Double the Damages, Double the Motion, Double the Denial: MSP Double Damages action to continue despite SoL and settlement release arguments

The United States District Court for the District of New Jersey in Osterbye v. United States, 2020 U.S. Dist. LEXIS 116591 (June 30, 2020) recently denied a carrier’s Motion to Dismiss claims arising under the MSP for double damages. The Motion was brought on two grounds: a statute of limitations argument and an argument based on release of claims in settlement. The Court dismissed both arguments, finding factual discrepancies sufficient to surmount a 12(b)(6) Motion to Dismiss.

Both the facts of the Complaint and the facts of the Motion denial merit further unspooling. The facts giving rise to the suit originate in a 2009 liability claim involving Anna May Osterbye and a plumbing contractor. Subsequent to suit but prior to settlement, Anna May Osterbye died, and settlement was effectuated on April 29, 2013, by her estate. A $13,562.90 Medicare conditional payment was known at the time of settlement, incorporated in the settlement, and paid post-settlement by the Plaintiffs, the Administrator of and the Estate of Anna May Osterbye.

Subsequent to settlement, CMS asserted a demand under a separate case control number for $118,071.28 which becomes the subject of the double damages claim. When apprised of the $118,071.28 demand, Plaintiffs appealed and lost on all lower levels. Of note, Plaintiffs had apprised CMS of decedent’s death on December 3, 2013, and provided a new Proof of Representation and an Executor Short Certificate that date. Despite the fact that settlement was effectuated by the estate and CMS was apprised of decedent’s death and provided the requisite documentation regarding same, an appeal to MAC on October 26, 2015, was denied on June 26, 2019, for lack of standing because of the death of the decedent. The available legal filings do not include any response of the agency prior to June 26, 2019, regarding standing issues based on the death of the beneficiary, despite Notice being tendered to the agency at the latest in December of 2013.

Having exhausted all administrative remedies, Plaintiffs in the instant case then brought suit against the United States and the carrier under the MSP’s private cause of action provision. The complaint relies on six claims:

1. A request to reverse the MAC decision that Plaintiffs lack standing;
2. A request to remove interest accrued during the pendency at MAC because the appeal was dismissed on incorrect grounds;
3. A constitutional argument that Medicare’s process that a demand would not be generated until the settlement or death of beneficiary violated the right to petition clause of the First Amendment and the equal protection clauses of the Fifth and Fourteenth Amendments;
4. An unjust enrichment argument noting that the United States should be able to collect only from the medical portion of settlement, not from other elements of damages such as non-economic damages;
5. A negligence claim against the carrier for failure to discharge the payments owed to Medicare based on the private cause of action provision of the MSP; and
6. An additional negligence claim against the carrier for failure to disclose the results of a lien investigation allegedly carried out prior to settlement without the knowledge of the Plaintiffs and which resulted in Plaintiffs settling the suit without consideration of the full lien. The Plaintiffs allege that the carrier conducted an independent lien investigation which resulted in the assignation of a different case ID number than the conditional payment amount considered in settlement and that the fact of this investigation resulted in additional expenses being claimed by Medicare which weren’t factored into settlement.

The Plaintiffs and federal defendants stipulated to a dismissal of claims with prejudice, leaving the carrier the sole defendant in the case. Yet again, constitutional questions have been raised regarding the MSP and yet again have not been brought before a finder of fact to adjudicate.

Thereafter, the carrier brought a Motion to Dismiss before the district court on two grounds: that the MSP claim is time-barred because Medicare sent its final conditional payment letter on June 5, 2013, and Plaintiffs failed to sue the carrier within six years, and that the settlement language insulates the carrier from suit by the Plaintiffs.

The Court was unpersuaded by the carrier’s argument. On the first grounds—the statute of limitations—Plaintiff rejoined that the MSP does not contain a statute of limitations, and even if it did, it was equitably tolled because the Plaintiffs were first required to exhaust all administrative remedies through Medicare before filing in federal court. The carrier argued there is no exhaustion requirement. The Court was therefore presented with two questions: whether a Plaintiff must exhaust administrative remedies with Medicare prior to initiating suit under the private cause of action provision of the MSA; and what statute of limitations is applicable to the MSP’s private cause of action provision.

The Court found that where a claim is “rooted in, and derived from, the Medicare Act,” that “claim arises under the MSP and Plaintiffs are required to exhaust administrative remedies before seeking judicial review.” Osterbye, 5. The Court found that the standing and subjective basis for the claim in the instant case was “rooted in and derived from” the MSP such that they were required to exhaust administrative remedies before suing the carrier. Because Plaintiffs did not exhaust administrative remedies until June 26, 2019, and filed suit shortly thereafter, they were not time-barred from suing the carrier. The court declined to adopt a bright-line rule involving the MSP statute of limitations more generally; because the Plaintiffs were required to exhaust all administrative remedies and sued shortly thereafter, the question of a statute of limitations was not taken up by the Court.

For the second ground for its Motion to Dismiss, the carrier relied on the April 29, 2013, Release, pursuant to which Plaintiffs “release[d] and g[a]ve up any and all claims and rights which [Plaintiffs] may have against [the plumbing contractor.]” Osterbye, quoting the Release, unavailable for review. Plaintiffs also “agree[d] that [they] will not seek anything further, including any other payment.” Id. The carrier argued that such language insulated it from suit under the MSP’s private cause of action. Plaintiffs responded that the original Release was predicated on the $13,562.90 conditional payment, not the additional lien amount, and that the Release was therefore based on a “critical mistake of fact.” Osterbye, 10, quoting Plaintiff’s Opposition Brief, 9. The Court relied on the doctrine of mutual mistake, which is a question of fact for a finder of fact and which spoils any motion for summary judgment. The court therefore denied the Motion to Dismiss.

Given the legal standards which apply to 12(b)(6) Motions to Dismiss, it is important not to extend the findings of the Court too broadly: the Court did not rule that an allegation that the settlement was based on known damages nullifies the Release language per se. The Court instead found that the allegation of mutual mistake sufficiently spoiled a Motion to Dismiss, which by its nature requires the defendant to show that no claim has been presented. It will be for the trial court, should the case proceed to trial, to determine whether or not the instant Release language may sufficiently insulate the carrier from suit under the MSP’s private cause of action. Until that time, Release language indemnifying and holding a carrier harmless may not be sufficient grounds for claim dismissal, as such language may present a question of fact best left for a finder of fact to decide.