IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
GRACE THRU FAITH, )
)
Petitioner/Appellant, ) Weakley Equity No. 13194
)
vs. )
)
TONY L. CALDWELL, ) Appeal No. 02A01-9502-CH-00026
)
Respondent/Appellee )
)
and )
)
TONY L. CALDWELL and JOANN P. )
CALDWELL TRUST, )
Intervening Plaintiffs/Appellees
)
)
)
FILED
vs. ) October 9, 1996
)
EDWARD IRWIN and ) Cecil Crowson, Jr.
REBECCA IRWIN, ) Appellate C ourt Clerk
)
Intervening Petitioners/Defendants/ )
Appellants. )
APPEAL FROM THE CHANCERY COURT OF WEAKLEY COUNTY
AT DRESDEN, TENNESSEE
THE HONORABLE WILLIAM MICHAEL MALOAN, CHANCELLOR
For the Petitioner/Intervening For the Respondent/Intervening Plaintiffs/
Petitioners/ Defendants/Appellants Appellees
H. Max Speight Harold T. Brundige
Jeffrey W. Parham Martin, Tennessee
Martin, Tennessee
AFFIRMED
HOLLY KIRBY LILLARD, J.
CONCUR:
ALAN E. HIGHERS, J.
DAVID R. FARMER, J.
OPINION
This is a case involving a trustee’s improper accounting procedures and misuse of funds
regarding a trust set up to receive Social Security Insurance payments. At issue is whether Tennessee
state courts have subject matter jurisdiction to hear a dispute between a beneficiary and his
representative payee over alleged misuse of Social Security benefits. The trial court found it had
jurisdiction. We affirm.
Edward Irwin, an ordained minister, and his wife, Rebecca Irwin (the Irwins), are officers in
a non-profit organization named Grace Thru Faith Ministries (Grace Thru Faith). In 1989, Edward
Irwin (Irwin) met Tony Caldwell (Caldwell). Caldwell had been receiving Social Security benefits
and Supplemental Security Income (SSI). Irwin and Caldwell ultimately agreed that Irwin would
become Caldwell’s representative payee, and the Social Security Administration (SSA) subsequently
certified Irwin as such. As representative payee, Irwin received Caldwell’s benefit payments on
behalf of Caldwell and for his use.
Later, the SSA determined that Caldwell was entitled to back payments totaling
approximately $40,000. Receipt of this lump-sum payment, however, would put Caldwell in danger
of losing his SSI benefits. The SSA recommended ways to avoid this result, including establishing
a trust for receipt of the lump-sum payment, with the trust to be administered by someone besides
Caldwell. Irwin set up an irrevocable trust, with Grace Thru Faith as trustee, for the benefit of
Caldwell and his wife, Joann. The Irwins and the Caldwells all moved to Weakley County,
Tennessee. After the move, Irwin purchased a home, an automobile, and various furnishings and
appliances for Caldwell with trust funds. These items became trust assets.
The Irwins later alleged that Caldwell sold some of the furnishings purchased with Social
Security proceeds and caused or permitted damage to the residence. Irwin no longer wanted to be
associated with Caldwell. He informed the SSA of his desire to be removed as representative payee
for Caldwell. He made a final accounting to the SSA, which the SSA approved. Grace Thru Faith,
as trustee, filed suit against Caldwell, alleging waste of trust assets. Caldwell filed a counterclaim,
alleging the misappropriation of trust funds. Caldwell and his wife intervened as the Caldwell Trust
and sought to make the Irwins party defendants. The Irwins intervened as party plaintiffs and
claimed that Caldwell owed the Irwins personally $1,956.80.
After a bench trial, the trial court found in favor of Caldwell on all issues. The court found
that the Irwins had failed to properly document their use of trust funds and that consequently they
could not account for certain funds. The court found that the Irwins and Grace Thru Faith had
misused trust funds, awarded Caldwell a judgment against Grace Thru Faith and the Irwins in the
amount of $5,656.50, and removed Grace Thru Faith as trustee.
Grace Thru Faith and the Irwins then filed a Motion to Alter, Amend or Vacate Judgment for
Lack of Subject Matter Jurisdiction. The Irwins maintained that they had made an accounting to the
SSA and that the SSA had approved of their accounting methods as well as their use of funds. They
argued that federal law preempted state jurisdiction in this case and that Caldwell’s only remedy was
an administrative hearing and subsequent review in federal court. The trial court denied the motion,
and the Irwins filed this appeal.
The only issue on appeal is that of subject matter jurisdiction. The Irwins maintain that the
trial court had no jurisdiction over the accounting method prescribed by and approved by the SSA,
no jurisdiction to determine whether the Irwins misused Social Security benefits, and no jurisdiction
to change accounting methods after Irwin’s accounting had been accepted and approved by the SSA.
The issue of whether the trial court had subject matter jurisdiction in this case is a question
of law. Therefore, our review of the judgment below is de novo upon the record without a
presumption of correctness. Tenn. R. App. P. 13(d); see also Marriott Employees’ Fed. Credit
Union v. Harris, 897 S.W.2d 723, 727 (Tenn. App. 1994).
To decide whether federal law has preempted Tennessee law or the subject matter jurisdiction
of Tennessee courts, we start “with the presumption that state courts enjoy concurrent jurisdiction”
with federal courts. Watson v. Cleveland Chair Co., 789 S.W.2d 538, 542 (Tenn. 1989). The U.S.
Supreme Court has explained:
We start with the premise that nothing in the concept of our federal system
prevents state courts from enforcing rights created by federal law. Concurrent
jurisdiction has been a common phenomenon in our judicial history, and exclusive
federal court jurisdiction over cases arising under federal law has been the exception
rather than the rule.
Charles Dowd Box Co. v. Courtney, 368 U.S. 502, 507-08, 82 S. Ct. 519, 522-23, 7 L. Ed. 2d 483
(1962). The Court has described three circumstances in which the Supremacy Clause of the United
States Constitution, U.S. Const. art. VI, cl. 2, preempts state law:
First, Congress can define explicitly the extent to which its enactments pre-empt state
law. Pre-emption fundamentally is a question of congressional intent, and when
Congress has made its intent known through explicit statutory language, the courts’
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task is an easy one.
Second, in the absence of explicit statutory language, state law is pre-empted
where it regulates conduct in a field that Congress intended the Federal Government
to occupy exclusively. Such an intent may be inferred from a “scheme of federal
regulation . . . so pervasive as to make reasonable the inference that Congress left no
room for the States to supplement it,” or where an Act of Congress “touch[es] a field
in which the federal interest is so dominant that the federal system will be assumed
to preclude enforcement of state laws on the same subject.” . . .
Finally, state law is pre-empted to the extent that it actually conflicts with
federal law.
English v. General Elec. Co., 496 U.S. 72, 78-79, 110 S. Ct. 2270, 2275, 110 L. Ed. 2d 65 (1990)
(citations omitted) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146,
1152, 91 L. Ed. 1447 (1947)). Field preemption arising from a pervasive scheme of federal
regulation will not be found in a field that includes areas traditionally occupied by state law, unless
there is clear and manifest congressional intent to preempt. Id.
This is a case of first impression in Tennessee. This Court has previously noted that “[w]here
neither a direct conflict nor an expressed intent to preempt are present, the courts must judge from
an examination of the respective laws or regulations whether preemption has in fact occurred.”
Illinois Cent. Gulf R.R. Co. v. Tennessee Pub. Serv. Comm’n, 736 S.W.2d 112, 114 (Tenn. App.
1987). Consequently, we must examine the relevant federal statutes and regulations concerning
representative payees.
Under the Act, SSI benefits can be certified for payment to someone besides the beneficiary.
42 U.S.C. § 405(j)(1)(A) (1994). The person or organization receiving the SSI payments is called
the representative payee. Id. If the beneficiary is dissatisfied with the decision to make payments
to a representative payee or with the person chosen as representative payee, he is entitled to an
administrative hearing, and to judicial review thereof in federal court. Id. § 405(j)(2)(E)(i) (1994).
In addition, the Act requires annual accountings by a representative payee in order to help the SSA
identify representative payee misuse of funds. Id. § 405(j)(3)(A). The SSA can also require an
accounting from a representative payee at any time if it has reason to believe that the payee is
misusing payments. Id. § 405(j)(3)(D).
If the SSA finds misuse, action may be taken:
If the Commissioner of Social Security or a court of competent jurisdiction
determines that a representative payee has misused any individual’s benefit paid to
such representative payee pursuant to this subsection or section 1383(a)(2) of this
title, the Commissioner of Social Security shall promptly revoke certification for
payment of benefits to such representative payee pursuant to this subsection and
certify payment to an alternative representative payee or, if the interest of the
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individual under this subchapter would be served thereby, to the individual.
Id. § 405(j)(1)(A) (emphasis added). Further action is authorized when the misuse results from SSA
negligence:
In cases where the negligent failure of the Commissioner of Social Security
to investigate or monitor a representative payee results in misuse of benefits by the
representative payee, the Commissioner of Social Security shall certify for payment
to the beneficiary or the beneficiary’s alternative representative payee an amount
equal to such misused benefits. The Commissioner of Social Security shall make a
good faith effort to obtain restitution from the terminated representative payee.
Id. § 405(j)(5). In the absence of such negligence, any payment made under § 405(j), “if otherwise
valid under this subchapter, shall be a complete settlement and satisfaction of any claim, right, or
interest in and to such payment.” Id. § 405(k). The Act also provides a criminal penalty for payee
misuse of funds, making it a felony to knowingly and willfully use such funds for any purpose other
than on behalf of the beneficiary. Id. § 408(a)(5). In addition, “the court may also require that full
or partial restitution of such funds be made to the individual for whom such person or entity was the
certified payee.” Id. § 408(b).
SSA regulations reinforce the statutory guidelines. They provide that a representative payee
should keep records of his use of benefit payments and is accountable for that use. 20 C.F.R. §
404.2065 (1996). If the payee does not use benefit payments on behalf of the beneficiary or does not
provide a requested accounting, the SSA will select a new representative payee. Id. § 404.2050. In
addition, the regulations provide:
Our obligation to the beneficiary is completely discharged when we make a
correct payment to a representative payee on behalf of the beneficiary. The payee in
his or her personal capacity, and not SSA, may be liable if the payee misuses the
beneficiary’s benefits.
Id. § 404.2041. Finally, the regulations describe the review process for SSA decisions. Id. §§
404.900-.996. Administrative review and subsequent judicial review are available for decisions
which are deemed “initial determinations” by the SSA. Id. § 404.900(a). The regulations provide
a non-exclusive list of those actions considered initial determinations. Id. § 404.902. The decision
to make payments to a representative payee and choice of payee are initial determinations. Id. §
404.902(o), (q). The regulations also describe a category of agency “actions that are not initial
determinations.” Id. § 404.903. Actions that are not initial determinations may be reviewed by the
SSA but are not subject to the comprehensive review process afforded initial determinations and are
not subject to judicial review. Id. Denying an individual’s request to be certified a representative
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payee and deciding whether an organization acting as representative payee can charge the beneficiary
a fee for expenses incurred in fulfilling its duties fall into this category. Id. § 404.903(c), (q). The
regulations do not indicate that a beneficiary must go through the agency review process in order to
seek restitution from a representative payee who has misappropriated the beneficiary’s payments.
Likewise, the regulations do not indicate that the SSA’s acceptance of a final accounting from a
decertified payee forecloses the beneficiary’s state remedies against the payee.
Therefore, in situations in which the misuse of funds is not a result of SSA negligence, there
is no provision in the federal statutes or regulations for a beneficiary to recover misused funds from
a representative payee. While the SSA requires an accounting of a payee’s use of benefit payments,
the primary remedy for misuse of payments is replacement of the payee. 42 U.S.C. § 405(j)(1)(A)
(1994); 20 C.F.R. § 404.2050 (1996). Reimbursement is only provided for when the SSA has been
negligent in its oversight of the representative payee, not alleged here, and when the payee has been
convicted in criminal court for willful misuse of beneficiary payments, which has not occurred in
this case. 42 U.S.C. § 405(j)(5) (1994); id. § 408(b) (1994). The regulations state that the payee may
be personally liable for misuse of funds, implicitly allowing for a claim by the beneficiary against
the payee. 20 C.F.R. § 404.2041 (1996). The Act further provides for the revocation of a
representative payee’s certification when “the Commissioner of Social Security or a court of
competent jurisdiction determines that a representative payee has misused any individual’s benefit
paid” to him. 42 U.S.C. § 405(j)(1)(A) (1994) (emphasis added). The language “a court of
competent jurisdiction” clearly indicates that a claim of payee misuse of funds can be addressed
outside the SSA’s administrative procedures. Furthermore, the regulations do not list the SSA’s
acceptance of a representative payee’s accounting as an “initial determination” subject to agency
review or as an “action that is not an initial determination” that may still be subject to limited agency
review. 20 C.F.R. §§ 404.902-.903 (1996). Therefore, the federal statutes and regulations allow for
claims beyond those expressly provided for therein and contain no language indicating an intent to
preempt state court jurisdiction. Moreover, a state claim by a beneficiary for recovery of funds
misused by a payee does not conflict with the federal statutes and regulations. See English v.
General Elec. Co., 496 U.S. 72, 78-79, 110 S. Ct. 2270, 2275, 110 L. Ed. 2d 65 (1990).
Cases from other jurisdictions support this conclusion. In Jordan v. Heckler, 744 F.2d 1397,
1399 (10th Cir. 1984), the court found that a determination regarding a payee's misuse of funds was
5
not an initial determination under the Act and did not trigger an administrative hearing and judicial
review. Jordan noted that neither the Act nor regulations provide for a hearing on a representative
payee’s misuse of funds: "A claim may be the basis for a change in the representative, but this does
not have any consequences as to the dollars." Id. The court observed:
The only action that the agency can take if there appears to be a
misapplication of funds by the payee is to “request” restitution and refer the incident
to the General Accounting Office. Claims of this nature in this appeal have no
relation whatever to a termination of benefits or to the dollars from the agency. The
claims could however go against the representative as an individual with state law
remedies available.
Id. (emphasis added). Therefore, under the reasoning in Jordan, Caldwell’s claim against the Irwins
was properly pursued in state court.
An unreported federal decision discusses the issue of jurisdiction. In Blanchard v. Social
Security Administration, No. CV-91-1576, 1993 WL 72353 (E.D.N.Y. Mar. 1, 1993), the district
court considered whether it could hear a suit against the SSA on the misuse of SSA funds paid to a
representative payee who was the state-appointed conservator for a beneficiary. The court
interpreted the language in 42 U.S.C. § 405(j)(1)(A) concerning "a court of competent jurisdiction"
and the determination of misuse of funds by a representative payee:
[T]hat section implicitly mandates that plaintiff exhaust her administrative remedies
before seeking such a determination in federal court for only then would the court
have "competent jurisdiction" to determine the issue of misuse of funds. In addition,
the statute also contemplates removal of a representative payee once a state court
of competent jurisdiction determines that the individual has converted funds
received on behalf of the beneficiary. Should plaintiff wish to pursue her restitution
claim, she must first file a claim of misuse of funds with the Social Security
Administration and exhaust the administrative appeals process before this Court can
address that issue or, alternatively, she may petition the Supreme Court of Queens
County to remove Brand as conservator of Jenkins' estate by substantiating her
allegations of misuse of funds in that court.
Id. at *2 (emphasis added) (footnote omitted). This interpretation of the Act supports finding
concurrent jurisdiction between the state and federal courts. See also In re Guardianship &
Conservatorship of Cavin, 333 N.W.2d 840, 841 (Iowa 1983) (noting a conservator’s concurrent
federal and state duties to account for Social Security benefits).
State jurisdiction over claims of payee misuse of funds was also found in In re Kummer, 461
N.Y.S.2d 845 (N.Y. App. Div. 1983). Kummer relied on an unpublished federal decision, Bell v.
Secretary of HEW, No. 70 C 407 (E.D.N.Y. Feb. 2, 1971). Kummer, 461 N.Y.S.2d at 858-61. In
Bell, the court observed that “ ‘neither the Act nor the regulations provide for any means by which
6
the Administration can recover funds misappropriated by a representative payee and reissue them
to the beneficiary.’ ” Kummer, 461 N.Y.S.2d at 859 (quoting Bell). Bell noted that, even if the
SSA had found that the defendant had misappropriated the plaintiff’s funds, it would have had no
power to compensate the plaintiff. Id. The court concluded that, “ ‘[s]ince no decision made by the
Secretary could have affected any of plaintiff’s rights to payment of benefits, no hearing was
required’ ” by the Act. Id. (quoting Bell). Consequently, an SSA “Special Determination” finding
no payee misuse of funds was not a proper adjudication of the rights between the two parties, and
the federal court set that determination aside. Id. at 860. In Bell, the court pointed out that the
plaintiff beneficiary could sue the defendant representative payee in state court. Id. Relying on Bell,
Kummer concluded that New York courts had jurisdiction over claims of payee misuse of benefit
payments. Id. at 860-61.
In Catlett v. Catlett, 561 N.E.2d 948 (Ohio App. 1988), the Ohio court considered whether
a representative payee could be ordered to put a lump-sum Social Security payment into a trust set
up for the beneficiary, her minor daughter. The court found that questions regarding misuse of
Social Security funds by a representative payee are not exclusively under federal jurisdiction. Under
the Act, the SSA's primary response to the discovery of payee misuse of funds is to choose a new
representative payee. Id. at 951. The SSA only requires accountings from a payee in order to know
whether to retain him or choose a new one, not to settle disputes between payees and beneficiaries.
Id. at 951-53. Catlett also noted that the Act provides administrative action for the two types of SSA
decisions discussed above, “initial determinations” and “actions that are not initial determinations.”
Id. at 951. The court concluded:
We find that the case at bar involves an issue, i.e., the representative payee’s
expenditure of benefits, which is neither an initial determination nor a determination
which is not an initial determination as defined by the federal regulations.
Jurisdiction over this particular issue has not been exclusively granted to the federal
courts by express provision. In addition, the nature of this particular question is such
that the SSA no longer has any interest in the funds after they have been properly
paid to the appropriate representative payee.
Id. at 953. Thus, the court decided that the state had jurisdiction over actions alleging payee
misappropriation of SSA funds. Id.
Consequently, a number of cases appear to support a finding of no preemption. However,
there are cases to the contrary. Brevard v. Brevard, 328 S.E.2d 789 (N.C. App. 1985), found that
state courts have no jurisdiction over a representative payee's misuse of funds. It noted that, "[i]n
7
general, Social Security benefits are neither assignable nor subject to legal process." Id. at 791. The
court went on to state that, "[i]n enacting Title 42, Chapter 7, Congress provided that the use or
misuse of federal Social Security benefits would be a federal matter, entrusted primarily to the SSA."
Id. at 792. The court concluded:
The courts of North Carolina, however, do not possess the power to compel the SSA
to transfer the children's benefits to someone other than the designated payee, nor do
they have the power to determine that defendant is misusing Social Security
benefits paid to him on behalf of the children and to direct that he account for
them to some other person.
Id. (emphasis added). The Brevard court speculated that the plaintiff might have an administrative
remedy through the SSA or that the SSA might invoke 18 U.S.C. § 641, a criminal statute directed
against stealing public money, property, or records. Id; see also C.G.A. v. State, 824 P.2d 1364,
1367 (Alaska 1992) (finding that the existence of a federal remedy preempts state jurisdiction).
However, as discussed above, the SSA does not provide a means by which a beneficiary may
recover misappropriated funds from a representative payee, in the absence of negligence by the SSA.
Consequently, a finding of preemption would result in no available remedy for a beneficiary who has
been the victim of misuse of funds by a representative payee.
The Social Security Act and the regulations promulgated pursuant to it neither explicitly nor
implicitly preempt state jurisdiction over this issue. Tennessee courts have "undoubted jurisdiction"
over disputes between the legatee and the trustee of an express trust, such as Grace Thru Faith.
Armstrong's Heirs v. Campbell, 11 Tenn. (3 Yer.) 201, 234 (1832). Accordingly, if a representative
payee misuses or misappropriates SSI benefits paid to him on behalf and for the use of the
beneficiary, Tennessee courts have jurisdiction to examine the payee’s accounting, determine if any
abuse has occurred, and order the appropriate remedy. 1 Therefore, the trial court had subject matter
jurisdiction in this case.
The decision of the trial court is affirmed. Costs are assessed against Appellants, for which
execution may issue if necessary.
HOLLY KIRBY LILLARD, J.
CONCUR:
1
Only the SSA, however, has the authority to decertify a representative payee.
8
ALAN E. HIGHERS, J.
DAVID R. FARMER, J.
9