Wrong Defendant – No Standing – No Case

Ninth and Final Attempt to Create a Class Action to Recover from U.S. Government Fails

Posted on December 31, 2019 by Barry Zalma

In their ninth attempt to pursue a class action against Zurich American Insurance Company (Zurich) the plaintiffs MSP Recovery Claims, claiming an agency relationship with Medicare Advantage Organizations, filed suit again, after failing eight times.

In MSP Recovery Claims, Series, LLC; and Series 16-08-483, a series of MSP Recovery Claims, Series LLC Series 15-09-335, LLC, a series of MSP Recovery Claims, Series LLC v. Zurich American Insurance Company, Case No. 18 C 7849, United States District Court for the Northern District of Illinois Eastern Division (December 18, 2019) Plaintiffs MSP Recovery Claims, Series, LLC and Series 16-08-483 brought a second amended putative class action complaint against defendant Zurich American Insurance Company claiming to be the assignees of legal claims held by various largely unidentified Medicare Advantage Organizations (“MAOs”). Plaintiffs sought double recovery under the Medicare Secondary Payor provisions of the Medicare Act for reimbursement of medical expenses that the various MAOs paid on behalf of Medicare beneficiaries despite defendant’s alleged obligation to pay under the MSPA. Defendant moved to dismiss the complaint for lack of standing, and under Fed. R. Civ. P. 12(b)(6) for failure to state a claim.

BACKGROUND

Many Medicare beneficiaries receive benefits directly from the government from Medicare Parts A and B, while others enroll in Part C under which their benefits are provided by private entities known as MAOs. The MAO receives a per capita reimbursement from the government for each Medicare enrollee covered by the MAO. The amount of the reimbursement varies according to the characteristics of the individual enrollee as well as other factors.

Congress made the government a secondary provider of medical insurance coverage when a Medicare recipient has other sources of primary insurance coverage. The Medicare Secondary Payer Agreement provisions shift responsibility for medical payments to other health plans, such as non-fault and liability insurance, which are considered “primary plans.” Under the MSPA, for Part A and B enrollees, 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 where Medicare is a secondary form of coverage that applies only to costs not covered by the primary insurer.

If the primary insurer fails to pay, Medicare is authorized to make conditional payments to providers and then seek reimbursement from the primary insurer. If the primary payer fails to reimburse the secondary payer (either Medicare or an MAO) for benefits it should have provided, the MSPA establishes a private right of action that permits some private plaintiffs to sue for double damages.

DISCUSSION

Plaintiffs in the instant case are not MAOs, but rather assert that they are assignees of claims that belonged to MAOs. In particular, plaintiffs alleged that they have assignments to pursue seven “exemplar” claims from Medicare enrollees. Plaintiffs allege that each of the identified enrollees were injured in an accident, an MAO made conditional payments for medical services, and that the MAO “assigned” its reimbursement claim to plaintiffs.

Standing is an essential element of the Constitution’s Article III’s case or controversy requirement. Because it is a jurisdictional requirement, plaintiffs bear the burden of establishing standing and, because it is not a mere pleading requirement but rather an indispensable part of the plaintiffs’ case, it must be supported in the same way as any other matter on which the plaintiffs bear the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.

A facial challenge to the court’s jurisdiction requires only that the court look to the complaint and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction. In contrast, a factual challenge lies where the complaint is formally sufficient but the contention is that there is in fact no subject matter jurisdiction. When considering a motion that raises a factual challenge to jurisdiction, the court may look beyond the jurisdictional allegations and consider whatever evidence that has been submitted.

Defendant raises both a facial and factual challenge to plaintiffs’ standing. With respect to the exemplars, plaintiffs allege that they received an assignment to pursue these claims from Health Insurance Plan of Greater New York (“HIP”).

Plaintiffs’ complaint conveniently ignores that the assignment documents contain no list of which claims were assigned to it and which were excluded. The complaint fails even to acknowledge the exclusion by alleging that the six exemplar claims were assigned to plaintiffs and not to any other recovery vendor.

Absent such an allegation, the complaint fails to survive a facial challenge.

Moreover, even if the court were to infer that plaintiffs are alleging that the six exemplars were assigned to them and not “carved out” of the general assignment, defendant has provided letters from the Rawlings Group indicating that it has received assignments from HIP claims, and defendant has indicated that Rawlings is pursing the other three claims as well.

There is a more fundamental problem with this claim. The complaint contains no more information about that policy, but in the briefing defendant has submitted evidence, and plaintiffs appear to admit, that the policy in fact was issued by Universal Underwriters Insurance Company, not defendant. Thus, plaintiffs have named the wrong defendant.

The Federal Rules of Civil Procedure allow for one amendment as of right and directs district courts freely to give leave for further amendments when justice so requires. After the first amendment, the court has discretion to deny leave to amend.

As defendant points out, the instant complaint is not plaintiffs’ third attempt to establish standing and a claim, but actually their ninth. After their third attempt in each case was challenged by motion, plaintiffs voluntarily dismissed the cases and then filed the instant case in this district.

Nine attempts to establish standing and plead a cause of action is enough. The court, therefore, denied leave to amend and dismissed the action.

ZALMA OPINION

Class actions are major profit centers for the law firms that pursue them to judgment. They try hard to get past defenses. They don’t give up easy because a successful class action can cover the overhead and profit of a law firm for one or more years. This case proves that although “greed is good” to be properly and effectively greedy it takes skill and serious lawyering. Nine tries to state a viable cause of action proves the courts are too generous to those trying to move a class action. To add to the incompetence, suing the wrong defendant is unforgivable.

? 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at https://www.zalma.com and [email protected].

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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