Tyler v. Douglas

• Decision Date: 16 October 2001
• Docket Number: Docket No. 00-7839.
• Citation: 280 F.3d 116
• Parties: Lawrence TYLER, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. James H. DOUGLAS, Tobacco Settlement Escrow Agent, in his official capacity, William H. Sorrell, Attorney General of Vermont, in his official capacity, Eileen Elliot, Commissioner, Vermont Department of Social Welfare, in her official capacity and Lori Collins, Third Party Liability Supervisor, Vermont Department of Social Welfare, in her official capacity, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

280 F.3d 116

Lawrence TYLER, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. James H. DOUGLAS, Tobacco Settlement Escrow Agent, in his official capacity, William H. Sorrell, Attorney General of Vermont, in his official capacity, Eileen Elliot, Commissioner, Vermont Department of Social Welfare, in her official capacity and Lori Collins, Third Party Liability Supervisor, Vermont Department of Social Welfare, in her official capacity, Defendants-Appellees.

Docket No. 00-7839.

United States Court of Appeals, Second Circuit.

Argued May 1, 2001.

Decided October 16, 2001.

Antonio Ponvert III, Koskoff Koskoff & Bieder, P.C., Bridgeport, Conn. (Michael E. Cassidy, Richard T. Cassidy, Hoff, Curtis, Pacht, Cassidy & Frame, P.C., Burlington, Vt., on the brief), for plaintiffs-appellants.

Joseph L. Winn, Asst. Atty. Gen., Montpelier, Vt. (Donelle Staley, Julie Brill, Asst. Atty. Gen., Montpelier, Vt., on the brief), for defendants-appellees.

(Frankie Sue Del Papa, Atty. Gen., Reno, Nev., John Albrecht, Senior Dep. Atty. Gen., Reno, Nev., submitted a brief, in support of defendants-appellees, for amici curiae the States of Nevada, et al.).

Before: NEWMAN and CABRANES, Circuit Judges, and THOMPSON,^* District Judge.

THOMPSON, District Judge.

In July 1998, the State of Vermont filed a lawsuit against manufacturers of tobacco products, seeking reimbursement of Medicaid expenditures made by the State for tobacco-related health conditions. Vermont had filed a separate lawsuit asserting other claims in May 1997, and in November 1998, Vermont settled all of its litigation against the tobacco manufacturers pursuant to a Master Settlement Agreement. The claims of over 40 other states and governmental entities that were pursuing a variety of causes of action against tobacco manufacturers were also settled pursuant to that agreement. The claims settled by Vermont under the terms of the Master Settlement Agreement are much broader in scope than the claims asserted by the State in its lawsuits. The amount of money to be paid to Vermont pursuant to the Master Settlement Agreement will far exceed Medicaid expenditures by the State for tobacco-related health conditions.

Plaintiff Lawrence Tyler is a citizen of the State of Vermont who suffers from a tobacco-related health condition and has received medical assistance benefits for that condition through Vermont's Medicaid program. Tyler brought this action for a declaratory judgment and injunctive relief on behalf of all similarly situated persons, seeking to obtain the portion of the payments to Vermont under the Master Settlement Agreement in excess of that necessary to reimburse the State for its Medicaid expenditures for tobacco-related health conditions.

Tyler claims that the federal and Vermont laws governing the State's participation in the Medicaid program require that Vermont disburse the payments it receives under the Master Settlement Agreement in accordance with the provisions of 42 U.S.C. § 1396k(b). Each of the claims for relief set forth in his complaint is premised on this contention. The defendants moved to dismiss Tyler's complaint. The United States District Court for the District of Vermont (J. Garvan Murtha, Chief Judge) granted the motion to dismiss, finding that the plaintiff's claim was barred by the Eleventh Amendment as well as by 42 U.S.C. § 1396b(d)(3)(B)(ii), and finding that the complaint should also be dismissed for a number of other reasons. We conclude that the plaintiff's claim is barred by 42 U.S.C. § 1396b(d)(3)(B)(ii), and we affirm the judgment of the District Court on that basis and do not decide the question of whether the plaintiff's complaint is barred by the Eleventh Amendment.

BACKGROUND

Medicaid is a joint federal and state cost-sharing program to finance medical services to low-income people. See Medicaid Act (Title XIX of the Social Security Act), 42 U.S.C. §§ 1396, 1396a-1396u (1992 & West Supp.2000). The Centers for Medicare and Medicaid Services (formerly known as the "Health Care Financing Administration"¹) of the United States Department of Health and Human Services ("HHS") is the federal agency which administers the Medicaid program at the federal level by promulgating regulations which implement the Medicaid program and which are binding on participating states.

Although participation in the program is voluntary, participating States must comply with certain requirements imposed by the Act and regulations promulgated by the Secretary of [HHS]. To qualify for federal assistance, a State must submit to the Secretary and have approved a "plan for medical assistance," § 1396a(a), that contains a comprehensive statement describing the nature and scope of the State's Medicaid program. 42 C.F.R. § 430.10 (1989).

Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). See also Concourse Rehab. & Nursing Ctr. v. Whalen, 249 F.3d 136, 139 (2d Cir.2001).

The Medicaid Act requires that a state plan must provide that "the State ... must take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan...." 42 U.S.C.A. § 1396a(a)(25)(A) (West Supp.2000). A state plan must also provide that "in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State ... will seek reimbursement for such assistance to the extent of such legal liability." 42 U.S.C.A. § 1396a(a)(25)(B) (West Supp.2000).

The amount of federal funding in a state's program is determined by a statutory formula set forth in 42 U.S.C. §§ 1396b(a) and 1396d(b). Section 1396b(d) provides for federal payments to each state made via quarterly advances based on the state's estimated expenditures. In estimating a state's expenditures, an adjustment is made to reflect overpayments or underpayments. See 42 U.S.C. § 1396b(d). Generally, amounts collected from third parties in compliance with 42 U.S.C. § 1396a(a)(25) are treated as overpayments to the extent that they exceed the amount necessary to reimburse the state for its expenditures, see 42 U.S.C. § 1396b(d)(2)(B), and the pro rata share to which the federal government is equitably entitled of the net amount recovered by a state during any quarter with respect to medical assistance furnished under that state's plan is also treated as an overpayment, see 42 U.S.C. § 1396b(d)(3)(A). Treatment of such amounts as overpayments decreases the amount the federal government must pay to the state. See 42 U.S.C. § 1396b(d)(2)(A).

The Medicaid Act also requires, in connection with a state's obligation to seek reimbursement from legally liable third parties, that a state plan must provide for "mandatory assignment of rights of payment for medical support and other medical care owed to recipients in accordance with [42 U.S.C. § 1396k]." 42 U.S.C.A. § 1396a(a)(45) (West Supp.2000). Section 1396k provides that:

(a) For the purpose of assisting in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this subchapter, a State plan for medical assistance shall —

(1) provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required —

(A) to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this subchapter and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment of medical care from any third party;

(b) Such part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.

42 U.S.C.A. § 1396k (West Supp.2000).

Vermont enacted specific statutes and adopted specific policies and procedures to enable it to comply with its obligations under the Medicaid Act. For instance, in connection with § 1396k, Vermont requires all Medicaid applicants and recipients to sign, as a condition of eligibility, form DSW 202, which contains an assignment to the State of all rights of payment by third persons for medical support and other medical care for the recipient. Also, Vermont enacted 33 V.S.A. § 1907, a statute giving the State, in any case where a third person has a legal liability to make payment for expenses covered under the State's Medicaid program, subrogation rights to payment to the extent the State has made payment for such covered expenses. Vt. Stat. Ann. tit. 33, § 1907 (2000).

In May 1997, Vermont sued manufacturers of tobacco products in state court in Vermont, alleging public health and consumer fraud violations and seeking monetary, equitable and injunctive relief. Then, in April 1998, Vermont enacted a new statute, 33 V.S.A. § 1911, giving the State a direct cause of action against tobacco manufacturers for recovery of Medicaid expenditures for tobacco-related health conditions. Vt. Stat. Ann. tit. 33, § 1911 (2000). Consequently, in July 1998, Vermont filed a second state lawsuit against manufacturers of tobacco products, seeking reimbursement of Medicaid expenditures pursuant to 33 V.S.A. § 1911. Vermont's July 1998 complaint...