Citation Nr: 0003308 Decision Date: 02/09/00 Archive Date: 02/15/00 DOCKET NO. 98-06 702A ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Portland, Oregon THE ISSUE Entitlement to a waiver of recovery of an overpayment of VA pension benefits in the calculated amount of $1,844.00. REPRESENTATION Veteran represented by: The American Legion ATTORNEY FOR THE BOARD M.S. Lane, Associate Counsel INTRODUCTION The veteran served on active duty from September 1967 to October 1970. This matter comes to the Board of Veterans' Appeals (Board) on appeal from a March 1997 decision of the Committee on Waivers and Compromises of the Department of Veterans Affairs (VA) Regional Office in Houston, Texas, which denied the veteran's claim of entitlement to a waiver of recovery of an overpayment of VA pension benefits. The veteran's claims folder was subsequently transferred to the Portland, Oregon VA Regional Office (the RO), which now has jurisdiction over this case. In December 1996, the veteran requested a personal hearing at the RO. A hearing was subsequently scheduled, and the veteran was notified of the date and time of his hearing in a March 1998 letter from the RO. However, in March 1998 the veteran failed to report for this hearing. Thereafter, the veteran requested another opportunity for a personal hearing before a member of the Board in Washington, D.C. A hearing was subsequently scheduled, and the veteran was again notified of the date and time of this hearing in a December 1998 letter from the Board. The veteran also failed to report for this hearing. To the Board's knowledge, the veteran has offered no explanation as to why he was unable to appear for either of these hearings, and he has since made no request for another opportunity. Accordingly, the Board will proceed to a decision on this appeal as if the hearing requests had been withdrawn. 38 C.F.R. § 20.704(d) (1999). FINDINGS OF FACT 1. Recovery of a portion of the debt, $644.00, plus any accrued interest, is against considerations of equity and good conscience. 2. Recovery of the remaining indebtedness, $1,200, would not be against equity and good conscience. CONCLUSIONS OF LAW 1. Recovery of a portion of the overpayment of improved pension benefits in the amount of $644.00, plus accrued interest, would be against equity and good conscience, and recovery of that amount by the Government is waived. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. §§ 1.963(a), 1.965(a) (1999). 2. Recovery of the remainder of the overpayment of improved pension benefits in the amount of $1,200.00, plus accrued interest, would not be against equity and good conscience, and recovery of that amount by the Government is not waived. 38 U.S.C.A. § 5302 (West 1991); 38 C.F.R. §§ 1.963(a), 1.965(a) (1999). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The veteran is seeking waiver of an overpayment of VA pension benefits in the amount of $1,844.00. In the interest of clarity, the Board will first discuss the law and regulations pertinent to the payment of non service- connected pension benefits. The Board then discuss the factual background underlying the veteran's claim. The Board will then analyze the issue on appeal. Applicable Law and Regulations Non service-connected pensions Under applicable law, a veteran who served in the active military service for 90 days or more during a period of war, who is permanently and totally disabled from non service- connected disability not the result of the veteran's own willful misconduct, is entitled to pension payable at the rate established by law, reduced by the veteran's annual income and, if the veteran is married and living with his spouse, the annual income of the spouse. 38 U.S.C.A. § 1521(a), (c), and (j) (West 1991); 38 C.F.R. § 3.252(b) and (c) (1999). For pension purposes, payments of any kind from any source will be counted as income during the 12 month annualization period in which received, unless specifically excluded under the provisions of 38 C.F.R. § 3.272 (1999). Unless otherwise provided, expenses deductible under this section are deductible only during the 12-month annualization period in which they were paid. 38 C.F.R. § 3.272 (1999). Within the provisions of the following paragraphs, there will be excluded from the amount of an individual's annual income any unreimbursed amounts which have been paid within the 12- month annualization period for medical expenses regardless of when the indebtedness was incurred. An estimate based on a clear and reasonable expectation that unusual medical expenditure will be realized may be accepted for the purpose of authorizing prospective payments of benefits subject to necessary adjustment in the award upon receipt of an amended estimate, or after the end of the 12-month annualization period upon receipt of an eligibility verification report. 38 C.F.R. § 3.272(g) (1999). Unreimbursed medical expenses will be excluded from the veteran's income or from the income of a surviving spouse when all of the following requirements are met: (i) They were or will be paid by a veteran or spouse for medical expenses of the veteran, spouse, children, parents and other relatives for whom there is a moral or legal obligation of support; (ii) They were or will be incurred on behalf of a person who is a member or a constructive member of the veteran's or spouse's household; and (iii) They were or will be in excess of 5 percent of the applicable maximum annual pension rate or rates for the veteran (including increased pension for family members but excluding increased pension because of need for aid and attendance or being housebound) as in effect during the 12- month annualization period in which the medical expenses were paid. 38 C.F.R. § 3.272(1)(2) (1999). A person who is receiving pension benefits is required to report to the VA in writing any material change or expected change in his or his income, net worth, or other circumstance that affects the payment of benefits. 38 U.S.C.A. § 1506 (West 1991); 38 C.F.R. §§ 3.277, 3.660 (1999). Overpayments created by the retroactive discontinuance of pension benefits will be subject to recovery unless waived. 38 C.F.R. § 3.660(a)(3) (1999). Waiver of indebtedness Recovery of overpayment of any benefits made under 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. 38 U.S.C.A. § 5302(c) (West 1991); 38 C.F.R. § 1.963(a). If there is no indication of fraud, misrepresentation, or bad faith in the record, the indebtedness shall be waived if the recovery of the overpayment would be against equity and good conscience. 38 U.S.C.A. § 5301(a); 38 C.F.R. §§ 1.962, 1.965 (1999). Consideration of equity and good conscience is intended to reach a result that is not unduly favorable or adverse to either the claimant or the Government. It is intended to achieve a result that is fair. 38 C.F.R. § 1.965(a) (1999). Six non-exclusive elements are set forth in the regulations that must be addressed to determine whether the facts and circumstances in a particular case dictate that collection of an overpayment would be against equity and good conscience. The following six elements, which are not intended to be all inclusive consist of: (1) the fault of the debtor; (2) balancing of faults between the debtor and the VA; (3) undue hardship of collection on the debtor; (4) a defeat of the purpose of an existing benefit to the veteran; (5) the unjust enrichment of the veteran; and (6) whether the veteran changed positions to his/her detriment in reliance upon a granted VA benefit. 38 U.S.C.A. § 5302; 38 C.F.R. § 1.965(a). Each of the six elements must be addressed. See Ridings v. Brown, 6 Vet. App. 544, 546 (1994). Factual Background The veteran was awarded non service-connected pension benefits, effective May 1994. The RO determined that the veteran suffered from numerous physical and psychiatric problems, which made more than marginal employment highly unlikely. In a subsequent rating decision, the veteran was granted an earlier effective date of April 1994. In July 1995, the veteran submitted an Improved Pension Eligibility Verification Report (EVR), in which he reported a monthly income of $513.00 consisting entirely of Social Security benefits. He also submitted a list of unreimbursed medical expenses for the period of May 1995 to June 1995, which totaled $399.00. Later that same month, he submitted another list of medical expenses for the period of May 1994 to June 1994, which totaled $1,330.00. In a July 1995 letter, the veteran was notified by the RO that his pension award had been amended based on a reported annual income of $5,170.00 from May 1994, and $5,340.00 from December 1994. The RO specified that when it had computed the veteran's countable income, consideration had been given to his report of $1,330.00 in medical expenses between May 1994 and December 1994. In October 1995, the veteran submitted a list of unreimbursed medical expenses for the period of June 1995 to September 1995, which totaled $55.00. In December 1995, he submitted another list of unreimbursed medical expenses for the period of August 1995 to December 1995, which totaled $1,903.56. In March 1996, the veteran reported that he had failed to receive a VA benefit check in the amount of $374.00. A replacement check was issued by VA the following month in the same amount. In a June 1996 letter, the veteran was notified by the RO that his pension award had been amended based on reported annual income of $4,313.00 from January 1, 1995. The RO specified that in computing the veteran's countable income, consideration had been given to his report of $2,357.00 in medical expenses since January 1995. This figure apparently represented the sum total of the medical expenses reported by the veteran in July 1995 ($399), October 1995 ($55) and December 1995 ($1903.56). In a signed statement submitted in June 1996, the veteran asserted that he had submitted over $3,895.00 in medical expenses for which he had not yet been reimbursed. He further asserted that "with the $540 deductible", he should receive a reimbursement check in the amount of $3,355.00. In a July 1996 fax, the veteran indicated that he had not received a VA benefit check he was supposed to have been sent in the amount of $1,495.00. He also asserted that he should in fact be receiving a benefit check in the amount of $3,310.00, rather than $1,495.00, in order to cover the cost of his reported medical expenses. On July 12, 1996, the RO issued a replacement benefit check to the veteran in the amount of $1,470.00. The veteran subsequently submitted a signed statement in which it appears that although he acknowledged that he had received his replacement check for $1,470.00, he believed that he should be expecting further checks in compensation for his claimed medical expenses. In a September 1996 letter, the RO informed the veteran that it had been notified by the Treasury Department that he had negotiated both his original March 1996 benefit check in the amount of $374.00 and the replacement benefit check that had been issued in the same amount. The veteran was further informed that if such was the case, a debt would be established against his account for the amount of the replacement check. In October 1996, the Treasury Department informed the RO that the veteran had also negotiated both his original June 1996 benefit check in the amount of $1,470.00 and the replacement benefit check issued in the same mount. In a December 1996 letter, the RO informed the veteran that because he had negotiated both of these checks his total indebtedness had increased to $1,844.00. In December 1996, the veteran filed a claim of entitlement to a waiver of recovery of overpayment of VA pension benefits. He asserted that repaying his debt would create too much of a hardship for him and his family. He indicated that he had been unemployed for several years and was attempting to support both a new wife and a daughter. He also indicated that his wife was currently going through a difficult pregnancy. He reported that he was paying an additional $80.00 to $100.00 per month in medical bills for his wife, and that he only had an additional $38.00 a month left over after paying their bills. In support of his claim, he submitted a Financial Status report showing an average monthly income of $768.00, which included his VA pension benefits, and average monthly expenses of $730.00. He also asserted that he should be entitled to a waiver on the basis that he was still owed $1,470.00 by VA for his remaining medical expenses. The veteran added that in the event his waiver was refused, he requested that he be allowed to pay $10.00 a month towards his debt, which would leave him and his wife with $28.00 a month. In March 1997, the Committee on Waivers and Compromises denied the veteran's request for a waiver. The Committee determined that while there was no evidence of fraud, misrepresentation of fact, or bad faith on the part of the veteran, he did bear a large degree of fault in the creation of his debt. The Committee found that it was reasonable to assume that the veteran knew he was not entitled to the replacement checks if he had already negotiated the originals. The Committee concluded that the veteran's fault and unjust enrichment outweighed all other factors, including any difficulty he might have in repaying his debt. In a Notice of Disagreement submitted in March 1997, the veteran explained that his marriage to the woman he reported as his wife in his Financial Status Report would not became official in Mexico (his place of residence) until May 1997. He indicated that although they have been living together for a long period of time and considered themselves to be married, it has taken him over a year to get the right legal papers for the immigration department of that country to recognize their marriage since he was not a citizen. The veteran also expressed his belief that he would be able to pay up to $100.00 a month towards his debt. Analysis The veteran is seeking a waiver of recovery of overpayment of VA pension benefits in the amount of $1,844.00. He essentially contends that to be forced to repay his debt at this time would place too much of a financial hardship on him and his family. He also contends that his overpayment should be waived because he was never completely "reimbursed" for the medical expenses he has reported. I. Creation of the Debt When a veteran raises the issue of the validity of the debt as a part of the waiver application, the waiver application cannot be adjudicated without first deciding the veteran's challenge to the lawfulness of the debt asserted against him. Schaper v. Derwinski, 1 Vet. App. 430, 437 (1991). The veteran does not contend, and the record does not show, that the debt in this case was not validly incurred. There is no question that the veteran negotiated both the original March 1996 and June 1996 checks, as well as the replacement checks issued by VA. There is also no question that the replacement checks were in the amount of $374.00 and $1,470, which resulted in a total overpayment of $1,844.00. Further, it appears from the record that the veteran was properly notified of the overpayment and that all due process considerations were duly complied with by VA. As noted in the Introduction, the veteran was accorded the opportunity of presenting his case at personal hearings but he failed to report for the scheduled hearings. The Board finds that the veteran's indebtedness was properly established and that this question need not be addressed further. See Schaper, 1 Vet. App. at 437. II. Fraud, Misrepresentation, or Bad Faith As noted above, waiver of repayment of an indebtedness is precluded if there is any indication of fraud, misrepresentation of a material fact, or bad faith on the part of the person having an interest in obtaining a waiver. 38 U.S.C.A. § 5302(c) (West 1991). In order to determine whether waiver may be granted, it is first necessary to examine the question of whether the overpayment was created as a result of fraud, misrepresentation, or bad faith on the part of the claimant. Ridings v. Brown, 6 Vet. App. 544, 546 (1994), citing 38 C.F.R. § 1.965. A finding that an appellant committed fraud, misrepresentation of a material fact, or bad faith in connection with his receipt of VA benefits precludes the grant of a waiver of recovery of the overpayment. See 38 U.S.C.A. § 5302(c); see also Ridings v. Brown, 6 Vet. App. 544, 546 (1994). This parallels the "clean hands" doctrine familiar in equity cases: only if an appellant is free from all taint of fraud in connection with his claim for benefits may waiver on account of "equity and good conscience" be considered. See Farless v. Derwinski, 2 Vet. App. 555, 556 (1992). Under the law as it currently stands, "bad faith" is defined as "unfair or deceptive dealing by one who seeks to gain thereby at another's expense. A debtor's conduct in connection with a debt arising from participation in VA benefits/services program exhibits bad faith if such 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." 38 C.F.R. § 1.965(b) (1997); Richards v. Brown, 9 Vet. App. 255, 257 (1996). In this case, it appears from an analysis of the arguments submitted by the veteran that he was under the mistaken impression that the law provides for a direct reimbursement of his medical expenses in one lump payment. Essentially, he believed that the $3,000-plus in medical expenses he submitted should have been paid to him in full in a lump sum and not amortized over a 12 month period. Likewise, it appears that he was unclear about the effect of reporting unreimbursed medical expenses in general, believing that such should be reimbursed by VA directly. Based on this mistaken belief, the veteran apparently assumed that the replacement checks he received were merely further "reimbursement checks" for his claimed medical expenses, thus leading him to negotiate these checks in addition to the originals. The Board has no reason to doubt the veteran's statements in this regard. However, unlike situations where VA reimburses or pays the cost of unauthorized care in private facilities under 38 U.S.C.A. § 1728 (West 1991), a situation not present here, VA does not directly reimburse unreimbursed medical expenses in a lump sum payment. Rather, unreimbursed medical expenses are used by VA for the purpose of determining the veteran's countable income. Pursuant to 38 C.F.R. §§ 2.272 and 2.273, when there is a change in a beneficiary's amount of countable income (which may be caused, as in this case, by the reporting of unreimbursed medical expenses) the monthly rate of pension payable shall be computed by reducing the beneficiary's applicable maximum annual pension rate by the beneficiary's new amount of countable income on the effective date of the change in the amount of income, and dividing the remainder by 12. Such was done in this case, where the medical expense reports submitted by the veteran indicated that there were unreimbursed expenses in the amount of $1,330 in 1994 and $2,357 in 1995. As stated by the RO in the July 1995 and June 1996 letters to the veteran, these expenses were considered in determining his countable income, and his pension benefits were adjusted accordingly. In short, the Board believes that the veteran's action did not represent a willful intent to deceive or defraud, but rather represented inadvertence or mistake on his part; specifically, a misunderstanding as to the purpose of reporting unreimbursed medical expenses. Therefore, the Board finds that there was no showing of fraud, misrepresentation, or bad faith shown on the part of the veteran in conjunction with the creation of an overpayment that has been assessed against him. III. Considerations of Equity and Good Conscience Having found that there is no indication of fraud, misrepresentation of a material fact, or bad faith on the part of the veteran, the Board will turn to the question of whether recovery of the indebtedness would be against equity and good conscience. 38 U.S.C.A. § 5302; 38 C.F.R. § 1.963(a) (1999). The first element to consider is "fault of the debtor", which is defined as "[w]here actions of the debtor contribute to creation of the debt." 38 C.F.R. § 1.965(a)(1). The second element is "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). As discussed above, the veteran appears to have been under the mistaken impression that the law provided for direct reimbursement of his medical expenses in one lump payment, which resulted in the veteran believing that the replacement checks issued by VA were merely "reimbursement checks" for his claimed medical expenses. However, while the Board has determined that the veteran's actions did not rise to the level of either bad faith or fraud, the Board is not of the opinion that his confusion relieves him of responsibility in this matter. The record in the case clearly reflects that the veteran has completed several EVR reports, which each included a notation that it was important for him to read the enclosed instructions in a VA FORM 21-0510 (EVR Instructions). These EVR instructions explain that the purpose of reporting unreimbursed medical expenses is to reduce countable income. The record further shows that veteran also completed several VA Forms 21-8416 (Medical Expense Reports), which specifically cite to 38 C.F.R. § 3.272, the regulation that allows for any unreimbursed amounts which have been paid within the 12-month annualization period to be excluded from the amount of an individual's annual income. Additionally, the RO issued letters to the veteran in July 1995 and June 1996 informing him that medical expenses in the amount of $1,330 for 1994 and $2,357 for 1995 had been considered in calculating his countable income. In light of the ample notification that the veteran received regarding the purpose of reporting such expenses, the Board believes that veteran bears a degree of fault for the alleged misunderstanding that resulted in his negotiating both the original March 1996 and June 1996 benefit checks and the subsequently issued replacement checks. Furthermore, with respect to balancing of faults, the Board has been unable to identify any actions on the part of VA that might have led to either the veteran's misunderstanding regarding the purpose of reporting medical expenses or his belief that the replacement checks were intended for a purpose other than to merely replace his reportedly "lost" March 1996 and June 1996 benefit checks. The record reflects that the RO issued several letters to the veteran specifically for the purpose of assisting him in obtaining "substitute checks" solely to replace those he had reported lost. Thus, the Board has been unable to identify fault on the part of VA in this matter. The third element to be considered is "undue hardship," described as "[w]hether collection would deprive debtor or family of basis necessities." 38 C.F.R. § 1.965(a)(3). In December 1996, the veteran submitted a Financial Status Report showing an average monthly income of $768.00 and monthly expenses of $730.00, leaving a monthly balance of $38.00. The monthly expenses included estimates for food, housing, utilities, and medical expenses. Although basic necessities of life would appear to be covered by the listed income, there is only a relatively small portion of the income left over, in the amount of approximately $38.00 a month, which would be available to pay the debt. Arguably, because of the veteran's very limited monthly resources, and in light of the fact that the veteran and his wife appear to have been expecting a child at the time this claim was filed, were VA to demand full recovery of the debt, this could interfere with the veteran's ability to provide for life's basic necessities without creating undue hardship. The Board does, however, note that there is a rather small monthly surplus available. Moreover, the veteran himself acknowledged that he should be able to pay at least $100.00 in monthly installments towards the payment of his debt, an amount considerably larger than the $38.00 he reportedly has left over after paying his monthly expenses. The fourth element to be addressed is whether recovery of the overpayment would defeat the purpose for which the benefits were intended. 38 C.F.R. § 1.965(a)(4). The veteran was in receipt of non service-connected pension benefits. Pension is a needs-based program intended to assure that wartime veterans who are permanently and totally disabled from non service-connected disability do not have less than the maximum annual pension rate on which to live. In light of the veteran's limited resources, and because is responsible for at least two, possibly three dependents, the Board believes that to expect repayment of the debt at a rate of more than $20.00 a month would potentially defeat the purpose for which the benefits were intended. The fifth element to be considered is "unjust enrichment," which means that failure to make restitution would result in unfair gain to the debtor. 38 C.F.R. § 1.965(a)(5). In this case, the veteran did unfairly gain $1,844.00 due to his negotiating both original and replacement benefit checks. The Board finds that there was unjust enrichment. The sixth element to be considered is whether reliance on VA benefits resulted in the veteran relinquishing a valuable right or incurring a legal obligation. 38 C.F.R. § 1.965(a)(6). The veteran has not claimed that he relinquished any right or incurred any legal obligation, nor do the facts show such. VI. Conclusion. A balancing of the considerations of equity and good conscience reflects that the veteran was at fault in the creation of the debt and that unjust enrichment resulted. On the other hand, considerations of undue hardship and the intended purpose of the benefits favors the veteran, particularly in light of the fact that he is responsible for a wife, daughter, and an expectant child. Thus, the Board concludes that the facts of this case, when weighed in light of the various elements of equity and good conscience, are in favor of the conclusion that a partial waiver is warranted. In the opinion of the Board, recovery of $644.00, plus any interest, would be against the principles of equity and good conscience. Therefore, a partial waiver of the overpayment in the amount of $644.00, plus any accrued interest, is granted. Based on the financial evidence of record, the Board is further of the opinion that the veteran is capable of paying a portion of the indebtedness, in the amount of $20.00 a month, payable in installments made over a period of not more than five years. 38 C.F.R. § 1.917 (1999). The Board is of course cognizant that the veteran at one time expressed his belief that he would be able to pay up to $100.00 a month towards his debt. However, there is no indication in the record that payments of such size were ever made or could be made in the foreseeable future. Additionally, the Board is unable to identify any information in the record showing that his financial situation was likely to improve beyond that described in his December 1996 Financial Status Report. Therefore, in light of the limited resources reported in his December 1996 Status Report, the Board believes $20.00 a month to be a more appropriate estimate of what the veteran should be expected to be able to pay. Thus, the Board finds that recovery of $20.00 a month for a period of five years, totaling $1,200.00 would not be against the considerations of equity and good conscience. That amount, $1,200.00, is not waived. ORDER A partial waiver of overpayment in the amount of $644.00, plus any and all accrued interest, is granted on the basis of equity and good conscience. Waiver of the remaining indebtedness, $1,200.00, is denied. Barry F. Bohan Member, Board of Veterans' Appeals