Taylor v. United States

Decision Date19 March 2014
Docket NumberNo. 7:11–CV–268–FL.,7:11–CV–268–FL.
Citation89 F.Supp.3d 766
CourtU.S. District Court — Eastern District of North Carolina
PartiesS. Douglas TAYLOR, Plaintiff, v. UNITED STATES of America and Health Net Federal Services, LLC, Defendants.

Jeffrey S. Miller, Jacksonville, NC, for Plaintiff.

Matthew Lee Fesak, U.S. Attorney's Office, James Richard Holland, Smith Moore Leatherwood LLP, Raleigh, NC, for Defendants.


LOUISE W. FLANAGAN, District Judge.

This matter is before the court on defendants' motions to dismiss plaintiff's second amended complaint. (DE 30, 32). Plaintiff filed a response and defendants replied. In this posture, the issues raised are ripe for ruling. For the reasons that follow, defendants' motions to dismiss will be granted.


Plaintiff filed an amended complaint on March 8, 2012, alleging claims against: (1) defendant United States of America (United States), challenging a November 10, 2011, administrative decision of TRICARE Management Activity (“TMA”),1 under the Administrative Procedure Act, 5 U.S.C. § 500 et seq. (“APA”); and (2) defendant Health Net Federal Services, LLC (“Health Net”), asserting claims under the TRICARE regulations, 32 C.F.R. § 199.1 et seq.; the Fifth Amendment of the United States Constitution; North Carolina common law defamation; and North Carolina's Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C. Gen.Stat. § 75–1.1 et seq. Plaintiff, a physician in Onslow County, North Carolina, seeks reinstatement as a TRICARE authorized provider, declaratory relief, money damages (both compensatory and punitive), and costs.

The United States moved to dismiss plaintiff's claims against it in the amended complaint for failure to state a claim under the APA, and moved for exemption from discovery. Health Net moved to dismiss claims against it for failure to state a claim and for lack of subject matter jurisdiction due to failure to exhaust administrative remedies.2

On November 26, 2012, 2012 WL 5928269, the court denied the United States's motion to dismiss and granted Health Net's motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The court granted the United States's motion for exemption from discovery.

On November 28, 2012, plaintiff moved to amend the complaint to add allegations that defendant Health Net is a governmental or state actor. On December 5, 2012, the United States moved to vacate the United States's prior administrative decision and to remand for further administrative proceedings. On January 18, 2013, the court granted the United States's motion to remand and invited the parties to renew any matters still pending following the issuance of a new final administrative order.

On March 5, 2013, the United States filed a notice of decision and joint status report. In the notice, the United States reported that on February 19, 2013, TMA issued a “Final Agency Determination of Effective Date of termination of TRICARE Authorized Provider Status Following Court Ordered Remand” (hereinafter, the “Final Agency Determination). (DE 56–1). The Final Agency Determination stated it was issued “to correct the effective date of a May 18, 2011, initial determination issued by a TRICARE contractor [Health Net] that retroactively terminated [plaintiff's] TRICARE provider status to April 1, 2004.” (Id. ). The Final Agency Determination also stated that plaintiff's “status as a TRICARE authorized provider” “is terminated effective 15 calendar days from the date of this determination.” (Id. ). The joint status report stated that plaintiff intended to move to amend his complaint, and the court set a schedule for doing so.

Plaintiff filed a motion to amend on April 4, 2013, and the court granted the motion on June 24, 2013. Plaintiff's second amended complaint, filed June 28, 2013, is identical in all material respects to plaintiff's first amended complaint, except that it adds allegations regarding the Final Agency Determination dated February 13, 2013, (Second Am. Compl. ¶¶ 19–21), and it adds allegations regarding defendant Health Net's status as a governmental or state actor, (Id. ¶ 3).

On July 19, 2013, the United States filed the instant motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6), and for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1), and Health Net filed its motion also before the court, pursuant to Rule 12(b)(6).


As alleged, plaintiff is a physician licensed by the North Carolina Medical Board to practice in the state since 1996, at a full clinical practice level. In 2004, plaintiff applied to become a TRICARE provider through Health Net. TRICARE is a healthcare system for military members and their dependants to obtain medical care that is paid for by the federal government. Health Net is the Managed Care Support Contractor that implements and administers the TRICARE program for the Department of Defense in North Carolina (as part of the TRICARE North Region).

When plaintiff requested to become a TRICARE provider in 2004, the application asked whether plaintiff had any state medical license issues in the past five years, such as suspensions or revocations. Although plaintiff answered “no,” he attached a full explanation of past disciplinary actions with medical boards which had occurred between 1985 and 1995. In 1986 his California license was suspended; in 1987 plaintiff's North Carolina license was revoked; in 1993 his New York license was revoked; and in 1995 he was denied a medical license in Ohio. Plaintiff has had no problems with his medical license in North Carolina since it was reinstated in 1996. Based upon his application, which included these disclosures, plaintiff was authorized as a provider in 2004 and his provider status was renewed in 2008.

In 2011, defendant Health Net sent plaintiff a notice that his provider status was being terminated because of the revocation of plaintiff's medical license in New York. Furthermore, the notice stated an intent to sue plaintiff for recovery of funds received from the government while he was an authorized TRICARE provider. Health Net further threatened involuntary collections against plaintiff, despite his repeated attempts to point out that he is a licensed physician and a qualified provider.

At the time that plaintiff's New York license was revoked, he was not an authorized TRICARE provider. That revocation was approximately eleven years before plaintiff applied to become a TRICARE provider. Health Net knew of that revocation when it approved his provider status in 2004, and renewed that status in 2008. Thus, plaintiff practiced medicine in North Carolina as an approved TRICARE provider from 2004 to 2011, but had his status retroactively revoked by Health Net. Health Net also communicated to plaintiff's patients that he was not an authorized TRICARE provider and was not entitled to payment for any treatments provided.

Plaintiff engaged in numerous communications with Health Net, which refused to reconsider its position. Furthermore, plaintiff's appeal of Health Net's decision to TMA in 2012, provided him with no relief. TMA informed plaintiff that it lacked jurisdiction to conduct a hearing because the issues complained of were issues of law, and not of fact. (Second Am. Compl., Exs. F, G). TMA stated that under TRICARE regulations, 32 C.F.R. §§ 199.2(b), 199.10(a)(6) and (d), only disputes of fact are appealable to TMA. (Id. ). Furthermore, TMA rejected plaintiff's interpretation of the TRICARE regulations. (Id. Ex. F).

Following the court's January 18, 2013, remand order, TMA issued the Final Agency Determination In the Final Agency Determination, issued on February 19, 2013, TMA maintains that under the terms of TRICARE program regulations, 32 C.F.R. 199.1 et seq., plaintiff is not qualified to be an authorized TRICARE provider because plaintiff's medical license in New York was revoked and has not been restored. (Id. Ex. H.). TMA also states that the initial determination issued May 18, 2011, by Health Net, terminating plaintiff's status as a TRICARE authorized provider “should have been effective 15 days from the date of the initial determination,” rather than retroactive to April 1, 2004.(Id. ). Accordingly, the Final Agency Determination corrects and “correct[s] with notice” the effective date of the initial determination, stating that his status as a TRICARE authorized provider is terminated “effective 15 days from the date of this determination,” or March 6, 2013. (Id. ). Finally, the Final Agency Determination states that “any recoupment based on [plaintiff's] TRICARE provider status for any care provided prior to the effective date specified in this notice is terminated and if there were any improper collections based on the Health Net retroactive termination of your provider status they will be reversed.” (Id., p. 7).

With respect to defendant Health Net's status as a governmental or state actor, plaintiff alleges that the United States has delegated to Health Net the right to make the determination of what physicians meet the requirements to be “providers” under the TRICARE regulations. (Second Am. Compl. ¶ 3). Plaintiff alleges that all power that Health Net has exercised against plaintiff is derived solely from the authority granted to Health Net by the United States, and that Health Net “wield[s] all of the government's power when it comes to interpretation of the relevant regulations.” (Id. ).

A. Standard of Review

The purpose of a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted is to eliminate claims that are factually or legally insufficient. Fed.R.Civ.P. 12(b)(6) ; Ashcroft v. Iqbal, 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To survive a motion to dismiss, a pleading must contain “sufficient...

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