Delco, Inc. v. Corporate Management, Inc. et al
Filing
128
MEMORANDUM OPINION AND ORDER granting in part and denying in part 104 Motion to Dismiss for Lack of Jurisdiction. This case is dismissed without prejudice. A separate Judgment will be entered herein. Signed by District Judge Keith Starrett on 8/2/12 (scp) Modified on 8/2/2012 (scp).
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
HATTIESBURG DIVISION
DELCO, INC.
PLAINTIFF
v.
CIVIL ACTION NO. 2:11-CV-90-KS-MTP
CORPORATE MANAGEMENT,
INC., et al.
DEFENDANTS
MEMORANDUM OPINION AND ORDER
For the reasons stated below, the Court grants in part and denies in part
Defendants’ Motion to Dismiss [104]. The Court dismisses this case for lack of subject
matter jurisdiction, but the Court finds that Plaintiff is not required to exhaust the
administrative remedies provided by 42 U.S.C. § 405(g) before asserting its claims in
a court of proper jurisdiction. Accordingly, Plaintiff’s remaining claims are dismissed
without prejudice.
I. BACKGROUND
This case involves the change in ownership of a nursing care facility, the
transfer of the Medicare provider number, and a subsequent dispute over the payments
and liabilities for services provided under the Medicare provider agreement prior to the
transfer.
Plaintiff leased a nursing home facility in Leakesville, Mississippi, from Melody
Manor Convalescent Center and operated a nursing home at the location. Plaintiff’s
lease expired on December 31, 2009, and Melody Manor elected to not renew the lease.
Another company – either Defendant Leakesville Rehabilitation and Nursing Center,
Inc. or Defendant Corporate Management, Inc. – currently operates a nursing home
at the same location. All three companies – Melody Manor, Leakesville Rehabilitation
and Nursing, and Corporate Management – are owned by Defendant Harold Ted Cain.
On or about January 1, 2010, one or more of the Defendants began operating the
Leakesville nursing care facility.
Plaintiff alleges that Defendants unilaterally and surreptitiously caused its
Medicare provider number to be transferred to Defendant Corporate Management.
Plaintiff has submitted claims to Medicare for services it provided prior to January 1,
2010 – when it operated the Leakesville facility. However, Plaintiff has not received
the payments on those claims. Rather, the payments have gone to Corporate
Management, the new owner of the Medicare provider number.1 Plaintiffs brought a
variety of claims against the Defendants named above, plus the Secretary of the United
States Department of Health and Human Services, the Centers for Medicare and
Medicaid Services (“CMS”), and the Mississippi Division of Medicaid.
On October 18, 2011, the Court [38] granted a motion to dismiss filed by the
federal Defendants. The Court held that the Medicare Act limited the jurisdiction of
federal courts to review claims brought under the Act by requiring that virtually all
such cases be brought through the agency’s administrative process. See Nat’l Athletic
Trainers Ass’n v. United States HHS, 455 F.3d 500, 503 (5th Cir. 2006). Accordingly,
this Court’s jurisdiction in cases arising under the Medicare Act is limited to those in
1
The disputed funds are currently held in the registry of the Court.
2
which the claimant has exhausted the administrative review process, or in which the
administrative review process provides no review at all. See Shalala v. Illinois Council
on Long Term Care, Inc., 529 U.S. 1, 19, 120 S. Ct. 1084, 146 L. Ed. 1 (2000). As
Plaintiff had not availed itself of the administrative process and merely sought
payment of Medicare claims allegedly paid to another provider, the Court found that
it did not have jurisdiction over Plaintiff’s claims against the federal Defendants.
On May 15, 2012, the Court entered an agreed order [103] dismissing Plaintiff’s
claims as to the Mississippi Division of Medicaid without prejudice. The remaining
Defendants filed a Motion to Dismiss [104], arguing that the Medicare Act deprives the
Court of jurisdiction over Plaintiff’s claims against them for the same reasons stated
in the Court’s previous opinion.
II. DISCUSSION
“If the court determines at any time that it lacks subject-matter jurisdiction, the
court must dismiss the action.” FED. R. CIV. P. 12(h)(3). The party asserting jurisdiction
has the burden of proving it. Wolcott v. Sebelius, 635 F.3d 757, 762 (5th Cir. 2011).
When addressing a 12(b)(1) motion, the court may consider “(1) the complaint alone;
(2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the
complaint supplemented by undisputed facts plus the court’s resolution of disputed
facts.” Id. (punctuation omitted).
There are two issues the Court must address. First, the Court must determine
whether Plaintiff is required to exhaust its administrative remedies before seeking
relief in a federal court. Second, the Court must determine whether Plaintiff’s claims
3
arise under federal law.
A.
Exhaustion of Administrative Remedies
Section 405(h) of the Social Security Act provides:
The findings and decision of the Commission of Social Security after a
hearing shall be binding upon all individuals who were parties to such
hearing. No findings of fact or decision of the Commissioner of Social
Security shall be reviewed by any person, tribunal, or governmental
agency except as herein provided. No action against the United States,
the Commissioner of Social Security, or any officer or employee thereof
shall be brought under section 1331 . . . of Title 28 to recover on any claim
arising under this subchapter.
42 U.S.C. § 405(h). The Medicare Act incorporates this section, providing that any
reference to the Commissioner of Social Security or the Social Security Administration
should be considered a reference to the Secretary or Department of Health and Human
Services. 42 U.S.C. § 1395ii; Wolcott, 635 F.3d at 764. Therefore, 42 U.S.C. § 405(g)
provides the “sole avenue for judicial review of all claims arising under the Medicare
Act,” Rencare, Ltd. v. Humana Health Plan of Texas, 395 F.3d 555, 557 (5th Cir. 2004),
and one must satisfy the following requirements before seeking judicial review:
(1) a final decision of the Secretary made after a hearing; (2)
commencement of a civil action within 60 days after the mailing of notice
of such decision (or within such further time as the Secretary may allow);
and (3) filing of the action in an appropriate district court, in general that
of the plaintiff’s residence or principal place of business.
Wolcott, 635 F.3d at 764 (quoting Weinberger v. Salfi, 422 U.S. 749, 763-64, 95 S. Ct.
2457, 45 L. Ed. 2d 522 (1975)).
Defendants argue that Plaintiff’s claims arise under the Medicare Act, and that
Plaintiff must exhaust its administrative remedies before seeking judicial review.
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Rencare, Ltd. v. Humana Health Plan of Texas, 395 F.3d 555 (5th Cir. 2004), is
instructive on this issue. In that case, Humana – a Texas HMO – contracted with
Rencare to provide medical services to its enrollees. Id. at 557. Humana received a
fixed amount of Medicare benefits each month for each enrolled Medicare patient,
regardless of the value of the service each patient received. Id. at 556-57. Humana and
Rencare disagreed over the amount of reimbursement for certain medical services
provided by Rencare to Humana enrollees, and Rencare sued Humana in Texas state
court, asserting various state tort and contract claims. Id. at 557.
Humana removed the case to federal district court, arguing that Rencare’s
claims were preempted by the Medicare Act. Id. The district court agreed, and it
eventually dismissed the case, finding that Rencare had failed to exhaust its
administrative remedies. Id. On appeal, the Fifth Circuit reversed, finding that
Rencare’s state tort and contract claims against Humana did not arise under the
Medicare Act, and, therefore, there were no administrative remedies for it to exhaust.
Id. at 560. This case presents the same situation.
“A claim arises under the Medicare Act if both the standing and the substantive
basis for the presentation of the claim is the Medicare Act, or if the claim is
inextricably intertwined with a claim for Medicare benefits.” Id. at 557 (citations and
punctuation omitted). Plaintiff’s claims are based on state law.2 Therefore, the standing
2
Plaintiff also claims that Defendants violated two federal criminal statutes,
but Plaintiff clarified in briefing that it did not intend to assert a private right of
action for these criminal statutes. Rather, Plaintiff argues that Defendants’ alleged
violation of these federal laws supports Plaintiff’s state law tort claims.
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and substantive basis for its claims is not the Medicare Act. Id. at 557. Accordingly,
Plaintiff must exhaust its administrative remedies only if the claims are “inextricably
intertwined with a claim for Medicare benefits.” Id. at 558.
One factor that the Fifth Circuit has considered in determining this issue is
whether the government or any Medicare enrollees have a financial interest in the
outcome of the case. Id. In a letter dated October 25, 2010 [8-3], a representative of
CMS communicated to Plaintiff’s counsel that when “there is a change of ownership
followed by an automatic assignment of the provider agreement, there is only one
provider of services which has had two different corporate owners.” Accordingly, CMS
stated that “it is up to the two entities to work out the details of reconciling the dollars
paid by Medicare. CMS and the [fiscal intermediary] do not get involved in the details
of the reconciliation between the two parties.”
Medicare regulations provide that the “lease of all or part of a provider facility
constitutes change of ownership of the leased portion.” 42 C.F.R. § 489.18(a)(4). “When
there is a change of ownership . . . , the existing provider agreement will automatically
be assigned to the new owner.” 42 C.F.R. § 489.18(c). “An assigned agreement is subject
to all applicable statutes and regulations and to the terms and conditions under which
it was originally issued . . . .” 42 U.S.C. § 489.18(d). Among those terms and conditions
is the following statutory provision:
The Secretary shall periodically determine the amount which should be
paid under this part to each provider of services with respect to the
services furnished by it, and the provider of services shall be paid, at such
time or times as the Secretary believes appropriate . . . , the amounts so
determined, with necessary adjustments on account of previously made
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overpayments or underpayments . . . .
42 U.S.C. § 1395g(a).
The “cumulative effect” of these provisions is that Defendants’ “lease of the
nursing home facility and assumption of the Medicare provider agreement made
[Defendants] subject to the same statutory and regulatory conditions as [Plaintiff] had
been. These conditions include provisions for adjustments for over- and
underpayments.” Sunrest Healthcare Ctr. LLC v. Omega Healthcare Investors, Inc., 431
F.3d 685, 688 (9th Cir. 2005). Therefore, the “Medicare Program Integrity Manual
advises the former and new owners to reach an agreement related to payments
received during the CHOW3 period: ‘It is ultimately the responsibility of the old and
new owners to work out any payment arrangements between them while the CHOW
is being processed by the intermediary and the [CMS Regional Office].’” Triad at
Jeffersonville I, LLC v. Leavitt, 563 F. Supp. 2d 1, 7 (D.D.C. 2008) (quoting Medicare
Program Integrity Manual, Ch. 10, § 11.1.B) (alteration original).
Therefore, as in Rencare, neither the government nor any Medicare enrollee has
a financial interest in this dispute. Rencare, 395 F.3d at 559. This is simply a
Mississippi tort case, albeit one that requires a cursory understanding of Medicare
payment procedures and regulations. Accordingly, Plaintiff’s claims are not
inextricably intertwined with a claim for Medicare benefits, and Plaintiff is not
3
“CHOW” refers to a Change of Ownership.
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required to exhaust any administrative procedures before seeking judicial relief. Id.4
B.
“Arising Under” Federal Law
Having found that Plaintiff was not required to exhaust any administrative
remedies before pursuing her claims against the private Defendants, the Court must
now determine whether it has jurisdiction over this case. Plaintiff asserts that this
Court has federal question jurisdiction.
This Court has “original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. According to the
well-pleaded complaint rule, “for a federal court to have ‘arising under’ jurisdiction, the
plaintiff’s federal law claims must appear on the face of the complaint.” McKnight v.
Dresser, Inc., 676 F.3d 426, 430 (5th Cir. 2012). “A federal question exists only in those
cases in which a well-pleaded complaint establishes either that federal law creates the
cause of action or that the plaintiff’s right to relief necessarily depends on the
resolution of a substantial question of federal law.” Singh v. Duane Morris LLP, 538
F.3d 334, 337-38 (5th Cir. 2008).
A complaint stating a state-law cause of action may create federal question
4
In Rencare, Humana received payments under Medicare Part C’s “Medicare
+ Choice” (“M+C”) plan, which entails a different payment and administrative
review process than Medicare Parts A and B. See Id. at 558-60. Rencare’s claims
were specifically excluded from Part C’s M+C administrative appeals process. Id. at
559. The latter half of the Fifth Circuit’s analysis focused on that aspect of the case.
Id. at 559-60. However, this distinction is not sufficient to render the case
inapplicable here. The first half of the opinion – discussed above – provides
sufficient grounds to support the Court’s decision that Plaintiff’s claims do not arise
under the Medicare Act and are not inextricably intertwined with a claim for
Medicare benefits.
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jurisdiction if “(1) resolving a federal issue is necessary to resolution of the state-law
claim; (2) the federal issue is actually disputed; (3) the federal issue is substantial; and
(4) federal jurisdiction will not disturb the balance of federal and state judicial
responsibilities.” Singh, 538 F.3d at 338. The “mere need to apply federal law in a
state-law claim” is not sufficient to create federal question jurisdiction. Budget Prepay,
Inc. v. AT&T Corp., 605 F.3d 273, 280 (5th Cir. 2010). Rather, there must be a
“substantial” federal right at issue, “indicating a serious federal interest in claiming
the advantages thought to be inherent in a federal forum.” Id. “Congress’s failure to
provide a private cause of action for violation of a federal statute” suggests that the
right at stake is not substantial enough to create federal question jurisdiction, but it
is not determinative. Id. at 280-81.
In Count III of the First Amended Complaint, Plaintiff alleged that Defendants
“committed statutory violations (including, at a minimum, violation of 18 U.S.C. § 669
and 18 U.S.C. § 1347) by wrongfully representing to CMS that they are entitled (under
the provider number and substituted NPI) to receive payment for services from a
federal health care benefit program and by wrongfully receiving and converting same
when Plaintiff actually provided the services . . . .” Plaintiff clarified in briefing that
it did not intend to bring a private action for violation of these criminal statutes.
Rather, Plaintiff argues that Defendants’ violation of these statutes is supportive of its
state law tort claims in Counts IV and V – conversion and tortious interference with
contract. Even if Plaintiff intended to assert a private cause of action for the violation
of these criminal statutes, the statutes in question do not implicitly or explicitly
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provide a private right of action. See Cort v. Ash, 422 U.S. 66, 79, 95 S. Ct. 2080, 45 L.
Ed. 2d 26 (1975); McLean v. Int’l Harvester Co., 817 F.2d 1214, 1219 (5th Cir. 1987);
Fierro v. Robinson, 405 F. App’x 925, 926 (5th Cir. 2010).
In the Court’s opinion, this case may present a “contested federal issue,” but it
does not present a “substantial one, indicating a serious federal interest in claiming the
advantages thought to be inherent in a federal forum.” Singh, 538 F.3d at 338. This is
a private dispute between two medical service providers. As noted above, CMS
represented to Plaintiff that it had no interest in this litigation, and both the Medicare
regulations and the Medicare Program Integrity Manual explicitly contemplate that
providers will reconcile matters like this one outside the CHOW process.
The disposition of this case will certainly require a cursory understanding of
Medicare regulations and procedures, and the parties dispute certain points of federal
law. At its heart, though, this is truly a tort case. At best, Defendants’ alleged
violations of federal law constitute elements of the tort claims at issue, and that is
insufficient to establish federal question jurisdiction. See id. at 338-39 (where resolving
state-law malpractice claim required resolving a question of federal trademark law,
there was no federal question); Budget Prepay, Inc., 605 F.3d at 279-80 (where contract
incorporated federal statutory provisions, breach of contract case did not raise a federal
question).
III. CONCLUSION
For the reasons stated above the Court grants in part and denies in part
Defendants’ Motion to Dismiss [104] for lack of jurisdiction. Plaintiff’s claims against
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the remaining Defendants do not arise under the Medicare Act, and they are not
inextricably intertwined with a claim for Medicare benefits. Therefore, Plaintiff has no
obligation to exhaust any administrative remedies prior to bringing suit. However,
Plaintiff’s claims do not arise under federal law, and the disputed federal issues are,
at best, elements of state-law tort claims. Accordingly, the Court must dismiss this
case without prejudice for lack of subject matter jurisdiction. The Court will enter a
separate final order in accordance with Rule 58, and an order for the release of
Defendants’ funds.
SO ORDERED AND ADJUDGED this 2nd day of August, 2012.
s/ Keith Starrett
UNITED STATES DISTRICT JUDGE
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