Crawford v. Gould, s. 93-17303

Citation56 F.3d 1162
Decision Date25 August 1995
Docket Number93-17305,Nos. 93-17303,s. 93-17303
Parties, 32 Fed.R.Serv.3d 749, 48 Soc.Sec.Rep.Ser. 181, Unempl.Ins.Rep. (CCH) P 14642B Alfred CRAWFORD; Daniel Carrasco; Jerry Parker, et al., Plaintiffs-Appellees, v. Russell S. GOULD; William Mayer, et al., Defendants-Appellants (Two Cases).
CourtU.S. Court of Appeals — Ninth Circuit

Barbara Haukedalen, Deputy Atty. Gen., Sacramento, CA, for defendants-appellants.

Eric R. Gelber, Protection & Advocacy, Sacramento, CA, for plaintiffs-appellees.

Appeals from the United States District Court for the Eastern District of California.

Before: TANG, SCHROEDER and TROTT, Circuit Judges.

Opinion by Judge TANG; Concurrence by Judge TROTT.

TANG, Senior Circuit Judge:

The named plaintiffs in this action filed suit on behalf of a class consisting of all current and future patients involuntarily committed to California state psychiatric hospitals. 1 The plaintiffs challenge the defendants' practice of deducting patients' money, including Social Security benefits, from the personal deposit accounts maintained for each patient, to reimburse hospitals for the cost of patient care and maintenance.

Defendants, the Secretary of the California Health and Welfare Agency et al. ("California"), appeal from the district court judgment entered after a hearing on cross motions for summary judgment. The district court enjoined California's practice of withdrawing patients' Social Security benefits without their consent. The court also enjoined deduction of any funds from patients' accounts without adequate notice, including notice that Social Security benefits and Veterans benefits cannot be used to pay the cost of care without a patient's consent.

The main issue on appeal is whether 42 U.S.C. Sec. 407(a) preempts the procedure whereby California deducts Social Security benefits from patients' hospital trust accounts to pay for the cost of patient care. We conclude that the federal statute does preempt California's practice. We affirm the district court's judgment enjoining California's practice and requiring that the state provide notice and obtain meaningful consent prior to deducting Social Security benefits. We vacate the judgment with respect to Veterans benefits and we remand for determination of this issue.

Under California law, patients committed to state psychiatric hospitals are liable for the cost of their "care, support, and maintenance." Cal.Welf. & Inst.Code Sec. 7275. Upon commitment, patients receive a "Statement of Financial Liability" informing them of their liability for the cost of services. Thereafter the Client Financial Services branch of the California Department of Developmental Services conducts a financial investigation to determine how much a patient can contribute to the cost of care. Based on this investigation, the Department establishes a monthly billing amount for each patient.

As required by California law, each psychiatric hospital maintains a trust account entitled "patients' personal deposit fund." Cal.Welf. & Inst.Code Sec. 7281. Any funds that patients possess upon admission and any funds they receive while institutionalized are deposited in their names in the personal deposit fund. Funds deposited include patients' federal Social Security Old-Age, Survivors and Disability Insurance benefits, and Veterans Administration benefits. Whenever any patient's total deposits exceed $500, the hospital can apply the excess to the cost of patient care. Id.

Shortly after admission, patients are asked to sign the "Authorization for Deposit and Withdrawal." By signing this form patients agree to deposit their money, including Social Security and Veterans benefits, into the personal deposit fund. The form provides:

I understand that State law requires the deposit into my Personal Deposit Fund of all monies in my possession at the time of my admission to a state hospital ... and any other funds received by or for me during my residence at such a state facility. These funds so deposited may have originated from any private or public source, including such federal agencies as the Social Security Administration and/or the Veterans Administration.

The form also gives the hospital trust officer authority to make withdrawals from the patient's account:

Subsequent disbursements from my Personal Deposit Fund may be made by the Trust Officer on my behalf for my care and maintenance, treatment services, clothing, personal purchases and other necessities and incidentals.

The paragraph concludes: "I hereby authorize all such deposits to and withdrawals from my Personal Deposit Fund."

With respect to Social Security and Veterans Administration benefits, the Authorization adds:

I further understand that federal laws dealing with Social Security or Veterans Administration payments exempt these benefits from legal or equitable claim processes so they will be available for the purpose of assuring my care, maintenance and medical treatment. This Authorization for the use of these benefits is specifically for these stated purposes.

At least five of the six named plaintiffs have either refused to sign the Authorization or have subsequently revoked their authorization.

If a patient refuses to sign the authorization form, California still follows the deposit and withdrawal procedures. Each hospital provides nonconsenting patients with a "Notice of Intended Withdrawal," which informs the patient of the amount the hospital will be withdrawing monthly from the patient's trust account.

Both the Statement of Financial Liability and the Notice of Intended Withdrawal inform patients that they have the right to appeal withdrawals from their hospital accounts. The forms do not set forth information about the appeals process but merely tell patients to contact the trust officer who administers the patients' deposit fund. 2

The plaintiffs filed a class action suit seeking declaratory and injunctive relief. After a hearing on cross-motions for summary judgment, the district court granted partial relief to the plaintiffs. The court enjoined California's practice of withdrawing patients' Social Security benefits without their consent, concluding that the practice is preempted by 42 U.S.C. Sec. 407. The court also determined that the notice California provides prior to withdrawing any funds from patients' accounts violates the procedural requirements of the Due Process Clause. The court enjoined withdrawal without adequate notice and ordered California to inform patients:

a) of the proposed share of cost and the facts on which the determination was made;

b) that the plaintiff has a right to appeal the share of cost determination;

c) a description of the appeal process and procedure; and

d) that certain federal benefits, specifically Social Security benefits and Veterans benefits, are exempt from legal process and cannot be used to pay the plaintiff's cost of care without the patient's knowing, affirmative and unequivocal consent.

California appeals the district court's decision regarding Social Security and Veterans benefits. 3

I. Social Security Benefits

The first issue on appeal is whether the nonassignment provision of the Social Security Act, 42 U.S.C. Sec. 407(a), preempts the process California utilizes to deduct Social Security benefits from patients' hospital accounts. The statute provides:

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.

42 U.S.C. Sec. 407(a). If California's procedure conflicts with this federal statute, the Supremacy Clause of the United States Constitution requires that the state procedure be set aside. Bennett v. Arkansas, 485 U.S. 395, 397, 108 S.Ct. 1204, 1205, 99 L.Ed.2d 455 (1988) (per curiam).

In Bennett, the Supreme Court held that a state statute authorizing the state of Arkansas to attach a prisoner's Social Security benefits, to pay for the costs of incarceration, violates the Supremacy Clause. Id. The Court reasoned that Sec. 407(a) unambiguously rules out any attempt to attach Social Security benefits. Id. Section 407(a) does not contain an implied exception for attachment of payments when a state has provided the recipient with care and maintenance. Id.

The Ninth Circuit applied Bennett in a case involving procedures similar to those challenged in the present case. Brinkman v. Rahm, 878 F.2d 263 (9th Cir.1989) (per curiam). Patients involuntarily committed to Washington state mental hospitals were liable to the state for the cost of their care. The state collected the money the patients owed by withdrawing funds, including Social Security benefits, from the patients' hospital accounts. Id. at 264. The state provided patients with a form entitled "Notice and Finding of Responsibility," which set forth patients' liability and explained that Social Security benefits would be applied to their costs of care. The form also explained that patients could appeal the determination of liability to the State Department of Social and Health Services. Id. In a per curiam opinion relying on Bennett, the Ninth Circuit concluded that Washington's procedures were inconsistent with, and therefore preempted by, 42 U.S.C. Sec. 407.

Like the state of Washington in Brinkman, the state of California takes money, including Social Security benefits, from institutionalized patients' hospital accounts to pay for the cost of their care and treatment. California, like Washington in Brinkman, fails to obtain meaningful consent from patients prior to deducting Social Security benefits. The process California follows appears slightly different because California asks...

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