Raymond G. Farmer, in His Capacity Co. v. United States

• Decision Date: 16 March 2018
• Docket Number: CIVIL ACTION NO. 3:17-0956-MGL
• Court: U.S. District Court — District of South Carolina
• 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 OF AMERICA, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, CENTERS FOR MEDICARE & MEDICAID SERVICES, ALEX M. AZAR II, in his capacity as Secretary of the United States Department of Health and Human Services, and SEEMA VERMA, in her capacity as Administrator for the Centers for Medicare & Medicaid Services, Defendants.

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 OF AMERICA, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,CENTERS FOR MEDICARE & MEDICAID SERVICES, ALEX M. AZAR II, in his capacityas Secretary of the United States Department of Health and Human Services, and SEEMA VERMA,in her capacity as Administrator for the Centers for Medicare & Medicaid Services, Defendants.

CIVIL ACTION NO. 3:17-0956-MGL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA COLUMBIA DIVISION

March 16, 2018

MEMORANDUM OPINION AND ORDER GRANTING THE GOVERNMENT'S MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

I. INTRODUCTION

Plaintiffs Raymond G. Farmer, in his capacity as Liquidator of Consumers' Choice Health Insurance Company (Consumers' Choice or the Company), a now defunct South Carolina insurance company, and Michael J. Fitzgibbons, in his capacity as Special Deputy Liquidator of the Company (collectively, the liquidators), filed this case as a declaratory action in accordance with 28 U.S.C. 2201. They brought the lawsuit against Defendants the United States of America, the United States Department of Health and Human Services (HHS), the Centers for Medicare & Medicaid Services (CMMS), Alex M. Azar II, in his capacity as Secretary of the HHS, and Seema Verma, in her capacity as Administrator for the CMMS (collectively, the government).

Pending before the Court is the government's motion to dismiss for lack of subject matter jurisdiction, Fed. R. Civ. P. 12(b)(1), or, in the alternative, for failure to state a claim, Fed. R. Civ. P. 12(b)(6). Having carefully considered the Rule 12(b)(1) portion of the motion, the response, and the reply, the Court will grant the government's motion to dismiss for lack of subject matter jurisdiction. As such, the Court need not reach the parties' arguments as to the government's alternative request to dismiss for failure to state a claim.

II. BRIEF FACTUAL AND PROCEDURAL HISTORY

For approximately two years, Consumers' Choice provided health insurance plans on the health insurance marketplaces created by the Patient Protection and Affordable Care Act (the Affordable Care Act or the Act). As is pertinent here, the Act allows for a system of payments by the government, which serve to minimize the risk to insurance companies of furnishing insurance to persons who were previously without insurance and have unknown health risks.

In March 2012, the government and Consumers' Choice closed on a Loan Agreement, which included Promissory Notes for a Start-up Loan to Consumers' Choice in the amount of $18,709,800 and Solvency Loans to the Company in the amount of $68,868,408.

On September 11, 2013, Consumers' Choice and the government entered into an Agreement regarding Consumers' Choice's provision of insurance in calendar year 2014 and thepayment of various amounts between Consumers' Choice and the government. The parties renewed the Agreement on October 28, 2014.

Consumers' Choice eventually failed. The liquidators blame the government's alleged breach of its promise to dispense funding in accordance with the Affordable Care Act for the demise of the Company. The state court ultimately placed the Company into liquidation. According to the liquidators, the government then commenced an array of inappropriate setoffs devised to elevate its priority of payment from the estate of the Company above the claims of others who should possess the higher priority. Consequently, the liquidators claim the government owes them certain amounts of money; and it is disallowed from employing setoffs to cover any purported debts the estate of Consumers' Choice might owe to the government. In the alternative, the liquidators urge, even if setoffs are appropriate, the government can employ them only after the estate of the Company has paid the higher priority claimants.

In the lawsuit, the liquidators ask for a declaration the government's actions are wrongful and enjoined on the bases they are violative of South Carolina law, the terms of the Affordable Care Act, the Loan Agreement, and the January 20, 2017, Presidential Executive Order, which requires the government and its agencies to "exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State[.]" Executive Order 13765 (Jan. 20, 2017).

After the liquidators filed their amended complaint, the government filed its motion to dismiss for lack of subject matter jurisdiction, or, in the alternative, for failure to state a claim. The liquidators filed their response to the motion, to which the government filed its reply. TheCourt, having been fully briefed on all of the relevant issues, is now prepared to adjudicate the government's motion.

III. STANDARD OF REVIEW

"Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree." Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). More specifically, unless a matter involves an area of a federal court's exclusive jurisdiction, a plaintiff may bring suit in federal court only if the matter involves a federal question arising "under the Constitution, laws or treaties of the United States," 28 U.S.C. § 1331, or if "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different states," 28 U.S.C. § 1332(a)(1). "It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen, 511 U.S. at 377. Thus, in this action, the burden of proving subject matter jurisdiction exists rests on the liquidators. See Evans v. B.F. Perkins Co., a Div. of Standex Int'l Corp., 166 F.3d 642, 647 (4th Cir. 1999).

A motion to dismiss under Rule 12(b)(1) raises the fundamental question of whether a court is competent to hear and adjudicate claims. In reviewing a motion to dismiss under Rule 12(b)(1), the Court is to "regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir.1991).

"Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit." F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994). This includes declaratory judgment actions. Goldstein v. Moatz, 364 F.3d 205, 219 (4th Cir. 2004) ("If a declaratory judgment proceeding actually constitutes a suit against the sovereign, it is barred absent a waiver of sovereign immunity."). A suit is against the sovereign if "the judgment sought would expend itself on the public treasury or domain, or interfere with the public administration." Dugan v. Rank, 372 U.S. 609, 620 (1963) (quoting Land v. Dollar, 330 U.S. 731, 738 (1947)).

Federal agency heads are likewise immune from suit. Larson v. Domestic & Foreign Commerce Corp, 337 U.S. 682, 688 (1949) (In a suit naming a government official in which the Court is asked to prevent or discontinue a wrong, "the suit is barred, not because it is a suit against an officer of the [g]overnment, but because it is, in substance, a suit against the [g]overnment over which the court, in the absence of consent, has no jurisdiction."). "It is not necessary that the United States be denominated as a party." Portsmouth Redevelopment & Hous. Auth. v. Pierce, 706 F.2d 471, 473 (4th Cir. 1983). The Court will view a case against a federal agency or official "as an action against the sovereign if 'the judgment sought would expend itself on the public treasury or domain, or interfere with the public administration, or if the effect of the judgment would be to restrain the [g]overnment from acting, or compel it to act.'" Id. (quoting Dugan v. Rank, 372 U.S. 609, 620 (1963)).

"Sovereign immunity is not a sword, but a shield; and as a shield it means simply that 'the United States cannot be sued at all without the consent of Congress.'" United States v. Bankers Ins. Co., 245 F.3d 315, 320 (4th Cir. 2001) (quoting Block v. North Dakota, 461 U.S. 273, 287 (1983)). "[T]he terms of [the United States's] consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Sherwood, 312 U.S. 584, 586(1941). Such consent must be "unequivocally expressed in statutory text, and will not be implied." Lane v. Peña, 518 U.S. 187, 192 (1996) (internal citations omitted). "[A] waiver of sovereign immunity is to be strictly construed, in terms of its scope, in favor of the sovereign." Dep't of Army v. Blue Fox, Inc., 525 U.S. 255, 261 (1999).

Both the Tucker Act, 28 U.S.C. § 1491 & § 1346(a)(2), and the Administrative Procedures Act (APA), 5 U.S.C. § 702, "have been construed as waivers by the United States of sovereign immunity." Randall v. United States, 95 F.3d 339, 345 (4th Cir. 1996). The Supreme Court has concluded "by giving the Court of [Federal] Claims jurisdiction over specified types of claims against the United States, the Tucker Act constitutes a waiver of sovereign immunity with respect to those claims." United States v. Mitchell, 463 U.S. 206, 212 (1983). And the Supreme Court, in Bowen v. Massachusetts, 487 U.S. 879 (1988), recognized "the 1976 amendment to 5 U.S.C. § 702 was intended to broaden the avenues for judicial review of agency action by eliminating the defense of sovereign immunity in cases covered by the amendment.") Id. at 891-92 (alteration omitted).

For purposes of this lawsuit, if Tucker Act waiver of sovereign immunity applies, this case must be...