Meyer owed HMOI more than HMOI owed Meyer is a factual finding,
which the Court reviews for clear error. Feb, R. BANKER, P, 8013; In
Re Morris, 223 F.3d 548, 552 (7th Cir. 2000).
B. Mutuality

With certain exceptions, the right of setoff is preserved in
bankruptcy when two parties owe each other valid, mutual,
prepetition debts. 11 U.S.C. § 553(a). The parties only dispute
the presence of mutuality. Meyer claims that setoff is
inappropriate because the obligations are owed in different
capacities; one obligation is owed in the capacity of a
lender/borrower relationship while the other obligation is owed in
the capacity of a provider/reimburser relationship, Aside from
questioning the mutuality of the parties’ obligations, Meyer also
contends that the mutuality requirement is not satisfied because
the debts in question exist as part of a tripartite relationship.
The Court addresses each of these claims in turn.

Generally, “mutuality is satisfied when the

obligations are held by the same parties in the same capacity (that
is, as obligor and obligee) and are valid and enforceable, and (if
the issue arises in bankruptcy) . . . even if they arose at
different times out of different transactions.” In Re Doctors
Hosp. of Hyde Park, Inc., No. 02-3254, 2003 WL 21730747, at *3 (7lh
Cir. July 28, 2003). Furthermore, “the test of mutuality is not an

examination of whether the obligations are similar, but whether an



AQ A50(Rev. 3/85 Judgment in a Civil Case

United States District Court

Northern District of Illinois
Eastern Division

Meyer Medical Physicians Group, Ltd JUDGMENT IN A CIVIL CASE
v. Case Number: 03 C 1479

Health Care Service Corporation

Oo Jury Verdict. ‘This action came before the Court for a trial by jury. The issues have been
tried and the jury rendered its verdict.

| Decision by Court. This action came before the Court. ‘lhe issues have been tried or
heard and a decision has been rendered.

ITIS HEREBY ORDERED AND ADJUDGED that the bankruptcy court’s judgment is
APVIRMED,

Michael W,, Dobbins, Cterk of Court

Date: 8/14/2003

Wanda Parker, Deputy Clerk



agreements, and IIMOI owes Meyer money for services Meyer performed
under the 2001 MSA for the 2001 calendar year. As the bankruptcy
court correctly concluded, there is no tripartite relationship as
far as the obligation between HMOI and Meyer is concerned. The
Court finds these obligations meet the mutuality requirement under
$ 353(a).
c. Equity

Meyer contends that even if the requirements for setoff under
§ 553(a) are met, considerations of equity (in particular, fairness
to other creditors) should prevent its application in this case,
Meyer makes two claims under the umbrella of equity, First, it
claims that HMOT sought to manipulate the Bankruptcy Code and place
itself in a more favorable position than other creditors by
agreeing to lend Meyer funds in the January Amendment. Inequitable
conduct of a party may justify loss of the right of setoff. In Re
Cascade Roads, Inc., 34 F.3d 756, 762-66 (9th Cir. 1994). However,
although the potential for abuse of the Bankruptcy Code exists,
courts generally frown on denying setoff when a bank or other
ereditor injects funds into a struggling entity, as this “would
precipitate bankruptcy and so interfere with the course of business
as to produce evils of serious and far-reaching consequence.”
Studley v. Boylston Nat’l Bank, 229 U.S. 523, 529 n.5 (1913).
Moreover, avoidance of the inequity of preferential treatment

toward one creditor resulting from a permissible setoff under



obligation is owed by each side.” In Re Stall, 125 B.R. 754, 757
(Bankr. S.D. Ohio 1991), The parties in this case held mutual
obligations in the same capacity, as obligor and obligee. Whether
or not the January Amendment could be construed as part of a
different transaction than the 2001 MSA, as Meyer asserts, does not
affect HMOI’s right of setoff if the other requirements needed to
exercise this right are met. See In Re Doctors Hosp. of Hyde Park,
2003 WL 21730747, at *3. The Court finds that the Bankruptcy Court
correctly held that HMOI’s status as a lender for one obligation
and a provider of healthcare services for the other was not
relevant in determining whether the mutuality requirement was
satisfied.

Meyer next contends that the obligations in question lacked
mutuality because they grew out of a tripartite relationship with
HMOT and medical specialists. When, for example, A owes a debt
to B, and B owes a debt Lo C, A may not setoff the amount it owes
to B against B’s debt to C. See, e@.g., In Re Lakeside Community
Hosp., Ine., 151 B.R. 887 (N.D. Ill. 1993). Neither the record nor
the text of the January Amendment supports Meyer’s claim that Lhe
sole purpose of that amendment was to assist Meyer in paying
specialist claims. The record certainly does not support Meyer’s
attempt to characterize its obligation to HMOI as the kind of three
party relationship found in In Re Lakeside and its brethren. Meyer

owes HMOL money arising out of the January Amendment and prior



at the time Meyer filed its petition in May 2002. Meyer offers
nothing to rebut this claim, save its assertion that it did not
have enough time to review its records to determine the accuracy of
that amount. Absent. evidence suggesting that the hankruptcy
court’s finding was clearly erroneous, or that the amount of time
Meyer had to respond was inadequate, the Court upholds the finding
that Meyer owed more to HMOI than HMOI owed to Meyer,

HMOI argues that if the Court should find that it was not
entitled to setoff, it would he entitled to exercise its right of
recoupment and to withhold the debt it owes to Meyer under the 2001
MSA. Because the Court finds that HMOI was entitled to modify the

automatic stay to exercise its right to setoff, it sees no need to

discuss this issue.
CONCLUSION
For the reasons set forth abgve, the /bankruptcy court’s

judgment is AFFIRMED.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court

fed

Date: th



Minute Ores Fons (e471

Ar United States District Court, Northern District of Hlinois
Harry D. Leinenweber Sitting Judge if Other
tun Assigued Judge
CASE NUMBER 03 C 1479 DATE 8/14/2003
CASE Meyer Medical Physicians Group, Ltd vs. Health Care Service Corporation
TITLE
[In the following box (a) indicate the party filing the motion, ¢., plaintiff, defendant, 3rd party plaintit¥.and (b) state briefly the nature
MOTION: of the motion being presented.]

DOCKET ENTRY:

a) a Filed motion of [ use listing in “Motion” box above. ]

(2) im Brief in support of motion due

(3) ao Answer brief to motion due. » Reply to answer brief due__

(4) oO Ruling/Hearing on set for at

(3) u Status hearing[held/continued to] [set for/re-sct for)on set for at

{6) o Pretrial conference[held/continued to] [set forvre-set for]on set for at.
(7) Oo ‘rialfset for/re-set for]on_—aat__

(8) oO [Bencl/Jury trial] [Hearing] beld/continued toa

(9) oO ‘This case is dismissed [with/without] prejudice and without costs|by/agreement/pursuant to]

OFRCP4(m) CM Local Rule 41.1 OO FROP4(a)(t) =O FROP4I(a)(2)

(10) | | [Other docket entry] ENTER MEMORANDUM OPINION AND ORDER: The bankruptcy court's
judgment is AFFIRMED

al) i [For further detail see order attached to the original minute order. }

Document
Number

No notices required, advised in open court

No notices required

umber of natices

AUG 15 2003

Notices mailed by judge's staff

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date docks
Y | Docketing to mail natices,
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§ 553{a) is not, on its own, a ground for denial of Lhe right of
setoff. United States v. Maxwell, 157 F.3d 1099, 1102 (7th Cir.
1998). Second, Meyer claims that HMOI’s act of withholding the
$1,299,927,.68 it owed Meyer under the 2001 MSA was evidence of
HMOI’s intent to effectuate an intentional setoff in violation of
the automatic stay. A party that temporarily refuses to pay a debt
while seeking relief from an automatic stay under 11 U.S.C.
§ 362(d), however, does not effectuate a setoff. Citizens Bank of
Maryland v. Strumpf, 516 U.S, 16, 19 (1995). The exercise of a
right of setoff requires “an intent permanently to settle accounts”
in order to violate § 362(a)(7). Id. Meyer points to no evidence,
and indeed the record fails to show, that HMOI had any intent to
act permanently. There is nothing in the record that suggests that
HMOT engaged in inequitable conduct when it loaned Meyer funds
under the January Amendment. Therefore, the Court finds that the
bankruptcy court ruled correctly when it stated that considerations
of equity did not preclude exercise of a setoff.
D. Accuracy of Amount of Setoff

Finally, Meyer contends that the amount of the setoff granted
by the bankruptcy court does not accurately reflect the amount of
prepetition debt owed by Meyer to HMOI. The Court reviews the
bankruptcy court’s factual finding for clear error. In Re Morris,

223 €.3d at 552. HMOL claims that Meyer repaid $3,200,000 of its

Lotal debt of more than $4,500,000, leaving a debt of $1,347,190.17



Northern District of Illinois. Around June 30, 2002, HMOI
calculated that it owed Meyer $1,299,927.68 for services rendered
under the 2001 MSA between January 1, 2001 and December 31, 2001.
HMOI subsequently moved to modify the automatic stay to effectuate
a setoff of Meyer’s total debt against the funds it owed Meyer
under the 2001 MSA.

On February 6, 2003, the bankruptcy court granted HMOI’s
motion to modify the automatic stay. It found that the obligations
between the parties were mutual and that principles of equity did
not foreclose application of a setoff. Without determining the
specific amount Meyer owed, the bankruptcy court also found that
Meyer owed HMOI more than HMOI owed Meyer. On February 14, 2003,
Meyer timely filed this appeal.

II. DISCUSSION

A. Standard of Review

A bankruptcy court’s decision to grant relief from an
automatic stay is reviewed for abuse of discretion. Seé Colon v,
Option One Mortgage Corp., 319 F.3d 912, 916 (7th Cir. 2003). As
the determination of whether a party has the right to setoff lies
“within the discretionary control of the district court,” In Re
Rosenbaum Grain Corp., 103 F.2d 656, 658 (7th Cir. 1939), the Court
reviews the bankruptcy court’s decision for abuse of discretion.
See, @.g., Riggs v. Gov’t Employees Fin, Corp., 623 F.2d 68, 73-74

(9th Cir. 1980). Finally, the bankruptcy court’s finding that


Meyer was responsible for paying for services provided by third-
party specialist physicians.

After Meyer fell behind in its payments for these specialist
claims, HMOI agreed, in a January 2001 amendment to the 2001 MSA
(the “January Amendment”), to loan Meyer up to $2,000,000. The
sides dispute the purpose of the loan. Meyer claims that the loan
was only designed to provide it with funds to repay specialists’
claims, while HMOI contends that the January Amendment contained no
such limitation. The text of the Amendment itself contains no
language restricting the use of the loan to the payment of
specialist claims. The January Amendment required Meyer to repay
the loan at the rate of $100,000 per month beginning in March 2001.
Meyer began its payments as scheduled and continued to make
payments until it filed its voluntary petition under Chapter 11 of
the Bankruptcy Code. In total, Meyer repaid at least $1,500,000
from March 2001 until payments stopped in May 2002.

The parties agreed to another amendment to the 2001 MSA in
December 2001, which provided a repayment schedule for Meyer’s
aggregate debt to HMOI. As part of this amendment, Meyer
acknowledged that its total debt to HMOI, including debt from prior
MSAs, was in excess of $4.5 million, and agreed to repay this
amount at the rate of $200,000 per month.

On May 8, 2002, Meyer filed a voluntary petition for relief

under Chapter 1] in the United States Bankruptcy Court for the



IN THE UNITED STATES DISTRICT er | L E D
FOR THE NORTHERN DISTRICT OF ILLINOT
EASTERN DIVISION

AUG 1 4 2003
In re: MEYER MEDICAL
PHYSICIANS GROUP, LTD., JUDGE HARRY D. LEINENWEBER
U.S. DISTRICT COURT JUDGE

Debtor-Appellant,
Casa No. 03 C 1479
v. Bankruptcy No. 02 B 18237
HEALTH CARE SERVICE
CORPORATION d/b/a HMO Hon, Harry D. Leinenweber
ILLINOIS,

DOCKETED

AUG 1 5 2003

Creditor-Appellaa.

MEMORANDUM OPINION AND ORDER

This matter comes before the Court on appeal from the United
States Bankruptcy Court for the Northern District of Illingis.
Debtor-Appellant Meyer Medical Physicians Group, Ltd. (“Meyer”)
appeals from the bankruptcy court’s February 6, 2003 order granting
Creditor-Appellee Health Care Service Corporation d/b/a HMO
SJllinois’s (“HMOI”) motion to effectuate a setoff pursuant Lo
Section 553(a) of the Bankruptcy Code, 11 U.S.C. § 553. For the
following reasons, the decision of the bankruptcy court is
affirmed.

I. BACKGROUND

In November 2000, the parties entered into a Medical Services
Agreement (the “2001 MSA”) for the upcoming year, under which Meyer
provided physician services to HMOT enrollees in return for a set
prepayment per month, The 2001 MSA was a continuation of previous

agreements conducted under similar terms, Under the agreement,