Bates v. Northwestern Human Services, Inc.

Decision Date11 December 2006
Docket NumberCivil Action No. 04-2116 (RBW).
Citation466 F.Supp.2d 69
PartiesBarbara BATES, et al., Plaintiffs, v. NORTHWESTERN HUMAN SERVICES, INC., et al., Defendants.
CourtU.S. District Court — District of Columbia

Mary Nell Mcgarity Clark, Sandra J. Bernstein, University Legal Services, Inc., Thomas Winfried Mitchell; Bruce J. Klores & Associates, Washington, DC, for Plaintiffs.

Joseph T. Kelley, III, Kelley & Murphy, Michael Alan Hamilton, Salvatore G. Rotella, Jr., Cozen O'Connor, PC, Philadelphia, PA, L. Barrett Boss, Cozen O'Connor, PC, Washington, DC, Patrick G. Murphy, Blue Bell, PA, for Defendants.


WALTON, District Judge.

Barbara Bates and Bonnie Bell ("the plaintiffs"), on behalf of themselves and a putative class of similarly situated individuals, bring this action against Northwestern Human Services, Inc. ("NHS") and its two wholly-owned subsidiaries, Northwestern Human Services of Lehigh Valley, Inc. ("NHSLV") and NHS MidAtlantic, Inc. ("NHSMA") (collectively "the defendants"), asserting various statutory, regulatory, and common law violations in connection with the defendants' alleged misappropriation and misuse of the plaintiffs' federal benefits payments and other funds while acting as the plaintiffs' representative payee under the Social Security Act. Complaint ("Compl.") ¶¶ 1-11 Currently before the Court is the defendants' motion to dismiss for failure to state a claim upon which relief maybe granted ("Defs.' Mot.").1 For the reasons that follow, the Court grants in part and denies in part the defendants' motion to dismiss and permits the plaintiffs to file an amended complaint in accordance with this Opinion.2

I. Factual Background

The plaintiffs allege the following facts in support of their complaint. Plaintiffs Bates and Bell are "poor [and] unemployed" residents of the District of Columbia who are "disabled due to mental illness" and who "rel[y] on government benefits payments, including monthly payments by the federal Social Security Administration ["SSA"], to obtain basic living necessities such as food, clothing and shelter."3 Compl. ¶¶ 6, 7. The District of Columbia, through its Department of Mental Health ("DMH"), is required by federal and District statutes "to provide integrated, comprehensive, and coordinated mental health services to [District] residents, including the homeless mentally ill." Id. ¶ 20; see id. ¶¶ 20-24 (describing the statutory and regulatory scheme); see also 24 U.S.C. §§ 225 et seq. (2000) (requiring provision of mental health services); D.C.Code §§ 7-1131.01 et seq. and 44-901 et seq. (2005) (same); 22 DCMR §§ 3402 et seq. (2006) (regulations implementing the statutory requirements). This provision of mental health services may be performed by the DMH directly or through certified service providers acting as authorized agents of the District of Columbia. Compl. ¶ 24; 22 DCMR §§ 3402 et seq. Defendant NHS and its two wholly owned subsidiaries, defendants NHSLV and NHSMA, are Pennsylvania corporations which, with the authorization of the DMH, Compl. ¶ 27, "[have] provided mental health and other services to [the][p]laintiffs and others in the District of Columbia."4 Id. ¶¶ 8-10. In furtherance of these duties, one or more of the defendants were appointed by the SSA to act as a representative payee for certain District of Columbia residents, including the plaintiffs, who were entitled, to receive federal Social Security and Supplemental Security Income ("SSI") payments pursuant to the Social Security Act, 42 U.S.C. §§ 405 and 1383 (2000).5 Compl. ¶ 30. The representative payee provisions of these two statutes state that the Commissioner of Social Security may allow the payment of an individual's benefits to be made to a duly certified fiduciary if the Commissioner "determines that the interest of [the] individual ... would be served thereby" and if the fiduciary, subject to a detailed oversight procedure, applies the benefit payments to the individual's "use and benefit." 42 U.S.C. § 405(j)(1)(a); see also 42 U.S.C. § 1383(a)(2)(A)(ii)(I) (stating that "[u]pon a determination by the Commissioner of Social Security that the interest of [an eligible] individual would be served thereby, such [benefit] payments shall be made ... to [a representative payee] for the use and benefit of the individual"); 20 C.F.R. §§ 404.2001 et seq. and 416.601 et seq. (2006). Applicants for appointment as representative payees must undergo an investigation by the, SSA and must demonstrate "adequate evidence that such certification is in the interest of the individual for whom representative payee status is sought. 42 U.S.C. §§ 405(j)(2)(A) and 1383(a)(2)(B)(ii); see also 20 C.F.R. §§ 404.2020 et seq. and 416.620 et seq. The statutes state that "preference shall be given to" any applicant who is

(I) a certified community-based nonprofit social service agency ...,

(II) a Federal, State, or local government agency whose mission is to carry out income maintenance, social service, or health care-related activities,

(III) a State or local government agency with fiduciary responsibilities, or

(IV) a designee of an agency (other than of a Federal agency) referred to in the preceding subclauses of this clause, if the Commissioner of Social Security deems it appropriate.

42 U.S.C. §§ 405(j)(2)(C)(v) and 1383(a)(2)(B)(vii); see also 20 C.F.R. §§ 404.2021 and 416.621. Once appointed, representative payees are authorized to receive an individual's benefit payments and disburse monies to the individual for that individual's use and benefit. 42 U.S.C. §§ 405(j)(1)(A) and 1383(a)(2)(A)(ii)(I); see also 20 C.F.R. §§ 404.2035 and 416.635. The payees are subject to "a system of accountability monitoring" under which they are forbidden from "misus[ing]" an individual's benefit payment in any way, 42 U.S.C. § 405(j)(1)(A); see also 42 U.S.C. § 1383(a)(2)(A)(iv) (stating that "misuse of benefits by a representative payee occurs in any case in which the representative payee receives payment under this subchapter for the use and benefit of another person and converts such payment ... to a use other than for the use and benefit of [that] person"), and are required to report to the SSA at least once per year "with respect to the use of such payments," 42 U.S.C. §§ 405(j)(3)(A) and 1383(a)(2)(C)(i).6 According to the plaintiffs, the defendants provided them with mental health services and served as their representative payee as of some unspecified date,7 see Compl. ¶ 28 (alleging that the plaintiffs "received mental health rehabilitative services ... from the [d]efendants"); id. ¶ 30 (alleging that "[t]he [d]efendants applied to the [SSA] to be appointed as [the][p]laintiffs' representative payee for benefits payments ... [and] were eventually approved"), until some date no later than June 2004, see id. ¶ 34 (alleging that the defendants "stopped providing mental health services in the District of Columbia"); id. ¶ 47 (alleging that "on June 30, 2004, the [d]efendants closed the [NHSMA] office" in the District of Columbia"). The plaintiffs allege that the defendants in their capacity as the plaintiffs' representative payee, "misused and/or misappropriated a substantial amount of [the plaintiffs' federal benefits payments] for their own purposes," id. ¶ 2; see also id. ¶ 33 (alleging that the defendants "misappropriated and misused the federal payments and other funds that they received as [the][p]laintiffs' representative payees, and thereby deprived the [p]laintiffs of the benefits to which they were entitled"), and subsequently "left the jurisdiction[ ] without ever properly accounting for or returning the [p]laintiffs' misspent and unaccounted for funds," id. ¶ 2; see also id. ¶ 34 (alleging that the defendants "left the jurisdiction without returning all of the [p]laintiffs' funds in the [d]efendants' possession"). The plaintiffs further allege that the defendants, contrary to federal law, "failed to implement policies or procedures to enable them to account properly for [the][p]laintiffs' funds." Id. ¶ 35.

The plaintiffs brought this action on December 6, 2004, asserting a panoply of statutory, regulatory, and common law claims against all three defendants. Id. ¶¶ 48-124. First, the plaintiffs allege that the defendants violated Sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 (2000) ("RICO"), by "participat[ing and conspiring] in the conduct of an enterprise's affairs through a pattern of racketeering activity" — specifically, repeated acts of mail and wire fraud — in order to misappropriate the plaintiffs' federal benefits payments. Compl. ¶¶ 52, 62, 72; 18 U.S.C. § 1962(c) ("Section 1962(c)"); see generally Compl. ¶¶ 48-83. Second, the plaintiffs allege that the defendants violated 42 U.S.C. § 1983 (2000) ("Section 1983") by acting under color of state law to deprive them of a federally protected right to receive their benefits payments. Compl. ¶¶ 84-90. Third, the plaintiffs allege that the defendants violated 42 U.S.C. §§ 405 and 1383, as well as their associated regulations, by failing to comply with the requirements of the relevant representative payee provisions. Compl. ¶¶ 91-104. Finally, the plaintiffs assert claims of breach of fiduciary duty, negligence, conversion, and "money had and received" in connection with the allegedly misused and misappropriated funds. Id. ¶¶ 110-124. The plaintiffs seek an accounting of all funds received, spent, and possessed by the defendants in their capacity as the plaintiffs' representative payee, as well as "a court determination of all unlawful and unauthorized expenditures" of those funds. Id. at 30; see also id. ¶¶ 105-109. The plaintiffs also seek, inter alia, compensatory, consequential, and punitive damages. Id at 30.

On January 25, 2005, the defendants moved to dismiss all but three counts of the plaintiffs'...

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