Cardiosom, L.L.C. v. United States, No. 08-533C

CourtCourt of Federal Claims
PartiesCARDIOSOM, L.L.C., Plaintiff, v. THE UNITED STATES, Defendant.
Docket NumberNo. 08-533C
Decision Date30 April 2014

CARDIOSOM, L.L.C., Plaintiff,

No. 08-533C

United States Court of Federal Claims

Filed: April 30, 2014

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);
Motion for Summary Judgment
under RCFC 56.

Jerry Stouck, Washington, D.C., for plaintiff.

Gregg M. Schwind, Senior Trial Counsel, with whom were Stuart F. Delery, Assistant Attorney General; Bryant G. Snee, Acting Director; Steven J. Gillingham, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant.



This is a claim for breach of contract and an uncompensated taking of property that arises out of the government's termination of plaintiff's contract to supply durable medical equipment to Medicare recipients. See Corrected Compl. (Compl.), ECF No. 10. This case was transferred to the undersigned on October 7, 2013. ECF No. 77.

Among the matters pending before the court is defendant's motion to dismiss for lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted. ECF No. 81 (Def.'s Mot.). Defendant's motion is ripe for consideration. For the reasons explained below, defendant's motion to dismiss is DENIED.

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The facts of this case are not in dispute. These detailed facts have been ably set forth in the previous decisions of both the Federal Circuit and this court. See Cardiosom, L.L.C. v. United States (Cardiosom II), 656 F.3d 1322, 1324-25 (Fed. Cir. 2011), rev'g 91 Fed. Cl. 659 (2010); Cardiosom, L.L.C. v. United States (Cardiosom I), 91 Fed. Cl. 659, 660-62 (2010), rev'd, 656 F.3d 1322 (Fed. Cir. 2011). For ease of reference, however, an abbreviated factual overview is provided below.

Effective July 1, 2008, Cardiosom, L.L.C. (Plaintiff or Cardiosom) contracted with the Centers for Medicare & Medicaid Services (CMS) of the Department of Health & Human Services (Defendant or HHS) to provide oxygen and/or respiratory equipment and supplies in nine different metropolitan areas for a period of three years. Compl. ¶¶ 11-12, 16.

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) (judicial review withholding provision).

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. 3 (citing 74 Fed. Reg. 61,738-01 (Nov. 25, 2009)).

Cardiosom submitted a damages claim through the CMS administrative process in March 2010 and received partial payment in August 2011. See Cardiosom's Second Supp. Br., ECF No. 69, Ex. A (claim), Ex. B (partial payment).

In February 2010, the judge to whom this case was previously assigned granted defendant's motion to dismiss for lack of jurisdiction, on the ground that § 1395w-3(a)(1)(D) prohibited judicial review of plaintiff's claims. Cardiosom I, 91 Fed. Cl. at

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660. The Federal Circuit reversed and remanded the 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 II, 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 II, 656 F.3d at 1330 (emphasis added).

The Federal Circuit also observed that the meaning of the judicial review withholding provision in § 1395w-3 was susceptible to at least three meanings, any of which was consistent with Congress's apparent purpose. See id. at 1327-29. First,

Congress could have intended that the statute not be read to provide an 'independent cause of action or right to administrative or judicial review with regard to the termination,' with respect to the structure of the administrative compensation mechanism established by the Secretary, or perhaps even to the rewards from the special fund created by the statute.

Id. at 1328. Second, a "somewhat different but equally plausible, interpretation of the judicial review withholding provision is that there is to be no independent judicial review of Congress's decision to terminate the existing contracts." Id. at 1329. And third, a

possible reading of the statutory language is that it is intended to prevent judicial or administrative review by third parties. That is, [the term] 'independent' [as it appears] in the statute could be interpreted to mean 'independent of the contracting parties,' precluding litigation over collateral damages arising out of the terminations.


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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.

(D) Changes in competitive acquisition programs
(i) Round 1 of competitive acquisition program
. . .
(I) the contracts awarded under this section before July 15, 2008, are terminated, no payment shall be made under this subchapter on or after July 15, 2008, based on such a contract, and, to the extent that any damages may be applicable as a result of the termination of such contracts, such damages shall be payable from the Federal Supplementary Medical Insurance Trust Fund under section 1395t of this title;
. . .
(IV) . . .
Nothing in subclause (I) shall be construed to provide an independent cause of action or right to administrative or judicial review with regard to the termination provided under such subclause.

§ 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 Cardiosom's complaint for both lack of jurisdiction and failure to state a claim upon which relief may be granted.

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Before turning to the substance of defendant's motion, however, the court addresses two procedural matters of importance. As to the first matter, defendant brought its motion under both Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). Def.'s Mot. 1. Among the facts to which defendant adverts in its motion are Cardiosom's submission of a claim for damages to CMS in March 2010 and Cardiosom's receipt of partial payment in August 2011. Def.'s Mot. 4. These facts were not included in either Cardiosom's originally filed complaint or its corrected complaint, both filed in 2008. Rule 12(d) instructs that if a motion to dismiss under 12(b)(6) involves "matters outside the pleadings [that] are presented [to] and not excluded by the court, the motion must be treated as one for summary judgment under RCFC 56." RCFC 12(d). Rule 12(d) further instructs that "[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Id. The court does not exclude the factual information pertaining to Cardiosom's administrative claim and partial payment. By choosing to...

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