Citation Nr: 1610293 Decision Date: 03/15/16 Archive Date: 03/22/16 DOCKET NO. 13-00 048A ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Milwaukee, Wisconsin THE ISSUES 1. Whether an overpayment of VA compensation benefits due to incarceration in the amount of $13,426.00 was properly created. 2. Entitlement to waiver of recovery of any properly created overpayment. REPRESENTATION Appellant represented by: Vietnam Veterans of America ATTORNEY FOR THE BOARD P. Wirth, Associate Counsel INTRODUCTION The Veteran had active duty service from April 1969 to May 1973. This case comes before the Board of Veterans' Appeals (Board) on appeal from a July 2012 decision of the Committee on Waivers and Compromises (Committee) of the Department of Veterans Affairs (VA) Regional Office (RO) in Milwaukee, Wisconsin. By way of background, in October 2009 the Veteran filed an application seeking service connection and VA compensation for several disabilities. In April 2010, the Veteran underwent a VA examination. In July 2010, the Veteran was confined in county jail. In August 2010, the Social Security Administration (SSA) was informed of the Veteran's incarceration. Also in August 2010, the Veteran was notified in a letter addressed to his home that service connection had been granted for the Veteran's claims in a July 2010 rating decision. In March 2011, the Veteran was sentenced for a felony offense with a minimum sentence of 20 years. In April 2011, the Veteran began confinement in a State correctional facility. In May 2011, the SSA was informed of the Veteran's incarceration in a State correctional facility. VA learned of the Veteran's incarceration through an October 2011 VA and SSA State Prisoner Computer Match. In February 2012, the Veteran was informing of a proposed reduction in VA benefits from the 70 percent service-connected rate to the 10 percent rate due to incarceration. The Board notes that this correspondence is not in the Veteran's claims file; however, in April 2012, the Veteran responded to the letter. He acknowledged the debt, but stated that he had no money to repay it and to take any overpayment out of his current VA compensation. See April 2012 Statement in Support of Claim (VA Form 21-4138). In May 2012, the RO in Detroit, Michigan notified the Veteran that the reduction was final, effective June 1, 2011. Also in May 2012, the Debt Management Center informed the Veteran that an overpayment in the amount of $13,426.00 was created for the period June 1, 2011 through April 30, 2012. See May 2012 First Demand Letter (Virtual VA). In July 2012, the Veteran filed a timely request for waiver of the overpayment. See July 2012 VA Form 21-4138 and Financial Status Report (VA Form 5655) (Virtual VA). In July 2012, the Committee denied the Veteran's request for waiver. See July 2012 Decision on Waiver of Indebtedness (VA Form 4-1837) (Virtual VA). In August 2012, the Veteran filed a timely Notice of Disagreement (NOD). The Committee furnished a Statement of the Case in October 2012. In November 2012, the Veteran filed an informal Substantive Appeal and requested a hearing before the Board in Washington, DC. In January 2013, a formal Substantive Appeal (VA Form 9) was filed and the Veteran again requested a hearing before the Board in Washington, DC. A Supplemental Statement of the Case was furnished by the Committee in March 2013. (All of the foregoing are located in Virtual VA.) In January 2015, the Board mailed a letter intending to notify the Veteran that he was scheduled for a March 2015 hearing before the Board in Washington, DC. That letter, however, was returned because it was addressed to the Veteran's wife, who has a pending apportionment claim, at the Veteran's prison address. The Veteran obviously did not attend his hearing because he had no notice of it and was incarcerated. In May 2015, the Board sent a letter to the Veteran explaining how he could provide additional evidence or argument in light of his incarceration. That letter was returned because the Veteran's inmate number was incorrect. The hearing clarification letter was correctly addressed and remailed in November 2015. The Veteran has not responded to the November 2015 letter. Thus, the Board deems the hearing request to be withdrawn. See 38 C.F.R. § 20.704 (2015). The Board notes that, in the February 2016 Informal Hearing Presentation (IHP), the Veteran's representative waived prior review by the agency of original jurisdiction of all new evidence in the Veteran's claims file. Accordingly, the Board may consider this evidence in the first instance. See 38 C.F.R. § 20.1304(c) (2015). FINDINGS OF FACT 1. Review of the record shows that the Veteran was convicted of a felony in March 2011, his sentence was for a minimum of 20 years, and he has been incarcerated in a State penal institution since April 2011, a period in excess of 60 days. 2. Under VA regulations, an individual receiving VA compensation benefits, who is imprisoned in a State penal institution in excess of 60 days due to the conviction of a felony, shall either have his or her benefits terminated effective the 61st day of the incarceration or have the benefit rate reduced to the rate of 10 percent. 3. The Veteran did not notify VA of his change of address or incarceration; therefore, the Veteran's failure to timely report his incarceration and VA's subsequent continued payments of the compensation benefits produced an overpayment of benefits in the amount of $13,426.00 for the period June 1, 2011 through April 30, 2012. 4. The overpayment resulted from the actions of the Veteran; there was no fault on the part of VA. 5. There was no fraud, misrepresentation, or bad faith on the part of the Veteran. 6. The evidence shows that recovery of the assessed overpayment would not deprive the Veteran of the ability to provide for basic necessities. 7. The evidence also shows that recovery of the assessed overpayment does not nullify the objective for which benefits are intended. 8. Waiver of the assessed overpayment would unjustly enrich the Veteran. 9. 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 overpayment of disability compensation benefits due to incarceration in the amount of $13,426.00 was validly created. 38 U.S.C.A. §§ 1114(a), 5313 (West 2014); 38 C.F.R. § 3.665 (2015). 2. Recovery of the overpayment of VA disability compensation benefits would not be against the principles of equity and good conscience. 38 U.S.C.A. § 5302 (West 2014); 38 C.F.R. §§ 1.956, 1.962, 1.963, 1.965, 3.665 (2015). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The Veterans Claims Assistance Act of 2000 (VCAA) is not applicable to cases involving the waiver of recovery of overpayment claims because the statute at issue in such cases is not found in the laws affected by the VCAA. 38 U.S.C.A. §§ 5100, 5102, 5103, 5103A, 5107, 5126 (West 2014); 38 C.F.R. §§ 3.102, 3.156(a), 3.159, 3.326(a) (2015); Lueras v. Principi, 18 Vet. App. 435, 438-39 (2004). A. Relevant Law and Regulations The preliminary 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); Where the validity of a debt is challenged, that issue must be developed before the issue of entitlement to waiver of the debt can be considered. VAOPGCPREC 6-98 (1998), 63 Fed. Reg. 31264 (June 8, 1998). 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 (West 2014); 38 C.F.R. § 1.962 (2015). A debt is not valid if the claimant was legally entitled to the benefits that resulted in an overpayment. See 38 U.S.C.A. §§ 501, 5112(b)(9) and (10) (West 2014); 38 C.F.R. §§ 1.962; 3.500(b) (2015). A debt is also not valid if VA is solely responsible for the overpayment. See id. When an overpayment has been made by reason of an erroneous award based solely upon administrative error, the reduction of that award cannot be made retroactive to form an overpayment of debt owed to VA from the recipient of the erroneous award. 38 U.S.C.A. § 5112(b)(10) (West 2014); 38 C.F.R. § 3.500(b)(2) (2015). Administrative errors include all administrative decisions of entitlement, whether based upon mistake of fact, misunderstanding of controlling regulations or instructions, or misapplication of law. VAOPGCPREC 2-90 (Mar. 20, 1990). Sole administrative error, however, may be found to occur only in cases where the veteran neither had knowledge of, nor should have been aware of, the erroneous award. Further, such error contemplates that neither the appellant's actions nor his or her failure to act contributed to payment pursuant to an erroneous award. 38 U.S.C.A. § 5112(b)(10) (West 2014); 38 C.F.R. § 3.500(b)(2) (2015); see Jordan v. Brown, 10 Vet. App. 171, 174-75 (finding that sole administrative error is not present if the payee knew, or should have known, that the payments were erroneous). Section 5313 of title 38 U.S.C.A. and the implementing regulation, 38 C.F.R. § 3.665, create a limitation on payment of VA compensation to persons incarcerated for conviction of a felony. The law provides, in relevant part, that any person who is entitled to compensation who is incarcerated in a State penal institution for a period in excess of 60 days for conviction of a felony shall not be paid such compensation for the period beginning on the 61st day of such incarceration and ending on the day such incarceration ends. In the case of a veteran with service-connected disability rated at 20 percent or more, he or she shall not be paid an amount that exceeds the rate under 38 U.S.C. § 1114(a), which is at the rate of 10 percent. In cases where a debt has been created by overpayment of VA benefits, VA may waive recovery of such overpayment if there is no indication of fraud, misrepresentation, or bad faith, and recovery of the indebtedness would be against equity and good conscience. 38 U.S.C.A. § 5302(a) (West 2014); 38 C.F.R. §§ 1.963(a), 1.965(a) (2015). 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) (2015). In making the 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 debtor against any VA fault); (3) undue hardship (whether collection would deprive debtor or family of basic necessities); (4) defeat the purpose (whether the withholding of benefits or recovery would nullify the objective for which the benefits were intended); (5) unjust enrichment (failure to make restitution would result in unfair gain to the debtor); and (6) changing position to one's detriment (reliance on VA benefits results in relinquishment of a valuable right or incurrence of a legal obligation). 38 C.F.R. § 1.965 (2015). B. Overpayment Waiver The Veteran seeks waiver of recovery of overpayment of the compensation benefits. He contends that he was unaware he was receiving VA benefits because he was in jail when he was awarded service connection. His checks went to his home and were cashed by his spouse, without his knowledge or permission. The Veteran asserts that he did not receive any money himself and collection of the debt would result in undue hardship because he is indigent. See August 2012 NOD. The Veteran does not dispute the creation or validity of the debt. However, because the propriety and amount of the overpayment at issue are matters that are integral to a waiver determination, the Board finds it necessary to quickly examine the validity of the debt, even if the Veteran does not appear to challenge its validity. See Schaper v. Derwinski, 1 Vet. App. 430, 434 (1991). In this case, the Veteran was notified in an August 2010 letter that service connection had been granted for the Veteran's claims. In March 2011, the Veteran was sentenced for a felony offense with a minimum sentence of 0 years. In April 2011, the Veteran began confinement in a State correctional facility. As discussed above, pursuant to 38 C.F.R. § 3.666, where any individual to or for whom VA compensation benefits are being paid is imprisoned in a State penal institution as a result of conviction of a felony, such benefit payments will be discontinued effective on the 61st day of imprisonment following conviction. It is clear from the record that the Veteran has been incarcerated in excess of 60 days. Thus, the reduction in compensation benefits, resulting in an overpayment, was in accordance with law. The Veteran's failure to timely report his incarceration resulted in VA's subsequent continued payments of the compensation benefits. Thus, the Board finds that the overpayment resulted from the actions of the Veteran, and that there was no fault on the part of VA. For the foregoing reasons, the Board finds further that the overpayment of VA compensation benefits in the amount of $13,426.00 for the period June 1, 2011 through April 30, 2012 is a validly created debt. Having found that the debt was validly created, the Board must address whether a waiver of recovery of an overpayment may be granted. The facts of this case do not illustrate that the Veteran attempted to defraud VA or withhold information regarding his incarceration in bad faith. The Board notes that the Committee also did not find fraud, misrepresentation, or bad faith on the part of the Veteran. Therefore, there are no mandatory bars to waiver in this case. The remaining question before the Board then is whether recovery of the overpayment would be against equity and good conscience. 38 C.F.R. § 1.965(a) (2015). In determining whether the recovery of the overpayment would be against equity and good conscience, the first consideration is whether the Veteran was at fault in the creation of the overpayment. In this case, the Board finds that the Veteran was predominantly at fault in the creation of the overpayment because he did not inform VA of his incarceration. The second element to consider is the balancing of faults, which requires a weighing of the fault of the debtor against the fault of VA. 38 C.F.R. § 1.965(a)(2) (2015). The Board acknowledges the Veteran's contents that he was unaware that he had been granted service connection because he was confined in county jail, was unable to contact VA, and should have been contacted in April 2011 so the overpayment could have been avoided. See April 2012 VA Form 21-4138; August 2012 NOD. However, VA did not learn of the Veteran's incarceration until October 2011. Although the Veteran was not notified of the overpayment by VA until February 2012, approximately 140 days later, the Board does not find this delay to be excessive given that VA had to verify the information, locate the Veteran, and take further administrative action. Moreover, the Veteran was afforded a VA examination in April 2010, just three months prior to when he was confined to county jail in July 2010. Thus, the Veteran was well aware that he had claims pending. He also has been provided with postage and is able to mail letters from prison. See July 2013 written statement. The short delay on the part of VA in notifying the Veteran of the overpayment does not outweigh the fault on the part of the Veteran in the creation of the debt. Thus, the Board finds the "balancing of faults" weighs against the Veteran. The next question for consideration is whether collection of the debt would cause the Veteran undue financial hardship. The Veteran has submitted evidence indicating that his only income is $127.00 per month from VA and that he does not have any other assets. See May 2012 Financial Status Report (VA Form 5655) (received in July 2012) (Virtual VA). To the extent that basic housing and food is provided by the State, the Veteran contends that he is required to pay for toilet paper, pens, paper, indigent loans, cosmetics, clothes, and food. See July 2013 VA Form 21-4138. The Veteran has provided documentation from his place of incarceration showing his "indigent status" for the months of October and November 2012 allowing him "to purchase up to $11.00 for approved cosmetic/hygiene items from the store" and "up to $4.50 [per month] in postage." It is noted that the "amount of the store order will [be] placed on your account as an institutional debt and collected on per PD 04 02 105 Prisoner Funds." See January 2013 VA Memo (Virtual VA). The Veteran reports that he owes the State $1,525.74 for custodial expenses to date. See July 2013 Information Regarding Apportionment of Beneficiary's Award (VA Form 21-0788) and July 2013 written statement at 5. The Board finds that, although recovery of the debt would cause some financial hardship to the Veteran, the recovery of the overpayment would not deprive the Veteran of the basic necessities of life because the State is providing the Veteran with shelter, food, clothing, and basic necessities while he is incarcerated. To the extent that the Veteran wants optional items, the State appears to be providing amounts to the Veteran that he can use to purchase these items. Moreover, the Board does not find it plausible that the State is depriving the Veteran from anything truly necessary to maintain human dignity, such as toilet paper. The Board must also consider whether the recovery of the overpayment would defeat the purpose for which the benefits were intended. The purpose of disability compensation benefits is to compensate impairment in earning capacity due to a service-connected disorder. 38 U.S.C.A. § 1155 (West 2014). In light of the purpose underlying such benefits, the Board finds that repayment of the debt at issue in this case would not conflict with the objective underlying the benefits, as the Veteran was not entitled to full benefits during the period beginning on the 61st day of his incarceration. Thus, continued repayment of the debt would not nullify the purpose for which the disability benefits were intended, since compensation benefits may not be paid during the period beginning on the 61st day of an incarceration. The Board acknowledges that the Veteran contends VA is withholding all of his monthly benefits in order to recoup his debt. The Veteran asserts that this does defeat the purpose for which those benefits are paid, which is to satisfy the financial needs of person suffering from conditions connected to military service. The Veteran contends that he is unable to afford "basic needs" such as cosmetics and hygiene products. See February IHP at 5. These contentions essentially amount to whether the Federal Government or the State is to bear the costs of the Veteran's incarceration. If the Board waives recovery of a portion of the overpayment or directs VA to collect only a portion of the debt from each of the Veteran's monthly payments so he is able to afford "basic needs," the Veteran's VA benefit payments would most likely be collected by the State to repay the Veteran's institutional debt. The Board finds that such reallocation of funds among governmental entities from VA to the State is not encompassed within the purpose of VA disability compensation benefits. The Board also finds that failure to make restitution would unfairly enrich the Veteran. VA continued to make disability compensation payments at the full-time rate after the Veteran was incarcerated; however, the additional payments were not warranted. Under such circumstances, to allow the Veteran to retain the overpaid compensation would constitute unjust enrichment. The Board acknowledges that the Veteran's wife allegedly received the payments without the Veteran's knowledge or consent. Nonetheless, the simple fact is that VA made payments on behalf of the Veteran to which he was not entitled. Finally, the Board must consider whether reliance on the benefits resulted in relinquishment of a valuable right or the incurrence of a legal obligation. The Veteran has not contended, nor does the evidence show, that he relinquished a valuable right or incurred a legal obligation in reliance on VA continuing to pay compensation benefits at a non-reduced rate. In sum, the Board finds that the principles of equity and good conscience would not be violated if VA were to recover the overpayment in question. The Veteran has been found to be at fault in the creation of the debt, and the retention of the overpayment would therefore unfairly enrich the Veteran. Moreover, repayment of the debt would not deprive the Veteran of the ability to provide for basic necessities of life and recovery of the overpayment would not defeat the purpose for which the benefits were intended. Accordingly, the Board finds that the preponderance of the evidence is against the Veteran's claim and waiver of recovery of the overpayment of VA compensation benefits is not warranted. 38 U.S.C.A. § 5107(b) (West 2014); Gilbert v. Derwinski, 1 Vet. App. 49 (1990). ORDER The overpayment of VA disability compensation benefits in the calculated amount of $13,426.00, was properly created. Entitlement to a waiver of the recovery of the overpayment of VA disability compensation benefits in the amount of $13, 426.00, is denied. ____________________________________________ DEBORAH W. SINGLETON Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs