Farmer v. United States
| Decision Date | 31 October 2019 |
| Docket Number | No. 18-1484C,18-1484C |
| Parties | RAYMOND G. FARMER, in his capacity as Liquidator of Consumers' Choice Health Insurance Company, and MICHAEL J. FITZGIBBONS, in his capacity as Special Deputy Liquidator of Consumers' Choice Health Insurance Company, Plaintiffs, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Claim for Payments under the Patient Protection and Affordable Care Act Reinsurance Program, 42 U.S.C. § 18061 (2012); Motion to Dismiss, RCFC 12(b)(1); Insolvent Health Insurer; No Jurisdiction Over State Law Claims; Stay Warranted Pending Supreme Court Review.
C. Mitchell Brown, Columbia, SC, for plaintiffs. Thad H. Westbrook and Miles E. Coleman, of counsel.
Terrance A. Mebane, with whom were Joseph H. Hunt, Assistant Attorney General, Ruth A. Harvey, Director, Kirk T. Manhardt, Deputy Director, Civil Division, Commercial Litigation Branch, United States Department of Justice, Washington, DC, for defendant. Frances M. McLaughlin and Christopher VanDeusen, of counsel.
On September 26, 2018, plaintiffs Raymond G. Farmer and Michael J. FitzGibbons, in their capacity as liquidators of Consumers' Choice Health Insurance Company (Consumers' Choice), a failed health insurer, filed a ten-count complaint in this court.1 Currently before the court in this matter is defendant's motion to dismiss, which is brought pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). See ECF No. 11. Plaintiffs filed a response to the motion to dismiss and also requested oral argument. See ECF No. 12 at 10. The government filed a reply brief in support of its motion. See ECF No. 13.
Upon review of the complaint, ECF No. 1, and the parties' briefs, the court determined that oral argument is unnecessary. Accordingly, plaintiffs' request for oral argument is DENIED. For the reasons stated below, defendant's motion is GRANTED in part, as to Counts VII, VIII, and IX of the complaint. Because the court STAYS this matter pending a decision by the Supreme Court of the United States in the matters of Land of Lincoln Mutual Health Insurance Co. v. United States, 892 F.3d 1184 (Fed. Cir. 2018), cert. granted, 139 S. Ct. 2744 (U.S. June 24, 2019) (No. 18-1038), and Moda Health Plan, Inc. v. United States, 892 F.3d 1311 (Fed. Cir. 2018), cert. granted, 139 S. Ct. 2743 (U.S. June 24, 2019) (No. 18-1028), defendant's motion to dismiss is DENIED in part, as premature, regarding the remaining counts of the complaint.
The facts recounted in this section are derived from the complaint and exhibits that were attached to the complaint and the parties' filings. Only the facts which are relevant to either defendant's jurisdictional challenge to Counts VII, VIII, and IX, or to the court's decision to stay the remainder of this action, are provided. The facts recited here appear to be undisputed, at least for the purposes of the resolution of defendant's motion to dismiss. See ECF No. 12 at 12 n.3 (). The court makes no findings of fact in this opinion.
The Patient Protection and Affordable Care Act (ACA) became law in 2010. Pub. L. No. 111-148, 124 Stat. 119 (2010). According to plaintiffs, one of the goals of the initiative was to "protect health insurers formed under the ACA, like Consumers' Choice Health Insurance Company." ECF No. 1 at 2. Consumers' Choice was formed as a non-profit mutual benefit corporation, under South Carolina state law, and also qualified, under the ACA, as a Consumer Operated and Oriented Plan (CO-OP). Id. at 4, 12. A CO-OP was required to certify that its insurance plans were "qualified health plans," or QHPs, under the ACA. Id. at 4. Through its Centers for Medicare and MedicaidServices (CMS), the United States Department of Health and Human Services (HHS) exercised oversight of the initiative. Id. at 3-4.
Plaintiffs state that two types of loans were provided by HHS/CMS to Consumers' Choice. The first was a start-up loan "'to provide assistance to such person in meeting its start-up costs.'" Id. at 5 (quoting 42 U.S.C. § 18042(b)(1) (2012)). The second type of loan was a solvency loan "'to provide assistance to such person in meeting any solvency requirements of States in which the person seeks to be licensed to issue qualified health plans.'" Id. (quoting 42 U.S.C. § 18042(b)(1)). For Consumers' Choice, the start-up loan was in the amount of $18,709,800 and the solvency loan was in the amount of $68,868,408. Id. at 13.
The complaint also discusses at some length three programs of the ACA which "facilitate[d] the formation, operation and funding of insurers like Consumer's Choice." Id. at 4. Plaintiffs' complaint describes these three programs as "risk mitigation" programs, and also uses the shorthand descriptor "the 3Rs" for these programs. Id. at 5. The 3Rs were the Reinsurance, Risk Adjustment, and Risk Corridor programs. Id.
The primary focus in this suit is on the ACA's Reinsurance program. As explained by plaintiffs, the Reinsurance program, established by 42 U.S.C. § 18061 (2012), was "intended to stabilize individual market premiums during the early years of the ACA's new market reforms." ECF No. 1 at 6. For policy year 2015 (the insurance coverage year central to this dispute), Consumers' Choice was due to receive $36,976,345 from HHS/CMS under the Reinsurance program. Id. at 19. It should be noted as well that a CO-OP could also owe payments to HHS/CMS under another of the 3Rs, the Risk Adjustment program. Id. at 9-10.
There were only two full policy years, 2014 and 2015, during which Consumers' Choice was able to provide health insurance in South Carolina. ECF No. 1 at 13-14, 17-18. By October 2015, Consumers' Choice was in financial distress, and over the next few months was obliged to cease operations. Id. at 14, 17-18. South Carolina insurance authorities and Consumers' Choice instituted the procedures for the supervision, rehabilitation, and eventual liquidation of the health insurer. Id. at 17-18. A state court issued orders during this time-frame that were designed, in part, to conserve the assets of Consumers' Choice. Id. The two plaintiffs in this suit are the liquidators of Consumers' Choice. Id. at 3.
Meanwhile, HHS/CMS began a series of actions which were focused on Consumers' Choice's outstanding start-up loan, and other amounts due to HHS/CMS, and which also targeted the Reinsurance program payments that were due to Consumers'Choice for the policy year 2015. HHS/CMS placed an "administrative hold" on Reinsurance funds for 2015, and then effectuated a series of offsets, against those Reinsurance funds, to recoup the start-up loan amount and other payments due from Consumers' Choice. Id. at 19-20. Because of these actions, Consumers' Choice received no Reinsurance funds for 2015, as the government had offset almost the entire amount of the start-up loan, and other amounts, against those Reinsurance payments. Id. at 19, 32. In plaintiffs' view, the offset by HHS/CMS in the total amount of $36,976,345 was invalid for reasons which are separately set forth in their ten-count complaint.
One source of law relied upon by plaintiffs is the South Carolina Insurers' Rehabilitation and Liquidation Act (Liquidation Act). ECF No. 1 at 16 (citing S.C. Code Ann. Tit. 38, chap. 27 (2014)). As described below, various sections of the Liquidation Act are cited as support for plaintiffs' claims. In essence, plaintiffs argue that the offsets conducted by HHS/CMS against Consumers' Choice's Reinsurance program payments violated certain provisions of the state's Liquidation Act, or can be voided pursuant to the state's Liquidation Act.
In their complaint, plaintiffs pled in the alternative seeking either monetary damages or just compensation in the amount of $36,976,345 for each of the enumerated counts. ECF No. 1 at 24, 26, 28-29, 32, 34, 36-39. The court summarizes the legal basis for each count below.
The legal basis for Count I is "Violation of Federal Statute or Regulation." ECF No. 1 at 23. According to plaintiffs, HHS/CMS's failure to make Reinsurance payments to Consumers' Choice for the 2015 policy year violated 42 U.S.C. § 18061 and 45 C.F.R. §§ 153.200-153.270 (2018). Id.
The legal basis for Count II is "Violation of Federal Statute or Regulation," in the context of "Exercising an Offset and Imposing an Administrative Hold in Violation of Federal and State Law." ECF No. 1 at 24. According to plaintiffs, HHS/CMS's utilization of an administrative hold for Consumers' Choice's Reinsurance payments for the 2015 policy year was "an unlawful application of federal law to the priority ofclaims" and was "contrary to . . . the federal netting regulation which HHS/CMS claims applies."2 Id. at 26.
The legal basis for Count III is "Breach of Contract." ECF No. 1 at 27. The agreements alleged to have been breached relate to QHPs provided by Consumers' Choice in the 2014 and 2015 policy years (QHP Agreements). Id.; see also ECF No. 1-3 at 2-11; ECF No. 1-4 at 2-12. According to plaintiffs, when HHS/CMS failed to make Reinsurance payments to Consumers' Choice for the 2015 policy year, the QHP Agreements were breached. ECF No. 1 at 28.
The legal basis for Count IV is "Breach of Contract." ECF No. 1 at 28. The agreement alleged to have been breached is the loan agreement which sets forth the terms for the start-up and solvency loans provided to Consumers' Choice by HHS/CMS (Loan Agreement). Id. at 28-29; see also ECF...
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