Ebonie Smith, ALJ Ruling 2019-8 (HHS CRD June 17, 2019)

DISMISSAL

Petitioner, Ebonie Smith, was formerly employed by the Social Security Administration (SSA).  A private collection agency, working on behalf of the United States Department of Treasury, brought wage garnishment proceedings against her, and she has appealed.

I have carefully reviewed the statute and regulations governing wage garnishment appeals.  Because I do not have jurisdiction to hear this case, I dismiss it.

However, inasmuch as SSA does not seem to have a fallback review process, consistent with its regulations, for resolving this matter, I will recommend an outcome.  I do not consider this recommendation binding on the parties, and it does not satisfy SSA’s obligation to provide Petitioner with a hearing.  At best, the parties may wish to adopt some or all of my recommendations as a voluntary settlement.

Background

On October 2, 2017, Petitioner left her job as a Grade 8 contact representative for SSA.  SSA Ex. 2.  At that time, she had leave deficits of 36 hours in annual leave and 239.3 hours in sick leave.  SSA Ex. 3.  Based on her negative leave balance, SSA calculated

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that she owed the agency $5,948.88.  SSA Ex. 4 at 5.  To that, the agency has added interest ($43.36), penalties ($812.90), and fees ($1,462.79).  SSA Ex. 5 at 1.

In a notice dated November 1, 2018, Coast Professional, Inc., a private debt collector acting on behalf of the U.S. Department of Treasury, advised Petitioner that she owed $8,267.93, and, unless she paid the debt or entered into an acceptable repayment plan, it intended to initiate wage garnishment proceedings against her.  SSA Ex. 5.  In response, Petitioner requested a hearing, challenging the amount of the debt, alleging that garnishment would cause her financial hardship, and asking for a repayment schedule.  SSA Ex. 7.

SSA has submitted a brief (SSA Br.) and seven exhibits (SSA Exs. 1-7).  Petitioner, who represents herself, submitted a one-page argument (P. Br.) and a “Certification of Health Care Provider for Employee’s Serious Health Condition” with an attached statement from Northwestern Medical Group.  I will consider this one exhibit, and refer to it as P. Ex. 1.

Discussion

1. This matter must be dismissed because I am not authorized to hear it.

By statute, the head of an executive agency must try to collect delinquent (nontax) debts, acting under the regulations prescribed by the agency and standards prescribed by the Attorney General and the Secretary of Treasury.  31 U.S.C. § 3711(a)(1), (d).  If a debt has been delinquent for 180 days, the head of the executive agency transfers the debt to the Secretary of Treasury for “appropriate action to collect or terminate collection actions . . . .”  31 U.S.C. § 3711(g).

The statute authorizes wage garnishment as a method for collecting those unpaid debts.  31 U.S.C. § 3720D.  However, the debtor has the right to a hearing before the agency can initiate garnishment proceedings.  31 U.S.C. § 3720D(c)(1).

Treasury regulations direct agencies (which include SSA) to prescribe regulations for the conduct of those hearings.  31 C.F.R. § 285.11(f).  SSA argues that, from this “broad mandate,” SSA has the discretion “to hold its own hearings or enter into an agreement with the [Departmental Appeals Board] to hold the hearings on its behalf.”  SSA Br. at 5.  I agree.  SSA could have done that.  Instead, by regulation, SSA mandated that “Treasury will provide a paper or oral hearing concerning the existence or amount of the debt, or the terms of a repayment schedule . . . .”  20 C.F.R. § 422.833(f)(1) (emphasis added).

SSA now argues that its regulation conflicts with Treasury’s and that I should disregard the SSA regulation to defer to Treasury.  To put it mildly, this is a highly unusual position for an agency – attacking the legitimacy of its own regulations.  But I don’t have to pick between conflicting regulations; they are perfectly consistent.

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SSA also points to a memorandum of understanding with the Departmental Appeals Board and argues, “the fact that the agency renewed its agreement with [the Departmental Appeals Board] in September 2018, almost three years after SSA’s wage garnishment regulations became effective[,] evidences SSA’s intent to exercise its discretion to contract with other agencies to hold its wage garnishment hearings.”  SSA Br. at 5.  This argument has insurmountable problems:

• First, the memorandum of understanding does not mention wage garnishment cases.  It alludes generally to “written determinations related to collection of debt . . . affecting . . . [s]eparated employees of SSA,” but does not obligate the Departmental Appeals Board to hear wage garnishment cases specifically.  SSA Ex. 1 at 4.
• Second, inasmuch as SSA does not actually pay for these services, one could argue that the agreement is not enforceable because there has been no consideration.  A contract without consideration is generally not considered valid.  Moreover, the agreement, by its own terms, is made under the authority of 31 U.S.C. § 1535, which talks about an agency’s authority to contract and its obligations to pay for (i.e., provide consideration) the goods and services it acquires.  I am aware of no authority that allows an agency to donate its goods or services – even to another federal agency.  Section 1535 does not.
• Finally, the fatal flaw to SSA’s argument is that a memorandum of understanding cannot defeat a valid regulation, promulgated pursuant to notice-and-comment.  See Chrysler Corp. v. Brown, 441 U.S. 281, 295-296 (1979) (holding that regulations have the force and effect of federal law).

2. My nonbinding recommendations.

I emphasize that the following suggestions are not binding on the parties.  I have not provided Petitioner with the hearing to which she is entitled, and, until SSA provides her that hearing or otherwise settles the matter, Treasury may not garnish her wages.  31 U.S.C. § 3720D(c)(1); 20 C.F.R. § 422.833(f)(2)(ii).

The agency has the burden of going forward to prove the existence or amount of a debt.  20 C.F.R. § 422.833(f)(5)(i); 31 C.F.R. § 285.11(f)(8)(i).  If the debtor disputes the existence or amount, she must show, by a preponderance of the evidence, that no debt exists or that the amount is incorrect.  20 C.F.R. § 422.833(f)(5)(i); 31 C.F.R. § 285.11(f)(8)(ii).

Here, SSA has established that Petitioner left her employment with a leave deficit of 275.3 hours (239.3 hours sick leave + 39 hours annual leave).  SSA Ex. 3.  Petitioner

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admits that she had the advanced sick leave but questions whether she had an annual leave deficit.  Her leave and earnings statement shows that she began the leave year with 16 hours of annual leave, accrued 68 hours of annual leave during the leave year, and used 120 hours, leaving a 36-hour deficit.  SSA Ex. 3.

SSA alleges, and Petitioner does not dispute, that her hourly wage was $24.59.

SSA’s brief is confusing and riddled with mathematical errors regarding the amount of the debt.  First, Petitioner’s gross pay for those hours is $6,769.63, not $6,774.55.  SSA Br. at 8.  (275.3 X $24.59 = $6,769.627, rounded up to $6,769.63).  It seems that SSA reached this amount because it multiplied by 275.5 hours instead of 275.3 hours.  SSA Br. at 8; SSA Ex. 4 at 5.

Second, in its brief, SSA misstates the amount of the deductions from gross pay.  The total should be approximately $825.67, not $728.16:  $298.08 (retirement) + $420.02 (OASDI) + $98.23 (Medicare) + 9.34 (FEGLI) = $825.67.1  SSA Ex. 4 at 5.  Subtracting these from gross pay leaves a debt of $5,943.96.  To this, SSA is entitled to some interest, probably slightly less than the $43.36 it claims.  This represents a debt of no more than $5,987.32 (assuming SSA recalculates a slightly lower interest amount).

To this, SSA tacks on penalties ($812.90) and fees ($1,462.79) (total $2,275.69).  SSA Br. at 8; SSA Ex. 5 at 1.  This represents an enormous increase (over 38%) in the total debt.  SSA has produced not one shred of evidence to justify those amounts.  I would therefore find that SSA has not met its burden of proving these amounts.

For her part, Petitioner asserts that she cannot afford to pay the debt and provides evidence that she suffers from a serious and potentially debilitating medical condition.  P. Ex. 1.  She asserts that she left her position (notwithstanding the outstanding leave deficits) because of her health condition.  She does not, however, provide evidence of her financial condition.

Thus, SSA has established that, when Petitioner Smith left her job at the Social Security Administration, she had a leave deficit of 239.3 hours of sick leave plus 39 hours of annual leave.  SSA may recover those funds plus interest (assuming that Petitioner does not establish that she cannot pay) after SSA provides her a hearing or otherwise settles the matter.  SSA has not met its burden of justifying the penalties and fees.  Although it is possible that the proposed payment schedule would cause Petitioner financial hardship, she has not produced evidence to establish such hardship.

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Conclusion

Because I do not have jurisdiction, I dismiss this case.  SSA may not garnish Petitioner’s wages because it has not provided her with the hearing required by 31 U.S.C. § 3720D(c)(1) and 20 C.F.R. § 422.833.

• 1. The amounts of these deductions may be off slightly, if they were based on the incorrect gross amount.  I suggest SSA recalculate these amounts using the correct number of leave hours.