* District Judge of the Southern District of Texas, sitting by designation. United States Court of Appeals,

Fifth Circuit.

No. 92-2789.

Billy Albert WATERS, Sr., BNF, et al., Plaintiffs,

Gerald (Owens) King, a minor child by and through his next of friend, Diane Owens, PlaintiffsAppellants,

v.

FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, Defendant,

Donna E. Shalala, Secretary of U.S. Department of Health and Human Services, DefendantAppellee.

Dec. 16, 1993.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES and DeMOSS, Circuit Judges and KAZEN, * District Judge.

EDITH H. JONES, Circuit Judge:

Gerald Owens King, by and through his next friend, Diane Owens ("appellant"), appeals the

district court's summary judgment in favor of the Secretary of the United States Department of Health

and Human Services ("the government"), 797 F.Supp. 575. The district court held that the

government is entitled by statute to receive Medicare reimbursement from a private insurance carrier

in an amount greater than Medicare's insured cou ld recover under Texas law. 42 U.S.C. §

1395y(b)(2)(A) and (B). Because the summary judgment has no effect as to the appellant and was

improperly granted on the merits, we reverse and remand the decision of the court below.

DISCUSSION

In the summer of 1990, Annie Searles, Billy Waters, Marvin Searles, Lee Searles, and Gerald

King, a minor child, were seriously injured in an accident in Freestone County, Texas while travelling

in the same car. The driver o f the other car fled, and his identity and whereabouts are unknown.

Annie Searles, suffering from terminal cancer at the time of the accident, incurred over $29,000 in

medical expenses after the accident, all of which was paid by Me d icare. It was never determined1 See Fed.R.Civ.P. 4(d)(2) (providing that an infant is to be served in the manner prescribed by

the law of the state in which the service is made). The appellant resides in Tennessee. Tennessee

law provides that service upon an unmarried infant must be made by delivering a copy of the

summons and complaint to a known resident guardian or conservator or by delivering the copies

to the infant's parent having custody. Tenn.R.Civ.P. 4.04(2). In addition to these requirements, if

the infant is 14 years or older, then the infant must also be provided with service. Id. See also

Fed.R.Civ.P. 4(c)(2)(C)(ii) (disallowing service of process upon infants by mail). what porti on of the $29,000 went to treatment of Annie's cancer and what porti on wen t to the

treatment of her car accident injuries. Annie subsequently died of cancer. The other four occupants

of the car paid their own medical bills. The owner of the car was insured by Farmers Texas County

Mutual Insurance Company ("Farmers"). The insurance policy has a limit of $20,000 per claimant

per accident and an overall limit of $40,000 for all claimants combined per accident.

Billy , Marvin, and Lee sued Farmers in state court to recover for personal injuries and

damages suffered in the accident. The appellant was not involved in the suit. In response to the suit,

Farmers filed a petitio n in interpleader, depositing with the clerk of the state court the $40,000 to

cover the insurance proceeds payable under the policy ("interpleader fund") and bringing in Blue

Cross and Blue Shield of Texas, Inc. ("Blue Cross") and the appellant as third party defendants to the

interpleader action. The interpleader petition incorrectly stated that at the time of the pet ition the

appellant was asserting a claim for personal injuries against Farmers. The record indicates that all

counsel of record were served with the petition in interpleader. However, the appellant was not a

party in any way to the lawsuit against Farmers and, according to the record, was not served with the

petition in interpleader. 1

The government was eventually substituted for Blue Cross in the action and shortly thereafter

removed the case to federal court. The government then counterclaimed against Farmers and

crossclaimed against all of the occupants of the car, including the appellant, for reimbursement of the

Medicare funds expended on behalf of Annie following the car accident. The appellant was not

served with the notice of removal. As a point of clarification, the record indicates that the crossclaim

was mailed to Gerald King who at the time, and still today, is a minor child. The government was

aware of the fact that King was a minor, yet the pleading was mailed directly to him—not to one of

his parents or guardians as next friend. This effort by the government falls short of effective service2 Confusingly, the record indicates that Diane Owens was added as a party on August 13, 1992.

The minor Gerald Owens King was not added until October 6, 1992.

3 The others did not appeal. of the pleading on the appellant. Fed.R.Civ.P. 5(a). Even if the go vernment believed that the

appellant was at this point a party in default for failure to appear, simply mailing the crossclaim to the

appellant was insufficient. Fed.R.Civ.P. 5(a) provides that any pleading asserting a new or additional

claim against a party in default for failure to appear must be served pursuant to Fed.R.Civ.P. 4.

Furthermore, it falls well short of providing the appellant with service of process sufficient to join the

appellant as a party to the suit. See Fed.R.Civ.P. 4(c)(2)(C)(ii).

The government moved against the other occupants of the car for summary judgment, which

the co urt grant ed o n August 7, 1992. The appellant was not notified of this motion for summary

judgment. The dist rict court awarded the government the $20,000 limit allowed to an individual

under the Farmers policy, leaving the four remaining occupants of the car to apporti on the remaining

$20,000 among themselves. The final judgment was entered on August 11, 1992. The appellant was

added as a party to the suit on August 13, 1992. 2 He unsuccessfully sought reconsideration of the

summary judgment. The minor, appellant Gerald King, appeals the decision of the district court. 3

A.

The record does not reflect that the appellant Gerald King was served in the lawsuit or that

he voluntarily appeared before August 13, 1992. It follows that the appellant was not a party to the

suit at the time the summary judgment motion was filed and decided. The summary judgment binds

only the parties in the suit. To the extent that it purported to affect the rights of the appellant to his

rightful share of the insurance proc eeds, the summary judgment should have had no effect against

him. The court should have granted his motion to reconsider for the purpose of allowing him to make

his arguments known. Moreover, he was not given notice of the motion for summary judgment. It

is unreasonable to require the appellant to respond to a motion of which he had no knowledge. He

was not expect ed or required to respond. The summary judgment rendered under these

circumstances has no effect as to him.B.

As a matter of judicial economy, however, because King and the government have filed briefs

on the merits of the issue decided by the district court, it is prudent for this court to review the

summary judgment granted in favor of the government. A movant is entitled to summary judgment

only if there are no issues of material fact and the movant is entitled to judgment as a matter of law.

Fed.R.Ci v.P. 56(c). This court's decision turns on whether the government's substantive legal

argument was correct. The heart of the government's challenge is its interpretation of its powers

under federal statutory law.

The Medicare Secondary Payer statute, 42 U.S.C. § 1395y(b), makes Medicare the secondary

payer to group h e alth insurance, workers' compensation, and automobile and liabilit y insurance.

Group health insurance, workers' compensation, and automobile and liabilit y insurance are to be the

primary payers of medical co st s for Medicare beneficiaries. 42 U.S.C.A. § 1395y(b)(2)(A) (West

Supp.1993). The federal statute expressly provides that any payment of medical costs by Medicare

for which private insurance is the primary payer is conditioned upon reimbursement from the insurer

or any recipient of the insurance proceeds. 42 U.S.C.A. § 1395y(b)(2)(B)(i) (West Supp.1993).

The government contends t hat it is entitled to recover the full $20,000 from the Farmers

policy—the limit for any ind ividual in an accident—under either of two theories. First, the

government argues that it has an independent right of recovery from the insurer or from a payee of

the insurance proceeds. This theory relies on 42 U.S.C. § 1395y(b)(2)(B)(ii) which provides:

In order to recover payment under this subch a pter for such an item or service, the United

States may bring an action against any entity which is required or respo nsible under this

su bsection to pay with respect to such item or service (or any portion thereof) under a

primary plan

... or against any other entity

... that has received payment from that entity with

respect to such item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service.

42 U.S.C.A. § 1395y(b)(2)(B)(ii) (West Supp.1993). The government contends that this section

gives it a right paramount to all others t o recover the insurance proceeds due to a Medicare

beneficiary.

Second, the government relies on 42 U.S.C. § 1395y(b)(2)(B)(iii) which provides:

The United States shall be subrogated (to the extent of payment made under this subchapterfor such an item or service) to any right under this subsection of an individual or any other

entity to payment with respect to such item or service under a primary plan.

42 U.S.C.A. § 1395y(b)(2)(B)(iii) (West Supp.1993) . The government argues that this section

equally grants it a paramount right to recover insurance proceeds due to a Medicare beneficiary.

Under either provision—an independent statutory right under § 1395y(b)(2)(B) (ii) or supreme

subrogation under § 1395y(b)(2)(B)(iii)—the governme nt st ands to recover from the interpleader

fund exactly what Annie should recover under the interpleader fund. However, the government wants

more. It argues that no matter what Annie's entitlement would be under the insurance policy,

Medicare should be reimburse d $20,000, the full extent of the policy's individual liability. The

problem with the government's position is that it is unsupported in the statutory language upon which

the government relies.

The independen t statutory right section cited by the government, 42 U.S.C. §

1395y(b)(2)(B)(ii), provides that Medicare recovers only what the primary provider "is required or

responsible

... to pay with respect to such item or service" to the beneficiary. 42 U.S.C.A. §

1395y(b)(2)(B)(ii) (West Supp.1993). The language of the statute puts the government in a position

superior to all other claimants on Annie's share of the pie, but it does not put the g o vernment in a

position superior to Annie's own claim.

Section 139 5y(b)(2)(B)(iii), the supreme subrogation provision, is even less helpful to the

government's position. It provides that the United States is subrogated "to any right ... of an

individual

... to payment with respect to such item or service under a primary plan." 42 U.S.C.A. §

1395y(b)(2)(B)(iii) (West Supp.1993) (emphasis added). Again, this section predicates the

reimbursement of Medicare payments on the right of the individual to recover from the pri m ary

insurer. If the individual's right to payment under the primary plan is limited by the terms of the plan

or by operation of state law, then the government's subrogated claim is equally limited.

The legislative history adds nothing in support of the government's position that it is entitled

to reimbursement to the full extent of individual recovery potentially available under the insurance

policy. The House Report explaining the Medicare provision states that the statute allo ws the

government to recover insurance proceeds "directly from the third party [Farmers] whether or notthe beneficiary brings suit to recover and subrogate[s] to the United States the right of the individual

or anyone else to payment from the third party." H.R.Rep. No. 432, 98th Cong., 2d Sess., pt. 2, at

1803 (1984), repr inted in 1984 U.S.C.C.A.N. 697, 1417 (emphasis added). This language adds

nothing to the government's position. It simply reiterates the uncontested principle that the

go vernment has supreme subrogation over the proceeds payable to the beneficiary of the primary

insurance.

The House Report states that "[M]edicare will ordinarily pay for the beneficiary's care in the

usual manner and then [the government may] seek reimbursement from the private insurance carrier

after, and to the extent that, such carrier's liability under the private policy for the services has been

determined." H.R.Rep. No. 1167, 96th Cong., 2d Sess., at 389 (1980), r eprinted in 1980

U.S.C.C.A.N. 5526, 5752. The point is that in this case the extent of Farmers' liability to Annie has

not been determined, and cannot be, until the funds are apportioned to the various claimants.

No matter what theory is pursued—statutory right or subrogation—the government stands

exactly in Annie's shoes when recovering from the availa ble insurance funds. The government's

"superior" position vis a vis other claimants would not entitle it to dip into the insurance proceeds

beyond Annie's maximum allotment of $20,000. Consequently, if Annie's true maximum allotment

under the policy is somewhat less than $20,000, the n t he government can be reimbursed only that

amount. Once Annie's allotment is determined, federal law gives the government a superior right to

receive that money. That is what is meant by the government's "superior" claim to the insurance

proceeds—not that the government has a superior claim to community insurance funds beyond the

beneficiary's own share of those funds.

Because it cannot yet be determined whether Annie would have been entitled to receive the

full $20,000 from Farmers, the government's reimbursement is still indeterminate. As a result, there

remain issues of material fact yet to be determined. Summary judgment for the government in the

amount of $20,000 was improper.

CONCLUSION

In sum, the government moved for summary judgment obli vious to the fact that the minorchild appellant had never been served with process in state or federal court, had never been served

with notice of removal, and had never filed a pleading or otherwise ent ered an appearance. The

go vernment made no effort to serve its motion properly upon the minor appellant. The co urt is

disappointed that the government was so heedless of the procedural rights of its opponent. As if t his

were not enough, the government's overreaching interpretation of its authority under the Medicare

Secondary Payer statute is insupportable. These legal and procedural defects require us to reverse

and remand the summary judgment rendered against Gerald King.

REVERSED and REMANDED.