Florida Home Medical Supply, Inc v. United States , 131 Fed. Cl. 170 ( 2017 )

In the United States Court of Federal Claims
No. 14-596 C (Lead)
Con. Nos. 13-88, 14-590, 14-594, 14-599, 14-600, 14-610, 14-612
(E-Filed March 28, 2017)
)
FLORIDA HOME MEDICAL SUPPLY, INC., )
) Motion to Dismiss for Lack of
) Subject Matter Jurisdiction
Plaintiff, ) under RCFC 12(b)(1);
) Medicare Prescription Drug,
v. ) Improvement, and
) Modernization Act; 42 U.S.C.
THE UNITED STATES, ) § 1395w-3 (2012);
) Administrative Review
Defendant. ) Permissive, not Mandatory.
)
)
Jerry Stouck, Washington, D.C., for plaintiff.
Gregg M. Schwind, Senior Trial Counsel, with whom were Benjamin C. Mizer, Principal
Deputy Assistant Attorney General; Robert E. Kirschman, Jr., Director; and Steven J.
Gillingham, Assistant Director, David M. Kerr, Trial Attorney, Commercial Litigation
Branch, Civil Division, United States Department of Justice, Washington, D.C., for
defendant.
OPINION
CAMPBELL-SMITH, Judge
This case arises from defendant’s termination of contracts for the provision of
medical supplies to Medicare beneficiaries. Fourteen of the parties with whom defendant
entered such contracts have filed eight separate lawsuits. The fourteen parties are now
seeking compensation under breach of contract and takings theories. The cases have
been consolidated for purposes of determining liability and this case has been designated
as the lead case. See ECF No. 35.1 The consolidated member cases include: B&H
Medical, LLC v. United States, Case No. 13-88; Advacare Home Services, Inc., et al. v.
United States, Case No. 14-590; All-States Medical Supply, Inc. v. United States, Case
No. 14-594; American Home Health Care, Inc. v. United States, Case No. 14-599; Plus
Medical, LLC v. United States, Case No. 14-600; Discount Diabetic, LLC v. United
States, Case No. 14-610; and DDS Holdings, Inc. v. United States, Case No. 14-612. See
id.2
Now before the court is defendant’s motion to dismiss plaintiff’s breach of
contract claims for lack of jurisdiction, pursuant to Rule 12(b)(1) of the Rules of the
United States Court of Federal Claims (RCFC) and for failure to state a claim, RCFC
12(b)(6), on which relief may be granted. See ECF No. 13. The motion to dismiss was
initially filed in response to Florida Home Medical Supply, Inc.’s complaint. See ECF
No. 13. In the order consolidating the cases, however, the court determined that its
decision on the motion to dismiss would be binding on plaintiffs in seven of the eight
member cases, and directed plaintiffs in those cases to file responses to defendant’s
motion. See ECF No. 35 at 2. Plaintiff in B&H Medical, LLC v. United States, Case No.
13-88, is not bound by the court’s decision on this motion to dismiss because its
complaint previously survived a motion to dismiss. See B&H Medical, LLC v. United
States, 116 Fed. Cl. 671 (2014).
For the following reasons, defendant’s motion to dismiss is DENIED.
I. Background
Medicare benefits, which are administered by the Center for Medicare & Medicaid
Services (CMS), include, in part, outpatient services, durable medical equipment, and
certain prescription medications. See 42 U.S.C. § 1395m(a) (2012). “Durable medical
equipment” includes items such as hospital beds, wheelchairs, and diabetes testing
equipment. See 42 U.S.C. § 1395x(n) (2012); 42 C.F.R. § 414.202 (2012). These
1
Unless otherwise noted, docket references are made to the docket in Case No. 14-
596, which has been designated as the lead case by agreement of all plaintiffs. See ECF
No. 35 at 2.
2 These cases were also consolidated with a ninth case, Cardiosom, LLC v. United
States, Case No. 08-533, for purposes of discovery. See ECF No. 25. Cardiosom was
dismissed for failure to prosecute, and therefore, is no longer a part of the set of
consolidated cases. See Cardiosom, Case No. 08-533, ECF No. 117.
2
benefits are part of what is known as “Medicare Part B.” See 42 U.S.C. §§ 1395j-
1395w-6 (2012).
From 1989 to 2003, Medicare Part B paid the covered portion of durable medical
equipment on the basis of a fee schedule. See 42 U.S.C. § 1395m(a) (2012). In 2003,
Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act
(MMA), which established a competitive bidding program to replace the fee schedules.
See 42 U.S.C. § 1395w-3 (2012). Under the Durable Medical Equipment, Prosthetics,
Orthotics, and Supplies Competitive Acquisition Program (DMEPOS CAP), suppliers,
such as plaintiffs in this litigation, compete to win contracts under which they would
provide certain equipment in specific geographic areas at fixed prices. See 42 U.S.C. §
1395w-3(b)(5) (2012).
In June 2008, CMS entered into an initial round of DMEPOS CAP contracts with
approximately 300 suppliers. See ECF No. 13 at 11. Plaintiffs in the consolidated cases
were among the awardees. Each plaintiff submitted one or more successful bids under
the DMEPOS CAP, and effective July 1, 2008, each plaintiff contracted with CMS to
provide specified durable medical equipment in one or more geographic areas for a
period of three years. See Florida Home Med. Supply, Case No. 14-596, ECF No. 1 at 3-
4; Advacare Home Servs. et al, Case No. 14-590, ECF No. 7 at 6; All-States Med.
Supply, Case No. 14-594, ECF No. 1 at 3-4; Am. Home Health Care, Case No. 14-599,
ECF No. 1 at 3-4; Plus Med., Case No. 14-600, ECF No. 1 at 3-5; Discount Diabetic,
Case No. 14-610, ECF No. 5 at 3-4; and DDS Holdings, Case No. 14-612, ECF No. 10 at
3-5.
The following month, on July 15, 2008, Congress enacted the Medicare
Improvements for Patients and Providers Act of 2008 (MIPPA), Pub. L. No. 110-275,
122 Stat. 2494 (codified at 42 U.S.C. § 1395w–3). The MIPPA terminated all DMEPOS
CAP contracts executed by CMS in the initial round of contracting to begin the
competitive bidding procedures. See 42 U.S.C. § 1395w-3(a)(1)(D)(i). That provision
reads, in relevant part, as follows:
(D) Changes in competitive acquisition programs
(i) Round 1 of competitive acquisition program
Notwithstanding subparagraph (B)(i)(I) and in implementing the first
round of the competitive acquisition programs under this section—
3
(I) the contracts awarded under this section before July 15,
2008, are terminated, no payment shall be made under this
subchapter on or after July 15, 2008, based on such a contract,
and, to the extent that any damages may be applicable as a
result of the termination of such contracts, such damages shall
be payable from the Federal Supplementary Medical Insurance
Trust Fund under section 1395t of this title;
...
Nothing in subclause (I) shall be construed to provide an
independent cause of action or right to administrative or
judicial review with regard to the termination provided under
such subclause.
42 U.S.C. § 1395w-3(a)(1)(D)(i) (2012).
Pursuant to this statutory language, CMS created an administrative claims process
for suppliers whose contracts were terminated. See ECF No. 13 at 12. The rule relating
to the claims process appears as a regulation at 42 C.F.R. § 414.425 (2012). The
regulation outlines details of the process such as the deadline for filing claims, the
required content of the claims, and limitations on recovery on a successful claim. See id.The regulation also states, “[t]he Determining Authority’s determination is final and not
subject to administrative or judicial review.” 42 C.F.R. § 414.425(f)(2)(vi) (2012).
Following the termination of their respective contracts, plaintiffs in the
consolidated cases proceeded along one of two paths. Florida Home Medical Supply,
Discount Diabetic, and DDS Holdings worked through the administrative process, and
the remaining eleven plaintiffs elected not to participate in the administrative process and
filed claims with the court. CMS made a partial payment of Florida Home Medical
Supply’s claim, but denied compensation to Discount Diabetic and DDS Holdings.
See Florida Home Med. Supply, Case No. 14-596, ECF No. 13 (defendant’s motion to
dismiss stating that plaintiff filed a claim and received partial payment thereon), ECF No.
14 (plaintiff’s response acknowledging same); Advacare Home Servs., Case No. 14-590,
ECF No. 14 at 9 (defendant’s motion to dismiss stating that plaintiff did not participate in
the administrative claims process); All-States Med. Supply, Case No. 14-594, ECF No.
13 at 8-9 (defendant’s motion to dismiss stating that plaintiff did not participate in the
administrative claims process), Case No. 14-596, ECF No. 37 at 2 (plaintiff’s
supplemental response filed after consolidation, stating that plaintiff did not participate in
the claims process); Am. Home Health Care, Case No. 14-599, ECF No. 10 at 8-9
4
(defendant’s motion to dismiss stating that plaintiff did not participate in the
administrative claims process), Case No. 14-596, ECF No. 45 at 5 (plaintiff’s
supplemental response filed after consolidation, noting that plaintiff did not participate in
the claims process); Plus Med., Case No. 14-600, ECF No. 15 at 8 (defendant’s motion to
dismiss stating that plaintiff did not participate in the administrative claims
process).Discount Diabetic, Case No. 14-596, ECF No. 39 at 2 (plaintiff’s supplemental
response filed after consolidation, noting that CMS denied plaintiff’s administrative
claim in its entirety); and DDS Holdings, Case No. 14-596, ECF No. 44 at 2 (plaintiff’s
supplemental response filed after consolidation, noting that CMS denied plaintiff’s
administrative claim). 3
II. Legal Standards
Defendant asks the court to dismiss plaintiffs’ claims, nominally on the basis of
both a lack of jurisdiction and failure to state a claim upon which relief may be granted.
See ECF No. 13 at 1. Its substantive analysis of the complaints, however, focuses on this
court’s lack of jurisdiction. Defendant explains:
Our position is this. In enacting MIPPA, Congress terminated the contracts,
directed that any contract termination damages be paid from the Medicare
Trust Fund, and barred any further administrative or judicial review.
Congress must have intended that CMS establish an administrative process
as the exclusive remedy for damages related to the termination of the
Medicare supply contracts, with no independent cause of action or judicial
review in this or any Court.
ECF No. 13 at 9.
Defendant makes no argument with regard to plaintiffs’ alleged failure to state a
claim, under RCFC 12(b)(6). Thus, the court will evaluate defendant’s motion under
RCFC 12(b)(1), as seeking dismissal for lack of subject matter jurisdiction.
3
The court notes that although the complaints did not identify which plaintiffs
participated in the administrative claims process and which did not, there is apparently no
disagreement between the parties as to the fact and/or status of the various claims. As
such, the court has considered the position that each plaintiff is in with regard to such
participation in analyzing whether subject matter jurisdiction exists. See Indium Corp. of
Am. v. Semi-Alloys, Inc., 781 F.2d 879, 884 (Fed. Cir. 1985) (“In deciding a Rule
12(b)(1) motion, the court can consider ... evidentiary matters outside the pleadings.”).
5
Pursuant to the Tucker Act, this court has limited jurisdiction to hear “any claim
against the United States founded . . . upon the Constitution, or any Act of Congress or
any regulation of an executive department, or upon any express or implied contract with
the United States.” 28 U.S.C. § 1491(a) (2012). Plaintiff bears the burden of establishing
this court’s subject matter jurisdiction by a preponderance of the evidence. See Reynolds
v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988). If the court
determines that it lacks subject matter jurisdiction, it must dismiss the complaint. RCFC
12(h)(3).
III. Analysis
Defendant’s position, essentially, is that the CMS administrative claims process is
the exclusive remedy available to plaintiffs, and as such, this court lacks jurisdiction to
consider any part of plaintiffs’ complaints. See ECF No. 13 at 9. This issue is not
entirely novel. In Cardiosom, L.L.C. v. United States, a case that was previously
consolidated for purposes of discovery with the set of cases now before the court, the
Federal Circuit held that the MIPPA “left untrammeled the subject matter jurisdiction of
the Court of Federal Claims to hear and decide breach of contract claims resulting from
these terminations.” Cardiosom, L.L.C. v. United States, 656 F.3d 1322, 1330 (Fed. Cir.
2011).
In reaching this conclusion, the court outlined three plausible interpretations of the
provision that allegedly strips this court of jurisdiction, and explained that, “[a]bsent the
clear and unequivocal language necessary to establish Congressional intention to
withdraw jurisdiction from the Court of Federal Claims, we cannot find that the statute is
effective to withdraw jurisdiction over the contract dispute alleged here. Plaintiff is
entitled under the Tucker Act to its day in court.” Cardiosom, 656 F.3d at 1331.
Notably, the court held that the same logic applies with regard to the court’s jurisdiction
over plaintiff’s takings claims. Id.The Federal Circuit’s opinion in Cardiosom, however, expressly left open two
questions. The first is “whether an aggrieved supplier who obtains only a partial
recovery of damages through the administrative process— i.e., for those elements of
damage recoverable through that process— could thereafter maintain a court suit for
other damage elements, such as loss of profits (assuming the terms of the original
contract do not preclude such additional elements of damage).” Id. at 1329. The second
is “whether there is any obligation on the part of the aggrieved supplier to exhaust its
administrative remedies by first filing its claim under the administrative process before
exercising its right to a suit in the Court of Federal Claims.” Id.6
For purposes of the court’s jurisdictional analysis, the plaintiffs at bar fall into one
of three categories, as noted above. First, Discount Diabetic and DDS Holdings
participated in the CMS administrative process and received no compensation. Second,
Florida Home Medical Supply participated in the CMS administrative process and
obtained partial payments of its claim. And third, the remaining eleven plaintiffs elected
not to participate in the administrative process and filed claims directly with this court.
A. CMS administrative process is not the exclusive remedy
For those plaintiffs that exhausted the CMS administrative process, the court need
only look to the Federal Circuit’s decision in Cardiosom to conclude that it retains
jurisdiction. The Circuit held, in Cardiosom, that MIPPA “left untrammeled the subject
matter jurisdiction of the Court of Federal Claims to hear and decide breach of contract
claims resulting from these terminations.” Cardiosom, 656 F.3d 1331. In explaining the
purpose of MIPPA, the court stated that the statute “clears away the prior administrative
actions in awarding contracts under the old law and leaves the Secretary free to undertake
further administrative contract actions without the hinderance [sic] of the prior
arrangements, but leaves unaffected the rights and remedies created by the Government’s
prior contractual obligations.” Id. (emphasis added).
In coming to this conclusion, the court applied the uncontroversial maxim that
“[f]or a statute to reinstate the government’s sovereign immunity, Congress must
manifest an ‘unambiguous intention to withdraw the Tucker Act remedy.’” Id. at 1329
(quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1019 (1984)) (also citing Slattery
v. United States, 635 F.3d 1298, 1301 (Fed. Cir. 2011)). Because the court was able to
identify three plausible interpretations of the MIPPA provision “[w]ith only a little
effort,” id. at 1327, it held that the provision was ambiguous, and therefore, did not
reinstate the government’s immunity. “The existence of reasonable interpretations that
are consistent with the Tucker Act’s waiver of sovereign immunity compel a finding that
the 2008 Amendment did not manifest the necessary ‘unambiguous intention to withdraw
the Tucker Act remedy.’” Id. at 1330 (quoting Ruckelshaus, 467 U.S. at 1019).
In its motion to dismiss, defendant fundamentally misconstrues the Federal
Circuit’s Cardiosom opinion. Defendant acknowledges that Cardiosom is binding
precedent, see ECF No. 13 at 16, but goes on at length arguing that this court should
apply one of the three alternative interpretations for the MIPPA provision identified in
that decision, see id. at 17-27. The Federal Circuit’s analysis, however, did not identify
the alternative interpretations and invite this court to choose between them. Rather, the
plausible, alternative explanations served as an illustration of the court’s conclusion that
the provision was ambiguous.
7
Plaintiff’s invocation of the Chevron analysis is also misplaced. As this court has
previously explained, “[t]he Supreme Court has concluded that Chevron deference
applies to an agency’s interpretation of its own jurisdiction, making clear, however, that
agency jurisdiction and federal court jurisdiction are distinct concepts.” Cardiosom,
L.L.C. v. United States, 115 Fed. Cl. 761, 769 n.1 (Fed. Cir. 2014) (emphasis in original)
(citing City of Arlington v. F.C.C., 133 S.Ct. 1863, 1868 (2013)). See also B&H Med. v.
United States, 116 Fed. Cl. 671, 680 n.1 (citing City of Arlington, 133 S.Ct. at 1868).
As a result, regardless of how this court resolves the questions left open by the
Federal Circuit in Cardiosom, the court has subject matter jurisdiction over the claims
asserted by Discount Diabetic and DDS Holdings.
B. CMS administrative process resulting in partial payment
The first question identified, but not answered, by the Federal Circuit is:
whether an aggrieved supplier who obtains only a partial recovery of
damages through the administrative process—i.e., for those elements of
damage recoverable through that process—could thereafter maintain a court
suit for other damage elements, such as loss of profits (assuming the terms
of the original contract do not preclude such additional elements of damage).
Cardiosom, 656 F.3d at 1329. Because the cases at bar involves one party, Florida Home
Medical Supply, that received a partial payment through the CMS administrative process,
this question is now properly before the court.
In its motion to dismiss, defendant argues that CMS, in fact, answered this
question by providing the administrative remedy. According to defendant, “it is clear
that in promulgating the regulations establishing the administrative process, CMS
interpreted the statute as reflecting congressional intent to give terminated suppliers only
one forum, the administrative process, for seeking damages from the Medicare Trust
Fund.” ECF No. 13 at 20. This argument is simply a rehash of defendant’s exclusive
remedy argument, which the Federal Circuit has already rejected.
To find that this court is without jurisdiction to hear a claim brought by a plaintiff
that received partial payment through the CMS administrative process, the court would
have to determine that MIPPA “unambiguously” withdrew jurisdiction. See Cardiosom,
656 F.3d at 1325 (citing Slattery, 635 F.3d at 1301 (“[A] claim that is within the subject
matter of the Tucker Act is not excluded from the jurisdiction of the Court of Federal
Claims . . . unless such jurisdiction has been unambiguously withdrawn or withheld by a
statute specifying such exclusion.”).
8
In MIPPA, Congress identified the source from which any damages would be paid
as the Federal Supplementary Medical Insurance Trust Fund. See 42 U.S.C. § 1395w-
3(a)(1)(D)(i)(I) (2012) (“[T]o the extent that any damages may be applicable as a result
of the termination of such contracts, such damages shall be payable from the Federal
Supplementary Medical Insurance Trust Fund under section 1395t of this title.”). It
otherwise said nothing about the administrative process by which CMS would pay
damages. The court finds nothing in MIPPA that could be read unambiguously to
preclude a claim in this court for additional damages.
Defendant further argues that by hearing a breach of contract claim, this court is,
in effect, conducting judicial review of the decisions issued by CMS on plaintiffs’
administrative claims. ECF No. 13 at 20-21. Defendant contends that such review is
precluded by the language of CMS’s damages regulation:
CMS stated that its decision on damages under the administrative process “is
final and binding; it is not subject to administrative or judicial review under
section 1847(a)(1)(D) of the Act, as amended by section 154(a)(1) of the
MIPPA.” 74 F.R. at 61936; 42 C.F.R. § 414.425(f)(2)(vi). If a supplier could
circumvent CMS’s administrative damages determination by bringing a
breach of contract action in this Court, the administrative award would not
be “final and binding” and would be effectively subject to judicial review.
Id.Defendant mischaracterizes the nature of the court’s consideration of plaintiffs’
claims. The court is not conducting judicial review of the CMS administrative decision,
but is agreeing to hear plaintiffs’ breach of contract claims—which are claims that fall
squarely within the court’s Tucker Act jurisdiction. Like any other plaintiff asserting a
breach of contract claim, these plaintiffs first will have the burden of proving liability.
See, e.g., Stockton E. Water Dist. v. United States, 583 F.3d 1344, 1359-60 (Fed. Cir.
2009) (discussing burdens of proof on liability). If they do so, plaintiffs will then have to
prove damages. See, e.g., SUFI Network Servs., Inc. v. United States, 755 F.3d 1305,
1312-13 (Fed. Cir. 2014) (discussing plaintiff’s burden of proof in seeking lost-profits
damages); Roseburg Lumber Co. v. Madigan, 978 F.2d 660, 667 (Fed. Cir. 1992)
(“Absent tangible proof of damages, [a party] may not recover for an alleged injury.”);
DMS Imaging, Inc. v. United States, 123 Fed. Cl. 645, 655-56 (2015) (discussing
plaintiff’s burden of proof in seeking expectation damages). The evidence that plaintiffs
may offer is governed by the relevant rules of this court, and is not limited to the
information previously provided to CMS.
9
The court’s review of an agency decision is conducted differently. Such review is
limited to an administrative record and is conducted under a deferential “arbitrary,
capricious, contrary to law, or unsupported by substantial evidence” standard. See, e.g.,
Sieben v. United States, 108 Fed. Cl. 1, 5 (2012) (reviewing military pay claim under
deferential “arbitrary, capricious, contrary to law, or unsupported by substantial
evidence”); White & Case LLP v. United States, 89 Fed. Cl. 12, 19 (2009) (review claims
brought under moiety statute, 19 U.S.C. § 1619(c) under deferential “arbitrary,
capricious, an abuse of discretion, otherwise not in accordance with law, procedurally
defective, or unsupported by evidence in the record” standard); Winuk v. United States,
77 Fed. Cl. 207, 213 (2007) (reviewing claim brought under the Public Safety Officers’
Death Benefits Act (PSOBA) under deferential arbitrary, capricious, or substantial
evidence standard); Wardlaw Farms, Inc. v. United States, 32 Fed. Cl. 475, 478 (1994)
(reviewing final agency action under “rationality” test, “rather than ‘de novo’ review of a
breach of contract claim”).
That plaintiffs might receive damages from the court exceeding the damages
awarded by CMS does not, in and of itself, transform a breach of contract claim into
judicial review. Thus, the court has subject matter jurisdiction over the claims asserted
by Florida Home Medical Supply.
C. CMS administrative process is permissive, not mandatory
The second question left open by the Federal Circuit in Cardiosom is “whether
there is any obligation on the part of the aggrieved supplier to exhaust its administrative
remedies by first filing its claim under the administrative process before exercising its
right to a suit in the Court of Federal Claims.” Cardiosom, 656 F.3d at 1329. Eleven
plaintiffs in the cases now before the court have not filed claims with CMS. As such, the
court must now resolve this question.
Exhaustion is an affirmative defense. See, e.g., Jones v. Bock, 549 U.S. 199, 212
(2007) (“[T]he usual practice under the Federal Rules [8(a) and 8(c)] is to regard
exhaustion as an affirmative defense.”); 4 Fluker v. Cty. of Kankakee, 741 F.3d 787, 792
(7th Cir. 2013) (identifying failure to exhaust as an affirmative defense). An affirmative
4
“[I]nterpretation of the court’s rules will be guided by case law and the Advisory
Committee Notes that accompany the Federal Rules of Civil Procedure.” RCFC rules
committee’s note to 2002 amendment, at 1. RCFC 8(a) is identical to Fed. R. Civ. P.
8(a), and RCFC 8(c) is identical in all relevant respects here to Fed. R. Civ. P. 8(c).
Therefore, the court relies on cases interpreting Fed. R. Civ. P. 8(a) and 8(c), as well as
those interpreting RCFC 8(a) and 8(c).
10
defense may be asserted in either the responsive pleading or in a motion. See RCFC
8(c)(1) (“In responding to a pleading, a party must affirmatively state any avoidance or
affirmative defense . . . .”).
Defendant has not filed an answer in any of the consolidated cases. Instead, prior
to consolidation, defendant filed motions to dismiss the complaint in each case. In those
motions, defendant noted that the eleven plaintiffs had not exhausted the CMS
administrative remedy. See Advacare Home Servs. et al., Case No. 14-590, ECF No. 14
at 9 (defendant’s motion to dismiss stating that plaintiff had not participated in the
administrative claims process); All-States Med. Supply, Case No. 14-594, ECF No. 13 at
8-9 (same); Am. Home Health Care, Case No. 14-599, ECF No. 10 at 9; Plus Med., Case
No. 14-600, ECF No. 15 at 9 (same).
Defendant did not assert exhaustion as an affirmative defense in any of its motions
to dismiss, but observed that whether exhaustion was required is “unresolved.” Advacare
Home Servs. et al., Case No. 14-590, ECF No. 14 at 9; All-States Med. Supply, Case No.
14-594, ECF No. 13 at 9; Am. Home Health Care, Case No. 14-599, ECF No. 10 at 8-9
(same); Plus Med., Case No. 14-600, ECF No. 15 at 8 (same).
For a number of other affirmative defenses, defendant’s silence would end the
court’s inquiry. The court, however, must press further here to determine whether the
exhaustion requirement is jurisdictional or permissive. As the United States Supreme
Court has explained:
[M]andatory language means a court may not excuse a failure to exhaust . . .
No doubt, judge-made exhaustion doctrines, even if flatly stated at first,
remain amenable to judge-made exceptions. See McKart v. United States,
395 U.S. 185, 193 (1969) (“The doctrine of exhaustion of administrative
remedies . . . is, like most judicial doctrines, subject to numerous
exceptions”). But a statutory exhaustion provision stands on a different
footing. There, Congress sets the rules—and courts have a role in creating
exceptions only if Congress wants them to. For that reason, mandatory
exhaustion statutes . . . establish mandatory exhaustion regimes, foreclosing
judicial discretion. See, e.g., McNeil v. United States, 508 U.S. 106, 111
(1993) (“We are not free to rewrite the statutory text” when Congress has
strictly “bar[red] claimants from bringing suit in federal court until they have
exhausted their administrative remedies”).
Ross v. Blake, 136 S. Ct. 1850, 1856-57 (2016). Shortly before the Supreme Court
issued the Ross decision, this court also noted the two forms of exhaustion, holding that
11
“[s]tatutory exhaustion is jurisdictional, but prudential exhaustion is not.” Fredericks v.
United States, 125 Fed. Cl. 404, 411 (2016) (citing Omni Moving & Storage of Virginia,
Inc. v. United States, 21 Cl. Ct. 224, 230 (1990)). Mandatory exhaustion may be found
in either a statute or an agency regulation. See Palladian Partners, Inc. v. United States,
783 F.3d 1243, 1255 (Fed. Cir. 2015) (“Exhaustion may be required by statute,
regulation, or judicially-created common law.”).
Even if the defendant has not asserted it, the court must consider a jurisdictional
affirmative defense. See SKF USA, Inc. v. U.S. Customs & Border Protection, 556 F.3d
1337, 1348 (Fed. Cir. 2009) (explaining sua sponte consideration of jurisdictional statute
of limitations) (citing John R. Sand & Gravel Co. v. United States, 552 U.S. 130 (2008));
View Eng’g, Inc. v. Robotic Vision Sys., Inc., 115 F.3d 962, 963 (Fed. Cir. 1997)
(“[C]ourts must always look to their jurisdiction, whether the parties raise the issue or
not.”). And, “[i]f the court determines at any time that it lacks subject-matter jurisdiction,
the court must dismiss the action.” RCFC 12(h)(3).
As the Federal Circuit has stated that: “Whether a limitation on claims which may
be brought against the government is jurisdictional—i.e., limits the scope of the
Government’s waiver of sovereign immunity—or is merely an affirmative defense that
may be raised by the Government, depends on the language and context of the statute at
issue.” Blueport Co., LLC v. United States, 533 F.3d 1374, 1379-80 (Fed. Cir. 2008)
(citing John R. Sand & Gravel Co., v. United States, 552 U.S. 130, 134-35 (2008); United
States v. Brockamp, 519 U.S. 347, 352–54 (1997); United States v. Beggerly, 524 U.S.
38, 48–49 (1998)).
A review of previous Federal Circuit rulings assists the court in defining the
boundaries of this context-specific inquiry. In Palladian Partners, the Federal Circuit
reviewed Small Business Administration regulation 13 C.F.R. § 121.1102 and found that
it included a jurisdictional exhaustion requirement. See Palladian Partners, 783 F.3d at
1255. The relevant text of § 121.1102 is as follows:
[North American Industry Classification System (NAICS)] code designation
made by a procuring activity contracting officer may be appealed to [U.S.
Small Business Administration Office of Hearings & Appeals (OHA)]. . . .
The OHA appeal is an administrative remedy that must be exhausted before
judicial review of a NAICS code designation may be sought in a court.
13 C.F.R. § 121.1102 (emphasis added). The Federal Circuit determined that pursuant to
this “mandatory language,” a plaintiff challenging a NAICS code must first exhaust its
administrative remedies prior to filing claim in this court. See Palladian Partners, 783
12
F.3d at 1255.
In contrast, this court found that an exhaustion requirement in the Uniform
Relocation Assistance and Real Property Acquisition Policies Act of 1970 (“Relocation
Act”) was not jurisdictional in Rollock Company v. United States. See 115 Fed. Cl. 317,
331-32 (2014). The court held that both the relevant statute and regulations were written
in permissive terms:
The statute states that the “head of the lead agency is authorized to issue such
regulations and establish such procedures as he may determine to be
necessary.” 42 U.S.C. § 4633(b) (emphasis added). Congress did not even
mandate the existence of an agency appeals process under the Relocation
Act. . . . [T]he relevant regulation, found at 49 C.F.R. § 24.10, does not
provide a comprehensive scheme for appeals. . . . [Instead,] [s]ubsection
24.10(b) states that “[a]ny aggrieved person may file a written appeal.” 49
C.F.R. § 24.10(b) (emphasis added).
Id. Citing the lack of “an expression of explicit intent from Congress and given the
permissive nature of the pertinent regulations,” the court concluded that the exhaustion of
administrative remedies was not necessary before filing a Relocation Act claim in this
court. Id. at 332.
Here, with regard to the MIPPA provision at issue, the court notes that Congress
identified the source from which damages payments would be made, if damages were
appropriate, but otherwise made no express mention of an administrative remedy. See 42
U.S.C. § 1395w-3(a)(1)(D)(i)(I). Pursuant to this statutory authorization, CMS
promulgated a “Claims for damages” regulation, specifically 42 C.F.R. § 414.425, which
provides in pertinent part that:
Any aggrieved supplier . . . that was awarded a contract for the Round 1
Durable Medical Prosthetics, Orthotics, and Supplies Competitive Bidding
Program (DMEPOS CBP) that believes it has been damaged by the
termination of its competitive bid contract, may file a claim under this
section.
42 C.F.R. § 414.425(a)(1) (emphasis added). Further, “[a] completed claim . . . must be
filed within 90 days of January 1, 2010 (the effective date of these damages provisions)
. . . .” 42 C.F.R. § 414.425(b)(1) (emphasis added).
An aggrieved supplier “may” file a claim for damages pursuant to the regulation.
13
But if the supplier chooses to do so, it “must” file its claim by April 1, 2010. That the
permissive term “may”—which applies to the claims filing requirement—is contained
within the same regulation as the mandatory term “must”—which applies to the
deadline—is telling. In addressing such a circumstance,
[t]he Supreme Court has noted that “the word ‘may,’ when used in a statute,
usually implies some degree of discretion.” United States v. Rodgers, 461
U.S. 677, 706 (1983); see also McBryde v. United States, 299 F.3d 1357,
1362 (Fed. Cir. 2002). That common-sense principle is especially applicable
“when the same [provision] uses both ‘may’ and ‘shall,’ [because] the normal
inference is that each is used in its usual sense—the one act being permissive,
the other mandatory.” Anderson v. Yungkau, 329 U.S. 482, 485 (1947).
However, Congress’s use of the two terms “may” and “shall” does not end
the analysis of whether arbitration is mandatory. Instead, the use of the word
“may” to denote discretion “is by no means invariable, . . . and can be
defeated by indications of legislative intent to the contrary or by obvious
inferences from the structure and purpose of the statute.” Rodgers, 461 U.S.
at 706.
Kentucky v. United States, 424 F.3d 1222, 1227 (Fed. Cir. 2005).
Informed by these principles of interpretation, the court finds no express language
requiring a supplier to file an administrative claim. Nor can the court discern any
“obvious inferences” or “legislative intent” that would require a finding of mandatory
exhaustion. Kentucky, 424 F.3d at 1227. Like the statute and regulation in Rollock
Company, the statute here provides no “expression of explicit intent from Congress.”
Rollock Co., 115 Fed. Cl. at 332. Thus, the court finds that the CMS administrative
process is permissive, not mandatory.
It is well-settled that “in Tucker Act suits, a plaintiff is not required to exhaust a
permissive administrative remedy before bringing suit.” Martinez v. United States, 333
F.3d 1295, 1304 (Fed. Cir. 2003). Because plaintiffs were under no requirement to
administratively exhaust their claims prior to filing suit here, the court has jurisdiction to
consider their claims.5
5 The court notes that plaintiffs in Advacare Home Servs., Inc., et al., Case No. 14-
590 argued that, assuming defendant’s interpretation of the relevant statutes and
regulations relating to the CMS administrative claims process is correct, those provisions
are invalid due the deficiencies in the notice given as part of the rule-making process.
See Case No. 14-590, ECF No. 16 at 13-15; see also Case No. 14-596, ECF No. 47 at 5-
14
IV. Conclusion
As the Federal Circuit found in Cardiosom, the court sees no reason to distinguish
between plaintiffs’ breach of contract claims and takings claims for jurisdictional
purposes. See Cardiosom, 656 F.3d at 1331.
For the reasons explained herein, defendant’s motion to dismiss the complaint is
DENIED. See ECF No. 13. Likewise, the motion to dismiss filed in each member case
is DENIED. See Advacare Home Servs., Inc., No. 14-590, ECF No. 14; All-States Med.
Supply, Inc., No. 14-594, ECF No. 13; Am. Home Health Care, Inc., No. 14-599, ECF
No. 10; Plus Med., LLC, No. 14-600, ECF No. 15; Discount Diabetic LLC, No. 14-610,
ECF No. 13; and DDS Holdings, Inc., No. 14-612, ECF No. 9.
The court’s decision on the parties’ pending motions for summary judgment will
be issued in due course. At that time, should further proceedings be required, the court
will consider a schedule to govern the cases going forward.
IT IS SO ORDERED.
s/ Patricia Campbell-Smith
PATRICIA CAMPBELL-SMITH
Judge
6. Because the court disagrees with defendant’s interpretation, it makes no finding on
this point.
15