Law Offices of Mark Kotlarsky Pension Plan v. Hillman et al

Filing 165

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 8/21/2015. (ca2s, Deputy Clerk)

UNITED STATES IJISTRICT COURT
DISTRICT Ot' MARYLAND

LA W OFFICE OF MARK KOTLARSK Y
PENSION PLAN,

Plaintill:
v.
ALEX HILLMAN,
BELA SHESTOPALOVA,
SIL VER SPRING FAMIL Y MEDICAL
CENTER, LLC, and
POTOMAC PROPERTIES REALTY, LLC,

Civil Action No. TDC-14-3028

Defendants,
NOVITAS SOLUTIONS, INC.,

UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES,
Movant.

MEMORANDUM

OPINION

This matter is before the Court on a Motion to Dismiss for Lack of Jurisdiction, or
Alternatively, for Summary Judgment, filed by the United States Department of Health and
Human Services (the "Government"), and a Motion to Remand to State Court, filed by Plaintiff
Law Office of Mark KQtlarsky("Kotlarsky"). The issues before the Court are: (I) whether the
case has been properly removed to this Court, and (2) whether the state court judgments issued
against Garnishee Novitas Solutions, Inc. ("Novitas") for Medicare funds are void for lack of
subject matter jurisdiction.

The Court has reviewed the pleadings and the briefs and heard oral

argument on June 30, 2015. For the reasons set forth below, the Kotlarsky's Motion to Remand
is DENIED.

The Government's Motion, which the Court construes as a Motion for Relief from

Final Judgment under Federal Rule of Civil Procedure 60(b), is GRANTED.
IlACKGROUND
On June 2, 2009, Kotlarsky obtained a money judgment
Montgomery

in the Circuit Court for

County against Defendants Alex Hillman, Bela Shestopalova ("Shestopalova"),

Silver Spring Family Medical Center, LLC ("SSFMC"), and Potomac Properties Realty, LLC for
breach of contract.

When Kotlarsky was unable to collect against the defendants, he obtained

various writs of garnishment from the state court, one of which was issued on Apri19, 2010 to
Highmark Medicare Services ("Highmark"), the predecessor to Novitas.
Administrative

Contractor

('"MAC") for Medicare

Novitas, a Medicare

Part A and B, serves as the primary

operational contact between the Medicare program and the health care providers enrolled in the
program and processes Medicare claims and disburses payments to those providers.
The writ directed llighmark to pay to Kotlarsky all of the money it owed to SSFMC. On
April 19, 2010, llighmark received service of the writ of garnishment.

On April 23, 2010, it sent

Kotlarsky a letter stating that there were no payments to be garnished because SSFMC was not a
Medicare provider and therefore had no account in Highmark's system. A review of the docket
indicates that other than sending the letter directly to Kotlarsky, Highmark never filed an answer
or any other response to the writ of garnishment in the state court proceeding.

On August 17,

2010, Kotlarsky moved for an entry of default against Highmark, which the state court entered
on September 23, 2010. Notice of the default was mailed to Highmark on the same day. Novitas
claims that, based on a review of lIighmark's files, neither the motion for entry of default nor the

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order for default was ever received by Highmark.

The case was subsequently stayed pending

resolution of bankruptcy proceedings relating to some of the defendants.
Over three years later. on March 18, 2014, Novitas received service of a subpoena duces
tecum issued by the state court, directing Novitas to provide Kotlarsky with copies of all checks
and other documents relating to payments made by Highmark or Novitas to Shestopalova or to
SSFMC during the period frum April 19,2010 through November 10,2010.

Although Novitas

now asserts that it declined to release any such records because it believed it was prohibited from
doing so under the Privacy Act of 1974, there is no indication on the state court docket that
Novitas ever filed a motion for protective order or a motion to quash the subpoena.
On April 28. 2014, Kotlarsky filed a motion to compel and for sanctions against Novitas,
requesting that the state court (1) compel Novitas to provide a list of all payments made to
Shestopalova or SSFMC during the period from April 19,2010 to November 2010, (2) deem it
established that any payments made to Shestopalova during that period were made on behalf of
SSFMC. and (3) award attorney's fees. The state court granted the motion on June 2, 2014.
On July 25, 2014, Kotlarsky moved for summary judgment against Novitas.

In the

motion, Kotlarsky asserted that Novitas made 24 payments to Shestopalova, totaling $18,748.75
during the period from April 19,2010 and November 10,2010, and requested that the court enter
judgment in favor of Kotlarsky for that amount.

Novitas did not file a response to this motion

for summary judgment and now claims that the motion was never served upon Novitas.

On

August 19,2014, the state court granted summary judgment against Novitas, awarding Kotlarsky
$18,748.75.
Novitas received the state court's order on August 25. 2014. On September 25, 2014, the
Government filed a Notice of Removal, seeking to remove the case from slate court under

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federal agency removal, 28 U.S.C. ~ 1442(a)(1) (2012), on the grounds that the Centers for
Medicare and Medicaid Services ("eMS"), a component agency of the United States Department
of Health and Human Services, is the real party of interest in this casco The Government then
filed a Motion to Dismiss for Lack for Jurisdiction, or Alternatively for Summary Judgment, on
October 2, 2014, in which it argued that this Court should vacate the judgment against Novitas
because the state court lacked subject matter jurisdiction

over federal Medicare funds.

On

October 14,2014, Kotlarsky filed a Motion to Remand and Opposition to the Motion to Dismiss.
Both motions are ripe for adjudication.
DISCUSSION
I. Motion to Remand
In the Motion to Remand, Kotlarsky argues that the Court should remand this case to
state court because:

(1) the Government has no standing to remove the case to this Court

because the state court judgment was directed at Novitas, which is a private organization; (2)
removal is untimely; and (3) the state court judgment was final and therefore non-removable.
The Court addresses each of these arguments separately, and for the reasons discussed below,
denies the Motion to Remand.
A. Federal A~l'ncyRemoval
Kotlarsky argues that removal
federal agency.

IS

Improper because the defendant, Novitas, is not a

A civil action in state court that is "against or directed to" any agency of the

United States may be removed to federal court.

28 U.S.c.

~ 1442(a)(I).

As a matter of

procedure and substance. a garnishment action, such as the one Kotlarsky has instituted against
Novitas, is its ovm lawsuit, even though it was filed in an underlying casco Carpenters Pension
Fund of Baltimore v. Md Dep't of Health & Mental Hygiene, 721 F.3d 217, 223-24 (4th Cir.

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2013) (citing Mayor & City Council oj Ballimore v. Ulica MUI. Ins. Co., 802 A.2d 1070, 1083
(Md. 2002».

Where removal is challenged, the removing party bears the burden to establish that

removal was proper. See Mulcahey v, Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th CiT.
1994); Greer v. Crown Tille Corp., 216 F. Supp. 2d 519, 521 (D. Md. 2002).
Although Novitas is not a federal agency, it is a government contractor that disburses
Medicare

payments

to eligible Medicare

providers.

The Government

may remove

this

garnishment action because eMS is the real party of interest. The Medicare regulations provide
that. because the "(i]ntennediaries

and carriers act on behalf of eMS in carrying out certain

administrative responsibilities that the law imposes," eMS is "the real party of interest in any
litigation involving the administration of the program:'

42 C.F,R. ~ 42L5(b).

Notably, contracts

between CMS and MACs such as Novitas are required to "contain clauses providing

for

indemnification with respect to actions taken on behalf of CMS," thus indicating that an action
against Novitas in its role as a MAC will directly implicate CMS and federal funds, I [d.
Ideally, in a case against a private contractor serving as a MAC, the Government would
fonnally enter the case, either through a motion for joinder by the MAC or a motion to intervene.
However, such action is not necessary for the Government to be considered the real party of
interest. In Johnson v. Johnson, 332 F, Supp. 510 (E.D, Pa, 1971), the court was presented with
an almost identical scenario: a plaintiff sought to garnish Medicare payments made to a doctor
by Pennsylvania Blue Shield ("PUS"), a contractor to the United States Department of Health,
Education and Welfare ("HEW'),

Jd. at 51 L Although HEW was not a named party to the

The specific contract between CMS and Novitas states that, in the event Novitas is made party
to "any judicial or administrative proceeding arising, in whole or in part, out of any functions
under this contract in connection with any claims for benefits under [the Medicare program],"
CMS will "indemnify [NovitasJ for all judgments, settlements, awards and costs:' Suppl. Exs. to
Mot. Dismiss, Ex. 6 at 7, ECF No. 164-2.
I

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dispute, the court held that because PBS was acting as the agent for the Secretary of HEW, the
Secretary was the "real party in interest," such that sovereign immunity applied to bar the
garnishment.

/d. at 513 ("It is clear that la Medicare contractor] in administering the Medicare

program is acting as the agent for the Secretary of HEW, and as such the Secretary is the real
party in interest. "), Likewise, in this garnishment case against Novitas, the Government is the
real party of interest, and the suit is effectively against the sovereign,

See Dugan v, Rank, 372

U,S, 609, 620 (1963) ("lA] suit is against the sovereign if the judgment sought would expend
itself on the public treasury,") (citation and internal quotation marks omitted)), As such, removal
of the garnishment action was proper because it was "directed to" the "United States or any
agency thereof." 28 U.S.C.

* 1442(a)(I).

U. Timeliness
Kotlarsky further argues that even if the Government could properly remove this action,
its notice of removal was untimely,

Notice of removal of a civil action or proceeding must be

tiled within 30 days of receipt of the initial pleading, or within 30 days of receipt "through
service or otherwise, of a copy of an amended pleading, motion, order or any other paper from
which it may first be ascertained that the case is one which is or has become removable,"
U,S,c. ~ 1446(b)(3),

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Failure to file a timely notice is a defect in removal procedure, Cades v.

II&R Block. Inc., 43 F.3d 869, 873 (4th Cir. 1994). !lere, the original writ of garnishment was
served on Novitas (then Highmark) on April 19,2010, over four years before the Government
filed its notice of removaL
The Government nevertheless contends that service of that writ did not initiate the 30-day
removal period because the writ sought to garnish funds owed to SSFMC, not Shestopalova,
The Government argues that because SSFMC was not actually a Medicare provider, the writ did

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not implicate any federal interests from which it could be ascertained
removable.

that the case was

Rather, it argues that the case only became removable when the state court issued its

August 19,2014 judgment against Novitas for Medicare funds owed to Shestopalova, such that
the 30-day removal period did not commence until the Government received service of that
judgment on August 27, 2014.
This argument is at odds with the Government's

concurrent position that CMS, and

therefore the federal government, is automatically implicated in any suit against Novitas in its
capacity as a MAC. As discussed above, and as the Government asserted at oral argument, CMS
is the real party of interest in any litigation against Novitas that involves the administration of the
Medicare program. See 42 C.F.R.

S 421.5(b).

The fact that the writ sought to garnish funds

purportedly owed by Novitas to a Medicare provider, regardless of whether any such funds were
actually owed, implicated its administration of Medicare funds, and therefore rendered eMS, a
federal agency, the real party of interest in the garnishment action. The case was thus removable
as of April 19,2010.
In any event, even if the Court were to accept the Government's

argument that federal

agency removal was not appropriate under the original writ because it did not name Shestopalova
as the Medicare provider, Novitas received service on March 18, 2014 of a subpuena duces
tecum in which the state court directed Novitas to provide Kotlarsky with all documents
concerning Medicare payments made to either Shestopalova or SSFMC during the period from
April 19,2010 through November 10,2010.

Thus, Novitas was plainly on notice by March 18,

2014, at the latest, that federal interests were at stake in the garnishment action, but nonetheless
failed to remove the case within the 30.day limit. Removal was therefore untimely. 28 U.S.c.
l446(b )(3).

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S

Despite the Government's untimely removal, the Court will not remand the case because
the issues before this Court on removal implicate the federal government's

sovereign immunity.

In Loftin v. Rush, 767 F.2d 800 (II th Cir. 1985), the United States Court of Appeals for the
Eleventh Circuit held that 28 U.S.C. ~ 1446(b)'s 3D-day limitation on removal was not binding in
a case involving garnishment of funds owed by the United States Navy to a federal employee
where, as here. federal sovereign immunity was at issue. [d. at 805-06. The court concluded that
section 1446(b)'s time limit is not jurisdictional and may be waived, and that remanding the case
on such technical grounds would trivialize the federal courts' important authority under section
1442(a)(1) over cases concerning the federal government's

liability to suit.

[d.

Because the

present case similarly implicates the question whether federal funds are subject to garnishment in
a state court proceeding, this Court will follow the reasoning of Loftin and permit removal,
notwithstanding the untimely notice of removal.
In doing so, the Court does not excuse, and in fact is deeply troubled
Government's

by, the

four-year delay in entering this case and filing the notice of removal. See Lojiin,

767 F.2d at 805 (noting that the court "emphatically
tardiness" in seeking removal).

disapprove(s]

of the government's

The Government's claim that the delay was due to Kotlarsky's

failure to properly serve the Government directly is illogical, as it was never a named party in
this case. It appears that the government contractor, Novitas, inexcusably failed to engage in this
matter appropriately or to bring the matter to the attention of the Government over a four-year
period. But if the Government is permitted to have a case against Novitas deemed to be a case
against the Government, it cannot reasonably claim that notice to Novitas docs not constitute
notice to the Government.

Although it will not always be the case that an untimely removal will

be excused because the case implicates sovereign immunity, under these facts, where remand to

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state court will likely be a less efiicient means of resolving this matter, the Court will not
remand.
C. Final Judgment
Finally, Kotlarsky argues that removal is improper because the state court judgment
against Novitas was a final order, yet Novitas failed to pursue an appeal of the judgment within
30 days, as required by Maryland Rule 8-202(a). The fact that the state court had entered final
judgment docs not preclude removal under 28 U.S.C.

9

1442. See Hadley-Memorial

Hosp. v.

Kynard, 981 F. Supp. 690, 692 (D.D.C. 1997). Moreover, as Kotlarsky ackoowledged

io its

Reply, the Government has available a post-judgment remedy in the form of a Motion for Relief
from Final Judgment under Federal Rule of Civil Procedure 60(b).

In a case removed after

judgment, the district court adopts the state court judgment and may review it as it would review
its o\\n, "follow(ing] the ordinary rules regarding post-judgment remedies."

Resolution Trust

Corp. v. Allen, 16 F.3d 568, 573 (4th Cir. 1994). A district court may relieve a party from a final
judgment on various grounds under Rule 60(b). including where •• judgment is void" or for
the
"any other reason that justifies relief." Fed. R. Civ. P. 60(b)(4), (6).
At oral argument, neither party objected to the Court treating the pending Motion to
Dismiss as a Rule 60(b) Motion for Relief from Final Judgment without requiring additional
filings or briefing from the parties. Because the Court will construe the Government's Motion as
a Motion for Relief from Final Judgment under Rule 60(b), Kotlarsky's argument that the state
court's final judgment precludes removal and further consideration by this Court is unpersuasive.
11. Motion for Relief from Final Judgment
Construing the Government's

Motion as a Rule 60(b) Motion for Relief from Final

Judgment, the Court reviews both the state court's default judgment against Novitas and the

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August 19, 2014 order granting summary judgment for Kotlarsky to determine whether the
judgments

are void for lack of subject matter jurisdiction.

As discussed below, the Court

concludes that the doctrine of sovereign immunity barred the state court from ordering a
judgment against federal funds, and that the state court lacked subject matter jurisdiction over the
garnishment action altogether.

'lbe Court thus grants the Government's

Motion for Relief from

Final Judgment.
A judgment is void under Federal Rule of Civil Procedure 60(b)(4) if "the court that
rendered it lacked jurisdiction of the subject matter or of the parties, or if it acted in a manner
inconsistent with due process of law." Schwartz v. United States, 976 F.2d 213, 217 (4th Cir.
1992) (citation and internal quotation marks omitted).
nature.'"

FD.l.C.

Sovereign immunity is 'Jurisdictional

v. Meyer, 510 U.S. 471, 475 (1994).

in

In federal agency removal cases. the

federal court's subject matter jurisdiction extends only as far as the state court's jurisdiction.
Palmer v. City Nat 'I Bank of West Virl(inia, 498 F.3d 236, 244 (4th Cir. 2007).
Here, the state court had no subject matter jurisdiction

over the garnishment

action

against Novitas because federal funds, such as the Medicare funds in question here, arc not
subject to garnishment

absent waiver of sovereign immunity by Congress.

Alexander, 45 U.S. 20, 21 (1846); Franchise Tax Bd. of Cal. v.
517-18 (1984).

u.s. Postal

Buchanan

v.

Serv., 467 U.S. 512,

Waivers of sovereign immunity "must be unequivocally

expressed

in the

statutory text." Lane v. Pena. 518 U.S. 187, 192 (1996). By statute, Medicare funds generally
cannot be paid directly by the government to someone other than the Medicare provider to whom
the funds arc owed. 42 U.S.c. ~ 1395u(b)(6). The only avenues by which Medicare money may
be diverted from payment to a Medicare provider would be under one of the exceptions specified
in the Medicare regulations:

(1) payment to a government agency or entity; (2) payment under

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assignment established by court order; or (3) payment to an agent who furnishes billing and
collection services on behalf of the provider.

42 C.F.R. ~ 424.73(b).

The first and third

exceptions clearly do not apply to the state court judgment.
The second exception also docs not apply.

Although Kotlarsky suggested

at oral

argument that the state court judgment could be deemed to be an authorized assignment of
Medicare payments under 42 C.F.R.
interpretation.

S

424.73(b)(2), the regulations do not support such an

Section 424.73(b)(2) states that Medicare may pay a non-provider "under an

assignment established by, or in accordance with, the order of a court of competent jurisdiction if
the assignment meets the conditions set forth in ~ 424.90." Jd. In tum, section 424.90 provides
that an assignment is effective only if:
(I) Someone files a certified copy of the court order and of the executed
assignment or reassignment (if it was necessary to execute one) with the
intermediary or carrier responsible for processing the claim; and
(2) The assignment or reassignment(i) Applies to all Medicare benefits payable to a particular person or entity
during a specified or indefinite time period; or
(ii) Specifies a particular amount of money, payable to a particular person or
entity by a particular intenncdiary or carrier.
42 C.F.R. ~ 424.90(a).

The regulations thus require an actual agreement by the designated

recipient to assign Medicare payments to a third party, accompanied by contemporaneous

court

order endorsing the assignment, presumably to provide an additional safeguard to maintain the
"strong presumption
RecoverySys.,
interpreting

against the assignment of claims" against the government

See Credil

LLC v. fleike, 158 F. Supp. 2d. 689, 694 (E.D. Va. 2001). Accordingly, the cases
these regulations

provider and a non-provider.

deal with such assignment

agreements

between a Medicare

See, e.g., DFS Secured Heallhcare Receivables Trwl v. Caregivers

II

Great Lakes, Inc., 384 FJd 338, 350 (7lh Cir. 2004) (considering whether an agreement between
a Medicare provider and a third party for assignment of Medicare payments was valid); Credit
Recovery Sys., 158 F. Supp. 2d at 694 (same).

Here, the state court judgment

was not

accompanied by an agreement in which a Medicare provider knowingly assigned its Medicare
payments to Kotlarsky.

Kotlarsky has not provided, and the Court has not identified, any

authority supporting the view that a writ of garnishment could be deemed to be an assignment
under 42 C.F.R.

S

424.73(b)(2).

Because the state court judgment against Novitas is not an

assignment as contemplated by section 424.73(b)(2), and the conditions required by section
424,90(a) have not been met, the state court judgment does not fall within the ambit of any of the
exceptions under the Medicare regulations.
Except by way of these exceptions, the doctrine of sovereign immunity prohibits a
judgment against federal money.

See Johnson, 332 F. Supp. at 511 (holding that sovereign

immunity barred garnishment of Medicare money held by a Medicare contractor in the absence
of legislation pennitting such action); see also Neukirchen v. Wood Cnty. Head Start, Inc., 53
F.3d 809 (7th Cir. 1995) (holding that sovereign immunity prohibited a Head Start organization
from using any federal funds, or assets purchased with those funds. to satisfy an employment
discrimination judgment).

Therefore, the state court lacked jurisdiction over the garnishment

action, and both the default judgment and the August 19,2014 order granting summary judgment
for Medicare funds are void?

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The Court notes that this ruling only forecloses Kotlarsky from collecting on his original
money judgment against Shestopalova by garnishing Medicare money directly from Novitas.
Once Medicare funds are disbursed to a Medicare provider, like Shestopalova, nothing prevents
creditors in Kotlarsky's position from seeking to collect the money directly from the provider. In
fact, at oral argument, Kotlarsky acknowledged filing claims in both Shestopalova's and
SSFMC's bankruptcy proceedings, for which Kotlarsky received a settlement.

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In its Motion. the Government argues that the Court also may dissolve the state court
judgment on the alternative grounds that the judgment violates the Supremacy Clause, or that the
state court lacked personal jurisdiction over CMS, the real party of interest in the garnishment
action against Novitas.

Because the Court has already concluded that the state court lacked

jurisdiction, it need not consider these alternative arguments.

The Motion for Relief from Final

Judgment is granted, the state court judgments are deemed void, and the case is dismissed.
CONCLUSION
For the foregoing reasons, the Motion to Remand is DENIED.

The Government's

Motion to Dismiss for Lack of Jurisdiction, or Alternatively, for Summary Judgment, which the
Court construes as a Motion for Relief from Final Judgment under Federal Rule of Civil
Procedure 60(b), is GRANTED.

The state court judgments

are declared void for lack of

jurisdiction, and the garnishment action is DISMISSED. A separate Order follows.

*<;;~

Date: August 21, 2015

THEODOREDi

United States District Judge

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