SSR 85-9c: SECTIONS 204 AND 207 (42 U.S.C. 404 AND 407) RECOVERY OF ERRONEOUS PAYMENTS MADE AFTER DEATH -- INAPPLICABILITY OF WAIVER PROVISIONS

20 CFR 404.501 et seq.

SSR 85-9c

Dockstader v. Miller, 719 F.2d 327 (10th Cir. 1983), rehearing denied,

cert. denied, sub nom., Wayment et al v. Reagan, _____U.S._____, 104 S.Ct. 3546 (6/18/84)

BARRETT, Circuit judge:

Mahala Dockstader, on behalf of herself and all those similarly situated,

brought this class action challenging the procedures by which the Social

Security Administration (SSA) and the Department of the Treasury

(Treasury) reclaimed certain erroneously paid social security benefits.

The district court granted summary judgment in favor of SSA and Treasury

and Mrs. Dockstader brought this appeal.

In 1968, Mahala Dockstader filed for and was found to be entitled to

social security old-age insurance benefits. In 1972,. her husband,

Lawrence Dockstader, filed for and began receiving social security old-age

insurance benefits. Both Mahala and Lawrence continued to receive their

separate benefits through June of 1976. In April of 1976, Lawrence and

Mahala entered into an agreement with the Walker Bank and Trust Company of

Salt Lake City, Utah. The agreement provided that the net amount of their

individual monthly social security benefits would be deposited directly

into their joint account with the Walker

Bank. [1] The reverse side of the

agreement, Treasury Authorization Form 1199, provided that the agreement

would be canceled upon the death of any payee or beneficiary of the

payments. The agreement was in effect and the Dockstaders were receiving

their payments by direct deposit into their joint account in June of

1976.

be deposited directly

into their joint account with the Walker

Bank. [1] The reverse side of the

agreement, Treasury Authorization Form 1199, provided that the agreement

would be canceled upon the death of any payee or beneficiary of the

payments. The agreement was in effect and the Dockstaders were receiving

their payments by direct deposit into their joint account in June of

1976.

On June 25, 1976, Lawrence Dockstader died. On June 30, Mahala notified

the SSA of Lawrence's death and filed an application for widow's benefits.

In August of 1976, Mahala transferred ownership of her bank account to

herself and her son. On October 14, 1976, SSA notified Mahala that she was

entitled to combined widow's and retirement insurance benefits. On

February 8, 1977, SSA first made an entry of termination of Lawrence's

retirement benefits by reason of his death. It is unknown why no entry was

made until this time, but because of the delay, SSA continued to certify

payments to Lawrence through February of 1977. The Walker Bank continued

to credit the erroneously certified payments to Mahala's account, even

after she transferred ownership of the account.

On May 26, 1977, SSA forwarded a standard form to Treasury, requesting it

to reclaim the erroneously certified benefits. Pursuant to 31 C.F.R. parts

209, 210, and 240, Treasury contacted Walker Bank and requested refund of

$1675.10 in erroneous payments. Walker Bank returned to Treasury

$1,435.80, and at the same time debited the account belonging to Mahala

and her son. SSA and Treasury did not give Mahala any notice prior to the

time her account was debited, nor was she given the opportunity to request

waiver of recovery of the erroneous payments.

40, Treasury contacted Walker Bank and requested refund of

$1675.10 in erroneous payments. Walker Bank returned to Treasury

$1,435.80, and at the same time debited the account belonging to Mahala

and her son. SSA and Treasury did not give Mahala any notice prior to the

time her account was debited, nor was she given the opportunity to request

waiver of recovery of the erroneous payments.

Mahala Dockstader commenced this suit on behalf of herself and all other

similarly situated persons. [2] She never contended that she was entitled to the erroneous payments in the

first instance; rather, she argued that the recovery procedures utilized

here violated section 204 of the Social Security Act, 42 U.S.C. § 404, and

its implementing regulations in 20 C.F.R. part 404, Section 207 of the

Social Security Act, 42 U.S.C. § 407, and the Fifth Amendment to the

United States Constitution. Mahala asserted that federal jurisdiction

existed under 42 U.S.C. § 405(g), 28 U.S.C. § 1331 (a), and 28 U.S.C. §

1361. The district court concluded that jurisdiction existed only under 28

U.S.C. § 1361, the mandamus statute. Both parties moved for summary

judgment. The court concluded that a mandamus order was improper since SSA

and Treasury did not owe Mahala a duty under 42 U.S.C. § 404(a).

Accordingly, the court granted their motion for summary judgment. Mahala

then filed a motion to alter judgment, claiming that the court had failed

to consider her claims under the Fifth Amendment and 42 U.S.C. § 407. The

trial court filed a memorandum decision and order in which it addressed

Mahala's contentions. Her motion to alter judgment was denied.

On appeal, Mahala contends that: (1) she was entitled to the procedural

protections provided by 42 U.S.C. § 404 and its implementing regulations;

claiming that the court had failed

to consider her claims under the Fifth Amendment and 42 U.S.C. § 407. The

trial court filed a memorandum decision and order in which it addressed

Mahala's contentions. Her motion to alter judgment was denied.

On appeal, Mahala contends that: (1) she was entitled to the procedural

protections provided by 42 U.S.C. § 404 and its implementing regulations;

(2) the regulations and policies of SSA involved it directly in the

debiting so that the procedural due process clause of the Fifth Amendment

was implicated; and (3) SSA's involvement was sufficient that it violated

the non- alienation of social security benefits provision of 42 U.S.C. §

407. The first issue we must consider, however, is whether the district

court had jurisdiction to hear this case.

I.

In 42 U.S.C. § 405(h), the Social Security Act provides that 42 U.S.C. §

405(g) establishes the exclusive jurisdictional basis for a suit seeking

"to recover on any claim arising under" the Act. The district court

however, based its jurisdiction on the mandamus statute, 28 U.S.C. § 1361.

The Supreme Court has yet to determine whether mandamus jurisdiction is

appropriate to review SSA procedures. See Califano v. Yamasaki , 442 U.S. 682, 698, 99 S.Ct. 2545, 2556, 61 L.Ed.2d 176

(1979); Norton v. Mathews, 427 U.S. 524, 529-30, 96 S.Ct.

2771, 2774-75, 49 L.Ed.2d 672 (1976); Hadley Memorial Hospital,

Inc. v. Schweiker, 689 F.2d 905, 912 (10th Cir. 1982).

Recently, however, the Supreme Court granted certiorari in a case which

presents that issue. Heckler v. Ringer , _____U.S._____, 103 S.Ct.

3535, 77 L.Ed.2d 1386 (1983). In Ringer , the Ninth Circuit ruled

that when the plaintiff is simply asking a court to require SSA to provide

procedural safeguards, without addressing any substantive right to

benefits, mandamus jurisdiction is proper:

Recently, however, the Supreme Court granted certiorari in a case which

presents that issue. Heckler v. Ringer , _____U.S._____, 103 S.Ct.

3535, 77 L.Ed.2d 1386 (1983). In Ringer , the Ninth Circuit ruled

that when the plaintiff is simply asking a court to require SSA to provide

procedural safeguards, without addressing any substantive right to

benefits, mandamus jurisdiction is proper:

Ringer v. Schweiker, 697 F.2d 1291, 1293- 94 (9th Cir.

1982) (quoting Daniel H. Freeman Memorial Hospital v. Schweiker, 656 F2d 473, 476 (9th Cir. 1981)). Accord Powderly v. Schweiker, 704 F.2d 1092, 1095 (9th Cir. 1983); Humana of

South Carolina, Inc. v. Califano, 590 F.2d 1070, 1080 (D.C.

Cir. 1978)); White v. Mathews, 559 F2d 852, 856 (2d Cir.

1977), cert. denied, 435 U.S. 908, 98 S.Ct. 1458, 55 L.Ed.2d 500

(1978).

We are persuaded by the distinction the Ringer court and other courts

have drawn between suits seeking to establish a right to benefits and

suits requesting that SSA provide a procedure through which the right to

benefits can be contested. Here, Mahala Dockstader has never claimed that

she was entitled to the benefits erroneously credited to her bank account;

she contends only that she had statutory and constitutional rights to

notice and a hearing before the benefits were removed from her account.

Accordingly, under the rationale of Ringer, we hold that the district

court had mandamus jurisdiction to hear this case.

II.

Here, Mahala Dockstader has never claimed that

she was entitled to the benefits erroneously credited to her bank account;

she contends only that she had statutory and constitutional rights to

notice and a hearing before the benefits were removed from her account.

Accordingly, under the rationale of Ringer, we hold that the district

court had mandamus jurisdiction to hear this case.

II.

Mahala argues that under 42 U.S.C. § 404 and its implementing regulations

she was entitled to notice and an opportunity to request waiver of

recovery of the erroneous payments. The district court rejected that

argument on the grounds that sections 404(a) and (b) and their regulations

apply only to the named payees of social security benefits. The court

concluded that one who converts to his or her own use benefits intended

for another person is not entitled to the procedural protections of the

statute and regulations, irrespective of the person's good faith. We must

determine, therefore, whether the erroneous payments here were

"overpayments" within the meaning of sections 404(a) and (b).

* * * * * *

42 U.S.C. §§ 404(a)(1) and (b). In defining the methods for recovering

overpayments, the regulations provide that the person against whom

recovery of the overpayment will occur is entitled to notice of his or her

opportunity to request waiver of recovery in accordance with section

404(b). See 20 C.F.R. §§ 404.502(a) and 404.506.

The regulations also define "overpayment":

20 C.F.R. § 404.501(a). Section 5500.3 of the Social Security Claims

Manual provides that "[e]lectronic fund transfer (EFT) payments for the

month of a beneficiary's death and any subsequent months are incorrect

payments subject to reclamation by the Treasury Department and not

overpayments subject to SSA recovery efforts under section 204[402 U.S.C.

§ 404]."

also define "overpayment":

20 C.F.R. § 404.501(a). Section 5500.3 of the Social Security Claims

Manual provides that "[e]lectronic fund transfer (EFT) payments for the

month of a beneficiary's death and any subsequent months are incorrect

payments subject to reclamation by the Treasury Department and not

overpayments subject to SSA recovery efforts under section 204[402 U.S.C.

§ 404]."

SSA contends, and the district court agreed, that the procedural

protections of 42 U.S.C. § 404 apply only to "overpayments" made to the

designated payee. Here, Mahala Dockstader received payments for which

Lawrence Dockstader was the designated payee. While we recognize that

Mahala was not at fault in receiving the erroneous payments, we conclude

that the payments here were not "overpayments" within the meaning of

section 404(a). Our conclusion is influenced by the decision in Powderly v. Schweiker, 704 F.2d 1092 (9th Cir. 1983).

In Powderly, the plaintiff received her deceased husband's social

security benefit check after his death. She claimed that the local office

of the SSA informed her that she could negotiate the check, and she did

so. Plaintiff's bank accepted the check and forwarded it to the Treasury.

When SSA informed the Treasury of the unauthorized endorsement, the

Treasury initiated a recovery action against the bank. After it refunded

the proceeds to the Treasury, the bank exercised its state statutory right

of set-off against the plaintiff's bank account. At the same time, the

plaintiff was attempting to obtain a hearing to determine if recovery

could be waived. SSA, however, informed her that the payment was not an

"overpayment", so she was not entitled to a hearing on waiver.

The Ninth Circuit upheld SSA's interpretation of 42 U.S.C. §§ 404(a) and

bank exercised its state statutory right

of set-off against the plaintiff's bank account. At the same time, the

plaintiff was attempting to obtain a hearing to determine if recovery

could be waived. SSA, however, informed her that the payment was not an

"overpayment", so she was not entitled to a hearing on waiver.

The Ninth Circuit upheld SSA's interpretation of 42 U.S.C. §§ 404(a) and

(b). In holding that the erroneous payment there was not an "overpayment"

within the statute, the court held that "the overpayment" waiver

provisions of § 404(b), supra, are intended to benefit only

designated payees who, through no fault of their own, have received more

benefits than those to which they are entitled." Powderly, supra, 704 F.2d at 1096. That interpretation, the court concluded, comported with

the purposes of the Social Security Act:

Powderly, supra, 704 F.2d at 1096 (footnote omitted). The court,

of course, was influenced in part by the wrongful negotiation of the

check, but we emphasize that plaintiff claimed she negotiated it on the

advice of the local SSA office.

We believe that the reasoning in Powderly applies with equal force

to this case. Here, Mahala did not actually negotiate any checks, and

apparently was unaware that the funds were being placed in her account.

Nevertheless, she did not receive more benefits than those to which she

was entitled; she received benefits to which she had no claim of

entitlement. Since she was not the intended beneficiary of the payments,

the purposes of the social security program would not be defeated by

recovery of the payments, nor would such recovery be against equity and

good conscience. The procedural protections of section 404(b) are

unnecessary and do not apply to this type of erroneous payment. Here, SSA

erroneously certified benefits to Lawrence after his death, and the

benefits were then wrongfully deposited directly into the bank account of

his surviving spouse, Mahala

ed by

recovery of the payments, nor would such recovery be against equity and

good conscience. The procedural protections of section 404(b) are

unnecessary and do not apply to this type of erroneous payment. Here, SSA

erroneously certified benefits to Lawrence after his death, and the

benefits were then wrongfully deposited directly into the bank account of

his surviving spouse, Mahala. We hold that it is consistent with the

purpose of the Social Security Act for the SSA to determine that such

erroneous payments are not "overpayments" within the meaning of 42 U.S.C.

§ 404.

III.

Mahala next contends that SSA's method of reclamation was governmental

action which deprived her of a property interest in violation of her Fifth

Amendment right to procedural due process. The trial court recognized that

the instructions contained in 31 C.F.R. § 210.10(a), Form RO-133, and

section 4 of the Treasury Department's Green Book apparently do direct

financial institutions to debit the accounts of deceased recipients in the

amount erroneously paid. The court concluded, nevertheless, that the

Treasury did not instruct banks to debit any account other than that of

the designated recipient. Since Mahala was not a designated recipient, the

bank's action in debiting her account to return the erroneous payments can

not be attributed to Treasury.

It is true that Treasury does instruct banks to debit the accounts of

recipients who have received credit payments that should have been

returned to the government. Under 31 C.F.R. § 210.7(f)(3), a financial

organization is required to return a credit payment received after the

death of the recipient. When a bank fails to return such credit payments,

it is accountable to the government for the amount of the payments. 31

C.F.R. § 210.9(a). In 31 C.F.R

of

recipients who have received credit payments that should have been

returned to the government. Under 31 C.F.R. § 210.7(f)(3), a financial

organization is required to return a credit payment received after the

death of the recipient. When a bank fails to return such credit payments,

it is accountable to the government for the amount of the payments. 31

C.F.R. § 210.9(a). In 31 C.F.R. § 210.10(a), Treasury instructs banks to

collect the amount owed to the government by returning to Treasury "the

amount remaining in the account up to the total amount of credit payments

listed in the notice." Moreover, if a bank fails to comply, Treasury will

instruct the appropriate Federal Reserve Bank to debit the bank's account

with the Federal Reserve Bank. 31 C.F.R. § 210.10(e). Form RO-133 and

section 4 of Treasury's Green Book similarly instruct the bank to withdraw

the amount from the recipient's account.

We conclude, however, that the trial court correctly interpreted the

regulations and instructions as applying only to the accounts of

"recipients". "Recipient" is defined as " a person entitled to receive

recurring payments from the Government." 31 C.F.R § 210.2(f). When

Treasury becomes aware that a bank wrongfully failed to return credit

payments after the death of a recipient, it is required to send a written

notice to the bank. 31 C.F.R. § 210.10(a). The notice "shall include the

name of the recipient and any beneficiary, the depositor account number,

type of account, type of recurring payment, the date of death . . ., and a

list of credit payments . . . which have not been returned. . . ." 31

C.F.R. § 210.10(a). The next sentence of the regulation quoted in part

above, provides: "[o]n receipt of this notice, the financial organization

shall immediately return to the Treasury Department the amount remaining

in the account up to the total amount of credit payments listed in the

notice." Id.

ath . . ., and a

list of credit payments . . . which have not been returned. . . ." 31

C.F.R. § 210.10(a). The next sentence of the regulation quoted in part

above, provides: "[o]n receipt of this notice, the financial organization

shall immediately return to the Treasury Department the amount remaining

in the account up to the total amount of credit payments listed in the

notice." Id.

The regulation directs the bank to withdraw the funds only from the

account listed in the notice. That account is one belonging to the

recipient or in which the recipient has an interest. No regulation or

instruction directs banks to withdraw funds from the account of anyone

other than the intended recipient. Here, the account belonged to Mahala

and her son, neither of whom were entitled to the recurring payments and

therefore were not the "recipients" of the payments. Accordingly, Mahala

can not claim that Treasury authorized or directed the bank to withdraw

the funds. Treasury determined that Walker Bank was accountable to it for

the funds, but that was the extent of federal involvement. The bank,

without authorization from Treasury, debited Mahala's account. Walker

Bank's action may not "fairly be attributed" to Treasury. Flagg Bros.,

Inc. v. Brooks, 436 U.S. 149, 157, 98 S.Ct. 1729, 1734, 56

L.Ed.2d 185 (1978). In the absence of any federal involvement, there was

no violation of Mahala's Fifth Amendment right to due process. Id. See

also Powderly, supra, 704 F.2d at 1099 (Fletcher, J.,

concurring).

IV.

Mahala's final argument is that the actions of SSA and Treasury violate

the nonalienation provision of the Social Security Act:

s, 436 U.S. 149, 157, 98 S.Ct. 1729, 1734, 56

L.Ed.2d 185 (1978). In the absence of any federal involvement, there was

no violation of Mahala's Fifth Amendment right to due process. Id. See

also Powderly, supra, 704 F.2d at 1099 (Fletcher, J.,

concurring).

IV.

Mahala's final argument is that the actions of SSA and Treasury violate

the nonalienation provision of the Social Security Act:

42 U.S.C. § 407. Whatever the merit of this argument with respect to the

actions of the bank, the above discussion establishes that Treasury and

SSA took no action to recover the funds from Mahala, nor did they

authorize the bank's set-off against her account. In this case, Treasury

and SSA simply have not taken any action in violation of section 407.

We hold that there was no "plainly defined and preemptory duty on the

part of" SSA and Treasury to provide notice and a hearing to Mahala. Haley Memorial Hospital, Inc. v. Schweiker, 689 F.2d 905,

912 (10th Cir. 1982). Accordingly, the trial court properly refused to

issue a mandamus order. Id.

The judgment of the district court is affirmed.

[1] Direct deposit of social

security benefits occurs by either a check being sent to the bank, which

then credits the beneficiary's account, or a credit payment being made to

the bank, which then credits the beneficiary's account (electronic fund

transfer). The payments here in question were deposited by both

methods.

[2] As originally certified, the

class was much broader. The district court limited the class in its

memorandum decision and order denying Mahala's motion to alter

judgment.