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

68 F.Supp.3d 744

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 Dec. 18, 2014.

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, Troy, MI, for Plaintiff.

Larry W. Bennett, Seikaly & Stewart, 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 Defendant.

Andrew Ruden, West Bloomfield, MI, pro se.

OPINION AND ORDER (1) DENYING DEFENDANTS RAM GUNABALAN, M.D., MICHIGAN VISITING PHYSICIANS, PC, MUNDY PAIN CLINIC, AND BIO–MAGNETIC RESONANCE, INC.'S (CORRECTED) MOTION TO DISMISS RICO CLAIMS BASED ON REVERSE PREEMPTION OF THE MCCARRAN–FERGUSON ACT (ECF NO. 41) AND (2) DENYING DEFENDANT BIO–MAGNETIC RESONANCE, INC.'S (CORRECTED) MOTION TO DISMISS OR DECLINE JURISDICTION OVER DECLARATORY JUDGMENT CLAIM (ECF NO. 42)

PAUL D. BORMAN, District Judge.

Before the Court are: (1) Defendants Ram Gunabalan, M.D. (“Gunabalan”), Michigan Visiting Physicians, PC, (“Visiting Physicians”), Mundy Pain Clinic (“Mundy”), and Bio–Magnetic Resonance, Inc.'s (“Bio–Magnetic”) (Corrected) Motion to Dismiss RICO Claims Based on Reverse Preemption of the McCarran–Ferguson Act. (ECF No. 41.)¹ Plaintiff State Farm Mutual Automobile Insurance Company (“State Farm”) filed a Response (ECF No. 48) and the moving Defendants filed a Reply (ECF No. 63); and (2) Defendant Bio–Magnetic's (Corrected) Motion to Dismiss or Decline Jurisdiction Over Declaratory Judgment Claim (ECF No. 42).² State Farm filed a Response (ECF No. 49) and Bio–Magnetic filed a Reply (ECF No. 66). The Court held a hearing on November 18, 2014. For the reasons that follow, the Court DENIES both motions.

INTRODUCTION

In this action, State Farm alleges a scheme carried out through the coordinated efforts of the Defendants in submitting hundreds of fraudulent bills and false documentation to State Farm to obtain payment for treatments and services that were either never performed or not medically necessary. In the two motions now before the Court, Defendants seek to dismiss Plaintiff's RICO claims, 18 U.S.C. §§ 1962(c) and (d), under reverse preemption principles and to dismiss Plaintiff's declaratory judgment claims. For the reasons that follow, the Court DENIES both motions.

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 to 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.

A. The Defendants and Their Alleged Role in the Scheme

1. The “Management Group”

The Complaint alleges that a “Management Group,” comprised of Defendants 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 the facilities could be counted on to treat patients in a manner that inflated the value of patients' potential tort claims. ECF No. 1, Complaint ¶¶ 8, 10, 47–48, 52–54, 67–80, 164–66. Additionally, the Complaint alleges, the Management Group directed the “Prescribing Clinics” and “Prescribing Physicians” (defined infra ) to steer patients for medically unnecessary diagnostic tests to facilities owned and/or controlled by Defendant Gunabalan. The charges for those tests 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 some time in 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 II 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 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 ultimately was provided by the Treatment Facilities. Patients, some of whom had been in minor automobile accidents, are alleged to have arrived at the Treatment Facilities “by the van-load.” Id. ¶ 18. 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,” 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 allegedly 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 examined patients and prescribed physical and/or occupational therapy to be obtained at the Treatment Facilities, and the Treatment Facilities continued to provide the same modalities on almost every visit for as long as possible to maximize the amounts 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 allegedly 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, which is alleged in the Complaint to be owned and controlled by Gunabalan, allegedly performed unnecessary Magnetic Resonance Imaging studies, “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 MRI business is alleged to have been very lucrative, with the testing facility charging, for example, over $5,000 to perform an MRI on...