Essex County Welfare Bd. v. Philpott

• Decision Date: 20 January 1969
• Docket Number: No. A--11440,A--11440
• Parties: ESSEX COUNTY WELFARE BOARD, a corporate entity of New Jersey, Plaintiff, v. Doris PHILPOTT, William Wilkes, and Fidelity Union Trust Company, Defendants.
• Court: New Jersey County Court

Page 280

104 N.J.Super. 280

249 A.2d 639

ESSEX COUNTY WELFARE BOARD, a corporate entity of New Jersey, Plaintiff, v. Doris PHILPOTT, William Wilkes, and Fidelity Union Trust Company, Defendants.

No. A--11440.

Essex County Court Law Division, New Jersey.

Jan. 20, 1969.

Felix A. Martino, Hillside, for plaintiff (John A. Matthews, Jr., Newark, attorney).

George Charles Bruno, Newark, Newark Legal Services Project appearing pro hac vice, for defendants, Doris Philpott and William Wilkes (Michael P. Ambrosio, Newark, Neark Legal Services Project, attorney).

LARNER, J.S.C.

This matter came before the court on an order to show cause why a judgment should not be entered in favor of plaintiff Essex County Welfare Board (board) directing the Fidelity Union Trust Company to turn over to it moneys on deposit in the bank in the name of Doris Philpott. To eliminate procedural pitfalls, the parties submitted a stipulation of facts and consented that the court determine the matter as if on final hearing based upon those facts.

On August 2, 1966 defendant Wilkes applied to the Essex County Welfare Board for financial assistance under the state program for total disability assistance. N.J.S.A. 44:7--38 et seq. As a condition for said assistance defendant executed a reimbursement agreement in accordance with the provisions of N.J.S.A. 44:7--14 whereby he promised to reimburse the board for all advances made to him and agreed that the filing of the reimbursement agreement would have the same force and effect as a judgment. The agreement and the statute also provide that defendant pledges as security for such reimbursement all of his real and personal property. N.J.S.A. 44:7--14.

Wilkes was then referred by the board to the federal Social Security Administration to apply for disability insurance benefits under 42 U.S.C. c. 7. As a result he received a check on August 20, 1968 from the Social Security Administration in the sum of $1,864.20 as a retroactive award for disability benefits. By that time the board had advanced to defendant the total sum of $2,082.

Upon receipt of the Social Security check Wilkes deposited the same in the Fidelity Union Trust Company in an account in the name of defendant Doris Philpott. He admits, however, that the money is held in trust for him and that she has no proprietary interest in the account. Plaintiff seeks reimbursement from the moneys on deposit in the bank.

Wilkes contends that plaintiff is not entitled to reimbursement from this fund for reasons, basing his argument mainly on the following: the federal statute underlying the Social Security payment, 42 U.S.C. § 407, 49 Stat. 624 (1939), prohibits transfer or assignment of any future payments under the act and provides that none of the monies paid or payable are subject to execution, levy, attachment, garnishment or other legal process, and (2) the Congressional policy underlying the Social Security program preempts invasion of its benefits by all creditors of the recipient, including the Essex County Welfare Board, despite the reimbursement provisions of the agreement and the applicable New Jersey statutes. In addition, defendant attacked the validity of the required reimbursement agreement on constitutional grounds, but the recent United States Supreme Court opinion of Snell v. Wyman, 393 U.S. ---, 89 S.Ct. 553, 21 L.Ed.2d 511, January 13, 1969, affirming 281 F.Supp. 853 (S.D.N.Y.1968), is dispositive of this issue, contrary to defendant's position.

The pertinent federal statute, 42 U.S.C., § 407, reads:

'The right of any person to any future payment under this subchapter shall 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.'

The act covers two sets of circumstances. It prohibits the transfer or assignment of any future payments thereunder and exempts the moneys 'paid or payable' from reach of creditors through legal process. If plaintiff were an ordinary creditor seeking to levy on the lump sum fund received from the Social Security Administration, the statute by its terms would bar such process. The fund would be exempt from creditors even though its form had been converted from a check payable to defendant to a bank account belonging to him. See Lawrence v. Shaw, 300 U.S. 245, 250, 57 S.Ct. 443, 81 L.Ed. 623 (1937), and Porter v. Aetna Casualty & Surety Co., 370 U.S. 159, 162, 82 S.Ct. 1231, 8 L.Ed.2d 407 (1962), as to parallel construction of Veterans Administration Act.

The intent of Congress is clear, namely, to protect the recipient from the attack of creditors before and after the moneys are paid, and to permit him or his dependents to obtain the necessities of life. As long as the fund is not converted to a permanent investment, its mere deposit in a bank for use by the recipient does not expose it to attachment or levy by creditors. Lawrence, supra; Porter, supra; Century Indemnity v. Mead, 121 Vt. 434, 159 A.2d 325, 328 (Vt.Sup.Ct.1960). Cf. Carrier v. Bryant, 306 U.S. 545, 59 S.Ct. 707, 83 L.Ed. 976 (1936).

Hence, the remaining issue is whether the welfare board is in the category of a creditor so as to be deprived of reimbursement from the federal funds. A perusal of Title 44 of the New Jersey Revised Statutes, and particularly N.J.S.A. 44:7--14, leads to the conclusion that moneys paid by county welfare boards are loans or advances and are not outright gifts to the poor. The Legislature determined as a matter of policy that such welfare payments may only be made upon condition that the recipient execute a reimbursement agreement. In many cases, of course, these agreements do not serve any practical purpose because of the absence of assets on the part of most recipients. Nevertheless, the ability to recoup money in some instances serves the social purpose of adding those moneys to the totality of the funds available for assistance to the needy. Such a legislative purpose is laudable and serves the welfare of the greatest number of indigents in the community.

In any event, as a result of the reimbursement agreement and the underlying statute, the county welfare board became a creditor of Wilkes to the extent of the moneys advanced under the program. As such a creditor, it would be subject to the limitations placed upon creditors by the foregoing exemption in the federal statute in the absence of any countervailing provision or policy. And since the New Jersey statute granting reimbursement to county welfare boards is in real conflict with the federal statute, it must yield thereto so as to afford exemption of the Social Security benefits. U.S.Const., Art. VI, cl. 2; Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165 (1942); Hill v. State of Florida ex rel. Watson, 325 U.S. 538, 65 S.Ct. 1373, 89 L.Ed. 1782 (1945).

The board contends, however, that it is in a unique position and that its status is outside the scope of the class of creditors contemplated by Congress in adopting 42 U.S.C., § 407. It bases its contention on a dischotomy between 'voluntary' and 'involuntary' creditors, as articulated by the Court of Appeals of the District of Columbia Circuit in Savoid v. District of Columbia, 110 U.S.App.D.C. 39, 288 F.2d 851 (1964), when dealing with a similar exemption provision in the Veterans Administration Act. The court in that case held that the District of Columbia was not barred by the exemption statute from recovery by way of reimbursement from Veterans Administration benefits paid to an incompetent and in the hands of his representative. The court concluded that the District as a governmental instrumentality was not a 'voluntary' creditor in the ordinary sense and was therefore not within the class of creditors contemplated by Congress in the exemption provision of the statute. By this distinction, the court undoubtedly meant that inasmuch as the hospital was governmentally owned and the veteran was committed there by court order, the District of Columbia did not voluntarily extend its facilities and services to the veteran. However, the opinion lacks any rationale underlying the created dichotomy beyond the statement of the judicial conclusion.

Similar results were reached in unreported decisions by the Federal District Court of New Jersey with regard to veterans' insurance proceeds, and by the Law Division of the Superior Court of New Jersey in a case involving Social Security benefits. Unfortunately, these opinions also do not attempt to express the...