2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-12-2008

James v. Richman

Precedential or Non-Precedential: Precedential

Docket No. 06-5092

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Recommended Citation

"James v. Richman" (2008). 2008 Decisions. Paper 182.

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 _________ 

No. 06-5092

_________

*JOSEPHINE A. JAMES, as the Administrator

for the Estate of Robert A. James

 v.

ESTELLE RICHMAN, in Her Official Capacity

as Secretary of the Commonwealth of Pennsylvania

Department of Public Welfare,

 Appellant.

 *(Amended Per the Clerk's Order dated 6/28/07)

 

On Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civ. No. 05-cv-02647)

District Judge: Hon. A. Richard Caputo

 
2

Argued on March 4, 2008

Before: SCIRICA, Chief Judge, FISHER and 

ROTH, Circuit Judges

(Opinion filed: November 12, 2008)

Thomas W. Corbett, Jr., Esquire

Attorney General 

Howard G. Hopkirk, Esquire

Calvin R. Koons, Esquire (ARGUED)

Senior Deputy Attorney General

John G. Knorr, III, Esquire

Chief Deputy Attorney General

Chief, Appellate Litigation Section

15 Floor, Strawberry Square th

Harrisburg, PA 17102

 Counsel for Appellant

Matthew J. Parker, Esquire (ARGUED)

Marshall, Parker & Associates

303 Allegheny Street

Jersey Shore, PA 17740

 Counsel for Appellee
3

Shirley Berger Whitenack, Esquire

Schenck, Price, Smith & King, LLP

10 Washington Street

Morristown, NJ 07963-0905

Sharon Rivenson Mark, Esquire

Law Office of Sharon Rivenson Mark, P. C. 

855 Summit Avenue

Jersey City, NJ 07307

Counsel for Amicus Appellee National

Academy of Elder Law Attorneys and 

National Academy of Elder Law Attorneys

New Jersey Chapter

Stephen H. Kaufman, Esquire

Eric J. Pelletier, Esquire

Offit Kurman, P. A. 

8 Park Center Court, Suite 200

Owings Mills, Maryland 21117

Counsel for Amicus Appellee Financial

Life Insurance Company

 

O P I N I O N 

 
4

ROTH, Circuit Judge:

Estelle B. Richman, Secretary of the Commonwealth of

Pennsylvania, Department of Public Welfare (the Department),

appeals the order of the District Court for the Middle District of

Pennsylvania, enjoining the Department from denying Medicaid

benefits to Robert A. James. The central issue to the appeal is

whether an annuity, purchased by James’s wife Josephine, may

be treated by the Department as an available resource in

calculating James’s eligibility for Medicaid benefits. We agree

with the District Court that the Department may not so treat it.

We will therefore affirm the judgment of the District Court.

I. BACKGROUND

A. Factual Background

Medicaid applicants are required to exhaust all available

resources in order to be eligible for benefits. Under the

amendments to Medicaid implemented by the Medicare

Catastrophic Coverage Act of 1988 (MCCA), 42 U.S.C. §

1396r-5, a spouse living at home (the “community spouse”) may

reserve certain income and assets to meet his or her monthly

needs, making them unavailable to the institutionalized spouse.

The MCCA provides that “no income of the community spouse

shall be deemed available to the institutionalized spouse,” 42

U.S.C. § 1396r-5(b)(1), but shelters only a limited subset of the

community spouse’s assets under the “community spouse

resource allowance” or CSRA. 42 U.S.C. § 1396r-5(c). 
5

Robert A. James was a resident of Summit Health Care

nursing facility in Wilkes-Barre, Pennsylvania. He was

admitted on August 10, 2005, and died on March 24, 2007,

while this case was on appeal. James was married to Josephine

A. James. 

On September 20, 2005, James filed a Resource

Assessment with the Department of Public Welfare at the

Luzerne County Assistance Office. He stated in the Resource

Assessment that, as of August 10, 2005, he and his wife's

available resources totaled $381,443.00. After allowing for the

CSRA and the institutionalized spouse's allowance, James and

his wife then had available resources totaling $278,343.00. 

In order to reduce their assets to the level that would

qualify Robert James for Medicaid benefits, on September 12,

2005, Josephine James had purchased for $250,000 a single

premium immediate irrevocable annuity from General Electric

Assurance Company. The annuity was payable to Josephine

James over an eight year period in monthly amounts of

$2,937.71, beginning October 1, 2005, and ending September 1,

2013. The annuity’s terms of the endorsement provided that

“[t]his Contract may not be surrendered, transferred, collaterally

assigned, or returned for a return of the premium paid. This

Contract is irrevocable and has no cash surrender value. An

Owner may not amend this Contract or change any designation

under this Contract.” The parties agree that the annuity is

actuarially sound.

On September 15, 2005, Robert James also purchased a

new automobile for $28,550. At this point, all the James’s
6

resources in excess of those permitted by the CSRA and the

institutionalized spouse's allowance had been spent or converted

to the annuity.

James’s September 20, 2005, Resource Assessment and

application for Medicaid coverage to assist with the payment of

his nursing facility bill sought eligibility as of September 15,

2005. On November 22, 2005, the Luzerne County Assistance

Office determined that Robert James was not eligible for

Medicaid assistance because he did not receive fair

consideration for the resources used to purchase the annuity.

On December 12, 2005, the Department issued a new

notice to Robert James, advising him that the notice he had

previously received on November 22, 2005, was rescinded and

that he was “ineligible for nursing home payment at this time.

Excess resources exist due to the availability of the $250,000

annuity. You may reapply when resources are within eligibility

limits.” In the Department's view, the annuity had a value of

$185,000 and represented a resource that combined with other

resources owned by Josephine James exceeded the CSRA.

These resources were therefore available to pay for nursing care.

The Department offered the declaration of Michael Goodman,

Chief Executive Officer of J.G. Wentworth, a finance company

specializing in the purchase of annuities, as evidence of the

value and marketability of the annuity, despite the

non-assignment language in the annuity’s endorsement.

Robert James appealed the Department's decision to the

Office of Hearings and Appeals. His appeal is still pending.
 The basis of the Supremacy Clause claim was 62 Pa. Stat. 1

Ann. The Department did not consider this statutory provision

in enjoining the Department from denying James’s request for

Medicaid benefits. The Supremacy Clause issue has not been

raised on this appeal and we will not consider it. 

7

If denied Medicaid benefits, he would be liable himself to pay

for his nursing facility care at a rate of over $5,000 per month.

B. Procedural History

On December 21, 2005, Robert James filed a complaint

against the Department in the District Court, seeking declaratory

and injunctive relief under 42 U.S.C. § 1983 and the Supremacy

Clause of the U.S. Constitution. On March 6, 2006, James filed 1

a request for a temporary restraining order and a motion for

preliminary injunction. On March 20, the District Court granted

the request and motion, enjoining the Department from denying

Medicaid benefits to James until a final decision on the merits

of the action. The parties then agreed to file cross-motions for

summary judgment with joint stipulations of facts and exhibits.

The District Court entered summary judgment in favor of James

on November 21, 2006. The Department appealed. 

II. DISCUSSION

A. Jurisdiction and Mootness

The District Court had federal question jurisdiction, as

the primary issue presented was whether the Department has
8

 misinterpreted federal law regarding James’s right to Medicaid

benefits. 28 U.S.C. § 1331; See Lindy v. Lynn, 501 F.2d 1367,

1369 (3d Cir. 1974). We have jurisdiction pursuant to 28 U.S.C.

§ 1291. Our review of a decision to grant or deny summary

judgment is plenary. Summary judgment is appropriate where

there are no genuine issues of material fact and, when viewing

the facts in the light most favorable to the non-moving party, the

moving party is entitled to judgment as a matter of law. See

F.R.C.P. 56(c); Pi Lambda Phi Fraternity, Inc. v. University of

Pittsburgh, 229 F.3d 435, 441 n.1 (3d Cir. 2000). 

Although James died during the pendency of this appeal,

the case is not moot. While his death does moot the continued

imposition of the permanent injunction against the Department,

nevertheless the District Court adjudicated the question of

“ultimate liability” for the costs of nursing care and the

Department continues to contest its liability. See Heasley v.

Belden & Blake Corp., 2 F.3d 1249, 1253 n.4 (3d Cir. 1993).

B. Availability of Equitable Relief

Before addressing the substantive issues in this case, we

must first determine whether an equitable remedy is available

here. If James had an adequate legal remedy, equitable relief

would not be appropriate. See Roe v. Operation Rescue, 919

F.2d 857, 867 n.8 (3d Cir. 1990).

We review the decision to provide equitable relief for

abuse of discretion. ACLU v. Black Horse Pike Reg'l Bd. of

Educ., 84 F.3d 1471, 1476 (3d Cir. 1996). In order to obtain a

permanent injunction, a plaintiff must show, among other things,
9

that “he has no adequate legal remedy.” Roe, 919 F.2d at 867

n.8. The District Court found that James lacked a legal remedy

because the 11th Amendment barred recovery of monetary

damages should he prove he was unlawfully denied support

payments. 

The Department argues that the availability of monetary

relief through state administrative proceedings precludes a

finding of irreparable harm. However, there is no general

requirement that plaintiffs exhaust state administrative remedies

before bringing a § 1983 action. Patsy v. Bd. of Regents, 457

U.S. 496, 516 (1982); see also Monroe v. Pape, 365 U.S. 167,

183 (1961) (“The federal remedy is supplementary to the state

remedy, and the latter need not be first sought and refused

before the federal one is invoked.”). 

We conclude that this precept also holds true in a request

for injunctive relief in a § 1983 action. See DeSario v. Thomas,

139 F.3d 80, 85-86 (2d Cir. 1998). If we were to decide

otherwise, we would in effect be denying the precedential effect

of Patsy – we would be requiring exhaustion before bringing

this type of § 1983 action.. We must therefore decline the

Department’s request that we impose a de facto exhaustion

requirement where, as here, a plaintiff may request only

equitable relief in the federal forum.

C. Treatment of Annuities under Medicaid

The central issue in this case is whether a non-revocable,

non-transferrable annuity may be treated as an available

resource by the Department for the purposes of calculating
 The SSI Programs Operations Manual System is “the 2

publicly available operating instructions for processing Social

Security claims,” and though “these administrative

interpretations are not products of formal rulemaking, they

nevertheless warrant respect.” Artz v. Barnhart, 330 F.3d 170,

176 (3d Cir. 2003) (citing Wash. Dept. of Social Servs. v.

Keffeler, 537 U.S. 371 (2003)).

10

Medicaid eligibility. We will first address the treatment of the

annuity itself, before turning to the possibility of treating the

income from the annuity as a separate resource. 

In determining whether the annuity may be treated as a

resource, the Department cannot use a methodology that is more

restrictive than that used by the SSI (Supplemental Security

Income) Program. See 42 U.S.C. § 1396a(a)(10)(C)(i)(III). A

methodology is “considered to be ‘no more restrictive’ if, using

the methodology, additional individuals may be eligible for

medical assistance and no individuals who are otherwise eligible

are made ineligible for such assistance.” 42 U.S.C. §

1396a(r)(2)(B). Consequently, the Department can not treat as

available resources any assets that the SSI regulations would not

treat as available resources.

We therefore turn to the treatment of annuities under the

SSI regulations. They provide that “if an individual has the

right, authority or power to liquidate the property, or his or her

share of the property, it is considered a[n] (available) resource.”

20 C.F.R. § 416.1201(a)(1). The SSI Program Operations

Manual System (POMS) gives the example of jointly owned 2
11

stock subject to a legally binding agreement that neither owner

will sell without the consent of the other, and explains that such

stock is not an asset unless the co-owner has consented to its

sale. POMS SI 01110.115. The POMS makes it clear that the

“power to liquidate” referred to by the regulation is not simply

the de facto ability to accomplish a change in ownership of an

asset, but must also include the power to do so without incurring

legal liability.

Josephine James lacks such power to change ownership

in her annuity. The annuity states on its face that it “may not be

surrendered, transferred, collaterally assigned, or returned for a

return of the premium paid.” Even if the Department is correct

that Josephine James has the de facto ability to effect a change

in ownership of the annuity, she cannot do so without breaching

the contract and incurring legal liability. Accordingly, the

annuity cannot be treated as an available resource.

Alternatively, the Department argues that Josephine

James could create a new annuity, selling the right to an income

stream that is equal to the income to which she is entitled from

the existing annuity. Such a transaction would not, however, be

a transfer of the existing annuity. It cannot therefore be used to

support the treatment of the existing annuity as an available

resource. Instead, the Department’s position would treat the

hypothetical proceeds from the creation of a new annuity as a

currently available resource. There is no statutory basis for such

a theory and, indeed, adopting it would tend to undermine the

MCCA rule that “no income of the community spouse shall be

deemed available to the institutionalized spouse.” 42 U.S.C. §

1396r-5(b)(1). Under such a theory, there is no clear limit on
The dissent asserts that the focus for the amount of the 3

James’s available resourcesshould be as of August 20, 2005, the

date of Robert James’s entry into the nursing home, rather than

12

the hypothetical transaction proceeds that could be treated as

assets, whether based on the sale of a future stream of payments

tied to a fixed income retirement account, social security, or

even a regular paycheck. 

Finally, the Department argues that granting eligibility

for people in James’s situation would undercut the purpose of

Medicaid, which was not intended as a general welfare program.

We begin by noting that Medicaid is established through an

exhaustive set of statutes that thoroughly detail what benefits are

to be available and to whom they should be provided. See 42

U.S.C. § 1396 et seq. In this context, we do not create rules

based on our own sense of the ultimate purpose of the law being

interpreted, but rather seek to implement the purpose of

Congress as expressed in the text of the statutes it passed. See

Rosenberg v. XM Ventures, 274 F.3d 137, 141 (3d Cir. 2001)

(explaining that the role of the courts in interpreting a statute is

to give effect to Congress’s intent, and that it is presumed that

Congress expresses its intent through the language of a statute).

As discussed above, an irrevocable, non-alienable annuity does

not fit the statutory definition of an available resource. In

addition, Congress provided a detailed set of rules governing

transactions that it considered suspicious, and the purchase of an

annuity is not among them. 42 U.S.C. § 1396p(c). We simply

cannot allow a denial of eligibility if there is no statutory

justification for that denial. Such justification is lacking here.3
as of September 15, 2005, the eligibility date sought in his

application. Because we have found that Josephine James’s

non-revocable, non-transferrable annuity would not be an

available resource under SSI regulations, and thus not an

available resource under Medicaid, Robert James became

eligible for Medicaid coverage as of September 15, 2005. His

situation prior to that date is therefore no longer relevant. 

13

III. CONCLUSION

For the foregoing reasons, we will affirm the judgment

of the District Court.
14

FISHER, Circuit Judge, dissenting.

The majority concludes that the Department of Public

Welfare cannot treat the annuity that Mrs. James purchased on

September 12, 2005, as an available resource in determining Mr.

James’s Medicaid eligibility. I respectfully dissent. I believe

that in order to appraise the amount of available resources, our

focus must be on the date of Mr. James’s admission to the

nursing home.

I find the circumstances presented in this case to be

distinguishable from an instance where an annuity exists prior

to the date of institutionalization. On August 10, 2005, Mr.

James was admitted into the Summit Health Care facility and, as

of that date, the Jameses had a total of $381,443 in available

resources. On September 20, Mr. James filed the Resource

Assessment form which called for a list of the Jameses’ total

resources, “singly or jointly-owned,” as of the date of admission

into the nursing home. The $250,000 annuity in contention did

not exist on August 10. Rather, Mrs. James purchased the

annuity over a month later on September 12, several days prior

to Mr. James filing his application for Medicaid. The annuity

provided a vehicle for the Jameses to reallocate their resources

after Mr. James began receiving care at the facility which, in my

opinion, does not change the fact that as of August 10, Mr.

James had excess resources for Medicaid eligibility purposes.

It would be a different scenario if Mrs. James had an alreadyexisting annuity at the date of her spouse’s institutionalization,

though that did not occur in this case.

Accordingly, I would find that an annuity which replaces

cash existing at the time of institutionalization can be a

marketable resource under 42 U.S.C. § 1396r-5, but the record

is insufficient to make any decision as to the marketability of
15

Mrs. James’s annuity. First, the record is inadequate to resolve

the parties’ dispute over the implications of the anti-assignment

clause in the annuity. While it appears that under Pennsylvania

contract law anti-assignment clauses are enforceable if

sufficiently justified, see CGU Life Insurance Co. of America v.

Metropolitan Mortgage & Securities Co., Inc., 131 F. Supp. 2d

670, 679 (E.D. Pa. 2001), the record fails to account for how any

potential assignment would occur. Findings would need to be

made as to the rights that the anti-assignment clause seeks to

protect for proper application of Pennsylvania contractual

enforcement principles.

Additionally, the record is underdeveloped regarding the

Department’s argument that Mrs. James’s annuity is liquid. The

Department offers the declaration of Mr. Goodman, an

employee of J.G. Wentworth, stating that J.G. Wentworth would

pay $170,000 for the rights to payments from the annuity.

However, there is no indication in the record that Mrs. James

could convert her annuity to cash within twenty days as required

under 20 C.F.R. § 416.1201(b). The Department’s argument

that the annuity has market value does not equate to a finding of

liquidity. As demonstrated by 20 C.F.R. § 416.1201(c)(1),

automobiles and land are characterized as nonliquid yet those

examples carry a market value. Further, although the

declaration states that J.G. Wentworth “would require” the

annuity owner to “recognize a full sale of their rights” and to

enter into “a number of contractual agreements,” the declaration

fails to answer whether the annuity issuer could refuse to

recognize the assignment or explain the details of those

additional contractual agreements that would be required. In

sum, I would remand to the District Court for additional

factfinding relevant to the annuity’s marketability.