine and its use by the

bankruptcy court is permissive, we review the bankruptcy court’s decision to

apply recoupment for an abuse of discretion. Aalfs v. Wirum (In re Straightline

Invs., Inc.), 525 F.3d 870, 882 (9th Cir. 2008). A bankruptcy court abuses its

discretion if it applies the wrong legal standard or if “its application of the

correct legal standard to the facts was illogical, implausible, or without support

in inferences that may be drawn from the facts in the record.” USAA Fed. Sav.

Bank v. Thacker (In re Taylor), 599 F.3d 880, 887-88 (9th Cir. 2010).

                                   DISCUSSION

A.    Equitable Doctrine of Recoupment

      “Equitable recoupment is a common law doctrine that is not expressly

recognized in the Bankruptcy Code, but is preserved through judicial

decisions.” Aetna U.S. Healthcare, Inc. v. Madigan (In re Madigan), 270 B.R. 749,

753-54 (9th Cir BAP 2001); see also Reiter v. Cooper, 507 U.S. 258, 265 n.2 (1993)

(“It is well settled . . . that a bankruptcy defendant can meet a plaintiff-debtor’s

claim with a counterclaim arising out of the same transaction, at least to the

extent that the defendant merely seeks recoupment.”).

      As it applies in bankruptcy law, the equitable doctrine of recoupment

allows a creditor to withhold funds owed to the debtor to offset a claim that

arises from the same transaction as the debtor’s claim, without reliance on, or

limited by, the setoff provisions of § 553. See Gardens Reg’l Hosp. & Med. Ctr.

Liquidating Tr. v. Cal. (In re Gardens Reg'l Hosp. & Med. Ctr., Inc.), 975 F.3d 926,

933 (9th Cir. 2020). Because recoupment only reduces a debt, rather than

constituting an independent basis for a debt, there is no claim against estate
                                          10
property, and recoupment is not subject to the automatic stay or the discharge

injunction. In re Madigan, 270 B.R. at 754; Oregon v. Harmon (In re Harmon), 188

B.R. 421, 425 (9th Cir. BAP 1995). Furthermore, because recoupment allows the

creditor to use the discharged debt defensively, despite the discharge

injunction, the doctrine essentially allows a creditor to recover a prepetition

debt out of payments owed to the debtor post-petition. See Newbery Corp. v.

Fireman’s Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir. 1996).

      However, the “‘limitation of recoupment that balances [these]

advantage[s]’ under bankruptcy law ‘is that the claims or rights giving rise to

recoupment must arise from the same transaction or occurrence that gave rise

to the liability sought to be enforced by the bankruptcy estate.’” In re Gardens

Reg'l Hosp. & Med. Ctr., Inc., 975 F.3d at 934 (quoting Sims v. U.S. Dep’t of Health

& Human Servs. (In re TLC Hosps., Inc.), 224 F.3d 1008, 1011 (9th Cir. 2000))

(emphasis in original). The term “transaction” is given a liberal and flexible

construction, and may comprehend a series of many occurrences, “depending

not so much upon the immediateness of their connection as upon their logical

relationship.” In re Madigan, 270 B.R. at 755 (citing Moore v. N.Y. Cotton Exch.,

270 U.S. 593, 610 (1926)).

      To determine whether the “same transaction” requirement of recoupment

is satisfied, the Ninth Circuit instructs bankruptcy courts to apply the “logical

relationship test.” See In re TLC Hosps., Inc., 224 F.3d at 1012; Newbery Corp., 95

F.3d at 1403. This “logical relationship test” asks whether the creditor’s claim

arises out of the same aggregate set of operative facts as the debtor’s claim. In re

Madigan, 270 B.R. at 755 (citing Pinkstaff v. United States (In re Pinkstaff), 974 F.2d
                                          11
113, 115 (9th Cir. 1992)). As stated in In re Gardens Reg'l Hosp. & Med. Ctr., Inc.,

975 F.3d at 934, the “test remains whether the relevant rights being asserted

against the debtor are sufficiently logically connected to the debtor’s

countervailing obligations such that they may be fairly said to constitute part of

the same transaction.” (Citation omitted).

B.    The logical relationship test

      In applying the logical relationship test in equitable recoupment cases,

“courts have permitted a variety of obligations to be recouped against each

other, requiring only that the obligations be sufficiently interconnected so that it

would be unjust to insist that one party fulfill its obligation without requiring

the same of the other party.” In re Madigan, 270 B.R. at 755. Although no Ninth

Circuit cases are directly on point, the Ninth Circuit has held the doctrine of

equitable recoupment applied in similar cases including the overpayments of

both federal6 and state Medicaid, 7 and state retirement benefits. 8

      For example, a BAP panel held that a state pension provider’s recoupment

of its overpayment from the debtor’s ongoing pension payments did not violate

the automatic stay. In re Williamson, 2018 WL 4926430, at *3. Similar to this case,

the debtor received an overpayment of benefits prepetition and the creditor

attempted to recoup the prepetition overpayment by reducing debtor’s on-

going post-petition payments. Id. at *2. The BAP panel agreed with the

      6
        In re TLC Hosps., Inc., 224 F.3d at 1012-1015.
      7
        In re Gardens Reg’l Hosp. & Med. Ctr., Inc., 975 F.3d at 937-940.
       8Williamson v. PARS (In re Williamson), BAP No. CC-17-1375-LSF, 2018 WL 4926430 (9th

Cir. BAP Oct. 10, 2018), aff’d, 795 F. App’x 537 (9th Cir. 2020).
                                                12
bankruptcy court’s determination that the “logical relationship test was met

because the . . . [overpayment] and the benefits owed [to debtor] arose from the

same set of operative facts.” Id. at *3.

      The Ninth Circuit affirmed, holding that “the party seeking recoupment

‘may recoup its overpayments by applying them against its post-petition

underpayment liabilities to [debtor], without being affected by the automatic

stay.’” In re Williamson, 795 F. App’x at 538 (quoting In re TLC Hosps. Inc., 224

F.3d at 1014).

      However, in another case involving the overpayment of disability

benefits, a BAP panel found the facts did not satisfy the logical relationship test,

and the creditor could not use recoupment to recover the overpayment from

debtor’s post-petition disability payments. See In re Madigan, 270 B.R. at 761.

      In Madigan, the debtor was employed by a company that participated in a

long-term disability (“LTD”) program administered by a private disability

benefit insurer. 270 B.R. at 751-52. The debtor applied for and began receiving

LTD. The insurer later determined it had overpaid debtor because debtor was

also receiving Social Security benefits. Id. at 752. The debtor declined the

insurer’s demand to repay the overpayment. Id. Soon thereafter debtor returned

to work and filed a chapter 7 petition that listed the insurer as an unsecured

creditor. Id. The debtor subsequently received a discharge and his no-asset

bankruptcy case was closed. Id.

      After working for a couple of years, the debtor applied a second time for

LTD. Id. The debtor was approved for benefits, but the insurer “informed the

debtor that it would continue to adjust future benefits to recover the . . .
                                           13
prepetition” overpayment. Id. In other words, the overpayment occurred during

the first disability period, but the creditor attempted to recoup the overpayment

by reducing debtor’s disability payments during the second disability period.

Id. Debtor reopened his bankruptcy case and argued that the insurer’s reduction

in his payments had violated the discharge injunction. Id.

      The bankruptcy court agreed. Id. at 753. It determined that regardless of

whether debtor’s disability was the same for both disability periods, “the

overpayment for the first disability claim was not ‘logically related’ to . . .

[insurer’s] reimbursement rights relative to the second disability claim, and

therefore the ‘same transaction’ requirement for equitable recoupment had not

been met.” Id. Accordingly, the bankruptcy court found that the insurer’s

withholding payments due in the second disability period to reduce the

overpayment made during the first disability period violated the discharge

injunction. Id.

      The BAP panel agreed finding the fact the debtor’s benefits and

overpayment arose from the same insurance policy was insufficient to establish

the necessary logical relationship. Id. at 756-57. The panel reasoned that the

overpayment and benefits were not part of the same transaction because the

debtor had two different reimbursement agreements, two disability periods,

and two claims separated by a two-year period of employment. Id. at 755-57.

The panel held that, under these facts, even if the claims for benefits arose from

the same injury or recurring illness, the two disability periods were not logically

related because “the operative facts for the first disability claim were separate

and distinct from those for the second claim.” Id. at 760. Accordingly, the panel
                                          14
affirmed the bankruptcy court’s application of the logical relationship test to

deny recoupment. Id. at 760-61.

C.    The application of the logical relationship test

      Cooper argues that the bankruptcy court erred in applying recoupment

because “the Agency cannot show that its pursuit of the $73,112.90 pre-filing

overpayment arises from the same transaction or occurrence.” Cooper asserts

that his on-going entitlement to SSDI payments requires periodic renewed

findings by the Agency that he is disabled. Therefore, his current entitlement to

SSDI did not arise from the same transaction or occurrence as the overpayment.

We disagree.

      Unlike the debtor in Madigan, no facts suggest that Cooper’s disability

payments arose from multiple disability periods. Indeed, Cooper has not stated

that an intervening period of time existed in which he returned to work and

was no longer considered disabled. Nor has Cooper stated that he had one

disability at the time of the overpayment but now has a different disability.

Rather, the record indicates that Cooper has suffered from the same disability

since his entitlement to his first SSDI payment. Although Cooper may have to

furnish the Agency with periodic updates as to his disability status, the

bankruptcy court did not clearly err in determining that this requirement did

not sever the logical relationship between the SSDI overpayment and his

current right to on-going SSDI payments.

      Consequently, the Agency’s obligation to pay Cooper SSDI and Cooper’s

debt for prior overpayments “logically relate to one another as they both arise

from the same aggregate set of operative facts.” In re Williamson, 795 F. App'x at
                                        15
538 (internal quotation marks, citation, and alteration omitted); see also In re

Harmon, 188 B.R. at 426.

      Furthermore, a legal relationship exists between the overpayment and

Cooper’s continuing SSDI payments. Applicable to this case, the Social Security

Act provides that if a person who has worked long enough, has paid taxes into

the system, and is “under a disability,” the person “shall be entitled to a

disability insurance benefit (i) for each month beginning with the first month

after his waiting period . . . in which he becomes so entitled to such insurance

benefits[.]” 42 U.S.C. § 423(a)(I)(E). The Social Security Act also provides that,

when a recipient has been overpaid benefits, “recovery shall be made” by

decreasing the benefit payments to which that person may be entitled. 42 U.S.C.

§ 404(a). An overpayment occurs when “an individual has received

more . . . than the correct payment due under title II of the Act.” 20 C.F.R.

§ 404.501(a).

      Thus, Cooper’s right to continued SSDI payments and the Agency’s

obligation to recover any SSDI overpayments to Cooper stem from the same

statutory scheme and common fund.

      Accordingly, based on the factual and legal logical relationship, the

bankruptcy court did not err in finding that the Agency could recoup its

prepetition SSDI overpayment by reducing Cooper’s ongoing post-petition

SSDI payments without violating the discharge injunction.

D.    The application of recoupment was equitable.

      Equitable recoupment is permissible only where mutual debts arise from

“the same transaction,” and where “it would . . . be inequitable for the debtor to
                                         16
enjoy the benefits of that transaction without meeting its obligations.” See

Newbery Corp., 95 F.3d at 1399, 1403 (citations omitted). Cooper argues at length

that the Panel should find the bankruptcy court erred in applying recoupment

because it is inequitable to make him pay for the Agency’s mistake.

Furthermore, Cooper argues that it would not offend equitable principles if he

retained the overpayment.

      Although Cooper’s equity argument resonates, we are bound by contrary

Ninth Circuit law and by Cooper’s failure to utilize the remedies afforded by

the Social Security Act.

      As discussed above, the Social Security Act requires the Agency to recover

an overpayment. 42 U.S.C. § 404(a)(1)(A). However, the statute explains that

recovery of the overpayment may be partially or completely waived if the

payee establishes that: (1) he is “without fault” for the overpayment, and (2)

recovery would either (a) defeat the purpose of the Act or (b) be against equity

and good conscience. 42 U.S.C. § 404(b); 20 C.F.R. § 404.506(a). Recovery of an

overpayment defeats the purpose of the Act if it would “deprive a person of

income required for ordinary and necessary living expenses.” 20 C.F.R.

§ 404.508(a).

      In this case, Cooper could have, but did not, appeal the overpayment

ruling. An appeal of the overpayment ruling would have been the appropriate

forum for Cooper to make some of the arguments he makes before this Panel

(i.e., that he needs the SSDI payments to meet current ordinary and necessary

living expenses). The issue before the bankruptcy court was not whether the

                                        17
overpayment should be recovered, it was solely whether the Agency properly

utilized the equitable remedy of recoupment.

       Accordingly, the bankruptcy court and this Panel are obligated to follow

Ninth Circuit precedent unless that precedent was overturned by the Supreme

Court. Deitz v. Ford (In re Deitz), 469 B.R. 11, 22 (9th Cir. BAP 2012) (citing United

States v. Martinez-Rodriguez, 472 F.3d 1087, 1093 (9th Cir. 2007)). As discussed

above, equitable recoupment is an established doctrine in the Ninth Circuit, and

if the logical relationship test is met, equitable recoupment does not violate the

discharge injunction.

       Cooper’s reliance on the Third Circuit’s holding in Lee v. Schweiker, 739

F.2d 870 (3d Cir. 1984) is unavailing. Cooper argues that the Panel should

follow Lee’s holding and determine that “social welfare payments . . . are

‘statutory entitlements’ rather than contractual rights” and that recoupment,

despite its utility in the context of contract disputes, is not suitable in the context

of social entitlements. Lee, 739 F.2d at 875-76. The Ninth Circuit has previously

considered and rejected the reasoning in Lee because the Third Circuit does not

apply the logical relationship test–it applies a narrower interpretation to the

term “same transaction” than that utilized in the Ninth Circuit. Newbery Corp.,

95 F.3d at 1403; In re Madigan, 270 B.R. at 755-56. In the Ninth Circuit,

recoupment is not limited to the contractual context. In re Madigan, 270 B.R. at

758.

       Cooper also argues that the bankruptcy court failed to properly consider

the equity in allowing the Agency to apply recoupment. However, this

argument is belied by the record. The record reveals that the bankruptcy court
                                          18
held an evidentiary hearing at which both parties had the opportunity to testify.

The bankruptcy court then solicited additional briefing. Thus, the parties had

the opportunity to fully present their evidence and argument, including

arguments regarding equity. In its oral ruling, after determining that the

elements of recoupment were satisfied, the bankruptcy court acknowledged the

hardship recoupment might create, and encouraged the Agency to exercise

fairness. Although Cooper may receive less income from the SSDI payments

than he would have received had the Agency not paid that income prematurely,

the reduced future payments are a function of what Cooper has been paid

subject to adjustment to reflect accurately the amount and timing of payments

he is due. The bankruptcy court properly considered the equities. Based on the

record, we cannot find the application of the equitable doctrine of recoupment

was an abuse of discretion. 9

                                     CONCLUSION

      For the reasons stated above, we AFFIRM.

      9
        We caution the parties that we (and the bankruptcy court) only determined that
recoupment is appropriate under the facts of this case. Importantly, the Agency is recouping
the overpayment of SSDI solely from Cooper’s ongoing SSDI payments. Although the Social
Security Act may give the Agency authority to cross-recover the overpayment by charging
against another type of social security benefit to which Cooper may receive, such as SSI or
old age benefits, this decision is not so broad as to approve such a charge.
                                                19