Hammer v. U.S. Dep't of Health & Human Servs.

• Decision Date: 25 September 2018
• Docket Number: No. 18-2523,18-2523
• Citation: 905 F.3d 517
• Parties: Jennifer HAMMER, Director of the Illinois Department of Insurance and Liquidator of Land of Lincoln Mutual Health Insurance Company, Plaintiff-Appellee, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

905 F.3d 517

Jennifer HAMMER, Director of the Illinois Department of Insurance and Liquidator of Land of Lincoln Mutual Health Insurance Company, Plaintiff-Appellee,

v.UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant-Appellant.

No. 18-2523

United States Court of Appeals, Seventh Circuit.

Submitted September 20, 2018^*

Decided September 25, 2018

Rehearing Denied November 21, 2018

Leonard A. Gail, Attorney, Gail A. Niemann, Attorney, MASSEY & GAIL LLP, Chicago, IL, Jonathan Massey, Attorney, MASSEY & GAIL LLP, Washington, DC, for Plaintiff-Appellee.

Lindsey Powell, DEPARTMENT OF JUSTICE, Washington, DC, for Defendant-Appellant.

Before Rovner, Hamilton, and St. Eve, Circuit Judges.

St. Eve, Circuit Judge.

The Department of Health and Human Services owed millions of dollars to the now-defunct Land of Lincoln Mutual Health Insurance Company. Likewise, Land of Lincoln owed millions to HHS. As part of its regulatory oversight, HHS has elected to set off its own debt payments by first paying down Land of Lincoln's debt. The Director of the Illinois Department of Insurance, who is Land of Lincoln's appointed liquidator, contends that this setoff violates an order issued by the Illinois court overseeing the liquidation proceedings that prevents any creditors from setting off money owed to Land of Lincoln without prior leave of the court. The Director asked the state court for a declaration that HHS violated the order, but HHS removed the motion to federal district court arguing that the federal government was not subject to the state court's jurisdiction. The district court remanded the case back to state court relying on a narrow reading of 28 U.S.C. § 1442, as well as principles of abstention. We reverse on both grounds and remand to the district court for further proceedings consistent with this opinion.

I

This case centers on debts in the Affordable Care Act's three premium-stabilization programs—the Risk Adjustment, Risk Corridor, and Reinsurance programs—all of which were designed to redistribute money among insurance companies and thereby mitigate each company's exposure to risks in the market. See 42 U.S.C. §§ 18061 – 18063. For the purposes of this appeal, the parties broadly agree that HHS intended to implement these programs in a budget-neutral way paying out only the funds that each program had taken in from other insurance companies.

Land of Lincoln participated in these premium-stabilization programs and incurred a debt of roughly $32 million in the Risk Adjustment program. This debt, though large, should not have been a problem for the company, as HHS owed Land of Lincoln over $70 million, the bulk of which it owed under the Risk Corridor program. The government, however, was not able to pay what it owed because it was taking in far less money than it had expected, and it refused to dip into its limited discretionary funds. Like other insurance companies, Land of Lincoln sought the overdue Risk Corridor payments in a suit with the Court of Federal Claims, but it was rebuffed, Land of Lincoln Mut. Health Ins. Co. v. United States , 129 Fed. Cl. 81 (2016), and the Federal Circuit affirmed the dismissal of the claim in Land of Lincoln Mut. Health Ins. Co. v. United States , 892 F.3d 1184 (Fed. Cir. 2018), and its companion case Moda Health Plan, Inc. v. United States , 892 F.3d 1311 (Fed. Cir. 2018). By late 2016, Land of Lincoln was incapable of paying its Risk Adjustment debt, and thus became insolvent and began rehabilitation proceedings that turned into a liquidation.

As part of the liquidation, the Chancery Division of the Circuit Court of Cook County—one of two Illinois courts empowered to oversee insurance rehabilitation and liquidation, see 215 ILCS 5/199 —entered an order naming the Director of the Illinois Department of Insurance as liquidator, see 215 ILCS 5/191, and prohibited all of Land of Lincoln's creditors, including any "governmental entity," from "setting off or netting monies owed Land of Lincoln without the prior leave of this Court." See 215 ILCS 5/189. Despite this order and the Director's protestations, HHS began to offset its overdue payments against Land of Lincoln's debt in the Risk Adjustment program, as its own regulations permitted, see 45 C.F.R. § 156.1215(b). HHS has since withheld $27 million in payments that it put toward Land of Lincoln's debt.

HHS's refusal to comply led the Director to move the state court for a declaratory judgment finding that HHS was in violation of the court's order. In the motion, the Director asserted that she "is not asking at this point that [HHS] be ordered to release the funds or pay them over to the estate," and instead she hoped that the declaration would lead HHS to follow the order of its own accord. In the event HHS did not choose to comply, the Director expressly asked for "leave to seek an appropriate remedy."

HHS removed the Director's motion to the United States District Court for the Northern District of Illinois under the federal officer removal statute, 28 U.S.C. § 1442, that permits "[t]he United States or any agency thereof" to remove a "civil action ... that is commenced in a State court and that is against or directed to" the agency. Because the full liquidation proceeding in the Chancery Division of the Circuit Court of Cook County was not removable, HHS relied on § 1442(d)(1), which permits an agency to remove, separate from the entire case, "any proceeding (whether or not ancillary to another proceeding) to the extent that in such proceeding a judicial order, including a subpoena for testimony or documents, is sought or issued." Shortly after removal, HHS filed a Federal Rule of Civil Procedure 12(b)(1) motion to dismiss under the doctrine of "derivative jurisdiction," see Rodas v. Seidlin , 656 F.3d 610, 615–16 (7th Cir. 2011), arguing that the state court lacked jurisdiction over the United States. In its motion, HHS argued that because the United States had not waived its sovereign immunity, the federal court could not hear the case except as an original suit. The Director responded by moving to remand the case back to state court.

The district court granted the Director's motion to remand. Relying on the legislative history surrounding § 1442(d)(1), the district court concluded that Congress had not aimed that provision toward this sort of motion for declaratory relief, but instead Congress was concerned, principally, with removal of actions "pertaining to pre-suit discovery and specifically those affecting Federal officers." Because the district court thought it necessary to construe the statute strictly against removal, it determined that it lacked removal jurisdiction over this motion, which neither related to discovery nor involved an officer. The district court then certified its remand order. See 28 U.S.C. § 1447(c) ; N.D. ILL. L.R. 81.2

HHS filed a timely motion for reconsideration, which the district court denied mainly because HHS had only rehashed its earlier arguments for removal, which the district court already had thoroughly addressed. At that time, the district court also bolstered its decision to remand explaining that even if it had erred in remanding on statutory grounds, it would have exercised its discretion to remand under the abstention doctrine first set forth in Burford v. Sun Oil Co. , 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). In the district court's view, removal of this motion would be disruptive to the state's efforts to establish a uniform rehabilitation system centralized in specialized state courts. The district court further concluded that federal policy favoring state regulation of insurance—codified in the McCarran-Ferguson Act, 15 U.S.C. § 1012 —also favored abstention. Again, the district court certified its remand order, and, that same day, the state court began to schedule briefing on the Director's motion for declaratory relief. HHS timely appealed from the order denying its motion to reconsider, and we expedited the appeal to minimize the uncertainty surrounding the state court's jurisdiction to proceed on the Director's declaratory relief motion.¹

II

We begin, as we must, with our jurisdiction to consider this appeal. See P.H. Glatfelter Co. v. Windward Prospects Ltd. , 847 F.3d 452, 455 (7th Cir. 2017). An order remanding a case to state court is a final order that is reviewable on appeal unless there is some other prohibition on review. See Quackenbush v Allstate Ins. Co. , 517 U.S. 706, 714–15, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) ; Benson v. SI Handling Sys., Inc. , 188 F.3d 780, 782 (7th Cir. 1999). In most cases removed from state court, 28 U.S.C. § 1447(d) provides such a constraint by prohibiting review "on appeal or otherwise." Section 1447(d), however, provides an exception for "an order remanding a case to the State court from which it was removed pursuant to section 1442." HHS sought removal under § 1442, therefore, we may consider this appeal. See Lu Junhong v. Boeing Co. , 792 F.3d 805, 808 (7th Cir. 2015). Because the remand order in this case is reviewable, the certification of the remand order imposes no independent bar on either our jurisdiction or the district court's jurisdiction. In reaching this conclusion, we join the three other circuits that have considered this issue. See Shapiro v. Logistec USA, Inc. , 412 F.3d 307, 312 (2d Cir. 2005) ; Hudson United Bank v. LiTendaMortg. Corp. , 142 F.3d 151, 159 (3d Cir. 1998) ; In re Digicon Marine, Inc. , 966 F.2d 158, 160-61 (5th Cir. 1992). Secure in our jurisdiction over this appeal, we move to the merits.

III

HHS first argues that the district court erred in concluding that it lacked subject-matter jurisdiction over this case under the federal officer and agency removal statute, 28 U.S.C. § 1442. Removal under § 1442 creates an exception to the "well-pleaded complaint" rule and allows removal of a case that presents a federal question beyond the narrow confines of the complaint, including a case in...