Litigation

11th Circuit Allows Adversary Action Against Aetna To Proceed

ATLANTA - (Mealey's) The 11th Circuit U.S. Court of Appeals in a per curiam opinion issued on May 12 vacated an injunction prohibiting Doctors Health Inc. from pursuing its adversary action against an Aetna Inc. subsidiary in bankruptcy court, finding that a settlement in the Managed Care Multidistrict Litigation did not release the claim (In re Managed Care Litigation, Doctors Health Inc. v. Aetna, et al., No. 09-110112, 11th Cir.).

In late 1997, Doctors Health managed NYLCare Health Plans of the Mid-Atlantic Inc.'s Medicare health maintenance plans.  In July 1998, NYLCare became a subsidiary of Aetna U.S. Healthcare Inc. and soon after shortly discontinued the Medicare HMO plan in Doctors Health's geographic region.

In 1998, Doctors Health filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Maryland.  NYLCare submitted a proof of claim, which Doctors Health did not pay.

Instead, the bankruptcy trustee filed an adversary action against NYLCare, alleging that NYLCare had breached its Medicare HMO contract with Doctors Health, causing Doctors Health damages in excess of NYLCare's claim in the bankruptcy case. The case was taken under advisement.

Meanwhile, numerous putative class action lawsuits were filed against HMOs over reimbursement disputes.  The suits were consolidated in the U.S. District Court for the Southern District of Florida in In re Managed Care Litigation, MDL 1334.

In May 2003, the Florida District Court granted final approval of a settlement in the provider track case of Shane v. Humana Inc.  The settlement enjoined class members who did not opt out from the settlement from pursuing any released claims against Aetna and its subsidiaries.

In April 2005, the Bankruptcy Court issued a ruling in the adversary action, disallowing NYLCare's proof of claim and awarding Doctors Health damages of $21.2 million.

As NYLCare, the company appealed the order to the U.S. District Court for the District of Maryland, and as Aetna, the company filed a motion in the District of Florida seeking an order enforcing the release of the agreement as a bar to the Bankruptcy Court's judgment.

Doctors Health filed a motion in the Bankruptcy Court, seeking an injunction requiring Aetna to withdraw its motion in the District of Florida, which the Bankruptcy Court granted.

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 an order by the District of Florida as to whether the settlement operated to release Doctors Health's claim against NYLCare in the adversary action.

The District of Florida concluded that Doctors Health was a member of the settlement class and that as such, its claim against NYLCare in the adversary action was released.

On appeal, the 11th Circuit vacated the injunction, saying that the settlement did not release Doctors Health's claim against NYLCare in the adversary action because only claims "based on or arising from the factual allegations of the [Shane] Complaint" were released by the settlement.

The claims pursued by Doctors Health in the adversary action share no factual basis with the Shane complaint; therefore, the District of Florida erred in enjoining Doctors Health from pursuing the claim, the 11th Circuit said.

Judges Gerald Bard Tjoflat and Emmett Ripley Cox and U.S. Judge Edward R. Korman of the Eastern District of New Jersey, sitting by designation, served on the panel.

[Editor's Note:  Full coverage will be in the May 19 issue of Mealey's Managed Care Liability.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #31-100519-020Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, e-mail editor Cheryl Keely at cheryl.keely@lexisnexis.com.