Nehmer v. US Veterans Administ

Background

This case involved enforcement of a 1991 consent decree concerning the Department of Veterans Affairs’ handling of certain veterans’ disability and death-compensation claims. The opinion states that earlier orders required the agency to distribute unpaid retroactive compensation, after a favorable reconsideration of a deceased class member’s claim, to the first qualifying person or entity in this order: the spouse, the children in equal shares, the parents in equal shares, or the estate.

In 2003, the Department of Veterans Affairs adopted a regulation, 38 C.F.R. § 3.816, that codified this distribution process. Section 3.816(f)(3) required the agency to make reasonable efforts to identify eligible payees and ask an identified payee whether other survivors might have equal or greater entitlement. Its final sentence stated that, after the agency released the full amount to an identified payee, it could not later pay another person unless it recovered the earlier payment. The plaintiffs called this the “hold harmless provision.”

The Dispute

The plaintiffs argued that the final sentence was unlawful because the Department of Veterans Affairs had used it to deny payment to otherwise eligible children who claimed their shares after other children had already received the full payment. The opinion describes examples in which the agency initially relied on the provision but later paid late-claiming children after confirming their eligibility.

The Department of Veterans Affairs had begun a broader rulemaking concerning veterans’ exposure to herbicides. That planned rulemaking would have removed the disputed sentence and directed claims processors to pay newly identified eligible payees first, followed by efforts to recover any overpayment from the original payees. The agency argued that issuing a separate rule immediately would be inefficient, costly, and unnecessary.

The parties also agreed that, if the court vacated the provision, the most effective public notice would be for the Department of Veterans Affairs to issue a rule rescinding it and publish that rule in the Federal Register. The agency stated that it would need 30 days to complete that work.

Ruling

The court found a serious risk that an eligible survivor-payee, or that person’s advocate, would be misled by the continued presence of the disputed language in the Code of Federal Regulations and would not know that payment could be available despite the provision. The court found that this risk of unnecessary deprivation outweighed the cost of promptly rescinding the provision separately from the broader planned rulemaking.

The order therefore:

1. Vacated the final sentence of 38 C.F.R. § 3.816(f)(3); and 2. Ordered the Department of Veterans Affairs, within 30 days, to issue a rule rescinding that sentence and publish the rule in the Federal Register.

Judge William Alsup entered the order enforcing the judgment and consent decree, vacating the regulation sentence, and instructing the agency to publish the rescinding rule.