Todd v. North Dakota Department of Human Services

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
)
Mary Todd as Trustee of the Ruby Chelson )
West Residuary Trust, )
) ORDER GRANTING DEFENDANT’S
Plaintiff, ) MOTION TO DISMISS
vs. )
)
Christopher D. Jones, in his official capacity )
as Executive Director of the North Dakota )
Department of Human Services, ) Case No. 1:18-cv-150
)
Defendant. )
______________________________________________________________________________
Before the Court is a motion to dismiss filed by Christopher Jones as Executive Director
of the North Dakota Department of Human Services (“the Department”) on August 27, 2018. See
Doc. No. 8. Mary Todd, as Trustee of the Ruby Chelson West Residuary Trust (“Todd”), filed a
response on September 25, 2018. See Doc. No. 10. The Department filed a reply on October 16,
2018. See Doc. No. 11. Todd filed a notice of supplemental authority on March 21, 2019. See
Doc. No. 13. The Department filed a response to Todd’s notice on March 25, 2019. See Doc. No.
14. For the following reasons, the Court grants the Department’s motion to dismiss.
I. BACKGROUND
This controversy arises from the Department’s attempts to recover assets for Medicaid
benefits allegedly paid in error on behalf of the late Terry David West (“West”). Todd’s complaint
asserts the following allegations. West was a ward of the State of North Dakota and received
Medicaid benefits. West’s mother, Ruby Chelson West, died testate with a will that created a
testamentary trust (“the Trust”). West was a beneficiary of the Trust, which contained a spendthrift
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provision limiting West’s ability to direct the trustee’s actions and control the trust assets. Ruby
West died in April of 2001, her will was probated, and the Trust was funded. In November of
2017, the Department obtained Letters of Administration for West’s estate. The North Dakota
State Hospital filed claims against the estate totaling $831,591.20. See In the Estate of Terry David
West, Case No. 09-2017-PR-00366. As personal representative of the estate, the Department sued
Todd in state district court alleging she breached fiduciary duties she owed West by not paying
him benefits during his life as the Trust supposedly required. See Estate of Terry West v. Todd,
No. 08-2018-cv-01934.
Todd filed this federal action for declaratory and injunctive relief on July 17, 2018. The
state court stayed its proceedings pending the resolution of this lawsuit. Todd’s complaint, relying
on the Court’s federal question jurisdiction as set forth at 28 U.S.C. § 1331, asserts two claims:
[The Department] is violating 42 U.S.C. §§ 1396a(a)(10)(C)(i), (r)(2)(B) and the
federal regulations and policies relating to treatment of trusts, because the
Department’s unwritten policy for considering trusts with valid spendthrift
provisions as available assets establishes a more restrictive evaluation of Mr.
West’s resources than the methodology use [sic] by the SSI program, for which
relief is available pursuant to 42 U.S.C. § 1983.
[The Department] is violating 42 U.S.C. § 1396p(b), because the Department is
seeking to recover from the Trust, which is not part of Mr. West’s estate, for which
relief is available pursuant to 42 U.S.C. § 1983.
See Doc. No. 1, p. 7. Todd requests the Court grant declaratory relief and permanently enjoin the
Department from acting in the above-described manner. The Department filed a motion to dismiss
pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure on August 27,
2018. See Doc. No. 8.
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II. LEGAL DISCUSSION
The Department argues Todd’s first claim—that the Department’s Medicaid eligibility
policy is improperly more restrictive than the Supplemental Security Income (“SSI”) eligibility
rules—fails to state a claim for which relief can be granted. The Department asserts that under
federal law, North Dakota can in fact apply eligibility requirements that are more restrictive than
the SSI rules. As to the second claim—that the trust is not part of West’s probate estate—the
Department urges the Court to abstain from deciding the issue because it is a probate matter and
the pending state court litigation will answer the question. The Court agrees with the Department
on both claims.
A. TODD’S CLAIM THAT NORTH DAKOTA’S MEDICAID ELIGIBILITY
POLICY IS IMPROPERLY MORE RESTRICTIVE THAN SSI RULES
Todd relies on 42 U.S.C. §§ 1396a(a)(10)(C)(i) and (r)(2)(B) to support her argument that
the Department is violating federal law by considering a trust with a valid spendthrift provision as
an available resource. Section 1396(a)(10)(C)(i) requires Medicaid eligibility criteria be “no more
restrictive” than the criteria used to determine SSI eligibility. Section 1396(r)(2)(B) defines the
term “no more restrictive” in this context. However, as explained below, Congress has provided
states with a limited exception—termed the “209(b) option”—that exempts states from this
requirement. See 42 U.S.C. § 1396a(f).
The Department has moved to dismiss Todd’s first claim under Rule 12(b)(6) of the Federal
Rules of Civil Procedure. Rule 12(b)(6) mandates dismissal of a complaint if it fails to state a
claim upon which relief can be granted. To determine whether dismissal is warranted, the court
must assume the complaint’s factual allegations are true and draw all reasonable inferences in the
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plaintiff’s favor. Monson v. Drug Enf’t Admin., 589 F.3d 952, 961 (8th Cir. 2009.). Conclusory
legal allegations need not be accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Title XIX of the Social Security Act of 1965 established the Medicaid program. See 42
U.S.C. § 1396 et seq. The Medicaid program provides federal funds to reimburse states for the
cost of providing healthcare to persons who cannot afford it. Savage v. Toan, 795 F.2d 643, 644
(8th Cir. 1986). State Medicaid plans must comply with federal law. Id. When it comes to
determining whether an individual is eligible for Medicaid, there are two types of states: SSI states
and Section 209(b) states. Herweg v. Ray, 455 U.S. 265, 268 (1982); see also Matarazzo v. Rowe,
623 A.2d 470, 474 (Conn. 1993).
SSI states use the SSI rules to determine Medicaid eligibility. In other words, in those
states, if individuals qualify for SSI, they also qualify for Medicaid. See Program Operations
Manual System (“POMS”) SI 01715.010.1 Section 209(b) states “use at least one eligibility
criterion more restrictive than the SSI program.” Id. The Eighth Circuit Court of Appeals has
provided a detailed history of the Section 209(b) option, which the Court recites in full:
Initially, the Medicaid program required participating states to provide medical
assistance to persons who received payments under one of four welfare programs
established elsewhere in the Social Security Act. These programs were Old Age
Assistance, Aid to Families with Dependent Children, Aid to the Blind, and Aid to
the Permanently and Totally Disabled. Persons receiving aid under one of these
four programs were referred to as the “categorically needy.” See generally
Schweiker v. Gray Panthers, 453 U.S. 34, 37, 101 S.Ct. 2633, 2637, 69 L.Ed.2d
460 (1981).
Since Medicaid’s enactment, however, the social security programs have
undergone substantial change. In 1972, Congress restructured the social security
programs and replaced three of the four above-mentioned welfare programs with a
new program entitled Supplemental Security Income for the Aged, Blind, and
Disabled (SSI), 42 U.S.C. § 1381 et seq. Under SSI, the federal government
assumed responsibility for both the funding of payments and setting the eligibility
1 The Program Operations Manual System “is a primary source of information used by Social Security employees to
process claims for Social Security benefits.” Social Security Administration’s Policy Information Site, About
POMS, https://secuire.ssa.gov/apps10/poms.nsf/home?readform.
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standards. In addition, Congress retained the requirement that all recipients of
categorical welfare assistance—now including the new SSI program—were also
entitled to Medicaid. Because the new SSI standards were broader than those that
had existed before, a consequence of this restructuring was that the number of
individuals eligible for Medicaid increased significantly in many states. Congress
was concerned that states whose Medicaid liability increased as a result of SSI
would withdraw from the Medicaid program. Thus, it offered to the states what is
known as the section 209(b) option, set forth in 42 U.S.C. § 1396a(f). See generally
Schweiker v. Gray Panthers, 453 U.S. at 38–39, 101 S.Ct. 2637–38.2.
Under this option, states can opt out of the requirement of providing Medicaid
assistance automatically to persons who receive SSI and elect instead to provide
Medicaid assistance only to those individuals who would have been eligible under
the state Medicaid plan in effect on January 1, 1972. “In other words, the § 209(b)
option allows the States to avoid the effect of the link between the SSI and Medicaid
programs: States may become either ‘§ 209(b) States’ or ‘SSI States.’ ” Herweg v.
Ray, 455 U.S. 265, 268, 102 S.Ct. 1059, 1063, 71 L.Ed.2d 137 (1982).
Darling v. Bowen, 878 F.2d 1069, 1070-71 (8th Cir. 1989).
It is undisputed that North Dakota is a Section 209(b) state. See Wahl v. Morton Cty. Soc.
Services, 574 N.W.2d 859, 866 (N.D. 1998); see also POMS SI 01715.010. “[S]ection 209(b)
states’ Medicaid eligibility requirements which are more restrictive than Supplemental Security
Income program eligibility rules do not violate federal standards.” Wahl, at 866. Rather, Section
209(b) states must apply eligibility criteria no more restrictive than the state’s Medicaid plan in
effect on January 1, 1972. Herweg, 455 U.S. at 268. Todd asks the Court to declare North
Dakota’s Medicaid eligibility policy violates federal law because it is more restrictive than the SSI
program. Because North Dakota is a Section 209(b) state, it may have more restrictive eligibility
standards, and thus the Court cannot grant such relief. Rule 12(b)(6) dismissal is warranted.
B. TODD’S CLAIM THAT THE TRUST IS NOT AN ESTATE ASSET
Todd’s second claim requests the Court declare the Trust assets are not part of West’s estate
and the Department’s recovery efforts consequently violate 42 U.S.C. § 1396p(b) (dealing with
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recovery from decedent’s estates). The Department urges the Court to abstain from deciding the
issue pursuant to Federal Rule of Civil Procedure 12(b)(1) on two grounds: the probate exception
to federal court subject matter jurisdiction and the Colorado River Abstention Doctrine. The Court
concludes the probate exception clearly applies to Todd’s claim. Given this holding, the Court
does not reach the merits of the Department’s Colorado River abstention argument.
Parties may assert a lack of subject matter jurisdiction by motion under Fed. R. Civ. P.
12(b)(1). This defense may be brought in two ways: by facial attack or by factual attack. Branson
Label, Inc. v. City of Branson, 793 F.3d 910, 914 (8th Cir. 2015). A facial attack simply asserts
the plaintiff has not plead a basis for subject matter jurisdiction. Branson Label, at 914. In a facial
attack, the Court must afford the non-moving party the benefit of the Rule 12(b)(6) safeguards,
and it may only consider the pleadings and “materials that are necessarily embraced by the
pleadings and exhibits attached to the complaint.” Carlsen v. Gamestop, Inc., 833 F.3d 903, 906
(8th Cir. 2016) (quoting Cox v. Mortg. Elec. Registration Sys., Inc., 685 F.3d 663, 668 (8th Cir.
2012)). A factual attack asserts the actual existence of subject matter jurisdiction is lacking
“irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits,
are considered.” Id. at 914-915 (quoting Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511
(5th Cir. 1980)). The Court will treat this motion as facial attack and consider only the pleadings.
The probate exception is a judicially-created limitation on federal court subject matter
jurisdiction. Sianis v. Jensen, 294 F.3d 994, 997 (8th Cir. 2002); see also Brooks v. Wiesz, 572 F.
Supp. 2d 1134, 1137 (D.N.D. 2008). The United States Supreme Court refined and limited the
probate exception in Marshall v. Marshall, 547 U.S. 293 (2006). The Supreme Court explained:
[T]he probate exception reserves to state probate courts the probate or annulment
of a will and the administration of a decedent’s estate; it also precludes federal
courts from disposing of property that is in the custody of a state probate court. But
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it does not bar federal courts from adjudicating matters outside those confines and
otherwise within federal jurisdiction.
Id. at 311-12; see also McAninch v. Wintermute, 491 F.3d 759, 766 (8th Cir. 2007) (federal courts
not barred from deciding matters outside the confines of probating a will, estate administration, or
adjudicating rights to property in the custody of state court).
The question Todd asks the Court to decide—whether the Trust assets constitute estate
property—is clearly within the confines of estate administration. One of the first and main tasks
of administering an estate is determining what constitutes the estate property. See N.D. Cent. Code
§ 30.1-12-05 (granting state district court jurisdiction over probate proceedings to “determine title
to property alleged to belong to the estate”). “Determining what property constitutes the estate
goes to the very nature of the probate proceeding . . . .” In re Estate of Bartelson, 806 N.W.2d 199,
202 (N.D. 2011).
Before this case was filed, probate proceedings had begun and the parties were litigating
the issue of whether the trust constitutes probate property. See Defendant’s Counterclaim at Index
No. 12, p. 5, Estate of Terry West v. Todd, No. 08-2018-cv-01934 (“The Trust and its contents are
not and were not probate assets and the Plaintiff is not a beneficiary of the Trust.”). Because
Todd’s claim asks the Court to decide an issue within the confines of estate administration, the
Court must abstain from adjudication under the probate exception to federal subject matter
jurisdiction. Nonetheless, if rulings in the state court proceedings necessitate a determination of
Medicaid or other federal law, this Court remains an available forum.
III. CONCLUSION
The Court has carefully reviewed the entire record, the parties’ filings, and the relevant
law. For the reasons set forth above, the Defendant’s motion to dismiss is GRANTED (Doc. No.
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8). The Plaintiff’s first claim is DISMISSED WITH PREJUDICE. The Plaintiff’s second claim
is DISMISSED WITHOUT PREJUDICE.
IT IS SO ORDERED
Dated this 6th day of May, 2018.
/s/ Daniel L. Hovland
Daniel L. Hovland, Chief Judge
United States District Court
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