IMPACT LITIGATION AND WHATIT MEANS FOR THE SPECIAL NEEDS PLANNING ATTORNEY

Academy of Special Needs PlannersMemphis, Tennessee

March 9, 2012

René H. ReixachWoods Oviatt Gilman LLP700 Crossroads Building

2 State StreetRochester, New York 14614

Tel: (585) 987-2858Fax: (585) 987-2958

rreixach@woodsoviatt.com

Abstention

ab·sten·tion [ab-sten-shuhn] noun 1. an act or instance of abstaining. 2. withholding of a vote.

Hudson v. Campbell, 2011 U.S. App. LEXIS 24841 (8th Cir. Dec. 15, 2011), petition for hearing en banc pending, calls into question the ability of individuals in that circuit to bring actions in federal court against state Medicaid officials without having first had a final administrative “fair hearing” decision.

Both the district court and the court of appeals dismissed the case on the ground of abstention to the state administrative fair hearing, notwithstanding that it no longer was pending based on a request by the Medicaid agency.

The basis for those rulings was a line of cases following and expanding on Younger v. Harris, 401 U.S. 37 (1971).

The failure to exhaust that state administrative proceeding is excused, however, at least in every other circuit, if the administrative proceeding would be remedial rather than coercive. See, Brown v. Day, 555 F.3d 882, 889 (10th Cir. 2009), and cases cited therein.

Almost every Medicaid fair hearing should fall on the remedial side of the line; the federal court plaintiff would be the appellant in the fair hearing, rather than the state Medicaid agency having brought the matter to hearing to sanction the plaintiff, and the purpose of the hearing would be to remedy an allegedly illegal decision of the Medicaid agency.

The decision states in dicta that available state judicial remedies need to be exhausted as well, but this seems clearly incorrect since the Supreme Court held to the contrary in Monroe v. Pape, 365 U.S. 167 (1961).

If that were not the case, recourse to federal court never would be available since the state court judgment would either be res judicata or would raise even more significant Younger abstention issues.

In order for abstention to be a problem, the defendant has to raise it.

If the defendant does not raise this issue, it should be considered waived.

See, Brown v. Hotel & Rest. Employees & Bartenders Intl. Union, 468 U.S. 491, 500 n. 9 (1984); Ohio Civil Rights Commission v. Dayton Christian School, 477 U.S. 619, 626 (1986)

Relief under the Supremacy Clause

In several cases, Blessing v. Freestone, 520 U.S. 329 (1997), and Gonzaga Univ. v. Doe, 536 U.S. 273 (2002), the Court set forth

restrictive tests for whether relief for violation of federal statutes would be available under 42 U.S.C. § 1983.

Those tests have been applied in cases involving challenges to state restrictions on special needs trusts, e.g., Center for Special Needs Trust Administration, Inc., 2011 U.S. Dist. LEXIS 44437 (D.N.D. Apr. 25, 2011),

appeal pending, no. 11-2158 (8th Cir.); Lewis v. Rendell, 501 F.Supp. 2d 671 (E.D. Pa.

2007).

What if there is no relief available under § 1983 to enforce a particular Medicaid

statute? The answer, according to several courts of appeals, is that relief still should be

available under the Supremacy Clause.

Lankford v. Sherman, 451 F.3d 496 (8th Cir. 2006).

What will be affected if only Supremacy Clause relief is available is the availability of

attorney’s fees payable to the prevailing plaintiff by the defendant under 42 U.S.C. §

1988.

§ 1988 does not permit attorney’s fees to be awarded for violations of the Supremacy

Clause.

Lankford was promptly followed in the Ninth Circuit in Independent Living Center of

Southern California, Inc. v. Shewry, 543 F.3d 1050 (9th Cir. 2008)

The Supreme Court heard argument on the first day of this Term about whether the

Supremacy Clause is a sufficient basis alone for relief in such cases. See, Maxwell-Jolly v.

Independent Living Center of Sourthern California, Inc., ___ U.S. ____, 131 S.Ct. 992

(2011) [grant of certiorari].

State Limitations on the use of Special Needs

Trusts

There currently are appeals pending in two federal court cases concerning state limits on special needs trusts, Lewis v. Alexander, 276 F.R.D. 421 (E.D. Pa. 2011), appeal pending no. 11-3439 (3d Cir.), and Center for Special Needs Trust Administration, Inc. v. Olson, supra.

In Lewis the court enjoined a number of limitations which Pennsylvania had enacted, including a requirement that a pooled special needs trust could not retain all the remaining trust principal after the beneficiary’s death.

In Olson, on the other hand, the court reached out to decide an issue that was not before it, namely whether a pooled special needs trust could be funded by an individual after the individual turns 65.

The district court held that if someone over 65 funds a pooled special needs trust, that would be a disqualifying transfer of assets.

Beach v. State of Tennessee Dep’t of Human Services, No. 09-2120-III (Tenn. Chancery Ct. 2010)

a) the over-65 limit applied only to third-party trusts rather than to self-settled trusts,

b) the funding of a pooled special needs trust was a fair market value transaction since the trust took on a legal obligation to use the funds in the trust for the beneficiary.

Guardianship of Scott G., 261 Wis. 2d 679 (Ct. App. 2003)

In re Schult, 368 B.R. 832 (D. Minn. 2007)

See also, Estate of Wierzbinski v. State of Michigan, Dep’t of Human Services, Case no. 2010-4343-AA (Mich. Cir. Ct. Macomb Co. July 26, 2011)

In New York, the Attorney General’s office has challenged the establishment of a pooled special needs trust as being a conflict of interest since the charitable trustee also provides residential services to the developmentally disabled beneficiary.

Remainder will be retained by the charity on the beneficiary’s death rather than being used to reimburse Medicaid.

Matter of Smergut, Index no. 29901-I-10 (Sup. Ct. Nassau Co. Mar. 1, 2011), appeal pending (App. Div. 2d Dept.).

Bringing a class action in federal court can provide the basis for a variety of related program reforms as part of a settlement. An example of this is Miller v. Olszewski, Case no. 09-13683 (E.D. Mich. 2011).

That case challenged the Michigan Medicaid program’s failure to follow federal requirements for the crediting of pre-eligibility medical expenses (PEME) as an offset to the patient’s monthly share of cost.

First the district court stayed all proceedings because the state agency had filed an amendment to its State plan with CMS to correct the problem. See, Miller v. Olszewski, 2009 U.S. Dist. LEXIS 118984 (E.D. Mich. 2009).

The plaintiffs were able to get some limited retroactive relief.

The plaintiffs relied on Morenz v. Wilson-Coker, 415 F.3d 230 (2d Cir. 2005) upholding an award of relief effective three months prior to the month of judgment in light of the three month “bubble” of eligibility prior to the month of application under 42 U.S.C. § 1396a(a)(34).

The Eleventh Amendment: A Shield

but also a Sword

Under the Eleventh Amendment, subject to the limited exception in Morenz, retroactive relief against State officials is not available in federal court. See, Edelman v. Jordan, 415 U.S. 651 (1973).

The Eleventh Amendment also bars suits against states or state agencies, but not individual state officials, which is why the defendant in federal court cases should be the director of the Medicaid agency, not the agency or the state itself. See, Ex parte Young, 209 U.S. 123 (1908).

The Eleventh Amendment also bars federal courts from ruling on state law claims against state officials. See, Pennhurst State School & Hospital v. Halderman, 465 U.S. 89 (1984).

The Eleventh Amendment is a basis for arguing that the plaintiff is suffering irreparable injury to justify preliminary injunctive relief, because every day that goes by is a day of benefits lost forever.

See, Kansas Health Care Ass’n, Inc. v. Kansas Dep’t of Soc. & Rehab. Services, 31 F.3d 1536, 1543 (10th Cir. 1994); Temple Univ. v. White, 941 F.2d 201, 215 (3d Cir. 1991); Community Pharmacies of Indiana, Inc. v. Indiana Family & Soc. Services Admin., 2011 U.S. Dist. LEXIS 73817 (S.D. Ind. July 8, 2011); Sorber v. Velez, 2009 U.S. Dist. LEXIS 98799, *10 (D.N.J. 2009); James v. Richman, 2006 U.S. Dist. LEXIS 28384, *13 (M.D. Pa. 2006).