Court Opinion

ID: 67202
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:19:00+00
Date Added: 2024-06-11T09:39:12.594606
License: Public Domain

[DO NOT PUBLISH]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:

                                         2
      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

                                         3
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.

                                          4
      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

                                          5
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

                                          6
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)).

                                           7
      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

                                          8
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

                                         9
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

                                         10
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.

                                                 11
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,

                                         12
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).

                                               13
                                            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.

                                             14
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.”).

                                         15
      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

                                          16
      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

                                          17
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

                                          18
action and his bankruptcy counterclaims. The district court did not abuse its

discretion in denying Jemsek’s equitable defense against the injunction.

      AFFIRMED.

                                        19