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

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, et al., Plaintiffs, v. LEONARD STAVROPOLSKIY, PT., D.C., et al. Defendant.

EASTERN APPROACH REHABILITATION LLC, et al., Plaintiffs, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

CIVIL ACTION NO. 15-05929

CIVIL ACTION NO. 16-01374

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

September 25, 2018

MEMORANDUM

JOYNER, J.

Presently before the court for consideration are Defendants' Motion for Summary Judgment (Doc. 96-2), Plaintiffs' Response thereto (Doc. 100), Defendants' Reply to Plaintiffs' Response to Defendants' Motion for Summary Judgment (Doc. 104), Plaintiffs' Sur-Reply to Defendants' Reply to Plaintiffs' Response to Defendants' Motion for Summary Judgment (Doc. 109), as well as Plaintiffs' Motion for Partial Summary Judgment (Doc 97), Defendants' Response thereto (Doc. 98), Plaintiffs' Reply to Defendants' Response to Plaintiffs' Motion for Partial Summary Judgment (Doc. 105), and Defendants' Sur-Reply to Plaintiffs' Reply to Defendants' Response to Plaintiffs' Motion for Partial Summary Judgment (Doc. 108). As we explain in the paragraphs that follow, Defendants' Motion for Summary Judgment is DENIED and Plaintiffs' Motion for Partial Summary Judgment is GRANTED.

I. FACTUAL BACKGROUND

This case arises from allegations of a complex scheme of medical insurance fraud to induce payment by the insurer. Plaintiffs, State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (State Farm), allege insurance fraud under 18 Pa.C.S.A. §4117 et. seq. and common law fraud, by Eastern Approach Rehabilitation, LLC ("Eastern Approach"); Aquatic Therapy of Chinatown, Inc. ("Aquatic Therapy"); Leonard Stavropolskiy, P.T., D.C. ("Stavropolskiy); and Joseph Wang, P.T., D.C. ("Wang"), Defendants. Plaintiffs claim Defendants defrauded them by "1) failing to legitimately examine patients, 2) creating records with pre-determined findings rather than properly recording what transpired during examinations, and 3) providing the same treatment for nearly every patient, regardless of whether or not it was medicallynecessary." State Farm Mut. Auto. Ins. Co. v. Stavropolskiy, 2016 WL 2897427, at *3 (E.D. Pa. May 18, 2016), (Doc. No. 28). Plaintiffs also allege Defendants deliberately concealed their fraud in order to induce payment by using the software "Write Pad." Defendants allegedly used "WritePad" to make their "observations, diagnoses, and treatment appear to vary from patient to patient" when the language was falsified by a cut and paste method of record entry. Id. at 3. Plaintiffs allege statutory insurance fraud, common law fraud, and unjust enrichment by Defendants, and they seek damages, restitution and a declaratory judgment. Id. at 4. Defendants contend that Plaintiffs discovered the alleged fraud before the commencement of the limitations period and that Plaintiffs could not, therefore, have reasonably relied on Defendants' misrepresentations in making insurance payments. Defendants ask the Court to grant summary judgment on all counts.

II. LEGAL STANDARD

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A court must construe "all evidence. . . .in the light most favorable to the party opposing summary judgment" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, (1986) and "draw all reasonable inferences in that party's favor." Burton v.Teleflex, Inc. 707 F.3d 417, 425 (3d Cir. 2013). The burden is on the moving party to demonstrate that "the evidentiary record presents no genuine issue of material fact," Willis v. UPMC Children's Hosp. of Pittsburgh, 808 F.3d 638, 643 (3d Cir. 2015). To survive a motion for summary judgment and proceed to the jury, the non-movant must establish a genuine issue of material fact. Matushita Elec. Indus. Co., v. Zenith Radio Corp., 475 U.S. 574, 575 (1986). Determining whether an issue of fact is material and genuine, we assess whether it "'affects the outcome of the suit under the governing law and could lead a reasonable jury to return a verdict in favor of the nonmoving party.'" Parkell v. Danberg, 833 F.3d 313 (3d. Cir. 2016) (quoting Willis, 808 F.3d at 643; Anderson, 477 U.S. at 248).

III. Discussion

Defendants assert three arguments for summary judgment. First, Defendants argue that Plaintiffs' claim for relief under Statutory Insurance Fraud is barred by the statute of limitations. Second, Defendants argue Plaintiffs' claim for relief under common law fraud is barred because Plaintiffs cannot prove they 'justifiably relied' on Defendants' records and therefore were not fraudulently induced to make payments. Third, Defendants raise the affirmative defense of laches on the grounds that they were prejudiced by Plaintiffs' 'inexcusable delay' in bringing this fraud action.

A. Statutory Insurance Fraud

Plaintiffs allege Defendants committed Statutory Insurance Fraud under 18 Pa.C.S.A. §4117 et. seq. by submitting "false, fraudulent, incomplete and/or misleading information concerning facts material to. . .insurance claims." (Pl. Am. Comp. at 28, Doc. No. 20). Defendants argue that Plaintiffs' allegations of statutory fraud, pertaining to payments made before October 30, 2013, are barred by the two-year statute of limitations. Pa.C.S.A. §5524 (7). The two-year period may be tolled in certain circumstances. "[A]lthough the right to institute suit may arise, a party may not, despite the exercise of diligence, reasonably discover that he has been injured. In such cases the statute of limitations does not begin to run at the instant the right to institute suit attaches, rather the discovery rule. . . tolls the running of the applicable statute of limitations until the point where the complaining party knows or reasonably should know that he has been injured and that his injury has been created by another party's conduct." Crouse v. Cyclops Industries, 745 A.2d 606, 612 (Pa. 2000). Additionally, the doctrine of fraudulent concealment may toll the statute of limitations "if through fraud or concealment, [the defendant] causes the plaintiff to relax his vigilance or deviate from his right of inquiry into the facts. Fine v. Checcio, 870 A.2d 860 (Pa. 2005). "[I]t is for the jury to say whether the remarksthat are alleged to constitute the fraud or concealment were made." Id.

The time at which Plaintiffs knew or reasonably should have known of the alleged fraud is a material issue of fact in this case because whether the statute of limitations will be tolled depends on this question. See id. at 863 (At summary judgment, the relevant question is "whether there are genuine issues of material fact as to whether [Plaintiff] knew or was unable to know, despite the exercise of reasonable diligence, that [Plaintiff] was injured"). This material issue is inappropriate for summary judgment because, "the point at which the complaining party should reasonably be aware that he has suffered injury is a factual issue 'best determined by the collective judgment, wisdom and experience of jurors." Id. (quoting White v. Owens-Corning Fiberglas Corp., 668 A.2d 136, 144 (1995), (quoting Petri v. Smith, 453 A.2d 342, 347 (Pa. Super. 1982))). E.g., Longbottom v. Hayman, 2018 WL 3831393, slip op. at 2 (E.D. Pa. August 13, 2018)("'[T]he point of time at which the injured party should reasonably be aware that he...has suffered an injury is generally an issue of fact to be determined by the jury...'" (quoting Downey v. First Indem. Ins., 214 F.Supp. 3d 414, 429 (E.D. Pa. 2016) (quoting Knopick v. Connelly, 639 F.3d 600, 611 (3d Cir. 2011)); see Schmidt v. Skolas, 770 F.3d 241, 251 (3d Cir. 2014) (quoting Crouse v.Cyclops Industries, 745 A.2d 606, 611 (Pa. 2000) ("[O]nly where the facts are so clear that reasonable minds cannot differ may the commencement of the limitations period be determined as a matter of law").

Defendants argue that the statute of limitations should not be tolled under the "discovery rule" or the doctrine of "fraudulent concealment." Fine, 870 A.2d at 859. Although "the determination concerning the plaintiff's awareness of the injury and its cause is fact intensive, and therefore, ordinarily is a question for a jury to decide," Wilson v. El-Daief, 964 A.2d 354, 362 (Pa. 2009), Defendants argue there is no genuine dispute that Plaintiffs knew or reasonably should have known of the alleged fraud before October 30, 2015. However, Plaintiffs claim they were unable to discover the alleged fraud until, after examining the totality of Defendants' records, receiving help from legal counsel and a pre-suit medical expert trained to discern record falsification, they were able to identify "evidence of the pervasive and fraudulent patterns." (Pl.'s Br. in Resp. to Def.'s Br. in Supp. of Mot. for Summ. J., at 12, Doc. No. 100; Pl.'s S.R. to Def.'s R. to Pl.'s Resp. to Def.'s Br. in Supp. of Mot. for Summ. J., at 2, Doc. No. 109).

Defendants present their argument for summary judgment against the statutory insurance fraud claim in four stages; each stage tries to establish that indisputably, Plaintiffs knew orshould have known of the alleged fraud before October 30, 2015. (Def.'s Br. in Supp. of Mot. for Summ. J. at 32, Doc. No. 96-2). In the first stage of their argument for summary judgment on the commencement of the limitations period, Defendants show evidence that between 2005 and 2010, Plaintiffs referred claims involving Defendants to State Farm's fraud investigation unit (SIU); that Plaintiffs took note when attorney Adrien Reid represented a claimant because Reid was known by Plaintiffs to "solici[t] accident victims;" that Plaintiffs referred Defendants' claims to the law firm Goldberg, Miller & Rubin; and that Plaintiffs questioned Defendant Wang about his use of the WritePad software. Id. at 5-8. Defendants argue this evidence establishes beyond dispute when...