Allstate Ins. Co. v. Receivable Finance Co.
| Citation | 501 F.3d 398 |
| Decision Date | 20 September 2007 |
| Docket Number | No. 05-10265.,05-10265. |
| Parties | ALLSTATE INSURANCE CO.; et al., Plaintiffs, Allstate Insurance Co.; Allstate Indemnity Co.; Allstate Property & Casualty Insurance Co.; Boston Old Colony Insurance Co.; Glens Falls Insurance Co., Plaintiffs-Appellees, v. RECEIVABLE FINANCE COMPANY, L.L.C.; et al., Defendants, Accident & Injury Pain Centers, Inc., doing business as Accident & Injury Chiropractic; Receivable Finance Company, L.L.C.; Robert Smith; Lone Star Radiology Management, L.L.C.; White Rock Open Air MRI, L.L.C., doing business as White Rock Open MRI; North Texas Open Air MRI, L.L.C., doing business as North Texas Open MRI, doing business as Harris County MRI, doing business as Bexar County MRI; Rehab 2112, L.L.C.; Metroplex Pain Center, Inc., doing business as Lone Star Radiology; Lacidem Management; Steven Smith; Tina Cheshire; James Laughlin, D.O.; Dee L. Martinez, M.D.; Thomas Rhudy, D.C.; Louis Saucedo, D.C.; Kenneth Lustik, D.C.; Mark Rayshell, D.C; Larry Parent, D.C.; Christopher Holowiski, D.C.; Carey Fabacher, D.C.; Patricia Johnson, D.C.; Gholamreza Assadolahi, D.C.; Kyle Campbell, D.C.; Chad Blackmon, D.C.; Ramesh Sanghani, D.C.; Marlon D. Padilla, M.D. P.A.; Marlon Padilla, M.D., Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Bret Weatherford (argued), David Kassabian, Kassabian, Doyle & Weatherford, P.C., Jan R. Thurman, Thurman & Andres, Arlington, TX, James L. Sowder, Thompson, Coe, Cousins & Irons, Dallas, TX, for all Plaintiffs-Appellees.
P. Michael Jung (argued), Strasburger & Price, Michael E. Mears, Andrews & Kurth, Dallas, TX, for Accident & Injury Pain Centers, Inc.
Charles T. Frazier, Jr. (argued), Roy Michael Northrup, Cowles & Thompson, Dallas, TX, for Receivable Finance Co. LLC, Robert Smith, Lone Star Radiology Management, LLC, White Rock Open Air MRI, LLC, North Texas Open Air MRI, LLC, Rehab 2112, LLC, Metroplex Pain Center Inc., Lacidem Management, Steven Smith & Tina Cheshire.
Richard Keys Disney, Cotten Schmidt, Fort Worth, TX, for James Laughlin.
Richard E. Young, Glast, Phillips & Murray, Dallas, TX, for Dee L. Martinez, M.D.
Mark David Downey, Epstein, Becker, Green, Wickliff & Hall, Dallas, TX, for Marlon D. Padilla, M.D., P.A. & Marlon Padilla, M.D.
Appeals from the United States District Court for the Northern District of Texas.
Before GARWOOD, DENNIS and OWEN, Circuit Judges.
This appeal results from a jury verdict rendered in favor of plaintiffs-appellees Allstate Insurance Company, Allstate Indemnity Company, Allstate Property & Casualty Insurance Company (collectively, "Allstate"),1 Boston Old Colony Insurance Company, and The Glens Falls Insurance Company (collectively, "Encompass"2). The jury awarded Allstate $2,750,000.00 and Encompass $95,000.00 in damages for fraud committed by defendant-appellant Accident & Injury Pain Centers Inc. (A&I). Twenty-six other defendants were determined to be jointly and severally liable for these amounts as co-conspirators in the fraud. Exemplary damages adjudged severally against each of the twenty-seven defendants totaled $3,058,300.00. The district court entered an amended final judgment on the jury's verdict that totaled $6,195,204.80. This amount included reduced prejudgment interest awards of $282,157.54 to Allstate and $9,747.26 to Encompass, amounts for which all defendants were adjudged jointly and severally liable. The district court also denied the defendants' post-trial and post-verdict motions for judgment as a matter of law.
Because we find the evidence insufficient to support either the jury verdict on fraud or the damages award, we reverse and render judgment for the defendants-appellants.
At issue in this case are over 1,800 claim files held by insurers Allstate and Encompass,3 most of which represent "third party" claims — claims against an Allstate or Encompass liability insured brought by a person allegedly injured in an automobile accident. In relation to most of the claim files at issue, Allstate or Encompass paid money in settlements on behalf of, or in respect to judgments against, one of their insureds. The instant case covers claims made from January 1999 onwards and brought by claimants who had been treated by defendants-appellants A&I and its affiliates.
A&I is a Texas-based group of chiropractic clinics that specialize in treating patients who have suffered trauma in automobile accidents or through on-the-job injuries. Defendant-appellant Robert Smith (Smith), a layperson, owns A&I, which at its largest consisted of twenty clinics. The other defendants-appellants in this case — at least some of which were also established by Smith — are in some way associated with A&I and include chiropractors, A&I employees, physicians, and diagnostic entities. They are: Metroplex Pain Center, Inc. (d/b/a Lone Star Radiology); White Rock Open Air MRI, L.L.C. (d/b/a White Rock Open Air MRI); North Texas Open Air MRI, L.L.C. (d/b/a North Texas Open Air MRI, Harris County MRI, Bexar County MRI); Rehab 2112, L.L.C.; Receivable Finance Company, L.L.C. (RFC); Thomas Rhudy, D.C.; Louis Saucedo, D.C.; Kenneth Lustik, D.C.; Mark Rayshell, D.C.; Larry Parent, D.C.; Christopher Holowiski, D.C.; Carey Fabacher, D.C.; Patricia Johnson, D.C.; Kyle Campbell, D.C.; Ramesh Sanghani, D.C.; Robert Smith; Steven Smith; Tina Cheshire; Lone Star Radiology Management, L.L.C.; Lacidem Management; James Laughlin, D.O.; Marlon D. Padilla, M.D., P.A.; Marlon Padilla, M.D.; and Dee M. Martinez, M.D.
A&I and its affiliates often treat patients who do not have health insurance, and consequently they frequently rely on "letters of protection" given to them by an uninsured patient's personal injury attorney, who, almost always, has referred the patient to them. These letters assure A&I and its affiliates treating the patient that if the patient's attorney achieves a recovery on the patient's personal injury claim, recovered funds will be used to pay for the patient's incurred medical expenses.
When A&I and its affiliates treat a patient for whom they have received a personal injury attorney's letter of protection, A&I's corporate office drafts a final narrative report for the patient, based on a template the chiropractor fills out. According to A&I, the chiropractor is able to review, edit, and electronically sign the report before it is issued. Also according to A&I, A&I then sends the patient's medical file, including the final narrative, to the patient's attorney, who in turn usually forwards the file to the insurance carrier of the person against whom the patient is making a claim. If the insurer — such as Allstate or Encompass — settles or otherwise resolves a claim on behalf of its insured, the insurer pays the funds in a lump sum jointly to the attorney and claimant-patient; insurers, including Allstate and Encompass, generally do not pay A&I or its affiliates directly.
The fraud claims in this case do not relate to staged (or nonexistent) accidents (or to claimants who had not been patients at A&I or the other defendants) or the like, but rather relate to A&I's reports of and patient billings for allegedly grossly and knowingly unnecessary and excessive chiropractic and/or medical diagnoses, treatments, procedures, services, consultations and the like, including Xrays and MRIs and similar items.
Leading up to Allstate's institution of this action, and sometime between March and May 2000, Allstate's Special Investigative Unit (SIU) analyst Bruce Vest (Vest) placed A&I on "provider on hold" status throughout Texas and designated this status retroactive for treatment provided by A&I from October 1, 1999, onwards. As a result of A&I's provider-on-hold status, whenever an Allstate adjuster entered a bill associated with A&I's tax identification number, Allstate's computer system would instruct the adjuster to contact Allstate's SIU. Adjusters, however, whose job was described at trial as "to investigate, evaluate, and settle a claim," could nevertheless authorize payment to A&I.
On November 9, 2001, over a year after Allstate labeled A&I a "provider on hold," Allstate brought this suit against RFC, Marlon D. Padilla, M.D., P.A. (Padilla P.A.), and Advanced Medical Systems and Solutions, PLLC (Advanced Medical).4 In its original complaint, Allstate sought declaratory relief, requesting the district court to declare that: RFC was engaged in the unauthorized corporate practice of medicine and the unauthorized employment of medical and osteopathic physicians; that any contracts between RFC and such physicians were illegal and void as a matter of law and public policy; that Allstate need not pay any amount billed by or through RFC regarding any medical services fee; and that all medical services previously billed through RFC were billed in violation of the Texas Medical Practices Act. RFC, Advanced Medical, and Padilla P.A. responded by asserting that Allstate lacked standing to bring the declaratory relief suit, but the district court denied their Rule 12(b)(6) motion to dismiss in February 2002. The initial three defendants subsequently filed answers in March 2002.
In November 2002, Allstate and Encompass together filed an Amended Motion to Amend Complaint for Declaratory Relief; in January 2003, the district court granted the motion, and Allstate and Encompass filed their First Amended Complaint the same day.
In their First Amended Complaint, Allstate and Encompass named as defendants the appellants now before this court.5 The amended complaint also added several requests for relief to those requests included in Allstate's original complaint. Allstate and Encompass added damages claims for common law fraud and conspiracy; for relief for unjust enrichment; for prejudgment and postjudgment interest; and for punitive damages. Further, the plaintiffs asked the district court to declare that: (1) various defendants constituted a joint...
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