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McKinney v. Philadelphia Housing Authority

August 24, 2010


The opinion of the court was delivered by: Schiller, J.


The Pennsylvania Department of Public Welfare ("DPW") spent over $1.2 million on the health care of Plaintiffs, Medicaid recipients who later procured a significant settlement from third parties. Currently in dispute is how much DPW can recoup as a result of that settlement. The parties briefed the issue and the Court held a hearing on August 5, 2010. DPW and the Plaintiffs have radically different conceptions of how this issue is to be resolved. For the reasons listed below, the Court finds neither party's proposed method of allocation persuasive and will order that $537,448.43 be paid from escrow to DPW.


A. Factual and Procedural Background

Plaintiffs were participants in the Housing Choice Voucher Program ("HCVP"), a federal program in which qualified low-income individuals receive vouchers that they can use to lease private housing. Federal regulations require that local housing authorities conduct inspections of homes covered by the HCVP at least annually to ensure they comply with federal housing quality standards. 24 C.F.R. § 982.405(a). Plaintiffs allege that they were injured due to unsafe conditions in their HCVP-approved home. Specifically, they allege that damp conditions and the presence of mold in the home caused and/or exacerbated Plaintiffs' asthma, and led to a tragic respiratory incident on March 18, 2006 that resulted in Plaintiff Ebony Gage being hospitalized for months and rendered permanently brain damaged. (Sec. Am. Compl. ¶¶ 283, 294, 297.) Plaintiffs were deemed eligible for Medicaid, which paid $1,265,896.16 for Plaintiffs' medical bills.*fn1 DPW has liens in this amount against Plaintiffs' recovery.

Plaintiffs filed a lawsuit in October 2007 against their local housing authority, the Philadelphia Housing Authority ("PHA") and several of its employees under two theories: (1) that the PHA Defendants violated Plaintiffs' rights under the United States Housing Act of 1937, 42 U.S.C. § 1437; and (2) that the PHA Defendants affirmatively exercised their authority in a manner that rendered Plaintiffs more vulnerable to danger, thereby violating Plaintiffs' rights under the Fifth and Fourteenth Amendments to the United States Constitution. Plaintiffs also sued their landlords ("the Stahls") and the management company that serviced their HCVP home ("Artur Defendants") on a theory of negligence.

On January 11, 2008, PHA and its Executive Director Carl Greene (also a named Defendant) moved to dismiss Plaintiffs' Amended Complaint. The Court denied those motions on April 3, 2008. On February 19, 2010, PHA, the Stahls, and the Artur Defendants each filed extensive motions for summary judgment. On April 20, 2010, the Court ruled on the summary judgment motions, granting them in part and denying them in part.*fn2 The Court held that Plaintiffs did not have a private right of action to enforce the United States Housing Act but that they could proceed to trial against PHA on their constitutional "state-created danger" theory and against the Stahls for negligence.

At the final pretrial conference on April 27, 2010, Plaintiffs informed the Court that they had reached an agreement with the Stahls and were proceeding only against PHA. On May 3, 2010, the Court conducted voir dire and a jury was selected. Before opening arguments, Plaintiffs and PHA announced that they had reached a settlement.

DPW was on notice that this case was being prosecuted as early as June 27, 2008. (Pl.'s Ahlborn Hearing Mem. Ex. F [M. Trunk Letter to DPW Dated June 27, 2008].) DPW, however, did not intervene during the prosecution of the case. After the settlement was reached, but before it was approved by the Court, Plaintiffs' counsel faxed a letter to DPW claims investigation agent Karen Georgoulis detailing the terms of the proposed settlement with Defendants and offering to reach an agreement regarding DPW's lien. (Id. Ex. G [M. Trunk Letter to DPW Dated May 17, 2010].) On June 2, 2010, Plaintiffs' counsel sent another letter to Georgoulis at DPW, updating her on the settlement discussions and again raising the issue of an agreement to settle DPW's lien. (Id. Ex. H [M. Trunk Letter to DPW Dated June 2, 2010].) On June 3, 2010, DPW sent Plaintiffs' counsel statements detailing DPW's expenditures on Plaintiffs' medical care. (Id. Ex. I [DPW Statement -McKinney]; Ex. K [DPW Statement - R. Gage].) On June 4, 2010, Plaintiffs' Counsel faxed a letter to DPW acknowledging the updated claimed expenditures from the June 3 statements, and again proposing resolution of the liens. (Id. Ex. L [M. Trunk Letter to DPW Dated June 4, 2010].)

Also on June 4, 2010, Plaintiffs submitted to the Court a Petition to Approve Settlement. (Pet. to Approve Settlement [Settlement Pet.].) The Petition noted that Plaintiffs' lawyers were in the process of negotiating liens asserted by DPW against Plaintiffs. (Id. ¶¶ 19--21.)

On June 8, 2010, DPW sent Plaintiffs' Counsel a request for additional information. (Pl.'s Ahlborn Hearing Mem. Ex. M [K. Georgoulis Letter to M. Trunk Dated June 8, 2010].) Plaintiffs' Counsel responded the same day, sending DPW the operative complaint, pertinent expert reports, and the petition to approve settlement, which Plaintiffs' Counsel noted had been filed with the Court. (Id. Ex. N [M. Trunk Letter to K. Georgoulis Dated June 8, 2010].)

On June 15, 2010, the Court approved a settlement among the parties, not including DPW, of $11,913,000.00. The settlement contains specific amounts appropriated for litigation costs, attorneys' fees, and payments to the individual Plaintiffs (with payments to the minor Plaintiffs placed in special needs trusts). Anticipating the instant dispute, the Parties placed $1,267,611.41 in escrow-more than the entire amount of DPW's claim-pending resolution of the dispute. The settlement does not specify what proportion of the settlement represents compensation for past medical expenses or any other head of damage (e.g. pain and suffering or lost wages).

On June 18, 2010, DPW sent Plaintiffs' Counsel a letter advising that the matter had been referred to Jason Manne of DPW's Office of General Counsel. (Id. Ex. O.) On July 8, 2010, DPW moved to vacate the settlement reached in this case or in the alternative, to intervene. The Court denied DPW's motion to vacate the settlement, but granted its motion to intervene and scheduled a hearing for August 5, 2010 to determine how much DPW may collect under its lien. Plaintiffs and DPW were each asked to submit briefs outlining the relevant substantive and procedural law.

Counsel for Plaintiffs and DPW filed briefs and presented arguments to the Court at the August 5, 2010 hearing. Counsel for Plaintiffs also offered into evidence exhibits relevant to its theory of the issue.

2. Ahlborn

The issue before the Court is how much of its $1,265,896.16 expenditure DPW can recoup as a result of Plaintiffs' settlement. This question undoubtedly is affected by the Supreme Court's decision in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), so the Court will begin there.

In Ahlborn, a young woman was involved in an accident and qualified for Medicaid assistance from the State of Arkansas. Id. at 272. The Arkansas Department of Health and Human Services (ADHS) paid medical providers $215,645 on her behalf. Id. at 273. ADHS was not involved in the litigation, which resulted in the beneficiary reaching a settlement of $550,000. Id. at 274. The parties did not allocate the settlement among categories of damages. Id. ADHS placed a lien against the award for the full amount of its expenditure, claiming that it was entitled to complete ...

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