Case Information
I N THE U NITED S TATES D ISTRICT C OURT FOR THE N ORTHERN D ISTRICT OF I LLINOIS E ASTERN D IVISION
ASTELLAS US HOLDING, INC. and
ASTELLAS PHARMA US, INC.,
Plaintiffs,
No. 17-cv-08220 v. Judge Franklin U. Valderrama STARR INDEMNITY & LIABILITY
COMPANY, BEAZLEY INSURANCE
COMPANY, INC., and FEDERAL
INSURANCE COMPANY,
Defendants.
M EMORANDUM O PINION AND O RDER
Plaintiffs Astellas US Holding, Inc. (AUSH) and Astellas Pharma US, Inc.
(Astellas) (collectively, Plaintiffs), filed suit against Starr Indemnity & Liability Company (Starr), Beazley Insurance Company, Inc. (Beazley), [1] and Federal Insurance Company (Federal) (collectively, the Insurers) alleging breach of contract and seeking compensatory damages for the Insurers’ alleged breaches of their duties under insurance policies they issued to Plaintiffs, which provide broad coverage for defense costs, judgments, and settlements arising from alleged wrongful acts committed by Astellas. R. 77, SAC. [2] Plaintiffs seek damages they suffered due to the Insurers’ refusals to reimburse them for defense costs (i.e., covered defense and investigation costs), as well as for a settlement payment that Plaintiffs paid to resolve a claim asserted against Astellas by the United States Department of Justice (DOJ) for alleged federal health care offenses committed by Astellas. SAC ¶ 2. Plaintiffs also seek a declaratory judgment that Federal must pay the full amount of its $10 million limit of liability. ¶¶ 18, 61. Before the Court are Astellas’ and Federal’s cross- motions for summary judgment. [3] R. 114, Pl.’s Mot. Summ. J.; R. 129, Def.’s Cross- Mot. Summ. J. [4] For the reasons discussed below, Astella’s Motion for Summary Judgment is granted and Federal’s Cross-Motion for Summary Judgment is denied. [5] The Court finds that the Settlement Payment constitutes a Loss under the Federal Policy, and public policy does not bar coverage.
Background
The following facts are undisputed unless otherwise specified. In deciding
cross-motions for summary judgment, the Court views the facts in the light most
favorable to the respective non-moving party.
See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp.
,
Astellas is a pharmaceutical company, of which AUSH owns 100% of the voting stock. Def.’s Resp. PSOF ¶¶ 1–2, 4. [6] Federal is an insurance company, which issued an excess policy, No. 822-5816 (the Federal Policy), to Astellas for the period of April 1, 2015 to April 1, 2016 (the Policy Period [7] ). ¶¶ 5, 7, 52–53.
I. Policy Language The Federal Policy provides a $10 million limit of liability in excess of the $10 million in underlying coverage issued by five separate insurers, and a $500,000.00 self-insured retention (totaling $10.5 million and defined as Federal’s Underlying Limit ). Def.’s Resp. PSOF ¶¶ 56–57. Paragraph 1 of the Federal Policy, as amended by Endorsement No. 1, provides, in relevant part, as follows:
[Federal] shall provide the Insureds with insurance during the Policy Period excess of the Underlying Limit . Coverage hereunder shall attach only after the . . . Insureds . . . shall have paid in legal currency the full amount of the Underlying Limit for such Policy Period . Coverage shall then apply in conformance with the terms and conditions of the Primary Policy , except as otherwise provided herein.
Id. ¶ 52 (citing R. 115-1, Silversten Decl., Exh. B, Federal Policy at A-67).
The Primary Policy provides coverage for claims brought against Astellas.
Insuring Agreement 1.C. of the Primary Policy states:
The Insurer shall pay on behalf of the Company the Loss arising from a Claim first made during the Policy Period . . . against the Company for any Wrongful Act , and reported to the Insurer in accordance with the terms of this policy.
Def.’s Resp. PSOF ¶ 58 (citing Primary Policy at A-23).
The Primary Policy defines Company as including “any Subsidiary of the Parent Company .” Def.’s Resp. PSOF ¶ 59 (citing Primary Policy at A-12). Parent Company is defined as AUSH. Id. ¶ 60 (citing Primary Policy at A-7). The term Subsidiary is defined, in relevant part, as “any privately-held for-profit entity . . . of which the Parent Company has Management Control . . . before the inception of the Policy Period .” Id. ¶ 61 (citing Primary Policy at A-26). “ Management Control ” means, among other things, “owning interests representing more than 50% of the voting, appointment or designation power for the selection of a majority of: the board of directors of a corporation.” ¶ 62 (citing Primary Policy at A-13).
4 The term Claim includes, in relevant part, a “written request to toll or waive the applicable statute of limitations relating to a potential Claim against an Insured for a Wrongful Act .” Def.’s Resp. PSOF ¶ 63 (citing Primary Policy at A-24). The term Wrongful Act is defined, in relevant part, as “any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Company.” Id. ¶ 64 (citing Primary Policy at A-27).
Finally, the term Loss is defined to include: “damages, settlements or judgments.” Def.’s Resp. PSOF ¶ 65 (citing Primary Policy at A-25). It also includes the “multiplied portion of any multiple damage awards . . . but only to the extent that such damages . . . are insurable under the applicable law most favorable to the insurability of such damages.” (citing Primary Policy at A-25, A-45). Loss is defined to exclude “matters which may be deemed uninsurable under applicable law” and “fines and penalties, except as provided for in” the previous sentence. Pl.’s Resp. DSOAF ¶ 1 (citing Primary Policy at A-25). The Primary Policy also explicitly excludes coverage for any Loss in connection with any Claim :
(a) arising out of, based upon or attributable to the gaining of any profit or advantage or improper or illegal remuneration if a final non-appealable adjudication in an action or proceeding other than an action or proceeding initiated by the Insurer to determine coverage under the policy establishes that such remuneration was improper or illegal; [and]
(b) arising out of, based upon or attributable to any deliberate fraudulent act or any willful violation of law by an Insured if a final non-appealable adjudication in an action or proceeding other than an action or proceeding initiated by the Insurer to determine coverage under the policy establishes that such act or violation occurred.
5 (Final Adjudication Exclusions). Def.’s Resp. PSOF ¶ 68 (citing Primary Policy at A- 50).
Section 5 of the General Terms & Conditions Section of the Primary Policy, Notice of Claim, provides, in relevant part:
[I]f during the Policy Period . . . an Insured becomes aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured, the Insured may provide written notice to the Insurer’s authorized agent of such circumstances. . . . If a Claim is subsequently made against such Insured and reported to the Insurer arising out of, based upon or attributable to the previously noticed circumstances, such Claim shall be considered first made at the time notice of such circumstances was provided to the Insurer.
Def.’s Resp. PSOF ¶ 66 (citing Primary Policy at A-16).
II. Xtandi and ARI Funds In September 2012, Astellas launched Xtandi, a drug used to treat men with metastatic castration-resistant prostate cancer (mCRPC). Def.’s Resp. PSOF ¶ 19. Xtandi differs from other treatments of mCRPC because it works by blocking androgen receptors and is thus classified as an “androgen receptor inhibitor” (ARI). ¶ 21. John Liu (Liu), Astella’s Executive Director, Reimbursement & Market Access Strategy, led Astella’s efforts to ensure that patients could afford Xtandi, including contributing to charity patient assistance programs that provide financial support to patients undergoing cancer treatment. Def.’s Resp. PSOAF ¶¶ 1, 3.
In September 2012 and January 2013, respectively, Astellas began making charitable contributions to patient assistance mCRPC Funds (the mCRPC Funds) run by two separate Charity Patient Assistant Programs (PAPs), the Patient Access Network Foundation (PANF) and the Chronic Disease Fund (CDF) (collectively, the
6 Charity PAPs). Def.’s Resp. PSOF ¶ 22; Def.’s Resp. PSOAF ¶¶ 4–5. In May 2013, Liu received a press release announcing that PANF had opened a fund for mCRPC patients who were prescribed products with the radioisotope “mechanism of action” (MOA), which caused him to speak to various people at the Charity PAPs about the possibility of setting up another MOA fund, specifically for patients being treat with the ARI for mCRPC (the ARI Funds). Id. ¶¶ 7–8. Such funds would include patients who had been prescribed Xtandi and ARI drugs used to treat mCRPC, but would not generally apply to other mCRPC treatments or drugs. Def.’s Resp. PSOF ¶ 24. Astellas, PANF, and CDF each undertook their own independent legal and medical analysis of the ARI Funds. Def.’s Resp. PSOAF ¶ 10. Before Astellas contributed to the ARI Funds, Liu sought approval from Astellas’ in-house legal department, who obtained legal advice from regulatory experts and spoke to PANF’s and CDF’s outside counsel,
. Id. ¶¶ 11–
13.
. Id. ¶ 11. After finishing its internal vetting process in June 2013, Astellas began contributing to the PANF and CDF ARI Funds in July 2013, and continued donating to those funds until December 2013 and September 2013, respectively. [8] Def.’s Resp. PSOAF ¶¶ 14–16; Def.’s Resp. PSOF ¶¶ 23, 25. Between 2013 and 2016, Astellas paid $116 million into PANF’s mCRPC Fund and $12.75 million into CDF’s mCRPC Fund. Pl.’s Resp. DSOAF ¶ 2. However, these totals included Astella’s payments to the more general mCRPC Funds, and not just the narrower ARI Funds. In his April 2017 proffer session with the DOJ, Liu stated that he never had to make a representation to anyone at Astellas regarding any Return on Investment (ROI) on donations to PANF or CDF. Def.’s Resp. PSOAF ¶ 19. He stated that the decision to donate was based on the benefit to patients, but also that “a financial benefit was ‘expected or anticipated’ from ongoing donations.” Gallagher Suppl. Decl. Exh. F at A-456, A-460– 61; see also id. Exh. E at A-442
When the DOJ asked whether Astellas attempted to “quantify” the potential financial benefit from its donations, Liu said no; that said, he also said he provided [someone at Astellas] data from a data-aggregator that provided general information about the utilization of co- pay assistance foundations. Gallagher Suppl. Decl. Ex. F at A-460, A-464; Def.’s Resp. PSOAF ¶ 19. In the same vein,
Def.’s Resp. PSOAF ¶ 18; Gallagher Suppl. Decl. Exh. E at A-440.
Astellas contributed to PANF’s mCRPC Fund until March 2016. Id. ¶ 17. Astellas made its last donation to CDF in September 2013. Id. ¶ 15.
8 During the period of Astellas’ donations to the ARI Funds, Astellas sold Xtandi to distributors and specialty pharmacies, and not to patients, pharmacies, hospitals, or the federal government. Def.’s Resp. PSOAF ¶ 20. Specialty pharmacies filled Xtandi prescriptions, charged the patients the required co-pays based on each patient’s insurance plan, and then sought the remainder of the cost from the patient’s insurer, including, Medicare. Id. ¶ 21. Some patients applied to PANF and CDF for financial assistance, and, based on each charity’s independent criteria, PANF and CDF would decide whether to issue a grant to cover all or part of the co-pay obligation for the already prescribed medication. Id. ¶ 22.
III. DOJ Investigation In a November 2005 Bulletin (the Bulletin), the OIG advised that copay assistance to Medicare Part D beneficiaries paid by charitable organizations controlled by pharmaceutical manufacturers would also violate the AKS. [9] Def.’s Resp. PSOF ¶¶ 16–17. The Bulletin further advised that donations made by pharmaceutical companies to other 501(c)(3) organizations, not controlled by pharmaceutical manufacturers, risked violating the AKS in certain circumstances. Id. ¶ 17. The OIG also issued guidance as to how and under what circumstances pharmaceutical manufacturers could lawfully continue making donations to “bona fide, independent charities unaffiliated with pharmaceutical manufacturers.” The OIG stressed that independent charity PAPs must decide independently how and under what circumstances to provide co-pay assistance, as an arrangement where a pharmaceutical company earmarks its contributions to such narrow categories of disease categories that “effectively results in a subsidization of one . . . of the donor’s particular products . . . would present an elevated risk of fraud and abuse.” Id. ¶ 18.
In March 2016, the DOJ issued a Subpoena Duces Tecum to Astellas Pharma, Inc. under 18 U.S.C. § 34862 (HIPAA), demanding certain documents related to the DOJ’s investigation (the Subpoena). Def.’s Resp. PSOF ¶¶ 26–27. DOJ agreed to treat the Subpoena as being issued only to Astellas. Id. ¶ 29. The Subpoena demanded documents relevant to DOJ’s investigation of alleged “Federal healthcare offenses” arising out of Astellas’ charitable contributions to the Charity PAPs (the Investigation). Id. ¶ 27. “Federal healthcare offenses” is defined in 18 U.S.C. § 24(a) to mean violations of certain enumerated criminal statutes. Id.
On March 11, 2016, Astellas gave written notice of the Subpoena to the Insurers (the Original Notice). Def.’s Resp. PSOF ¶ 30. On March 29, 2016, Starr provided its coverage position to Astellas, which stated that Starr refused to treat the Original Notice as a notice of a Claim , but it accepted the Original Notice as a notice of “circumstance.” Id. ¶ 31. Id. Federal adopted Starr’s position that the Subpoena was only a “circumstance,” not a Claim . ¶ 32.
In September 2017, as part of its ongoing investigation, DOJ issued a Civil Investigative Demand (CID) to Liu. Def.’s Resp. PSOAF ¶ 23. The CID states that it “was issued pursuant to the False Claims Act, 31 U.S.C. § 3729–33, in the course of a False Claims Act investigation” of Astellas to determine whether Astellas had caused the “submission of false claims to federal government health care programs, in violation of 31 U.S.C. § 3729, by facilitating payments to federal health care beneficiaries.” Id. ¶ 24. [10]
On October 19, 2017, DOJ requested that Astellas enter into a tolling agreement (the Tolling Agreement), which was executed on October 26, 2017. Def.’s Resp. PSOF ¶¶ 33–34. The Tolling Agreement explained that the DOJ was:
conducting a joint criminal and civil investigation of [] Astellas . . . . The conduct being investigated includes, without limitation, the possible violation by Astellas . . . of various federal criminal statutes, including, but not limited to, 42 U.S.C. § 1320a-7b (anti-kickback statute) and 18 U.S.C. § 1347 (health care fraud), and certain civil statutes, including, but not limited to, 31 U.S.C. § 3729-33 (False Claims Act) [(FCA)], in connection with Astellas’s payments to “501(c)(3)” organizations that provide financial assistance to Medicare beneficiaries.
Id. ¶ 34. The Tolling Agreement did not list any state common law theories of liability. Id. Astellas reported the Tolling Agreement to Federal (as well as Astellas’ other excess Insurers) on November 1, 2017 (the Second Notice). Id. ¶ 36. The Second Notice specifically advised the Insurers that the DOJ Tolling Request constituted a Claim. ¶¶ 35–36.
Astellas’ lead counsel in the DOJ Investigation, Thomas Gallagher (Gallagher), testified that when he received the Subpoena, he knew that the DOJ Investigation “was a serious criminal investigation and assumed it was a parallel civil case as well.” Pl.’s Resp. DSOAF ¶ 7. Although the Subpoena and Tolling Agreement list violations of specific criminal and civil statutes being investigated by the DOJ, Gallagher testified that from his experience, the DOJ “does not investigate or allege statute violations. They allege bad conduct. That’s what they’re investigating . . . .” Id. ¶ 8; see also Def.’s Resp. PSOF ¶¶ 27, 34, 37. In this instance, however, Gallagher said that, after receiving the Subpoena, he knew the Government’s “main interest was a kickback case,” and the only question was whether the DOJ would pursue a criminal case based on the AKS or a civil case based on the FCA with an underlying AKS violation. R. 140, Gallagher Suppl. Decl., Exh. D, Gallagher Dep. Tr. at 23:13–24:22.
As noted above, the alleged “bad conduct” at issue being investigated by the DOJ was, among other things, that Astellas used the Charity PAPs as conduits to funnel impermissible co-pay assistance to Xtandi patients. Def.’s Resp. PSOF ¶ 37; see also Pl.’s Resp. DSOAF ¶ 9. Specifically, Gallagher testified that one of the DOJ’s theories was that certain pharmaceutical companies, including Astellas, were using charity PAPs to do indirectly what the companies could not do directly—namely, pay others to steer business to federal healthcare programs to increase the companies’ own sales. Pl.’s Resp. DSOAF ¶¶ 10–12. In other words, one of the DOJ’s theories was that Astellas made charitable donations to the Charity PAPs explicitly to increase sales and revenue for Xtandi at the expense of Medicare. Id. Gallagher also testified that, during the investigation, the DOJ was “interested in, among [] other things . . . that Astellas knew that it could increase its price [of Xtandi] to increase revenue because patients would be fully supported by the ARI [F]und[s].” ¶ 13.
In February 2018, Gallagher and his team gave a presentation to Astellas on the facts of the case, including the DOJ’s theories and factual allegations, and to discuss a potential strategy going forward. Pl.’s Resp. DSOAF ¶ 14.
Id. ¶ 15.
Id.
¶ 16. ¶ 17; see also Def.’s Resp.
PSOF ¶ 25.
After making that presentation to Astellas, Gallagher received authority to “approach the Government about their damages information,” particularly “to ask the Government for the numbers.” Pl.’s Resp. DSOAF ¶ 18. In April 2018, the DOJ advised Gallagher’s team that “their initial view of potential damages for Xtandi based on data in their possession showing the total amount of Medicare reimbursement payments that were made for Xtandi from 2013 to 2016, that they have ‘matched’ to patients who received copayment support from one of the [Charity PAPs]” totaled , which the DOJ viewed as “the starting point . . . of the damages they have incurred.” Id. ¶¶ 19–20. Gallagher testified that the number, in the Government’s view, was “based on tainted donations to the [non-independent] conduits that caused harm to the federal [Medicare program].” ¶ 21. The DOJ advised that the Medicare reimbursement amounts represented the starting point of the damages they incurred. Id . ¶ 22.
IV. DOJ Settlement Shortly thereafter, in June 2018, the Assistant United States Attorney (AUSA) with day-to-day responsibility for the investigation told Gallagher that she was leaving the DOJ soon and that she was open to engaging in settlement discussions before her departure if Astellas wanted to settle with DOJ in the near future. Def.’s Resp. PSOF ¶ 39.
A. Settlement Amount Astellas agreed to engage in settlement discussions, Def.’s Resp. PSOF ¶ 40; Def.’s Resp. PSOAF ¶ 34.
Def.’s Resp. PSOAF ¶ 35.
Pl.’s Resp. DSOAF ¶ 23; Gallagher Dep. Tr. at 65:11–18. After engaging in settlement discussions, during which the DOJ originally sought a settlement amount of about Astellas reached an agreement in principle to settle the DOJ’s claims on June 29, 2018 for $100 million, plus interest. Pl.’s Resp. DSOAF ¶ 28; Def.’s Resp. PSOF ¶ 45; Def.’s Resp. PSOAF ¶ 37. Federal admits that the settlement was reasonable. Def.’s Resp. PSOF ¶ 49.
Gallagher testified that from his experience, although the DOJ’s formal process is to “typically seek[] no less than two times the multiplier of the damages the Government sustained as a result of the alleged FCA violation,” the “reality” is that the DOJ takes into account less tangible factors, such as whether “they don’t like the way the company’s behaved, the company has not cooperated in a way that meets their satisfactions, . . . they’re not satisfied with what the parties are fighting about with regard to damages, in other words they think the damages are higher than what the company is willing to admit, [and] solve the problem by applying a higher multiplier[ or c]onversely . . . apply a multiplier of between one and two and also one below one.” Def.’s Resp. PSOAF ¶ 36; Pl.’s Resp. DSOAF ¶ 24 [11] ; Gallagher Dep. Tr. at 54:21–56:11. He went on, “[t]he reality is that they can manipulate any of the numbers, . . . [and] nobody’s talking about the multiplier,” rather, the settlement agreement does not include the multiplier nor the precise number of damages, and [11] The parties object to each other’s statements of fact regarding Gallagher’s testimony as to how the DOJ typically calculates settlements for alleged FCA violations and how the final settlement amount was calculated in this case. Def.’s Resp. PSOAF ¶ 36; Pl.’s Resp. DSOAF ¶ 24. Both parties dispute each other’s characterizations of Gallagher’s testimony and cite back to the deposition testimony underlying the respective statements of fact. The Court therefore looks directly to Gallagher’s deposition testimony in this paragraph and the next. the DOJ might “assess damages for a three-year period, but agree to covered conduct that only covers one year for all the collateral consequences that come from a settlement.” Gallagher Dep. Tr. at 56:15–57:6.
Consistent with his testimony about the “reality” of how the DOJ typically reaches a settlement amount in civil cases, in this case, “in the end,” the DOJ and Astellas put “the formulas aside . . . [to] get to the right number.” Pl.’s Resp. DSOAF ¶ 24.
Gallagher Dep. Tr. at 65:10– 68:10. Thus, the DOJ’s damages calculations and the period of alleged violative conduct set the stage for the final settlement amount of $100 million plus interest. See id.
B. Settlement Terms Astellas and the DOJ executed the final written settlement agreement on April 25, 2019 (the Settlement Agreement). Def.’s Resp. PSOF ¶ 46. The same day, the DOJ issued a press release about its settlement with Astellas and another pharmaceutical company, stating, “As today’s settlements make clear, the FBI will aggressively go after pharmaceutical companies that look to bolster their drug prices by paying illegal kickbacks — whether directly or indirectly — to undermine taxpayer funded healthcare programs, including Medicare[.]”).Pl.’s Resp. DSOAF ¶ 30.
The Settlement Agreement states that Astellas is to pay to the United States $100 million, plus interest, and that “[o]f the Settlement Amount, $50 million is restitution to the United States.” Pl.’s Resp. DSOAF ¶ 28. The phrase “restitution to the United States” is part of DOJ’s most recent standard-form release used in FCA settlements. Def.’s Resp. PSOAF ¶ 38; Gallagher Dep. Tr. at 29:5–30:3. Under 26 U.S.C. § 162(f), as amended by the Tax Cuts and Jobs Act of 2017 (the TCJA), an amount paid in settlement to the government is not tax deductible unless (and only to the extent that) it constitutes “restitution . . . for damage or harm . . . caused by the . . . potential violation of law” and is identified in the settlement agreement as “restitution.” The DOJ rejected Gallagher’s suggestion to reference 26 U.S.C. § 162(f) in the Settlement Agreement. Pl.’s Resp. DSOAF ¶¶ 26–27.
Section E of the Settlement Agreement sets forth the “Covered Conduct,” in which the DOJ asserts that, between July 1, 2013 and December 31, 2014, Astellas used CDF and PANF as conduits to funnel impermissible co-pay assistance to Xtandi patients, thereby causing Medicare beneficiaries to submit false claims for reimbursement to Medicare. Def.’s Resp. PSOF ¶ 46. Astellas did not admit these allegations or liability. Paragraph 2 of the Settlement Agreement sets forth the DOJ’s release of Astellas pursuant to the Settlement, which releases Astellas “from any civil or administrative monetary claim the United States has for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-33, the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a, the Program Fraud Remedies Act, 31 U.S.C. §§ 3801-12, or the common law theories of payment by mistake, unjust enrichment, and fraud.” Pl.’s Resp. DSOAF ¶ 29. The DOJ never agreed to settle or release any criminal claims against Astellas, and it declined to provide a “cold comfort” letter
. Def.’s Resp. PSOAF ¶ 39. Astellas paid the full amount of the settlement, $102,370,890.41 (Settlement Payment), on April 25, 2019. Def.’s Resp. PSOF ¶ 48. Astellas then demanded that Federal reimburse it for $10 million of the Settlement Payment, the full amount of the Federal Policy limit. Id. ¶ 50. Federal has denied coverage for any portion of the Settlement Payment. Id. ¶ 51.
Standard of Review
Summary judgment must be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” F ED . R. C IV . P. 56(a). The party seeking summary judgment has the
initial burden of showing that there is no genuine dispute and that they are entitled
to judgment as a matter of law.
Carmichael v. Vill. of Palatine
,
Analysis
I. Procedural Motions Before turning to the substance of the Parties’ cross-motions for summary judgment, the Court must address two motions addressing the facts and law it can consider as part of its analysis of the summary judgment motions.
A. Astellas’ Motion to Deem Admitted its Statement of Additional Facts As a preliminary matter, Astellas moves to deem admitted many of the facts submitted as part of its Local Rule 56.1(b)(3)(C) statement of additional material facts in support of its opposition to Federal’s cross-motion for summary judgment. R. 155, Pl.’s Mot. Admit. Federal objects to Astellas’ motion as a “thinly veiled attempt to get in the ‘last word’ with respect to the parties’ cross-motions for summary judgment and provide a reply to Federal’s responses to [Astellas’ statement of additional material facts].” R. 157, Def.’s Resp. Admit at 1. The Court agrees with Federal that portions of Astellas’ motion read as such, in particular the footnote discussing the “disparaging rhetoric” in Federal’s Reply. at 1–2. Such arguments are inappropriate for a motion to deem admitted statements of material fact, and the Court disregards any language from either party that does not strictly relate to the admissibility of statements of material fact. See, e.g. , Barth v. Vill. of Mokena , 2006 WL 862673, at *3 (N.D. Ill. Mar. 31, 2006).
Moreover, Federal correctly points out that, like other courts in this District,
the Court “is well aware of what it may consider on summary judgment,” and “is
capable of disregarding unfounded assertions of fact found in [parties’ statements or
denials] . . . .” Def.’s Resp. Admit at 2 (citing
Bone Care Int’l, LLC v. Pentech Pharms.,
Inc.
,
When “a party moves for summary judgment in the Northern District of
Illinois, it must submit a memorandum of law, a short statement of undisputed
material facts [(L.R. 56.1 Statement)], and copies of documents (and other materials)
that demonstrate the existence of those facts.”
ABC Acquisition Co., LLC v. AIP Prod.
Corp.
, 2020 WL 4607247, at *7 (N.D. Ill. Aug. 11, 2020) (citing N.D. Ill. Local R.
56.1(a)). The L.R. 56.1 statement must cite to specific pages or paragraphs of the
documents and materials in the record.
Id.
(citing
Ammons v. Aramark Unif. Servs.,
Inc.
,
1. Statements Supported by the Supplemental Declaration of Thomas Gallagher
Astellas asks the Court to admit twelve of its statements of additional facts,
all of which are supported by the sworn Supplemental Declaration from Thomas
Gallagher, Astellas’ lead counsel in its defense of the DOJ investigation, and which
Astellas argues are not controverted by Federal. at 3–4 (citing Def.’s Resp. PSOAF
¶¶ 1, 2, 6, 8–10, 12–13, 20–22, 27). In its responses to each of the at-issue statements
of additional fact, Federal states, “Gallagher’s supplemental declaration speaks for
itself. However, none of the documents or testimony attached to Gallagher’s
declaration specifically include this alleged material fact.” Def.’s Resp. PSOAF ¶¶ 1,
2, 6, 8–10, 12–13, 20–22, 27. The Court agrees with Astellas that “[s]aying that a
document ‘speaks for itself’ is not a denial under Local Rule 56.1(b)(3)(B).” Pl.’s Mot.
Admit at 4 (quoting
Henderson v. Bovis Lend Lease, Inc.
,
A review of the facts supported by Gallagher’s deposition demonstrates that
they are supported by his first-hand knowledge of the facts and evidence developed
during the course of his defense of the DOJ investigation. Def.’s Resp. PSOAF ¶¶ 1,
2, 6, 8–10, 12–13, 20–22, 27. Therefore, since the foregoing statements of additional
fact are properly supported by specific evidence (Gallagher’s Supplemental
Declaration) as required by Local Rule 56.1(a), and Federal fails to deny each fact
and dispute each fact with “specific references to the affidavits, parts of the record,
and other supporting materials relied upon,” as required under Local Rule 56.1(b)(3),
the Court grants Astellas’ motion to admit their statements of additional fact
numbers 1, 2, 6, 8–10, 12–13, 20–22, 27.
See Curtis
,
Relatedly, although not raised by Federal, the Court notes that, given the
Supplemental Declaration was submitted to support Astellas’ opposition to Federal’s
cross-motion for summary judgment, the Court will consider it only for that purpose;
it will
not
consider the Supplemental Declaration or additional facts to the extent
they support Astellas’
own
summary judgment motion.
See Physicians Healthsource,
Inc. v. A-S Medication Sols., LLC
,
Of course, as Federal accurately states, Local Rule 56.1 applies to both parties;
therefore, to the extent technical rule violations are present in Astellas’ statements
of fact or responses to Federal’s statements of fact, the Court evaluates them in the
same way. Def.’s Resp. Admit at 2 (citing
Maher v. Rowen Grp., Inc.
,
True, simply stating that a document “speaks for itself” is not, on its own, a
denial to a statement of fact.
See Henderson
,
2. Other Disputed Statements Astellas also asks the Court to deem admitted another seven of Astellas’ statements of additional fact, which it claims Federal fails to properly dispute. The Court briefly addresses the Parties’ arguments below.
a. Paragraph 3 The Parties engage in lengthy argument about whether Federal properly disputed Paragraph 3. Pl.’s Mot. Admit at 12; Def.’s Resp. Admit at 3–4. In support of Paragraph 3, Astellas cited to Gallagher’s supplemental deposition, which supports the statement, and mistakenly cited to a portion of Gallaher’s deposition testimony, which does not support the statement. Def.’s Resp. PSOAF ¶ 3. Despite the Parties’ arguments about whether Federal “should have known” that the citation to the deposition testimony was a mistake, it matters not: Gallagher’s Supplemental Declaration supports the statement, and Federal fails point to any evidence to the contrary. For the same reasons as above, see Supra Section I.A, Paragraph 3 is deemed admitted.
b. Paragraph 14 Astellas argues that the Court should deem Paragraph 14 admitted because Federal’s denial is inconsistent with its previous admissions. Pl.’s Mot. Admit at 6–7. At issue is when Astellas began donating to the ARI Funds. Paragraph 14 states that Astellas began contributing to the ARI Funds after finishing its internal vetting process in June 2013, and relies on Gallagher’s Supplemental Declaration, as well as Exhibit G thereto, a spreadsheet showing “Foundation Donations.” PSOAF ¶ 14. Federal disputes the date of the first payment, as Exhibit G shows a payment as early as September 2012 (as well as payments in January through April of 2013, which Federal does not point out). Pl.’s Mot. Admit at 6 (citing Def.’s Resp. PSOAF ¶ 14). In its motion to admit, Astellas argues that Federal’s denial is inconsistent with its admissions to other statements of fact and statements of additional fact, which demonstrate that Astellas donated to mCRPC Funds as early as September 2012, but that the ARI Funds were not created until mid-2013. at 6–7 (citing Def.’s Resp. PSOAF ¶ 7); see also Def.’s Resp. PSOF ¶¶ 22–25 (Federal disputed whether the PANF and CDF Funds were “independent” but admitted that Astellas made contributions to the PANF and CDF Funds beginning in 2012 and began making donations to the ARI Funds after their creation in July 2013). Although the Court agrees with Federal that Exhibit G to Gallagher’s Supplemental Declaration, on its own, is not clear about whether the donations were made to the mCRPC Funds or the ARI Funds specifically, sufficient other evidence supports the fact that Astellas did not begin making payments to the ARI Funds until June (or July) 2013. Given that Federal admitted as much in response to other statements of fact and statements of additional fact, and does not point to evidence that contradicts that fact, the Court deems Paragraph 14 admitted.
c. Paragraphs 18, 19, 25, 30, 36, 38
Finally, Astellas moves to admit Paragraphs 18, 19, 25, 30, 36, and 38 because
Federal does not properly dispute the statements, but rather improperly engages in
argument in violation of Local Rule 56.1. Pl.’s Mot. Admit at 7–11. Astellas is correct
that “[l]egal arguments do not go in the separate statements of fact.”
ABC Acquisition
,
B. Astellas’ Motion for Leave to File Supplemental Authority
Also pending before the Court is Astellas’ motion for leave to file as
supplemental authority a decision of the Delaware Supreme Court,
RSUI Indemnity
Co. v. Murdock
,
II. Cross-Motions for Summary Judgment Turning to the substantive summary judgment motions, the heart of the Parties’ dispute is whether Federal is obligated to reimburse Astellas $10 million of the Settlement Payment pursuant to the Federal Policy.
As an initial matter, the Parties agree that Illinois law governs the coverage
dispute in this case because the policies were issued in Illinois, covering an Illinois
insured. R. 115, Pl.’s Memo. at 10 (citing
Hofeld v. Nationwide Life Ins. Co.
, 322
N.E.2d 454, 458 (Ill. 1975); R. 130, Def.’s Cx-Memo./Resp. at 9 (citing
Lapham-Hickey
Steel Corp. v. Prot. Mut. Ins. Co.
,
The parties also agree that, under Illinois law, the insured bears the initial
burden of demonstrating the existence of a claim that falls within the coverage
provided by the policy.
Addison Ins. Co. v. Fay
,
A. Coverage Under the Federal Policy Astellas argues that the Court should grant summary judgment in its favor, finding that it satisfied the requirements for coverage under the Federal Policy, including that at least $50,185,445 [12] of its settlement payment (Settlement Payment) to the DOJ constitutes a Loss as defined by the Primary Policy, and no exclusions apply. Pl.’s Memo at 2–3, 15–18. Federal counters that the Court must deny Astellas’ motion and grant Federal’s motion, as the Settlement Payment does not constitute a Loss under the Primary Policy, as the definition of Loss excludes “matters which may be deemed uninsurable under applicable law” and coverage is prohibited by public policy. Def.’s Cx-Memo./Resp. at 9–20.
1. Undisputed Prerequisites for Coverage Federal does not dispute most of the prerequisites for coverage under the Federal Policy, specifically that: (1) Astellas meets the definition of Company ; (2) the DOJ Tolling Request is a Claim , which was made during the Policy Period based on the Original Notice; (3) that the DOJ alleged a Wrongful Act ; and (4) Astellas reported the Loss to Federal in accordance with the terms of the Policy. See Def.’s Cx-Memo./Resp. at 3 n.2. Although Federal states that its concession is “for purposes of this [summary judgment] motion only,” id. , the Court agrees with Astellas that the undisputed facts support each of these prerequisites as well. Pl.’s Memo. at 13–15; see Def.’s Resp. PSOF ¶¶ 2–4, 59–62 (undisputed that Astellas is a Subsidiary of the Parent Company because the Parent Company (AUSH) owns 100% of Astella’s common stock and had the right to select Astellas’ directors and therefore had management control over Astellas, and the Primary Policy defines Company as including Subsidiaries); id. ¶¶ 31–32, 34, 63, 66 (undisputed that Federal accepted the Original Notice as a notice of circumstances, which was provided during the Policy Period , and that the Tolling Request was related to the Original Notice and requested that Astellas enter into an agreement to toll the applicable statute of limitations, which satisfies the definition of a Claim and the requisite Notice of Claim ); id. ¶¶ 46, 64 (undisputed that the DOJ asserts in the Settlement Agreement that Astellas’ donations to the Charity PAPs violated federal law by causing false claims to be submitted to Medicare for Xtandi prescriptions, and therefore meets the Primary Policy’s definition of Wrongful Act, “any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act by the Company”).
2. Settlement Payment as a Covered Loss As noted above, the crux of the Parties’ dispute is whether the Settlement Payment constitutes a Loss under the Primary Policy, and specifically whether it falls within the “uninsurable under applicable law” exception to the definition of Loss . To resolve this dispute, the Court must determine whether the Settlement Payment constitutes damages or restitution.
At the outset, the Court must determine which party bears the burden of establishing whether the Settlement Payment was a “covered loss” under the Federal Policy. Federal asserts that “Astellas cannot meet its burden of proof that at least $51,185,445 of the Settlement [Payment] was to settle Loss covered under the Federal Policy.” Def.’s Cx-Memo./Resp. at 9. And Astellas, on the other hand, asserts that “Federal cannot bear its burden to prove that the settlement payment ‘clearly and unequivocally’ constitutes uninsurable disgorgement” and thus is outside the definition of Loss . Pl.’s Br. at 18. Although both parties cite the applicable Illinois law on the insured’s initial burden serving as a prerequisite for an insurer’s burden of establishing an exclusion, neither party addresses how the law applies to an exclusion within a definition of Loss in the policy.
The Court finds that the language is an exclusion notwithstanding the fact
that it is located in the section defining “Loss” rather than in the “Exclusions” section
of the Primary Policy. The location of language within an insurance contract does not
necessarily control which party bears the burden of proof on that provision.
Rutgens
Distribs., Inc. v. U. S. Fid. & Guar. Co.
,
It is not disputed that, under Illinois law, disgorgement of ill-gotten gains is
uninsurable; an insured who is merely returning funds to which it was never entitled
cannot recover from an insurer the repayment of those funds. Pl.’s Memo. at 15 &
n.13; Def.’s Cx-Memo./Resp. at 10 (citing, among other cases,
Level 3 Commc’ns, Inc.
v. Fed. Ins. Co.
,
a. Classification of Settlement Payment The Settlement Agreement designates $50 million of the Settlement Payment as “restitution to the United States.” Pl.’s Resp. DSOAF ¶ 28. Federal contends that such a label is persuasive evidence that the Settlement Payment was in fact restitution paid to the Government to account for Astellas’ unjust gains. Def.’s Cx- Memo./Resp. at 12–13; Def.’s Cx-Reply at 3–4. Astellas retorts that the “label” is unimportant for two reasons. First, the definition of “restitution” encompasses both disgorgement and compensation. Pl.’s Br. at 18 n.16 (citing Restitution, Black’s Law Dictionary (11th ed. 2019) (“Restitution” can “sometimes refer to the disgorging of something which has been taken”; but, it can also refer to “compensation for injury done.”)). Astellas argues that it is clear in the context of the Settlement Agreement that “restitution” means compensation for loss or injury to the Government. Pl.’s Reply/Cx-Resp. at 10. Federal does not dispute this definition.
Second, and more importantly, Astellas argues that the undisputed evidence establishes that the purpose in labeling a portion of the Settlement Payment as “restitution to the United States” was to identify the tax-deductible portion of the settlement as required under 26 U.S.C. § 162(f). Pl.’s Reply/Cx-Resp. at 10. Federal contends that, “although Gallagher testified that compliance with the TCJA was a reason that the Settlement Payment was labelled as ‘restitution,’ there is no testimony that this was the sole reason that it was labelled as such.” R. 150, Def.’s Cx-Reply (Sealed) at 3 (emphasis in original). Moreover, Federal notes that Astella’s argument is undermined by the fact that the Government rejected Astellas’ attempt to include language in the Settlement Agreement clarifying that the purpose for identifying $50 million as “restitution” was to comply with the TCJA.
However, the Court finds neither of Federal’s arguments persuasive, as the undisputed evidence undermines both. First, Gallagher’s Supplemental Declaration states that the lead AUSA “informed [him] during settlement negotiations that the purpose of identifying $50 million as restitution to the United States was to comply with the [TCJA].” [13] Gallagher Suppl. Decl. ¶ 17 (emphasis added); Def.’s Resp. PSOAF ¶ 38. Federal has provided no evidence that the language was inserted into the Settlement Agreement for any other purpose. Second, Gallagher explained the Government’s refusal to include explanatory language was due to its “long-standing policy against modifying form settlement agreements.” Pl.’s Resp. DSOAF ¶ 27. Again, Federal has not offered any evidence contradicting Gallagher’s explanation. Therefore, based on the record before the Court, that part of the Settlement Payment that is labeled as “restitution” in the Settlement Agreement does not support a finding that the Government sought to disgorge profits from Astellas.
b. Damages Allowed Under the FCA Astellas focuses much of its argument on the damages permitted under the FCA. Pl.’s Br. at 15–18; Pl.’s Reply/Cx-Resp. at 10–16. Federal argues that this is too narrow a view of whether the Settlement Payment is insurable, as “it is not Federal’s argument that coverage is not available simply because the Settlement Payment was in some way a disgorgement of Astellas’ profits, but rather that the intent of the Settlement Payment was to deprive Astellas of the net benefit of its wrongful acts.” Def’s Cx-Reply at 10. But the Court finds that an analysis of the damages allowed under and the purpose of the FCA to be helpful to set the stage.
The FCA imposes liability on “any person who—(A) knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C.
§ 3729(a)(1)(A). A “claim” for purposes of the FCA includes not only direct requests to
the government for payment but also reimbursement requests made by the recipients
of federal funds under federal benefits programs, such as Medicare.
Universal Health
Servs., Inc. v. U.S.
,
As discussed above, the DOJ alleged that Astellas violated the AKS by making
improper donations to the Charity PAPs, which caused Medicare beneficiaries to
present false claims to Medicare for reimbursement. The Seventh Circuit has
explained that, through Medicare, the government “offers a subsidy . . . with
conditions,” and those conditions include compliance with the AKS.
United States v.
Rogan
,
Astellas argues that the plain text of the statute, 31 U.S.C. § 3729, which
provides for payment of
damages
sustained by the Government, as well as FCA
jurisprudence, establishes that any payment for a violation of the FCA is for
compensation
for the harm to the Government rather than
restitution
for the gain to
the violator. Pl.’s Br. at 12–13 (citing
U.S. ex rel. Taylor v. Gabelli,
On the other hand, Federal contends that the FCA was enacted specifically to
provide “restitutionary relief to the government for money taken from it by fraud.”
Def.’s Cx-Memo./Resp. at 10–11 (citing, among other cases,
United States v.
Bornstein
,
Although it is only persuasive, not binding, authority, Court finds the
reasoning in
Taylor
to be thorough and sound: it engages in a lengthy analysis of the
FCA’s damages provision, including statutory interpretation, an examination of the
FCA jurisprudence and legislative history, all of which “leave no doubt that the FCA’s
remedial framework does not extend[] beyond ‘make-whole’ damages to include
‘disgorgement of unjust enrichment’ restitution.”
Taylor
,
Federal attempts to distinguish
Taylor
, noting that it discussed relief available
only to a
relator
, not to the Government. Def.’s Cx-Memo./Resp. at 14. But this
argument is unavailing; although the plaintiff in
Taylor
was a relator, the court
discussed the FCA’s remedial provision generally, including the relief available to
relators
and
the Government.
Taylor
,
The Court agrees with Astellas that the FCA allows only for civil penalties and compensatory damages, not for restitution in the form of disgorgement of the violator’s unjust gains.
c. Intent of the Settlement Agreement Federal argues that, no matter how it is labeled, “the intention of the Settlement Payment was to divest Astellas of the net benefit of its unlawful scheme as a result of its perpetrating a fraud upon the government” and therefore is uninsurable under Illinois law. Def.’s Cx-Reply at 3. In support, Federal points to a variety of evidence that it argues demonstrates the Government’s goal of the Investigation and settlement, as well as Astellas’ fraudulent intent behind the ARI Funds. at 6–7 (citing Pl.’s Resp. DSOAF ¶ 30 (DOJ’s Press Release about the settlement stating that DOJ’s enforcement actions, such as the action against Astellas, “make clear that the government will hold accountable drug companies that directly or indirectly pay illegal kickbacks”); id. ¶ 17 (the price of Xtandi increased while Astellas was contributing to the ARI Funds); Def.’s Resp. PSOAF ¶ 18 (two of the DOJ’s investigation themes were that Astellas knew out-of-pocket costs would be a problem but co-pay assistance foundations “solved the problem” and allowed the price of Xtandi to remain higher than competitor’s price, and that Astellas’ donations were motivated by revenue since it would be less expensive to give away free Xtandi than donate to the Charity PAPs); id.
; id. ¶ 11 ).
Astellas counters that Federal conflates a defendant’s alleged motive with the remedy for the alleged misconduct, and “it is only when the remedy itself seeks to make the defendant give up what he wrongfully acquired from the plaintiff that issues of insurability arise.” Pl.’s Reply/Cx-Resp. at 10. The Court agrees with Astellas that, despite the Government’s allegations and “themes” about Astellas’ intent to profit from its donations to the ARI Funds, the damages sought by the Government and agreed upon in the Settlement Agreement were primarily (if not solely) compensatory damages under the FCA meant to cover the Government’s losses in the form of Medicare payments. Id. at 16.
In support of its argument that the Settlement Payment is uninsurable
because it was intended to deprive Astellas of “the net benefit of its wrongful acts,”
Federal cites to
Level 3
,
Each of the other cases cited by Federal in support of its argument that an
insured is not entitled to coverage for a money it was not legally entitled is
distinguishable for the same reason: each seeks damages based on a calculation of
the money that the insured had wrongfully taken directly from the plaintiff. Def.’s
Cx-Memo./Resp. at 10 (citing
Ryerson Inc. v. Fed. Ins. Co.
,
Here, the theory of damages advanced by the Government under the FCA was the Government’s own loss in the form of Medicare payments to third parties (such as pharmacies and hospitals). Pl.’s Reply/Cx-Resp. at 14 (citing Def.’s Resp. PSOAF ¶¶ 29, 30). Importantly, there has never been a calculation of the profit Astellas made from its alleged wrongful Act, as Liu told the Government that, neither he, nor anyone else at Astellas, calculated the ROI from the donations to the mCRPC funds (or the ARI Funds). And there is no evidence before the Court that the Government attempted to perform such a calculation. See Def.’s Resp. PSOAF ¶ 19. Rather, all of the evidence establishes that the amount of the Settlement Payment was derived from the amount of “tainted” prescriptions paid by Medicare to third parties, not on any potential profits Astellas received based on its donations to the ARI Funds. See Def.’s Cx-Memo/Resp. at 6; Pl.’s Reply/Cx-Resp. at 14. [15]
Astellas invites the Court to look to out-of-Circuit cases that “have rejected
Federal’s repeated attempts to expand
Level 3
and its progeny beyond the limited
interpretative principle that the disgorgement or return of ill-gotten gains does not
constitute a ‘loss.’” Pl.’s Reply/Cx-Resp. at 14–15. The Court agrees that, although not
binding, the cases cited by Astellas are instructive. In
William Beaumont Hosp. v.
Fed. Ins. Co.
,
in Level 3 from the facts at hand in the case before it, where the insured “did not unlawfully obtain anything from the [plaintiff-]nurses”).
Federal attempts to distinguish
William Beaumont Hosp.
because the
definition of loss in the underlying insurance contract contains a more specific
exclusion, stating that “[s]olely with respect to any Claim based upon, arising from
or in consequence of profit, remuneration or advantage to which an Insured was not
legally entitled, the term Loss . . . shall not include disgorgement by any Insured or
any amount reimbursed by any Insured Person.” Def.’s Cx-Reply at 8 (citing
William
Beaumont Hosp
.
So too with
Chubb Custom Ins. Co. v. Grange Mut. Cas. Co.
,
Finally, Astellas points to an Illinois case in which the court rejected an
insurer’s attempt to conflate allegations that a defendant acted improperly to
increase profits, on the one hand, with the remedy of disgorgement, on the other. Pl.’s
Reply/Cx-Resp. at 16–17 (citing
Ill. Mun. League Risk Mgmt. Ass’n v. City of Genoa
,
Federal argues that
Illinois Mun. League
is inapposite, as the “court found that
the amounts in that case were covered loss because the underlying plaintiff was not
explicitly seeking restitution from the insured or trying to disgorge money from the
insured that belonged to the plaintiff, whereas here “the government was absolutely
seeking ‘restitution’ from Astellas.” Def.’s Cx-Reply at 10 (citing
Here, Federal bears the burden of establishing the “uninsurable under Illinois law” exception applies, and, for the reasons described above, it has failed meet its burden.
d. Other Possible Alleged Violations Federal argues that, even if the Court holds that the FCA does not provide for uninsurable restitution (which the Court has held), the Settlement Agreement did not release only FCA claims, but also, among other things, unjust enrichment claims pursuant to which the Government could directly seek disgorgement of profits. Def.’s Cx-Memo./Resp. at 14–16. Federal also relies on Gallagher’s testimony that the DOJ does not allege or investigate statutory violations, but rather alleges and investigates “bad conduct,” and such alleged “bad conduct” is delineated in the CID issued to Liu. R. 127, Def.’s Cx-Memo./Resp. (Sealed) at 15.
Astellas argues that, even if the DOJ could have pursued other claims, such as those enumerated in the Settlement Agreement, it did not. It points to the Subpoena, which states that the DOJ was investigating “Federal health care offenses” (and does not list common law claims). Pl.’s Reply/Cx-Resp. at 21 (citing PSOF ¶ 27). And the Tolling Request (the “Claim” at issue here), states that the DOJ is “conducting a joint criminal and civil investigation” into possible violations of two federal criminal statutes, including the AKS, and “certain civil statutes, including, but not limited to, [the FCA], in connection with Astellas’s payments to so-called ‘501(c)(3)’ organizations that provide financial assistance to Medicare beneficiaries.” (citing PSOF ¶ 34). The CID to Liu is even more explicit, stating that it was “issued pursuant to the [FCA] investigation to determine whether there is or has been a violation of 31 U.S.C. § 3729.” Def.’s Resp. PSOF ¶ 23; see also Gallagher Suppl. Decl., Exh. H. Still, the Court agrees with Federal that the evidence before the Court establishes that the DOJ was investigating Astellas’ conduct related to its donations to the mCRPC funds and not just violations of one statute. Def.’s Cx-Memo./Resp. at 15; see also Pl.’s Resp. DSOAF ¶ 7. But the evidence is undisputed that the primary focus of the DOJ Investigation was a violation of the FCA with an underlying AKS violation. See Pl.’s Reply/Cx-Resp. at 21–22; see also Gallagher Suppl. Decl., Exh. H; Gallagher Dep. Tr. at 23:13–24:22.
The Court agrees with Astellas that
Santa’s Best Craft, LLC v. St. Paul Fire &
Marine Ins. Co.
,
The Court finds that Astellas has satisfied its burden, as the undisputed evidence before the Court demonstrates that the primary focus of the DOJ’s investigation and subsequent settlement was a violation under the FCA, and contrary to Federal’s position, Def.’s Cx-Reply at 17, a settlement payment made pursuant to an alleged FCA violation is compensatory and insurable under Illinois law and therefore is a covered loss.
B. Public Policy Even though the Court finds that the Settlement Payment is covered by the Federal Policy because it constitutes damages, it still must determine whether Federal’s coverage of the Claim is contrary to public policy. Federal argues that the Court must grant summary judgment in its favor because public policy prohibits insurance coverage for liability arising directly from an insured’s intentional or willful wrongs, like Astellas’ conduct alleged in the Settlement Agreement. Def.’s Cx- Memo./Resp. at 16–17. Predictably, Astellas contends that public policy does not prohibit coverage of the Settlement Payment. Pl.’s Reply/Cx-Resp. at 22–25.
1. Insurance Coverage of Fraud
Federal concedes that the FCA does not require a specific intent to defraud—
rather a defendant can be liable because of “deliberate indifference” or “reckless
disregard” to the possibility that the submitted claim was false. Def.’s Cx-
Memo./Resp. at 20. But, it argues that intent to defraud absolutely was at issue in
the instant case based on the DOJ’s theories and allegations about Astellas’ conduct
and because the FCA claim arose from alleged violations of the AKS, which requires
that a party “knowingly and willfully” offered, paid, solicited, or received
remuneration in return for purchasing or ordering any item or service for which
payment may be made under a federal healthcare program. (citing 42 U.S.C.
§1320a-7b;
United States v. Walgreen Co.
,
. But Astellas is right that such fraudulent conduct is only alleged ; Astellas did not admit to the Government’s allegations in the Settlement Agreement nor to liability to the Government. Def.’s Resp. PSOF ¶ 46. And Federal has not presented any evidence to the contrary.
Federal contends that it is “contrary to [Illinois] public policy to insure liability
arising directly from an insured’s intentional or willful wrongs.” Def.’s Cx-
Memo./Resp. at 16–17. But the cases cited by Federal do not directly stand for the
principle that an insurer cannot contract to cover damages caused by an insured’s
allegedly fraudulent conduct. For instance,
Mortenson v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa.
,
Indeed, the Court agrees with Astellas that Illinois courts have held that there
is in fact no general Illinois public policy prohibiting insurance for damages caused
by the insured’s intentional acts, unless the insured wrongdoing is the one to recover
the proceeds.
Dixon Distrib. Co. v. Hanover Ins. Co.
,
2. Final Adjudication Exclusions As Astellas correctly points out, Illinois courts “have a long tradition of upholding the right of parties to freely contract.” Phoenix Ins. Co. v. Rosen , 949 N.E.2d 639, 644 (Ill. 2011). And “[a]n insurance policy, like any contract, is to be construed as a whole, giving effect to every provision, if possible, because it must be assumed that every provision was intended to serve a purpose.” Cent. Ill. Light Co. v. Home Ins. Co. , 821 N.E.2d 206, 213 (Ill. 2004). Here, the Primary Policy’s Final Adjudication Exclusions explicitly exclude coverage for any “Loss” “arising out of, based upon or attributable to any deliberate fraudulent act or any willful violation of law by an Insured if a final non-appealable adjudication in an action or proceeding other than an action or proceeding initiated by the Insurer to determine coverage under the policy establishes that such act or violation occurred.” Def.’s Resp. PSOF ¶¶ 67–68. Although Federal is adamant that it does not argue that the Final Adjudication Exclusions are against public policy, and thus the Court should not consider them, Def.’s Cx-Memo./Resp. at 18 n.9, the Court agrees with Astellas that they inform the analysis about the parties’ intent and whether potential policy concerns outweigh the principle of upholding contracts as written, Pl.’s Reply/Cx- Resp. at 23–24.
It is undisputed that there has been no final adjudication of the Government’s
claims against Astellas. Def.’s Resp. PSOF ¶ 46. As discussed above, the Court finds
the Delaware Supreme Court case,
Murdock
, 2021 WL 803867, cited in Astellas’
motion to file supplemental authority, to be instructive. In
Murdock
, the Delaware
Supreme Court addressed the issue of whether an excess insurer was excused from
covering a company’s settlements of fraud-based claims under a directors’ and
officers’ liability insurance policy (D&O policy).
We start our analysis by reaffirming our respect for the right of sophisticated parties to enter into insurance contracts as they deem fit “in the absence of clear indicia that . . . [a countervailing public] policy exists.” As described earlier, the Policy has an expansive definition of covered losses, which on its face does not exclude losses occasioned by fraud.
Allegations of fraud fit comfortably within these terms defining the scope of coverage. Indeed, the Policy’s exclusion of losses “based upon, arising out of or attributable to . . . any deliberately . . . fraudulent act,” but only if “established by a final and nonappealable adjudication,” implies that fraud that does not fall within the exclusion because it has not been finally adjudicated will otherwise be covered.
Id. at *10.
Federal is correct that
Murdock
was explicitly decided under Delaware law.
Def.’s Resp. Suppl. Auth. (citing
Federal also argues that
Level 3
precludes coverage for settlements premised
on allegations of fraud. Def.’s Reply at 20 (citing
Level 3
,
Moreover, in support of its statement that coverage for claims settled before
judgment “can’t be right,” the court cited just one
New York
case.
Level 3
, 272 F.3d at
911 (citing
Reliance Grp. Holdings, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.
,
Here, as discussed above, the Settlement Payment is insurable as a Loss
under the Federal Policy—as it is a payment for the Government’s damages (not
disgorgement of Astellas’ profits)—and does not fall under the Final Adjudication
Exclusions, as there has been no final adjudication. The Court reads the Final
Adjudication Exclusions, like the exclusion clause in
Murdock
, to imply that non-
adjudicated
allegations
of fraud that do not fall within the exclusion will otherwise
be covered. 2021 WL 803867, at *1. And under standard contract interpretation
principles, the Court must consider the entire Federal Policy (and underlying
Primary Policy) and give effect to every clause, including the Exclusion Clauses.
See
Cent. Ill. Light
,
Conclusion For the reasons given above, Astellas’ Motion for Summary Judgment [114] is granted. Federal’s Cross-Motion for Summary Judgment [126], [129] is denied. Astellas’ motion to deem admitted Astellas’ statements of additional material fact [155] is granted in part and denied in part. Astellas’ motion for leave to file supplemental authority [159] is granted. Federal’s sealed statement of additional facts [165] is terminated as a motion. The Court will enter judgment in Astellas’ favor after the Parties file the following submissions on prejudgment interest: Astellas is given until October 7, 2021, to provide the Court its requested amounts and documentary support for such amounts; Federal is given until October 14, 2021 to respond.
Dated: September 23, 2021
Updated: October 8, 2021
United States District Judge Franklin U. Valderrama
Notes
[1] Plaintiffs settled their claims against Starr and Beazley and filed joint motions to dismiss their claims against Starr (R. 92) and Beazley (R. 95). The Court granted the motions and terminated Starr and Beazley as parties (R. 94, 97). The Court therefore refers to the remaining parties, Plaintiffs and Federal, as “the Parties.”
[2] Citations to the docket are indicated by “R.” followed by the docket number or filing name, and where necessary, a page or paragraph citation.
[3] Only Astellas, not AUSH, moved for summary judgment against Federal. Pl.’s Mot. Summ. J., whereas Federal moved for summary judgment against both Plaintiffs. Def.’s Cross-Mot. Summ. J. Both Plaintiffs joined the brief filed in reply in support of Astellas’ motion for summary judgment and in opposition to Federal’s cross-motion for summary judgment against Plaintiffs. R. 144, Pl.’s Reply/Cx-Resp. at 1 n.1. As noted herein, because AUSH is simply a holding company, for ease of reading, the Court uses “Astellas” to refer to both Plaintiffs or just Astellas, as appropriate, unless otherwise noted.
[4] Federal filed two versions of its cross-motion for summary judgment, one version under seal (R. 126) and one public, unsealed version (R. 129). A review of Federal’s sealed motion shows that it is identical to the public, unsealed version of the motion, and does not contain any sensitive or confidential information. The Court therefore directs the clerk’s office to unseal Federal’s cross-motion for summary judgment [126].
[5] Together, the briefs, Local Rule 56.1 statements and responses, and evidence filed in support, consist of more than 995 pages. A comprehensive opinion was necessary in light of the voluminous record. 2
[6] Citations to the Parties’ Local Rule 56.1 Statements of Material Facts are identified as follows: “PSOF” for Astella’s Statement of Material Facts (R. 116); “Def.’s Resp. PSOF” for Federal’s Response to Astella’s Statement of Material Facts (R. 128; R. 132); “Pl.’s Resp. DSOAF” for Astella’s Response to Federal’s Statement of Additional Material Facts (R. 138; R. 142); “Astella’s Supplemental Statement of Material Facts (R. 139; R. 143); and “Def.’s Resp. PSOAF” for Federal’s Response to Astella’s Supplemental Statement of Material Facts (R. 151; R. 153).
[7] Terms in bold have the meanings ascribed from the policy issued by Starr to Astellas, No. SISIFNL20068315 (the Primary Policy ). R. 115-1, Silversten Decl., Exh. A, Primary Policy. Where necessary, the terms are defined within this Opinion. 3
[8] Astellas stopped donating to the PANF ARI Fund in December 2013, and instead donated to the broader mCRPC Fund previously established by PANF. Def.’s Resp. PSOAF ¶ 16. PANF transferred the remaining money in its ARI Fund into its broader mCRPC Fund. 7
[9] The Ant-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b, prohibits a pharmaceutical company from offering or paying, directly or indirectly, any remuneration—which includes money or any other thing of value—to induce Medicare beneficiaries to purchase that company’s drugs. 9
[10] Federal disputes the statement of fact to the extent that the CID actually states that it “is issued pursuant to the False Claims Act, 31 U.S.C. § 3729-3733, in the course of a False Claims Act investigation….” Def.’s Resp. PSOAF ¶ 24. However, the CID is attached as an exhibit to the Supplemental Gallagher Declaration, and contains that exact quoted language. See Gallagher Suppl. Decl., Exh. H at A-471.
[12] As noted above, see supra Background Section IV.B, the full Settlement Payment Astellas paid to the DOJ was $102,370,890.41, which constitutes a 2x multiplied damages under the FCA. Pl.’s Memo. at 3. Federal argues that “[s]uch amounts under the FCA are considered punitive in nature” and thus are not insurable under Illinois law. Def.’s Cx-Memo./Resp. at 9 n.3. Astellas argues that multiplied damages awards are not against public policy, and disputes that damages under the FCA are “punitive”, R. 144., Pl.’s Reply/Cx-Resp. at 19–20, 23 n.14, and points out that the definition of Loss expressly includes “settlements” and “the multiplied portion of any multiple damages award,” id. at 8–9. The Court need not decide the dispute, because even the lower amount, $50,185,445, does not exceed Federal’s Underlying Limit or Federal’s $10 million limit of liability.
[13] There were no objections raised by the Parties to the admissibility of evidence considered by the Court in this Opinion, other than as specifically noted in this Opinion.
[14] Federal also attempts to distinguish Tyson because it is a case brought by a relator rather than the Government, but for the reasons discussed below as it pertains to Taylor , the Court finds this argument unavailing.
[15] Because the Court finds that the Settlement payment constituted damages rather than
restitution, it need not address the Parties’ arguments regarding the impact of the Primary
Policy’s Final Adjudication Exclusions, which bar coverage for a “Loss” if a final, non-
appealable adjudication in an action establishes that the Insured gained any profit or
financial advantage that was improper or illegal. Pl.’s Reply/Cx-Resp. at 17–19 (citing
Gallup, Inc. v. Greenwich Ins. Co.
,