20 CFR 404.446 and 404.447
TORRANCE v. WEINBERGER, U.S.D.C., W.D. Pa., U.I.R. Fed. #14557 (12/11/75)
SCALERA, District Judge:
Plaintiff appeals to this court from the final decision of the Secretary of Health, Education and Welfare, denying her social security retirement insurance benefits. Defendant moved for summary judgment. The sole issue before the court is whether the final decision of the Secretary is supported by substantial evidence.
On August 15, 1972, plaintiff filed her application for retirement insurance benefits with the Social Security Administration. An initial determination of an appropriate award was certified on October 20, 1972. Thereafter, a resumption of the award was made, dated November 1, 1972, and a certificate of social insurance award dated November 22, 1972, was sent to plaintiff informing her that she did not qualify for benefits because she continued to perform substantial services in connection with self-employment. Plaintiff filed a request for reconsideration of her entitlement on January 31, 1973. The claim was reconsidered and plaintiff was informed by letter dated May 2, 1973, that the original decision was affirmed. A determination of benefit recomputation was made in November 1973, with the same result.
Plaintiff filed a request for a hearing on October 26, 1973. The administrative law judge scheduled the hearing for February 4, 1974, then rescheduled it for February 19, 1974. After the hearing, the administrative law judge determined that plaintiff was entitled to retirement benefits, but that those benefits were subject to total deductions. Plaintiff's claim therefore was denied. The administrative law judge's decision and notice were mailed to plaintiff on June 24, 1974. Plaintiff filed a request for review by the Appeals Council on August 23, 1974. Plaintiff's attorney filed a brief in support of her position with the Appeals Council on or about October 22, 1974. The Appeals Council upheld the decision of the administrative law judge and informed plaintiff of its action by letter dated December 3, 1974.
Plaintiff filed her complaint with this court on January 9, 1975. On March 18, 1975, this court signed defendant's consented-to motion for an extension on the time allowed to file an answer, specifying May 16, 1976, as the limitations date. Defendant filed his answer on May 15, 1975. On June 30, 1975, defendant filed a motion for summary judgment together with a supporting brief. On July 1, 1975, this court ordered plaintiff to file a brief in support of her position within thirty days. On August 6, 1975, plaintiff's attorney filed a consented-to motion to extend the time within which to file the supporting brief to August 20, 1975; this court signed the motion of August 11. Plaintiff filed her memorandum of law in support of her position on August 20, 1975.
This court's scope of review in social security cases is found in section 205(g) of the Social Security Act, 42 U.S.C. § 405(g):
The court does not consider plaintiff's claim de novo, but rather reviews the complete record to determine whether the Secretary's decision is supported by substantial evidence. Hess v. Secretary of Health, Education and Welfare, 497 F.2d 837 (3d Cir. 1974).
Section 205(h) of the Act, 42 U.S.C. § 405(h), likewise specifies the conclusiveness of the Secretary's findings of fact:
The principle of conclusiveness applies as well to the inferences reasonably drawn from the evidence. Moreno v. Richardson, 484 F.2d 899 (9th Cir. 1973); Maloney v. Celebrezze, 337 F.2d 231 (3d Cir. 1964).
Substantial evidence consists of more than a mere scintilla. It is such relevant evidence as a reasonable mind would accept as sufficient to support a particular conclusion. Hess v. Secretary of Health, Education and Welfare, supra; Blaith v. Weinberger, 378 F.Supp. 594 (E.D. Pa. 1974). The conclusion reached by the Secretary should be affirmed if it withstands scrutiny under the substantial evidence test, even though another conclusion possibly might be drawn from the evidence were the court to appraise the merits of the claim de novo. Quinn v. Richardson, 353 F.Supp. 363 (E.D. Pa.), aff'd, 485 F.2d 681 (3d Cir. 1973); Blalock v. Richardson, 483 F.2d 773 (4th Cir. 1972). The burden of proof rests upon one filing a claim with an administrative agency to establish that the required conditions of eligibility have been met. Ragan v. Finch, 435 F.2d 239 (6th Cir. 1970), cert. denied, 402 U.S. 986, 91 S.Ct. 1685, 20 L.Ed.2d 152 (1972); Quinn v. Richardson, supra.
The Social Security Act provides for the payment of old-age benefits to fully insured individuals who have attained retirement age and who have filed an application for such benefits.
However, the Act stipulates that the amount of monthly benefits to which an individual is entitled is subject to deductions based upon the receipt of self-employment income. Under the statutory scheme, an individual is presumed, with respect to any month,
This section also specifically directs the Secretary to prescribe by regulation the criteria for determining the substantiality of any business services rendered by the individual.
The regulatory scheme prescribed by the Secretary defines the substantial services test as one of whether, in view of the individual's circumstances and the character of the services rendered, the person can "reasonably be considered retired" in the month in question. Even though an individual performs some services, the services will not be deemed substantial where evidence establishes to the satisfaction of the Administration that the person may reasonably be considered retired.
The factors considered in evaluating whether an individual has performed substantial services are as follows:
The regulations explicate the significance of these criteria individually. As to consideration of the amount of time devoted to the business, "amount of time" includes time spent in physical and mental activity at the place of business or elsewhere in furtherance of the business. Time spent in planning and advising the operations, preparing and maintaining business facilities and records, and time spent at the place of business which cannot reasonably be considered unrelated to business activities are all specifically included within the definition.
Additional guidelines for determining the amount of time devoted to a business are stipulated. If the individual establishes that such time does not exceed forty-five hours in any one month, then the individual's services are not deemed substantial, unless other factors make such a finding unreasonable:
Nonetheless, services of less than fifteen hours in all businesses per month are not substantial. Services of more than forty-five hours in a month are substantial unless the individual establishes upon other grounds that he could reasonably be considered retired.
In a case where a finding that an individual was retired would be unreasonable if time devoted to the business alone is considered, then the nature of the services rendered to the business is also to be examined. The services are considered in view of the technical and management needs of the business. The more regularly an individual renders services to a business, or the more skilled and valuable his services are, the more likely that the individual could not be considered retired.
Where consideration of neither the amount of time nor the nature of the services rendered to the business sufficiently establishes whether the person's services were substantial, the focus is turned to the extent and nature of the services rendered before and after the individual's "retirement:"
Finally, if evaluation of the above factors together is insufficient for a determination of the substantiality of the person's services, all other factors are considered. These final criteria include the presence or absence of a capable manager, the kind and size of the business, the amount of capital invested, the possibly seasonal nature of the business, and "any other pertinent factors."
The ultimate focus, again, is whether the individual's services are such that he can reasonably be considered to be retired.
The record in this case is extensive, including fifty-nine exhibits and one hundred-plus pages of testimony at the hearing before the administrative law judge. The record of plaintiff's involvement in the business must be examined comprehensively in order to evaluate the character of her services, the amount of time spent in the business, etc., both before and after her alleged "retirement."
Plaintiff's husband was a self-employed owner-operator of a small trucking business at the time of his death on November 16, 1959. Evidently the outstanding debts of the business at that time were forcing the operation to ruin. On December 3, 1959, plaintiff, then 53-years-old, filed an application for survivor's insurance benefits on behalf of herself and on behalf of her disabled daughter. Plaintiff's applications were granted and benefits were thereafter paid to plaintiff for herself and on behalf of her daughter.
By virtue of plaintiff's receipt of Mothers' Insurance benefits under § 202(g) of the Act, she was required to make annual reports of her earning for each taxable year during which she was entitled to monthly benefits. These reports provide a history of plaintiff's earnings per year and in the continued operation of the trucking company, as the following record indicates.
On December 10, 1959, plaintiff reported that she would attempt to continue the operation of the trucking company, although she did not anticipate that the earnings would be over $1,200 per year. She stated that she would advise the Social Security Administration if she earned a net profit in excess of $1,200. On or about April 27, 1961, plaintiff reported that on May 1, 1961, she would begin operation of the trucking company as a self-employed person and that she anticipated her earnings to be about $2,400 per year. On April 19, 1962, plaintiff reported that she had taken over her husband's trucking business, which was a steel-hauling operation contracting with United States Steel Corporation, after his death. She reported that the contract was automatically renewable and required no further negotiations on her part; that her "only work" in connection with the business was to maintain the books, to bill United States Steel for hauling, to receive payments and records from United States Steel, to pay the employee-drivers bi-weekly, and that these efforts required approximately ten hours per week on her part. She further reported that her son drove one of the trucks and performed all managerial and maintenance functions connected with the business, and that the drivers received their orders from United States Steel.
On March 27, 1962, plaintiff submitted the first of the annual reports required by the Social Security Administration. On this report, plaintiff indicated that during 1961 she was engaged in the operation of the business "(a) 11 months, full time management." She also indicated that she expected to earn $1,500 from the business in 1962. Due to confusion over the 1961 earnings listed in this report, plaintiff was requested to submit her 1961 Income Tax Return. The return showed total receipts of $23,415.23, gross profit of $10,258.04, and net profit of $1,332.07. Since her net profit was in excess of $1,200, plaintiff was informed that a certain deduction was applicable against her Mothers' Insurance Benefits.
Plaintiff submitted her second earnings report to the Social Security Administration on April 1, 1963. She reported gross receipts of $29,264.16 and net profit of $1,433.37. She further reported that she did clerical work for the business, "[h]ire[d] help for everything," and worked approximately ten hours per week at the business. On April 13, 1964, plaintiff again submitted an earnings report, indicating total receipts for 1963 of $25,248.24, net earnings of $508.03, and that her involvement in operations amounted to clerical work for approximately ten hours per week.
On April 1, 1966, plaintiff reported that gross receipts for 1965 amounted to $32,199.68, and that her net profit was $2,647.96. On April 6, 1967, she reported that gross receipts for 1966 were $36,611.89 and that her net profit was $3,130.67. Plaintiff was informed that she had been incorrectly overpaid in Mothers' Insurance Benefits, due to the excess of her actual net profit in 1966 over her estimate of the amount the previous year. Plaintiff subsequently reported a net profit from the business of $5,665.15 for 1967; $7,800-plus in 1968; $5,166 in 1969; and $6,893 in 1970. Deductions from plaintiff's Mothers' Insurance Benefits were applied in each of the above years. Plaintiff was notified that, beginning December 1968, when she would be 62 years old, her Mothers' Insurance Benefits would terminate because she was eligible for Widow's Insurance Benefits on her deceased husband's earnings record. At this time, however, plaintiff was informed that because of her excess earnings, she would not be paid any widow's benefits from December 1968, at least until December 1970.
On March 17, 1970, plaintiff submitted a statement to the Social Security Administration requesting that, effective December 1968, she be withdrawn from eligibility for widow's benefits on her husband's earnings record. On this statement, plaintiff indicated that she was not eligible for cash benefits, as she was ". . . self-employed and perform(ing) substantial services each month." At that time, she also reported that her net earnings were approximately $7,000 per year. She reported that she understood the implications of her withdrawal, but chose to do so as a means of obtaining the highest amount payable to her disabled daughter, and that she would file for retirement insurance benefits based on her own earnings record either when she reached age 65 or when she retired.
Pursuant to plaintiff's application for retirement insurance benefits on August 15, 1972, she was requested to submit annual earnings statements (the requirement that she submit annual earnings reports to the Social Security Administration had ceased when her Mothers' Insurance Benefits terminated). Plaintiff, in response thereto, submitted her income tax returns for 1970 through 1972. Plaintiff's Schedule C tax return -- "Profit (or Loss) From Business or Profession (Sole Proprietorship)" -- for 1970, listing the business name as Minnie O. Torrance and her own address as the business address, shows gross profits of $112,997.29 and net profit of $6,842.32. Her 1971 Schedule C, still listing her business name and her residence as the business address, shows gross profits of $142,147.73 and net profit of $9,037.24. Plaintiff's 1972 Schedule C, with the same business name and business address, shows gross profits of $150,135.56 and a net profit of $16,419.50. Plaintiff for all three years listed her occupation as "Trucker" on her Form 1040 Individual Income Tax Return. Plaintiff for these years paid Social Security self-employment taxes, claimed depreciation on the business' trucks and tractors, and claimed repair, insurance, fuel, tire, permit and license expenses as business deductions.
There is some confusion as to the date from which plaintiff claims retirement insurance benefits without deductions due to excess earnings. On the application for benefits plaintiff filed on August 15, 1972, while stating that her income for 1971 was over $9,000, and that her expected income for 1972 would be approximately $9,000, plaintiff indicated that she had performed no substantial services for the trucking business in any month during 1971 and that she would not do so in any month during 1972. Plaintiff was 65 years of age in December 1971. Therefore it was not apparent to the administrative law judge whether she was claiming benefits from January 1971, or from August 1971, when the application was filed. At the hearing the administrative law judge questioned plaintiff about the claim date and, after several questions, she indicated that she was claiming benefits without deductions due to excess earnings from August 1971. Plaintiff asserted that in that month she had "completely dropped all business activities" because her disabled daughter had fallen approximately at that time and thereafter plaintiff was needed on a full-time basis by her daughter.
Plaintiff appeared at the hearing on February 19, 1974, accompanied by her son, J. Kenneth Torrance, by one of the trucking company's longtime employees, Gilliam King, and by counsel. As the sole issue presented by this case concerns the substantiality of plaintiff's past and present services to the company, only testimony relevant to that point as well as testimony pertaining to the character of the company itself need be reviewed here.
Plaintiff testified that she had no connection with the operation of the company prior to her husband's death in November 1959. She stated that following her husband's death she and her son, who had been employed by the company while his father operated it, decided to continue the company's operation. At that time, the company had approximately three regular drivers who hauled under an annual contract negotiated with United States Steel. Plaintiff and her son testified that the business was carried on under plaintiff's name primarily for financing purposes and to avoid Public Utility Commission "legal formalities" necessarily attendant to a transfer of the business to the son. plaintiff testified that although she considered herself the owner of the company, her son actually was the manager of the business, as her tasks centered on the clerical aspects of operation, such as keeping records, maintaining the necessary books, paying bills and employees. She further testified that for an unspecified period relatively in the beginning of their combined operation of the company, she and her son would discuss management decisions as they had coffee together in the morning. She left the re-negotiation of the annual contract with United States Steel completely to her son, although she would sign the contracts as the owner of the business. Plaintiff further testified that the trucks were parked at night on a vacant lot that she owned next to her house, but that she had nothing to do with maintenance of the trucks, with scheduling of the runs, or with hiring and firing the drivers. As far as the purchase of additional equipment is concerned, both plaintiff and her son testified that in the early years of their combined operation they would discuss such matters, that plaintiff and her son would co-sign for the purchase of the equipment as early as 1962 and work out other financial matters together. Plaintiff stated that although she performed the above-mentioned services, she considered her son, who drove and maintained the trucks, handled employee and contract matters, and did some bookkeeping, the manager of the business practically from the beginning of their combined efforts. Plaintiff in addition stated that she was a high school graduate, but had never had any business education or training in accounting, record keeping, etc., and that she had not worked outside her home or in her husband's business prior to his death.
The trucking operation as it exists today was described as a small business utilizing approximately eight trucks and employing five to seven drivers.
Plaintiff testified that she continued to perform the duties described above until she was assured that her son could carry on the business without her assistance. She stated that her activities in connection with the business since 1971 have been insubstantial. She stated that she prepares the payroll, which takes one-half hour bi-weekly, that she pays some of the bills, which takes two to three hours per month, and that she signs the annual contract. She stated that she does nothing more in connection with the operation of the business.
Plaintiff testified that it was her son who determined that the net profits would accrue to plaintiff, in order to provide her with an income and to help support plaintiff's disabled daughter, hence the net income of the business is kept by her, while her son is paid bi-weekly according to a standard union wage rate. She further stated that she had considered her business relationship with her son as a "partnership," admittedly without any formal agreement. She considers herself retired from the operation of the business, particularly since her disabled daughter's injury which occurred approximately in August 1971.
Plaintiff testified that, although in her opinion she had not been rendering substantial services to the business since before August 1971, she did not apply for retirement insurance benefits until August 1972, because she mistakenly thought that her high income from the business would prevent her from realizing benefits, that she did not realize prior to that time that the touchstone of eligibility for benefits as applied to her was the substantiality of her services to the company.
Plaintiff's son, J. Kenneth Torrance, testified at the hearing that he worked for his father in the trucking business and that he knew the method of operation, except for the paper work, at the time of his father's death. He stated that plaintiff took over the business in her name, but that her role was centered on the clerical matters and that he did the hauling, negotiating of the contract, and hiring. He also stated that he did some of the paper work, such as the final billing and typing. He stated that, while he did not put any of his own money into the business at this time, neither had plaintiff, that is, any investment into the business came as a result of the conduct of the business itself.
Mr. Torrance testified that before 1971, in addition to making up payrolls and paying all the bills, plaintiff "totalled the slips," which apparently refers to recording the items hauled in order to calculate the tonnage hauled and hence the amount to be billed. He stated that this procedure took approximately an hour per day, that is, assuming that the "slips" for a particular day were received on time. He further stated that until 1968 or 1969, his name was not on the company checks, therefore he had to have plaintiff write a check for everything that had to be paid or purchased in line with the business. When asked how many hours per month plaintiff spent involved in the operations of the company, he indicated in a conjecturing fashion approximately twenty hours per month, but then he finally stated that he "really" did not know.
Mr. Torrance stated that the driver-employees came under the jurisdiction of the United Mine Workers in February 1971 thus the company's billing was changed from tonnage to hourly records, eliminating the necessity for keeping and totalling "slips." He said this means that he now does most of the record keeping. He further cited as examples of differences between what plaintiff did before 1971 and after, the fact that she no longer had anything to do with purchasing equipment, and his practice of now writing some of the checks for the company's bills and necessities. He stated that plaintiff was not required to remain at home in order to provide any services to the company and that she does not stand watch over the trucks parked on her property. He also stated that, in his opinion, the company-related activities of plaintiff had decreased over the years, initially after the settling of his father's estate, then again after the 1971 change-over to a different billing system. He stated that, in his opinion, plaintiff currently works less than fifteen hours a month in connection with company matters, that she only handles the payroll and some billing, and, confusingly, he agreed that these activities amount to four hours per month maximum. He stated that, in his opinion, she only does this in order t have something to do occasionally.
The testimony of the long-time employee of the company, Gilliam King, is of little assistance. He stated that his contacts were with plaintiff's son, that he did not know who handled the responsibilities for billing, etc., that all he was certain of was that plaintiff signed the payroll checks from 1961 to date. He stated repeatedly that he was never at a vantage point which would permit him to testify to the extent of plaintiff's role in the company's operation.
The relevant portions of plaintiff's statement on her August 15, 1972 application for retirement benefits merit citation:
The court notes that this statement differs substantially from the testimony elicited at the hearing concerning plaintiff's services from the middle, if not the beginning of 1971. Indeed, the court must conclude that substantial confusion surrounds the character of plaintiff's services to the company upon an attempted reconciliation of the hearing testimony and the statements appearing on the various applications and reports which comprise this record.
Plaintiff's council attempts to justify the inconsistencies between the hearing testimony and plaintiff's statements on her applications by suggesting that all the evidence supports the notion that plaintiff gradually withdrew from the operations of the company. For example, counsel urges that the four-to-five hours per week plaintiff cited in her application as time devoted to company business is not inconsistent with the two-to-three hours per week plaintiff testified to at the hearing, precisely because plaintiff gradually withdrew from the company. Unfortunately, counsel's argument does not take into consideration that the statement as to services of four-to-five hours per week was made one year after the time period to which plaintiff ascribed services of only two-to-three hours per week at the hearing.
While this court, following a de novo examination of the evidence possibly might have concluded that plaintiff had succeeded in rebutting the presumption set forth in section 205(f)(4)(A) of the Act, 42 U.S.C. § 405(f)(4)(A), that a person is engaged in self-employment until he establishes that he rendered no substantial services to any trade or business, it cannot conclude upon the evidence before it that the decision of the Secretary is not supported by substantial evidence.
Accordingly, the Secretary's decision denying plaintiff's claim for social security benefits as determined by the administrative law judge must be affirmed.
 Jurisdiction of this court is based upon section 205(g) of the Social Security Act, 42 U.S.C. § 405(g), which provides in part:
 This court notes that the district Court in Torphy v. Weinberger, 384 F.Supp. 1117, 1119 (E.D. Wisc. 1974), states that:
That court treated a motion for summary judgment as a motion for an order affirming the decision of the Secretary.
 Total deductions were determined in accordance with sections 203(b) and (f) of the Social Security Act, 42 U.S.C. § 403(b) and (f).
 The administrative law judge's decision became final and binding when it was upheld by the Appeals Council. 20 C.F.R. § 404.951, issued pursuant to 42 U.S.C. § 405(a).
 42 U.S.C. § 402(a).
 Sections 203(b) and (f)(1) and (4), 42 U.S.C. § 403.
 Section 203(f)(4), 42 U.S.C. § 403(f)(4) (emphasis added).
 Section 205(a), 42 U.S.C. §405(a), establishes the Secretary's regulatory powers in the administration of the Act.
 This discussion paraphrases regulations found at 20 C.F.R. §§ 404.446 and 404.447, the provisions outlining the factors to be considered in determining the substantiality of an individual's services.
 20 C.F.R. § 404.446.
 20 C.F.R. § 404.447(a)(1).
 20 C.F.R. § 404.447(c).
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