In re Promedco of Las Cruces, Inc.
| Decision Date | 29 August 2003 |
| Docket Number | Case No. 00-46863-BJH-11.,Adv. Pro. No. 02-4075. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
| Parties | IN RE: PROMEDCO OF LAS CRUCES, INC., <I>et al.,</I> Debtor. PROMEDCO OF SOUTHWEST FLORIDA, INC., Plaintiff, v. WENDY S. HUMPHREY, M.D., Defendant. |
Before the Court is the Motion for Summary Judgment (the "Motion") filed February 18, 2003 by Wendy S. Humphrey, M.D. ("Dr. Humphrey"), seeking summary judgment on all of the claims asserted by Promedco of Southwest Florida, Inc. ("PMC-SW") in its Complaint filed April 24, 2002 (the "Complaint"). The Motion was argued June 4, 2003. At the conclusion of that hearing, the Court directed counsel for Dr. Humphrey to search for and produce any additional documents responsive to PMC-SW's earlier discovery requests. If additional documents were produced, the Court gave PMC-SW time to supplement the summary judgment record. On June 30, 2003, PMC-SW supplemented the record after receiving certain additional documents. The Court took the Motion under advisement at that time.
The Court has core jurisdiction over the Motion pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A), (E). This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Civil Procedure 52, made applicable here by Federal Rule of Bankruptcy Procedure 7052.
For the reasons explained below, and after careful consideration of the pleadings, the evidence, and the arguments of counsel, the Court concludes that: (i) Dr. Humphrey is entitled to a summary judgment on PMC-SW's wage overpayment (and unjust enrichment) claim, the first fraud claim and the second fraud claim,1 the claim for willful violation of the automatic stay, and the attorneys' fees claim, and (ii) Dr. Humphrey is not entitled to a summary judgment on PMC-SW's conversion claim and the turnover and accounting claims.2
This case presents legal issues arising from the complex problems associated with medical billing, insurance reimbursements, and physician distributions, complicated by the practical fact that in the regular course of things, babies are not born until nine months after conception.
PMC-SW is a physician practice management company and wholly-owned subsidiary of ProMedCo Management Company ("PMC"). Both entities are debtors in the jointly administered ProMedCo of Las Cruces, Inc. bankruptcy case pending in this Court. Prior to their bankruptcy filings, PMC and PMC-SW entered into a business transaction in April of 1997 with Naples Medical Center ("NMC"), and Naples Obstetrics & Gynecology M.D. P.A. ("NOG") (collectively, "the Clinic"). PMC-SW acquired the assets of the two medical practices in Naples, Florida, and PMC-SW and NMC entered into a 40-year management services agreement (the "Service Agreement").3 In December of 1997, Dr. Humphrey signed an employment agreement (the "Employment Agreement") with NMC. The Employment Agreement provided that her compensation would be calculated pursuant to her individual contribution to the Clinic's earnings, subject to reconciliation as provided in the Service Agreement. See Humphrey Exhibit 2, Employment Agreement, recital C, ¶ 4(a)(i), (b); Humphrey Exhibit 1, Service Agreement, ¶ 11.10, 11.1.
Under the Service Agreement, PMC-SW became the sole and exclusive manager and administrator of all non-medical functions related to the Clinic; and in exchange, PMC-SW would receive a management fee of 15% of the Clinic's net revenue. See Service Agreement, ¶¶ 3.1, 11.7, 11.17. In addition, on the 15th of each month, PMC-SW purchased (and then attempted to collect) the Clinic's previous month's accounts receivable. See Service Agreement, ¶¶ 7.2, 7.4. As the consideration for the purchase of the Clinic's receivables, PMC-SW would pay cash equal to the previous month's net distribution to the Clinic plus or minus adjustments relating to the prior month (the "Clinic Distribution"). See Service Agreement, ¶ 7.4. The Clinic Distribution was then distributed to the physicians in direct proportion to the receivables generated by each physician. See Employment Agreement, recital C.4
In accordance with the terms of the Service Agreement, PMC-SW retained the right to reconcile its estimated monthly adjustments (the estimate reflected historical collections) to the Clinic Distribution based on actual collections. However, the Service Agreement states that the reconciliation is to be performed quarterly. See Service Agreement, ¶ 11.1. Thus, on a quarterly basis, PMC-SW had the right to deduct from or add to the revenue calculation to correct any underestimation or overestimation in the prior quarter. As noted previously, Dr. Humphrey's compensation was also subject to this quarterly reconciliation process.5
NMC employed Dr. Humphrey between December 1997 and February 2001. PMC-SW asserts that during her employment, despite the monthly adjustments made to the Clinic Distribution, PMC-SW experienced a substantial shortfall in collecting the accounts receivable that Dr. Humphrey generated. According to PMC-SW, when it attempted to recover approximately $522,000 in actual adjustments from her (calculated over the entire duration of her employment), she resigned. See Complaint, pp. 7-8, ¶¶ 21-22.6
In addition, because of Dr. Humphrey's resignation, PMC-SW alleges that it was not able to collect certain insurance reimbursements owed to PMC-SW relating to Dr. Humphrey's obstetrics patients. According to PMC-SW, upon a pregnant patient's first visit to Dr. Humphrey, a $3,000 receivable was generated (a "global fee" for the entire range of services to be provided for prenatal and postnatal care, as well as the actual delivery). Dr. Humphrey would be compensated by NMC in the next month based on that generated receivable, or "booked global fee." Thus, according to PMC-SW, Dr. Humphrey would be compensated for the full range of obstetrics services to be provided for the next several months (through delivery of the baby) prior to her completion of those services.7 However, according to PMC-SW, the insurance company was not actually billed until the completion of the services — i.e., until after the baby's delivery, some several months later. So, according to PMC-SW, if a patient saw Dr. Humphrey for her initial obstetrics visit when Dr. Humphrey was a NMC-employee but delivered the baby after Dr. Humphrey resigned, NMC had already compensated Dr. Humphrey for the $3,000 receivable that PMC-SW had purchased but not yet billed to the insurance company. PMC-SW alleges in the Complaint that after she resigned, Dr. Humphrey intentionally submitted insurance claims to the insurance companies for patients on accounts for which Dr. Humphrey had already been compensated pursuant to the Employment Agreement and the Service Agreement.
To further complicate the accounting problems, Dr. Humphrey was allowed to remain on site at NMC after her resignation and she continued to practice at the Clinic facilities for another eleven months. See PMC-SW Exhibit 2, ("Humphrey Deposition"), p. 12. Moreover, while Dr. Humphrey became responsible for her patient charges and billing, her patient charges continued to be recorded in the NMC computer system. See Estes Deposition, p. 37. As an NMC-employee, Dr. Humphrey's patient charges were billed under "Doctor # 7" in the NMC computer system. After her resignation, Dr. Humphrey's charges were billed under "Doctor # 77" in that system. See PMC-SW's Brief in Opposition to Dr. Humphrey's Motion for Summary Judgment ("PMC-SW Brief"), p. 5. PMC-SW alleges that Dr. Humphrey changed the code in order to convert the receivables.
As originally filed, the Complaint contained nine counts: (1) turnover under 11 U.S.C. § 542; (2) conversion of accounts receivable and equipment;8 (3) voidable transfer/fraudulent conveyance under 11 U.S.C. § 548; (4) avoidance of fraudulent transfer under 11 U.S.C. § 544(b);9 (5) accounting under 11 U.S.C. § 542(a); (6) fraud; (7) unjust enrichment;10 (8) willful violation of the automatic stay under 11 U.S.C. § 362; and (9) attorneys' fees. See Complaint. Dr. Humphrey's Original Answer filed on May 24, 2002 contained a demand for a jury trial. At the same time, Dr. Humphrey also filed a Motion to Withdraw the Reference. Sitting by special designation, Judge D. M. Lynn issued an opinion recommending that the reference be withdrawn when the adversary was ready for trial.11 The district court, by Order entered August 9, 2002, adopted the report and ordered that once the district court receives documentation from either party that the bankruptcy court has certified that the parties are ready for trial, the reference will be withdrawn.12
Dr. Humphrey filed the Motion on February 18, 2003. PMC-SW filed its Response on March 10, 2003. Dr. Humphrey filed a Reply on May 7, 2003, and PMC-SW filed a Surreply on May 12, 2003. Both parties moved to strike portions of the other's evidence and pleadings, as well as asserted that the other party's pleadings violated certain Local Rules. At the hearing on June 4, 2003, the Court ruled that any argument not expressly addressed at the hearing would be waived. Both parties withdrew their "technical" objections to the pleadings. However, Dr. Humphrey renewed her evidentiary objections to the Estes Affidavit.
As to the legal contentions, Dr. Humphrey argues that she was employed by NMC, not PMC-SW, and thus there is no direct contractual relationship between PMC-SW and her. PMC-SW counters with an Assignment of Claims dated December 18, 2002 by and between NMC, PMC, and PMC-SW (the "Assignment"). See PMC-SW Exhibit J. This document memorializes NMC's assignment of "all claims and causes of action which have accrued to NMC prior to this Assignment against Wendy Humphrey, M.D. [] arising under the...
To continue reading
Request your trial