PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 19-3340

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ST. LUKE’S HEALTH NETWORK, INC., DBA St. Luke’s 

University Health Network; SAINT LUKE’S HOSPITAL OF 

BETHLEHEM, PENNSYLVANIA, DBA St. Luke’s 

University Hospital, Bethlehem Campus; ST. LUKE’S 

QUAKERTOWN HOSPITAL; CARBON-SCHUYLKILL 

COMMUNITY HOSPITAL, DBA St. Luke’s Miners 

Memorial Hospital; BLUE MOUNTAIN

HOSPITAL, individually and on behalf of all others similarly 

situated, DBA St. Luke’s Hospital, Palmerton Campus,

 Appellants

v.

LANCASTER GENERAL HOSPITAL; LANCASTER 

GENERAL HEALTH; UNIVERSITY OF 

PENNSYLVANIA HEALTH SYSTEM; UNIVERSITY 

OF PENNSYLVANIA TRUSTEES; JOHN DOE 1; 

JOHN DOE 2

______________

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(Civ. Action No. 5-18-cv-02157)

District Judge: Honorable Jeffrey L. Schmehl
2

______________

Argued March 31, 2020

______________

Before: GREENAWAY, JR., PORTER, and MATEY, Circuit 

Judges.

(Opinion filed: July 22, 2020)

Brian W. Barnes [ARGUED]

David H. Thompson

Cooper & Kirk

1523 New Hampshire Avenue, N.W.

Washington, DC 20036

Douglas J. McGill

Webber McGill

760 Route 10

Suite 104

Whippany, NJ 07981

Counsel for Appellants

Kevin W. Fay [ARGUED]

Peter J. Hoffman

Jeffrey P. Lewis

Eckert Seamans Cherin & Mellott

50 South 16th Street

Two Liberty Place, 22nd Floor

Philadelphia, PA 19102

Counsel for Appellees
3

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OPINION

_______________

GREENAWAY, JR., Circuit Judge.

This case involves a state-run program to reimburse 

Pennsylvania hospitals for treating indigent patients. 

Plaintiffs-Appellants are a group of hospitals and their related 

health care networks that seek civil remedies from DefendantsAppellees, another hospital and hospital system, for violations 

of the Racketeer Influenced & Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1964(c)–(d). Plaintiffs allege that 

Defendants submitted fraudulent claims for reimbursement, in 

violation of the wire fraud statute, 18 U.S.C. § 1343, and 

received an unduly inflated proportion of the available funding. 

As a result, Plaintiffs claim they were reimbursed an artificially 

smaller share of funds. The District Court dismissed Plaintiffs’ 

claims for lack of RICO standing, an additional requirement to 

Article III standing. It found that Plaintiffs failed to plead 

sufficient facts to demonstrate that their injury was caused by

Defendants’ alleged fraud.

Because we find Plaintiffs’ theory of liability 

adequately alleges proximate causation, we will reverse the 

District Court and remand for further proceedings consistent 

with this opinion.
4

I. BACKGROUND

A. Tobacco Settlement Act and Extraordinary 

Expense Program

In 1998, Pennsylvania and forty-five other states 

entered into a master settlement agreement with certain 

cigarette manufacturers. As part of the settlement, the cigarette 

manufacturers disbursed funding to the states to cover tobaccorelated health care costs. To allocate the funds to hospitals 

providing care to indigent patients, the Pennsylvania General 

Assembly enacted the Tobacco Settlement Act in 2001 (the 

“Act”). P.L. 755, No. 77 (codified at 35 Pa. Stat. § 5701.101 

et seq. (2001)).

This case concerns the Hospital Extraordinary Expense 

Program (“EE Program”) established under the Act. The EE 

Program reimburses participating hospitals for “extraordinary 

expenses” incurred for treating uninsured patients.1 The 

amount each participating hospital receives is the lesser of “(1) 

the extraordinary expense claim[] or (2) the prorated amount 

of each hospital’s percentage of extraordinary expense costs as 

compared to all eligible hospitals’ extraordinary expense costs, 

as applied to the total funds available in the Hospital 

Extraordinary Expense Program for the fiscal year.” 35 Pa. 

Stat. § 5701.1105(d) (2001). The latter recognizes that funds 

available through this program may not cover all extraordinary 

expenses that would be eligible for reimbursement in a fiscal 

1 As defined by the statute, “extraordinary expenses” are 

“the cost of hospital inpatient services provided to an uninsured 

patient which exceeds twice the hospital’s average cost per stay 

for all patients.” 35 Pa. Stat. § 5701.1102 (2001).
5

year. So, in fiscal years when the program does not have 

enough money to cover all of the extraordinary expenses of 

each participating hospital, the funds are distributed 

proportionally based on each hospital’s share of reported 

extraordinary expenses.

The Act charges the Department of Human Services 

(formerly the Department of Public Welfare) (“DHS”) with 

administering the EE Program. § 5701.1105(b). This includes 

the responsibility to determine the eligibility of each hospital 

for payment under the EE Program based on certain 

requirements under the Act. § 5701.1105(b)(4). A

participating hospital must submit eligibility information and 

unpaid claims through the Pennsylvania Health Care Cost 

Containment Council’s (“PHC4”) website portal on a quarterly 

basis. DHS then calculates and makes EE Program payments 

to qualifying hospitals on an annual basis.2 § 5701.1105(b)(5).

B. Factual Background

The Pennsylvania Auditor General has audited the EE 

Program for each Fiscal Year since the Program’s nascence. 

According to the Auditor General’s Reports for Fiscal Years 

2008-2012, some participating hospitals received 

disbursements for unqualified claims. For the years in which 

2 Although the Act requires DHS to pay the hospitals by 

October 1 of each fiscal year, the claims submitted were for 

services rendered a year or a year-and-a-half prior. Therefore, 

the references throughout this Opinion to a particular “fiscal 

year” are based on the year in which disbursements are made 

to participating hospitals rather than the year in which medical 

services were rendered.
6

the total amount of extraordinary expenses claimed by 

participating hospitals under the EE Program exceeded the 

total funds available in the EE Program, the Auditor General 

recommended, inter alia, that DHS claw back funds from the 

overpaid hospitals and redistribute the money to hospitals that 

had been underpaid.

DHS followed the Auditor General’s recommendations

for the fiscal years prior to Fiscal Year 2010. But DHS later

found methodological discrepancies between DHS’s and the 

Auditor General’s eligibility determinations.3 As a result, 

DHS decided to discontinue the claw-back process for Fiscal 

Years 2010-2012 and declined to reallocate EE Program funds 

for those years.4

3 As justification for its decision to discontinue the 

claw-back procedure pursuant to the Auditor General’s 

recommendations, DHS stated that “[n]either [the Tobacco 

Settlement Act nor the DHS’s approved State Plan] requires 

[DHS] to recalculate and redistribute payments as updated 

information becomes available from hospitals after [DHS] has 

made its determination. . . . [S]uch a requirement would result 

in constant revision and recalculation of payment amounts for 

indefinite periods of time, which is a result seemingly 

inconsistent with the General Assembly’s intent.” App. 119.

4 The Auditor General issued reports of a particular 

fiscal year several years after that fiscal year’s disbursement. 

For example, the report of Fiscal Year 2010 was not released 

until 2014.
7

C. Procedural Background

Plaintiffs-Appellants are a group of hospitals and their 

related health care networks suing on behalf of all hospitals 

participating in the EE Program that the Auditor General 

deemed underpaid during Fiscal Years 2010-2012

(collectively, “Plaintiffs”). Plaintiffs commenced this action 

against Lancaster General Hospital (“Lancaster”), one of the 

allegedly overpaid hospitals, and its related hospital system 

and staff (collectively, “Defendants”). Plaintiffs claim

Defendants conspired to defraud the Tobacco Settlement Act’s 

EE Program in violation of RICO, 18 U.S.C. §§ 1961–1964. 

Plaintiffs seek civil remedies under 18 U.S.C. § 1964(c) (“civil 

RICO”). They also bring state-law claims for unjust 

enrichment and breaches of a constructive trust.

Specifically, Plaintiffs allege that John Doe 1 and John 

Doe 2, employees of Lancaster, “knew that [Lancaster’s] 

claims were grossly inflated but nevertheless continued to 

submit them even after being called out by the Auditor 

General.” App. 37. They claim John Doe 1 instructed John 

Doe 2 to submit fraudulent claims through the PHC4 portal for 

Fiscal Years 2008-2012. Plaintiffs contend that these actions 

amount to separate acts of wire fraud under 18 U.S.C. § 1343, 

a RICO predicate, and together the acts formed a pattern of 

racketeering activity under 18 U.S.C. § 1962(c). According to 

Plaintiffs, these actions resulted in “massively inflated 

extraordinary expense claims,” which unjustly enriched 

Lancaster by $9 million during Fiscal Years 2010-2012.5 App. 

5 Prior to DHS’s discontinuance of the claw-back 

procedure, Lancaster repaid excess funds received in Fiscal 

Years 2008-2009 as directed by DHS.
8

47. Since participating hospitals submitted claims that totaled 

more than was available in EE Program funding for Fiscal 

Years 2010-2012, Plaintiffs claim they were collectively 

undercompensated by $9 million during those years.

Defendants moved to dismiss under Federal Rule of 

Civil Procedure 12(b)(6), contending, inter alia, that the 

alleged RICO violation did not proximately cause Plaintiffs’ 

injury.6 The District Court agreed, granting Defendants’ 

motion and dismissing for lack of civil RICO standing. Having 

dismissed the civil RICO claim, the District Court declined to 

exercise supplemental jurisdiction over the state-law claims. 

This appeal followed.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had subject matter jurisdiction over 

the RICO claims under 28 U.S.C. § 1964(c) and 28 U.S.C. 

§ 1331, and supplemental jurisdiction over the state-law claims 

under 28 U.S.C. § 1367. This Court has jurisdiction under 28 

U.S.C. § 1291.

We exercise plenary review over a district court’s grant 

of a motion to dismiss, pursuant to Federal Rule of Civil 

Procedure 12(b)(6), for failure to state a claim. Grier v. Klem, 

591 F.3d 672, 676 (3d Cir. 2010). “[I]n deciding a motion to 

dismiss, all well-pleaded allegations of the complaint must be 

6 Defendants also moved to dismiss under Federal Rule 

of Civil Procedure 12(b)(1). As we explain below, the District 

Court dismissed the civil RICO claim under Rule 12(b)(6). 

Accordingly, we apply the Rule 12(b)(6) standard in reviewing

the District Court’s Order.
9

taken as true and interpreted in the light most favorable to the 

plaintiffs, and all inferences must be drawn in favor of them.” 

McTernan v. City of York, 577 F.3d 521, 526 (3d Cir. 2009). 

To withstand a Rule 12(b)(6) “motion to dismiss, a complaint 

must contain sufficient factual matter, accepted as true, to state 

a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 

556 U.S. 662, 678 (2009) (internal quotation marks omitted).

We also review de novo a legal determination regarding 

standing to pursue a civil action under § 1964(c) of RICO. 

Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000).

III. DISCUSSION

We begin with an explication of RICO standing 

requirements. In light of these principles, we conclude that

Plaintiffs’ Complaint adequately claims that their injury was

proximately caused by Defendants’ allegedly fraudulent 

conduct. Since the District Court dismissed the civil RICO 

claim on standing grounds alone, we will remand to the District 

Court for further proceedings consistent with this opinion.

A. Civil RICO Standing

Title 18 of the United States Code § 1964(c) provides 

that “any person injured in his business or property by reason 

of a violation of section 1962 of this chapter may sue therefor 

in any appropriate United States district court and shall recover 

threefold the damages he sustains and the cost of the suit, 

including a reasonable attorney’s fee.” As distinct from Article 

III standing, a plaintiff bringing a civil RICO claim must

additionally state an injury to business or property and “that a 

RICO predicate offense ‘not only was a ‘but for’ cause of 

injury, but was the proximate cause as well.’” Hemi Grp., LLC 
10

v. City of New York, 559 U.S. 1, 9 (2010) (citing Holmes v. Sec. 

Inv’r Protection Corp., 503 U.S. 258, 268 (1992)); see also In 

re Schering Plough Corp. Intron/Temodar Consumer Class 

Action, 678 F.3d 235, 246 (3d Cir. 2012) (“In addition to 

meeting the constitutional standing requirements, ‘plaintiffs 

seeking recovery under RICO must satisfy additional standing 

criterion set forth in section 1964(c) of the statute.’” (quoting

Maio, 221 F.3d at 482)).

Similar to the antitrust context, proximate causation is 

employed in civil RICO as a limiting principle intended to

stymie a flood of litigation, reserving recovery for those who 

have been directly affected by a defendant’s wrongdoing. See 

Holmes, 503 U.S. at 268 (“[W]e use ‘proximate cause’ to label 

generically the judicial tools used to limit a person’s 

responsibility for the consequences of that person’s own 

acts.”). But unlike its more generic definition at common law,

“[o]ur precedents make clear that in the RICO context, the 

focus [of proximate causation] is on the directness of the 

relationship between the conduct and the harm” rather than 

“the concept of foreseeability.” Hemi Grp., 559 U.S. at 12 

(2010).

The Supreme Court has also articulated three judicially 

practicable reasons for requiring directness of injury. First, 

“indirect injuries make it difficult ‘to ascertain the amount of a 

plaintiff’s damages attributable to the violation, as distinct 

from other, independent factors.’” In re Avandia Mktg., 804 

F.3d 633, 642 (3d Cir. 2015) (quoting Holmes, 503 U.S. at 

269). Second, and relatedly, indirect injuries risk double 

recovery so the “courts would have to adopt complicated rules 

apportioning damages to guard against this risk.” Id. Third,

directly injured victims can be counted on and are best 

positioned to “vindicate the law as private attorneys general,” 
11

so there is no need to extend civil RICO’s private right of 

action to those whose injuries are more remote. Holmes, 503 

U.S. at 269–70.

To demonstrate “some direct relation between the injury

asserted and the injurious conduct alleged,” the manipulation 

alleged must not be “purely contingent” on another event or 

action. Id. at 269, 271. Even though a plaintiff is not required 

to claim first-party reliance on a defendant’s purported 

misrepresentation, Bridge v. Phoenix Bond & Indem. Co., 553 

U.S. 639, 657–58 (2008), the cause of an injury that is “entirely 

distinct from the alleged RICO violation” may be too 

attenuated to meet the proximate causation requirement, Anza 

v. Ideal Steel Supply Corp., 547 U.S. 451, 458 (2006). 

Relatedly, a more direct victim of the purported violation or 

independent, intervening factors may also break the chain of 

causation. See Hemi Grp., 559 U.S. at 15; Anza, 547 U.S. at 

458.

B. Plaintiffs Meet the Proximate Causation 

Requirement for Civil RICO Standing

Applying these principles to the present case, we 

conclude that Plaintiffs have adequately stated that 

Defendants’ alleged misrepresentation proximately caused 

their injury.

At the outset, it is important to specify the purported

conduct constituting a RICO predicate and the resulting injury. 

The Complaint shows that Plaintiffs’ theory of liability extends 

to Defendants’ submission of allegedly fraudulent claims 

between Fiscal Years 2008-2012. Plaintiffs therefore claim

collective injury in the form of a decreased proportion of EE 

Program funds during each of those years.
12

Defendants contend, and the District Court similarly 

mischaracterizes, Plaintiffs’ injury as being based on DHS’s 

discontinuance of the claw-back procedure after the Auditor 

General’s Report of Fiscal Year 2010 was released in 2014. 

But this confuses Plaintiffs’ allegations of injury with 

Plaintiffs’ requested relief. Although true that the existence of 

the claw-back procedure and the reapportionment of funds for 

Fiscal Years 2008-2009 undermines claims for relief during 

that period, the allegations pertinent to the question of 

proximate cause are those of the purported injury. According 

to the Complaint, the injury traces back to submissions for 

Fiscal Year 2008. Indeed, Plaintiffs’ injury appearsto be based 

not on DHS’s discretionary conduct to terminate the claw-back 

program for Fiscal Years 2010 and beyond, but on Defendants’

allegedly fraudulent submissions for Fiscal Years 2008-2012.

Viewed in this light, it is clear that Plaintiffs’ allegations 

mirror those in Bridge v. Phoenix Bond & Indemnity Company, 

in which the Supreme Court concluded the plaintiffs had met 

the proximate causation requirement to proceed under civil 

RICO. 553 U.S. at 648, 661. Bridge involved prospective 

buyers of tax liens sold by the Cook County, Illinois 

Treasurer’s Office at public auction. Id. at 642. Because the 

structure of the bidding system permitted multiple prospective 

buyers to submit the winning amount, the County decided to 

“allocate parcels ‘on a rotational basis’ in order to ensure that 

liens [were] apportioned fairly among [the bid winners].” Id. 

at 643. To prevent a bidder from sending agents to bid the 

winning amount on their behalf, thereby obtaining a 

disproportionate share of liens, the County adopted the 

“Single, Simultaneous Bidder Rule,” which required each 

entity to submit bids only in its own name. Id.
13

The plaintiffs in Bridge, a group of bidders, claimed that 

they were injured when the defendants, other bidding entities, 

committed mail fraud, a RICO predicate, by “arrang[ing] for 

related firms to bid on [the defendants’] behalf and direct[ing] 

them to file false attestations that they complied with the 

Single, Simultaneous Bidder Rule.” Id. at 644. By collusively 

submitting winning bids, the defendants were able to 

collectively acquire a greater number of liens than would have 

been granted to a single bidder acting alone. The Bridge 

plaintiffs complained that the defendants’ fraudulent 

submissions regarding compliance with the Single, 

Simultaneous Bidder Rule and their collusion deprived the

plaintiffs of their fair share of liens and related financial 

benefits. Id. 

The Supreme Court sided with the plaintiffs, concluding 

that they had adequately alleged a “direct relationship between 

the defendant’s wrongful conduct and the plaintiff’s injury to 

satisfy the proximate-cause principles” even though the 

plaintiffs had not relied first-hand on the defendants’ alleged 

mail fraud. Id. at 657–58. 

Plaintiffs’ theory of liability and alleged injury in the 

present case are nearly identical to that of the Bridge plaintiffs. 

Because the EE Program has a fixed pool of assets, 

Defendants’ alleged manipulation to increase their share of the 

limited funding necessarily resulted in Plaintiffs receiving a 

decreased proportion of those assets. So, we must similarly 

conclude that Plaintiffs have adequately demonstrated 

proximate causation for purposes of civil RICO standing. 

Moreover, Plaintiffs’ theory of proximate cause

satisfies the Supreme Court’s three policy considerations for 

directness of injury. See Holmes, 503 U.S. at 269–70. First, 
14

despite the District Court’s conclusion that DHS was “the 

‘better situated plaintiff’ that can ‘generally be counted on to 

vindicate the law as private attorneys general,’” St. Luke’s 

Health Network, Inc. v. Lancaster Gen. Hosp., No. 18-2157, 

2019 WL 4393112, at *8 (E.D. Pa. Sept. 13, 2019) (quoting 

Anza, 547 U.S. at 460), DHS would not have been injured as a 

result of Defendants’ misrepresentations.7 Because DHS 

would not suffer harm at the hands of Defendants’ alleged 

misrepresentations, it would have little incentive to investigate 

and vindicate any harms arising from any purported 

wrongdoing.

8

Second, and relatedly, there is no concern of a double 

recovery by a better-situated plaintiff because no entity 

suffered any similar injury.9 Moreover, Plaintiffs’ purported 

7 Defendants’ counsel conceded at oral argument that, 

assuming Defendants submitted inflated claims, DHS would 

suffer no harm.

8 To the extent that Defendants’ concern regarding 

DHS’s potential loss of federal matching grants is raised in 

their briefing for the purpose of showing DHS’s injury, this 

argument is a non-starter. Not only does DHS suffer no present 

injury, but any such harm would be the direct result of having 

to redistribute funds. Defendants’ misrepresentations would 

actually be too remote a source of injury. See Anza, 547 U.S. 

at 458 (noting that where an injury is distinct from the alleged 

RICO violation, the relationship may be indirect). 

9 The District Court’s reasoning that DHS could have 

but did not assess penalties for Defendants’ alleged fraud, 

pursuant to 35 Pa. Stat. § 5701.1108 (2001), is immaterial. The 

wording of the statutory authority does not preclude other 
15

damages are tangible and concrete, as opposed to the uncertain 

and ill-defined market-based injuries courts have typically 

rejected as supporting a direct relationship to the RICO 

violation. See, e.g., Anza, 547 U.S. at 460 (“A RICO plaintiff 

cannot circumvent the proximate-cause requirement simply by 

claiming that the defendant’s aim was to increase market share 

at a competitor’s expense.”). 

Third, since Plaintiffs request that Defendants remove 

the fraudulent claim amounts, recalculate the overall pool of 

claims submitted for Fiscal Years 2010-2012, and reapportion

the EE Program funding among the participating hospitals, 

determining Plaintiffs’ damages should not be unduly 

burdensome. See In re Avandia Mktg., 804 F.3d at 642 

(quoting Holmes, 503 U.S. at 269) (discussing how damages 

are often difficult to ascertain when the harms are indirect 

because other, independent factors may have contributed to the 

injury). At least on its face, damages appear to be no more 

difficult to quantify here than in other cases that this Court has 

permitted to go forward. See, e.g., id. at 644 (finding no 

prohibitive difficulty in determining the overcharge amount for 

medications with misrepresented risks). 

Defendants are more hesitant about the math. As 

indication of the confusion that lies ahead, they list the onerous

parties from seeking vindication of their rights. See Phoenix 

Bond & Indem. Co. v. Bridge, 477 F.3d 928, 932 (7th Cir. 

2007) (“If a government’s ability to penalize fraud knocked out 

private [RICO] litigation, then § 1964 would no longer apply 

when the predicate act is fraud, for governments always have 

some ability to detect and penalize frauds.”), aff’d, 553 U.S. 

639 (2008).
16

methodological differences between DHS’s and the Attorney 

General’s calculations and worry that the calculations will be 

prohibitively involved. They urge us to stop, as the District 

Court did, before we are “required to adopt complicated rules 

apportioning damages among Plaintiffs removed at different 

levels of injury from the alleged violative acts.” St. Luke’s 

Health Network, 2019 WL 4393112, at *9. But this puts the 

cart before the horse. Whether methodological differences 

between the Auditor General’s and DHS’s analyses of claim 

submissions will even affect damages calculations is a question 

of fact to be resolved at a later stage of litigation. See In re 

Avandia Mktg., 804 F.3d at 644 (noting that “the issue of [how 

to calculate the precise] damages, rather than demonstrating a 

lack of proximate causation, raises an issue of proof . . . .” 

which is “a question for another day”); see also Anza, 547 U.S. 

at 466–67 (Thomas, J., dissenting) (“We did not adopt the 

converse proposition that any injuries that are difficult to 

ascertain must be classified as indirect for purposes of 

determining proximate causation.”).

Given that Plaintiffs have adequately alleged proximate 

causation, and because we find no “independent factors that 

account[ed] for [the plaintiffs’] injury . . . and no more 

immediate victim [was] better situated to sue,” we will reverse 

the District Court. Bridge, 553 U.S. at 658.

C. Defendants’ Alternative Arguments

The bulk of Defendants’ briefing and oral presentation

is devoted to three additional arguments, which Defendants

had also raised in their motion to dismiss before the District 

Court: (1) Plaintiffs’ allegations of a RICO predicate are 

implausibly based on inferences from the Auditor General’s 

reports; (2) Plaintiffs’ claims of fraud are not plausible because 
17

the discrepancies between DHS’s and the Auditor General’s 

disbursement recommendations are entirely attributable to 

methodological differences; and (3) Plaintiffs lack any basis 

for asserting a cognizable or plausible injury because the EE 

Program funds are non-entitled funds. Since the District 

Court’s decision to dismiss the civil RICO claim was based 

solely on the issue of proximate causation, we will limit our 

decision to reverse to that ground. We leave consideration of 

alternative arguments to the District Court upon remand.

IV. CONCLUSION

Accordingly, we reverse the District Court and remand 

for further proceedings consistent with this opinion.