Mao-Mso Recovery II, LLC v. State Farm Mut. Auto. Ins. Co.
935 F.3d 573
7th Cir.2019Background
- Plaintiffs are assignees (including MSP Recovery Claims, Series LLC) claiming rights originally held by Medicare Advantage Organizations (MAOs) to recover unreimbursed medical payments from State Farm under the Medicare Secondary Payer private right of action (double damages).
- Litigation history: defendants moved to dismiss for lack of Article III standing; plaintiffs filed successive complaints (initial, First Amended, Second Amended) and used an exemplar beneficiary to try to show injury and a valid assignment.
- The Second Amended Complaint identified Health First Administrative Plans (HFAP) as the MAO/payor and alleged assignments to Recovery Claims; a separate Florida district court (Auto-Owners) concluded HFAP was not an MAO but a contractor for Health First Health Plans.
- The Central Illinois district court, relying on that development and on discrepancies about which entity actually paid the bills, found no viable assignment from the true payor to HFAP and concluded plaintiffs lacked Article III standing; it dismissed the case and denied further leave to amend.
- The district court also imposed Rule 11 sanctions on Recovery Claims and its counsel for alleged misstatements and inadequate inquiry; plaintiffs appealed dismissal and sanctions, and State Farm cross-appealed on the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing (assignment/link to MAO) | Plaintiffs: assignments from MAOs (or their assignees) give plaintiffs standing to sue under Medicare Secondary Payer private right of action | State Farm: plaintiffs lack valid assignments from an MAO that actually paid unreimbursed bills, so no injury/standing | Court: plaintiffs lacked Article III standing because no valid assignment from the true payor; dismissal appropriate but must be without prejudice (jurisdictional defect) |
| Dismissal with prejudice vs. without prejudice | Plaintiffs: dismissal with prejudice is improper for jurisdictional defect; at most dismissal without prejudice or leave to amend | State Farm: (defensive) leave to affirm dismissal as entered; also urged merits dismissal in cross-appeal | Court: dismissal based on lack of standing is jurisdictional and cannot be with prejudice; remanded/corrected to dismissal without prejudice, but denial of further leave to amend was within district court discretion |
| Denial of further leave to amend | Plaintiffs: offered new materials post-dismissal (nunc pro tunc assignment, affidavits, additional exemplars) and argued court abused discretion in refusing another amendment | State Farm: plaintiffs had multiple chances and still failed to cure defects; further amendment would be futile/delayed | Court: district court did not abuse discretion in denying further amendment given repeated failures and plaintiffs’ late submission of new evidence after dismissal |
| Rule 11 sanctions against plaintiff and counsel | Plaintiffs/counsel: misstatements were understandable mistakes given confusing corporate structure; later affidavits showed colorable basis; counsel lacked bad faith and made a reasonable inquiry | State Farm: counsel made false or careless representations about HFAP being the MAO/payor and about assignments, warranting sanctions | Court: reversed sanctions — no evidence of bad faith or sufficiently sanctionable carelessness given the confusing HFAP/Health First structure and timing of information; sanctions exceeded discretion |
Key Cases Cited
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (Article III standing requires concrete, particularized injury)
- Cooter & Gell v. Hartmax Corp., 496 U.S. 384 (1990) (Rule 11 abuse-of-discretion standard and limits)
- In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353 (3d Cir. 2012) (MAO may have Medicare Secondary Payer private cause of action)
- Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229 (11th Cir. 2016) (same—MAO private right of action recognized)
- Murray v. Conseco, Inc., 467 F.3d 602 (7th Cir. 2006) (dismissal for lack of jurisdiction cannot be with prejudice)
- James Cape & Sons Co. v. PCC Const. Co., 453 F.3d 396 (7th Cir. 2006) (denial of leave to amend reviewed for abuse of discretion)
- Mars Steel Corp. v. Cont'l Bank N.A., 880 F.2d 928 (7th Cir. 1989) (Rule 11 embodies both objective and subjective standards)
- Arreola v. Godinez, 546 F.3d 788 (7th Cir. 2008) (factors permitting denial of leave to amend: undue delay, bad faith, repeated failure to cure, prejudice, futility)