NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

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____________ M ARY SABL E; M I CHAEL L ANZA; W I LL I AM GERWECK v. JE N N IF E R V E L E Z , C o m m iss io n e r, N e w Je rse yD e p a rtm e n t o f H u m a n S e rv ice s; J O H N R . G U H L , D i r ect or , N ew J er s eyD epart m entof H um an Servi ces , D i vi s i on of

M edi cal A s s i s t ance and H eal th Ser vi ces

M arySabl e, M i chae l L anza , A pp el l ants

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forthe D i s tr i ctof N ew J er s ey ( D . C . N o. 09- cv- 02813) D i s tr i ctJ udge: H onor abl e A nne E. T hom ps on

____________ A r gued J une 29, 2010 B e f o re : S L O V IT E R , B A R R Y a n d H A R D IM A N , C i r cui tJudges .

( Fi l ed: J ul y28, 2010) J ohn W . C al l i nan [A r gued] Sui t e 103 2052 H i ghw ay35 W al l , N J 07719- 0000 R ene H . R ei xach W oods O vi attG i l m an 2 S tate S tre e t 700 C r os s r oads B ui l di ng2

R oches t er , N Y 14614 A t t orneys f

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s D i anna M . R os enhei m [A r gued] O f f i c e o f A t t o r n e y G e n e r a l o f

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e ty 2 5 M a rk e t S tre e t R i char d J . H ughes C om pl ex T r ent on, N J 08625- 0000 A t t or ney f

orAppel l ees

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OPI NI ON O F THE COURT

____________ H A R D IM A N , C i r cui tJudge . M arySabl e and M i chae l L anza appea l the D i s tr i ctC our t ’ s deni al of thei rm ot i on fora pr el i m i naryi nj unct i on. B eca us e w e hol d thatthe D i s tr i ctC our t ’ s deci s i on w as bas ed on l egal err or , w e w i l l vaca t e and r emand. I. A ppel l ant s ar e el der l yi ndi vi dual s w ho, al ong w i th thei rs pous es , had t oo m any r es our ces t o qual i fyforas s i s t ance underthe fe der al M edi cai d pr ogr am 42 U . S. C . § 1396, et s eq. A r ound the t i m e A ppel l ant s appl i ed forM edi cai d, thei rs pous es pur chas ed p ro m iss o ryn o tes f

ro m th e ir c h ild re n th a t ap p e a re d to b rin g th e c o u p les ’ re so u rc e s w ith in the M edi cai d el i gi bi l i tyl i m i t s . B oth appl i cat i ons w er e deni ed, how ever , beca us e the N ew J er s eyD epart m entof H um an Servi ces ( the D epart m ent ) count ed the pr om i s s orynot es as r es our ces , w hi ch ca us ed A ppel l ant s t o exce ed the M edi cai d r es our ce thr es hol d. T he3

D epart m entr eac hed thatconcl us i on beca us e i tanal y zed the pr om i s s orynot es as trus t - l i ke dev i ces. A ppel l ant s br oughtthi s s ui tagai ns tthe D epart m ent ’ s C om m i s s i oner , J enni fer V e lez , an d th e D ire c to r o f th e N e w Je rse yD iv isio n o f M e d ica l A ss ista n c e a n d H e a lth S e rv ice s, Jo h n R . G u h l. A p p e llan ts s o u g h t to e n jo in th e D e p a rtm e n t f

ro m tre a tin g th e ir not es as trus t - l i ke devi ces and as ked the D i s tr i ctC our tt o r emand t he mat t ers o the D e p a rt m e n t c o u ld re c o n s id e r t h e ira p p lic a tio n s u n d e r t h e p ro p e r a n a lytic a l f ra m e w o rk . T he D i s tr i ctC our tdeni ed A ppel l ant s ’ m ot i on forpr el i m i naryi nj unct i on, hol di ng theyhad n o t es tab lish e d a lik e lih o o d o f su c c e ss o n th e m e rits b e c a u se f e d e ra l law d o e s n o t p ro h ib it treat i ng the n otes ati ssue as trust -l i ke d evices . W hen r evi ew i ng a pr el i m i naryi nj unct i on, “w e r evi ew the court ’ s l egal concl us i ons de novo, i t s fi ndi ngs of fa ctforcl earerr or , and i t s ul t i m at e dec i s i on t o gr antordenyt he pr el i m i naryi nj unct i on foran abus e of di s cr et i on. ” M aldonado v. H

ous t oun , 157 F. 3d 1 7 9 , 1 8 3 (3d C ir . 1 9 9 8 ). II. A ppel l ant s cl ai m the D i s tr i ctC our tcomm i t t ed l egal err orw hen i thel d the pr om i s s orynot es can be tr eat ed as trus t - l i ke devi ces underM edi cai d. T heyar gue s uch tr ea tm en t violates the M ed icaid statute’s c o m p ara b il ityp rov isi o n s, w h ich re q u ir e a stat e’s m ethodol ogyforcal cul at i ng i ncome and r es our ce e l i gi bi l i tyt o be “no mor e r es tr i ct i ve” th a n th e me th o d o l o g yu s e d f o rS u p p l e me n t a l S e c u r i tyI n c o me ( S S I ) . 4 2 U. S . C.T h e p h ra se , “n o m o re re stric tiv e ” w a s a d d e d in a 1 9 8 8 a m e n d m e n t to 1 § 1 3 9 6 (a)(10 )(C )(I ), P u b . L . 1 0 0 -36 0 § 3 0 3 (e)(1), w h ich u sed to req u ir e tha t th e state’s “met hodol ogy. . . s hal l be the s ame m ethodol ogyw hi ch w oul d be empl oy ed under ” the S S I. See A tki ns v. R i vera , 4 7 7 U . S . 1 5 4 , 1 5 9 (19 8 6 ). 4 § § 1 3 9 6 a(a )(1)(C )(i )(I II) , 1 3 9 6 a(r)(2). A m etho d o log yis “co n side red to b e ‘n o m o re r es tr i ct i ve’ i f, us i ng the met hodol ogy , addi t i onal i ndi vi dual s m aybe el i gi bl e form edi cal as s i s t ance and no i ndi vi dual s w ho ar e otherw i s e el i gi bl e ar e made i nel i gi bl e fors uch as s i s t ance . ” § 1396a( r ) ( 2) ( B ) . T he D epart m entm ayempl oya di ffe r entm ethodol ogy , as l ong as i ti s no m or e r es tr i ct i ve. 1 T her e ar e es s ent i al l ytw o t r acks of ana l y s i s forcal cul at i ng r es our ces underSSI: t he r egul arrul es and the trus trul es . U nderthe r egul arrul es , a r es our ce i s defi ned as “ca s h or o th e r liq u id a ss e ts . . . th a t an in d iv id u a l (o r sp o u se , if a n y ) o w n s a n d c o u ld c o n v e rt to c a sh to b e u se d f

o r h is o r h e r su p p o rt a n d m a in ten a n c e .” 2 0 C .F .R . § 4 1 6 .1 2 0 1 (a ); s ee als o § 416. 120( c) ( 3) ( us i ng s ubs t ant i al l ys i m i l arl anguage ) . T o be a r es our ce, the ca s h or pr opertym us tbe capabl e of be i ng “conve r t ed t o cas h w i thi n 20 day s , ” § 416. 1201( b) , and the per s on m us thave the “r i ght , author i ty , orpow ert o l i qui dat e the pr opertyorhi s orher s har e of the pr operty , ” § 416. 1201( a) ( 1) . I n i t s Pr ogr am O per at i ons M anual Sy s t em ( PO M S) , the Soci al Secur i tyA dm i ni s tr at i on has es t abl i s hed t es t s foranal y zi ng di ffe r entT he PO M S i s the publ i cl yavai l abl e i nt ernal oper at i ng i ns truct i ons forpr oces s i ng 2 S S I c la im s . W

as hi ngt on Stat e D ept . of Soci alHeal th Ser vs . v. Kef f l er , 537 U . S. 371, 385 ( 2003) . “W hi l e thes e admi ni s tr at i ve i nt erpr et at i ons ar e notpr oduct s of form al rul emaki ng, theyneverthel es s w arr antr es pect . ” I d. ; s ee al s o Jam es v. R i chm an , 547 F. 3d 2 1 4 , 2 1 8 n . 2 (3d C ir . 2 0 0 8 ). W e a lso n o te th at th e re g u lat ion s li st “p rom issoryn o tes” a s “re so u rce s tha t are 3 or di nar i l yl i qui d, ” 20 C . F. R . § 416. 1201( b) , w her eas “l oan agr eement s ” ar e “r es our ces that are o rdin aril yn o n li q u id,” § 4 1 6 . 1 2 0 1 (c). 5 i n s tru me n t s . T h e r e l e v a n tP OM S p r o v i s i o n s c o n t a i n t e s t s f o rp r o mi s s o ryn o t e s , P OM S 2 SI § 1140. 300, and ca s h l oans , § 1120. 220. 3 P rio r to 1 9 9 9 , so m e a p p lica n ts e v a d e d th e re so u rc e re q u ire m e n ts b yp lac in g th e ir m o n e yin tru s ts , w h ic h f re q u e n tly d o n o t q u a lif

ya s re s o u rc e s u n d e r § 4 1 6 .1 2 0 1 . Kel l ey v . C o m m ’r o

f So c ia l Se c u rity , 566 F. 3d 347, 352- 53 ( 3d C i r . 2009) . T o cl os e thatl oophol e, C ongr es s amended the SSI s t atut e t o counttrus t s and trus t - l i ke devi ces s epar at el y . 42 U .S .C . § 1 3 8 2 b (e ); Kel l ey , 5 6 6 F .3 d a t 3 5 2 -5 3 ; s ee al s o 42 U . S. C . § 1396p( d) ( the M edi cai d s t atut e on trus t s and trus t - l i ke devi ces ) . N ow , al l trus t s and trus t - l i ke devi ces a re c o n s id e re d re s o u rc e s u n le s s e x p lic itly e x c lu d e d b ys ta tu te . § § 1 3 8 2 b (e )( 3 ), a n d (e )( 6 ). T h e P OM S a l s o c o n t a i n s a s e c t i o n o n h o w t o a n a l y z e tru s t s o rtru s t - l i k e d e v i c e s , P OM S SI § 1120. 201. C r i t i cal t o t hi s appea l , the trus t - l i ke devi ce a nal y s i s i s s econda ryt o the r egul ar anal y s i s , even f

ori ns trum ent s thatm eetthe trus t - l i ke devi ce r equi r ement s : “w e w i l l not cons i derthes e arr angement s undertrus trul es i f theyw oul d be count ed as r es our ces under re g u lar S S I re so u rc e -c o u n tin g ru les .” § 1 1 2 0 .2 0 1 (G )(1 ); s ee al s o § 1120. 202( A ) ( 5) ( a)A ppel l ant s cl ai m a pr om i s s orynot e ca n neverbe tr eat ed as a trus t - l i ke devi ce 4 u n d e r 4 2 U .S .C . § 1 3 9 6 (d ) b e c a u s e s u c h tr e a tm e n t w o u ld re n d e r § 1 3 9 6 p (c ) m e a n in g le s s . B utthe tw o s ubs ect i ons do notaff ecteac h other . Subse ct i on ( d) addr es s es count i ng re so u rc e s f

o r e lig ib ili ty , w h e re a s s u b se c tio n (c ) a d d re ss e s p u n ish in g sh a m tra n sa c tio n s in w h ich a ss e ts a re tra n sf

e rre d f o r le ss th a n f

a ir m a rk e t v a lu e . B e c a u se th e tw o a re d if f e re n t, instrum en ts can b e re leva n t un d er b o th su b sec ti o n s. F o r ex am p le, an n u it ies are puni s habl e under§§ 1396p( c) ( 1) ( F) and ( G ) and ca n be ana l y zed a s trus t - l i ke devi ces for e lig ib ility. See P O M S S I § 112 0. 20 1(G )( 2) ( l i st i ng exam ples of trust -l i ke d evices , inclu d ing “a n n u it ies”). 6 (d ire c tin g a p p lica tio n re v iew e rs to f irst d e ter m in e w h e th e r th e in stru m e n t is a c o u n tab le r es our ce “ underr egul arSSI r es our ce- count i ng rul es ”) . A l though the PO M S does not defi ne “r egul arSSI r es our ce- count i ng rul es , ” i tr efe r s t o the r egul arrul es di s cus s ed above. T h e D i s tr i c tC o u r th e l d th a t“ th e r e i s n o th i n g i n th e Me d i c a i d A c to rth e P O MS thatforbi ds a s t at e fr om i ns t ead a nal y zi ng a pr om i s s orynot e as a trus t - l i ke devi ce i f the fac t s of the s i tuat i on w arr ants uch ana l y s i s . ” Sabl e v. V el ez , 2009 W L 5174452, at*1 (D .N .J. 2 0 0 9 ). D e sp ite th e v e ra c ityo f th a t sta tem e n t, w e h o ld th a t th e D istric t C o u rt d id n o t u n d e rta k e th e p ro p e r a n a ly sis to d e ter m in e w h e th e r th e f a c ts o f th is c a se w a rra n t tru stlik e d e v ice a n a ly sis . T h e S S I a n a ly sis re q u ire s in q u iryin to w h e th e r th e n o tes a t issu e in this app eal are r esources und er the regu l ar r esource-coun t i ng rul es. If theyare r esources, the SSI anal y s i s w oul d neverr eac h the trus t - l i ke devi ce pr ovi s i on. B eca us e the D i s tr i ct C o u rt p ro c e e d e d to th e tru st-lik e d e v ice a n a ly sis w ith o u t f irst a p p ly in g th e re g u lar ru les , it co m m itted leg al error. 4C o n tra ryto th e D e p a rtm e n t’s a rg u m e n t, th e D istric t C o u rt w ill n o t n e e d to 5 det erm i ne w hetherthe tr ans act i ons had a “ l oan purpos e” be caus e thatr equi r ementi s not c on t a i ne d i n the s t a tut e , r e gu l a t i on s , orPO M S. O n re m a n d , the D istric t C o u rt w ill a lso n e e d to d e ter m in e w h e th e r A p p e llan ts 6 have s how n a l i kel i hood of s ucce s s on the mer i t s . Succes s on the mer i t s r equi r es s how i ng th e ywo u l d h a v e b e e n e l i g i b l e u n d e rS S I , n o tth a tth e ywo u l d h a v e b e e n e n t i t l e d t o s o me h yp o th e tic a l d e f

e n s e s . See, e. g. , R oa ch v. M orse , 4 4 0 F . 3 d 5 3 , 5 9 (2d C ir . 2 0 0 6 ) (“[T ]o s ucce ed i n t hei rcl ai m , pl ai nt i ffs m us ts how thatV erm ont ’ s M edi cai d m ethodol ogy r e nd e r s the m i ne l i gi bl e fo rbe ne fi t s fo rw hi c h the yw ou l d b e e l i gi bl e un de rthe SSI m etho d o log y . ”). 7 T o b e c lea r, w e d o n o t h o ld th a t th e p ro m iss o ryn o tes a t issu e in th is a p p e a l w o u ld nece s s ar i l ybe count ed as r es our ces underthe r egul arSSI r es our ce- count i ng rul es ; that determ i nati on dep end s on w hethertheysat i sfytho se rules . F or exam ple, un der the cash l oa n p r ov i s i on , the no t e s ne e d t o b e “ bo na fi de , ” “ ne go t i a bl e , ” PO M S SI § 1 1 2 0 .2 2 0 (B )(2 ), an d “ e n f o rc e a b le u n d e r sta te la w ,” § 1 1 2 0 .2 2 0 (A )(1 ); see al so 5 § 1 1 2 0 .2 2 0 N Y (B )(1 ) (S S I p o licye x p lain in g w h e n a n in f o rm a l lo a n is le g a llyb in d in g in N ew Jer sey ). Itrem ai ns for the D i stri ctC ou rtt o m ake those determ i nati on s i n the fi rs t i ns t ance . 6 W e hol d onl ythatthe D i s tr i ctC our tcomm i t t ed l egal err orw hen i tanal y zed the not es as trus t - l i ke devi ces w i thoutfi r s tdet erm i ni ng w hethertheyw oul d be count ed as r es our ces underthe r egul arr es our ce- count i ng rul es . A ccor di ngl yw e w i l l vaca t e the D istric t C o u rt’s o rd e r a n d re m a n d f o r f u rth e r p ro c e e d in g s n o t in c o n sis ten t w ith th is opi ni on.