Keeping Tabs on the Ninth Circuit
October 22, 2020 - This Week at the Ninth

This Week at The Ninth: FCRA Dicta and Medicare Channeling

This Week at The Ninth: FCRA Dicta and Medicare Channeling

This week, we examine two decisions confronting novel procedural issues. In the first, the Ninth Circuit sought to promote development of the law by encouraging courts to alter how they address claims under the Fair Credit Reporting Act (FCRA). In the second, the Court examined whether and how a medical device supplier might ever seek to challenge a determination that its device was not eligible for reimbursement under the Medicare statute.

The Court holds that in FCRA suits, courts should often decide whether a defendant has actually violated the statute, even if the case could be resolved be determining that no such violation was willful.

Panel: Judges Paez, Bea, and Adelman (E.D. Wisc.), with Judge Adelman writing the majority opinion and Judge Bea concurring.

Key highlight: “[T]o prevent the law in this area from stagnating, courts should be reluctant to skip to the negligence or willfulness issue without answering the threshold question of whether the defendant violated the FCRA.”

Background: Plaintiffs, who owned homes subject to mortgages serviced by Ocwen Loan Servicing, filed for bankruptcy. Their personal liabilities for mortgage debt were discharged, but plaintiffs retained title, and the liens on their homes remained. When Ocwen obtained plaintiffs’ credit reports, plaintiffs filed suit. Plaintiffs alleged Ocwen willfully violated the FCRA because it had no legitimate reasons to obtain their credit reports, thus entitling plaintiffs to statutory and punitive damages.  Ocwen moved for summary judgment on the ground that the FCRA allows obtaining credit reports “in connection with a credit transaction involving the consumer on whom the report is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” 15 U.S.C. § 1681b(a)(3)(A). The district court concluded that Ocwen could not have willfully violated the FCRA because the statute could be fairly read to allow the challenged conduct.

Result: The Ninth Circuit affirmed. To begin with, the Court explained, “a consumer may succeed on a claim under the FCRA only if he or she shows that the defendant’s violation was negligent or willful.” But that standard creates problems, the Court said, because it often means that courts will address whether a particular interpretation of the FCRA is negligent or reckless without ever determining whether such an interpretation is actually correct. Comparing this area of law to qualified immunity, the Court “encourage[d] courts in this circuit to determine whether the defendant committed a violation of the FCRA before turning to questions of negligence and willfulness.” Answering that question first, the Court said, would “prevent the law in this area from stagnating.”

The Court then practiced what it preached: it determined that Ocwen did not violate the FCRA because it had permissible reasons to obtain the plaintiffs’ credit reports. Specifically, the Court reasoned, Ocwen was not prohibited from looking into whether the plaintiffs wished to explore alternatives to foreclosure. It did not matter that plaintiffs never expressed interest in those alternatives because nothing in the FCRA “suggests that a consumer must request an alternative to foreclosure before the creditor may review the consumer’s account to determine whether he or she is eligible.” Nor did it matter that plaintiffs had already vacated their properties because “Ocwen could have reasonably thought that even a debtor that moved out of his or her home might be interested in returning if Ocwen made a sufficiently attractive offer.” For all those reasons, the Court concluded “a reasonable finder of fact could not conclude that Ocwen lacked a permissible purpose for obtaining the plaintiff’s credit reports.” While the absence of a statutory violation mooted the issue whether Ocwen’s reading of the statute was negligent or reckless, “for the sake of completeness,” the Court also noted its agreement with the district court that no violation here could have been willful.

Judge Bea concurred. He agreed that summary judgment was appropriate, but only because plaintiffs “did not adduce evidence sufficient to raise a triable issue of fact as to the material issue—whether Ocwen recklessly or willfully violated the FCRA.” Judge Bea would not have reached the issue whether Ocwen’s conduct constituted a violation of the FCRA because the issue wasn’t presented. The majority’s two-step approach was mistaken, Judge Bea reasoned, because it did not really “develop[] precedent on how to accomplish statutory interpretation.” And “ decid[ing] an unrelated issue or a hypothetical case not presently before the court” was “particularly inadvisable” in light of the Ninth Circuit’s rule that “dicta in panel opinions may become the binding law of the circuit.” As Judge Bea put it, “Reticence to expatiate in dicta is always advisable.”

The Court holds that a medical device supplier cannot challenge the determination that its device is not eligible for reimbursement under Medicare, but instead must seek a Medicare beneficiary to serve as its proxy in pressing that claim. 

Panel: Judges Schroeder, Collins, and Baylson (E.D.Pa.), with Judge Baylson writing the opinion.

Key highlight: “Ultimately, because medical device suppliers seeking NCDs can be expected to recruit proxies to exhaust the administrative channel provided in 42 U.S.C. § 1395ff(f), they can effectively obtain judicial review. Because medical device suppliers can effectively obtain judicial review, the Michigan Academy exception does not apply in this suit. And because the Michigan Academy exception does not apply, the district court correctly dismissed this lawsuit for lack of subject matter jurisdiction.”

Background: Sensory Neurostimulation sells a leg massager intended to treat Restless Leg Syndrome. It asked the Centers for Medicare and Medicaid Services (CMS) to classify the device as “durable medical equipment,” which would make it eligible for Medicare reimbursement. CMS twice declined these requests in informal determinations, finding instead that the device was an ineligible “personal comfort item.” Sensory sued the agency, and the district court dismissed for lack of jurisdiction.

Result: The Ninth Circuit affirmed. First, the Court concluded that the Medicare statute’s “channeling requirement” applied to Sensory’s suit. Under § 405(h), no general federal question jurisdiction is available for lawsuits “arising under” the Medicare statute. And, as the Ninth Circuit explained, the Supreme Court has interpreted this provision broadly to encompass a variety of claims related to Medicare benefits determinations. Applying this precedent, the Ninth Circuit rejected Sensory’s argument that this provision was inapplicable because Sensory was not a Medicare beneficiary, but rather a third-party supplier whose devices might be used by Medicare beneficiaries. As the Court noted, “allowing providers or device suppliers to sue where beneficiaries cannot could enable beneficiaries to bypass § 405(h)’s administrative channeling requirement by having third-party providers or suppliers bring declaratory judgment actions in federal court before the beneficiaries undergo the medical procedure or obtain the device in question.”

Next, the panel rejected Sensory’s argument that its suit was nonetheless authorized under § 405(g), which provides for judicial review of “final decision[s]” of the Secretary of Health and Human Services. To meet this requirement, Sensory would have to exhaust its administrative remedies, which it had not done. Although the exhaustion requirement may be waived, the Court declined to do so. As it explained, waiver is warranted only if, among other things, seeking administrative review would be futile. But Sensory had two available mechanisms by which it might challenge CMS’s initial determinations (both of which involved recruiting third parties who might use the Sensory device to pursue claims with CMS). These further proceedings would both “serve the policy of allowing the agency to correct its own errors through administrative review” and might “result in an administrative record that could assist in any subsequent judicial review.” 

Finally, the Court refused to apply the so-called “Michigan Academy” exception to § 405(h)’s channeling requirement, which allows for judicial review in cases where there would otherwise be “no review at all” of a claim. The Ninth Circuit joined both the Fifth and D.C. Circuits, which have held that this exception is unavailable “where another party is able to pursue the same claim through an appropriate administrative channel and is incentivized to do so.” The Court recognized that “[t]he difficulty for Sensory (and similarly situated suppliers) is that it is not an ‘aggrieved party’ within the meaning of the statute,” and thus has no available administrative channel to press its own claim. But because it could “indirectly avail itself” of such a channel by finding an “agreeable proxy” who might want reimbursement for his or her use of Sensory’s device, Sensory could not invoke Michigan Academy’s “no review at all” exception.