WEINER v. MYERS (1980)

By his petition for writ of mandate, plaintiff sought to compel the Director of Health Services to reverse a decision which denied his claim for Medi-Cal benefits. He appeals denial of that petition. For the reasons which follow, we affirm the judgment.

The facts are undisputed. Plaintiff owns 1,000 shares (one-tenth of the outstanding shares) of Mendocino Uplands Corporation (corporation), a corporation limited to 10 equal shareholders. The sole assets of the corporation are approximately 200 acres of land in Mendocino County and sufficient funds to maintain the property. As a shareholder, plaintiff is entitled to the use of a 5-acre site on which he built his residence, and equal use and enjoyment with the other shareholders of a 150-acre unused common area owned by the corporation. Value of plaintiff's interest in the corporation was stipulated to be in excess of $1,500 and less than $25,000. His shares are salable subject to some minor restriction.

He applied for and was denied Medi-Cal benefits on the ground that the value of his interest in the corporation exceeded the permissible personal property reserve limit of $1,500 under California Administrative Code, title 22, section 50420.

The sole issue presented is whether plaintiff's stock ownership is excludable as a personal property resource.

In order to qualify for Medi-Cal¹ benefits, an applicant may not exceed the property limitations established by Welfare and Institutions Code2 section 14006, and California Administrative Code, title 22, sections 50401 to 50489; however, certain resources are exempt from the property limitations. By reference to section 12152, section 14006 exempts the value of a home owned by an applicant for Medi-Cal benefits. Additionally, an individual may own nonexempt property with a net market value less than $1,500. (Welf. & Inst. Code, § 14006; Cal. Admin. Code, tit. 22, §§ 50419, 50420.)

Plaintiff contends his corporate ownership interest should be exempt from the process of determining his eligibility for Medi-Cal benefits because it is essentially an interest in real property upon which he established a home.

California Administrative Code, title 22, section 50404, provides that for Medi-Cal eligibility purposes, the property owner must hold legal title to the property. Here the owner of the subject real property is the corporation. Plaintiff holds legal title to shares of stock in the corporation; he does not hold legal title to the real property. His ownership is an undivided interest represented by shares of capital stock in the corporation.

California Administrative Code, title 22, section 50425, subdivision (d), enumerates the types of personal property that may serve as a home, exempt from consideration when determining eligibility for Medi-Cal benefits. These items are a mobile home, a houseboat, a motor vehicle used as a residence, and any other shelter not attached to land and used as a residence. Plaintiff's stock ownership does not come within any of the categories of personalty which qualify for exemption as a home. Moreover, California Administrative Code, title 22, section 50456, specifically provides that stocks are to be included in an applicant's property reserve in determining eligibility of Medi-Cal benefits.

Upon the foregoing bases, we could conclude plaintiff's stock represents ownership of personal, not real, property (Kirkland v. Levin (1923) 63 Cal.App. 589, 590, 219 P. 455); however, the substance of plaintiff's interest, rather than its form, is dispositive of the matter. Were we to assume, as plaintiff argues, that his interest in the corporation should be treated as a real property interest and the corporate entity disregarded, he still has failed to establish his eligibility.

Section 14006 provides in relevant part that a “medically indigent person . . may retain other property in accordance with the provisions of Sections … 12152.” Section 12152 in turn provides in relevant part that “[t]he value and the occupancy value of the home owned by the … individual or in combination with any other person if it serves to provide him with a home” is to be disregarded in determining an individual's Medi-Cal eligibility. (Emphasis added.)

Plaintiff seeks to exempt the value of his interest in the corporation in its entirety; he has not attempted to exempt only the value of his home and the land upon which it is located. Although it is true that his interest in the shares operates to provide him a home, it is equally true that that same interest provides him with much more. He has an interest in and exclusive use of the 5 acres of land contiguous to his house, as well as interest in and use of 150 acres held in common ownership with the other shareholders.

The administrative regulations governing home exemptions while determining Medi-Cal eligibility provide that land contiguous to a home is considered part of the home provided the parcel cannot be divided or sold separately because of zoning restrictions or because such disposition would alter or impair reasonable access to or normal use of the home as a residence. (Cal. Admin. Code, tit. 22, § 50431.) Plaintiff has failed to establish that division or sale of the contiguous land would impair either access or normal use of his home, or that division of the parcel is prohibited by zoning requirements, or correlatively that he could appraise and evaluate the four contiguous acres surrounding his house (falling into the category of “other property”) and still meet the financial qualifications. Assuming such a showing could be made, the requirement of California Administrative Code, title 22, section 50416, that land in excess of one acre be “utilized” to be exempt has not been met. (Cal. Admin. Code, tit. 22, § 50431.) The record also fails to disclose any evidence of usage of the 150 acres of land held in common with the other shareholders.

By investing in a corporation with the twofold result of providing a home and an investment in a large parcel of land, plaintiff has placed himself in a position in which his interest in an arguably exempt asset is so entwined with clearly nonexempt assets as to be inseparable.³

The purpose of the Medi-Cal program is to provide health care to those who lack sufficient income to meet the costs of health care and whose other assets are so limited that to apply those few assets to health care costs would jeopardize the person's self-maintenance and security. (§ 14000.) Clearly it was not intended to permit an applicant, like plaintiff, to select a corporate form of ownership interest in a large parcel of land and retain that entire asset with a value which exceeds the permissible limitation, under the guise that it incidentally serves to provide him a home.

The judgment is affirmed.

I dissent. The question presented for our determination is whether appellant's stock ownership constitutes realty or personalty. Having found the interest to be realty, a conclusion with which I agree, our duty as a reviewing court is to reverse and remand. The majority go beyond the issue presented, and by deciding an issue not found in the record reach an incorrect result.

I. Scope of Review

Plaintiff was denied Medi-Cal benefits because his stock ownership in the Mendocino Uplands Corporation was deemed personalty so that his personal property reserve limit of $1,500 was surpassed. (Cal.Admin.Code, tit. 22, § 50420.) On appeal, he argues that his stock ownership in fact constitutes an interest in realty, and that a literal reading of title 22, California Administrative Code, section 50404, requiring the property owner to hold legal title, would distort the legislative scheme by forcing him to lose his home in order to receive Medi-Cal benefits. (Welf. & Inst.Code, § 11150.)¹

The majority correctly state: “The sole issue presented is whether plaintiff's stock ownership is excludable as a personal property resource.” It correctly holds that the substance of plaintiff's interest, not its form, is dispositive of the matter. I agree with the majority's response to the threshold question—the interest is realty. The question of what would happen if the interest is deemed realty was never reached in the proceedings below. On this question the record is silent. Nonetheless, the majority proceed to discuss plaintiff's ownership in the four acres contiguous with his home and in the 150-acre common area, concluding that appellant was properly denied medical benefits. It is this further discussion and conclusion with which I disagree. Our duty as a reviewing court, having determined that the interest is in realty, is to remand for a factual finding on the matters discussed below. (6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 218, p. 4208.)

II. Law Protecting Plaintiff's Retention Of “Other Property”

By virtue of his ownership in the Mendocino Uplands Corporation, plaintiff acquired two property interests. The first is a five-acre site upon which he built his home, and over which he has sole right of use. The second is a right of equal use and enjoyment in a 150-acre common area. The majority discuss both interests holding that either is sufficient to defeat plaintiff's claim.²

A Medi-Cal applicant may retain a property reserve and still remain eligible for benefits. (Cal.Admin.Code, tit. 22, § 50419.) Where the applicant exceeds the reserve limit (as does plaintiff), retention of this “other property” is still possible without impairment of eligibility where certain tests are satisfied. Basically, the legislative scheme protects retention of “other property” if (1) the land is “utilized” (thus §§ 11151.2 and 11153.7, subd. (a), together with § 14006, allow an applicant to retain possession of his or her income producing realty without thereby impairing eligibility, while title 22, California Administrative Code section 50416 sets forth the utilization requirements); (2) utilization is impossible (Cal.Admin.Code, § 50431, subd. (a)); or (3) utilization would impair the paramount interest of allowing the applicant to retain use of an access to his or her home (§ 11150).

A. Incapacity of Utilization—The Contiguous Four Acres.

The general rule is that “other property,” including land contiguous to a home, will defeat eligibility where held for speculation purposes. As a condition precedent to receipt of public assistance, the land must be divided and sold, or otherwise utilized. However, the Legislature did not make utilization an absolute requirement. In case of land contiguous to a home (the four-acre lot in the case at bar), the requirement need not be fulfilled (the contiguous land will be considered part of the home and hence exempt under tit. 22, Cal.Admin.Code, § 50425) if prevented either by zoning requirements, or because the disposition would alter or impair reasonable access to, or normal use of, the home as a residence. (Cal.Admin.Code, tit. 22, § 50431.) Even if the land is incapable of division or sale due to zoning or access restrictions, the area need not be utilized if “the applicant . . provides satisfactory evidence that the land cannot be utilized.” (Ibid.) An applicant thus has an affirmative defense to the utilization requirement of contiguous land.

The affirmative defense of incapacity of utilization is most clearly a factual issue and hence outside the scope of our review. (6 Witkin, Cal.Procedure (2d ed. 1971) Appeal, § 209, p. 4200.) The majority, in turn, rule against plaintiff, noting that he “has failed to establish” any of the criteria for exemption. Yet since plaintiff in the hearing stage never got past arguing his ownership is one in realty, it is difficult to see when this matter could have been raised.

B. Opportunity to Utilize.

The majority's decision overrides plaintiff's clear statutory right to at least attempt to utilize the land before his eligibility is denied. Section 11153.7, subdivision (b) explicitly states that if the real property is not being utilized, “the applicant . . shall be allowed reasonable time to rent, lease or sell the property.” (Emphasis added.) Title 22, California Administrative Code, section 50416, subdivision (c) is more specific: “The applicant … shall be allowed six months to meet utilization requirements. The six month period . . shall begin on the first of the month following issuance of a notice of action informing the applicant … that the property is not yielding sufficient income, …” (Emphasis added.) Finally, title 22, California Administrative Code, section 50416, subdivision (b) allows for a three-month extension of the utilization period for good cause.

The clear preference of the Legislature is to give an owner of realty reasonable time to convert his or her holdings to income producing use, so as to be able both to retain the property and to receive Medi-Cal aid if still necessary, now that the applicant's income level has risen. This scheme prevents “undue hardship” in conformity with the “intent” language of section 11150.

The majority opinion reaches a conclusion which contravenes the express statutory and administrative language concerning the utilization period. Thus, it unnecessarily renders a hardship under these specific circumstances. The Mendocino Uplands Corporation, the parties agree, is a closely held corporation with plaintiff as its president. Plaintiff in the past has “quickly persuaded the other shareholders to amend the articles.” There is no reason to assume a priori that plaintiff could not once again persuade his co-owners to change their original course, this time by making the common area productive. In any event, the law gives him the right to try.³

C. Impairment of Access or Use.

The majority note in passing but do not grapple with the clear rule that “No applicant … shall be considered ineligible for retaining property where disposition would alter or impair reasonable access to or the normal use of his home.” (§ 11150; see also tit. 22, Cal.Admin.Code, § 50431, subd. (a).)

Plaintiff owns a one-tenth undivided interest in the corporation. This ownership provides him with his home. In disposing of the stock his home may well be lost, its access impaired. Certainly, the record indicates this as plaintiff's fear.

The majority suggest that plaintiff has voluntarily placed himself in a position where arguably exempt assets, and “clearly” nonexempt assets, are inseparably intertwined, but that he cannot use this position as a “guise” to exempt all his property and thus circumvent the Medi-Cal eligibility requirements.

Yet, the record shows that no such “guise” is being perpetrated here. Plaintiff chipped in a small amount of money, together with eight other people so that they could acquire ownership to land for their residence and enjoyment. The corporate form was acquired on the advice of a lawyer so as to avoid personal liability, and it was adopted prior to plaintiff's application for Medi-Cal. The corporation is not a repository of hidden funds of its shareholders its treasury amounted to $68 at the time of the hearing, an amount set aside to help defray property taxes and other incidental expenses. Finally, in order to remain eligible for Medi-Cal benefits, plaintiff must meet all other income and property requirements.

To rule against plaintiff might well require him to lose his home. By judicial procedure he should not have to do so without first being able to present his case before a fact finder. By statute he need not do so without six months to try and utilize his “other property.”

I would reverse and remand to trial court with instructions to remand to the administrative agency for further proceedings consistent with this opinion.

FOOTNOTES

1.  “Medi-Cal” refers to the health care program established by Welfare and Institutions Code section 14000 et seq. (Welf. & Inst. Code, § 14063.)

FN2. All statutory references are to the Welfare and Institutions Code unless otherwise indicated..  FN2. All statutory references are to the Welfare and Institutions Code unless otherwise indicated.

3.  Plaintiff's reliance on Steilberg v. Lackner (1977) 69 Cal.App.3d 780, 138 Cal.Rptr. 378, is misplaced. He argues that sections 11150 and 11152 are applicable to the determination of property exemptions under the Medi-Cal program and control over any contradictory administrative regulations. In Steilberg, the applicant owned her home by holding title to real property; she did not, as does plaintiff, own stock in a corporation which only owns real property. Steilberg assumes that section 11152 was applicable to the Medi-Cal program; at the time there in issue, section 14006 referred to several of the sections in the 11150 series. However, section 14006 was subsequently amended and refers only to section 11153.7 and specifically substituted a reference to section 12152 in place of the previous reference to section 11152 (see Stats. 1974, ch. 1240, § 5, p. 2686). The amendment effectively precludes application of section 11152 to the Medi-Cal program.

1.  All statutory references are to the Welfare and Institutions Code unless otherwise indicated.

2.  Concerning the five-acre lot, the majority concedes that plaintiff can retain possession of his home and the acre upon which it rests under sections 12152, 14006, and title 22, California Administrative Code section 50431. The question remains as to the legal status of the contiguous four acres.

3.  At the administrative hearing plaintiff himself briefly discussed the possibility of making the common area productive, but the issue was soon dropped as being too “hypothetical.”

EVANS, Associate Justice.

PUGLIA, P. J., concurs. REYNOSO, Associate Justice, dissenting.Rehearing denied; REYNOSO, J., dissenting. Hearing denied; MOSK, J., dissenting.