Decision Date28 April 1987
Docket NumberCiv. No. 83-0360-B,85-0174-B.
PartiesMAINE ASSOCIATION OF INTERDEPENDENT NEIGHBORHOODS, Glennis Cook and Minnie Carr, Plaintiffs, v. Michael PETIT, Commissioner, Maine Department of Human Services and Otis R. Bowen, Secretary, United States Department of Health and Human Services, Defendants. Nancy HAGGAN, Plaintiff, v. Michael PETIT, Commissioner, Maine Department of Human Services, Defendant, v. Otis R. BOWEN, Secretary, United States Department of Health and Human Services, Third-Party Defendant.
CourtU.S. District Court — District of Maine


Linda Christ, Pine Tree Legal Assistance, Augusta, Me., Peter Darvin, Pine Tree Legal Assistance, Portland, Me., for plaintiff and petitioner.

Marina E. Thibeau, Carmen L. Coulombe, Dept. of Human Service, Legal Div., Augusta, Me., Lawrence E. Burstein, Asst. Reg. Atty., Dept. of Health and Human Services, Boston, Mass., David R. Collins, Asst. U.S. Atty., Portland, Me., for defendant and respondent.


GENE CARTER, District Judge.

These cases are before the Court on Third-Party Defendant Secretary's motion to dismiss and, should that motion be denied, for decision on the merits based on a stipulated record. Both the main and third-party controversies revolve around the validity of the so-called "6,000/6%" rule used by Defendants to calculate eligibility for Medicaid. For the reasons stated herein, the Court will deny the Secretary's motion to dismiss, will issue a permanent injunction restraining Defendants from enforcing in the Medicaid context the $6,000/6% rule as currently adopted, and will further order Defendant Commissioner to redetermine Plaintiff Haggan's Medicaid eligibility from December 1984 forward without regard to the $6,000/6% rule. Finally, the Court will grant Defendant Commissioner's request for declaratory relief against Defendant Secretary.


At issue are related but not identical rules used by Defendant Bowen, Secretary of the United States Department of Health and Human Services (HHS) to calculate Supplemental Security Income (SSI) eligibility, and Defendant Petit, Commissioner of the Maine Department of Human Services (DHS), to calculate eligibility for Medicaid benefits. The rules relate to a category of Medicaid eligibility known as "SSI-related medically needy," composed of individuals whose incomes exceed the protected income level as defined by the federal SSI program but who meet the non-financial requirements of that program (i.e., are aged, blind, or disabled) and who have incurred medical expenses at least equal to the difference between their income and the protected income level. See 42 U.S.C. §§ 1396a(a)(10)(C)(i)(III), 1396a(a)(17) (1982) (requiring state Medicaid eligibility standards and methodologies to conform to those of federal SSI program). Therefore, although the Medicaid program is directly administered by the states, the standards for eligibility for federal SSI payments help determine Medicaid eligibility.

One such federal SSI eligibility standard states that "in determining the resources of an individual (and his eligible spouse, if any) there shall be excluded ... property which, as determined in accordance with and subject to limitations prescribed by the Secretary, is so essential to the means of self-support of such individual (and such spouse) as to warrant its exclusion...." 42 U.S.C. § 1382b(a)(3) (1982). Since January of 1974, the Secretary in his Program Operation Manual System (POMS) has defined both business and nonbusiness property as "essential to the means of self-support" only where the claimant's (or spouse's) equity in the property is $6,000 or less and the annual net income from the property is at least 6% of the equity value. (Currently the 6% criterion does not apply to a claimant's home.) Until 1983, however, the Commissioner of Maine's DHS, in calculating SSI-related medically needy eligibility, excluded all property essential to a claimant's means of self-support, without regard to the $6,000/6% rule just described. In April of 1983 the Commissioner adopted a version of the $6,000/6% rule.1 However, in June of 1983, the Secretary's Health Care Financing Administration directed the Commissioner to utilize a different version of the rule so as to conform to the federal SSI rule; the Commissioner did so in July of 1983, but he has stipulated that he would not have done so but for the direction of the Secretary. The rule promulgated by the Commissioner after state rulemaking proceedings still differs in several minor respects (described infra n. 8) from the $6,000/6% rule now in use at the federal level.

Plaintiff Maine Association of Interdependent Neighborhoods, Inc. (MAIN) is a nonprofit corporation composed of eight affiliated groups with a total of over 1,100 members. A majority of those members are Medicaid recipients, and one of MAIN's purposes is to assist these members in obtaining and maximizing their entitlement to the benefits of various public assistance programs. MAIN participated in the state rulemaking proceedings prior to the Commissioner's promulgation of the state $6,000/6% rule, and thereafter, in August of 1983, MAIN filed an action in state court against the Commissioner and the Secretary seeking review of the state rule pursuant to the judicial review provision of the state APA, Me.Rev.Stat.Ann. tit. 5, § 8058 (1964 & Supp.1986). The Secretary removed the case to this Court.

Plaintiff Nancy Haggan is a 38-year-old woman who suffers from multiple sclerosis. She is bedridden and requires constant nursing care; she lives at home with her husband, self-employed lumberman Clifford Haggan, and their eleven-year-old son. She and her husband are members of MAIN. In 1983, the Commissioner determined that Haggan was eligible for Medicaid as an SSI-related medically needy individual, but in June of 1984, her coverage was terminated due to her husband's ownership of lumbering equipment that failed to satisfy the state $6,000/6% rule. She reapplied for coverage in December of 1984, but that application was denied, both initially and on administrative appeal, on the ground that the lumbering equipment failed to satisfy the $6,000/6% rule. In April of 1985 Haggan filed an action against the Commissioner in state court seeking review of this final agency action, pursuant to Me.Rev.Stat.Ann. tit. 5, § 11001 (1964 & Supp.1986), and challenged the validity of the state $6,000/6% rule pursuant to 42 U.S.C. § 1983 (1982). The Commissioner thereupon removed the case to this Court and filed a third-party complaint against the Secretary seeking a declaration that, if the state rule violated federal law, so too did the federal rule.

Subsequently, the cases were consolidated. Plaintiffs filed a Second Amended Complaint naming as defendants both the Commissioner and the Secretary and requesting declaratory and injunctive relief as well as attorneys' fees pursuant to 42 U.S.C. § 1988 (1982). The parties submitted the case for decision on a stipulated record; the Secretary filed a motion to dismiss, asserting that Plaintiffs' claims were barred by sovereign immunity and were moot and that the Commissioner's third-party complaint against the Secretary failed to allege a sufficient case or controversy. Shortly thereafter, Haggan moved for, and the Court issued, a preliminary injunction restraining Defendants from computing her Medicaid eligibility for the current eligibility period according to the $6,000/6% rule. See Maine Ass'n of Interdependent Neighborhoods, Inc. v. Petit, 647 F.Supp. 1312 (D.Me.1986). The case is now ripe for a decision on the Secretary's motion to dismiss and, because the Court will deny that motion, a decision on the merits of the case.


The Secretary asserts three grounds for his motion to dismiss: mootness, sovereign immunity, and want of a case or controversy. The Court, dealing with each of these in turn, concludes that the motion must be denied.

A. Mootness

The Secretary argues that the entire case (with the exception of Haggan's request for review of the denial of her December 1984 reapplication for Medicaid coverage) is mooted by the promulgation, in compliance with the federal APA, of a new $6,000/6% rule. See 50 Fed.Reg. 42685 (Oct. 22, 1985), codified at 20 C.F.R. §§ 416.1220-.1224 (1986). He points to the fact that prior to removal and consolidation, the state court pleadings in both of these cases sought to invalidate the $6,000/6% rule on the ground that, although the Secretary used it and required the Commissioner to use it, it had not been properly promulgated through publication in the Federal Register. The parties stipulate that the regulation that was in fact published at 40 Fed.Reg. 48916 (Oct. 20, 1975) "inadvertently" failed to include the $6,000/6% rule. Now that proper publication has occurred, the Secretary argues, the claims made in state court are moot. He argues that jurisdiction is tested by the case as it was in state court and, because the claims made in state court are now moot, the case in its present posture in this Court must also be moot.

But this Court reads each of these Plaintiff's state court complaints as having raised substantive as well as procedural challenges to the rule. Moreover, after removal Plaintiffs filed a joint Second Amended Complaint which, the Secretary acknowledges, raises numerous substantive and procedural challenges to the rule. And it is settled that "if the federal court has jurisdiction of the removed cause and if the amendment to the complaint could have been made had the suit originated in federal court, the fact that the federal court acquired jurisdiction by removal does not deprive it of power to allow the amendment." Freeman v. Bee, 319 U.S. 448, 451, 63 S.Ct. 1146, 1148, 87 L.Ed. 1509 (1...

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