Opinion
111,894.
06-26-2015
LaToya L. AUSTIN and the Ceyonia T. Austin–Williams Irrevocable Special Needs Trust, Appellants, v. CAPITAL CITY BANK and State of Kansas; Kansas Department of Health and Environment, Division of Health Care Finance ; Estate Recovery, Appellees.
Thomas R. Hill, of Overland Park, for appellants. Brian M. Vazquez, of Kansas Department of Health & Environment, for appellees.
Thomas R. Hill, of Overland Park, for appellants.
Brian M. Vazquez, of Kansas Department of Health & Environment, for appellees.
Before LEBEN, P.J., PIERRON and STANDRIDGE, JJ.
MEMORANDUM OPINION
PER CURIAM.
This case requires us to determine who is entitled to recover funds that remain in a special needs trust following the death of the trust's beneficiary, Ceyonia Austin–Williams. After Ceyonia's death, the trustee, Capital City Bank (Bank) refused to continue making payments from the trust to Ceyonia's mother, LaToya L. Austin. In support of its position, the Bank relied on the Medicaid postdeath recovery provision set forth in the trust. Given the Bank's position, LaToya filed breach of contract and breach of fiduciary duty claims against the Bank. LaToya later added the State of Kansas, the Kansas Department of Health and Environment Division of Health Care Finance, and the Estate Recovery Program (collectively, the State) as necessary parties. Following a hearing on the matter, the district court determined that the Bank did not breach any contractual or fiduciary duties and that there was no legal basis to bar the State's claim to the funds that remained in the special needs trust for purposes of reimbursing the State Medicaid program for medical care and treatment provided to Ceyonia while she was alive. LaToya appeals from only that portion of the district court's ruling that permits the State to recover funds from the trust.
Facts
Ceyonia was bom on March 28, 2000. During the birthing process, Ceyonia suffered from severe trauma that resulted in multiple permanent and acute disabilities, including epilepsy, cerebral palsy, microencephaly, and scoliosis. A medical malpractice action was filed and subsequently resolved through settlement. Under the terms of the settlement agreement, the Ceyonia T. Austin–Williams Irrevocable Special Needs Trust (Trust) was created, and the Tmst was funded with the proceeds of the settlement in February 2003. The Tmst was designed to comply with 42 U.S.C. § 1396p(d)(4)(A) (2012), which allowed Ceyonia to keep the money she received when she settled the medical malpractice suit while also allowing her to remain eligible to receive medical assistance through Medicaid. The Bank was named the trustee of the Tmst, and Ceyonia was named the primary beneficiary. Article IV, paragraph B.6, of the Tmst provided:
“6. Termination
“This trust shall cease and terminate upon the depletion of its asset or upon the death of the beneficiary of this trust. If terminating on the death of the beneficiary, the Trustee shall distribute any remaining principal and income, up to an amount equal to the total medical assistance paid on behalf of a state plan, to said paying state to reimburse Medicaid costs. Any remaining principal or income shall be distributed to the beneficiaries as set forth in Schedule B.”
LaToya was named the remainder beneficiary of the Trust.
Ceyonia passed away in January 2011. The Bank continued to make payments from the Trust to LaToya for some time following Ceyonia's death. But on July 16, 2013, the Bank informed LaToya that the language of the Trust document required it to stop making these payments from the Trust to LaToya.
On August 9, 2013, LaToya filed a petition for injunctive relief, breach of contract, and breach of fiduciary duty against the Bank based on its refusal to make any additional payments from the Trust. LaToya later amended her petition to include the State as a necessary party and to request a declaratory judgment barring or extinguishing any claim by the State that it was entitled to some or all of the funds remaining in the Trust. In response, the Bank denied liability and the State filed counter and cross-claims asserting its partial interest in the remaining Trust funds pursuant to 42 U.S.C. § 1396p(d)(4)(A).
In November 2013, the parties appeared before the district court for a hearing. At the hearing, the parties stipulated that (1) Medicaid paid a total of $541,754.25 toward Ceyonia's medical care and (2) the corpus of the Trust at the time of Ceyonia's death was $355,627.17. The State and the Bank argued that, under the terms of the Trust and in compliance with 42 U.S.C. § 1396p(d)(4)(A), the State was entitled to any remaining funds in the Trust up to and including the total amount of medical assistance paid by the State in order to reimburse Medicaid costs. Conversely, LaToya's counsel argued that the State was entitled only to the portion of the tort claim settlement allocated to medical care and because Ceyonia's settlement was not allocated among damage items, i.e., pain and suffering, lost wages, and medical claims, the State was not entitled to recover any money from the remaining funds in the Trust.
The district court ultimately ruled that the Bank had not breached any contractual or fiduciary duty and that the State was entitled to reimbursement from the remaining Trust funds.
Analysis
The only issue on appeal is whether the district court properly concluded that the State is entitled to reimbursement from the Trust. To resolve this issue, we must consider the various statutes that govern the Kansas Medicaid program. To that end, we have unlimited review over interpretation of a statute. See Gannon v. State, 298 Kan. 1107, 1175–76, 319 P.3d 1196 (2014) (district court's conclusions of law subject to unlimited review on appeal); Cady v. Schroll, 298 Kan. 731, 734, 317 P.3d 90 (2014) (appellate courts have unlimited review over interpretation of a statute).
We begin with a brief overview of the purpose and scope of the Medicaid program. In 1965, Congress created the Medicaid program as a cooperative federal-state program to provide the states with federal assistance as reimbursement for costs of medical treatment provided to their needy citizens. See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784, reh. denied 488 U.S. 917 (1980) ; Williams v. Kansas Dept. of SRS, 258 Kan. 161, 164, 899 P.2d 452 (1995). The federal government pays the majority of the costs incurred by the State for patient care, while the State pays a portion of the costs and complies with “certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program.” Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). If an individual has assets available to him or her above a statutory limit, he or she is generally ineligible to receive Medicaid assistance. See 42 U.S.C. § 1396a(a)(17) (2012).
In 1993, Congress established a general rule that trusts would be counted as assets for the purpose of determining Medicaid eligibility. But Congress also excepted from that rule three types of trusts meeting certain specific requirements. Taken together, these are generally called special needs trusts or supplemental needs trusts. Relevant here, a special needs trust is defined as “[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.” 42 U.S.C. § 1396p(d)(4)(A). This arrangement ensures that a qualified individual can receive assets and use them for his or her own benefit to supplement Medicaid payments and improve his or her quality of life, yet remain eligible to receive Medicaid payments. Congress has mandated, however, that when a Medicaid recipient who has set up a special needs trust dies, the State must recover from any remaining trust funds an amount equal to the “total” Medicaid expenditures paid to that individual. 42 U.S.C. § 1396p(d)(4)(A) ; In re Guardianship & Conservatorship of Watkins, 24 Kan.App.2d 469, 473, 947 P.2d 45 (1997).
Here, the terms of the Trust make clear that LaToya intended it to qualify as a special needs trust pursuant to the provisions of 42 U.S.C. § 1396p(d)(4)(A). And there is no dispute that Ceyonia received Medicaid assistance during her life in the amount of $541,754.25. After Ceyonia's death, then, the express terms of the Trust require reimbursement to the State up to an amount equal to the total medical assistance it paid. See Hamel v. Hamel, 296 Kan. 1060, 1068, 299 P.3d 278 (2013) (if settlor's intent can be ascertained from express terms of a trust, the court must effectuate those terms unless they are contrary to law or public policy).
Notwithstanding the express terms of the Trust, LaToya argues that fully reimbursing the State out of the settlement proceeds would be contrary to federal law as applied by the United States Supreme Court in Ahlborn, 547 U.S. at 284–85, and Wos v. E.M.A. ex rel. Johnson, 568 U.S. ––––, 133 S.Ct. 1391, 1398–99, 185 L.Ed.2d 471 (2013). More specifically, LaToya contends both of these cases stand for the legal proposition that a state Medicaid program is entitled to limited reimbursement; i.e., from only that part of a personal injury settlement that represents payment for medical care expenses. Because Ceyonia's settlement had no such designation, LaToya contends the district court improperly ruled that the State was entitled to recover Medicaid payments from all of the remaining assets in the Trust upon Ceyonia's death.
In Ahlborn, the Supreme Court considered the federal Medicaid statutes in the context of an attempt by the State of Arkansas to recover Medicaid payments from a personal injury settlement. 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. If an individual chooses not to pursue a claim, the state must seek reimbursement. See 42 U.S.C. §§ 1396a(a)(25)(H), 1396k(a)(1) (2012). Medicaid's right of reimbursement is governed by federal anti-lien statutes which limit the government's recovery to only those funds which are specifically designated for the payment of past medical expenses. 42 U.S.C. § 1396a(a)(18). After Ahlborn sustained a disabling brain injury in a car accident, the State paid Medicaid benefits of approximately $215,000 on her behalf. Ahlborn filed suit against the parties she claimed to have caused the accident and received a settlement of $550,000. The State sought reimbursement from the settlement of all Medicaid benefits it had paid, based on a state statute. In affirming the holding of a lower appellate court, the Supreme Court held that the State's claim against the settlement for all the Medicaid benefits it paid “squarely conflict[ed] with the anti-lien provision of the federal Medicaid laws.” 547 U.S. at 275, 280. The Court reasoned that the federal anti-lien provision allowed the State to assert a lien on only that portion of the settlement proceeds representing medical expenses. 547 U.S. at 284–85.
In Wos, the Supreme Court subsequently held that North Carolina's statute, which established a set proportion (one-third) as the amount of the State's reclamation from a beneficiary's tort recovery, was preempted by the Medicaid Act to the extent it required payment beyond that shown to be for medical expenses. 133 S.Ct. at 1399 (“An irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act's clear mandate that a State may not demand any portion of a beneficiary's tort recovery except the share that is attributable to medical expenses.”). As a result, the Court struck down the Medicaid recovery formula to the extent that it permitted recovery beyond the portion of a Medicaid recipient's third-party settlement that represents compensation for past medical expenses. The Court suggested that a state could remedy this problem by providing a process for determining which portion of the recovery is attributable to medical expenses. 133 S.Ct. at 1401–02.
LaToya asserts that the Ahlborn and Wos decisions represent rules of general applicability for all Medicaid recipients, suggesting that the presence or absence of a special needs trust is irrelevant. And for the first time on appeal, LaToya relies on Wos to argue that K.S.A. 39–719a, Kansas' medical assistance reimbursement statute, is defective because it provides no process or procedure for determining what portion of a beneficiary's tort recovery is attributable to medical expenses. But LaToya's reliance on Ahlborn and Wos is misplaced. In those cases, the Court considered the anti-lien provision of the federal Medicaid statute, which 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.” (Emphasis added.) 42 U.S.C. § 1396p(a)(1). The plain language of 42 U.S.C. § 1396p(a)(1) clearly reflects Congress' intent that the anti-lien provision apply only to living Medicaid recipients. See Cady, 298 Kan. at 738–39 (when a statute is plain and unambiguous, appellate court should not speculate about legislative intent behind that clear language, and it should refrain from reading something into the statute that is not readily found in its words). The present case does not involve the State's attempt to assert a lien on a living beneficiary's settlement. Rather, it involves the State's attempt to recover funds from a deceased beneficiary's special needs trust authorized by 42 U .S.C. § 1396p(d)(4)(A).
Although neither Ahlborn nor Wos dealt with a § 1396p(d)(4)(A) trust, LaToya relies on In re E.B., 229 W. Va. 435, 729 S.E.2d 270 (2012), to defend her argument that Ahlborn and Wos generally apply to all Medicaid recipients. But In re E.B. did not involve a postdeath recovery from a special needs trust authorized by § 1396p(d)(4)(A), so it is unhelpful to the issue before us. As the district court did below, we find the analysis used by the court in Matter of Abraham XX., 11 N.Y.3d 429, 900 N.E.2d 136, 871 N.Y.S.2d 599 (2008), to be much more helpful as it appears to be the only case that specifically addresses postdeath Medicaid recovery from a special needs trust authorized by § 1396p(d)(4)(A) in the context of the Supreme Court's Ahlborn decision. Matter of Abraham XX. involved a delay between payment of the settlement amounts and the creation and funding of the special needs trust. As a result, the parties disputed whether the State was entitled to recover all Medicaid payments or just those payments made after the date the trust was created. The estate's administrator argued, in part, that the anti-lien provisions of the state and federal Medicaid statutes prevented recovery of § 1396p(d)(4)(A) trust funds by the State. The court dismissed this argument, stating:
“The anti-[lien] provisions are rules of general applicability for all Medicaid recipients regardless of the severity of disability. The [special needs trust] statute, by contrast, 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. One provision is distinct from the other.” 11 N.Y.3d at 437.
Significantly, the court specifically distinguished the Alhborn decision by noting that the anti-lien provision was not at issue in the case before it and that “Ahlborn did not involve the interpretation of [a special needs trust], or the interpretation of the Medicaid [special needs trust] statute, and it is therefore inapplicable to the matter before us.” 11 N.Y.3d at 438.
Although Matter of Abraham XX. is distinguishable on its facts, its reasoning is sound and readily applicable to the present case. While Ahlborn and Wos stand for the proposition that the federal Medicaid statutes forbid state Medicaid programs from imposing a lien on any portion of a personal injury judgment or settlement which does not represent payments for medical care, these decisions cannot be read to support LaToya's suggestion that a state Medicaid administrator is never entitled to full reimbursement. Significantly, Ahlborn and Wos dealt with the federal anti-lien provision, which only applies to living Medicaid recipients. Moreover, neither case involved a special needs trust, which renders them irrelevant to the unique circumstances of special needs trusts created under 42 U.S.C. § 1396p(d)(4)(A). See Matter of Abraham XX., 11 N.Y.3d at 437 (“[T]he State's right to reimbursement occurs only upon the death of the beneficiary—at a time when the life-enhancing purpose of the trust can no longer be effectuated. The Medicaid [special needs trust] reflects a policy decision to balance the needs of the severely disabled and the State's need for funds to sustain the system.”); see also Herting v. California Dept. of Health Care Services, 235 Cal.App. 4th 607, 617–18, 185 Cal.Rptr.3d 401 (2015) (Department of Health Care Services was entitled to recover medical benefits paid to special needs trust beneficiary from the special needs trust upon the beneficiary's death under 42 U.S.C. § 1396p [d][4][A] where the trust instrument stated it was intended to satisfy the federal special needs trust statute); Coles v. New Jersey Dept. of Human Services, No. 13–3987, 2014 WL 2208142, at *8 n.4 (D.N.J.2014) (unpublished opinion) (holding that plaintiff could not state claim on remaining assets of deceased beneficiary's special needs trust based upon 42 U.S.C. § 1396p [a][l] because provision “only bars the levying by the state of Medicaid liens against the property or assets of a Medicaid participant prior to that participant's death”).
For the first time on appeal, LaToya alleges that even if the State is entitled to be reimbursed from the remaining special needs trust funds, it is not entitled to reimbursement for any Medicaid payments made prior to February 14, 2003, the date the Trust was formed. Relying on First Capital Surety & Trust Co. v. Elliott, No. 4194–VCG, 2012 WL 4471244 (Del. Ch.2012) (unpublished opinion), she asks that the case be remanded to the district court for a determination as to when the Medicaid benefits were paid.
Although LaToya states that she raised this issue below, her citation to the record does not provide support for this assertion. Although issues not raised before the district court generally cannot be raised on appeal, there are several exceptions to the rule, including the following: (1) The newly asserted theory involves only a question of law arising on proved or admitted facts and is determinative of the case; (2) consideration of the theory is necessary to serve the ends of justice or to prevent the denial of fundamental rights; and (3) the district court is right for the wrong reason. State v. Phillips, 299 Kan. 479, 493, 325 P.3d 1095 (2014) ; In re Estate of Broderick, 286 Kan. 1071, 1082, 191 P.3d 284 (2008), cert. denied 555 U.S. 1178 (2009). Perhaps in anticipation of our finding that she did not preserve the issue below, LaToya summarily argues that we may address this issue for the first time on appeal under either of the first two exceptions.
We are not persuaded by LaToya's argument. First, her argument does not involve a question of law arising on proved or admitted facts; rather, it involves a question of fact—when Medicaid payments were made—that has neither been proved nor admitted. At the hearing before the district court, the State offered to admit a 54–page exhibit documenting the State's Medicaid payments. Instead, the parties agreed to stipulate to the total amount paid, and LaToya did not otherwise object to the fact that the exhibit was not admitted into evidence. Therefore, the first exception does not apply to warrant review of her argument. Second, LaToya fails to provide any support for her claim that considering the issue is necessary to serve the ends of justice or to prevent a denial of fundamental rights. Supreme Court Rule 6.02(a)(5) (2014 Kan. Ct. R. Annot. 40) requires an appellant to explain why an issue that was not raised below should be considered for the first time on appeal. See State v. Godfrey, 301 Kan. ––––, ––– P.3d –––– (No. 109,086, filed May 29, 2015), slip op. at 4–5 (declining to review argument because no explanation given for why exception to preservation argument applied). Given LaToya's failure to explain why her argument is properly before us, we need not address this issue for the first time on appeal. See State v. Williams, 298 Kan. 1075, 1085–86, 319 P.3d 528 (2014) (“Future litigants should consider this a warning and comply with Rule 6.02 [a][5] by explaining why an issue is properly before the court if it was not raised below—or risk a ruling that an issue improperly briefed will be deemed waived or abandoned.”).
When a special needs trust is established pursuant to 42 U.S.C. § 1396p(d)(4)(A), the State has a statutory right to recover the total amount of Medicaid payments made on behalf of the beneficiary. See 42 U.S.C. § 1396p(d)(4)(A) ; Watkins, 24 Kan.App.2d at 473. Because the terms of the Trust make clear that LaToya intended it to qualify as a special needs trust pursuant to the provisions of § 1396p(d)(4)(A), the State is entitled to Medicaid reimbursement up to an amount equal to the total medical assistance paid.
Affirmed.