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MAO-MSO Recovery II, LLC v. State Farm Mutual Automobile Insurance Co.

United States District Court, C.D. Illinois

January 9, 2018

MAO-MSO RECOVERY II, LLC, MSP RECOVERY LLC, and MSPA CLAIMS 1, LLC Plaintiffs,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Respondent.

          ORDER & OPINION

          JOE BILLY McDADE United States Senior District Judge

         The matter is before the Court on Defendant's Motion to Dismiss. (Doc. 34). For the reasons explained below, Defendant's Motion to Dismiss is GRANTED for lack of subject matter jurisdiction. Plaintiffs have twenty-one days to file a second amended complaint to cure the deficiencies as noted.

         Legal Backdrop

         This lawsuit arises under the Medicare Secondary Payer (“MSP”) provisions of the Medicare Act, 42 U.S.C. § 1395y et seq. “The MSP is actually a collection of statutory provisions codified during the 1980s with the intention of reducing federal health care costs.” United States v. Baxter Intern., Inc., 345 F.3d 866, 874 (11th Cir. 2003). Part C of the Medicare Act allows Medicare enrollees to obtain their Medicare benefits through private insurers, called Medicare Advantage Organizations (“MAOs”), instead of receiving direct benefits from the government under Parts A and B. 42 U.S.C. § 1395w-21(a). The Center for Medicare and Medicaid Services (“CMS”)“pays an MAO a fixed amount for each enrollee, per capita (a “capitation”), ” and “[t]he MAO then administers Medicare benefits for those enrollees and assumes the risk associated with insuring them.” In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353, 357-58 (3d Cir. 2012). Congress's goal in creating the MAO program “was to harness the power of private sector competition to stimulate experimentation and innovation that would ultimately create a more efficient and less expensive Medicare system.” Id. at 363.

         “The MSP makes Medicare insurance secondary to any ‘primary plan' obligated to pay a Medicare recipient's medical expenses, including a third-party tortfeasor's automobile insurance.” Parra v. PacifiCare of Ariz., Inc., 715 F.3d 1146, 1152 (9th Cir. 2013) (citing § 1395y(b)(2)(A)). “In other words, ‘Medicare serves as a back-up insurance plan to cover that which is not paid for by a primary insurance plan.'” Caldera v. Ins. Co. of the State of Pa., 716 F.3d 861, 863 (5th Cir. 2013) (quoting Thompson v. Goetzmann, 337 F.3d 489, 496 (5th Cir. 2003)). The Medicare Act provides that Medicare cannot pay medical expenses when “payment has been made or can reasonably be expected to be made under . . . an automobile or liability insurance policy or plan . . . or no fault insurance.” § 1395y(b)(2)(A)(ii). There is only one exception to the prohibition in paragraph (2)(A): if a primary plan “has not made or cannot reasonably be expected to make payment, ” the Secretary can make a conditional payment; however, since Medicare remains the secondary payer, the primary plan must reimburse Medicare for the conditional payment. § 1395y(b)(2)(B)(i)-(ii).

         The MSP provides a private cause of action for damages in an amount double the amount otherwise provided in the case of a primary plan which fails to provide for primary payment or appropriate reimbursement. § 1395y(b)(3)(A). Plaintiffs in this case, who have been assigned the rights of recovery by numerous MAOs, purport to bring a private cause of action under subsection (3)(A) against Defendant State Farm Mutual Automobile Insurance Company (“State Farm”) for failure to provide reimbursement for the assignor-MAOs' secondary payments. The Seventh Circuit has not determined whether an MAO (or its assignee) may avail itself of the MSP private cause of action in paragraph (3)(A). The Third and Eleventh Circuits-the only circuit courts that have addressed this issue-have held that paragraph (3)(A) permits an MAO to sue a primary plan that fails to reimburse an MAO's secondary payment. See Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1238 (11th Cir. 2016); In re Avandia, 685 F.3d at 355. Since the decisions by the Third and Eleventh Circuits, district courts around the country have followed suit. See, e.g., Humana Ins. Co. v. Paris Blank LLP, 187 F.Supp.3d 676, 681 (E.D. Va. 2016); Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F.Supp.3d 1285, 1290-91 (S.D. Fla. 2015); Cariten Health Plan, Inc. v. Mid-Century Ins. Co., No. 14-476, 2015 WL 5449221, *5-*6 (E.D. Tenn. Sept. 1, 2015); Collins v. Wellcare Healthcare Plans, Inc., 73 F.Supp.3d 653, 664-65 (E.D. La. 2014); Humana Ins. Co. v. Farmers Tex. Cnty. Mut. Ins. Co., 95 F.Supp.3d 983, 986 (W.D. Tex. 2014).

         State Farm does not argue that Plaintiffs cannot bring a cause of action under subsection (3)(A), and the Court finds no reason to depart from the national trend interpreting subsection (3)(A) to permit MAOs to bring private causes of action. Even though Plaintiffs are not MAOs, but rather are the assignees of several MAOs' rights of recovery, the Seventh Circuit has held that “'the assignee stands in the shoes of the assignor and assumes the same rights, title and interest possessed by the assignor.'” Perry v. Globe Auto Recycling, Inc., 227 F.3d 950, 953 (7th Cir. 2000) (quoting Plumb v. Fluid Pump Serv. Inc., 124 F.3d 849, 864 (7th Cir. 1997) (finding that assignee of medical benefits under ERISA plan can bring suit to collect benefits under ERISA civil enforcement provisions). Therefore, Plaintiffs, as assignees, stand in the shoes of the MAOs, and can bring a private cause of action under subsection (3)(A).

         Background of This Case [1]

         Plaintiffs filed this action on behalf of themselves and all other similarly situated MAOs, and their assignees, for double damages, pursuant to the MSP private cause of action in paragraph (3)(A). (Doc. 32 ¶ 6). Plaintiffs assert that Medicare beneficiaries were members of the assignor-MAOs and were also insured under automobile insurance policies issued by Defendant. Id. ¶ 51. Those policies provided coverage of medical expenses related to injuries resulting in medically necessary services stemming from car accidents. Id. The Medicare beneficiaries were involved in car accidents that required medical services. Id. ¶ 52. “The bills for medical services . . . were required to be paid for by Defendant, ” but “Defendant failed to pay or reimburse the Medicare Beneficiaries' MAOs for the payments made by the MAOs that were required to be paid by Defendant as a result of said automobile accidents.” Id.

         On May 31, 2017, State Farm filed a motion to dismiss Plaintiffs' amended complaint.[2] (Doc. 34). State Farm argues that Plaintiffs lack Article-III standing to sue because they have not shown injury-in-fact and that Plaintiffs have failed to state a claim for which relief may be granted because the amended complaint is too generic. Plaintiffs filed a response (Doc. 38) and this matter is ripe for decision. The Court only addresses Defendant's first argument, and finds that Plaintiffs lack standing.

         Legal Standard

         “As the party invoking federal jurisdiction, a plaintiff bears the burden of establishing the elements of Article III standing.” Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 559-60 (1992)). Because standing is “not [a] mere pleading requirement[ ] but rather an indispensable part of the plaintiff's case, [it] must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.” Lujan, 504 U.S. at 561. In evaluating a challenge to subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the court must first determine whether a factual or facial challenge has been raised. Silha, 807 F.3d at 173. A factual challenge contends that “there is in fact no subject matter jurisdiction, ” even if the pleadings are formally sufficient. Apex Dig., Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). “In reviewing a factual challenge, the court may look beyond the pleadings and view any evidence submitted to determine if subject matter jurisdiction exists.” Silha, 807 F.3d at 173. In contrast, a facial challenge argues that the plaintiff has not sufficiently “alleged a basis of subject matter jurisdiction.” Apex Dig, 572 F.3d at 443. “In reviewing a facial challenge, the court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the plaintiff.” Silha, 807 F.3d at 173. State Farm brings a facial challenge to the amended complaint because it contends that Plaintiffs' amended complaint lacks sufficient factual allegations to establish standing.

         Discussion

         “Standing is an essential component of Article III's case-or-controversy requirement.” Apex Dig, 572 F.3d at 443 (citing Lujan, 504 U.S. at 560). “‘In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or particular issues.'” Perry v. Vill. of Arlington Heights, 186 F.3d 826, 829 (7th Cir. 1999) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). “As a jurisdictional requirement, the plaintiff bears the burden of establishing standing.” Apex Dig, 572 F.3d at 443 (citing Perry, 186 F.3d at 829). Standing consists of three elements. Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016). “The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Id. State Farm argues that Plaintiffs lack standing because they have failed to allege the first element, that they suffered an injury-in-fact. “To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest' that is ‘concrete and particularized' and ‘actual or imminent, not conjectural or hypothetical.'” Id. at 1548 (citing Lujan, 504 U.S. at 560). For an injury to be “particularized, ” it “must affect the plaintiff ...


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