BOWDEN v. COMMISSIONER OF SOCIAL SECURITY (2018)

ORDER

Hunter Lafayette Bowden, represented by counsel, appeals a district court judgment upholding a decision by an administrative law judge (ALJ) to award a monthly supplemental security income (SSI) benefit, but to reduce that benefit amount by one-third in accordance with the applicable statute and social security regulations. See 42 U.S.C. § 405(g). The parties have waived oral argument, and this panel unanimously agrees that oral argument is not needed. See Fed. R. App. P. 34(a).

Bowden filed his application for SSI in October 2013, based on his intellectual disability and non-Mosaic Down's Syndrome. He was awarded benefits beginning in October 2013, but the Social Security Administration (SSA) reduced the monthly benefit amount by one-third because he was living with his parents and receiving food and shelter in each of their homes. See 42 U.S.C. § 1382a(a)(2)(A)(i); 20 C.F.R. § 416.1131. Bowden alternated his residence weekly between the two parents, who had joint custody.

As his guardian, Bowden's mother contested the one-third reduction, relying on a lease agreement between Bowden and his parents that required him to pay $260.34 in monthly rent to them, divided equally between the two parents. She also indicated that, beginning in January 2014, Bowden contributed to the cost of his food (even though he did not buy the food separately), and that he paid a monthly average of $130.17 toward total household expenses. However, Bowden did not live in a separate household from his landlord parents, was not responsible for any of the household bills, would not be evicted if he stopped paying the agreed-upon rental amount, ate meals with others in the house, and had access to the entire residence.

After a hearing, the ALJ upheld the SSI award and also upheld the one-third reduction because Bowden failed to establish that he was “living in his own household” as defined in the SSA's Program Operations Manual System (POMS) SI 00835.120(B)(1).¹ Therefore, the ALJ concluded that the in-kind support, defined as “any food or shelter that is given to [a beneficiary] or that [a beneficiary] receive[s] because someone else pays for it,” see 20 C.F.R. § 416.1130(b), was properly calculated at one-third of the total benefit rate, and the total benefit was adjusted accordingly pursuant to the SSA regulations. See 20 C.F.R. § 416.1131. The Appeals Council concurred with the ALJ that Bowden was not living in his own separate economic household as described under POMS SI 00835.120, and it denied review.

Bowden requested judicial review, and the district court concluded that the ALJ properly determined that the one-third reduction applied to Bowden's circumstances. Bowden now argues that the Commissioner's decision to apply the one-third reduction rule—when Bowden “receives no actual economic benefit from his living arrangements”—was arbitrary and capricious. He also argues that the regulatory definition of “in-kind support and maintenance,” see 20 C.F.R. § 416.1130(b), is unambiguous, leaving no room for deference to the Commissioner's alleged misapplication of that regulation. Bowden also raises an equal-protection challenge to the SSA's disparate treatment of beneficiaries under its policy governing the valuation of in-kind support depending on a beneficiary's state of residence.

We review de novo district court decisions in social security cases. Ealy v. Comm'r of Soc. Sec., 594 F.3d 504, 512 (6th Cir. 2010). However, our review is limited to determining whether the Commissioner's findings of fact, as set forth in an ALJ's decision, are supported by substantial evidence and whether the Commissioner applied the correct legal standards. Kyle v. Comm'r of Soc. Sec., 609 F.3d 847, 854 (6th Cir. 2010). A decision is supported by substantial evidence when “a ‘reasonable mind might accept’ the relevant evidence ‘as adequate to support a conclusion.’ ” Warner v. Comm'r of Soc. Sec., 375 F.3d 387, 390 (6th Cir. 2004) (quoting Kirk v. Sec'y of Health & Human Servs., 667 F.2d 524, 535 (6th Cir. 1981)). We defer to an ALJ's findings if they are supported by substantial evidence, regardless of whether the record contains substantial evidence to support a different conclusion. Lindsley v. Comm'r of Soc. Sec., 560 F.3d 601, 604-05 (6th Cir. 2009) (citing Felisky v. Bowen, 35 F.3d 1027, 1035 (6th Cir.1994)).

Regulatory Framework

As a disabled person, Bowden is eligible for SSI benefits under Title XVI of the Social Security Act, 42 U.S.C. §§ 1381-1382b, but the SSA is required to consider his income to arrive at the amount of his benefit. See 20 C.F.R. § 416.1100. Any cash or “in-kind” support to meet a beneficiary's needs for food and shelter is considered “income” and generally reduces the benefit. 42 U.S.C. § 1382a(a)(2)(A); 20 C.F.R. § 416.1102. If a beneficiary lives in another person's household and receives “support and maintenance in kind” from that person, the benefit is reduced by one-third; this is referred to as the “one-third reduction rule.” 42 U.S.C. § 1382a(a)(2)(A); 20 C.F.R. § 416.1131. “The one-third reduction applies in full,” with no other income exclusions to the reduction amount. 20 C.F.R. § 416.1131(b). However, a person is considered to be living in his or her “own household” if the person is liable to a landlord for rent charge to live there and is paying “at least a pro rata share of household and operating expenses.” 20 C.F.R. § 416.1132(c)(2), (c)(4).

Under 20 C.F.R. § 416.1133(a), if a beneficiary is paying a pro rata share of the household expenses and not receiving in-kind support and maintenance (ISM) from anyone else in the household, then the one-third reduction rule does not apply. Instead, the SSA, in determining the reduction of the benefit, uses the “presumed value rule” (PVR). 20 C.F.R. § 416.1140. This rule permits a beneficiary to lessen the benefit reduction by showing that the amount of unearned income, as reflected in a “presumed maximum value” (PMV) of the food or shelter being received—which the SSA presumes is one-third of the benefit rate plus $20, see 20 C.F.R. § 416.1140(a)(1)—is greater than the actual value of the food and shelter. If a beneficiary meets this burden, the actual value of the food and shelter will be used to reduce the benefit rather than the PMV. 20 C.F.R. § 416.1140(b)(2).

Under 20 C.F.R. § 416.1130(b), a person is “not receiving in-kind support and maintenance in the form of room or rent if [that person is] paying the amount charged under a business arrangement.” A “business arrangement exists when the amount of monthly rent required to be paid equals the current market rental value,” but “in the Seventh Circuit ․ a business arrangement exists when the amount of monthly rent required to be paid equals or exceeds the presumed maximum value described in § 416.1140(a)(1).” § 416.1130(b). Therefore, in Illinois, Indiana, and Wisconsin, the PVR rule is applied differently than in other states as a result of litigation prompting this dichotomy. See Jackson v. Schweiker, 683 F.2d 1076, 1086 (7th Cir. 1982); see also Ruppert v. Bowen, 871 F.2d 1172, 1180 (2d Cir. 1989).

Because Bowden argued that his lease agreement with his parents created a “business arrangement” that warranted application of the PVR rule, the ALJ looked to the POMS to decide this question. The SSA's POMS sets forth further guidance, instructions, and policies regarding an applicant's living arrangements and rental liability in deciding whether the one-third reduction rule (referred to as “VTR” in the POMS) should be applied. Under POMS SI 000835.120(E)(1)(c), the SSA considers four “rental liability” factors to decide whether a beneficiary is living in his or her own household. These factors, to be examined when a claimant is renting a room in a private dwelling, are (1) whether the renter and the landlord make joint decisions regarding home repairs and improvement and whether the claimant is responsible for the expenses associated with operating the residence; (2) whether the rent is based on current market value and whether the renter would be evicted or liable for back rent if he or she failed to pay the rent; (3) whether the renter purchased, stored, and eats most of his or her food separately from the rest of the household; and (4) whether the renter has access to only part of the residence and has a separate bedroom, cooking facilities, and bathroom. If the adjudicator determines that these factors, cumulatively, show that the claimant is not living in a separate household, then “rental liability does not exist” and the reviewer must “proceed with the sequential development (SI 00835.001B).”

This “sequential development” leads to six more POMS sections under which a claimant's living arrangement is determined for purposes of deciding whether to apply the VTR or the PVR. Under POMS SI 00835.140 (Separate Consumption), the SSA asks whether a beneficiary consumes meals separately from the household, i.e., whether the individual takes “all meals elsewhere” and is not reimbursed by the household for this food. If so, the individual “is not subject to the VTR.” In the next sequential step, POMS SI 00835.150 (Separate Purchase of Food), the SSA considers whether a beneficiary “physically shops for his/her own food or gives instructions and money to someone to buy the food for him/her.” The renter is not subject to the VTR when food is purchased separately because the beneficiary is not receiving “both food and shelter from the household.”

Next, the SSA looks to whether a “sharing arrangement exists” by examining whether a beneficiary's financial contribution to household expenses is equal to a pro rata share of those expenses, provided that they include food and shelter. POMS SI 00835.160. Likewise, if a beneficiary “earmarks” a contribution to household expenses as payment specifically for food or shelter, the SSA examines whether that payment is a pro rata share of either the food expenses or expenses to maintain the shelter. POMS SI 00835.170. If the earmarked amount does not equal or exceed the pro rata share, the SSA applies the VTR rather than the PVR. The last step in the sequential review is applying the VTR after concluding, based on the above steps, that a beneficiary is receiving both food and shelter in the household. POMS SI 000835.200 (The One-third Reduction Provision). This POMS reiterates that the VTR does not apply in circumstances showing that an individual is separately consuming food, separately purchasing food, or contributing a pro rata share toward food or shelter.

The ALJ's Analysis

The ALJ applied the above statutes, regulations, and POMS policies to conclude that the one-third reduction rule applied in Bowden's circumstances. The ALJ first described the lease agreement and testimony by Bowden's mother revealing that Bowden agreed to pay a monthly rental amount that she had calculated by using the SSA's PMV amount plus $20; that he would not be making decisions regarding home repairs or improvements; that his only financial responsibility was for rent; that he would not be subject to eviction should he fail to pay the rent; that he had full access to the lot and the home; that he had his own bedroom but shared cooking facilities and bathrooms; that he did not purchase his own food or eat separately; and that his financial contribution did not equal his pro rata share of the household expenses of each household.

Considering the various factors about Bowden's living arrangements at his parents' two homes, the ALJ determined that he had not established that he was living in his “own household” as defined under § 416.1132 and thus was subject to the one-third reduction under § 416.1131. The ALJ applied POMS SI 000835.120, noting that: (1) Bowden's contribution to household expenses and rent did not equal his pro rata “share” of the expenses; (2) he did not pay separately for any utilities or groceries; (3) although he had his own bedroom in each home, he shared the bathrooms, cooking facilities, dining rooms, and the rest of the two homes; (4) he was not expected to contribute to any household repairs; (5) even if he failed to pay for rent, he would not face eviction; and (6) the documents from the family's bank account showed debits that differed from Bowden's receipts that he submitted and also revealed other unexplained withdrawals, both less and “much greater” than he had reported during the litigation, suggesting a comingling of his funds with his parents'. The ALJ also noted that the cases that Bowden cited in support of his arguments were from other circuits and not controlling in this circuit.

Appeals Council's Review

The Appeals Council rejected Bowden's arguments that the one-third reduction should not apply because he was paying rent under a “business arrangement,” see 20 C.F.R. § 416.1130(b), and that the SSA should follow the Seventh and Second Circuits in finding that Bowden was receiving no actual economic benefit from his living in rooms at his parents' homes that would subject him to the one-third reduction rule. The Appeals Council agreed with the ALJ that Bowden was not living in a separate household as defined under POMS SI 000835.200.

District Court's Decision

The district court determined that substantial evidence supported the Commissioner's application of the one-third reduction rule because her application of the four “rental liability” factors as set forth in POMS SI 00835.120 led to the reasoned conclusion that Bowden was not functioning independently as a “separate economic unit” in the two households where he was living and that he thus did not have the requisite rental liability for the PMV to apply to his in-kind income.

The district court applied the standard of deference to the Commissioner's interpretation of the applicable statutes as set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), concluding that the Commissioner correctly interpreted the statute, which unambiguously requires the SSA to apply the one-third reduction rule when a beneficiary has not established that he lives in his “own household” and is receiving in-kind food and shelter. The district court found that Bowden's disagreement with the SSA's differing applications of the PVR depending on the beneficiary's state of residence was irrelevant because Bowden did not have a “business arrangement” for his living arrangement (LA), see 20 C.F.R. § 416.1130(b), or show that the PVR applied in his case. The district court deferred to the Commissioner's interpretation of the statute as reflected in its regulations and found that those regulations were not “arbitrary, capricious, or manifestly contrary to” 42 U.S.C. § 1382a(a)(2), which defines unearned in-kind income and directs when a benefit should be reduced by one-third. See Henry Ford Health Sys. v. Dep't of Health & Human Servs., 654 F.3d 660, 666 (6th Cir. 2011).

The district court acknowledged that the SSA's POMS statements were not controlling but still found them persuasive. See Davis v. Sec'y of Health & Human Servs., 867 F.2d 336, 340 (6th Cir. 1989). The court concluded that the SSA's interpretation of the applicable regulation as expressed in the POMS was not “plainly erroneous or inconsistent with the regulation” at issue and thus entitled to substantial deference. See Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997). In arriving at this conclusion, the district court noted the ambiguity in the regulatory definitions of “business arrangement” and “rental liability.” See 20 C.F.R. §§ 416.1130(b), 416.1132(c)(2). However, because the SSA's policy statements interpreting its regulations were not plainly erroneous, the district court upheld the Commissioner's application of the VTR to Bowden's benefit.

The district court also determined that the result was “logical and rational” and “in accordance with law,” quoting Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374, 118 S.Ct. 818, 139 L.Ed.2d 797 (1998) and Atrium Med. Ctr. v. United States Dep't of Health & Human Servs., 766 F.3d 560, 566 (6th Cir. 2014). The court reasoned that the one-third reduction rule was based on the reasonable presumption by Congress that one-third of the payable SSI benefit “represents a normal budget for food and shelter” when in-kind support is provided to the beneficiary as part of his or her living arrangement. Regarding Bowden's argument that SSA's varying application of the PVR in different states denies beneficiaries their rights to due process and equal protection under the Fifth Amendment, the district court explained that Bowden lacked standing to present this argument because the PVR was irrelevant to his LA and benefit. See ACLU v. Nat'l Sec. Agency, 493 F.3d 644, 659 (6th Cir. 2007). Accordingly, the district court upheld the Commissioner's decision to reduce Bowden's benefit by one-third.

Analysis

Without directly challenging the Commissioner's finding that he failed to show that he lived in his “own household” or had “rental liability” as defined by the regulations and the POMS policies, Bowden argues that his lease constitutes a business arrangement, placing his LA outside of the VTR, and that the application of the VTR to his benefit is arbitrary and capricious. He urges this court to follow the Seventh Circuit's determination in Jackson that the SSA may not impute any in-kind income to a beneficiary when that income is not “actually available” to the recipient to purchase basic needs. See Jackson, 683 F.2d at 1086. Next, he argues that the district court erroneously concluded that he lacked standing to challenge the Commissioner's disparate treatment of benefit recipients based on their state of residence and that the district court erroneously deferred to the Commissioner's interpretation of the regulations because they are unambiguous regarding the definition of ISM and the amount of rent that is considered a “business arrangement” under 20 C.F.R. § 416.1130(b).

The Commissioner's interpretation of the regulations at issue is entitled to substantial deference because the interpretation is not plainly erroneous or inconsistent with the regulations. See Ferriell v. Comm'r of Soc. Sec., 614 F.3d 611, 615 (6th Cir. 2010) (citing Auer, 519 U.S. at 461, 117 S.Ct. 905). For the same reasons stated by the ALJ and the district court, we uphold the Commissioner's interpretation of the statute and regulations and agree that the one-third reduction applies to Bowden's benefit. The SSA regulations and policies clearly follow the statute defining in-kind unearned income and when the one-third reduction rule should be applied. Bowden argues that the POMS policies are arbitrary and capricious. However, the POMS policy guidelines do not stray from this statutory definition, and they set forth a reasonable means to determine whether a separate household exists for purposes of reducing a recipient's benefit. Therefore, the ALJ's conclusion in this regard will not be disturbed.

Bowden also argues that the PMV rule should be applied to his benefit because, otherwise, the SSA's differing application of that rule to residents of states within the Seventh and Second Circuits, as well as Texas, is a denial of his right to equal protection and due process under the Fifth Amendment. Although Bowden is correct that the SSA treats residents differently for purposes of determining whether a “business arrangement” exists under 20 C.F.R. § 416.1130(b), the SSA has interpreted the “business arrangement” exception to apply only when the PVR applies. Here, the Commissioner determined that the one-third reduction rule (not the PVR) applied to Bowden's case because he failed to show that he is living in his “own household.” Thus, the Commissioner determined that the “business arrangement” exception did not apply in his case.

Bowden claims that the SSA regulations require the Commissioner to apply the “business arrangement” exception to his case. But the regulation involving the “business arrangement” exception is ambiguous. 20 C.F.R. § 416.1130(b) only defines a “business arrangement”; it does not establish the boundaries of the “business arrangement” exception. Thus, Auer deference is afforded to the SSA's interpretations. “The deference accorded to an agency's interpretation of its own ambiguous regulation is substantial and afforded even greater consideration than the Chevron deference accorded to an interpretation of an ambiguous statute.” Thornton v. Graphic Commc'ns Conference of Int'l Bhd. of Teamsters Supplemental Ret. & Disability Fund, 566 F.3d 597, 611 (6th Cir. 2009). We give controlling weight to the SSA's interpretation of such ambiguous terms and their application unless it is “plainly erroneous or inconsistent with the regulation.” Auer, 519 U.S. at 461, 117 S.Ct. 905 (citation omitted). As discussed above, we uphold the SSA's interpretation of the requirements for applying the one-third reduction rule as set forth in the POMS criteria in this case because the interpretation was not plainly erroneous or inconsistent with its regulations. Therefore, Bowden's argument that a business arrangement necessarily takes him out of the VTR category is flawed.

Because the SSA has taken the position that the business arrangement exception applies only when the PVR applies, the different definitions of the “business arrangement” exception are inconsequential in Bowden's case. Indeed, even in the states covered by the amended regulation, Bowden would not qualify for the PMV rule. In Jackson, it was not disputed that the SSI applicant was living in her “own household,” as that term is defined under the regulations, and the court observed that the PMV “provision is specifically applicable to a person who lives in his own household ․ or the household of another and receives in-kind support (but not both food and shelter).” Jackson, 683 F.2d at 1080 n.4 (emphasis added). The court also recognized that the “one-third reduction rule is used when the recipient lives in another's household and receives both food and shelter,” citing 20 C.F.R. § 416.1130(c), distinguishing the recipient in Jackson from others who do receive both food and shelter or who do not contribute a pro rata share of the total household expenses. 683 F.2d at 1080 n.6 (emphasis added).

As a result, the district court appropriately found that Bowden lacked standing to claim that his due-process and equal-protection rights were being violated based on his theory that the one-third reduction rule was being applied disparately in different states. Standing is an “essential and unchanging part of the case-or-controversy requirement of Article III.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (citing Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). To have standing in federal court to present the argument that the PMV was not being applied equally to SSI recipients in every state, Bowden was required to show that he suffered an injury-in-fact arising out of that application that was actual or imminent and not conjectural or hypothetical; that there was a causal connection between the injury and the conduct complained of; and that it was likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. Id. at 560-61, 112 S.Ct. 2130. Bowden could not meet any of these burdens because the SSA appropriately determined that the PMV rule did not apply to his SSI benefit, even if he were paying the amount of rent equaling or exceeding the PMV under § 416.1140(a).

Accordingly, we AFFIRM the district court's judgment.

FOOTNOTES

1.   The Program Operations Manual System, used by the SSA for guidance in determining a claimant's “income” for purposes of SSI claims, can be found at: https://secure.ssa.gov/apps10/poms.nsf/subchapterlist!openview&restricttocategory=05008.