Allstate Ins. Co. v. Seigel

• Citation: 312 F.Supp.2d 260
• Decision Date: 30 March 2004
• Docket Number: No. CIV. 3:03CV577 (MRK).,CIV. 3:03CV577 (MRK).
• Parties: ALLSTATE INSURANCE COMPANY and ALLSTATE INDEMNITY COMPANY, Plaintiffs, v. Arthur M. SEIGEL, M.D., Arthur M. Seigel, M.D., P.C., and Ellen Seigel, Defendants.
• Court: U.S. District Court — District of Connecticut

312 F.Supp.2d 260

ALLSTATE INSURANCE COMPANY and ALLSTATE INDEMNITY COMPANY, Plaintiffs, v. Arthur M. SEIGEL, M.D., Arthur M. Seigel, M.D., P.C., and Ellen Seigel, Defendants.

No. CIV. 3:03CV577 (MRK).

United States District Court, D. Connecticut.

March 30, 2004.

David O. Brink, Smith & Brink, Quincy, MA, Joel J. Rottner, Mathew Dallas Gordon, Skelley Rottner, W. Hartford, CT, Nathan Tilden, Richard D. King, Jr., Smith & Brink, Quincy, MA, Ira B. Grudberg, Jacobs, Grudberg, Belt & Dow, P.C., New Haven, CT, for Plaintiffs.

David L. Belt, Ira B. Grudberg, Joshua D. Lanning, Jacobs, Grudberg, Belt & Dow, P.C., New Haven, CT, for Defendants.

MEMORANDUM OF DECISION

KRAVITZ, DIstrict Judge.

In this action, Plaintiffs Allstate Insurance Company and Allstate Indemnity Company (collectively, "Allstate") have sued Dr. Arthur Seigel ("Seigel"), his medical practice, Arthur M. Seigel, P.C. ("Seigel P.C."), and his wife, Ellen Seigel, an employee and shareholder of Seigel P.C., for various alleged violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., the Connecticut Unfair and Deceptive Trade Practices Act, Conn. Gen.Stat. ("CUTPA"), § 42-110a, et seq., the Connecticut Health Insurance Fraud Act ("CHIFA"), Conn. Gen.Stat. § 53-442, and common law fraud. Briefly stated, Allstate alleges, among other things, that Seigel and Seigel P.C. created false and fraudulent invoices and medical reports on patients who had been involved in automobile accidents for the purpose of causing insurers such as Allstate to pay for medical treatments that were either never performed or were incompletely performed and/or to pay inflated amounts for the personal injury claims of those patients. This lawsuit follows Seigel's plea of guilty to, and conviction on, a single count of mail fraud in violation of 18 U.S.C. § 1341.

Presently before the Court is Defendants' Motion to Dismiss [doc. # 31]. Defendants assert that Allstate's 98-page, 452 paragraph, seven-count Amended Complaint is defective in a number of respects. Specifically, Defendants contend that: (1) Allstate lacks standing to pursue certain of its RICO claims because Defendants' predicate acts were not the proximate cause of certain of Allstate's alleged injuries; (2) certain of Allstate's claims for damages are too speculative as a matter of law; (3) Allstate's claim against Seigel under 18 U.S.C. § 1962(a) fails because Allstate has not alleged an "investment injury" as required by § 1962(a); (4) Allstate's claim against Seigel under 18 U.S.C. § 1962(b) fails because Allstate has not alleged an "acquisition injury" as required by that section; (5) Allstate's RICO claim against Seigel P.C. is defective because, under 18 U.S.C. § 1962(c), an entity such as Seigel P.C. cannot be both a RICO "person" and the RICO "enterprise"; (5) Allstate's common law fraud claim does not sufficiently allege causation; and (6) Allstate's CUPTA claim does not allege a sufficient nexus between Allstate and the defendants. Alternatively, Defendants move for a more definite statement.

For reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion to Dismiss [doc. # 31] and DENIES Defendants' Motion for a More Definite Statement [doc.# 31].

I.

On a motion to dismiss, this Court must accept the factual allegations contained in the Amended Complaint [doc. # 59] ("Amended Compl.") and exhibits attached thereto,¹ and Amended RICO Statement [doc. # 9] as true and draw all reasonable inferences in favor of Allstate. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see also Taylor v. Vermont Dep't Of Educ., 313 F.3d 768, 776 (2d Cir.2002) (stating that, on a motion to dismiss, the Court is "generally limited to the facts presented within the four corners of the complaint, to documents attached to the complaint, or documents incorporated within the complaint by reference").² Although the legal issues in this case are complex the facts are relatively straightforward.

At all relevant times, Seigel was a medical doctor, board certified in neurology and licensed to practice in Connecticut. Amended Compl. ¶ 2. Seigel is the principal of Seigel P.C., and he and Ellen Seigel, Seigel's wife, are the shareholders of Seigel P.C. Id. ¶ 4. The Amended Complaint alleges, and Seigel has stipulated in a plea agreement with the U.S. Attorney,³ that from in or about December 1996 through in or about August 2000, Seigel knowingly and willfully, and with intent to defraud, devised a scheme to defraud certain entities, including Allstate, by obtaining money from these entities through false and fraudulent pretenses and representations. Amended Compl. ¶¶ 57; see Stipulation of Offense Conduct ("Stip.") [doc. # 1], Ex. at 8.

As part of his practice, Seigel treated a large number of patients who had been involved in automobile accidents and had been referred by attorneys or chiropractors. See Stip. at 8. He examined these patients for any neurological deficits, performed (or claimed to perform) certain tests and evaluated (or claimed to evaluate) the patients' conditions. Id. Seigel had training in performing a test called needle electromyography (EMG), a test which requires a physician to insert a needle into the patient's relaxed muscle in the injured area, moving the needle to record muscle activity. Reading the results from a machine connected to the needle, the physician gains information regarding the health of the muscle. Id. During the relevant period, Seigel submitted bills to various insurance providers, including Allstate, for over 7000 EMG procedures, intending that Allstate and the other insurers pay him for performing said procedures. Stip. at 8. However, many of these billings were fraudulent, as Seigel did not perform the EMG test on a significant number of his patients, but still knowingly billed the insurance providers for the tests. Id.

Seigel is also trained to administer Nerve Conduction Study ("NCS") testing.⁴ Amended Compl. ¶ 43. NCS testing requires the clinician to measure nerve impulses during stimulation and to obtain information regarding the speed and time of nerve impulses. Id. ¶ 45. Since January 1, 1996, to bill for NCS testing in compliance with the American Medical Association's CPT protocols, the clinician is required to measure and record amplitude information in the completion of a legitimate NCS test. Id. ¶ 48. Allstate alleges that all NCS tests for which Seigel submitted bills under certain current procedural terminology codes were incomplete. Id. ¶ 50. Furthermore, Allstate alleges that Defendants intentionally authored medical reports that contained conclusions and recommendations that were false and misleading in light of actual test results. Id. ¶¶ 96(3), 97. Allstate asserts that Seigel's fraudulent billing scheme artificially inflated the perceived value of tort claims and the costs associated with such claims, contributing to Allstate's payment of over $3,400,000 in jury and settlement awards. Id. ¶ 8.

Allstate claims that it suffered substantial financial losses resulting from the pattern of criminally fraudulent conduct by Seigel. The injuries for which compensatory damages are sought include, but are not limited to: (1) Allstate's loss of its ability to conduct its insurance business on the basis of true, accurate, and complete assessments of legitimate, compensable claims; (2) Allstate's loss of funds paid for false and fraudulent (whether wholly fictitious or grossly inflated) bills for services, which funds, in part, enabled Seigel to perpetuate his pattern of racketeering activities and enhance his ability to further Seigel's business by and through the operation of the fraudulent enterprise; (3) Allstate's payments on fraudulently inflated settlement claims in third-party, bodily-injury claims where such payments were based upon Defendants' fraudulent medical documentation and billing; (4) Allstate's payments on judgments or to settle civil litigation cases where Allstate was obligated to pay bodily-injury tort awards that were artificially and falsely inflated (based upon Defendants' fraudulent medical documentation and billing); (5) Allstate's expenses incurred to review, adjust, investigate, litigate and pay the false and fraudulent claims created by Seigel and supported by and through Seigel's pattern of racketeering activity; and (6) Allstate's past and continuing financial burden to establish and carry out systems and policies to detect false, fraudulent, and inflated claims. Id. ¶ 11.

The Amended Complaint contains the following counts: Count I against Seigel only for violation of 18 U.S.C. § 1962(b) and § 1962(c); Count II against Seigel and Seigel P.C. for violation of 18 U.S.C. § 1962(c); Count III against Seigel only for violation of 18 U.S.C. § 1962(a); Count IV against Seigel and Seigel P.C. for common law fraud; Count V against all Defendants for violation of CUTPA, Conn. Gen.Stat. § 42-110(b); Count VI against Seigel and Seigel P.C. for violation of CHIFA, Conn. Gen.Stat. § 52-442; and Count VII against all Defendants for injunctive relief. Amended Compl. at 86-97.

II.

The RICO statute creates civil (and criminal) liability against any person who: (a) invests or otherwise uses, directly or indirectly, income derived from a pattern of racketeering activity to acquire an interest in or to establish or operate an enterprise engaged in interstate commerce; (b) acquires or maintains, directly or indirectly, an interest in or control of such an enterprise through a pattern of racketeering activity; (c) is employed by or associated with such an enterprise and conducts or participates, directly or indirectly, in the conduct of its affairs through a pattern of racketeering activity; or (d) conspires to do any of the foregoing. 18 U.S.C. §§ 1962(a)-(d). Any person "injured in his business of property by reason of a violation of section 1962" may sue...