Johnson v. GuhlJohnson v. Guhl
Dоnald H. JOHNSON; Juanita L. Johnson; Eugene V. Mariani; Dorothy Mariani; Mary Lou Fleming; William R. Fleming; William C. Schaible; Phyllis R. Schaible, by her Court Appointed Guardian; Lois Benedetto; Gerald Benedetto; Donna R. Banks; Charles V. Banks, Estate of; Raymond O. Denman, Jr.; Frances C. Denman; Charles N. Hicks; Marie L. Hicks; Ann B. Silbernagel; Norman V. Silbernagel; Anna Prystasch; Stanley Prystasch; Mary Mackron; Anthony Mackron, Estate of; Janet Whalon; Harold B. Whalon, Jr.; Beradine Weiser; Richard C. Weiser; Grace Laforge; Blace Laforge; John Fillmore; Mary Fillmore; John Doe, (1-5 fictitious names); Jane Doe, (1-5 fictitious names); Robert Gross; George Allen; Social Services; Thomas Koelhoffer; Frances Koelhoffer; William Kelly; Kathryn Kelly; Marcella Finkel; Jack Finkel; Edna Allen; Willard Nickerson; Ethel Nickerson; Geraldine Ann Sahl; George J. Sahl; Margaret Bakerian; Vasgen Bakerian; Charles Derrot; Louise Derrot; Miguel Obregon; Onelia Obregon; Roy W. McDowell; June M. McDowell; Joseph Mezzo; Carmella Mezzo; Mathilda Gross
v.
Michelle K. GUHL, Commissioner; State of New Jersey, Department of Human Services, Margaret A. Murray, Director, Division of Medical Assistance and Health Service; John Roe, (1-5 fictitious names) their аgents, servants, employees, and/or assigns, jointly, severally or in the alternative; Edward Testa, Director, Bergen County Board of Social Services; Elizabeth Lehmann, Director, Morris County Board of Social Services; James Williams, Director, Essex County Board of Social Services; Jane Roe, Director, ABC County Board of Social Services, (1-5 fictitious names); Essex County Board of Chosen Freeholders Essex County Board of Social Services; Donald H. Johnson, Juanita L. Johnson, William C. Schaible, Phyllis R. Schaible, Charles N. Hicks, Marie L. Hicks, Ann B. Silbernagel, Norman V. Silbernagel, Anna Prystasсh, Stanley Prystasch, Appellants.
No. 01-3774.
United States Court of Appeals, Third Circuit.
Argued April 22, 2003.
Filed February 6, 2004.
As Amended March 26, 2004.
COPYRIGHT MATERIAL OMITTED Donald M. McHugh, (Argued), McHugh & Macri, East Hanover, National Academy of Elder Law Attorneys, New Jersey Chapter, Eugene Rosner, Clark, for Appellants.
David Samson, Attorney General of New Jersey, Michael J. Haas, Assistant Attorney General, M. Elizabeth Doyle (Argued), Deputy Attorney General, Office of Attorney General of New Jersey, R.J. Hughes Justice Complex, Trenton, for Appellees, Commissioner and State Divisions.
Edwin C. Eastwood, Jr., Law Offices of Edwin C. Eastwood, Jr., North Bergen, for Appellee, Edward Testa.
Daniel W. O'Mullan, O'Mullan & Brady, Whippany, for Appellee, Elizabeth Lehmann.
Before SCIRICA,* Chief Judge, AMBRO and WEIS, Circuit Judges.
OPINION OF THE COURT
AMBRO, Circuit Judge.
Medicaid is a federal assistance prоgram, administered by the states, that helps individuals with below a certain level of assets pay for medical expenses.1 Because Medicaid is available only to the needy, creative lawyers and financial planners have devised various ways to "shield" wealthier claimants' assets in determining Medicaid eligibility. In this context, we decide, among other issues, whether New Jersey has correctly interpreted federal law to preclude use of a private annuity trust to shield assets.
I. Background
Plaintiffs in this case are elderly couples in which one spouse rеsides in a nursing home (the "institutionalized spouse") and the other resides in the community (the "community spouse"). Plaintiffs, New Jersey residents, sought and were denied Medicaid benefits because their assets exceed a level qualifying them for Medicaid eligibility. They challenge their benefits denials under
Whether plaintiffs are entitled to Medicaid benefits depends on how we view certain private trusts they established for the community spouses' benefit. Those trusts, known as Community Spouse Annuity Trusts ("CSATs"), are designed to provide a stream of annuity payments to the community spouse for the duration of his or her life. From 1994 to 1999, New Jersey did not consider the corpus of these CSATs as "countable" assets — that is, among plaintiffs' available resources for Medicaid eligibility purposes — so long as, on the community spouse's death, New Jersey would be the first beneficiary of the CSAT to the extent that the State paid benefits on behalf of the institutionalized spouse ("state payback" or "stаte-payback requirement"). Thus, New Jersey effectively permitted Medicaid claimants to use CSATs to shield a couple's assets from Medicaid eligibility determinations during the community spouse's lifetime. New Jersey would then be reimbursed for benefits paid if any funds remained in the CSAT after the community spouse's death. If no funds remained, New Jersey would recover nothing.
In 1999 New Jersey changed its position on the countability of CSATs, largely in response to an earlier interpretive letter from an employee of the Department of Health and Human Services ("HHS") stating that trusts such as CSATs should be considered countable assets. With this change New Jersey considers CSATs among Medicaid claimants' assets when determining their total resources for eligibility purposes. Thus, CSATs can no longer be used to shelter assets.2 New Jersey has taken a similar position with respect to commercial annuities.3
Plaintiffs applied for Medicaid benefits during the period that New Jersey was implementing its CSAT policy change. They claim that, during this period, New Jersey delayed in processing their pending Medicaid applications for anywhere between еight and eighteen months. When New Jersey finally determined plaintiffs' eligibility, applying its "new" policy, it deemed their asset levels too high to qualify for Medicaid benefits because it included their CSATs as available assets. Plaintiffs dispute that the corpus of their CSATs should be counted among their assets.
Recognizing the difficulties its policy change caused plaintiffs (who had 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 compromise to plaintiffs, the State would treаt these annuities as non-countable (whereas for other Medicaid claimants the State treats commercial annuities as countable), so long as plaintiffs included a state-payback provision in the annuities. Plaintiffs, however, did not accept this settlement.4
After New Jersey held their CSATs countable (thereby making them ineligible for Medicaid), plaintiffs sought to prove that New Jersey's denial of benefits would cause them "undue hardship." Under federal law, if denial of Medicaid benefits to a claimant causes undue hardship, the state must provide benefits, even though the claimant would otherwise not be so entitled. Federal law requires states to establish hearing procedures by which individuals can present their undue hardship claims. But at that time New Jersey had not promulgated these procedures, leaving plaintiffs without any administrative avenue for undue hardship relief.
As a result of these circumstances, plaintiffs filed suit in the District Court. They challenged, inter alia, New Jersey's determination that their CSATs are countable resources, the state-payback requirement for CSATs deemed not countable, and New Jersey's failure to promulgate procedures for undue hardship hearings required by federal law. The District Court (per Judge Bassler) denied relief and dismissed certain of their claims (though both 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-payback requirement violates federal law by imposing Medicaid eligibility criteria more stringent than those imposed by the Medicaid Act (i.e., that Medicaid claimants with CSATs name New Jersey first beneficiary, when federal law imposes no such requirеment), the Court saw no risk of irreparable harm because New Jersey ceased to require state paybacks for CSATs post-1999 when it began to deem CSATs countable assets. Finally, the Court confirmed that plaintiffs must be afforded an opportunity for an undue hardship hearing (and that New Jersey had failed to promulgate procedures for such a hearing). However, because New Jersey conceded its obligation and had committed to promulgating regulations for hearings, the Court held that its failure to do so thus far posed no risk of irreparable hаrm. Judge Bassler left open the possibility that plaintiffs could return to federal court if New Jersey failed to implement its promised procedures.
In the meantime, despite the absence of officially promulgated procedures, New Jersey offered plaintiffs the opportunity to plead undue hardship in conformity with federally mandated standards. The State sent "amended" denial letters to plaintiffs in December 1999 notifying them of their right to apply for undue hardship exceptions. Plaintiffs declined to do so, however.5
In 2001, New Jersey's undue-hardship regulations became effective. Plaintiffs believe those regulations are inadequate, however, because they fail to specify a time in which the State must hold a hearing, thereby violating a federal Medicaid regulation requiring a "timely process for determining whether an undue hardship waiver will be granted." Health Care Financing Administration (now Centers for Medicare & Medicaid Services)("HCFA") Transmittal No. 64 § 3259.8C.
Plaintiffs returned to the District Court. This time the Court (with Judge Cavanaugh now presiding) denied their motion for, inter alia, injunctive relief and dismissed their complaint. It again held plaintiffs' CSATs countable in determining Medicaid eligibility. It also rеjected their argument that, because New Jersey unduly delayed in determining their eligibility, it should be equitably estopped from applying its new CSAT countability policy to plaintiffs. The Court reasoned that equitable estoppel will rarely lie against governmental entities. Moreover, Judge Cavanaugh rejected plaintiffs' state-payback argument, though for different reasons than did Judge Bassler. Judge Cavanaugh found no evidence that New Jersey any longer requires state paybacks for CSATs. However, in disagreement with Judge Bassler, Judge Cavanaugh held that state paybacks are consistent with federal policy disfavoring Medicaid claimants' attempts to shelter assets and thus do not violate federal law. Finally, the Court disagreed with plaintiffs that New Jersey's newly promulgated undue hardship hearing provisions were deficient for their failure explicitly to provide a time frame in which a hearing must be conducted. Rather, it held that the State had "substantially complied" with federal law's mandate to provide for undue hardship hearing procedures.
Plaintiffs appeal Judge Cavanaugh's dismissal of their complaint.6 They raise essentially five issues for our review:7 (1) whether CSATs аre countable assets for Medicaid eligibility purposes; (2) whether in any event New Jersey should be estopped from treating plaintiffs' CSATs as countable assets because they delayed unduly in determining plaintiffs' Medicaid eligibility (or alternatively whether the District Court should hold a hearing on plaintiffs' estoppel claim); (3) whether New Jersey's state-payback requirement pre-1999 for CSATs violates federal law; (4) whether New Jersey's state-payback requirement for the commercial annuity option offered to plaintiffs violates federal law; and (5) whether the undue hardship regulations of New Jersey violate federal law by failing explicitly to provide a time by which it must hold a hearing. Plaintiffs also seek attorneys' fees.
II. Discussion
A. Countability of CSATs
New Jersey deemed plaintiffs ineligible for Medicaid benefits because, when the capital in their CSATs was taken into account, they had assets exceeding a level qualifying them for Medicaid. Plaintiffs argue that New Jersey should not have considered their CSATs as countable assets.
As this is a question of statutory interpretation,8 we begin (and end) our inquiry with the relevant statute,
B. Equitable Estoppel
Plaintiffs argue that New Jersey "stalled" their Medicaid applications for eight to еighteen months to allow the State to make a "policy change" regarding CSATs' countability. As a result, plaintiffs assert that we should equitably estop New Jersey from attempting to apply its new CSAT countability rule to plaintiffs or at least order the District Court to hold a hearing and allow discovery on this claim.
We decline to do either. "[E]quitable estoppel will not lie against the Government as it lies against private litigants." Office of Personnel Mgmt. v. Richmond,
C. State-payback requirement for CSATs
Plaintiffs challenge New Jersey's state-payback requirement for CSATs. They argue that no provision of the Medicaid Act allows a state to seek payback from a community spouse's estate. Moreover, because
As background,
Because New Jersey no longer requires state paybacks for CSATs, we have no occаsion to decide whether it had the authority to define an SBO transfer in this manner.13 Thus the state-payback issue plaintiffs assert is moot with respect to CSATs.
D. Commercial annuity option offered to plaintiffs
Plaintiffs argue that the commercial annuity option New Jersey offered them — whereby New Jersey would deem commercial annuities noncountable assets so long as they provided for state payback — violates federal law for the same reasons discussed above. New Jersey responds that because plaintiffs did not raise this issue in their complaint (i.e., plaintiffs only raised the issue with respect to CSATs), it is nоt properly before us.
We agree that plaintiffs take issue too late. Moreover, at oral argument New Jersey made clear that its offer to treat any commercial annuities plaintiffs might purchase as noncountable (so long as they named New Jersey as first beneficiary) was intended to be a settlement available to the plaintiffs, not a policy generally applicable to all Medicaid claimants. New Jersey need not have offered this compromise to plaintiffs, and instead could have chosen to treat as countable assets in any annuities (whether private or commercial) plaintiffs purchased. Regardless, plaintiffs rejected this settlement, and New Jersey tells us it is no longer on the table. Thus, not only was this issue not properly pled, it is moot as well.
E. Undue Hardship Hearing
Plaintiffs' arguments have necessarily shifted through the course of this case because, before seeking relief initially in the District Court, New Jersey had not promulgated procedures under which Medicaid claimants could seek undue hardship hearings in accordance with
New Jersey responds that plaintiffs are without standing to complain about the laсk of an explicit timeliness clause in its regulation because plaintiffs have not availed themselves of the offered undue hardship remedy and thus have suffered no injury as a result of the lack of an explicit timeliness provision in § 71:4.11(i). On the merits, New Jersey also argues that neither
We agree with New Jersey that plaintiffs lack standing because they have suffered no injury related to § 71:4.11(i)'s lack of an explicit timeliness provision. Plaintiffs conceded both in their brief and at oral argument thаt New Jersey notified them of their right to an undue hardship hearing in December 1999 and required them to submit "the reasons and all documentation that you believe gives rise to an undue hardship ... to the county welfare agency within 20 day[s] of this letter." While these notices were sent out before New Jersey's undue hardship regulations became effective in 2001, this chronology is irrelevant.15 What is important is that (the lack of formal regulations notwithstanding) New Jersey offered plaintiffs the opportunity to apply for an undue hardship hearing, as federal law requires. For whatever reason, plaintiffs chose not to seek a hearing for undue hardship at that time. Thus they have suffered no injury (and indeed have no basis to believe that New Jersey would not have timely processed their request).16 As a consequence, plaintiffs are without standing.
F. Attorneys' fees
Because plaintiffs have not received a favorable judgment on any of their claims — either in the District Court 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,
* * * * * *
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 mеrits, they have no claim for attorneys' fees.
Notes:
Notes
Judge Scirica began his term as Chief Judge on May 4, 2003
The Medicaid Act is codified at
In this context, state paybacks no longer were exacted
Like CSATs, commercial annuities provide a stream of payments (in this context, to the community spouse) for a fixed term of years. However, they are administered differently from CSATs. Whereas the corpus of a CSAT is administered by a trustee, who is often related to the elderly couple, the "corpus" of a commercial annuity is paid to an unrelated third party (typically an insurance company) to purchase the annuity. The annuity company then makes payments to the community spouse from a сombination of principal and income from that corpus
Plaintiffs argue that they notified New Jersey that they wished to exchange their CSATs for commercial annuities. New Jersey responds that they instructed plaintiffs how to do so, but they declined to follow these instructions and therefore waived this offer of compromise
Plaintiffs' counsel asked New Jersey by letter on January 11, 2000 to "send ... the undue hardship policy provision contained in the New Jersey State Medicaid Plan" that implements the federal mandate to afford undue hardship hearings. He said that, "[u]рon receipt of that information, my clients will file the undue hardship request." As noted, New Jersey had no formal procedures in place at that time, but rather was attempting to accommodate plaintiffs' complaint by providingad hoc procedures that would comply with federal law. Thus New Jersey had nothing to send plaintiffs. Plaintiffs — presumably because they did not receive the then-nonexistent provisions — never provided New Jersey with the information necessary to determine whether they were entitled to an undue hardship exception.
The District Court had jurisdiction under
These are quеstions of statutory interpretation, over which we exercise plenary reviewMoody v. Sec. Pac. Bus. Credit, Inc.,
We note that there is some question "whether third parties may sue to enforce Spending Clause legislation [such as provisions of the Medicaid Act]."Pharmaceutical Research & Mfrs. of Am. v. Walsh,
Indeed, an interpretive letter from an HHS employee supports our analysis. On April 16, 1998, Robert A. Streimer, with the Disabled and Elderly Health Programs Group of HHS's Center for Medicaid and Stаte Operations, wrote to an attorney in Virginia who inquired about the treatment of her client's trust. According to the letter, the Virginia Department of Social Services denied her client Medicaid benefits because, when the trust's corpus was counted as an eligible resource, the client had assets in excess of a Medicaid-qualifying level. Streimer opined that Virginia's determination was correct. He reasoned that the trust "falls under the jurisdiction of [
As there is no need in this case for any hearing (including discovery), the District Court's refusal to conduct a hearing is also affirmed
The trusts provided for in this section are known as special-needs, "Miller," and pooled trusts, and are not implicated in this case
The "transfer penalty" is a рeriod of ineligibility for Medicaid benefits
Although § 71-4.10(f) is no longer applied by New Jersey with respect to CSATs, it apparently is still in effect, and thus presumably contemplates state paybacks in non-CSAT contexts
We also note in this regard that HHS has taken a position (in the context of a commercial annuity) contrary to 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 and Elderly Health Programs Group of HHS's Centers for Medicare and Medicaid Services, to Dоnald M. McHugh, Esq. (one of plaintiffs' counsel in this case). Interestingly, the Hamilton letter, notwithstanding § 71-4.10(f), refers to New Jersey's interpretation as a "policy, rather than state statute or regulation."
We recognize that plaintiffs could not receive an undue hardship hearing under § 71-4.11(i) today. This provision requires claimants to apply for an undue hardship waiver "within 20 days of notification of the denial of eligibility or termination of benefits," a period long-passed. But as discussed, New Jersey offered plaintiffs the opportunity to seek an undue hardship hearing in December 1999. Having done so, it followed federal law
Had plaintiffs sought a hearing, and had New Jersey delayed unduly in providing them a hearing or otherwise not complied with federal standards for such a hearing, they would have had standing