Dowling v. U.S. Dep't of Health & Human Servs.
| Decision Date | 02 July 2018 |
| Docket Number | No. 17 C 494,17 C 494 |
| Citation | 325 F.Supp.3d 884 |
| Parties | Melissa DOWLING, Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Gail A. Niemann, Leonard A. Gail, Massey & Gail, Chicago, IL, Jonathan Massey, Pro Hac Vice, Massey & Gail LLP, Washington, DC, for Plaintiff.
Frances Mary McLaughlin, Terrance Anthony Mebane, United States Department of Justice, Civil Division, Washington, DC, for Defendant.
Plaintiff Anne Melissa Dowling,1 in her capacity as Acting Director of the Illinois Department of Insurance, initiated liquidation proceedings in the Circuit Court of Cook County, Illinois for the Land of Lincoln Mutual Health Insurance Company, In the Matter of Land of Lincoln Mutual Health Insurance Co. , No. 2016 CH 9210. In that suit, she moved for declaratory relief against the Centers for Medicare and Medicaid Services, a federal agency within Defendant United States Department of Health and Human Services ("HHS"), concerning certain disputed offsets that HHS unilaterally took on funds owed to the Land of Lincoln. HHS removed the motion (Dkt. 1), and moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1). (Dkt. 6). The Director opposed dismissal and moved to remand. (Dkt. 14). On August 25, 2017, the Court granted the Director's motion to remand and denied as moot HHS's motion to dismiss on the grounds that HHS failed to show that it could remove the matter under 28 U.S.C. § 1442(a). (Dkt. 36). HHS has moved for reconsideration. (Dkt. 38). For reasons stated in remand order as well as for the reasons stated below, the Court denies HHS's motion for reconsideration, including its request for a stay pending appeal.
To aid the discussion below, the Court lays out a more fulsome background than it provided in the remand order. (Dkt. 36). As a qualified nonprofit health insurance issuer under the Patient Protection and Affordable Care Act (the "ACA"), 42 U.S.C. § 18042, Land of Lincoln Mutual Health Insurance Company ("Land of Lincoln") participated in three risk mitigation programs—the Risk Adjustment, Reinsurance, and Risk Corridor Programs—created by the ACA to incentivize insurers, in the form of subsidies, to provide health insurance to those previously deemed actuarially too risky. (Dkt. 1-1) at 2; (Dkt. 28) at 1–3. The Risk Adjustment Program is permanent, while the Reinsurance and Risk Corridor Programs were in effect for the years 2014, 2015, and 2016 only. (Dkt. 28) at 3 n.3.
Under the Risk Adjustment Program, insurers with below average actuarial risk—that is, healthier policyholders—are assessed fees, which are then in turn allocated to insurers with above average risk—that is, sicker policyholders. (Dkt. 1-1) at 2–3. The Risk Adjustment Program is budget neutral, allocating only as much as is assessed. Id. at 3. In 2014, Land of Lincoln received a net payment of $425,931 under the Risk Adjustment Program. Id. In 2015, Land of Lincoln was required to pay $31,823,450. As discussed in more detail below, this amount was never paid. Id.
The Reinsurance Program was funded by fees collected from all insurers and distributed to insurers that participated in the insurance exchanges based on need. (Dkt. 1-1) at 3–4. In 2014, Land of Lincoln received a net payment of $4,654,787 under the Reinsurance Program. Id. at 4. In 2015, Land of Lincoln was entitled to receive $16,302,241. Id. Land of Lincoln received payment of only $5,719,508. Id.
The Risk Corridor Program was intended to mitigate against increased premium prices caused by the influx of actuarially risky policyholders that were, prior to the passage of the ACA, uninsured. (Dkt. 1-1) at 4–5. The Risk Corridor Program charged plans with larger than expected gains and made payments to plans with larger than expected losses.2 From the start, however, the Risk Corridor Program had deficient funds.3 In 2014, HHS determined Land of Lincoln was entitled to receive a net payment of $4,492,244 under this program, but Land of Lincoln received only $550,782. (Dkt. 1-1) at 5. In 2015, HHS determined Land of Lincoln was entitled to receive a net payment of $68,917,591, but Land of Lincoln received nothing. Id.
Due to significant net operating losses in 2015 (in excess of $90 million), Land of Lincoln was unable to make the nearly $32 million Risk Adjustment Program payment it owed without falling even further below Illinois' minimum risk-based-capital ratio. Id. In June 2016, HHS informed Land of Lincoln that all future payments owed to it would be offset by its outstanding Risk Adjustment balance. Id. On June 23, 2016, Land of Lincoln filed a lawsuit against the United States in the Court of Federal Claims seeking over $72 million in damages resulting from HHS's failure to make full Risk Corridor payments for 2014 and 2015. See Land of Lincoln Mut. Health Ins. Co. v. United States , 129 Fed.Cl. 81 (2016) (), appeal filed , No. 17-1224 (Fed. Cir. 2016). In the meantime, Dowling, as the then-Acting Director of Insurance ("Director"), decided that Land of Lincoln's financial condition could be upended by its requirement to make the Risk Adjustment payment before receiving the Risk Corridor payments and therefore, on June 30, 2016, she informed HHS that she was exercising her authority under Illinois law to place Land of Lincoln under a "state solvency payment restriction." This effectively prohibited HHS from "offsetting" future payments and required HHS to disburse to Land of Lincoln the outstanding Risk Corridor payments prior to Land of Lincoln making any the Risk Adjustment payments owed. (Dkt. 1-1) at 6. However, on July 11, 2016, HHS notified the Director that all future payments owed to Land of Lincoln would be offset by its outstanding Risk Adjustment liability. Id. at 7.
On July 14, 2016, the Director, exercising her authority under state law, entered into an agreed order of rehabilitation with Land of Lincoln in the Circuit Court of Cook County, Chancery Division. Id. at 7. Pursuant to the order of rehabilitation, the state court enjoined "[a]ny and all claimants and creditors of Land of Lincoln ... whether an individual ... [or] government entity ... from setting off or netting monies owed Land of Lincoln without the prior leave of this Court." Id. at 8. A copy of the court's order was sent by the Director to HHS on July 15, 2016. Id. at 9. On August 18, 2016, HHS reported to Land of Lincoln that it was withholding over $13 million in Reinsurance and other payments, applying that amount instead to Land of Lincoln's outstanding Risk Adjustment account. Id. at 9–10. On September 29, 2016, the state court entered an agreed order of liquidation; Land of Lincoln ceased operations as of October 1, 2016. Id. at 10.
The Director filed a motion for declaratory relief on December 23, 2016, seeking the state court to declare that HHS violated the rehabilitation order by unilaterally offsetting money owed to Land of Lincoln without first getting leave of the court. See (Dkt 1-1). The Director further requested the court, if it found HHS violated the order, to "provide her with leave thereafter to seek an appropriate remedy if necessary or schedule a hearing on whether to allow [HHS's] offsets." Id. at 1. In other words, the Director did not ask the state court to order that HHS release the funds, but only to declare that HHS had violated the court's order.
HHS removed the motion for declaratory relief on January 23, 2017, pursuant to 28 U.S.C. § 1442(a). (Dkt. 1). Shortly thereafter, HHS filed a motion to dismiss for lack of subject matter jurisdiction (Dkt. 6), and the Director moved to remand the case to state court. (Dkt. 14). In its August 25, 2017 Order, the Court remanded the case to state court, finding that a motion for declaratory relief in a liquidation proceeding was not an "ancillary proceeding" within the meaning of § 1442. (Dkt. 36) at 3. The Court further found that the state court proceeding was not a "civil action ... against or directed to" the United States or any agency or officer thereof within the meaning of § 1442, because the underlying action constitutes a liquidation proceeding and merely involves the United States as a creditor with an interest in the insolvent estate. Id. at 4. HHS has moved for reconsideration of the Court's remand order. (Dkt. 38). The parties came before the Court on February 28, 2018 for status on the reconsideration motion, and the Court notified them orally that HHS's motion to reconsider was denied. After the parties presented lengthy arguments concerning HHS's request for a stay of the remand pending appeal to the Seventh Circuit, the Court permitted the parties to submit additional position papers on the issue and deferred its written ruling to fully consider the stay issue, which was not addressed in substance in HHS's reconsideration briefing. (Dkt. 47). The parties submitted their position papers (Dkts. 48, 49), and the Court's ruling is as follows.
"Motions for reconsideration serve a limited function: to correct manifest errors of law or fact or to present newly discovered evidence." Caisse Nationale de Credit Agricole v. CBI Indus., Inc. , 90 F.3d 1264, 1269 (7th Cir. 1996) (internal citations omitted); see also Bank of Waunakee v. Rochester Cheese Sales, Inc. , 906 F.2d 1185, 1191 (7th Cir. 1990) () (internal citations omitted). "Rule 59 is not a vehicle for...
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Fry v. Ctrs. for Medicare & Medicaid Servs.
...is documented below as the Court is familiar with the relevant facts through the related case, Dowling v. United States Dep't of Health & Human Servs. 325 F. Supp. 3d 884, 888 (N.D. Ill. 2018).Land of Lincoln is a former Illinois health care insurer that became insolvent in 2016. (Dkt. 1, ¶......