UNITED STATES DISTRICT COURT
FoR THE DISTRICT oF CoLUMBIA F I L E D
D.C. HEALTHCARE sYsTEMS, INC., er al., ) SEP _7 2017
) Clerk. U.S. Dlstr|ct & Bankruptcy
Plaintiffs’ ) Courts for the D|str|ct of Columbla
)
v. ) Civil Case No. 16-1644 (RJL)
)
DISTRICT oF COLUMBIA, er al., )
)
Defendants. )
1~¢..,
MEMoRANDUM oPINIoN
(September L, 2017) [Dkts. ##53, 54, 55, 56, 57]
F or over a decade, D.C. Chartered Health Plan, Inc. (“Chartered”), contracted With
the District of Columbia to provide healthcare services to low-income residents of the
District. Then, in 2012, the District became concerned about the financial health of
Chartered and obtained a court order from the Superior Court of the District of Columbia
placing the company into rehabilitation During the rehabilitation proceedings that
followed, the Superior Court entered orders approving an asset purchase agreement and
reorganization plan for Chartered, and approving a settlement agreement between
Chartered and the District of Columbia resolving claims that the District underpaid
Chartered for certain services. Now, D.C. Healthcare Systems, Inc. (“DCHSI”), the sole
shareholder in Chartered and an active participant in the Superior Court proceedings, brings
this suit to recover compensatory and punitive damages resulting from the reorganization
of Chartered and the settlement of its claims against the District. Before the Court are five
motions to dismiss. Upon consideration of the pleadings, relevant laW, and the entire
record herein, the Court concludes that it is barred from reviewing the claims asserted by
DCHSI. See generally Rooker v. Fl`a'ell`l‘y Trusl Co., 263 U.S. 413 (1923); D.C. Court of
Appeals v. Feldmcm, 460 U.S. 462 (1983). Accordingly, the Court will GRANT the
motions and DISMISS this action for lack of subject-matter jurisdiction.
BACKGROUND1
The District of Columbia provides healthcare coverage for low-income adults,
uninsured children, and disabled residents through privately-owned managed care
organizations (“MCOS”) operating under government contracts. Am. Compl. il l [Dkt.
#41]. Chartered, a District of Columbia corporation, is one such MCO. From 1987 to
2013, Chartered contracted with the D.C. Department of Health Care Finance (“DHCF”)
to provide services to approximately l l(),OOO District residents enrolled in Medicaid or the
D.C. Healthcare Alliance Program, a locally-funded program covering certain individuals
who are not eligible for Medicaid. Am. Compl. W 13, 32-33. Pursuant to this
arrangement, DHCF set the reimbursement rates at which it would pay Chartered. These
rates, known as “capitation rates,” are per-member per-month rates which, by law, must be
set at “actuarially sound” levels designed to cover the cost of contracted services and permit
the MCO to generate a protit. Am. Compl. M 2, 29135.
ln 201(), Congress enacted the Patient Protection and Affordable Care Act, Pub.
Law No. lll-l48, 124 Stat. 119. Among other things, the Act changed the federal
eligibility standards for Medicaid in a manner that enticed the District to transfer
l At the motion to dismiss stage, the Court must accept as true all of the allegations contained in the
complaint. See Ashcl”ofl v. Iqbal, 556 U.S. 662, 678 (2009).
2
approximately 23,()0() residents from the locally-funded Alliance program to the federally-
subsidized Medicaid program. Am. Compl. 1 36. This transfer caused Chartered’s costs
to skyrocket because individuals enrolled in Medicaid are entitled to certain prescription
drug and other benefits that were not covered by the Alliance program. Am. Compl. M 36,
42. On more than one occasion, Chartered notified DHCF and the District’s actuary,
Mercer Government Human Services Consulting (“l\/lercer”),2 that the transfer would havc
a severe adverse financial impact on Chartered if the capitation rates were not adjusted to
accommodate the company’s increased costs. Am. Compl. W 37-4(). These pleas,
apparently, fell on deaf ears. DHCF did not raise the rates, and, by February 2011,
Chartered was “experiencing heavy losses.” Am. Compl. il 38. Although Chartered
continued to seek a rate increase from DHCF, none was granted, and “Chartered’s financial
condition predictably and precipitously deteriorated.” Am. Compl. 1[ 44.
In April 2012, then-Commissioner of the D.C. Department of Insurance, Securities
and Banking (“DISB”), William White, wrote to Chartered’s president to inform him that
Chartered’s financial statement for the previous year had shown a level of “risk-based
capital” that was “significantly below” the threshold required by D.C. law. Am. Compl.
il47. Shortly thereafter, Commissioner White retained consultant Daniel Watkins to
conduct a financial review of Chartered. Am. Compl. Wl 15, 5(), 55. In October 2012,
White and Watkins began working with Wayne Turnage, Director of DHCF, to obtain
consent from Chartered’s board of directors to place Chartered into rehabilitation Am.
2 l\/lercer Government Human Services Consulting is the trade name for Mercer LLC, a Delaware
limited liability company. Am. Compl. 11 18.
Compl. W l6, 62. As part of that negotiation process, Watkins represented to Jeffrey
Thompson, DCHSI’s owner, that if Watkins were appointed rehabilitator, he would consult
with DCHSI in the reorganization of Chartered, cause Chartered to bid on new Medicaid
and Alliance contracts, refrain from suing DCHSI and Thompson, and seek approval of the
extension of Chartered’s Medicaid contract. Am. Compl. W 62-63. Following these
representations, Thompson gave his consent to rehabilitation Am. Compl. jljl 64-65.
On October l9, 2012, Commissioner White filed an emergency consent petition in
the Superior Court of the District of Columbia, seeking to place Chartered into
rehabilitation pursuant to D.C. Code §§ 3l-l303, 31-1310, 3l-l3l l, 3 l-l312, and 31-342().
A Superior Court judge issued an Emergency Consent Order of Rehabilitation later that
same day. See Defs.’ Mot. Dismiss First Am. Compl. (“Defs.’ Mot.”) [Dkt. #54], Ex. F
(“Rehabilitation Order”) [Dkt. #54-8]. The Rehabilitation Order appointed Commissioner
White as Rehabilitator, authorized White to appoint deputies, and vested him “with all
appropriate and necessary powers” under D.C. law, including “[a]ll powers of the directors,
officers and managers of Chartered,” “[a]uthority to take possession and control of
Chartered’s assets and administer them under the general supervision of the Court,” and
“[a]uthority to take such action as deemed necessary or appropriate to reform and revitalize
Chartered.” Rehabilitation Order 1~2. The Order directed the Rehabilitator to “seek Court
approval of any compromise or settlement of Chartered’s claim . . . regarding capitation
rates” and to “submit a plan of rehabilitation of Chartered for Court approval, if one is
feasible.” Rehabilitation Order 2-3. The Order also specified that the Superior Court
retained jurisdiction during Chartered’s rehabilitation Rehabilitation Order 3.
4
Following entry of the Rehabilitation Order, Commissioner White appointed
Watkins as Special Deputy to the Rehabilitator (“SDR”). On February 22, 2013, SDR
Watkins submitted f`or Superior Court approval a proposed rehabilitation plan and a
proposed asset purchase agreement between Chartered and another D.C.-based MCO,
AmeriHealth Caritas District of Columbia, Inc.3 Defs.’ Mot., Ex. H (SDR’s Second Status
R. and Pet.) [Dkt. #54-10]. DCHSI appeared as a “party in interest” to opposc thc plan and
agreement. Defs.’ l\/lot., Ex. I (DCHSI’s Mot. Opp’n) [Dkt. #54-11]; Am. Compl. jj 82.
DCHSI argued that the plan and agreement would cause it to “suffer irreparable harm
because the proposed transaction effectively liquidates Chartered, which is DCHSI’s sole
source of revenue.” Defs.’ Mot., Ex. H, at l. Nevertheless, on March l, 2013, following
a hearing, Superior Court Judge Melvin R. Wright issued an Order Approving the Asset
Purchase Agreement, Plan of Reorganization and Related Matters. Defs.’ Mot., Ex. K
(“Reorganization Order”) [Dkt. #54-13]. The court found that “the Agreement and Plan of
Reorganization are necessary and appropriate and fair and equitable to all parties
concerned.” Reorganization Order 2. lt rejected due process and statutory authority
objections raised by DCHSI, stating that the Rehabilitation Order “gave the rehabilitator
the right, based upon the statute, to marshal the assets and to seek rehabilitation.” Defs.’
Mot., Ex. J (Tr. oer’g before J. Wright (Mar. 1,2()13), at 35:24~36:06) [Dkt. #54-12]. In
3 AmeriHealth Caritas District of Columbia, Inc., is a wholly-owned subsidiary of AmeriHealth
Caritas Health Plan, a Pennsylvania partnership. Am. Compl. 111 19-20. Plaintiff refers to these entities
collectively as “AmeriHealth,” and the Court will adopt that convention here. A separate entity, known as
AmeriHealth Caritas Health Partnership or AmeriHealth Caritas Partnership, was voluntarily dismissed in
December ZOl 6. See Mem. Op. & Order [Dkt. #68].
5
addition, Judge Wright informed DCHSI that it “certainly ha[s] the right to note an appeal
now . . . because this would be a final order.” Ia’. at 36:20-22.
Five days after the Superior Court entered the Reorganization Order, DCHSI filed
a motion for reconsideration or stay pending appeal. Defs.’ Mot., Ex. L (Party-in-Interest
DCHSI Mot. Stay Pending Appeal & Injunctive Relief) [Dkt. #54-14]. The company
argued, among other things, that it was likely to succeed on the merits of its appeal because
the Rehabilitator had “exceeded the limits of his authority” by “effect[ing] a
‘transformation’ of Chartered” outside the scope envisioned by the D.C. Code and the
Rehabilitation Order. Id. at 23. The Superior Court denied the motion lt concluded that
DCHSI was unlikely to succeed on the merits because the Rehabilitator had complied with
the requirements of the D.C. Code and the Rehabilitation Order. See Defs.’ Mot., Ex. O
(Order), at 2-4 [Dkt. #54-17]. The court also found that DCHSI had not shown irreparable
harm stemming from the Reorganization Order because “Chartered was set to lose its
[existing] Medicaid contract” and “was unqualified to receive a new contract under the
term[s] of the Medicaid RFP issued in late 2012.” Ia’. at 4.
Meanwhile, the District and Chartered entered into a settlement agreement in which
the District agreed to pay Chartered $48 million to settle $62.5 million in claims brought
by the Rehabilitator on behalf of Chartered for the payment of unsound capitation rates.
Am. Compl. W 86~87, 9l. As required by the Rehabilitation Order, the Rehabilitator
sought Superior Court approval of the proposed settlement. The Rehabilitator and SDR
described the proposed settlement as the product of arms-length negotiations by
experienced counsel, arguing that the settlement would benefit Chartered by resulting in
6
payment to the company without further litigation or uncertainty. Defs.’ Mot., Ex. Q
(Rehabilitators’ Mem. P. & A. Supp. Mot. for Order Approving Settlement Agreement)
[Dkt. #54-19]. DCHSI opposed the settlement on the ground that it was “unreasonable and
contrary to Chartered’s best interests” because it undervalued Chartered’s claims and
because litigation ofthose claims was likely to be successful. Defs.’ Mot., Ex. B (DCHSI’s
Mem. Opp’n to Mot. Approve Settlement Agreement), at 2, 15 [Dkt. #54-4]; see also Defs.’
Mot., Ex. T (Suppl. to DCHSI’s Mem. Opp’n to Mot. Approve Settlement Agreement)
[Dkt. #54-22].
On August 21, 2013, Judge Wright held a hearing on the proposed settlement
agreement. In regard to DCHSI’s objections, Judge Wright stated:
The objections by [DCHSI] who is not a party ha[ve] been considered by the
court and the court will rule that they are not a party to this case and really
didn’t have the right to be permitted to do what they have done. The court
has permitted them to do that. Because had they filed a motion to intervene,
the court probably would have grant[ed] it, but it did serve a purpose to have
the court examine the record. 1 just do not agree with [DCHSI’s] calculations
[regarding the value of Chartered’s claims].
Defs.’ Mot., Ex. U (Tr. oer’g before J. Wright (Aug. 21, 2013), at 10:20-11:3) [Dkt. #54-
23]. Judge Wright went on to acknowledge that DCHSI had a right to appeal, but stated
that any appeal “may be moot” because “had you been a party, 1 would have overruled
your objection anyway. . . . I’ve considered all the things that you would have raised had
you been granted standing.” Ia'. at 21:9-17; see also ia’. at 22:518 (“[H]ad standing been
granted, the court would have approved the settlement anyway over your objection.”).4
4 l\/lultiple parties filed transcripts of this hearing. lnterestingly, DCHSI filed a truncated version
omitting the clarifications “for the appellate record.” Tr. oer’g before J. Wright (Aug. 21, 2013), at 15:16;
cf. Pl.’s Consolidated Opp’n Defs.’ Mots. Dismiss [Dl