Filing for bankruptcy can potentially provide some important benefits for the entities that choose that path. One of these benefits is the automatic stay. The rules related to the automatic stay block the ongoing pursuit of almost all types of claims against a debtor, but not everything. One example of a claim that the automatic stay could not prevent from going forward emerged in a recent case before the U.S. District Court, Middle District of Florida. In that case, the District Judge ruled that the U.S. government could continue its pursuit of the debtor because its action under the False Claims Act fell under the “police or regulatory” exemption to the automatic stay.
In this case, the debtor was Institute of Cardiovascular Excellence PLLC. The institute’s principal doctor, Asad Qamar, was a heart surgeon in central Florida who, according to the government’s statistics, received $16 million from Medicare in 2013, making him the highest reimbursed heart surgeon in the entire country. Qamar and the institute, according to the whistleblowers and the government, were defrauding Medicare, putting together an elaborate scheme involving improper kickbacks and billing for unnecessary medical procedures, which potentially numbered in the thousands.
The whistleblowers and the federal government brought two lawsuits against Qamar, his wife, and the institute. With those lawsuits ongoing, the institute and the Qamars filed for Chapter 11 bankruptcy. As part of this action, they argued that the government and the whistleblowers could not continue going forward with the False Claims Act lawsuits because the automatic stay provision in the bankruptcy law prevented them from doing so. Generally, when a debtor files a petition seeking to declare Chapter 11 bankruptcy, the filing of that petition automatically triggers a stay of all actions against the debtor, as required by 11 USC §362(a).
The government’s case involved monetary damages, so the stay should apply, the debtors argued. The government, on the other hand, argued that the False Claims Act lawsuit, which pursued the debtors for fleecing Medicare, were actually the sort of law enforcement actions that the law exempted from the reach of the automatic stay.
The court agreed with the government. At least one federal appeals court had already addressed this issue and had ruled that, under the terms of 11 USC §362(b)(4), this type of False Claims Act case was exempt from the automatic stay. The government’s use of civil litigation to pursue an alleged defrauder of Medicare sought to inflict the “sting of punishment” on the wrongdoers and deter others from engaging in similar conduct, the Eighth Circuit Court of Appeals stated in a 1990 case, In Re Commonwealth Companies, Inc. Based upon these objectives, the lawsuits clearly fell under the law enforcement exemption, and the stay did not stymie the government’s action.
Law enforcement actions are not the only category of actions in which the automatic stay doesn’t apply. In addition to law enforcement actions, other cases that the stay does not stop include criminal cases and investigations, foreclosure actions by the U.S. Department of Housing and Urban Development, tax audits, commercial landlord actions alleging unlawful detainer (if the lease expired before the tenant filed bankruptcy), and actions involving the accreditation and licensing of certain schools, among others. This non-exhaustive list is a reminder that the automatic stay stops most actions but not all.
If you are contemplating Chapter 11 bankruptcy, there are several important things to consider. You must determine whether the automatic stay provision will help you and whether it applies to your case at all. Experienced bankruptcy counsel can provide you with knowledgeable advice about these and other issues related to the pluses and minuses of filing Chapter 11 bankruptcy. The skilled Florida Chapter 11 bankruptcy attorneys at Stok Folk + Kon are here to help, providing reliable advice and determined representation in your bankruptcy case.
Contact us online or by calling (954) 237-1777 to schedule your consultation.
More blog posts:
Creditors Hold Onto Priority Status in South Florida Homebuilder’s Chapter 11 Bankruptcy, Florida Business Lawyers Blog, July 20, 2016
Florida Business Can’t Use Chapter 11 to Escape Termination of Provider Contracts with the Government, Florida Business Lawyers Blog, May 13, 2016