Roach v. Morse

• Decision Date: 03 March 2006
• Docket Number: Docket No. 05-2277CV.
• Citation: 440 F.3d 53
• Parties: Anne ROACH and William Roach, Plaintiffs-Appellees, v. James MORSE, in his official capacity as Commissioner of the Vermont Department for Children and Families, Marybeth McCaffrey,<SMALL><SUP>*</SUP></SMALL> in her official capacity as the Healthcare Policy Analyst for the Vermont Department for Children and Families and Ann Hastings, in her official capacity as the Case Review Supervisor of the Barre District Office of the Vermont Department for Children and Families and Vermont Department for Children and Families, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

Page 53

440 F.3d 53

Anne ROACH and William Roach, Plaintiffs-Appellees, v. James MORSE, in his official capacity as Commissioner of the Vermont Department for Children and Families, Marybeth McCaffrey,^* in her official capacity as the Healthcare Policy Analyst for the Vermont Department for Children and Families and Ann Hastings, in her official capacity as the Case Review Supervisor of the Barre District Office of the Vermont Department for Children and Families and Vermont Department for Children and Families, Defendants-Appellants.

Docket No. 05-2277CV.

United States Court of Appeals, Second Circuit.

Argued: December 20, 2005.

Decided: March 3, 2006.

Seth A. Steinzor, Assistant Attorney General, State of Vermont (Susan R. Harritt, Assistant Attorney General, on the brief), Waterbury, Vermont, for Defendants-Appellants.

Mark L. Tapper, Tapper Law Offices (Fletcher D. Proctor, on the brief), Springfield, Vermont, for Plaintiffs-Appellees.

Before: SOTOMAYOR and WESLEY, Circuit Judges, and KAPLAN, District Judge.^**

SOTOMAYOR, Circuit Judge.

Defendants-appellants James Morse, the Commissioner of the Vermont Department for Children and Families, and various Department officials (collectively, the "State") appeal from the entry of a permanent injunction prohibiting the State from requiring plaintiffs-appellees Anne and William Roach (collectively, "plaintiffs") to answer certain questions posed on Vermont Medicaid form ESD 202 LV. The answers to these questions would require plaintiffs to disclose "the purpose for which William Roach made a loan to his daughter and son-in-law, the method they used to determine the duration of the loan, [and] . . . why the parties are unwilling to make the loan negotiable." Roach v. Morse, 1:05-cv-6, slip. op. at 14 (D.Vt. Apr. 13, 2005). We hold that (1) plaintiffs' failure to exhaust state administrative remedies under the Medicaid Act does not bar their claim under 42 U.S.C. § 1983, and (2) there is no evidence that the challenged questions create a more restrictive methodology than that used by the federal supplemental security income program ("SSI") in violation of 42 U.S.C. § 1396a(a)(10)(C)(i)(III) (2000).

BACKGROUND

Plaintiff-appellee Anne Roach is a resident of the Woodbridge Nursing Home, the cost of which is approximately $6,000 per month. Shortly before plaintiff-appellee William Roach ("Mr.Roach") applied for Medicaid to pay for his wife's nursing home care, he loaned $287,000 to the couple's daughter and son-in-law, Sheila and Robert Rice. The loan instrument provides that the Rices will repay the loan at three percent interest per year, in monthly installments of $717.50, beginning on January 1, 2005, and continuing until December 1, 2007. At that point, the Rices are to repay the balance of the loan with interest. The loan instrument further provides that the loan obligation is not assignable by either party and that Mr. Roach, the holder of the note, can declare the remainder of the debt due at any time. The loan is secured by a second mortgage on the Rice's home in Essex, Vermont.

Mr. Roach disclosed the loan's existence when he filed an application for Medicaid to pay for the costs of his wife's long-term care. In response, the Vermont Department for Children and Families, which administers Vermont's Medicaid program, sent him form ESD 202 LV, which seeks a variety of information about an applicant's assets, including complete documentary evidence concerning any loans and verification of loan payments if any have been paid. The challenged questions ask applicants to provide: (1) an "[a]ffidavit from the obligor specifying how the duration of the loan was determined;" (2) an "[a]ffidavit from the obligor explaining the purpose/need for the loan and supporting documentation;" and (3) "[f]or any loan that is not negotiable or assignable, please include an affidavit of whether the parties are willing to change the terms to permit the loan obligation to become negotiable/assignable. If not, please explain why not."

Mr. Roach refused to answer these three questions and instead filed this suit under 42 U.S.C. § 1983, arguing that the questions violate 42 U.S.C. § 1396a(a)(10)(C)(i)(III), which requires that states that extend Medicaid coverage to certain categories of claimants use a methodology for determining eligibility that is no more restrictive than that used by the federal SSI program. He sought an injunction forbidding the state from forcing him to answer the questions or forfeit the Medicaid application for his wife's care.

The district court denied plaintiffs' motion for a preliminary injunction. The State then moved to dismiss the suit and the court held an evidentiary hearing on plaintiffs' motion for a permanent injunction. On April 13, 2005, the district court granted the State's motion to dismiss the Department for Children and Families as a defendant on the grounds of sovereign immunity but otherwise denied the motion to dismiss. On plaintiffs' motion for a permanent injunction, the district court rejected the State's assertion that plaintiffs' claim was premature because they had not exhausted their administrative remedies through the State's fair hearing process. Morse, slip. op. at 6-9.

Turning to the question of whether the challenged questions were more restrictive than the SSI methodology, the district court held that the State is limited to determining whether the transfer was bona fide and whether it was transferred for fair market value. Relying on the Social Security Administration's Program Operations Manual System ("POMS") governing eligibility for SSI, the district court concluded that the State "cannot inquire further of the applicant if the transaction is determined not to be a gift and the applicant receives fair market value" for the transfer. Id. at 9-10. The district court held that the loan at issue was enforceable under Vermont law and, according to actuarial tables, would be repaid within Mr. Roach's lifetime. In consequence, it held that the loan was a bona fide loan for fair market value and that Mr. Roach's intent in making the loan was not relevant for determining his wife's eligibility for Medicaid. Id. at 12. The district court then concluded that the three disputed questions on form ESD 202 LV create a more restrictive methodology than the SSI methodology in violation of § 1396a(a)10(C)(i)(III) and permanently enjoined the State from requiring plaintiffs to respond to the challenged questions. Id. at 14.

On appeal, the State contends that the district court erred in failing to require that plaintiffs exhaust their administrative remedies by answering the questions and requesting a fair hearing before the Vermont Human Resources Board if they subsequently were denied Medicaid. With respect to the merits, the State argues that the SSI POMS permits inquiry into the negotiability and feasibility of an informal cash loan, such as the one at issue here, and that the challenged questions are not, by themselves, more restrictive than the methodology used to determine SSI eligibility. Finally, the State argues that there is no evidence that Mr. Roach's answers to the disputed questions would necessarily result in a denial of Medicaid as long as the loan was otherwise bona fide and for fair market value.

DISCUSSION

This Court reviews the entry of a permanent injunction for abuse of discretion. Shain v. Ellison, 356 F.3d 211, 214 (2d Cir.2004). A district court abuses its discretion in entering an injunction when it relies on clearly erroneous findings of fact or an error of law. S.C. Johnson & Son, Inc. v. Clorox, Co., 241 F.3d 232, 237 (2d Cir.2001); Rodriguez v. City of New York, 197 F.3d 611, 614 (2d Cir.1999). We review questions of statutory interpretation de novo. See Auburn Hous. Auth. v. Martinez, 277 F.3d 138, 143 (2d Cir.2002). To obtain a permanent injunction, a plaintiff must succeed on the merits and "show the absence of an adequate remedy at law and irreparable harm if the relief is not granted." N.Y. State Nat'l Org. for Women v. Terry, 886 F.2d 1339, 1362 (2d Cir.1989) (citing Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 57, 95 S.Ct. 2069, 45 L.Ed.2d 12 (1975)).

I

The State contends that the district court abused its discretion in not requiring the plaintiffs to exhaust their administrative remedies by seeking relief through the State's fair hearing process. Plaintiffs suing under 42 U.S.C. § 1983 generally need not exhaust their administrative remedies. See Patsy v. Bd. of Regents, 457 U.S. 496, 516, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982). In Patsy, the Supreme Court explained that the Civil Rights Act of 1871, the precursor of § 1983, assigned federal courts a "paramount" role in protecting federal rights, id. at 503, 102 S.Ct. 2557, and was intended "to provide dual or concurrent forums in the state and federal system," id. at 506, 102 S.Ct. 2557. Accordingly, exhaustion is necessary only where Congress specifically requires it, either explicitly or implicitly. See Heck v. Humphrey, 512 U.S. 477, 483, 114 S.Ct. 2364, 129 L.Ed.2d 383 (1994); Doe v. Pfrommer, 148 F.3d 73, 78 (2d Cir.1998) ("Patsy's categorical statement that exhaustion is not required and the expansive view of federal courts in protecting constitutional rights allow plaintiffs to seek relief under § 1983 without first resorting to state administrative procedures.") (citing DeSario v. Thomas, 139 F.3d 80, 85-86 (2d Cir.1998), vacated on other grounds sub nom. Slekis v. Thomas, 525 U.S. 1098, 119 S.Ct. 864, 142 L.Ed.2d 767 (1999)). The Medicaid Act does not explicitly require exhaustion of state administrative remedies,¹ but the State asserts that Congress has implicitly required such exhaustion by conditioning state participation in the Medicaid program on a state's creation of an administrative review process.

The Medicaid Act requires states that participate in the program to "provide for granting an opportunity for a fair...