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Fry v. Centers for Medicare and Medicaid Services

United States District Court, N.D. Illinois, Eastern Division

August 13, 2019

KEVIN FRY, in his capacity as Liquidator of Land of Lincoln Mutual Health Insurance Company, Plaintiff,



         Plaintiff Kevin Fry[1] (“Liquidator”), in his capacity as Liquidator of Land of Lincoln Mutual Health Insurance Company, brings the instant suit against the Centers for Medicare & Medicaid Services (“CMS”) and the United States of America. On its face, the Complaint seeks “Declaratory and Injunctive Relief” in the form of a court order deeming CMS's offset payment system unlawful. The parties have each filed dispositive motions, with the Liquidator moving for Summary Judgment and the United States filing a Motion to Dismiss for lack of jurisdiction and failure to state a claim. The parties are no strangers to litigation or to this Court. The Liquidator originally filed suit in the Circuit Court of Cook County and the United States responded by removing the action to this Court. After the Liquidator appealed the Court's decision to remand and the Seventh Circuit reversed, he filed this action[2]. The present Complaint claims jurisdiction is proper under the Administrative Procedure Act. Despite the form of the Complaint, the substance of the relief the Liquidator ultimately seeks renders this Court without jurisdiction. Accordingly, the Government's Motion to Dismiss for lack of subject-matter jurisdiction is granted and the Liquidator's Motion for Summary Judgment is dismissed as moot.


         The Court accepts the Complaint's well-pleaded facts as true and draws all reasonable inferences in the Liquidator's favor. Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009). A brief recitation of the factual and procedural background is documented below as the Court is familiar with the relevant facts through the related case, Dowling v. United States Dep't of Health & Human Servs. 325 F.Supp.3d 884, 888 (N.D. Ill. July 2, 2018).

         Land of Lincoln is a former Illinois health care insurer that became insolvent in 2016. (Dkt. 1, ¶ 1). Prior to its insolvency, Land of Lincoln offered health insurance plans on the Illinois Insurance Exchange for three years pursuant to the Patient Protection and Affordable Care Act (“ACA”). (Id. at ¶ 6). As part of the ACA statutory structure, Land of Lincoln participated in three risk mitigation programs-the Risk Adjustment Program, the Reinsurance Program, and the Risk Corridor Program. (Id. at ¶ 7). Funds related to these programs flowed between the government and health insurers, including Land of Lincoln. (Id.). CMS has engaged in a practice of offsetting payments to Land of Lincoln against debts owed by Land of Lincoln to CMS since at least July 2016. (Id. at ¶ 36). At the time of the filing of this Complaint, CMS had offset $27 million. (Id. at ¶ 39).

         Land of Lincoln failed financially and entered state rehabilitation proceedings on July 14, 2016 (Id. at ¶ 37), liquidation proceedings on September 29, 2016 (Id. at ¶ 42), and ceased operations completely on October 1, 2016 (Id.). In December of 2016, the Liquidator filed a motion in the state court liquidation proceedings seeking an order that CMS's practice of offsetting of payments was unlawful. (Id. at ¶ 43). CMS removed the matter to this Court. (Id.). The case was ultimately remanded, and the Court denied CMS's motion for reconsideration. (Id. at ¶¶ 44-45). On appeal, the Seventh Circuit found that this Court construed its removal jurisdiction too narrowly and remanded for further proceedings. Hammer v. United States Dep't of Health & Human Servs., 905 F.3d 517, 536 (7th Cir. 2018). As a result, the Liquidator filed the instant action on February 22, 2019. (Dkt. 1).


         In reviewing a Motion to Dismiss pursuant to Rule 12(b)(1) for lack of subject-matter jurisdiction, the plaintiff must carry his burden of establishing that jurisdiction is proper. Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 588-89 (7th Cir. 2014). “Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, … which is not to be expanded by judicial decree.” Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). To determine whether jurisdiction exists, the court turns to the complaint along with evidence outside of the pleadings. Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). A court lacking subject-matter jurisdiction must dismiss the action without proceeding to the merits. Intec USA, LLC v. Engle, 467 F.3d 1038, 1041 (7th Cir. 2006).


         I. Sovereign Immunity and the Administrative Procedure Act

         As a general matter, the United States is immune from suit except in cases where it has explicitly waived that immunity. Hercules, Inc., v. United States, 516 U.S. 417, 422 (1996). Any alleged waiver of sovereign immunity must be explicit and cannot be implied or based upon a strained parsing of statutory text. F.A.A. v. Cooper, 566 U.S. 284, 290 (2012) (“We have said on many occasions that a waiver of sovereign immunity must be ‘unequivocally expressed' in statutory text.”). In line with this, waivers are to be strictly construed “so that the Government's consent to be sued is never enlarged beyond what a fair reading of the text requires.” Id. By its very nature, sovereign immunity operates to set the bounds of the court's jurisdiction to hear matters against the United States. See United States v. Mitchell, 463 U.S. 206, 212 (1983); In re Price, 42 F.3d 1068, 1071 (7th Cir. 1994).

         The Liquidator proceeds under a theory that the United States has waived its sovereign immunity under the Administrative Procedure Act. (Dkt. 21, pg. 4). Two provisions of the APA are at play when considering sovereign immunity. § 702 provides:

A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof. An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is an indispensable party. The United States may be named as a defendant in any such action, and a judgment or decree may be entered against the United States: Provided, That any mandatory or injunctive decree shall specify the Federal officer or officers (by name of by title), and their successors in office, personally responsible for compliance. Nothing herein (1) affects other limitations on judicial review or the power or duty of the court to dismiss any action or deny relief on any other appropriate legal or equitable ground; or (2) confers authority to grant relief if any other statute that grants consent to suit expressly or impliedly forbids the relief which is sought.

5 U.S.C. § 702 (emphasis in original). Essentially, “§ 702 waives sovereign immunity only with respect to relief ‘other than money damages'.” Builders NAB LLC v. Fed. Deposit Ins. Corp., 922 F.3d 775, 777 (7th Cir. 2019). Further narrowing jurisdiction, waiver pursuant to the APA is limited to scenarios where there is no other adequate remedy. 5 U.S.C. § 704 (“Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.”). Importantly, the limitations on waiver “function in the disjunctive; the application of any one is enough to deny a district court jurisdiction under the APA.” Suburban Mortg. Assocs., Inc. v. ...

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