FLAMINI v. VELEZ et al

Filing 23

OPINION. Signed by Judge Renee Marie Bumb on 7/19/2013. (TH, )

NOT FOR PUBLICATION

[Dkt. 6]

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE

ELIZABETH FLAMINI,
Plaintiff,

Civil No. 1:12-cv-07304
(RMB/JS)

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

Appearances
Jane M. Fearn-Zimmer
The Rothkoff Law Group
911 Kings Highway South
Cherry Hill, NJ 08034
Attorneys for Plaintiff
Jennifer Lauren Finkel
State of New Jersey
Office of the Attorney General
P.O. Box 112
25 Market Street
Trenton, NJ 08625
Attorneys for Defendant
Bumb, UNITED STATES DISTRICT JUDGE:
Plaintiff Elizabeth Flamini (the “Plaintiff”) has moved for
a preliminary injunction enjoining Defendants Jennifer Velez (in
her capacity as Commissioner of the New Jersey Department of
Human Services) and Defendant Valerie Harr (in her capacity as

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the Director of Medical Assistance and Health Services)
(collectively, the “Defendants”) from:
(1)

treating an annuity purchased by her husband Angelo
Flamini, Sr. (“Mr. Flamini”) as a disposal of assets
for less than fair market value under 42 U.S.C.S. §
1396p(c)(1)(F) (Lexis 2009); and

(2)

counting the annuity as an available asset under 42
U.S.C.S. § 1396p(c)(1)(G) (Lexis 2009) in determining
her eligibility for Medicaid.

For the reasons set forth below, Plaintiff’s motion is GRANTED,
in part, and DENIED, in part.
I.

BACKGROUND
In 2010, Flamini entered a skilled nursing care facility in

Cherry Hill, NJ for various medical conditions. (Docket No. 17,
p. 2). When Plaintiff entered the facility, her and her
husband’s assets included two individual retirement accounts and
a tax-qualified savings account, all in the name of Mr. Flamini.
(Id.)
On February 28, 2011, Mr. Flamini liquidated these accounts
and used the proceeds to purchase a single individual retirement
annuity from Genworth Life Insurance Company (“Genworth”) for
$215,256.51. (Id. at pp. 2-3.) The Annuity was issued in Mr.
Flamini’s name and calls for monthly income payments of
$3,596.35 for a term of five years, beginning on March 28, 2011,
[Docket. No. 1, pp. 28] and lists the State of New Jersey as the

2 

primary remainder beneficiary up to the full amount of medical
payments made on behalf of Flamini. (Id. at 22.)
The Annuity indicates that: (1) ownership of the Annuity is
assignable with Genworth’s prior consent (Id. at 30); (2) the
owner, Mr. Flamini, has the right to change the owner, payee,
and beneficiary, subject to the consent of any irrevocable payee
or beneficiary (Id. at 32); (3) the owner may take a lump sum
payment advance of up to 12 months of regular payments (Id. at
35); and (4) the owner may revoke the Annuity for any reason
within 20 days of purchase. (Id. at 46).
However, an endorsement attached to the Annuity (the
“Endorsement”) indicates that: (1) all provisions should be
interpreted in accordance with the requirements of § 408(b) of
the Internal Revenue Code which requires, among other things,
that annuities are nontransferable and irrevocable (Id. at 37);
(2) to the extent that the Endorsement and Annuity conflict, the
Endorsement controls (Id.); (3) the Annuity is nontransferable,
nonforfeitable, and cannot be sold or assigned. Finally, a
letter from the Internal Revenue Service (“IRS”) is attached to
the Annuity. (Id. at 48). The letter opines that the prototype
annuity from which the Annuity is based would likely be
compliant with § 408 of the Internal Revenue Code.

(Id. at 48).

On June 3, 2011, Flamini applied for Medicaid with the
Camden County Welfare Agency (the “CWA”). [Docket No. 17 at 7].
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In determining Medicaid eligibility for a married individual
that is institutionalized, like Plaintiff, the CWA considers the
individual’s own income and the couple’s joint resources.
U.S.C. § 1396r-5.

42

On January 28, 2013, Flamini was issued a

determination that she was not eligible for Medicaid based on
her available resources level. (Complaint at 54-56). The denial
states that the Annuity was being counted as an available asset.
(Docket No. 17 at 54-56.)

There is no dispute that, if it was

not counted, Plaintiff would have been eligible for Medicaid.
In this action, Plaintiff appeals that determination.
Through this motion, she seeks to enjoin Defendants from: (1)
treating the Annuity as a disposal of assets for less than fair
market value; and (2) considering the annuity in its asset
calculation.
II.

Legal Standard
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., 11-6073, 2011
WL 6020100, at *3 (D.N.J. 2011) (citing Allegheny Energy Inc. v.
DOR. Inc., 171 F.3d 153, 158 (3d Cir. 1999)).
III. Analysis
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The Court considers each of Plaintiff’s claims for relief
in turn.
A.

Plaintiff’s Claim that the Annuity is not a Disposal
of Assets for Less than Fair Market Value

Plaintiff first seeks to enjoin Defendants from treating
the Annuity as a disposal of assets for less than fair market
value pursuant to 42 U.S.C. § 1396p(c)(1)(F). The Court will
deny this aspect of Plaintiff’s motion because it is not yet
ripe for review.

Under the ripeness doctrine, courts consider

whether a case is ripe based on two factors: (1) its fitness for
judicial review; and (2) hardship to the parties.

Feldmeister

v. Officer of Attorney Ethics, 856 F.2d 529, 535 (3d Cir. 1998).
In considering the former, courts consider whether the agency
action is final, whether the issue is one of law, whether the
issue requires additional factual development, and whether
further administrative action is needed to clarify the agency’s
position.

Id. at 536-36.

In considering the latter, a party’s

hardship in deferring review must be immediate and significant.
Id. at 537.

“[J]udicial review is premature when an agency has

yet to complete its work by arriving at a definite decision.”
Id. 535-36 (3d Cir. 1998).

And “[c]laims based merely upon

assumed potential invasions of rights are not enough to warrant
judicial intervention.”

Wyatt, Virgin Islands, Inc. v. Gov’t of

the Virgin Islands, 385 F.3d 801, 806 (3d Cir. 2004).

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Here, review is plainly premature.

With respect to the

issue’s fitness for review, the issue is a mixed question of law
and fact, Defendants have not yet made any final determination
as to the applicability of that section at issue, and the issue
has only been minimally addressed in Defendants’ briefing.

With

respect to hardship to denying review, there is no significant
hardship because, as described below, Plaintiff will receive
Medicaid coverage in the interim, and Defendants will be
protected by the posting of a bond.

Accordingly, both fitness

and hardship considerations militate strongly in favor of
deferring consideration of this issue due to lack of ripeness.
Therefore, to the extent Plaintiff’s motion seeks review of
this issue, the motion is DENIED for lack of ripeness.
B.

Plaintiff’s Claim that the Annuity is Not an Available
Asset

Plaintiff’s second claim is that the Annuity should not be
counted as an available asset in Plaintiff’s Medicaid
eligibility determination. The Court addresses each preliminary
injunction factor in turn and finds that a preliminary
injunction on this claim is warranted.
1.

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

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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 here is whether Flamini
will be able to prove that the Annuity should not be counted as
an available resource.
Both parties cite to 42 U.S.C. §1396p(c)(1)(G) as the
relevant provision governing whether an annuity is treated as an
available resource for this purpose. It provides:
For purposes of this paragraph with respect to a transfer
of assets, the term “assets” includes an annuity purchased
by or on behalf of an annuitant who has applied for medical
assistance with respect to nursing facility services or
other long-term care services under this subchapter unless(i) the annuity is—
(I) an annuity described in subsection (b) or
(q) of section 408 of the Internal Revenue Code
of 1986 [26 USCS § 408]; or
(II)

(ii)

purchased with proceeds from—
(aa) an account or trust described in
subsection (a), (c), or (p) of section 408
of such Code [26 USCS § 408];
(bb) a simplified employee pension (within
the meaning of section 408(k) of such Code
[26 USCS § 408(k)]); or
(cc) a Roth IRA described in section 408A of
such Code [26 USCS § 408A]; or

the annuity—
(I) is irrevocable and nonassignable;
(II) is actuarially sound (as determined in
accordance with actuarial publications of the
Office of the Chief Actuary of the Social
Security Administration); and
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(III)provides for payments in equal amounts
during the term of the annuity, with no deferral
and no balloon payments made.
42 U.S.C. § 1396p(c)(1)(G).
However, courts have questioned the applicability of this
provision to the circumstances here. See Carlini v. Velez, No.
12-7290, 2012 WL 2403569, at *4 n.3 (D.N.J. June 4, 2013).

They

reasoned that the provision’s annuity definition only applies to
annuities where the purchaser of the annuity is the same
individual that is the applicant for the Medicaid program. Id.
(citing to language that “the term assets includes an annuity
purchased by or on behalf of an annuitant who has applied for
medical assistance”)(emphasis added).

And, here, the purchaser

is Mr. Flamini and the applicant is the Plaintiff.
need not resolve this issue at this time.

This Court

Whether the provision

applies, or not, Plaintiff has demonstrated a likelihood of
success on the merits.
If the provision does not apply, courts have consistently
held that an irrevocable, non-assignable annuity does not fit
the statutory definition of an available resource.

James v.

Richman, 547 F.3d 214, 219 (3d Cir. 2008); Lopes v. Dep’t of
Soc. Servs., 696 F.3d 180, 188 (2d Cir. 2012)(holding that
“payment stream from a non-assignable annuity is not a resource
for purposes of determining Medicaid eligibility” and joining
Tenth and Ninth Circuits in so holding).
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And, here, the

Endorsement, which controls over any conflicting provision in
the Annuity, specifically bars assignment or sale and indicates
that the Annuity is non-forfeitable.

Therefore, Plaintiff has

demonstrated a likelihood of success in showing that the Annuity
is not an available resource because it is both non-assignable
and irrevocable.
Even if the provision applies, it would not alter the
result.

Defendants argues that, under § 1396p(c)(1)(G), the

Annuity is considered an asset and therefore an available
resource for eligibility determination purposes.

Plaintiff does

not dispute that, if the Annuity is an asset, it should be
considered an available resource.

She instead argues that she

has a likelihood of demonstrating that three different
exceptions apply that would exclude the Annuity from being
defined as an asset. She argues that: (1) the Annuity is in
compliance with § 408(b) of the Internal Revenue Code and
therefore meets the exception outlined in §
1396p(c)(1)(G)(i)(I); (2) the Annuity was purchased with
proceeds from a tax-qualified retirement account and therefore
meets the exception outlined in § 1396p(c)(1)(G)(i)(II); (3) the
Annuity is irrevocable, nonassignable, actuarially sound, and
provided for equal payments with no balloon payments, thus
meeting the exception outlined in § 1396p(c)(1)(G)(ii).

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With respect to Plaintiff’s first argument, this Court
agrees. Defendant has failed to point to any provisions of §
408(b) that the Annuity would violate. Moreover, pursuant to the
Endorsement, the Annuity is intended to be interpreted to be in
accord § 408(b) and specifically bars forfeitability and
assignability as required by § 408(b). Finally, the IRS letter
provides strong evidence that the Annuity is acceptable under §
408. With respect to Plaintiff’s second argument, this Court
agrees. Defendant has not disputed the applicability of this
provision. And Plaintiff introduced evidence documenting that
Mr. Flamini used proceeds from qualifying individual retirement
accounts to purchase the Annuity. With respect to Plaintiff’s
third argument, this Court disagrees. That exception requires
annuities, among other things, to prohibit balloon payments. But
the Annuity allows lump sum withdrawals of up to twelve months,
which would qualify it as a balloon payment. 12 C.F.R. §
1026.18(s)(5)(i)(defining balloon payment as “a payment that is
more than two times a regular periodic payment”).

Therefore,

Plaintiff would qualify for at least two exceptions if
1396p(c)(1)(G) applies.

Accordingly, Plaintiff has a likelihood

of success in demonstrating that the Annuity is not an available
resource, even if 1396p(c)(1)(G) applies.

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Because Plaintiff has shown a likelihood of success on her
claim that the Annuity is not an available resource, Plaintiff
has demonstrated a likelihood of success on the merits.
2.

Irreparable Harm

Irreparable harm requires a plaintiff to show that he or
she will experience harm that cannot adequately be compensated
by monetary damages. AAMCO Transmissions, Inc. v. Dunlap, 114009, 2011 U.S. Dist. LEXIS 91130 at *22 (E.D. Pa. Aug. 16,
2011) (citing Adams v. Freedom Forge Corp., 204 F.3d 475, 484-85
(3d Cir. 2000)).
Flamini has met this requirement. The Eleventh Amendment
provides state immunity from awards of retroactive benefits,
save for the three months immediately preceding an outcome in
the plaintiff’s favor. Sorber v. Velez, 09-3799, 2009 U.S. Dist.
LEXIS 98799 (D.N.J. Oct. 23, 2009) (citing Edelman v. Jordan,
415 U.S. 651 (1974)). As such, Flamini will not be able to
recover full compensation with a favorable verdict and would be
irreparably harmed in the absence of an injunction. Carlini v.
Velez, 12-7290, 2013 U.S. Dist. LEXIS 78160 (D.N.J. June 4,
2013)(finding irreparable harm in agency determination that
annuity purchase was subject to Medicaid eligibility penalty
period due to Eleventh Amendment restrictions on recovery).1

1

Flamini also argues irreparable harm through a risk of discharge from
nursing care facility. Since the Court finds irreparable harm above, it
is not necessary to address the merits of this argument.

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3.

Harm to the Defendant

A preliminary injunction should not be granted if it will
cause greater harm to the defendant than the plaintiff would
suffer. Sorber, 2009 U.S. Dist. LEXIS 98799 at *4 (citing
Nutrasweet Co. v. Vit-Mar Enters., 176 F.3d 151 (3d Cir. 1999)).
Defendants cite out-of-pocket expenses, but temporary expenses
which could be fully recovered after a full disposition of this
case do not outweigh the irreparable harm faced by Plaintiff.
Therefore, the harm to the defendant does not weigh in favor of
Defendants.
4.

The Public Interest

The parties agree that the public has an interest in
ensuring that Medicaid statutes are enforced correctly and
equitably. Here, because Plaintiff’s interpretation appears
correct and Defendants appear to have erroneously interpreted
Plaintiff’s entitlement to Medicaid, the public interest weighs
in favor of granting an injunction. See Sorber, 2009 U.S. Dist.
LEXIS 98799 at *11-12 (holding the interest in requiring the
state to refrain from applying transfer penalty rules to
compliant asset transfers to children supported an injunction);
see also Carlini, 2013 U.S. Dist. LEXIS 78160 (finding public

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interest in ensuring Medicaid statues applied equitably weighed
in favor of an injunction).2
IV.

Conclusion
For all the reasons discussed above, Plaintiff has

established her entitlement to a preliminary injunction on her
second claim, but not her first claim. Accordingly, Plaintiff’s
motion for a preliminary injunction is GRANTED, in part, and
DENIED, in part.

The parties shall jointly propose to the Court

a suitable bond requirement, or notify the Court that such
agreement cannot be reached, by August 2, 2013.

See Federal

Rule of Civil Procedure 65(c)(requiring the posting of a
security).
s/Renée Marie Bumb
RENÉE MARIE BUMB
United States District Judge
Date: July 19, 2013

2

Defendants argue that this result is against the public interest
because it inappropriately allows Plaintiff, and others that are
similarly situated, to “circumvent the Medicaid eligibility rules.”
But that argument presupposes that the Flaminis’ structuring of their
financial assets represents a circumvention of the law. In fact, the
law appears expressly designed to permit this specific type of
structuring without threatening to compromise Medicaid eligibility.

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