Opinion
B290339
03-05-2020
ALBERTO BARBOZA, Petitioner and Respondent, v. CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, Appellant. WESTAMERICA BANK et al. Real Parties in Interest.
Xavier Becerra, Attorney General, Cheryl Feiner, Senior Assistant Attorney General, Leslie P. McElroy, Gregory D. Brown and Cristina M. Matsushima, Deputy Attorneys General, for Appellant. Barton Klugman & Oetting and Thomas Beltran for Petitioner and Respondent. No appearance for Real Party in interest.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. KP010174) APPEAL from an order of the Superior Court of Los Angeles County. Mary T. House, Judge. Reversed and remanded. Xavier Becerra, Attorney General, Cheryl Feiner, Senior Assistant Attorney General, Leslie P. McElroy, Gregory D. Brown and Cristina M. Matsushima, Deputy Attorneys General, for Appellant. Barton Klugman & Oetting and Thomas Beltran for Petitioner and Respondent. No appearance for Real Party in interest.
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The California Department of Health Care Services ("Department") sought reimbursement from a special needs trust for the Medi-Cal payments it paid on behalf of the beneficiary during her lifetime. Following her death, the probate court ordered the remaining assets in the special needs trust to be distributed to the beneficiary's legal heir rather than the Department. We conclude federal and state law governing special needs trusts, as well as the trust instrument itself and public policy, require the Department be reimbursed from the special needs trust prior to any distribution to the beneficiary's legal heir. We therefore reverse and remand.
PROCEDURAL BACKGROUND
In 2003, Leticia Barboza suffered catastrophic injuries during the delivery of her youngest child, rendering her permanently disabled and unable to provide for her own care. A personal injury and medical malpractice suit resulted in a $3,980,746 settlement. An order approving compromise of the claim was entered on November 4, 2004.
The settlement also provided for the establishment of the Leticia Barboza Special Needs Trust ("Trust"), of which she was the sole beneficiary. The Trust was approved and funded on November 8, 2004, with proceeds from the settlement. The Trust allowed Leticia to maintain her eligibility for Medi-Cal and other public assistance by sheltering the proceeds from the settlement, which would otherwise have disqualified her from these benefits. The money from the settlement was used to purchase additional goods and services for Leticia's care that were not covered by the government programs.
The Trust document set forth a payback provision: "In accordance with 42 U.S.C. § 1396p(d)(4)(A) and California Probate Code § 3605(b), upon termination, whether by death or otherwise, the remaining trust estate shall be payable to any state, or agency of a state, which has provided medical assistance to the Beneficiary under a state plan under Title XIX of the Social Security Act, up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under such state plan." As a result, notice was required to be given to certain listed state agencies upon Leticia's death. The Trust further provided, "because this trust is to be conserved and maintained for the Special Needs of the Beneficiary, no part of the principal or income of the trust shall be construed to be part of the Beneficiary's 'estate' or be subject to the claims of voluntary or involuntary creditors for the provisions of care and services, including residential care, by any public entity, office, department, or agency of the State of California, or of any other state, or of the United States of America (except as otherwise provided in this instrument)."
Leticia died on July 4, 2016. She was survived by her husband, Alberto, two adult children, and a minor child. The Trust terminated upon her death. It held $279,623.91 in assets at the time of the trustee's final account. The Department filed a claim to the Trust in the amount of $340,059.93. Alberto filed a petition for an order directing the trustee to deliver the assets remaining in the Trust to him instead.
The Department acknowledged its recovery was limited to the lesser amount held in the Trust. --------
Alberto argued he was entitled to the remaining assets in the Trust as Leticia's surviving spouse under California estate recovery law. The Trust was established in accordance with Probate Code sections 3604 and 3605. In pertinent part, Probate Code section 3605, subdivision (b), provides, "Notwithstanding any provision in the trust instrument, at the death of the special needs trust beneficiary or on termination of the trust, the trust property is subject to claims of [the Department and other state entities] to the extent authorized by law as if the trust property is owned by the beneficiary or is part of the beneficiary's estate."
According to Alberto, the phrase "as if the trust property is owned by the beneficiary or is part of the beneficiary's estate" sets up a legal fiction whereby the remaining Trust assets are treated as though they are in the beneficiary's estate. As a result, California estate recovery law, found in Welfare and Institutions Code section 14009.5, applies to limit Medi-Cal reimbursement from an individual's estate. That section specifically prohibits any claim for Medi-Cal reimbursement if the decedent was under 55 when she received services or there is a surviving spouse or a surviving child who is under 21 years of age. (Welf. & Inst. Code, § 14009.5, subd. (b)(2).) Since Leticia died when she was 43 and she is survived by her husband and a minor child, Alberto argued the Department's reimbursement claim should be denied under estate recovery law.
The Department opposed Alberto's petition, contending federal and state law directed specifically at special needs trusts governed its reimbursement rights, and not California estate recovery law. The Department explained Congress amended the Medicaid Act in the Omnibus Budget Reconciliation Act of 1993 (OBRA) to allow for special needs trusts to shield assets from Medicaid eligibility limits if they met specified requirements, including payback provisions. (42 U.S.C. § 1396p(d).) California state law on special needs trusts, found in Probate Code sections 3604-3605 and California Code of Regulations, title 22, section 50489.9, mirrored the OBRA requirements, including the payback provisions. Additionally, the Trust documents expressly referenced Probate Code sections 3604 and 3605 and 42 U.S.C. section 1396p(d) in its own payback provision to comport with federal and state law. The Department also relied on Herting v. State Department of Health Care Services (2015) 235 Cal.App.4th 607 to argue its reimbursement claim was not subject to estate recovery law under Welfare and Institutions Code section 14009.5.
The probate court granted Alberto's petition, concluding the Department's claim was governed by estate recovery law, which set forth an exception to federal and state law on special needs trusts. The Department timely appealed.
DISCUSSION
The identical issues and facts raised in this matter—whether the Department is entitled to receive reimbursement from the Trust under estate recovery law or the law governing special needs trusts—has been addressed most recently by our colleagues in Division 7 in Gonzalez v. City National Bank (2019) 36 Cal.App.5th 734 (Gonzalez). We are persuaded by Gonzalez and agree the Department has a right to reimbursement from the Trust's remaining assets.
In Gonzalez, the decedent received a monetary settlement from a medical malpractice suit, the proceeds of which were deposited in a special needs trust pursuant to Probate Code section 3604 and 3605. The decedent's parents sought to receive the remaining trust assets after her death. (Gonzalez, supra, 36 Cal.App.5th at p. 741.) Like Alberto, the parents relied on Probate Code section 3605, subdivision (b), to argue the special needs trust assets must be treated as part of the beneficiary's estate and thus the Department's right to reimbursement was governed under estate recovery laws. Because the decedent was under the age of 55 when she received her services, the Department had no right to reimbursement under Welfare and Institutions Code section 14009.5. (Gonzalez, at p. 757.) The Department opposed on the same grounds as it does in this case. (Ibid.)
The Gonzalez special needs trust contained substantially the same language as that of the Trust in this case. Specifically, the Gonzalez trust documents stated, " 'because this trust is to be conserved and maintained for the Special Needs of the Beneficiary, no part of the principal or income of the trust shall be construed to be part of the Beneficiary's "estate." ' " (Gonzalez, supra, 36 Cal.App.5th at p. 740.) The Trust here contains identical language.
The Gonzalez trust also provided, in substantially the same language as the Trust in this case, that " '[i]n accordance with 42 U.S.C. § 1396p (d) (4) (A), upon termination, whether by death or otherwise, and after payment of provision has been made for expenses of administration, the remaining trust estate shall be payable to any state, or agency of a state, which has provided medical assistance to the Beneficiary under a state plan under Title XIX of the Social Security Act [(SSA)], up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under such state plan.' " (Gonzalez, supra, 36 Cal.App.5th at pp. 740-741.)
The Gonzalez court very ably and thoroughly examined the interplay between federal and state law relating to reimbursement from a special needs trust. We need not restate the entirety of its lengthy analysis. It concluded the Department was permitted to recover Medi-Cal expenses from a special needs trust remainder, notwithstanding the exceptions listed in estate recovery law in Welfare and Institutions Code section 14009.5. (Gonzalez, supra, 36 Cal.App.5th at p. 759.) To hold otherwise would defeat Congress's purpose and policy. (Id. at p. 760.)
Gonzalez reasoned, "[t]he quid pro quo for not considering assets in a special needs trust for Medi-Cal eligibility purposes is that any assets remaining in such a trust at the death of the beneficiary must be used to reimburse the state for its Medi-Cal expenses on behalf of the beneficiary." (Gonzalez, supra, 36 Cal.App.5th at p. 759.) Further, "[42 U.S.C.] section 1396p(d)(4)(A) mandates that the Department seek recovery of the total medical assistance paid for by Medi-Cal on behalf of the beneficiary of a special needs trust." (Id. at p. 755.) "California law explicitly acknowledges that, for the purpose of determining eligibility for Medi-Cal, federal Medicaid standards apply . . . [¶] California regulations reflect that in order for assets in a special needs trust not to be counted in determining if the beneficiary is eligible for Medi-Cal, the trust must include a mandatory payback provision (like the one in the Trust) stating that at the death of the beneficiary the state will be reimbursed from the trust remainder for the Medi-Cal expenses incurred. (Cal. Code Regs., tit. 22, § 50489.9, subds. (a)(3)(C) , (b)(2). . .) And Probate Code section 3605 provides that, at the death of the beneficiary, the property of a special needs trust is subject to claims of the Department and other state agencies. (Prob. Code, § 3605, subd. (b).)" (Gonzalez, supra, at pp. 755-756.)
The court found persuasive guidance from the federal agency that administers the Medicaid program that confirmed the payback provisions are separate and distinct from California's estate recovery provisions. (Gonzalez, supra, 36 Cal.App.5th at p. 761.) It also found public policy considerations weighed in favor of reimbursement to the Department and the trust itself required reimbursement. (Id. at pp. 762-763.)
Gonzalez rejected the same arguments presented by Alberto in this appeal. It expressly held the plaintiffs' interpretation of Probate Code section 3605—that the remainder in the special needs trust was part of the beneficiary's estate subject to estate recovery law—conflicted with federal law and would be preempted and unenforceable if adopted. (Gonzalez, supra, 36 Cal.App.5th at p. 757.)
Alberto argues Probate Code section 3605 is not "completely" preempted by federal law, relying on the general rule that there is a presumption against preemption and that Congress did not expressly seek to preempt state law on this issue. We are not persuaded.
Alberto has presented no legal authority that rebuts Gonzalez's conclusion that his interpretation of Probate Code section 3605 would result in a direct conflict with Congress's intent in enacting 42 U.S.C. 1396p(d)(4). "A state law actually conflicts with federal law . . . where state law ' "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' " [Citations.] 'What is a sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a whole and identifying its purpose and intended effects.' " (Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 815.) As thoroughly explained in Gonzalez, Congress intended for special needs trusts to shelter a beneficiary's assets only if the state could recover the medical expenses it paid from the remaining assets after the beneficiary's death. Allowing Probate Code section 3605 to circumvent the payback provision would thwart Congress' intent, resulting in preemption. (Olszewski, supra, 40 Cal.4th at p. 815.)
Finally, the Gonzalez court rejected the argument, also made by Alberto, that special needs trusts established under Probate Code sections 3604 and 3605 are a distinct subset of special needs trusts that do not fall within the standards set forth in 42 U.S.C. section 1396p(d). (Gonzalez, supra, 36 Cal.App.5th at p. 759, fn. 12.)
Gonzalez was published on June 24, 2019, approximately two months before Alberto filed his respondent's brief. Because the plaintiffs in Gonzalez were represented by the same attorney who represents Alberto in this appeal and below, Alberto was well aware of Gonzalez when it was published. Yet, the respondent's brief fails to address the holding in Gonzalez, much less distinguish it.
DISPOSITION
We reverse the order granting Alberto's petition and directing the trustee to distribute the Trust remainder to him. On remand, the probate court is directed to grant the Department's claim for reimbursement of its Medi-Cal payments. The parties are to bear their own costs on appeal.
BIGELOW, P. J. WE CONCUR:
STRATTON, J.
WILEY, J.