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Hillspring Health Care Center, LLC v. Dungey

United States District Court, S.D. Ohio, Western Division

January 4, 2018

CYNTHIA C. DUNGEY, et al., Defendants.



         This civil matter is before the Court on the Motion to Dismiss of Defendants Cynthia C. Dungey, Director of the Ohio Department of Job and Family Services (“ODJFS”), and Barbara Sears, Director of the Ohio Department of Medicaid (“ODM”) (collectively, “Defendants”). (Doc. 10). Plaintiff Hillspring Health Care Center, LLC (“Plaintiff” or “Hillspring”) has filed a response in opposition (Doc. 11), and Defendants have filed a reply (Doc. 14). The parties also have submitted supplemental authority in support of these briefings. (Docs. 17, 19, 21, 23, and 29). For the reasons that follow, Defendant's Motion to Dismiss is GRANTED.

         I. Background and Factual Allegations

         This case centers on the denial of Medicaid benefits to Barbara Graham (“Graham”), now deceased, based upon a finding that her life insurance policy was a countable resource that placed her above the financial threshold for eligibility.

         Graham was an elderly woman who suffered from numerous medical conditions that required 24-hour care and assistance. (Doc. 3, Page Id. 23). She was admitted to Hillspring, an Ohio skilled nursing facility, on October 5, 2013. (Id., Page Id. 22-23). Upon her admission, Graham executed an Admission Agreement and Assignment with Hillspring that is alleged to make Hillspring an intended third-party beneficiary of Graham's Medicaid benefits. (Id., Page Id. 23). On February 3, 2014, Graham submitted an application for a Medicaid Nursing Home Vendor Payment. (Id.). Graham owned a $10, 000 life insurance policy that is central to the issues raised herein. (Id.). Graham is alleged to have lacked the mental and physical capacity to act on her own behalf to convert that life insurance policy to a cash value. (Id.).

         At the time of Plaintiff's Medicaid application, Ohio applicants with countable resources in excess of $1, 500 were ineligible for benefits for nursing home services. Ohio Admin. Code § 5160:1-3-05(B)(11)(a), (C) (eff. 10-1-13).[1] “Resources” included, inter alia, life insurance policies that “an individual . . . has an ownership interest in, has the legal ability to access in order to convert to cash (if not already cash), and is not legally prohibited from using for support and maintenance.” Ohio Admin. Code § 5160:1-3-05(B)(8), (B)(10). Such policies could not be a resource, however, “if the individual lack[ed] the legal ability to access funds for spending or to convert noncash property into cash.” Ohio Admin. Code § 5160:1-3-05(B)(10)(a).[2] “Countable resources” meant those resources remaining after all exemptions were applied. Ohio Admin. Code § 5160:1-3-05. A life insurance policy generally was not exempt if the total cash surrender value for an individual exceeded $1, 500. Ohio Admin. Code § 5160:1-3-30.[3] However, a life insurance policy could be excluded if the Medicaid applicant or recipient would be unable to surrender the policy for cash value due to a lack of required consent from another person or if another person would be entitled to receive all of the proceeds of the policy. Ohio Admin. Code § 5160:1-3-05(E).

         Graham passed away on February 14, 2014. (Doc. 3, Page Id. 23). Defendants denied payment under Medicaid on April 22, 2014 upon a finding that Graham was over-resources. (Id.).

         After denial of Graham's Medicaid application, Plaintiff requested a state hearing by ODJFS to challenge the determination that Graham's life insurance policy was a countable resource. (Doc. 10, Page Id. 97-102).[4] According to the state hearing decision, Plaintiff's position was “that the policy had been assigned to the funeral home and was therefore an exempt resource.” (Id., Page Id. 99). The hearing officer concluded that the evidence submitted did not demonstrate that the life insurance policy was irrevocably assigned to the funeral home. (Id., Page Id. 99-100). The hearing officer therefore deemed the life insurance policy a countable resource, and affirmed the denial of Graham's Medicaid application. (Id., Page Id. 100).

         Plaintiff appealed the state hearing officer's decision to the ODJFS's Administrative Appeal Section. (Doc. 10, Page Id. 103-05). In that appeal, Plaintiff argued “that there was no evidence that [Graham's] son was her power of attorney and could access the value of the life insurance policy” and that “even if [Graham's] son was her financial power of attorney, the son could not immediately liquidate the insurance policy to access the money.” (Doc. 10, Page Id. 104). The appeal officer concluded that the “rule provides that [a] life insurance policy is considered an available resource and there is no provision for the amount of time it takes to liquidate the policy.” (Id.). Given that the value of the life insurance policy exceeded the Medicaid resource limit and was not otherwise exempt, the appeal officer affirmed the decision of the state hearing officer. (Id.).

         Plaintiff then appealed the decision of the administrative tribunal to the Court of Common Pleas for Warren County, Ohio. (Doc. 10, Page Id. 106-15).[5] In that appeal, Plaintiff argued “there is insufficient evidence to conclude that Graham had the ability to convert the life insurance policy to cash, either by herself or through an attorney-in-fact; and Graham was in no mental or physical state to complete such a transaction.” (Id., Page Id. 108). The Magistrate determined that “[n]othing in the record indicates that Graham had an irrevocable preneed funeral contract” or that “Graham was incompetent, or otherwise unable to access the life insurance policy to liquidate it.” (Doc. 10, Page Id. 109). The Magistrate further noted that Plaintiff was not arguing that Graham was incompetent when she signed the January 18, 2014 designation of authorized representation. (Id.). As “[t]he only thing that is clearly established by the record is that Graham, at her death, possessed a life insurance policy with a cash surrender value of $6, 460.65, a countable resource in excess of $1, 500[, ]” the Magistrate affirmed the denial of Plaintiff's Medicaid application because she was ineligible for the requested benefits. (Id., Page Id. 109-10). That decision was affirmed by the Common Pleas Court Judge over the objections of Plaintiff on August 16, 2016. (Id., Page Id. 111-15).

         On January 13, 2017, Plaintiff filed the original Complaint in this Court. (Doc. 1). On January 26, 2017, Plaintiff filed its Amended Complaint, asserting seven counts for relief. (Doc. 3). In Count One, Plaintiff requests a declaratory judgment on several grounds. (Id., Page Id. 27-30). In Count Two, Plaintiff alleges Defendants violated the Federal Medicaid Act's medical assistance and nursing facility services mandates, 42 U.S.C. §§ 1396a(a)(10)(A) and 1396d(a)(4)(A), for which it seeks relief under 42 U.S.C. § 1983. (Id., Page Id. 30-31). In Count Three, Plaintiff alleges Defendants violated the Federal Medicaid Act's “reasonable promptness” requirement under 42 U.S.C. § 1396a(a)(8) and 42 C.F.R. § 435.930, for which it seeks relief under 42 U.S.C. § 1983. (Id., Page Id. 31). In Count Four, Plaintiff alleges Defendants violated the Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12132, et seq., by failing to afford Graham public benefits to which she is entitled and by failing to grant her Medicaid benefits as a reasonable accommodation. (Id., Page Id. 32). In Count Five, Plaintiff alleges Defendants violated the Rehabilitation Act of 1973, 29 U.S.C. § 794, by denying Medicaid benefits to Graham. (Id., Page Id. 32-33). In Count Six, Plaintiff alleges Defendants violated Graham's due process and equal protection rights for which it seeks relief under 42 U.S.C. § 1983. (Id., Page Id. 33-34). Finally, in Count Seven, Plaintiff requests injunctive relief that requires Defendants to issue payment of Graham's approved Medicaid benefits. (Id., Page Id. 34).

         II. Standards of Review

         Defendants have moved to dismiss Plaintiff's Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(1), or, alternatively, pursuant to Fed.R.Civ.P. 12(b)(6).

         A. Subject matter jurisdiction under Rule 12(b)(1)

         Motions to dismiss under Rule 12(b)(1) can assert either facial attacks or factual attacks on a court's subject matter jurisdiction. Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990). Where a facial attack on the subject matter jurisdiction alleged by the complaint is made, the moving party merely questions the sufficiency of the pleading. Id. In reviewing such a facial attack, a trial court takes the allegations in the complaint as true. Id. On the other hand, when a court reviews a complaint under a factual attack, no presumptive truthfulness applies to the factual allegations. Id. The court must “weigh the conflicting evidence to arrive at the factual predicate that subject matter jurisdiction exists or does not exist.” Id.

         A motion to dismiss based on subject matter jurisdiction generally must be considered before a motion brought under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Pritchard v. Dent Wizard Int'l Corp., 210 F.R.D. 591, 592 (S.D. Ohio 2002) (citing Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990)) (explaining that a Rule 12(b)(6) challenge becomes moot if the court lacks subject matter jurisdiction).

         B. Failure to state a claim under Rule 12(b)(6)

         A motion to dismiss pursuant to Rule 12(b)(6) operates to test the sufficiency of the claims. The Court is required to construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded factual allegations in the complaint as true. Lewis v. ACB Business Servs., 135 F.3d 389, 405 (6th Cir. 1998). A court, however, will not accept conclusions of law or unwarranted inferences that are presented as factual allegations. Id. A complaint must contain either direct or reasonable inferential allegations that support all material elements necessary to sustain a recovery under some viable legal theory. Id. at 406. “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and alterations omitted). Factual allegations therefore “must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted).

         III. Analysis

         Defendants contend that dismissal of Plaintiff's Amended Complaint is appropriate on multiple grounds under both Rule 12(b)(1) and Rule 12(b)(6). In the interests of judicial economy, the Court will not reach the arguments on the merits because dismissal of Plaintiff's Amended Complaint is appropriate on multiple procedural grounds.

         A. Plaintiff's claims are moot.

         Mootness is a threshold issue because the existence of a live case or controversy is a constitutional prerequisite to federal court jurisdiction. Kentucky v. United States, 759 F.3d 588, 595 (6th Cir. 2014). “When-for whatever reason-the dispute discontinues or we are no longer able to grant meaningful relief to the prevailing party, the action is moot, and we must dismiss for lack of jurisdiction.” Id. (quoting United States v. Blewett, 746 F.3d 647, 661 (6th Cir. 2013)) (internal quotations omitted). “Ordinarily, one would expect that the death of a plaintiff requires dismissal of a case for mootness, since that plaintiff is no longer in a position to have [her] injury redressed by the courts.” Allen v. Mansour, 928 F.2d 404, 1991 WL 37832, at *1 (6th Cir. 1991) (unpublished table decision). “Mootness applies also to situations where, as here, the plaintiff seeks a declaratory judgment invalidating or modifying a state policy, since death prevents the plaintiff from benefitting in any way from the requested relief.” Allen, 1991 WL 37832, at *1 (citing Rhodes v. Stewart, 488 U.S. 1 (1988)). It further applies to declaratory and injunctive relief regarding an individual's eligibility for Medicaid. Immel v. Lumpkin, 408 Fed.Appx. 920, 921 (6th Cir. 2010) (holding that the plaintiff “sought only declaratory and injunctive relief regarding her eligibility for Medicaid, and therefore, upon her death, she no longer has a ‘legally cognizable interest in the outcome.'”) (quoting United States v. City of Detroit, 401 F.3d 448, 450 (6th Cir. 2005)); see also Pecha-Weber v. Lake, 700 Fed.Appx. 840, 842 (10th Cir. July 25, 2017) (“This case presents the question of whether a plaintiff's death moots his request for an injunction ordering certain officials of the State of Oklahoma to determine him eligible for Medicaid benefits. We answer yes. The claim for injunctive-that is, prospective-relief is moot because there is no concrete threat of a continuing or repeated injury to the plaintiff-appellant . . . because he is dead. Any harm to [the plaintiff-appellant] lies squarely in the past.”). Nonetheless, a case will not be considered moot if the challenged activity is capable of repetition, yet evading review. Kentucky, 759 F.3d at 595. This exception applies only where the challenged action is in its duration too short to be fully litigated prior to expiration or cessation, and there is a reasonable expectation that the same complaining party will be subject to the same action again. Id.

         Here, the Court agrees with Defendants that the claims asserted by Plaintiff are moot. Graham died on February 14, 2014. She therefore is unable to proceed in this Court on her own behalf to assert her claims either for past or future injuries. Further, the requests for declaratory and injunctive relief seek to invalidate or modify a state policy on Medicaid eligibility determinations relating to a life insurance policy and seek a determination that Graham is eligible for Medicaid benefits.[6] Given that she is deceased, Graham cannot benefit from the requested declaratory or injunctive relief and there is no threat of a continuing or repeated injury to Graham. Graham therefore lacks a legally cognizable interest in the outcome.[7]

         Plaintiff claims, however, that it continues to have a legally cognizable interest in the outcome as the authorized representative of Graham, even though Graham is deceased. As an authorized representative, the permissible scope of Plaintiff's representation of Graham is governed by federal and state regulations. For the reasons discussed below, the Court finds that those regulations do not extend to Plaintiff the authority to maintain a federal lawsuit on Graham's behalf after her death and after a final decision on Graham's Medicaid eligibility has been made.

         Plaintiff relies on the definition of “applicant” in the federal regulations to suggest it may proceed in this federal lawsuit on behalf of Graham after her death. Under 42 C.F.R. § 400.203, “applicant” means:

an individual whose written application for Medicaid has been submitted to the agency determining Medicaid eligibility, but has not received final action. This includes an individual (who need not be alive at the time of application) whose application is submitted through a representative or a person acting responsibly for the individual.

         This definition reflects only that a representative may submit an application for benefits to the agency on behalf of an individual after her death. The individual remains the “applicant.” Further, it does not provide that an entity appointed as an authorized representative is legally entitled to serve as the representative of the individual in any and all matters, including federal court proceedings, after the individual's death or in contravention to threshold constitutional requirements. In fact, the definition places limits on any purported authority of an authorized representative by indicating that an individual remains an “applicant” only until her application has received “final action.” Under Ohio law, the administrative appeal decision is the “final decision” that is binding on the agency unless it is reversed or modified by the state court on appeal. Ohio Rev. Code § 5101.35 (“An administrative appeal decision is the final decision of the department and . . . is binding upon the department and agency, unless it is reversed or modified on appeal to the court of common pleas.”). As Graham's application proceeded through both the administrative and state court of common pleas appeal process, she received a final action on her application as contemplated by the regulation. Therefore, Graham is no longer an applicant under that definition, which terminates any authority the authorized representative arguably may have under that definition to proceed on Graham's behalf following her death.[8]

         Similarly, Plaintiff's reliance on provisions relating to “authorized representatives” under federal and Ohio law does not persuade the Court that Plaintiff has the authority to proceed on Graham's behalf in this lawsuit after Graham's death. Under 42 C.F.R. § 435.923, the following applies to authorized representatives:

(a) The agency must permit applicants and beneficiaries to designate an individual or organization to act responsibly on their behalf in assisting with the individual's application and renewal of eligibility and other ongoing communications with the agency. Such a designation must be in accordance with paragraph (f) of this section, including the applicant's signature, and must be permitted at the time of application and at other times.
(2) Authority for an individual or entity to act on behalf of an applicant or beneficiary accorded under state law, including but not limited to, a court order establishing legal guardianship or a power of attorney, must be treated as a written designation by the applicant or beneficiary of authorized representation.
(b) Applicants and beneficiaries may authorize their representatives to-
(1) Sign an application on the applicant's behalf;
(2) Complete and submit a renewal ...

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