PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

E.M.A., a minor, by and through 

her Guardian ad Litem, William

W. Plyler; WILLIAM EARL

ARMSTRONG; SANDRA ARMSTRONG,

Plaintiffs-Appellants,

v.  No. 10-1865

LANIER M. CANSLER, in his official

capacity as Secretary of the North

Carolina Department of Health

and Human Services,

Defendant-Appellee. 

Appeal from the United States District Court

for the Western District of North Carolina, at Statesville.

Richard L. Voorhees, District Judge.

(5:07-cv-00037-RLV-DCK)

Argued: October 26, 2011

Decided: March 22, 2012

Before AGEE, DAVIS, and KEENAN, Circuit Judges.

Vacated and remanded by published opinion. Judge Davis

wrote the opinion, in which Judge Keenan joined. Judge Agee

wrote an opinion concurring in part, dissenting in part, and

concurring in the judgment. 
COUNSEL

ARGUED: William Bernard Bystrynski, KIRBY & HOLT,

LLP, Raleigh, North Carolina, for Appellants. Belinda Anne

Smith, NORTH CAROLINA DEPARTMENT OF JUSTICE,

Raleigh, North Carolina, for Appellee. ON BRIEF: C. Mark

Holt, KIRBY & HOLT, LLP, Raleigh, North Carolina; Jeffrey T. Mackie, SIGMON, CLARK, MACKIE, HUTTON,

HANVEY & FERRELL, PA, Hickory, North Carolina, for

Appellants. Roy Cooper, North Carolina Attorney General,

Raleigh, North Carolina, for Appellee.

OPINION

DAVIS, Circuit Judge:

Under federal law, states participating in the Medicaid program are obligated (with some exceptions) to seek reimbursement from third-party tortfeasors for health care expenditures

made on behalf of Medicaid beneficiaries who are tort victims. At the same time, however, states are prohibited (with

some exceptions) from seeking reimbursement "from the personal property of" Medicaid beneficiaries themselves for

health care expenditures made on behalf of those beneficiaries. But what if the injured Medicaid beneficiary obtains a

judgment against (or enters into a settlement agreement with)

the tortfeasor? Under such circumstances, what constraints are

imposed as to how the state may satisfy its mandatory claim

for reimbursement? In Arkansas Department of Health &

Human Services v. Ahlborn, 547 U.S. 268 (2006), the

Supreme Court provided considerable guidance in resolving

this tension in the Medicaid law. The instant appeal requires

us to apply the teachings of Ahlborn to the Medicaid program

as it is administered in North Carolina. 

The minor appellant, E.M.A., sustained serious injuries at

birth due to the negligence of the medical professionals who

2 E.M.A. v. CANSLER
attended to her delivery. As a result of E.M.A.’s injuries, the

North Carolina Department of Health and Human Services

("DHHS"), through the state Medicaid program, paid more

than $1.9 million in medical and health care expenses on her

behalf. Meanwhile, E.M.A., through her guardian ad litem,

and her parents, Sandra and William Earl Armstrong, individually (hereafter "Appellants"), instituted a medical malpractice action in state court. In due course, they settled the action

for a lump sum of approximately $2.8 million (a sum in

excess of the total Medicaid expenditures of approximately

$1.9 million but well below the full value of all the tort

claims). The settlement agreement did not allocate separate

amounts for past medical expenses and other damages.

DHHS subsequently asserted a statutory lien on the settlement proceeds pursuant to N.C. Gen. Stat. §§ 108A-57 and -

59 (referred to herein as "the North Carolina third-party liability statutes"), which provide that North Carolina has a subrogation right to, and may assert a lien upon, the lesser of its

actual medical expenditures or one-third of the Medicaid

recipient’s total recovery. Thus, under the circumstances

described, where DHHS’s actual medical expenditures are

greater than one-third of the settlement funds, the North Carolina third-party liability statutes effect an unrebuttable presumption that the state is entitled to one-third of the total

settlement proceeds recovered by E.M.A. and her parents.

This amount, $933,333.33 (one-third of the $2.8 million

lump-sum settlement), has been paid into the registry of the

state court, where the funds have remained during the pendency of this action. The parties before us do not dispute the

state’s entitlement to some reimbursement from the lump-sum

settlement, but they vigorously dispute the proper allocation

of the portion of the settlement proceeds held in trust by the

state court. 

Appellants brought this action in federal district court

against Lanier M. Cansler, in his official capacity as Secretary

of DHHS, seeking declaratory and injunctive relief pursuant

E.M.A. v. CANSLER 3
to 42 U.S.C. § 1983. They sought to forestall payment of the

amount claimed by DHHS on the basis of the provision of the

federal Medicaid law known as the "anti-lien provision," 42

U.S.C. § 1396p. On cross-motions for summary judgment, the

district court, relying in significant part on the reasoning of a

majority opinion in a prior case by a divided Supreme Court

of North Carolina which distinguished Ahlborn while sustaining the state statutory regime, granted summary judgment in

favor of Appellee, Secretary Cansler. Appellants filed this

timely appeal.

For the reasons set forth within, we disagree, respectfully,

with the analysis of the Supreme Court of North Carolina, as

adopted by the district court. Rather, in agreement with one

of our sister circuit courts analyzing an analogous state law,

we are persuaded that the unrebuttable presumption inherent

in the one-third cap on the state’s recovery imposed by the

North Carolina third-party liability statutes is in fatal conflict

with federal law. Accordingly, we vacate the judgment in

favor of the Secretary and remand this action for further proceedings consistent with this opinion.

I

A

E.M.A. was born on February 25, 2000 with injuries that

necessitated substantial medical treatment. As a result of the

injuries she suffered at birth, E.M.A. is legally deaf and blind,

and she is unable to sit, walk, crawl, or talk. Additionally,

E.M.A. suffers from mental retardation and a seizure disorder.

She requires between 12 and 18 hours of skilled nursing care

per day. Sandra Armstrong, E.M.A.’s mother, applied for

Medicaid benefits on behalf of E.M.A. on April 26, 2000. The

North Carolina Medicaid program is administered by the

Division of Medical Assistance ("DMA") of DHHS pursuant

to N.C. Gen. Stat. § 108A-54 and 42 U.S.C. §§ 1396-1396v.

4 E.M.A. v. CANSLER
In the application for Medicaid coverage for E.M.A., Sandra

Armstrong agreed

to give back to the State any and all money that is

received by me or anyone listed on this application

from any insurance company for payment of medical

and/or hospital bills for which the Medical Assistance program has or will make payment. In addition, I agree that all medical payments or medical

support paid or owed due to a court order for me or

anyone listed on this application must be sent to the

State to repay past or current medical expenses paid

by the State. This includes insurance settlements

resulting from an accident. I further agree to notify

the county department of social services if I or anyone listed on this application is involved in any accident.

J.A. 82, ¶ 2. 

On February 21, 2003, E.M.A. and her parents filed a lawsuit in Catawba County Superior Court alleging claims for

medical malpractice. The malpractice suit sought damages on

behalf of E.M.A. for her physical and developmental injuries,

lost wages, pain and suffering, and future medical expenses

starting at her majority. Sandra and William Earl Armstrong

sought damages for past medical expenses for E.M.A.’s care

and treatment, medical expenses through E.M.A.’s eighteenth

birthday, and damages for their own emotional distress.

After three years of litigation, the parties settled the medical malpractice case. Prior to consummating the settlement,

Appellants were aware that DHHS had paid more than $1.9

million for the costs of E.M.A.’s medical care. Appellants

contend that they gave notice of the settlement negotiations

and of the mediation process to DHHS pursuant to Rule 4B

of the North Carolina Rules for Mediated Settlement ConferE.M.A. v. CANSLER 5
ence, but no representative of DHHS ever participated in or

attended the settlement discussions.1

On November 13, 2006, Judge Timothy Kincaid held a

hearing in the Catawba County Superior Court to review the

fairness and appropriateness of the settlement. Appellants

allege they served DHHS with notice of the hearing, but no

representative of DHHS appeared. The court approved the

settlement, finding that it was fair and just, in the best interest

of E.M.A., and in all respects reasonable and proper. The

court likewise found the settlement to be fair in all respects

as to Sandra and William Earl Armstrong, and that their individual claims had been resolved by the settlement, "including,

but not limited to, claims for severe emotional distress and

mental anguish and liability for past, present and future medical and life care expenses." J.A. 134. Judge Kincaid noted that

the plaintiffs had alleged that "[E.M.A.] suffered severe and

permanent injuries and that both parents . . . have incurred liability for past, present and future medical and life care

expenses for treatment of [E.M.A.]," J.A. 133, and concluded

that the sums set out in the Settlement Schedule were fair and

just compensation for their respective claims, J.A. 135.

Notably, neither the parties to the settlement nor the court

allocated the settlement funds among the distinct claims or

categories of damages. To be sure, however, Judge Kincaid

recognized that DHHS had asserted a lien against the proceeds of the settlement, but for reasons not addressed by the

parties before us, he apparently was not asked and/or declined

to adjudicate the proper amount of the DHHS lien. Rather, he

found simply that "the amount of that lien needs to be determined in light of the U.S. Supreme Court decision in [Ahlborn]," J.A. 136, which had been decided approximately six

months earlier during the pendency of the state medical malpractice litigation. Accordingly, the court ordered that the

1

It is undisputed that DHHS had a right to intervene in the malpractice

action but elected not to do so. 

6 E.M.A. v. CANSLER
maximum potential lien amount, as set out in the Settlement

Schedule and as provided in N.C. Gen. Stat. § 108A-57(a),

should be paid into an interest bearing account in the Catawba

County Clerk of Court’s Office until such time as the actual

amount of the DHHS lien was conclusively determined.

Although the Settlement Schedule was filed under seal and is

not part of the appellate record in this case, it is undisputed

that the amount held in the Catawba County Clerk of Court’s

Office is $933,333.33, which represents one-third of the total

lump-sum settlement paid to E.M.A. and her parents in resolution of the medical malpractice action.

B

On March 23, 2007, E.M.A. filed this suit in the United

States District Court for the Western District of North Carolina under 42 U.S.C. § 1983 seeking declaratory and injunctive relief. She alleged a deprivation of her rights as secured

by 42 U.S.C. § 1396p (the federal Medicaid anti-lien provision, discussed infra) and the Equal Protection Clause of the

Fourteenth Amendment to the United States Constitution.

U.S. Const. amend. XIV, § 1, cl. 2. In her complaint, E.M.A.

requested a declaratory judgment finding that: (1) DHHS does

not have a lien on the proceeds paid on her behalf in settlement of the medical malpractice action or, in the alternative,

determining the amount of the lien; (2) the North Carolina

third-party liability statutes are unconstitutional under the federal Supremacy Clause, U.S. Const. art. VI, cl. 2, to the extent

the statutes allow DHHS to assert a lien on settlement funds

paid in lieu of damages for claims other than medical

expenses; and (3) DHHS be enjoined from enforcing the

North Carolina third-party liability statutes in a manner that

violates 42 U.S.C. §§ 1396-1396v, Ahlborn, and the Equal

Protection Clause.2

2Appellants have abandoned their equal protection claim. 

E.M.A. v. CANSLER 7
The Secretary filed certain preliminary motions, which the

district court granted in part and denied in part, without prejudice. E.M.A.’s parents were joined as plaintiffs by consent.

Thereafter, the district court stayed the action pending final

review in the North Carolina Supreme Court of Andrews v.

Haygood, 669 S.E.2d 310 (N.C. 2008), cert. denied sub nom.

Brown v. North Carolina Department of Health and Human

Services, 129 S. Ct. 2792 (2009), a state-court appeal challenging the enforceability of the North Carolina third-party

liability statutes under circumstances materially indistinguishable from the circumstances present in this case.

After the North Carolina Supreme Court sustained the

North Carolina third-party liability statutes in Andrews, 669

S.E.2d 310, the parties filed cross-motions for summary judgment. The district court concluded that, based upon the North

Carolina Supreme Court’s reasoning in Andrews and its own

independent analysis, the North Carolina third-party liability

statutes are consistent with federal Medicaid law as interpreted in Ahlborn. Having reached this conclusion of law and

finding no genuine dispute of material fact remaining, the district court denied E.M.A.’s motion for summary judgment,

granted the Secretary’s motion for summary judgment, and

dismissed E.M.A.’s case with prejudice, thereby entitling the

Secretary to $933,333.33, the full amount held in trust by the

state court. E.M.A., through her guardian ad litem, together

with her parents, timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1291.

II

The outcome of the instant appeal turns upon our application of federal Medicaid law, as interpreted by the Supreme

Court in Ahlborn, to North Carolina’s statutory scheme for

third-party liability, in light of the particular undisputed facts

of this case involving a lump-sum personal injury settlement

recovered by a minor child. We review de novo the district

court’s grant of summary judgment. Purdham v. Fairfax Cnty.

8 E.M.A. v. CANSLER
Sch. Bd., 637 F.3d 421, 426 (4th Cir. 2011). Similarly, "[t]he

district court’s analysis of the statutes in the instant case presents questions of law which we review de novo," WLR

Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 1172, 1178 (4th Cir.

1995), cert. denied, 516 U.S. 1117 (1996), including, of

course, its analysis of the Appellants’ Supremacy Clause challenge. See Sheehan v. Peveich (In re Peveich), 574 F.3d 248,

252 (4th Cir. 2009).

E.M.A. and her parents argue on appeal that DHHS’s lien

against E.M.A.’s portion of the settlement proceeds violates

federal Medicaid law because the lien encumbers funds that

are not payment for medical expenses already incurred.

Although the medical malpractice settlement was not allocated among categories of damages, E.M.A. asserts that her

portion of the proceeds necessarily does not include reimbursement for medical care because a minor has no cause of

action to recover past medical expenses under North Carolina

common law. In the alternative, Appellants argue that "the

proportional analysis undertaken in Ahlborn should be applied

to this case," and that this court should vacate and remand for

an evidentiary hearing to determine the proper amount of the

state’s lien. Br. of Appellants at 25.

The Secretary responds, citing to the North Carolina

Supreme Court’s majority opinion in Andrews, that the district court correctly held that the North Carolina third-party

liability statutes, N.C. Gen. Stat. §§ 108A-57 and -59, are

consistent with federal Medicaid law as construed in Ahlborn.

The Secretary further asserts that, having made this determination, the district court was not required to rule on the applicability of North Carolina common law to the federal and

state statutes because the statutes abrogate the common law.

Finally, the Secretary argues that Ahlborn does not support

E.M.A.’s alternative theory of proportional analysis for reducing the state’s Medicaid lien. 

For the reasons set forth herein, although we agree that

common law principles play no role in the circumstances

E.M.A. v. CANSLER 9
presented in this case, we are persuaded that Appellants have

the better of the argument with respect to federal law as explicated in Ahlborn. E.M.A.’s argument that DHHS cannot

assert a lien against her portion of the settlement funds

because a minor cannot recover for past medical expenses

under North Carolina common law fails because the state statutes at issue clearly abrogate the common law. Nevertheless,

we shall vacate the judgment because the North Carolina

third-party liability statutes, N.C. Gen. Stat. §§ 108A-57 and

-59, as applied in this case, fail to comply with federal Medicaid law as interpreted by the Supreme Court in Ahlborn. As

the unanimous Ahlborn Court’s decision makes clear, federal

Medicaid law limits North Carolina’s recovery to settlement

proceeds representing payment for medical expenses. In the

event of a lump-sum settlement, as in this case, the sum certain allocable to medical expenses must be determined, in the

absence of a stipulation by the affected parties, by judicial

determination or some similar adversarial process, before the

state may recoup its Medicaid outlays. Accord Tristani ex rel.

Karnes v. Richman, 652 F.3d 360, 377-78 (3d Cir. 2011)

(interpreting Pennsylvania law).

III

A

We begin with a summary of the relevant provisions of federal law. The Medicaid program, launched in 1965 with the

enactment of Title XIX of the Social Security Act, as added,

79 Stat. 343, 42 U.S.C. §§ 1396-1396v, is a cooperative program by which the federal government pays a percentage of

the costs a state incurs for medical care for individuals who

cannot afford to pay their own medical costs. Ahlborn, 547

U.S. at 275. Although states are not required to provide Medicaid assistance, all 50 states currently do. Id. In exchange for

receiving federal financial support for state-run Medicaid programs, states must comply with federal Medicaid laws,

including statutory third-party liability requirements, 42

10 E.M.A. v. CANSLER
U.S.C. §§ 1396a(a)(25)(A), (B), (H); 1396k, and anti-lien provisions, id. §§ 1396a(a)(18), 1396p. In order to comply with

requirements in federal Medicaid law, North Carolina has

enacted its own third-party liability statutes, comprised of an

assignment statute, N.C. Gen. Stat. § 108A-59, and a subrogation statute, N.C. Gen. Stat. § 108A-57. See infra pp. 13-14.

States providing Medicaid assistance must comply with

several provisions concerning third-party liability. For

instance, states are required to "take all reasonable measures

to ascertain the legal liability of third parties . . . to pay for

care and services available under the [State’s Medicaid] plan."

42 U.S.C. § 1396a(a)(25)(A). In addition to this identification

requirement, the state agency administering the Medicaid program (here DHHS) must seek reimbursement for medical

assistance to the extent of such legal liability. Id.

§ 1396a(a)(25)(B). In order to secure its reimbursement from

liable third parties, the state must,

to the extent that payment has been made under the

State plan for medical assistance in any case where

a third party has a legal liability to make payment for

such assistance, [have] in effect laws under which, to

the extent that payment has been made under the

State plan for medical assistance for health care

items or services furnished to an individual, the State

is considered to have acquired the rights of such

individual to payment by any other party for such

health care items or services. 

Id. § 1396a(a)(25)(H). Consistent with this provision, as a

condition to receiving state medical assistance, individuals are

required 

to assign the State any rights, of the individual or of

any other person who is eligible for medical assistance under this title [42 USCS §§ 1396 et seq.] and

on whose behalf the individual has the legal authorE.M.A. v. CANSLER 11
ity to execute an assignment of such rights, to support (specified as support for the purpose of medical

care by a court or administrative order) and to payment for medical care from any third party. 

Id. § 1396k(a)(1)(A). Federal Medicaid law further provides

that "any amount collected by the State under an assignment

made under the provisions of this section shall be retained by

the State as is necessary to reimburse it for medical assistance

payments made on behalf of" the Medicaid recipient. Id.

§ 1396k(b). Any funds remaining after the state and federal

Medicaid programs are reimbursed are then paid to the recipient. Id.

Although participating states are required under federal

Medicaid law to seek recovery from liable third parties, as set

forth above, "the federal statute places express limits on the

State’s powers to pursue recovery of funds it paid on the

recipient’s behalf." Ahlborn, 547 U.S. at 283. These limitations are contained in 42 U.S.C. §§ 1396a(a)(18) and 1396p.

Section 1396a(a)(18) provides that a state plan for medical

assistance must comply with § 1396p, which in turn prohibits

states from imposing liens against, or seeking recovery of

benefits paid from, a Medicaid recipient. Subsection 1396p(a)

prohibits imposition of a lien "against the property of any

individual prior to his death on account of medical assistance

paid or to be paid on his behalf under the State plan." Subsection 1396p(b) further provides that "no adjustment or recovery of any medical assistance correctly paid on behalf of an

individual under the State plan may be made."3

The Supreme Court has characterized the third-party liability provisions in federal Medicaid law as an exception to the

anti-lien provisions, stating that "[t]o the extent that the forced

assignment [of payments that constitute reimbursement for

3While there are a few exceptions to the prohibitions in 42 U.S.C.

§§ 1396p(a) and (b), these exceptions are not relevant to this case. 

12 E.M.A. v. CANSLER
medical expenses] is expressly authorized in §§ 1396a(a)(25)

and 1396k(a), it is an exception to the anti-lien provision."

Ahlborn, 547 U.S. at 284 (citing Wash. State Dep’t of Soc. &

Health Servs. v. Guardianship Estate of Keffeler, 537 U.S.

371, 383-85, & n.7 (2003)). At the same time, the Supreme

Court has emphasized that this exception is strictly limited —

a state cannot force assignment of, or place a lien on, any

property that does not constitute reimbursement for medical

expenses. Id. at 284-85 ("[T]he exception carved out by

§§ 1396a(a)(25) and 1396k(a) is limited to payments for medical care. Beyond that, the anti-lien provision applies.").

B

Next, we outline the state law provisions that are relevant

to this case. As noted above, North Carolina participates in

the federal Medicaid program, and DHHS is the North Carolina regulatory body charged with establishing and administering the Medicaid program throughout the state in

accordance with Title XIX of the federal Social Security Act,

42 U.S.C. §§ 1396-1396v. N.C. Gen. Stat. § 108A-54. In

order to comply with the federal third-party liability requirements discussed supra, North Carolina has enacted an assignment statute, id. § 108A-59, and a subrogation statute, id.

§ 108A-57. Section 108A-59(a) provides that,

"[n]othwithstanding any other provisions of the law, by

accepting medical assistance, the recipient shall be deemed to

have made an assignment to the State of the right to third

party benefits, contractual or otherwise to which [the recipient] may be entitled." Implementation of the recipient’s statutory assignment is governed by § 108A-57(a), the subrogation

statute, which provides:

Notwithstanding any other provisions of the law, to

the extent of payments under this Part, the State, or

the county providing medical assistance benefits,

shall be subrogated to all rights of recovery, contractual or otherwise, of the beneficiary of this assisE.M.A. v. CANSLER 13
tance, or of the beneficiary’s personal representative,

heirs, or the administrator or executor of the estate,

against any person . . . Any attorney retained by the

beneficiary of the assistance shall, out of the proceeds obtained on behalf of the beneficiary by settlement with, judgment against, or otherwise from a

third party by reason of injury or death, distribute to

the Department the amount of assistance paid by the

Department on behalf of or to the beneficiary, as

prorated with the claims of all others having medical

subrogation rights or medical liens against the

amount received or recovered, but the amount paid

to the Department shall not exceed one-third of the

gross amount to be retained or recovered.

Accordingly, under the state’s third-party liability statutes,

North Carolina has a subrogation right to, and may assert a

lien upon, the lesser of its actual medical expenditures or onethird of the Medicaid recipient’s total recovery.4

See id.

4As the Third Circuit has pointed out, see Tristani ex rel. Karnes v.

Richman, 652 F.3d 360, 368 n.10 (3d Cir. 2011), Ahlborn does not flatly

hold that statutory liens such as those created by North Carolina law are

permissible. Rather, Ahlborn assumed, without deciding, the propriety of

such laws. See id. ("To date, no federal appellate court has ruled on the

validity of Medicaid liens limited to medical costs. Numerous district

courts and state appellate courts, however, have assumed that such liens

are valid in the wake of Ahlborn . . . . Although these decisions have permitted the use of Medicaid liens limited to medical costs, the majority of

them have not clearly articulated their rationale for doing so. Indeed, some

courts appear to be under the misapprehension that the Supreme Court

held such liens to be permissible in Ahlborn."); see also id. at 379 n.1

(Pollak, D.J., sitting by designation, dissenting) ("As the majority recognizes, the Supreme Court’s decision in Arkansas Department of Health

and Human Services v. Ahlborn, 547 U.S. 268, 280 n.9 (2006), assumed

without deciding that ‘a State can . . . requir[e] an "assignment" of part of,

or plac[e] a lien on, the settlement that a Medicaid recipient procures on

her own.’"). Appellants have not asserted that the North Carolina lien statute is wholly unenforceable. They limit their challenge to the unrebuttable

presumption arising from the statutory one-third provision. 

14 E.M.A. v. CANSLER
With commendable candor, the Secretary concedes that the

statutory presumption that the state’s recovery of one-third of

an unallocated lump-sum tort settlement is fair and appropriate rests on nothing more than the state’s notion of "how

attorneys and insurance adjusters typically value tort cases."

See Br. of Appellee at 16 (citing and quoting Dorsey D. Ellis,

Jr., Fairness and Efficiency in the Law of Punitive Damages,

56 Cal. L. Rev. 1, 58 n.248 (1982) ("[T]hree times the special

damages is often used as a rule of thumb for settling personal

injury claims. See H. Ross, Settled Out of Court 108

(1970).")). The question posed by this appeal is whether the

state’s mere interest in "efficiency" is sufficient to satisfy the

federal anti-lien provision. We hold that it is not. 

C

(1)

The interplay among the above-described federal and state

legal principles creates a measure of tension. In Ahlborn, the

Supreme Court reconciled seemingly conflicting legal standards when it considered whether an Arkansas third-party liability statute permitting the state to claim a right to the

entirety of the costs it paid on a Medicaid recipient’s behalf,

regardless of whether that amount exceeded the portion of the

recipient’s judgment or settlement representing past medical

expenses, violated federal Medicaid law. 547 U.S. at 278. In

an opinion by Justice Stevens for a unanimous Court, Ahlborn

held that Arkansas’ assertion of a lien on a Medicaid recipient’s tort settlement in an amount exceeding the stipulated

medical-expenses portion was not authorized by federal Medicaid law; to the contrary, the state’s attempt to do so was

affirmatively prohibited by the general anti-lien provision in

42 U.S.C. § 1396p. Id. at 292. 

For the purposes of our analysis in the instant appeal, the

facts of Ahlborn are highly instructive. Following Heidi Ahlborn’s car accident with allegedly negligent third parties, the

E.M.A. v. CANSLER 15
Arkansas Department of Health and Human Services

("ADHHS")5 determined that she was eligible for Medicaid

and paid providers $215,645.30 on her behalf. Id. at 273. She

filed a state-court suit against the alleged tortfeasors seeking

damages for past medical costs and for other items, including

pain and suffering, loss of earnings and working time, and

permanent impairment of her future earning ability. Id.

ADHHS intervened in Ahlborn’s lawsuit to assert a lien on

the proceeds of any third-party recovery she might obtain. Id.

at 274. The case was settled for a lump sum of $550,000,

which was not allocated between her various claims. Id.

ADHHS did not participate or ask to participate in the settlement negotiations, and did not seek to reopen the judgment

after the case was dismissed, but did assert a lien against the

settlement proceeds for the full amount it had paid for Ahlborn’s care. Id.

Ahlborn filed a declaratory judgment action in federal district court seeking a declaration that the state’s lien violated

federal law insofar as its satisfaction would require depletion

of compensation for her injuries other than past medical

expenses. See Ahlborn v. Ark. Dep’t of Human Servs., 280 F.

Supp. 2d 881 (E.D. Ark. 2003). Notably, the parties stipulated

that the settlement amounted to approximately one-sixth of

the reasonable value of Ahlborn’s claim and that, if her construction of federal law was correct, ADHHS would be entitled to only the prorated portion of the settlement that

constituted reimbursement for medical payments made

($35,581.47, or one-sixth of $215,645.30, the full amount

paid by ADHHS for her medical expenses related to the car

accident). Id. at 883.

Ruling on cross-motions for summary judgment, the district

5While the State’s petition for certiorari in Ahlborn was pending in the

Supreme Court, the Arkansas Department of Human Services changed its

name to "Department of Health and Human Services." Since the Supreme

Court’s decision, the agency has reverted to its original name. 

16 E.M.A. v. CANSLER
court held that under Arkansas law, which it concluded did

not conflict with federal law, Ahlborn had assigned to

ADHHS her right to any recovery from the third-party tortfeasors to the full extent of Medicaid’s payments for her benefit.

Id. at 888. Accordingly, ADHHS was entitled to a lien in the

full amount of $215,645.30. The Eighth Circuit reversed,

holding that ADHHS was entitled only to that portion of the

settlement that represented payments for medical care. Ahlborn v. Ark. Dep’t of Human Servs., 397 F.3d 620, 628 (8th

Cir. 2005). ADHHS sought further review in the Supreme

Court, which granted certiorari and affirmed the Eighth Circuit. Ahlborn, 547 U.S. at 292. 

The Supreme Court held that Arkansas’ third-party liability

lien attached only to the portion of Ahlborn’s settlement that

was designated by stipulation for past medical expenses paid

by Medicaid, or $35,581.47. Id. The Court found that the

remainder of ADHHS’s claim could not be asserted against

the balance of the settlement proceeds. Id. at 280-81. The

Court reasoned that the anti-lien provisions in the federal

Medicaid statutes, 42 U.S.C. §§ 1396a(18) and 1396p, must

be interpreted in view of 42 U.S.C. §§ 1396a(a)(25) and

1396k(a), which provide that states shall require individuals,

as a condition to receiving state medical assistance, to assign

the state any rights the individual may have "to payment for

medical care from any third party," 42 U.S.C.

§ 1396k(a)(1)(A). Id. at 283-84. The Court explained that

there is no question that the State can require an

assignment of the right, or a chose in action, to

receive payments for medical care . . . The State can

also demand . . . that the recipient "assign" in

advance any payments that may constitute reimbursement for medical costs . . . As long as the

assignment rights are authorized under 42 U.S.C.

§§ 1396a(a)(25) and 1396k(a), such assignments are

considered exceptions to the anti-lien provision.

E.M.A. v. CANSLER 17
Id. at 284. The Court concluded that the federal third-party

liability provisions require an assignment of no more than the

right to recover the portion of the settlement proceeds which

are designated for past medical bills paid by Medicaid, id. at

282, and that the federal anti-lien provision prohibits state

Medicaid programs from asserting a third-party liability claim

against a Medicaid beneficiary’s settlement or judgment for

personal injury damages other than medical expenses, id. at

286.

(2)

In Andrews, 669 S.E.2d 310, upon which the district court

below heavily relied, the North Carolina Supreme Court

rejected, by a 4-3 vote, a Supremacy Clause challenge to N.C.

Gen. Stat. §§ 108A-57 and -59, concluding over a vigorous

dissent that the North Carolina third-party liability statutes did

not run afoul of the Supreme Court’s interpretation of federal

Medicaid law in Ahlborn. We believe it useful to review in

some detail the course of legal developments in the state

courts.

In Ezell v. Grace Hospital, Inc., 623 S.E.2d 79 (N.C. Ct.

App. 2005), a pre-Ahlborn case, the North Carolina Court of

Appeals held that § 108A-57(a) requires reimbursement only

to the extent of the third party’s legal liability for injuries

resulting in medical care paid by Medicaid, effectively vitiating the impact of the one-third-of-settlement provision. 623

S.E.2d at 83. Judge Steelman concurred in part and dissented

in part, reasoning that "[DHHS’s] right of subrogation under

N.C. Gen. Stat. § 108A-57(a) is broad rather than narrow,"

and finding that the state was entitled to full satisfaction of its

lien under North Carolina law. Id. at 63-64 (Steelman, J., concurring in part and dissenting in part) (concluding that DHHS

was subrogated to the entire amount of the settlement, subject

only to the one-third limitation found in § 108A-57(a), irrespective of whether some of the settlement amount was

18 E.M.A. v. CANSLER
intended to account for pain and suffering and not medical

damages). 

Judge Steelman’s dissent provided an automatic appeal to

the North Carolina Supreme Court under N.C. R. App. P.

14(b)(1), and eventually served as the basis for a summary

reversal when, on appeal, the North Carolina Supreme Court

reversed the Court of Appeals and adopted Judge Steelman’s

dissent by per curiam opinion. Ezell v. Grace Hosp., Inc., 631

S.E.2d 131 (N.C. 2006), rev’g per curiam for reasons stated

in the dissenting opinion, 623 S.E.2d 79 (N.C. Ct. App.

2005). Curiously, although the North Carolina Supreme Court

decided Ezell on June 30, 2006, it made no mention of Ahlborn, which the United States Supreme Court had decided

two months earlier on May 1, 2006. Moreover, on December

14, 2006, the North Carolina Supreme Court summarily

denied a petition for rehearing in Ezell pursuant to N.C. R.

App. P. 31, which set out arguments based on Ahlborn. Ezell

v. Grace Hosp., Inc., 641 S.E.2d 4 (N.C. 2006). 

Then, not long afterwards, in Andrews v. Haygood, 655

S.E.2d 440 (N.C. Ct. App. 2008), the North Carolina Court of

Appeals once again considered whether, in an action to determine the proper amount of a Medicaid lien on a medical malpractice settlement, the trial court erred in concluding that the

North Carolina Supreme Court’s decision in Ezell was controlling, and the United States Supreme Court’s decision in

Ahlborn was not. Andrews, 655 S.E.2d at 441-42. The intermediate appellate court concluded that Ezell was binding, id.

at 442, and that since the North Carolina Supreme Court

decided Ezell after Ahlborn was decided, and subsequently

denied the petition for rehearing, the North Carolina Supreme

Court had understood Ahlborn to have no effect on North Carolina’s third-party liability statutes, id. at 443. The North Carolina Court of Appeals reasoned that, "[although we recognize

that the Arkansas statute discussed in Ahlborn is similar to

[N.C. Gen. Stat. § 108A-57(a)], it is well settled that the construction of the statutes of a state by its highest courts is to be

E.M.A. v. CANSLER 19
regarded as determining their meaning." Id. (internal citations

and quotation marks omitted). 

Judge Wynn, then a member of the North Carolina Court

of Appeals, disagreed with the majority in Andrews, concluding that the North Carolina Supreme Court had not yet

squarely answered the question presented in the case, and

therefore "certif[ied] by dissent for a decision on the issue of

whether the amount of State Division of Medical Assistance’s

subrogation on a Medicaid recipient’s settlement is controlled

by the United States Supreme Court’s decision in [Ahlborn]."

Id. at 444 (Wynn, J., dissenting). Judge Wynn noted that the

state supreme court’s reversal of the North Carolina Court of

Appeals’ decision in Ezell was explained only as "for the reasons stated in the dissenting opinion," that the dissenting

opinion adopted by the supreme court had neither considered

nor mentioned Ahlborn, and that the Supreme Court denied

the motion for rehearing in Ezell with one word: "Denied." Id.

(internal citations and quotation marks omitted). 

Judge Wynn’s dissent further emphasized that "the North

Carolina statute at issue in [Andrews] is materially indistinguishable from the Arkansas statutory provisions found by a

unanimous United States Supreme Court in Ahlborn to be preempted by federal law." Id. Judge Wynn reasoned,

The principal difference between the North Carolina

and Arkansas statutes is that the latter provides no

ceiling or limit on the amount of recovery allowed to

the ADHS; rather, the statute explicitly stated that

ADHS was entitled to recover the full amount of the

benefits paid to the recipient . . . . North Carolina, by

contrast, allows DMA to take at most one-third of

the gross amount of the settlement, regardless of

whether that fully satisfies the amount paid in medical benefits . . . . Nevertheless, the basic thrust of the

statutes is the same: under both, the State has an

automatic lien on the full amount of any settlement

20 E.M.A. v. CANSLER
with a third party reached by a Medicaid settlement,

regardless of what expenses or damages those funds

are designated to compensate.

Id. at 445. Accordingly, Judge Wynn concluded that "the

Arkansas statute — and likewise, our North Carolina statute

— conflicts with federal Medicaid statutes by allowing the

State to recover from a recipient settlement funds that were

for purposes other than medical expenses." Id. He explained

that because the settlement at issue in Andrews, unlike the settlement in Ahlborn, was not allocated as to particular claims,

"the holding of Ahlborn dictates that the trial court must hold

an evidentiary hearing as to what portion of the settlement is

designated for medical expenses prior to determination of the

amount of repayment to be made to DMA." Id. at 446.

Upon further appellate review, the North Carolina Supreme

Court considered "whether the statutory framework governing

the State’s subrogation claim for medical expenses on a Medicaid recipient’s tort claim settlement complies with federal

Medicaid law as interpreted by the Supreme Court of the

United States in [Ahlborn]." Andrews, 669 S.E.2d at 311. The

appellant trustee of the settlement account argued that, absent

an agreement between the parties, federal law requires a judicial determination of the portion of a tort claim settlement that

represents the recovery of medical expenses. Id. at 312. In

response, the state contended that the statutory one-third limiting provision complies with Ahlborn’s interpretation of federal Medicaid law, and that judicial apportionment of medical

expenses from the settlement was therefore not required. Id.

The North Carolina Supreme Court agreed with the state and

affirmed the Court of Appeals, stating that "[b]ecause Ahlborn

does not mandate a specific method for determining the medical expense portion of a plaintiff’s settlement, we uphold

North Carolina’s reasonable statutory scheme." Id. at 311.

Thus, when it finally confronted the issue of Ahlborn’s

effect on the North Carolina third-party liability statutes, the

E.M.A. v. CANSLER 21
North Carolina Supreme Court read Ahlborn narrowly and

concluded that it "controls [only] when there has been a prior

determination or stipulation as to the medical expense portion

of a plaintiff’s settlement. In those cases, the State may not

receive reimbursement in excess of the portion so designated." Id. at 313. The court further emphasized that "the Ahlborn holding, limited by the parties’ stipulations, did not

require a specific method for determining the portion of a settlement that represents the recovery of medical expenses." Id.

Noting that Ahlborn recognized that some states have adopted

"special rules and procedures" for allocating tort settlements

under such circumstances, but ultimately expressed no view

on the matter, the Andrews court determined that "Ahlborn

thus does not mandate a judicial determination of the portion

of a settlement from which the State may be reimbursed for

past medical expenses. Instead, the Supreme Court left to the

States the decision on the measures to employ in the operation

of their Medicaid programs." Id. (citing Ahlborn, 575 U.S. at

288 n.18) (internal quotation marks omitted). 

Applying this interpretation of Ahlborn, the North Carolina

Supreme Court majority found that "the one-third limitation

of section 108A-57(a) thus comports with Ahlborn by providing a reasonable method for determining the State’s medical

reimbursements, which it is required to seek in accordance

with federal Medicaid law." Id. at 314 (citing 42 U.S.C.

§ 1396a(a)(25)(A)-(B)). The United States Supreme Court

subsequently denied the plaintiff’s petition for certiorari. See

Brown, 129 S. Ct. 2792. 

In her dissenting opinion in Andrews, Justice Hudson

agreed with the majority that Ahlborn does not mandate a specific method for determining the medical expense portion of

a plaintiff’s settlement, but emphasized that the Ahlborn

Court nevertheless did explicitly hold that a state may not violate the anti-lien provisions of 42 U.S.C. §§ 1396a(a)(18) and

1396p by requiring a Medicaid recipient to reimburse it out of

settlement funds designated for (or otherwise properly alloca22 E.M.A. v. CANSLER
ble to) purposes other than medical care. Id. at 314 (Hudson,

J., dissenting, joined by JJ. Brady and Timmons-Goodson)

(internal citations and quotation marks omitted). Justice Hudson ultimately concluded, however, that "the terms of the settlement [in Andrews] provide[d] insufficient detail to allow

[the Andrews court] to determine whether the application of

N.C. Gen. Stat. § 108A-57(a) would violate the anti-lien provisions of the federal Medicaid statutes, pursuant to the holding in Ahlborn." Id.; see also id. at 317 ("[A]pplication of the

bright-line rule articulated by the majority in a case like this

one, in which there has been no allocation, could allow precisely the result that is explicitly barred by Ahlborn.").

(3)

In the instant case, the district court recognized that

Andrews was not binding upon it, but adopted the North Carolina Supreme Court’s legal analysis and holding that the

state’s third-party liability statutes comport with federal Medicaid law and Ahlborn. Armstrong v. Cansler, 722 F. Supp. 2d

653, 655-58 (W.D.N.C. 2010). The district court agreed with

the Andrews court’s determination that the Supreme Court’s

holding in Ahlborn was "limited to a proscription against the

State receiving reimbursement in excess of the portion

expressly stipulated as recovery for medical expenses in a

Medicaid recipient’s settlement with a third party." Id. at 656

(emphasis added). The district court further agreed with the

Andrews court’s "infer[ence] that a State may adopt a statutory method for [determining the portion of a settlement that

represents payment for medical expenses] in the absence of

prior judicial allocation," such as the one-third limitation in

N.C. Gen. Stat. § 108A-57(a). Id.

The district court then undertook its own independent analysis of the North Carolina third-party liability statutes, and

thereby confirmed its conclusion that there is no conflict

between the state’s third-party liability scheme and federal

law. Id. at 656-58. The district court determined that North

E.M.A. v. CANSLER 23
Carolina has complied with the federal requirements that it

"take all reasonable measures to ascertain the legal liability of

third parties . . . to pay for care and services available under

the [Medicaid] plan" and "seek reimbursement for assistance

to the extent of such legal liability" by enacting the State Plan

for Medical Assistance, which includes an assignment statute,

N.C. Gen. Stat. § 108A-59, and a subrogation statute, N.C.

Gen. Stat. § 108A-57. Id. at 657 (quoting 42 U.S.C.

§ 1396a(a)(25)(A)-(B)). The district court further reasoned

that, by preventing the state from recovering more than onethird of a Medicaid recipient’s settlement in the absence of

judicial allocation, regardless of whether the state in fact provided more assistance, the North Carolina statutory scheme

avoids the conflict at issue in Ahlborn. Id. (finding that the

lesser of the state’s past medical expenditure or one-third of

the recipient’s total recovery "essentially defines" the portion

of the settlement that represents payment for medical

expenses in cases involving a lump-sum settlement) (internal

citation and quotation marks omitted). Unlike the Arkansas

statute at issue in Ahlborn, the district court noted, the North

Carolina statute provides a reasonable means of calculating

the portion of the settlement agreement representing medical

expenses, and then forbids the state from imposing a lien on

the remainder of the settlement. Id. Finally, the district court

noted that an intermediate appellate court in Florida had

recently upheld Florida’s nearly identical statutory scheme,

which imposes a fifty-percent cap on the portion of a Medicaid recipient’s award from a third-party tortfeasor that is

recoverable by the state where the parties have not allocated

medical costs, on the basis that the state’s stipulation concerning the portion of the settlement proceeds attributable to medical expenses was central to the Supreme Court’s reasoning in

Ahlborn. Id. at 658 (citing Russell v. Agency for Health Care

Admin., 23 So. 3d 1266 (Fla. 2d Dist. Ct. App. 2010)).

24 E.M.A. v. CANSLER
IV

A

E.M.A.’s primary argument on appeal is that DHHS’s lien

on her settlement proceeds violates the federal anti-lien statute, 42 U.S.C. § 1396p, because she did not recover for past

medical expenses.6 E.M.A. contends that although her lumpsum settlement was not allocated between various claims

(either by stipulation or judicial determination), her recovery

necessarily does not include reimbursement for past medical

expenses because a minor has no cause of action for past

medical expenses under North Carolina common law. See

Vaughan v. Moore, 316 S.E.2d 518, 520 (1988). Notably,

although E.M.A. asserted this argument in her motion for

summary judgment, the district court made no mention of this

issue in its opinion. The Secretary contends that "[t]he relevant federal and state statutes applicable to Medicaid recipients abrogate the common law and establish the basis for

DHHS to recover a portion of the funds paid for medical services provided to the minor child." Br. of Appellee at 8. 

6

In connection with their contention that under North Carolina law a

minor lacks a cause of action for the costs of medical care, Appellants

contend that the Superior Court allocated the settlement proceeds between

E.M.A. and her parents, with E.M.A. receiving 88 percent of the total and

her parents receiving the remaining 12 percent. Consequently, they contend, the amount of North Carolina’s recoverable reimbursement is capped

at one-third of the 12 percent of the lump-sum settlement awarded to Sandra and William Earl Armstrong. 

The alleged apportionment of 12 percent to Sandra and William Earl

Armstrong is not evident from the court’s order, however, and the Secretary takes issue with Appellants’ characterization. See Br. of Appellee at

7 (stating that "[appellants’] assertion contradicts the plain language of the

order which provides that the funds be paid either to Medicaid or to the

minor plaintiff’s special needs trust. The record does not support [appellant]s’ new apportionment theory."). In the view we take of the case, we

need not further explore this aspect of the parties’ contentions. 

E.M.A. v. CANSLER 25
Neither the federal law nor the state law at issue in this case

mentions the Medicaid beneficiary’s age or minority status in

setting forth third-party liability and assignment requirements.

Indeed, the North Carolina assignment statute provides that

"[n]othwithstanding any other provisions of the law, by

accepting medical assistance, the recipient shall be deemed to

have made an assignment to the State of the right to third

party benefits, . . . to which he may be entitled." N.C. Gen.

Stat. § 108A-59(a) (emphases added). Similarly, the North

Carolina subrogation statute provides that "[n]otwithstanding

any other provisions of the law, to the extent of payments

under this Part, the State, or the county providing medical

assistance benefits, shall be subrogated to all rights of recovery, contractual or otherwise, of the beneficiary of this assistance . . ." N.C. Gen. Stat. § 108A-57(a) (emphases added).

Thus, with respect to E.M.A., who is both a "recipient" and

"beneficiary" of medical assistance, the North Carolina third

party liability statutes, N.C. Gen. Stat. §§ 108A-57(a), 59(a),

by their plain language abrogate the common law rule that a

minor cannot recover for medical expenses. See Campbell v.

N.C. Dep’t of Human Resources, 569 S.E.2d 670, 672 (N.C.

Ct. App. 2002) (finding that a minor is a "recipient" of medical assistance under N.C. Gen. Stat. § 108A-25(5), which

defines "recipient" as "a person to whom, or on whose behalf,

assistance is granted under this Article," and a "beneficiary"

of medical assistance under N.C. Gen. Stat. § 108A-57, pursuant to the plain and definite meaning of the term as commonly

used); see also id. ("[P]laintiff cites no authority, and we find

none, to support his contention that a beneficiary in the meaning of § 108A-57, or a recipient in the meaning of § 108A-59,

must be one who receives a direct cash payment or relief from

debt, or who has the legal right to bring suit for medical benefits."). 

The North Carolina Court of Appeals considered a distinct

but analogous argument in Ezell, 623 S.E.2d 79, in which one

of the issues before the court on appeal was whether the trial

court committed reversible error in its application of common

26 E.M.A. v. CANSLER
law principles of equity to the state’s right of subrogation

under N.C. Gen. Stat. § 108A-57(a). 623 S.E.2d at 81. The

court held that § 108A-57(a) abrogates the equitable principles of common law. Id. at 81-82. The court reasoned that 

[i]n matters of statutory construction, this Court must

ascertain and effectuate the intent of the legislative

body. It is well-established that legislative intent

may be determined from the language of the statute,

and if a statute is facially clear and unambiguous,

leaving no room for interpretation, the courts will

enforce the statute as written. We conclude that the

plain language of the statute here precludes the

application of equitable subrogation principles. We

conclude that the legislature specifically abrogated

the application of common law principles of equity

when it stated that the State "shall be subrogated to

all rights of recovery," "notwithstanding any other

provisions of the law." . . . [W]e must enforce the

statute as written and if the legislature wishes for

common law equitable principles to apply to this

statute, it may certainly amend it accordingly.

Id. (internal citations and quotation marks omitted). The Ezell

court’s reasoning applies with equal force here.7 Like the

Ezell court, we find that the plain language of the North Carolina assignment and subrogation statutes quoted above demonstrates the North Carolina legislature’s intent "to

specifically abrogate[ ] the application of [certain] common

7The Secretary argues in the alternative that, even if § 108A-57(a) does

not abrogate the common law in this case, DHHS has a right to subrogation of E.M.A.’s settlement proceeds because the common law doctrine of

necessaries provides that an infant may be liable for necessary medical

expenses even though she is living with a parent who has the duty to provide the same when the parent does not so provide. The Secretary argues

that this common law doctrine, and not the rule E.M.A. urges, applies in

this case. We need not address this argument, however, for as we conclude, the statute does abrogate the common law. 

E.M.A. v. CANSLER 27
law principles," see Ezell, 623 S.E.2d at 81-82, including, as

relevant here, the common law rule that a minor has no claim

for past medical expenses insofar as it conflicts with the

state’s rights of recovery against a third party tortfeasor.8See,

e.g., Christenbury v. Hedrick, 234 S.E.2d 3, 5 (N.C. App.

1977) ("It is well settled that the common law of England is

in force in this State to the extent that it is not destructive of,

repugnant to, or inconsistent with our form of government,

and to the extent that it has not been abrogated or repealed by

statute or has not become obsolete; however, when the General Assembly legislates in respect to the subject matter of any

common law rule, the statute supplants the common law and

becomes the public policy of this State in respect to that particular matter.") (citation omitted). Accordingly, we hold that,

in light of the comprehensive statutory scheme before us,

E.M.A.’s share of the settlement proceeds at issue in this case

is not shielded from the state’s reimbursement claim by virtue

of her minority.9

8We further note that in Ezell and Andrews, North Carolina’s appellate

courts allowed the state to recover its Medicaid outlays for medical care

costs of a tort victim minor suing for birth injuries in a medical malpractice tort action. These post-Ahlborn cases cannot be rationally explained

unless the North Carolina courts have determined, implicitly if not explicitly, that the third-party liability statutes abrogate the common law. 

9

In a post-Ahlborn case presenting an analogous issue, the Supreme

Court of Pennsylvania considered whether, under Pennsylvania’s Fraud

and Abuse Control Act (which addresses a variety of matters relating to

the Medicaid program, including third-party liability), the Pennsylvania

Department of Public Welfare could obtain reimbursement for Medicaid

expenditures on behalf of a disabled minor where a claim for medical

expenses rests with the minor’s parents under Pennsylvania common law

and the parents’ claim was barred by the statute of limitations. E.D.B. ex

rel. D.B. v. Clair, 987 A.2d 681, 682-83 (Pa. 2009); see id. at 691 (holding

that, "pursuant to the Fraud and Abuse Control Act, a Medicaid beneficiary has a cause of action against his or her tortfeasor to recover and

reimburse DPW for Medicaid benefits received during the beneficiary’s

minority"). We agree with the E.D.B. court that 

Common law jurisprudence fails to speak to the central issue in

this case. The policy questions that are implicated focus not on

28 E.M.A. v. CANSLER
B

(1)

Given that North Carolina common law does not bar

DHHS’s lien against E.M.A.’s settlement proceeds, we are

faced with the same question considered by the North Carolina Supreme Court in Andrews: Whether North Carolina’s

third-party liability statutes comport with federal Medicaid

law and Ahlborn merely because the subrogation statute, N.C.

Gen. Stat. § 108A-57, "caps" the state’s recovery at the lesser

of the actual medical expenses paid or one-third of the total

settlement. The North Carolina Supreme Court in Andrews

and the district court in this case adopted a narrow interpretation of Ahlborn, limiting its holding to cases in which the parties have stipulated to or otherwise allocated settlement

proceeds between different categories of damages, thereby

identifying a sum certain for medical expenses. Thus, these

decisions are based on the view that Ahlborn is inapplicable

in cases involving an unallocated lump-sum settlement, such

as the instant matter. 

On the contrary, however, nothing in Justice Stevens’s

opinion for a unanimous court in Ahlborn supports such a

crabbed application of that case. The Ahlborn Court addressed

the specific issue of "whether [ADHHS] can lay claim to

more than the portion of [the recipient’s] settlement that represents medical expenses." 547 U.S. at 280. The Court in no

parental duty but on protection of the public fisc in the provision

of medical assistance to minors whose parents do not have the

financial means to do so. The common law is silent as to the provision of medical care to needy minors and does not contemplate

state involvement in administering such care. Accordingly, our

resolution of the instant case is based on interpretation of the relevant statutory law, which incorporates social welfare developments independent of common law jurisprudence. 

Id. at 691 n.10. 

E.M.A. v. CANSLER 29
way rested its analysis of this issue on whether there has been

a prior determination or stipulation as to the medical expenses

portion of a Medicaid recipient’s settlement. Thus, Ahlborn is

properly understood to prohibit recovery by the state of more

than the amount of settlement proceeds representing payment

for medical care already received. The North Carolina statute’s one-third cap on the state’s recovery against a Medicaid

recipient’s settlement proceeds does not satisfy Ahlborn insofar as it permits DHHS to assert a lien against settlement proceeds intended (or otherwise properly allocable) to

compensate the Medicaid recipient for other claims, such as

pain and suffering or lost wages (i.e., in cases where one-third

of the recipient’s total settlement recovery is greater than the

amount DHHS expended on the recipient’s behalf).10 See

Andrews, 669 S.E.2d at 607-09 (Hudson, J., dissenting) (concluding that the North Carolina statutes conflict with federal

Medicaid law by allowing the state to recover from a recipient

funds that were for purposes other than medical expenses);

Andrews, 655 S.E.2d at 445 (Wynn, J., dissenting) (same).

(2)

In determining that N.C. Gen. Stat. § 108A-57(a) complies

10We observe that the consent language included in the application for

benefits executed by Sandra Armstrong would appear to reflect exactly

this understanding. Sandra Armstrong agreed 

to give back to the State any and all money that is received by

me or anyone listed on this application from my insurance company for payment of medical and/or hospital bills for which the

Medical Assistance program has or will make payment. In addition, I agree that all medical payments or medical support paid

or owed due to a court order for me or anyone listed on this

application must be sent to the State to repay past or current

medical expenses paid by the State. This includes insurance settlements resulting from an accident. I further agree to notify the

county department of social services if I or anyone listed on this

application is involved in any accident. 

J.A. 82 (emphases added). 

30 E.M.A. v. CANSLER
with Ahlborn by imposing what it regarded as a "reasonable

cap" on the state’s lien where recovery for past medical

expenses is not expressly allocated, the North Carolina

Supreme Court in Andrews relied primarily on a footnote in

Ahlborn. See Andrews, 669 S.E.2d at 313 (citing Ahlborn, 547

U.S. at 288 n.18). In the opinion of the Court, Justice Stevens

was addressing a danger suggested by proponents of full

reimbursement that parties would manipulate settlement

agreements reducing the allocation to the medical expense

component and thereby diminishing the proportional reimbursement to the state. Ahlborn, 547 U.S. at 288. Justice Stevens pointed out that this risk could be avoided either by

obtaining a state’s advance consent to the allocation or by

requiring that the allocation be submitted to the court. Id. In

footnote 18, Justice Stevens noted that "[a]s one amicus

observes, some States have adopted special rules and procedures for allocating tort settlements . . . . Although we express

no view on the matter, we leave open the possibility that such

rules and procedures might be employed to meet concerns

about settlement manipulation." Id. at n.18 (citing Brief of the

Association of Trial Lawyers of America as Amicus Curiae in

Support of Respondents at 20-21) (hereafter "ATLA Brief").

We are not persuaded that a mere "reasonable cap" on a

state’s recovery from an unallocated lump-sum settlement satisfies the federal anti-lien law as required by Ahlborn. Indeed,

contrary to the Andrews court’s reliance on Justice Stevens’s

footnote, the ATLA Brief, rather than advocating full recovery subject only to a statutory cap, discussed procedures in

several states to have "mini-hearings" to set allocations of

proceeds from tort settlements where there is no agreement

among the interested parties. Nevertheless, the Supreme Court

of North Carolina found that footnote 18 in Ahlborn authorizes the states to mandate full recovery up to a legislativelydetermined, across-the-board limit or cap. This reliance is

misplaced.

It is also illuminating that the Centers for Medicaid and

Medicare Services ("CMS") issued a memorandum to all

E.M.A. v. CANSLER 31
Associate Regional Administrators for Medicaid and State

Operations in the wake of the Ahlborn decision to aid the

states in understanding the effect the decision would have on

state third-party liability recovery. See Memorandum from

Gale Arden, Director of CMS’s Center for Medicaid and State

Operations Disable and Elderly Health Programs Group

(DEHPG) to all Associate Regional Administrators for Medicaid and State Operations, "State Options for Recovery

Against Liability Settlements in Light of U.S. Supreme Court

Decision in Arkansas Department of Human Services v. Ahlborn" (July 3, 2006) (hereafter "CMS Memorandum"). The

CMS Memorandum stated that, post-Ahlborn, "if a State

attempted to recover from more than the portion of a settlement that the parties allocated to medical items and services,

it was in violation of the federal anti-lien statute." Id. Additionally, the CMS Memorandum clarified that, "to the extent

State laws permit recovery over and above what the parties

have appropriately designated as payment for medical items

and services, the State was in violation of federal Medicaid

laws." Id.

To aid states in ensuring compliance with Ahlborn, the

CMS Memorandum listed various actions states may and may

not take: (1) states may only require assignment of the right

to payment from a third party for healthcare (or medical)

items and services; and (2) states may not pass or enforce

laws which broaden the recovery rights, vis-à-vis Medicaid

beneficiaries, of the state Medicaid agency, allowing such

agencies to recover from damages other than medical

expenses provided for in the award amount, even if this

means that Medicaid must forego full recovery of its claim.11

On the other hand, a state may wish to, inter alia: (1) "enact

laws which provide for a specific allocation amongst dam11The unrebuttable presumption created by N.C. Gen. Stat. § 108A-57,

in the form of a statutory one-third cap on the state’s third-party liability

recovery against a Medicaid recipient’s tort settlement, clearly falls into

this category. 

32 E.M.A. v. CANSLER
age[s], i.e., pain and suffering, lost wages, and medical

claims"; (2) "require that cases can only be compromised with

the consent of the state"; (3) "pass laws which require a mandatory joinder of a State when a Medicaid lien is at issue"; (4)

"strengthen their laws regarding the duty of attorneys to notify

and cooperate to include provisions which could render voidable any settlement of which the State was not notified and

given an opportunity to present its recovery claim for medical

assistance paid." Id. In addition, the CMS Memorandum

emphasized the Ahlborn Court’s admonition that states should

become involved in the underlying tort litigation in order to

influence the amount that is allocated in a settlement to medical items and services. Id. (stating that "absent such involvement, the Court found little sympathy in the State’s argument

that they should be able to recover the total settlement").

Indeed, in reaction to the Supreme Court’s ruling in Ahlborn, many states that previously imposed statutory caps on

Medicaid third-party recovery amended their laws in various

ways. Most notably, California changed its laws from imposing a statutory cap of one-half of the recovery to limiting

recovery to the portion of the award specifically representing

payment for medical expenses or care. Petition for Writ of

Certiorari at 20-23, Brown, 129 S. Ct. 2792 (No. 08–1146)

(discussing Cal. Welf. & Inst. Code § 14124.76). Prior to Ahlborn, Pennsylvania’s third-party liability statute imposed a

fifty percent cap on the state’s recovery. Id. at 23-24 (discussing 62 Pa. Cons. Stat. Ann. § 1409); see infra pp. 35-36 (discussing Tristani, 652 F.3d 360). In the wake of Ahlborn,

however, the Pennsylvania legislature enacted Pa. Cons. Stat.

Ann. § 1409.1, which provides inter alia that "the court or

agency shall allocate the judgment or award between the medical portion and other damages . . ." Similarly, Oklahoma

amended its statute to provide that the state’s lien extends to

the entire settlement, after attorneys fees and costs, unless a

more limited allocation of damages to medical expenses is

shown by clear and convincing evidence. Brown, 129 S. Ct.

at 24 (discussing Okla. Stat. Ann. tit. 63, § 5051.1(D)(1)(d))

E.M.A. v. CANSLER 33
(internal quotation marks omitted). Idaho continues to use its

pre-Ahlborn statute, which allows for full payment to Medicaid prior to payment of other expenses. Id. at 26-27 (discussing Idaho Code Ann. § 56-209b(6)). Post-Ahlborn, however,

this statute has been interpreted to include a rebuttable presumption of such full payment when an allocation is agreed

upon by the parties (including the state agency) or is determined through a hearing. Id. at 27 (citing State Dep’t of

Health & Human Welfare v. Hudelson, 196 P.3d 905, 912

(Idaho 2008)). States that continue to impose a statutory cap

or allow full recovery for Medicaid reimbursements postAhlborn include Florida, Georgia, Hawaii, Iowa, and North

Carolina. Id. at 17; see Fla. Stat. Ann. §§ 409.910(1), (4),

(6)(a); Ga. Code Ann. § 49-4-149(d); Haw. Rev. Stat. Ann.

§ 346-37(d); Iowa Code Ann. § 249A.6; N.C. Gen. Stat.

§ 108-57(a).

(3)

On the basis of Ahlborn’s clear holding that the general

anti-lien provision in federal Medicaid law prohibits a state

from recovering any portion of a settlement or judgment not

attributable to medical expenses, DHHS’s lien on E.M.A.’s

settlement proceeds in this case violates federal law. In order

to comply with 42 U.S.C. §§ 1396a(a)(18), 1396p, and Ahlborn, North Carolina is free to implement a process by which

settlement proceeds are explicitly allocated or otherwise

determined. In this case, we must remand for an evidentiary

hearing consistent with this opinion to determine the proper

amount of the DHHS lien on E.M.A.’s settlement proceeds.

Just as there is insufficient information before this court

regarding allocation of the settlement proceeds among various

categories of damages, we cannot apply the "proportional

analysis" that E.M.A. argues is proper under Ahlborn. As discussed above, the parties in Ahlborn stipulated that the settlement of $550,000 represented only one-sixth of the true value

of Ahlborn’s claim, because the settlement was limited due to

34 E.M.A. v. CANSLER
the amount of insurance available, and determined that the

state was thereby entitled to only one-sixth of the stipulated

medical expenses. E.M.A.’s settlement is distinguishable in

that there was no issue (so far as the record before us shows)

of limited insurance and no stipulation. On remand, the district court must determine the true value of the case in allocating medical expenses, but Ahlborn does not mandate such a

"proportional analysis," to use the term that Appellants have

coined in their briefing.12

In reaching the conclusion we do, we find the Third Circuit’s analysis of the analogous provisions of Pennsylvania

law particularly persuasive in our disposition of this appeal.

See Tristani, 652 F.3d 360. Although the Third Circuit found

that the Pennsylvania statutory presumption that fifty percent

12In an analogous case arising under post-Ahlborn Oklahoma law, the

Tenth Circuit has helpfully indicated the kind of considerations that might

be salient in assessing the propriety of a particular lien determination: 

[A] reduction in a Medicaid lien can be justified only by showing a reason why the plaintiff would agree to allow the defendant

to pay less than the full amount of the Medicaid lien. The usual

reasons would be that the liability of the settling defendant is

uncertain or that the defendant lacks the money to pay for his full

liability (or both); so the plaintiff would be willing to take a proportionate reduction in each component of the damages that she

would expect the jury to award if the defendant were found liable. For example, if the settlement is for 50% of what the jury is

likely to award because there is only a 50% chance that the jury

will find liability, the Medicaid lien could properly be cut in half.

Or if liability is clear and the expected verdict would be $2 million, but the defendant can pay only $1 million, a 50% reduction

would also be in order. A further reduction might also be appropriate if there are doubts about whether the jury would award as

damages all the medical expenses paid by Medicaid-because, for

example, one could question whether the expenses were caused

by the negligent acts of the defendant-although generally one can

be more confident of recovering those expenses in full than in

recovering, say, the full claim for pain and suffering. 

Price v. Wolford, 608 F.3d 698, 707-08 (10th Cir. 2010). 

E.M.A. v. CANSLER 35
of a settlement amount was properly allocable to medical

expenditures may be deemed to fall within the acceptable

"special rules and procedures" contemplated by Ahlborn in

footnote 18, it cautioned the state that it must afford a mechanism permitting beneficiaries to rebut such a presumption,13

reasoning as follows:

Although the Ahlborn Court acknowledged the

existence in state law of "special rules and procedures" for allocating settlements, and left open the

possibility that such rules may be employed to

address concerns about settlement manipulation, 547

U.S. at 288 n. 18, it did not give states unfettered

discretion to allocate settlements without regard to

the actual portion attributable to medical expenses.

Indeed, Ahlborn expressed a preference for resolving

allocation disputes "either by obtaining the State’s

advance agreement to an allocation or, if necessary,

by submitting the matter to a court for decision." Id.

at 288.

We express no view as to whether allocation disputes of this type must be adjudicated by a court, or

may instead be resolved through other "special rules

and procedures." Id. at 288 n. 18. We hold merely

that in determining what portion of a Medicaid beneficiary’s third-party recovery it may claim in reimbursement for Medicaid expenses, the state must

have in place procedures that allow a dissatisfied

beneficiary to challenge the default allocation. As

the Beneficiaries point out, without such a rule noth13Indeed, the Pennsylvania legislature had amended that state’s law after

Ahlborn precisely to provide such a mechanism, there, an administrative

hearing. See Tristani, 652 F.3d at 377-78. Nevertheless, the Tristani court

was required to address an earlier version of the state law because one of

the state claims to reimbursement at issue pre-dated the legislative change.

Id.

36 E.M.A. v. CANSLER
ing would prevent states from allocating 75%, 90%

or even 100% of a settlement to medical expenses,

thereby eviscerating the rule promulgated by Ahlborn. Because the District Court concluded otherwise, we will reverse its order in this respect and

remand for further proceedings consistent with this

opinion. 

Id. at 378.

We agree with the reasoning of the Third Circuit and hold

that to comport with federal law as interpreted in Ahlborn,

under the circumstances in this case, North Carolina’s statutory presumption must be subject to adversarial testing.14

Under the circumstances of the case before us, absent any

state-created mechanism for such testing, it will fall to the district court to conduct the appropriate proceedings. 

V

In sum, E.M.A.’s argument that DHHS cannot assert a lien

against her portion of the settlement proceeds because a minor

has no cause of action for past medical expenses under North

Carolina common law fails because the state Medicaid statutes at issue fully abrogate the common law. Nevertheless, we

hold that the North Carolina third-party liability statutes, N.C.

Gen. Stat. §§ 108A-57 and -59, as applied in this case, fail to

comply with federal Medicaid law as interpreted by the

Supreme Court in Ahlborn. As the unanimous Ahlborn

Court’s decision makes clear, federal Medicaid law limits a

14Notably, in its opinion in this case, the district court cited, in support

of its narrow reading of the Ahlborn holding, the lower court’s decision

in Tristani. See Armstrong, 722 F. Supp. 2d at 658 (citing Tristani v. Richman, 609 F. Supp. 2d 423, 464-65 (W.D. Pa. 2009)). But, as just discussed, on appeal, the Third Circuit specifically reversed that portion of

the lower court’s judgment in Tristani that had rejected the need for adversary testing of the fifty percent presumption under Pennsylvania law. See

652 F.3d at 378. 

E.M.A. v. CANSLER 37
state’s recovery to settlement proceeds that are shown to be

properly allocable to past medical expenses. In the event of an

unallocated lump-sum settlement exceeding the amount of the

state’s Medicaid expenditures, as in this case, the sum certain

allocable to medical expenses must be determined by way of

a fair and impartial adversarial procedure that affords the

Medicaid beneficiary an opportunity to rebut the statutory

presumption in favor of the state that allocation of one-third

of a lump sum settlement is consistent with the anti-lien provision in federal law.

Accordingly, for the reasons set forth, we vacate the judgment of the district court and remand for an evidentiary hearing at which the district court shall determine the proper

amount of DHHS’s Medicaid lien in this case in accordance

with Ahlborn and the views expressed in this opinion. 

VACATED AND REMANDED

AGEE, Circuit Judge, concurring in part, dissenting in part,

and concurring in the judgment:

I join the majority opinion except for Section IV(A) (and

related references), which concludes that the relevant North

Carolina Medicaid statutes, N.C. Gen. Stat. § 108A-59(a)

("the assignment statute") and N.C. Gen. Stat. § 108A-57(a)

("the subrogation statute") abrogate the common law of North

Carolina under which a minor has no cause of action for

recovery of medical expenses incurred during minority.

Accordingly, I respectfully dissent from that portion of the

majority opinion and write separately because nothing in

either the assignment statute or the abrogation statute suggest

that the General Assembly of North Carolina intended to

extend or create such a cause of action. Furthermore, I find no

support in the decided cases of the North Carolina appellate

courts holding that state’s legislature abrogated the otherwise

applicable common law rule. Consequently, I would hold the

common law rule survives the enactment of North Carolina’s

38 E.M.A. v. CANSLER
Medicaid statutes.1

 Nonetheless, for the reasons discussed

below, I would vacate and remand the judgment of the district

court.

Unless modified by statute, the common law is the law of

North Carolina, as in many states. See State v. Vance, 403

S.E.2d 495, 498 (N.C. 1991); N.C. Gen. Stat. § 4-1("All such

parts of the common law . . . [as are] not abrogated, repealed,

or . . . obsolete, are hereby declared to be in full force within

this State."). "When the [North Carolina] General Assembly

legislates in respect to the subject matter of a common law

rule, the statute supplants the common law rule in regard to

that matter." State v. Green, 477 S.E.2d 182, 187 (N.C. Ct.

App. 1996) (citing McMichael v. Proctor, 91 S.E.2d 231, 234

(N.C. 1956)). However, the common law controls unless the

legislature expressly abrogates it. See In re Thompson, 327

S.E.2d 908, 909 (N.C. Ct. App. 1985); see also Lowe v. Harris, 17 S.E. 539, 544 (N.C. 1893) (Shepherd, C.J., concurring)

("[I]f the legislature intended to abrogate these [common law]

rules, in whole or in part, it should have expressed such intention in the clearest and most unmistakable manner."); Price v.

Edwards, 101 S.E. 33, 36 (N.C. 1919) ("[S]tatutes in derogation of common law . . . are construed strictly.").2

Under the common law of North Carolina, a minor has no

cause of action against a tortfeasor for medical expenses

incurred during minority. See Vaughan v. Moore, 366 S.E.2d

1

In resolving this difficult question of the interplay between North Carolina’s common law and its Medicaid statutes, it would be helpful to seek

guidance from that state’s highest court. Unfortunately, unlike the other

states in this circuit, North Carolina alone provides no mechanism for us

to certify questions of state law to its Supreme Court. See MLC Automotive, LLC v. Town of Southern Pines, 532 F.3d 269, 284 (4th Cir. 2008).

2The common law is incorporated into the North Carolina statutory

scheme by N.C. Gen. Stat. § 4-1. North Carolina courts abide by the

maxim that "repeal by implication is not a favored rule of statutory construction." State v. Greer, 302 S.E.2d 774, 777 (N.C. 1983) (internal quotation marks omitted). 

E.M.A. v. CANSLER 39
518, 520 (N.C. Ct. App. 1988). Rather, the right to recover for

medical expenses lies with the parents, but the minor (through

his or her proper representative) may recover for other damages, such as pain and suffering or loss of future income. Id.

(citing Ellington v. Bradford, 86 S.E.2d 925, 926 (N.C.

1955)). Applying that principle to this case, it would appear

that E.M.A. could not recover against her tortfeasor for the

incurred medical expenses. As a consequence, the principles

enunciated in Arkansas Department of Health and Human

Services v. Ahlborn, 547 U.S. 268 (2006), would insulate

E.M.A.’s allotted portion of the settlement proceeds from the

State’s lien unless that portion did in fact include medical

expense reimbursements. 

Notwithstanding North Carolina common law, however,

the majority opinion, relying upon the "plain language" of the

subrogation statute and the assignment statute, as well as preAhlborn authority, allows the State to encumber E.M.A.’s

portion of settlement proceeds. I do not agree the statutes at

issue here lead to that result. 

The assignment statute states that "[n]otwithstanding any

other provisions of the law, by accepting medical assistance,

the recipient shall be deemed to have made an assignment to

the State of the right to third party benefits . . . to which he

may be entitled." N.C. Gen. Stat. § 108A-59(a). The subrogation statute uses similar terms to express that:

"[n]otwithstanding any other provisions of the law, to the

extent of payments under this Part, the State, or the county

providing medical assistance benefits, shall be subrogated to

all rights of recovery, contractual or otherwise, of the beneficiary of this assistance . . . ." Id.

With particular emphasis on the "[n]otwithstanding any

other provisions of the law," language, the majority opinion

concludes that these statutes "by their plain language abrogate

the common law rule that a minor cannot recover for medical

expenses." Maj. Op. at 26. Neither statute, however, conflicts

40 E.M.A. v. CANSLER
with the common law rule at issue here by its plain terms or

otherwise.

The assignment statute specifically limits the "rights"

assigned: "the recipient [of Medicaid benefits] shall be

deemed to have made an assignment to the state of the right

to third party benefits . . . to which he may be entitled."

(Emphasis added.) By its express language, this statute does

not purport to enlarge the preexisting rights of a beneficiary

of Medicaid benefits, including those possessed by minors. A

plain reading of the statute instead leads to the conclusion

that, to the extent a beneficiary of Medicaid benefits has a

claim to third party benefits, that beneficiary by operation of

law assigns those rights to the state. The statute could have

easily been written to create a new cause of action in the Medicaid beneficiary, but it was not. Rather, the statute speaks of

the assignment only of the rights, if any, that already exist in

the beneficiary.

In this regard, E.D.B. ex rel. D.B. v. Clair, 987 A.2d 681

(Pa. 2009), cited ante at 28 n.9, is instructive. In that case, the

Supreme Court of Pennsylvania found, pursuant to its state’s

Fraud and Abuse Control Act (which operates, like the North

Carolina Medicaid statutes at issue here, to regulate the state’s

right of assignment of benefits) "a Medicaid beneficiary has

a cause of action against his or her tortfeasor to recover and

reimburse [the state] for Medicaid benefits received during

the beneficiary’s minority." Id. at 691.3 The Pennsylvania statutes at issue did not expressly provide for a cause of action

for a minor tort-victim for medical expenses, but rather, Pennsylvania’s highest court found that the legislature intended to

create such a cause of action in order to effectuate its goal that

3The court in E.D.B. found such a cause of action in Pennsylvania’s

statutes. Its analysis demonstrates, however, that the relevant inquiry is not

whether a state had mandated that the minor assign his or her rights to the

state, but rather, whether the minor had a recognized right to recover (i.e.,

a cause of action) and therefore something to assign. 

E.M.A. v. CANSLER 41
"the entirety of a beneficiary’s settlement would be subject to

[the state’s] claim." Id. at 690. Although that goal was unattainable after Ahlborn, the court noted that "nothing in Ahlborn affects, negates, weakens, or calls into question the reasoning . . . as to the General Assembly’s intent with regard to

the filing of claims by beneficiaries for Medicaid expenditures

incurred during their minority." Id. at 691 (emphasis in original). The key here, in contradistinction from the statutes or

court decisions in North Carolina, is that the Pennsylvania

Supreme Court specifically concluded a cause of action

existed in a minor, therefore giving the minor a chose to

assign. 

In stark contrast, North Carolina’s Court of Appeals has

rejected the notion that the statutes at issue create a cause of

action in a minor for medical expenses, even where that minor

is a beneficiary of Medicaid benefits. See Campbell v. N.C.

Dep’t of Human Res., 569 S.E.2d 670, 672 (N.C. Ct. App.

2002) (stating that because, under North Carolina common

law, a minor has no cause of action for medical expenses, "the

settlement money which [the minor] plaintiff received was not

recompense for medical expenses"). Campbell thus acknowledged that, even after the enactment of the North Carolina

Medicaid statutes, a minor lacked a cause of action for medical expenses, ruling instead that the State was nonetheless

entitled to the plaintiff’s settlement proceeds on other grounds

(although this rationale has since been nullified by Ahlborn).

The same is true of North Carolina’s subrogation statute

which requires that "to the extent of [Medicaid] payments

. . . , the State, . . . shall be subrogated to all rights of recovery

. . . of the beneficiary of this assistance[.]" N.C. Gen. Stat

§ 108A-57(a) (emphasis added). Again, the statute speaks

only of the existing rights of the beneficiary, and simply does

not create any new rights to a cause of action in a minor.

E.M.A. cannot assign, nor can the State be subrogated to,

rights that she does not possess.

42 E.M.A. v. CANSLER
I am also not persuaded that Ezell v. Grace Hospital, Inc.,

623 S.E.2d 79 (N.C. Ct. App. 2005), rev’d per curiam for the

reasons stated in the dissenting opinion, 631 S.E.2d 131

(N.C. 2006), is applicable to E.M.A’s argument. That case

dealt with the issue of whether common law equitable limitations on recovery could be applied to reduce the State’s recovery of third-party benefits paid to a Medicaid beneficiary. See

Ezell, 623 S.E.2d at 81. Ezell’s holding that the subrogation

statute abrogates common law equitable recovery principles is

simply a recognition that application of the common law

yields a different result than application of the statutory language. As explained above, that is not the case with the common law rule limiting the minor’s right to recovery for

medical expenses. Ezell says nothing about changing the

North Carolina common law rule regarding the cause of

action for recovery of a minor’s medical expenses. 

The majority opinion, however, relies on Campbell as additional support for its holding that the common law rule is

abrogated. In that case, the North Carolina Court of Appeals

considered and rejected a claim similar to that raised by

E.M.A. Ahlborn, however, which was decided four years

after Campbell, has clearly eviscerated the rationale of Campbell such that its holding should not be entitled precedential

weight. 

In Campbell, the plaintiff, who was a minor at the time he

was injured by a third-party tortfeasor and received Medicaid

benefits, claimed that the State had no right of subrogation

because he lacked a cause of action under North Carolina law

for medical expenses. While agreeing with the premise that,

at common law, a minor may not recover for medical

expenses incurred during minority, the North Carolina Court

of Appeals reasoned that "[N.C. Gen. Stat.] § 108A-57(a)

does not restrict [the State’s] right of subrogation to a beneficiary’s right of recovery only for medical expenses." 569

S.E.2d at 672. Because North Carolina’s Medicaid statutes

allowed the state to place a lien upon any of the plaintiff’s setE.M.A. v. CANSLER 43
tlement proceeds, regardless of whether they were for medical

expenses, the plaintiff’s right (or lack thereof) to receive medical expenses in tort was no barrier to the State’s lien. The

Campbell court relied on prior North Carolina cases for the

proposition that "to the extent of Medicaid payments under

[the] Medical Assistance Program" the State is "subrogated to

all rights of recovery of the beneficiary of medical assistance." Id. (citing and quoting N.C. Dept of H.R. v. Weaver,

466 S.E.2d 717, 719 (N.C. Ct. App. 1996), (emphasis and

internal alterations omitted).

Campbell also relied heavily on Payne v. North Carolina

Department of Human Resources, 486 S.E.2d 469 (N.C. Ct.

App. 1997), a case in which the North Carolina Court of

Appeals considered and rejected a challenge to North Carolina’s Medicaid subrogation scheme based on the federal antilien statute found at 42 U.S.C. § 1396p(a)(1). Campbell

described the Payne holding as follows: 

Plaintiff [in Payne] argued that [the State’s] subrogation rights extended only to the amount allocated to

his mother for medical expenses. This Court disagreed, and held that "by accepting Medicaid benefits, [minor plaintiff] assigned his right to third-party

benefits to [the State], and [the State’s] lien vested

at that time." 

Campbell, 569 S.E.2d at 672-73. 

This reasoning is plainly at odds with Ahlborn’s command

that a state Medicaid agency may not seek assignment of

"rights to payment for anything other than medical expensesnot lost wages, not pain and suffering, not an inheritance."

Ahlborn, 547 U.S. at 281.4

4The fact that, pre-Ahlborn, the Campbell and Payne courts permitted

a Medicaid lien regardless of the medical expense portion of tort recovery,

combined with the statutory percentage limit, may explain why the particular issue now raised by E.M.A. had not previously been raised or

addressed by the North Carolina courts post-Ahlborn. 

44 E.M.A. v. CANSLER
Accordingly, when the Campbell court opined that "[the

State] is entitled to recover the costs of medical treatment provided for a minor, even when the funds received by the minor

are not reimbursement for medical expenses[,]" 569 S.E.2d at

672, its rationale conflicts directly with Ahlborn. See 547 U.S.

at 282 ("[T]he State’s assigned rights extend only to recovery

of payments for medical care."). While it is true that most

creditors can usually satisfy debts owing to them from any

assets of the debtor that the creditor can find, this is not the

case in the Medicaid context. Ahlborn and the federal anti-lien

statute at 42 U.S.C. § 1396p make clear that a state Medicaid

lien can only be levied against those assets received for medical expenses. 

There is no question that the State can require an

assignment of the right, or chose in action, to receive

payments for medical care. So much is expressly

provided for by §§ 1396a(a)(25) and 1396k(a). . . .

To the extent that the forced assignment is expressly

authorized by the terms of §§ 1396a(a)(25) and

1396k(a), it is an exception to the anti-lien provision.

But that does not mean that the State can force an

assignment of, or place a lien on, any other portion

of Ahlborn’s property. 

Ahlborn, 547 U.S. at 284-85 (internal citations omitted)

(emphasis added). Campbell, which stands in obvious conflict

with that holding, must give way and cannot be a basis upon

which to find abrogation of the North Carolina common law

rule. 

Indeed, the one aspect of Campbell that seems to survive

Ahlborn is the acknowledgement of the North Carolina common law that because "a minor, even after reaching majority,

may not recover for medical expenses incurred during minority . . . the settlement money which plaintiff received was not

recompense for medical expenses." 569 S.E.2d at 672 (internal citation and quotation marks omitted) (emphasis added).

E.M.A. v. CANSLER 45
That statement of North Carolina law does not rest on a premise that has been rejected by the Supreme Court, and should

guide our analysis of E.M.A.’s claim on appeal. It is a recognition that, even in light of North Carolina’s Medicaid statutes, a minor still lacks a cause of action for medical

expenses. Accordingly, the argument that the North Carolina

Medicaid subrogation and assignment statutes somehow abrogate this right is not an accurate statement of North Carolina

law in my view. 

I therefore must disagree with the conclusion in the majority opinion that the North Carolina Medicaid statutes "by their

plain language" abrogate the common law. Maj. Op. at 26.

And, as noted above, no North Carolina appellate court decision, in conformity with Ahlborn, so construes those statutes.

To the contrary, the statutes at issue plainly do not conflict

with, and nor do they abrogate, the common law rule that

minors may not recover for medical expenses in North Carolina. 

Nevertheless, while the minor does not have a cause of

action for medical expenses, that does not necessarily mean,

in an otherwise unallocated settlement, that none of the funds

comprising the minor’s share were not in fact representative

of medical expenses already incurred or allocated to a Special

Needs Trust ("SNT") in anticipation of medical expenses to

be incurred in the future. A competent advocate for a minor

in structuring such a settlement would, knowing the North

Carolina common law, attempt to have allocated as much as

possible of a fixed settlement to the minor’s share, irrespective of what categories of damages comprise the settlement

amount. That allocation would be of little moment to the tortfeasor, whose only interest is in release from liability. The

record before the court in the case at bar simply does not

allow us to determine whether E.M.A.’s settlement share did

include an amount actually represented by the medical

expense damages. 

46 E.M.A. v. CANSLER
The state trial court order approving the settlement does not

make the findings necessary to resolve to what extent the

Medicaid lien, under Ahlborn, is applicable here. I do not

fault the state trial judge as there was (like now) no clear rule

by appellate decision or legislative enactment on point. If the

matter of medical expense reimbursement was part of the calculation put before the state trial court, and the settlement

order stated how an allocation between the parties was determined with the damage elements comprising each share, then

the determination as to what could be attached by the Medicaid lien should be straightforward. Such an explicit allocation

is not in the record before us, however. It is simply not possible, on this record, to ascertain what elements of damages

comprise the respective settlement shares of E.M.A. or her

parents. For that reason I agree with the majority that the district court judgment must be vacated and remanded. Should

it be determined, on remand, that any portion of E.M.A.’s settlement share was in fact represented by her past medical

expenses, then the State’s Medicaid lien could properly attach

to that portion under Ahlborn. However, should it be determined that no part of E.M.A.’s share was represented by her

past medical expenses, no lien could attach. 

On remand, the district court should consider two salient

questions: 

1. What amount of the settlement was allocated to each

party: (a) E.M.A. (acting through her guardian ad litem); and

(b) Earl and Sandra Armstrong (E.M.A.’s parents)?

2. What elements of damage comprise the award each party

received? Put another way, were the respective amounts

awarded on an ad hoc or arbitrary determination or was there

an actual basis for the division between the parties based on

the merits of the various elements of damage, such as medical

expenses?

Although cases that have approved the default statutory

percentage method for allocating settlement proceeds did so

E.M.A. v. CANSLER 47
partly on the basis to avoid a case-by-case determination of

the medical expense portion of settlements, e.g., Andrews v.

Haygood, 669 S.E.2d 310, 314 (N.C. 2008), I agree with the

majority opinion that Ahlborn requires such fact-specific

inquiries in a case such as is now before us. Until states

develop a specific mechanism for determining the medical

expense portion of unallocated settlements, a judicial resolution is the only means by which the Ahlborn principles for

application of a Medicaid lien can be established. The

Supreme Court seemed to recognize this point in Ahlborn that

determining Medicaid lien status on an allocated or unallocated settlement could be "either by obtaining the State’s

advance agreement to an allocation or, if necessary, by submitting the matter to a court for decision." Ahlborn, 547 U.S.

at 288.

I am in agreement with the majority opinion’s conclusion

that "[t]he North Carolina statute’s one-third cap on the state’s

recovery against a Medicaid recipient’s settlement proceeds

does not satisfy Ahlborn insofar as it permits DHHS to assert

a lien against settlement proceeds intended (or otherwise

properly allocable) to compensate the Medicaid recipient for

other claims[.]" Maj. Op. at 30. While I disagree that North

Carolina has abrogated its common law rule that minors have

no cause of action for medical expenses, I do agree a remand

is necessary in order for the district court to determine

whether E.M.A. actually received any settlement funds for

medical expenses, and if so, how much. 

For the foregoing reasons, I respectfully dissent from Section IV(A) (and related references) of the majority opinion,

but concur otherwise and concur in the judgment.

48 E.M.A. v. CANSLER