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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

June 7, 2018

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

          ORDER & OPINION

          JOE BILLY MCDADE UNITED STATES SENIOR DISTRICT JUDGE.

         The 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. (Doc. 88).

         Background

         A more 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 Court.[1]

         These 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).

         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. 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).[2]

         Facts Pertinent to Issue of Sanctions

         Plaintiffs 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).

         That 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.

         On 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).

         On 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).

         On 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., MSPRCS[3]submitted 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. Id.

         On 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.

         On May 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, ...


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