Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

VOGEL v. SULLIVAN

February 22, 1990

RAYMOND VOGEL, Plaintiff,
v.
LOUIS W. SULLIVAN, M.D., Secretary of Health and Human Services, Defendant



The opinion of the court was delivered by: MORAN

 JAMES B. MORAN, UNITED STATES DISTRICT JUDGE

 On December 1, 1988, defendant Louis Sullivan ("Secretary") denied the application of plaintiff Raymond Vogel ("Vogel") for old-age insurance benefits. Vogel now seeks review of this decision, arguing that the Secretary's conclusion that Vogel did not qualify for benefits on the basis of insufficient quarterly earnings is not supported by substantial evidence. Before this court are motions for summary judgment filed by both parties. For the following reasons, we grant the Secretary's motion and deny Vogel's.

 FACTS

 Vogel was born on July 24, 1921. To qualify for full old-age insurance coverage under 42 U.S.C. § 402(a) (1982 & Supp. V 1987), both parties agree, Vogel needs 32 quarters of coverage -- one for each year between 1950 and 1983, the year he reached age 62. 42 U.S.C. § 414(a). *fn1" When Vogel first attempted to secure social security retirement benefits in 1984, the Secretary credited him with only 25 quarters of coverage, earned prior to 1982, *fn2" and on that basis denied his claim (A.R. 62-67). Although Vogel claimed to be employed by the Post Construction Company for seven additional quarters between 1982 and 1984, the Secretary found that Vogel did not have a valid employment relationship with the company, and therefore payments received pursuant to this arrangement were deleted from Vogel's earnings. Vogel did not appeal this ruling at the time, nor does he now contest it.

 Since 1958, Vogel has owned an eight-unit apartment building at 1517 Bonnie Brae, River Forest, Illinois, and has rented out seven of those units, retaining the eighth for his own occupancy. In the wake of the Secretary's 1984 denial of his application for retirement benefits, Vogel formed the 1517 Bonnie Brae Building Corporation, allegedly on the advice of his accountant for tax purposes, and has served as its sole stockholder and officer since its inception. According to its Articles of Incorporation, the 1517 Bonnie Brae Building Corporation was formed "to acquire, own, use, lease as lessor or lessee, convey and otherwise deal in and with real property and any interest therein" as well as "to engage in any lawful act or activities for which corporations may be organized under the Illinois Close Corporation Act, relative to the foregoing" (A.R. 103). As an employee of this corporation, Vogel drew $ 300 a month but was responsible for the same duties that he performed without remuneration prior to incorporation; those duties consisted of collecting rents from the tenants, paying bills and keeping books, doing minor repairs, and arranging for the maintenance of the building (A.R. 26-28). The corporation additionally employed a handyman, who had worked for Vogel for approximately 30 years prior to incorporation, to mow the lawn, clean hallways, perform minor clean-up jobs, and do some repairs when Vogel was unavailable. On the basis of the additional quarters of coverage that Vogel's $ 300-a-month salary arguably translates into, he filed a new application for old-age insurance benefits on April 4, 1986.

 Predictably unhappy with this result, Vogel requested -- and was granted -- review of the ALJ's ruling by the Appeals Council of the Department of Health and Human Services. The Appeals Council notified Vogel on August 30, 1988, of its proposed conclusion, which was essentially the same as the ALJ's, and invited further argument and the submission of additional evidence (A.R. 189-90). Vogel's lawyer, responding to this request, submitted a letter in which he reemphasized Vogel's position that the 1517 Bonnie Brae Building Corporation earnings entitled him to old-age benefits. Through his lawyer, Vogel additionally asserted that the Secretary had under-credited him for the pre-1982 period by attributing to him but 25 of the 28 quarters of coverage that he had allegedly earned. Vogel's lawyer requested an explanation of how the Secretary had arrived at the "25" figure, but rather than submit any evidence to contest the Secretary's calculations, he merely advised the Appeals Council that Vogel had "provided [him] with copies of tax returns from 1951 through and including 1956 and one for 1958" and offered to "provide [the tax returns] upon request" (A.R. 193). With respect to Vogel's claim that he had earned seven quarters of coverage by virtue of his employment relationship with the 1517 Bonnie Brae Building Corporation, the Appeals Council used slightly different legal analysis but adopted the ALJ's findings of fact and ultimate conclusion that Vogel did not qualify for benefits. The Appeals Council similarly rejected Vogel's claim of 28 quarters of coverage prior to 1982, explaining that the Secretary's records lacked documentation of self-employment income for 1956 and 1957 and that unless the claimant provides evidence proving otherwise, these records are conclusive. The decision of the Appeals Council is the final decision of the Secretary and, pursuant to 42 U.S.C. § 405(g) (1982), Vogel filed an action in this court on January 30, 1989, seeking review of the Secretary's decision.

 DISCUSSION

 Rather than make de novo findings of fact, this court must adhere to any factual determination that is supported by substantial evidence, Davis v. Califano, 603 F.2d 618, 624-25 (7th Cir. 1979), 42 U.S.C. § 405(g), and uphold the decision if the record as a whole contains substantial evidence to support it, Garfield v. Schweiker, 732 F.2d 605, 607 (7th Cir. 1984), provided there has been no error of law, which would warrant reversal "irrespective of the volume of evidence supporting the factual findings." Schmoll v. Harris, 636 F.2d 1146, 1150 (7th Cir. 1980). Evidence is "substantial" if "'a reasonable mind might accept [it] as adequate to support [the] conclusion.'" Richardson v. Perales, 402 U.S. 389, 401, 28 L. Ed. 2d 842, 91 S. Ct. 1420 (1971) (citing Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 83 L. Ed. 126, 59 S. Ct. 206 (1938)).

 A. Income from the 1517 Bonnie Brae Building Corporation

 Under the Social Security Act, 42 U.S.C. § 301 et seq. (1982 & Supp. V 1987), an individual is eligible for old-age insurance benefits upon earning a specified amount in wages or self-employment income over a certain period of time. 42 U.S.C. §§ 413, 414. Excluded from self-employment earnings for the purpose of determining eligibility, however, is income from the rental of real estate and from personal property leased with the real estate, unless such income is "received in the course of a trade or business as a real estate dealer." 42 U.S.C. § 411(a)(1); see also 20 C.F.R. § 404.1082(a) (1989); Delno v. Celebrezze, 347 F.2d 159, 162 (9th Cir. 1965). Regulations promulgated by the Social Security Administration provide further that rental income is not excluded to the extent that "services are also provided to the occupant" where such services are "primarily for the occupant's convenience and are other than those usually provided in connection with the rental of rooms or other space for occupancy only." 20 C.F.R. § 404.1082(d)(2) (1989). The rationale behind this exception for passive rental income is informed by the underlying purpose of old-age insurance; the system purports "to protect workers and their dependents from the risk of loss of income due to the insured's old age," and therefore an exclusion is made for "the receipt of income from the investment of capital," which old age would presumably not interrupt. Delno, 347 F.2d at 161; Joyce v. Mathews, 569 F.2d 1039, 1041 (8th Cir. 1978).

 This regulatory scheme certainly excludes Vogel's rental earnings from the units at 1517 Bonnie Brae prior to its incorporation in 1984; Vogel argues, however, that the $ 300 monthly salary that he drew subsequently from the 1517 Bonnie Brae Building Corporation, a valid corporation under Illinois law, constituted wages rather than self-employment income and thus is not subject to the rental income exclusion. In denying Vogel's claim for benefits the Appeals Council rejected the argument that incorporation automatically transforms self-employment income into wages and instead inquired into whether the formation of the 1517 Bonnie Brae Building Corporation represented a change in substance as well as form. Because the Council found there to be no change in Vogel's duties or services performed, it concluded that his affiliation with the corporation did not amount to "a valid employer-employee relationship" and that income "received from the corporation was not wages" (A.R. 8). Although couching the dispute as a factual battle, Vogel appears fundamentally to contest the legal standard that the Secretary used in reaching his conclusion, arguing that he was not justified in crossing the corporate moat that Vogel had built around his earnings from 1517 Bonnie Brae.

 The framework for the Secretary's analysis and ultimate ruling was drawn from a 1978 social security ruling incorporating an Eighth Circuit case that presented nearly identical facts. See S.S.R. 78-28c (Cum. Ed. 1978); Joyce v. Mathews, 569 F.2d 1039 (8th Cir. 1978). In Joyce, the claimants, a married couple, were sole officers, directors and shareholders of Priorview Properties, Inc., a corporation that purported to "'buy, sell, lease, own, possess, mortgage, operate, and manage real and personal property . . . .'" 569 F.2d at 1040. The claimants deeded two parcels of property, comprising seven apartments in all, to the corporation; both husband and wife received a quarterly wage of $ 50 allegedly as compensation for work in their capacities as officers and for services rendered to maintain the premises, such as cleaning common areas and vacant apartments, finding tenants, collecting rent, and handling tenant complaints. Id. at 1040-41. Corporate income, in the form of rent derived from the leased apartments, was kept in a checking account in the corporation's name that was used almost exclusively for corporate purposes, and annual shareholder meetings were held. The Joyce court, while acknowledging several legitimate business reasons for incorporation proffered by the claimants, such as facilitating the transfer of the corporation-owned properties to the claimants' children and limiting their personal liability, ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.