Gonzalez v. City Nat'l Bank

• Decision Date: 24 June 2019
• Docket Number: B284521
• Citation: 36 Cal.App.5th 734,248 Cal.Rptr.3d 770
• Court: California Court of Appeals Court of Appeals
• Parties: Josue GONZALEZ et al., Plaintiffs and Appellants, v. CITY NATIONAL BANK, as Trustee, etc., Defendant; State Department of Health Care Services, Claimant and Respondent.

36 Cal.App.5th 734

248 Cal.Rptr.3d 770

Josue GONZALEZ et al., Plaintiffs and Appellants,

v. CITY NATIONAL BANK, as Trustee, etc., Defendant;State Department of Health Care Services, Claimant and Respondent.

B284521

Court of Appeal, Second District, Division 7, California.

Filed June 24, 2019

Barton, Klugman & Oetting and Thomas Beltran, Burbank, for Plaintiffs and Appellants Josue Gonzalez and Juanita Gonzalez Garcia.

No appearance by Defendant.

Xavier Becerra, Attorney General, Julie Weng-Gutierrez, Senior Assistant Attorney General, Jennifer M. Kim and Jacquelyn Y. Young, Deputy Attorneys General, for Claimant and Respondent State Department of Health Care Services.

STONE, J.^*

Josue Gonzalez and Juanita Gonzalez Garcia (Plaintiffs) appeal from the probate court order denying their request, following the death of their daughter, that the remainder of their daughter'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 daughter's medical care. The 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

Brenda Gonzalez (Brenda or Beneficiary) suffered complications at birth that left her severely disabled. A medical malpractice lawsuit brought on Brenda's behalf yielded a $ 2.4 million settlement. On October 13, 1999, a federal district court placed these proceeds in a special needs trust (the Trust) pursuant to Probate Code sections 3604 and 3605, which allow courts to approve payment of settlements or judgments to special needs trusts established for minors or disabled persons.

The purpose of placing these proceeds in the Trust was to preserve Brenda's eligibility for Medi-Cal benefits while sheltering assets to be used for her special medical needs that would not be covered by Medi-Cal. The Trust thus 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 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 was set up to terminate upon Brenda's death. It sets forth 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: "In accordance with 42 U.S.C. § 1396p (d) (4) (A), upon termination, whether by death or otherwise, and after payment of provision has been made for expenses of administration, the remaining trust estate shall be payable 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." Only after such reimbursements to the state would any remaining funds be distributed to Brenda's legal heirs.

Tracking the requirements of Probate Code section 3604, subdivision (b), the federal district court's order establishing the Trust provides: "Brenda Gonzalez is likely to have special needs related to her disability, as described in the Petition, that will not be met without the Trust," and "[t]he money to be paid to the Trust does not exceed the amount that appears reasonably necessary to meet her special needs." The order reiterates that the Trust "shall be subject to the provisions and requirements of California Probate Code Sections 3604 and 3605."

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

Brenda died on April 21, 2016, at age 21. At the time of her death, approximately $ 1.6 million remained in the Trust. The Department received notice of Brenda's death on or about April 22, 2016 and, on May 6, 2016, 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 Brenda in the amount of $ 3,972,501.21.

3. Petition Seeking Distribution of Trust Remainder to Heirs

On March 10, 2017, Plaintiffs filed a petition seeking an order directing the trustee to distribute the Trust remainder to Plaintiffs, Brenda's heirs. Relying on former Welfare and Institutions Code section 14009.5, subdivision (b)(2)(c),¹ which sets forth the Department's right to reimbursement for Medi-Cal payments from deceased beneficiaries' estates, Plaintiffs argued that, because Brenda received the Medi-Cal services when she was under 55 years old, the Department had no right to recovery from the Trust remainder for those expenditures. In the alternative, Plaintiffs argued that the charges erroneously included medical expenses incurred prior to the establishment of the Trust, as well as expenses for special education services pursuant to the Individuals with Disabilities Education Act (IDEA) and regional center services pursuant to the Lanterman Developmental Disabilities Services Act (Lanterman Act).

The Department opposed the petition, contending federal and state law mandated it be reimbursed from the Trust for Brenda's Medi-Cal expenses and that former Welfare and Institutions Code section 14009.5 did not apply to limit the Department's recovery. The Department further argued it was not seeking reimbursement for services rendered before the Trust was created. Finally, the Department argued Plaintiffs had not carried their burden to prove Brenda received special education or regional center services and, in any event, the Department was entitled to recover for such services.

The probate court denied the petition and ordered the trustee to pay the Department's creditor's claim of $ 3,972,501.21 from the remaining assets of the Trust.²

Plaintiffs timely filed a notice of appeal.

DISCUSSION

Plaintiffs contend the Department has no right to reimbursement from the Trust remainder for Medi-Cal payments for medical services provided to Brenda. They assert that the Department's right to reimbursement is governed by the Medi-Cal provisions applicable to a decedent's estate, found at former Welfare and Institutions Code section 14009.5, which did not permit reimbursement for Medi-Cal payments where the decedent was under age 55 at the time the services were provided.

The Department asserts those provisions governing estates are inapplicable and special provisions applicable solely to special needs trusts give the Department a right of reimbursement. The proper resolution of this issue requires reconciliation of federal statutes governing Medicaid with state Medi-Cal statutes and regulations as well as provisions in the Probate Code. The two published decisions to date that endeavor to reconcile these federal and state laws, Shewry v. Arnold (2004) 125 Cal.App.4th 186, 22 Cal.Rptr.3d 488 ( Shewry ) and Herting v. State Dept. of Health Care Services (2015) 235 Cal.App.4th 607, 609, 185 Cal.Rptr.3d 401 ( Herting ), reach opposite conclusions.

I. Statutory Overview

A. Medicaid and Medi-Cal

"The Medicaid program, which provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs, was launched in 1965 with the enactment of Title XIX of the [SSA], ... 42 U.S.C. § 1396 et seq. " ( Arkansas Dept. of Health and Human Servs. v. Ahlborn (2006) 547 U.S. 268, 275, [126 S.Ct. 1752, 164 L.Ed.2d 459] ( Ahlborn ).) "[S]everely impaired individuals" are among those eligible for Medicaid assistance. ( 42 U.S.C. § 1396a(a)(10)(A)(i)(II)(bb) ;³ Belshe v. Hope (1995) 33 Cal.App.4th 161, 173, 38 Cal.Rptr.2d 917.)

"States are not required to participate in Medicaid, but all of them do. The program is a cooperative one; the Federal Government pays between 50% and 83% of the costs the State incurs for patient care, and, in return, the State pays its portion of the costs and complies with certain statutory requirements for making eligibility determinations, collecting and maintaining information, and administering the program." ( Ahlborn, supra , 547 U.S. at p. 275, 126 S.Ct. 1752 ; see Herting, supra , 235 Cal.App.4th at p. 610, 185 Cal.Rptr.3d 401 [" ‘[a]lthough participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of Title XIX,’ many of which are set forth in ... section 1396a et seq."]; Will v. Kizer (1989) 208 Cal.App.3d 709, 715, 256 Cal.Rptr. 328 ["[t]he Federal Government shares the costs of Medicaid with States that elect to participate in the program. In return, participating States are to comply with requirements imposed by the Act and by the Secretary of Health and Human Services"].) Thus, "as a participant in the federal Medicaid program, the State of California has agreed to abide by certain requirements imposed by federal law." ( Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 804, 135 Cal.Rptr.2d 1, 69 P.3d 927 ( Olszewski ); see Maxwell-Jolly v. Martin (2011) 198 Cal.App.4th...