Opinion ID: 172808
Heading Depth: 3
Heading Rank: 2

Heading: Identity of VA benefits

Text: Griffith's offense of conviction was theft of U.S. property in violation of 18 U.S.C. ง 641. In her Petition to Enter Plea of Guilty and Order Entering Plea, Griffith admitted that [f]rom March, 2003, to July, 2005, [she] embezzled more than one thousand dollars ... from the Department of Veterans Affairs ... by taking DAV benefits of David Norvell and converting them to [her] own use. R. vol. 1, tab 4, at 2. She explained to the district court that the VA benefit checks were deposited directly into Norvell's checking account, and that he then would sign checks for her so that she would get the benefit of the VA money. (R. vol. VI at 11.) She further acknowledged that the cumulative total of all these checks deposited into Norvell's account was $22,870. ( Id. ) Before we may consider episodes of putative actual loss of VA funds caused by Griffith's offense conduct, we must determine whether those funds, once deposited into a beneficiary's account and made available for withdrawal, would retain their identity as VA funds. While the federal courts have not addressed this question with reference to ง 641, the Supreme Court and lower courts have done so with reference to 38 U.S.C. ง 5301 and its predecessor statutes, which exempt veterans' benefits from taxation, ... from the claim of creditors, and ... [from] attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary. 38 U.S.C. ง 5301(a)(1). The World War Veterans' Act of 1924, 38 U.S.C. ง 454, provided that `[t]he compensation, insurance, and maintenance and support allowance payable [to veterans] shall not be assignable; shall not be subject to the claims of creditors of any person to whom an award is made ...; and shall be exempt from all taxation.' Trotter v. Tennessee, 290 U.S. 354, 356, 54 S.Ct. 138, 78 L.Ed. 358 (1933) (quoting 38 U.S.C. ง 454). In Trotter, the Supreme Court held open the question of whether veterans' benefits received under this statute retained their exempt character once they were in the hands of the veteran or on deposit in a bank. Id. The Trotter Court did conclude, however, that such benefits lost their exempt character once they had lost the quality of moneys and were converted into land and buildings. Id. at 356-57, 54 S.Ct. 138. Congress then amended the statute, mandating both that veterans' benefits were to remain exempt `either before or after receipt by the beneficiary' and that the benefits' exempt status should not extend `to any property purchased in part or wholly out of such payments.' Lawrence v. Shaw, 300 U.S. 245, 249, 57 S.Ct. 443, 81 L.Ed. 623 (1937) (quoting 38 U.S.C. ง 454, as amended by the World War Veterans' Act of 1935). In Lawrence, the Court held that veterans' benefits deposited in a bank retained their exempt character so long as those deposits are made in the ordinary manner such that the proceeds of the collection are subject to draft upon demand for the veteran's use. Id. at 250, 57 S.Ct. 443. [A] mere allowance of interest upon deposits, the Court noted, would not be enough to destroy an immunity [to taxation and attachment] where it would otherwise attach. Id. However, the Court later explained in Carrier v. Bryant, 306 U.S. 545, 547, 59 S.Ct. 707, 83 L.Ed. 976 (1939), that [i]nvestments purchased with money received in settlement of benefits do not retain their exempt character. The statute assumed its current form in 1958, when it was amended to provide that [p]ayments of benefits due or to become due under any law administered by the Veterans' Administration shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary. The preceding sentence shall not apply to claims of the United States arising under such laws nor shall the exemption therein contained as to taxation extend to any property purchased in part or wholly out of such payments. 38 U.S.C. ง 3101(a) (1958) (quoted in Porter v. Aetna Cas. & Surety Co., 370 U.S. 159, 159 n. 1, 82 S.Ct. 1231, 8 L.Ed.2d 407 (1962)). In Porter, the Court extended Lawrence 's holding to veterans' benefit funds on deposit in federal savings and loan associations. Since legislation of this type should be liberally construed to protect funds granted by the Congress for the maintenance and support of the beneficiaries thereof, we feel that deposits such as are involved here should remain inviolate. The Congress, we believe, intended that veterans in the safekeeping of their benefits should be able to utilize those normal modes adopted by the community for that purpose โ provided the benefit funds, regardless of the technicalities of title and other formalities, are readily available as needed for support and maintenance, actually retain the qualities of moneys, and have not been converted into permanent investments. 370 U.S. at 162, 82 S.Ct. 1231 (citations omitted). Congress gave the statute its current numbering, 38 U.S.C. ง 5301, in 1991. We think that Porter 's interpretation of ง 5301 is equally applicable to VA funds at issue under ง 641. Therefore, as long as a veteran's benefits are held in an account making those funds readily available as needed for support and maintenance, and the funds are not converted into permanent investments or into property, Porter, 370 U.S. at 162, 82 S.Ct. 1231; Lawrence, 300 U.S. at 249, 57 S.Ct. 443, they retain their identity as public money under ง 641. Furthermore, even if VA funds are commingled in an account with other funds, they will retain their VA character as long as they are readily traceable and may be accounted for with a standard accounting method, such as first-in, first-out tracing. See S & S Diversified Servs., L.L.C. v. Taylor, 897 F.Supp. 549, 552 (D.Wyo.1995) (reasoning that social security benefits deposited in a joint bank account retain their exempt status [pursuant to 42 U.S.C. ง 407] if they are readily traceable); NCNB Fin. Servs., Inc. v. Shumate, 829 F.Supp. 178, 180-81 (W.D.Va.1993) (If the recipient of social security benefits commingles the benefits with other funds, he is entitled to protection as to those funds that are reasonably traceable to social security income.). [13]