Opinion
CIVIL ACTION NO. 8:00-CV-1002-T-30F.
October 24, 2001
MEMORANDUM AND ORDER
This is an action under section 205(g) of the Social Security Act, 42 U.S.C. § 405(g). The plaintiff, Jones L. Boatwright ("Boatwright"), seeks judicial review of the final decision of the Commissioner of Social Security (the "Commissioner"), which denied his application for a period of disability and disability insurance benefits.
I. Background
A. Administrative Proceedings
On April 25, 1995, Boatwright filed an application for disability insurance benefits, Tr. 81-85, alleging disability as of January 31, 1989, Tr. 81. The Commissioner denied Boatwright's claim both initially and upon reconsideration. Tr. 86-92, 93-96. Boatwright timely requested a hearing before an administrative law judge. Tr. 97-98. The administrative law judge conducted a hearing on July 29, 1996, Tr. 26-79, and after considering the case de novo held, on April 8, 1998, that Boatwright was not disabled within the meaning of the Social Security Act at any time from January 31, 1989, the date of his alleged onset, to December 31, 1992, the date his insured status expired. Tr. 14-21. Specifically, the administrative law judge found that Boatwright was engaged in work activity involving significant physical or mental activities, 20 C.F.R. § 404.1510, 404.1572(a), worth more than an average of five hundred dollars per month, id. § 404.1574(b)(2) tbl. 1, and that this work activity constituted substantial gainful activity within the meaning of the Social Security regulations, id. § 404.1575(a)(3). Tr. 21, ¶¶ 3-4. On March 31, 2000, the Appeals Council denied Boatwright's request for review of the decision of the administrative law judge. Tr. 3-4. The decision of the administrative law judge therefore became the final decision of the Commissioner with respect to Boatwright's claim. See Sims v. Apfel, 530 U.S. 103, 106-07 (2000).
Although the administrative law judge relied on an earlier version of the regulations, the Court cites the current version of the regulations because none of the amendments is material to this case.
B. Relevant Record Evidence
Boatwright, a sixty-four year old man with a high school education, Tr. 29, 32, owns and operates Boatwright Trucking Company, Inc. ("Boatwright Trucking") an S Corporation. Tr. 461. At the time of its incorporation in 1986, Boatwright Trucking consisted of a fleet of between eight and ten trucks. Tr. 34, 461. Boatwright personally maintained these trucks and drove one of the trucks nearly full time. Tr. 461.
An S Corporation is a form of corporation, allowed by the Internal Revenue Code for most small businesses with seventy-five or fewer shareholders, which enables the company to enjoy the benefits of incorporation but to be taxed as if it were a proprietorship or a partnership. At the end of each fiscal year, the corporation's total net earnings (or losses) are prorated to each shareholder in proportion to his equity interests, and these earnings (or losses) are incorporated into the shareholder's individual income tax return. 14A William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations §§ 6970.192-94, 6970.201-02 (perm. ed., rev. vol. 2000).
On January 31, 1989, Boatwright was involved in a single vehicle accident. Tr. 32, 120, 221, 461. During the accident, Boatwright was tossed around the interior of the truck that he was driving and ultimately was ejected from the vehicle. He sustained a fracture of two discs in his neck. Tr. 221-25. Even after extended physical therapy, Boatwright's ability to lift, stand, walk, sit, and drive is limited. Tr. 121.
A more complete summary of the medical evidence is not included here because the decision of the administrative law judge that is the subject of this appeal was based solely on nonmedical grounds. See Tr. 17-21.
Following the accident, Boatwright could no longer work as a long haul driver. Tr. 39-40. He therefore began to operate Boatwright Trucking exclusively as a leasing company, franchising his trucks to other individuals. These individuals drive the trucks, hauling goods on contracts established by Boatwright Trucking. The drivers receive a settlement that they pay to Boatwright Trucking in exchange for the use of the trucks. Tr. 34, 38. Boatwright Trucking then pays a salary or commission back to the drivers. Tr. 38. Boatwright acts as the president of the company, makes the necessary business contacts, authorizes repairs on the trucks, and is authorized to sign checks. Tr. 38-39. Boatwright's wife, Sandra Boatwright ("Mrs. Boatwright"), is also authorized to sign checks and performs the paperwork for the company. Tr. 35, 38-39.
Although Boatwright Trucking initially was a fairly large operation, with between eight and ten trucks, that number diminished over time to just one truck. Tr. 34, 461. As the number of trucks has decreased, the time invested by the Boatwrights in the company similarly has decreased. Mrs. Boatwright testified that when the company originally was organized, she spent four to five hours per day in the office, but that beginning in 1992, she spent three to four hours per week in the office, and that by the time of the hearing in 1996, her hours had decreased nearly to zero. Tr. 63-64. Boatwright testified that his hours fluctuate from between zero to three or four hours per day. Tr. 41.
The business has never shown a profit. Tr. 36. Boatwright Trucking's 1988 tax records indicate $373,336 in gross receipts that year, but a net loss of $20,719 after subtracting expenses including depreciation, repairs and maintenance, taxes, driver commissions, fuel, supplies, and insurance. Tr. 285-93. In 1989, Boatwright Trucking's gross receipts were $246,982, but the company experienced a net loss of $13,967 after expenses. Tr. 294. In 1990, the company's gross receipts were $186,633, but the company experienced a net loss of $24,275 after expenses. Tr. 306. In 1991, Boatwright Trucking's gross receipts continued to drop — to $143,476 — and the company experienced a net loss of $6,317 after expenses. Tr. 314. Finally, in the last year relevant to these proceedings, 1992, Boatwright Trucking's gross receipts were $187,491 and the company experienced a net loss of $12,682 after expenses. Tr. 323.
Boatwright's insured status expired on December 31, 1992. Tr. 17. Thus, Boatwright must show that he was under a disability on or before this date, and events subsequent to 1992 do not bear on this Court's decision. Id.
II. Standard of Review
The Court's review of a Social Security disability benefit determination is limited under 42 U.S.C. § 405(g), which provides that "[t]he findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive." Id.;see also Richardson v. Perales, 402 U.S. 389, 401 (1971); Martin v. Sullivan, 894 F.2d 1520, 1529 (11th Cir. 1990); Allen v. Bowen, 816 F.2d 600, 602 (11th Cir. 1987); Bloodsworth v. Heckler, 703 F.2d 1233, 1239 (11th Cir. 1983). Substantial evidence is "more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Richardson, 402 U.S. at 401 (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938));accord Walden v. Schweiker, 672 F.2d 835, 838-39 (11th Cir. 1982). InMcRoberts v. Bowen, 841 F.2d 1077 (11th Cir. 1988), the Eleventh Circuit further delineated this standard, stating that substantial evidence "must do more than create a suspicion of the existence of the fact to be established," id. at 1080 (quoting Walden, 672 F.2d at 838).
This Court is therefore called upon to determine whether substantial evidence exists in the record as a whole to support the findings of the Commissioner. Tieniber v. Heckler, 720 F.2d 1251, 1253 (11th Cir. 1983) (per curiam); Smallwood v. Schweiker, 681 F.2d 1349, 1351 (11th Cir. 1982); Walden, 672 F.2d at 838. The Court has a duty to "scrutinize the record" in full in order to assess "the reasonableness of the decision reached." Bridges v. Bowen, 815 F.2d 622, 624 (11th Cir. 1987) (per curiam). "It is incumbent upon the reviewing court to examine the findings and decision of the [Commissioner] in light of the record in its entirety, not only that evidence which supports the decision." Lamb v. Bowen, 847 F.2d 698, 701 (11th Cir. 1988) (citing Owens v. Heckler, 748 F.2d 1511 (11th Cir. 1984) (per curiam); Boyd v. Heckler, 704 F.2d 1207, 1209 (11th Cir. 1983), superseded by statute on other grounds as stated in Elam v. R.R. Ret. Bd., 921 F.2d 1210, 1214 (11th Cir. 1991); and Harrell v. Harris, 610 F.2d 355 (5th Cir. 1980) (per curiam)).
"A determination that is supported by substantial evidence may be meaningless, however, if it is coupled with or derived from faulty legal principles." Boyd, 704 F.2d at 1209. Thus, the Court must also be satisfied that the Commissioner applied the correct legal standards in making his decision. Id.; Wiggins v. Schweiker, 679 F.2d 1387, 1389 n. 3 (11th Cir. 1982). The Commissioner's determination of the proper legal standards to be applied is not entitled to a presumption of validity,Bridges, 815 F.2d at 624, and failure by the Commissioner to apply the correct legal standards is grounds for reversal, not remand, in most instances. Bowen v. Heckler, 748 F.2d 629, 635-36 (11th Cir. 1984).
III. Discussion
A. Issue on Appeal
Boatwright asserts that the determination of the administrative law judge that his work on behalf of Boatwright Trucking constitutes substantial gainful activity within the meaning of the Social Security regulations is legally erroneous and not based on substantial evidence. Pl.'s Mem. at 5-7. Specifically, Boatwright claims that his wife is responsible for the management of Boatwright Trucking and that he acts solely as a consultant, contributing substantially less than half of the time needed to manage the business. Id.
B. Overview — Substantial Gainful Activity
Pursuant to 42 U.S.C. § 423, disability insurance benefit payments are available to individuals who are under a "disability," which is defined as the "inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months,"id. § 423(d)(1)(A) (emphasis added); accord 20 C.F.R. § 404.1505(a) (defining "disability"). Thus, the first step for an administrative law judge who is called upon to determine whether an individual is disabled is to "ascertain whether the claimant engaged in substantial gainful employment during a period of claimed disability." Andler v. Chater, 100 F.3d 1389, 1392 (8th Cir. 1996). If the administrative law judge determines that the claimant engaged in substantial gainful activity during the relevant time period, then he cannot find that the individual is disabled, even if the claimant is physically or mentally impaired. Id. at 1392; Fowler v. Bowen, 876 F.2d 1451, 1453 (10th Cir. 1992) ("If plaintiff actually engaged in substantial gainful activity, he could not be found disabled, regardless of the severity of his impairments."); see also 20 C.F.R. § 404.1520(a) ("If you are doing substantial gainful activity, we will determine that you are not disabled."); id. § 404.1571 (similar).
The Social Security Administration has promulgated regulations that determine disability through a five-step analysis. 20 C.F.R. § 404.1520. Briefly summarized, to determine disability,
the following steps are addressed in order. (1) Is the claimant presently unemployed? (2) Is the claimant's impairment "severe"? (3) Does the impairment meet or exceed one of a list of specific impairments? (4) Is the claimant unable to perform his or her former occupation? (5) Is the claimant unable to perform any other work within the economy? An affirmative answer leads either to the next step or, on steps 3 and 5, to a finding that the claimant is disabled. A negative answer at any point, other than step 3, stops the inquiry and leads to a determination that the claimant is not disabled.Rollins v. Shalala, 19 F. Supp.2d 1100, 1101 n. 1 (C.D.Cal. 1994) (quoting Garfield v. Schweiker, 732 F.2d 605, 607 n. 2 (7th Cir. 1984)),aff'd, 77 F.3d 490 (9th Cir. 1996).
Thus, in the instant case, the administrative law judge, having determined that Boatwright was engaged in substantial gainful activity, was barred from proceeding to the subsequent steps in the sequential evaluation of disability. 20 C.F.R. § 404.1520(a) ("If we can find that you are disabled or not disabled at any point in the review, we do not review your claim further."); accord id. § 416.920(a). Consequently, Boatwright's medical impairment, age, education, and work experience had no bearing on the decision of the administrative law judge and are irrelevant to this Court's review. Dierks v. Apfel, 63 F. Supp.2d 1028, 1031 n. 2 (D.Neb. 1999) (citing 20 C.F.R. § 404.1520(b)).
Substantial gainful activity is work that is both substantial, i.e., involving significant physical or mental activities even if done part-time or if the claimant does less, gets paid less, or has less responsibility than when he worked before; and gainful, i.e., work done of the kind usually done for pay or profit, whether or not a profit is realized. Id. § 404.1572(a), (b). The claimant bears the burden of demonstrating that he was not engaged in substantial gainful activity.Rodriguez v. Schweiker, 640 F.2d 682, 685 (5th Cir. Mar. 1981) (citingFlowers v. Harris, 616 F.2d 776, 778 (5th Cir. 1980)). Among the factors the administrative law judge ought consider are: the time spent on work; the quality of performance; whether the claimant is self-employed; the need for special conditions or supervision; the use of experience and skills; the exercise of responsibility; and whether the claimant contributes substantially to the operation of the business. 20 C.F.R. § 404.1573.
C. Self-Employment as Substantial Gainful Activity
In the instant case, the most crucial of these factors is Boatwright's self-employed status. As the administrative law judge noted, although Boatwright is technically an employee of Boatwright Trucking because of its incorporation under subchapter S of the Internal Revenue Code, for the purposes of a Social Security disability benefits determination, he ought be treated as a self-employed individual because of his sixty-seven percent ownership interest in the corporation, his control over the company, and the manner in which shareholders of S Corporations are compensated and taxed. Tr. 19; see also supra note 4.
Under the Social Security regulations, 20 C.F.R. § 404.1573(d), 404.1575, self-employment is evaluated differently from other forms of employment because self-employed individuals present unique considerations: Income is less reliable as an indicator of the substantial nature of a self-employed individual's work, and "[t]hose who might not otherwise be employable in the private sector are often able to work around their disabilities when self-employed." Johnson v. Sullivan, 929 F.2d 596, 598 (11th Cir. 1991) (per curiam). Thus, to determine whether a self-employed claimant engages in substantial gainful activity, the regulations instruct the administrative law judge to consider: (1) whether the claimant provides significant services to the operation of the business and receives substantial income therefrom; (2) whether the claimant's work activity in terms of "hours, skills, energy output, efficiency, duties, and responsibilities, is comparable to that of unimpaired individuals" in the same or a similar business; and (3) if the work activity is not comparable, whether, in terms of its value to the business, the activity is worth at least five hundred dollars per month in terms of its value to the business or when compared to the salary that an owner would pay an employee to do the work. 20 C.F.R. § 404.1575(a)(1)-(3). In applying these tests, the administrative law judge should also consider whether the claimant performs any "[s]upervisory, managerial, advisory, or other significant personal services." Id. § 404.1573(d). Income alone is not determinative, "because the amount of income [an individual] actually receive[s] may depend on a number of different factors, such as capital investment and profit sharing agreements." Id. § 404.1575(a).
Section 404.1575 was amended effective August 10, 2000. See Determining Disability and Blindness; Substantial Gainful Activity Guides, 65 Fed. Reg. 42,772, 42,785-86 (July 11, 2000). As a result of the amendment, former subsections (a)(1), (a)(2), and (a)(3) have been reordered as subsections (a)(3), (a)(1), and (a)(2) to explain the order in which the three tests should be applied to determine whether self-employed persons have engaged in substantial gainful activity. "These revisions are based on SSR 83-34 . . . and do not represent a change in practice." Id. at 42,773, col.2. The text reflects the regulation's revised order.
The current version of 20 C.F.R. § 404.1575(a) instructs the administrative law judge to determine whether a claimant has engaged in substantial gainful activity under the first test. Only if a finding of substantial gainful activity cannot be made under the first test is the administrative law judge instructed to proceed to the second and third tests. Id. In the instant case, although the administrative law judge did not reach an express finding under the first test, he recognized that Boatwright Trucking's tax returns showed little or no profit for the corporation from 1989 to 1995. Tr. 19. Thus, the administrative law judge implicitly acknowledged that Boatwright could not have received substantial income from his business during those years and therefore was not engaged in substantial gainful activity under the first test. Moving to the second test, the administrative law judge quickly concluded that Boatwright was not engaged in substantial gainful activity under its terms, because "[i]t is clear that the claimant's hours, as well as certain other factors, are not comparable to those of an unimpaired business owner, who would clearly be capable of putting more time and effort into his venture." Tr. 19. Under the last of the three tests, however, the administrative law judge found that even though Boatwright's efforts on behalf of his company were not comparable to those of an unimpaired person, his activity was "clearly worth more than an average of $500 per month when considered in terms of its value to the business, or when compared to the salary that an owner would pay to an employee to do the work." Tr. 20. The administrative law judge therefore determined that Boatwright had engaged in substantial gainful activity from January 31, 1989, the date that Boatwright stated he became unable to work, to December 31, 1992, the date that Boatwright's insured status expired. Tr. 20-21. There is substantial evidence in the record to support the conclusion of the administrative law judge.
First, because Boatwright claims that his wife manages the trucking business with minimal advisory assistance from him, the administrative law judge was called upon to evaluate the credibility of these assertions. The conclusion of the administrative law judge that these representations were not wholly credible is supported by the record and therefore ought not be disturbed. Foote v. Chater, 67 F.3d 1553, 1562 (11th Cir. 1995) (per curiam) ("A clearly articulated credibility finding with substantial supporting evidence in the record will not be disturbed by a reviewing court."). Boatwright Trucking's federal tax returns indicate that Boatwright is a sixty-seven percent shareholder in the corporation and that he acts as the president of the company. Tr. 292, 304, 312, 321, 329, 333, 350, 358 (tax returns from 1988-1995). Boatwright Trucking's minority, thirty-three percent, shareholder is identified as Keary Boatwright. Tr. 305. Mrs. Boatwright is not a shareholder in the corporation. Moreover, the Boatwrights' personal tax returns indicate that Boatwright's occupation is that of a "business manager," while Mrs. Boatwright is identified as a "housewife." Tr. 381, 395, 407, 419, 431 (tax returns from 1991-1995); see also Tr. 442, 452 ("self employed" and "housewife" for 1989 and 1990 tax returns). In light of these representations, the Court concurs with the administrative law judge that Boatwright's assertion that his wife runs Boatwright Trucking lacks credibility. Tr. 18-19; see also Barber v. Sullivan, 765 F. Supp. 58, 62, 64 (W.D.N.Y. 1991) (considering, and rejecting, the claimant's testimony that his wife did most of the work in the business, and noting the "lack of persuasive evidence that plaintiff's wife provided any of the experience and expertise in the . . . field necessary to manage the business" (first alteration in original) (internal quotation marks omitted)).
Second, the record reveals that Boatwright continued to invest a great deal of time, as well as physical and mental energy, in the business after the accident. Tr. 41-42. Boatwright testified that he would spend as many as three to four hours per day in the office, every day, immediately following the accident. Tr. 42. Moreover, Boatwright's organizational and supervisory contributions to the business were substantial. Both Boatwright and his wife testified that he played a significant role in counseling her as to how to run the business. Tr. 41, 64. Notably, Mrs. Boatwright stated that Boatwright would instruct her "as to what to do next" in terms of getting contracts. Tr. 38. When problems arose, Boatwright was the responsible individual, advising his wife as to what to do with the drivers and authorizing repairs to trucks that needed to be fixed on the road. Tr. 38, 64. Boatwright also assisted with more everyday business responsibilities, such as purchasing parts for the trucks. Tr. 65.
Once the contracts with the drivers are established, Boatwright Trucking is essentially a "hands-off" business. Tr. 61-63. Thus, the duties fulfilled by Boatwright, although not requiring him to work full time, are at the very heart of the business. See Strahan v. Shalala, No. H-93-2057, 1994 WL 543029, at *2 (S.D.Tex. June 16, 1994) (holding that claimant was engaged in substantial gainful employment despite claim that business "virtually ran itself, on `auto-pilot'"). The record indicates that it is largely Boatwright's thirty years of experience in the trucking industry, Tr. 135, his managerial oversight of Boatwright Trucking, and his skill, responsibility, and reputation that keep the company running. 20 C.F.R. § 404.1573(a); id. § 404.1573(d) ("Supervisory, managerial, advisory or other significant personal services that you perform as a self-employed individual may show that you are able to do substantial gainful activity."); Callaghan v. Shalala, 992 F.2d 692, 695 (7th Cir. 1993); Dolbashian v. Sec'y of Health Human Servs., 688 F.2d 4, 6 (1st Cir. 1982) ("The regulations specifically recognized that the services performed by a self-employed individual may be more intangible in nature, and it is those intangible contributions that we find persuasive."), cited with approval in Johnson, 929 F.2d at 598.
Third, although Boatwright Trucking never realized a profit, and therefore Boatwright never drew a salary from the corporation, the company's gross receipts were substantial, ranging from $143,476 to $246,982 annually. Tr. 285, 294, 306, 314 (tax returns from 1988-1992). Thus, even though Boatwright was not compensated, if his contributions to Boatwright Trucking, when considered in terms of their value to the company, were worth more than $6000 a year, then he was substantially and gainfully employed under the regulations. 20 C.F.R. § 404.1575(a)(3);see also Social Security Ruling 83-34, available at http://www.ssa.gov/OP_Home/ rulings/di/03/SSR83-34-di-03.html ("Hence, it is necessary to consider the economic value of the individual's services, regardless of whether an immediate income results from such services.").
Boatwright argues that he was acting solely as a "consultant" to his company, and that "[a] consultant is retained at an approximate rate of $20 per hour in this area." Pl.'s Mem. at 5. Boatwright failed, however, to introduce any evidence of this alleged prevailing rate into the record. Cf. Strahan, 1994 WL 543029, at *3 (affirming holding that claimant was engaged in substantial gainful activity even though business operated at a loss because claimant failed to present documentary evidence that his services were not worth at least the level specified in 20 C.F.R. § 404.1574(b)(2)). Moreover, the record shows that Boatwright worked greater than twenty-five hours in some months. Tr. 42. Thus, even at the twenty dollar per hour rate proposed by Boatwright, his efforts on behalf of Boatwright Trucking would constitute substantial gainful employment. Because Boatwright failed to adduce any evidence that the value of his services to Boatwright Trucking was less than five hundred dollars per month, and because Boatwright held himself out as the president and business manager of Boatwright Trucking, remained involved in the everyday management of the business, hired employees to drive and repair the trucks, authorized repairs to the trucks, occasionally signed checks, and maintained supervision and control over the business enterprise, the Court finds that there is substantial evidence in the record to support the holding of the administrative law judge that the value of Boatwright's services to his company exceeded five hundred dollars per month. See Rollins v. Shalala, 19 F. Supp.2d 1100, 1104 (C.D.Cal. 1994), aff'd, 77 F.3d 490 (9th Cir. 1996) (affirming denial of benefits because self-employed individual's contributions to company and gross profits were substantial, even though business operated at a loss because of expenses).
Finally, the determination of the administrative law judge comports with the holding of the Eleventh Circuit in Johnson v. Sullivan, 929 F.2d 596 (11th Cir. 1991) (per curiam). In Johnson, the court considered whether the claimant, who was a registered land surveyor and ran his own surveying company, was substantially and gainfully employed.Id. at 597. Following the onset of the claimant's impairment, his wife and son assumed many of the duties that the claimant otherwise would have performed and his company subcontracted out many jobs that required a surveyor's physical presence in the field. Id. Despite the claimant's reduced role in his company, however, the Eleventh Circuit observed that the claimant's "experience, license, and mental contribution to the business were substantial." Id. at 598. Similarly, although Boatwright could no longer drive trucks after his accident, Boatwright Trucking would not exist but for the knowledge and skill Boatwright brings to the company as a result of his lengthy tenure in the trucking industry and his significant mental and managerial contributions to the business. See Dolbashian, 688 F.2d at 6 (holding that because the mental activities of the disabled individual were pivotal to the success of the business, the claimant was engaged in substantial gainful activity).
The determination of the administrative law judge that Boatwright's work on behalf of his company, Boatwright Trucking, constituted substantial gainful employment, such that Boatwright was not under a disability as defined in 42 U.S.C. § 423(d), is supported by substantial evidence in the record as a whole.
IV. Conclusion
For the foregoing reasons, the decision of the Commissioner is AFFIRMED.
WILLIAM G. YOUNG UNITED STATES DISTRICT JUDGE