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National Foundation for Special Needs Integrity, Inc. v. Reese

United States Court of Appeals, Seventh Circuit

February 7, 2018

National Foundation for Special Needs Integrity, Inc., Plaintiff-Appellee,
Devon Reese, as Personal Representative for the Estate of Theresa A. Givens, Defendant-Appellant.

          Argued September 27, 2017

         Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. l:15-cv-00545 - Tanya Walton Pratt, Judge.

          Before Ripple, Sykes, and Hamilton, Circuit Judges.


         In this case, we apply Indiana law to a trust agreement to determine who receives the remainder funds upon the beneficiary's death. Plaintiff National Foundation for Special Needs Integrity signed an agreement with Theresa Givens establishing a trust that the Foundation was to manage for her benefit while she lived. In the agreement, Givens named herself as the only contingent remainder beneficiary. Givens died just a month after funding the trust, leaving more than $234, 000 in the trust.

         By naming herself, Givens failed to specify a surviving remainder beneficiary. The Foundation claims that the agreement entitles it as trustee to retain any remaining trust assets in this situation. Givens's son, defendant Devon Reese, is the representative of her estate. The Estate argues that it is entitled to the money for the benefit of Givens's children. The Estate argues that the agreement is ambiguous and should be construed against the Foundation, and in the alternative that the court should use its equitable power to reform, rescind, or order deviation from the agreement's terms.

         The district court rejected the Estate's arguments, finding that the trust agreement is unambiguous and that the Estate's evidence does not warrant any equitable remedy. The court also found that the equitable defense of laches would bar the Estate's equitable theories. We reverse. We find that the trust agreement is ambiguous on the key question. Beyond the document, the overwhelming weight of evidence shows that Givens intended that any remaining assets pass to her children as the beneficiaries of her Estate rather than to the Foundation. We therefore remand and direct entry of judgment for the Estate, without reaching the equitable theories or the laches defense. On remand the district court will need to award damages and prejudgment interest in favor of the Estate.

         I. Factual and Procedural Background

         A. Theresa Givens and Her Assets

         Theresa Givens was a Missouri resident and was sick for many years before she died in November 2011. She suffered from renal failure, was on dialysis for about ten years, and had experienced multiple strokes. In 2009, she suffered an additional injury from gadolinium dye, a substance used in MRIs. She then joined a class action related to the dye, with the Missouri law firm Brown & Crouppen as her counsel. When that suit settled in 2011, Givens received about $255, 000 in net settlement proceeds.

         B. The National Foundation for Special Needs Integrity

         The National Foundation for Special Needs Integrity is an Indiana not-for-profit corporation that is a trustee for a pooled special needs trust. A special needs trust is a type of trust that allows individuals with disabilities to avoid losing eligibility for Medicaid, which is means-tested. See 42 U.S.C. § 1396p(d)(4)(C). The Foundation acts as trustee for many qualifying individuals across the country. Under federal law, the Foundation must pool all beneficiaries' assets for purposes of custody, management, and investment. 42 U.S.C. § 1396p(d)(4)(C)(ii). The Foundation must also maintain a separate sub-account for each beneficiary. Id.

         The key feature of the special needs trust is that, under federal law, trust assets do not count against the beneficiaries' eligibility for Medicaid during their lifetimes. Compare 42 U.S.C. § 1396p(d)(3) (counting assets in certain trusts as income and assets of individuals seeking Medicaid), with § 1396p(d)(4)(C) (exempting special needs trusts from this accounting). But upon a beneficiary's death, the trustee must reimburse the state for any medical assistance the state provided. § 1396p(d)(4)(C)(iv). The trust agreement can direct who should receive any assets that might remain after reimbursement.

         C. The Trust Agreement

         On the advice of her lawyers, and to maintain her eligibility for Medicaid, Givens agreed to contribute the settlement proceeds to a special needs trust. She signed an agreement with the plaintiff Foundation in August 2011. The agreement identified the Foundation as the trustee and Givens as the beneficiary during her lifetime. Givens funded the trust in October 2011 but died a month later. In this rather unusual case, Givens did not owe her state of residence any reimbursement upon her death, ...

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