State Central Collection Unit v. Stewart

• Decision Date: 30 December 1981
• Docket Number: No. 20,20
• Citation: 292 Md. 255,438 A.2d 1311
• Parties: STATE of Maryland CENTRAL COLLECTION UNIT v. Frederick R. STEWART. STATE of Maryland CENTRAL COLLECTION UNIT v. Emmett C. PETWAY.
• Court: Maryland Court of Appeals

Page 255

292 Md. 255

438 A.2d 1311

STATE of Maryland CENTRAL COLLECTION UNIT v. Frederick R. STEWART.

STATE of Maryland CENTRAL COLLECTION UNIT v. Emmett C. PETWAY.

No. 20.

Court of Appeals of Maryland.

Dec. 30, 1981.

John K. Anderson, Asst. Atty. Gen., Baltimore (Stephen H. Sachs, Atty. Gen. and Ronald J. Rinehart, Asst. Atty. Gen., Baltimore, on the brief), for appellant.

Randolph W. Gaines, Chief of Litigation and Natalie R. Dethloff, Atty., Baltimore, on the brief, for amicus curiae United States Dept. of Health and Human Services.

Ethel Zelenske, Baltimore (Dennis W. Carroll, Baltimore, on the brief), for appellee.

Argued before MURPHY, C. J. and SMITH, DIGGES, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.

RODOWSKY, Judge.

In these cases the petitioner, State of Maryland, acting through the Central Collection Unit (the State), seeks judgments against the respondents for reimbursement of part of the cost of care and treatment rendered to the respondents in a state mental hospital during specified periods in the past. The amount of liability for reimbursement is limited by ability to pay. ¹ Because social security benefits were the sole income of each of the respondents during the periods for which the State claims reimbursement, the respondents contend that the entry of judgments will violate § 207 of the Social Security Act, 42 U.S.C. § 407 which reads:

The right of any person to any future payment under this subchapter (II) shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

For reasons hereinafter stated, we shall hold that the mere entry of judgment under the facts in these cases does not violate the federal act.

Each respondent had been charged with crime, found not guilty by reason of insanity, and committed to the custody of the Department of Health and Mental Hygiene. See Md.Code (1957, 1979 Repl.Vol., 1981 Cum.Supp.), Art. 59, §§ 27-28. Respondent Frederick R. Stewart (Stewart) was a patient at Clifton T. Perkins Hospital Center from March 8, 1974 until his release in 1979. Inquiry by the State with the Social Security Administration developed that Stewart began receiving social security benefits in the amount of $206.70 per month on November 1, 1975. A reimbursement rate of $181.70 per month was established for Stewart, after an allowance of $25.00 per month for personal needs. See generally Code of Maryland Regulations, § 10.04.02.03. When Stewart's social security benefits increased on October 1, 1976 to $219.90 per month, the reimbursement rate was established at $194.90, after a personal needs allowance. In its suit against Stewart the State claimed $4,095.71 as reimbursement for care and treatment rendered from November 1, 1975 through November 30, 1978. Respondent Emmett C. Petway (Petway) became a patient at Clifton T. Perkins Hospital Center on April 13, 1976. As of June 1, 1977 Petway began receiving, as his own payee, social security benefits of $315.70 per month. A reimbursement rate was set for Petway of $285.70 per month, after a $30.00 per month personal needs allowance. Reimbursement of $4,000.14 is claimed from Petway for the period June 1, 1977 through July 31, 1978. It is the State's position that it may use legal process against the respondents without violating § 407, so long as it does not use legal process against the social security benefit "moneys paid."

Judgments were entered in the District Court of Maryland in favor of the respondents. The Circuit Court for Howard County affirmed on the ground that "the State is precluded from considering the receipt of Social Security benefits in determining ability to pay for the cost of confinement, and then suing to obtain a judgment for such sums, as such actions constitute 'other legal process' within the meaning of 42 U.S.C., Section 407 ...." We granted the State's petition for certiorari in order to resolve the question.

An amicus brief for the United States Department of Health and Human Services states the position of the Secretary of that department:

(42 U.S.C. § 407) does not prohibit a State from considering social security benefits in determining ability to pay, for purposes of assessing care charges. Nor does (42 U.S.C. § 407) preclude a State from suing an individual to obtain a judgment for amounts due it for services. However, (42 U.S.C. § 407) does preclude a State from taking any action to enforce the judgment against social security benefits.

Section 407 was the basis of decision in Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973). William Wilkes had applied to that welfare agency for financial assistance based upon need by reason of permanent and total disability. As a condition of receiving assistance, Wilkes was required by New Jersey statute to execute an agreement to reimburse the county welfare board for all payments received under the assistance program. The apparent purpose of this requirement was "to enable the board to obtain reimbursement out of subsequently discovered or acquired real and personal property of the recipient." Id. at 414, 93 S.Ct. at 591, 34 L.Ed.2d at 610. Wilkes began receiving the State assistance payments no later than January 1, 1967. He was also advised to apply for federal disability insurance benefits under the Social Security Act. In 1968 Wilkes was awarded retroactive disability insurance benefits for the period from May 1966 into the summer of 1968 in the amount of $1,864.20. The check for that amount was deposited in a bank account held by Doris Philpott as trustee for Wilkes. Under then applicable New Jersey law, the filing of a notice of a welfare payments reimbursement agreement had the same force and effect as a judgment. ² The welfare board, after filing notice of the reimbursement agreement, obtained an order of the Essex County Court, Law Division, for the defendants "to show cause why a judgment should not be entered in favor of plaintiff ... directing the Fidelity Union Trust Company to turn over to it moneys on deposit in the bank in the name of Doris Philpott." 104 N.J.Super. 280, 281-82, 249 A.2d 639, 640 (1969). The Supreme Court of New Jersey concluded that funds could be ordered paid to the welfare agency. 59 N.J. 75, 279 A.2d 806 (1971). The United States Supreme Court reversed. After holding that § 407 did not place a State in a preferred position as compared with any other creditor of the benefits recipient, it said (409 U.S. at 416, 93 S.Ct. at 592, 34 L.Ed.2d at 611):

The protection afforded by § 407 is to "moneys paid" and we think the analogy to veterans' benefits exemptions which we reviewed in Porter v. Aetna Casualty Co., 370 U.S. 159 (, 82 S.Ct. 1231, 8 L.Ed.2d 407 (1962) ), is relevant here. We held in that case that veterans' benefits deposited in a savings and loan association on behalf of a veteran retained the "quality of moneys" and had not become a permanent investment. Id. at 161-62 (, 82 S.Ct. at 1233, 8 L.Ed.2d at 410).

In the instant matter the judgment which the State seeks may be analogized to the filing of the reimbursement notice in Philpott which had the effect of a judgment. Philpott does not suggest that the entry of the New Jersey judgment representing the amount for which the recipient of welfare benefits was liable to make reimbursement constituted a violation of § 407. The Essex County Welfare Board encountered the bar of § 407 when it sought to reach the social security funds on deposit for the benefit of the recipient, because that demand deposit retained the character of "moneys paid" under subchapter II of the Social Security Act. In the case at bar the State does not seek to reach the social security benefits of the respondents. ³ The State's position is that it desires to have a judgment only to be in a position to move against any assets of the respondents which are not exempt from execution and which the State might discover, or which the respondents might subsequently acquire. We hold that the entry of judgment on the claim for reimbursement is not the use of legal process against "moneys paid" as social security benefits.

Respondents cite Supreme Court cases from which they conclude that "a State may not artfully circumvent federal anti-attachment statutes." Their principal reliance is on Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979), which held that a community property division of retirement benefits under the Railroad Retirement Act of 1974, 45 U.S.C. § 231 et seq. (1976) violated the anti-assignment provisions of that Act. ⁴ One of the wife's contentions in that case was that her husband's railroad retirement benefits would not be subjected to legal process if the divorce court, after calculating the value of the retirement benefits earned during marriage, directed an equal amount be paid out of other community property available for distribution, e.g., the couple's home. The Court concluded that an offsetting award "would improperly anticipate payment by allowing (the wife) to receive her interest before the date Congress has set for any interest to accrue" and would also frustrate federal policy as reflected by provisions of the Railroad Retirement Act other than the anti-assignment section. Id. at 589, 99 S.Ct. at 812, 59 L.Ed.2d at 15.

Where a state court ordered a retired military officer to pay a specified percentage of his military nondisability retirement pay to his former wife as community property upon dissolution of the marriage, the Supreme Court held the order violated the scheme of federal military nondisability retirement pay. McCarty v. McCarty, --- U.S. ----, ---- n.22, 101 S.Ct. 2728, 2739 n.22, 69 L.Ed.2d 589, 603 n.22 (1981) ("(E)ven if there were no explicit prohibition...