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MSP Recovery Claims, Series LLC v. Phoenix Insurance Co.

United States District Court, N.D. Ohio

December 12, 2019

MSP Recovery Claims, Series LLC, et al., Plaintiffs,
The Phoenix Insurance Company, Defendant



         Currently pending is Defendant Phoenix Insurance Company's Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). (Doc. No. 7.) Plaintiffs MSP Recovery Claims, Series, LLC and Series 16-11-509 filed a Brief in Opposition, to which Defendant replied. For the following reasons, Defendant's Motion to Dismiss is GRANTED IN PART and DENIED IN PART.

         I. Procedural Background

         On February 27, 2019, Plaintiffs MSP Recovery Claims, Series LLC and Series 16-11-509, LLC (hereinafter referred to collectively as “Plaintiffs”) filed a Class Complaint[1] against Defendant Phoenix Insurance Company asserting a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(3)(A). (Doc. No. 1.) The Complaint alleges that Plaintiffs' assignors and the putative Class Members made conditional Medicare payments for medical expenses incurred by its enrollees resulting from injuries sustained in accidents with Defendant's insureds. (Id. at ¶ 2.) Plaintiffs allege that Defendant Phoenix became a primary payer responsible for Plaintiffs' assignors and the Class Members enrollees' medical expenses under the MSP Act upon entering into settlements with the enrollees but has “repeatedly failed” to reimburse payments made by Plaintiffs' assignors relating to its enrollees' accident-related medical expenses. (Id. at ¶¶ 2-3.)

         Phoenix filed a Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6) on May 20, 2019. (Doc. No. 7.) Plaintiffs filed a Brief in Opposition on June 19, 2019 (Doc. No. 11), to which Phoenix replied on July 3, 2019 (Doc. No. 12.)

         This matter was re-assigned to the undersigned on June 24, 2019 pursuant to General Order 2019-13.

         II. Factual Allegations

         The Class Complaint contains the following factual allegations. On September 22, 2015, J.R. was injured in an accident, as a result of which he/she sustained a variety of injuries and required medical treatment and services. (Doc. No. 1 at ¶ 8-9.) At this time, J.R. was enrolled in Medicare through a plan issued and administered by SummaCare, Inc.[2] (Id. at ¶ 7.) J.R.'s medical providers issued a bill for payment of the accident-related medical expenses to SummaCare in the amount of $49, 924.27. (Id. at ¶ 10.) SummaCare paid $7, 437.34. (Id.)

         The tortfeasor responsible for the accident was insured by Defendant Phoenix under a liability insurance policy. (Id. at ¶ 8.) J.R. subsequently made a claim against the tortfeasor, which Defendant settled for an undisclosed amount in exchange for a release of all claims. (Id. at ¶ 11.) Plaintiffs allege that, as a result of this settlement, “Defendant became a primary payer and subject to liability for J.R.'s accident-related medical expenses.” (Id.)

         Plaintiffs MSP Recovery Claims, Series, LLC and Series 16-11-509, LLC claim that, as a primary payer, Defendant is legally obligated to reimburse conditional Medicare payments made by SummaCare with respect to J.R. (Id. at ¶ 3.) Plaintiffs allege that they have the legal right to pursue these claims for reimbursement pursuant to a series of assignment agreements, copies of which are attached to the Complaint. (Id. at ¶ 14.) See also Doc. Nos. 1-4, 1-5. Specifically, Plaintiffs allege that, on May 12, 2017, SummaCare and MSP Recovery, LLC entered into an “Assignment” and “Recovery Agreement, ” in which SummaCare irrevocably assigned all rights to recover conditional payments made on behalf of its enrollees to MSP Recovery, LLC.[3] (Doc. No. 1-4 at § 4.1) Thereafter, on June 12, 2017, MSP Recovery, LLC assigned all rights under the Recovery Agreement to “Series 16-11-509, LLC, a series of MSP Recovery Claims, Series LLC.” (Id. at ¶ 16.) See Doc. No. 1-5.

         On September 5, 2018, SummaCare sent a letter to MSP Recovery, LLC in which it confirmed that it “has consented to, approved, and ratified the assignment of Recovery Agreement executed on June 12, 2017 by MSP Recovery, LLC, and all rights contained therein, including all claims and reimbursement rights, to and in favor of MSP Recovery Claim Series, LLC or any of its designated series, including but not limited to, Series 16-11-509.” (Doc. No. 1-6.)

         After Defendant failed to submit reimbursement for J.R's medical expenses, Plaintiffs MSP Recovery Claims, Series LLC and Series 16-11-509, LLC filed the instant action against Defendant Phoenix on February 27, 2019. (Doc. No. 1.)

         III. Standards of Review

         Defendant moves for dismissal on the basis of both lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), and failure to state a claim under Fed.R.Civ.P. 12(b)(6). The standard of review of a 12(b)(1) motion to dismiss for lack of subject matter jurisdiction depends on whether the defendant makes a facial or factual challenge to subject matter jurisdiction. Wayside Church v. Van Buren County, 847 F.3d 812, 816-17 (6th Cir. 2017). A facial attack “questions merely the sufficiency of the pleading” and requires the district court to “take[ ] the allegations in the complaint as true.” Gentek Bldg Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). To survive a facial attack, the complaint must contain a short and plain statement of the grounds for jurisdiction. See Rote v. Zel Custom Mfg. LLC, 816 F.3d 383, 387 (6th Cir. 2016); Ogle v. Ohio Civil Service Employees Ass'n, AFSCME, Local 11, 397 F.Supp.3d 1076, 1081-1082 (S.D. Ohio 2019).

         A factual attack, on the other hand, “raises a factual controversy requiring the district court ‘to weigh the conflicting evidence to arrive at the factual predicate that subject-matter does or does not exist.'” Wayside Church, 847 F.3d at 817 (quoting Gentek Bldg. Prods., Inc., 491 F.3d at 330). The plaintiff has the burden of proving jurisdiction when subject matter jurisdiction is challenged. Rogers v. Stratton Indus., 798 F.2d 913, 915 (6th Cir. 1986). The court may allow “affidavits, documents and even a limited evidentiary hearing to resolve disputed jurisdictional facts.” Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990).

         Under Fed.R.Civ.P. 12(b)(6), the Court accepts the plaintiff's factual allegations as true and construes the Complaint in the light most favorable to the plaintiff. See Gunasekara v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009). In order to survive a motion to dismiss under this Rule, “a complaint must contain (1) ‘enough facts to state a claim to relief that is plausible,' (2) more than ‘formulaic recitation of a cause of action's elements,' and (3) allegations that suggest a ‘right to relief above a speculative level.'” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-556 (2007)).

         The measure of a Rule 12(b)(6) challenge - whether the Complaint raises a right to relief above the speculative level - “does not ‘require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.'” Bassett v. National Collegiate Athletic Ass'n., 528 F.3d 426, 430 (6th Cir.2008) (quoting in part Twombly, 550 U.S. at 555-556). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Deciding whether a complaint states a claim for relief that is plausible is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         Consequently, examination of a complaint for a plausible claim for relief is undertaken in conjunction with the “well-established principle that ‘Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief.' Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'” Gunasekera, 551 F.3d at 466 (quoting in part Erickson v. Pardus, 551 U.S. 89 (2007)) (quoting Twombly, 127 S.Ct. at 1964). Nonetheless, while “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era ... it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Iqbal, 556 U.S. at 679.

         IV. Analysis

         Defendant argues Plaintiffs' claim should be dismissed for several reasons. First, Defendant argues that Plaintiffs are estopped from bringing the instant action because four federal courts have decided that Plaintiffs do not have standing to assert a claim under 42 U.S.C. §1395y(b)(3)(A) on behalf of a Medicare Advantage Organization (“MAO”). (Doc. No. 7.) Second, Defendant asserts that the May 12, 2017 Recovery Agreement is too vague and contradictory to demonstrate that Plaintiffs have standing as a matter of law. (Id.) Third, Defendant argues that the Complaint should be dismissed because MAOs do not have a private right of action under the MSP Act for recovery of conditional payments. (Id.) Fourth, Defendant maintains the Complaint fails to state a claim upon which relief may be granted because Plaintiffs fail to allege facts showing that SummaCare made a conditional payment that has not been reimbursed. (Id.) Finally, Defendant argues that Plaintiffs' claim fails because the Complaint does not allege that Defendant “failed” to reimburse a MAO. (Id.)

         Prior to reaching the merits of the parties' arguments, the Court will briefly set forth the statutory and regulatory background relevant to Plaintiffs' claims.

         A. Statutory and Regulatory Background

         “Medicare is a federal health insurance program that provides health insurance benefits to people sixty-five years of age or older, disabled people, and people with end-stage renal disease.” Stalley v. Methodist Healthcare, 517 F.3d 911, 915 (6th Cir. 2008). Parts A and B of the Medicare Act create, describe, and regulate traditional fee-for-service Medicare provisions, which are administered by the Centers for Medicare & Medicaid Services (“CMS”). See In re Avandia Marketing, Sales Practices and Products Liability Litigation, 685 F.3d 353, 357 (3rd Cir. 2012). Part C creates the program now known as Medicare Advantage, under which Medicare-eligible persons may elect to obtain their Medicare benefits through private insurers (also known as Medicare Advantage Organizations or MAOs) instead of receiving direct benefits from the government under Parts A and B. Id. See also Humana Medical Plan, Inc v. Western Heritage Insurance Co., 832 F.3d 1229, 1233 (11th Cir. 2016).

         Initially, “Medicare paid for all medical treatment within its scope and left private insurers merely to pick up whatever expenses remained.” Bio-Med. Applications of Tenn., Inc. v. Cent. States Se. & Sw. Areas Health & Welfare Fund, 656 F.3d 277, 278 (6th Cir. 2011). In 1980, in an effort to curb the rising costs of Medicare, Congress enacted the Medicare Secondary Payer Act (“MSP”), which is located in Part E of the Medicare Act. See 42 U.S.C. § 1395y(b). Under this Act, when both Medicare and a private plan would cover a Medicare beneficiary's expenses, Medicare is the “secondary payer” and the private plan is the “primary payer.” Bio-Med. Applications of Tenn., Inc., 656 F.3d at 281. As the Sixth Circuit explained, “[t]he primary payer is responsible for paying for the patient's medical treatment; however, if Medicare expects that the primary payer will not pay promptly, then Medicare can make a ‘conditional payment' on its behalf and later seek reimbursement.” Id. See 42 U.S.C. § 1395y(b)(2)(B)(i). If Medicare makes a conditional payment, the primary plan must reimburse the Medicare Trust Fund. 42 U.S.C. § 1395y(b)(2)(B)(ii). If the primary plan fails to reimburse the Fund, “the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan.” 42 U.S.C. § 1395yb(2)(B)(iii). The United States may then, “in accordance with paragraph (3)(A) collect double damages against any such entity.” Id.

         Paragraph (3)(A) of the MSP Act, entitled “Private cause of action, ” provides as follows:

There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).

42 U.S.C. § 1395y(b)(3)(A). Subparagraph (1) relates to group health plans and is not relevant to the issues presented herein. Subparagraph (2)(A) provides that Medicare may not pay when a primary plan is expected to pay, “except as provided in subparagraph [2](B), ” which in turn provides that when the primary plan “has not or cannot reasonably be expected” to pay “promptly, ” “the Secretary” may make a conditional payment. See 42 U.S.C. §§ 1395y(b)(2)(A) and (B). See also Michigan Spine & Brain Surgeons, PLLC v. State Farm Mutual Automobile Ins. Co., 758 F.3d 787, 792 (6th Cir. 2014).

         Interpreting the above, courts have found that “[t]he Medicare Statute thus creates two separate causes of action allowing for recovery of double damages where a primary payer fails to cover the costs of medical treatment.” In re Avandia, 685 F.3d at 359. When Medicare makes a conditional payment and the primary payer does not reimburse it, the United States may bring suit pursuant to § 1395y(b)(2)(B)(iii). In addition, a private cause of action exists pursuant to § 1395y(b)(3)(A) when a primary payer fails to make required payments.

         The Medicare Advantage Act, commonly known as Part C, was enacted in 1997, seventeen years after the enactment of the MSP Act. Humana Medical Plan, Inc., 832 F.3d at 1235. “Congress's goal in creating the Medicare Advantage program was to harness the power of private sector competition to stimulate experimentation and innovation that would ultimately create a more efficient and less expensive Medicare system.” In re Avandia, 685 F.3d at 363 (citing H.R. Rep. No. 105-217, at 585 (1997), 1997 U.S.C.C.A.N. 176, 205-06 (Conf. Rep.)). Under the Medicare Advantage program, a private insurance company, operating as a MAO, administers the provision of Medicare benefits pursuant to a contract with CMS.[4] Part C includes a reference to the MSP, entitled “Organization as secondary payer, ” which states as follows:

Notwithstanding any other provision of law, [a MAO][5] may (in the case of the provision of items and services to an individual under [an MA] plan under circumstances in which payment under this subchapter is made secondary pursuant to section 1395y(b)(2) of this title) charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy described in such section-
(A) the insurance carrier, employer, or other entity which under such law, plan, or policy is to pay for the provision of such services, or (B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services.

42 U.S.C. § 1395w-22(a)(4). In several cases, a MAO has contended that § 1395w-22(a)(4) (sometimes called the MAO “right-to-charge” provision) creates an implied federal cause of action for a MAO to recover secondary payments. However, several courts have rejected this argument. See, e.g., Parra v. PacifiCare of Ariz., Inc., 715 F.3d 1146, 1153, 1154 (9th Cir. 2013) (explaining that the MAO right-to-charge provision “does not create a federal cause of action in favor of a MAO”); Care Choices HMO v. Engstrom, 330 F.3d 786, 790 (6th Cir. 2003) (reaching a similar conclusion as to 42 U.S.C. § 1395mm(e)(4), which addresses secondary payment by Medicare-substitute HMOs).

         B. Subject Matter Jurisdiction

         Defendant first argues that this Court lacks subject matter jurisdiction because Plaintiffs do not have standing. (Doc. No. 12-1.) “Article III of the Constitution limits the judicial power of the United States to the resolution of ‘Cases' and ‘Controversies.'” Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 597-98 (2007) (alteration in original) (quoting DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, (2006)). The case-or-controversy requirement is satisfied only where a plaintiff has standing. See Sprint Communications Co. v. APCC Services, Inc., 554 U.S. 269, 273 (2008).

         “[T]he irreducible constitutional minimum of standing contains three elements.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). “First, the plaintiff must have suffered an ‘injury in fact'-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Id. (internal quotation marks and citations omitted). “Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be ‘fairly ... trace[able] to the challenged action of the defendant, and not ... th[e] result [of] the independent action of some third party not before the court.'” Id. at 560-61 (quoting Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 41-42 (1976)). “Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Id. at 561(internal quotation marks and citation omitted).

         Here, Defendant argues that Plaintiffs lack standing because (1) four other federal courts have “addressed the same issue before this Court and determined that Plaintiff MSP Recovery Claims, Series, LLC does not have standing to assert a claim under § 1395y(b)(3)(A);” and (2) the assignments at issue are “too vague and contradictory to show Plaintiffs' standing as a matter of law.” (Doc. No. 7.) The Court will address each of these arguments in turn.

         1. Collateral Estoppel

         Defendant first asserts that the instant action should be dismissed on the basis of collateral estoppel. (Doc. No. 7 at pp. 7-9.) Citing to four, unreported district court decisions from Florida and Illinois, [6] Defendant argues Plaintiffs herein “had a full and fair opportunity to litigate their standing to bring claims on behalf of MAOs multiple times [in those cases] and lost.” (Id.) Defendant acknowledges that Series 16-11-509 was not a party to the Florida and Illinois actions but argues that collateral estoppel nonetheless applies because Series 16-11-509 is an “agent” or “proxy” for Plaintiff MSP Recovery Claims, Series LLC, which was a party to those actions. (Id.) Thus, Defendant argues Plaintiff Series 16-11-509 is bound by the previous court decisions, despite the fact that it was not a named party. (Id.)

         Plaintiffs argue that collateral estoppel does not apply because, in each of the four cases cited by Defendant, “the Courts were presented with different facts, including different assignment agreements involving different types of entities as assignees, before ultimately deciding a different issue that is inapplicable to this case: whether non-MAO entities have standing to sue under the MSP Act.” (Doc. No.11 at p. 3.) Plaintiffs assert that “Defendant cannot shoe-horn this case in with those inapplicable final rulings.” (Id. at p. 4.)

         In response, Defendant maintains that collateral estoppel nonetheless applies because, in the four cases at issue, Plaintiffs pled that their assignors were MAOs. (Doc. No. 12 at pp. 6-7.) Defendant further argues that the fact that the Florida and Illinois cases did not involve a SummaCare assignment is not relevant because “Plaintiffs' approach in the prior cases was to put only a ‘representative' assignment before the prior courts, one that stood in for all of their alleged MAO assignments, including the SummaCare assignment they rely on here.” (Id. at p. 7.) Thus, Defendant asserts that “Plaintiffs' failure to establish standing broadly on behalf of MAOs using a ‘representative' assignment estops them from relitigating the issue again in this case.” (Id. at p. 8.)

         “The preclusive effect of a federal-court judgment is determined by federal common law.” Taylor v. Sturgell, 553 U.S. 880, 891 (2008). Part of that federal common law is the doctrine of issue preclusion. “The doctrine bars repetitive litigation of the same issue between the same parties: if two parties actually litigated an issue in a prior case, and a court necessarily decided the issue pursuant to entry of a final judgment, then the losing party cannot relitigate the issue against the winner in a later case.” Amos v. PPG Industries, Inc., 699 F.3d 448, 451 (6th Cir. 2012) (citing Taylor, 553 U.S. at 892.) See also Covenant Medical Center, Inc. v. Burwell, 603 Fed.Appx. 360, 363 (6th Cir. 2015). For the doctrine to apply, however, the loser must have had a “full and fair opportunity” to litigate the issue in the prior case. Id. (quoting Montana v. United States, 440 U.S. 147, 153-54 (1979)). See also B&B Hardware, Inc. v. Hargis Industries, Inc. 575 U.S. 138 (2015) (“This Court has long recognized that ‘the determination of a question directly involved in one action is conclusive as to that question in a second suit.'”) (quoting Cromwell v. County of Sac, 94 U.S. 351, 354 (1877)).

         For the following reasons, the Court rejects Defendant's argument that the instant action is barred by the doctrine of collateral estoppel. The courts in the four cases cited by the Defendant considered issues that are entirely different from those that are presently before this Court. Specifically, in the Florida and Illinois cases, the courts found that the MSP plaintiffs lacked standing because the original assignors were not MAOs or direct healthcare providers and, therefore, did not have any assignable rights to recovery under § 1395y(b)(3)(A). See Auto-Owners Ins. Co., 2018 WL 1953861 at * 5 (finding that assignor HFAP was not a MAO and assignor Verimed was neither a MAO or direct healthcare provider and, therefore, neither of these entities had standing to assign claims under § 1395y(b)(3)(A)); Travelers Casualty and Surety Co., 2018 WL 3599360 at * 3 (finding that assignor HFAP was not a MAO and, therefore, had no standing under § 1395y(b)(3)(A)); State Farm, 2018 WL 2392827 at * 4-5 (same); QBE Holdings, 2019 WL 1409531 at * 3-4 (finding MSP plaintiffs lacked standing because the actual assignor HFAP was not a MAO). The courts' rulings were predicated on a finding that, in order to have standing under § 1395y(b)(3)(A), a plaintiff (or its assignor) must be (1) a MAO who has made a conditional payment for health care services to a Medicare beneficiary; (2) a Medicare beneficiary whose healthcare services were paid by Medicare; or (3) a direct health care provider who has not been fully paid for services provided to a Medicare beneficiary. Because neither the plaintiffs or the original assignors in those cases fell into one of these three categories, the courts found the MSP plaintiffs lacked standing to assert claims under § 1395y(b)(3)(A) and granted defendants' motions to dismiss on that basis.

         In the instant case, Defendant does not dispute that Plaintiffs' assignor, SummaCare, is a MAO. Thus, the rulings in Auto-Owners, Travelers, State Farm, and QBE Holdings are simply not relevant to the instant case. Indeed, Defendant makes no valid argument that the courts' decisions in those cases have any bearing on the specific issues raised in Defendant's Motion; i.e., whether the assignment agreement herein is void for vagueness; whether a MAO has standing under § 1395y(b)(3)(A) as a matter of law in this Circuit; and/or whether this action should be dismissed because Plaintiffs failed to allege facts showing that a conditional payment has not been reimbursed. It is clear from this Court's review of the Auto-Owners, Travelers, State Farm, and QBE Holdings decisions that the issues raised by Defendant in its Motion were not actually litigated or decided in those cases.

         Thus, the Court finds that the doctrine of collateral estoppel does not apply. This argument in support of Defendant's Motion is without merit and denied.

         2. Validity of the Assignment

         Defendant next argues that this Court lacks subject matter jurisdiction because of alleged defects in the assignment agreement. (Doc. No. 7 at p. 9.) First, Defendant asserts that “the only named Plaintiff that potentially has had rights assigned to it is Series 16-11-509” and, therefore, “Plaintiff MSP Recovery Claims, Series LLC should be dismissed on that basis alone.” (Id. at p. 10.) Second, Defendant argues the ...

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