Tom v. First American Credit Union, 97-2244

• Decision Date: 10 August 1998
• Docket Number: No. 97-2244,97-2244
• Citation: 151 F.3d 1289
• Parties: , 98 CJ C.A.R. 4279 Bertha TOM, Plaintiff-Appellee, v. FIRST AMERICAN CREDIT UNION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1289

151 F.3d 1289

57 Soc.Sec.Rep.Ser. 790, 98 CJ C.A.R. 4279

Bertha TOM, Plaintiff-Appellee, v. FIRST AMERICAN CREDIT UNION, Defendant-Appellant.

No. 97-2244.

United States Court of Appeals, Tenth Circuit.

Aug. 10, 1998.

Thomas Lynn Isaacson (James Jay Mason on the brief), Mason, Isaacson, & Macik, P.A., Gallup, New Mexico, for Defendant-Appellant.

Samuel D. Gollis, DNA-People's Legal Services, Inc., Keams Canyon, Arizona, for Plaintiff-Appellee.

Before BALDOCK, MAGILL, ^* and HENRY, Circuit Judges.

HENRY, Circuit Judge.

The district court granted plaintiff Bertha Tom summary judgment on her claim that defendant First American Credit Union improperly seized the funds in her bank account, and the Credit Union appeals that decision. We affirm the district court's decision with respect to Mrs. Tom's claims that the Credit Union violated the Social Security and Civil Service Retirement Acts when it seized the contents of her account. However, because Mrs. Tom waived her breach of contract claim by failing to raise it in her summary judgment papers, we reverse the district court's ruling that the Credit Union's seizure of funds constituted a breach of contract.

BACKGROUND

In 1989, Mrs. Tom opened an account at what would later become the First American Credit Union. When she opened this account, she signed a Revolving Credit Plan Agreement that provided as follows:

[I] hereby pledge all shares and deposits and payments and earnings thereon which [I] have or hereafter may have ... as security for any and all moneys advanced under this plan ... and authorize the credit union to apply such shares, deposits and earnings to payment of said obligation. Such application may be pursuant to such pledge or as a right of offset.

Aplt's App. at 55. The Agreement also stated that "[i]n the event payment is not made when due, then the entire unpaid balance of In the fall of 1994, Mrs. Tom's Credit Union account balance was $1,769, a sum that consisted entirely of funds she had received as payments under the Social Security and Civil Service Retirement Acts. The Credit Union informed Mrs. Tom that it intended to deduct funds from her account in order to satisfy an alleged $2,379.20 debt to the Credit Union. The Credit Union claimed this debt was attributable to several loans that Mrs. Tom and her late husband had obtained between 1974 and 1980 but had failed to repay. When Mrs. Tom demanded that the Credit Union turn over the entire balance of her account to her, the Credit Union refused. Some months later, the Credit Union, citing its right to use the funds in her account to offset her alleged $2,379.20 debt, seized the entire $1,769 in Ms. Tom's account.

all advances made plus interest shall become immediately due and payable without notice at the option of the credit union." Id.

Mrs. Tom sued the Credit Union in federal court, alleging that the Credit Union's actions (1) violated § 407(a) of the Social Security Act (Count I), (2) violated § 8346(a) of the Civil Service Retirement Act (Count II), (3) constituted a breach of contract (Count III), and (4) violated New Mexico's Unfair Trade Practices Act (Count IV). The parties subsequently stipulated to all of the relevant facts, and both parties moved for summary judgment. The district court granted Mrs. Tom's motion with respect to the first three counts of her complaint and awarded her $1,769 in damages. However, the court ruled for the Credit Union on Count IV, holding that it had not violated New Mexico's Unfair Trade Practices Act. The Credit Union appealed the district court's ruling with respect to the first three counts. Because Mrs. Tom has not cross-appealed the decision regarding the Unfair Trade Practices Act claim, we will only examine the district court's decision regarding the first three counts.

DISCUSSION

Standard of Review

We review de novo the district court's grant of summary judgment, applying the same legal standard as the district court. Lowe v. Angelo's Italian Foods, Inc., 87 F.3d 1170, 1173 (10th Cir.1996). Summary judgment is appropriate if the evidence, when viewed in the light most favorable to the non-moving party, demonstrates that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Seymore v. Shawver & Sons, Inc., 111 F.3d 794, 797 (10th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 342, 139 L.Ed.2d 266 (1997).

Count I: Social Security Act (42 U.S.C. § 407)

The district court held that the Credit Union's actions violated the Social Security Act's anti-assignment provision. Under this provision, "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." 42 U.S.C. § 407(a). Although the Credit Union argued that § 407 applied only to "legal" (i.e., court-ordered) processes, the district court ruled that this anti-assignment provision also applied to an equitable self-help remedy such as the setoff that the Credit Union employed. On appeal, the Credit Union once again contends that equitable self-help remedies are not "other legal process[es]" and are, thus, outside of the aegis of § 407.

When it passed § 407 of the Social Security Act, Congress "impose[d] a broad bar against the use of any legal process to reach all social security benefits." Philpott v. Essex County Welfare Bd., 409 U.S. 413, 417, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973). The Supreme Court has affirmed that Social Security benefits, even when converted to "funds on deposit [that] [a]re readily withdrawable[,] retain[ ] the quality of 'moneys' within the purview of § 407." Id. at 416, 93 S.Ct. 590.

In Philpott, the State of New Jersey required all welfare recipients to sign agreements promising that if they ever became fiscally capable of doing so, they would reimburse the county welfare board for all welfare payments they had received. When one such welfare recipient received retroactive disability benefits under the Social Security The Credit Union now asks us to distinguish Philpott because, unlike the agreement in that case, the Revolving Credit Plan Agreement permitted the Credit Union to collect its debts without resorting to the court system. However, while Philpott involved an attempt by a creditor to use the court system rather than a self-help remedy to collect a debt, there is no principled difference between the agreement the State of New Jersey required welfare recipients to sign and the Revolving Credit Plan Agreement the Credit Union required Mrs. Tom to sign: Both were, in effect, contracts of adhesion that creditors attempted to use to get their hands on Social Security payments.

Act, the State sued him in attempt to collect those funds. The Court, however, ruled that § 407 foreclosed New Jersey from reaching a debtor's Social Security payments. See id. at 417, 93 S.Ct. 590.

We can see no reason why Congress would, on the one hand, choose to protect Social Security beneficiaries from creditors who utilized the judicial system, a system that is built upon principles of fairness and protection of the rights of litigants, yet, on the other hand, leave such beneficiaries exposed to creditors who devised their own extra-judicial methods of collecting debts. See Crawford v. Gould, 56 F.3d 1162, 1166 (9th Cir.1995) (rejecting a bank's argument that setoff is outside the purview of § 407 and stating that such a "cramped reading of § 407 ... would enable [creditors] to obtain Social Security benefits through procedures that afford less protection than judicial process affords"); but cf. Frazier v. Marine Midland Bank, N.A., 702 F.Supp. 1000, 1003 (W.D.N.Y.1988) (holding that setoff is not within § 407's definition of "legal process"); In re Gillespie, 41 B.R. 810, 812 (Bankr.D.Colo.1984) (same). Such a construction of § 407 would run contrary to both logic and the spirit underlying the Social Security Act. See Helvering v. Davis, 301 U.S. 619, 641, 57 S.Ct. 904, 81 L.Ed. 1307 (1937) ("The hope behind [the Social Security Act] is to save men and women from the rigors of the poor house as well as from the haunting fear that such a lot awaits them when the journey's end is near."). Moreover, if the Supreme Court did not see fit to carve an exception to § 407 where an important public interest-a state's need to defray the costs of supporting indigent individuals-was at stake, we will not create an exception that would, for the most part, serve very private interests-banks' desires to cut their bad-debt losses. See also Bennett v. Arkansas, 485 U.S. 395, 397-98, 108 S.Ct. 1204, 99 L.Ed.2d 455 (1988) (per curiam) (rejecting Arkansas's argument that § 407 contained an implied exception that would allow it to recover Social Security payments to prisoners in order to help offset the costs of imprisonment).

Although the Credit Union emphasizes that courts have previously acknowledged banks' common-law right to setoff, see, e.g., United States v. Butterworth-Judson Corp., 267 U.S. 387, 394-95, 45 S.Ct. 338, 69 L.Ed. 672 (1925), this fact is of no import here. As the California Supreme Court recognized, the "right to setoff is not absolute." Kruger v. Wells Fargo Bank, 11 Cal.3d 352, 113 Cal.Rptr. 449, 521 P.2d 441, 450 (1974). In Kruger, a bank attempted to exercise its common-law right to setoff against state disability and unemployment payments that a beneficiary had deposited in her account. Although a pair of California statutes exempted such funds from "attachment" and "execution," see Cal.Civ.Proc.Code § 690.175 (superseded 1987); Cal.Unemp.Ins.Code § 1342 (amended 1983), the bank contended that setoff, as a common-law self-help remedy, was outside the purview of the statutes. The court, though, thought otherwise:

Although the banker's setoff differs from attachment and execution in that it does not require the aid of a state official, there is no relevant difference between the two procedures...