Rightchoice Managed Care, Inc. v. Hosp. Partners, Inc., 2024 U.S. App. LEXIS 18599 (8th Cir. July 29, 2024):

*1 Beau Gertz, Mark Blake, SeroDynamics, and LabMed Services (collectively, the Sero Defendants) perpetrated a pass-through billing scheme for lab tests billed from a 15-bed hospital in Unionville, Missouri. A jury found them liable for fraud, tortious interference with contract, civil conspiracy, and money had and received under Missouri law. On appeal, they raise numerous claims of error. We affirm the district court’s¹ judgments.

I.

We recount the facts in the light most favorable to the verdicts. Kimbrough v. Loma Linda Dev., Inc., 183 F.3d 782, 783 (8th Cir. 1999). Here’s the long and short of them: the Sero Defendants made the blood tests they ran from their Colorado lab look like they were run from a rural Missouri hospital. This “pass-through billing”² scheme was lucrative, bringing the Sero Defendants an approximately $26.3 million windfall.

We trace the story to when Blue Cross³ contracted with Putnam County Memorial Hospital, a 15-bed hospital in Unionville, Missouri. The Putnam-Blue Cross Contract stated that Putnam “shall bill only for Hospital Services performed by, or under the direction and personal supervision of [Putnam].” It also made Putnam in-network with Blue Cross and its members.

Being in-network with Blue Cross made for good money-making. That’s why the Sero Defendants—specifically, Gertz and Blake—hoped their Colorado lab, SeroDynamics, would also become in-network. But Blue Cross rejected its application. The lab was losing money, so the Sero Defendants set their sights on Blue Cross’s in-network hospitals.

At first, that was Campbellton-Graceville Hospital (CGH) in Jackson County, Florida. The Sero Defendants connected with Jorge Perez, who managed CGH. In Gertz’s words, they “hit gold” when they signed an agreement with the hospital after finding out that it was in-network with Blue Cross. SeroDynamics then performed tests for patients with no connection to CGH. When it came time for payment, the Sero Defendants worked with Perez’s company Empower to bill the tests to Blue Cross using CGH’s provider numbers—its Tax Identification Number (TIN) and National Provider Identifier (NPI). The use of these identifiers made it look like CGH performed the tests when in fact it didn’t. But the scheme stopped when Blue Cross stopped payments to CGH, which told the Sero Defendants that their arrangement might be fraud.

Meanwhile, Putnam was in dire financial straits. Perez and David Byrns, through their company Hospital Partners, saw an opportunity. Byrns came on as Putnam’s CEO, and after discovering that it was in-network with Blue Cross, he had the hospital engage with Empower, which agreed to handle its billing.

*2 That brings us to the Sero Defendants. Leveraging their relationship with Perez, they entered the Sero-Putnam Contract, which required Putnam, and thus Empower, to bill SeroDynamics’s tests to “third-party payers” like Blue Cross under Putnam’s provider numbers. So began a scheme like the one at CGH, where the Sero Defendants billed tests for patients with no connection to Putnam whatsoever. They even got Putnam to bill for unpaid tests from the Sero Defendants’ other ventures—including the tests that CGH stopped paying after Blue Cross intervened. Like at CGH, the use of Putnam’s provider numbers made it appear like Putnam performed the tests. And in the end, Blue Cross paid Putnam $18,053,015 for SeroDynamics’s tests.

Blue Cross sued the Sero Defendants, Hospital Partners, Empower, Byrns, Perez, and others. Only the Sero Defendants went to trial, and after five days of evidence, the jury found them liable for fraud, tortious interference with contract, civil conspiracy, and money had and received. It then awarded Blue Cross $18,053,015 in compensatory damages as well as $1.9 million in punitive damages against each of the four Sero Defendants.

II.

The Sero Defendants urge us to reverse the district court’s judgments for eight independent reasons. We take each argument in turn.

A.

We first address the Sero Defendants’ challenge to the district court’s decision to bar their lead counsel from delivering closing argument—a sanction that we review for abuse of discretion. Plaintiffs’ Baycol Steering Comm. v. Bayer Corp., 419 F.3d 794, 802 (8th Cir. 2005).

Federal courts are “vested, by their very creation, with power to impose silence, respect, and decorum, in their presence, and submission to their lawful mandates.” Anderson v. Dunn, 19 U.S. (6 Wheat.) 204, 227, 5 L.Ed. 242 (1821). When a district court uses its inherent power “to achieve the orderly and expeditious disposition of cases” by “disciplin[ing] attorneys who appear before it,” Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (citation omitted), it must do so with “great caution,” Ex parte Burr, 22 U.S. (9 Wheat.) 529, 531, 6 L.Ed. 152 (1824).

We think the district court did so here. Lead counsel’s conduct throughout the court’s three years’ experience with this case laid the groundwork for the sanction. See Gallagher v. Magner, 619 F.3d 823, 844 (8th Cir. 2010) (explaining that district courts are due “substantial deference” when crafting sanctions given their “familiarity with the case and counsel” (citation omitted)). What started with deposition misconduct and “obstructionist discovery tactics” moved to scheduling order violations. Things didn’t get better during trial. The district court observed that counsel engaged in “trial by ambush,” elicited testimony at odds with the court’s orders on motions in limine, disregarded a sustained objection, and mired the case in “misdirection, obfuscation, and confusion.” All the while, it gave warnings that it might sanction him by excluding him from a portion of the proceedings. On the third day of trial, for example, it cautioned that he was “getting close” to having to “stand down” and “sit in the second chair ... for the rest of the trial.” When it barred counsel from delivering closing arguments, the court sought to serve the “bedrock principles” of “civility, professionalism, integrity, efficiency, expediency, and deterrence,” Wescott Agri–Prods., Inc. v. Sterling State Bank, Inc., 682 F.3d 1091, 1095–96 (8th Cir. 2012), which all support the sanction here.

The Sero Defendants’ arguments to the contrary don’t persuade. For starters, they repeatedly rely on Macheca Transport Co. v. Philadelphia Indemnity Insurance Co., where we observed that “the extreme measure of disqualifying a party’s counsel of choice should be imposed only when absolutely necessary.” 463 F.3d 827, 833 (8th Cir. 2006) (emphasis added) (citation omitted). But the district court here did not disqualify counsel—he could draft the closing argument, assist with its preparation, and sit at counsel’s table during it—so Macheca is inapposite. Nor are we moved by suggestions that the court should have tried to preside over counsel’s closing arguments and reserved any intervention until misconduct materialized. Cf. Dillon v. Nissan Motor Co., Ltd., 986 F.2d 263, 268 (8th Cir. 1993) (“[W]hether the extent of a sanction is appropriate is a question peculiarly committed to the district court.”). The court weighed whether “stopping [him] after one minute of the closing argument” would be more prejudicial to the Sero Defendants than precluding him from arguing altogether. It then landed on what it thought was “the least harsh decision [it] could come up with,” meaning the Sero Defendants’ other lawyer—who had practiced law for 12 years, represented them for a year, and examined a witness at trial—gave the closing argument. We see no abuse of discretion in the court’s considered decision.

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