Court Opinion

ID: 9897282
Source: CourtListenerOpinion
Date Created: 2023-11-14 19:09:38.67199+00
Date Added: 2024-06-11T09:16:12.293697
License: Public Domain

FILED
                                                                         Sep 26 2023, 9:26 am

                                                                              CLERK
                                                                          Indiana Supreme Court
                                                                             Court of Appeals
                                                                               and Tax Court

ATTORNEY FOR APPELLANT                                     ATTORNEYS FOR APPELLEES
Michael T. Foster                                          Theodore E. Rokita
Greensburg, Indiana                                        Attorney General
                                                           Evan Matthew Comer
                                                           Deputy Attorney General
                                                           Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Natalie A. Harves, by Richard E.                           September 26, 2023
Harves and Karen Sue (Harves)                              Court of Appeals Case No.
Cutter, as personal                                        23A-PL-671
representatives,                                           Appeal from the
Appellant-Petitioner,                                      Decatur Circuit Court
                                                           The Honorable
        v.                                                 David Northam, Special Judge
                                                           Trial Court Cause No.
Daniel Rusyniak, in Individual                             16C01-2007-PL-292
Capacity as Secretary of Indiana
Family and Social Services
Administration; Indiana Family
and Social Services
Administration; and Decatur
County Division of Family
Resources,
Appellees-Respondents

                                    Opinion by Judge Vaidik

Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023                             Page 1 of 11
                                      Judges Mathias and Pyle concur.

      Vaidik, Judge.

      Case Summary
[1]   Natalie A. Harves applied for Medicaid nursing-home benefits. The Indiana

      Family and Social Services Administration (FSSA) denied her application, and

      after an unsuccessful administrative appeal, Harves petitioned for judicial

      review.1 The trial court denied the petition, and Harves appeals. We reverse and

      remand to the trial court with instructions to grant the petition for judicial

      review and return the matter back to FSSA for further proceedings.

      Facts and Procedural History
[2]   This case concerns several documents that Harves and her children—Karen Sue

      Cutter, Richard E. Harves, and Ann Harves Bildner—signed on January 25,

      2019, when Harves was ninety-one years old. First, Harves appointed Karen as

      her “Health Care Surrogate” and attorney-in-fact and appointed Richard and

      Ann as the successor surrogates and attorneys-in-fact. Second, Harves, Karen,

      and Richard signed a “Personal Service Contract” in which Harves indicated

      her intent to compensate the children for “the time and expenses incurred” by

      1
       Harves died a few days after FSSA’s initial denial of her application, and her family pursued the case on her
      behalf, but for simplicity’s sake, this opinion will refer to Harves as the petitioner and appellant.

      Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023                            Page 2 of 11
      the children “in providing me with assistance and supervision in managing the

      affairs of my estate, or in providing me with financial management, home

      health care, nursing care and escort services as required because of my failing

      health regardless of whether such services were skilled or unskilled[.]”

      Appellant’s App. Vol. II p. 82. According to Harves, the children gave her

      nearly $900,000 in services from January 2011 to January 2019 and continued

      providing services after the Personal Service Contract was signed. The contract

      included the following provision:

              CONSOLIDATE ASSETS. I further agree that I have appointed
              an attorney-in-fact in a Power of Attorney executed by me to
              consolidate my liquid and semi-liquid assets into common
              account(s) held by my living trust or such other trust agreement
              as my health care agent may elect, provided such alternative trust
              has the identical beneficiaries as my living trust[.]

      Id.

[3]   Third, the children signed an agreement creating an irrevocable trust, the N.

      Harves Family Heirs Trust (“the Trust”), and Harves’s assets—worth $557,240,

      according to Harves—were placed in the Trust. The trust agreement named

      Karen and Richard as the trustees and began with the provisions below tying

      the Trust to the Personal Service Contract:

              A. (TRUST BENEFICIARIES) WHEREAS, the Trust-maker(s)
              desire to establish a trust for the segregation, management and
              distribution of any property transferred as consideration and
              reimbursement to the trust makers by a payor of any and all
              health care and assistance [herein after Healthcare Services

      Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023      Page 3 of 11
              Recipient], either skilled or unskilled, provided by any one or
              more of the trust makers; and

              B. (TRUST ASSETS) WHEREAS, concurrently with the
              execution of this Trust Agreement, or as soon as possible
              thereafter, all of the right, title and interest in and to the property
              described in the annexed Schedule A shall be transferred to the
              Trustee as the property belonging to this trust estate; and

              C. (TRUST PURPOSE) WHEREAS, the intent of the Trust is
              curtail [sic] any and all interest of any health care recipient in the
              assets transferred to the Trust estate; and to avoid any
              constructive receipt of the trust assets to the trust makers during
              the life of any payor of the health care services provided by any
              one of the trust makers. . . .

      Id. at 52.

[4]   Four months later, in May 2019, Harves applied for Medicaid nursing-home

      benefits. FSSA denied the application, finding that the assets of the Trust are

      available to Harves and that as a result her resources exceed the threshold for

      Medicaid eligibility. Harves filed an administrative appeal, and an

      administrative law judge (ALJ) affirmed the denial. After FSSA issued a Notice

      of Final Agency Action affirming the ALJ’s order, Harves petitioned for

      judicial review. The trial court denied the petition and affirmed the ALJ’s

      determination.

[5]   Harves now appeals.

      Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023         Page 4 of 11
      Discussion and Decision
[6]   Harves argues the ALJ and trial court erred by finding that the assets of the

      Trust are resources available to her, making her ineligible for Medicaid nursing-

      home benefits.2 In an appeal following a trial court’s review of an agency

      decision, we stand in the shoes of the trial court and owe no deference to its

      determination. Baliga v. Ind. Horse Racing Comm’n, 112 N.E.3d 731, 736 (Ind.

      Ct. App. 2018), reh’g denied, trans. denied. The burden of demonstrating the

      invalidity of agency action is on the party asserting invalidity, and we will

      reverse only if the agency action was

               (1) arbitrary, capricious, an abuse of discretion, or otherwise not
               in accordance with law; (2) contrary to constitutional right,
               power, privilege, or immunity; (3) in excess of statutory
               jurisdiction, authority, or limitations, or short of statutory right;
               (4) without observance of procedure required by law; or (5)
               unsupported by substantial evidence.

      Ind. Code § 4-21.5-5-14. We defer to the expertise of the administrative body,

      we may not try the case de novo or substitute our judgment for that of the

      2
        FSSA found Harves ineligible for three reasons: “VALUE OF RESOURCES EXCEEDS PROGRAM
      ELIGIBILITY STANDARD”; “INCOME EXCEEDS ELIGIBILITY STANDARDS”; “REFUSAL TO
      AGREE TO SELL OR RENT NON-EXEMPT REAL PROPERTY.” Appellant’s App. Vol. II p. 213.
      FSSA contends that Harves doesn’t challenge the second and third grounds, that those grounds are
      independent bases for the denial, that Harves will therefore be ineligible for Medicaid even if she is correct on
      the available-resources issue, and that as a result we can affirm without addressing this issue. Harves
      responds that the real property and the income from the real property belong to the Trust and that as a result
      “inclusion of the [Trust] caused the denial on these other two grounds.” Appellant’s Reply Br. p. 7. FSSA
      gives us no reason to question that assertion, so we will address the merits of Harves’s appeal.

      Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023                               Page 5 of 11
      agency, and we will not reweigh the evidence. Brown v. Ind. Fam. & Soc. Servs.

      Admin., 45 N.E.3d 1233, 1235-36 (Ind. Ct. App. 2015).

[7]   The Medicaid program, 42 U.S.C. § 1396 et seq., was established by Congress

      in 1965. As we have explained:

              Its purpose is to provide medical assistance to needy persons
              whose income and resources are insufficient to meet the expenses
              of health care. The program operates through a combined
              scheme of state and federal statutory and regulatory authority.
              States participating in the Medicaid program must establish
              reasonable standards for determining eligibility, including the
              reasonable evaluation of an applicant’s income and resources. To
              qualify for Medicaid, an applicant must meet both an income-
              eligibility test and a resources-eligibility test. If either the
              applicant’s income or the value of the applicant’s resources is too
              high, the applicant does not qualify for Medicaid.

      Id. at 1236 (citations omitted).

[8]   “Medicaid is a rocky terrain and that terrain is even more treacherous” where,

      as here, an irrevocable trust is involved. Id. at 1237.

              For the first two decades of Medicaid, an irrevocable trust was
              not considered an asset in determining whether an applicant was
              sufficiently needy to qualify for Medicaid benefits. During this
              time, financial advisors and attorneys advised their clients to
              shelter their assets in irrevocable trusts because a trust settlor was
              able to qualify for public assistance without depleting his assets.
              He could therefore once more enjoy those assets if he no longer
              needed public assistance; and, if such a happy time did not come,
              could let them pass intact pursuant to the terms of the trust to his
              heirs. In other words, the settlor “was able to have his cake and
              eat it too.”
      Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023        Page 6 of 11
               In 1986, Congress closed this “loophole” in the Medicaid act so
               that assets in certain trusts would be considered in determining
               whether a Medicaid applicant satisfied the maximum asset
               requirement. Seven years later, Congress enacted even tighter
               restrictions, which expanded the types of trusts that could be
               considered to preclude applicants from Medicaid eligibility.

       Id. at 1236-37 (cleaned up).

[9]    Here, in finding that the assets of the Trust are available resources for Harves,

       the ALJ relied on subsection (d) of 42 U.S.C. § 1396p, titled “Treatment of trust

       amounts.” That provision states, in relevant part, that the corpus of an

       irrevocable trust “shall be considered resources available to the individual” if

               (1) assets of the individual were used to form all or part of the
               corpus of the trust;

               (2) any of the following individuals established such trust other
               than by will: the individual; the individual’s spouse; a person,
               including a court or administrative body, with legal authority to
               act in place of or on behalf of the individual or the individual’s
               spouse; or a person, including any court or administrative body,
               acting at the direction or upon the request of the individual or the
               individual’s spouse; and

               (3) there are any circumstances under which payment from the
               trust could be made to or for the benefit of the individual[.]

       42 U.S.C. § 1396p(d)(1), (2)(A), (3)(B)(i).

[10]   Harves argues the ALJ should have instead analyzed the Trust under subsection

       (c) of the statute, entitled “Taking into account certain transfers of assets.”

       Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023       Page 7 of 11
       Paragraph (c)(1) provides, in relevant part, that if an institutionalized individual

       disposed of assets for less than fair market value on or after the statutory “look-

       back date” (generally, five years before applying for Medicaid), the individual

       will be ineligible for Medicaid nursing-home benefits for a certain number of

       months. 42 U.S.C. § 1396p(c)(1)(A)-(E). However, subparagraph (c)(2)(C)

       provides that an individual is not ineligible under paragraph (c)(1) if a

       satisfactory showing is made that

               (i) the individual intended to dispose of the assets either at fair
               market value, or for other valuable consideration, (ii) the assets
               were transferred exclusively for a purpose other than to qualify
               for medical assistance, or (iii) all assets transferred for less than
               fair market value have been returned to the individual[.]

       Id. at (c)(2)(C). Harves contends that clause (i) applies. Specifically, she asserts

       that her assets were placed in the Trust to compensate her children for the

       services they provided her over the years, as envisioned by the Personal Service

       Contract, and that therefore she disposed of the assets “for other valuable

       consideration.”

[11]   This puts the cart before the horse. Only if a Medicaid applicant is otherwise

       eligible does subsection (c) require FSSA to look back “to determine if any

       uncompensated or undercompensated transfers of assets were made.” Brown, 45

       N.E.3d at 1236. In other words:

               FSSA makes two decisions when deciding the amount of medical
               assistance an individual receives to meet the expenses of health
               care. First FSSA determines eligibility based on the available

       Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023           Page 8 of 11
               resources of the individual. . . . Second, if an individual is found
               eligible for Medicaid benefits, the FSSA may impose a transfer
               penalty if any uncompensated or under-compensated transfers of
               assets were made.

       Id. at 1237 (footnote omitted). Applied to Harves’s situation, this means that

       before determining whether the transfer of her assets to the Trust made her

       ineligible under subsection (c), it must first be determined whether the transfer

       made the assets unavailable to her. If it didn’t, she is already ineligible, and

       ineligibility under the look-back provisions of subsection (c) is a nonissue.

[12]   That brings us back to subsection (d) of the statute, and here we find a

       significant error in the ALJ’s analysis. The ALJ concluded that the corpus of

       the Trust must be considered resources available to Harves after finding that (1)

       Harves’s assets were used to form the corpus of the Trust and (2) the Trust was

       established by a person with legal authority to act on behalf of Harves.

       Appellant’s App. Vol. II pp. 25-26. Those two findings were correct. Harves

       acknowledges that “[a]ll of [her] assets were transferred to the [Trust],”

       Appellant’s Br. p. 15, and Karen—Harves’s daughter and attorney-in-fact—

       established the Trust along with Harves’s other children. But as noted above, a

       third element must be satisfied before the corpus of an irrevocable trust can be

       counted as available resources. That is, there must be circumstances under

       which payment from the trust could be made to or for the benefit of the

       individual. 42 U.S.C. § 1396p(d)(3)(B)(i). In her order, the ALJ did not mention

       that element or discuss any language from the trust agreement that might satisfy

       Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023        Page 9 of 11
       it. Appellant’s App. Vol. II pp. 16-28.3 Similarly, the trial court did not address

       the element in denying Harves’s petition for judicial review. Id. at 34-42.

[13]   The parties address this third element in their appellate briefs, disputing

       whether certain provisions in the trust agreement mean that payment from the

       Trust could be made to Harves or for her benefit. But the agency, not this

       Court, must adjudicate this issue in the first instance.

               A simple but fundamental rule of administrative law is to the
               effect that a reviewing court, in dealing with a determination or
               judgment which an administrative agency alone is authorized to
               make, must judge the propriety of such action solely by the
               grounds invoked by the agency. If those grounds are inadequate
               or improper, the court is powerless to affirm the administrative
               action by substituting what it considers to be a more adequate or
               proper basis.

       Dev. Servs. Alternatives, Inc. v. Ind. Fam. & Soc. Servs. Admin., 915 N.E.2d 169, 187

       (Ind. Ct. App. 2009) (quoting SEC v. Chenery Corp., 332 U.S. 194, 196 (1948)),

       trans. denied. “Remanding the case to the administrative body gives it an

       opportunity to correct the irregularities in its proceedings as determined by the

       court. At the same time, it avoids the court’s encroachment upon the agency’s

       administrative functions.” Ind. Alcoholic Beverage Comm’n v. Edwards, 659 N.E.2d

       631, 636 (Ind. Ct. App. 1995) (cleaned up); see also Shoot v. Ind. Fam. & Soc.

       3
         At one point in her order, the ALJ stated, “The N. Harves Family Heirs Trust was created for the sole
       benefit of a Disabled Appointee.” Appellant’s App. Vol. II p. 25. In the trial court, FSSA acknowledged that
       the Trust “does not appear to say anything about a disabled appointee” and argued that the court “should
       disregard this portion of the ALJ’s conclusion of law as harmless error.” Appellant’s App. Vol. III p. 172.

       Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023                          Page 10 of 11
       Servs. Admin., 691 N.E.2d 1290, 1293 (Ind. Ct. App. 1998) (“[T]he sole relief

       either the trial court or the appellate court may grant if an administrative

       decision is found to be unlawful is to vacate the decision and remand for further

       determination by the agency.”). Therefore, we must reverse the denial of the

       petition for judicial review and remand to the trial court with instructions to

       grant the petition and return the matter back to FSSA for further proceedings on

       the third element.4

[14]   Reversed and remanded.

       Mathias, J., and Pyle, J., concur.

       4
         Harves’s petition for judicial review also included a claim for “42 U.S.C. § 1983 Civil Rights Relief” and a
       corresponding request for attorney’s fees under 42 U.S.C. § 1988. Appellant’s App. Vol. III pp. 22-26. The
       trial court granted summary judgment to FSSA on those issues. On appeal, Harves makes a three-sentence
       argument that she is entitled to attorney’s fees under Section 1988 but doesn’t address the merits of the trial
       court’s summary-judgment order on the underlying Section 1983 claim. We therefore affirm the trial court on
       these issues.

       Court of Appeals of Indiana | Opinion 23A-PL-671 | September 26, 2023                            Page 11 of 11