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U.S. District Court Sanctions MSP Recovery and Counsel for Misstatement in Pleadings

We are continuing to monitor the nationwide string of suits filed by MAO-MSO Recovery II, LLC and MSP Recovery, LLC (“Plaintiffs”) against multiple insurance carriers. As you may recall, Plaintiffs filed putative class action suits claiming to be assignees of recovery rights originally held by Medicare Advantage Organizations (“MAO”) under the Medicare Secondary Payer Act (“MSPA”). Recently, the United States District Court for the Central Division of Illinois sanctioned MSP Recovery, LLC and their counsel for a misstatement of fact in their complaint. MAO-MSO Recovery II, LLC v. State Farm Mut. Auto. Ins. Co., 2018 U.S. Dist. LEXIS 95789.

Plaintiffs’ complaint stated that Health First Administrative Plans, Inc. (“HFAP”) was an MAO that assigned their recovery rights to the Plaintiffs. During litigation, the U.S. District Court for the Southern District of Florida found that HFAP is not an MAO and had no recovery rights under the MSPA. MSP Recovery Claims, Series LLC v. Auto-Owners Ins. Co., No. 17-23841, 2018 U.S. Dist. LEXIS 69723 (S.D. Fla. Apr. 25, 2018). Instead, HFAP performed the administrative functions on behalf of a separate corporate entity that is an MAO, Health First Health Plans, Inc. (“HFHP”). Following Auto-Owners, the court in the present case ordered the Plaintiffs to address the finding that HFAP was not an MAO. Plaintiffs insisted that the HFAP could step into the shoes of HFHP and that a “minor clarifying amendment” to the complaint could distinguish HFHP from HFAP. The Plaintiffs’ response also stated that the clarifying amendment would not change the substantive validity of the assignment. The court stated that these arguments were clearly wrong because HFAP and HFHP, as corporations, are separate legal entities. Since HFAP is not an MAO, they had no recovery rights to assign to the Plaintiffs. Further, there was no evidence suggesting that HFHP intended to transfer its claims under the MSPA to HFAP. As such, the complaint was inaccurate.

Given that Plaintiffs’ case is based on the recovery rights assigned to them, the fact that they failed to properly investigate the facts surrounding the assigning entity caused months of needless litigation. Accordingly, the court found that monetary sanctions were warranted against MSP Recovery and its counsel.

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