George: Presumption of Soundness, CUE, Retroactivity

George v. Wilkie, docket no. 16-2174 (Jan. 4, 2019) 

HELD: In order to rebut the presumption of soundness, 38 U.S.C. § 1111 has always required VA to prove that a condition both pre-existed and was not aggravated by service. However, that is not how VA interpreted the statute prior to 2003 – and the Court declined to retroactively apply the correct statutory interpretation, as set forth in Wagner v. Principi, 370 F.3d 1089 (Fed. Cir. 2004), to an appeal alleging CUE in a pre-2003 final decision. 

SUMMARY: Kevin George was diagnosed with schizophrenia in service. A Medical Board report found that the condition pre-existed and was aggravated by service, but a Physical Evaluation Board found that the pre-existing condition was not aggravated by service. He filed a claim for service connection a few months after discharge and was denied in 1976. The Board denied the claim in 1977. 

In 2014, he filed a request to revise the 1977 Board decision on the basis of clear-and-unmistakable error (CUE), alleging that the Board failed to correctly apply the presumption of soundness by not rebutting “with clear and unmistakable evidence that his condition was not aggravated by service.” The Board found no CUE in the 1977 decision, noting that the Board at the time was not required to find clear and unmistakable evidence of a lack of aggravation. The Board acknowledged the Federal Circuit’s holding in Wagner v. Principi, 370 F.3d 1089 (Fed. Cir. 2004), but stated that “judicial decisions that formulate new interpretations of the law subsequent to a VA decision cannot form the basis of CUE.” 

On appeal at the CAVC, the Court outlined the relevant law. The Court first noted that the presumption of soundness statute in 1977 (and today) allowed the Secretary to rebut only by showing of clear and unmistakable evidence of bothpre-existence andlack of aggravation. However, VA’s implementing regulation in 1977, 38 C.F.R. § 3.304(b), only required clear and unmistakable evidence that the condition pre-existed service. VA invalidated the regulation in 2003. Wagner was decided in 2004.

The Court explained the requirements for establishing CUE in a final decision, noting that 38 C.F.R. § 20.1403(e) “states that CUE ‘does not include the otherwise correct application of a statute or regulation where, subsequent to the Board decision challenged, there has been a change in the interpretation of the statute or regulation.’” The Court cited DAV v. Gober, 234 F.3d 682, 698 (Fed. Cir. 2000) in holding that “[t]he new interpretation of a statute can only retroactively [a]ffect decisions still open on direct review, not those decisions that are final.”

The Court then discussed the Federal Circuit’s decision in Wagner and its subsequent holding in Jordan v. Nicholson, 401 F.3d 1296 (Fed. Cir. 2005). In Jordan, the Court applied the DAV rule to Wagner, holding that “CUE does not arise from a new regulatory interpretation of a statute.” In other words, even though Wagner explained that the presumption of soundness statute has always meant that it can only be rebutted with clear and unmistakable evidence of both pre-existence and a lack of aggravation, a claimant could not raise a CUE challenge to a final decision based on the invalidation of VA’s implementing regulation that only required a showing of pre-existence to rebut. 

Finally, the Court discussed the Patrick line of primarily nonprecedential cases that addressed WagnerJordan, and retroactivity in a CUE case. In Patrick, as in the present appeal, the claimant argued CUE in a prior final decision based on the incorrect application of the presumption of soundness. The CAVC affirmed the Board’s denial and the Federal Circuit remanded for the Court to consider the application of Wagner, which had recently been decided at that time. 

On remand, the CAVC again affirmed the Board’s denial, citing Jordan for holding that Wagner’s “new” interpretation of the presumption of soundness did not retroactively apply in a CUE case. Mrs. Patrick again appealed, and, in Patrick III, also a nonprecedential decision, the Federal Circuit explained that Jordan dealt with “whether a change in the regulatory interpretation of a statute had retroactive effect on CUE [motions], not whether [its] interpretation of the statute in Wagner had retroactive effect on CUE [motions].” The Federal Circuit described the Jordan holding as limited, stating that “[u]nlike changes in regulations and statutes, which are prospective, [the Court’s] interpretation of a statute is retrospective in that it explains what the statute has meant since the date of enactment.” In other words, “Wagner did not change the law but explained what [section] 1111 has always meant.” The Federal Circuit remanded the matter back to the CAVC to determine whether VA rebutted the presumption of soundness with clear and unmistakable evidence of a lack of aggravation. The CAVC vacated the Board’s decision, and the attorney filed an application for EAJA fees. 

The CAVC denied the EAJA application, finding that the Secretary’s position was substantially justified. Again, Mrs. Patrick appealed to the Federal Circuit. In Patrick v. Shinseki (Patrick VI), 668 F.3d 1325 (Fed. Cir. 2011) – the only precedential decision in this line of cases – the Federal Circuit reversed the CAVC’s decision and remanded for the CAVC to consider substantial justification under the “totality of circumstances” test. In a footnote, the Federal Circuit noted that in Patrick III, it had rejected the CAVC’s determination that the correct “interpretation of section 1111 did not apply retroactively in the context of a CUE claim,” and repeated that “our interpretation of § 1111 . . . did not change the law but explained what [section] 1111 has always meant.”

With respect to retroactivity and CUE, the Court acknowledged that the Federal Circuit’s interpretation of section 1111 in Wagner is “an authoritative statement of what the statute meant before as well as after” that decision, but still found that the 2004 Wagner decision “cannot defeat the finality of a 1977 Board decision . . . because consideration of CUE requires the application of the law as it was understood at the time of the 1977 decision.” The Court explained: “Applying a statute or regulation as it was interpreted and understood at the time a prior final decision is rendered does not become CUE by virtue of a subsequent interpretation of the statute or regulation by this Court or the Federal Circuit.” 

In applying the law to the facts of this case, the Court noted that the Secretary conceded that the Board erred when it determined that the 1977 Board was not required to find clear and unmistakable evidence of a lack of aggravation due to the 1977 version of the implementing regulation. The Court disagreed with this concession of error, stating that “it is not clear how the Board could have ignored [38 C.F.R. § 3.304(b)] or why the Board would have been required to find clear and unmistakable evidence of aggravation in 1977.” [ABK note: I don’t know . . . maybe because the statute says so? Call me crazy . . . ] The Court held: “While the Federal Circuit’s interpretation of the presumption of soundness statute in Wagner sets forth what the statute has always meant, it was not the interpretation or understanding of the statute before its issuance.” The Court noted the Federal Circuit’s finding in Jordan that “there was a change in interpretation of section 1111” when VA invalidated § 3.304(b) and thus determined that “Wagner does not apply retroactively to final decisions.” 

In response to the argument based on the Patrick line of cases, the Court held that Patrick III is not binding precedent and the footnote in Patrick VI is dicta. The Court added that the statements in Patrick III and Patrick VI regarding “Wagner’s retroactivity conflict with other precedential Federal Circuit caselaw,” specifically DAV, which held that “[t]he new interpretation of a statute can only retroactively [a]ffect decisions still open on direct review, not those decision[s] that are final.” To bolster its decision, the Court stated: “The impact of allowing judicial decisions interpreting statutory provisions issued after final VA decisions to support allegations of CUE would cause a tremendous hardship on an already overburdened VA system of administering veterans benefits.” 

The Court further found that even if Wagner applied retroactively, Mr. George’s CUE allegation would fail because he did not prove that the 2016 Board erred in determining that the 1977 Board’s errors did not manifestly change the outcome of its decision. The Court thus affirmed the 2016 Board’s decision.  

In a well-crafted dissent that will likely form the foundation for an appeal to the Federal Circuit, Judge Bartley stated that “the will of Congress, not VA, should prevail.” She reiterated that the Federal Circuit “‘soundly rejected’ the argument ‘that this court’s interpretation of section IIII did not apply retroactively in the context of a CUE claim” citing the Patrick VI footnote, adding that she was “not willing to dismiss this unambiguous and germane guidance from our reviewing court, particularly when that guidance is grounded in the unalterable principle that veteran-friendly congressional intent holds primacy over a VA interpretation that is less beneficial to veterans.” She rejected the majority’s concern of causing “a tremendous hardship” on VA, stating that she would have “no reservations about requiring VA to remedy the decades old errors that prohibit otherwise deserving veterans and their dependents from receiving the benefits to which they are statutorily entitled.”

FULL DECISION

McKinney: HEARING LOSS, PRESUMPTION OF SOUNDNESS

McKinney v. McDonald, 28 Vet.App. 15 (Mar. 11, 2016)

HELD: If the degree of hearing loss noted on a veteran’s enlistment medical examination does not meet VA’s definition of “disability” for hearing loss under 38 C.F.R. § 3.385, the veteran is entitled to the presumption of soundness.

The Court also rejected the Secretary’s argument that hearing loss that is not considered a “disability” for VA compensation purposes under § 3.385 should be considered a “defect” and, therefore, ineligible for disability compensation

FULL DECISION