Leonard J. Klay, M.D. v. All

• Court: Court of Appeals for the Eleventh Circuit
• Decided: May 12, 2010
• Docket: 09-11012
• Status: Published

Opinion

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________ FILED U.S. COURT OF APPEALS No. 09-11012 ELEVENTH CIRCUIT MAY 12, 2010 ________________________ JOHN LEY CLERK D.C. Docket No. 00-01334 MD-FAM

IN RE: MANAGED CARE LITIGATION ____________________________

DOCTORS HEALTH, INC.,

Interested Party-Appellant,

versus

AETNA, AETNA U.S. HEALTHCARE, INC.,

Defendants-Appellees.

________________________

Appeal from the United States District Court for the Southern District of Florida ________________________

(May 12, 2010)

Before TJOFLAT and COX, Circuit Judges, and KORMAN,* District Judge.

* Honorable Edward R. Korman, United States District Judge for the Eastern District of New York, sitting by designation. PER CURIAM:

We consider in this appeal whether the district court properly enjoined Doctors

Health, Inc. (“Doctors Health”) from pursuing a breach of contract claim against

NYLCare Health Plans of the Mid-Atlantic, Inc. (“NYLCare”) that resulted in a

judgment for Doctors Health in bankruptcy court. The district court determined that

the claim had been released in a settlement agreement in Shane v. Humana, Inc., et

al., a federal class action lawsuit brought by medical providers against managed-care

companies. We hold that the claim at issue was not released and vacate the district

court’s order enjoining Doctors Health from pursuing that claim.

I. BACKGROUND AND PROCEDURAL HISTORY

Beginning in late 1997, Doctors Health managed NYLCare’s Medicare HMO

plan in Maryland, Virginia, and the District of Columbia, pursuant to a three-year

contract between those parties. In July 1998, NYLCare became a subsidiary of Aetna

U.S. Healthcare, Inc. (“Aetna”). Shortly thereafter, NYLCare determined that it

would discontinue the Medicare HMO plan in Doctors Health’s geographic region

and informed the government that it would not renew its Medicare contracts for that

region as of December 31, 1998. NYLCare then notified Doctors Health that, as of

January 1, 1999, there would be no Medicare HMO plan for Doctors Health to

manage.

2 In November 1998, Doctors Health filed, in Maryland, a Petition for Relief

under Chapter 11 of the United States Bankruptcy Code. NYLCare submitted a proof

of claim in the bankruptcy case. Doctors Health did not pay the claim. Instead, the

trustee filed an adversary action against NYLCare, alleging that NYLCare had

breached its Medicare HMO management contract with Doctors Health and had

caused Doctors Health damages in excess of NYLCare’s claim in the bankruptcy

case. (R.1-5879, Ex. A.) The adversary action was tried at the end of 2001, and the

bankruptcy court took the case under advisement.

In 2000 (while the bankruptcy case was pending but before the adversary

action was tried), numerous putative class action lawsuits were initiated in federal

district courts against health insurance companies in the managed-care industry.

Those lawsuits were transferred by the Judicial Panel on Multidistrict Litigation to

the Southern District of Florida and consolidated for pretrial proceedings. The

consolidated cases moved forward as In re Managed Care Litigation, MDL 1334, on

two tracks: the Subscriber Track (cases brought on behalf of subscribers or members

of health plans) and the Provider Track (cases brought on behalf of physicians and

other providers of healthcare services).

In September 2002, the claims asserted in the Provider Track cases were

brought in a second amended consolidated class action complaint styled Shane v.

3 Humana, Inc., et al. Doctors Health was not a named party. The Shane plaintiffs

were certified as a nationwide class.

In May 2003, Aetna, Inc. (and all its subsidiaries, including NYLCare) entered

into a settlement with the Shane plaintiff class. The terms of that settlement were

memorialized in a settlement agreement dated May 21, 2003 (“the Agreement”).

(R.1-2000, Ex. B.) The Agreement defined the class as “any and all Physicians,

Physicians Groups and Physician Organizations who provided Covered Services to

any Plan Member or any individual enrolled in or covered by a plan offered or

administered by any Person named as a defendant in the Complaint or by any of their

respective current or former subsidiaries or affiliates, in each case from August 4,

1990 through [May 30, 2003].” (Id. at 4, ¶ 1.15; R.1-2011.) Physician Organization

was defined as “any association, partnership, corporation or other form of

organization (including without limitation independent practice associations and

physician hospital organizations) that arranges for care to be provided by Physicians

organized under multiple taxpayer ID numbers, to Plan Members.” (R.1-2000, Ex.

B at 10, ¶ 1.70.)

Under the Agreement, potential members of the class were to be given notice

of the proposed settlement and an opportunity to opt out of the class and the

Agreement. (R.1-2011 at 7.) Notice was to be given through the mail to the potential

4 class members’ last known addresses and through publication. (Id. at 5-6.) Those

class members who did not opt out released Aetna and all its subsidiaries from all

claims “arising on or before the Preliminary Approval Date, that are, were or could

have been asserted against any of the Released Parties based on or arising from the

factual allegations of the Complaint . . . .” (R. 1-2000, Ex. B at 72, ¶ 13(a).) The

district court granted final approval of the settlement, on the terms stated in the

Agreement, on October 24, 2003. (R.1-2533.) On November 6, 2003, the district

court clarified its October 24, 2003 order and enjoined class members who did not opt

out from the settlement from pursuing any released claims against Aetna and its

subsidiaries. (R.1-2570 at 2-4.) The court retained jurisdiction over all matters

relating to the interpretation, administration, and consummation of the Agreement and

enforcement of the injunctions. (Id. at 9.)

In April 2005, the bankruptcy court issued its ruling in the adversary action.

The court disallowed NYLCare’s proof of claim in its entirety and awarded Doctors

Health contract damages of $21.3 million. (R.1-5879, Ex. C at 10.) Now a subsidiary

of Aetna, NYLCare took two courses of action: (1) as NYLCare, it appealed to the

District of Maryland; and (2) as Aetna, it filed a Motion to Show Cause in the

Southern District of Florida seeking an order enforcing the release in the Agreement

as a bar to the bankruptcy court’s judgment. Doctors Health responded with an

5 emergency motion in the bankruptcy court, seeking an injunction requiring Aetna to

withdraw its motion in the Southern District of Florida. The bankruptcy court granted

that motion. (R.1-5879, Ex. B.) But, the Maryland district court vacated the

bankruptcy court’s injunction and stayed the appeal of the bankruptcy court’s rulings

on NYLCare’s proof of claim and Doctors Health’s breach of contract judgment

pending consideration by the Southern District of Florida as to whether the

Agreement operated to release the claim Doctors Health pursued against NYLCare

in the adversary action. (R.1-5879, Ex. C.)

In the Southern District of Florida, the judge who approved the settlement

between the Shane plaintiffs and Aetna considered whether Doctors Health’s claims

against NYLCare were released by operation of the Agreement. (R.1-5960.) He

concluded that Doctors Health was a member of the settlement class, that Doctors

Health received adequate notice of the settlement, and that Doctors Health failed to

timely opt out of the settlement. (Id. at 2.) He further concluded that the claim

Doctors Health had pursued against NYLCare in the adversary action was released

by the Agreement. (Id.) And, he enjoined Doctors Health from pursuing that claim.

(Id.)

6 II. ISSUES ON APPEAL & CONTENTIONS OF THE PARTIES

Doctors Health appeals the Southern District of Florida injunction.1 Doctors

Health contends that the claim it prosecuted in the adversary action was not released

because: (1) Doctors Health was not a member of the settlement class and therefore

not a party to the Agreement; (2) Doctors Health was not given adequate notice of the

settlement or the Agreement; and (3) the scope of the release of claims in the

Agreement does not include the claim Doctors Health pursued in the adversary action.

In the alternative, Doctors Health contends that, in the interests of justice, it should

be given the opportunity to opt out of the settlement. Finally, Doctors Health

contends that Aetna should be estopped from asserting that Doctors Health’s claim

against NYLCare was released by the Agreement because Aetna did not make that

argument until after the judgment in the adversary action.

Aetna contends that the district court did not abuse its discretion by enjoining

Doctors Health’s pursuit of the claim it prosecuted against NYLCare in the adversary

action because Doctors Health was a Physician Organization member of the class,

received adequate notice of the settlement, and did not timely opt out of the

1 The parties assert that we have jurisdiction to consider this appeal pursuant to 28 U.S.C. § 1292(a)(1). We agree. The order appealed from grants or modifies an injunction. By its own terms, the order grants a new injunction against Doctors Health. And, even if the order is considered one clarifying the injunction issued by the district court on November 6, 2003, it is a modification of that existing injunction. Birmingham Fire Fighters Ass’n 117 v. Jefferson County, 280 F.3d 1289, 1293 (11th Cir. 2002).

7 Agreement. Aetna also contends that the release language of the Agreement is

sufficiently broad to cover the claim Doctors Health pursued in the adversary action.

Aetna opposes Doctors Health’s request for an opportunity to opt out after the

deadline.

III. STANDARDS OF REVIEW

We review a district court’s injunction of related litigation pending in another

federal court for abuse of discretion. See Adams v. S. Farm Bureau Life Ins. Co., 493

F.3d 1276, 1285 (11th Cir. 2007) (“‘In reviewing the district court’s decision to grant

an injunction, including an injunction under the All Writs Act, we apply an abuse-of-

discretion standard.’”) (quoting Klay v. United Healthgroup, Inc., 376 F.3d 1092,

1096 (11th Cir. 2004)); Alabama v. U.S. Army Corps of Eng’rs, 424 F.3d 1117, 1132

n.22 (11th Cir. 2005) (explaining that “injunction enjoining related federal

proceedings” in class-action context is properly issued under All Writs Act and citing

In re Managed Care Litig., 236 F. Supp. 2d 1336 (S.D. Fla. 2002)).

This court also reviews denials of requests for extensions of time to opt out and

denials of assertions of judicial estoppel under the abuse-of-discretion standard. See

Stephens v. Tolbert, 471 F.3d 1173, 1175 (11th Cir. 2006); Grilli v. Metropo. Life Ins.

Co., 78 F.3d 1533, 1538 (11th Cir. 1996).

8 “A district court by definition abuses its discretion when it makes an error of

law.” Koon v. United States, 518 U.S. 81, 100, 116 S. Ct. 2035, 2047 (1996) (citation

omitted), superseded by statute on other grounds as noted in United States v.

Mandhai, 375 F.3d 1243, 1249 (11th Cir. 2004). We consider questions of law de

novo. Tally-Ho, Inc. v. Coast Cmty. College Dist., 889 F.2d 1018, 1022 (11th Cir.

1989). But, the district court’s factual findings will be reversed only if clearly

erroneous. Id. (citing E. Remy Martin & Co., S.A. v. Shaw-Ross Int’l Imports, Inc.,

756 F.2d 1525, 1529 (11th Cir. 1985)); see also Gold Coast Publ’ns, Inc. v. Corrigan,

42 F.3d 1336, 1343 (11th Cir. 1994).

IV. DISCUSSION

We find resolution of one issue in this case dispositive of the entire appeal. We

assume (but do not decide) that Doctors Health falls within the Agreement’s

definition of a member of the class and that Aetna gave Doctors Health adequate

notice of the settlement and the Agreement. Nevertheless, we hold that the district

court’s injunction must be vacated because the Agreement does not release the claim

Doctors Health pursued against NYLCare in the adversary action.

It is clear from the Agreement that only claims “based on or arising from the

factual allegations of the [Shane] Complaint” were released by virtue of the

settlement. (R.1-2000, Ex. B at 72, ¶ 13(a).) Review of the Shane complaint reveals

9 that all of its factual allegations concern the defendant managed-care companies’

financial relationships with the providers of medical services. The gist of the

complaint is that defendants, including Aetna, did not treat providers of medical

services fairly–failing to pay them what they were owed when covered and medically

necessary services were rendered; manipulating the capitation system2 to underpay

medical providers; and using their market dominance to coerce medical providers into

accepting contract terms unfair to medical providers. The complaint includes

allegations that the defendants denied payments to physicians on the basis of financial

criteria rather than lack of coverage or medical necessity; used automated programs

to systematically manipulate reimbursement codes and artificially reduce the amount

paid physicians; delayed payments to physicians; and covertly manipulated the

capitation system to undermine its actuarial basis and deprive physicians of payments

to which they were entitled.3 (R.1-1607 ¶¶ 5-7, 84-111.)

2 Under a capitation system, medical providers are paid based on the number of patients they agree to treat rather than on a fee-for-service basis. (R.1-1607 ¶ 102.) 3 The Shane complaint alleges that, while capitation rolls are supposed to include all the patients enrolled in a managed-care plan and medical providers were to be paid on a per-enrollee basis, the managed-care companies manipulated the capitation rolls to include only those enrollees who sought treatment, “thus dramatically altering the actuarial underpinnings of the capitation agreement by withholding payments for ‘well’ members that are needed to offset the cost of treating the sick.” (R.1-1607 ¶ 105.) The complaint also alleges that the managed-care companies inflated charges against the capitation payments due medical providers based upon false drug costs and used false year-end statements to avoid paying contractually-required incentives to the medical providers. (Id. ¶¶ 106-09.)

10 The Shane complaint also alleges that the defendants, through their

“overwhelming economic power and market dominance,” coerced plaintiffs “into

providing care under Defendants’ policies and practices on a ‘take it or leave it’ basis,

and providing care on a capitated as opposed to fee for service basis pursuant to ‘all

products’ requirements.” (Id. ¶ 113.) The complaint further alleges:

Defendants further wield their economic power and market dominance in a coercive manner by reserving the right to unilaterally amend contracts with physicians, refusing to provide information concerning pricing or fee structures to Plaintiffs or class members, and failing to provide any feasible mechanism for review of the automated payment reductions – all in furtherance of the scheme described above.

(Id. ¶ 114.) Specific to Aetna, the Shane Complaint alleges an instance of extortion

in which Aetna allegedly threatened an identified physician with telling his patients

that he had resigned from the Aetna network if he did not sign a contract with Aetna

within forty-eight hours. When the physician asked for clarification of some

contractual provisions and a fee schedule, Aetna terminated its relationship with him,

“threatening the viability of his practice and ending numerous longstanding

physician/patient relationships.” (Id. ¶¶ 156–57.)

The claim pursued by Doctors Health in the adversary action shares no factual

basis with the Shane complaint. While Shane alleged that the managed-care

companies underpaid providers of medical services, the breach of contract claim

11 resolved in the adversary action hinged on Doctors Health’s allegation that NYLCare

breached its Medicare HMO management agreement with Doctors Health by failing

to renew its Medicare agreements with the government and then prematurely

terminating the Medicare HMO management agreement it had with Doctors Health.

Indeed, in awarding Doctors Health more than $21 million, the bankruptcy court

found “from the evidence that the true reason for the decision not to renew the HCFA

contract was a business decision by Aetna to discontinue its NYLCare65 Plan, which

amounted to a breach of contract.” (R.1-5879, Ex. H at 38.)

While the adversary action complaint does contain some allegations regarding

payments to providers of medical services, those allegations are that NYLCare

breached its agreement with Doctors Health by failing to pay medical providers the

lowest negotiated rate for their services. (R.1-5879, Ex. A ¶¶ 35-36.) In other words,

unlike the plaintiffs’ allegations in Shane, Doctors Health alleged that NYLCare

overpaid medical providers. Further, the Shane complaint makes no allegations

regarding the NYLCare Medicare HMO management contract. Indeed, the Shane

complaint makes no allegations whatsoever regarding any contracts between

managed-care companies like NYLCare and Aetna and companies like Doctors

Health that administered or managed the managed-care companies’ insurance plans.

12 Aetna also argues that, even if the factual allegations of the Shane complaint

do not support the claim Doctors Health brought in the adversary action, the Shane

complaint could have been amended to allege the necessary facts. But the Agreement

is unambiguous. It does not release claims that could have been asserted based on or

arising out of factual allegations that could have been added by amendment to the

Shane Complaint. The release language is clear; it concerns only claims that could

have been asserted “based on or arising from the factual allegations of the [Shane]

Complaint.” (R.1-2000, Ex. B at 72, ¶ 13(a).) The only reasonable reading of this

clause is that the scope of claims released is limited to those claims that could have

been asserted based on or arising out of the factual allegations of the existing Shane

complaint (the second amended consolidated class action complaint), not some

hypothetical complaint that might result from amendment.4 4 Whether the Shane complaint could have been amended to state facts supporting the claim pursued in the adversary action is doubtful. Under the Medicare HMO management contract between NYLCare and Doctors Health, Doctors Health was essentially NYLCare’s subcontractor. (R.1-5879, Ex. A ¶¶ 11-13.) In light of that relationship, we question whether Doctors Health shared the medical provider class members’ interests in Shane and whether amendment of the Shane complaint to state facts supporting the claim Doctors Health pursued in the adversary action could have been accomplished in a manner that would satisfy Federal Rule of Civil Procedure 23. See Fed. R. Civ. P. 23(a)(3) & (4) (requiring that class representatives’ claims are typical of the claims of the class members and that class representatives fairly and adequately protect the interests of the class). Indeed, the Shane complaint states that the functions performed by entities like Doctors Health are “delegated functions on behalf of and at the direction of the Defendants pursuant to mandated policies and procedures. The [entities like Doctors Health] are monitored and audited by the Defendants, and the delegated functions may be revoked at any time. In performing these delegated functions[, these entities] are mere conduits through which the Defendants conduct business. [They] are not co-conspirators of the Defendants, and, lacking the requisite intent, do not aid and abet the unlawful conduct described herein.” (R.1-1607 ¶ 46.) The allegation that the

13 Having decided that the claim pursued by Doctors Health in the adversary

action is beyond the scope of the release in the Agreement, we conclude that the

district court erred in enjoining Doctors Health from pursuing that claim. We need

not address the remaining arguments of the parties.

V. CONCLUSION

The district court’s order and injunction, dated January 21, 2009, prohibiting

Doctors Health from pursuing its adversary action claim against NYLCare are

vacated.

INJUNCTION VACATED.

relationships between the managed-care defendants and entities like Doctors Health “may be revoked at any time” is inconsistent with Doctors Health’s claim in the adversary action that NYLCare breached its contract with Doctors Health by prematurely terminating that contract.