Arkansas Department of Human Services v. Ahlborn - Oral Argument

Argument of Lori Freno

Chief Justice Roberts: We'll hear argument first this morning in 04-1506, Arkansas Department of Health and Human Services v. Ahlborn.

Ms. Freno.

Mr. Freno: Mr. Chief Justice, and may it please the Court--

The parties agree that Medicaid paid over $215,000 to cover the costs of medical care provided to Ms. Ahlborn that resulted from an auto accident that she was involved in.

The parties also agree that the petitioner, the Arkansas Department of Health and Human Services, may place a lien on some portion of the third party settlement proceeds that are at issue in this case.

They disagree, however, as to what extent that lien may reach into the third party settlement proceeds in this case.

The respondent, without notifying the Department of Health and Human Services, finalized a settlement with the remaining tortfeasor accepting $550,000 as a compromised settlement for a claim that she had originally valued at over $3 million.

Justice Kennedy: Can you tell me?

It's my... excuse me.

My understanding was that Arkansas had intervened in the suit.

Mr. Freno: That is correct, Your Honor.

Arkansas did intervene in the lawsuit.

Justice Kennedy: So after the settlement, I take it Arkansas would... still would have had the right to... to pursue its claim in the litigation, or am I wrong about that?

Mr. Freno: Well, Your Honor, after... at the point that Arkansas learned about the settlement, the case had already been dismissed out of State court with prejudice, and the respondent notified the department that if it would not accept... it would not compromise its Medicaid claim, that they would be filing a declaratory judgment action in Federal court to resolve the anti lien question.

And that is how we ended up in Federal court.

Justice Stevens: But if Arkansas was a party to the case, it didn't get notice of the dismissal?

Justice Kennedy: That's what I don't understand.

Mr. Freno: They... it did not get notice of the dismissal.

No, it did not, Your Honor.

We do not know what happened, but we did not get notice of the dismissal until after the case was dismissed.

Justice Breyer: Well, I don't understand--

Justice Kennedy: How can they do that with... with a party?

I mean, the... and the reason... the reason I ask is it seems to me that you still have the cause of action left.

Maybe that would be my next question.

Suppose there's a settlement and you don't get, in the settlement, even earmarks, medical specialists, plus general damages, and you're... you're unsatisfied.

Don't you still have the right under Arkansas law... or do you... to pursue the tortfeasor for the balance that's owed to you?

Mr. Freno: Arguably Arkansas could have attempted to get the case reopened in State court, but the petitioner... I'm sorry... the respondent in this case selected the Federal forum to resolve the issue.

Justice Breyer: --No, but that's not at issue.

That is, I think the question is, why is it that this statute doesn't simply provide the following route?

Party A and party B enter into a settlement, and they say $10,000 is for medical and $90,000 is for pain and suffering.

You, Arkansas, are out $50,000.

Well, fine.

You're in the case anyway.

Sue the defendant for the remaining $40,000.

Mr. Freno: Well, Your Honor--

Justice Breyer: And that's the end of it.

Mr. Freno: --I'm not familiar with the terms of the settlement agreement, but I would assume that if Arkansas would have sued the defendant for the remainder, that there would have been an indemnification clause in the settlement agreement, which means that the money would have ended up coming right out of Ms. Ahlborn's pocket in any event.

Justice Breyer: Well, I have no idea about that.

I'm interested in this nest of statutes, and the question I think that I would have is why doesn't the statute propose the route for a State in your... in your position that I just said.

If they have a good faith settlement and they think that $10,000 of this good faith settlement is attributable to the medical expense and you are out $40,000... $50,000, you can sue the other party.

And if you're in the case, you just proceed with the suit.

Mr. Freno: Your Honor--

Justice Breyer: They can't settle your claim out from under you.

Mr. Freno: --That is exactly what happened.

They did settle the claim out from under the department.

Justice Breyer: No, but the--

Justice Kennedy: But we're asking how that can be.

Mr. Freno: We don't... well, we don't know how that can be.

We don't know why the... we do not know why the State court dismissed the action.

Justice Kennedy: We're asking you as a matter of Arkansas law.

Mr. Freno: As a matter of Arkansas law, a claim should not be dismissed until all parties are... the rights of all parties are determined.

Justice Souter: Why didn't Arkansas--

Justice Stevens: I wonder if you have a claim for incompetent counsel representing you.

Mr. Freno: I'm sorry?

Justice Stevens: I'm wondering you... if you have a claim against counsel for being incompetent in letting a settlement be made without notice to the... to you.

It seems to me hard to... hard to understand how this could happen.

Mr. Freno: Well, if... in fact, there is an Arkansas statute that if monies that belong to the department are distributed in a... in a manner that is inconsistent, you know, with the interests of the department, that it can pursue either the Medicaid recipient, her guardian, her attorney, or anyone else for that money.

Justice Souter: --Then why don't we just send you back to do that?

Mr. Freno: Because--

Justice Souter: I mean, why are we going through this... this proceeding here?

Mr. Freno: --The reason we're going through the proceeding here, Your Honor, is because the issue of the anti lien provision was raised.

That was not raised in State court.

It was brought in Federal court as a part of the declaratory judgment action.

Justice Souter: No.

I... I realize that.

But at... at the end of the day, you want your money, and... and I don't see why you can't get your money simply by going back into the State court.

Maybe... maybe lapse of time bars you at this point.

But presumably you could have avoided all of this by simply saying, we didn't agree to the settlement.

We're still here.

We want our... the... the remainder of our money.

Mr. Freno: Your Honor, we could have proceeded in State court if we wished.

The State, of course, has limited resources, and we learned that the--

Justice Souter: Well, wouldn't it have been easier to do that than come to the Supreme Court of the United States?

Mr. Freno: --We never expected to get, frankly, to the Supreme Court of the United States.

But we did understand that we would be--

Chief Justice Roberts: You were the petitioner.

Mr. Freno: --before the Federal district... I'm sorry?

Chief Justice Roberts: You were... you were the petitioner.

Mr. Freno: Yes.

Chief Justice Roberts: Well, if you're filing a petition, you have to have some expectation that you might end up here.

Mr. Freno: Oh, I thought you meant at the time that the State court case was dismissed.

I'm sorry.

I misunderstood the question.

Justice Breyer: --I want to go back to the Federal statutes and the State statute.

Mr. Freno: Yes.

Justice Breyer: Why isn't this discussion just suggest what the answer is to the legal question raised?

The answer is, of course, you cannot get a hold of this money in the hands of the victim.

The money in the hands of the accident victim is not your money.

It is not medical expense money.

It was stipulated that it is not.

That doesn't leave you without a remedy.

The remedy is to go against the causer of the accident and get the extra money that you think is entitled to you.

The statutes say that literally, and why not just follow them?

Mr. Freno: Your Honor, the third party liability provisions of Federal Medicaid law is what governs this case, and those statutes require that the States seek... seek reimbursement from liable third parties for medical costs for the full amount of that liability.

Now, as a... a condition of Ms. Ahlborn's eligibility... or as a condition of eligibility for Medicaid, Ms. Ahlborn had to assign to the State her right to payment for medical costs... her right to payment for medical costs.

Consequently, when she assigned that right to the State, it was synonymous with what the State itself had to do, which was seek full reimbursement from liable third parties to the extent of the third parties' legal liability.

Justice Stevens: But could she... after that assignment, could she bring a suit in her own right to do that, to recover the medical costs?

Mr. Freno: Yes, she could, Your Honor, and in fact, that is what the majority--

Justice Stevens: Even though she's assigned the cause of action to the State?

Mr. Freno: --Yes, Your Honor.

And that is what the majority of the Medicaid recipients in our State choose to do.

They prefer to pursue the action on their own and in the end just reimburse the Medicaid program.

Justice Scalia: Why isn't it dismissed on the basis that they... they don't have a cause of action because they've assigned it?

Mr. Freno: Well, they... she is basically... a recipient is pursuing the cause of action with the... the approval of the State.

And also, in the third party liability provisions, it's important to recognize that they provide... they include a duty of cooperation that the recipient has to cooperate with the State in seeking full Medicaid reimbursement.

So the third... the Federal third party liability provisions basically consider the recipient and the State to be a team, a team that is out to get full reimbursement.

Justice Ginsburg: You're... you're talking without reference to the statute, and as I read the statute, the phrase that keeps reappearing is payments made by a third party for health care items or services.

So she has to turn over from her recovery what she got for health care, but we know that her tort claim consisted of a lot more.

So if the Federal statute says she has to turn over what she received from the third party for health care services, well, she did that, and you agreed that that would be a fair allocation.

So I don't see how you get from her the... a much larger share than what she got for health care.

Mr. Freno: Your Honor, what the statute requires... this is in the petitioners' brief on pages 2 and 3... at 42 U.S.C. 1396k(a)(1)(A), which is the section that talks about the scope of the assignment, she has to assign her rights to payment for medical care, not payments that she actually receives for medical care.

And what are her rights to payment for medical care?

If we would take this out of the Medicaid context and put it in a standard tort context, someone who's injured by a third party has a right to receive all the money that she is out due to the fact that she was injured by the third party.

Justice Souter: Why isn't her response to that argument, look, I've... I've assigned you my rights?

There's no question about that.

I'm also willing to give you whatever the amount is that they allocated.

If... if you want the difference, you've got the assignment.

Go ahead and sue for it.

Mr. Freno: There is nothing, though, in the--

Justice Souter: I mean, that would be consistent with the... with the statute.

Wouldn't it?

Mr. Freno: --The third party liability provisions do not require the State to ever seek reimbursement through the direct--

Justice Souter: No, no, but I... I'm not saying that it... it does.

The State can do nothing if it wants to.

But the statute that you just quoted requires her to assign to the State her right to recover for... for her medical expenses.

She says, I have done that.

In fact, I've done that as a matter of law, under Arkansas law.

You've got your assignment.

Number two, I'm giving you the portion of the recovery that I got with respect to medical payments.

You can have it.

Now, there's a difference between what you paid and what I got attributable to medical payments, an amount, by the way, which you stipulated was correct.

So if you want the difference, sue for it.

Go ahead.

It's fine with me.

Why isn't that the answer?

Mr. Freno: --Ms.... first of all, with regard to the stipulation, Your Honor, the parties have always agreed that Medicaid paid over $214,000--

Justice Souter: Right.

Mr. Freno: --for Ms. Ahlborn's damages.

The State is in no way trying to take anything from the third party settlement proceeds that represents... that represents payment for anything other than what is necessary to reimburse the State for that amount of money.

Justice Souter: But you're... you're basing your argument on this statute.

Mr. Freno: Yes.

Justice Souter: And let me come back to my question.

This statute simply says that she will assign her rights to recover for the medicals.

She has done that.

She has also given you the portion of the settlement which she and you agree is attributable to the medicals.

Why isn't the statute satisfied if she simply says, you've got your assignment?

If you want the difference between what I've given you and your out of pocket expense, sue.

You have the assignment.

You have the right.

Go ahead and sue for it.

Mr. Freno: Because she assigned, Your Honor, her right to recover... or her right for payments from third parties, she no longer has the right to compromise the State's claim.

Ms.... the respondent does not have--

Justice Souter: Well, it seems to me that that is an entirely different argument.

The question is what does the statute require her to do and entitle you to do.

And I don't see why, under the statute, the statute is not satisfied if you simply sue for the difference under... under your assignment of her rights.

Mr. Freno: --There's... under the statute, her assignment... she has a duty of cooperation, first of all, to cooperate with the State in receiving these recoveries.

The assignment allows her to bring a lawsuit.

It does not require her to bring a lawsuit.

Primarily the obligation is on the State to sue--

Justice Souter: Doesn't the assignment allow you to bring a lawsuit?

Mr. Freno: --Yes, the assignment allows--

Justice Souter: Then why don't you bring it?

I mean, the answer to the... to the statutory point, it seems to me, is you've got your assignment.

If you're not whole yet, sue.

Mr. Freno: --But she... she opted to bring the... she opted to bring the lawsuit on her own.

And the point I was making earlier--

Justice Souter: So what?

You can sue too.

Mr. Freno: --We could sue, but the State has limited resources.

Every penny--

Justice Kennedy: Let me... let me ask you this question so far as the rights of the assignee and the assignor.

Suppose it's a very weak case and the litigant says I want to settle for 20 cents on the dollar.

Are you saying that there's some kind of duty to notify the State and... and to consult with the State before this is done?

Mr. Freno: --Yes, Your Honor, and that is encompassed within State law.

Justice Kennedy: Okay.

Suppose the... the State says, well, we... we don't... we don't agree with you.

Then... then what happens?

Then they're at loggerheads and you go to Justice Souter's position I suppose.

Mr. Freno: In that situation, then the... the case would just have to go forward to litigation.

And yes, the State, if it wished to pursue--

Justice Kennedy: Would... would it... if... suppose in the instance I put they... the... the State has... has an objection, but the settlement is made, nonetheless, for 20 cents on the dollar.

Do you still think you have the right to receive 100 percent of your payment from the proceeds in the case that I put?

Mr. Freno: --Would you repeat that?

I'm sorry.

Justice Kennedy: Assume that it's a very weak case.

They settle for 20 cents on the dollar.

Do you have the right, as you understand the law, to insist that you receive 100 percent of your payments from the gross settlement?

Mr. Freno: The... the Medicaid recipient can never compromise the claim of the State.

Justice Kennedy: The answer is yes, I take it.

Mr. Freno: Pardon me?

Justice Kennedy: The answer is yes, I take it.

In the case I put, the answer is you would think that you're entitled to 100 percent of your payments.

So that eats into her general damages.

Mr. Freno: Well, she... in that situation, Your Honor, she can... she can compromise her own claim.

She cannot compromise the State's.

If she wants--

Chief Justice Roberts: So you think you're... you're entitled to 100 percent under Arkansas law, but... and I take it, that would be without regard to what the Federal law required.

The Arkansas law can go beyond... just looking at the assignment provision, beyond what the Federal law requires you do as a condition of participation in Medicaid.

Correct?

Mr. Freno: --No.

State law cannot go, Your Honor, beyond Federal law, and Federal law allows the State to receive full reimbursement to the extent of the third party's liability.

Chief Justice Roberts: Well, if we disagree with you on that... in other words, you're saying we don't even have to reach the anti lien provision question.

If we think the Medicaid condition only goes to the extent payments for medical care, then you would lose without regard to the anti lien provision?

Mr. Freno: I'm sorry.

Would you repeat that?

Chief Justice Roberts: Arkansas law, as you understand it--

Mr. Freno: Yes.

Chief Justice Roberts: --requires a... a full... full assignment of any expenses the State... or full recovery of any expenses the State has incurred.

It's not... it's a debate whether Medicaid law requires that.

And what you're saying is if we think the Medicaid law does not require it, you would lose without regard to any consideration of the anti lien provision?

Mr. Freno: If Medicaid... Medicaid law does require full reimbursement.

But if this Court determined that Medicaid law did not require full reimbursement from... to the extent of a third party's liability, well, then there would not be an anti lien... there would not be an anti lien provision question.

But Federal law does require the State to seek full reimbursement to the extent of the third party's liability.

Chief Justice Roberts: Well, that's one of the issues, and I'm trying to understand.

The respondent's position is that the Arkansas law goes beyond what the Medicaid assignment provisions require.

And I want your position on whether or not, if that's right, again without regard to the anti lien provision, that you would lose.

It seems to me that you can... Arkansas can go beyond what the Medicaid law requires for reimbursement, if it wants.

Mr. Freno: No, that is not true, Your Honor.

Arkansas law must stay within the scope of the Federal law.

Arkansas law cannot require a recipient to assign--

Chief Justice Roberts: Okay.

So if we read the Medicaid statute to require something less than what your position is here, then you lose.

Mr. Freno: --That would be correct.

Chief Justice Roberts: Okay.

That's without regard to the anti lien provision, or is it because of the anti lien provision?

Mr. Freno: It would be because of the anti lien provision.

But because she assigned to payment for medical care, that... the anti lien provision doesn't operate with regard to that amount of money that is recovered from a third party in a... in a third party settlement.

If there are no further questions, I'd like to reserve the remainder of my time for rebuttal.

Chief Justice Roberts: Thank you, counsel.

Mr. Freno: Thank you.

Argument of Patricia A. Millett

Chief Justice Roberts: Ms. Millett.

Mr. Millett: Mr. Chief Justice, and may it please the Court--

Excuse me.

The problem in this case... and it's a common one... is when private parties, beneficiaries, sue first and run the well dry.

There's no question in this case that the settlement includes the payment for medical care that she was entitled to and the one she assigned to the State.

That is not in dispute.

The question is the amount, and the amount is very much in dispute.

The... the position of the beneficiary is that the amount that is medical payment is the amount that we unilaterally decide is the share of medical payments in the settlement.

Justice Alito: What should have happened?

Suppose that Ms. Ahlborn had cooperated.

Would there have to be an agreement among all of the parties as to the breakdown of the... of the settlement?

Mr. Millett: No.

There are two options.

One would, of course, be to have an agreement on resolution of the medical claim, which would require notice and involvement of the State.

The State could act here.

The other option is if they're at loggerheads, for it to be clear up front amongst all the parties that the... the settlement isn't resolving all the third party liability.

It... the... the question of liability for medical care, or at least the State's claim for medical care... sometimes they have their own... is still open, and there has to be enough money left in the well.

There were two insurance policies here that were paid at their caps.

Justice Kennedy: Well, I mean, why does there have to be enough money in the... take... take the... the case that we... we put to your cocounsel.

Suppose it's a settlement for 20 cents on the dollar.

Does the... does the State have an absolute right to get reimbursement for 100 percent by invading the general damages portion of the settlement?

Mr. Millett: No.

The State has... and the Medicaid statute is quite clear.

They have an entitlement to payments for medical care, but--

Justice Kennedy: No, but in my... can you answer the... the question?

You have the problem.

They settle for 20 cents on the dollar.

Does the State in that case have an absolute right to a lien or a claim or to a demand for the... for the proceeds in... for the balance of the 80... for the 80 percent balance of the medical costs?

Mr. Millett: --No, not straight out, but what they... they have the right to make their own decision and compromise their own claim.

The beneficiary may think it's 20 cents on the dollar.

The State may think... the State can consider two things and two things only.

Justice Kennedy: But that is... that is as between the State and the third party tortfeasor, not between the State and... and the Medicare recipient, I should think.

Mr. Millett: Not when... not... not when the settlement, as here, involves the complete claim.

There's never been a claim by the beneficiaries here that there's something left under State law to do or something left in the well to go get on the part of the State.

But let... if I... I think it's important to understand why these suits against the... or a State could decide... and the anti lien decision does not compel the State to decide otherwise.

A State, with its discretion under Medicaid, could decide that pursuing third parties is not viable.

This is not an ordinary assignment.

This is an assignment with strong duties of cooperation required on the part of the beneficiary.

Now, what does the lawsuit look like when the State goes, after the settlement, against the third party tortfeasor here?

The State has no control of evidence.

It has a pile of bills, none of the relevant evidence.

At the point of this lawsuit, the beneficiary's interests are adverse to the State's.

They're not in a cooperative mode.

They're interested in--

Justice Ginsburg: But the State... the State could sue in the first instance.

In fact, if you just read the text of the statute, it seems like the State is the one envisioned to be suing for reimbursement of the medical expenses.

Mr. Millett: --Two answers, Justice Ginsburg.

First, a lot of times, the plaintiffs have already started these lawsuits of these claims long before... when the State has just started getting up the process of paying the medical bills.

And car accidents and stuff can get taken care of pretty quickly.

And the... the second point is, is that the State... the State may... needs the help of the beneficiary to bring the suit.

Justice Ginsburg: But the State was in this case.

The State intervened.

So it was party to the case.

Mr. Millett: Yes.

Justice Ginsburg: And when it... it found out about the dismissal, why didn't it go right into the Arkansas court and say, you forgot about us?

We were a party to this lawsuit.

Mr. Millett: They... they could have, and they'd be... they'd be fighting the same anti lien issue there that they ended up fighting in Federal court.

But there's one other thing too.

Keep in mind these third party liability provisions--

Justice Ginsburg: Why would they be fighting the same anti lien provision?

They would be... wouldn't they be saying we have a claim for all of the medical expenses?

And no other party... the injury victim didn't have authority from us to compromise our claim.

It's for us to compromise it.

Mr. Millett: --That's right.

They would say that, and... and the... and where... where the parties came at loggerheads here was... their position is medical claim is in here.

It's in this pot.

That's not in dispute.

It's in here.

How much do you get?

Do you get the amount that we unilaterally designate, or can the State have a default rule that says when you cut us out and we no longer have a means of litigating in cooperation with you to make a reasoned judgment as to what the fair medical payment is in this settlement, can we insist upon 100 percent?

Otherwise, there's two things happening.

The... the beneficiary should not be better off for having cut the State out of the process, but that's what's going to happen.

Justice Kennedy: Well... well, if your rule is just one that you have to pay the 100 percent if there's non cooperation and a non notice, that's one thing.

But the briefs, it seems to me, indicate that you have an absolute right to 100 percent.

And those are two very different propositions.

Mr. Millett: Our position is the 100 percent claim... the default... as a default rule, when the State has been cut out and cannot make the reasoned judgment that the Medicaid statute charges the State with making on these claims, that's a 100 percent rule.

Quite... our position, quite straightforwardly, is if the State was involved or if there was a jury finding of 50/50, you know, comparative negligence, then the Medicaid claim gets cut in half because it... the... the State can consider two things, extent of liability and cost--

Justice Kennedy: I... I know in the case of a jury.

But our question is what happens if there's a settlement.

Mr. Millett: --It's... no.

And... and if there's a settlement in which the State is not involved but the medical bill is compromised... so it's not out there to be recovered... the medical bill--

Justice Stevens: May I ask this clarifying question?

If it's 50/50 because of a jury verdict of comparative negligence, then you only get half the money.

If it's 50/50 because of a settlement, believing they only have a 50 percent chance of recovery, what... what is your answer?

Mr. Millett: --It depends on whether the State was involved in making that judgment.

If the State was cut out of making that judgment, the State can choose to have a default rule.

Justice Kennedy: Suppose the State was involved but disagreed.

Justice Stevens: You're saying the State should sue here.

Mr. Millett: I'm sorry.

Justice Stevens: You're saying here the State should therefore sue, if I understand you.

Mr. Millett: No.

The State... the State should be entitled to a 100 percent rule because... for two reasons.

One, there is no way post hoc... or no... a State can decide there's no reliable way post hoc to figure out how much of this truly was a payment for medical care.

I mean, stop and think.

Medical--

Justice Stevens: But here it's stipulated I thought.

Mr. Millett: --No, no.

What was stipulated... and I think you have to read the stipulation very carefully.

There is no stipulation in there that the State agrees that $35,000 is an accurate assessment of medical liability.

The stipulation says--

Justice Stevens: No.

It's a compromise.

Just as my other example of a 50/50 chance of winning the lawsuit, you compromise for 50 percent.

I don't see the difference.

Mr. Millett: --No.

The... the difference is it's who makes the compromise decision.

And the stipulation is... from the beneficiary's view, they obviously made a compromise decision.

They did an across the board sort of mathematical reduction of this claim, and they didn't sort of stop and think about what's more easily proven, medical claims or pain and suffering.

What's more easily documented.

They didn't do... it's just a mathematical reduction.

The State never said that's accurate.

The State said, if you win, your statutory construction argument, which is the amount that you unilaterally designate as medical care, is what we're stuck with.

And if we try to take more, it violates the anti lien provision.

That's--

Justice Kennedy: Suppose the State... suppose the State is involved in the negotiations and they disagree.

The... the parties in good faith say, we've got to settle this for 20 percent.

The State said, oh, your case is much better than that.

Please don't settle.

Then what?

Mr. Millett: --That--

Justice Kennedy: It has notice.

It's involved, et cetera, et cetera.

Mr. Millett: --Right.

Then at that point, what should happen is there can be a... the... the beneficiary can go ahead and resolve her other claims.

But everybody has to be on notice.

Those third parties, in particular, have to be on notice that this is not the end of the game.

You still... this does not--

Justice Scalia: Ms.--

Mr. Millett: --cover medical payments.

Justice Scalia: --Ms. Millett, you've been trying to tell us the difficulties that the State would have in bringing suit later.

Mr. Millett: Yes.

Justice Scalia: What are they?

I see your white light is on.

Mr. Millett: Yes.

The--

Justice Scalia: I'd like to hear what they are.

Mr. Millett: --The... the first one, obviously,... there's three.

The first one is evidence control.

The State has a pile of bills but no evidence about liability.

Now, beforehand, if they're involved, their... their interests and the beneficiary's are aligned to maximize recovery.

After the fact, the State is going to go in, either at a post hoc hearing with the beneficiary or try to sue some third party, and the beneficiary is going to say, oh, I fell asleep at the wheel, I was on my cell phone, I had preexisting conditions, because her incentive is now to reduce your recovery.

This is the exact opposite of the duty of cooperation that Federal and State law envisioned for this process.

The second--

Justice Souter: Why is it her incentive to reduce recovery?

She may not be getting anything more, but why does she have incentive to reduce it?

Mr. Millett: --Because at this... if... if we're in a post hoc hearing to sort of allocate the settlement, she wants to keep... have as much of it put into the pain and suffering and lost wages pile and as little in the medical liability pile because she doesn't go home with that.

Justice Souter: I... I thought she and the--

Mr. Millett: And then if... I'm sorry.

There's two... there's two different post hearings you could have.

Justice Souter: --Yes, yes.

Mr. Millett: One would be a fight with her.

The other one would be they go in to sue the defendants.

Now, at this point, she's not necessarily adverse, but she has no interest to help.

Justice Souter: Yes.

Insofar as the suit against the defendant is concerned, she's not... she does not have an interest in minimizing.

Mr. Millett: But she may if there's an indemnity agreement, which means if they have to pay to us, they will... I'm sorry.

Can I finish?

That if... if the defendants have to pay more to us, then they will get to go after her.

And that's the concern.

Chief Justice Roberts: Thank you, Ms. Millett.

Mr. Millett: Thank you.

Argument of H. David Blair

Chief Justice Roberts: Mr. Blair.

Mr. Blair: Mr. Chief Justice, and may it please the Court--

The problem here, of course, is one where the funds, the proceeds, to resolve a claim are less than the damages of all parties, including the medical bills that have been paid by the State.

Now, the Court is correct that not only under the Federal statute did the State have the option of pursuing an independent cause of action, there is a State statute that provides that very thing, our code 20-77-301.

And in fact, that statute, in effect, allows a splitting of the common law cause of action for personal injury, which otherwise would be prohibited.

But--

Justice Scalia: What... what incentive does she have to cooperate in that later action?

And isn't it the fact that she would have a disincentive to cooperate if she's going to have to reimburse the insurance companies for any additional compensation that they pay?

Mr. Blair: --She would not have a disincentive to cooperate.

She might not have an incentive to cooperate because they're bringing their own lawsuit.

Justice Scalia: Well, it... but... but don't some of the insurance policies require that if the insurance company, which has settled the first claim, ends up paying... paying additional money, that that... that that amount of money would be the... the responsibility of the... of the claimant?

Mr. Blair: Correct.

Justice Scalia: So that's a disincentive on her part.

She doesn't want the insurance company to lose any more money.

Mr. Blair: That... that is correct.

Had the--

Justice Scalia: Well, it seems to me that that's a very strange system for the Federal Government to set up and to... to... I mean, to... to subsidize... to reward the failure of the... of the Medicaid benefit... beneficiary to cooperate.

There's a statutory responsibility for her to cooperate, isn't there?

Mr. Blair: --Correct.

Justice Scalia: And she didn't do that here because she just went ahead and settled without... without giving the State notice.

Mr. Blair: I disagree, Your Honor.

I do not think that the duty to cooperate necessarily included the duty to include the State in the loop in the settlement process.

Justice Scalia: Really.

Mr. Blair: That is--

Justice Scalia: I mean, the State is a party to the proceeding, and she goes ahead and get the proceeding dismissed without even telling the State, and that... that isn't included in the... the responsibility to cooperate?

Mr. Blair: --The dismissal, of course, followed the settlement.

What the complaint is, is that they were not consulted about the settlement process.

And it would have been of no benefit had they been consulted about the settlement process.

The defendants were only going to pay a certain amount of money.

Had the State shown up at the settlement hearing if... or the conference, if there was such a thing, no doubt it would have taken the position that it takes here, that it's entitled to be paid in full.

Justice Souter: And I suppose if the insurance company heard from the State that the State continued to... would continue to pursue its claim, in the absence either of a more generous assignment or a more generous settlement, there might not have been a settlement.

Mr. Blair: That's correct, Your Honor.

Had--

Justice Breyer: Well, so why... why then is it unreasonable for the State to take this position, the one that the government took?

They said, of course, we, the governments of State and Federal have only the right to attach the portion of that settlement that is representative of the medical expenditure.

And where we're in on the deal, you'll all agree what that portion is, or there won't be a settlement and we'll proceed to trial.

But where we're cut out of the deal... and we shouldn't be because there's a duty to cooperate... we will assume in that instance that it... every penny of that medical expense is included in the amount that was settled for.

And they say, given the statutes, that's a reasonable way of enforcing their Federal obligation to recover the money.

Now, whether we agree or disagree with it as a matter of policy, what is wrong with their saying as a matter of law, we choose to interpret the words this way and implement the statute that way and we have every right to do it?

Why don't they?

Mr. Blair: --Well, first of all, the... the remedy that the petitioner here proposes is one that Congress has not proposed, for openers.

And secondly, the petitioner acknowledges at page 33 of their brief that they had no veto power over the settlement.

The settlement was a matter for--

Justice Breyer: But that's all consistent, of course, with their position.

They say Congress delegated to us the authority to interpret the words this way.

It is a reasonable interpretation of the words.

We don't deny that you can settle for what you want.

All we're saying is, where we're cut out, that that pile of money is deemed by us to include every penny of medical expense, and therefore we get it because we're not taking money that isn't medical expense.

We are taking money that does represent medical expense according to our deeming rules.

Mr. Blair: --Correct.

According to their version, they're taking--

Justice Breyer: Now, what's legally wrong with that?

Mr. Blair: --Because they're... they're taking money beyond the claim for medical expense, Your Honor, because the claim for medical expense is not measured by the amount of the medical expenses in terms of its value.

It is measured by the various factors that affect the value of a claim, of which the payout is only one of the factors.

Had they appeared at the settlement proceeding, had we had--

Justice Ginsburg: Did... did they have notice of the settlement proceeding?

Mr. Blair: --No, Your Honor.

The... it was actually not a proceeding, and I'd have to go outside of the record to say this, but if the case was settled, as most cases are, by exchange of telephone calls and whether--

Justice Ginsburg: But they were... and they were intervened in this lawsuit.

Weren't they entitled to have notice that there was a settlement and that the case was going to be dismissed?

Mr. Blair: --I do not... strictly speaking, no, they were not entitled to notice because the... the intervention was secondary to the plaintiff's claim.

That is, they did not intervene and assert the independent cause of action that the statute gave them.

They intervened and claimed a lien upon the settlement's recovery.

So since their lien, whatever amount that lien is, was derivative of the plaintiff's claim, I do not agree that they had to be notified of the... that the case had been settled and an order of dismissal was entered.

Justice Breyer: Suppose, though, that were the rule.

Justice Ginsburg: The plaintiff had... had no obligation to notify the State?

There was some mention of a... of a obligation to cooperate.

Is there any statutory obligation under... I don't see it in the Medicaid statute, but under Arkansas law for... for the Medicaid recipient to cooperate with the State?

Mr. Blair: Yes, there... there is... there is a general provision in Arkansas law that... that the Medicaid recipients assign their claim to notify the State of any potential liable parties, the date of the occurrence, the kind of injury they sustained, the information that would enable the State to pursue its claim should it decide to do so.

And in this instance, the State decided to do it by asserting a lien upon the... the common law action asserted in the State court.

Now, if the... if the State had brought an independent action and asserted its... its right to recover, rather than riding in the wake of the plaintiffs, then the State would have been in control of that claim and been in control of settlement and whether it was dismissed or not, but--

Justice Scalia: The complaint... the... the intervention by the State claimed only a lien?

Is that what the--

Mr. Blair: --Yes, Your Honor.

Justice Scalia: --document claimed?

Intervention--

Mr. Blair: The... actually... actually there was never a formal complaint and intervention filed.

There was a motion for leave to intervene.

It was never followed up on.

Again, I'm getting outside the record when I say that.

Justice Souter: Roughly speaking... I... I'm... there may be a few dollars and cents that... that aren't accounted for here.

But roughly speaking, is it fair to say that the amount that... that you and... and, for that matter, the State attribute to the medicals out of the total settlement is the same proportion that the claim for medicals bore to the total original claim?

Mr. Blair: It... it is the same percentage that the total medicals bore to what we agreed was a fair valuation of the claim or what we agreed there would be evidence to support.

Justice Souter: Okay.

Mr. Blair: In other words, the State... after this dispute broke out, the respondent and the petitioner reached an agreement as to the probable value of the claim, absent any considerations of liability or financial responsibility.

And, of course, the amount of the medical expenses was a liquidated sum, and that made it real easy to result in a fraction.

And the $35,000 is that fraction times the State's payout.

Justice Souter: Well--

Justice Scalia: --Yes, but the... the other thing that you're... you're dividing that against is not liquidated.

Mr. Blair: Correct.

Justice Scalia: And nobody... I mean, the... where there's room for... for compromise is certainly in the pain and suffering part of a settlement, not in the medicals.

I mean, the medicals are a given in any settlement I've ever heard of.

There it is, black on white.

This is how much was paid.

Mr. Blair: Your Honor--

Justice Scalia: That's the compromise.

Unless there's a... you know, a compromise on whether there's liability or not, but... but whether, if there is liability, this amount is owing, that's... that's a given for the medicals.

Isn't it?

Mr. Blair: --Your Honor has put his finger exactly upon the problem in this case, and that is that there was a tremendous question of liability.

And as a matter of fact, this was a high nuisance value settlement, as lawyers refer to it.

Justice Souter: --Okay.

In a case like this, then it would be in the interest of someone like your client to make a claim not of $3 million but of $6 million.

Then if you settle for exactly the same amount of money you settled for here, the percentage of the medicals... the amount attributed to medicals would be exactly one half of what it is here.

Mr. Blair: The claim was... the $3 million claim was not the amount claimed in the original lawsuit, which never got to the point of a claim being made.

It was for damages in excess of diversity limits, the... for diversity of citizenship limits.

There was not a $10 million lawsuit or a $20 million lawsuit or an $8 million lawsuit.

The $3 million figure--

Justice Souter: Well, in the original State lawsuit, did you have to state an addendum?

Mr. Blair: --No.

Only... the only requirement is that there be an allegation that it's in excess of diversity... the diversity amount.

Justice Souter: Where did... then... then tell me again where we got the $3 million figure.

Mr. Blair: By negotiation with the respondents, Your Honor, by... by looking at the... the damages, the physical damages, the loss of earnings, impairment of earning capacity, all of those things.

And... and however it's phrased, we essentially agreed that that was a fair value, and if their claim is limited to the medical expense component, they're entitled to $35,000.

Justice Souter: And is... is that in... is that in writing, along with the allocation--

Mr. Blair: Only to the extent that it is represented by the terms of the stipulation entered before the district court, Your Honor.

Justice Souter: --Well, I mean, is that part of the stipulation?

Mr. Blair: Yes.

Justice Souter: Okay.

Mr. Blair: The... the numbers are in the stipulation.

Justice Stevens: Is there a contention that the medical was under valued in the settlement or... I thought it was understood that it was the same proportion of the settlement.

I mean, if you discounted everything by 50 percent, medical was discounted by the same percentage as everything else.

Is that correct?

Mr. Blair: That's... that's correct, Your Honor.

Justice Stevens: Because there's some... I... I wasn't clear on whether the State had stipulated that this is what you agreed with the other side or that this is a fair calculation of the settlement.

Mr. Blair: There was no agreement with the respondent and the tortfeasor about allocation whatsoever.

The idea that we unilaterally came up with a number is... is not correct.

It was a lump sum amount, and when the State... the petitioner and respondents couldn't reach an agreement, ultimately, in order to obviate the necessity for putting on evidence of damages before the district court, so the court would have a factual basis to make this allocation, we entered into a stipulation.

And that's where we got to the number that we got to.

Justice Kennedy: Do you think under Arkansas law that the injured party as an assignor has a duty to cooperate with the assignee in pursuing the claim?

Mr. Blair: Has a duty to cooperate with the assignee to the extent that it does not impair the assignor's interest, that is--

Justice Kennedy: Is that duty fulfilled by... by entering settlement negotiations and not even notifying the assignee?

Mr. Blair: --In... in this particular instance, I think it was fulfilled because settlement negotiations resulted in $550,000 that the petitioners, in all likelihood, would have never received--

Justice Kennedy: Well, but what you're saying is that there's no duty to notify the assignee if you think you might get a pretty good result for yourself.

I don't understand that as much of... much of a duty.

Mr. Blair: --I think the duty to... to notify the assignee would be true insofar as proceeding against the third party is concerned.

And to the extent that the notification to the assignee would serve any purpose in maximizing the total recovery, there probably is a duty, but notice to the assignee here would have been absolutely of no value insofar as the common interests against the defendants were concerned.

Justice Kennedy: Well, it certainly would have avoided about 20 minutes of questions in this Court.

[Laughter]

Mr. Blair: In retrospect, Your Honor, they would have been plastered with notices.

Justice Breyer: Just given your experience... say, think of the generality of cases like this one... would it be difficult for you, representing the victims, if the rule were that these statutes give the Government the authority that they want here, as I understand it... the Federal Government... which is to say you have an obligation to notify the State of the presence of settlement negotiations.

Now, once you've done that, you've given them an opportunity to participate.

If they have that opportunity, thereafter they cannot attach more than what are the real medical expenses, which could be a matter for argument in a settlement like this.

But if you don't give them that opportunity, they have the right to presume that that settlement, which they knew nothing about, contains the full amount.

Mr. Blair: As a practical matter, yes, it would... it would--

Justice Breyer: Because?

What are the practicalities of that?

Why would it hurt the lawyers representing victims?

Mr. Blair: --It... it would be a logistical problem, Your Honor, of--

Justice Breyer: It would just require a letter, certified.

Mr. Blair: --But... but the certified letter saying that I'm going to stipulate with... I'm going to enter into settlement negotiations with XYZ corporation, would not really have served any purpose unless they were to be included in every step of the way, because these settlement negotiations sometimes extend over months and years and... and some of they seem like they go forever.

And to have the... the State at the injured plaintiff's side throughout all of that step would be a logistical problem.

And... and in any event, it... the plaintiff is in control of the litigation.

The State has no right to say, you go to trial or you don't go to trial.

We don't agree that you're getting enough.

If... if you go... if you settle at this figure, we're going to be cut short.

Justice Scalia: Wouldn't... wouldn't the insurance company have to worry about the same problem?

That is to say, even if it's not your problem by reason of our coming out the way you would like us to, wouldn't it remain a problem for the insurance company so they could not enter into any settlement until they knew that the State would go along with... with the division between medicals and... and other damages?

That... that's what I don't understand.

Doesn't it become a problem for the insurance company to somehow bring in the State in the process of the settlement?

Mr. Blair: The... the insurance company potentially would have double liability under Arkansas law if... if the claim is settled and they know the subrogation claim and--

Justice Scalia: Right.

Mr. Blair: --and if it's... but that's this unnamed defendant's particular problem.

Justice Scalia: Okay, but once... once the... once the... the foolish insurance company figures out that that is what is going to happen, future settlements will be very difficult I would gather.

Mr. Blair: I... I cannot comment on that, Your Honor, since that has not been the... the case--

Justice Breyer: Yes, but it's... it's relevant.

And I'm trying to think through the practicalities of it, which you're more familiar with.

Suppose that you win this.

If you win this, then the defendant's insurance companies know that they're subject to further liability for the medicals in every case.

And why won't they sit there and tell you at this settlement, hey, we're not going to enter into this unless you get the State involved so they sign off on it too?

We're not going to just compromise some of our liability.

Mr. Blair: --That... that may be the result, Your Honor.

I... I cannot foresee all of the ramifications either if we prevail or don't prevail.

Justice Breyer: I mean, it sounds as if we're going to get to the same place, that if... if you prevail, probably the insurance companies will want the State to be involved or they haven't limited their liability, and if you lose, then we would have said that you have to get the... the State involved.

Mr. Blair: Right.

And... and perhaps if we prevail and the State elects to pursue its own remedy on its own, we'll have another round of litigation.

Justice Scalia: And your argument is if it is six in one, half... half a dozen in the other, we should do it your way because that's what the text of the statute says.

Mr. Blair: We ultimately rely upon the text of the statute, Your Honor, irrespective of all of the policy or the political arguments that have been made to the Court.

We believe and have maintained throughout that the text of the statute requires--

Justice Stevens: With respect to the text of the statute and whether the anti lien provision applies, I'd be interested in your view, as a matter of Arkansas law, as to who owned the chose in action first and, secondly, who owned the proceeds of the settlement recovery after the assignment had taken place.

Mr. Blair: --First, I think there's no question that Heidi Ahlborn owned the chose in action because under Arkansas law her claim was complete by the time the glass and the metal stopped falling to the highway.

Secondly, as to the who owned the proceeds depends upon the extent to which the State was allowed to take an assignment.

If the State was allowed to take an assignment from something other than the claim for medical expenses, then they owned the proceeds.

Our contention is that the State was only allowed to take an assignment under the language of the statute for the claim for medical expenses, and in that case--

Justice Scalia: You're talking about the Federal statute--

Mr. Blair: --Yes.

Justice Scalia: --not the State statute.

Mr. Blair: The Federal statute--

Justice Scalia: The State statute clearly goes beyond that and says--

Mr. Blair: --We lose under the State statute.

No question.

Chief Justice Roberts: And the Federal statute provides you, you think, with a defense to the State law claim.

Mr. Blair: That's correct, Your Honor.

Chief Justice Roberts: Why... why was there Federal jurisdiction in this case in the first place?

Mr. Blair: Because the Federal question involved the preemption issue as to whether the State statute had been preempted by the anti lien statute.

Chief Justice Roberts: So... so your view of jurisdiction depends upon the Federal defense.

Mr. Blair: Correct.

That is, the... the jurisdiction of the district court action we believe was a Federal--

Chief Justice Roberts: Is that... and which of our cases say that a Federal defense supports Federal jurisdiction?

Mr. Blair: --A Federal defense does not support the Federal jurisdiction, but the declaratory judgment act gives jurisdiction over Federal questions.

Chief Justice Roberts: Allows you to come into court if the claim that would have been brought against you would have been brought in Federal court, and the claim that would have been brought against you would have been under Arkansas law.

Mr. Blair: The claim that was... that we were bringing was under Federal law in that we were claiming the Arkansas statute was invalid by reason of the anti lien statute, and we believed that that presented a question of Federal law and therefore brought it--

Chief Justice Roberts: Sounds like a defense.

Mr. Blair: --in district court.

Which hadn't been raised, Your Honor, and I'm having to wing it.

But that's--

[Laughter]

Justice Ginsburg: Do you still have a declaration that the Arkansas statute was unconstitutional because it conflicted with the Federal statute?

Mr. Blair: That's correct.

That was our... our claim before the district court that ultimately wound up in the Eighth Circuit.

Chief Justice Roberts: It still sounds like a defense to me, counsel, and I think it may make a difference if your argument relies on the anti lien provision as a defense or perhaps relies on the... the assignment provisions in the Medicaid statute.

That's why I'm just trying to focus on whether it's the assignment provisions that limit what Arkansas can do as a matter of its own law, or if it's the anti lien provision as a defense.

Mr. Blair: I believe that it is both.

I think that the assignment provisions limit the permissible assignment as a matter of Federal law by reason of the anti lien statute.

Justice Souter: But there's nothing in the assignment provision as such that limits it, is there?

Mr. Blair: Other than its language as to what it's for.

Justice Souter: Well, it said... I'm looking at 1396k(a)(1)(A), which refers to assign to the State any rights to payment for medical care from any third party.

Mr. Blair: Yes.

Justice Souter: There's no limitation in that.

Mr. Blair: Payments... the right to payments for medical care, which we believe is the language of limitation in that the State is... in effect, is seeking an assignment of the entire cause of action not just that that is related to the right to payment for medical care, which is simply a component of the claim that may have 5 cents on the dollar value or 100 cents, depending on what the facts of the case are.

Chief Justice Roberts: Is there any reason that the Federal law would have to act as a limitation on the State law?

In other words, if we read the... the Federal law your way, is there any reason it would frustrate the Federal purposes for the State to say, well, we want to get all of the medical expenses?

We don't just want to get the proportionate share of the recovery.

That... that's enough for the Feds, but we are also out State money and we want that State money.

They can go further, can't they?

Mr. Blair: In the absence of the anti lien statute.

Chief Justice Roberts: In the absence of the anti lien.

Mr. Blair: In the absence of the anti lien statute, the State statute would be, in my opinion... the State would be allowed to take a greater lien than provided by Federal law.

But... and a lien statute is there, and we say that that is the stopping point.

The Federal anti lien statute gives protection to the recipient's property as to which these assignment statutes are an implied exception, but the exception must be limited by the--

Justice Scalia: --But I assume the State... the State tries to get around that by saying it never... never became the property of your client, that by reason of the assignment provision, all choses in action automatically vest in the State, causes of action arising out of transactions in which there's a claim for Medicaid compensation.

Mr. Blair: --I... I--

Justice Scalia: But you say... you say they can't do that because, at the time the accident occurs, you don't even know that there's going to be a claim--

Mr. Blair: --I say... excuse me, Your Honor.

I say that that is a fiction because what it attaches to is the cause of action that existed instantly at the time of the injury, and so say, no, you don't own that because it was assigned to us.

Well, we had to have something to assign, otherwise assignment was meaningless.

We... in... in summation, as I see the white light is on, we believe that this case... and it is respondent's position that these three statutes that we have been discussing here are plain and unambiguous and that the case should be resolved upon the basis of the statutory language.

And we... it is further respondent's position that if the case is resolved on the basis of the statutory language, the Eighth Circuit reached a very correct analysis of the language and the results that that takes place.

There is no ambiguity, and under the first step of the Chevron case, we submit to the Court that this is a case of statutory construction within the terms of the statutes which, read together, are unambiguous and plain.

They get an assignment for the claim for medical care services.

The anti lien statute shields the rest.

Thank you very much.

Rebuttal of Lori Freno

Chief Justice Roberts: Thank you, Mr. Blair.

Ms. Freno, you have 2 minutes remaining.

Mr. Freno: Thank you, Your Honor.

First of all, the default rule, that rule being that unless the State is invited into the negotiations, that liability... the extent of the liability of the third party can be considered to be 100... the full amount that Medicaid had to pay... that is a very important rule.

And it makes sense because money that has to be spent... there was a suggestion of post settlement hearings to determine what portion of the money is for... for medical costs and what is for something else.

Such hearings would be incredibly expensive, horribly inconvenient.

The State would have to, you know, burden... shoulder this burden, and this is money that could be going into the Medicaid program.

Every dollar that's recovered from liable third parties is put back into the Medicaid program, and if the State has to keep hiring more lawyers and has to have administrative hearings or proceeding in judiciary proceedings to determine what part of a settlement constitutes a payment, then that... that is just a very inefficient use of... of very limited Federal... or State funds.

I heard a comment in Mr. Blair's argument that Arkansas law... I think it was--

Justice Scalia: Excuse me.

I really didn't understand that argument.

Does the State deduct from its Medicaid funds the amount that it pays lawyers to conduct Medicaid litigation?

Mr. Freno: --No, it does not, and it--

Justice Scalia: Well, then it doesn't matter as far as the Medicaid funds are concerned.

It comes out of general State revenues.

Right?

Mr. Freno: --It comes out of general State revenues, but the amount of general State revenues that are there are what is available to put back into the Medicaid fund.

Also, Arkansas law does not require an assignment of a cause of action.

Arkansas law is very clear on that point, and that's set forth in 20-77-301, which is at... in... at the cert petition appendix at page 38.

It specifically states that any action taken by the State cannot be a bar to any action brought on behalf of the recipient.

Chief Justice Roberts: Thank you, Ms. Freno.

Mr. Freno: Thank you.

Chief Justice Roberts: The case is submitted.