Nacino v. Chandler

• Decision Date: 11 September 2002
• Docket Number: No. 23572.,23572.
• Citation: Nacino v. Chandler, 101 Haw. 473, 71 P.3d 424 (Haw. App. 2002)
• Parties: Gerry NACINO, Appellant-Appellee, v. Susan M. CHANDLER, Director, Department of Human Services, State of Hawai'i, Appellee-Appellant.
• Court: Hawaii Court of Appeals

71 P.3d 424

101 Haw. 473

Gerry NACINO, Appellant-Appellee, v.Susan M. CHANDLER, Director, Department of Human Services, State of Hawai'i, Appellee-Appellant.

No. 23572.

Intermediate Court of Appeals of Hawai'i.

September 11, 2002.

Certiorari Granted October 21, 2002.

Michael S. Vincent, Deputy Attorney General, State of Hawai`i, on the briefs, for appellee-appellant.

Howard Glickstein, Honolulu, on the briefs, for appellant-appellee.

BURNS, C.J., WATANABE, and FOLEY, JJ.

Opinion of the Court by WATANABE, J.

The sole issue presented by this appeal is whether the Circuit Court of the First Circuit (the circuit court) properly reduced from $141,422.19 to $21,213.33 the medical assistance lien which the State of Hawai'i, Department of Human Services(DHS) held pursuant to Hawaii Revised Statutes (HRS) § 346-37(1993& Supp.1997) against the $600,000.00 in settlement proceeds that Appellant-AppelleeGerry Nacino(Nacino), a Medicaid benefits recipient, recovered from a third-party tortfeasor.

We conclude that the circuit court incorrectly reduced DHS's medical assistance lien amount.Accordingly, we reverse that portion of the Final Judgment.The Final Judgment is affirmed in all other respects.¹

BACKGROUND

The relevant facts in this case are not in dispute.On March 15, 1996, Nacino, who was twenty-two years old, suffered severe and permanent brain and orthopedic injuries when a moped on which he was a passenger and which was being driven by a seventeen-year-old acquaintance, Troy Sunio(Sunio), collided with a pick-up truck owned by the City and County of Honolulu(the City).Nacino's damages as a result of his injuries included: severe pain and suffering; emotional distress; loss of enjoyment of life; loss of wages and/or lifetime earning capacity; and medical, hospital, rehabilitative, attendant, institutional, nursing, and life care costs.²

Pursuant to applications submitted by Nacino or on his behalf, DHS paid for all of Nacino's medical care and treatment expenses arising out of the moped incident.Each of these applications included one of the following assignment of rights provisions, as required by HRS § 346-29(c)(Supp. 2001)³:

(6) ASSIGNMENT AND AGREEMENT:

Assignment of rights: I understand that by applying for medical assistance, I am assigning to the State of Hawaii[(the State)], my rights to medical support or any other third party payments for medical care the entire time I am receiving assistance.

(7) ASSIGNMENTS AND AGREEMENT:

• ASSIGNMENT OF RIGHTS: ... I am assigning to the [State] my rights to any third party payments for medical care.I will cooperate in obtaining third party payments.I must use my household's private medical coverage before Medicaid will help with eligible costs.

Nacino also executed a separate DHS Assignment of Payment form, which provided, in pertinent part:

FOR VALUE RECEIVED, [Nacino] hereby hereby [sic] assigns to [DHS] ... and authorizes any of my representatives, agents, attorneys or insurers to pay to DHS, from any money due me as compensation for injuries received in, and medical costs incurred as a result of, an accident or incident on or about March 15, 1996 a sum of money equal to that paid by DHS for my hospital, medical and other similar expenses necessitated by said accident or incident.

Should compensation for my injuries received in the above referenced accident be paid to me directly, I agree to reimburse [DHS] the medical costs paid on my behalf as a result of said accident from any judgment, settlement or insurance proceeds received.

On June 28, 1996, Nacino, by his guardian ad litem, filed a lawsuit in the circuit court against Sunio and the City, seeking to recover damages from Sunio and the City as a result of the March 15, 1996 accident.Although authorized by HRS § 346-37(c)(Supp.1997)⁴ to intervene in the lawsuit, DHS did not do so.However, DHS did provide numerous notices to the attorneys representing the parties to the lawsuit, as well as interested insurers and other interested parties, that it held an assignment of Nacino's rights in any recovery and would pursue reimbursement due to it at the appropriate time.DHS also filed a notice in Nacino's lawsuit of DHS's "medical assistance lien existing pursuant to [HRS]§ 346-37, for medical payments made on behalf of [Nacino]."

There were significant weaknesses in Nacino's case against the City.Regarding liability, the only competent witnesses to the accident were the driver and passenger of the City pick-up truck, who both claimed that the moped was speeding and on the wrong side of the road when the accident occurred.Although Nacino disputed these witnesses' claim, proving his position would be difficult, since Sunio had "disappeared" before he could be deposed and Nacino himself had very limited recollection of the accident.In addition, the City was prepared to offer evidence that: Nacino and Sunio had been trespassing at the time of the accident; the moped was a stolen vehicle that had been "jury-rigged" to the moped's battery in order to be operable; and Nacino was contributorily negligent for not wearing a helmet or other form of protection and for riding on the back of the moped, which, by law, was allowed to carry only one person, the driver.

By a letter dated March 24, 1998, Nacino's attorney informed DHS's attorney of a proposal by the City's attorney to recommend settlement of Nacino's case for $600,000.00 and sought from DHS "a waiver or, if that is not possible, a very substantial discounting of [DHS's] lien in this matter," which at the time, amounted to $141,422.19.Nacino's attorney also proposed establishing a "special needs trust"⁵ for the benefit of Nacino, explaining, in part, as follows:

The great advantage this trust has is that it would allow [Nacino] to continue to receive the safety net benefits he currently receives, and the proceeds from the trust, administered by a trustee, could be used to benefit him in ways the government programs do not, by, for example, providing attendant care or companion services which he needs because he is subject to seizures, despite the fact that he is on two anti-seizure medications....[Nacino's] girlfriend had to quit work in order to take care of him and be with him during the days, and the trust proceeds could be used to relieve her of this responsibility, in order to allow her to return to school to pursue her desire to be an accountant.I am also advised that it might be possible for the trust to purchase a modest apartment or residence for them; and that pursuant to statute, that residence, if purchased, would be the source of reimbursement to the State.In confidence, my client has expressed interest in a settlement at that amount, if it is possible to get a waiver of the State's lien in this matter.With a waiver, the amount that would be available to fund the trust after attorney's fees and costs would be somewhere in the neighborhood of $350-360,000.00.

On the other hand, if the lien must be repaid, the amount available to fund the trust would be about $210-220,000.00.At this figure, the purchase of a residence would be out of the question, in that it would use up all or nearly all of the trust proceeds, leaving nothing for the balance of [Nacino's] life.If the lien has to be repaid, it might well make the difference between my client's agreement to settlement at the figure suggested by the City, or his decision to "roll the dice" and go to trial, even though our chances of doing as well or better than the City's offer are slim....[I]n this particular case, I know that if we are unsuccessful in the case, there is no possibility of recovering the costs from my client, so on that level, a decision to roll the dice is, from his point of view, not affected by any responsibility to reimburse us for costs.

By a letter dated March 25, 1998, DHS's attorney responded that DHS was "unable to agree to a reduction" of its lien because by federal law, DHS was required to seek reimbursement from a liable third party unless DHS determined that "[r]ecovery efforts ... are not cost effective."(Citing42 Code of Federal Regulations (CFR)§ 433.139(f)(1).)Furthermore, federal financial participation in the Medicaid program would not be available to the State if it "fails to fulfill the requirements of 42 CFR §§ 433.138and433.139 with regard to establishing liability and seeking reimbursement from third parties."DHS's attorney noted that even if DHS's lien were paid in full, Nacino would still receive $210,000.00 to $220,000.00⁶ and expressed concern about Nacino's attorney's statement that if DHS's lien had to be repaid, Nacino may decide "to `roll the dice' and go to trial[.]"DHS's attorney reminded Nacino's attorney that

[when Nacino] applied for medical assistance, he agreed to cooperate in obtaining third party payments....[Nacino's] cooperation in obtaining third party payments is a requirement for him to receive, or continue receiving, medical assistance from the State....

....

By law, [Nacino] is required to cooperate and assist the State in recovering third party payments.Failure to cooperate as required can result in a denial, or termination, of medical assistance benefits pursuant to § 17-1705-10(a),Hawaii Administrative Rules[.]

....

You should note that there is little discretion in § 17-1705-10(a),Hawaii Administrative Rules.If it is determined that a claimant has refused to cooperate in obtaining third party benefits and the claimant is unable to establish good cause, [DHS] must deny or terminate medical assistance.

By law, [Nacino] is required to assist the State in recovering third party payments unless good cause exists.You should note that in these types of cases, dismissing a third party case by a claimant unless the claimant is sufficiently compensated does not constitute good cause.Likewise, the State would be very concerned if a claimant was given a substantial settlement offer and

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