County of Santa Clara v. Support, Inc.

• Decision Date: 24 January 1979
• Citation: 89 Cal.App.3d 687,152 Cal.Rptr. 754
• Court: California Court of Appeals Court of Appeals
• Parties: COUNTY OF SANTA CLARA et al., Plaintiffs, Cross-Defendants and Respondents, v. SUPPORT, INCORPORATED et al., Defendants, Cross-Complainants and Appellants. SUPPORT, INCORPORATED, Cross-Complainant and Appellant, v. STATE DEPARTMENT OF BENEFIT PAYMENTS, Cross-Defendant and Respondent. Civ. 41266, 42098.

Page 754

152 Cal.Rptr. 754

89 Cal.App.3d 687

COUNTY OF SANTA CLARA et al., Plaintiffs, Cross-Defendants and Respondents, v. SUPPORT, INCORPORATED et al., Defendants, Cross-Complainants and Appellants.

SUPPORT, INCORPORATED, Cross-Complainant and Appellant, v. STATE DEPARTMENT OF BENEFIT PAYMENTS, Cross-Defendant and Respondent.

Civ. 41266, 42098.

Court of Appeal, First District, Division 2, California.

Jan. 24, 1979.

As Modified on Denial of Rehearing Feb. 22, 1979.

Hearing Denied March 29, 1979.

John C. Schaller, San Jose, for defendants, cross-complainants and appellants

Ray Lewis Fuller, San Jose, amicus curiae.

Evelle J. Younger, Atty. Gen., Jack R. Winkler, Chief Asst. Atty. Gen., Criminal Div., Edward P. O'Brien, Asst. Atty. Gen., Timothy A. Reardon, Gloria F. DeHart, Deputy Attys. Gen., San Francisco, Selby Brown, Jr., County Counsel for the County of Santa Clara, Susan G. Levenberg, Deputy County Counsel for the County of Santa Clara, San Jose, for plaintiffs, cross-defendants and respondents.

WILCOX, Associate Justice. ^*

Appellants Support, Inc. and John Schaller appeal from (1) a preliminary injunction precluding appellants from taking assignments for collection of and collecting past due child and/or spousal support from persons who have received public assistance in Santa Clara County unless the county first collects amounts due to it; (2) Santa Clara County's demurrer to a cross-complaint sustained without leave to amend and the granting of a motion to strike the cross-complaint; and (3) the State of California's demurrer to the cross-complaint sustained without leave to amend.

Support, Inc. is a California corporation doing business as a collection agency. John Schaller is its president. The corporation was in the business of collecting both current support and accrued arrearages, on a contingent fee basis ¹ for custodial parents, including former and current Aid to Families with Dependent Children (hereinafter AFDC) recipients.

On October 22, 1976, the District Attorney of Santa Clara County filed a complaint for declaratory judgment and injunctive relief on behalf of Santa Clara County against appellants. The complaint alleged that the action of Support, Inc. in accepting assignments and pursuing collections interfered with the county's right to assigned arrearages under both express and equitable assignments and its duty to enforce support obligations and to collect support arrearages. This action was alleged to result in irreparable injury arising out of the loss of incentive funds, additional loss of state and federal funds for the welfare program and a multiplicity of lawsuits in order for the county to protect its rights in each case where Support, Inc. was pursuing collections.

In the second cause of action, the county contended that child support rights are not assignable except with judicial approval or in accordance with statute. A controversy was alleged to exist in that the county asserted that it is the only party that can collect support arrears of former or current welfare recipients who have assigned their support rights by equitable assignment and/or by operation of law to the county and that, therefore, the assignments to Support, Inc. are void and against public policy.

Finally, the county contended that its interest in the support arrears of former welfare recipients has priority and must be satisfied in full, notwithstanding the priority in terms of time, before the former welfare recipient receives any arrears.

A temporary restraining order was granted on October 22, 1976. Demurrers were filed on behalf of appellants, asserting that neither the first nor the second cause of action stated facts sufficient to constitute a cause of action. On November 5 and 10, 1976, the hearing on the preliminary injunction was held. Various affidavits and declarations were submitted and testimony was taken both on behalf of and against the preliminary injunction.

On December 15, 1976, appellants moved to dismiss the complaint on the grounds that the district attorney was an improper attorney to bring an action on behalf of Santa Clara County and that the County Board of Supervisors had not authorized the action. ²

On February 16, 1977, the court issued a preliminary injunction ³ prohibiting appellants from the following acts:

A. From the taking of assignments for the purpose of collecting past-due child and/or spousal support from any person who has at any time in the past received Public Assistance in Santa Clara County, without first securing:

(1) An affidavit from the Santa Clara County District Attorney, Family Support Division, that there are no monies owing Santa Clara County on account of such assistance or;

(2) A release from the Santa Clara County Family Support Division in full and complete satisfaction of all unreimbursed expense on account of such assistance.

B. From proceeding to collect, either by way of any assignment taken prior to the date of this order, or without benefit of any assignment, past-due child and/or spousal support from any person who has at any time in the past received Public Assistance in Santa Clara County without first securing:

(1) An affidavit from the Santa Clara County District Attorney, Family Support Division, that there are no monies owing Santa Clara County on account of such assistance or;

(2) A release from the Santa Clara County Family Support Division in full and complete satisfaction of all unreimbursed expense on account of such assistance.

C. From obtaining an order vacating any order providing for the payments of D. From disbursing any funds previously collected or received during the pendency of this action as and for past-due child and/or spousal support on behalf of any person who has at any time in the past received Public Assistance in Santa Clara County. Said funds shall be held in trust pending further determination by this Court of the appropriate disposition thereof.

support to the Santa Clara County Adult Probation [89 Cal.App.3d 693] Department or the Family Support Trustee without first filing and serving on the Santa Clara County District Attorney's Office a notice of motion requesting the vacating of said order.

E. From proceeding with collection on behalf of any person who has represented that they have never received Public Assistance in Santa Clara County, which collections initiated or commenced from and after the filing of the Complaint herein, without first obtaining written verification from the Santa Clara County District Attorney's Office that said person has, in fact, never received Public Assistance in Santa Clara County. The Santa Clara County District Attorney is ordered to respond to any such inquiry by SUPPORT, INCORPORATED within seven (7) days of its receipt of such inquiry. ⁴

On February 22, 1977, the complaint of the County of Santa Clara was answered by appellant and a cross-complaint for declaratory and injunctive relief was filed by Support, Inc. against the County of Santa Clara District Attorney, County of Santa Clara Probation Department, County of Santa Clara Department of Social Services, State of California Department of Benefit Payments, and Joseph Califano, U.S. Secretary of H.E.W. ⁵

The three county departments moved to strike the cross-complaint, alleging that the request for declaratory relief was redundant on the basis that the cross-complaint did not state sufficient facts to constitute a cause of action, that the same cause of action was pending in another action, and that the cross-complaint was uncertain and ambiguous.

On April 4, 1977, the court granted the motion to strike the cross-complaint on the grounds that the cross-complaint did not state sufficient facts to constitute a cause of action.

The court sustained the state's demurrer without leave to amend on the basis that the "alleged issues raised by said cross-complaint are fully covered in the main action and an independent cause of action is raised as to the Department's breach of administerial duties as no 'substantial failure to perform' said duties by any 'lesser' agency has been or seems possible of being pled."

SUMMARY OF STATUTORY BACKGROUND

To fully understand appellants' contentions, it is necessary to examine family support law as it existed both before and after September 20, 1975, the date on which California passed emergency legislation conforming state law to federal requirements of Title IV of the Social Security Act amendments. All states were required as a condition of eligibility for federal reimbursement for assistance granted to welfare dependents to conform their state law to federal regulations.

Prior to September 20, 1975, a California county providing public assistance and welfare aid to dependent parents and children was subrogated to the rights of the obligee pursuant to section 248 of the California Civil Code, ⁶ thus creating an equitable The amount of reimbursement that the county could recover to offset unreimbursed expenses paid out for the support of the custodial parent and dependent children is set out in section 11350 of the Welfare and Institutions Code. ⁷

assignment in the county. As stated in Marriage of Shore, 71 Cal.App.3d 290, 297, 139 Cal.Rptr. 349, 354: "As repeatedly underlined, equitable assignment or right of subrogation is a creature of equity and applies to all cases where one party involuntarily pays a debt for which another is primarily liable and which in equity and good conscience should have been paid by the latter (Estate of Kemmerrer (1952) 114 Cal.App.2d 810, 814 (251 P.2d 345, 35 A.L.R.2d 1393); Fireman's etc. Co. v. State Comp. etc. Fund (1949) 93 Cal.App.2d 408, 412-413 (209 P.2d 55); 7 Witkin, Summary of Cal.Law (8th ed. 1974) Equity, § 124 et seq., p. 5342)." (See also 3 Witkin, Cal. Procedure (2d ed. 1971) § 101, pp. 1776-1777.)

In 1975, federal legislation established a comprehensive mandatory program to enforce child support to be...