WILLIAM HEDGEBETH, AN INFANT BY HIS GUARDIAN AD LITEM, BERTHA E. MEEK AND BERTHA E. MEEK, INDIVIDUALLY, PLAINTIFFS, v. LEONARD E. MEDFORD, SR., DEFENDANT.
Supreme Court of New Jersey
Argued May 9, 1977—Decided September 21, 1977.
a state legislature is the institution that is by far the best situated to identify and then reconcile traditional state policies within the constitutionally mandated framework of substantial population equality. The federal courts by contrast possess no distinctive mandate to compromise sometimes conflicting state apportionment policies in the people‘s name.
[Connor v. Finch, 431 U. S. at 414-415, 97 S. Ct. at 1833, 52 L. Ed. 2d at 473-474]
Accordingly, we hold that the present scheme is invalid and
For reversal—Chief Justice HUGHES, Justices MOUNTAIN, SULLIVAN, PASHMAN, CLIFFORD and SCHREIBER and Judge CONFORD—7.
For affirmance—None.
The opinion of the court was delivered by
PASHMAN, J. The single question in this case is whether the State‘s right of subrogation under the New Jersey Medical Assistance and Health Services Program (Medicaid), pursuant to
I
The New Jersey Medicaid statute is an outgrowth of Title XIX of the Federal Social Security Act, which provides grants to states for such medical assistance programs.
provide (A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties to pay for care and services (available under the plan)
arising out of injury, disease, or disability, * * * and (C) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability;
As we interpret the act, the State has two avenues by which it may seek reimbursement for Medicaid payments: it may either institute an action directly against the tortfeasor who is liable for the medical expenses or seek recovery by way of the Medicaid recipient through a right of subrogation. This conclusion is in harmony with the rights accorded the federal government under the parallel federal provision.1 See United States v. Merrigan, 389 F. 2d 21, 24 (3 Cir. 1968); Maddux v. Cox, 382 F. 2d 119, 124 (8 Cir. 1967); United States v. Greene, 266 F. Supp. 976, 978-79 (N. D. Ill. 1967); Tolliver v. Shumate, 151 W. Va. 105, 150 S. E. 2d 579, 582 (1966). See generally Long, “The Federal Medical Care Recovery Act: A Case Study in the Creation of Federal Common Law,” 18 Vill. L. Rev. 353, 372 (1973); Bernzweig, “Public Law 87-693: An Analysis and Interpretation of the Federal Medical Care Recovery Act,” 64 Colum. L. Rev. 1257, 1265 (1974).
This interpretation of our act comports with the Senate report accompanying the original version of
In the instant case payments amounting to $481.40 were made under the Medicaid scheme to William Hedgebeth, an infant-pedestrian who was injured on September 10, 1970 when he was struck by a car. The infant‘s mother, suing both individually and as guardian ad litem for the child, sought compensation for loss of services and future earnings and for medical expenses resulting from his injuries. Following a jury verdict finding liability by the defendant tortfeasor, Medford, the parties reached a settlement. The trial court‘s order embodying the terms of the settlement awarded $3,000 to the infant and $4,500 to the mother, with medical bills, costs and the $1,875 counsel fee to be paid out of the latter amount.
The Division of Medical Assistance and Health Services first learned of the recovery when plaintiffs requested payment of the judgment from the Unsatisfied Claim and Judgment Fund.
The Appellate Division reversed in a unanimous per curiam decision. 139 N. J. Super. 41 (1976). In rejecting the trial court‘s application of the rule governing private insurance contracts, the court emphasized the legislative aim of conserving public funds and the “absence of any specific legislative authorization, federal or state, to deduct a pro rata share of counsel fees from third-party liability recoveries.” Id. at 46. It found support for its result in Fireman‘s Fund Indem. Co. v. Batts, 11 N. J. Super. 242 (App. Div. 1951), which held that a pro rata share of counsel fees need not be deducted where reimbursement was sought pursuant to the workers’ compensation provisions. Additionally, it noted that the infant had technically not incurred any costs in the action because the trial court had ordered his mother to pay counsel fees out of her award; therefore, it concluded, the State would not be obligated to pay a share of counsel fees even if equitable principles were applied.
We granted plaintiffs’ petition for certification nunc pro tunc, 71 N. J. 519 (1976), and allowed the case to be argued solely by the Trial Attorneys of New Jersey and the New Jersey State Bar Association in their capacity as amici curiae. For the reasons discussed below, we reverse the judgment of the Appellate Division and hold that the State‘s right to recovery under the Medicaid Act is subject to equitable principles. Accordingly, we find that the State, in seeking to benefit from a Medicaid recipient‘s judgment against a third-party tortfeasor, must pay its pro rata share of counsel fees incurred in obtaining that recovery.
III
Initially, we note that this dispute would have been resolved under settled principles if the same language employed in the Medicaid provision in question had appeared instead in a contract by a private insurance carrier. In this
This rule is based on the equitable principle that a carrier should not be entitled to enjoy the fruits of the assured‘s judgment against a tortfeasor without contributing in any way to the costs or burdens of litigating that claim.3 Breslin v. Liberty Mut. Ins. Co., 69 N. J. 435, 439 (Pashman, J., dissenting); Klacik v. Kovacs, supra, 111 N. J. Super. at 312; Brown v. T. W. Phillips Gas & Oil Co., 105 F. Supp. 479 (W. D. Pa. 1952). The fact that an independent action might have been brought in order to obtain reimbursement for
The State, however, argues that the equitable principles underlying the subrogation doctrine are inapplicable where a comprehensive statutory scheme is concerned. In support of this proposition it urges the Court to adopt the position taken in cases dealing with workers’ compensation; in particular, it relies heavily on the reasoning in Fireman‘s Fund Indemnity Co. v. Batts, supra. Additionally, it argues that payment of a pro rata share of counsel fees would violate
The main thrust of the State‘s argument is related to the fact that it has an independent right of recovery under the act. Relying upon United States v. Nation, 299 F. Supp. 266 (N. D. Okl. 1969), it argues that since no deduction for plaintiffs’ fees would have been allowed if it had chosen to seek reimbursement directly from the tortfeasor, no distinction should be made where recovery is sought through a right of subrogation. But there is no reason to believe that the existence of an independent right of recovery by the State should affect the equitable nature of the State‘s right where it seeks reimbursement through subrogation. Significantly, federal cases considering the parallel federal provisions have emphasized the fact that the two alternative ways of seeking recovery are independent of each other. See ante at 366. At least one court has referred to the government‘s right as being “an equitable remedy of subrogation,” United States v. Merrigan, supra, 389 F. 2d at 24; and in United States v. Greene, supra, it was said:
“Subrogation” is a term of legal art which we assume would not be employed by the drafters of the statute unless they intended it to be construed in its normal sense. In legal context, subrogation
is a derivative right held by one who, while under a legal or equitable obligation to another person, pays that person a debt owed by a third party.
Similarly, the Appellate Division predicated its holding on the ground that the Legislature, in the enactment of
Furthermore, the result reached today should not frustrate the legislative policy inherent in the mandate to seek reimbursement. Although the history of the act indicates a strong legislative desire to minimize the costs of the program, see ante at 366, we cannot conclude that the Legislature would have intended a needy recipient to subsidize the State‘s recovery of medical expenses.
Fireman‘s Fund Indemnity Co. v. Batts, supra, is easily distinguishable. Although some courts have characterized a carrier‘s right to reimbursement under workers’ compensation as a right to “statutory subrogation,” see Roberts v. All American Engineering Co., 104 N. J. Super. 1, 8 (App. Div. 1968), certif. den. 53 N. J. 351 (1969); Prudential Ins. Co. v. Laval, 131 N. J. Eq. 23, 26 (Ch. Div. 1942), that statute contains no express provision for a right of “subrogation” as does
Furthermore, we note that it is difficult to draw any conclusion as to legislative intent from the workers’ compensation experience since immediately following the decision in Batts the Legislature amended that statute to require a carrier seeking reimbursement to deduct the employee‘s expenses of suit and attorneys’ fee from its recovery.
Our recent decision in Breslin v. Liberty Mut. Ins. Co., supra, is not to the contrary. The Court was concerned solely in that case with whether to apply New York law in deciding whether attorneys’ fees were deductible from a disability insurance carrier‘s lien against an employee‘s third party recovery. As the Appellate Division there noted:
The conflict of laws between the two states is clear: New Jersey favors contribution to the costs of suit by the insurer where such insurer has benefited from a third-party recovery; New York law precludes such deductions for attorneys’ fees and costs from the liens of disability insurers.
Reiterating the fact that the subrogation right had arisen by virtue of the law of a sister state, and not as a matter of private insurance law, the court held:
We consider the distinction to be crucial. * * * In the instant case, the issue is not what the local law should be, but rather
whether that law, or a conflicting foreign law, should apply. We have concluded that New York law should apply. [Id. at 366.]
We affirm substantially for the reasons set forth in the Appellate Division opinion, adding that the policy reasons favoring the rule in this State were insufficient to overcome the requirement that foreign law be applied.
Nor can we accept the State‘s argument that a deduction for a pro rata share of counsel fees would be tantamount to the State‘s hiring plaintiffs’ counsel, and therefore violative of
We find the treatment of a similar argument in Furia v. Philadelphia, 180 Pa. Super. 50, 118 A. 2d 236 (Super. Ct. 1955) to be persuasive. In that case the city attempted to exercise a right of subrogation arising out of payments to a public employee under a disability benefits statute. The Court found that requiring the city to pay a pro rata share of counsel fees would not violate the prohibition on hiring private counsel. As under our statute, the relevant inquiry focused on the nature of the relationship between the private attorney and the city. The court explained that there had been no contract, either special or implied, between the city and the attorney.
Finally, we need deal only briefly with the assertion that a deduction for counsel fees is not required because the fees in this case were to be paid entirely out of the mother‘s
Accordingly, we conclude that where the State seeks to exercise its right to be subrogated to a Medicaid recipient‘s claim against a third party, it must act in accordance with equitable principles. We therefore hold that the State must pay its pro rata share of counsel fees in seeking to obtain reimbursement of the $481.40 paid to Hedgebeth. The judgment of the Appellate Division is reversed. Plaintiffs are hereby directed to pay the State $361.05, which is the amount of the Medicaid payment of $481.40 less the State‘s pro rata share of counsel fees, $120.35.
SCHREIBER, J., dissenting. I must respectfully dissent from the proposition that an attorney for a medicaid recipient may charge the State for legal services in the absence of any express or implied authorization to recover monies due the State.
The issue here is whether the medicaid beneficiary‘s attorney is entitled to a counsel fee from the State irrespective of any notice to the State of the rendition of such services or consent by the State thereto.
Conspicuous by its absence is any statutory provision which states that the medicaid recipient‘s attorney may charge the State for legal fees in connection with recovery of the funds to which the State is entitled. The federal grants to states for medical assistance programs require that a state must seek reimbursement from third parties found legally responsible for the injury, disease or disability which gave rise to the medical assistance.
The State or local agency will seek reimbursement from a third party for assistance provided when the party‘s liability is established after assistance is granted and in any other case in which the liability of a third party existed, but was not treated as a current resource. 45 C. F. R. § 250.31(a)(4) (1976).
New Jersey has met the obligation by enacting
To take all reasonable measures to ascertain the legal liability of third parties to pay for care and services (available under the plan) arising out of injury, disease, or disability; where it is known that a third party has a legal liability, to treat such legal liability as a resource of the individual on whose behalf the care and services are made available for purposes of determining eligibility; and in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual, to seek reimbursement for such assistance to the extent of such legal liability. In any case where such a legal liability is found the department shall be subrogated to the rights of the individual for whom medical assistance was made available.
The use of the word “subrogated” in the New Jersey Medical Assistance and Health Services Act quoted above refers only to the statutory right of reimbursement subject to the defenses which the third party may have against the medicaid recipient.1 The legislature‘s use of the word “subrogated” in this sense is confirmed by the fact that
Furthermore, the public policy of this State has been generally to permit only the Attorney General or his designee to represent the State, although private counsel could be retained by him. In the light of this policy and the legislative history reflected in the time sequence of the 1951 Workers’ Compensation Act interpretation and subsequent amendment, enactment of the New Jersey Medical Assistance and Health Services Act in 1968, and adjudication of Klacik v. Kovacs, supra, in 1970, evidence of the legislature‘s intent not to provide a fee for the subrogor‘s attorney is overwhelming.
Even though an express provision authorizing deduction of counsel fees is absent, I would hold that the State is responsible for its proportionate share of those counsel fees where the Attorney General has consented to the action taken on behalf of the State by the attorney for the medicaid
The two cases cited by the majority to support the proposition that
The majority places substantial reliance for holding inapplicable the statutory provisions requiring Attorney General designation on a lower Pennsylvania court decision, Furia v. City of Philadelphia, 180 Pa. Super. 50, 118 A. 2d 236 (1955). A city employee had been injured and was paid wages by the City of Philadelphia during his disability. He recovered damages, including lost wages, against the third party tortfeasor. The court held that the City was entitled to be reimbursed because of equitable subrogation
The requisite that the subrogee be given notice and an opportunity to act on its own before being charged with a proportionate share of the subrogor‘s counsel fees has been generally applied in equitable subrogation cases. Klacik v. Kovacs, 111 N. J. Super. at 312, adopted the Nebraska position reflected in United Services Automobile Association v. Hills, 172 Neb. 128, 109 N. W. 2d 174 (1961). The Nebraska court held that a fee deduction was proper when the insurance carrier, after being notified by the assured‘s attorney of his intention to sue, refused to intervene in that proceeding and acquiesced in the plaintiff‘s action. 109 N. W. 2d at 177. The court reasoned that the insurance company had thereby elected to proceed through the assured and had abandoned its right to sue directly. 109 N. W. 2d at 178. No such election was made in this case. The State Division of Medical Assistance and Health Services and the Attorney General were not aware of the proceedings against the third party tortfeasor until judgment had been entered.
The majority assumes that the medicaid recipient‘s attorney could and would charge his client for recovery of the sums due the State and that this could possibly cause an indigent medicaid recipient to finance the State‘s recovery. Such a legal charge against the recipient would be improper, for the services rendered would not have been on behalf of the indigent. The attorney knew or should have known that the right to the special damages based on the medicaid payment belonged to the State and not his client. He could not justifiably assess his client for that recovery. Having proceeded without notifying the Attorney General
I would affirm.
Justice MOUNTAIN joins in this opinion.
For reversal—Chief Justice HUGHES and Justices SULLIVAN, PASHMAN, CLIFFORD and HANDLER—5.
For affirmance—Justices MOUNTAIN and SCHREIBER—2.