Claimant's attorney: DISABILITY ADVOCATES, INC., Timothy A. Clune, Esq. Nina Loewenstein, Esq., Cliff Zucker, Esq., William Schurtman, Esq., Of Counsel.
Defendant's attorney: Hon. Andrew M. Cuomo Attorney General for the State of New York, Michael E. Peeples, Assistant Attorney General.
TERRY J. RUDERMAN, J.
Defendant moves for summary judgment dismissing the claims of Sherrie Weaver and David Sheps. The facts as alleged are essentially undisputed.  Weaver asserts that, during the time period of December 2003 and January 2008 when she was an inpatient at Rockland Psychiatric Center, the facility director, as Weaver's representative payee, received more than $25, 000 in Social Security benefits on behalf of Weaver, and applied a substantial portion of those benefit funds toward the cost of care and treatment rendered by the facility to Weaver. Another portion of the benefits, $2, 000, was set aside for Weaver's discharge in the community and $1, 500 was placed in an account for her future burial expenses. Sheps alleges that, during the time period of June 2004 and May 2009 when he was an inpatient in South Beach Psychiatric Center, the facility director, as Sheps' representative payee, received more than $54, 000 in Social Security benefits on behalf of Sheps and applied a substantial portion of those benefit funds toward the cost of care and treatment rendered by the facility to Sheps. Another portion of the benefits, $2, 000, was set aside for Sheps' discharge in the community and $1, 500 was placed in an account for his future burial expenses. The actual expenses incurred by the State for the costs of care for Weaver were more than $700, 000 and those for Sheps exceeded 1 million dollars (Schaefer Hayes Affidavit, ¶¶ 36, 40).
Claimants argue that, pursuant to the Mental Hygiene Law, as it existed prior to its recent amendment on June 14, 2010,  the facility directors, acting as representative payees, violated § 29.23 by receiving in excess of $5, 000 in Social Security benefits on behalf of claimants and violated the fiduciary duties set forth in § 33.07(e) by using a substantial portion of those benefit funds to pay for part of the costs of care and treatment rendered to claimants at the facilities, i.e., claimants' hospital charges. Claimants also argue that the facility directors had a conflict of interest by acting as representative payees for claimants, who were facility patients. Specifically, claimants argue that their Social Security benefits were subject to the limitation upon a representative payee to receive "funds or other personal property * * * up to an amount or value not exceeding five thousand dollars" and that "[s]uch funds * * * so received * * * shall be placed to the credit of the patient * * * 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" (Mental Hygiene Law § 29.23) and that such funds shall be maintained in a "fiduciary capacity to the patient" (id. at § 33.07[e]). Thus, claimants argue that the facility directors should have preserved claimants' Social Security benefits to be used "in the first instance, for luxuries, comforts, and necessities" before any of the Social Security benefits were applied to claimants' hospital charges. Accordingly, Weaver and Sheps seek to be awarded money damages in a sum equal to the amount of Social Security benefits that the facility directors received in excess of $5, 000, as claimants' representative payees, and then applied toward claimants' hospital charges.Defendant argues that Mental Hygiene Law § 29.23 and its limitation upon the amount of funds a facility director may receive as a representative payee does not apply to Social Security benefits. Additionally, the application of claimants' Social Security benefits to the claimants' hospital charges did not violate the payees' fiduciary duties under Mantel Hygiene Law § 33.07(e) because, consistent with Federal law, claimants' Social Security benefits were properly applied toward the cost of claimants' care and maintenance, which is the very purpose for which those benefits were intended, and not a breach of any fiduciary duty.
Social Security benefits are intended to be used for the basic needs of shelter, food, and health care for the individuals entitled to coverage. Federal law authorizes the payment of Social Security benefits to "a representative payee" and a facility director of an "institution having custody of the beneficiary" may serve as a representative payee (42 USC §§ 405[j][A], 1383[a][A][ii][I]; 20 CFR 404.2021[a], 416.621[a]). The payee may expend funds only for the use and benefit of the beneficiary which is determined by the payee to be in the beneficiary's "best interests" (20 CFR 404.2035[a], 416.635[a]). Payments made by the representative payee for the beneficiary's "current maintenance" are deemed to be used in beneficiary's best interest (20 CFR 404.2040[a]). "Current maintenance, " for a beneficiary receiving care at an institution due to a mental incapacity "includes the customary charges made by the institution" as well as expenditures for items which will aid in the patient's recovery or discharge (20 CFR 404.2040[b], 416.640[b]).
In Washington State Dept. of Social and Health Serv. v Guardianship Estate of Danny Keffeler, 537 U.S. 371 , the United States Supreme Court addressed arguments similar to those advanced by claimants in this matter. In Keffeler, supra, a class action was brought on behalf of children in foster care receiving Social Security benefits. The benefits were paid to the State, acting as a representative payee of the children, and the State used a substantial portion of the benefit funds to pay for the State's costs for the maintenance of the children. The Supreme Court rejected the argument that allowing a State agency to reimburse itself for foster care costs is antithetical to the children's best interests and a violation of 42 USC § 407(a), which protects such benefits from execution, levy, attachment, garnishment or other legal process (Keffeler). The Supreme Court further stated that "a representative payee serves the beneficiary's interest by seeing that basic needs are met, not by maximizing a trust fund attributable to fortuitously overlapping state and federal grants" (id. at 390).
There is no Federal statute limiting the amount of Social Security benefits a representative payee may receive on behalf of a beneficiary or may apply to the costs of the beneficiary's current maintenance or institutional care. Thus, the only issue presented in this matter is whether the facility directors, as representative payees for claimants' benefits, acted in contravention of State law as argued by claimants.
It is noted that the predecessor section to § 29.23 of the Mental Hygiene Law predated the enactment of Social Security benefits and the primary purpose of this section of the Mental Hygiene Law was to allow facility directors to receive limited property owned by a patient when the patient entered a facility. The statute was not intended to apply to "payments by Federal agencies, which under their own pertinent regulations have been empowered to pay benefits directly to institutions in which the beneficiaries thereof are confined" (Matter of Arnold, 26 Misc.2d 298, 300). A plain reading of the text of the sections of the Mental Hygiene Law invoked by claimants does not provide for an absolute and affirmative prohibition upon a facility director ever receiving funds in excess of $5, 000 for any and all purposes. Rather, the first sentence of § 29.23 merely sets the limit of $5, 000 for the dollar amount of "funds" and the value of "other personal property" which may be received by a facility director on behalf of a patient and set aside for the limited purposes specified in the third sentence. The first sentence of § 29.23 provides that a facility director, acting on behalf of a patient, may receive "funds or other personal property * * * up to an amount or value not exceeding five thousand dollars." The third sentence of that section then provides that "[s]uch funds and the proceeds of the sale of other personal property so received shall be placed to the credit of the patient for whom received and disbursed on the order of the director, 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 entire section, read in context, cannot be interpreted as advanced by claimants, i.e., as an implied mandate that all funds received, including those received pursuant to Federal law which are intended to meet the basic needs of persons covered by the Social Security Act, must be used in the first instance for luxuries, comforts, necessities and burial expenses.
A plain reading of Mental Hygiene Law § 33.07(e) also refutes claimants' arguments regarding the facility director's authority to receive Social Security benefits only in a limited amount without violating any fiduciary duties. Section 33.07(e) explicitly recognizes that a "mental hygiene facility" may act as a "representative payee for a patient pursuant to designation by the social security administration" and provides that "such funds, " without any express limitation on the dollar amount of benefits received, "shall" be maintained by the facility director in a "fiduciary capacity" to the patient.
This reading of the Mental Hygiene Law is consistent with the Federal law policies and practices indicated above and is confirmed by the legislative history pertaining to the very recent 2010 amendments to these sections of the Mental Hygiene Law. Section 29.23 was amended to increase the amount of money, from $5, 000 to $25, 000, which may be set aside for a patient, to be used in the first instance for luxuries, comforts, necessities and burial expenses. The amendment further provided that:
"This section shall not apply to any federal or state benefits received by the director as representative payee, which benefits shall be handled in accordance with section 33.07 of this title and regulations promulgated thereunder [emphasis added]."
(id. § 29.23). The amendments to § 33.07(e) expressly state that a facility director, as a patient's representative payee, may receive funds "including benefits for which there is a state share, " and shall maintain "such funds in a fiduciary capacity to the [patient]; provided that the application of such funds to the cost of care and treatment of such [patient] shall not, in and of itself, be a violation of such fiduciary obligation if such director acts in accordance with federal law and regulations." These amendments do not change a facility director's authority as it previously existed under the ...