Tyler Jaxson v. Andrew Saul, No. 19-3125 (7th Cir. 2020)
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The court issued a subsequent related opinion or order on August 12, 2020.
The court issued a subsequent related opinion or order on August 12, 2020.
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In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 19-3011 & 19-3125 TYLER N. JAXSON, Plaintiff-Appellee, Cross-Appellant, v. ANDREW SAUL, COMMISSIONER OF SOCIAL SECURITY, Defendant-Appellant, Cross-Appellee. ____________________ Appeals from the United States District Court for the Northern District of Illinois, Western Division. No. 17 CV 50090 — Lisa A. Jensen, Magistrate Judge. ____________________ ARGUED JUNE 5, 2020 — DECIDED JUNE 26, 2020 ____________________ Before EASTERBROOK, HAMILTON, and SCUDDER, Circuit Judges. EASTERBROOK, Circuit Judge. David Daugherty, an administrative law judge hearing disability-bene ts 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 bene ts 2 Nos. 19-3011 & 19-3125 that Daugherty awarded to Conn’s clients. Four physicians, including Frederic Hu nagle, submided 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 bene ts failed to appear for examination. Hu nagle’s “medical suite” was in Conn’s o ce. 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. Hu nagle died before he could be prosecuted. The total cost to the United States of bene ts 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 Commidee on Homeland Security and Governmental A airs, Sta 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 noti ed it in 2015 of “reason to believe that fraud was involved in th[e] applications for Social Security bene ts” 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 bene ts 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 Nos. 19-3011 & 19-3125 3 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 supplementalsecurity-income bene ts in 2009, and the agency deemed his evidence insu cient. 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 Hu nagle signed, and asked for a hearing. ALJ Daugherty awarded bene ts less than three weeks later, on June 1, 2010. He did not hold a hearing and wrote only a cursory evaluation. A week after receiving the Inspector General’s report, the agency sent Jaxson a leder telling him that it would redetermine his eligibility for bene ts. The leder said that the agency “must disregard any evidence from one of the medical providers above [including Hu nagle] when the information was submided by representative Eric C. Conn or other representatives associated with Mr. Conn’s law o ce.” The leder also stated that the agency believes that Jaxson’s claim lacks support, after disregarding Hu nagle’s report. So the agency told Jaxson that his claim would be sent to an ALJ and that he could submit any new evidence that concerned his medical status on or before June 1, 2010. A hearing was held on April 4, 2016. Jaxson appeared with counsel, testi ed, and submided other evidence, but the ALJ rejected his claim for bene ts. After the Appeals Council denied his request for review, he led this suit under 42 U.S.C. §§ 405(g), 1383(c)(3). With the parties’ consent, the case was assigned to a magistrate judge. 28 U.S.C. §636(c). 4 Nos. 19-3011 & 19-3125 Most suits about Social Security disability bene ts contest the ALJ’s ndings or reasoning. Jaxson’s does not. He concedes that the ALJ was right, given the evidence he considered. But he asserts that the ALJ should have considered Hu nagle’s report too, and that the ALJ declined to do so only because an internal claims-processing manual and ruling say that an ALJ cannot accept evidence that the Inspector General found is likely a product of fraud. See Hearings, Appeals, and Litigation Law Manual (HALLEX) §I-1-3-25 (2016); Social Security Ruling (SSR) 16-1p, 81 Fed. Reg. 13,436 (Mar. 14, 2016). Relying on a divided decision of the Sixth Circuit, see Hicks v. Commissioner, 909 F.3d 786 (6th Cir. 2018), the district court held that the summary exclusion of Hu nagle’s report violated the Due Process Clause of the Fifth Amendment. 2019 U.S. Dist. LEXIS 132766 (N.D. Ill. Aug. 7, 2019). The court remanded to the agency for further proceedings, and the agency appealed. Jaxson led a crossappeal that we discuss at the end of this opinion. It was inappropriate for the district court to start with a constitutional issue. Constitutional adjudication is supposed to be a last resort, after all other grounds have been explored. See, e.g., New York City Transit Authority v. Beazer, 440 U.S. 568 (1979). If a statute, or a regulation with the force of law, required the exclusion of this evidence, then a court would need to determine the law’s validity. Yet no one contends that any law makes the Inspector General’s view conclusive. The statutes in the appendix require the agency to redetermine every case that it nds may have been touched by fraud. But they do not say that this step also requires the exclusion of evidence. They say, instead, that evidence is inadmissible “if there is reason to believe that fraud or similar Nos. 19-3011 & 19-3125 5 fault was involved in the providing of such evidence.” Who makes that decision, and how, the statutes leave open. The leder that Jaxson received told him atly that the agency “must disregard any evidence from one of the medical providers above [including Hu nagle] when the information was submided by representative Eric C. Conn or other representatives associated with Mr. Conn’s law o ce” (emphasis added). It did not say why. True, the Manual and Ruling 16-1p say this, but neither document carries legal force. They tell people how the agency plans to carry out its duties, but they do not a ect the legal rights of private parties such as Jaxson. That’s why they did not need to be adopted through rulemaking. See 5 U.S.C. §553(b)(A) (excluding “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice” from rulemaking requirements). At oral argument, the Commissioner’s lawyer acknowledged that the Manual and Ruling 16-1p lack the force of law. The statutes do not prescribe procedures for redeterminations. The agency o ered Jaxson an opportunity to have a hearing before an ALJ, and the hearing—though less formal than judicial trials, see Richardson v. Perales, 402 U.S. 389 (1971); Biestek v. Berryhill, 139 S. Ct. 1148 (2019)—was adversarial. Jaxson was represented by counsel, as was his right. Even in informal adjudication, certain norms apply. One of these is that the adversaries get to present their positions to the administrative law judge or other hearing o cer. Adversarial proceedings are, well, adversarial rather than ex parte, with only one side’s perspective heard. Perales and Biestek permit some shortcuts compared with hearings in federal 6 Nos. 19-3011 & 19-3125 court, but they do not permit important aspects of the proceedings to be entirely one-sided. Some language in the Sixth Circuit’s opinion, and some in the district court’s, suggests that the only alternative to unilateral decision by the agency is a full- edged evidentiary proceeding to determine whether “there is reason to believe that fraud or similar fault was involved in the providing of [Hu nagle’s] evidence.” Yet that is not how federal courts conduct their own decisionmaking about evidence. Under Fed. R. Evid. 104(a), a federal judge rules on the admissibility of evidence without submiding the subject to the trier of fact. See also United States v. Martinez de Ortiz, 907 F.2d 629 (7th Cir. 1990) (en banc). Normal practice is for one side to o er evidence, the other to object, and the judge to rule—summarily when the outcome is clear, after argument when the outcome is not. Motions before trial (“in limine”) may be handled on the papers. One side explains why it deems a particular thing admissible (or not), and the other responds in writing. A judge often listens to oral presentations by counsel, but rare is the motion that requires the taking of other evidence. Indeed, many lawsuits conclude on the merits without evidentiary hearings. Only disputes about material issues of fact make hearings or trials necessary. To decide whether “there is reason to believe that fraud or similar fault was involved in the providing of [Hu nagle’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 Hu nagle conducted their dealings. Jaxson’s lawyer can reply with any available reason to think that Nos. 19-3011 & 19-3125 7 Hu nagle 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 nd that fraud is more likely than not. If an applicant is disabled, it should be possible to provide other evidence to that e ect; 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 Hu nagle’s report is fraudulent. But he is entitled to try, and we a rm 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 maders. 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 o cial notice of a material fact not appearing in the evidence in the record, a party is entitled … to an opportunity to show 8 Nos. 19-3011 & 19-3125 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 Appendix 42 U.S.C. §405(u), which covers disability-insurance bene ts, provides: Redetermination of entitlement. (1) (A) The Commissioner of Social Security shall immediately redetermine the entitlement of individuals to monthly insurance bene ts under this subchapter if there is reason to believe that fraud or similar fault was involved in the application of the individual for such bene ts, unless a United States adorney, or equivalent State prosecutor, with jurisdiction over potential or actual related criminal cases, certi es, in writing, that there is a substantial risk that such action by the Commissioner of Social Security with regard to bene ciaries in a particular investigation would jeopardize the criminal prosecution of a person involved in a suspected fraud. (B) When redetermining the entitlement, or making an initial determination of entitlement, of an individual under this subchapter, the Commissioner of Social Security shall disregard any evidence if there is reason to believe that fraud or similar fault was involved in the providing of such evidence. (2) For purposes of paragraph (1), similar fault is involved with respect to a determination if— (A) an incorrect or incomplete statement that is material to the determination is knowingly made; or Nos. 19-3011 & 19-3125 9 (B) information that is material to the determination is knowingly concealed. (3) If, after redetermining pursuant to this subsection the entitlement of an individual to monthly insurance bene ts, the Commissioner of Social Security determines that there is insu cient evidence to support such entitlement, the Commissioner of Social Security may terminate such entitlement and may treat bene ts paid on the basis of such insu cient evidence as overpayments. 42 U.S.C. §1383(e)(7), which covers supplementalsecurity income, provides: (A) (i) The Commissioner of Social Security shall immediately redetermine the eligibility of an individual for bene ts under this subchapter if there is reason to believe that fraud or similar fault was involved in the application of the individual for such bene ts, unless a United States adorney, or equivalent State prosecutor, with jurisdiction over potential or actual related criminal cases, certi es, in writing, that there is a substantial risk that such action by the Commissioner of Social Security with regard to recipients in a particular investigation would jeopardize the criminal prosecution of a person involved in a suspected fraud. (ii) When redetermining the eligibility, or making an initial determination of eligibility, of an individual for bene ts under this subchapter, the Commissioner of Social Security shall disregard any evidence if there is reason to believe that fraud or similar fault was involved in the providing of such evidence. (B) For purposes of subparagraph (A), similar fault is involved with respect to a determination if— (i) an incorrect or incomplete statement that is material to the determination is knowingly made; or (ii) information that is material to the determination is knowingly concealed. 10 Nos. 19-3011 & 19-3125 (C) If, after redetermining the eligibility of an individual for bene ts under this subchapter, the Commissioner of Social Security determines that there is insu cient evidence to support such eligibility, the Commissioner of Social Security may terminate such eligibility and may treat bene ts paid on the basis of such insu cient evidence as overpayments.
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