Jacqueline Townsel v. Dish Network L.l.c.

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2827
JACQUELINE TOWNSEL,
Plaintiff-Appellant,
v.
DISH NETWORK L.L.C.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 10 C 7694—Ronald A. Guzmán, Judge.
ARGUED JANUARY 17, 2012—DECIDED FEBRUARY 16, 2012
Before EASTERBROOK, Chief Judge, and CUDAHY and
HAMILTON, Circuit Judges.
EASTERBROOK, Chief Judge. Jacqueline Townsel signed
up for satellite TV service from DISH Network. As
with cell phones, the cost of equipment is amortized
over two years through payments for the service; a cus-
tomer who drops the service owes a termination fee
to cover the unpaid portion of the equipment’s cost.
Townsel agreed to pay a termination fee if she discon-

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2 No. 11-2827
tinued the service for any reason during the first two
years, and she authorized DISH to charge her debit card
should that occur. Before the two years were up,
Townsel stopped paying the monthly service charge.
DISH treated this as a discontinuation of service and
collected the termination fee via the debit card. Townsel
replied with this suit, which contends that DISH vio-
lated 42 U.S.C. §407(a).
Section 407(a), part of the Social Security Act, provides
that benefits may not be assigned or subject to attach-
ment or garnishment at the behest of creditors. This is
what it says: “The right of any person to any future
payment under this subchapter shall not be transferable
or assignable, at law or in equity, and none of the
moneys paid or payable or rights existing under this
subchapter shall be subject to execution, levy, attach-
ment, garnishment, or other legal process, or to the op-
eration of any bankruptcy or insolvency law.” It covers
all benefits under the Act, including retirement benefits,
disability benefits, and supplemental security income.
To DISH Network, Townsel’s debit card looked just
like any other. Use of a debit card instructs a bank to
transfer money to the merchant from a particular
checking account. Townsel contends that, unbeknownst
to DISH, all funds in her account came from Social
Security benefits. (We must assume that this is true.)
She contends that authorizing DISH to use her debit
card “assigned” Social Security benefits to it (the first
clause of §407(a)). Earlier in the litigation she also
asserted that, when the bank allowed DISH to access

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No. 11-2827 3
her checking account through the debit card, it subjected
Social Security funds to “legal process”. That theory
has been dropped, and sensibly. Use of a debit card is not
remotely like garnishment, attachment, or “other legal
process”. Legal process is involuntary (from the debtor’s
perspective), while Townsel’s arrangement with DISH
was consensual. Submitting a check for payment
through the banking system is not “legal process” even
though trying to collect a judgment based on an unpaid
check would be. See Washington State Department of
Social & Health Services v. Guardianship Estate of Keffeler,
537 U.S. 371, 383–86 (2003) (holding that under §407(a)
only a formal legal proceeding similar to garnishment
or attachment counts as “legal process”).
Townsel concedes that merchants and banks do not
violate §407(a) when they allow Social Security recipients
to pay for goods and services by writing checks, or using
debit and credit cards. Nonetheless, she asserts, the use
of a debit card becomes a forbidden “assignment” when
the customer authorizes the debit in advance. Two
years could have passed between Townsel’s authoriza-
tion and DISH’s collection of the termination fee; when
payment is deferred, Townsel insists, authorization to
use a debit card becomes a forbidden “assignment” unless
the customer can rescind consent before the merchant
resorts to the debit card. The district court disagreed and
dismissed the complaint for failure to state a claim on
which relief may be granted. (Technically it denied a
motion for leave to amend a complaint that was doomed
to fail; Townsel concedes that her original claim was
faulty but contends that a §407(a) claim would have

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4 No. 11-2827
saved her suit. The judge deemed the proposed amend-
ment futile, which is functionally the same as allowing
amendment and then dismissing under Fed. R. Civ.
P. 12(b)(6).)
Logically the first question is whether §407(a) creates
a private right of action. It does not do so expressly, nor
does any other statute authorize private parties to sue
for damages based on assignments of Social Security
benefits. Townsel says that the statute must authorize
a private action for damages; otherwise how could it be
enforced? The answer is: “defensively.” Someone who
tries to collect assigned Social Security benefits can be
met with a defense under §407(a). That is how several
§407 cases have found their way to the Supreme Court.
See, e.g., Bennett v. Arkansas, 485 U.S. 395 (1988); Philpott
v. Essex County Welfare Board, 409 U.S. 413 (1973). A
creditor that tried to garnish or attach Social Security
benefits, in or out of bankruptcy, likewise would
encounter a §407 defense. Some other cases have used
42 U.S.C. §1983, and the holding of Maine v. Thiboutot,
448 U.S. 1 (1980), to enforce §407 against state actors,
who may try to lay hands on Social Security benefits to
recoup welfare or Medicaid outlays. Efforts to extend
this approach to private defendants have been rebuffed.
See London v. RBS Citizens, N.A., 600 F.3d 742 (7th Cir.
2010) (a retiree can’t use §1983 to enforce §407(a) against
a private creditor). Cf. Beler v. Blatt, Hasenmiller, Leibsker &
Moore, LLC, 480 F.3d 470 (7th Cir. 2007) (a recipient
can’t enforce §407(a) through the Fair Debt Collection
Practices Act either).

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No. 11-2827 5
Surprisingly, none of the 13 courts of appeals has de-
cided whether the judiciary should create a private
right of action to enforce §407(a) through an award of
damages. Two district courts have holdings on the
subject; both concluded that the Supreme Court’s current
approach to implied private rights of action, see Cort
v. Ash, 422 U.S. 66 (1975), does not support damages
under §407(a). See Harris v. Prudential Insurance Co., 2010
U.S. Dist. LEXIS 21877 (N.D. Ohio Mar. 10, 2010); Alexander
v. Bank of America, 2007 U.S. Dist. LEXIS 77368 (W.D.
Mo. Oct. 17, 2007). DISH contends that these deci-
sions conclusively establish that Townsel lacks a private
damages action. Yet district courts’ decisions are not
authoritative, even in the rendering district (other dis-
trict judges may disagree). It takes an appellate deci-
sion to resolve a legal question—and then only
within the circuit’s territory, and subject to review by
the Supreme Court, which may reject an appellate con-
sensus. See, e.g., Central Bank of Denver, N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164 (1994).
The district court bypassed the private-action sub-
ject, which is not jurisdictional, see Grable & Sons Metal
Products, Inc. v. Darue Engineering & Manufacturing, 545
U.S. 308, 316–20 (2005), and went straight to the merits.
We are content to do the same, but readers should not
infer from this any hidden decision that a private action
exists. The question is open here, as in all other circuits.
Townsel relies on Philpott for the proposition that
Social Security benefits do not lose the protection of §407(a)
when deposited in a checking account. Monies that can

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6 No. 11-2827
be traced to an origin in Social Security benefits remain
covered by §407(a). DISH does not doubt this proposi-
tion, nor did the district judge. Townsel lost not because
of a belief that §407(a) is inapplicable but because
using Social Security benefits to buy goods and services
differs from assigning them. Assignment in law means
an anticipatory transfer of property rights. Thus if
Townsel had instructed the Social Security Administra-
tion to send her checks to DISH (or an auto dealership),
which would deduct what she owed and route the
residue to Townsel’s account, that would be an assign-
ment. This is what happened in both Philpott and
Bennett. In each case, a state required people to sign
over their Social Security benefits to reimburse the state
for outlays made on the person’s behalf. But DISH
did not ask for Townsel’s Social Security benefits, and
she did not try to direct the Social Security Administra-
tion to send it any of her checks. All DISH wanted—and
all it received—was payment of a debt that Townsel
voluntarily incurred. DISH neither knew nor cared
where the money came from.
The source of funds used to pay obligations on a debit
card (or a credit card, or a check) is invisible to the mer-
chant. Townsel says that all of the money in the account
linked to the debit card she used to pay DISH came
from Social Security benefits. But DISH did not know
this—could not have known this. If Townsel had
sold her house or car and deposited the proceeds in
the checking account, DISH wouldn’t have known that
either. Likewise if Townsel had received an inheritance
or a gift from a relative. And tracing assets would perplex

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No. 11-2827 7
even the bank, which itself may not know the source
of particular funds (a recipient may have cashed her
Social Security check and spent part of the money
before depositing the rest). If some money in an account
comes from Social Security benefits and some from em-
ployment (many a Social Security recipient continues
to work), how would the bank know when a debit-card
transaction is a forbidden “assignment”? Would it use
FIFO (first in, first out)? LIFO (last in, first out)? Ask
what portion of the average balance reflected federal
benefits? Implementation would be impractical. Not a
word in §407(a) implies that Congress has established
such a regime.
If using Social Security benefits to fund payments on
a debit card were treated as an “assignment” of those
benefits, then merchants would fear that payments
would be reversed, even if the bank authorized the trans-
action when it was made. (An electronic interbank
network authorizes debit-card transactions only if the
linked account has the funds to cover the payment,
and credit-card transactions only if the customer has
enough remaining in the card’s credit line.) This would
induce merchants to take precautions. They might ask
customers whether they receive Social Security benefits
and, if the answer is yes, require payment in cash. DISH
might require a cash deposit equal to the termination
fee, instead of accepting authorization to use a debit
or credit card. (This would be equivalent to a security
deposit when leasing an apartment.) It might insist
that customers prepay for the antenna and other gear,
eliminating the 2-year service commitment. (It offered

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8 No. 11-2827
Townsel this option; she turned it down.) Or DISH might
charge Social Security recipients extra—or conceivably
refuse to deal with them at all. That’s if recipients could
be identified. People might balk or lie when asked “do
you receive Social Security benefits?” Section 407(a) does
not contain an exception for recipients who deceive
merchants about the source of their funds. If all debit
and credit transactions became less reliable, prices
would rise, because bad debts would increase and mer-
chants have to cover their costs. It is hard to see how
Social Security recipients could be helped by a rule that
would lead merchants to demand cash deposits, raise
prices, or refuse to deal with Social Security recipients
at all.
Tidwell v. Schweiker, 677 F.2d 560 (7th Cir. 1982), the
authority on which Townsel principally relies, dealt
with an agreement to hand over to a creditor (which
happened to be a state) whatever benefits the Social
Security Administration provided. That’s a classic “as-
signment” of benefits. Townsel did not agree to hand
over any benefits. She simply agreed to pay a partic-
ular debt and authorized DISH to use a debit card to
facilitate the transfer of funds from the account linked
to the card. Townsel was free to put her Social Security
benefits in some other account (or in a pillowcase) and
use a different source of money to pay DISH and the
other merchants to which she presented the debit card.
That option is enough by itself to show that no Social
Security benefits were assigned to DISH. See Lopez v.
Washington Mutual Bank, 302 F.3d 900 (9th Cir. 2002).

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No. 11-2827 9
To repeat, spending money with a source in Social
Security benefits is distinct from assigning the benefit
stream itself. Townsel spent money to purchase her
satellite TV reception gear. DISH did not know or care
about the funds’ genesis. Townsel promised to pay
either by making 24 monthly payments (covering the
cost of programs and equipment alike) or by a termina-
tion fee. That she chose the latter approach does not
convert an ordinary commercial transaction into an
“assignment” of Social Security benefits.
AFFIRMED
2-16-12

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