563 B.R. 457
Bankr. D.P.R.2017Background
- Dr. Virgilio Cora (debtor) contracted with MSO to provide services to members of MMM Healthcare and PMC Medicare Choice (Medicare Advantage plans); MSO/plan relationship and provider agreement required recordkeeping and permitted audits.
- MMM/PMC audited a sample of Dr. Cora’s 2009–2011 claims; by letter dated April 25, 2012 they concluded Dr. Cora was overpaid $213,298 (extrapolated from sample) primarily for misuse of modifier 25, undocumented drug/service entries, and improper use/storage/documentation for hyalgan injections.
- Dr. Cora sought to dispute the audit and timely requested a meeting; no meeting occurred. Health Integrity declined to pursue criminal referral.
- Dr. Cora filed bankruptcy (Ch. 13 Aug. 13, 2012; converted to Ch. 7 Jan. 31, 2013). MSO sent a termination notice (effective May 1, 2013) without seeking stay relief.
- MMM/PMC filed an adversary complaint seeking nondischargeability under §523(a)(2)(A) and denial of discharge under §727(a)(4)(A). Dr. Cora counterclaimed for breach of contract and for willful violation of the automatic stay (11 U.S.C. §362).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nondischargeability under §523(a)(2)(A) (fraudulent claims) | Plaintiffs: Cora knowingly or recklessly submitted unsupported/overstated claims and misrepresented compliance, causing $213,298 in overpayments; they justifiably relied on representations. | Cora: Errors were innocent/mistakes (billing staff misfiling, burglary lost records); no proof of requisite scienter. | Denied as to plaintiffs—triable issues of fact remain on scienter (reckless intent). |
| Objection to discharge under §727(a)(4)(A) (false oaths) | Plaintiffs: Cora knowingly omitted/ misrepresented audit, rental income, and assets in schedules/SOFA. | Cora: (Not fully briefed by parties on summary judgment.) | Summary judgment denied for both sides—material fact issues exist as to knowing and fraudulent intent. |
| Breach of contract counterclaim (standing) | Cora: Plaintiffs breached agreement by not allowing audit dispute process, causing contract termination and loss of business. | Plaintiffs: Claim accrued pre-petition and therefore is estate property; only trustee has standing after conversion to Ch. 7. | Granted for plaintiffs—Cora’s breach counterclaim dismissed for lack of standing because claim accrued pre-petition and is estate property. |
| Automatic stay violation (§362(k)) and necessary-party Rule 19 issue | Cora: Termination of provider agreement post-petition violated the automatic stay and caused damages. | Plaintiffs: Termination was permitted under contract (60 days without cause); contract is personal services or alternatively an exclusion under §362(b)(28) (HHS exclusion) applies. | Summary judgment denied on stay claim (issues of fact remain whether contract was executory, whether termination was tied to audit, and whether §362(b)(28) applies). Court found MSO is a required party; ordered Cora to show cause within 14 days why stay claim should not be dismissed for failure to join MSO. |
Key Cases Cited
- Palmacci v. Umpierrez, 121 F.3d 781 (1st Cir. 1997) (defines reckless disregard standard for fraud and scienter).
- Griggs-Ryan v. Smith, 904 F.2d 112 (1st Cir. 1990) (summary judgment: view record in the light most favorable to nonmovant).
- DiMaio Family Pizza & Luncheonette v. Charter Oak Fire Ins. Co., 448 F.3d 460 (1st Cir. 2006) (trustee steps into debtor’s shoes to prosecute estate claims).
- Leominster Hous. Auth. v. Dunbar (In re Dunbar), 474 B.R. 14 (Bankr. D. Mass.) (caution on inferring intent at summary judgment).
- Cinicola v. Scharffenberger, 248 F.3d 110 (3d Cir. 2001) (physician/provider contracts can be executory).
- Butner v. United States, 440 U.S. 48 (1979) (property rights in bankruptcy are determined by state law).
- United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (bankruptcy estate includes prepetition causes of action).