Allstate Ins. v. Valley Physical Medicine & Rehab., No. 05-5934(DRH)(MLO).

CourtUnited States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
Writing for the CourtHurley
Citation475 F.Supp.2d 213
Docket NumberNo. 05-5934(DRH)(MLO).
Decision Date21 February 2007
PartiesALLSTATE INSURANCE COMPANY, Allstate Indemnity Company and Deerbrook Insurance Company, Plaintiffs, v. VALLEY PHYSICAL MEDICINE & REHABILITATION, P.C., Elite Physical Medicine & Rehabilitation, P.C., Universal Express Inc., Dr. Joseph Mills, Dr. Pavani Tipirneni, Dr. Sarosh Quereshy, Dr. Eric Roth, and Dr. Swapnidip Lahiri, Defendants.
475 F.Supp.2d 213
ALLSTATE INSURANCE COMPANY, Allstate Indemnity Company and Deerbrook Insurance Company, Plaintiffs,
v.
VALLEY PHYSICAL MEDICINE & REHABILITATION, P.C., Elite Physical Medicine & Rehabilitation, P.C., Universal Express Inc., Dr. Joseph Mills, Dr. Pavani Tipirneni, Dr. Sarosh Quereshy, Dr. Eric Roth, and Dr. Swapnidip Lahiri, Defendants.
No. 05-5934(DRH)(MLO).
United States District Court, E.D. New York.
February 21, 2007.

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McDonnell & Adels, P.C., Garden City, By Martha S. Henley, Short & Billy, P.C., New York City, By Skip Short, for Plaintiffs.

Friedman, Harfenist, Langer & Kraut, Lake Success, NY, By Steven J. Harfenist, Esq., for Defendants Valley Physical Medicine & Rehabilitation, P.C., Elite Physical Medicine & Rehabilitation, P.C., Universal Express, Inc., Dr. Joseph Mills and Dr. Pavani Tipirneni.

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MEMORANDUM OF DECISION AND ORDER

HURLEY, Senior District Judge.


Presently before the Court are two motions: a motion to dismiss the complaint and a motion for Rule 11 sanctions. Both motions are brought by defendants Valley Physical Medicine & Rehabilitation, P.C. ("Valley"), Elite Physical Medicine & Rehabilitation, P.C. ("Elite"), Universal Express, Inc. ("Universal"), Dr. Joseph Mills ("Mills") and Dr. Pavani Tipirneni ("Tipirneni") (collectively "Defendants").1 For the reasons set forth below, the motion to dismiss is GRANTED in part and DENIED in part. The motion for Rule 11 sanctions is DENIED.

Background

Plaintiffs Allstate Insurance Company, Allstate Indemnity Company and Deerbrook Insurance Company (collectively "Allstate" or "Plaintiffs") commenced this action on December 20, 2005 asserting causes of action for fraud (first claim for relief), for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (second through seventh claims for relief), unjust enrichment/restitution (eighth claim for relief) and a declaratory judgment (ninth claim for relief). Allstate's claims arise out of payments it made from 1996 to 2002 totaling in excess of one million dollars to Valley and Elite for services allegedly rendered to Allstate's insureds under New York State's no-fault insurance system. (Compl. ¶¶ 58 & 66.) Allstate seeks damages and, in its ninth cause of action, a declaratory judgment that Valley and Elite are fraudulently incorporated enterprises and, therefore, barred from receiving payment for no-fault claims (Compl. ¶¶ 95-101).

In New York, only doctors of medicine and of osteopathy are physicians and are authorized to practice medicine. See N.Y. Educ. Law §§ 6522, 6524. New York law also prohibits non-physicians from sharing ownership in medical service corporations. See N.Y. Bus. Corp. Law §§ 1507, 1508, and N.Y. Educ. Law § 6507(4)(c). As alleged in the complaint, the Defendants engaged in a scheme to evade the State's prohibition on non-physicians from sharing ownership in medical service corporations in order to facilitate fraudulent no-fault billing. (Compl. ¶¶ 7-45.) Mills, a chiropractor, paid Drs. Tipirneni, Quereshy, and Lahiri to use their names on paperwork filed with the State to establish medical service corporations, to wit: Valley and then Elite.2 (Compl. ¶¶ 7, 31-32.) Once Valley and Elite were established under the facially valid cover of the nominal physician owners, Mills actually operated the companies. (Compl. ¶¶ 11, 25.) To maintain the appearance that physicians owned Valley and Elite, Mills caused Valley and Elite to hire Universal, a company owned by him, as a management company, which billed Valley and Elite at inflated rates so that the actual profits did not go to the physicians, but were channeled to Mills as owner of Universal. (Compl. ¶¶ 11, 12, 35.)

Enabled by the doctor defendants, Valley, Elite, Universal, and Mills proceeded to bill Allstate for medical services that were not provided by medical doctors, for medically unnecessary and/or medically useless services, and engaged in other fraudulent billing. (Compl. ¶¶ 12-14, 31-36.)

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The instant action is neither the first nor the only action between these parties. In 1999, Valley, as assignee of 10 patients allegedly entitled to no-fault benefits, commenced an action against Allstate in this Court alleging it was entitled to payment of its bills because Allstate failed to pay the bills within 30 days of submission as mandated by the statutes and regulations governing no-fault. See Valley Physical Med. and Rehab. v. Allstate Ins. Co., 99 CV 5657 (E.D.N.Y.) (the "1999 Action"); Ex. A, attached to Declaration of Martha S. Henley ("Henley Decl."). Allstate defended the action by raising affirmative defenses, including that Valley was not properly licensed and incorporated and was, therefore, not entitled to receive no-fault benefits, and that the bills were for medically unwarranted testing and/or treatment. Allstate did not, however, assert any counterclaims. See Ex. C, attached to Declaration of Steven J. Harfenist ("Harfenist Decl."). At trial and during its direct case, Valley voluntarily withdrew the action with prejudice. See Ex. F, attached to Henley Decl.

At the time the instant motion was filed, there were approximately ten actions pending in Nassau County District Court between the parties. In each of these cases, Valley is suing Allstate to recover for no-fault bills it submitted to Allstate that were not paid. See Exs. F & G, attached to Harfenist Decl. The issue of Valley's corporate structure has been raised by Allstate as a defense in each of these actions. Harfenist Decl. at ¶ 3 & Ex. G.

In this action, Defendants have moved to dismiss the complaint. Defendants argue that I) the RICO causes of action are barred by the statute of limitations; 2) the causes of action for fraud and for unjust enrichment to recover those benefits paid prior to April 4, 2002 are barred under State Farm Automobile Insurance Company v. Mallela, 4 N.Y.3d 313, 794 N.Y.S.2d 700, 827 N.E.2d 758 (2005); 3) the cause of action for fraud is not plead with particularity, is precluded under New York's no-fault law, and fails as a matter of law for lack of reasonable reliance; and 4) this Court should abstain from determining Allstate's claim for declaratory relief because of the pendency of state cases involving the issue of Valley's corporate status.

Discussion

I. Standard for a Motion to Dismiss

The Court may not dismiss a complaint under Rule 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. King v. Simpson, 189 F.3d 284, 286 (2d Cir.1999); Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). The complaint need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Swierkiewicz v. Sorema, 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (quoting Fed.R.Civ.P. 8(a)(2)). Thus, "a plaintiff is required only to give a defendant fair notice of what the claim is and the grounds upon which it rests." Leibowitz v. Cornell Univ., 445 F.3d 586, 591 (2d Cir.2006). Nonetheless, "a plaintiffs allegations, accepted as true, must be sufficient to establish liability." Amron v. Morgan Stanley Inv. Advisors Inc., 464 F.3d 338, 344 (2d Cir.2006).

In construing a complaint on a Rule 12(b)(6) motion, the Court must accept all factual allegations in the proposed complaint as true and draw all reasonable inferences in favor of the plaintiff. King, 189 F.3d at 287; Jaghory v. New York State Dept. of Educ., 131 F.3d 326, 329 (2d Cir.1997). The Court must confine its consideration "to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint

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by reference, and to matters of which judicial notice may be taken." Leonard F. v. Israel Disc. Bank, 199 F.3d 99, 107 (2d Cir.1999) (quoting Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991)); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.1999).

II. Overview of New York's No-Fault Insurance System

Inasmuch as this case revolves around New York State's no-fault automobile insurance system, a brief overview of that system is in order.

In 1973, the New York State Legislature enacted the Comprehensive Automobile Insurance Reparations Act (the "Act"). See N.Y. Ins. Law §§ 5101 et seq. (formerly N.Y. Ins. Law §§ 670 et seq.). The Act instituted a system of no-fault insurance that supplanted common-law tort actions for most victims of automobile accidents. Medical Soc'y v. Serio, 100 N.Y.2d 854, 860, 768 N.Y.S.2d 423, 800 N.E.2d 728 (2003). "The primary aims of this new system were to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists." Id.

Under New York's no-fault system, the insured party is permitted to recover from insurers for "basic economic loss," including medical expenses, that arise out of the use or operation of an insured vehicle. N.Y. Ins. Law § 5102. Medical expenses are reimbursed based upon a fee schedule which specifies the charges permitted for specific services rendered by particular kinds of providers. Id. at § 5108; 11 N.Y.C.R.R. § 65-3.16. A "provider of health care services" is not eligible for reimbursement "if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such services in New York or meet any applicable licensing requirement necessary to perform such services in any other state in which such service is performed." Id. at § 65-3.16(a)(12).

The regulations implementing the Insurance Law allow covered parties to assign their benefits to health care providers. The health care providers then submit the claims to the insurers for reimbursement for treatment and...

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2 practice notes
  • State Farm Mut. Auto. v. James M. Liguori, M.D., No. 08-CV-967 (JFB)(WDW).
    • United States
    • U.S. District Court — Eastern District of New York
    • December 12, 2008
    ...attempt to draw a parallel between the progression of Allstate Insurance Company v. Valley Physical Medicine and Rehabilitation, P.C., 475 F.Supp.2d 213 (E.D.N.Y.2007) ("Valley I") and Allstate Insurance Company v. Valley Physical Medicine & Rehabilitation, P.C., 555 F.Supp.2d 335 (E.D.N.Y.......
  • State Farm Mut. Auto. Ins. Co. v. Grafman, No. 04-CV-2609.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • September 21, 2009
    ...constitutes a separate injury occurring on the date the payment was made. See Allstate Ins. Co. v. Valley Physical Med. & Rehab., 475 F.Supp.2d 213, 229 (E.D.N.Y.2007), rev'd on other grounds, 555 F.Supp.2d 335 (E.D.N.Y. Next, the court is required to determine when plaintiff "discovered or......
2 cases
  • State Farm Mut. Auto. v. James M. Liguori, M.D., No. 08-CV-967 (JFB)(WDW).
    • United States
    • U.S. District Court — Eastern District of New York
    • December 12, 2008
    ...attempt to draw a parallel between the progression of Allstate Insurance Company v. Valley Physical Medicine and Rehabilitation, P.C., 475 F.Supp.2d 213 (E.D.N.Y.2007) ("Valley I") and Allstate Insurance Company v. Valley Physical Medicine & Rehabilitation, P.C., 555 F.Supp.2d 335 (E.D.N.Y.......
  • State Farm Mut. Auto. Ins. Co. v. Grafman, No. 04-CV-2609.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • September 21, 2009
    ...constitutes a separate injury occurring on the date the payment was made. See Allstate Ins. Co. v. Valley Physical Med. & Rehab., 475 F.Supp.2d 213, 229 (E.D.N.Y.2007), rev'd on other grounds, 555 F.Supp.2d 335 (E.D.N.Y. Next, the court is required to determine when plaintiff "discovered or......

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