20 CFR 404.435(e), 404.446, 404.447

SSR 71-13c

deVilla v. Finch, U.S.D.C., S.D. Indiana (1/2/70) (CCH, UIR, Vol. 1A Fed. para 15,835)

An electrical engineer with experience in the construction business served as a member of the board of directors of a savings and loan association and, in addition to attending meetings, inspected and appraised real property to be used as security for mortgage loans. He received substantial fees for these services, in the performance of which he spent between 24½ and 42½ hours each month in issue. Held, the Secretary of Health, Education, and Welfare was justified in finding that plaintiff performed substantial services in self-employment in each month for purposes of imposing deductions pursuant to section 203 of the Social Security Act, notwithstanding the services did not amount to 45 hours per month, as provided in the regulations promulgated under section 203 of the Act, since they were highly skilled, technical, and valuable to the association.

HOLDER, District Judge: The plaintiff Frank deVilla, commenced the action pursuant to Title 42 U.S.C. Section 405(g) by the filing of his complaint on March 19, 1969 to review the February 19, 1969 final decision of the Secretary of Health, Education and Welfare of the United States of America denying plaintiff's May 25, 1967 application for retirement insurance benefits under the Social Security Act. The plaintiff contends the decision is not based upon substantial evidence and is contrary to the law and the evidence.

The Plaintiff was an electrical engineer who did not follow that calling but entered the construction business which included the construction of commercial, dwelling and industrial structures. In 1952, he made the decision to retire and in 1953 consummated this intent and lived upon the income derived from his investments. In 1958, he was asked to join the organization of the Union Federal Savings and Loan Association of New Albany, Indiana, as a consultant to the Board of Directors and upon the occurrence of a vacancy in January of 1959 he became a member of the Board of Directors. He performed no duties other than the duties of a director for the Association and engaged in no other occupation from 1959 to 1963. In 1963, one of the appraisers for the Association died and plaintiff was asked to help out. The appraisal work of plaintiff increased from year to year thereafter. In the year 1967, plaintiff performed the duties of such director, did appraisal work requested by the Association, and served as a construction consultant.

The Union Federal Savings and Loan Association of New Albany, Indiana, exists under and operates by the authority of certain pertinent laws of the United States. Title 12 U.S.C.A.Sections 1464 et seq., 12 C.F.R. 541.1 et seq., 12 C.F.R. 543.1 et seq., 12 C.F.R. 544.1 et seq., 12 C.F.R. 545.1 et seq., and 12 C.F.R. 546.1 et seq. Plaintiff's duties and power as a member of the Board of Directors of the Association are also contained in the cited Code of Federal Regulations. Other evidence of plaintiff's duties and benefits as a director may be summarized as follows:

Plaintiff was paid One Hundred Dollars ($100.00) per meeting for attendance at meetings. The president of the Association states there were twelve (12) regular meetings and two (2) special meetings in 1967 and all of which the plaintiff was credited with attending and for which he was paid One Thousand Four Hundred Dollars ($1,400.00) by the Association. Plaintiff has contended he did not attend the February 1967 meeting and the issue of whether he did or not is now irrelevant since plaintiff's claim for February 1967 benefits was allowed and paid by defendant. The hours spent by plaintiff in directors' meetings in 1967 were (2) hours in January, two (2) hours in March, two (2) hours in April, one and one-half (1½ hours in May, two (2) hours in June, two (2) hours in July, two (2) hours in August, two (2) hours in September, two (2) hours in October, two (2) hours in November, and three (3) hours in December. The plaintiff was an active participating director of the Board of Directors of the Association. It was the governing body of the Association and it was primarily vested with the management of the corporate affairs and the management, control, and use of the property of the corporation, subject to certain authorized delegations of duties to the Association's general offices. The powers of the Board of Directors are original and undelegated and could only be executed as a body at meetings duly assembled and conducted. The plaintiff possessed and used the authority of the considerable discretionary power of a director of the Association in representing the artificial entity as well as the stockholders.

The appraisal requirements of the Association may also be found in the cited Code of Federal Regulations. Other evidence of plaintiff's duties as an appraiser may be summarized as follows:

The plaintiff is supplied by personnel of the Union Federal Savings and Loan Association with all of the information of the real property to be appraised by plaintiff proposed by its customer as mortgage security for a loan. The plaintiff was furnished a form which listed the address of the real estate, the amount of the loan and mortgage among other things. The plaintiff visits and inspects the property and on this form fills in pertinent data of his appraisal findings. In making construction loan appraisals, the plaintiff is required to also examine and appraise blueprints of the proposed improvements on property. The time required to make an appraisal is approximately one-half (½) hour and for a construction appraisal approximately three (3) hours. The average time of appraisals is substantially reduced when the subject is similar property or the blueprints are similar. Plaintiff's mileage automobile expense is borne by the Association. In 1967, the plaintiff made fifty-eight (58) construction appraisals for each of which he received Thirty-five Dollars ($35.00). He made two hundred seventy-seven (277) regular appraisals for each of which he received Seven and Fifty Hundredths Dollars ($7.50). He also made two (2) appraisals for each of which he received Fifteen Dollars ($15.00), one (1) appraisal for which he received Twenty-seven and Fifty Hundredths Dollars ($27.50) and another appraisal for which he received Fifty Dollars ($50.00). The plaintiff was required to attend loan committee meetings of the Association for which there was no preparation required by the plaintiff. He was required in such meetings to render his judgment opinion at least for the approval or rejection of the loan applications to the Association. By reason of his background experience in 1967 in construction, in business and in appraisals such judgment on the committee was valuable. He attended fifty-eight (58) such loan committee meetings in 1967 and received for each the sum of Fifteen Dollars ($15.00).

The plaintiff rendered additional advice and services to the Association in the year 1967 totaling seventy-seven (77) hours for which he received Fifteen Dollars ($15.00) per hour. In January, he spent four (4) hours in a conference on an application for a loan and study of plans and specifications; one (1) hour in another conference on an application for a loan on a building and business; three (3) hours in examining the premises of a property in the City of Jeffersonville, Indiana, for its compliance with the terms of a mortgage after which he recommended renovation or immediate foreclosure; one (1) hour visit of the Association's property in a subdivision; two (2) hour conference with the assets disposition committee of the Association; and spent two (2) hours inspecting and estimating the amount to be disbursed at a construction site. In March 1967, he spent two (2) hours in a conference on parking lot development procedures; two (2) hours at another time in conference and study of bids on a parking lot; two (2) hours inspecting property situated in Sellersburg, Indiana, for a fire loss release and recommendation to the Association's loan department; three (3) hours' conference relative to the construction of a supermarket in Jeffersonville, Indiana; a two (2) hours conference with an architect concerning construction of a parking lot; two (2) hours' inspecting for a fire loss and recommendations to the Association's loan department; two and one-half (2½) hours spent in visiting, studying and making a recommendation as to the determination of the advisability of extending a mortgage by the Association for a subdivision development; and one and one-half (1½) hours spent in visiting and studying certain apartments for a recommendation to extend a mortgage by the Association. In April of 1967; he spent one (1) hour inspecting certain property to determine if it will qualify for a loan; two (2) hours conferring about and studying specifications and drawings for a parking lot; one (1) hour in inspecting the acceptability of certain two (2) lots as to location; and (1) hour in inspecting certain mortgaged property for an increase in the mortgage; one (1) hour in conferring on subdivision speculative house building; and one-half (½) hour inspecting certain property for a FHA loan advance. In May of 1967, he spent one-half (½) hour inspecting certain property for its qualification for a mortgage extension; one (1) hour in conferring about a certain subdivision; three (3) hours inspecting a subdivision and in reporting to the loan committee relative to footings and digging verification; four (4) hours in making a trip to Salem, Indiana, and in inspecting a certain project for its acceptability for a loan; one-half (½) hour checking construction progress on certain property; and one (1) hour in visiting a church in Jeffersonville, Indiana, and engaging in a conference concerning loan qualifications. In June of 1967, he spent one and one-half (1½) hours making an FHA loan inspection of certain property at Charlestown, Indiana, for an advance payment; one and one-half (1) hours conferring about a shopping center project at Salem, Indiana; one (1) hour inspecting a certain lot for an FHA advance payment; and one (1) hour in conference concerning certain apartments. In July of 1967, he spent one-half (½) hour inspecting a lot for an FHA advance payment; and one (1) hour checking on certain property for delinquency of loan and possible foreclosure. In September of 1967, he spent one and one-half (1) inspecting two (2) lots for an FHA advance payment; one and one-half (1) hours inspecting property for qualifying a loan for a subdivision; and two (2) hours conferring on certain property relative to advisability of a mortgage increase. In October of 1967, he spent one (1) hour inspecting certain property for an FHA advance payment; one and one-half (1) hours conferring about Country Club Estates; three (3) hours inspecting Country Club Estates for a qualifying loan of completed section; five (5) hours inspecting and approving construction of roads and utilities of the subdivision 8th addition to determine amount of payment; one (1) hour inspecting grocery store regarding rebuilding work to determine release of insurance payment; three (3) hours conference with a customer of Association and the attorney of such customer concerning delinquent payments and new construction; and two (2) hours conferring on a proposed mortgage for a doctor's nursing home. In November of 1967, he spent one (1) hour inspecting work performed at the main office building of the Association which work consisted of caulking and painting; and one and one-half (1) hours inspecting certain property for a FHA advance payment.

The time spent monthly in 1967 in plaintiff's self-employment for all services was as follows:

January 41 hours.
February 2½ hours.
March 32½ hours.
April 25½ hours.
May 47 hours.
June 37 hours.
July 28 hours.
August 31 hours.
September 24½ hours.
October 42½ hours.
November 34½ hours.
December 38 hours.

Plaintiff claims he was entitled to benefits for all months of 1967, except for the month of May as it was the only month in which he had rendered substantial services, working more than forty-five (45) hours. The plaintiff was awarded benefits for the month of February, 1967. In issue is the plaintiff's right to benefits for the year of 1967 except the months of February and May.

The plaintiff was presumed to have engaged in self-employment or to have rendered substantial services for wages "until it is shown to the satisfaction of the Secretary" that he did not engage in self-employment or render services for wages. Title 42 U.S.C.A. Section 403(f)(4)(A).

The Secretary found that the plaintiff had performed substantial services for every month during the year 1967 except the month of February, and that he could not be considered as retired in any of these months except the month of February.

It is provided in such Act that if the findings of the Secretary as to any fact are supported by substantial evidence, then his findings shall be conclusive. Title 42 U.S.C.A. Section 405 (g). There is substantial evidence to support the findings and the order and the decision of the Secretary was in accordance with the evidence and supported by the law.

The Social Security Act does not define "substantial services" as used in Title 42 U.S.C.A. Section 403(f)(A). Pursuant to the authority granted by Congress (Title 42 U.S.C.A. Section 403), the defendant has duly adopted certain pertinent regulations defining the term which are found in 20 C.F.R. 404.446 and 404.447. These regulations were in effect at all times in question.

The defendant correctly construed the cited regulations in considering the earnings of plaintiff together with all of the evidence of his services in determining whether or not plaintiff performed substantial services in his self-employment. There are seven (7) factors listed in 20 C.F.R. Section 404.446 to be considered in determining whether or not plaintiff has or has not performed substantial services in any month in question. However, 20 C.F.R. Section 404.447 provides in more detail the consideration to be given in the evaluation of factors involved in the substantial services test. It provides in subsections (a), (b) and (c) that the amount of time devoted to the plaintiff's self-employment must be considered; the nature of the services rendered by plaintiff in his self-employment must be considered; for the comparison of plaintiff's services rendered before and after retirement; and in addition provided as follows:

(d) Setting in which services performed. Where consideration of the factors described in paragraphs (a), (b), and (c) of this section is not sufficient to establish that an individual's services in self-employment were or were not substantial, all other factors are considered. The presence or absence of a capable manager, the kind and size of the business, the amount of capital invested and whether the business is seasonal, as well as any other pertinent factors, are considered in determining whether the individual's services are such that he can reasonably be considered retired.

The defendant has determined that the nature of the services rendered were highly skilled, technical and valuable and in doing so properly considered all of the evidence including the financial gain to plaintiff.

The plaintiff also urges that there is a total absence of evidence in the record to support the finding that plaintiff's work as a director of the Association was technical and highly skilled in nature. The duties and power of the Board of Directors of the Association as prescribed by Volume 12 C.F.R. (supra) and the pertinent sections thereof for the administering of the statutory and discretionary affairs of the Association clearly call for the technical and skilled efforts of an intelligent person. It may be presumed by the defendant that the plaintiff so qualified as a director and did perform in such a technical and skilled manner as required by the law unless there is evidence to the contrary. There is no evidence to refute such. At most, the plaintiff denied that his electrical engineering training was a requisite for membership; that other members of the Board of Directors were without academic training; that he has only one (1) vote as a member of the Board of Directors; that the Association has an executive team of a president, two (2) vice-presidents and one (1) secretary and treasurer who are highly paid who manage the business but acknowledges that they are subject to the actions of the Board of Directors as provided by such Code of Regulations (supra). The plaintiff, it is noted, carefully avoided any statement in his letter of December 20, 1968 (pages 4, 5 and 6 of the transcript) denying that the board of Directors did not perform all of their lawful duties as such directors. The nearest suggestion of such to the defendant is contained in paragraph seven (7) of such letter:

* * * No single board member ever interferes with the management of the business, this is entirely in the hands of the President and his assistants, although it is true that they are responsible to the Board for the proper conduct of the business.

The statement avoids denying that the Board of Directors ever interferes with the general officers when necessary in fulfilling their director duties.

The plaintiff also contends that his appraisal duties did not require skill or technical knowledge. The business of the Association is described in such Code of Federal Regulations and statute, the types of loans and the needs for appraisals of property given as security. The plaintiff's knowledge of construction and construction blue prints, costs of construction and market value of real estate was together with all of the evidence sufficient to support the finding that such was technical and skilled services. There can be no doubt that plaintiff's experience in construction work prior to his retirement therefrom materially assisted his competence as an appraiser and in other services for the Association.

IT IS ADJUDGED that the decision of the defendant is AFFIRMED.

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