TN 24 (08-16)

PR 04505.024 Massachusetts

A. PR 16-150 Preliminary Order of Forfeiture issued by the U.S. District Court for the District of MA

Date: April 19, 2016

1. Syllabus

SSA is unable to honor the preliminary order for the forfeiture of assets for properties from the U.S. District Court for the District of Massachusetts, in the case of J~. The order for the forfeiture of assets, as written, does not cite law or regulation that would supersede protections from assignment of benefits. If the court issues a victim restitution order that complies with the Act, SSA can release applicable portions of the underpayment to the court notwithstanding the “suspense” status.

2. Opinion

Questions Presented

On June 24, 2014, the U.S. District Court for the District of Massachusetts issued a preliminary order for the forfeiture of assets identified by the United States as property of J~. Those assets include present and future funds held by the Social Security Administration (SSA), payable to J~. To determine whether SSA is required to comply with the order, you asked three questions:

1. Does the U.S. District Court’s forfeiture order compel the agency to make direct payment of Social Security Benefits to the United States?

2. Are the past-due benefits payable to J~, but presently held by Social Security in a non-payment status, properly identified as property subject to forfeiture?

3. If seizure is appropriate, what is the proper mechanism for releasing the funds (given that Social Security policy does not identify a mechanism for paying past due benefits on a record in suspense for prison confinement)?

Short Answers

The forfeiture order should not be effectuated. Although the U.S. Attorney’s Office indicated that the order is intended to serve as a vehicle for expedited victim compensation (and to ensure that all of the victims are compensated and stand in equal priority), section 207 of the Social Security Act (the Act) does not permit SSA to assign benefits based on forfeiture orders. To be exempted from the assignment prohibition in section 207, an order for victim restitution must be issued in accordance with 18 U.S.C. § 3613.

The assets at issue in this case are those benefits that were suspended from 1999 until 2013. Although J~ was identified as a member of the Martinez class, we believe this classification may be incorrect. For that reason, we recommend that your office seek a determination on this issue and, possibly, the amendment of J~’s record to reflect only a “whereabouts unknown” suspense status until his incarceration in August 2013.

If the court issues a victim restitution order that complies with the Act, SSA can release the underpayment to the court notwithstanding the “suspense” status. To accomplish this, your office should follow the steps discussed in detail below.

Background

On November 14, 2013, the U.S. District Court for the District of Massachusetts issued an Order of Forfeiture (Money Judgment) against the defendant, J~, in the amount of $25,162,800, after he was found guilty of multiple counts of racketeering. Under Rule 32.2(e) of the Federal Rules of Criminal Procedure, the United States moved to amend the Money Judgment, to request the forfeiture of substitute property to satisfy the Money Judgment.

On June 24, 2014, the court issued the order that is the subject of this opinion—the Preliminary Order of Forfeiture for Substitute Assets in Partial Satisfaction of Money Judgment (the Order). The Order identified substitute assets that may be forfeited in satisfaction of the original Money Judgment, including “all funds held by the Social Security Administration, payable to J~, and all future payments by the Social Security Administration payable to J~.”

The potential funds identified in the Order are the Social Security retirement benefits that were suspended after J~’s disappearance in 1999 until he was incarcerated in 2013. He began receiving retirement benefits in October 1991. Those benefits were paid without interruption until February 1999 when the payments were suspended because J~’s whereabouts were unknown. On June 1, 2005, SSA received three homicide warrant reports from the National Crime Information Center. In December 2009, SSA sent a notice to J~’s last known address, informing him that because he was a member of the Martinez class, his outstanding arrest warrants would no longer preclude payment of his benefits, but that he would need to provide information in order for the benefits to be reinstated. Following his apprehension, J~’s benefits remained suspended. After his conviction and subsequent imprisonment, his Social Security record was amended to reflect a new suspense status: prison confinement. Thus, the benefits at issue may include the following:

Applicable Law

Section 207 of the Act strictly limits the assignment or transfer of benefits 42 U.S.C. § 407. It states;

The right of any person to any future payment under this subchapter 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. Id.

Any exemption from this law must expressly reference Section 207. Id.

SSA currently recognizes just three exemptions: (1) garnishments for child support or alimony (42 U.S.C. § 659); (2) garnishments for victim restitution (18 U.S.C. §§ 3613(a), 3663, 3663A, and 3664); and (3) levies for unpaid federal taxes (26 U.S.C. §§ 6331 and 6334). See also POMS GN 02410.001.B.

At issue here is the second exemption, garnishment for victim restitution. Under 18 U.S.C. § 3613(c), certain types of judgments (including orders of restitution made pursuant to 18 U.S.C. §§ 3663 (Order of Restitution), 3663A (Mandatory Restitution to Victims of Certain Crimes), or 3664 (Procedure for Issuance and Enforcement of Order of Restitution)) are exempt from the assignment prohibition in section 207.

Although it is not an exemption recognized by SSA, the United States can seek forfeiture of a criminal defendant’s property if he is found guilty. FED. R. CRIM. P. 32.2. If the government seeks forfeiture of specific property, the court must determine whether the government has established the requisite nexus between the property and the offense. FED. R. CRIM. P. 32.2(b)(1)(A), see also 21 U.S.C. § 853(a). If, as in this case, the government seeks a personal money judgment, the court must determine the amount of money that the defendant will be ordered to pay. FED. R. CRIM. P. 32.2(b)(1)(A). The United States may also move to amend a forfeiture order to substitute property to satisfy the original order. FED. R. CRIM. P. 32.2(e). Substitution orders are sought in situations where the property identified in the original order cannot be located, has been transferred to a third party, is beyond the reach of the court’s jurisdiction, has diminished in value, or has been commingled with other assets that cannot be divided easily. 21 U.S.C. § 853(p). A preliminary forfeiture order authorizes the United States to, inter alia, seize the property subject to forfeiture. FED. R. CRIM. P. 32.2(b)(3).

Analysis

1. Does the Order compel the agency to make direct payment of Social Security benefits to the United States?

No. The agency lacks the authority to comply with the order because an order for criminal forfeiture is not a recognized exception to the anti-assignment rule under section 207.

Section 207 strictly prohibits the assignment or transfer of Social Security benefits or rights unless an express exception has been established by Congress. See 42 U.S.C. § 407. While an order of victim restitution is one of the exceptions to the assignment prohibition, a criminal forfeiture order is not. See 18 U.S.C. §§ 3613(a), 3663, 3663A, and 3664. See also POMS GN 02410.001.B.

Restitution and forfeiture are distinct asset collection mechanisms. Criminal forfeiture is governed by 21 U.S.C. § 853, while restitution under the Mandatory Victims Restitution Act is governed by 18 U.S.C. § 3613(c), as “a lien in favor of the United States on all property and rights to property of the person fined.” The two avenues of asset collection also serve different purposes. “Congress conceived of forfeiture as punishment for the commission of various [crimes].” Libretti v. U.S., 516 U.S. 29, 39 (1995). The purpose of restitution, on the other hand, is not to punish the defendant, but to make the victim whole again, by compensating for their losses, and restoring victims to their original state of wellbeing. See, e.g., U.S. v. Hunter, 618 F.3d 1062, 1064 (9th Cir. 2010), U.S. v. Simmonds, 235 F.3d 826, 831 (3d Cir. 2000). Notably, both collection vehicles draw from the same pool of the defendant’s assets.

After communicating with the U.S. Attorney’s Office, we understand that they have entered into an agreement with the victims in this case to turn over all assets collected through forfeiture. Although the order of forfeiture appears to serve as a vehicle for the payment of victim restitution in this case, forfeiture orders are not a recognized exception to section 207. For that reason, despite the intentions of the U.S. Attorney, SSA still lacks the authority to comply with the Order.

If the court issues an order of victim restitution, however, SSA will be compelled to comply, provided the order references either 18 U.S.C. § 3613 or 3613(a). See POMS GN 02410.223.B.1.a.

2. Are the past-due benefits payable to J~, but presently held by Social Security in a non-payment status, properly identified as property subject to forfeiture?

As discussed above, any past-due benefits owed to J~ are not subject to forfeiture, but would be subject to a lump-sum garnishment if the court issues an acceptable order for victim restitution. As a matter of form, however, we believe that any past-due benefits (or underpayment) would result solely from J~’s “whereabouts unknown” status, as opposed to his inclusion in the Martinez class.

As background, the Martinez settlement agreement (approved on September 24, 2009, by the U.S. District Court in the Northern District of California) was the product of a nationwide class action in the case of Martinez v. Astrue, Case No. 08-CV-4735 CW. The agreement changed the types of felony arrest warrants that SSA could use to suspend payment of Social Security benefits and directed remedies for two distinct class members: (1) members whose benefits were suspended or denied on or after January 1, 2007 (the “post-2006” class); and (2) members whose benefits were suspended or denied before that date (the “pre-2007” class). POMS GN 02613.860. For members of the post-2006 class, benefits were automatically reinstated and any withheld benefits were paid retroactively beginning with the first month of suspension. POMS GN 02613.860.B.3. SSA sent notices to the members of this class informing them of those actions. Id. The pre-2007 class, in contrast, received notification that the agency would stop collecting overpayments and remove any overpayments incurred due to the its former fugitive felon policy. POMS GN 02613.860.B.4. The notice also advised the class members that they would be given a protective filing deadline of April 1, 2009, if they contacted SSA within six months to file a new application for benefits. Id.

In December 2009, SSA sent a notice to J~’s last known address informing him of the Martinez settlement agreement and explaining that his outstanding arrest warrants would no longer preclude payment of his benefits. The notice also directed J~ to contact SSA within 30 days to provide information necessary to resume his benefits. This notice does not fully comport with the notices sent in connection with either the pre-2007 class or the post-2006 class. Instead, it appears to be a hybrid notice with information pertaining to J~’s suspensions due to “whereabouts unknown” as well as his prior arrest warrants.

Although SSA issued a notice to J~ identifying him as a member of the Martinez class, we believe this classification may be improper. Because his whereabouts were unknown, he could not have received notification of, nor appealed, an initial notice of suspension based on his outstanding arrest warrants. In fact, there is no evidence that such a notice was ever generated. For that reason, we recommend that your office seek a determination on this question that would allow the agency to amend J~’s record to reflect a “whereabouts unknown” suspense status until his incarceration in August 2013. If you choose to pursue this option, you should contact the Office of Income Security Programs (within the Office of Retirement and Disability Policy). J2~ is SSA’s lead policy expert on Martinez-related matters. If she agrees, she will assist you with amending the record.

With only a suspension based on “whereabouts unknown” (prior to J~’s incarceration), the calculation of a potential underpayment would be simplified. When an individual’s benefits are suspended due to a whereabouts unknown status, the payments can be reinstated retroactively back to the first month of suspension once the beneficiary is located. POMS GN 02602.320.E.1. In this case, we believe the retroactive period would begin in February 1999 and continue through July 2013, when J~ was incarcerated. See POMS GN 02607.550.A.

3. If seizure is appropriate, what is the proper mechanism for releasing the funds?

Although not express in SSA’s POMS guidance, there is a mechanism for releasing underpayment funds to comply with an order for victim restitution when the garnishee’s pay status is in suspense (in this case, due to incarceration). After a garnishment order for victim restitution is received and deemed proper, it is entered into the Court Ordered Garnishment System (COGS), regardless of the ledger account file (LAF) status (e.g., current, terminated, deferred, suspense). POMS GN 02410.223.B.3.a. COGS then controls any pending garnishment orders when the beneficiary’s LAF status changes to “current pay.” POMS GN 02410.223.B.3.b.

Because J~ is currently incarcerated, serving two life sentences plus five years, his LAF status will never change to “current pay.” SSA can, however, release the withheld benefits that were posted to his record for the time his whereabouts were unknown and he was not yet confined for his crimes. These past-due benefits can be withheld by allowing them to accrue to the Special Payment (SPC PAY) Data Line on the Master Beneficiary Record (MBR). These past due benefits will allow garnishment to occur. M~ in the Office of Public Service and Operations Support can provide the payment center with instructions on how to process the case without removing J~’s benefits from prisoner suspension and ensure that garnishment also begins for victim restitution. M~ can contact J2~ for additional processing information on this case, if required.

Additionally, based on a discussion with R~ from the Office of Income Security Programs, SSA’s policy lead on garnishment questions, we learned that the agency generally makes these types of payments in the following way:

If the lump sum underpayment is $500 or more, COGS will withhold the Federal Consumer Credit Protection Act (CCPA) Limit from the lump sum.

COGS will then generate an Alert (OG10) to the Payment Center to contact the court for instructions on how much of the lump sum they would like to receive.

The beneficiary will then be paid the amount of the lump sum that exceeds the Federal CCPA Limit.

COGS will automatically stop all pay-over (including the regular monthly garnishment payment) to the Court until the lump sum issue is resolved.

In this case, however, R~ has contacted the Office of Systems to determine if there is a way to bypass the CCPA limitations to allow SSA to garnish all (or most of) the lump sum amount for victim restitution. For additional information or assistance with this process, please contact R~

Conclusion

The preliminary forfeiture order should not be effectuated. The assets at issue in this case are the benefits that were suspended from 1999 through 2013. We believe this underpayment is based solely on a “whereabouts unknown” status and recommend that you seek a determination on this question and an amendment to the record. If the court issues a victim restitution order that complies with our rules, there is a mechanism that will permit SSA to release the underpayment, while J~’s record remains in a suspended status.

Christopher Michaels

Regional Chief Counsel (Acting)

By: Candace Lawrence

Assistant Regional Counsel


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PR 04505.024 - Massachusetts - 08/17/2016
Batch run: 08/17/2016
Rev:08/17/2016