THEODORE E. WEATHERBEE by his next friend and agent; CHERYL L. VECCHIO v. ESTELLE RICHMAN in her official capacity as Secretary of the Commonwealth of…

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 09-1399
___________
THEODORE E. WEATHERBEE
by his next friend and agent; CHERYL L. VECCHIO
v.
ESTELLE RICHMAN
in her official capacity as Secretary of the Commonwealth of
Pennsylvania Department of Public Welfare,
Appellant
___________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 1-07-cv-00134)
District Judge: The Honorable Sean J. McLaughlin
___________
Submitted Under Third Circuit LAR 34.1(a)
October 30, 2009
Before: SMITH, FISHER, and NYGAARD, Circuit Judges.
(Filed November 12, 2009 )
___________
OPINION OF THE COURT
___________

-- 1 of 5 --

2
NYGAARD, Circuit Judge.
This cause was raised by Theodore Weatherbee as a complaint for declaratory
judgment and injunctive relief. Following a hearing on the Pennsylvania Department of
Welfare’s motion to dismiss, the District Court: converted the motion to dismiss into
summary judgment; denied the motion; precluded the Department from denying Medicaid
benefits to Weatherbee; and, closed the case. The facts and procedures are well known to
the parties and are discussed in the District Court's opinion. Hence, we will not reiterate
them here.
Two basic issues are raised on appeal. The Department of Public Welfare asserts
that the annuity purchased by the community spouse in this case is properly regarded as a
“resource” for purposes of Medicaid eligibility, and is therefore a proper basis to deny
Weatherbee benefits under the Medical Assistance Long-Term Care program. The
Department also argues that the District Court did not provide sufficient notice of its
conversion of the motion to dismiss into summary judgment, prejudicing its case.
42 U.S.C. § 1396p generally governs the transfer of assets by Medicaid applicants
and their spouses. We find that the District Court properly stated that the changes
brought about by the Deficit Reduction Act are not ambiguous and must be read within
the larger context of the longstanding rule that community spouse income is not available
to an institutionalized spouse. 42 U.S.C. §1396r-5. Therefore, contrary to the
Department’s interpretation, §1396p(e)(4) cannot be regarded as a basis by which it may

-- 2 of 5 --

3
deny eligibility for benefits where the annuity otherwise complies with the law. In this
case it is clear that the community spouse gave up a “resource” in exchange for a
guaranteed “income,” as it is defined in 42 U.S.C. §1382a(2)(B).
Moreover, the Department of Welfare’s assertion that the annuity is a resource
because it could be sold on a secondary market is fundamentally flawed. As we stated in
a prior decision, impediments to a transfer that may incur legal liability for the owner of
the asset preclude consideration of that asset as a resource. James v. Richman, 547 F.3d
214, 218 (3d Cir. 2008).
Finally, we agree with the District Court that the state law referenced by the
Department is preempted. States that elect to participate in the Medicaid program must
comply with eligibility requirements set by the Federal government. 42 U.S.C.
§1396(a)(10)(C)(i). The eligibility requirements established by the states may be more
liberal than those of the Federal government, but they may not be more restrictive. 42
U.S.C. 1396(a)(10)(C)(i)(III). In this case, the Department of Welfare argues that it may
rely on 62 P.S. §441.6(b) to substantiate its decision to deny benefits. However, we read
the statute as narrowing the annuity exemption from Medicaid eligibility analysis, and
therefore conclude that the District Court properly regarded this state statute as
conflicting with federal law. The District Court did not err in ruling that 62 P.S.
§441.6(b) is preempted. For all of these reasons, the District Court did not err in finding

-- 3 of 5 --

4
that the Department of Welfare improperly denied Weatherbee eligibility for Medicaid
benefits.
With regard to the District Court’s handling of the Department of Welfare’s
Motion to Dismiss, the Department argues that the District Court did not provide
sufficient notice of its intent to convert the motion to dismiss into a motion for summary
judgment. A district court must provide the parties “‘reasonable opportunity’ to present
all material relevant to a summary judgment motion.” In re Rockefeller Center Properties,
Inc. Securitites Litigation, 184 F.3d 280, 288 (3d Cir. 1999), (citing Fed. R. Civ. P.
12(b)). However, a failure to provide proper notice is not cause for reversal where the
error is harmless. Id.
The Department of Welfare claims prejudice on the basis that it was not able to
break down the annuity to determine the portion that was income and the portion that was
“resource.” This calculation is irrelevant to the holding. The Department also claims that
it was not able to gather other guidance from the Centers for Medicare and Medicaid
Services that might have been instructive or clarifying in its case. However, the
Department fails to state that such guidance actually existed, and provides us with no
reason to believe that it would have been decisive, given that the guidance proffered by
the Department and considered by the District Court essentially restates the provisions of
the statute. Moreover, Weatherbee correctly notes that the Department had fifteen
months to prepare for argument on its motion to dismiss. For these reasons, even were

-- 4 of 5 --

5
we to conclude that the District Court erred, we find that the Department was not
prejudiced.
For all of these reasons, we will affirm the order of the District Court.

-- 5 of 5 --