Joseph Stolmayer v. John McCarthy

NOT RECOMMENDED FOR PUBLICATION
File Name: 16a0660n.06

No. 16-3409

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
JOSEPH STOLMAYER and WILMA ) Dec 07, 2016
STOLMAYER, ) DEBORAH S. HUNT, Clerk
)
Plaintiffs-Appellants, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE NORTHERN
JOHN B. MCCARTHY, in his official capacity as ) DISTRICT OF OHIO
Director of the Ohio Department of Medicaid, )
)
Defendant-Appellee. )

BEFORE: SILER, BATCHELDER, and GRIFFIN, Circuit Judges.

GRIFFIN, Circuit Judge.

Plaintiffs Wilma and Joseph Stolmayer appeal the district court’s order dismissing their

42 U.S.C. § 1983 action against defendant John McCarthy, the Director of the Ohio Department

of Medicaid. The Stolmayers dispute the Department’s decision to restrict Mrs. Stolmayer’s

Medicaid eligibility based on its determination that Mr. Stolmayer improperly transferred marital

assets. They did not appeal this decision through the normal administrative review procedures

and instead sought relief in federal court. While plaintiffs draw our attention to a circuit split

over whether the Department’s unappealed decision should be given preclusive effect, they did

not raise this issue below. As a result, we find no error requiring reversal and affirm.
No. 16-3409
Stolmayer v. McCarthy

Wilma Stolmayer entered a nursing home in August 2014. In December, she applied for

Medicaid benefits through the Stark County Department of Jobs and Family Services. The Stark

County Agency initially denied her coverage due to excess resources. After she spent those

resources, the Agency deemed Mrs. Stolmayer eligible for benefits effective March 1, 2015, but

imposed a restricted coverage period lasting through part of February 2018, based on its

determination that her husband, Joseph Stolmayer, engaged in an “improper transfer” of the

couple’s assets. See 42 U.S.C. §§ 1396p(c)(1)(A) & 1396r-5(f)(1). As the district court

explained:

Under the relevant Medicaid law, Ms. Stolmayer is considered an
“institutionalized spouse.” Mr. Stolmayer, who remains at home and in the
community, is considered the “community spouse.” [See 42 U.S.C. § 1396r-
5(h)(1)–(2).] A community spouse may keep a limited amount of the couple’s
resources . . . [referred to] as the Community Spouse Resource Allowance
(“CSRA”). Ohio Admin. Code 5160:1-3-07(G). [See 42 U.S.C. § 1396r-5(f)(1)–
(2)(A).] The CSRA is not considered in determining an institutionalized spouses’
Medicaid eligibility. [See 42 U.S.C. § 1396r-5(c)(2), (f)(2)(A).] However,
resources that exceed the CSRA are considered available to the institutionalized
spouse for eligibility purposes. Ohio Admin. Code 5160:1-3-07(G). [See 42
U.S.C. § 1396r-5(c)(2).] The Stark County Agency determined that the annuities
were purchased with funds in addition to the CSRA. As a result, the funds were
counted when the Agency made Ms. Stolmayer’s restricted eligibility
determination.

Mrs. Stolmayer appealed the decision to the Ohio Department of Job and Family

Services. Relying on our decision in Hughes v. McCarthy, 734 F.3d 473, 480 (6th Cir. 2013),

she argued that “when assets are transferred to the individual’s spouse or another for the sole

benefit of the spouse, the unlimited transfer provision of 42 U.S.C. § 1396p(c)(2)(B)(i) controls,”

and the transfer is not improper. The Department rejected her argument, reasoning that it was

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“not bound by rulings on federal statutory or constitutional law made by a federal court other

than the United States Supreme Court.” (Quoting State v. Burnett, 755 N.E.2d 857, 862 (Ohio

2001). “In addition,” the Department noted, “Ohio Court of Appeals cases are split on this issue

and the Ohio Supreme Court has not yet ruled definitively on this issue of transfers to purchase

annuities with resources in excess of the CSRA to generate additional income for the

[community spouse].”1 Accordingly, the Department applied Ohio Admin. Code 5160:1-3-

07(G), then in effect, and affirmed the Stark County Agency’s decision. Mrs. Stolmayer

concedes she did not appeal the decision to a state court of common pleas.

Instead, plaintiffs filed the instant 42 U.S.C. § 1983 action against defendant, alleging a

violation of their rights under the Medicaid Act, and a violation of the Supremacy Clause based

on Ohio’s misinterpretation of the Act. Defendant moved to dismiss the complaint on res

judicata grounds, arguing the Department’s decision was a final judgment on the merits entitled

to preclusive effect. The district court agreed and granted the motion. Plaintiffs timely appealed.

II.

We review the district court’s application of res judicata and its decision to dismiss the

complaint for failure to state a claim de novo. Buck v. Thomas M. Cooley Law Sch., 597 F.3d

812, 816 (6th Cir. 2010). To survive a Rule 12(b)(6) motion, “a complaint must contain

sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,

570 (2007)). Dismissal is also appropriate where the complaint, however factually detailed, fails

1
The Ohio Supreme Court has since declined to follow Hughes in a case involving an
institutionalized spouse’s transfer of a home to a community spouse. See Estate of Atkinson v.
Ohio Dep’t of Job & Family Servs., 40 N.E.3d 1121, 1128–29 (Ohio 2015).
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Stolmayer v. McCarthy

to state a claim as a matter of law. In re City of Detroit, ___ F.3d ___, No. 15-2236, 2016 WL

6677715, at *10 (6th Cir. Nov. 14, 2016).

Federal courts ordinarily accord state court judgments the same preclusive effect they

would receive in the forum state. Ohio ex rel. Boggs v. City of Cleveland, 655 F.3d 516, 519

(6th Cir. 2011); see also Univ. of Tenn. v. Elliott, 478 U.S. 788, 798–99 (1986). In Ohio, the

doctrine of res judicata consists of “the two related concepts of claim preclusion, also known as

res judicata or estoppel by judgment, and issue preclusion, also known as collateral estoppel.”

O’Nesti v. DeBartolo Realty Corp., 862 N.E.2d 803, 806 (Ohio 2007). “Claim preclusion,” the

concept pertinent here, “prevents subsequent actions, by the same parties or their privies, based

upon any claim arising out of a transaction that was the subject matter of a previous action.” Id.

Thus, “a valid, final judgment rendered upon the merits bars all subsequent actions based upon

any claim arising out of the transaction or occurrence that was the subject matter of the previous

action.” Grava v. Parkman Twp., 653 N.E.2d 226, 229 (Ohio 1995).

We have distilled this doctrine down to four elements:

(1) a prior final, valid decision on the merits by a court of competent jurisdiction;
(2) a second action involving the same parties, or their privies, as the first; (3) a
second action raising claims that were or could have been litigated in the first
action; and (4) a second action arising out of the same transaction or occurrence
that was the subject matter of the previous action.

Boggs, 655 F.3d at 520 (citation omitted). Defendant bears the burden of proving each element.

Id.

Here, the district court found that defendant carried his burden, and the Stolmayers do not

challenge this finding. Rather, they contend that before granting defendant’s motion, the district

court first had to consider whether the Department’s unappealed decision was entitled to claim

preclusive effect at all. See Herrera v. Churchill McGee, LLC, 680 F.3d 539, 552 n.9 (6th Cir.

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2012) (noting circuit split over the preclusive effect of unreviewed state administrative decisions

and collecting cases).

We decline to resolve that question here, where plaintiffs did not present it to the district

court in the first instance. This court considers new issues on appeal only in “exceptional cases,”

or when application of the forfeiture rule “would produce a plain miscarriage of justice.”

Thomas M. Cooley Law Sch. v. Kurzon Strauss, LLP, 759 F.3d 522, 528 (6th Cir. 2014) (internal

quotation marks and brackets omitted). Neither exception applies in this case. For one, plaintiffs

do not explain why they failed to raise the circuit-split issue before the district court, or why we

should exercise our discretion to depart from the general rule of forfeiture.2 For another, it is not

clear that the Department’s determination runs afoul of Hughes in any event.3 “Although claim

preclusion is a purely legal issue that we can address sua sponte under ‘special circumstances,’”

Herrera, 680 F.3d at 552 n.9 (quoting Arizona v. California, 530 U.S. 392, 412 (2000)), this is

not one of them. We are better equipped to address issues of first impression with the benefit of

the lower court’s analysis. See Cooley, 759 F.3d at 528. Here, we are denied that benefit.

2
In this regard, plaintiffs’ argument that Ohio does not require exhaustion of
administrative remedies is not the same as alerting the district court to a circuit split over the
preclusive effect of unreviewed state administrative decisions.
3
The applicability of Hughes depends in part on the timing of the transfer: “When assets
are transferred to the individual’s spouse or to another for the sole benefit of the individual’s
spouse, before the institutionalized spouse is determined eligible for Medicaid coverage, the
unlimited transfer provision of § 1396p(c)(2) controls, and a transfer penalty [pursuant to §
1396r-5(f)(1)] is improper.” 734 F.3d at 480 (emphasis added, internal quotation marks, citation,
brackets, and footnote omitted). Plaintiffs allege Mrs. Stolmayer first applied for Medicaid
benefits in December 2014. Mr. Stolmayer purchased the annuities in December 2014 and April
2015. However, the complaint does not identify when the Department initially denied Mrs.
Stolmayer coverage, or when it granted her restricted coverage. Thus, it is not evident that the
transfer here occurred “before the institutionalized spouse [was] determined eligible for
Medicaid coverage.” Id.
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Claim preclusion applies to unappealed administrative decisions under Ohio law. Carroll

v. City of Cleveland, 522 F. App’x 299, 303–04 (6th Cir. 2013) (citing Wade v. City of

Cleveland, 456 N.E.2d 829, 831–32 (Ohio Ct. App. 1982)). Plaintiffs did not argue below that

the district court could, or should, depart from Ohio law; and they do not contend on appeal that

the court erred in concluding that the elements of claim preclusion are satisfied. The district

court’s judgment is therefore affirmed.

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