Court Opinion

ID: 4250318
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:24:39.887172+00
Date Added: 2024-06-11T14:44:15.524550
License: Public Domain

IN THE SUPREME COURT OF IOWA

                              No. 16 / 04-0848

                            Filed March 24, 2006

IN THE MATTER OF THE ESTATE OF MARY H. SEROVY, Deceased.

ALLAN J. SEROVY and PEARL M. SEROVY,

      Appellants.

      Appeal from the Iowa District  Court  for  Johnson  County,  Amanda P.
Potterfield, Judge.

      Surviving joint tenants of real  estate  appeal  from  orders  of  the
probate court subjecting the interests of  a  deceased  joint  tenant  to  a
claim for the cost of medical assistance  provided  to  her  as  a  Medicaid
recipient.  AFFIRMED AS MODIFIED.

      Robert N. Downer and Margaret T. Lainson of Meardon, Sueppel &  Downer
P.L.C., Iowa City, for appellants.

      Thomas  J.  Miller,  Attorney  General,  and  Barbara  E.B.  Galloway,
Assistant Attorney General, for appellee Iowa Department of Human Services.

CARTER, Justice.
      Allan Serovy and Pearl Serovy, the son and daughter-in-law of  Mary H.
Serovy, deceased, appeal from an order of the  probate  court  subjecting  a
joint-tenancy interest in real estate held by Mary at the time of her  death
to a claim of the Iowa Department of Human Services for the cost of  medical
assistance provided to Mary as a Medicaid recipient.  Allan  and  Pearl  are
the surviving joint owners of the property.  They urge that, to  the  extent
Iowa Code section 249A.5(2) (2003) authorizes  the  ruling  of  the  probate
court, that statute is  an  unlawful  impairment  of  the  obligation  of  a
contract between Mary and them, thus violating Article I, Section 10 of  the
Constitution of the United States and article I,  section  21  of  the  Iowa
Constitution.  The district court rejected that contention, and so do we.
      The property at issue was for many years Mary’s home.  It was  located
in Solon.  Prior to the death of her husband Frank in 1966,  she  and  Frank
owned the property in joint tenancy.  Following Frank’s  death,  Mary  owned
the property in fee simple and continued  to  reside  there.   In  the  mid-
1980s, Mary’s health began to deteriorate.  Her son, Allan, and daughter-in-
law, Pearl, who lived on a farm located seven miles  from  Solon,  found  it
necessary to visit Mary several times each day in order  to  assist  her  in
caring for herself.
      Mary hoped to remain in her home as long as possible, and  to  aid  in
accomplishing that wish, she entered into an agreement with Allan and  Pearl
whereby they, at their own expense, would build an addition on  Mary’s  home
in order to  provide  additional  living  space  for  themselves  and  their
daughter, as well as for Mary.  As part of the agreement,  they  would  move
into the home and provide  Mary  with  care  and  assistance  in  her  daily
living.  It was agreed that Mary would execute  a  warranty  deed  conveying
her residence to herself, Allan, and Pearl, as joint tenants with  right  of
survivorship.
      Allan and Pearl did build an addition on Mary’s  house  at  their  own
expense, with Allan and his sons doing much  of  the  labor.   On  March 14,
1988,  after  the  improvements  had  been  substantially  completed,   Mary
executed the warranty deed transferring title to the  property  to  herself,
Allan, and Pearl as joint tenants.  Allan, Pearl, and their  daughter  moved
into Mary’s home in 1989, at which time some of the remodeling  was  yet  to
be completed.  Allan and Pearl cared for  Mary  in  the  family  home  until
1997, when Mary’s condition required her relocation to a nursing home.   She
remained in the nursing home until her death  on  October 11,  1998,  during
which time she received medical-assistance benefits under Title XIX  of  the
Social Security Act.
      On November 30, 1998, Allan filed a petition  for  probate  of  Mary’s
will  without  present  administration.   On  April 17,  2003,  the   Estate
Recovery Program of  Health  Management  Systems,  an  agent  for  the  Iowa
Department  of  Human  Services,  filed  a  claim  in  Mary’s   estate   for
reimbursement of $28,707.54 plus accruing interest, which was alleged to  be
the cost of medical assistance provided to Mary under Medicaid in  1997  and
1998.  On April 21, 2003, Ben Chatman,  an  agent  of  the  Estate  Recovery
Program, petitioned for probate of Mary’s will  with  administration.   That
was granted. Chatman was appointed executor.
      On December 11, 2003, a special executor was appointed to  review  the
Medicaid-reimbursement claim presented by the Estate Recovery Program.   The
special executor filed a report recommending that the claim be allowed.   On
February 16, 2004, the executor filed a motion  seeking  an  order  granting
him authority to sell Mary’s  home  to  satisfy  the  Medicaid-reimbursement
claim and other obligations of the estate.  Allan and Pearl filed  a  formal
resistance to the executor’s motion, raising the constitutional issues  that
they are urging on this appeal.
      The probate court ruled that invoking Iowa Code section  249A.5(2)  in
order to subject Mary’s joint-tenancy interest to payment of  the  Medicaid-
reimbursement claim did not result in an impairment  of  the  obligation  of
any contract between Mary  and  her  son  and  daughter-in-law.   The  court
concluded that the contract between those parties had been  fully  performed
prior to the time that Iowa Code section 249A.5(2)(c) and  (d)  was  enacted
in 1994.
      I.  Scope of Review.
      We review the ruling of the probate  court  de novo  because  this  is
classified as an equitable proceeding pursuant to Iowa Code section  633.33.
We give weight to the fact-findings of  the  district  court,  but  are  not
bound by them.  Iowa R. App. P. 6.14(6)(g).

      II.  Impact of Medicaid Recovery Legislation on Mary  Serovy’s  Joint-
Tenancy Interest.

      A.  The 1994  Medicaid  recovery  legislation.   The  controversy  now
before the court has arisen as the result  of  an  amendment  to  Iowa  Code
section 249A.5 in 1994, which expanded the category of assets  that  can  be
reached by the Iowa Department of Human Services to satisfy claims filed  in
decedents’ estates for the cost of medical-assistance benefits  provided  to
Medicaid recipients.  That legislation contained the  following  provisions.

            2.  The provision of medical assistance to an individual who  is
      fifty-five years of age or older, or who is a resident  of  a  nursing
      facility, . . . who cannot reasonably be expected to be discharged and
      return to the individual’s home, creates a  debt  due  the  department
      from the individual’s estate for all medical  assistance  provided  on
      the individual’s behalf, upon the individual’s death.

            . . . .

            c.  For purposes of  this  section,  the  estate  of  a  medical
      assistance recipient, surviving spouse, or  surviving  child  includes
      any real property, personal property, or  other  asset  in  which  the
      recipient, spouse, or child had any legal title  or  interest  at  the
      time of the recipient’s, spouse’s, or child’s death, to the extent  of
      such interests in jointly held property, retained  life  estates,  and
      interests in trusts.

            d.  For purposes  of  collection  of  a  debt  created  by  this
      subsection, all assets included in the estate of a medical  assistance
      recipient, surviving spouse, or surviving child pursuant to  paragraph
      “c” are subject to probate.

1994 Iowa Acts ch. 1120, § 10 (amending Iowa Code § 249A.5).
      We have previously considered the effect of this legislation in In  re
Estate of Laughead, 696 N.W.2d 312 (Iowa 2005), and  In  re  Barkema  Trust,
690 N.W.2d 50  (Iowa  2004).   Our  decision  in  Laughead  permitted  the
recapture of the value of a life estate  for  satisfaction  of  a  Medicaid-
reimbursement claim subsequent to the death of the recipient.  Our  decision
in  Barkema  allowed  a  Medicaid  recipient’s  beneficial  interest  in   a
discretionary support trust to be subjected to  a  claim  for  the  cost  of
Medicaid services, following  the  death  of  the  recipient,  although  all
interest in  the  trust  was  to  pass  to  a  named  beneficiary  upon  the
recipient’s death.
      In discussing the right to reach  the  assets  in  the  discretionary-
support trust in Barkema, we  considered  and  discussed  the  situation  of
joint-tenancy property.  As to such property, we observed:

      [B]esides interests in trusts, the Medicaid recovery statute  includes
      jointly held property in the definition of “estate.”   Under  property
      law, joint tenancy property passes by operation of law  to  the  other
      joint tenant when one joint tenant dies.  If “at the  time  of  death”
      meant “at the moment  of  death,”  the  jointly  held  property  would
      already have passed to the decedent’s joint tenant at  the  time  when
      the decedent’s “estate” is to be defined for purposes of the  Medicaid
      recovery statute.  This interpretation of “at the time of death” would
      render the legislature’s inclusion of jointly  held  property  in  the
      definition of “estate” meaningless.

Id. at 56.
      Although the discussion of joint-tenancy property in the Barkema  case
was dictum, we are satisfied that it sets forth  an  accurate  depiction  of
how the Medicaid recovery legislation affects joint-tenancy interests.   The
purpose of this legislation was to capture and make  available  for  payment
of Medicaid-reimbursement claims certain interests in property that are  not
ordinarily subject to the payment of  a  decedent’s  debts.   Because  other
types of jointly held property, such as tenancy in common, have always  been
available for the payment of claims in probate, the  legislature  must  have
intended the reference to “jointly held property”  in  section  249A.5(2)(c)
to embrace joint-tenancy interests.
      B.  Whether the Medicaid recovery legislation impairs  the  obligation
of a contract affecting Allan and Pearl’s interest.  Allan and  Pearl  argue
that the probate court erred in  rejecting  their  constitutional  challenge
under  the  obligation-of-contract  clauses  of  the   federal   and   state
constitutions.  The federal constitutional  provision  on  which  they  rely
provides  “[n]o  State  shall  . . .  pass  any  . . .  Law  impairing   the
Obligation  of  Contracts.”   U.S.  Const.   art.   I,   § 10.    The   Iowa
constitutional provision they have invoked provides  that  “[n]o  . . .  law
impairing the obligation of contracts shall ever  be  passed.”  Iowa  Const.
art. I, § 21.
      In applying these constitutional provisions, we have  recognized  that
the prohibition therein contained is  not  absolute  and  must  yield  to  a
reasonable exercise  of  the  police  power  for  the  public  good.   Adair
Benevolent Soc’y v. State Ins. Div., 489 N.W.2d 1,  5  (Iowa  1992);  Amana
Soc’y v. Colony Inn, Inc., 315 N.W.2d 101,  112  (Iowa  1982).   In  Federal
Land Bank of Omaha v. Arnold, 426 N.W.2d 153  (Iowa  1988),  we  adopted  a
three-step  analysis  for  dealing  with  constitutional   claims   alleging
abrogation of the obligation of a contract.  That analysis is:

      (1)  [I]f the state law operates as  a  substantial  impairment  of  a
      contractual relationship, (2) the state must have  a  significant  and
      legitimate public purpose behind the regulation, which (3) adjusts the
      contracting parties’ rights and responsibilities based  on  reasonable
      conditions appropriate to the public purpose.

Arnold, 426 N.W.2d at 159.  In deciding the constitutional challenge  lodged
by Allan and Pearl, the probate court went no further than  the  first  step
outlined above and concluded that the legislation has caused  no  impairment
of a contractual relationship.  We agree with  that  conclusion  and  uphold
the ruling on that ground.
      The probate court found that the contract  between  Mary  on  the  one
hand and Allan and Pearl on the other required no  more  of  Mary  than  her
creation of a property interest in which these three individuals  owned  the
property that had been Mary’s residence  as  joint  tenants  with  right  of
survivorship.  The probate court concluded that this  obligation  on  Mary’s
part was satisfied upon the  execution  and  delivery  of  a  warranty  deed
establishing the respective property interests  on  which  the  parties  had
agreed.  The probate court’s interpretation of the agreement appears  to  us
to be consistent with the evidence concerning the intention of the  parties.
 We favor that interpretation of the contract on our de novo review and  may
affirm the probate court’s ruling on that basis.  Under that  interpretation
of the contract, the statute being challenged did not alter what was  agreed
to among  the  parties,  it  simply  affected  the  subject  matter  of  the
agreement after it had been fully performed.[1]
      Allan and Pearl contend that the agreement was not simply to create  a
joint-tenancy interest in the property for each of the three  joint  tenants
named in the deed, but also included a promise on Mary’s part  to  have  her
joint interest in the property transferred to Allan and Pearl in fee  simple
upon her death without impairment or diminution.  Even  if  we  accept  this
interpretation of the agreement, that will not support a  finding  that  the
obligation of the parties’ agreement has been impaired by the  statute.   If
Mary had contracted to transfer her joint interest in the property to  Allan
and  Pearl  in  fee  simple  without  encumbrance,  the  Medicaid   recovery
legislation  did  not  discharge  that  obligation.   It  simply   made   it
impossible for her to perform  the  contract,  but  under  circumstances  in
which the impossibility would not discharge the obligation.  A  promisor  is
not discharged from a contractual duty on the  theory  of  impossibility  if
the promisor brought about the occurrence that  has  prevented  performance.
Associated Grocers of Iowa Coop., Inc. v. West, 297 N.W.2d 103,  108  (Iowa
1980).
      The circumstances that prevented Mary  from  transferring  the  agreed
exchange to Allan and Pearl upon her death were  of  her  own  making  as  a
result of her applying for and receiving  Medicaid  benefits  subsequent  to
the enactment of section 249A.5(2)(c) and (d).  The situation  is  the  same
as if a judgment creditor had levied on and sold her joint interest  in  the
property during her lifetime.  Consequently, even if the  agreement  was  as
it has been urged to be by Allan and Pearl, they have  a  breach-of-contract
claim against Mary, the unimpaired obligation of which survived  her  death,
pursuant to Iowa Code section 611.20.  See Jackson  Sawmill  Co.  v.  United
States, 580 F.2d 302, 311-12 (8th Cir. 1978)  (legislation  diluting  city’s
ability to retire revenue bonds resulted in city’s breach  of  contract  for
acting pursuant to the legislation, but did not  impair  the  obligation  of
contract in violation of the constitution).
      III.  Payment of Costs of Administration and  Fees  From  Interest  in
Property Subjected to Probate Under Section 249A.5(2)(d).

      In addition to  allowing  the  Estate  Recovery  Program’s  claim  for
Medicaid reimbursement to be satisfied in  whole  or  in  part  from  Mary’s
interest in the property that she owned jointly with Allan  and  Pearl,  the
district court authorized the payment of costs of administration,  including
fees for the personal representative  and  the  special  executor  from  the
funds received from the sale of that interest.  Allan and Pearl assert  that
this was not authorized because the property interests that are captured  by
section 249A.5(2)(c) and (d) may only  be  used  for  payment  of  Medicaid-
reimbursement  claims.   We  disagree.   Under  subparagraph  (d)   of   the
legislation, the jointly owned interest of the deceased  Medicaid  recipient
is made part of the estate  in  probate.   As  such,  it  is  available  for
payment of the costs of administration.

      IV.  The Extent of the Interest Subject to Administration in  Probate.

      The probate court’s order clearly  identifies  the  interest  that  is
subject to administration in probate pursuant  to  section  249A.5(2)(d)  as
Mary’s one-third interest in the  subject  property.   Notwithstanding  that
finding on the court’s part, it proceeded to order the sale  of  the  entire
property with the provision that one-third of the proceeds  after  costs  of
sale were to be utilized for the payment  of  the  medical-assistance  claim
under Medicaid and the costs of administering  the  estate.   Although  this
disposition may have been prompted by the court’s  desire  to  accelerate  a
possible future order for partition among the joint owners of the  property,
we are convinced that it was beyond the power of  the  court  to  order  the
sale of Allan and Pearl’s interests in the property at this stage.
      It is axiomatic that a  decedent’s  personal  representative  is  only
empowered to sell the decedent’s interest in property owned at the  time  of
death in order to satisfy claims.  This rule has been expressed as  follows:

            A decedent’s personal representative’s authority  to  sell  real
      property extends only to  the  decedent’s  estate’s  interest  in  the
      property; a personal  representative  is  not  empowered  to  exercise
      dominion over property that was never owned by  the  decedent  or  the
      estate.  Thus, if the decedent held title to the property as a  tenant
      in common, only that interest may be sold.

31 Am. Jur. 2d Executors & Administrators § 739, at 498 (2002).   Similarly,
in Green v. Gustafson, 482 N.W.2d 842 (N.D. 1992), the court stated:

            We agree . . . that [the personal representative’s] authority to
      sell the property extended only to Marvin's estate's interest therein,
      which consisted of Marvin's 1/3  interest  and  the  1/3  interest  of
      George’s heirs which was quieted in Marvin's estate in the  action  to
      quiet title. . . .  It is axiomatic that the  personal  representative
      is not . . . empowered to exercise dominion over  property  which  was
      never owned by either the decedent or the estate.

Green, 482 N.W.2d at 846.  We modify the district court’s  order  so  as  to
limit the property that may be sold by the personal  representative  to  the
one-third joint interest owned by Mary immediately prior to her death.
      As an alternative to a sale  of  property  to  satisfy  the  Medicaid-
reimbursement claim, the probate court  established  a  buyout  figure.   In
describing that figure in their argument on appeal, Allan and Pearl  suggest
that the figure was the amount  of  the  Medicaid-reimbursement  claim  plus
accumulated interest.  In reading the probate court’s order  it  appears  to
us that the figure was the court’s valuation of  Mary’s  one-third  interest
in the property immediately prior to her death.  We are satisfied  that  any
buyout figure that the Estate Recovery Program can  be  made  to  accept  in
lieu of a sale of the property must require payment of its  claim  plus  all
accumulated interest.  Of course, the  parties  are  free  to  negotiate  an
alternative buyout figure that would avoid the sale of  Mary’s  interest  in
the property.
      We have considered all issues presented and conclude that  the  orders
of the probate court should be affirmed as modified in our  opinion.   Costs
on appeal are assessed to Allan and Pearl.
      AFFIRMED AS MODIFIED.
-----------------------
      [1]The situation is not dissimilar from that  presented  in  Laughead,
696 N.W.2d at 317-18, in which we rejected  an  impairment-of-obligation-of-
contract challenge to the application of section 249A.5(2)(c)  to  recapture
the value of a life estate established in a  deed  executed  by  a  deceased
Medicaid recipient during her lifetime.