MAO-MSO Recovery II, LLC, et al., Plaintiffs-Appellants, Cross-Appellees,
State Farm Mutual Automobile Insurance Company, Defendant-Appellee, Cross-Appellant. Appeal Of: Christopher L. Coffin, et al.
January 14, 2019
Appeals from the United States District Court for the Central
District of Illinois. No. 17-1541 - Joe Billy McDade, Judge.
Wood, Chief Judge, and Brennan and St. Eve, Circuit Judges.
all the dust is cleared away, this case is relatively
straightforward: we must review a dismissal for lack of
Article III standing and the imposition of sanctions under
Rule 11. Only the factual backdrop is complex, as it deals
with one aspect of the federal Medicare program. The
Plaintiffs assert that they are assignees of certain private
insurers called Medicare Advantage Organizations, which
provide Medicare benefits. They brought a putative class
action against State Farm Mutual Automobile Insurance Company
in an effort to recover payments State Farm allegedly should
have made to them as reimbursement for certain medical costs.
The district court dismissed the action with prejudice,
although the basis for the dismissal was lack of standing. In
addition, the court imposed sanctions under Rule 11 of the
Federal Rules of Civil Procedure against one of the
plaintiffs, MSP Recovery Claims, Series LLC, and its
MAO-MSO Recovery II, LLC; MSP Recovery, LLC; MSPA Claims 1,
LLC; and MSP Recovery Claims, Series LLC MSP ("Recovery
Claims"), appealed. They argue that the court erred in
its standing analysis, and that in any event it should not
have dismissed the case with prejudice. Recovery Claims and
the attorneys (Christopher Coffin, David Hundley, and
Courtney Stidham) appealed the sanctions order. Finally,
State Farm cross-appealed in order to preserve its
alternative argument in favor of affirmance-that the case
should be dismissed on the merits because plaintiffs failed
to state a claim upon which relief can be granted. See
Matushkina v. Nielsen, 877 F.3d 289, 297 (7th Cir.
2017) (noting that "[a]s a general rule, where a
defendant has won dismissal for lack of standing or some
other jurisdictional ground, modifying the judgment to
dismissal on the merits" requires a cross-appeal).
conclude that the district court erred insofar as it
dismissed plaintiffs' case with prejudice, when the
problem was a fundamental lack of Article III standing. But
this victory gets the plaintiffs only so far. The court acted
well within its discretion when it denied plaintiffs a third
opportunity to cure the defects in their pleadings. The
court's order, in substance, was a jurisdictional
dismissal with denial of leave to amend. So understood, we
affirm the judgment and correct the record to reflect that
the dismissal is without prejudice. We also dismiss State
Farm's cross-appeal. Finally, we find that the district
court exceeded the bounds of its discretion when it imposed
Rule 11 sanctions on Recovery Claims and its attorneys.
the issues before us are ultimately procedural, some
background on Medicare is helpful to place them in context.
Medicare is "the federal health insurance program for
people who are 65 or older," as well as for certain
other groups. See
While many Americans receive benefits directly from the
government through Medicare Parts A and B, others receive
their benefits from private entities known as Medicare
Advantage Organizations, pursuant to Medicare Part C. 42
U.S.C. § l395w-2l(a). For each Medicare enrollee covered
by a Medicare Advantage Organization, the Organization
receives a per capita reimbursement from the federal
government. The amount of that reimbursement may vary
according to the characteristics of the individual enrollees
and other factors. See In re Avandia Mktg., Sales
Practices & Prods. Liab. Litig., 685 F.3d 353,
364-65 (3d Cir. 2012). The Medical Advantage Organizations
assume the financial risk of insuring their enrollees.
other piece of Medicare vocabulary is important to this case:
the difference between "primary" and
"secondary" payments. When an enrollee is covered
directly by the government (under Medicare Parts A and B),
Medicare is statutorily barred from making payments for
medical costs when an enrollee has benefited or is likely to
benefit from some other insurance or worker's
compensation plan. The statute mentions such alternative
sources of benefits as "a workmen's compensation law
... or ... automobile or liability insurance policy or plan
(including a self-insured plan) or ... no fault
insurance." 42 U.S.C. § l395y(b)(2)(A)(ii). In such
situations, Medicare is a secondary form of coverage that
applies only to costs not covered by the primary insurance.
But if a primary insurer fails to pay, the government does
not leave the enrollee and her medical providers in the
lurch. Rather, it makes conditional payments to providers and
then seeks reimbursement from the primary insurer.
Id. § l395y(b)(2)(B)(i). An analogous provision
in Medicare Part C makes the private Medicare Advantage
Organizations secondary payers where enrollees have some form
of primary coverage. Id. § l395w-22(a)(4). When
the primary insurers fall down on their responsibilities,
Medicare Advantage Organizations are authorized by statute to
pay first and seek reimbursement later, just as the
government may. Id.
however, the primary insurer never reimburses the secondary
payer (be it the government or a Medicare Advantage
Organization) for benefits it should have provided. In that
case, the Medicare Secondary Payer provisions establish a
private right of action that permits some private
plaintiffs to sue for double damages. But the relevant
section of the statute does not specify who may take
advantage of that provision. All it says, without further
elaboration, is that "[t]here 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)." Id. § l395y(b)(3)(A).
plaintiffs in this case are not themselves Medicare Advantage
Organizations; they assert instead that they are assignees of
claims that originally belonged to such entities. They argue
that Medicare Advantage Organizations are among the proper
plaintiffs that can exercise this private right of action,
and that through the assignments, they stand in the shoes of
those Organizations. The plaintiffs and related entities have
pursued this theory not just in this litigation, but in
several suits throughout the country. See, e.g., MAO-MSO
Recovery II, LLC v. Gov't Employees Ins. Co., No.
PWG-17-711, 2018 WL 999920 (D. Md. Feb. 21, 2018);
MAO-MSO Recovery II, LLC v. Am. Family Mut. Ins.
Co., No. 17-CV-175-JDP, 2018 WL 835160 (W.D. Wis. Feb.
12, 2018). At the same time as it granted State Farm's
motion to dismiss the First Amended Complaint for lack of
standing in this case, the district court agreed with the
plaintiffs that the statute does support a private right of
action for Medicare Advantage Organizations. In that respect,
it relied on rulings from the Third and Eleventh Circuits.
See Humana Med. Plan, Inc. v. W. Heritage Ins. Co.,
832 F.3d 1229, 1238 (11th Cir. 2016); In re Avandia
Mktg., Sales Practices & Prods. Liab. Litig., 685
F.3d 353, 355 (3d Cir. 2012). Although State Farm did not
challenge this point in the district court, it has changed
its tune on appeal and now argues that the private right of
action does not extend to Medicare Advantage
Organizations. Those entities, State Farm contends, must look
to contract law for appropriate remedies. This dispute is at
the heart of State Farm's cross-appeal.
efforts in the present case foundered, however, when the
district court found that they did not have valid assignments
from any Medicare Advantage Organization that made
unreimbursed payments. Without the link to a proper
Organization that possessed claims to reimbursement, the
court concluded, plaintiffs had no injury for which they
could seek redress on this or any other legal theory.
Accordingly, it ruled, no matter the scope of the private
right of action, these plaintiffs lacked standing to
sue. We come to the same conclusion. We save for another day
the question whether a Medicare ...