CHARLES R. BREYER, District Judge.
This is a case by a disgruntled enrollee in Kaiser's Medicare Advantage Plan ("MAP"). She was injured in a car accident, received medical treatment paid for by Kaiser via her MAP, and then got a $100,000 settlement from a liability insurer in connection with the car accident. Kaiser attempted to recover a substantial portion of that settlement pursuant to its rights under the Medicare statutes as a secondary payer to a third party source of funds (liability insurance).
Plaintiff then filed a putative class action against Kaiser,
Kaiser removed this action from the Superior Court of California, Alameda County, claiming two bases for federal court jurisdiction: (1) diversity jurisdiction under the Class Action Fairness Act ("CAFA"); and (2) complete preemption of Plaintiff's state law claims (meaning, essentially, that Plaintiff is actually asserting federal claims disguised as state law claims). Kaiser then moved to dismiss (dkt. 19), arguing preemption and failure to exhaust administrative remedies. Plaintiff, in turn, moves to remand (dkt. 23) and argues, in the alternative, that her state claims are not preempted and do not require exhaustion.
For the reasons that follow, Plaintiff's Motion to Remand is DENIED, and Defendants' Motion to Dismiss is GRANTED with prejudice.
The Medicare Advantage ("MA") program permits eligible individuals to elect to receive Medicare benefits from a private health insurer like Kaiser. See 42 U.S.C. § 1395w21, 22.
The Medicare Act grants MA organizations the right to be placed in a secondary-payer position to third-party sources of funds, such as funds from liability insurers, that are liable for the costs of a Medicare beneficiary's care. See id. § 1395w-22(a)(4) (an MA organization "may ... charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy described in this section — (A) the insurance carrier ... which under such law, plan, or policy is to pay for the provision of such services, or (B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services.").
Plaintiff has been a Kaiser MAP enrollee since 2009. Compl. ¶ 6. Prior to becoming an enrollee, she received documents from Kaiser, including Kaiser's Evidence of Coverage ("EOC") for the Senior Advantage plan in which she was being enrolled. Id. ¶ 19.
Plaintiff was involved in a serious car crash in mid-November 2009 and "was treated under her Kaiser MAP and by
Plaintiff filed suit in state Court on her own behalf and on behalf of a putative class.
Kaiser removed this action from state court to this Court asserting that the case was removable on the basis of CAFA diversity and because it presents a federal question artfully pleaded as a state law claim. See Notice of Removal (dkt. 1) ¶¶ 9-10 (complete preemption) ¶ 11 (CAFA diversity). Plaintiff moves to remand to state court, arguing that (1) CAFA diversity jurisdiction does not exist because Kaiser has not shown that the amount in controversy exceeds $5 million and, in any case, a mandatory exception applies; and (2) Plaintiff's claims are not artfully pleaded federal claims, and the Medicare Act does not completely preempt them. Mot. to Remand (dkt. 23).
28 U.S.C. § 1332(d)(2) and (4) provide as follows:
Id. Plaintiff argues that Kaiser has failed to show that the amount in controversy exceeds $5 million and that, regardless, this case falls within CAFA's mandatory exception to diversity jurisdiction under § 1332(d)(4).
Nowhere in the Complaint does Plaintiff allege that more than $5 million is in controversy. Thus, Kaiser "must prove by a preponderance of the evidence that the amount in controversy requirement has been met." Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 683 (9th Cir. 2006). Kaiser has met its burden. Indeed, at the hearing on this Motion, Plaintiff's counsel conceded that it was likely that the amount in controversy exceeds $5 million.
The crux of Plaintiff's and putative class members' claim for money damages is a restitutionary theory that Kaiser collected more by way of reimbursement than what it was permitted to collect under the Medicare secondary payer statute and/or its contract with plan enrollees. See Compl. ¶ 5 ("Defendants have and continue to act illegally in their demand for and collection of repayments for medical services arising out of Personal Injury Claims at rates in excess of applicable Medicare rates."); ¶ 29 (describing class as those who "lost money ... as the result of [a] demand for repayment including but not limited to repayments to the DEFENDANTS of amounts in excess of applicable Medicare rates ...."). Thus, putative class members primarily seek as money damages the difference between what Kaiser obtained from them and what Kaiser would have obtained if Kaiser collected an amount calculated using FFS guidelines.
Plaintiff conceded at oral argument that that amount — the difference between what Kaiser obtained by reimbursement and what it would have obtained under FFS guidelines — was likely greater than $5 million. Further, Kaiser has provided a Declaration from Defendant Trover, Kaiser's collection agency, which says that (1) "the total Kaiser Senior Advantage Northern California Region Claims that our records show as outstanding is [well over $5 million], of which [well over $5 million] constitutes the total outstanding in-plan charges" and (2) "we have recovered on behalf of Kaiser Senior Advantage Northern California Region since March 5, 2007 the sum of [well over $5 million]" Murphy Decl. (dkt. 48) ¶ 6.
CAFA requires district courts to decline jurisdiction even when the threshold jurisdictional provisions are met when a case falls within section 1332(d)(4). That section sets forth characteristics of "local" controversies that, in Congress's view, are better resolved in the state courts. There are two different ways a case can fall into the local controversy exception in 1332(d)(4). The first is a three-part test under which an action is local if (1) more than two thirds of putative class members are citizens of the state where the case was filed; (2) at least one key defendant is a resident of the state were the action was filed; and (3) "the principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed." 28 U.S.C. § 1332(d)(4)(A)(i)(I, II). The second is a two part test under which the action is local if (1) at least two-thirds of the putative class are citizens of the State in which the action was originally filed and (2) the "primary defendants" are citizens of the State in which the action was originally filed.
Neither of the two tests is satisfied here.
With respect to the first test, CAFA's legislative history shows that Congress did not intend for plaintiffs to defeat federal jurisdiction by filing essentially national or regional class actions limited to plaintiffs from one state.
S.Rep. No. 109-14 at 40-41 (emphasis added); Kearns v. Ford Motor Co., No. CV 05-5644 GAF(JTLX), 2005 WL 3967998, at *1 (C.D.Cal. Nov. 21, 2005). Here, Plaintiff alleges that Kaiser is seeking secondary payer recovery from enrollees beyond that which is authorized under the Medicare Act and without proper disclosure to prospective enrollees that it would do so. Although she presents the attack through the vehicle of California's consumer protection law, the same theory would support liability under other state's consumer protection laws as well and is based on an essentially federal question regarding the extent of Kaiser's secondary payer rights. Thus, this case is not "local" under section 1332(d)(4) even though it has been defined narrowly to include only California plaintiffs.
Nor is the second test for when an action is "local" satisfied. That test requires that all "primary defendants" be residents of the same state in which the action is filed. Here, Defendant Trover is not a California resident. Although Plaintiff argues that Trover is not a "primary defendant," Mot. to Remand (dkt. 23) at 14, such is belied by her Complaint. Both of her causes of action are asserted against "all Defendants," and there is no indication that Plaintiff would not seek recovery against Trover if Defendants are found liable. Although Trover's actions are alleged to have been done pursuant to its relationship with Kaiser, Trover is a separate legal entity and thus a "primary defendant."
Plaintiff also argues that, even if the mandatory exclusion in section 1332(d)(4) does not apply, this Court should exercise its discretion not to hear this action pursuant to section 1332(d)(3). Mot. to Remand (dkt. 23) at 15. Section 1332(d)(3) provides in part as follows:
28 U.S.C. § 1332(d)(3). This provision does not apply because (1) more than two-thirds of the members of the proposed class are citizens of California and (2) one primary defendant is not a California resident.
Kaiser has established diversity jurisdiction under CAFA because the record contains evidence from which this Court can conclude that it is more likely than not that more than $5 million is in controversy. Indeed, Plaintiff conceded as much at the hearing on this Motion. Further, the mandatory exception to jurisdiction does not apply, and the Court declines to dismiss on a discretionary basis. Having concluded that removal was proper under CAFA, the Court does not address Kaiser's alternative argument that there is complete preemption.
Kaiser argues that Plaintiff's state law claims are preempted by the Medicare Act. The Court agrees.
The Medicare Act contains an expansive express preemption provision. "The standards established under [the Medicare Act] shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part." 42 U.S.C. § 1395w-26(b)(3).
The foregoing is why, in Uhm v. Humana, Inc., 620 F.3d 1134, 1143 (9th Cir. 2010), the Ninth Circuit concluded that Medicare Part D enrollees' breach of contract and unjust enrichment claims based on an insurer's failure to promptly enroll them in a prescription drug plan were "creatively disguised claims for benefits" that had to be exhausted administratively before being brought to federal court. This was because "the [plaintiffs] have not alleged that [the insurer] promised anything more than to abide by the requirements of the Act. Nor did they identify or describe in their complaint any provision creating obligations above and beyond [the insurer]'s obligations under the Act. Thus, there is no claim that the alleged contract imposed upon [the insurer] any duties above and beyond compliance with the Act itself. Instead, the [plaintiff]'[s] breach of contract claim is a backdoor attempt to enforce the Act's requirements and to secure a remedy for [the insurer]'s alleged failure to provide benefits." Id.
The parties heavily dispute whether Plaintiff's claims are disguised claims for benefits. Kaiser argues that its right to secondary payer recovery is a creature of the Medicare Act and that Plaintiff's attempt to recover a restitutionary remedy reducing that recovery is a disguised claim for benefits (i.e., Plaintiff's benefits consist of what she receives in covered care less what Kaiser is entitled to recover from her). See Opp'n to Mot. to Remand (dkt. 28) at 8-9. Plaintiff counters that (1) she had already received her benefits from Kaiser before Kaiser's after-the-fact attempt at reimbursement occurred, so this is not about benefits recovery; (2) Kaiser bases its recovery formula on California law (section 3040) and cannot avoid California law's application to its marketing and reimbursement recovery practices; and (3) Kaiser's right to collect as a secondary payer from an enrollee, though derived from federal law, can only be enforced in a state court action for breach of contract, meaning that Plaintiff's claim concerning Kaiser's secondary payer rights under that same contract must also be permissible under state law. See Parra, 2011 WL 1119736, at *5 ("Congress
To the extent Plaintiff is claiming that Kaiser is running afoul of the Medicare Act by collecting reimbursement from her in an amount greater than what is permitted under that Act she is making a claim for benefits and must exhaust that claim. See Heckler v. Ringer, 466 U.S. 602, 618, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). It does not matter that she is using state law as the vehicle to press her assertion. See Uhm, 620 F.3d at 1143 (holding, in the context of breach of contract and unjust enrichment claims, that "there is no claim that the alleged contract imposed upon Humana any duties above and beyond compliance with the Act itself.").
It is true, however, that Plaintiff claims more than that Kaiser is seeking secondary payer recovery beyond that to which it is entitled under the Medicare Act. Indeed, Plaintiff's UCL and CLRA claims are based on allegations similar to those found not to "arise under" the Medicare Act in Uhm. For example, Plaintiff alleges that (1) "[i]n marketing and selling the Kaiser MAP to class members, without disclosing the fact that the Kaiser Defendants intend to and will assert a contractual right to recover reimbursement in excess of Medicare rates ... and in continuing to conceal this critical information, Defendants ... induced Plaintiff and the Class to believe they were receiving a product which was Medicare and its equivalent" and (2) "Plaintiff would not have elected the Kaiser MAP as opposed to traditional Medicare had she known the true facts about her increased obligations of reimbursement" and "[t]he same is true of the reasonable consumer who would have considered the concealed and omitted information material to his or her decision to elect [the] Kaiser MAP over traditional Medicare or other available option[s.]" Compl. ¶¶ 34, 35.
These allegations are similar to those in Uhm supporting the fraud and consumer protection claims raised in that case. Specifically, the plaintiffs in Uhm alleged "that [the insurer] made material misrepresentations and engaged in other systematic deceptive acts in the marketing and advertising of their Part D plan to induce the [plaintiffs] and putative class members to enroll." Id. at 1145. Thus, it was "the misrepresentations themselves which the [plaintiffs] [sought] to remedy. The [plaintiffs] may be able to prove the elements of these causes of action without regard to any provisions of the Act relating to provision of benefits." Id. Because the basis for the plaintiffs' claims was "an injury collateral to any claim for benefits[,]"
But simply because some portion of Plaintiff's UCL and CLRA claims do not "arise under" the Medicare Act does not mean that they are not preempted. Indeed, Uhm found that fraud and consumer protection claims based on underlying allegations similar to those alleged here were preempted "by the extensive CMS regulations governing [] marketing materials." 620 F.3d at 1150-57. As in Uhm, application of California's consumer protection laws "could potentially undermine the Act's standards as to what constitutes non-misleading marketing. This is precisely the situation that both the current version of the Act's preemption provision as well as its previous incarnations contemplated and sought to avoid." Id. at 1152.
Plaintiff attempts to get out from underneath Uhm in series of three somewhat convoluted steps that ultimately collapse under their own weight. First, Plaintiff says that "the Ninth Circuit's holding in Uhm regarding preemption of state consumer protection statutes was limited to consumer protection provisions that are inconsistent with CMS marketing regulations, holding open the fact that state provisions that are
Even assuming that the "essence" of the Complaint is to enjoin unfair and unlawful creditor actions rather than attack Kaiser's marketing practices, Kaiser's creditor actions are unfair and unlawful only if Kaiser is going beyond its rights under the Medicare Act to collect reimbursement as a secondary payer. But, as discussed above, Plaintiff cannot raise that claim without exhausting it because it is a disguised claim for benefits. What is left in the Complaint — her "secondary claim" "that defendants misrepresented their reimbursement rights" — is indistinguishable from the fraud and consumer protection claims found preempted in Uhm.
For the foregoing reasons, Plaintiff's Motion to Remand (dkt. 23) is DENIED, and Defendants' Motion to Dismiss (dkt. 19) is GRANTED with prejudice.
The Court can take judicial notice of the 2009 EOC because Plaintiff alleges that she "received enrollment documents ... which she is informed and believes was the Kaiser Defendants' Evidence of Coverage [] document for the Senior Advantage plan in which she was being enrolled." Compl. ¶ 19 (emphasis added). See Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir.1994); Fed.R.Civ.P. 201(b). Although Plaintiff now says that she does not concede the authenticity of the 2009 EOC and does not know whether she received that document or some other document(s), she plainly alleges that she received Kaiser's EOC for the plan in which she was enrolled and has not shown that the EOC attached by Kaiser is not the one applicable to her.
In any case, even if the Court were to ignore the actual EOC, the ruling on these Motions would not change.
The section goes on to provide that the lien cannot exceed the lesser of (1) "[t]he maximum amount determined pursuant to [the foregoing section]. (2) One-third [or one-half depending on whether the enrollee engaged an attorney] of the moneys due to the enrollee under any final judgment, compromise, or settlement agreement." Cal. Civ.Code. § 3040(a), (c), and (d).
Compl. ¶ 29.
Plaintiff's CLRA claim alleges that Kaiser is violating California Civil Code section 1770(a)(5), (7), (14), and (19), which provide as follows:
(A) In general
(B) Standards specifically superseded
42 U.S.C. § 1395w-26(b)(3) (2000).
