Halifax Regional Medical Center v. UnitedHealthCare of North Carolina, Inc. et al

Filing 27

ORDER granting 18 Motion to Remand. Defendants' motion to dismiss remains pending, and the Halifax Superior Court can address that motion on remand. Signed by District Judge James C. Dever III on 2/16/2021. (Sellers, N.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTII CAROLINA
EASTERN DMSION
No. 4:20-CV-142-D
HALIFAX REGIONAL MEDICAL
CENTER,
Plaintiff,

v.
UNITEDHEALTIICAREOFNORTH
CAROLINA, INC., and
UNITEDHEALTHCARE, INC.,
Defendants.

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ORDER

On June 15, 2020, Halifax Regional Medical Center, Inc. d/b/a Vidant North Hospital
(''Vidant North") filed a complaint in Halifax County Superior Court against United Healthcare of
North Carolina and UnitedHealthcare, Inc. (collectively, ''United" or "defendants"). See [D.E. 1-1 ].
Vidant North seeks declaratory, injunctive, and monetary relief and alleges claims under North
Carolina law for breach of fiduciary duty, breach of the duty of good faith and fair dealing, and
unjustenrichment/quantummeruit. See id. ff 52-75. The claims concern.money that VidantNorth
claims that United owes for services rendered. See id. ff 12-51. On July 22, 2020, United jointly
andtimelyremovedtheactiontothiscourtunder28U.S.C. § 1422(a)(l) [D.E.1]. OnJuly29,2020,.
United moved to dismiss for lack of subject-matter jurisdiction and failure to state a claim [D.E. 8]
and filed a brief in support [D.E. 9]. On September 8, 2020, Vidant North responded in opposition
[D.E. 17]. That same day, Vidant North moved to remand the action to state court [D.E. 18], filed
a memorandum in support [D.E. 18-1], and moved to stay consideration of United's motion to
dismiss [D.E. 19]. On October 12, 2020, United replied to Vidant North's response to the motion

Case 4:20-cv-00142-D Document 27 Filed 02/16/21 Page 1 of 12

to dismiss [D.E. 22]. On October 19, 2020, United responded in opposition to Vidant North's
motion to remand [D.E. 23] and motion to stay [D.E. 24]. As explained below, because United
improperly removed this action under the federal officer removal statute (28 f!.S.C. § 1422(a)(l)),
the court grants Vidant North's motion to remand.
I.

Vidant North owns and operates a non-profit hospital in Roanoke Rapids, North Carolina
See Compl. [D.E. 1-1]

,r 1.

United provides health insurance, administration, and benefits to

policyholders and plan participants pursuant to various healthcare benefit plans and insurance
policies, including Medicare Advantage ("MA") plans. See id. ,r 4.
The Medicare Act, 42 U.S.C. § 1395, et. ~ , established federally-subsidized health
insurance for the elderly and disabled. Medicare i~ adminiinered through the Centers for Medicare
and Medicaid Services ("CMS"). See Dq,artment of Health and Human Services-Centers for
Medicare and Medicaid Services, 1 West's Fed. Adm.in. Prac. § 165 (Jul. 2020 ed.). Medicare Part
A generally covers inpatient hospital care, skilled nursing facility care, nursing home care, hospice
care, and home health care, and there is a fee-schedule amount for these services or supplies. See
42 U.S.C. § 1395c, et. ~ Medicare Part B generally covers services or supplies that are needed
to diagnose or treat medical conditions or to prevent illness or detect it at an early stage, and there
is a fee schedule amount for these services or supplies. See 42 U.S.C. § 1395j, et. ~ Medicare
Part C generally allows Medicare beneficiaries to opt out of traditional Medicare coverage and
instead obtain benefits through private insurers who contract with CMS to provide MA plans. See
42 U.S.C. § 1395w-21, et. ~
Generally, Medicare Advantage Organizations ("MAO") contract with CMS. See 42 U.S.C.
§ 1395w-21;42C.F.R. §422.503. CMSmakesmonthlypre-beneficiarypaymentstoMAOs, which
2

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serve Medicare beneficiaries. See 42 U.S.C. §§ 139Sw-23, -2S(b). MAOs may "select the [health
care] providers from whom the benefits under the plan are provided." Id. § 139Sw-22(d)(l). Thus,
MAOs ofteri. contract with hospitals and physicians. Id. § 139Sw-22(a)(2)(A). In order to cover all
medicare benefits, MA plans often include services that non-contract providers furnish. See id.; 42
C.F.R. § 422-lO0(b). Payment to non-contract providers must be "equal to at least ... the total
dollar amount of payment for such items and services as would otherwise be authorized under parts
AandB." 42 U.S.C. § 139Sw-22(a)(2)(A)(i}-{ii). Non-contract providers ''must accept, as payment
in full, the amounts that the[y] could collect ifthe beneficiary were enrolled in [Parts A and B]." 42
C.F.R. § 422-214(a)(l).
United contracts with CMS to serve as an MAO and offers various MA plans. See Compl.

,r 13.

Patients treated at Vidant North include Medicare beneficiaries who have enrolled in one of

'several United MA Plans. Id.

,r 14.

MAOs can enter into voluntary contracts with healthcare

providers to establish negotiated terms and rates under which MAOs reimburse such "in-network"
providers for covered healthcare services provided to enrollees. See id. ,r 15. With respect to the
claims at issue in this case, no contract existed between Vidant North and United. Rather, with
respect to such claims, Vidant North was "out-of-network'' under the United MA plans. See id.
"This action stems from a payment dispute between United and Vidant North as to the
amount of payment Vidant NorthJs entitled to an Out-of-Network provider under the Medicare
program rules and/or United's MAO contract with CMS." Id. ,r 17. "There is no dispute as to
whether the services were covered by Medicare." Id. "[I]ndeed, United paid a portion ofthe claims
at issue." Id. "The dispute is simply over the amount of payment that is owed to Vidant North for
those claims." Id.
Under the Social Security Act and by the terms of their MAO contracts with CMS, MAOs
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must reimburse out-of-network providers for allowable bad debt. See id. ff 18--24. Vidant North
alleges that United failed to reimburse Vidant North for any of its allowable bad debt. See id. ff
25-26. "Since 2017, Vidant North has incurred $1,235,293 in allowable bad debt related to United
MA enrollment." Id. ,r 25. Vidant North also alleges that United underpaid Vidant North for covered
services provided to dual eligible beneficiaries. See id. ff 27-47. Vidant North contends that these
amounts are "at least $802,490." Id. ,r 49. In this action, Vidant North seeks to recover the money
that Vidant North claims United owes it. See id. ff 52-75.
Il.

"[F]ederal courts, unlike most state courts, are courts of limited jurisdiction, created by
Congress with specified jurisdictional requirements and limitations." Strawn v. AT & T Mobiliey
LLC, 530 F.3d 293,296 (4th Cir. 2008); see Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375,377 (1994). Removal from state court is proper only if the federal district court has original
jurisdiction over the removed action. See 28 U.S.C. § 1441(a); Lontz v.Thar;p. 413 F.3d 435,439
(4th Cir. 2005). If the federal court lacks subject-matter jurisdiction, it must remand the action to
state court. See 28 U.S.C. § 1447(c).
The federal officer removal statute, 28 U.S.C. § 1442, provides:
(a) A civil action or criminal prosecution that is commenced in a State court and that
is against or directed to any of the following may be removed by them to the district
court of the United States for the district and division embracing the place wherein
it is pending:
(1) the United States or any agency thereof or any officer (or any person acting
under that officer) ofthe United States or of any agency thereof, in an official or
individual capacity, for or relating to any act under color of such office or on
account of any right, title or authority claimed under any Act of Congress for the
apprehension or punishment of criminals or the collection of revenue.
28 U.S.C. § 1442(a); see Mayor ofBalt. v. B.P. P.L.C., 952 F.3d 452, 461--62 (4th Cir. 2020), cert.
4

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granmg, 141 S. Ct. 222 (2020); Northrop Grumman Tech. Servs., Inc. v. DynCom Int'l LLC, 865
F.3d 181, 186 (4th Cir. 2017); Sa:wyerv. Foster Wheeler LLC, 860 F.3d 249,254 (4th Cir. 2017).
Section 1442 protects officers and agents of the federal government from state courts that may be
hostile to federal agents, federal law, or the actions of enforcing federal law. See Watson v. Philip
Morris Cos., 551 U.S. 142, 150 (2009); Willingham v. Morg~ 395 U.S. 402, 406--07 (1969);
Maryland v. Soper,270U.S. 9, 32(1926);MayorofBalt., 952F.3dat461; Sa:wyer, 860F.3dat254.
Additionally, section can 1442 provide "a federal forum for a federal defense," particularly an
official immunity defense. Ripley v. Foster Wheeler LLC, 841 F.3d 207, 210 (4th Cir. 2016); see
Watson, 551 U.S. at 150-51; WHHngham, 395 U.S. at 406--07; Mayor ofBalt., 952 F.3d at 461;
Sa:wyer, 860 F.3d at 254.
A private defendant in a state court action may seek removal under section 1442. See, e.g.,
Watson, 551 U.S. at 147;MayorofBalt., 952F.3dat461-62; Sa:wyer, 860F.3dat254. The private
defendant must show: "(1) that it acted under a federal officer; (2) that it has a colorable federal
defense; and (3) that the charged conduct was carried out for or in relation to the asserted official
authority." Sa:wyer, 860 F.3d at 254 (citations and quotations omitted); see Watson, 551 U.S. at
151-52; Jefferson Cnty. v. Acker, 527 U.S. 423,431 (1999); Mesa v. Californiil, 489 U.S. 121,
128-29 (1989); Willingham, 395 U.S. at 406--07; Davis v. South Carog 107 U.S. 597, 600-01
(1883); Mayor ofBalt., 952 F.3d at 461; Northrop Grumman, 865 F.3d at 186; Ripley, 841 F.3d at
209--10. Courts must construe section 1442 ''to give full effect to the purposes" for which Congress
enacted it. Colorado v. Symes, 286 U.S. 510, 517 (1932). However, section 1442' s "broad language
is not limitless." Watson, 551 U.S. at 147; Mayor ofBalt., 952 F.3d at 462-71 . Whether a party
properly removed an action under section 1442 is a "mixed question oflaw and fact." Int'l Primate
Prot. League v. Adm'rs of Tulane Educ. Fund, 500 U.S. 72, 89 (1991).
5
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In WatsoD, the Court addressed the limits of section 1442 concerning a private party "acting

under'' a federal officer. See WatsoD, 551 U.S. at 145. There, two individual plaintiffs sued a
tobacco company for unfair and deceptive business 4ealings based on the tobacco company's claim
that its cigarettes are "light." See id. at 146. The tobacco company removed the action to federal
court under section 1442, and the district court declined to remand. See id. In declining to remand,
the district court held that, because the tobacco company followed a government agency-imposed
method oftesting its cigarettes, the company was "acting under'' a government agency. See id. The
district court then certified the question of whether the tobacco company was "acting under'' a
government agency to the United States Court of Appeals for the Eighth Circuit which answered in
the affirmative. See id. at 147. In addition to the reasons that the district court cited, the Eighth
Circuit also cited the government agency's "detailed supervision" oftesting cigarettes. See id. The
Eighth Circuit then compared the factual circumstances facing the tobacco company to cases where
courts construed section 1442 to permit government contractors "heavily supervised" by government
agencies to remove actions under section 1442. Id.
The Supreme Court reversed. See id. The Court recognized that ''the words 'acting under'
are broad," but subject to limits found in the ''text's language, context, history, and purposes." Id.
Although Congress revised section 1442 on numerous occasions, the revisions did not affect the
scope of the phrase "acting under." See id. at 147-49. The Court's precedents recognize removal
for private individuals ''who lawfully assist the federal officer in the performance of his official
duty," or ''if [the private individual] w[as] authorized to act with or for federal officers or agents in
affirmatively executing duties under federal law." Id. at 151 (alteration and quotations omitted); see
City of Greenwood v. Peacock. 384 U.S. 808,824 (1966); Davis, 107 U.S; at 600. As for section
1442's text, the word "under ... involves acting in a certain capacity, considered in relation to one
6

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holding a superior position or office." Watson, 551 U.S. at 151 (quotation omitted). "Acting under''
a federal officer ''typically involves subjection, guidance, or control" and "an effort to assist, or to
help carry out, the duties or tasks of the federal superior." Id. at 151-52 (alteration, emphasis, and
quotation omitted). A private individual's mere compliance with a federal law, rule, or regulation
is insufficient under section 1442. See id. at 152; Mayor ofBalt., 952 F.3d at 462.
In Watson, the Court held that the cigarette company did not "act under'' a government

agency when the tobacco company complied with cigarette-related regulations. See Watson, 551
U.S. at 145. Detailed regulatory schemes, without more, only require compliance with the law, not
action under a federal officer. See id. at 153. The cigarette company lacked a contractual, monetary,
employment, or agency relationship with the government. See id. at 153-57. The cigarette company
also lacked a "special relationship" to the government where the government agency delegated its
authority to the cigarette company. See id.; cf. Isaacson v. Dow Chemical, 517 F.3d 129, 137 (2d
Cir. 2008).
In Isaacson, the United States Court ofAppeals for the Second Circuit analyzed Watson and

held that a "special relationship" existed when a defense contractor contracted with the government
to produce a product (i.e., Agent Orange), the contract delegated authority from the government to
the defense contractor, the defense contractor complied with the government contract, and the
government would have had to produce the product on its own absent the defense contractor's
efforts. See Isaacson, 517 F.3d at 137; cf. Watson, 551 U.S. at 153-54; Winters v. Diamond
Shamrock Chem. Co., 149 F.3d 387, 399 (5th Cir. 1998). The Fourth Circuit and other circuits
follow the principles in Isaacson. See Mayor ofBalt., 952 F.3d at 462--63; Sawyer, 860 F.3d at 255;
Hurley v. CBS Corp., 648 F. App'x 299, 303--04 (4th Cir. 2016) (per curiam) (unpublished); see also
Ruppel v. CBS Corp.• 701 F.3d 1176, 1181 (7th Cir. 2012); Bennettv. MIS Corp. 607 F.3d 1076,
7

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1088 (6th Cir. 2010); Genereux v. Am. Bezyllia Corp., 577 F.3d 350, 357 n.9 (1st Cir. 2009).
Courts disagree about whether MAOs "act under" CMS for purposes of section 1442. The
United States Court of Appeals for the Sixth Circuit is the only federal circuit court to address the
issue and held that MAOs do not act under CMS for purposes of section 1442. See Ohio State
Chiropractic Ass'n v. Humana Health Plan Inc., 647 F. App'x 619, 622-23 (6th Cir. 2016)
(unpublished). The Sixth Circuit reasoned that CMS does not delegate legal authority to MAOs or
authorize MAOs to act on its behalf. See id. at 622-23. Moreover, MAOs are not "closely
supervised or controlled by CMS," as evidenced by ''their autonomy to utilize innovations of the
private market." Id. at 623 (alteration and quotations omitted). Furthermore, MAOs do not ''perform
a job that the government would have to perform itself if it did not contract with private firms[.]"
Id. at 623-24. "If no health insurer chose to contract with CMS as an MAO, it is doubtful that the
government would get into the business of offering its own MA plans . . . . [I]t would fall back on
traditional-fee-for service Medicare-which it must provide regardless." Id. at 624. The fact that
an MAO is a government contractor does not mean it automatically gains federal officer removal
jurisdiction. See id. Several district courts have followed the reasoning of Ohio State Chiropractic.
See Wise v. United Healthcare of Fla., Inc., 387 F. Supp. 3d 1382, 138~7 (M.D. Fla. 2019);
Shalaby v. Heritage Physician Network, 364 F. Supp. 3d 693, 697 (S.D. Tex. 2019); Premier
Inpatient Partners, LLC v. Aetna Health & Life Ins. Co., 362 F. Supp. 3d 1217, 1225 (M.D. Fla.
2019);Assaelv.PreferredHealthcarePartners,Inc.,No.0:17-cv-62584-KMM,2018WL6529530,
at *4-6 (S.D. Fla. Feb. 23, 2018) (unpublished); Morrison v. Humana, Inc., No. 3:16-CV-00598GNS, 2017 WL 2312476, at *3 (W.D. Ky. May 26, 2017) (unpublished).
In contrast, several district courts have held that MAOs act under CMS for purposes of
section 1442. In particular, the United States District Court for the Northern District of West
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Virginia declined to follow Ohio State Chiropractic and held that the Sixth Circuit construed "acting
under'' too narrowly. See Body & Mind Acupuncture v. Humana Health Plan, Inc., No. 1: 16CV21 l,
2017 WL 653270, at *5 (N.D. W. Va. Feb. 16, 2017) (unpublished). In framing the "acting under''
and "causal nexus" issues, the Body & Mind Acupuncture court noted that the Fourth Circuit has
articulated these requirements as distinct elements. See id. at *4 (citing Ripley. 841 F.3d at 209--10).
However, the Body & Mind Acupuncture court then cited a Second Circuit case that pre-dated the
Supreme Court's 2009 decision in Watson and stated that the "acting under'' and "causal nexus"
requirements ''tend to merge into a single inquiry: that is whether 'the acts that form the basis for
the state ... suit were performed pursuant to an officer's direct orders or to comprehensive and
detailed regulations." Id. (quoting Jnre Methyl Terimy Bu1yl Ether Prods. Liab. Litig.• 488 F.3d 112,
124 (2d Cir. 2007) (quotation omitted)). The Body & Mind Acupuncture court then discussed
Watson. See id.· at *5. The Body & Mind Acupuncture court noted that MAOs "help CMS fulfill
a basic government task" by "administer[ing] Medicare benefits through the private market." Id.
(alterations and quotations omitted). Otherwise, CMS would have ''to administer Medicare benefits
through Parts A and B." Id. The Body & Mind Acupuncture court concluded that an MAO's .
activities "involve an effort to assist, or to help carry out, the duties or tasks of the federal superior
in a manner much more significant than simply complying with the law to which it is subject." Id.
(emphasis and quotations omitted). As such, ''this responsibility is more akin to a delegation of
CMS administrative obligations than a regulation of otherwise private insurance." Id. According
to the Body & Mind Acupuncture court, ''the detailed regulations governing MAOs ... further
underscore that MAOs are under CMS's 'subjection, guidance, and control."' Id. Several district
courts have adopted the reasoning in Body & Mind Acupuncture. See MHA, LLC v. Amerigroup
Cor.p., No. 2:18-cv-16042 (KM)(JAD), 2021 WL 226110, at *5-7 (D.N.J. Jan. 21, 2021)
9

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(unpublished); Escarga v. Verdugo Vista Operating Co., No. CV 19-9478-GW-FFMx, 2020 WL
1703181, at *6-7 (C.D. Cal. Apr. 8, 2020) (unpublished); Baptist Hosp. of Miami, Inc. v. Medica
Healthcare Plans, Inc., No. 18-CV-2S460-UU, 2019 WL 191S386, at *2 (S.D. Fla. Mar. 21, 2019)
(unpublished); Gordy v. CareMore Health Plm No. SACV 19-00048NS (JDEx), 2019 WL
1237421, at *3 (C.D. Cal. Mar. 18, 2019) (unpublished); Hepstall v. Humana Health Plan, Inc., No.
18-0163-CG-MU, 2018 WL 4677871, at *2-S (S.D. Ala. July 3, 2018) (unpublished)~ and
recommendation adopted by 2018 WL 492767, at *1 (S.D. Ala. Oct. 9, 2018) (unpublished);
Inchauspe v. ScanHealthPlm No. 2:17 CV-06011-CAS (JCx), 2018 WL S66790, at *S (C.D. Cal.
Jan. 23, 2018) (unpublished); accord Beaumont Foot Specialists, Inc. v. United Healthcare of Tex.,
Inc.,No.1:1S-cv-216,201SWL92S7026,at*4-S(E.D. Tex.Dec.14,201S)(unpublished);Assocs.
Rehab. Recovery, Inc. v. Humana Med. Plan, Inc., 76 F. Supp. 3d 1388, 1391 (S.D. Fla. 2014);
Einhom v. CarePlus Health Plans, Inc., 43 F. Supp. 3d 1268, 1270 (S.D. Fla. 2014).
Vidant North contends that this court lacks jurisdiction under section 1442 because United
did not "act under" the direction of a federal officer (i.e., CMS). See [D.E. 18-1] S-8. In support,
Vidant North correctly notes that United does not act under a federal officer simply by being a
government contractor. See id. at 6; Watson, SS 1 U.S. at 1Sl. Rather, in the context of government
contractor, ''the relationship between the contractor and the Government [must be] an unusually
close one involving detailed regulation, monitoring, or supervision." Watson, S51 U.S. at 1S3.
Moreover, in Watson, the Court expressly declined to address ''whether and when particular
circumstances may enable private contractors to invoke [section 1442]." Id. at 1S4. Vidant North
also cites Ohio State Chiropractic and argues that United's delegated authority did not rise to the

10
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necessary level of control to "act under" the direction of CMS. See id. at 7-8. 1
In response, United contends that section 1442 provides federal jurisdiction. See [D.E. 23]
3-13. Citing Body & Mind Acupuncture, United argues that MAOs act under CMS's "subjection,
guidance, and control in administering MA plans." Id. at 6. United also argues that the Sixth Circuit
wrongly decided Ohio State Chiropractic. See id. at 7-9.
The court has reviewed the relevant cases, statutes, and regulations. The Sixth Circuit's
analysis in Ohio State Chiropractic is more persuasive that the analysis in Body & Mind
Acupuncture. Thus, the court concludes that United did not act under CMS for purposes of section
1442. Moreover, the court also agrees with those courts that have analyzed section 1442 and
distinguished between ''payment dispute" cases and "coverage dispute" cases. Compare Baptist
Hosp., 2019 WL 1915386, at •2 withAssocs. Rehab. Recoveey, 76 F. Supp. 3d at 1390; Einhorn,
43 F. Supp. 3d at 1270. "In payment dispute cases, the parties agree that there is Medicare coverage,
but disagree as to the reimbursement rate. In coverage dispute cases, the parties disagree about
whether Medicare provides coverage at all." Baptist Hosp.• 2019 WL 1915386, at •2. "Payment
disputes are simple state-law contract disputes, but coverage disputes invoke the Federal Officer
Statute because in determining whether Medicare provides coverage, the MAO is interpreting and
applying the Medicare rµJ.es and regulations pursuant to authority delegated to it by CMS." Id.
Vidant North's dispute with United is a payment dispute, not a coverage dispute. See Compl. ,r 17;
see also id. ,r,r 12-75.

1

Vidant North cites several other cases in support, but they are distinguishable. For example,
Cabalce v. Thomas E. Blanchard & Assocs., Inc., 797 F.3d 720 (9th Cir. 2015), does not concern
Medicare. Moreover, although Zanecki v. Health All. Plan of Detroit, 577 F. App'x 394, 397-98
(6th Cir. 2014) (unpublished), concerns MAOs, Zanecki is distinguishable because there the Sixth
Circuit examined whether an MAO was an agent or instrument for purposes of vicarious liability
under the Federal Tort Claims Act.
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m.
Ins~ court GRANTS plaintiff's motion to remand [D.E. 18] and REMANDS this action
to Halifax County Superior Court. Defendants' motion to dismiss remains pending, and the Halifax

Superior Court can address that motion on remand.
SO ORDERED. This ..1k day of February 2021.

1Xilish~m

United States District Judge

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