## Facts

- Juanita Lemmons, an elderly applicant for Medicaid long-term care benefits, sold a farm and an investment account to her son in exchange for a promissory note of about $84,600–$85,000.
- The promissory note was structured to satisfy 42 U.S.C. § 1396p(c)(1)(I): an actuarially sound term, equal payments without deferral or balloon payments, and no cancellation upon Lemmons’s death.
- The note included an anti-assignment clause barring Lemmons from selling or assigning it on a secondary market, though she could direct the destination of payments at death.
- Lemmons entered a nursing facility and applied for Medicaid twelve days after executing the note.
- The Oklahoma Department of Human Services (OKDHS) denied the application, treating the transaction as a transfer for less than fair market value and/or treating the note as a trust-like device.
- Lemmons sued the OKDHS Director under 42 U.S.C. § 1983, alleging the denial applied a methodology inconsistent with federal Medicaid law; the parties filed cross-motions for summary judgment.

## Issues

1. Whether a non-assignable, § 1396p(c)(1)(I)-compliant promissory note is an available “resource” for Medicaid eligibility purposes.
2. Whether the note-and-transfer arrangement may be recharacterized as a “trust-like device” permitting the state to treat transferred assets as still available to the applicant.
3. Whether the underlying asset transfer triggered a transfer penalty because the promissory note was allegedly “worthless” due to non-marketability.
4. Whether a Medicaid applicant may use § 1983 to challenge a state eligibility methodology that conflicts with the federal Medicaid Act.

## Decision

- The court granted Lemmons’s motion for summary judgment and denied the Director’s motion.
- The court held the promissory note was not an available “resource” because Lemmons could not convert it to cash by sale or assignment.
- The court rejected the “trust-like device” characterization, treating the arrangement as a debtor–creditor relationship rather than property held for Lemmons’s benefit.
- The court found the note was not “worthless” merely because it lacked a secondary market; it created an enforceable repayment obligation.
- The court concluded the state’s denial conflicted with the federal statutory treatment of compliant promissory notes and could not stand; Lemmons was to be treated as eligible for Medicaid benefits.

## Legal Principles

- A Medicaid “resource” generally requires ownership plus the practical ability to convert the asset to cash for support and maintenance; a non-assignable promissory note may fall outside that definition.
- A promissory note that satisfies 42 U.S.C. § 1396p(c)(1)(I) (actuarially sound term, equal payments, and no cancellation on death) cannot be penalized through state reclassification that nullifies the federal scheme.
- A “trust-like device” theory is improper where the transferee holds property for personal benefit and the applicant retains only a contractual right to repayment, not a beneficial interest in the transferred assets.
- Non-marketability alone does not render a promissory note valueless when the obligation to repay is legally enforceable.
- A Medicaid applicant may seek § 1983 relief to challenge state eligibility methodologies that conflict with enforceable federal Medicaid requirements.

## Conclusion

The court set aside Oklahoma’s Medicaid denial, holding that a DRA-compliant, non-assignable promissory note received in exchange for transferred assets was neither an available resource nor a trust-like device and did not justify a transfer-penalty determination based on alleged “worthlessness.”


Lemmons v. Lake, No. CIV-12-1075-C, 2013 U.S. Dist. LEXIS 39030 (W.D. Okla. Mar. 21, 2013)