Allstate Ins. Co. v. Lyons

Citation843 F.Supp.2d 358
Decision Date16 February 2012
Docket NumberNo. 11–CV–2190.,11–CV–2190.
PartiesALLSTATE INSURANCE COMPANY, Allstate Indemnity Company, Allstate Property and Casualty Insurance Company, Allstate Fire and Casualty Insurance Company, Allstate New Jersey Insurance Company, and Allstate New Jersey Property and Casualty Insurance Company, Plaintiffs, v. John S. LYONS, M.D., Sanna Kalika, M.D., Ilya Burshteyn, M.D., Harvey Stern, M.D., Joseph McCarthy, M.D., Right Aid Diagnostic Medicine, P.C., A Plus Medical P.C., Omega Medical Diagnostic, P.C., Shore Medical Diagnostic, P.C., Oracle Radiology of N.Y. P.C., Atlantic Radiology Imaging P.C., Atlantic Radiology, P.C., Aurora Radiology P.C., David Golub, Arthur Bogoraz, Simon Korenblit, Edward Atbayshan, Alexander Zharov, and Alma Building, LLC, Defendants.
CourtU.S. District Court — Eastern District of New York

OPINION TEXT STARTS HERE

Smith & Brink, P.C., by: Richard D. King, Nathan A. Tilden, Garden City, NY, Cadwalader, Wickersham & Taft, by: William J. Natbony, New York, NY, for Plaintiffs.

Blodnick, Conroy, Fazio & Diglio, PC, by: Charles Phillip Blattberg, Edward K. Blodnick, Maria Campese Diglio, Theodore F. Goralski, Garden City, NY, for Defendants Lyons, Kalika, and Right Aid Diagnostic Medicine, P.C.

Gary Tsirelman, PC, by: Wesley Robert Mead, Gary Tsirelman, Max Valerio, Brooklyn, NY, for Defendants Stern, McCarthy, Korenblit, Atbayshan, Zharov, Atlantic Radiology Imaging P.C., and Atlantic Radiology, P.C.

MEMORANDUM AND ORDER

JOHN GLEESON, District Judge:

This is a civil action brought by insurance companies who allege that defendants have engaged in sophisticated and related schemes to fraudulently obtain insurance proceeds that were supposed to pay for medical services for people injured in automobile accidents. Plaintiffs Allstate Insurance Company, Allstate Indemnity Company, Allstate Property and Casualty Insurance Company, Allstate Fire and Casualty Insurance Company, Allstate New Jersey Insurance Company, and Allstate New Jersey Property and Casualty Insurance Company (collectively, Allstate) bring multiple causes of action against John S. Lyons, M.D., Sanna Kalika, M.D., Ilya Burshteyn, M.D., Harvey Stern, M.D., Joseph McCarthy, M.D., Right Aid Diagnostic Medicine, P.C. (Right Aid), A Plus Medical P.C. (A Plus), Omega Medical Diagnostic, P.C. (Omega), Shore Medical Diagnostic, P.C. (Shore), Oracle Radiology of N.Y. P.C. (Oracle), Atlantic Radiology Imaging P.C. (Atlantic Imaging), Atlantic Radiology, P.C. (Atlantic Radiology), Aurora Radiology P.C. (Aurora), David Golub, Arthur Bogoraz, Simon Korenblit, Edward Atbayshan, Alexander Zharov, and Alma Building, LLC (Alma).1 Allstate asserts claims for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c)- (d) (Counts I–XVI), common law fraud (Count XVII), violations of § 349 of the New York General Business Law (Count XVIII), and unjust enrichment (Count XIX). In addition to making demands for damages and injunctive relief, Allstate requests a declaration that defendants have no right to receive payment for any previously denied, pending, or future no-fault claims, and that Right Aid, A Plus, Omega, Shore, Oracle, Atlantic Imaging, Atlantic Radiology, and Aurora are operating in violation of law and have engaged in unlawful activities (Count XX). Kalika, Lyons, and Right Aid (collectively, the Right Aid defendants) and, separately, Stern, McCarthy, Atlantic Imaging, Atlantic Radiology, Korenblit, Atbayshan, and Zharov (collectively, the Atlantic defendants) move to dismiss. The Atlantic defendants also move, in the alternative, to compel arbitration. For the reasons set forth below, I deny the motions to dismiss in their entirety. I also deny the motion to compel arbitration with respect to all claims except those that Allstate has not yet paid. For this residual category of claims, the motion to compel arbitration is granted.

BACKGROUND 2

New York's no-fault insurance law was passed “to create a simple, efficient system that would provide prompt compensation to accident victims without regard to fault, and in that way reduce costs for both courts and insureds.” State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 502 (2d Cir.2004). Under the law, automobile insurance providers are required to include in their policies coverage for injuries arising from car accidents, irrespective of who is to blame for the accident. The no-fault scheme thus “supplant[s] the state's common law tort remedies for most injuries associated with automobile accidents.” Id. The law requires car insurance providers to reimburse injured persons for “basic economic loss,” including medical expenses, and it sets forth a schedule of permissible charges for specific services. Id. (citing N.Y. Ins. Law §§ 5102, 5108). An injured person who seeks medical treatment may assign her right to no-fault benefits to her medical provider, and such assignment is typical.

According to the well-pleaded allegations in the Complaint,3 defendants were involved in a massive conspiracy to defraud Allstate for benefits under the no-fault law. The conspiracy consisted of several discrete clusters of actors linked together by Lyons. Id. ¶¶ 93–137, 505–516. The central entity within each cluster was a professional corporation (“PC”) that purported to provide health care services for individuals injured in car accidents. Id. ¶¶ 37–65. All of the PCs involved were owned on paper by licensed medical doctors (“paper owners”), as required by New York law. Id. ¶¶ 6–9, 37–65. However, the PCs were in fact controlled by other individuals or entities that were not doctors (“actual owners”). Id. ¶¶ 394–504.

Lyons served as a radiologist for each of the PCs and purported to analyze Magnetic Resonance Imaging (“MRIs”) they performed for their injured patients. Id. ¶¶ 505–16. However, the reports he produced were fabricated. Id. ¶¶ 93–137. Some were based on MRIs of such poor quality that they could not serve any legitimate diagnostic purpose, id. ¶ 98; some were falsely duplicated for multiple patients, id. ¶ 95; some identified conditions that did not appear on the corresponding MRIs, id. ¶ 96; some otherwise diagnosed conditions that did not exist, id. ¶ 97; and some ignored conditions that were apparent from the MRIs, id. ¶ 135.

The PCs provided these worthless MRIs and fake MRI reports, as well as other medically unnecessary services purportedly recommended or justified by the fake MRI reports, to individuals eligible for no-fault benefits. Id. ¶¶ 93–137, 126, 137. After receiving assignment of their patients' no-fault benefits, the PCs then billed Allstate by mail for these medically unnecessary services under the no-fault law. Id. ¶¶ 517–524. In such billings, the PCs misrepresented that they were organized in accordance with New York law and that the medical treatment for which they sought payment was medically necessary and compensable under the no-fault law. Id. Allstate remitted payment as demanded to the PCs in sums totaling more than $4 million. Id. ¶ 16.

The clusters involved in this lawsuit include the following: (1) the PC Right Aid and its paper owner Kalika (the “Right Aid cluster”); (2) the PC Atlantic Imaging, its paper owner Stern, and its actual owners Korenblit, Atbayshan, and Zharov (the “Atlantic Imaging cluster”); (3) the PC Atlantic Radiology, its paper owner McCarthy, and its actual owners Korenblit, Atbayshan, and Zharov (the Atlantic Radiology cluster); (4) the PC A Plus and its paper owner Burshteyn; (5) the PC Omega and its paper owner Burshteyn; (6) the PC Shore and its paper owner Burshteyn; (7) the PC Oracle and its actual owner Alma, a management company owned and operated by Golub and Bogoraz; and (8) the PC Aurora and its paper owner Denise, who has been terminated from this lawsuit. Allegations specific to any particular defendant or cluster are set forth where relevant in the discussion that follows.

DISCUSSION
A. Motion to Dismiss
1. Standard of Review

The Right Aid defendants and the Atlantic defendants (the moving defendants or defendants) move to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted. In reviewing such a motion, I must assume the truth of all well-pleaded factual allegations, draw all inferences in the light most favorable to the plaintiffs, and grant the motion only if the complaint so viewed fails “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

2. RICO Claims

Passed in 1970 as part of the fight against organized crime, see United States v. Turkette, 452 U.S. 576, 588–89, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981), RICO prohibits “person[s] from engaging in four kinds of actions that relate to “enterprise[s] involved in interstate commerce. See18 U.S.C. § 1962. Subsection 1962(a) makes it illegal “to use or invest ... any part” of “any income derived ... from a pattern of racketeering activity” in the “acquisition of any interest in, or the establishment or operation of, any enterprise”; subsection 1962(b) bars “acquir[ing] or maintain[ing] ... any interest in or control of any enterprise” “through a pattern of racketeering activity”; subsection 1962(c) makes it unlawful “to conduct or participate ... in the conduct of [an] enterprise's affairs through a pattern of racketeering activity” when “employed or associated with” that enterprise; and subsection 1962(d) prohibits “conspir[ing] to violate” any of these substantive provisions.

RICO creates both criminal and civil liability for those who violate any of the subsections of § 1962. Section 1964 provides a private right of action for damages for RICO violations and confers jurisdiction upon federal district courts to hear such suits: “Any person injured in his business or property by reason of a violation of section 1962 ... may sue therefor in any appropriate United States...

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