Berdie THOMAS, et al., Plaintiffs-Appellees, v. Otis R. BOWEN, Secretary of Health and Human Services, et al., Defendants-Appellants.
Nos. 84-1845, 85-1634
United States Court of Appeals, Ninth Circuit
June 9, 1986
791 F.2d 730
Argued and Submitted Jan. 15, 1986.
III
CONCLUSION
For the reasons stated above, the decisions of the district court are AFFIRMED.
Freddi Lipstein, Atty., U.S. Dept. of Justice, Washington, D.C., for defendants-appellants.
Before POOLE, BEEZER and KOZINSKI, Circuit Judges.
KOZINSKI, Circuit Judge.
We review the district court‘s decision that appellants, the Secretaries of Health and Human Services and of the Treasury (“the government“), acted unlawfully in recouping social security benefits erroneously deposited by electronic fund transfer (“EFT“) into bank accounts held by appellees after the deaths of their husbands.
Facts
The three named plaintiffs, Berdie Thomas, Joy Nutter and Inez Polson, are widows whose husbands were receiving social security benefits at the time of their deaths. Pursuant to procedures established by the Social Security Administration (“SSA“) and the Department of the Treasury (“Treasury“), the recipients’ monthly social security benefits were paid directly into their bank accounts by EFT.
Upon the deaths of their husbands, each widow promptly notified SSA, closed the joint bank account she had shared with her husband, and requested that SSA deposit her own benefits into a new account. In each case, SSA failed to respond promptly to the notification and continued to pay benefits to the deceased husband. In Thomas’ case, her own benefits, as well as those erroneously certified to her husband, were deposited into a closed joint account for five months after his death. The bank periodically allowed her to transfer funds from the closed account to her new account.
In Nutter‘s case, her own benefits went directly into her new account, while her husband‘s benefits continued to be deposited in a joint account that was supposedly closed. Apparently on its own initiative, the bank transferred the funds into Nutter‘s new account. In Polson‘s case, her husband‘s benefits continued to be paid into a closed joint account (from which Polson eventually withdrew the funds) for several months after his death.
Treasury sent a Notice of Accountability to each of plaintiffs’ banks, demanding return of payments erroneously certified to their husbands. Treasury did not notify the plaintiffs or inform them of the amount it claimed from their accounts.
Thomas’ bank withdrew $1,389.05, the total amount in the account, and returned it to Treasury. SSA then demanded that Thomas repay the remaining $222.45. Nutter‘s bank debited her new account and returned to Treasury the entire amount demanded, $463.40, leaving the account overdrawn by $235.10. The bank then made up the difference by taking part of Nutter‘s April 1981 widow‘s benefits.
Because there were no funds in Polson‘s account when Treasury sent the Notice of Accountability, SSA demanded $1,494.90 from her directly. Polson initially agreed to a monthly deduction of $20.00 from her widow‘s benefits, but SSA advised her that $97.50 per month would be withheld. Polson then withdrew her consent for voluntary repayment and SSA made no further effort to recover the balance.
Section 204(b) of the Social Security Act,
Each of the widows requested SSA to waive recoupment of the funds. SSA refused, taking the position that the waiver provisions, and the concomitant right to notice and hearing, do not apply to these payments because they were erroneous payments rather than overpayments. In the government‘s view, the term overpayment only applies to funds paid to a designated beneficiary in excess of the amount due him. When the money is paid to someone other than the designated beneficiary—here the beneficiary‘s widow—it is not an overpayment, the government contends, and therefore not subject to waiver of recoupment under
Proceedings Below
Plaintiffs filed suit in the district court, claiming that the recovery procedures violated their constitutional right to due process and equal protection, as well as the statutory rights under
The district court initially granted defendants’ motion for summary judgment. The court found that the banks had not been authorized by the government to credit the plaintiffs’ accounts with the erroneous payments or to withdraw the funds. However, the court believed a cause of action might lie against the banks under
Upon consideration of the amended complaint, the district court vacated its prior ruling and granted plaintiffs’ motion for summary judgment. Finding that the purposes of the Social Security Act were best served by construing the payments made after the death of the beneficiaries as overpayments rather than erroneous payments, the court held that the government could not recoup funds out of appellees’ accounts without first giving them an opportunity to apply for waiver of recoupment pursuant to
The court also certified a class “consisting of all California residents who have had or will have their bank accounts debited or their social security benefits reduced by defendants’ actions to recover Title II benefits certified to deceased beneficiaries, where defendants fail to provide prior notice of the overpayment or an opportunity for a hearing regarding the amount of overpayment, waiver of recovery, and repayment in installments.” Thomas v. Secretary of Health and Human Serv., No. C 81-2485 SW, slip op. at 17-18 (N.D.Cal., Sept. 14, 1983). The court later granted plaintiffs $24,900 in attorney‘s fees under the Equal Access to Justice Act on the ground that the government‘s position had not been substantially justified. Finally, the court permanently enjoined the government from recovering EFT payments to deceased beneficiaries without giving joint account holders prior notice and providing an administrative forum to challenge the overpayment determination and to seek a waiver of recovery. Soon after entry of the permanent injunction, defendants
Appellants’ Contentions
The government contends that the district court erred in holding that the EFT payments to appellants’ bank accounts constitute overpayments, which entitle them to request waiver of recoupment, as opposed to erroneous payments, which give them no such right. The government also argues that the widows have no property interest in the erroneously made payments and therefore no due process right to notice and hearing before the government tries to recoup the funds. The government also takes issue with the district court‘s orders certifying the class and awarding attorney‘s fees.
Discussion
This case is squarely controlled by Powderly v. Schweiker, 704 F.2d 1092 (9th Cir. 1983), which compels reversal of the district court‘s decision on the first two grounds advanced by appellants, rendering moot the other issues presented.
A. Waiver of recoupment
As noted, the district court determined that the payments made to the deceased husbands were overpayments and therefore subject to waiver of recoupment pursuant to
Powderly, like this case, was brought by a widow challenging the government‘s recoupment procedures for payments erroneously made to her deceased husband. Like appellees here, Powderly claimed that the payments in question constituted overpayments and that she was therefore entitled to procedural protections pursuant to
The only material difference between this case and Powderly is that Powderly involved a check made payable to the deceased husband and cashed by the widow upon an improper endorsement, rather than an EFT payment electronically transmitted into the widow‘s account. Id. at 1094. Appellees seize upon this difference to distinguish Powderly. Under the reasoning of Powderly, however, the manner in which the payment was made is not material to whether something is an overpayment or an erroneous payment. That distinction turns upon whether or not the payment was received by the designated payee or by someone else. In both Powderly and this case, the designated payee was the deceased husband and the money was received by his widow. Once this fact is accepted as dispositive, as the Powderly court did, it follows that the payments here were erroneous payments not overpayments.1
Appellees also point to language in Powderly suggesting that the widow acted wrongfully in cashing the check made payable to her husband, and argue that we should reach a different result in this case
On the basis of Powderly, we hold that the payments at issue here were erroneous payments and not overpayments, and that appellees were therefore not entitled to waiver under section 404(b).
B. Denial of Due Process
The district court also held that the widows had been denied due process when funds were removed from their accounts by EFT. Once again, however, Powderly squarely addressed the question and reached a contrary conclusion, one that is binding on us here.
The widow in Powderly made the identical argument raised by appellants here and the court rejected it, holding that “[appellant] has not shown that she has a protected property interest in the funds.” Powderly, 704 F.2d at 1097. The court noted that “[p]roperty interests do not arise whenever ‘an individual has an abstract need or desire for,’ or ‘unilateral expectation of,’ a benefit.” Id., citing Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). Noting further that the widow was not claiming any threat to her own social security benefits, the court concluded as follows:
In reality, she is attempting to claim a property interest in the funds erroneously sent to her deceased husband, but cannot escape the fact that she has no entitlement to these funds. Appellant has failed to demonstrate that she was deprived of an interest that could invoke procedural due process protection.
Powderly, 704 F.2d at 1097. The court also dismissed as “groundless” Powderly‘s claim to “a property interest by reason of her own bank account.” Id.
Appellees’ claims, and the district court‘s ruling that sustained them, cannot survive scrutiny in light of Powderly. We therefore reverse on this issue as well.
Conclusion
Having determined that appellees are not entitled to recover on their statutory and constitutional claims, we need not reach appellants’ other claims involving the propriety of class certification and the award of attorney‘s fees. We therefore reverse the district court‘s judgment and vacate its orders certifying the plaintiff class, enjoining the government from recovering erroneous payments and awarding attorney‘s fees against the government.
KOZINSKI, Circuit Judge, concurring.
While, for the reasons explained above, I believe this case is squarely controlled by Powderly v. Schweiker, 704 F.2d 1092 (9th Cir.1983), I write these additional thoughts to express concern about Powderly, at least as it applies to appellant Berdie Thomas.1 The majority in Powderly gave short shrift to the widow‘s due process claim and held that the government could unilaterally debit her bank account to recoup funds she had received by cashing her deceased husband‘s check.2 I see a serious tension be-
tween this ruling and established principles of private property. My concern is the apparent absence of any lawful authority for the government to reach into Mrs. Thomas’ bank account and extract the funds it claims.
Bank accounts are contracts between private parties. These contracts, and the laws governing them, establish a property interest in the funds held by the bank on behalf of the depositor. See Anderson National Bank v. Luckett, 321 U.S. 233, 240, 64 S.Ct. 599, 603, 88 L.Ed. 692 (1944). Once funds are placed in the account, they may be removed only under the following circumstances: (a) by the depositor or someone authorized by him, see
The money was not removed by Mrs. Thomas, nor does the government claim to have had Mrs. Thomas’ consent to unilaterally debit her account in case of an erroneous payment or under any other circumstances. Nor did the government appear to have acted pursuant to statute or regulation. Neither the Social Security Act, nor its regulations, nor the Treasury regulations dealing with the handling of direct deposits, gives the government the authority to tamper with private bank accounts. Banks do have a lien under state law for debts owed to them by their customers.
The fact that the government claims entitlement to the money in Mrs. Thomas’ account is not, of itself, a basis for going in and taking it. Our legal system does not afford creditors a general self-help remedy. See Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). Absent some contractual arrangement or legal authority, a creditor may not satisfy a debt simply by seizing the debtor‘s assets. See Melara v. Kennedy, 541 F.2d 802, 805 (9th Cir.1976). Where property is not subject to a lien or security interest, a creditor may not help himself to a debtor‘s car or equipment or household furniture to satisfy an obligation. Id. at 807; see Restatement (Second) of Torts §§ 100-110 (1985). He certainly may not forge a check on the debtor‘s bank account. Absent proper legal authorization, the government must go into court, like everyone else, to have its claim adjudicated and converted into a judgment.3
Nor do I share the view, advanced by Judge Fletcher in Powderly, 704 F.2d at 1099, that the problem would be resolved if the government had offered Thomas notice and an administrative hearing before debiting her account. Procedural due process only comes into play after the government has shown that its actions are substantively authorized. Indeed, it is impossible to consider what procedures are appropriate without knowing the source of the government‘s authority. For example, if the government debits the account pursuant to an agreement signed by the recipient, it may do so unilaterally and without prior notice. Cf.
Because of a recent change in its collection procedure, the government is unlikely to repeat the conduct that gave rise to Thomas’ claim.4 Yet this case and Powderly remain as troubling precedents for the millions of Americans who receive government payments in the form of checks or electronic fund transfers. Errors are inevitable and the government must be able to recoup money it has erroneously paid out.5 Equally inevitable, however, are errors in identifying and correcting errors. Disputes will arise from time to time and experience teaches that the government will sometimes be in the wrong. What Powderly and this case suggest is that the government may seize money it claims, or its equivalent, based on its own determination of error and without the need to show legal authorization. This, in my view, impermissibly blurs established principles of private property, rights fundamental to a free society. See Lynch v. Household Finance, 405 U.S. 538, 552, 92 S.Ct. 1113, 1122, 31 L.Ed.2d 424 (1972) (“rights in property are basic civil rights“); Fuentes, 407 U.S. at 81, 92 S.Ct. at 1994 (“[there is a] high value, embedded in our constitutional and political history, place[d] on a person‘s right to enjoy what is his, free of governmental interference“).