MEMORANDUM ORDER
DORA IRIZARRY, District Judge
Plaintiff Andrzej Ostrowski initiated this action against defendant American Safety Indemnity Company ("American") seeking to collect the amount due under a settlement agreement and Confession of Judgment entered into with American's insured, Hi-Tower Contractors, Inc. ("Hi-Tower"). Before the court are the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56(c). For the reasons set forth below, the court grants plaintiff's motion in part and denies defendant's motion in its entirety.
I. Background
The Congregation Chasidei Belz of Boro Park, Inc. ("Congregation") was conducting renovation work on a building located at 50-15 15th Avenue in Brooklyn, New York, during the summer of 2003. The Congregation employed Hi-Tower to act as either a "general contractor" or "construction manager" at the building site. ( Compare Pl.'s Local Rule 56.1 Stmt. in Supp. of Summ. J. Mot. ("Pl.'s 56.1 Stmt.") at ¶ 8, with Def.'s Local Rule 56.1 Stmt. in Opp'n to Summ. J. Mot. ("Def.'s 56.1 Stmt.") at ¶ 8.) The ENY Mechanical Corp. ("ENY"), of which Ostrowski was an employee, was hired (by either Hi-Tower or the Congregation) to perform plumbing work at the construction site. ( Compare Pl.'s 56.1 Stmt. at ¶ 9, with Def.'s 56.1 Stmt. at ¶ 9.) On August 29, 2003 Ostrowski was severely injured in a fall from scaffolding in the course of his employment at the construction site. (Kovner Aff. Ex. B at 42-3, 73.)
On September 21, 2003, Ostrowski brought an action in New York Supreme Court, Kings County against Hi-Tower, among others, to recover for the bodily injuries he sustained from the fall. On or about January 28, 2004, Ostrowski's attorney served a copy of the Summons and Verified Complaint upon Apex Insurance Managers ("Apex"), the authorized agent/representative for Hi-Tower's insurance carrier, American. (Dachs Aff. Ex. K.) On March 2, 2004, Apex consultant Eugene Chang conducted a preliminary evaluation of the case and noticed potential coverage issues regarding the Breach of Representations and Warranties Endorsement ("Warranty") section of Hi-Tower's insurance policy. (Dachs Aff. Ex. M.) The pertinent provision of the policy reads:
1. The Named Insured requires that all contractors maintain commercial general liability insurance issued by an "A" rated or better domestic carrier on the following items:
a. Limits of insurance equal to or greater than the limits provided by this policy;
b. Coverage at least as broad as the insurance on this policy;
c. Contractual liability coverage, including but not limited to tort liability assumed in a written contract; and
d. Coverage for the Named Insured as an additional insured.
(Dachs Aff. Ex. J at 128.) At some point, Chang noticed the possibility that Hi-Tower had not been named as an "additional insured" on ENY's policy pursuant to the requirements of the Warranty. (Dach's Aff. Ex. M.) Consequently, Apex issued a disclaimer notice to Hi-Tower on April 23, 2004, denying coverage for Hi-Tower's failure to comply with the Warranty, but offering to provide a defense to the state court action. (Dachs Aff. Ex. Q.) Subsequently, Apex enlisted the services of attorney Lewis Silverman to defend Hi-Tower in the action. (Dachs Aff. Ex. L.)
Prior to the commencement of the trial, Ostrowski and Hi-Tower reached a settlement agreement ("agreement") in which Hi-Tower agreed to pay Ostrowski $495,000 and execute a Confession of Judgment for that amount. Additionally, Hi-Tower assigned all of its rights under the policy to Ostrowski so that he "might obtain payment of the judgment from American Safety." (Dachs Aff. Ex. CC at ¶ 5.) As part of the agreement, Ostrowski agreed not to execute the judgment against Hi-Tower or to enter the judgment for one year following its execution. ( Id. at ¶ 11.)
On September 24, 2007, Ostrowski filed the instant action seeking a judgment against American in the amount of $495,000 along with pre-judgment interest. (Dachs Ex. E at ¶ 15.) On January 21, 2010 plaintiff moved, and on February 12, 2010 defendant cross-moved, for summary judgment.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The court must view all facts in the light most favorable to the nonmoving party, but "only if there is a `genuine' dispute as to those facts." Scott v. Harris, 550 U.S. 372, 380 (2007). "When opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment." Id. A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B. Entry of Judgment
New York State Insurance Law § 3420(a)(2) provides:
A provision that in case judgment against the insured or the insured's personal representative in an action brought to recover damages for injury sustained or loss or damage occasioned during the life of the policy or contract shall remain unsatisfied at the expiration of thirty days from the serving of notice of entry of judgment upon the attorney for the insured, or upon the insured, and upon the insurer, then an action may, except during a stay or limited stay of execution against the insured on such judgment, be maintained against the insurer under the terms of the policy or contract for the amount of such judgment not exceeding the amount of the applicable limit of coverage under such policy or contract.
N.Y. INS. LAW § 3420(a)(2). Under the common law, an injured person possessed no direct cause of action against the insurer of a tortfeasor due to a lack of privity of contract. See Lang v. Hanover, 3 N.Y.3d 350, 353-54 (2004). Thus, "if the insured was insolvent, so that the person injured or the estate of one killed was unable to satisfy the judgment against him, the insurer in effect would be released." Id. (quoting Jackson v. Citizens Casualty Co., 277 N.Y. 385, 389 (1938)). The purpose of § 3420(a)(2) was to remedy this injustice. Thus, after entry of a judgment against an insured, § 3420 provides an injured party who lacks privity with an insurer a direct cause of action against that insurer to collect the unsatisfied judgment.
The parties disagree as to whether compliance with § 3420 is a condition precedent to any direct action against American. Defendant argues that plaintiff lacks standing to commence this action because the aforementioned Confession of Judgment was never entered, and, consequently, notice of said entry was not provided as required by § 3420. Plaintiff counters that he brings this suit as an assignee of Hi-Tower, pursuant to the settlement agreement, rather than as a third-party lacking privity, and therefore, compliance with § 3420 was unnecessary.
To support their respective positions, defendant relies heavily on Lang v. Hanover, 3 N.Y.3d 350 (2004), and plaintiff on Westchester Fire Ins. Co. v. Utica First Ins. Co., 40 A.D.3d 978 (2d Dep't 2007). The question presented in Lang was whether, and under what circumstances, an injured party lacking privity could bring a direct action against a tortfeasor's insurance company to recover under the policy. See Lang, 3 N.Y.3d at 352. The court held that, pursuant to the plain language of § 3420(a)(2), the injured party must obtain and enter a judgment against the insured tortfeasor before bringing suit against the insurer. Id. Once such a judgment is obtained, "the injured party steps into the shoes of the tortfeasor and can assert any right of the tortfeasor-insured against the insurance company." Id. at 355. In Lang, however, there was no mention of an agreement assigning the insureds' rights against their insurance company to the injured party. Thus, Lang is not dispositive.
Defendant also relies heavily on Henegan v. Merchants Mut. Ins. Co., 31 A.D.2d 12 (1st Dep't 1968). Henegan merely held that actual payment of an excess judgment rendered against an insured is not a condition precedent to a suit against an insurer, and therefore is inapposite.
In Westchester, the insured assigned its rights under its insurance policy with Utica to a third-party lacking privity (Westchester) via a settlement agreement. Thereafter, Westchester initiated a direct action against Utica to collect under the policy. The court held that Westchester, through assignment and subrogation, stood in the position of the insured and was entitled to indemnification from Utica. Although the Westchester court did not address the requirements of § 3420, its holding is an implicit recognition that assignment/subrogation is sufficient, without entry of a judgment against an insured, for an injured party to maintain a direct cause of action against an insurer. Like the plaintiff in Westchester, Ostrowski, as assignee of Hi-Tower, is no longer a stranger to the underlying insurance policy. It is well settled law that an assignee "stands in the shoes" of the assignor and is subject to all the benefits that could have been asserted against the assignor at the time of the assignment. Thus, it follows that any rights Hi-Tower had against American have inured to Ostrowski.
Courts have held that such assignments are valid and lawful. See Grand Crossing, L.P. v. U.S. Underwriters Ins. Co., 2007 WL 4591989, at *1 (S.D.N.Y. Dec. 18, 2007) (if original policy holder could bring an action, plaintiff as assignee is permitted to do the same); see also Pinto v. Allstate Ins. Co., 221 F.3d 394, 403 (2d Cir. 2000) ("assignment of the defendant's bad faith claim to the plaintiff in a personal liability suit is the ordinary mechanism for pursuing such claim against the insurer, usually in exchange for a covenant not to execute on the judgment") (citations omitted); Home Depot U.S.A., Inc. v. National Fire Marine Ins. Co., 55 A.D.3d 671, 673 (2d Dep't 2008) (holding defendant failed to support its contention that such an assignment was prohibited by § 3420). Thus, it follows that plaintiff was free to commence this action against American, and plaintiff's failure to enter the Confession of Judgment does not bar this action. Accordingly, defendant's motion for summary judgment on this ground is denied.
C. Timeliness of Disclaimer
Defendant notified Hi-Tower of its decision to disclaim coverage on April 23, 2004, fifty-two days after receiving notice of claim on January 28, 2004. The parties disagree as to whether this notice violates New York Insurance Law § 3420(d), which mandates that an insurer seeking to disclaim liability must "give written notice as soon as is reasonably possible . . . to the insured and injured person or any other claimant." N.Y. INS. LAW § 3420(d).
The parties agree that Apex's letter dated April 23, 2004, served as a disclaimer notice to Hi-Tower. (Def.'s Local Rule 56.1 ¶ 20; Pl.'s Mem. in Opp'n to Def.'s Summ. J. Mot., at 4.)
The New York State Court of Appeals has measured the timeliness of an insurer's notice of disclaimer from the point in time when the insurer first learned of the grounds for disclaimer. First Fin. Ins. Co. v. Jetco Contr. Corp., 1 N.Y.3d 64, 68-69 (2003). "The question of unreasonableness becomes a question of fact, or if extreme, of law, depending upon the circumstances of the case which make it reasonable for the insurer to take more or less time to make, complete, and act diligently on its investigation of its coverage or breach of conditions in its policy." Allstate Ins. Co. v. Gross, 27 N.Y.2d 263, 270 (1970); see also Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1030 (1979) (the term "as soon as is reasonably possible" is a question of fact which depends on all the facts and circumstances, especially the length of and the reason for the delay.) Should the delay in notice be found unreasonable as a matter of law, the insurer is precluded from effectively disclaiming liability.
Under New York law "it is clear that insurers are afforded the opportunity to investigate an insured's claim in order to determine whether coverage is appropriate." N.Y. University v. First Fin. Ins. Co., 322 F.3d 750, 754 (2d Cir. 2003). Indeed, an insurer's "need to conduct such investigations in a thorough manner constitutes a sufficient reason for delayed notification." Id.; see also 2540 Assoc. Inc. v. Assicurazioni Generali, 271 A.D.2d 282 (1st Dep't 2000). However, this time afforded to the insurer is not simply an invitation for frivolous delay as it is the insurer who bears the burden of justifying the delay. See N.Y. University, 322 F.3d at 754. A delay will be found unreasonable in situations where the additional investigation was found to have no bearing on the initial reasons for denial of coverage and, quite obviously, when no reason at all has been given for the delay. See McGinnis v. Mandracchia, 291 A.D.2d 484 (2d Dep't 2002).
Plaintiff maintains that Apex should have known of the possible grounds for disclaimer on January 28, 2004, upon receipt of Hi-Tower's claim. (Pl.'s Mem. in Supp of Summ. J. Mot., at 7.) However, the grounds for disclaimer were not immediately obvious from Hi-Tower's January 28, 2004 letter. ( See Dachs Aff. Ex. L.) Defendant had to conduct an investigation in order to determine whether Hi-Tower was an additional insured of ENY. The extent of Apex's investigation is well documented. Defendant maintains that it first learned of a potential policy violation on or around March 2, 2004, when Chang prepared a memo to supervisor Richard A. Jurczyk. (Dachs Aff. Ex. M.) Chang's memorandum to Jurczyk triggered a letter to coverage counsel seeking examination of this legal issue and guidance on possible courses of action. Subsequently, coverage counsel prepared a comprehensive six-page memorandum discussing these legal issues. ( See Dachs Aff. Ex. O.); see General Ins. Co. of America v. City of New York, 2005 WL 3535113, at *5 (S.D.N.Y. Dec. 23, 2005) (approximately 54-day delay not unreasonable when insurer investigated whether a third party was an additional insured; case was sent to outside counsel for a legal opinion.). As defendant notes in its papers, the disclaimer notice was sent eight (8) days after the receipt of coverage counsel's letter rendering their opinion. (Def.'s Mem. in Opp'n to Summ. J. Mot., at 5). The delay must be viewed in light of the insurer's "prompt, diligent, and good faith investigation of the claim." Structure Tone v. Burgess Steel Prods. Corp., 249 A.D.2d 144, 145 (1st Dep't 1998). The defendant needed time to investigate an issue that went to the crux of its disclaimer and, therefore, its notice was not unreasonable as a matter of law. See Hartford Ins. Co., 46 N.Y.2d at 1030 ("It is only in the exceptional case that it may be decided as a matter of law.") (emphasis added). Accordingly, plaintiff's motion for summary judgment on this ground is denied.
D. Breach Materiality
Defendant argues that Hi-Tower breached the Warranty section of the policy by failing to have ENY name it as an "additional insured" under ENY's own insurance policy. The Warranty section states, in part:
The Named Insured requires that all contractors maintain commercial general liability insurance issued by an "A" rated or better domestic carrier on the following terms:
a. Limits of Insurance equal to or greater than the limits provided by this policy;
b. Coverage at least as broad as the Insurance coverage afforded by this policy
c. Contractual liability coverage, including but not limited to tort liability assumed in a written contract; and
d. Coverage for the Named Insured as an additional insured.
(Dachs Aff. Ex. J at 128.)
The parties seem to agree that the breach determination centers around one critical question: whether ENY was Hi-Tower's sub-contractor. However, the actual relationship between Hi-Tower and ENY is unclear. Moses Fischman, principal of ENY, testified at a deposition in 2008 that Hi-Tower hired ENY to perform the plumbing work at the building site. (Kovner Aff. Ex. A. at 7-10.) Conversely, Jacob Katz, President of Hi-Tower, asserted in an affidavit that no contract was entered into between Hi-Tower and ENY to perform plumbing work at the premises. (Dachs Aff. Ex. G.) Moreover, Fischman himself wrote to Hi-Tower's attorney on May 6, 2004, and stated that he was hired by the Congregation to do plumbing work on the building. (Dachs Aff. Ex. I.) Fischman also testified that the checks he received in payment for his services were signed by the Congregation and perhaps he was hired by "a combination of both." (Kovner Aff. Ex. A at 44-46.) There is a genuine issue of material fact as to whether ENY was Hi-Tower's sub-contractor, and therefore summary judgment on this ground is denied.
The fact that the deposition transcript is unsigned does not preclude its consideration for purposes of this decision.
Plaintiff argues that, assuming there was a breach, defendant is unable to establish the breach was material as a matter of law because, even if Hi-Tower had been named as an additional insured under ENY's policy, no coverage would have been provided by American. The Employee Exclusion provision of the instant policy excludes liability coverage for bodily injury to:
Section 3106(b) of the New York State Insurance Laws provides that breach of a warranty does not defeat recovery under an insurance contract unless the breach materially increases the risk of loss. See Continental Ins. Co. v. RLI Ins. Co., 161 A.D.2d 385, 387 (1st Dep't 1990). The burden is on the insurer to show materiality.
(1) An "employee" of any insured arising out of and in the course of employment by any insured; . . .
This exclusion applies:
(1) Whether any insured may be liable as an "employer" or in any other capacity.
(Dachs Aff. Ex. J at 104.) Plaintiff contends that he and ENY constituted an "employee" and "insured," respectively, under this provision, thereby excluding coverage for bodily injuries sustained by plaintiff during the course of his employment with ENY. Plaintiff further contends that, by failing to disclaim on this ground, defendant has waived its right to do so. See General Acc. Ins. Group v. Cirucci, 46 N.Y.2d 862, 864 (1979) ("the notice of disclaimer must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated.").
As an initial matter, it is clear that the phrase "any insured" refers only to the named insureds under a policy. See Shelby Realty v. National Surety Corp., 2007 WL 1180651, at *4 (S.D.N.Y. Apr. 11, 2007). Thus, contrary to plaintiff's contentions, ENY cannot be considered an insured under the policy. Even if ENY could be considered an insured under the policy, however, the "Employee Exclusion, [when] read in conjunction with the Separation of Insureds Clause, does not relieve [defendant] of its obligation to indemnify" Hi-Tower. Id. The "Separation of Insureds" clause of the policy, in pertinent part, provides:
Except with respect to the Limits of Insurance, and any rights or duties specifically assigned to the First Named Insured, this insurance applies:
a. As if each Named Insured were the only Named Insured; and
b. Separately to each insured against whom a "claim" is made or "suit" is brought.
(Dachs Aff. Ex. J at 115.) The "Separation of Insureds Clause limits our reading of the Employee Exclusion to individual insureds, as though each is the only insured under the policy. Thus, the Employee Exclusion does not apply to [Hi-Tower] unless one of [Hi-Tower's] employees is injured during the course of his employment. Since [Ostrowski] worked for [ENY] and not for [Hi-Tower], his employment is not relevant to [Hi-Tower's] coverage." Shelby Realty, 2007 WL 1180651, at *4. As the Shelby court recognized, this reading makes practical sense. "The Employee Exclusion recognizes that general liability coverage is unnecessary for an employer whose employee is injured in the course of his employment since the workman's compensation system (and the required workman's compensation insurance coverage) covers such an injury. However, a non-employer . . . needs general liability coverage if sued by someone else's employee." Shelby Realty, 2007 WL 1180651, at *4 (citations omitted). Plaintiff was an employee of ENY — not Hi-Tower — and thus Hi-Tower would need coverage if sued by plaintiff. Therefore, plaintiff's argument that the alleged breach of the Warranty would not have materially increased the risk of loss is without merit, and his motion for summary judgment on this ground is denied.
Plaintiff's reliance on Richner Development, LLC v. The Burlington Ins. Co., 2009 N.Y. Misc. LEXIS 5221 (N.Y. Sup. Ct. 2009), Chinbay v. Avalon Bay Communities, Inc., 06-CV-1908, Docket Entry No. 79 (E.D.N.Y. Sept. 26, 2008), and other similar cases is misplaced. None of those cases interpreted an Employee Exclusion in light of a Separation of Insured's Clause.
E. Reasonableness of the Settlement Voluntary Payment
When an insurer declines coverage, "the insured may settle with third parties without prejudicing its rights against the insurer, so long as the settlement is made `in good faith.'" Amalgamet, Inc. v. Underwriters at Lloyd's, 724 F. Supp. 1132, 1142 (S.D.N.Y. 1989) (quoting Bunge Corp. v. London Overseas Ins. Co., 394 F.2d 496, 497 (2d. Cir. 1968)). In order to recover the settlement amount from the insurer, the insured need not show "actual liability to the party with whom it has settled so long as a potential liability on the facts known to the [insured is] shown to exist, culminating in a settlement in an amount reasonable in view of the size of possible recovery and degree of probability of claimant's success against the [insured]." Luria Bros. Co. v. Alliance Assurance Co., 780 F.2d 1082, 1091 (2d Cir. 1986) (internal quotation marks omitted).
On the facts known to Hi-Tower at the time of settlement, Hi-Tower had potential liability to Ostrowski. While it is certainly possible that Hi-Tower could have exonerated itself of any liability to Ostrowski by proving that it was a mere "construction manager" at the building site, as noted above, the role Hi-Tower played at the site remains disputed. Moreover, the record indicates that the estimated settlement ("$1,000,000 to $1,500,000") and verdict values ("$2,500,000") were quite large and dwarf the ultimate confession of judgment amount. (Dachs Aff. Ex. V.) As the attorneys retained to defend Hi-Tower indicated: "a settlement on either of those terms ($400,000 or $500,000 confession of judgment and assignment of insured rights to insurance policy) is a reasonable settlement in light of the plaintiff's serious injuries. . . ." (Dachs Aff. Ex. Z.)
Defendant has not presented any evidence that the settlement with Ostrowski was made in bad faith. Nor has defendant cited any evidence, such as competing jury verdicts or settlement abstracts, indicating that the confession of judgment amount represented an unreasonable settlement. Instead, defendant merely notes that plaintiff's demand to Hi-Tower was $400,000, and, therefore, according to defendant, plaintiff would have settled for less than that amount, thereby establishing a genuine issue as to the reasonableness of the $495,000 confession of judgment. However, the record clearly indicates that the smaller sum was only acceptable to Ostrowski as a cash payment, whereas Ostrowski demanded $500,000 in contemplation of the confession of judgment and assignment of rights against American. (Dachs Aff. Ex. Z.) In short, the reasonableness of the settlement amount has been established, it did not constitute a "voluntary payment" by Hi-Tower, and can therefore provide no basis for disclaimer. Thus, plaintiff's motion for summary judgment on this ground is granted and defendant's is denied.
The cases cited by defendant in this regard are distinguishable. For example, most deal with indemnification arising out of the insured/insurer relationship.
F. Equitable Estoppel
Plaintiff argues that defendant should be estopped from disclaiming coverage because it assumed the defense of the action for several years without "moving forward on its threat to disclaim." (Pl.'s Mem. in Supp of Summ. J. Mot., at 17.) It is unclear what plaintiff means by "moving forward," or how this has prejudiced him. What is clear, however, is that, where an insurer defends an action on behalf of an insured, without asserting a known defense to coverage or reserving its rights to do so, it is estopped from thereafter disclaiming coverage. See Schiff Assoc. v. Flack, 51 N.Y.2d 692, 699 (1980). Defendant's letter dated April 23, 2004 was in fact a notice of disclaimer and reservation of rights. Thus, this argument is rejected.
The cases cited by plaintiff on this point are distinguishable. For example, in most of the cases late disclaimer by the insurer prejudiced the insured.
Plaintiff also argues that defendant should be estopped because it failed to notify Hi-Tower that it had a right to obtain counsel of its choice in view of American's conflicting interest in the matter. To support his contention, plaintiff cites to cases where an insurer faces liability on multiple grounds. See Public Service Mut. Ins. Co. v Goldfarb, 53 N.Y.2d 392 (1981) (potential conflict of interest where insurer is liable for compensatory damages but not punitive damages; defendant entitled to independent counsel); Elacqua v. Physicians' Reciprocal Insurers, 21 A.D.3d 702 (3rd Dep't 2005) (conflict of interest in representing three plaintiffs where defendant insurer disclaimed some, but not all, of the malpractice claims against the plaintiff). Indeed, the Court of Appeals reaffirmed the proposition that "where an insurer may face liability based upon some of the grounds for recovery asserted but not upon others, the insured defendant is entitled to be represented by an attorney of his or her own choosing at the expense of the insurer." See Elacqua v. Physicians' Reciprocal Insurers, 52 A.D.3d 886, 888-89 (3rd Dep't 2008). Plaintiff offers no explanation of why or how American's interest in defending the lawsuit was in conflict with Hi-Tower's interests, or how they were provided compromised representation. Accordingly, defendant is not equitably stopped from disclaiming coverage, and plaintiff's motion for summary judgment on this ground is denied.
III. Conclusion
Consistent with the discussion above, the court grants plaintiff's motion in part (reasonableness of the settlement amount) and denies defendant's motion in its entirety. Genuine issues of material fact exist regarding whether ENY was Hi-Tower's subcontractor and whether defendant timely issued its disclaimer notice. As such, this matter is hereby referred to U.S. Magistrate Judge Viktor V. Pohorelsky for the resolution of any remaining pre-trial matters.
SO ORDERED
DATED: Brooklyn, New York
September 30, 2010
are true,
United States v. Gaubert, 499 U.S. 315, 327 (1991), and construes all factual allegations in the light most favorable to the plaintiff.
Brower v. County of Inyo, 489 U.S. 593, 598 (1989). In other words, "[o]n a motion to dismiss, the facts stated in the . . . complaint and all reasonable inferences therefrom are taken as true."
Bickley v. Caremark RX, Inc., 461 F.3d 1325, 1328 (11th Cir. 2006) (quoting
Stephens v. Dep't of Health Human Servs., 901 F.2d 1571, 1573 (11th Cir. 1990)).
IV. Legal Background
A. MSPA Generally
The law and statutes implicated by this case involve the common situation of a personal injury or illness giving rise to the need for payment of medical expenses. Medicare provides a government payment scheme to fund medical expenses for qualified individuals. See 42 U.S.C. §§ 1395- 1395ggg. In general terms, Medicare will not pay for medical expenses where a reasonable certainty exists that an insurance company, or another liable third party, will cover the costs. See generally Rybicki v. Hartley, 792 F.2d 260, 262 (1st Cir. 1986). In cases of uncertainty, however, or where the injured or ill person is not likely to receive prompt payment for medical expenses, Medicare may make payment for the expenses conditioned upon later reimbursement.
Though it has been called "convoluted and complex" by some courts and labeled a "model of un-clarity," Estate of Urso v. Thompson, 309 F. Supp. 2d 253, 259 (D. Conn. 2004), the Medicare Secondary Payer Act ("MSPA" or the "MSP statute"), put simply, is a statutory reimbursement mechanism for the Government to recover expenses conditionally paid by Medicare. See 42 U.S.C. § 1395y. The history and purpose of the MSPA "plainly indicate that Congress wanted Medicare's payments to be secondary and subject to recoupment in all situations where one of the statutorily enumerated sources of primary coverage [termed `primarypayers'] could pay instead." United States v. Baxter Int'l, Inc., 345 F.3d 866, 888 (11th Cir. 2003). As the Eleventh Circuit noted,
In a nutshell, the MSP declares that, under certain conditions, Medicare will be the secondary rather than primary payer for its insureds. Consequently, Medicare is empowered to recoup from the rightful primary payer (or from the recipient of such payment) if Medicare pays for a service that was, or should have been, covered by the primary insurer. Although the statute is structurally complex — a complexity that has produced considerable confusion among courts attempting to construe it — the MSP's function is straightforward.
Id. at 875. Those "certain conditions" that must be met for the Government to file a claim against a "primary payer" for reimbursement under the MSPA are fleshed out by the statute's implementing regulations at
42 C.F.R. § 411.20 et seq.
As relevant here, any recipient of a payment that qualifies as reimbursable to Medicare under the MSPA must reimburse Medicare within sixty days. 42 C.F.R. § 411.22(a), 411.24(h) (2006). If Medicare does not receive timely reimbursement, the Government, as it has done here, may file a lawsuit for recovery against any entity that qualifies as a "primary payer." 42 C.F.R. § 411.24(e) ("[The Government] has a direct right of action to recover from any primary payer."). Though the MSPA does not reference "primary payer" within the text of the statute itself, the term is defined in the regulations as follows:
Primary payer means, when used in the context in which Medicare is the secondary payer,
any entity that is or was required or responsible to make payment with respect to an item or service (or any portion thereof)
under a primary plan. These entities include, but are not limited to, insurers or self-insurers, third party administrators, and all employers that sponsor or contribute to group health plans or large group health plans.
42 C.F.R. § 411.21 (emphasis added). Responsibility to pay under a "primary plan," therefore, is an integral part of the analysis as to whether an entity qualifies as a "primary payer."
The MSPA defines "primary plan" as follows: "A primary plan, and an entity that receives payment from a primary plan, shall reimburse [Medicare] for any payment made . . . with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service." 42 U.S.C. § 1395y(b)(2)(B)(ii). The 2004 amendments to the MSPA clarified the scope of third-party liability in the context of a "self-insured plan": "An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by failure to obtain insurance, or otherwise) in whole or in part." Id. Thus, a "primary payer" with responsibility to make payments under a "primary plan," is ultimately responsible to reimburse Medicare for its payments toward the same item or service rendered.
The MSPA regulations also clarify the Government's direct right of action to recover "from parties that receive primary payments," including "any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a third party payment." 42 C.F.R. § 411.24(g) (emphases added). This provision and others indicate how the MSPA contemplates that a settlement scenario — in this case, arising from tort litigation — could qualify as a primary payment falling within the scope of liability for Medicare reimbursement. Section 411.22(b) specifically lists a "judgment," "settlement," or an "award" as examples of the nonexhausive means which may demonstrate "responsibility for payment" by a primary payer, ultimately triggering the obligation to reimburse Medicare.
Important to accrual analysis of the statute of limitations discussed below, the regulations define the Government's right to initiate recovery as beginning "as soon as it learns that payment has been made or could be made under workers' compensation, any liability or no-fault insurance, or an employer group health plan." 42 C.F.R. § 411.24(b).
For the sole purpose of analysis on the statute of limitations at issue, the court will assume that all Corporate Defendants qualify as "primary plans" under the 2004 amended definition of "primary plan" in the MSPA and will further assume no issue concerning retroactive application of these amendments. The court will also assume that the Attorney Defendants are entities that have "received payment from a primary plan or from the proceeds of a primary plan's payment to any entity" under the MSPA, notwithstanding the argument of certain Attorney Defendants that they received only attorneys fees for their early involvement and were not involved in the settlement process.
B. Statute of Limitations
Because the MSPA is silent as to a deadline for filing a claim for recovery, the parties agree that the relevant statute of limitations for the Government's claims, if any, is governed by the Federal Claims Collection Act ("FCCA"). 28 U.S.C. § 2415 (2008); see also In re Dow Corning, 250 B.R. 298, 350-51 (Bktrpcy. E.D. Mich. 2000) (stating the universal recognition of FCCA's applicability to the Government's MSPA claims). The parties disagree, however, as to whether the FCAA's six-year or three-year statute of limitations applies.
Subsection (a) of the FCAA provides that "every action for money damages brought by the United States . . . which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action first accrues. . . ." 28 U.S.C. § 2415(a) (emphasis added). Subsection (b) states that "every action for money damages brought by the United States . . . which is founded upon a tort shall be barred unless the complaint is filed within three years after the right of action first accrues. . . ." 28 U.S.C. § 2415(b) (emphasis added). The issue in the present case then becomes whether the Government's MSPA action is founded upon contract or tort. While courts have not developed any bright line test or rote rule to govern interpretation of these sections, the court recognizes that analysis should be guided by "logic and reason." Cockerham v. Garvin, 768 F.2d 784, 787 (6th Cir. 1985) (analyzing the applicability of 28 U.S.C. § 2415(a) or (b)).
Because the nature and origin of the purported relationship between the Government and the two categories of defendants differ, the court will conduct a separate analysis for each.
1. The Corporate Defendants
At the outset, the court notes that no precedent in the Eleventh Circuit analyzes whether the three- or six-year statute of limitations applies where the Government files MSPA claims against entities who were defendants in private mass tort litigation; neither could the parties point to a relevant case from any circuit court of appeals. The only identified reported case that analyzes closely analogous facts in application to the statute of limitations controlling MSPA claims is In re Dow Corning, 250 B.R. 298 (Bktrpcy. E.D. Mich. 2000).
The Government in Dow Corning sought reimbursement under the MSPA from a bankrupt tort defendant involved in ongoing breast implant litigation. To determine whether the Government's MSPA claim was founded upon a tort or a contract for the purposes of statute of limitations analysis under the FCCA, the court, using principles of logic and reason, labeled the analysis "truly elementary." Id. at 352. Finding significance in the fact the Government could identify "no contractual provision binding Dow Corning to pay for medical benefits to an implant recipient who also received medical benefits from the Government," among other reasons, the court held that the MSPA action was "founded upon tort" and thus the three-year statute of limitations applied. Id. at 352-53.
Similarly here, the defendant's reimbursement duties to the Government are based solely on the MSP statute because no express contract exists between the Defendants and the Government. The defendant's relationship with the Government prompting liability for reimbursement under the MSPA arises only, if at all, from the defendant's tortious relationship with any potential Medicare beneficiaries arising from allegations of reckless and negligent behavior, which prompted the $300 million settlement agreement. Thus, under a "but for" analysis, the Corporate Defendants argue that the Government's claim against them for Medicare reimbursement is founded upon tort and the three-year bar should apply.
The Government, however, strongly argues an implied contract at law theory to establish a contractual relationship between itself and the Corporate Defendants, which can be characterized as tenuous at best. Conceding the lack of an express contract, the Government, quoting United States v. Weinberg, 2002 U.S. Dist. LEXIS 12289 (E.D. Penn. 2002), argues that its claim is " more akin to a suit for restitution than tort." Id. at *15 (emphasis added). While the Government emphasizes that its claim against the Corporate Defendants is not a common-law tort action and will not require direct proof of any tort elements, the language of 28 U.S.C. § 2415(b) contemplates that the three-year bar applies to any action founded upon a tort — not that the action itself is a tort claim or necessarily involves proof of tort elements.
To avoid the FCCA's three-year tort bar, the Government also asserts that its right of action "stems from [its] statutory right to recover monies conditionally paid by Medicare." Pl's Omnibus Resp., Doc. 55 at 22. Contrary to this argument, however, the court in Dow Corning, applying the three-year statute of limitations, explained that "[t]he fact that the Government's rights are created by statute is not a defining or even relevant factor." 250 B.R. at 351.
The Government also cites a number of non-binding authorities that apply the six-year statute of limitations to MSPA claims on a restitution theory. These cases are distinguishable from the present fact scenario, however, because the defendants by nature possessed some type of express contractual relationship with the Medicare beneficiary that conceivably gave the Government rights as a third-party beneficiary. United States v. Weinberg, 2002 U.S. Dist. LEXIS 12289, *7-*9 (E.D. Penn. 2002) (suing attorney of Medicare beneficiary); Brooks v. Blue Cross/Blue Shield of Fla., Inc., 1995 U.S. Dist. LEXIS 22124, *5-*10 (suing several insurance companies as "group health plans" under MSPA and Blue Cross "as the fiscal intermediary or administrator for the Medicare program"); Provident Life Accident Ins. Co. v. United States, 740 F. Supp. 492, 496 (E.D. Tenn. 1990) (action for MSPA recovery against private insurance carrier who acted as administrator of an employer's group health care plan); United States v. Blue Cross Blue Shield, 726 F. Supp. 1517, 1518 (suing insurance carrier as "fiscal agent" of hospitals and physicians administering Medicare benefits).
The Government also cites to "overwhelming authority" holding that courts, in general, consistently apply the six-year statute of limitations to government suits involving cost-recovery statutes. E.g., United States v. P/B STCO 213, 756 F.2d 364 (5th Cir. 1985) (involving the Federal Water Pollution Control Act); United States v. Limbs, 524 F.2d 799 (9th Cir. 1975) (Federal Employees' Compensation Act); United States v. Sunoco, Inc., 501 F. Supp. 2d 641 (E.D. Pa. 2007) (Pennsylvania Storage Tank and Spill Prevention Act). This court is not convinced of the relevance of these cases to the MSPA. That Act presents a unique statutory framework that extends jurisdiction beyond the Government's direct right of action against Medicare beneficiaries and entities in contractual privity to Medicare beneficiaries, such as health insurance carriers. Instead, the jurisdictional tentacles of the MSPA reach out to remote third-party payers whose MSPA liability arises solely on the basis of independent tort liability or some other situation not involving an intentional, preexisting contract with the Government or Medicare beneficiaries. This scenario heightens the complexity of the MSPA.
The Government has not cited to a single case where a court has applied the six-year statute of limitations in the situation where the defendant's responsibility for Medicare reimbursement under the MSPA claim arises solely because of that entity's liability in a tort settlement to pay plaintiffs who received a Medicare payment for items or services necessitated by the defendant's alleged tortious conduct. This court declines the opportunity to be the first to do so using the Government's implied-at-law contract theory. While creative, it stretches too far beyond the bounds of logic and reason to adopt absent precedent.
The Government raises no alternative contract theory for why the six-year statute of limitations should apply and the court will not invent any.
The only purported contractual relationship in this scenario lies not between the tortfeasor defendants and the Government, but between the tortfeasor defendants and the alleged Medicare beneficiaries because of a settlement resolving allegations of tort liability. The Government concedes that the relationship between the Corporate Defendants and the alleged Medicare beneficiaries arises solely because of tort allegations (Hearing Tr. at 34), and that "but for" the settlement of the tort claims, the Government would have no MSPA claim ( id. at 30-31). The court finds in this scenario that logic and reason compel the application of the three-year statute of limitations founded upon tort, because the Government's MSPA claims are founded upon allegations of the Corporate Defendant's tortious activity and the resulting tort settlement. In the alternative, even if the six-year statute were to apply to the Corporate Defendants, the court finds the cause of action accrued more than six years before the suit was filed, as discussed below. Regardless of which statute of limitations applies, the Government's claims against the Corporate Defendants were filed too late.
2. The Attorney Defendants
As counsel for Attorney Defendants based their statute of limitations argument on the six-year statute founded upon contract and did not argue applicability of the three-year limitations period founded upon tort, the court need not engage in a lengthy analysis as to which statute of limitations applies to the Attorney Defendants. The court does, however, note several points of reasoning that may distinguish these Defendants from the Corporate Defendants.
Logic suggests that the Attorney Defendants who represented the tort plaintiffs in the Abernathy case, the alleged Medicare beneficiaries in the instant case, essentially acted as agents pursuant to the contractual relationship between the Government and the Medicare beneficiaries. More specifically, the Attorney Defendants' obligation to pay their clients any monies allegedly owed to the Government for Medicare reimbursement, unlike that of the Corporate Defendants, arose not from any tortious conduct on behalf of the Attorney Defendants themselves but from an express contractual relationship with the Medicare beneficiaries — namely, any fee agreement or attorney-client agreement between them. From that perspective, the Attorney Defendants' MSPA obligation is essentially founded upon a contractual obligation.
For these reasons, the grounds for statute of limitations determination as applied to the Attorney Defendants is more reasonably founded upon contract rather than tort. The contractual nexus is clearer in this instance than as alleged against the Corporate Defendants, whose MSPA obligations ultimately arose from, and cannot be divorced from, allegations of tortious conduct. The court, therefore, concurs that the six-year statute of limitations applies as to the Attorney Defendants. C. Accrual of Government's MSPA Action
To determine when the Government's MSPA cause of action first accrued for purposes of the statute of limitations, the court considers the point of time when the Government could have brought an independent action for Medicare reimbursement related to the Abernathy settlement. See 42 C.F.R. § 411.24(b) ("[The Government] may initiate recovery as soon as it learns that payment has been made or could be made under . . . any liability or no-fault insurance, or an employer group health plan."). Again, the court separates its analysis as to the two categories of defendants because the Government's asserts a different basis for liability for each.
1. Corporate Defendants
Read together, the MSPA and its implementing regulations provide that an entity's liability for Medicare reimbursement arises upon demonstration of its responsibility to pay under a primary plan, including a self-insured plan. See 42 U.S.C. § 1395y(b)(2)(B)(ii) (imposing an obligation to reimburse Government upon demonstration of "a responsibility to make payment with respect to" an item or service supplied by Medicare); (iii) (enabling the Government to bring an action under the MSPA against a primary payer that is or was "required or responsible . . . to make payment" for a primary benefit). A primary payer's responsibility to pay may be demonstrated by a variety of means, "including but not limited to a settlement, award, or contractual obligation." 42 C.F.R. § 411.22(b)(3) (emphasis added). The key fact for analyzing accrual of the Government's cause of action as against the Corporate Defendants, therefore, is at what point their "responsibility to pay" arose in relation to the Abernathy Settlement.
In light of the facts, the court finds that the Corporate Defendants' responsibility to pay arose no later than the point of execution and court approval of the Abernathy Settlement Agreement. The parties negotiated the $300 million settlement during the summer of 2003 and announced it to the world pursuant to the public joint hearing on August 20, 2003. The Abernathy defendants transferred the initial $75 million payment into the court registry on August 26, 2003. All parties signed the finalized 20-page Settlement Agreement on September 9, 2003, which the state court approved by order the very next day. Alabama law, which governs the Settlement Agreement, dictates that court-approved settlements are fully enforceable by law. See Ala. Code § 34-3-21 ("An attorney has authority to bind his client, in any action or proceeding, by an agreement in relation to such case, made in writing, or by an entry to be made on the minutes of the court."); Beverly v. Chandler, 564 So. 2d 922, 923 (Ala. 1990) (stating that "agreements made in settlement of litigation" are "binding on the parties"); Contractor Success Grp., Inc. v. Serv. Thrust Org., 681 So. 2d 212, 215 (Ala. Civ. App. 1996) ("[O]nce a settlement agreement has been entered into, it is binding and will be summarily enforced."). On September 17, 2003, the Abernathy defendants transferred $200 million to the court registry pursuant to the terms of the Settlement Agreement.
Even apart from the court-enforceable executed Settlement Agreement, the court finds that the August 26 and September 17 payments reflect a demonstrated responsibility to pay. Despite these dates reflecting the accrual of its cause of action, the Government did not bring its MSPA claims until December 1, 2009.
To analyze the accrual date of its cause of action, the Government adds a curious twist to the language of the MSPA statute, arguing that the Corporate Defendants' "responsibility to pay" did not actually arise until payment was distributed to the Abernathy plaintiffs in exchange for the signed releases. Because payment was "conditioned" on certification to the state court that at least ninety-seven percent of the plaintiffs had signed release waivers, the Government argues that the "responsibility to pay" was not ultimately established until the 97% Certificate was filed on December 2, 2003 — in other words, until the condition was met. This argument directly contradicts the plain reading of the language in the MSP statute, which provides that responsibility to pay "may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) . . . or by other means." 42 U.S.C. § 1395y(b)(2)(B)(ii) (emphasis added).
The Corporate Defendants did in fact effectuate $275 million in settlement payments in August 2003 and in September 2003. The fact these payments were "conditioned upon release" did not absolve the Corporate Defendants from their "responsibility to pay" pursuant to the language of the MSPA; to the contrary, the statute expressly contemplates these types of conditional payments as demonstrative of responsibility to pay. The Government's reading of the statute, that "responsibility to pay" does not arise until all conditions are met and distribution is achieved, requires adding language to the statute that does not appear and directly contradicts its plain meaning. The court will not so expand the clear intent of Congress by adding language to the MSPA statute.
The court also finds merit in the Defendants' contention that the 97% Certificate condition is akin to a condition subsequent in a contract, which would not, and did not, affect the overall enforceability of the Settlement Agreement. In this regard, the 97% Certificate was merely "a post-execution contractual condition" relating to the administrative task of distribution, not negating Defendants' ultimate responsibility to pay. Pharmacia Reply, Doc. 58, at 6.
Once responsibility to pay is demonstrated, the MSPA unambiguously establishes the earliest point at which the Government could have asserted its claims for reimbursement against Monsanto and the other Corporate Defendants, as third party payers: as soon as it learned that "payment has been made or could be made under . . . any liability or no-fault insurance." 42 C.F.R. § 411.24(b) (emphasis added). The Government does not argue that it did not learn of the Abernathy Settlement until December 2, 2003, which is the latest possible accrual date that would enable its claims filed on December 1, 2009 to survive under the longest applicable statute of limitations. Instead, the Government argues that "[t]he statute of limitations could not have accrued prior to December 2, 2003, for the simple reason that the government did not have a cause of action prior to that point." Pl's Omnibus Resp., Doc. 55 at 32.
Considering the widely publicized nature of the Abernathy Settlement Agreement — a comprehensive 20-page document detailing the logistics of the settlement payments, including dates, times, and specific accounts — the court finds it hard to conceive a reasonable argument as to the Government's lack of knowledge about its MSPA claims at the time the settlement was executed.
The basis for the Government's reasoning is that " [d]istribution of settlement monies to the Abernathy plaintiffs was contingent on certification to the state court that 97 percent of the Abernathy plaintiffs had signed releases, which certification occurred on December 2, 2003." Id. (emphasis added). However, the express terms of the MSPA unambiguously state that, in context, "responsibility to make payment," which then triggers the statutory obligation to reimburse Medicare, "may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) . . . or by other means," 42 U.S.C. § 1395y(b)(2)(B)(ii) (emphasis added). The statute does not reference an "unrestricted payment" or a "fully distributed payment" or even a "final payment." None of the regulations hinge a defendant's obligation to pay upon distribution. Despite the Government's attempts to twist the reading of the statute, its terms squarely contemplate that a payment conditioned upon release triggers a responsibility to reimburse Medicare under the MSPA, which is exactly the situation presented here.
Consequently, as to the Corporate Defendants, the court finds that the Government's cause of action accrued, at the latest, on September 10, 2003, when the state court approved the executed Abernathy Settlement Agreement and at which point Defendants' responsibility to pay was clearly established. The Government reasonably could have intervened in the Abernathy litigation to initiate its MSPA-related claims against the Corporate Defendants at least by September 10, 2003, if not earlier. Applying either the three- or six-year statute of limitations, the Government's right of action expired long before it filed suit on December 1, 2009.
2. Attorney Defendants
As to the Attorney Defendants, the court employs a different standard for analyzing the point of accrual for statute of limitations purposes because they have a different basis for liability under the MSPA as alleged "recipients" of payments owed to the Government for Medicare reimbursement. Still, the court finds the Attorney Defendants "received payment" from a primary payer, i.e., the Corporate Defendants, at the latest on October 29, 2003. On that date, the court governing the Abernathy litigation ordered the transfer of $275 million in settlement monies from the court registry to the attorneys' escrow account.
The court finds no merit in the Government's contention that the Attorney Defendants did not actually "receive" the payment on October 29, 2003 because of the nature of the escrow account and the attorneys' inability to immediately distribute the funds. The Government argues that it could not have intervened with its MSPA claim until the filing of the 97% Certificate on December 2, 2003, which released the funds for distribution. To the contrary, the most logical and appropriate time for the Government's right of reimbursement under the MSPA to be honored would have been at the time of initial transfer of the settlement funds into the attorneys' escrow account, if not earlier. At that time, a court could have determined proper distribution of those funds as allocated to the plaintiffs, to vendors, to attorneys for legal fees, and to any parties with subrogation claims, including the Government's claim here for Medicare reimbursement.
The Government most certainly could, and should, have intervened before the Abernathy settlement monies were actually distributed to the thousands of plaintiffs. The Government's MSPA claims were, therefore, ripe for accrual no later than October 29, 2003, the date the Attorney Defendants received payment of the $275 million settlement monies in escrow. The court notes that in practical terms, the Government likely could have intervened at any time during the pendency of the Abernathy litigation, and certainly at the time the Settlement Agreement was executed and judicially approved in September 2003. To afford every possible benefit to the Government, however, the court reaches its generous conclusion that accrual of its MSPA claim occurred no later than October 29, 2003. D. Tolling
The court briefly notes that at the close of the hearing on the motions to dismiss, the Government raised for the first time a theory of continuing accrual, vaguely proposing that a new MSPA cause of action accrues every year when the Corporate Defendants make additional payments to the Attorney Defendants. Because this theory was admittedly not raised in any briefs before the court and not pled in the Amended Complaint, it is not properly before the court and the court does not reach this issue.
The Government argued in brief that its MSPA claims "likely did not accrue until much later [than December 2, 2003] due to the federal tolling statute." Pl's Omnibus Resp., Doc. 55 at 33. The tolling statute on which the Government relies provides that the FCCA statute of limitations period is stopped during periods when "facts material to the right of action are not known and reasonably could not be known by an official of the United States charged with the responsibility to act in the circumstances." 28 U.S.C. § 2146(c) (emphasis added). In the Eleventh Circuit, "once the facts making up the `very essence of the right of action' are reasonably knowable, the § 2146 bar is dropped." United States v. Kass, 740 F.2d 1493, 1497 (11th Cir. 1984). The Eleventh Circuit in Kass explains the history and purpose of the FCCA: "The limitation period was designed to promote diligence by the government in bringing claims to trial and also to make the position of the government more nearly equal to that of a private litigant." Id. at 1496 (citations omitted). The court further explained:
Although one motivation behind enacting a time limit on government-prosecuted civil actions was the desire to inspire diligence in discovering claims, Congress also intended that the government should not be penalized for excusable ignorance of such claims. Foremost in the enactment of § 2416(c) was the thought that the government should not be penalized if the
fraud of an adverse party restricted its ability to discover a valid cause of action until long after its accrual. Cong. News at 2507 ("The committee understands that the principal application of this exclusion will probably be in connection with fraud situations.").
Id. at 1497 (emphasis in original).
The facts of this case do not implicate any fraudulent concealment of any related MSPA claim. Moreover, the Government has not alleged that it did not or reasonably could not have known the facts giving rise to its MSPA causes of action prior to December 2, 2003. While the Eleventh Circuit has not designated which party bears the burden of proving the elements of this particular federal tolling statute, "federal courts have repeatedly held that plaintiffs seeking to toll the statute of limitations on various grounds must have included the allegation in their pleadings." Wasco Prods. v. Southwall Techs., Inc., 435 F.3d 989, 991 (9th Cir. 2006) (citing cases from the Ninth, Tenth, Eighth, and D.C. Circuit Courts of Appeals). Indeed, the Government would be hard pressed to show that it reasonably could not have known of the widely reported Abernathy litigation, initiated in 1996, and the ensuing settlement reached in August 2003. Rather, the Government argues the "obvious fact" that it "could not have had knowledge of its claim before that claim arose, which . . . was on December 2, 2003." Doc. 55 at 34. Because the court ultimately disagrees with the Government as to the accrual date of its claim, it finds no merit in this particular argument.
The Government does not suggest a time frame during which the court should consider its lack of knowledge of material facts sufficient to toll the statute of limitations, and the court declines to speculate as to such a period. Because the court finds no reasonable or compelling argument that the Government "could not have known" of its rights to collect reimbursement related to the Abernathy settlement before December 2, 2003, the tolling provision does not apply to extend the Government's time period to file its MSPA claims.
CONCLUSION
For these reasons, the court holds that the three-year statute of limitations began running against the Corporate Defendants no later than September 10, 2003, the date the executed Settlement Agreement was approved by order of the state court. The statute of limitations, therefore, expired no later than September 10, 2006, and bars the Government's claims filed against the Corporate Defendants on December 1, 2009 as untimely. Alternatively, under the six-year statute of limitations, the court finds that the Government's claims against the Corporate Defendants expired no later than September 10, 2009, still barring the Government's MSPA claims as untimely.
As to the Attorney Defendants, the court holds that the six-year statute of limitations began running no later than October 29, 2003, when they received the $275 million payment from the Abernathy settlement. The statute of limitations, therefore, expired no later than October 17, 2009 and also bars the Government's claims filed against the Attorney Defendants on December 1, 2009.
Because the court reaches a resolution of the motions to dismiss on statute of limitations grounds, it does not reach the additional grounds for dismissal asserted by various Defendants. The Government's claims as to the Defendants who filed the motions to dismiss listed in this Opinion will be dismissed; accordingly, the Plaintiff's motion for summary judgment on the question of liability will be denied. A separate Order to this effect will be filed simultaneously.
DONE and ORDERED.