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Carefirst, Inc. v. Taylor

United States District Court, D. Maryland

January 9, 2017

CAREFIRST, INC., et al.
v.
THE HON. STEPHEN C. TAYLOR, IN HIS OFFICIAL CAPACITY AS THE COMMISSIONER, DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE, SECURITIES AND BANKING, et al.

          MEMORANDUM

          Catherine C. Blake United States District Judge.

         Plaintiffs CareFirst, Inc. (“CareFirst”), CareFirst of Maryland, Inc. (“CareFirst Maryland”), and Group Hospitalization and Medical Services, Inc. (“GHMSI”) (collectively, “plaintiffs”) have brought an action for declaratory and injunctive relief, claiming that certain administrative orders issued by Stephen C. Taylor, Commissioner of the District of Columbia Department of Insurance, Securities and Banking (“Commissioner Taylor” or “Commissioner”), violate and are preempted by federal law. They are suing Commissioner Taylor in his official capacity. Plaintiffs also have named as defendants the Insurance Commissioner of the Maryland Insurance Administration, Alfred W. Redmer, Jr. (“Maryland Commissioner”), in his official capacity, and the Chair of the Virginia State Corporation Commission, James C. Dimitri (“Virginia Chair”), in his official capacity. Now pending are the Commissioner's motion to transfer venue (ECF No. 20), the Commissioner's motion to substitute party (ECF No. 19), the Commissioner's motion to dismiss Count I of the complaint (ECF No. 37), [1] and the plaintiffs' motion for summary judgment as to Count I of the complaint (ECF No. 2). The motions have been fully briefed, and the court heard oral argument on November 10, 2016. (Mot. Hearing, ECF No. 50.) For the reasons discussed below, all four motions will be denied.

         BACKGROUND

         GHMSI is a congressionally chartered corporation that operates as a non-profit health services plan in Maryland, Northern Virginia, and the District of Columbia.[2] (Mot. Summary Judgment, Burrell Aff. ¶ 5, ECF No. 2-2; see Mot. Summary Judgment, Gunderson Aff. ¶ 4, Ex. A, ECF No. 2-4.) It is domiciled in the District of Columbia. (Mot. Summary Judgment, Burrell Aff. ¶ 10, ECF No. 2-2.) GHMSI holds a certificate of authority to operate in Maryland, where more than 42% of its members and subscribers reside. (Id. ¶ 7-8.)

         Congress chartered GHMSI in 1939. Pub. L. 76-395, 53 Stat. 1412, 1412 (1939). The charter provided that “[t]he corporation is . . . authorized and empowered to take over, carry out, and assume all contracts, obligations, assets, and liabilities of a corporation . . . organized and now doing business in the District of Columbia under the name of Group Hospitalization, Inc.” Pub. L. 76-395 § 9, 53 Stat. 1414. In 1993, Congress amended the charter to provide that “the District of Columbia shall be the legal domicile of the corporation” and that “[t]he corporation shall be licensed and regulated by the District of Columbia in accordance with the laws and regulations of the District of Columbia.” Pub. L. 103-127 § 138, 107 Stat. 1336, 1349 (1993). In 1997, Congress again amended the charter, authorizing GHMSI to have a non-profit corporate member. Pub. L. 105-149, 111 Stat. 2684 (1997).

         In order to fulfill its obligations to policyholders, subscribers, and members, GHMSI maintains an accumulated surplus. (Mot. Summary Judgment, Burrell Aff. ¶ 12-14, ECF No. 2-2.) In 2009, the Medical Insurance Empowerment Amendment Act of 2008 (“MIEAA”) went into effect. D.C. Code §§ 31-3501 et seq. The MIEAA provides that, no less frequently than every three years, the Commissioner shall “review the portion of the surplus of [GHMSI] that is attributable to the District and may issue a determination as to whether the surplus is excessive.” § 31-3506(e). If the Commissioner determines that the surplus is excessive, “the Commissioner shall order [GHMSI] to submit a plan for dedication of the excess to community health reinvestment in a fair and equitable manner.” § 31-3506(g)(1). After the District of Columbia enacted the MIEAA, Maryland and Virginia passed laws that authorized the Maryland Commissioner and Virginia Chair to take certain actions, including imposing a prohibition on the health service plan's distribution or reduction of its surplus for the benefit of residents in another state. See Md. Code, Ins. Art. § 14-124; Va. Code § 38.2-4229.2. In 2012, the Maryland Commissioner reviewed GHMSI's 2011 surplus and entered a Consent Order concluding that the surplus was “adequate and . . . neither excessive nor unreasonably large.” (Mot. Summary Judgment, Gunderson Aff. ¶ 4, Ex. E, ECF No. 2-8.)

         In December 2014, the Commissioner's predecessor issued an order concluding that GHMSI's surplus was excessive and that 21% of the calculated excess (approximately $56 million) was attributable to the District of Columbia. (Id., Ex. B at 56, 64-65, ECF No. 2-5.) In February 2015, the Maryland Commissioner entered an order providing that “GHMSI is prohibited from reducing or distributing its surplus as a result of the [Department of Insurance, Securities and Banking (“DISB”)] order and is prohibited from submitting a plan to the D.C. Commissioner for dedication of its excess of 2011 surplus attributable to D.C. until submitted, reviewed and approved by the [Maryland Insurance Administration].” (Id., Ex. F at 3, ECF No. 2-9.) The Virginia Chair issued an order providing:

Virginia law prohibits GHMSI from distributing or reducing its surplus (as ordered by DISB) “except with the approval of the [Virginia State Corporation] Commission after the examination required by this section.” In this regard and at this moment, GHMSI has not sought-and the Commission has not provided-such approval. Accordingly, GHMSI should not act to distribute or reduce its surplus unless approved as provided under Virginia law.

(Id., Ex. I at 3-4, ECF No. 2-12.) GHMSI submitted a plan in response to the order of the Commissioner's predecessor in March 2015. (Id., Ex. J, ECF No. 2-13.) The plan asserted, in part, that GHMSI “remains under directly conflicting orders from Maryland and the District [of Columbia]” and urged that “the three jurisdictions . . . consult, cooperate and coordinate on the matter of the Company's surplus in a consistent way.” (Id. at 7.)

         In December 2015, Congress amended GHMSI's charter as follows:

SEC. 747. (a) The Act entitled “An Act providing for the incorporation of certain persons as Group Hospitalization and Medical Services, Inc.”, approved August 11, 1939 (53 Stat. 1412) is amended . . . by inserting after section 10 the following:
“SEC. 11. The surplus of the corporation is for the benefit and protection of all its certificate holders and shall be available for the satisfaction of all obligations of the corporation regardless of the jurisdiction in which such surplus originated or such obligations arise. The corporation shall not divide, attribute, distribute, or reduce its surplus pursuant to any statute, regulation, or order of any jurisdiction without the express agreement of the District of Columbia, Maryland, and Virginia-(1) that the entire surplus of the corporation is excessive; and (2) to any plan for reduction or distribution of surplus.”
(b) The amendments made by subsection (a) shall apply with respect to the surplus of the Group Hospitalization and Medical Services, Inc. for any year after 2011.

Pub. L. 114-113 § 747, 129 Stat. 2242, 2486 (2015).

         In June 2016, Commissioner Taylor issued a decision and order rejecting GHMSI's plan and reaffirming the planned dedication of surplus. (Mot. Summary Judgment, Gunderson Aff. ¶ 4, Ex. C at 18-20, ECF No. 2-6.) The decision established a procedure for public comment. (Id., Ex. C at 19-20, ECF No. 2-6.) In July 2016, the Maryland Commissioner submitted a statement noting that “the proposed distribution . . . will cause a direct conflict with the [Maryland] Consent Order” and that, “to date, no coordination has taken place between the District and the other jurisdictions.” (Id., Ex. K at 3, ECF No. 2-14.) Plaintiffs filed suit in this court on July 22, 2016. (See Compl., ECF No. 1.)

         The Commissioner issued his final order regarding GHMSI's proposed distribution on August 30, 2016. (Opp. to Mot. Summary Judgment, Ex. A, ECF No. 47-2.) On September 22, 2016, GHMSI filed a petition for reconsideration and motion to stay further proceedings in the administrative action. (Id., Ex. D., ECF No. 47-5.) Separately, both GHMSI and the D.C. Appleseed Center for Law and Justice, Inc. filed petitions for review with the District of Columbia Court of Appeals, naming DISB (but not its Maryland or Virginia counterpart) as defendant. (Id., Exs. C and E, ECF Nos. 47-4 and 47-6.) On December 8, 2016, the Commissioner issued a stay of “GHMSI's obligation to pay rebates to Eligible Subscribers” until February 27, 2017. (Ex. to Letter of Dec. 8, 2016, ECF No. 51-1.)

         ANALYSIS

         I. Venue

         As an initial matter, the Commissioner requests that the court transfer this case to the United States District Court for the District of Columbia pursuant to 28 U.S.C. § 1406 or, in the alternative, 28 U.S.C. § 1404. He contends that venue is improper here, requiring transfer under § 1406(a), because “no substantial part of the events or omissions giving rise to plaintiffs' claims occurred in the District of Maryland, ” (Mot. Transfer Venue, ECF No. 20, at 1), and no substantial part of the property that is the subject of the action is situated in Maryland, (Reply Mot. Transfer Venue, ECF No. 27, at 4). See 28 U.S.C. § 1391(b)(2). Alternatively, if venue is proper in this district, the Commissioner requests that the court exercise its discretion to transfer the case pursuant to § 1404, arguing that the District of Columbia is a more convenient venue for the parties and witnesses and that transfer is in the interest of justice. For the reasons discussed below, venue is proper in this district, and the motion to transfer venue will be denied.

         A. Improper Venue Under § 1406

         Section 1406(a) provides that “[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Plaintiffs' stated basis for venue is 28 U.S.C. § 1391(b)(2), which provides that a civil case may be brought in “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated.” (Compl., ECF No. 1, ¶ 17 (citing 28 U.S.C. § 1391); Opp. to Mot. Transfer Venue, ECF No. 26, at 2 (citing 28 U.S.C. § 1391(b)(2)).) Plaintiffs' primary argument is that a substantial part of the events and omissions giving rise to the claim occurred in Maryland. Plaintiffs also rely on the second clause of § 1391(b)(2), arguing that GHMSI's surplus constitutes “property that is the subject of the action” and that a substantial part “is situated” in Maryland. (Opp. to Mot. Transfer Venue, ECF No. 26, at 14.)

         When a defendant challenges venue under § 1391 and the court does not hold an evidentiary hearing, the plaintiff need only make a prima facie showing that venue is proper. Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004). Because “it is possible for venue to be proper in more than one judicial district, ” the question is not whether a given district is the best venue, but whether the events or omissions that occurred there are “sufficiently substantial.” See Id. The Fourth Circuit has instructed courts to look to “the entire sequence of events underlying the claim, ” rather than just those that are “in dispute” or that “directly led to the filing of the action.” Id.

         Looking to the entire sequence of events underlying the claim, venue is proper in this district. Plaintiffs' complaint identifies key events and omissions that occurred in the district of Maryland, among them the Maryland Commissioner's issuance of an order prohibiting GHMSI from reducing or distributing its surplus and the Maryland Commissioner's failure to consent to the proposed reduction and distribution. (See, e.g., Compl. ¶ 3, 6, 7, 12, 13, 17, 29, 35-38, 44, 46, 48, 50.) These events and omissions form a substantial part of the basis for Count I. (See Id. ¶ 57 (alleging that the Commissioner's action is unlawful and violates the Supremacy Clause because “Maryland and Virginia have not agreed to the Commissioner's compelled reduction and distribution”).) Because venue is proper on the basis of substantial events or omissions, the court need not consider whether a “substantial part of property that is the subject of the action is situated” in this district. See 28 U.S.C. § 1391(b)(2).

         The Commissioner cites to pre-Mitrano case law for the proposition that “[e]vents that relate only tangentially to the claim cannot constitute a substantial part of the events or omissions giving rise to the claim.” (Mem. Mot. Transfer Venue, ECF No. 20-1, at 6 (quoting MTGLQ Inv'rs, L.P. v. Guire, 286 F.Supp.2d 561, 564 (D. Md. 2003)).) He fails to acknowledge, however, that the Mitrano Court effectively narrowed the category of “tangential” events and omissions-and expanded the category of “substantial” ones-by clarifying that “a court should not focus only on those matters that . . . directly led to the filing of the action.” See Mitrano, 377 F.3d at 405. In an effort to minimize the Maryland Commissioner's involvement, the Commissioner frames the controversy as a bilateral dispute between GHMSI and its regulator in the District of Columbia. (See Mem. Mot. Transfer Venue, ECF No. 20-1, at 5-6.) This argument is not persuasive, as GHMSI's amended charter clearly contemplates a role for all three jurisdictions. See Pub. L. No. 114-113, 129 Stat. 2242, 2486 (2015). The Commissioner further weakens his position by asserting contradictory arguments, at some points insisting that plaintiffs have not identified any event or omission that occurred in Maryland, and at others contending that the events or omissions they have identified are tangential in nature or indirectly related to the claim. (See, e.g., Mem. Mot. Transfer Venue, ECF No. 20-1, at 5 (“In this case, not a single ‘event or omission' occurred in the District of Maryland.”); id. at 6 (“plaintiffs . . . cannot point to an actual event, act, or omission that occurred in Maryland, because none has in fact taken place”); id. at 6 (“the only event referenced by plaintiffs that occurred in Maryland at all was the decision by the Maryland Insurance Administration to write to DISB regarding its regulatory actions”).) In any case, these descriptions do not accurately characterize the complaint.

         Because plaintiffs have established a prima facie case that a substantial part of the events or omissions giving rise to the claim occurred in this district, see 28 U.S.C. § 1391(a)(2), the Commissioner's motion to transfer venue pursuant to § 1406 will be denied.

         B. Transfer Under § 1404

         In the alternative, if venue is proper in this district, the Commissioner requests transfer to the U.S. District Court for the District of Columbia under 28 U.S.C. § 1404. Section 1404(a) provides: “For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a). “[T]he burden is on the moving party to show that transfer to another forum is proper.” Lynch v. Vanderhoef Builders, 237 F.Supp.2d 615, 617 (D. Md. 2002).

         In deciding whether to transfer venue under § 1404(a), courts in this circuit consider the following factors: “(1) the weight accorded to plaintiff's choice of venue; (2) witness convenience and access; (3) convenience of the parties; and (4) the interest of justice.” Trustees of the Plumbers and Pipefitters Nat'l Pension Fund v. Plumbing Servs., Inc., 791 F.3d 436, 444 (4th Cir. 2015). Unless the balance of factors “is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed.” Collins v. Straight, Inc., 748 F.2d 916, 921 (4th Cir. 1984) (quoting Gulf Oil v. Gilbert, 330 U.S. 501, 508 (1946)). The decision whether to transfer venue under ยง 1404(a) is committed to the ...


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