Opposition Brief — Associated Industries of Florida, Inc. v. Agency for Health Care Administration

Supreme Court, U.$

o7/ ‘Sie

FEB 6 1997

No. 96-915

IN THE

Supreme Court of the United States«

‘

;

PWT Pees re j

OCTOBER TERM, 1996 | ,

Associated Industries of Florida, Inc. and

Philip Morris, Inc.

Petitioners,

Vv.

Agency For Health Care Administration, State of

Florida Department of Business and Professional

Regulation, and State of Florida

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF FLORIDA

BRIEF OF RESPONDENTS IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

Laurence H. Tribe Robert A. Butterworth

Jonathan S. Massey Attorney General

1575 Massachusetts Ave. Counsel of Record

Cambridge, MA 02138 The Capitol, Ste. PL-01

(617) 495-4621 Tallahassee, FL 32399

(904) 488-9935

Wayne Hogan

Brown, Terrell, Hogan, Dexter Douglass

Ellis, McCiamma & General Counsel

Yegelwel Executive Office of the

233 East Bay Street Governor

Jacksonville, FL 32202 The Capitol, Ste. 209

(904) 632-2424 Tallahassee, FL 32399

(904) 488-3494

February 6, 1997 Additional counsel listed inside cover

W.C. Gentry

Gentry and Phillips

6 East Bay Street, Ste. 400

Jacksonville, FL 32202

(904) 356-4100

Parker D. Thomson

Thomson, Muraro, Razook

& Hart, P.A.

One Southeast Third Avenue

Miami, FL 33131

(305) 350-7200

TABLE OF CONTENTS

ii

TABLE OF AUTHORITIES

Cases: Page

Alfred L. Snapp & Son, Inc., v. Puerto Rico,

ae snes i abc aS ss velinedscnanateconecbohoieaeue 16

Ashland Oil and Refining Co. v. General Telephone Co.,

462 S.W.2d 190 (Ky. Ct. App. 1970) .......cccccccccessesseeseee 20

Bishop v. Nielsen, 632 P.2d 864 (Utah 1981) ..........0..0000.... 20

Branch v. United States, 69 F.3d 1571 (Fed. Cir. 1995),

CUE: GERI, TET DSO, BO CIR vasccvcscicsincccscecesssccssassans 13

California Coastal Comm'n v. Granite Rock Co.,

TN Re Re ies asez as peeves tenes cacntn soeren sae caeinoeeniess 23

City of New Orleans v. Duke, 427 U.S. 297 (1976) .............. 12

Dale v. Whiteman, 202 N.W.2d 797 (Mich. 1972)................ 20

Exxon Corp. v. Eagerton, 462 U.S. 176 (1983).................... 21

General Motors Corp. v. Romein, 503 U.S. 181 (1992)........ 21

Great American Ins. Co. v. United States, 575 F.2d 1031

vie 2. en saieabuce tus subieasstuasvacs tisscaehines ais 17

Green v. American Tobacco Co., 154 So.2d 169

I WINN de becestavle scar cocks revaitannsaitasinsecisanctatieras espsatensbenan: l

Hawkins v. Bleakly, 243 U.S. 210 (1917)... 12

Health Ins. Ass'n of Am., Inc. v. Shalala, 23 F.3d 412

as Ns I colons bonnes pia ban stunts cinssadueesa seco visassecciea eects 19

Holbrook v. Anderson Corp., 996 F.2d 1339

I oe ate ec ctitukcod ecauesinetutianicasd dover ssep se onatabeveces 19

Industrial Risk Insurers v. Creole Production Serv.,

poo fe be A | nn nee 17

Jones v. Kinney, 113 F. Supp. 923 (W.D.Mo. 1953) ............ 21

Joseph v. Quest, 414 So.2d 1063 (Fla. 1982)..........0..0000000... 20

Logan v. Zimmerman Brush Co., 455 U.S. 422 (1982)......... 12

Manigault v. Springs, 199 U.S. 473 (1905) .............ccccceeeee. 21

Martinez v. California, 444 U.S. 277 (1980)..........0000000..000.. 12

Miller v. De Witt, 226 N.E.2d 630 (Ill. 1967)... oo. 20

Moore ex rel Mississippi v. The American Tobacco Co.,

No. 94:1429 (Ch. Ct., Jackson Co., Miss.) ..............0.0000. 18

a

iil

Cases (continued): Page

New York Central Co. v. White, 243 U. S. 188 (1917)......... 12

Oaklawn Jockey Club, Inc. v. Pickens-Bond

Construction Co., 477 §.W.2d 477 (Ark. 1972) .............. 20

Shor v. Paoli, 353 So.2d 825 (Fla. 1978) ................. eee 20

Skinner v. Reed-Prentice Division Package Mach. Co.,

ry Pk me Trg Rh. cy ; Rann mentee omarn ccm nuNarrees 20

Smith v. Southern Farm Bureau Cas. Ins. Co.,

FPO SOF Fe ee FE ii lan San eeiiencionn 20

Sommer v. Federal Signal Corp.,

SOS NE De TIGL TPO iiss cssssciciseccisecicimnctses 20

Trail Builders Supply Co. v. Reagan,

35 GO Re Fe FE ocsotcmiaeieotennes 20

United States v. Gera, 409 F.2d 117 (3d Cir. 1969).............. 19

United States v. Hunter, 645 F. Supp. 758

CPS TREY : Theisen acaeenenerstsrrecmcnnern 19

United States v. Merrigan, 389 F.2d 21 (3d Cir. 1968)......... 19

United States v. Moore, 311 F. Supp. 984 (D. Pa. 1970),

rev'd on other grounds, 469 F.2d 788 (3d Cir. 1972)...... 19

United States v. Salerno, 481 U.S. 739 (1987) ........0.0....008. 22

United States v. Theriaque, 674 F. Supp. 395

CED. TR, CIID oo ovis ccnshisnaxenecseorerseouea euntasteerentavacetnnes 19

United States v. University Hospital, 575 F. Supp. 607

CTE. TOD isidsisicescctisccecsveueereteinnnonenecmsnaiat 16

United States v. Winstar, 116 S. Ct. 2432 (1996)... 21

United States Trust Co. v. New Jersey, 431 U.S. 1 (1977)....21

Westchester Light Company v. Westchester County

Small Estates Corp., 278 N.Y. 175, 15 N.E.2d 567

OPE YT . TI ivivciaeiteearaaaetonceneieeeee 16

Zarrella v. Miller, 217 A.2d 673 (R.I. 1966).............e 20

Statutory Provisions: Page

42 U.S.C. § 1396a(aj(25) ooo cece c cece eceeeettteeeees 2, 12

MED ELBA... B DOOE vrssevesnvsnersvnceecsnsnensnesbsnivaeciannreevencassecbdaeals 18

Section 409.910, Fla. Stat. 000...000ccccccocccccccccceeecceee neces 1, 3, 8,9

Section 409.266, Fla. Stat. .000000.0..0000.ococc coc ceeeeeeeeeeeees 2.

Section 409.2665, Fla. Stat. 0.00.00. ooccocccccccecccece cess 1, 3, 4, 5

Section 768.81(3), Fla. Stat. o0.00000.000cccccccccceeccccecceceeeeeeeeeeeee: 14

Ch. 69-106, Laws of Fla. ...........00000ccccccccccccececeecceceeeeueeeeeeeeeeees 2

Ch. 69-268, Laws of Fla. 0.000.000.0000. ccccccccccececcccccceeeeeceeeueeeeeeeues 2

Ch. 78-433, Laws of Fla. ..........000000cccccccccccccecccccceceeeeeeeeeeeeeneees 2

Ch. 82-159, Laws of Fla. ..............000ccccccccceccecceeceeeceeeeeeeeeeeeeeees 2

Cr. FEATS, LOO. IR oasccncctencnisosenssensieconsscossenscssnospresseactetiions 9

Miscellaneous: Page

Florida Department of Health and Rehabilitative Services,

State Health Office, Family Health Service, A Florida

Health Status Report: Behavioral Risk Factor

Surveillance System 1986-1992, cited in, J. Sims,

Cancer Control, Journal of the Moffitt Cancer Center,

Vol. 1, No.5, Tobacco Use in Florida: Consequences

and Costs (September/October 1994)...................:.00cccce. 5

Florida Department of Health and Rehabilitative Services,

Smoking Attributable Mortality, Morbidity, and

Economic Costs: 1992 Report, cited in, J. Sims,

Cancer Control, Journal of the Moffitt Cancer Center,

Vol. 1, No. 5, Tobacco Use in Florida: Consequences

and Costs (September/October 1994)............0....0..00000. 5, 6

When Statute of Limitations Commences to Run

Against Claim For Contribution or Indemnity

Based on Tort, 57 A.L.R. 3d 867(1996)..................000006. 20

BRIEF OF RESPONDENTS IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

The State of Florida, the Agency for Health Care

Administration, and the Department of Business and

Professional Regulation respectfully submit this brief in

opposition to the petition for writ of certiorari filed in this case

by Associated Industries of Florida, Inc. and Philip Morris.

STATEMENT OF THE CASE

This case presents the question of the facial constitutionality

of Chapter 94-251, Section 4, Laws of Florida (“1994

Amendments”), which amended Florida’s Medicaid

Third-Party Liability Act, Section 409.910, Fla. Stat.

Petitioners’ description of the 1994 Amendments and their

legislative history is predictably partisan and one-sided. Far

from being radical or unprecedented, the Amendments are only

the latest statutes in a long series of efforts by the Florida

legislature to carry out its federally mandated duty to recoup

Medicaid payments from liable third parties.

1. Florida law has long recognized the rules of primary

conduct that put a manufacturer on notice that it may be held

accountable for all damages caused by its defective products.

Over three decades ago, in Green v. American Tobacco Co.,

154 So.2d 169, 173 (Fla. 1963), the Florida Supreme Court

declared:

There exists . . . no real alternative and no valid

objection to this distribution of the burden [to the

manufacturer], if the public health is to be protected in

2

any practical sense from exploitation by those who, for a

profit motive, undertake to supply the vast and ever

increasing variety of products which the people by

unprecedented powers of commercial persuasion are

daily urged to use and consume.

2. Under the Social Security Act, States are obligated to

“take all reasonable measures to ascertain the legal liability of

third parties to pay for care and services available under the

[state Medicaid] plan arising out of injury, disease or disability”

and “seek reimbursement for such assistance to the extent of

such legal liability.” 42 U.S.C. § 1396a(aX(25). In 1970, the

Florida Division of Family Services became the unit of the

Florida government responsible for pursuing Medicaid

third-party liability claims. See Ch. 69-268, § 1, Laws of Fla.,

and Ch. 69-106, § 19, 35, Laws of Fla.

In 1978, the Florida Medicaid Third-Party Liability Act, Ch.

78-433, Laws of Fla., statutorily subrogated the nghts of

individual Medicaid recipients to the Department of Health and

Rehabilitative Services (“HRS”) to “recover to the fullest

extent possible the amount of all medical assistance payments

made on behalf of the [Medicaid] recipient.” § 409.266, Fla.

Stat. (1978).

To strengthen the State’s ability to recover Medicaid

expenses from culpable tortfeasors, in 1982 the Act was again

amended to require assignment of Medicaid claims to the State

and to establish a lien on any third-party recovery. Ch. 82-159,

Laws of Fla.

3. In 1990, the Act was comprehensively revised to

facilitate the State’s recoupment of Medicaid payments from

liable third parties. At that time, the Legislature clearly and

unequivocally expressed: “It is the intent of the Legislature that

3

Medicaid be the payor of last resort for medically necessary

goods and services furnished to een recipients.” §

409.2665(1), Fla. Stat. (Supp. 1990). ! Notably, petitioners in

this case have never challenged any of the provisions of the

1990 statute, under either the Florida or U.S. Constitutions.

The Florida Supreme Court recognized that the 1990

changes were “major amendments” that “strengthen[ed] the

State’s ability to recover funds expended for Medicaid costs.”

Pet. App. 3a. For example, a third party — the potential

defendant in any action brought under the Act — was defined

as:

an individual, entity, or program, excluding Medicaid,

that is, may be, or could be, should be, or has been liable

for all of the cost of medical services related to any

medical assistance covered by Medicaid.

§ 409.2665(3)(p), Fla. Stat. (Supp. 1990). As the Florida

Supreme Court recognized, “[c]ertainly this broad definition of

third parties covers tortfeasors that caused a Medicaid

recipient’s health problems.” Pet. App. 14a.

In addition, the Supreme Court identified “significant

changes to the State’s traditional subrogation action” wrought

by the 1990 Amendments. /d. at 15a. Contrary to petitioners’

assertions that until 1994 the State had no independent right of

recovery and simply stood in the shoes of the Medicaid

recipient, under the 1990 legislation the State was afforded

four statutorily recognized methods of recovery:

1 The 1990 Amendments were codified at Section 409.2665, Florida

Statutes and subsequently renumbered in 1991 at Section 409.910, Florida

Statutes.

The department may, as a matter of right, in order to

enforce its rights under this section, institute, intervene

in, or join any legal proceeding in ifs own name in one

or more of the following capacities: [1] individually, [2]

as subrogee of the recipient, [3] as assignee of the

recipient, or [4] as lien holder of the collateral.

§ 409.2665(12), Fla. Stat. (Supp. 1990) (emphases and

bracketed numbers added). In addition, the 1990 law provided

that:

Principles of common law and equity as to assignment,

lien, and subrogation are to be abrogated to the extent

necessary to ensure full recovery by Medicaid from third

party resources.

§ 409.2665(1), Fla. Stat. (Supp. 1990).

The statute also provided that “[t]he department is a bona

fide assignee for value in the assigned night, title, or interest,

and takes vested legal and equitable title free and clear of

latent equities in a third-person.” § 409.2665(7)(b)(2), Fla.

Stat. (Supp. 1990) (emphasis added). The 1990 law made it

clear that these nights, “as to which the department may assert

independent principles of law, . . . shall nevertheless be

construed together to provide the greatest recovery from

third-party benefits.” § 409.2665(7), Fla. Stat. (Supp. 1990).

Lest there be any doubt, the 1990 law expressly provided that

“{t]he department shall recover the full amount of all medical

assistance provided by Medicaid on behalf of the recipient to

the full extent of third-party benefits” and that “[r]ecovery of

such benefits shall be collected directly from” “[a]ny third

party.” § 409.2665(8)(a\(1), Fla. Stat. (Supp. 1990)

(emphases added).

Thus, under the 1990 statute, never challenged by

petitioners, the State had an independent statutory right

directly to recover full payment from “any third-party”; a

superior statutory subrogation right which placed its claim

above all others; a statutorily created assignment right which

the State took free and clear of any latent equities in a third

person; and a lien right which gave the State a night of 100%

recovery from the third party. These four statutorily created

rights to recover full benefits were to be asserted in accord

with “independent principles of law,” which were to be

“construed together to provide the greatest recovery.” §

409.2665(7), Fla. Stat. (Supp. 1990).

In the decision below, the Florida Supreme Court

recognized that “[i]t is clear that the 1990 legislation, at the

very least, moves the State to the front of the line” vis-a-vis

other innocent parties if any potential reimbursement monies

become available. Pet. App. 15a (emphasis added).

4. By 1994, mounting Medicaid and other health care

expenses in Florida led the state legislature to revisit the

question of Medicaid cost recovery. In 1992, 28,350

Floridians died from tobacco-related causes, representing 77

preventable deaths every day or 20% of all deaths in the

State.2 Medicaid costs attributable to smoking in Florida

from 1990 to1995 have been estimated at $1.4 billion.?

2 Florida Department of Health and Rehabilitative Services, State

Health Office, Family Health Service, A Florida Health Status Report:

Behavioral Risk Factor Surveillance System 1986-1992, 1994:9-12, cited

in, J. Sims, Cancer Control, Journal of the Moffitt Cancer Center, Vol. 1,

No.5, Tobacco Use in Florida: Consequences and Costs, p. 442

(September/October 1994).

3 Florida Department of Health and Rehabilitative Services, Smoking

Attributable Mortality, Morbidity, and Economic Costs: 1992 Report,

6

The legislative history of the 1994 Amendments reveals that

they were the considered product of normal legislative

deliberations. There was no effort to “sneak” the amendments

into law. For example, the title of the bill containing the

amendments provided a full and fair explanation of the

provisions dealing with the State’s claim for reimbursement

against a liable third party:

[An Act] relating to Medicaid provider fraud; [1]

transferring responsibilities for administering the state

Medicaid fraud-control program from the Auditor

General to the Department of Legal Affairs; [2] creating

s. 16.59, F.S. [3] establishing a Medicaid Fraud-Control

office in the Department of Legal Affairs; [4] amending

ss. 409.910, 409.913, F.S.; [5] incorporating

conforming revisions [6] broadening the scope of

liability for which Medicaid payments must be repaid;

[7] expanding causes of action, [8] providing for joint

and several liability, [9] providing a cause of action for

the agency, [10] deleting limitations on attorney

representation, [11] allowing agency to consolidate

cases into one proceeding, [12] defense of statute of

repose does not apply to actions by agency brought

under this section, [13] placing limitations on

recipient's right to recover when recipient fails to

intervene, [14] amending s. 409.920; [15] conforming

the transfer of duties and providing for assistance from

any state attorney or law enforcement agency in

1994, cited in, J. Sims, Cancer Control, Journal of the Moffitt Cancer

Center, Vol. 1, No. 5, Tobacco Use in Florida: Consequences and Costs,

p. 442 (September/October 1994).

7

investigating and prosecuting Medicaid fraud cases; [16]

providing an effective date.

(emphases and bracketed numbers added). The April 7, 1994

Journal of the Senate, page 839, explains the circumstances of

the bill’s passage in the Senate:

On a motion by Senator Foreman and by two-thirds

vote, CS/CS/SB 2110 as amended was read the third

time by title, passed, and ordered engrossed, and then

certified to the House. The vote on passage was yeas -

38, nays - none.

The transcript of the tape of the House floor discussion of the

bill (CS/CS/SB 2110) evidences’ dialogue among

Representative Wallace (the Speaker of the House of

Representatives), its Clerk, and Representative Graber

regarding the proposal. Representative Graber explained:

This is the transfer of the Medicaid Fraud Unit to the

Attorney General’s Office. It has come back with an

amendment that broadens principles of recovery, scope

of the State’s independent cause of action and the

State’s ability to consolidate cases.

The Speaker inquired whether they were any “questions to the

sponsor.” There were none. The rules were waived and

CS/SB 2110 was read a third time. The Speaker again

inquired whether there were questions on the bill or debate.

There were none. The bill passed by a vote of 118 yeas and

zero nays.

After petitioners suggested in the Florida courts that the

1994 Amendments had been enacted without full compliance

with state legislative rules, the Secretary of the Senate

examined all pertinent records, documents and tapes relating to

the passage of the Amendments and certified to the Circuit

Court of Leon County that there were no violations of the

legislative rules.

5. The Florida Supreme Court explained that, “[a]ssuming

that the content of the 1990 Act is open to numerous

interpretations, the 1994 amendments clarify the State’s cause

of action definitively.” Pet. App. 15a. The 1994 Amendments

make clear that the State’s cause of action is not derivative in

the nature of a subrogation, assignment, or lien. “Rather, it is a

new independent cause of action that requires the State to

prove: (1) either negligence or a defective product; (2)

causation; and (3) damages.” /d. at 16a.

The 1994 Amendments restated and expanded the language

of the 1990 statute to make clear that affirmative defenses are

abrogated to the extent necessary to ensure the State’s direct

recovery of sums owed to it. § 409.910(1), Fla. Stat. 1995.

The 1994 Amendments also clarified that the State has the

authority to pursue all related claims in one proceeding, §

409.910(9), Fla. Stat. 1995, and to “proceed to seek recovery

based on payments made on behalf of an entire class of

recipients,” where the number of Medicaid recipients “is so

large as to cause it to be impracticable to join or identify each

claim.” § 409.910(9)(a), Fla. Stat. 1995. The State was also

given the power to use statistical evidence and theories of

market share and joint and several liability. § 409.910(1), (9),

4 See Letter of Joe Brown, Secretary of the Senate, dated May 24, 1994,

Exhibit B to the State’s Opposition to Plaintiffs’ Motion for Summary

Judgment (filed June 14, 1995).

9

(9)(b), Fla. Stat. 1995. Also, as first expressed in 1990, the

1994 amendments to § 409.910(1) reiterate that common law

principles of recovery should be liberally construed to

effectuate the purposes of the Act.

6. After passage of the 1994 Amendments, the Governor

of Florida announced his intent to recover Medicaid damages

from the tobacco industry, and petitioners filed a declaratory

judgment action in the Circuit Court of Leon County, Florida.

Petitioners initially alleged that the 1994 Amendments were

unconstitutional on their face. They subsequently amended

their complaint to question the constitutionality of the structure

of the Agency for Health Care Administration (“AHCA”),

which was initially established in 1992. See Ch. 92-93, Laws

of Fla. AHCA is the State’s primary health care agency with

responsibility to manage a $6.5 billion budget and oversee all

health care services, including recoupment of Medicaid

payments from liable third-parties.

The Circuit Court of Leon County held that the 1994

Amendments, including their abrogation of affirmative

defenses, did not violate due process or the right of access to

courts under the Florida Constitution. Pet. App. 44a-45a. The

court further held that the 1994 Amendments fully complied

with the legislative title requirements of the state constitution

and were not pre-empted by federal law. /d. (Petitioners did

not subsequently pursue these issues on appeal.) The court

also held that the portions of § 409.910(9) of the Amendments

dealing with joinder and identifying injured Medicaid

recipients, as well as the portions of §§ 409.910(1) and

409.910(9) dealing with the interpretation of common law

theories of recovery and the evidence code, infringed on the

power of the judiciary and were invalid under the state

constitution. /d. at 45a-46a. The court held that the 1994

10

Amendments could not be applied to corduct or activities that

occurred before July 1, 1994 and could not be applied to revive

time-barred claims under the Florida statute of repose. /d.

The court also held that the structure of AHCA violated the

Florida Constitution. /d. at 46a.

The Florida Supreme Court affirmed in part and reversed in

part. The court held that the abrogation of affirmative defenses

was not unconstitutional on its face, properly recognizing that

“the judicial branch must be cautious when evaluating the

choices made by the legislative branch as to the appropriate

funding for programs it has deemed important to the public

welfare.” Pet. App. 2a. “We must avoid unnecessarily limiting

the funding options available to the legislature when addressing

today’s policy problems.” /d. The court found that the 1990

legislation represented “major amendments” that significantly

strengthened the State’s power to sue third parties to recover

Medicaid costs. /d. at 3a. The court explained that the 1994

Amendments merely “clarify the State’s cause of action

definitively.” /d. at 15a. The court also noted extensive

precedent both from this Court and under the Florida

Constitution permitting the state legislature to abrogate

affirmative defenses. /d. at 18a-23a. The court emphasized

that “[nJot all tort actions carry with them the same elements

or affirmative defenses.” /d. at 32a.

The Florida Supreme Court further held that certain aspects

of the 1994 Amendments were invalid under the Florida

Constitution: (1) the authority to pursue an action without a

mechanism for identifying individual Medicaid recipients; (2)

the abolition of a statute-of-repose defense with respect to

time-barred claims; and (3) the provision for combining the

theories of market share liability and joint and several liability

(although the court opined that “either theory may be used

separately”). Pet. App. 2a. Finally, the court upheld the

1]

constitutionality of AHCA under the Florida Constitution. /d.

at 9a-13a.

Petitioners moved for rehearing, repeating many of the

same arguments raised here. That motion was denied. Pet.

App. 49a.

REASONS FOR DENYING THE WRIT

1. Certiorari should be denied because petitioners’

arguments fail to raise an important question of federal law.

The 1994 Amendments represent an eminently reasonable

solution to pressing fiscal and health care problems confronting

the State Medicaid program.

Tobacco companies, through the production, promotion

and sale of their products, have knowingly created a massive

public health crisis. The State, as guardian of the public health,

has acted to meet this crisis through the provision of necessary

medical treatment. In fulfilling its duty, the State has assumed

a crushing financial burden — a burden which in all equity and

fairness should be borne by those whose lucrative enterprise is

responsible for the harm. The 1994 Amendments do not

represent the radical departure from existing Florida law — or

from traditions of common law and equity jurisprudence —

that petitioners’ claim. Rather, they represent a sound attempt

to force tobacco companies and other liable parties to

internalize some of the social costs of their tortious behavior.

In fact, Congress itself requires States participating in the

Medicaid scheme to seek to collect that money from liable

third parties, although the federal government does not

prescribe precisely how the State is to do so. The federal

Medicaid statute provides in pertinent part:

12

[that] a state plan for medical assistance must .. . provide

(A) that the State or local agency administering such plan

will take all reasonable measures to ascertain the legal

liability of third parties .. . to pay for care and services

available under the plan; and (B) that in any case where

such a legal liability is found to exist after medical

assistance has been made available on behalf of the

individual, the State or local agency will seek

reimbursement for such assistance to the extent of such

legal liability.

42 U.S.C. § 1396a(a)(25). In adopting the 1994 Amendments,

the Florida legislature was acting to implement this

congressional mandate.

“[T]he judiciary may not sit as a super-legislature to judge

the wisdom or desirability of legislative policy determinations

made in areas that do not affect fundamental rights or proceed

along suspect lines.” City of New Orleans v. Duke, 427 U.S.

297, 303 (1976). In particular, a legislature is free to abolish

affirmative defenses and create new liabilities without violating

due process. Logan v. Zimmerman Brush Co., 455 U.S. 422,

432-33 (1982); Martinez v. California, 444 U.S. 277, 281-83

(1980). A defendant “has no vested right to have...

common-law defenses perpetuated for his benefit.” Hawkins

v. Bleakly, 243 U.S. 210, 213 (1917); see also New York

Central Co. v. White, 243 U. S. 188, 198 (1917) (“No person

5 The state circuit court in this case. ruled that the federal Medicaid

Statute does not prescribe subrogation as the exclusive means by which a

State may recover Medicaid costs and thus does not pre-empt the Florida

law in this regard. Pet. App. 45a. Petitioners did not challenge this

ruling before the Florida Supreme Court, nor do they raise a pre-emption

issue in their petition for certiorari.

ee

13

has a vested interest in any rule of law, entitling him to insist

that it shall remain unchanged for his benefit.”) (collecting

cases); Branch v. United States, 69 F.3d 1571, 1577-58 (Fed.

Cir. 1995) (“[A] legislature is free to make statutory changes in

the common law rules of liability without running afoul of the

Fifth or Fourteenth Amendment protections of property. The

reason, the Supreme Court has explained, is that no one is

considered to have a property interest in a rule of law.”), cert.

denied, 117 S. Ct. 55 (1996).

2. Petitioners complain that it is “‘wholly arbitrary and

irrational” to permit the State to abrogate common law

defenses in Medicaid cost recovery actions “based solely on the

happenstance that the State seeks recovery.” Pet. 13, 15

(citation omitted and emphasis in original).

At the outset, it is important to note that petitioners are

forced to rely on groundless hyperbole and a distortion of both

the 1994 Amendments and the history of Florida’s legislative

efforts to assure full recovery of Medicaid costs from culpable

third parties.

a. Petitioners assert that “[iJt as though the State has

declared that in football league games, when the State’s

university team’s offense is on the field, the opponent’s defense

must withdraw to the sidelines.” Pet. 11. Petitioners insist

that there are “‘no significant constraints or protections against

arbitrary results’” in the 1994 Amendments. Pet. 14 (citation

omitted).

To the contrary: The Florida Supreme Court made clear

that the State is required to prove “(1) either negligence or a

defective product; (2) causation; and (3) damages.” Pet. App.

16a. Further, the court held that defendants have the right “to

challenge improper payments” made in the Medicaid program.

14

Id. at 25a. Statistical evidence may be used by the State only

within the bounds of existing procedure and rules of evidence.

Id. at 30a.

Petitioners utterly fail to demonstrate how these safeguards

will prove inadequate to guard against “arbitrary results.”

Indeed, under petitioners’ view, the State of Florida would be

on sounder constitutional ground if it eliminated common-law

affirmative defenses in ail litigation involving dangerous or

defective products, rather than adopting what petitioners

portray as an unprincipled exception for Medicaid cost

recovery suits brought by the State. Thus, petitioners’ own

preferred solution is one that would expose them to even

greater liability.

b. Petitioners claim that the 1994 Amendments create a

special rule for the State in Medicaid recovery actions.— The

Florida Supreme Court held that this is not so. The court

found that the Amendments “merely treat[] the State as any

other faultless plaintiff would already be treated under current

Florida law.” Pet. App. 32a. The court compared the 1994

Amendments to the existing rule of joint and several liability in

Florida, under which a plaintiff may recover all damages from

any of multiple defendants even though the particular

defendant selected may be the least culpable defendant in the

case. /d. (citing Fla. Stat. § 768.81(3)). “[T]he Act simply

recognizes the State as an entity analogous to the faultless

plaintiff above.” /d. The Amendments allow the State “to

collect one hundred percent of the damages from a culpable

third party even if another party might be considerably more

culpable.” /d.

Further, petitioners’ claim that the 1994 Amendments

“worked a monumental change in pre-existing State law” (Pet.

5) is simply unsustainable in light of the 1990 statute. The

ee

15

1994 Amendments did not introduce the idea of an

independent action by the State. They did not make culpable

acts that were innocent when undertaken. They merely

“clarif[ied]” — in the words of the Florida Supreme Court,

Pet. App. 15a — preexisting Florida law to make explicit that

potential third-party defendants are liable to the State for

Medicaid payments attributable to the harm caused by their

dangerous or defective products. It was the 1990 amendments

— which petitioners did not challenge below and have not

sought to challenge here — that initially created special powers

and preferences in favor of the State. Indeed, the 1990 Act

encompassed some twelve pages of session law and supplanted

section 409.266(4), Florida Statues, a one-page section of the

“Medical Assistance” statute. In contrast, the 1994

Amendments, which if stacked on end yield less than two

pages, simply fine-tune the 1990 vehicle to make it more

efficient in carrying out the federal and state policy of full

recovery from all liable third-party sources.

Accordingly, the entire premise of petitioners’ argument is

simply incorrect.

3. In any event, even if the 1994 Amendments had created

the special rule that petitioners claim, the Florida legislature

could reasonably have found that there are important

differences between Medicaid cost recovery suits by the State

and private litigation.

States are not similarly situated to individual users of the

dangerous or defective products in question. States did not

assume any of the risks of tobacco: they did not inhale.

When a tobacco company sells its products to consumers, it

is foreseeable that many will become ill and that the State will

thereupon be called upon to pay a portion of the resulting

medical costs. The State is an innocent third party that has

16

been forced to pay enormous sums which should in equity have

been borne by the tortfeasors. Whether an individual smoker

has assumed the risk of smoking is simply immaterial to the

tobacco company’s liability to the State. States are not

participants in the enterprise that has caused them, collectively,

to incur billions of dollars in health care costs. They have

instead been compelled unfairly to subsidize the externalities of

tortfeasors’ activities, to the great detriment of state taxpayers,

citizens, and businesses. As between wrongdoers and the

State, the former should bear the cost of the injuries

attributable to their tortious activities

Nor is the State comparable to a private insurance

company:

[T]he relationship between a_ hospital receiving

reimbursement under Medicaid or Medicare and the

government is not analogous to an insurance contract.

Medicare and Medicaid are not funded by beneficiaries’

premium payments, but by a payroll tax. This is not the

form of conventional insurance.

United States v. University Hospital, 575 F. Supp. 607, 613

(E.D.N.Y. 1983). Unlike an insurer, the State does not make a

profit from its medical assistance. It exercises its sovereign

authority to tax the citizenry and expend such funds for the

benefit of all of its citizens. In addition, the State has the right

through its quasi-sovereign authority to pursue a cause of

action against a wrongdoer who by its action does damage to

“a set of interests that the State has in the well-being of its

populace.” Alfred L. Snapp & Son, Inc., v. Puerto Rico, 458

U.S. 592, 602 (1982). Obviously, an insurance company has

no such responsibility to the public welfare.

17

The caselaw reflects these vital distinctions. If insurance is

provided by contract, where a risk is assumed for a fee or

premium, the insurer may be entitled only to be subrogated to

the claims of the insured. The remedy is entirely different,

however, when the “insurer’s” obligation is imposed by law or

statute. In that case, the insurer is entitled to the equitable

remedies asserted by the plaintiff here, which are broader than

subrogation. As one court explained:

[S]ince the insurer’s obligation to pay is due solely

to its contract, it presumably received consideration for

agreeing to bear the risk; allowing indemnity gives the

insurer a windfall. Implied indemnity is not intended for

such persons. As a general rule, “[t]he right to

indemnity inures to a person who, without active fault

on his part, is compelled by reason of legal obligation

or relationship to pay damages which have been caused

by the acts of another.”

Industrial Risk Insurers v. Creole Production Serv., 746 F.2d

526, 528 (9th Cir. 1984) (emphasis added and citation

omitted); see also Great American Ins. Co. v. United States,

575 F.2d 1031, 1034-35 (2d Cir. 1978) (“Appellant here has

confused the principle of indemnity which underlies

subrogation with an implied action for indemnification —

which is completely distinguishable. . . . The insurance carrier’s

relationship with his insured is not one imposed by operation of

law or statute; it is a contractual relationship in which the

carrier has deliberately accepted a risk for a fee.”).

Indeed, the differences between the State and private

litigants are so apparent that a Mississippi court has held that,

even in the absence of a statute like the one enacted in Florida,

a State is not a subrogee and is not subject to the affirmative

18

defenses that might be asserted against individual smokers in

product liability actions. Order of Feb. 21, 1995, Moore ex rel

Mississippi v. The American Tobacco Co., No. 94:1429 (Ch.

Ct., Jackson Co., Miss.).

4. Congress has made the same policy judgment as the

Florida legislature. The Medical Care Recovery Act, 42

U.S.C. § 2651, enables the United States Government to seek

reimbursement for medical costs incurred by federal agencies,

without being subject to all of the affirmative defenses that a

subrogee would face. The Act provides in relevant part:

In any case in which the United States is authorized or

required by law to furnish hospital, medical, surgical, or

dental care and treatment . . . to a person who is injured

or suffers a disease . . . under circumstances creating a

tort liability upon some third person . . . to pay damages

therefor, the United States shall have a right to recover

from said third person the reasonable value of the care

and treatment so furnished... The United States may,

to enforce such a right, (1) intervene or join any action

or proceeding brought by the injured or diseased person

. . against the third person who is liable for the injury

or disease; or (2) . . . institute and prosecute legal

proceedings against the third person in state or federal

court, either alone (in its own name or in the name of

the injured or diseased person, his guardian, personal

representative, estate, dependents, or survivors) or in

conjunction with the injured or diseased person, his

guardian, personal representative, estate, dependents, or

survivors.

siaiiiiniiaiaciaiidiiaiiinsaaiaiialdl

19

(emphasis added). Under the Act, the federal government may

assert a direct action for reimbursement without being bound

by affirmative defenses that might preclude suit by the

individual injured victim. See, e.g., Health Ins. Ass'n of Am.,

Inc. v. Shalala, 23 F.3d 412, 419 (D.C. Cir. 1994) (noting that

the “government’s independent right of action entitles it to full

recovery even where [the] tort victim’s right would be limited

by comparative negligence”); Holbrook v. Anderson Corp.,

996 F.2d 1339, 1341 (1st Cir. 1993) (government has “an

independent right of recovery against the tortfeasor” and “is

not defeated even by certain restrictions that might bar the

injured person’s own recovery”); United States v. Theriaque,

674 F. Supp. 395, 398 (D. Mass. 1987) (government is not

merely a subrogee in suits brought under the Medical Care

Recovery Act, but has an independent right to sue the

tortfeasor); see also United States v. Gera, 409 F.2d 117,

119-20 (3d Cir. 1969); United States v. Merrigan, 389 F.2d

21, 22 (3d Cir. 1968); United States v. Hunter, 645 F. Supp.

758, 759 (N.D.N.Y. 1986); United States v. Moore, 311 F.

Supp. 984, 985 (D. Pa. 1970), rev'd on other grounds, 469

F.2d 788 (3d Cir. 1972).

5. In fact, there are many instances in the law where parties

akin to the State here are able to sue in indemnity, for

restitution, or on similar equitable or legal grounds without

being subject to otherwise applicable affirmative defenses. Far

from being arbitrary or even very unusual, the 1994

Amendments simply apply these altogether familiar principles

in a context where the State is suing as an innocent party

wrongfully forced to bear Medicaid costs that it seeks to prove

are in fact attributable to culpable tortfeasors.

For example, many workers’ compensation statutes do not

bar third party actions for implied indemnity. That is, when an

20

injured employee brings a tort suit against the manufacturer of

a defective product that caused the on-the-job injury, the fact

that the employee’s action against the employer is barred by a

workers’ compensation Act does not preclude the

manufacturer’s third-party action against the employer for

indemnification.© Similarly, many courts have allowed

third-party actions against tortfeasors protected from a

first-party suit by interspousal or intrafamilial immunity.

Further, third-party indemnity actions are not precluded by the

expiration of the injured party’s statute of limitations against

the defendant, indicating that the indemnity action does not

depend upon the viability of the originally injured party’s

ciaim.8 And direct actions by third parties have been allowed

in many other contexts despite the existence of affirmative

defense that would preclude the tortfeasor’s immediate victim

from bringing suit successfully.?

6 E.g., Oaklawn Jockey Club, Inc. v. Pickens-Bond Construction Co.,

477 S.W.2d 477, 478 (Ark. 1972); Trail Builders Supply Co. v. Reagan,

235 So.2d 482, 485 (Fla. 1970); Skinner v. Reed-Prentice Division

Package Mach. Co., 374 N.E.2d 437, 443 (Ill. 1977); Miller v. De Witt,

226 N.E.2d 630, 640 (Ill. 1967); Ashland Oil and Refining Co. v. General

Telephone Co., 462 S.W.2d 190, 193-94 (Ky. Ct. App. 1970); Dale v.

Whiteman, 202 N.W.2d 797, 800-02 (Mich. 1972); Sommer v. Federal

Signal Corp., 593 N.E.2d 1365, 1373-74 (N.Y. 1992).

7 Joseph v. Quest, 414 So.2d 1063, 1064-65 (Fla. 1982); Shor v. Paoli,

353 So.2d 825, 826 (Fla. 1978); Smith v. Southern Farm Bureau Cas. Ins.

Co., 174 So.2d 122, 125 (La. 1965); Zarrella v. Miller, 217 A.2d 673, 675

(R.I. 1966); Bishop v. Nielsen, 632 P.2d 864, 866 (Utah 1981).

8 See When Statute of Limitations Commences to Run Against Claim

For Contribution or Indemnity Based on Tort, 57 A.L.R. 3d 867, 881-884

(1996).

9 E.g., Westchester Light Company v. Westchester County Small Estates

Corp., 278 N.Y. 175, 180, 15 N.E.2d 567, 568 (N.Y. 1938) (“Recovery

21

6. Petitioners’ legal authorities are inapposite. Petitioners

rely primarily on cases involving contract to which

governments are parties. Pet. 11-12 (citing United States Trust

Co. v. New Jersey, 431 U.S. 1 (1977), and United States v.

Winstar, 116 S. Ct. 2432, 2465 (1996)). These cases are

irrelevant here, for the State is not seeking to interpret a

contract it has drafted, nor is it attempting to breach a contract

with petitioners. The Contract Clause does not limit the

State’s police power in this context.

(“Recovery over against the employer in an unusual case like this need not

be rested upon any theory of subrogation. An independent duty or

obligation owed by the employer to the third party is a sufficient basis for

the action.”); Jones v. Kinney, 113 F. Supp. 923, 924-25 (W.D.Mo. 1953)

(wife could maintain lawsuit against husband's employer, and employer

could maintain third-party action against husband, despite rule preventing

spouses from suing one another in tort).

10 “It is the settled law of this court that the interdiction of statutes

impairing the obligation of contracts does not prevent the State from

exercising such powers as are vested in it for the promotion of the

common weal, or are necessary for the general good of the public, though

contracts previously entered into between individuals may thereby be

affected. This power, which, in its various ramifications, is known as the

police power, is an exercise of the sovereign right of the Government to

protect the lives, health, morals, comfort and general welfare of the

people, and is paramount to any rights under contracts between

individuals.” Manigault v. Springs, 199 U.S. 473, 480 (1905); see also

General Motors Corp. v. Romein, 503 U.S. 181, 192 (1992) (upholding

retroactive change in workers’ compensation law because employers

“knew that they were taking a risk in reducing benefits . . . , but they took

their chances”); Exxon Corp. v. Eagerton, 462 U.S. 176, 191 (1983)

(upholding imposition of oil and gas severance tax specifying that

producers could not pass on tax directly or indirectly to consumers,

regardless of what private contracts provided).

22

The general principle of “self-dealing” that petitioners seek

to extract from the contract cases (Pet. 14) is not sustainable in

light of the many special powers enjoyed by the States,

including sovereign immunity, eminent domain, and the

authority to raise revenue. The exercise of any of these powers

has never been thought to trigger “heightened scrutiny.”

7. Review should also be denied because petitioners have

brought a facial challenge to the Amendments. “A facial

challenge to a legislative Act is, of course, the most difficult

challenge to mount successfully, since the challenger must

establish that no set of circumstances exists under which the

Act would be valid.” United States v. Salerno, 481 U.S. 739,

745 (1987); see also California Coastal Comm'n v. Granite

Rock Co., 480 U.S. 572, 593 (1987).

This burden cannot be met here. At most, petitioners have

identified only the possibility of abuse in particular instances in

which the statute might be applied. In the decision below, the

Florida Supreme Court explicitly and repeatedly recognized

that any constitutional difficulties presented by the 1994

Amendments could be addressed on a case-by-case basis in

litigation brought by the State to recover Medicaid costs. See

Pet. App. 2a (“a ruling of facial constitutionality does not

preclude a later action challenging the manner in which the Act

is applied”); id. at 18a (“any such [due process] problems will

arise in the application of the Act’s provisions. We are not

currently faced with that issue. On its face, the provision

allowing for the abrogation of affirmative defenses is

constitutional under both the federal and _ Florida

constitutions.”); id. at 23a (“we rule that the Act’s abrogation

of affirmative defenses is facially constitutional We

emphasize, however, that Florida courts will remain free to

hear challenges to the actual application of such abrogation.”);

i AE me

23

id. at 24a-25a (“To recap, we hold that the provision

abrogating affirmative defenses is facially constitutional. We

do not address whether the provision will always survive a

constitutional due process attack as to its application. It would

be inappropriate to speculate as to such application. . . .

Further, any speculation as to the application of this provision

would be flawed because we have no record containing facts,

evidence, or expert opinions.”).

24

CONCLUSION

The petition for writ of certiorari should be denied.

Respectfully submitted.

Laurence H. Tribe

Jonathan S. Massey

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495-4621

Wayne Hogan

Brown, Terrell, Hogan,

Ellis, McClamma &

Yegelwel

233 East Bay Street

Jacksonville, FL 32202

(904) 632-2424

W.C. Gentry

Gentry and Phillips

6 East Bay Street, Ste. 400

Jacksonville, FL 32202

(904) 356-4100

February 6, 1997

Robert A. Butterworth

Attorney General

Counsel of Record

The Capitol, Ste. PL-01

Tallahassee, FL 32399

(904) 488-9935

Dexter Douglass

General Counsel

Executive Office of the

Governor

The Capitol, Ste. 209

Tallahassee, FL 32399

(904) 488-3494

Parker D. Thomson

Thomson, Muraro, Razook

& Hart, P.A.

One Southeast Third Avenue

Miami, FL 33131

(305) 350-7200