Clark v. Stovall
| Decision Date | 02 March 2001 |
| Docket Number | No. 00-4054-SAC.,00-4054-SAC. |
| Citation | 158 F.Supp.2d 1215 |
| Parties | Judith CLARK, John C. Puleo, Tammy Thomas, and All Others Similarly Situated, Their Next of Kin, Heirs, or Personal Representatives, Plaintiffs, v. Attorney General Carla STOVALL, Secretary of Kansas Department of Social and Rehabilitation Services Janet Schalansky, and Citibank, N.A., Defendants. |
| Court | U.S. District Court — District of Kansas |
Richard A. Bieder, Antonio Ponvert, III, Koskoff, Koskoff & Bieder, P.C., Bridgeport, CT, Stephen W. Cavanaugh, Harold A. Houck, Thomas G. Lemon, Todd D. Powell, Fisher, Cavanaugh, Smith & Lemon, P.A., Topeka, KS, Michael L. Hodges, Lenexa, KS, for Plaintiffs.
John M. Cassidy, Office of Attorney General, Topeka, KS, Gregory B. Hancks, Kutak Rock LLP, Kansas City, MO, Robert M. Slovek, Kutak Rock LLP, Omaha, NE, for defendants.
The case comes before the court on the motion to dismiss (Dk. 25) filed by the defendants Kansas Attorney General Carla Stovall ("Attorney General") and Secretary of Kansas Department of Social and Rehabilitation Services Janet Schalansky ("S.R.S. Secretary") (jointly referred to as the ) and the motion to dismiss (Dk. 42) filed by the defendant Citibank, N.A. The plaintiffs move for oral argument on these motions. (Dk.45). Considering the parties' detailed briefs and the recent number of judicial decisions on these same issues, the court believes oral argument is unnecessary and would not materially contribute to this proceeding. The court denies the motion for oral argument.
In November of 1998, the State of Kansas along with over forty other states entered into a Master Settlement Agreement ("M.S.A.") that was valued in excess of $200 billion and that settled the states' claims against major tobacco companies. Another court recently described the M.S.A. in these terms:
The M.S.A., in part, compensates the states for past and future medical expenses occasioned by state underwritten treatment of tobacco-related illnesses. Payments under the M.S.A. will be made to the states over two and one-half decades. The M.S.A. does not resolve and release claims for "private or individual relief for separate and distinct injuries ... or ... recovery of healthcare expenses" by individuals. (M.S.A. at II(pp)(2)(A) & (B)).
Strawser v. Lawton, 126 F.Supp.2d 994 (S.D.W.Va.2001). As alleged in the amended complaint, Kansas expects to receive approximately $1.767 billion from the settlement which will be paid out in installments over the next twenty-five years.1 (Dk.15, ¶ 8). Kansas received its first payment in December of 1999, and it totaled $20,583,592.26. Id.
The plaintiffs are Kansas residents who suffer from smoking-related illnesses and who have received medical assistance benefits from the Kansas Medicaid program for the care and treatment of these illnesses. The plaintiffs seek to certify a class and obtain a declaratory judgment that the State of Kansas must comply with federal Medicaid laws and "seek reimbursement of the medical assistance payments made through the state Medicaid program from known legally liable third parties such as those tobacco companies already identified by the state" and then distribute the recovery consistent with the federal Medicaid Act which requires any amount in excess of that needed to reimburse the state and federal programs to be distributed to the individual Medicaid recipients. They also seek an order enjoining the defendants to disburse or to cause disbursement to the plaintiffs the portion of the tobacco litigation settlement proceeds that belongs to the plaintiffs before placing those proceeds in the state treasury or otherwise giving the state possession or control of those proceeds. They seek other injunctive relief related to recovering their property interest in rights assigned to the state under the Medicaid Act, to obtaining due process with respect to those property interests previously taken or to be taken in the future, to segregating the settlement payments from the state treasury and obtaining an accounting and disbursement of them in accordance with the Medicaid Act, to retaining the settlement proceeds and notifying plaintiffs of the procedure for obtaining their share of them, and to seeking reimbursement of medical assistance payments from tobacco companies and other known legally liable third parties according to the requirements of the Medicaid Act.2
Sued in their official capacities, the Attorney General and S.R.S. Secretary seek dismissal arguing principally: state sovereign immunity, plaintiffs' failure to state a claim for relief, court's lack of subject matter jurisdiction, and plaintiffs' lack of standing. Sued in its capacity as the escrow agent for the state's settlement funds, Citibank seeks dismissal arguing plaintiffs failure to state a claim for relief. The court joins the growing number of courts to recognize the state's sovereign immunity in such litigation.
Established in Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396v, and designed to finance health care services for the indigent, Medicaid is a cooperative federal-state venture administered by appropriate state agencies. Floyd v. Thompson, 227 F.3d 1029, 1031 (7th Cir. 2000). "Kansas has elected to participate in the Medicaid program established by Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396u". Kansas Health Care Association, Inc. v. Kansas Dept. of Social and Rehabilitation Services, 958 F.2d 1018, 1019 (10th Cir.1992). As a voluntary participant in this program, Kansas "must comply with federal Medicaid laws and regulations." Id. at 1020 (citing Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990)). To participate and receive federal funding, a state must submit and have approved its comprehensive plan for medical assistance.
The Medicaid Act requires a state plan to "provide ... that the State ... agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan." 42 U.S.C. § 1396a(a)(25)(A). The state plan must also provide:
(B) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability....
42 U.S.C. § 1396a(a)(25)(B). To assist in recovering payments for medical support and care owed to those who have received Medicaid assistance, a state plan also must:
(1) must provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required —
(A) to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this subchapter and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;,....
42 U.S.C. § 1396k(a).
The Medicaid Act regulates the "distribution of any recovery from a third party in a manner that parallels the usual subrogation rules." Floyd v. Thompson, 227 F.3d at 1032. The Act provides:
Such part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.
42 U.S.C. § 1396k(b). A supporting regulation offers more explanation:
The state agency must distribute collections as follows —
(a) To itself, an amount equal to State Medicaid expenditures for the individual on whose right the collection was based.
(b) To the Federal Government, the Federal share of the State Medicaid expenditures, minus any incentive payment made in accordance with § 433.153.
(c) To the recipient, any remaining amount. This amount must be treated as income or resources under Part 435 or Part 436 of this subchapter as appropriate.
42 C.F.R. § 433.154.
In reliance on these Medicaid Act provisions, the plaintiffs claim that the State of Kansas' suit against the tobacco companies was a Medicaid reimbursement action and that the distribution requirements found in § 1396k(b) and explained in 42 C.F.R. § 433.154 entitle them to some portion of the settlement proceeds being paid in annual installments pursuant to the M.S.A. Broken down into its inferential parts, the plaintiffs' claim is that:
(1) the tobacco companies are third parties liable to Medicaid recipients injured by cigarettes; (2) the recipients assigned their claims to the State; (3) the State's suit against the tobacco companies was a Medicaid reimbursement action pursuant to subsection 1396k(b); (4) there is a "remainder" from the settlement with the tobacco companies under subsection 1396k(b); and (5) [Kansas] ... has a mandatory obligation to pay over the remainder to Medicaid recipients injured by tobacco products.
Strawser v. Lawton, 126 F.Supp.2d 994. The plaintiffs primarily base their allegation of the prior suit being a Medicaid reimbursement action upon the statutory assignment of their third-party claims as well as the State of Kansas' petition that sought "`compensation ... for past and future damages, including but not...
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