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Breault v. Heckler

May 21, 1985


Appeal from a summary judgment of the United States District Court for District of Connecticut (Dorsey, J.) dismissing a complaint challenging recoupment procedures of the Social Security Administration. Affirmed in part and remanded in part.

Van Graafeiland, Meskill and Winter, Circuit Judges.

Author: Van Graafeiland


In July 1978 Alphena Breault, an elderly widow, gave a check to a garage, believing there was sufficient money in her account to cover the check. The check bounced. Unbeknownst to Mrs. Breault, the Social Security Administration had required her bank to pay it an amount allegedly equivalent to four social security payments to Mr. Breault made and deposited after his death, and the bank, without notice to Mr. Breault, had debited her checking and savings accounts in that amount. Mrs. Wade, another elderly widow, had her account debited in the same manner. The issue on this appeal is whether the debiting of the accounts of these elderly widows and others similarly situated should take place without prior notice and an opportunity to contest the recoupment.

In an opinion reported in 591 F. Supp. at 308, the United States District Court for the District of Connecticut (Dorsey, J.) found no merit in the widows' contention that the challenged procedure violated Title II of the Social Security Act and also denied them due process. We agree with the district court's interpretation of the statute. We believe, however, that appellants' constitutional argument merits further consideration by the district court.

Social Security benefits are payable in one of three ways: (1) by checks payable to the beneficiary and mailed to his home; (2) by checks payable to the beneficiary's bank and sent directly to the bank for credit to the beneficiary's account; or (3) by credit allowances form a Federal Reserve Bank, charged against the United States Treasury's account with the Bank, a procedure commonly known as an electronic funds transfer. Appellants' statutory claim is premised on the contention that any such payments made after a beneficiary's death are "overpayments" within the meaning of 42 U.S.C. § 404, and that appellants therefore were entitled to a hearing on the issue of whether recoupment of the overpayment should be waived. See Califano v. Yamasaki, 442 U.S. 682, 692-95, 61 L. Ed. 2d 176, 99 S. Ct. 2545 (1979). the district court correctly rejected this argument. 591 F. Supp. at 315-17. Because the payments in question did not go to the deceased beneficiaries, they must be treated as erroneous payments, not overpayments, and no statutory pre-recoupment hearing was required. Dockstader v. Miller, 719 F.2d 327, 330-31 (10th Cir. 1983), cert. denied, 467 U.S. 1256, 82 L. Ed. 2d 849, 104 S. Ct. 3546 (1984); Powderly v. Schweiker, 704 F.2d 1092, 1095-97 (9th Cir. 1983).

The validity of appellants' claim of due process violations hinges upon whether the debiting of their accounts is the result of state action so as to fall within the ambit of the Fifth Amendment. Social Security effects recoupment from the depository bank through the Treasury Department, which is authorized to debit a recalcitrant bank's Federal Reserve account if that is necessary to accomplish recovery. The district court adopted the Government's argument that, because the Treasury Department neither debited nor directed the bank to debit appellants' personal accounts, such debiting did not constitute state action. 591 F. Supp. at 317-18. We question whether the cause and effect nature of the Government's conduct can be disposed of so readily.

When the Treasury Department insists upon payment by a depository bank, it does so with full awareness of the course of conduct that the bank subsequently will pursue. The Department knows that the bank's directors are held " to the same degree of care and prudence that men prompted by self-interest generally exercise in their own affairs." Kavanaugh v. Commonwealth Trust Co., 223 N.Y. 103, 105, 119 N.E. 237 (1918). The Department also knows that the bank's officers must exercise due diligence in the collection of debts owing to the bank. Harris v. Waters, 112 Misc. 640, 642, 183 N.Y.S. 721 (1920); 1 Michie on Banks and Banking, ch. 3 § 61; 5A id., ch. 9, § 1. In short, the Treasury Department knows that, when it demands payment from a bank because of an allegedly unlawful deposit, the bank will be duty bound to debit the amount of payment against the account involved so as "to protect itself from loss in responding to the Government's collection action." 49 Fed. Reg. 48,920, P 3 (1984).

The Supreme Court has made it clear, although usually by way of dictum, that the Government may be held liable for a private decision if "it has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must be in law be deemed to be that of the State." Rendell-Baker v. Kohn, 457 U.S. 830, 840, 73 L. Ed. 2d 418, 102 S. Ct. 2764 (1982) (quoting Blum v. Yaretsky, 457 U.S. 991, 1004, 73 L. Ed. 2d 534, 102 S. Ct. 2777 (1982)); Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 164-65, 56 L. Ed. 2d 185, 98 S. Ct. 1729 (1978); Adickes v. S.H. Kress & Co., 398 U.S. 144, 171, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970); Reitman v. Mulkey, 387 U.S. 369, 375-76 87 S. Ct. 1627, 18 L. Ed. 2d 830 (1967). Some of our sister Courts of Appeals have had occasion to predicate holdings squarely on the foregoing principles.

In the case of Belles v. Schweiker, 720 F.2d 509 (8th Cir. 1983), where the Treasury Department also sought recoupment of social security benefits from a bank, the court addressed the issue of standing and, specifically, the requirement that the injury be fairly traceable to the actions of the defendant. The court held there that the bank's action in debiting Belles' account was "simply a response to the actions of the Social Security Administration and the Treasury Department" and that a set off against Belles' account would be caused "at least indirectly by the actions of the Secretary." Id. at 514.

In Franz v. United States, 227 U.S. App. D.C. 385, 707 F.2d 582 (D.C. Cir. 1983), the father of three children who, with their mother, plaintiff's former wife, were participants in a Witness Protection Program sued the Government because of his inability to establish contact with the children. The Government contended among other things that the decision to keep the parties apart was the mother's, not the Government's In rejecting this argument, the court stated that "if state action reliably may be found upon the identification of any one factor, that factor is significant governmental promotion of the specific conduct by the private actor that allegedly has abrogated the plaintiff's rights." Id. at 592 n.38. The court also recognized the importance of "overt participation by state officials . . . in the activities that eventuated in the asserted injury," id. at 594 n.45, emphasizing that "the state ought not to be permitted to disclaim responsibility for the consequences of conduct with which, in the eyes of the public, it appears to be intertwined," id. at 593. See also Ruffalo by Ruffalo v. Civiletti, 702 F.2d 710, 716-17 (8th Cir. 1983).

In Jeffries v. Georgia Residential Finance Authority, 678 F.2d 919 (11th Cir.), cert. denied, 459 U.S. 971, 74 L. Ed. 2d 283, 103 S. Ct. 302 (1982), the court held that, because of the defendant's power of veto, it was sufficiently involved with tenant eviction procedures by private landlords to make such evictions state action. The court stated:

The private citizen's conduct may be attributable to the state where the government affirmatively facili-tates, encourages, or ...

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