Arkansas Dep't of Health & Human Services v. Ahlborn (04-1508) and Marshall v. Marshall (04-1544)

May 2, 2006 Supreme Court Update

Greetings, Court Fans!
Here's part two of our summary of the latest opinions.
In Arkansas Dep't of Health & Human Services v. Ahlborn (04-1508), a unanimous Court held that, where a Medicaid patient obtains a tort settlement, a state can impose a Medicaid lien only on that portion of the settlement that covers medical expenses. As Arkansas had construed its law, it could impose a lien on the entirety of the settlement (or, for that matter, a jury verdict) if necessary to recover all its Medicaid expenses. In an opinion by Justice Stevens, the Court held that this went too far. First, Arkansas could not argue that federal law required such an assignment. The Medicaid statute requires recipients to assign to the states their rights "to payment for medical care from any third party," but not rights to other payments, and all other provisions of the Medicaid law dealing with assignments flow from that limitation. Second, the Medicaid statute was not a floor for a permissible assignment, but a ceiling. In fact, the law contains an "anti-lien provision," 42 U.S.C. § 1396p, that arguably prevents even a lien on medical expense payments (Ahlborn did not ask the Court to go that far, only to protect her other settlement proceeds). Third, the Court rejected the notion that an expansive lien ought to be allowed where a Medicaid patient settles without judicial oversight or input from the state (thereby raising the prospect of a manipulated settlement that "allocated away" any Medicaid lien by giving the proceeds another label). The Court felt that this problem could be dealt with by advance allocation agreements with the state or by submitting the allocation to the court for decision; Arkansas's preferred rule of absolute priority, however, might preclude settlement in a large number of cases (to cite an example from our own experience, the lien could be so high that the amount needed for the plaintiff to clear some money would be too high for the defense to pay).
And finally, on to the Anna Nicole Smith case, Marshall v. Marshall (04-1544), where you'll be happy to know that Anna Nicole prevailed and may well keep the $80M+ awarded her by the district court on her claim that E. Pierce Marshall, the son of her very rich deceased husband, J. Howard Marshall II, tortiously interfered with a gift J. Howard intended to make to her before death. We must delve into the facts just a bit deeper – and not just because they're scintillating. After J. Howard's death, Anna Nicole filed for bankruptcy, and E. Pierce claimed that Anna Nicole had defamed him when her lawyers publicly stated that he had engaged in forgery, fraud, and overreaching to gain control of his father's assets. Anna Nicole then filed a tortious interference counterclaim, asserting among other things that E. Pierce imprisoned J. Howard, prevented him from contacting her, made misrepresentations to him and conspired to suppress or destroy a trust J. Howard directed his attorneys to create for her – which would have given her half of the appreciation of his assets from the date of their marriage. The bankruptcy court found against E. Pierce and for Anna Nicole, and the district court agreed, awarding Anna Nicole $44.3M in compensatory damages and $44.3 million in punitive damages. Meanwhile, the Texas probate court upheld J. Howard's will and trust – which gave all of J. Howard's assets to E. Pierce. The Ninth Circuit ultimately reversed the district court result, finding that the federal courts lacked jurisdiction because, even though Anna Nicole's tortious interference claim did not directly involve administration of an estate or the probate of a will, it raised issues that ordinarily would be determined by a probate court – and the Texas probate court already had ruled that it should have exclusive jurisdiction over Anna Nicole's claims.
Juxtaposed against this decidedly colorful factual backdrop, the Court addressed the not-so-colorful exception to federal court jurisdiction for probate matters ("the probate exception"), finding that the exception – to the extent one exists – is not nearly so broad as the Ninth Circuit found here. The idea of a probate exception to federal jurisdiction derives from the notion that the English Court of Chancery's jurisdiction did not extend to probate matters – and thus, as it goes, the Judiciary Act of 1789 also did not afford that jurisdiction to federal courts. The Court, led by Justice Ginsburg, found no need to decide whether there was any basis for a probate exception because it certainly wasn't applicable here. In this case, Anna Nicole's claim was against E. Pierce and could be satisfied without interfering with the state probate court's efforts. Federal courts may not have jurisdiction to probate a will or administer an estate, but they do have jurisdiction to adjudicate rights in property so long as the final judgment does not affect the possession of property in the custody of a state court. And the Ninth Circuit erred in finding that it was bound by the Texas probate court's ruling that it had exclusive jurisdiction over Anna Nicole's claims – while a state court's judgment as to its own jurisdiction may be entitled to full faith and credit, this is not so of a state court's pronouncement of the scope of federal jurisdiction. Stevens concurred in part and in the judgment; he would find no probate exception at all, stating: "I would provide the creature with a decent burial in a grave adjacent to the resting place of the Rooker-Feldman doctrine" (which the Court killed off this Term and last).
That's all for this week. Thanks for reading!
Kim & Ken
From the Appellate Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400