Muller v. State, 84537

• Decision Date: 28 January 1999
• Docket Number: No. 84537,84537
• Parties: 1999 N.Y. Slip Op. 99,106 Bernadette MULLER, Claimant, v. STATE of New York, Defendant, (Claim)
• Court: New York Court of Claims

Page 652

686 N.Y.S.2d 652

1999 N.Y. Slip Op. 99,106

Bernadette MULLER, Claimant, v. STATE of New York, Defendant, (Claim No. 84537.)

Court of Claims of New York.

Jan. 28, 1999.

Mental Hygiene Legal Service (Arlene A. Hughes, and Keith M. Fehrer of counsel), for claimant.

Eliot Spitzer, Attorney-General (Ralph M. Visano of counsel), for defendant.

JOHN P. LANE, J.

When this claim arose, Bernadette Muller was a patient at Gowanda Psychiatric Center (GPC), where she was admitted on September 9, 1989. ¹ On June 14, 1990, pursuant to Federal regulations (20 CFR 404.2001 et seq.), John Collier, the director of GPC, was appointed her representative payee by the Social Security Administration. According to the claim, in late 1990 and early 1991 he collected retroactive Social Security disability benefits owed claimant totaling $37,249 and applied $32,239.32 to payment for care previously provided at GPC. The claim also alleges that from December 1990 on Collier applied $397 of claimant's monthly benefits of $432.00 to the cost of her current care, leaving only $35 for her use as spending money. All of this happened without consultation with or consent by Ms. Muller.

Claimant contends that she was entitled to care by the State and that pursuant to federal law her Social Security benefits were beyond the reach of her creditors, including the State. Further, she points to Mental Hygiene Law section 29.23 as allowing the director of GPC to receive funds or other personal property belonging to her not exceeding $5,000 in value or amount and limiting the use thereof in the first instance to providing luxuries, comforts and necessities for her. Accordingly, she argues that for sums in excess of $5,000.00, the director was obligated to seek the appointment of a conservator as he had no legal authority to receive such funds. ² Moreover, she points out that Mental Hygiene Law section 33.07(e) imposes a fiduciary duty upon a director of a mental hygiene facility who receives Social Security benefits as a representative payee for a patient. Claimant further contends that Collier, as an official of the Department of Mental Hygiene, was burdened by a conflict of interest that disqualified him from serving as her representative payee and using her funds to pay for her care rather than setting them aside for her benefit. Thus, she concludes that Collier breached his fiduciary duty when he applied her benefits to the cost of her care without her consent or that of a conservator ³. In contrast, defendant argues that Federal law and regulations permitted Collier to act as representative payee of claimant's Social Security benefits and to disburse them for her care. It contends that Mental Hygiene Law section 29.23 has no force or effect in this context as it predates the Social Security Act and Federal regulations implementing it.

In 1992, claimant moved for partial summary judgment with respect to liability and defendant cross-moved for summary judgment dismissing the claim, arguing that the court lacked subject matter jurisdiction or, in the alternative, that because there was a pending federal class action (the Balzi/Brogan action) involving the issues raised by the claim, this action should be dismissed or stayed. The motion and cross-motion came on before Judge Thomas P. McMahon, now retired, who, with some misgivings, felt obliged to await the outcome of the Federal action. Accordingly, by order filed December 13, 1993, he denied summary judgment to both parties and stayed further proceedings on the claim pending the outcome of the federal case.

In due course, the Balzi/Brogan action was negotiated to a conclusion in the form of a stipulation and order of settlement and dismissal in exchange for Office of Mental Hygiene's agreement to provide certain notices and safeguards to patients regarding their Social Security benefits. Regrettably the resolution of the federal case did not deal with the effect, if any, that the Mental Hygiene Law has on the receipt and use of funds by facility directors acting as representative payees of Social Security benefits to which persons such as claimant are entitled. ⁴ The federal litigation having ended, Judge McMahon's stay expired and the parties have resubmitted the motion and cross-motion for summary judgment. For the reasons that follow, defendant's cross-motion for summary judgment is denied and claimant's motion for partial summary judgment is granted.

Federal law allows payment of Social Security benefits either directly to the beneficiary or to a relative or some other person for his or her use and benefit. 42 U.S.C. § 405(j). Implementing regulations authorize a state institution to serve as a representative payee, but place a public institution in the third preference rank behind a legal guardian, spouse or other relative in the first rank, and a close friend in the second rank. 20 CFR 404.2021(a). A representative payee must apply the payments received in accordance with guidelines provided in the regulations "in the best interests of the beneficiary." 20 CFR 404.2035(a). The guidelines allow the use of benefits for the "current maintenance" of a beneficiary, which includes customary charges for in-patient care made by a state institution. 20 CFR 404.2040(a) and (b). On the other hand, the guidelines make clear that a representative payee may determine that a beneficiary's needs will be best served by applying funds received first to the beneficiary's personal needs before paying an institution's customary charges for care. 20 CFR 404.2040(b). Moreover, a representative payee does not have to use benefit payments to satisfy past debts of the beneficiary without first considering the current and reasonably foreseeable needs of the beneficiary. 20 CFR 404.2040(d).

The Social Security Act and Federal regulations under which Collier acted are not being challenged in this action, which focuses on his compliance with State law. The adoption by the State of procedural safeguards governing the handling of Social Security benefits by State payees is not precluded by the Supremacy Clause (U.S. Const., art. VI, cl. 2). See Shields v. Katz, 143 A.D.2d 743, 533 N.Y.S.2d 451 and cases cited there. As claimant's case is based upon two sections of the Mental Hygiene Law governing the handling of Social Security benefits by State payees, it follows that the Court of Claims has subject matter jurisdiction of this action for damages. See State of New York v. Jacobs, 167 A.D.2d 876, 561 N.Y.S.2d 972; Shields v. Katz, supra; Court of Claims Act section 9.

Mental Hygiene Law section 29.23 allows the Commissioner of Mental Hygiene to authorize directors of department facilities to receive or obtain funds due to or belonging to a patient who has no committee up to an amount not exceeding $5,000; and where there is a committee, to receive funds not exceeding the same amount when the committee is discharged. Funds so received must be placed to the credit of the patient and disbursed "to provide, in the first instance, for luxuries, comforts, and necessities for such patient, including burial expenses, and, if funds are thereafter available, for the support of such patient." The final paragraph of section 29.23 provides that when receiving funds of a patient pursuant to law, a director does so in his or her official capacity and as an exercise or performance of a power and duty conferred by that section.

Section 2732 of the Department of Mental Hygiene policy manual reinforces the $5000 limit on the authority of directors of department facilities to receive or obtain funds of a patient and the limitation on use of those funds established in section 29.23. Furthermore, in section 2735 of the manual is found a policy statement that the department should ask the court to appoint a fiduciary for a patient in those instances where there is substantial income or assets or special needs for the patient to have legal representation, and otherwise to handle patients' funds under the authority of section 2732. From all of this it is clear that Collier's authority under State law and department policies was limited to receiving $5000 and applying those funds in accordance with section 29.23.

Defendant's argument that because Mental Hygiene Law section 29.23 predated the Social Security Act it has no application to Collier as representative payee is unavailing. Section 29.23 was enacted as a part of the recodification of the Mental Hygiene Law in 1972 long after the Social Security Act took effect. It is significant that in doing so the Legislature did not exempt Social Security benefits received by a representative payee from the longstanding $5000 limitation on a facility director's authority. ⁵ Moreover, Mental Hygiene Law section 33.07(e), which provides for the protection of a patient's property and funds by requiring a mental hygiene facility that is a representative payee for a patient pursuant to designation by the Social Security Administration or that otherwise assumes management responsibility over funds of a patient to maintain such funds in a fiduciary capacity to the patient, was enacted in 1986 and clearly...