Case Information
*1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN MAO-MSO RECOVERY II, LLC, MSP
RECOVERY, LLC, аnd MSPA CLAIMS 1, LLC, Plaintiffs, OPINION & ORDER
v. 17-cv-175-jdp AMERICAN FAMILY MUTUAL INSURANCE 17-cv-262-jdp COMPANY and AMERICAN FAMILY INSURANCE,
Defendants.
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; Nо. 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]
*2 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 prоblems 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 Mediсare 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. 17- 20946-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. Cal.).
“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 expеnses 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 оf 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 bе 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 *4 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 thеory 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
,
First, defendants say that plaintiffs have not adequately alleged thаt 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 fаiled 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
,
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
,
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
,
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 *6 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 “nevеr 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 concеde 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 Plаintiffs 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 plаintiffs’ right to sue
because “an assignee can sue based on his assignor’s injuries.”
Sprint Communications Co., L.P.
v. APCC Services, Inc.
,
In both complaints, plaintiffs include a number of general allegations that MAOs assigned their rights to рlaintiffs. 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 thоse 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 thаt they *8 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
,
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
thе 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,
This court agrees with the conclusion in
Farmers Insurance Exchange
: “The fundamental
flaw with plaintiffs’ pleadings is that therе 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.”
The difference between a conclusion and a fact can be subtle,
Twombly
,
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.
,
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.”
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 jurisdictiоn. 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 еach 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 assignmеnts in cases like this. In
MSPA Claims 1, LLC v. Covington
Specialty Ins. Co
.,
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
,
D. Conclusion
The court will grаnt 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 а 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.
ORDER
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-175- jdp) 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 рlaintiffs 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:
/s/
________________________________________ JAMES D. PETERSON District Judge
Notes
[1] 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.