SSA’s fraud decisions ‘arbitrary and capricious’

It was “arbitrary and capricious” and a violation of due process for the Social Security Administration, or SSA, to categorically terminate the benefits of a class of claimants without giving them an opportunity to rebut the allegation that their benefits were the result of fraud.

Background

Gary Kirk and Larry Taylor are former recipients of Social Security disability benefits and former clients of Eric Conn, an attorney who orchestrated one of the largest fraud schemes in the history of the SSA.

In 2015, SSA redetermined the benefits eligibility of 1,787 individuals formerly represented by Conn—including plaintiffs—based on its suspicion that their disability determinations were rooted in fraudulent evidence submitted by Conn. Upon redetermination, SSA terminated the benefits of nearly half of those individuals, including plaintiffs, after finding them not to be disabled.

Plaintiffs argue that SSA’s categorical exclusion of allegedly fraudulent medical evidence during the redetermination process was unlawful because they were never afforded any opportunity to rebut the allegation that their evidence was tainted by fraud. In Kirk’s case, the district court held that “SSA’s redetermination process violates the minimal requirements of due process” because it categorically excludes potentially critical evidence based on fraud allegations that beneficiaries cannot challenge. A different district court ruled against Taylor, rejecting his claims that SSA’s redetermination procedures “violated his due process rights, the Social Security Act or regulations and the APA.”

APA

Plaintiffs argue that SSA’s redetermination procedures violate the Administrative Procedure Act, or APA. They contend that it is arbitrary and capricious for the agency to deny beneficiaries an opportunity to contest the Office of the Inspector General’s fraud allegations as to their cases, while permitting other similarly situated beneficiaries to challenge similar allegations arising from SSA’s own investigations. The court agrees.

“A fundamental norm of administrative procedure requires an agency to treat like cases alike.” SSA’s procedures preclude certain beneficiaries subject to redetermination from contesting the underlying fraud allegations while permitting others to do so. Here, whether a beneficiary subject to redetermination is afforded an opportunity to rebut the underlying fraud allegation depends on the pure chance of which branch of the agency first raised the allegation formally. This differential treatment is arbitrary and capricious in violation of the APA.

Due process

Plaintiffs also argue that SSA’s redetermination procedures violated their due process rights under the Fifth Amendment because they were denied the opportunity to contest the Office of the Inspector General’s fraud allegations against them. Once again, the court agrees.

Under Mathews v. Eldridge, 424 U.S. 319 (1976), “a due process challenge is governed by a three-factor balancing test, weighing (1) the private interest affected by the official action; (2) the risk of an erroneous deprivation with the procedures presently used; and (3) the government’s interest, including the function involved and the fiscal and administrative burdens associated with additional procedures.”

First, the court easily concludes that an individual’s private interest in retaining disability benefits is substantial. As to the second Mathews factor, the court agrees with plaintiffs argue that absent an opportunity to contest SSA’s fraud allegations, the risk of an erroneous deprivation is unacceptably high. Finally, the government’s countervailing interests are weak.

Kirk’s judgment affirmed. Taylor’s judgment reversed.

Dissenting opinion

Richardson, J., concurring:

The Social Security Act sets forth a procedure known as a redetermination to address fraud. The questions presented here are whether the SSA, in interpreting these statutes, delineated procedures that violated the procedural due process rights of Gary Kirk and Larry Taylor and whether those same procedures were arbitrary and capricious under the APA. In my view, the redetermination process affords substantial due process more than sufficient to satisfy Mathews v. Eldridge, 424 U.S. 319 (1976), and does not run afoul of the APA. Consequently, I respectfully dissent.

Kirk v. Commissioner of Social Security Administration, Appeal Nos. 19-1989, 19-2028, Feb. 4, 2021. 4th Cir. (Wynn), from DSC at Round Hill (Coggins) and WDVA at Abingdon (Sargent). Thomas  Gary Pulham for Appellant Commissioner of Social Security Administration and Appellee Andrew Saul. Alexandra Tucker Stewart for Appellee Gary Kirk and Appellant Gary Taylor. VLW 021-2-048. 48 pp.