GAB Decision 506
Docket No. 83-138
January 31, 1984
New York Department of Social Services;
Ballard, Judith; Settle, Norval Teitz, Alexander
The New York Department of Social Services (State) appealed a
decision of the Regional Representative of the Office of Child Support
Enforcement (Agency) disallowing $263,537 in federal financial
participation (FFP) under Title IV-D of the Social Security Act (the
Act). /1/ The disallowed amount represents a set-off /2/ of monies the
State believes it is entitled to against amounts the State owes to the
Agency. The State argued that since the Agency owes the State
$1,597,088 for Title IV-D expenditures incurred from July 1, 1975 to
September 30, 1978, and has not yet paid it to the State, the State can
set-off $263,537 against amounts owed to the Agency as partial payment
for the retroactive IV-D claims.
There are no material facts in dispute requiring a hearing.
Therefore, our decision is based on the written record in this case.
Based on our analysis, we sustain the disallowance.
I. Background
The State submitted to the Agency retroactive claims for FFP totaling
$1,597,088. The claims were included in the State's Quarterly Statement
of Expenditures (QER) for the quarters ended March 31, June 30, and
September 30, 1980 for expenditures made by local IV-D agencies for the
period July 1, 1975 to September 30, 1978. State Exs. A, D, and G. The
Agency notified the State that the $1,597,088 represented allowable
costs but could not (2) be paid because of congressional appropriations
restrictions on FY 1981 funds for payment of expenditures incurred prior
to September 30, 1978. State Exs. B, E, and H.
On July 27, 1982, the Court of Appeals for the District of Columbia
held in Connecticut v. Schweiker, 684 F.2d 979 (D.C. Cir. 1982), cert.
denied, 103 S. Ct. 1197 (1983) (State Ex. N), that the FY 1981
continuing appropriations resolutions did not restrict the Agency's
payment of pre-September 30, 1978 expenditures. The Court remanded the
case to the District Court to determine the appropriate relief from the
amount of FY 1981 funds which were available. Connecticut, supra, at
999. On July 21, 1983, the United States District Court for the
District of Columbia issued a judgment and order pursuant to the
decision in Connecticut, supra. State Ex. O.
The State's QER for the quarter ending December 31, 1982 included
$263,537 payable to the Agency. The State set-off an identical amount
from the $1,597,088 of allowable retroactive claims.
By letter dated June 13, 1983, the Agency disallowed the State's
set-off adjustment, stating that section 136 of Pub. L. 97-276
prohibited the use of FY '83 funds to pay for pre-October 1, 1978
claims. The letter stated further that Pub. L. 97-276 provided for the
payment of the claims which were the subject of Connecticut v.
Schweiker, supra, in installments in FY '84, '85 and '86.
II. Discussion
The State asserted that Connecticut v. Schweiker, supra, eliminated
all obstacles to the payment of the claims in this case; however,
Congress has yet to enact the payment schedule referred to in Pub. L.
97-276. Therefore, the State contended that it should be entitled to
collect the payments by setting-off money the State owes the Agency
against the monies due the State.
The State argued that the principle of set-off is recognized in court
decisions. The State cited several Supreme Court cases which the State
asserted recognized the principle of set-off and applied the principle
on behalf of creditors of the United States. /3/
(3) The Agency agreed that the right of set-off is well established
in common law. The Agency argued, however, that Congress has the power
to modify or abolish common law rights or remedies. Agency Brief, p.
13. /4/ The Agency asserted that Congress set up a funding mechanism
for making payments to the states under the Title IV-D program, citing
section 455 of the Social Security Act. The Agency contended that the
statute and implementing regulations provide the method of submitting
claims and appealing any subsequent disallowances. Id. at p. 14. The
Agency argued that the use of set-off is not provided for in this
funding system and, therefore, the State can pursue its claim only
within the constraints of this funding system. Id.
The State contended that the question before the Board is whether
set-off has a legitimate place in the Title IV-D funding mechanism.
State Reply Brief, p. 3. The State, while recognizing Congress' right
to abolish or modify the common law right of set-off, asserted that the
Agency presented no authority "to the effect that Congress did in fact
abolish set-off." Id.
There is no dispute that the costs the State is attempting to collect
through the use of set-off are allowable. See, Connecticut v.
Schweiker, supra; Agency Brief, p. 7. The sole question before the
Board is whether or not the State's use of set-off as a means of
collection is appropriate. We find that it is not.
As the State asserted, and the Agency agreed (Agency Brief, p. 13),
the right of set-off is clearly established in common law. Set-off is
essentially the discharge or reduction of one demand by an opposite one.
E.g., Auten v. United States Nat. Bank, 174 U.S. 125 (1899). The
purpose of set-off is to avoid multiplicity of actions, inconvenience,
expense and unwarranted consumption of both the parties' and tribunal's
time. North Chicago Rolling Mill Co. v. St. Louis Ore & Steel Co., 152
U.S. 596 (1894). Set-off additionally allows the parties to settle
their differences in one action.
As the State correctly stated, it is well settled that the United
States Government has the right to invoke the common law right of (4)
set-off as an ordinary creditor. E.g., United States v. Munsey Trust
Co., 332 U.S. 234 (1947). In certain instances, the right of set-off
has been recognized as being available against the United States. E.g.,
United States v. Flanders, 112 U.S. 88 (1884). However, it has been
said that there is no inherent equitable right of set-off. 80 C.J.S.
Set-off and Counterclaim Sec. 5. Accordingly, set-off in equity rests
largely in the discretion of the court (Reisman v. Independence Realty
Corp., 89 N.Y.S. 2d 763, 766 (1949)), and will not be allowed where it
would be inequitable or work injustice or where set-off is not necessary
to prevent irremediable injustice. Hutchinson Coal Co. v. Miller, 20
F. Supp. 718, 730 (N.D.W. Va. 1937).
In reviewing the right of set-off in the context of the Social
Security Act, one additional principle must be considered. Where a
legislative body provides for a liability coupled with a special
statutory remedy, "that remedy, and that alone, must be employed."
Pollard v. Bailey, 87 U.S. (20 Wall.) 520, 527 (1874); see also,
National Railroad Passenger Corp. v. National Association of Railroad
Passengers, 414 U.S. 453, 458 (1974). ("A frequently stated principle
of statutory construction is that when legislation expressly provides a
particular remedy . . ., courts should not expand the coverage of the
statute to subsume other remedies.")
The right of set-off may in some instances be available to a creditor
of the United States, but after reviewing the remedy of set-off against
the principles enumerated above and against the payment scheme contained
in Title IV-D of the Social Security Act, we believe it reasonable to
conclude that Congress intended to abrogate the State's common law
remedy of set-off with regard to the Title IV-D payment scheme.
Congress enacted a statutory scheme for payment of FFP to states for
Title IV-D expenditures. The funding mechanism included advance
payments to a state on a quarterly basis equal to the federal share of
the estimated cost of the program. Section 455(b)(1) of the Act. After
review of the state's quarterly statement of expenditures, the Secretary
shall adjust future payments to reflect any overpayment or underpayment
which was made to the State for any prior quarter. Section 455(b)(2).
The Secretary is required to make payments to the states in accordance
with these estimates. Id.
The Act is clear that any adjustments are to be made by the
Secretary. There is nothing in the Act to suggest that the state itself
may make an adjustment when the state believes (5) it was underpaid. In
fact, the Agency in its implementing regulations interprets the Act to
mean that the state must account on a quarterly basis for the state's
expenditures for each of the public assistance titles under the Act (45
CFR 201.5(a)(3)), and that the Secretary, based on this information,
will make the requisite adjustments by program in the state's quarterly
grant award. Id. at 201.5(c).
If there are any disagreements between the state and Agency over a
claim for FFP for Title IV-D expenditures, the state has the right to
appeal to this Board pursuant to 45 CFR Part 16 or, in cases not subject
to the Board's jurisdiction, to the federal courts (as was done in
Connecticut v. Schweiker, supra). Since the Act creates a method of
payment and gives rise to a cause of action for enforcement of its
provisions, it is reasonable to conclude that Congress did not intend
that the State use the self-help remedy of set-off as a means of
collection and that the payment scheme provided for in the Act is the
sole means of payment.
We also note that our conclusion avoids the possible disruption and
strains on the fiscal management of this program that could result from
the State's self-help use of set-off, as opposed to the normal payment
methods, as a means of payment. The Agency's method of adjustment on a
quarterly basis of the amount paid to a state is essential to its fiscal
control over the program. Obviously, if individual states were
permitted to set-off claims owed to them by the Agency against claims
the state owed to the Agency, this would result in a severe disruption
in the orderly payment of claims and administration of the program.
Balancing this disruption against the fact that the State is essentially
arguing over the timing of the Agency's payment, as opposed to the
State's not receiving payment at all, we believe that equitable
principles do not require the sanctioning of set-off in this case.
The State argued, however, that even though the Court in Connecticut
v. Schweiker, supra, determined that the claims are allowable, the
State's claim is yet to be paid and Congress has yet to enact a
repayment schedule in accordance with section 136 of Pub. L. 97-276.
Stated another way, this argument is that, even assuming that set-off is
inappropriate within the normal framework of the Act, the State has
complied with the Act without being paid and, therefore, is attempting
collection outside the normal payment scheme as a last resort.
The State's argument must fail. It is well settled that Congress can
amend substantive legislation by including suitable language (6) in
appropriations bills. United States v. Dickerson, 310 U.S. 554, 555
(1940); City of Los Angeles v. Adams, 556 F.2d 40, 48-49 (U.S. App. D.
C. 1977); see also, Vermont Agency of Human Services, Decision No.
338, June 30, 1982, p. 3. Congress stated in the continuing
appropriations for FY '83 that:
After fiscal year 1983, any payment made to reimburse such State or
local expenditures required to be reimbursed by a court decision in any
case filed prior to September 30, 1982 shall be made in accordance with
a schedule, to be established under the Social Security Act, over fiscal
years 1984 through 1986.
Sec. 136, 96 Stat. 1198.
This language in the continuing appropriations bill effectively
modified the normal payment procedures contained in Title IV and other
titles of the Social Security Act. Since we found above that the use of
set-off was inappropriate under the payment scheme of the Act, it
follows that set-off is inappropriate under this explicit statement by
Congress of when claims such as the State's will be paid.
The State also argued that the right of set-off is provided for in
the Agency's regulations. The State cited 45 CFR 74.115(c), regarding
grant termination, and 45 CFR Part 74, App. E, relating to determining
costs applicable to research and development, as providing for the
"netting out of debits and credits or a set off of a grantee's credits
against its debits." State Brief, p. 6. The State also referred to 45
CFR 201.66(b)(7), relating to repayments of federal funds by
installments in public assistance grants, as specifically permitting a
state to set-off a claim against amounts due the Agency.
With regard to the regulations the State cited, the Agency asserted
that they do not provide authority for the State's actions and that the
State's reliance on them is "inapposite." Agency Brief, p. 14.
We are not persuaded by the State's argument. The use of set-off in
the regulations is limited to the specific situations defined within
those regulations. There is no basis for giving a broader
interpretation to set-off as used in the regulations and it is
unreasonable to assume that authorization to use set-off within the
context of the payment scheme amounts to authorization to use set-off
outside the system.
(7) III. Conclusion
Based on the analysis above, we find that the State's use of set-off
was improper and, therefore, we uphold the disallowance of $263,537.
/1/ The Agency's decision also disallowed $132,216 of other
unrelated current expenditures. To facilitate handling of the State's
appeal, the Board severed the $132,216 portion of the appeal and
reviewed it under a separate docket number, Board Docket No. 83-133.
/2/ The parties sometimes used the term "off-set", which is used
commonly as a synonym of set-off. For convenience, we will use the term
set-off. /3/ The State cited Gratiot v. United States, 15 Pet.
(40 U.S.) 336 (1841) (the United States possesses the common law right
of set-off); United States v. Flanders, 112 U.S. 88 (1884) (creditors
of the United States may set-off claims); United States v. Cohen, 389
F.2d 689 (5th Cir. 1967) (recognizing statutory duty and common law
right of United States to ser-off claims). /4/ The Agency cited
Sturmo v. United Air Lines, Inc., 382 F.2d 780, 787 (1967), cert. denied
389 U.S. 1042 (1968); Louis Pizitz Dry Goods Co. v. Yeldell, 274 U.S.
112, 116 (1927); and New York Central R. Co. v. White, 243 U.S. 188
(1917).
NOVEMBER 14, 1984