Shewry v. Arnold

• Decision Date: 22 December 2004
• Docket Number: No. B172890.,B172890.
• Citation: 22 Cal.Rptr.3d 488,125 Cal.App.4th 186
• Court: California Court of Appeals Court of Appeals
• Parties: Sandra SHEWRY, as Director, etc., Plaintiff and Respondent, v. Brenda ARNOLD, Defendant and Appellant.

22 Cal.Rptr.3d 488

125 Cal.App.4th 186

Sandra SHEWRY, as Director, etc., Plaintiff and Respondent, v. Brenda ARNOLD, Defendant and Appellant.

No. B172890.

Court of Appeal, Second District, Division 5.

December 22, 2004.

Beverly Hills Law Associates, Steven M. Losh and Angelica M. Leon, Beverly Hills, for Defendant and Appellant.

Bill Lockyer, Attorney General, Doug Press, Acting Senior Assistant Attorney General, John H. Sanders and Jennifer M. Kim, Deputy Attorneys General, for Plaintiff and Respondent.

GRIGNON, J.

Defendant and appellant Brenda Arnold appeals from a summary judgment in favor of Diana M. Bontá, former Director of the Department of Health Services for the State of California (the Department) in this action seeking reimbursement from a special needs trust for health services provided by Medi-Cal to the beneficiary of the trust. Arnold contends the Department may not be reimbursed from the assets of a special needs trust upon the beneficiary's death if the sole recipient of the beneficiary's estate is an adult disabled child. We hold that upon the death of the beneficiary of a special needs trust, any remaining trust assets are treated as part of the beneficiary's estate pursuant to Probate Code section 3605, subdivision (b), and trust assets distributed solely to an adult disabled child are exempt from Medi-Cal reimbursement claims pursuant to Welfare and Institutions Code section 14009.5, subdivision (b)(2)(C). We reverse and order entry of judgment in favor of Arnold.

FACTS AND PROCEDURAL BACKGROUND

Etoria Hatcher was born on March 5, 1935. Her sole living child is Arnold, who is permanently and totally disabled. Arnold has received disability benefits from Social Security since 1986 and is a disabled person as defined in section 1614(a)(3)(A) of the Social Security Act and title 42 of the United States Code, section 1382c(e)(A). Arnold was appointed as conservator of Hatcher's person and estate.

Hatcher intended to apply for Medi-Cal benefits. An individual's entitlement to Medi-Cal benefits depends on the financial resources available to her. Apparently, Hatcher became entitled to receive proceeds from the settlement of a lawsuit. If the settlement proceeds became part of the conservatorship estate, Hatcher would not be eligible for Medi-Cal benefits. Therefore, Arnold, as Hatcher's conservator, petitioned the probate court for approval to create a special needs trust pursuant to Probate Code section 3600 et seq. A special needs trust restricts the trustee's ability to use the trust assets and allows the beneficiary to maintain eligibility for certain needs-based government benefits, such as Medi-Cal. On December 22, 1997, the probate court approved the creation of the trust to be funded with $450,000. The probate court concluded that an irrevocable special needs trust was in Hatcher's best interest and approved Arnold as the settlor and trustee of the trust. The stated intent of the trust was to supplement any benefits that Hatcher might be eligible to receive through government assistance programs. Hatcher was the primary beneficiary of the trust, but had no power to direct Arnold to make distributions. The trust provided that it would terminate upon the depletion of the assets or the death of the beneficiary. If terminated on the death of the beneficiary, the remaining principal and income was to be distributed to Arnold as the only living child of the beneficiary. "However, pursuant to Probate Code section 3604, at the time of termination of the Trust, either by death or depletion of assets, the Trustee shall give notice to the State Department of Health Services, the State Department of Mental Health, the State Department of Developmental Services, and any county or city in this state. All valid liens in favor of these agencies shall first be satisfied before any distribution of remaining [principal] or income is made, even to the extent of exhausting any remaining [principal] or income."

In January 1999, Hatcher applied for the Medi-Cal program. The Department approved the application based on the understanding that the trust would reimburse the Department from the remaining trust assets after Hatcher's death or the trust's termination. The Department provided retroactive coverage to July 1997. From October 1, 1997, through September 20, 1999, the Department paid $90,043.70 through the Medi-Cal program for health care services provided to Hatcher. Hatcher died on September 20, 1999. Arnold withdrew $183,000 from the trust assets on December 13, 1999, and $101,727.23 from the trust assets on October 16, 2000, leaving a balance of $2.31. Arnold did not notify the Department of Hatcher's death.

The Department discovered Hatcher's death as a result of a routine periodic check of the Medi-Cal Eligibility Data System on October 9, 2001. On November 9, 2001, the Department wrote to Arnold and demanded $90,043.70 from the remainder of the trust. Arnold wrote to the Department and explained that she was Hatcher's sole surviving child and was disabled, and therefore, any property distributed to her was exempt from reimbursement claims. She refused to pay the Department's claim.

On December 23, 2002, the Department filed a complaint against Arnold, as the recipient of property from a Medi-Cal beneficiary, to enforce and collect money due on a Medi-Cal creditor's claim pursuant to Probate Code section 3605. On August 13, 2003, the Department filed a motion for summary judgment. On August 15, 2003, Arnold filed a motion for summary judgment. A hearing was held. On December 15, 2003, the trial court entered judgment in favor of the Department and ordered Arnold to pay $90,043.70, plus interest and costs, to the Department. Arnold filed a timely notice of appeal.

DISCUSSION

Standard of Review

A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiff's asserted causes of action can prevail. (Salazar v. Upland Police Dept. (2004) 116 Cal.App.4th 934, 941, 11 Cal.Rptr.3d 22.) We review orders granting or denying a summary judgment motion de novo. (FSR Brokerage, Inc. v. Superior Court (1995) 35 Cal.App.4th 69, 72, 41 Cal.Rptr.2d 404; Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 579, 37 Cal.Rptr.2d 653.) We exercise "an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law." (Iverson v. Muroc Unified School Dist. (1995) 32 Cal.App.4th 218, 222, 38 Cal. Rptr.2d 35.)

Statutory Interpretation

"In interpreting a statute, we apply the usual rules of statutory construction. `We begin with the fundamental rule that our primary task is to determine the lawmakers' intent. [Citation.] ... To determine intent, "`The court turns first to the words themselves for the answer.'" [Citations.] "If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (in the case of a statute)...."' [Citation.] We give the language of the statute its `usual, ordinary import and accord significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. A construction making some words surplusage is to be avoided. The words of the statute must be construed in context, keeping in mind the statutory purpose.... Both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent.'" (Kane v. Hurley (1994) 30 Cal. App.4th 859, 862, 35 Cal.Rptr.2d 809.)

Medicaid

"Medicaid (42 U.S.C., § 1396 et seq. [tit. XIX of the Social Security Act; `Grants to States For Medical Assistance Programs'])" is a federal program that enables states to provide medical assistance to impoverished individuals who are aged, blind, disabled, or families with dependent children. (Mission Community Hospital v. Kizer (1993) 13 Cal.App.4th 1683, 1688, 17 Cal.Rptr.2d 303.) "`"The program is optional, but once a state decides to participate it must comply with the federal government's requirements, listed at 42 U.S.C. § 1396a." [Citations.]'" (Ibid.) "The Medi-Cal program is the California implementation of the federal Medicaid program.... [The Department] is the state agency charged with administration of the Medi-Cal program." (Id. at p. 1687, 17 Cal.Rptr.2d 303.) "As a Medicaid program, California's Medi-Cal program must therefore conform to federal Medicaid statutes and regulations. [Citation.]" (Id. at p. 1689, 17 Cal.Rptr.2d 303.)

State plans for medical assistance must comply with the federal Medicaid provisions "with respect to liens, adjustments and recoveries of medical assistance correctly paid, transfers of assets, and treatment of certain trusts." (42 U.S.C., § 1396a(a)(18).) Title 42 of the United States Code section 1396p(d)(1) governs the treatment of trust assets for purposes of determining an individual's eligibility for benefits under a state plan. In general, trust assets are considered in determining an individual's income and asset eligibility for benefits. However, this eligibility subsection does not apply to a trust established for the benefit of a disabled individual under age 65, such as a special needs trust, "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...." (42 U.S.C., § 1396p(d)(4)(A).) Title 42 of the United States Code section 1396p(b)(1) provides that the state must seek adjustment or recovery of any medical assistance paid on behalf of certain individuals from the individual's estate. The term "estate" includes all assets that are part of the individual's estate under state...