DOUGLAS F. McCORMICK, Magistrate Judge.
Plaintiff James Davidson appeals from the Commissioner's decision finding that the assets in a special needs trust constituted a "countable resource" for purposes of his eligibility for disability payments. The Court concludes that the decision of the Administrative Law Judge ("ALJ") that the resources of Plaintiff's special needs trust were countable was not supported by substantial evidence. Accordingly, the Commissioner's decision is reversed and the matter is remanded for an award of benefits.
Plaintiff began receiving supplemental security income ("SSI") benefits in January 1998. Administrative Record ("AR") 14. On April 13, 2006, Plaintiff received a personal injury settlement in the amount of $356,250.00.
On May 29, 2010, the Social Security Administration ("SSA") notified Plaintiff that he did not qualify for disability benefits and that he was "not entitled to any other Social Security benefits based on the application" he filed with the SSA. AR 80-81A. On June 22, 2010, the SSA mailed Plaintiff a "Notice of Overpayment," which stated that Plaintiff was overpaid benefits in the sum of $18,739.00 for the period of June 1, 2008 to June 1, 2010 because the "value of [Plaintiff's] resources was more than the SSI limit." AR 99-108.
On June 11, 2010, Plaintiff filed a request for reconsideration, arguing that the funds in question were "noncountable" because they were held in a special needs trust, one of the exceptions established in 42 U.S.C. § 1396p(d)(4)(A), in which property held in a trust is not counted as a resource for purposes of determining eligibility for SSI benefits. AR 98.
On August 30, 2010, Plaintiff's request for reconsideration was denied. The SSA determined that Plaintiff's special needs trust was a countable resource based upon two drafting errors in the language of the Original SNT: (1) the Original SNT failed to state that, "upon the death of the individual, the state will receive all amounts remaining in the trust"; and (2) the Original SNT failed to state that "the State must be listed as the first payee and have priority over payment of other debts and expenses." AR 175. Plaintiff requested a hearing before an ALJ. AR 183.
The ALJ held two hearings, the first on May 24, 2011. During that hearing, the ALJ expressed her belief that Paragraphs 10 through 12 of the Original SNT did not satisfy the SSA's requirements for a special needs trust, because the Original SNT failed to list the state as the first payee and give the state priority over payment. AR 296. Plaintiff's counsel asked for a continuance to enable them to obtain an amended order from Judge Harwin, a request the ALJ granted. AR 312.
On July 13, 2011, Judge Harwin signed an order granting Plaintiff's petition for an order correcting the original order approving Plaintiff's special needs trust. AR 191-92. Specifically, Judge Harwin ordered the Original SNT corrected by replacing sections 10, 12, 13, and 14 of the Original SNT with corrected language.
Plaintiff then submitted this corrected special needs trust to the ALJ. AR 193-215 ("1st Corrected SNT"). On July 26, 2011, the ALJ held a very brief supplemental hearing at which she received the 1st Corrected SNT into the record. AR 316-17. Plaintiff's counsel emphasized that the trust instrument was "not an amendment, but rather a correction or a revision." AR 318.
On August 3, 2011, the ALJ held that the SSA had properly determined that the resources in the SNT were countable because the SNT failed to meet the requirements of the "Special Needs Trust" provisions established under Section 1917(d)(4)(A) of the Act, as well as additional guidelines provided by the SSA in section 01120.203(B)(1)(a) of the Program Operations Manual System ("POMS"), which is used by SSA employees to process claims for benefits. More specifically, the ALJ concluded that both the Original SNT and the 1st Corrected SNT failed to include sufficient language, as required by section 1917(d)(4)(A) of the Act, that the "State will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan." AR 16 (quoting Program and Operations Manual System ("POMS") § SI 01120.203(B)(1)(a)).
Specifically, the ALJ faulted the Original SNT because it did not make clear that state was the "first payee" with priority over other payees. AR 19. Additionally, the ALJ faulted both the Original and 1st Corrected SNTs because Paragraph 10 of both instruments stated that "on the death of the Beneficiary, any remaining assets of the Trust Estate shall be distributed to the Beneficiary's heirs at law," language that the ALJ concluded was in conflict with the language in paragraph 12, which sought to specify that the Trustee is directed to pay all state claims for reimbursement for medical assistance paid on the Beneficiary's behalf. AR 20-21. The ALJ therefore concluded that "[Plaintiff's] special needs trust will continue to be deemed a countable resource and he will be ineligible for supplemental security income. Therefore, the claimant is liable for repayment of the $18,739.00 overpayment." AR 21.
Plaintiff sought Appeals Council review of the ALJ's unfavorable decision. AR 215-17. With their request for Appeals Council review, Plaintiff submitted a second nunc pro tunc order correcting Plaintiff's special needs trust to remedy the deficiencies identified by the ALJ's unfavorable opinion. AR 218-20. Plaintiff also submitted the second corrected special needs trust. AR 221-36 ("2nd Corrected SNT").
On September 19, 2012, the Appeals Council denied the request for review. AR 4-8. The Appeals Council concluded that the evidence supported the ALJ's decision, reasoning as follows:
AR 5.
The parties characterize their disputed issues as follows:
(1) whether the Appeals Council erred in failing to properly consider the 2nd Corrected SNT in its review of the ALJ's unfavorable decision,
(2) whether the ALJ erred in determining that the Plaintiff's special needs trust was a "countable resource" for purposes of determining eligibility for disability,
Under 42 U.S.C. § 405(g), a district court may review the Commissioner's decision to deny benefits. The ALJ's findings and decision should be upheld if they are free from legal error and are supported by substantial evidence based on the record as a whole. 42 U.S.C. § 405(g);
For the reasons stated by the Court at oral argument in this matter, the Court finds that the ALJ erred when she decided that the Original SNT did not qualify as a special needs trust pursuant to 42 U.S.C. § 1396p(d)(4)(A). To the extent there is any ambiguity in the trust's provisions they are clarified by the trust's statement of intent, which expressly states that the trust is intended to comply with federal law governing the requirements for a special needs trust under the SSA. AR 126-27. The Commissioner relies on POMS, but the Court finds unpersuasive the POMS's interpretation of what 42 U.S.C. § 1396p(d)(4)(A) requires.
Upon determining that the Commissioner erred in denying benefits, the Court may remand the case for further proceedings or award benefits. Remand for further administrative proceedings is appropriate only if enhancement of the record would be useful.
Therefore, the decision of the Social Security Commissioner is REVERSED and the action is REMANDED for an award of benefits. In addition, the Court finds that Plaintiff was not overpaid for the period of June 1, 2008 to June 1, 2010, and therefore is not liable to the SSA in the amount of $18,739.00.
