MSP Recovery, LLC et al v. State Farm Mutual Automobile Insurance Company

Filing 61

ORDER & OPINION entered by Judge Joe Billy McDade on 1/9/2018. State Farms original Motion to Dismiss 27 is DENIED as MOOT. State Farms Motion to Dismiss the Amended Complaint 34 is GRANTED for lack of subject matter jurisdiction. Plaintiffs are granted twenty-one days from the date of this order to amend the deficiencies as noted. See full Order & Opinion attached. (RK, ilcd)

E-FILED

Tuesday, 09 January, 2018 09:47:35 AM
Clerk, U.S. District Court, ILCD

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION

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

Case No. 1:17-cv-01541-JBM-JEH

ORDER & OPINION
The matter is before the Court on Defendant’s Motion to Dismiss. (Doc. 34).
For the reasons explained below, Defendant’s Motion to Dismiss is GRANTED for
lack of subject matter jurisdiction. Plaintiffs have twenty-one days to file a second
amended complaint to cure the deficiencies as noted.
LEGAL BACKDROP
This lawsuit arises under the Medicare Secondary Payer (“MSP”) provisions of
the Medicare Act, 42 U.S.C. § 1395y et seq. “The MSP is actually a collection of
statutory provisions codified during the 1980s with the intention of reducing federal
health care costs.” United States v. Baxter Intern., Inc., 345 F.3d 866, 874 (11th Cir.
2003). 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 under Parts A and
B. 42 U.S.C. § 1395w-21(a). The Center for Medicare and Medicaid Services (“CMS”)
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“pays an MAO a fixed amount for each enrollee, per capita (a “capitation”),” and “[t]he
MAO then administers Medicare benefits for those enrollees and assumes the risk
associated with insuring them.” In re Avandia Mktg., Sales Practices & Prods. Liab.
Litig., 685 F.3d 353, 357-58 (3d Cir. 2012). Congress’s goal in creating the MAO
program “was to harness the power of private sector competition to stimulate
experimentation and innovation that would ultimately create a more efficient and
less expensive Medicare system.” Id. at 363.
“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)). “In other words, ‘Medicare serves as a
back-up insurance plan to cover that which is not paid for by a primary insurance
plan.’” Caldera v. Ins. Co. of the State of Pa., 716 F.3d 861, 863 (5th Cir. 2013) (quoting
Thompson v. Goetzmann, 337 F.3d 489, 496 (5th Cir. 2003)). The Medicare Act
provides that Medicare cannot pay medical expenses when “payment has been made
or can reasonably be expected to be made under . . . an automobile or liability
insurance policy or plan . . . or no fault insurance.” § 1395y(b)(2)(A)(ii). There is only
one exception to the prohibition in paragraph (2)(A): if a primary plan “has not made
or cannot reasonably be expected to make payment,” the Secretary can make a
conditional payment; however, since Medicare remains the secondary payer, the
primary

plan

must

reimburse

Medicare

1395y(b)(2)(B)(i)-(ii).

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for

the

conditional

payment.

§

The MSP provides a private cause of action for damages in an amount double
the amount otherwise provided in the case of a primary plan which fails to provide
for primary payment or appropriate reimbursement. § 1395y(b)(3)(A). Plaintiffs in
this case, who have been assigned the rights of recovery by numerous MAOs, purport
to bring a private cause of action under subsection (3)(A) against Defendant State
Farm Mutual Automobile Insurance Company (“State Farm”) for failure to provide
reimbursement for the assignor-MAOs’ secondary payments. The Seventh Circuit has
not determined whether an MAO (or its assignee) may avail itself of the MSP private
cause of action in paragraph (3)(A). The Third and Eleventh Circuits—the only circuit
courts that have addressed this issue—have held that paragraph (3)(A) permits an
MAO to sue a primary plan that fails to reimburse an MAO’s secondary payment. See
Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1238 (11th Cir. 2016);
In re Avandia, 685 F.3d at 355. Since the decisions by the Third and Eleventh
Circuits, district courts around the country have followed suit. See, 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).
State Farm does not argue that Plaintiffs cannot bring a cause of action under
subsection (3)(A), and the Court finds no reason to depart from the national trend

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interpreting subsection (3)(A) to permit MAOs to bring private causes of action. Even
though Plaintiffs are not MAOs, but rather are the assignees of several MAOs’ rights
of recovery, the Seventh Circuit has held that “’the assignee stands in the shoes of
the assignor and assumes the same rights, title and interest possessed by the
assignor.’” Perry v. Globe Auto Recycling, Inc., 227 F.3d 950, 953 (7th Cir. 2000)
(quoting Plumb v. Fluid Pump Serv. Inc., 124 F.3d 849, 864 (7th Cir. 1997) (finding
that assignee of medical benefits under ERISA plan can bring suit to collect benefits
under ERISA civil enforcement provisions). Therefore, Plaintiffs, as assignees, stand
in the shoes of the MAOs, and can bring a private cause of action under subsection
(3)(A).
BACKGROUND OF THIS CASE 1
Plaintiffs filed this action “on behalf of themselves and all other similarly
situated MAOs, and their assignees, for double damages,” pursuant to the MSP
private cause of action in paragraph (3)(A). (Doc. 33 ¶ 5). Plaintiffs assert that several
Medicare beneficiaries were enrolled in Medicare Advantage Plans administered by
the assignor-MAOs. Id. ¶47. These Medicare beneficiaries suffered injuries for which
Plaintiffs and the putative class members paid for medical services, treatment, drugs,
and/or supplies, even though Defendant had primary responsibility to pay for same.
Id. ¶¶47-48. As such, Defendant, as the primary payer, was required to make
appropriate reimbursement for the conditional Medicare benefits advanced by

For purposes of the instant motion, the Court accepts the following facts alleged by Plaintiff as true.
See Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007).

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Plaintiffs and the putative class members on behalf of the Medicare beneficiaries. Id.
¶48. Plaintiffs claim that State Farm has failed to pay or reimburse the Medicare
beneficiaries’ MAOs for the payments made by the MAOs that were required to be
paid by State Farm as a result of the Medicare beneficiaries’ injuries. Id.
On June 16, 2017, State Farm filed a motion to dismiss Plaintiffs’ amended
complaint. 2 (Doc. 34). State Farm argues that Plaintiffs lack Article-III standing to
sue because they have not shown injury-in-fact and that Plaintiffs have failed to state
a claim for which relief may be granted because the amended complaint is too generic.
Plaintiffs filed a response (Doc. 40) and this matter is ripe for decision. The Court
only addresses Defendant’s first argument, and finds that Plaintiffs lack standing.
LEGAL STANDARD
“As the party invoking federal jurisdiction, a plaintiff bears the burden of
establishing the elements of Article III standing.” Silha v. ACT, Inc., 807 F.3d 169,
173 (7th Cir. 2015) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 559-60 (1992)).
Because standing is “not [a] mere pleading requirement[ ] but rather an
indispensable part of the plaintiff's case, [it] must be supported in the same way as
any other matter on which the plaintiff bears the burden of proof, i.e., with the
manner and degree of evidence required at the successive stages of the litigation.”
Lujan, 504 U.S. at 561. In evaluating a challenge to subject matter jurisdiction under
Federal Rule of Civil Procedure 12(b)(1), the court must first determine whether a

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Plaintiffs filed their original complaint on March 28, 2017, in the Southern District of Illinois. On May 12, 2017,
State Farm filed its first Motion to Dismiss (Doc. 27) and a Motion to Transfer to the Central District of Illinois
(Doc. 25). Thereafter, Plaintiffs filed an Amended Complaint (Doc. 33), rendering State Farm’s first Motion to
Dismiss (Doc. 27) moot. The Southern District of Illinois granted transfer to this district on November 28, 2017.
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factual or facial challenge has been raised. Silha, 807 F.3d at 173. A factual challenge
contends that “there is in fact no subject matter jurisdiction,” even if the pleadings
are formally sufficient. Apex Dig., Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th
Cir. 2009). “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 facial challenge to the amended complaint
because it contends that Plaintiffs’ amended complaint lacks sufficient factual
allegations to establish standing.
DISCUSSION
“Standing is an essential component of Article III's case-or-controversy
requirement.” Apex Dig, 572 F.3d at 443 (citing Lujan, 504 U.S. at 560). “‘In essence
the question of standing is whether the litigant is entitled to have the court decide
the merits of the dispute or particular issues.’” Perry v. Vill. of Arlington Heights, 186
F.3d 826, 829 (7th Cir. 1999) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). “As
a jurisdictional requirement, the plaintiff bears the burden of establishing standing.”
Apex Dig, 572 F.3d at 443 (citing Perry, 186 F.3d at 829). 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

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of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”
Id. State Farm argues that Plaintiffs lack standing because they have failed to allege
the first element, that they suffered an injury-in-fact. “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).
Plaintiffs allege that Defendant “failed to pay or reimburse” the MAOs, whose
rights were assigned to Plaintiffs, as required by § 1395y(b)(2)(B)(i)-(ii). (Doc. 33 at ¶
48). Plaintiffs contend that “[t]he MAOs, Full Risk Payers and/or their assignee(s)
[(Plaintiffs]) suffered a monetary injury because of Defendant’s failures to pay or
otherwise reimburse the MAOs, Full Risk Payers and/or their assignee(s).” Id. ¶ 49.
Plaintiffs purport to bring a class action on behalf of “[e]ntities that contracted
directly” with CMS “and/or their assignees” “including but not limited to MAOs and
other similar entities” “[t]hat have made payment(s) for Medicare Services, whereby,
the MAO or its assignee, as a secondary payer, has the right and responsibility to
obtain reimbursement for such Medicare Services,” and where “Defendant [as
primary payer] failed to properly reimburse the MAOs or their assignees, after

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Defendant entered into settlements with Medicare beneficiaries who received
Medicare benefits through enrollment in a Medicare Advantage plan.” Id. ¶ 51.
Plaintiffs redacted the name of the class representative MAO and pleaded that the
name of the class representative Medicare beneficiary is “R.F.” Id. ¶ 50.
The Court agrees that Plaintiffs have failed to sufficiently allege injury in fact
because Plaintiffs do not allege particular and concrete injuries on behalf of R.F. or
the representative MAO. “[I]f none of the named plaintiffs purporting to represent a
class establishes the requisite of a case or controversy with the defendants, none may
seek relief on behalf of himself or any other member of the class.” O'Shea v. Littleton,
414 U.S. 488, 494 (1974). “[N]amed plaintiffs who represents a class ‘must allege and
show that they personally have been injured, not that injury has been suffered by
other, unidentified members of the class to which they belong and which they purport
to represent.’” Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26 n. 20 (1976) (citing
Warth, 426 U.S. at 502)). In other words, the Article-III standing inquiry remains the
same even if the case is proceeding as a class action. Cf. Payton v. County of Kane,
308 F.3d 673, 682 (7th Cir. 2002) (“[I]t bears repeating that a person cannot predicate
standing on injury which he does not share. Standing cannot be acquired through the
back door of a class action.”). “To have standing as a class representative, the plaintiff
must be part of the class, ‘that is, he must possess the same interest and suffer the
same injury shared by all members of the class he represents.’” Schultz v. Prudential
Ins. Co. of Am., 678 F.Supp.2d 771, 782 (N.D. Ill. 2010) (quoting Keele v. Wexler, 149
F.3d 589, 592–93 (7th Cir.1998)). Plaintiffs do not specifically allege that R.F. and the

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representative MAO suffered harm. 3 The only mention of the class representatives is
in paragraph 50 of the amended complaint which states: “The representative MAO is
. The representative Medicare Beneficiary is R.F. The representative
Medicare Beneficiary’s policy number is

.” These allegations are insufficient

to establish standing, and the Court therefore lacks subject matter jurisdiction over
Plaintiffs’ claims. 4 Plaintiffs are granted twenty-one days from the date of this order
to amend their pleadings and cure the deficiencies as noted. 5
CONCLUSION
State Farm’s original Motion to Dismiss (Doc. 27) is DENIED as MOOT. State
Farm’s Motion to Dismiss the Amended Complaint (Doc. 34) is GRANTED for lack of
subject matter jurisdiction. Plaintiffs are granted twenty-one days from the date of
this order to amend the deficiencies as noted.
Entered this 9th day of January, 2018.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge

The Court further observes that the MSP statute does not provide for a qui tam cause of action. See
Woods v. Empire Health Choice, Inc., 574 F.3d 92, 95 (2d Cir. 2009) (The MSP did not create a qui
tam action); Stalley v. Methodist Healthcare, 517 F.3d 911, 916-17 (6th Cir. 2008) (The MSP is not a
qui tam statute); Stalley ex rel. U.S. v. Orlando Regional Healthcare Sys., Inc., 524 F.3d 1229, 1234
(11th Cir. 2008) (same). Therefore, any comparison by Plaintiffs to cases involving qui tam actions
under the False Claims Act is inapposite.
4 See also O’Connor v. Mayor & City Council of Baltimore, 494 F.Supp.2d 372, 374 (D. Md. 2007)
(plaintiff, an individual Medicare beneficiary, sufficiently alleged injury in fact in MSP action where
he alleged that primary payer’s refusal to fulfill its obligation forced Medicare to make all of
Plaintiff’s mesothelioma-related payments).
5 See Murray v. Conseco, Inc., 467 F.3d 602, 605 (7th Cir. 2006) (instructing lower court to enter
dismissal of first amended complaint without prejudice for lack of subject matter jurisdiction and to
grant plaintiffs leave to amend).
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