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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

July 13, 2018


          ORDER & OPINION


         The matter is before the Court on a Motion to Dismiss the Second Amended Complaint, (Doc. 68), and a Motion to Strike or Deny Class Allegations, (Doc. 77), filed by Defendant State Farm Mutual Automobile Insurance Company (“State Farm”). For the reasons explained below, both motions are DENIED.

         Legal Backdrop

         Plaintiffs have filed several putative class actions around the country.[1] The 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]

         Plaintiffs in this case are not MAOs. Rather, they allege they have been assigned rights of recovery under the MSP provisions by numerous MAOs, “first-tier entities, ” and “downstream entities.” (Doc. 63 at 1). Plaintiffs allege that numerous Medicare beneficiaries were members of the assignor-MAOs, but were also insured under no-fault automobile insurance policies issued by State Farm. The Medicare beneficiaries were involved in car accidents that required medical services. Plaintiffs contend that State Farm, as the primary payer, failed to pay for the medical services, so the assignor-MAOs issued conditional payment. Plaintiffs aver that State Farm has failed to reimburse the assignor-MAOs for conditional payments made, giving rise to liability under § 1395y(b)(3)(A). Plaintiffs also bring one count for breach of contract under 42 C.F.R. § 411.24(e).


         Plaintiffs filed their original complaint on February 23, 2017, in the Southern District of Illinois. (Doc. 1). State Farm filed a Motion to Dismiss on April 26, 2017, (Doc. 26), prompting Plaintiffs to file their Amended Complaint on May 17, 2017. (Doc. 32). On May 31, 2017, State Farm filed a Motion to Dismiss the Amended Complaint for lack of standing. (Doc. 34). On January 9, 2018, after the case was transferred to this district, this Court granted State Farm's motion to dismiss for lack of standing. (Doc. 59). The Court held that Plaintiffs failed to sufficiently allege injury in fact by the proposed class representatives. Id. at 6. Plaintiffs were granted leave to amend, giving rise to their Second Amended Complaint, filed on January 30, 2018. (Doc. 63).

         On March 6, 2018, State Farm filed a Motion to Dismiss the Second Amended Complaint. (Doc. 68). State Farm again argues that the matter should be dismissed for lack of standing, or in the alternative, that Plaintiffs have failed to state a claim upon which relief can be granted. On April 6, 2018, Plaintiffs filed a response. (Doc. 73). On April 24, 2018, State Farm also filed a Motion to Strike or Deny Class Allegations. (Doc. 77). On May 8, 2018, Plaintiffs filed a response to that motion. (Doc. 81). These matters are now ripe for decision.


         I. State Farm's Challenge to Subject Matter Jurisdiction Under 12(b)(1)

         “Standing is an essential component of Article III's case-or-controversy requirement.” Apex Dig., Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). “As a jurisdictional requirement, the plaintiff bears the burden of establishing standing.” Id. (citing Perry v. Vill. of Arlington Heights, 186 F.3d 826, 829 (7th Cir. 1999)).

         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. “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 in a personal and individual way.” Id. (internal citation omitted). For an injury to be “concrete, ” it must be “real” and “not abstract.” Id. The threshold requirements of standing apply to representative plaintiffs in class actions. Pierre v. Midland Credit Mgmt., Inc., No. 16-2895, 2017 WL 1427070, *3 (N.D. Ill. Apr. 21, 2017).

         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 v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015). A factual challenge contends that “there is in fact no subject matter jurisdiction, ” even if the pleadings are formally sufficient. Apex Dig., 572 F.3d at 444. “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 factual challenge to standing, arguing that Plaintiffs do not in fact hold valid assignments from MAOs.

         A. Plaintiffs Have Sufficiently Shown They Hold a Valid Assignment

         State Farm argues that Plaintiffs do not hold valid assignments to pursue rights of recovery under the MSP provisions. Plaintiffs contend that Florida Healthcare Plus (“FHP”), an HMO, assigned its right of reimbursement under the MSP to La Ley Recovery Systems, Inc. (“La Ley Recovery”), a Florida Corporation, and that La Ley Recovery then assigned its rights of recovery to Plaintiff MSPA Claims 1, LLC. Plaintiffs further contend that SummaCare, Inc. (“SummaCare”) assigned its right of reimbursement to Plaintiff MSP Recovery, LLC. While the Court concludes that the SummaCare agreement cannot confer standing, the La Ley Recovery agreement is sufficient to confer standing.

         Plaintiffs provided a document titled “Recovery Agreement” entered into between SummaCare and Plaintiff MSP Recovery, LLC. (Doc. 63-9). The Court need not consider whether the Recovery Agreement is a valid assignment because even if it is, it cannot confer Article-III standing in this case because the Recovery Agreement was entered into on May 12, 2017, after this lawsuit was filed. (Doc. 63-9). Constitutional standing must exist at the time the lawsuit is filed. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180 (2000); Martin v. United States, No. No. 13-03130, 2017 WL 59070, at *7 (C.D. Ill. Jan. 5, 2017); Gaylor v. Mnuchin, 278 F.Supp.3d 1081, 1089 (W.D. Wis. 2017); see also Freedom from Religion Found., Inc. v. Lew, 773 F.3d 815, 824-25 (7th Cir. 2014) (“The Constitution does not allow federal courts to hear suits filed by plaintiffs who lack standing.”).

         Plaintiffs also provided a document titled “La Ley Recovery Systems Agreement” (“LLR Agreement”) entered into between FHP and La Ley Recovery on April 15, 2014. State Farm argues that the LLR Agreement is not an assignment, but just a contingency-fee agreement.

         The LLR Agreement does not have a governing law provision, and neither party raises the issue of conflicts of law. Generally, “[c]ourts do not worry about conflict of laws unless the parties disagree on which state's law applies.” Wood v. Mid-Valley Inc., 942 F.2d 425, 427 (7th Cir.1991). Illinois law provides that “a chose in action is assignable personal property.” Rawoof v. Texor Petroleum Co., 521 F.3d 750, 762 (7th Cir. 2008) (Ripple, J., dissenting). The legal landscape regarding what constitutes an assignment under Illinois law is fairly clear:

An assignment occurs when “there is a transfer of some identifiable interest from the assignor to the assignee.” Klehm v. Grecian Chalet, Ltd., 164 Ill.App.3d 610, 616, 115 Ill.Dec. 662, 518 N.E.2d 187 (1987). “Generally, no particular form of assignment is required; any document which sufficiently evidences the intent of the assignor to vest ownership of the subject matter of the assignment in the assignee is sufficient to effect an assignment.” Stoller v. Exchange National Bank of Chicago, 199 Ill.App.3d 674, 681, 145 Ill.Dec. 668, 557 N.E.2d 438 (1990). A valid assignment “needs only to assign or transfer the whole or a part of some particular thing, debt, or chose in action and it must describe the subject matter of the assignment with sufficient particularity to render it capable of identification.” Klehm, 164 Ill.App.3d at 616, 115 Ill.Dec. 662, 518 N.E.2d 187. The assignment transfers to the assignee all the “‘right, title or interest of the assignor in the thing assigned.'” Owens v. McDermott, Will & Emery, 316 Ill.App.3d 340, 350, 249 Ill.Dec. 303, 736 N.E.2d 145 (2000), quoting Litwin v. Timbercrest Estates, Inc., 37 Ill.App.3d 956, 958, 347 N.E.2d 378 (1976).

Brandon Apparel Grp. v. Kirkland & Ellis, 887 N.E.2d 748, 756 (Ill.App.Ct. 2008). Florida law is similar, in that the intent of the parties controls. See Citizens Prop. Ins. Corp. v. Ifergane, 114 So.3d 190, 195 (Fla. Dist. Ct. App. 2012) (“In Florida, the intent of the parties determines the existence of an assignment.”); see Price v. RLI Ins. Co., 914 So.2d 1010, 1013-14 (Fla. Dist. Ct. App. 2005) (an assignment is a transfer of all the interests and rights to the thing assigned).

         The LLR Agreement provides that FHP retains “La Ley Recovery as an independent contractor to recover costs already paid for and/or generate revenue on a fee for services provided and/or shift current expenses incurred” for FHP's “insureds and/or members that have been involved in accidents and/or have Workers Compensation claims and/or any other incident/accident or for medical services of any kind whereby” FHP “may either bill for services or recovery for payment of medical services.” (Doc. 63-3 at 1). Significantly, it states,

It is the intent of the parties to assist each other in the implementation of a system whereby Client [FHP] and/or any entity it has contracted to recover, shift and/or bill on a fee for service for all medical services and/or medications, diagnostic test or any amount it is obligated to pay to/or on behalf of any member or other liability that can be legally collected directly through an assignment of any kind and/or through Medicare and/or Medicaid rights and/or by State and/or Federal statute of any kind and/or any other right of any nature whatsoever that exists now or in the future. By way of this agreement, Client [FHA] appoints, directs and otherwise assigns all of Client's [FHA's] rights as it pertains to the rights pursuant to any plan, State or Federal statute whatsoever directly and/or indirectly for any its members and/or plan ...

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