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UNIVERSAL ACUPUNCTURE PAIN SERVICES v. STATE FARM

March 18, 2002

UNIVERSAL ACUPUNCTURE PAIN SERVICES, P.C., PLAINTIFF,
V.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, DEFENDANT. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, COUNTER-PLAINTIFF, V. UNIVERSAL ACUPUNCTURE PAIN SERVICES, P.C., DIPAK NANDI, AND DONGXING SUN, COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Scheindlin, Judge.

  OPINION AND ORDER

Universal Acupuncture Pain Services P.C. ("Universal") is suing defendant State Farm Mutual Automobile Insurance Company ("State Farm") for payment of overdue claims.*fn1 State Farm has asserted counterclaims against Universal and third-party defendants, Dipak Nandi (the founder of Universal) and Dongxing Sun, a licensed acupuncturist. The counterclaims allege (1) that State Farm is entitled to a judgment declaring that it and its insureds are not obligated to pay for services rendered by Universal, and enjoining Universal from submitting to State Farm any request for payment for acupuncture services rendered before April 24, 2001 ("Counterclaim I"); (2) fraud in the corporate form ("Counterclaim II"); (3) unjust enrichment premised on fraud in the corporate form ("Counterclaim III"); (4) fraud concerning acupuncture services never rendered and not medically necessary ("Counterclaim IV"); and (5) unjust enrichment premised on fraudulent billing for services never rendered ("Counterclaim V"); and seek compensatory and punitive damages. See Second Amended Answer and Counterclaim ("Counterclaim"). Universal, Nandi and Sun*fn2 (collectively, "plaintiff") now move to dismiss all counterclaims pursuant to Rule 12(b)(6) for failure to state a cause of action, and Rule 9(b) for failure to plead fraud with particularity.

For the reasons stated below, plaintiff's motion is granted in part and denied in part.

I. BACKGROUND

The following facts, drawn from the Counterclaim, are assumed true for the purposes of this motion.

A. Urban Medical and Other Professional Corporations Formed by Nandi

Between 1996 and 1998, Nandi, a physician licensed in the State of New York, obtained certificates of authority from the New York Department of Education ("DOE") to form several professional services corporations: Urban Medical Diagnostics ("Urban Medical"), Millennium Diagnostics P.C., Sterling Medical Diagnostic P.C., and Triborough Medical Diagnostics P.C. (collectively, "other PCs"). See Counterclaim ¶ 19. Because New York law only allows a professional services organization to incorporate if it possesses a certificate stating that it is owned and operated by one or more licensed physicians who are either shareholders or practice medicine or both, Nandi falsely represented to the licensing authority that Dr. Robert Mallela, a licensed physician in New York, would be the sole shareholder, director and officer of each of the corporations. See id. Although Urban Medical and the other PCs were controlled by Nandi, he told the DOE that Mallela would own, control and practice medicine through the PCs. See id. Dr. Mallela has since admitted the following facts: (1) he had no true ownership interest in or control over Urban Medical, or any of the other three other PCs; (2) he never paid for the shares in Urban Medical or the other PCs he was given, (3) he was paid a fee to allow Nandi to use his name to obtain a certificate of authority from the DOE; (4) he did not manage or supervise the medical practice at Urban Medical or the other PCs, and (5) he never saw or treated patients for Urban Medical or the other PCs. See id. ¶ 20 (citing Mallela Affidavit, Ex. C to Counterclaim).

Beginning in July 1999 and continuing through early 2000, State Farm requested information from Urban Medical regarding the validity of its charges and the identity of the individuals who State Farm believed "truly owned and controlled the practice." Id. ¶ 23. Nandi never responded to the requests. See id. Because Urban Medical refused to provide such information, State Farm stopped paying the company's bills. See id.

B. Formation of Universal

On January 27, 2000, Nandi formed Universal which was essentially the same company as Urban Medical but with a different name. See id. ¶¶ 24, 26.*fn3 Universal immediately began submitting bills to State Farm for acupuncture services. See id. ¶¶ 24, 29. On February 9, 2000, Universal obtained a certificate of authority from the DOE to incorporate an acupuncture services corporation by falsely representing that Dongxing Sun, a licensed acupuncturist in New York, was its sole shareholder, director and officer. See id. ¶ 25. From January 2000 to April 24, 2001, Nandi ran Universal under Sun's name, all the while splitting fees with Sun. See id. ¶¶ 6, 17. Because he had obtained a certificate of authority for Universal, Nandi could use Univeral to employ licensed and certified acupuncturists, control their practices, and submit bills to State Farm. See id. ¶¶ 17, 31. Nandi did not receive his license to practice acupuncture in New York until April 24, 2001; only then was he licensed to own and operate an acupuncture professional services corporation in New York. See id. ¶ 30.

Sun admittedly did not operate Universal or control the corporation in any way. He "permitted Nandi to `handle the affairs of' Universal and `accepted his word for everything,'" and had "`no idea what the business activity' of Universal was before his dispute erupted with Nandi over ownership and control." Id. ¶ 28 (quoting unattached Affidavit of Dongxing Sun from July 2001 state court action involving Nandi and Sun).

C. Treatment, Assignment, and Billing

On various occasions from February 2000 to the present, Universal provided acupuncture services to individuals who had sustained car-related injuries (the "assignors" or "insureds"). See Plaintiff's Complaint ¶ 5. Universal also falsified records to indicate that it had provided acupuncture treatment to many more patients than its staff had actually treated. See Counterclaim ¶¶ 37-8. The services that Universal did provide were performed by Universal's staff of acupuncturists, all of whom are either licensed or certified. See id. ¶ 38.

The insureds treated by Universal purportedly assigned their right to no fault benefits to Universal. See id. ¶ 31. Universal, as assignee, submitted claims for acupuncture services to State Farm. See id. ¶ 8. In fact, no patient who received acupuncture services from Universal ever sought reimbursement directly from State Farm. See id. ¶ 34. State Farm has not paid many of the bills, although it has paid Universal over $190,000 in no fault ...


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