In Re: JEMSEK CLINIC, P.A.; JOSEPH JEMSEK, Debtors.
JEMSEK CLINIC, P.A.; JOSEPH G. JEMSEK, M.D., an individual, Defendants-Appellees. BLUE CROSS BLUE SHIELD OF NORTH CAROLINA, Plaintiff-Appellant,
Argued: December 7, 2016
from the United States District Court for the Western
District of North Carolina, at Charlotte. Robert J. Conrad,
Jr., District Judge; J. Craig Whitley, Chief Bankruptcy
Judge. (3:14-cv-00417-RJC; 07-03006)
Christopher Grafflin Browning, Jr., TROUTMAN SANDERS LLP,
Raleigh, North Carolina, for Appellant.
William D. Blakely, POLSINELLI PC, Washington, D.C., for
Nick Phillips, TROUTMAN SANDERS LLP, Atlanta, Georgia, for
P. Desantis-Then, Washington, D.C., Mit S. Winter, POLSINELLI
PC, Kansas City, Missouri, for Appellees.
WILKINSON, MOTZ, and FLOYD, Circuit Judges.
and remanded by published opinion. Judge Motz wrote the
opinion, in which Judge Wilkinson and Judge Floyd joined.
GRIBBON MOTZ, Circuit Judge.
case, the bankruptcy court imposed staggering sanctions on a
creditor. It dismissed with prejudice claims that the
creditor valued at over $10 million, and it ordered the
creditor to pay the debtor $1.29 million in attorneys'
fees and costs. Although the bankruptcy court did not clearly
err in finding that the creditor acted in bad faith, these
sanctions were excessive. We therefore vacate the judgment of
the district court adopting the bankruptcy court's
sanctions order and remand for further proceedings consistent
with this opinion.
2003, a group of doctors filed a nationwide class action
against the Blue Cross and Blue Shield Association and its
member entities, including Blue Cross Blue Shield of North
Carolina ("Blue Cross NC"). The doctors brought the
case - styled Love v. Blue Cross and Blue Shield
Ass'n, No. 03-21296-CIV (S.D. Fla. filed May 22,
2003) - in the Southern District of Florida.
their complaint, the doctors alleged that the Blue Cross
companies used several underhanded business practices to
deny, delay, and reduce payments for medical treatments based
solely on considerations of cost. The doctors alleged that,
as part of the scheme, the Blue Cross companies refused to
pay for covered and medically necessary treatments,
misrepresented the criteria used to determine payments, and
unlawfully terminated provider agreements.
September 2006, three years after the initiation of the
Love case in Florida, Blue Cross NC sued Dr. Joseph
Jemsek and the Jemsek Clinic in North Carolina state court.
In its complaint, Blue Cross NC asserted several state-law
claims, including breach of contract and fraud. At the time,
Jemsek ran a clinic in Huntersville, North Carolina that
specialized in the treatment of Lyme disease. According to
Blue Cross NC, Jemsek improperly billed it for hundreds of
Lyme disease treatments that were medically unnecessary or
not covered by the parties' provider agreement. Blue
Cross NC also alleged that Jemsek fraudulently
"upcoded" many of his treatments, assigning them a
billing code corresponding to treatments that were more
expensive than those he actually provided. Blue Cross NC
estimates that from 2000 to 2005, Jemsek received more than
$10 million in improper payments.
responded by filing for Chapter 11 bankruptcy for himself and
on behalf of his clinic. He then removed Blue Cross NC's
suit to the bankruptcy court, where it continued as an
adversary proceeding. On January 24, 2007, Jemsek filed his
answer, affirmative defenses, and nine counterclaims.
of Jemsek's counterclaims alleged essentially the same
underhanded practices at issue in Love. Jemsek
claimed that Blue Cross NC denied claims for reimbursement;
terminated the parties' provider agreement "not
based upon medical evidence, but upon a desire to limit its
costs"; and misrepresented whether Jemsek's
treatments were covered or medically necessary. The remaining
two counterclaims, asserting defamation and tortious
interference with a business relationship, related to
statements Blue Cross NC allegedly made about Jemsek's
practice to the North Carolina Medical Board and the Centers
for Disease Control and Prevention. In total, Jemsek claimed
he suffered at least $20 million in damages.
April 27, 2007, a few days before discovery began in the
North Carolina bankruptcy proceedings, the Love
parties reached a tentative settlement in Florida. Under the
terms of the settlement agreement, the Blue Cross companies
agreed to pay $130 million and change their business