FILED

October 9, 1996

Cecil Crowson, Jr.

Appellate Court Clerk

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 )

)

vs. )

)

EDWARD IRWIN and )

REBECCA IRWIN, )

)

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’srepresentativepayee, 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
2

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 federallawhas preemptedTennessee 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’
3

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
4

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
5

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
6

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
7

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
1Only the SSA, however, has the authority to decertify a representative payee. 

8

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:

 
9

ALAN E. HIGHERS, J. 

 

DAVID R. FARMER, J.