Fla. Agency for Health Care Admin. ex rel. Sec'y of the U.S. Dep't of Health & Human Servs. v. Bayou Shores SNF, LLC (In re Bayou Shores SNF, LLC)

• Decision Date: 26 June 2015
• Docket Number: 8:14–cv–02617–T–30,8:15–cv–00103–T–30,Nos.: 8:14–cv–02816–T–30,Bankruptcy No.: 8:14–bk–9521–MGW.,8:15–cv–00128–T–30.,s.: 8:14–cv–02816–T–30
• Parties: In re BAYOU SHORES SNF, LLC, Debtor. Florida Agency for Health Care Administration and The United States of America, On Behalf of the Secretary of the United States Department of Health and Human Services, Appellants, v. Bayou Shores SNF, LLC, Appellee.
• Court: U.S. District Court — Middle District of Florida

533 B.R. 337

In re BAYOU SHORES SNF, LLC, Debtor.

Florida Agency for Health Care Administration and The United States of America, On Behalf of the Secretary of the United States Department of Health and Human Services, Appellants

v.Bayou Shores SNF, LLC, Appellee.

Bankruptcy No.: 8:14–bk–9521–MGW.

Nos.: 8:14–cv–02816–T–30

8:15–cv–00103–T–30

8:14–cv–02617–T–30

8:15–cv–00128–T–30.

United States District Court, M.D. Florida, Tampa Division.

Signed June 26, 2015.

Andrew T. Sheeran, Leslei G. Street, Florida Agency for Health Care Administration, Tallahassee, Christopher John Emden, Colleen Murphy–Davis, Sean Flynn, U.S. Attorney's Office, Tampa, FL, for Appellants.

Andrew V. Layden, Elizabeth A. Green, Jimmy D. Parrish, Tiffany Deborah Payne, Baker & Hostetler, LLP, Orlando, Frank Paul Terzo, Grayrobinson, PA, Miami, FL, Alan C. Horowitz, Arnall Golden & Gregory, LLP, Atlanta, GA, Alan E. Schabes, Benesch Friedlander Coplan & Aronoff LLP, Cleveland, OH, for Appellee.

ORDER

JAMES S. MOODY, JR., District Judge.

THIS CAUSE came before the Court on appeal of the Bankruptcy Court's entry of an injunction prohibiting any action to terminate the Debtor's Medicare and Medicaid provider agreements (the September 5, 2014 Order) and subsequent entry of a confirmation order that ordered the assumption of the Medicare and Medicaid provider agreements (the Confirmation Order) (collectively, the “Orders”). The Court consolidated four appeals related to the Orders. The appeals present numerous arguments; the heart of the appeals, however, deals with the Bankruptcy Court's jurisdiction to enjoin the termination of and later order the assumption of the Debtor's Medicare and Medicaid provider agreements. The Court concludes that the Bankruptcy Court's Orders violated the Medicare jurisdictional bar set forth in 42 U.S.C. § 405(h) ; this jurisdictional bar moots any remaining arguments on appeal.

The Court has jurisdiction to hear this bankruptcy appeal under 28 U.S.C. § 158(a).

STANDARD OF REVIEW

A district court reviews a bankruptcy court's findings of fact for clear error and conclusions of law de novo. See In re JLJ, Inc., 988 F.2d 1112, 1116 (11th Cir.1993).

BACKGROUND

Although the disposition of the consolidated appeals turns solely on a question of law, a brief summary of the background facts is helpful. The Debtor Bayou Shores SNF, LLC operates a skilled nursing facility, the Rehabilitation Center of St. Petersburg. Most of the Debtor's patients have Alzheimer's disease

, dementia, or other serious psychiatric conditions; it is one of the few facilities in the area that accommodates patients with challenging psychiatric needs.

The Debtor provides Medicare and Medicaid services through provider agreements issued by the federal and state government under the Social Security Act's Medicare and Medicaid provisions. Most of the Debtor's patients are on Medicare or Medicaid. Over ninety percent of the Debtor's revenue is derived from Medicare and Medicaid.

A skilled nursing facility like the Debtor must comply with the requirements set forth in 42 C.F.R. Part 483, Subpart B, to receive payment under the Medicare and Medicaid programs. As such, the Debtor is subject to surveys conducted by the Centers for Medicare and Medicaid Services (“CMS”), an agency of the United States Department of Health and Human Services. CMS may take certain actions, including termination of the Medicare and Medicaid provider agreements, if a survey reflects that a facility is not compliant with the applicable regulations.

The Agency for Health Care Administration (“AHCA”), the Florida state agency that performs nursing home surveys and that administers the Medicaid program in Florida, conducted surveys of the Debtor in approximately February, March, and July of 2014. Each time, the Debtor was cited for deficiencies and determined to be in noncompliance.¹ Ultimately, based on AHCA's July 2014 survey, CMS exercised its discretion to terminate the Debtor's Medicare provider agreement.

In a letter dated July 22, 2014, CMS notified the Debtor that AHCA's survey demonstrated that the Debtor was not in substantial compliance with Medicare and Medicaid requirements and that the conditions constituted immediate jeopardy to residents' health and safety. The letter stated that the Debtor's “Medicare provider agreement will be terminated at 11:59 pm on August 3, 2014” and that Medicare and Medicaid payments would continue for only 30 days from that date. (Dkt. 1–20).

On August 1, 2014, the Debtor filed a Verified Complaint for Injunctive Relief and Mandamus in the federal district court for the Middle District of Florida (Tampa Division). Specifically, in that action, Bayou Shores SNF LLC v. Sylvia Mathews Burwell, et al., Case No. 8:14–cv–1849–T–33–MAP (the “Civil Action”), the Debtor sought and obtained an ex parte temporary restraining order (“TRO”) that enjoined CMS from terminating the Medicare and Medicaid provider agreements through August 15, 2014.

On August 11, 2014, the Secretary moved to dismiss the Civil Action for lack of subject matter jurisdiction. On August 15, 2014, the district court granted the United States' motion, dismissed the Civil Action, and dissolved the TRO. The district court concluded that Medicare's jurisdictional bar, 42 U.S.C. § 405(h), precluded the court from exercising jurisdiction over the controversy prior to the Debtor exhausting its administrative remedies. It was undisputed that the Debtor had not exhausted its administrative remedies.

Less than one hour after the district court issued its order in the Civil Action dissolving the TRO, the Debtor filed a Voluntary Petition for Chapter 11 bankruptcy. In the bankruptcy action, the Debtor filed an emergency motion to enjoin CMS and AHCA from terminating the Debtor's Medicare and Medicaid provider agreements. On August 25, 2014, the Bankruptcy Court entered an order provisionally granting the Debtor's motion subject to a final evidentiary hearing. ( Dkt. 1–15). The Bankruptcy Court noted that it had jurisdiction to consider the motion under 28 U.S.C. § 1334 and that the Debtor had made a “prima facie showing that [its] Medicare and Medicaid provider agreements [were] property of the estate sufficient to warrant the entry of an order providing that the automatic stay [prohibited] CMS, AHCA, and/or any managed care provider from taking action to terminate the Debtor's Medicare and/or Medicaid provider agreements.” Id.

On August 26, 2014, the Bankruptcy Court held an evidentiary hearing. On September 5, 2014, based on the evidence presented at the evidentiary hearing, the Bankruptcy Court issued its “Order Granting Debtor's Emergency Motion to Enforce the Automatic Stay and/or for an Order Pursuant to 11 U.S.C. § 105, Prohibiting Any Action to Terminate Debtor's Medicaid and Medicare Provider Agreements, to Deny Payment of Claims and/or to Relocate Residents” (the “September 5, 2014 Order). The September 5, 2014 Order granted the Debtor's motion “for the reasons stated in open Court.” (Dkts. 1–31 and 1–2).

At the August 26, 2014 hearing, the Bankruptcy Court noted that it had jurisdiction under section 1334. It also concluded that the Medicare provider agreement was not terminated prior to the Debtor's bankruptcy filing; as such, the provider agreement was an executory contract that could be assumed. (Dkt. 1–31). The Bankruptcy Court stated that it had a responsibility to “look at the big picture,” that is, “the welfare and concern for the patients.” Id. at 116:6–11. Based on the testimony presented at the evidentiary hearing, the Bankruptcy Court concluded that the Debtor's patients were not “in any danger.” Id.

Both AHCA and the United States of America, on behalf of the Secretary of the United States Department of Health and Human Services (“Secretary”) appealed the September 5, 2014 Order (the “First Appeals). These are the First Appeals in front of this Court. In relevant part, both AHCA and the Secretary argue that the Bankruptcy Court lacked jurisdiction to enjoin the terminations of the Debtor's provider agreements.

During the pendency of the First Appeals, the Bankruptcy Court issued the Confirmation Order that asserted jurisdiction over, and ordered the assumption of, the Debtor's Medicare and Medicaid provider agreements. Both AHCA and the Secretary appealed the Confirmation Order (the “Second Appeals”) and argue, in relevant part, that the Bankruptcy Court was without jurisdiction to take any action related to the Medicare and Medicaid provider agreements. These are the Second Appeals before this Court. The jurisdictional arguments in the First and Second Appeals are essentially the same: 42 U.S.C. § 405(h), the Medicare jurisdictional bar, precluded the Bankruptcy Court from taking any action related to the provider agreements until the Debtor had exhausted its administrative remedies.

As explained below, the Bankruptcy Court erred as a matter of law because the jurisdictional bar in section 405(h) precluded the Bankruptcy Court from delaying or preventing the effect of CMS' determination that the provider agreements should be terminated.

DISCUSSION

In its “Memorandum Opinion and Order on Confirmation,” the Bankruptcy Court concluded, as a matter of law, that it had jurisdiction under 28 U.S.C. § 1334. Specifically, under section 1334, the Bankruptcy Court held that it had jurisdiction “over all civil proceedings arising under title 11, arising in a case under title 11, or related to a proceeding under title 11.” (Dkt. 45–36). The Bankruptcy Court noted that “any dispute over the Debtor's ability to assume the Medicare provider agreement is ‘related to’ [the] title 11 case since the outcome of that dispute could conceivably have an effect on the Debtor's bankruptcy estate.” Id. ² The Court finds error in this conclusion of law because it ignores the jurisdictional bar contained in the Medicare Act. The Bankruptcy Court exceeded its subject matter jurisdiction when it interfered with CMS'...