          UNITED STATES COURT OF APPEALS FOR VETERANS CLAIMS


                                           No. 98-1542

                                GERALD L. ERICKSON , APPELLANT ,

                                                 V.


                                     TOGO D. WEST , JR.
                          SECRETARY OF VETERANS AFFAIRS, APPELLEE.


                         On Appeal from the Board of Veterans' Appeals


                                   (Decided May 12, 2000        )



       Jeffrey Wood, of York, Pennsylvania, was on the brief for the appellant.

       Leigh A. Bradley, General Counsel; Ron Garvin, Assistant General Counsel; Mary Ann
Flynn, Acting Deputy Assistant General Counsel; and Brian B. Rippel, all of Washington, D.C.,
were on the brief for the appellee.

       Before HOLDAWAY, IVERS, and STEINBERG, Judges.

       STEINBERG, Judge, filed the opinion of the Court. HOLDAWAY, Judge, filed a dissenting
opinion.

       STEINBERG, Judge: The appellant, veteran Gerald L. Erickson, appeals through counsel
a July 30, 1997, Board of Veterans' Appeals (BVA or Board) decision that determined that a debt
based on an overpayment of Department of Veterans Affairs (VA) benefits had been properly
created. Record (R.) at 3. The appellant has filed a brief, and the Secretary has filed a brief. This
appeal is timely, and the Court has jurisdiction pursuant to 38 U.S.C. §§ 7252(a) and 7266(a). For
the reasons that follow, the Court will reverse the BVA decision.


                                          I. Background
       Although no DD-214 Form is contained in the record on appeal (ROA), the Board decision
stated that the veteran had active service from August 1953 to August 1957 and from August 1961
to November 1976. R. at 2. He has been in receipt of a 100% combined VA service-connected-
disability rating for bilateral multiple sclerosis (MS) of the upper and lower extremities since at least
1980. R. at 25. In June 1992, a VA regional office (RO) awarded him special monthly
compensation (SMC) "based on a determination that the loss of use of both lower extremities . . .
is permanent and total." R. at 33. At that time, the veteran was also awarded SMC based on his
being "housebound". R. at 34.
        From April to November 1995, the veteran was hospitalized at a VA Medical Center
(VAMC) based on the worsening of his MS. R. at 39-43. In May 1995, the veteran's service
organization (Paralyzed Veterans of America (PVA)) wrote to the VARO: "As the veteran's
representative we wish to advise . . . VA that the veteran is a patient at the [VAMC]. . . . Please
obtain report to adjust compensation if required to prevent an overpayment." Supplemental (Suppl.)
R. at 2. In November 1995, the RO awarded "increased" SMC "because of the severity of [the
veteran's] service-connected disabilities including [his] need for aid and attendance", effective April
1995. R. at 48; Suppl. R. at 4-6. As the basis for the SMC awarded, the RO cited, inter alia,
38 U.S.C. § 1114(l) and (r)(1). Suppl. R. at 6. A November 13, 1985, VAMC record indicated that
the veteran was "to be transferred to [a nursing home] whenever a bed is available." R. at 40; see
also R. at 45. On December 5, 1995, the RO received a letter from the veteran's PVA representative
that "advised that the veteran was discharged from the . . . VAMC [on] November 13, 1995[,] and
placed in a . . . [n]ursing [h]ome under VA contract at the present time" and that noted that "[i]t
would appear [that] the veteran may be entitled to SMC R2 [(SMC under 38 U.S.C. § 1114(r)(2))]."
R. at 45. The RO responded to the veteran on December 14, 1995, by requesting that he "provide
information from the nursing home which describes in full the care that is being administered and
supervision provided by health care professional(s)." Suppl. R. at 8.
        In February 1996, the RO awarded, effective December 5, 1995, "additional aid and
attendance allowance under 38 U.S.C. § 1114, subsection (r)(2) . . . on account of [the veteran's] . . .
being in need of regular aid and attendance and, in addition, on account of [his] need of a higher
level of care". R. at 54. In addition, the RO listed in its decision and continued the prior awards of
SMC for aid and attendance that had been made pursuant to 38 U.S.C. § 1114(l), and discontinued,
effective December 5, 1995, the award that had been made under section 1114(r)(2). R. at 53-54.


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As a reason or basis for its decision, the RO stated: "The evidence now received records that the
veteran is in a nursing home where he is receiving 24[-]hour care by a health care professional care
[sic] that is being supervised by a physician." R. at 52. Attached to the letter from the RO notifying
the veteran of his award of additional SMC was a VA Form 21-8764. Suppl. R. at 1. That form
contained eleven separate, single-spaced sections regarding "VA               CHECK DELIVERY ",     "VA
HOSPITALIZATION      AND    OUTPATIENT       TREATMENT ",       "DENTAL   TREATMENT ",     "ADDITIONAL
COMPENSATION        FO R   DEPEN DEN TS ",    "IN DIV ID UA L    UN EM PLO YA BILITY ",   "VOCATIONAL
REHABILITATION ",    "EDUCATIONAL      BENEFITS",   "NONASSIGNABILITY        AND EXEMPT STATUS OF

BENEFITS", "GOVERNMENT LIFE INSURANCE ", "CHANGE OF ADDRESS NOTICE ",                and, finally, at the
bottom of the form, the section pertaining to the veteran to whom the form was sent, "CONDITIONS
AFFECTING RIGHT TO PAYMENTS ".        Ibid. That final section itself contained eight provisions, the
fourth of which stated:
       4. If your award includes [SMC] due to need for aid and attendance, this additional
       allowance is generally subject to reduction from the first day of the second calendar
       month of admission to hospitalization, nursing home[,] or domiciliary care at VA
       expense.
Ibid. (emphasis added).
       Later in February 1996, the RO issued a decision that stated: "Recently it was determined that
the veteran's disabilities met the requirements of the highest level of [SMC] provided by law. The
evidence now being reviewed . . . confirm[s] the findings in the pervious [sic] decision; therefore,
entitlement as previous [sic] established is continued." R. at 59.
       A May 8, 1996, VA report of contact indicated: "The veteran was placed at [a nursing home]
. . . on 11-13-95 with an indefinate [sic] contract." R. at 67. Subsequently, on May 9, 1996, the RO
sent to the veteran a letter proposing to eliminate his increased SMC and to reduce his monthly
benefits payments accordingly, based on the fact that the VAMC had "told [the RO that] they
approved payment for your nursing home care which began on November 13, 1995". R. at 69. This
letter also indicated that the reduction would "result in an overpayment of benefits" that the veteran
would have to repay.       Ibid. On May 14, 1996, the RO received from the veteran's PVA
representative a claim "for a VA administrative error in the creation of the debt", stating: "When the
veteran left the . . . VAMC for the . . . [n]ursing [h]ome the hospital has obligation [sic] to keep the


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adjudication division informed". R. at 75. On May 23, 1996, the RO sent to the veteran a letter
denying the claim for administrative error, which, if found, would have eliminated the veteran's
liability for any overpayment, and explained that the "overpayment occurred due to a delay in
reducing your [SMC] to the hospitalized rate". R. at 81. The veteran timely appealed to the Board.
R. at 84, 97. In the July 30, 1997, BVA decision here on appeal, the Board denied the veteran's
claim for administrative error and found that "the overpayment was not due solely to error on the part
of VA". R. at 7.


                                            II. Analysis
       Pursuant to 38 U.S.C. § 1114(l), a veteran who, "as the result of a service-connected
disability, has suffered the . . . loss of use of both feet, or of one hand and one foot . . . , or is
permanently bedridden or so helpless as to be in need of regular aid and attendance" shall be entitled
to increased SMC.       38 U.S.C. § 1114(l).       In addition, "if the veteran, as the result of
service-connected disability, has suffered disability under conditions which would entitle such
veteran to two or more of the rates provided in one or more subsections (l) through (n) of [section
1114]" (38 U.S.C. § 1114(o)) and "is in need of regular aid and attendance, then" he shall be entitled
to additional SMC (38 U.S.C. § 1114(r)(1)). If, "in addition to such need for regular aid and
attendance, . . . the Secretary finds that the veteran, in the absence of the provision of such care,
would require hospitalization [or] nursing home care", then, pursuant to section 1114(r)(2), the
veteran shall be entitled to increased, additional SMC "in lieu of the allowance authorized in" section
1114(r)(1). 38 U.S.C. § 1114(r)(2). "For the purposes of clause (2) of [subsection (r) of section
1114], need for a higher level of care shall be considered to be need for personal health-care services
provided on a daily basis in the veteran's home". 38 U.S.C. § 1114(r) (emphasis added).
       In this case, in November 1995 the RO awarded the veteran SMC pursuant to both subsection
(l) and (r)(1) of section 1114, effective April 1995. Suppl. R. at 5-6. In February 1996, the RO
continued the SMC that was being paid to him pursuant to section 1114(l) (R. at 53), and
discontinued, effective December 1995, the additional SMC under section 1114(r)(1) and in its stead
awarded, effective December 1995, additional SMC pursuant to section 1114(r)(2) (R. at 54). See
also Suppl. R. at 6 (description in November 1995 RO decision of SMC paid prior to February 1996


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RO decision). At the time of both the November 1995 and February 1996 RO decisions, the veteran
was in a private nursing home, to which he had been transferred at VA expense from a VAMC (R. at
40, 45), and there is no question that the RO was specifically aware of these facts at the time of its
respective decisions. Cf. Bell v. Derwinski, 2 Vet.App. 611, 613 (1992) (holding that RO had
constructive knowledge of documents generated by VAMC); Lynch (Gary) v. Gober, 11 Vet.App.
22, 26-27 (1997) (discussing pre-Bell application of Bell constructive-knowledge doctrine), vacated
and remanded on other grounds sub nom. Lynch v. West, No. 98-7039 (Fed. Cir. Dec. 29, 1998)
(table), reinstated by Lynch v. West, 12 Vet.App. 391 (1999) (per curiam order). At the time of the
November 1995 RO decision (Suppl. R. at 4), the RO had been in receipt of the veteran's PVA
representative's May 1995 letter notifying the RO of the veteran's ongoing hospitalization at the
VAMC (Suppl. R. at 2). In addition, the November 1995 RO decision listed as evidence received
the VAMC hospital summary that indicated that the veteran was to be "transferred" to a nursing
home (R. at 40; see also Secretary's Brief at 2 (noting that veteran was "transferred directly to a VA-
contract nursing home for additional care")). Suppl. R. at 4. In making the February 1996 award,
the RO explicitly noted: "The evidence now received records that the veteran is in a nursing home
where he is receiving 24[-]hour care by a health care professional care [sic] that is being supervised
by a physician". R. at 52. The RO listed as evidence received the December 1995 PVA
representative's letter that had reported that the veteran had been transferred to a nursing home
"under VA contract at the present time" (R. at 45) and a letter from "Hollis D. Nipe, M.D.", which
is not of record. Ibid.
        Hence, notwithstanding that the facts clearly show that the RO was fully aware of the
veteran's situations, the RO in February 1996 continued the award of "[SMC] under 38 U.S.C.
§ 1114[(l),] . . . on account of [the veteran's] being so helpless as to be in need of regular aid and
attendance while not hospitalized at government expense" (R. at 52-53), and awarded "additional
aid and attendance allowance under 38 U.S.C. § 1114[(r)(2)] . . . on account of [the veteran's] . . .
being in need of regular aid and attendance and, in addition, . . . of [his] need of a higher level of
care" (R. at 54). These awards were made despite the fact that the veteran did not meet the "higher
level of care" criterion set forth in section 1114(r) because he was not receiving "personal health-care
services . . . in [his] home", and despite the fact that, contrary to what the RO stated, the veteran was


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in fact "hospitalized at government expense". R. at 53. Indeed, the BVA specifically found: "There
was fault on the part of VA in the creation of the overpayment in awarding the veteran the additional
aid and attendance allowance while he was hospitalized in a [VAMC] and while he was in a nursing
home under VA contract." R. at 4.
        It was not until May 1996 that the RO first proposed to reduce the veteran's compensation
benefits by the amount of the SMC to which he was not entitled. R. at 69. The RO concluded that
the reduction would "result in an overpayment of benefits which ha[d] been paid to" the veteran
(ibid.); it is the creation of that overpayment (later determined to be $30,309.00 (R. at 87)) that is
the subject of this appeal.
        Pursuant to 38 U.S.C. § 5112(a), "[e]xcept as otherwise provided in this section, the effective
date of a reduction or discontinuance of compensation . . . shall be fixed in accordance with the facts
found." Section 5112(b)(10) provides otherwise, as follows:
        (b) The effective date of a reduction or discontinuance of compensation . . .

                (10) by reason of an erroneous award based solely on administrative error or
        error in judgment shall be the date of last payment.
38 U.S.C. § 5112(b)(10); see 38 C.F.R. § 3.500(b)(2) (1999) (effective date of reduction of VA
benefits is "date of last payment on an erroneous award based solely on administrative error or error
in judgment"). Hence, when an overpayment has been made "by reason of an erroneous award based
solely on administrative error", the reduction of that award cannot be made retroactive to form an
overpayment debt owed to VA from the recipient of the erroneous award.
        The question in this case, then, is whether the Board properly determined that the
overpayment in this case "was not due solely to error on the part of VA". R. at 7. The Board's
conclusion that the veteran was at least partly at fault in this case was predicated on the Board's
finding that "the veteran had reason to believe that he was not entitled to the full amount of his VA
compensation[,] which included the aid and attendance rate." R. at 6.           This Court reviews BVA
factfinding under a "clearly erroneous" standard of review. 38 U.S.C. § 7261(a)(4). Under this
standard "if there is a 'plausible' basis in the record for the factual determinations of the BVA . . . [the
Court] cannot overturn them." Gilbert v. Derwinski, 1 Vet.App. 49, 53 (1990).




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        The Board supported its finding as to the veteran's "reason to believe" in large part "based
on the information provided to the veteran on VA Form 21-8764". R. at 6. However, that form, in
addition to containing a great deal of information that was not relevant to the veteran's particular case
and being single-spaced and printed in a reduced typeface, indicated only that his "additional
allowance is generally subject to reduction from the first day of the second calendar month of
admission to hospitalization[ or] nursing home . . . at VA expense." Suppl. R. at 1 (emphasis added).
Moreover, in addition to the form being difficult to read, containing mostly irrelevant information,
and stating only a general policy, the VA Form 21-8764 was sent as an attachment to the February
1996 RO decision that both continued and awarded the additional SMC that VA now seeks to
recoup, and did so while expressly recounting the fact of the veteran's hospitalization and subsequent
nursing-home admission (R. at 64; Secretary's Brief at 3) and after the RO had specifically inquired
of the veteran as to the circumstances of his care at the nursing home (Suppl. R. at 8). In light of all
of these facts, the Court cannot find a plausible basis in the record for the Board's conclusion that
the veteran had had "reason to believe" that he was not entitled to the full amount of the checks that
he had received or was receiving. Moreover, the RO acknowledged not once but three times that the
veteran would be or was placed in a nursing home. It did so first in its November 1995 decision that
had awarded additional SMC for aid and attendance during the veteran's period of hospitalization
(Suppl. R. at 4 (noting that "plans were being made for nursing home placement")), then in its
February 1996 decision erroneously awarding SMC (R. at 52), and then again in a second February
1996 decision that reevaluated the veteran's situation and "continued" the entitlement (R. at 59).
Thus, the veteran had no reason to believe that the RO was not fully aware of his institutionalization.
Quite to the contrary. The Court finds that the veteran had good reason to believe that he was
entitled to the amounts that he had received under the circumstances described above.
        The Secretary relies almost exclusively on this Court's opinion in Jordan v. Brown,
10 Vet.App. 171 (1997), to support his position that the BVA correctly determined that the
overpayment debt in this case was properly created. Br. at 9. The Secretary is correct that in Jordan
the Court determined that the appellant there had been "in receipt of . . . information which plainly
instructed that remarriage would preclude additional compensation, and that any payment checks
received subsequent to a remarriage were to be returned to VA". Jordan, 10 Vet.App. at 174


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(emphasis added). However, in this case, the VA Form 21-8764 cannot be said to have "plainly
instruct[ed]" the veteran to take any action whatsoever, and, in any event, did not suggest that the
veteran should return his checks to VA. Indeed, unlike the appellant in Jordan, the veteran in this
case was entitled to at least some, if not most, of the compensation amounts that he was paid; the
only amount to which he was not entitled was the amount of the check that represented increased
SMC for aid and attendance. Thus, were he to have returned the checks he would have had to return
as well a great deal of compensation to which he was entitled by virtue of his 100%
service-connected disability.
        Finally, the veteran was at all times within VA control -- he went from a VAMC to a nursing
home under VA contract -- and his PVA representative even took the initiative to call to the RO's
attention the veteran's current hospitalization in May 1995, to request VA to take action to avoid an
overpayment of compensation (Suppl. R. at 2), and also to report to the RO in December 1995 that
the veteran was then in a nursing home under VA contract (R. at 45). This is the exact opposite of
the situation in Jordan, where the appellant had "fail[ed] to act in accordance with the rules
governing DIC payments" and had admitted that she had not read materials that had been sent to her
by VA. Jordan, 10 Vet.App. at 175. It is simply unreasonable to conclude that a person who has
been institutionalized in a VAMC and then transferred therefrom to a nursing home at VA expense
is at fault for not refusing to cash checks, a large portion of which he was entitled to, sent to him
while he was in that nursing home and when the RO had previously expressly affirmed its awareness
that he was under VA's auspices. In fact, the RO on May 23, 1996, appears to have acknowledged
that its own error had been the cause of the overpayment in this case, when it stated that the
"overpayment occurred due to a delay in reducing your [SMC] to the hospitalized rate". R. at 81.
Accordingly, the facts of this case differ materially from those in Jordan, supra, and, in view of the
foregoing analysis, the Court holds that the Board's factual finding that the veteran had "reason to
believe" (R. at 6) that he was not entitled to the checks that he received did not have a plausible basis
in the record and was thus clearly erroneous. See 38 U.S.C. § 7261(a)(4); Gilbert, supra.
        Absent the "reason to believe" cited by the Board, there is no basis in law for the Board's
conclusion that the overpayment debt was validly created and, accordingly, the Court reverses the
Board's decision and holds, on de novo review, that the overpayment in this case was created "by


                                                   8
reason of an erroneous award based solely on administrative error", and, therefore, cannot serve as
the basis of an overpayment debt owed to VA from the veteran. 38 U.S.C. § 5112(b)(10); see
38 C.F.R. § 3.500(b)(2); see also Jordan, 10 Vet.App. at 174 ("question whether the BVA erred in
determining the validity of the creation of debt is a question of law, which this Court reviews de
novo"). In effect, the creation of the overpayment debt on the facts of this case was void ab initio,
just as we have held that rating reductions effected without compliance with applicable regulations
are "void ab initio". Greyzck v. West, 12 Vet.App. 288 (1999) (citing Kitchens v. Brown, 7 Vet.App.
320, 325 (1995); Murincsak v. Derwinski, 2 Vet.App. 363, 369 (1992); and Schafrath v. Derwinski,
1 Vet.App. 589, 596 (1991)); see also Dofflemyer v. Derwinski, 2 Vet.App. 277, 280-81 (1992).


                                          III. Conclusion
       Upon consideration of the foregoing analysis, the ROA, and the submissions of the parties,
the Court reverses the July 30, 1997, BVA decision and remands the matter for the repayment to the
veteran by VA of the overpayment debt that VA wrongfully collected.
       REVERSED AND REMANDED.
       HOLDAWAY, Judge, dissenting: I respectfully dissent with the holding of the majority. I
do so reluctantly because the result reached by the majority is a good equitable result, given the fact
that the VARO's negligence and actions, as ably noted in the majority opinion, were certainly the
principal cause in creating the overpayment to the appellant. However, this Court is a court of law,
not a court of equity. Unless the Board was clearly erroneous in its factual finding that VA was not
solely to blame, this Court cannot overturn that finding, no matter how much we may wish to do so
out of sympathy for this appellant.
       My review of this case ineluctably leads me to the conclusion that the Board's finding was
firmly based in the record which clearly indicated that the appellant was well aware of the fact that
he was receiving overpayments. The inescapable conclusion is that while VA was primarily at fault
for the creation of the overpayment, there still is an element of fault on the appellant's part because
he accepted money to which he was not entitled. To find that VA was not solely to blame is not
intended to excuse the errors made in creating the overpayments but simply applies the requirements
for a valid creation of the debt set forth by the law. Had the appellant pursued an equitable waiver


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of this valid debt, I believe that there would have been a strong case for relief, assuming that the
other factors for waiver had been present. See 38 C.F.R. § 1.965. Nonetheless, the appellant sought
to deny the validity of the indebtedness and argued that this error was solely the fault of VA and, for
whatever reason, eschewed a request for waiver of the indebtedness.
       I note parenthetically that to the extent that there is an inference that VA acted somewhat
ogreishly in attempting to recover an overpayment which its negligence was largely responsible for
creating, it should be borne in mind that the appellant did receive monies to which he was not legally
entitled. VA acted reasonably and responsibly in trying to recapture the windfall that the appellant
received.




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