Wallace v. Estate of Jackson, I-X

• Decision Date: 27 November 1998
• Docket Number: D,I-X,No. 960028,960028
• Parties: 357 Utah Adv. Rep. 11 David Spencer WALLACE and Allstate Insurance Company, Plaintiffs, v. ESTATE OF Nichole JACKSON, Daniel McNeil, Emily Nelson, Keejoe Attakai, State of Utah Medicaid Section, and John Doesefendants. State of Utah, Medicaid Section, Cross-Claimant and Counterclaim Defendant, v. Daniel M. McNeil, Cross-Claim Defendant and Counterclaimant.
• Court: Utah Supreme Court

Page 446

972 P.2d 446

357 Utah Adv. Rep. 11

David Spencer WALLACE and Allstate Insurance Company, Plaintiffs, v. ESTATE OF Nichole JACKSON, Daniel McNeil, Emily Nelson,

Keejoe Attakai, State of Utah Medicaid Section,

and John Does I-XX, Defendants.

State of Utah, Medicaid Section, Cross-Claimant and Counterclaim Defendant, v. Daniel M. McNeil, Cross-Claim Defendant and Counterclaimant.

No. 960028.

Supreme Court of Utah.

Nov. 27, 1998.

Rehearing Denied Jan. 29, 1999.

Jan Graham, Att'y Gen., Linda Luinstra, Asst. Att'y Gen., Salt Lake City, for the State

Robert B. Sykes, Matthew H. Raty, Salt Lake City, for McNeil

HOWE, Chief Justice:

Daniel M. McNeil appeals from a summary judgment granted by the district court enforcing the State's lien against insurance proceeds he recovered as a result of an automobile accident in which he was injured. The court also awarded the State attorney fees and costs.

McNeil was a passenger in an automobile which was involved in an accident. He sustained severe brain injuries with permanent effects and profound neurological deficits. At the time of the accident, he was sixteen years of age and resided with his seventy-six-year-old grandmother and legal guardian, Lilian McNeil, who had raised him from infancy. She was a recipient of social security benefits, and McNeil was eligible for Medicaid assistance. As a condition to receiving Medicaid benefits, the guardian, pursuant to Utah Code Ann. § 26-19-4.5, assigned to the State McNeil's rights against third parties liable for his medical expenses.

The persons liable for McNeil's injuries were insured by Allstate Insurance Company, but the insurance proceeds were insufficient to satisfy all the potential claims of persons injured or killed in the accident. Therefore, Allstate filed this interpleader action requiring all persons involved in the accident to present their claims at one time so the court could divide the limited proceeds. Prior to Allstate's filing this interpleader action, the State had given Allstate notice of its assignment from McNeil. The interpleader action named the State and McNeil as defendants, and the State cross-claimed against McNeil to recover the part of the proceeds payable to him by Allstate. The State did not make a claim directly against Allstate. Subsequently, Allstate settled with all parties, and McNeil received $85,000. The district court awarded the State $43,000 of that amount for reimbursement of medical expenses it had paid on McNeil's behalf through the Medicaid program. The court then placed the remainder in a special needs trust for McNeil. He appeals.

McNeil first contends that 42 U.S.C. § 1396p(a)(1) prohibits the State from asserting a lien or seeking recovery against him for Medicaid benefits paid on his behalf. That subsection provides:

(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except ... [exceptions not relevant to this case].

He asserts that Utah Code Ann. § 26-19-5(1) violates the foregoing federal statute wherein section 26-19-5(1) provides that the State's claim to recover for medical assistance furnished shall be a lien against any proceeds payable to the recipient by a third party. McNeil argues that the State may seek reimbursement directly from a third party who is legally liable for the medical assistance, but the State may not proceed as it did in the instant case against the recipient. In so doing, McNeil argues that the State has violated 42 U.S.C. § 1396p(a)(1).

There is no merit to this contention. In a companion case which we have decided today, S.S. v. State, 972 P.2d 439 (Utah 1998), we held that payments made by a third party do not legally become the property of the recipient until after a valid settlement which must include reimbursement to the State for Medicaid benefits. In that case, we relied upon a decision of the New York Court of Appeals in the consolidated appeals of Cricchio v. Pennisi and Link v. Town of Smithtown, 90 N.Y.2d 296, 683 N.E.2d 301, 660 N.Y.S.2d 679 (1997). There, the court stated that as a consequence of the mandatory assignment,

the settlement proceeds are resources of the third party tortfeasor that are owed to [the state recovery office]. Accordingly, the lien on the settlement proceeds attaches to the property of the third party, and thus does not violate the statutory prohibition against imposing a lien against a beneficiary's property until after his or her death. The flaw in plaintiff[s'] theory that the lien cannot be satisfied until the recipient's death is that it fails to appreciate this critical distinction between the assets of a responsible third party and assets belonging to the Medicaid recipient.

660 N.Y.S.2d 679, 683 N.E.2d at 305 (citations omitted).

In enacting 42 U.S.C. § 1396--the anti-lien statute--Congress could not have intended to prohibit or inhibit third-party recoveries which it directed in the same Social Security Act. Once the assignment has been made, it does not matter whether the State proceeds directly against the third-party tortfeasor or whether the State simply seeks its share of the insurance proceeds paid into court in an interpleader action such as occurred in the instant case.

As part of the Social Security Act, 42 U.S.C. § 1396p(a)(1) has coexisted for many years with 42 U.S.C. § 1396a(a)(25)(A), a sister section in the Act, which mandates states to seek reimbursement from third parties who are legally liable for the medical payments. It is a familiar principle of statutory construction that sections of a statute should be harmonized wherever possible to avoid any conflict between them. Here, if that part of the insurance proceeds assigned by McNeil's guardian to the state are considered to not be McNeil's property, harmony is achieved. Thus the federal anti-lien statute is not violated when the State seeks reimbursement in an interpleader action. As stated in the State's brief:

Placing a lien against third party settlement proceeds does not result in a "lien against the property of an individual prior to his death on account of medical assistance paid or to be paid on his behalf" because third party settlement proceeds have been specified by the recipient as belonging to the State Medicaid Agency as a precondition of the recipient's eligibility.

McNeil next contends that both federal and state statutes explicitly allow a personal injury victim to put proceeds from a personal injury settlement into a special needs trust and thereby avoid any claim by the State for Medicaid reimbursement. This same issue was raised in S.S. v. State. There we held that repayment of the Medicaid lien from third-party settlement funds must precede the creation of the supplemental needs trust. That holding is controlling here; once the trust is created, the State cannot make any demand upon it during McNeil's lifetime.

Lastly, McNeil contends that the State-imposed lien against his personal injury settlement proceeds constitutes a taking of his property without due process of law in violation of both the United States and Utah Constitutions. He argues that he has a property interest in his right to recover for personal injuries, and the State may not lien or take this property without affording him procedural due process or, in other words, a notice and a hearing. We again find no merit in this contention. As a condition to receiving Medicaid assistance, McNeil's legal guardian assigned to the State that portion of any third-party recovery equal to the amount of Medicaid assistance which may be rendered him. Even if we were to assume that McNeil does have a limited property interest in the funds which were assigned, his constitutional rights were not violated by the State. He was afforded the opportunity to be heard in the district court concerning the award of part of the settlement proceeds to the State. He has now been afforded an appeal to this court. In both courts, his arguments have been asserted and both courts have ruled against him. He has been accorded full due process even though his contentions have been rejected by both courts.

Judgment affirmed.

Justice ZIMMERMAN and Justice RUSSON concur in Chief Justice HOWE's opinion.

DURHAM, Associate Chief Justice, dissenting:

I respectfully dissent in this case as well as in today's companion case, S.S. v. State.

McNeil, the appellant in this case, asserts that state statutes allowing the State to file liens against a Medicaid recipient for money received from third parties in personal injury suits directly contradict provisions of federal Medicaid law. Therefore, McNeil argues, the federal statutes preempt the state statutes, making the lien against McNeil invalid and requiring summary judgment in McNeil's favor. The majority holds that no such contradiction exists and that no cause for preemption has been raised. I disagree. I would hold that our state statutes do contradict provisions of federal Medicaid law and that federal law controls.

The Utah Code chapter on Medicaid specifically prevents application of any part of the chapter in a manner contrary to federal law. See Utah Code Ann. § 26-19-17. The Utah Code does provide for the State to recover, through a lien on recipients' property, any payments from liable third parties made to Medicaid recipients. Utah Code Ann. §§ 26-19-5(1) & -7(1)(b). The federal law, however, states clearly that "[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except" when the benefits were incorrectly paid or the property is the real property of specified individuals. 42 U.S.C. § 1396p(a)(1). Furthermore, "[n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the state plan may be made, except" in the situations...