Business Law
Seventh Circuit Clarifies Federal Jurisdiction in Competing Creditor Disputes: MedLegal Solutions v Premium Healthcare
SUMMARY
In a matter pending in a United States District Court where two judgment creditors, one with a federal judgment and one with a state court judgment, were competing to execute on the same judgment debtor’s assets, the Seventh Circuit Court of Appeals (the Circuit Court) held that the Rooker-Feldman doctrine did not deprive the District Court of jurisdiction to determine a priority issue. MedLegal Solutions, Inc. v Premium Healthcare Solutions, LLC, ___ F. 4th ___, 2026 WL 274561 (7th Cir. Feb. 3, 2026).
FACTS
In 2022, an individual, Vivek Bedi, secured a $1,578,000 Illinois state court money judgment against Premier (sic)Healthcare Solutions, LLC, a company which provides medical imaging services to personal injury and workman compensation claimants. Bedi began collection activities against Premier and the state clerk of court issued citations which created liens on the judgment debtor’s assets. However, there was a misnomer in the judgment because the actual name was Premium, not Premier. This made Bedi’s lien effectively undiscoverable, because a search of Premium Healthcare did not turn up the Premier lien.
MedLegal Solutions, Inc. provided medical billing management services to healthcare providers. It paid Premium for the right to manage Premium’s outstanding accounts receivable. MedLegal agreed to negotiate and recover payments from patients pursuant to Premium’s health care liens and, in turn, Premium allowed MedLegal to keep a portion of each payment. When MedLegal found out that Premium was going around it to collect directly, MedLegal initiated an arbitration proceeding which resulted in an award in favor of MedLegal against Premium. Before petitioning to confirm a judgment, MedLegal searched Illinois state and federal court records and did not find any judgments against Premium.
MedLegal petitioned the Northern District of Illinois District Court, sitting in diversity, to confirm the award, which resulted in a judgment for $488,000 against Premium in July 2024. MedLegal then issued third-party citations to discover Premium’s assets at BMO Bank and JP Morgan Chase Bank, whose accounts only had a few thousand dollars. However, that discovery process created a freeze on the BMO Bank account, which held funds to which Bedi believed he was entitled. Bedi, meanwhile, continued his collection efforts in the Illinois state court. In August 2024, the clerk of court issued a third-party citation to discover Premium’s assets held by Innovative Management Solutions, Inc. , a billing management company which also serviced Premium’s accounts receivable. The state court issued a turnover order directing Innovative to pay all proceeds of accounts payable to Premium to Bedi (the “state court turnover order”).
MedLegal continued its collection activities in federal court and obtained third-party citations from the District Court. It issued about 70 citations on third parties, consisting mainly of law firms holding accounts receivable for Premium, one of which third parties was Innovative, which was already subject to Bedi’s lien and the state court turnover order..
When Bedi became aware of the competing efforts to recover from Premium assets, he petitioned to intervene in those collection proceedings in federal court. It was then that he learned of the misnomer in his judgment and he immediately returned to state court to change Premier to Premium in his judgment. The state court issued a corrective order nunc pro tunc to the judgment entry date of October 2022. Thinking he now had priority, Bedi returned to federal court and filed an amended petition to intervene using the correct name. The District Court conducted a hearing on the motion to intervene, at which both creditors learned from Premium’s counsel that it had more than enough accounts receivable to pay both creditors, so Med Legal withdrew its opposition to Bedi’s petition to intervene and the court set a briefing schedule on the issue of priority.
However, MedLegal, uncertain of the outcome on priority in federal court, filed its own motion to intervene in Bedi’s state court collection activities, seeking to vacate the nunc pro tunc corrective order. Simultaneously, it moved for partial summary judgment for turnover of the Innovative accounts in federal court (“the federal court turnover order”), asking that its lien be judged superior to Bedi’s since the original judgment was not discoverable because of the misnomer. Bedi did not defend on the merits, but instead argued that the District Court lacked jurisdiction because of the Rooker-Feldman doctrine.
In January 2025, the District Court rejected the Rooker-Feldman doctrine because MedLegal was not a state-court loser. Reaching the merits, the District Court found that Bedi had waived his opposition and it deemed MedLegal’s interest superior to Bedi’s and granted the federal court turnover order. MedLegal, meanwhile, lost its motion to intervene and vacate the corrective order in state court, although the state court said it could seek resolution of the lien priority issue in federal court. The state appellate court affirmed this state court ruling. Bedi, on the other hand, appealed the District Court rulings in MedLegal’s favor to the Circuit Court, which affirmed the single order it deemed final.
REASONING
First, the Circuit Court addressed the finality of the orders before it, recognizing that courts evaluate the finality of post-judgment orders without reference to the underlying final judgment, the post-judgment proceedings being treated as separate, free-standing lawsuits. It acknowledged, however, that the Seventh Circuit takes a practical approach to finality and found itself not controlled by the words “partial summary judgment,” which might prevent finality because “partial” usually meant more proceedings were to follow. It concluded there was nothing partial about the priority ruling and concluded that the appeal of the federal court turnover order was from a final judgment.
The Circuit Court then turned to Bedi’s sole issue for appeal, that the District Court was barred from exercising federal jurisdiction because of the Rooker-Feldman doctrine. Here, the Circuit Court’s decision was much more straight-forward. In that doctrine the Supreme Court has held that a state-court loser cannot challenge that ruling in federal court by subsequently seeking an outcome which conflicts with the state-court decision; i.e., that the federal court cannot essentially entertain a loser’s appeal of a state court judgment. When the Circuit Court examined the status of MedLegal, it concluded it was not a state-court loser because it was not a party to the state court turnover order. Thus, Rooker -Feldman was not a bar to federal jurisdiction in the present case where MedLegal had asked the District Court to rule on which turnover order had priority for collection purposes.
Since Bedi’s only opposition was based on Rooker-Feldman, the Circuit Court never reached the merits of the priority battle.
AUTHOR’S COMMENTS
The key to the Circuit Court’s determination that Rooker-Feldman was not a bar to federal court jurisdiction was which of the orders was final for purposes of appeal, the federal court turnover order. In the one directly competing order, the state court turnover order against Innovative, MedLegal was not a party. Thus, the Circuit Court concluded it was not a state-court loser, preventing application of Rooker Feldman. But there were other orders (which the Circuit Court concluded were not final for appeal) where MedLegal might have been considered a state-court loser on a competing order. For example, MedLegal lost its attempt to intervene in the state court and lost its effort to vacate the corrective judgment. In my opinion, if a different order had been deemed final, the outcome regarding Rooker-Feldman might have been different. [The Commercial Finance Newsletter is written by an ad hoc group of lawyers in the Business Law Section of the California Lawyers Association. This review was written by the Hon. Meredith Jury, U.S. Bankruptcy Judge, Central District of California (Ret.), a member of the ad hoc group. The opinions contained herein are solely those of the author.]