Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_10-cv-00008/USCOURTS-azd-4_10-cv-00008-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1331 Federal Question: Bivens Act

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Guillermina Parra, et al.,

Plaintiffs,

v.

PacifiCare of Arizona, Inc.,an Arizona

corporation, 

Defendant.

______________________________________

PacifiCare of Arizona, Inc., an Arizona

corporation,

Counterclaimant,

Guillermina Parra, et al.,

Counterdefendants. _______________________________________

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CV 10-008-TUC-DCB

ORDER

This case involves crossclaims for declaratory judgment. “Plaintiffs’ now-deceased

husband and father was injured when struck by an automobile. He later died from his

injuries. Prior to his death, Plaintiffs’ decedent received medical treatment. PacifiCare paid

those medical expenses under a Medicare Advantage Plan of which the decedent was a

beneficiary. When Plaintiffs recovered $500,0000 in settlement of a wrongful death case

against the driver of the car that hit the decedent, PacifiCare sought reimbursement of the

medical expenses it had paid. Plaintiffs sued for declaratory judgment and an injunction to

preclude collection of these amounts. PacifiCare asserted counterclaims for declaratory

judgment.” (Doc. 40: Objection at 1.) 

The case was referred to Magistrate Judge D. Thomas Ferraro on March 9, 2010,

pursuant to the Rules of Practice for the United States District Court, District of Arizona (LR

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Civ.), Rule 72.1(a). On February 4, 2011, Magistrate Judge Ferraro issued a Report and

Recommendation (R&R). (Doc. 39: R&R.) He recommends dismissing the action for lack

of subject matter jurisdiction, without ruling on the parties’ crossmotions for summary

judgment. The Court accepts and adopts the Magistrate Judge’s Report and

Recommendation (R&R) as the findings of fact and conclusions of law of this Court.

Additionally, the Court grants the Plaintiffs’ Motion for Summary Judgment only to the

extent it asks this Court to find the Defendant does not have a private cause of action under

the Medicare statute or the Medicare Secondary Payer (MSP) Act. There being no private

right of action, there is no federal jurisdiction to determine the merits of the Defendant’s

claim for reimbursement. See Northwest Airlines, Inc. v. County of Kent, Mich., 510 U.S.

355, 364 (1994) (explaining that if Congress intended no right of immediate access to a

federal court [], then the [] claim should have been dismissed, not adjudicated on the merits.” 

The Court does have jurisdiction to decide if the Complaint states a claim, (Objection at 6-7;

Reply at 3) (citations omitted), and finds it does not. The Court will not exercise

supplemental jurisdiction over Defendant’s claim for reimbursement from Plaintiffs. To this

extent, the Court denies the Defendant’s Crossmotion for Summary Judgment. 

STANDARD OF REVIEW

The duties of the district court in connection with a R&R by a Magistrate Judge are set

forth in Rule 72 of the Federal Rules of Civil Procedure and 28 U.S.C. § 636(b)(1). The

district court may “accept, reject, or modify, in whole or in part, the findings or

recommendations made by the magistrate judge.” Fed.R.Civ.P. 72(b); 28 U.S.C. § 636(b)(1). 

Where the parties object to a Report and Recommendation, “[a] judge of the [district] court

shall make a de novo determination of those portions of the [R&R] to which objection is

made.” 28 U.S.C. § 636(b)(1); see Thomas v. Arn, 474 U.S. 140, 149-50 (1985). When no

objections are filed, the district court need not review the R&R de novo.

This Court's ruling is a de novo determination as to those portions of the R&R to which

there are objections. 28 U.S.C. § 636(b)(1)(C); Wang v. Masaitis, 416 F.3d 992, 1000 n. 13

(9th Cir.2005); United States v. Reyna-Tapia, 328 F.3d 1114, 1121-22 (9th Cir.2003) (en

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banc). To the extent that no objection has been made, arguments to the contrary have been

waived. Fed. R. Civ. P. 72; see 28 U.S.C. § 636(b)(1) (objections are waived if they are not

filed within fourteen days of service of the Report and Recommendation), see also McCall

v. Andrus, 628 F.2d 1185, 1187 (9th Cir. 1980) (failure to object to Magistrate's report

waives right to do so on appeal); Advisory Committee Notes to Fed. R. Civ. P. 72 (citing

Campbell v. United States Dist. Court, 501 F.2d 196, 206 (9th Cir. 1974) (when no timely

objection is filed, the court need only satisfy itself that there is no clear error on the face of

the record in order to accept the recommendation)).

The parties were sent copies of the R&R and instructed that, pursuant to 28 U.S.C. §

636(b)(1), they had 14 days to file written objections. See also, Fed. R. Civ. P. 72 (party

objecting to the recommended disposition has fourteen (14) days to file specific, written

objections). The Court has considered the objections filed by the Defendant, the Plaintiffs’

Response, and the parties’ briefs considered by the Magistrate Judge on the Crossmotions

for Summary Judgment in respect to the objections.

OBJECTIONS

Both parties object to dismissal of the case for lack of subject matter jurisdiction and

argue dismissal should be for failure to state a claim; the Defendant PacifiCare argues that

this Court has discretion to exercise supplemental jurisdiction to resolve its claim against

Plaintiffs Parras for reimbursement.

Defendant argues the Magistrate Judge erred in finding Count 1 was predicated only on

state law because PacifiCare’s right of recovery is based on federal law, which preempts

completely any state law pertaining to payment and reimbursement rights of Managed Care

Plans. See 42 U.S.C. §§ 1395w-22)(a)(4), 1395mm(e)(4), 1395y(b)(2), 1395w-26(b)(3),

and 42 F.C.R. 422.108(f).

Defendant argues the Magistrate Judge erred as to Count 2 in recommending there is no

private cause of action for Managed Care Plans to seek reimbursement in federal court. See

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 1Whether the Medicare statutes contain a private right of action depends upon construction

of federal law, therefore, the Court has original jurisdiction to decide the question, unless the

argument that such a right exists is wholly insubstantial and frivolous. Thompson, 798 F.2d at

1550; see also Davis v. Monroe County Bd. of Educ., 526 U.S. 629 (1999) (applying Rule

12(b)(6) to decide whether a private right of action exists under Title IX of Education

Amendments of 1972), Northwest Airlines v. Kent County, 510 U.S. 355, 365 (1994) (whether

a federal statute creates a claim for relief is not jurisdictional)); but see (R&R at 6) (citing Care

Choices HMO v. Engstom, 330 F.3d 786, 791 (6th Cir. 2003) (dismissing action for lack of

subject matter jurisdiction because no private right of action under Medicare statute, 42 U.S.C.

§ 1395mm(e)(4)). 

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42 U.S.C. §§ 1395w-22)(a)(4), 1395mm(e)(4), 1395y(b)(2), 1395w-26(b)(3), and 42 F.C.R.

422.108(f).

Dismissal:

Lack of Subject Matter Jurisdiction or Failure to State a Clam.

Both parties assert that dismissal of the action should be for failure to state a claim and

not for lack of subject matter jurisdiction. The distinction is important because the former

allows the Court, at its discretion, to exercise supplemental jurisdiction to resolve the merits

of PacifiCare’s claim for reimbursement against the Parras. See (Objection at 9) (citing 

Osborn v. Haley, 549 U.S. 225, 245 (2007) (explaining that “even if only state-law claims

remained after resolution of the federal question, there is discretion to retain jurisdiction.”);

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350-51 (1988) (finding that when the federal

character of a removed case is eliminated, the court still has discretion to retain jurisdiction);

Arbaugh v. Y&H Corp. 546 U.S. 500, 502 (2006) (finding courts retain supplemental

jurisdiction when a court grants a motion to dismiss for failure to state a federal claim); Acri

v. Varian Associates, Inc., 114 F.3d 999, 1000 (9th Cir. 1997) (same). PacifiCare argues that

this Court should exercise supplemental jurisdiction over its contract claim to enforce its

federally-granted right to reimbursement from the Plaintiff. (R&R at 13) (citing Doc. 33:

D’s Reply at 6). 

Because there is case law to support the parties’ argument that dismissal should be for

failure to state a claim, Thompson v Thompson, 798 F.2d 1547, 1550 (9th Cir. 1986),1

 the

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The PacifiCare’s MA Plan is an Managed Care Plan.

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Court finds it will not exercise supplemental jurisdiction over Count 1 for the reasons

explained below.

The Statutory Scheme:

Private Cause of Action and Preemption

PacifiCare errs in its assertion that the Magistrate Judge incorrectly treated Count 1 as

predicated solely on state law, and hence recommended dismissal. (Objection at 2.) The

Magistrate Judge understood, as does this Court, that PacifiCare asserts its right to

reimbursement, pursuant to provisions in its Medicare Advantage Plan (MA Plan),2

 arises

under federal law. (R&R at 11) (discussing Care Choices HMO v. Engstrom, 330 F.3d 786

(6th Cir. 2003); Nott v. Aetna U.S. Healthcare, Inc., 305 F. Supp.2d 565 (E.D. Penn. 2004)). 

The Magistrate Judge found that the Medicare statutes allow PacifiCare to include

subrogation and reimbursement rights in its agreement with its members, “but it did not

create a federal right to enforce that contract.” This Court agrees with the Magistrate Judge

that the creation of this federal right did not create a federal cause of action for recovery. 

This finding applies to both counts of the Defendant’s Counterclaim.

Title 42 section 1395w-22(a)(4) provides: “Notwithstanding any other provision of law,

a [MA Plan] organization may (in the case of the provision of [] services to an individual

under a [MA] under circumstances in which payment . . . is made secondary pursuant to

section 1395y(b)(2)) . . . charge . . . . . . such individual to the extent that the individual has

been paid under the plan for such services.” 

Section 1395y(b)(2)(A) provides for Medicare to be the secondary payer by mandating

that no payment be made, unless repayment is required, with respect to any service to the

extent that payment has been made, or can reasonably be expected to be made by a primary

payer, worker’s compensation law or plan, or under an automobile or liability insurance

policy or plan or under no fault insurance. Additionally, the United States may bring an

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action to recover payment for services by bringing an action against any entity responsible to

pay for such services under a primary plan or against any third-party entity that has received

payment from the primary payer entity. 1395y(b)(2)(B)(ii). The United States is subrogated

to any right under this subsection of an individual or other entity to payment with respect to

services under a primary plan. 1395(b)(2)(B)(iii).

Section 1395mm(e) provides that “notwithstanding any other provision of law, the [MA]

organization may (in the case of the provision of services to a memeber enrolled under this

section for an illness or injury for which the member is entitled to benefits under a

workmen’s compensation law or plan . . ., under an automobile or liability insurance policy

or plan, . . . ) charge . . . such member to the extent that the member has been paid under

such law, plan, or policy for such services.”

Section 1395w-26(b) authorizes the Secretary to establish standards by regulation for

MA Plan organizations consistent with and to carry out this part, and “provided that any

standard so established shall supersede any State law or regulation . . . to the extent such law

or regulation is inconsistent with such standards.”

The Secretary, in respect to the basic rule that [Medicare] does not pay for services to

the extent that Medicare is not the primary payer, adopted Federal Regulation Section

422.108, which provides that the responsibilities of the MA organization are as follows: a) it

must identify payers that are primary to Medicare; b) identify amounts payable by those

payers, and c) coordinate its benefits to Medicare enrollees with the benefits of primary

payers. 422.108(b). “If a Medicare enrollee receives from an MA organization covered

services that are also covered under State or Federal workers’ compensation, any no-fault

insurance, or any liability insurance or plan . . ., the MA organization may bill . . . the

Medicare enrollee. 422.108(d).

Finally, Federal Regulation 422.108(f) provides: “Consistent with § 422.402 concerning

the Federal preemption of State law, the rules established under this section supersede any

State laws, regulations, contract requirements, or other standards that would otherwise apply

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Made applicable to Medicare and modified by 42 U.S.C. § 1395ii.

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to MA Plans. A State cannot take away a MA organizations’ right under Federal law and

the MSP regulations to bill, . . for services for which Medicare is not the primary payer. The

MA organization will exercise the same rights to recover from a primary plan, entity, or

individual that the Secretary exercises under the MSPA regulations in subparts B through D

of part 411 of this chapter.” 

While subparts B through D provide that the Secretary may take legal action for

reimbursement, PacifiCare fails to recognize that recovery actions taken by the Secretary

involve detailed administrative procedures, which are required to be exhausted before a

beneficiary can challenge a claim for reimbursement in the federal courts. See 42 U.S.C. §

405(h): “No action against the United States . . . shall be brought under section 1331 or 1346

of Title 28 to recover on any claim arising under this subchapter.”3

 Jurisdiction over

beneficiary challenges to a Medicare claim for reimbursement exists under 42 U.S.C. §

405(g), which requires agency decision in advance of judicial review. Practically speaking,

this means the Secretary cannot proceed directly to federal court in circumvention of the

beneficiary’s rights and must issue a final decision before bringing legal action for

reimbursement.

The Court agrees with the Magistrate Judge’s analysis that the Medicare statutory and

regulatory scheme does not reflect any congressional intent to create a private cause of

action. (R&R at 8-13) (applying Court v. Ash, 422 U.S. 66, 78 (1975) (finding PacifiCare to

be a member of the class for whom the Medicare statute was enacted to benefit; that the

action brought by PacifiCare is one traditionally within state law; and that the main factor of

congressional intent cuts against a private right of action and it is not inconsistent with the

legislative scheme to not imply a remedy).

The Court finds that the Medicare statutes at issue, here, do no more than create a

federal right. They stop short of creating a federal private right of action to enforce that

right and do not contain any jurisdictional provision granting the federal courts exclusive

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jurisdiction over Medicare reimbursement claims. The Court finds the same in respect to 42

U.S.C. § 1395w-26(b)(3) (2003) and 42 C.F.R. § 422.108(f). Congress and the Secretary

did no more than protect PacifiCare’s right to charge and/or bill a beneficiary for

reimbursement, notwithstanding and state law or regulation to the contrary. 

The Court rejects the Defendant’s argument in its Objection that there is complete

preemption. To find complete preemption the Medicare statutes at issue would have to

provide the exclusive cause of action for PacifiCare’s claim against the Parras and also set

forth the procedures and remedies governing that cause of action. Moore-Thomas v. Alaska

Airlines, Inc., 553 F.3d 1241 (9th Cir. 2009) (citing Beneficial National Bank v. Anderson,

539 U.S. 1, 8 (2003)). The statutes reviewed here fail to provide the same type of

comprehensive enforcement scheme provided by Employee Retirement Income Security Act

(ERISA), one of the two federal laws found to completely preempt state law; the other being

the Labor Management Relations Act (LMRA). Both federal statutes provide detailed

enforcement schemes and expressly provide for federal court jurisdiction.

There being no jurisdiction in this Court for PacifiCare’s claim, it must proceed in state

court. This is the better approach because the parties dispute the breadth of the settlement

agreement between Plaintiffs and the third-party insurer. Arguably, if the settlement was for

wrongful death, then Plaintiffs did not recover pursuant to liability insurance which is

subject to reimbursement because Arizona’s wrongful death statute does not provide

payment for medical damages. Arguably, if the settlement was broader, then PacifiCare

may seek reimbursement and/or assert subrogration rights. At this time, no discovery has

occurred, and no hearings have been held. The Court agrees with the Magistrate Judge that

the state courts are better suited to consider what is essentially a contract claim, pursuant to

Arizona law, and are as capable as this Court to address the preemption questions relevant to

resolving the merits of the claim for reimbursement.

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CONCLUSION

After de novo review of the issues raised in PacifiCare’s Objection, this Court agrees

with the findings of fact and conclusions of law made by the Magistrate Judge in his R&R. 

The Court adopts it, and for the reasons stated in the R&R, the Court dismisses this action. 

The Court finds PacifiCare cannot state a federal claim for relief because there is no private

cause of action for its claim of reimbursement.

Accordingly,

IT IS ORDERED that after a full and independent review of the record, in respect to

the Defendant’s Objection, the Magistrate Judge's Report and Recommendation is accepted

and adopted as the findings of fact and conclusions of law of this Court.

IT IS FURTHER ORDERED that Plaintiffs’ Motion for Summary Judgment (doc. 27)

is GRANTED to the extent Plaintiffs argue the Defendant has no private cause of action

under the Medicare statutes or the MSP Act.

IT IS FURTHER ORDERED that the Defendant’s Motion for Summary Judgment

(doc. 28) is DENIED to the extent PacifiCare seeks supplemental jurisdiction over Count 1. 

IT IS FURTHER ORDERED that the case is dismissed for failure to state a claim. 

DATED this 25th day of March, 2011.

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