Palmiter v. Action, Inc.

• Decision Date: 08 October 1982
• Docket Number: No. S 82-119.,S 82-119.
• Citation: 548 F. Supp. 1166
• Parties: Ivel PALMITER, Plaintiff, v. ACTION, INC., Defendant, Richard S. Schweiker, Secretary of Health and Human Services, and State of Indiana ex rel. Indiana Office of Community Services Administration, Defendants-Intervenors.
• Court: U.S. District Court — Northern District of Indiana

548 F. Supp. 1166

Ivel PALMITER, Plaintiff, v. ACTION, INC., Defendant Richard S. Schweiker, Secretary of Health and Human Services, and State of Indiana ex rel. Indiana Office of Community Services Administration, Defendants-Intervenors.

No. S 82-119.

United States District Court, N.D. Indiana, South Bend Division.

October 8, 1982.

James F. Groves, Robert Canfield, South Bend, Ind., for plaintiff.

Don Blackmond, South Bend, Ind., Linley E. Pearson, Atty. Gen. of Ind., Indianapolis, Ind., for defendant.

MEMORANDUM AND ORDER

SHARP, Chief Judge.

This case is presently before the Court for final disposition on a post-judgment garnishment proceeding. An evidentiary hearing was held in this matter on August 6, 1982, after which the parties submitted their final written arguments. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, this memorandum and order constitutes this Court's findings of fact and conclusions of law.

This case arises out of a tort action originally brought in the St. Joseph Circuit Court for damages based on plaintiff's, Ivel Palmiter, personal injuries sustained in an accident involving an employee of defendant, Action, Inc. (Action), a non-profit community service organization funded almost exclusively by federal and state grants. In December 1981, a jury awarded the plaintiff $209,000.00 in damages. Thereafter, in March 1982 the plaintiff filed proceedings supplemental in state court against garnishee-defendant, St. Joseph Bank and Trust Company of South Bend (Bank), seeking to attach Action's several accounts with the Bank in order to satisfy the underlying judgment.

Acting pursuant to 28 U.S.C. §§ 1442(a), 1446(e), the United States of America filed a petition to remove the civil action garnishment proceedings to this court on March 30, 1982, alleging that the monies held by the Bank on Action's behalf belonged to the federal government and were therefore immune from attachment. On April 5, 1982, Richard S. Schweiker, Secretary of the United States Department of Health and Human Services, moved to intervene in this cause of action. On April 30, 1982, the State of Indiana, acting ex relatione the Indiana Office of Community Services Administration (IOCSA) also moved to intervene.¹ On May 6, 1982, at the conclusion of a hearing on all pending motions, this Court assumed jurisdiction of the matter and granted both parties' motions to intervene. On May 28, 1982, this Court entered a restraining order to prevent Action from disposing of, secreting, or encumbering any assets involved in the action, said restraining order to remain in effect until further order of the Court.

In order to determine whether the plaintiff can satisfy its state court judgment out of Action's frozen bank accounts, this Court must first decide to whom those funds belong. If those monies are in fact Action's property, there should be no bar to plaintiff's levying thereon. See, e.g., defendant-intervenor (IOCSA's) (now IDACS) prehearing brief, page 5. On the other hand, if Action's role in distributing federal and state grants to the local community was merely that of a conduit, those assets would retain their character as government funds and, under the doctrine of sovereign immunity, would be immune from attachment. For the reasons which follow, this Court concludes that Action's frozen bank accounts are in fact the property of the federal government and are therefore not subject to attachment by the plaintiff.

Organizations like Action are only one link in the bureaucratic chain necessary to move funds from the United States Treasury to local communities. As a rule such local, community-service associations are the recipients of both direct federal grants, i.e., monies transferred directly from a federal department or agency to the local group, and indirect federal grants, e.g., block grants from the federal government to the individual states who in turn allocate said grants among various local organizations like Action. The defendant Action was substantially funded by both direct and indirect federal grants.

A careful review of the record shows that the State of Indiana received federal funds from the United States Department of Health and Human Services as well as the Department of Energy to provide support for programs established under the Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, §§ 671 et seq., codified at 42 U.S.C. § 9901, and the Energy Conservation and Production Act, P.L. 94-385, codified at 42 U.S.C. § 6851 et seq. The State of Indiana, through the defendant-intervenor IOCSA (now IDACS), then contracted with local community-service organizations, including defendant, Action, which were in turn to administer those indirect federal grants at the local level under the guidelines established by the terms of their respective contracts.

In addition to the indirect federal grants noted above, defendant, Action, also received various direct federal grants. Specifically, these include a grant from the Administration for Children, Youth and Families, a unit of the Office of Human Department Services, United States Department of Health and Human Services, in the total amount of $1,026,013.00 for the budgetary period beginning November 1, 1981 and ending October 31, 1982. This grant was to provide the necessary funding for the local Headstart Program, a project designed to serve some 600 area preschool children with classroom activities and hot meals, established pursuant to the Headstart Program codified at 42 U.S.C. § 9831 et seq. Additionally, the former Community Services Administration awarded Action three direct grants in the respective amounts of $401,000.00 (administration and community programs), $104,000.00 (energy crisis assistance), and $15,547.00 (community education), under the Economic Opportunity Act of 1964 as amended by the Headstart, Economic Opportunity, and Community Partnership Act of 1974, 42 U.S.C. §§ 2808(a) and 2809(a)(5) (since repealed). Although these last three grants were for budgeting periods ending prior to January 1, 1982, two were extended to June 30 and August 30, 1982, and none of the three were closed out as of March 1982. With the exception of the community education grant in the amount of $15,547.00, which was paid by check, the method of payment for the $1,026,013.00, $401,000.00 and $104,000.00 grants was by letter of credit.

By agreement of the parties, the accounting firm of Peat, Marwick, Mitchell and Company (Peat Marwick) performed an audit of Action's financial records for the period ending May 31, 1982. Peat Marwick's report, dated June 29, 1982, and submitted as defendant-intervenor State of Indiana's exhibit "K" on July 19, 1982, reveals that substantially all of the funds held by garnishee-defendant Bank on behalf of Action are of federal government origin, i.e., direct or indirect federal grants. See Peat Marwick's Financial Statements and Schedules, Schedules 3 and 4. The conclusion that virtually all of Action's funding came, directly or indirectly, from the United States Government is corroborated by the testimony of Pam Thompson, representative of Peat Marwick; Elliott Harris, executive director of Action, and Donald Hix, also employed by Action. Because the plaintiff does not seriously contest the ultimate source of these monies (although strenuously arguing that such funds were paid to Action on a state-reimbursement basis and are therefore, Action's property), this Court concludes that substantially all of the assets held in the 12 bank accounts in Action's name by garnishee-defendant Bank are grants from the federal government.

All funds which originated as indirect federal grants, i.e., block grants from the federal government to the individual states, and which are presently on deposit in Action's accounts, fall under various Congressional authorizations: the Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, §§ 671 et seq. since codified at 42 U.S.C. §§ 9901 et seq. (Community Services Block Grant program); and the Energy Conservation and Production Act, P.L. 94-385, 42 U.S.C. § 6851 et seq. (the "Weatherization" program). Indiana law governing these indirect grants provides, in relevant part:

If any federal funds be received by the state pursuant to the provisions of any such federal law relating to Grants-in-Aid, the same are hereby appropriated for the uses and purposes provided by said federal law, if such appropriations be required.

Ind.Code Ann. § 5-19-1-3.5 (Burns 1974). Thus, under Indiana law the funds received by IOCSA (now IDACS) and now on deposit in Action's accounts with the garnishee-defendant Bank are appropriated exclusively for the purposes provided in the original federal grants as set forth at 42 U.S.C. § 9904(c)(1):

(c) As part of the annual application required by subsection (a) of this section, the chief executive officer of each State shall certify that the State agrees to —

(1) use the funds available under this chapter —

(A) to provide a range of services and activities having a measurable and potentially major impact on causes of poverty in the community or those areas of the community where poverty is a particularly acute problem;

(B) to provide activities designed to assist low-income participants including the elderly poor —

(i) to secure and retain meaningful employment;

(ii) to attain an adequate education;

(iii) to make better use of available income;

(iv) to obtain and maintain adequate housing and a suitable living environment;

(v) to obtain emergency assistance through loans or grants to meet immediate and urgent individual and family needs, including the need for health services, nutritious food, housing, and employment-related assistance (vi) to remove obstacles and solve problems which block the achievement of self-sufficiency;

(vii) to achieve greater participation in the affairs of the community; and

(viii) to make more effective use of other programs related to

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