Schatzberg v. State Farm Mut. Auto. Ins. Co.

Citation877 F.Supp.2d 232
Decision Date12 July 2012
Docket NumberCivil Action. No. 10–2900.
PartiesPeter SCHATZBERG, D.C., et al., Plaintiffs, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, et al., Defendants.
CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

OPINION TEXT STARTS HERE

Andrew Patrick Baratta, Baratta Russell & Baratta, Huntingdon Valley, PA, for Plaintiffs.

James T. Moughan, Lise Luborsky, Britt Hankins & Moughan, Edward J. Bradley, Jr., Louis E. Bricklin, Bennett Bricklin & Saltzburg, LLP, Philadelphia, PA, for Defendants.

MEMORANDUM
GENE E.K. PRATTER, District Judge.
I. INTRODUCTION

Peter Schatzberg, D.C., and his medical practice, Philadelphia Pain Management, Inc., bring a six count Amended Complaint against State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company (collectively State Farm) alleging that State Farm is attempting to eliminate his medical practice by (1) falsely accusing him of having engaged in fraudulent business activity, (2) creating the false perception in the community that he has engaged in professional impropriety, and (3) engaging in a pattern of racketeering activity with others in order to systematically pay significantly less than is legally owed on treatment provided by Plaintiffs to State Farm insureds.

State Farm filed the present Motion to Dismiss the Amended Complaint (Doc. No. 14). State Farm seeks to have five counts of the Amended Complaint dismissed for failure to state a claim under Rule 12(b)(6), and to have Count III, a state law claim, dismissed for lack of independent jurisdiction, or alternatively to dismiss the Plaintiffs' demand for attorney's fees as to that Count. For the reasons that follow, the Court grants in part and denies in the part the Motion to Dismiss.

II. FACTUAL BACKGROUND

Dr. Schatzberg is a licensed chiropractor and owner of a large chiropractic and pain management practice with four locations in the greater Philadelphia area, including Philadelphia Pain Management, Inc. Am. Compl. ¶ 7. Many of Dr. Schatzberg's patients have suffered injuries as a result of automobile accidents, and his treatment is sometimes billed to insurance companies like State Farm pursuant to the Pennsylvania Motor Vehicle Financial Responsibility Law (75 Pa. Cons.Stat. § 1701, et seq.) (“MVFRL”). Id. ¶ 8. Dr. Schatzberg alleges that because of his large practice, which is “a significant source of auto claim expense to State Farm ... [his] practice has been targeted for destruction by State Farm pursuant to a revenue strategy implemented by State Farm beginning in the 1990's called ACE.” Response at 15 (citing Am. Compl. ¶¶ 10–41).

According to Dr. Schatzberg, State Farm began implementing the “Advancing Claims Excellence” (“ACE”) program in an effort to reduce claim payouts by approximately one billion dollars per year. Id. ¶¶ 16–23. One element of this cost reduction program is to characterize all claims for soft tissue injuries in motor vehicle accidents as potentially fraudulent, and to pursue the doctors who treat such injuries for perpetuating such fraud. Id. ¶¶ 28–31. State Farm allegedly executes the ACE program by enlisting State Farm's fraud unit, the Special Investigations Unit (“SIU”), and outside counsel to investigate and litigate against any and all claimants who have sustained, and doctors who have treated, soft tissue injuries in motor vehicle accidents regardless of whether cause for suspicion exists. Id. ¶¶ 30–31. These fraud investigations are designed to create a public perception that the claimants and the doctors are suspected of fraud or other wrongdoing. Id. ¶¶ 51–52, 64. Accordingly, once the legal and medical communities learn of a State Farm investigation, word spreads, and the stigma of a fraud investigation quickly serves to isolate and destroy the business of the targeted provider or facility irrespective of wrongdoing. Id. Dr. Schatzberg claims that the ACE program allegedly achieves success when it can eliminate the business of a provider that represents a significant source of claim expense for State Farm. Id. ¶¶ 40–53.

In the Philadelphia region, SIU adjuster Mr. Doug Babin, and the law firm of attorney Cy Goldberg are allegedly most often involved in implementing the ACE program and performing investigations. Id. ¶¶ 44, 59. Mr. Goldberg is alleged to have a reputation for using aggressive tactics to target medical providers for fraud in civil litigation on behalf of State Farm. Id. ¶¶ 58–69. In particular, Dr. Schatzberg claims that Mr. Goldberg “uses the civil process to collect information about providers and provide[s] an opinion as to whether State Farm might be able to use said information to bring a civil lawsuit alleging fraud against the targeted provider.” Id. ¶ 62. Indeed, since 2001, State Farm has retained Mr. Goldberg to investigate and bring at least eight (8) different lawsuits against various medical providers that were flagged by the SIU.1Id. ¶ 67. It is further alleged that because of Mr. Goldberg's reputation for aggressively pursuing fraud claims on behalf of State Farm, “his involvement alone sends State Farm's desired message that a facility is being targeted.” Id. ¶ 69.

In addition to supposedly aggressive investigative and litigious practices, State Farm also allegedly reduces claims payouts pursuant to the ACE program by manipulating the peer review process of the MVFRL.2Id. ¶ 117. State Farm contracts with specific peer review organizations, such as Rehabilitation Planning, Inc., according to Dr. Schatzberg, to obtain favorable peer review reports in exchange for giving the peer review organization a steady source of business. Id. ¶¶ 129, 131–32. In particular, Rehabilitation Planning, Inc. purportedly assigns a great many of these alleged “sham” peer reviews of chiropractic treatments to Jane McBride, D.C. Id. ¶¶ 138–39.

Dr. Schatzberg alleges that State Farm has singled him and his chiropractic practice out for destruction in accordance with its ACE program. Id. ¶ 74. State Farm has allegedly targeted Dr. Schatzberg in a number of ways. First, Mr. Babin allegedly called Ms. Arlene O'Brien and other current and former employees of Dr. Schatzberg to (1) inform them that he is a “fraud investigator,” (2) explain that State Farm was investigating Dr. Schatzberg's billing practices, and (3) give these individuals the impression that State Farm possesses facts that establish Dr. Schatzberg is engaged in fraud. Id. ¶¶ 75–82.

Second, at State Farm's direction, Mr. Goldberg allegedly began investigating and pursuing civil litigation against Dr. Schatzberg in various third and first party cases. Id. ¶ 83–85. Dr. Schatzberg alleges that these cases were brought for the dual purposes of conducting a fishing expedition into his billing practices and to send a message that State Farm has information suggesting Dr. Schatzberg is engaged in fraud. Id. Specifically, in one case, Mr. Goldberg, on behalf of the defendant against the plaintiff, Mr. Terry Martin, a patient of Dr. Schatzberg, allegedly (1) compelled the deposition of a billing clerk to inquire about the administration and mechanics of Dr. Schatzberg's practice, and (2) refused to take the trial testimony of a chiropractor via videotape to accommodate his work schedule. Id. ¶¶ 90–91.

Third, in the case of Mr. Anthony Fullwood, another patient of Dr. Schatzberg, an SIU adjuster from State Farm named Nova Crespo sent a letter to the offices of Dr. Schatzberg and Mr. Fullwood's attorney on March 11, 2010 stating that Mr. Fullwood's claim for payment of Dr. Schatzberg's medical bills was “under investigation.” Id. ¶ 102. Ms. Crespo sent the same letter to the offices of both Dr. Schatzberg and Mr. Fullwood's attorney two more times on April 12, 2010 and May 20, 2010. Id. ¶ 103. Likewise, on May 11, 2010, Mr. Goldberg's colleague, Mr. Matthew Moroney, allegedly sent a letter to Mr. Fullwood's attorney advising him that he had been asked by State Farm to assist in reviewing Mr. Fullwood's claim for medical benefits, and requesting that Mr. Fullwood provide a sworn statement regarding Dr. Schatzberg's practice. Id. ¶¶ 104–108.

Finally, State Farm allegedly conspired with Rehabilitation Planning and Dr. McBride to create and utilize sham peer review reports in an effort to cut off payments to Dr. Schatzberg. Id. ¶ 156. Dr. Schatzberg offers, by way of example, the case of his patient, Mr. James Nelson, a State Farm insured who was injured in an automobile accident. Id. ¶ 166. Dr. Schatzberg alleges that after he submitted invoices to State Farm for Mr. Nelson's treatment, (1) State Farm forwarded only a portion of Mr. Nelson's records to Rehabilitation Planning, (2) Rehabilitation Planning assigned the case to Dr. McBride, and (3) Dr. McBride determined that the only reasonable and necessary treatments were those no longer legally reviewable under MVFRL. Id. ¶¶ 167–199. Thus, on the basis of Dr. McBride's report, State Farm denied payment to Dr. Schatzberg and Philadelphia Pain Management.

Dr. Schatzberg and Philadelphia Pain Management filed a six count Amended Complaint against State Farm alleging various state and federal law claims. Now before the Court is State Farm's Motion to Dismiss (Doc. No. 14) for failure to state a claim upon which relief can be granted.

III. LEGAL STANDARD

A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Although Rule 8 of the Federal Rules of Civil Procedure requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.Civ.P. 8(a)(2), in order to “give the defendant fair notice of what the ... claim is and the grounds upon which it rests,” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 553–55, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley, 355 U.S. at 47, 78 S.Ct. 99), the plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action...

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