ALJ Error – Disability Benefits

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7^th Circuit Court of Appeals

Case Name: Tyler N. Jaxson v. Andrew Saul, et al.,

Case No.: 19-3011; 19-3125

Officials: EASTERBROOK, HAMILTON, and SCUDDER, Circuit Judges.

Focus: ALJ Error – Disability Benefits

David Daugherty, an administrative law judge hearing disability-benefits applications for the Social Security Administration, supplemented his salary by taking bribes. Eric Conn, who represented many claimants, paid Daugherty $400 per favorable decision; Conn himself received $5,000 or more per case out of the benefits that Daugherty awarded to Conn’s clients. Four physicians, including Frederic Huffnagle, submitted evaluations to support Daugherty’s decisions. Daugherty told Conn what kind of evidence he wanted to see. Conn wrote the reports, which one of the physicians would sign without change even if the applicant for benefits failed to appear for examination. Huffnagle’s “medical suite” was in Conn’s office.

After the scheme came to light, Conn and Daugherty pleaded guilty to several federal felonies. Bradley Adkins, one of the physicians, was convicted by a jury. Huffnagle died before he could be prosecuted. The total cost to the United States of benefits granted by Daugherty exceeds $500 million, and Conn reaped more than $5 million in legal fees. Many details of this scam are recounted in U.S. Senate Committee on Homeland Security and Governmental Affairs, Staff Report, How Some Legal, Medical, and Judicial Professionals Abused Social Security Disability Programs for the Country’s Most Vulnerable: A Case Study of the Conn Law Firm (Oct. 7, 2013).

To decide whether “there is reason to believe that fraud or similar fault was involved in the providing of [Huffnagle’s] evidence” an ALJ needs to hear from both sides. The agency’s lawyer can submit the Inspector General’s report and the Senate’s compilation of evidence about how Daugherty, Conn, and Huffnagle conducted their dealings. Jaxson’s lawyer can reply with any available reason to think that Huffnagle gave an honest medical opinion. Jaxson needs a powerful argument, for under the statute any “reason to believe” that the report is fraudulent requires its exclusion. The ALJ need not find that fraud is more likely than not. If an applicant is disabled, it should be possible to provide other evidence to that effect; excluding one potentially tainted report need not be dispositive, and erring on the side of exclusion, as the statute requires, seems a prudent precaution. Jaxson may have a hard time persuading an ALJ that there is not even “reason to believe” that Huffnagle’s report is fraudulent. But he is entitled to try, and we affirm the district court’s decision—though under ordinary norms of administrative law rather than a constitutional command. The agency’s decisional process comes within 42 U.S.C. §405(b)(1), which requires a “reasonable notice and opportunity for a hearing”, and the word “hearing” means a procedure at which both sides can give their views on potentially dispositive matters.

Jaxson’s cross-appeal contends that proceedings on remand must be treated as hearings “on the record” governed by the Administrative Procedure Act. 5 U.S.C. §554(a). The district court deemed this argument forfeited because it had not been adequately developed. That was not an abuse of discretion. What’s more, for the reasons we have given, treating a redetermination as one governed by §554 would not do Jaxson any good. Even the most formal procedures, those used by federal judges, do not guarantee evidentiary hearings on disputes about the admissibility of evidence. The APA provides that “[w]hen an agency decision rests on official notice of a material fact not appearing in the evidence in the record, a party is entitled … to an opportunity to show the contrary.” 5 U.S.C. §556(e). We’ve concluded that this is also part of the procedures ordinarily used in informal adjudication: each side is entitled to be heard. The APA would not add to Jaxson’s rights.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.