Health Reform WK-EDGE Defunct insurer’s lawsuit against government proper for Court of Federal Claims
Tuesday, March 27, 2018

Defunct insurer’s lawsuit against government proper for Court of Federal Claims

By Susan Smith, J.D., M.A.

The District Court for the District of South Carolina concluded that it lacked subject matter jurisdiction over the claims against the federal government brought by the liquidators of a defunct health insurance company that had provided health insurance plans on the health insurance market place created under section 1311 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The liquidators alleged that the government’s breach of its promise to provide premium stabilization payments as required by the ACA resulted in its failure. The government contended that the action belonged in the Court of Federal Claims rather than the district court because it had not waived its sovereign immunity against monetary disputes in the district court and, therefore, the district court lacked subject matter jurisdiction. The district court agreed (Farmer V. U.S., March 16, 2018, Lewis, M.).

Agreements. In March 2012, the government and the insurer closed on a loan agreement that included promissory notes for a start-up loan to the insurer for close to $18.8 million and solvency loans in the amount of approximately $68.8 million. In September 2013, the insurer and the government entered into an agreement regarding the insurers’ provision of health insurance in calendar year 2014, including the payment of various amounts between the insurer and the government. The parties renewed the agreement October 28, 2014 for the following year.

The allegations. The liquidators alleged that after the state court placed the insurer in liquidation, the government began inappropriate setoffs "devised to elevate its priority of payment from the estate of the insurer above the claims of others who should possess higher priority." Therefore, according to the liquidators, the government owed the insurer certain amounts of money and it should be disallowed from employing setoffs to cover any debts the estate of the insurer might owe to the government. The liquidators sought a declaration enjoining the government on the bases that its actions violate the South Carolina law, the terms of the ACA, the loan agreement, and the January 20, 2017, Executive Order (13765), which requires the government to waive any provision of the ACA that would impose a fiscal burden on any state.

The court’s review. To determine that subject matter jurisdiction would be exclusively vested in the Court of Federal Claims, the district court reviewed the three conditions established by the Tucker Act (28 U.S.C. §1491), which require the action to: (1) be against the United States; (2) seek monetary relief in excess of $10,000; and (3) be founded upon the Constitution, federal statute, executive regulation, or government contract. If the suit falls under the Tucker Act, the Court of Federal Claims provides an adequate remedy and bars the district court from having subject matter jurisdiction over the matter.

The court concluded that the action satisfied the three conditions of the Tucker Act that vest subject matter jurisdiction exclusively in the Court of Federal Claims. First, the is no dispute that the lawsuit is against a sovereign, and any monetary judgment recovered would come out of the United States Treasury. Second, the liquidators are seeking monetary relief in excess of $10,000, even though they packaged their requests for relief in equitable terms. Moreover, the Court of Federal Claims has the jurisdiction to render judgment upon any set-off or demand by the United States against any plaintiff. Finally, the liquidators’ claims are based on federal statutes, an executive order, and a government contract. Because there is an adequate remedy available under the Tucker Act in the Court of Federal Claims, the Administration Procedure Act (APA) (P.L 79-404) fails to waive the government’s sovereign immunity. In addition, The Court of Federal Claims is able to adjudicate any of the liquidators’ state claims by pendant jurisdiction.

The case is No. 3:17-0956-MGL.

Attorneys: C. Mitchell Brown (Nelson Mullins Riley & Scarborough LLP) for Raymond G. Farmer. Jennifer J. Aldrich, U.S. Attorneys Office, for the United States.

Companies: Consumers’ Choice Health Insurance Company

Cases: CaseDecisions HealthInsuranceExchangeNews InsurerNews SouthCarolinaNews CtFedClaimsNews NewsFeed

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