Smith v. MedLegal Sols., Inc. (In re Smith)
- Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
- 10 months 2 weeks ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- No. 24-50494 (5th Circuit, Apr 02,2025) Not Published
- Tag(s):
-
- Ruling:
- The U.S. Court of Appeals for the Fifth Circuit affirmed a bankruptcy judge's entry of a contempt order and default judgment against the appellant/defendant/debtor in a non-dischargeability action after he failed to comply with court orders to participate in discovery. The circuit court rejected the pro se debtor's arguments that the bankruptcy court lacked jurisdiction and could not enter a final judgment on the underlying state-law tort claims against him, that the appellee/plaintiff/creditor lacked standing, and that the creditor's counsel had fabricated evidence in the case.
- Procedural context:
- The Fifth Circuit's opinion begins: "Once again, Dr. Douglas Smith appeals a ruling in his personal bankruptcy case[.]" It then cites the pro se debtor's four prior unsuccessful appeals to the circuit in related proceedings. In this appeal, the debtor lost on all the issues he properly preserved for appeal, and the opinion identifies several other arguments the circuit court (or the district court on the debtor's initial appeal) rejected as abandoned, forfeited, or waived. The opinion also notes the debtor's unsupported "drive-by attacks on opposing counsel[.]"
- Facts:
- Appellee/plaintiff/creditor MedLegal Solutions, Inc. "provides administrative support for medical providers engaged in personal injury litigation." It contracted with Salubrio, L.L.C., "a medical provider that supplied services to patients involved in personal injury litigation." Appellant/defendant/debtor Dr. Douglas Smith owned and controlled Salubrio and other related entities. Pursuant to Salubrio's contract with MedLegal, Salubrio would "submit a request to MedLegal for services" and "MedLegal would advance funds—that would later be collected from [a] patient's counsel—to Salubrio. Over the course of their dealings, Salubrio accepted advances 'totaling approximately $2 million[.]'" In 2018, MedLegal filed an arbitration proceeding against Salubrio, alleging it breached the parties' contract. In 2020, Salubrio filed a subchapter V petition. In 2021, Dr. Smith filed a chapter 11 petition, and his case quickly converted to a chapter 7. Also in 2021, MedLegal filed a proof of claim in Dr. Smith's bankruptcy case and initiated an adversary proceeding against him, "asserting claims for fraud and fraudulent inducement. . . . MedLegal also sought a determination that all awarded amounts are non-dischargeable debts—and a declaratory judgment involving principles of alter ego, veil piercing, and sham to perpetuate fraud." All of MedLegal's claims against Dr. Smith related to the contract between MedLegal and Salubrio. The bankruptcy court entered a scheduling order in the adversary proceeding and Dr. Smith failed to provide initial disclosures as required. After the bankruptcy court granted MedLegal's motion to compel Dr. Smith to provide the disclosures, Dr. Smith took an appeal to the U.S. District Court for the Western District of Texas. MedLegal later moved to compel Dr. Smith to respond to discovery and sought a contempt order for his continuing failure to provide initial disclosures. The bankruptcy court granted MedLegal's motions. MedLegal then filed a second motion for contempt based on Dr. Smith's refusal to provide discovery and also moved for a default judgment in its favor. Owing to Dr. Smith's failure to provide discovery and comply with orders, under Federal Rule of Civil Procedure 37 (incorporated into the adversary proceeding under Federal Rule of Bankruptcy Procedure 7037), the bankruptcy court granted MedLegal's second contempt motion, assessed monetary sanctions against Dr. Smith, and entered a default judgment against him, awarding MedLegal actual damages of $1,480,300.89. Dr. Smith appealed the second contempt order and the final judgment to the district court. The district court consolidated the appeals and affirmed all of the bankruptcy court's rulings taken up on appeal. Dr. Smith then took a further appeal to the Fifth Circuit.
- Judge(s):
- Elrod, Higginbotham, and Ramirez
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