Martin ex rel. Hoff v. City of Rochester

Decision Date21 March 2002
Docket NumberNo. C3-00-398.,C3-00-398.
Citation642 N.W.2d 1
PartiesJoan MARTIN, guardian ad litem for Troy HOFF, Petitioner, Appellant, and State of Minnesota, plaintiff on impleader, Respondent, v. CITY OF ROCHESTER, et al., Defendants.
CourtMinnesota Supreme Court

Charles A. Bird, Rochester, James A. Koby, Parke O'Flaherty, La Crosse, WI, for petitioner.

Mike Hatch, Minnesota Attorney General, Suzette C. Schommer, Assistant Attorney General, St. Paul, for respondent.

Sonia Crannage, Burchetta Collins & Hanley, Pomona, NY, Attorneys for amicus curiae ARC MN, Inc. and NYSARC.

Michael A. Bryant, Bradshaw & Bryant, Waite Park, for amicus curiae MTLA.

Heard, considered, and decided by the court en banc.



Joan E. Martin settled a personal injury cause of action against multiple defendants on behalf of her disabled son, Troy Hoff. The state asserted a medical assistance lien against the proceeds as reimbursement for Hoff's medical expenses paid by the state through medical assistance. The state also asserted a subrogation right to the proceeds. The district court dismissed the state's claim to the proceeds, finding that the state medical assistance lien and subrogation provisions were preempted by federal law. The state appealed to the Minnesota Court of Appeals, which reversed the district court, holding that federal law did not preempt the state's lien and subrogation rights. Martin appealed to this court. We reverse.

Troy Hoff and Donald Tlougan were involved in a single-car accident on July 10, 1991, near Rochester, Minnesota. Tlougan died as a result of the accident. Hoff suffered permanent and totally disabling injuries and was rendered mentally incompetent.

Hoff's mother, Joan E. Martin, sought medical assistance from the State of Minnesota on Hoff's behalf. The state began making medical assistance payments for Hoff's care on November 25, 1991. About a year and a half later, on May 23, 1993, Martin assigned to the state all of Hoff's rights to payment for medical care from any third party liable for Hoff's injuries. Martin made the assignment as Hoff's authorized representative.1

The state filed a public assistance lien in the Olmsted County Recorder's Office on June 21, 1993. The lien was specifically placed upon Hoff's causes of action arising out of the accident. This lien was for $267,754.50 of past medical assistance benefits paid on Hoff's behalf, and also included any future medical assistance benefits to be paid as a consequence of the accident.

Martin, as guardian ad litem for Hoff, sued Tlougan's estate, the City of Rochester, Rochester Township, and the County of Olmsted.2 Martin sought recovery for past and future expenses for medical care and treatment, past and future pain and suffering, disability, disfigurement, past loss of earnings, loss of earning capacity, and other general and specific damages. Martin joined the state as an involuntary plaintiff on impleader, alleging that, as a result of the state's medical assistance lien, the state's presence was necessary for a "just adjudication of all rights." As a result of joining the state as a plaintiff on impleader, Martin was able to plead a claim on behalf of the state alleging that the defendants were liable to the state for past and future expenses for medical care, treatment, sheltered living, and other general and specific damages.

After being joined as a plaintiff on impleader, the state filed an answer and cross-claims against Martin. In its answer, the state specifically denied Martin's characterization of the state as an appropriately named plaintiff and alleged that "as a lienholder on the present cause of action," it did not need to be named as a plaintiff on the pleadings. Instead, the state, in its cross-claim against Martin, relied on its lien rights under Minn.Stat. ? 256B.042, subd. 1 (2000), claiming the right to reimbursement for medical expenses it paid on Hoff's behalf from any judgment, award, or settlement of Hoff's causes of action.3 After filing its answer and cross-claims, the state was not significantly involved in the litigation and did not independently pursue its claim against defendants for medical expenses as pleaded by Martin on its behalf.

Nearly 6 years after commencing this action, Martin negotiated settlements with the defendants, first with the City of Rochester and then with Tlougan's estate and Rochester Township. The combined total of the settlements was $220,000. The settlement agreements encompassed all causes of action and claims.

The district court explicitly stated in its orders approving these settlement agreements that it was aware of the nature and extent of Hoff's injuries, the damages claimed, the respective positions of the parties regarding liability, and the consequences of further litigation between the parties. The court found that the settlements were fair, just, and in the best interests of Hoff. The court also stated that it was aware of a dispute between Martin and the state regarding the state's claim to part of the settlement proceeds. However, the court concluded that this dispute did not involve the settlements directly and only concerned the eventual disbursement of the balance of the settlement proceeds. The court concluded that the dispute between Martin and the state should not delay the settlement with the defendants and that the interests of Martin and the state in the settlement proceeds could be protected by depositing the balance of the proceeds in an interestbearing account with the court administrator. In compliance with the order of the court approving each settlement, Martin and the state released all three defendants from further liability and stipulated to a dismissal with prejudice on their claims. It is unclear from the record what claims were part of the settlement and how, if at all, the settlement proceeds were allocated among the respective claims.

After the settlements with the three defendants had been agreed upon, Martin and the state pursued their separate dispute regarding the state's cross-claim.4 Specifically, the state asserted that its medical assistance lien entitled it to obtain out of the remaining settlement proceeds $58,561.82 as reimbursement for the over $600,000 it had paid by that time for Hoff's medical care.5

Martin filed a motion to dismiss the state's claim, arguing that federal law prohibited the state from placing a lien on a medical assistance recipient's property. Martin argued that the settlement proceeds were solely Hoff's property because the assignment to the state of Hoff's rights to medical expenses left Martin with no power to collect or sue for medical expenses on Hoff's behalf. Therefore, Martin asserted that the settlement proceeds were solely Hoff's property because the settlement was made only on Hoff's remaining personal injury claims, i.e., damages for pain and suffering, disfigurement, disability, emotional distress, loss of earnings, and loss of earning capacity, but not medical expenses.

In response to Martin's motion, the state argued (1) that the federal anti-lien statute does not apply to third-party recoveries, (2) that the lien does not attach to the cause of action but instead to the proceeds, and (3) that proceeds are the property of the liable third parties. Additionally, the state contested Martin's argument on the effect of the assignment, arguing that the assignment did not deprive Martin of the ability to sue and collect for medical expenses. The state asserted that the assignment left both Martin and the state with the ability to pursue a recovery of medical expenses. Therefore, the state argues, the settlement included a recovery for medical expenses. Moreover, in its argument to the district court, the state did not assert that part of the settlement included the state's independent claim as pleaded by Martin. At this point in the proceedings, the state for the first time raised a subrogation claim under Minn. Stat. ? 256B.37 (2000) for the medical assistance paid.

The district court granted Martin's motion to dismiss the state's claim to any of the settlement proceeds. The court found that, as a result of the assignment in the medical assistance application, neither Martin nor Hoff had any right to recover medical expenses from the defendants. The court then found that the settlement proceeds were Hoff's sole and exclusive property. The court further found that, because federal law bars imposition of a lien on any of Hoff's property during his lifetime and state lien laws permit a lien against Hoff's property, state lien laws conflicted with federal laws and thus were preempted. The court also rejected the state's subrogation claim on the grounds it was also prohibited by the federal anti-lien statute and because it was not timely asserted.

Although the foregoing proceedings were at times confusing, the final outcome in the district court can best be summarized as follows. The court found that Hoff's right to recover medical expenses was completely assigned to the state, leaving Martin, as Hoff's guardian, with no right to collect for medical expenses. Hoff's remaining rights to recover included all of his claims for personal injury damages except for medical expenses. Martin settled all of Hoff's remaining claims arising out of the accident against the three defendants for $220,000. The state released the three defendants from further liability for its claims, apparently relying only on its lien and subrogation rights to recover medical expenses paid on Hoff's behalf. The court then found that the state was not entitled to any of the settlement funds. The court concluded that the state's lien and subrogation rights were preempted by federal law.

The combined result of the settlement agreements, releases, and the district court's order left the state without the ability to recover its medical expenses paid on Hoff's behalf. That...

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