Mason, Ivy v. Sybinski, Peter ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-2497
Ivy Mason, on her own behalf and
on behalf of those similarly situated,
Plaintiff-Appellant,
v.
Peter Sybinski, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. IP 00-0988-C-M/S--Larry J. McKinney, Chief Judge.
Argued January 9, 2002--Decided February 11, 2002
Before Flaum, Chief Judge, and Harlington
Wood, Jr., and Easterbrook, Circuit Judges.
Flaum, Chief Judge. Ivy Mason, on behalf
of herself and a class of past, present,
and future mentally impaired Social
Security recipients who are
institutionalized in Indiana state mental
health institutions, brought action
against the state of Indiana. The class
sought declaratory and injunctive relief
to prevent the state hospitals, appointed
by the Social Security Administration
("SSA" or "the Administration") as
representative payees, from deducting a
portion of the recipients’ Social
Security benefits to pay for
institutional maintenance without their
voluntary consent. The class contends
that the state hospitals’ actions violate
the anti-attachment provision of the
Social Security Act ("the Act") as well
as procedural due process. The district
court granted summary judgment in favor
of the state on all claims. Mason, on
behalf of the class, now appeals. For the
reasons stated herein, we affirm the
decision of the district court.
I. Background
The SSA, when it determines that a
recipient is unable to manage or direct
management of her own Social Security
benefits, appoints a representative payee
to do the job for her. 42 U.S.C.
sec.405(j) (2001); 20 C.F.R. sec.404.2001
(2000). Representative payees are subject
to a number of Social Security
regulations created to prevent misuse or
abuse of the funds. The appointed payee
must use the payments received only for
the "use and benefit" of the beneficiary,
"in a manner . . . he or she determines,
under the guidelines in this subpart, to
be in the best interests of the
beneficiary." 20 C.F.R. sec.404.2035. The
regulations define "for the use and
benefit" of the recipient to include
costs of current maintenance, 20 C.F.R.
sec.404.2040(a)(1), and define "current
maintenance" to include customary charges
by a state,federal, or private
institution where the beneficiary is
receiving care. 20 C.F.R.
sec.404.2040(b). The Act states,
moreover, that a creditor who provides
the beneficiary with goods or services
for consideration cannot be that person’s
representative payee except, inter alia,
when that creditor is a state-licensed or
certified care facility. 42 U.S.C.
sec.405(j)(2) (C)(i)(III); 42 U.S.C.
sec.405(j)(2)(C)(iii).
The regulations set forth an order of
preference in selecting a representative
payee for institutionalized
beneficiaries. If a legal guardian,
spouse, other relative, or friend who
demonstrates a strong concern for the
recipient exists, the SSA will generally
appoint that person to be the payee. If
not, however, the Administration’s
preference is to appoint the state
institution where the recipient resides.
20 C.F.R. sec.404.2021(a).
When the SSA appoints a state hospital
as representative payee, it provides
notice to the hospital that it must use
the payments for the benefit and care of
the recipient. The Administration also
provides notice to the beneficiary
herself that a payee has been appointed
and that she has the right to appeal that
appointment. The recipient is told that
the representative payee will be
responsible for managing her benefits. In
Indiana, when a state hospital is
appointed payee, it verbally informs the
beneficiary that her benefits may be used
to pay for the cost of their care. Also,
the SSA generally informs the beneficiary
(and did so, by letter, in Mason’s case)
that the hospital, as payee, will apply
part of the money toward its bill.
After receiving a recipient’s benefit
payment, the hospital deposits the money
into a trust account. According to guide
lines and specific instruction from the
SSA, the hospital provides the recipient
with spending money for bills, clothing
and other reasonable expenses. It also
deducts a portion of the benefits to pay
for institutional costs. The hospital
does not obtain written consent from the
beneficiary to allow the state to apply
the benefits to the cost of
institutionalization.
Under Indiana law, residents of
hospitals and institutions are liable for
the cost of their treatment and care.
Ind. Code sec. 12-24-13 (2001). If a
person is legally admitted to a state
institution, however, she is entitled to
care and maintenance there, regardless of
her ability to pay. Ind. Code sec. 12-24-
5-4. When a patient is admitted, Indiana
mental health institutions generally show
her a notification of liability. After
the hospital is appointed as
representative payee for a patient,
however, it does not inform her that she
will be treated at the hospital even if
she does not use her Social Security
benefits to pay for the cost.
Ivy Mason, the class representative, is
mentally disabled and has been a resident
patient at Richmond State Hospital
("RSH") from July 7, 1992 to January 14,
1993; from October 4, 1994 to June 18,
1999; and from December 4, 1999 to the
present. Upon her second and third
admissions, pursuant to Indiana law, she
signed a "Notification of Liability for
Cost and Care of Treatment." From at
least January 1998 until her second
release, and for the entirety of her
current stay at the hospital, RSH has
been the representative payee for her
Social Security benefits. On January 29,
1998, the SSA awarded Mason Social
Security survivor’s benefits retroactive
to 1989 and informed her that she would
be getting both ongoing monthly benefits
in the sum of $618 as well as a lump-sum
check for $34,408.73 for her back
benefits. The SSA told both Mason and RSH
that $25,942.73 of the lump-sum check was
to be applied to her outstanding hospital
bill. RSH did so and, under SSA guidance,
also uses a portion of her monthly
benefits check (as of the time of
discovery, about $518) to pay her bill
(which, again at the time of discovery,
was approximately $7,170 per month). As
of May 31, 2000, the bill for Mason’s
care at RSH totaled $412,070.98.
II. Discussion
We review the district court’s grant of
summary judgment de novo, construing all
of the facts and reasonable inferences
that can be drawn from those facts in
favor of the nonmoving party. See Central
States, Southeast & Southwest Areas
Pension Fund v. Fulkerson, 238 F.3d 891,
894 (7th Cir. 2001). A grant of summary
judgment is appropriate if the pleadings,
affidavits, and other supporting
materials leave no genuine issue of
material fact, and the moving party is
entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c).
a. 42 U.S.C. sec.407
The class argues that, although the
Social Security Act does allow state
hospitals and institutions to act as
representative payees, those hospitals
cannot apply a resident recipient’s
benefits to its own costs, absent that
beneficiary’s consent, without violating
the anti-attachment provision of the Act.
That provision provides:
The right of any person to any future
payment under this subchapter will not be
transferable or assignable, at law or in
equity, and none of the moneys paid or
payable or rights existing under this
subchapter shall be subject to execution,
levy, attachment, garnishment, or other
legal process, or to the operation of any
bankruptcy or insolvency law.
42 U.S.C. sec.407
In short, the class members contend that
the state’s application of recipients’
benefits to their cost of care without
their specified consent is a form of
"other legal process." In support of this
argument, they attempt to extend a line
of cases that interprets broadly the
sec.407 prohibition against attachment to
include the situation where, as here, the
state acts as representative payee. In
Philpott v. Essex County Welfare Bd., the
Supreme Court held that states are not in
a preferred position compared to other
creditors; they cannot subject benefit
payments to any legal process. 409 U.S.
413 (1973). Similarly, the Supreme Court
in Bennett v. Arkansas held that the
anti-attachment provision applies to
state creditors, such as hospitals, that
have provided the beneficiary with care
and maintenance. 485 U.S. 395 (1988).
This Court has held that when a state
hospital asked a resident Social Security
recipient to sign a form allowing the
state to accumulate her benefits into a
trust fund it could use to pay for the
cost of care and maintenance, and that
form did not inform the patient that it
was revocable or that she would be
treated regardless of whether she signed
it, the state violated the Act’s anti-
attachment provision. Tidwell v.
Schweiker, 677 F.2d 560, 567 (7th Cir.
1982). If the form were signed
voluntarily--that is, if the beneficiary
were informed that the form was revocable
and that she would receive treatment even
if she did not sign it--then no violation
would have occurred. Id.; see also
Crawford v. Gould, 56 F.3d 1162 (9th Cir.
1995) (holding that a state may apply a
patient’s benefits to the cost of her
care only if she has provided consent.)
The class relies heavily on Tidwell to
claim that Indiana, in the instant case,
unlawfully subjected institutionalized
recipients’ Social Security benefits to
legal process by taking a portion of
those benefits without their voluntary
consent. The holding of Tidwell, however,
as well as those of Philpott and Bennett,
did not involve the situation where the
state acted as representative payee. In
this case, the district court held, and
we agree, that a representative payee’s
decision to apply benefits to the
recipient’s cost of care in a state
institution does not amount to other
legal process--even when the payee is the
state itself. We decline to extend the
Tidwell holding to cover such a
circumstance. Moreover, the Supreme
Court’s decisions in Philpott and
Bennett, which hold that just as other
creditors do, a state creditor violates
the anti-attachment provision when it at
taches or subjects to other legal process
a recipient’s benefits--simply do not
apply here because no attachment or legal
process took place. A properly appointed
representative payee’s responsible
management of a Social Security
recipient’s benefits cannot amount to
"other legal process," regardless of
whether that payee is an arm of the
state.
The Social Security Act and regulations,
as outlined above, permit--in fact,
encourage--state institutions to act as
representative payees and, more
pertinently, when acting as payees, to
apply recipients’ benefits to the cost of
their care and maintenance at a state
institution where they reside. 20 C.F.R.
sec.404.2021; sec.404.2035; sec.404.2040.
"Section 407 was not intended to outlaw a
procedure expressly authorized by the
Social Security Administration’s own
regulations." King v. Schafer, 940 F.2d
1182, 1185 (8th Cir. 1991). Generally,
the Social Security Act prohibits
creditors from acting as representative
payees. 42 U.S.C.
sec.405(j)(2)(C)(i)(III). It does so for
the same reason that it includes the
anti-attachment provision: to protect
beneficiaries’ Social Security income
from the reach of creditors. The Act
explicitly excepts state institutions
from this prohibition, 42 U.S.C.
sec.405(j)(2)(C)(iii), suggesting first
that Congress did not intend money
management by representative payees who
are also creditors to be included in the
ambit of the anti-attachment provision
(otherwise the separate prohibition would
be redundant), and second that it
considered the balance of interests and
decided--without noting special
restrictions--that, despite the need to
protect recipients’ benefits from
creditors, state institutions should be
allowed to act as representative payees.
Tidwell announced the rule that when a
state hospital, not acting as
representative payee, applies the
recipient’s benefits to the cost of her
care, that action amounts to other legal
process unless the recipient gave
voluntary consent to remove it from the
purview of sec.407. Tidwell, 677 F.2d at
568. We find, for the reasons stated
above, that the state’s actions in this
case do not constitute "execution, levy,
attachment, garnishment, or other legal
process," and therefore are always
outside the ambit of the anti-attachment
provision. The question of whether the
resident recipients must give voluntary
consent, then, is beside the point.
Because the state’s actions do not amount
to other legal process, the recipient’s
consent is unnecessary.
The rationale behind the anti-attachment
provision is to "protect social security
beneficiaries and their dependents from
the claims of creditors." Fetterusso v.
New York, 898 F.2d 322, 327 (2d Cir.
1990). We do not deny the importance and
validity of such protection, even when
the "creditor" is the state hospital
providing care and maintenance to the
recipient. See, e.g., Bennett, 485. U.S.
395; Tidwell, 677 F.2d 560. But, without
straying from the goal of protecting the
recipients’ benefits, Congress and the
Social Security Administration saw fit to
allow state hospitals to act as
representative payees when certain
safeguards were met: the payee must use
the money for the use and benefit of the
recipient, which may include paying for
the cost of her current care and
maintenance, 20 C.F.R. sec.404.2035, and
the SSA must provide notice to the
recipient that it intends to name a
representative payee, who that payee will
be, and that the recipient has the right
to object to and appeal the decision.
U.S. Const. amend. XIV, Tidwell, 677 F.2d
at 564. The class does not contend that
the above criteria are not being met.
Indiana hospitals follow carefully the
SSA’s guidelines regarding use of
recipients’ benefits. They apply a
portion of the money to recipients’
personal needs--clothing, spending money,
and the like--and only then do they apply
a portion of the benefits to
institutional costs. There is no evidence
that the beneficiaries’ moneys are left
unprotected. Congress has never indicated
that representative payees need to obtain
beneficiaries’ consent before applying
their Social Security income in any given
manner, so long as that application is
for the use and benefit of the recipient.
We will not now narrow the discretion
that Congress explicitly granted
representative payees to use the money
"in a manner . . . he or she determines,
under the guidelines in this subpart, to
be in the best interests of the
beneficiary." 20 C.F.R. sec.404.2035.
b. Due Process
The class further argues that when a
state hospital, acting as representative
payee, applies a recipient’s Social
Security benefits to the cost of her
institutional care without notice or
opportunity to be heard, it violates the
patient’s right to procedural due process
under the Fourteenth Amendment. See,
e.g., Goldberg v. Kelly, 397 U.S. 254
(1970). The relevant questions here are:
1) whether the state deprived class
members of a protected property interest;
and 2) if so, what process is due. See
Brokaw v. Mercer County, 235 F.3d 1000,
1020 (7th Cir. 2000). Although the Social
Security Administration gives proper
notice and opportunity to object when it
appoints a representative payee, Tidwell,
677 F.2d at 564, the class contends that
when the state, as payee, applies the
recipient’s benefits to its own costs,
further notice and opportunity to object
are required because a separate
deprivation occurs. The SSA notice, the
class claims, does not inform recipients
that the payee may use the benefits to
pay for the cost of their care or that
they will be treated at the institution
even if they do not consent to their
benefits being applied to its cost. We
cannot agree with this logic.
The notice provided by the SSA informs
Social Security beneficiaries that their
appointed payee will have the authority
to manage their receipts so long as they
do so in a manner consistent with federal
law and for the use and benefit of the
recipient. By accepting the appointment
of a representative payee, a beneficiary,
while retaining some right to her
property, does not retain the right to
make individual management decisions
regarding her benefits unless she
utilizes the SSA’s appeal process. As
discussed above, the state hospitals in
question followed all relevant laws and
regulations. We find that the state’s
money management decisions while serving
as representative payee do not constitute
an additional deprivation of a protected
property interest. The threshold question
is not answered in the affirmative;
therefore, no due process violation has
occurred.
III. Conclusion
For the reasons stated herein, we
AFFIRM the judgment of the district
court.