SECTION 204(a) and (b) (42 U.S.C. 404(a) and (b)) RECOVERY OF OVERPAYMENT-PRERECOUPMENT ORAL HEARINGS 20 CFR 404.502 and 404.506-404.509 CALIFANO v. YAMASAKI, 47 U.S. L.W. 4765 (June 20, 1979) SSR 79-30c Section 204(a) of the Social Security Act provides that when an overpayment of title II benefits occurs, proper adjustment or recovery shall be made by decreasing any payment under title II to which the overpaid person is entitled or by requiring refund of the overpayment. Section 204(b) of the Social Security Act provides that when an overpayment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault, if the adjustment or recovery would defeat the purpose of title II or be against equity and good conscience. Held, given the nature of the statutory standards in section 204(b) under which the right of the Secretary to recover an overpayment of benefits may be waived, an overpaid person who has been denied waiver must be given the opportunity for an oral hearing before recoupment begins. BLACKMUN, Supreme Court Justice: Petitioner, the Secretary of the Department of Health, Education, and Welfare (HEW), has determined that respondents, beneficiaries under the Social Security Act, have been overpaid. He seeks to recoup those overpayments by withholding future benefits to which respondents would otherwise be entitled. Respondents in turn have requested reconsideration or waiver of recoupment under §204 of the Act, 42 U.S.C. §404. The primary questions in this case are whether petitioner must grant respondents the opportunity for an oral hearing before recoupment begins, and whether jurisdiction under §205(g) of the Act, 42 U.S.C. §405(g), permits a federal district court to certify a nationwide class and grant injunctive relief. Section 204(a) (1) of the Social Security Act, 53 Stat. 1368, as amended, 42 U.S.C. §404(a) (1), authorizes the recovery of overpayments made to a beneficiary under the old-age, survivors', or disability insurance programs administered by HEW. In particular, it permits the Secretary to recoup erroneous overpayments by decreasing future payments to which the overpaid person is entitled. Section 204(b), however, expressly limits the recoupment authority conferred by §204(a) (1). Section 204(b) commands that "there shall be no adjustment of payments to, or recovery by The Secretary has undertaken to define the terms employed in § 204(b). Under his regulations, "without fault" means that the recipient neither knew nor should have known that the overpayment or the information on which it was based was incorrect. 20 CFR § 404.507 (1978). For example, a recipient who justifiably relied upon erroneous information from an official source within the Social Security Administration would be "without fault." § 404.510. The regulations say that to "defeat the purpose of the subchapter" is to "deprive a person of income required for ordinary and necessary living expenses." § 404.508(a). Those expenses are defined to include, among other things, food, rent, and medical bills. § 404.508(a) (1) and (2). Recoupment is "against equity and good conscience" when the recipient "because of a notice that such payment would be made or by reason of the incorrect payment, relinquished a valuable right... or changed his position for the worse." § 404.509. An example of detrimental reliance that would be sufficient is permitting private hospital insurance to lapse in the mistaken expectation of receiving federal hospital benefits. Ibid. The Secretary's practice is to make an ex parte determination under § 204(a) that an overpayment has been made, to notify the recipient of that determination, and then to shift to the recipient the burden of 'In pertinent part, § 204(a) provides: "Whenever the Secretary finds that more or less than the correct amount of payment has been made to any person under this subchapter, proper adjustment or recovery shall be made, under regulations prescribed by the Secretary, as follows: "(1) With respect to payment to a person more than the correct amount, the Secretary shall decrease any payment under this subchapter to which such overpaid person is entitled, or shall require such overpaid person or his estate to refund the amount in excess of the correct amount, or shall decrease any payment under this subchapter payable to his estate or to any other person on the basis of the wages and self-employment income which were the basis of the payments to such overpaid person, or shall apply any combination of the foregoing." Section 204(b) reads in full: "In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience." either (i) seeking reconsideration to contest the accuracy of that determination, or (ii) asking the Secretary to forgive the debt and waive recovery in accordance with § 204(b). If a recipient files a written request for reconsideration or waiver, recoupment is deferred pending action on that request. Social Security Claims Manual §§ 5503.2(c), 5503.4(b) (Dec. 1978) (Claims Manual). The papers are sent to one of the seven regional offices where the request is reviewed. If the regional office decision goes against the recipient, recoupment begins. The recipient's monthly benefits are reduced or terminated' until the overpayment has been recouped. Only if the recipient continues to object is he given an opportunity to present his story in person to someone with authority to decide his case. That opportunity takes the form of an on-the-record de novo evidential hearing before an independent hearing examiner. 20 CFR §§ 404.917, 404.931 (1978). The recipient may seek subsequent review by the Appeals Council, id., at §404.945, and finally by a federal court. § 205(g) of the Act. 42 U.S.C. § 405(g). If it is decided that the Secretary's initial determination was in error, the amounts wrongfully recouped are repaid. || The Elliot Case' The Secretary overpaid the Hawaii respondents, and notified them of this determination to recoup the overpayments. After unsuccessful attempts to obtain administrative relief, they brought suit in the United States District Court for the District of Hawaii challenging the legality of the Secretary's recoupment procedures. They alleged that, because the notice they received was inadequate and because they were not given an opportunity for an oral hearing before recoupment began, the recoupment procedures violated both § 204 of the Act and the Fifth Amendment of the Constitution. They sought class certification, and requested both declaratory and injunctive relief that would require the 'Although during 1977 the average overpayment to old-age and survivors' insurance beneficiaries who were overpaid exceeded $500, only 3.4% of those thus subject to recoupment sought waiver. Brief for Petitioner 45, and n. 33. These figures do not include disability beneficiaries. Ibid. See also Elliott v. Weinberger, 371 F. Supp. 960, 967 (Haw. 1974). 'The Secretary has altered his procedures in several respects since the initiation of this litigation, including: (i) rather than terminate all benefits until recoupment is completed, the Secretary now in nonfraud cases usually reduces the recipient's monthly payments by only 25%, see Claims Manual § 5515 (January 1979); and (ii) recipients who report excessive earnings and are found to have been overpaid now receive notice before, rather than after, recoupment begins. See Elliot v. Weinberger, 564 F. 2d 1219, 1223 (CA9 1977). Neither party contends that these changes moot this case. *Respondent Evelyn Elliot died in 1973. Counsel for the respondent class moved to substitute Nancy Yamasaki as the respondent named in the caption of the case in this Court, and that motion was granted. ________ U.S. _______ (1979). In order to be consistent with the heretofore published reports of these cases, we refer to the decisions in the District Courts and Court of Appeals by their original captions. 'For respondents Isabelle Ortiz, Jordan Silva, and John Vaquilar, the Secretary's determination was based on annual excess earnings reports they filed. The Secretary determined that respondents Raymond Gaines and Nancy Yamasaki were overpaid because of administrative errors. Elliot v. Weinberger, 371 F. Supp., at 965-966. Secretary to cease future recoupment until such time as he provided the class with adequate notice and opportunity for a hearing. App. 1122. The District Court certified a class of "all social security old age and disability benefit recipients resident in the State of Hawaii, who are being or will be subjected to adjustment of their social security benefits pursuant to 42 U.S.C. § 404(a) and (b) without adequate prior notice of the grounds for such action and without a prior hearing on disputed issues relating to such actions." App. 35. The court found jurisdiction under the mandamus statute, 28 U.S.C. § 1361, and granted relief to respondents. The court said that due process required that the Secretary provide an opportunity for an informal oral hearing before an independent decisionmaker prior to recoupment. In so holding, the court relied on Goldberg v. Kelly, 397 U.S. 254 (1970), which determined that, under the Due Process Clause, a statutory right to welfare benefits could not be terminated without prior notice and opportunity for an evidential hearing. The court also held that the Constitution required that the initial overpayment notice be modified to inform the recipient more fully concerning recoupment procedures. Although the court did not discuss respondent's statutory claim, it granted judgment for respondents on both statutory and constitutional grounds and ordered injunctive relief for the class. Elliot v. Weinberger, 371 F. Supp. 960 (Haw. 1974). The Buffington Case Relying on annual earnings reports, the Secretary determined that the individual respondents in Buffington had been overpaid for previous years. After receiving notice, both named respondents sought administrative relief, but were unable to halt recoupment. They then brought suit in the United States District Court for the Western District of Washington. They, too, alleged that the Secretary's recoupment procedures were contrary to both § 204 and the Due Process Clause of the Fifth Amendment. They requested certification of a nationwide class, an injunction ordering repayment of amounts unlawfully withheld, and declaratory and mandamus relief that would require the Secretary to provide notice and an opportunity for a hearing before recoupment begin again. App. 188-201. The District Court certified a nationwide class composed of "all individuals eligible for [old age and survivor's benefits] whose benefits have been or will be reduced or otherwise adjusted without prior notice and opportunity for a hearing." The court, however, excluded from the class residents of Hawaii and the Eastern District of Pennsylvania, where suits raising similar issues were known to have been brought. Id., at 258-259. See, e.g., Mattern v. Weinberger, 519 F. 2d 150 (CA3 1975). 'Respondent Fannie Buffington received wife's benefits. Her husband filed a report which revealed that his earnings had exceeded the statutory limit. Respondent Frances Biner was asked to file an earnings report for 1972 after a check with her employer showed that her earnings exceeded those previously reported. Elliot v. Weinberger, 564 F.2d, at 1224-1225. |