Opinion ID: 1179758
Heading Depth: 1
Heading Rank: 3

Heading: money judgment

Text: The insurance company maintains that this lawsuit is merely a breach of contract action, and that nothing prohibits a money judgment against Hunt based upon the alleged breach of the integration agreement signed by Hunt. Hunt answers that the integration agreement was unenforceable because of 42 U.S.C. § 407(a). Hunt argues that the insurance company seeks a judgment based on an agreement which is a violation of federal law. Hunt first cites Philpott v. Essex County Welfare Board, 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973) as controlling. In Philpott one of the petitioners, Wilkes, applied to the Essex County Welfare Board, one of New Jersey's welfare agencies, for financial assistance because he was permanently and totally disabled. New Jersey law required that he execute an agreement to reimburse the county welfare board for all the payments he received. The agreement had the force of a judgment under New Jersey law. The purpose of these statutes was to obtain reimbursement out of subsequently discovered or acquired real and personal property of the recipient. Wilkes received the benefits. The agency advised Wilkes to apply for social security disability benefits. When Wilkes was awarded retroactive disability benefits, and received a lump-sum check, it was deposited into Philpott's account as trustee for Wilkes. The agency sued to reach the bank account under the agreement to reimburse, but the trial court ruled that the respondent was barred by 42 U.S.C. § 407 from recovering any amount from the account. The Appellate Division affirmed, but New Jersey's Supreme Court reversed. The Supreme Court of the United States then granted a petition for a writ of certiorari. The Philpott court held that § 407 imposes a broad bar against the use of any legal process to reach all social security benefits. Philpott, 409 U.S. at 417, 93 S.Ct. at 592. The court continued that the bar was broad enough to include all claimants. That barred New Jersey from reaching the federal disability payments to Wilkes. The court reasoned that the language was all-inclusive: `(N)one of the moneys paid or payable. . . under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process. . . .' The moneys paid as retroactive benefits were `moneys paid . . . under this subchapter'; and the suit brought was an attempt to subject the money to `levy, attachment . . . or other legal process.' Philpott, 409 U.S. at 415-416, 93 S.Ct. at 592. This Court has cited and discussed the implications of the Philpott decision in First Nat. Bank and Trust Co. of Ada v. Arles, 816 P.2d 537 (Okla.1991). The Arles case concluded that the essential inquiry was whether the funds from which repayment is sought were social security benefits. Whether or not the source of repayment is set out in the agreement to repay is irrelevant. Arles, 816 P.2d at 540. The case held that judicial proceedings in the district court could not be used to force a judgment debtor to pay money to a plaintiff creditor where the debtor's sole source of income was social security and disability benefits. Arles, 816 P.2d at 538. The case also held that the use of the courts to enforce an agreement between two parties is `legal process.' Arles, 816 P.2d at 541. In applying Philpott and Arles to the case at bar, we first observe that the insurance company has employed legal process because it is using the district court in an attempt to enforce the document signed by Hunt purporting to agree to reimburse the insurance company from any funds received from social security benefits. Hunt claimed that until he started to receive social security benefits, his sole income was from the disability benefits provided by the insurance company. The insurance company does not controvert this fact in its brief. Therefore, it appears that Philpott and Arles control. The insurance company is prohibited from using the district court in an attempt to enforce the purported integration agreement. The Court of Appeals agreed with the insurance company that the issue before the trial court was not whether it was entitled to execution against funds protected by § 407, but whether the insurance company had a right to a judgment on its contract. The Court of Appeals reasoned that Arles prohibits the use of judicial proceedings to reach social security benefits, not the threshold step of obtaining a judgment. The court concluded that whether the insurance company would ultimately execute on a judgment in its favor and receive payment from sources it is entitled to reach is not at issue. We cannot agree. In King v. Schafer, 940 F.2d 1182 (8th Cir.1991), the United States Court of Appeals for the Eighth Circuit held that the Missouri Department of Mental Health could not threaten legal action against representative payees of social security benefits. These payees were relatives of patients involuntarily committed to the care and custody of the Director of Mental Health after being found guilty of crimes by reason of mental disease or defect. These patients had been determined to be disabled by the Social Security Administration due to mental illness, and each received a monthly social security benefit. The Department of Mental Health had sent the representative payees letters advising them that if they ever refused to pay charges for the costs of the patient's care and treatment, pursuant to state law, the Department would bring legal action against them and seize their state income tax refunds to satisfy the debt. The Department had not even filed a lawsuit. Nevertheless, the Court of Appeals for the Eighth Circuit held that what a state cannot do, it cannot threaten to do. King, 940 F.2d at 1185, citing Moore v. Colautti, 483 F.Supp. 357, 368 (E.D.Pa.1979), aff'd, 633 F.2d 210 (3d Cir.1980). According to King, a threat to sue pursuant to a state statute providing for collection against social security benefits for care of patients is illegal under federal law, even where the collection is to be from tax refunds. Should the insurance company in the case at bar stand in a better position than the state of Missouri? We think not. The insurance company was obligated to pay disability benefits to Hunt at the time he became disabled. Hunt was not obligated by the contract to apply for social security benefits. When he did, and finally received a lump sum benefit, those funds were protected by federal law from legal process. That includes threats of lawsuits, filing of lawsuits, and judgments. We cannot agree with the insurance company that it was merely trying to enforce a simple contract. Although the insurance company has a right, pursuant to the cases discussed above, to offset its disability benefits being paid to a beneficiary by funds received from social security benefits, the insurance company was prohibited by federal law from threatening a lawsuit, filing a lawsuit, or receiving a judgment in an attempt to collect against the lump sum received by Hunt. That is clearly what the insurance company was attempting to do, in spite of its assertions to the contrary. The insurance company received premiums for nineteen years for disability insurance on Hunt. The contract obligated the insurance company to pay when Hunt became disabled. Because there was the possibility that Hunt was also entitled to social security disability benefits, the insurance company claimed the right to deduct what the insurance company itself would estimate those benefits to be immediately, even though it knew that social security benefits are always delayed. So the beneficiary of a disability policy has not only lost his ability to earn a paycheck, receiving in return a portion of the income he formerly received, his insurance company informs him that it will additionally reduce that amount by what it estimates he should receive from social security, and he can live on that until he eventually receives his social security benefit, if he is entitled to such a benefit at all. Then the insurance company presents the insured a document allowing him to continue to receive his full benefit, to which he thought he was entitled, if he agrees to repay the insurance company in a lump sum when he receives his lump sum benefit from social security. It is unfair to characterize such an arrangement as an agreement. We decline to do so.