Tristani v. Richman

• Decision Date: 29 June 2011
• Docket Number: 09–3538.,Nos. 09–3537,s. 09–3537
• Citation: 652 F.3d 360
• Parties: Rita L. TRISTANI, by and through her Attorney in Fact, Maria C. KARNES; Joshua C. Valenta, individually, and on behalf of others similarly situated; A.H., individually and as parents and natural guardian of A.H., a minorv.Estelle RICHMAN, in both her individual and official capacity; Feather O. Houston, in her individual capacity,Estelle Richman, in both her individual and official capacity; Feather O. Houston, in her individual capacity, Appellants in 09–3537Rita L. Tristani, by and through her Attorney in Fact, Maria C. Karnes; Joshua C. Valenta, individually, and on behalf of others similarly situated, Appellants in 09–3538.
• Court: U.S. Court of Appeals — Third Circuit

652 F.3d 360

Rita L. TRISTANI, by and through her Attorney in Fact, Maria C. KARNES; Joshua C. Valenta, individually, and on behalf of others similarly situated; A.H., individually and as parents and natural guardian of A.H., a minor

v.Estelle RICHMAN, in both her individual and official capacity; Feather O. Houston, in her individual capacity,Estelle Richman, in both her individual and official capacity; Feather O. Houston, in her individual capacity, Appellants in 09–3537Rita L. Tristani, by and through her Attorney in Fact, Maria C. Karnes; Joshua C. Valenta, individually, and on behalf of others similarly situated, Appellants in 09–3538.

Nos. 09–3537

09–3538.

United States Court of Appeals, Third Circuit.

Argued April 15, 2010.Filed: June 29, 2011.

Patrick J. Loughren [Argued], Loughren, Loughren & Loughren, Robert F. Daley, D. Aaron Rihn, Robert Peirce & Associates, Pittsburgh, PA, Veronica A. Richards, Richards & Richards, Warrendale, PA, for Appellees/Cross–Appellants.Jason W. Manne [Argued], Office of General Counsel, Department of Public Welfare, Pittsburgh, PA, for Appellants/Cross–Appellees.Before: SLOVITER, and HARDIMAN, Circuit Judges and POLLAK ^*, District Judge.

OPINION OF THE COURT

HARDIMAN, Circuit Judge.

In 1965, Congress amended the Social Security Act to create a program for states to assist the poor with their medical expenses. Through this program, known as Medicaid, the fifty states pay medical expenses on behalf of qualified beneficiaries. For more than thirty years, in circumstances where third parties are liable for such medical expenses, the Pennsylvania Department of Public Welfare (DPW) has recouped its expenditures by asserting liens against future settlements or judgments. In Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 280 n. 9, 291–92, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006), the Supreme Court assumed without deciding that such liens, when limited to the portion of a settlement or judgment constituting reimbursement for medical costs, are an implied exception to the federal law prohibiting states from imposing liens on the property of Medicaid beneficiaries. We now must decide whether these liens in fact constitute such an exception.

I

This appeal involves a putative class action filed by three Pennsylvania Medicaid beneficiaries subject to DPW liens. The District Court certified a question for interlocutory review pursuant to 28 U.S.C. § 1292(b), asking us to determine whether state agencies responsible for administering the Medicaid program have the authority to assert such liens and, if so, whether Pennsylvania's statutory framework is consistent with the Supreme Court's decision in Ahlborn.

We begin by reviewing the facts of the state court cases filed by each of the three plaintiffs (collectively, the Beneficiaries).

A

Rita L. Tristani underwent a bunionectomy in 1999 that resulted in pain and discoloration in her leg. Her surgeon suspected that she was suffering from deep venous thrombosis, and immediately referred her to the hospital. Upon her arrival, Tristani was examined by a medical resident who misdiagnosed her condition as superficial thrombophlebitis. Roughly one week after the misdiagnosis, Tristani suffered a massive pulmonary embolism and stroke, which left her partially paralyzed, disfigured, and brain-damaged. Consequently, Tristani resides in a facility where she receives full-time medical care.

Tristani was eligible for assistance under Pennsylvania's Medicaid program, and the DPW—the state agency responsible for administering Medicaid—paid for her medical care. In September 2001, Tristani filed a medical malpractice action in which she sought, inter alia, the costs of medical expenses that had been paid on her behalf by the DPW. Approximately two months after the complaint was filed, the DPW wrote Tristani's counsel that, as a recipient of medical assistance, Tristani had assigned her right to recover medical expenses to the DPW. In May 2002, Tristani preliminarily settled her malpractice claim for $5.2 million. Thereafter, seeking to recoup funds it had expended for Tristani's medical care, the DPW sent Tristani's counsel another letter asserting a lien of $247,514.98 against her settlement. The agency later reduced this lien by 40% to $148,508.99 to bear its proportionate share of Tristani's contingency fee obligation to her counsel. On June 2, 2005, the state trial court issued an order directing payment of the DPW's lien in full.

In January 2005, Joshua Valenta was injured in a traffic accident and suffered relatively minor, but permanent injuries. Valenta was eligible for government assistance, and the DPW paid $15,539.61 for his medical expenses.¹ Following his accident, Valenta sued the tortfeasor, whose insurance carrier settled the case for $130,000. In April 2005, the DPW sent Valenta's attorney a letter informing him that, as counsel for a Medicaid recipient in a third-party liability tort action, Pennsylvania law required him to satisfy the DPW's claim prior to making a distribution to his client. In August 2005, the DPW sent another letter asserting a lien for $15,581.56 against Valenta's settlement, which it reduced to $10,000 to account for attorneys' fees. Valenta's attorney promptly mailed the DPW a check for $10,000 to satisfy the lien.

A.H. is a young girl who suffered brain injuries following surgery to correct a congenital heart defect. The DPW enrolled A.H. in an MCO and paid capitation fees totaling $25,095.91 on her behalf. The MCO's payments to A.H.'s health care providers totaled $171,617.18. The DPW also paid $1,458.10 on a fee-for-service basis for A.H.'s benefit. In June 2005, A.H. filed a medical malpractice claim against her doctors, which was settled in April 2007 for an undisclosed amount. After the settlement, the DPW asserted a lien for $106,306.88 to reflect the cost of her medical care, less attorneys' fees and pro-rata costs. A.H. challenged the validity of the DPW's lien, and, instead of paying the lien directly, A.H.'s mother obtained court approval to place the disputed funds in an escrow account pending the outcome of this litigation. ²

B

In May 2006, Tristani and Valenta commenced a putative class action in the District Court against: Estelle B. Richman, Pennsylvania's Secretary of Public Welfare; Feather Houston, Richman's predecessor; and the DPW. Tristani and Valenta sought a refund of their payments to the DPW, as well as declaratory and injunctive relief invalidating Medicaid liens generally. They argued that the DPW's claims were prohibited by the anti-lien and anti-recovery provisions of the Social Security Act. See 42 U.S.C. § 1396p(a)–(b). Alternatively, they asserted that Pennsylvania's scheme for recouping medical expenses from Medicaid recipients was impermissible under the Supreme Court's holding in Ahlborn.³

Several months after Tristani and Valenta commenced their action, Richman and Houston (collectively, the Secretaries) filed a motion to dismiss. Following two amendments to the complaint, the Secretaries again filed a motion to dismiss and, after oral argument, the District Court denied their motion without prejudice.

In April 2008, Richman and Houston filed a motion for summary judgment. The next day, Tristani and Valenta filed a motion for partial summary judgment in which they sought a declaration that: (1) Pennsylvania's practice of asserting Medicaid liens is invalid; (2) the DPW's ability to recover medical payments made by MCOs is limited to the capitation payments made by the State; and (3) Pennsylvania's current method of determining the portion of a settlement that constitutes medical costs violates the Supreme Court's holding in Ahlborn.

The District Court issued a comprehensive opinion denying Tristani and Valenta's motion for partial summary judgment and granting in part and denying in part the Secretaries' motion. The District Court determined that federal law prohibits the DPW from asserting liens against third-party recoveries obtained by Medicaid beneficiaries. Nevertheless, the District Court denied Tristani's and Valenta's claims for monetary damages, holding that the Secretaries were entitled to qualified immunity. The District Court also held that Pennsylvania's practice of apportioning settlements between medical costs and other portions of the recovery was permissible under Ahlborn. The Court denied the Secretaries' motion for summary judgment as to Tristani's and Valenta's claims for declaratory and injunctive relief, but noted an unresolved issue regarding their standing to seek equitable relief.

After the District Court issued its order, the parties filed a joint motion to add a party to cure the potential standing problem. The Court permitted the parties to add A.H. who, both parties agreed, had standing with respect to the remaining issues. The District Court thus amended its prior order to deny the Secretaries' motion for summary judgment with regard to the validity of 62 Pa. Stat. Ann. § 1409(b)(7)—Pennsylvania's statutory mechanism for attaching liens to recoveries made by Medicaid beneficiaries—and granted the parties' motion to certify an interlocutory appeal pursuant to 28 U.S.C. § 1292(b).

II

Although the parties agree that we have jurisdiction over this interlocutory appeal, we “have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party.” Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (internal citation omitted). The District Court had jurisdiction over the Beneficiaries' federal claims pursuant to 28 U.S.C. § 1331, and exercised supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. § 1367(a).

The District Court certified an interlocutory appeal to this Court pursuant to 28 U.S.C. § 1292(b), which provides:

[w]hen a district judge, in making in a civil action an order not...