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Maine Pooled Disability Trust v. Hamilton

United States Court of Appeals, First Circuit

June 20, 2019

RICKER HAMILTON, in his official capacity as Commissioner of Maine Department of Health and Human Services, Defendant, Appellee. YVONNE R. RICHARDSON, by her Conservator Barbara Carlin, Plaintiff,


          Ron M. Landsman, with whom Landsman Law Group, Rene H. Reixach, Jr., Woods, Oviatt, Gilman, LLP, Richard L. O'Meara, and Murray, Plumb & Murray were on brief, for appellant.

          Thaddeus A. Heuer, with whom Dean Richlin, Jeremy W. Meisinger, and Foley Hoag, LLP were on brief, for National Academy of Elder Law Attorneys and Guardian Community Trust, amicus curiae.

          David Scott Hamilton and Dennis M. Sandoval, APLC on brief for Special Needs Alliance, amicus curiae.

          Christopher C. Taub, Assistant Attorney General of Maine, with whom Janet T. Mills, Attorney General of Maine, and Susan P. Herman, Deputy Attorney General of Maine, were on brief, for appellee.

          Joseph H. Hunt, Assistant Attorney General, Halsey B. Frank, U.S. Attorney, Alisa B. Klein, Attorney, Civil Division, Appellate Staff, Casen B. Ross, Attorney, Civil Division, Appellate Staff, Robert P. Charrow, General Counsel, U.S. Department of Health and Human Services, Janice L. Hoffman, Associate General Counsel, U.S. Department of Health and Human Services, Susan Maxson Lyons, Deputy Associate General Counsel for Litigation, U.S. Department of Health and Human Services, David L Hoskins, Attorney, U.S. Department of Health and Human Services, W. Charles Bailey, Jr., Attorney, U.S. Department of Health and Human Services, on brief for the United States of America, amicus curiae.

          Before Thompson, Kayatta, and Barron, Circuit Judges.


         This case concerns transfers of assets by individuals age sixty-five or older into what are called "pooled special needs trusts." The issue posed is whether such transfers are among those transfers that the Medicaid statute counts against eligibility for long-term care benefits. The district court held that they are. For the following reasons, we agree.


         The pertinent facts are straightforward and materially undisputed.

         Yvonne R. Richardson is an elderly resident of St. Joseph's Manor nursing facility in Portland, Maine. At the time of the complaint, Richardson was eighty-seven years old and receiving Medicaid benefits to help pay for the cost of her long-term care. See generally 42 U.S.C. § 1396p(c)(1)(C)(i)(I) (listing covered long-term care benefits, including nursing facility services). In January 2017, Richardson's conservator, Barbara Carlin, deposited $38, 500 of the proceeds from the sale of Richardson's former home into an account with Maine Pooled Disability Trust ("MPDT"), a pooled special needs trust established pursuant to 42 U.S.C. § 1396p(d)(4)(C).

         Pooled special needs trusts allow disabled individuals with relatively small amounts of money to pool their resources for investment and management purposes. Lewis v. Alexander, 685 F.3d 325, 333 (3d Cir. 2012). They are designed to "provide for expenses that assistance programs such as Medicaid do not cover." Id. (quoting Sullivan v. County of Suffolk, 174 F.3d 282, 284 (2d Cir. 1999)). Richardson hoped to use her MPDT funds to pay for "modest expenditures" not covered by Medicaid "that would greatly improve her quality of life," such as large-print word-search and crossword puzzle books, new clothing, sweets, manicures, magazines, and a radio. She also intended to hire a private caregiver who could take her on excursions outside the nursing facility.

         Following Richardson's deposit of funds into her MPDT account, the Maine Department of Health and Human Services ("MDHHS") issued a notice threatening to suspend Medicaid coverage for her care at St. Joseph's Manor for "3.53 months" because "[a]ssets were transferred" and she "did not get something of equal value" in exchange. See 42 U.S.C. § 1396p(c)(1)(A) (penalizing an institutionalized individual's "dispos[al] of assets for less than fair market value"). In response, Richardson requested an administrative hearing. She and MPDT also filed this lawsuit in federal court challenging MDHHS's decision to suspend her Medicaid coverage. The hearing officer subsequently stayed state administrative proceedings pending resolution of the lawsuit. Richardson will continue to receive Medicaid benefits until the administrative review of MDHHS's decision is complete.

         Richardson and MPDT's complaint included two counts, but only the second is at issue here.[1] That count asserts a claim under 42 U.S.C. § 1983, seeking a declaration and injunction predicated on the assertion that Richardson's transfer of assets into a pooled special needs trust is not a transfer that affects Medicaid eligibility. The district court dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6). Richardson, 2018 WL 1077275, at *18.

         In so doing, the district court ruled that Richardson had standing to challenge the decision to suspend her Medicaid coverage, but her claim was not yet ripe because "[a]ny penalty (and related adverse impact on [Richardson's] benefits) ha[d] been stayed pending her administrative appeal," such that her claims "lack[ed] sufficient finality and definiteness" for judicial review. Id. at *4-5. The district court determined that MPDT had associational standing and that MPDT's contention that MDHHS's ruling was currently causing MPDT to lose both enrollees and funds rendered its claim ripe for adjudication. Finally, the district court ruled that MDHHS correctly applied the governing statute in considering transfers to pooled special needs trusts in determining eligibility.

         MPDT alone filed a timely notice of appeal. No party disputes that MPDT has standing or that its claim is ripe. Nor do we see any reason to question either standing or ripeness sua sponte. As the district court observed, because "(1) one of MPDT's members, [Richardson], has standing to [sue]; (2) the interests at stake . . . are germane to MPDT's purpose; and (3) the relief requested does not require the participation of other MPDT beneficiaries in this litigation," id. at *9, MPDT has standing to bring its claims on behalf of its beneficiaries. See Council of Ins. Agents & Brokers v. Juarbe-Jiménez, 443 F.3d 103, 108 (1st Cir. 2006). And as to ripeness, no one cites any reason to doubt that, as the district court found, MDHHS's ruling currently harms MPDT. We therefore proceed to the merits of the order granting MDHHS's motion to dismiss Count II, which we review "de novo, applying the same criteria as the district court." Germanowski v. Harris, 854 F.3d 68, 71 (1st Cir. 2017) (quoting Carrero-Ojeda v. Autoridad de Energía Eléctrica, 755 F.3d 711, 717 (1st Cir. 2014)).


         Medicaid is a "health insurance program for low-income individuals . . . funded by both the federal government and state governments." Massachusetts v. Sebelius, 638 F.3d 24, 26 (1st Cir. 2011) (citing 42 U.S.C. § 1396 et seq.). Medicaid is supposed to be a "payer of last resort," id. (quoting Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 291 (2006)), and Medicaid eligibility criteria generally take an applicant's income and wealth into account, see Lewis, 685 F.3d at 332.

         Under Medicaid's prior asset-counting rules, inventive "lawyers and financial planners . . . devised various ways to 'shield' wealthier [applicants'] assets," including by placing assets in trusts. Johnson v. Guhl, 357 F.3d 403, 405 (3d Cir. 2004). So, Congress amended the Medicaid scheme, aiming, as a general matter, to treat trusts as assets available to beneficiaries, thus counting against Medicaid eligibility. Lewis, 685 F.3d at 333; see also Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312 (1993) ("OBRA").

         Although state participation in Medicaid is voluntary, participating states must adopt plans that meet certain requirements that federal statutes and regulations impose. See Armstrong v. Exceptional Child Ctr., Inc., 135 S.Ct. 1378, 1382 (2015). Failure to comply may jeopardize federal funds. See 42 U.S.C. § 1396a(a). Among these requirements, states must "comply with the provisions of section 1396p . . . with respect to . . . transfers of assets . . . and [the] treatment of certain trusts." 42 U.S.C. § 1396a(a)(18). This case turns on the relationship between two particular provisions of section 1396p: The Trust Provision and the Transfer Provision.


         The Trust Provision, section 1396p(d), sets forth several general rules addressing the treatment of assets held in trust (the trust corpus) and the treatment of payments out of trusts. Assets in revocable trusts are considered resources available to the applicant for purposes of determining his or her entitlement to benefits. Id. § 1396p(d)(1), (3)(A)(i). Payments from such trusts are considered either income of the applicant or assets disposed of by the applicant under the Transfer Provision. Id. § 1396p(d)(3)(A)(ii), (iii). Assets in irrevocable trusts are also considered available resources to the extent that payments could be made from such trusts for the applicant's benefit. Id. § 1396p(d)(3)(B)(i). And payments from these trusts are likewise considered either income or transferred assets. Id. § 1396p(d)(3)(B)(i)(I), (II). Further, portions of irrevocable trusts from which no payment could be made to the applicant are considered transferred assets, and the value of the trust for purposes of the Transfer Provision is determined by including the amount of any payments made from such portion of the trust. Id. § 1396p(d)(3)(B)(ii).

         These rules governing the treatment of trust corpuses and payments out of trusts do not apply universally. The 1993 OBRA amendments exempted three types of trusts for disabled individuals -- special needs trusts, Medicaid income trusts, and pooled special needs trusts -- from the eligibility rules set out in the Trust Provision. See id. § 1396p(d)(4)(A), (B), (C). This case concerns pooled special needs trusts.

         A pooled special needs trust "contain[s] the assets of an individual who is disabled (as defined in [42 U.S.C. § 1382c(a)(3)])." Id. ยง 1396p(d)(4)(C). To ...

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