Waters v. Farmers Texas County Mut. Ins. Co.

• Citation: 9 F.3d 397
• Decision Date: 16 December 1993
• Docket Number: No. 92-2789,92-2789
• Parties: , 42 Soc.Sec.Rep.Ser. 626, Medicare&Medicaid Guide P 41,969 Billy Albert WATERS, Sr., BNF, et al., Plaintiffs, Gerald (Owens) King, a minor child by and through his next friend, Diane Owens, Plaintiffs-Appellants, v. FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, Defendant, Donna E. Shalala, Secretary of U.S. Department of Health and Human Services, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 397

9 F.3d 397

27 Fed.R.Serv.3d 987, 42 Soc.Sec.Rep.Ser. 626,

Medicare&Medicaid Guide P 41,969

Billy Albert WATERS, Sr., BNF, et al., Plaintiffs,

Gerald (Owens) King, a minor child by and through his next

friend, Diane Owens, Plaintiffs-Appellants, v. FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, Defendant, Donna E. Shalala, Secretary of U.S. Department of Health and Human Services, Defendant-Appellee.

No. 92-2789.

United States Court of Appeals,

Fifth Circuit.

Dec. 16, 1993.

Robert T. Wallace, Houston, TX, for plaintiffs-appellants.

Mark S. Kennedy, Asst. Regional Counsel, and Kermit Fonteno, Dallas, TX, Lawrence D. Finder, U.S. Atty., Samuel G. Longoria, Asst. U.S. Atty., Houston, TX, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES and DeMOSS, Circuit Judges and KAZEN, ^* District Judge.

EDITH H. JONES, Circuit Judge:

Gerald Owens King, by and through his next friend, Diane Owens ("appellant"), appeals the district court's summary judgment in favor of the Secretary of the United States Department of Health and Human Services ("the government"), 797 F.Supp. 575. The district court held that the government is entitled by statute to receive Medicare reimbursement from a private insurance carrier in an amount greater than Medicare's insured could recover under Texas law. 42 U.S.C. Sec. 1395y(b)(2)(A) and (B). Because the summary judgment has no effect as to the appellant and was improperly granted on the merits, we reverse and remand the decision of the court below.

DISCUSSION

In the summer of 1990, Annie Searles, Billy Waters, Marvin Searles, Lee Searles, and Gerald King, a minor child, were seriously injured in an accident in Freestone County, Texas while travelling in the same car. The driver of the other car fled, and his identity and whereabouts are unknown. Annie Searles, suffering from terminal cancer at the time of the accident, incurred over $29,000 in medical expenses after the accident, all of which was paid by Medicare. It was never determined what portion of the $29,000 went to treatment of Annie's cancer and what portion went to the treatment of her car accident injuries. Annie subsequently died of cancer. The other four occupants of the car paid their own medical bills. The owner of the car was insured by Farmers Texas County Mutual Insurance Company ("Farmers"). The insurance policy has a limit of $20,000 per claimant per accident and an overall limit of $40,000 for all claimants combined per accident.

Billy, Marvin, and Lee sued Farmers in state court to recover for personal injuries and damages suffered in the accident. The appellant was not involved in the suit. In response to the suit, Farmers filed a petition in interpleader, depositing with the clerk of the state court the $40,000 to cover the insurance proceeds payable under the policy ("interpleader fund") and bringing in Blue Cross and Blue Shield of Texas, Inc. ("Blue Cross") and the appellant as third party defendants to the interpleader action. The interpleader petition incorrectly stated that at the time of the petition the appellant was asserting a claim for personal injuries against Farmers. The record indicates that all counsel of record were served with the petition in interpleader. However, the appellant was not a party in any way to the lawsuit against Farmers and, according to the record, was not served with the petition in interpleader. ¹

The government was eventually substituted for Blue Cross in the action and shortly thereafter removed the case to federal court. The government then counterclaimed against Farmers and crossclaimed against all of the occupants of the car, including the appellant, for reimbursement of the Medicare funds expended on behalf of Annie following the car accident. The appellant was not served with the notice of removal. As a point of clarification, the record indicates that the crossclaim was mailed to Gerald King who at the time, and still today, is a minor child. The government was aware of the fact that King was a minor, yet the pleading was mailed directly to him--not to one of his parents or guardians as next friend. This effort by the government falls short of effective service of the pleading on the appellant. Fed.R.Civ.P. 5(a). Even if the government believed that the appellant was at this point a party in default for failure to appear, simply mailing the crossclaim to the appellant was insufficient. Fed.R.Civ.P. 5(a) provides that any pleading asserting a new or additional claim against a party in default for failure to appear must be served pursuant to Fed.R.Civ.P. 4. Furthermore, it falls well short of providing the appellant with service of process sufficient to join the appellant as a party to the suit. See Fed.R.Civ.P. 4(c)(2)(C)(ii).

The government moved against the other occupants of the car for summary judgment, which the court granted on August 7, 1992. The appellant was not notified of this motion for summary judgment. The district court awarded the government the $20,000 limit allowed to an individual under the Farmers policy, leaving the four remaining occupants of the car to apportion the remaining $20,000 among themselves. The final judgment was entered on August 11, 1992. The appellant was added as a party to the suit on August 13, 1992. ² He unsuccessfully sought reconsideration of the summary judgment. The minor, appellant Gerald King, appeals the decision of the district court. ³

A.

The record does not reflect that the appellant Gerald King was served in the lawsuit or that he voluntarily appeared before August 13, 1992. It follows that the appellant was not a party to the suit at the time the summary judgment motion was filed and decided. The summary judgment binds only the parties in the suit. To the extent that it purported to affect the rights of the appellant to his rightful share of the insurance proceeds, the summary judgment should have had no effect against him. The court should have granted his motion to reconsider for the purpose of allowing him to make his arguments known. Moreover, he was not given notice of the motion for summary judgment. It is unreasonable to require the appellant to respond to a motion of which he had no knowledge. He was not expected or required to respond. The summary judgment rendered under these circumstances has no effect as to him.

B.

As a matter of judicial economy, however, because King and the government have filed briefs on the merits of the issue decided by the district court, it is prudent for this court to review the summary judgment granted in favor of the government. A movant is entitled to summary judgment only if there are no issues of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). This court's decision turns on whether the government's substantive legal argument was correct. The heart of the government's challenge is its interpretation of its powers under federal statutory law.

The Medicare Secondary Payer statute, 42 U.S.C. Sec. 1395y(b), makes Medicare the secondary payer to group health insurance, workers' compensation, and automobile and liability insurance. Group health insurance The government contends that it is entitled to recover the full $20,000 from the Farmers policy--the limit for any individual in an accident--under either of two theories. First, the government argues that it has an independent right of recovery from the insurer or from a payee of the insurance proceeds. This theory relies on 42 U.S.C. Sec. 1395y(b)(2)(B)(ii) which provides:

workers' compensation, and automobile and liability insurance are to be the primary payers of medical costs for Medicare beneficiaries. 42 U.S.C.A. Sec. 1395y(b)(2)(A) (West Supp.1993). The federal statute expressly provides that any payment of medical costs by Medicare for which private insurance is the primary payer is conditioned upon reimbursement from the insurer or any recipient of the insurance proceeds. 42 U.S.C.A. Sec. 1395y(b)(2)(B)(i) (West Supp.1993).

In order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service (or any portion thereof) under a primary plan ... or against any other entity ... that has received payment from that entity with respect to such item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service.

42 U.S.C.A. Sec. 1395y(b)(2)(B)(ii) (West Supp.1993). The government contends that this section gives it a right paramount to all others to recover the insurance proceeds due to a Medicare beneficiary.

Second, the government relies on 42 U.S.C. Sec. 1395y(b)(2)(B)(iii) which provides:

The United States shall be subrogated (to the extent of payment made under this subchapter for such an item or service) to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.

42...