State Farm Mut. Auto. Ins. Co. v. Del. Diagnostic & Rehab. Ctr., P.A.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANYand STATE FARM FIRE AND CASUALTY COMPANY, Plaintiffs, v. DELAWARE DIAGNOSTIC & REHABILITATION CENTER, P.A.;CONRAD K. KING, JR., M.D., P.A.; DAMON D. CARY, D.O., P.A.;WILLIAM R. ATKINS, JR., M.D., LLC; CONRAD K. KING, JR.;DAMON D. CARY; and WILLIAM R. ATKINS, JR., Defendants.

Civil Action No. 18-1806-MN-SRF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

May 13, 2021

REPORT AND RECOMMENDATION

I. INTRODUCTION

Presently before the court in this civil action for insurance fraud are the following motions: (1) the motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and/or 12(h)(3), filed by defendants Delaware Diagnostic & Rehabilitation Center, P.A. ("DDRC") and William R. Atkins, Jr., M.D. ("Dr. Atkins") (D.I. 112);¹ (2) the motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and/or 12(h)(3), filed by defendants Conrad K. King, Jr., M.D. ("Dr. King"), Damon D. Cary, D.O. ("Dr. Cary"), Conrad K. King, Jr., M.D., P.A. (the"King Practice"), and Damon D. Cary, D.O., P.A. (the "Cary Practice")² (D.I. 113);³ and (3) the motion to dismiss the second amended counterclaims of Dr. King, Dr. Cary, the King Practice, and the Cary Practice (collectively, "Counterclaim Plaintiffs") for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), filed by plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (together, "State Farm") (D.I. 100).⁴ For the following reasons, I recommend that the court: (1) DENY the motion to dismiss filed by DDRC and Dr. Atkins; (2) DENY the motion to dismiss filed by Dr. King, Dr. Cary, the King Practice, and the Cary Practice; and (3) GRANT State Farm's motion to dismiss.

II. BACKGROUND

State Farm initiated this action on November 15, 2018, asserting causes of action for common law fraud and civil conspiracy against all Defendants, and asserting causes of action for unjust enrichment and declaratory relief pursuant to 28 U.S.C. § 2201 against the Clinics. (D.I. 1) In January 2019, Defendants moved to dismiss the original complaint for failure to state a claim. (D.I. 17; D.I. 19; D.I. 21) State Farm responded by filing an amended complaint in March 2019. (D.I. 25) The amended complaint alleges that Defendants participated in a scheme to profit from patients' no-fault insurance benefits by delivering unnecessary medical servicesand prescribing opioid medications to patients based on a "predetermined treatment plan" for minor injuries following automobile accidents. (Id. at ¶¶ 1-9)

In April 2019, Defendants filed motions to dismiss the amended complaint for failure to state a claim, as well as a motion to strike the amended complaint. (D.I. 27; D.I. 29; D.I. 30; D.I. 31; D.I. 32; D.I. 35) On October 24, 2019, the court issued an order denying the motion to strike. (D.I. 46)

While the motions to dismiss remained pending, Dr. Cary and the Cary Practice filed a motion to stay the litigation pending the outcome of Dr. Cary's administrative hearing before the Delaware Board of Medical Licensure and Discipline. (D.I. 48) The court granted the motion to stay on January 8, 2020, staying all proceedings before the court until resolution of the administrative proceeding. (D.I. 52) The stay was lifted in June 2020, and a hearing on the motions to dismiss was set for July 30, 2020. (D.I. 63; D.I. 64) The court denied Defendants' motions to dismiss on the record during the July 30, 2020 hearing.⁵ (7/30/2020 Minute Entry)

Following the denial of the motions to dismiss, Defendants filed their answers to the amended complaint and crossclaims. (D.I. 69; D.I. 70) Dr. King, Dr. Cary, the King Practice, and the Cary Practice also asserted counterclaims against State Farm for declaratory relief pursuant to 28 U.S.C. § 2201, violations of 42 U.S.C. § 1981, and intentional interference withexisting and prospective contractual relations. (D.I. 70 at 33-37) Before State Farm responded to Defendants' answers, affirmative defenses, and counterclaims, Defendants amended their pleadings on October 7, 2020. (D.I. 87; D.I. 88) The following day, State Farm moved to dismiss the counterclaims of Dr. King, Dr. Cary, the King Practice, and the Cary Practice for failure to state a claim under Rule 12(b)(6). (D.I. 90) On October 16, 2020, Dr. King, Dr. Cary, the King Practice, and the Cary Practice submitted an amended answer and counterclaims, rendering moot State Farm's motion to dismiss the counterclaims. (D.I. 93; D.I. 95) State Farm moved to dismiss the second amended counterclaims on October 30, 2020, and the motion is now ripe for resolution by the court. (D.I. 100)

In January 2021, Defendants again moved to dismiss State Farm's amended complaint for failure to state a claim. (D.I. 112; D.I. 113) Defendants' motions to dismiss also allege that the court lacks subject matter jurisdiction under Rule 12(h)(3). (Id.) Defendants' motions to dismiss are also ripe for resolution by the court.⁶

III. LEGAL STANDARDS

A. Rule 12(b)(6)

Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all factual allegations in the complaint and view them in the light most favorable to the plaintiff. Connelly v. Lane Constr. Corp., 809 F.3d 780, 790-91 (3d Cir. 2016). "Courts use the same standard in ruling on a motion to dismiss a counterclaim under Rule 12(b)(6) as they do in assessing a claim in a complaint." Goddard Sys.,Inc. v. Gondal, C.A. No. 17-1003-CJB, 2018 WL 1513018, at *4 (D. Del. Mar. 27, 2018).

To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555-56.

The court's determination is not whether the non-moving party "will ultimately prevail," but whether that party is "entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal citations and quotation marks omitted). This "does not impose a probability requirement at the pleading stage," but instead "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary element]." Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). The court's analysis is a context-specific task requiring the court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 663-64.

B. Rules 12(b)(1) and 12(h)(3)

"If the court determines . . . it lacks subject-matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3). Motions brought under Rule 12(b)(1) for lack of subject matter jurisdiction may present either a facial or factual challenge to the court's jurisdiction. Lincoln Ben. Life Co. v. AEI Life, LLC, 800 F.3d 99, 105 (3d Cir. 2015) (citations omitted). Achallenge is facial when a motion to dismiss is filed prior to an answer and thereby asserts that the complaint, on its face, is jurisdictionally deficient. Cardio-Med. Assocs., Ltd. v. Crozer-Chester Med. Ctr., 721 F.2d 68, 75 (3d Cir. 1983). In reviewing a facial challenge under Rule 12(b)(1), the standards relevant to Rule 12(b)(6) apply, and "the court must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff." See Lincoln, 800 F.3d at 105 (internal quotation marks and citations omitted). The plaintiff bears the burden of establishing the existence of subject matter jurisdiction. Id. (citing DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 n.3 (2006)).

IV. DISCUSSION

A. Defendants' Motions to Dismiss the Amended Complaint

1. Waiver under Rule 12(g)(2)

Defendants waived their Rule 12(b)(6) arguments by failing to assert those arguments in the previous round of Rule 12(b)(6) motion practice regarding the amended complaint.⁷ See Leyse v. Bank of Am. Nat'l Ass'n, 804 F.3d 316, 320-21 (3d Cir. 2015) (finding error in district court's consideration of second motion to dismiss because "[t]he procedural bar of Rule 12(g)(2) . . . covers all motions to dismiss for failure to state a claim, regardless of the grounds asserted."). Rule 12(g)(2) states that "a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion." Fed. R. Civ. P. 12(g)(2). In this case, Defendants previously moved to dismiss the amended complaint for failure to state a claim under Rule 12(b)(6). (D.I. 27; D.I. 32)

Defendants contend that their Rule 12(b)(6) argument regarding State Farm's failure to file an Affidavit of Merit under 18 Del. C. § 6853 was not previously available to them because the deficiency was not confirmed until July 29, 2020. (D.I. 123 at 2) But § 6853 provides that the Affidavit of Merit must accompany the complaint. 18 Del. C. § 6853 ("No health-care negligence lawsuit shall be filed in this State unless the complaint is accompanied by" an Affidavit of Merit.). The amended complaint was filed on March 4, 2019. (D.I. 25) To the extent that the pleading was not accompanied by an Affidavit of Merit, the alleged...