Citation Nr: 1751770 Decision Date: 11/13/17 Archive Date: 11/22/17 DOCKET NO. 09-18 694A ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office and Insurance Center in Philadelphia, Pennsylvania THE ISSUE Entitlement to waiver of recovery of an overpayment of VA dependent benefits in the amount of $2,522.00, to include the question of whether the overpayment was properly created. REPRESENTATION Veteran represented by: Disabled American Veterans ATTORNEY FOR THE BOARD L.J. Bakke, Counsel INTRODUCTION The Veteran served on active duty from August 1981 to May 1985. This appeal arises before the Board of Veterans Appeals (Board) from a February 2009 decision by the Committee on Waivers and Compromises of the Regional Office and Insurance Center (ROIC) in Philadelphia, Pennsylvania, which denied the Veteran's request for waiver of recovery of indebtedness in the amount of $2,522.00. This case was remanded in June 2010. The directed development having been completed, the case is now before the Board. FINDINGS OF FACT 1. The Veteran's niece, LMC, and nephew, LDC, are not the biological children of the Veteran and neither he nor his spouse, also a Veteran in receipt of disability benefits, has adopted them. 2. The overpayment in disability compensation benefits in the amount of $2,522.00 was properly created and not solely the result of VA administrative error. 3. There is no evidence of fraud, misrepresentation, or bad faith on the part of the Veteran; the evidence establishes that recovery of the debt would cause undue hardship and defeat the purpose for which benefits were awarded. CONCLUSIONS OF LAW 1. The overpayment of VA disability compensation benefits in the amount of $2,522.00 was properly created. 38 USC. §§ 1115, 5112 (2014); 38 C.F.R. § 3.500(b) (2017). 2. The criteria for waiver of recovery of overpayment in the amount of $2,522.00 are met. 38 USC. § 5302 (2014); 38 C.F.R. §§ 1.962, 1.963, 1.965 (2017). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS This appeal involves the validity of the creation of an overpayment and a request for wavier of recovery of overpayment. The statute governing waiver claims has its own notice provisions. 38 USC. § 5302 (2014). In a waiver of overpayment claim, the payee must be notified of his right to dispute the debt and request a waiver of the debt with a description of the procedures for submitting the application. The RO indicates the Veteran was notified of his indebtedness in a March 2008 notification letter (see Notification Letter, Proposal to Reduce, dated 3/27/2008). It is the Veteran's request of a waiver on which this appeal is based. The Board notes the February 2009 notification of denial of waiver of debt, which outlined the regulations associated with waiver of a debt. See Notification Letter, dated 2/5/2009. In this case, the Veteran has been found to have an overpayment valued at $2,522.00 as the result of receiving additional compensation benefits based on the addition of LMC and LDC to his compensation award as dependents. In May 2006, the RO received a "Declaration of Status of Dependents" form, VA Form 21-686c, signed by the Veteran in March 2006, identifying LMC and LDC as children in the custody of the Veteran, under 18 years of age and helpless for mental or physical reasons. See VA Form 21-686c Adding Niece & Nephew, rec'd 5/9/2006. The Veteran also submitted the children's birth certificates and the court document reflecting the Veteran had been awarded temporary custody of the children. See Birth Certificates for LMC and LDC rec'd 5/9/2006; see also Court Order Temporary Custody 5/1/2006 rec'd 5/9/2006. In a May 2006 letter, the RO denied the Veteran's claim, advising that the Court Order showed that the Veteran had been granted temporary custody of LMC and LDC. The letter also explained that "child" of the Veteran meant an unmarried person who is a legitimate child or a child legally adopted before the age of 18 years. See May 2006 Notification Letter Denial to Add Niece & Nephew. However, in October 2006, after the Veteran again claimed LMC and LDC as his dependents in a September 2006 VA Form 21-0538, the RO granted entitlement to additional compensation for the children beginning October 1, 2006. See September 2006 VA Form 21-0538 adding LMC & LDC, rec'd 9/8/2006; see also October 2006 Notification Letter LMC & LDC Added. In January 2007, the RO requested that the Veteran resubmit the documents he had submitted in October 2006 because the RO had lost them. See January 2007 MAP-D Development Letter Cannot Locate Documents. In January 2007, the Veteran submitted several documents including the VA Form 21-0538 he had submitted in September 2006, and medical evidence to support the claim that LMC is a helpless child, requiring additional financial support past the age of 18. He continued to claim LMC as a helpless child and requested that she also be added to his spouse's claim. See January 2007 Correspondence Claim LMC as Helpless Child; and Medical Evidence (1/10/2007) submitted ISO LMC rec'd 1/31/2007; see also, June 2006 Correspondence LMC is HC & rec's SSI. An August 2007 Deferred Rating Decision reflects that the RO determined the Veteran was not entitled to receive additional compensation benefits because LMC and LDC were the Veteran's niece and nephew and neither the Veteran nor his spouse, a Veteran also receiving compensation benefits, had adopted the children. It was noted that action was needed to remove the children from the award. See August 2007 Deferred Rating Decision. In the meantime, the Veteran's case and that of his spouse were on appeal before the Board on another issue, not herein for consideration. This matter was ultimately heard before the Court of Appeals for Veterans Claims in October 2007. It was then not until March 2008 when, upon further review, the RO notified the Veteran he was not entitled to additional benefits for LMC and LDC because he is not their biological father and he had not adopted them. Rather, he is their paternal uncle. The RO proposed to reduce the Veteran's payments upon removing the children, effective October 1, 2006, the date they were first added. See March 2008 Proposal to Reduce (dated 3/27/2008). The Veteran was given 60 days to present evidence or argument showing that the reduction should not take place. In an April 2008 statement, the Veteran argued that LMC and LDC had been properly added as dependents under the regulations. See April 2008 Correspondence Argues Against Reduction for LMC & LDC (marked rec'd 4/21/2006). In August 2008, the RO reduced the payments effective October 1, 2006, creating an overpayment of $2,522.00. See August 2008 Notification Letter Reduction Effectuated; see also October 2008 VA Form 4-661a. The Veteran argues that the overpayment was not properly created. Rather, he asserts that the Court Ordered temporary custody created a dependency relationship with his niece and nephew, and the VA's ultimate grant of these benefits in October 2006 is proof that his understanding of the law was correct. A Veteran who is in receipt of disability compensation of 30 percent or more is entitled to an additional allowance for each dependent. 38 USC. §§ 1115, 1134, 1135 (2014). Here the Veteran has established service connection for a psychiatric disability and is rated 100 percent disabled. Records show the Veteran is married with one stepchild who, until her marriage in January 2016, had continued to remain a dependent as a helpless child. 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 USC. § 5302 (2014); 38 C.F.R. § 1.962 (2017). An overpayment may arise from virtually any benefits program administered pursuant to VA law, including pension, compensation, dependency and indemnity compensation, educational assistance benefits and subsistence allowance, insurance benefits, burial and plot allowances, clothing allowance, and automobile or other conveyance and adaptive equipment allowances. See 38 C.F.R. § 1.956(a) (2017). In order for the Board to determine whether the overpayment was created properly, it must be established that the Veteran was not entitled legally to the benefits in question, and if there was no legal entitlement, it must then be shown that VA was not solely responsible for the Veteran being paid benefits erroneously. If the debt was the result solely of administrative error, the effective date of the reduction of benefits would be the date of the last payment based on this error, and consequently there would be no overpayment charged to the veteran for the portion of the overpayment attributable to administrative error. 38 USC. § 5112 (2014); 38 C.F.R. § 3.500(b)(2) (2017). 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 Veteran's actions nor his/her failure to act contributed to payment pursuant to an erroneous award. 38 USC. § 5112 (2014); 38 C.F.R. § 3.500(b)(2) (2017); see Jordan v. Brown, 10 Vet. App. 171 (1997) (finding that sole administrative error is not present if the payee knew, or should have known, that the payments were erroneous). With regard to legal entitlement, as noted above, the Veteran is entitled to an additional allowance for dependent children. 38 USC. § 1115. The term "child" is defined, for purposes of Veterans' benefits, as an unmarried person who is a legitimate child, a child legally adopted before the age of 18 years, a stepchild who acquired that status before the age of 18 years and who is a member of the Veteran's household or was a member of the Veteran's household at the time of the Veteran's death, or an illegitimate child and who is (i) under the age of 18 years; (ii) before the age of 18 years became permanently incapable of self-support; or (iii) after reaching the age of 18 years and until completion of education or training (but not after reaching the age of 23 years) is pursuing a course of instruction at an approved educational institution. 38 USC. § 101(4)(A) (2014); 38 C.F.R. §§ 101(4)(A), 3.57 (2017). The term "stepchild" is defined as a legitimate or illegitimate child of the Veteran's spouse. See 38 C.F.R. § 3.57(b). The term "adopted child" is defined as a child adopted pursuant to a final decree of adoption, a child adopted pursuant to an unrescinded interlocutory decree of adoption while remaining in the custody of the adopting parent (or parents) during the interlocutory period, and a child who has been placed for adoption under an agreement entered into by the adopting parent (or parents) with any agency authorized by law to so act, unless and until such agreement is terminated, while the child remains in the custody of the adopting parent (or parents) during the period of placement for adoption under such agreement. See 38 C.F.R. § 3.57(c) (2017). The facts of this appeal are not in dispute. LMC and LDC are the Veteran's niece and nephew, respectively. The record does not show, and neither the Veteran nor his representative alleges, that the Veteran or his spouse legally adopted LMC and LDC. As such, the law does not allow recognition of LMC and LDC as the dependents of the Veteran. Given that the evidence of record establishes that the Veteran is the uncle of LMC and LDC, and not their biological father, stepfather, or legally adopted father, the Board finds that there was no basis in law to consider LMC and LDC dependents for purposes of additional benefit payments to the Veteran. 38 USC. § 101(4)(A) (2014); 38 C.F.R. § 3.57 (2017). Additionally, the Board finds that the overpayment in this case was not created solely as a result of VA administrative error, and therefore, the debt is held to have been properly created. The RO admitted in its March 2017 supplemental statement of the case that it mistakenly added LMC and LDC to the Veteran's award in October 2006 because the children shared the same last name with the Veteran. It was not until the RO reviewed the Court Order of temporary custody that it realized the Veteran was the uncle of the children and not their father. Notwithstanding, to the extent that the Veteran argues that the RO's actions led the Veteran to believe that the Court Order awarding the Veteran temporary custody of LMC and LDC was sufficient to properly add the children to his compensation award, the Board observes that ignorance of VA regulations is not a defense. The Court of Appeals for Veterans Claims has held that persons dealing with the Government are charged with knowledge of Federal statutes and lawfully promulgated agency regulations, regardless of actual knowledge or hardship resulting from innocent ignorance. See Morris v. Derwinski, 1 Vet. App. 260, 265 (1991) citing Fed. Crop Ins. Corp. v. Merrill, 322 U.S. 380, 384-85 (1947). Thus, even if the Veteran may have been ignorant of 38 USC. § 1115; 38 C.F.R. § 3.57, he was necessarily charged with knowledge of the regulation. In addition, the Board notes that the Veteran is service connected at the level of 100 percent for a psychiatric disability. However, there is no evidence of record to show that the Veteran was incompetent in March 2006 or September 2006 when he filed VA forms identifying LMC and LDC as dependents. In view of the foregoing, the Board must find that the overpayment at issue in this case was not due to sole administrative error and is, consequently, properly created and a valid debt. 38 USC. § 5112(b)(10); 38 C.F.R. § 3.500(b)(2). The Board now turns to the question of the waiver of the recovery of the $2,522.00. Veteran avers that he committed no fraud or misrepresentation, and that he did not act in bad faith. He argues that it would be a hardship for him to repay this debt and reports he is in the process of filing for bankruptcy. He asks the Board to consider the medical costs he has incurred on behalf of his Veteran spouse which have not been covered by VA. Recovery of overpayments of any benefits made under the laws administered by VA 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 if the recovery of the indebtedness from the payee who received such benefits would be against equity and good conscience. 38 USC. § 5302 (2014); 38 C.F.R. § 1.962, 1.963(a), 1.965 (2017). Here, the Board finds that the evidence is insufficient to show fraud, misrepresentation, or bad faith on the part of the Veteran. The term "bad faith" generally describes unfair or deceptive dealing by one who seeks to gain thereby at another's expense. 38 C.F.R. § 1.965(b)(2) (2017). Thus, a debtor's conduct in connection with a debt arising from participation in a VA benefits or services program exhibits bad faith if the conduct, although not undertaken with actual fraudulent intent, is undertaken with intent to seek an unfair advantage, with knowledge of the likely consequences, and results in a loss to the government. Id. The question now is whether the facts here dictate that a waiver should be granted under the standard of "equity and good conscience." The phrase "equity and good conscience" means the arrival 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, (2) balancing of faults between the debtor and VA, (3) undue hardship of collection on the debtor, (4) defeat of the purpose of an existing benefit to the appellant, (5) unjust enrichment of the appellant, and (6) whether the appellant changed positions to his or her detriment in reliance upon a granted VA benefit. 38 USC. § 5302 (2014); 38 C.F.R. § 1.965(a) (2017). 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. The decision reached should not be unduly favorable or adverse to either side. 38 C.F.R. § 1.965(a) (2017). The first factor to consider is the fault of the debtor in creating the debt. Here, the Board finds that the Veteran is at some fault for the $2,522.00 overpayment. Although the RO initially denied the Veteran's claim to add LMC and LDC as his dependents, the RO did award the benefit upon the Veteran's second request. The evidence does not show that the Veteran's situation had changed from May to October 2006. It is reasonable to believe that the Veteran relied on the RO's second decision adding LMC and LDC as dependents in assuming that the award of additional compensation benefits was appropriate. The second fact to consider is weighing fault of the debtor against the fault of VA. In this case, the Board finds that the VA is also minimally at fault. The RO determined as early as August 2007 that the Veteran was not entitled to additional compensation based on his temporary custody of his niece and nephew. Yet, the RO waited until March 2008 to start the process of reducing the Veteran's benefits and removing LMC and LDC from the Veteran's compensation. Had VA acted earlier, it could have minimized the overpayment-at least in the case of LDC, who would not turn 18 until November 2008. The Board determines that the Veteran and VA share the fault in creating the overpayment. The next considerations are whether requiring repayment of the overpayment would impose undue hardship of collection on the debtor, thereby defeating the purpose of the benefit to the Veteran. Financial Status Reports, or VA Forms 5655, submitted by the Veteran in 2008 and 2017 show that his financial situation worsened from 2008 to 2017. The September 2008 report shows the Veteran indicated monthly income for him and his spouse from social security and VA benefits of $7,298.00. He reported total monthly expenses of $2,374.00; assets of $2,500.00 in the bank, $400.00 cash on hand, real estate valued at $320,000.00 and two vehicles, one valued at $5,000 and the other at $6,500.00. No additional installment, contract or other debts were reported. In the 2017 report, which was filed pursuant to the Board's July 2010 remand, the Veteran reported monthly income for him and his spouse from social security and VA benefits of $9,171.00. He reported total monthly expenses of $3,500.00 and net monthly income less expenses at $5,600.00. Assets were reported as $2,000.00 cash in the bank, real estate at $265,000.00, and a single car valued at $0.00. Additional installment contract and other debts totaled $986.00 monthly, with $2,525.00 past due. One of creditors is a mortgage company. The debt is in the amount of $35,000.00 and is identified for the purpose of medical needs. Also included with the financial status report is a letter from a bankruptcy lawyer reflecting the Veteran had consulted with a lawyer to file for bankruptcy. In a July 2017 letter, the Veteran advised he had filed for bankruptcy. See April 2017 Correspondence from the Veteran. This evidence supports the Veteran's assertions of financial stress. The Veteran's financial status reports establish that his monthly income exceeded his monthly expenditures by $4,924.00 in 2008 and continued to do so by $5,600.00 in 2017. Yet, when subtracting current monthly debt payments in addition to monthly expenditure, the 2017 form reflects excess income drops to $4,614.00. When the overdue debt amount of $2,525.00 is considered, the amount of excess income is further decreased. It is true that 2017 Financial Status Report shows that the Veteran's income and that of his spouse would continue to exceed expenses even if the monthly debt is subtracted. The Board is also cognizant that part of the Veteran's outstanding debt is the result of medical expenses for his Veteran spouse. Finally, the Board must consider whether failure to recover the overpayment would result in unjust enrichment, and whether the Veteran changed his position to his financial detriment in reliance on these benefits. The Board finds, for reasons already discussed above, that the Veteran was not unjustly enriched. While the Veteran did receive additional compensation for his niece until she turned 18 in February 2007, and for his nephew, the Veteran was also during this time their legal custodian and responsible for their support. Furthermore, as the Veteran claimed additional compensation after receiving custody of his niece and nephew, it is furthermore clear that the Veteran did not change his position to the detriment in reliance on the additional compensation which created the overpayment. Yet, noting the $2,525.00 in past due amounts in 2017 as compared to $0 in past due amounts and debt reported in 2008, the fact remains that the Veteran's financial burden has increased. That such may be, at least in part, due to the support provided LMC and LDC is shown in the medical evidence the Veteran provided in support of his claim that LMC required support past the age of 18 as a helpless child. Accordingly, recovery of the overpayment is against equity and good conscience. In sum, the Board concludes that the facts in this case show that the overpayment of $2,522.00 was properly created. The Veteran did not misrepresent the circumstances, act fraudulently or in bad faith in the circumstances that created the overpayment. Therefore, waiver of the overpayment in the amount of $2,522.00 is appropriate. ORDER The overpayment in the amount of $2,522.00 is valid; waiver of the overpayment of $2,522.00 is granted. ____________________________________________ S. HENEKS Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs