MAO-MSO Recovery II, LLC et al v. American Family Mutual Insurance Company et al
ORDER granting 34 Motion to Dismiss Plaintiff's First Amended Complaint by Defendants American Family Insurance Company, American Family Mutual Insurance Company. Plaintiff may have until 3/5/2018 to file amended complaint and any evidence that they have been assigned the right to recover the debts allegedly owed in this case. Signed by District Judge James D. Peterson on 2/12/2018. (voc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
MAO-MSO RECOVERY II, LLC, MSP
RECOVERY, LLC, and MSPA CLAIMS 1, LLC,
AMERICAN FAMILY MUTUAL INSURANCE
COMPANY and AMERICAN FAMILY
OPINION & ORDER
These two cases are both proposed class actions brought under the Medicare Act, 42
U.S.C. § 1395y, and related regulations. Plaintiffs MAO-MSO Recovery II, MSP Recovery,
and MSPA Claims 1 say that they are entitled to “recover reimbursement of Medicare
payments . . . that should have been paid in the first instance by” defendants American Family
Mutual Insurance Company and American Family Insurance. No. 17-cv-175, Dkt. 26. ¶¶ 44–
46; No. 17-cv-262, Dkt. 24, ¶¶ 41–43. These cases are two of more than a dozen that plaintiffs
filed in federal courts across the country, raising similar claims against other insurance
MAO-MSO Recovery II, LLC v. Allstate, No. 17-cv-2370 (N.D. Ill.) (motion to dismiss
pending); MAO-MSO Recovery II, LLC v. Erie Indemnity Co., No. 17-cv-81 (W.D. Pa.) (motion
to dismiss pending); MAO-MSO Recovery II, LLC v. Farmers Ins. Exch., No. 17-cv-2559 (C.D.
Cal.) (motion to dismiss granted with leave to replead); MAO-MSO Recovery II, LLC v. GEICO,
No. 17-cv-964 (D. Md.) (motion to dismiss pending); MAO-MSO Recovery II, LLC v. Liberty
Mut. No. 17-cv-10564 (D. Mass.) (amended complaint filed); MAO-MSO Recovery II, LLC v.
Mercury Gen., No. 17-cv-2557 (C.D. Cal.) (motion to dismiss granted with leave to replead);
MAO-MSO Recovery II, LLC v. Nationwide, 17-cv-00263 (S.D. Ohio) (motion to dismiss
pending); MAO-MSO Recovery II, LLC v. Progressive, No. 17-cv-686 (N.D. Ohio) (motion to
dismiss pending); MAO-MSO Recovery II, LLC v. State Farm, No. 17-cv-321 (S.D. Ill.) (motion
to granted with leave to replead); MAO-MSO Recovery II, LLC v. USAA, No. 17-cv-21289 (S.D.
Defendants filed motions to dismiss in both No. 17-cv-175 and No. 17-cv-262, but
plaintiffs mooted those motions by filing amended complaints. Now defendants have filed
renewed motions to dismiss, contending that plaintiffs’ amended complaints do not cure the
defects in the original complaints, namely, that plaintiffs’ allegations do not show that they
have standing to sue or that they have stated plausible claims for relief under Rule 8 of the
Federal Rules of Civil Procedure. The court agrees with the growing number of courts that have
already dismissed similar complaints for plaintiffs’ failure to show that they have standing to
sue. The court will give plaintiffs one more opportunity to cure the problems discussed in this
opinion before dismissing the case for lack of standing. Tate v. SCR Med. Transp., 809 F.3d
343, 346 (7th Cir. 2015) (“[T]he court should grant leave to amend after dismissal of the first
complaint unless it is certain from the face of the complaint that any amendment would be
futile or otherwise unwarranted.”).
A. Overview of claims and contentions
Plaintiffs’ two lawsuits in this court are closely related. In both cases, plaintiffs’ claims
arise out of the Medicare Secondary Payer provisions of the Medicare Act. Under those
provisions, Medicare’s responsibility for paying a beneficiary’s medical expenses is always
Fla.) (motion to dismiss pending); MAO-MSO Recovery II, LLC v. USAA Cas. Ins. Co., No. 1720946-CIV (S.D. Fla.) (motion to dismiss granted with leave to replead); MAO-MSO Recovery
II, LLC v. Boehringer Ingelheim Pharm., Inc., No. 17-cv-21996-UU (S.D. Fla.) (motion to dismiss
granted with leave to replead). Plaintiffs filed at least one other similar case and then
voluntarily dismissed it. MAO-MSO Recovery II, LLC v. AAA Auto Club, No. 17-cv-601 (C.D.
“secondary” to any other coverage the beneficiary has, meaning that Medicare does not pay
unless no other coverage exists. 42 U.S.C. § 1395y. And if Medicare pays expenses of a
beneficiary who has other coverage, Medicare may seek reimbursement from the other insurer,
called the “primary plan” in the Medicare Act. 42 U.S.C. § 1395y(b)(2)(B)(ii). In both No.
17-cv-175 and No. 17-cv-262, plaintiffs say that defendants were the primary payers for
medical expenses incurred by beneficiaries and that defendants failed to pay those expenses as
required by the law.
The federal government is not a party to these cases and plaintiffs are not seeking to
recover funds on the government’s behalf. Rather, plaintiffs offer a two-part explanation for
why they rather than the federal government are entitled to reimbursement from defendants.
First, plaintiffs say that all of the beneficiaries at issue participate in the Medicare Advantage
Program, under which beneficiaries may choose to receive Medicare benefits through certain
private insurers called Medicare Advantage Organizations (MAOs). 42 U.S.C. § 1395w-21.
Under the program, the private insurer pays the beneficiary’s medical expenses and Medicare
pays the private insurer a fixed amount, which may be more or less than what the insurer paid.
Under the Medicare regulations, the MAO has the same rights as Medicare to seek
reimbursement from a primary payer. 42 C.F.R. § 422.108(f). Second, plaintiffs say that
“numerous” MAOs assigned plaintiffs the right to recover the payments owed to the MAOs.
No. 17-cv-175, Dkt. 26, ¶¶ 44–46; No. 17-cv-262, Dkt. 24, ¶¶ 41–43.
The only difference between the two lawsuits relates to the reason that plaintiffs
contend that defendants are the primary payers of a beneficiary’s medical expenses. In case no.
17-cv-175, plaintiffs say that defendants are the primary payers because they issued no-fault
automobile insurance policies to beneficiaries. In case no. 17-cv-262, plaintiffs say that
defendants were the primary payers because they paid settlements to beneficiaries for accidents
between a beneficiary and someone insured by defendants. In case no. 17-cv-175, plaintiffs say
that defendants owe them money under two theories: (1) under 42 U.S.C. § 1395y(b)(3)(A),
plaintiffs have a right to double damages for instances in which defendants were the primary
payer but failed to make the required payments; and (2) under 42 C.F.R. § 411.24(e), plaintiffs
have a right to sue for defendants’ alleged breach of contract to their insureds. In case
no. 17-cv-262, plaintiffs seek to recover under the first theory only.
In their motions to dismiss, defendants assume that plaintiffs have accurately described
the requirements of the Medicare laws. But defendants contend that plaintiffs’ complaints in
both cases consist of little more than legal conclusions and do not satisfy the pleading standards
set forth in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S.
544 (2007), which apply to issues related to both jurisdiction and the merits, Silha v. ACT,
Inc., 807 F.3d 169, 173–74 (7th Cir. 2015).
First, defendants say that plaintiffs have not adequately alleged that they have standing
to sue because the complaints do not include facts showing that they have a valid assignment
from a particular MAO as to any particular claim against either defendant. Second, defendants
say that plaintiffs have not adequately alleged the elements of their claims, including that
defendants were the primary payer of a particular medical expense, that defendants failed to a
pay a particular medical expense that they were required to pay, that a particular MAO paid a
particular claim, or that a particular beneficiary was a member of a particular MAO. Because
standing implicates subject matter jurisdiction, Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547
(2016), the court will consider that issue first.
Under the doctrine of standing, plaintiffs must show that they suffered an “injury in
fact” that is “fairly traceable” to defendants’ conduct and is capable of being redressed by a
favorable decision from the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560B61 (1992).
This is part of the limitation on federal judicial power under Article III of the U.S. Constitution
to “Cases” and “Controversies.” Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013).
Defendants contend that plaintiffs’ complaints do not show that plaintiffs have suffered an
injury because the complaints do not include facts showing that they have a valid assignment
from an MAO that paid medical expenses that defendants should have paid.
A threshold question is whether defendants have accurately framed the issue as one of
Article III standing, as opposed to prudential standing. An assignment gives a party the right
to sue, but that is separate from the question whether there has been an injury for Article III
purposes. U.S. v. $304,980.00 in U.S. Currency, 732 F.3d 812, 818 (7th Cir. 2013) (“[T]o have
standing, a claimant need not establish that a right of his has been infringed; that would
conflate the issue of standing with the merits of the suit.”) (internal quotations omitted). If
there has been an injury, but plaintiffs do not have valid assignments, that would implicate the
doctrine of prudential standing, which requires “plaintiffs [to] assert their own legal rights and
interests, and [prohibits them from] rest[ing] their claims to relief on the legal rights or interests
of third parties.” G & S Holdings LLC v. Cont'l Cas. Co., 697 F.3d 534, 540–41 (7th Cir. 2012).
Plaintiffs’ complaints include inconsistent allegations on the question whether plaintiffs
suffered their own injury by paying medical expenses that defendants should have paid.
Compare No. 17-cv-175, Dkt. 26, ¶ 4 (“Plaintiffs . . . paid Medicare benefits on behalf of the
Medicare-eligible beneficiaries enrolled under the Medicare Advantage program.”) (footnote
omitted), and No. 17-cv-262, Dkt. 24, ¶ 3 (“Plaintiffs . . . paid for the medical items or
treatment.”), with No. 17-cv-175, Dkt. 26, ¶¶ 58–59 (“Plaintiffs’ MAO paid for those medical
expenses”), and No. 17-cv-262, Dkt. 24, ¶ 51 (referring to “medical treatment . . . provided by
Plaintiffs’ MAOs” and alleging that defendants “never reimbursed Plaintiffs’ MAOs for the
medical treatments”). In their motions to dismiss, defendants take the position that plaintiffs
admit in both complaints that they did not make any payments themselves. No. 17-cv-175,
Dkt. 40, at 8 (“Plaintiffs concede that they have not been injured as the result of direct dealings
with American Family’s insureds—the FAC admits that only unnamed MAOs, not the
plaintiffs, made payments that American Family allegedly failed to reimburse.”);
No. 17-cv-262, Dkt. 35, at 8 (“Plaintiffs concede that they have not been injured as the result
of direct dealings with American Family’s insureds—the FAC admits that unnamed MAOs
made payments that American Family allegedly failed to reimburse.”). In their consolidated
opposition brief, plaintiffs do not contradict defendants on this point; rather, they appear to
agree with defendants when they say that “[b]oth [complaints] allege that the underlying MAOs
who assigned their rights of recovery to the Plaintiffs suffered an economic injury as result of
making payments the Defendants were statutorily required to pay in the first place.”
No. 17-cv-175, Dkt. 41, at 13 (emphasis added). Because the parties appear to agree that
plaintiffs did not suffer their own injuries, the court will make the same assumption for the
purpose of the pending motions.
As the parties recognize, this does not necessarily foreclose plaintiffs’ right to sue
because “an assignee can sue based on his assignor’s injuries.” Sprint Communications Co., L.P.
v. APCC Services, Inc., 554 U.S. 269, 286 (2008). Thus, in these cases, the question whether
plaintiffs have standing to sue overlaps with the question whether they are entitled to relief.
The court will turn to the question whether plaintiffs adequately allege that they have
assignments giving them the right to sue in these cases.
In both complaints, plaintiffs include a number of general allegations that MAOs
assigned their rights to plaintiffs. E.g., No. 17-cv-175, Dkt. 26, ¶¶ 44–46; No. 17-cv-262.
Dkt. 24, ¶¶ 41–43 (“Numerous MAOs have assigned their recovery rights to assert the causes
of action alleged in this Complaint to Plaintiff. As part of those assignments, Plaintiff is
empowered to recover reimbursement of Medicare payments made by the MAOs that should
have been paid, in the first instance, by the Defendants.”). Plaintiffs also include at least one
of what they call a “representative claim” that they “allege with specificity.” No. 17-cv-175,
Dkt. 26, ¶ 58; No. 17-cv-262, Dkt. 24, ¶ 54. For example, in case no. 17-cv-175, plaintiffs
allege the following:
An Ohio resident named Mr. J.W.K. was receiving Medicare
benefits from an MAO whose right to recover under the MSP Act
has been assigned to Plaintiffs. Mr. K was involved in an
automobile accident that required medical services arising out of
the use, maintenance, and/or operation of a motor vehicle.
Plaintiffs’ MAO paid for those medical expenses. However, at the
time of the accident Mr. K also possessed a PIP automobile
insurance policy with Defendants, which required payment of
medical expenses up to the policy limit. Defendants, however, did
not pay or reimburse the MAO for those expenses within the
requisite time frame, as required of a primary payer.
Dkt. 26, ¶ 58. Plaintiffs include a second example using identical language, with the exception
that the beneficiary has different initials and is from Minnesota rather than Ohio. Id. ¶ 59.
They include a similar example in no. 17-cv-262. Dkt. 24, ¶ 55.
In challenging the sufficiency of these allegations, defendants point out that plaintiffs
have not included any of the terms of any particular assignment, the particular MAOs involved,
the date of execution, the amount of consideration, or any other information showing that they
have been assigned the rights to recover any particular debt. Even the claims “allege[d] with
specificity” consist of boilerplate allegations that could apply to any of plaintiffs’ claims, as is
demonstrated by the fact that the representative claims include nearly identical allegations.
Without more specific facts, defendants say, plaintiffs’ allegations cannot survive scrutiny
under Rule 8.
Plaintiffs do not deny that they omitted the type of allegations discussed by defendants.
Plaintiffs’ position is that they are not required to provide additional information.
In support of their view, defendants rely on Iqbal, 556 U.S. at 678, and Twombly, 550
U.S. at 555, in which the Supreme Court held that legal conclusions are not sufficient to satisfy
federal pleading standards. “Threadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678. See also Riley v. Vilsack,
665 F. Supp. 2d 994, 1002 (W.D. Wis. 2009) (“The Court made it clear in Iqbal that plaintiffs
do need to plead facts; conclusions are not enough.”). Plaintiffs do not respond to this
argument or otherwise explain why they believe that their allegations regarding assignments
are anything more than legal conclusions.
Neither side cites case law from the Court of Appeals for the Seventh Circuit addressing
the sufficiency of allegations regarding the existence and scope of an assignment. But in just
the last few months, at least five district courts have considered other complaints filed by the
same plaintiffs raising the same claims (against other defendants) and relying on similar if not
identical allegations. In all of those cases, the court concluded that plaintiffs’ allegations
regarding the assignments were too conclusory. MAO-MSO Recovery II, LLC v. State Farm, No.
117CV01541JBMJEH, 2018 WL 340021, at *3 (C.D. Ill. Jan. 9, 2018); MAO-MSO Recovery
II, LLC v. USAA Cas. Ins. Co., No. 17-20946-CIV, 2018 WL 295527, at *4 (S.D. Fla. Jan. 3,
2018); MAO-MSO Recovery II, LLC v. Boehringer Ingelheim Pharm., Inc., No. 17-CV-21996-UU,
2017 WL 6541533, at *1 (S.D. Fla. Dec. 13, 2017); MAO-MSO Recovery II, LLC v. Farmers
Ins. Exch., No. 17CV02522CASPLAX, 2017 WL 5634097, at *6 (C.D. Cal. Nov. 20, 2017);
MAO-MSO Recovery II, LLC v. Mercury Gen., No. CV 17-2557-AB (FFMX), 2017 WL 5086293,
at *5 (C.D. Cal. Nov. 2, 2017).
This court agrees with the conclusion in Farmers Insurance Exchange: “The fundamental
flaw with plaintiffs’ pleadings is that there are no factual allegations tracing any individual
assignor MAO's injury to any single defendant. The representative facts regarding four
individuals . . . do not identify which MAOs are involved, and include only blanket allegations
against all defendants.” 2017 WL 5634097, at *6. See also Mercury Gen., 2017 WL 5086293,
at *4 (“The Court is not obliged to accept as true Plaintiffs' legal conclusions that the
assignments exist and are valid; Plaintiffs must allege facts sufficient to support these
contentions, such as the identity of the MAOs whose reimbursement rights they claim to own,
the dates of the assignments, and the essential terms.”).
The difference between a conclusion and a fact can be subtle, Twombly, 550 U.S. at 590
(Stevens, J., dissenting), but even if there were some situations in which a conclusory allegation
of an assignment would satisfy Rule 8, this would not be one of them. The specificity required
by Rule 8 is context sensitive. Cooney v. Rossiter, 583 F.3d 967, 971 (7th Cir. 2009) (“[T]he
height of the pleading requirement is relative to circumstances.”). The more complex a case is
and the more potentially burdensome discovery may be, the more specific a plaintiff’s
allegations must be. McCauley v. City of Chicago, 671 F.3d 611, 616–17 (7th Cir. 2011) (“The
required level of factual specificity rises with the complexity of the claim.”); Limestone Dev. Corp.
v. Vill. of Lemont, 520 F.3d 797, 802–03 (7th Cir. 2008) (“[A] defendant should not be forced
to undergo costly discovery unless the complaint contains enough detail, factual or
argumentative, to indicate that the plaintiff has a substantial case.”).
In these cases, plaintiffs are not bringing a single claim regarding one assignment of one
debt. Rather, plaintiffs are broadly alleging that they have assignments for a large (but
unspecified) number of claims related to a practice that is “widespread and systematic.”
No. 17-cv-175, Dkt. 26, ¶ 56; No. 17-cv-262, Dkt. 24, ¶ 52. And yet plaintiffs provide no
factual context for allegations that are so conclusory that they could apply to any one of the
many lawsuits that plaintiffs have filed throughout the country. Plaintiffs’ allegations do not
even differentiate among the plaintiffs themselves, making it impossible to reasonably infer
that each of them holds a valid assignment. Hochendoner v. Genzyme Corp., 823 F.3d 724, 733
(1st Cir. 2016) (“[S]tanding is not dispensed in gross. The appropriate inquiry must be whether
each particular plaintiff is entitled to have a federal court adjudicate each particular claim that
he asserts.”) (internal quotations and citations omitted).
Plaintiffs insist that all of the factual context for the assignments can wait for discovery,
but that view is inconsistent with Twombly and Iqbal. In Twombly, in the context of an antitrust
conspiracy claim, the Court rejected the view that a conclusory allegation of an agreement
satisfied Rule 8. Rather, “stating such a claim requires a complaint with enough factual matter
(taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer
an agreement does not impose a probability requirement at the pleading stage; it simply calls
for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of illegal
agreement.” 550 U.S. at 556. See also Bissessur v. Indiana University Bd. of Trustees, 581 F.3d
599, 603 (7th Cir. 2009) (“Bissessur’s argument that the exact details of the contract will
become clear during discovery runs counter to the holding of Twombly, which dictates that the
complaint itself must contain sufficient factual detail to describe the parameters of the contract
before discovery may commence.”).
And even if a bare allegation of an assignment were sufficient to satisfy pleading
standards, courts may consider matters outside the pleadings in the context of a motion to
dismiss for lack of subject matter jurisdiction. Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d
440, 443 (7th Cir. 2009). In this case, it is appropriate for multiple reasons to require plaintiffs
to come forward with whatever evidence of assignments they have.
First, because standing is a threshold question and the potential scope of this case is
far-reaching, it makes little sense to allow the case to proceed to the class certification stage or
summary judgment while there is still a significant question whether each of the plaintiffs
actually has the right to sue. Second, plaintiffs should have possession of their own assignments
and any related evidence, so it should not be difficult for them to demonstrate standing if they
have it. Olson v. Champaign Cnty., Ill., 784 F.3d 1093, 1100 (7th Cir. 2015) (“Plaintiffs’
pleading burden should be commensurate with the amount of information available to them.”)
(internal quotations omitted). Third, at least one of the plaintiffs has a history of failing to
prove they have valid assignments in cases like this. In MSPA Claims 1, LLC v. Covington
Specialty Ins. Co., 212 F. Supp. 3d 1250, 1256 (S.D. Fla. 2016), the court cited seven other
cases from 2016 in which MSPA Claims 1 had failed to show that it had valid assignments
giving it the right to sue. Thus, the concerns raised by defendants about the existence and scope
of plaintiffs’ assignments are more than theoretical. For all of these reasons, plaintiffs must
come forward with more than a bare assertion that they possess the right to sue in these cases.
Plaintiffs’ allegations related to the merits suffer from the same problems as their
allegations about standing. Plaintiffs have not plausibly alleged that defendants were the
primary payer of a particular medical expense, that defendants failed to a pay a particular
medical expense that they were required to pay, that a particular MAO paid a particular claim,
or that a particular beneficiary was a member of a particular MAO. Plaintiffs’ allegations are
so conclusory that defendants would have no way of determining whether they failed to make
payments required by the Medicare Care Act or whether plaintiffs are entitled to recover any
required payments that defendants failed to make. The complaints read as if plaintiffs began
with a conclusion that defendants owed them money and simply worked backwards to
construct a legal theory that would support the conclusion. Even under the liberal pleading
standard of Rule 8, more is required. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009) (“Rule 8
marks a notable and generous departure from the hypertechnical, code-pleading regime of a
prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more
The court will grant defendants’ motions to dismiss and give plaintiffs one more
opportunity to both show that they have standing and plead a plausible claim for relief.
Plaintiffs may have until March 5, 2018, to file amended complaints, along with any evidence
that they have been assigned the right to recover the debts allegedly owed in this case. If
defendants believe that plaintiffs’ filings are still inadequate, defendants may have until March
26, 2018, to file a renewed motion to dismiss.
In light of the questions that remain regarding both jurisdiction and the merits, the
March 1, 2018, deadline for filing a motion for class certification is no longer feasible. The
court will strike the schedule and reset it if necessary after determining whether plaintiffs have
standing to sue and have stated a plausible claim for relief.
IT IS ORDERED that:
1. The motions to dismiss filed by defendants American Family Mutual Insurance
Company and American Family Insurance Company, Dkt. 39 (in no. 17-cv-175jdp) and Dkt. 34 (in no. 17-cv-262-jdp), are GRANTED.
2. Plaintiffs MAO-MSO Recovery II, LLC, MSP Recovery, LLC, and MSPA Claims 1,
LLC, may have until March 5, 2018, to file: (1) amended complaints in both cases;
and (2); any evidence that they have been assigned the right to recover the debts
allegedly owed in this case.
3. If plaintiffs do not respond to this order, the court will dismiss the case for lack of
jurisdiction and direct the clerk of court to enter judgment.
4. If plaintiffs file an amended complaint, defendants American Family Mutual
Insurance Company and American Family Insurance may have until March 26,
2018, to file a renewed motion to dismiss.
5. The schedule for this case is STRUCK. The court will reset it if necessary after
resolving issues regarding jurisdiction and pleading.
Entered February 12, 2018.
BY THE COURT:
JAMES D. PETERSON
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