Joyner v. North Carolina Dep't of Health

715 S.E.2d 498

Dennis H. JOYNER, Executor of the Estate of Leola H. Joyner, Plaintiff

v.NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant.

No. COA10–670.

Court of Appeals of North Carolina.

Aug. 2, 2011.

Appeal by respondent from order entered 7 January 2010 by Judge Walter H. Godwin, Jr., in Nash County Superior Court. Heard in the Court of Appeals 1 December 2010.

Attorney General Roy Cooper, by Assistant Attorney General Joel L. Johnson, for respondent-appellant.

Fields & Cooper, PLLC, Nashville, by Mark E. Edwards, for petitioner-appellee.

ERVIN, Judge.

Respondent North Carolina Department of Health and Human Services appeals from an order overturning its decision to impose a transfer sanction upon Decedent Leola H. Joyner and finding that DHHS acted erroneously when it terminated Decedent's long-term care Medicaid benefits. On appeal, DHHS contends that the trial court erred by concluding that the execution of deeds of trust applicable to Ms. Joyner's residence did not constitute the “transfer” or “disposal” of an asset within the meaning of applicable provisions of federal law. As an alternative basis for upholding the result reached by the trial court, Respondent Dennis H. Joyner contends that, even if the execution of deeds of trust constituted the “transfer” or “disposition” of an asset, the transfers or dispositions at issue here were made for the required fair market value. After careful consideration of DHHS' challenges to the trial court's order in light of the record and the applicable law, we conclude that the trial court's order should be reversed and that this case should be remanded to the Nash County Superior Court for further proceedings not inconsistent with this opinion.

I. Factual and Procedural Background

On 1 March 2006, Ms. Joyner executed two promissory notes secured with two correlating deeds of trust executed in favor of her son, Mr. Joyner. The first note purported to reimburse Mr. Joyner for past expenditures that had been made on his mother's behalf in the amount of $68,000.00. The second note, in the amount of $88,615.80, was executed for the purpose of compensating Mr. Joyner for personal services which he had agreed to render to his mother in the future under the terms of a personal services agreement signed on 1 March 2006. The amount set out in these two sets of notes and deeds of trust was sufficient to fully encumber Ms. Joyner's residence.

Ms. Joyner had been a Medicaid recipient since November 2005. On 26 June 2006, the Nash County Department of Social Services informed Ms. Joyner that her long-term care Medicaid benefits would terminate as a result of the 1 March 2006 notes and deeds of trust. According to DSS, the notes and deeds of trust executed on that occasion constituted uncompensated transfers of Ms. Joyner's assets.

Ms. Joyner appealed the denial of her long-term care benefits to a local DSS hearing officer. After failing to persuade the DSS hearing officer of the merits of her position, Ms. Joyner sought review by a state hearing officer. Ms. Joyner died on 30 January 2007 without having received a decision with respect to the issues raised by her appeal.

On 29 May 2007, Mr. Joyner was appointed executor of Ms. Joyner's estate. On 15 July 2008, the state hearing officer issued a tentative opinion upholding the denial of Ms. Joyner's claim. In her decision, the hearing officer treated both transactions as uncompensated transfers, finding that the amount associated with past expenditures evidenced in the first note and deed of trust was “not provided for in a written agreement at the time the services were rendered” and that the amount evidenced in the second note and deed of trust stemmed from an impermissible transfer for future services. Ms. Joyner's estate sought review of the state hearing officer's decision by the chief hearing officer. On 21 January 2009, the chief hearing officer issued an opinion affirming the hearing officer's decision to deny Ms. Joyner's claim for long-term care benefits. Ms. Joyner's estate appealed the final agency decision to the Nash County Superior Court.

The estate's appeal came on for hearing before the trial court at the 7 December 2009 civil session of the Nash County Superior Court. On 7 January 2010, the trial court entered an order reversing the final agency decision. In its order, the trial court concluded as a matter of law:

3. That 42 U.S.C. § 1396p(c)(1)(A) provides that the “state [Medicaid] plan must provide that if an institutionalized individual ... disposes of assets for less than fair market value ... the individual is ineligible for medical assistance.”

4. Substantial evidence in the record in this case shows that Leola H. Joyner did not dispose of or transfer any asset when she executed the notes and deeds of trust on March 1, 2006.

5. The Respondent's decision to impose a transfer sanction on Leola H. Joyner was in violation of federal law because there was, in fact, no transfer or disposal of any asset.

6. The Respondent acted erroneously when it terminated Leola H. Joyner's long-term care Medicaid.

7. That Respondent acted without substantial justification in pressing its claim against the Petitioner and there are no special circumstances that would make the award of attorney's fees unjust.

Based on these conclusions of law, the trial court ordered that (1) the final agency decision terminating Ms. Joyner's long-term care benefits should be reversed, (2) the estate should be reimbursed for expenses incurred as a result of this action, and (3) the estate should be awarded $3,300.00 in attorneys' fees. DHHS noted an appeal to this Court from the trial court's order.

II. Legal Analysis

A. Standard of Review

“The Administrative Procedure Act [APA] governs the standard of review of an administrative agency's decision.” Elliot v. N.C. Dept. of Human Resources, 115 N.C.App. 613, 616, 446 S.E.2d 809, 811 (1994), aff'd, 341 N.C. 191, 459 S.E.2d 273 (1995). According to N.C. Gen.Stat. § 150B–51(b), in reviewing the actions of an administrative agency:

the court may affirm the decision of the agency or remand the case to the agency or to the administrative law judge for further proceedings. It may also reverse or modify the agency's decision, or adopt the administrative law judge's decision if the substantial rights of the petitioners may have been prejudiced because the agency's findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency;

(3) Made upon unlawful procedure; Affected by other error of law;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible under [N.C. Gen.Stat. §§ ] 150B–29(a), 150B–30, or 150B–31 in view of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion.

N.C. Gen.Stat. § 150B–51(b). “When under the applicable version of the APA a petition for review of an agency decision is filed in superior court, the superior court acts as an appellate court; both this [C]ourt and the superior court must utilize the same standard of review.” D.B. v. Blue Ridge Ctr., 173 N.C.App. 401, 405, 619 S.E.2d 418, 422 (2005).¹

“If it is alleged that an agency's decision was based on an error of law then a de novo review is required. A review of whether the agency decision is supported by the evidence, or is arbitrary or capricious, requires the court to employ the whole record test.” Walker v. N.C. Dept. of Human Resources, 100 N.C.App. 498, 502, 397 S.E.2d 350, 354 (1990) (citation omitted), disc. review denied, 328 N.C. 98, 402 S.E.2d 430 (1991). “Under a de novo review, the court considers the matter anew and freely substitutes its own judgment” in place of the court below. In re Appeal of the Greens of Pine Glen Ltd. P'ship, 356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003). “The whole record test generally requires examination of the entire record, including the evidence which detracts from the agency's decision.” D.B., 173 N.C.App. at 405, 619 S.E.2d at 422. “The ‘whole record’ test does not permit the reviewing court to substitute its judgment for the agency's as between two reasonably conflicting views; however, it does require the court to take into account both the evidence justifying the agency's decision and the contradictory evidence from which a different result could be reached.” Watson v. N.C. Real Estate Comm., 87 N.C.App. 637, 639, 362 S.E.2d 294, 296 (1987) (citations and quotations omitted), disc. review denied, 321 N.C. 746, 365 S.E.2d 296 (1988). “Ultimately, the reviewing court must determine whether the administrative decision had a rational basis in the evidence.” Henderson v. N.C. Dept. of Human Resources, 91 N.C.App. 527, 531, 372 S.E.2d 887, 890 (1988) (citation omitted). We will now apply the applicable standard of review to the issues that have been presented to us for review.

B. Substantive Legal Issues

1. Transfer of Assets

On appeal, DHHS argues that the trial court erred by determining that Ms. Joyner had not impermissibly transferred or disposed of assets in violation of the relevant statutory provisions governing the operation of the Medicaid program. As a result of the fact that the first question raised by DHHS' challenge to the trial court's order involves the application of specific statutory provisions to undisputed facts, we review the first aspect of DHHS' challenge to the trial court's order utilizing a de novo standard of review. After carefully examining the arguments presented by the parties concerning the proper construction of the relevant statutory provisions, we conclude that the trial court erroneously determined that the transactions at issue here did not involve “transfers” or “dispositions” of Ms. Joyner's assets.

The transactions at issue here both involve the execution of a deed of trust for the purpose of securing an indebtedness evidenced by a note....