Final First Brief Before 3rd Circuit

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________________________________________________________

Nos. 09-3537 and 09-3538

_____________________________________________________________

RITA L TRISTANI, by and through her Attorney in Fact, MARIA C. KARNES; JOSHUA C. VALENTA, individually, and on behalf of others similarly situated;

A.H., individually and as parent and natural guardian of A.H., a minor

Appellee/Cross-Appellants

vs.

ESTELLE RICHMAN, in both her individual and official capacity; FEATHER O. HOUSTON, in her individual capacity,

Appellants/Cross-Appellees

_____________________________________________________________

BRIEF OF APPELLEES/CROSS-APPELLANTS _____________________________________________________________

Appeal by Permission from the Order of the United States District Court

for the Western District of Pennsylvania dated July 23, 2009 Denying Appellants’ Motion for Summary Judgment in Part and Amending a Prior

Order to Certify for an Interlocutory Appeal in a Civil Action _____________________________________________________________

Patrick J. Loughren, Esquire Aaron D. Rihn, Esquire Loughren, Loughren & Loughren, PC Robert F. Daley, Esquire 310 Grant Street, Suite 2800 Robert Pierce & Associates Pittsburgh, Pa. 15219 707 Grant Street, Suite 2500 (412) 232-3530 Pittsburgh, PA 15219 (412) 281-7220 Veronica A. Richards, Esquire Richards & Richards, LLP 16020 Perry Hwy Attorneys for: Warrendale, PA 15086 Appellees/Cross-Appellants (724) 940-4340

Case: 09-3537 Document: 00319945099 Page: 1 Date Filed: 12/14/2009

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TABLE OF CONTENTS

Table of Citations..................................................................................................... iii

Statement of the Issues of Plaintiffs’ Cross - Appeal ................................................1

Statement of the Case.................................................................................................2

Summary of Argument...............................................................................................4

Argument....................................................................................................................7

I. Plaintiffs’ Response to Defendants’ Opening Brief ...........................................7

A. Pennsylvania’s Use of TPL Liens Violates Federal Law ................................................................................................7

1. Congress did not envision a lien system ..........................................7

2. DPW failed to comply with federal law.........................................17

3. The federal anti-lien provisions precludes the imposition of a lien...................................................................19

4. The anti-recovery provision precludes

any recovery ...................................................................................24

5. The federal reimbursement provisions preclude DPW from recovering more than the capitated payment.............................................................25

a. The federal reimbursement

provision............................................................................26

b. Managed Care and Welfare...............................................27

6. The right to recover medical payments does constitute a property interest..................................................33


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B. Neither Collateral Estoppel nor Res Judicata Impact the Claims of Ms. Tristani............................................................37

C. The “Voluntary Payment Doctrine” Does Not

Preclude Recovery....................................................................................42

D. The Capitation Fee Issue was Properly Decided......................................44

II. Plaintiffs Arguments in Support of Their Cross Appeal .........................................................................................................47

A. The District Court erred in holding that the

Defendant’s practice of asserting liens for the full amount of medical expenses did not violate Federal Medicaid law ...............................................................................47

B. The District Court erred in holding that the

Defendants were entitled to Qualified Immunity.....................................52 Conclusion ...............................................................................................................57 Combined Certification............................................................................................59 Statutory Addendum

42 U.S.C. § 1396(a)(25)......................................................................................60 42 U.S.C. § 1396k...............................................................................................64 42 U.S.C. § 1396p(a) and (b)..............................................................................66 62 P.S. § 1409 .....................................................................................................72 62 P.S. § 1409.1 .................................................................................................80


iii

TABLE OF CITATIONS

CASES

Arkansas v. Ahlborn 126 S. Ct. at 279.......................................................................................................17 Arkansas Department of Health and Human Services v. Ahlborn 547 U.S. 268 (2006)....................................................................... 15, 16, 21, passim Barton v. Summers 293 F.3d 944, 951 (6th Cir. 2002) ................................................................14, 15, 26 Bowen v. Massachusetts 487 U.S. 879, 894, 101 L.Ed. 2d 749, 108 S. Ct. 2722 (1988)..........................52, 53 Broselow v. Fisher 319 F.3d 605; 2003 U.S. App. LEXIS 2533 (3rd Cir. 2003)....................................15 Cass County Music Co. v. C.H.L.R., Inc. 88 F.3d 635, 642 (8th Cir. 1996).........................................................................53, 54 Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry 494 U.S. 558, 570, 108 L.Ed. 2d 519, 110 S. Ct. 1339 (1990)................................53 Commonwealth v. Sunbury Converting Works 134 A. 438, 440 (Pa. 1926) ......................................................................................35 Davis v. Scherer 468 U.S. 183, 196 n. 14 (1984)................................................................................55 Dep't of Pub. Welfare v. Md. Casualty Co. 643 A.2d 139 (Pa.Cmmw 1994) ..............................................................................11 Doran v. Missouri Department of Social Services 2008 U.S. Dist. LEXIS 1418 (W.D. Mo. 2008) ..........................................43, 44, 54


iv

Eldred v. Ashcroft 537 U.S. 186, 222 (2003).........................................................................................22 Elmdale Dev., LLC v. City of Des Plaines 2005 U.S. Dist. LEXIS 16967 (ND Ill. 2005) .........................................................43 Garcia v. Community Legal Services 524 A.2d 980 (Pa. Super. Ct. 1987).............................................................35, 36, 37 Geier v. American Honda Motor Co. 529 U.S. 861, 869-874 (2000) .................................................................................32 Green v. City of New York 438 F.Supp.2d 111 (E.D.N.Y. 2006) .................................................................41, 42 Harlow v. Fitzgerald 457 U.S. 800, 818 (1982).........................................................................................56 Hatchigian v. Koch 381, 553 A.2d 1018, 1020 (Pa. Super. Court 1989) ................................................39 Hopkins v. Saunders 199 F.3d 968, 977, (8th Cir. 1999) cert. denied 2000 U.S. LEXIS 5868.................53 In re: Iulo 564 Pa. 205, 766 A.2d 335, 337 (2001)...................................................................38 Jackson v. Novastar Mortgage 2007 U.S. Dist. LEXIS 93584 (WD Tenn. 2007)....................................................43 Kampa v. White Consolidated Indus., Inc. 115 F.3d 585, 586 (1997) (citing Terry, 494 U.S. at 570) ......................................53 Larson v. Domestic & Foreign Commerce Corp. 337 U.S. 682, 688, 69 S.Ct. 1457, 1460, 93 L.Ed. 1628 (1949)..............................53 Lorillard Tobacco Co. v. Reilly 533 U.S. 525, 540-41 (2001) ...................................................................................32


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Lynne Carol Fashions, Inc. v. Cranston Print Works Co. 453 F.2d 1177, 1183 (3d Cir. 1972) ..................................................................40, 41 Martin v. City of Rochester 642 N.W.2d 1 (Minn. 2002)...............................................................................13, 21 McCulloch v. Maryland, 4 Wheat 316, 427, 4 L.Ed. 579 (1819) ...................................................................................32 Municipality of Monroeville v. Liberatore 736 A.2d 31, 34 (Pa. Commw. Ct. 1999), app. denied, 751 A.2d 195 (Pa. 2000)..39 Parsowith v. Com. Dept. of Revenue 723 A.2d. 659, 662 n.4 (Pa. Commw. Ct. 1999) ...............................................35, 37 Spisak v. Margolis Edelstein 768 A.2d 874, 876-77 (Pa. Super. Ct. 2001) ...........................................................38 Tranello v. Frey 962 F.2d 244, 265 (2nd Cir. 1992) ..............................................................................3 Tristani v. Richman 438 F.Supp.2d (W.D.Pa. 2009)........................................................ 41,42,44, passim Wallace v. Estate of Jackson 972 P.2d 446 (Utah 1998)........................................................................................15 West Virginia Univ. Hospitals, Inc. v. Casey 499 U.S. 83, 98 (1991).............................................................................................23 Wood v. Strickland 420 U.S. 308, 314-315, n.6 (1975) ..........................................................................52 STATUTES

28 U.S.C. § 1292(b) ...................................................................................................3


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42 C.F.R. 430.10 ........................................................................................................8

42 U.S.C. 1396a ........................................................................................................8

42 U.S.C. §1396a(a)(18) ....................................................................................19, 20

42 U.S.C. 1396a(a)(25)(A) ........................................................................................8

42 U.S.C. 1396a(a)(25)(i) .........................................................................................8

42 U.S.C. 1396a(a)(25)(B) ..................................................................................8, 48

42 U.S.C. 1396a(a)(25)(A)(ii) ...................................................................................8

42 U.S.C. 1396a(a)(25)(H) ..................................................................................9, 48

42 U.S.C. § 1396(a) .................................................................................................48

42 U.S.C. § 1396k......................................................................................................9

42 U.S.C. § 1396k(a)(1)(C) ....................................................................................10

42 U.S.C.A. § 1396p(a)(1)...........................................................................20, 47, 52 42 U.S.C. § 1396k(b) ..................................................................................26, 32, 48

42 U.S.C.A. § 1396p(b)(1).................................................................................24, 52 62 P.S. § 1404(b)...........................................................................................11, 12,13

62 P.S. §1404(b), Act 1994-49 (H.B. 1392), § 12...................................................13

62 Pa.C.S. § 1409(b)(5) ...........................................................................................34

62 P.S. §1409(b)(7) .....................................................................................30, 44, 46

62 P.S. § 1409(b)(7)(i) .............................................................................................44

62 P.S. § 1409(b)(7)(iii)...........................................................................................45


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62 PA. STAT. ANN. § 1409(b)(11) ........................................................................49

OTHER

BLACK’S LAW DICTIONARY, 923 (6th Ed. 1990) .......................................................34

BLACK’S LAW DICTIONARY, 1006 (5th Ed. 1979) .....................................................37

JOHN J. DVORSKE, 10 STANDARD PENNSYLVANIA PRACTICE 2d §65:98 ............38, 40

MOORE’S FEDERAL PRACTICE ¶ 110.25[1], p.300 2d ed. 1995 ..................................3

Restatement (Second) of Judgments § 27 (1982) ....................................................38

The Omnibus Budget Reconciliation Act (OBRA) of 1981..............................28, 29


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STATEMENT OF THE ISSUES OF PLAINTIFFS’ CROSS-APPEAL 1. Did the District Court err in deciding that the Defendants’ did not violate

federal law by asserting liens against the third party tort recoveries of Medicaid beneficiaries for the full amount of medical services rendered, rather than for that portion of the recovery which was reasonably allocated to medical expenses? (This issue was raised by the Plaintiffs in their Summary Judgment Brief (DDE, #69 , pp.6, 39-49) and ruled upon in the District Court’s March 25, 2009 Opinion.)

Suggested Answer: Yes

2. Did the District Court err in deciding in deciding that the individual

Defendants were entitled to qualified immunity on the Plaintiffs’ claims that the assertion of liens on the third party tort recoveries violated the anti-lien and anti-recovery portions of the Medicaid Act, 42 U.S.C.A. §§ 1396p(a)(1) and 1396p(b)(1)? (This issue was raised by the Plaintiffs in their Summary Judgment Brief (DDE, #69 , pp. 41-45) and ruled upon in the District Court’s March 25, 2009 Opinion.)

Suggested Answer: Yes


2

STATEMENT OF THE CASE

The Plaintiffs do not take issue with the Statement of the Case set forth in

the Defendants’ Opening Brief, except with respect to the following two

particulars:

First, the Defendants contend that the District Court’s March 25, 2009

Opinion did not provide any relief to the Plaintiffs. While this is technically true,

the Opinion did determine a number of issues in the Plaintiffs’ favor, including the

fact that the Defendants’ practice of recovering the full amount of medical

expenditures paid on behalf of Medicaid beneficiaries who were enrolled in

Managed Care Organizations (MCOs) rather than the amount which the

Pennsylvania Department of Public Welfare paid in capitated payments to enroll

these individuals, violated Pennsylvania state law prior to June 2005. The District

Court did not order relief on this issue because it had doubts about whether the

initial two named Plaintiffs, Rita Tristani and Joshua Valenta, had standing to

assert these claims.

Following the issuance of the Court’s Opinion, the parties agreed to amend

the Complaint to join an additional Plaintiff, A.H. Both parties agreed that A.H.

had standing to raise this issue, and the only reason she was added by joint motion

at that time was so the Defendants could argue the capitated payment issue on

Appeal. The District Court’s March 25, 2009 Order specifically finds that Plaintiff


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A.H. has standing on this issue. It is incorrect for the Defendants to now argue that

this issue is not properly before this Court, particularly when it was at Defendants’

request that A.H. was added.

Second, footnote number three of the Defendants’ Opening Brief questions

the validity of the Plaintiffs’ Cross-Appeal, since the Plaintiffs did not seek

permission to appeal under § 1292(b). Once again, Plaintiffs are surprised that the

Defendants have raised this issue, since they expressed a desire to have Plaintiffs

cross-appeal heard at this time, and specifically stated that they did not intend to

challenge the validity of Plaintiffs’ cross-appeal. Regardless, Plaintiffs contend

that their cross-appeal is properly before this Court. It is well established that an

appellate court may address any issue fairly included within the certified order

because “it is the order that is appealable, and not the controlling question

identified by the district court.” MOORE’S FEDERAL PRACTICE ¶ 110.25[1], p.300

2d ed. 1995). Even the authority cited by the Defendants, Tranello v. Frey, 962

F.2d 244, 265 (2nd Cir. 1992), concedes that the appellate court may have

“discretionary” authority to review the cross-appeal under these circumstances. It

is proper for this Court to decide these issues together, and it would be a waste of

both the parties’ and this Court’s time and resources to require the Plaintiffs to

pursue a separate appeal at a later date.


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SUMMARY OF ARGUMENT

Congress has mandated that States participating in the Medicaid Program

agree to directly pursue third parties who cause injury to Medical Assistance

beneficiaries resulting in costs to the MA Program. Federal law requires that

States obtain an assignment from the welfare recipient of the right to pursue liable

third parties with respect to payment for medical expenses. Thereafter, the State is

required to pursue third parties directly so long as it is cost effective to do so.

DPW's conduct in abdicating its responsibilities under Federal law to pursue

liable third parties in order to impose "liens" on the settlements of welfare

recipients violates both the anti-lien and anti-recovery provisions of the Social

Security Act. By means of the anti-lien and anti-recovery provisions of the Social

Security Act, Congress has expressly forbidden the States from imposing liens

upon, or recovering from, the property of welfare recipients. The District Court

correctly held that State law which purports to allow DPW to impose liens upon

and to make recoveries from, the property of welfare recipients, conflicts with the

Federal law and violate the Supremacy clause. DPW's argument that Congress

intended a "lien system" model is refuted by the plain language of the Social

Security Act


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Assuming the District Court was in error, and DPW is allowed to both assert

liens and make recoveries from the property of welfare recipients, DPW's recovery

is specifically limited by Federal law to that which "…is necessary to reimburse

it…" Where all that DPW has expended is a capitated premium payment made to a

managed care organization, than that is the amount that DPW should recover.

DPW's conduct in imposing liens, and recovering the amount subsequently paid by

the MCO's on behalf of the individual, violates federal law, as does the state law

that purports to permit such liens and recoveries.

Additionally, pursuant to the United States Supreme Court’s decision in

Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268

(2006), even if DPW was permitted to assert a lien against beneficiaries’

recoveries, that lien was limited to “that portion of a settlement that represents

payments for medical care.” Plaintiffs contend that DPW’s practice of asserting a

lien for the full amount of services rendered, minus a reduction for fees and costs

violated this principle. The District Court attempted to distinguish the

Pennsylvania practice, which limited the amount the lien to one half of the

recovery, from the practice declared unconstitutional in the Ahlborn case, which

did not apply such a cap, but us discussed below this distinction is unavailing.

Finally, the Plaintiffs contend that the District Court erred in finding that the

individual Defendants were entitled to qualified immunity from Plaintiffs’ claims


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that the Medicaid lines were impermissible under federal law. Although the

District Court was correct that there was not any existing case authority on this

issue, the Plaintiffs’ right to be free from these liens was clearly established by the

plain and unambiguous language of the statute itself.


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ARGUMENT I. THE PLAINTIFFS’ RESPONSE TO DEFENDANTS’ OPENING

BRIEF

A. Pennsylvania’s Use of TPL Liens Violates Federal Law

1. Congress did not envision a lien system DPW’s primary argument is its contention that liens may be imposed upon

the settlements of welfare recipients because “Congress envisioned a lien system”

as the means through which States would make third-party liability recoveries.

Defendants’ Brief, p. 24. In order to have “envisioned” a lien system, DPW must

necessarily argue that Congress envisioned that MA recipients would be filing

lawsuits and recovering, at which time DPW would be imposing liens on the

recoveries.

Congress had no such vision. A cursory review of the applicable statute, as

well as numerous cases construing the same, reveals that Congress had no intention

to pay out millions of dollars in Medicaid expenditures to States without requiring

the States to promise, as a condition of participation in the Medicaid Program,

that they – and not the MA recipients – would identify and pursue liable third

parties. DPW cites to none of the applicable Federal statutory provisions in

support of its argument that Congress envisioned a “lien model” and a review of

that language reveals that DPW’s argument is wholly lacking in merit.


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Congress mandated that when States choose to participate in the Medicaid

program, they must submit a plan for medical assistance that conforms to the

requirements of the Medicaid statute. See: 42 U.S.C. 1396a; 42 C.F.R. 430.10. A

State’s Medicaid plan must provide “that the State or local agency administering

such plan will take all reasonable measures to ascertain the legal liability of third

parties . . . to pay for care and services available under the plan.” 42 U.S.C.

1396a(a)(25)(A). Those measures must include “the collection of sufficient

information” from the beneficiary to “enable the State to pursue claims against

such third parties.” 42 U.S.C. 1396a(a)(25)(i). Congress also mandated that once

third-party liability is identified, the State must “seek reimbursement for [its

medical] assistance to the extent of such legal liability.” 42 U.S.C.

1396a(a)(25)(B). The state plan must also identify how those claims will be

pursued. 42 U.S.C. 1396a(a)(25)(A)(ii).

Welfare recipients also have obligations. While DPW would have this Court

believe that Congress envisioned welfare recipients investigating, identifying,

pursuing and suing liable third parties, Congress did not impose those obligations

on welfare recipients. As set forth above, those obligations were imposed upon the

States. With respect to welfare recipients, Federal law mandates that the State’s

plan contain provisions that obligate the welfare recipient only to assist the State in

its efforts to pursue liable third parties by assigning rights to the State, and then by


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cooperating with the State in its (i.e. the State’s) pursuit of liable third parties.

Specifically, Section § 1396k of the Act states, in part:

(a) For the purpose of assisting in the collection of medical support

payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this subchapter [42 U.S.C. §§ 1396-1396v], a State plan for medical assistance shall

(1) provide that, as a condition of eligibility for medical

assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required

(A) to assign the State any rights . . . to support

(specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party.

(B) to cooperate with the State . . . in obtaining

support and payments (described in paragraph (A)) for himself . . .; and

(C) to cooperate with the State in identifying, and

providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan. . . (Emphasis added.)

In further elaboration of the individual’s obligations to effectuate an assignment of

rights to the State, § 1396(a)(25)(H) Federal law requires the State plan:

(a) Contents

A State plan for medical assistance must— (25) provide -


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(H) that to the extent that payment has been

made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services;

42 U.S.C. 1396a(a)(25)(H). If DPW’s argument is correct that “Congress

envisioned a lien system,” then why would Congress have mandated that the State

collect information from beneficiaries to “enable the State to pursue claims against

such third parties”? §1396k(a)(1)(C) (Emphasis added.) Why would welfare

recipients be ordered to cooperate with the State in obtaining payments? Most

importantly (as more fully discussed hereinafter), why would Congress mandate

that welfare recipients assign rights of action to the State if Congress intended for

the welfare recipients to pursue lawsuits against liable third parties?

DPW’s argument that “Congress intended to allow States to use a lien model

of recovery” Defendants’ Brief, p. 24, has absolutely no support in the text of the

statute and should be rejected. Congress intended for States to pursue liable third

parties, and to do so via an assignment of rights from the welfare recipient.


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Pennsylvania’s conduct evidences that it clearly understands the Federal

mandate that it pursue liable third parties via assignment. The argument DPW

makes that Congress envisioned a “lien system” wholly lacks merit. In fact, much

can be gleaned from Pennsylvania’s conduct in promulgating its welfare code.

Pennsylvania promulgated 62 P.S. § 1404(b) in an attempt to comply with

its Federal obligations. The pre-1994 version stated:

Any person applying for medical assistance benefits shall as a condition to eligibility, give the department the right of subrogation to any other private or public health insurance benefits to which such person is or may become entitled.

62 P.S. §1404(b) (Emphasis added). Section 1404(b) was amended in 1994 for

reasons discussed below. As noted above, § 1404(b) purported to give DPW a

right of subrogation. Apparently, DPW believed that utilizing subrogation would

be consistent with its statutorily mandated obligation to obtain an assignment. In

Dep't of Pub. Welfare v. Md. Casualty Co., 643 A.2d 139 (Pa.Cmmw 1994) the

plaintiff, who was pregnant, was injured in a motor vehicle accident. She

thereafter delivered her twins, although one twin died. All three individuals

received medical care that was paid for by DPW. Seven years after the accident,

DPW filed suit against Maryland Casualty Company contending that, as the

victim’s no-fault insurer, Maryland Casualty was obligated to pay medical

benefits. DPW’s lawsuit was brought pursuant to §1404 and not §1409 because, as


12

DPW admitted, the action was time-barred by the statute of limitations set forth in

§1409.

Maryland Casualty argued that §1404(b) did not create an independent cause

of action and that it merely set forth the relationship between the recipient and her

doctors. Maryland Casualty argued that DPW’s lawsuit had to be brought pursuant

to §1409 (“Third Party Liability”) and that because the statute of limitations set

forth in that section had expired, DPW’s case was time-barred. The

Commonwealth Court agreed, stating,

“We must also reject DPW's argument that it may proceed under § 1404. § 1404 does not provide a cause of action independent from that contained in § 1409. To the contrary, §1404 addresses only the relationship between the medical assistance recipient and the provider of the medical assistance payments, providing that receiving medical assistance is contingent upon the recipient giving the department the right of subrogation to any health insurance benefits to which the recipient is entitled. Section 1404 does not in itself authorize an independent action to recover from a third party any monies paid to the recipient.

Id., 164 Pa. Commw. at 306. Pennsylvania amended § 1409(b) within one month

of this decision. After the amendment, the language of §1404(b) changed DPW’s

rights vis-à-vis the welfare recipient from one of subrogee/subrogor to that of

assignee/assignor. The amended §1404(b) states:

§ 1404. Special recipient participation requirements

(b) The acceptance of medical assistance benefits shall operate as an assignment to the department, by operation of law, of the assistance recipient's rights to recover


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support, specified by a court as support for the payment of medical care, and to payment for medical care from any third party.

62 P.S. §1404(b), Act 1994-49 (H.B. 1392), § 12, approved June 6, 1994, and

effective in 60 days. (Emphasis added.) It is clear that DPW understands its

obligations to obtain an assignment from welfare recipients. Why else would

DPW have amended §1404(b). Indeed, when an individual applies for Medical

Assistance in Pennsylvania, the individual signs an affidavit that reads, in part:

WHEN I SIGN THIS FORM, I UNDERSTAND THAT … I am giving the State the right to seek, with or without legal action, payment from private or public health insurance or liable third party (sic). The amount recovered will not exceed the amount paid by Medical Assistance.”

App. (II), p. 331a, Excerpt from PUBLIC ASSISTANCE APPLICATION. Thus, pursuant

to Federal law, State law, and the application signed by the MA recipient, DPW

obtains an assignment to pursue the liable third party – with or without legal action

– for the amount paid by DPW. This is in fact what Congress envisioned, and

DPW’s argument that Congress envisioned a “lien system”, clearly has no

statutory support.

In the instant matter, the District Court rejected DPW’s argument that liens

(via subrogation or otherwise) were permissible, let alone what Congress

“envisioned”. So, too, have several other courts that have studied the Federal

scheme. For example, the Minnesota Supreme Court in Martin v. City of


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Rochester, 642 N.W.2d 1 (Minn. 2002) cert. denied Minn. v. Martin, 2003 U.S.

LEXIS 5037 (U.S., June 27, 2003) carefully reviewed the Federal statutory

scheme, and concluded:

When the state actually obtains the assignment of rights to third-party payments for medical expenses, subrogation is no longer appropriate because the state is now the owner of the medical assistance recipient's claim and no longer needs to be subrogated.

Id., 642 N.W.2d at 20-21. The court in Martin explained that a MA recipient who

assigns his/her claim to the state thereafter no longer owns the claim. Rather, the

claim, or cause of action, is owned by the state which must pursue the claim

against the liable third party:

By assigning the right to recover medical expenses, the Medicaid recipient no longer owns that right of recovery, i.e., the right is no longer the property of the recipient. Therefore, state enforcement of the assignment for medical expenses does not violate the anti-lien provision because recovery under the assignment does not operate on the property of the recipient. Moreover, this assignment allows the state to follow the federal directive to pursue third parties that may be liable for the costs of medical care. Although the state may not file a lien, the assignment does give the state the ability to pursue the third parties directly.”

Id. 642 N.W.2d at 13. (Emphasis added.) By way of another example, in Barton v.

Summers, 293 F.3d 944, 951 (6th Cir. 2002) the Sixth Circuit discussed the

assignment provision. Barton involved claims by Medicaid recipients who sought


15

portions of the Tobacco Settlement.1 The Sixth Circuit in Barton, explained the

Federal scheme as follows:

“Federal law requires states or local administering agencies to take "all reasonable measures to ascertain the legal liability of third parties" for costs incurred under state Medicaid plans. 42 U.S.C. § 1396a(a)(25)(A). In cases where legal liability is found to exist for monies paid out under Medicaid plans, states are required to "seek reimbursement for such assistance to the extent of such legal liability. 42 U.S.C. § 1396a(a)(25)(B). The purpose of this requirement is straightforward: when reasonably feasible, states are required to attempt to recover medical costs incurred under Medicaid programs from responsible third parties, rather than relying on federal aid exclusively. When a recovery is made, the federal government is paid its share. In order to facilitate recoupment of costs by the federal Medicaid system, state programs are also required to "provide for mandatory assignment [to the payor state] of rights of payment for medical support and other medical care owed to recipients . . . ." 42 U.S.C. §§ 1396a(a)(45).”

Id., 293 F.3d at 951-952 Another example of careful analysis of the Federal

statutory scheme appears in Judge Durham’s dissenting Opinion in Wallace v.

Estate of Jackson, 972 P.2d 446 (Utah 1998), which dissent was cited by the

United States Supreme Court in Ahlborn at footnote 13. In his dissent, Judge

Durham noted:

It is true, as the State argues, that these statutes reflect the legislative intent that Medicaid should recover its health care expenditures where third parties caused a Medicaid recipient to incur them. However, the language of various sections of the

1 This Honorable Court resolved an identical claim in Broselow v. Fisher, 319 F.3d 605; 2003 U.S. App. LEXIS 2533 (3rd Cir. 2003), and briefly discussed the assignment provision.


16

statute indicates that Congress anticipated that third-party recovery would come directly from the third parties and not from the recipient. The language in section 1396a(25) states plainly that states should pursue their third-party liability claims against the third parties themselves. See 42 U.S.C. § 1396a(25). It does not mention recovery from the Medicaid recipient.

Id., 972 P.2d at 450. (Emphasis added.) Lastly, there is some indication in

Arkansas v. Ahlborn, 547 U.S. 268 (2006), that the Supreme Court would reject

DPW’s argument that “Congress envisioned a lien system”. Plaintiffs first point

out the critical factual distinction between the facts in Ahlborn and the facts in the

instant matter. Ahlborn involved a Medicaid recipient who recovered a settlement

upon which Arkansas attempted to impose a lien. The plaintiff in Ahlborn

stipulated that Arkansas was entitled to some amount of money, but just not

everything that Arkansas was claiming. In the instant matter, however, Plaintiffs

have not stipulated that DPW is entitled to any money and, in fact, maintain that

DPW is entitled to nothing. Because of the stipulation entered into in Ahlborn, the

issue of whether Arkansas could, in the first instance, recover one penny from

Ahlborn’s settlement was not before the Supreme Court. That is not the case here.

That being said, in footnote 9 of its Opinion, the Supreme Court Ahlborn added

emphasis, and it is this emphasis that indicates that the Supreme Court would not

agree with DPW’s argument that Congress envisioned a lien system:


17

N9 The parties here assume, as do we, that a State can fulfill its obligation under the federal third-party liability provisions by requiring an “assignment” of part of, or placing a lien on, the settlement that a Medicaid recipient procures on her own. Cf. §§ 1396k(a)(1)(B)-(C)(the recipient has a duty to identify liable third parties and to “provide information to assist the State in pursuing” those parties (emphasis added)).

Arkansas v. Ahlborn, 126 S. Ct. at 279, fn 9. This emphasis the Supreme Court

put on the words “assist the State in pursuing” reasonably indicates that while the

parties assumed that the State could fulfill its obligation via the imposition of a

lien, the Supreme Court’s review of the law may well have lead to a different

conclusion – had that particular issue been before the Court, which it was not.

Why else would the Supreme Court add the emphasis? In any event, the statutory

language that the Supreme Court emphasized in Ahlborn is the very same language

that refutes DPW’s argument that it can comply with its statutory obligations by

placing a lien on a settlement instead of by pursuing liable third parties.

2. DPW failed to comply with federal law.

After the Plaintiffs in this matter (Tristani, Valenta and A.H.) assigned their

rights to DPW, DPW was statutorily mandated to pursue the claims that had been

assigned to it, so long as doing so was cost effective. Federal law mandates that

the States “shall” pursue liable third parties so long as doing so is cost effective.

DPW has presented zero evidence to either this Court, or the District Court, that it

would not have been cost effective for DPW to pursue the tortfeasors who harmed


18

Tristani, Valenta or A.H. There is no question that DPW had numerous options

available to it to recover in each of the three cases. First, DPW could have made a

claim against the tortfeasors. Plaintiffs presume that the Court is well aware that

not every claim turns into a lawsuit. It is very often the case that persons and/or

entities with causes of action do not always have to file a lawsuit in order to get

paid. Mere claims can be made, and liable third parties can pay those claims.

DPW had the right to make a claim for past medical expenses, but it did not, and it

offers no evidence of record to explain why it did not. Second, DPW could have

filed a lawsuit pursuant to the automatic assignment it received from Tristani,

Valenta and A.H. DPW did not file a single lawsuit. Third, DPW could have

intervened in the lawsuits filed by Tristani, A.H. and Valenta. Indeed, DPW

admits that it can intervene in a pending action “at any time” (Defendants’ Brief, p.

35). DPW could have delayed intervening until the lawyers handling the claims of

Tristani, Valenta and A.H. had “worked-up” the files with depositions, expert

reports, etc., and only then intervened. Pursuant to the Plaintiffs’ obligations –

under Federal law – to cooperate and assist DPW with its pursuit of liable third

parties, DPW could have obtained depositions, expert reports, etc., and could have

easily prepared its claims against the tortfeasors for past medical expenses. Yet,

DPW failed to intervene in any of the three lawsuits.


19

DPW chose to do nothing to pursue its rights, despite the fact that Federal

law mandates that States shall pursue liable third parties. DPW elected to wait

until the Plaintiffs settled their lawsuits, at which time DPW imposed liens on their

settlements. As set forth below, the imposition of a lien on the recoveries made by

A.H., Tristani and Valenta violated the Federal law’s “anti-lien provision”.

Moreover, DPW made a recovery from the settlements of both Tristani and

Valenta. As discussed below, the recoveries made by DPW from the settlements

of Tristani and Valenta violated the Federal law’s “anti-recovery” provision. DPW

has not made a recovery from A.H. due to the fact that A.H. refuses to pay DPW.

3. The federal anti-lien provision precludes the imposition of a lien

DPW’s imposition of a “lien” on the settlements of Tristani, Valenta and

A.H. violates Federal law. First, a review of the statutory framework is appropriate

to see how the anti-lien provision is applied to the States. Section 1396a(a)(18),

which deals with the contents of a State’s Medicaid plan, requires States to have a

plan for medical assistance that specifically provides that the state plan must

comply with another provision of the Social Security Act, specifically, §1396p,


20

which is where the anti-lien provision is found. So that it is clear2, analysis first

turns to §1396a(a)(18) setting forth the requirements of the State’s Medicaid plan:

§ 1396a. State plans for medical assistance (a) Contents A State plan for medical assistance must— (18) comply with the provisions of section 1396p of this title

with respect to liens, adjustments and recoveries of medical assistance correctly paid, transfers of assets, and treatment of certain trusts;

42 U.S.C. §1396a(a)(18) (Emphasis added.) The analysis then turns to §1396p

and, specifically, to § 1396p(a)(1) which has been described by the Courts as the

“anti-lien provision”. This provision states, in pertinent part:

§ 1396p. Liens, Adjustments and recoveries, and transfers of

assets (a) Imposition of lien against property of an individual on account

of medical assistance rendered to him under a State plan

(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 – [in circumstances not relevant here] . . .

2 Plaintiffs are not trying to be pedantic by carefully presenting the words of the statute. This is exactly what is required, and by doing so Plaintiffs’ intention is to illustrate how clear Congress’s intentions were.


21

The Supreme Court noted in Ahlborn, “Section 1396a(a)(18) requires that a State

Medicaid plan comply with §1396p, which in turn prohibits States (except in

circumstances not relevant here) from placing liens against, or seeking recovery

from, a Medicaid recipient…” Ahlborn, 126 S. Ct. at 1762.

When the District Court reviewed the language of the anti-lien provision, the

District Court stated, “Richman and Houston point to no evidence which indicates

that the anti-lien and anti-recovery provisions mean something other than what

they say. The anti-lien and anti-recovery provisions are unambiguous. App. (I), p.

70a. When the Supreme Court of Minnesota reviewed the language of the anti-lien

provision, it stated, “There is little ambiguity about ‘no lien may be imposed’.”

Martin v. City of Rochester, 642 N.W.2d 1, fn 12.

And, in fact, there is nothing ambiguous, confusing, or unclear about what

Congress said. “No lien may be imposed” means just what it says. There really is

no other way to argue the point except to say that it is only through double-talk and

complete disregard to the rules of statutory construction that anyone could argue

that Congress intended to allow liens to be placed upon the property of Medicaid

recipients.

While DPW argues that giving the words of the statute their plain meaning

would in some unexplained way contravene what Congress intended, even if that

were true, it would not permit this Court to ignore the words of the statute. The


22

rules of statutory construction are clear. A Court's interpretive function requires

the Court to identify and give effect to the best reading of the words in the

provision at issue. Even if the proper interpretation of a statute upholds a "very

bad policy," it "is not within our province to second-guess" the "wisdom of

Congress’s action" by picking and choosing our preferred interpretation from

among a range of potentially plausible, but likely inaccurate, interpretations of a

statute. Eldred v. Ashcroft, 537 U.S. 186, 222 (2003).

Thus, for example, DPW argues that, “Pennsylvania has thousands of cases

worth millions of dollars that would be uncollectable…” because, if the District

Court is affirmed, DPW will allegedly not be able to retain lawyers who will

pursue these claims in a cost-effective manner3. Defendants’ Brief, p. 32. This

argument is unsupported by evidence. It fails to address the language of the statute

and explain what is unclear about that language. The argument also ignores that

Congress contemplated that there would be third-party liability situations where

States would not be required to pursue liable third parities, specifically, those

instances where it would not be cost effective to do so. Assuming it is true that

DPW could not pursue “thousands” of claims worth “millions” of dollars if it is

3 The suggestion that DPW could not find attorneys to perform collection work on claims worth “millions of dollars” is absurd. Moreover, since most collection lawyers work on a contingent fee, as a matter of fact the collection effort is cost-effective (and therefore compliant with Federal law) because the Plaintiff in a contingency relationship (i.e. DPW) recovers more than the lawyer.


23

required to do so directly by either intervening in already pending lawsuits, or by

pursuing tortfeasors directly (which is highly incredible), maybe these are precisely

the claims that Congress was thinking about when it authorized States not to

pursue claims where it would not be cost-effective to do so. Because the statute is

clear, this court is precluded from speculating.

DPW also cites to language from a Senate Report, instead of the statute, in

order to support its argument that Congress envisioned a “lien system” once “legal

liability is found to exist”. Defendants’ Brief, p. 24. If the language of the statute

is free and clear from ambiguity, Courts are precluded from going behind that

language in order to determine the legislative intent. The intent is to be gleaned

directly from the text of the statute. Once again, DPW fails to even argue that the

language of the anti-lien provision is unclear or ambiguous. DPW’s argument

must fail as this Court must read the words of the statute – not the words of a

Senate Report – and apply the words of the statute. "The best evidence of

[Congress'] purpose is the statutory text adopted by both Houses of Congress and

submitted to the President". West Virginia Univ. Hospitals, Inc. v. Casey, 499 U.S.

83, 98 (1991)(emphasis added).

There is no question that the anti-lien provision precludes imposition of liens

on the property of Medicaid recipients, and DPW’s conduct in imposing liens on

the Plaintiffs’ settlements violated Federal law.


24

4. The anti-recovery provision precludes any recovery.

The second provision that DPW violated in the cases of Tristani and

Valenta, and which DPW is attempting to violate in the case of A.H., is the “anti-

recovery provision” found at §1396p(b). DPW asserted and recovered liens

against the settlements of Tristani and Valenta, and while DPW has asserted a lien

against the settlement of A.H., DPW has not recovered, because A.H. refuses to

pay.

In addition to barring the imposition of liens, Federal law expressly prohibits

DPW from actually recovering money from MA recipients. Specifically, the “anti-

recovery” provision, 42 U.S.C. § 1396p(b)(1), states:

§ 1396p Liens, Adjustments and recoveries, and transfers of assets (b) Adjustment or recovery of medical assistance correctly paid

under a State plan

(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except . . . [in circumstances not relevant here] . . . (Emphasis added.)

As with the language of the anti-lien provision, the language of the anti-recovery

provision is clear. “No…recovery…may be made” of any medical assistance

correctly paid. If DPW pays money on behalf of individuals who are frauds or

crooks, then that money is not correctly paid and DPW can recover from those

individuals. DPW has not contended, nor could it, that any of the Plaintiffs in this


25

action are frauds or thieves. Since the MA benefits paid on their behalf were

correctly paid, DPW cannot recover any money from their settlements. DPW

presents this Court with no evidence that the words of the anti-recovery provision

are unclear, or ambiguous, or why Congress’s mandate that no recovery be made

from the property of the Plaintiffs should not be enforced.

In conclusion, the District Court correctly concluded that both the anti-lien

and anti-recovery provisions mean what they say, and that DPW is prohibited from

imposing liens upon, and making recoveries from, the property of welfare

recipients.

5. The federal reimbursement provisions preclude DPW from recovering more than the capitated payment.

The following argument is submitted in the event that this Honorable Court

concludes that DPW is, in fact, entitled to assert a lien and make a recovery,

despite the language of the anti-lien and anti-recovery provisions.

Assuming that DPW is entitled to assert liens and make recoveries from the

settlements of MA recipients, the question then becomes “What amount is DPW

entitled to recover where the MA recipient is enrolled in managed care and DPW

has paid a premium, or capitated payment, and not the medical bills that are often

numerous times greater in amount?”


26

a. The Federal Reimbursement Provision.

Just as Federal law mandates that DPW shall recover monies through an

assignment of rights, Federal law also establishes “how much” the State can

recoup. The State can recover that which “…is necessary to reimburse it…” after

which the State reimburses the Federal Government, and then pays the remainder

to the welfare recipient. Specifically, 42 U.S.C. § 1396k(b) dictates and limits

what DPW is entitled to keep:

(b) Such part of any amount collected by the State under an

assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to the individual.

42 U.S.C. § 1396k(b) (emphasis added). This statute is also clear on its face. Any

amount that DPW recovers, pursuant to its assignment of rights, is limited strictly

to the amount DPW paid on behalf of an individual recipient. Id. As one court has

noted, “…the States are only assignees to the degree that they have paid out for

services, and no more.” Barton, supra., 293 F.3d at 952. (Emphasis added)

DPW, however, has a practice of asserting liens in amounts far greater than

what DPW has paid. This clear violation of Federal law occurs in the situation

where the welfare recipient is enrolled in a managed care organization which


27

subsequently pays for the recipient’s care. The only payment made by DPW,

however, is a premium, or capitated payment. DPW does not pay the medical

bills, which often far exceed the premium. Despite the fact that DPW is only “out-

of-pocket” the premium payments, DPW imposes liens, and seeks recoveries, for

the amounts paid by the insurers, or “Managed Care Organizations”.

For example, A.H. was enrolled in managed care. DPW only made

payments in the amount of $26,555.01. App. (II), p. 237a, DDE#95. ¶6h.

Nevertheless, DPW seeks $106,306.88 from the settlement obtained by A.H.,

representing the amount paid by the MCO, less attorney’s fees and costs. Id.,

DDE#95, ¶6l. DPW stands, therefore, to recover a windfall profit of $79,751.87.

DPW’s conduct in attempting to reap a windfall by imposing liens for amounts far

in excess of its expenditures violates Federal law.

b. Managed Care and Welfare.

States have historically utilized two systems of paying the bills relating to

medical care rendered to MA recipients. One system is the Fee-for-Service (FFS)

system, and the other is Managed Care. Under the FFS system, the MA recipient

receives treatment, and the State pays the bill directly. Under the managed care

system, the MA recipient becomes a “member” in a Managed Care Organization

(“MCO”). The State pays the MCO a capitated payment, and the MCO then pays

the bills. The important point for the Court to keep in the back of its mind – as we


28

search for Congress’s intent – is the fact that managed care had not been

introduced to Medicaid when the provisions at issue were enacted. Why this is

important will become clear in a moment.

The Omnibus Budget Reconciliation Act (OBRA) of 1981 allowed states,

for the first time, to enroll parts of their Medicaid populations into managed care

through a process called waivers. DPW’s managed care program was first

instituted February 7, 1997. (App. (II), p. 203a-204a) Known as the “MCO

program”, the program operates by DPW contracting with managed care

organizations, which are private entities, to provide services to recipients on a

capitated basis. A capitated basis means that the basic fee to which the MCO is

entitled for providing MA coverage to eligible recipients is determined on a per

member per month basis. Id., p. 204a.

DPW bids out contracts to MCOs who compete for the contract. Id. To

enroll the welfare recipient in an MCO, DPW pays the MCO the capitated payment

on a per month basis. Id. DPW pays the capitated rate for all individuals enrolled

in an MCO at the beginning of the month. Id., p. 205a. Enrollment in the

managed care delivery system is a mandatory requirement for welfare recipients in

twenty-five (25) counties in Pennsylvania, and it is voluntary in twenty-seven (27)

counties in Pennsylvania. Id., p. 206a. Typically, the only amount of money that

DPW expends for an individual enrolled in an MCO is the capitated premium that


29

is paid on a monthly basis. Kathy Martofel is the Chief of the Third Party Liability

Division of the Department of Public Welfare. Id., p. 208a. Ms. Martofel admitted

that for individuals enrolled in mandatory managed care, the only expenditure

made by DPW on behalf of the individual is the capitated premium that has been

paid on a per month basis to the MCO:

Q. Would you agree that the only amount of money that the DPW

has expended for an individual enrolled in an MCO is the capitated premium that has been paid on a per month basis for that individual?

A. Yes.

App. (III)., p. 372a. The amount paid by DPW to enroll the individual in an MCO

is often less than the amount DPW asserts as a lien, or claim, against the

individual’s third party recovery:

Q. …[b]efore the advent of managed care when DPW was straight fee for services, do you agree that DPW would get back from the third party recovery that which DPW had paid to the doctors?

A. Well, that’s what we would assert as our claim, yes. Q. And that was the money that was necessary to reimburse

DPW for what it paid. Correct? A. Yes. Q. And then after the advent of managed care, what DPW

has paid on behalf of the individual is in some cases far less than what DPW asserts by way of its claim against the third party recovery. Correct?


30

A. Yes.

App. (III), p. 375a., p. 49, lines 1-16. Although DPW could have contracted its

obligation, arising under Title XIX, to pursue third party recoveries to the MCOs,

DPW has retained the right to pursue third party liability recoveries. Id., p. 206a.

DPW pursues third parties by asserting claims against the settlements and/or

verdicts achieved by Medical Assistance recipients. DPW asserts claims for the

full amount paid by the MCO on behalf of the MA recipient. Id., p. 207a.

State law that was in effect at the advent of DPW’s managed care delivery

system for MA; and which remained in effect up to and including July 7, 2005,

was set forth in The Public Welfare Code, § 1409(b)(7). This provision limited

DPW’s right of recovery to “the department’s expenditures”:

§ 1409. Third party liability (b)(7) In the event of judgment or award in a suit or claim against such third party or insurer: (i) If the action or claim is prosecuted by the beneficiary alone, the court or agency shall first order paid from any judgment or award the reasonable litigation expenses, as determined by the court, incurred in preparation and prosecution of such action or claim, together with reasonable attorney’s fees when an attorney has been retained. After payment of such expenses and attorney’s fees the court agency shall, on the application of the department, allow as a first lien against the amount of such judgment or award, the amount of the department’s expenditures for the benefit of the beneficiary under the


31

medical assistance program, as provided by subsection (d).4 (Emphasis added.)

On January 31, 2005, the Superior Court of Pennsylvania decided In Re: C.S.,

App. (11) pp. 288a – 295a. In In Re: C.S., the Superior Court the court held that §

1409(b)(7) permitted DPW to recover only the capitation payment made on behalf

of a welfare recipient. The court held that DPW was precluded from recovering

the amount paid by MCOs, as allowing such a recovery would result in a

“windfall” to DPW. Id. DPW did not appeal the decision in In Re: C.S. App. (II),

p. 209a – 210a. Rather, Pennsylvania amended the law to include a new provision

which purports to allow DPW to collect the amounts expended by MCO’s. The

revised statute reads:

§ 1409. Third party liability

(b)(7) In the event of judgment, award or settlement in a suit or claim against such third party or insurer

(iii) With respect to claims against third parties for the

cost of medical assistance services delivered through a managed care organization contract, the department shall recover the actual payment to the hospital or other medical provider for the service. If no specific payment is identified by the managed care organization for the service, the department shall recover its fee schedule amount for the service.

4 Although §1409b(7)(i) refers to “subsection (d)”, the Public Welfare Code, § 1409, did not have a subsection (d).


32

62 P.S. §§ 1409(b)(7)(iii). DPW cannot possibly argue that Congress intended

DPW to recover nearly five times what it spent to provide Medicaid benefits to

A.H. But this is exactly what DPW seeks. Federal law specifically limits DPW’s

recovery to that which “…is necessary to reimburse it…” 42 U.S.C. §1396k(b).

DPW’s argument that the Pennsylvania statutory and regulatory scheme allows it

to collect the full amount of benefits paid is entirely irrelevant. The Supremacy

Clause, and decades of jurisprudence interpreting the Supremacy Clause, clearly

prohibit States from promulgating statutes that directly conflict with Federal law.

(“Article VI, cl. 2, of the United States Constitution commands that the laws of the

United States “shall be the supreme Law of the Land; ... any thing in the

Constitution or Laws of any State to the Contrary notwithstanding.” See also:

McCulloch v. Maryland, 4 Wheat. 316, 427, 4 L.Ed. 579 (1819) (“It is of the very

essence of supremacy, to remove all obstacles to its action within its own sphere,

and so to modify every power vested in subordinate governments”) …. State action

may be foreclosed by … implication because of a conflict with a congressional

enactment, See, e.g., Geier v. American Honda Motor Co., 529 U.S. 861, 869-874

(2000).” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 540-41 (2001)).

In this instance, the Pennsylvania scheme with regard DPW reimbursement

is in clear conflict with Federal law, and accordingly, must yield.


33

6. The right to recover medical payments does constitute a property interest.

To the extent that the Plaintiffs, despite the automatic assignment mandated

by federal law, retain an interest in recovering damages for payments made for

medical care in their respective underlying tort actions, that interest does constitute

“property” in that it is part of their entire chose in action. Leaving aside for a

moment the contention that the Plaintiffs in this case, as argued previously, do not

retain any property rights in recovery of medical assistance benefits, because, by

law, they assign those rights to DPW, the law is clear that the right to recover

damages for medical expenses does constitute a property interest, and as such can

not be subject to liens asserted by DPW, as the anti-lien and anti-recovery

provisions prevent such actions.

In analyzing this question below, the District Court correctly relied on the

reasoning of Ahlborn in reaching the conclusion that plaintiffs do have a property

interest in their underlying causes of action. As Ahlborn clearly indicated, if a

medical assistance recipient retains the right to bring an action against a third party

tortfeasor, and if that action can include a claim for medical expenses paid by

DPW, then the recipient has, in fact, retained his or her entire chose in action, and

that chose in action does constitute a property interest. Ahlborn, 547 U.S. at 285.

Further, in a practical sense, the lien does not, and can not, attach until a settlement

is reached, at which point the settlement proceeds are clearly in the possession of


34

the medical assistance recipient, and are clearly property. See, Ahlborn, 547 U.S.

at 285-86.

Further, as the District Court correctly pointed out, under Pennsylvania law,

plaintiffs have retained their right to include within their lawsuits claims relating to

medical expenses paid by DPW. See 62 Pa.C.S. § 1409(b)(5). As such, and as in

Ahlborn, “at all times until judgment [the plaintiffs] retained [their] entire chose in

action – a right that included [their] claims for medical damages. Ahlborn, 547

U.S. at 285.

Further, it is axiomatic that liens are asserted on the property of another. A

lien is defined as “A claim, encumbrance, or charge on property for payment of

some debt, obligation or duty.” BLACK’S LAW DICTIONARY, 923 (6th Ed. 1990).

Implicit in that definition is that the property upon which a lien is asserted against

is the property of another. Simply, there is no need to encumber or make a claim

against one’s own property. To accept the Defendants’ argument that the Plaintiffs

possess no property interest in the medical portion of their claims would

necessarily lead to the conclusion DPW is asserting a lien on its own property.

This argument was soundly rejected by Ahlborn. Ahlborn, 547 U.S. at 286.

(“…lien[s] typically are imposed on property of another…”).

In an attempt to overcome this obvious contradiction, the Defendants

attempt to parse Plaintiffs’ medical claims by arguing that the Plaintiffs maintain


35

only “bare legal title”, and further arguing that “bare legal title” does not afford

Plaintiffs a property right. See Brief of Defendants at pp. 34-35. These bold

contentions are completely unsupported by citation to any authority for this

proposed parsing, rather the Defendants simply state, as if that alone makes the

proposition true, that “the only right that MA recipients have with respect to

assigned medical damages is to the ability to obtain bare legal title.” Defendants’

Brief, at p. 34. The reason for the lack of citation is obvious: the argument

presented by the Defendants in this regard flies directly in face of United States

Supreme Court’s precedent as set forth in Ahlborn.

Lastly, Pennsylvania law is clear that a chose in action is property. In

particular, a chose in action is a type of intangible personal property. Parsowith v.

Com. Dept. of Revenue, 723 A.2d. 659, 662 n.4 (Pa. Commw. Ct. 1999);

Commonwealth v. Sunbury Converting Works 134 A. 438, 440 (Pa. 1926). The

Pennsylvania Superior Court explained this fact in determining whether a two year,

four year, or six year statute of limitations applied in a legal malpractice case in

Garcia v. Community Legal Services, 524 A.2d 980 (Pa. Super. Ct. 1987).

In Garcia, a claim was brought against Community Legal Services for

failing to file suit relative to a claim for damages to a home caused by demolition

in a timely fashion. Garcia, 524 A.2d at 981. In that case, Mrs. Garcia’s home was

damaged by a demolition project in November of 1977. She retained Community


36

Legal Services (CLS) in that regard. However, CLS took no action, and Mrs.

Garcia eventually retained another attorney, who filed suit in April of 1981 on the

theory that a longer statute of limitations applied to the claim. Garcia, 524 A.2d at

981. That claim was rejected, and summary judgment was entered on October 1,

1981. Mrs. Garcia eventually filed a case against CLS, but not until October 6,

1983, outside the two year statute of limitations governing trespass actions. Id.

Mrs. Garcia’s case against CLS was dismissed as untimely by the trial court and

Mrs. Garcia appealed.

The Superior Court, in affirming the grant of summary judgment, reviewed

the language of the two year trespass statute of limitations. In particular, the court

focused on the language mandating that “an action for taking, detaining, or injuring

personal property” must be brought within two years. Garcia, 524 A.2d at 982.

The Court held, that in essence, the injury Mrs. Garcia complained of in her suit

against CLS was injury and damage to her “cause of action against the demolition

company.” Id. at 983. In resolving the issue of whether the two year statute of

limitations applied the court found it critical to determine whether Mrs. Garcia’s

claimed injury to her cause of action was an injury to her personal property. If it

was, the court reasoned, then the two year limitations period applied. Garcia, 524

A.2d at 983.


37

To make that determination, the court simply looked to the definition of

personal property. The court stated:

Personal property is defined as:

Everything that is the subject of ownership, not coming under the determination of real estate. A right or interest in things personal . . . or any right or interest which one has in things movable. The term ‘personal property’ in its broadest legal significance includes everything the subject of ownership not being land or any interest in land, as goods, chattels, money, notes, bonds, stocks and choses in action generally, including intangible property.

Garcia, 524 A.2d at 983, citing BLACK’S LAW DICTIONARY, 1006 (5th Ed. 1979).

Based upon this plain meaning of personal property, and because choses in

action are clearly personal property pursuant to this plain meaning, the court

affirmed the dismissal of Mrs. Garcia’s case. Id. at 984.

The definition of personal property has not changed since the Garcia case,

and as Parsowith, and as legions of other Pennsylvania cases hold, choses in action

are personal property. Because of that fact, the decision of the trial court

determining that the Plaintiffs’ choses of action can not be subject to liens must be

affirmed.

B. Neither Collateral Estoppel nor Res Judicata Impact the Claims of Ms. Tristani.

The doctrine of collateral estoppel, also known as claim preclusion,

"operates to prevent a question of law or issue of fact which has once been litigated


38

and fully determined in a court of competent jurisdiction from being relitigated in a

subsequent suit." Spisak v. Margolis Edelstein, 768 A.2d 874, 876-77 (Pa. Super.

Ct. 2001) (quoting Incollingo v. Maurer, 356, 575 A.2d 939 (Pa. 1990)). The

doctrine requires the satisfaction of four elements:

Collateral estoppel applies when the issue decided in the prior adjudication was identical with the one presented in the later action, there was a final judgment on the merits, the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication, and the party against whom it is asserted has had a full and fair opportunity to litigate the issue in question in the prior adjudication.

In re Iulo, 564 Pa. 205, 766 A.2d 335, 337 (2001) (citing Safeguard Mut. Ins. Co.

v. Williams, 345 A.2d 664, 668 (1975)). The Second Restatement of Judgments

articulates the general rule of issue preclusion as follows: "When an issue of fact or

law is actually litigated and determined by a valid and final judgment, and the

determination is essential to the judgment, the determination is conclusive in a

subsequent action between the parties, whether on the same or a different claim."

Restatement (Second) of Judgments § 27 (1982).

Under Pennsylvania law, for an issue to be "actually litigated" it must be

"properly raised, submitted for determination, and then actually determined." JOHN

J. DVORSKE, 10 STANDARD PENNSYLVANIA PRACTICE 2d §65:98 (citing Com. v.

Holder, 805 A.2d 499 (Pa. 2002)).


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Not all final judgments carry the preclusive effect of res judicata. For

example, in Pennsylvania, "a dismissal, even with prejudice, for failure to

prosecute a claim is not intended to be res judicata of the merits to the

controversy." Municipality of Monroeville v. Liberatore, 736 A.2d 31, 34 (Pa.

Commw. Ct. 1999), app. denied, 751 A.2d 195 (Pa. 2000). See also Hatchigian v.

Koch, 381, 553 A.2d 1018, 1020 (Pa. Super. Court 1989) ("since a non pros is not

a judgment on the merits, it cannot have res judicata effect," and "where plaintiff

has suffered a judgment of non pros, he may later commence a new action between

the selfsame parties and alleging the selfsame cause of action so long as the second

action is commenced within the applicable statute of limitations").

Ms. Tristani was a plaintiff in a medical negligence action pending in

Washington County. It is undisputed that DPW asserted a lien in the amount of

$247,514.98 against the recovery obtained by Ms. Tristani. App. II, p. 193a. DPW

asserted the lien against the “personal injury claim” App. II, pp. 192a-193a, and

not the amount of the “claim” attributable to payment of medical expenses.

In determining whether issue preclusion applies, the Court must first

determine the issue presented before the Court of Common Pleas of Washington

County. The issue presented to the state court was whether a settlement between

Ms. Tristani and the malpractice defendants should be approved. The legality of

DPW’s lien was not an issue raised by the Petition. On the contrary, in the instant


40

action, the issue is whether the lien asserted against that settlement was

unconstitutional. This issue was certainly not raised or litigated in the proceedings

between Ms. Tristani and the medical negligence defendants. Neither Ms.

Richman, Ms. Houston, nor DPW were parties to the medical negligence action.

They filed no pleadings, petitions or motions in the state court action. The legality

of defendants’ conduct was not raised, nor was it an issue in the state court

proceedings.

Assuming, arguendo, that the legality of the lien asserted by DPW was

raised, the issue was not resolved by a “final judgment on the merits”. Clearly,

there was no “final judgment on the merits” with respect to whether the assertion

of a lien against the settlement was constitutional. The issue, assuming it was

raised, was not litigated at all. Under Pennsylvania law, for an issue to be "actually

litigated" it must be "properly raised, submitted for determination, and then

actually determined." JOHN J. DVORSKE, 10 STANDARD PENNSYLVANIA PRACTICE

2d §65:98 (citing Com. v. Holder, 805 A.2d 499 (Pa. 2002)).

Finally, in order for the state court order approving the settlement between

Ms. Tristani and the malpractice defendants to have preclusive effect, there must

have been a finding in the prior order, and that finding must have been necessary

and essential to the “judgment.” "[P]arties should be estopped only on issues they

actually deem important, and not on incidental matters." Lynne Carol Fashions,


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Inc. v. Cranston Print Works Co., 453 F.2d 1177, 1183 (3d Cir. 1972). The only

issue presented to the state court by means of the petition was whether a settlement

agreement entered into between Ms. Tristani and the state court defendants should

be approved. The order approving that settlement delineated the manner in which

the settlement monies were to be distributed, which included payment to DPW of

its lien. The payment to DPW, however, was not “necessary” or “essential” to the

question of whether the settlement between Ms. Tristani and the malpractice

defendants was fair and equitable and should have been approved. The existence,

or nonexistence, of liens and/or subrogation claims are, at best, ancillary to

whether a settlement agreement between parties to a medical negligence action

should be approved. Indeed, trial courts routinely approve third party settlements

while lien disputes remain unresolved. The validity of the lien was not litigated,

there was no determination “on the merits”, and a determination of the validity of

the lien was not necessary nor essential to the approval of the settlement of the

malpractice action. DPW’s argument lacks merit in this regard.

The District Court, in its decision, noted that there are no Pennsylvania cases

that are directly on point. Tristani v. Richman, 609 F.Supp.2d (W.D.Pa. 2009) at

423. The Court, however, did correctly rely upon a decision of the Eastern District

of New York, Green v. City of New York, 438 F.Supp.2d 111 (E.D.N.Y. 2006), on

a substantially similar set of facts. In Green, MA recipients had paid the New


42

York equivalent of DPW sums pursuant to court approved settlements. Once the

settlements were approved, the Green plaintiffs alleged that the New York agency

had overcharged, and sought return of the moneys paid. The New York agency, in

defending against the action raised the defense of res judicata. Green, 438 F.Supp.

2d at 115-118, 121. In rejecting that defense, the Green court found a lack of

privity between the parties dispositive. The court found held that the New York

agency was not a party to the underlying tort action, the New York agency had no

control over any of the defendants in the tort actions, and the New York agency’s

interests were actually adverse to the interests of the tort defendants. Green, 438

F.Supp.2d at 121-122.

As the District Court held, the circumstances leading to the conclusion that

privity was lacking in Green are also present here. In other words, DPW was not a

party to Ms. Tristani’s tort action, DPW had no control over the defendants sued

by Ms. Tristani in Washington County, and DPW’s interests were contrary to those

of the Washington County tort defendants. Tristani v. Richman, 609 F.Supp.2d

(W.D.Pa. 2009) 450.

In light of the foregoing, the District Court was correct in concluding that

neither res judicata nor collateral estoppel prevented Ms. Tristani’s claims from

moving forward.

C. The “Voluntary Payment Doctrine” Does Not Preclude Recovery.


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Generally speaking, the voluntary payment doctrine bars recovery where a

party makes a voluntary payment with knowledge of all relevant facts, and then

sues to recover that payment regardless of any initial legal liability. However, the

doctrine is inapplicable when the defendant is alleged to have violated a statutorily

defined public policy, Jackson v. Novastar Mortgage, 2007 U.S. Dist. LEXIS

93584 (WD Tenn. 2007), where payments were made under duress. Elmdale Dev.,

LLC v. City of Des Plaines, 2005 U.S. Dist. LEXIS 16967 (ND Ill. 2005), or

where a party was under a mistaken impression with regard to the law. Doran v.

Missouri Department of Social Services, 2008 U.S. Dist. LEXIS 66772 at *19-20.

The Defendants admit that Tristani’s counsel was advised, “As the attorney

for a recipient of medical assistance, you have certain statutory obligations.” App.

III, p. 390a. One such obligation was, “…you are required to assure satisfaction of

the Department’s claim before making any payment or distribution to yourself or

your client.” App. III, p. 390a. Counsel was then advised, “…the law now provides

serious penalties if you fail to comply with the foregoing responsibilities. These

penalties include criminal prosecution, civil liability, and the assessment of a

$1,000.00 civil money penalty,” in the event that the alleged lien was not paid.

App. III, p. 390a.

In addition to giving rise to a question of fact on the issue of duress, the

above referenced facts shows that DPW, by and through the Defendants either


44

affirmatively misrepresented the state of the law, or was itself mistaken about the

state of the law. In either case, the doctrine of voluntary payment would not apply.

See Doran, supra.

In fact, the District Court correctly determined that “it is undisputed that

Tristani and Valenta were unaware of the protections that they enjoyed under the

anti-lien and anti-recovery provisions.” Tristani v. Richman, 609 F.Supp.2d

(W.D.Pa. 2009) 480 n.21. As such, and in reliance on Doran, the District Court

correctly ruled that the voluntary doctrine was not applicable. That decision

should be affirmed.

D. The Capitation Fee Issue was Properly Decided.

The Defendants take issue with the fact that District Court, in issuing its

Opinion in this matter evaluated the capitation fee issue pursuant to Pennsylvania

State law. The District Court conducted an in depth analysis of §1409(b)(7), as it

was written prior to July 7, 2005, in order to determine whether DPW was correct

in its contention that it was entitled to seek reimbursement beyond capitated fees

that it paid on behalf of Medical Assistance recipients who were enrolled in a

Managed Care Organization (MCO).5

5 Section 1409(b)(7)(i) provided, in pertinent part:

(7) In the event of judgment or award in a suit or a claim against such third party or insurer: (i) If the action is prosecuted by the beneficiary alone, the court or agency shall first order paid from any judgment or award the reasonable


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The District Court ultimately determined that pursuant to the terms of

§1409(b)(7) DPW was not entitled to recover anything more than capitated

payments. See Tristani, 609 F.Supp.2d at 452-53. Importantly, the Defendants do

not challenge the rationale of the District Court in this regard, and do not argue

contrary to the District Court’s reasoning. Instead, they argue that the District

Court should not have reached this issue because neither Ms. Tristani or Mr.

Valenta have standing to make the capitated fee argument. Indeed in its Opinion,

the District Court acknowledged that “outstanding issues remain concerning

whether Tristani and Valenta have standing to seek injunctive relief and

declaratory relief…” and indicated that without additional briefing by the parties

that it was “disinclined to address these outstanding issues at this time.” Tristani,

609 F.Supp.2d at 488.6

litigation expenses, as determined by such court, incurred in the preparation and prosecution of such action or claim, together with the reasonable attorney’s fees, when an attorney has been retained. After payment of such expenses and attorney’s fees the court or agency shall, allow as a first lien against the amount of such judgment or award, the amount of the department’s expenditures for the benefit of the beneficiary….

6 In their 2nd Amended Complaint, the Plaintiffs asked for a specific declaration that:

Assuming that Section 1409(b)(7)(iii) of the Public Welfare Code, 62 P.S. § 101, et seq., is constitutional, a declaration that Section 1409(b)(7)(iii) limits the amount that the Defendants may recover from the Plaintiffs and the proposed Class to the amount of capitated payments that were paid on their behalf. App. II, p. 154a.


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That disinclination was reflected in the District Court’s Order dated March

25, 2005, which stated in part “IT IS HEREBY ORDERED that defendants’

motion for summary judgment is GRANTED except with respect to whether the

named plaintiffs have standing to seek declaratory or injunctive relief….” App. I,

p. 102a.

However, the issue of standing was later resolved by the addition of Plaintiff

A.H. Indeed, the Order at issue in this appeal specifically states as follows:

1. [A.H], individually and as parent and natural guardian of [A.H], a minor, is joined as a named party plaintiff, and it is determined that she presently has standing to sue for declaratory and injunctive relief in this matter.

2. This Court’s Order of March 25, 2009 is amended to deny Defendants’ motion for summary judgment on the issue of the validity of 62 P.S. §1409(b)(7), in accordance with this Court’s opinion dated March 25, 2009. In all other respects, the Court’s order of March 25, 2009 shall remain unchanged.

….

App. I, pp. 4a-5a. Importantly, the defendants raised no objections to the entry of this Order,

and in fact, the Order was the product of the parties’ Joint Motion to Add a Party

Plaintiff and Certify Interlocutory Appeal. App. II, pp. 235a-238a.

Accordingly, because the Defendants agreed to the addition of plaintiff

A.H.; did not object to the Court’s conclusion that plaintiff A.H. had standing to

pursue declaratory and injunctive relief; and because Plaintiffs’ 2nd Amended


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Complaint asks for precisely that relief with regard to the capitated fee issue, the

District Court’s denial of the Defendants’ Motion for Summary Judgment in that

regard must be affirmed.

II. PLAINTIFFS’ ARGUMENTS IN SUPPORT OF THEIR CROSS

APPEAL.

A. The District Court erred in holding that the Defendants’ practice of asserting liens for the full amount of medical expenses did not violate Federal Medicaid law.

Although this issue is somewhat mooted by the District Court’s holding that

Federal Medicaid law prevented the Defendants’ from placing any liens on the

third party tort recoveries of Medicaid beneficiaries, it may still be necessary for

this Court to decide this issue for the following two reasons: 1) if this Court

decides to reject the District Court’s interpretation of §§ 1396p(a)(1) and

1396p(b)(1); and, 2) even if the Defendants were not on notice that the liens

violated clearly established federal law, they should have at least realized that liens

which exceeded the amount which could be reasonably allocated to medical

expenses violated clearly established law.

In Arkansas Department of Health and Human Services v. Ahlborn, 547

U.S. 268 (2006), the Arkansas Department of Health and Human Services

attempted to assert a lien for the full amount of money it expended on a Medicaid

recipient’s medical treatment, even though the lien exceeded the amount of money


48

the recipient received for medical treatment in her recovery from a third-party

tortfeasor. Ahlborn, 547 U.S. at 272-74. The Court held that this conduct violated

the provisions of the Social Security Act. Id. at 292.

In reaching this conclusion, the Court focused on the clear and precise

language contained in the following provisions: 42 U.S.C. § 1396a(a)(25)(B), 42 §

1396a(a)(25)(H), §3396k(a), and §1396k(b). The Court found that these

provisions expressly limited the amount of money the State was entitled to recover

to “that portion of a settlement that represents payments for medical care.”

Ahlborn, 547 U.S. at 282.

It is undisputed that at least until September 8, 2007, the Pennsylvania

Department of Public Welfare made no efforts to reduce its lien on the third party

tort recoveries of its beneficiaries to reflect the amount of the recovery which was

intended to represent “payments for medical care.” App. III, p. 341a The

Plaintiffs contend that this practice was a clear violation of federal law.

In rejecting the Plaintiffs’ arguments, the District Court relied upon two

distinctions between the applicable Pennsylvania law and the Arkansas law at issue

in Ahlborn. Tristani at 463-66. Neither of these differences is compelling.

First, the District Court observed that the Arkansas law permitted Health &

Human Services to assert a lien for the full amount of medical services rendered,

even if that amount consumed the entire recovery, whereas the Pennsylvania law


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which was in effect prior to September 8, 2007 capped the Department of Public

Welfare’s lien at “one-half” of the beneficiary’s recovery after deducting for

“attorney’s fees, litigation costs, and medical expenses relating to the injury paid

for by the beneficiary.” 62 PA. STAT. ANN. § 1409(b)(11). However, this is a

distinction without an appreciable legal difference. While the Pennsylvania

practice may have been less harsh than the Arkansas practice in some cases, but

both were likely to result in recoveries by the state that far exceeded that permitted

by federal Medicaid law.

Imagine the (unfortunately common) example of a young woman who is

paralyzed by a drunk driver who has only $100,000.00 in insurance proceeds

available to satisfy her claim. She is forced to drastically compromise the value of

her claim in order to account for the insufficient insurance coverage. Everyone

will agree that the medical portion of her claim, while quite substantial, is only a

fraction of the total value. In Arkansas, this woman would have received nothing,

while in Pennsylvania, she would have received around $30,000 after a reduction

for fees, costs, and the satisfaction of DPW lien. Granted, the Pennsylvania system

may be less draconian, but it still violates federal law.

The District Court offered no rationale for why the Pennsylvania 50 percent

cap complied with federal law, but the Arkansas “full satisfaction” practice did not.

What if a state would have set its cap at 60, 75 or even 90 percent? The point is


50

none of these caps attempts to do what federal law requires, namely limit the lien

to that portion of the recovery which is reasonably allocated to medical expenses.

If a state’s practice fails to do this, it is unlawful, even if it set its cap at 5 percent.

If this requires a judicial determination by a trial court, than so be it, such

determinations are made routinely. In practice, counsel for the beneficiary and the

state would negotiate a resolution in the vast majority of situations.

The second difference noted by the court was that the Plaintiffs’

Pennsylvania settlements were unallocated, whereas the recovery in Ahlborn

specifically designated what portion of the settlement reasonably represented

payment for medical expenses. Tristani at 465. Again, this distinction is illusory.

While Pennsylvania has adopted the “made-whole” rule, this rule applies whether a

settlement is allocated or not. Plaintiffs certainly cannot end-around this rule by

allocating their settlements. Thus, the fact that the Plaintiffs’ settlements were

unallocated and the Arkansas recovery was allocated, cannot be determinative of

this issue.

The absurdity of this result is self-evident. DPW would not be required to

reduce its liens (even by the 50 percent cap) on any settlement, it could just come

in and enforce its full lien. This would make it next to impossible to settle many

cases, and plaintiffs would be forced to try their claims just to get a judicial

allocation. Certainly, this was not the system envisioned by Congress.


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Imagine the results if this Court overturned the District Court’s ruling that

DPW could not assert a lien on third party tort recoveries, but upheld its decision

that all settling plaintiffs are made whole under Pennsylvania law. Such a result

would make a mockery of Congress’s clear intent, and it would be open season for

the Pennsylvania DPW, and every other state which has adopted the made whole

rule.

Further, as observed by the Supreme Court in Ahlborn, it is clear that

Arkansas attempted to specifically override equitable subrogation principles with

respect to its Medicaid liens. Ahlborn at 279. This would also be an operation of

state law. Certainly, if Pennsylvania has the right to determine that any settling

plaintiff is “made whole” by their settlement, Arkansas would also have the right

to decide that any settling plaintiff is “made whole” with respect to its ability to

assert a Medicaid lien. However, the Supreme Court expressly rejected its ability

to do so, and thus this Court must similarly reject Pennsylvania’s attempts to apply

this rule to the third party tort recoveries of its beneficiaries. It is a simple matter

of preemption. The Arkansas statute squarely conflicted with Congress’s clearly

expressed intent that a participating state’s right to recover be limited to that

amount reasonably allocated to medical expenditures, and, to the extent the

Pennsylvania law conflicts with this intent, it must similarly yield.


52

B. The District Court erred in holding that the Defendants were entitled to Qualified Immunity.

The District Court erred in holding that the individual Defendants were

entitled to qualified immunity on Plaintiffs’ claims that their conduct violated §§

1396p(a)(1) and 1396p(b)(1). It must be emphasized that this case does not

involve claims for monetary damages in the strictest sense. The Plaintiffs are not

seeking monetary damages to compensate them for some alleged injury, nor are

they seeking to penalize the Defendants for their wrong doing, the Plaintiffs are

merely seeking a return of the specific monies which were wrongfully taken from

them. This is simply restitution, and is therefore not subject to a defense of

qualified immunity.

It has long been the law that while the doctrine of qualified immunity

protects state officials from claims for monetary damages, it does not protect them

from claims seeking equitable relief. Wood v. Strickland, 420 U.S. 308, 314-315,

n.6 (1975). Regrettably, many courts fail to recognize the distinction between a

claim for “money damages” and a claim which merely seeks the specific return of

improperly seized money, but this distinction has been explicitly acknowledged by

no lesser authority than the United States Supreme Court.

In Bowen v. Massachusetts, 487 U.S. 879, 893 (1988), the Court explained

this distinction as follows:


53

Our cases have long recognized the distinction between an action at law for damages – which are intended to provide a victim with monetary compensation for an injury to his person, property, or reputation – and an equitable action for specific relief – which may include an order for the reinstatement of an employee with backpay, or for “the recovery of specific property or monies, ejectment from land, or an injunction either directing or retraining the defendant officer’s actions.” Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457, 1460, 93 L.Ed. 1628 (1949)(emphasis added). The fact that a judicial remedy may require one party to pay money to another is not sufficient reason to characterize the relief as “money damages.”

Further, this distinction is not some esoteric legal principle confined only to the

Bowen decision and a few others; it has been consistently recognized and applied

by the highest courts in this land. The 8th Circuit enunciated the distinction and its

workings in greater detail in the case of Hopkins v. Saunders, 199 F.3d 968, 977,

(8th Cir. 1999) cert. denied 2000 U.S. LEXIS 5868, explaining:

The fact that a remedy may require one party to pay money to another is not a sufficient reason to characterize the remedy as “legal relief”. Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 570, 108 L.Ed. 2d 519, 110 S. Ct. 1339 (1990); see also Bowen v. Massachusetts, 487 U.S. 879, 894, 101 L.Ed. 2d 749, 108 S. Ct. 2722 (1988). However, because money damages was the traditional form of relief offered in the courts of law, “federal law has consistently held that money damages are generally characterized as a legal remedy.” Kampa v. White Consolidated Indus., Inc. 115 F.3d 585, 586 (1997) (citing Terry, 494 U.S. at 570). Accordingly, a monetary award will be characterized as equitable only if it possesses one of the two fundamental attributes of an equitable remedy. Terry, 494 U.S. at 570; see also Cass County Music Co. v. C.H.L.R., Inc., 88 F.3d 635, 642 (8th Cir. 1996)


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First, a monetary award may be an equitable remedy if the award is “restitutionary” in nature, “such as in actions for disgorgement of improper profits.” Terry, 494 U.S. at 570 (citations omitted); see also Cass County, 88 F.3d at 642….. Second, a monetary award may be deemed an equitable remedy if the award is “incident to or intertwined with injunctive relief.” Terry, 494 U.S. at 571.

The District Court for the Western District of Missouri very recently rejected

the qualified immunity defense in a case where, like here, the plaintiffs were

seeking to recover from welfare officials the monies that were taken from their

worker’s compensation recoveries. In Doran v. Missouri Department of Social

Services, 2008 U.S. Dist. LEXIS 1418 (W.D. Mo. 2008), the plaintiffs sued the

Missouri Department of Social Services alleging that the Department was

improperly asserting liens, and improperly taking money from the plaintiffs’

worker’s compensation recoveries. The defendants raised qualified immunity, but

the court rejected the defense, holding that qualified immunity was not available

because the remedy that the plaintiffs were seeking – a return of the monies taken

from them – was an equitable remedy. The court noted, “Here, Plaintiffs clearly

want restitution, restoring to them money that was rightfully theirs and putting

them in the position they would have been had the statutes been properly followed.

As a result, qualified immunity does not bar Plaintiffs’ claim for equitable relief

under section 1983.” Doran, 2008 U.S. Dist. LEXIS at p. 13. The remedy here is

the same. Plaintiffs seek restitution of their money that is being held by


55

Defendants. Plaintiffs are not seeking “compensation,” they are seeking the return

of what is theirs.

The District Court held that since an award of damages against the

Defendants in their individual capacities could only be executed against the

personal assets of the Defendants, they are entitled to qualified immunity. Tristani

at 487. The Court further held that an award against the Defendants in their

official capacities is barred by the 11th Amendment. Id. Thus, according to the

District Court’s reasoning, a plaintiff can never seek restitution of specific monies

from a state actor. This result is nothing less than an impermissible rejection of

Supreme Court precedent. Further, it ignores the practical realities of this case.

Pursuant to 71 P.S. § 634, the Defendants would be indemnified by the

Commonwealth for the actions. Thus, this case presents no true risk to either of

the individual Defendants.

Qualified immunity fails for another reason as well, and that is that the

actions of the Defendants were purely ministerial. Government officials are

entitled to qualified immunity for performance of their discretionary duties, but not

for the performance of their ministerial functions. Davis v. Scherer, 468 U.S. 183,

196 n. 14 (1984). Defendants Richman and Houston are not entitled to qualified

immunity in this case because the Plaintiffs’ claims stem from the Defendants’

violation of their ministerial duties as prescribed by federal law. The practice of


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recovering Medicaid medical expenditures is clearly proscribed by federal law.

The Defendants’ own witnesses testified that they do not have any discretion in this

regard. App. III, p. 341a, 384a. Further, qualified immunity is an affirmative

defense, and the burden of proof lies with the Defendants. Harlow v. Fitzgerald,

457 U.S. 800, 818 (1982). In the very least the Defendants must be required to

come forth with some record evidence in support of their defense. The Defendants

in this case have ignored their burden and failed to offer any evidence.

Finally, the District Court erred in holding that the Defendants were entitled to

qualified immunity because the rights which the Plaintiffs are seeking to enforce

were “clearly established” at the time of the Defendants’ wrongful conduct. The

District Court does not provide a detailed discussion of this issue other than to

observe that, in its opinion, “the law concerning the application of Title XIX’s anti-

lien and anti-recovery provisions” was not clearly established. All the District

Court’s Opinion really establishes is that the issue had not yet been litigated.

However, the language of the federal statutes at issue in this case is plain and clear

on its face, thus the Plaintiffs’ rights have been “clearly established” since the

Act’s effective date. The language itself is crystal clear, and not readily

susceptible to any interpretation other than the one employed by the District Court.

One of the statutory provisions is even titled the “anti-lien provision.” Certainly

this was sufficient to put the Defendants on notice that their liens were


57

impermissible. Support for this position can be found in the District Court’s own

discussion of these provisions, in which it refers to them as “unambiguous.”

Tristani at 470. If, as the District Court suggests, this language truly is

unambiguous, than the Defendants cannot attempt to hide behind the shield of

qualified immunity.

CONCLUSION

This Court should hold that Pennsylvania’s assertion of liens on the third-

party tort recoveries of Medicaid beneficiaries violates federal law. This Court

should hold that neither Tristani’s nor Valenta’s claims are barred by the voluntary

payment doctrine. This Court should hold that the trial Court properly decided

state law relative to the capitation fee issue. Finally, this Court should hold that

neither of the individual Defendants is entitled to qualified immunity.

In the alternative, if this Court determines that the assertion of liens is

lawful, it should hold that those liens are limited to the amount expended to enroll

beneficiaries in MCO plans, and that they are limited to that portion of the

recovery which is reasonably allocated to medical expenses.

This Court should direct entry of partial summary judgment in favor of the

Plaintiffs and against the defendants.


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Respectfully submitted,

Aaron D. Rihn, Esquire Robert F. Daley, Esquire Robert Pierce & Associates 707 Grant Street, Suite 2500 Pittsburgh, PA 15219 (412) 281-7220

Patrick J. Loughren, Esquire Loughren, Loughren & Loughren, P.C. 310 Grant Street, Suite 2800 Pittsburgh, PA 15219 (412)232-3530

Veronica A. Richards, Esquire Richards & Richards, LLP 16020 Perry Hwy Warrendale, PA 15086 (724) 940-4340


COMBINED CERTIFICATION OF COMPLIANCE

I, D. Aaron Rihn, do hereby certify:

1. The Brief in this matter complies with the page limitation of Fed. R. App. P. 32(a)(7)(A) because it contains 13,254 words (as determined by Microsoft Word) excluding tables, certifications, and addenda; complies with Rule 32(a)(5)(A) because it uses a 14 point Times New Roman font; and complies with Rule 32(a) because it is double spaced, with required margins on approximate 8.5 by 11.0 inch paper.

2. The electronic version of this Brief is identical to the hard copy of said Brief.

3. The electronic version of this Brief was checked for computer viruses using McAfee AntiVirus prior to transmittal.

4. This Brief was filed electronically on December 14, 2009, with the Office of the Clerk, U.S. Court of Appeals for the Third Circuit, 21400 U.S. Courthouse, 601 Market Street, Philadelphia, PA 19106-1790. Opposing counsel were served electronically via ECF.

5. Ten copies of this Brief were transmitted to the Office of the Clerk via UPS on December 14, 2009.

6. I am a member in good standing of the Court of Appeals for the Third circuit, having been admitted to practice on February 27, 2006.

I hereby certify that the foregoing statements made by me are true. Dated: December 14, 2009 By: /s/ D. Aaron Rihn


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IN THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

RITA L. TRISTANI, by and through her : Attorney in Fact, MARIA C. KARNES, : and JOSHUA C. VALENTA, individually, : and on behalf of others similarly situated, : : Plaintiffs, : : vs. : Nos. 09-3537 and 09-3538 : ESTELLE B. RICHMAN, in both her : individual and official capacity; and : FEATHER HOUSTON, in her : individual capacity, : : Defendants. :

CERTIFICATE OF SERVICE

I certify that I am serving a copy of the foregoing document upon the person

and in the manner indicated below:

Service by electronic mail addressed as follows:

Allen C. Warshaw, Esquire Jason Manne, Esquire

Office of General Counsel Department of Public Welfare

303 State Office Building 300 Liberty Avenue

Pittsburgh, PA 15222


Respectfully submitted,

Aaron D. Rihn, Esquire Robert F. Daley, Esquire Robert Pierce & Associates 707 Grant Street, Suite 2500 Pittsburgh, PA 15219 (412) 281-7220

Patrick J. Loughren, Esquire Loughren, Loughren & Loughren, P.C. 310 Grant Street, Suite 2800 Pittsburgh, PA 15219 (412)232-3530

Veronica A. Richards, Esquire Richards & Richards, LLP 16020 Perry Hwy Warrendale, PA 15086 (724) 940-4340


Final First Brief Before 3rd Circuit

Documents

Transcript of Final First Brief Before 3rd Circuit