SULLIVAN v. EVERHART

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ORAL ARGUMENT OF AMY L. WAX, ESQ. ON BEHALF OF PETITIONERS

Chief Justice Rehnquist: We'll hear arguments first this morning in No. 88-1323, Louis W. Sullivan, Secretary of Health and Human Services versus Sandra Everhart.

Ms. Wax.

Mr. Wax: Thank you.

Mr. Chief Justice, and may it please the Court:

This case concerns the validity of longstanding regulations known as the netting regulations that set forth a method for correcting errors in the amount of benefits paid under two Social Security Act programs, the Title II Retirement and Disability Insurance Program, and the Title XVI Supplemental Security Income Program.

The regulations authorize the Secretary of Health and Human Services to add together or net multiple past errors in the amount of benefits paid to an individual up to the time that the Secretary discovers that an error has been made.

If that calculation reveals a net underpayment, then under the pertinent statutory provisions, the Secretary pays that amount to the beneficiary.

If netting reveals a net overpayment, then, before collecting the overpayment from the beneficiary by reducing forthcoming benefits or demanding a refund, the Secretary must consider whether a waiver of recovery is appropriate.

The Tenth Circuit struck down these regulations as contrary to the provisions of the Social Security Act that they implement.

This Court should reverse that ruling.

The netting method has been in use for decades.

It provides a simple, fair, and common sense way to settle accounts, one that is familiar from a wide variety of contexts.

Most important, the calculation of the single net error is fully consistent with Congress' intent in creating the payment correction provisions and providing for a waiver of recovery in certain limited circumstances.

Netting guarantees in every case that the government may never reduce a person's forthcoming benefit payments or demand an out-of-pocket refund without providing an opportunity for a waiver.

The netting regulation responds to Congress' evident concern to ensure that no one who was without fault in causing the overpayment will be deprived of the resources needed to pay for the basic necessities of life by the Secretary's act of retrieving the overpayment.

Netting also guarantees that an unfortunate past mistake will not become the occasion for the infliction of future hardship on beneficiaries who are without fault.

Unidentified Justice: Ms. Wax, one of the amicus briefs says that once the Secretary detects an overpayment that it sometimes holds... the government sometimes holds the netting period open and purposely underpays the recipient until it can net out the overpayment in order to take advantage of this netting regulation.

Do you know of any instances in which that may have occurred?

Mr. Wax: Your Honor, we are not aware of any instances in which the agency intentionally held open the netting period in order to take advantage of some subsequent underpayment errors that may have occurred.

There are a few instances mentioned in this litigation where the Secretary has been... perhaps we should say tardy... in taking action on overpayments of which he was aware.

Unidentified Justice: Do you think it would be a violation of the regulations if the Secretary were to do what amicus says is done sometimes?

Mr. Wax: Well, I think it might be... I'm not sure which regulation it would violate for the Secretary to do that because there is no regulation that sets forth a time limit between detection or suspicion of an overpayment and what we call determination of an overpayment.

But our policy and our practice, which we feel is entitled to a presumption of regularity, is to take no more time than is necessary between the time that the Secretary first becomes aware of an error and actually resolves that error to the point where he's in the position to demand overpayment.

Unidentified Justice: But there is no regulation requiring prompt action.

What recourse would a recipient have faced with this sort of problem?

Mr. Wax: Your Honor, respectfully, we don't think that a class action that facially challenges the validity of our netting regulation as inconsistent with the statute would be the vehicle in which to challenge what an individual recipient perceives is tardiness, or to the point of arbitrary and capricious tardiness, in resolving their overpayment.

We think that the proper recourse is an individual lawsuit where the Secretary can defend himself.

Unidentified Justice: Ms. Wax, I assume that tardiness, that just waiting, is not a very intelligent policy for the Secretary.

I mean, he can't use it intentionally to do harm unless he's sure that there will be a future... a future underpayment.

And presumably it does violate a regulation intentionally to make an underpayment.

Or, doesn't it?

Indeed, it violates the statute, does it not?

Mr. Wax: Well--

Unidentified Justice: What I am saying is that the Secretary cannot consciously and maliciously use delay because he doesn't know whether he's going to make a future underpayment or not.

Or, does he?

Mr. Wax: --The... well, we think that it would be arbitrary for the Secretary to do that.

Unidentified Justice: To do what?

Mr. Wax: To deliberately sit on an overpayment.

Unidentified Justice: Regardless of whether it would be arbitrary.

I'm saying whether it's arbitrary or not, it's not very intelligent--

Mr. Wax: That's the--

Unidentified Justice: --because the Secretary doesn't know that he's going to make a future underpayment and he's just sitting around failing to collect the overpayment on the speculation that there will be a future underpayment, unless you assume that he can consciously make a future underpayment in order to work the system.

He can't do that, can he?

Well, of course, that's... that's exactly the allegation that's made by amicus.

Precisely that.

Well, then your answer to that is that there is a law against his making future underpayments.

Is there not or is there not?

Mr. Wax: --There is a law against his making future underpayments deliberately, yes.

That would violate the provisions of the statute that set the substantive level.

Unidentified Justice: He violates the law if he does it negligently.

He has to make up the underpayment.

He's violated the statute.

He owes somebody something.

Mr. Wax: That's correct.

To the extent that the statute says that whenever he determines that an error has been made, then he shall make it up.

And to the extent that that would imply the duty to make it up in a timely fashion and not to use it to manipulate the situation, we agree.

But Justice Scalia's point is well worth noting.

The Secretary... it would be a very inefficient way to collect underpayments to sort of sit around waiting for overpayment... oh, excuse me, for underpayments to accrue that he can put together with those overpayments.

The fact is that most people do pay back their overpayments.

The vast majority of overpayments can be collected by the Secretary in a fairly prompt manner.

So it would not be in the Secretary's interest to delay processing those overpayments on the speculation that underpayments might crop up later that he could net with them.

And we make that point in our reply brief.

We just... we have no incentive.

The incentive structure would not lead us to do that and we don't do that.

This case is controlled by the principles set forth in Chevron v. NRDC.

The netting regulations deserve substantial deference and should be upheld unless they are arbitrary, capricious or manifestly contrary to the statute.

Respondents contend, as they must to prevail in this case, that the regulations cannot possibly be reconciled with the payment correction provisions.

But, in fact, the very opposite is true.

The language and history of these provisions and their evolution reveal a clear congressional intent to permit the aggregation of past errors rather than just the consideration of each monthly error in isolation and to mandate a waiver procedure only in the case where the Secretary attempts prospective means of recovery... that is, the reduction in forthcoming benefits or the demand for a refund.

In challenging the netting practice, respondents focus on the waiver of recovery provision, which places limits on the Secretary's authority to collect overpayments.

The Title II waiver provision provides that there shall be no adjustment or recovery from any person who is without fault where such adjustment or recovery would defeat the purpose of the statute or would be against equity and good conscience.

In a nutshell, respondents claim that netting, which necessarily entails the setting off of overpayment errors in some past months against underpayment errors in other past months, is a form of adjustment or recovery within the meaning of the waiver provision.

Therefore, they contend, the Secretary must consider waiver before netting, and the Secretary must decide whether to waive the total amount of overpayments considered separate and apart from any underpayments that may have occurred before netting them together.

And, under this Court's decision in Califano v. Yamasaki, that means a face-to-face hearing.

But the statutory language and history reveal that the terms adjustment and recovery were never intended to refer to retroactive setoffs but, rather, to prospective recruitment methods.

That is, the reduction in forthcoming benefits or an out-of-pocket refund.

And the waiver provisions were intended to provide procedural protections in just the cases where the Secretary attempts to use those methods to retrieve the money that's mistakenly paid out.

Unidentified Justice: If "adjustment" and "recovery" in the statute don't include netting, then where does the Secretary get his authority for the netting regulation?

Mr. Wax: Well, there are two sources of authority for netting, that is, setting off past overpayments and underpayments.

The first is what we call the determination clause or the determination provision of the payment correction provisions.

The statute says that whenever the Secretary determines that more or less than the correct amount of payment has been made or benefits have been paid, then under regulations prescribed by the Secretary, he shall make adjustment or recovery.

And we interpret the "authority" to determine whether more or less than the correct amount of payment has been made as implicitly delegating to the Secretary the prerogative to decide over what past period he shall determine whether more or less has been paid.

And that includes the authority to decide whether more or less has been paid up to the point when he makes the determination... that is, over the entire past period.

Second, there is a common-law right of administrative or equitable setoff which this Court has recognized in numerous cases, cases that are cited in our reply brief, including Gratiot versus United States, Burchard versus United States, Wisconsin Central Railroad, and a long line of cases in which this Court has said that the government may apply assets belonging to the debtor that are in its hands against debts owed to the government.

It need not pay out those amounts and then attempt to get them back.

We construe that as a sort of background authority to do a setoff in any type... an authority that needs to be--

Unidentified Justice: Yes, but... may I just interrupt you.

Do you think that common-law authority survives the statutory provision that no adjustment shall be made without providing for the... you know, of an overpayment unless you have the opportunity to forgive part of it?

How does the common-law survive that statutory enactment?

Mr. Wax: --Well, we think it survives for two reasons.

First of all, as this Court has noted in the cases I've just mentioned, because there is such a strong presumption that the government can do common-law setoff, there needs to be a very explicit congressional expression of intent to limit that right or cut it off.

Unidentified Justice: What could be more explicit than no adjustment shall be made if it would defeat the purpose of the subchapter and so forth?

Mr. Wax: Well, we think that--

Unidentified Justice: That's pretty explicit.

Mr. Wax: --when those terms are looked at in their statutory context, that they do not have the expansive meaning... that is, the meaning that encompasses retroactive setoff... they have a narrower meaning.

We don't think that those terms have a plain meaning and we think that if we look at the 1935 statute, the '39 statute, the way that these provisions have evolved, it becomes clear that Congress never intended those terms to refer to retroactive setoffs.

Unidentified Justice: Well, let me just ask then, is it your position that at the time an underpayment is made and it's identified, the government can always look back as far as it can to see whether there is any past overpayment and always set it off regardless of whether equity or good conscience would justify it?

They could do it deliberately in every case.

Mr. Wax: That is correct, your Honor.

Unidentified Justice: Yeah.

Mr. Wax: The Secretary is allowed to look backward from... not from the time that the underpayment was made, but from the time when he determines--

Unidentified Justice: Right, I understand.

Mr. Wax: --that the underpayment is made.

Yes.

Unidentified Justice: And to follow-up on Justice Steven's question, in your view, that would never result in a recoupment that was against equity or good conscience?

Mr. Wax: Let's put this way--

Unidentified Justice: Well, can we put it my way?

[Laughter]

Mr. Wax: --We think that the Secretary is entitled to decide... to come up with a threshold criterion to decide when the equity in good conscience inquiry should take place.

Just to be more concrete about that, if an individual has in their past payment record an underpayment and a counterbalancing overpayment, they are in a very different position from someone who just has a pure overpayment because the person who has both kinds of errors can always satisfy his debt to the government by extinguishing the government's debt to him.

He can do it with essentially a paper transaction.

Whereas, the person who has a pure overpayment cannot do it with a paper transaction.

He has to either risk his present and future benefits, suffer a garnishment of those benefits, or he has to reach into his pocket and transfer cash to the government.

Unidentified Justice: Well, again, I think the respondent is correct in saying that you basically have a per se rule that netting can never result in a recoupment that's against equity or good conscience.

Mr. Wax: Well, as a general matter it's more likely that the obligation to repay a net overpayment will be inequitable--

Unidentified Justice: Well, but the whole scheme of the statute is that we don't look at it as a general matter.

We look at it on a case-by-case basis.

Mr. Wax: --Well, this Court has said in cases such as Bowen v. Yuckert and Heckler v. Campbell that even where a statute requires an individualized determination that the Secretary can make threshold rules which weed out individuals that in his judgment generally will not meet the statutory requirements.

And the Secretary has a lot of discretion to decide when recovery would be inequitable.

Those are broad terms that the Secretary necessarily must give content to.

Unidentified Justice: But you've given content to them in this case by a per se rule that there can never be a recoupment that's against equity or good conscience whenever there is netting.

Isn't that correct?

Mr. Wax: Yes, essentially we have because we have made a reasonable distinction, which we believe is reasonable, between individuals who have mixed errors and can satisfy their debt simply by erasing two numbers on two sides of a ledger and individuals who have to suffer some deprivation in the present to pay back the money.

We think that that is the sort of distinction that the Secretary is entitled to make in implementing this statute and in giving content to the terms "equity" and "good conscience" which are very broad general terms in light of the overall purpose of the statute.

Unidentified Justice: I don't understand the government's position.

I thought the government was saying that it is only required to consider equity and good conscience by the statute after the netting.

Now you are saying... which seems to me quite different and a proposition I find quite difficult to grasp... that that's not it.

But, rather, what the government says is that there is no violation of equity and good conscience so long as you're netting.

In other words, the statutory provision governs but you are just adopting a general rule that will comply with the statutory provision.

Now, which is it?

Mr. Wax: Well, it's both in a way.

We certainly are saying that the statute does not require us to even go into that inquiry--

Unidentified Justice: All right, so--

Mr. Wax: --until netting is finished.

Unidentified Justice: --that's what I understood you to--

Mr. Wax: But in order to lend weight... in order to show why that's reasonable, given... if we give that the statute maybe isn't entirely clear--

Unidentified Justice: --Statutes don't have to be reasonable.

I mean, if that's what you think Congress was driving at... if you think Congress made the determination we're only worried about people who have to cough up money or who have to make a reduction of future payments, it seems to me that's all you'd have to worry about.

Do you have to prove that that is reasonable as well?

Mr. Wax: --Well, we're really arguing in the alternative here.

We're saying that Congress was quite clear.

We feel that Congress wrote a statute that was very clear in which it set a floor that we only need to consider fault equity and the purposes of the statute after we finish netting.

Absolutely, that's our position.

Unidentified Justice: What you're saying, in other words, is that even if it's clear to everyone who is interested in the problem that it would be against equity and good conscience not to allow the recoupment... but not to allow the person to keep the overpayment... nevertheless, it's not an adjustment within the meaning of the statute.

So we don't care about equity and good conscience with what may have happened prior to the time you decided whether or not to adjust.

Mr. Wax: That's correct.

Unidentified Justice: Yeah.

Mr. Wax: Our position is that such a retroactive setoff is not adjustment.

Unidentified Justice: It is not an adjustment?

Mr. Wax: It is not an adjustment.

It's not recovery.

And that is the... those are the meanings that--

Unidentified Justice: And it's perfectly fair because you're sure that the recipient of the allowance has plenty of money to offset?

There are never cases in which the person is at a minimum subsistence level and there really is a hardship working out of this?

Mr. Wax: --Right.

A person who faces an offset... their current benefits, the amount of money they have on hand today... is never at risk because they can satisfy their debt to the government by extinguishing the government's debt to them.

Unidentified Justice: Have you ever heard of credit?

I mean, some of these people may have committed, you know, future outlays in anticipation that they're going to have more money coming in in the future.

I think it's a very hard burden to bear if the Secretary is trying to persuade us that this will never result in a situation that's going to impose something of a hardship on the person who has to have the setoff.

Mr. Wax: Well, your Honor, as you've said, we don't get to the hardship determination until we finish netting.

So, that partly solves the problem.

But in terms of an individual who has been underpaid perhaps getting themselves into a very bad situation which simple reimbursement of the amount might not compensate for... if a person has a pure underpayment error, there is no provision in the statute for overcompensation of that person.

That person may go into debt, they may incur expenses because they weren't paid timely and yet the statute simply provides that they will get back the amount that they're entitled to... not that they will be deliberately paid more than they're entitled to, which is what would happen if there was a waiver of an underpayment... excuse me... an overpayment considered separately.

So, in that sense, we think that it's fair and it comports--

Unidentified Justice: But except that the overpayment by hypothesis will have occurred sometime in the past.

I mean, isn't that true?

Mr. Wax: --Well, sometimes.

Unidentified Justice: I mean, whenever the... whenever the recipient is objecting to not getting enough today and the answer is, well, you were overpaid three years ago, there always... what happened is something that's long in the past for people who normally don't save that money for long periods of time.

Mr. Wax: It's correct that that is the hard case, Justice Stevens.

Unidentified Justice: Well, isn't that the typical case?

Mr. Wax: Well, we don't think it's the typical case.

The typical case is really more like the cases represented by the named plaintiffs and intervenors who had their underpayments and overpayments bunched up and sometimes overlapping in a fairly contracted period.

That scenario that you described doesn't come up all that often.

But the fact remains that even in that situation the person has gotten the money they're entitled to and, when they have to repay the government, they can do it by applying the underpayment to their overpayment; they don't have to pay out of pocket.

I'd like to reserve the remainder of my time for rebuttal.

Unidentified Justice: Thank you, Ms. Wax.

Ms. Olson, we'll hear now from you.

ORAL ARGUMENT OF LINDA J. OLSON, ESQ. ON BEHALF OF RESPONDENTS

Mr. Olson: Mr. Chief Justice and may it please the Court:

At issue in this case is an analysis of the waiver statute, 42 U.S.C. Section 404(b), and the manner in which the Secretary's netting policy abrogates the equitable protections provided by that statute.

Today I would like to focus on these three main issues: the plain language and intent of the waiver statute, the fact that netting is a form of adjustment in recovery and therefore specifically limited by the waiver statute, and the fact that the enforcement of the lower court's order would not be unduly burdensome.

The waiver statute language is clear, unambiguous and mandatory.

It states that in any overpayment case there shall be no adjustment or recovery from any blameless person if such recovery would cause hardship or inequity.

This broad language protects any overpaid person.

It does not exclude overpaid people with underpayments.

Unidentified Justice: Excuse me.

Does it use the word hardship or are you saying against equity and good conscience?

Mr. Olson: Yes.

I am interpreting against... that would violate the--

Unidentified Justice: Well, if... we're talking about the clear language of the statute as against equity and good conscience?

Mr. Olson: --That's right.

Unidentified Justice: All right.

Mr. Olson: Or would defeat the purposes of the Act.

That has been determined to mean would deprive a person of income needed for ordinary and necessary living expenses.

And that would be the hardship aspect of waiver.

You have to prove both, that the overpayment was not your fault and either that it would defeat the purposes of the Act to collect it, which means cause a financial hardship, or that it would be inequitable to collect it.

Unidentified Justice: Is the term "hardship" used in one of the regulations?

Mr. Olson: No.

I'm paraphrasing that it... the intent of--

Unidentified Justice: All right.

Mr. Olson: --violate the purpose of the Act.

Unidentified Justice: When you say it has been interpreted to mean, you mean by the agency?

Mr. Olson: By... by this Court and by the legislature in its legislative history... has indicated that it was to protect people from any sort of burdensome collection activity.

When Congress enacted the waiver provision in 1939, Congress was aware that there would be erroneous payments by the Secretary and sought to protect, in limited circumstances, individuals from recovery where such recovery would cause great financial hardship.

There is no evidence that Congress has ever sought to cut back on this broad equitable protection.

This Court interprets the--

Unidentified Justice: How long has the netting been going on?

Mr. Olson: --Well, the SSI regulations of the Title XVI regulation has been in effect since 1975.

The Secretary's brief indicates that it was going on in Title II sometime before then but we really don't know.

The only clear time for this Title II regulation is in 1981 when the ruling was enacted.

The Yamasaki case of 1979 clearly set out the fact that Congress in the plain language of the statute found that waiver should precede any sort of recovery, a waiver consideration.

It was a similar attempt by the Secretary to infringe on a beneficiary's entitlement to seek waiver of recovery.

And this Court found that recovery could not precede a waiver notice and hearing.

It's that very notice and hearing which the respondents' are seeking prior to any recovery through netting.

Unidentified Justice: Was the Court in Yamasaki dealing with this situation where you're talking about a setoff of previously received benefits?

Mr. Olson: The Court did not specifically address netting, although there is some indication that the named plaintiff was a netting victim.

But Yamasaki is applicable in that it did deal with a recovery prior to the institution of waiver rights.

It is our position that netting is a recovery and the plain language of 42 U.S.C. Section 404(a) which describes the collection procedures supports our position.

The Secretary has in fact conceded that if netting is an adjustment or recovery, he must provide waiver rights.

404(a) provides--

Unidentified Justice: Where has he conceded that?

Because I interpreted the argument this morning to contradict that.

There was an alternative argument made.

Mr. Olson: --Well, in page 22 of the brief in chief is where he makes that concession.

The plain language of 404(a)(1) provides whenever the Secretary finds that more or less than the correct amount of payment has been made to any person, proper adjustment or recovery shall be made under regulations prescribed.

Again, this broad language is used which says whenever the Secretary finds an incorrect payment and, furthermore, the words "adjustment and recovery" are broad terms which cover a variety of collection attempts which we would argue includes the netting procedure.

The adjective "proper" further indicates that collection only from individuals not eligible for waiver is allowed.

Again, this Court in the Yamasaki decision, indicated that the implication of that word is that recoupment from persons qualifying for waiver would not be proper.

And it's just such an improper recovery we contend that's at issue in this case.

The broad connotations of the words adjustment and recovery have been outlined in the brief and certainly should be interpreted to include netting.

Some of the cases cited by--

Unidentified Justice: Well, Ms. Olson, I guess the government takes the position that the statutory language that directs the Secretary to find whether more or less than the correct amount of payment was made is sufficiently general that it permits the Secretary to determine whether there has been a net overpayment or a net underpayment.

So, you don't get to the question of adjustment or recovery until that step has been taken.

Mr. Olson: --Yes, that is the Secretary's position, but there is no... there is no definition of the term "more or less" in the statute that would support such.

Unidentified Justice: Well, do you think then that some deference to the Secretary's definition is owing?

Mr. Olson: Not where the Secretary's definition directly contradicts the succeeding paragraph which just says that--

Unidentified Justice: Well, it doesn't contradict it if... if their reasoning is correct on their definition of determining whether more or less than the correct amount has been paid.

Mr. Olson: --Well, our reading of more or less would mean either that the statute is supposed to be distinguishing between overpayments, which would be more, or underpayments, which would be less.

And that differential treatment appears throughout this statute and it was one of the things that the Tenth Circuit relied on in striking down the statute.

That all Congress intended with that language was to say that if the Secretary finds that more than the correct amount of payment has been made, look to waiver, if less than the correct amount has been paid, pay the underpayment.

Another way of looking at more or less would be to say that the Secretary makes a monthly determination of the correct amount of payment and--

Unidentified Justice: Well, there is nothing in the statute that says it has to be done monthly, is there?

Mr. Olson: --Well, there are other provisions in the statute which refer to payments being made monthly, that the calculation of the correct amount of payment is determined on a monthly basis.

42 U.S.C. 402 and 423 both indicate that Title II is a monthly program, and 42 U.S.C. 1382(c)(1) also highlights the fact that SSI is a monthly program.

The reality is that that's how the Secretary conducts business.

That's how the Secretary does netting, is to first find out what the correct amount of payment is for the month.

After that, he proceeds to the second step, which is netting.

It's incorrect to argue that netting precedes that step because netting can't occur until first a monthly determination of error has been made and the amounts have been set off.

Unidentified Justice: Of course, Congress could have made that very... I mean, if Congress had that very clearly in mind, it could have just inserted the indefinite Article A.

I mean, it could have... whenever the Secretary finds that more or less than the correct amount of a payment has been made to any person.

And that's essentially what you are arguing, that payment must be read to mean a payment.

It didn't really say a payment, though.

It just says more or less than the correct amount of payment.

Mr. Olson: Yes, it doesn't say payments either, though.

So--

Unidentified Justice: Well, it doesn't say payments either.

That's fair.

So the government would say, well, that means it's ambiguous and the tie goes to the Secretary.

[Laughter]

Mr. Olson: --Well, we would again say that it's not at all ambiguous when read with... in the material with Subsection B.

When adjustment and recovery appear in both sections, it seems clear that the Secretary was limited specifically in any type of adjustment procedure.

The Secretary himself, in his own regulations, uses the words adjustment and recovery very broadly and uses them to refer to lump sum offsets.

Those are adjustments.

Increases in monthly benefits are adjustments.

His policy operations manual even describes the netting procedure as an adjustment.

There is a great deal of inconsistency with that position and then to claim that it's not mandated to be limited under the waiver statute.

Unidentified Justice: Yes, but it's clear that if the regulation is valid, what he's done in this case is valid.

Mr. Olson: Well, the regulation itself is poorly worded at best, I would say.

I think that if the regulation were left intact and interpreted to mean that waiver has to precede netting, that the respondents' position would be--

Unidentified Justice: I didn't know you were arguing for a different interpretation of the regulation.

I thought you were arguing that this is invalid.

Mr. Olson: --Well, we are.

The regulation is invalid on its face, it's our position.

But, again, the regulation itself doesn't clearly say that you can't have a waiver determination before netting, although that's clearly--

Unidentified Justice: I suppose, though, you would at least say that the Secretary's interpretation of his own regulation is entitled to some--

Mr. Olson: --Yes.

But the regulation could be... could be amended to clarify, as 416.543 does, that in different period netting situations, the Secretary does provide waiver rights.

There is really no reason why there should be this distinction between different period and same period netting, and we would submit that in all netting situations both Title II and Title XVI, a recipient should have the right to prove hardship.

The actual effect on the individual of the netting procedure is that it does create hardships for some individuals when the waiver statute is designed to prevent such inequity.

There is no question that when the Secretary netted Mr. Zweizen's $4,000 underpayment against his $9,000 overpayment that the Secretary recovered $4,000.

Mr. Zweizen has $4,000 less to meet his obligations.

He may be facing foreclosure; he may have $10,000 in medical bills.

He will never have an opportunity to prove his need for this underpayment, however, under the Secretary's netting system.

All the respondents are arguing is that Mr. Zweizen should have that opportunity to prove why such recovery is inequitable.

Unidentified Justice: --But you would say that... you would say that the Secretary isn't entitled.

Suppose he is about to make a monthly payment and he then discovers that last month's payment was an overpayment... what can he do about that?

Anything?

Mr. Olson: He, the Secretary, discovers that last month there was an overpayment?

Unidentified Justice: Yes.

Uh-huh.

Mr. Olson: Well, then... then he notifies the client, the beneficiary, that there has been an overpayment, asks the beneficiary if he wishes to request waiver or reconsideration of the overpayment.

Unidentified Justice: Then if there's been... and if he discovers that there's been an underpayment the month before and an overpayment in the month before that, you think he can't net?

Mr. Olson: That's right.

That's our position.

Not in the absence of... of the waiver opportunity.

Although the Secretary would argue that it's a rare occurrence that there are long netting periods, the facts of the named plaintiffs and some of the individuals named in the amicus brief belie that contention.

In fact, two of the named plaintiffs had seven-year netting periods.

Mr. Zenick had a five-year netting period.

Certainly if there is a very short netting period, if, as Justice White indicated, there's a few months involved, it's less likely that one could establish the inequitability of returning the money.

It's more likely that the overpayment is around or that the overpayment amount is relatively small.

But in lengthy netting periods, it's clear that the overpayment has long since been spent.

Unidentified Justice: But do we have any statistics as to the operation of the netting provision, as to whether most of the payments cover and the setoffs cover a long period of time or a short period of time?

Mr. Olson: No.

The Secretary really has no statistics as to how the netting policy works, how many people are affected by it precisely.

Unidentified Justice: Well, then do you think a facial' attack, such as you've made, is justified?

Mr. Olson: Well, I think that the language of the statute lends itself to the presumption that you can go back many years.

As Judge Gibbons found in the Lugo dissent, you could go... the Secretary could go back a quarter of a century and collect overpayments through netting.

There's no... there's no limitation on the regulation to prevent such a presumption.

Unidentified Justice: Yes, but might not the proper relief there be to something more determinative to that particular situation rather than just striking down a regulation which might only rarely reach that situation?

Mr. Olson: Well, there's no reason to believe, I think, that it is a rare situation.

In our experience, we have seen many individuals come in with long periods such as this.

The reality is, when the Secretary terminates someone's benefits, the Secretary knows that person has been overpaid.

A notice could go out that day, the same day as the termination notice.

But, for some reason, in situations such as Mr. Zenick, no overpayment notice goes out until years later when he's due a large underpayment.

There is no disincentive for such a lengthy netting period at this point, and that's one of our concerns.

Unidentified Justice: Why isn't there any disincentive?

Every year the Secretary is waiting... this fellow is using the Secretary's money.

And the Secretary isn't sure that there's going to be an underpayment.

He doesn't go out to make underpayments in the future, does he?

Mr. Olson: No.

We're not attributing a bad motive to the Secretary.

It is a huge system and people do--

Unidentified Justice: Right.

Mr. Olson: --get lost.

But if someone is a relatively poor individual who loses his benefits, the Secretary doesn't have many recourses to collect that money.

He can sue him, but that is very rarely done.

The easiest, most efficient way to get--

Unidentified Justice: Oh, I see what you're saying.

Mr. Olson: --the money back is to offset.

When the Secretary has the--

Unidentified Justice: You may be right.

The chances that there will be a mistake in the future, including an underpayment, are probably pretty good.

Mr. Olson: --Yes.

[Laughter]

Unidentified Justice: You may be right.

Mr. Olson: The Secretary's... the Secretary's position shows that we would argue as a patent disregard for some of the desperate financial straits in which some disabled and elderly people find themselves.

By presuming that an individual who is owed an underpayment has no need for his funds if he also has an overpayment, the Secretary does a great disservice to many individuals who do have obligations to meet.

If they have a large medical bill and the Secretary has netted their overpayment so that they cannot pay it with their underpayment, individuals will reduce their monthly income to make those payments.

So, contrary to the Secretary's representations, there will be a reduction in one's standard of living.

There will be economic insecurity because those debts which could have been paid with the underpayment will now be paid with their limited monthly income.

Congress did not intend such a result when it enacted the 404(a) and 404(b).

The Lugo court, which contradicts the Tenth Circuit's decision, made a number of misassumptions.

It indicated that it was somewhat troubled by the scenario of an individual like Mr. Lugo who had a large netting period, but presumed that it didn't affect a lot of people.

There was no data cited for why it made this presumption.

The Lugo majority wrongly considered waivers to be windfalls when in fact the waiver protection is specifically designed to protect the most needy and the most vulnerable.

It is not a windfall.

It misapplied the Yamasaki decision.

Yamasaki made a limited exception in the case of reconsideration decisions.

If someone is just disputing the amount of an overpayment, they do not need to have a prerecoupment notice and hearing.

That is not the case in the netting situation.

What is at issue in netting is the waiver protection.

Furthermore, the Lugo majority improperly relied on the Secretary's claim that if netting is eliminated, a multitude of confusing notices and monthly hearings would be required.

The Tenth Circuit properly held that it would not be administratively burdensome to eliminate the existing netting policy.

The Tenth Circuit found the Secretary would be under no greater burden to provide notice in hearings than already imposed under the statue in Yamasaki.

There is no requirement of monthly notices or monthly hearings.

Many of the provisions that the Tenth Circuit would require are already in place.

The Secretary has a regulation, 20 C.F.R. 416.558, which provides for notices which break down the overpayment and underpayment for each month.

That is all that we would need as well as a pre-netting waiver procedure which is found at 20 C.F.R. 416.543.

Unidentified Justice: A pre-netting waiver?

Why?

Why would you allow netting but allow the hardship determination to be made after the netting?

Mr. Olson: I think that would still contradict the Act.

Unidentified Justice: Why?

Why would it?

Mr. Olson: Because it's a recoupment.

Netting is a recoupment, and no recoupment can proceed until a netting determination is--

Unidentified Justice: Well, that's right, but he nets and he says, I acknowledge... let's see... he changes positions... says, I acknowledge that netting is a recoupment.

All the statute requires then, is that before I make netting, I have to have a hearing to see whether given the fact that I'm only setting off you really have any hardship.

Why can't he do that?

Given the fact that I'm only setting off, there is no hardship.

And the Secretary says, you know, 99 times out of 100 there won't be any.

Mr. Olson: --Well, that--

Unidentified Justice: Why do you have to insist that it be done monthly?

Mr. Olson: --Well, this Court found that recovery shouldn't be exalted over waiver protections, and that would be such an exaltation.

The essence of an equitable statute such as the waiver statute is the individual determination, the individual opportunity to prove hardship.

By netting first; you're taking away that individual's opportunity and--

Unidentified Justice: No, but I am allowing him to prove hardship.

The Secretary conducts the netting just the way he does now, only he allows the individual to come in and say even though you're setting off and even though I don't have to reach in my pocket, there is still hardship in my particular case.

Why wouldn't that satisfy all of your objections?

Mr. Olson: --Because the statute and Congress didn't intend it to work that way.

When it said there shall be no recovery from blameless people, it meant there shall be no recovery through netting or any other sort of adjustment, and this is just that sort of recovery.

The Secretary acknowledges that only six percent of overpaid people ever even request waiver.

So, we're not talking about a system that would deluge the Secretary with waiver requests.

Half of the people that apply frequently are granted waiver, and those would be the most needy.

The 12,000--

Unidentified Justice: Who has the burden of proof in these kinds of hearings?

Does the beneficiary have the burden of proof in the hearing to show that there would be hardship?

Mr. Olson: --Yes.

The beneficiary has to fill out an overpayment questionnaire, a waiver questionnaire, which is about six pages, setting forth why he was not at fault in causing the overpayment, and listing his financial circumstances and why recovery would be inequitable.

He would have an opportunity to present testimony about that, his credibility could be assessed in the way the statute intended then before collection could take place.

It's possible to get a partial waiver.

It's possible that one could go through that hearing and the administrative law judge could determine you're entitled to waiver of the balance of the overpayment but for the amount that would be covered by the underpayment, the Secretary can keep it.

There are a number of possible scenarios--

Unidentified Justice: You say keep it.

Actually, the Secretary would be able to recover it because--

Mr. Olson: --That's right.

Unidentified Justice: --under your... it would be paid first, then there would be the hearing and the ALJ might say, well, now you've got to give that underpayment back.

Mr. Olson: Well, we don't necessarily say that the underpayment would have to be paid first.

That is a possibility and that--

Unidentified Justice: Well, then, that's what Justice Scalia was suggesting.

I thought you were saying it had to be.

Mr. Olson: --I'm--

Unidentified Justice: I mean, the overpayment has to... isn't it correct under your view that the overpayment has to be paid right away together with a notice that you have a right to take the benefit of the good faith exception?

But don't you have to get the... isn't it true that they have to turn over the money right away?

As soon as the government... as soon as the Secretary finds there's been an underpayment, is it not your view that the Secretary has a duty to pay the amount of the underpayment together with a notice that we have a right to collect it back because of prior overpayments?

Mr. Olson: --The regulations indicate that the Secretary should promptly send out underpayments.

The statute 404(a) requires the Secretary to remit underpayments--

Unidentified Justice: Right.

Mr. Olson: --when they're determined.

The promptness as to how fast the underpayment has to be sent out, though, is not specified in the regulation.

We would certainly argue that the underpayment can't be held, and in fact the existing netting regulations--

Unidentified Justice: Well, could it be held for the period of time required for the Secretary to send a notice saying there was an earlier overpayment and you have a right to have it offset under paragraph B?

Mr. Olson: --Yes.

So long as--

Unidentified Justice: And you would say that the Secretary could hold the money during the time period required to resolve the Section B dispute?

Mr. Olson: --Well, yes.

Unidentified Justice: Or at least to see whether they raise it or not?

Mr. Olson: Within a reasonable time.

Unidentified Justice: Now, if they sent out a notice and said, okay, within 30 days you have to claim a right to a setoff... the right to keep the overpayment.

If you don't do so, we're just going to offset it.

Mr. Olson: Yes.

Unidentified Justice: They could do that?

Mr. Olson: Yes.

And, in fact, in our brief we did propose that procedure.

I'm sorry if I misunderstood you.

Unidentified Justice: Because I thought you answered the other way to Justice Scalia.

Mr. Olson: Yeah.

I must have misunderstood.

I was thinking if it was months.

I mean, if we were talking of six or ten months of holding an... recovering an underpayment that way, that wouldn't be proper.

But there is not a requirement that would immediately demand reimbursement of the underpayments if the overpayment were determined at the same time.

Unidentified Justice: Why not ten months?

I don't understand.

Once you accept that, it seems to me you say that the Secretary can use this netting procedure so long as he gives you a hearing or some kind of a process to determine that the offset isn't going to impose hardship.

That's really all you're asking for, but you're insisting that it be done promptly.

Mr. Olson: Well, we certainly don't want to aggravate the hardship or the inequity by a system that would demand that an underpayment be withheld for a great length of time.

The problem now is the Secretary fails to make prompt waiver determinations.

Some of the people in the amicus brief have waited years for a waiver determination.

So, that would not be a good resolution to the problem.

But a prompt waiver determination could... could resolve our concerns.

Unidentified Justice: The Secretary takes the position, as I understand it, that you never get to the waiver problem.

Mr. Olson: That's right.

That's the Secretary's position.

You only get to waiver if you have a net overpayment.

But everything in the statute, as we read it and as Congress intended, contradicts that presumption.

As the Tenth Circuit held, the fundamental flaw in the Secretary's reasoning is that through netting he is effectively recovering benefits and such recovery, in the absence of a waiver determination, violates the plain language of the statute and Yamasaki.

We respectfully request this Court to affirm the Tenth Circuit's decision.

Thank you.

Unidentified Justice: Thank you, Ms. Olson.

Ms. Wax, you have five minutes remaining.

REBUTTAL ARGUMENT OF AMY L. WAX, ESQUIRE ON BEHALF OF THE PLAINTIFFS

Mr. Wax: Justice Scalia suggests, why not just go ahead and net and then give the person the opportunity to be heard.

Once again, we don't think the statute requires that.

But also, we want to emphasize that that would place a significant new burden on the agency because as things stand now, one-half of all individuals with mixed payment errors end up with net underpayments.

Those individuals' accounts can be resolved very promptly just by sending out a check.

And, if everyone in the mixed group now becomes entitled to a hearing, that will swamp the system with multiple new hearing obligations that will--

Unidentified Justice: No, except for this--

Mr. Wax: --essentially double--

Unidentified Justice: --May I just interrupt?

Except for this.

That in each of those cases the person had the burden of proving that it would be inequitable even if the person kept the amount in dispute.

As you said earlier, most of the time it's going to work out fairly if they keep the amount in dispute.

So, the burden is really higher for a person who has that cash on the table and, say, the government can't keep that cash.

Mr. Wax: --It would be very, very hard for a person to prove that it was inequitable--

Unidentified Justice: Right.

Mr. Wax: --for them to keep that--

Unidentified Justice: So that you won't lose many of those cases then.

Mr. Wax: --We won't lose them but we'll have to process them.

Unidentified Justice: In fact, they probably wouldn't bring most of them, would they?

Mr. Wax: We don't know that.

Right now we have--

Unidentified Justice: But your argument earlier about why this was basically fair, we really assume that to be the case in the typical case.

Mr. Wax: --Well, we have no reason to believe that people won't request waiver with the same frequency in that population... request waiver if they're separate overpayments in the same frequency as they now request waiver of their net overpayments.

We have no way of knowing.

All we know is that there will be many, many more requests for waiver, the vast majority of which will virtually be non-meritorious, thereby delaying our processing of the meritorious net overpayment waiver claims, placing a significant new administrative burden on the agency.

And that's what we're worried about.

That's why we're here today.

Unidentified Justice: Do the waiver applications or hearings... are they conducted before an administrative law judge?

Mr. Wax: Initially, they are conducted before a program officer.

They are an informal face-to-face hearing before a program officer.

But, of course, all appeal rights are reserved.

Unidentified Justice: So, either... a party that is dissatisfied with the determination of the program officer can appeal to an administrative law judge?

Mr. Wax: Yes.

There can be appeal to the administrative law judge, to the appeals council, to the district court.

The resolution of mixed errors can be delayed indefinitely by this new waiver right.

That's why we're very concerned about it.

Secondly, it's true that in some of the cases of the named plaintiffs and intervenors, the period over which overpayments and underpayments were netted was fairly extensive, five or six years.

But that does not mean that these named plaintiffs conformed to Justice Steven's scenario.

Ms. Wise and Mr. Zwiezen had overpayments and underpayments from overlapping periods.

They actually had overpayments and underpayments in the same month.

It would be preposterous, we submit, to waive the overpayment component and Othen turn around and pay them the underpayment component when they have both errors in the same month.

For example, Ms. Wise was overpaid disability benefits because she was working, but she was underpaid retirement benefits that she was entitled to but did not collect.

Justice Steven's scenario is fairly rare.

It's a very remote overpayment, a widely separated interval, and then an underpayment.

And that is not the scenario presented by any of the individuals who are named in this case.

Finally, just to clarify, it is the Secretary's regulations that interpret the concepts of fault, equity and good conscience and defeat the purpose, and those regulations are cited in respondent's brief at note 4.

If the Court has no further questions, we'll conclude our remarks.

Chief Justice Rehnquist: Thank you, Ms. Wax.

The case is submitted.

Print this transcript Transcript: 

Argument of Speaker

Mr. Speaker: The opinion of the Court in No. 88-1323, Sullivan against Everhart will be announced by Justice Scalia.

Argument of Justice Scalia

Mr. Scalia: This case is here on writ of certiorari to the United States Court of Appeals for the Tenth Circuit.

That court held invalid certain regulations promulgated by the Secretary of Health and Human Services, under which he nets or calculates the difference between past underpayments and past overpayments.

The essence of the dispute is that the Social Security Act requires the Secretary to provide a hearing to see whether it is equitable or not before he seeks to recover past overpayments.

And the dispute is whether that must be done on a month by month basis, a payment by payment basis, or rather the Secretary may offset prior overpayments against prior underpayments and therefore not have to in effect provide the hearing before collecting through offset the prior overpayments.

The text of the Social Security Act at issue requires the Secretary to find whether “more or less than the correct amount of payment of benefits” has been paid.

What the issue comes down to is whether the term "correct amount" can reasonably be construed as the Secretary has construed to refer to the net amount owing as of the date of his determination rather than the amount owing each month.

For the reason set forth in the opinion and too tedious to repeat here, we hold that he can.

We also hold that the Secretary’s method of computing the netting period does not make the regulations arbitrary and capricious.

Some delay is inevitable to avoid errors and the Secretary’s regulations limit delay.

The respondent’s alternative suggestion would either increase the administrative burden or fail to remedy alleged delay problem.

Therefore, the judgment of the Court of Appeals for the Tenth Circuit is reversed and the case is remanded for further proceedings consistent with our opinion.

Justice Stevens has filed a dissenting opinion in which Justices Brennan, Marshall, and Kennedy have joined.