State Farm Mut. Auto. v. James M. Liguori, M.D.

Decision Date12 December 2008
Docket NumberNo. 08-CV-967 (JFB)(WDW).,08-CV-967 (JFB)(WDW).
Citation589 F.Supp.2d 221
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE CO., Plaintiff, v. JAMES M. LIGUORI, M.D., P.C., and James M. Liguori, M.D., Defendants.
CourtU.S. District Court — Eastern District of New York

Barry Levy, Esq., Rivkin Radler, LLP, Uniondale, NY, for plaintiff State Farm.

Harold Levy, Esq. and Richard Quadrino, Esq., Quadrino Schwartz, Garden City, NY, for defendants Dr. Liguori and JMLPC.

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

Plaintiff State Farm Mutual Automobile (hereinafter, "State Farm" or "plaintiff") brought this action against James M. Liguori M.D., P.C., (hereinafter, "JMLPC") and James M. Liguori, M.D. (hereinafter "Dr. Liguori") (collectively, "defendants"), related to alleged fraudulent claims for payment under New York State's No-Fault Insurance Laws (N.Y. Ins. Law § 5106). Defendants move to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and pursuant to Federal Rules of Civil Procedure 8(a) and 9(b) for insufficiently pleading its claims. As set forth below, the motion to dismiss is denied.

The critical legal issue raised by defendants' motion is whether New York State's 30-day statutory no-fault rule ("the 30-Day Rule") also precludes affirmative lawsuits brought by an insurer outside the no-fault statutory framework to recover for fraud or unjust enrichment against a medical provider in connection with the alleged submission of fraudulent claims. Specifically, the 30-Day Rule, as reflected in N.Y. Ins. Law § 5106(a), compels an insurer to either pay or deny no-fault claims within 30 days of their receipt and requires defenses (other than "no coverage defenses" or "fraudulent corporate formation" defenses), including defenses related to billing fraud based upon lack of medical necessity or excessive fees, to be asserted in the denial within the requisite 30-day time frame, or such defenses are waived. In the instant lawsuit, State Farm seeks to recover more than $1 million that it alleges was wrongfully obtained by the defendants' medical practice from State Farm through a massive fraudulent billing scheme involving the submission of hundreds of bills for neurological consultations and electro-diagnostic tests purportedly provided to individual patients eligible for insurance coverage under State Farm's insurance policies. According to the complaint, these consultations and tests were ordered and performed over a number of years on numerous patients in an assembly-like manner based upon a fraudulent, predetermined protocol designed by defendants with the sole objective to maximize charges that could be submitted to State Farm.

Defendants argue that this lawsuit is untimely under New York no-fault law and must be dismissed because any such allegations, defenses, or causes of action for fraud must be raised within 30 days of receipt of the no-fault claim. Although numerous decisions in this Circuit have repeatedly rejected the contention made by defendants here and concluded that affirmative lawsuits for fraud are not barred by the 30-Day Rule, defendants assert in sweeping terms that the federal courts have completely abrogated their legal obligation to adhere to decisions of the highest court in New York State regarding interpretations of New York law. (See Defendants' Memorandum of Law in Reply, at 8) ("Nothing in New York law supports any of these federal court decisions, and with each new decision feeding on the previous ones, federal law moves further and further from the New York law these courts are Constitutionally mandated to apply."). In particular, defendants argue that the recent New York State Court of Appeals decision in Fair Price Med. Supply Corp. v. Travelers Indem. Co., 10 N.Y.3d 556, 860 N.Y.S.2d 471, 890 N.E.2d 233 (2008) is dispositive as to State Farm's fraud claim in the instant case and requires dismissal of the claim because State Farm did not raise these fraud allegations within the requisite 30-day time period under New York's no-fault law.

As discussed in detail below, this Court agrees with the thorough and well-reasoned analyses in the prior federal cases addressing this precise issue and concludes that State Farm's fraud claim is not barred under New York law by the 30-Day Rule. Although defendants argue that such a conclusion has no basis in New York statutory or case law, especially in the wake of Fair Price, this Court disagrees. First, defendants' broad interpretation of Fair Price is entirely misplaced. Fair Price did not involve an attempt by an insurer to bring a separate lawsuit for fraud, but rather concerned whether a particular defense asserted by an insurer— namely, billed-for-services that were never rendered—could be considered a "no coverage" defense such that it could be raised as a defense even though the claim had not been denied within the requisite 30-day period. The Court of Appeals held that such a defense was not a lack of coverage defense and, thus, had to be raised in a timely denial within 30 days of receipt of a claim or it was waived as a defense. However, there is no language in the Fair Price decision suggesting that the insurer would also be precluded from asserting a separate lawsuit for fraud or unjust enrichment against a medical provider that arose from alleged fraudulent conduct by doctors related to that claim. In fact, to the contrary, the Appellate Term decision in Fair Price (which was affirmed by the Appellate Division and Court of Appeals) explicitly stated that, although the 30-Day Rule barred assertion of billing fraud as a defense, the insurer "is not without remedy; after paying such a claim, the insurer, for example, may have an action to recover benefits paid under a theory of fraud or unjust enrichment." Fair Price Med. Supply Corp. v. Travelers Indem. Company, 9 Misc.3d 76, 803 N.Y.S.2d 337, 340 (N.Y.Sup.App. Term 2005). This language, which neither the Appellate Division nor Court of Appeals took issue with in affirming the decision, clearly rejects the position asserted by defendants in this lawsuit. Second, the Department of Insurance issued an opinion in 2000 which explicitly rejected the position advanced by defendants here and, instead, concluded that the 30-Day Rule "is in no way intended and should not serve as a bar to subsequent actions by an insurer for the recovery of fraudulently obtained benefits from a claimant, where such action is authorized under the auspices of any statute or under common law." Legal Opinion of State of New York, Insurance Department, dated November 29, 2000, at 2. Although this informal opinion is not entitled to the same weight given under New York law to the Superintendent of Insurance when issuing regulations on interpretations of insurance law, this Court finds it to be an instructive predictor on how the Court of Appeals would resolve this issue, especially in light of the statutory language of Section 5106, the above-referenced Appellate Term's statement in Fair Price, and the reasons given by the Department of Insurance for its interpretation. To hold otherwise would leave insurers, if they are unable to discover a fraud by a medical provider within 30 days of receipt of a claim (no matter how massive and well-concealed), with no civil remedy under New York law. Although Section 5106(a) leaves them with no remedy under such circumstances in the no-fault statutory framework which places a premium on prompt payment to the claimant, nothing in the statutory language of New York's no-fault laws or its court decisions suggests that New York law takes the drastic position of leaving the insurer, after 30 days, with no civil remedy whatsoever against the medical provider for fraud. Finally, defendants have cited no case authority in New York which has precluded an affirmative lawsuit or cause of action for fraud by an insurer because of the 30-Day Rule. In fact, the only two New York lower court cases that have addressed this issue have held to the contrary and concluded that such affirmative lawsuits can be brought. See, e.g., Carnegie Hill Orthopedic Servs. P.C. v. Geico Ins. Co., 19 Misc.3d 1111(A), 862 N.Y.S.2d 813 (Sup.Ct. Nassau County 2008); Progressive Northeastern Ins. Co. v. Advanced Diagnostic and Treatment Med. P.C., 229 N.Y.L.J. 18 col. 2 (Sup.Ct. N.Y. County Aug. 2, 2001).

In short, although the New York Court of Appeals has yet to decide this precise issue, defendants' position—namely, that New York's 30-Day Rule precludes an affirmative cause of action for fraud by an insurer against a medical provider—is not contained in the language of any of the statutory provisions under New York Insurance Law (including Section 5106) and is inconsistent with the affirmed lower court decision in Fair Price, the interpretation of Section 5106 by the Department of Insurance, and the decisions by the only two New York courts that have directly addressed this issue. Thus, this Court, adhering to its obligation as a federal court sitting in diversity to look to the statutes and decisional law of the forum state, declines to adopt defendants' position and denies the motion to dismiss based upon New York's 30-Day Rule.1

I. BACKGROUND
A. Facts

The following facts are taken from the complaint (hereinafter, "Compl.") and are not findings of fact by the Court. The Court assumes these facts to be true for the purpose of deciding this motion and construes them in the light most favorable to plaintiff, the nonmoving party.

State Farm is a company that underwrites automobile insurance in the State of New York. (Compl.¶ 9.) According to the complaint, Dr. Liguori is a doctor of osteopathic medicine and the sole shareholder, director and officer of JMLPC. (Compl.¶ 14.) The majority of patients Dr. Liguori treats are individuals who claim to have suffered injuries as a result of a motor vehicle accident and are seeking coverage for...

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