HUMANA, INC., UNITED HEALTHCARE SERVICES, … · {00173153.DOCX} UNITED STATES DISTRICT COURT...

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS

GALVESTON DIVISION HUMANA, INC., UNITED HEALTHCARE SERVICES, INC., and AETNA INC.,

Plaintiffs,

vs.

BRENT W. COON, P.C. A/K/A BRENT COON & ASSOCIATES, REAUD MORGAN & QUINN, LLP, THE BOGDAN LAW FIRM, FOSTER & SEAR, LLP, HISSEY KIENTZ, LLP, and SHRADER & ASSOCIATES, LLP,

Defendants.

Civil Action No. 16-cv-00240

PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

Pursuant to Rule 65 of the Federal Rules of Civil Procedure, the plaintiffs,

Humana, Inc., United Healthcare Services, Inc., and Aetna Inc., move for a preliminary

injunction, enjoining the defendants, Brent W. Coon, P.C. a/k/a Brent Coon &

Associates, Reaud Morgan & Quinn, LLP, Foster & Sear, LLP, Hissey Kientz, LLP, and

Shrader & Associates, LLP, from distributing any settlement proceeds obtained by the

defendants on behalf of specifically identified individuals and imposing a constructive

trust over the portion of those settlement proceeds that are rightfully owed to the

plaintiffs. The plaintiffs further request all such other relief as the Court deems necessary

and appropriate. A memorandum in support of this motion for preliminary injunction is

attached.

Case 3:16-cv-00240 Document 28 Filed in TXSD on 11/04/16 of 3

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Dated: November 4, 2016 Respectfully submitted,

/s/ John B. Thomas John B. Thomas, Attorney-in-Charge Texas Bar No. 19856150 Southern District Bar No. 10675 Abbie G. Sprague Texas Bar No. 24074244 Southern District Bar No. 1125904 HICKS THOMAS LLP 700 Louisiana Street, Suite 2000 Houston, Texas 77002 Tel: (713) 547-9106 Fax: (713) 547-9150 [email protected] [email protected] Gerald Lawrence, admitted pro hac vice New York Bar No. 69079 LOWEY DANNENBERG COHEN & HART, PC Four Tower Bridge 200 Barr Harbor Drive, Suite 400 West Conshohocken, Pennsylvania 19428 Tel: (610) 941-2760 Fax: (610) 862-9777 [email protected] -and- Mark D. Fischer, admitted pro hac vice Kentucky Bar No. 83672 Robert Griffith, admitted pro hac vice Illinois Bar No. 6277573 RAWLINGS & ASSOCIATES, PLLC 1 Eden Parkway LaGrange, KY 40031 Tel: (502) 587-1279 Fax: (502) 584-8580 [email protected] rg1@[email protected]


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CERTIFICATE OF SERVICE I certify that on November 4, 2016, a copy of the foregoing Motion for Preliminary Injunction was electronically filed on the CM/ECF system, which will automatically serve a Notice of Electronic Filing, and was served by U.S. First Class Mail or Electronic Mail on the following Parties:

Brent W. Coon Michael E. "Mike" Hissey c/o Lori Slocum HISSEY KIENTZ, LLP BRENT W. COON, P.C. A/K/A One Arboretum Plaza BRENT COON & ASSOCIATES 9442 Capital of Texas Highway North, 215 Orleans Street Suite 400 Beaumont, Texas 77701 Austin, Texas 78759 [email protected] Glen W. Morgan Roger Heath REAUD MORGAN & QUINN, LLP FOSTER & SEAR, LLP 801 Laurel Street 817 Greenview Drive Beaumont, Texas 77701 Grand Prairie, Texas 75050 [email protected] Eric Alan Von Bogdan Justin Hyde Shrader THE BOGDAN LAW FIRM SHRADER & ASSOCIATES, LLP 4910 Wright Road, Suite 190 3900 Essex Lane, Suite 390 Stafford, Texas 77477 Houston, Texas 77027 SHRADER & ASSOCIATES, LLP c/o Justin M. Waggoner SMYSER KAPLAN & VESELKA, LLP 700 Louisiana Street, Suite 2000 Houston, Texas 77002 [email protected]

/s/ Abbie G. Sprague ABBIE G. SPRAGUE


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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS

GALVESTON DIVISION HUMANA, INC., UNITED HEALTHCARE SERVICES, INC., and AETNA INC., Plaintiffs, vs.

BRENT W. COON, P.C. A/K/A BRENT COON & ASSOCIATES, REAUD MORGAN & QUINN, LLP, THE BOGDAN LAW FIRM, FOSTER & SEAR, LLP, HISSEY KIENTZ, LLP, and SHRADER & ASSOCIATES, LLP, Defendants.

Civil Action No. 16-cv-00240

PLAINTIFFS' MEMORANDUM IN SUPPORT OF

PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

Case 3:16-cv-00240 Document 28-1 Filed in TXSD on 11/04/16 Page 1 of 26

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Table of Contents I. Introduction .............................................................................................................. 1

II. Facts .......................................................................................................................... 3

A. The plaintiffs have reimbursement or subrogation rights by contract and/or under federal law. ............................................................................... 3

B. The plaintiffs have identified clients of the defendant law firms who are pursuing claims for asbestos-related injuries. ......................................... 4

C. The plaintiffs identified, for each matched claimant, the amount of medical benefits expended to treat the claimant’s asbestos-related injuries. .......................................................................................................... 5

III. Argument .................................................................................................................. 5

A. The plaintiffs have stablished a substantial likelihood of success on the merits. ...................................................................................................... 7

1. The Medicare Secondary Payer Act (MSP) requires repayment of medical expenses to the MA plan plaintiffs. ................ 8

2. The ERISA plan plaintiffs may recover from claimants or their attorneys payments made for medical benefits. ....................... 11

3. The FEHBA plan plaintiffs may recover for medical expenditures. .................................................................................... 16

B. The plaintiffs face a substantial threat of irreparable injury without an injunction. ............................................................................................... 16

C. The irreparable injury threatening the plaintiffs outweighs any harm that may result from an injunction. ............................................................. 17

D. The issuance of an injunction serves the public interest. ............................ 17

IV. Conclusion .............................................................................................................. 18


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TABLE OF AUTHORITIES

Cases Page(s)

ACS Recovery Servs., Inc. v. Griffin, 723 F.3d 518 (5th Cir. 2013) ............................................................................. 6, 11, 14

Admin. Comm. For the Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Horton, 513 F.3d 1223 (11th Cir. 2008) ................................................................................... 11

Admin. Comm. of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Shank, 500 F.3d 834 (8th Cir. 2007) ....................................................................................... 11

AultCare Corp. v. Mast, No. 12-cv-972, 2013 WL 1284380 (N.D. Ohio Mar. 25, 2013) .................................. 15

In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353 (3d Cir. 2012) .................................................................................. passim

Bagsby v. Cent. States, Se. & Sw. Areas Pension Fund, 162 F.3d 424 (6th Cir. 1998) ....................................................................................... 18

Barnhill Contracting Co. v. Oxendine, 105 F. Supp. 3d 542 (E.D.N.C. May 12, 2015) ........................................................... 15

Bio-Med. Applications of Tenn., Inc. v. Cent. States Se. & Sw. Areas Health & Welfare Fund, 656 F.3d 277 (6th Cir. 2011) ......................................................................................... 8

Bombardier Aerospace Emp. Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348 (5th Cir. 2003) ................................................................................. 12, 14

Brown v. Thompson, 374 F.3d 253 (4th Cir. 2004) ......................................................................................... 9

Calingo v. Meridian Res. Co., LLC, No. 11-cv-628, 2013 WL 1250448 (S.D.N.Y. Feb. 20, 2013) ...................................... 7

Cariten Health Plan, Inc. v. Mid-Century Ins. Co., No. 14-cv-476, 2015 WL 5449221 (E.D. Tenn. Sept. 1, 2015) ................................... 10

Collins v. Wellcare Healthcare Plans, Inc., 73 F. Supp. 3d 653 (E.D. La. 2014) ......................................................................... 9, 10


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Denekas v. Shalala, 943 F. Supp. 1073 (S.D. Iowa 1996) ........................................................................... 10

Dyll v. Adams, 157 F.3d 945 (5th Cir. 1999) ......................................................................................... 6

Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006) ................................................................................................. 7, 16

Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (2016) ..................................................................................................... 7

Greenwood Mills, Inc. v. Burris, 130 F. Supp. 2d 949 (M.D. Tenn. 2001) ...................................................................... 15

Hadden v. United States, 661 F.3d 298 (6th Cir. 2011) ......................................................................................... 8

Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000) ..................................................................................................... 12

Helfrich v. Blue Cross & Blue Shield Ass’n, 804 F.3d 1090 (10th Cir. 2015) ....................................................................... 6, 7, 16, 7

Humana, Inc. v. Medtronic Sofamor Danek USA, Inc., 133 F. Supp. 3d 1068 (W.D. Tenn. 2015) ...................................................................... 9

Humana Ins. Co. v. Farmers Tex. Cnty. Mut. Ins. Co., 95 F. Supp. 3d 983 (W.D. Tex. 2014) .......................................................................... 10

Humana Ins. Co. v. Paris Blank LLP, No. 16-cv-79, 2016 WL 2745297 (E.D. Va. May 10, 2016) ................................. 10, 17

Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F. Supp. 3d 1285 (S.D. Fla. Mar. 16, 2015)............................................................ 10

Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229 (11th Cir. 2016) ................................................................................. 3, 9

Longaberger Co. v. Kolt, 586 F.3d 459 (6th Cir. 2009) ............................................................................. 6, 12, 14

Mathis v. Leavitt, 554 F.3d 731 (8th Cir. 2009) ......................................................................................... 8


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Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., 758 F.3d 787 (6th Cir. 2014) ......................................................................................... 9

Montanile v. Bd. of Trustees of the Nat’l Elevator Indus. Health Benefit Plan, 136 S.Ct. 651 (2016) ............................................................................................. passim

Potts v. Rawlings Co., LLC, 897 F. Supp. 2d 185 (S.D.N.Y. 2012) ...................................................................... 7, 10

Rhea v. Alan Ritchey, Inc., 85 F. Supp. 3d 870 (E.D. Tex. 2015) ........................................................................... 15

Sereboff v. Mid-Atlantic Med. Svcs., Inc., 547 U.S. 356 (2006) ............................................................................................... 11, 13

Switzer v. Wal-Mart Stores, Inc., 52 F.3d 1294 (5th Cir. 1995) ....................................................................................... 18

Taransky v. Sec'y of U.S. Dept. of Health & Human Svcs., 760 F.3d 307 (3d Cir. 2014) ........................................................................................... 8

Texas v. United States, 809 F.3d 134 (5th Cir. 2015), aff’d by an equally divided court, United States v. Texas, 136 S. Ct. 2271 (2016) ......................................................................... 5

Thomas v. Standard Fire Ins. Co., No. 11-cv-462, 2012 WL 3242226 (E.D. Tex. Aug. 7, 2012) ..................................... 10

United States v. Harris, No. 08-cv-102, 2009 WL 891931 (N.D. W. Va. Mar. 26, 2009) ...................... 6, 10, 17

United States v. Stricker, No. 09-cv-2423, 2010 WL 6599489 (N.D. Ala. Sept. 30, 2010) ................................... 9

United States v. Weinberg, No. 01-cv-0679, 2002 U.S. Dist. LEXIS 12289 (E.D. Pa. 2002) ................................ 10

Vanderbilt Univ. v. Pesak, No. 08-cv-1132, 2011 WL 4001115 (M.D. Tenn. Sept. 8, 2011) ............................... 15


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Statutes and Regulations

42 C.F.R. § 411.24(g) .......................................................................................................... 9

42 C.F.R. § 411.21 ............................................................................................................... 8

42 C.F.R. § 422.108(f) ..................................................................................................... 8, 9

Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1104 ........................... 18

Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 ........................... 11

Federal Employee Health Benefits Act, 5 U.S.C. § 8901, et seq. ................................. 3, 16

Medicare Act, 42 U.S.C. § 1395w-21 ................................................................................. 8

Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b) ................................................... 3, 9


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I. Introduction

The plaintiff healthcare plans have provided, and continue to provide, medical

benefits to thousands of individuals suffering from injuries caused by exposure to

asbestos.1 The plans under which the plaintiffs provide those benefits, and the federal

law governing them, require repayment of monies spent on medical care if the individual

recovers from a responsible party. Many of these individuals, and the law firms

representing them, have honored that commitment. The defendant law firms have not.2

The Supreme Court recently confirmed that federal healthcare plans may seek

reimbursement for medical expenses from the individual claimant and/or his attorney but

must move with deliberate haste or risk losing the opportunity to recover the

expenditures.3 The plaintiffs seek a preliminary injunction preventing the defendant law

firms from distributing any settlement funds obtained on behalf of specifically-identified

individuals until this Court has fully addressed the plaintiffs’ rights.4

1 Three health plans, providing multiple types of healthcare coverage, are the

plaintiffs in the instant action. See Pls.' Compl., ¶¶ 18-20 (differentiating between ERISA plans, FEHBA plans, Medicare Advantage (MA) plans, and other types of plans).

2 Five of the six defendants have been served with the complaint. Some accepted, others refused to do so and were formally served. As a result, the date by which each defendant must answer the complaint varies. Judicial efficiency may counsel in favor of a single answer date for all defendants being set after this motion is resolved. In this motion, the plaintiffs are seeking preliminary relief against only five of the defendants: Brent Coon & Associates; Reaud Morgan & Quinn, LLP; Foster & Sear, LLP; Hissey Kientz, LLP, and Shrader & Associates, LLP.

3 Montanile v. Bd. of Trustees of the Nat’l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (2016).

4 The plaintiffs are not at this time disclosing the identities of these individuals, but are prepared to do so as soon as appropriate confidentiality and privacy protections


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The law is clear that the plaintiffs may recover amounts paid for asbestos-related

medical expenses. The plaintiffs face a true risk of irreparable harm should the defendant

law firms distribute settlement proceeds to the individual claimants without addressing

the plaintiffs’ reimbursement rights. Therefore, this Court should grant the preliminary

injunction and impose a constructive trust on all settlement proceeds, thereby preventing

dissipation of that portion of the proceeds that belongs to the plaintiffs as federal health

plans.5

are in place. Exhibits A through F to the plaintiffs' Complaint simply identified claimants by identification numbers, without any specific identifying information (i.e., names, dates of birth, last four digits of social security numbers, etc.). The plaintiffs have identifying information, along with relevant health plan language for each individual insured, but out of concern for possible privacy and confidentiality issues do not want to publicly disseminate this information. The plaintiffs are contemporaneously submitting a motion for entry of a protective order in this case (the protective order proposed by the plaintiffs has been previously shared with all defendants). Upon the entry of the protective order, or after receiving guidance from the Court, the plaintiffs will provide the Court and the corresponding defendant law firm with a complete set of the claimants' identifying information.

5 Only the ERISA plans, Medicare Advantage plans, and FEHBA plans (collectively, the plaintiffs) presently seek a preliminary injunction. The remaining plaintiffs propose a temporary stay of their claims until the preliminary injunction motion is resolved.


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II. Facts

A. The plaintiffs have reimbursement or subrogation rights by contract and/or under federal law.

The plaintiffs provide medical benefits to individuals suffering from asbestos-

related injuries under health plans that are covered by federal law. As such, the plaintiffs

have the right to seek reimbursement for the costs of these benefits from plan participants

or other entities possessing settlement funds.6

Section 1395y(b) of the Medicare Secondary Payer Act (42 U.S.C. § 1395y(b))

governs the rights of the Medicare Advantage (MA) plans and sets forth the repayment

requirement.7 The rights of the ERISA plans, which bring claims under § 502(a) of the

Employee Retirement Income Security Act of 1974, derive from the plans’ language and

the Act’s statutory scheme.8 And the standard language governing FEHBA plans, which

bring claims under the Federal Employee Health Benefits Act (5 U.S.C. § 8901, et seq.),

provides these rights.

6 See, e.g., Pls.' Compl., ¶¶ 2, 76-77. 7 See, e.g., Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1238

(11th Cir. 2016) (finding private right of action for health plans in the language of the MSP); In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 685 F.3d 353, 367 (3d Cir. 2012) (same).

8 The specific language of each health plan is set forth in Exhibits 3-299 attached to Mark D. Fischer's Declaration in Support of Plaintiffs' Motion for Preliminary Injunction ("Fischer Declaration"), which will be filed with the Court upon entry of a protective order.


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B. The plaintiffs have identified clients of the defendant law firms who are pursuing claims for asbestos-related injuries.

The plaintiffs have reviewed state and federal public-dockets, obtained numerous

documents filed in asbestos bankruptcy proceedings, and scoured other available sources

to identify individuals pursuing claims for asbestos-related injuries (each, an "asbestos

claimant").9 The plaintiffs' efforts have resulted in the identification of hundreds of

thousands of asbestos claimants.10

The plaintiffs ran the list of asbestos claimants against their beneficiary data,

resulting in more than 42,000 matches—i.e., asbestos claimants covered by, and for

whom asbestos-related medical benefits were paid by, a plaintiff.11 From these matches,

the plaintiffs identified individuals represented by various law firms.12 The plaintiffs

entered into lien resolution programs with many of the leading asbestos plaintiff law

firms in the country, with 68 firms currently participating. The participating firms have

enrolled over 22,000 of their asbestos clients in these lien resolution programs with the

plaintiffs. These lien resolution programs ensure repayment of a portion of the medical

costs paid by the plaintiffs, on terms favorable to the asbestos claimants, i.e., the insured

individuals, but also respecting the plaintiffs' rights. The defendant law firms declined to

enter into such lien resolution programs.

9 See the Fischer Declaration, ¶¶ 4-7. 10 Id., ¶ 8; see also, Pls.' Compl., ¶¶ 66-68. 11 See the Fischer Declaration, ¶ 8. 12 Id. at ¶ 10.


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C. The plaintiffs identified, for each matched claimant, the amount of medical benefits expended to treat the claimant’s asbestos-related injuries.

The plaintiffs have determined an initial lien amount for each matched plan

participant represented by a defendant law firm (each, a "matched asbestos claimant"),

reflecting that portion of the paid medical benefits attributable to the treatment of that

matched claimant's asbestos-related injuries.13 Thus far, the plaintiffs have identified 297

matched asbestos claimants, for whom the plaintiffs hold an aggregate lien of

$19,513,338.71.14

III. Argument

Under Fifth Circuit law, a preliminary injunction should issue if the movant

establishes: (1) a likelihood of success on the merits, (2) the threat of irreparable injury,

(3) that the threatened injury outweighs any harm that may result from an injunction, and

(4) that an injunction will not disserve the public interest.15 The plaintiffs satisfy these

conditions.

13 Id. at ¶ 9. 14 See Pls.' Compl., ¶ 74; see also, the Fischer Declaration, Exhibits 1-A through

1-F (identifying lien amount for each claimant). The plaintiffs’ matching efforts are ongoing, and they reserve the right to seek relief with respect to any additional matches.

15 See, e.g., Texas v. United States, 809 F.3d 134, 150 (5th Cir. 2015), aff’d by an equally divided court, United States v, Texas, 136 S. Ct. 2271 (2016).


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The law is clear that the statutes and plan documents grant the plaintiffs

reimbursement rights to recoveries from tortfeasors.16 Those statutes also allow for

recovery from an attorney who comes into possession of settlement funds rightfully

belonging to federal health plans, including the plaintiffs.17 However, the health plans

must proactively protect those rights or risk losing them.18

Federal courts may impose a constructive trust or equitable lien to ensure the

preservation of funds owed to another without restricting that portion of the settlement

proceeds belonging to the asbestos claimant, wiping out any potential harm of the

injunction.19 The plaintiffs are entitled to a preliminary injunction to establish such a

constructive trust or equitable lien to prevent the disbursement of funds rightfully owed

to them.

16 See, e.g., Montanile, 136 S. Ct. at 657 (ERISA authorizes plans to obtain

appropriate equitable relief to enforce the terms of the plan); Helfrich v. Blue Cross & Blue Shield Ass’n, 804 F.3d 1090, 1092-93 (10th Cir. 2015) (FEHBA allows for recovery by provider under subrogation principles); In re Avandia, 685 F.3d at 367 (the MSP allows private right of action to recover medical benefits).

17 See, e.g., Longaberger Co. v. Kolt, 586 F.3d 459 (6th Cir. 2009) (upholding equitable restitution claim against personal injury attorney who obtained settlement on behalf of injured party covered by ERISA plan), abrogated on other grounds, Montanile, 136 S. Ct. 651 (2016); United States v. Harris, No. 08-cv-102, 2009 WL 891931, at *3 (N.D. W. Va. Mar. 26, 2009) (holding personal injury attorney individually liable for failing to reimburse Medicare), aff’d, 334 Fed. Appx. 569 (4th Cir. 2009).

18 Montanile, 136 S. Ct. at 662. 19 See, e.g., ACS Recovery Servs., Inc. v. Griffin, 723 F.3d 518, 526 (5th Cir. 2013)

(constructive trusts imposed to enforce ERISA plan’s equitable lien on settlement proceeds held by beneficiary’s tort lawyer); cf. Dyll v. Adams, 157 F.3d 945, 948 (5th Cir. 1999) (“Under Texas law, courts may ‘impose [] a constructive trust on totally innocent beneficiaries of [a] wrongful act.’” (quoting Ginther v. Taub, 675 S.W.2d 724, 728 (Tex. 1984)).


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A. The plaintiffs have stablished a substantial likelihood of success on the merits.

The plaintiffs have reimbursement rights with respect to recoveries from those

responsible for a claimant’s asbestos-related injuries.20 The matched asbestos claimants

are recovering settlements proceeds from the tortfeasors responsible for causing their

injuries. Those proceeds are, to the extent of the plaintiffs' liens, assets belonging to the

health plans and they are recoverable under federal law.21 However, the proceeds are (or

were) in the possession, custody or control of the defendant law firms, but are not (or

were not) being preserved to protect the plaintiffs' rights.

20 See the Fischer Declaration, Exhibits 3-299 (attaching excerpts of relevant

health plan language from 297 plans). 21 The Medicare Act, ERISA, and FEHBA all preempt state law, allowing for the

uniform resolution of the plaintiffs’ claims. See, e.g., Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 943 (2016) (“The text of ERISA’s express pre-emption clause is . . . terse but comprehensive.”); Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 683 (2006) (“FEHBA contains a preemption clause, § 8902(m)(1), displacing state law on issues relating to ‘coverage or benefits’ afforded by health-care plans.”); Helfrich, 804 F.3d at 1094 (discussing FEHBA’s preemption provision, and rules promulgated by the Office of Personnel Management (OPM) reinforcing the broad preemptive rights of FEHBA plans); Calingo v. Meridian Res. Co., No. 11-cv-628, 2013 WL 1250448, at *4 (S.D.N.Y. Feb. 20, 2013) (citing OPM letter concerning preemption in holding FEHBA preempted New York state law limiting subrogation rights); Potts v. Rawlings Co., LLC, 897 F. Supp. 2d 185, 195 (S.D.N.Y. 2012) (Medicare Act preempts state law limiting right to seek reimbursement).


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1. The Medicare Secondary Payer Act (MSP) requires repayment of medical expenses to the MA plan plaintiffs.

Medicare enrollees may receive their benefits in one of two ways: under the

traditional fee-for-service option of Medicare Parts A and B22 or through private insurers,

known as Medicare Advantage Organizations (MAOs), under Part C.23 Each MA plan is

an MAO.

To help curb the rising costs of Medicare, Congress enacted the MSP. Before the

MSP, Medicare paid for all medical treatment within its scope and left private insurers to

pick up whatever expenses remained. The MSP inverted that structure, making Medicare

payments secondary to payments owed by primary plans or primary payers.24

A primary payer is any entity having responsibility for payment under a primary

plan.25 In 2003, Congress broadened the definition of primary plan to specifically

include tortfeasors and payments made by such tortfeasors (i.e., settlement proceeds).26

22 42 U.S.C. § 1395w-21(a)(1)(A). 23 42 U.S.C. § 1395w-21(a)(1)(B); see also, In re Avandia, 685 F.3d at 357-58.

CMS has repeatedly confirmed that MAOs are entitled to “exercise the same rights to recover from a primary plan, entity or individual that the Secretary exercises under the MSP regulations . . . .” 42 C.F.R. § 422.108(f).

24 See, e.g., Bio-Med. Applications of Tenn., Inc. v. Cent. States, Se. & Sw. Areas Health & Welfare Fund, 656 F.3d 277, 278 (6th Cir. 2011).

25 42 C.F.R. § 411.21. 26 Taransky v. Sec'y of U.S. Dept. of Health & Human Servs., 760 F.3d 307, 315

(3d Cir. 2014) (“Like the other courts of appeals that have considered the issue, we hold that the fact of settlement alone, if it releases a tortfeasor from claims for medical expenses, is sufficient to demonstrate the beneficiary’s obligation to reimburse Medicare.”); see also, Hadden v. United States, 661 F. 3d 298, 302 (6th Cir. 2011);


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This makes a tort settlement a “primary plan” under the MSP.27

In the MSP, Congress prohibits Medicare payment for any item or service that a

primary plan has responsibility to pay.28 This prohibition applies to any payment under

the statute, including those made pursuant to the Medicare Advantage program. If a

primary plan does not or cannot reasonably be expected to make prompt payment,

Medicare or an MAO may make “conditional” payments.29 However, the MSP requires

repayment of those conditional expenditures, an obligation that extends not only to

primary plans but to any entity that receives payment from a primary plan, including

attorneys.30 Finally, the MSP provides MAOs with a private right of action with double

damages whenever a primary payer fails to properly reimburse Medicare of an MAO.31

Mathis v. Leavitt, 554 F.3d 731, 733 (8th Cir. 2009); Brown v. Thompson, 374 F.3d 253, 258 (4th Cir. 2004).

27 Collins v. Wellcare Healthcare Plans, Inc., 73 F. Supp. 3d 653, 666-68 (E.D. La. 2014) (“[T]he Court finds that Collins’ tort settlement constitutes a primary plan”); United States v. Stricker, No. 09-cv-2423, 2010 WL 6599489, at *5 (N.D. Ala. Sept. 30, 2010) (settlement arising from tort settlement qualifies as primary payment within the meaning of the MSP), aff’d, 524 F. App’x 500 (11th Cir. 2013).

28 42 U.S.C. § 1395y(b)(2)(A)(i)-(ii). 29 42 U.S.C. § 1395y(b)(2)(B). 30 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 C.F.R. 411.24(g); 42 C.F.R. § 422.108(f);

see also, In re Avandia, 685 F.3d at 358 (benefits remain responsibility of the primary payer).

31 42 U.S.C. § 1395y(b)(3)(A); see also, Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1238-39 (11th Cir. 2016) (upholding private right of action for MAOs and noting “double damages are required by statute”); Mich. Spine & Brain Surgeons, PLLC v. State Farm Mut. Auto. Ins. Co., 758 F.3d 787, 790 (6th Cir. 2014) (allowing private right of action under the MSP for non-group health plans); In re Avandia, 685 F.3d at 359 (private right of action for MAOs); Id. at 364 (allowing recovery of double damages); Humana, Inc. v. Medtronic Sofamor Danek USA, Inc., 133


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Courts have specifically allowed MAOs to recover under the MSP from personal

injury attorneys who handled settlement funds.32 For example, in May of this year, the

Eastern District of Virginia denied a law firm’s motion to dismiss a complaint by an

MAO, noting that “the [MSP] does not carve out exceptions for attorneys and law

firms.”33

The MA plan plaintiffs have made conditional payments for the medical treatment

of the matched asbestos claimants, i.e., represented plan participants. These conditional

payments must be paid back from primary plan funds, including settlement proceeds, and

the law allows the MA plan plaintiffs to recover said proceeds from attorneys holding or

F. Supp. 3d 1068, 1078 (W.D. Tenn. 2015) (finding Avandia persuasive); Cariten Health Plan, Inc. v. Mid-Century Ins. Co., No. 14-cv-476, 2015 WL 5449221, at *6 (E.D. Tenn. Sept. 1, 2015) (adopting the holding and reasoning of Avandia); Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 94 F. Supp. 3d 1285, 1291 (S.D. Fla. Mar. 16, 2015) (same); Humana Ins. Co. v. Farmers Tex. Cnty. Mut. Ins. Co., 95 F. Supp. 3d 983, 986 (W.D. Tex. 2014) (rejecting magistrate report and recommendation, and agreeing with the Third Circuit that a private cause of action exists under the MSP); Collins, 73 F. Supp. 3d at 665 (finding Third Circuit’s analysis in Avandia to be persuasive and upholding private cause of action); Potts, 897 F. Supp. 2d at 197 (“[T]he express private right of action in the Medicare Act is available to MA organizations.”); Thomas v. Standard Fire Ins. Co., No. 11-cv-462, 2012 WL 3242226, at *3 (E.D. Tex. Aug. 7, 2012) (MSP provides a private cause of action allowing for recovery of double damages for failure to reimburse a secondary payer).

32 See, e.g., Humana Ins. Co. v. Paris Blank LLP, No. 16-cv-79, 2016 WL 2745297, at *1-5 (E.D. Va. May 10, 2016) (denying law firm motion to dismiss MAO complaint); Harris, 2009 WL 891931, at *3 (attorney personally liable for reimbursing Medicare); cf. United States v. Weinberg, No. 01-cv-0679, 2002 U.S. Dist. LEXIS 12289, at *8 (E.D. Pa. 2002) (entering judgment as a matter of law against attorney who failed to satisfy Medicare lien); Denekas v. Shalala, 943 F. Supp. 1073, 1080 (S.D. Iowa 1996) (Medicare has the right to “pursue third parties, including attorneys, who receive payments of any sums which should be reimbursed to Medicare”).

33 Paris Blank LLP, 2016 WL 2745297, at *5.


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who received such funds on behalf of their clients. The MA plan plaintiffs have

demonstrated a substantial likelihood of success on the merits.

2. The ERISA plan plaintiffs may recover from claimants or their attorneys payments made for medical benefits.

When a third party injures a participant in an ERISA-governed employee benefit

plan, the plan may be obligated to pay covered medical expenses.34 All of the ERISA

plans include language requiring the participant to reimburse the plan for medical

expenses from money received from a tortfeasor or other third party.35 ERISA allows the

plan to file suit seeking appropriate equitable relief to enforce the plan terms.36 Under

§ 502(a)(3) of ERISA, such relief includes the imposition of a constructive trust or

equitable lien against parties holding assets that in equity and good conscience belong to

the plan,37 and “admits of no limit (aside from the ‘appropriate equitable relief’ caveat

34 Montanile, 136 S. Ct. at 655. 35 See, e.g., Fischer declaration, Exhibits 3-299. 36 Montanile, 136 S. Ct. at 655. Section 502(a)(3)(B) of ERISA, 29 U.S.C.

§ 1132(a)(3)(B), expressly authorizes actions by fiduciaries to obtain “other appropriate equitable relief” in order to enforce the terms of an ERISA plan. The plan language typically includes a cooperation provision, requiring the participant to notify the health plan when they seek or obtain recovery from a tortfeasor. Almost without exception, the represented plan participants have failed to honor their obligation. See Pls.' Compl., ¶¶ 38-39.

37 Montanile, 136 S. Ct. at 657; see also, Sereboff v. Mid-Atlantic Med. Svcs., Inc., 547 U.S. 356, 363-64 (2006); Griffin, 723 F.3d at 526; Admin. Comm. for the Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Horton, 513 F.3d 1223, 1229 (11th Cir. 2008).


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. . .) on the universe of possible defendants.”38 Therefore, § 502(a)(3) enables ERISA

plans to bring suit against third parties possessing or controlling recoveries from

tortfeasors or other third-parties.39

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit

Plan, the Supreme Court recognized the right of ERISA plans to seek such relief and

encouraged them to do so at the earliest possible time.40 There, a health plan sought

reimbursement after paying medical benefits on behalf of its injured insured.41 Citing

long-standing precedent, the Court held that the basis for the plan’s claim was equitable,

and that the remedy sought would have been equitable if the plan had “immediately sued

38 Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238,

244-46 (2000). In contrast to other sections of ERISA, “§ 502(a)(3) makes no mention at all of which parties may be proper defendants.” Id. at 246.

39 See, e.g., Griffin, 723 F.3d at 530 (allowing constructive trust over proceeds of settlement placed in special needs trust); Longaberger, 586 F.3d at 468 (allowing constructive trust to be asserted against settlement proceeds held by beneficiary’s tort lawyer), abrogated on other grounds, Montanile, 136 S. Ct. 651 (2016); Admin. Comm. of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Shank, 500 F.3d 834, 836 (8th Cir. 2007) (allowing constructive trust against trustee of special needs trust); Horton, 513 F.3d at 1229 (allowing constructive trust against conservator acting as trustee for special needs trust); Bombardier Aerospace Emp. Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 350 (5th Cir. 2003) (allowing constructive trust over settlement proceeds held by injured insured’s personal injury attorney), abrogated on other grounds, Griffin, 723 F.3d at 528-529.

40 Montanile, 136 S. Ct. at 662 (health plans have an incentive to track costs, identify claims, and act promptly, including filing suit, to recover those costs).

41 In Montanile, the insured was injured when a drunk driver ran a stop sign. The plan paid over $120,000 in medical benefits. The insured obtained a $500,000 settlement from the drunk driver. After paying attorneys’ fees and costs, $240,000 remained in the attorneys’ client trust account. The attorney informed the plan of his intent to distribute the money. The plan did not object. Six months later, the plan sued, seeking to impose an equitable lien upon any settlement funds in the insured’s possession. Id. at 655-56.


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to enforce the lien against the settlement fund.”42 However, since the plan waited until

the money had been disbursed from the attorneys’ account, the Court questioned whether

the remedy sought was equitable and thus permitted under ERISA.43 To resolve this

question, the Court remanded the case to the district court to determine whether the

insured had kept the settlement proceeds separate from his general assets or dissipated the

entire settlement fund on non-traceable assets.44

Here, the plaintiffs do not seek to recover from the general assets of the matched

asbestos claimants. Unlike the situation in Montanile, the ERISA plan plaintiffs seek a

constructive trust or equitable lien over settlement funds that have not yet been

distributed or dissipated from the defendant law firms to their clients. A long line of

cases support such relief.

In Sereboff v. Mid-Atlantic Medical Services, Inc., the Supreme Court held that an

ERISA plan that was seeking reimbursement from a beneficiary whose attorney had

already distributed the settlement proceeds to her was seeking both equitable relief and an

equitable remedy.45 A unanimous Court further held that an equitable lien can be

42 Id. at 658. 43 Id. at 662. The Court held that the plan could not recover out of the insured’s

general assets; recovery was limited to the settlement funds. Id. 44 Id. 45 547 U.S. 356, 363-64 (2006). Sereboff involved an insured and her spouse

injured in a car accident. A subsequent tort suit resulted in a $750,000 settlement. No money was sent to the plan, which had incurred $74,869.37 in medical benefit costs. By the time the plan filed suit, the attorney had already distributed the settlement proceeds. Id. at 360.


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imposed on particular funds in the defendant’s possession.46 Numerous courts since have

applied the teachings of Sereboff to allow claims such as those asserted here.47 Even

before Sereboff was decided, the Fifth Circuit upheld an ERISA plan’s efforts to impose a

constructive trust over settlement proceeds held by the insured’s personal injury

attorney.48

In Longaberger Co. v. Kolt, the Sixth Circuit upheld an equitable restitution claim

against an insured’s attorney under § 502(a)(3).49 The district court had granted the

plan’s summary judgment motion against both the insured and his attorney.50 The Sixth

Circuit affirmed the district court’s ruling, rejecting the argument that Sereboff did not

apply to the attorney because he was neither a plan fiduciary nor a beneficiary.51 The

Court found no statutory barrier preventing the participant’s attorney from being named

46 Id. at 362. 47 Griffin, 723 F.3d at 526 (following Sereboff, “other circuits have readily

enforced ERISA plan reimbursement terms against third parties holding tort settlements achieved by plan beneficiaries”).

48 See Bombardier, 354 F.3d at 350, abrogated on other grounds, Griffin, 723 F.3d at 528-29.

49 586 F.3d 459, 469 (6th Cir. 2009). 50 Longaberger spent more than $113,000 for medical bills incurred by its insured.

Kolt, the injured insured’s personal injury attorney, secured a total of $135,000 in recoveries. Kolt kept $45,000 of the settlement proceeds as his fee, but distributed the rest (save for $1,000 that remained in his IOLTA account). Longaberger sued, and the district court awarded it $37,889.44 from Kolt and $75,778.87 from the insured. Only Kolt appealed. Id. at 462-65.

51 Id. at 468.


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as a defendant in a suit under § 502(a)(3).52 Courts following Longaberger have upheld

claims against attorneys under similar circumstances.53

The ERISA plan plaintiffs have claims to particular funds in the possession of or

under the control of the defendant law firms. By law, the ERISA plan plaintiffs have the

right to obtain appropriate equitable relief and may seek that relief from a wide variety of

defendants, including personal injury attorneys, such as the defendant law firms.

Furthermore, the Supreme Court recently encouraged health plans to promptly assert

those claims, as the plaintiffs have here, before the settlement proceeds can be disbursed.

52 Id. Montanile altered one aspect of Longabeger: To the extent that the Sixth

Circuit allowed the claim against Kolt to proceed against general funds, without a determination as to whether those funds had been dissipated, that finding has been abrogated. See Montanile, 136 S. Ct. at 659-60 (where funds have been dissipated, plan not entitled to constructive trust against insured’s general assets). But nothing in the discussion or holding of Montanile questions the propriety of a claim against a law firm where the settlement funds have not yet been dissipated. In fact, Montanile encourages plans to assert such rights before settlement proceeds can be dissipated. See id. at 662.

53 Barnhill Contracting Co. v. Oxendine, 105 F. Supp. 3d 542, 549-50 (E.D.N.C. May 12, 2015) (discussing “the overwhelming weight of Supreme Court and other circuit court authority” supporting claim for equitable relief against attorney holding settlement funds subject to the equitable lien of an ERISA plan); Rhea v. Alan Ritchey, Inc. 85 F. Supp. 3d 870, 879 (E.D. Tex. 2015) (“[A]ppropriate equitable relief demands the imposition of a constructive trust on the settlement funds held in trust by Plaintiff’s lawyers.”); AultCare Corp. v. Mast, No. 12-cv-972, 2013 WL 1284380, at *7-8 (N.D. Ohio Mar. 25, 2013) (where plan identifies a fund distinct from beneficiary’s general assets, such as a tort settlement, the plan’s equitable lien attaches to it); Vanderbilt Univ. v. Pesak, No. 08-cv-1132, 2011 WL 4001115, at *6-7 (M.D. Tenn. Sept. 8, 2011) (claim against attorney sought an equitable remedy under ERISA); cf. Greenwood Mills, Inc. v. Burris, 130 F. Supp. 2d 949, 960 (M.D. Tenn. 2001) (lawyer who is aware of client’s ERISA obligations can be held liable under Section 502(a)(3), as holding lawyers liable for diverting monies due to ERISA plans is in keeping with Congress’ stated goals).


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The ERISA plan plaintiffs have demonstrated a substantial likelihood of success on the

merits.

3. The FEHBA plan plaintiffs may recover for medical expenditures.

FEHBA establishes a program to provide affordable, quality health benefits to

federal employees, authorizing the Office of Personnel Management (OPM) to contract

with private carriers to offer an array of health care plans.54 Premiums are deposited into

a fund within the United States Treasury, and any surplus can be used to reduce

premiums or increase benefits.55 The standard contract negotiated by OPM requires the

carrier to make a reasonable effort to recoup amounts paid for medical care.56

Here, the FEHBA plan plaintiffs are undertaking such efforts by seeking to

enforce their reimbursement rights under the contract negotiated with OPM. The

FEHBA plan plaintiffs have demonstrated a substantial likelihood of success on the

merits.

B. The plaintiffs face a substantial threat of irreparable injury without an injunction.

In Montanile, the Supreme Court made clear that if a plan does not proactively

seek to enforce its reimbursement rights before the injured plan participant actually takes

possession of a recovery, the plan may permanently lose those rights.57 Since the

54 McVeigh, 547 U.S. at 682-86 (discussing general structure of FEHBA); see also,

Helfrich, 804 F.3d at 1092 (citing 5 U.S.C. §§ 8901-8914 (2012 ed. and Supp. I)). 55 Helfrich, 804 F.3d at 1092-93 (discussing structure of FEHBA). 56 McVeigh, 547 U.S. at 683; Helfrich, 804 F.3d at 1093. 57 Montanile, 136 S. Ct. at 662 (emphasis added).


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plaintiffs may not be able to recover their liens from the general assets of the matched

asbestos claimants or their attorneys, the plaintiffs would suffer irreparable injury in the

absence of an injunction.

C. The irreparable injury threatening the plaintiffs outweighs any harm that may result from an injunction.

There is no reasonable prospect of harm to the defendant law firms, or the

matched asbestos claimants, if the injunction is granted.58 The plaintiffs seek an

injunction prohibiting the disbursement only of those funds linked to particular matched

asbestos claimants in specified amounts owed to the plaintiffs. The plaintiffs seek no

legal relief for a money judgment against the defendant law firms or their clients—the

matched asbestos claimants.

D. The issuance of an injunction serves the public interest.

The public interest supports the granting of an injunction. The plaintiffs are all

health benefit plans providing medical coverage to thousands of beneficiaries. The

efficient workings of Medicare and FEHBA, including the recovery of monies incurred

by plans operating under them, benefit the public at large. 59

58 Indeed, disbursing the proceeds of any settlement exposes the defendant law

firm to individual liability. See, e.g., Paris Blank, 2016 WL 2745297, at *5 (attorney included within the scope of defendants from whom an MAO may seek recovery of conditional payments); Harris, 2009 WL 891931, at *3 (attorney individually liable for failing to reimburse Medicare).

59 See, e.g., Helfrich, 804 F.3d at 1093 (discussing structure of FEHBA and how surpluses in the fund resulting from recovery under subrogation rights can be used to increase benefits or reduce premiums); In re Avandia, 685 F.3d at 365 (ensuring that MAOs can recover with a private cause of action for double damages advances the overall goals of the Medicare Advantage program).


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ERISA imposes fiduciary duties upon plan administrators, who are required to

discharge their duties with respect to the plan solely in the interests of beneficiaries, “in

accordance with the documents and instruments governing the plan. . . .”60 Trustees of

ERISA plans also have an obligation to maintain the actuarial soundness of their plans.61

Finally, preserving the assets of these plans and recouping medical expenditures

from those responsible for causing harm benefits the public.

IV. Conclusion

The Supreme Court recently reaffirmed the right of health plans to pursue

reimbursement for the cost of providing medical treatment for plan participants injured

by tortfeasors. In doing so, the Court emphasized the importance of health plans

proactively enforcing those rights. Heeding that advice, the plaintiffs bring this motion,

establishing a substantial likelihood of success on the merits, and demonstrating

irreparable harm without this Court’s intervention.

The Court should issue a preliminary injunction preventing the dissipation to

represented plan participants of settlement proceeds that are rightfully owed to the

plaintiffs.

60 ERISA, § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D); see also, Switzer v. Wal-

Mart Stores, Inc., 52 F.3d 1294, 1302 (5th Cir. 1995). 61 Bagsby v. Cent. States, Se. & Sw. Areas Pension Fund, 162 F.3d 424, 429 (6th

Cir. 1998).


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Dated: November 4, 2016 Respectfully submitted,

/s/ John B. Thomas John B. Thomas, Attorney-in-Charge Texas Bar No. 19856150 Southern District Bar No. 10675 Abbie G. Sprague Texas Bar No. 24074244 Southern District Bar No. 1125904 HICKS THOMAS LLP 700 Louisiana Street, Suite 2000 Houston, Texas 77002 Tel: (713) 547-9106 Fax: (713) 547-9150 [email protected] [email protected] Gerald Lawrence, admitted pro hac vice New York Bar No. 69079 LOWEY DANNENBERG COHEN & HART, PC Four Tower Bridge 200 Barr Harbor Drive, Suite 400 West Conshohocken, Pennsylvania 19428 Tel: (610) 941-2760 Fax: (610) 862-9777 [email protected] -and- Mark D. Fischer, admitted pro hac vice Kentucky Bar No. 83672 Robert Griffith, admitted pro hac vice Illinois Bar No. 6277573 RAWLINGS & ASSOCIATES, PLLC 1 Eden Parkway LaGrange, KY 40031 Tel: (502) 587-1279 Fax: (502) 584-8580 [email protected] rg1@[email protected]


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CERTIFICATE OF SERVICE I certify that on November 4, 2016, a copy of the foregoing Memorandum in Support of Motion for Preliminary Injunction was electronically filed on the CM/ECF system, which will automatically serve a Notice of Electronic Filing, and was served by U.S. First Class Mail or Electronic Mail on the following Parties:

Brent W. Coon Michael E. "Mike" Hissey c/o Lori Slocum HISSEY KIENTZ, LLP BRENT W. COON, P.C. A/K/A One Arboretum Plaza BRENT COON & ASSOCIATES 9442 Capital of Texas Highway North, 215 Orleans Street Suite 400 Beaumont, Texas 77701 Austin, Texas 78759 [email protected] Glen W. Morgan Roger Heath REAUD MORGAN & QUINN, LLP FOSTER & SEAR, LLP 801 Laurel Street 817 Greenview Drive Beaumont, Texas 77701 Grand Prairie, Texas 75050 [email protected] Eric Alan Von Bogdan Justin Hyde Shrader THE BOGDAN LAW FIRM SHRADER & ASSOCIATES, LLP 4910 Wright Road, Suite 190 3900 Essex Lane, Suite 390 Stafford, Texas 77477 Houston, Texas 77027 SHRADER & ASSOCIATES, LLP c/o Justin M. Waggoner SMYSER KAPLAN & VESELKA, LLP 700 Louisiana Street, Suite 2000 Houston, Texas 77002 [email protected]

/s/ Abbie G. Sprague ABBIE G. SPRAGUE


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