814 F.

2d 148

17 Soc.Sec.Rep.Ser. 73, Unempl.Ins.Rep. CCH 17,231

RUSSELL, Christine, Appellant,
v.
HECKLER, Margaret.
No. 86-1281.

United States Court of Appeals,

Third Circuit.
Argued Nov. 4, 1986.
Decided March 20, 1987.

Arnold F. Laikin (argued), Philadelphia, Pa., for appellant.

Edward S.G. Dennis, Jr., U.S. Atty., James G. Sheehan, Asst. U.S. Atty.,
Chief, Civil Div., Charisse R. Lillie, Asst. U.S. Atty., Beverly Dennis, III,
Chief Counsel, Region III, James C. Newman, Supervisory Asst.,
Regional Counsel, James A. Tinnyo (argued), Asst. Regional Counsel,
Office of the Gen. Counsel, Dept. of Health and Human Services,
Philadelphia, Pa., for appellee.
Before SLOVITER and STAPLETON, Circuit Judges and FARNAN,
District Judge.*
OPINION OF THE COURT
STAPLETON, Circuit Judge:

Christine Russell appeals the district court's denial of her motion for an award
of attorney's fees and costs under the Equal Access to Justice Act (EAJA), 28
U.S.C. Sec. 2412(d) (Supp. III 1985). Russell seeks compensation for attorney's
fees and costs incurred during judicial review of the decision by Secretary
Heckler of the Department of Health and Human Services not to waive
recoupment of social security benefit overpayments made to Russell. Russell
also seeks compensation for attorney's fees and costs incurred in litigating this
fee petition. The liability of the United States turns on whether the Secretary's
positions on recoupment and this fee petition were "substantially justified" as

that phrase is used in the EAJA.1 28 U.S.C. Sec. 2412(d)(1)(A) (Supp. III
1985).
2

The Social Security Act states that overpayments are not to be recouped if the
recipient is "without fault" and certain other requirements are met. 42 U.S.C.
Sec. 404(b) (1982). In the first instance, the administrative law judge (ALJ)
found that Russell was "not without fault" and thus that recoupment of the
overpayment could not be waived. App. at 14. The Appeals Council summarily
affirmed the ALJ's decision, finding substantial evidence that Russell was at
fault. The district court concluded that the Social Security Administration
(SSA) could not recoup the overpayment because the ALJ's findings were not
supported by substantial evidence that Russell was at fault. On the petition for
attorney's fees, however, the district court determined that the position taken by
the SSA, although rejected by the court, was "substantially justified," and
therefore concluded that the United States was not liable for Russell's attorney's
fees under the EAJA. 28 U.S.C. Sec. 2412(d)(1)(A) (Supp. III 1985). We
reverse, finding that Russell is entitled to an award of attorney's fees and costs
with respect to both the recoupment proceedings and this fee petition.

I.
3

The Secretary's position in the recoupment proceeding was that Russell "should
have known" her institutionalized son Michael was not "in her care," and
therefore Russell was "not without fault" in failing to report her ineligibility to
the SSA and in accepting the overpayments. In order to determine whether this
position is substantially justified, and thereby evaluate Russell's claim for
attorney's fees and costs, it is necessary to consider the law and facts relevant to
the underlying recoupment proceedings.

A.
4

Section 204(b) of the Social Security Act provides:

In any case in which more than the correct amount of payment has been made,
there shall be no adjustment of payments to, or recovery by the United States
from, any person who is without fault if such adjustment or recovery would
defeat the purpose of this subchapter or would be against equity and good
conscience.

42 U.S.C. Sec. 404(b) (1982). In order to show that the recipient was at fault
under the SSA regulations, the facts must show that the overpayment resulted
from:

(a) An incorrect statement made by the individual which he knew or should

have known to be incorrect; or

(b) Failure to furnish information which he knew or should have known to be

material; or

(c) With respect to the overpaid individual only, acceptance of a payment which
he either knew or could have been expected to know was incorrect.
20 C.F.R. Sec. 404.507 (1986).2

B.
10

Appellant Christine Russell's husband, James Russell, died in July of 1974. The
Russells were the parents of two surviving sons: James Gary, then 15, who
lived with his mother; and Michael Russell, then 9, who was mentally retarded
and lived in a nursing home under the custody of the State of Pennsylvania.
Although Christine Russell did not pay for Michael's care, she was consulted
about his welfare and activities.

11

After her husband's death, Christine Russell applied to the SSA for mother's
insurance benefits, surviving child's insurance benefits and benefits on behalf of
another--her institutionalized son Michael. To qualify for mother's insurance
benefits, an applicant must have at least one child in her care. To be named as
payee for a child's benefits, the child must be in the care of the applicant.

12

The SSA benefit application forms refer to the requirement that there be a child
"in your care." For example, the application form for receipt of benefits on
behalf of another states: "Do you agree to notify the Social Security
Administration promptly when you no longer have responsibility for the
welfare and care of any person for whom you receive payments?" App. at 76.
The application for mother's insurance benefits states:

13 may receive a mother's benefit for any month in which you have in your care a
You
child or dependent grandchild of the deceased entitled to a child's insurance benefit
because he (she) is:
14

--under age 18, or

15

--disabled or handicapped (age 18 or over and disability began before age 22)

App. at 66. It also explains that:

16 MUST NOTIFY THE SOCIAL SECURITY ADMINISTRATION
YOU
PROMPTLY IF:
17

--You MARRY

18

--You NO LONGER HAVE IN YOUR CARE a child or dependent grandchild

of the deceased entitled to benefits because he (she) is under 18 or disabled.

19

App. at 68. None of the application forms, however, explains what "in your
care" means in the context of an institutionalized child or in any other context.

20

The regulations defining "in your care" during the relevant period are set forth
in the margin.3 It is undisputed at this point that Michael was not in Russell's
care within the meaning of these regulations in 1974 or thereafter.

21

When Russell visited the SSA office to apply for benefits, she explained to the
interviewing SSA employee that Michael was living in a nursing home, that he
had been a "ward of the state" since 1967, and that she was "allowed to bring
him home for an occasional week" but that she saw him only rarely. App. at 7476. She was told by the SSA employee that Michael was eligible for benefits
and that she was eligible for mother's insurance. The employee filled out the
necessary applications setting forth the above disclosures and Russell signed
each of the forms without reading them. While Russell apparently understood
that she was eligible to receive Michael's benefits only if he was in her care,
there is no evidence that the "in your care" requirement was explained to her by
the SSA employee who filled out the application and Russell remained unaware
of the regulatory definition of that phrase. When Russell left the SSA Office,
she believed that Michael was sufficiently in her care to be entitled to benefits.
This impression was confirmed when she received benefits as the payee for
Michael.

22

James turned 18 on July 6, 1977. Because Michael was not in her care,
Christine Russell became ineligible for mother's insurance on that date and had
an obligation to notify the SSA. Russell did not notify the SSA of this change in
status because she believed that Michael was in her care. Russell received
mother's insurance benefit checks between July 1977 and July 1981, when the
SSA terminated her benefits, in the total amount of $8,338.50.4

23

The SSA sought recoupment of this $8,338.50 overpayment. Russell did not

argue that she was entitled to these benefits, but argued instead that recoupment
should be waived in her case because she was "without fault" in receiving the
overpayments. Russell's application for a waiver was denied. Russell requested
and received a hearing on the recoupment issue before an administrative law
judge. The ALJ's factual findings focused primarily on the use to which Russell
put the benefits paid to her on behalf of her son Michael. The ALJ also found,
however, that by signing the application for receipt of benefits on behalf of
another, Russell "indicated her understanding that she would be required to
notify the Administration of any changes in her beneficiary status." App. at 13.
On the basis of these factual findings, the ALJ concluded that Russell was "not
without fault." The ALJ therefore decided that recoupment could not be
waived.
24

Russell asked the Appeals Council to review the ALJ's decision. The Appeals
Council "acknowledge[d] that it was by and large unnecessary for the
Administrative Law Judge, in his decision, to discuss the use to which" Russell
put the funds she has received. App. at 3. The Appeals Council denied the
request for rehearing, however, because it found that there was substantial
evidence that Russell was not without fault, relying specifically on the fact that
Russell signed the three application forms. Thus, the ALJ's determination that
Russell was not without fault stood as the final decision of the Secretary.

25

Russell sought judicial review of the Secretary's determination. In the district

court, the Secretary argued that substantial evidence in the record supported the
conclusion that Russell was not without fault. In particular, the Secretary
asserted that the signed application forms stating that recipients are required to
notify the SSA when they no longer have in their care a child under 18 or
disabled were sufficient basis for finding that Russell "should have known" and
reported that she was ineligible as of July 1977. The district court rejected this
position and entered summary judgment for Russell. The district court later
denied Russell's motion for attorney's fees under the EAJA, finding that the
Secretary's position was "not unreasonable" and therefore was "substantially
justified." Memorandum Opinion at 9, 11.

26

The district court had subject-matter jurisdiction over the underlying matter
under 42 U.S.C. Sec. 405(g) and over the request for fees under 28 U.S.C. Sec.
2412. This court has appellate jurisdiction to review the final order of the
district court denying attorney's fees under 28 U.S.C. Sec. 1291.

II.
27

The initial question is whether the district court erred in denying Russell's

27

motion for attorney's fees. Our review of the district court's determination that
the Secretary's position was substantially justified is plenary. Washington v.
Heckler, 756 F.2d 959, 963 (3d Cir.1985).

A.
28

The Equal Access to Justice Act provides that:

a29court shall award to a prevailing party other than the United States fees and other
expenses ... incurred by that party in any civil action (other than cases sounding in
tort), including proceedings for judicial review of agency action, unless the court
finds that the position of the United States was substantially justified or that special
circumstances make an award unjust.
30

28 U.S.C. Sec. 2412(d)(1)(A) (Supp. III 1985).5 The Secretary argues that her
position was "substantially justified."6

31

This court summarized the law regarding substantial justification in Washington

v. Heckler, 756 F.2d 959, 961 (3d Cir.1985) (citations omitted):

32
Substantial
justification "constitute[s] a middle ground between an automatic award
of fees to a prevailing party and an award made only when the government's position
was frivolous." The burden of proving substantial justification is on the government.
To meet its burden, the government must show: (1) a reasonable basis in truth for the
facts alleged; (2) a reasonable basis in law for the theory it propounds; and (3) a
reasonable connection between the facts alleged and the legal theory advanced. The
government's burden of showing substantial justification is a strong one and is not
met merely because the government adduces "some evidence" in support of its
position.
33

After Washington was decided, Congress revived the EAJA, which was
repealed in 1984, and in doing so clarified the meaning of "substantially
justified." The House Report accompanying that legislation took the following
positions which are highly relevant in the present context:

34

Another problem which has developed in the implementation of the Act has
been the fact that courts have been divided on the meaning of "substantial
justification." Several courts have held correctly that "substantial justification"
means more than merely reasonable. Because in 1980 Congress rejected a
standard of "reasonably justified" in favor of "substantially justified," the test
must be more than mere reasonableness.

35

Especially puzzling, however, have been statements by some courts that an

administrative decision may be substantially justified under the Act even if it
must be reversed because it was arbitrary and capricious or was not supported
by substantial evidence. Agency action found to be arbitrary and capricious or
unsupported by substantial evidence is virtually certain not to have been
substantially justified under the Act. Only the most extraordinary special
circumstances could permit such an action to be found to be substantially
justified under the Act.

36

H.R.Rep. No. 120, 99th Cong., 1st Sess. 9-10, reprinted in 1985 U.S.Code
Cong. & Admin.News 132, 138 (emphasis supplied; footnotes omitted). See
Stokes v. Bowen, 811 F.2d 814 (3d Cir.1987).

37

In Washington v. Heckler, this court held that a legal position is substantially

justified if it relates to an unsettled or close question of law, but not if it clearly
offends established precedent. 756 F.2d at 961-62. This court recently found
this test to be consistent with the Congressional direction not to apply a "mere
reasonableness" test. Lee v. Johnson, 799 F.2d 31, 38 n. 7 (3d Cir.1986).
"Therefore, for the government, in relying entirely upon a legal argument, to
establish that its position was substantially justified, it must demonstrate that
that argument presented an unsettled or close question of law." Id. at 38.

B.
38

The Secretary bears the burden of presenting a basis for her position in both
fact and in law. Here, there is no dispute about the relevant primary facts. The
record establishes that Russell signed but did not read the application forms.
Nevertheless, she understood that she was eligible for benefits only if she had a
child in her care. Russell did not know the regulatory definition of the "in your
care" requirement as applied to her relationship with Michael, and it was not
explained to her. The oral advice Russell received at the SSA office and the
SSA's approval of Russell as Michael's representative payee led her to believe
that he was indeed in her care.

39

The Secretary's legal position in the recoupment proceeding was succinctly

stated in the following segment of her district court brief in the recoupment
proceedings:

40 Secretary is justified in requiring that plaintiff have read the application and
The
know the simple conditions under which she received benefits, i.e., that she have a
child of decedent under age 18 in her care. Additionally, the Secretary can require

plaintiff to follow the clear instructions given on the application that plaintiff inform
SSA when she no longer met those conditions. The Secretary believes, therefore,
that she properly can impute to plaintiff knowledge of plaintiff's obligation after July
1977 to report the fact that she no longer had a child of decedent under age 18 in her
care. The Secretary can also impute to plaintiff knowledge of her agreement to make
such a report and return any benefit checks to which she was not entitled.
41

Brief in Support of Defendant's Motion for Summary Judgment at 6.

42

For present purposes we may assume, without deciding, that the Secretary was
substantially justified in contending that the recipients of benefits should be
held to know that which is disclosed in the benefit application. This does not
aid the Secretary because even with this assumption, there is a lack of
substantial evidence to support the Secretary's ultimate finding that Russell was
at fault. The applications told her only that she would remain eligible only so
long as she had a child in her care and that she had a duty to report when this
was no longer the case. Moreover, this limited advice was not the only
information tendered to Russell by the SSA in connection with her 1974
applications for benefits and cannot be evaluated in isolation. The oral advice
that Russell received from SSA office representatives and the message that she
received from the Agency's approval of the application in which she had
disclosed the relevant facts regarding Michael's situation were reasonably taken
by Russell as an application of the "in your care" concept to the specific facts of
her case. We reject the Secretary's implicit contention that Russell should have
perceived an irreconcilable conflict between the Agency's apparent
interpretation of its own requirements and the otherwise unexplained phrase "in
your care."

43

Assuming that Russell was without fault in 1974 in understanding that Michael
was in her care, as we find she clearly was, we fail to see how the Secretary can
be substantially justified in maintaining that she was "at fault" on and after July
6, 1977 when the only change of circumstance on that date was that Russell
reasonably understood she had only one child in her care rather than two. The
Secretary's own regulations provide that a recipient failing to report an event
because of reliance on statements of Social Security personnel is without fault.
20 C.F.R. Sec. 404.510a (1977) ("Where an individual ... accepts such
overpayment because of reliance on erroneous information from an official
source within the Social Security Administration ... with respect to the
interpretation of a pertinent provision of the Social Security Act or regulations
pertaining thereto, ... such individual, in accepting such overpayment, will be
deemed to be 'without fault.' "). This is the substance of what occurred in this
case and we, accordingly, conclude that the district court was correct in holding

that the Secretary's position in the recoupment proceeding was unsupported by

substantial evidence. Given that there are no "extraordinary special
circumstances" here, it follows that the Secretary's position was not
"substantially justified" as Congress intended that concept to be applied.
H.R.Rep. No. 120, 99th Cong., 1st Sess. 10, reprinted in 1985 U.S.Code Cong.
& Admin.News 132, 138.
44

At times the Secretary seems to be making the additional legal argument that a
recipient of benefits is charged with knowledge of the regulations. If this were a
tenable proposition of law, the Secretary's contention that Russell was "at fault"
would have been substantially justified. The Secretary cites no authority for this
proposition, however, and, far from representing an "unsettled or close question
of law," we believe it is clearly refuted by the statute and regulations
themselves. As the court explained in Cucuzzella v. Weinberger, 395 F.Supp.
1288, 1295 (D.Del.1975):

45

The [statute and] regulations dealing with repayment presuppose that there will
be situations in which improper payments are received and retained and the
recipient is nevertheless not at fault. Accordingly, it is clear that recipients are
not always to be deemed to have knowledge of the law or to be charged with
negligence for failure to know it.

46

In Kendrick v. Califano, 460 F.Supp. 561, 571-72 (E.D.Va.1978), the court,

taking a similar view, held that the Secretary cannot arbitrarily assume that a
claimant understood the application of the Social Security law to his particular
situation. See also Davidson v. Harris, 502 F.Supp. 1208, 1214 (E.D.Pa.1980)
(a recipient cannot be deemed to know and understand regulations simply
because she can read and write).

47

In short, Section 404(b) of the statute and its implementing regulations cannot
be reconciled with the Secretary's apparent contention that recipients of benefits
must be held to know the law. Accordingly, this contention was not
substantially justified. Since, under any other view of the law, there was no
substantial evidence to support a contention that Russell was at fault, we hold
that the Secretary's position in the recoupment proceeding was not
"substantially justified" within the meaning of the EAJA.

III.
48

When the United States opposes a fee petition under the EAJA and its
opposition is not "substantially justified," the petitioner may recover the

attorney's fees and costs incurred in litigating the fee petition. Lee v. Johnson,
799 F.2d at 39. Where the opposition of the government is not based solely on
a contention that its position in the underlying proceeding was substantially
justified, an application for fee petition expenses can present issues not resolved
by the proceedings on the original fee petition. See, e.g., Lee v. Johnson, 799
F.2d at 39-40. Where the sole basis for the opposition is the alleged substantial
justification of the government's position in the underlying proceedings,
however, the petitioner will almost always, if not always, be entitled to fees for
litigation over an EAJA fee petition if she is entitled to fees for the underlying
litigation. Here the petitioner, having established her rights to relief on the
original petition, has demonstrated an entitlement to an award of fee petition
expenses since the Secretary's opposition to the fee petition was not
"substantially justified."
49

With respect to the amount of the fee petition expense, we reach the same
conclusion we have previously reached in the context of the attorney's fees
section of the Social Security Act:

50 perceive no reason why the district court should not set the fees for work in both
We
courts when representation in each was required. That practice reduces the time and
effort required of counsel and also simplifies judicial oversight of the process.
51

Guido v. Schweiker, 775 F.2d 107, 110 (3d Cir.1985).

IV.
52

The order of the district court denying an award of attorney's fees and costs
under the EAJA will be reversed and the case will be remanded so that the
district court may make an award of fees and costs attributable to the
recoupment proceedings in the district court and to the fee petition proceedings
in the district court and this Court.

Honorable Joseph J. Farnan, Jr., United States District Judge for the District of
Delaware, sitting by designation

The attorney's fee section of the Social Security Act, 42 U.S.C. Sec. 406(b)
(1982), is not applicable to fees incurred in resisting recoupment of
overpayments of social security benefits

The regulations also state that recoupment will defeat the purpose of the Social
Security Act if it will "deprive a person of income required for ordinary and

necessary living expenses." 20 C.F.R. Sec. 404.508 (1986). The Secretary did
not take a position before the district court on the issues of whether recoupment
would defeat the purposes of the Act or would be consistent with equity and
good conscience. Russell was overpaid $8,338.50. Her only cash income at the
time of the hearing was $43 per week in state assistance
3

Between 1974, when Russell applied for benefits, and 1981, when benefits
were terminated, the regulatory definition of "in your care" was amended
several times, but none of these changes were pertinent to whether Michael was
in Russell's care. In 1974, the relevant regulations, 20 C.F.R. Secs. 404.342,
404.343, 404.348, and 404.349 (1974), provided:
Sec. 404.342 In her care.
For purposes of Secs. 404.313, 404.335, and of Subpart E, a mother (whether a
wife, widow, or surviving divorced mother) has a child in her care if she
exercises parental control and responsibility for the welfare and care of a child
under age 18, or of a child age 18 or older who is mentally incompetent. If the
child is age 18 or older and mentally competent, "in her care" means that the
mother is performing personal services for the child.
Sec. 404.343. In her care; exercising parental control and responsibility.
For purposes of Sec. 404.342:
***
(b) Parental control and responsibility may be exercised directly or, where the
mother and child are apart, it may be exercised indirectly. The fact that the
mother has not lost the legal right to the child's care and custody, and retains
the right to exercise parental control and responsibility, does not constitute the
exercise of such parental control and responsibility even if she furnishes the
child's food, clothing, and shelter or makes provision therefor.
Sec. 404.348. In her care; mother and child not living together; separation
expected to be indefinite or to exceed 6 months.
(a) General. Where the mother and child are not living together and the
separation will be for an indefinite period, or is not expected to end within 6
months, the mother is exercising parental control and responsibility for the care
and welfare of the child only under the conditions described in paragraphs (b),
(c), (d), and (e) of this section. If the child resumes living with the mother
before the end of 6 months, the provisions of Sec. 404.347 are applicable in
determining whether the mother has the child in her care.

***
(e) Mother and child not living together; child mentally incompetent. Where
mother and child are not living together (regardless of reason), and the child is
mentally incompetent, and the mother is exercising parental control and
responsibility if she supervises the activities of the child, participates in the
important decisions about the child's physical and mental needs, and
measurably controls the child's upbringing and development.
Sec. 404.349 In her care; when a mother does not have a child in her care.
Notwithstanding the provisions in Secs. 404.342-404.348, a mother does not
have a child in her care, for purposes of this subpart or Subpart E, if:
(a) The child is in the armed forces; or
(b) The mother and child are not living together and either:
(1) The child is living with the father; or
(2) The mother is mentally incompetent; or
(3) The child was removed from the mother's custody and control by a court
order; or
(4) The mother has relinquished her right to custody and control of the child to
some other person or agency; or
(5) The separation is for a period of more than 6 months, and the child is age
18 or older and is mentally competent.
4

The Secretary sought recoupment of only mother's insurance benefit

overpayments. See App. at 97-101

This section was repealed on October 1, 1984. The section was revived and
made effective with respect to all litigation pending or initiated on or after
August 5, 1985. Pub.L. No. 99-80 Secs. 6, 7, 99 Stat. 183, 186 (1985). Russell's
petition for review of the Secretary's determination was pending in the district
court on that date

The Secretary does not argue that there were "special circumstances" in
Russell's case that render an award unjust. See Brinker v. Guiffrida, 798 F.2d
661, 667-68 (3d Cir.1986)