Court Opinion

ID: 1048529
Source: CourtListenerOpinion
Date Created: 2013-10-08 17:07:25.282304+00
Date Added: 2024-06-11T09:33:34.799255
License: Public Domain

FILED
                                                  United States Court of Appeals
                     UNITED STATES COURT OF APPEALS       Tenth Circuit

                            FOR THE TENTH CIRCUIT                        October 8, 2013

                                                                      Elisabeth A. Shumaker
                                                                          Clerk of Court
GEORGE L. GRAGERT,

             Plaintiff-Appellant,

v.                                                        No. 12-6137
                                                   (D.C. No. 5:11-CV-00984-C)
ED LAKE, Director of Department of                       (W.D. of Okla.)
Human Services; JOEL NICO GOMEZ,
Director of Oklahoma Health Care
Authority,

             Defendants-Appellees.

                            ORDER AND JUDGMENT*

Before HARTZ, O’BRIEN, and TYMKOVICH, Circuit Judges.

      George Gragert appeals from the grant of summary judgment for defendants

Ed Lake and Joel Gomez, Oklahoma health care officials, in this action challenging

the denial of Medicaid benefits. After the district court granted summary judgment

to the defendants, we decided Morris v. Okla. Dep’t of Human Servs., 685 F.3d 925

(10th Cir. 2012), holding that, pursuant to 20 C.F.R. § 416.1201, illiquid assets can

be excluded in determining Medicaid eligibility. In light of Morris, we vacate the

*
       This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
district court’s order and remand for proceedings consistent with this order and

judgment.

                                   I. Background

      Gragert brought this action under 42 U.S.C. § 1983, claiming that the

methodology used by the State to deny him benefits violated the Medicaid Act,

42 U.S.C. § 1396 et seq., and associated federal regulations. The parties are familiar

with the facts, so we set out only the few that are relevant to our analysis.

      Gragert requires institutionalization for medical care. Before applying for

Medicaid to cover his care, he and his wife sold a rental house they owned to their

son for $28,800, with his wife receiving a promissory note for that amount plus

interest. Given the Gragerts’ remaining assets, George Gragert can qualify for

Medicaid only if that note does not constitute a family financial “resource” included

among the assets counted in determining whether an applicant and the community

spouse exceed the financial threshold for Medicaid eligibility.

      On cross motions for summary judgment, the district court granted summary

judgment for defendants on the resource issue. The district court looked to the

regulatory definition of “resource,” which refers to cash, liquid assets, and property

convertible to cash, 20 C.F.R. § 416.1201(a)(1), and pointed out that promissory

notes are specifically listed as “[e]xamples of resources that are ordinarily liquid,” id.

§ 416.1201(b). Stating that Gragert had not offered any evidence to rebut this

regulatory presumption, the district court concluded that the note was a resource,

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rendering Gragert ineligible for the requested benefits. On appeal, Gragert contends

he presented enough evidence to show that the note was not a resource, so he should

have prevailed on the issue under controlling law.

                                    II. Analysis

      Actions challenging adverse Medicaid decisions as contrary to federal law are

often brought under § 1983, as is the case here. See, e.g., Morris, 685 F.3d at 928;

Houghton ex rel. Houghton v. Reinertson, 382 F.3d 1162, 1164 (10th Cir. 2004). But

§ 1983 is not available to challenge every Medicaid decision; its availability turns on

whether, under the relevant provision of Medicaid law, “Congress intended to confer

individual rights upon a class of beneficiaries.” Hobbs ex rel. Hobbs v. Zenderman,

579 F.3d 1171, 1179 (10th Cir. 2009) (quoting Gonzaga Univ. v. Doe, 536 U.S. 273,

285 (2002)); see also id. at 1181-83; Harris v. Owens, 264 F.3d 1282, 1288 n.3 (10th

Cir. 2001).

      Gragert bases his cause of action on alleged violations of three Medicaid

statutes, 42 U.S.C. §§ 1396a(a)(10)(C)(i)(III), 1396a(r)(2)(A), and 1396p(c)(1)(I).

But whether § 1983 is available for a challenge based on these Medicaid provisions

has not been resolved in this circuit. See Lemmons v. Lake, No. CIV-12-1075-C,

2013 WL 1187840, at *3 (W.D. Okla. Mar. 21, 2013) (concluding that all three

Medicaid statutes on which Gragert relies may not support an action under § 1983).

The agency raised this issue below, but the district court did not reach it because the

court disposed of this case on another ground, namely whether the promissory note is

                                          -3-
a resource under Medicaid regulations. Given this procedural posture, on remand,

the district court may consider the parties’ other grounds for summary judgment.

      We now turn to the promissory note at issue here.

      A. Medicaid Provisions

      By passing the Medicare Catastrophic Coverage Act of 1988 (MCCA),

Congress sought to protect community spouses from “pauperization” while also

preventing financially secure couples from unnecessarily obtaining Medicaid

assistance. Morris, 685 F.3d at 929 (citing H.R. Rep. No. 100-105, pt. 2, at 65

(1987)); see also Lopes v. Dep’t of Soc. Servs., 696 F.3d 180, 188 (2d Cir. 2012).

Congress directed that a couple’s combined resources are counted in determining

Medicaid eligibility for an institutionalized spouse, 42 U.S.C. § 1396r-5(c)(2)(A), but

the income of the community spouse is not included, id. § 1396r-5(b)(1). See Morris,

685 F.3d at 930. Further, “a couple may convert joint resources—which may affect

Medicaid eligibility—into income for the community spouse—which does not impact

eligibility—by purchasing certain types of [income generating investments].” Id. at

928; see also Lopes, 696 F.3d at 188 (holding nontransferable annuity for community

spouse was not countable resource); James v. Richman, 547 F.3d 214, 218-19 (3d

Cir. 2008) (same).

      The MCCA directs that in determining Medicaid eligibility, state agencies

must use criteria that are “‘no more restrictive’ than the eligibility requirements

under the Supplemental Security Income (SSI) Act.” Houghton, 382 F.3d at 1170

                                          -4-
(quoting 42 U.S.C. § 1396a(r)(2)(A)); see also Lopes, 696 F.3d at 182-83 (noting the

same directive in 42 U.S.C. § 1396a(a)(10)(C)(i)); James, 547 F.3d at 218 (same).

Thus, the SSI regulation that defines what constitutes a resource, 20 C.F.R.

§ 416.1201, properly guides the analysis here. See Lopes, 696 F.3d at 183; James,

547 F.3d at 218; see also Morris, 685 F.3d at 930, 932-33. Under that regulation,

“[i]f the individual has the right, authority or power to liquidate the property . . . , it

is considered a resource,” but if not, “the property will not be considered a resource.”

20 C.F.R. § 416.1201(a)(1). Property is “liquid” and thus a “resource” if it “can be

converted to cash within 20 days.” Id. § 416.1201(b).

       In addition to its regulations, the Social Security Administration (SSA) has

issued a Program Operations Manual System (POMS) “through which [it] further

construes the statutes governing its operations.” Lopes, 696 F.3d at 186 (internal

quotation marks omitted; alteration incorporated). Consistent with 20 C.F.R.

§ 416.1201, the relevant POMS provision states that “assets of any kind are not

resources if the individual does not have . . . the legal right, authority, or power to

liquidate them.” POMS § SI 01110.15 (effective April 18, 2011).1

1
       POMS “are not products of formal rulemaking” entitled to Chevron deference,
but “they nevertheless warrant respect” under the broader Skidmore framework.
Wash. State Dep’t of Soc. & Health Servs. v. Guardianship Estate of Keffeler, 537
U.S. 371, 385-86 (2003) (citing Skidmore v. Swift & Co., 323 U.S. 134, 139-40
(1944)); see United States v. Mead Corp., 533 U.S. 218, 226-27, 234-35 (2001)
(discussing Skidmore and Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984)); see also James, 547 F.3d at 218 n.2. And as interpretations of
the SSA’s own regulations, POMS are “controlling unless plainly erroneous or
                                                                         (continued)
                                         -5-
      B. Promissory Note

      Gragert argues that the note is illiquid because it cannot be converted to cash.

The district court ruled against Gragert, saying,

             [T]he Court must determine if the note is a resource. . . .
             Paragraph (b) of [20 C.F.R. § 416.1201] notes that a
             promissory note is typically considered a resource. Here,
             Plaintiff has offered no evidence to contradict this
             presumption. Because the note creates a resource in an
             amount in excess of the eligibility threshold, Plaintiff is
             not eligible for Medicaid. With this determination, it is
             unnecessary to consider the remainder of Plaintiff’s
             arguments.

App. 321.

      But Gragert contends the promissory note itself is evidence that adequately

rebuts the regulatory presumption. He points out that the promissory note is not

convertible to cash because the note expressly provides that the lender, his wife, may

not “grant, bargain, sell, assign, convey or transfer this note or any payments

hereunder.”2 Id. at 283. In addition, before the district court, Gragert submitted an

expert’s report which stated that the note could not “be sold on any secondary

inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997)
(internal quotation marks omitted); see also Reutter ex rel. Reutter v. Barnhart, 372
F.3d 946, 951 (8th Cir. 2004).
2
       This provision does permit assignment “for estate planning purposes to a
revocable trust,” but only where the lender is the settlor and the trust itself “may not
further grant, bargain, sell, assign, convey or transfer this note or any payments
hereunder in any way.” App. 283. Defendants do not argue, nor do we find, that this
circumscribed exception to the prohibition on transfer has any effect on the analysis
here.

                                          -6-
market” and thus had “no value in the hands of a third party or in the secondary

market.” Id. at 296. And the defendants offer no evidence to rebut this conclusion

that the promissory note cannot be converted to cash.3

        As we stated in Morris, 20 C.F.R. § 416.1201 provides the operable

definition of a “resource”—i.e., property that can be liquidated. The district court

correctly observed that, under this regulation, promissory notes “are ordinarily

liquid.” Id. § 416.1201(b) (emphasis added). But that is because promissory notes

are ordinarily transferable and hence convertible to cash. If a promissory note cannot

be transferred, as appears to be the case here, then it is not convertible to cash and

therefore not a resource. Indeed, POMS indicate that notes count as resources for

eligibility purposes unless there is “evidence of a legal bar to the[ir] sale.” POMS SI

01140.300 at D-1, D-3 (effective May 22, 2003).

      The note at issue here—which expressly prohibits the lender from assigning,

transferring, or selling it or any payments thereunder—differs from its ordinary

counterpart in precisely this respect. Because the note here cannot be converted to
3
       Instead, the agency offers an alternative basis for affirming the district court’s
decision. It contends that Gragert failed to submit any evidence at the state
administrative level showing the note at issue was not a resource, so Gragert should
have been barred from offering the expert’s report to support his case in the district
court. This contention is wrong if a private right of action stands under § 1983
(which we take no position on here), since there is no constitutional requirement that
administrative hearing procedures be used at all, Houghton, 382 F.3d at 1167 n.3;
Roach v. Morse, 440 F.3d 53, 56-58 (2d Cir. 2006), much less that an exclusive
evidentiary record be developed administratively. And in any event, Gragert did
submit to the state agency evidence showing that the note was not a resource—the
note itself.

                                          -7-
cash and thus is illiquid, under 20 C.F.R. § 416.1201, the note is not a resource. Cf.

Roach v. Morse, 440 F.3d 53, 59-60 (2d Cir. 2006) (stating that a non-assignable

informal loan is not a resource under this regulation and the related POMS).

      Case law applying the convertible-to-cash rule to similar income-generating

financial agreements also supports this conclusion. For instance, in Lopes and

James, the Second and Third Circuits rejected the state agency’s contention that non-

assignable annuities were countable resources rather than non-countable income,

holding that the contractual prohibition on transfers precluded their treatment as

resources under § 416.1201. Lopes, 696 F.3d at 184-88; James, 547 F.3d at 218-19.

      Our own precedent is in accord. In Morris, we held that an annuity, which by

its own terms could not be transferred or sold, was mere income that did not count as

a resource for purposes of Medicaid eligibility—even though, we acknowledged, this

rule created a “loophole” in the Medicaid statutes. Morris, 685 F.3d at 928, 930,

932-33.4 And at least one lower court has treated a nontransferable promissory note

in the same way. See Lemmons, 2013 WL 1187840, at *4 (concluding a promissory

note is not convertible into cash within 20 days—and thus is not a resource per

4
      Our Morris decision did not go as far as Lopes and James in at least one
respect. We left open the question whether a nontransferable income-generating
agreement might still be treated as a resource if the income stream could be resold.
See Morris, 685 F.3d at 933 n.5. But we need not take a definitive position on the
matter here since the note at issue not only prohibits transfer but also expressly
prohibits the sale or transfer “of any payments [t]hereunder.” App. 283.

                                         -8-
§ 416.1201—because the note’s terms prohibited either party from transferring the

note or any of its payments in any way—just like the note here).

      In sum, the ruling on summary judgment does not square with our subsequent

decision in Morris, so we remand. But this decision does not preclude the district

court from considering other issues previously raised below that could affect the

outcome of this case—including, but not limited to, whether Gragert is asserting a

right enforceable by § 1983.

                                 III. Conclusion

      The judgment of the district court is VACATED and the case is REMANDED

for further proceedings consistent with this order and judgment.5

                                               ENTERED FOR THE COURT

                                               Timothy M. Tymkovich
                                               Circuit Judge

5
       We grant the Motion To Take Judicial Notice of Development Not Before the
District Court and/or To Supplement the Record.

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