## Facts

- Leonard Albalos, born in 1909 in the Philippines, had six years of formal education, spoke a Philippine dialect as his native language, and worked for decades in unskilled jobs.
- He began receiving Social Security retirement benefits and was required to file annual excess-earnings reports when earnings exceeded the exempt amount.
- He failed to file required earnings reports for multiple years, including 1976, 1978, and 1980.
- The Social Security Administration notified him in 1978 that he had not filed a report for 1976; after no response, the agency assessed a “deduction overpayment” and a penalty.
- After additional failures to report, the Secretary assessed overpayments and penalties and denied a waiver of recovery, concluding Albalos was not “without fault” because he had been told of reporting duties and had previously been penalized.
- An ALJ and the Appeals Council affirmed the determination that Albalos was at fault and therefore not eligible for a waiver.

## Issues

1. Whether substantial evidence supported the Secretary’s finding that Albalos was not “without fault” for failing to file excess-earnings reports, given regulatory requirements to consider individualized circumstances.
2. Whether the Secretary’s imposition of penalties for failure to file reports was valid where the “fault” determination was not supported by the required analysis.

## Decision

- The Ninth Circuit reversed the district court’s judgment for the Secretary and remanded.
- The court held substantial evidence did not support the finding that Albalos was not “without fault” because the agency did not evaluate all required personal circumstances (including age, education, intelligence, and language ability).
- The court ruled that written notices and the earlier penalty had some probative value but were insufficient without findings addressing Albalos’s ability to understand and comply with reporting obligations.
- Because penalties were tied to the agency’s fault determination, the penalties could not stand on the existing record and required reconsideration on remand.

## Legal Principles

- Waiver of recovery under 42 U.S.C. § 404(b) requires a proper determination of whether the beneficiary was “without fault,” made under the governing regulations.
- Under 20 C.F.R. §§ 404.507 and 404.511, the fault inquiry must consider all pertinent individual circumstances, including age, education, intelligence, and language/comprehension.
- Evidence that the agency provided written instructions or that the beneficiary was previously penalized does not, by itself, constitute substantial evidence of fault absent an individualized assessment of the beneficiary’s capacity to understand and comply.
- An administrative fault finding is not supported by substantial evidence when the agency omits required regulatory factors from its analysis.

## Conclusion

The Ninth Circuit held that the Secretary’s denial of a waiver and related penalties could not be upheld because the agency failed to make the individualized, regulation-required assessment of whether the beneficiary could reasonably understand and meet the earnings-reporting obligations, and it remanded for further proceedings.


Albalos v. Sullivan, 907 F.2d 871 (9th Cir. 1990)