Ctr. For Special Needs Trust Admin. Inc. v. Olson

• Decision Date: 25 April 2011
• Docket Number: Case No. 1:09-cv-072
• Parties: Center for Special Needs Trust Administration, Inc., Plaintiff, v. Carol K. Olson, in her official capacity as Executive Director of North Dakota Department of Human Services,Defendant.
• Court: U.S. District Court — District of North Dakota

Center for Special Needs Trust Administration, Inc., Plaintiff, v. Carol K. Olson, in her official capacity as

Executive Director of North Dakota Department of Human Services, Defendant.

Case No. 1:09-cv-072

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH DAKOTA SOUTHWESTERN DIVISION

Dated: April 25, 2011

ORDER REGARDING MOTIONS FOR SUMMARY JUDGMENT

Before the Court are the Defendant's and the Plaintiffs motions for summary judgment filed on April 5, 2010 and May 4, 2010, respectively. See Docket Nos. 10 and 13. On May 4, 2010, the Plaintiff filed a response in opposition to the Defendant's motion. See Docket No. 14. The Defendant filed a reply brief on May 18, 2010. See Docket No. 16. On May 25, 2010, the Defendant filed a response in opposition to the Plaintiff's motion. See Docket No. 17. The Plaintiff filed a reply brief on June 4, 2010. See Docket No. 18.

I. BACKGROUND

The Medicaid program, 42 U.S.C. §§ 1396-1396v, was created in 1965 and is designed to furnish medical assistance to persons "whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396. The federal Medicaid program authorizes grants to the states to help fund medical assistance programs and specifies requirements for the administration of the state programs. Medicaid eligibility is determined by a needs-based analysis and coverage is denied if the applicant exceeds a ceiling in countable assets.

Prior to 1993, individuals had many techniques to transfer their property into trust to qualify for Medicaid. The Omnibus Budget Reconciliation Act of 1993 (OBRA) created a transfer penalty system in the Medicaid program. Many of the transfer techniques used before OBRA now generate transfer penalties, resulting in a period of time where the individual would be ineligible for Medicaid. However, certain exemptions from the transfer penalty system exist. One such exemption is commonly referred to as a "pooled trust" described in 42 U.S.C. § 1396p(d)(4)(C), in which an individual can transfer his or her own funds into a trust which allows the income and assets of a number of persons with disabilities to be managed by a nonprofit organization. Pursuant to 42 U.S.C. § 1396p(d)(4)(C), a pooled trust is one that contains the assets of an individual who is disabled and meets the following conditions:

(i) The trust is established and managed by a nonprofit association.

(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1382c(a)(3)¹ of this title) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

(iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this subchapter.

The defendant, the North Dakota Department of Human Services ("NDDHS"), through Carol K. Olson in her official capacity as executive director, is the state agency responsible in NorthDakota for implementation of the Medicaid program. The plaintiff, Center for Special Needs Trust Administration, Inc. ("Center") is a nonprofit corporation organized under the laws of Florida with its principal place of business in Clearwater, Florida.

On February 5, 2002, Center made a declaration of trust, establishing a pooled trust pursuant to 42 U.S.C. § 1396p, to which Center is the trustee. See Docket No. 1-1. Article 6 of the declaration of trust states:

ARTICLE 6

DISTRIBUTIONS AT THE BENEFICIARY'S DEATH

Upon the death of a Beneficiary, any amounts that remain in the Beneficiary's Trust sub-account shall be administered so as to conform with all of the requirements of 42 U.S.C. §1396p and/or related statutes, including state statutes and regulations that are consistent with the provisions and purposes of the Omnibus Budget Reconciliation Act of 1993, amending 42 U.S.C. § 1396p and pertaining to reimbursement to the States for government assistance provided on behalf of the individual Beneficiary.

Such property shall be distributed to each state in which the Beneficiary received government assistance, based on each state's proportionate share of the total government assistance paid by all of the states on the Beneficiary's behalf, to the extent that any such property is not retained by the Trust. In the Trustee's sole discretion as to specific use, any amounts retained in the Trust shall be used in accord with the following provisions:

a) for the direct or indirect benefit of other Beneficiaries;

b) to add disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), who are indigent to the Trust as Beneficiaries; or,

c) to provide disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), with equipment, medication, or services deemed suitable for such persons by the Trustee.

See Docket No. 1-1, p. 6.

On November 30, 2007, Allen Kemmet entered into a National Pooled Trust Joinder Agreement, adopting Center's declaration of trust, and transferred $54,450 to Center for deposit into the National Pooled Trust. Article III of the joinder agreement states:

Article III

Distributions Upon the Beneficiary's Death?

Any assets that remain in the Beneficiary's separate Trust sub-account at the Beneficiary's death shall be treated in accordance with the provisions below.

3.01 Assets in Trust. If any assets remain in the Beneficiary's separate Trust sub-account at the Beneficiary's death, such assets shall be deemed surplus Trust property and shall be retained by the Trust pursuant to all of the relevant and applicable provisions of 42 U.S.C. § 1396p, including all related statutes, regulations, and/or rules.

3.02 Use of Retained Assets. In the Trustee's sole and absolute discretion, retained surplus Trust property shall be used:

a) for the direct or indirect benefit of other Beneficiaries;

b) to add disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), who are indigent to the Trust as Beneficiaries; or,

c) to provide disabled persons, as defined in 42 U.S.C. § 1382c(a)(3), with equipment, medication, or such other services deemed suitable for such persons by the Trustee.

Subject to all provisions herein, gifts or devises to the Trust shall be similarly treated unless a specific purpose is specified by the donor. To the extent that any surplus Trust property is not retained by the Trust pursuant to paragraph 3.01 above, such property shall be distributed to each State in which the Beneficiary received government assistance, based on each State's proportionate share of the total government assistance paid by all of the States on the Beneficiary's behalf. For all such purposes hereunder, the Trustee and all States where the Beneficiary received government assistance are clearly identifiable residual beneficiaries and have standing to challenge any attempt by the Beneficiary or any other party to revoke this irrevocable Agreement.

See Docket No. 1-1, p. 16. Kemmet became both the grantor and the beneficiary. At the time, Kemmet was 78-years old and living in the Missouri Slope Lutheran Care Center, a licensed nursing facility in Bismarck, North Dakota.

On January 22, 2008, the Burleigh County Social Service Board ("Burleigh County"), which acts under the direction and supervision of NDDHS to administer the Medicaid program, received a letter from Kemmet's attorney, Damian Huettl. See Docket No. 12-2. The letter enclosed Kemmet's Medicaid application, which included a copy of the February 5, 2002 declaration of trust and the agreement executed by Kemmet on November 30, 2007. Huettl claimed that Kemmet met the Medicaid eligibility requirements and was eligible for coverage by Medicaid for skilled nursing care. A Burleigh County staff member sent the documents submitted by Huettl to NDDHS for review. Annette Bendish, an attorney with the NDDHS's Legal Advisory Unit, mistakenly identified Kemmet's age to be 54-years old. Bendish directed Burleigh County to determine Kemmet's eligibility without counting the money he placed in the trust and to not consider his transfer to the trust as disqualifying Kemmet from receiving Medicaid coverage for his nursing facility care. See Docket No. 12-3. Burleigh County determined that Kemmet was eligible for Medicaid coverage effective March 1, 2008. Kemmet received Medicaid benefits from March 1, 2008 until his death on October 8, 2008, at a total cost to the Medicaid program of $41,135.19.

After Kemmet's death, NDDHS determined that Kemmet was not eligible for Medicaid, contending that his payment of $54,450 to Center was a transfer of an asset that caused him to be ineligible for Medicaid coverage for his nursing facility care pursuant to 42 U.S.C. § 1396p(c), N.D.C.C. § 50-24.1-02(1), and N.D. Admin. Code § 75-02-02.1-33.2. On October 23, 2008, NDDHS sent Center a letter that requested reimbursement for the amount of services provided toKemmet. See Docket No. 12-4. NDDHS sent a follow-up letter on April 1, 2009. See Docket No. 12-5. On June 9, 2009, Gregory Larson, the attorney of record for Center, sent NDDHS a letter that disputed any money was owed. See Docket No. 12-6.

On November 2, 2009, Center brought an action in federal district court, requesting the Court enter (1) a declaratory judgment that NDDHS has violated federal law by demanding payment from Center from the retained monies and that those provisions of the North Dakota Administrative Code that conflict with federal law regarding pooled trusts are invalid; (2) a preliminary and permanent injunction ordering NDDHS to cease demanding payment from pooled trusts at the death of a pooled trust beneficiary; (3) a preliminary and permanent...