Hiatt v. United States of America ( 2021 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Thomas Hiatt, et al., No. CV-20-02247-PHX-MTL 10 Plaintiffs, ORDER 11 v. 12 United States of America, et al., 13 Defendants. 14 15 The matter before the Court is the United States of America’s Motion to Dismiss 16 Plaintiff’s Second Amended Complaint. (Doc. 21.) The Second Amended Complaint 17 names a single plaintiff, Daily Express, Inc. It seeks relief in the form of a declaratory 18 judgment that the United States is [i] limited in its statutory right to recover funds paid to 19 medical providers unaffiliated with the United States Department of Veterans Affairs 20 (“VA”) for medical services provided to non-party James Marsh under the Federal Medical 21 Care Recovery Act (“FMCRA”), 42 U.S.C. §§ 2651–2653, and [ii] prohibited from 22 recovering those funds from Daily Express under 38 U.S.C. § 1729. (Doc. 20 at 9.) 23 I. 24 The following facts are taken from the Second Amended Complaint. While 25 operating his motorcycle, Mr. Marsh was injured in an accident with a motor vehicle owned 26 by Daily Express. (Doc. 20 ¶ 28.) Mr. Marsh has filed claims against Daily Express. 27 (Id. ¶ 34.) The VA either provided medical care or paid non-VA providers for care on Mr. 28 Marsh’s behalf. (Id. ¶¶ 10, 28, 31.) The Second Amended Complaint also alleges that the 1 VA now asserts, against Daily Express, statutory rights to recover funds that it paid for Mr. 2 Marsh’s care and treatment. (Id. ¶ 8.) Particularly, it avers that Mr. Marsh was treated at 3 Kingman Regional Medical Center, a non-VA hospital. (Id. ¶ 28.) The VA paid $88,503.00 4 for services provided by the medical center to Mr. Marsh, representing the total value of 5 the facility’s services. (Id. ¶¶ 28, 30.) According to the Second Amended Complaint, 6 however, the VA is asserting a right to recover more money than it paid for these services, 7 $123,797. (Id. ¶ 30.) Mr. Marsh was also treated at Hualapai Home Health Care. (Id. ¶ 31.) 8 The Second Amended Complaint alleges that the VA is asserting a right to recover $562.70 9 for these services, despite it not paying for any treatment at this institution. (Id. ¶ 33.) 10 II. 11 A. 12 Insofar as Daily Express requests a declaratory judgment under 38 U.S.C. § 1729, 13 that claim will be dismissed for lack of subject matter jurisdiction. That statute provides 14 the United States with a right to recover reasonable, non-service-connected disability care 15 or services payments from “a third party.” 38 U.S.C. § 1729(a)(1). The term “third party” 16 is defined to include four enumerated categories. Id. § 1729(i)(3). Daily Express does not 17 qualify as any of them. As a result, the United States has disavowed any recovery right. In 18 its Motion to Dismiss, the United States recognizes that “section 1729’s definition of a 19 ‘third party’ from whom the United States has a right to recover . . . does not include a 20 person liable in tort for a veteran’s injury, such as Daily Express.” (Doc. 21 at 9.) Daily 21 Express concedes that this issue is now moot and that its claims based on § 1729 should be 22 dismissed. (Doc. 23 at 2.) 23 B. 24 “[T]he basic purpose of the Medical Care Expense Recovery Act is to allow the 25 federal government to recover from third party wrongdoers the value of medical care which 26 is provided to injured persons.” United States v. Haynes, 445 F.2d 907, 908 (5th Cir. 1971). 27 The statute provides for recovery from third parties responsible for “creating a tort 28 liability . . . the reasonable value of the care and treatment so furnished, to be furnished, 1 paid for, or to be paid for . . . .” 42 U.S.C. § 2651(a). As an alleged tortfeasor, Daily 2 Express is subject to a recovery action instituted by the federal government. Id. In its 3 Motion to Dismiss, the United States argues that dismissal of Daily Express’ declaratory 4 relief claims is appropriate because the sought-after relief [i] is unripe; [ii] is not 5 appropriate subject matter for the Declaratory Judgment Act; and [iii] conflicts with the 6 applicable statutory text and the regulatory code. (Doc. 21 at 2.) 7 1. 8 Under the Declaratory Judgment Act, “any court of the United States . . . may 9 declare the rights and other legal relations of any interested party seeking such declaration.” 10 28 U.S.C. § 2201(a) (quoted in Shell Gulf of Mexico Inc. v. Center for Biological Diversity, 11 Inc., 771 F.3d 632, 635 (9th Cir. 2014)). “Congress created this remedy, in part, to allow 12 potential defendants to file preemptive litigation to determine whether they have any legal 13 obligations to their potential adversaries. Filing a preemptive declaratory judgment action 14 benefits potential defendants by relieving them ‘from the Damoclean threat of impending 15 litigation which a harassing adversary might brandish[.]’” Shell Gulf of Mexico Inc., 16 771 F.3d at 635 (quoting Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc., 17 896 F.2d 1542, 1555 (9th Cir.1990)) (internal citation omitted). Notwithstanding the nature 18 of the Act itself, Congress did not, and cannot, override fundamental Article III 19 justiciability principles, including the ripeness doctrine.* For these reasons, “[t]o determine 20 whether a declaratory judgment action presents a justiciable case or controversy, courts 21 consider ‘whether the facts alleged, under all the circumstances, show that there is a 22 substantial controversy, between parties having adverse legal interests, of sufficient 23 immediacy and reality to warrant the issuance of a declaratory judgment.’” Id. (quoting 24 Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)). 25 The Motion to Dismiss argues that Daily Express’ request for declaratory relief 26 * “The ripeness doctrine, which aims to avoid premature and potentially unnecessary 27 adjudication, ‘is drawn both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.’” Ass’n of Irritated Residents v. 28 U.S. Envtl. Prot. Agency, 10 F.4th 937, 944 (9th Cir. 2021) (quoting Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 808 (2003)). 1 relating to § 2651 is not ripe because the VA itself lacks authority to initiate legal 2 proceedings against a tortfeasor. According to a declaration supporting the Motion to 3 Dismiss, the agency must “refer the matter to the Department of Justice, which has the 4 authority to make the ultimate determination as to whether legal action is appropriate and, 5 if so, undertake such action.” (Doc. 21-1 at 2 ¶ 5 (Declaration of Mark D. Gore).) The 6 declaration states further that prior to engaging the Department of Justice, the VA attempts 7 to “settle, compromise, or waive the amount of claims asserted under the FMCRA.” 8 (Id. ¶ 4.) It concludes that the “VA has not engaged the Department of Justice to evaluate 9 any potential legal enforcement of the FMCRA claim asserted against Plaintiff.” (Id. ¶ 6.) 10 Daily Express opposes the Motion because, even if the matter has not been handed over to 11 the Department of Justice for legal action, a ripe controversy exists because the VA has 12 demanded payment for amounts that Daily Express contends that it need not pay. 13 (Doc. 23 at 1, 5–8.) 14 A motion to dismiss under the ripeness doctrine is asserted under Rule 12(b)(1), 15 Fed. R. Civ. P., for lack of subject matter jurisdiction. Temple v. Abercrombie, 903 F. Supp. 16 2d 1024, 1030 (D. Haw. 2012). A court reviewing a motion to dismiss for lack of subject 17 matter jurisdiction may consider evidence beyond the pleadings and may resolve 18 jurisdictional-related factual disputes without converting the motion to one for summary 19 judgment. McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1998). 20 The Court agrees with Daily Express. Simply because the VA has not referred this 21 controversy to the Department of Justice for legal action does not mean that the matter is 22 not yet ripe for review under the Declaratory Judgment Act. The Second Amended 23 Complaint alleges that the VA is now demanding payment from Daily Express under the 24 FMCRA. (Doc. 20 at 5–7 ¶¶ 26–37.) The VA does not dispute this and the supporting 25 declaration states clearly, “[a]s to the care related to this incident for which VA paid, VA 26 has asserted its right to seek reimbursement from Plaintiff, due to Mr. Marsh’s care having 27 been made necessary due to Plaintiff’s tortious actions.” (Doc. 21-1 at 1 ¶ 3.) The gist of 28 the Second Amended Complaint is Daily Express’ contention that the VA’s collection 1 rights are limited to the actual amounts that it paid for Mr. Marsh’s treatment. 2 (Doc. 20 at 10 ¶ F.) Daily Express also argues that the VA’s collection rights may be 3 limited also based on equitable apportionment and state-law comparative fault principles. 4 (Doc. 20 at 8–9 ¶¶ 48–56.) Despite there not being active litigation, the Damoclean threat 5 of future legal action precariously hangs over Daily Express. See Shell Gulf of Mexico Inc., 6 771 F.3d at 635. A judicial determination of the issues presented will define “the rights and 7 other legal relations” of the parties at least for any pre-litigation conciliation efforts. See 8 28 U.S.C. § 2201(a). For these reasons, the Court finds that the issues presented here are 9 ripe for judicial review. 10 2. 11 The Motion next argues that prudential restraint should apply and this Court should 12 decline considering Plaintiff’s request for declaratory relief. See United States v. State of 13 Wash., 759 F.2d 1353, 1357 (9th Cir. 1985) (“Declaratory relief should be denied when it 14 will neither serve a useful purpose in clarifying and settling the legal relations in issue nor 15 terminate the proceedings and afford relief from the uncertainty and controversy faced by 16 the parties.”). Here, the United States argues that declaratory relief in favor of Daily 17 Express will not terminate the controversy because the VA will still have the right to 18 proceed with a FMCRA collections action. (Doc. 21 at 15–17.) That is, no matter the 19 outcome, it will not resolve the central question of whether Daily Express is liable as a 20 tortfeasor. The Court finds that exercising discretion to consider Daily Express’ 21 Declaratory Judgment Act claims is appropriate for the same reasons expressed above. 22 3. 23 The Motion argues that the Second Amended Complaint should be dismissed 24 because it fails to state a claim for relief. When considering a motion to dismiss for failure 25 to state a claim, the Court must take all well-pleaded allegations as true and construe them 26 in the light most favorable to Plaintiff. N. Star Int’l v. Ariz. Corp. Comm’n, 27 720 F.2d 578, 580 (9th Cir. 1983). Dismissal under Rule 12(b)(6) “can be based on the lack 28 of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable 1 legal theory.” Balisteri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). 2 The Motion explains that § 2651(a) authorizes that the United States—specifically 3 here, the VA—may recover “the reasonable value of the care and treatment” provided. 4 (Doc. 21 at 2.) This, according to the Motion, includes care and treatment that has been 5 “paid for.” (Id. at 10.) The statute does not define “reasonable value,” but the United States 6 maintains that a regulation promulgated by the VA Secretary fills in that gap. (Id.) Under 7 38 C.F.R. § 17.101(a)(7), “[w]hen medical care or services are furnished at the expense of 8 the VA by non–VA providers, the charges billed for such care or services will be the 9 charges determined according to this section.” On its face, this provision only applies to 10 collections or recoveries under 38 U.S.C. § 1729, which is no longer at issue. The United 11 States points to a note at the end of § 17.101’s text that instructs, “[t]he charges generated 12 by the methodology set forth in this section are the same charges prescribed by the Office 13 of Management and Budget for use under the Federal Medical Care Recovery Act, 14 42 U.S.C. 2651-2653.” (Doc. 21 at 4 n.1.); see also Charges to Tortiously Liable Third 15 Parties for Hospital, Medical, Surgical, and Dental Care and Treatment Furnished by the 16 United States (Department of Veterans Affairs), 69 Fed. Reg. 1062-01 (Jan. 7, 2004) 17 (“[T]he charges to tortiously liable third parties for hospital, medical, surgical, and dental 18 care and treatment . . . furnished by the Department of Veterans Affairs are the ‘reasonable 19 charges’ generated by the methodology set forth in 38 CFR 17.101.”). Thus, according to 20 the Motion, the VA’s payment demands align with the methodology for determining the 21 reasonable value of the services provided to Mr. Marsh. 22 Daily Express argues that the term “reasonable value” in § 2651(a) and the VA’s 23 regulations apply only to circumstances where a VA-affiliated hospital or other medical 24 institution furnishes care or treatment. That is, in a situation involving a VA institution, 25 there are no medical bills to be paid. (Doc. 23 at 2–4.) The cost of treatment is subsumed 26 within the VA’s operating budget. (Id.) The regulations assign dollar values to VA- 27 provided services to recoup costs from third-party tortfeasors. (Id.) When the VA pays for 28 medical care provided by a non-VA institution, the agency is limited to recouping the actual 1 amounts paid. (Id.) According to Daily Express, therefore, the concept of reasonable value 2 does not apply to the controversy at hand. (Id.) 3 Daily Express also argues that the Director of the VA may not have Congressionally 4 delegated power to promulgate the 38 C.F.R. § 17.101. According to Daily Express, 5 “[w]hen it passed the FMCRA, Congress granted the President—not the Director of the 6 VA—authority to prescribe regulations to administer the FMCRA, including establishing 7 rates for care furnished at military facilities.” (Id. at 4.) But Daily Express also maintains 8 that 38 C.F.R. § 17.101 applies only to care provided at military facilities, not non-VA- 9 affiliated medical institutions such as those that treated Mr. Marsh. (Id.) 10 Daily Express’ prior complaint mounted a direct challenge to the rate-setting 11 formula in 38 C.F.R. § 17.101. In granting the United States’ previous motion to dismiss, 12 this Court ruled that the United States Court of Appeals for the Federal Circuit has 13 exclusive jurisdiction under 38 U.S.C. § 502 to review that issue. (Doc. 13 at 8.) The Court 14 finds that Daily Express’ argument that 38 C.F.R. § 17.101 does not apply here is 15 substantively indistinguishable from its prior legal theory. Compare (Doc. 1 ¶¶ 20, 71–72, 16 77, 97–98, 101), with (Doc. 23 at 2–5.) Considering substance over form, Daily Express 17 objects to the VA’s longstanding interpretation of § 2651(a). (Doc. 23 at 2–5.) More to the 18 point, Daily Express challenges the VA’s practice of recouping costs under the rate-setting 19 formula promulgated in 38 C.F.R. § 17.101. (Id. at 4–5.) As explained in this Order, the 20 regulation’s endnote makes clear that FMCRA recoupments against third-party tortfeasors 21 follow the same rate determination schedule. This entire scheme represents agency 22 rulemaking within the Federal Circuit’s exclusive jurisdictional domain. See Preminger v. 23 Principi, 422 F.3d 815, 821 (9th Cir. 2005). The result is that this Court lacks jurisdiction 24 to entertain the Second Amended Complaint. 25 III. 26 Accordingly, IT IS ORDERED: 27 1. The Motion to Dismiss (Doc. 21) is granted. The Second Amended 28 Complaint is dismissed without prejudice to refiling in the United States Court of Appeals || for the Federal Circuit. 2 2. To the extent that the Second Amended Complaint seeks declaratory relief relating to 38 U.S.C. § 1729, the Motion to Dismiss is granted. Those claims are dismissed, with prejudice, as moot. 5 3. The Clerk is directed to enter Judgment in accordance with this Order. 6 Dated this 30th day of November, 2021. 7 Michal T. d burke Michael T. Liburdi 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8-