Citation Nr: 1306046 Decision Date: 02/21/13 Archive Date: 02/27/13 DOCKET NO. 10-35 177 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Chicago, Illinois THE ISSUE Entitlement to waiver of recovery of disability benefits in the amount of $116,312. [The issues of entitlement to an initial compensable rating for posttraumatic stress disorder (PTSD), entitlement to an increased rating for a lumbar spine disorder, and entitlement to a total disability rating based on individual unemployability (TDIU) were addressed in a separate decision in which the Board remanded the matters to the RO via the Appeals Management Center for additional development.] REPRESENTATION Appellant represented by: Disabled American Veterans WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD P. Olson, Counsel INTRODUCTION The Veteran had active service from May 1966 to May 1972. This matter comes back before the Board of Veterans' Appeals (Board) on Remand from the United States Court of Appeals for Veterans Claims regarding a Board decision rendered in February 2012. This matter was originally on appeal from an April 2010 rating decision of the Department of Veterans Affairs (VA), Regional Office (RO) in Milwaukee, Wisconsin. Jurisdiction over this case was subsequently transferred to the VARO in Chicago, Illinois, and that office forwarded the appeal to the Board. In October 2012, the Veteran testified at a videoconference hearing. A transcript of that hearing is of record. FINDINGS OF FACT 1. There is no indication that the Veteran engaged in fraud, misrepresentation, or bad faith in creating the alleged overpayment. 2. The Veteran's failure to report his incarceration is the sole cause of the overpayment. 3. A waiver of repayment of this debt would result in unfair enrichment to the Veteran. 4. Recovery of this overpayment would subject the Veteran to undue hardship. 5. Denial of the waiver request would defeat the purpose of the award of VA disability compensation benefits. 6. There is no indication the Veteran relinquished a valuable right or incurred a legal obligation in reliance upon the additional benefits received. CONCLUSION OF LAW 1. The overpayment was not created through fraud, misrepresentation of a material fact, or bad faith on the part of the veteran. 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. §§ 1.962(b) and 1.965(b) (2012). 2. A partial waiver of recovery of an overpayment of disability compensation benefits in the amount of $58,116 is warranted. 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. §§ 1.962, 1.965 (2012). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The Veteran has appealed the denial of waiver of recovery of overpayment of benefits in the amount of $116,312. He argues that he did not know that his ex-wife did not report his incarcerated status to VA and thus, did not know that VA was still paying his benefits. He also contends that his ex-wife spent his VA funds, which were directly deposited into a joint checking account while he was in prison and that to require repayment of the debt would be unfair and cause undue hardship. In a February 2012 decision, the Board found that an overpayment of disability benefits in the amount of $116,312 was properly created and denied entitlement to a waiver of recovery of disability benefits in the amount of $116,312. The Veteran appealed the Board's decision with respect to the issue of entitlement to waiver of overpayment to the United States Court of Appeals for Veterans Claims (Court). In an August 2012 Order, the Court granted the parties Joint Motion for Partial Remand (JMR) and remanded the matter to the Board for action consistent with the terms of the JMR. The JMR noted that the parties agreed that the Board the Board did not adequately explain how repayment of the $116,312 debt would not deprive the Veteran of the ability to provide for basic necessities. The evidence shows that the Veteran was arrested and jailed on October 31, 1992 and paroled on April 27, 2007. Prior to his offense, he divorced his ex-wife and submitted the divorce decree to VA. As a result, in June 1992, VA reduced his disability benefits due to his loss of dependent spouse and notified him by letter in June 1992. The letter also noted that a Form 21-8764 was enclosed that included important information. In fact, the Form 21-8764 specifically noted that benefits would be reduced upon incarceration in a Federal, State, or local penal institution in excess of 60 days for conviction of a felony. The Veteran contends that VA continued to deposit payments into an account that he held jointly with his ex-wife. Upon being jailed for his crime, the Veteran contends that he asked his ex-wife to inform VA of his incarceration; however, she failed to do so and used his benefits from VA for her own purposes while he was incarcerated. While he was forwarded mail from friends and family, he maintains that he did not receive mail from VA during his incarceration, thus he was unaware of the status of his benefits while incarcerated. In 2009, VA learned of his prior imprisonment and informed him that his benefits should have been reduced beginning on the 61st day of his incarceration pursuant to 38 C.F.R. § 3.665. VA recalculated the benefits that he should have been paid from December 31, 1992, the 61st day of his imprisonment, until April 27, 2007, the date of his parole. This recalculation revealed an overpayment of benefits in the amount of $116,312. A finding that the appellant committed fraud, misrepresentation of a material fact, or bad faith in connection with his receipt of VA benefits precludes the Board from granting a waiver of recovery of the overpayment. This parallels the "clean hands" doctrine familiar in equity cases: only if the appellant is free from all taint of fraud in connection with his claim for benefits may waiver on account of "equity and good conscience" be considered. See Farless v. Derwinski, 2 Vet. App. 555 (1992). A determination of bad faith is based on the circumstances that led to the overpayment, and the actions or omissions with respect to reporting the overpayment, as indicated by the evidence of record. See East v. Brown, 8 Vet. App. 34, 40 (1995). Here, the Committee concluded without elaboration that there was no fraud, misrepresentation, or bad faith on the part of the Veteran in creating the indebtedness that would preclude waiver of recovery. Although the Veteran's failure to report his incarceration after it began in September 1992 and his failure to report his incarceration again in 1997 after he was informed of a potential reduction in his benefits could be construed as deceptive dealing with an intent to seek an unfair advantage at the expense of the government with knowledge of the likely consequences, it cannot conclusively find fraud, misrepresentation, or bad faith on the part of the Veteran in creating the indebtedness. Where there is no fraud, misrepresentation, or bad faith on the Veteran's part with respect to the creation of the overpayment at issue, waiver of recovery of the assessed overpayment is not precluded pursuant to 38 U.S.C.A. § 5302(a). The Board must determine whether recovery of the indebtedness would be against equity and good conscience, thereby permitting waiver under 38 U.S.C.A. § 5302(a) and 38 C.F.R. §§ 1.962, 1.965(a). Regulations provide that the standard of "equity and good conscience" will be applied when the facts and circumstances in a particular case indicate a need for reasonableness and moderation in the exercise of the Government's rights. 38 C.F.R. § 1.965(a). The decision reached should not be unduly favorable or adverse to either side. The phrase equity and good conscience means arriving at a fair decision between the obligor and the government. In making this determination, consideration will be given to the following elements, which are not intended to be all-inclusive: 1. Fault of the debtor. Whether the actions of the debtor contributed to the creation of the debt. 2. Balancing of faults. Weighing of the fault of the debtor against that of VA. 3. Undue hardship. Whether collection would deprive the debtor or family of basic necessities. 4. Defeat the purpose. Whether withholding of benefits or recovery would nullify the objective for which benefits were intended. 5. Unjust enrichment. Whether failure to make restitution would result in unfair gain to the debtor. 6. Changing position to one's detriment. Whether reliance on VA benefits resulted in relinquishment of a valuable right or the incurrence of a legal obligation. 38 C.F.R. § 1.965(a). With respect to whether the Veteran was at fault in the creation of the overpayment, the Board finds that the Veteran was solely at fault in the creation of the overpayment. The Veteran was ultimately responsible for informing VA of his incarcerated status and failed to ensure that VA was so informed. He continued to accept benefits to which he knew or should have known that he was not entitled. The question of fault is a different question than that of fraud or bad faith. Persons dealing with the Government are charged with knowledge of Federal statutes and lawfully promulgated agency regulations, regardless of whether the individual has actual knowledge of the regulation. Morris v. Derwinski, 1 Vet. App. 261(1991). As the Veteran may be charged with knowledge of an agency regulation whether or not he had actual notice, in this case that he was prohibited from receiving full payments while he was incarcerated, he is at fault in the creation of the debt. With respect to the balancing of faults, which requires a weighing of the fault of the debtor against the fault of VA, the Board finds that VA acted promptly once it became aware of the overpayment and was not in any way at fault for the creation of the debt. With respect to whether collection of the debt would cause the Veteran undue financial hardship, he argues that repayment of the debt would cause severe financial hardship and likely render him homeless since VA disability compensation is his primary source of income. According to his April 2010 financial status report, his income included $974 in VA benefits plus Social Security income, totaling $1,628. His expenses included $400 for rent, $300 for food, $100 for phone, and $641 in other debts and expenses. Thus, after expenses, he was left with $187 per month. He argues that if VA withholds the $974, reducing his monthly income to $654, he will not be able to pay his bills, will have to seek food at food pantries, and will be rendered homeless. He also requested that VA consider waiving part of the debt or agree to a revised payment arrangement. As $974 is a large percentage of the Veteran's income, the Board finds that recovery of the debt would cause financial hardship to the Veteran. The Board acknowledges the limited income of the Veteran. However, financial hardship alone is not sufficient to constitute undue hardship for VA purposes. Undue hardship is defined as depriving the debtor or his family of basic necessities. 38 C.F.R. § 1.965(a)(3). Basic necessities constitute food, clothing, and shelter, and the Board finds that to require the Veteran to repay the entire overpayment in this case would deprive him of some basic necessities. In this case, the Veteran's basic necessities of food, clothing, and shelter cost the Veteran approximately $1000.00 per month according to his calculations. The parties to the Joint Motion strongly suggested that the evidence indicating that the appellant's monthly expenses appear to be more than double his monthly income if VA compensation is to be withheld weighed heavily in favor a finding of undue financial hardship. The Board therefore finds that, based on the Joint Motion, recovery of the entire debt would subject the Veteran to undue hardship. With respect to whether withholding of benefits or recovery would nullify the objective for which benefits were intended, the purpose of VA disability benefits is to compensate Veterans for injury or disease resulting from service which negatively impacts their capacity for self-support and makes them more likely to require public assistance. See, e.g., VAOPGCPREC 100-90 (Dec. 24, 1990) (unquestionable objective of [compensation benefits] is to satisfy the financial needs of persons suffering from conditions connected to military service). The understood purpose of the reduction of benefits for Veterans incarcerated for felonies was to avoid unjust enrichment, when the actions of those Veterans result in incarceration, thereby limiting the need for monetary support in large part because housing and basic needs are provided as a consequence of incarceration. See VAOPGCPREC 5-2006 (Aug. 11, 2006) (citing principal sponsor of legislation questioning the wisdom of providing hundreds and thousands of dollars of tax[-]free benefits to such individuals at the same time taxpayers are spending additional thousands of dollars to maintain them in penal institutions). The Veteran was incarcerated for 15 years, with his basic housing and nutritional needs met by the state as a condition of imprisonment; the resulting need for money to support himself was thereby diminished. Inasmuch as he (or his ex-wife) received benefits in excess of the amount to which he was entitled, he was unjustly enriched during his incarceration. However, the Veteran was granted parole from prison in 2007 and is once again solely responsible for his own support. The evidence of record indicates that he survives on his VA compensation and SSA benefits. As the Veteran is 67 years old, his circumstances are such that future gainful employment is unlikely. The size of the overpayment and the amount of money being recouped from ongoing benefits suggests that the debt is likely to survive as long as the Veteran. Thus, the issue at hand becomes whether continued collection of the debt would defeat the purpose for which the benefit was created. To the extent that it deprives the Veteran of a portion of his means of financial support for what would likely be the remainder of his life, it does, in fact, defeat the purpose of the benefit. However, given the size of the existing debt, a complete waiver of the overpayment would reflect an unjust enrichment of the Veteran at the expense of the Government. The final element for consideration in the "equity and good conscience" analysis is whether the Veteran has relied on the benefits to his detriment and surrender of a valuable right or incurrence of a legal obligation. The Board points out that the veteran has not contended, and the evidence does not show, that he had relinquished a valuable right or incurred a legal obligation in reliance on his VA benefits. Examining the list of monthly expenses submitted by the veteran, his income from VA and SSA is more than sufficient to provide for his basic necessities (i.e., shelter, food, and utilities). Many of his monthly expenses are partially discretionary in nature, such as $100 for a telephone, $50 for monthly payments on installment contracts and other debt, and $591.00 for car payment, auto insurance, cable, and a credit union loan. With adjustment in his discretionary spending, the veteran appears to be able to satisfy his basic necessities with his reported income. When the amounts due monthly on his telephone and installment debt are not considered, the Veteran's monthly income exceeds his monthly expenses by $763.00. It should be noted that the Government is entitled to the same consideration as other creditors or potential creditors. Based on the above analysis, including the finding of undue hardship from recovery of the overpayment suggested by the parties to the Joint Motion, the Board finds that payment of half of the outstanding indebtedness in reasonable monthly installments would not prevent the Veteran from providing himself the basic necessities of life, while the failure to make any restitution would result in unfair gain to the Veteran because he received monetary benefits to which he was not entitled. In sum, some of the elements set forth in 38 C.F.R. § 1.965 weigh in favor of the Veteran's claim for a partial waiver. The facts and circumstances in this particular case indicate a need for reasonableness and moderation in the exercise of the Government's rights. It is for this reason that a partial waiver is being granted. However, recovery of the remaining overpayment ($58,116) would not be against equity and good conscience. Such a decision allowing a partial waiver is not unduly favorable or adverse to either side. Therefore, the Board finds that partial waiver of recovery of the overpayment in the amount of one half of the assessed overpayment is warranted. As provided for by the Veterans Claims Assistance Act of 2000 (VCAA), the United States Department of Veterans Affairs (VA) has a duty to notify and assist claimants in substantiating a claim for VA benefits. 38 U.S.C.A. §§ 5100, 5102, 5103, 5103A, 5107, 5126 (West 2002 & Supp. 2011); 38 C.F.R. §§ 3.102, 3.156(a), 3.159, 3.326(a) (2012). In Barger v. Principi, 16 Vet. App. 132 (2002), the United States Court of Appeals for Veterans Claims (Court) held that the VCAA, with its expanded duties does not apply to cases involving waiver of overpayment claims. Therefore, the VCAA and its implementing regulations do not apply in this matter. See also Reyes v. Nicholson, 21 Vet. App. 370, 379-380 (2007). ORDER A partial waiver of recovery of an overpayment of disability compensation benefits in the amount of $58,116 is granted, subject to controlling regulations governing the payment of monetary awards. ____________________________________________ J. HAGER Acting Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs