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Kadingo v. Johnson

United States District Court, D. Colorado

August 14, 2017

LYNN A. JOHNSON, in her official capacity as director of the Jefferson County Department of Human Services, and SUSAN E. BIRCH, in her official capacity as Executive Director of the Colorado Department of Health Care Policy and Financing, Defendants.


          Nina Y. Wang United States Magistrate Judge

         This matter comes before the court on Plaintiff Lilafern Kadingo's ("Plaintiff or "Ms. Kadingo") Motion for Summary Judgment [#65, filed Mar. 10, 2017] and Defendants Lynn A. Johnson and Susan E. Birch's (collectively, "Defendants") Motion for Summary Judgment [#66, filed Mar. 10, 2017]. The motions are before the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636(c) and the Order Referring Case dated January 29, 2016 [#16]. After carefully considering the motions and associated briefing, the entire case file, the applicable case law, and the comments offered during the June 15, 2017 Motions Hearing, the court hereby DENIES Plaintiffs Motion for Summary Judgment and GRANTS Defendants' Motion for Summary Judgment for the following reasons.


         Plaintiff is a ninety-three (93) year old woman who "is incapacitated with dementia and physical disabilities." See generally [#65 at Movant's Statement of Material/Undisputed Facts ("SOMUF") ¶ 3; #65-3 at 2; #66 at Statement of Undisputed Facts ("SOUF") ¶ 9; #68 at 1]. Plaintiff currently resides in a nursing home in Thornton, Colorado, and her son, John Kadingo, "holds a durable power of attorney for [her]." [#65 at SOMUF ¶¶ 1-2; #66 at SOUF ¶ 9]. Plaintiffs husband, Hubert Kadingo ("Mr. Kadingo"), passed away on May 16, 2011, and through his will, he devised one-half of his estate via the Lilafern Kadingo Trust (the "Trust") to Plaintiff and one-half via a separate trust to his children. [#65 at SOMUF ¶¶ 3-4; #66 at SOUF ¶¶ 10-12].[1]The Trust is a pure discretionary trust that granted sole and absolute discretion to the trustee (John Kadingo) regarding distributions to Plaintiff, the sole beneficiary of the Trust. [#65 at SOMUF ¶ 5; #66 at SOUF ¶¶ 13-15].

         In November 2011, InnovAge prepared and filed a Medicaid application on behalf of Plaintiff as her authorized representative. [#65 at SOMUF ¶¶ 9-10; #66 at SOUF ¶ 16]. At the time of filing Plaintiffs Medicaid application, "Plaintiffs only asset was the residence, as an exempt homestead under 10 CCR 2505-10, 8.lOO.5.M.2.a, based on intent to return, not whether Plaintiff was able to live there." [#65 at SOMUF ¶ ll].[2] The Colorado Department of Health Care Policy and Financing ("CDHCPF") subsequently approved Ms. Kadingo's application for long-term care services beginning in February 2012. [#65 at SOMUF ¶ 12]. Then, about June 2013, Plaintiff sold her residence and placed the proceeds from the sale in the Trust. John Kadingo's probate counsel informed Defendants of the sale on multiple occasions. [#65 at SOMUF ¶¶ 13-14; #66 at SOUF ¶ 17].

         On July 16, 2014, Leanne Gardner, Trust Officer for the CDHCPF, informed John Kadingo that Plaintiff received an overpayment of $98, 703.52 in Medicaid benefits, and that the CDHCPF sought only to recover that overpayment. [#65 at SOMUF ¶ 15; #66 at SOUF ¶ 20]. The Parties dispute whether this letter placed Plaintiff on notice that the CDHCPF considered the placement of the residence proceeds in the Trust as a transfer without fair consideration. Compare [#65 at SOMUF ¶ 15] with [#68 at 2]; see also [#68 at Statement of Additional Material/Undisputed Facts ¶¶ 1-6]. However, it is clear that Plaintiffs counsel and Ms. Gardner then exchanged correspondences regarding the July 16 letter. Plaintiff sought, and received, clarification of the CDHCPF's legal position with respect to Ms. Kadingo's Medicaid benefits. See generally [#66-6; #66-7; #66-8]. Then, on or about July 25, 2014, the Jefferson County Department of Human Services ("JCDHS") sent Plaintiff a notice (the "July 2014 notice"), citing that she was "overresourced" as a basis for denial and penalty, rather than that she had engaged in a transfer without fair consideration. The July 2014 notice was sent directly to InnovAge who did not forward it to Ms. Kadingo. [#65 at SOMUF ¶ 16].

         John Kadingo appealed the July 2014 notice, and an Administrative Law Judge ("ALJ") conducted hearings on the matter on July 27, 2015, [3] and again on August 10, 2015, via telephone. [Id. at ¶¶ 17-18; #66 at SOUF ¶ 23]. During the July 27 hearing, the ALJ inquired of Plaintiffs counsel whether he would "want to go ahead and have a decision about the transfer without fair consideration issue." [#66-10 at 27:14-18].[4] Following the hearings, the ALJ concluded that the July 2014 notice was defective for citing the incorrect ground for the agency's action; however, the ALJ considered the merits of the case based on a theory of transfer without fair consideration rather than Plaintiff being overresourced. [#65 at SOMUF ¶¶ 18-19; #66 at SOUF ¶ 26]. The Parties dispute whether it was Plaintiffs counsel who urged the ALJ to consider the Defendants' transfer without fair consideration theory. Compare [#65 at SOMUF ¶ 19] with [#66 at SOUF ¶¶ 24-25]. Nevertheless, Plaintiff substantively responded to Defendants' arguments. See [#66 at SOUF ¶ 25 (citing [#66-2 at 1; #66-11])]. The ALJ ultimately concluded that there was a transfer without fair consideration valued at $87, 000, and the ALJ issued Plaintiff a future disqualification of benefits penalty, imposing a 14-month disqualification period (i.e., a transfer penalty) to run upon entry of the Final Agency Decision. [#65 at SOMUF ¶ 20; #66 at SOUF ¶ 26]. Plaintiff failed to timely appeal the ALJ's Initial Decision. [#65 at SOMUF ¶ 21; #66 at SOUF ¶ 27]. Accordingly, the CDHCPF issued a Final Agency Decision on October 30, 2015, affirming the ALJ's decision and activating the transfer penalty as of the date of its order. [#65 at SOMUF ¶ 15; #66 at SOUF ¶ 27].

         Then, on June 14, 2016, the JCDHS issued a new notice (the "June 2016 notice") to Plaintiff citing transfer without fair consideration as the basis of its action, imposing the 14-month disqualification period set to run from July 1, 2016 to August 31, 2017. [#65 at SOMUF ¶ 22; #66 at SOUF ¶ 28]. Ms. Kadingo timely appealed the June 2016 notice. [#65 at SOMUF ¶22]. On October 25, 2016, the ALJ dismissed Plaintiffs appeal of the June 2016 notice because the ALJ had already heard the case and the CDHCPF already issued a Final Agency Decision on the matter. [Id. at ¶ 23]. To date, the CDHCPF has yet to issue a Final Agency Decision as to the June 2016 notice. [Id. ].


         On December 11, 2015, Plaintiff commenced this action in the District Court of the City and County of Denver. See [#1 at 1]. Defendants filed their Notice of Removal in the federal district court for the District of Colorado on December 30, 2015, pursuant to 28 U.S.C. § 1331, because Plaintiffs Complaint alleged violations of her constitutional rights and sought declaratory relief under 42 U.S.C. § 1983.[5] [Id. at 2]. Following a 90-day stay of the proceedings [#22], Defendants responded to Plaintiffs Complaint with their first Joint Motion to Dismiss Plaintiffs Complaint on May 10, 2016. [#28]. However, on June 29, 2016, Plaintiff filed her First Amended Complaint ("FAC") [#38], the operative Complaint in this matter, and the court denied as moot Defendants' first Joint Motion to Dismiss in light of the FAC. [#39].

         Then, on July 13, 2016, Defendants filed their Motion to Dismiss the FAC. [#42]. In ruling on the second Motion to Dismiss, the undersigned interpreted the FAC as alleging that Defendants violated: (1) 42 U.S.C. §§ l396p(c)(2)(B)(i), l396p(d)(2)(A), and l396a(a)(l8), with their policy and practice of interpreting a spouse's failure to elect against the decedent spouse's will as a transfer without consideration, infringing her rights to a testamentary trust that would be exempt from consideration under Medicaid ("Claim I"); (2) 42 U.S.C. § l396p(c)(1)(E)(i)(I), by failing to treat Mr. Kadingo's testamentary trust as equivalent to an elective-share trust under Colorado law and assessing a transfer penalty ("Claim II"); (3) 42 U.S.C. § l396p(c)(1)(D)(ii), because the ALJ ignored the state regulations and arbitrarily implemented the disqualification penalty in contravention of federal law by utilizing a start date that was not the first day of the month during or after the date in which assets were transferred ("Claim III"); (4) 42 U.S.C. § l396a(a)(3) and the Fourteenth Amendment of the United States Constitution, because they provided Plaintiff deficient notice of the termination of her Medicaid benefits and failed to provide her a fair and impartial hearing, and seeking a declaration that 10 Colo. Code Regs. §§ 25O5.IO:8.O57.8.D, E are unconstitutional ("Claim IV"); and (5) 42 U.S.C. § l396p(c)(2)(C) with their policy and practice of applying transfer penalties when an individual fails to elect against their deceased spouse's will with reasons "other than to qualify for medical assistance" ("Claim V"). See [#38 at 15-26]. The claims also interweave facial challenges to the state Medicaid regulations, as well as particular challenges to the manner in which Ms. Kadingo's case was adjudicated. [#38].

         On January 26, 2017, the undersigned granted in part and denied in part Defendants' Motion to Dismiss [#42]. See [#60]. Plaintiffs remaining claims are as follows: (1) Claim I, but only to the extent it seeks to challenge Defendants' regulations, policies, and practices as violations of Plaintiffs federal rights under 42 U.S.C. §§ l396p(d)(2)(A), l396a(a)(l8); (2) Claim IV in its entirety; and (3) Claim V, but only to the extent it seeks to challenge Defendants' regulations, policies, and practices as violations of Plaintiffs federal rights under 42 U.S.C. § l396p(c)(2)(C) and not to the extent it seeks to challenge the equivalence of Mr. Kadingo's testamentary trust to that of an elective share trust. [Id.][6]

         Following its ruling on the Motion to Dismiss, the court set the deadline for dispositive motions as February 24, 2017, but extended that deadline to March 10, 2017 upon motion by the Parties. [#58; #60, #62]. Plaintiff moves for summary judgment in her favor on Claims I and IV [#65 at 1]; Defendants move for summary judgment in their favor on all three of Plaintiff s remaining claims [#66]. The court entertained oral argument on June 15, 2017, and took the motions under advisement. [#67; #72].


         Summary judgment is appropriate only if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 411 U.S. 317, 322 (1986); Henderson v. Inter-Chem Coal Co., 41 F.3d 567, 569 (10th Cir. 1994). Whether there is a genuine dispute as to a material fact depends upon whether the evidence presents a sufficient disagreement to require submission to a jury or conversely, is so one-sided that one party must prevail as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986); Carey v. U.S. Postal Serv., 812 F.2d 621, 623 (10th Cir. 1987). A fact is "material" if it pertains to an element of a claim or defense; a factual dispute is "genuine" if the evidence is so contradictory that if the matter went to trial, a reasonable party could return a verdict for either party. Anderson, Ml U.S. at 248.

         If the moving party demonstrates an absence of evidence supporting an essential element of the opposing party's claims, the burden shifts to the opposing party to show that there is a genuine issue for trial. Celotex, 477 U.S. at 324. To satisfy this burden, the nonmovant must point to specific facts in an affidavit, deposition, answers to interrogatories, admissions, or other similar admissible evidence demonstrating the need for a trial. Id.; Mares v. ConAgra Poultry Co., 971 F.2d 492, 494 (10th Cir. 1992). "[A] mere 'scintilla' of evidence will be insufficient to defeat a properly supported motion for summary judgment; instead, the nonmoving party must introduce some 'significant probative evidence tending to support the complaint.'" Fazio v. City & County of San Francisco, 125 F.3d 1328, 1331 (9th Cir. 1997) (quoting Anderson, 477 U.S. at 249, 252). In reviewing a motion for summary judgment the court views all evidence in the light most favorable to the non-moving party. See Garrett v. Hewlett-Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002).


         I. Statutory Framework

         The Medical Assistance Program ("Medicaid"), enacted as Title XrX of the Social Security Act, 42 U.S.C. § 1396 et seq., is a federal-state cooperative program "designed to afford medical assistance to persons whose income and resources are insufficient to meet the financial demands of necessary care and services." New Mexico Dep 't of Human Servs. v. Dep 't of Health & Human Servs. Health Care Fin. Admin., 4 F.3d 882, 883 (10th Cir. 1993); accord Hern v. Beye, 57 F.3d 906, 909 (10th Cir. 1995) (explaining that Medicaid provides assistance to at least seven categories of recipients considered "categorically needy"-individuals). As the Supreme Court recognized,

In structuring the Medicaid program, Congress chose to direct those limited funds to persons who were most impoverished and who-because of their physical characteristics-were often least able to overcome the effects of poverty. The legislative history of the 1965 Amendments makes clear that this group was not chosen for administrative convenience. "These people are the most needy in the country and it is appropriate for medical care costs to be met, first, for these people."

Schweiker v. Hogan, 457 U.S. 569, 590 (1982) (footnote omitted) (emphasis added).

         State participation in the program is optional; however, once a state elects to participate, it must comply with the federal statutory scheme and regulations promulgated by the Secretary of Health and Human Services. See Colorado Health Care Ass'n v. Colorado Dep't of Soc. Servs., 842 F.2d 1158, 1164 (10th Cir. 1988). Upon participation, "the federal government pays at least 50% of the costs for patient care 'and, in return, [each] State pays its portion of the costs and complies with certain statutory requirements.'" Reyes v. Hickenlooper, 84 F.Supp.3d 1204, 1207 (D. Colo. 2015) (quoting Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006)).

         Colorado currently participates in the Medicaid program. Ramey v. Reinertson, 268 F.3d 955, 957 (10th Cir. 2001). As such, Colorado enacted the Colorado Medical Assistance Act "to promote the public health and welfare of the people of Colorado by providing, in cooperation with the federal government, medical and remedial care and services" to individuals and families that cannot attain or retain such care and services themselves. See Colo. Rev. Stat. § 25.5-4-102 et seq. The CDHCPF is the sole state agency charged with administering the Medicaid program. Id. § 25.5-4-104(1).

         Pursuant to federal law, Colorado is required to provide full Medicaid services to categorically needy individuals; yet, it has the discretion to provide full coverage to additional "optional" segments of the State's population. See Soskin v. Reinertson, 353 F.3d 1242, 1245 (10th Cir. 2004) (citing 42 U.S.C. §§ l396a(a)(lO)(A)(i), (ii)). "In determining a person's eligibility for Medicaid, states must use reasonable standards that only factor in income and resources which are available to the recipient and which would affect the person's eligibility for [Supplemental Security Income ("SSI")]." Brown ex rel. Brown v. Day, 555 F.3d 882, 885 (10th Cir. 2009) (citing 42 U.S.C. § l396a(a)(l7)); see also 42 U.S.C. § l396a(r)(2)(A)(i) (forbidding states from employing eligibility methodologies that would render an individual ineligible for Medicaid where that individual is eligible for SSI). Historically, in an effort to maximize their income that would not count as an "available asset, " many applicants attempted to shield their assets through irrevocable trusts, prompting Congress to "reiterate[] its intent that Medicaid was designed to provide basic medical care for those without sufficient income or resources to provide for themselves and thus passed 42 U.S.C. § 1396a(k)." Ramey, 268 F.3d at 958; see also Cohen v. Comm'r of Div. of Med. Assistance, 668 N.E.2d 769, 771-72 (Mass. 1996) ("Thus, a grantor: was able to qualify for public assistance without depleting his assets; could once more enjoy those assets if he no longer needed public assistance; and, if such a happy time did not come, could let them pass intact pursuant to the terms of the trust to his heirs. The grantor was able to have his cake and eat it too.").

         Section 1396a(k), known as the Medicaid qualifying trust ("MQT") statute, forbade the use of MQTs as a mechanism for sheltering assets for Medicaid eligibility purposes. See 42 U.S.C. § l396a(k)(1). The MQT statute clarified that the amount "available" to a potential applicant included "the maximum amount of payments that may be permitted under the terms of the trust to be distributed to the grantor[.]" Id. In recommending the passage of section l396a(k), the House Committee on Energy and Commerce stated,

The Committee feels compelled to state the obvious. Medicaid is, and always has been, a program to provide basic health coverage to people who do not have sufficient income or resources to provide for themselves. When affluent individuals use Medicaid qualifying trusts and similar "techniques" to qualify for the program, they are diverting scarce Federal and State resources from low-income elderly and disabled individuals, and poor women and children. This is unacceptable to the Committee.

H.R.Rep. No. 265, 99th Cong., 1st Sess., pt. 1, at 72 (1985).

         In 1993, Congress repealed section l396a(k) and replaced it with "another statute even less forgiving of such trusts." Barney, 268 F.3d at 959 (citing 42 U.S.C. § 1396p(d)). Section l396p(d) "added stringent criteria regarding the treatment of MQTs such as the inclusion of the corpus and proceeds of various irrevocable trusts as countable resources." Id. Generally, section 1396p(d) requires states to consider assets contained in both irrevocable and revocable trusts, unless explicitly exempted, when determining an individual's original or continuing eligibility for Medicaid benefits. 42 U.S.C. § l396p(d)(1).

         Here, Plaintiff challenges Colorado's Medicaid eligibility regulations (Claims I and V), as well as the process Defendants afforded her before initiating the 14-month disqualification penalty on her receipt of benefits (Claim IV). With the discussed statutory framework in mind, the court now considers the Parties' arguments below.

         II. Claims I and V

As relevant here, in establishing methodologies for individual eligibility, Colorado's Medicaid program must "comply with the provisions of section l396p of this title with respect to liens, adjustments and recoveries of medical assistance correctly paid, [] transfers of assets, and treatment of certain trusts." 42 U.S.C. § l396a(a)(l8) (footnote omitted). In Claims I and V, Plaintiff challenges Defendants' regulation governing Transfers of Assets Without Fair Consideration ("TAWFC"), 10 Colo. Code Regs. § 2505-10:8.100.7.F., as violating her rights under section l396p(d), which sets forth the rules for the treatment of trusts for determining Medicaid eligibility. 42 U.S.C. § l396p(d)(1). This case does not involve review of whether the CDHCPF properly adjudicated Ms. Kadingo's case under otherwise valid regulations.[7]

         Colorado's TAWFC regulation provides, in pertinent part,

If an institutionalized individual or the spouse of such individual disposes of assets without fair consideration on or after the look-back period, the individual shall be subject to a period of ineligibility for Long-Term Care services, including Long-Term Care institution care, Home and Community Based Services (HCBS), and the Program of All Inclusive Care for the Elderly (PACE).

10 Colo. Code Regs. § 2505-10:8.100.7.F.2.

         The following actions create a "rebuttable presumption" that a transfer was without fair consideration:

(ii) Waiving a right to receive an inheritance;
(iii) Preventing access to assets to which an individual is entitled to by diverting them to a trust or similar device. This is not applicable to valid income trusts, disability trusts and pooled ...

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