U.S. v. Baxter Intern., Inc., No. 01-16782.

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Writing for the CourtAnderson
Citation345 F.3d 866
PartiesUNITED STATES of America, Plaintiff-Appellant, v. BAXTER INTERNATIONAL, INCORPORATED; Baxter Healthcare Corporation, et al., Defendants-Appellees, Plaintiffs' Steering Committee, Defendant-Intervenor-Appellee.
Docket NumberNo. 01-16782.
Decision Date15 September 2003
345 F.3d 866
UNITED STATES of America, Plaintiff-Appellant,
BAXTER INTERNATIONAL, INCORPORATED; Baxter Healthcare Corporation, et al., Defendants-Appellees, Plaintiffs' Steering Committee, Defendant-Intervenor-Appellee.
No. 01-16782.
United States Court of Appeals, Eleventh Circuit.
DECIDED September 15, 2003.

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Alisa B. Klein, Mark B. Stern, Washington, DC, for Plaintiff-Appellant.

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Maria Jessica Colsey Heard, Peter Morgan, James Van R. Springer, Dickstein, Shapiro, Morin & Oshinsky, LLP, Maureen E. Mahoney, Latham & Watkins, Washington, DC, Richard M. Eittreim, Jerry P. Sattin, McCarter & English, Newark, NJ, William A. Krohley, New York City, Julie M. Jarrell, Michael L. Edwards, Leigh Anne Hodge, Balch & Bingham, LLP, Birmingham, AL, for Defendants-Appellees.

Leslie J. Bryan, Ralph I. Knowles, Jr., Doffermyre, Shields, Canfield, Knowles & Divine, Atlanta, GA, for Defendant-Intervenor-Appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before TJOFLAT, ANDERSON and CUDAHY,* Circuit Judges.

ANDERSON, Circuit Judge:

This case grows out of the 1995 settlement of a class-action products liability suit against manufacturers of silicone breast implants. The settlement resulted in the creation of a reimbursement mechanism by which several settling manufacturers agreed to cover certain health care expenses incurred by or on behalf of qualified members of the plaintiff class. The Government, as intervenor, sought to recover for medical bills it paid on behalf of Medicare beneficiaries who received treatment related to silicone breast implants. The district court dismissed the Government's Complaint in intervention for failure to state a claim. We conclude that the dismissal was in error. We therefore reverse and remand.


A. Historical Background

The underlying case is result of an order by the Judicial Panel on Multi-District Litigation, which consolidated all then-pending products liability claims against the manufacturers of silicone breast implants into a single action before the United States District Court for the Northern District of Alabama. The exact details of the underlying claims are not of significance to the disposition of the appeal before us. It is enough to observe that, in general, the plaintiffs allege that they suffered, or fear that they will contract, a variety of systemic illnesses traceable to silicone breast implants, necessitating in some instances that the implants be surgically removed at considerable expense.

The litigation resulted in a settlement valued at $4.2 billion that initially involved eight defendant manufacturers (the "Lindsey settlement"). On September 1, 1994, after conducting a fairness hearing, the district court approved the terms of the Lindsey settlement, with modifications. See In re Silicone Gel Breast Implant Litig., No. CV 92-P-10000-S, MDL No. 926, Civ. A. No. CV94-P-11558-S, 1994 WL 578353 (N.D.Ala. Sept. 1, 1994) (approving modified settlement and redefining parameters of class membership). Subsequently, one of the larger defendants, Dow Corning, declared bankruptcy, and several other defendants (apparently dissatisfied with the court-imposed modifications) chose not to participate in the settlement, leaving the following companies as appellees now before us: Baxter International, Inc.; Bristol-Myers Squibb Co., Minnesota Mining and Manufacturing

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Co. ("3M"); Union Carbide Corp.; and Union Carbide Chemical & Plastics Co.

After the modifications were publicized to class members, and after the settlement was restructured to take account of Dow Corning's bankruptcy filing, the district court gave final approval to the settlement by order of December 22, 1995. This became known as the "Revised Settlement Program," or RSP. The participating implant manufacturers are referred to collectively as "the RSP Defendants,"1 the appellees before us.

The revised settlement class covered personal injury or death claims by members of a class consisting of: persons who received silicone breast implants before June 1, 1993; all children born to mothers with breast implants before April 1, 1994; and their spouses or other relatives. The Government,2 as well as a number of private insurers, moved to intervene prior to approval of the settlement for purposes of asserting claims for reimbursement of medical claims paid on behalf of class members. The district court denied these motions as premature. Its order stated, in pertinent part: "The court will consider these issues at a later time, before any distributions ... are made, and hopefully on the basis of motions that in some appropriate manner identify the persons on whose behalf subrogation claimants have paid medical expenses, rather than simply assert a general claim against the class."

In accordance with the settlement, the RSP Defendants created a Claims Office to review the documentation submitted by prospective class members and determine what level of benefits, if any, applicants were eligible to receive. Also as part of the claims process, the district court appointed an Escrow Agent, who is responsible for overseeing the investment and disbursement of the settlement proceeds. The position has been held since its inception by Edgar C. Gentile, III. The district court granted the Escrow Agent, as an agent of the court, "judicial immunity" for actions taken in his quasi-judicial capacity, unless he acts in the clear absence of jurisdiction.

The settlement resulted in the creation of two funds relevant to this case. The principal fund, called the RSP Settlement Fund (or sometimes MDL 926 Settlement Fund) is the account from which claims are paid. The second, the Common Benefit Fund, was created by a surcharge on the RSP Defendants for purposes of paying legal fees and expenses incurred for the "common benefit" of all claimants. Both funds are administered by the Escrow Agent.

The RSP Defendants made their first payment into the settlement fund in January of 1996, and at the direction of the district court, the Escrow Agent began issuing settlement payments to class members in mid-1996. According to the Government's Complaint, about 81,000 claimants

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had received some payment from the RSP as of April 1999. To date, more than 400,000 women have registered as potential claimants, and the RSP Defendants have paid more than $1 billion into the RSP Settlement Fund. More than 52,000 breast implant recipients opted out of the settlement class, according to the Complaint, and the Defendants have made payments outside the RSP process to an unspecified number of them.

It is not clear from the record to what extent the RSP Defendants carried liability insurance coverage (other than "self insurance," about which more will be said shortly) for the events giving rise to the class members' claims, or to what extent these defendants have received compensation from such insurance for payments made into the two settlement funds. It is apparent that the implant companies had at least some liability coverage, because the settlement agreement expressly provides for the Defendants' insurers to have access to the otherwise confidential records of class claimants. We therefore take as established for purposes of this appeal that some third-party insurance coverage exists.

Beginning in 1995 and continuing through March of 2000, the Government entered into a series of "tolling agreements" with the RSP Defendants while negotiating over the Government's access to information about the settlement participants, for purposes of determining which class members may have received Government health benefits for which the Government was entitled to reimbursement. Under these tolling agreements, the Defendants agreed that they would not argue laches, statute of limitations or similar "timeliness" defenses if the Government was forced to file suit. In exchange, the Government agreed to forego filing suit during settlement negotiations. Negotiations between the Government and the RSP Defendants did not produce an agreement. Consequently, in March of 2000, the Government filed the complaint in intervention giving rise to this appeal.

B. The Medicare Secondary Payer (MSP) Statute

The Government's Complaint initially relied on two distinct but related statutes and their accompanying regulations: (1) the Medicare Secondary Payer ("MSP") statute, 42 U.S.C. § 1395y(b), and (2) the Medical Care Recovery Act ("MCRA"), 42 U.S.C. § 2651. Although all of the Government's claims were dismissed, it is appealing only the dismissal of the MSP claim.3

The MSP is actually a collection of statutory provisions codified during the 1980s with the intention of reducing federal health care costs. See Zinman v. Shalala, 67 F.3d 841, 845 (9th Cir.1995) ("The transformation of Medicare from the primary payer to the secondary payer with a right of reimbursement reflects the overarching statutory purpose of reducing Medicare costs."); Provident Life & Accident Ins. Co. v. United States, 740 F.Supp. 492, 498 (E.D.Tenn.1990) ("The intent of Congress in shifting the burden of primary coverage from Medicare to private insurance carriers was to place the burden

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where it could best be absorbed."). 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. As we...

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