District Court Dismisses Medicare's Suit Seeking Reimbursement from Defendants, Insurers And Attorneys

In September 2003, several chemical companies and their insurers entered into a settlement to resolve class action claims related to alleged exposure to polychlorinated biphenyls (PCBs) in Alabama. The chemical companies and their insurers settled these claims for $300 million, in what is commonly referred to as the Abernathy settlement. The plaintiffs' attorneys in Abernathy received the proceeds of the settlement in their escrow accounts, from which they ultimately distributed settlements to individual claimants and obtained their fees, allegedly without reimbursing Medicare for medical payments associated with the plaintiffs' claims.

In December 2009, the U.S. government filed suit against chemical companies, insurers and several plaintiffs' attorneys who participated in the Abernathy settlement. United States of America v. Stricker, et al., No. 09-2423 (N.D. Ala. filed Dec. 1, 2009). In Stricker, Medicare sought reimbursement for payments that it had allegedly made for medical care provided to the settling class members. Medicare contended that the defendants and the insurers who participated in the Abernathy settlement were liable to Medicare for up to double the amount of medical expenses incurred by Medicare, under the Medicare Secondary Payer statute. Stricker was filed more than six years after the Abernathy settlement was approved by the court, and after more than 90% of the settlement funds were deposited into escrow.

Defendants Sought Dismissal of the Case

Stricker has been litigated with gusto over the past year. The defendants have brought cross-claims, counterclaims and third-party claims, and most of the defendants filed motions to dismiss the case in its entirety ' maintaining that the federal government's suit was barred by the statute of limitations. In these motions to dismiss and the government's opposition, two issues have been hotly contested: 1) when the statute of limitations began running on the Medicare's reimbursement claims; and 2) whether the government had three or six years to bring a claim under the Medicare Secondary Payer statute. The government filed various motions for partial summary judgment, as well as a motion seeking to impose double damages.

The government contended that it had at least six years to file suit, or that possibly no statute of limitations applied to its claims. The government also said that the statute of limitations did not begin to run until after the settlement was accepted by a certain percentage of class members and the Abernathy defendants could no longer withdraw from the court-approved agreement, an event that occurred within six years of when this suit was filed. The Abernathy defendants and the insurers maintained that the six-year statute of limitations was inapplicable since it applied only to actions brought in contract or quasi-contract, but rather a three-year statute of limitations for tort cases applied to suits filed under the Medicare Secondary Payer statute. The Abernathy defendants and insurers also contended that the statute of limitations began to run as soon as the settlement was approved by the court, at the latest, disputing Medicare's assertion that its cause of action accrued only when the defendants and insurers could no longer withdraw from the settlement.

The Abernathy plaintiffs' counsel who were named as defendants in the Stricker case also maintained that the government's claims were barred by either the three- or six-year statute of limitations, since they had received $275 million of the settlement funds over six years before the government filed its suit. The plaintiffs' counsel were willing to concede that a six-year statute of limitations may apply to Medicare's claims for reimbursement against them, as opposed to the three-year statute, and joined the Abernathy defendants and insurers in contending that the court did not need to reach this issue of which statute applied, as the government's claims would be barred under either limitations period.

Judge Dismisses All Defendants Who Filed Motions to Dismiss

On Sept. 13, 2010, District Judge Karon O. Bowdre of the Northern District of Alabama held a hearing on the defendants' various motions to dismiss and at that time indicated that she would be dismissing all of the government's claims against defendants who had filed motions to dismiss arguing that the government's claims were barred by the statute of limitations. On Sept. 30, 2010, Judge Bowdre issued a 25-page written opinion (Dkt. No. 109) that memorialized her oral decision and further explained her reasons for dismissing the government's claims.

Judge Bowdre held that the latest-possible date the statute of limitations began running on Medicare's cause of action against the Abernathy defendants and insurers was when the settlement was approved by the court ' over six years and two months before the government filed suit. In her opinion, Judge Bowdre wrote that “logic and reason compel the application of the three-year statute of limitations founded upon tort” to Medicare Secondary Payer claims against the Abernathy defendants and their insurers, but recognized that she did not need to decide whether a three- or six-year statute of limitations applied to claims against the Abernathy defendants and insurers in order to dismiss the government's claims against these defendants.

Judge Bowdre agreed that a six-year statute of limitations applied to Medicare's claims against the Abernathy plaintiffs' counsel. The court concluded that these claims are more analogous to a contractual recovery, because of the express contractual relationship between plaintiffs' counsel and the Aberanthy class members who were Medicare beneficiaries. Judge Bowdre held that Medicare's cause of action accrued, at the latest, when the settlement funds were deposited into the attorneys' escrow accounts. In this case, $275 million of the settlement was deposited into the escrow accounts of plaintiffs' counsel approximately six years and one month before the government filed the Stricker case. Based on these facts, Judge Bowdre dismissed Medicare's claims against the Abernathy plaintiffs' counsel.

Government Moves for Reconsideration

Shortly after the court issued its written opinion, the government sought reconsideration on several grounds. The government repeated its argument that a six-year statute of limitations applies to all claims under the Medicare Secondary Payer Statute and that the statute of limitations did not begin run until after the settlement was accepted by a certain percentage of class members and the Abernathy defendants could no longer withdraw from the court-approved agreement. These arguments were both rejected by Judge Bowdre, who admonished the government that “a motion to reconsider is not the elixir to cure the classic case of 'brief writer's remorse.'” Memorandum Opinion and Order, Nov. 2, 2010, Dkt. No. 117 at 3.

The government also argued in its Motion for Reconsideration that continuing payments under the settlement agreement were subject to a new statute of limitations, since the Abernathy settlement agreement requires continuing payments until 2013. This issue was not briefed by the government and the court provided the government an opportunity to file a brief on this issue, but observed that the government did not take advantage of the court's prior invitation to file a motion to amend its complaint to more clearly articulate its arguments on this theory. Finally, Judge Bowdre provided the defendants with an opportunity to file a response to the government's request that the court reconsider the government's arguments that the statute of limitations was tolled for an unspecified period of time.

All of the parties and the court recognized that no controlling authority existed on whether a three- or six-year statute of limitations applies to actions filed by the government under the Medicare Secondary Payer statute. Although Judge Bowdre did not need to determine whether a three- or six-year statute of limitations applies to decide the motions in Stricker, her opinion provides much-needed guidance for others sued under the Medicare Secondary Payer statute. It possibly may deter the government from pursuing Medicare claims against older payments and settlements, although it is unlikely to influence their pursuit of more-recent payments.

Conclusion

Defendants, insurers and attorneys who are involved in personal-injury litigation or in settling claims with Medicare beneficiaries may want to monitor future developments in this case, including any subsequent proceedings or appeals. Stricker is one of the first cases to provide insight into Medicare's recovery practices under the Secondary Payer statute, especially as applied to mass torts and class action settlements.

Sharon L. Caffrey is co-chair of the Products Liability and Toxic Torts division of Duane Morris' Trial Practice Group. Philip R. Matthews practices in the area of general civil litigation and insurance counseling and litigation with an emphasis on complex cases. Kenneth M. Argentieri is a member of the Trial Practice Group and represents individual and corporate clients in both trial and appellate matters in a wide range of areas. Christopher L. Crosswhite practices in the area of health care law, concentrating on Medicare and Medicaid law and regulations, Medicare reimbursement controversies and appeals. John M. Lyons is an associate in the Trial Practice Group.

In September 2003, several chemical companies and their insurers entered into a settlement to resolve class action claims related to alleged exposure to polychlorinated biphenyls (PCBs) in Alabama. The chemical companies and their insurers settled these claims for $300 million, in what is commonly referred to as the Abernathy settlement. The plaintiffs' attorneys in Abernathy received the proceeds of the settlement in their escrow accounts, from which they ultimately distributed settlements to individual claimants and obtained their fees, allegedly without reimbursing Medicare for medical payments associated with the plaintiffs' claims.

In December 2009, the U.S. government filed suit against chemical companies, insurers and several plaintiffs' attorneys who participated in the Abernathy settlement. United States of America v. Stricker, et al., No. 09-2423 (N.D. Ala. filed Dec. 1, 2009). In Stricker, Medicare sought reimbursement for payments that it had allegedly made for medical care provided to the settling class members. Medicare contended that the defendants and the insurers who participated in the Abernathy settlement were liable to Medicare for up to double the amount of medical expenses incurred by Medicare, under the Medicare Secondary Payer statute. Stricker was filed more than six years after the Abernathy settlement was approved by the court, and after more than 90% of the settlement funds were deposited into escrow.

Defendants Sought Dismissal of the Case

Stricker has been litigated with gusto over the past year. The defendants have brought cross-claims, counterclaims and third-party claims, and most of the defendants filed motions to dismiss the case in its entirety ' maintaining that the federal government's suit was barred by the statute of limitations. In these motions to dismiss and the government's opposition, two issues have been hotly contested: 1) when the statute of limitations began running on the Medicare's reimbursement claims; and 2) whether the government had three or six years to bring a claim under the Medicare Secondary Payer statute. The government filed various motions for partial summary judgment, as well as a motion seeking to impose double damages.

The government contended that it had at least six years to file suit, or that possibly no statute of limitations applied to its claims. The government also said that the statute of limitations did not begin to run until after the settlement was accepted by a certain percentage of class members and the Abernathy defendants could no longer withdraw from the court-approved agreement, an event that occurred within six years of when this suit was filed. The Abernathy defendants and the insurers maintained that the six-year statute of limitations was inapplicable since it applied only to actions brought in contract or quasi-contract, but rather a three-year statute of limitations for tort cases applied to suits filed under the Medicare Secondary Payer statute. The Abernathy defendants and insurers also contended that the statute of limitations began to run as soon as the settlement was approved by the court, at the latest, disputing Medicare's assertion that its cause of action accrued only when the defendants and insurers could no longer withdraw from the settlement.

The Abernathy plaintiffs' counsel who were named as defendants in the Stricker case also maintained that the government's claims were barred by either the three- or six-year statute of limitations, since they had received $275 million of the settlement funds over six years before the government filed its suit. The plaintiffs' counsel were willing to concede that a six-year statute of limitations may apply to Medicare's claims for reimbursement against them, as opposed to the three-year statute, and joined the Abernathy defendants and insurers in contending that the court did not need to reach this issue of which statute applied, as the government's claims would be barred under either limitations period.

Judge Dismisses All Defendants Who Filed Motions to Dismiss

On Sept. 13, 2010, District Judge Karon O. Bowdre of the Northern District of Alabama held a hearing on the defendants' various motions to dismiss and at that time indicated that she would be dismissing all of the government's claims against defendants who had filed motions to dismiss arguing that the government's claims were barred by the statute of limitations. On Sept. 30, 2010, Judge Bowdre issued a 25-page written opinion (Dkt. No. 109) that memorialized her oral decision and further explained her reasons for dismissing the government's claims.

Judge Bowdre held that the latest-possible date the statute of limitations began running on Medicare's cause of action against the Abernathy defendants and insurers was when the settlement was approved by the court ' over six years and two months before the government filed suit. In her opinion, Judge Bowdre wrote that “logic and reason compel the application of the three-year statute of limitations founded upon tort” to Medicare Secondary Payer claims against the Abernathy defendants and their insurers, but recognized that she did not need to decide whether a three- or six-year statute of limitations applied to claims against the Abernathy defendants and insurers in order to dismiss the government's claims against these defendants.

Judge Bowdre agreed that a six-year statute of limitations applied to Medicare's claims against the Abernathy plaintiffs' counsel. The court concluded that these claims are more analogous to a contractual recovery, because of the express contractual relationship between plaintiffs' counsel and the Aberanthy class members who were Medicare beneficiaries. Judge Bowdre held that Medicare's cause of action accrued, at the latest, when the settlement funds were deposited into the attorneys' escrow accounts. In this case, $275 million of the settlement was deposited into the escrow accounts of plaintiffs' counsel approximately six years and one month before the government filed the Stricker case. Based on these facts, Judge Bowdre dismissed Medicare's claims against the Abernathy plaintiffs' counsel.

Government Moves for Reconsideration

Shortly after the court issued its written opinion, the government sought reconsideration on several grounds. The government repeated its argument that a six-year statute of limitations applies to all claims under the Medicare Secondary Payer Statute and that the statute of limitations did not begin run until after the settlement was accepted by a certain percentage of class members and the Abernathy defendants could no longer withdraw from the court-approved agreement. These arguments were both rejected by Judge Bowdre, who admonished the government that “a motion to reconsider is not the elixir to cure the classic case of 'brief writer's remorse.'” Memorandum Opinion and Order, Nov. 2, 2010, Dkt. No. 117 at 3.

The government also argued in its Motion for Reconsideration that continuing payments under the settlement agreement were subject to a new statute of limitations, since the Abernathy settlement agreement requires continuing payments until 2013. This issue was not briefed by the government and the court provided the government an opportunity to file a brief on this issue, but observed that the government did not take advantage of the court's prior invitation to file a motion to amend its complaint to more clearly articulate its arguments on this theory. Finally, Judge Bowdre provided the defendants with an opportunity to file a response to the government's request that the court reconsider the government's arguments that the statute of limitations was tolled for an unspecified period of time.

All of the parties and the court recognized that no controlling authority existed on whether a three- or six-year statute of limitations applies to actions filed by the government under the Medicare Secondary Payer statute. Although Judge Bowdre did not need to determine whether a three- or six-year statute of limitations applies to decide the motions in Stricker, her opinion provides much-needed guidance for others sued under the Medicare Secondary Payer statute. It possibly may deter the government from pursuing Medicare claims against older payments and settlements, although it is unlikely to influence their pursuit of more-recent payments.

Conclusion

Defendants, insurers and attorneys who are involved in personal-injury litigation or in settling claims with Medicare beneficiaries may want to monitor future developments in this case, including any subsequent proceedings or appeals. Stricker is one of the first cases to provide insight into Medicare's recovery practices under the Secondary Payer statute, especially as applied to mass torts and class action settlements.

Sharon L. Caffrey is co-chair of the Products Liability and Toxic Torts division of Duane Morris' Trial Practice Group. Philip R. Matthews practices in the area of general civil litigation and insurance counseling and litigation with an emphasis on complex cases. Kenneth M. Argentieri is a member of the Trial Practice Group and represents individual and corporate clients in both trial and appellate matters in a wide range of areas. Christopher L. Crosswhite practices in the area of health care law, concentrating on Medicare and Medicaid law and regulations, Medicare reimbursement controversies and appeals. John M. Lyons is an associate in the Trial Practice Group.