State Farm Mut. Auto. Ins. Co. v. Tri-Borough NY Med. Practice P.C.

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: Gerard E. Lynch, Circuit Judge
• Citation: State Farm Mut. Auto. Ins. Co. v. Tri-Borough NY Med. Practice P.C., 120 F.4th 59 (2nd Cir. 2024)
• Docket Number: Docket No. 22-1318-cv,Docket No. 22-1362-cv,Docket No. 22-1386-cv,August Term, 2023
• Decision Date: 24 October 2024
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, State Farm Fire and Casualty Company, Plaintiffs-Appellees-Cross-Appellants, v. TRI-BOROUGH NY MEDICAL PRACTICE P.C., Metro Pain Specialists P.C., Leonid Shapiro, M.D., Reuven Alon, aka Rob Alon, Columbus Imaging Center LLC, Medaid Radiology LLC, Yan Moshe, aka Yan Leviev, Hackensack Specialty ASC LLC, fka Dynamic Surgery Center LLC, Integrated Specialty ASC LLC, fka HealthPlus Surgery Center LLC, Defendants-Appellants-Cross-Appellees.

120 F.4th 59

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,State Farm Fire and Casualty Company, Plaintiffs-Appellees-Cross-Appellants, v. TRI-BOROUGH NY MEDICAL PRACTICE P.C.,Metro Pain Specialists P.C., Leonid Shapiro, M.D.,Reuven Alon, aka Rob Alon, Columbus Imaging Center LLC,Medaid Radiology LLC, Yan Moshe, aka Yan Leviev,Hackensack Specialty ASC LLC, fka Dynamic Surgery Center LLC,Integrated Specialty ASC LLC, fka HealthPlus Surgery Center LLC,Defendants-Appellants-Cross-Appellees.¹

Docket No. 22-1318-cv

Docket No. 22-1362-cv

Docket No. 22-1386-cv

August Term, 2023

United States Court of Appeals, Second Circuit

Argued: January 11, 2024

Decided: October 24, 2024

Appeal from the United States District Court for the Eastern District of New York (Brodie, Ch. J.) Robert T. Smith, Katten Muchin Rosenman LLP, Washington, DC (Mary C. Fleming, Ally Jordan, Katten Muchin Rosenman LLP, Washington, DC; Jonathan L. Marks, Katten Muchin Rosenman LLP, Chicago, IL; Christopher T. Cook, Katten Muchin Rosenman LLP, New York, NY, on the brief), for Plaintiffs-Appellees-Cross-Appellants.

Peter Stroili (Kevin Joseph Windels, Matthew Lee, on the brief), Kauffman Dolowich & Voluck LLP, New York, NY, for Defendants-Appellants-Cross-Appellees Tri-Borough NY Medical Practice P.C., Metro Pain Specialists P.C., and Leonid Shapiro, M.D.

Keith J. Roberts, Brach Eichler LLC, Roseland, NJ (Charles H. Horn, The Russell Friedman Law Group, LLP, Garden City, NY, on the brief), for Defendants-Appellants-Cross-Appellees Reuven Alon, AKA Rob Alon, Columbus Imaging Center LLC, Medaid Radiology LLC, Yan Moshe, AKA Yan Leviev, Hackensack Specialty ASC LLC, FKA Dynamic Surgery Center LLC, and Integrated Specialty ASC LLC.

Before: Kearse, Lynch, and Nardini, Circuit Judges.

Gerard E. Lynch, Circuit Judge:

Plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Insurance Company (collectively, "State Farm") provide automobile insurance coverage in New York and are required under New York's Comprehensive Motor Vehicle Insurance Reparations Act ("No-Fault Act") to reimburse covered individuals injured in automobile accidents for necessary health expenses, without regard to fault. See N.Y. Ins. Law §§ 5101-5109. Insureds can assign their No-Fault benefits to health care providers, who can then seek reimbursement directly from State Farm for treatment provided to the insureds. In this case, State Farm alleges that Defendants, who are health care providers and related individuals and entities that treat automobile accident victims, engaged in a massive scheme to fraudulently obtain No-Fault benefits by providing medically unnecessary treatment and services pursuant to illegal "pay-to-play" financial arrangements, seeking reimbursement of such claims from State Farm, and then bringing thousands of baseless arbitrations and state-court proceedings when State Farm denied the claims.

State Farm accordingly brought this lawsuit in the United States District Court for the Eastern District of New York, asserting claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and state law. State Farm then sought a preliminary injunction to prevent Defendants from pursuing the pending arbitrations and state-court proceedings and from bringing any new actions. Granting State Farm's motion for a preliminary injunction in part, the district court (Margo K. Brodie, Ch. J.) stayed the pending arbitrations and enjoined Defendants from commencing any new arbitrations or state-court proceedings, but declined to enjoin the pending state-court proceedings. Defendants appeal, contending that the district court abused its discretion in granting a preliminary injunction and that the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., bars an injunction of the arbitrations. State Farm cross-appeals, arguing that the pending state-court proceedings can be enjoined under exceptions to the Anti-Injunction Act ("AIA"), 28 U.S.C. § 2283.

First, as to Defendants' appeal, we conclude that the district court did not exceed its discretion in granting a preliminary injunction and correctly determined, albeit for different reasons than our own, that the arbitration agreements here are unenforceable under the FAA. Second, as to State Farm's cross-appeal, we disagree with the district court's conclusion that the AIA bars an injunction of the pending state-court proceedings here. Accordingly, we REVERSE the district court's orders declining to enjoin the pending state-court proceedings, AFFIRM its orders in all other respects, and REMAND the matter for further proceedings consistent with this opinion.

BACKGROUND

I. New York's No-Fault Insurance Regime

New York's No-Fault Act requires insurers to compensate victims of automobile accidents for their injuries regardless of fault. See N.Y. Ins. Law §§ 5101-5109. The No-Fault regime aims "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." Med. Soc'y of New York v. Serio, 100 N.Y.2d 854, 860, 768 N.Y.S.2d 423, 800 N.E.2d 728 (2003). The No-Fault Act provides compensation for "basic economic loss," which covers, as relevant here, "necessary" health expenses up to $50,000 per person. N.Y. Ins. Law § 5102(a).

The Act's implementing regulations allow covered individuals to assign their statutory benefits to licensed health care providers in exchange for services, and the providers in turn can submit claims directly to the insurance companies for medically necessary expenses. N.Y. Comp. Codes R. & Regs. tit. 11, § 65-3.11(a) ("An insurer shall pay benefits . . . directly to the applicant or . . . upon assignment by the applicant[,] . . . shall pay benefits directly to providers of health care services . . . ."). Providers, however, are ineligible to receive reimbursement of No-Fault benefits in a number of circumstances, including if they "fail[ ] to meet any applicable New York State or local licensing requirement . . . or meet any applicable licensing requirement necessary . . . in any other state." Id. § 65-3.16(a)(12). For example, a medical services corporation may be operated only by a licensed professional, such as a physician. See, e.g., N.Y. Bus. Corp. Law §§ 1503(b), 1507, 1508(a). Providers are also prohibited from paying or receiving kickbacks in exchange for patient referrals or in connection with the performance of professional services. See, e.g., N.Y. Educ. Law § 6530(11), (18)-(19); N.Y. Comp. Codes R. & Regs. tit. 8, § 29.1(b)(3)-(4).

In the event of a dispute regarding an insurer's obligation to pay No-Fault benefits, the No-Fault Act specifies that "[e]very insurer shall provide a claimant with the option of submitting any dispute involving the insurer's liability to pay first party benefits, or additional first party benefits, . . . to arbitration," and such arbitrations are held "pursuant to simplified procedures." N.Y. Ins. Law § 5106(b). Insurers must accordingly include a mandatory personal injury protection endorsement in their liability policies providing for the option to arbitrate. See N.Y. Comp. Codes R. & Regs. tit. 11, § 65-1.1.

II. Factual Background²

A. The Parties

Plaintiffs are insurance companies that issue automobile insurance policies in New York. Defendants are health care providers and related individuals and entities that treat automobile accident victims and have submitted claims to State Farm seeking reimbursement of No-Fault benefits or worked with other Defendants who have submitted such claims. Defendants include physicians, physical therapists, chiropractors, and acupuncturists, as well as related corporations and medical centers. Although there are numerous Defendants in the case, only two groups of Defendants have pursued this appeal. The first group of Defendants-Appellants includes Dr. Leonid Shapiro ("Shapiro"), Metro Pain Specialists P.C. ("Metro Pain"), and Tri-Borough NY Medical Practice P.C. ("Tri-Borough Medical") (collectively, "Metro Pain Defendants"). Shapiro is a licensed anesthesiologist in New York and New Jersey who purportedly owns and controls several health care entities, including Metro Pain and its successor entity Tri-Borough Medical, as well as PMR Medical P.C. ("PMR Medical"). Shapiro has also incorporated and/or has ownership interests in companies that provide medical documentation and technology services to attorneys and medical clinics. In addition to his ownership of various entities, Shapiro has served as the medical director of certain ambulatory surgery centers ("ASCs"), including Excel Surgery Center LLC ("Excel Surgery"), Hackensack Specialty ASC LLC, f/k/a Dynamic Surgery Center LLC ("Dynamic Surgery"), and Integrated Specialty ASC LLC, f/k/a HealthPlus Surgery Center LLC ("HealthPlus Surgery"), as well as the Director of Anesthesiology for NJMHMC LLC, d/b/a Hudson Regional Hospital ("Hudson Regional"), and the primary provider of anesthesia services at SCOB LLC d/b/a SurgiCare of Brooklyn ("SurgiCare").

Metro Pain is a medical practice that operates approximately thirty multidisciplinary clinics in the New York area serving individuals injured in automobile accidents. Metro Pain staffs those clinics with physicians and other health care providers, such as physical therapists, acupuncturists, and chiropractors, who sublease space from Metro Pain. Four of its locations operate as "gatekeeper" clinics where Metro Pain conducts initial examinations of patients and then refers them for further treatment and services, which are often performed at Metro Pain clinics by the various providers who work there.³ Metro Pain has accordingly submitted claims to State Farm for reimbursement under the No-Fault program for treatment and services provided to patients. Metro Pain, however, ceased operations around April 2021, and Shapiro began operating...