R&B Receivables Management
Filing
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MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 9/23/2016: For the reasons stated in the accompanying Memorandum Opinion and Order, the Court grants the defendants' motion to dismiss in part and denies the motion to dismiss in part [dkt. no. 10]. The Court: (a) dismisses claims 1 and 3 as against CMS and the named individuals in their official capacities but denies the motion to dismiss those claims against defendant Dreier in her individual capacity; (b) dism isses claim 2; and (c) declines to dismiss claim 4 insofar as it requests declaratory and injunctive relief, but strikes from that claim the request for compensatory damages. The case is set for a status hearing on September 29, 2016 at 9:30 a.m. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
R&B RECEIVABLES MANAGEMENT,
CORP., d/b/a R&B SOLUTIONS,
)
)
)
Plaintiff,
)
)
vs.
)
)
UNITED STATES DEPARTMENT OF
)
HEALTH AND HUMAN SERVICES,
)
JULIA DREIER, CENTERS FOR
)
MEDICARE & MEDICAID SERVICES
)
DIRECTOR, CONSUMER SERVICES
)
DIVISION, CONSUMER SUPPORT GROUP, )
and JOHN DOES 1-5,
)
)
Defendants.
)
Case No. 15 C 8109
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
R&B Receivables Management Corp. (R&B) alleges that the Department of
Health and Human Services Centers for Medicare & Medicaid Services and their
employees, Julia Dreier and several John Does, wrongfully denied R&B access to grant
funds it had been awarded through the Navigator program under the Affordable Care
Act (ACA). R&B alleges this denial violated its rights under the Fifth Amendment's Due
Process and Takings Clauses, and it also challenges the denial under the
Administrative Procedures Act (APA). R&B seeks to recover compensatory damages
for the constitutional rights violations, and it seeks declaratory and injunctive relief under
the APA
Gian Johnson, the current acting director of the Consumer Support Group at
CMS, has been substituted for Dreier as a defendant on the official-capacity claim.
Defs.' Mem. in Supp. of Mot. to Dismiss 1 n.1. The defendants have moved to dismiss
R&B's complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. The Court
dismisses certain claims but not others for the reasons stated below.
Background
R&B is an Illinois corporation that helps uninsured and underinsured individuals
apply for Medicaid and other healthcare options. In 2013, R&B applied to participate in
the Navigator program established by the ACA. This program requires state healthcare
exchanges to award grants to selected participants who will educate the public about
qualified health plans under the ACA and facilitate enrollment in such plans. The ACA
provides some eligibility standards for navigators and otherwise directs the Secretary of
the Department of Health and Human Services (DHHS) to establish standards. The
funds for grants under this program come from the exchanges' operational funds and
not from federal funds provided to establish the exchanges. The Centers for Medicaid
and Medicare Services (CMS) implement and oversee the Navigator program.
At the time of R&B's navigator application in 2013, the company was in Chapter
11 reorganization, having filed for bankruptcy in 2012. The grant application did not
request information about bankruptcy, and R&B did not provide it. CMS awarded R&B
$104,520 to conduct navigator activities in Wisconsin. The terms and conditions of the
award included a provision that required R&B to notify CMS within five days should it
enter into bankruptcy. The state of Wisconsin required an additional application to
receive a navigator license. This application included questions regarding bankruptcy.
R&B provided this information and then notified CMS of its bankruptcy status.
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According to R&B, CMS indicated that as long as R&B reported it to Wisconsin and the
State approved its licensing, the bankruptcy would not present a problem. R&B
received a license from Wisconsin and provided navigator services for the 2013-14
grant period.
In 2014, R&B again applied for the Navigator program, this time to provide
services in Illinois, Iowa, Indiana, North Carolina, and Wisconsin. At this time, R&B was
still in Chapter 11 reorganization proceedings. R&B was awarded a grant to serve as a
navigator in Illinois, Iowa, Indiana, and North Carolina. R&B was included on the list of
grant recipients published online on September 8, 2014.
On September 12, Julia Dreier, the director of the Navigator Program at CMS,
advised R&B that to keep its grant, it would need to provide proof that it had exited
bankruptcy. R&B provided Dreier with a copy of a court order approving a
reorganization plan and ending R&B's court supervision. On September 15, Dreier
notified R&B that it would no longer receive a 2014-15 grant. Dreier claimed that R&B
violated the terms and conditions of its 2013 grant by failing to notify CMS within five
days that it had entered into bankruptcy. Dreier cited this violation and CMS's concern
with R&B's financial stability as the reasons for the grant revocation.
R&B says that it entered bankruptcy in 2012—not in 2014—and therefore did not
violate the terms of its 2013 grant. It brought suit against CMS and Dreier (now
substituted by Johnson) and several "John Does" in their individual and official
capacities. R&B alleges that CMS's revocation of its 2014 award violated its right to due
process under the Fifth Amendment, constituted a taking without just compensation,
and is subject to challenge under the APA. The defendants argue that the Court of
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Federal Claims has exclusive jurisdiction over these claims and, in the alternative, that
R&B has failed to state any viable claim.
Discussion
When considering a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), the court accepts the complaint's well-pleaded facts as true and draws
reasonable inferences in favor of the plaintiff. Roberts v. City of Chicago, 817 F.3d 561,
564 (7th Cir. 2016). The plaintiff is required to allege "only enough facts to state a claim
to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). A complaint does not need detailed factual allegations but must raise the claim
above a speculative level. Bonnstetter v. City of Chicago, 811 F.3d 969, 973 (7th Cir.
2016).
A.
Claims 1 and 3
The Court begins with R&B's due process claim (claim 1) and its "inalienable
rights" claim (claim 3). The latter claim does not cite any statute or constitutional
provision, and it appears to be coextensive with R&B's due process claim. In its
response to defendants' motion, R&B requests leave to amend its complaint to include a
Fourteenth Amendment due process claim, which tends to confirm that the claim is
coextensive with the Fifth Amendment claim asserted in claim 1. The Court will assess
claim 3 as if it were a due process claim. R&B also requests leave to add DHHS
Secretary Burwell as a named party. This amendment would not impact the Court's
analysis.
1.
Tucker Act
The government first argues that R&B's claims belong exclusively in the Court of
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Federal Claims. In order for any court to exercise jurisdiction over a suit against the
federal government, the United States must provide a clear waiver of sovereign
immunity. United States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003).
The Tucker Act, 28 U.S.C. § 1491(a)(1), waives sovereign immunity for any claim
against the United States for money damages exceeding $10,000 that is founded upon
either the Constitution, an Act of Congress or a regulation of an executive department,
or an express or implied contract with the United States. See United States v. Mitchell,
463 U.S. 206, 212 (1983) ("[W]e conclude that by giving the Court of Claims jurisdiction
over specified types of claims against the United States, the Tucker Act constitutes a
waiver of sovereign immunity with respect to those claims.”).
The Court of Federal Claims has exclusive jurisdiction over cases that fall under
the Tucker Act. E. Enters. v. Apfel, 524 U.S. 498, 520 (1998) (plurality opinion); see
also Clark v. United States, 691 F.2d 837, 840 & n.3 (7th Cir. 1982). A claim falls under
the Tucker Act only when the statute or provision under which the claim is brought "can
fairly be interpreted as mandating compensation by the Federal Government for the
damage sustained." White Mountain, 537 U.S. at 472.
In claims 1 and 3, R&B alleges that the defendants violated its due process rights
when CMS—through its employees—revoked the 2014 grant award. The Federal
Circuit, which has exclusive jurisdiction over appeals of decisions by the Court of
Federal Claims, 28 U.S.C. § 1295(a)(3), has made it clear that neither the Fifth nor the
Fourteenth Amendments mandate compensation, and therefore cases against the
government under these provisions do not belong in the Court of Federal Claims. See
Smith v. United States, 709 F.3d 1114, 1116 (Fed. Cir. 2013) ("The law is well settled
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that the Due Process clauses of both the Fifth and the Fourteenth Amendments do not
mandate the payment of money and thus do not provide a cause of action under the
Tucker Act."); Acadia Techs., Inc. v. United States, 458 F.3d 1327, 1334 (Fed. Cir.
2006); James v. Caldera, 159 F.3d 573, 581 (Fed. Cir. 1998). Further, Fourteenth
Amendment due process claims are available only against a state government and are
not "against the United States." Souders v. S.C. Pub. Serv. Auth., 497 F.3d 1303, 1308
(Fed. Cir. 2007). Thus R&B has no viable Fourteenth Amendment due process claim.
The government argues that this action is essentially a contract dispute between
R&B and the government, citing Suburban Mortgage Associates, Inc. v. U.S.
Department of Housing and Urban Development, 480 F.3d 1116 (Fed. Cir. 2007).
Defs.' Mem. in Supp. of Mot. to Dismiss 4–5. Were this the case, it would put these
claims squarely within the Tucker Act and therefore within the exclusive jurisdiction of
the Court of Federal Claims. See 28 U.S.C. § 1491(a)(1). But R&B does not state any
breach of contract claims in its complaint; claims 1 and 3 allege only due process
violations. Although the court in Suburban Mortgage Associates dismissed a due
process claim after concluding that it was essentially a contract claim, R&B's claim is
notably different. In Suburban Mortgage Associates, the plaintiff alleged a due process
violation based on the government's failure to accept assignment of a loan according to
an agreement between the parties. Suburban Mortg. Assocs., 480 F.3d at 1118. The
plaintiff requested a declaratory judgment to the effect that the government was bound
by its obligations under the loan agreement. Id. at 1119. Here, R&B alleges that the
government violated its due process rights when it took inappropriate factors into
account in withdrawing its 2014 navigator grant. Compl. ¶¶ 60–72. The claim in
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Suburban Mortgage Associates was essentially that the government violated due
process by not complying with a contract; R&B's due process claim is not based on
such a contract. When confronted with standard due process claims, the rule in the
Federal Circuit is that the Court of Federal Claims lacks jurisdiction. See, e.g., Smith,
709 F.3d at 1116.
R&B's Fifth Amendment due process claim is therefore properly before this
Court. See Nie v. United States, 124 Fed. Cl. 334, 342 (Fed. Cl. 2015) ("Due process
claims must be heard in District Court.") (internal quotations omitted); Kortlander v.
United States, 107 Fed. Cl. 357, 369 (Fed. Cl. 2012).
2.
Sovereign Immunity
Because R&B's due process claim does not fall under the Tucker Act, R&B must
point to a separate waiver of sovereign immunity in order to avoid dismissal. See White
Mountain, 537 U.S. at 472. R&B brings its claim against CMS and its employees in
their official and individual capacities. Compl. ¶ 3. The United States has not waived its
sovereign immunity for constitutional claims for damages brought against the United
States and its employees in their official capacities. See Czerkies v. U.S. Dep't of
Labor, 73 F.3d 1435, 1437 (7th Cir. 1996) ("No statute waives the sovereign immunity of
the United States [ ] with respect to . . . constitutional claims generally.") (citing FDIC v.
Meyer, 510 U.S. 471 (1994)). R&B has not identified any other statute that waives such
immunity. The Court therefore dismisses claims 1 and 3 against CMS and the officialcapacity claims against Dreier/Johnson and the John Doe defendants.
To the extent that R&B wishes to sue Dreier or any other federal employee in
their individual capacities, R&B must properly serve those defendants with process.
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The only named individual defendant at this point is Dreier. 1 At the time R&B filed this
suit, Federal Rule of Civil Procedure 4(m) required the plaintiff to serve each defendant
within 120 days after filing the complaint. Should R&B wish to pursue its suit against
Dreier in her individual capacity, R&B must move for additional time to obtain service. If
Dreier is properly brought into the case, R&B's claim against her for damages would not
be subject to dismissal on sovereign immunity grounds. See Bivens v. Six Unknown
Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388, 395 (1971) (permitting a
claim for damages against federal officers in their individual capacities for constitutional
violations).
B.
Claim 2
R&B's second claim is a claim for just compensation under the Takings Clause of
the Fifth Amendment. "[A] claim for just compensation under the Takings Clause must
be brought to the Court of Federal Claims in the first instance, unless Congress has
withdrawn the Tucker Act grant of jurisdiction in the relevant statute." Horne v. U.S.
Dep't of Agriculture, 133 S. Ct. 2053, 2062 (2013) (citation omitted). To determine
whether Congress has withdrawn jurisdiction, the court looks at the purpose of the
statute, the entirety of its text, and the structure of review that it establishes. Id. at
2062–63 (internal quotations omitted). R&B has not argued that Congress withdrew the
Tucker Act grant of jurisdiction in the ACA. The Court therefore dismisses claim 2.
1
To the extent that R&B is suing Dreier in her individual capacity, it would appear that
she, not her successor Johnson, is the proper defendant. The Court will address this
with counsel at the next status hearing.
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D.
Claim 4
1.
Court of Federal Claims
In claim 4, R&B asserts a claim under the APA. The APA permits a person
"adversely affected or aggrieved by agency action" to seek judicial review when seeking
relief other than money damages. 5 U.S.C. § 702. This statute waives sovereign
immunity for such claims and allows them to proceed in district court. Columbus Reg'l
Hosp. v. FEMA, 708 F.3d 893, 896 (7th Cir. 2013). Claims for money damages,
however, must be brought in the Court of Federal Claims; the APA waives sovereign
immunity only for a suit "seeking relief other than money damages." Id.; see 5 U.S.C. §
702. Therefore, to the extent that R&B requests relief via claim 4 in the form of
damages under the APA, that request is stricken.
R&B also requests declaratory and injunctive relief. The Supreme Court has
held that claims brought under the APA seeking declaratory and injunctive relief are
clearly not actions for money damages and therefore belong in district court, even when
the requested injunction or declaratory judgment would result in payment. Bowen v.
Massachusetts, 487 U.S. 879, 893 (1988). In Bowen, Massachusetts brought claims
against DHHS based on its refusal to reimburse the State for Medicaid expenditures.
Id. at 882. The State asked the Court to set aside this "disallowance" and enjoin DHHS
from refusing to reimburse it for the expenses for the reasons that DHHS originally
gave. Id. at 887 & n.10. The Court held that neither of these requests was for "money
damages," despite the fact that the equitable order might require DHHS to pay the
State. Id. at 893, 909–10. Instead, they were requests for specific relief. Id. at 910.
R&B is likewise requesting specific relief under the APA. Specifically, R&B seeks
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a declaratory judgment that CMS's revocation of the grant violated the law and an
injunction preventing CMS from using similar reasons to deny R&B's future applications.
Compl. ¶ 2. These requests are clearly equitable in nature. And as in Bowen, the fact
that this sort of equitable remedy might lead to payment from CMS to R&B does not
make R&B's request one for money damages. See Bowen, 487 U.S. at 893. A request
for money damages seeks compensation for losses, which is distinct from claiming an
entitlement to funds. See id. at 901. Even to the extent that R&B's claims an
entitlement to the revoked grant, R&B is not seeking via its request for equitable relief
money "in compensation for the damage sustained by the failure of the Federal
Government to pay." See id. at 900. R&B is claiming funds as the very thing to which it
is entitled under CMS's own rules. See Columbus, 708 F.3d at 896 ("[S]pecific
remedies even if financial are not substitute remedies at all, but attempts to give the
plaintiff the very thing to which he was entitled.") (citing Bowen, 487 U.S. at 895). The
Seventh Circuit has further emphasized that a request for "money as the entitlement
under a grant program" does not qualify as "money damages" and is therefore not
relegated to the Federal Court of Claims. Columbus, 708 F.3d at 896–97. R&B's
request for declaratory and injunctive relief is for a specific remedy—not money
damages—and therefore can be brought in district court under the APA.
2.
Restrictions in the APA
The government makes two additional arguments for dismissal of R&B's APA
claim: R&B has an adequate alternative remedy in the Court of Federal Claims, and the
Court cannot review CMS's conduct under the APA because its actions were
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discretionary. 2
a.
Adequate Remedy
The APA permits judicial review of an agency decision only when there is "no
other adequate remedy in a court." Sackett v. EPA, 132 S. Ct. 1367, 1372 (2012) (citing
5 U.S.C. § 704). The government contends that there is an alternative adequate
remedy because R&B could bring this suit as a request for money damages in the Court
of Federal Claims. The Supreme Court rejected this argument in Bowen, concluding
that "the remedy available to the State in the Claims Court [was] plainly not the kind of
special and adequate review procedure that [would] oust a district court of its normal
jurisdiction under the APA." Bowen, 487 U.S. at 904. The Court emphasized that the
Court of Federal Claims does not have the power to grant prospective equitable relief.
Id. at 905. This is particularly relevant in cases—like this one—where the plaintiff seeks
relief that would require the government to modify future practices. See id.
R&B requests a declaratory judgment that its 2014 grant was wrongfully revoked
and an injunction requiring CMS to reconsider its most recent application. The Court of
Federal Claims cannot grant these types of relief. See Bowen, 487 U.S. at 905. Even if
the Court of Claims could award a damages payment for the value of the grant, this
would not entirely redress the harms alleged by R&B. R&B claims that CMS denied its
navigator application based on an incorrect finding that R&B had violated the terms of a
prior grant agreement and other inappropriate political considerations. R&B seeks a
declaratory judgment that these bases for revocation were invalid, which would prevent
2
The government also argued in its original motion that R&B failed to identify a statute
that grants the Court subject matter jurisdiction over R&B's APA claim. The government
later withdrew this argument, so the Court need not address it. See Defs.' Reply Br. at
5.
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CMS from using these reasons to deny R&B's grant applications in the future. In light of
the potential ongoing interaction between R&B and the government, a "naked money
judgment" delivered by the Court of Federal Claims is unlikely to be an adequate
substitute. See Bowen, 487 U.S. at 879.
Further, the government contends that "R&B cannot state a Tucker Act claim in
the Court of Federal Claims, either." Defs.' Mem. in Supp. of Mot. to Dismiss at 4 n.5.
The government argues that the 2014 grant award did not create a contract because
there was no offer and acceptance and thus that there is no contract claim R&B can
bring that falls within the Tucker Act. Id. The government defeats its own position. It
cannot argue on the one hand that this Court must dismiss R&B's claims because it can
bring a contract action in the Court of Federal Claims, and on the other hand that it
cannot assert such a claim. The Court concludes that R&B's claim is not barred by 5
U.S.C. § 704.
b.
Discretion
The APA provides that a reviewing court shall set aside agency action or findings
that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law." 5 U.S.C. § 706(2)(A). There is an exception, however, when action has been
"committed to agency discretion by law." 5 U.S.C. § 701(a)(2); see also Lalani v.
Perryman, 105 F.3d 334, 337 (7th Cir. 1997). A court cannot review agency action if
the relevant statute "is drawn so that a court would have no meaningful standard
against which to judge the agency's exercise of discretion." Lalani, 105 F.3d at 337
(quoting Heckler v. Chaney, 470 U.S. 821, 830 (1985)).
The Navigator program was established by the ACA, which provides that "[t]he
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Secretary shall establish standards for navigators." 42 U.S.C. § 18031(i)(4)(A). Federal
regulations require each exchange to develop its own set of standards for navigator
grant recipients. 45 C.F.R. § 155.210(b)(1). These regulations also provide minimum
eligibility requirements for recipients. 45 C.F.R. § 155.210(c)(1). The government
argues that these provisions commit recipient decisions to agency discretion, putting
them beyond review by a court.
What R&B contends, however, is that CMS failed to adhere to its own regulations
when revoking R&B's grant. More specifically, R&B argues that it did not commit the
violation CMS claims and therefore CMS had no legitimate basis to revoke the grant.
R&B also contends that CMS's decision was "infected" with improper political
considerations. Compl. ¶ 21. R&B essentially claims that CMS failed to follow its own
rules, and it is these rules that provide a standard. See Head Start Family Educ.
Program, Inc. v. Coop. Educ. Serv. Agency, 46 F.3d 629, 633 (7th Cir. 1995) ("An
agency's failure to follow its own regulations has traditionally been recognized as
reviewable under the APA.").
Taking all facts and inferences in the light most favorable to R&B, the Court
cannot say that there is "no meaningful standard" against which a court can judge
CMS's decision to revoke R&B's 2014 grant award. The Court therefore declines to
dismiss Claim 4.
Conclusion
For the foregoing reasons, the Court grants the defendants' motion to dismiss in
part and denies the motion to dismiss in part [dkt. no. 10]. The Court: (a) dismisses
claims 1 and 3 as against CMS and the named individuals in their official capacities but
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denies the motion to dismiss those claims against defendant Dreier in her individual
capacity; (b) dismisses claim 2; and (c) declines to dismiss claim 4 insofar as it requests
declaratory and injunctive relief, but strikes from that claim the request for
compensatory damages. The case is set for a status hearing on September 29, 2016 at
9:30 a.m.
________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: September 23, 2016
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