Conditional Payment Case Update: Angelo Et Al v. State Farm Mutual Automobile Insurance Company Et Al

Legal Scales

by P. Czuprynski

In Angelo et al v. State Farm Mutual Automobile Insurance Company et al, No.2:19cv12165, U.S. Dist. E.D. Mich. Southern Div. (3/26/2024), the Federal District Court in Michigan dismissed MSP Recovery’s suit against State Farm and over three hundred other defendants. MSP Recovery has since appealed. Below are the highlights from this decision.

Reverse False Claims Act Violations
The False Claims Act (FCA) imposes civil liability when the U.S. Government is defrauded.  To encourage enforcement of the FCA, a private person, referred to as a “relator,” can bring an action on behalf of the United States if certain criteria are met. MSP WB, LLC, a Subsidiary of MSP Recovery (Relators) brought an action against State Farm and over 300 other defendant insurance carriers, alleging that they fraudulently failed to report claims under Medicare’s Section 111 process to avoid reimbursement of conditional payments.

While these broad allegations sound salacious, the Court found that the complaint and exemplars provided by MSP WB did not demonstrate State Farm (or any other defendants) fraudulently caused Medicare or Medicare Advantage Plans to make payments for medical expenses.

The Court found that the allegations demonstrated Medicare Advantage Plans may have made conditional payments associated with a Non-Group Health Plan claim. However, fraud was not evident by the pleadings or exemplars.

Moreover, the Court found that dismissal against all defendant’s was warranted based on the public disclosure doctrine. This doctrine can apply to protect defendants from “parasitic lawsuits” and “opportunistic plaintiffs” from FCA violations that mirror publicly disclosed information. The Court agreed the allegations in this complaint were substantially the same from prior failed lawsuits that were publicly disclosed.

MSP alleged, among other things, that ISO Claims conspired with the defendant insurance carriers to violate the FCA. The Court found that the complaint and exemplars provided no support of the existence of any agreement between ISO and the defendants.

Furthermore, the Court found that ISO’s decision to terminate its agreement with MSP Recovery did not create an inference of an industry-wide conspiracy to defraud the government:

Relators also rely on ISO’s decision to revise its contracts and terminate its agreement with MSP Recovery (which it was permitted to do) to support an inference of an agreement between ISO and the Insurer Defendants. However, Relators do not plead any action by any Insurer Defendant vis a vis ISO that would support any finding that ISO acted in any way other than unilaterally when electing not to conduct business with MSP Recovery. For that reason, ISO’s termination of its agreement with MSP Recovery does not support the existence of an industrywide conspiracy to defraud the Government. See, e.g., O’Laughlin, 497 F. Supp. 3d at 241. (State Farm, at 36) 

State Action
In addition to Federal False Claims Act statutes, states or territories may have their own False Claim Act laws. In this case, MSP WB argues that the defendant insurance carriers violated additional False Claims Act laws.

The court found that the pleadings and exemplars failed to demonstrate violations of these other state and territorial laws:

Relators do not link the basis of their lawsuit—that Insurer Defendants knowingly chose not to comply with Section 111 requirements—with any false claim submitted to the Government, let alone to any Medicaid agency of a State or Puerto Rico. The Amended Complaint also does not identify any purported false claim or statement made to any of the States or Puerto Rico… in fact Relators do not identify any conduct with respect to certain of the States…For these reasons, the Court dismisses the non federal claims. (State Farm at 38)

 Motion to Amend and Other Counts
10 days after hearing on the motion to dismiss its complaint, MSP WB filed a motion requesting the opportunity to file a second amended complaint.

The Court denied the motion to file second amended complaint with prejudice. The court found that the Relators actions coupled with pursuing its defense of the motion to dismiss was an excessive waste of time and resources for the court, attorneys and parties involved in the suit. The court also noted that these actions by the Relators were “steeped in bad faith and prejudicial to the defendants.”

The Court went on to articulate other evidence that demonstrated bad faith and further addressed that  actions by the Relators had the opposite effect of creating judicial economy and further prejudiced the defendants in the case.

These and other decisions against MSP Recovery and its subsidiaries, demonstrate the Courts unwillingness to entertain MSP Recovery’s litigation strategies. As stated by the Seventh Circuit in MAO-MSO Recovery II, LLC v. State Farm Mut. Auto. Ins. Co., 994 F.3d 869, 878 (7th Cir. 2021):

This appeal… leaves us with the unmistakable impression that these debt collector [for MAOs] plaintiffs pull the litigation trigger before doing their homework. They sue to collect on receivables they paid little or nothing for and then rely on the discovery process to show they acquired something of value and thus have an enforceable right to collect. This time around, at the critical put up or shut up moment of summary judgment, the plaintiffs once again failed to establish standing.

Federal courts do not possess infinite patience, nor are the discovery tools of litigation meant to substitute for some modicum of pre-suit diligence. The plaintiffs’ approach is not sitting well with many judges, and multiple district courts have already commented on what they perceive as MAO-MSO’s rush to file litigation in the hope that discovery will show whether an actual case or controversy exists….

…these plaintiffs’ sue first and ask questions later approach risks stretching the limits of judicial patience, and counsel for the plaintiffs would be well advised to confirm the existence of an actual injury before once again availing themselves of the judicial process.

In this case, the Court did not mince words in illustrating the various deficiencies in MSP WB’s arguments and claims in their initial pleadings. This case illustrates the need for defendant insurers to aggressively  pursue remedies early in the litigation process to prevent these types of allegations from moving forward.

We will provide further insights as additional related cases become available. If you have any questions about this case, or related conditional payment litigation, please contact us at [email protected].