Oral Arguments Heard by 11th Circuit in U.S. v. Stricker

Tuesday, August 7, 2012 | 0

On July 26, oral arguments were heard before the United States Court of Appeals (11th Circuit) in Atlanta regarding the federal government’s appeal in the case of United States v. Stricker, et al.   This matter was heard before a three judge panel consisting of Judges Adalberto Jordan, James Hill, and Joseph Hood (sitting by designation from the United States District Court, Eastern District of Kentucky). The author attended this hearing and provides the following account and analysis of the proceedings.

<b>Background</b>

The Stricker case involved the government’s efforts to recoup Medicare conditional payments from an underlying $300 million class-action settlement. The government brought suit against the settling insurance carriers, alleged tortfeasor chemical companies, and plaintiff law firms. 

At the district court level, the government’s case was dismissed for failure to bring a timely claim under the Medicare Secondary Payer (MSP) act.  The district court reached this decision by applying the statute of limitations (SOL) provisions contained in the Federal Claims Collection Act (“FCCA”).  

The FCCA sets forth a three-year SOL for the federal government to bring suit for claims based in tort; and a six-year SOL for claims based in contract.  The district court found that the three-year SOL applied to the government’s action against the corporate defendants/insurers; while the six-year SOL applied against the attorneys. The district court held that the government’s action was time-barred against all defendants.

After a failed motion for reconsideration, the government brought this instant appeal. The majority of the hearing before the 11th Circuit dealt with two central issues: (1) how long the federal government had in which to bring a claim for conditional payment recovery (SOL); and (2) when the claim for recovery began (accrual). 

<b>Arguments</b>

Attorney Daniel Tenny, with the Department of Justice, presented arguments on behalf of the government.

Attorney Tenney began by addressing the SOL issue. There was immediate questioning from Judge Jordan regarding whether a six-year (contract) or three-year (tort) SOL was applicable.  The government, as it did before the district court and in its appellate brief, advocated for a six-year SOL, based in contract, against all parties. 

Attorney Tenny argued that the nature of the government’s action was grounded in implied or quasi contractual theory, thereby making the six-year contract SOL applicable.  However, Judge Jordan countered that there was no detriment incurred on the part of the government as required under this theory. Judge Jordan further commented that it “seemed odd” to view the government’s action as sounding in contract; instead, he posited, that the government’s ability to recover conditional payments was “not [based in] a contract,” but more appropriately a statutory mandate.

Interestingly, from a policy perspective, Judge Hill addressed the government’s wide latitude to pursue conditional payment recovery. On this point, Judge Hill indicated that, while it may be true that the government enjoys such broad rights of recovery, he found it disconcerting that a settlement could occur with a payout to beneficiaries and then, “surprise, we [the government] want to get paid.” 

As to the issue of accrual, Attorney Tenny argued that there was no completed cause of action before December, 2003, the date upon which 97% of the plaintiff’s had signed releases.  Per the terms of the underlying settlement agreement, if less than 97% of the class-action plaintiff’s had executed releases within a prescribed period of time, the settlement was voidable at the sole option of the settling defendants.  Thus, the government took the position that because there was a condition placed upon the settlement, that this delayed the accrual of the government’s cause of action.

Attorney Matthew Lembke appeared on behalf of the defendant corporations and insurers.

Attorney Matthew Lembke countered that it was the actual settlement agreement itself, versus a point in time which 97% of the releases were executed, which created responsibility for repayment under the MSP, and that this contingency did not postpone the settlement or delay accrual of the government’s cause of action.  Along these lines, Attorney Lembke asserted that the fact there was a condition subsequent did not make the settlement an unenforceable contract. 

Attorney Lembke added that the government was improperly attempting to “judicially amend” the MSP statute and regulations.  He argued that the government had multiple chances to initiate recovery (and for an action to accrue); specifically, under 42 C.F.R. § 411.22 (payment conditioned upon release) and 42 C.F.R. § 411.24 (when payment has or could have been made under a liability policy). Accordingly, Attorney Lembke urged the court that it did not need to determine whether a three or six-year SOL was applicable, because the government’s claim accrued no later than September, 2003 (which was when the settlement was approved by the court), and the government did not bring suit until December, 2009, which, accordingly, placed the government’s action well beyond the applicable time limitations using either the three-year or six-year SOL under the FCCA.  

Attorney Teresa Minor appeared on behalf of the plaintiff law firms.

Attorney Minor began by stating that the government was asking the court to “write additional language” into the MSP.  Attorney Minor outlined the times that a claim for recovery could have accrued, which she cited as: (1) when an initial payment of $75 million was made on August 26, 2003; (2) on September 10, 2003 when there was a court approved settlement; (3) on September 17, 2003 when an additional $200 million was deposited with the court; and (4) on October 29, 2003, when $275 million was transferred to the attorney trust accounts.
Attorney Minor argued that since suit was not brought by the government until December, 2009, the action was brought beyond any three or six-year time SOL period, and, as such, the government’s claim was time barred.

In response, the government argued that because all of the underlying claimants did not sign releases, they were not entitled to any funds and thus the government’s claim had not accrued.  Attorney Minor countered that under Alabama law (controlling law of the underlying tort matter), that the contingency of additional signatures to the release did not negate the settlement/contractual obligations.

Judge Jordan asked the government if it mattered under the MSP that all releases had not been signed, to which Attorney Tenny replied in the affirmative.  Judge Jordan then commented that, “Congress doesn’t always draft [legislation] accurately” and may have desired the effect of the government’s current position.  However, he continued, “if this isn’t the result that [the government] wanted,” then the statute should be re-drafted by the legislature to indicate that a cause of action for recovery is preserved if there are contingencies to a settlement.

Judge Jordan stated that Medicare’s right of recovery in this case was triggered by a payment conditioned upon a release of claims – and he asserted that “this was done” – notwithstanding the fact that all plaintiffs had not signed releases.  Judge Jordan continued by going through the mechanics of the underlying settlement agreement and noted that there was a $275 million dollar payment conditioned upon a release of claims. From the author’s observations, it appeared that Judge Jordan viewed this event, without regard to whether or not a percentage of releases were executed, as the basis and accrual point for measuring the limitations period for the government’s action.

Judge Jordan asked Attorney Tenny if a Medicare beneficiary never signed a release, would the government then not be entitled to recover, to which Tenny replied yes. Judge Jordan then asked rhetorically what better position would the government then be in to recover conditional payments if the releases were signed by all claimants. Judge Hill then commented that it would be a “disturbing thing” to wait for a settlement, have the government “keep it [right of recovery] a secret” and then effectuate recovery against insurance carriers.    

As oral arguments concluded, Judge Jordan commented that when there is so much money at stake, it is not generally a good idea for the government to wait so long to effectuate recovery – especially, he added, when the law in this area continues to be in flux.
Closing Thoughts

While oral arguments are not always indicative of how a court may ultimately rule, from the author’s observations, based on the appellate court’s line of questioning and comments during this hearing, an affirmation of the district court’s ruling could be in the offing. However, again, we will need to wait until the appellate court issues its formal written ruling in the near future. CPSC will continue to monitor this matter and will issue further updates as warranted.

<i>Attorney Shawn Deane is a Medicare Secondary Payer Act compliance adviser for Crowe Paradis. This column was reprinted with his permission from the firm's blog.</i>