Court Dismisses Commercial Insurer’s Claims Premised on Conduct Covered by FCA Settlements
It is becoming increasingly common for private litigants to sue over conduct that was previously the subject of FCA actions. In one such recent case, the defendants successfully defeated such a collateral suit, demonstrating that it was time-barred under the statutes of limitations.
In 2018, two of the defendants entered into a civil FCA settlement premised on allegations that they distributed adulterated drugs. In 2023—at least a decade after the conduct resolved by the settlement—those defendants and affiliated entities were sued by a commercial health insurer based on the same allegations. The insurer allegedly reimbursed for some of the drugs. The insurer asserted five causes of action: common law fraud, unjust enrichment, and three claims under Minnesota statutory law.
The defendants argued that despite the settlement, the complaint had to be dismissed for a number of reasons, including that the claims were untimely. Without reaching the defendants’ other arguments, a judge in the District of Minnesota dismissed under the applicable statutes of limitations. The limitations period for each of the plaintiff’s causes of action was six years. The court observed that the underlying conduct had occurred between 2000 and 2014, so the limitations period ran no later than 2020. Yet with regard to the unjust enrichment and statutory claims, the plaintiff argued that the defendants’ alleged fraudulent concealment tolled the limitations period. The defendants allegedly sold the drugs with deceptive records and packaging; removed drug labels and expiration dates; made misstatements and omissions to regulators; and held themselves out as complying with safety standards and regulations.
The court concluded that those allegations did not allege with particularity that the defendants concealed the bases for the plaintiff’s causes of action or that the plaintiff “could not have uncovered any active concealment by reasonable diligence.” The plaintiff had merely pointed to “broad and unspecified statements related to adhering to safety and legal standards.” The statements did not demonstrate that the defendants prevented or attempted to deter the plaintiff from investigating the underlying facts. Moreover, prior public disclosures of the settled conduct belied the plaintiff’s assertion that it only recently became aware of the facts giving rise to its claims.
The court ran a similar analysis for the common law fraud claim. The limitations period was six years from “discovery” of the facts constituting the alleged fraud. “Discovery” occurred when, with reasonable diligence, the fraud “could and ought to have been discovered.” The court noted that the plaintiff’s claims were based on the same conduct as a qui tam disclosed by the defendant as early as 2010. Further, in 2012, SEC filings disclosed the basics of a related government investigation. And in 2016, a defendant disclosed that based on the same conduct, DOJ intended to pursue civil and criminal charges under the Food, Drug, and Cosmetics Act and FCA. So the alleged fraud could have and ought to have been discovered with reasonable diligence by the plaintiff by 2016. Yet the plaintiff brought its present claims in 2023—more than six years from 2016.
The court’s opinion is available here. Sidley represented the defendants in this case.
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