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CAREMARK THERAPEUTIC SERVICES v. LEAVITT

December 21, 2005.

CAREMARK THERAPEUTIC SERVICES, Plaintiff,
v.
MICHAEL O. LEAVITT,[fn1] Secretary of the Department of Health and Human Services, and the CENTERS FOR MEDICARE & MEDICAID SERVICES, Defendants.



The opinion of the court was delivered by: VICTOR MARRERO, District Judge

*fn1 Michael O. Leavitt is substituted for his predecessor, Tommy Thompson, as Secretary of the Department of Health and Human Services. See Fed.R.Civ.P. 25(d).

DECISION AND ORDER

Plaintiff Caremark Therapeutic Services ("CTS") brings this action against the Secretary of the Department of Health and Human Services (the "Secretary") and the Centers for Medicare & Medicaid Services (collectively "Defendants") for judicial review of a final decision of the Secretary pursuant to 42 U.S.C. §§ 405(g) and 1395ff(b) (1). CTS seeks reimbursement for pharmaceutical services provided to a hemophilia patient. Defendants contend that the Southern District of New York is not the proper venue for this action and move to dismiss on that basis under Rule 12(b) (3) of the Federal Rules of Civil Procedure. They further dispute the existence of subject matter jurisdiction with respect to all but one of CTS's causes of action and move to dismiss these claims under Rule 12(b) (1) of the Federal Rules of Civil Procedure. For the reasons discussed below, Defendants' motion to dismiss for improper venue is GRANTED and the case is transferred to the Central District of California.

  I. BACKGROUND

  CTS is a home health care provider, also licensed as a pharmacist. (Compl. ¶ 7.) CTS is the assignee of a Medicare beneficiary covered by Medicare Part B. (Compl. ¶ 6.) Medicare Part B is a supplemental insurance program that covers outpatient medical and other health services, including home health care services, for eligible individuals. See 42 U.S.C. § 1395k. CTS indicates that it was incorporated in California on its Medicare Federal Health Care Provider/Supplier Enrollment Application (the "Enrollment Application") (Enrollment Application, attached as Exhibit A to the Declaration of Rachel H. Park, dated April 21, 2005 ("Park Decl."), at 9.)*fn2 CTS lists its practice location as Redlands, San Bernardino County, California and provides a correspondence address in Los Angeles on the Enrollment Application. (See id.) Correspondence regarding Medicare appeals is addressed to CTS in Redlands, California. (Compl. Ex. A, Ex. B, Ex. D, Ex. G, Ex. H.) CTS's parent corporation, Caremark RX, Inc. ("Caremark RX") is licensed to do business in New York, but was incorporated in Delaware and has its principal place of business in Nashville, Tennessee. (See Entity Information Report, NYS Dep't of State, Div. of Corps., attached as Exhibit C to Pl.'s Br.)*fn3 Several affiliates of CTS are also licensed to do business or incorporated in New York. (See id.) The Enrollment Application requires providers to disclose information about individuals and entities with an ownership or control interest in the provider. See 42 C.F.R. § 420.206; Requirements for Establishing and Maintaining Medicare Billing Privileges, 68 Fed. Reg. 22064 (proposed Apr. 25, 2003). CTS indicated on the Enrollment Application that Caremark RX and Caremark International, Inc. ("Caremark International") had a five percent or more ownership interest in, and managing control of, CTS at all relevant times. (Park Decl. Ex. A at 25.) Caremark International is located in Northbrook, Illinois (Id.) and is not licensed to do business in New York (Pl.'s Br. Ex. C). The instructions to the Enrollment Application explain that "[a]ny organization that exercises operational or managerial control over the provider, or conducts the day-to-day operations of the provider, is a managing organization and must be reported" as having managing control. See Requirements for Establishing and Maintaining Medicare Billing Privileges, 68 Fed. Reg. 22064.

  II. DISCUSSION

  A. STANDARD OF REVIEW

  Defendants move to dismiss under Rule 12(b) (3) of the Federal Rules of Civil Procedure, asserting improper venue. As the plaintiff, CTS bears the burden of establishing proper venue in this district. See Central Nat.-Gottesman v. M.V. "Gertrude Oldendorff," 204 F. Supp. 2d 675, 677 (S.D.N.Y. 2002); Central Sports Army Club v. Arena Assocs., 952 F. Supp. 181, 188 (S.D.N.Y. 1997). In assessing whether CTS has met this burden, the Court accepts facts alleged in the complaint as true and draws all reasonable inferences in CTS's favor. See Varabiev v. Bank Leumi Le Israel (Switzerland), No. 03 Civ. 3063, 2004 WL 936804, at *2 (S.D.N.Y. Apr. 30, 2004); Central Nat.-Gottesman, 204 F. Supp. 2d at 677. As with a motion to dismiss for lack of subject matter jurisdiction, courts may consider materials outside the pleadings on a motion to dismiss for improper venue. See Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996); Varabiev, 2004 WL 936804, at *2; Burell v. State Farm Fire & Cas. Co., No. 00 Civ. 5733, 2001 WL 797461, at *3 (S.D.N.Y. July 12, 2001).

  B. VENUE UNDER 42 U.S.C. § 405(g)

  CTS asserts that venue is proper under the Medicare Act, Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq. The Medicare Act provides that individuals or their representatives who are dissatisfied with a benefits determination or their representatives are entitled to judicial review of final determinations of the Secretary as provided in 42 U.S.C. § 405(g) ("§ 405(g)"). Section 405(g) further provides that
[s]uch action shall be brought in the district court of the United States for the judicial district in which the plaintiff resides, or has his principal place of business, or, if he does not reside or have his principal place of business within any such judicial district, in the United States District Court for the District of Columbia.
Id. CTS asserts that it is a resident of the Southern District of New York. The accuracy of this assertion depends on the resolution of two distinct legal issues. First, the Court must consider the meaning of the term "resides" as used in § 405 (g). Second, the Court must consider whether, and in what circumstances, the residence of a corporation for purposes of venue may be based on the residence of its parent or affiliates. The Court addresses these issues in turn.

  1. The Residence of a Plaintiff Corporation Under § 405(g)

  CTS asks the Court to give a broad reading to the term "reside" as used in § 405 (g). The traditional definition of residence for a corporation the place of incorporation. See Pure Oil Co. v. Suarez, 384 U.S. 202, 203 (1966); 17 James Wm. Moore et al., Moore Federal Practice § 110.03 (3d ed. 1997). In various contexts, this definition has been expanded by congress and the courts. However, this case does not present one of those contexts. In fact, the traditional definition of residence has almost always been applied when the corporation is a plaintiff. The rare exceptions to this rule, see, e.g., Upjohn Co. v. Finch, 303 F. Supp. 241, 254 (W.D. Mich. 1969), have now been foreclosed by statute. See 28 U.S.C. § 1391(c); 15 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1311 (2d ed. Supp. 2005). Nonetheless, because the meaning of the term "resides" is perhaps less than crystal clear in the § 405(g) context, the issue merits some discussion.

  CTS relies on 42 U.S.C. § 1391 (c) ("§ 1391(c)"), which defines residence for corporate defendants, for its assertion that it resides of the Southern District of New York. This reliance is misplaced. Because case law and commentary analysis of these various venue provisions has been conducted against a changing statutory background, some historical context is helpful to this inquiry. In 1948, Congress revised and recodified the judicial code. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 225 (1957). The general venue provision, 28 U.S.C. § 1391, incorporated a newly broadened conception of corporate residence, at least with respect to corporate defendants. See Manchester Modes, Inc. v. Schuman, 426 F.2d 629, 632 (2d Cir. 1970). Section 1391(c) stated that "[a] corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes." 62 Stat. 935 (1948) (current version at 28 U.S.C. § 1391 (c) (2000)).

  In Manchester Modes, the Second Circuit explained the circumstances which spurred Congress to act to expand venue for corporate defendants:
As corporations spread their activities through the country, states increasingly made them subject to suit wherever they were "doing business" or could be "found." A corresponding adjustment in federal procedural law, however, did not occur; for venue purposes, the definition of corporate residence as the state of incorporation remained the rule.
426 F.2d at 630. Congress thus enacted § 1391(c) in "`response to a general conviction that it was intolerable if the traditional concepts of "residence" and "presence" kept a corporation from being sued wherever it was creating liabilities.'" Pure Oil, 384 U.S. at 205 n. 3 (internal quotations omitted) (quoting Transmirra Prods. Corp. v. Fourco Glass Co., 233 F.2d 885, 887 (2d Cir. 1956), rev'd on other grounds, 353 U.S. 222 (1957)).
  After the enactment of § 1391(c), courts were faced with the question whether that provision applied to define the term "resides" in specific venue statutes. At the same time, they also considered whether the 1948 version of § 1391 (c) applied to define the residence of corporate plaintiffs as well as corporate defendants. The Second Circuit answered the second question in the negative. See Manchester Modes, 426 F.2d 629. Congress laid the latter debate to rest in 1988, when it repealed the 1948 statute and adopted a new § 1391 (c) which clearly applied only to corporate defendants. See 15 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3811 (2d ed. Supp. 2005). Section 1391(c) currently provides:
For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced. In a State which has more than one judicial district and in which a defendant that is a corporation is subject to personal jurisdiction at the time the action is commenced, such corporation shall be deemed to reside in any district in that State within which its contacts would be sufficient to subject it to personal jurisdiction if that district were a separate State, and, if there is no such district, the corporation shall be deemed to reside in the district within which it ...

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