The opinion of the court was delivered by: Wexler, District Judge.
This is a diversity case brought by Plaintiff, Great South Bay
Medical Care, P.C. ("GSB" or Plaintiff) against Defendant,
Allstate Insurance Company ("Allstate" or "Defendant").
The dispute between the parties arises out of Allstate's
refusal to pay no-fault insurance benefits to GSB for services
allegedly rendered to individuals covered by policies of
insurance issued by Allstate. GSB alleges, not only a right to
payment for all services rendered but, in addition, that it has
been defamed by Allstate. The defamation claim arises out of
letters sent by Allstate, to its insureds, explaining Allstate's
reasons for refusing payment to GSB. Those letters refer to
GSB's billing practices as "misleading."
Allstate denies the allegations of the complaint and defends
the defamation claim on the ground that all statements made were
truthful. Additionally, Allstate claims, by way of an
affirmative defense, that the court should abstain from
exercising jurisdiction over this matter because the same issues
raised in this lawsuit are the subject of pending state court
litigation involving the same parties. Allstate also asserts a
counterclaim for unjust enrichment, seeking repayment of
approximately $8,000 in benefits it alleges were wrongfully paid
Presently before the court are motions of both parties. GSB
moves, pursuant to Rule 12(c) of the Federal Rules of Civil
Procedure, to strike the affirmative defense supporting
Allstate's abstention argument. GSB also seeks to dismiss
Allstate's unjust enrichment counterclaim. Allstate opposes
these motions and seeks to have this court abstain from deciding
this case in favor of the pending state court proceeding.
Finally, Allstate seeks
to amend its answer to set forth a claim for declaratory relief.
For the reasons set forth below, GSB's motions are denied.
Allstate's motion to abstain in favor of the pending state court
proceeding is granted and the motion to amend the answer is
denied as moot.
I. Great South Bay and its Business
GSB alleges that it is a professional corporation ("P.C."),
with its principal place of business in Patchogue, New York,
that is engaged in the business of providing medical services.
Many of GSB's patients are individuals who suffered injury as a
result of their involvement in automobile accidents. Certain of
these patients have been insured by Allstate. Rather than
requiring payment in full for services rendered, GSB accepts the
assignment of its patients' rights to collect benefits from
Allstate. This assignment of rights allows GSB to collect
payment directly from Allstate.
II. Allstate's Refusal to Pay
Beginning sometime in 1998, Allstate began to refuse payment
for services rendered to its insureds by GSB. Allstate's refusal
to pay stems from allegations regarding the corporate structure
of GSB. Allstate alleges that GSB is improperly incorporated as
a professional corporation under the laws of the State of New
York. According to Allstate, GSB, which holds itself out as a
professional medical corporation (which can be properly
incorporated only if controlled by medical doctors), is, in
fact, controlled by two individuals who are chiropractors.
Allstate alleges that this "fraudulent incorporation" allows GSB
to bill for its services at a higher "medical" rate, rather than
the non-medical rate to which it is entitled.
Allstate explained its reason for denial of payment to GSB in
letters sent to insureds. The pertinent language in those
letters are set forth in the complaint. They describe the
billing practice of GSB as "misleading."
III. Plaintiffs Complaint and Defendant's Affirmative
Defenses and Counterclaim
It is Allstate's use of the word "misleading" in letters to
insureds that forms the basis of GSB's first cause of action —
libel per se. In addition to this defamation claim, GSB sets
forth causes of action in breach of contract, unjust enrichment
and pursuant to the New York State consumer fraud statute,
Section 349 of the New York General Business Law ("Section
Allstate denies the allegations set forth in the complaint. Of
the several affirmative defenses alleged, the one that is
relevant to the motions here is the first, which seeks to have
this court abstain from asserting jurisdiction this action.
Additionally, Allstate asserts a counterclaim seeking repayment
of benefits already paid to GSB to which Allstate alleges there
is no entitlement.
Allstate's abstention argument is based upon an action that is
currently pending in the Supreme Court of the State of New York,
County of New York, entitled Progressive Northeastern Ins. Co.,
et al., v. Advanced Diagnostic and Treatment Medical, P.C., et
al., No. 601112/00 (the "State Court Action"). According to
Allstate's affirmative defense, GSB has "engaged in the very
same pattern and practice of deceptive and misleading conduct as
alleged by the Defendants in the State Court Action." The
allegations and progress of that action are detailed below.
The State Court Action was commenced in March of 2000, by
seventeen insurance companies, including Allstate. Named as
defendants therein are over one hundred medical providers,
including GSB.*fn1 The plaintiff insurance companies'
complaint in the State Court Action (the "State Court
Plaintiffs") is in excess of 350 pages long and contains 164
separate claims for relief. It alleges a broad scheme to
defraud, the specifics of which are strikingly similar to the
allegations set forth in Allstate's affirmative defenses.
Specifically, the State Court Plaintiffs allege that several
medical doctors have sold the right to use their names in the
formation of professional corporations under New York State law.
These doctors are alleged to have had no real involvement in the
corporations formed under their names. The corporations are,
instead, alleged to be controlled by chiropractors and other
individuals who would not, under New York law, be allowed to
practice in the corporate form of a P.C. It is alleged that
practice as a P.C., and the association of medical doctors,
allows the state court defendants to carry out a fraudulent
The complaint in the State Court Action details the fraudulent
billing scheme in the following manner. It is alleged that
chiropractors and other non-medical personnel have billed the
insurance companies as if treatment provided by a non-physician
was provided by a physician, thus fraudulently allowing
defendants to bill at a higher rate. In addition to practicing
under a fraudulent corporate form, the defendants in the State
Court Action are alleged to have rendered unnecessary treatment
and to have billed insurance companies for care not actually
With respect to GSB, the State Court Action alleges that the
company "regularly billed for medical services not provided by
medical doctors." It is also alleged that GSB inflated its
billing by seeking payment under a surgery fee schedule when no
surgery was performed and by billing for "temperature gradient
studies" that were either unnecessary or not performed.
The factual allegations set forth in the State Court Action
are stated in support of several state law claims, including
common law fraud, unjust enrichment, restitution, Section 349,
and the New York Public Health Law. Additionally, the State
Court Action sets forth several civil RICO claims ...