TN 10 (09-16)

PR 08305.034 New Mexico

A. PR 16-155 New Mexico Court Order and Underpayment Priority List

Date: July 1, 2016

1. Syllabus

The New Mexico State court Amended Final Order for distribution of an Social Security (SSA) underpayment due the deceased conflicts with federal statutory and regulatory laws, which govern the management of Social Security benefits. The Amended Final Order from a New Mexico state court does not bind the agency as it violates the protections of section 207(a) of the Social Security Act (the Act) and is contrary to the order of priority for underpayments in section 204(d) of the Act. In addition, the state court does not have jurisdiction to order SSA, a federal agency, to take any action with regard to the underpayment.

2. Opinion

QUESTIONS PRESENTED

This memorandum is in response to your request for a review of whether a May 2016 New Mexico state court order directing the Social Security Administration (agency or SSA) to split payment of an underpayment of Social Security benefits owed to the deceased number holder C~ (NH) between his surviving spouse D~ (D~) and his daughter H~ (H~) as his estate’s representative, conforms to Social Security law. In addition, you asked for our assistance in amending, rescinding, or vacating the court order if we determine it does not conform to Social Security law.

SHORT ANSWER

A state court order cannot supersede federal law. The May 2016 New Mexico state court order directing the agency to split the NH’s underpayment of Social Security benefits between D~ and H~ is an improper assignment of benefits that violates section 207(a) of the Social Security Act (Act). Additionally, under section 204(d) of the Act’s priority of distribution of an underpayment, D~ is entitled to the full underpayment as the surviving spouse. Thus, the agency is not bound to follow the state court’s order because it conflicts with federal law. Additionally, to the extent the state court is attempting to order the agency to take a specific action as to the underpayment, the New Mexico state court does not have jurisdiction over SSA, a federal agency entitled to sovereign immunity. Therefore, the state court is prohibited under federal law from directing how Social Security benefits are to be paid and lacks jurisdiction to direct SSA as to how the agency is to pay the benefits.

Regarding your request for assistance in amending, rescinding, or vacating the court order, OGC will respond to the court explaining the controlling federal law regarding the priority of underpayments set out in the Social Security Act and regulations. Without addressing the specifics of the court case, which SSA is not a party to, we will explain that under controlling sovereign immunity, the state court does not have jurisdiction over SSA, and further, that under the supremacy of federal law, the Social Security Act does not permit the state court’s assignment of Social Security benefits and controls as to the priority of who is to receive an underpayment from a deceased beneficiary.

BACKGROUND

According to the information provided in your request, in October 2014, the agency approved the NH’s Title II disability insurance benefits application and sent the NH a check for $14,703.75 representing payments due. The NH died on March XX, 2015, without negotiating the check. In December 2015, the Treasury Department returned a credit to Social Security, which represents an underpayment on the NH’s record. On May XX, 2015, H~ completed a form SSA-1724-F4 Claim for Amounts Due in the Case of a Deceased Social Security Recipient (form SSA-1724-F4), in which she claimed she was due the NH’s underpayment. H~ indicated she was the “daughter/legal [representative]” of the NH.

On June XX, 2015, D~ also completed an SSA-1724-F4 form in which she claimed that she was due the NH’s underpayment. She indicated she was the NH’s surviving spouse, did not live in the same household with the NH at the time of his death, and was entitled to a monthly benefit on the same earnings records as the NH at the time of his death. The evidence shows that D~ accurately stated she was not living with the NH at the time of his death, but that she incorrectly stated she was entitled to monthly widow’s benefits on the NH’s record. The evidence indicates that D~ had not filed an application for widow’s benefits, was earning more than the annual earnings test allowed for widow’s benefits, and that no child or parent existed who was entitled to a monthly benefit on the deceased NH’s earnings record.

On May XX, 2016, District Judge Mark Sanchez of the Fifth Judicial District Court in L~, New Mexico (state court), issued a First Amended Final Order Disposing of Funds and Consolidating Cases (Amended Final Order, or state court order) in the cases H~, as Personal Representative of the Estate of C~ v. D~, No. D-506-CV-2015-00652 and D~ v. C~, No. D-506-DM-2013-522. The state court noted that the court’s earlier finding of fact awarding $14,000 of the NH’s underpayment to D~ was predicated on an inaccurate potential selling price of $92,500.00 for the parties’ residence, while the residence sold for $60,000. Amended Final Order at 2. The state court then made new findings of fact with regard to disposing of funds finding that $12,000 of the NH’s “Social Security Disability benefits” should be payable “to the Estate of C~, H~, Personal Representative” and $2,000 should be allocated to D~. Amended Final Order at 3. The state court found that “[t]he Social Security Administration for the United States of America should pay to the Estate of C~ the sum of fourteen thousand dollars ($14,000.00) to be disbursed as set forth herein above, through the Trust Account of the Attorney for the Estate of C, Max Houston Proctor.” The state court then ordered, adjudged, and decreed that “[t]he amount of twelve thousand dollars ($12,000.00) held by [SSA] is hereby awarded to H~ as Personal Representative over the Estate of C~,” and the “sum of two thousand dollars ($2,000.00) is hereby awarded to D~ from the Social Security Disability benefits held by [SSA].” Final Amended Order at 4. H~ provided this state court order to the agency in support of her claim to the NH’s underpayment.

ANALYSIS

I. The State Court Order Does Not Bind the Agency Because it is Contrary to the Order of Priority for Underpayments in Section 204(d) of the Act and it is an Invalid Assignment under Section 207(a) of the Act

H~ presented the agency with a state court order purporting to divide the underpayment owed to the NH between herself and D~ and ordering the agency to pay the underpayment per the terms of the order; however, as explained below, the agency is not required to distribute the NH’s underpayment as the order directs because it directs payment contrary to the order of priority for underpayments that section 204(d) of the Act directs and because it operates as an invalid assignment of benefits in violation of section 207(a) of the Act. Thus, the state court order conflicts with federal law governing the management of Social Security benefits. A state court order cannot supersede federal law. See U.S. Const. Art. VI, cl. 2 (the Supremacy Clause declares the Constitution and the laws of the United States as the supreme law of the land and that judges in every state are bound by federal law); Bush v. Vera, 517 U.S. 952, 991-992 (1996) (“The Supremacy Clause obliges the States to comply with all constitutional exercises of Congress’ power.”).

a. The State Court Order Does Not Bind the Agency Because it Conflicts with the Order of Priority for Distributing a Title II Underpayment under Section 204(d) of the Act

An underpayment is any monthly Social Security benefit amount (or portion of a monthly benefit amount) due a person which the agency has not paid. See 20 C.F.R. § 404.501(a); POMS GN 02301.001A. When the agency determines that it has paid less than the correct amount of Title II benefits to an individual, the agency makes an adjustment to correct the underpayment. See 42 U.S.C. § 404(a)(1)(B). The Act specifies an order of distribution for an underpayment due to an individual who dies before receiving payment or negotiating a check representing that payment. See 42 U.S.C. § 404(d); 20 C.F.R. § 404.503(b); POMS GN 02301.030A. First, the agency applies any amount due to the deceased individual against an overpayment the deceased owed, unless the agency has waived recovery of the overpayment. 20 C.F.R. § 404.503(b). Then, the agency distributes any remaining underpayment to living persons in the following order of priority:

1) The deceased individual’s surviving spouse (as defined in section 216(c), (g), or (h) of the Act) who either lived in the same household as the deceased at the time of death, or was entitled to a monthly benefit on the basis of the same earnings record as was the deceased individual

2) The child or children of the deceased individual who, for the month of death, were entitled to a monthly benefit on the basis of the same earnings records as was the deceased individual.

3) The parent or parents of the deceased individual who, for the month of death, were entitled to a monthly benefit on the basis of the same earnings records as was the deceased individual.

4) The surviving spouse of the deceased individual who does not qualify under provision 1.

5) The child or children of the deceased individual who do not qualify under provision 2.

6) The parent or parents of the deceased individual who do not qualify under provision 3.

7) The legal representative of the deceased individual’s estate.

42 U.S.C. § 404(d)(1)-(7); 20 C.F.R. § 404.503(b)(1)-(7); POMS GN 02301.030A(a)-(g).

Because there is no evidence that the NH had an overpayment, the first priority of distribution for the NH’s underpayment would be to a surviving spouse who either lived with the NH at the time of his death, or who was entitled to benefits on the same earnings records as was the NH. See 42 U.S.C. § 404(d)(1); 20 C.F.R. § 404.503(b)(1). In a previous opinion, we determined D~ was the NH’s surviving spouse. See POMS PR 02605.034, A. PR 16-032, Effective Date of Divorce for NH’s Widow - New Mexico State Law (November 19, 2015). In D~’s June 25, 2015 Form SSA-1724-F4, she represented that she was not living with the NH in the same household at the time of his death, but that she was entitled to a monthly benefit on the same earnings records as the NH at the time of his death. However, you informed us that D~ was not entitled to monthly widow’s benefits, and was instead only entitled for a lump sum death payment. Therefore, D~ is not entitled to the NH’s underpayment under the first priority group.

The next highest group in the order of distribution would be to a child or children of the NH who were entitled to monthly benefits on the same basis as was the NH in the month of the NH’s death. See 42 U.S.C. § 404(d)(2); 20 C.F.R. § 404.503(b)(2). In H~’s Form SSA-1724-F4, she indicated she was the NH’s “daughter/legal [representative].” However, you informed us that no children or parents existed who were entitled to a monthly benefit on the same earnings records as the NH in the month of his death. Therefore, H~ is not entitled to the NH’s underpayment under the second priority group. In addition, because there are no parents who were entitled to a monthly benefit on the same earnings records as the NH in the month of his death, there is no person who qualifies to receive the underpayment under the third priority group. See 42 U.S.C. § 404(d)(3); 20 C.F.R. § 404.503(b)(3).

D~ is entitled to receive the underpayment owed to the NH under the fourth priority group. Section 204(d)(4) provides that if no person meets the requirements of the first three priority groups then payment will be made to a surviving spouse of the deceased individual. As discussed, D~ was the NH’s legal widow, or surviving spouse, but did not meet the other requirements of the first priority group, and neither H~ nor anyone else qualifies under the second or third priority group. Therefore, because D~ was a surviving spouse and nobody met the requirements of a higher priority group, the Act provides that she is entitled to receive the NH’s full underpayment. Therefore, the state court order splitting the underpayment between D~ and H~ is in clear conflict with federal law, which directs the full underpayment to D~. Consequently, the agency should not comply with this state court order.

b. The State Court Order Does Not Bind the Agency Because it is an Invalid Assignment under Section 207(a) of the Act

The state court order purports to divide the underpayment owed to the NH between H~ and D~; however, the agency is not required to distribute the NH’s underpayment under the order because it operates as an invalid assignment of benefits. Section 207(a) provides that “[t]he right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy, or insolvency law.” See 42 U.S.C. § 407(a); see also 20 C.F.R. § 404.1820(a). This provision therefore prohibits “the transfer of control over money to someone other than the beneficiary, recipient, or the representative payee.” POMS GN 02410.001A. As explained, under section 204(d)(4), D~ is entitled to the underpayment. Because the statutory provision authorizing the agency’s payment of a deceased NH’s underpayment, 42 U.S.C. § 404(a)(1)(B), (d), and the prohibition on assignment of future payments and protection of rights, 42 U.S.C. § 407(a), are both found in title II of the Act, the statutory protection from assignments and legal process applies to the underpayment owed to the NH and the particular state court order at hand. C.f. Bennett v. Arkansas, 485 U.S. 395, 397 (1988) (invalidating Arkansas statute that attached Social Security benefits paid to individuals incarcerated in Arkansas prisons); see also POMS PR 08305.011 A. PR 14-041 Settlement of Claims and Debts – Florida Summary Administration (January 7, 2014) (determining that the agency was not bound by the Florida state court order directing the agency to distribute an underpayment because it was an invalid assignment and that submitting to the state court order would be a violation of section 207 and section 204(d) of the Act).

Here, the state court order splits the underpayment between a surviving spouse and the child/legal representative of the estate. The agency’s order of distributing an underpayment does not provide for splitting underpayments between individuals found in separate priority groups. Therefore, the state court order necessarily transfers control of money to someone other than the recipient, no matter if D~ or H~ is the appropriate recipient. POMS GN 02410.001D.1.a, specifically notes the prohibition of payment to the wrong person applies even if “a court orders SSA to make payment to a party other than the beneficiary or recipient, unless one of the specific exceptions in GN 02410.001B in this section exists.” Because none of the exceptions apply, the state court order does not affect the right of the proper recipient to receive the NH’s underpayment, and the agency should not distribute the underpayment as directed in the state court order.

II. The State Court Order Does Not Bind the Agency Because the State Court Does Not Have Jurisdiction Over the Agency

Finally, the state court has ordered the agency to make this payment per the terms of the state court order. The agency is not a party to the state case and has not been served with any legal process, but to the extent this state court is attempting to exert authority over the agency, we emphasize that the state court does not have jurisdiction over SSA, a federal agency. See F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994) (“Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit.”); United States v. Mitchell, 463 U.S. 206, 212 (1983) (“It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.”). Therefore, the agency should not comply with this state court order.

Regarding your request for assistance in amending, rescinding, or vacating the court order, OGC will respond to the court explaining the controlling federal law regarding the priority of underpayments set out in the Social Security Act and regulations. Without addressing the specifics of the court case, which SSA is not a party to, we will explain that under controlling sovereign immunity, the state court does not have jurisdiction over SSA, and further, that under the supremacy of federal law, the Social Security Act does not permit the state court’s assignment of Social Security benefits and controls as to the priority of who is to receive an underpayment from a deceased beneficiary.

CONCLUSION

The state court order conflicts with federal statutory and regulatory laws, which govern the management of Social Security benefits. The Amended Final Order from a New Mexico state court does not bind the agency as it violates the protections of section 207(a) and is contrary to the order of priority for underpayments in section 204(d). Based on the statutory distribution priority per the Act, D~ is entitled to the NH’s underpayment. Furthermore, the state court does not have jurisdiction to order SSA, a federal agency, to take any action with regard to the underpayment. Regarding your request for assistance in amending, rescinding, or vacating the court order, we will respond to the court.

Michael McGaughran

Regional Chief Counsel

By: M. Hasan Aijaz

Assistant Regional Counsel


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http://policy.ssa.gov/poms.nsf/lnx/1508305034
PR 08305.034 - New Mexico - 09/12/2016
Batch run: 09/12/2016
Rev:09/12/2016