Judge Bill Whitehill
Applying the discovery rule, the Dallas [First Division] Business Court has held that an investment fund brought a fraudulent concealment claim against a healthcare lab and diagnostic services provider too late.
Riverside Strategic Capital Fund I, L.P.; RSCF Blocker True Health, LLC; and RSCF I-A Blocker True Health, LLC v. CLG Investments, LLC; Christopher Grottenthaler; Covert Investment Operations, LLC; True Health Diagnostic Management LLC; L. Richard Covert; LCG Ventures II, LLC; Fernando De Leon; Timothy Tatrowicz Alba Durata, LLC; Tom D. Wippman, in his capacity as trustee of the Tom D. Wippman Revocable Trust; Mark Thomas Smith; Alexandra Nettesheim; Kyle Nettesheim; Robert J. Osterhoff; RJ Investments; Matt Milburn; Michael A. Clements; Michael Osterhoff; Melinda L. Milburn; Karen A. Miller; Jack Novak; Edward McCan; Daniel Grottenthaler; Anita Grottenthaler; Dana M. Hovind; Christian Richards; Christopher W. Kling, in his capacity as trustee of Christopher W. & Marissa M. Kling Rev. Trust u/a/d 5/11/2012; Kevin M. Nellis; Carol A. Nellis; Bruce Zivian; Ryan Nellis; and Ancelmo E. Lopes (No. 25-BC01B-0006; 2025 Tex. Bus. 35; September 17, 2025) arose from a dispute over a securities purchase agreement. Plaintiffs, a Delaware LP investment fund and Delaware investment advisor, invested in True Health, a lab management and diagnostic services provider. Prior to Plaintiffs’ investment, True Health’s predecessor, Health Diagnostics Lab (THD), had allegedly been driven out of business because of pervasive health care fraud. In 2016 Cigna issued THD with a notice of claims review and audit, followed by United Healthcare and Medicare. In early 2017 Riverside invested $50 million in True Health under a securities purchase agreement (SPA) that put Riverside’s managing director on True Health’s board. Shortly thereafter, USDOJ served True Health with an investigative demand concerning possible Anti-Kickback and Stark Law violations. Three months after that, CMS suspended Medicare payments to True Health based on credible allegations of fraud. Riverside invested another $30 million to keep True Health going and subsequently took control of the board.
In June 2019 True Health reached a settlement agreement with DOJ and CMS, but just a week later CMS once again put True Health on a 100% Medicare suspension based on new fraud claims. True Health sued CMS and obtained a TRO, but the court denied its preliminary injunction request to reinstate the Medicare payments, as well as its motion to seal. True Health then filed for bankruptcy. The bankruptcy court approved True Health’s liquidation plan, which was substantially completed by December 2019. Shortly thereafter, the liquidating trustee sent a claim notice letter to True Health’s officers and directors, including three Riverside employees, threatening to sue for breach of fiduciary duties. In the event, the trustee filed the lawsuit but omitted the Riverside employees as defendants. In 2022 the court unsealed a 2015 qui tam lawsuit against the company, as well as a criminal indictment against Christopher Gottenthaler, Riverside’s representative in negotiating the initial investment. Gottenthaler pleaded guilty to once count of conspiracy.
Plaintiffs filed suit in Dallas County district court in January 2025. Defendants removed the case to business court and moved for traditional summary judgment based on limitations. Plaintiffs asserted claims for fraud, money had and received, and conspiracy, alleging that Defendants acted jointly and severally to misrepresent in the SPA that True Health was in material compliance with applicable healthcare laws.
In an opinion by Judge Whitehill, the court granted Defendants’ summary judgment motion. The limitations periods for Plaintiffs’ claims were five years for fraud, four years for fraudulent concealment, and two years for money had and received. The default rule for the accrual of a cause of action is “when a legal injury occurs, regardless of whether the injury has been discovered or all resulting damages have occurred,” but the discovery rule applies “[w]hen the nature of an injury is inherently undiscoverable, and the evidence of injury is objectively verifiable” (citations omitted). Generally, the discovery rule applies in fraud cases and defers accrual until Plaintiffs “knew or should have known of, through the exercise of reasonable diligence, facts giving rise to the cause of action,” although they don’t have to “know the exact nature of each wrongdoing, the actual cause, possible cures, or the exact wrongdoer” (citation omitted). Another variation of the rule (“inquiry notice”) holds that the accrual date occurs when “knowledge of the facts that would lead a reasonably prudent person to inquire and to discover the cause of action within the statute of limitations period (critical date) … (citation omitted). Additionally, “[c]onstructive notice of the alleged harm is presumed when there is publicly available and readily accessible information that would lead to the injury being discovered.”
Applying the discovery rule, the court concluded that Riverside’s cause of action accrued no later than April 2020, when the bankruptcy trustee sen the claim notice letter to True Health’s former directors and officers. Riverside’s legal injury occurred on the date it executed the SPA, which allegedly contained the relevant misrepresentations, but the accrual date was deferred until Defendants negated the discovery rule. Defendants showed that Riverside had “at least” inquiry notice when the trustee claim latter came in. That letter indicated that: (1) True Health’s predecessor acquired HDL’s assets and hired personnel even though HDL went out of business because of “systemic healthcare law violations; (2) True Health experienced public accusations of the same practices that got HDL in trouble; (3) Cigna and United Healthcare stopped lab claim reimbursements for lack of compliance; (4) True Health received a CID and at least two Medicare suspensions; (5) the results of a federal investigation, which showed that True Health perpetrated fraud, became public; and (6) True Health filed for bankruptcy. Additionally, at all relevant times Riverside had representation or control of True Health’s board of directors, so when the officers and directors received the trustee’s claim letter, it should have known of True Health’s “fail[ure] to control and monitor the company’s legal compliance, blaming them for the bankruptcy.” At least by this point, “Riverside and its principals had an overriding personal interest to investigate the allegations, if only to prepare a defense to the trustee’s allegations.” Given what Riverside knew and when it knew it, Riverside should have investigated as of April 2020.
Riverside argued that True Health’s general and outside counsel assured it that True Health did not violate healthcare laws, but that wasn’t enough. “[A]s a sophisticated entity” Riverside was “responsible for knowing that ‘[a] lawyer employed or retained by an organization represents the entity’ not the individual shareholders” (citations omitted). If Riverside had conducted a reasonable investigation into the SPA’s misrepresentations, “it would have discovered the fraudulent scheme,” which “involved extensive transactions and payments, all of which would have been reflected in the business books and records. Riverside makes no argument as to why it could not have found these records by April 6, 2020.” It could also have referred to public information “sufficient to give Riverside actual or constructive notice which also begins the limitations period,” as well as to the indictment of Grottenthaler and the existence of the qui tam lawsuit. Based on this analysis, the court concluded that Riverside did not file suit within the four-year limitations period for fraudulent concealment (which knocked out the money had and received claim as well).
