(CONTINUED)

4. Other Claims

For the reasons stated above with respect to disability compensation, we propose to state in Sec. 3.816(d)(4) that, if the requirements of paragraph (d)(1) or (d)(2) are not met, the effective date of DIC will be governed by 38 CFR 3.114 and 3.400.

Effect of Other Provisions

We propose to state in Sec. 3.816(e)(1) that, if the requirements of paragraphs (c)(1) or (c)(2) or (d)(1) or (d)(2) are met, the effective date of benefits will be determined as provided by this rule, without regard to any contrary provision

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in 38 U.S.C. 5110(g) or 38 CFR 3.114. As noted above, the effective- date rules required by the Nehmer court create a limited exception to that statute and regulation. In order to avoid confusion among VA personnel, claimants, and claimants' representatives regarding the effect of this exception, we believe it is necessary to state clearly that the Nehmer rules shall be applied, when they are applicable, without regard to 38 U.S.C. 5110(g) or 38 CFR 3.114.

We also propose to state that the effective-date provisions in this rule will not apply if a statute or regulation other than 38 U.S.C. 5110(g) or 38 CFR 3.114 would bar a retroactive payment that would otherwise be available under the Nehmer rules. For example, if a DIC claimant did not qualify as a surviving spouse at the time of the prior DIC claim, VA would lack authority to pay DIC to the claimant for periods relevant to such claim, even if the claimant later attains the status of a surviving spouse, based, for example, upon termination of remarriage. The Nehmer court orders require VA to give retroactive effect to its herbicide regulations, but do not purport to eradicate statutory bars to benefits that would preclude payment even if the herbicide regulations apply retroactively.

Proposed paragraph (e)(2) would explain the effect of section 505 of Public Law 104-275, which prohibits VA from making retroactive payments in certain circumstances where a benefit award is based on service in the Republic of Vietnam prior to August 5, 1964. Prior to January 1, 1997, the presumptions of service connection for diseases associated with herbicide exposure applied only to veterans who served in the Republic of Vietnam during the Vietnam era, which was then defined by statute and regulation to encompass the period beginning on August 5, 1964 and ending on May 7, 1975. In 1996, Congress enacted Public Law 104-275, section 505(b) of which extended those presumptions to veterans who served in the Republic of Vietnam during the period between January 9, 1962, and August 4, 1964. Congress specified, in section 505(d) of Public Law 104-275, that the amendment would take effect on January 1, 1997, and that "[n]o benefit may be paid or provided by reason of such amendments for any period before such date." Accordingly, some claims may have been denied prior to January 1, 1997, because the claimants' service did not meet the then-existing statutory requirement of service during the Vietnam era. Although some such claimants may now be entitled to presumptive service connection under the liberalizing 1996 statute, Congress has prohibited VA from paying retroactive benefits based on the amendment made by Public Law 104-275.

We propose to state that the retroactive payment provisions of these proposed rules do not apply if the veteran's Vietnam service ended before August 5, 1964 and the class member's prior claim for benefits was denied by VA before January 1, 1997. In such cases, the denial was required by statute and VA is prohibited from paying retroactive benefits based on the prior claim. We propose to state that the effective date of any subsequent award in such cases will be governed by 38 U.S.C. 5110(g). We further propose to state that, if a veteran's Vietnam service ended before August 5, 1964 and the class member's claim for benefits was pending on or was received by VA after January 1, 1997, the effective date shall be the later of the effective date provided for in the proposed rules or January 1, 1997. This would conform to the requirement in Public Law 104-275 that VA may not pay benefits in such cases for any period before January 1, 1997.

Payment of Benefits to Survivors of Deceased Beneficiaries

1. Requirements of the Nehmer Court Orders

In its December 12, 2000 order, the district court held that, when a Nehmer class member entitled to retroactive benefits under the Nehmer stipulation and order dies prior to receiving payment of such benefits, VA must pay the full amount of such benefits to the class member's estate. Under 38 U.S.C. 5121 and 38 CFR 3.1000, when any monetary benefits remain due and unpaid at the time of a beneficiary's death, VA may pay to certain individuals only the portion of such benefits that accrued during the two-year period preceding death. Further, VA cannot pay any such accrued benefits unless the appropriate payee files a claim for accrued benefits within one year after the date of death. However, the Nehmer court held that these restrictions do not apply to payments of amounts payable pursuant to the Nehmer stipulation and order. Rather, the court held that VA must pay the entire amount of such retroactive payment to the class member's estate and must do so without requiring a claim for accrued benefits.

2. Persons Eligible for Payments

In implementing the court's order, VA found that it was impractical in most cases to pay retroactive benefits to a class member's estate. Although VA claims files ordinarily contain information identifying persons who would be eligible for accrued benefits under section 5121 of title 38, United States Code, they generally do not contain information concerning the estates of veterans and other class members. Further, in a substantial number of cases, entitlement to retroactive payments under the Nehmer stipulation and order is established several months or even years after the class member's death, at a time when the decedent's estate would have been finally settled. In such cases, there may be no existing estate to receive payment. Even if an estate exists, paying benefits to the estate would arguably contravene the fundamental purpose of the veterans' benefits laws to provide payments for the use of the veteran and his or her family. Section 5121 provides that accrued benefits shall be paid to the decedent's surviving spouse, children, or dependent parents (in that line of succession), but does not permit payment to a decedent's estate. Although this statute limits the amount of accrued benefits payable, it clearly indicates that the accrued benefits are intended for the use of the decedent's family rather than the decedent's estate and creditors. If benefits were paid to a decedent's estate, they would potentially be subject to claims of creditors of the estate, with the possibility that the decedent's family would obtain no benefit from such payments. This would improperly deprive the decedent's family of the benefits expressly authorized by section 5121(a) (to the extent the payment to the estate encompassed benefits due and unpaid for the two-year period preceding death), and would contravene the general purpose of veterans benefits laws to provide benefits for the personal use of the veteran and his or her family.

After consulting with representatives of the Nehmer class, VA decided to issue payment directly to the persons who would have been eligible to receive accrued benefits under 38 U.S.C. 5121(a) at the time of the class member's death, rather than withholding all payment. We believe this procedure is consistent with the purpose of the Nehmer court orders and is more beneficial to class members, in view of the impracticability of locating and paying estates and the possibility that payments to estates may not inure to the benefit of the class member's survivors. We also believe that this procedure ensures that payments are made in the

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manner most consistent with the language and purpose of existing law.

Consistent with this practice, we propose to state in paragraph 3.816(f)(1) that, if a Nehmer class member dies prior to receiving payment of retroactive benefits due pursuant to the Nehmer stipulation and order, VA will pay the full amount of such unpaid benefits directly to the person or persons who would have been eligible to receive accrued benefits under 38 U.S.C. 5121(a)(2)-(a)(4) at the time of the class member's death (i.e., the class member's spouse, children (in equal shares), or dependent parents (in equal shares), in that order of preference). If no such survivors are in existence, VA would pay as much of the unpaid retroactive benefits as necessary to reimburse the person who bore the expense of the class member's last sickness and burial, in the same manner as provided in 38 U.S.C. 5121(a)(5) for accrued benefits.

Paragraph (f)(1) would further provide that a person's status as the spouse, child, or dependent parent of the class member would be determined as of the date of the class member's death, rather than the date that payment is made under this rule. As noted above, some class members may have died several months or years before payment can be made under these rules. Due to the lapse of time, a person who qualified as the class member's spouse or child on the date of the class member's death may no longer meet the statutory or regulatory definition of spouse or child, due to changes in their age or marital status. For example, a ``child'' is generally defined in 38 U.S.C. 101(4)(A) to refer to an unmarried child who is (with certain exceptions) under the age of eighteen years. A person who met this definition on the date of a class member's death may have married or attained the age of eighteen years before VA releases payment of unpaid retroactive benefits due to the class member. Because the Nehmer court orders were generally intended to correct past errors, we propose to authorize payment to persons who would have been eligible for payment as a spouse, child, or dependent parent on the date of the class member's death, irrespective of subsequent changes in age or marital status that would otherwise affect their entitlement to payment.

In view of language in the Nehmer court's order requiring payments to estates, however, we believe it is necessary to seek an order from that court clarifying or modifying its prior order to make clear that VA may release payments in the manner proposed. Accordingly, we intend to request such an order from the district court concurrently with the publication of these proposed rules.

3. Inapplicability of Certain Accrued Benefit Requirements

As stated above, the district court indicated that the statutory two-year limit on payment of accrued benefits and the statutory requirement that a qualified payee or payees file a claim for accrued benefits do not apply to payments of retroactive benefits due and unpaid to a Nehmer class member at the time of death. Accordingly, we propose to state, in paragraph (f)(2), that those requirements do not apply. We further propose to state that, if a class member dies before receiving payment of retroactive benefits due to him or her, VA will pay the amount to the known payee(s) without requiring a claim. A veteran's VA claim file will often contain information identifying the surviving spouse, children, or parents of a class member. By clarifying that VA will release payment based on such information without awaiting communication from such survivors, this provision would permit expeditious release of payments.

4. Identifying Payees

We propose to state, in paragraph (f)(3), that VA shall make reasonable efforts to identify appropriate payees based on information contained in the veteran's claims file. We propose to state that, if further information is needed to determine whether an appropriate payee exists, or whether there is any person having precedence equal to or greater than a known survivor, VA will request such information from a known survivor or the class member's authorized representative if the claims file contains sufficient contact information. We also propose to state that, before releasing payment to a known survivor, VA will request information from the survivor concerning the possible existence of other survivors with equal or greater priority for payment, unless the circumstances clearly indicate that such a request is unnecessary. For example, if the claims file contained the name and address of a child of the deceased class member, VA would contact the child to inquire whether there is a surviving spouse or any other children of the class member in existence. In seeking to identify appropriate payees, VA necessarily must rely on information in the claims file. VA does not have the resources to conduct independent investigations of estate issues.

We propose to state that, after making reasonable efforts to identify the appropriate payee(s), if VA releases the full amount of retroactive payments to a payee, VA generally may not thereafter pay any portion of such benefits to any other individual, unless VA is able to recover any payment previously released.

5. Prohibition On Duplicate Payments

We propose to state, in paragraph (f)(4), that, payment of benefits pursuant to this rule shall bar a later claim by any individual for payment of all or any part of such benefits as accrued benefits under 38 U.S.C. 5121 and 38 CFR 3.1000. The district court ordered VA to release all retroactive amounts due a class member at the time of death under the Nehmer stipulation and order. This would necessarily include amounts that otherwise would be payable as accrued benefits under 38 U.S.C. 5121. Accordingly, once payment has been made pursuant to the court's order, no retroactive benefits would remain for payment to any person as accrued benefits. Inasmuch as this rule applies only to retroactive benefits payable for a covered herbicide disease pursuant to the 1991 stipulation and order, it would not preclude a survivor's right to seek accrued benefits under section 5121 in the event a deceased class member was entitled at death to benefits for conditions other than a covered herbicide disease.

Awards Not Covered by the Nehmer Rules

We propose to state, in Sec. 3.816(g), that the provisions of this rule do not apply to awards of disability compensation or DIC for disability or death due to a disease for which the Secretary of Veterans Affairs establishes a presumption of service connection after September 30, 2002. The Nehmer stipulation and order applies to awards based on diseases for which the Secretary establishes a presumption of service connection pursuant to the Agent Orange Act of 1991, Public Law 102-4. The Act established a sunset date of September 30, 2002, for the Secretary to establish such presumptions. Accordingly, the Nehmer stipulation and order applies only to awards based on presumptions established within the time frame specified in the Agent Orange Act of 1991, Public Law 102-4.

The Agent Orange Act of 1991, Public Law 102-4, added section 1116 to title 38, United States Code. Section 1116(b) authorized the Secretary of Veterans Affairs to issue regulatory presumptions of service connection for diseases associated with herbicide exposure. Section 1116(e), as added by the Act, stated that section 1116(b) would cease

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to be effective 10 years after the first day of the fiscal year in which the NAS transmitted its first report to VA. The first NAS report was transmitted in June 1993, during the fiscal year that began on October 1, 1992. Accordingly, under the Act, VA's authority to issue regulatory presumptions as specified in section 1116(b) would have expired on September 30, 2002.

In December 2001, Congress enacted the Veterans Education and Benefits Expansion Act of 2001 (Benefits Expansion Act), Public Law 107-103, section 201(d) of which extended VA's authority under section 1116(b) through September 30, 2015. Pursuant to this statute, VA may issue new regulations between October 1, 2002 and September 30, 2015 establishing additional presumptions of service connection for diseases that are found to be associated with herbicide exposure based on evidence contained in future NAS reports. Because presumptions established pursuant to the authority of the Benefits Expansion Act would be beyond the scope of the Nehmer stipulation and order, the effective-date provisions of the stipulation and order, as stated in this proposed rule, would not apply to claims based on diseases service-connected pursuant to the Benefits Expansion Act of 2001.

Both the district court and the Court of Appeals for the Ninth Circuit stated that the Nehmer stipulation and order applies only to awards based on presumptions issued within the time period established by the Agent Orange Act of 1991, Public Law 102-4. The district court noted that the retroactive payment provisions of the stipulation and order are ``expressly tied'' to the Agent Orange Act of 1991, Public Law 102-4, and that ``the Stip. & Order is not therefore boundless.'' Nehmer v. United States Department of Veterans Affairs, No. CV-86-6160 TEH (N.D. Cal. Dec. 12, 2000). In a decision issued April 1, 2002, the Ninth Circuit stated that, "the district court was careful to prescribe temporal limits on the effect of the consent decree, with which we agree." Nehmer v. Veterans' Administration, 284 F.3d 1158, 1162 n.3. (9th Cir. 2002), reh'g denied.

In its December 12, 2000, order, the district court held that the 1991 stipulation and order must be interpreted in accordance with general principles of contract law. It is well established that, unless the parties provide otherwise, a contract is presumed to incorporate the law that existed at the time the contract was made. See Norfolk & Western Ry. Co. v. American Train Dispatchers' Ass'n, 499 U.S. 117, 129-30 (1991). A subsequent change in the law cannot retrospectively alter the terms of the agreement. See Florida East Coast Ry. Co. v. CSX Transportation, Inc., 42 F.3d 1125, 1129-30 (7th Cir. 1994). Accordingly, the enactment of the Benefits Expansion Act of 2001 does not alter the scope of the 1991 stipulation and order.

Because the Benefits Expansion Act of 2001, Public Law 107-103, established rights and duties that did not exist under the Agent Orange Act of 1991, Public Law 102-4, any regulations issued pursuant to the authority of the Benefits Expansion Act of 2001 are beyond the express scope of the Nehmer stipulation and order. Accordingly, the stipulation and order provides no authority for VA to pay retroactive benefits under such regulations in a manner contrary to the governing statutes and regulations concerning the effective dates of awards. Proposed paragraph 3.406(g) would reflect this fact. This provision would make clear that awards based on regulations issued pursuant to the Benefits Expansion Act of 2001 would be governed by the generally applicable provisions governing the effective dates of benefit awards.

Executive Order 12866

This regulatory amendment has been reviewed by the Office of Management and Budget under the provisions of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993.

Paperwork Reduction Act

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

Unfunded Mandates

The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before developing any rule that may result in an expenditure by State, local, or tribal governments, in the aggregate, or by the private sector of $100 million or more in any given year. This rule would have no consequential effect on State, local, or tribal governments.

Regulatory Flexibility Act

The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. The reason for this certification is that these amendments would not directly affect any small entities. Only VA beneficiaries and their survivors could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), these amendments are exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance program numbers are 64.109, and 64.110.

List of Subjects in 38 CFR Part 3

Administrative practice and procedure, Claims, Disability benefits, Herbicides, Veterans, Vietnam.

Approved: November 4, 2002.
Anthony J. Principi,
Secretary of Veterans Affairs.

(GO TO PART 3)