Opinion ID: 777050
Heading Depth: 3
Heading Rank: 1

Heading: Other Legal Process

Text: 12 As a preliminary matter, we must consider whether Washington Mutual's offset practice constitutes a type of other legal process within the meaning of Section 407(a). In light of our current caselaw, which has broadly construed this phrase, we conclude it does. 13 In Crawford v. Gould, 56 F.3d 1162 (9th Cir.1995), we addressed California's practice of taking Social Security benefits from institutionalized patients' hospital accounts to pay for the cost of their care and treatment, whether or not the patients had signed a form authorizing such deductions. California argued that its actions were not prohibited by Section 407(a) because they had not resorted to any type of other legal process similar to those expressly listed in the statute. Id. at 1166. We rejected this argument, noting that Section 407(a) was designed to protect social security beneficiaries and their dependents from the claims of creditors (quoting Fetterusso v. New York, 898 F.2d 322, 327 (2d Cir.1990)), and that the cramped reading of § 407 California urges would enable the state to obtain Social Security benefits through procedures that afford less protection than judicial process affords. Id. We therefore determined that reading other legal process to include the practice of withdrawing benefits from the accounts without consent was consistent with the purposes underlying Section 407. Id. at 1167-68. 14 More recently, we decided Nelson v. Heiss, 271 F.3d 891 (9th Cir.2001), holding that prison officials could not use veteran's benefits to satisfy overdrafts on an inmate's prison trust account. Although Nelson was actually construing 38 U.S.C. § 5301(a), which protects veteran's benefits from creditors, we expressly noted the similarity to Section 407(a) and relied upon Social Security cases to reach the result. Id. at 895. 3 15 The only other circuit to address the issue has also construed other legal process quite broadly. The Tenth Circuit held that a credit union could not use the self-help remedy of setoff and apply Social Security benefits contained in a checking account to satisfy the depositor's loan obligation to the bank. Tom v. First American Credit Union, 151 F.3d 1289, 1293 (10th Cir.1998). Relying in part on our decision in Crawford, the court decided that the setoff constituted other legal process within the meaning of Section 407: 16 We can see no reason why Congress would, on the one hand, choose to protect Social Security beneficiaries from creditors who utilized the judicial system, a system that is built upon principles of fairness and protection of the rights of litigants, yet, on the other hand, leave such beneficiaries exposed to creditors who devised their own extra-judicial methods of collecting debts. Such a construction of § 407 would run contrary to both logic and the spirit underlying the Social Security Act. Moreover, if the Supreme Court did not see fit to carve an exception to § 407 where an important public interest — a state's need to defray the costs of supporting indigent individuals — was at stake, we will not create an exception that would, for the most part, serve very private interests — banks' desires to cut their bad debt losses. 17 Id. at 1292 (internal citations omitted). The Tenth Circuit also relied on a California state law case which discredited making a distinction between bank setoffs and legal actions such as attachment and execution: 18 Although the banker's setoff differs from attachment and execution in that it does not require the aid of a state official, there is no relevant difference between the two procedures as to the state objective of protection of unemployment compensation and disability benefits from claims of creditors. The assertion of a banker's setoff has exactly the same effect as a third party's levy of execution on the account — it deprives the depositor of income which the state provided him to meet subsistence expenses. 19 Id. (quoting Kruger v. Wells Fargo Bank, 11 Cal.3d 352, 113 Cal.Rptr. 449, 521 P.2d 441, 452-53 (1974)). 20 In sum, we agree that Washington Mutual's overdraft setoff constitutes a seizure of protected benefits by other legal process. By paying the plaintiffs' checks when there were insufficient funds in the accounts, the bank essentially extended a loan to the plaintiffs and became a creditor. Washington Mutual then used the self-help remedy of setoff to recoup the plaintiffs' debt to the bank and enforce the contractual account holder agreement, in which the plaintiffs agreed to promptly repay any overdraft. Our decision in Crawford suggests that other legal process should be given an expansive reading in order to fulfill the purposes of Section 407, and not to permit a party to obtain Social Security benefits through procedures that afford less protection than judicial process affords. 56 F.3d at 1166. Our recent decision in Nelson, along with the Tenth Circuit's reasoning in Tom, confirm that setoff procedures such as Washington Mutual's fall within the type of extra-judicial self-help remedies that are prohibited by Section 407(a).