Commissioner of Insurance Puerto Rico, as Liquidator of Constellation Health LLC v. United States of America, et al

Filing 21

OPINION AND ORDER: For the reasons set forth in this Opinion and Order, the 4 United State's Motion to Dismiss is DENIED, and the case is REMANDED to the Court of First Instance, Superior Court of San Juan. Judgment shall be entered accordingly. Signed by Judge Raul M. Arias-Marxuach on 6/5/2024. (mrr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
COMMISSIONER OF INSURANCE OF
PUERTO RICO, AS THE LIQUIDATOR
OF CONSTELLATION HEALTH, LLC,
Plaintiff,

CIVIL NO. 23-1517 (RAM)

v.
UNITED
AL.,

STATES

OF

AMERICA,

ET

Defendant.
OPINION AND ORDER
RAÚL M. ARIAS-MARXUACH, United States District Judge
Pending

before

the

Court

is

Defendant

United

States

of

America’s 1 (“Defendant” or the “United States”) Motion to Dismiss.
(Docket No. 4). The United States seeks dismissal of the Motion
Requesting Declaratory Judgment that was brought by Plaintiff
Commissioner

of

Insurance

of

Puerto

Rico,

as

Liquidator

of

Constellation Health, LLC (“Plaintiff” or the “Liquidator”). For
the following reasons, the Motion to Dismiss is DENIED, and the
case is remanded to the Court of First Instance, Superior Court of
San Juan.

Specifically, the defendants are the United States; Merrick B. Garland, in
his official capacity as Attorney General of the United States; the United
States Department of Health and Human Services (“HHS”); Xavier Becerra, in his
official capacity as Secretary of HHS; the Centers for Medicare & Medicaid
Services (“CMS”), a component of HHS; and Chiquita Brooks-LaSure, in her
official capacity as Administrator of CMS. The parties refer to the defendants
collectively as the United States, and the Court adopts that nomenclature here.

1

Civil No. 23-1517 (RAM)

2
I.

BACKGROUND

Constellation Health, LLC (“Constellation”) is an insurance
company that contracted with the Centers for Medicare & Medicaid
Services (“CMS”) as a plan sponsor to offer Medicare Part D
policies to Medicare beneficiaries. On April 30, 2019, Plaintiff
requested an order authorizing the liquidation of Constellation
because

it

was

Commonwealth

insolvent

of

(“Commonwealth

Puerto

Court”).

from

the

Rico,
The

Court

Superior

of

First

Court

Commonwealth

of

Court

Instance,
San

granted

Juan
the

Liquidator’s request, issuing a provisional liquidation order on
June 7, 2019 and a permanent liquidation order on June 25, 2019.
On

June

27,

2019,

CMS

notified

Constellation

and

the

Liquidator that Constellation’s three Medicare Part D contracts
would be terminated on June 30, 2019. After conducting a financial
reconciliation, CMS notified the Liquidator on August 27, 2021
that Constellation owes CMS approximately $8.8 million in advance
payments that Constellation received in 2018 and 2019.
On August 28, 2023, Plaintiff filed its Motion Requesting
Declaratory

Judgment

in

Commonwealth

Court.

The

Liquidator

requested an order requiring the United States to collect the $8.8
million

in

advance

payments

in

the

liquidation

proceeding,

pursuant to Puerto Rico law. Specifically, Plaintiff contends that
(1) the Commonwealth Court is the only court with jurisdiction to

Civil No. 23-1517 (RAM)

3

hear disputes about Constellation’s liquidation; (2) under Puerto
Rico law, the United States is time-barred from filing claims; and
(3) the federal Priority Statute, 31 U.S.C. § 3713, which requires
priority payment to the United States when a debtor is insolvent
and under certain other conditions, is reverse preempted.
On December 13, 2023, Defendant timely removed only the Motion
Requesting Declaratory Judgment 2 to federal court pursuant to 28
U.S.C. § 1442(a), which authorizes the removal of civil actions
commenced in state court that are against or directed to the United
States, any agency thereof, or any officer of any agency thereof.
(Docket No. 1).
One week later, the United States filed the instant Motion to
Dismiss. (Docket No. 4). Defendant seeks dismissal of the Motion
Requesting

Declaratory

jurisdiction

under

the

Judgment

for

lack

of

derivative-jurisdiction

subject

matter

doctrine.

It

contends that, because the United States did not waive sovereign
immunity in Commonwealth Court, that tribunal lacked jurisdiction
over the Defendant. Accordingly, since this Court’s jurisdiction
is

derivative

of

that

of

the

Commonwealth

Court,

the

Motion

Requesting Declaratory Judgment must be dismissed for want of
proper jurisdiction.

2

The remainder of the liquidation proceeding is pending in Commonwealth Court.

Civil No. 23-1517 (RAM)

4

In its Opposition and Motion to Remand, Plaintiff avers that
dismissal would be improper because the McCarran-Ferguson Act, 15
U.S.C. § 1011 et seq., provides an exception to the general rule
of sovereign immunity when the state regulation at issue involves
the “business of insurance.” (Docket No. 8 ¶ 9). Further, the
Liquidator

seeks

a

remand

to

Commonwealth

Court. 3

Id.

¶

20.

Defendant filed a Reply, and Plaintiff filed a Sur-Reply. (Docket
Nos. 11 and 14, respectively).
II.

LEGAL STANDARD FOR REMOVAL UNDER § 1442

The federal officer removal statute, 28 U.S.C. § 1442, permits
“[t]he United States or any agency thereof or any officer” of those
entities to remove a “civil action . . . that is commenced in a
State court and that is against or directed to” them. 28 U.S.C.
§ 1442(a)(1). The general rule when considering the propriety of
removals pursuant to 28 U.S.C. § 1442(a)(1) is “that a suit against
a government officer in his or her official capacity is a suit
against the agency.” Am. Policyholders Ins. Co. v. Nyacol Prod.,
Inc., 989 F.2d 1256, 1260 (1st Cir. 1993). As relevant here, the
removing party may remove “any proceeding (whether or not ancillary
3

Following the filing of Defendant’s Reply and Plaintiff’s Sur-Reply, the Court
ordered additional briefing regarding whether the Administrative Procedure Act
(“APA”), 5 U.S.C. § 702, waived sovereign immunity. (Docket Nos. 11, 14, and
15). The United States filed a memorandum claiming that section 702 of the APA
only waives actions first brought in federal court. (Docket No. 16 at 1).
Plaintiff likewise conceded that section 702 of the APA did not apply to the
instant case. (Docket No. 19 ¶ 6).

Civil No. 23-1517 (RAM)

5

to another proceeding) to the extent that in such proceeding a
judicial order . . . is sought or issued.” 28 U.S.C. § 1442(d)(1).
Further, the term “State court” includes the Commonwealth Court.
See id. § 1442(d)(6).
The federal officer removal statute is “exceptional” in that
it permits removal of suits “if the defense depends on federal
law.” Jefferson Cty., Ala. v. Acker, 527 U.S. 423, 431 (1999). The
removing party bears the burden of establishing that removal is
proper. See Moore v. Elec. Boat Corp., 25 F.4th 30, 34 (1st Cir.
2022). In contrast with the “general removal provision, which is
strictly construed in favor of remand, § 1442(a)(1) is broadly
construed in favor of removal.” New Hampshire v. 3M Co., 665 F.
Supp. 3d 215, 226 (D.N.H. 2023) (emphasis in original) (citing
Watson v. Philip Morris Cos. Inc., 551 U.S. 142, 147-48 (2007)).
The United States bears the burden of establishing that its
removal of the instant action to federal court is proper. See
Moore, 25 F.4th at 34. As Defendant notes, Plaintiff does not argue
that removal pursuant to 28 U.S.C. § 1442 was improper in the first
instance in its Opposition and Motion to Remand. See (Docket Nos.
8 and 11 at 3 n.5). Rather, Plaintiff raised for the first time in
its

Sur-Reply

its

contention

that

the

matter

was

improperly

removed. (Docket No. 14 ¶ 8). It is clear that “a party waives any
argument raised for the first time in a reply brief.” González

Civil No. 23-1517 (RAM)

6

Cantón v. Mad Ruk Ent., Inc., 2023 WL 4546545, at *9 (D.P.R. 2023)
(collecting cases). Moreover, Plaintiff’s Opposition and Motion to
Remand and its Sur-Reply both suffer from a dearth of discussion
about the propriety of removal and the necessity of remand in this
case. They accordingly also lack adequate citations and supporting
authorities as required by Local Rule 7(b). See L. Civ. R. 7(b).
Even if Plaintiff had not waived its argument that removal
was improper, the Court finds that the United States would have
met its burden to establish removal was not improvident. First, a
motion for declaratory relief is a civil action within the meaning
of section 1442(d)(1). Hammer v. United States Dep’t of Health &
Hum. Servs., 905 F.3d 517, 527 (7th Cir. 2018) (involving removal
of declaratory action from insurance liquidation proceedings by
the

United

States

Plaintiff’s

Motion

and

concluding

Requesting

that

removal

Declaratory

was

Judgment

proper).
is

also

“‘against or directed’ to [Defendant] within the meaning of §
1442.” Id. Finally, the United States has also asserted a colorable
federal defense to the suit, a burden that is “low.” See Moore, 25
F.4th at 37 (referring to the district court order in that case).
So long as the federal defense is not “immaterial and made solely
for the purpose of obtaining jurisdiction or wholly insubstantial
and frivolous,” it is colorable. Id. (citations and internal
quotation marks omitted).

Civil No. 23-1517 (RAM)

7

In the instant case, Defendant invoked the sovereign immunity
doctrine, among other federal defenses, in its Notice of Removal.
See (Docket No. 1 ¶ 8). Such an invocation may satisfy the
requirement of asserting a colorable federal defense. See Hammer,
905 F.3d at 528; Moore, 25 F.4th at 37-38 (regarding derivative
sovereign

immunity

defense).

As

discussed

further

below,

the

United States’ sovereign immunity argument is far from immaterial,
insubstantial,

or

frivolous.

Given

that

the

federal

officer

removal statute is to be broadly construed in favor of removal,
the removal to federal court was not improvident.
III. ANALYSIS
A. The Court lacks subject matter jurisdiction
i.

The Commonwealth Court had no jurisdiction because
there was no waiver of sovereign immunity

“It is well settled that the United States, as sovereign, may
not be sued without its consent.” Murphy, 45 F.3d at 522 (citing
United States v. Dalm, 494 U.S. 596, 608 (1990)). The doctrine of
sovereign immunity bars suits against the United States, its
agencies, and—in certain proper cases—federal officers acting in
their official capacities. Kozera v. Spirito, 723 F.2d 1003, 1007
(1st

Cir.

1983).

A

waiver

of

sovereign

immunity

must

be

unequivocally expressed by Congress and cannot be implied. United
States v. Mitchell, 445 U.S. 535, 538 (1980). “The standard for

Civil No. 23-1517 (RAM)

8

finding a waiver is quite stringent.” In re Rivera Torres, 432
F.3d

20,

23

(1st

Cir.

2005).

Moreover,

statutes

that

waive

sovereign immunity “should be strictly construed in favor of the
United

States.”

Murphy,

45

F.3d

at

522

(citations

omitted).

Accordingly, the Supreme Court has found that a clear waiver of
sovereign immunity in only two situations: first, when the statute
“says in so many words that it is stripping immunity,” and second,
when a statute creates a cause of action that authorizes suit
against a sovereign on that claim. Dep’t of Agric. Rural Dev. Rural
Hous. Serv. v. Kirtz, 601 U.S. 42, 49 (2024) (citations omitted).
In the instant case, the parties appear to agree that the
United States has sovereign immunity. However, Defendant avers
that

it

has

not

waived

sovereign

immunity

for

a

declaratory

judgment by the Commonwealth Court. (Docket No. 4 at 4). It further
claims that the Liquidator did not allege that the United States
waived sovereign immunity in its original Motion for Declaratory
Judgment. Id. at 4. Plaintiff in turn contends that the McCarranFerguson Act (the “Act”), 15 U.S.C. § 1011 et seq., 4 waives
sovereign immunity because the Act provides that no federal law

The Liquidator does not claim that another statute, such as the federal
Priority Statute, 31 U.S.C. § 3713, or the Declaratory Judgment Act, 28 U.S.C.
§ 2201, waives sovereign immunity.
4

Civil No. 23-1517 (RAM)

9

may preempt a state regulation involving the business of insurance.
See (Docket No. 8 ¶ 9).
Plaintiff bears the burden of proving that sovereign immunity
has been waived. See Mahon v. United States, 742 F.3d 11, 14 (1st
Cir. 2014). However, the Liquidator fails to meet this burden. It
does not point to any passage in the McCarran-Ferguson Act that
waives sovereign immunity, let alone a passage that contains the
clear

and

unequivocal

waiver

language

required

by

precedent.

Although the Act permits states to tax and regulate the business
of insurance, see 15 U.S.C. §§ 1011-12, it does not contain an
express waiver of federal sovereign immunity. See Hammer, 905 F.3d
at 534 (noting that the Act did not change the panel’s analysis
that

sovereign

immunity

permitted

removal

to

federal

court);

California Ins. Guarantee Ass’n v. Burwell, 170 F. Supp. 3d 1270,
1273 (C.D. Cal. 2016) (“[T]he Act was never intended to waive the
federal

government’s

sovereign

immunity”);

see

also

Health

Republic Ins. Co. v. United States, 161 Fed. Cl. 510, 519-20 (Fed.
Cir. 2022) (collecting cases that reject “the notion that Congress
intended the McCarran-Ferguson Act to reverse preempt federal
jurisdictional statutes”); Granite Reins. Co. v. Frohman, 2009 WL
2601105, at *6 (D. Neb. 2009) (holding that the state forum never
had jurisdiction and the Act did not reverse preempt jurisdictional
statutes). Contra Sevigny v. United States, 2014 WL 3573566, at *7

Civil No. 23-1517 (RAM)

10

(D.N.H. 2014) (finding waiver of sovereign immunity in case with
similar underlying facts where insurance commissioner sued under
the Administrative Procedure Act).
Given that the Liquidator has not met its burden, the Court
finds that the United States did not waive its sovereign immunity.
Accordingly, the Commonwealth Court lacked jurisdiction over the
Motion for Declaratory Judgment.
ii.

The federal court’s jurisdiction is derivative of
that of the Commonwealth Court

Pursuant to the derivative-jurisdiction doctrine, a federal
court’s jurisdiction over a civil action removed under 28 U.S.C.
§ 1442 is derivative of that of the state court. Minnesota v.
United States, 305 U.S. 382, 389 (1939); see also Lambert Run Coal
Co. v. Baltimore & Ohio R.R. Co., 258 U.S. 377, 382 (1922) (“If
the state court lacks jurisdiction of the subject-matter or of the
parties, the federal court acquires none, although it might in a
suit

originally

Accordingly,

the

brought
Court

there

is

in

have
no

had

better

jurisdiction.”).

position

than

the

Commonwealth Court to exercise jurisdiction in this case.
B. Remand is required by section 1447(c)
Although the United States is correct that this Court lacks
subject

matter

jurisdiction,

as

does

the

Commonwealth

Court,

dismissal would be improper. The Liquidator contends that its

Civil No. 23-1517 (RAM)

11

motion for remand should be granted because the Commonwealth Court
has jurisdiction. (Docket Nos. 8 ¶ 20 and 14 ¶ 9). Although
Plaintiff both incorrectly alleges that the Commonwealth Court has
jurisdiction and fails to support its request for remand with
detailed argumentation and authorities, remand is nevertheless
mandatory for the following reasons.
i.

Remand is required by the text of the federal
removal statute

The federal removal statute provides, in relevant part, that
“[i]f at any time before final judgment it appears that the
district court lacks subject matter jurisdiction, the case shall
be remanded.” 28 U.S.C. § 1447(c) (emphasis added). The First
Circuit has held that this language is unambiguous, and that it is
error for a district court to “depart[] from the literal words of
§ 1447(c), which, on their face, give it no discretion to dismiss
rather than remand an action.” Mills v. Harmon Law Offs., P.C.,
344 F.3d 42, 45 (1st Cir. 2003) (citations and internal quotation
marks omitted); see also Int’l Primate Prot. League v. Adm’rs
Tulane Educ. Fund, 500 U.S. 72, 89 (1991) (noting that § 1447(c)’s
requirements are “clear”). Thus, both the statute and controlling
precedent make pellucid the district court’s mandate to remand a
removed case as soon as it finds that it lacks subject matter
jurisdiction.

Civil No. 23-1517 (RAM)

12

The Court notes that at least two First Circuit cases, which
do

not

discuss

the

text

of

section

1447(c),

have

encouraged

dismissal rather than remand. See Patriot Cinemas, Inc. v. Gen.
Cinemas Corp., 834 F.2d 208, 217 (1st Cir. 1987) (concluding that
dismissal of claim was in keeping with the derivative jurisdiction
doctrine); Daley v. Town of New Durham, N.H., 733 F.2d 4, 7 (1st
Cir.

1984)

(holding

dismissal

was

required

due

to

lack

of

derivative jurisdiction). Although neither Patriot Cinemas nor
Daley have been overruled and are still good law, the rule from
Mills is more recent, and therefore the one that this Court must
follow. See United States v. Pires, 642 F.3d 1, 9 (1st Cir. 2011)
(finding that departure from precedent is warranted “where the
previous

holding

is

contradicting

by

controlling

authority,

subsequently announced”).
ii.

Derivative jurisdiction implicates subject-matter
jurisdiction

The parties do not contend that the issues of sovereign
immunity or derivative jurisdiction fall outside the bounds of a
challenge

to

subject-matter

jurisdiction.

Additionally,

it

is

evident that challenges based on sovereign immunity “may be brought
under Rule 12(b)(1).” Diaz-Morales v. Universidad de P.R., 2023 WL
2895151, at *1 (D.P.R. 2023) (citations omitted); see also P.R.
Land & Fruit v. Aquasur Corp., 2018 WL 1684330, at *1 (D.P.R. 2018)

Civil No. 23-1517 (RAM)

13

(evaluating derivative jurisdiction challenge pursuant to Rule
12(b)(1)). But see Rodas v. Seidlin, 656 F.3d 610, 619 (7th Cir.
2011)

(concluding

that

although

the

derivative

jurisdiction

doctrine creates a defect in removal, it is not an essential
ingredient to federal subject matter jurisdiction).
iii. Remand is mandatory even if it would be futile
In

Mills,

potential

the

First

implicit

Circuit

exception

to

noted

that

section

there

may

1447(c)’s

be

a

remand

requirement in cases where remand is absolutely certain to be
futile. 344 F.3d at 46 (citation omitted). However, the panel
nonetheless declined to find dismissal was warranted even though
it “suspect[ed] that this case has little future.” Id. Similarly,
the Fifth Circuit has explicitly held that Ҥ 1447(c) means what
it says, admits of no exceptions, and requires remand even when
the district court thinks it futile.” Spivey v. Chitimacha Tribe
of La., 79 F.4th 444, 448 (5th Cir. 2023); see also Fent v. Oklahoma
Water Resources Bd., 235 F.3d 553, 557 (10th Cir. 2000) (collecting
cases where courts decline to find an implicit futility exception
in

section

1447(c)).

Contra

Hammer,

905

F.3d

at

530,

535

(discussing sovereign immunity and derivative jurisdiction issues
and concluding noting that “[r]emanding to a forum deemed wrong is
nonsensical”).

Civil No. 23-1517 (RAM)

14

Thus, the Court concludes by noting that the Commonwealth
Court will still lack jurisdiction upon remand, rendering remand
futile. Further, Puerto Rico law imposes upon the Commonwealth
Court an “inescapable duty to examine its own jurisdiction . . .
because to lack jurisdiction over the subject matter means to lack
the necessary authority and power to entertain the matter.” RiveraSantos v. Sec’y of U.S. Dep’t of Veterans Affs., 2017 WL 3498655,
at *3 n.2 (D.P.R. 2017) (internal quotation marks and alterations
omitted) (citing Roberts v. USO Council of P.R., 145 D.P.R. 58,
68-69 & n.8 (P.R. 1988) (official translation)). Despite this
futility, this Court is required to order remand by law and may
not dismiss the case.
IV.

CONCLUSION

For the foregoing reasons, the Court ORDERS that the United
States’ Motion to Dismiss at Docket No. 4 is DENIED. The Motion
for

Declaratory

Judgment

is

remanded

to

the

Court

of

First

Instance, Commonwealth of Puerto Rico, Superior Court of San Juan.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 5th day of June 2024.
s/Raúl M. Arias-Marxuach_________
UNITED STATES DISTRICT JUDGE