# FILED
October 9, 199 6 Cecil Crowson, Jr . App ellate C ou rt Clerk IN THE COURT OF AP PEALS OF

TENNESSEE WESTERN SECTI ON AT JACK SON

GRACE THRU FAITH, ) ) Petitioner /Appella nt, ) Weakley Equity No. 13194 ) vs. ) ) TONY L. CALDWELL, ) Appeal No. 02A01-9502-CH-00026 ) Respondent/Appellee ) ) and ) ) TONY L . CALD WELL and J OANN P. ) CALDWELL TR

UST, ) ) Intervening Plaintiffs/Appellee s ) ) vs. ) ) EDWARD IR

WIN and ) REBECCA IRWIN, ) ) Inte rvening Petitioner s/Defendants/ ) Appellan ts. )

APPEAL FROM THE CHANCERY COURT OF WEAKL EY COUNTY AT DRESDEN, TENNESSEE

THE HONORABLE WI

LL IAM MICHAEL MALOAN, CHANCELL OR

For th e Peti tion er/Inter venin g For the R esponde nt/In terveni ng Plaint

iffs/ Petitioner s/ Defendants/App ellants Appellees H. Max Speig

ht Harol d T. Bru ndige Jeffrey W. Parham Martin, Tennessee Martin, Tennessee

AFFIRMED

HOL LY KI RBY LI LL ARD , J.

CONCUR:

ALAN E. HI

GHERS, J.

DAV ID R. F ARM ER, J.OPINION

This is a cas e invo lvin g a trus tee’s improper accounting proce dures and misuse of funds regarding a trust set up to receive Social Security Insurance payments. At issue is whether Tennessee state courts have subject ma tter juri sdiction to

hear a d ispute be tween a benefic iary

and his repres entative payee

over alleged misuse of Social Security benefits. The trial court found it ha d jurisdict ion. We af

firm. Edward Irw in, an ord ained min

ister, and his wife, Re

becca I rwin (the Irw ins), ar

e offic ers in

a non-profit organization named Grace Thru Faith Ministries (Grace Thru Faith). In 1989, Edward Irw in (Irwin) met Tony

Caldwell (Caldwell). Caldwell had been receiving Socia

l Security benefit s and Supplemental Security I ncome (SSI). I

rwin and Caldwell ultimately ag reed that Irwin would become Cal dwell’s representative payee , and the So cial Sec urity Administra

tion (SSA) s ubseque

ntly certifi edIrw in as such . As repr esentat ive pay ee, I rwin rec eived Ca

ldwell’s benefit

pay ments o n behalf of Caldwell and for his use. Later, the SSA det

ermined that Caldw ell was e

ntitled to b ack pay

ments tota

li ng approxima

tely $40,000. Receipt of

this lump-s um pay

ment, how ever, w ould put Ca ldwell in danger of losing hi s SSI be

nefits. T he SSA rec ommended

way s to avoid this result, including establishing a trust fo r rece ipt of the l

ump-sum pa

yme nt, with the

trust to be administered by someone be sides Caldwell. Irwin set up an irrevoc able trust, with Gra ce Thru Faith as trustee, for the benefit of Caldwell and his wif

e, Joann. T

he I rwins and

the Caldw ell s all mov ed to We ak le y Co un ty, Tenness ee. After the move, I rwin purc hased a home, an a

utomobile, and vari ous furni shings a n d applianc es for Ca

ldwell wit

h trust funds. These

items bec ame trust

assets. The Irwins later alleg ed that Caldwell sold some of the furnishings purchased wi th Social Security proceeds andcaused or permitted damage to the residence. I rwin no longer wanted to be associated

with Caldwell. He informed the SSA of his desire to be removed as representative pay ee for Caldwell. He made a final accounting to the SSA, which the SSA approved. Grace Thru Faith,

as trustee, filed suit

agains t Caldwell , alleg ing was te of trus t assets. C aldwell f iled a countercl aim, alleging the misapp

ropriati on of trus t funds. Ca ldwell an d his wife

interve ned as the Caldwell T

rust and so ugh t to make the Irwins party defendants. The Ir

wins 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 found2

that the I rwins had failed to properl y do cument their use

of trust funds and that

consequently they could not account for cert ain funds. The court found that the Ir wins and Grace Thru Faith had misused trust fund s, awar ded Caldw ell a judg

ment ag ainst Grace Thru Faith and the I rwins in the amount of $5,656.50, and removed Grace Thru F aith as trustee. Grace Thru Faith and the I rwins the n filed a Motion to Al

ter, Ame nd or Vac ate Judgment for Lack of Subject Matter Jurisdiction. The Irwins maintained that they had made an acco unting to the SSA and that t

he SSA had

approve d of their

accoun ting 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 wa s

an administrative hearing and subsequent review in federal court. The trial court

denied the motion, and the I rwins filed this appe al. 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 me

thods after Irwin’s ac counting 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. The

refore , our rev

iew of the

judgmen t below is de novo upon the r ecord w ithout a presumption of correctness. Tenn. R. App. P. 13 ( d); see also M arriott Employ ees’ Fed

. Credit Union v. Har

ris , 897 S.W.2d 723, 727 (Tenn. App. 1994). To decide whether fede

ral law has preempted T ennessee law or the subject matter jurisdiction of Tenness ee cour

ts, we sta rt “with th

e presum ption that s tatecourts enjoy concur rent jurisdiction” withfederal courts. Watson v. Cleveland Chair Co. , 789 S.W.2d 538, 542 (Tenn. 1989). Th e U.S. Supreme Court has explained:

We start with the premise that nothi ng in the concept of our federal sy stem prevent s state courts from enfo rcin g rights created by federal law. Concurrent jurisdiction has been a common ph en om en on in ou r j ud ic ia l h is to ry, and exclusive federal court jurisdiction over cases arising under fe deral law has been the exception rather than the rule. Charles Dowd Box Co. v. Courtney , 368 U.S. 5 02, 507-0 8, 82 S. Ct. 519, 522-23, 7 L. Ed. 2d 483 (1962). The Court has described three c ircumsta

nces in which the Su

premac y Cla

use of the United States Constitution, U.S. Const. art. VI, cl. 2, preempts state law: First, Congre ss can define explic itly the extent to which it s enactm ents pre -empt sta

te law. Pre-emp tion funda

me ntally is a question of congressional intent, and when Congre ss has made its intent known through explicit statutory lang uage, the cour

ts’3

task is an easy one

. Second, in the absence of

explicit statutory languag e, state law is pre-empted where it regulates co nduct in a field that Congress intended

the Federal Government to occupy e

xclusively. Such

an intent ma y be infer

red from a “scheme of fede ral regulation. . . so pervasive as to make reasonable the inferencethat Congress left no roomfor the States to supplement it,” or where an Act of Con gress “

touch[es] a

field in which the

federa l interes t is so dominantthat the federal sy stem will be assumed to preclude enforcement of state laws on the sa me subject.” . . . Fi na ll y, state law

is pre-e mpted to the

extent that

it actually

conflic ts 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 omit ted) ( quot ing Rice v. Santa F e Elev ator Corp. , 331 U.S. 218, 230, 67 S. Ct. 1146, 1152 , 91 L. Ed. 1447 (1947)). Field preemption arising from a pe rvasive scheme of federal regulationwill not be found in a field that includes areas t

raditiona lly o ccupied

by s tate law , unless there is clear and manifest congr essional intent to preempt. Id. This is a case of first impression in Tennessee. This Court has previously noted that “[w]here neither a direc t conflic t nor an e

xpressed i ntent topreempt are present, the courts must judge from

an examination of the res pective laws or regulations whether pr eemption 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 releva nt federal statutes and regulations conce rning repres entative

pay ees. Under the Act, SSI benefits can be c ertified for payment to someone beside s the be ne fi ci ar y. 42 U.S.C. § 405(j)(1)(A) (1994). The person or org anization receiving the SSI pa yments is called the representative pay

ee. Id. If the beneficia

ry is dissatisfied with the

decision to make pa

yme nts to a representative pay

ee or with the person chosen as represe ntative payee , he is entitled to an administrative hearing, and to judicial review thereof in federal cour t. Id. § 405(j)(2)(E)(i) (1994). In addition, the Act requires annual a ccountin gs by

a repre sentative

pay ee in ord

er to hel p the SSA identify representative pay

ee misuse of funds. Id. § 405(j)( 3)(A). T he SSA can also requi re an accounting from a repres entativ e pay ee at an y tim e if it hasreason t

o believe that the p ay ee is misusing payments. Id. § 405(j)(3)(D). If the SSA finds misuse, action may be taken: If th e C om mi ss io ne r o f S oc ia l S ec ur it y or a cour t o f competent jurisdiction determines that a

representative pay

ee has misuse d any

individua

l’s benefit paid to such representative pay

ee pursuan t to this subsection or s ection 13 83(a)( 2) of this ti tle, the Commissioner of Social Security shall promptly revoke certification for pa ym ent of benefits to such representative pay ee pursuant to this subsection and certify paymen t t o an alternative representative pay ee or, if the interest of the4

individua l under th is subcha pter would be ser

ved ther eby , to the ind

ividual. Id. § 405(j)( 1)(A) ( emphasis added). Further action is a

uthorized when the misuse re sults from

SSA negligence: In cases where the neg ligent f

ailure o f the Commis sioner of Social Sec

urity to investigate or

monitor arepresentative pay ee results in misuse of benefits by the representativepayee , the Commissionerof Social Security shall ce rtify for payme

nt to the beneficiary

or the beneficiary ’s alternative representative pay ee an amount equal to such misused benefits. The Commissioner of Social Security shall make a good faith effort to obtain restitution from the terminated repre sentative payee. Id. § 405(j)(5). In the

absence of such neglige

nce, an y pa yme nt made un der § 405 (j), “if otherwis e valid under this subchapter, shall be a complete settlement and satisfac tio n of any cla im, right, or interest in and to such payment.” Id. § 405(k). The Act a lso provides a criminal penalty for payee misuse of funds, making it a felony to knowing ly 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 req uire tha t full

or partial restitution of such funds be made to the individual for whom such person or entity w as the certified pay ee.” Id. § 408(b). SSA regulations reinforce the statutory guidelines. They

provide that a representative payee should keep record s of his use of benefit pay ments and is accountable for that use. 20 C.F.R. § 404.2065 (1996). If the pay ee does not use benefit pay ments on behalf of the beneficiary or does not provide a reque sted a ccoun ting, the SSA will select a new representative payee . Id. § 40 4.2 050 . In addition, the regulations provide:

Our obligation to the beneficiary is completely discharg ed when we make a correct pay ment to a representative pay ee on behalf of the

benefic iary . The pay

ee in his or her pe

rsonal c apacity , and not SS A, may be liab le if the payee misuses the benefic iary ’s benef

its. Id. § 404.2041. Finally, the re gulations des cribe the review process for SSA decisions. Id. §§ 404.900-.996. Administrat iv e 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 pay

ments to a represen tative payee and choice of pay

ee are initial determinations. Id. § 404.902(o), (q). The

regula tions also d

escribe a categ ory

of age ncy “action s th at 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 proc ess afforded initial determinations and are not subject to judicial review. Id. Denying an individual’s request to be certified a represe ntative5

pay ee and deciding whether an org anization acting as representative pay ee can charge the

benef iciar y

a fee for expenses incurred in fulfilling its duties f

all into this category

. Id. § 404.903(c), (q). The regulations do not indicate that a beneficiary must go through

the age ncy review p rocess i n order t

o seek restitutio n from a r

eprese ntative p ay ee who ha s misappro priated the beneficia

ry’s pa yme nts. Likewise, the regulations do n ot indicate that the SSA ’s acce

ptance o f a fina

l accoun ting fr om a decertified payee forecloses the beneficiar y’s state re

medies against the pay

ee. Therefore, in situatio ns in which the misuse

of funds i s not a re sult of SSA negligence, there is no provision in the federal statutes or regulations for a beneficiary

to recover misused funds from

a repres entative

pay ee. While

the SSA requires an accounting of a pay ee’s use of

benefit pay ments, the primary re

medy for misuse of pa

yments is replace

ment of the payee . 42 U.S.C. § 405(j)(1)(A) (1994); 20 C.F.R. § 404.2050 (1996). Reimbursement is only provided for whe n the SSA has been negligent in its oversight of the representative pay ee, not alleged here, and

when the payee

has been convictedin criminal court for willful misuse of be neficia ry pay ments, whi ch has no t occurr ed in this case. 42

U.S.C. § 405 (j)(5) ( 1994); id. § 408(b) (1994). The regulations state that the pay ee may be persona

lly liable for misuse of funds, implicitly allowing for a cl aim by

the beneficiary

agains t the pay ee. 20 C.F .R. § 404.2 041 (1996 ). The Act further provid es for the re vocation of a repres enta

tive payee ’s ce rt if

ic at io n w he n “ th e C om mi ss io ne r o f S oc ia l S ec ur it y or a court of competent

jurisdiction determines that a representative pay

ee has misused any

individua

l’s benefit paid” to him. 42 U.S.C. § 405(j)(1)(A) (1994) (emph asis added) . The language “a court of competent

jurisdic tion” clearly indica tes that a claim of pay ee misuse of funds can be addressed outside the SSA’s administrative procedures. Furthermore, the regu lations do not list the SSA’s acceptance

of a representative pay

ee’s acc ounting a s an “initial determination” subject to agency review or as an “ action th at is not an initial determination” that may still be subject to limited age ncy review. 20 C.F.R. §§ 404.902-.903 (1996). Therefore, the federa l statutes and regulations allow for claims bey ond those e

xpressly provided for ther ein and c ontain no l angua ge indic ating a

n intent to preempt state co urt j urisdiction. Moreover, a state claim by a beneficiary

for recovery

of funds misused by a pay

ee d o es not conflict with the federal statutes and reg ulations. 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 was6

notan 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 represe

ntative payee ’s misuse of

funds: "A claim may

be the basis for

a change in the represe

ntative, but this does not have any consequen ces as to the d ollars." Id. The court observed:

The only acti on th at the age ncy ca n take if there appears to be a misapplication of funds by the pay ee is to “

request ” restitution and refer the incident to the Ge neral 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 cla ims could however go against the representative as an individual with state law remedies available. Id. (emphas is added) . Therefore, under the r easoning in Jordan , Caldwell’s claim against the Ir wins was prop erly

pursued in state c ourt. 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 ag ainst the SSA on the misuse of SSA funds pa

id to a repres enta

tive 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 pay

ee: [T]hat section implicitly mandates that plaintiff exhaust her

administrative remedies before seeking such a determination in federal court for only then w ould 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 cour t of competent jur

is dicti on determines that the individual has converted funds received on behalf of

the benef iciary . Should pla

intiff wis h to pursue her restitution claim, she must first fi le a claim of misuse of f

unds with th

e Social Security Administration and exhaust the administrative appeals process before this Court can addressthat issue or, alternatively, she may petition the Supreme Court o f Queens County to remove Br

and as conse

rvator of Jenkins' es tate by sub

sta ntia ting her allegation s of misuse of

funds in that c ourt . Id. at *2 (empha sis added ) (footn ote omitte d). This in terpre tation of t

he Act su pports findin g concurrent

jurisdiction between the state and federal courts. See also In re Guardianship & Conservat

orship of Cav in , 33 3 N.W.2d 840, 841 (Iowa 1983) (noting a conservator’s concurrent federal and state duties to account for Social Secur ity benefits). Statejurisdict

ion over c laims of pa

ye e misuse

of funds was also found

in In re Kummer , 461 N.Y.S.2d 845 (N.Y. App. Div. 1983). Kummer reliedon an unpublished federal decision, Bell v. Secretar y of HEW

, No. 70 C 407 (E.D.N.Y. Feb. 2, 1971). Kummer , 46 1 N. Y.S .2d at 8 58- 61. In Bell , the court observed

that “ ‘neither the Act nor the reg ulations provide for any

means by which7

the Administration can recover funds misappropriated by a r epr esentative pay ee 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 tha

t the def endant ha d misappr opriate d the plai ntiff’s f

unds, 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 pay ment of benefi ts, no hea ring was required’ ” by the Act. Id. (quot ing Bell ). Consequently, an SSA “Special De termination” finding

no payee misuse of f

unds was n ot a

proper adjudication of the rights between the two pa rties, 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 pay

ee in state court. Id. Relying on Bell , Kummer concluded that

New York cou

rts had ju risdictio n over cl aims of pa ye e misuse o f benef

it payments. Id. at 860-61. In Catlett v. Catlett , 561 N.E.2d 948 (Ohio App. 1988), the Ohio court considered whether

a representative pay

ee could be ordered to put a lump-sum Social Security payment into a

trust set up f or the benefi ciary, her mino r daugh ter. T he cou rt fou nd th at que stio ns regar ding m isuse o f Social Security funds by

a representative pay

ee are not exclusively under federal jurisdiction. Under the Act, the SSA's primary respons e to the discovery of payee misuse of funds is to choose a new representativepayee . Id. at 951. The SSA only requires a ccountings from a pay

ee in order to know whether to retain him or choose a

new one, not to settle dis putes bet ween pa ye es and be

neficia ries. Id. at 951-53. Catlett

also noted that the Act provides administrative action for the two type s 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 benef

its, which is neither an initial determination nor a determination which is not an in

itia l dete rmination

as defined by

the fede

ral reg ulations. Jurisdiction over this particular issue has not been exclusively granted to the federal courts by express provision. I n addition, the nature of this particular question is such that t he SSA no long er has a ny interest in the fund s after t hey have be en prope

rly paid to the appropriate representative pay ee. Id. at 953. Thus, the court decided that the state had jurisdiction over actions alleg ing pa ye e misappropriation of SSA funds. Id. Co ns eq ue nt ly, a number

of case s 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 court s have no ju risdi ction over a r eprese ntati ve payee's misuse of fund s. I t note d tha

t, "[i ]n1 Only the SSA, however, ha s the authority to dece rtify a re presentative pay ee. 8 gener al, Social Security

benefits are n either assi gnable nor subject to legal p rocess." Id. at 791. The court went on to

state tha t, "[i]n ena

cting Ti tle 42, Cha

pte r 7, Cong ress provided that the use or misuse of federal Social Security benefits would be a federal matter, entrusted primaril y 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 transfe r the chi ldren' s benefits to someone other than the designated pay ee, nor do they have the p ower to de termine that de

fendant is misus ing Social Securit y benefits p aid 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 t

hat the SSA

might inv oke 18 U.S .C. § 641, a criminal statute directed agains tstealing public money , property, or r ecords. Id ; see also C. G.A. v. Sta te , 824 P .2d 1364, 1367 (Alaska 1992) (finding that the existence of a fe deral remedy preempts state jurisdiction). However, as discus sed abov e, the SSA d oes notprovide a means by which a beneficiary

may
recover misappropriated funds from a representative pa yee, in the a

bsence of negligenc e by the SSA. Co ns eq ue nt ly, a finding

of pree mption woul d result

in no available remedy

for a beneficiary

who has been the victim of misuse of funds by a representative pay

ee. 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 legat ee and the trustee of an express trust, such as Grac e Thru Faith. Armstrong's Heirs v. Ca

mpbell , 11 Tenn. (3 Yer.) 201, 234 (1832). Accordingly , if a representative payee misuses or misappro priates SSI benefits paid to him on behalf and for the use of the be ne fi ci ar y, Tenness ee cour ts have jurisdiction to examine the payee ’s accounting, determine if any abuse has occu rred, a nd order the appr opriate re me dy. 1 Therefore, the trial court had subject matter jurisdiction in this case. The decision of the trial court is a ffirmed . Costs are

assesse d again st Appella nts, for which

ex ec ut io n m ay i ss ue if

ne ce ss ar y. HOLLY KIRBY LILLARD, J. CONCUR:9

ALAN E. HIGHERS, J.

DAVID R. FARMER, J.