MAO-MSO Recovery II, LLC et al v. State Farm Mutual Automobile Insurance Company

Filing 86

ORDER & OPINION entered by Judge Joe Billy McDade on 7/13/2018. IT IS ORDERED: State Farm's Motion to Dismiss the Second Amended Complaint 68 is DENIED. State Farm's Motion to Strike or Deny Class Allegations 77 is DENIED. State Farm's Motion for Leave to File a Reply 83 is DENIED AS MOOT. SEE FULL WRITTEN ORDER & OPINION. (ACM, ilcd)

E-FILED

Friday, 13 July, 2018 04:31:33 PM
Clerk, U.S. District Court, ILCD

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION

MAO-MSO RECOVERY II, LLC, MSP
RECOVERY LLC, MSP RECOVERY
CLAIMS, SERIES LLC, and MSPA
CLAIMS 1, LLC

)
)
)
)
)
Plaintiffs,
)
)
)
v.
)
STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY
)
)
Respondent.

Case No. 1:17-cv-01537-JBM-JEH

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

1

See, e.g., MAO-MSO Recovery II, LLC et al. v. State Farm Mutual Automobile Ins. Co., No. 17-cv-1537 (C.D. Ill.
Feb. 23. 2017); MAO-MSO Recovery II, LLC v. Am. Family Mut. Ins. Co., No. 17-CV-175-JDP, 2018 WL 835160, at
*1 (W.D. Wis. Feb. 12, 2018); MAO-MSO Recovery II, LLC v. Gov't Employees Ins. Co., No. PWG-17-711, 2018
WL 999920, at *7 (D. Md. Feb. 21, 2018); MAO-MSO Recovery II, LLC v. USAA Cas. Insuranc Co., No. 17-20946CIV, 2018 WL 295527, at *1 (S.D. Fla. Jan. 3, 2018); MAO-MSO Recovery II, LLC v. Boehringer Ingelheim Pharm.,
Inc., 281 F. Supp. 3d 1309 (S.D. Fla. 2017); MAO-MSO Recovery II, LLC v. Mercury Gen., No. CV 17-2557-AB
(FFMX), 2017 WL 5086293, at *1 (C.D. Cal. Nov. 2, 2017); MAO-MSO Recovery II, LLC v. Farmers Ins. Exch., No.
217CV02522CASPLAX, 2017 WL 5634097, at *1 (C.D. Cal. Nov. 20, 2017); MSPA Claims 1, LLC v. Covington
Specialty Ins. Co., 212 F. Supp. 3d 1250 (S.D. Fla. 2016), appeal dismissed, No. 17-11273-JJ, 2017 WL 4386453
(11th Cir. Sept. 19, 2017); MSPA Claims 1, LLC v. Tower Hill Prime Ins. Co., No. 1:16-CV-20459-KMM, 2016 WL
4157592, at *1 (S.D. Fla. Aug. 3, 2016), reconsideration denied, No. 1:16-CV-20459-KMM, 2017 WL 1289321 (S.D.
1

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
Fla. Mar. 31, 2017), appeal dismissed (Sept. 19, 2017); MSPA Claims 1, LLC v. Liberty Mut. Fire Ins. Co., No. 1620271-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).
2 Since the decisions by those circuits, district courts around the country have followed suit and held
that MAOs may avail themselves of the private cause of action afforded in subsection (b)(3)(A). See,
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).
BACKGROUND
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

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).
3

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.
DISCUSSION
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

4

‘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.

5

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.”).
6

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.
7

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 participants. The parties agree that any
rights conferred to Client [FHA] by Medicare Advantage plans
either by statute, contract and/or any other reason whatsoever
will be administered by La Ley Recovery . . . .
Id. at 1-2 (emphasis added). The LLR Agreement also has a provision discussing
litigation costs. It states, in pertinent part,

8

Costs include, but are not limited to, filing fees, expert witness fees,
deposition fees, witness fees, court reporter fees, long distance telephone
charges, photocopy charges, etc. La Ley Recovery , will pay these costs
up front, however, once there is a settlement and/or judgment amount,
then the La Ley Recovery , may retain and deduct its costs advanced
herein provided . . . .
Id. at 2. These terms sufficiently demonstrate an intent by FHP to transfer claims
under the MSP provisions to La Ley Recovery. 3
On February 20, 2015, La Ley Recovery assigned its claims from FHP to
Plaintiff MSPA Claims 1, LLC (the “MSPA Assignment”). (Doc. 63-4). The LLR
Agreement required that any subsequent assignee must be approved by FHP. (Doc.
63-3 at 2) (“La Ley Recovery may assign the Agreement in whole or in part but the
assignee must be approved by the Client.”). Plaintiffs allege in their Second Amended
Complaint that FHP “accepted, acknowledged, approved, and consented to any
subsequent assignment from La Ley recovery to any then-existing or future MSP
Company, which includes Plaintiff, MSPA.” (Doc. 63 at 12, ¶ 52). They further allege
that the MSPA Assignment was subsequently approved by FHP’s receiver through a
settlement agreement between FHP and some of the Plaintiffs. Id. ¶ 53.
State Farm contends that the allegations concerning approval are vague and
insufficient to survive dismissal. The Court disagrees; allegations of approval are
enough to plausibly infer that MSPA Claims 1, LLC, holds a valid assignment at this
stage. Compare MSPA Claims 1, LLC v. United Auto. Ins. Co., 204 F. Supp. 3d 1342,

3

Cf. McKee-Berger-Mansueto, Inc. v. Bd. of Educ. of City of Chicago, 691 F.2d 828, 836 (7th Cir. 1982) (discussing
how Illinois courts do not necessarily view contingency fee agreements and assignments as mutually exclusive).
9

1345 (S.D. Fla. 2016) (granting Defendant’s facial challenge to the complaint because
Plaintiffs failed to allege that FHP approved Plaintiff’s Assignment).
However, State Farm also brings a factual challenge to the approval. State
Farm argues that FHP went into receivership on or about December 10, 2014. Under
the order appointing the receiver, prior contracts were cancelled unless specifically
adopted by the receiver within 90 days. State Farm argues that the receiver rejected
the LLR Agreement, thereby terminating it. Although, State Farm does not provide
evidence that the receiver rejected the LLR Agreement. Rather, it cites to MSPA
Claims 1, LLC v. United Auto. Ins. Co., 204 F. Supp. 3d 1342, 1345 (S.D. Fla. 2016),
where the Court had evidence of multiple letters showing that FHP’s receiver
repudiated the LLR Agreement. Those letters are not before this Court.
Plaintiffs attached a document titled “Settlement Agreement” entered into on
June 1, 2016, between La Ley Recovery and MSPA Claims 1, LLC (and two of the
other Plaintiffs) on the one side and FHP’s receiver on the other side. (Doc. 63-5). The
Settlement Agreement refers to the LLR Agreement stating: “on April 15, 2014, La
Ley entered into a Cost Recovery Agreement with” FHP under which FHP “assigned
all rights, title and interest held by FHCP to certain recoveries related to accidents
or incidents recoverable pursuant to the” MSP Provisions and other state/federal
laws. Id. The Settlement Agreement refers to the LLR Agreement as the “Initial
Agreement.” It states:
Receiver acknowledges and agrees that the terms and conditions of the
Initial Agreement, to the extent such terms and conditions do not
conflict with the terms and conditions of this Settlement Agreement,
shall remain in full force and effect from April 15, 2014 until the
10

Effective Date of this Settlement Agreement. . . . Receiver . . . expressly
acknowledges and agrees that as of the execution of the Initial
Agreement, all rights, title, and interest held by FHCP [(FHP)] to
recoveries, including any rights, title and interest assigned to FHCP
[(FHP)] members, related to accidents or incidents recoverable pursuant
to the Medicare Secondary Payer Act . . . and all rights, title and interest
to recover payments made by FHCP [(FHP)] on behalf of FHCP [(FHP)]
members pursuant to various legal theories related to accidents or
incidents recoverable pursuant to the Medicare Secondary Payer Act . .
. were and continue to be irrevocably assigned to La Ley.
Id. at 2.
The Settlement Agreement also appears to approve the subsequent MSPA
Assignment: “the Assigned Claims may be assigned by and among any of the
companies collectively referred herein as “La Ley,” and the Receiver acknowledges
that any assignment of the rights described hereunder by or among those companies
collectively referred to as “La Ley” occurring prior to the execution of this Settlement
Agreement shall be valid and enforceable.” Id. at 9. “La Ley” as used throughout the
Settlement Agreement referred to La Ley Recovery, MSPA Claims 1, LLC, MSP
Recovery LLC, and MSP Recovery Services, LLC. Id. at 1. Thus, Plaintiffs have
provided sufficient documentation at this juncture to show that MSPA Claims 1, LLC,
holds a valid assignment. 4

4
The Court was perplexed by the idea that FHP could assign all of its rights in a cause of action, but still require
approval of any subsequent assignee. This seems wholly inconsistent with an assignment, given an assignment
transfers all rights to the thing assigned. Even had the subsequent assignment not been approved, the Court would not
be inclined to invalidate it. In Illinois and Florida, a provision in an insurance policy which prohibits
its assignment except with the consent of the insurer does not apply to prevent assignment of claim or interest in the
insurance money due after the loss. One Call Prop. Servs. Inc. v. Sec. First Ins. Co., 165 So. 3d 749, 753 (Fla. Dist.
Ct. App. 2015) (“Even when an insurance policy contains a provision barring assignment of the policy, an insured
may assign a post-loss claim.”); Young v. Chicago Fed. Sav. & Loan Ass'n, 535 N.E.2d 977, 980 (1989) (same). In
other words, when interpreting anti-assignment provisions in insurance contracts, Illinois and Florida courts
distinguish between an assignment before loss, which involves a transfer of a contractual relationship, and an
assignment after loss, which is the transfer of a right to a money claim. Those courts do not allow anti-assignment
provisions to prevent the assignment post-loss, i.e., the assignment of a cause of action. See id. at 980-81 (assignment
was valid even without insurance company’s consent because “[a]n insurance policy that is assigned after a claim

11

B. Plaintiffs Have Sufficiently Shown That MSPA Claims 1, LLC,
Sustained an Injury Through Exemplar Beneficiary O.D.
State Farm argues that this Court lacks subject matter jurisdiction because,
even if Plaintiffs have valid assignments, they have suffered no injury with regards
to the exemplar beneficiaries. In order to show that Plaintiffs have suffered an injury,
they alleged claims related to two exemplar beneficiaries: O.D. and C.S. The alleged
injury related to the O.D. allegations arises out of the MSPA Assignment, whereas
the injury related to the C.S. allegations arises out of the SummaCare Assignment.
Because the SummaCare Assignment cannot support standing, the Court need not
discuss the C.S. allegations.
Because the MSP provisions permit Plaintiffs only to recover up to the
statutory policy limits for each enrollee’s medical expenses, see Doc. 63 at 31, ¶ 127,
State Farm attached two declarations to its Motion purporting to show that O.D.’s
claim has already been paid. Therefore, according to State Farm, MSPA Claims 1,
LLC, is not entitled to reimbursement for O.D. and has suffered no injury.
Specifically, James Richardson, a Claim Team Manager for State Farm, declared, in
pertinent part, that (1) on December 13, 2013, State Farm notified CMS that its
insured, O.D., was involved in a car accident and sustained injury; and (2) State Farm
paid a series of medical bills under O.D.’s car insurance policy and those payments
exhausted the coverage limits under the insurance policy. (Doc. 68-1).

arises is an assignment of the policy proceeds; such a transaction results in an assignment of a chose in action which
does not require the insurer's consent). While this case does not deal with insurance policies, it is clear that Illinois
and Florida courts disfavor anti-assignment provisions which attempt to interfere with an assignment of a cause of
action.
12

State Farm claims that “exhaustion” of O.D.’s claim calls into question subject
matter jurisdiction, but fails to explain how. The ultimate question in this case is
whether State Farm failed to reimburse Plaintiffs’ assignors for conditional payments
made. Plaintiffs allege that MSPA Claims 1, LLC’s assignor paid for O.D.’s expenses
as well, but was not reimbursed. (Doc. 63 at 4, ¶¶ 15-20). If that is true, MSPA Claims
1, LLC, is entitled to reimbursement, regardless of whether State Farm also paid.
Indeed, 42 C.F.R. § 411.24(i) states that “the primary payer must reimburse Medicare
even though it has already reimbursed the beneficiary or other party.” See Glover v.
Liggett Group, Inc., 459 F.3d 1304 (11th Cir. 2006) (“The MSP authorizes
a private cause of action against a primary plan that pays a judgment or settlement
to a Medicare beneficiary, but fails to pay Medicare its share.”) (citing section
411.24(i)). The Richardson declaration does not create a factual dispute about
jurisdiction warranting Plaintiffs to provide more evidence at this juncture. 5
II. State Farm’s Challenge to Plaintiffs’ Allegations Under Rule 12(b)(6)
State Farm argues that Plaintiffs’ Second Amended Complaint fails to state a
claim upon which relief can be granted under Federal Rule of Procedure 12(b)(6). In
ruling on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6),
“the court must treat all well-pleaded allegations as true and draw all inferences in
favor of the non-moving party.” In re marchFIRST Inc., 589 F.3d 901, 904 (7th Cir.
2009). The complaint must contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2).

5

A court need only find that one plaintiff has standing to permit the case to go forward. Massachusetts v. EPA, 549
U.S. 497, 518 (2007).
13

To survive a motion to dismiss, a plaintiff’s complaint must contain sufficient
detail to give defendant notice of the claim, and the allegations must “plausibly
suggest that the plaintiff has a right to relief, raising that possibility above a
‘speculative level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th
Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The
plausibility standard requires enough facts to “present a story that holds together,”
but does not require a determination of probability. Swanson v. Citibank, N.A., 614
F.3d 400, 404 (7th Cir. 2010). Though detailed factual allegations are not needed, a
“formulaic recitation of the elements of a cause of action will not do.” Twombly, 550
U.S. at 555.
A. Count I: Plaintiffs Have Sufficiently Alleged Claims Under §
1395y(b)(3)(A)
Although the Seventh Circuit has yet to define the elements of a claim
pursuant to the MSP private cause of action, 42 U.S.C. § 1395y(b)(3)(A), the Eleventh
Circuit has held that “a plaintiff is entitled to summary judgment on a
§ 1395y(b)(3)(A) claim when there is no genuine issue of material fact regarding (1)
the defendant’s status as a primary plan; (2) the defendant’s failure to provide for
primary payment or appropriate reimbursement; and (3) the damages amount.”
Humana, 832 F.3d at 1239; see MAO-MSO Recovery II, LLC v. Gov't Employees Ins.
Co., No. 17-711, 2018 WL 999920, at *9 (D. Md. Feb. 21, 2018) (“[T]here are three
elements of the MSP’s private cause of action: (1) a primary plan, (2) that is
responsible to pay for an item or service, and (3) that failed to make the appropriate
payment to Medicare for the item or service.”) (internal citation omitted). Following
14

those three elements, the representative claim regarding O.D. includes sufficient
factual allegations to state claims for relief pursuant to § 1395y(b)(3)(A).
The Second Amended Complaint alleges that (1) State Farm is considered a
primary payer, (Doc. 63 at 2, ¶ 3); and (2) MSPA Claims 1, LLC’s assignor paid for
O.D.’s medical expenses in amount of $11,060.58, but State Farm should have paid
for these expenses or reimbursed the assignor for conditional payment and failed to
do so, (Doc. 63 at 4, ¶¶ 14-19). These allegations satisfy Rule 8’s liberal pleading
requirements.
State Farm argues that the Second Amended Complaint must allege that State
Farm was notified of its failure to pay, but does not cite to any persuasive authority
for that proposition. In any event, the Second Amended Complaint does allege that
“Plaintiffs have notified Defendant of instances wherein Defendant, as a primary
payer, failed to reimburse the Assignors for payments made on behalf of Medicare
beneficiaries for medical items and services.” Id. at 2, ¶ 4. Furthermore, it bears
noting that Richardson stated in his declaration that MSP Recovery sent a letter
“directly to State Farm and demanded information regarding the OD claim” in order
to avoid litigation. (Doc. 68-1 at 2). Richardson further declared that State Farm
responded that O.D.’s benefits were exhausted. Id. Thus, it is questionable whether
State Farm can claim a lack of notice. Other district courts have held that similar
allegations to the ones here are sufficient to state a claim for relief. MAO-MSO
Recovery II, LLC v. Farmers Ins. Exch., No. 17-2522, 2018 WL 2106467, at *11 (C.D.
Cal. May 7, 2018); Gov't Employees Ins. Co., 2018 WL 999920, at *12. The level of

15

factual particularity demanded by State Farm at the pleading stage all but asks
Plaintiffs to prove their case, rather than simply plead their claims.
B. Count II: 42 C.F.R. § 411.24(e) Can Be Enforced
Count II of the Second Amended Complaint is a stand-alone breach of contract
claim pursuant to 42 C.F.R. § 411.24(e). Plaintiffs allege that their assignors are
subrogated the right to recover primary payment from State Farm for State Farm’s
breach of contract with their insured, pursuant to 42 C.F.R. § 411.26. (Doc. 63 at 30,
¶ 123). Plaintiffs allege that State Farm was “contractually obligated to pay for
medical items and services arising out of an accident, and Defendant failed to meet
that obligation.” Id. “This obligation was, instead, fulfilled by Plaintiffs and the Class
Members,” and “[u]nder the MSP provisions, Plaintiffs are permitted to subrogate the
enrollee/insured’s right of action against Defendant.” Id.
State Farm argues that Plaintiffs cannot sue under 42 C.F.R. § 411.24(e)
because it merely implements regulations for the MSP Act. This argument is
unpersuasive, for “[w]here a statute provides for enforcement through a private cause
of action, a regulation may also be enforced in the same way.” Weber v. Seterus, Inc.,
No. 16-6620, 2018 WL 1519163, at *7 (N.D. Ill. Mar. 28, 2018) (internal citation
omitted) (finding a private cause of action under an implementing regulation of
RESPA). “Language in a regulation may invoke a private right of action that
Congress through statutory text created, but it may not create a right that Congress
has not.” Alexander v. Sandoval, 532 U.S. 275, 291 (2001). It is undisputed that
Congress, through express language in § 1395y(b)(3)(A), created a right of action for

16

CMS to sue primary payers for reimbursement or recovery of conditional payments.
State Farm has presented no reasoning for why § 411.24(e), which states that “CMS
has a direct right of action to recover from any primary payer,” cannot also be
enforced.
In Sandoval, a class of non-fluent English speakers sued the Alabama
Department of Public Safety, alleging that its administration of an English-only
driver's license test violated 28 C.F.R. § 42.104(b)(2), the disparate-impact
regulations implementing § 601 of Title VI of the Civil Rights Act of 1964. 532 U.S.
at 278-79, 286. Section 601 provides, “No person in the United States shall, on the
ground of race, color, or national origin, be excluded from participation in, be denied
the benefits of, or be subjected to discrimination under any program or activity
receiving Federal financial assistance.”
The Court explained that “private rights of action to enforce federal law must
be created by Congress ..., [and that] [t]he judicial task is to interpret the statute
Congress has passed to determine whether it displays an intent to create not just a
private right but also a private remedy.” Id. at 286. The Court held that while § 601
was clearly enforceable through a private cause of action, that cause of action did not
extend to all the regulations meant to implement it. Id. at 286. Because the
plain language of § 601 only banned intentional discrimination, only those
regulations effectuating that ban could be enforced through § 601's private cause of
action. Id.

17

Here, there is no doubt that § 411.24, titled “Recovery of conditional
payments,” effectuates the private cause of action under the MSP. Subsections (a)
and (b) explain that the filing of a Medicare claim constitutes an express
authorization for any entity that possesses information pertinent to the claim to
release that information to CMS and the time frame for recovering conditional
payments. § 411.24(a)-(b). Subsection (c) explains the amount of recovery CMS is
entitled to when legal action is and is not required in order to recover. § 411.24(c).
Furthermore, subsection (f) delineates specific claim-filing requirements, and
subsection (i) provides for “special rules” in cases dealing with insurance settlements
and disputed claims under insurance plans. § 411.24(f), (i). Unlike in Sandoval, §
411.24(e) (at least under the facts of this case) does not purport to create a right of
action that Congress did not create by statute.
The Seventh Circuit has explained that a cause of action does not exist where
a statute’s language merely prohibits certain activities and mandates others, without
rights-creating language or a focus on an intended class of beneficiaries. Chessie
Logistics Co. v. Krinos Holdings, Inc., 867 F.3d 852, 858 (7th Cir. 2017). Not only does
§ 411.24(e) have rights-creating language, but the entire regulation focuses on a
beneficiary, CMS, and how CMS can pursue a remedy. Compare Haywood v. Chicago
Hous. Auth., 212 F. Supp. 3d 735, 749 (N.D. Ill. 2016) (a HUD regulation was phrased
as a directive to the agency charged with implementing the statute, not as a conferral
of the right to sue upon the beneficiaries of the statute).

18

Additionally, some regulatory history of § 411.24 in the Federal Register
demonstrates that CMS understands § 411.24(e) as providing a private cause of
action, or at least that the MSP Act and its implementing regulations can be enforced
together. 6 And the “Attorney Services” page on CMS’s website states, “Pursuant to
42 U.S.C. 1395y(b)(2(B)(ii)/Section 1862(b)(2)(B)(ii) of the Act) and 42 C.F.R.
411.24(e) & (g), CMS may recover from a primary plan or any entity, including a
beneficiary, provider, supplier, physician, attorney, state agency or private insurer
that has received a primary payment.” 7 (emphasis added).
State Farm argues that, even if Plaintiffs are entitled to enforce § 411.24,
Plaintiffs’ breach of contract claim fails because “it neither alleges that Plaintiffs nor
the purported assignors were parties to or intended third-party beneficiaries of any
insurance contract to which State Farm was a party.” (Doc. 68-3 at 21). According to
State Farm, Florida law and Ohio law govern the claims of O.D. and C.S.
The Court disagrees, at least for now, that state law would govern these claims.
The MSP Act specifically provides that
[T]he rules established under this section supersede any State laws,
regulations, contract requirements, or other standards that would
otherwise apply to MA plans. A State cannot take away an MA
organization's right under Federal law and the MSP regulations to bill,
or to authorize providers and suppliers to bill, for services for which
Medicare is not the primary payer.

6

Medicare Programs; Right of Appeal for Medicare Secondary Payer Determinations Relating to Liability Insurance
(Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation Laws and Plans, 80, Fed. Reg. 10611,
10613 (2015).
7
ATTORNEY SERVS., CTRS. FOR MEDICARE & MEDICAID SERVS., https://www.cms.gov/Medicare/Coordination-ofBenefits-and-Recovery/Attorney-Services/Attorney-Services html (last visited July 3, 2018).
19

42 C.F.R. § 422.108(f); see also id. § 422.402 (“The standards established under this
part supersede any State law or regulation (other than State licensing laws or State
laws relating to plan solvency) with respect to the MA plans that are offered by MA
organizations.”). As such, state contract laws are likely preempted by the MSP Act to
the extent they interfere with Plaintiffs’ reimbursement rights. See Potts v. Rawlings
Co., LLC, 897 F. Supp. 2d 185, 196 (S.D.N.Y. 2012) (New York anti-subrogation
statute was expressly preempted by Medicare Act as it applied to Medicare and MA
organization reimbursement rights). As such, the Court declines to dismiss Count II
of Plaintiffs’ Second Amended Complaint.
III.

Defendant’s Motion to Strike Class Allegations is Premature

State Farm also moves to strike or deny Plaintiffs’ class allegations. Plaintiffs
have not yet filed a motion for class certification. However, a court may deny class
certification at “an early practicable time,” even before the plaintiff files a motion
requesting certification. FED. R. CIV. P. 23(c)(1)(A); Kasalo v. Harris & Harris, 656
F.3d 557, 563 (7th Cir.2011). “Particularly when pleadings ‘are facially defective and
definitively establish that a class action cannot be maintained,’ the court can properly
grant

a motion to strike class allegations at

the

pleading

stage.”

Wolfkiel

v.

Intersections Ins. Servs. Inc., 303 F.R.D. 287, 292 (N.D. Ill. 2014) (quoting Wright v.
Family Dollar, Inc., No. 10-4410, 2010 WL 4962838, at *1 (N.D.Ill.2010)).
Class actions are governed by Federal Rule of Civil Procedure 23. “In addition
to satisfying Rule 23(a)'s prerequisites, parties seeking class certification must show
that the action is maintainable under Rule 23(b)(1), (2), or (3).” Amchem Prod., Inc.

20

v. Windsor, 521 U.S. 591, 614 (1997). Plaintiffs purport to bring a class action under
Rule 23(b)(3). See Doc. 63 at 26. Rule 23(a) states that one or more members of a class
may sue on behalf of all members only if: “(1) the class is so numerous that joinder of
all members is impracticable; (2) there are questions of law or fact common to the
class; (3) the claims or defenses of the representative parties are typical of the claims
or defenses of the class; and (4) the representative parties will fairly and adequately
protect the interests of the class.” FED. R. CIV. P. 23(a). If Rule 23(a) is satisfied, Rule
23(b)(3) provides that a class action may be maintained if “the court finds that the
questions of law or fact common to class members predominate over any questions
affecting only individual members, and that a class action is superior to other
available methods for fairly and efficiently adjudicating the controversy.” FED. R. CIV.
P. 23(b)(3).
In their Second Amended Complaint, Plaintiffs define the putative class as,
All Medicare Advantage Organizations, First Tier Entities, or their
assignees, that provide benefits under Medicare Part C, in the United
States of America and its territories, who made payments for a Medicare
beneficiary’s medical items and services within the last six years from
the filing of the complaint where Defendant:
(1) is the primary payer by virtue of having a contractual obligation to
pay for the items and services that are required to be covered by the
policy of insurance of the same Medicare Beneficiaries that are also
covered by an MA plan;
(2) failed to pay for the items and services or otherwise failed to
reimburse Medicare Advantage Organizations, First Tier Entities, or
their assignees for the items and services that were provided for medical
items and services related to the claims on behalf of the Medicare
Beneficiaries;

21

This class definition excludes (a) Defendant, their officers, directors,
management, employees, subsidiaries, and affiliates; and (b) any judges
or justices involved in this action and any members of their immediate
families.
(Doc. 63 at 22-23).
State Farm argues that Plaintiffs have failed to identify common questions
that would resolve an issue that is central to each class claim, but the Court is not
convinced. A class could potentially consist of beneficiaries (1) who had the same or
very similar automobile insurance policies with State Farm and, (2) who
unquestionably had medical services paid for by Medicare, and where (3) State Farm
has failed to reimburse Medicare for those services. Those are contentions that could
potentially be answered “in one stroke,” i.e., yes or no. See Wal-Mart Stores, Inc. v.
Dukes, 564 U.S. 338, 350 (2011) (“That common contention, moreover, must be of such
a nature that it is capable of classwide resolution—which means that determination
of its truth or falsity will resolve an issue that is central to the validity of each one of
the claims in one stroke.).
State Farm also argues that individualized issues would make class treatment
impossible. Specifically, State Farm contends that individualized issues like (1)
whether the medical services in a particular claim were causally linked to the covered
auto accident; (2) whether a beneficiary was receiving treatment for physical ailments
prior to the accident; and (3) whether a particular charge was reasonable and
necessary are not amenable to class certification. But the Court is not convinced that
the aforementioned issues matter in regards to the ultimate question of whether
State Farm is liable for failure to reimburse Medicare. The implementing regulations
22

make clear that, even in the case of a disputed claim under no-fault insurance, the
primary payer must reimburse Medicare even though it has already reimbursed
the beneficiary or other party, and even if a primary payer makes its
payment to an entity other than Medicare when it is, or should be, aware
that Medicare has made a conditional primary payment. § 411.24(i)(1)-(2)
(emphasis added). In other words, State Farm must reimburse Medicare under most
circumstances no matter what, and then battle it out with the beneficiary.
In any event, even if State Farm is ultimately correct that those issues do
matter, the Court cannot make these factual determinations now. If the dispute
concerning class certification is factual in nature and discovery is needed to
determine whether a class should be certified, a motion to strike the class allegations
at the pleading stage is premature. Buonomo v. Optimum Outcomes, Inc., 301 F.R.D.
292, 295 (N.D. Ill. 2014).
The Court is not suggesting that Plaintiffs’ case can proceed as a class action,
or that it is even likely to do so. State Farm need remember we are only at the
pleading stage and that Plaintiffs have not yet filed a motion to certify a class. The
Court cannot say that Plaintiffs’ class allegations are so facially and inherently
deficient, that dismissal is warranted. See Buonomo, 301 F.R.D. at 295 (“If the
plaintiff’s class allegations are facially and inherently deficient, for example, a
motion to strike class allegations . . . can be an appropriate device to determine
whether [the] case will proceed as a class action.”) (internal citation omitted); see also
Boatwright v. Walgreen Co., No. 10-3902, 2011 WL 843898, at *2 (N.D.Ill. Mar. 4,

23

2011) (“Because a class determination decision generally involves considerations that
are enmeshed in the factual and legal issues comprising the plaintiff's cause of action,
... a decision denying class status by striking class allegations at the pleading stage
is inappropriate.”). State Farm’s Motion to Strike or Deny Class Allegations is
DENIED. See MAO-MSO Recovery II, LLC v. Farmers Ins. Exch., No. 17-2522, 2018
WL 2106467, at *11 (C.D. Cal. May 7, 2018) (denying Defendant’s motion to strike as
premature “given that discovery is in its early stages, no Rule 16 conference has
occurred, and plaintiffs have not filed motions for class certification.”).
CONCLUSION
State Farm’s Motion to Dismiss (Doc. 68) is DENIED. State Farm’s Motion to
Strike or Deny Class Allegations (Doc. 77) is DENIED. State Farm’s Motion for Leave
to File a Reply (Doc. 83) is DENIED as MOOT.
Entered this 13th day of July, 2018.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge

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