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Successful Summary Judgements in Medi-Cal Recovery Cases

by Sallie C. Russell, Esq. & Mary de Leo, Esq.

As the Department of Health Services ("DHS") becomes more aggressive in instituting recovery actions against the beneficiaries of deceased Medi-Cal recipients, attorneys are finding new ways to counter. One defense which proved successful in two recent summary judgment motions involves the three year limitations period for an action upon a liability created by statute as set forth in California Code of Civil Procedure §338(a). Where property has passed from a deceased Medi-Cal recipient to his or her beneficiaries without formal probate or trust administration, DHS has three years from the time it becomes aware of the recipient’s death to file suit or forever be barred from doing so.

In the first case, DHS brought an action in Orange County Superior Court to recover approximately $34,000 from beneficiaries of a small estate of a deceased Medi-Cal recipient who died on July 6, 1995. The defendants were represented by Sallie C. Russell, a Laguna Hills, California, attorney. The suit was filed October 15, 1998, over three years and three months after the date of death. Nevertheless, DHS contended that its suit was timely under the limitations periods found in sections 9201 and 9202 of Division 7 of the Probate Code which governs the Administration of Estates of Decedents and requires DHS to file a claim within four months after notice of the death is given. DHS further argued that the suit was also timely filed under the Code of Civil Procedure §338(a) because the three year limitations period doesn't begin to run until the beneficiaries give DHS notice of the death. In this case DHS had sent a "Medi-Cal Estate Questionnaire" ("Questionnaire") dated October 7, 1995 to the defendants, who filled it out and returned it to DHS. DHS then sent the defendants a demand for payment on January 1996 and claimed that this demand letter met the Probate Code §9209 requirements and the statute of limitations period was subsequently tolled indefinitely. They then argued that the three year statute of limitations started to run only when DHS received notice of the decedent’s death via the defendants’ return of the Questionnaire.

Defendants disagreed with these arguments and filed a summary judgment motion contending that since the decedent’s estate passed without probate administration, the provisions of Probate Code §§9201 and 9202 did not apply and that the three year period began to run, not at the date the beneficiaries sent back the Questionnaire, but at the time DHS became aware of the death. Furthermore, DHS had to have been aware of the death on or before October 7, 1995 because DHS sent the Questionnaire dated October 7, 1995 to the attention of the person responsible for the estate, identifying the decedent as "Deceased." During discovery, DHS admitted that these questionnaires are generated based on information provided by the Information and Technology Services Division and Vital Statistics, both of which are within DHS. Therefore, on October 7, 1995, DHS had actual knowledge of the decedent’s death but did not file its suit until three years and eight days later. DHS responded to this contention by arguing that the department was "too big"to be charged with the knowledge of its separate divisions.

The court agreed with the defendants and granted summary judgment for the following reasons: "The three year limitations period of the Code of Civil Procedure section 338(a) applies and had run prior to filing of this lawsuit; the Department of Health Services clearly knew of the death of the decedent by October 7, 1995; the fact that the Department of Health Services may not communicate with itself regarding such information does not create a tolling of the statute of limitations." Although DHS filed a Notice of Appeal, it was subsequently abandoned.

The second summary judgment motion successfully using the statute of limitations defense was filed by another Laguna Hills, California, attorney, Ann L. Melfi, on behalf of her client who was a defendant in a suit filed by DHS for a $25,000 recovery in San Bernardino County. The defendant's uncle, a Medi-Cal recipient, died on January 21, 1996. His estate consisted only of an annuity, naming the defendant as the beneficiary. (Note that, to our knowledge, this was the first case where DHS had sued to recover against an annuity). After the uncle's death, the defendant received from DHS a Questionnaire dated April 8, 1996 which referred to the decedent as the "Deceased." Defendant completed and returned the form to DHS on or about April 25, 1996. DHS then sent a demand letter and defendant refused to pay. DHS filed suit on April 26, 1999, again more than three years after it had knowledge of decedent's death. (Note that April 25, 1999 was a Sunday.)

Defendant filed a motion for summary judgment using the same contentions that the defense had used in the case discussed above, i.e., that because the decedent's estate did not pass by way of a probate administration, the three year statute of limitations of the Code of Civil Procedure §338(a) applied and that the period began to run when DHS had knowledge of decedent's death. The date on the Questionnaire was again presented as evidence that DHS did have such knowledge as of April 8, 1996, three years and 17 days before it filed suit.

DHS opposed this motion using much the same arguments it used in the prior case and with the same lack of success. The court granted summary judgment for the defendant, again finding that the date on the Questionnaire was sufficient to establish that DHS had knowledge of the death and thereby triggering the three year limitation period. As of the date of this writing, DHS has not filed a Notice of Appeal in this case.

It is important to note that this statute of limitations defense can only be successful where the estate of the Medi-Cal recipient passes without a formal probate or trust administration. For such estates, this defense should be a winner provided the attorney can show that DHS had knowledge of the death of the recipient more than three years before filing the suit. In neither of the cases discussed above did the court buy the argument that a Probate Code §215 notice or any other notice by a beneficiary was required as a starting point for the limitations period. Knowledge of the death was key. Such knowledge could be demonstrated not only by the date on the Questionnaire but with other evidence, for example, the Medi-Cal Long Term Care Facility Admission and Discharge Notification Form (MC 171) that nursing homes are required to submit to DHS when a resident who is a Medi-Cal recipient dies, or the records maintained by the Vital Statistics branch of DHS.

Although these motions were successful in establishing that Code of Civil Procedure §338(a) does apply and begins to run with knowledge and not notice, three years is much too long for beneficiaries to have to wait. Other creditors have one year from the date of death to assert their claims and DHS should also be required to act within that time. To that end, the recently introduced SB 1448, Medi-Cal Estate Claims and Recovery (Hughes), would establish one year from date of death as the applicable statute of limitations for Medi-Cal recovery actions. (Editor's note: SB 1448 failed to pass the Senate Appropriations Committee)

In the meantime, should any reader have questions or wish to discuss a similar situation, either Sallie C. Russell or Ann L. Melfi can be contacted at (949) 454-2205.

Sallie C. Russell, Esq. and Mary de Leo, Esq. are attorneys in private practice in Laguna Hills