Whitney et al v. United States of America

Filing 142

ORDER DENYING PLAINTIFFS' OBJECTIONS TO THE MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION TO DENY PLAINTIFFS' MOTION TO ENFORCE SETTLEMENT (ECF NO. 138 ) AND ADOPTING THE MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION TO DENY PL AINTIFFS' MOTION TO ENFORCE SETTLEMENT (ECF NO. 131 ) - Signed by JUDGE HELEN GILLMOR on 5/27/2015. "Plaintiffs' Objections to Magistrate Judge's Findings and Recommendation to Deny Plaintiffs' Motion to Enforce Settlement (ECF No. 138) are DENIED. Pursuant to 28 U.S.C. § 636(b)(1)(C) and Local Rule 74.2, the "Findings and Recommendation to Deny Plaintiffs' Motion to Enforce Settlement" (ECF No. 131) is ADOPTED AS THE OPINION AND ORDER OF THIS COURT." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
LAURA M. WHITNEY and RICHARD
WHITNEY, Individually and as
Next Friends of Their Minor
Sons E.W. and N.W.,

)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
UNITED STATES OF AMERICA,
)
)
Defendant.
)
______________________________ )

CV NO. 12-00382 HG-RLP

ORDER DENYING PLAINTIFFS’ OBJECTIONS TO THE MAGISTRATE JUDGE’S
FINDINGS AND RECOMMENDATION TO DENY PLAINTIFFS’ MOTION TO ENFORCE
SETTLEMENT (ECF No. 138)
and
ADOPTING THE MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION TO
DENY PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT (ECF No. 131)
Plaintiffs filed a medical malpractice action against the
United States of America pursuant to the Federal Tort Claims Act.
The Plaintiffs’ complaint alleges injuries and damages sustained
by N.W., a minor, his brother E.W., a minor, and their parents,
Laura and Richard Whitney, as a result of N.W.’s delivery and
birth at Tripler Medical Center in 2010.
Plaintiffs reached a proposed settlement with the Assistant
United States Attorney that was conditioned upon approval by the
United States Department of Justice.
1

The Department of Justice

rejected the proposed settlement.
Plaintiffs filed a Motion to Enforce Settlement.
The Magistrate Judge entered a Findings and Recommendation
to Deny Plaintiffs’ Motion to Enforce Settlement.

(ECF No. 131).

Plaintiffs object to the Findings and Recommendation.

(ECF No.

138).
Plaintiffs’ Objections (ECF No. 138) are DENIED.
The Court ADOPTS the Magistrate Judge’s April 3, 2015
Findings and Recommendation (ECF No. 131).
PROCEDURAL HISTORY

On July 6, 2012, Plaintiffs Laura M. Whitney and Richard
Whitney, Individually and as Next Friends of Their Minor Sons
E.W. and N.W., filed a Complaint against the Defendant United
States of America.

(Complaint, ECF No. 1).

On January 27, 2014, a proposed settlement was placed on the
record, which was conditional upon approvals by the Hawaii State
Probate Court and the United States Department of Justice.

(ECF

No. 100).
On June 6, 2014, the Hawaii State Probate Court approved the
settlement terms.

(ECF No. 122-11).

On August 29, 2014, the Parties appeared before the
Magistrate Judge and placed a revised proposed settlement on the
record.

(ECF No. 108).

On September 4, 2014, the Magistrate Judge issued an Order

2

approving the reasonableness of the settlement, finding that it
was in the best interests of the minors.

(ORDER APPROVING

SETTLEMENT ON BEHALF OF MINORS, ECF No. 109).

The Magistrate

Judge stated in his Order the specific terms and conditions of
the settlement “including the necessity of the approval by the
Attorney General of the United States.”

(Id. at p. 2).

On October 30 and November 28, 2014, the Magistrate Judge
held status conferences to review the progress of the review of
the proposed settlement by the United States Department of
Justice.

(ECF Nos. 111, 114).

At the January 15, 2015 status conference before the
Magistrate Judge, counsel for the Defendant informed the Court
that the proposed settlement was rejected by the United States
Department of Justice.

(ECF No. 118).

On February 19, 2015, Plaintiffs filed a MOTION TO ENFORCE
SETTLEMENT.

(ECF No. 122).

On March 16, 2015, Defendant filed its OPPOSITION TO
PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT.

(ECF No. 128).

On March 23, 2015, Plaintiffs filed a REPLY.

(ECF No. 129).

On April 1, 2015, the Magistrate Judge held a hearing on
Plaintiffs’ Motion to Enforce Settlement.

(ECF No. 130).

On April 3, 2015, the Magistrate Judge issued Findings and
Recommendation to Deny Plaintiffs’ Motion to Enforce Settlement.
(ECF No. 131).

3

On April 14, 2015, the District Court Judge granted
Plaintiffs’ request for a one-week extension to file Objections
to the Findings and Recommendation.

(ECF No. 133).

On April 24, 2015, Plaintiffs filed their OBJECTIONS TO
MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION TO DENY
PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT.

(ECF No. 138).

On May 5, 2015, the District Court Judge held a status
conference and continued the Trial Date and the Trial-Related
Deadlines.

(ECF No. 140).

On May 7, 2015, Defendant filed their RESPONSE TO
PLAINTIFFS’ OBJECTIONS TO MAGISTRATE JUDGE’S FINDINGS AND
RECOMMENDATION TO DENY PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT.
(ECF No. 141).
STANDARD OF REVIEW

Objections to a Magistrate Judge’s Findings and Recommendation

A magistrate judge may be assigned to prepare findings and
recommendations for a district judge on a pretrial matter that is
dispositive of a claim.
636(b)(1)(B).

Fed. R. Civ. P. 72(b); 28 U.S.C. §

Any party may object to a magistrate judge’s

findings and recommendations, pursuant to United States District
of Hawaii Local Rule 74.2.
If a party objects to the magistrate judge’s findings or
recommendations, the district court must review de novo those
4

portions to which objection is made.

United States v. Raddatz,

447 U.S. 667, 673 (1980); Fed. R. Civ. P. 72(b).

The district

court may accept, reject, or modify, in whole or in part, the
findings and recommendations made by the magistrate judge, or
recommit the matter to the magistrate judge.

28 U.S.C. §

636(b)(1)(C).
De novo review means the district court must consider the
matter anew, as if it had not been heard before and as if no
decision previously had been rendered.
F.3d 930, 933 (9th Cir. 2009).

Dawson v. Marshall, 561

The district court must arrive at

its own independent conclusion about those portions to which
objections are made, but a de novo hearing is not required.
United States v. Remsing, 874 F.2d 614, 617-18 (9th Cir. 1989).
Motion to Enforce Settlement
A federal court has the equitable power to summarily enforce
a settlement reached by the parties in a case pending before it.
Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987).

Federal

courts generally apply state contract law principles to determine
whether to enforce a settlement agreement.
Corp., 365 F.3d 820, 822 (9th Cir. 2004).

O’Neil v. Bunge
Federal law governs

the interpretation of contracts where, such as here, the United
States is a party and the dispute involves federal law.

Mohave

Valley Irrigation & Drainage Dist. v. Norton, 244 F.3d 1164, 1165

5

(9th Cir. 2001).
The Court agrees with Plaintiffs that because the terms of
the proposed settlement and its revisions were placed on the
record in this case, an evidentiary hearing would be redundant.
Doi v. Halekulani Corp., 276 F.3d 1131, 1138 (9th Cir. 2002);
Wilson v. Wilson, 46 F.3d 660, 665 (7th Cir. 1995).

ANALYSIS
I.

The Assistant United States Attorney Did Not Have the
Authority to Bind the United States
The federal government is not bound by the acts of its agent

unless the agent is acting within the limits of his actual
authority.

Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384

(1947).
Pursuant to 28 U.S.C. §§ 516-19, the Attorney General of the
United States is vested with the authority to conduct all
litigation on behalf of the United States and its agencies and
officers, unless otherwise provided by law.

The Attorney General

has the authority to settle any claim pursuant to the Federal
Tort Claims Act.

28 U.S.C. § 2677.

A portion of the Attorney

General’s authority to settle claims has been delegated to
various subordinate officials within the United States Department
of Justice.

28 U.S.C. § 510; 28 C.F.R. §§ 0.160-0.172.

The Attorney General has delegated settlement authority in
civil cases to the Assistant Attorney General for the Civil
6

Division for claims up to $2 million dollars.
0.160(a)(2).

28 C.F.R. §

Settlements higher than $2 million dollars must be

recommended for approval by the Assistant Attorney General and
approved by the Associate Attorney General.

28 C.F.R. § 0.160,

0.161(b).
The Magistrate Judge correctly determined that the amount of
the proposed settlement between the Parties would require
approval of the Associate Attorney General.

(Findings and

Recommendation at p. 10, ECF No. 131).
An Assistant United States Attorney cannot bind the
government into a settlement that involves more than $2 million
dollars, even if he represents that he has the authority to do
so.

See Turner v. United States, 875 F.Supp. 1430, 1436 (D. Nev.

1995); White v. U.S. Dept. of Interior, 639 F.Supp. 82, 88-90
(M.D. Pa. 1986).
The Magistrate Judge correctly found that Assistant United
States Attorney Yee (“AUSA Yee”) did not have the authority nor
did he represent that he had the authority to bind the Defendant
United States in Settlement.

(Findings and Recommendation at pp.

10-11, ECF No. 131).

II.

There Was No Mutual Assent by the Parties to All Material
Terms that Would Constitute a Complete Settlement
The formation of a settlement contract requires a complete

7

settlement on all its material terms.

Callie, 829 F.2d at 890.

Federal contract law is guided by general principles of contract
law and by the Restatement on Contracts.

First Interstate Bank

of Idaho v. Small Business Administration, 868 F.2d 340, 343 (9th
Cir. 1989).

The Restatement Second of Contracts requires mutual

assent to all material terms of the contract.

See Restatement 2d

of Contracts §§ 17, 18, 20.
Here, there was never a complete settlement agreement
between the Plaintiffs and Defendant.

Plaintiffs were aware that

their negotiations with AUSA Yee were conditioned on approval by
the Department of Justice.
A.

The Settlement Process

On January 27, 2014, Plaintiffs and AUSA Yee placed a
settlement agreement on the record.

(Transcript of Settlement

Proceedings held on 1/27/14, ECF No. 106).

Plaintiffs’ attorney

acknowledged at the January 27, 2014 settlement conference that
the settlement agreement was conditioned upon the approval of the
Hawaii Probate Court and the United States Department of Justice.
(Id. at pp. 3-4).
On June 6, 2014, the Hawaii Probate Court approved the terms
of the proposed settlement agreement and issued a written order.
(Order Granting Petition for Appointment of Special Conservator
for Authority to Compromise Claim and to Fund Existing Trust at

8

¶¶ G, J, attached as Ex. E-2 to Pla.’s Motion to Enforce
Settlement, ECF No. 122-11).
Plaintiffs argue that the Department of Justice had approved
the proposed settlement between Plaintiffs and AUSA Yee before
the Hawaii Probate Court entered its Order.
33-34, ECF No. 138).

(Objections at pp.

This argument is belied by the record.

It

was made clear to the Hawaii Probate Court that no final approval
had been given by the Department of Justice.

The Hawaii Probate

Court stated in its Order: “The Court understands that this
Settlement is contingent upon satisfaction of the terms set forth
in the Settlement Agreement, including the necessity of the
approval of the Attorney General of the United States....”
(Id. at ¶ J).
The record demonstrates that the documents for the proposed
settlement agreement were provided to the Department of Justice
for review, after there was approval by the Hawaii Probate Court.
(Declaration of Michael K. Livingston at ¶¶ 32-36, ECF No. 122-5;
Email from Mr. Livingston to AUSA Yee dated June 6, 2014, at p.
31, attached as Ex. I to Pla.’s Motion to Enforce Settlement, ECF
No. 122-16).
On July 7, 2014, AUSA Yee sent an e-mail to Magistrate Judge
Puglisi’s Chambers and copied Plaintiffs’ attorneys, stating:
“The settlement is pending the review and recommendation of the
director of the DOJ Torts Branch, after which it will be

9

forwarded to the Assistant Attorney General for approval.”
(Email from AUSA Yee to Judge Puglisi’s Chambers dated July 7,
2014, at p. 38, attached as Ex. I to Pla.’s Motion to Enforce
Settlement, ECF No. 122-16).
B.

Modification of the Proposed Settlement

On August 5, 2014, AUSA Yee e-mailed Plaintiffs’ attorney,
Mr. Livingston, and informed him that the Department of Justice
opposed the proposed settlement agreement in its current form.
(Email from AUSA Yee to Mr. Livingston dated August 5, 2014, at
p. 42, attached as Ex. I to Pla.’s Motion to Enforce Settlement,
ECF No. 122-16).

Mr. Yee stated in his e-mail: “In order to

advance the approval of the settlement agreement, I believe after
much discussion, returning the stipulation and settlement
agreement to original Tort’s Division standard form will address
their concerns and opposition to the current form of the
agreement.”

(Id.)

The following day, on August 6, 2014, Mr. Livingston sent an
e-mail to AUSA Yee, asking if the revisions would guarantee
approval by the Department of Justice.

(Email from Mr.

Livingston to AUSA Lee dated August 6, 2014, at p. 45, attached
as Ex. I to Pla.’s Motion to Enforce Settlement, ECF No. 122-16).
AUSA Yee responded to Mr. Livingston’s e-mail and explained:
Although we both would like to know that resolution of
this issue guarantees approval that is not how the
10

process works. As you know from past settlements, the
Torts Division reviews our proposed settlements over $1
million dollars and then recommends to the Assistant
Attorney General (the AGG is the number 3 person in
DOJ) over Civil. The AAG has the final approval over
our proposed settlement. I do not have any authority
over the AAG nor can I commit the DOJ to this or any
settlement. I believe I have substantiated and
supported our proposed settlement and I stand ready to
answer any further requests for information from Torts
Division or the AAG. My [Point of Contact] has not
commented on the amount of the settlement or any other
issues, that is the best I can tell you, however
without the resolution I have proposed I believe the
DOJ approval process stops and all our efforts will be
for naught.
(Email from AUSA Yee to Mr. Livingston dated August 6, 2014,
at p . 44, attached as Ex. I to Pla.’s Motion to Enforce
Settlement, ECF No. 122-16).
The same day, Mr. Livingston e-mailed AUSA Yee again and
asked if the Torts Division would recommend the settlement if
they revised their proposed settlement and AUSA Yee responded:
I’ve gotten the concurrence of my [Point of Contact] at
Torts that the changes would remove their opposition to
the form of the settlement agreement. I believe
pushing the issue further to get them to commit to
recommending the settlement to the AAG at this time
would not be prudent. I also believe if I ask they
could not commit to recommending the settlement because
they have not completed their review.
(Email from AUSA Yee to Mr. Livingston dated August 6, 2014,
at p . 44, attached as Ex. I to Pla.’s Motion to Enforce
Settlement, ECF No. 122-16).
Plaintiffs and AUSA Yee agreed to revise the terms of their
settlement agreement.

On August 29, 2014, Plaintiffs and AUSA

11

Yee placed their revised settlement on the record before the
Magistrate Judge.

(ECF Nos. 108, 112).

The August 29, 2014

revised, proposed settlement agreement states:
The Attorney General or the Attorney General’s designee
must approve the terms of the settlement and authorize
the attorney representing the United States to
negotiate and consummate a settlement for the amount
and upon the terms and conditions agreed upon by the
parties, as set forth in this Stipulation.
(Revised Stipulation for Compromise Settlement and Release
of Federal Tort Claims Act Claims Pursuant to 28 U.S.C. § 2677 at
5(a), attached as Ex. F to Pla.’s Motion to Enforce Settlement at
p. 12, ECF No. 122-13).
Plaintiffs argue that it was unreasonable for the Government
to reject their proposed settlement because “it previously had
confirmed that it would no longer oppose.” (Objections at p. 12,
ECF No. 138).

In their Objections, Plaintiffs state “although it

was clear that the settlement as a whole was conditional upon the
approval of DOJ, it was also clear that in August of 2014,
Plaintiffs had explicit confirmation from the Government, based
upon assurances from the DOJ point of contact, that DOJ’s
opposition to the special needs trust would cease.”

(Id. at p.

11).
Plaintiffs’ assertions that the Department of Justice had
ever approved any of the terms of the proposed settlement
misstates the record.

At no point did AUSA Yee indicate that the

proposed settlement was approved by the Department of Justice.
12

AUSA Yee repeatedly stated that he “believed” the revisions to
the settlement would remove opposition by his Point of Contact at
the Torts Division.

(See Emails at pp. 44, attached as Ex. I to

Pla.’s Motion to Enforce Settlement, ECF No. 122-16).

AUSA Yee

explicitly told Plaintiffs that he could not get the Department
of Justice officials to commit to recommending the revised
settlement to the AAG.

(Id. at e-mail dated August 6, 2014 at

4:56 p.m., at p. 44).
Plaintiffs Objections regarding the alleged approval of the
proposed settlement terms are without merit.

The record is clear

that Plaintiffs were repeatedly told that their proposed
agreement with AUSA Yee remained subject to approval by the
Assistant Attorney General for recommendation to the Associate
Attorney General.

28 C.F.R. § 0.160, 0.161(b).

There were never any agreements directly between Plaintiffs
and the Associate or Assistant Attorney General.

The Department

of Justice never assented to the changes made to the terms of the
proposed settlement.

Callie, 829 F.2d at 890; Restatement 2d of

Contracts §§ 17-18, 20, 22.
C.

Department of Justice’s Response to the Proposed
Settlement

On November 4, 2014, AUSA Yee informed Plaintiffs’ counsel
that the United States had not accepted the terms of their
proposed settlement agreement but had proposed alternative terms.
13

(Letter from AUSA Yee to Mr. Livingston dated November 4, 2014,
attached as Ex. G to Pla.’s Motion to Enforce Settlement, ECF No.
122-14).
Two weeks later, on November 18, 2014, Plaintiffs rejected
the United States’ proposed counter-offer.

(Letter from Mr.

Livingston to AUSA Yee dated November 18, 2014, attached as Ex. S
to Pla.’s Motion to Enforce Settlement, ECF No. 122-26).
On January 13, 2015, the Department of Justice rejected the
proposed settlement agreement reached between Plaintiffs and AUSA
Yee.

(Email from Tom Helper, Chief of the United States

Department of Justice, Civil Division, to Mr. Livingston dated
January 13, 2015, attached as Ex. H to Pla.’s Motion to Enforce
Settlement, ECF No. 122-15).

The Department of Justice made a

second counter-offer to the Plaintiffs that included a
reversionary trust, which was also rejected by the Plaintiffs.
(Id.; E-mail from Mr. Livingston to Mr. Helper, dated January 14,
2015, at p. 74, attached as Ex. I to Pla.’s Motion to Enforce
Settlement, ECF No. 122-16).
There was never a complete, final agreement to all material
terms of the settlement.

Callie, 829 F.2d at 890.

AUSA Yee did

not have the authority to bind the United States to a settlement.
The Associate Attorney General did not approve the proposed
settlement nor did the Assistant Attorney General recommend the
terms of the proposed settlement.

14

28 C.F.R. § 0.160, 0.161(b).

The Department of Justice made counter-offers to the proposed
settlement, which were rejected by the Plaintiffs.
III. Lack of Authority Excusing Settlement Approval by the
Attorney General
The Magistrate Judge determined that Plaintiffs failed to
provide any authority to support its position that approval of
the Attorney General should be excused.

(Findings and

Recommendation at pp. 12, ECF No. 131).

Plaintiffs object to the

finding.

(Objections at pp, 12-13, ECF No. 138).

The Magistrate Judge’s finding was proper.

Plaintiffs

failed to cite any case where a court enforced a settlement
against the United States and had excused the condition of
approval by the Attorney General or her authorized designee.

The

Magistrate Judge properly distinguished the decision in Reed v.
United States, 717 F.Supp. 1511, 1515 (S.D. Fla. 1988) cited by
Plaintiffs.

In Reed, the Department of Justice had provided

final approval of the settlement.

The Court enforced the

settlement because final approval was given.

Id.

Here, at no

point did the Department of Justice give final approval of the
proposed settlement between Plaintiffs and AUSA Yee.
in Reed does not support the Plaintiffs’ position.

The holding
There was

never an approved, final settlement for the Court here to
enforce.
Plaintiffs also rely on the unpublished decision of the
15

Third Circuit Court of Appeals in A.P. ex rel. Phinisee v. United
States, 556 Fed. Appx. 132, 134 (3d Cir. 2014).

In A.P., the

Government was the party who filed a Motion to Enforce
Settlement, not the plaintiff.

(Id.)

The district court found

that the plaintiff had assented to all material terms of the
settlement and granted the Government’s Motion to Enforce
settlement.

(Id. at 136-38).

The Third Circuit Court of Appeals

upheld the enforcement of the settlement.

(Id.)

Here, it is the Plaintiffs, not the Government, seeking to
enforce the settlement.

In A.P., the district court did not

excuse approval by the Department of Justice, but found that the
settlement terms were enforceable against the plaintiff who had
unconditionally agreed to all the material terms.
support the Plaintiffs’ position.

A.P. does not

The Department of Justice here

has not given approval and there is no completed settlement.
Plaintiffs have not established that the Court has a basis
to enforce a settlement against the United States where the
Attorney General or her authorized designee has never given final
approval of a settlement.
IV.

Plaintiffs’ Objections and Arguments Alleging the Department
of Justice Acted in Bad Faith
A.

Review of the Proposed Settlement by the Department of
Justice

The Magistrate Judge properly found that the Department of
16

Justice was not unreasonable in reviewing the proposed
settlement.

(Findings and Recommendation at p. 14, ECF No. 131).

On January 27, 2014, Plaintiffs and AUSA Yee placed the proposed
settlement on the record.
Record, ECF No. 106).

(Transcript of Settlement on the

Approximately five months after placing

the settlement on the record, the Hawaii State Probate Court
issued its order approving the proposed settlement on June 6,
2014.

(ECF No. 122-11).
After the Probate Court’s approval, the Department of

Justice began its review of the proposed settlement.

AUSA Yee

was in contact with officials from the Department of Justice and
in August 2014 discussed modifications to the settlement terms
with Plaintiffs.

Plaintiffs agreed to the modifications and the

Parties placed a revised proposed settlement on the record on
August 29, 2014.

(ECF No. 112).

Two months and six days later, on November 4, 2014, the
Department of Justice made a counter-offer to Plaintiffs.

The

Magistrate Judge found that the two months and six days it took
for the Department of Justice to review the proposed settlement
between August 29, 2014 and November 4, 2014, was not
unreasonable.

(Findings and Recommendation at p. 15, ECF No.

131).
Plaintiffs object to the Magistrate Judge’s finding.
Plaintiffs assert that the Magistrate Judge should have

17

calculated the Department of Justice’s review to be until January
13, 2015, the date when the Department of Justice specifically
rejected the proposed settlement.

(Objections at p. 12, ECF No.

138).
The Magistrate Judge correctly considered November 4, 2014,
as the date the Department of Justice rejected the proposed
settlement.

A counter-offer is a rejection of the original offer

and terminates the power of acceptance.
Contracts § 39, Comment a.

Restatement Second of

Even if the Court considered January

13, 2015 as the date of rejection, the additional two months of
review by the Department of Justice was not unreasonable given
the complexity of the proposed settlement and the amount of money
involved.
The Magistrate Judge properly determined that there was no
bad faith in the Department of Justice taking time to review the
proposed agreements reached by Plaintiffs and AUSA Yee.
(Findings and Recommendation at pp. 14-15, ECF No. 131).
B.

Department of Justice’s Proposal to Use a Reversionary
Trust Rather than a Special Needs Trust

The Plaintiffs’ Objections also argue that the Department
of Justice acted unreasonably and in bad faith by proposing the
use of a reversionary trust rather than agreeing to the use of a
special needs trust as Plaintiffs had proposed.
pp. 21-35, ECF No. 138).
18

(Objections at

Plaintiffs assert that they have a statutory right to a
special needs trust, relying on the decision of the United States
Court of Appeals for the Third Circuit in Lewis v. Alexander, 685
F.3d 325, 333 (3d Cir. 2012).

In Lewis, the State of

Pennsylvania had passed legislation seeking to regulate special
needs trusts.

Id. at 331.

The appellate court found that the

State law was preempted by the federal statute, 42 U.S.C. §
1396p(d)(4), governing Medicaid.

Id. at 344.

The Third Circuit

Court of Appeals explained that the federal statute provides a
federal definition for what constitutes a special needs trust and
the State law was not permitted to impose different obligations.
Id.
Contrary to Plaintiffs’ assertion, the Third Circuit Court
of Appeals did not find that there is a statutory right to a
special needs trust.

Rather, the Court found that the federal

Medicaid statutes provide eligible individuals with a statutory
right to receive medical assistance and held that a State may not
pass legislation that attempts to change the federal eligibility
requirements.

Id.

The appeals court explained that “Congress established a
general rule that trusts would be counted as assets for the
purpose of determining Medicaid eligibility.

But Congress also

excepted from that rule three types of trusts meeting certain
specific requirements.

Taken together, these are generally

19

called ‘special needs trusts’ or ‘supplemental needs trusts.’”
Id. at 333.

The holding in Lewis does not mandate, as Plaintiffs

suggest, that an individual has a statutory right to a special
needs trust.

To the contrary, special needs trusts are an

exception to the general rule.
The holding in Lewis allows suit when a special needs trust
is already in place and State legislation conflicts with federal
Medicaid laws.

Lewis involved the Supremacy Clause and a suit

against individuals acting under color of State law.

There are

no such issues in this case.
Plaintiffs additional arguments regarding the Department of
Justice’s proposal to use a reversionary trust rather than a
special needs trust are without merit.

Plaintiffs’ argument,

that the policy of the Department of Justice is discriminatory
because it only settles cases that use reversionary trust, is
premature.

The Court agrees with the Magistrate Judge that

“[t]he merits of a reversionary trust as compared to a special
needs trust are not appropriately before the Court.”

(Findings

and Recommendation at p. 13, ECF No. 131).
The Magistrate Judge properly determined that the Plaintiffs
were free to reject the offers of settlement made by the
Defendant and the “Plaintiffs’ attempt to use the new offers of
settlement to demonstrate Defendant’s lack of good faith in
disapproving the original proposed settlement is unpersuasive and

20

unsupported by any authority.”

(Id.)

The reasons stated in the Magistrate Judge’s Findings and
Recommendation are sound.
Plaintiffs’ Objections (ECF No. 138) are DENIED.
The Findings and Recommendation to Deny Plaintiffs’ Motion
to Enforce Settlement (ECF No. 131) is ADOPTED.

CONCLUSION
Plaintiffs’ Objections to Magistrate Judge’s Findings and
Recommendation to Deny Plaintiffs’ Motion to Enforce Settlement
(ECF No. 138) are DENIED.
Pursuant to 28 U.S.C. § 636(b)(1)(C) and Local Rule 74.2,
the “Findings and Recommendation to Deny Plaintiffs’ Motion to
Enforce Settlement” (ECF No. 131) is ADOPTED AS THE OPINION AND
ORDER OF THIS COURT.
IT IS SO ORDERED.
DATED: May 27, 2015, Honolulu, Hawaii.

/s/ Helen Gillmor
Helen Gillmor
United States District Judge

Laura M. Whitney and Richard Whitney, Individually and as Next
Friends of Their Minor Sons E.W. and N.W. v. United States of
America, Civ. No. 12-00382 HG-RLP; ORDER DENYING PLAINTIFFS’
OBJECTIONS TO THE MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION
TO DENY PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT (ECF No. 138)
and ADOPTING THE MAGISTRATE JUDGE’S FINDINGS AND RECOMMENDATION
TO DENY PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT (ECF No. 131)
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