OPINION
THIS MATTER comes before the Court for consideration of the following motions: (1) several motions to strike evidence, filed by both Plaintiff and Defendants (Docs. 23, 56, 132, and 144); (2) two motions for summary judgment filed by Defendants (Docs.18, 74); (3) two motions for partial summary judgment filed by Plaintiff (Docs.102, 121); (4) a motion to amend the complaint and a supplement to that motion, filed by Plaintiff (Docs.85, 157); and (5) a motion in limine filed by Defendants (Doc. 171). The Court has reviewed the motions, the responses thereto, and the materials submitted by the parties, and will dispose of each motion as discussed below.
Brief Summary of Facts
This is a 42 U.S.C. § 1983 case, brought by Plaintiff after he lost his eligibility for Medicaid benefits provided by the State of New Mexico. Plaintiff is a minor child and had been receiving such benefits as a result of a head injury suffered in an accident. At some point after the injury, Plaintiff settled legal claims arising out of the accident and received a settlement of $2,500,000 from a third party. [Doc. 102, Exh. 2] After payment of attorney fees, medical expenses, costs, and individual recoveries for Plaintiffs parents, Plaintiff was left with $1,100,000 in settlement рroceeds.
[Id.]
In order to maintain Plaintiffs eligibility for Medicaid benefits, the state court that approved the settlement also approved the creation of what is called a special-needs trust.
1
The state court
Plaintiff appealed this administrative decision and was afforded an evidentiary hearing in which he was allowed to challenge the factual and legal basis for the decision. The parties submitted documentary evidence, testimony, and legal argument to the administrative law judge (“ALJ”). Following the hearing, the ALJ issued a recommended decision affirming the termination of Plaintiffs Medicaid benefits; this recommended decision was adopted as the final decision of the State administrative agency. Plaintiff then filed a state-court appeal of this administrative decision. Instead of pursuing that appeal, however, Plaintiff also filed this federal-court lawsuit under § 1983. Plaintiff then requested that’the state district court issue a stay of the case pending before it, to allow Plaintiff to pursue the federal-court case to resolution. The state district court granted the stay, leaving the case before this Court as the only currently active case challenging the termination of Plaintiffs Medicaid benefits. The most significant legal issue in the case appears to be an issue of first impression. That issue is the
Motions to Strike Evidence
The parties have filed motions to strike portions of affidavits submitted by the opposing side in connection with the various motions for summary judgment that have been filed. These motions to strike are based on claims that the affidavits contain hearsay, inadmissible legal opinions, evidence concerning settlement negotiations, and speculation not based on personal knowledge. Unfortunately, the motions do little more than add to the already-heavy workload of the parties and this Court. Each motion required the filing of a response and often a reply, and required this Court to examine the pleadings to determine the merits of the parties’ arguments. It would have been far more efficient for the parties, and certainly for the Court, if the admissibility issues had simply been argued in the summary-judgment briеfs submitted by the parties. For example, the Court is well aware that in' addressing motions for summary judgment, the Court may consider only evidence that in substance would be admissible at trial, and motions on that theme are fruitless. The Court will therefore deny all of the motions to strike as unnecessary, and will decide what evidence is admissible in the course of addressing each motion for summary judgment.
Defendants’ Second Motion for Summary Judgment, Based on Collateral Es-toppel
Defendants argue that the doctrine of issue preclusion, also known as collateral estoppel, prevents Plaintiff from re-litigating in this Court any of the issues that were litigated and decided during the administrative proceedings held following Plaintiffs appeal of the termination of his Medicaid benefits. Defendants maintain Plaintiff is bound by the factual and legal determinations made during those administrative proceedings, and accordingly cannot satisfy the elements of any of his claims. In response, Plaintiffs chief contention is that collateral estoppel applies only to administrative decisions that have become final. Plaintiff points out that the administrative decision made in his case has been appealed to the state district court, and argues the decision is therefore not a final decision for collateral-estoppel purposes. Applying New Mexico law, 5 the Court disagrees with Plaintiffs argument. However, for the reasons discussed below, the Court also disagrees with Defendants’ argument that every decision made during the administrative proceedings gives rise to collateral estoppel in this case.
In New Mexico, administrative decisions are given collateral estoppel effect if they were “rendered under conditions in which the parties have the opportunity to fully and fairly litigate the issue at the administrative hearing.”
Shovelin v. Central New Mexico Elec. Co-op., Inc.,
“It is well established that the doctrines of res judicata and collateral estoppel apply only to final judgments.”
C & H Constr. & Paving Co., Inc. v. Citizens Bank,
As noted above, however, the above determination is not the end of the matter. If the issue decided in an earlier proceeding is a pure issue of law, application of the collateral-estoppel or issue-preclusion doctrine is not required.
See Envtl. Def. v. U.S. E.P.A.,
The key question in this case is whether a state has the authority to assess the administration of a special-needs trust in determining Medicaid eligibility of the trust beneficiary — that is, whether a state can determine that a trust is not being administered for the sole benefit of the disabled beneficiary, and can deny Medicaid benefits on that basis. This is a pure question of law requiring construction of the federal Medicaid statute. For that reason, the Court will not accord collateral-estoppel effect to the administrative decision in this case, to the extent that decision affirmed Defendants’ authority to undertake an inquiry into the administration of Plaintiffs special-needs trust. Instead, Defendants’ motion for summary judgment based on the collateral-estoppel doctrine will be denied, and the Court will perform its own analysis of the pure issues of law raised by this case. 6
Defendants’ and Plaintiffs Cross-Motions for Summary Judgment on the Merits
Plaintiffs complaint raises constitutional claims as well as statutory claims; Plaintiff contends in essence that Defendants violated his right to due process by the manner in which his Medicaid benefits were terminated, and violated the applicable statute by erroneously terminating his benefits. For purposes of this opinion, the Court will assume Plaintiff may use § 1983 to challenge the alleged violation of the Medicaid Act, as well as the claimed constitutional violations.
See, e.g., Watson v. Weeks,
The legal question presented is the proper construction of the following statutory language: “This subsection [restricting ability to shelter resources in a trust] shall not apply to any of the following trusts: ... [a] trust containing the assets of an individual under age 65 who is disabled ... and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.” 42 U.S.C. § 1396p(d)(4)(A). According to Plaintiff, this statute has the following, and only the following, requirements: (1) that the trust beneficiary is disabled and under the age of 65; (2) that the trust was created for the benefit of that disabled person by his or her parent, grandparent, or legal guardian, or by a court; and (3) that the trust provides that upon the death of the beneficiary, the state that has paid for the beneficiary’s medical expenses through the Medicaid program will be reimbursed for all of those payments, before any money remaining in the trust is distributed to any other entity (in other words, the trust must create a remainder interest in the
Defendants, on the other hand, contend the purpose of the statute is two-fold: to allow disabled individuals to shelter (for Medicaid purposes) resources that will be used to improve their lives, while at the same time ensuring that a state providing such Medicaid benefits will be repaid, eventually, for the amounts spent on the trust beneficiary’s medical care. In order to fulfill these twin objectives, argue Defendants, the state must have the ability to monitor the trust to ensure that it is being administered to benefit only the trust beneficiary. Otherwise, a beneficiary’s family will be able to gain finаncial benefit from the trust while at the same time avoiding the responsibility of paying for the beneficiary’s medical care. Defendants maintain that one consequence of such expenditures will be the unwarranted depletion of trust assets that could and should be used to reimburse the state for its Medicaid expenditures on behalf of the trust beneficiary.
The resolution of the argument depends upon the intent of the legislation. It is elementary that the first source the Court must turn to in determining that intent is the plain language of the statute.
Been v. O.K. Indus., Inc.,
The language employed in the statute, however, is not as clear as Plaintiff would have it. It is by no means apparent that by using the term “established” Congress intended to limit consideration of the “benefit” requirement to the initial creation of the trust. This can be seen merely by reviewing dictionary definitions of the word “establish.”
See Anderson v. UNUM Provident Corp.,
Another avenue often pursued in performing statutory construction is an examination of the legislative history of the provision in question.
See, e.g., State of Utah v. Babbitt,
The Medicaid statute is complex, and the day-to-day application of the statute has been largely left tо administrative agencies. Where that is the case, a court construing a statute will often look to the manner in which the administrative agencies have interpreted that statute, giving deference to the construction placed on the statute by presumed experts in the field.
See, e.g., Morenz v. Wilson-Coker,
The federal agency in charge of interpreting and applying the Medicaid statute is currently called the Centers for Medicare & Medicaid Services (“CMS”). See id. The CMS, formerly known as the Health Care Financing Administration (“HCFA”), has said little about the states’ authority to monitor special-needs trusts after the trusts have been created. What the CMS has said appears to be conflicting and open to widely divеrgent interpretations. For example, in the fall of 1994, the Office of the Inspector General of the Department of Health & Human Services issued an audit report entitled “The Use of Trusts by Medicaid and Supplemental Security Income Recipients Receiving Third Party Liability Settlements and Awards.” June Gibbs Brown, Inspector General, Dep’t of Health and Human Servs., October 1994, available at immv.oig.hhs.gov/oas/ reports/region/9/99300033.pdf (“Report”). In this report, the Inspector General opined that under OBRA '93, “Medicaid has no statutory right to approve trust expenditures.” Report, p. 14. The report adds that trust funds could be depleted by being spent on luxury homes and vacations, or by “paying guardians large sums for caring for the disabled individuals.” Id. In a response to the report, attached as an appendix, HCFA appears to agree with this conclusion, stating that the most prominent loophole in OBRA '93 “results from the fact that there are no limits on how trust funds can be used.” Report, Appx. p. 7. This interpretation, of course, is directly in line with the manner in which Plaintiff interprets the relevant OBRA '93 provision.
Subsequently, and perhaps in response to the Inspector General’s report, HCFA appears to have changed its interpretation of the statute. In 1996 Sally Richardson, then-director of the Medicaid Bureau of HCFA, wrote a memorandum to all state Medicaid directors (“Richardson Memorandum”). This memorandum apparently stated that “... the state can monitor distributions from the trust to be sure that, in the case of the (d)(4)(A) trust, funds in the trust are used for the benefit of the disabled individual ...” 8 This direction to the state Medicaid directors is in direct opposition to the conclusion HCFA appeared to have drawn earlier, in responding to the Inspector General’s report.
As for guidance in regulations and other materials promulgated by CMS or other agencies, they too are of little help. These materials, which are few in number, simply quote the statutory provision, or
Several practitioners in the field of elder law have written articles concerning the general topic of special-needs trusts, and have produced somewhat ambiguous statements concerning the specific issue of a state’s control over administration of such trusts. Elaine J. Schwartz recognized that “[a]n argument can be made that the only requirement is to transfer the assets to such a trust, but that there is no standard fоr how that trust is administered after the transfer.” Elaine J. Schwartz,
Preserving Family Assets When Qualifying for Medicaid,
16687 NBI-CLE 204, p. 218 (2004). However, she then goes on to counsel that in authorizing payment from the trust while maintaining eligibility for Medicaid, one must “[evaluate to what extent payments can be made for the benefit of others. For example, payments of real estate taxes for the home will benefit other household members as well.”
Id.
at 219. Patricia Tobin has also recognized that “[i]f the family or the beneficiary refuses to accept the reporting requirements of the public benefits program or insists on accepting funds from the trust or from other sources that violate public benefits rules, it is unlikely that the special needs trust will meet its goal of maintaining the beneficiary’s eligibility for public benefits.” Patricia Tobin,
20/20 Foresight: Planning Ahead for Special Needs Trusts,
11-Jun Prob. & Prop. 56, 60 (1997). As neither of
Having exhausted other means of discerning legislative intеnt, the Court turns to the only avenue left — examining the context in which the provision was enacted, and the overall scheme of the statute of which it is a part.
See, e.g., Been v. O.K. Indus., supra,
The bottom-line question for the Court is this: would Congress have intended to allow a special-needs trust to be depleted, for the benefit of the disabled individual’s family rather than the individual himself, and yet still require the state to pay for the disabled individual’s medical care through the Medicaid program? To pose the question is to answer it; of course Congress would not want this to occur. Under Plaintiffs interpretation of the statute, however, a state would have no choice but to sit back and watch the assets of the trust be used for the benefit of individuals other than the beneficiary, reducing the state’s remainder interest in those assets, all while continuing to provide medical care to the beneficiary at government expensе. 12 This cannot have been the intent of Congress.
Plaintiff makes two other arguments with respect to this issue that are in the nature of purely legal questions rather than fact-bound issues. First, Plaintiff points out there are no federal or state regulations concerning the state’s authority to monitor special-needs trusts, and to terminate Medicaid benefits if the trusts are not being administered for the sole benefit of the disabled beneficiary. Absent such regulations, argues Plaintiff, Defendants’ decision was a purely arbitrary ad hoc decision that cannot stand. However, an agency is not required, prior to taking enforcement action, to promulgate a regulation concerning every possible legal or factual issue that might arise out of a particular statute.
See Pulido v. Heckler,
Plaintiff also argues that as a matter of law, his Medicaid benefits cannot be terminated because Defendants cannot impose more strict requirements upon his Medicaid eligibility than could be imposed
First, Plaintiff has provided no admissible evidence that SSA actually made a determination that his trust should not be counted as a resource. Instead, Plaintiff submitted only Ms. Sale’s hearsay testimony concerning the rationale for SSA’s decision. 13 That hearsay testimony cannot establish whether SSA did or did not decide the trust was excludable as a resource.
Second, there is no evidence indicating SSA based its decision on the same facts as those relied on by Defendants. To suceessfully argue that SSA’s decision controls the Medicaid eligibility decision as well, Plaintiff needed to show that SSA knew the same facts regarding the administration of the trust, such as the salary paid to Plaintiffs mother for caretaking duties, and still decided the trust should be excluded. Absent such a showing, Plaintiff cannot establish that Defendаnts applied a stricter eligibility test to Plaintiffs trust than did SSA.
Finally, the Court must point out that if SSA decided that a state as a matter of law has no authority to monitor expenditures from a special-needs trust, that decision was wrong. If SSA makes an erroneous decision, a state cannot be bound by that decision in reaching a Medicaid eligibility determination.
In conclusion, the Court holds that Congress intended to allow states to monitor special-needs trusts to ensure they continue to be administered for the sole benefit of the disabled beneficiary. If trust assets are used to directly benefit other individuals, such as members of the beneficiary’s family, the state has the authority to terminate the beneficiary’s Medicaid eligibility and require the family to pay the beneficiary’s medical expenses.
State’s Authority to Prohibit Payment to Mother for Caretaking Duties
The basis for the administrative decision in this case, upholding the termination of Plaintiffs Medicaid benefits, was narrow. The ALJ addressed only the salary paid to Plaintiffs mother, and limited the holding to payment for сaretaking
It may be that resolution of this issue in this particular case is a mixed question of fact and law, and the Court should refrain from addressing it (thus allowing the question to be decided in the administrative appeal). However, in the interest of judicial economy, the Court will address the argument. It is clear that depending on the circumstances it is not automatically arbitrary and capricious to treat payments to a family member differently than payments to an outside third party. It is true that having Plaintiffs mother, rather than a third party, act as his caretaker may well be in his best interest. It is also true, as Plaintiff argues, that payments to a third party from a trust benefit the third party as well as the beneficiary, and therefore cannot logically be said to be for the “sole” benefit of the beneficiary. There is an important difference, however, between third parties аnd family members, where a special-needs trust is concerned. A third party has no moral or legal responsibility to pay for the trust beneficiary’s medical expenses and is not receiving a benefit from the state while at the same time receiving a salary from the trust. The parents of a disabled teenager, on the other hand, certainly have such a duty, at least in comparison with the government, and receive a substantial benefit from the state if their child remains on Medicaid.
See Schweiker v. Gray Panthers,
The whole purpose of a special-needs trust is to shelter resources so that the state, through Medicaid, pays for medical expenses rather than having the beneficiary’s family pay for them. In exchange for the removal of that potentially ruinous responsibility, a family must choose to refrain from directly benefitting from the resources of a special-needs trust. Otherwise, the state is put in the position of
In sum, payment of a salary to Plaintiffs mother for caretaker services, while certainly in Plaintiffs best interests, is not for his sole benefit as contemplated by § 1396p(d)(4)(A). 15 It provides too much direct financial benefit to Plaintiffs family, the entity that is liable for Plaintiffs medicаl expenses if his trust is not excluded as a resource. Put another way, the state is not required to both provide Medicaid services to Plaintiff, and also allow Plaintiffs family to benefit directly from the trust that is supposed to reimburse the state for the Medicaid services it has provided during the existence of the trust. If Plaintiffs family chooses to benefit directly from the trust resources by having the trust pay a salary to Plaintiffs mother, the state is entitled to require the family to forego Medicaid benefits for Plaintiff.
Effect of These Holdings on Other Issues and Motions
Qualified Immunity: The Court recognizes this decision navigates uncharted waters. Given the possibility the Tenth Circuit may resolve the eligibility issue differently, the Court will briefly address the question of qualified immunity. As should be readily apparent from the foregoing, there was no clearly established law anywhere concerning a state’s authority to monitor expenditures from a special-needs trust in order to ensure those expenditures were for the benefit of the beneficiary and not someone else. Therefore, even if it is determined this Court has erred on the mеrits and a constitutional or statutory violation did occur, the individual Defendants are still entitled to qualified immunity.
Eidson v. Owens,
Constitutional Claims: Plaintiffs constitutional claims must fail because they are premised on the assertion, decided against Plaintiff in this opinion, that Defendants erroneously terminated Plaintiffs Medicaid benefits. The Court notes Plaintiff has attempted to raise a procedural-due-process claim arising out of
Other Motions: The remaining motions filed by the parties are all moоt or rendered without merit as a result of this decision. First, Plaintiffs motion to amend to add new parties is moot because they are state employees and the decision in favor of Defendants on the merits applies to them as well as the already-named Defendants. Plaintiffs motion for partial summary judgment as to damages is denied because no damages will be awarded. Finally, the motion in limine filed by Defendants is moot because there will be no trial at which the evidence they seek to exclude might be introduced.
Conclusion
Based on the foregoing, summary judgment on the merits will be granted to Defendants and Plaintiffs claims will be dismissed. The Court must also note dismay at the amount of trust resources that have been expended on attorney’s fees. In Plaintiffs motion for partial summary judgment concerning damages, counsel indicates the fees paid by the trust are over $68,000. If the trust has indeed spent that much on attorney’s fees, that amount appears to be far greater than the amount of medical expenses Plaintiffs family would have had to рay during that same period of time, based on the testimony the Court has heard concerning such expenditures and on the medical expenses claimed in the damages motion. This does not appear to be a wise use of the trust’s resources.
Notes
. A special-needs trust, also known as a supplemental-needs trust, is a trust created on
.For ease of reference, this opinion refers to Defendants in the aggregate, except where actions of a particular Defendant must be addressed. The term "Defеndants” will also apply to the state agency for which Defendants worked.
. It is not clear what the trust paid to Plaintiff’s mother as gross salary per month; it is clear, however, that after withholding amounts for social security and taxes, the net salary was $2200 per month at the time of the hearing held on Plaintiff’s motion for a preliminary injunction.
. A recipient of Medicaid may not own resources worth more than $2000, with certain exceptions that are not pertinent to this case.
. In determining what collateral-estoppel effect should be given to the administrative proceedings, this Court is required to afford those proceedings preclusive effect to the same extent they would have such effect in New Mexico state courts.
See, e.g., Brockman v. Wyoming Dep't of Family Servs.,
. Plaintiff will not, however, be allowed to re-litigate any issues of fact decided during the administrative proceedings, and will be bound by the factual findings contained in the administrative decision.
. One commentator provides a possible explanation for this. Joseph A. Rosenberg, Supplemental Nеeds Trusts for People with Disabilities: the Development of a Private Trust in the Public Interest, 10 B.U. Publ. Int. LJ. 91 (2000). Relating events as if they are fact, with few citations to sources, Mr. Rosenberg explains that § 1396p(d)(4)(A) arose out of the federal budget reconciliation process in 1993, a process that resulted in massive legislation entitled the “Omnibus Budget Reconciliation Act of 1993” (“OBRA '93”). Id. p. 127. During this process, according to Mr. Rosenberg, it became clear to disability advocates that Congress intended to restrict the use of trusts by affluent people to shelter assets and yet remain eligible for Medicaid payment of their nursing-home bills. To preserve the special-needs-trust protections that prior state laws had established for disabled people, representatives of several advocacy groups engaged in discussions with staff members for Congressman Waxman. According to Mr. Rosenberg, Medicaid amendments are “always among the final parts to be added to the huge budget reconciliation acts.” Id. p. 128. That is as-sertedly what happеned here; after much discussion between congressional staffers and advocates for disabled people, § 1396p(d)(4)(A) was added to the Medicaid amendments near the end of the process, which explains why no version of this provision appeared in prior proposed amendments. Id. pp. 128-130. If Mr. Rosenberg’s version of events is correct, this also explains why there appears to be no legislative history for the provision.
. The Court uses the term "apparently” deliberately, because the Court has been unable to locate a direct source for this Richardson Memorandum. However, the Court has found the same sentence of the report quoted in two different sources. These sources, typos aside, quote the exact same language as that set out above.
See
Barrett, Cynthia L.,
Estate Planning In Depth, Elder Law Issues 2002
§ 2.A.2, fn. 12, ALI-ABA 2002 (available for a fee from ALI-ABA website); Sangerman, Jay J., “Medicaid Liens and Recoveries. Do Liens Need to Be Settled Prior to the Establishment of the Supplemental Needs (sic)”, no numbered pages, quoted near еnd. available at www.sangerman.com/html/medicaid_liens_ recoveries_and.html. Furthermore, at least one other court has noted the existence of the Richardson Memorandum, and described it as being sent to all state Medicaid directors to explain the rules governing trusts and Medicaid following OBRA '93.
Robert v. Dep’t of Health and Human Services,
. Normally, a court would be inclined to grant at least some deference to statements made in the SMM and the Social Security Administrations' POMS.
See, e.g., Stroup v. Barnhart,
. The Court notes that it does not give deference to the interpretation Defendants, as well as the ALJ presiding over Plaintiff's administrative appeal, have placed on § 1396p(d)(4)(A). This is because of the general rule that a construction of a federal statute by a state agency is not given the same type of deference as that accorded a federal agency’s interpretation of the statute it is charged with administering.
See Three Lower Counties Community Health Servs., Inc. v. Maryland,
. In doing so, Congress did not act in a complete vacuum. Although special-needs trusts did not appear in the federal statutory framework before OBRA '93, several states had already enacted statutes concerning such trusts and how they should be administered with respect to Medicaid eligibility. At least one of these statutes, in New York, explicitly recognized the state's remainder interest in a special-needs trust, and sought to protect that remainder interest "by authorizing the promulgation of regulations to assure the fulfillment of the trustee’s fiduciary obligations” toward that remainder interest.
Petition of Goldblatt,
. The Court recognizes Plaintiffs argument that the trustee is required to act in the best interests of the beneficiary. However, if trustees were always as trustworthy as they are supposed to be, the texts on trust law would be exiguous. Furthermore, a trustee is required to act in the best interest of the beneficiary; as discussed below, this is a different standard than a standard requiring the trustee to act for the sole benefit of the beneficiary-
. Plaintiff argues this testimony was not hearsay, because Ms. Sale had "personal knowledge" of the SSI appeal and SSA’s decision. "Personal knowledge,” however, does not overcome a hearsay problem. A person who has a conversation with a third party has personal knowledge of that conversation, but the substance of what the third party said is still hearsay. Similarly, here Ms. Sale testified in essence that SSA told her, on paper or orally, the reasons for the decision; that testimony is inadmissible hearsay.
Aronson v. Peoples Natural Gas Co.,
. There is no dispute that Plaintiff requires much more constant and intensive caretaking than would a non-disabled young teen-age boy. However, the fact that the caretaking takes more time and energy than should have to be devoted to an individual Plaintiffs age does not convert the caretaking into specialized medical care.
. The Court is constrained to add that, like Defendants, the Court has serious concerns about the use of trust resources to pay for other items, such as the payment of a "substantial portion” of the cost of the home the family lives in, apparently without paying any rent to the trust. See Begley, supra (if a special needs trust owns a home that is occupied by other family members, they must pay their pro rata share of the expenses of operating the home). However, since the ALJ did not address this issue and the facts are not before the Court, there is no need to decide it at this time.