357 F.3d 403 | 3rd Cir. | 2004
AM BRO and W EIS, Circuit Judges
Attorneys for Appellees Commissioner and State Divisions
*Judge Scirica began his term as Chief Judge on May 4, 2003. Edwin C. Eastwood, Jr., Esquire Law Offices of Edwin C. Eastwood, Jr. 723 Kennedy Boulevard North Bergen, NJ 07047
Attorney for Appellee Edward Testa spouse”) and the other resides in the community (the “community spouse”). Daniel W. O’Mullan, Esquire Plaintiffs, New Jersey residents, sought O’Mullan & Brady and were denied M edicaid benefits 57 Whippany Road because their assets exceed a level Whippany, NJ 07981 qualifying them for Medicaid eligibility.
They challenge their benefits denials Attorney for Appellee under 42 U.S.C. § 1983, and seek both Elizabeth Lehmann injunctive relief and a declaratory
judgment. The District Court held, inter alia , that New Jersey did not violate federal law in denying plaintiffs benefits
OPINION OF THE COURT and thus dismissed their complaint. Whether plaintiffs are entitled to AM BRO, Circuit Judge Medicaid benefits depends on how we view certain private trusts they Medicaid is a federal assistance established for the community spouse’s program, administered by the states, that benefit. Those trusts, known as helps individuals with below a certain Community Spouse Annuity Trusts level of assets pay for medical expenses. [1]
(“CSATs”), are designed to provide a Because Medicaid is available only to the stream of annuity payments to the needy, creative lawyers and financial community spouse for the duration of his planners have devised various ways to or her life. From 1994 to 1999, New “shield” wealthier claimants’ assets in Jersey did not consider the corpus of determining M edicaid eligibility. In this these CSATs as “countable” assets – that context, we decide, among other issues, is, among plaintiffs’ available resources whether New Jersey has correctly for Medicaid eligibility purposes – so interpreted federal law to preclude use of long as, on the community spouse’s a private annuity trust to shield assets. death, New Jersey would be the first
beneficiary of the CSAT to the extent I. Background that the State paid benefits on behalf of the institutionalized spouse (“state Plaintiffs in this case are elderly payback” or “state-payback couples in which one spouse resides in a requirement”). Thus, New Jersey nursing home (the “institutionalized effectively permitted Medicaid claimants
to use CSATs to shield a couple’s assets from Medicaid eligibility determinations during the community spouse’s lifetime. [1] The Medicaid Act is codified at 42 New Jersey would then be reimbursed U.S.C. § 1396 et seq . for benefits paid if any funds remained in Plaintiffs applied for Medicaid the CSAT after the community spouse’s benefits during the period that New death. If no funds remained, New Jersey Jersey was implementing its CSAT would recover nothing. policy change. They claim that, during
this period, New Jersey delayed in In 1999 New Jersey changed its processing their pending Medicaid position on the countability of CSATs, applications for anywhere between eight largely in response to an earlier and eighteen months. When New Jersey interpretive letter from an employee of finally determined plaintiffs’ eligibility, the Department of Health and Human applying its “new” policy, it deemed Services (“HHS”) stating that trusts such their asset levels too high to qualify for as CSATs should be considered Medicaid benefits because it included countable assets. With this change New their CSATs as available assets. Jersey considers CSATs among Plaintiffs dispute that the corpus of their Medicaid claimants’ assets when CSATs should be counted among their determining their total resources for assets. eligibility purposes. Thus, CSATs can no longer be used to shelter assets. [2] New Recognizing the difficulties its Jersey has taken a similar position with policy change caused plaintiffs (who had respect to commercial annuities. [3]
established CSATs expecting pre-1999 policy to apply), New Jersey advised that it would allow them to replace their CSATs with commercial annuities. As a [2] In this context, state paybacks no compromise to plaintiffs, the State would longer were exacted. treat these annuities as non-countable (whereas for other Medicaid claimants [3] Like CSATs, commercial annuities the State treats commercial annuities as provide a stream of payments (in this countable), so long as plaintiffs included context, to the community spouse) for a a state-payback provision in the fixed term of years. However, they are annuities. Plaintiffs, however, did not administered differently from CSATs. accept this settlement. [4] Whereas the corpus of a CSAT is administered by a trustee, who is often related to the elderly couple, the “corpus”
After New Jersey held their imposes no such requirement), the Court CSATs countable (thereby making them saw no risk of irreparable harm because ineligible for Medicaid), plaintiffs sought New Jersey ceased to require state to prove that New Jersey’s denial of paybacks for CSATs post-1999 when it benefits would cause them “undue began to deem CSATs countable assets. hardship.” Under federal law, if denial Finally, the Court confirmed that of Medicaid benefits to a claimant causes plaintiffs must be afforded an undue hardship, the state must provide opportunity for an undue hardship benefits, even though the claimant would hearing (and that New Jersey had failed otherwise not be so entitled. Federal law to promulgate procedures for such a requires states to establish hearing hearing). However, because New Jersey procedures by which individuals can conceded its obligation and had present their undue hardship claims. But committed to promulgating regulations at that time New Jersey had not for hearings, the Court held that its promulgated these procedures, leaving failure to do so thus far posed no risk of plaintiffs without any administrative irreparable harm. Judge Bassler left avenue for undue hardship relief. open the possibility that plaintiffs could
return to federal court if New Jersey As a result of these circumstances, failed to implement its promised plaintiffs filed suit in the District Court. procedures. They challenged, inter alia , New Jersey’s determination that their CSATs are In the meantime, despite the countable resources, the state-payback absence of officially promulgated requirement for CSATs deemed not procedures, New Jersey offered plaintiffs countable, and New Jersey’s failure to the opportunity to plead undue hardship promulgate procedures for undue in conformity with federally mandated hardship hearings required by federal standards. The State sent “amended” law. The District Court (per Judge denial letters to plaintiffs in December Bassler) denied relief and dismissed 1999 notifying them of their right to certain of their claims (though both apply for an undue hardship exception.
Plaintiffs declined to do so, however. [5] actions were without prejudice in part). First, it held plaintiffs’ CSATs countable under federal law. Second, although the Court believed that New Jersey’s state- [5] Plaintiffs’ counsel asked New Jersey payback requirement violates federal law
by letter on January 11, 2000 to “send . . . by imposing M edicaid eligibility criteria the undue hardship policy provision more stringent than those imposed by the contained in the New Jersey State Medicaid Act ( i.e. , that Medicaid Medicaid Plan” that implements the claimants with CSATs name New Jersey federal mandate to afford undue hardship first beneficiary, when federal law hearings. He said that, “[u]pon receipt of In 2001, New Jersey’s undue- determining their eligibility, it should be hardship regulations became effective. equitably estopped from applying its new Plaintiffs believe those regulations are CSAT countability policy to plaintiffs. inadequate, however, because they fail to The Court reasoned that equitable specify a time in which the State must estoppel will rarely lie against hold a hearing, thereby violating a governmental entities. Moreover, Judge federal Medicaid regulation requiring a Cavanaugh rejected plaintiffs’ state- “timely process for determining whether payback argument, though for different an undue hardship waiver will be reasons than did Judge Bassler. Judge granted.” Health Care Financing Cavanaugh found no evidence that New Administration (now Centers for Jersey any longer requires state paybacks Medicare & Medicaid for CSATs. However, in disagreement Services)(“HCFA”) Transmittal No. 64 § with Judge Bassler, Judge Cavanaugh 3259.8C. held that state paybacks are consistent
with federal policy disfavoring Medicaid Plaintiffs returned to the District claimants’ attempts to shelter assets and Court. This time the Court (with Judge thus do not violate federal law. Finally, Cavanaugh now presiding) denied their the Court disagreed with plaintiffs that motion for, inter alia , injunctive relief New Jersey’s newly promulgated undue and dismissed their complaint. It again hardship hearing provisions were held plaintiffs’ CSATs countable in deficient for their failure explicitly to determining Medicaid eligibility. It also provide a time frame in which a hearing rejected their argument that, because must be conducted. Rather, it held that New Jersey unduly delayed in the State had “substantially complied”
with federal law’s mandate to provide for undue hardship hearing procedures.
that information, my clients will file the Plaintiffs appeal Judge undue hardship request.” As noted, New Cavanaugh’s dismissal of their Jersey had no formal procedures in place complaint. [6] They raise essentially five at that time, but rather was attempting to issues for our review [7] : (1) whether accommodate plaintiffs’ complaint by providing ad hoc procedures that would comply with federal law. Thus New Jersey had nothing to send plaintiffs. [6] The District Court had jurisdiction Plaintiffs – presumably because they did under 28 U.S.C. § 1331. We have not receive the then-nonexistent jurisdiction pursuant to 28 U.S.C. § provisions – never provided New Jersey 1291. with the information necessary to [7] These are questions of statutory determine whether they were entitled to an undue hardship exception. interpretation, over which we exercise CSATs are countable assets for M edicaid As this is a question of statutory interpretation, [8] we begin (and end) our eligibility purposes; (2) whether in any event New Jersey should be estopped inquiry with the relevant statute, 42 from treating plaintiffs’ CSATs as U.S.C. § 1396p(d)(3)(B). That provision countable assets because they delayed provides, in subsection (i), that “[i]n the unduly in determining plaintiffs’ case of an irrevocable trust -- if there are Medicaid eligibility (or alternatively any circumstances under which payment whether the District Court should hold a from the trust could be made to or for the hearing on plaintiffs’ estoppel claim); (3) benefit of the individual [the whether New Jersey’s state-payback institutionalized spouse whose assets are requirement pre-1999 for CSATs violates used to establish the trust], the portion of federal law; (4) whether New Jersey’s the corpus from which, or the income on state-payback requirement for the the corpus from which, payment to the commercial annuity option offered to individual could be made shall be plaintiffs violates federal law; and (5) considered resources available to the whether the undue hardship regulations individual . . . .” Both parties agree that of New Jersey violate federal law by CSATs are irrevocable trusts. They are failing explicitly to provide a time by generally funded with marital assets which it must hold a hearing. Plaintiffs (assets that belong to both spouses). also seek attorneys’ fees. Moreover, CSATs are designed so that
the corpus and the income on the corpus will provide the community spouse a II. Discussion stream of payments. Once the community spouse receives these payments, there is nothing preventing her
A. Countability of CSATs or him from sharing them with the New Jersey deemed plaintiffs institutionalized spouse as well. Section ineligible for Medicaid benefits because, 1396p(d)(3)(B)(i) thus squarely covers when the capital in their CSATs was taken into account, they had assets exceeding a level qualifying them for [8] We note that there is some question Medicaid. Plaintiffs argue that New “whether third parties may sue to enforce Jersey should not have considered their Spending Clause legislation [such as CSATs as countable assets. provisions of the Medicaid Act].” Pharmaceutical Research & Mfrs. of Am. v. Walsh , 123 S. Ct. 1855, 1878 (2003) (Thomas, J., concurring) (citations
plenary review. Moody v. Sec. Pac. Bus. omitted). However, as neither party Credit, Inc. , 971 F.2d 1056, 1063 (3d raises this issue on appeal, we have no Cir. 1992). occasion to decide it. CSATs – as “circumstances [exist] under we affirm the District Court ruling that which payment from the trust could be plaintiffs’ CSAT assets are countable made to or for the benefit of” the resources. institutionalized spouse – and deems them countable resources. [9] Accordingly, B. Equitable Estoppel
Plaintiffs argue that New Jersey “stalled” their Medicaid applications for [9] Indeed, an interpretive letter from an eight to eighteen months to allow the HHS employee supports our analysis. State to make a “policy change” On April 16, 1998, Robert A. Streimer, regarding CSATs’ countability. As a with the Disabled and Elderly Health result, plaintiffs assert that we should Programs Group of HHS’s Center for equitably estop New Jersey from Medicaid and State Operations, wrote to attempting to apply its new CSAT an attorney in Virginia who inquired countability rule to plaintiffs or at least about the treatment of her client’s trust. order the District Court to hold a hearing According to the letter, the Virginia and allow discovery on this claim. Department of Social Services denied her client Medicaid benefits because, when
We decline to do either. the trust’s corpus was counted as an “[E]quitable estoppel will not lie against eligible resource, the client had assets in the Government as it lies against private excess of a M edicaid-qualifying level. litigants.” Office of Personnel Mgmt. v. Streimer opined that Virginia’s Richmond , 496 U.S. 414, 419 (1990). In determination was correct. He reasoned Richmond , even though a federal that the trust “falls under the jurisdiction employee provided misinformation to the of [§ 1396p(d)] if the trust was plaintiff (on which he relied to his established by either member of the detriment), the Supreme Court declined couple, using at least some of the equitably to estop the Government. Id . at Medicaid applicant’s assets.” Second, because “the trust . . . is an irrevocable trust, the corpus of which can be paid at some point in time to the community commercial annuities would not be spouse[,] . . . the corpus . . . is considered countable resources. Because, as will be as an available resource to the discussed below, the countability of beneficiary, and thus must be included as commercial annuities is not a question a countable resource in determining raised in plaintiffs’ complaint, we need Medicaid eligibility for the not decide whether the Streimer letter’s institutionalized spouse.” The Streimer position on the countability of letter went on to draw a distinction commercial annuities – a position between irrevocable (private) trusts and conflicting with New Jersey’s – is commercial annuities, suggesting that correct. trusts, see § 1396p(d)(4)(A)-(C), [11] 433-34. In a case more than a century before, The Floyd Acceptances , the Court Congress knew how to specify state similarly held that the Government could payback when it wanted; that it did not not be compelled to honor bills of do so for spousal trusts indicates that it exchange issued by a government official did not intend to permit states to seek where there was no statutory authority payback for CSATs. New Jersey for the issuance of the bills. 74 U.S. 666, counters that this issue is now moot 682-83 (1868). An analogous principle because it considers CSATs countable applies here: because, as discussed, there and therefore no longer imposes this is no statutory authority (federal or state) condition. W e agree with New Jersey. for treating CSAT assets as not countable, New Jersey should not be As background, § 1396p(d)(3) estopped from treating them as instructs states how to treat trusts for countable. While the Richmond Court Medicaid eligibility purposes. left open the possibility that some kind of Previously, when New Jersey considered “‘affirmative misconduct’ might give rise CSATs noncountable, it presumably to estoppel against the Government,” believed them to be governed by § plaintiffs allege no affirmative 1396p(d)(3)(B)(ii), which addresses misconduct here. Richmond , 496 U.S. at irrevocable trusts when no income or 421 (citations omitted). In this context, principal from the trust “could under any the District Court was correct in circumstances be made to the individual eschewing the estoppel of New Jersey’s [establishing the trust].” That section countability rule. [10]
provides that these trusts “shall be considered . . . to be assets disposed by the individual for purposes of subsection
C. State-payback requirement for CSATs (c) of this section [imposing a penalty on
transfers of assets].” The creation of a Plaintiffs challenge New Jersey’s CSAT results in a transfer of marital state-payback requirement for CSATs. assets to the community spouse. See § They argue that no provision of the 1396p(c)(3). Thus, absent some Medicaid Act allows a state to seek exception, even though a CSAT is payback from a community spouse’s noncountable it still is subject to § estate. Moreover, because § 1396p requires state payback for other types of 1396p(c)’s transfer penalty. [12] Section payback issue plaintiffs assert is moot 1396p(c)(2)(B)(i), however, exempts with respect to CSATs. transfers from penalty when made “for the sole benefit of the individual’s D. Commercial annuity option offered spouse.” In M edicaid parlance, this is to plaintiffs known as an “SBO transfer.” New Jersey conditioned application of the Plaintiffs argue that the SBO exception to the § 1396p(c) transfer commercial annuity option New Jersey offered them – whereby New Jersey penalty by defining an SBO transfer to include when the State is named first would deem commercial annuities beneficiary of the trust to the extent of noncountable assets so long as they provided for state payback – violates benefits paid on behalf of the institutionalized spouse. N.J. Admin. federal law for the same reasons Code tit. 10, § 71-4.10(f). In layman’s discussed above. New Jersey responds that because plaintiffs did not raise this language, transfers of assets by the institutionalized spouse for the sole issue in their complaint ( i.e. , plaintiffs only raised the issue with respect to benefit of the community spouse are not penalized for Medicaid eligibility, CSATs), it is not properly before us. according to New Jersey, if it has first We agree that plaintiffs take issue call on those trust assets equal to the Medicaid benefits it pays to the too late. Moreover, at oral argument institutionalized spouse. New Jersey made clear that its offer to
treat any commercial annuities plaintiffs Because New Jersey no longer might purchase as noncountable (so long requires state paybacks for CSATs, we have no occasion to decide whether it had the authority to define an SBO
of a commercial annuity) contrary to transfer in this manner. [13] Thus the state- New Jersey’s view that SBO transfers can include it as a beneficiary. See letter dated September 26, 2002, from Thomas E. Hamilton, Director of the Disabled [12] The “transfer penalty” is a period of and Elderly Health Programs Group of ineligibility for Medicaid benefits. HHS’s Centers for Medicare and [13] Although § 71-4.10(f) is no longer Medicaid Services, to Donald M. applied by New Jersey with respect to McHugh, Esq. (one of plaintiffs’ counsel CSATs, it apparently is still in effect, and in this case). Interestingly, the Hamilton thus presumably contemplates state letter, notwithstanding § 71-4.10(f), paybacks in non-CSAT contexts. refers to New Jersey’s interpretation as a
We also note in this regard that “policy, rather than state statute or HHS has taken a position (in the context regulation.” as they named New Jersey as first hardship” determinations. Section beneficiary) was intended to be a 3259.8A provides that “[u]ndue hardship settlement available to the plaintiffs, not exists when application of the trust a policy generally applicable to all provisions would deprive the individual Medicaid claimants. New Jersey need of medical care such that his/her health not have offered this compromise to or his/her life would be endangered [or] plaintiffs, and instead could have chosen when application of the trust provisions to treat countable assets in any annuities would deprive the individual of food, (whether private or commercial) clothing, shelter, or other necessities of plaintiffs purchased. Regardless, life.” While states have “considerable plaintiffs rejected this settlement, and flexibility in deciding the circumstances New Jersey tells us it is no longer on the under which [they] will not count funds table. Thus, not only was this issue not in trusts . . . because of undue hardship,” properly pled, it is moot as well. the regulation requires that states, “at a
minimum, provide for: [1] [n]otice to E. Undue Hardship Hearing recipients that an undue hardship exception exists; [2] [a] timely process Section 1396p(d)(5) requires for determining whether an undue states to afford otherwise ineligible hardship waiver will be granted; [and] claimants Medicaid benefits if “undue [3] [a] process under which an adverse hardship” would result from the failure determination can be appealed.” § to provide benefits. [14] The relevant 3259.8C. Moreover, a state’s “undue Medicaid regulation, § 3259.8 of HCFA hardship provision must discuss how [the Transmittal No. 64, sets standards for state] will meet these requirements.” Id. states to apply in making “undue
Plaintiffs’ arguments have necessarily shifted through the course of this case because, before seeking relief [14] 42 U.S.C. § 1396p(d)(5) provides initially in the District Court, New Jersey that “[t]he State agency [responsible for had not promulgated procedures under administering Medicaid] shall establish which Medicaid claimants could seek procedures (in accordance with standards undue hardship hearings in accordance specified by the Secretary) under which with § 1396p(d)(5) of the Medicaid Act the agency waives the application of this and § 3259.8 of Transmittal No. 64. subsection [relating to “[t]reatment of However, after the hearing before Judge trust amounts”] with respect to an Bassler, New Jersey implemented the individual if the individual establishes long-promised undue hardship that such application would work an regulations. See N.J. Admin. Code tit. undue hardship on the individual as 10, § 71:4.11(i). According to plaintiffs, determined on the basis of criteria however, New Jersey’s regulations do established by the Secretary.” 2001, this chronology is irrelevant. [15] not fully comply with federal law. They argued before Judge Cavanaugh – and What is important is that (the lack of now before us – that New Jersey’s formal regulations notwithstanding) New regulations do not specify within what Jersey offered plaintiffs the opportunity time period the State will afford an to apply for an undue hardship hearing, undue hardship hearing and thus do not as federal law requires. For whatever “discuss how [New Jersey] will meet” reason, plaintiffs chose not to seek a Transmittal No. 64's “timely process” hearing for undue hardship at that time. requirement. This failure, plaintiffs Thus they have suffered no injury (and argue, violates federal law. indeed have no basis to believe that New
Jersey would not have timely processed their request). [16] As a consequence, New Jersey responds that plaintiffs are without standing to plaintiffs are without standing. complain about the lack of an explicit timeliness clause in its regulation F. Attorneys’ fees because plaintiffs have not availed Because plaintiffs have not themselves of the offered undue hardship remedy and thus have suffered no injury received a favorable judgment on any of as a result of the lack of an explicit their claims – either in the District Court timeliness provision in § 71:4.11(i). On the merits, New Jersey also argues that neither § 1396p(d)(5) nor § 3259.8 of [15] We recognize that plaintiffs could Transmittal No. 64 requires states to not receive an undue hardship hearing include an express timeliness provision. under § 71-4.11(i) today. This provision requires claimants to apply for an undue
We agree with New Jersey that hardship waiver “within 20 days of plaintiffs lack standing because they notification of the denial of eligibility or have suffered no injury related to § termination of benefits,” a period long- 71:4.11(i)’s lack of an explicit timeliness passed. But as discussed, New Jersey provision. Plaintiffs conceded both in offered plaintiffs the opportunity to seek their brief and at oral argument that New an undue hardship hearing in December Jersey notified them of their right to an 1999. Having done so, it followed undue hardship hearing in December federal law. 1999 and required them to submit “the reasons and all documentation that you [16] Had plaintiffs sought a hearing, and believe gives rise to an undue hardship . . had New Jersey delayed unduly in . to the county welfare agency within 20 providing them a hearing or otherwise day[s] of this letter.” While these notices not complied with federal standards for were sent out before New Jersey’s undue such a hearing, they would have had hardship regulations became effective in standing. or here – they are not entitled to attorneys’ fees. Cf. Buckhannon Bd. and Care Home, Inc. v. West Virginia Dep’t of Health & Human Resources , 532 U.S. 598, 600 (2001) (party that failed to win on the merits by judgment or consent decree, yet obtained result it sought by defendant’s voluntary change, is not a prevailing party entitled to attorney’s fees and costs).
* * * * * * * * * * * * * We hold that CSATs are countable resources for Medicaid eligibility purposes and decline (a) to estop New Jersey from treating plaintiffs’ CSAT assets as countable or (b) to require the District Court to hold a hearing on the issue. Moreover, we hold that plaintiffs’ claims with respect to state paybacks are moot both as to CSATs and commercial annuities, and they are without standing to attack New Jersey’s undue hardship regulations. Finally, because plaintiffs do not prevail on the merits, they have no claim for attorneys’ fees.
NOTES
[4] Plaintiffs argue that they notified of a commercial annuity is paid to an unrelated third party (typically an New Jersey that they wished to exchange insurance company) to purchase the their CSATs for commercial annuities. annuity. The annuity company then New Jersey responds that they instructed makes payments to the community plaintiffs how to do so, but they declined spouse from a combination of principal to follow these instructions and therefore and income from that corpus. waived this offer of compromise.
[10] As there is no need in this case for
[11] The trusts provided for in this any hearing (including discovery), the section are known as special-needs, District Court’s refusal to conduct a “Miller,” and pooled trusts, and are not hearing is also affirmed. implicated in this case.