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Plaintiff Moves to Have Lien Vacated, New York Supreme Court Weighs In


The plaintiffs in this case individually and as the natural guardian and parents of the infantplaintiff have moved for an order to approve the proposed settlement of this personal injury action and to have the lien from the New York City Department of Social Services vacated against the settlement proceedings. This case is being heard in the Supreme Court of New York County.

Case Background

This case arose from an alleged medical malpractice of the defendants during the birth of the infant plaintiff. The medical malpractice resulted in the infant having severe mental retardation. The plaintiffs and the defendant have entered into a tentative settlement agreement that awards the plaintiff with $1,750,000. The plaintiffs are now seeking approval of the settlement and to establish a special needs trust for the benefit of the infant with the proceeds from the settlement.

The plaintiffs are also seeking to extinguish the lien in this matter that represents the cost of Medical Assistance rendered on behalf of the infant from January of 1992 through now. The Department had notified the plaintiffs of a preliminary lien in the amount of $500, but now alleges that the amount has increased and that an exact figure will soon be obtained from the State Department of Social Services.

The plaintiffs are also seeking leave to pay their legal fees plus disbursements from the proceeds of the settlement and payment from their other settlement for loss of services in the amount of $15,944.93.

The Department does not object to the amount of the settlement to be used to create a special needs trust for the infant plaintiff, but opposes the motion by the plaintiff to vacate the Medical Assistance lien. The Department contends that the lien should be paid to them from the proceeds of the settlement before the special needs trust is established. Alternatively, the Department is seeking that an additional trustee be appointed to the trust in order to preserve its interest in the principal of the trust.

Court Discussion and Decision

The plaintiffs have argued that the lien should be lifted because the proceeds from the personal injury action are immune to the lien to the extent that these proceeds are destined to become the corpus of a supplemental needs trust.

Before the Omnibus Budget Reconciliation Act from 1993 that amended the federal Medicaid statute, a special needs trust would render the beneficiary ineligible for state and federal medical assistance.

The court has found no basis for the lien from the Department to be vacated. However, the lien does not have to be paid before the special needs trust is established.

The court is approving the proposed settlement in the amount of $1,750,000 and the Department’s application for the appointment of a second trustee for the trustee is denied. The court approves the appointment of one independent trustee, but the plaintiffs cannot be the trustees of the account. The plaintiff’s attorney will submit a revised supplemental needs trust for the infant plaintiff that names the trustee and the application for payment to the plaintiffs in the sum of $15,944.93 for the loss of services claim is approved.

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