Glover v. Glendening

ELDRIDGE, Judge. This action for declaratory and injunctive relief against several Maryland officials was brought under the Maryland/federal medicaid program and the federal Medicaid Act, 42 U.S.C. § 1396 et seq. 1 The federal Medicaid Act, in 42 U.S.C. §§ 1396a(25), 1396a(45) and 1396k, provides for the assignment, by medicaid recipients to the State, of any rights which the medicaid recipients may have against third parties to recover for the medical care which the State paid for under the medicaid program. These sections go on to provide that the State shall take all reasonable measures to ascertain the liability of third parties and to seek reimbursement from third ¹⁴⁵ parties. Section 1396k goes on to provide in subsection (b) as follows: “(b) Such part of any amount collected by the State under an assignment made under the provisions of this section shall be retained by the State as is necessary to reimburse it for medical assistance payments made on behalf of an individual with respect to whom such assignment was executed (with appropriate reimbursement of the Federal Government to the extent of its participation in the financing of such medical assistance), and the remainder of such amount collected shall be paid to such individual.” The dispositive issue in this case is whether subsection (b) is applicable to the future payments to the State of Maryland under the settlement of a lawsuit between the State (together with 46 other states) and the tobacco industry. 2 Along with every other reported opinion which has considered the issue, we shall hold that 42 U.S.C. § 1396k(b) is not applicable to the settlement of the tobacco litigation between the State and the tobacco industry.

I. The plaintiff-appellant, Margie E. Glover, filed in the Circuit Court for Baltimore City a complaint for declaratory and injunctive relief, naming as defendants the Governor of Maryland, the Attorney General of Maryland, the Secretary of the Maryland Department of Health and Mental Hygiene, the Deputy Secretary for Health Care Financing of the Maryland Department of Health and Mental Hygiene, the Treasurer of the State of Maryland, and the bank which is allegedly the escrow agent to receive and disburse to the State the funds paid pursuant to the settlement agreement. The suit was brought by Ms. Glover as a class action. Her complaint alleged that she is a citizen of Maryland “who suffers from ¹⁴⁶ smoking related emphysema,” and that she has been a recipient of medicaid benefits to pay for medical care because of her emphysema. Ms. Glover further alleged that the State of Maryland’s lawsuit against the tobacco industry was brought “to recover billions of dollars for the past and future expenditures for medical assistance provided under Maryland’s medicaid program” and “that, although the State asserted various different legal theories in its complaint, the purpose of the lawsuit was to recover funds paid through the state medicaid program as a result of its subrogation interest.” Finally, the complaint alleged: “The $4.4 billion that the State of Maryland is poised to receive from the tobacco companies exceeds even the most generous estimates of what the State of Maryland had actually paid for existing and viable claims on behalf of Medicaid recipients in this state who have suffered smoking-related injuries. “This excess recovery belongs to the plaintiffs, and it must be disbursed to them.” The complaint stated that “[t]he plaintiff and the plaintiff class are entitled to a declaration of their rights and the defendants’ obligations” under the medicaid program.

Ms. Glover also sought an injunction requiring the disbursement of future excess funds to the plaintiff and the members of the class “before such proceeds are deposited in the state treasury or ... before they are expended on other things.” In addition to relying upon sections of the federal Medicaid Act, the complaint invoked various provisions of the federal and state constitutions as well as numerous federal regulations. The defendants filed a motion to dismiss or for summary judgment on two alternative grounds: (1) sovereign immunity, and (2) failure to state a cause of action. The defendants attached as an exhibit the lengthy settlement agreement between the states and the tobacco industry. Thereafter, the Circuit Court filed an extensive opinion, granted the motion to ¹⁴⁷ dismiss on the ground of sovereign immunity, and filed an order dismissing the action.

The plaintiffs appealed to the Court of Special Appeals and, prior to any proceedings in the intermediate appellate court, this Court issued a writ of certiorari. Glover v. Glendening, 366 Md. 273 , 783 A.2d 653 (2001). The parties’ arguments in this Court are essentially the same as their arguments in the Circuit Court. The defendants contend that sovereign immunity bars this action and that, even if the defendants lack immunity, the complaint failed to state a claim upon which relief can be granted.

The defendants offer two alternative reasons in support of their contention that the complaint failed to state a claim. First, they argue that the State’s suit against the tobacco industry was not an action under the assignment provisions of the federal Medicaid Act. Second, the defendants argue that a 1999 amendment to the federal Medicaid Act, 42 U.S.C. § 1396b(d)(3), makes it clear that 42 U.S.C. § 1396k(b) does not apply to the tobacco industry settlement funds at issue. In response to the defendants’ sovereign immunity argument, the plaintiff Glover points out that the relief which she seeks is entirely prospective, that she does not claim any of the tobacco settlement funds which have already been paid to the State, and that the action is against state officials rather than the State itself.

Accordingly, Ms. Glover contends, sovereign immunity under Maryland law is not a bar to this action. Ms. Glover further argues that the State’s suit against the tobacco industry was a medicaid assignment action and that the 1999 amendment to the federal Medicaid Act simply relieved the states of the obligation to reimburse the federal government out of the tobacco industry settlement proceeds.

II

We agree with the plaintiff Glover that this action is not barred by Maryland sovereign immunity principles. Our recent opinion in Jackson v. Millstone, 369 Md. 575, 588-593 , 801 A.2d 1034, 1041-1045 (2002), is dispositive of the sovereign immunity issue. ¹⁴⁸ Like the present case, Jackson v. Millstone was an action by medicaid recipients, against a state official, for a declaratory judgment and injunctive relief with regard to future medicaid funds. In rejecting the defendant’s reliance on sovereign immunity, we initially pointed out in Jackson, 369 Md. at 590 , 801 A.2d at 1043 , that where state governmental action “is invalid, sovereign immunity does not preclude a declaratory judgment action or suit for an injunction against the governmental official who is responsible____” While Jackson involved the validity of an administrative regulation relating to medicaid payments, whereas the instant case involves the validity of certain practices by state officials, there is no difference between the two cases with regard to sovereign immunity principles. This Court continued in Jackson as follows ( 369 Md. at 590-591 , 801 A.2d at 1043 ): “As Judge Delaplaine explained for the Court in Davis v. State, supra, 183 Md. [385] at 389, 37 A.2d [880] at 883, ‘if a person is directly affected by a statute, there is no reason why he should not be permitted to obtain a judicial declaration that the statute is unconstitutional.’ The Court in Davis went on to point out that, in addition, ‘a court of equity has power to restrain the enforcement of a void statute or ordinance at the suit of a person injuriously affected.’ Ibid.

Specifically with regard to sovereign immunity, the Davis opinion held (183 Md. at 393, 37 A.2d at 885): ‘Although a State may not be sued without its consent, an officer of the State acting under color of his official authority may be enjoined from enforcing a State law claimed to be repugnant to the State or Federal Constitution, even though such injunction may cause the State law to remain inoperative until the constitutional question is judicially determined.’ See also, e.g., Police Comm’n [Com’r] v. Siegel, 223 Md. 110, 115 , 162 A.2d 727, 729 , cert. denied, 364 U.S. 909 , 81 S.Ct. 273 , 5 L.Ed.2d 225 (1960); Pitts v. State Bd. of Examiners, 222 Md. 224, 226 , 160 A.2d 200, 201 (1960); Pressman v. State Tax Commission, 204 Md. 78, 84 , 102 A.2d 821 , 825 ¹⁴⁹ (1954), and cases there cited; Baltimore Police v. Cherkes, 140 Md.App. 282, 309-810 , 780 A.2d 410, 426-427 (2001).” We also pointed out in Jackson, 369 Md. at 591-592 , 801 A.2d at 1043-1044 , with respect to federal law claims which can be asserted in state courts under 42 U.S.C. § 1983 , “it is clear that the defendant-respondent Director of the Medical Care Financing and Compliance Administration has no immunity from prospective relief,” citing Ritchie v. Donnelly, 324 Md. 344, 356 , 597 A.2d 432, 437 (1991), and Okwa v. Harper, 360 Md. 161 , 193 n. 16, 757 A.2d 118 , 135 n. 16 (2000). In language which is directly on point, this Court in Jackson concluded its sovereign immunity discussion as follows ( 369 Md. at 592-593 , 801 A.2d at 1044 ): “More specifically, courts have rejected the defense of immunity in actions for declaratory or injunctive relief against state officials, by eligible persons or health care providers under the medicaid program, who claim that state practices violate the federal Medicaid Act and/or implementing federal regulations. See, e.g., Wilder v. Virginia Hosp. Ass’n, 496 U.S. 498, 512 , 110 S.Ct. 2510, 2518-2519 , 110 L.Ed.2d 455, 468-469 (1990) (action against state officials, under 42 U.S.C. § 1983 , for prospective injunctive relief, with the Court pointing out that the Medicaid Act ‘imposes a binding obligation on States participating in the Medicaid program ... and ... this obligation is enforceable under § 1983 by health care providers’); Westside Mothers v. Haveman, 289 F.3d 852 (6th Cir.2002) (Medicaid-eligible children under the age of 21 are entitled to injunctive relief, under 42 U.S.C. § 1983 , requiring state officials to comply with the Medicaid Act); Antrican v. Odom, 290 F.3d 178 (4th Cir.2002) (Sovereign immunity does not preclude the plaintiffs from obtaining ‘an injunction mandating that in the future, State officials bring the [state] Medicaid program into compliance with the Medicaid Act.

This mandate might potentially impact the State treasury, but it is nonetheless prospective’); Lewis v. New Mexico Dept. of Health, 261 F.3d 970 (10th Cir.2001) (The immunity defense is not available to state officials who are sued for injunctive relief ¹⁵⁰ to bring the state medicaid program in conformance with the Medicaid Act); Boatman v. Hammons, 164 F.3d 286 (6th Cir.1998) (Medicaid recipients are entitled, under 42 U.S.C. § 1983 , to an injunction requiring state officials to comply "with the Medicaid Act). See also Dalton v. Little Rock Family Planning Services, 516 U.S. 474 , 116 S.Ct. 1063 , 134 L.Ed.2d 115 (1996).” See also, e.g., Cardenas v. Anzai, 311 F.3d 929, 934-938 (9th Cir.2002) (An action which was identical to the case at bar, and the United States Court of Appeals held that, “[b]ecause the plaintiffs seek to remedy an [alleged] ongoing violation of federal law, their claims fall squarely within the Ex parte Young[, 209 U.S. 123 , 28 S.Ct. 441 , 52 L.Ed. 714 ] doctrine,” and “[w]e thus conclude that the plaintiffs’ suit is not barred by sovereign immunity”); Harris v. Owens, 264 F.3d 1282, 1291 (10th Cir.2001) (same). 3 Consequently, the Circuit Court erred in dismissing this action on the ground of sovereign immunity.

III

As earlier mentioned, the defendants offer two alternative grounds for their contention that the complaint failed to ¹⁵¹ state a claim. First, they contend that the State’s suit against the tobacco industry was not an assignment action under the federal Medicaid Act. Second, they assert that, even if the action against the tobacco industry were a medicaid assignment action, the 1999 amendment to the federal Medicaid Act, 42 U.S.C. § 1396b(d)(3), precludes recovery of any excess by a medicaid recipient. We need not and do not reach the first of these grounds.

We agree with the defendants that, as a result of the 1999 amendment, the plaintiff and those similarly situated are not entitled to recover any of the so-called “excess” payments under the tobacco industry settlement with the State. Section 1396b(d) of 42 U.S.C., which includes the critical language of the 1999 amendment in subsection (3)(B)(i) and (ii), provides in pertinent part as follows: “(d) Estimates of State entitlement; installments;