Health Law Daily Rooker-Feldman doctrine not applicable in dismissal of MCO shareholder’s claims in rehabilitation suit
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Thursday, May 30, 2019

Rooker-Feldman doctrine not applicable in dismissal of MCO shareholder’s claims in rehabilitation suit

By George Basharis, J.D.

The Rooker-Feldman doctrine was not grounds for dismissal of a suit by MCO’s sole shareholder for damages in relation to a statutory rehabilitation of the MCO. The doctrine bars "state-court losers" from pursuing "federal district court review and rejection" of state-court judgments, but the MCO shareholder’s complaint did not seek rejection of a state-court judgment but presented claims independent of those adjudicated in district court.

The Rooker-Feldman doctrine was not applicable in the dismissal of claims made by the sole shareholder of a managed care organization (MCO) that was liquidated following statutory rehabilitation proceedings, the D.C. Court of Appeals has determined. The dismissal of the suit was for lack of subject matter jurisdiction, based on the application of the Rooker-Feldman doctrine that "state-court losers" may not seek "federal district court review and rejection" of state-court judgments. However, the doctrine did not bar claims by the MCO shareholder that were independent of those adjudicated by the Superior Court, the appellate court ruled (D.C. Healthcare Systems, Inc. v. District of Columbia, May 28, 2019, Garland, M.).

Background. D.C. Healthcare Systems, Inc. (Healthcare Systems) was the sole shareholder of D.C. Chartered Health Plan, a health insurer that contracted with the District of Columbia to provide healthcare services for the District’s low-income residents. In 2012, after finding that Chartered was in financial distress, the D.C. Department of Insurance, Securities, and Banking placed the managed care organization into statutory rehabilitation. The Superior Court of District of Columbia oversaw the rehabilitation process implemented by the District’s Insurance Commissioner acting as Rehabilitator and approved reorganization plans.

After the Superior Court’s approval of the plans, Healthcare Systems filed a federal lawsuit against the District, the Rehabilitator, and a number of others alleging that their unlawful and unconstitutional actions caused Chartered’s financial distress and forced the organization into rehabilitation. The district court dismissed the suit for lack of subject-matter jurisdiction based on the Rooker-Feldman doctrine (see MCO’s sole shareholder unable to recover damages after forced liquidation, September 11, 2017).

Doctrine. In its review of the district court’s dismissal, the appellate court noted that the Supreme Court has repeatedly described the Rooker-Feldman doctrine as a narrow one, finding it applicable in the two cases forming its name: Rooker v. Fidelity Trust Co. and D.C. Court of Appeals v. Feldman. The Court made clear that the doctrine is confined to cases of the kind from which the doctrine acquired its name: state-court losers seeking federal review and rejection of the state court’s judgments. It does not include cases in which a federal plaintiff presents an independent claim. The complaint brought by Healthcare Systems alleged that years before the rehabilitation proceedings, the District and other defendants intentionally underpaid Chartered and concealed their actions, then manufactured Chartered’s financial distress with the "underpay-and-conceal scheme" and fraudulently induced Healthcare Systems to consent to Chartered’s rehabilitation.

The purpose of statutory rehabilitation is not to make an insurer whole from financial losses nor to correct alleged violations of law but to ensure that the business no longer poses a financial risk, the court noted. The role of the Superior Court is to determine whether the Rehabilitator’s plans are fair and equitable, not to adjudicate the insurer’s constitutional, statutory, or common-law claims. The Superior Court performed its duties by approving the Plan and Agreement upon a finding that they were necessary, appropriate, fair, and equitable. The finding did not constitute an adjudication of HealthCare System’s individual legal and factual claims contained in its complaint. Therefore, the Rooker-Feldman doctrine did not bar Healthcare System’s federal complaint, and the district court had subject-matter jurisdiction to adjudicate it.

The case is No. 17-7141.

Attorneys: Jared P. Marx (Wiltshire & Grannis LLP) for D.C. Healthcare Systems, Inc. Sonya L. Lebsack, Office of the Attorney, for District of Columbia.

Companies: D.C. Healthcare Systems, Inc.; District of Columbia

MainStory: TopStory CaseDecisions CMSNews CorporateNews ManagedCareNews MedicaidNews MedicaidPaymentNews ProviderNews DistrictofColumbiaNews

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