Elson v. Wells Fargo Bank

• Decision Date: 19 August 2019
• Docket Number: B288796
• Parties: ADAM ELSON et al., Plaintiffs and Appellants, v. WELLS FARGO BANK, as Trustee, etc., Defendant; STATE DEPARTMENT OF HEALTH CARE SERVICES, Claimant and Respondent.
• Court: California Court of Appeals

ADAM ELSON et al., Plaintiffs and Appellants, v. WELLS FARGO BANK, as Trustee, etc., Defendant;STATE DEPARTMENT OF HEALTH CARE SERVICES, Claimant and Respondent.

B288796

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

August 19, 2019

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. 16STPB00230)

APPEAL from an order of the Superior Court of Los Angeles County, Maria E. Stratton, Judge. Affirmed.

Barton Klugman & Oetting and Thomas Beltran for Plaintiffs and Appellants.

No appearance by Defendant Wells Fargo Bank.

Xavier Becerra, Attorney General, Cheryl Feiner, Senior Assistant Attorney General, Leslie P. McElroy, Supervising Deputy Attorney General, Tara L. Newman, Deputy Attorney General, for Respondent State Department of Health Care Services.

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Adam Elson and Christine Tobianski (Plaintiffs) appeal from the probate court order denying their petition requesting that the remainder of their deceased son's special needs trust be distributed to them rather than to the Department of Health Care Services (Department) as reimbursement for Medi-Cal payments for their son's medical care. We recently addressed the nearly identical issues in Gonzalez v. City National Bank (2019) 36 Cal.App.5th 734 (Gonzalez). As in Gonzalez, we conclude the probate court properly found the Department was entitled to reimbursement for these Medi-Cal expenses. Therefore, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. Special Needs Trust

Micah Elson (Micah or Beneficiary) suffered complications at birth that left him severely and permanently brain damaged. A medical malpractice lawsuit against the hospital and attending physician led to a $3.25 million settlement. On December 7, 2007, the Riverside County Superior Court ordered that approximately $2.38 million of the proceeds be placed in theMicah Elson Special Needs Trust (the Trust) pursuant to Probate Code sections 3604 and 3605. An outstanding Medi-Cal lien in the amount of $50,398.29 was paid out of those proceeds.

The Trust provides that the court had "made the following determinations: Micah Elson, a minor, has a disability in the nature of a severe and permanent brain injury that substantially impairs his ability to provide for his own care or custody and constitutes a substantial handicap; his condition appears to be permanent . . .; he is likely to have special needs related to the disability described above that will not be met without this trust; and the monies to be paid to this trust do not exceed the amount that appears reasonably necessary to meet the special needs of the Beneficiary."

The Trust provides that its "intent and purpose . . . is to provide a discretionary, spendthrift trust, to supplement public resources and benefits when such resources and benefits are unavailable or insufficient to provide for the Special Needs of the Beneficiary. . . . This is not a trust for the support of the Beneficiary. All payments made under this Trust must be reasonably necessary in providing for this Beneficiary's special needs . . . ." The Trust further provides that "[t]he Beneficiary has no interest in the income or principal of the trust, other than as set forth herein," and "because this trust is to be conserved and maintained for the Special Needs of the Beneficiary, no part of the principal or income of the trust shall be construed to be part of the Beneficiary's 'estate' . . . ." The Trust sets forth that "[f]or purposes of determining the Beneficiary's Medi-Cal eligibility . . . no part of the principal or income of the trust estate shall be considered available to said Beneficiary."

The Trust was set up to terminate upon Micah's death. It provides that "[n]otwithstanding any provisions of this instrument to the contrary, this trust is subject to the provisions and requirements of California Probate Code Sections 3604 and 3605, which require that notice of the Beneficiary's death or the trust termination be given . . . to . . . [the Department]." The Trust includes the following provision commonly referred to as a "payback" provision: Following payment for last illness, burial and administration expenses, "the remaining trust estate shall be subject to reimbursement under 42 U.S.C. § 1396p(d)(4)(a) or applicable state law to any state, or agency of a state, which has provided medical assistance to the Beneficiary under a state plan under Title XIX of the Social Security Act [(SSA)], up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under such state plan. After such payment or payments have been made, the remaining trust estate shall be distributed to the person or persons . . . in such matter and proportions as shall be designated by the Beneficiary by written instrument . . . ."

Tracking the requirements of Probate Code section 3604, subdivision (b), the court's accompanying order provides: "Micah Elson, the minor, has a disability that substantially impairs his ability to provide for his own care or custody and constitutes a substantial handicap, namely severe and permanent brain injury. He is likely to have special needs that will not be met without the Trust proposed herein," and "[t]he money to be paid to the Trust does not exceed the amount that appears reasonably necessary to meet his special needs." The order reiterates that the Trust is established "under Probate Code §§ 3600 et seq., and all of its terms and provisions are approved." The order also provides thatthe Trust would be subject to the superior court's continuing jurisdiction.

2. The Department's Claim for Reimbursement from the Trust for Medi-Cal Payments

Micah died on August 17, 2015, at age 10. The Department received notice of Micah's death on October 2, 2015 and, on October 15, 2015, filed a creditor's claim with the probate court. The creditor's claim sought reimbursement from the Trust for Medi-Cal payments for medical care for Micah in the amount of $1,481,563.28. Thereafter, however, the Department clarified that it was seeking a reduced total of $1,396,629.88, which consisted of medical services paid for Micah's benefit only after the Trust was established. As of October 31, 2015, Trust assets totaled $1,534,714.55.

3. Trustee's Petition Seeking Instructions Regarding Distribution of Trust Remainder

On November 10, 2015, trustee Wells Fargo Bank (Trustee) filed a petition seeking (1) approval of the final account; (2) approval of its attorney fees; (3) termination of the Trust; and (4) instructions regarding final distribution of the Trust property. As relevant here, the petition stated the Trustee had received the Department's claim for reimbursement for Medi-Cal expenditures on behalf of Micah, and the Trustee requested instruction from the court as to "whether the [Department] is entitled to repayment of its liens, and if so, in what amount." The Trustee specifically requested "instruction regarding the effect of the decisions of the Court of Appeal" in Shewry v. Arnold (2004) 125 Cal.App.4th 186 (Shewry) and Herting v. State Dept. of Health Care Services (2015) 235 Cal.App.4th 607 (Herting). "Notwithstanding the apparently unconditional right of the[Department] to recover from the Trust the cost of the medical assistance it provided to the beneficiary" and the decision in Herting supporting the Department's right of recovery, the Trustee noted that the Department's right to reimbursement was less clear under the reasoning of the Shewry decision.

On February 19, 2016, the Department filed its opposition to the Trustee's petition, arguing that the Trustee was obligated to pay the Department's claim pursuant to federal and state law and the terms of the Trust instrument.

4. Plaintiffs' Petition Seeking Distribution of Trust Remainder to Them

On May 10, 2016, before the hearing on the Trustee's petition, Plaintiffs filed their own petition pursuant to Probate Code sections 850 and 17200¹ seeking an order directing the Trustee to deliver the remaining Trust assets to Plaintiffs as Micah's heirs. Relying on Welfare and Institutions Code former section 14009.5, subdivision (b)(2)(c),² which sets forth theDepartment's right to reimbursement for Medi-Cal payments from deceased beneficiaries' estates, Plaintiffs argued that, because Micah received the Medi-Cal services when he was under 55 years old, the Department had no right to recovery from the Trust remainder for those expenditures.

The Department opposed the petition, contending federal and state law, as well as the Trust's express provisions, mandated it be reimbursed from the Trust for Micah's Medi-Cal expenses. The Department asserted that Welfare and Institutions Code former section 14009.5 did not apply to limit the Department's recovery.

The proceedings involving Plaintiffs' petition (case number 16STPB00230) ultimately were consolidated with the proceedings on the Trustee's petition (case number BP108936). After a number of continuances, a final hearing on both petitions was held on December 26, 2017, with the court issuing its ruling on January 11, 2018.

The court denied Plaintiffs' petition seeking an order directing the Trustee to distribute the Trust assets to them. The court's minute order in case number 16STPB00230 states that "[p]etitioners and [the Department] are directed to follow the court's orders in BP108936 with respect to payment of the [Department's] claim. The trustee has been ordered in that case to pay the claim, subject to its determination that Medi-Cal paid for medical care actually rendered to Micah during the period of December 7, 2007 through August 15, 2015."

The record compiled by Plaintiffs does...