GERALDINE MUND, Bankruptcy Judge.
This is part of the ongoing dispute between Douglas Denoce and Ronald Neff, originating from a series of failed dental procedures. Mr. Denoce obtained a state court judgment for malpractice and has objected to Dr. Neff's claim of heightened exemption on his home. On December 17, 2012, Judge Kaufman ruled in favor of Denoce and held that Neff did not qualify for the heightened exemption, largely on the basis that on the date of bankruptcy he was able to work at gainful employment.
After remand, Judge Kaufman transferred this matter to Judge Mund. I decided that an evidentiary hearing was warranted to clarify, refute, or fill in the BAP opinion.
In preparation for this evidentiary hearing, the Court granted Denoce extensive discovery opportunities. Thus, he chose an expert on the issue of Neff's mental status and set a date for Neff to be examined by that expert.
Denoce also wanted access to the records held by the Social Security Administration (SSA) concerning Neff's physical and mental condition, especially the ones that the SSA used to base its decision to grant Neff disability benefits. He also, apparently, wanted something from the SSA that would show the basis of the calculation of the amount of the disability benefits. To accomplish this, he requested that Neff sign a waiver, which Neff did after the Court created a protective order and confidentiality agreement that had to be signed as well as a limitation on distribution beyond the parties and their experts.
In the evidentiary hearing arguing admission of some of the documents produced at the Rule 2004 examination, Denoce stated that he went to the SSA office and requested the file, was given a disc of downloaded documents, but that it did not contain a complete record. Although he was required to transmit a copy to Michael Kwasigroch (Neff's attorney), he did not do so, but stated that he destroyed the disc because he was afraid of violating the Court's order and because Kwasigroch had not signed the confidentiality agreement. Thus, the only documents that had been marked as exhibits concerning the SSA determination were those produced by Neff at his 2004 examination on August 8, 2011. The Court ruled that these are hearsay could not be authenticated, and did not qualify under any exception, including that for business records.
Similarly, on his witness list Neff had revealed the names of various doctors who had examined him and had prepared reports for the SSA.
The Order Setting Trial Dates specifically provided:
Because Denoce had not subpoenaed these doctors, their reports and other backup material that they had used was inadmissible. It should be noted that Mr. Denoce is a disbarred lawyer with extensive experience in malpractice actions, though he has not practiced in many years. In his objection of the Order Setting Trial Dates, he stated in his declaration:
Thus the Court finds no unfairness in Kwasigroch's trial strategy.
After much pre-hearing work concerning discovery, an evidentiary hearing was held on November 21 and 22. Douglas Denoce represented himself; Ronald Neff was represented by Michael Kwasigroch. The only witness was Dr. Neff. Although Denoce attempted to call Nick Scinocca, the senior investigator for the California Dental Board, the Court found that his testimony would be irrelevant to this claim of exemption. Only a part of his declaration was admitted into evidence.
The basic facts are described on pages 2-15 of the opinion of the Bankruptcy Appellate Panel, filed February 4, 2014 (cross-appeals CC-12-1664-KiTaD and CC-13-1017-KiTaD). Much of that is background and not specifically related to the objection to the enhancement of the claim of exemption. To the extent that the stated facts are relevant, this Court finds few discrepancies as a result of the evidentiary hearing. One issue stated in the BAP opinion that is not supported by the evidence — in that there is a lack of evidence — is "Denoce disputed Neff's claim of a mental disability, which was the sole basis for his SSA disability benefits, arguing that such claim was suspect."
In reviewing the BAP opinion, it is clear that Judge Kaufman had little belief in the credibility of Neff, based on his previous actions concerning the transfer of property during the chapter 13 case and his failure to immediately claim the enhanced homestead exemption. In the present hearing and the motions leading up to it, Denoce largely focused on Neff's credibility. And this, or course, is something that the Court must consider.
Neff's testimony was consistent with his prior testimony. He described his physical and mental issues in similar fashion to his June 17, 2011 testimony.
The burden was on Denoce to put on evidence that was sufficient to overcome the presumption of impairment that was created by the SSA providing disability benefits to Neff. He was unable to do that. Although he had every reason to believe that Neff's attorney would call the doctors who wrote the reports, particularly since Judge Kaufman believed that Neff should have had their declarations to introduce the reports and because they were on Neff's witness list, Neff did not do so. Because the burden is on Denoce to show through clear evidence that the SSA employees and the civilian doctors did not do their duty, there is a total lack of evidence on this point. It is a classic litigation technique to have the opposition rely on one of your witnesses and then fail to call that witness. This is not wrongful. Denoce could have and should have subpoenaed the doctors to appear or brought in his own experts, he failed to do so. As stated in his trial brief.
Denoce erred in his conviction that the burden is on Neff to produce medical evidence. The mere existence of the SSA award shifts the responsibility to Denoce to overcome the presumption that a disability exists.
As to the SSA itself, although Denoce complained that the records that he received were incomplete, he destroyed all evidence of what he received. Further, he did not subpoena the custodian of records or anyone else from the SSA to testify as to their procedures in granting disability claims, the process actually followed in this case, or the basis for the amount of the monthly payments being received by Neff.
Neff may be the biggest liar in the world — although the Court does not find this to be the case — but that does not absolve Denoce of his burden to produce evidence of error by the SSA or error or wrongdoing by Neff or the examining doctors.
As noted by the BAP, the existence of a disability is only one of two prongs to claim the enhanced exemption under California law:
Thus the other major issue here is whether, on the date of this bankruptcy petition, Neff was capable of "substantial gainful employment." It is unclear from the award letter whether the SSA granted Neff benefits under the Social Security Disability Insurance program (SSDI) or under Supplemental Security Income program (SSI). Both have similar requirements as to earning ability.
Basically, SSDI applies to individuals who have earned sufficient social security credits to be eligible for their social security benefits, but have not yet reached the minimum age to draw those benefits. This is described in 42 U.S.C. § 423.
42 U.S.C. § 1382c is identical to the above except that it does not limit benefits if the disability is due to alcohol or drugs and it does not refer to the Senior Citizens' Right to Work Act.
The definition that is incumbent on the SSA as to "substantial gainful activity" is quite different for SSDI and SSI. When applied to SSDI:
Substantial gainful activity means work that—
20 C.F.R. § 404.1510
However, when considered as to SSI:
20 C.F.R. § 416.972
Therefore, it appears that the SSA determined that Neff could not perform even part-time work. However, there is no specific evidence of the findings of the SSA.
In his trial brief
In this case, bankruptcy exemptions are determined under California, not Federal law. CCP § 704.730(a)(3)(B) allowed the increase exemption as follows:
Without clarifying how it fits into the language of the CFR, the BAP has instructed in this case that the word "substantial" also modifies the term "gainful" as well as "employment." This "suggests that the debtor must be physically, mentally and emotionally able to work enough hours, at a high enough net wage, to contribute materially to his or her support." Based on this, the test propounded by the BAP is as follows:
Given the lack of independent evidence of Neff's physical condition, Denoce had to rely on Neff's prior statements of his desire to work and his qualifications to be employed in October 2011, when he filed this bankruptcy case. It is clear that in 2009 he wanted to continue to work as a dentist one or two days a week and even more in 2007. When he lost his license, he became much more limited. He cannot be a dental hygienist without a license to do so. He can work as a dental assistant, if anyone would hire him. This is doubtful given his age and the fact that he continues to use high doses of drugs that may be impairing his physical and mental abilities. He also testified to shakiness and a lack of fine motor coordination, which the Court finds would eliminate work as a dental assistant. While he has the knowledge to review claims for a dental insurance company, there is no evidence that he would be hired to do so.
As noted, Denoce brought in no third-party witnesses as to Neff's possibility of employment or the amount that he could earn. Neff gave the sole testimony on these subjects.
Without taking credibility into consideration, it appears to the Court that Neff is seriously disabled. In 1989 and 2010 he was in a drug and alcohol rehabilitation program He is still highly dependent on drugs, taking a daily series of medications, including Oxycodone (10 mg twice a day), Xanax, Zoloft, and morphine (30 mg continuous release each morning). He also has at least one criminal conviction. He testified that he could be capable of working as a dental assistant for about ten hours per week making a gross salary of $15 per hour. This is, of course, assuming that anyone would hire him. While the SSA looks to a variety of factors in determining whether to award disability payments, age and the probability of gainful employment are reviewed as to each individual applicant. Although he appeared to be able to work longer hours as a consultant for an insurance company, there is no evidence of the normal salary or that he would actually be hired for such a job — particularly given his criminal record, his history of alcohol and substance abuse, and his continued drug dependency. At the time that he filed this case, Neff was 59 or 60 years old.
The Court finds that his physical condition has been largely stable during the pendency of this bankruptcy case. Therefore no separate analysis must be made to backdate the findings to the date of filing the case or to the date of the approval of the SSA benefits.
Beyond his possible earnings as a dental assistant, Neff also received insurance payments from Northwestern Mutual under two policies: D421679 (overhead expense insurance) and D421664 (income replacement). The overhead expense insurance policy had a two year duration. It is unclear how long the income replacement policy was or would be in effect. There is also no evidence that the terms of this policy were not revealed to the SSA prior to the decision by that agency. Under the income replacement policy, Neff received approximately $2,300 per month. The last evidence of payment is for the period ending March 30, 2010.
Although usually applied in the context of criminal actions brought by the government, the general rule is that "in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties." United States v. Armstrong, 517 U.S. 456, 464, 116 S.Ct. 1480, 1486, 134 L. Ed. 2d 687 (1996) quoting United States v. Chemical Foundation, Inc., 272 U.S. 1, 14-15, 47 S.Ct. 1, 6, 71 S.Ct. 131 (1926). This same proposition is also cited in Bracy v. Gramley, 520 U.S. 899, 909, 117 S.Ct. 1793, 1799 (1997).
A factual situation somewhat closer to the one before this court is the case of Pasadena Research Laboratories, Inc. v. United States, 169 F.2d 375 (9
While the Court does not accept this to mean that the doctors who examined Neff could not or did not make a mistake in their analysis of his physical and mental condition or that the SSA employees did not err in determining that he was entitled to disability payments, it not only shifts the burden to Denoce to demonstrate that there were errors, but to do so by clear evidence that such errors occurred.
Although Denoce tried to do so, his evidentiary basis was lacking.
Denoce bears the burden of overcoming the SSA ruling. To do so he needs to show by clear evidence that the SSA did not properly discharge its duties when it found that Neff was entitled to disability benefits. This included both the necessary physical and mental problems, but also that he could not engage in substantial gainful employment.
There is a lack of admissible evidence as to the first issue. Neff's history shows a need for a significant daily ingestion of medication to handle his pain. He also has testified to mental issues that interfere with his ability to work.
As to the second issue, it appears that Neff was and is incapable of realistic employment. The only issue is whether that employment — if it were to exist — must be able to provide enough income to allow him to live, even at the poverty level. The SSA did not think so. When he filed bankruptcy, he was receiving about $1,922 per month in SSA disability payments. Obviously an earned income of some $600 per month would not prevent him from receiving these disability payments. As noted above, the Court does not know if Neff was continuing to receive the Northwestern Insurance income replacement payments once he obtained the SSA benefits or whether these would be put into the calculation of "substantial gainful employment." The Court cannot speculate and take into account this lack of evidence.
The Court need not determine whether the BAP's interpretation of CCP § 704.730(3)(B) is correct or not. Gross income of $7,200 per year for an individual simply cannot be determined to be "substantial gainful employment."
