State of North Carolina Department of Health and Human Services v. Armstrong (N.C. App., No. COA09-639, March 16, 2010)

A North Carolina appeals court rules that a state lawsuit attempting to recover funds from a medical malpractice settlement must be abated because the plaintiff had already filed a federal lawsuit claiming that the state's Medicaid lien statute is unconstitutional. State of North Carolina Department of Health and Human Services v. Armstrong (N.C. App., No. COA09-639, March 16, 2010).

Emily Armstrong was injured during birth and subsequently settled a medical malpractice suit against her hospital and doctors. As part of the settlement, the court ordered the defendants to pay one-third of Emily's settlement into an escrow account pending resolution of the state's Medicaid lien. (Under North Carolina law, the state Department of Health and Human Services (DHHS) is limited to claiming one-third of a settlement).

In March, 2007, Emily filed a federal lawsuit against the state, alleging that the North Carolina Medicaid lien statute was unconstitutional because it allowed the state to place a lien on settlement funds that were not designated for medical expenses. Emily also sought a court order allowing the clerk of court to distribute the funds held in escrow to her special needs trust. In September 2007, DHHS filed a suit in state court against Emily and her family seeking distribution of the escrow funds in satisfaction of the state's lien. Emily filed a motion to dismiss or abate the state's suit, claiming that the federal suit, which was filed first, arose out of the same facts and would effectively determine who was entitled to the escrow funds. The trial court denied Emily's motion, and she appealed.

The North Carolina Court of Appeals overturns the trial court's decision and abates the state's suit pending resolution of the federal case. The court finds that "[a]s the federal lawsuit and this state lawsuit involve substantial identity as to the parties, subject matter, issues, and remedies sought, the trial court erred in denying the Armstrong's motion to abate and for this reason we reverse."