Murchison v. Murchison CA3 ( 2021 )

Filed 1/28/21 Murchison v. Murchison CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
CARRIE MURCHISON, as Trustee, etc., C084936
Plaintiff and Appellant, (Super. Ct. No.
34201500173955PRTRFRC)
v.
OLA MURCHISON et al.,
Defendants and Respondents.
Carrie Murchison (Carrie), as Trustee for the Beulah Murchison Trust (Trust),
appeals from a judgment denying her petition for declaratory relief against the State of
California, Department of Health Care Services (Department).1 The petition seeks a
determination that the Department may not recover costs from the Trust for Medi-Cal
payments made on behalf of Carrie’s late mother, Beulah Murchison (Beulah). In the
1 For clarity, we will refer to members of the Murchison family by their first names.
1
alternative, the petition seeks a determination that Carrie is entitled to a hardship waiver
pursuant to former section 14009.5, subdivision (c)(1) of the Welfare and Institutions
Code.2 We conclude the trial court properly found the Department was entitled to
reimbursement for Beulah’s Medi-Cal expenses. Accordingly, we shall affirm.
I. BACKGROUND
A. The Parties
Beulah died on February 20, 2013. She was survived by nine children, including
Carrie and Ola Murchison (Ola). Ola is not a party to this appeal. Beulah was a
Medicaid beneficiary, having received benefits under California’s Medi-Cal program
beginning in 2004 and ending upon her death at the age of 106.
B. The Trust
Beulah executed the Trust on March 9, 1994. Beulah was the trustee and primary
beneficiary, entitled to the full income and corpus of the trust during her lifetime.
Beulah’s children were named as remainder beneficiaries. The Trust was funded with
two properties purchased by Beulah and her husband in the 1940s, a residence and a café.
Beulah transferred title to the residence and café to the Trust by quitclaim deed on March
9, 1994. The Trust could be revoked in whole or in part at any time.
On April 2, 1996, Beulah wrote a letter to her children asking them to contribute
towards the property taxes and insurance on the residence “to secure [their] rightful
inheritance.”
On April 10, 2002, Beulah executed an untitled document, later denominated
“Declaration of Trust,” changing the trustee from Beulah to three of her children and
allowing the trustees “to start now managing and handling [her] affairs according to [her]
2 Undesignated statutory references are to the Welfare and Institutions Code. References
to former section 14009.5 are to the text of that statute as amended effective October 4,
1995. (Stats. 1995, ch. 548, § 2, pp. 4248-4249.)
2
needs and desires.” On May 28, 2002, Beulah executed a Declaration of Trust amending
the Trust without relevant substantive changes.
On August 1, 2004, Beulah, Carrie, and Ola executed a document entitled
“Agreement” (agreement) to settle litigation between them. As relevant here, the
agreement provides that Carrie was to serve as the successor trustee to the Trust, which
could not be amended or revoked by Beulah without a court order. On November 10,
2005, Beulah again amended the Trust without relevant substantive changes.
The Trust held title to the residence and café from March 9, 1994, until the time of
Beulah’s death nearly 20 years later. By then, the Trust had four beneficiaries: Carrie,
Ola, and their siblings Paul and Mae (together, the beneficiaries).
C. Claim for Reimbursement and Application for Hardship Waiver
The Department received notice of Beulah’s death on or about May 25, 2013. The
Department submitted a claim against Beulah’s estate for reimbursement of medical
expenses in the amount of $315,410 on July 18, 2013. The Department sent a letter
giving notice of the claim to the estate the same day. The letter also gave notice,
pursuant to former section 14009.5, subdivision (c)(1) and California Code of
Regulations, title 22, section 50962, “of the opportunity to request a hardship waiver
within 60 days.” The letter enclosed a copy of a form entitled “Application for Hardship
Waiver,” and explained that an application “may be submitted by any heir who feels that
enforcement of the Department’s claim would cause a substantial hardship.”
The application, in turn, states that: “Submission of this application is necessary
to apply for a waiver of the claim due to substantial hardship.” The application
incorporates six criteria for consideration for a hardship waiver (which are codified in
California Code of Regulations, title 22, section 50963 and set forth in footnote 9 post),
and directs the applicant to “check the criteria . . . that qualifies the applicant for a
hardship waiver.” The application requires that the information provided in the form be
certified under penalty of perjury.
3
Carrie failed to submit an application on behalf of herself or any other beneficiary
within the original 60-day period, which ended on September 16, 2013. On March 19,
2014, the Department agreed to an additional 60 days in which to apply for a hardship
waiver, until May 18, 2014. The Department sent Carrie another copy of the notice of
claim and another copy of the required form.
On May 16, 2014, Carrie, through counsel, submitted a letter purporting to be a
hardship application “for the beneficiaries of the Beulah Murchison Living Trust.”3 The
letter was not on the form required by the Department. The letter acknowledged the
requirement that an application for a hardship waiver “be submitted on a particular form,”
and further acknowledged that none of the criteria used to establish the existence of a
substantial hardship was applicable. Nevertheless, the letter claimed that: “The Trust
beneficiaries have substantially complied with the regulatory factors for a hardship
waiver.”4
The Department informed Carrie by telephone on May 22, 2014, that the letter
was insufficient and could not be processed as an application. Carrie, through counsel,
sent another copy of the letter, with additional documents, on May 29, 2014. The
Department does not appear to have responded to Carrie’s second letter.
3Again, the beneficiaries of the Trust at the time of Beulah’s death were Carrie, Ola,
Paul, and Mae.
4 According to the letter, a hardship waiver was appropriate because: (1) the trust
beneficiaries relied upon receiving shares of the residence and café as part of their
retirement planning and invested time and money to maintain the properties consistent
with that expectation; (2) the trust beneficiaries provided care and financial assistance to
Beulah to delay her admission to a long-term care facility by more than two years; and
(3) the trust beneficiaries needed equity from the residence and café to make necessary
repairs.
4
In the meantime, Ola, acting independently, applied for his own hardship waiver
by submitting a timely application on the required form. Ola’s application was initially
denied, and then granted following an estate hearing before the Department’s Office of
Administrative Hearings and Appeals. As a result, the Department waived Ola’s
proportionate share of the claim, reducing the claim amount to $236,558, with interest.
D. The Petition
Carrie commenced this action by filing the petition January 14, 2015. The petition
asserts numerous causes of action against Ola and the Department. Carrie’s causes of
action against Ola are not presently before us. With respect to the Department, the
petition seeks: (1) a declaration that Carrie, Paul, and Mae’s interests in the Trust had
vested by the time of Beulah’s death; (2) an accounting of medical expenses paid on
Beulah’s behalf; (3) a declaration that Carrie is entitled to a hardship waiver; and (4)
mandamus or injunctive relief prohibiting the Department from seeking reimbursement
from the Trust.5 These causes of action were bifurcated and tried as a bench trial in May
and August 2016.
Sometime before trial, Carrie filed a request for judicial notice of two documents:
(1) the State Medicaid Manual, which is published by the Centers for Medicare Services,
United States Department of Health and Human Services, previously known as the
Health Care Financing Administration (the Manual); and (2) an “Initial Statement of
Reasons,” published by the California Department of Health Care Services. The
Department opposed the request, which was ultimately denied.6
After the close of evidence and submission of post-trial briefs, the trial court
issued a statement of decision in the Department’s favor. As relevant here, the trial court
5The petition alleges that the Trust became irrevocable by June 2006 due to Beulah’s
advancing dementia and resulting lack of capacity.
6 Carrie does not appeal from the order denying the request for judicial notice.
5
found that: (1) Carrie failed to demonstrate that the Trust became irrevocable or the
beneficiaries became vested prior to Beulah’s death; (2) Carrie failed to properly submit a
valid and timely application for hardship waiver; (3) Carrie failed to exhaust her
administrative remedies with respect to any challenges to the hardship waiver criteria; (4)
Carrie failed to exhaust her administrative remedies with respect to any claim that the
Department failed to treat her letters as an application for a hardship waiver; and (5)
neither former section 14009.5, subdivision (c)(1) nor California Code of Regulations,
title 22, section 50963 are preempted or in conflict with federal law. Accordingly, the
trial court denied the petition for declaratory relief against the Department and entered
judgment in the Department’s favor.
This appeal timely followed.
II. DISCUSSION
On appeal, Carrie argues: (1) California’s estate recovery laws (specifically,
former section 14009.5, subdivision (c)(1)) and related regulations (specifically,
California Code of Regulations, title 22, section 50963) are preempted by federal
Medicaid statutes and regulations (specifically, Title 42 United States Code section
1396p(b)(3); hereafter 42 U.S.C. section 1396p(b)(3)); (2) Carrie substantially complied
with the requirements for obtaining a hardship waiver and exhausted her administrative
remedies with respect to the denial of her “application”; (3) the Department’s failure to
respond in writing to Carrie’s letters amounts to a denial of due process; and (4) the
Department is equitably estopped from seeking reimbursement from the Trust.7 We
address these contentions in order.
7 Carrie also argues for the first time on appeal that California Code of Regulations, title
22, section 50963, subdivision (a)(4) (also known as the “caretaker exemption”) violates
her right to equal protection. “In civil cases, constitutional questions not raised in the
trial court are considered waived.” (In re Marriage of S. (1985) 171 Cal.App.3d 738,
745; accord Neil S. v. Mary L. (2011) 199 Cal.App.4th 240, 254 [“ ‘ “Typically,
6
A. Preemption
Carrie acknowledges she does not satisfy any of the specific criteria for
determining whether a “substantial hardship” exists under former section 14009.5,
subdivision (c)(1) and California Code of Regulations, title 22, section 50963. She
argues, however, that former section 14009.5, subdivision (c)(1) and California Code of
Regulations, title 22, section 50963 are preempted by 42 U.S.C. section 1396p(b)(3),
which directs states to waive estate recovery requirements upon a showing of “undue
hardship.” Because our preemption analysis requires an understanding of the relationship
between the federal Medicaid and state Medi-Cal programs, we begin with an overview
of the applicable statutory schemes.
1. Medicaid and Medi-Cal
The federal Medicaid program provides joint federal and state funding of medical
care for individuals who cannot afford to pay their own medical costs. (Arkansas Dept.
of Health and Human Servs. v. Ahlborn (2006) 547 U.S. 268, 275 (Ahlborn); 42 U.S.C. §
1396a et seq. (the Medicaid Act).) “States are not required to participate in Medicaid, but
all of them do.” (Ahlborn, supra, at p. 275.) California participates in the federal
Medicaid program through the California Medical Assistance Program (Medi-Cal) (§
14000 et seq.). (Olszewski v. Scripps (2003) 30 Cal.4th 798, 804 (Olszewski).)
Congress designed the Medicaid program to ensure that states dispense federal
funds in compliance with federal rules. The Medicaid program “offers the States a
bargain: Congress provides federal funds in exchange for the States’ agreement to spend
them in accordance with congressionally imposed conditions.” (Armstrong v.
Exceptional Child Ctr. (2015) 575 U.S. 320, 323 (Armstrong).) As a participant in the
constitutional issues not raised in earlier civil proceedings are waived on appeal” ’ ”].)
We discern no basis for departing from this general rule in the circumstances of this case,
and therefore decline to consider Carrie’s equal protection challenge to the caretaker
exemption.
7
Medicaid program, “the State of California has agreed to abide by certain requirements
imposed by federal law.” (Olszewski, supra, 30 Cal.4th at p. 804.)
The Medicaid Act charges the federal government with crafting baseline eligibility
requirements for recipients and providers, determining covered medical services, and
establishing reimbursement standards for the states. (See 42 U.S.C. § 1396 et seq;
National Federation of Independent Business v. Sebelius (2012) 567 U.S. 519, 541-542.)
Cooperating states then implement the program, agreeing to abide by federal conditions
in return for federal matching funds used for expenses such as provider reimbursements.
(Armstrong, supra, 575 U.S. at p. 323.) State departures from federal requirements
provide grounds for the Secretary of Health and Human Services (Secretary) to withhold
Medicaid funding, either in whole or in part. (See 42 U.S.C. § 1396c.) Even so, the
Medicaid program “ ‘was designed to provide the states with a degree of flexibility in
designing plans that meet their individual needs. [Citation.] As such, states are given
considerable latitude in formulating the terms of their own medical assistance plans.’ ”
(Olszewski, supra, 30 Cal.4th at p. 810.) We are concerned here with the estate recovery
provisions of federal and state law, which are found in section 1396p of the Medicaid Act
and former section 14009.5 of the Medi-Cal Act.
2. Estate Recovery Provisions
“Persons qualify for Medicaid benefits if they are aged, blind, disabled or the
parent of a minor child, and their income and resources are insufficient to meet the costs
of necessary care and services for the child, as measured by specified statutory criteria.
[Citations.] However, because an applicant’s principal residence is excluded as a
countable resource in determining eligibility [citation], some persons who possess
valuable assets are allowed to receive benefits. Congress justified this incongruity by
authorizing “estate recovery,” that is, the recovery of all or a portion of the benefits paid
from the estate of such a beneficiary after his or her death.” (California Advocates for
8
Nursing Home Reform v. Bonta (2003) 106 Cal.App.4th 498, 508, fn. omitted (California
Advocates).)
“Prior to 1993, states were permitted, but not required, to establish estate recovery
programs.” (California Advocates, supra, 106 Cal.App.4th at p. 508.) Faced with rising
healthcare costs, however, Congress amended the Medicaid Act in 1993 to require states
to recover costs from the estates of certain deceased Medicaid recipients. (Id. at p. 509;
see Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66 (Aug. 10, 1993) §
13612, 107 Stat. 312, 627-628 (codified at 42 U.S.C. § 1396p(b)(1).) Federal law now
requires that “each state . . . include in its state plan a provision for making recoveries
from the estates of specified classes of Medicaid recipients.” (California Advocates,
supra, at p. 509; see 42 U.S.C. § 1396p(b)(1).) States that fail to do so risk losing all or
part of their Medicaid funding. (California Advocates, supra, at p. 509; see 42 U.S.C. §
1396c.)
California implements the estate recovery requirement through former section
14009.5, which provides, with limited exceptions, that the Department “shall claim
against the estate of the decedent, or against any recipient of the property of that decedent
by distribution or survival[,] an amount equal to the payments for the health care services
received or the value of the property received by any recipient from the decedent by
distribution or survival, whichever is less.” (Former § 14009.5, subd. (a).)
While federal and state law require estate recoveries in some circumstances, they
prohibit them in others. Estate recovery claims are not permitted before the death of a
surviving spouse (or domestic partner in California), or when the decedent has a
surviving child under the age of 21, or when the decedent has a surviving child who is
blind or disabled as defined by statute. (42 U.S.C. § 1396p(b)(2); former § 14009.5,
subd. (b).) Estate recovery claims are also subject to several exemptions, or waivers by
the Department, including the one relevant to this appeal, the hardship waiver.
9
3. Hardship Waivers
The Medicaid statute directs states to establish procedures and standards for
waiving estate recoveries upon a showing of “undue hardship.” (42 U.S.C. §
1396p(b)(3).) To this end, 42 U.S.C. section 1396p(b)(3)(A) provides: “The State
agency shall establish procedures (in accordance with standards specified by the
Secretary) under which the agency shall waive the application of this subsection [except
in circumstances not relevant here] if such application would work an undue hardship as
determined on the basis of criteria established by the Secretary.” (Emphasis added.)
The Medicaid statute does not define the phrase “undue hardship.” However, a
House Budget Committee Report prepared in connection with the Omnibus Budget
Reconciliation Act commented upon the term, stating that, in establishing criteria for
“undue hardship,” the Secretary “should provide for special consideration of cases in
which the estate subject to recovery is (1) the sole income-producing asset of survivors
(where such income is limited), such as a family farm or other family business, or (2) a
homestead of modest value or (3) other compelling circumstances.” (H.R. Rep. No. 103-
111, 1st Sess., p. 209 (1993), as reprinted in 1993 U.S.C.C.A.N. 378, 536.)
The Centers for Medicare Services has promulgated guidance concerning hardship
waivers in the Manual.8 (West Virginia v. Thompson (4th Cir. 2007) 475 F.3d 204, 208.)
The Manual directs states to “[e]stablish procedures and standards for waiving estate
recoveries when they would cause undue hardship.” (Health Care Fin. Admin., U.S.
Dep’t of Health & Human Servs., State Medicaid Manual 75 § 3810(C) (2001)
(Manual).) The Manual states: “You have flexibility in implementing an undue hardship
8As noted, Carrie has not appealed from the trial court’s denial of her request for judicial
notice of the Manual and Initial Statement of Reasons. We take judicial notice of the
Manual on our own motion. We decline to take judicial notice of the Initial Statement of
Reasons and disregard Carrie’s arguments purportedly supported by that document.
10
provision.” (Ibid.) The Manual refers to the legislative history of the Omnibus Budget
Reconciliation Act for guidance on the meaning of the phrase “undue hardship,” restating
the examples set forth above. (Ibid.) The Manual continues: “[The Health Care
Financing Administration] suggests that you consider the examples listed above in
developing your hardship waiver rules, but does not require you to incorporate these
examples once you have considered whether they are appropriate for determining the
existence of an undue hardship.” (Id., at (C)(1).) The Manual concludes: “In
considering your criteria, you may conclude that an undue hardship does not exist if the
individual created the hardship by resorting to estate planning methods under which the
individual illegally divested assets in order to avoid estate recovery.” (Ibid.)
California’s implementation of the hardship waiver is found in former section
14009.5, subdivision (c)(1), which provides: “The department shall waive its claim, in
whole or in part, if it determines that enforcement of the claim would result in substantial
hardship to other dependents, heirs, or survivors of the individual against whose estate
the claim exists.” The California statute does not define the term “substantial hardship.”
However, California Code of Regulations, title 22, section 50963 identifies six criteria for
determining whether a substantial hardship exists. These criteria are set forth in full in
the footnote below.9
9California Code of Regulations, title 22, section 50963, entitled “Substantial Hardship
Criteria,” provides as follows:
“ (a) The Department shall waive an applicant’s proportionate share of the claim if the
applicant can demonstrate through submission of an Application for Hardship Waiver,
form DHCS 6195 (05/15) and documentation to substantiate hardship, or, if applicable, at
an estate hearing, that enforcement of the Department’s claim would result in substantial
hardship to the applicant. In determining the existence of substantial hardship, the
Department shall waive an applicant’s proportionate share of the claim if one or more of
the following criteria apply:
11
Carrie argues California law authorizing hardship waivers upon a showing of
“substantial hardship” and limiting the circumstances comprising such “substantial
hardship” to six specific criteria conflicts with federal law requiring hardship waivers
upon a showing of “undue hardship,” and stands as an obstacle to a supposed
Congressional objective of making relief from estate recovery laws available where
equitable considerations or “other compelling considerations” demand it. As we shall
discuss, Carrie fails to meet her burden of establishing preemption.
“(1) When allowing the applicant to receive the inheritance from the estate would
enable the applicant to discontinue eligibility for public assistance payments and/or
medical assistance programs; or,
“(2) When the estate property is part of an income-producing business, including a
working farm or ranch, and recovery of medical assistance expenditures would result in
the applicant losing his or her primary source of income; or,
“(3) When an aged, blind, or disabled applicant has continuously lived in the
decedent’s home for at least one year prior to the decedent’s death and continues to reside
there, and is unable to obtain financing to repay the State. The applicant shall apply to
obtain financing, for an amount not to exceed his or her proportionate share of the claim,
from a financial institution as defined in Probate Code Section 40. The applicant shall
provide the Department with a denial letter(s) from the financial institution; or,
“(4) When the applicant provided care to the decedent for two or more years that
prevented or delayed the decedent’s admission to a medical or long-term care institution.
The applicant must have resided in the decedent’s home during the period care was
provided and continue to reside in the decedent’s home. The applicant must provide
written medical substantiation from a licensed health care provider(s), which clearly
indicates that the level and duration of care provided prevented or delayed the decedent
from being placed in a medical or long-term care institution; or,
“(5) When the applicant transferred the property to the decedent for no consideration;
or,
“(6) When equity in the real property is needed by the applicant to make the property
habitable, or to acquire the necessities of life, such as food, clothing, shelter or medical
care.”
12
4. Preemption Principles and Standard of Review
“ ‘ “The supremacy clause of the United States Constitution establishes a
constitutional choice-of-law rule, makes federal law paramount, and vests Congress with
the power to preempt state law.” [Citations.] Similarly, federal agencies, acting pursuant
to authorization from Congress, can issue regulations that override state requirements.
[Citations.] Preemption is foremost a question of congressional intent: did Congress,
expressly or implicitly, seek to displace state law?’ ” (Solus Industrial Innovations, LLC
v. Superior Court (2018) 4 Cal.5th 316, 331 (Solus Industrial).)
Our Supreme Court has instructed that the search for congressional intent should
be conducted “ ‘through the lens of a presumption against preemption. [Citations.] The
presumption is founded on “respect for the States as ‘independent sovereigns in our
federal system’ ”; that respect requires courts “to assume that ‘Congress does not
cavalierly pre-empt state-law causes of action.’ ” [Citation.] The strength of the
presumption is heightened in areas where the subject matter has been the long-standing
subject of state regulation in the first instance; where federal law touches “a field that
‘ “has been traditionally occupied by the States,” ’ ” the party seeking to show
preemption “bear[s] the considerable burden of overcoming ‘the starting presumption that
Congress does not intend to supplant state law.’ ” ’ [Citations.] The presumption applies
to the scope as well as the existence of preemption.” (Solus Industrial, supra, 4 Cal.5th
at p. 332.)
Importantly, “the very nature of the Medicaid program triggers a presumption
against preemption. The Medicaid program is ‘based on a scheme of cooperative
federalism.’ [Citation.] Under this scheme, a participating state creates and administers
its own plan which must be approved by the Secretary. [Citation.] Thus, the
participating state works in tandem with the federal government in pursuit of a common
purpose—the provision of medical care to the needy. ‘Where[, as here,] coordinate[d]
state and federal efforts exist with a complementary administrative framework, and in
13
pursuit of common purposes, the case for federal pre-emption becomes a less persuasive
one.’ ” (Olszewski, supra, 30 Cal.4th at p. 816.)
Our Supreme Court has identified “ ‘several species of preemption. Congress may
expressly preempt state law through an explicit preemption clause, or courts may imply
preemption under the field, conflict, or obstacle preemption doctrines.’ ” (Solus
Industrial, supra, 4 Cal.5th at p. 332.) We are concerned here with obstacle preemption,
which arises “ ‘when state law “stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.” ’ ” (Ibid.) Obstacle
preemption “requires proof Congress had particular purposes and objectives in mind, a
demonstration that leaving state law in place would compromise those objectives, and
reason to discount the possibility the Congress that enacted the legislation was aware of
the background tapestry of state law and content to let that law remain as it was.
Ultimately, ‘what constitutes a “sufficient obstacle [for a finding of implied preemption]
is a matter of judgment, to be informed by examining the federal statute as a whole and
identifying its purpose and intended effects.” ’ ” (Quesada v. Herb Thyme Farms, Inc.
(2015) 62 Cal.4th 298, 312.)10
We review questions of statutory interpretation and preemption de novo, following
traditional principles of statutory interpretation (Coyne v. City and County of San
Francisco (2017) 9 Cal.App.5th 1215, 1224 [preemption]; Hardesty v. Sacramento
Metropolitan Air Quality Management Dist. (2011) 202 Cal.App.4th 404, 420 [statutory
10Carrie argues that former section 14009.5 and California Code of Regulations, title 22,
section 50963 conflict with 42 U.S.C. section 1396p(b)(3), in that the state law authorizes
hardship waivers upon a showing of “substantial hardship,” while the federal law
contemplates hardship waivers upon a showing of “undue hardship.” However, Carrie
does not argue that conflict preemption should be found, and thus we have no occasion to
consider that question. (People v. ex rel. Harris v. Pac Anchor Transportation, Inc.
(2014) 59 Cal.4th 772, 778 [“Conflict preemption is found when it is impossible to
comply with both state and federal law simultaneously”].)
14
construction]), which require us “to ascertain the intent of the Legislature so as to
effectuate the purpose of the law. (Dyna-Med, Inc. v. Fair Employment & Housing Com.
(1987) 43 Cal.3d 1379, 1386.)
5. Analysis
Carrie argues that former section 14009.5 and California Code of Regulations, title
22, section 50963, which require a showing of “substantial hardship,” stand as an
obstacle to federal Congressional intent, which contemplates that states will establish
procedures for hardship waivers upon a showing of “undue hardship.” (42 U.S.C. §
1396p(b)(3).) Carrie makes much of what she perceives to be a material difference
between the “undue hardship” prescribed by federal law and the “substantial hardship”
codified in California law. According to Carrie, an “undue hardship” is one that may
appear upon consideration of a wide range of equitable factors, while a “substantial
hardship” is one that follows from the mechanical application of a checklist of narrowly
drawn criteria. Although she does not explicitly say so, Carrie appears to view
California’s “substantial hardship” standard as more rigorous and difficult to satisfy than
the “undue hardship” standard contemplated by federal law, and thus, as an obstacle to
accomplishing the Congressional purpose of making hardship waivers available upon a
showing of “undue hardship.” We are not persuaded.
It is true, as Carrie observes, that 42 U.S.C. section 1396p(b)(3) directs states to
establish procedures for waiving estate recovery laws upon a showing of “undue
hardship” and former section 14009.5, subdivision (c)(1) and California Code of
Regulations, title 22, section 50963 speak in terms of a showing of “substantial
hardship.” It is also true, of course, that the modifiers “undue” and “substantial” are
different words, with differing meanings. (See Merriam-Webster Collegiate Online
Dict. [as of Jan. 15, 2021],
archived at [defining “undue,” in part, as “exceeding or
violating propriety or fitness: EXCESSIVE”] and ibid. [defining “substantial,” in part, as
15
“not imaginary or illusory: REAL, TRUE” and “considerable in quantity: significantly
great”].) But these differences do not, by themselves, establish obstacle preemption.
“As a majority of the current United States Supreme Court has agreed at one time
or another ‘pre-emption analysis is not “[a] freewheeling judicial inquiry into whether a
state statute is in tension with federal objectives,” [citation], but an inquiry into whether
the ordinary meanings of state and federal law conflict.’ ” (Viva! Internat. Voice for
Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal4.th 929, 939-940;
see also Silkwood v. Kerr-McGee Corp. (1984) 464 U.S. 238, 256 [Mere “tension”
between federal and state law does not suffice to show an obstacle supporting preemption
where the state law does not actually “frustrate the objectives of the federal law”].) We
perceive no irreconcilable conflict between state and federal law in this case, or
frustration of congressional purpose in California’s substantial hardship standard.
As previously discussed, the Medicaid statute directs states to establish procedures
for waiving estate recovery requirements in cases of “undue hardship.” (42 U.S.C. §
1396p(b)(3).) Neither the Medicaid statute nor the Manual defines the term “undue
hardship.” Instead, the Manual makes clear that states “have flexibility in implementing
an undue hardship provision.” (Manual § 3810(C).) Our Legislature, in exercising that
federally authorized flexibility, could reasonably conclude that an “undue hardship,” for
purposes of waiving the estate recovery requirements, means one that is “substantial.”
California’s use of the word “substantial,” in place of “undue,” does not raise an
irreconcilable conflict or stand as an obstacle to the congressional objective of making
hardship waivers available in appropriate cases.
Dalzin v. Belshe (N.D. Cal. 1997) 993 F.Supp. 732 (Dalzin), on which Carrie
relies, does not compel a contrary conclusion. There, the federal district court considered
California’s “proportionate share” program for recovering costs from those portions of
estates devised to surviving children of Medi-Cal beneficiaries who are not under 21,
blind, or disabled. (Id. at p. 733.) The court found the “proportionate share” program
16
was preempted by the federal Medicaid Act, which provided that the state could only
seek recovery from the decedent’s estate “ ‘at a time when he has no surviving child who
is under age 21, . . . blind or disabled.’ ” (Id. at p. 734.) The court explained: “If
Congress had wanted states to have the option to establish a ‘proportionate share’ system,
it could have easily done so. For example, if the law simply provided that ‘states cannot
maintain claims for recovery against the portion of the estate devised to the decedent’s
surviving spouse or surviving minor, blind or disabled children,’ a ‘proportionate share’
system may be permissible. But this is not what the law says. The court simply cannot
rule that Congress did not mean for the law to read as written, but instead intended an
alternate meaning that Congress could have easily expressed in other terms.” (Ibid.)
This case is not like Dalzin, in which California’s “proportionate share” program
was directly contrary to the federal Medicaid Act and posed an obstacle to the
accomplishment of Congress’s intent to exclude the estates of certain decedents from the
operation of the estate recovery laws. Here, by contrast, Congress declined to define the
phrase “undue hardship,” leaving that task to the Secretary. (42 U.S.C. § 1396p(b)(3).)
The Secretary, in turn, delegated responsibility for developing standards and procedures
for hardship waivers to the Centers for Medicare Services, which encouraged states to
develop their own hardship waiver rules. (Manual § 3810.) We cannot say that
California’s exercise of this delegated authority stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress,
particularly when “ ‘state and federal efforts exist within a complementary administrative
framework’ ” (Olszewski, supra, 30 Cal.4th at p. 816), and the Secretary has approved the
result. (See West Virginia v. Thompson, supra, 475 F.3d at p. 208 [“The Secretary has
the responsibility of determining whether proposed state plans and plan amendments
meet federal Medicaid requirements. Congress has directed that the Secretary ‘shall
approve’ any plan or amendment that complies with federal law”]; and see Solus
Industrial, supra, 4 Cal.5th at p. 345 [claims based on alleged violations of California
17
workplace safety standards did not stand as an obstacle to achieving purposes of Federal
Occupational Safety and Health Act of 1970 where federal law encouraged states to
assume responsibility for administration and enforcement of workplace safety and
Secretary of Labor approved California standards].)
Carrie takes issue with California’s criteria for determining whether a substantial
hardship exists, which is set forth in California Code of Regulations, title 22, section
50963. She directs our attention to the Manual, which encourages states to consider
enumerated examples of “undue hardships,” as well as “other compelling circumstances.”
(Manual § 3810(C).) According to Carrie, 42 U.S.C. section 1396p(b)(3)’s use of the
word “undue,” in combination with the Manual’s reference to “other compelling
circumstances,” show that Congress and the Centers for Medicare Services intended for
states to consider a range of equitable factors in deciding whether to grant applications
for hardship waivers. We are not persuaded.
We are not inclined to agree with Carrie’s interpretation of the Manual. As noted,
the Manual encourages states to consider “cases in which the estate subject to recovery is:
(1) the sole income-producing asset of survivors (where such income is limited), such as
a family farm or other family business; (2) a homestead of modest value; or (3) other
compelling circumstances.” (Manual § 3810(C)(1).) The placement of “other
compelling circumstances” on a list with specifically enumerated “examples” of
circumstances constituting “undue hardships” leads us to believe that the Centers for
Medicare Services intended that states identify other specific examples of circumstances
that might be sufficiently “compelling” to warrant an exemption from the estate recovery
laws. Further, the Manual’s use of the phrase “other compelling circumstances,” which
implies an identification of circumstances of a piece with the specifically enumerated
ones (i.e., where the decedent’s estate is “the sole income-producing asset of survivors”
or “a homestead of modest value”), rather than “any compelling circumstances,” which
would suggest an unlimited examination of the equities of the kind that Carrie proposes.
18
We need not resolve this issue, however, as the Manual makes clear that states need not
incorporate any of the foregoing “examples” into their hardship criteria. (Ibid.) Thus,
states need not include “other compelling circumstances” in their hardship criteria,
whatever they may entail.
That states have flexibility in deciding whether to include “other compelling
circumstances” in their hardship criteria, which tells us that California is not required to
authorize a hardship waiver upon a showing of any circumstance that may be deemed
“compelling.” Rather, the Manual confirms that California may develop its own criteria
for evaluating qualifying hardships. (Manual § 3810(C)(1).) It follows that “other
compelling circumstances” are not inherent in the term “undue hardship.” That being so,
we perceive no basis for concluding that California was required by federal law to
include general equitable considerations in its criteria for hardship waivers. Nor do we
perceive any basis for concluding that California’s hardship criteria stand as an obstacle
to the accomplishment of any congressional purpose or objectives underlying 42 U.S.C.
section 1396p(b)(3). As we have discussed, the Medicaid Act and Manual contemplate
that states will develop their own hardship criteria, leaving California free to define
“undue hardship” as a “substantial hardship” that may be ascertained through the
application of an objective checklist. Carrie fails to show that California’s interpretation
and implementation of the Medicaid Act or Manual frustrates any congressional purpose
or objective, and accordingly, fails to demonstrate obstacle preemption.
We therefore reject Carrie’s contention that 42 U.S.C. section 1396p(b)(3)
preempts former section 14009.5 and California Code of Regulations, title 22, section
50963. Having done so, we likewise reject Carrie’s contention, also based on her
preemption theory, that her application for a hardship waiver should be evaluated for
“compelling circumstances” pursuant to her interpretation of federal law.
19
B. Exhaustion of Administrative Remedies
As previously discussed, California Code of Regulations, title 22, section 50963
establishes six criteria for determining whether a “substantial hardship” exists for
purposes of waiving the estate recovery law. Carrie does not pretend to satisfy any of
these criteria. Instead, she argues, as she did in the trial court, that she “substantially
complied” with the requirements for obtaining a hardship waiver. The trial court rejected
Carrie’s substantial compliance argument, finding that it was barred by her failure to
exhaust administrative remedies. We agree with the trial court.
“As a general rule where ‘an administrative remedy is provided by statute, relief
must be sought from the administrative body and this remedy exhausted before the courts
will act; . . .’ [Citation.] When the issue is properly pursued, jurisdiction of the court to
entertain an action for judicial relief is conditional upon a completion of the
administrative procedure. [Citation.] The rule applies as well when the administrative
procedure is provided by regulation, resolution or ordinance. [Citations.] The rationale
for the rule has been explained as follows: ‘The administrative claim or “cause of action”
is within the special jurisdiction of the administrative agency, and the courts may act only
to review the final administrative determination. Allowing a suit prior to such a final
determination would constitute interference with the subject matter jurisdiction of another
tribunal. Accordingly, the exhaustion of an administrative remedy is a jurisdictional
element in California.’ ” (Green v. City of Oceanside (1987) 194 Cal.App.3d 212, 219-
220.) Nothing in the record suggests that Carrie has complied with the administrative
procedure for challenging the hardship criteria or pursuing her theory that she
substantially complied with those criteria.
California Code of Regulations, title 22, section 50962, subdivision (e) provides
that an applicant has 60 days from the date stated on the Department’s notice of claim in
which to submit an application for a hardship waiver. If an application for a hardship
waiver is denied, California Code of Regulations title 22, section 50963, subdivision (g)
20
requires the Department to notify the applicant of his or her right to request an estate
hearing. The estate hearing must be conducted in an impartial manner by a hearing
officer appointed by the Director of the Department. (Cal. Code Regs., tit. 22, § 50964,
subds. (a) and (b).) Following the estate hearing, the hearing officer issues a proposed
decision, which is reviewed by the Director of the Department, who renders the final
administrative decision. (Cal. Code Regs., tit. 22, § 50964, subd. (c).) That decision is
subject to judicial review by way of a petition for writ of administrative mandate pursuant
to Code of Civil Procedure, section 1094.5. (Cal. Code Regs., tit. 22, § 50964, subd. (f).)
Carrie appears to argue that she was unable to pursue an administrative remedy
because doing so would have entailed the submission of the form, which she could not
truthfully complete. Because she could not check any of the boxes indicating applicable
hardships, Carrie suggests, she could not submit a completed application on the required
form. And because the Department refused to process her correspondence as an
“application” in lieu of the form, Carrie continues, she never received a notice that her
request for a hardship waiver had been “denied,” and therefore, could not request an
estate hearing. Thus, Carrie suggests that the requirement that she submit the form
consigned her to an administrative limbo, which made exhaustion of administrative
remedies impossible. We are not persuaded.
Carrie’s argument rests on a false choice between submitting a perjurious
application on the required form, on the one hand, and pursuing an administrative
remedy, on the other. Nothing prevented Carrie from submitting an application that
truthfully acknowledged her inability to satisfy the hardship criteria (by leaving the
relevant boxes unchecked), and then exhausting her administrative remedies with respect
to the probable denial of the application. On the record before us, we perceive no reason
why Carrie’s challenge to the hardship criteria and theory of substantial compliance could
not have been presented to a hearing officer in the first instance. Thus, we agree with the
21
trial court that Carrie failed to exhaust her administrative remedies with respect to these
claims. We therefore lack jurisdiction to consider them.
C. Due Process
Carrie argues the Department’s failure to respond to her purported “application” in
writing amounted to a violation of her right to due process. Carrie’s argument
presupposes that her counsel’s correspondence with the Department constituted an
“application” within the meaning of California Code of Regulations, title 22, section
50963, subdivision (a) that would trigger the Department’s duty to respond pursuant to
subdivision (e) of the same regulation. But the trial court specifically rejected this theory,
finding that it, too, was barred by Carrie’s failure to exhaust administrative remedies.11
Carrie makes no effort to address the trial court’s conclusion or explain why it was
erroneous. Accordingly, we reject Carrie’s due process claim.
D. Equitable Estoppel
Finally, Carrie argues the Department should be equitably estopped from seeking
reimbursement for Beulah’s medical expenses from the Trust. Specifically, she argues
the Department should be equitably estopped from seeking reimbursement by reason of
the letter Beulah wrote to her children in 1996 and the agreement. According to Carrie,
11 The trial court reasoned: “To the extent that Carrie argues she was denied due process
because [the Department] did not process her correspondence as an application, this
argument is unavailing. Carrie was aware that her correspondence did not qualify as an
application. She acknowledged as such in her correspondence to [the Department] dated
May 16, 2014, and then resent via correspondence dated May 29, 2014. Additionally, the
requirement that an application be submitted on the designated form was very clear, and
Carrie was informed via telephone that [the Department] was not processing her
correspondence as an application. If Carrie felt that this was in error, the proper method
for challenging [the Department’s] decision not to issue a written decision regarding her
purported application was through a writ of traditional mandamus under Code of Civil
Procedure section 1085. [Citations.]” We have no occasion to consider the trial court’s
analysis, for the reasons stated in the text.
22
the beneficiaries reasonably relied on the letter and agreement, provided labor and money
to maintain the residence and café, and thereby acquired interests in the properties, which
the Department should be equitably estopped from disturbing.12 We cannot agree.
“The elements of equitable estoppel are ‘(1) the party to be estopped must be
apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so
act that the party asserting the estoppel has a right to believe it was so intended; (3) the
other party must be ignorant of the true state of facts; and (4) he must rely upon the
conduct to his injury.’ ” (Schafer v. City of Los Angeles (2015) 237 Cal.App.4th 1250,
1261.) “An additional requirement applies in cases involving equitable estoppel against
the government. In such a case, the court must weigh the policy concerns to determine
whether the avoidance of injustice in the particular case justifies any adverse impact on
public policy or the public interest. [Citations.] Even if the four elements of equitable
estoppel are satisfied, the doctrine is inapplicable if the court determines that the
avoidance of injustice in the particular case does not justify the adverse impact on public
policy or the public interest.” (Ibid.)
We agree with the trial court that Carrie’s argument for equitable estoppel falls
short. As the trial court observed, Carrie’s argument is predicated on outside writings
(the agreement and the letter Beulah wrote to her children), neither of which can be said
to have acted as a formal amendment to the Trust. Nothing in the record suggests the
Department was a party to any agreement between Beulah and the beneficiaries, or even
aware of the agreement or letter. Thus, Carrie’s argument for equitable estoppel fails,
12 Carrie’s argument is a variation on themes she pursued in the trial court; namely, that
the Trust had become irrevocable by the time of Beulah’s death by reason of the
agreement, and the beneficiaries’ interests in the Trust became vested by reason of their
performance of the “offer” set forth in the letter Beulah wrote to her children in 1996.
Carrie renews these arguments in her reply brief, but does not assert them in her opening
brief. We do not consider arguments raised for the first time in a reply brief.
(Varjabedian v. City of Madera (1977) 20 Cal.3d 285, 295, fn. 11.)
23
and we need not concern ourselves with the other elements of the doctrine or public
policy considerations.13
III. DISPOSITION
The judgment is affirmed. The Department shall recover its costs on appeal. (Cal.
Rules of Court, rule 8.278(a)(1) & (2).)
/S/
RENNER, J.
We concur:
/S/
HULL, Acting P. J.
/S/
MAURO, J.
13 Carrie argues for the first time in her reply brief that the statute of limitations precludes
the Department’s claim for reimbursement. Again, we do not consider arguments raised
for the first time in a reply brief. (Varjabedian v. City of Madera, supra, 20 Cal.3d at p.
295, fn. 11.)
24