M.D. Kenneth A. Thomas v. Blue Cross & Blue Shield , 333 F. App'x 414 ( 2009 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 08-15395 ELEVENTH CIRCUIT
MAY 28, 2009
Non-Argument Calendar
THOMAS K. KAHN
________________________
CLERK
D. C. Docket No. 03-21296-CV-FAM
M.D. KENNETH A. THOMAS, et al.,
Plaintiffs,
versus
BLUE CROSS and BLUE SHIELD ASSOCIATION,
et al.,
Defendants,
BLUE CROSS AND BLUE SHIELD OF NORTH
CAROLINA,
Defendant-Appellee,
JOSEPH G. JEMSEK, M.D.,
JEMSEK CLINIC, P.A.,
Respondents-Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(May 28, 2009)
Before TJOFLAT, CARNES and PRYOR, Circuit Judges.
PER CURIAM:
Doctor Joseph G. Jemsek and his clinic appeal the district court’s order
permanently enjoining seven of his counterclaims against Blue Cross Blue Shield
of North Carolina. The district court found that a recent class action settlement
agreement and its judgment entered in Love, et al. v. Blue Cross Blue Shield
Ass’n, et al., No. 03-21296-CV (S.D. Fla. Apr. 19, 2008), effectively released Dr.
Jemsek’s claims. We affirm.
I.
The Love case was a nationwide class action filed in the United States
District Court for the Southern District of Florida in 2003. Hundreds of thousands
of doctors alleged that Blue Cross health insurance companies using “fee for
service” arrangements had promised to reimburse them for services provided to
patients insured by Blue Cross so long as the services were covered and medically
necessary. However, Blue Cross instead decided to:
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covertly deny[] payments to physicians based on financially expedient cost
and actuarial criteria rather than medical necessity, process[] physicians’
bills using automated programs which manipulate standard coding practices
to artificially reduce the amount physicians are paid, and . . . systematically
delay[] payments to gain extended use of the physicians’ funds.
(Love Complaint, D.E. 1385 at 4). In short, the Love action alleged that Blue
Cross cheated doctors by devising ways to delay, diminish, and deny properly
requested payments based on their cost instead of medical necessity. In 2007 Blue
Cross agreed to settle the case for $130,000,000 and an agreement to change many
of its business practices. Most notably, Blue Cross agreed to use medical
standards and scientific evidence in making its “medical necessity”
determinations. The settlement agreement also included a release designed to
prevent doctors who were members of the plaintiff class from pursuing further
claims based on the same actions by Blue Cross.
Notices of the preliminary Love settlement were mailed to Dr. Jemsek and
the Jemsek clinic in July 2007. A summary notice was also published in USA
Today, the Wall Street Journal, the Journal of the American Medical Association,
and the American Medical News. Neither Dr. Jemsek nor the Jemsek clinic opted
out of the plaintiff class. Accordingly, they were bound by the settlement
agreement when the district court issued its final approval in April 2008. The
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district court’s order enjoined Jemsek from bringing, against any Blue Cross
defendant, claims that:
[A]re, were, or could have been asserted against any of the Released Parties
by reason of, arising out of, or in any way related to the facts, acts, events,
transactions, occurrences, courses of conduct, business practices,
representations, omissions, circumstances, or other matters referenced in the
[Love] Action, or addressed in the Settlement Agreement, whether any such
Claim was or could have been asserted by any Releasing Party on its own
behalf or on behalf of other Persons . . . . This includes, without limitation
and as to Released Parties only, any aspect of any fee for service claim
submitted by any Class Member.
(D.E. 1286, at 8–9).
Meanwhile, a separate lawsuit was underway in North Carolina between
Jemsek, his clinic, and Blue Cross. Dr. Jemsek and Blue Cross had entered into a
provider agreement in 2000. Dr. Jemsek then developed a practice that specialized
in the treatment of Lyme disease. In 2005, however, the North Carolina Medical
Board began investigating Dr. Jemsek on suspicion that he was over-diagnosing
Lyme disease and inappropriately treating his patients for it. Blue Cross then
notified Dr. Jemsek that it would no longer reimburse him for his Lyme disease
treatments, which included expensive long-term intravenous antibiotics.
Eventually Blue Cross dropped Dr. Jemsek as a provider and the medical board
restricted his medical license for one year.
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Blue Cross then sued Dr. Jemsek and his clinic for fraud and breach of
contract based on Jemsek’s billing Blue Cross for his adventuresome Lyme
disease treatments. Blue Cross sought $15,000,000 in damages— the total amount
it paid Jemsek between 2000 and 2005 for Lyme disease treatments. Jemsek
responded to Blue Cross’ complaint by filing for bankruptcy for both himself and
his clinic in the United States Bankruptcy Court for the Western District of North
Carolina.
Once Blue Cross’ case was removed to the North Carolina bankruptcy court
in 2007, Jemsek filed nine compulsory counterclaims against Blue Cross. They
were for breach of contract, breach of the implied covenant of good faith and fair
dealing, quantum meruit, unfair and deceptive trade practices, fraudulent
misrepresentation, negligent misrepresentation, defamation, and tortious
interference with a business relationship.
In response to Jemsek’s counterclaims, Blue Cross moved the Florida
district court to enforce its final approval order in the Love settlement and enjoin
Jemsek’s counterclaims. The district court referred the matter to a magistrate
judge. The magistrate judge found that seven of Jemsek’s counterclaims (all but
the defamation and tortious interference with a business relationship) arose from
the same factual predicate as Love and thus were within the scope of the
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settlement and should be enjoined. In September 2008 the district court adopted
the recommendations of the magistrate judge and enjoined seven of Jemsek’s
counterclaims. This is Jemsek’s appeal.
II.
“In reviewing the district court's decision to grant an injunction . . . we
apply an abuse-of-discretion standard.” Adams v. S. Farm Bureau Life Ins. Co.,
493 F.3d 1276, 1285 (11th Cir. 2007) (quoting Klay v. United Healthgroup, Inc.,
376 F.3d 1092, 1096 (11th Cir. 2004). We review the district court’s purely legal
determinations de novo. Adams, 493 F.3d at 1285.
A.
The first issue is whether the Love settlement precludes Dr. Jemsek’s claims
against Blue Cross. In Adams we stated that claim preclusion applies to class
actions just the same as to other types of lawsuits. 493 F.3d at 1289 (quoting
Twigg v. Sears & Roebuck Co., 153 F.3d 1222, 1226 (11th Cir. 1998). “In order
for claim preclusion to apply, four elements are required: (1) a final judgment on
the merits; (2) rendered by a court of competent jurisdiction; (3) identity of the
parties; (4) identity of the causes of action.” Adams, 493 F.3d at 1289.
In this case, as in Adams, the first three elements are not disputed. Id. It is
clear that the Love action reached a final judgment on the merits, that the United
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States District Court for the Southern District of Florida had jurisdiction, and that
Jemsek, his clinic, and Blue Cross were all parties in the Love action. Therefore,
our only question is whether “the cause of action” alleged by Jemsek is the same
as the cause of action that was settled in the earlier Love class action. See Adams,
493 F.3d at 1289.
Jemsek asserts that Blue Cross must show an “identical factual predicate”
underlying both the Love action and Jemsek’s counterclaims in order for claim
preclusion to apply. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367,
376–77 (1996) (“In order to achieve a comprehensive settlement that would
prevent relitigation of settled questions at the core of a class action, a court may
permit the release of a claim based on the identical factual predicate as that
underlying the claims in the settled class action.”). As Jemsek concedes, an
“identical factual predicate” requires only a common nucleus of operative fact.
Adams, 493 F.3d at 1289 (“Claim preclusion applies not only to the precise legal
theory presented in the previous litigation, but to all legal theories and claims
arising out of the same operative nucleus of fact.”) (citation and quotation marks
omitted). In determining whether claims share the “same operative nucleus of
fact,” we consider whether the “primary right and duty are the same.” Id. at 1289
(quoting Manning v. City of Auburn, 953 F.2d 1355, 1358 (11th Cir. 1992)).
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Jemsek’s counterclaims in the bankruptcy case share the “same operative
nucleus of fact” covered by the Love settlement. On a broad scale, the Love
action alleged a nationwide conspiracy by Blue Cross licensees to diminish, delay,
and deny proper claims for medically necessary procedures. The thrust of the
Love action was that Blue Cross intentionally came up with various ways,
especially using computer systems, to defraud doctors by refusing to pay for
treatments that proved too costly, regardless of their medical necessity. The
“primary right and duty” involved was Blue Cross’ contractual duty to pay its
doctors for medically necessary care given to its clients, and the doctors’
contractual right to receive that money. See Adams, 493 F.3d at 1289.
Jemsek’s individual claims are based on the same facts. Jemsek’s seven
counterclaims are fundamentally based on his allegation that Blue Cross breached
its contract with him. That contract required Blue Cross to reimburse Jemsek for
covered services that were medically necessary. Jemsek’s claim is that Blue Cross
failed to pay him “based on a desire to limit its costs.” He asserts that Blue Cross
denied his payment and eventually terminated his contract “not based upon
medical evidence” but instead in order to avoid costly but effective treatments.
(R.E. 1306, Exh. 3, at 27–29). Jemsek’s seven enjoined claims included two
breach of contract claims, quantum meruit (asking for the payment he never
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received), fraudulent and negligent misrepresentation (based on his reliance on the
expected payments from Blue Cross), unfair and deceptive trade practices, and
breach of the implied covenant of good faith and fair dealing (based on the breach
of contract and on its sudden termination).
Jemsek makes several attempts to distinguish the factual predicate of his
claims from those in the Love action. First, he argues that, unlike in the Love
action, Blue Cross cheated him personally and intentionally and that his claims do
not allege a conspiracy. Yet Jemsek even pleaded that Blue Cross “and its
affiliates” took similar positions and cut off payment for the treatment of Lyme
disease in other states. Moreover, while Jemsek believes that he has a claim
against only one Blue Cross licensee which he alleges has singled him out for
mistreatment, it stands to reason that many doctors felt the same way before
learning of the Love class action. That Jemsek’s claims are in his mind unique to
himself and to one state’s Blue Cross licensee is not inconsistent with the Love
action’s claims on behalf of thousands of doctors against Blue Cross licensees
nationwide.
Second, Jemsek argues that the Love action concerned surreptitious action
to diminish the amount of payments owed to doctors, while his own allegations
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involve up-front refusals to pay for treatment at all and the eventual cancellation
of his provider status. Jemsek also argues that the Love action primarily addresses
fraud undertaken through computer billing systems, a fact that is absent from his
own claims.
However, the “primary right and duty” involved and violated is the same.
Adams, 493 F.3d at 1289. Blue Cross had a duty to pay for medically necessary
treatments and Jemsek, like the other doctors, had the right to collect those
payments. The Love action’s factual predicate broadly encompasses the facts
underlying Blue Cross’ systemic efforts to defraud doctors by denying,
diminishing, or delaying payments on the basis of cost instead of medical
necessity. Although only one part of Blue Cross’ conspiracy involved its
computer system, that same cost-cutting undertaking logically encompasses
stopping all payments for expensive Lyme disease treatments even though no new
medical evidence about Lyme disease had come to light. See, e.g., Adams, 493
F.3d at 1290 (“The Adams Class Action . . . alleged an overarching scheme of
fraud and deception by Southern Farm in connection with the sale of these flexible
premium types of policies, a broad nucleus of fact that would encompass the fraud
claims now being alleged by the appellants.”); In re Prudential Ins. America Sales
Practice Litig., 148 F.3d 283, 311 (3d Cir. 1998) (“The named plaintiffs . . . all
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have claims arising from the fraudulent scheme perpetrated by Prudential. That
overarching scheme is the linchpin of [the complaint], regardless whether each
class member alleges a churning claim, a vanishing premium claim, an investment
plan claim, or some other injury.”).
Moreover, the notice of settlement that was sent to Jemsek stated that the
Love action involved allegations that Blue Cross was liable for, among other
things, “Failing to pay for ‘medically necessary’ services in accord with member
plan documents . . . [and] Concealing and/or misrepresenting the use of improper
guidelines and criteria to deny, delay, and/or reduce payment for medically
necessary covered services . . . .” (D.E. 1385, at 2). Those allegations, of which
Jemsek had constructive knowledge, should have alerted him to the fact that the
Love action substantially overlapped with his bankruptcy counterclaims.1
We hold that Dr. Jemsek’s counterclaims and the Love action, both of
which arise out of Blue Cross’ conniving to deny, diminish, or delay payment for
1
That language in the notice of settlement destroys Jemsek’s argument that the notice of
settlement in the Love action violated his due process rights. We have stated that to satisfy due
process, a notice of settlement in a class action must inform the plaintiffs "whether claims like
theirs were litigated in the earlier action." Adams, 493 F.3d at 1285–86 (alterations omitted).
The class' claims "must be adequately described and the notice must also contain information
reasonably necessary to make a decision to remain a class member and be bound by the final
judgment." Id. (citing In re Nissan Motor Corp. Antitrust Litig., 552 F.2d 1088, 1104–05 (5th
Cir. 1977). After review of the full notice of settlement, we are satisfied that it is clear enough to
satisfy due process.
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covered services based on cost instead of medical necessity, share the same
operative nucleus of fact. See Adams, 493 F.3d at 1289–91. The notice of
settlement sent to Jemsek further provided him with fair notice that claims based
on the same theory and factual predicate as his had been litigated and were being
permanently settled. Accordingly, the district court did not err in finding that
Jemsek’s counterclaims were released by the settlement agreement after he failed
to opt out.
B.
Dr. Jemsek next contends that under Klay v. Humana, Inc., 382 F.3d 1241
(11th Cir. 2004), the Love action could not have certified Jemsek’s claims for
class treatment, and thus cannot preclude their separate pursuit. In Klay we
allowed class certification for fraud-based RICO claims against health insurance
companies, but refused to accept the certification of breach of contract actions
brought against the companies. 382 F.3d at 1260, 1267. We held that although the
insurance companies that withheld payments allegedly did so under many similar
contracts and according to a general scheme, the common facts were “dwarfed by
the individualized issues of fact to be resolved.” Id. at 1264. In short, the various
means that the companies allegedly used to breach the doctors’ contracts were too
different, and based on too many different medical-practice-specific procedures,
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for class certification to be appropriate. Id. at 1263–67. Jemsek argues that Klay
is the reason that his bankruptcy counterclaims were never explicitly certified for
inclusion in the Love action, and that because they were excluded Love should not
preclude them.
But “even when the court does not have power to adjudicate a claim, it may
still approve release of that claim as a condition of settlement of an action before
it.” In re Corrugated Container Antitrust Litig., 643 F.2d 195, 221 (5th Cir. Apr.
1981) (alterations and quotation marks omitted);2 see also Matsushita Elec. Indus.
Co. v. Epstein, 516 U.S. 367, 376–77 (1996). Given a broad enough settlement
agreement— which it clearly was—and provided that Jemsek had notice of it and
an opportunity to opt out, it is perfectly acceptable for the Love action to preclude
his claims, even if they could not have been part of that action itself. See
Matsushita, 516 U.S. at 376–77 (“[A] court may permit the release of a claim
based on the identical factual predicate as that underlying the claims in the settled
class action even though the claim was not presented and might not have been
presentable in the class action.”) (quoting TBK Partners, Ltd. v. Western Union
Corp., 675 F.2d 456, 460 (2d Cir. 1982)).
2
See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc)
(adopting as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981).
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C.
Next, Dr. Jemsek contends that the district court’s injunction against his
counterclaims should not be enforced because it violated the automatic stay in his
bankruptcy case. Jemsek argues that when he filed for bankruptcy in North
Carolina in 2006, his bankruptcy estate, including his counterclaims against Blue
Cross, were cemented into the bankruptcy case by the automatic stay issued under
11 U.S.C. § 362. Therefore, he argues, in the summer of 2007 when the Florida
district court ordered that the notice of settlement be sent to Jemsek, it had no
power over his counterclaims. According to Jemsek, the Florida district court
could not force him to choose whether to opt out of the Love action because
forcing him to make that choice improperly exercised control over his bankruptcy
estate.
Under 11 U.S.C. § 362(a), filing for bankruptcy as Jemsek did operates as a
stay against:
[T]he commencement or continuation . . . of . . . [an] action or proceeding
against the debtor that was or could have been commenced before the
commencement of the case under this title, or to recover a claim against the
debtor that arose before the commencement of the case under this title . . .
[or] (3) any act to obtain possession of property of the estate or of property
from the estate or to exercise control over property of the estate.
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11 U.S.C. § 362(a)(1–3). Under the plain language of the statute, Jemsek’s
counterclaims against Blue Cross are not “against the debtor,” and thus were not
subject to the automatic stay. See Crosby v. Monroe County, 394 F.3d 1328, 1331
n.2 (11th Cir. 2004) (“The automatic stay provision of the Bankruptcy Code, 11
U.S.C. § 362, does not extend to lawsuits initiated by the debtor.”); Seiko Epson
Corp. v. Nu-Kote International, Inc., 190 F.3d 1360, 1364 (Fed. Cir. 1999) (“The
rule [§ 362(a)] . . . permits claims by the debtor and counterclaims to proceed.”);
Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1205 (3d Cir.
1991) (“Thus, within one case, actions against a debtor will be suspended even
though closely related claims asserted by the debtor may continue. Judicial
proceedings resting on counterclaims and third-party claims asserted by a
defendant-debtor are not stayed. . .”). Therefore, the bankruptcy stay created by §
362 did not “cement” Jemsek’s claims into his sealed estate and thereby shield
them from the Florida district court’s order in the Love action. Jemsek’s
counterclaims were not stayed, so there is no reason why the judgment in the Love
action could not foreclose them. See Martin-Trigona v. Champion Fed. Sav. and
Loan Ass’n, 892 F.2d 575, 577 (7th Cir. 1989) (stating that § 362(a) has “no
policy of preventing persons whom the bankrupt has sued from protecting their
legal rights.”).
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Nor did the Florida district court improperly “exercise control over property
of the estate” under § 362(a)(3) by requiring Jemsek to choose whether to opt out
of the Love action. Given that his counterclaims, though they may be “property of
the estate,” were not stayed by the automatic bankruptcy stay, they were open to
possible defeat by Blue Cross’ defenses. It would not make sense under a plain
reading of the statute to treat raising a defense against a non-stayed counterclaim
as an “exercise of control over property.” See Martin-Trigona, 892 F.2d at 577
(“True, the bankrupt's cause of action is an asset of the estate; but as the defendant
in the bankrupt's suit is not, by opposing that suit, seeking to take possession of it,
[§ 362](a)(3) is no more applicable than (a)(1) is.”).
Given that Blue Cross was free to defend against Jemsek’s counterclaims,
there is no reason to bar the Florida district court from simply asking Jemsek to
make his own election about those counterclaims. See In re Santangelo, 325 B.R.
874 (Bankr. M.D. Fla. 2005). In Santangelo, as in this case, debtors in a
bankruptcy proceeding failed to opt out of a class action and wound up bound by
the class settlement order. We agree with the bankruptcy court’s reasoning in
Santangelo:
What the District Court did do was give prospective class members,
including the debtors, a choice; they could remain members of the class and
be bound by the settlement or, instead, opt out of the class and separately
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pursue their claims. The District Court did not require the debtors to join in
the class action. Rather, the District Court entered an order providing that
class members would be bound by the settlement if they did not timely opt
out of the class.
....
Debtors holding claims as plaintiffs, like the debtors here, must play by the
same rules of procedure as any other plaintiff. Debtors with claims involved
in a class action suit must decide whether to remain in a class or opt out.
The court administering a class action suit does not violate the automatic
stay or exercise any control over the claim by requiring debtors to make this
election. Nor is the stay violated because the debtors are now bound by the
approved settlement. Again, no court and no party forced this result on the
debtors or otherwise exercised control over their property.
Santangelo, 325 B.R. at 881. In short, the district court did not impermissibly
exercise control over Jemsek’s counterclaims simply by asking him whether he
desired to opt out of the Love action. Therefore Jemsek remains bound by his
decision not to opt out and by the judgment entered in the Love action.
D.
Finally, Dr. Jemsek contends that it was inequitable to enjoin his
counterclaims. He asserts that it was unfair for Blue Cross to wait until the Love
action had reached a final, binding settlement before it raised the possibility that
the Love settlement could affect the bankruptcy suit in North Carolina. The
district court adopted the magistrate judge’s finding that Blue Cross’ attempt to
foreclose Jemsek’s counterclaims was not inequitable, and instead that allowing
Jemsek to pursue a double recovery by being a member of the Love class and also
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retaining his counterclaims would be unfair. We review the district court’s
rejection of Jemsek’s equitable defense for an abuse of discretion. See Sanders v.
Dooly County, 245 F.3d 1289, 1291 (11th Cir. 2001).
Jemsek makes two equitable arguments: first, that laches bars Blue Cross
from raising the Love settlement; and second, that because his counterclaims in
the bankruptcy action were compulsory and triggered by Blue Cross’ original
lawsuit against him, it is unfair to allow Blue Cross to intentionally elicit, and then
destroy, his claims. Neither of these arguments is convincing.
First, Jemsek raises his laches argument for the first time on appeal.
“Arguments raised for the first time on appeal are not properly before this Court.”
Hurley v. Moore, 233 F.3d 1295, 1297 (11th Cir. 2000); see also Blue Cross Blue
Shield of Alabama v. Weitz, 913 F.2d 1544, 1549 (11th Cir. 1990) (rejecting an
equitable affirmative defense as untimely and waived when raised for the first time
on appeal). We reject Jemsek’s laches defense because he failed to raise it below.
Second, we fail to see why the compulsory nature of Jemsek’s
counterclaims makes it inequitable for Blue Cross to defend against them. If
Jemsek wished to preserve his counterclaims, he could have done so quite easily
by opting out of the Love action. As the magistrate judge observed, the
inequitable result would be allowing Jemsek to pursue recovery in both the Love
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action and his bankruptcy counterclaims. The district court did not abuse its
discretion in denying Jemsek’s equitable defense against the injunction.
AFFIRMED.
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