Austin v. Capital City Bank
| Decision Date | 26 June 2015 |
| Docket Number | 111,894. |
| Citation | 353 P.3d 469 (Table) |
| Parties | LaToya L. AUSTIN and the Ceyonia T. Austin–Williams Irrevocable Special Needs Trust, Appellants, v. CAPITAL CITY BANK and State of Kansas; Kansas Department of Health and Environment, Division of Health Care Finance ; Estate Recovery, Appellees. |
| Court | Kansas Court of Appeals |
Thomas R. Hill, of Overland Park, for appellants.
Brian M. Vazquez, of Kansas Department of Health & Environment, for appellees.
Before LEBEN, P.J., PIERRON and STANDRIDGE, JJ.
This case requires us to determine who is entitled to recover funds that remain in a special needs trust following the death of the trust's beneficiary, Ceyonia Austin–Williams. After Ceyonia's death, the trustee, Capital City Bank (Bank) refused to continue making payments from the trust to Ceyonia's mother, LaToya L. Austin. In support of its position, the Bank relied on the Medicaid postdeath recovery provision set forth in the trust. Given the Bank's position, LaToya filed breach of contract and breach of fiduciary duty claims against the Bank. LaToya later added the State of Kansas, the Kansas Department of Health and Environment Division of Health Care Finance, and the Estate Recovery Program (collectively, the State) as necessary parties. Following a hearing on the matter, the district court determined that the Bank did not breach any contractual or fiduciary duties and that there was no legal basis to bar the State's claim to the funds that remained in the special needs trust for purposes of reimbursing the State Medicaid program for medical care and treatment provided to Ceyonia while she was alive. LaToya appeals from only that portion of the district court's ruling that permits the State to recover funds from the trust.
Ceyonia was bom on March 28, 2000. During the birthing process, Ceyonia suffered from severe trauma that resulted in multiple permanent and acute disabilities, including epilepsy
, cerebral palsy, microencephaly, and scoliosis. A medical malpractice action was filed and subsequently resolved through settlement. Under the terms of the settlement agreement, the Ceyonia T. Austin–Williams Irrevocable Special Needs Trust (Trust) was created, and the Tmst was funded with the proceeds of the settlement in February 2003. The Tmst was designed to comply with 42 U.S.C. § 1396p(d)(4)(A) (2012), which allowed Ceyonia to keep the money she received when she settled the medical malpractice suit while also allowing her to remain eligible to receive medical assistance through Medicaid. The Bank was named the trustee of the Tmst, and Ceyonia was named the primary beneficiary. Article IV, paragraph B.6, of the Tmst provided:
LaToya was named the remainder beneficiary of the Trust.
Ceyonia passed away in January 2011. The Bank continued to make payments from the Trust to LaToya for some time following Ceyonia's death. But on July 16, 2013, the Bank informed LaToya that the language of the Trust document required it to stop making these payments from the Trust to LaToya.
On August 9, 2013, LaToya filed a petition for injunctive relief, breach of contract, and breach of fiduciary duty against the Bank based on its refusal to make any additional payments from the Trust. LaToya later amended her petition to include the State as a necessary party and to request a declaratory judgment barring or extinguishing any claim by the State that it was entitled to some or all of the funds remaining in the Trust. In response, the Bank denied liability and the State filed counter and cross-claims asserting its partial interest in the remaining Trust funds pursuant to 42 U.S.C. § 1396p(d)(4)(A).
In November 2013, the parties appeared before the district court for a hearing. At the hearing, the parties stipulated that (1) Medicaid paid a total of $541,754.25 toward Ceyonia's medical care and (2) the corpus of the Trust at the time of Ceyonia's death was $355,627.17. The State and the Bank argued that, under the terms of the Trust and in compliance with 42 U.S.C. § 1396p(d)(4)(A), the State was entitled to any remaining funds in the Trust up to and including the total amount of medical assistance paid by the State in order to reimburse Medicaid costs. Conversely, LaToya's counsel argued that the State was entitled only to the portion of the tort claim settlement allocated to medical care and because Ceyonia's settlement was not allocated among damage items, i.e., pain and suffering, lost wages, and medical claims, the State was not entitled to recover any money from the remaining funds in the Trust.
The district court ultimately ruled that the Bank had not breached any contractual or fiduciary duty and that the State was entitled to reimbursement from the remaining Trust funds.
The only issue on appeal is whether the district court properly concluded that the State is entitled to reimbursement from the Trust. To resolve this issue, we must consider the various statutes that govern the Kansas Medicaid program. To that end, we have unlimited review over interpretation of a statute. See Gannon v. State, 298 Kan. 1107, 1175–76, 319 P.3d 1196 (2014) (); Cady v. Schroll, 298 Kan. 731, 734, 317 P.3d 90 (2014) ().
We begin with a brief overview of the purpose and scope of the Medicaid program. In 1965, Congress created the Medicaid program as a cooperative federal-state program to provide the states with federal assistance as reimbursement for costs of medical treatment provided to their needy citizens. See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784, reh. denied 488 U.S. 917 (1980) ; Williams v. Kansas Dept. of SRS, 258 Kan. 161, 164, 899 P.2d 452 (1995). The federal government pays the majority of the costs incurred by the State for patient care, while the State pays a portion of the costs and complies with “certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program.” Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006). If an individual has assets available to him or her above a statutory limit, he or she is generally ineligible to receive Medicaid assistance. See 42 U.S.C. § 1396a(a)(17) (2012).
In 1993, Congress established a general rule that trusts would be counted as assets for the purpose of determining Medicaid eligibility. But Congress also excepted from that rule three types of trusts meeting certain specific requirements. Taken together, these are generally called special needs trusts or supplemental needs trusts. Relevant here, a special needs trust is defined as “[a] trust containing the assets of an individual under age 65 who is disabled ... and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court.” 42 U.S.C. § 1396p(d)(4)(A). This arrangement ensures that a qualified individual can receive assets and use them for his or her own benefit to supplement Medicaid payments and improve his or her quality of life, yet remain eligible to receive Medicaid payments. Congress has mandated, however, that when a Medicaid recipient who has set up a special needs trust dies, the State must recover from any remaining trust funds an amount equal to the “total” Medicaid expenditures paid to that individual. 42 U.S.C. § 1396p(d)(4)(A) ; In re Guardianship & Conservatorship of Watkins, 24 Kan.App.2d 469, 473, 947 P.2d 45 (1997).
Here, the terms of the Trust make clear that LaToya intended it to qualify as a special needs trust pursuant to the provisions of 42 U.S.C. § 1396p(d)(4)(A). And there is no dispute that Ceyonia received Medicaid assistance during her life in the amount of $541,754.25. After Ceyonia's death, then, the express terms of the Trust require reimbursement to the State up to an amount equal to the total medical assistance it paid. See Hamel v. Hamel, 296 Kan. 1060, 1068, 299 P.3d 278 (2013) ().
Notwithstanding the express terms of the Trust, LaToya argues that fully reimbursing the State out of the settlement proceeds would be contrary to federal law as applied by the United States Supreme Court in Ahlborn, 547 U.S. at 284–85, and Wos v. E.M.A. ex rel. Johnson, 568 U.S. ––––, 133 S.Ct. 1391, 1398–99, 185 L.Ed.2d 471 (2013). More specifically, LaToya contends both of these cases stand for the legal proposition that a state Medicaid program is entitled to limited reimbursement; i.e., from only that part of a personal injury settlement that represents payment for medical care expenses. Because Ceyonia's settlement had no such designation, LaToya contends the district court improperly ruled that the State was entitled to recover Medicaid payments from all of the remaining assets in the Trust upon Ceyonia's death.
In Ahlborn, the Supreme Court considered the federal Medicaid statutes in the context of an attempt by the State of Arkansas to recover Medicaid payments from a personal injury settlement. Under federal law, a state's Medicaid program has a subrogation right for reimbursement of medical expenses paid on behalf of an injured plaintiff in a tort case. As a condition of receiving Medicaid...
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