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Krause v. Berryhill

United States District Court, E.D. Wisconsin

July 27, 2017

NANCY BERRYHILL, Commissioner of Social Security, Defendant.


          William C. Griesbach, Chief Judge.

         Plaintiff Jeffery Krause filed this action seeking judicial review of the Commissioner of Social Security's determination that he is no longer entitled to receive benefits under the Social Security Act. He claims that the ALJ failed to follow the correct procedure for reviewing a case involving fraud and failed to conduct a redetermination of his case in accordance with the Social Security Act. Finding any error harmless and substantial evidence to support the decision, I affirm.


         This case has a long and disturbing procedural history. This appeal is a review of the second iteration of Krause's claim to reinstate disability benefits notwithstanding the Social Security Administration's (SSA) determination that the benefits were originally awarded on the basis of fraud. Krause first filed an application for a period of disability and disability insurance benefits (DIB) on October 21, 1997, alleging an onset date of March 7, 1995, when he was 28 years old. R. 1443, 1446. He claimed he injured his shoulder while working as a truck driver for the Village of Howard. R. 1444. After the SSA denied the request initially and upon reconsideration, Krause requested a hearing before an ALJ. ALJ Arthur Schneider found that Krause had the following severe impairments: a shoulder lesion, rotator tendinitis, and spinal disc disease. Id. Krause underwent arthroscopic surgery with debridement of the right shoulder in May 1995. Id. He also claimed he began to develop lower back difficulties while enrolled in a physical therapy program and physicians noted that Krause had degenerative disc disease in his back and partial sacralization. R. 1444-45. The ALJ concluded that Krause was entitled to a closed period of disability from March 7, 1995 through November 10, 1997. Krause's disability award ceased on November 10, 1997 because the ALJ determined that Krause returned to substantial gainful activities. R. 1447. After a subsequent evaluation, however, the SSA determined that Krause was disabled because of his back disorder and was entitled to disability benefits as of October 8, 1999. R. 35.

         In the meantime, Krause was also seeking disability payments through the Veterans Administration. Krause briefly served in the United States Marine Corps (USMC) from June 10, 1975 until November 3, 1976. R. 213. He was medically discharged for chronic lumbar strain, which the USMC Physical Evaluation Board determined was not incurred in or aggravated by service. On November 11, 1976, Krause submitted a claim for VA benefits listing his disabilities as “stomach trouble” and “warts.” Id. In a rating decision dated February 27, 1977, the VA denied Krause's claim and further discussed his recurrent low back pain. The VA board noted that Krause had been in an automobile accident in April 1973 and agreed with the USMC that the condition existed prior to military service and was not aggravated by his service. Krause took no other action to receive disability payments from the VA until May 2003 when he requested that his claim be reopened and reconsidered as being aggravated during military service.

         After the VA again confirmed the denial of service-connection for chronic lumbar stain, Krause submitted a statement in support of his claim from a physician who stated that Krause's chronic back pain may have been initially caused by his military service. Krause further stated in a letter dated February 5, 2004 that he had been very active prior to service and that since his discharge he “tried several activities with out [sic] much success.” R. 213-14. Krause underwent a Compensation and Pension (C&P) Exam on April 12, 2004 and told the examiner that he injured his back and shoulder while working for the Village of Howard and he retired on permanent disability. R. 214. The examiner concluded that Krause's “current disability is related to the work-related injury as well as with chronic aging and degenerative joint disease.” Id. The VA again denied service-connection for chronic lumbar strain in a rating decision dated June 9, 2004. Krause requested a personal hearing and told the Decision Review Officer (DRO) that his back has become progressively worse from his discharge date. In a statement of the case dated July 14, 2005, the DRO concluded he did not find any error in the VA's decision after a review of all the evidence.

         Undeterred, Krause submitted an appeal to the Board of Veterans' Appeals (BVA) on August 22, 2005 alleging that his back problems began while on active duty as a result of the vehicles he drove having “essentially no suspensions.” Id. The VA notified Krause on March 1, 2006 that his appeal was being forwarded to the BVA in Washington, D.C. Id. Krause contacted U.S. Congressmen Steven Kagan and Mark Green in November 2006 in support of his claim. However, the BVA declined his claim on February 16, 2007. Krause submitted another appeal in April 2007 stating he continued to disagree with the VA. He submitted an exam report from Dr. Ronald Barnes in November 2007, in which he told Dr. Barnes that he could only walk for approximately half a block without resting, could stand less than five minutes, was unable to bend to pick up objects, could not lift more than ten pounds, could only push a grocery cart if he was holding onto it, and could drive for approximately 15 to 30 minutes with frequent position changes. R. 214-15. In light of Dr. Barnes' report, the VA issued a rating decision on November 27, 2007 rating Krause as 20% disabled, service-connected for degenerative joint disease of the lumbar spine effective January 31, 2003. R. 215.

         On November 26, 2007, Krause also submitted an application for individual unemployability stating he was unable to work and that the SSA rated him unable to work since 1995. In a rating decision dated February 16, 2008, the VA increased Krause's disability for service-connected for degenerative joint disease of the lumbar spine to 40%; rated Krause 40% disabled, service-connected for radiculopathy of the right lower extremity; and awarded individual unemployability, all retroactive to January 31, 2003. On March 27, 2008, the VA retroactively awarded Krause all benefits to November 29, 2002. Krause then requested in April 2008 that the VA award an effective date of March 5, 1995 for his lower extremity condition, award an effective date for his lumbar spine condition to November 3, 1976, and provide a VA Specially Adapted Housing Grant. On May 21, 2008, the VA awarded Krause disability ratings retroactively to November 29, 2002 and deferred its ruling on all other requests. In response, Krause once again noted that he wanted earlier effective dates for his conditions and the adaptive housing grant, as well as requesting individual unemployability with an effective date in 1995. The VA denied Krause's request for earlier effective dates and the housing grant and continued his current rating and entitlement to individual unemployability. R. 216.

         The SSA conducted a continuing disability review (CDR) in 2009, with state agency consulting physician Mina Khorshidi completing a Physical Residual Functional Capacity Assessment. R. 530-37. Dr. Khorshidi considered Krause's allegations concerning degenerative disc disease, retrolisthesis, radiculopathy, skin cancer, and left hip problems. R. 537. Krause complained of pain radiating into his legs and stated that he uses a cane, walls, shopping carts, and chairs to assist him with walking. Id. He also indicated that he spends most days lying down and cannot do sedentary work due to frequent position changes. Id. Dr. Khorshidi determined based on Krause's medical record that he could only lift less than 10 pounds occasionally or frequently, could stand and/or walk for less than 2 hours in an 8-hour workday, and could sit for less than 6 hours in an 8-hour workday. R. 531. The SSA determined Krause's disability continued on September 2, 2009. R. 26.

         At the same time that the SSA determined that Krause's disability continued, the VA's Office of Inspector General (OIG) was in the midst of what would become an approximately year and a half long investigation into whether Krause was receiving VA and SSA benefits on the basis of false claims about his disability and inability to work. R. 212. The investigation arose from a Congressional referral from Senator Feingold's office and officially began on June 30, 2008. R. 213, 215. The investigation required the work of at least four different surveillance agents (SAs) and involved the interviews of 15 different witnesses.

         The VA first met with the complainant Mike Hoppe on June 4, 2008. R. 216. Hoppe first met Krause in 1994 or 1995 and the two were neighbors at the time of the investigation. At some point between 1995 and 1997, Krause asked Hoppe how he was able to get benefits and if Hoppe had any suggestions. Hoppe questioned why Krause was seeking VA benefits because “he could not see anything wrong with [him].” Id. The two again discussed benefits in 2002 when Krause mentioned it looked as though the VA would not award him benefits and Hoppe again told him it was because there was nothing wrong with him. Hoppe explained to the SA interviewing him that since that time, he's witnessed Krause on numerous occasions walk up the ten to twelve steps to his home unassisted and as well as bend, lift heavy objects, and crawl under a tractor. On July 6, 2008, Hoppe witnessed Krause loading a 4x8 foot sheet of plywood onto his trailer. R. 217. Krause allegedly told Hoppe that when he didn't work his back hurt but that he would not get a job because he would not be able to find a job that paid him $80, 000 per year-the amount Krause received from pensions and disability payments. Id. Hoppe also recounted how another neighbor, Mike Day, observed Krause lift a 80 to 100 pound furnace by himself into a cart at a hardware store. Id.

         The VA also conducted in-person surveillance of Krause as well as observing surveillance footage of Krause at local hardware stores. Among other things, Krause was observed: carrying boxes to and from the trunk of his car and up the stairs into his home with no signs of disability; loading lumber into the rear of his truck; doing yard work on the side of his home; carrying a box weighing approximately 25 pounds, placing it on a counter, and then lifting it into a cart; carrying two approximately 12 feet long pipes without support; pushing a cart containing three ceiling fans in boxes, bending and picking up the boxes for a sales associate to review the box, and placing the boxes back; and pushing a shopping cart containing a saw weighing approximately 40 pounds, lifting the saw, and loading the saw into his vehicle by himself. R. 218-20.

         Finally, the VA utilized interviews as part of its investigation. Krause's wife revealed that he can lift items such as a 20-30 pound bag of dog food, that he drove his daughter from Wisconsin to Oregon for school, and that he did much of the work on the construction of their new home because “Who else was supposed to do the work?” R. 222. Krause's daughter stated that Krause drove for approximately 28 hours of their trip to Oregon, with the only stops for food, gas, and lodging. R. 226. Krause's nephew stated that he never saw Krause use a cane or other device to aid him walking, never observed him showing signs of disability, but that he did see Krause doing work on his roof every spring and fall. R. 223. The village administrator for the Village of Howard observed Krause in 2008 climbing down a ladder holding a large framed window he removed from his prior house. R. 224. All of the other interviewees recounted situations where Krause engaged in physical activities that, were Krause's limitations as great as he claimed, he would clearly have been unable to perform. R. 222-27. Krause eventually admitted to an SA that he had exaggerated his disability in hopes of receiving greater VA benefits, in part because “his new house had cost more than expected and he needed the additional income.” R. 220.

         The VA severed all of Krause's service benefits effective August 1, 2010 and referred the case to the United States Attorney's Office for possible prosecution and/or civil remedy. R. 203, 206-11. The VA also provided a copy of the OIG report to the SSA, which initiated a CDR and concluded that Krause had committed fraud. R. 35. Krause's benefits were retroactively terminated back to August 1, 2009-just prior to Krause's most recent CDR determination. Id. Krause appealed the decision and requested a hearing before a State Agency Hearing Officer. Id. The Hearing Officer considered all available evidence, including Krause's statements and the medical record evidence, before determining that the VA's investigation “clearly contradicts claimant's statements of inability to engage in activities due to his conditions. The claimant was interviewed by VA investigators and admitted to exaggerating his disabilities in order to receive additional VA benefits. . . . Claimant was given the opportunity to ...

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