Blue Cross Blue Shield of North Carolina v. Jemsek Clinic, P.A.
2017 U.S. App. LEXIS 3853
| 4th Cir. | 2017Background
- In 2003 doctors sued Blue Cross entities in Love v. Blue Cross, leading to a nationwide class settlement in 2007 that preliminarily enjoined class members from litigating released claims.
- Blue Cross NC sued Dr. Joseph Jemsek in North Carolina state court in 2006 for alleged improper billing; Jemsek filed Chapter 11 and asserted counterclaims (many mirroring claims in Love), seeking over $20 million.
- The Love settlement notice was sent to putative class members in July 2007 with an opt-out deadline; Jemsek received the notice but did not opt out or tell counsel.
- Blue Cross NC did not inform the bankruptcy court about the Love settlement/injunction until March 31, 2008; the Love court later held Jemsek’s first seven counterclaims were enjoined and Blue Cross NC’s motion to enforce was affirmed on appeal.
- The bankruptcy court found Blue Cross NC acted in bad faith by withholding the Love injunction, dismissed Blue Cross NC’s claims with prejudice, and awarded Jemsek $1.29 million in fees and costs; the district court adopted that order, and Blue Cross NC appealed.
Issues
| Issue | Plaintiff's Argument (Jemsek) | Defendant's Argument (Blue Cross NC) | Held |
|---|---|---|---|
| Whether bankruptcy court permissibly sanctioned Blue Cross NC under its inherent powers for failing to disclose the Love settlement/injunction | Blue Cross NC deliberately withheld the Love injunction, forcing needless litigation and loss of counterclaims; sanctions appropriate | Blue Cross NC had no duty to disclose settlement/injunction in discovery and lacked knowledge that the injunction applied; bankruptcy court lacked power to sanction for other court’s order | Bankruptcy court properly invoked inherent power and did not clearly err in finding bad faith withholding of the injunction |
| Whether Blue Cross NC violated the Love court’s injunction | Jemsek: injunction barred litigation of released claims; Blue Cross NC should have known it applied and thus violated it | Blue Cross NC: injunction did not apply to Blue Cross NC and it was not a releasing party | Court held Blue Cross NC did not violate the Love injunction because it was not a releasing party |
| Whether dismissal with prejudice was an appropriate sanction | Jemsek: extreme sanction justified by egregious misconduct and prejudice arising from loss of counterclaims | Blue Cross NC: dismissal is the most extreme sanction and inappropriate here because Jemsek (not Blue Cross NC) caused loss of counterclaims by failing to opt out | Dismissal with prejudice was excessive; Shaffer factors do not support the most extreme sanction because Jemsek—not Blue Cross NC—was responsible for failing to opt out and prejudice to Jemsek was lacking |
| Whether the $1.29 million fee award was appropriate in scope | Jemsek: award should cover fees from May 31, 2007 forward and related litigation/costs caused by Blue Cross NC’s delay | Blue Cross NC: many awarded fees are unrelated to its misconduct (pre-May 31 discovery; Florida/appeals tied to Jemsek’s failure to opt out) | Award was partially appropriate: fees from May 31, 2007 forward in the adversary proceeding valid, but fees for pre-May 31 discovery and Florida/appeals were excessive and not fairly attributable to Blue Cross NC |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (federal courts have inherent power to sanction bad-faith litigation conduct)
- Shaffer v. United States Gypsum Co., 11 F.3d 450 (4th Cir. 1993) (dismissal with prejudice is an extreme sanction; multi-factor test governs)
- In re Weiss, 111 F.3d 1159 (4th Cir. 1997) (bankruptcy courts’ inherent sanctioning authority)
- United States v. Rhynes, 218 F.3d 310 (4th Cir. 2000) (abuse-of-discretion review and sanction proportionality)
- Law v. Siegel, 134 S. Ct. 1188 (2014) (limits but affirms courts’ authority over bankruptcy cases)
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007) (bankruptcy courts’ procedural authority)
- In re Cellular 101, Inc., 539 F.3d 1150 (9th Cir. 2008) (obligation to inform court of potential settlement)
- Gould v. Bowyer, 11 F.3d 82 (7th Cir. 1993) (parties must advise courts to spare unnecessary work)