The opinion of the court was delivered by: ARTHUR D. SPATT
The plaintiff, David Frerks ("Frerks"), is a mentally handicapped twenty-four year old whose parents have been appointed as his guardians by the Nassau County Surrogate's Court. In 1988 and 1990 respectively, Frerks was denied eligibility for Supplemental Security Income ("SSI") by the United States Secretary of Health and Human Services ("Secretary"), and Medicaid by the New York State Commissioner of Social Services ("Commissioner"). The ground for the eligibility denials was that a medical malpractice settlement received by the plaintiff and held in a guardianship account ordered by the Surrogate's Court was determined by the agencies to be a "resource" available to the plaintiff. By counting the value of the settlement as a resource available to him, the plaintiff exceeded the resource limit for eligibility in these programs set by federal and state statutes. Accordingly, he was disqualified from receiving benefits.
As a result of these eligibility denials, the plaintiff initiated this action for judicial review of the Secretary's actions pursuant to 42 U.S.C. § 405(g). The plaintiff also seeks relief against the Commissioner, based on the allegation that the New York State Department of Social Services ("NYDSS") failed to follow federal and state laws when it denied the plaintiff Medicaid eligibility and additional state funds that supplement SSI payments.
The Secretary and Commissioner move to dismiss the Complaint. The defendant Secretary moves pursuant to Fed. R. Civ. P. 12(c) for a judgment on the pleadings, on the ground that the Secretary's decision to deny the plaintiff SSI is supported by substantial evidence in the record. The defendant Commissioner moves to dismiss the complaint against him pursuant to Fed. R. Civ. P. 12(b), on the grounds of lack of subject matter jurisdiction, failure to state a claim, and failure to join a necessary party to the action, or in the alternative, for summary judgment.
STATUTORY AND REGULATORY FRAMEWORK
The federal Supplemental Security Income program, 42 U.S.C. § 1381 et seq., provides non-medical cash assistance to aged, blind or disabled persons. Under the statute, an aged, blind or disabled person is eligible for SSI if either their monthly income or overall available resources do not exceed certain maximum amounts set forth in the statute and regulations. See 42 U.S.C. § 1382, and 20 C.F.R. § 416 subparts D and K (setting forth criteria for income limits) and 20 C.F.R. § 416.1205 (resource limits). In 1988, the year Frerks was denied eligibility, the maximum amount of resources a disabled individual not residing with a spouse could have available was $ 1,900. See 42 U.S.C. § 1382(a)(1)(B)(ii), and 20 C.F.R. § 416.1205. If the Department of Health and Human Services ("HHS") determines that either of an individual's available resources or monthly income exceed the prescribed limits, he or she is ineligible for SSI.
The statute does not define the terms "income" or "resource." Instead, the definition of these terms is provided in the regulations promulgated under the statute. With respect to the definition of a "resource," 42 C.F.R. § 410.1201 discusses resources generally, and gives the following definition:
(a) Resources; defined. Resources means cash or other liquid assets . . . that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.
(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.
The regulation goes on to specifically define liquid and nonliquid resources that an individual owns or could convert to cash in order to use for his or her support and maintenance:
(b) Liquid Resources. Liquid resources are cash or other property which can be converted to cash within 20 days . . . . Examples of resources that are ordinarily liquid are stocks, bonds, mutual funds shares, promissory notes, mortgages, life insurance policies, bank accounts (savings and checking), certificates of deposit and similar items.
(c) Nonliquid Resources. (1) Nonliquid resources are property which is not converted to cash within 20 days . . . . Examples of resources that are ordinarily nonliquid are loan agreements, household goods, auto mobiles, trucks, tractors, boats, machinery, livestock, building and land.
42 C.F.R. § 410.1201(b) and (c).
The NYDSS provides Optional State Supplement ("OSS") payments to SSI recipients as well. Through OSS, also known as "supplemental assistance" and "additional state payments," a state provides additional aid to SSI recipients and to those who do not meet the eligibility standards for SSI. See 42 U.S.C. § 1382e, and New York State Social Services Law § 207 et seq. Although OSS assistance comes almost exclusively from state funds, the federal statute provides that, at a state's request, the federal government will administer the OSS assistance. See generally Oklahoma v. Schweiker, 210 U.S. App. D.C. 288, 655 F.2d 401, 404 (D.C.Cir. 1981).
New York State has entered into an agreement with the HHS, whereby HHS administers the OSS payments and determines the eligibility of individuals for such payments. See New York State Social Services Law § 211(1); Casey v. New York State Department of Social Services, 56 A.D.2d 72, 391 N.Y.S.2d 173, 176 (2d Dept. 1977).
In addition to SSI, the federal Medicaid program, 42 U.S.C. § 1396 et seq., provides medical assistance to those who lack sufficient income and resources to pay for health care. Medicaid is also a joint federal-state program. In order for a state to participate in the Medicaid program, it must create a state plan that complies with the requirements of the federal statute and regulations. See Himes v. Sullivan, 779 F. Supp. 258, 259 (W.D.N.Y. 1991), aff'd without opinion 956 F.2d 1159 (2d Cir. 1992).
1. Background With Respect to Secretary's Denial of SSI Benefits.
According to the pleadings, which include the Administrative Transcript of the SSI benefits eligibility determination, the following chronology summarizes the events that transpired with respect to the Secretary's denial of the plaintiff's SSI eligibility.
The plaintiff's parents applied for SSI benefits on their son's behalf on June 1, 1988. On June 29, 1988 the plaintiff was approved for SSI benefits, and began receiving SSI and Medicaid benefits.
Surrogate Raymond Radigan of the Nassau County Surrogate's Court appointed the plaintiff's parents as his co-guardians on June 8, 1988. The order appointing them as guardians stated that they could not collect or dispose of their son's property "without further order" of the Surrogate's Court.
On September 15, 1988 Frerks received a settlement in a medical malpractice case, and received $ 333,333 net of the contingent attorney's fee. Pursuant to the Compromise Order approving the settlement dated September 15, 1988 and filed in Nassau County Supreme Court, no withdrawals could be made from the settlement amount without further order of the Surrogate's Court. Frerks's parents notified the HHS and NYDSS of the tort settlement on October 3, 1988.
Frerks's settlement amount was placed into four court-approved bank accounts ("guardianship accounts"). A letter explaining the policy with respect to withdrawals from these accounts was sent to HHS by the Surrogate's Court in April, 1990. The letter stated in part:
The guardian must apply to the court for an order to withdraw funds. All funds are held in joint control and cannot be withdrawn without a court order. The court will only release funds held in guardianship accounts that the court deems necessary for the support, education and medical needs of the respondent.
Frerks's parents were allowed a $ 700 disbursement per month from one of the guardianship accounts to pay for the support and education of their son.
On March 16, 1990 HHS notified the plaintiff that his SSI benefits were being terminated because of excess resources as of October 1988, and HHS would seek retroactive recovery of benefit payments made since October 1988. Frerks's parents appealed for a reconsideration of the decision to the local Social Security office on March 29, 1990. The ground for the appeal was that Frerks's parents did not have access to the guardianship accounts, as all withdrawals had to be court approved.
On reconsideration, the local Social Security office affirmed the decision to terminate the benefits, stating that the bank accounts could be accessed, and thus were considered a resource available to the plaintiff.
On May 6, 1990, Frerks's parents appealed the reconsideration determination, and requested a hearing before an administrative law judge ("ALJ"). ALJ L. Charles Leonard affirmed the termination of Frerks's SSI benefits on August 23, 1990. In his decision, the ALJ stated:
The record shows that the settlement funds . . . cannot be withdrawn without a court order. While the court does not always approve every request for withdrawal, it will release funds held in guardianship accounts that it deems necessary for the support, education and medical needs of [Frerks's].
Under the foregoing facts, I am constrained to find that the settlement funds were available to the claimant for his support and maintenance[.]
The ALJ decided, however, that retroactive recovery by HHS of benefit payments paid to Frerks was not warranted.
The ALJ's decision was appealed to the Secretary's Appeals Council on September 13, 1990. On March 27, 1991 the Appeals Council affirmed the decision of the ALJ, holding that the evidentiary record supported the ALJ's decision that the guardianship accounts were resources available to the plaintiff.
2. Background With Respect to Commissioner's Denial of Medicaid Benefits.
On October 25, 1990, the Nassau County Department of Social Services ("NDCSS") discontinued Medicaid payments to the plaintiff. The reason for the discontinuance was that the plaintiff's non-exempt resources exceeded the medical exemption allowance prescribed for a family of one under the state Medical Assistance program. A fair hearing was held on November 8, 1991 before the Commissioner's designee with respect to the NCDSS's denial of Medicaid benefits to Frerks.
The Commissioner's designee affirmed the decision denying eligibility on December 20, 1991. The designee found that the plaintiff's non-exempt resources exceeded the $ 3,350 Medical Assistance resource exemption for a household of one, because the funds from Frerks's medical malpractice settlement were available to Frerks, albeit upon application to the Surrogate's Court.
While an appeal of the fair hearing decision to the Commissioner was pending, the plaintiff also petitioned the Surrogate's Court for leave to transfer the assets in the guardianship accounts to a Supplement Needs Trust Fund ("SNT"), thereby making the funds unavailable for purposes of Medicaid eligibility. Surrogate Radigan denied the petition on August 7, 1992, on the ground that such a trust would contravene the spirit and intent of the Medicaid laws by shielding resources that are above the eligibility limits. See In the ...