Demille v. Belshe

Full title: LYNN ROY DEMILLE, REYNA SEAGRAVES, EVIA GORDON, DOROTHY BRUBAKER, LENA…

Court: United States District Court, N.D. California

Date published: Dec 2, 1994

No. C-94-0726-VRW (N.D. Cal. Dec. 2, 1994)

Opinion

No. C-94-0726-VRW.

December 2, 1994

ORDER

VAUGHN WALKER, District Judge

Plaintiffs in this case raise numerous challenges to California's Welfare Institutions Code § 14009.5. Under the federal Medicaid Act, 42 USC § 1396 et seq, states that subsidize medical treatment for the poor are provided federal funds to defray the costs. As a condition of participating in the program, states must promulgate legislation that complies with various requirements. The statutory framework for California's Medicaid program, known as the "California Medical Assistance Program" or "Medi-Cal," appears at Cal Welf Inst Code § 14000, et seq.

The Medicaid Act, while encouraging states to give free or reduced-cost medical care to the needy, also provides that the state can recoup some of its expenses. After a Medicaid recipient dies, the state is entitled, with certain important exceptions, to seek reimbursement from the "estate" of the recipient. See 42 USC § 1396p. California has asserted its right to reimbursement by enacting Cal Welf Inst Code § 14009.5. This statute provides, inter alia, that upon the death of a Medi-Cal recipient, the state may attach a lien to the decedent's interest in the property of the surviving spouse. Id.

This suit was originally filed by ten plaintiffs — nine individuals and one association. The individual plaintiffs are persons who own property on which the state has imposed a lien pursuant to Cal Welf Inst Code § 14009.5 (a "Medi-Cal lien"). The plaintiff association, California Advocates for Nursing Home Reform (CANHR), is a non-profit organization that seeks to protect the rights of the elderly. CANHR is suing on behalf of its elderly members who own property that has been subjected to a Medi-Cal lien.

Plaintiffs complain that the California statute authorizing Medi-Cal liens runs afoul of the federal Medicaid Act. Plaintiffs also contend that the state, in obtaining Medi-Cal liens on their property, has provided no hearing and no pre-lien notice, thus depriving them of procedural due process. Plaintiffs seek injunctive and declaratory relief.

After this suit was filed, the state reexamined the 400 Medi-Cal liens it had imposed since Cal Welf Inst Code § 14009.5 went into effect on June 30, 1993. Upon reviewing a 1989 Ninth Circuit decision, Citizens Action League v Kizer, 887 F2d 1003 (9th Cir 1989), the state determined that 260 of these liens were improper. Therefore, the state has now dissolved those liens, including the liens on the properties of six of the nine individual plaintiffs. Additionally, the state has extinguished the liens on the homes of two other individual plaintiffs, one because the lien was imposed while the home was in escrow and the other because the lien was erroneously placed. Thus, there are now only two plaintiffs remaining in this suit: Delores Gunz and CANHR.

Presently before the court are numerous cross-motions for summary judgment. Plaintiffs' notice of motion indicated that they would be seeking summary judgment on claims one, three, four, six, seven, eight, nine and ten. Yet for some reason, plaintiffs' brief does not directly address claims nine or ten. Defendants, on the other hand, originally filed a notice of motion indicating that they would be seeking summary judgment on all ten claims. The court will proceed on the assumption that plaintiffs have moved for summary judgment on all claims except two and five, and defendants have moved for summary judgment on all claims. Defendants have also challenged the standing of the two remaining plaintiffs to raise the claims asserted herein.

I

In order to address defendants' motion for summary judgment based on lack of standing, it is necessary first to review the nature of the ten claims raised in plaintiffs' complaint. These claims can be broken down into two general categories. First, plaintiffs assert a number of claims (counts four, six, seven, eight and nine) that challenge the text of Cal Welf Inst Code § 14009.5 as being in conflict with the federal Medicaid Act. Second, plaintiffs bring various causes of action (counts one, two, three and five) that attack the manner in which Cal Welf Inst Code § 14009.5 is carried out. In these claims, plaintiffs argue that the state is not affording affected parties procedural due process. claim ten of the complaint is for declaratory relief, stating merely that "[t]he parties are entitled to a declaration of their rights." First Amend Compl (FAC) ¶ 164.

The husband of plaintiff Delores Gunz, Mr. Edward Gunz, died on or about October 19, 1993. FAC ¶ 104. At the time of his death, both Mr. and Mrs. Gunz were trustors and trustees of a trust that held a home and a parcel of property located in Santa Ana, California. FAC ¶ 105. Plaintiffs claim that after Mr. Gunz's death, the property and the home remained in the trust, and Mr. Gunz's estate had no interest therein. FAC ¶ 106. On January 10, 1994, Mrs. Gunz received a letter from the California Department of Health Services informing her that a Medi-Cal lien had been placed on the home and property. FAC ¶ 107. The notice stated that this lien, in the amount of $17,287.53, was for the cost of medical services rendered to Mr. Gunz between January 6, 1993, and September 29, 1993. FAC ¶ 110.

Defendants argue that Mrs. Gunz lacks standing "because she has asserted no injury in fact." Defs' Mem in Supp at 3-4. Defendants seem to believe that Mrs. Gunz will be injured only if she actually attempts to sell or refinance her home and is precluded from doing so due to the presence of the Medi-Cal lien. Id. This argument entirely misses the mark.

The attachment of a lien to property, in and of itself, can have significant consequences for the property owner. SeeConnecticut v Doehr, 501 US 1, 11 (1991). For instance, the lien may adversely affect the owner's credit rating, or "can even place an existing mortgage into technical default where there is an insecurity clause." Id. Therefore, the erroneous imposition of a lien can constitute an "injury in fact" even if the property owner has no immediate plans to sell or refinance the property. Mrs. Gunz, having had her property subjected to a lien, seeks to challenge: (1) the state's right to attach the lien in the first place; and (2) the state's right to impose a lien without affording pre-attachment notice and a pre-attachment hearing. Under the circumstances, the court concludes that Mrs. Gunz has sufficiently asserted an actual injury to bring these claims.

The plaintiff association, CANHR, professes to work with nursing home residents and their families to address the quality of care in California nursing homes. FAC ¶ 13. Additionally, CANHR alleges that it advises consumers over the age of sixty about in-home services, and about how such persons may maintain their independence while remaining in their own home. Id. According to Patricia McGinnis, the Executive Director of CANHR, many of CANHR's 2500 members have had Medi-Cal liens placed on their homes by the state. McGinnis Decl at 2. One such member is Israel Auerbach, whose wife died on October 29, 1993. Auerbach Decl at 1. On February 22, 1994, Mr. Auerbach received notice from the state that a Medi-Cal lien in the amount of $7,619.62 has been placed on his property. Id.

Defendants argue that CANHR lacks standing to raise any of the claims asserted in this suit. Under the law of this circuit, an organization may sue on behalf of its members if: "(1) any one of its members would have standing to sue; (2) the interests the organization seeks to protect are germane to the purposes of the organization; and (3) neither the action nor the relief sought requires participation by the individual member or members." EEOC v Nevada Resort Association, 792 F2d 882, 885 (9th Cir 1986) (citing Hunt v Washington State Apple Advertising Commission, 432 US 333, 343 (1977)). Here, CANHR meets all three requirements.

First, there is no question that Mr. Auerbach, a CANHR member, would have standing to sue in his own right if he chose to do so, just as Mrs. Gunz. Additionally, Ms. McGinnis has stated that there are many other CANHR members who have had Medi-Cal liens imposed on their property. Because CANHR need only demonstrate that at least one of its members would have standing to sue in his own right, the court concludes that CANHR satisfies the first of the associational standing requirements. Second, the claims and rights asserted here are germane to CANHR's purpose. Protecting elderly persons from unauthorized liens is closely connected to CANHR's objective of "representing * * * consumers aged 60 and over" regarding "how those elderly people may maintain their independence at home." FAC ¶ 13. Finally, neither this litigation nor the relief requested requires participation of CANHR's members. CANHR's suit poses primarily legal questions regarding the interpretation of California's statutory scheme, and the relief requested is merely an injunction preventing enforcement of that framework. Neither of these call for CANHR's members to be present.

Therefore, the court concludes that both Mrs. Gunz and CANHR have standing to raise the claims asserted in this suit. Accordingly, defendants' motion for summary judgment for lack of standing is hereby DENIED.

II

The court next turns to those claims that attack the text of Cal Welf Inst Code § 14009.5 as being inconsistent with federal law. Plaintiffs allege that the state's self-granted power to impose Medi-Cal liens on the homes of surviving spouses conflicts with 42 USC § 1396p. Plaintiffs have enumerated five related bases for this contention in claims four, six, seven, eight and nine. A preliminary step to addressing these claims is briefly to review the two statutes.

Section 1396p details the means by which a state may seek reimbursement for sums it has previously paid to a Medicaid recipient. Subsection (a) discusses the state's authority to impose liens upon the property of the recipient before the recipient's death. § 1396p(a). Subsection (b) covers the state's power to seek "adjustments" or "recoveries." § 1396p(b). The relevant language of § 1396p(a) provides as follows:

(a)(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except * * *

(B) in the case of the real property of an individual —

(i) who is an inpatient in a nursing facility * * *; and

(ii) with respect to whom the State determines, after notice and an opportunity for a hearing * * * that he cannot reasonably be expected to be discharged from the medical institution and to return home,

except as provided in paragraph (2).

(2) No lien may be imposed under paragraph (1)(B) on such individual's home if —

(A) the spouse of such individual * * * is lawfully residing in such home.

§ 1396p(a). Subsection (b), covering "adjustments" and "recoveries" provides, in pertinent part:

(b)(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except * * *

(A) In the case of an individual described in subsection (a)(1)(B), the State shall seek adjustment or recovery from the individual's estate or upon sale of the property subject to a lien imposed on account of medical assistance paid on behalf of the individual.

(B) In the case of an individual who was 55 years of age or older when the individual received such medical assistance, the State shall seek adjustment or recovery from the individual's estate * * *.

(2) Any adjustment or recovery under paragraph (1) may be made only after the death of the individual's surviving spouse * * *.

§ 1396p(b).

From these two statutory subsections, a few general principles can be discerned. First, the general rule is that the state may not impose liens on a Medicaid recipient's property while the recipient is still alive. § 1396p(a)(1). If, however, the recipient is committed to a nursing home and the state determines, after notice and a hearing, that the recipient cannot reasonably be expected to return home, the state may impose a lien on the recipient's real property. § 1396p(a)(1)(B). An important exception to the state's power to do so arises when the spouse of the recipient is residing in the home. § 1396(a)(2)(A).

The state is also generally prohibited from seeking an "adjustment" or "recovery" of assistance correctly paid to recipients. § 1396p(b)(1). In certain circumstances, however, the state is required to seek an adjustment or recovery. If a lien has been imposed upon the recipient's property pursuant to subsection (a), the state must seek an adjustment or recovery either upon the sale of the liened property, or from the recipient's "estate" after he dies. § 1396p(b)(1)(A). In either case, however, the state may not seek an adjustment or recovery if the recipient's spouse is still alive. § 1396p(b)(2). In cases not involving liens under subsection (a), the state must seek an adjustment or recovery for amounts paid to recipients over age 55. § 1396p(b)(1)(B). These adjustments or recoveries must be obtained from the "estate" of the recipient after his death. Id. Again, the state cannot seek an adjustment or recovery if the recipient's spouse is alive. § 1396p(b)(2).

The California statutory provision challenged by plaintiffs, Cal Welf Inst Code § 14009.5, provides in relevant part:

(a) Notwithstanding any other provision of this chapter, the department shall claim against the estate of the decedent, or against any recipient of the property of that decedent by distribution or survival an amount equal to the payments for health care services received or the value of the property received by any recipient from the decedent by distribution or survival, whichever is less.

* * *

(c) The department shall place a lien against the decedent's interest in the real property of a surviving spouse in the amount of the department's entitlement * * * The lien shall become due and payable upon the death of the surviving spouse or upon the sale, transfer, or exchange of the real property.

Cal Welf Inst Code § 14009.5. The state statute thus contemplates that upon the death of a Medi-Cal recipient, the state will impose a lien on the property of the surviving spouse. Cal Welf Inst Code § 14009.5(c). This lien becomes "due and payable" upon either the death of the surviving spouse or the sale, transfer or exchange of the liened property. Id.

A

In plaintiffs' sixth cause of action, they allege that "the defendants are violating federal law by imposing liens upon the property of persons who did not receive medical assistance through the Medi-Cal program." FAC ¶ 156. Plaintiffs point out that the text of 42 USC § 1396p(a) expressly permits liens only against the property of the Medicaid recipient (prior to his death), and only in certain narrow circumstances. Plaintiffs reason that because this is the statute's only explicit grant of the power to impose liens, § 1396p implicitly prohibits all other liens. Plaintiffs thus argue that Cal Welf Inst Code § 14009.5, which allows for liens against the property of the surviving spouse, conflicts with the federal law. The court disagrees.

The focus of § 1396p(a) is on the propriety of imposing a lien against the property of a Medicaid recipient while the recipient is still alive. Indeed, the opening clause of § 1396p(a) itself states that "[n]o lien may be imposed against the property of any individual prior to his death * * *." § 1396p(a)(1) (emphasis added). The exceptions which follow also presume that the recipient is still living. Id. Therefore, subsection (a) was not meant to be a comprehensive exposition on the use of liens. Rather, Congress' purpose in including subsection (a) in the statute was merely to limit the state's ability to impose liens against the property of living recipients. Nothing in subsection (a) appears calculated to address the imposition of liens after the recipient's death.

Although Congress took great pains to curb the state's ability to resort to liens before the death of the recipient, it remained silent on the use of liens after the recipient's death. Under these circumstances, the court can only conclude that the state is free to employ liens provided that the recipient is not alive. Accordingly, the fact that the state law calls for the imposition of a lien on the property of the surviving spouse does not, in itself, abridge the federal statute. Plaintiffs' motion for summary judgment on their sixth cause of action is therefore DENIED, and defendants' motion for summary judgment on plaintiffs' sixth claim is hereby GRANTED.

B

Plaintiffs' ninth cause of action appears closely related to their sixth claim. In plaintiffs' ninth claim, they allege that "[t]he defendants are violating federal law by imposing liens upon homes subsequent to the Medi-Cal recipient's death." FAC ¶ 162.

The court cannot be certain of plaintiffs' contention in bringing this claim, as they have neglected to brief it in their moving papers. Nevertheless, the court presumes that plaintiffs here argue, again, that the only liens authorized by federal law are those that appear in § 1396p(a), which apply only while the recipient is still alive. Therefore, the argument would continue, the imposition of a lien after the recipient dies is implicitly prohibited. Because Cal Welf Inst Code § 14009.5 permits postmortem liens, plaintiffs argue that the state statute runs afoul of federal law.

This argument must be rejected for the reasons discussed supra part II.A. Subsection (a) covers only pre-death liens, leaving unaddressed the use of liens after the recipient dies. And for the reasons detailed above, Congress' silence on this point provided implicit authority for the state to impose such postmortem liens. Therefore, the state statute's provision for postmortem liens does not, in itself, violate the federal statute. Accordingly, plaintiffs' motion for summary judgment on their ninth cause of action is hereby DENIED, and defendants' motion for summary judgment on plaintiffs' ninth claim is hereby GRANTED.

C

In plaintiffs' eighth claim for relief, they assert that "[t]he defendants are violating federal law by imposing liens upon homes while the surviving spouse of a deceased former Medi-Cal recipient lawfully resides in the home." FAC ¶ 160. Plaintiffs, citing § 1396p(a)(2)(A), argue that the federal statute expressly forbids the recording of a lien against a home if the surviving spouse is lawfully residing there. Because Cal Welf Inst Code § 14009.5 mandates that a lien be placed on the property of the surviving spouse without regard to whether the spouse is living on that property, plaintiffs claim that the state law cannot stand.

Once again, the court must note that the statutory prohibition cited by plaintiffs, i.e., § 1396p(a)(2)(A), appears within subsection (a), which, as described above, applies only when the recipient is still alive. See supra parts II.A, II.B. It is therefore true that while the recipient is alive, the state may not impose a lien against the home in which the spouse is lawfully residing. § 1396p(a)(2)(A). But nothing in subsection (a) prohibits liens against the spouse's residence after the recipient's death.

There is, however, a related limitation contained in the federal statute. Subsection (b) of § 1396p allows the state, in limited circumstances, to seek an "adjustment" or "recovery" from the estate of a deceased Medicaid recipient. But the state's ability to seek such an "adjustment" or "recovery" is held in abeyance so long as the surviving spouse is still alive. § 1396p(b)(2). Therefore, if the imposition of a postmortem lien can be considered an "adjustment" or "recovery," such a lien would be prohibited, by subsection (b)(2), during the life of the surviving spouse.

The terms "adjustment" and "recovery" are apparently not defined in the federal statute. Therefore, the court must give these terms their ordinary, commonsense meaning. While it is difficult to imagine how a lien could qualify as an "adjustment," an argument could be made that a lien constitutes a "recovery."

Nevertheless, the court concludes that this would strain ordinary usage, and the mere placement of a lien, without more, does not amount to a "recovery." A lien simply provides notice of a claim against property, and is intended to protect both the lienholder and future purchasers of the liened property. So long as the party holding the lien does not foreclose on the property, no money changes hands, and no "recovery" can be said to occur.

Of course, none of this is meant to trivialize the effect that a lien can have on the property owner. See Connecticut v Doehr, 501 US 1, 11 (1991). Indeed, as discussed infra part III.A, the imposition of a lien by the government amounts to a "taking" of property, thus implicating due process concerns. Rather, the court merely holds here that a "recovery" necessitates something more than the acquisition of an inchoate property right. Therefore, because a lien does not constitute an "adjustment" or "recovery," the state's use of postmortem liens is consistent with subsection (b) of § 1396p.

Accordingly, the court finds no conflict between the state's attachment of liens to the homes of surviving spouses, and either subsection (a) or subsection (b) of § 1396p. Plaintiffs' motion for summary judgment on their eighth claim is hereby DENIED, and defendants' motion for summary judgment on plaintiffs' eight claim is hereby GRANTED.

D

In plaintiffs' seventh cause of action, they claim that "[t]he defendants are violating federal law by seeking to recover from persons who did not receive Medi-Cal benefits." FAC ¶ 158.

The federal statute allows the state to recoup its expenses only from those persons who are holding real or personal property in which the deceased recipient held a legal interest at the time of death. See § 1396p(b)(1) (requiring state to recover from decedent's "estate") and § 1396p(b)(4) (defining "estate"). The amount of expenses the state may recover from such persons is capped by the amount of the decedent's interest in the property. § 1396p(b)(4). In other words, the federal statute only contemplates that the deceased recipient's assets will be traced, not that other persons can become liable to pay over their own personal assets.

Plaintiffs' brief asserts that Cal Welf Inst Code § 14009.5 improperly permits recovery from the personal assets of those persons in possession of property of the deceased recipient. Pls' Mem in Supp at 23-24. This is entirely incorrect. The state statute expressly limits recovery to the lesser of the amount of the medical bills paid by the state, or the decedent's interest in the property. Cal Welf Inst Code § 14009.5(a). The state statute is thus facially consistent with federal law.

Plaintiffs have also raised valuation problems with these liens. See Pls' Mem in Supp at 23-24. Specifically, they claim that the state has often recorded liens in amounts greater than the decedent's interest in the property, thus reaching into the personal assets of non-recipients. Id. The court concludes that this allegation, even if true, cannot support plaintiffs' seventh claim.

Plaintiffs are not here requesting that the excessive liens be reduced to the proper amount. Rather, plaintiffs seek an injunction prohibiting defendants from, inter alia, "implementing or enforcing the provisions of [Cal Welf Inst Code] § 14009.5 * * * except as permitted by federal law." FAC ¶ 4. Because plaintiffs have not alleged that the state has intentionally imposed liens that it knows to be excessive, any errors made must be attributed to inadvertence or negligence. Injunctive relief is ordinarily directed at the willful conduct of another. Plaintiffs have cited no authority that would permit the court to issue an injunction against negligent or inadvertent mistakes of the type apparently involved here.

Additionally, it is not at all clear that plaintiffs can raise a Supremacy Clause claim against the state's inadvertent errors. Supremacy Clause analysis is usually reserved for situations in which a federal law or policy comes into conflict with a state law or policy. See, generally, Laurence Tribe, American Constitutional Law, pp 479-528 (Foundation Press, 1988). Given that the state's errors here are apparently unintentional, the state cannot be said to have a "policy" of imposing excessive liens. Therefore, although the state's miscalculations may violate its own statute, they do not appear to implicate the Supremacy Clause of the United States Constitution.

Finally, as discussed infra part III.A, the court today determines that the state may not impose Medi-Cal liens on property without providing the owner with pre-attachment notice and a pre-attachment hearing. As a practical matter, these procedural safeguards should eliminate the problem of excessive liens.

Accordingly, plaintiffs' motion for summary judgment on their seventh claim for relief is hereby DENIED, and defendants' motion for summary judgment on plaintiffs' seventh claim is hereby GRANTED.

E

In plaintiffs' fourth cause of action, they maintain that "[t]he defendants are violating federal law by seeking to foreclose on liens upon the `transfer or exchange' of property." FAC ¶ 152. Plaintiffs suggest that "[f]ederal law only permits recovery upon the `sale' of the property." Id.

As mentioned supra part II.C, the federal statute prohibits the state from seeking an "adjustment" or "recovery" from the decedent's estate so long as the surviving spouse is still alive. § 1396p(b)(2). But under the state statute, a lien imposed upon the property of the surviving spouse "shall become due and payable upon the death of the surviving spouse or upon the sale, transfer or exchange of the real property." Cal Welf Inst Code § 14009.5(c) (emphasis added). Therefore, if the surviving spouse sells, transfers or exchanges the liened property during his lifetime, the lien becomes "due and payable" under the state law. Plaintiffs argue that this "due and payable" clause permits the state to achieve a "recovery" during the lifetime of the surviving spouse, thereby violating federal law.

As a preliminary matter, the court notes that none of the plaintiffs has alleged facts demonstrating an actual injury from the "due and payable" clause of Cal Welf Inst Code § 14009.5(c). In other words, the court is not aware of any person who has actually sold, transferred or exchanged property subject to a Medi-Cal lien and who has been called upon to pay the state the amount of the lien. Therefore, plaintiffs' fourth claim, standing alone, may not be justiciable.

But plaintiffs have also included in their first amended complaint a general claim for declaratory relief. PAC ¶¶ 163-64. By combining plaintiffs' declaratory relief claim with their fourth cause of action, the court may be able to rule upon the latter. Under the Declaratory Judgment Act, 28 USC § 2201 et seq., a person may seek clarification of his rights if he can demonstrate: (1) an "actual controversy;" and (2) that the matter is one over which the federal court has subject matter jurisdiction. See William Schwarzer, A Wallace Tashima James Wagstaffe, Federal civil Procedure Before Trial, § 10.6 (The Rutter Group, 1994). Plaintiffs' fourth claim for relief clearly raises issues within the court's subject matter jurisdiction. Therefore, the only question that remains is whether plaintiffs have established an "actual controversy."

The definition of "actual controversy" is far from clear. The essential question is whether there is a "substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Casualty Co v Pacific Coal Oil Co, 312 US 270, 273 (1941); Hillblom v United States, 896 F2d 426, 430 (9th Cir 1990). Put another way, "the adversarial relationship must have crystallized to the point that there is a specific need for the court to declare the parties' rights and obligations." Schwarzer, § 10:24.

The court concludes that plaintiffs' fourth cause of action sufficiently states an "actual controversy." Because the state law makes the lien "due and payable" upon the sale, transfer or exchange of the property, it is quite possible that some elderly persons are presently being inhibited from engaging in certain transactions merely out of fear of liability to the state. If the state's "due and payable" clause is impermissible under federal law, such persons are entitled to know that. Thus, the adversarial relationship between the parties has sufficiently "crystallized" as to permit the court to entertain plaintiffs' declaratory relief claim. Accordingly, the court will combine plaintiffs' tenth and fourth causes of action and proceed to consider the merits of their fourth claim.

The court concludes that the state statute provision making the Medi-Cal lien "due and payable" upon the "sale, transfer or exchange" of the liened property contravenes federal law. As discussed supra part II.C, the mere imposition of a lien, without more, cannot be said to amount to a "recovery." The state may thus impose such liens during the lifetime of the surviving spouse without abridging federal law. See supra part II.C. But if the state actually forecloses on the lien, it ineluctably follows that the state has achieved a "recovery;" after all, the state has collected its money and has no continuing interest in the property. Therefore, if the state forecloses on a Medi-Cal lien during the lifetime of the surviving spouse, it has obtained a "recovery" in violation of § 1396p(b)(2).

Defendants argue against this conclusion on numerous grounds. First, they contend that the "due and payable" language of Cal Welf Inst Code § 14009.5(c) does not necessarily mean that the state will receive payment as soon as the liened property is sold, transferred or exchanged. Defendants suggest that the statutory language is, at most, ambiguous as to when the state will collect its money. The court disagrees. The phrase "shall become due and payable" reasonably allows for only one interpretation — that the state will be reimbursed as soon as the property is sold, transferred or exchanged.

Next, defendants assert that they intend to promulgate, at some indefinite point in the future, a regulation preventing the state from foreclosing on the lien during the life of the surviving spouse, even if the property is sold, transferred or exchanged. This promise is of little solace to the court. A defendant cannot be allowed "to defeat injunctive relief by protestations of repentance and reform." United States v W T Grant Co, 345 US 629, 632 (1953). Furthermore, defendants have cited no authority indicating that a facially defective statute can be salvaged by an implementing regulation.

Finally, defendants argue that the "due and payable" clause is merely meant to prevent the lien from dissolving when the property is sold, transferred or exchanged. Defendants suggest that the clause somehow ensures that the lien remains on the property. The court agrees that the proper means for the state to maintain its protection is to keep the lien on the property even after it has been conveyed by the surviving spouse. But there is simply no feasible interpretation of the "due and payable" clause that would effectuate that result.

Accordingly, the court concludes that the portion of Cal Welf Inst Code § 14009.5(c) which mandates that the Medi-Cal lien "shall become due and payable" upon the "sale, transfer or exchange" of the property conflicts with § 1396p(b)(2). Therefore, plaintiffs' motion for summary judgment on their fourth claim, when combined with their tenth claim, is hereby GRANTED, and defendants' motion for summary judgment on plaintiffs' fourth and tenth claims is hereby DENIED.

III

The court now turns to plaintiffs' claims challenging the constitutionality of the manner in which Cal Welf Inst Code § 14009.5 is carried out.

A

In their first cause of action, plaintiffs allege as follows:

Defendants' past and continuing failure to provide notice, hearing and other procedural safeguards to plaintiffs * * * before imposing liens on real property is a deprivation of property without due process in violation of the Fourteenth Amendment to the United States Constitution.

FAC ¶ 146.

At the time the complaint in this matter was filed, the state's procedure for the imposition of Medi-Cal liens did not afford the surviving spouse either a hearing or pre-attachment notice. Upon the death of the Medi-Cal recipient, the state would immediately record its lien, only later informing the surviving spouse that it had done so. If the surviving spouse wished to challenge the imposition of the lien or the amount thereof, he had to do so without the benefit of a hearing. For these reasons, plaintiffs complained that the state's procedure deprived them of due process of law.

Perhaps in response to the instant suit, the state has promulgated "emergency regulations" effective April 1994. These new regulations provide that after the state has recorded its Medi-Cal lien, the surviving spouse is to be given notice of the lien and an opportunity to request a hearing. If the surviving spouse desires a hearing, he must request one within sixty days. If a hearing is held, the regulation provides that a decision will be rendered within 60 days of the hearing. Therefore, the delay between an erroneous imposition of a lien and the ultimate correction of the mistake via the hearing could be as great as 120 days. Plaintiffs thus contend that the post-attachment notice and hearing do not provide adequate safeguards. Plaintiffs insist that due process necessitates that they be given pre-attachment notice and a pre-attachment hearing.

The United States Supreme Court has established a two-part analysis for due process challenges to state statutes that implicate property rights. See, e.g., Fuentes v Shevin, 407 US 67 (1972); Mathews v Eldridge, 424 US 319 (1976). The first inquiry is whether the statute results in the deprivation of a "significant" property interest. Fuentes, 407 US at 86. If the interests affected are "significant," then the court must examine what process is due under the particular circumstances.

The parties agree, as do the courts, that "even the temporary or partial impairments to property rights that attachments, liens, and similar encumbrances entail are sufficient to merit due process protection." Connecticut v Doehr, 501 US 1, 12 (1991). Thus, there is no question that the Medi-Cal liens at issue in the instant case affect "significant" property interests.

The only dispute, therefore, concerns the process which is due. In considering this issue, the court is guided by the three-factor balancing test articulated in Mathews v Eldridge, 424 US 319 (1976). The Mathews Court held that in determining the sufficiency of the process provided by the state, the court should consider:

[f]irst, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.

Id at 335.

In support of their argument that the state must provide notice and a hearing before attaching a Medi-Cal lien, plaintiffs citeConnecticut v Doehr, 501 US 1 (1991). In Doehr, the Court struck down a Connecticut statute that allowed plaintiffs in civil matters to obtain prejudgment attachment of a defendant's real property. The invalidated attachment procedure required the plaintiff to submit an ex parte affidavit to the state court. In the affidavit, plaintiff had to assert that the facts alleged in the complaint were true and that those facts established "probable cause." If the judge reviewing these materials agreed that "probable cause" existed, he could order immediate attachment of the defendant's property. No pre-attachment notice or hearing was given to the defendant. After the property had been attached, however, the defendant was to be provided with "expeditious" notice, an adversary hearing, judicial review of any adverse decisions, and a double damages action if the original suit was commenced without probable cause. Defendant challenged the statute on due process grounds.

Applying the three-factor Mathews test, the Court concluded that the Connecticut statute was unconstitutional. The Court first noted that the private interest affected was significant, because:

attachment ordinarily clouds title; impairs the ability to sell or otherwise alienate the property; taints any credit rating; reduces the chance of obtaining a home equity loan or additional mortgage; and can even place an existing mortgage in technical default where there is an insecurity clause.

Doehr, 501 US at 11. The Court next considered the risk of erroneous deprivation. The Court noted that despite the statutory requirement that the judge find "probable cause," the chance for error was simply too great to justify postponement of the hearing until after attachment. Id at 13. Notably, the Court also rejected the state's argument that the post-attachment remedies provided by the statute adequately protected the defendant, stating that "[these] would not cure the temporary deprivation that an earlier hearing might have prevented." Id. Finally, the Court observed that the third Mathews factor, the governmental interest, was not implicated because the benefit of the state statute ran in favor of private parties (i.e., plaintiffs in civil cases), not the state. The Court thus concluded that the process contemplated by Connecticut's statute failed to satisfy the strictures of the Due Process Clause.

The Doehr case, though presenting a slightly different context than the one before this court, is still highly instructive. TheDoehr Court's analysis of the first Mathews factor is equally applicable here. The Medi-Cal lien imposed by the state can have numerous negative consequences for the owner of the property, including those listed by in Doehr. See Doehr, 501 US at 11. Therefore, the court concludes that the private interest affected by the state's Medi-Cal lien procedure is substantial.

The court also concludes that the state's present attachment procedure poses an intolerably high risk of erroneous deprivation. In Doehr, the Court found insufficient the combination of: (1) a pre-attachment judicial determination of "probable cause;" (2) an "expeditious" post-attachment notice; (3) a post-attachment hearing; (4) judicial review of an adverse decision at the hearing; and (5) double damages if the original complaint was filed without "probable cause." Clearly, if this extensive set of protections cannot suffice to prevent erroneous deprivations, nor can the mere post-attachment notice and hearing provided by the state in the instant case.

Defendants argue that the risk of error is low because it is simply a "ministerial" task to check the Medi-Cal records of the decedent for the amount of disbursements paid, and to obtain a lien in that amount on the appropriate property. Yet defendants are utterly unable to respond to the numerous instances cited by plaintiffs in which the state has imposed liens on the incorrect property, or in the incorrect amount. In fact, defendants' brief actually highlights the fact that errors are made.

First, defendants admit that the state improperly placed a Medi-Cal lien on the trust of Mrs. Kleiman. Defs' Mem in Opp at 5. This error allegedly occurred because the state did not realize that the decedent, Leonard J. Kleiman, also had a son by the same name. Id. Second, defendants acknowledge that the state, after improperly interpreting federal law, mistakenly imposed Medi-Cal liens on some 260 properties. Id at 5-6 n3. Third, when the state undertook efforts to remove these 260 erroneously placed liens, it overlooked two of them. Id at 9-10. Fourth, defendants concede that the post-attachment notice sent to Mr. Ainsworth included incorrect dates. Id at 8. Fifth, defendants confess that the Medi-Cal lien originally imposed on the Whitsons' property was not calculated correctly. Id at 9.

Defendants attempt to explain away these mistakes by suggesting that the state took prompt remedial action immediately upon learning of each of these mistaken liens. This, of course, is not the point. The above examples demonstrate that errors do in fact occur, and that the risk of erroneous deprivation, therefore, is very high. Pre-attachment notice and a pre-attachment hearing would prevent many of these problems.

As an alternative basis for their argument that post-attachment notice and hearing provide sufficient protection, defendants citeMitchell v W T Grant Co, 416 US 600 (1974). In Mitchell, the Court was faced with a state statute permitting lien-holding creditors to obtain sequestration of consumer goods. In that context, the Court held that post-deprivation notice and hearing are sufficient for due process purposes. But there is a critical distinction between Mitchell and the case before this court. The statute involved in Mitchell permitted persons already holding a lien to seek sequestration. Here, the very question presented is whether the imposition of the lien is proper in the first place. For this reason, the instant case is more akin to Doehr than toMitchell.

Finally, the court must consider the third Mathews factor, the governmental interest. The Medi-Cal lien at issue here, unlike the liens involved in Doehr, inure to the benefit of the state. Therefore, the court must examine both the nature of the state's interest and the burden that additional safeguards would impose on the state. In that regard, defendants advance two arguments. First, they contend that were the state to provide pre-attachment notice, surviving spouses would promptly divest themselves of the subject property. By doing so, the surviving spouse would successfully shield the property from the state's claim. Second, defendants argue that the costs entailed in an expeditious pre-lien hearing are too high.

As an initial matter, defendants' argument is that grieving widows and widowers, upon receiving notice of a Medi-Cal lien hearing, will have the wherewithal and legal sophistication necessary to dispose of the subject property quickly. While some surviving spouses may resort to such strategic behavior, this cannot constitute a legitimate reason to permit the state to provide lesser process. After all, the risk of pre-attachment divestment inheres in every law allowing the imposition of a lien. But as evidenced by Doehr, not all such laws can Constitutionally dispense with the pre-attachment notice and pre-attachment hearing requirements. The court sees no reason to single out grieving widows and widowers for a heightened suspicion regarding such propensities.

Nor is the court is persuaded by defendants' cost argument. Given that the state has already promulgated "emergency regulations" providing for a post-deprivation hearing, the court cannot agree that a pre-attachment hearing will necessarily entail significantly greater costs. And to the extent that the costs of an expedited pre-attachment hearing are greater, the court need only note that Constitutional protections often carry attendant costs. See Coy v Iowa, 487 US 1012, 1020 (1988).

The court therefore concludes that before the state may impose a Medi-Cal lien pursuant to Cal Welf Inst Code § 14009.5, the state must provide affected property owners with notice and a hearing. Accordingly, plaintiffs' motion for summary judgment on their first claim is hereby GRANTED, and defendants' motion for summary judgment on plaintiffs' first claim is hereby DENIED.

B

In plaintiffs' second cause of action, they assert that:

[d]efendants' past and continuing failure to provide notice to plaintiffs * * * of the procedures under which they may obtain a waiver of the lien and recovery provisions when the lien or recovery will work an undue hardship upon the plaintiff or others is a denial of due process under the Fourteenth Amendment to the United States Constitution.

FAC ¶ 148. Plaintiffs have not squarely addressed this claim in their brief, so the court can only guess at its import. The court surmises that plaintiffs are here arguing that the state's current post-deprivation notice is inadequate because it does not fully inform the surviving spouse of the procedures for obtaining a hardship waiver. See Pls' Mem in Supp at 16-17.

As discussed supra part III.A, the court has concluded that the state may not attach a Medi-Cal lien without first providing notice and a hearing. Therefore, plaintiffs' challenge to the form of the state's present post-attachment notice is moot. Accordingly, defendants' motion for summary judgment on plaintiffs' second claim is hereby GRANTED.

C

In plaintiffs' fifth cause of action, they assert that "[t]he defendants are violating federal law by failing to establish hardship waiver procedures mandated by 42 USC § 1396p(b)(3)." FAC ¶ 154. The directive in § 1396p(b)(3) requires participating states to create a hardship waiver procedure, "in accordance with standards specified by the Secretary." § 1396p(b)(3).

Defendants contend that after this suit was filed, the state did promulgate a hardship waiver procedure. Defs' Mem in supp at 4. Defendants also allege that the Secretary has not yet articulated standards for such procedures, making compliance therewith impossible. Id. Defendants move for summary judgment on plaintiffs' fifth claim.

In response, plaintiffs have submitted an affidavit pursuant to FRCP 56(f) seeking further discovery. Schwartz Decl. In the affidavit, plaintiffs assert that in order to respond to defendants' statement of facts, they need the following discovery: (1) the deposition of Gerald Rohlfes; (2) the deposition of one or two collection representatives of the Department of Health Services; and (3) one set each of document requests, requests for admission and interrogatories. Id at ¶ 5. Plaintiffs also state that they "need discovery to determine whether the hardship waiver procedures mandated by federal law actually work in practice." id at ¶ 7j, although it is not clear what portion of the discovery specified above is necessary for this purpose.

Because plaintiffs have had virtually no discovery in this case, the court concludes that summary judgment on plaintiffs' fifth claim would be premature. Therefore, defendants' motion for summary judgment on plaintiffs' fifth claim is hereby CONTINUED until plaintiffs have had an adequate opportunity to conduct the portion of the requested discovery pertaining to the state's hardship waiver procedure.

D

In plaintiffs' third cause of action, they claim that "the defendants are violating federal law by seeking to recover Medi-Cal payments from property that is not part of the Medi-Cal beneficiary's `estate' within the meaning of 42 USC § 1396p(b)." FAC ¶ 150.

The federal Medicaid statute has always provided that participating states are entitled, under certain circumstances, to reimbursement for Medicaid funds from the "estate" of the decedent. 42 USC § 1396p(b)(1)(B). Prior to October 1, 1993, the term "estate" was nowhere defined in the statute. Therefore, the Ninth Circuit held in Citizens Action League v Kizer, 887 F2d 1003, 1006 (9th Cir 1989), that the common law definition must be used. The Kizer court concluded that the common law meaning of "estate" does not encompass property held in joint tenancy. Id. Thus, if the decedent and the surviving spouse were formerly joint tenants of certain real property, that property could not be used to reimburse the state.

Recent Congressional amendments to the Medicaid statute, effective October 1, 1993, adopt an expansive definition of the term "estate." Now, the state is permitted to recoup its expenses from property (such as joint tenancies) not included within the common law definition of "estate." But the state can recover against such properties only for Medicaid recipients who died after October 1, 1993, and only for those Medicaid payments made after October 1, 1993. Pub L No 103-66 §§ 13611(e), 13612(d). For deaths before October 1, 1993, or for payments made before that date, the common law definition of "estate" still controls.

Plaintiffs here challenge the state's conduct in two regards. First, plaintiffs allege that the state has imposed Medi-Cal liens against property formerly held in joint tenancy for payments made before October 1, 1993. Pls' Mem in Supp at 18-19. Because joint tenancies were not part of the "estate" prior to October 1, 1993, Kizer, 887 F2d at 1006, plaintiffs contend that payments made before October 1, 1993, are not recoverable from joint tenancy property. Second, plaintiffs note that the state is also seeking reimbursement from property formerly held in revocable trusts. Plaintiffs complain that the state is seeking such reimbursement for deaths occurring before October 1, 1993, and for payments made before October 1, 1993. Plaintiffs argue that revocable trusts do not fall within the common law definition of "estate." If they are correct, then the state may not recover against property held in such trusts for pre-October 1, 1993, deaths or payments.

Defendants admit that the state acted in error in initially attempting to recover against joint tenancy property for payments made before October 1, 1993. Defs' Mem in Opp at 15-16. Because the parties are in agreement that a violation occurred, the court concludes that plaintiffs' summary judgment motion on their third claim, insofar as it is premised on the state's attempts to recover pre-October 1, 1993, payments from properties held in joint tenancy, should be GRANTED.

Defendants dispute plaintiffs' assertion that revocable trusts fall outside the common law definition of "estate." But defendants have produced little support for their position. They initially note that the value of a revocable trust is taxable, under federal law, to the estate of the settlor upon his death. 26 USC §§ 2031, 2038. As plaintiffs point out, however, federal law also taxes joint tenancies, which are not part of the "estate" at common law. In short, the federal tax code is not an accurate source for demarcating the boundaries of the "estate."

Next, defendants cite extensively from the recommendations and comments of the California Law Revision Commission. These comments recommend that creditors of a settlor ought to be permitted to assert claims against property held in revocable trust. Apparently in response to the Commission's report, the state legislature promulgated Cal Prob Code § 19000 et seq., which states in pertinent part:

[u]pon the death of the settlor, the property of the deceased settlor that was subject to the power of revocation at the time of the settlor's death is subject to the claims of creditors of the deceased settlor's estate * * *.

Cal Prob Code § 19001(a). Defendants posit that this demonstrates that at common law, the "estate" included property in a revocable trust. The court disagrees.

As plaintiffs argue, the promulgation of Cal Prob Code § 19001(a) actually indicates that revocable trusts were not included within the settlor's "estate" at common law. If they were, there would be no reason for the state legislature to pass redundant legislation. Plaintiffs also cite Estate of Parrette, 211 Cal Rptr 313 (Cal App 1985), in which the court noted:

[w]hen a person creates, and transfers property to, an inter vivos trust and the trust estate does not revert to the settlor's estate on his death, the trust property is not subject to probate administration in the settlor's estate. * * * The property is not subject to probate administration even if the decedent-settlor was a life beneficiary of the trust or retained the unexercised power to revoke.

Id at 318 (quoting II Cal Decedent Estate Administration (Cont Ed Bar (1971) § 4.57, p162)).

The court concludes that property held in a revocable trust does not fall within the common law definition of "estate." Therefore, the state may not impose Medi-Cal liens on such property for payments made before October 1, 1993, or for recipients who died before that date. Accordingly, plaintiffs' motion for summary judgment on their third claim is hereby GRANTED in its entirety, and defendants' motion for summary judgment on plaintiffs' third claim is hereby DENIED.

IV

In conclusion, the court hereby ORDERS the following: (1) plaintiffs' motion for summary judgment on claims one, three, four and ten is hereby GRANTED, and defendants' motion for summary judgment on those claims is hereby DENIED; (2) defendants' motion for summary judgment on claims six, seven, eight and nine is hereby GRANTED, and plaintiffs' motion for summary judgment on those claims is hereby DENIED; (3) defendants' motion for summary judgment on claim two is hereby GRANTED; (4) defendants' motion for summary judgment on claim five is hereby CONTINUED pending further discovery; and (5) defendants' motion for summary judgment based upon lack of standing is hereby DENIED.

In order to provide plaintiffs with the proper relief, the court hereby ORDERS the parties to submit briefs addressing the following issues:

(1) What should be the form of the injunction to be granted pursuant to plaintiffs' first, third, and fourth/tenth claims? The parties are encouraged to confer and to submit a stipulated form of injunction if at all possible. In the event that the parties are unable to agree, they may submit separate proposals.

(2) How much time is necessary for plaintiffs to complete the additional discovery they need in order to respond to defendants' summary judgment motion on plaintiffs' fifth claim?

The briefs addressing these issues shall be submitted within 20 days of the date of this order.

IT IS SO ORDERED.

Counsel shall appear for a status and scheduling conference on Friday, December 2, 1994, at 2pm.