Scott et al v. 237 Linwood Avenue, Inc. et al
Filing
31
DECISION and ORDER granting 26 Motion to Dismiss for Lack of Jurisdiction; granting 11 Motion to Dismiss for Lack of Jurisdiction; granting 18 Motion to Dismiss. Clerk of Court to close case. Signed by Hon. Richard J. Arcara on 12/7/2011. (JMB)
UNITED STATES DISTRICT COURT
W ESTERN DISTRICT OF NEW YORK
MORAG J. BOND and NIGEL BOND,
Plaintiffs,
DECISION AND ORDER
11-CV-275A
v.
THE ROTHLANDS, LLC,
ROTHLAND GOLF COURSE, INC., and
UNITED STATES OF AMERICA,
Defendants.
----------------------------------------------------------SHEILA G. SCOTT and RICHARD SCOTT,
Plaintiffs,
11-CV-593A
v.
237 LINW OOD AVENUE, INC.,
COUNTY OF ERIE,
UNITED STATES OF AMERICA,
FRENSENIUS MEDICAL CARE
HOLDINGS, INC., and
NEW YORK DIALYSIS SERVICES, INC.,
individually and d/b/a FMS BUFFALO
ARTIFICIAL KIDNEY CENTER,
Defendants.
I.
INTRODUCTION
Pending before the Court in each of the above two cases are motions by all
of the respective defendants to dismiss for lack of subject-matter jurisdiction
under Rule 12(b)(1) of the Federal Rules of Civil Procedure (“FRCP”). These
cases are not related. In the interest of judicial economy, however, the Court has
decided to issue a joint Decision and Order because these cases do have one
legal issue in common that is central to all of the pending motions. That legal
issue is whether a failure by the Medicare Secondary Payer (“MSP”) system to
issue a timely conditional payment letter creates federal jurisdiction over a
negligence case that otherwise belongs in state court.
Plaintiffs in both cases—represented by the same counsel—argue that
there is federal jurisdiction for two reasons. First, plaintiffs cite overwhelming
frustration with Medicare’s inability to follow its own policies and to decide in a
timely fashion whether it will assert subrogation rights in any given negligence
case. According to plaintiffs, Medicare takes so long to decide whether to assert
subrogation rights—several years in some cases—that it holds up the final
payments for cases that otherwise have settled. Plaintiffs argue that if Medicare
intends on holding up settled cases than it ought to be a named defendant in
federal court, which would force it to make faster decisions about its potential
interests. Second, plaintiffs contend that the extraordinary delay that Medicare
imposes on some litigants amounts to an unconstitutional taking of settlement
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awards in violation of the Fifth Amendment. All defendants counter with slightly
different arguments that plaintiffs’ frustration with the MSP system by itself does
not create a case or controversy that a federal court can resolve.
The Court held a joint oral argument for all pending motions in both cases
on November 4, 2011. For the reasons below, the Court grants all of the pending
motions and dismisses both cases for lack of subject-matter jurisdiction.
II.
BACKGROUND
A.
Bond Case
The Bond case concerns personal injuries allegedly sustained on an
entrance/exit ramp at a golf course. On June 18, 2010, Morag Bond (“Morag”)
visited the Rothland Golf Course in Akron, New York. Although the complaint
does not contain details, the Rothland Golf Course allegedly features a ramp at a
passageway that serves as an entrance and exit to the restaurant and shop on
the premises. This ramp allegedly features “a sudden and dramatic drop/step”
(Dkt. No. 1 ¶ 49) that did not announce itself through any special signage,
lighting, or other warnings. Morag reached the step without seeing it, falling down
on the ramp and sustaining multiple injuries to her right knee and leg. On March
28, 2011, Morag and her husband Nigel filed a complaint in federal court. The
complaint contained two causes of action. In the first cause of action, Morag
seeks compensation for negligence related to the step on the ramp. Important to
her argument, Morag does not seek recovery for medical expenses. In the
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second cause of action, Nigel seeks compensation for loss of consortium and
services.
Morag’s relationship to Medicare bears heavily on the pending motions to
dismiss her case. Morag is a Medicare subscriber. As a Medicare subscriber,
Morag reported her case and her primary health insurer’s payments to the MSP
system as required by 42 U.S.C. § 1395y(b)(7, 8), 42 C.F.R. § 411.25, and
associated regulations. Morag did so even though she has submitted no claims
to Medicare and has received no money from Medicare for injuries, a fact that the
United States has since confirmed. (See Dkt. No. 12 ¶ 4 (“[Medicare’s] records
show no Medicare Part A or Part B reimbursement on behalf of Morag J. Bond for
items or services on or after June 18, 2010 (the date of the alleged incident as
stated in the complaint in this matter) through the date of this declaration.”).)
Medicare requires prompt reporting of new incidents and injuries because it is a
secondary payer for medical expenses and has subrogation rights to recover
expenses that a primary insurer ought to have paid. See 42 U.S.C.
§ 1395y(b)(2)(B)(iv) (“The United States shall be subrogated (to the extent of
payment made under this subchapter for such an item or service) to any right
under this subsection of an individual or any other entity to payment with respect
to such item or service under a primary plan.”); 42 C.F.R. § 411.26(a) (“W ith
respect to services for which Medicare paid, CMS [the Center for Medicare
Services] is subrogated to any individual, provider, supplier, physician, private
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insurer, State agency, attorney, or any other entity entitled to payment by a
primary payer.”). Medicare does not assert subrogation rights in a given case
until a final award or settlement has occurred, at which point it sends a formal
recovery demand letter to the recipient of the award or settlement. Meanwhile,
however, Medicare sends a subscriber a “Rights and Responsibilities” letter as
soon as the subscriber or the subscriber’s primary insurer informs it of a new
case. Under Medicare policy, Medicare is supposed to send the subscriber a
“Conditional Payment Letter” automatically within 65 days of issuance of the
Rights and Responsibilities letter. The Conditional Payment Letter lists Medicare
payments made so far that are related to the injuries in question and can help
litigants who are trying to set up a settlement or other final award.
Although the MSP system described above appears straightforward in
design, Morag felt compelled to file her personal-injury case in federal court
because the system does not function in practice. In practice, according to
Morag, Medicare takes far longer than 65 days, sometimes years, to issue a
Conditional Payment Letter. Meanwhile, personal-injury plaintiffs who are
Medicare subscribers find themselves caught between Medicare and private
insurers who are primary payers. Even when a case settles, private insurers
refuse to issue any payments until they know whether Medicare will assert
subrogation rights and for what amount. Private insurers take this position out of
fear of being fined under 42 U.S.C. §§ 1395y(b)(7)(B)(i) and (b)(8)(E)(i), which
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punish private insurers that fail to disclose what payments they have made to
which people. At the same time, Medicare refuses to make any commitments
about asserting subrogation rights or about any amount of subrogation until
private insurers make final payment. The result of these various tensions is that
a personal-injury case like Morag’s can settle in principle but remain in
suspended animation for years while private insurers and Medicare engage in a
blinking contest. On top of these tensions, Morag’s counsel in particular takes
the position in his practice that he cannot do anything to assist Medicare
determine its subrogation rights because that would conflict with his duty to
advocate for the largest possible recovery for clients like Morag.
Morag and her counsel decided to bring their case here in an attempt to
break through all of the tensions that affect personal-injury cases like hers.
According to Morag, the United States is a necessary party to her case so long as
Medicare insists on being the sole impediment to a final resolution. By making
the United States a defendant, Morag can force Medicare to make decisions
about its subrogation rights more quickly. Morag also can avoid a delay in final
resolution of the case that runs so long that, in her view, it violates the Fifth
Amendment by depriving her of a settlement without interest or other
compensation.
Defendants, particularly the United States, believe that Morag’s approach
to Medicare subrogation is all wrong and that this Court lacks jurisdiction to
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preside over her case. Defendants argue that the underlying substance of
Morag’s case has nothing to do with the MSP system, meaning that the case
does not “arise under” any federal law for purposes of 28 U.S.C. § 1331.1
Defendants argue further that, to the extent that this case “arises under” Medicare
statutes in particular, the United States has not waived sovereign immunity as
expressed in 42 U.S.C. §§ 1395ii and 405(h).
B.
Scott Case
The Scott case concerns personal injuries allegedly sustained at a dialysis
center in Buffalo, New York. On November 3, 2010, plaintiff Sheila Scott
(“Sheila”) visited the FMS Buffalo Artificial Kidney Center at 237 Linwood Avenue
in Buffalo. W hile there, Sheila fell on a ramp located at a passageway that
serves as the entrance and exit to the premises. Sheila sustained multiple
injuries to her right knee and right shoulder as a result of the fall. On August 10,
2011, Sheila and her husband Richard filed a complaint in federal court. The
complaint contains two causes of action. In the first cause of action, Sheila
accuses defendants of negligence related to the ramp and seeks compensation
accordingly. Sheila does not seek recovery for medical expenses. In the second
cause of action, Richard seeks compensation for loss of consortium and services
related to Sheila’s injuries.
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Plaintiffs concede that diversity jurisdiction does not exist in either case.
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W ith respect to Medicare and federal jurisdiction, the parties raise the
same arguments as arose in the Bond case, and the Court will not repeat them
for the sake of brevity.2 The Court, however, will note one factual difference
between Sheila’s case and Morag’s. Medicare to date has not paid any medical
expenses to Morag but has paid at least some of Sheila’s medical bills.
III.
DISCUSSION
“A case is properly dismissed for lack of subject matter jurisdiction under
Rule 12(b)(1) when the district court lacks the statutory or constitutional power to
adjudicate it.” Makarova v. U.S., 201 F.3d 110, 113 (2d Cir. 2000) (citation
omitted). “[W ]e must accept as true all material factual allegations in the
complaint, but we are not to draw inferences from the complaint favorable to
plaintiffs. W e may consider affidavits and other materials beyond the pleadings
to resolve the jurisdictional issue, but we may not rely on conclusory or hearsay
statements contained in the affidavits.” J.S. ex rel. N.S. v. Attica Cent. Sch., 386
F.3d 107, 110 (2d Cir. 2004) (citations omitted). “A plaintiff asserting subject
matter jurisdiction has the burden of proving by a preponderance of the evidence
that it exists.” Makarova, 201 F.3d at 113 (citation omitted). Plaintiffs here have
2
Minor differences between Morag’s and Sheila’s Medicare status have
no impact on the arguments from the parties or how the Court has chosen to
address them. As the United States has explained (Dkt. No. 19 at 2 n.1), Sheila
receives benefits under Medicare Parts A and B while Morag is enrolled in a
Medicare Advantage plan receiving benefits under Medicare Parts C and D.
This difference would lead to slightly different administrative remedies for each
plaintiff in the event of a payment dispute with Medicare.
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presented complex details about the MSP system and how it interacts with
personal-injury litigation. The Court’s first task, then, is to sift through those
details and to clarify what is at stake right now in these cases. Right now,
plaintiffs have not presented any dispute about the underlying substance of their
cases. The Court does not have to resolve anything right now about negligence
and duty of care generally, or about exit ramp construction and maintenance
specifically. Stripped to the core, these cases present a single legal question:
Can the Court assert jurisdiction over an otherwise ordinary negligence case
solely because the MSP system does not operate as designed?
Finding the answer to the above question requires a brief review of the
principles of federal-question jurisdiction. “The district courts shall have original
jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the
United States.” 28 U.S.C. § 1331. W hen determining what “arising under”
means in any given context, “the question is, does a state-law claim necessarily
raise a stated federal issue, actually disputed and substantial, which a federal
forum may entertain without disturbing any congressionally approved balance of
federal and state judicial responsibilities.” Grable & Sons Metal Prods., Inc. v.
Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005).3 “In determining whether the
3
The Court is not ignoring the United States’s argument about 42 U.S.C.
§§ 1395ii and 405(h). Those statutes, however, use the same phrase “arising
under” and are more narrow in scope. Logically, if plaintiffs’ negligence claims
do not “arise under” any federal law for purposes of 28 U.S.C. § 1331 then they
necessarily do not arise under these specific statutes either.
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complaint presents a federal question, the court must examine it in accordance
with the well-pleaded complaint rule . . . . [T]his rule states that federal jurisdiction
must be found from what necessarily appears in the plaintiff’s statement of his
own claim . . . , unaided by anything alleged in anticipation of avoidance of
defenses which it is thought the defendant may interpose.” W. 14th St.
Commercial Corp. v. 5 W. 14th Owners Corp., 815 F.2d 188, 192 (2d Cir. 1987)
(second ellipsis in original) (internal quotation marks and citations omitted).
Here, plaintiffs have not presented any information that would satisfy their
burden of establishing subject-matter jurisdiction. Each complaint contains two
state-level, common-law causes of action—one for negligence and one for loss of
services. The injuries claimed allegedly arose because of defective ramp design
and maintenance, not because of the MSP system. Cf. Am. Well Works Co. v.
Layne & Bowler Co., 241 U.S. 257, 260 (1916) (“A suit arises under the law that
creates the cause of action.”). If these cases proceeded to trial then jurors would
vote whether plaintiffs established, by a preponderance of the evidence, that
defendants created or maintained defective ramps in a way that breached a duty
of care and that proximately caused damages. The jurors would not need to look
at any Medicare statute when reaching their verdicts and would not need to pay
any attention to how the MSP system operates. In fact, unless an exception
applied, Federal Rule of Evidence 411 would forbid the parties from discussing
insurance coverage in front of the jurors. See Fed. R. Evid. 411 (“Evidence that a
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person was or was not insured against liability is not admissible upon the issue
whether the person acted negligently or otherwise wrongfully.”). Plaintiffs’
accusations of negligence and claims of injuries thus do not arise under any
federal law and do not confer subject-matter jurisdiction on this Court. Cf. Merrell
Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 809–10 (1986) (“This case does
not pose a federal question of the first kind; respondents do not allege that
federal law creates any of the causes of action that they have asserted. This
case thus poses what Justice Frankfurter called the ‘litigation-provoking problem,’
the presence of a federal issue in a state-created cause of action.”) (citation
omitted).
W ithout subject-matter jurisdiction, the Court will dismiss these cases.
Plaintiffs had asked in the alternative for a transfer to state court under 28 U.S.C.
1406(a). Section 1406(a), however, is unavailable when the Court lacks subjectmatter jurisdiction. See Atl. Ship Rigging Co. v. McLellan, 288 F.2d 589, 591 (3d
Cir. 1961) (“W here, as here, the court lacks jurisdiction over the subject matter,
which is a more fundamental defect than an absence of in personam jurisdiction,
and one which precludes it from acting at all, a fortiori a court lacks power to
transfer.”); Friedman v. Revenue Mgmt. of N.Y., Inc., 839 F. Supp. 203, 206–07
(S.D.N.Y. 1993) (“Because I ruled that federal courts do not have subject matter
jurisdiction over the Dissolution Counts, part of the Complaint must proceed, if at
all, in the New York State Courts.”) (citation omitted). Another provision of the
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Judiciary Code, 28 U.S.C. § 1631, does allow transfers in the interest of justice to
cure jurisdictional defects. “Section 1631 does not, however, provide for the
transfer of this action to a state court. Both the statutory language and the
legislative history show that this provision was directed to the federal court
system.” McLaughlin v. Arco Polymers, Inc., 721 F.2d 426, 429 (3d Cir. 1983).
In concluding that dismissal is necessary, the Court understands plaintiffs’
frustration that the MSP system may delay closure and final payment in their
cases for months or years. Taking at face value his representations about the
difficulties of navigating the MSP system, plaintiffs’ counsel has described a
bureaucracy that not only delays justice for his injured clients but also has
enough size and inertia not to care about those delays. W ithout taking any
positions on these issues, counsel may yet have a federal remedy for his
frustration through mandamus proceedings or the political process. See, e.g.,
Strengthening Medicare and Repaying Taxpayers Act of 2011, H.R. 1063, 112th
Cong. § 2 (Mar. 14, 2011) (proposing a new clause in 42 U.S.C. § 1395y(b)(2)(B)
that would waive Medicare subrogation rights automatically if Medicare took too
long to furnish a conditional payment letter). This Decision and Order means only
that a complaint filed and served because of a defective ramp cannot act as the
vehicle for a tangential policy discussion about Medicare subrogation.
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IV.
CONCLUSION
For all the foregoing reasons, the Court rules as follows:
1)
In Case No. 11-CV-275, the Court grants both motions to dismiss
(Dkt. Nos. 9, 14) and dismisses the complaint in its entirety for lack of subjectmatter jurisdiction. The Clerk of the Court shall close this case.
2)
In Case No. 11-CV-593, the Court grants all three motions to dismiss
(Dkt. Nos. 11, 18, 26) and dismisses the complaint in its entirety for lack of
subject-matter jurisdiction. The Clerk of the Court shall close this case also.
SO ORDERED.
s/ Richard J. Arcara
HONORABLE RICHARD J. ARCARA
UNITED STATES DISTRICT JUDGE
DATED:December 7, 2011
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