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

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANYand STATE FARM FIRE & CASUALTY COMPANY, plaintiffs,

v. JEFFREY KUGLER, M.D.,JANE BISTLINE, M.D., and HELDO GOMEZ, M.D.,JEFFREY L. KUGLER, M.D., P.A. a/k/aNATIONAL ORTHOPEDICS AND NEUROSURGERY, P.A.,JANE E. BISTLINE, M.D., P.A., HELDO GOMEZ, M.D., P.A. andNORTH PALM NEUROSURGERY, P.L.,2047 PALM BEACH LAKES PARTNERS, LLC,a/k/a Palm Beach Lakes Surgery Center,GARY CARROLL, MARK IZYDORE,PALM BEACH PRACTICE MANAGEMENT, INC., andJONATHAN CUTLER, M.D., defendants.

CASE NO. 11-80051-HURLEY

UNITE D STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

DONE AND ORDERED: September 21, 2011

MEMORANDUM OPINION AND ORDER

DENYING DEFENDANTS' MOTIONS TO DISMISST

HIS CAUSE is before the court on the defendants' motions to dismiss the plaintiffs' amended complaint [DE # 20, 21, 25, 27, 33], the plaintiffs' response in opposition, and the defendants' reply. For reasons which follow, the court has determined to deny the motions.

I. Background¹

Plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire &Casualty Company (cumulatively "State Farm") allege that the twelve defendants participated in a conspiracy to defraud them, and other insurers like them, by performing medically unnecessary diagnostic tests and surgical procedures on persons involved in automobile accidents who are covered by State Farm insurance.² The diagnostic procedures in question are known as provocative discograms ("discograms") and the surgical procedures are known as percutaneous discectomies ("PDs").³ The total cost of a discogram and PD procedure, including professional and facility fees, typically exceeds $50,000.00.

The procedures were performed at the Palm Beach Lakes Surgery Center in West Palm Beach, Florida, on at least 181 patients who were involved in auto accidents and made claimsagainst State Farm or State Farm insureds. The defendants' scheme allegedly began in early 2004, and involved two levels of fraud. The first part involved the submission of fraudulent billings and supporting documentation for medically unnecessary discograms and PDs to State Farm through the patient's attorney, either in support of a direct claim for reimbursement by a State Farm insured (PIP), or a policy limits demand on behalf of an injured insured or third party claimant (UM or BI) [Amended Complaint, ¶ 58]. The second part of the scheme, beginning in approximately August, 2006, involved the use of false billing codes (CPT Codes) which materially misrepresented and exaggerated the seriousness of the PD procedures in order to justify imposition of higher fees collected by the defendants, while at the same time artificially inflating the value of the patient's corresponding PIP, UM or BI claim against State Farm for the benefit of the patient and the patient's attorney [Amended Complaint, ¶¶ 59-72]. State Farm alleges that the defendants' scheme has operated without interruption since 2004, fraudulently inducing it to pay in excess of $13 million dollars on various PIP, BI and UM insurance claims.

The operative amended complaint groups the defendants into five categories: (1) Dr. Jane Bistline, the doctor who performed at least 182 discograms and allegedly falsely reported positive results on virtually every patient to justify the need for medically unnecessary PDs, and Drs. Heldo Gomez (61 PDs) and Jeffrey Kugler (113 PDs), the physicians who allegedly performed medically unnecessary PDs based on Bistline's reports. Bistline also performed "surgery assists" and provided anesthesia services for PD patients of Drs. Gomez and Kugler at the Surgery Center, where she was employed as Medical Director; (2) 2047 Palm Beach Lakes Partners, LLC a/k/a Palm Beach Lakes Surgery Center ("the Surgery Center"), the out-patient surgery center which allegedly submitted fraudulent bills and related medical documentation for facility fees charged in connection withmedically unnecessary discograms and PDs, which was owned in part by Drs. Gomez, Kugler and Dr. Jonathan Cutler; (3) Gary Carroll and Mark Izydore, two non-physicians who allegedly coordinated and exerted control over the activities and relationships among all of the defendants, as well as their relationships with the non-party personal injury attorneys who referred patients to the defendants, and Palm Beach Practice Management, Inc., a Florida corporation formed by Carroll and Izydore to funnel profits to themselves generated by the medically unnecessary PDs under the guise of "management fees" collected under their marketing contract with Dr. Kugler;⁴ (4) Dr. Jonathan Cutler, a podiatrist and part owner of defendant Surgery Center who profited from substantial facility fees (typically in excess of $12,000) and material fees ($7500 per single use "Spine Wand") charged for each medically unnecessary PD performed at the Surgery Center. Cutler allegedly joined with non-parties Arthocare Corporation and Discocare to promote and market the "Spine Wand" as a fast and easy way to boost profits from personal injury claims to personal injury attorneys, doctors and surgery centers around the country. As sole owner of Discocare from December 2005 to December 2007 (when Arthocare purchased it for $25 million), he was allegedly responsible for generating misleading material bills for the Spine Wand, ⁵ andadvocating false use of CPT Code 63056 to materially misrepresent the nature of PDs performed with the Spine Wand in order to fraudulently inflate the insurance reimbursement value of the procedure; (5) the professional associations employing the several physicians involved in the scheme which generated fraudulent bills and related medical documentation for medically unnecessary discograms and PDs performed by Drs. Bistline, Kugler and Gomez.

As a result of the coordinated efforts between these groups, Drs. Bistline, Gomez and Kugler performed over 1550 discograms and PDs at the Surgery Center between 2005-2008 - representing almost 30% of all percutaneous lumbar discectomies of any kind performed at every ambulatory surgery center in Florida during this period [Amended Complaint ¶ 31].

Through the coordination and oversight of Carroll and Izydore, who supplied ongoing patient referrals through favored personal injury attorneys, these five groups pursued the common purpose of facilitating the submission to State Farm of fraudulent bills for medical diagnostic tests and procedures that were not medically necessary. To accomplish this goal, they conducted the affairs of the defendant professional associations and medical corporations through a pattern of racketeering activity consisting of multiple violations of the federal mail fraud statute, using the patient's attorney as conduit to pass hundreds of fraudulent bills and related medical documentation to State Farm. On BI and UM claims, the attorney typically sent a demand letter to State Farm demanding full policy limits to avoid the risk and cost of a bad faith claim, and attached the defendants' medical bills and related medical documentation to substantiate those claims. On PIP claims, a request for medical payments coverage was supported by medical bills and related documentation generated by the defendants.

Relying on the defendants' bills and documentation submitted through this conduit, State Farm alleges it was fraudulently induced to pay over $13 million on PIP, UM and BI claims artificially inflated by the cost of the defendants' medically unnecessary medical diagnostic tests and procedures.⁶ In an attachment to its amended complaint, State Farm lists 198 individual claims which it claims it was fraudulently induced to pay as a consequence of this scheme. [Amended Complaint, Exhibit A, RICO Events 1-198][DE# 19-1].⁷

Against this backdrop, State Farm seeks damages against all defendants under the Racketeer Influence and Corrupt Organizations Act ("RICO"), 18 U.S. C. §§ 1964(c) and (d) (Counts 2 and 3), the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"), Fla. Stat. § 501.201 (Count 4), and state common law fraud and unjust enrichment causes of action (Counts 5 and 6). Additionally, State Farm seeks a declaration that it is not liable for payment on any as yet unpaid claims generated by the scheme under the Declaratory Judgment Act, 28 U.S.C. §2201 (Count 1).

II. Standard of Review

Under Fed. R. Civ. P. 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Under Bell Atlantic Corporation v. Twombly,550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), a complaint "does not need detailed factual allegations," but must state enough facts to state a claim to relief that is plausible on its face. In Ashcroft v. Iqbal, 556 U.S. ___ , 129 S. Ct. 1937, 1949-50, 173 L. Ed.2d 868 (2009), the Supreme Court clarified that "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id at 1949.

In ruling on a motion to dismiss, the court generally accepts all factual allegations in the complaint as true and construes them in the light most favorable to the plaintiff. Harris v. United Auto. Ins. Group, Inc., 579 F.3d 1227, 1230 (11th Cir. 2009); Wilson v. Strong, 156 F.3d 1131, 1133 (11th Cir. 1998). However, this tenet is inapplicable to legal conclusions. Iqbal, 129 S. Ct. 1937. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.

Thus, in considering a motion to dismiss, a court should (1) eliminate any allegations in the complaint that are merely legal conclusions, and (2) where there are well pleaded factual allegations, "assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Kivisto v Miller, Canfield, Paddock and Stone, PLC, 413 Fed. Appx. 136 (11th Cir. 2011), quoting Iqbal, 129 S. Ct. at...