Hobbs ex. rel. Hobbs v. Zenderman

• Decision Date: 01 September 2009
• Docket Number: No. 08-2099.,08-2099.
• Parties: Steffan HOBBS, by and through his parents and next friends, Jimmy and Janet HOBBS, Plaintiff-Appellant, v. Marsha ZENDERMAN; Joey Kellenaers; and Pamela Hyde, Secretary of the Department of Human Services, in their individual and official capacities, Defendants-Appellees. The Special Needs Alliance; New Mexico Chapter of the National Academy of Elder Lawyers; New Mexico Trial Lawyers Association; States of Colorado, Alaska, Delaware, Florida, Hawaii, Idaho, Nebraska, Nevada, New Hampshire, New Jersey, Oklahoma, South Carolina Vermont, West Virginia, and Wyoming, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

579 F.3d 1171

Steffan HOBBS, by and through his parents and next friends, Jimmy and Janet HOBBS, Plaintiff-Appellant, v. Marsha ZENDERMAN; Joey Kellenaers; and Pamela Hyde, Secretary of the Department of Human Services, in their individual and official capacities, Defendants-Appellees.

The Special Needs Alliance; New Mexico Chapter of the National Academy of Elder Lawyers; New Mexico Trial Lawyers Association; States of Colorado, Alaska, Delaware, Florida, Hawaii, Idaho, Nebraska, Nevada, New Hampshire, New Jersey, Oklahoma, South Carolina Vermont, West Virginia, and Wyoming, Amici Curiae.

No. 08-2099.

United States Court of Appeals, Tenth Circuit.

September 1, 2009.

Duff Westbrook (Maureen A. Sanders with him on the briefs), Sanders & Westbrook, P.C., Albuquerque, NM, for Plaintiff-Appellant.

Paul R. Ritzma, General Counsel/Special Assistant Attorney General (Mark Dawson Jarmie and Mark Standridge, Mark D. Jarmie LLC, with him on the briefs), New Mexico Human Services Department, Santa Fe, NM, for Defendants-Appellees.

Before HENRY, Chief Judge, BRISCOE, and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

Steffan Hobbs, by and through his parents as next friends, sued several employees of the New Mexico Human Services Department ("NMHSD") following that agency's denial of Hobbs' application for Medicaid benefits. NMHSD's denial turned on its determination that a certain trust was a "countable resource" because the trust was not being administered for Hobbs' sole benefit. Hobbs advanced claims under 42 U.S.C. § 1983 alleging defendants violated his rights under the Medicaid Act and denied him due process by rejecting his application on the basis of unwritten, unascertainable standards. The district court agreed with defendants' interpretation of the relevant statutes, concluded that Hobbs' rights had not been violated, and granted summary judgment to defendants.

We hold that the statutory provisions upon which Hobbs relies do not confer private rights enforceable under § 1983. We further hold that defendants did not violate Hobbs' right to due process, but simply applied a "sole benefit" standard to the particular facts of his case. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the judgment of the district court.

I

Hobbs was severely injured in an auto accident in 2000 when he was six years old. He suffered traumatic brain injury that required him to undergo two partial lobectomies. As a result of his injuries, Hobbs is prone to seizures and requires significant assistance in daily activities such as eating and bathing. For purposes of the Medicaid Act, Hobbs is disabled. See 42 U.S.C. § 1382c(a)(1).

In 2003, Hobbs and his parents entered into a $2.5 million settlement agreement for injuries related to the accident. Under the terms of that agreement, $1.1 million was set aside for a special needs trust to benefit Hobbs. A state court approved the creation of "The Steffan Hobbs Medicaid Payback Trust" (the "Trust") on May 29, 2003. MassMutual Trust Co., F.S.B., serves as trustee, and Hobbs is listed as the sole beneficiary. Although the Trust purports to be irrevocable, the trust agreement permits "the Trustee and the Guardian ... to revoke this Trust or amend the terms hereof."

The trust agreement specifies that it was established pursuant to "42 U.S.C. [§] 1396p(d)(4)(A)" and that its assets "should not be deemed to be available to [Hobbs] for purposes of Supplemental Security Income (SSI) or Medicaid eligibility." Upon Hobbs' death, any funds remaining in the Trust will be paid to state Medicaid agencies, up to the amount Hobbs received from those agencies. During Hobbs' lifetime, Trust funds may be distributed "for the benefit of" Hobbs. However, "such distributions shall be limited to expenditures which shall not cause ineligibility for [Medicaid] benefits" if receiving Medicaid or other need-based benefits is in Hobbs' best interests as determined in the sole discretion of the trustee. The trust agreement further provides:

Expenditures may be made directly to any of [Hobbs'] family members, or any other person who takes [Hobbs] into his or her home or provides special care or attention to him, to compensate such person for the reasonable value of services provided and to reimburse such person for costs associated with shelter, care, or attention.

From the Trust corpus, $750,000 was used to purchase an annuity, which provides the Trust with gradually increasing monthly payments. As of November 2006, the annuity provided monthly income of $2,479.40 to the Trust. The primary outlay from the Trust is payment to Mrs. Hobbs for "extraordinary care provided to Steffan Hobbs." Mrs. Hobbs helps her son with dressing and bathing, and she monitors him for seizures. She also transports him to and from school and has helped train school personnel to deal with Hobbs' injury. Mrs. Hobbs receives a bi-weekly payment from the Trust that, as of November 2006, equaled $1,322.10 per installment. Trust funds have also been used to purchase a 50% interest in the Hobbs' land and home, home furnishings homeowner's insurance, home maintenance and improvement, and life insurance on Hobbs' parents.

In 2003, Hobbs applied to Medicaid's Medically Fragile Waiver Program (the "Program"). That Program provides home care services to Medicaid recipients with serious medical needs. At the time he applied, Hobbs was receiving Supplemental Security Income ("SSI") and SSI Medicaid. New Mexico Department of Health determined that Hobbs was medically eligible for the Program and reserved a slot for him pending determination of his financial eligibility. Joey Kellenaers, a Management Analyst at NMHSD, was responsible for determining whether Hobbs' Trust constituted a "countable resource" for Medicaid eligibility purposes. Consistent with NMHSD practice, Kellenaers referred the Trust to NMHSD Office of General Counsel, where Assistant General Counsel Marsha Zenderman reviewed it.

To be eligible for the Program, an applicant must possess no more than $2,000 in "countable resources." Certain trust assets, including those in a "special needs trust," are not considered countable resources. § 1396p(d)(4). A "special needs trust" is statutorily 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 if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.

§ 1396p(d)(4)(A).

Following Zenderman's review of the Trust and related documents, she determined that the Trust was a countable resource. On April 15, 2004, Zenderman wrote to Hobbs' personal injury attorney, stating that the use of Trust funds "has effectively disqualified your client from being eligible for Medicaid." In particular, Zenderman noted that

under state Medicaid policies, special needs trust funds may not be used, for example, to purchase land and a family home, pay property taxes and insurance on that home, pay for home furnishings (unless related to the beneficiary's disabilities), purchase farm animals and outbuildings, compensate a parent for taking care of her disabled child, pay the beneficiary's personal income taxes, or pay advisory fees to the trustee's affiliates.

Although Hobbs was not then eligible for the Program, Zenderman advised Hobbs' lawyer to "take whatever legal steps are necessary to remedy these problems" and provided a sample trust to assist Hobbs in "amending the trust so that it [would] meet state Medicaid requirements."

After receiving this letter, Hobbs' new attorney contacted Zenderman, and the two corresponded throughout the summer of 2004. On July 29, 2004, Zenderman sent a ten-page letter to Hobbs' counsel detailing her concerns with the Trust. Zenderman's letter discussed specific provisions of the New Mexico Administrative Code, the State Medicaid Manual, and the Social Security Administration's Program Operations Manual System ("POMS"), considered several cases to which Hobbs' counsel had referred Zenderman, and identified a number of problems with the Trust as written. Zenderman relied on sections of the State Medicaid Manual that require a special needs trust be "for the sole benefit" of a disabled individual, along with provisions defining that phrase. She also cited to a section of the POMS that differentiates between compensation paid to third-party care providers and that paid to family members.

Following further correspondence, Hobbs' counsel requested that NMHSD issue a decision on Hobbs' application so that Hobbs could obtain a "fair hearing" on the benefits denial. Zenderman then conveyed this request to NMHSD officials. On October 20, 2004, NMHSD notified Hobbs that his application for the Program had been denied because "[t]he value of your resources exceeds the program resource limit of $2,000," citing New Mexico Administrative Code § 8.290.500.11.

A hearing to review NMHSD's determination began on April 27 and continued on June 10, 2005. Hobbs was represented by counsel throughout the hearing and was permitted to submit evidence. At the hearing, NMHSD bore the burden of proof to support its decision by a preponderance of the evidence. After considering the evidence, the administrative law judge ("ALJ") recommended that the NMHSD decision to deny benefits be affirmed, concluding that the Trust payments to Mrs. Hobbs for "providing routine ongoing care" were not "for the sole benefit" of Hobbs. The ALJ expressly declined to rule on whether payments to a family member for "performing the functions of a physical or other therapist, or perform[ing] skilled services" would render the Trust a countable resource. Instead, the ALJ's holding was limited to payments for care that...