Bosarge v. U.S. Dept. of Educ., 92-7053

• Decision Date: 01 November 1993
• Docket Number: No. 92-7053,92-7053
• Citation: 5 F.3d 1414
• Parties: -6528, 93-2 USTC P 50,590, 85 Ed. Law Rep. 1083 Clarence BOSARGE, Plaintiff-Counterclaim-Defendant-Appellee, v. UNITED STATES DEPARTMENT OF EDUCATION, Defendant-Appellant, Higher Education Assistance Foundation, Defendant-Counterclaim-Plaintiff, United States of America, Internal Revenue Service, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1414

5 F.3d 1414

72 A.F.T.R.2d 93-6528, 93-2 USTC P 50,590,

85 Ed. Law Rep. 1083

Clarence BOSARGE, Plaintiff-Counterclaim-Defendant-Appellee, v. UNITED STATES DEPARTMENT OF EDUCATION, Defendant-Appellant,

Higher Education Assistance Foundation,

Defendant-Counterclaim-Plaintiff,

United States of America, Internal Revenue Service,

Defendant-Appellant.

No. 92-7053.

United States Court of Appeals, Eleventh Circuit.

Nov. 1, 1993.

Irene M. Solet, William Kanter, Appellate Staff, Civil Div., Dept. of Justice, Washington, DC, for appellants.

Christopher Knight, Joseph E. Carr, IV, Legal Services Corporation of Alabama, Mobile, AL, for appellee.

Appeal from the United States District Court for the Southern District of Alabama.

Before TJOFLAT, Chief Judge, DUBINA, Circuit Judge, and PAINE ^*, Senior District Judge.

PAINE, Senior District Judge:

Defendants-Appellants, United States of America and United States Department of Education appeal a judgment entered by the United States District Court for the Southern District of Alabama. For the reasons stated below, we reverse and remand to the district court for the entry of judgment for Appellants.

Facts

On July 10, 1986, Plaintiff-Appellee, Clarence Bosarge ("Bosarge"), executed a promissory note and received a loan in the amount of $3,265.00 from Florida Federal Savings and Loan Association ("Florida Federal") to attend the United States Training Academy. The loan was guaranteed by the Higher Education Assistance Foundation ("HEAF"), a private non-profit corporation that operates as a guarantee agent under the Guaranteed Student Loan Program, 20 U.S.C. Secs. 1071 to 1087-2. HEAF in turn entered into a reinsurance agreement with the United States Department of Education ("DOE").

Bosarge subsequently fell into default by failing to make timely payments on the loan despite demand. Florida Federal made its final demand for payment on August 10, 1988. Receiving no response, Florida Federal filed a default claim with HEAF, which paid the defaulted loan amount of $1,927.65 then obtained reimbursement from DOE under the reinsurance agreement.

Pursuant to its agreement with DOE, HEAF attempted to collect the student loan. Failing in this effort, HEAF sent written notice to Bosarge that, if the past-due payments were not made, it would certify the debt to DOE for the initiation of proceedings to offset any federal income tax owed to Bosarge against the loan balance. The notice further informed Bosarge of his right to request a telephonic hearing in order to review the proposed offset.

On March 11, 1991, Bosarge filed and recorded in the Mobile County Probate Court a notarized Declaration and Claim of Exemption, in which he claimed his 1990 federal income tax refund, valued at $1,200.00, to be exempt from debt collectors under Alabama law. He notified HEAF and DOE in writing of this claimed exemption.

Bosarge thereafter exercised his right to a telephonic hearing regarding the proposed offset, which was conducted by HEAF on June 6, 1991. During the hearing, Bosarge stated that his 1990 federal income tax return listed a refund of $1,225.87 and reiterated his claim of exemption. The HEAF representative conducting the hearing rejected Bosarge's objections to offset.

HEAF certified and assigned the loan to DOE, which referred the matter to the Internal Revenue Service ("IRS") for offset. IRS subsequently notified Bosarge that his 1990 tax refund of $1,225.87 had been intercepted and applied toward repayment of his student loan.

On November 11, 1991, Bosarge filed suit in the United States District Court for the Southern District of Alabama against the United States of America ("USA"), DOE, HEAF, and IRS, seeking an injunction to prevent the offset procedure, a declaratory judgment that his tax refund was exempt from offset, judicial review of the administrative decision that the refund was not exempt, and recovery of the tax overpayment subject to offset on the theories of conversion and money had and received. ¹ USA and IRS moved to dismiss for failure to state a claim, HEAF counterclaimed for $1,225.87 in the event that the offset was disallowed, and all four Defendants moved for summary judgment. Bosarge conceded that IRS was entitled to judgment. The remaining summary judgment motions were referred to a United States Magistrate Judge for recommended disposition.

In a Report and Recommendation signed July 24, 1992, ² the magistrate judge made detailed findings of fact, then concluded that, because the federal offset statutes make no allowance for state law exemptions from debt collection, Congress clearly intended to allow interception of federal tax refunds despite a claim of exemption. He rejected Bosarge's argument that a separate federal statute, the Federal Debt Collection Procedures Act of 1990 ("FDCPA"), by incorporating state law exemptions, demonstrated congressional intent to honor such exemptions in tax intercept proceedings. The magistrate judge also noted that permitting Bosarge to shield his refund under state law would severely undermine the strong federal policy in favor of collecting student loans. He therefore recommended that the Defendants' motions for summary judgment be granted.

On September 29, 1992, the district court adopted the magistrate judge's findings of fact, but significantly modified his conclusions of law. ³ The court stated that the case against DOE for money had and received boiled down to the single question of whether the offset statutes or FDCPA applied to these facts. Relying on the maxim that "[l]ater federal statutes take precedence over earlier ones," the district court held that FDCPA, which recognizes state law exemptions, controlled. Bosarge was thus awarded a judgment against DOE for $1,225.87 in money had and received. ^{4 , 5} On November 25, 1992, USA and DOE filed a Notice of Appeal to this Court. ⁶

Standard of Review

A grant of summary judgment is reviewed de novo on appeal. E.g., Vernon v. FDIC, 981 F.2d 1230, 1232 (11th Cir.1993). Where, as here, the issues raised were decided as a matter of law, the district court order is subject to complete and independent review by the appellate court. See Peterson v. Atlanta Housing Auth., 998 F.2d 904, 911 (11th Cir.1993).

Statutory Framework

This case involves the relationship between and among the federal tax refund offset provisions, the Federal Debt Collection Procedures Act of 1990, and state personal property exemption laws, a matter not previously addressed in a reported decision. Our analysis begins with the language of these three sets of laws.

1. The Federal Tax Refund Offset Provisions

As part of the Deficit Reduction Act of 1984, Congress enacted legislation permitting any federal agency owed an overdue debt to intercept the debtor's federal income tax refund. The Internal Revenue Code includes the general provision that

Upon receiving notice from any Federal agency that a named person owes a past-due legally enforceable debt (other than any OASDI overpayment and past-due support subject to the provisions of subsection (c)) to such agency, the Secretary [of the Treasury] shall--

(A) reduce the amount of any overpayment payable to such person by the amount of such debt;

(B) pay the amount by which such overpayment is reduced under subparagraph (A) to such agency; and

(C) notify the person making such overpayment that such overpayment has been reduced by an amount necessary to satisfy such debt.

26 U.S.C. Sec. 6402(d)(1).

A separate statute relating to money and finance sets forth the tax intercept procedure in more detail:

(a) Any Federal agency that is owed a past-due legally enforceable debt ... by a named person shall, in accordance with regulations issued pursuant to subsections (b) and (d), notify the Secretary of the Treasury at least once a year of the amount of all such debt.

(b) No Federal agency may take action pursuant to subsection (a) with respect to any debt until such agency--

(1) notifies the person incurring such debt that such agency proposes to take action pursuant to such paragraph with respect to such debt;

(2) gives such person at least 60 days to present evidence that all or part of such debt is not past-due or not legally enforceable;

(3) considers any evidence presented by such person and determines that an amount of such debt is past due and legally enforceable;

(4) satisfies such other conditions as the secretary may prescribe to ensure that the determination made under paragraph (3) with respect to such debt is valid and that the agency has made reasonable efforts ... to obtain payment of such debt.

(5) certifies that reasonable efforts have been made by the agency (pursuant to regulations) to obtain payment of such debt.

(c) Upon receiving notice from any Federal agency that a named person owes a past-due legally enforceable debt, the Secretary of the Treasury shall determine whether any amounts, as refunds of Federal taxes paid, are payable to such person. If the Secretary of the Treasury finds that any such amount is payable, he shall reduce such refunds by an amount equal to the amount of such debt, pay the amount of such reduction to such agency, and notify such agency of the individual's home address.

31 U.S.C. Sec. 3720A.

The statute, on its face, makes no allowance for state law personal property exemptions. To the contrary, the only stated defense that a debtor can present is that "all or part of such debt is not past-due or not legally enforceable." 31 U.S.C. Sec. 3720A(b)(2).

2. The Federal Debt Collection Procedures Act

FDCPA, 28 U.S.C. Secs. 3001-3308 (Supp. III 1991), was enacted in 1990 to create "a uniform federal framework for the collection of Federal debts in the Federal courts." H.R.Rep. No. 101-736, 101st Cong., 2d Sess. 23 (1990), reprinted in 1990 U.S.C.C.A.N. 6472, 6630, 6631. The statute first broadly defines its intended scope:

Sec. 3001 Applicability of chapter

(a) In...