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LLC v. Nichols-Shields

Supreme Court of Oregon

October 26, 2017

LARISA'S HOME CARE, LLC, an Oregon limited liability company, Petitioner on Review,
Karen NICHOLS-SHIELDS, the duly appointed Personal Representative of the Estate of Isabell Prichard, Deceased, Respondent on Review.

          Argued and submitted March 3, 2017, at Willamette University College of Law, Salem, Oregon.

         On review from the Court of Appeals CC C124865CV; CA A154950.[*]

          Ross Day, Day Law & Associates, PC, Portland, argued the cause and fled the brief for petitioner on review. Also on the brief was Matthew Swihart.

          Hafez Daraee, Luby/Daraee Law Group, PC, Tigard, argued the cause and fled the brief for respondent on review.

          Before Balmer, Chief Justice, and Kistler, Walters, Landau, Nakamoto, Flynn, and Duncan, Justices. [**]

         [362 Or. 116] Case Summary:

         Plaintiff, owner of an adult foster care facility, brought an action for unjust enrichment against personal representative of decedent's estate. Plaintiff had charged decedent Medicaid rates for her care, rather than higher "private pay" rates; however, she had been qualified for Medicaid based on false representations in her application. Plaintiff contended that decedent's estate had been unjustly enriched because decedent should have paid the "private pay" rates. Trial court agreed and entered judgment for plaintiff, but Court of Appeals reversed, concluding there was no unjust enrichment.


         (1) formula for unjust enrichment claims articulated in Jaqua v. Nike, Inc., 125 Or.App. 294, 298, 865 P.2d 442 (1993) was unhelpful as an all-purpose statement of the elements and ill-suited to the circumstances of this case; (2) unjust enrichment is available when party obtains benefit from another by fraud; (3) but for the false representations in her application, decedent would have been disqualified from receiving Medicaid benefits; (4) decedent's estate was legally responsible to third parties for the false representations made by decedent's son while exercising decedent's power of attorney; (5) matter should be remanded to Court of Appeals for it to consider Medicaid-specific question that it had not reached.

         The decision of the Court of Appeals is reversed, and the case is remanded to the Court of Appeals for further proceedings.

         [362 Or. 117] NAKAMOTO, J.

         The issue presented is whether an adult foster care provider claiming unjust enrichment may recover the reasonable value of its services from a defendant who, through fraud, obtained a lower rate from the provider for the services. We conclude that, generally, a defendant who obtains discounted services as a result of fraud is unjustly enriched to the extent of the reasonable value of the services. We therefore reverse the contrary holding by the Court of Appeals. Because the fraud here occurred in the context of a person being certified as eligible for Medicaid benefits, however, we remand for the Court of Appeals to consider whether certain provisions of Medicaid law may specifically prohibit plaintiff from recovering in this action.

         I. BACKGROUND

         The facts leading to this action revolve around the Medicaid application of decedent Isabell Prichard and the services that Prichard received at Medicaid rates from plaintiff, Larisa's Home Care, LLC, during the last months of her life. Because the trial court ultimately granted judgment for plaintiff, we set out the facts and all inferences in the light most favorable to that party. See James v. Clackamas County, 353 Or. 431, 433-34, 299 P.3d 526 (2013) (so noting and citing authorities).[1]

         A. Background on the Medicaid Program

         For context, we begin with some background on the Medicaid program. Medicaid "is a cooperative endeavor in which the Federal Government provides financial assistance to participating States to aid them in furnishing health care to needy persons." Harris v. McRae, 448 U.S. 297, 308, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). Although the Medicaid program is partly financed by the federal government, each state administers its own program. 42 CFR § 430.0. To do so, each state creates its own "state plan." See 42 USC § 1396a (setting out requirements for state plans); 42 CFR § 430.10 [362 Or. 118] (describing state plans). Oregon's state plan is administered by the Department of Human Services (department). See ORS 409.010(2)(b) (department is responsible for programs and services relating to elderly and persons with disabilities); ORS 410.070 (department's duties regarding same); ORS 411.060 (authority to adopt and enforce rules).[2]

         The department requires an application to determine a person's eligibility for Medicaid benefits. See OAR 461-115-0700 (requiring that "all eligibility factors must be verified at initial application"). As relevant here, a person applying for Medicaid benefits must disclose any asset transfers made within the past 60 months. That disclosure permits the department to determine whether those transfers disqualify the person from receiving benefits for a period of time. If the applicant has made transfers within the 60 months preceding the application for benefits, and if those transfers were "in whole or in part for the purpose of establishing or maintaining eligibility for benefits, " then the person will be disqualified from receiving benefits for a period of time. OAR 461-140-0210(2), (5). The length of the disqualification period depends on the amount transferred: the greater the amount, the more months the person will have to wait to receive benefits. See OAR 461-140-0296(2) (as applicable here, disqualification period in months is determined by dividing amount transferred by $5, 360).

         B. Plaintiffs Services to Prichard at Medicaid Rates

         Plaintiff owns two adult foster homes for the elderly. Plaintiff had contracted with the department to provide services in a home-like setting to patients who qualified for Medicaid. For those patients, the rates charged would be those set by the department.

         Prichard, an elderly woman who suffered from cognitive difficulties and dementia, became one of plaintiff's patients in June 2007. Prichard then resided and received [362 Or. 119] care in one of plaintiff's adult foster homes until her death in November 2008. Because Prichard had been approved to receive Medicaid benefits, plaintiff charged Prichard the rate for Medicaid-qualified patients: approximately $2, 000 per month, with approximately $1, 200 of that being paid by the department.

         Plaintiff's Medicaid rates were substantially below the rates paid by plaintiff's non-Medicaid patients, or "private pay" patients. For private pay patients, the rate varied depending on the level of care. During Prichard's stay, plaintiff charged private pay patients $4, 000 per month for Level 2 care, and for more intensive Level 3 care, plaintiff charged private pay patients $5, 700 per month. Prichard received Level 2 and Level 3 care during her stay in plaintiff's facility. If Prichard had not been approved for Medicaid benefits and had instead been a private pay patient, she would have paid plaintiff over $48, 000 more for her care.

         C. Prichard's Medicaid Application

         Prichard's application for Medicaid benefits, as with her other affairs, was handled by her son, Richard Gardner. Prichard had given Gardner a power of attorney to act on her behalf back in 2004. Exercising his authority to apply for Medicaid benefits on behalf of Prichard, Gardner completed the application form on April 17, 2007. Gardner affirmatively represented on Prichard's application that she had not given away or transferred any cash or other property to anyone in the preceding 60 months. As a result, the department approved Prichard for Medicaid benefits.

         Prichard's affairs were not as represented on the form, however. Her application form was false in its representation that there had been no transfers in the past 60 months. In actuality, Gardner had for years been transferring Prichard's assets, mostly to himself (or using those funds for his personal benefit). In the 60 months before Prichard's application for Medicaid, Gardner had transferred away over $150, 000 of Prichard's assets.

         Gardner's misconduct was discovered by another of Prichard's children: defendant Karen Nichols-Shields, who was appointed the personal representative for Prichard's [362 Or. 120] estate. In 2009, defendant contacted the police and reported her brother for theft.

         Ultimately, Gardner pleaded guilty to three counts of criminal mistreatment in the first degree.[3] Gardner's sentence included an obligation to pay a compensatory fine to Prichard's estate in the amount of $195, 710.11. Gardner has complied with that obligation and paid the estate. Thus, the amount that Gardner took from Prichard was restored to Prichard's estate.

         D. Plaintiffs Action Against Prichard's Estate

         After defendant, in her capacity as personal representative, denied plaintiff Larisa's Home Care, LLC's claim against Prichard's estate, plaintiff filed this action.[4] In its complaint, plaintiff sought equitable relief for unjust enrichment. Essentially, plaintiff asserted that Prichard had been qualified for Medicaid through fraud and that Prichard should have been charged as a private pay patient. It sought restitution from the estate for the difference between the amount Prichard would have paid as a private pay patient and the amount that plaintiff actually received for Prichard's care at plaintiff's adult foster home.

         After a bench trial, the trial court ruled in favor of plaintiff, concluding that there was unjust enrichment. The court explained:

"[A]s a whole, there is no reason why, as we look at this case as a[n] equitable one and fundamental fairness, that because of that fraud, the fraud on the applications, the [362 Or. 121] fraud on all the paperwork that was presented, that the estate of Ms. Prichard should not now be basically paying [the] debt.
" [The estate] cannot now benefit from all that has come before to this particular point. It would be unfair for the plaintiff to be left holding the bag * * * and for the estate to now benefit from the fraud."

         The court also concluded that Medicaid law did not prevent plaintiff's recovery. Accordingly, the court entered judgment in favor of plaintiff for $48, 477.

         Defendant appealed to the Court of Appeals. She presented two arguments, broadly speaking: (1) there was no unjust enrichment; and (2) regardless, Medicaid-related law (statutes, rules, and the terms of plaintiff's contract with the department) prohibited plaintiff from recovering from defendant. Without reaching the Medicaid issues, the Court of Appeals agreed with defendant that there was no unjust enrichment. Larisa's Home Care, LLC v. Nichols-Shields, 277 Or.App. 811, 372 P.3d 595 (2016).

         The Court of Appeals began with its precedent concerning the elements of a "quasi-contractual claim of unjust enrichment." Id. at 815 (internal quotation marks and citation omitted). The elements that the Court of Appeals has long used are "'(1) a benefit conferred, (2) awareness by the recipient that she has received the benefit, and (3) it would be unjust to allow the recipient to retain the benefit without requiring her to pay for it.'" Id. The court quoted its decision in Cron v. Zimmer, 255 Or.App. 114, 130, 296 P.3d 567 (2013), which in turn had restated the elements that the court first articulated in Jaqua v. Nike, Inc., 125 Or.App. 294, 298, 865 P.2d 442 (1993).

         The Court of Appeals also relied on Jaqua for the legal standard used in determining when it is "unjust" for the defendant to retain the benefit. Larisa's Home Care, LLC, 277 Or.App. at 816. The court explained that its precedent required plaintiff to prove at least one of the following circumstances:

"'(1) the plaintiff had a reasonable expectation of payment; (2) the defendant should reasonably have expected to pay; [362 Or. 122] or (3) society's reasonable expectations of security of person and property would be defeated by non-payment.'"

Id. (quoting Jaqua, 125 Or.App. at 298). None of those three forms of unjust enrichment, the court concluded, were proved in this case.

         As to the first form of unjust enrichment, the court determined that plaintiff did not have a reasonable expectation of payment. Prichard had been qualified for Medicaid, and plaintiff thus was contractually obligated to charge her only the Medicaid rate. Plaintiff's reasonable expectation was to receive the Medicaid rate payment and nothing more. Larisa's Home Care, LLC, 277 Or.App. at 816-18. As for defendant's expectation to pay, the second form, the Court of Appeals held that there was no evidence in the record that would permit a finding that Prichard reasonably should have expected to pay the private pay rate. Id. at 818.

         Finally, as to the third form of unjust enrichment, the Court of Appeals held that societal expectations would not be defeated by the estate's nonpayment. The court based that holding on two different conclusions. First, the court derived from Medicaid law certain underlying policies that, it concluded, reflected a societal expectation that Medicaid providers would not seek to recover funds beyond what Medicaid allowed. Id. at 818-19 (for example, ORS 443.739(16), a "bill of rights" for residents of adult foster homes, states that a provider "may not solicit, accept or receive money or property from a resident other than the amount agreed to for services"). Second, the court concluded that the wrongdoer was Gardner, not Prichard, who was blameless, and that therefore her estate should not be required to pay for Gardner's wrongdoing. Id. at 819-20.

         Having concluded that plaintiff had failed to adduce sufficient evidence that Prichard's estate had been unjustly enriched in any of the three ways reflected in its case law, the Court of Appeals reversed the judgment of the trial court. Id. at 820. Plaintiff then sought review in this court.

         II. ANALYSIS

         Before turning to our analysis, we note the scope of this opinion. When we allowed review, we did so to address [362 Or. 123] the unjust enrichment question only, not the issues of Medicaid law that the Court of Appeals did not reach due to its holding. As we will explain, we conclude that plaintiff did show that Prichard's estate has been unjustly enriched. We therefore remand for the Court of Appeals to address in the first instance whether certain provisions of Medicaid law may nevertheless prohibit recovery.

         A. Arguments on Review

         On review and throughout the litigation, plaintiff has offered several different theories of misconduct-not just by Gardner, but by defendant as well-that it claims would justify its recovery on its claim of unjust enrichment. We find it necessary to address only one, because it is dispositive. That theory, based on fraud, can be broken down into three components: First, the false representations on Prichard's Medicaid form caused her to be wrongfully qualified for Medicaid benefits; she would have been disqualified had the misrepresentations not been made. Second, Gardner acted as Prichard's agent in making those misrepresentations, and Prichard was legally responsible to third parties for those misrepresentations, even though she had not made them herself. Third, Prichard's estate was unlawfully enriched by those false representations, and so it is subject to restitution. In sum, plaintiff argues, because of fraud, plaintiff charged Prichard a lower rate and the estate now has nearly $50, 000 more money than it would have had, but for the fraud. Arguing that fraud is a recognized basis for a claim of unjust enrichment, plaintiff asserts that the Court of Appeals erred in holding that there was no unjust enrichment here.

         Defendant asserts that the Court of Appeals correctly identified and analyzed the three circumstances from Jaqua in which a benefit or enrichment is considered "unjust." In support, she argues that Gardner's transfers would not disqualify Prichard from receiving Medicaid benefits and that Prichard was innocent of, and not liable for, Gardner's misconduct. Thus, defendant asserts, plaintiff had no reasonable expectation of payment, and defendant should not be expected to pay. Defendant further contends that societal expectations have been satisfied because [362 Or. 124] the department has never changed its determination that Prichard was eligible for Medicaid benefits; the department was reimbursed from the estate for Medicaid benefits it provided to Prichard; and the department paid plaintiff for Prichard's care at Medicaid rates.

         Thus, the parties initially square off over the legal standards that govern a claim of unjust enrichment, with plaintiff asserting that fraud is sufficient to establish liability for unjust enrichment and defendant asserting that the factors listed in Jaqua for determining an "unjust" benefit should govern. The parties also ...

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