Citation Nr: 1311202	
Decision Date: 04/04/13    Archive Date: 04/19/13

DOCKET NO.  03-29 179A	)	DATE
	)
	)

Received from the
Department of Veterans Affairs Regional Office in Atlanta, Georgia


THE ISSUE

Entitlement to a waiver of recovery of an overpayment of Department of Veterans Affairs (VA) disability compensation in the amount of $20,710.90, to include validity of the debt.

(The Veteran's claims of service connection for a psychiatric disorder and erectile dysfunction are the subject of a separate decision.) 


REPRESENTATION

Appellant represented by:	Nancy L. Foti, Attorney at Law


ATTORNEY FOR THE BOARD

J. Connolly, Counsel



INTRODUCTION

The Veteran served on active duty from October 1961 to July 1965. 

This matter comes before the Board of Veterans' Appeals (Board) on appeal from a March 1998 decision by the Department of Veterans Affairs (VA) Committee on Waivers and Compromises (Committee) at the Regional Office (RO) in Waco, Texas.  Pursuant to a recent Board remand in July 2011, the issue was remanded for the Veteran to be sent a statement of the case.  This action was accomplished in November 2011, and correspondence accepted as a substantive appeal was received the following month.  The Board further notes that jurisdiction over the appeal has been transferred to the RO in Atlanta, Georgia.

Initially, the Board notes that in a prior February 2008 Board remand, it was noted that the current waiver claim was inextricably intertwined with the Veteran's ex-wife's apportionment claim and therefore her claim should be adjudicated before final adjudication of this waiver claims.  However, while the appeal was in remand status, the Veteran's ex-wife died before the RO could adjudicate her apportionment claim.  Therefore, the Board finds that final adjudication of the above waiver claim may go ahead without any further action by the RO on the apportionment claim because the Veteran's ex-wife's apportionment claim became moot with her death.  See 38 U.S.C.A. § 7104(a) (West 2002); 38 C.F.R. § 20.1302 (2012). 


FINDINGS OF FACT

1.  A March 1966 rating decision granted the Veteran service connection for a healed fracture of the right first metacarpal and a left eye disability and granted him a 30 percent rating effective from July 28, 1965.  

2.  In September 1996, the RO received notice that the Veteran was the subject of an outstanding felony warrant that had been issued in November 1995 based on his escape from custody on February 7, 1994.  In April 1997, the RO received notice that the Veteran had been apprehended on April 3, 1997. 

3.  Since February 1997, the RO received notice that the Veteran had been incarcerated on multiple post-October 1, 1980, felony convictions and his dates of incarceration included June 28, 1985, to October 18, 1989; August 20, 1991, to January 10, 1992; and June 22, 1993, to February 7, 1994.  

4.  In May 1997, the Veteran notified the RO of his new address as well as notified the RO that his sister and father had not been unlawfully cashing his VA disability checks.

5.  In October 1997 and November 1997, the RO sent the Veteran letters notifying him of the proposed reduction of his VA disability compensation payments from the 30 percent rate to the 10 percent rate effective August 27, 1985, the sixty-first day of his incarceration after his conviction on a felony on June 28, 1985.  

6.  In January 1998, the RO retroactively reduced the Veteran's VA disability compensation payments from the 30 percent rate to the 10 percent rate effective from August 27, 1985, to January 31, 1997, as a result of his being convicted and incarcerated on multiple felonies which payments amounted to an overpayment of $20,710.90.

7.  The Veteran is not demonstrated to have committed fraud, misrepresentation, or bad faith in the creation of the overpayment.

8.  The Veteran was at fault in the creation of the debt in failing to report he was incarcerated because of multiple felony convictions from August 27, 1985, to January 31, 1997, and in continuing to allow his sister and/or his father to negotiate on his behalf his VA disability compensation payments during these times.

9.  Waiver of the assessed overpayment would result in unfair enrichment to the Veteran.


10.  In 1997, recovery of the assessed overpayment would have caused the Veteran financial hardship and possibly deprive him of basic necessities; currently, the Veteran failed to provide updated financial status information.

11.  Denial of waiver would not defeat the purpose of the award of VA benefits.

12.  There is no indication that the Veteran relinquished a valuable right or incurred a legal obligation in reliance upon the benefits received. 


CONCLUSIONS OF LAW

1.  The RO properly calculated the amount of the Veteran's indebtedness at $20,710.90 following the overpayment of VA compensation benefits during his incarceration for multiple felony convictions.  38 U.S.C.A. § 5313(a) (West 1991 & Supp. 1998); 38 U.S.C.A. § 5313(a) (West 2002 & Supp. 2012); 38 C.F.R. § 3.665 (1998); 38 C.F.R. § 3.665 (2012).

2.  Recovery of the overpayment of the VA disability compensation in the valid amount of $20,710.90 would not be contrary to the principles of equity and good conscience.  38 U.S.C.A. § 5302 (West 1991 & Supp. 1998); 38 U.S.C.A. § 5302 (West 2002); 38 C.F.R. § 1.965 (1998); 38 C.F.R. § 1.965 (2012).  


REASONS AND BASES FOR FINDINGS AND CONCLUSIONS

The Veterans Claims Assistance Act of 2000 (VCAA)

The VCAA describes VA's duty to notify and assist claimants in substantiating a claim for VA benefits.  38 U.S.C.A. §§ 5100, 5102, 5103, 5103A, 5106, 5107, 5126 (West 2002 & Supp. 2011); 38 C.F.R. §§ 3.102, 3.156(a), 3.159 and 3.326(a) (2012).  However, the United States Court of Appeals for Veterans Claims (Court) has held that the VCAA notification procedures do not apply in waiver cases.  See Lueras v. Principi, 18 Vet. App. 435 (2004); see also Barger v. Principi, 16 Vet. App. 132 (2002).  Therefore, the Board finds that further discussion of the VCAA is not required.

Next, the Board notes that chapter 53 of title 38, U.S. Code (which governs waiver requests) has its own notice provisions.  Moreover, the Board finds that they have been fully complied with by the RO because in October 1997 and November 1997 letters the Veteran timely notified the Veteran of its intent to reduce his Department of Veterans Affairs disability compensation rate doing so in January 1998. 

Factual Background

A March 1966 rating decision granted the Veteran service connection for a healed fracture of the right first metacarpal and a left eye disability and granted him a 30 percent rating effective from July 28, 1965.  

In February 1979, the RO notified the Veteran that his VA disability compensation award had been amended effective October 1, 1978, to reflect his having two dependent children.  In June 1979, the RO once again notified the Veteran that he was being paid VA disability compensation at the 30 percent rate for a claimant with two children.

In September 1996, the RO received notice that the Veteran was the subject of an outstanding felony warrant that had been issued in November 1995 based on his escape from custody on February 7, 1994.  In April 1997, the RO received notice that the Veteran had been apprehended on April 3, 1997. 

Starting in February 1997, the RO received notice that the Veteran had been incarcerated on multiple felony convictions.  

In correspondence from the Texas Department of Public Safety, the United States Marshals Service, the Texas Department of Criminal Justice, the United States Department of Prisons, and documents from his criminal court proceedings, VA was notified that the Veteran's post-October 7, 1980, dates of felony convictions and incarceration included a June 28, 1985, conviction for two new felonies separate and apart from a parole violation arising out of his October 1975 felony conviction and incarceration and subsequent February 1982 parole.  As to the new June 28, 1985, felony convictions, the Veteran was sentenced to five and two years, respectively, with these sentences to run consecutively.  The record thereafter shows that the Veteran was incarcerated from June 28, 1985, to October 18, 1989; from August 20, 1991, to January 10, 1992; and from June 22, 1993, to February 7, 1994.  

In May 1997, the Veteran notified the RO of his new address as well as notified the RO that his sister and father had not been unlawfully cashing his VA disability checks.

In October 1997 and November 1997, the RO sent the Veteran letters notifying him of the proposed reduction of his VA disability compensation payments from the 30 percent rate to the 10 percent rate effective August 27, 1985, the sixty-first day of his incarceration after his conviction on a felony on June 28, 1985.  

In a November 1997 VA Form 5655, Financial Status Report, the Veteran reported that he had not worked since April 1997 because he was incarcerated, listed no income or assets, and listed no monthly expenses.  He also did not report the names of any creditors.  The Veteran also reported that he was married and had a dependent child.  As to his wife's income and assets, he reported that they were unknown.

In January 1998, the RO retroactively reduced the Veteran's VA disability compensation payments from the 30 percent rate to the 10 percent rate effective from August 27, 1985, to January 31, 1997, as a result of his being incarcerated on multiple felony convictions which reduction created an overpayment of $20,710.90. 

In March 2008, the Committee on Waivers and Compromises denied entitlement to waiver of recovery of the overpayment in the calculated amount of $20,710.90.  The Veteran appealed.  



The Validity of the Debt

The issue of the validity of a debt is a threshold determination that must be made prior to a decision on a request for waiver of the indebtedness.  Schaper v. Derwinski, 1 Vet. App. 430 (1991).

Under pertinent VA laws and regulations as they existed in 1998 and today, any individual who is entitled to compensation or to dependency and indemnity compensation and who is incarcerated in a Federal, State, local, or other penal institution or correctional facility for a period in excess of sixty days for conviction of a felony (where, as here, committed after October 7, 1980) shall not be paid such compensation or dependency and indemnity compensation, for the period beginning on the sixty-first day of such incarceration and ending on the day such incarceration ends, in an amount that exceeds (A) in the case of a veteran with a service-connected disability rated at 20 percent or more, the rate of compensation payable under section 1114(a) of this title; or (B) in the case of a veteran with a service-connected disability not rated at 20 percent or more or in the case of a surviving spouse, parent, or child, one-half of the rate of compensation payable under section 1114(a) of this title.  38 U.S.C.A. § 5313(a); 38 C.F.R. § 3.665(a).  Under 38 U.S.C.A. § 1114(a), this Veteran's rate of payment was at the 10 percent rate.  

(Parenthetically, the Board notes that 38 C.F.R. § 3.665 was amended in 2003 by adding the fugitive felon provisions currently found at 38 C.F.R. § 3.665(n).  See 68 Fed Reg. 34,542 (June 10, 2003).  However, the Board finds that this regulation is not relevant to the current appeal because it did not exist at the time of the creation of the overpayment in 1998 and the overpayment was generated based on the claimant's receipt of VA disability compensation at a 30 percent rate instead of a 10 percent rate under 38 C.F.R. § 3.665(a) following his felony conviction.) 

VA laws and regulations, as they existed in 1998 and today, provide that an overpayment is created when VA determines that a beneficiary or payee has received monetary benefits to which he or she is not entitled.  See 38 U.S.C.A. § 5302; 38 C.F.R. § 1.962.  An overpayment may arise from virtually any benefits program administered pursuant to VA law, including pension, compensation, dependency and indemnity compensation (DIC), educational assistance benefits and subsistence allowance, insurance benefits, burial and plot allowances, clothing allowance, and automobile or other conveyance and adaptive equipment allowances.  38 C.F.R. § 1.956(a).

As reported above, starting in February 1997 the RO received notice that the Veteran had been incarcerated on multiple post-October 7, 1980, felony convictions including from June 28, 1985, to October 18, 1989; from August 20, 1991, to January 10, 1992; and from June 22, 1993, to February 7, 1994.  Earlier in September 1996, the RO had also received notice that the Veteran was a fugitive felon since February 7, 1994, and in April 1997 the RO received notice that he had been apprehended on April 3, 1997.  

In October 1997 and November 1997, the RO sent the Veteran letters notifying him of the proposed reduction of his VA disability compensation payments from the 30 percent rate to the 10 percent rate effective August 27, 1985, the sixty-first day of his incarceration after his conviction on a felony on June 28, 1985, pursuant to 38 C.F.R. § 3.665.  

VA recalculated the benefits that he should have been paid from August 27, 1985, the sixty-first day of his imprisonment, until January 31, 1997.  At the time of his incarceration, the Veteran was rated 30 percent disabled.  Per 38 C.F.R. § 3.665, when a veteran is rated 20 percent or more disabled, he will be paid at the rate of 10 percent as set forth in 38 U.S.C. 1114(a).  This recalculation revealed an overpayment of benefits in the amount of $20,710.90.  In this regard, the Board notes that the annual rates of compensation are published in Appendix B of VA Manual M21-1 and they are given the same force and effect as published in VA regulations.  38 C.F.R. § 3.21.  

Since the Veteran did not inform VA of his felony convictions and subsequent incarcerations as well as flight and because the claimant was paid at the full 30 percent rate from August 27, 1985, until January 31, 1997, the Board finds that the overpayment is valid.  Further, the Board has consulted the rates provided in Appendix B of VA Manual M21-1 and finds that the overpayment calculated by VA is accurate.

In reaching the above conclusion, the Board has not overlooked the fact that the Veteran was a fugitive felon from February 7, 1994, to April 3, 1997, and not actually incarcerated at that time because of his escape from custody.  However, the Board notes that if not for his wrongful action in escaping custody the Veteran would have been incarcerated at this time because of his felony convictions.  Additionally, as discussed above, 38 C.F.R. § 3.665 as written in 1998 did not have a specific provision dealing with fugitive felons.  Furthermore, while the letter of law did not specifically address situations like the current appeal where the claimant escaped custody following a felony conviction, the Board finds that the spirit of the law did not intend for a claimant to be able to avoid a reduction in his VA disability compensation rate by his own wrongful conduct by escaping custody.  Therefore, given VA's long standing policy of not rewarding claimant's for their wrongful conduct, the Board finds that the RO's application of 38 C.F.R. § 3.665(a) rating reduction to the time period that the Veteran was a fugitive felon instead of an incarcerated felon was proper. 

In reaching the above conclusion, the Board has also not overlooked the fact there were two periods in-between the Veteran's various periods of incarceration from June 28, 1985, to January 31, 1997, during which time he was not incarcerated or a fugitive felon (i.e., October 18, 1989, to August 20, 1991, and January 10, 1992, to June 22, 1993).  However, 38 C.F.R. § 3.665(i) specifically provides that the rating reduction will continue until VA receives notice that the Veteran's imprisonment had ended and if that notice is not received within one year of the claimant's release, the effective date of the reinstatement of the rate will be the date that the RO received the notice.  Therefore, because a review of the record on appeal does not reveals that the RO received such notice until February 1997 (i.e., not by August 21, 1991, for his first period of freedom and not by June 22, 1994, for his second period of freedom), the Board finds that it was permissible to include these time periods in calculating the amount of his overpayment. 

In reaching the above conclusion, the Board has not overlooked the fact that the January 31, 1997, termination date of the rating reduction does not appear to correspond to any of the Veteran's incarceration dates, parole dates, or arrest dates.  Instead, it correlates to a time when he was still a fugitive felon.  As noted above, on February 7, 1994, while incarcerated for one of his post-October 7, 1980, felony convictions, the Veteran escaped from custody and was not returned to custody until April 3, 1997.  The record on appeal also shows that following his being returned to custody, the Veteran was once again incarcerated but the dates of this subsequent incarceration are not found in the record.  

While the Board does not know why the RO choose January 31, 1997, as the termination date of the Veteran's rating reduction given his fugitive felon status through April 3, 1997, and his subsequent incarceration, the Board also finds that the claimant was not harmed by the RO picking this date.  In fact, it appears that the Veteran was provided a windfall by the RO choosing January 31, 1997, as the termination date.

In reaching the above conclusions the Board notes the claim by the Veteran that he was unaware that the payments were being erroneously made because he thought that his wife and children were entitled to the money.  The Board also acknowledges the claim by the Veteran that he never received these monies because they were stolen by his sister and father while he was in prison. 

However, as outlined above, VA regulation states that incarcerated Veterans are not entitled to their full compensation benefit, and the claimant is charged with constructive knowledge of all governmental laws and regulations.  See Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-385 (1947) (holding that everyone dealing with the government is charged with knowledge of federal statues and lawfully promulgated agency regulations); see Morris (John) v. Derwinski, 1 Vet. App. 260, 265(1991) (regulations are binding on all who seek to come within their sphere, "regardless of actual knowledge of what is in the [r]egulations or of the hardship resulting from innocent ignorance").  Likewise, in May 1997 the Veteran notified the RO that his sister and father had not been unlawfully cashing his VA disability checks. 

Accordingly, the Board finds that the Veteran's debt in the calculated amount of $20,710.90, created due to overpayment of VA compensation benefits during his incarceration, is valid.


The Waiver Claim

VA law provides that recovery of overpayment of any benefits shall be waived if there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver and recovery of the indebtedness from the payee who received such benefits would be against equity and good conscience.  38 U.S.C.A. § 5302; 38 C.F.R. § 1.963(a).  The Court has held that the operative language in 38 C.F.R. § 1.965(b)(2) limits bad faith to cases in which there is an intent to seek an unfair advantage and that a mere negligent failure to fulfill a duty or contractual obligation is not an appropriate basis for a bad faith determination.  Richards v. Brown, 9 Vet. App. 255 (1996).

The standard "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.  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.  Where actions of the debtor contribute to the creation of the debt.

(2)  Balancing of faults.  Weighing fault of the debtor against VA fault.

(3)  Undue hardship.  Whether collection would deprive 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.  Failure to make restitution would result in unfair gain to the debtor.

(6)  Changing position to one's detriment.  Reliance on VA benefits results in relinquishment of a valuable right or incurrence of a legal obligation.

See 38 U.S.C.A. § 5302; 38 C.F.R. § 1.965(a).

In this case, the RO found, and the Board agrees, that there is no evidence demonstrating that the indebtedness resulted from fraud, misrepresentation, or bad faith on the Veteran's part.  Therefore, waiver of indebtedness is not precluded if shown that it would be against the principles of equity and good conscience to require the appellant to repay the debt to the government.  38 C.F.R. §§ 1.963, 1.965.

As to the principles of equity and good conscience part of the Board's analysis, the record shows the Veteran was solely at fault in the creation of the debt in failing to report the receipt of VA disability compensation at the 30 percent rate while incarcerated or a fugitive felon from June 28, 1985, to January 31, 1997,

Similarly, the Board finds that the Veteran's receipt of $20,710.90 from VA that he was not entitled to because he was incarcerated or a fugitive felon during the years in question results in unfair enrichment to the claimant.  

As to whether the recovery of the assessed overpayment would deprive the Veteran of basic necessities, the Board notes that the most recent financial record provided by the Veteran is dated in 1997 and, while it lists not expenses, it also lists no income or assets.  The record also shows that the Veteran received his medical care from VA but without showing what, if anything, he pays for these services.  Accordingly, the Board concludes that at that point, recovery of the debt would cause the claimant financial hardship.  However, the Veteran was recently requested to submit an updated and complete financial status report via an August 2011 VA letter.  The Veteran did not furnish this updated information.

As to whether collection of the debt would defeat the purpose of paying the benefits by nullifying the objective for which the benefits were intended, the Board notes that the rating schedule is intended to compensate a claimant for average impairments in earning capacity resulting from service-connected disability in civil occupations.  38 U.S.C.A. § 1155.  "Generally, the degrees of disability specified in the rating schedule are considered adequate to compensate for considerable loss of working time from exacerbations or illnesses proportionate to the severity of the several grades of disability."  38 C.F.R. § 4.1.  However, the Veteran received these monies while incarcerated and therefore had no earning capacity.  Therefore, the Board finds that collection of the debt would not defeat the purpose of paying the benefits.  

Lastly, the Board finds that there is no indication in the record that reliance on the overpaid benefits resulted in the Veteran's relinquishment of a valuable right or the incurrence of a legal obligation.  

After weighing all the evidence of record, the Board finds that recovery of the overpayment would not be against equity and good conscience.  The Board has reached this conclusion because, while the repayment of the debt would have caused the Veteran financial hardship in 1997, and even considering that this financial status continued, the Board nonetheless finds that this hardship is outweighed by the fact that the Veteran was solely at fault in the creation of the debt, that he was unjustly enriched by having taking benefits, that collection of the debt would not defeat the purpose of paying the benefits, and that there is no indication that reliance on the overpaid benefits resulted in the relinquishment of a valuable right or the incurrence of a legal obligation. 

When all the evidence is assembled VA is then responsible for determining whether the evidence supports the claim or is in relative equipoise, with the claimant prevailing in either event, or whether a preponderance of the evidence is against the claim in which case the claim is denied.  Gilbert v. Derwinski, 1 Vet. App. 49, 55 (1990); Ortiz v. Principi, 274 F. 3d 1361 (Fed. Cir. 2001).  In this case, the Board finds that the preponderance of the evidence in this case is against the Veteran's claim for a waiver and therefore the benefit doctrine does not apply.


ORDER

A debt was validly created by the overpayment of VA disability compensation benefits in the original amount of $20,710.90.

Waiver of the recovery of the overpayment of disability compensation benefits in the amount of $20,710.90 is denied.



____________________________________________
D.C. SPICKLER
Veterans Law Judge, Board of Veterans' Appeals

Department of Veterans Affairs