Second Circuit Addresses Limitations Periods Governing Fraudulent Billing Claims Against Non-Participating Labs
In Connecticut General Life Ins. Co. v. BioHealth Labs., Inc., No. 20-2312-CV, — F.3d –, 2021 WL 476111 (2d Cir. Feb. 10, 2021), Cigna, as administrator of employee health plans, sued six out-of-network lab companies for various fraudulent billing schemes, including fee forgiveness (not charging the patient for co-insurance, co-pays, etc.), unnecessary testing, and unbundling (separately billing for services that should be combined at a lower rate). In all, Cigna sought to recover $17 million in fraudulent or improper charges.
Cigna had completed its investigation that uncovered the alleged fraud in 2015, and began to deny payment of claims submitted by the labs. Two of the labs sued Cigna in Florida, but that action was dismissed and closed in 2017 for failure to exhaust administrative remedies. Cigna then sued the labs in Connecticut District Court in 2019, asserting “a variety of Connecticut state-law and federal claims,” all of which, according to Cigna, would have been compulsory counterclaims in the Florida action, had it not been dismissed. The district court dismissed the Connecticut complaint on the ground that all claims were time-barred under Connecticut’s three-year statute of limitations for tort claims.
The Second Circuit affirmed in part and reversed in part.
First, the court held that the state-law tort claims – fraud, negligent misrepresentation, conversion, civil theft – were subject to Connecticut’s three-year statute of limitations, and rejected Cigna’s argument that the pendency of the Florida action tolled the period. It began by noting that, although several other circuits had held that pendency of a suit tolls the running of limitations periods for compulsory counterclaims, the “foundation for this rule is somewhat uncertain[,]” and appeared to be a matter of federal common law. Because Cigna’s tort claims were brought under Connecticut law, federal common law did not apply. Connecticut law, which governed, provided that “the timeliness of counterclaims is measured from the date on which they are interposed, not the date the complaint was filed.” Because Cigna never interposed counterclaims in the Florida action, there was no tolling. Therefore, the court affirmed dismissal of the state-law claims.
Turning to Cigna’s federal claims – for equitable relief under 29 U.S.C. § 1132(a)(3), and for a declaratory judgment – the court noted that there was no federal statute of limitations, requiring reference to the most-analogous Connecticut limitations period. The court rejected the labs’ argument that these claims were most analogous to the state-law tort claims, and held that they were most analogous to an equitable claim for unjust enrichment. The court observed that “both of Cigna’s federal claims assert that the Labs received reimbursement for testing services in contravention of the governing benefit plans and seek to recover those overpayments.” The court also noted that there was no contract between Cigna and the non-participating labs, and Cigna’s allegation that the conduct was fraudulent was not a necessary element of the claims.
Next, the court held that, because the federal claims were equitable in nature, Connecticut law provided that they were not subject to a statute of limitations, but were governed only by the equitable doctrine of laches. Because laches turns on factual issues, it is not a proper defense for a motion to dismiss unless the laches is clear from the face of the complaint. The court found that the district court had erred by concluding that Connecticut Supreme Court precedent required consideration of an analogous legal statute of limitations when evaluating a laches defense. The Second Circuit held that a proper view of the Connecticut Supreme Court decisions was that, in evaluating a laches defense, a court could “look by analogy” to the limitations period applicable to a comparable legal claim, but that was “simply one non-dispositive factor among many relevant to [the] ultimate decision.” Because the district court had considered the tort limitations period to be dispositive, the Second Circuit reversed the dismissal of the two federal claims.