B-180742, NOV 25, 1974, 54 COMP GEN 424

B-180742: Nov 25, 1974

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PAY - WITHHOLDING - DEBT LIQUIDATION - RETIRED PAY - FOR BENEFIT OF SURETY WHERE A SURETY HAS INDEMNIFIED THE GOVERNMENT FOR A PORTION OF LOSS OCCASIONED BY EMPLOYEE'S EMBEZZLEMENT OF PUBLIC FUNDS AND THE EMPLOYEE IS ENTITLED TO RECEIVE MILITARY RETIRED PAY. SUCH PAY CANNOT BE WITHHELD FOR THE BENEFIT OF THE SURETY ON THEORY THAT THE SURETY IS SUBROGATED TO THE GOVERNMENT'S RIGHT OF SETOFF. 1974: THIS ACTION IS IN RESPONSE TO A LETTER DATED FEBRUARY 25. WHO WAS EMPLOYED IN A CIVILIAN CAPACITY AS A COLLECTION AGENT FOR THE NAVY. THE EMPLOYEE'S POSITION WAS COVERED BY A SURETY AGREEMENT EXECUTED BETWEEN THE NAVY AND UTICA MUTUAL INSURANCE COMPANY (UTICA MUTUAL). WHICH SUM WAS APPLIED TO THE REDUCTION OF THE EMPLOYEE'S LIABILITY TO THE GOVERNMENT.

B-180742, NOV 25, 1974, 54 COMP GEN 424

PAY - WITHHOLDING - DEBT LIQUIDATION - RETIRED PAY - FOR BENEFIT OF SURETY WHERE A SURETY HAS INDEMNIFIED THE GOVERNMENT FOR A PORTION OF LOSS OCCASIONED BY EMPLOYEE'S EMBEZZLEMENT OF PUBLIC FUNDS AND THE EMPLOYEE IS ENTITLED TO RECEIVE MILITARY RETIRED PAY, SUCH PAY CANNOT BE WITHHELD FOR THE BENEFIT OF THE SURETY ON THEORY THAT THE SURETY IS SUBROGATED TO THE GOVERNMENT'S RIGHT OF SETOFF, SINCE SUCH ACTION WOULD BE CONTRARY TO THE LANGUAGE OF 32 C.F.R. 43A.3, THE GOVERNMENT'S POLICY AGAINST ACCOUNTING TO STRANGERS FOR ITS TRANSACTIONS AND AGAINST HAVING THE GOVERNMENT SERVE AS AGENT FOR COLLECTION OF PRIVATE DEBTS.

IN THE MATTER OF SUBROGATION OF A SURETY TO GOVERNMENT'S RIGHT TO SETOFF MILITARY RETIRED PAY, NOVEMBER 25, 1974:

THIS ACTION IS IN RESPONSE TO A LETTER DATED FEBRUARY 25, 1974, FROM THE ASSISTANT SECRETARY OF THE NAVY (FINANCIAL MANAGEMENT) REQUESTING AN ADVANCE DECISION ON THE QUESTION AS TO WHETHER THE DEPARTMENT OF THE NAVY MAY LEGALLY WITHHOLD MILITARY RETIRED PAY DUE A RETIREE FOR THE BENEFIT OF A SURETY, WHICH HAS LIQUIDATED PART OF THE RETIREE'S DEBT TO THE NAVY, ON THE THEORY THAT THE SURETY CAN BE SUBROGATED TO THE GOVERNMENT'S RIGHT OF SETOFF CONCERNING SUCH PAY.

IN THAT LETTER THE ASSISTANT SECRETARY RELATED THE PERTINENT FACTS REGARDING THIS MATTER. IT APPEARS THAT IN 1968 A PREVIOUSLY RETIRED ENLISTED MEMBER RECEIVING RETIRED PAY, WHO WAS EMPLOYED IN A CIVILIAN CAPACITY AS A COLLECTION AGENT FOR THE NAVY, ADMITTED TO THE EMBEZZLEMENT OF $24,496 IN PUBLIC FUNDS. THE EMPLOYEE'S POSITION WAS COVERED BY A SURETY AGREEMENT EXECUTED BETWEEN THE NAVY AND UTICA MUTUAL INSURANCE COMPANY (UTICA MUTUAL), UNDER WHICH UTICA MUTUAL AGREED TO INDEMNIFY THE NAVY FOR ANY LOSS UP TO $5,000 OCCASIONED BY THE EMPLOYEE'S FAILURE TO FAITHFULLY PERFORM HIS DUTIES.

THE RECORD SHOWS THAT BY LETTER OF MAY 14, 1969, THE NAVY INFORMED UTICA MUTUAL THAT WITHHOLDINGS FROM THE EMPLOYEE'S CIVIL SERVICE PAY, A SETOFF OF HIS RETIREMENT CREDITS, PROCEEDS FROM THE CONVERSION OF HIS SAVINGS BONDS AND MONIES RECOVERED AT THE TIME OF HIS ARREST TOTALED $13,589.30, WHICH SUM WAS APPLIED TO THE REDUCTION OF THE EMPLOYEE'S LIABILITY TO THE GOVERNMENT. IN ADDITION, IT WAS NOTED THAT THE NAVY WAS SETTING OFF $200.86 PER MONTH AGAINST HIS RETIRED PAY ACCOUNT. THE LETTER FURTHER SAID THAT, SINCE A SUBSTANTIAL BALANCE WAS STILL OUTSTANDING AND AN EXTENDED LENGTH OF TIME WOULD BE NECESSARY FOR LIQUIDATION OF THE DEBT BY MEANS OF WITHHOLDING RETIRED PAY, THE NAVY WAS CLAIMING THE MAXIMUM PENAL AMOUNT OF $5,000 ALLOWED UNDER THE SURETY AGREEMENT.

IN RESPONSE TO THAT REQUEST, UTICA MUTUAL PAID THE $5,000, AND THE NAVY CONTINUED TO WITHHOLD THE EMPLOYEE'S MILITARY RETIRED PAY UNTIL AUGUST 1971, AT WHICH TIME THE REMAINDER OF THE DEBT WAS SATISFIED. SUBSEQUENTLY, UTICA MUTUAL ASKED THE NAVY TO CONTINUE WITHHOLDING THE RETIRED PAY FOR THE BENEFIT OF UTICA MUTUAL.

DOUBT IS EXPRESSED AS TO THE PROPRIETY OF SUCH ACTION. THE SUBMISSION INDICATES AN AWARENESS THAT, UNDER THE PROVISIONS OF 5 U.S.C. 8346(A), MONIES DEDUCTED FROM A CIVIL SERVICE EMPLOYEE'S SALARY AND HELD IN TRUST IN THE CIVIL SERVICE RETIREMENT FUND ARE NOT AVAILABLE TO INDEMNIFY A SURETY WHICH HAS LIQUIDATED A DEBT OWED BY THE EMPLOYEE TO THE GOVERNMENT. THE ASSISTANT SECRETARY FURTHER STATES THAT THE RETIREMENT MONIES IN QUESTION ARE NOT CIVIL SERVICE RETIREMENT BENEFITS, BUT RATHER ARE MILITARY RETIREMENT BENEFITS AND AS SUCH ARE NOT SUBJECT TO THE PROVISIONS OF 5 U.S.C. 8346. FURTHER, THAT WHILE THERE IS NO EQUIVALENT TO THAT PROVISION OF LAW WITH RESPECT TO MILITARY RETIRED PAY, SECTION 1440 OF TITLE 10, U.S. CODE, EXEMPTS ANNUITIES BASED UPON MILITARY RETIRED PAY FROM ASSIGNMENT, ATTACHMENT OR OTHER LEGAL PROCESS FOR THE BENEFIT OF CREDITORS.

THIS OFFICE IS NOT AWARE OF ANY STATUTE WHICH SPECIFICALLY EXEMPTS MILITARY RETIRED PAY FROM ASSIGNMENT, ATTACHMENT OR OTHER LEGAL PROCESS. HOWEVER, IT IS A LONGSTANDING POLICY OF THE GOVERNMENT NOT TO ACCOUNT TO STRANGERS FOR ITS TRANSACTIONS, A POLICY CREATED BY SPECIFIC STATUTES. ONE OF THOSE STATUTES, 31 U.S.C. 492(A) REQUIRES PUBLIC MONIES TO BE DRAWN ONLY IN FAVOR OF PERSONS TO WHOM PAYMENT IS TO BE MADE.

THE POSITION TAKEN BY THE ARMED SERVICES REGARDING GARNISHMENT AND ATTACHMENT OF MILITARY RETIRED PAY IS FOUND IN PARAGRAPH 52 OF DEPARTMENT OF THE ARMY PAMPHLET 600-5 (JANUARY 1969), ENTITLED "HANDBOOK ON RETIREMENT SERVICES FOR ARMY PERSONNEL AND THEIR FAMILIES:"

52. GARNISHMENT OF PAY. THERE IS NO FEDERAL STATUTE EXEMPTING THE PAY OF RETIRED MILITARY PERSONNEL FROM ATTACHMENT OR OTHER LEVY. HOWEVER, NO PROCESS OF GARNISHMENT OR ATTACHMENT CAN BE RECOGNIZED BY A DISBURSING OR ACCOUNTING OFFICER OF THE FEDERAL GOVERNMENT TO SATISFY PRIVATE CLAIMS OR JUDGMENTS, NOR MAY THE UNITED STATES BE NAMED AS GARNISHEE DEFENDANT IN A SUIT ON A JUDGMENT INSTITUTED AGAINST A RETIRED MEMBER. WHETHER THE RETIRED PAY OF MILITARY PERSONNEL MAY BE ATTACHED AFTER IT HAS BEEN RECEIVED BY THE MEMBER IS A MATTER TO BE DETERMINED UNDER THE LAWS OF THE STATE IN WHICH THE ATTACHMENT ACTION MAY BE BROUGHT.

IN THE CASE OF BUCHANAN V. ALEXANDER, 45 U.S. 20 (1846), THE UNITED STATES SUPREME COURT HELD THAT MONEY IN THE HANDS OF A GOVERNMENT DISBURSING OFFICER PAYABLE TO AN INDIVIDUAL IS IN FACT PUBLIC MONEY UNTIL PAID, AND AS SUCH CANNOT BE DIVERTED TO THE INDIVIDUAL'S CREDITORS BY ATTACHMENT PROCEEDINGS. MORE RECENTLY, A SIMILAR RESULT WAS REACHED IN ARNOLD V. UNITED STATES, 331 F. SUPP. 42 (S.D. TEX. 1971).

FURTHERMORE, IN REGARD TO THE INDEBTEDNESS OF MILITARY PERSONNEL, 32 C.F.R. 43A.3 (1971) PROVIDES IN PART:

(A) A MEMBER OF THE ARMED FORCES IS EXPECTED TO PAY HIS JUST FINANCIAL OBLIGATIONS IN A PROPER AND TIMELY MANNER. HOWEVER, THE MILITARY DEPARTMENTS HAVE NO LEGAL AUTHORITY TO REQUIRE A MEMBER TO PAY A PRIVATE DEBT OR TO DIVERT ANY PART OF HIS PAY FOR ITS SATISFACTION, EVEN THOUGH THE INDEBTEDNESS MAY HAVE BEEN REDUCED TO JUDGMENT BY A CIVIL COURT. THE ENFORCEMENT OF THE PRIVATE OBLIGATIONS OF A MILITARY MEMBER IS A MATTER FOR CIVIL AUTHORITIES.

THE WITHHOLDING OF MILITARY RETIRED PAY FOR THE BENEFIT OF A SURETY UNDER A THEORY OF SUBROGATION WOULD AMOUNT TO THE NAVY'S REQUIRING THE RETIREE TO PAY A PRIVATE DEBT AND WOULD CONSTITUTE AN INVOLUNTARY DIVERSION OF RETIRED PAY TO SATISFY THE DEBT. SUCH ACTION WOULD NOT ONLY BE CONTRARY TO THE LANGUAGE IN THE ABOVE-QUOTED REGULATION, BUT ALSO THE GENERAL POLICY OF THE GOVERNMENT AGAINST ACCOUNTING TO STRANGERS FOR ITS TRANSACTIONS, AND, MORE SPECIFICALLY, THE POLICY AGAINST HAVING THE GOVERNMENT SERVE AS AN AGENT FOR THE COLLECTION OF PRIVATE DEBTS. SEE B- 170400, SEPTEMBER 21, 1970; AND TAGGART V. UNITED STATES, 17 CT. CL. 322 (1881).

WITH REGARD TO THE ABOVE, THE FOLLOWING EXCERPT FROM THE RESTATEMENT OF RESTITUTION, CHAPTER 9, SECTION 162, AT PAGE 658 IS TO BE NOTED:

F. SUBROGATION TO A PREFERRED CLAIM. WHERE ONE PERSON DISCHARGES AN OBLIGATION OWED BY ANOTHER TO A THIRD PERSON UNDER SUCH CIRCUMSTANCES THAT HE IS ENTITLED TO SUBROGATION, AND THE THIRD PERSON HAD A CLAIM ENTITLING HIM TO PREFERENCE OVER THE CLAIMS OF OTHER CREDITORS, HE IS ENTITLED TO A SIMILAR PREFERENCE, EXCEPT WHERE THE RIGHT OF THE CREDITOR TO PRIORITY WAS MERELY PERSONAL TO HIM. ***

WHERE A PERSON DISCHARGES THE LIABILITY OF ANOTHER TO THE STATE UNDER SUCH CIRCUMSTANCES THAT HE IS ENTITLED TO BE SUBROGATED TO THE CLAIM OF THE STATE, HE IS NOT ENTITLED TO ENFORCE THE CLAIM BY SUCH SUMMARY METHODS AS THE STATE AS SOVEREIGN MIGHT HAVE EMPLOYED, AS FOR EXAMPLE BY A SUMMARY SEIZURE OF THE DEBTOR'S PROPERTY.

THEREFORE, IN THE ABSENCE OF STATUTE TO THE CONTRARY, IT IS OUR VIEW THAT WHERE A SURETY HAS DISCHARGED PART OF AN EMPLOYEE'S OBLIGATION TO THE GOVERNMENT, THE EMPLOYEE'S MILITARY RETIRED PAY MAY NOT BE LEGALLY WITHHELD FOR THE BENEFIT OF SUCH SURETY ON THE THEORY THAT THE SURETY IS SUBROGATED TO THE GOVERNMENT'S RIGHT OF SETOFF CONCERNING SUCH PAY. YOUR QUESTION IS ANSWERED ACCORDINGLY.