Court Error – Abuse of Discretion

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7^th Circuit Court of Appeals

Case Name: Tyler N. Jaxson v. Andrew Saul

Case No.: 19-3011; 19-3125

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

Focus: Court Error – Abuse of Discretion

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).

The agency’s Inspector General formally notified it in 2015 of “reason to believe that fraud was involved in th[e] applications for Social Security benefits” of 1,787 named persons from January 2007 through May 2011. That notice, given under 42 U.S.C. §1320a–8(l), set in motion a process for redetermination of the benefits awarded to those persons. Two statutes, one covering disability payments and the other covering supplemental-security income, say that redetermination is mandatory if there is reason to believe that fraud played a role, and they add that in conducting this redetermination the agency “shall disregard any evidence if there is reason to believe that fraud or similar fault was involved in the providing of such evidence.” We put the full text of these statutes in an appendix.

Tyler Jaxson is among the people named by the Inspector General. He applied for both disability and supplemental security-income benefits in 2009, and the agency deemed his evidence insufficient. He failed to appear for any of the three examinations by specialists retained by the agency. Conn presented Jaxson’s request for reconsideration, supported by a report that Huffnagle signed, and asked for a hearing. ALJ Daugherty awarded benefits less than three weeks later, on June 1, 2010. He did not hold a hearing and wrote only a cursory evaluation.

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 party 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.