CHICAGO – Debt collectors who lost to State Farm at the U.S. Seventh Circuit appellate court two years ago returned with a nearly identical suit and lost again.
“Plaintiffs should think hard before risking a third strike within our circuit,” Judge Michael Scudder warned on April 20.
Scudder wrote that they left an unmistakable impression that they pulled the litigation trigger before doing their homework.
Chief Judge Diane Sykes and Circuit Judge David Hamilton concurred.
They affirmed Senior District Judge Joe McDade of Peoria, who found plaintiffs failed to demonstrate an injury in fact.
McDade granted summary judgment to State Farm in November 2019, three months after the Seventh Circuit affirmed him in an earlier case with the same parties.
Plaintiffs MAO-MASO Recovery, MSP Recovery, MSPA Claims, and MASP Recovery collect debts on assignment from insurers that sell Medicare advantage plans.
Just like Medicare, advantage organizations act as secondary payers where workers’ compensation or an auto insurer is responsible, according to Scudder’s order.
He wrote that primary payers do not always pay or timely pay.
He also wrote that the Medicare Act allows a secondary payer to make conditional payment if a primary payer isn’t expected to pay promptly. The Act in turn creates a private right of action allowing Medicare advantage organizations to seek reimbursement with double damages.
He wrote that the organizations sometimes make conditional payments with insufficient knowledge about the responsible primary payer.
He wrote that collection could be tedious, costly, and uncertain, but debt collectors see a lucrative opportunity because they can collect twice as much on a particular receivable.
“But again, because it is not always clear which assigned receivables in fact reflect conditional payments, taking on this debt collection role brings with it financial uncertainty,” Scudder wrote.
He wrote that a third party might not know at the time of assignment which or how many payments a primary payer should reimburse.
He wrote that debt collectors and insurers both have incentives to expend as little as possible on the front end of the arrangements.
“This is so because it is often unclear at the time of the initial assignment what, if any, value exists in the assigned receivables,” he wrote.
He wrote that if an assignee recovers double damages through litigation, there is sufficient revenue to make the litigation and collection worthwhile.
“If nothing is recovered, the assignee loses only its litigation costs,” he wrote.
In district court, plaintiffs could do no more than show an assigned right to recover potentially unreimbursed payments, he wrote, and they sought to use discovery as a pathway to identify any value.
He held that McDade correctly required plaintiffs to point to a concrete example of a payment that State Farm failed to reimburse as primary payer.
He wrote that after State Farm moved for summary judgment, plaintiffs amended the complaint and attached a physical therapy claim.
State Farm showed that the therapy followed knee replacement, and McDade found a reasonable jury would believe State Farm didn’t have to pay the claim.
“Federal courts do not possess infinite patience, nor are the discovery tools of litigation meant to substitute for some modicum of presuit diligence,” Scudder wrote.
He quoted a Florida judge who found plaintiffs “played fast and loose with facts, corporate entities, and adverse judicial rulings.
He quoted a New York judge who called their tactics flagrant abuse.
David Hundley of Chicago, Adam Foster and Robert Wisner of Los Angeles, Andres Rivero of Miami, Tracy Turner of New Orleans, and Christopher Coffin of Plaquemine represented the debt collectors.
Patrick Cloud of Heyl Royster in Edwardsville represented State Farm.