Mann v. Reeder, CIVIL ACTION NO. 1:10-CV-00133-JHM

CourtUnited States District Courts. 6th Circuit. United States District Court of Western District of Kentucky
Writing for the CourtJoseph H. McKinley, Jr.,
Docket NumberCIVIL ACTION NO. 1:10-CV-00133-JHM
Decision Date15 February 2011




Dated: February 15, 2011.


This matter is before the Court on a motion to dismiss [DN 6] by Defendants Mark Reeder and Humana Insurance Company, Inc. ("Humana"). Fully briefed, the matter is ripe for decision.


This case arises out of a dispute over a Medicare health insurance policy issued to Plaintiffs by Humana. In October of 2008, Plaintiffs enrolled in a Medicare Advantage Private Fee-for-Service Plan ("Plan") administered by Humana. The policy was sold by Mark Reeder, a Humana agent. The policy initially provided for no monthly premiums and Plaintiffs allege that Reeder guaranteed them the premiums would not increase by more than $3 a month. However, on October 16, 2008, Humana notified Plaintiffs that the premiums had increased to $50 a month. Following the premium increase, Plaintiffs requested cancellation of their policy. Federal law provides for a limited disenrollment window for an insured who wishes to cancel their Medicare coverage. Because the Plaintiffs attempted to cancel outside the allowable time limit, Humana denied their request and this action resulted.


Federal Rule of Civil Procedure 12(b)(1) provides that a party may file a motion asserting

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"lack of subject-matter jurisdiction." Fed. R. Civ. P. 12(b)(1). "Subject matterjurisdiction is always a threshold determination, " Am. Telecom Co. v. Republic of Lebanon, 501 F.3d 534, 537 (6th Cir. 2007) (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101 (1998)), and "may be raised at any stage in the proceedings, " Schultz v. General R.V. Center, 512 F.3d 754, 756 (6th Cir. 2008). "A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which case all allegations of the plaintiff must be considered as true, or it can attack the factual basis for jurisdiction, in which case the trial court must weigh the evidence and the plaintiff bears the burden of proving that jurisdiction exists." DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004). "A facial attack on the subject-matter jurisdiction alleged in the complaint questions merely the sufficiency of the pleading." Gentek Bldg. Prods., Inc. v. Steel Peel Litig. Trust, 491 F.3d 320, 330 (6th Cir. 2007). "If the court determines at any time that it lacks subject matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3).

Upon a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), a court "must construe the complaint in the light most favorable to plaintiff, " League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), "accept all well-pled factual allegations as true[,]" id., and determine whether the "complaint states a plausible claim for relief[,]" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). Under this standard, the plaintiff must provide the grounds for its entitlement to relief, which "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when it "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. A complaint falls short if it pleads facts "merely consistent with

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a defendant's liability" or if the alleged facts do not "permit the court to infer more than the mere possibility of misconduct." Id at 1949-50. Instead, the allegations must "'show[ ] that the pleader is entitled to relief.'" Id at 1950 (quoting Fed. R. Civ. P. 8(a)(2)).


Plaintiffs initiated this action in state court alleging fraud and breach of contract. Plaintiffs allege that Defendants fraudulently misrepresented the premium structure of the insurance contract and then failed to disenroll them from the Plan following several requests. Plaintiffs also claim that the parties contracted for a certain premium rate and Defendants breached the contract when the rates increased beyond what was promised. Defendants removed the case to this Court and Plaintiffs responded with a motion to remand pursuant to 28 U.S.C. § 1447(c). The Court denied Plaintiffs' Motion to Remand and requested that Plaintiffs file a substantive response to Defendants' Motion to Dismiss. Defendants now move the Court to dismiss this action because: (1) Plaintiffs did not first exhaust their administrative remedies; (2) Plaintiffs' allegations are preempted by federal law; (3) Plaintiffs failed to plead fraud with particularity; and (4) Reeder, as Humana's agent, can not be held personally liable for breach of contract. The Court will discuss each of Defendants' arguments in turn.

A. Exhaustion of Administrative Remedies

Defendants argue that this Court can not exercise jurisdiction over the claims because Plaintiffs failed to first exhaust their administrative remedies. "Title 42 U.S.C. § 405(h)... makes § 405(g)1 the sole avenue for judicial review of all 'claim[s] arising under' the Medicare Act."

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Heckler v. Ringer. 466 U.S. 602, 614-15 (1984) (quoting 42 U.S.C. § 405(h) (2010)). "[T]he exhaustion requirement of § 405(g) consists of a non-waivable requirement that a claim for benefits shall have been presented to the Secretary, and a waivable requirement that the administrative remedies prescribed by the Secretary be pursued fully by the claimant." Heckler, 466 U.S. at 617 (internal quotations and citation omitted). Once the aggrieved party has "pressed his claim" through all levels of administrative review, the Secretary will then issue a "final decision." Id at 605. It is not until a "final decision" has been reached that judicial review is appropriate for claims "arising under" the Medicare Act. Id In sum, "[jurisdiction over cases 'arising under' Medicare exists only under 42 U.S.C. § 405(g), which requires an agency decision in advance ofjudicial review." Kaiser v. Blue Cross of California, 347 F.3d 1107, 1111 (9th Cir. 2003). This framework "channels most, if not all, Medicare claims through this special review system." Shalala v. Illinois Council on Long Term Care, 529 U.S. 1, 8 (2000).

Plaintiffs concede that they have not exhausted their administrative remedies. Thus, the only issue here is whether Plaintiffs' claims "arise under" the Medicare Act. "The Supreme Court has identified two circumstances in which a claim 'arises under' the Medicare Act: (1) where the standing and the substantive basis for the presentation of the claims is the Medicare Act; and (2) where the claims are inextricably intertwined with a claim for Medicare benefits." Uhm v. Humana, Inc., 620 F.3d 1134, 1142 (9th. Cir. 2010) (internal quotations and citation omitted). Although the Supreme Court has construed the phrase "arising under" quite broadly, "[s]everal federal courts have since... [found] that any claim which is not, at bottom, a claim for reimbursement of benefits, is not 'inextricably intertwined' with a claim for benefits and therefore does not arise under the Act." Albright v. Kaiser Permanente Med. Grp., 1999 WL 605828, at *3 (N.D. Cal. Aug. 3, 1999) (citing

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Ardary v. Aetna Health Plans of California, Inc., 98 F.3d 496 (9th Cir. 1996); Plocica v. Nylcare of Texas, Inc., 1999 WL 166325 (N.D. Tex. Mar. 2, 1999); Kelly v. Advantage Health, Inc., 1999 WL 294796 (E.D. La. May 11, 1999); Wartenberg v. Aetna U.S. Healthcare, Inc., 2 F. Supp. 2d 273 (E.D.N.Y. 1998); Berman v. Abington Radiology Assoc., Inc., 1997 WL 534804 (E.D. Pa. Aug. 14, 1997)). Accordingly, in the Sixth Circuit, "a court must examine whether the allegedly collateral claim involves completely separate issues from the party's claim that it is entitled to benefits or continued participation in the Medicare program or whether it is inextricably intertwined with its substantive claim to benefits or participation." Cathedral Rock of N. Coll. Hill, Inc. v. Shalala, 223 F.3d 354, 363 (6th Cir. 2000).

Turning first to the claim that Humana failed to disenroll Plaintiffs from the Plan. The disenrollment procedures are specifically regulated, monitored, and controlled by CMS. See 42 C.F.R. §§ 422.62-422.74. Plaintiffs were required to comply with the disenrollment procedures if they wished to withdraw from the Plan. If Plaintiffs attempted to disenroll within the allowable window and otherwise complied with the CMS rules, and Defendants nevertheless denied the request, the standing and substantive basis for the claim would be the Medicare Act. Furthermore, the claim is "inextricably intertwined" with a claim for benefits because it is a "substantive claim to... participation" in the Plan. Cathedral Rock, 223 F.3d at 363. Accordingly, the claim that Defendants failed to appropriately disenroll...

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