Opposition Brief — Daily v. Oklahoma ex rel. Oklahoma Department of Human Services

Supreme Court, U S.

\H x Qaoes APR 9 - 2010

a

OFFICE OF THE CLERK

Bn The

Supreme Court of the Anited States

*

JOHN AND VERNICE DAILY,

Petitioners,

vs.

STATE OF OKLAHOMA, ex rel. OKLAHOMA

DEPARTMENT OF HUMAN SERVICES; HOWARD

HENDRICK, Director of Oklahoma Department of Human

Services; OKLAHOMA HEALTH CARE AUTHORITY;

MIKE FOGARTY, Director of Oklahoma Health Care

Authority; and HOWARD HENDRICK, Individually,

Respondents.

°

On Petition For Writ Of Certiorari To The Court

Of Civil Appeals Of Oklahoma, Third Division

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RESPONDENTS’ BRIEF IN OPPOSITION

.

HOWARD PALLOTTA CHARLES LEE WATERS

Director of Legal Services General Counsel

CHRISTOPHER BERGIN RICHARD FREEMAN*

Deputy General Counsel Assistant General Counsel

LYNN RAMBO-JONES TRAVIS SMITH

Deputy General Counsel Assistant General Counsel

2401 North Lincoln Boulevard Sequoyah Building

P.O. Drawer 18497 2401 North Lincoln Boulevard

Oklahoma City, Oklahoma P.O. Box 53025

73154 Oklahoma City, Oklahoma

Telephone: (405) 522-7431 13162

Telephone: (405) 521-3638

Attorneys for Oklahoma

Health Care Authority Richard.Freeman@okdhs.org

and Mike Fogarty Attorneys for Oklahoma

Department of Human

Services and

Howard Hendrick

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

THE PARTIES

Respondents are the state agencies which

operate Oklahoma’s Medicaid Program and the chief

executives of those agencies.

Petitioner John Daily lives in a nursing home

and has applied for Medicaid to pay for his care there.

Petitioner Vernice Daily is his wife and lives at home.

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Page

CASES

Estate of F-K. v. Division of Medical Assistance

and Health Services, 863 A.2d 1065 (NV.

Ss III isc cic tanidiccalediala suitedpdsbaatemasnipemenmaitakataeied 4,5

James v. Richman, 465 F.Supp. 2d 395 (M.D.

RRR RICO Sa ee I 5

James v. Richman, 547 F.3d 214 (3d Cir. 2008) ...... 5, 6

Johnson v. Guhl, 357 F.3d 403 (3d Cir. 2004) ....2, 4, 5, 6

Ross v. Department of Public Welfare, 936 A.2d

662 (Pa. Commiw. Cl. 2007) .....ccccccocccssscrvcossveovecsescess 5

Wisconsin Department of Health and Family

Services v. Blumer, 534 U.S. 473, 122 S.Ct.

SRE aE ars RCE URC aR Dre Ore ea Oe

STATUTES

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Si RAIL TEE TID sis sale ehadrueninegeentherdombauaeibendeheanlaumaeentans 9

Oe ee a osisncicetisnieepiisinslanaweiiectainnenionbinns 8

42 U.S.C. § 1396 p(d XS) Bi) ...............0ccccccesescceeee 2,5,6

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20 Oklahoma Statutes § 30.1 .................cccccsccsccescecs 2

TABLE OF AUTHORITIES — Continued

Page

OTHER AUTHORITIES

Supreme Court Rule 10.................. iuaeenixepheeeaewerniads 3,9

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INTRODUCTION

This case involves one aspect of the “spousal

impoverishment” provisions of the Medicaid Act that

were discussed by this Court in Wisconsin Depart-

ment of Health and Family Services v. Blumer, 534

U.S. 473, 122 S.Ct. 962 (2002).

Petitioner John Daily is an institutionalized

spouse. Petitioner Vernice Daily is his wife and a

community spouse. When Mr. Daily entered a nursing

home, the couple had $121,740 in Medicaid-countable

resources.

After Mr. Daily moved to the nursing home, Mrs.

Daily created a Community Spouse Annuity Trust

(CSAT). The trust could not be revoked or amended

and would pay its entire corpus and income to her in

48 monthly payments. Mr. Daily then funded the

CSAT with $51,000 — an amount equal to his half of

the couple’s resources on the date he entered the

nursing home, less $9,870 that had been spent. This

left Mrs. Daily with $111,670, made up of her half of

the couple’s original $121,740 plus $51,000 of Mr.

Daily’s half.

Mr. Daily then applied for Medicaid to pay for his

nursing home care. Respondent Oklahoma Depart-

ment of Human Services (OKDHS) followed the pro-

cedure for allocating resources between community

and institutionalized spouses, set forth at 42 U.S.C.

§ 1396r-5(f (2), and attributed half the $121,740 total

to each. Respondent OKDHS then denied Mr. Daily’s

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Medicaid application because he had resources

exceeding the $2,000 Medicaid limit.

Petitioners claim that Mr. Daily’s half of the

$121,740 has been ‘spent down’ by using $9,870 for

expenses and converting the remaining $51,000 into

an ‘unavailable resource’ — the CSAT. Their claim

that the trust is an unavailable resource is based

on 42 U.S.C. § 1396p(d)(3)(B)G), which says that the

corpus of an irrevocable trust is an available resource

only to the extent that payment could be made from it

for the benefit of the trust beneficiary.

Petitioners were unsuccessful in their adminis-

trative appeals. Their appeal to the state district

court, which was decided on the record of adminis-

trative proceedings and briefs, was successful. Re-

spondents then appealed to the Oklahoma Supreme

Court, which assigned the case to the Oklahoma

Court of Civil Appeals for review pursuant to 20

Oklahoma Statutes § 30.1. For procedural reasons,

no new briefs were filed, instead the Court of Civil

Appeals reviewed the administrative record and

briefs filed by the parties in the state district court.

The Oklahoma Court of Civil Appeals reversed

the district court and ruled that the corpus of Mrs.

Daily’s trust was an available resource. In doing so,

the Court followed the reasoning of the Third Circuit

in Johnson v. Guhl, 357 F.3d 403 (3d Cir. 2004). The

Court did not address the other theories that

Respondents had advanced.

3

Before moving to the merits, Respondents must

address two items. First, Petitioners cite 42 U.S.C.

§ 1257 as giving this Court jurisdiction. Since no such

statute exists, Respondents believe that Petitioners

meant to cite 28 U.S.C. § 1257.

The second item is that Petitioners refer to both

the “Court of Civil Appeals” and “Court of Appeals.”

Since Oklahoma has no Court of Appeals, Petitioners

believe that any such reference was meant to be to

the Oklahoma Court of Civil Appeals.

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MEDICAID

The first question that Petitioners present for

review is, “Whether the corpus of a trust payable to

Mrs. Vernice Daily was an ‘available resource’ for

Mr. John Daily, her spouse, in a determination of his

eligibility for Medicaid benefits?” Petitioners claim,

“Review is warranted because the opinion of the

Oklahoma Court of Appeals as to the availability of

the trust corpus is contrary to federal Medicaid law.”

Supreme Court Rule 10(c)

Evaluation of this claim for the grant of certiorari

fits best within this Court’s Rule 10(c), “a state court

or a United States court of appeals has decided an

important question of federal law that has not been,

but should be, settled by this Court ...” Although

Petitioners explain why they believe the Oklahoma

4

Court of Civil Appeals decided this issue incorrectly,

they do not explain why the issue is important or why

this Court should settle it.

The question Petitioners seek to have reviewed

has not been of much interest to the courts. Peti-

tioners have found only one reported case dealing

with a couple who set up a CSAT — Johnson v. Guhl,

357 F.3d 403 (8d Cir. 2004). The other three cases

they cite deal with couples who purchased commer-

cial annuities. As shown below, a commercial annuity

and a CSAT are treated differently when determining

Medicaid eligibility.

The Merits

Petitioners argue that the Court of Civil Appeals

was incorrect in concluding that the corpus of Mrs.

Daily’s CSAT was an available resource because

income of a community spouse may not be attributed

to an institutionalized spouse. Their argument is

flawed because it is based on cases dealing with

commercial annuities rather than CSATs.

Petitioners first cite Estate of F.K. v. Diviston of

Medical Assistance and Health Services, 863 A.2d

1065 (N.J. Super. 2005), in which the institution-

alized and community spouses bought a commercial

annuity which solely benefitted the community

spouse. Jd. at 1067. In deciding that the commercial

annuity was not a resource available to the institu-

tionalized spouse, the Superior Court of New Jersey

noted that a CSAT was not the same as a commercial

5

annuity for purposes of Medicaid eligibility. 7d. at

1073.

Petitioners next cite James v. Richman, 465

F.Supp. 2d 395 (M.D. Pa. 2006), another case in

which a commercial annuity that made all payments

to the community spouse was purchased. Jd. at 399.

Petitioners fail to cite James v. Richman, 547 F.3d

214 (3d Cir. 2008) in which the Third Circuit affirmed

the district court decision.

Petitioners lastly cite Ross v. Department of Public

Welfare, 936 A.2d 552 (Pa. Commw. Ct. 2007). Again,

a commercial annuity was purchased that made all

payments to the community spouse. Jd. at 553.

This leaves Johnson v. Guhl, 357 F.3d 403 (3d

Cir. 2004), as the only case mentioned by Petitioners

that involves a community spouse who is the bene-

ficiary of a CSAT. Since a CSAT is an irrevocable

trust, the court relied entirely on 42 U.S.C.

§ 1396p(d)(3)(B)G), which says that when faced with

an irrevocable trust:

if there are any circumstances under which

payment from the trust could be made to or

for the benefit of the individual, the portion

of the corpus from which, or the income on

the corpus from which, payment to the

individual could be made shall be considered

resources available to the individual, and

payments from that portion of the corpus or

income —

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(I) to or for the benefit of the individual,

shall be considered income of the indi-

vidual, and

(II) for any other purpose, shall be con-

sidered a transfer of assets by the indi-

vidual subject to subsection (c) of this

section.

Johnson, 357 F.3d at 408-409.

None of the other cases cited by Petitioners

mention 42 U.S.C. § 1396p(d)(3)(B)(i) because none of

the courts treat commercial annuities as trusts. That

a CSAT and a commercial annuity should be treated

differently is illustrated by the Third Circuit’s

treatment of the two items. In Johnson, decided in

2004, the Third Circuit analyzed the CSAT as a

resource in terms of it being an irrevocable trust.

Four years later in James v. Richman, the Third

Circuit analyzed the availability of a commercial

annuity as a resource and relied on 42 U.S.C.

§ 1396r-5 in its analysis — not mentioning 42 U.S.C.

§ 1396p(d)(3)(B)G) or Johnson at all. 547 F.3d 214 (3d

Cir. 2008) Since James did not mention Johnson, let

alone overrule it, the court obviously thought that the

treatment of commercial annuities and CSATs were

completely separate issues.

The decision of the Oklahoma Court of Civil

Appeals follows the Johnson analysis. Since Johnson

and this case are the only two CSAT cases Petitioners

can find, and the two are completely in accord, there

appears to be no reason for this Court to grant

certiorarl.

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Alternate Theories

If this Court does not find the reasoning in

Johnson to be persuasive, then the outcome reached

by the Court of Civil Appeals is supported by two

alternate theories that were advanced by Respon-

dents in state district court. As previously mentioned,

for procedural reasons the parties filed no appellate

briefs.

The first theory relates to attribution of the

couple’s resources in excess of the Community Spouse

Resource Allowance (CSRA). As explained in Wisconsin

v. Blumer, a community spouse is only entitled to

keep resources up to the CSRA, which is calculated

according to the formula set forth at 42 U.S.C.

§ 1396r-5(f)(2). Any resources in excess of the CSRA

belong to the institutionalized spouse. 534 U.S. at

482-483, 122 S.Ct. at 968-969.

Petitioners owned countable resources totaling

$121,740 when Mr. Daily entered the nursing home.

Following 42 U.S.C. § 1396r-5(f)(2), Respondents

divided $121,740 in half to arrive at her $60,870

CSRA. The rest of the couple’s resources were

attributed to Mr. Daily as the institutionalized spouse

pursuant to 42 U.S.C. § 1396r-5(c)(2)(B). Since Mr.

Daily had spent $9,870 by the time he applied for

Medicaid, Respondents counted the remaining $51,000

attributed to him according to 42 U.S.C. § 1396r-

5(c)(2)(B) against the $2,000 Medicaid resource limit.

Mr. Daily’s Medicaid application was therefore denied

8

because he had resources that were $49,000 above

the limit.

The second alternate theory is related to the

first. 42 U.S.C. § 1396p(cX1) says that an individual

is disqualified from Medicaid for transferring re-

sources without receiving fair market value in return.

An exception to disqualification is when:

An institutionalized spouse may, without

regard to section 1396p(c)1) of this title,

transfer an amount equal to the community

spouse resource allowance (as defined in

paragraph (2)), but only to the extent the

resources of the institutionalized spouse are

transferred to (or for the sole benefit of) the

community spouse.

42 U.S.C. § 1396r-5(f)(1). Mr. Daily made a transfer

to his community spouse in excess of the CSRA when

he transferred $51,000 to the CSAT — which solely

benefitted Mrs. Daily. This transfer subjected him to

the 42 U.S.C. § 1396p(c)(1) transfer penalty.

+

PRECLUSION

The second question that Petitioners present for

review is, “Whether issue preclusion applies to final

determinations of administrative agencies in sub-

sequent litigation?” Petitioners claim, “Review is war-

ranted because the opinion of the Oklahoma Court of

Appeals ignores the application of issue preclusion to

administrative decisions.”

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Petitioners claim is based on an unreviewed

administrative decision of Respondent Oklahoma

Department of Human Services in which Petitioners

were not involved. Petitioners claim that the

Oklahoma Court of Civil Appeals failed to follow

Oklahoma law on administrative preclusion in re-

jecting their preclusion argument. The Oklahoma

Court of Civil Appeals dealt with this argument

summarily, stating, “The agency’s decision is not

precluded by its hearing officer’s contrary decision in

another applicant’s case.” Petitioners’ Appendix, p. A-

13 q 18.

Petitioners’ argument is not whether a federal

court gave proper preclusive effect to an unreviewed

state administrative agency decision according to 28

U.S.C. § 1738. Their argument relates solely to an

Oklahoma court’s application of Oklahoma law. Peti-

tioners make no claim that any federal right is

implicated. Petitioners’ claim of error on this issue

fits none of the categories in Supreme Court Rule 10.

Therefore, no grounds for grant of certiorari exist.

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10

CONCLUSION

For the foregoing reasons, the Petition for Writ of

Certiorari should be denied.

HOWARD PALLOTTA

Director of Legal Services

CHRISTOPHER BERGIN

Deputy General Counsel

LYNN RAMBO-JONES

Deputy General Counsel

2401 North Lincoln Boulevard

P.O. Drawer 18497

Oklahoma City, Oklahoma

73154

Telephone: (405) 522-7431

Attorneys for Oklahoma

Health Care Authority

and Mike Fogarty

*Counsel of Record

Respectfully submitted,

CHARLES LEE WATERS

General Counsel

RICHARD FREEMAN*

Assistant General Counsel

TRAVIS SMITH

Assistant General Counsel

Sequoyah Building

2401 North Lincoln Boulevard

P.O. Box 53025

Oklahoma City, Oklahoma

73152

Telephone: (405) 521-3638

Richard.Freeman@okdhs.org

Attorneys for Oklahoma

Department of Human

Services and

Howard Hendrick