Creating a circuit split, the Eleventh Circuit held that bankruptcy courts lack jurisdiction under 11 U.S.C. Section 1334 to compel the federal government to continue Medicare and Medicaid funding.
In practical effect, the appeals court’s decision on July 11 enables the government singlehandedly to shut down a health care facility that attempts to reorganize in chapter 11. The Ninth Circuit reached the opposite conclusion in 1991, and the lower courts are split.
The Bankruptcy Court Overrules Medicare/Medicaid
After an inspection, the Department of Health and Human Services notified a nursing home that it was terminating its Medicare and Medicaid provider agreement because conditions in the facility were endangering patient health. When a district judge ruled there was no jurisdiction to enjoin termination of the agreement, the facility immediately filed a chapter 11 petition in Tampa, Fla.
Concluding that he had jurisdiction, Bankruptcy Judge Michael G. Williamson enjoined the government from cutting off funding under Section 1334, the provision in the federal Judiciary Code creating bankruptcy jurisdiction. Later, the bankruptcy court confirmed the nursing home’s chapter 11 plan and approved assumption of the provider agreement over the government’s objection, again barring the government from shutting off funding.
Government Wins the First Appeal
Although courts are divided on the issue, District Judge James S. Moody Jr. of Tampa held on the first appeal in June 2015 that bankruptcy courts have no jurisdiction over a Medicare or Medicaid dispute by virtue of Section 405(h) of Title 42 of the U.S. Code.
Section 405(h) deprives any federal court of jurisdiction over a suit against the government until the claimant has exhausted administrative remedies. Since there was no exhaustion of administrative remedies, Judge Moody set aside confirmation of the chapter 11 plan.
The nursing home appealed and lost again in an opinion for the Eleventh Circuit by Circuit Judge Raymond C. Clevenger III of the Federal Circuit, sitting by designation. Judge Clevenger’s opinion is a tour de force on the law of codification error.
Congress’s Mistake in Codification
The nursing home argued that an outcome in its favor was compelled by the plain meaning of Section 405(h), which provides that no one may sue the government “under section 1331 or 1346 of Title 28 to recover on any claim arising under” Medicare or Medicaid law until there is an exhaustion of remedies in the agency. Since the bankruptcy court was acting under power bestowed by Section 1334, not Section 1331, the nursing home contended that Section 405(h) did not apply, thus giving the bankruptcy court power to enjoin, compel assumption of the provider agreement, and decide whether the facility was in compliance with Medicare and Medicaid law and regulations.
In his comprehensive 66-page opinion, Judge Clevenger explained why the plain meaning doctrine must give way to what he called the “particular canon in statutory construction regarding the codification of law.”
From 1939 to 1984, Judge Clevenger said it was “undisputed” that bankruptcy courts lacked jurisdiction over Medicare claims because Section 405(h), as adopted in 1939, deprived federal courts of jurisdiction over Medicare suits “under section 26 of the Judicial Code.” At the time, Section 26 contained virtually all of the grants of jurisdiction to federal courts, including bankruptcy jurisdiction.
In 1948, Congress recodified Section 26, establishing jurisdictional grants in Section 1331 for federal questions, Section 1332 for diversity, Section 1346 for suits against the government, and Section 1334 for bankruptcy. Nonetheless, Congress did not get around to correcting Section 405(h) until 1984. In the intervening years, Section 405(h) continued referring to “section 26 of the Judicial Code” and was interpreted to mean that bankruptcy courts had no jurisdiction over Medicare and Medicaid disputes.
Congress finally recodified Section 405(h) in a technical corrections bill in 1984. The recodification produced the statute as it now reads, depriving federal courts of jurisdiction over Medicare and Medicaid disputes under Sections 1331 and 1346. The recodification made no mention of Section 1334, the grant of bankruptcy jurisdiction.
Significantly, the legislative history said that the bill was intended only to correct “technical errors.” The bill itself recodifying Section 405(h) contained a provision saying that none of the amendments “shall be construed as changing or affecting any right, liability, status, or interpretation which existed (under the provisions of law involved) before” the amendments’ effective date.
The Law of Codification Error
Judge Clevenger began his analysis of the law by citing Supreme Court precedent from 1884 to mean that a recodification does not effect a substantive change without a clear expression of congressional intent. He devoted the bulk of his opinion to explaining why it was “abundantly clear that Congress expressed no such intention” when it inadvertently omitted Section 1334 from Section 405(h) as the result of a “codification error.”
The recodified version of Section 405(h) also omitted Section 1332. Judge Clevenger pointed out that three circuits nonetheless have held that federal courts may not exercise diversity jurisdiction over Medicaid disputes as a result of codification error.
Taking the opposite tack, the Ninth Circuit held in 1991 in Town & Country Nursing that the omission of a reference to Section 1334 allows bankruptcy courts to adjudicate Medicare disputes. Differing with the holding in Town & Country Nursing, Judge Clevenger noted that the Ninth Circuit did not analyze the legislative history accompanying the recodification.
Judge Clevenger said that the Ninth Circuit is the only appeals court to allow the exercise of bankruptcy jurisdiction in the context of a Medicare dispute. He listed the lower courts that have come down on both sides of the issue. In his district court opinion, Judge Moody said that a majority of lower courts have concluded that bankruptcy courts cannot exercise jurisdiction in view of Section 405(h).
Equitable Mootness
Even if the bankruptcy court should not have exercised jurisdiction, the nursing home argued that the appeal was moot under the doctrine of equitable mootness because the plan had been consummated. Judge Clevenger said that objections to subject matter jurisdiction can never be forfeited or waived.
Therefore, Judge Clevenger rejected the equitable mootness argument, holding that the absence of jurisdiction “precludes the exercise of that discretionary authority.”
What the Opinion Means
The bankruptcy judge had said that all creditors aside from the government supported the reorganization, including a secured lender owed $11 million and unsecured creditors asserting $2 million in claims. The Eleventh Circuit’s opinion means that the government by itself can overcome the wishes of creditors and the inclinations of the bankruptcy court by shutting down a health care facility when the agency finds violations of Medicare and Medicaid rules.