B&H Med., LLC v. United States
| Decision Date | 23 June 2014 |
| Docket Number | No. 13-088C,13-088C |
| Parties | B & H MEDICAL, LLC, Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Chevron Deference; Regulatory
Interpretation; Motion to Dismiss
for Lack of Subject Matter
Jurisdiction under RCFC 12(b)(1);
Motion to Dismiss for Failure to
State a Claim under RCFC
12(b)(6); Medicare
Reimbursement Claim.
Stephen M. Ryan, Bingham Farms, Mich., for plaintiff.
Gregg M. Schwind, Senior Trial Counsel, with whom were Stuart F. Delery, Assistant Attorney General; Bryant G. Snee, Acting Director; and Steven J. Gillingham, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant.
Plaintiff has brought suit alleging breach of contract. In Count I of the complaint, plaintiff alleges that the government's termination of plaintiff's contract to supply diabetic supplies to Medicare recipients effected a breach of contract. Compl. ¶¶ 1-23, ECF No. 1. In Count II of the complaint, plaintiff makes a further claim for breach of contract that arises out of a denial of payment after a routine audit in which defendant disallowed certain sales plaintiff made to Medicare recipients. Id. at ¶¶ 24-44.
The case was transferred to the undersigned on October 29, 2013. ECF No. 18. On October 17, 2013, defendant filed a motion to dismiss pursuant to both Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). Def.'sMot., ECF No. 16. Plaintiff filed its opposition on February 19, 2014. Pl.'s Opp'n, ECF No. 24. Defendant filed a reply on March 4, 2014. Def.'s Reply, ECF No. 25. Oral argument was neither requested by the parties nor deemed necessary by the court. ECF No. 26. Defendant's motion is ripe for consideration.
For the reasons explained below, defendant's motion to dismiss is DENIED as to Count I, and GRANTED as to Count II.
The facts pertaining to the contract termination alleged in Count I are identical to those in the matter of Cardiosom, L.L.C. v. United States, No. 08-533C, 2014 WL 1709332 (Fed. Cl. Apr. 30, 2014). In Cardiosom, the government presented the same argument for dismissal that it now offers here. Defendant acknowledges as much in its motion. Def.'s Mot. 7 (). Based on the factual congruity between the Cardiosom case and this one, the court draws heavily from its April 30, 2014 Cardiosom opinion in its analysis here.
The facts of this case are not in dispute. A detailed recitation of the facts relating to both contract formation and termination was set forth in the previous decisions of both the Federal Circuit and this court. See Cardiosom, 656 F.3d at 1324-25, rev'g 91 Fed. Cl. 659 (2010); Cardiosom, L.L.C. v. United States, 91 Fed. Cl. 659, 660-62 (2010), rev'd, 656 F.3d 1322 (Fed. Cir. 2011). Here the court provides an abbreviated summary of the facts particular to this matter.
B&H Medical, LLC (plaintiff or B&H) contracted with the Centers for Medicare & Medicaid Services (CMS) of the Department of Health & Human Services (defendant or HHS) to provide diabetic supplies in nine different metropolitan areas. Compl. ¶¶ 4, 6. The contract became effective on July 1, 2008. Id. at ¶ 6.
On July 15, 2008, Congress passed legislation terminating all contracts, including plaintiff's, that had been issued under what was known as Round 1 of HHS's plan to redefine the way in which it purchased durable medical equipment through the Medicare program. 42 U.S.C. § 1395w-3. Section 1395w-3, which is alternately known as Section 154 of the 2008 Medicare Improvements for Patients and Providers Act (MIPPA)or the 2008 Amendment, included a provision withdrawing the right to administrative or judicial review "with regard to the termination." § 1395w-3(a)(1)(D)(i) ().
HHS then promulgated a regulation in which it established an administrative process through which it would pay specified damages to terminated suppliers. 42 C.F.R. § 414.425. The regulation provided that CMS would make the determination regarding which of the claimed damages were compensable, and provided that CMS's "determination [would be] final and not subject to administrative or judicial review." § 414.425(f)(2)(vi). The requisite notice and a public comment period preceded the promulgation of the regulation. See Def.'s Mot. 4 (citing 74 Fed. Reg. 61,738-01 (Nov. 25, 2009)).
B&H submitted a damages claim through the CMS administrative process in February 2010, and at the request of CMS, provided supplemental information in June 2010. Compl. ¶¶ 13, 15. CMS offered B&H partial payment on its claim in April 2012, id. at ¶ 20, which B&H declined to accept on the basis of its inadequacy, Pl.'s Opp'n 2, ECF No. 24.
In August 2011, the Federal Circuit issued a ruling in the Cardisom matter, holding that § 1395w-3 "did not withdraw traditional contract jurisdiction under the Tucker Act [and determining that] plaintiff states a claim over which the Court of Federal Claims has jurisdiction." Cardiosom, 656 F.3d at 1324. The Federal Circuit elaborated:
[a]s we read it, the 2008 Amendment left open the question of the consequences of Congress's chosen route, and any private remedies arising therefrom. More specifically, the amendment left untrammeled the subject matter jurisdiction of the Court of Federal Claims to hear and decide breach of contract claims resulting from these terminations. Whatever may be the rule regarding nonreviewability of the act of termination, or the absence of challenge to the administrative remedy authorized, the legal consequences of the terminations can still be determined under existing federal law governing contract disputes with the Government.
Cardiosom, 656 F.3d at 1330 (emphasis added).
Finally, the Federal Circuit observed that "there are questions with regard to the interaction of this administrative process with the established judicial process for resolving Government contract disputes under the Tucker Act," and that it was not clear "whether an aggrieved supplier who obtains only a partial recovery of damages through the administrative process . . . could thereafter maintain a court suit for other damage elements," leaving the resolution of this question to the trial court. Id. at 1328-29.
The statutory language at issue is set forth in its entirety below.
§ 1395w-3(a)(1)(D)(i) (emphasis added).
HHS established an administrative process through which aggrieved suppliers could submit damages claims, and the agency interpreted the judicial review withholding provision to mean that the "Determining Authority's determination is final and not subject to administrative or judicial review." § 414.425(f)(2)(vi). The Determining Authority in that administrative process is CMS. § 414.425(f)(2).
Defendant now moves for dismissal of Count I of B&H's complaint for both lack of jurisdiction and failure to state a claim upon which relief may be granted.
Defendant acknowledges that the Federal Circuit has held that this court has jurisdiction over the breach of contract claim asserted here. But defendant argues that such jurisdiction does not extend to the claim of a supplier to whom CMS offered partial payment through its administrative process, such as CMS offered to B&H.
[A]lthough the Cardiosom court held that the Court of Federal Claims has jurisdiction to review a breach of contract claim, the limits of that jurisdiction remain undefined. Specifically left unanswered - and very relevant to B&H's claim in this case - was whether a . . . supplier whose contract was terminated may seek damages beyond those...
To continue reading
Request your trial