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MAO-MSO Recovery II, LLC v. American Family Mutual Insurance Co.

United States District Court, W.D. Wisconsin

February 12, 2018

MAO-MSO RECOVERY II, LLC, MSP RECOVERY, LLC, and MSPA CLAIMS 1, LLC, Plaintiffs,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY and AMERICAN FAMILY INSURANCE, Defendants.

          OPINION & ORDER

          JAMES D. PETERSON, District Judge

         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 companies.[1]

         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.”).

         ANALYSIS

         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 “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.

         B. Standing

         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 ...


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