UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 99-20656
_____________________
JUSTIN LOVE; ET AL.,
Plaintiffs,
BLUE CROSS AND BLUE SHIELD OF TEXAS, INC.,
Intervenor Plaintiff-Appellant,
versus
NATIONAL MEDICAL ENTERPRISES, ET AL.,
Defendants,
NATIONAL MEDICAL ENTERPRISES, INC.;
NME PSYCHIATRIC HOSPITALS, INC., formerly
known as Psychiatric Institutes of America, Inc.;
NME SPECIALTY HOSPITALS, INC.; NORTH HOUSTON
HEALTH CARE CAMPUS, INC., doing business
as Laurelwood Hospital, formerly known as
Laurelwood Hospital, Inc.; BAYWOOD HOSPITAL,
INC., doing business as Baywood Hospital;
PSYCHIATRIC FACILITY AT AMARILLO, INC., doing
business as Cedar Creek Hospital, formerly
known as PIA Amarillo, Inc.; PIA DENTON, INC.,
doing business as Twin Lakes Hospital; PIA OF
FORT WORTH, INC., doing business as Psychiatric
Institutes of Fort Worth; PIA SAN ANTONIO, INC.,
doing business as Colonial Hills Hospital;
PIA STAFFORD, INC., doing business as Stafford
Meadows Hospital; PIA WAXAHACHIE, INC., doing
business as Willowbrook Hospital; PSYCHIATRIC
INSTITUTE OF BEDFORD, INC., doing business
as Bedford Meadows Hospital; PSYCHIATRIC INSTITUTE
OF SHERMAN, INC., doing business as Arbor
Creek Hospital; BROOKHAVEN PSYCHIATRIC PAVILION,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
_________________________________________________________________
October 16, 2000
Before JOLLY, SMITH, and BARKSDALE, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
Primarily at issue is which limitations accrual rule to apply
for civil claims under the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U.S.C. §§ 1961-68, when injuries occur
not only during, but outside, the limitations period. Summary
judgment was awarded against Blue Cross and Blue Shield of Texas,
Inc. on the ground that its RICO, and other, claims are time-
barred. We VACATE and REMAND.
I.
In September 1991, the Texas Attorney General sued Psychiatric
Institutes of America, Inc. (PIA). PIA, now known as NME
Psychiatric Hospitals, Inc., is owned by appellee National Medical
Enterprises, Inc. The action alleged, inter alia, that PIA’s
psychiatric hospitals deliberately solicited victims and submitted
fraudulent claims against the Texas Crime Victims Compensation
Fund.
Beginning that October, a Texas state legislative committee
conducted hearings to investigate psychiatric hospital abuse in
Texas. The hearings, which received extensive media coverage,
uncovered evidence that some Texas psychiatric hospitals engaged in
2
deceptive practices to recruit patients and based discharge
decisions on insurance coverage.
Lane Melton, who worked in the special claims unit of Blue
Cross and Blue Shield of Texas, Inc. (BCBST), and who, in 1991, was
also president of the Texas chapter of the National Health Care
Antifraud Association, testified before the state committee that
November. Melton also had routine communications with the FBI and
the offices of the United States Attorney and the Texas Attorney
General during their investigations in 1991 of PIA and NME
hospitals.
In July 1992, BCBST was asked to join an action filed by other
insurers against Appellees. BCBST declined, not considering itself
a victim of fraud.
In the fall of 1995, in connection with its litigation against
another group of psychiatric hospitals, and at the direction of
outside counsel, BCBST sent questionnaires to insureds regarding
fraudulent claims. In reviewing the responses, BCBST discovered
that one of the hospitals being sued had been previously owned by
PIA, and that some of the alleged fraud had occurred during PIA’s
ownership.
In mid-February 1996, BCBST intervened in an action filed in
1995 in Texas state court by former patients against Appellees and
others. BCBST alleged: it had provided insurance coverage to
persons who received psychiatric or other health care services from
3
Appellees from 1989-92; and Appellees engaged in a scheme to
defraud BCBST through acts and practices calculated to maximize
insurance-covered benefits, including deliberately misdiagnosing
patients’ conditions, determining the length of inpatient care
based solely on the amount of insurance coverage, and
misrepresenting that services were provided. Claiming fraud,
intentional and negligent misrepresentation, and contractual and
equitable subrogation, BCBST sought to recover the amount it had
paid Appellees from 1989-92, on behalf of covered patients, for
unnecessary medical expenses. The action was removed to federal
court in late February 1996.
BCBST amended its complaint in April 1997, adding claims for
civil RICO, unjust enrichment, and restitution. It filed a second
amended complaint that July, presenting the same claims.
That September, Appellees moved to dismiss or strike the
second amended complaint, asserting, inter alia, that it did not
allege fraud with the particularity required by FED. R. CIV. P.
9(b). And, approximately two and one-half months later, Appellees
moved for summary judgment, contending that BCBST’s claims were
barred by the applicable statutes of limitations. BCBST responded
in early 1998, asserting, inter alia: it exercised reasonable
diligence in an effort to discover the bases for its claims; and
the limitations periods were tolled under the doctrine of
fraudulent concealment.
4
That May, the district court granted Appellees’ motion to
dismiss, holding that BCBST’s claims, all of which rested on
allegations of fraud, failed to satisfy Rule 9(b)’s particularity
standard. The docket entry for that order states that the ruling
“moot[ed]” Appellees’ summary judgment motion. BCBST’s appeal from
that order was dismissed by our court for lack of appellate
jurisdiction. Love v. National Med. Enters., Inc., No. 98-20606
(5th Cir. 15 Sept. 1998) (unpublished).
In late November 1998, the district court granted the former-
patient plaintiffs’ motion to sever their claims from BCBST’s, and
remanded those plaintiffs’ claims to state court. Appellees moved
for entry of final judgment that December. In addition to opposing
the motion, BCBST sought leave to amend its complaint.
On 1 February 1999, without obtaining leave of court, BCBST
filed a third amended complaint. It alleged: Appellees engaged in
a fraudulent scheme beginning in 1988, and continuing into at least
1993; and BCBST sought to recover the amounts paid to Appellees for
allegedly fraudulent insurance claims submitted from 1988 through
1995. In addition to the previous claims, it added civil
conspiracy, breach of contract, and ERISA. It also claimed tolling
of the statutes of limitations because Appellees allegedly
fraudulently concealed facts supporting BCBST’s claims, and because
some of its claims arise out of the treatment of minors. In mid-
February, Appellees moved to strike or dismiss the third amended
5
complaint, on the grounds that: it was filed without leave of
court; amendment would be futile because BCBST’s claims are time-
barred; and it failed to satisfy Rule 9(b).
One week later, the district court denied Appellees’ motion
for entry of final judgment and granted BCBST leave to file the
third amended complaint. But, that April, the court granted
summary judgment for Appellees sua sponte, holding that all of
BCBST’s claims are time-barred.
II.
BCBST contends that the district court erred by: granting
summary judgment sua sponte against the new claims in its third
amended complaint — civil conspiracy, breach of contract, and ERISA
(it does not do so for its other claims, even though they were
likewise dismissed sua sponte); regarding its civil RICO claims,
holding recovery is time-barred for insurance claims submitted
within the four-year limitations period; and holding that its civil
RICO claims accrued when it should have discovered the alleged
fraudulent scheme, rather than when it discovered, or should have
discovered, its injuries. In addition, BCBST maintains there is a
material fact issue on whether, for all of its claims, which cover
the period 1988-95, the limitations periods were tolled by
fraudulent concealment and for insurance claims submitted for
treatment of minors.
6
We review a summary judgment de novo, “viewing all facts, and
the inferences to be drawn from them, in the light most favorable
to the non-movants”. Forsyth v. Barr, 19 F.3d 1527, 1533 (5th
Cir.), cert. denied, 513 U.S. 871 (1994). Such judgment is
appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law”. FED. R. CIV. P. 56(c).
“[T]he substantive law will identify which facts are
material”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A “dispute about a material fact is ‘genuine,’ ... if the
evidence is such that a reasonable jury could return a verdict for
the nonmoving party”. Id.; see Matsushita Elec. Indus. Co., Ltd.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
A.
First, we reject Appellees’ contention that BCBST’s notice of
appeal was not timely filed, resulting in our lacking appellate
jurisdiction. BCBST’s motion for reconsideration was denied in
early May 1999. Its notice of appeal, filed 2 July 1999, was
untimely. FED. R. APP. P. 4(a)(1)(A), (4)(a)(4)(B)(ii). But, also
on 2 July, within the 30-day period specified in FED. R. APP. P.
4(a)(5)(A)(i), BCBST moved for an extension of time to file its
notice of appeal. The motion was granted on 12 July.
7
Appellees maintain: the extension did not resuscitate the 2
July notice; and BCBST was required, post-extension, to file
another notice of appeal. In granting the extension, however, the
district court stated that the notice “shall be filed by July 2,
1999”. Having already filed its notice of appeal on that date,
BCBST did not need to file another.
B.
BCBST challenges the procedure employed by the district court
for granting summary judgment sua sponte against its civil
conspiracy, breach of contract, and ERISA claims, added by the
third amended complaint. BCBST relies on the following: Appellees
moved for summary judgment before BCBST filed that complaint; after
it was filed, Appellees did not supplement their motion; and the
district court did not give notice it was considering summary
judgment for these new claims. (But, for its other claims, and as
noted supra, BCBST does not claim any procedural improprieties.)
A summary judgment motion “shall be served at least 10 days
before the time fixed for the hearing”. FED. R. CIV. P. 56(c).
Although Rule 56 contemplates such a motion being filed, it is
well-settled that a district court may grant summary judgment sua
sponte, “so long as the losing party has ten days notice to come
forward with all of its evidence” in opposition to summary
judgment. Washington v. Resolution Trust Corp., 68 F.3d 935, 939
(5th Cir. 1995); see also St. Paul Mercury Ins. Co. v. Williamson,
8
224 F.3d 425, 435 (5th Cir. 2000) (district court may enter summary
judgment sua sponte if it gives parties at least ten days notice).
Although our court “has strictly enforced [this] ten day
notice requirement”, Leatherman v. Tarrant County Narcotics
Intelligence & Coordination Unit, 28 F.3d 1388, 1397 (5th Cir.
1994) (internal quotation marks and citation omitted), the “failure
to provide notice may be harmless error ... when the nonmovant has
no additional evidence or if all of the nonmovant’s additional
evidence is reviewed by the appellate court and none of the
evidence presents a genuine issue of material fact”. Ross v.
University of Tex. at San Antonio, 139 F.3d 521, 527 (5th Cir.
1998) (internal quotation marks and citation omitted; emphasis
added); see also St. Paul, 224 F.3d at 435 (same); Washington, 68
F.3d at 939 (reviewing sua sponte summary judgment for harmless
error).
And, where the party against whom summary judgment is granted
moves for reconsideration under FED. R. CIV. P. 59(e), but does not,
in that motion, challenge the procedural propriety of the summary
judgment ruling, our court has reviewed the asserted procedural
irregularity, raised for the first time on appeal, only for plain
error. See Conley v. Board of Trustees of Grenada County Hosp.,
707 F.2d 175, 178 (5th Cir. 1983). Cf. Exxon Corp. v. St. Paul
Fire & Marine Ins. Co., 129 F.3d 781, 787 (5th Cir. 1997) (“The
fact that St. Paul did not object to the district court’s [sua
9
sponte summary judgment] or request a new trial or rehearing ...
indicates that St. Paul had no further evidence to present or
argument to make regarding any material dispute of fact.”); Dayco
Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 393 (6th Cir.
1975) (although motion to reconsider is not prerequisite to appeal,
fact that party challenging lack of notice of conversion of motion
to dismiss to motion for summary judgment did not seek
reconsideration by district court or indicate on appeal what
additional evidence in opposition to summary judgment it would
present on remand, confirms court’s conclusion that notice would
have served no useful purpose).
Following the summary judgment, and although not required to
do so, BCBST moved for reconsideration. That motion did not:
raise lack of notice or any other procedural irregularities;
describe or present any evidence in opposition to summary judgment;
or contend that such evidence could be obtained through further
discovery. Thus, the district court had no opportunity to correct
any procedural errors.
BCBST’s briefing on this issue does not describe any specific
evidence purporting to establish a material fact issue on whether
the claims added by the third amended complaint are barred by
limitations. Moreover, BCBST does not contend it was prevented
from presenting any such evidence to the district court as a result
of the alleged lack of notice. See Nowlin v. Resolution Trust
10
Corp., 33 F.3d 498, 504-05 (5th Cir. 1994) (lack of notice for sua
sponte summary judgment was harmless error where nonmovant failed
to state what evidence it wanted to present or why it needed more
time to respond); Hoopes v. Equifax, Inc., 611 F.2d 134, 136 (6th
Cir. 1979) (district court did not reversibly err in granting
summary judgment without providing ten days notice, where plaintiff
failed to demonstrate that he could have produced additional
evidence had notice been given).
Under these circumstances, the district court did not plainly
err by employing the sua sponte procedure for the claims added by
the third amended complaint. (Our holding, of course, relates only
to the challenged procedure, not to the merits of the claims. See
part II.C.3.)
C.
BCBST’s petition in intervention was filed on 13 February
1996. The parties agree that BCBST’s claims are subject to four-
year statutes of limitations.
1.
BCBST contends that the district court erred by granting
summary judgment against claims that accrued within the limitations
period; restated, claims that could not have accrued until after 13
February 1992 — four years before BCBST’s petition was filed. For
those claims, the underlying psychiatric treatment did not occur,
11
and BCBST’s obligation to pay Appellees’ insurance claims for such
treatment did not arise, until after that date — 13 February 1992.
BCBST does not state whether this issue encompasses all of its
claims. As discussed, it presents claims for, inter alia, civil
RICO, fraud, and unjust enrichment. For this issue, which concerns
only allegedly fraudulent “insurance claims” submitted within the
limitations period, and as discussed infra, the only supporting
authority BCBST cites is Klehr v. A.O. Smith Corp., 521 U.S. 179
(1997), which deals only with civil RICO claims. Accordingly, we
understand this issue is so limited.
a.
According to BCBST, Appellees’ alleged scheme to defraud BCBST
is a “continuing violation”, with a new and independent claim
accruing with each submittal of an allegedly fraudulent insurance
claim in furtherance of that scheme. Appellees counter that the
continuing violation doctrine is inapplicable, maintaining: the
insurance claims submitted within the limitations period are not
injurious acts separate and independent from the prior alleged
fraudulent scheme; in 1991, outside the limitations period, BCBST
knew, or should have known, the facts that are the basis of its
claims; and BCBST has not shown that any of the conduct within the
limitations period is distinguishable from the conduct, outside
that period, of which BCBST was, or should have been, aware, but
for which it failed to timely file suit.
12
i.
As stated, Klehr is the sole authority relied on by BCBST.
One issue in Klehr concerned the Third Circuit’s “last predicate
act” accrual rule for civil RICO actions. The Supreme Court
assumed the rule meant that, so long as the defendant committed one
predicate act within the limitations period, the plaintiff could
recover, not only for the injury caused by that act, but also for
the injuries caused by all of the acts comprising the pattern of
racketeering activity. 521 U.S. at 186-87.
The Court rejected the “last predicate act” accrual rule
because, inter alia, it was “inconsistent with the ordinary Clayton
Act rule, ... under which a cause of action accrues and the statute
begins to run when a defendant commits an act that injures a
plaintiff’s business”. Id. at 188 (internal quotation marks and
citations omitted). The Court noted: when it had held that the
Clayton Act’s four-year limitations period applied to civil RICO
claims, it had explained that “Congress consciously patterned civil
RICO after the Clayton Act”. Id. at 188-89 (citing Agency Holding
Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156 (1987)).
To illustrate why the Third Circuit’s “last predicate act”
accrual rule went “too far”, because it would allow a plaintiff to
recover for acts outside the limitations period, the Court used the
antitrust law “continuing violation” doctrine. Id. at 189. Under
that doctrine, each overt act that is part of a continuing
13
violation and causes injury to the plaintiff “starts the statutory
period running again, regardless of the plaintiff’s knowledge of
the alleged illegality at much earlier times”, id. (internal
quotation marks and citation omitted), but generally does not allow
a plaintiff to recover for the injury caused by overt acts outside
the limitations period. Id.
The Court noted that, similarly, the “separate accrual” rule
applied by some circuits for civil RICO actions allowed recovery
for injury caused by the commission of a separable, new predicate
act within the limitations period, but, like the antitrust
continuing violation doctrine, did not permit “the plaintiff [to]
use an independent, new predicate act as a bootstrap to recover for
injuries caused by other earlier predicate acts that took place
outside the limitations period”. Id. at 190.
This “separate accrual” rule for civil RICO actions had
earlier been adopted by the Second Circuit in Bankers Trust Co. v.
Rhoades, 859 F.2d 1096, 1102 (2d Cir. 1988), cert. denied, 490 U.S.
1007 (1989), which held: “each time a plaintiff suffers an injury
caused by a [RICO] violation ..., a cause of action to recover
damages based on that injury accrues to plaintiff at the time he
discovered or should have discovered the injury”. Id. at 1102.
This “separate accrual” rule is a variant of the “injury discovery”
rule adopted by our court in Rotella v. Wood, 147 F.3d 438, 440
(5th Cir. 1998), aff’d, 528 U.S. 549 (2000).
14
Under the “injury discovery” rule, a civil RICO claim accrues
when the plaintiff discovers, or should have discovered, the
injury. Id. When a pattern of RICO activity causes a continuing
series of separate injuries, the “separate accrual” rule allows a
civil RICO claim to accrue for each injury when the plaintiff
discovers, or should have discovered, that injury. Bankers Trust,
859 F.2d at 1102.
The Second Circuit relied on two sources as support for the
“separate accrual” rule, the first of which is RICO’s plain
language: a civil RICO action may be filed only by a “person
injured in his business or property by reason of a violation of [18
U.S.C. §] 1962”. Id. (quoting 18 U.S.C. § 1964(c)). “Until such
injury occurs, there is no right to sue for damages under §
1964(c), and until there is a right to sue under § 1964(c), a civil
RICO action cannot be held to have accrued”. Id.
The court noted, however, that, “[e]ven after injury has
occurred, ... and a civil RICO claim has accrued, there will
frequently be additional, independent injuries that will result
from the same violation of § 1962, but which, because they will not
occur until some point in the future, are not yet actionable as
injuries to plaintiff’s business or property”. Id. at 1103.
Because a single RICO violation consists of a “pattern” of illegal
acts, “each of which, standing alone, may injure a plaintiff”,
multiple injuries may be caused by a single RICO violation. Id.
15
Recognizing the potential for such multiple injuries, “[C]ongress
tied the right to sue for damages under § 1964(c), not to the time
of the defendant’s RICO violation, but to the time when plaintiff
suffers injury to ‘his business or property’ from the violation”.
Id. “The logical end result is that a plaintiff may sue for any
injury he discovers or should have discovered within four years of
the commencement of his suit, regardless when the RICO violation
causing such injury occurred”. Id.
The Second Circuit’s second source of support for this
“separate accrual” rule was the Clayton Act, which, as noted, had
been recognized by the Supreme Court as the pattern for RICO’s
civil action provision. Id. at 1103-04. “Generally, a cause of
action under the Clayton Act accrues and the statute of limitations
begins to run, when a defendant commits an antitrust violation that
injures a plaintiff’s business”. Id. at 1104. Specifically, the
Second Circuit found support for its “separate accrual” rule in the
“continuing violation” doctrine of antitrust law, under which a
cause of action for damages accrues “each time plaintiff suffers an
injury caused by an illegal act of defendants”. Id. Under that
doctrine, damages for future injuries for which no separate claim
has yet accrued are recoverable, unless “the fact of their accrual
is speculative or their amount and nature unprovable”. Id.
(internal quotation marks and citation omitted).
16
The court recognized that its adoption of the “separate
accrual” rule resulted in “rejecting the general federal rule of
accrual, which requires in cases involving continuing violation and
continuous injury that the statute of limitations begin running
upon the commission of the first overt act causing damage, and does
not permit a subsequent injury to start the limitations period
running anew”. Id. at 1104-05. “Such a rejection [was] mandated
by the continuing violations and injuries sought to be remedied
under RICO and the Clayton Act.” Id. at 1105. “‘Otherwise, future
damages that could not be proved within four years of the conduct
from which they flowed would be forever incapable of recovery’”.
Id. (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 401
U.S. 321, 340 (1971)).
Although our court has neither adopted nor rejected the
“separate accrual” rule of Bankers Trust, we have, as stated,
adopted the underlying “injury discovery” rule upon which the
“separate accrual” rule is based. Rotella, 147 F.3d at 440. Our
court having adopted the “injury discovery” rule, it would seem
illogical to conclude that, under civil RICO, a plaintiff may not
recover for injuries incurred within the limitations period, merely
because they result from acts that are part of a continuing pattern
of similar acts that caused other, similar injuries outside that
period.
17
In this regard, the Supreme Court’s most recent decision on
the accrual of civil RICO actions, the earlier-cited Rotella v.
Wood, 528 U.S. 549 (2000), rejected an “injury and pattern”
discovery rule of accrual, “under which a civil RICO claim accrues
only when the claimant discovers, or should discover, both an
injury and a pattern of RICO activity”. Id. at ___, 120 S. Ct. at
1080 (emphasis added). The Court did not decide, however, whether
an “injury discovery” or “straight injury occurrence” rule should
apply for such actions. Id. at ___, 120 S. Ct. at 1080 & n.2.
Nor did it “decide whether civil RICO allows for a cause of
action when a second predicate act follows the injury, or what
limitations accrual rule might apply in such case”. Id. at ___,
120 S. Ct. at 1083 n.4. But, in rejecting the “injury and pattern
discovery” rule, the Court explained that such a rule “would clash
with the limitations imposed on Clayton Act suits”. Id. at ___,
120 S. Ct. at 1082.
In rejecting a significantly different focus
under RICO, ... we are honoring an analogy
that Congress itself accepted and relied upon,
and one that promotes the objectives of civil
RICO as readily as it furthers the objects of
the Clayton Act. Both statutes share a common
congressional objective of encouraging civil
litigation to supplement Government efforts to
deter and penalize the respectively prohibited
practices.
Id. at ___, 120 S. Ct. at 1082.
18
As is evident from the foregoing discussion of the Second
Circuit’s opinion in Bankers Trust, the “continuing violation”
doctrine applicable in Clayton Act cases is very similar to the
“separate accrual” rule applied by that court in the civil RICO
context. In the light of the Supreme Court’s heavy reliance on the
Clayton Act model in resolving civil RICO accrual issues, and the
similarity between the antitrust continuing violation doctrine and
the “separate accrual” rule adopted by the Second Circuit, we
perceive no barrier to our adopting the “separate accrual” rule
for civil RICO actions. Moreover, as discussed, such a rule is
consistent with, and based on, the “injury discovery” rule
previously adopted by our court. It is well-suited for cases, such
as this, in which a pattern of RICO activity is alleged to have
caused a continuing series of similar, independent injuries.
Accordingly, we hold that the Bankers Trust “separate accrual” rule
applies in civil RICO actions.
ii.
Appellees contend that the “separate accrual” rule does not
apply to BCBST’s claims, maintaining: the “continuing conduct”
alleged by BCBST (submission of allegedly fraudulent insurance
claims within the limitations period) is not an injurious act
separate from the alleged prior misconduct (submission, outside the
period, of other such claims), all stemming from the same alleged
scheme to defraud. We disagree.
19
Each time BCBST became obligated to pay a fraudulent (assumed)
insurance claim submitted by Appellees, BCBST suffered an injury
“to its business or property”, within the meaning of 18 U.S.C. §
1964(c). Until it became so obligated, it had not suffered an
injury as the result of the submission of that claim. Obviously,
for that submittal, it could not have suffered any injury before
Appellees submitted the claim for payment.
Had BCBST filed suit in 1991, when Appellees assert that BCBST
knew, or should have known, of the alleged fraudulent scheme, BCBST
could not have recovered damages for future fraudulent insurance
claims. First, it had not yet suffered injury by becoming
obligated to pay such future claims. And, second, “‘the fact of
their accrual [would be] speculative [and] their amount and nature
unprovable’”. Bankers Trust, 859 F.2d at 1104 (quoting Zenith, 401
U.S. at 339).
b.
Alternatively, Appellees maintain there is no competent
summary judgment evidence to support BCBST’s claims for allegedly
fraudulent insurance claims within the limitations period.
BCBST’s third amended complaint includes allegations regarding
Appellees’ fraudulent insurance claims for patients for whom
treatment was rendered, and for whom insurance claims arising from
that treatment were submitted, within the limitations period —
after 13 February 1992. In opposition to summary judgment, BCBST
20
submitted an affidavit by Rogers, a BCBST senior investigator and
custodian of electronically recorded data, with an attached summary
of the insurance claims made by Appellees for each patient covered
by BCBST. Provided for each claim were the treatment date and
facility, as well as the amount and date of payment.
The affidavit stated: records were kept by Rogers in the
regular course of BCBST’s business; it was in the regular course of
business for a BCBST employee, with knowledge of the data recorded,
to make the records or to transmit information to be included in
them; the records were made at or near the time of the events, or
reasonably soon thereafter; the attachment “represent[ed] a summary
of voluminous, recorded electronic data, depicting hospital claims
paid during the relevant period”; and the summarized records were
available for inspection.
Appellees contend that Rogers’ affidavit does not properly
authenticate or establish the admissibility of the information in
the summary. They challenge the affidavit on the grounds that it:
does not mention the electronic process or system used to produce
the data; does not demonstrate that the computer system used
produces an accurate result; and fails to demonstrate, inter alia,
that it does not contain mere accumulations of hearsay. In
district court, Appellees so objected to the affidavit and attached
summary.
21
Although the district court did not expressly rule on the
objections, the order granting summary judgment states that the
court considered the parties’ “submissions”, presumably including
Rogers’ affidavit and summary. For our de novo review of a summary
judgment, we still apply the manifest-error standard of review to
the district court's evidentiary rulings. Lavespere v. Niagara
Mach. & Tool Works, 910 F.2d 167, 175-76 (5th Cir. 1990), cert.
denied, 510 U.S. 859 (1993).
Affidavits supporting or opposing summary judgment must “set
forth such facts as would be admissible in evidence”. FED. R. CIV.
P. 56(e) (emphasis added). Accordingly, “[a]lthough the summary
judgment evidence need not be in ‘a form that would be admissible
at trial,’ ... the party opposing summary judgment must be able to
prove the underlying facts”. Geiserman v. MacDonald, 893 F.2d 787,
793 (5th Cir. 1990) (quoting Celotex Corp. v. Catrett, 477 U.S.
317, 324 (1986)).
“The requirement of authentication or identification as a
condition precedent to admissibility is satisfied by evidence
sufficient to support a finding that the matter in question is what
its proponent claims.” FED. R. EVID. 901(a). For example, evidence
may be authenticated by testimony of a witness with knowledge that
a matter is what it is claimed to be. FED. R. EVID. 901(b)(1). And,
“[t]he contents of voluminous writings ... which cannot
conveniently be examined in court may be presented in the form of
22
a ... summary”, provided that the documents on which it is based
are “made available for examination or copying, or both”. FED. R.
EVID. 1006.
Rogers’ affidavit satisfies Rule 56(e). As the custodian of
the summarized records, he was a witness with the requisite
knowledge to testify that the attachment was what it was claimed to
be. The affidavit stated that the summarized documents were
available for inspection. And, under FED. R. EVID. 801(d)(2)
(admissions by party-opponent), the claims submitted by Appellees
were not hearsay. See United States v. Sanders, 749 F.2d 195, 198
(5th Cir. 1984) (Medicaid claim forms submitted by defendant or his
agents qualify as admissions). Finally, the records of payment by
BCBST were admissible under the business records exception, FED. R.
EVID. 803(6). See Sanders, 749 F.2d at 199.
2.
The district court held: as early as 1991, BCBST was, or
should have been, aware of Appellees allegedly fraudulent conduct;
BCBST was therefore on notice it may have been injured; but it
failed to exercise reasonable diligence to investigate and discover
its injury. BCBST contends: although the district court correctly
stated that BCBST’s claims accrued when BCBST knew, or should have
known, of its injury, it erroneously applied, instead, a “fraud
discovery” accrual rule to BCBST’s RICO claims, holding that “BCBST
23
was aware or should have been aware of the fraud as early as 1991”.
(Emphasis added.)
Appellees counter that the district court did not err by
referring to discovery both of the injury and the fraud, asserting
that the “injury discovery” rule is fully consistent with accrual
occurring upon discovery of the fraud. Appellees maintain that,
because BCBST had actual knowledge in 1991 of the alleged fraud, it
was, at the very least, on inquiry notice of its injury, but failed
to exercise reasonable diligence to investigate and discover such
injury.
As stated, our court adopted the “injury discovery” rule in
Rotella, 147 F.3d at 440 (RICO claim accrues “upon the discovery of
the injury in question” (emphasis added)). But, our court stated
that such adoption was “fully consistent”, id., with Daboub v.
Gibbons, 42 F.3d 285, 291 (5th Cir. 1995) (“even if the discovery
rule did apply”, RICO claim was barred by limitations because
plaintiffs knew about defendant’s “actions” more than four years
before filing suit), and La Porte Construction Co. v. Bayshore
National Bank, 805 F.2d 1254, 1256 (5th Cir. 1986) (for RICO civil
action, “period of limitations does not commence until the injured
party discovers, or, in the exercise of reasonable diligence,
should have discovered, the alleged fraud”; “exercise of reasonable
diligence would have led to the discovery of the fraud” (emphasis
added)). Appellees rely on this passage from Rotella to support
24
their contention that a “fraud-discovery” rule is consistent with
the “injury discovery” rule.
Similarly, the Rotella plaintiff contended that adoption of an
injury discovery rule, rather than the injury pattern discovery
rule he preferred, would conflict with Daboub and La Porte. In
rejecting that contention, our court stated that, because “neither
case mentions or even implies a requirement of discovery of a
pattern of racketeering activity with regard to the accrual of a
civil RICO cause of action”, Rotella, 147 F.3d at 440, Daboub and
La Porte were “fully consistent” with adopting the injury discovery
rule. Id. Accordingly, Appellees read too much into that passage
when they construe it as supporting the proposition that discovery
of fraud is the same as discovery of the resulting injury.
As BCBST notes, the district court correctly stated the
applicable injury discovery rule. But, as noted, in applying that
rule, the court concluded: “BCBST was aware or should have been
aware of the fraud as early as 1991”. (Emphasis added.) As
evidence of “BCBST’s awareness of the fraud”, the district court
relied on evidence of BCBST’s cooperation with the FBI in its
investigation of insurance fraud by Appellees; BCBST’s suspicion
that it might have been a victim of fraud and its resulting
“preliminary, yet incomplete, in-house investigation of false
claims”; and BCBST’s awareness of media reports concerning the
filing of fraudulent claims by psychiatric hospitals, including the
25
Texas Attorney General’s investigation of Appellees. The court
concluded: those “events gave BCBST reasonable ‘notice’ that it
may have been injured and may have [had] a cause of action against
one or more Defendants”. (Emphasis added.)
The district court quoted Landry v. Air Line Pilots
Association International AFL-CIO, 901 F.2d 404, 413 (5th Cir.),
cert. denied, 498 U.S. 895 (1990), for the proposition that
“ignorance of one aspect of an alleged fraud, where many other
facts were known, is insufficient to delay the running of the
statute”. But, that portion of Landry addressed the accrual of
labor law, not civil RICO, claims. Because the RICO statute
requires a showing of “injur[y]”, 18 U.S.C. § 1964(c), and the
injury discovery rule calculates accrual from the discovery of that
injury, accrual of a civil RICO claim is delayed until the
plaintiff is aware, or should have been aware, of the injury.
To the extent that the district court’s opinion could be
interpreted as holding that BCBST’s civil RICO claims accrued when
it became aware in 1991 of Appellees’ allegedly fraudulent conduct,
such a conclusion would be erroneous, because, again, under the
injury discovery rule, the claims did not accrue until BCBST knew,
or should have known, that it suffered an injury caused by that
allegedly fraudulent conduct. But, we think it reasonably clear
that the district court’s references to BCBST’s awareness of “the
fraud” were intended to mean that the court had determined that
26
BCBST’s awareness of Appellees’ alleged fraudulent conduct was
sufficient to place BCBST on notice that it might be a victim of
that conduct (injury), and triggered its duty to exercise
reasonable diligence to discover whether it had been injured.
Implicit in the court’s conclusion that BCBST failed to exercise
reasonable diligence to investigate whether it was a victim of the
alleged fraud of which it was aware in 1991 is the further
conclusion that, had it done so, BCBST would have discovered its
alleged injuries.
BCBST concedes: in 1991, it learned of a scheme by Appellees
to charge varying amounts for the same medication and to discharge
patients upon exhaustion of insurance coverage; it conducted an
investigation into whether there were variations in medication
charges or correlation between insurance coverage and length of
hospitalization; but it found nothing. It contends, however, that
it was not aware of the type of fraudulent conduct that caused its
injuries: Appellees’ use of medical doctors to falsify diagnoses
and medical records.
Regarding BCBST’s investigation, the summary judgment evidence
includes excerpts from the deposition of the earlier-referenced
Lane Melton, whose duties during his BCBST employment included
investigating questionable claims and, when warranted, seeking
prosecution. He stated: in 1991, he became aware of allegations
of fraud and abuse in Texas psychiatric hospitals; he became
27
concerned that BCBST might be paying fraudulent claims; he spoke
with employees who handled claims, to determine whether BCBST was
paying fraudulent claims, but did not talk to PIA doctors or
patients; he spoke with an employee named “Betty” in BCBST’s
psychiatric health unit, who told him Appellees submitted large
claims, but if there were claims that raised concerns of fraud or
over-billing, BCBST denied them; and he did not see enough
indicators of fraud to then warrant a full-fledged investigation.
BCBST also submitted other summary judgment evidence that: in
part as a result of the allegations of fraudulent conduct by
psychiatric hospitals in 1991, it instituted new procedures,
including per diem billing, pre-certification requirements, onsite
inspections, and review of claims by subcontracted private
physicians, to attempt to eliminate the potential for fraudulent
claims; and it believed those procedures had eliminated, or
controlled, the possibility of fraudulent insurance claims.
BCBST also submitted the affidavit by one of its litigation
department attorneys, which stated: in 1991, BCBST did not know,
as a result of the publicity, other lawsuits, and governmental
investigations, that Appellees had enlisted medical doctors to
falsify diagnoses and medical records; in the fall of 1995, it
learned, for the first time, that fraudulent claims containing
false diagnoses had been made against it by one of the Appellees;
this knowledge was gained upon receipt of questionnaires sent to
28
patients, at the direction of outside counsel in connection with
litigation with another hospital group, one of whose hospitals had
previously been owned by PIA; and, because of the sensitivity of
psychiatric treatment, it was not BCBST’s regular practice to send
such questionnaires to insureds.
Appellees contend that this evidence is insufficient to permit
a rational trier of fact to conclude that BCBST performed a
reasonably diligent investigation to determine whether it had been
injured by the allegedly fraudulent conduct. Restated, they
maintain there is no material fact issue on this point. According
to Appellees: BCBST’s discovery of its injuries through the use of
questionnaires in 1995 demonstrates that use of a similar procedure
in 1991 would have revealed the same information; and BCBST’s
explanation for why it did not do so is inadequate.
There is no summary judgment evidence that, prior to 1995,
BCBST knew that Appellees’ allegedly fraudulent conduct included
falsification of diagnoses and medical records. Moreover, there is
no summary judgment evidence that insurers routinely contact
insureds to verify treatment. BCBST submitted evidence that it did
so only at the direction of outside counsel in existing litigation.
BCBST also submitted evidence that it sent “Explanation of Benefit”
forms to its insureds, to advise them of benefits paid on their
behalf, and never received a complaint that the services were not
rendered or were inappropriate.
29
In the light of the summary judgment record, we cannot
conclude, as a matter of law, that BCBST’s efforts to investigate
whether it was a victim of — had been injured by — the allegedly
fraudulent conduct of which it was aware in 1991 (varying charges
for the same medication and discharge decisions based on insurance
coverage), including not seeking information from its insureds
through the use of questionnaires or otherwise, were not reasonably
diligent.
3.
Finally, seeking recovery for all payments of the allegedly
fraudulent insurance claims, including those prior to 13 February
1992, BCBST contends that the district court erred by failing to
hold there is a material fact issue regarding whether the statutes
of limitations for all of its claims were tolled by other
doctrines.
a.
First, BCBST asserts that there is a material fact issue
regarding whether the limitations periods are tolled by fraudulent
concealment. Under that doctrine, the limitations period is tolled
until the plaintiff discovers, or with reasonable diligence should
have discovered, the concealed fraud. Klehr, 521 U.S. at 194;
Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455
(Tex. 1996).
30
BCBST maintains that the alleged fraud was “self-concealing”
because the purpose of the scheme created by Appellees was to
prevent insurers from discovering that the psychiatric admissions
were fraudulent. Alternatively, it contends it submitted
uncontroverted evidence that Appellees committed affirmative acts
to conceal their fraudulent activities.
In opposition to summary judgment, BCBST submitted affidavits
of former employees of Appellees as evidence of affirmative acts of
concealment. That by a former intake coordinator for one hospital
owned by Appellees stated: he knew what type of coverage was
available through BCBST and other insurers, and tailored diagnoses
to fit insurance coverage; occasionally, the hospital admitted
patients under the name of someone else who was insured; he coerced
all callers to come to the hospital and all visitors to be
evaluated, and was prepared to admit all who were evaluated,
regardless of the result of the evaluation; and efforts were made
to conceal such conduct from BCBST and other insurers.
The affidavit of another individual employed by PIA from
December 1990 to October 1991 stated: she performed case
management utilization review to coordinate with insurance
companies such as BCBST, to provide clinical information about
patients in order to obtain approval for payment; PIA created and
used a “no-no” diagnosis list, for diagnoses that were not covered
by insurance, and instructed employees and physicians to use it in
31
falsifying diagnoses to obtain insurance coverage; her duties
included coercing physicians to change diagnoses when necessary to
obtain coverage; when responding to BCBST requests for medical
records, she was instructed that, before providing the requested
information to BCBST, she was to redact records in order to remove
information reflecting patient improvement; and she attended
“charting parties” conducted by Appellees for the purpose of
fabricating charts, after patients were discharged.
Appellees maintain that the affidavits BCBST relies on to show
affirmative acts of concealment are not competent summary judgment
evidence, because they contain conclusory remarks, opinions of
ultimate fact and legal conclusions, and statements without record
support. Appellees so objected in district court, but the court
did not expressly rule on the objections. As noted, its opinion
states it considered the parties’ “submissions”. Even assuming
portions of the affidavits are objectionable on the grounds
asserted by Appellees, they contain statements, based on personal
knowledge, from which a reasonable jury could find acts of
concealment.
Appellees contend further that the fraudulent concealment
doctrine does not apply because, in 1991, BCBST knew facts that
would have alerted any reasonable person to investigate and pursue
its claims. Appellees maintain that the evidence conclusively
establishes that BCBST did not then act with reasonable diligence,
32
because, when it exercised such diligence in 1995, by sending
questionnaires to patients, it discovered its alleged injury. As
discussed, there is a material fact issue whether BCBST exercised
reasonable diligence to determine whether it was a victim of
Appellees’ allegedly fraudulent conduct. Accordingly, summary
judgment concerning fraudulent concealment was inappropriate.
b.
We reject BCBST’s contention that there is a material fact
issue regarding tolling for its subrogated claims for treatment of
minors. There is no evidence of any contract giving rise to such
subrogation rights. The doctrine of equitable subrogation does not
apply, because BCBST asserts direct claims against Appellees; its
rights are based not upon payment of the debt of another, but upon
payment of its own debt.
III.
For the foregoing reasons, the summary judgment is VACATED,
and this case is REMANDED for further proceedings.
VACATED and REMANDED
33