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Case 1:12-cv-07290-JEI-KMW Document 18 Filed 06/04/13 Page 1 of 13 PageID: 206

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

HONORABLE JOSEPH E. IRENAS
CIVIL ACTION NO. 12-7290

(JEI/KMW)
OPINION

JAMES CARLINI,

Plaintiff,

v.

JENNIFER VELEZ, COMMISSIONER,
NEW JERSEY DEPARTMENT OF HUMAN
SERVICES, et al.

Defendants

APPEARANCES:
ROTHKOFF LAW GROUP
By: Jane Fearn-Zimmer
911 Kings Highway South
Cherry Hill, NJ 08034

Counsel for Plaintiff

STATE OF NEW JERSEY, OFFICE OF THE ATTORNEY GENERAL
By: Jennifer Lauren Finkel
P.O. Box 112
25 Market Street
Trenton, NJ 08625

Counsel for Defendants

IRENAS, Senior District Judge:

Plaintiff James Carlini initiated this action on November
26, 2012, by filing a Complaint against Jennifer Velez in her
capacity as Commissioner of the New Jersey Department of Human
Services, and Valerie Harr in her capacity as the Director of the
Division of Medical Assistance and Health Services. The
Complaint alleges that Defendants violated Plaintiff’s rights

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under 28 U.S.C. § 1983 by denying him benefits under New Jersey’s
Medical Assistance, or Medicaid, Program. Pending before the
Court is Plaintiff’s Motion for a Preliminary Injunction. For
the reasons discussed below, Plaintiff’s motion will be granted.

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I.

Plaintiff James Carlini currently resides in the skilled

nursing unit at the Palace in Maple Shade. Mr. Carlini is
considered the “institutionalized spouse” for Medicaid purposes.
Plaintiff’s wife, Mary Carlini, currently resides at Sunrise

of Newtown Square, a senior living commmunity. (Pl.’s Reply
Mem., at 4.) Mrs. Carlini is considered the “community spouse”
for Medicaid purposes.

On or about January 31, 2012, Mrs. Carlini purchased an

annuity (the “Annuity”) in the amount of $310,000. (Def.’s Mem.
in Opp., at 1.) The Annuity was issued by the PHL Variable
Insurance Company, and calls for equal monthly payments in the
amount of $8,617.75 to Mrs. Carlini for a period of thirty-six
months. (Pl.’s Reply Mem., at 2.) Mrs. Carlini’s life
expectancy at the time she purchased the Annuity was 10.03 years,
and thus the Annuity is actuarially sound. (Compl. ¶ 17.)
Additionally, the Annuity is permanently irrevocable, and non-
transferrable. (Compl. Ex. A.)

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This Court has jurisdiction pursuant to 28 U.S.C. § 1331.

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The Annuity names the State of New Jersey as the first

remainder beneficiary, stating:

[b]eneficiary in the first position is to be the State
of New Jersey as the remainder beneficiary in the first
position for at least the total amount of medical
assistance paid on behalf of the institutionalized
individual (irrevocably).

(Pl.’s Reply Mem., at 2). Section six of the Annuity (“Section
Six”) further states that:

[i]n all cases in which a payment is to be made to the
State, a representative from the State is required to
provide reasonable documentation concerning the amount
to be paid to the State. [The PHL Variable Insurance
Company] reserve[s] the right to require that the
representative from the State and either a
representative from the estate of the Owner, the
Secondary Beneficiary, or the Contingent Beneficiary
agree to the amount to be paid to the State.”

(Id., at 3).

In April, 2012, Mr. Carlini applied for Medicaid long term

care benefits under the Medically Needy Program. (Def.’s Mem. in
Opp., at 2.) The Medically Needy program “extends limited
Medicaid program benefits to certain groups of medically needy
persons whose income and/or resources exceeds the standards for
the [regular] Medicaid program.” N.J.A.C. 10:71-1.1. Initially,
the Burlington County Welfare Agency (the “CWA”) determined that
the Annuity purchased by Mrs. Carlini was an available and
countable asset in excess of the Community Spouse Resource
Allowance. (Compl. Ex. E.) As a result, Mr. Carlini’s

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application for benefits under the Medically Needy Program was
denied. (Id.)

In reaction to this determination, Mr. Carlini initiated the
instant lawsuit, alleging that the Annuity was Medicaid compliant
and that the CWA improperly determined the Annuity was an
available asset. (Compl. ¶ 37.) On January 16, 2013, Mr. Carlini
moved to preliminarily enjoin the defendants from treating the
Annuity as an available asset or as an impermissible transfer of
assets. (Notice of Mot.)

On January 24, 2013, the CWA issued a revised eligibility
letter. (Pl.’s Reply Mem. Ex. D.) In this revised eligibility
letter, the CWA found that Mr. Carlini was eligible for benefits
as of April 1, 2012; however, Mr. Carlini was subject to a
thirty-nine month and twenty-nine day penalty period because the
Annuity was found to be a transfer of assets for less than fair
market value. (Id.; Def.’s Mem. in Opp., at 12.)

Because the CWA’s revised eligibility determination of

January 24, 2013, found that Mr. Carlini was eligible for
Medicaid benefits as of April 1, 2012, that section of his motion
asking the Court to enjoin Defendants from treating the Annuity
as an available asset is moot. Still at issue is whether the
Court should enjoin Defendants from treating the annuity as an
impermissible transfer of assets subject to a penalty period.
Oral argument on this issue was held on May 28, 2013.

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II.

In determining whether to grant a preliminary injunction,
the Court must consider: (1) the movant’s likelihood of success
on the merits; (2) the probability of irreparable harm to the
moving party if immediate relief is not granted; (3) the
potential harm to the non-moving party; and (4) the public
interest. Kraft Power Corp. v. General Elec. Co., 2011 WL
6020100, at *3 (D.N.J. 2011) (citing Allegheny Energy Inc. v.
DOR. Inc., 171 F.3d 153, 158 (3d Cir. 1999)). The Court will
consider each factor in turn.

A. Likelihood of Success on the Merits

To establish a likelihood of success on the merits, “the

moving party need not demonstrate that its entitlement to a final
decision after trial is free from doubt. Rather, the moving
party must demonstrate a reasonable probability of eventual
success in the litigation.” Freightliner Inc. v. Freightliner
Corp., 987 F. Supp. 289, 295 (D.N.J. 1997) (internal quotations
omitted). The issue in the instant case, then, is whether Mr.
Carlini will likely prove that the Annuity does not constitute a
transfer of assets for less than fair market value.

The Medicare Catastrophic Coverage Act of 1988 (the “MCCA”),
42 U.S.C. § 1396 et seq., sets forth the rules that the CWA must

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follow when determining an applicant’s eligibility for Medicaid.
The spousal impoverishment provisions of the MCCA permit a spouse
living at home, referred to as the community spouse, “‘to reserve
certain income and assets to meet the minimum monthly maintenance
needs he or she will have while the other spouse is
institutionalized.’” Weatherbee ex rel. Vecchio v. Richman, 595
F. Supp. 2d 607, 610-11 (W.D.Pa. 2009), aff’d, 351 Fed. Appx. 786
(3d Cir. 2009) (quoting Wisconsin Dep’t of Health and Family
Services v. Blumer, 534 U.S. 473 (2002)). The purpose of the
MCCA is to “protect community spouses from becoming impoverished
while simultaneously barring financially secure couples from
sheltering their resources in order to qualify for Medicaid.”
Id. at 611.

“In determining Medicaid eligibility for the

institutionalized spouse, the MCCA treats the assets and income
of the community spouse in separate and distinct ways.” Id. The
community spouse is permitted to retain a standard amount of
assets, called the “community spouse resource allowance.” Id.
However, any assets retained by the community spouse exceeding
the community spouse resource allowance are deemed available to
the institutionalized spouse. 42 U.S.C. § 1396r-5(c)(2). In
contrast, a community spouse’s income is not considered when
determining the institutionalized spouse’s Medicaid eligibility.
42 U.S.C. § 1396r-5(b)(1) (“[N]o income of the community spouse

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shall be deemed available to the institutionalized spouse.”).

An annuity is a contract which allows the purchaser to

receive monthly payments for an agreed upon period of time in
exchange for the payment of a lump sum. In 2005, Congress passed
the Deficit Reduction Act (the “DRA”), which restricted the use
of annuities by Medicaid applicants in order to prevent
applicants from sheltering their assets in anticipation of
Medicaid eligibility. See Deficit Reduction Act of 2005, Pub. L.
No. 109-171, § 6012 (2005), codified as amendments to 42 U.S.C.
§ 1396p.

42 U.S.C. § 1396p(c)(1)(G) establishes the general rule that

an annuity is an asset. However, § 1396p(c)(1)(G) also
establishes that if an annuity is irrevocable and nonassignable,
actuarially sound, and provides for payments in equal amounts
during the term of the annuity, with no deferral and no balloon
payments, then the Annuity is not to be considered an asset. In
addition to these requirements, § 1396p(c)(1)(F) mandates that an
annuity must be treated as the disposal of an asset for less than
fair market value unless the State is named as the remainder
beneficiary in the first position for at least the total amount
of medical assistance paid, or the State is named as such a
beneficiary in the second position after the community spouse or
minor or disabled child. Thus, when an annuity fails to name the
State as a remainder beneficiary in accordance with

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§ 1396p(c)(1)(F), an otherwise eligible Medicaid applicant must
face a penalty period before receiving benefits. 42 U.S.C.
§ 1396p(c)(1)(A). 2

In the instant case, the defendants’ position is that the
CWA correctly imposed a penalty period because the Annuity does
not name the State of New Jersey as a remainder beneficiary in
accordance with § 1396p(c)(1)(F). Specifically, defendants take
issue with the sentence in Section Six of the Annuity that states
that “[the PHL Variable Insurance Company] reserve[s] the right
to require that the representative from the State and either a
representative from the estate of the Owner, the Secondary
Beneficiary, or the Contingent Beneficiary agree to the amount to
be paid to the State.” At oral argument, counsel for defendants
stated that this sentence was the only provision preventing the
Annuity from being compliant with the DRA, and that the Annuity
“would be fine” if that sentence were not included. (Oral

2

In full, this subsection states: “In order to meet the

requirements of this subsection for the purposes of section
1396(a)(18) of this title, the State plan must provide that if an
institutionalized individual or the spouse of such an individual
(or, at the option of a State, a noninstitutionalized individual
or the spouse of such an individual) disposes of assets for less
than fair market value on or after the look-back date specified
in subparagraph (B)(i), the individual is ineligible for medical
assistance for services described in subparagraph (C)(i) (or, in
the case of a noninstitutionalized individual, for the services
described in subparagraph (C)(ii)) during the period beginning on
the date specified in subparagraph (D) and equal to the number of
months specified in subparagraph (E).” 42 U.S.C.
§ 1396p(c)(1)(A)

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Argument at 26:18-20, 27:21, May 28, 2013.) Defendants have not
argued that requiring the State to verify the amount of medical
assistance paid affects the eligibility determination.3

Mr. Carlini’s position is that despite the language in

Section Six concerning the consent of a representative from the
estate of the owner, the secondary beneficiary, or the contingent

3

Technically, § 1396p(c)(1)(G) applies to assets purchased
“by or on behalf of an annuitant who has applied for medical
assistance.” Without addressing this language, the Third Circuit
held in Weatherbee that an annuity purchased by the community
spouse which satisfied the requirements of §§ 1396p(c)(1)(F) -(G)
could not be treated as an available asset to the
institutionalized spouse or as an improper transfer of assets.
351 Fed. Appx. 786 (3d Cir. 2009).
In the instant case, the Court does not have occasion to
address the import of the “by or on behalf of an annuitant who
has applied for medical assistance” language because all parties
agree that Mr. Carlini would be immediately eligible for Medicaid
benefits under the Medically Needy Program if the language
concerning consent were stricken from Section Six. Nonetheless,
the Court is aware of the possibility that §§ 1396p(c)(1)(F)-(G)
may not apply to annuities purchased by a community spouse. See
Hughes v. Colbert, 872 F. Supp. 2d 612, 621 (N.D. Ohio 2012)
(stating that Medicaid’s annuity provisions do not apply to a
community spouse). Allowing §§ 1396p(c)(1)(F)-(G) to apply to
annuities purchased by a community spouse creates a potentially
large loophole in the Medicaid laws by allowing a Medicaid
applicant to turn a countable asset into income for the community
spouse, which is not deemed available to the institutionalized
spouse. Thus, reading §§ 1396p(c)(1)(F)-(G) as applying only to
annuities purchased by and for the benefit of the Medicaid
applicant could potentially limit this loophole. Although this
reading would still allow a Medicaid applicant to turn an asset
into income, the income would now belong to the applicant, and
thus be considered when determining Medicaid eligibility.
Further § 1396p(c)(1)(G) is one of the only places within
§ 1396p to identify an asset based on the purchaser. In this
context, the Court finds it unusual to simply ignore this
language, especially given that a major purpose of the DRA is to
prevent Medicaid applicants from sheltering their assets.

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beneficiary, Section Six is no more than a verification
provision. (See Pl.’s Reply Mem., at 7-10). Further, at oral
argument, counsel for Mr. Carlini stated that to the extent that
Section Six creates an authority to consent, Mr. Carlini would
“gladly waive” that authority. (Oral Argument at 21:1-10.) The
PHL Insurance Company agrees with Mr. Carlini’s reading of
Section Six, stating in a letter submitted to the Court by Mr.
Carlini that Section Six “does not indicate that we will refuse
to pay the State an amount claimed; it only relates to our
requesting information to verify that amount.” (Letter from
Laurie Lewis, February 15, 2013, Dkt. No. 10.)

4

Because all parties agree that the Annuity would not be

considered an improper transfer absent the consent language in
Section Six, and because both Mr. Carlini and the PHL Insurance
Company concede that Section Six does not give the estate
representative, secondary beneficiary, or contingent beneficiary
an authority to consent, the Court reads Section Six as no more
than a verification provision. With this interpretation, it is

4

In full, counsel stated: “Your Honor, we have no problem
waiving that contractual obligation, which we even - which has
been discussed in the past. We have no problem waiving that,
okay, because there’s no benefit, whatsoever, I would agree with
you, to our client. Our client would gladly waive that authority
to consent, Your Honor. Because there’s - we see no benefit.
The State is entitled to payment. If this was - currently the
annuity has been paying out for approximately 16 months to date,
Your Honor. So that would mean there’s only 22 months
remaining.”

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clear that Mr. Carlini has shown that he will likely be able to
prove that the Annuity is not a transfer of assets for less than
fair market value because all parties agree that the Annuity is
compliant with the DRA absent the authority to consent.

B. Irreparable Harm

“The irreparable harm requirement is met if a plaintiff

demonstrates a significant risk that he or she will experience
harm that cannot be adequately compensated after the fact by
monetary damages.” Adams v. Freedom Forge Corp., 204 F.3d 475,
484-85 (3d Cir. 2000).

This requirement is satisfied in the instant case. The
Eleventh Amendment “gives the state immunity from an award of
retroactive benefits, except for the three months immediately
preceding an outcome in [Plaintiff’s] favor.” Sorber v. Velez,
2009 WL 3591154, at *3 (D.N.J. 2009) (citing Edelman v. Jordan,
415 U.S. 651 (1974)). Therefore, Mr. Carlini will not be able to
obtain full monetary compensation at trial, and will be
irreparably harmed by a failure to award to a preliminary
injunction.

C. Harm to the Defendant

“If granting the injunction will cause greater harm to the
Defendant than the Plaintiff would suffer if the injunction were

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denied, the Court should generally not grant the injunction.”
Sorber, 2009 WL 3591154, at *4. Defendants assert that “it would
be significant harm to Medicaid programs across this country if
New Jersey was enjoined from properly applying Medicaid statutes
in determining eligibility.” (Def.’s Mem. in Opp., at 18.)
However, since all parties agree that without the authority to
consent, the Annuity is compliant with the DRA, granting the
preliminary injunction in this case does not prevent New Jersey
from properly applying Medicaid statutes in determining
eligibility.

D. The Public Interest

“The last prerequisite for granting a preliminary injunction
is that granting the injunction must be in the public interest.”
Id. Plaintiff and Defendants both argue in their briefs that the
public has an interest in ensuring that Medicaid statutes are
enforced correctly and equitably. In this case, all parties
agree that the correct enforcement of the Medicaid statutes
requires the State to begin paying benefits to Mr. Carlini so
long as the estate representative, secondary beneficiary and
contingent beneficiary do not have any authority to consent.
Therefore, the public interest weighs in favor of granting the
preliminary injunction.

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III.

In conclusion, Plaintiff has showed that all four

requirements for the granting of a preliminary injunction are
satisfied in this case. Therefore, Plaintiff’s motion is
granted. An appropriate order will accompany this Opinion.

Dated: June 4 , 2013

s/Joseph E. Irenas
Joseph E. Irenas, S.U.S.D.J.

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