Mary Sable v. Jennifer Velez

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 10-1148
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MARY SABLE; MICHAEL LANZA; WILLIAM GERWECK
v.
JENNIFER VELEZ, Commissioner, New Jersey Department of Human Services;
JOHN R. GUHL, Director, New Jersey Department of Human Services, Division of
Medical Assistance and Health Services
Mary Sable,
Michael Lanza,
Appellants
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On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 09-cv-02813)
District Judge: Honorable Anne E. Thompson
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Argued June 29, 2010
Before: SLOVITER, BARRY and HARDIMAN, Circuit Judges.
(Filed: July 28, 2010)
John W. Callinan [Argued]
Suite 103
2052 Highway 35
Wall, NJ 07719-0000
Rene H. Reixach
Woods Oviatt Gilman
2 State Street
700 Crossroads Building
Rochester, NY 14614
Attorneys for Appellants
Dianna M. Rosenheim [Argued]
Office of Attorney General of New Jersey
Department of Law and Public Safety
25 Market Street
Richard J. Hughes Complex
Trenton, NJ 08625-0000
Attorney for Appellees
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OPINION OF THE COURT
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HARDIMAN, Circuit Judge.
Mary Sable and Michael Lanza appeal the District Court’s denial of their motion
for a preliminary injunction. Because we hold that the District Court’s decision was
based on legal error, we will vacate and remand.
I.
Appellants are elderly individuals who, along with their spouses, had too many
resources to qualify for assistance under the federal Medicaid program 42 U.S.C. § 1396,
et seq. Around the time Appellants applied for Medicaid, their spouses purchased
promissory notes from their children that appeared to bring the couples’ resources within
the Medicaid eligibility limits. Both applications were denied, however, because the New
Jersey Department of Human Services (the Department) counted the promissory notes as
resources, which caused Appellants to exceed the Medicaid resource threshold. The
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Department reached that conclusion because it analyzed the promissory notes as trust-like
devices.
Appellants brought this suit against the Department’s Commissioner, Jennifer
Velez, and the Director of the New Jersey Division of Medical Assistance and Health
Services, John R. Guhl. Appellants sought to enjoin the Department from treating their
notes as trust-like devices and asked the District Court to remand the matter so the
Department could reconsider their applications under the proper analytical framework.
The District Court denied Appellants’ motion for preliminary injunction, holding they had
not established a likelihood of success on the merits because federal law does not prohibit
treating the notes at issue as trust-like devices.
When reviewing a preliminary injunction, “we review the court’s legal conclusions
de novo, its findings of fact for clear error, and its ultimate decision to grant or deny the
preliminary injunction for an abuse of discretion.” Maldonado v. Houstoun, 157 F.3d
179, 183 (3d Cir. 1998).
II.
Appellants claim the District Court committed legal error when it held the
promissory notes can be treated as trust-like devices under Medicaid. They argue such
treatment violates the Medicaid statute’s comparability provisions, which require a state’s
methodology for calculating income and resource eligibility to be “no more restrictive”
than the methodology used for Supplemental Security Income (SSI). 42 U.S.C.
3
§§ 1396a(a)(1)(C)(i)(III), 1396a(r)(2). A methodology is “considered to be ‘no more
restrictive’ if, using the methodology, additional individuals may be eligible for medical
assistance and no individuals who are otherwise eligible are made ineligible for such
assistance.” § 1396a(r)(2)(B). The Department may employ a different methodology, as
long as it is no more restrictive.1
There are essentially two tracks of analysis for calculating resources under SSI: the
regular rules and the trust rules. Under the regular rules, a resource is defined as “cash or
other liquid assets . . . that an individual (or spouse, if any) owns and could convert to
cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a); see
also § 416.120(c)(3) (using substantially similar language). To be a resource, the cash or
property must be capable of being “converted to cash within 20 days,” § 416.1201(b), and
the person must have the “right, authority, or power to liquidate the property or his or her
share of the property,” § 416.1201(a)(1). In its Program Operations Manual System
(POMS), the Social Security Administration has established tests for analyzing different
1
The phrase, “no more restrictive” was added in a 1988 amendment to
§1396(a)(10)(C)(I), Pub. L. 100-360 § 303(e)(1), which used to require that the state’s
“methodology . . . shall be the same methodology which would be employed under” the
SSI. See Atkins v. Rivera, 477 U.S. 154, 159 (1986).
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instruments.2 The relevant POMS provisions contain tests for promissory notes, POMS
SI § 1140.300, and cash loans, § 1120.220.3
Prior to 1999, some applicants evaded the resource requirements by placing their
money in trusts, which frequently do not qualify as resources under § 416.1201. Kelley v.
Comm’r of Social Security, 566 F.3d 347, 352-53 (3d Cir. 2009). To close that loophole,
Congress amended the SSI statute to count trusts and trust-like devices separately. 42
U.S.C. § 1382b(e); Kelley, 566 F.3d at 352-53; see also 42 U.S.C. § 1396p(d) (the
Medicaid statute on trusts and trust-like devices). Now, all trusts and trust-like devices
are considered resources unless explicitly excluded by statute. §§ 1382b(e)(3), and (e)(6).
The POMS also contains a section on how to analyze trusts or trust-like devices, POMS
SI § 1120.201.
Critical to this appeal, the trust-like device analysis is secondary to the regular
analysis, even for instruments that meet the trust-like device requirements: “we will not
consider these arrangements under trust rules if they would be counted as resources under
regular SSI resource-counting rules.” § 1120.201(G)(1); see also § 1120.202(A)(5)(a)
2
The POMS is the publicly available internal operating instructions for processing
SSI claims. Washington State Dept. of Social Health Servs. v. Keffler, 537 U.S. 371, 385
(2003). “While these administrative interpretations are not products of formal
rulemaking, they nevertheless warrant respect.” Id.; see also James v. Richman, 547 F.3d
214, 218 n.2 (3d Cir. 2008).
3
We also note that the regulations list “promissory notes” as “resources that are
ordinarily liquid,” 20 C.F.R. § 416.1201(b), whereas “loan agreements” are “resources
that are ordinarily nonliquid,” § 416.1201(c).
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(directing application reviewers to first determine whether the instrument is a countable
resource “under regular SSI resource-counting rules”). Although the POMS does not
define “regular SSI resource-counting rules,” it refers to the regular rules discussed
above.
The District Court held that “there is nothing in the Medicaid Act or the POMS
that forbids a state from instead analyzing a promissory note as a trust-like device if the
facts of the situation warrant such analysis.” Sable v. Velez, 2009 WL 5174452, at *1
(D.N.J. 2009). Despite the veracity of that statement, we hold that the District Court did
not undertake the proper analysis to determine whether the facts of this case warrant trust-
like device analysis. The SSI analysis requires inquiry into whether the notes at issue in
this appeal are resources under the regular resource-counting rules. If they are resources,
the SSI analysis would never reach the trust-like device provision. Because the District
Court proceeded to the trust-like device analysis without first applying the regular rules, it
committed legal error.4
4
Appellants claim a promissory note can never be treated as a trust-like device
under 42 U.S.C. § 1396(d) because such treatment would render § 1396p(c) meaningless.
But the two subsections do not affect each other. Subsection (d) addresses counting
resources for eligibility, whereas subsection (c) addresses punishing sham transactions in
which assets are transferred for less than fair market value. Because the two are different,
instruments can be relevant under both subsections. For example, annuities are
punishable under §§ 1396p(c)(1)(F) and (G) and can be analyzed as trust-like devices for
eligibility. See POMS SI § 1120.201(G)(2) (listing examples of trust-like devices,
including “annuities”).
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To be clear, we do not hold that the promissory notes at issue in this appeal would
necessarily be counted as resources under the regular SSI resource-counting rules; that
determination depends on whether they satisfy those rules. For example, under the cash
loan provision, the notes need to be “bona fide,” “negotiable,” POMS SI
§ 1120.220(B)(2), and “enforceable under state law,” 5 § 1120.220(A)(1); see also
§ 1120.220NY(B)(1) (SSI policy explaining when an informal loan is legally binding in
New Jersey). It remains for the District Court to make those determinations in the first
instance.6
We hold only that the District Court committed legal error when it analyzed the
notes as trust-like devices without first determining whether they would be counted as
resources under the regular resource-counting rules. Accordingly we will vacate the
District Court’s order and remand for further proceedings not inconsistent with this
opinion.
5
Contrary to the Department’s argument, the District Court will not need to
determine whether the transactions had a “loan purpose” because that requirement is not
contained in the statute, regulations, or POMS.
6
On remand, the District Court will also need to determine whether Appellants
have shown a likelihood of success on the merits. Success on the merits requires showing
they would have been eligible under SSI, not that they would have been entitled to some
hypothetical defenses. See, e.g., Roach v. Morse, 440 F.3d 53, 59 (2d Cir. 2006) (“[T]o
succeed in their claim, plaintiffs must show that Vermont’s Medicaid methodology
renders them ineligible for benefits for which they would be eligible under the SSI
methodology.”).
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