James v. Richman

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit

11-12-2008

James v. Richman
Precedential or Non-Precedential: Precedential

Docket No. 06-5092

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

_________

No. 06-5092
_________

*JOSEPHINE A. JAMES, as the Administrator
for the Estate of Robert A. James

v.

ESTELLE RICHMAN, in Her Official Capacity
as Secretary of the Commonwealth of Pennsylvania
Department of Public Welfare,

Appellant.

*(Amended Per the Clerk's Order dated 6/28/07)

On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civ. No. 05-cv-02647)
District Judge: Hon. A. Richard Caputo
 Argued on March 4, 2008

Before: SCIRICA, Chief Judge, FISHER and
ROTH, Circuit Judges

(Opinion filed: November 12, 2008)

Thomas W. Corbett, Jr., Esquire
Attorney General
Howard G. Hopkirk, Esquire
Calvin R. Koons, Esquire (ARGUED)
Senior Deputy Attorney General
John G. Knorr, III, Esquire
Chief Deputy Attorney General
Chief, Appellate Litigation Section
15 th Floor, Strawberry Square
Harrisburg, PA 17102

Counsel for Appellant

Matthew J. Parker, Esquire (ARGUED)
Marshall, Parker & Associates
303 Allegheny Street
Jersey Shore, PA 17740

Counsel for Appellee

2
Shirley Berger Whitenack, Esquire
Schenck, Price, Smith & King, LLP
10 Washington Street
Morristown, NJ 07963-0905

Sharon Rivenson Mark, Esquire
Law Office of Sharon Rivenson Mark, P. C.
855 Summit Avenue
Jersey City, NJ 07307

Counsel for Amicus Appellee National
Academy of Elder Law Attorneys and
National Academy of Elder Law Attorneys
New Jersey Chapter

Stephen H. Kaufman, Esquire
Eric J. Pelletier, Esquire
Offit Kurman, P. A.
8 Park Center Court, Suite 200
Owings Mills, Maryland 21117

Counsel for Amicus Appellee Financial
Life Insurance Company

OPINION

3
ROTH, Circuit Judge:

Estelle B. Richman, Secretary of the Commonwealth of
Pennsylvania, Department of Public Welfare (the Department),
appeals the order of the District Court for the Middle District of
Pennsylvania, enjoining the Department from denying Medicaid
benefits to Robert A. James. The central issue to the appeal is
whether an annuity, purchased by James’s wife Josephine, may
be treated by the Department as an available resource in
calculating James’s eligibility for Medicaid benefits. We agree
with the District Court that the Department may not so treat it.
We will therefore affirm the judgment of the District Court.

I. BACKGROUND

A. Factual Background

Medicaid applicants are required to exhaust all available
resources in order to be eligible for benefits. Under the
amendments to Medicaid implemented by the Medicare
Catastrophic Coverage Act of 1988 (MCCA), 42 U.S.C. §
1396r-5, a spouse living at home (the “community spouse”) may
reserve certain income and assets to meet his or her monthly
needs, making them unavailable to the institutionalized spouse.
The MCCA provides that “no income of the community spouse
shall be deemed available to the institutionalized spouse,” 42
U.S.C. § 1396r-5(b)(1), but shelters only a limited subset of the
community spouse’s assets under the “community spouse
resource allowance” or CSRA. 42 U.S.C. § 1396r-5(c).

4
 Robert A. James was a resident of Summit Health Care
nursing facility in Wilkes-Barre, Pennsylvania. He was
admitted on August 10, 2005, and died on March 24, 2007,
while this case was on appeal. James was married to Josephine
A. James.

On September 20, 2005, James filed a Resource
Assessment with the Department of Public Welfare at the
Luzerne County Assistance Office. He stated in the Resource
Assessment that, as of August 10, 2005, he and his wife's
available resources totaled $381,443.00. After allowing for the
CSRA and the institutionalized spouse's allowance, James and
his wife then had available resources totaling $278,343.00.

In order to reduce their assets to the level that would
qualify Robert James for Medicaid benefits, on September 12,
2005, Josephine James had purchased for $250,000 a single
premium immediate irrevocable annuity from General Electric
Assurance Company. The annuity was payable to Josephine
James over an eight year period in monthly amounts of
$2,937.71, beginning October 1, 2005, and ending September 1,
2013. The annuity’s terms of the endorsement provided that
“[t]his Contract may not be surrendered, transferred, collaterally
assigned, or returned for a return of the premium paid. This
Contract is irrevocable and has no cash surrender value. An
Owner may not amend this Contract or change any designation
under this Contract.” The parties agree that the annuity is
actuarially sound.

On September 15, 2005, Robert James also purchased a
new automobile for $28,550. At this point, all the James’s

5
resources in excess of those permitted by the CSRA and the
institutionalized spouse's allowance had been spent or converted
to the annuity.

James’s September 20, 2005, Resource Assessment and
application for Medicaid coverage to assist with the payment of
his nursing facility bill sought eligibility as of September 15,
2005. On November 22, 2005, the Luzerne County Assistance
Office determined that Robert James was not eligible for
Medicaid assistance because he did not receive fair
consideration for the resources used to purchase the annuity.

On December 12, 2005, the Department issued a new
notice to Robert James, advising him that the notice he had
previously received on November 22, 2005, was rescinded and
that he was “ineligible for nursing home payment at this time.
Excess resources exist due to the availability of the $250,000
annuity. You may reapply when resources are within eligibility
limits.” In the Department's view, the annuity had a value of
$185,000 and represented a resource that combined with other
resources owned by Josephine James exceeded the CSRA.
These resources were therefore available to pay for nursing care.
The Department offered the declaration of Michael Goodman,
Chief Executive Officer of J.G. Wentworth, a finance company
specializing in the purchase of annuities, as evidence of the
value and marketability of the annuity, despite the
non-assignment language in the annuity’s endorsement.

Robert James appealed the Department's decision to the
Office of Hearings and Appeals. His appeal is still pending.

6
If denied Medicaid benefits, he would be liable himself to pay
for his nursing facility care at a rate of over $5,000 per month.

B. Procedural History

On December 21, 2005, Robert James filed a complaint
against the Department in the District Court, seeking declaratory
and injunctive relief under 42 U.S.C. § 1983 and the Supremacy
Clause of the U.S. Constitution.1 On March 6, 2006, James filed
a request for a temporary restraining order and a motion for
preliminary injunction. On March 20, the District Court granted
the request and motion, enjoining the Department from denying
Medicaid benefits to James until a final decision on the merits
of the action. The parties then agreed to file cross-motions for
summary judgment with joint stipulations of facts and exhibits.
The District Court entered summary judgment in favor of James
on November 21, 2006. The Department appealed.

II. DISCUSSION

A. Jurisdiction and Mootness

The District Court had federal question jurisdiction, as
the primary issue presented was whether the Department has

1
The basis of the Supremacy Clause claim was 62 Pa. Stat.
Ann. The Department did not consider this statutory provision
in enjoining the Department from denying James’s request for
Medicaid benefits. The Supremacy Clause issue has not been
raised on this appeal and we will not consider it.

7
 misinterpreted federal law regarding James’s right to Medicaid
benefits. 28 U.S.C. § 1331; See Lindy v. Lynn, 501 F.2d 1367,
1369 (3d Cir. 1974). We have jurisdiction pursuant to 28 U.S.C.
§ 1291. Our review of a decision to grant or deny summary
judgment is plenary. Summary judgment is appropriate where
there are no genuine issues of material fact and, when viewing
the facts in the light most favorable to the non-moving party, the
moving party is entitled to judgment as a matter of law. See
F.R.C.P. 56(c); Pi Lambda Phi Fraternity, Inc. v. University of
Pittsburgh, 229 F.3d 435, 441 n.1 (3d Cir. 2000).

Although James died during the pendency of this appeal,
the case is not moot. While his death does moot the continued
imposition of the permanent injunction against the Department,
nevertheless the District Court adjudicated the question of
“ultimate liability” for the costs of nursing care and the
Department continues to contest its liability. See Heasley v.
Belden & Blake Corp., 2 F.3d 1249, 1253 n.4 (3d Cir. 1993).

B. Availability of Equitable Relief

Before addressing the substantive issues in this case, we
must first determine whether an equitable remedy is available
here. If James had an adequate legal remedy, equitable relief
would not be appropriate. See Roe v. Operation Rescue, 919
F.2d 857, 867 n.8 (3d Cir. 1990).

We review the decision to provide equitable relief for
abuse of discretion. ACLU v. Black Horse Pike Reg'l Bd. of
Educ., 84 F.3d 1471, 1476 (3d Cir. 1996). In order to obtain a
permanent injunction, a plaintiff must show, among other things,

8
that “he has no adequate legal remedy.” Roe, 919 F.2d at 867
n.8. The District Court found that James lacked a legal remedy
because the 11th Amendment barred recovery of monetary
damages should he prove he was unlawfully denied support
payments.

The Department argues that the availability of monetary
relief through state administrative proceedings precludes a
finding of irreparable harm. However, there is no general
requirement that plaintiffs exhaust state administrative remedies
before bringing a § 1983 action. Patsy v. Bd. of Regents, 457
U.S. 496, 516 (1982); see also Monroe v. Pape, 365 U.S. 167,
183 (1961) (“The federal remedy is supplementary to the state
remedy, and the latter need not be first sought and refused
before the federal one is invoked.”).

We conclude that this precept also holds true in a request
for injunctive relief in a § 1983 action. See DeSario v. Thomas,
139 F.3d 80, 85-86 (2d Cir. 1998). If we were to decide
otherwise, we would in effect be denying the precedential effect
of Patsy – we would be requiring exhaustion before bringing
this type of § 1983 action.. We must therefore decline the
Department’s request that we impose a de facto exhaustion
requirement where, as here, a plaintiff may request only
equitable relief in the federal forum.

C. Treatment of Annuities under Medicaid

The central issue in this case is whether a non-revocable,
non-transferrable annuity may be treated as an available
resource by the Department for the purposes of calculating

9
Medicaid eligibility. We will first address the treatment of the
annuity itself, before turning to the possibility of treating the
income from the annuity as a separate resource.

In determining whether the annuity may be treated as a
resource, the Department cannot use a methodology that is more
restrictive than that used by the SSI (Supplemental Security
Income) Program. See 42 U.S.C. § 1396a(a)(10)(C)(i)(III). A
methodology is “considered to be ‘no more restrictive’ if, using
the methodology, additional individuals may be eligible for
medical assistance and no individuals who are otherwise eligible
are made ineligible for such assistance.” 42 U.S.C. §
1396a(r)(2)(B). Consequently, the Department can not treat as
available resources any assets that the SSI regulations would not
treat as available resources.

We therefore turn to the treatment of annuities under the
SSI regulations. They provide that “if an individual has the
right, authority or power to liquidate the property, or his or her
share of the property, it is considered a[n] (available) resource.”
20 C.F.R. § 416.1201(a)(1). The SSI Program Operations
Manual System (POMS) 2 gives the example of jointly owned

2
The SSI Programs Operations Manual System is “the
publicly available operating instructions for processing Social
Security claims,” and though “these administrative
interpretations are not products of formal rulemaking, they
nevertheless warrant respect.” Artz v. Barnhart, 330 F.3d 170,
176 (3d Cir. 2003) (citing Wash. Dept. of Social Servs. v.
Keffeler, 537 U.S. 371 (2003)).

10
stock subject to a legally binding agreement that neither owner
will sell without the consent of the other, and explains that such
stock is not an asset unless the co-owner has consented to its
sale. POMS SI 01110.115. The POMS makes it clear that the
“power to liquidate” referred to by the regulation is not simply
the de facto ability to accomplish a change in ownership of an
asset, but must also include the power to do so without incurring
legal liability.

Josephine James lacks such power to change ownership
in her annuity. The annuity states on its face that it “may not be
surrendered, transferred, collaterally assigned, or returned for a
return of the premium paid.” Even if the Department is correct
that Josephine James has the de facto ability to effect a change
in ownership of the annuity, she cannot do so without breaching
the contract and incurring legal liability. Accordingly, the
annuity cannot be treated as an available resource.

Alternatively, the Department argues that Josephine
James could create a new annuity, selling the right to an income
stream that is equal to the income to which she is entitled from
the existing annuity. Such a transaction would not, however, be
a transfer of the existing annuity. It cannot therefore be used to
support the treatment of the existing annuity as an available
resource. Instead, the Department’s position would treat the
hypothetical proceeds from the creation of a new annuity as a
currently available resource. There is no statutory basis for such
a theory and, indeed, adopting it would tend to undermine the
MCCA rule that “no income of the community spouse shall be
deemed available to the institutionalized spouse.” 42 U.S.C. §
1396r-5(b)(1). Under such a theory, there is no clear limit on

11
the hypothetical transaction proceeds that could be treated as
assets, whether based on the sale of a future stream of payments
tied to a fixed income retirement account, social security, or
even a regular paycheck.

Finally, the Department argues that granting eligibility
for people in James’s situation would undercut the purpose of
Medicaid, which was not intended as a general welfare program.
We begin by noting that Medicaid is established through an
exhaustive set of statutes that thoroughly detail what benefits are
to be available and to whom they should be provided. See 42
U.S.C. § 1396 et seq. In this context, we do not create rules
based on our own sense of the ultimate purpose of the law being
interpreted, but rather seek to implement the purpose of
Congress as expressed in the text of the statutes it passed. See
Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir. 2001)
(explaining that the role of the courts in interpreting a statute is
to give effect to Congress’s intent, and that it is presumed that
Congress expresses its intent through the language of a statute).
As discussed above, an irrevocable, non-alienable annuity does
not fit the statutory definition of an available resource. In
addition, Congress provided a detailed set of rules governing
transactions that it considered suspicious, and the purchase of an
annuity is not among them. 42 U.S.C. § 1396p(c). We simply
cannot allow a denial of eligibility if there is no statutory
justification for that denial. Such justification is lacking here.3

3
The dissent asserts that the focus for the amount of the
James’s available resources should be as of August 20, 2005, the
date of Robert James’s entry into the nursing home, rather than

12
III. CONCLUSION

For the foregoing reasons, we will affirm the judgment
of the District Court.

as of September 15, 2005, the eligibility date sought in his
application. Because we have found that Josephine James’s
non-revocable, non-transferrable annuity would not be an
available resource under SSI regulations, and thus not an
available resource under Medicaid, Robert James became
eligible for Medicaid coverage as of September 15, 2005. His
situation prior to that date is therefore no longer relevant.

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FISHER, Circuit Judge, dissenting.
The majority concludes that the Department of Public
Welfare cannot treat the annuity that Mrs. James purchased on
September 12, 2005, as an available resource in determining Mr.
James’s Medicaid eligibility. I respectfully dissent. I believe
that in order to appraise the amount of available resources, our
focus must be on the date of Mr. James’s admission to the
nursing home.
I find the circumstances presented in this case to be
distinguishable from an instance where an annuity exists prior
to the date of institutionalization. On August 10, 2005, Mr.
James was admitted into the Summit Health Care facility and, as
of that date, the Jameses had a total of $381,443 in available
resources. On September 20, Mr. James filed the Resource
Assessment form which called for a list of the Jameses’ total
resources, “singly or jointly-owned,” as of the date of admission
into the nursing home. The $250,000 annuity in contention did
not exist on August 10. Rather, Mrs. James purchased the
annuity over a month later on September 12, several days prior
to Mr. James filing his application for Medicaid. The annuity
provided a vehicle for the Jameses to reallocate their resources
after Mr. James began receiving care at the facility which, in my
opinion, does not change the fact that as of August 10, Mr.
James had excess resources for Medicaid eligibility purposes.
It would be a different scenario if Mrs. James had an already-
existing annuity at the date of her spouse’s institutionalization,
though that did not occur in this case.
Accordingly, I would find that an annuity which replaces
cash existing at the time of institutionalization can be a
marketable resource under 42 U.S.C. § 1396r-5, but the record
is insufficient to make any decision as to the marketability of

14
Mrs. James’s annuity. First, the record is inadequate to resolve
the parties’ dispute over the implications of the anti-assignment
clause in the annuity. While it appears that under Pennsylvania
contract law anti-assignment clauses are enforceable if
sufficiently justified, see CGU Life Insurance Co. of America v.
Metropolitan Mortgage & Securities Co., Inc., 131 F. Supp. 2d
670, 679 (E.D. Pa. 2001), the record fails to account for how any
potential assignment would occur. Findings would need to be
made as to the rights that the anti-assignment clause seeks to
protect for proper application of Pennsylvania contractual
enforcement principles.
Additionally, the record is underdeveloped regarding the
Department’s argument that Mrs. James’s annuity is liquid. The
Department offers the declaration of Mr. Goodman, an
employee of J.G. Wentworth, stating that J.G. Wentworth would
pay $170,000 for the rights to payments from the annuity.
However, there is no indication in the record that Mrs. James
could convert her annuity to cash within twenty days as required
under 20 C.F.R. § 416.1201(b). The Department’s argument
that the annuity has market value does not equate to a finding of
liquidity. As demonstrated by 20 C.F.R. § 416.1201(c)(1),
automobiles and land are characterized as nonliquid yet those
examples carry a market value. Further, although the
declaration states that J.G. Wentworth “would require” the
annuity owner to “recognize a full sale of their rights” and to
enter into “a number of contractual agreements,” the declaration
fails to answer whether the annuity issuer could refuse to
recognize the assignment or explain the details of those
additional contractual agreements that would be required. In
sum, I would remand to the District Court for additional
factfinding relevant to the annuity’s marketability.

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