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

United States District Court, C.D. Illinois, Peoria Division

May 25, 2018


          ORDER & OPINION


         The matter is before the Court on Defendant State Farm Mutual Automobile Insurance Company's (“State Farm”) Motion to Dismiss the Amended Complaint. (Doc. 67). For the reasons explained below, State Farm's Motion to Dismiss is GRANTED for lack of subject matter jurisdiction.


         This putative class action is one of several filed around the country by the Plaintiffs.[1] Plaintiffs also have a separate but related case pending before this Court-another putative class action with slightly different facts, but consisting of virtually identical allegations under the law. MAO-MSO Recovery II, LLC et al. v. State Farm Mutual Automobile Ins. Co., No. 17-cv-1537 (C.D. Ill. Feb. 23. 2017). This lawsuit arises under the Medicare Secondary Payer (“MSP”) provisions of the Medicare Act, 42 U.S.C. § 1395y et seq. A more comprehensive explanation of the MSP provisions can be found in this Court's first Order & Opinion dismissing Plaintiffs' original complaint. MAO-MSO Recovery II, LLC v. State Farm Mut. Auto. Ins. Co., No. 17-cv-1541, 2018 WL 340021, at *1 (C.D. Ill. Jan. 9, 2018).

         Despite originally being filed on March 28, 2017, this case has not advanced passed preliminary stages because the parties have litigated the issue of Article-III standing for months. “Standing under Article III is a threshold question in every federal case.” United States v. All Funds on Deposit with R.J. O'Brien & Assocs., 783 F.3d 607, 616 (7th Cir. 2015) (internal citation omitted). As will be described in detail below, it is obvious that Plaintiffs here lack standing because they have suffered no injury in fact. Plaintiffs have only feigned legitimacy through empty documentation and the appearance of a sophisticated corporate scheme.


         “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 20271-CIV, 2016 WL 3751481, at *1 (S.D. Fla. July 14, 2016); MSP Recovery, LLC v. Progressive Select Ins. Co., 96 F.Supp.3d 1356 (S.D. Fla. 2015). 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 alleges that Plaintiffs do not in fact have standing, regardless of the allegations in the Amended Complaint-a factual challenge. In the alternative, State Farm brings a facial challenge to the allegations in the Amended Complaint.

         Article-III standing has three elements: “[t]he 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.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016), as revised (May 24, 2016) (citing Lujan, 504 U.S. at 560-61)). State Farm argues that Plaintiffs cannot satisfy the first element, injury-in-fact. To satisfy the first “injury” element, the plaintiff must show, inter alia, that the injury affects the plaintiff in a personal and individual way. Id. at 1548; Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472 (1982) (standing requires that the plaintiff “‘personally has suffered some actual or threatened injury'”). Plaintiffs here have not suffered an injury, let alone an injury that affects them in a personal and individual way. Therefore, Plaintiffs lack standing and this case must be dismissed.

         I. The Plaintiffs

         Some unpacking is necessary in order to demonstrate how straightforward this case actually is, despite the voluminous briefing and documentation provided to the Court by the parties. Plaintiffs in this case are four entities: (1) MSP Recovery LLC, a Florida entity; (2) MAO-MSO Recovery II, LLC, a Delaware entity; (3) MSPA Claims 1, LLC, a Florida entity; and (4) MSP Recovery Claims, Series, LLC, a Delaware entity. Only one Plaintiff in this case can possibly confer Article-III standing: MSP Recovery Claims, Series, LLC.

         As discussed in this Court's January 9, 2018, Order and Opinion (Doc. 61), 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 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).

         Section 1395y(b)(3)(A) of the MSP provisions provides for a private cause of action against primary payers who do not reimburse secondary payers for conditional payments made to Medicare beneficiaries. While the Seventh Circuit has not addressed whether an MAO may avail itself of the private cause of action afforded in subsection (3)(A), the Third and Eleventh Circuits have held that subsection (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 Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353, 355 (3d Cir. 2012). Since the decisions by those 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).

         Plaintiffs are not MAOs. Plaintiffs allege that they are entities that have obtained claims for reimbursement via assignment from an MAO. (Doc. 63 at 1). In an attempt to show a valid assignment, and therefore a valid right to pursue these claims, Plaintiffs provided the Court with two documents: a “Recovery Agreement, ” dated April 28, 2016, between “Health First Administrative Plans” (“HFAP”) and Plaintiff MSP Recovery, LLC. (Doc. 63-4). From the beginning, Plaintiffs have led the Court to believe, and they continue to argue, that HFAP is an MAO. The Recovery Agreement purports to assign all of HFAP's rights of recovery under the MSP provisions to Plaintiff MSP Recovery, LLC. See id.

         However, Plaintiffs also provided the Court with a document titled “Assignment, ” which is dated June 12, 2017, wherein Plaintiff MSP Recovery, LLC assigns all of its rights from HFAP to “Series 16-05-456 LLC, a series of MSP Recovery Claims, Series LLC.” (Doc. 63-5).

         As such, there is no question that Plaintiffs MAO-MSO Recovery II, LLC and MSPA Claims 1, LLC have no bearing on the issue of Article-III standing, as those entities are not even mentioned in the relevant documentation here. Furthermore, any rights that Plaintiff MSP Recovery, LLC obtained from HFAP by way of the Recovery Agreement were later assigned to a series LLC of Plaintiff MSP Recovery Claims, Series, LLC. Thus, MSP Recovery Claims, ...

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