*fn6,The opinion of the court was delivered by: Reggie B. Walton, United States District Judge,BARBARA BATES AND BONNIE BELL, PLAINTIFFS, v. NORTHWESTERN HUMAN SERVICES, INC., ET AL. , DEFENDANTS." />

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Bates v. Northwestern Human Services

October 28, 2008 *fn6

BARBARA BATES AND BONNIE BELL, PLAINTIFFS,
v.
NORTHWESTERN HUMAN SERVICES, INC., ET AL. , DEFENDANTS.



The opinion of the court was delivered by: Reggie B. Walton, United States District Judge

MEMORANDUM OPINION

Barbara Bates and Bonnie Bell, the plaintiffs in this civil lawsuit,*fn1 bring this action against Northwestern Human Services, Inc. ("Northwestern") and its two wholly-owned subsidiaries, Northwestern Human Services of Lehigh Valley, Inc. ("Lehigh Valley") and NHS MidAtlantic, Inc. ("MidAtlantic"), asserting various statutory, regulatory and common law violations in connection with the defendants' alleged "misappropriation," "misuse," and "loss" of the plaintiffs' benefits payments and other funds while acting as the plaintiffs' certified mental health rehabilitation services provider and "representative payee" under the Social Security Act, 42 U.S.C. §§ 301-306, 401-418, 421-434, 501-504, 601-619, 621-626, 628-629i, 651-660, 663-679b, 681-686, 701-710, 901, 903-904, 906, 909-913, 1001-1013, 1101-1110, 1201-1206, 1301-1324, 1351-1355, 1381-1383f, 1391-1397jj (2000). Amended Complaint (the "Am. Compl.") ¶¶ 1-5. Currently before the Court is the defendants' motion to dismiss Count I of the plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). After carefully considering the plaintiffs' amended complaint, the defendants' motion to dismiss, and all memoranda relating to that motion,*fn2 the Court concludes that it must grant the defendants' motion and further concludes that it must dismiss the plaintiffs' complaint in its entirety for the reasons set forth below.

I. Background

The following facts are alleged by the plaintiffs in their amended complaint or are matters of public record. The "representative payee" provisions of the Social Security Act provide that an individual's benefit payments can be made to a duly certified fiduciary for the individual's "use and benefit" if the Commissioner of the Social Security Administration "determines that the interest of [the] individual . . . would be served thereby." 42 U.S.C. § 405(j)(1)(A); see also id. § 1383(a)(2)(A)(ii)(I) (stating that "[u]pon a determination by the Commissioner of Social Security that the interest of [an eligible] individual would be served thereby, such [benefit] payments shall be made . . . to [a representative payee] for the use and benefit of the individual"); 20 C.F.R. § 404.2001 (2007) ("explain[ing] the principles and procedures that [the Social Security Administration] follow[s] in determining whether to make representative payment and in selecting a representative payee . . . [and] the responsibilities that a representative payee has concerning the use of the funds . . . receive[d] on behalf of a beneficiary"); id. § 416.601 (same). To be appointed as a representative payee, applicants must undergo an investigation by the Social Security Administration and demonstrate "adequate evidence that such certification is in the interest of" the individual for whom representative payee status is sought. 42 U.S.C. § 405(j)(2)(A)(ii); see also id. § 1383(a)(2)(B)(ii) (same); 20 C.F.R. § 404.2020-2024 (listing factors to be considered by the Social Security Administration in determining the "person, agency, organization or institution that will best serve the interest of the beneficiary" as a representative payee); id. § 416.620-416.624 (same); 42 U.S.C. § 405(j)(2)(C)(v) (stating which representative payee applicants are given preferential treatment by the Social Security Administration); id. § 1383(a)(2)(B)(vii) (same); 20 C.F.R. § 404.2021 (same); id. § 416.621 (same).

Once appointed, representative payees are authorized to receive an individual's benefit payments for the "use and benefit" of the individual in light of the Social Security Administration's relevant guidelines. 42 U.S.C. § 405(j)(1)(A); id. § 1383(a)(2)(A)(ii)(I) (same); 20 C.F.R. § 404.2035 (explaining the Social Security Administration's guidelines with respect to the representative payee's fiduciary responsibilities); id. § 416.635 (same). Accordingly, the payees are subject to "a system of accountability monitoring" under which they are forbidden from "misus[ing]" an individual's benefit payment in any way. 42 U.S.C. § 405(j)(3)(A); see also id. § 1383(a)(2)(A)(iv) (stating that "misuse of benefits by a representative payee occurs in any case in which the representative payee receives payment . . . for the use and benefit of another person and converts such payment" to another use). The payees are also required to report to the Social Security Administration at least once per year "with respect to the use of such payments." 42 U.S.C. § 405(j)(3)(A); id. § 1383(a)(2)(C)(i) (same).

The plaintiffs are "resident[s] of the District of Columbia" who are "poor, unemployed, and disabled due to mental illness." Am. Compl. ¶¶ 8-9. As a result, the plaintiffs "rel[y] on government benefits payments, including monthly payments by the Social Security Administration, to obtain basic living necessities such as food, clothing and shelter." Id. The District of Columbia, required by federal and District of Columbia statutes "to provide integrated, comprehensive, and coordinated mental health services to District of Columbia residents, including the homeless mentally ill," id. ¶ 22; see also 24 U.S.C. § 225 (2006) (provision requiring mental health services); D.C. Code § 44-901 (2005) (same), "passed the Department of Mental Health Establishment Amendment Act," which "established . . . the Department of Mental Health ([the] 'DMH')," Amended Compl. ¶ 24, and "requires [the] DMH, either through itself or through agents, to provide a comprehensive system of mental health care to [District of Columbia] residents," id. ¶ 25; see also D.C. Code § 7-1131.01-1131.15a (implementing the statutory requirements). According to rules promulgated by the DMH, the mental health rehabilitation services "shall be administered solely by the District of Columbia, and are to be provided . . . by the DMH, or by DMH-certified providers." Id. ¶ 26.

Northwestern and its wholly-owned subsidiaries, Lehigh Valley and MidAtlantic, are three providers "certified by the District of Columbia to provide mental health rehabilitation services to [the p]laintiffs and other [District of Columbia residents] on its behalf." Am. Compl. ¶¶ 10-12. "[D]uring the respective time periods in which [the defendants] acted as [DMH-]certified mental health rehabilitation services providers . . . to [the p]laintiffs,"*fn3 the defendants "applied to the Social Security Administration to be appointed as [the p]laintiffs' . . . representative payee[s] for [their] benefits payments pursuant to 42 U.S.C. §§ 405 and 1383," id. ¶ 33, and were approved by the Social Security Administration thereafter, id. ¶ 34. The plaintiffs allege that the defendants would not have been appointed as a representative payee "but for their status as [DMH-] certified mental health rehabilitation services providers." Id. ¶ 33.

As representative payees, the defendants acted in a "fiduciary capacity" for the plaintiffs and received "hundreds of thousands of dollars in federal and other benefits," over which they exercised "exclusive control" along with "all records" relating thereto. Id. ¶ 34. The plaintiffs make numerous allegations with respect to how the defendants "mismanaged, misappropriated and misused the[se] . . . funds . . . and thereby deprived the [p]laintiffs . . . of the benefits to which they were entitled." Id. ¶ 37. Most notably, they argue that the defendants failed to "comply with federal and other laws relating to their status as representative payee," id., and instead used the funds to pay for a variety of expenses not connected with the provision of goods or services to the plaintiffs, ultimately "le[aving] the jurisdiction without returning all of the [p]laintiffs' . . . funds," id. ¶ 38. Further, the plaintiffs allege that the defendants "failed to implement policies or procedures to enable them to account properly for [the p]laintiffs' . . . funds," id. ¶ 39, which caused the plaintiffs to "lose their federal benefits altogether, and thereby incur damages," id. ¶ 40.

The plaintiffs filed their original complaint in this Court on December 6, 2004, asserting violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962-1968 (2000) ("RICO"), Complaint ¶¶ 48-83, § 1983, id. ¶¶ 84-90, 42 U.S.C. §§ 405 and 1383, along with the regulations implementing those statutory provisions, id. ¶¶ 91-104, and common law claims for breach of fiduciary duty, negligence, and conversion, id. ¶¶ 110-122. The plaintiffs further claimed that "[t]he [d]efendants owe[d the p]laintiffs monies had and received from the federal government and other entities as [the p]laintiffs' representative payees," id. ¶ 124. They demanded, inter alia, compensatory and punitive damages, id. ¶¶ (iii)-(vi), injunctive relief, id. ¶ (ii), and "an accounting by an independent expert . . . of all federal benefits payments and other amounts received by the [d]efendants as the representative payees . . . of the [p]laintiffs," id. ¶ (i).

In a memorandum opinion issued on December 11, 2006, in response to the defendants' motion to dismiss, the Court concluded that it had to dismiss the plaintiffs' claims under §§ 405 and 1383 with prejudice because those provisions "[did] not create privately enforceable remedies," and had to dismiss the plaintiffs' RICO and § 1983 claims without prejudice because the facts alleged by the plaintiffs in their complaint did not suffice to state a claim under these statutes. Bates v. Nw. Human Servs., Inc., 466 F. Supp. 2d 69, 105 (D.D.C. 2006) ("Bates I"). The Court further concluded that the plaintiffs should be granted leave to file an amended complaint re-asserting their RICO and § 1983 claims if they so desired, and that the balance of the defendants' motion to dismiss should be denied. Id. The Court entered an order effectuating that memorandum opinion the same day. Bates v. Nw. Human Servs., Inc., Civil Action No. 04-2116 (RBW), slip order at 1-2 (D.D.C. Dec. 11, 2006).

In accordance with the Court's direction, the plaintiffs filed an amended complaint on February 5, 2007. In their amended complaint, the plaintiffs reassert their § 1983 claim against the defendants as well as their common law claims for accounting, breach of fiduciary duty, negligence, conversion, and money had and received. Am. Compl. ¶¶ 47-73.*fn4 With respect to their § 1983 claim, the plaintiffs allege that the defendants, "standing in the shoes of the District of Columbia as a provider of [g]overnment mental health services, were acting as State actors when they applied and were appointed as the representative payee for the [p]laintiffs . . . , when they received [their] funds, and when they [later] misappropriated those funds." Id. ¶ 52.

The defendants filed their motion to dismiss the plaintiffs' amended complaint on March 13, 2007. In support of their motion, the defendants argue that (1) neither the defendants' "status as . . . certified mental health provider[s] nor [their] status as . . . representative payee[s] is sufficient . . . to make [the defendants] . . . state actor[s]" for purposes of § 1983, Defs.' Mem. at 4, (2) even assuming the defendants were deemed state actors with respect to their role as medical service providers, that would not translate into state action with respect to their "separate and distinct role[s] as [the p]laintiffs' representative payee[s,]" id., and (3) even if the defendants were found to be state actors as the plaintiffs' representative payees, the § 1983 claim would nevertheless be barred because the statutes relied upon by the plaintiffs do not "create any relevant private rights," and "the statutes that regulate representative payees . . . incorporate an exclusive government enforcement scheme," id.

In opposition, the plaintiffs argue that their amended complaint demonstrates the "inter-relatedness between [the d]efendants' status as a [DMH-]certified [mental health rehabilitation services] [] provider[s] and . . . representative payee[s] for [the p]laintiffs," and proves that the "[d]efendants' role in assisting [the p]laintiffs . . . with respect to financial management . . . was part and parcel of their role . . . as [] [DMH-]certified mental health rehabilitation services provider[s] for these individuals." Pls'. Opp'n at 3-4. The plaintiffs further allege that the defendants misappropriated funds in both their capacities as representative payees and as mental health rehabilitation services providers. Id. at 4. In response to the plaintiff's opposition to their motion to dismiss, the defendants reiterate that they were "not engaged in state action when ...


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