Opinion
2017 CA 0068
09-21-2017
In the MATTER OF the Minority of Brian L. CALLEY
Gregory Webb, Peter J. Losavio, Jr., Elliot W. Atkinson, Jr., Baton Rouge, LA, Attorneys for Plaintiffs/Appellants Clinton D. Calley, Jr. and Deborah B. Calley Weldon J. Hill, II, Stanley J. Bordelon, Baton Rouge, LA, Attorneys for Defendant/Appellee Louisiana Department of Health & Hospitals Kelley R. Dick, Jr., Baton Rouge, LA, Attorney for Defendant/Appellee J.P. Morgan Chase Bank, N.A.
Gregory Webb, Peter J. Losavio, Jr., Elliot W. Atkinson, Jr., Baton Rouge, LA, Attorneys for Plaintiffs/Appellants Clinton D. Calley, Jr. and Deborah B. Calley
Weldon J. Hill, II, Stanley J. Bordelon, Baton Rouge, LA, Attorneys for Defendant/Appellee Louisiana Department of Health & Hospitals
Kelley R. Dick, Jr., Baton Rouge, LA, Attorney for Defendant/Appellee J.P. Morgan Chase Bank, N.A.
BEFORE: HIGGINBOTHAM, HOLDRIDGE, AND PENZATO, JJ.
HOLDRIDGE, J.
This appeal concerns the right of the State of Louisiana, Department of Health and Hospitals (DHH) , to reimbursement of Medicaid benefits it paid from a trust. Finding no error, we affirm.
The Louisiana Department of Health and Hospital's name was changed to the Louisiana Department of Health on June 2, 2016 by 2016 La. Acts, No. 300, § 1.
FACTS AND PROCEDURAL HISTORY
Brian L. Calley was severely injured in a motorcycle accident on August 16, 1980. Because he was a minor, his parents, Clinton D. Calley, Jr., and Deborah B. Calley, filed a tort suit to recover damages. Funds from the settlement of the lawsuit were used to establish the Calley Trust on June 26, 1989. The settlement and the establishment of the Trust were approved by the district court. Clinton and Deborah were the settlors and the beneficiaries of the Trust. The Trust provided that its income was to be used in part "for the payment of medical or related expenses" incurred by the Calleys for Brian that were not covered by Medicaid. Brian died on October 3, 2015.
The settlement was valued at $2,529,444.00; out of the cash portion of the settlement ($1,550,000.00), Clinton and Deborah were each paid $183,256.00, and litigation expenses And attorney's fees of $1,083,488.00 were paid. The sum of $100,000.00 funded the trust along with $7,000.00 in monthly payments from an annuity Clinton and Deborah purchased with the settlement funds. The annuity was guaranteed to be paid for at least 120 months.
DHH paid Medicaid benefits on behalf of Brian after his accident and throughout his life. On February 25, 2016, after Brian's death, DHH filed a motion for approval of payment from the assets of the Trust. It sought $1,080,246.10 in Medicaid benefits paid on behalf of Brian from December 1, 1993 through November 29, 2012; $1,077,831.90 represented medical expenses and $2,594.20 represented Medicare Part B premiums. After a hearing, the district court granted DHH's motion.
DHH alleged that documents it received from the trustee, J.P. Morgan Chase Bank, N.A., showed that as of February 10, 2016, there were sufficient trust assets to fully reimburse DHH. Article X of the Trust provided that it shall remain in existence until Brian's death, at which time the Trust would terminate "and the entire Trust estate shall be paid to the said Clinton D. Calley, Jr., and Deborah B. Calley or their respective heirs and/or legal successors."
We note that DHH sought reimbursement of $1,080,246.10; however, the amounts paid as shown by the exhibit and the sum of the amounts for medical expenses and premiums total $1,080,426.10.
The court designated the judgment as a final appealable judgment pursuant to La. C.C.P. art. 1915(B)(1).
The Calleys appeal the judgment. They urge four assignments of error: the district court erred in interpreting the plain language of Article VIII of the Trust as requiring a payback to the State for paid Medicaid benefits; the district court erred in failing to apply federal law that restricts the right of a state agency to seize assets of a third party to reimburse Medicaid benefits; the district court erred in failing to apply Louisiana law, which has a self-imposed estate only reimbursement tax; and the district court erred in failing to apply federal law that restricts the rights of the State to reimbursement from tort-derived assets to the portion of settlement or judgment that is earmarked for medical expenses of the beneficiary.
DISCUSSION
Article VIII, the provision of the Trust DHH relies on for payment, states, in pertinent part:
A special charge against the Trust funds exists with respect to any claim by the State of Louisiana and/or the United States of America for recovery of any sums paid under Title XIX of the Social Security Act for medical services rendered to Brian L. Calley. In the event any such claim should be made, and payment thereof is approved by the court having jurisdiction, said claims shall be satisfied out of existing Trust funds.
The remainder of Article VIII states: "If the available Trust funds are not sufficient to satisfy the claim in its entirety, the balance shall be paid from payments thereafter made to the Trust in preference to any other claims except expenses necessary for the maintenance and preservation of the Trust."
(Footnote added.)
Article V of the Trust states, in pertinent part, that the Trust income and as much of the principal as may be necessary should be used:
for the payment of medical or related expenses or the providing of medically-related needs not covered by Title XIX of the Social Security Act or similar State or Federal programs, incurred by Clinton D. Calley, Jr., and/or Deborah B. Calley as the result of medical treatment, medical management, or fulfillment of the medical or related needs of their son, Brian L. Calley. "Medically related needs" as used herein are defined to include attendant care and the purchase of articles and services for the comfort, recreation and education of Brian L. Calley, as well as the reasonable costs of providing him with the presence and society of his immediate family during any times in which he does not reside with his family.
The trustee was authorized to make distributions directly to health care service providers and to reimburse the settlors for expenses they incurred after court approval, pursuant to Article VII of the Trust.
In granting DHH's motion for payment, the district court in its oral reasons stated that the Trust specifically established in Article VIII a special charge against the trust funds as to any claim by the State to recover any sums paid through Medicaid. The district court determined that the Trust was clear and it did not need to look beyond its plain language for the parties' intent. The district court explained that Brian had benefitted from the Trust because he avoided a Medicaid eligibility issue (by sheltering settlement funds in the Trust), so the district court did not agree with the Calleys' position that it should disregard the Trust's language that the parties agreed to reimburse the State for the Medicaid expenses. The district court also did not believe that the Trust repayment provision was against public policy or prohibited by federal or state law.
At the hearing, the parties stipulated that Brian was eligible for Medicaid except for a short period of time when DHH terminated his benefits in November of 1992. DHH based the termination on its contention that the Trust and its income were Brian's property, contrary to the beneficiary designations in the Trust. The Calleys appealed the termination and Medicaid benefits were ultimately reinstated with a Medicaid eligibility date of October 5, 1992.
The district court noted that Clinton and Deborah raised the argument for the first time at the hearing that they did not know if the Trust funds were "dollar for dollar matches" of Medicaid, apparently referring to the Trust being only for medical expenses. However, we note that the Calleys did raise this issue in their supplemental memorandum in opposition to DHH's motion for approval of payment. Moreover, the Calleys argue that the Trust funds did not include settlement money only for Brian's medical expenses, as shown by motions in the record seeking authorization for special trust expenditures for expenses related to Deborah's back surgery and the purchase of a single-family dwelling with modifications to accommodate Brian's disabilities.
Louisiana law favors the liberal construction and interpretation of trusts. A preliminary provision of the Louisiana Trust Code, La. R.S. 9:1724, provides:
The provisions of this Code shall be accorded a liberal construction in favor of freedom of disposition. Whenever this Code is silent, resort shall be had to the Civil Code or other laws, but neither the Civil Code nor any other law shall be invoked to defeat a disposition sanctioned expressly or impliedly by this Code.
See Succession of Voorhies v. Voorhies, 2003-163 (La. App. 3 Cir. 7/16/03), 853 So.2d 655, 657. A trust instrument shall be given an interpretation that will sustain the effectiveness of its provisions if it is susceptible of such an interpretation. La. R.S. 9:1753. In construing a trust, the settlor's intention controls and is to be ascertained and given effect, unless opposed to law or public policy. In re James C. Atkinson Clifford Trust, 2000-0253 (La. App. 1 Cir. 6/23/00), 762 So.2d 775, 776, writ denied, 2000-2262 (La. 10/27/00), 772 So.2d 655. A trust or disposition in trust may be made subject to any condition not forbidden in the Louisiana Trust Code and not against public order or good morals. La. R.S. 9:1736. Parol or extrinsic evidence may be admitted to aid in construing the trust instrument only if the instrument is ambiguous and uncertain and only to explain, not contradict the instrument. In re James C. Atkinson Clifford Tr., 762 So.2d at 776. Also, La. R.S. 9:2252 provides that trusts and their provisions are to be governed by the law in effect at the time of their creation.
In this case, neither party contends that the Trust language is ambiguous. Therefore, this court must determine whether the district court erred in interpreting the Trust to authorize payment to DHH for Medicaid benefits it paid Brian. Appellate review of questions of law is simply a review of whether the lower court was legally correct or legally incorrect. Sanders v. Pilley, 96-0196 (La. App. 1 Cir. 11/8/96), 684 So.2d 460, 463, writ denied, 97-0352 (La. 3/21/97), 691 So.2d 90.
The Medicaid program was established in 1965 as Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., to provide medical assistance to persons whose income and resources are insufficient to meet the costs of necessary care and services. Atkins v. Rivera, 477 U.S. 154, 156, 106 S.Ct. 2456, 2458, 91 L.Ed.2d 131 (1986) ; Sanders, 684 So.2d at 464. If an individual has assets available to him or her over a statutory amount, that individual is ineligible to receive Medicaid assistance. See 42 U.S.C. § 1396(a)(17). The federal government shares the costs of Medicaid with states that elect to participate in the program. Atkins, 106 S.Ct. at 2458 ; Sanders, 684 So.2d at 464. In return, participating states must comply with the applicable Medicaid federal rules, regulations, and statutes. Ark. Dept. of Health & Human Services v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 1758, 164 L.Ed.2d 459 (2006).
Under federal law, a state's Medicaid program has a subrogation right for reimbursement of medical expenses paid on behalf of an injured plaintiff in a tort case. As a condition of receiving Medicaid benefits, an individual must assign to the state any rights to the recovery of medical care provided as a result of a third-party tortfeasor. See 42 U.S.C. § 1396k(a)(l). If an individual chooses not to pursue a claim, the state must seek reimbursement. See 42 U.S.C. § 1396a(25)(H). Medicaid's right of reimbursement is governed by federal anti-lien statutes which limit the government's recovery. Additionally, 42 U.S.C. § 1396p(b)(l) provides, in pertinent part, "No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in circumstances not relevant here]."
42 U.S.C. § 1396p(a)(l), states, in pertinent part: "No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except ...."
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The Calleys' initial argument on appeal is that the Trust's plain language sets forth a security device with its use of the words "special charge" based on a "claim" by the State or United States for recovery. They then argue that the Medicaid payments are not pre-approved for reimbursement under the Trust, because they allege that Article VIII of the Trust does not provide that the Medicaid payments must be reimbursed. Thus, the Calleys contend that for DHH to succeed, federal or state law must provide for reimbursement since an underlying obligation or claim is necessary.
The Calleys assert that Article VIII of the Trust should not be given effect because federal law at the time of the creation of the Trust did not require a payback provision. The Omnibus Budget Reconciliation Act of 1993, U.S. PL 103–66, 107 Stat. 312 (OBRA '93), U.S. PL 103–66, 107 Stat. 312, enacted August 10, 1993, established a general rule that trusts would be counted as assets for the purpose of determining Medicaid eligibility, but it excepted from that rule special needs trusts for severely disabled persons under age 65; the special needs trusts were required to include a payback provision to obtain or preserve Medicaid eligibility. See 42 U.S.C. § 1396p(d)(4)(A). In Sanders, 684 So.2d at 464, this court did not apply 42 U.S.C. § 1396p (the special needs trust provision) to a trust established by the father of a severely disabled child composed of settlement proceeds from the father's tort suit on behalf of his son where the trust was established before the enactment of OBRA '93. While the Calleys' allegations are correct that special needs trusts requiring the inclusion of a payback provision did not become a legal method to obtain or preserve Medicaid eligibility until the enactment of OBRA '93, the law did not prohibit the inclusion of a payback provision in a trust prior to the enactment of OBRA '93.
The State established a program for the recovery of Medicaid payments made on behalf of individual recipients from the succession estates of those individuals when La. R.S. 46:153.4 was enacted by La. Acts 2003, No. 226, § 1. DHH in this case was not treating the matter as an estate recovery claim, however, because the Trust assets are not part of Brian's estate. Thus, La. R.S. 46:153.4 does not apply. As with OBRA '93, the failure of the State to authorize such a provision when the Trust was created does not prevent parties from including such a provision in a trust, as the Calleys did here.
The Calleys contend that DHH can only be reimbursed from that part of the Trust funds that represents compensation for medical care for Brian, relying on Ahlborn, 126 S.Ct. at 1756, and Wos v. E.M.A. ex rel. Johnson, 568 U.S. 627, 632–39, 133 S.Ct. 1391, 1396–99, 185 L.Ed.2d 471 (2013). In Ahlborn, the Supreme Court found that the anti-lien provisions of the Medicaid law ( 42 U.S.C. § 1396p(a)(l) ), precluded an Arkansas statute's automatic imposition of a lien for Medicaid payments on tort settlement proceeds meant to compensate the recipient for damages other than medical care costs, such as for pain and suffering, lost wages, and loss of future earnings. In Wos, the Supreme Court held that any reimbursement calculation for Medicaid payments, which uses a statutory formula to determine the apportionment of medical and non-medical expenses, was not conclusive and could be challenged in a judicial or administrative proceeding by demonstrating, with evidence, that the lien amount exceeded the amount recovered for medical expenses. See Wos 133 S.Ct. at 1398–99.
The Calleys' reliance on Ahlborn and Wos is misplaced because those cases dealt with liens imposed against the property or assets of a living Medicaid recipient whereas this case involves the State's recovery of Medicaid funds paid from the Trust of a deceased Medicaid recipient. The plain language of 42 U.S.C. § 1396p(a)(l) states, in relevant part, that "[n]o lien may be imposed against the property of any individual prior to his [or her] death on account of medical assistance paid or to be paid on his [or her] behalf under the State plan, except ... under circumstances not relevant here. (Emphasis added). In several out-of-state cases after Ahlborn and Wos, the courts have allowed states to recover Medicaid benefits that were paid from special needs trusts, as defined by 42 U.S.C. § 1396p(d)(4)(A), upon the beneficiary's death without being limited to that part of the settlement representing medical expenses. See Austin v. Capital City Bank, 111,894 (Kan. Ct. App. 6/26/15) 2015 WL 4366519, at 6 (unpublished opinion); Herting v. California Dept. of Health Care Services, 235 Cal.App.4th 607, 617–18, 185 Cal.Rptr.3d 401, 409 (2015) ; Coles v. New Jersey Dept. of Human Services, 13–3987 (D.N.J. 2014) 2014 WL 2208142, at 8 n.4 (unpublished opinion). See also Goheagan v. Perkins, 197 So.3d 112, 120 (Fla. 4th Dist. Ct. App. 2016) (the anti-lien statute does not preclude the State's recovery of the full amount of its Medicaid lien from the wrongful death settlement by the estate of the deceased Medicaid recipient).
While this case does not involve a statutory special needs trust, the rationale behind such trusts applies in this case and was alluded to by the district court. The special needs trust statute specifically addresses the unique and difficult situation faced by severely disabled individuals with assets that are sufficient to end their Medicaid eligibility but insufficient to account for their medical costs. Matter of Abraham XX., 11 N.Y.3d 429, 436–37, 900 N.E.2d 136, 139–41, 871 N.Y.S.2d 599 (2008). Through the trust, the disabled person is able to qualify for Medicaid benefits, but upon his or her death, the life-enhancing purpose of the special needs trust can no longer be effectuated and the State is entitled to reimbursement of funds to sustain the Medicaid system. Id.
For the foregoing reasons, the Calleys' assignments of error have no merit. The district court did not err in interpreting the provision of the Trust established by the Calleys to require payment to DHH for Medicaid payments made for their son, and this provision was not against public policy.
CONCLUSION
For the foregoing reasons, the judgment of the district court granting the motion for approval of payment of the Louisiana Department of Health and Hospitals from the assets of the Calley Trust is affirmed. Costs of this appeal are to be paid by Clinton D. Calley, Jr., and Deborah B. Calley.