Adams EMS, Inc. v. Azar

Filing 56

MEMORANDUM AND ORDER entered GRANTING 51 MOTION for Release of Bond Obligation.(Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ADAMS EMS, INC.,
Plaintiff,
VS.
ALEX M. AZAR II, SECRETARY,
UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES
Defendant.

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November 29, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-18-1443

MEMORANDUM AND ORDER
On July 11, 2018, the court temporarily restrained Alex M. Azar, II, Secretary of the United
States Department of Health and Human Services, “from withholding or offsetting payments . . .
from[] Adams EMS, Inc. to effectuate the recoupment of the alleged overpayments in the underlying
claims pending an administrative law judge hearing.” (Docket Entry No. 22). The court set a bond
at $5,000 in addition to the $35,000 already recouped by the Secretary. (Id.). On October 23, 2018,
the court issued a preliminary injunction and waived the bond requirement for Adams. (Docket
Entry No. 49). Adams moved to release the $5,000, and the government responded. (Docket Entry
Nos. 51, 55).
Adams argues that the $5,000 should be released because the court did not require Adams
to post a bond under the preliminary injunction. (Docket Entry No. 51 at 2). Adams contends that
the funds should be available because the court found that Adams might file for bankruptcy if the
government recoups the alleged overpayment. (Id. at 3). According to Adams, because Federal
Rule of Civil Procedure 65(c) does not require the posting of a bond to cover the government’s
“hypothetical costs or damages,” the court should release the $5,000. (Id.). Adams also contends

that it is entitled to the funds because the court found that there is a substantial likelihood that
Adams will succeed on the merits. (Id.).
The government responds that the bond requirement “is designed ‘to cover . . . damages that
. . . result if it were later determined that [the applicant] is not entitled to an injunction.” (Docket
Entry No. 55 at 2 (quoting Commerce Tankers Corp. v. Nat’l Mar. Union of Am., 553 F.2d 793,
800)). The government argues that “Adams has not demonstrated that the reasonable possibility of
damage to the [g]overnment has passed.” (Id.). Because Adams claims that it might file for
bankruptcy if the government recoups the alleged overpayment, the government believes that “the
chances of . . . recover[y are] slim to none.” (Id.). The government concedes that an administrative
law judge has not adjudicated Adams’s appeal. (Id.). But the government argues that the first two
levels of Medicare’s appellate review process have affirmed the overpayment determination, and
that only a small fraction of appellants receive a fully favorable administrative-law-judge decision.
(Id. at 2–3). The government asks the court to keep the $5,000 in escrow to ensure that it may
recoup at least $40,000, approximately 10 percent of the alleged overpayment. (Id. at 3). According
to the government, the court should not release the bond “as doing so would further diminish [its]
ability to safeguard and preserve the Medicare trust fund.” (Id.).
Under Rule 65(c), “[t]he court may issue a preliminary injunction . . . only if the movant
gives security in an amount that the court considers proper to pay the costs and damages sustained
by any party found to have been wrongfully enjoined.” FED. R. CIV. P. 65(c). The Fifth Circuit has
explained:
[t]his bond requirement serves two functions: (1) it assures the enjoined party that
it may readily collect damages from the funds posted or the surety provided in the
event that it was wrongfully enjoined, without further litigation and without regard
to the possible insolvency of the assured, and (2) it provides the plaintiff with notice
of the maximum extent of its potential liability, since the amount of the bond is the
limit of the damages the defendant can obtain for a wrongful injunction, . . . provided

the plaintiff was acting in good faith.
Continuum Co., Inc. v. Incepts, Inc., 873 F.2d 801, 803 (5th Cir. 1989) (quotation omitted). The
“amount of security required pursuant to Rule 65(c) is a matter of discretion for the trial court,” and
“the court may elect to require no security at all.” Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 628
(5th Cir. 1996) (quotation omitted); see also A.T.N. Indus., Inc. v. Gross, 632 F. App’x 185, 192 (5th
Cir. 2015) (Rule 65(c) “itself allows the court to provide the amount that it ‘considers proper.’”).
Adams posted the $5,000 bond as a condition of the temporary restraining order, which
expired on July 25, 2018. (Docket Entry No. 22). On Adams’s showing that it was entitled to a
preliminary injunction, the court enjoined the government from recouping the alleged overpayment
amount and waived the bond requirement under Rule 65(c). (Docket Entry Nos. 35, 48, 49). The
government opposes Adams’s motion because it seeks additional security in the event that an
administrative law judge affirms the overpayment decision. (Docket Entry No. 55 at 2). But the
bond requirement is intended to protect the enjoined party from damages sustained by a wrongful
injunction, Continuum Co., 873 F.2d at 803, and the court has found that in light of the Fifth
Circuit’s decision in Family Rehab., Inc. v. Azar, 886 F.3d 496, 507 (5th Cir. 2018), there is a
substantial likelihood that Adams will succeed on the merits. The government has already collected
$35,000 of the alleged overpayment amount, and the order requiring the bond expired in July 2018.
Adams’s motion is granted, and the $5,000 posted as security for the July 11, 2018,
temporary restraining order is released.
SIGNED on November 29, 2018, at Houston, Texas.
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Lee H. Rosenthal
Chief United States District Judge