Merer by Merer v. Romoff

• Decision Date: 08 January 1997
• Citation: 172 Misc.2d 807,660 N.Y.S.2d 241
• Parties: Allyson B. MERER, an Infant, by Her Parents and Natural Guardians, Donna MERER, et al., Plaintiffs, v. Adam J. ROMOFF, et al., Defendants.
• Court: New York Supreme Court

Page 241

660 N.Y.S.2d 241

172 Misc.2d 807

Allyson B. MERER, an Infant, by Her Parents and Natural Guardians, Donna MERER, et al., Plaintiffs, v. Adam J. ROMOFF, et al., Defendants.

Supreme Court, New York County.

Jan. 8, 1997.

Schneider, Kleinick, Weitz, Damashek & Shoot, New York City, for Plaintiffs.

Paul A. Crotty, Corporation Counsel of New York City, for Department of Social Services of City of New York.

Douglas R. Israel, Bellmore, for Commissioner of Social Services of City of New York.

BEVERLY S. COHEN, Justice.

Plaintiffs Donna and Barry Merer, individually and as the parents and natural guardians of Allyson B. Merer, move for an order approving the proposed settlement of this personal injury action, and vacating the lien of the New York City Department of Social Services (the "Department") against the settlement proceeds.

This action arose out of the alleged medical malpractice of defendants during the birth of infant plaintiff Allyson Merer in 1991, which resulted in her severe mental retardation. Plaintiffs and defendants have entered into a tentative settlement of $1,750,000. Plaintiffs seek approval of the settlement, and to establish a special needs trust for the benefit of Allyson Merer with the proceeds of the settlement. Plaintiffs also seek to extinguish the Department's lien in this matter, which represents the cost of Medical Assistance ("Medicaid") rendered on behalf of Allyson Merer from January 1992 to the present. The Department has notified plaintiffs of a preliminary lien in the amount of $500.00, but alleges that this amount has increased, and that an exact figure will soon be obtained from the State Department of Social Services. Plaintiffs also seek leave to pay their legal fees, plus disbursements, from the proceeds of the settlement. They also request approval of the compromise and payment from the settlement of their claim for loss of services in the amount of $15,944.93. ¹

The Department does not object to the amount of the settlement or to plaintiffs' request to create a special needs trust, but opposes plaintiffs' attempt to vacate the Medicaid lien. The Department contends that its lien should be paid from the settlement proceeds before the special needs trust is created. Alternatively, in the event that the lien is not required to be paid prior to the establishment of the trust, the Department seeks the appointment of an additional trustee to preserve its interest in the trust principal.

For the reasons set forth below, there is no basis to vacate the Department's lien in this matter. However, this lien need not be paid prior to the establishment of the proposed supplemental needs trust.

Pursuant to Social Services Law § 104(1), a "public welfare official," under whose authority public assistance has been provided to an individual who is later discovered to have property, is "deemed a preferred creditor" of the individual to whom such assistance has been provided and may "bring [an] action or proceeding" against such individual on the theory that the assistance was furnished under "an implied contract" (Hoke v. Ortiz, 83 N.Y.2d 323, 610 N.Y.S.2d 455, 632 N.E.2d 861, cert. denied, 513 U.S. 865, 115 S.Ct. 182, 130 L.Ed.2d 117 (1994); Social Services Law § 104[1] ). Social Services Law § 104-b(1) deals with recipients of public assistance who "have a right of action ... on account of ... personal injuries," and empowers social service agencies to establish a lien, for the amount of public assistance furnished, in personal injury actions brought by a recipient of public assistance (see Pasciuta v. Forbes, 190 A.D.2d 375, 598 N.Y.S.2d 395 (3d Dept.1993) ). Such lien, subject to certain conditions, attaches "to any verdict, decision, decree, judgment, award or final order in any suit, action or proceeding ... respecting such [personal] injuries" (Social Services Law § 104-b[3] ).

It is this lien which the Department seeks to enforce, and which plaintiffs seek to have discharged. Plaintiffs argue that the proceeds of the personal injury action are immune from the lien to the extent that those proceeds are destined to become the corpus of a "supplemental needs trust."

Prior to the Omnibus Budget Reconciliation Act of 1993 (Pub.L. 103-66) ("OBRA"), which amended the federal Medicaid statute, a special needs trust would render the beneficiary ineligible for federal and state medical assistance, because the establishment of these trusts was considered an improper transfer of what might otherwise be considered resources for medical care (see Application of Moretti, 159 Misc.2d 654, 606 N.Y.S.2d 543 (Sup.Ct., Kings County 1993) ). The 1993 amendments to the federal Medicaid statute now permit the creation of a special needs trust, which is exempt from consideration in determining Medicaid eligibility, if the trust provides that the state shall receive the assets remaining at the disabled person's death up to the amount of all public medical assistance provided (see 42 U.S.C. § 1396p[d][4][A] ).

Under New York law, Social Services Law § 366(2)(b)(2), which essentially mirrors OBRA, delineates the circumstances under which the corpus of a trust will be deemed an available resource, or where the income from a trust will be considered income, for the purposes of medical eligibility. The conditions under which a special needs trust can be created, without triggering the beneficiary's disqualification for medicaid benefits, are defined in § 366(2)(b)(2)(iii)(A), which provides that:

[I]n the case of an applicant or recipient who is disabled, as such term is defined in section 1614(a)(3) of the federal social security act, the department must not consider as available income or resources the corpus or income of the following trusts which comply with the provisions of the regulations authorized by clause (iv) of this subparagraph: (A) a trust containing the assets of such a disabled individual which was established for the benefit of the disabled individual while such individual was under sixty-five years of age by a parent, grandparent, legal guardian, or court of competent jurisdiction, if upon the death of such individual the state will receive all amounts remaining in the trust up to the total value of all medical assistance paid on behalf of such individual....

Thus, Social Services Law § 366(2)(b)(2)(iii)(A) precludes local welfare officials from considering as available income or resources, the corpus or income which a disabled party, otherwise eligible for Medicaid, derives from a supplemental needs trust. Consequently, the proceeds recovered on claims prosecuted by disabled plaintiffs will not affect that person's eligibility for Medicaid or other government entitlement, if such proceeds are deposited in a supplemental needs trust established in accordance with the provisions of this statute.

Here, plaintiffs contend that the Department's lien must be vacated because Allyson Merer is an infant and is thus not subject to the lien. Plaintiffs' argument, however, is unavailing. No exceptions for infants are set forth in Social Services Law § 366(2)(b)(2)(iii)(A), and the statute specifically requires supplemental needs trusts to provide for repayment of all medical assistance after the death of the beneficiary. Moreover, the overriding purpose of Social Services Law § 104-b, which authorizes the lien, is to facilitate recoupment of public funds by social services agencies (Kidney v. Kolmar Labs., 68 N.Y.2d 343, 509 N.Y.S.2d 491, 502 N.E.2d 168 (1986) ). Plaintiffs' further argument--that the lien must be vacated because the settlement only reflects reimbursement for pain and suffering and not medical expenses--is similarly unavailing. Social Services Law § 104-b specifically authorizes a lien for personal injury actions.

Having established that the Department's lien is valid, the Department's arguments must now be dealt with. The Department contends that, prior to the establishment of the special needs trust, the Medicaid lien must be satisfied from the proceeds of the within settlement. However, in Cricchio v. Pennisi, 220 A.D.2d 100, 640 N.Y.S.2d 573 (2d Dept.1996), the court specifically held that "the satisfaction of a preexisting Medicaid lien is not a precondition to the funding of a supplemental needs trust" (Id. at 108, 640 N.Y.S.2d 573; accord Link v. Town of Smithtown, 226 A.D.2d 351, 640 N.Y.S.2d 768 (2d Dept.1996); Samerson v. Mather Mem. Hosp., 166 Misc.2d 228, 632 N.Y.S.2d 948 (Sup.Ct., Suffolk County 1995); Rosado v. Perez, 11/3/95 N.Y.L.J. [Sup.Ct., Suffolk County] [at 39, col 6] [Doyle, J.] ).

In Cricchio, Justice Bracken noted that when the Legislature amended the Social Services Law in 1994 to permit the establishment of supplemental needs trusts to hold the assets of a disabled person without having the funds diminish the person's eligibility for Medicaid benefits, it deliberately chose not to require the repayment of Medicaid benefits received by the person before establishing the trust. The proposed amendments to Social Services Law § 366(2)(b)(2)(iv), which authorizes the promulgation of regulations to carry out the provisions of the statute, are illustrative. These proposed amendments required that liens for past medical assistance had to be satisfied from personal injury recoveries before a special needs trust would be deemed exempt from Medicaid eligibility. The version of Social Services Law § 366(2)(b)(2)(iv) which was ultimately signed into law, however, is devoid of any such limitation. Justice Bracken concluded that "[t]he failure of the legislature to include any such provision in the final version of the law indicates an intent to allow the funding of such trusts even prior to the satisfaction of existing Medicaid liens" (Cricchio v. Pennisi, supra, at 108, 640 N.Y.S.2d 573; Matter of Gibson, 162 Misc.2d 530, 616 N.Y.S.2d 171 (Sup.Ct., Nassau County 1994); aff'd sub nom. Link v. Town of Smithtown, 226 A.D.2d 351, 640 N.Y.S.2d...