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Allstate Insurance Co. v. Valley Physical Medicine & Rehabilitation

March 31, 2008


The opinion of the court was delivered by: Hurley, Senior District Judge


Plaintiffs Allstate Insurance Company, Allstate Indemnity Company and Deerbrook Insurance Company (collectively "Allstate"or "Plaintiffs") commenced this action on December 20, 2005 asserting causes of action for fraud (first claim for relief), for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (second through seventh claims for relief), unjust enrichment/restitution (eighth claim for relief) and a declaratory judgment (ninth claim for relief). Allstate's claims arise out of payments it made from 1996 to 2002 totaling in excess of one million dollars to Defendants Valley Physical Medicine & Rehabilitation, P.C. ("Valley") and Elite Physical Medicine & Rehabilitation, P.C. ("Elite") for services allegedly rendered to Allstate's insureds under New York State's no-fault insurance system. (Compl. ¶¶ 58 & 66.) Defendants then moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) and for sanctions. In moving to dismiss Defendants argued that 1) the RICO causes of action were barred by the statute of limitations; 2) the causes of action for fraud and for unjust enrichment to recover those benefits paid prior to April 4, 2002 were barred under State Farm Automobile Insurance Company v. Mallela, 4 N.Y.3d 313, 794 N.Y.S.2d 700 (2005); 3) the cause of action for fraud should be dismissed, inter alia, as precluded under New York's no-fault law; and 4) this Court should abstain from determining Allstate's claim for declaratory relief because of the pendency of state cases involving the issue of Valley's corporate status.

By Memorandum and Order dated February 21, 2007, this Court rendered a decision on Defendants' Rule 12(b)(6) motion to dismiss and for sanctions, granting in part the motion to dismiss. In particular, as to the first and eighth causes of action alleging fraud and unjust enrichment respectively, the Court (1) dismissed such claims pursuant to State Farm v. Mallela, 4 N.Y.3d 313 (2005) to the extent they alleged fraudulent incorporation and sought to recover payments made to defendants prior to April 4, 2002 and (2) dismissed the fraudulent billing claims, except for those claims based on fraudulent billing for services, treatment or equipment that were never provided. The basis for the Court's Rule 12(b)(6) dismissal of the fraud and unjust enrichment claims grounded in fraudulent billing was:

The complaint fails to allege that Allstate timely denied [in accordance with New York's no-fault 30-day rule] any of the allegedly fraudulent bills paid prior to April 4, 2002. Therefore, the addition of fraud claims premised on billing for excessive services, services that were medically unnecessary, or services by unlicensed individuals does not save Allstate's fraud and unjust enrichment claims. If no-fault insurers are precluded from raising fraudulent billing in the form of unnecessary or excessive services as a defense to non-payment absent a timely denial, then certainly such allegations cannot support an affirmative claim absent a timely denial. Cf. Presbyterian Hosp., 90 N.Y.2d at 285 (stating no-fault's prompt payment of uncontested first party benefits "is part of the price paid to eliminate common law contested actions").

Allstate now moves for reconsideration of the Court's February 21, 2006 decision to the extent it dismissed Allstate's fraud and unjust enrichment claims pursuant to the 30-day rule. For the reasons set forth below, the Court grants the motion for reconsideration and upon reconsideration vacates its prior decision to the extent it dismissed the fraudulent billing claims in the first and eighth causes of action.


Familiarity with the facts and the Court's prior decision is presumed, and will not be reiterated here. Briefly stated, the factual background of this case as set forth in the Plaintiff's complaint is as follows. In New York, only doctors of medicine and of osteopathy are physicians and are authorized to practice medicine. See N.Y. Educ. Law §§ 6522, 6524. New York law also prohibits non-physicians from sharing ownership in medical service corporations. See N.Y. Bus. Corp. Law §§ 1507, 1508, and N.Y. Educ. Law § 6507(4)(c). As alleged in the complaint, the Defendants engaged in a scheme to evade the State's prohibition on non-physicians from sharing ownership in medical service corporations in order to facilitate fraudulent no-fault billing. (Compl. ¶¶ 7- 45.) Mills, a chiropractor, paid Drs. Tipirneni, Quereshy, and Lahiri to use their names on paperwork filed with the State to establish medical service corporations, to wit: Valley and then Elite.*fn1 (Compl. ¶¶ 7, 31-32.) Once Valley and Elite were established under the facially valid cover of the nominal physician owners, Mills actually operated the companies. (Compl. ¶¶ 11, 25.) Enabled by the doctor defendants, Valley, Elite, Universal, and Mills proceeded to bill Allstate for medical services that were not provided by medical doctors, for medically unnecessary and/or medically useless services, and engaged in other fraudulent billing. (Compl. ¶¶ 12-14, 31-36.)


I. Allstate's Motion for Reconsideration

The decision to grant or deny a motion for reconsideration lies squarely within the discretion of the district court. See Devlin v. Transp. Comm'ns Union, 175 F.3d 121, 132 (2d Cir. 1999). The standard for a motion for reconsideration "is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or [factual] data that the court overlooked -- matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995) (finding district court properly exercised its discretion to reconsider earlier ruling in light of the introduction of additional relevant case law and substantial legislative history); see also Arum v. Miller, 304 F. Supp. 2d 344, 347 (E.D.N.Y. 2003) ("To grant such a motion the Court must find that it overlooked matters or controlling decisions which, if considered by the Court, would have mandated a different result.") (citation and internal quotation marks omitted). "The major grounds justifying reconsideration are 'an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.'" Virgin Atl. Airways, Ltd. v. National Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992) (quoting 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4478 at 790). Thus, a "'party may not advance new facts, issues, or arguments not previously presented to the Court.'" National Union Fire Ins. Co. v. Stroh Cos., 265 F.3d 97, 115 (2d Cir. 2001)(quoting Polsby v. St. Martin's Press, No. 97 Civ. 690, 2000 WL 98057, at *1 (S.D.N.Y. Jan. 18, 2000)). A party may, however, introduce relevant authority that was not before the district court when it initially ruled on the matter. See Vaughn v. Consumer Home Mortgage Co., 2007 WL 140956 at *6 (E.D.N.Y. Jan. 22, 2007). In the alternative, reconsideration is appropriate if a court "misinterpreted or misapplied" relevant case law in its original decision.

Here, Allstate is not asking the Court to examine any new legal issues or arguments. Rather, Allstate is requesting that the Court reconsider its decision because under relevant law the role of the 30-day rule in New York Insurance Law § 5106 is limited to the specific no-fault statutory scheme in which it operates and does not bar Allstate's claims for fraudulent billing. In light of the additional relevant authority cited by Allstate in support of its motion for reconsideration, Allstate's motion is procedurally sound and is granted.

II. Upon Reconsideration, the Court Holds that New York's No-Fault Preclusion Rule Does Not Bar Allstate's Affirmative Claims for Fraud and Unjust Enrichment

Allstate raises several arguments in its motions for reconsideration. First, it is claimed that neither the purpose nor language of New York Insurance Law Section 5106 purports to preclude an insurer's right to recover payments made as a result of fraud, including excessive treatment fraud. Second, it is argued that New York courts and the New York Insurance Department have rejected the contention that Insurance Law § 5106 precludes affirmative actions based on fraud when an insurer has not denied a claim on that ground within the statutory 30-day period and that the courts have limited § 5106's preclusive effect to the assertion of defenses. Third, Allstate maintains this Court's interpretation of § 5106 directly conflicts other New York statutory provisions, to wit, (a) Insurance Law § 409, which requires insurers to investigate fraud and commence civil actions to recover fraudulently obtained insurance proceeds, and (b) CPLR §§ 203 and 213, which provide for six year statute of limitations for fraud and unjust enrichment actions.

In response, Defendants argue, inter alia, that while there is nothing in the statutory scheme that precludes recovery actions based on fraud, it is simply wrong to conclude that defenses once waived by operation of law can ...

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