Conn. Gen. Life Ins. Co. v. Biohealth Labs., Inc.

988 F.3d 127

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Cigna Health And Life Insurance Company, Plaintiffs-Appellants,

v.BIOHEALTH LABORATORIES, INC., PB Laboratories, LLC, Epic Reference Labs, Inc., Epinex Diagnostics, Inc., NJ Reference Laboratories, Inc., Alethea Laboratories, Inc., Defendants-Appellees.

No. 20-2312-cv

August Term 2020

United States Court of Appeals, Second Circuit.

Argued: February 1, 2021

Decided: February 10, 2021

Edward T. Kang (Emily S. Costin, on the brief), Alston & Bird LLP, Washington, DC, for Plaintiffs-Appellants.

Scott M. Hare (Todd M. Brooks, Whiteford, Taylor & Preston LLP, Baltimore, MD, on the brief), Whiteford, Taylor & Preston LLP, Pittsburgh, PA, for Defendants-Appellees.

Before: Jacobs, Sullivan, Circuit Judges, and Brown, District Judge.^*

Richard J. Sullivan, Circuit Judge:

Plaintiffs Connecticut General Life Insurance Company and Cigna Health and Life Insurance Company (together, "Cigna") appeal the judgment of the district court (Hall, J. ) dismissing their claims against several laboratory testing companies (the "Labs") as time-barred under Federal Rule of Civil Procedure 12(b)(6). Cigna's complaint, which asserts various federal and Connecticut state-law claims, alleges that the Labs submitted fraudulent or overstated charges for medical testing services that the Labs purportedly provided to patients covered by benefits plans overseen by Cigna.

On appeal, we are confronted with three issues. First, we must determine what state-law claim is most analogous to Cigna's claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. , and the Declaratory Judgment Act, 28 U.S.C. § 2201, since those federal claims lack their own statutory limitations period. Second, we must decide whether, under Connecticut law, equitable claims are subject to the same statute of limitations that governs analogous legal claims that were asserted based on the same facts. Third, we must resolve whether the limitations period applicable to Cigna's claims was tolled during the pendency of a prior federal action between the parties since Cigna argues that its current claims were all compulsory counterclaims in that prior case.

I. Background

Cigna is a managed-care company that insures and administers employee health and welfare benefit plans.¹ In that role, Cigna serves as claims administrator, meaning that it exercises discretionary authority and fiduciary responsibility over the administration of those plans. One of Cigna's responsibilities is to control the cost of healthcare for its members. To do so, Cigna enters into agreements with certain healthcare providers that establish fixed rates for those providers’ services. While Cigna permits its plan members to use providers that do not enter into these agreements – so-called "out-of-network providers" – plan members are required to pay a higher percentage of the charges from out-of-network providers. In this way, Cigna sensitizes its plan members to cost control issues and gives them a financial incentive to seek out cost-effective services.

The defendant Labs in this case are various laboratory testing companies that are all wholly owned by the same parent company. The Labs are out-of-network providers under Cigna's plans.

Cigna's anti-fraud unit became aware that some of the Labs were engaged in a potentially fraudulent billing scheme and opened an investigation. That investigation, which was completed sometime before August 17, 2015, uncovered three types of fraudulent or improper conduct: fee forgiveness, billing for unnecessary testing, and unbundling.

Fee forgiveness occurs when an out-of-network healthcare provider does not bill a patient for the portion of its services not covered by the patient's insurance company. While this might sound like a good outcome for patients – after all, it means that they receive medical services more cheaply – it causes problems by removing the financial incentive for patients to visit in-network providers. In other words, fee forgiveness benefits patients in the short term, but ultimately may result in increased plan costs as insurers pay more for services. Billing for medically unnecessary testing is just what it sounds like and is largely self-explanatory. "Unbundling," however, is the practice of healthcare providers separately billing for individual services that should otherwise be billed together at a reduced price.

In light of its investigation, Cigna determined that the Labs had improperly collected over $17 million in fraudulent or overbilled charges. To prevent additional losses, Cigna began to flag and deny outstanding charges from the Labs that Cigna had yet to pay.

In August 2015, two of the Labs sued Cigna in federal court in the Southern District of Florida, alleging that Cigna improperly denied, delayed processing, or failed to process claims for certain testing services (the "Florida Action"). See generally Complaint, BioHealth Med. Lab'y, Inc. v. Conn. Gen. Life Ins. Co. , No. 15-cv-23075 (KMM) (S.D. Fla. Aug. 17, 2015), ECF No. 1. Six months later, the district court dismissed the complaint without prejudice for, among other reasons, failure to exhaust available administrative remedies. See generally BioHealth Med. Lab'y, Inc. v. Conn. Gen. Life Ins. Co. , No. 15-cv-23075 (KMM), 2016 WL 375012 (S.D. Fla. Feb. 1, 2016). The Eleventh Circuit later vacated portions of that order, but left intact the district court's decision to dismiss the complaint on exhaustion grounds. See generally BioHealth Med. Lab'y, Inc. v. Cigna Health & Life Ins. Co. , 706 F. App'x 521 (11th Cir. 2017). The Labs never filed an amended complaint following that decision, effectively ending the Florida Action.

In August 2019, approximately two years after the Eleventh Circuit affirmed the district court's decision to dismiss the Labs’ complaint, Cigna filed the instant action in Connecticut federal court. Cigna asserted a variety of Connecticut state-law and federal claims, seeking to recover the allegedly fraudulent or overbilled charges it paid to the Labs. According to Cigna, all these claims were compulsory counterclaims in the Florida Action, but, because that case was dismissed at the pleading stage, Cigna never interposed them.

In June 2020, the Connecticut district court dismissed Cigna's complaint with prejudice and entered judgment in favor of the Labs, finding that all of Cigna's claims were time-barred under Connecticut's three-year statute of limitations applicable to tort claims. Cigna timely appealed that decision.

II. Standard of Review

We review a district court's decision to dismiss a complaint under Rule 12(b)(6) de novo . See Yamashita v. Scholastic Inc. , 936 F.3d 98, 103 (2d Cir. 2019), cert. denied , ––– U.S. ––––, 140 S. Ct. 2670, 206 L.Ed.2d 823 (2020). In doing so, we "accept[ ] all of the complaint's factual allegations as true and draw[ ] all reasonable inferences in [Cigna's] favor." Id. (internal quotation marks omitted). "Although the statute of limitations is ordinarily an affirmative defense that must be raised in the answer, a statute of limitations defense may be decided on a Rule 12(b)(6) motion if the defense appears on the face of the complaint." Thea v. Kleinhandler , 807 F.3d 492, 501 (2d Cir. 2015) (internal quotation marks omitted); see also Sewell v. Bernardin , 795 F.3d 337, 339 (2d Cir. 2015) (same).

III. Discussion

Cigna's complaint includes various state and federal claims against the Labs, which can be organized into three different groups for time-bar purposes. First, Cigna brings a handful of state-law tort claims, specifically, fraud, negligent misrepresentation, conversion, and civil statutory theft (collectively, the "Legal Claims"). Second, Cigna asserts a state-law unjust enrichment claim, which, under Connecticut law, is based in equity. See Reclaimant Corp. v. Deutsch , 332 Conn. 590, 211 A.3d 976, 982–83, 990 (2019). Third, Cigna brings federal law claims under ERISA § 502(a)(3), which is codified at 29 U.S.C. § 1132(a)(3), and the Declaratory Judgment Act, 28 U.S.C. § 2201.

Connecticut has a three-year statute of limitations that covers all tort claims. See Conn. Gen. Stat. § 52-577. Because Cigna admittedly filed its complaint more than three years after the date on which it alleges to have discovered the Labs’ wrongful conduct, any claims subject to that limitations period would appear to be untimely.² While the parties agree that this three-year limitations period applies to Cigna's Legal Claims, that's where their agreement ends.

The Labs take the position that this three-year limitations period is also applicable to Cigna's unjust enrichment and federal claims because those claims are based on the same factual allegations as Cigna's Legal Claims. Cigna counters that its unjust enrichment and federal claims are based in equity and, as a result, are exempt from statutory limitations periods altogether. Separately, Cigna asserts that its claims in this case were all compulsory counterclaims in the Florida Action and that, under federal law, any applicable limitations periods were therefore tolled while Cigna's motion to dismiss the Florida Action was pending in the district court and on appeal.

We address each argument in turn. But, before doing so, we must first determine what limitations rules apply to Cigna's federal claims.

A. Time-Bar Rules Applicable to Cigna's Federal Claims

Federal law supplies no limitations period for either Cigna's ERISA § 502(a)(3) claim or Declaratory Judgment Act claim.³ See Miles v. N.Y. Teamsters Conf. Pension & Ret. Fund Emp. Pension Benefit Plan , 698 F.2d 593, 598 (2d Cir. 1983) ; 118 E. 60th Owners, Inc. v. Bonner Props., Inc. , 677 F.2d 200, 202 (2d Cir. 1982). In this case, those claims adopt the limitations period of the Connecticut state-law cause of action to which they are most analogous. Sandberg v. KPMG Peat Marwick, L.L.P. , 111 F.3d 331, 333 (2d Cir. 1997) ; 118 E. 60th Owners ...