Norwest Bank ND v. David S. Doth

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 97-3113
___________
NORWEST BANK NORTH *
DAKOTA, N.A., AS TRUSTEE OF *
THE SONYA LOTZER TRUST AND *
THE BOBBI LERUD TRUST *
*
Appellant, *
*
* Appeal from the United States
* District Court for the
* District of Minnesota.
v. *
*
DAVID S. DOTH, IN HIS OFFICIAL *
CAPACITY AS COMMISSIONER *
OF THE MINNESOTA *
DEPARTMENT OF HUMAN *
SERVICES *
*
Appellee. *
*
_________________________ *
*
THE NATIONAL ACADEMY OF *
ELDER LAW ATTORNEYS, *
*
Amicus Curiae. *
___________
Submitted: March 9, 1998
Filed: July 31, 1998
___________
Before BEAM and HEANEY, Circuit Judges, and WATERS,1 District Judge.
___________
WATERS, District Judge.
Norwest Bank North Dakota, N.A. (Norwest) appeals from the district court's2
decision that the Minnesota Department of Human Services (DHS) is entitled to
satisfaction of its existing Medicaid assistance liens prior to, or at the time of, the
creation of a supplemental or special needs trust pursuant to the 1993 amendments to
the Medicaid Act, 42 U.S.C.A. § 1396p(d)(4)(A) (Supp. 1998). The sole question
before the lower court was the timing of the payment of the lien. Norwest argues that,
when a special needs trust is created, repayment for any Medicaid assistance provided
by the state after October 1, 1993, comes only from funds remaining in the trust upon
the beneficiary's death. We disagree and affirm.
I.
In 1993 the Medicaid Act was amended to provide for the creation of
supplemental or special needs trusts (SNT). 42 U.S.C.A. § 1396p(d)(4)(A). This
section provides that disabled persons under the age of 65 remain eligible for ongoing
Medicaid assistance (MA) in spite of funds or other property held in an SNT, and can
use SNT funds as a supplement to enhance the quality of their lives. The disabled
person remains eligible for MA so long as the SNT contains a pay-back trust provision,
i.e., a provision specifying that the total MA provided on or after October 1, 1993, will
1
The Honorable H. Franklin Waters, United States District Judge for the Western
District of Arkansas, sitting by designation.
2
The Honorable James Rosenbaum, United States District Judge for the District
of Minnesota.
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be paid back to the state after the beneficiaries' death from any funds remaining in the
trust.
Norwest is the trustee of two SNTs created pursuant to the provisions of 42
U.S.C.A. § 1396p(d)(4)(A). The beneficiaries of the trusts are Sonya Lotzer and Bobbi
Lerud. Sonya Lotzer (Lotzer) received serious and disabling organic brain injuries as
a passenger in a car accident on October 8, 1995. Bobbi Lerud (Lerud) received
serious and disabling paraplegic injuries as a passenger in a car accident on September
25, 1993.
To pay the ensuing medical expenses, both Lotzer and Lerud sought assistance
under the Social Security Administration's Medicaid program. The DHS is the state
agency charged with administering the Medicaid program. Medical assistance
payments were made on behalf of both women under the Medicaid program. In
applying for medical assistance, each woman was required to assign to the State of
Minnesota "any medical care payments that I have a right to under automobile or health
care insurance." Joint Appendix at 93 & 99 . Each also agreed to "cooperate with the
state in any legal action brought against a third party for payment of medical expenses."
Id. With the exception of five day's care provided to Lerud between September 25
and 30, 1993, all MA provided to both trust beneficiaries was furnished on or after
October 1, 1993.
Claims were filed against certain tortfeasors as a result of both accidents. Both
cases were settled for the maximum amount of insurance available, $110,000 in
Lotzer's case and $140,000 in Lerud's case. The DHS pursuant to 42 U.S.C.A. §§
1396a(a)(25)(I) & 1396k and Minnesota Statutes Annotated § 256B.042 (West 1992),
the state statute implementing the federal statutes, placed liens on the tort claims. At
the time of the settlement, the DHS's liens equaled approximately $72,000 and $56,000,
respectively.
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As noted above, both Lotzer and Lerud created SNTs pursuant to 42 U.S.C.A.
§ 1396p(d)(4)(A) for the placement of their settlement funds. The creation of the trusts
was approved by Minnesota state district court orders. While the settlements were
being negotiated, Lotzer and Lerud, through their counsel, contacted the DHS. Lotzer
and Lerud took the position that 42 U.S.C.A. § 1396p(d)(4)(A) required the repayment
of the existing liens to be deferred until their deaths for all MA furnished on or after
October 1, 1993.3 The DHS disagreed.
The parties stipulated that all settlement funds would be placed in the SNTs and
held by Norwest, as trustee, until the issue of the repayment of the existing liens could
be resolved. Norwest then brought declaratory judgment actions in Minnesota federal
district court on behalf of each trust beneficiary. The two cases were consolidated. On
3
The National Academy of Elder Law Attorneys (NAELA), amicus curiae, is a
nonprofit national organization that consists of 3300 attorneys from all 50 states who
represent aged and disabled persons and their families. The organization was
established in 1988 and is based in Tucson, Arizona.
After the passage of the 1993 amendments, NAELA states it began helping
individuals set up SNTs. Because the Department of Health and Human Services had
not promulgated federal regulations concerning SNTs, it asserts different standards
were applied by the states as to the issue of payment of a Medicaid lien prior to the
establishment of an SNT. What evolved according to NAELA were cases applying
three separate scenarios: (1) a priority lien payment of all Medicaid provided prior to
the establishment of an SNT; (2) an allocation of a portion of the settlement to pay
Medicaid prior to the establishment of an SNT; and (3) a total deferral of the lien until
the death of the SNT beneficiaries.
One NAELA member, Patricia Harrison, sought a clarification regarding the
prior lien issue when the Medicaid lien was greater than the tort settlement. On
September 9, 1996, Acting Medicaid Bureau Director Steve Mc Adoo by letter advised
Harrison that in her case the state agency had a priority lien in the settlement. NAELA
asserts that Mc Adoo letter became the federal government's policy position in all 50
states.
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June 30, 1997, the district court held that repayment of the existing liens should not be
deferred. See Norwest Bank North Dakota, N.A. v. Doth, 969 F. Supp. 532 (D. Minn.
1997). The district court noted that, in the amendments, Congress addressed only the
proper calculation of an individual's Medicaid eligibility and left, unaltered, the Social
Security Act's comprehensive scheme permitting the states to require assignment of the
MA recipient's right to payment for medical care from third parties. This appeal
followed.
II.
Medicaid is a jointly financed federal-state program established under Title XIX
of the Social Security Act, 42 U.S.C.A. §§ 1396-1396v. Medicaid pays for necessary
medical care to certain needy individuals who do not have enough income or other
resources to pay for the medical care they need. States choosing to participate in the
Medicaid program must comply with the requirements set forth in the Medicaid Act
and in regulations promulgated by the United States Secretary of Health and Human
Services through the Health Care Financing Administration (HCFA) which administers
Medicaid. Among other things, the states must submit for HCFA's approval a state
Medicaid plan. See generally 42 U.S.C.A. § 1396a(a).
In 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993,
amending section 1917 of the Social Security Act, 42 U.S.C.A. § 1396p. The
amendments allow disabled individuals under the age of 65 to create SNTs which will
not disqualify them from receiving Medicaid.
Specifically, the SNT amendments, codified at, 42 U.S.C.A. § 1396p(d)(4)(A)
(Supp. 1998) provide as follows:
(d) Treatment of trust amounts. (1) For purposes of determining an
individual's eligibility for, or amount of, benefits under a State plan under
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this title [42 U.S.C. §§ 1386 et seq.], subject to paragraph (4), the rules
specified in paragraph (3) shall apply to a trust established by such
individual.
(4) This subsection shall not apply to any of the following trusts:
(A) A trust containing the assets of an individual under age 65 who
is disabled (as defined in section 1614(a)(3) [42 U.S.C.S. §
1382c(a)(3)]) and which is established for the benefit of such
individual by a parent, grandparent, legal guardian of the
individual, or a court if the State will receive all amounts remaining
in the trust upon the death of such individual up to an amount equal
to the total medical assistance paid on behalf of the individual
under a State plan under this title [42 U.S.C.S. §§ 1396 et seq.].
Thus, funds in an SNT are not deemed to be available to an MA applicant or
recipient for the purpose of determining MA eligibility or the amount of benefits.
Nothing in the statute requires the trustee to preserve the State's interest in the trust
corpus.
With respect to the effective date, the law provides: "[t]he amendments made
by this section shall apply, except as provided in this subsection, to payments under
title XIX of the Social Security Act for calendar quarters beginning on or after October
1, 1993, without regard to whether or not final regulations to carry out such
amendments have been promulgated by such date." Omnibus Budget Reconciliation
Act of 1993, Pub. L. No. 103-66, § 13611(e), 107 Stat. 627 (1993). The law also
provided that the amendments shall not apply: (A) to medical assistance provided for
services furnished before October 1, 1993; (B) with respect to assets disposed of on
or before the date of the enactment of this Act; or (C) with respect to trusts established
on or before the date of the enactment of this Act. Id.
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States are directed by 42 U.S.C.A. § 1396k to require Medicaid recipients to
assign to the State any rights the recipients may have to payment of medical care from
third parties. Section 1396k provides in relevant part as follows:
(a) For the purposes of assisting in the collection of medical support
payments and other payments for medical care owed to recipients of
medical assistance under the State plan approved under this title [42
U.S.C.S. §§ 1396 et seq.], a State plan for medical assistance shall–
(1) provide that, as a condition of eligibility for medical assistance
under the State plan to an individual who has the legal capacity to
execute an assignment for himself, the individual is required–
(A) to assign the State any rights, of the individual . . . to payment
for medical care from any third party.
42 U.S.C.A. § 1396k(a)(1)(A) (1992). The individual receiving the assistance also has
the duty to "cooperate with the State in identifying, and providing information to assist
the State in pursuing, any third party who may be liable to pay for care and services
available under the plan . . . ." 42 U.S.C.A. § 1396k(a)(1)(C). Federal law also
requires states to recover certain MA payments from MA recipients' estates after their
deaths. 42 U.S.C.A. §§ 1396p(b)(1)(B) and 1396a(a)(18).
Minnesota Statutes Annotated § 256B.042, which deals with third party liability,
provides that "[w]hen the state agency provides, pays for or becomes liable for medical
care, it shall have a lien for the cost of the care upon any and all causes of action which
accrue to the person to whom the care was furnished, or to the person's legal
representatives, as a result of the injuries which necessitated the medical care." Minn.
Stat. Ann. § 256B.042(1) (West 1992). The state attorney general or "appropriate
county attorney acting at the direction of the attorney general shall represent the state
agency to enforce the lien created under this section or, if no action has been brought,
may initiate and prosecute an independent action against a person, firm, or corporation
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that may be liable to the person to whom the care was furnished." Minn. Stat. Ann. §
256B.042(3). In all cases in which the lien is enforced, the MA recipient "must
receive at least one-third of the net recovery after attorney fees and other collection
costs." Minn. Stat. Ann. § 256B.042(5).4
III.
A district court's interpretation of federal statutes is reviewed de novo. Cedar
Rapids Community School Dist. v. Garrett F., 106 F.3d 822, 824 (8th Cir. 1997),
petition for cert. filed, 65 U.S.L.W. 3768 (U.S. May 8, 1997)(No. 96-1793). The
starting point in interpreting a statute is always the language of the statute itself. United
States v. Talley, 16 F.3d 972, 975 (8th Cir. 1994). If the plain language of the statute
is unambiguous, that language is conclusive absent clear legislative intent to the
contrary. Id. Therefore, if the intent of Congress can be clearly discerned from the
statute's language, the judicial inquiry must end. Citicasters v. McCaskill, 89 F.3d
1350, 1354-55 (8th Cir. 1996). "If on the other hand, the language of a statute is
ambiguous, we should consider 'the purpose, the subject matter and the condition of
affairs which led to its enactment.'" United States v. S.A., 129 F.3d 995, 998 (8th Cir.
4
This subsection provides in full as follows:
Upon any judgment, award, or settlement of a cause of action, or any part
of it, upon which the state agency has filed its lien, including
compensation for liquidated, unliquidated, or other damages, reasonable
costs of collection, including attorney fees, must be deducted first. The
full amount of medical assistance paid to or on behalf of the person as a
result of the injury must be deducted next, and paid to the state agency.
The rest must be paid to the medical assistance recipient or other plaintiff.
The plaintiff, however, must receive at least one-third of the net recovery
after attorney fees and other collection costs.
Minn. Stat. Ann. § 256B.042(5).
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1997)(citations omitted), cert. denied, 118 S. Ct. 1200 (1998). "When the meaning of
a statute is questionable, it should be given a sensible construction and construed to
effectuate the underlying purposes of the law." Id.
Norwest contends the enactment of the SNT amendments changed the general
rule that Medicaid is a payor of last resort. Instead under these amendments, Norwest
argues, Medicaid becomes a payor of first resort conditioned upon the pay-back
provisions in the SNT. When an SNT is created, Norwest contends, repayment for any
MA provided after October 1, 1993, is deferred until the beneficiary's death. It
premises this argument on the fact that Congress made the amendments effective for
all MA provided after October 1, 1993, without providing for a separate pay-back
period for that part of the total MA which is subject to assignment under § 1396k on
that date. It argues that full meaning is given to both statutes only if an assignment
under § 1396k is deferred until the death of a trust beneficiary.
The flaw in Norwest's analysis is that the SNT amendments and the language
Norwest relies on deal only with the proper calculation of an individual's Medicaid
eligibility and the effective date of those changes. As the district court noted, the
amendments leave unaltered the recovery and assignment provisions of the Medicaid
law.5 The applicable Minnesota statutes provide no exemption for SNT assets.
The provisions at issue here, § 1396k and § 1396p(d)(4)(A), do not conflict in
either text or purpose. The first provision, § 1396k, is designed to maximize the
effectiveness of MA by ensuring Medicaid is a payor of last resort. The second
provision, § 1396p(d)(4)(A), provides a mechanism by which persons with long-term
5
Norwest also argues that the district court confused the legislative history of a
New York statute with the legislative intent of Congress. While it appears the district
court did mistakenly refer to the wrong legislative history in relying on Cricchio v.
Pennisi, 660 N.Y.S.2d 679 (N.Y. 1997), its analysis was nevertheless sound.
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disabilities can accept funds to be used for their non-medical needs while remaining
eligible for MA.
As the district court noted, adopting Norwest's position would allow a Medicaid
recipient, who secures a judgment or settlement, to evade an existing state lien by
placing the proceeds in an SNT. Norwest, 969 F. Supp. at 534. This interpretation
would "eviscerate Congress's clearly expressed intention that these funds be repaid"
and negate the "Social Security Act's comprehensive scheme permitting states to place
these liens." Id. We hold that the SNT amendments do not postpone the state's right
to enforce its vested and existing Medicaid lien. See also, Payne v. State, Dept. of
Human Resources, Division of Medical Assistance, 486 S.E.2d 469 (N.C. App. 1997).
Thus, a state may require a Medicaid lien imposed on the proceeds of a personal injury
award or settlement to be satisfied before the remaining funds are placed in an SNT.6
IV.
On appeal, the following issues are raised for the first time: (1) whether
Minnesota's lien granted by its third-party recovery scheme codified at Minnesota
6
The court is advised that the HCFA Medicaid director on June 5, 1996, sent a
memorandum to all state Medicaid directors stating that the placement of funds from
a third-party settlement into an SNT is a violation of the individual's duty to cooperate.
With respect to this HCFA directive, appellee contends we need not definitely resolve
the issue of whether we must defer to the agency's interpretation under Chevron,
U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984), because
the text of the statute and the policy arguments clearly support its position. We agree.
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Statutes Annotated § 256B.042 is contrary to the provisions of the Medicaid Act; 7 (2)
whether the lien may be satisfied out of the entire amount of the personal injury award
or settlement, or only that portion of the settlement attributable to past medical
expenses; and (3) whether the state must bear some portion of the cost, including
attorney's fees, of securing the award or settlement.
"As a general rule, we will not consider issues not presented to [the lower court]
in the first instance. We may, however, consider an issue for the first time on appeal
'when the argument involves a purely legal issue in which no additional evidence or
argument would affect the outcome of the case,' or where manifest injustice might
otherwise result." First Bank Investors' Trust v. Tarkio College, 129 F.3d 471, 477 (8th
Cir. 1997)(citations omitted). We have also said that we will ordinarily not consider
issues first raised in reply briefs. United States v. Darden, 70 F.3d 1507, 1549 n. 18
(8th Cir. 1995), cert. denied, 116 S. Ct. 2567 (1996).
7
In this regard, Norwest argues Minnesota's third-party recovery scheme is
inconsistent with the requirements of federal law and therefore invalid. Among other
things, Norwest argues the scheme fails to recognize the fundamental difference
between an assignment of a cause of action and a subrogation of interest. It contends
the third-party recovery scheme is invalid because Minnesota does nothing but impose
a lien upon the portions of a cause of action still retained by the MA recipient. Further,
it contends the statute violates § 1396k's requirement that the state, not the MA
recipient, pursue the liable third-party to collect the payments for medical care. It
contends the use of the lien impermissibly shifts this burden to the MA recipient.
Norwest concedes these arguments were not specifically addressed by the lower
court or by the parties. The DHS has moved to strike the portions of the reply brief
raising these new substantive arguments. The motion to strike was taken under
advisement by an order entered on December 9, 1997.
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In this case, neither the parties nor the trial court specifically addressed these
issues. Without an adequate record, we decline to make these determinations in the
first instance. However, we believe that justice requires that the case be remanded to
the district court so that it may have a chance to address these issues. DHS has not
had the opportunity to brief these issues and we believe additional argument would be
helpful, if not required. This is particularly true of the issue regarding the validity of
Minnesota's third-party recovery scheme.
For the reasons discussed above, we affirm the district court's decision as to the
timing of the payment of Medicaid liens. However, we remand the case to the district
court for consideration of the issues outlined above and such further proceedings as
it deems necessary.
A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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