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Zahner v. MacKereth

United States District Court, Third Circuit

January 16, 2014

ANABEL L. ZAHNER, by her agent RAYMOND E. ZAHNER and the Estate of DONNA C. CLAYPOOLE By MITCHELL R. CLAYPOOL, Executor and CONNIE L. SANNER, by her agent, JAMIE R. RYBAK, Plaintiffs,
v.
BEVERLY MACKERETH in her official Capacity as Secretary of the Commonwealth of Pennsylvania, Department of Public Welfare, Defendant.

MAURICE B. COHILL, Jr., Senior District Judge.

Introduction

Like many government benefit programs, applicants must meet certain financial requirements to become eligible, a so-called "resource assessment." The three cases before us involve similar issues but with somewhat different factual backgrounds. Financial planners, particularly attorneys, constantly attempt to make their clients eligible for such benefits while at the same time preserving the clients' assets or at least "keeping them in the family." In these cases, each of the Plaintiff applicants attempted to obtain eligibility for Medicaid by several methods, including purchasing annuities, thereby reducing their countable assets, arguing that such reduction now made them eligible for Medicaid assistance. The Pennsylvania Department of Welfare, which administers the Medicaid program, denied the applications holding that the purchase of the annuities was an illegal transfer of assets.

OPINION

Pending before the Court is Defendant, the Department of Welfare's (hereinafter "DPW" or "Defendant"), Motion for Summary Judgment [ECF No. 38], and Plaintiffs, Anabel L. Zahner's, Donna Claypoole's, and by way of Consolidation, [1] Connie L. Sanner's, (hereinafter "Plaintiffs"), Cross Motion for Summary Judgment [ECF No. 45], pursuant to Rule 56 of the Federal Rules of Civil Procedure and L.R. 56.1 of the Local Civil Rules of the United States District Court for the Western District of Pennsylvania.

On December 9, 2011, Plaintiffs Zahner and Claypoole filed a Complaint in Civil Action [ECF No. 1] seeking declaratory and injunctive relief, as well as attorneys' fees and other "just and appropriate relief" The Complaint alleged that Plaintiffs' purchases of annuities were deemed transfers of assets for less than fair market value by the State despite the fact that the annuities were reported to have met all requirements of the federal Medicaid law. The determination by Defendant caused the Plaintiffs' applications for long-term care Medicaid to suffer a period of ineligibility for Medicaid benefits that is "greater than the law typically provides." Consequently, Defendant's decision, according to Plaintiffs, violates Plaintiffs' rights under Title XIX of the Social Security Act (the "Medicaid Act"), in particular 42 U.S.C. § 1396p(c)(1)(F) and § 1396p(d)(6). (ECF No. 1 at 2].

All parties filed Motions for Summary Judgment claiming there are no genuine issues as to any material fact. Each side asserts that it is entitled to judgment as a matter of law. We agree that there are no genuine issues as to any material fact here. For the reasons set forth below, Defendant's Motion for Summary Judgment will be granted only with regard to the annuities purchased by Plaintiffs through Employee's Life Company ("ELCO"), otherwise Defendant's Motion for Summary Judgment will be denied. Plaintiffs' Cross-Motion for Summary Judgment will be granted to the extent it applies to those annuities purchased by the Plaintiffs through MetLife Insurance Investors, USA ("MetLife"), in all other respects Plaintiffs Motion for Summary Judgment will be denied.

I. Standard of Review.

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986). The parties must support their position by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed.R.Civ.P. 56(c)(1)(A). In other words, summary judgment may be granted only if there exists no genuine issue of material fact that would permit a reasonable jury to find for the nonmoving party. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250 (1986).

In reviewing the evidence, the court draws all reasonable inferences in favor of the non-moving party. See Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133, 150 (2000); Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587-88 (1986); Huston v. Procter & Gamble Paper Prod. Corp. , 568 F.3d 100, 104 (3d Cir. 2009) (citations omitted). It is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. See Anderson , 477 U.S. at 255; Marino v. Indus. Crating Co. , 358 F.3d 241, 247 (3d Cir. 2004); Boyle v. Cnty. of Allegheny , 139 F.3d 386, 393 (3d Cir. 1998). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson , 477 U.S. at 247-48 (1986). An issue is "genuine" if a reasonable jury could possibly hold in the non-movant's favor with regard to that issue. See id. "Where the record taken as a whole could not lead a reasonable trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Matsushita , 475 U.S. at 587; Huston , 568 F.3d at 104.

II. Relevant Facts.

Zahner

Anable L. Zahner ("Zahner") is 77 years old and at the commencement of this action (December 9, 2011) lived at home in Titusville, Pennsylvania with her husband, Raymond Zahner. Mr. Zahner has filed this action as his wife's agent. Mrs. Zahner requires medical assistance to continue to live in the community and wants the Medical Assistance - Long Term Care (MA-LTC) to pay for needed services. On April 18, 2011 Zahner and her husband transferred a remainder interest in their house to their daughter, as Trustee of the Raymond E. and Anabel L. Zahner irrevocable Income-Only trust [ECF No. 46 at 1]. On that same day, Mr. Zahner completed a resource assessment form for his wife. [ECF No. 39 at 2]. The County Assistance Office's analysis of the form showed the countable resources of the couple were $365, 871.30. Id . The amount exceeds the countable resources allowable to receive benefits under MA-LTC. Id.

On May 16, 2011 Mr. Zahner loaned his son $80, 000 in return for a promissory note providing for repayment of the loan at 5% interest for a period of sixteen months. [ECF No. 46 at 1-2]. On May 26, 2011 Mr. Zahner filed an application for a single premium annuity with MetLife for $30, 000 providing for monthly payments of $507.25 over a five-year term, beginning June 15, 2011. The beneficiary at Mr. Zahner's death for any remaining payments is "Department of Public Welfare of PA to the extent of its interest which is defined as the total amount of Medical Assistance paid on behalf of Anabel L. Zahner." Id. at 2. Once the MetLife annuity was issued the remainder beneficiary was identified as "Name WHICH IS DEFINED AS THE." Id . On October 7, 2011 MetLife, in response to a request, clarified this designation as follows:

"Our records currently reflect the beneficiary designation as: Primary Beneficiary: DEPARTMENT OF PUBLIC WELFARE OF PA TO THE EXTENT OF ITS INTEREST WHICH IS DEFINED AS THE TOTAL AMOUNT OF MEDICAL ASSISTANCE PAID ON BEHALF OF ANABEL L. ZAHNER."

On June 15 and 29, 2011 the Zahners transferred 1621 shares of National Fuel stock, without consideration, to their daughter as Trustee to the trust. [ECF No. 39 at 2; ECF No. 46 at 2].

On July 12, 2011 Mrs. Zahner mailed her application for MA-LTC benefits to the Crawford County Assistance Office. [ECF No. 46 at 3]. The transfers caused a period of ineligibility for MA-LTC benefits for Zahner. [ECF No. 39 at 2]. Also on July] 2, 2011 the U.S. Court of Appeals issued a decision upholding the finding of a District Court that loans between a parent and child in the context of a Medicaid application could not be considered trust-like devices. See Sable v. Valez, 437 F.Appx. 73 (3d Cir. 2011). [ECF No. 46 at 3]. On August 15, 2011 Zahner's Medicaid application was denied because of the $80, 000 transfer to her son was treated as excess resources to Zahner. Id . Shortly thereafter the loan was returned by their son and on August 18, 2011 Mr. Zahner filed an application for a single premium immediate annuity with ELCO for $75, 000 for monthly payments of $4, 199.58 over an 18-month term, beginning September 28, 2011. Id. at 3-4. Defendant asserts this annuity's sole purpose was to provide money to pay for Zahner's home care during her period of ineligibility for MA-LTC. [ECF No. 39 at 3-4]. Zahner's actuarial life expectancy at the time of the two annuity purchases was 9.48 years. [ECF No. 39 at 4].

On the same day the Zahners received the ELCO annuity, they requested reconsideration of Zahner's Medicaid Application. Id . On October 31, 2011, the Crawford County Assistance Office issued a second notice of denial to Zahner on the grounds that she had transferred $237, 188.19 (this includes the value of assets transferred such as a remainder interest in Zahner's house and 1, 621 shares of National Fuel stock) in assets without receiving fair market value. [ECF No.1 at 6]. Because the amount stated is $105, 000 more than the gifts Zahner reported in her Medicaid application, it is clear that the purchase of annuities ($30, 000 $75, 000 = $105, 000) were treated as transfers for less than fair market value. Id . Only the penalty period for the transfer of the $105, 000 is disputed.

Claypoole

Donna C. Claypoole was 86 years old at the time the Complaint was filed and resided at Clearview Nursing and Rehabilitation Center in Sligo, Pennsylvania. Her husband, Donald Ray Claypoole, who was 84 years old and resided at their home in Emlenton, Pennsylvania, brought this action as Mrs. Claypoole's agent. Mrs. Claypoole died March 13, 2013. The Estate of Donna C. Claypoole ("Claypool") has been substituted as a party to this case [ECF No. 44]. Between May 28, 2009 and November 10, 2010, Mrs. Claypoole and her husband transferred, for no consideration, a total of $110, 011 to their sons. [ECF No. 39 at 5; ECF No. 46 at 5]. On August 4, 2011 Mr. Claypoole applied for a single premium immediate annuity with MetLife Investors for $45, 000, providing for monthly payments of $760.20 over a five-year term. Id . The application listed the beneficiary for any remaining payments under the annuity as: "Department of Public Welfare of PA to the extent of its interest which is defined as the total amount of Medical Assistance benefits provided to the institutionalized Donna C. Claypoole." Id . The beneficiary designation on the policy printed the beneficiary as "DEPT. OF PUBLIC WELFARE OF PA FBO DONNA CLAYPOOLE." [ECF No.39 at 6]. By letter dated February 24, 2012, MetLife's records currently reflect the carelessly stated beneficiary designation as follows: "Primary Beneficiary: DEPARTMENT OF PUBLIC WELFARE OF PENNSYLVANIA TO THE EXTENT OF ITS INTEREST WHICH IS DEFINED AS THE TOTAL AMOUNT OF MEDICAL ASSISTANCE BENEFITS WERE [sic] PROVIDED TO THE INSTITUTIONALIZED DONNA CLAYPOOSE [sic]." [ECF No. 46 at 7].

On August 4, 2011, Mrs. Claypoole applied for an $84, 974.08 single premium contract labeled "annuity" from ELCO. The contract paid her $6, 100.22 for fourteen months. [ECF No. 39 at 6]. Defendant alleges that one purpose of the contract was to pay for nursing home care during her period of ineligibility for MA-LTC benefits caused by asset transfers. Id . On August 29, 2011 Mrs. Claypoole filed her application for MA-LTC with Clarion County Assistance Office. [ECF No. 46 at 6]. (Defendant reports she applied for MA-LTC benefits on August 25, 2011 [ECF No. 39 at 6]). The resource assessment showed that the Claypooles had $370, 394.74 in countable resources. Id . Mrs. Claypoole's life expectancy was 6.77 years at the time of the ELCO annuity purchase and 6.06 at the time of the MetLife annuity purchase. Id.

On November 18, 2011 Clarion County Assistance office issued a Notice denying Mrs. Claypoole MA-LTC coverage because she had transferred $262, 790 in assets without receiving fair market value. [ECF No. 46 at 6-7]. Included in this amount were the annuities purchased for $45, 000 and $84, 784. Id. at 7. Only the portion of the penalty period attributable to the $129, 784 used to purchase the MetLife and ELCO contracts is disputed. [ECF No. 39 at 7].

Sanner

Connie Sanner commenced action against then Pennsylvania Secretary of the Department of Welfare, Gary D. Alexander on August 24, 2012 at case 1:12-cv-00201-MBC. The issues in Ms. Sanner's case are identical to Zahner and Claypoole's case in the basic facts, applicable law and parties. Therefore the case of Sanner v. Alexander was joined with this case at issue on December 13, 2012. Connie Sanner ("Sanner") currently resides in a nursing home. Id. at 8. On July 27, 2011 Sanner applied for an immediate annuity with ELCO for $53, 700 single premium contact. This contract paid Sanner $4, 419.17 over a twelve-month period. [ECF No. 46 at 7]. On August 26, 2011 Sanner transferred $92, 000 to her two children for no consideration. Id . On September 1, 2011 Sanner filed her application for MA-LTC with the Venango County Assistance Office. On February 13, 2012 they denied her coverage because she had transferred $152, 480.89 in assets without receiving fair market value. Id. at 8. Included in this determination was the tact that various charges on her credit card and the annuity purchase were treated as transfers of assets for less than fair market value. Id . The credit card charges were resolved, however, the treatment of the annuity remained the same. Id . Only the portion of the penalty period attributable to the purchase of the ELCO contract remains in dispute. [ECF No. 39 at 9].

III. Legal Analysis.

To reiterate what was stated above, summary judgment may be granted only if there exists no genuine issue of material fact that would permit a reasonable jury to find for the nonmoving party. See Anderson , 477 U.S. at 250. Based on the information provided by both parties, we find that there are no material issues of fact which would preclude the entry of summary judgment in this case. Instead the parties seek summary judgment in this case where several different legal (not factual) topics are at issue and all have a bearing on the legality of the purchased annuities and whether the purchased annuities are transfers for less than fair market value causing a penalty waiting period before the Plaintiffs may be eligible for MA-LTC. The legal issues are: Whether the "Granny's Attorney goes to Jail" statute (the lawyers nickname for the statute) is unconstitutional and if it is unconstitutional, is it severable? Whether the MetLife contracts/annuities are assignable and/or are considered trust-like devices? Whether the ELCO contracts/annuities are assignable and/or considered trust-like devices? Does federal law permit a couple to convert resources into community spouse income after the date of institutionalization (this would apply only to the Claypoole's case)? We will address each legal issue in turn below.

A. Legal Issues

"Granny's Attorney Goes to Jail"

Attorneys for the Plaintiffs counseled and assisted them in their financial planning for long-term care coverage. The Commonwealth argues this was illegal under 42 U.S.C. § 1320a-7b(a)(6) ("Criminal penalties for acts involving Federal ...


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