State Farm Mut. Auto. Ins. Co. v. Pointe Physical Therapy, LLC

• Decision Date: 27 May 2015
• Docket Number: Case No. 14–cv–11700.
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, v. POINTE PHYSICAL THERAPY, LLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

107 F.Supp.3d 772

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff,

v.POINTE PHYSICAL THERAPY, LLC, et al., Defendants.

Case No. 14–cv–11700.

United States District Court, E.D. Michigan, Southern Division.

Signed May 27, 2015.

Jared T. Heck, Jonathan L. Marks, Kathy P. Josephson, Ross O. Silverman, Katten Muchin Roseman LLP, Chicago, IL, Jeffrey Alan Crapko, Matthew P. Allen, Thomas W. Cranmer, Miller, Canfield, Paddock And Stone, PLC, Troy, MI, for Plaintiff.

Benjamin J. Wilensky, Larry W. Bennett, Seikaly Stewart & Bennett, P.C., Farmington Hills, MI, Michael S. Cafferty, Michael S. Cafferty & Assoc., Detroit, MI, Jack J. Mazzara, Matthew D. Smith, Mazzara Law Firm, Grosse Pointe Woods, MI, Heather J. Atnip, Marla A. Linderman, Atnip & Associates, PLLC, Rochester, MI, for Defendants.

Andrew Ruden, West Bloomfield, MI, pro se.

OPINION AND ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS (ECF NOS. 20, 21, 23, 25, 32, AND 46) AND DENYING DEFENDANTS' MOTION TO STRIKE (ECF NO. 22)

PAUL D. BORMAN, District Judge.

This matter is before the Court on Defendants' Motions to Dismiss (ECF Nos. 20, 21, 23, 25, 32, 46) and Defendants' Motion to Strike (ECF No. 22). Plaintiff State Farm Mutual Automobile Company ("State Farm") filed responses and Defendants filed, in most instances, replies. The Court held hearings on April 17 and April 23, 2015. For the reasons that follow, the Court DENIES the motions to dismiss and DENIES the motion to strike.

INTRODUCTION

In this action, State Farm seeks to recover money it alleges was fraudulently obtained through the coordinated efforts of the Defendants in submitting hundreds of bills and false documentation to obtain payment of benefits under Michigan's No–Fault Act for treatments and services that were either never performed or not medically necessary. In these motions, Defendants move to dismiss Plaintiff's Complaint on a number of theories and move to strike certain allegations of the Complaint.

I. BACKGROUND

State Farm's Complaint describes a multi-faceted scheme involving rehabilitation facilities, prescribing clinics and physicians, and a diagnostic testing facility, all of whom are alleged to have conspired to provide medically unnecessary treatment and to submit false and fraudulent documentation to State Farm for the payment of No–Fault benefits for patients who were involved in motor vehicle accidents and were thus eligible to obtain Personal Insurance Protection ("PIP") Benefits under Michigan's No–Fault Act. See Mich. Comp. Laws §§ 500.3105, .3107(1)(a). State Farm alleges that the scheme began as early as December, 2007, and claims to have paid over $775,000 for various allegedly fraudulent treatments and tests and has refused to pay additional bills that have been submitted by certain of the Defendants. Plaintiffs' Complaint asserts causes of action for common law fraud, unjust enrichment and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d) against all Defendants and seeks declaratory relief against the Treatment Facilities (defined infra ) and Defendant Bio–Magnetic Resonance, Inc.

A. The Defendants and Their Alleged Role in the Scheme

1. The Management Group

The Complaint alleges that a "Management Group," comprised of Defendants Dr. Ram Gunabalan, Sherif El–Sayed, and Amale Bazzi secretly owned and/or controlled each of the other Defendants and maintained referral relationships with patients' personal injury attorneys, directed patients' treatments, coordinated patients' transportation to and from treatments through a commonly owned transportation service, referred patients to a commonly owned diagnostic testing facility and profited from all aspects of the scheme. The Management Group is alleged to have had quid pro quo cross-referral relationships with personal injury attorneys who were motivated to send client-patients to facilities controlled by the Management Group because Defendants referred patients to them, and their facilities could be counted on to treat patients in a manner that inflated the value of their potential tort claims. Compl. ¶¶ 8, 10, 47–48, 52–54, 67–80, 164–66. Additionally, the Complaint alleges, the Management Group directed the Prescribing Clinics and Prescribing Physicians to steer patients for medically unnecessary diagnostic tests to facilities owned and/or controlled by Gunabalan which were then billed to and paid for by State Farm. Id. ¶ 7, 28.

2. The Treatment Facilities

Three Treatment Facilities are alleged to have participated in the scheme: (1) Pointe Physical Therapy, LLC ("Pointe"), a Michigan LLC located in Eastpointe, Michigan, which is alleged to have submitted fraudulent bills and documentation from 2009 to November, 2013; (2) New Era Physical Therapy, P.C. ("New Era I"), a Michigan corporation with its principal place of business in Flint, Michigan, which is alleged to have submitted fraudulent bills and documentation from December, 2007 through October, 2009; New Era PT Services, Inc. ("New Era II"), a Michigan corporation with its principal place of business in Flint, Michigan, which is alleged to have submitted fraudulent bills and documentation from 2010 through October, 2013. Compl. ¶¶ 158–60. New Era I and New Era II are alleged to be alter egos of one another based upon unity of interest and ownership. Id. ¶ 159. The Treatment Facilities are alleged to be the center of the scheme. State Farm alleges that the bills and supporting documentation submitted by the Treatment Facilities were fraudulent because the services either were not performed or were performed pursuant to a fraudulent predetermined protocol that did not address the unique needs of individual patients. Id. ¶¶ 2, 66. The Treatment Facilities are alleged to have provided the same physical therapy modalities

to virtually every patient on almost every visit for as long as possible, regardless of the patient's unique conditions, needs and progress or lack of progress. Id. ¶ 3. State Farm alleges that in October or November, 2010, Pointe and New Era began to employ an occupational therapist in addition to their physical therapists. The addition of the occupational therapist, according to the Complaint, resulted in additional fraudulent and double billings. Id. ¶ 3–4. Patients are alleged to have arrived at the Treatment Facilities "by the van-load," some of whom had been in minor automobile accidents. Id. ¶ 18. Patients are alleged to have been referred to the Treatment Facilities by a cadre of personal injury attorneys and "investigators" who solicited patients who had been involved in automobile accidents and encouraged them to obtain treatment at the Treatment Facilities. Id. ¶¶ 69–71.

3. The Prescribing Clinics

Three Prescribing Clinics, Michigan Visiting Physicians, P.C. d/b/a Choice House Call ("Choice"), Mundy Pain Clinic, P.C. ("Mundy") and Medical Evaluations, P.C. ("Medical Evaluations"), are alleged to have employed physicians who evaluated patients and provided prescriptions for the medically unnecessary physical and occupational therapy that was ultimately provided by the Treatment Facilities. The Complaint alleges that the Management Group set up, owned and controlled the Prescribing Clinics, and hired the Defendant physicians and others to write prescriptions for medically unnecessary therapy that was to be provided at the Treatment Facilities. Id. ¶ ¶ 5–6.

4. The Prescribing Physicians

Five Prescribing Physicians, Ram Gunabalan, M.D. ("Gunabalan"), Martin Quiroga, D.O. ("Quiroga"), Andrew Ruden, M.D. ("Ruden"), James Beale, Jr., M.D. ("Beale") and Sean John Hoban, M.D. ("Hoban"), are alleged to have evaluated patients and written prescriptions for the medically unnecessary therapy provided by the Treatment Facilities. Id. ¶ 5. The Complaint alleges that because Michigan law requires a prescription from a physician for physical therapy treatment, the Management Group set up the Prescribing Clinics and hired the Prescribing Physicians, who are alleged to have written prescriptions according to a predetermined protocol that had no relation to the individual patient's needs or diagnoses. Id. ¶¶ 5, 81–82, 110–30. The Complaint alleges that the Prescribing Physicians examine patients and prescribe physical and/or occupational therapy to be obtained at the Treatment Facilities, and the Treatment Facilities continue to provide the same modalities on almost every visit for as long as possible to maximize the amounts that can be billed to State Farm and to increase the value of the patients' personal injury claims for the benefit of a small group of personal injury attorneys with whom Defendants have substantial quid pro quo referral relationships. Id. ¶¶ 9, 79, 82. The Prescribing Physicians are also alleged to have written prescriptions for medically unnecessary Magnetic Resonance Imaging

("MRI") studies and directed patients to have the studies performed at an MRI facility owned by Gunabalan. Id. ¶ 7.

5. The Diagnostic Testing Facility

One MRI facility, Bio–Magnetic Resonance, Inc. ("Bio–Magnetic"), which is alleged in the Complaint to be owned and controlled by Gunabalan, performed unnecessary MRIs on patients who were referred by the Prescribing Clinics and Prescribing Physicians. Id. ¶¶ 5, 131–32. The Complaint alleges that the MRIs were medically unnecessary and were part of the predetermined protocol applied to patients by the Prescribing Physicians and Prescribing Clinics. Id. ¶ 133–39. The performance of MRIs is alleged to have been very lucrative, the testing facility charging over $5,000 to perform an MRI on regions of the spine. Id. ¶ 140.

B. Harm to State Farm

State Farm alleges that it justifiably relied on the bills, medical records and supporting documentation submitted by the Defendants, which represented that the Defendants were providing services that were actually and lawfully rendered and reimbursable when in fact the services were either not performed or performed pursuant to a...