United States District Court, M.D. Tennessee, Nashville Division
NEWBERN, MAGISTRATE JUDGE.
WILLIAM L. CAMPBELL, JR. UNITED STATES DISTRICT JUDGE
before the Court is Plaintiff's Motion for an Order that
Its Pending False Claims Act Civil Action is Legally Excepted
from the Automatic Stay in Bankruptcy. (Doc. No. 66).
Defendants filed a Response in Opposition (Doc. No. 71), and
Plaintiff filed a Reply. (Doc. No. 72). For the reasons set
forth below, Plaintiff's Motion is
FACTUAL AND PROCEDURAL BACKGROUND
action, Plaintiff has sued Defendants, Michael Kestner and
Lisabeth Smolenski Williams, individually, PainMD, LLC,
MedManagement, Inc. (“MMI”), Mid-South Pain
Management, P.C., Cumberland Back Pain Clinic, P.C., Lebanon
Back Pain Clinic, P.C., Blue Mountain Medical Group, P.C.,
Natural Bridge Medical Group, P.C., and Rock Island Medical
Group, P.C., alleging violations of the False Claims Act, 31
U.S.C. § 3729, et seq. and common law claims of
payment by mistake and unjust enrichment. (Doc. No. 1).
Complaint alleges, inter alia, that Defendants
performed a high number of medically unnecessary injections
into patients' back muscles and then billed Medicare and
TRICARE for the injections as if they were tendon origin
insertions for the purpose of receiving higher
reimbursements. Plaintiff claims Defendants violated the
False Claims Act by submitting false or fraudulent claims for
payment to Medicare and TRICARE for single tendon origin
injections that were not actually provided, and by making
false statements to Medicare and TRICARE in the form of
miscoded injections and false statements in the supporting
medical documentation for the injections.
case was stayed by a sealed Order entered on May 17, 2019.
(Doc. No. 61). On June 14, 2019, Defendant Pain MD filed a
voluntary petition for Chapter 7 bankruptcy in the United
States Bankruptcy Court for the Middle District of Tennessee,
case number 3:19-bk-03841. (See Suggestion of
Bankruptcy, Doc. No. 65). On June 20, 2019, Plaintiff
filed the present motion seeking an order that the instant
civil action against Pain MD and the nine non-debtor
Defendants is excepted from the automatic stay in bankruptcy
pursuant to 11 U.S.C. § 362(b)(4) as an exercise of the
United States' police or regulatory powers. (Doc. No. 66;
Doc. No. 67 at 2).
a party seeks to commence or continue proceedings in one
court against a debtor or property that is protected by the
stay automatically imposed upon the filing of a bankruptcy
petition, the non-bankruptcy court properly responds to the
filing by determining whether the automatic stay applies to
(i.e., stays) the proceedings.” Chao v. Hosp.
Staffing Servs., Inc., 270 F.3d 374, 384 (6th Cir.
2001). Normally, “the filing of a bankruptcy petition
operates to stay, among other things, the continuation of a
judicial proceeding against the debtor that was commenced
before the petition.” Dominic's Rest. of
Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir.
2012). Section 362(b)(4) of the Bankruptcy Code provides an
exception to the automatic stay for actions by a governmental
unit to enforce its police or regulatory power. 11 U.S.C.
present civil enforcement action is brought under the False
Claims Act, 31 U.S.C. §3729-33, and common law.
Plaintiff contends that 11 U.S.C. § 362(b)(4) excepts
the present action from the operation of the bankruptcy stay;
Defendants argue this action is not excepted from the stay
because it is not an exercise of the United States'
police and regulatory powers. Section 362(b)(4) excepts from
the stay such actions against the debtor that are brought by
a governmental unit “to enforce such governmental
unit's or organization's police and regulatory power,
including the enforcement of a judgment other than a money
judgment, obtained in an action or proceeding by the
governmental unit to enforce such governmental unit's or
organization's police or regulatory power.” 11
U.S.C. § 362(b)(4).
determine whether an action qualifies as a proceeding
pursuant to a governmental unit's police or regulatory
power, and therefore falls outside the ambit of the automatic
stay, courts in the Sixth Circuit apply two tests: the
pecuniary purpose test and the public policy test. See
Chao, 270 F.3d at 385. The pecuniary purpose test
focuses on whether the enforcement action “would result
in a pecuniary advantage to the government vis-a-vis other
creditors of the bankruptcy estate.” Id. at
389 n. 9 (citing United States v. Commonwealth Cos. (In
re Commonwealth Cos.), 913 F.2d 518, 523-24 (8th
Cir.1990)). As for the public policy test, the Sixth Circuit
…courts should examine the type of enforcement action
brought and the relationship between a particular suit and
Congress's (or a state's) declared public policy.
When an action furthers both public and private interests and
the private interests do not significantly outweigh the
public benefit from enforcement, courts should defer to the
legislature's decision to vest enforcement authority in
the executive and recognize such actions as within
“such governmental unit's police and regulatory
power, ” as that term is used in § 362(b)(4).
Chao, 270 F.3d at 390. “A suit must be
undertaken principally to adjudicate private rights, with
only an incidental public interest in the litigation, for it
to fall outside the police power exception.”
Id. at 391.
the pecuniary purpose test, the Court finds Plaintiff's
action would not result in a pecuniary advantage to the
government over Pain MD's other creditors because is
undisputed Plaintiff is attempting only to obtain the entry
of a money judgment, not enforcement. “At this
juncture, up to the point that a judgment is entered and the
amount of damages is fixed, the government is not conferred
any advantage over [Pain MD]'s creditors or any third
parties-if the government is successful in obtaining the
entry of a judgment, it would merely become an unsecured
creditor of [Pain MD], which would not conflict with the
bankruptcy court's control of the debtor or the
estate.” U.S. ex rel. Fullington v. Parkway Hosp.,
Inc., 351 B.R. 280, 288 (E.D.N.Y. 2006); see also In
re Commonwealth Cos., 913 F.2d at 524 (“The entry
of judgment [on the government's False Claims Act
complaint] would simply fix the amount of the