Matter of Denney McNerney

Case Number

25PR00378

Case Type

Hearing Date / Time

Wed, 10/01/2025 - 08:30

Nature of Proceedings

Minor's Compromise

Tentative Ruling

Probate Notes:

Appearances required.

After review of the supplements filed in this case, the following is noted for the Court at the hearing:

Ahlborn calculations or motion. 

According to the Declaration of Garrett May, filed on September 11, 2025, the minor’s claim is valued between $750,000 and $1,000,000.  Mr. May did not support these damages estimates by many facts, but it appears from his Declaration that Mr. May is taking into consideration other factors such as costs of litigation, risks of recovery, etc. that are not contemplated by courts in this state that have analyzed application of Arkansas Dept. of Health and Human Services v. Ahlborn (2006) 547 U.S. 268. The only number that matters once settlement is reached is what the estimated “full value” of the minor’s claim is, not what the claim would be, but for risk of recovery, litigation costs, etc.  (Aguilera v. Loma Linda University Medical Center (2015) 235 Cal.App.4th 821, 828.)  Thus, it does not appear the one-million-dollar figure represents the full value of minor’s claim.

However, even taking that modest/conservative figure into account, Medi-Cal’s reimbursement amount in this case is still too high.  The settlement amount of $402,000 is 40% of the minor’s $1,000,000 claim.  Since Medi-Cal paid $231,990.74 for the minor’s medical bills, the amount they are entitled to be reimbursed is $93,260, using the Ahlborn formula.

According to SCOTUS, DHCS violates federal law when it places a statutory lien on any amount of a settlement or judgment above an amount specifically designated as reimbursement for medical costs.  (Arkansas Dept. of Health and Human Services v. Ahlborn (2006) 547 U.S. 268, 272.)  Thus, according to California cases decided after Ahlborn, DHCS cannot seek full reimbursement for Medi-Cal payments made for medical care required to treat injuries caused by a third-party tortfeasor, unless the recipient of the medical care recovers the full value of their tort claim. (See e.g. Lopez v. Daimler Chrysler Corp. (2009) 179 Cal.App.4th 1373, 1378; Lima v. Vouis (2009) 174 Cal.App.4th 242, 260; Bolanos v. Superior Court (2008) 169 Cal.App.4th 744, 748.) Thus, in a settlement, DHCS’s recovery is limited to a percentage of the portion of the settlement apportioned for reimbursement of payments made for medical care, equivalent to the percent the settlement is to the value of the full claim amount:

 

Expressed mathematically, the Ahlborn formula calculates the reimbursement due as the total settlement divided by the full value of the claim, which is then multiplied by the value of benefits provided. (Reimbursement Due = [Total Settlement ÷ Full Value of Claim] × Value of Benefits Provided.)

 

(Aguilera v. Loma Linda University Medical Center (2015) 235 Cal.App.4th 821, 828.)

Since Medi-Cal’s proposed medical lien is over $7,000 higher than it should be, based on very conservative damages estimates, the Court should require the Petitioner to file an Ahlborn motion so the “full value” of the minor’s claim can be properly appraised, and the appropriate Medi-Cal reduction ordered.

Proposed Structured Settlement does not contain restraints on early assignments. The proposed distribution to the minor in this case is not to a blocked account pursuant to Local Rule 1735(a) (“Absent a showing of good cause, it is the policy of the Court to order all funds disbursed to a minor be deposited into a blocked account.”)  Further, the proposed structured settlement includes a payout date far past the minor’s 18^th birthday.

This Court arguably does not have jurisdiction to make any order for payment of a settlement past a minor’s 18^th birthday, as the Court can only approve a “single-premium differed annuity” purchased by a “one-time lump-sum premium” with “no penalty” for early withdrawal 5 years past a minor’s 18th birthday, pursuant to Probate Code sections 1446, 3413, 3500, 3610, 3611, & 3612. This arguably means ordering a payout past the minor’s 18^th birthday would be in excess of the court’s jurisdiction, especially more than five years past the 18th birthday, and also since the minor may, as a matter of practice, obtain the funds through assignment (often for a very reduced rate) at 18, or arguably void the contract (incurring tax penalties). Further briefing should include discussion about whether the minor will need to access funds before the minor’s 18th birthday, and whether the circumstances of this case should persuade the court to allow extension of the annuity past the 18th birthday (i.e. susceptibility to fraud, undue influence, etc.).

The “good cause” put forward by the Petitioner via Declaration of Marjorie Smith is that the minor is subject to undue influence as a result of the lifestyle his parents lived before their death.  In essence, Petitioner argues that the minor will not have the self-control or will power to use the funds wisely, so the minor must be protected from environmental (and perhaps genetic) pre-disposition to fritter the funds away.  While this can be persuasive, it is not in this case, because there are no alleged protections in place that would prevent the minor from selling or assigning his future entitlements in annuity payments away once the minor turns 18.  The Court should only allow the proposed annuity if a valid restraint on transfer can be put into place so the Minor does not sell his interest in the annuity for pennies on the dollar once the minor turns 18.

Appearances:

The court is open to the public for court business. The court is also conducting hearings via Zoom videoconference.

Meeting ID: 161 956 1423

Passcode: 137305