General Medicine, P.C. v. Horizon/CMS Health Care Corp.

475 F. App'x 65
CourtCourt of Appeals for the Sixth Circuit
DecidedApril 10, 2012
Docket10-1315, 10-1397
StatusUnpublished
Cited by30 cases

This text of 475 F. App'x 65 (General Medicine, P.C. v. Horizon/CMS Health Care Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
General Medicine, P.C. v. Horizon/CMS Health Care Corp., 475 F. App'x 65 (6th Cir. 2012).

Opinions

COOK, Circuit Judge.

General Medicine, P.C. (“General”), a Michigan-based medical services provider, appeals the district court’s fraud-on-the-court finding, which set aside a five-year-old $376-million consent judgment between General and Defendant Horizon/CMS Health Care Corporation (“Horizon”). Intervenor HealthSouth Corporation (“HealthSouth”) cross-appeals the district court’s adverse judgment on the timeliness of its motion for relief under Federal Rule of Civil Procedure 60(b), and seeks an order closing the case. For the following reasons, we reverse in part, affirm in part, and reinstate the consent judgment.

I.

This matter began as a contract dispute between General and Horizon in the Eastern District of Michigan. Under the parties’ contract, General provided “medical director” services to certain nursing homes managed by Horizon. Horizon terminated the agreement in 1996 before the end of the contract term, and General sued. HealthSouth acquired Horizon in 1997 during the pendency of this suit, but never became a party. In 1999, the district [67]*67court stayed and administratively closed the case to facilitate a criminal investigation of the two Horizon facilities. In 2001, while the case remained closed, Health-South sold all of Horizon’s stock to Mea-dowbrook Healthcare Corporation (“Mea-dowbrook”), and Meadowbrook assumed responsibility for defending Horizon in the contract dispute with General. For reasons not germane to this appeal, General believes that the sale of Horizon to Mea-dowbrook constituted a fraudulent conveyance that enabled Healthsouth to shed Horizon’s liabilities while keeping most of its assets.

The district court reopened the case in April 2003 following the conclusion of the criminal investigation. Thereafter Mea-dowbrook replaced Horizon’s defense counsel and began settlement negotiations with General. According to the parties’ representations, Meadowbrook had limited funds (approximately $25 million) with which to settle a number of claims against Horizon, including the case brought by General. General and Horizon entered into a settlement agreement a year later in April 2004 (R. 244, Ex. R (“Settlement Agreement”)), whereby Horizon/Meadow-brook agreed: (1) to enter into a consent judgment with Horizon “in an amount to be determined prior to entry” (id. ¶ 2); (2) to pay General $300,000 (id. ¶ 6(i)); and (3) to transfer to General “any assets or property ... awarded or returned to Horizon or Meadowbrook, as a result of any action brought by [General] against HealthSouth” (id. ¶ 6(h)). In return, General promised not to enforce the anticipated consent judgment against Horizon or Meadow-brook beyond the $300,000 payment specified in paragraph 6(i), but the settlement agreement stipulated that it did “not re-leas[e] Horizon and/or Meadowbrook from liability to [General] arising out of the [l]awsuit or the [c]onsent [j]udgment.” (Id. ¶¶ 4-5.)

Counsel for both General and Horizon presented a $376-million draft consent judgment to the district court on May 3, 2004, and the district court endorsed it. (R. 232.) The consent judgment ordered Horizon to pay General $376 million plus 10% annual interest.1 Notably, the consent judgment did not reference the parties’ confidential settlement agreement, and thus did not reveal that General sought to recover all but $300,000 of the $376-million judgment from non-party HealthSouth. Shortly after entry of the consent judgment, General (now a judgment-creditor of Horizon) filed a fraudulent conveyance action against HealthSouth in Alabama. HealthSouth eventually learned of the consent judgment in the Michigan action, moved to intervene in that case, and filed a Rule 60 motion to set aside the 2004 consent judgment in October 2008.

The district court received evidence, heard oral argument, and granted Health-South’s motion by Opinion and Order of May 21, 2009. See Gen. Med., P.C. v. Horizon/CMS Health Care Corp., No. 96-72624, 2009 WL 1447346 (E.D.Mich. May 21, 2009) (“May 2009 Order”). The district court denied relief under Rule [68]*6860(b)(3), finding HealthSouth’s claim untimely, but set aside the consent judgment pursuant to subsection (d)(3), finding that counsel for General and Horizon had committed fraud on the court. Id. at *4-6. Although the district court recognized that “corporations do not generally present their settlement agreements to the court for approval,” id. at *4, the court reasoned that the non-adversarial nature of the consent judgment’s damages assessment deserved heightened scrutiny, id. at *5 (citing Continental Cas. Co. v. Westerfield, 961 F.Supp. 1502, 1505 (D.N.M.1997)), and the court held that counsel defrauded the court by failing to disclose the Horizon-friendly payment terms of the settlement agreement when they presented the consent judgment, id. at *5-6. Citing a Virginia district court case that applied a constructive-fraud theory of fraud on the court, see Spence-Parker v. Md. Ins. Grp., 937 F.Supp. 551, 563 (E.D.Va.1996) (setting aside a consent judgment as collusive), the district court stated that the parties’ non-disclosure “resulted in th[e] court placing its imprimatur on a consent judgment, the primary purpose of which was to ambush a non-party, HealthSouth,” and found that this conduct “impugned” the “integrity of the court and the judicial process.” May 2009 Order at *5. Having set aside the consent judgment, the district court instructed General and Horizon to “consult each other and th[e] court’s case manager to determine what further proceedings are appropriate.” Id. at *6.

After the May 2009 Order, Horizon moved for clarification and instruction, General moved to enforce the settlement agreement via entry of a new consent judgment, and HealthSouth moved to dismiss on the grounds that Horizon had satisfied its obligations under the settlement agreement by paying General $300,000. By Opinion and Order of February 25, 2010, the district court held that the settlement agreement between General and Horizon remained in effect, but resolved that the settlement agreement’s severance clause precluded entry of another consent judgment. Applying the remaining terms of the settlement agreement, the district court concluded that Horizon’s payment of $300,000 to General satisfied its obligations under the settlement agreement, and thus “no further action is required.” Gen. Med., P.C. v. Horizon/CMS Healthcare Corp., No. 96-72624, 2010 WL 726963, at *1-2 (E.D.Mich. Feb.25, 2010) (“February 2010 Order”).

General appealed both the May 2009 and February 2010 Orders on March 9, 2010, and HealthSouth cross-appealed. The parties report that the Alabama courts have stayed the fraudulent conveyance action pending the outcome of these proceedings.

II.

As a threshold matter, HealthSouth renews its challenge to the timeliness of General’s appeal under Federal Rule of Appellate Procedure 4(a)(1)(A). The Rule’s 30-day limit for filing appeals in civil cases “is mandatory and jurisdictional.” Intera Corp. v. Henderson, 428 F.3d 605, 611 (6th Cir.2005) (internal quotations marks and citation omitted). As before, HealthSouth argues that the May 2009 Order

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475 F. App'x 65, Counsel Stack Legal Research, https://law.counselstack.com/opinion/general-medicine-pc-v-horizoncms-health-care-corp-ca6-2012.