Parra v. Pacificare of Ariz., Inc.

Decision Date19 April 2013
Docket NumberNo. 11–16069.,11–16069.
Citation715 F.3d 1146
PartiesGuillermina PARRA; Terri Corrales; Francisco Parra; Jesus Parra, Plaintiffs–counter–defendants–Appellees, v. PACIFICARE OF ARIZONA, INC., an Arizona corporation, Defendant–counter–claimant–Appellant.
CourtU.S. Court of Appeals — Ninth Circuit


John C. West (argued), Brownstein Hyatt Farber Schreck, LLP, Phoenix, AZ, for DefendantCounter–ClaimantAppellant.

John E. Osborne and William C. Bacon (argued), Goldberg & Osborne, Tucson, AZ, for PlaintiffsCounter–DefendantsAppellees.

Stanley G. Feldman, Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., Tucson, Steven J. Bruzonsky, Mesa, and David L. Abney, Knapp & Roberts, P.C., Scottsdale, AZ, for Amicus Curiae Arizona Association for Justice.

Appeal from the United States District Court for the District of Arizona, David C. Bury, District Judge, Presiding. D.C. No. 4:10–cv–00008–DCB.


Opinion by Judge HURWITZ; Concurrence by Judge CALLAHAN.


HURWITZ, Circuit Judge:

This case involves the Medicare Act, one of “the most completely impenetrable texts within human experience.” Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44, 45 (3d Cir.2010) (internal quotation marks and citationomitted). The issue is whether a private Medicare Advantage Organization (“MAO”) plan can sue a plan participant's survivors, seeking reimbursement for advanced medical expenses out of the proceeds of an automobile insurance policy. The district court dismissed the causes of action asserted by the MAO under the Medicare Act for failure to state a claim and declined to exercise supplemental jurisdiction over the MAO's contract claim. We affirm.

I.Facts and Procedural Background

Manuel Parra was injured when struck by a car as he was walking through a parking lot. Parra was a participant in a MAO plan offered by PacifiCare of Arizona, Inc., which paid his hospital and medical bills.

After Parra died from injuries suffered in the accident, his wife and children (the “Survivors”) made a demand for wrongful death damages against the driver's $500,000 GEICO automobile insurance policy. SeeAriz.Rev.Stat. § 12–612 (allowing the surviving spouse, child, parent, guardian or personal representative of a deceased person to bring a wrongful death action); id. § 12–613 (allowing damages in a wrongful death action “with reference to the injury resulting from the death to the surviving parties). PacifiCare also made a claim against the GEICO policy for the $136,630.90 it expended for Parra's care. The Survivors eventually entered into a settlement with GEICO, under which the insurer issued a $136,630.90 check jointly payable to the Survivors' attorney and to PacifiCare's affiliate, to be held in trust pending resolution of the parties' dispute, and paid the balance of the policy limits to the Survivors.

The Survivors then filed a complaint in the United States District Court for the District of Arizona, seeking declaratory and injunctive relief. The complaint contended that under Arizona law the policy proceeds were not subject to PacifiCare's anticipated claims. SeeAriz.Rev.Stat. § 12–613 (“The amount recovered in such action shall not be subject to debts or liabilities of the deceased, unless the action is brought on behalf of the decedent's estate.”); Gartin v. St. Joseph's Hosp. & Med. Ctr., 156 Ariz. 32, 749 P.2d 941, 943–45 (Ariz.Ct.App.1988) (holding that wrongful death awards are not subject to a decedent's debts). The Survivors sought injunctive relief and a declaration that “PacifiCare is not entitled to any reimbursement payments out of the wrongful death benefits paid by GEICO to the [Survivors] because PacifiCare has no greater reimbursement rights than the Secretary [of Health and Human Services] and the Secretary determined Medicare will not seek reimbursement from wrongful death proceeds that do not include payment for the decedent's medical expenses.”

PacifiCare counterclaimed, also seeking declaratory relief, arguing it was entitled to reimbursement under both the terms of its contract with Parra (Count I) and directly under the Medicare Act (Count II). The parties each moved for summary judgment. The motions were referred to a magistrate judge, who sua sponte recommended dismissal of the action for lack of subject matter jurisdiction.

The district court accepted and adopted the magistrate judge's Report and Recommendation as its own findings of fact and conclusions of law. But rather than dismissing Count II for lack of subject matter jurisdiction, the court granted the Survivors' motion for summary judgment “to the extent it asks [the court] to find [PacifiCare] does not have a private cause of action under the Medicare statute or the Medicare Secondary Payer (MSP) Act.” The court declined to exercise supplemental jurisdiction over Count I.

PacifiCare appealed the district court's judgment. We have jurisdiction under 28 U.S.C. § 1291, and review de novo a dismissal for failure to state a claim. Uhm v. Humana, Inc., 620 F.3d 1134, 1139 (9th Cir.2010). We review for abuse of discretion a district court's decision ... not to retain supplemental jurisdiction over state claims once it has dismissed all of the plaintiff's federal claims.” Brown v. Lucky Stores, Inc., 246 F.3d 1182, 1187 (9th Cir.2001).

II.Failure to State a Claim or Lack of Subject Matter Jurisdiction?

The magistrate judge recommended that Count II be dismissed for lack of subject matter jurisdiction; the district court, although adopting the magistrate judge's recommendation and report, instead concluded that Count II failed to state a claim upon which relief can be granted. This duality is understandable; our decisions have analyzed whether a cause of action exists under federal law both ways. Compare, e.g., Thompson v. Thompson, 798 F.2d 1547, 1550 (9th Cir.1986) (“Because jurisdiction is not defeated by the possibility that the complaint might fail to state a claim upon which recovery can be had, the failure to state a valid claim is not the equivalent of a lack of subject matter jurisdiction, and calls for a judgment on the merits rather than for a dismissal for lack of jurisdiction.”), aff'd,484 U.S. 174, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988), with N. Cnty. Commc'ns Corp. v. Cal. Catalog & Tech., 594 F.3d 1149, 1162 (9th Cir.2010) (holding that [t]he district court lacked subject matter jurisdiction ... as North County cannot establish a private right to compensation under the provisions of the Federal Communications Act). Despite these seemingly inconsistent decisions,1 the district court was correct. Subject matter jurisdiction exists to determine whether a federal statute provides a private right of action.

The Supreme Court has counseled that [j]urisdiction ... is not defeated ... by the possibility that the averments might fail to state a cause of action on which petitioners could actually recover.” Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946); see also Burks v. Lasker, 441 U.S. 471, 476 n. 5, 99 S.Ct. 1831, 60 L.Ed.2d 404 (1979) (“The question whether a cause of action exists is not a question of jurisdiction.”). Federal question jurisdiction thus exists over a claim stating a cause of action under federal law unless the “allegation was clearly immaterial,” or the claim was made “solely for the purpose of obtaining jurisdiction.” Thompson, 798 F.2d at 1550. Neither is the case here. [B]ecause interpretation of the federal Medicare Act presents a federal question,” In re Avandia Mktg., 685 F.3d 353, 357 (3d Cir.2012), the district court had subject matter jurisdiction to determine whether that act created a cause of action in favor of PacifiCare against the Survivors. We next turn to an overview of the pertinent parts of that legislation.

A.The Medicare Act

Medicare, enacted in 1965, is a federal health insurance program primarily benefitting those 65 years of age and older. See Social Security Amendments of 1965, Pub.L. No. 89–97, 79 Stat. 286 (codified as amended at 42 U.S.C. §§ 1395 to 1395kkk–1). Medicare Part A covers inpatient hospital care, 42 U.S.C. §§ 1395c to 1395i–5, and Part B covers services and equipment, 42 U.S.C. §§ 1395j to 1395w–5.

In 1980, Congress added the Medicare Secondary Payer provisions (“MSP”) to the Medicare Act. Omnibus Reconciliation Act of 1980, Pub.L. No. 96–499, 94 Stat. 2599 (codified as amended at 42 U.S.C. § 1395y(b)). The MSP makes Medicare insurance secondary to any “primary plan” obligated to pay a Medicare recipient's medical expenses, including a third-party tortfeasor's automobile insurance. 42 U.S.C. § 1395y(b)(2)(A). When Medicare makes a conditional payment on behalf of a beneficiary, the primary plan must reimburse the Trust Fund. Id. § 1395y(b)(2)(B)(ii). The MSP also subrogates the United States to a beneficiary's right to pursue the primary plan, id. § 1395y(b)(2)(B)(iv), and provides the United States with an independent right to recover double damages from a responsible entity which refuses to reimburse the Trust Fund, id. § 1395y(b)(2)(B)(iii).

In 1986, the Medicare Act was further amended to include “a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement).” Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99–509, 100 Stat. 1874 (codified as amended at 42 U.S.C. § 1395y(b)(3)(A)). The private cause of action allows Medicare beneficiaries and healthcare providers to recover medical expenses from primary plans. See, e.g., Bio–Med. Applications of Tenn., Inc. v. Cent. States Se. & Sw. Areas Health & Welfare Fund, 656 F.3d 277, 279 (6th Cir.2011), cert. dismissed,––– U.S. ––––, 132 S.Ct. 1087, 181 L.Ed.2d 805 (2012) (noting that the private cause of action provides an “incentive for healthcare...

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