United States District Court, C.D. Illinois, Peoria Division
MAO-MSO RECOVERY II, LLC, MSP RECOVERY LLC, MSPA CLAIMS 1, LLC, and MSP RECOVERY CLAIMS, SERIES, LLC Plaintiffs,
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Defendant.
ORDER & OPINION
BILLY MCDADE UNITED STATES SENIOR DISTRICT JUDGE.
matter is before the Court on Plaintiffs' Response to the
Court's Order to Show Cause Why They Should Not be
Sanctioned under Federal Rule of Civil Procedure Rule 11.
comprehensive explanation of the factual background and the
governing law of the underlying merits in this case can be
found in this Court's first Order & Opinion
dismissing Plaintiffs' amended complaint. (Doc. 61).
Plaintiffs have filed several putative class actions around
the country, two of which are pending before this
putative class actions arise under the Medicare Secondary
Payer (“MSP”) provisions of the Medicare Act, 42
U.S.C. § 1395y et seq. “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)). Under the MSP provisions, Medicare is not
supposed to pay medical expenses when payment has been made
or can reasonably be expected to be made by a primary plan,
such as a car insurance plan. § 1395y(b)(2)(A)(ii).
However, if a primary plan “has not made or cannot
reasonably be expected to make payment, ” the Secretary
can make a conditional payment-but since Medicare remains the
secondary payer, the primary plan must reimburse Medicare for
the conditional payment. § 1395y(b)(2)(B)(i)-(ii).
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. 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. 42 U.S.C. § 1395w-21(a). An MAO may
sue a primary plan under subsection (b)(3)(A) that fails to
reimburse it for conditional payments made. 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).
Pertinent to Issue of Sanctions
are not MAOs. Plaintiffs have alleged that they are entities
that have obtained claims for reimbursement via assignment
from an MAO. (Doc. 63 at 1). The parties have been litigating
issues of Article-III standing and subject matter
jurisdiction for over a year. Plaintiffs filed their original
Complaint on March 28, 2017. (Doc. 1). In that Complaint,
Plaintiffs failed to identify any actual facts supporting
their claims. Specifically, Plaintiffs alleged that they
received assignments from MAOs to pursue rights of recovery
under the MSP provisions, but they failed to identify any
MAOs that allegedly paid medical expenses on behalf of
Medicare beneficiaries. See Id. As such, on May 12,
2017, State Farm filed its first motion to dismiss arguing
that Plaintiffs lacked standing because they had not alleged
injury-in-fact. (Doc. 27).
Motion prompted Plaintiffs to file an Amended Complaint on
June 2, 2017. (Doc. 33). This time, Plaintiffs attempted to
identify a “representative MAO” and
“representative Medicare Beneficiary, ” R.F.
Id. at 11. On June 16, 2017, State Farm again moved
for dismissal for lack of standing because the Amended
Complaint was devoid of any facts actually showing
injury-in-fact. (Doc. 35). This case was transferred from the
Southern District of Illinois to this district on November
28, 2017, causing some delay in ruling on State Farm's
motion. See Doc. 59. On January 9, 2018, this Court
granted State Farm's motion to dismiss for lack of
standing. The Court held that “Plaintiffs . . . failed
to sufficiently allege injury in fact because [they did] .
. . not allege particular and concrete injuries on behalf of
R.F. or the representative MAO.” (Doc. 61 at 8). The
Amended Complaint only mentioned the representative
beneficiary and MAO in passing (and the representative MAO
was redacted), without attributing any actual facts to those
representatives to support standing. See Id.
Plaintiffs were granted leave to amend. Id.
January 30, 2018, Plaintiffs filed their Second Amended
Complaint. (Doc. 63). Noticeably, Plaintiffs abandoned R.F.
as the representative beneficiary. The Second Amended
Complaint alleged that State Farm “settled a dispute to
pay for personal injuries with R.Y., and yet Defendant failed
to provide for appropriate reimbursement to Plaintiffs'
Assignors for the amounts they paid for the related items and
services.” Id. at 3. Plaintiffs' Second
Amended Complaint stated as follows:
15. As a direct and proximate result of this accident, R.Y.
required medical items and/or services. R.Y. was enrolled in
a MA plan, managed by Health First Administrative Plans,
Inc., (“Health First”). R.Y.'s medical
expenses were subsequently paid by Health First for dates of
service of January 21, 2011 through April 15, 2011.
16. Following R.Y.'s claim against Defendant's
insured, Defendant indemnified its insured Tortfeasor and
made payments pursuant to a settlement of R.Y.'s claims.
However, Defendant did not reimburse Plaintiff MSPRC[S] or
Health First for R.Y.'s medical items and services within
the requisite time frame, as required by a primary payer.
Defendant's failure to pay and reimburse gives rise to
statutory and common-law rights to recover these conditional
payments from Defendant.
17. Health First's right to recover its payments for
these medical services was assigned to Plaintiff, MSPRC[S].
Id. at 4. The Second Amended Complaint attached two
relevant documents: a “Recovery Agreement, ”
dated April 28, 2016, between “Health First
Administrative Plans” (“HFAP”) and
Plaintiff MSP Recovery, LLC, (Doc. 63-4), and a document
titled “Assignment, ” which is dated June 12,
2017, wherein Plaintiff MSP Recovery, LLC assigns all of its
rights from HFAP to a series LLC of Plaintiff MSP Recovery
Claims, Series, LLC, (Doc. 63-5).
March 6, 2018, State Farm filed another Motion to Dismiss the
Second Amended Complaint for lack of standing. (Doc. 67).
State Farm brought a factual challenge to standing-as in,
State Farm contended that “there is in fact no subject
matter jurisdiction, ” even if the pleadings are
formally sufficient. See Apex Dig., Inc. v. Sears,
Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). As
a result, the Court was permitted to look “beyond the
pleadings and view any evidence submitted to determine if
subject matter jurisdiction exists.” Silha v. ACT,
Inc., 807 F.3d 169, 173 (7th Cir. 2015).
April 26, 2018, after this Court had expended a great deal of
time analyzing State Farm's motion to dismiss and
Plaintiffs' documentation, State Farm notified the Court
that the Southern District of Florida in MSP Recovery
Claims, Series LLC v. Auto-Owners Ins. Co., No.
17-23841, 2018 WL 1953861 (S.D. Fla. Apr. 25, 2018), had just
found that HFAP is not in fact an MAO and therefore had no
rights under the MSP provisions to assign Plaintiff MSP
Recovery Claims, Series, LLC (“MSPRCS”) (the same
Plaintiff in this case). In Auto-Owners Ins.,
MSPRCSsubmitted an affidavit from HFAP's
Chief Operating Officer, Michael Keeler. (Doc. 81-2 at 4).
Keeler testified that a separate Florida corporation, Health
First Health Plans, Inc. (“HFHP”)
“contracts directly with the Centers for Medicare and
Medicaid Services, ” while HFAP “performs the
administrative functions on behalf of” HFHP.
April 27, 2018, this Court entered a Text Order ordering
Plaintiffs to file a response showing why this case should
not be dismissed for lack of standing in light of the holding
in Auto-Owners Ins. The Court put Plaintiffs on
notice that it was seriously questioning the accuracy of
Plaintiffs' allegations. The Text Order stated, “In
Auto-Owners Ins., a Florida District Court was
presented with competent evidence that Health First (the
alleged MAO-assignor in this case) is not actually an MAO,
despite Plaintiffs' many allegations to the contrary.
Plaintiffs should address this issue in their
response.” This is when things got hairy.
11, 2018, Plaintiffs filed a response insisting that they had
standing to sue and that Auto-Owners Ins. was
decided incorrectly. (Doc. 83). Plaintiffs continued to argue
that the “Health First claims . . . are validly held by
MSPRC[S], ” that the Recovery Agreement
“contain[ed] an irrevocable assignment of MSP Law
claims, ” and that HFAP could step into the shoes of
HFHP as HFHP's agent. Id. at 6-8. However, in
that same response, Plaintiffs admitted that their Second
Amended Complaint was inaccurate in that HFAP was not the
entity that paid R.Y.'s medical expenses at all-HFHP was.
Plaintiffs suggested that a “minor clarifying”
amendment to their Second Amended Complaint “might
increase precision” concerning exactly what
“Health First” means as the term is used
throughout Plaintiffs' pleadings. Id. at 10.
Specifically, Plaintiffs stated, “Plaintiffs
acknowledge that identifying R.Y.'s MAO simply as
‘Health First' in the Second Amended Complaint
could be clarified to distinguish HFHP from HFAP.”
Id. Yet, in the very next sentence, ...