Class Action Defense Cases–Thomas v. Blue Cross: Eleventh Circuit Reverses Denial Of OSC For Contempt Against Absent Class Member Seeking To Prosecute Individual Claims Released As Part Of Class Action Settlement

Jan 27, 2010 | By: Michael J. Hassen

District Court Abused its Discretion in Denying OSC for Contempt against Absent Class Member who Filed Lawsuit against Party Released under Class Action Settlement because Class Member’s Individual Claims Fell Within Scope of Release in Class Action Settlement Agreement Eleventh Circuit Holds

In May 2003, a group of physicians filed a putative nationwide class action Blue Cross and Blue Shield Association, and its member plans, alleging conspiracy and aiding and abetting under the Racketeer Influenced and Corrupt Organizations Act (RICO); the class action complaint prayed for declaratory and injunctive relief, and sought monetary damages. Thomas v. Blue Cross & Blue Shield Ass’n, ___ F.3d ___, 2010 WL 174765, *1 (11th Cir. January 20, 2010). According to the allegations underlying the class action complaint, defendants had “engaged in a conspiracy to improperly deny, delay, and/or reduce payments to physicians, physician groups, and physician organizations by engaging in several types of allegedly improper conduct.” Id. The parties negotiated a class action settlement on behalf of a nationwide class, which eventually secured the approval of the district court. Id. The class action settlement required members of the class “release the Blue Cross plans from all claims arising out of or related to matters referenced in the class action and settlement agreement,” id., at *1-*2. Thus, as part of the class action settlement, “[t]he district court permanently enjoined the releasing parties from filing or prosecuting ‘any or all Released Claims against one or more Released Parties,’” and “expressly retained jurisdiction as to matters relating to the interpretation, administration, and consummation of the settlement agreement, and the enforcement of extant injunctions.” Id., at *2. In January 2008, plaintiff Dr. Robert Kolbusz, a physician at the Center for Dermatology and Skin Cancer, and the Center filed a lawsuit in Illinois against Health Care Service Corporation (the “Corporation”) for breach of contract, tortious interference with contractual relationships and prospective economic advantage, and defamation; in part, the Kolbusz complaint “alleged that the Corporation had made false statements to his patients regarding its reasons for refusing to pay for medical services that he had rendered.” Id. Under the class action settlement, Kolbusz is a releasing party and the Corporation is a released party; however, while Kolbusz was a member of the class, he failed to timely object to or opt out of the class action settlement. Id. The Corporation filed a motion with the district court alleging that the Kolbusz complaint violated the permanent injunction and sought an OSC for contempt against Kolbusz. Id., at *3. The district court concluded that the tortious interference and defamation claims were not barred by the class action settlement, but found that the breach of contract fell within the scope of the class action release and ordered Kolbusz to drop the claim within 20 days to avoid being held in contempt. Id. Both parties appealed. The Eleventh Circuit dismissed Kolbusz’s appeal for lack of jurisdiction “because the decision to afford Kolbusz 20 days to withdraw his claim of breach of contract is not a final or otherwise appealable order,” and reversed the district court’s determination that Kolbusz’s tort claims were not barred by the class action settlement. Id., at *1.

Addressing its jurisdiction over the appeal (by the Corporation) and cross-appeal (by Kolbusz) sua sponte, the Eleventh Circuit held that it had jurisdiction over the Corporation’s appeal because “the denial of a motion for an order to show cause why a party should not be held in contempt…is a final order.” Thomas, at *3. However, the Circuit Court held that it did not have jurisdiction over the cross-appeal. This was true because “Kolbusz’s cross-appeal does not concern a final order,” so jurisdiction did not exist under Section 1291. Id., at *4. On the contrary, the district court’s order contemplated further action by Kolbusz, id. Nor did jurisdiction exist under the “collateral order” doctrine, id. Further, appellate jurisdiction did not exist under Section 1292(a)(1) because “[t]he effect of the [district court] order was not to grant new injunctive relief.” Id., at *5. And finally, the Circuit Court did not have pendent appellate jurisdiction because review of the district court’s order concerning the breach of contract claim was not “inextricably intertwined with an appealable order.” Id., at *6. Accordingly, the Eleventh Circuit dismissed the cross-appeal for lack of jurisdiction, id., at *8.

Turning to the merits of the Corporation’s appeal, defense attorneys argued inter alia that the district court abused its discretion in denying the Corporation’s motion because “Kolbusz’s claims of tortious interference and defamation are released and their prosecution violates the injunction entered in the class action because the claims are related to the matters addressed in the class action.” Thomas, at *6. The Eleventh Circuit agreed. In the Circuit Court’s words, “The Corporation presented undisputed evidence that Kolbusz’s prosecution of his claims of tortious interference and defamation violated the permanent injunction because the claims are related to matters addressed in the class action. The permanent injunction bars class members from filing or prosecuting released claims, and the settlement agreement broadly defines released claims to include claims that are related to matters addressed in the class action or settlement agreement.” Id. The Eleventh Circuit held that Kolbusz’s tortious interference and defamation claims fell within the scope of the release in the class action settlement Id., at *7-*8. Accordingly, it reversed the district court’s denial of the Corporation’s motion for an OSC as to why Kolbusz should not be held in contempt for seeking to prosecute those claims, id., at *8.

NOTE: The following day, the Eleventh Circuit issued an opinion in a related case involving a lawsuit filed by a Dr. Donald W. Robertson in Florida. Thomas v. Blue Cross & Blue Shield Ass’n, ___ F.3d ___, 2010 WL 183477, *1 (11th Cir. January 21, 2010). There, the district court denied a motion by Dr. Robertson to prosecute his individual claims despite his failure to timely object or opt out, but did so without addressing the merits of the motion. Id., at *2. The Circuit Court held that it lacked jurisdiction over Robertson’s appeal from that order. A copy of that opinion may be found here.

Download PDF file of Thomas v. Blue Cross & Blue Shield Ass’n

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