California Insurance Guarantee Association v. Sylvia Mathews Burwell et al, No. 2:2015cv01113 - Document 50 (C.D. Cal. 2016)

Court Description: ORDER GRANTING DEFENDANTS' MOTION TO DISMISS 41 by Judge Otis D. Wright, II. The Court GRANTS the United States' Motion to Dismiss. The Court dismisses CIGA's claims against the United States to the extent that they are based on the United States failure to file timely proofs of claim under the Guarantee Act or based on the United States' alleged position as an assignee or subrogee of either the insured or the insurer. (lom)
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California Insurance Guarantee Association v. Sylvia Mathews Burwell et al Doc. 50 O 1 2 3 4 5 6 7 United States District Court Central District of California 8 9 10 11 12 13 14 15 16 17 18 19 Case 2:15-cv-01113-ODW (FFMx) CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Plaintiff, ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS [41] v. SYLVIA MATHEWS BURWELL; UNITED STATES DEPARTMENT OF HEALTH & HUMAN SERVICES; and CENTER FOR MEDICARE & MEDICAID SERVICES, Defendants. I. INTRODUCTION 20 This is an action for declaratory and injunctive relief filed by Plaintiff 21 California Insurance Guarantee Association (“CIGA”) against Defendants Sylvia 22 Mathews Burwell, United States Department of Health & Human Services, and Center 23 for Medicare & Medicaid Services (collectively “United States”). CIGA seeks a 24 judicial declaration that it is not required to reimburse the United States for Medicare 25 benefits paid to individuals whose losses may also be covered by CIGA. The United 26 States now moves to dismiss portions of CIGA’s Second Amended Complaint. For 27 28 1 the reasons discussed below, the Court GRANTS the United States’ Motion.1 (ECF 2 No. 41.) II. 3 FACTUAL BACKGROUND 4 CIGA is a statutorily-created and unincorporated association of insurers 5 admitted to transact certain classes of insurance business in California. (Second Am. 6 Compl. (“SAC”) ¶ 6.) CIGA was created by the California Legislature to establish a 7 fund from which insureds could obtain financial and legal assistance in the event their 8 insurers became insolvent. (Id. ¶ 10.) 9 To that end, CIGA is currently paying several claims under various workers’ 10 compensation policies issued by now-insolvent insurers. (Id. ¶ 21.) These same 11 claimants also received payments from Medicare for items and services that were 12 otherwise covered by these policies.2 (Id.) Where Medicare pays benefits for a loss 13 that is also covered by another insurer, the Medicare Secondary Payer statute, 42 14 U.S.C. § 1395y, designates Medicare as the “secondary payer” and generally requires 15 those other insurance plans (called “primary plans”) to reimburse Medicare for all 16 benefits it paid. (Id. ¶ 18.) Concluding that the workers’ compensation policies were 17 “primary plans” within the meaning of the statute, the United States demanded that 18 CIGA reimburse it for the Medicare benefits paid to these claimants. (Id. ¶ 22.) 19 CIGA refused, prompting the United States to commence collection proceedings. (Id. 20 ¶¶ 22–25.) 21 On February 17, 2015, CIGA filed this action seeking a judicial declaration that 22 it is not required to reimburse the United States for any conditional payments made by 23 Medicare to these claimants. (ECF No. 2.) On March 18, 2015, CIGA filed a First 24 Amended Complaint. (ECF No. 17.) The United States previously moved to dismiss 25 26 27 28 1 After considering the papers filed in support of and in opposition to the Motion, the Court deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. R. 7-15. 2 While CIGA alleges that the policies do not cover three of the ten claims at issue in this action, this Motion is limited to the seven claims where coverage is conceded. (SAC ¶¶ 43–53.) 2 1 the First Amended Complaint, which was granted in part and denied in part by Judge 2 Morrow with leave to amend.3 (ECF Nos. 24, 38.) On November 23, 2015, CIGA 3 filed a Second Amended Complaint. (ECF No. 41.) On December 10, 2015, the 4 United States moved to dismiss portions of the Second Amended Complaint. (ECF 5 No. 41.) CIGA timely opposed, and the United States timely replied. (ECF Nos. 47, 6 48.) That Motion is now before the Court for consideration. 7 III. LEGAL STANDARD 8 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable 9 legal theory or insufficient facts pleaded to support an otherwise cognizable legal 10 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To 11 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading 12 requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. 13 Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to 14 raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 15 U.S. 544, 555 (2007). That is, the complaint must “contain sufficient factual matter, 16 accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. 17 Iqbal, 556 U.S. 662, 678 (2009). 18 The determination whether a complaint satisfies the plausibility standard is a 19 “context-specific task that requires the reviewing court to draw on its judicial 20 experience and common sense.” Id. at 679. A court is generally limited to the 21 pleadings and must construe all “factual allegations set forth in the complaint . . . as 22 true and . . . in the light most favorable” to the plaintiff. Lee v. City of L.A., 250 F.3d 23 668, 688 (9th Cir. 2001). But a court need not blindly accept conclusory allegations, 24 unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden 25 State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 26 /// 27 28 3 The matter was transferred to this Court soon thereafter. (ECF No. 43.) 3 IV. 1 DISCUSSION 2 Judge Morrow granted the United States’ prior Motion to Dismiss on the 3 grounds that CIGA was a “primary plan” within the meaning of the Medicare 4 Secondary Payer statute, 42 U.S.C. § 1395y(b)(2)(B)(ii), and that the statute’s 5 reimbursement requirements preempted any contrary California statutes. (Order 11– 6 24, ECF No. 38.)4 However, CIGA was given leave to amend to assert other grounds 7 on which the United States may be prohibited from seeking reimbursement. (Id. at 8 26.) In its Second Amended Complaint, CIGA asserts two such grounds. First, CIGA 9 asserts that the United States did not file timely proofs of claim under the California 10 Guarantee Act. (SAC ¶¶ 29–35.) Second, CIGA argues that the Guarantee Act 11 prohibits the United States from asserting claims against CIGA as either an assignee 12 or subrogee of the insured (or insurer). (Id. ¶¶ 36–38.) The United States challenges 13 both theories. The Court agrees that the first does not hold water, and thus declines to 14 reach the second. 15 A. Timely Proofs of Claim The United States contends that claims made by the United States can never be 16 17 defeated by a state-imposed time limit. (Mot. 5–8.) CIGA responds that the 18 McCarran-Ferguson Act is an exception to this rule. That Act provides that “[n]o Act 19 of Congress shall be construed to invalidate, impair, or supersede any law enacted by 20 any State for the purpose of regulating the business of insurance . . . unless such Act 21 specifically relates to the business of insurance.” 15 U.S.C. § 1012(b). CIGA argues 22 that the California Guarantee Act is a state law that “regulat[es] the business of 23 insurance,” and thus supersedes any general federal law allowing claims to be filed 24 outside the Guarantee Act’s filing deadline. (Opp’n 6–14.) In reply, the United States 25 argues that McCarran-Ferguson does not apply because (1) the Guarantee Act’s 26 4 27 28 Judge Morrow did rule, however, that CIGA stated a cognizable claim to the extent that the claimants’ losses were not covered by the original workers’ compensation insurance policies. (Order 25.) 4 1 claims filing statute does not regulate the “business of insurance,” and (2) that the 2 Medicare Secondary Payer statute is at any rate a federal statute that specifically 3 regulates the business of insurance. (Reply 1–8.) 4 The Court concludes that this issue can and should be resolved on narrower 5 grounds. Specifically, the Court holds that the McCarran-Ferguson Act does not 6 subject the United States to California’s claims filing deadline because the Act was 7 never intended to waive the federal government’s sovereign immunity. 8 1. Summerlin and Sovereign Immunity 9 The Court begins with the familiar rule that “[w]hen the United States becomes 10 entitled to a claim, acting in its governmental capacity and asserts its claim in that 11 right, it cannot be deemed to have abdicated its governmental authority so as to 12 become subject to a state statute putting a time limit upon enforcement.” United 13 States v. Summerlin, 310 U.S. 414, 417 (1940); see also Bresson v. C.I.R., 213 F.3d 14 1173, 1176 (9th Cir. 2000). This common law rule has its origins in the concept of 15 sovereign immunity; just as the states cannot sue the federal government without its 16 consent, the states cannot enact laws that purport to bind the federal government 17 without its consent. United States v. Thompson, 98 U.S. 486, 488–91 (1878); Gibson 18 v. Chouteau, 80 U.S. 92, 99 (1871) (“As legislation of a State can only apply to 19 persons and things over which the State has jurisdiction, the United States are also 20 necessarily excluded from the operation of such statutes.”). Later cases also describe 21 the federal government’s freedom from state regulation as a “corollary” of the 22 Supremacy Clause. Hancock v. Train, 426 U.S. 167, 178 (1976); Mayo v. United 23 States, 319 U.S. 441, 445 & n.5 (1943); see Boeing Co. v. Movassaghi, 768 F.3d 832, 24 839 (9th Cir. 2014). 25 Congress can, of course, waive sovereign immunity. See, e.g., Loeffler v. 26 Frank, 486 U.S. 549, 554 (1988). Similarly, the federal government can consent to 27 state regulation. Ruthardt v. United States, 303 F.3d 375, 384 (1st Cir. 2002) (“The 28 Supreme Court long ago held that (presumptively) claims of the United States as 5 1 sovereign cannot be defeated by state statutes of limitations. We say ‘presumptively’ 2 because Congress can provide otherwise.” (citing Summerlin, 310 U.S. at 417)); 3 Seattle Master Builders Ass’n v. Pac. Nw. Elec. Power & Conservation Planning 4 Council, 786 F.2d 1359, 1364 (9th Cir. 1986). However, there must be “a clear 5 congressional mandate and specific legislation which makes the authorization of state 6 control [over the federal government] clear and unambiguous.” 7 Builders Ass’n, 786 F.2d at 1364; Hancock, 426 U.S. at 179 (“[W]here ‘Congress 8 does not affirmatively declare its instrumentalities or property subject to regulation,’ 9 ‘the federal function must be left free’ of regulation.” (footnotes omitted)). 10 Absent such a waiver, Summerlin clearly controls here. Seattle Master The California 11 Guarantee Act requires all claims against CIGA to be presented to the liquidator of the 12 defunct insurer “on or before the last date fixed for the filing of claims in the 13 domiciliary liquidating proceedings.” 14 alleges that this deadline passed several years ago with respect to the defunct insurers 15 at issue in this lawsuit, and that the United States’ claims for reimbursement are 16 therefore barred. (SAC ¶¶ 33–35.) However, as a state law that “undertakes to 17 invalidate the claim of the United States[] so that it cannot be enforced at all,” the 18 Guarantee Act’s claims filing deadline “transgresse[s] the limits of state power” and is 19 thus inapplicable to claims by the United States. Summerlin, 310 U.S. at 417.5 The 20 only question, then, is whether Congress waived Summerlin in the insurance context. Cal. Ins. Code § 1063.1(c)(1)(C). CIGA 21 2. Waiver of Summerlin: the McCarran-Ferguson Act 22 CIGA argues that the McCarran-Ferguson Act authorizes the states to bind the 23 federal government to a claims filing deadline in the insurance context. As previously 24 noted, the McCarran-Ferguson Act provides that “[n]o Act of Congress shall be 25 construed to invalidate, impair, or supersede any law enacted by any State for the 26 5 27 28 Contrary to CIGA’s argument, Summerlin expressly rejected the notion that a statutory claims filing deadline was materially different from a statute of limitation such that sovereign immunity did not apply. 310 U.S. at 417. 6 1 purpose of regulating the business of insurance . . . unless such Act specifically relates 2 to the business of insurance.” 15 U.S.C. § 1012(b). “The McCarran–Ferguson Act 3 was enacted in response to [the Supreme] Court’s decision in United States v. South– 4 Eastern Underwriters Assn., 322 U.S. 533 (1944).” U.S. Dep’t of Treasury v. Fabe, 5 508 U.S. 491, 499 (1993). “Prior to that decision, it had been assumed that issuing a 6 policy of insurance [wa]s not a transaction of commerce subject to federal regulation. 7 [However,] in South–Eastern Underwriters, [the Supreme Court] held that an 8 insurance company that conducted a substantial part of its business across state lines 9 was engaged in interstate commerce and thereby was subject to the antitrust laws. [In 10 response,] Congress moved quickly to restore the supremacy of the States in the realm 11 of insurance regulation” by enacting McCarran-Ferguson. Id. at 499–500 (internal 12 citations and quotation marks omitted); see also Prudential Ins. Co. v. Benjamin, 328 13 U.S. 408, 429 (1946); Merchs. Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 14 F.3d 1486, 1488–89 (9th Cir. 1995) (“Congress enacted the McCarran–Ferguson Act 15 in part to allow the states to regulate the business of insurance free from inadvertent 16 preemption by federal statutes of general applicability.”). 17 CIGA relies on Ruthardt v. United States, 164 F. Supp. 2d 232 (D. Mass. 2001), 18 aff’d, 303 F.3d 375 (1st Cir. 2002), for the proposition that McCarran-Ferguson was 19 intended as a waiver of Summerlin. (Opp’n 9.) There, the district court held: 20 21 22 23 24 25 26 [Summerlin’s] preemptive effect here (through the general federal priority statute, 31 U.S.C. § 3713) cannot overcome the particular niche for state authority carved out by the McCarran–Ferguson Act, which was enacted by Congress five years after Summerlin was decided. Thus, despite the enduring general vitality of the Summerlin principle, the United States will be deemed to have chosen to become subject to the state filing deadline in this case to the degree the McCarran–Ferguson Act protects such rules. Ruthardt, 164 F. Supp. 2d at 242. 27 The Court respectfully disagrees with the district court’s analysis in Ruthardt. 28 First, the Act, by its express terms, does not apply to Summerlin. The Act refers only 7 1 to “Acts of Congress” as not preempting state statutes that regulate the insurance 2 industry. § 1012(b). The rule laid down in Summerlin is not an “Act of Congress,” 3 nor is it derived from any Act of Congress; it is a common law rule that stems from 4 principles of sovereign immunity that long predate this country’s founding, and that is 5 now enshrined in the Supremacy Clause. Nor does Summerlin bind the states by 6 preempting state law “through” a federal statute; rather, it is a stand-alone principle 7 that delineates the states’ power (or lack thereof) over the federal government. No 8 federal statute is required for it to operate. 9 Second, the purpose of the Act was to ensure that the regulation of the 10 insurance business stayed with the states (unless Congress specifically provided 11 otherwise). 12 regulation of the insurance industry. It is not a legislative enactment that imposes 13 requirements that all businesses and policyholders in the California insurance market 14 must adhere to; rather, it simply governs one aspect of CIGA’s claims process where 15 the United States acts as a claimant. Third, and perhaps most importantly, protecting 16 the insurance business from unwitting federal legislative control is a far cry from 17 subjecting the federal government as a sovereign to state control. That Congress 18 intended the former cannot be reasonably construed as intending the latter. The Summerlin principle does not substantially affect the state’s 19 Ruthardt does not address any of these issues. Instead, Ruthardt suggests that 20 the mere fact that Summerlin preceded the enactment of McCarran-Ferguson is 21 persuasive, perhaps conclusive, evidence that the Act was intended to displace 22 Summerlin in the insurance context. But this does not account for the substantial 23 authority noting that the Act was enacted directly in response to South–Eastern 24 Underwriters, not Summerlin. The fact that McCarran-Ferguson came five years after 25 Summerlin is, in all likelihood, coincidence. 26 Ferguson’s enactment is insufficient to show that Congress “clear[ly] and 27 unambiguous[ly]” intended to subject the federal government to state insurance law. 28 Seattle Master Builders Ass’n, 786 F.2d at 1364. 8 Thus, the timing of McCarran- 1 The remaining cases that CIGA points to almost all relate only to the priority of 2 claims asserted by the United States, not the complete invalidation of such claims. 3 Ruthardt, 303 F.3d at 379–84; Antonio Garcia v. Island Program Designer, Inc., 4 4 F.3d 57, 60 (1st Cir. 1993); Boozell v. United States, 979 F. Supp. 670, 676 (N.D. Ill. 5 1997); State ex rel. Clark v. Blue Cross Blue Shield of W. Virginia, Inc., 510 S.E.2d 6 764, 779 (W. Va. 1998). The only case to also address invalidation was the First 7 Circuit’s decision in Ruthardt, but that court did not meaningfully address McCarran- 8 Ferguson’s effect on Summerlin. Ruthardt, 303 F.3d at 384. Instead, the court struck 9 down the state claims filing deadline on the alternate ground that it did not “regulat[e] 10 the business of insurance” within the meaning of McCarran-Ferguson. Id. Ruthardt 11 thus has no bearing on the question now before the Court. For these reasons, the Court concludes that the Act does not subject the United 12 13 States as a sovereign to the Guarantee Act’s claim-filing deadline. 14 B. Subrogation 15 CIGA’s arguments regarding the inability of the United States to assert 16 subrogated claims against it are moot. As the United States point out, it has a direct 17 right of recovery against CIGA in addition to any claims it could assert as a subrogee. 18 Zinman v. Shalala, 67 F.3d 841, 844–45 (9th Cir. 1995). And because the Guarantee 19 Act’s claims filing deadline does not prevent the United States from pursuing its direct 20 claims, it is unnecessary to decide the validity or scope of its subrogation rights. 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 9 V. 1 CONCLUSION 2 For the reasons discussed above, the Court GRANTS the United States’ Motion 3 to Dismiss. (ECF No. 41.) The Court dismisses CIGA’s claims against the United 4 States to the extent that they are based on the United States’ failure to file timely 5 proofs of claim under the Guarantee Act or based on the United States’ alleged 6 position as an assignee or subrogee of either the insured or the insurer. 7 8 IT IS SO ORDERED. 9 10 March 16, 2016 11 12 13 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10