SSR 64-25c: SECTION 211(a)(1). -- NET EARNINGS FROM SELF-EMPLOYMENT -- FARM RENTAL INCOME -- MATERIAL PARTICIPATION
CELEBREZZE v. MAXWELL, 315 F.2d 727 (5th Cir., 1963)
- Claimant operated her 375-acre farm on a crop-share basis. There were five sharecroppers who performed all of the labor on the two crops, corn and cotton. Claimant supplied one-fourth of the seed, fertilizer, and poison expenses for the cotton, but no part of the expenses for the corn. The tenants furnished their own tools. Claimant advised or consulted with her tenants very infrequently and her participation in the management of the farm was very limited. Held, claimant's activities were not sufficient to constitute "material participation" within the meaning of section 211(a)(1) of the Social Security Act and the income she derived from the tenants is not creditable as net earnings from self-employment.
TUTTLE, Chief Judge:
This is an appeal by the Secretary of Health, Education and Welfare from an order of the United States District Court for the Northern District of Alabama which reversed a determination by the Secretary that appellee was not entitled to old-age insurance benefits from certain income she derived in 1958 and 1959 from leased land. Jurisdiction was vested in the district court by 42 U.S.C. § 405(g). The Secretary had held that this income did not constitute "self-employment income" as defined in the Social Security Act, 42 U.S.C. § 411(a)(1), because the appellee had not within the meaning of the Act "materially participated" in the production of agricultural commodities on the land in 1958 and 1959.
Section 211(a)(1) of the Act, 42 U.S.C. § 411(a)(1), as amended in 1954, placed self-employed farmers within the coverage of the Act for the first time, but rentals from crop shares were still excluded from coverage under these amendments. However, in 1956, in order not to treat so harshly landlords who were actively involved in commodity production, and who would have an income loss with the onset of old-age or disability, Congress included the "material participation" exception to the exclusion of real estate rentals. Under this amendment, rental or crop share income was included only if (A) such income is derived under an "arrangement" between the owner and another individual, which provides that the other individual shall produce agricultural commodities and that there shall be "material participation by the owner" in the production or management of the production of such commodities and (B) in fact there is material participation by the owner, 42 U.S.C. § 411(a)(1).
This section, although worded in the form of an exception to an exclusion, is still clear enough to evince the same Congressional intent to protect those persons whose income diminishes or is wiped away because of old age or disability, and to exclude those whose income continues to come in, in spite of old age or disability. In other words the fruits of someone else's labor or talents were not to be included in "net earnings from self-employment" of self-employed farmers any more than income from dividends on shares of stock or interest on bonds. See 42 U.S.C. § 411(a)(2).
Appellee had a life interest in a 375 acre farm, of which approximately 75 acres were in cultivation during the years in question. She operated her farm on a crop share basis, on which the sharecroppers performed all of the labor. During the years in question there were five sharecroppers on the farm, none of whom were living thereon. It was orally agreed between appellee and the sharecroppers that she was to receive one-third of the corn produced and one-fourth of the cotton. Appellee was to supply one-fourth of the cotton seed, one-fourth of the fertilizer and poison expenses for the cotton, but no part of the expenses incident to the cotton production. The tenants furnished their own tools. Three of the tenants grew only corn, one, only cotton, and one, both corn and cotton.
The question for determination by the Secretary at the administrative hearing and appeal therefrom was whether Mrs. Maxwell "materially participated" in the production or management of the production of the farm commodities within the meaning of the Act during the years 1958 and 1959. The Secretary found that she did not. However, the question here for determination, as we view the provisions of the Act, 42 U.S.C. § 405(g), and the one which should have been paramount in the district court, is whether the findings of the Secretary as to any fact (here, appellee's participation in the production or management of production) were supported by substantial evidence, for if they were, they "shall be conclusive."
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Appellee stated in her Farm Arrangement Questionnaire that "I would see the crop occasionally and see how it was progressing. . . . They would come to me and ask me what kind of cotton seed to get, how much poison, and about the land, what I thought of it and what to plant on what particular tracts of land."
Statements by the tenants in their Farm Arrangement Questionnaires conflicted somewhat with appellee's statements at the hearing and in her Questionnaire. One tenant stated that appellee never consulted with him about anything, and only looked over the crop "every now and then." Another tenant testified that "she more or less left the farming up to the individual who had the land, but still advised them." One of the tenants stated that she would go out and look at the crops about three times a week, and that she told him when to plant the cotton and when it ought to be thinned.
Even appellee, when asked at the hearing whether the tenants needed to be told what to do, testified that "they knew what to do." The stepson also testified that the sharecroppers "more or less knew exactly what they are going to do" and they require a "minimal amount of supervision." Furthermore, the remainder of appellee's testimony indicated a very limited participation by her in the management of the farm and very little, if any, dependence by her tenants upon her advice in the running of the farm. We thus conclude that the Secretary's finding that the appellee did not materially participate in the management of the farm was supported by "substantial evidence," and the district court erred in reversing this finding.
Now we come to the consideration of whether appellee's financial contribution to the operation of the farm was substantial enough in itself to warrant the district court's reversal of the hearing examiner's finding that it was not. This court said in Henderson. supra,
- "An owner of land who is required to (and does) furnish substantial amounts of cash, credit or supplies toward this mutual undertaking which are reasonably needed in the production of the agricultural commodity and from the success of which he must look for actual recoupment likewise makes a 'material participation.'" 283 F.2d at 888.
Appellee's financial contributions were proportionately small when considered with the expenditures of the tenants. She allegedly only furnished one-fourth of the expense for the cotton seed, and one-fourth of the expense for the fertilizer and poison for that seed; and only two of the five tenants grew cotton. Appellee furnished none of the expenses for the growing of corn, and four of the five tenants grew corn. So overall, her expenses were small not only in actual dollars, which was determined to be 27 and 44 dollars in the two years, respectively, but percentagewise when considered with the expenses of the tenants. Furthermore, in Henderson the expenses were great, not only dollarwise, approximately $4500 yearly, but also proportionately, on a fifty-fifty basis. Thus we conclude that the Secretary's finding that the appellee did not materially participate through financial contributions was "supported by substantial evidence" and the district court erred in reversing the Secretary's findings.
Furthermore, we find that there was no "arrangement" between the appellee and the tenants for the material participation by the appellee in the management of the production of the commodities in question. The only evidence of any "arrangement" in advance of any actual participation was that appellee was to furnish a small portion of the expenses. There was no agreement or arrangement, at least insofar as any evidence indicates, that the appellee was to manage the farm or to participate in the management of the farm. Under the provisions of 42 U.S.C. § 411(a)(1)(A) appellee failed to establish coverage.
We have not attempted on this appeal to review the record and weigh the evidence in order to come to an independent conclusion as to the ultimate question of "material participation" by the appellee in the management of the farm. Neither this court, nor the district court in the first instance, is free to substitute its findings of fact for those of the Secretary, if there is substantial evidence to support those findings and inferences. Hoffman v. Ribicoff, 305 F.2d 1, 6 (8th Cir., 1962), Gainey v. Flemming, 279 F.2d 56, 58 (10th Cir., 1960). Furthermore, where two inferences may reasonably be drawn from undisputed facts, the inference given to the facts by the Secretary may not be disturbed. Hoffman v. Ribicoff, Gainey v. Flemming, Carqueville v. Flemming, supra. Also where the evidence presents conflicts, it is for the Secretary to draw the inference from these conflicts, and this inference should not be disturbed. Gainey v. Flemming, supra. It is only where there is no substantial evidence from which the Secretary could have made his findings that the district court, and this court, may modify or reverse the decision of the Secretary.
We hold that the findings of the Secretary, made by his hearing examiner, were "supported by substantial evidence," and that the district court erred in reversing the finding of the Secretary that appellee was not covered by the provisions of 42 U.S.C. § 411(a)(1) of the Social Security Act.
 The 1956 amendments were to give the farmer "equitable treatment as compared with those brought in earlier." Sen. Rep. No. 2133, 84th Cong., 2d Sess. See U.S. Cong. & Adm. News, 84th Cong. 2d Sess. 1956, p. 3915.
 The burden of proof to establish the required conditions for eligibility is on the claimant. Carqueville v. Flemming, 263 F.2d 875 (7th Cir., 1959)
 The Social Security Administration subscribes to the view that material participation cannot be established solely on the basis of a landlord's financial contribution to the farming operation. The Administration's interpretation of the material participation provision is based on the reports of the Senate Committee on Finance and the House Committee on Ways and Means. See SSR 61-7, C.B. 1960-1961, p. 67. These reports on the bill which became the 1956 amendments include a statement of the intent of Congress to extend coverage to farm landlords "who have income from work" on the farm. The elements of participation set forth in the Senate Report which are the factors considered by the Social Security Administration in making decisions on the different ways a landlord may participate in production, or in the management of production, are discussed and illustrated in SSR 63-43, C.B. 1963, p. 52. (See also SSR 62-16, C.B. 1962, p. 54; SSR 62-64, C.B. 1962, p. 63; SSR 63-44, C.B. 1963, p. 55; and SSR 63-45c, C.B. 1963, p. 57.)