Morgan vs. Villa
Roy Franco
April 11, 2013

Facts:   Plaintiff resolved his personal injury action with defendant for the limits of defendant’s policy – $50,000.   The amount would not be sufficient to resolve all of the known liens and plaintiff commenced an action in State Court seeking an Order that would allocate what should be paid each lien holder.   As part of its moving papers, plaintiff made it clear that Medicare was owed $5,788.22, and that no reduction of that amount was being requested.  As required by state rules, all lien holders were provided notice of the hearing, including Medicare.  Medicare entered the case and removed the state action to U.S. District Court.  The U.S. District Court was not pleased with Medicare’s removal and remanded the case back to state court.  This case is a good example of what happens when Medicare oversteps its authority.

Issue:  Is Medicare able to prevent an action from being remanded back to State Court when its reimbursement claim is not in dispute?  No.

Court Opinion:  The U.S. Federal District Court was confused about why Medicare removed the action to Federal Court to begin with.   Medicare’s reimbursement claim was not in jeopardy as the Plaintiff made clear from beginning of his allocation motion that Medicare would be paid in full.   The Court, in remanding the case back to State Court, discussed the jurisdiction statute Medicare had based its removal to U.S. District Court.  28 U.S.C. §1442(a)  allows for removal when an action in State Court is commenced against or directed to the United States or any agency thereof, or any office (or any person acting under that officer) of the United States or any agency thereof,  in an official or individual capacity, for or relating to any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for the apprehension or punishment of criminals or the collection of the revenue.  The Court found that such statute did not confer jurisdiction in cases where there was no criminal or civil liability being asserted against the Federal Government.  More importantly, the Court felt strongly that this was a state issue and stated that it could not logically conclude that Congress intended to inundate the federal courts with removal actions wherein Medicare’s rights to settlement proceeds would be determined.   The propriety of such an action is even more flawed where, as here, DHHS/Medicare is not a party and has no discernable injury of any kind.

Franco Signor Commentary:  This case is an example of how far Medicare will go to protect its reimbursement claim from State Court action.  Fearing an allocation on the merits that would reduce its reimbursement claim, Medicare entered an appearance and removed the state matter to Federal Court.  In prior cases, Medicare was successful in requiring the Plaintiff to exhaust administrative remedies before proceeding in State Court.  However, this court correctly points out that such remedies would make sense if the determined amount was disputed by Plaintiff, but it was not.  Bottom line: It appears Medicare’s ability to move traditional state court issues to Federal Court will not be tolerated unless it can show an injury.  It is interesting the U.S. District Court left the door open where there is an allocation that would affect the Medicare claim.    It could have simply held  that Medicare could not remove where its claim is not being harmed, but it did not.  It’s this author’s opinion that the U.S. District Court would like to have these issues dealt with in State Court, and if Medicare position is harmed, it should be able to force a State Judge to not take any action unless administrative remedies  are exhausted.  One could rightfully assume that if a State Court would not allow for the administrative remedy process to take place, then it would be proper for the Federal Court to step in.

The interesting issue is that  a Plaintiff has an administrative remedy it must exhaust before it can go to Court under 28 U.S.C §1440(a).    The Defendant was recently granted a right of appeal under the SMART Law, and Medicare is tasked with preparing regulations this year.  If Medicare does not prepare such regulations, then the Defendant should have the right to have the State Court do an allocation, or if removed, the U.S. District Court.  Under Michigan Academy the Defendant would have no administrative remedies to exhaust and could seek the allocation.    Plaintiff would not have this right, but defendant would, which is another reason for parties to cooperate with each other at time of settlement.