2011 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-12-2011

Mary Sable v. Jennifer Velez

Precedential or Non-Precedential: Non-Precedential

Docket No. 10-4647

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Recommended Citation

"Mary Sable v. Jennifer Velez" (2011). 2011 Decisions. Paper 894.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 10-4647

_____________

MARY SABLE; 

MICHAEL LANZA, 

 Appellants

v.

JENNIFER VELEZ, Commissioner, New Jersey Department of Human Services; 

JOHN GUHL, Director, New Jersey Department of Human Services, 

Division of Medical Assistance and Health Services

_____________

On Appeal from the United States District Court

for the District of New Jersey

(No.3-09-cv-02813)

District Judge: Hon. Anne E. Thompson

Submitted March 18, 2011

Before: BARRY, CHAGARES and ROTH, Circuit Judges.

(Filed: July 12, 2011)

____________

OPINION 

____________

CHAGARES, Circuit Judge.

Mary Sable and Michael Lanza (the “plaintiffs”) appeal the District Court’s denial 

of a preliminary injunction enjoining their respective Medicaid agencies from considering 

purchases of promissory notes from their children as trust-like devices in determining 
2

their available resources for Medicaid eligibility. Applying the guidance provided by this 

Court, the District Court held that the plaintiffs had failed to show a likelihood of success 

on the merits. For the reasons that follow, we will affirm the judgment of the District 

Court. 

I. 

We write for the parties’ benefit and recite only the facts essential to our 

disposition. Mary Sable is married to George Sable and the couple resides in their home 

in Manasquan, New Jersey. Mary suffers from severe rheumatoid arthritis and depends 

on others to perform her daily activities. On October 23, 2008, George purchased a

promissory note for $80,903 from his son. The promissory note was payable for a period 

of seven years with interest of six percent. There was no security or collateral for the 

agreement and a determination of his son’s creditworthiness was not made. On 

November 5, 2008, Mary applied for the Global Options Medicaid Waiver program, but 

was informed by his Medicaid agency that the couple had excess resources. On February 

18, 2009, George purchased another promissory note from his son in the amount of 

$42,500 with an interest rate of three percent for seven years. Similar to the initial note, 

there was no security or collateral for this agreement and a determination of his son’s 

creditworthiness was not made. On June 23, 2009, the agency denied Mary’s application 

due to excess resources. In making this determination, the agency considered the 

promissory notes to be trust-like devices, requiring their inclusion in Mary’s countable 

resources for Medicaid eligibility. 
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Michael Lanza is married to Grace Lanza and is a resident of a nursing facility. 

On February 16, 2009, Grace purchased promissory notes from each of her three children 

for $80,000, repayable with interest in monthly installments over four years. In this 

exchange, there was no security or collateral provided nor was documentation provided

showing each child’s creditworthiness. In March, Michael filed an application for 

Medicaid benefits with the Mercer County Board of Social Services seeking assistance 

for his long-term care bills. On June 2, 2009, the agency denied benefits to Michael 

because he exceeded the resource limit due to the promissory notes being considered as 

trust-like devices. 

On June 9, 2009, the plaintiffs brought suit seeking injunctive relief preventing the 

agencies from counting promissory notes as trust-like devices in determining their 

available resources. On October 13, 2009, the District Court denied a motion for a 

preliminary injunction, finding that the plaintiffs did not make an adequate showing of 

success on the merits because a question existed as to whether a fiduciary relationship 

existed between the parents and children as borrowers and lenders. The plaintiffs filed a 

timely motion for reconsideration. On December 18, 2009, the District Court noted that 

the Supplemental Security Income (“SSI”) provisions of the Social Security Act did not 

prohibit promissory notes from being counted as trust-like devices, and therefore, denied 

the motion for reconsideration. 

The plaintiffs filed a timely appeal. On July 28, 2010, this Court concluded that 

the District Court committed legal error by not first determining whether the notes would 

be counted as resources under the regular resource eligibility rules before determining 
4

whether such notes were trust-like devices. This Court did not rule on whether, under 

regular SSI resource-counting rules, these notes would be counted, but instead vacated 

the District Court’s order and remanded the matter for further proceedings. On 

December 8, 2010, the District Court found that under regular SSI resource-counting 

rules, the notes did not qualify as cash loans or promissory notes because the plaintiffs 

had failed to meet their burden of showing that the notes were not the product of a badfaith arrangement. Further, the District Court reaffirmed its earlier finding that the 

plaintiffs were unlikely to succeed on the merits because they had failed to show that the 

agencies acted improperly by counting the promissory notes as trust-like devices. Hence, 

the District Court again denied the motion for the preliminary injunction. This timely 

appeal followed. 

II.

The District Court had jurisdiction pursuant to 28 U.S.C. § 1331 and we have 

appellate jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). “A preliminary injunction is an 

extraordinary remedy that should only be granted if: (1) the plaintiff is likely to succeed 

on the merits; (2) denial will result in irreparable harm to the plaintiff; (3) granting the 

injunction will not result in irreparable harm to the defendant; and (4) granting the 

injunction is in the public interest.” NutraSweet Co. v. Vit-Mar Enters., Inc., 176 F.3d 

151, 153 (3d Cir. 1999). The burden is on the movant to demonstrate entitlement to a 

preliminary injunction by satisfying each of these factors. Id. In reviewing the District 

Court’s denial of a motion for a preliminary injunction, we review the District Court’s 

“conclusions of law in a plenary fashion, its findings of fact under a clearly erroneous 
5

standard, and its decision to grant or deny the injunction for an abuse of discretion.” New 

Jersey Hosp. Ass’n v. Waldman, 73 F.3d 509, 512 (3d Cir. 1995). 

III.

In order to show a likelihood of success on the merits, the plaintiffs must establish 

that it was improper for the agencies to consider the notes as trust-like devices. We have 

instructed that the first step in that analysis is to determine whether the notes qualify 

under the regular SSI resource-counting rules as cash loans or promissory notes 

according to the Social Security Administration’s Program Operations Manual System 

(“POMS”). See Sable v. Velez, 388 F. App’x 235 (3d Cir. 2010). If the notes do not 

qualify under either category, then the analysis proceeds to whether the notes are to be 

considered as trust-like devices pursuant to the POMS § 1120.201. Id.

A.

To qualify as a “cash loan” under the POMS, the instrument must be a 

“negotiable, bona fide loan agreement.” § 1120.220(B)(2)(a). An informal loan may be 

bona fide if (1) it is enforceable under state law, (2) was in effect at the time the cash 

proceeds were provided, (3) there is an acknowledgment of an obligation to repay, (4) 

there is a plan for repayment, and (5) the repayment plan is feasible. Id. § 1120.220(C). 

We conclude that the District Court did not err in citing a lack of evidence 

concerning the feasibility of the repayment plan – essential to concluding that an informal 

loan is bona fide – in which case it did not err in finding plaintiffs had not shown a 

likelihood of success on the merits. The plaintiffs argue that the POMS mandates that the 

District Court must presume that the agreement is a cash loan, citing §
6

1120.220(D)(3)(b), which provides: “Assume that the bona fide loan agreement is 

negotiable and is a resource, unless the lender raises questions about the negotiability of 

the agreement and wants to rebut this assumption.” Such a presumption is only relevant, 

however, after a determination has been made that the agreement is in fact bona fide. 

The lack of evidence of feasibility of repayment is sufficient, in itself, to support a 

finding that plaintiffs’ notes likely fail the POMS test for a bona fide loan agreement. 

In addition to the § 1120.220 analysis, the District Court also assessed whether the 

instrument might constitute a bona fide agreement based on POMS § 1120.220(A)(3),

which requires a bona fide agreement to be “made in good faith.” In finding that that the 

transaction was not in good faith, the District Court considered that (1) the loans were not 

arms-length transactions, (2) the loans were informal between family members not in the 

business of lending money, (3) that some of the children had power of attorney over their 

parents, (4) the loans are not backed by collateral and there was no documentation about 

the borrowers’ ability to repay the loans, (5) the timing of the loans made prior to the 

filing of the applications was suspicious, and (6) the loans were in the exact amount of 

excess resources preventing Medicaid eligibility. We agree with the District Court that 

based on these facts, the plaintiffs have not met their burden of showing a likelihood of 

success on the merits as to whether the instruments were bona fide agreements made in 

good faith – and, thus, cash loans – in accordance with POMS § 1120.220(A)(3).1

 

 1 Additionally, we do not agree with the plaintiffs that the District Court created its own 

“bad faith test.” The District Court only analyzed the facts of this case to determine if the 

plaintiffs had met their burden of showing that the agreements were made in good faith.
7

B.

Similarly, a “promissory note” must also be “bona fide” and “negotiable.” POMS 

§ 1140.300(D)(1) & (B)(3). To qualify as a “promissory note,” the POMS instructs that 

the agency is to “[a]ssume, absent evidence to the contrary, that the written agreement is 

bona fide and negotiable.” Id. § 1140.300(D)(1). We agree with the District Court that 

this assumption does not apply here as the facts presented provide “evidence to the 

contrary” – namely, that the notes may have been entered into with the purpose of 

attaining Medicaid eligibility, not to make loans. Hence, the District Court also properly 

determined that the plaintiffs had not met their burden for a preliminary injunction on the 

question of the promissory notes. 

C.

The POMS defines trust-like devices as instruments which involve (1) a grantor 

(2) who transfers property (3) to a person or entity with fiduciary obligations (4) with the 

intention that it be held, managed, or administered by the person or entity for the benefit 

of the grantor or others. Id. §§ 1120.201 (B)(5) & (G)(1). A fiduciary relationship can 

arise where “one or each of the parties, in entering the transaction, expressly reposes a 

trust and confidence in the other or because of the circumstances of the case, the nature of 

their dealings, or their position towards each other, such a trust and confidence is 

necessarily implied.” United Jersey Bank v. Kensey, 704 A.2d 38, 44 (N.J. App. Div. 

1997). In determining whether a fiduciary relationship exists, we must consider all the 

surrounding facts and circumstances relevant to the case. Clyde v. Hodge, 460 F.2d 532, 

535 (3d Cir. 1972).
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We conclude that the plaintiffs have not met the burden of showing that it was 

more likely than not that a fiduciary relationship did not exist between the parents and 

children. Considering that loans between parents and children generally are made in an

environment of trust and confidence, the District Court properly found that the evidence 

presented did not demonstrate that the notes were created without any understanding that 

the children would simply hold the money for the benefit of the parents. Therefore, we 

agree with the District Court that the plaintiffs failed to show that the agencies erred by 

considering their notes as trust-like devices.

* * * * *

We hold that the District Court’s denial of the preliminary injunction was proper 

because the plaintiffs have failed to show that it was more likely than not that their notes 

would be considered cash loans or promissory notes under the regular SSI resourcecounting rules or that their notes should not be considered trust-like devices. 

IV.

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