Ala. Medicaid Agency v. Hardy

202 So.3d 690

ALABAMA MEDICAID AGENCY

v.Denise Ann HARDY.

2140565.

Court of Civil Appeals of Alabama.

Jan. 29, 2016.

Luther Strange, atty. gen., and James Hartin, asst. atty. gen., Alabama Medicald Agency, for appellant.

Kyla G. Kelim, Aging in Alabama, Fairhope, for appellee.

DONALDSON, Judge.

The Alabama Medicaid Agency (“the Agency”) appeals from a judgment of the Montgomery Circuit Court (“the circuit court”) overturning the Agency's decision to deny Denise Ann Hardy's application for Medicaid benefits to cover her nursing-home expenses. We reverse the circuit court's judgment.

Facts and Procedural History

Hardy was admitted to a nursing home in December 2012. In March 2013, James H. Hardy, Hardy's brother, filed an application with the Agency on behalf of Hardy seeking to have the Agency pay for Hardy's nursing-home care. To determine Hardy's eligibility for Medicaid benefits, the Agency calculated Hardy's income and resources. The Agency determined that Hardy had inherited a one-half interest in a house from her father and that her interest in the house had been placed in “The Denise Ann Hardy Irrevocable Trust” (“the trust”). Hardy is the settlor and the beneficiary of the trust, and the corpus of the trust consists of the one-half interest in the house. The trust instrument provides, in pertinent part, as follows:

“A. During my life the trustee shall distribute to me, or apply for my benefit, such amounts of net income and principal, even to the extent of exhausting principal, as the trustee determines from time to time to be required for my health, support, and best interests, adding any undistributed net income to principal from time to time, as the trustee determines.”

The trust instrument also sets out Hardy's intent in creating the trust:

“1. It is my intention by this trust to create a purely discretionary (‘Special Needs Trust’) supplemental care fund for my benefit. It is not my intention to displace public or private financial assistance that may otherwise be available to me....

“2. I do not want this trust eroded by my creditors nor do I want my public or private assistance benefits to be made unavailable or terminated. This trust is not for my primary support; it is to supplement my special care needs only. Distributions shall not be made from the trust, except as my Trustee, in my Trustee's complete, sole, absolute, and unfettered discretion, elects to disburse....

“3. My Trustee shall consider all resource and income limitations that affect my right to receive public assistance benefits. Distribution to or for the benefit of myself shall be limited so that I am disqualified [sic] from public benefits to which I am otherwise entitled.

“....

“7. If this trust has the effect of disqualifying me from receiving public or private support benefits, my Trustee may unilaterally terminate this trust....”

The Agency treated the trust as a “countable resource” in determining Hardy's eligibility for Medicaid benefits, and it valued the one-half interest in the house, i.e., the corpus of the trust, at $16,385, based on the $32,770 tax-assessed value of the house. Consequently, the Agency determined that Hardy had resources in excess of the maximum allowable amount of $2,000 and that, therefore, she was not eligible for Medicaid benefits. See Rule 560–x–25–.06(1), Ala. Admin. Code (Alabama Medicaid Agency)(providing that, “to be eligible for Medicaid,” an “SSI-related individual,” such as Hardy, “must not have total countable resources in excess of $2,000”). The Agency sent a letter to Hardy on August 1, 2013, informing her that her application for Medicaid benefits had been denied, citing Rule 560–X–25–.06, as the basis for the denial.

On August 6, 2013, Hardy filed a “Notice of Appeal and Request for Fair Hearing” with the Agency. See § 41–22–12, Ala.Code 1975. An administrative-law judge (“ALJ”) was appointed to hear the matter. The ALJ held a hearing on November 12, 2013. At the hearing, the Agency maintained its position that Hardy had excess resources and, therefore, was ineligible for Medicaid benefits. Jennifer Thomas, an eligibility specialist with the Agency, testified that the Agency had relied upon 42 U.S.C. § 1396(p)(d)(3)(B) in determining that Hardy's beneficiary interest in the trust was a countable resource. Thomas testified that she consulted the Agency's legal department and that she was told to count the trust as a resource. Thomas further testified that the assessed value of the property, per the Jefferson County Tax Assessor, was $32,770, and that half of that amount, or $16,385, was attributable to Hardy as a resource. Thomas testified that, because that amount exceeds the Agency limit of $2,000 for countable resources, Hardy was ineligible for Medicaid benefits.

James Hardy testified that his father had left Hardy and himself each a one-half interest in the house. James testified that Hardy had a history of financial irresponsibility. James testified that, based on that history, on October 21, 2009, he helped Hardy place her one-half interest in the house in the trust to prevent her from encumbering the house or otherwise losing the property. James testified that Hardy owed debts to doctors and pharmaceutical companies amounting to between $50,000 and $100,000. James testified that, on July 31, 2012, he obtained a promissory note from Hardy based on various loans he had made to her and that, at the time of the hearing, Hardy owed him $17,107.74. Under the terms of the note, Hardy was to pay James $164.65 per month for approximately 10 years, or until the debt was paid off. Hardy had made only five payments by the time of the hearing. Hardy's beneficiary interest in the trust was pledged as collateral for the note. Hardy submitted an exhibit showing that, if Hardy's equity interest in the house was valued at $19,000, once it is reduced by her debt to James in the amount of $17,107.74, her equity interest in the house is only $1,892.26. Hardy further presented evidence of a federal tax lien against the house in the amount of $9,019.52.

In the hearing before the ALJ, Hardy argued that, pursuant to the Department of Health and Human Services, Social Security Administration Program Operations Manual System (“POMS”), Supplemental Security Income (“SI”) 01110.115 (April 2011),¹ the trust is not a countable resource because Hardy does not own the property in the trust, does not have the legal authority to liquidate it, nor does she have the legal right to use the property in the trust for her support and maintenance.

On December 11, 2013, the ALJ issued a recommendation to the Acting Commissioner of the Agency (“the Commissioner”) to uphold the Agency's decision to deny Hardy's application for Medicaid benefits. In her recommendation, the ALJ concluded that Hardy's beneficiary interest in the trust is a countable resource, but that the value of the house should have been reduced by the amount of the federal tax lien, which made the correct value $11,875.24. The ALJ concluded that this amount still exceeded the applicable $2,000 countable-resource limit for eligibility to receive Medicaid benefits. On January 13, 2014, the Commissioner entered a decision adopting the ALJ's recommendation and notifying Hardy of her right to request a rehearing or to seek judicial review under the Alabama Administrative Procedure Act (“AAPA”), § 41–22–1 et seq., Ala.Code 1975. Hardy timely filed a notice of intent to appeal with the Agency, and she subsequently filed a petition for judicial review in the circuit court on March 20, 2014.² The Agency filed an answer in the circuit court on April 11, 2014.

On September 22, 2014, the circuit court held a hearing at which it received arguments of counsel for the parties. At the conclusion of the hearing, the circuit court stated that it would grant Hardy's petition and order the Agency to pay Medicaid benefits, advised the Agency to place a lien on Hardy's property, and ordered Hardy's counsel to submit a proposed order.

On December 22, 2014, the circuit court entered a final judgment reversing the Agency's decision and finding that Hardy's one-half interest in the property held in trust was not an available resource for purposes of counting her resources. The circuit court ordered that the Agency award Hardy Medicaid benefits retroactive to December 2012. The circuit court also stated in its judgment that the Agency “may, if appropriate, require a lien be placed on the property interest as a prerequisite to awarding Medicaid benefits.”

On January 2, 2015, the Agency filed a postjudgment motion pursuant to Rule 59(e), Ala. R. Civ. P., to alter, amend, or vacate the judgment. In the motion, the Agency argued that 42 U.S.C. § 1396p(d)(3)(B), rather than POMS SI 01110.115, upon which the circuit court had relied, controlled. The Agency also argued that the circuit court's judgment, insofar as it related to the placement of a lien, was outside the scope of the circuit court's review because that issue had not been addressed in the proceedings before the ALJ. The Agency further argued that it did not have the authority to place a lien on Hardy's beneficiary interest in the trust and that the placement of the lien would not reduce the value of Hardy's beneficiary interest in the trust so as to make her eligible for Medicaid benefits. The Agency's postjudgment motion was not explicitly ruled on and was ultimately denied by operation of law. Rule 59.1, Ala. R. Civ. P. Thereafter, the Agency filed a timely notice of appeal to this court. We have jurisdiction pursuant to § 12–3–10, Ala.Code 1975.

Standard of Review

The standard of review in an appeal involving a decision of an administrative agency is as follows:

“The AAPA, which governs judicial review of agency decisions, provides:

“ ‘(k) Except where judicial review is by trial de novo, the agency order shall be taken as prima facie just and reasonable and the court shall not substitute its judgment for that of the agency as to the weight of

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