The opinion of the court was delivered by: James Orenstein, Magistrate Judge:
On March 21, 2012, the Clerk entered the default of defendant Yefim Klikshteyn ("Klikshteyn"), as well as that of defendant Right Solution Medical Supply, Inc. ("Right Solution"). Docket Entry ("DE") 12; DE 13. Each of those defendants now moves to vacate the default. DE 17; see Fed. R. Civ. P. 55. For the reasons set forth below, I deny the motion.
Plaintiffs Government Employees Insurance Company, GEICO Indemnity Company, GEICO General Insurance Company, and GEICO Casualty Company (collectively, "GEICO") initiated this action on February 24, 2012, alleging that Right Solution, Klikshteyn, and others have taken advantage of New York's no-fault insurance regime to repeatedly and fraudulently bill GEICO for hundreds of thousands of dollars to which they were not entitled. See DE 1 (Complaint). GEICO is a New York automobile insurer to whom the defendants submit, or cause to be submitted, claims seeking payment for durable medical equipment ("DME") and orthotic devices provided to GEICO policy holders who are involved in automobile accidents. Id. ¶ 2. GEICO asserts that Klikshteyn owns Right Solution, and that the latter company bills GEICO for DME and orthotic devices that it obtains wholesale from co-defendants Chesteron, Inc., and Ropa, Inc. (both of which have also defaulted). Id.
Under New York's no-fault insurance law, automobile insurance providers are required to include in their policies coverage for injuries arising from car accidents, irrespective of who is to blame for the accident. No-fault benefits include up to $50,000 for necessary expenses that are incurred for health care goods and services. Complaint ¶ 17. An insured victim can assign her right to no-fault benefits to the providers of healthcare services in exchange for those services. Id. ¶ 18. Pursuant to such an assignment, a health care provider may then submit claims to an insurance company and directly receive payment for goods and services rendered. Id. The maximum permissible charge for DME and orthotic devices is the fee payable under the New York State Medicaid program. Id. ¶ 22. Where the Medicaid program has not established a fee payable for a specific item, the maximum permissible charge is the lesser of the providers' acquisition cost plus 50 percent, or the usual and customary price charged to the general public. Id. ¶ 23.
GEICO alleges that, since April 2009, Right Solution has submitted
more than $1,050,000 in fraudulent no-fault claims.*fn1
Id. ¶ 25. Specifically, GEICO alleges that Right Solution and
Klikshteyn engaged in a scheme whereby they paid kickbacks to no-fault
clinics to prescribe large amounts of DME and orthotic devices to
accident victims who were then directed to Right Solution to fill the
prescriptions. Id. ¶ 26. In exchange for the kickbacks, the physicians
and chiropractors associated with the clinics systematically wrote
prescriptions for DME and orthotic devices that were not covered by
the Medicaid fee schedule. Id. ¶ 27. Right Solution and Klikshteyn
then used fraudulently inflated wholesale invoices provided by
wholesalers Chesteron and Ropa to seek reimbursement from GEICO based
on the devices' purported acquisition costs, which were sometimes more
than five times the actual value of the products. Id. ¶¶ 29-30. To the
extent that the physicians or chiropractors wrote prescriptions for
devices that were covered by the Medicaid fee schedule, the prescriptions were written in terms so
vague as to allow Right Solution to misrepresent that nature of the
items actually prescribed and the nature of the items actually
provided to patients. Id. ¶ 28. For example, where prescriptions
called for "cervical collars," Right Solution billed GEICO for
custom-fitted, two-piece, rigid collars at $233.00 per unit, rather
than for basic foam collars which have an established fee payable of
$6.80. Id. ¶ 40(2). To create the illusion that Right Solution
actually paid the inflated prices reflected in the claim forms
submitted to GEICO and in the wholesale invoices, Right Solution and
Klikshteyn issued checks to Chesteron and Ropa for the full invoice
amounts, and then submitted the checks to GEICO as proof of payment.
Id. ¶ 31. Chesteron and Ropa then issued "rebates" to Right Solution
and Klikshteyn, returning the majority of the amounts received while
retaining a portion for themselves. Id.
Based on the foregoing allegations, GEICO has asserted a variety of claims against the defendants, including fraud and unjust enrichment. Id. ¶¶ 51-71. In addition to monetary damages, GEICO requests a declaration that that the defendants have no right to receive payment for any pending claims. Id. ¶¶ 47-50.
GEICO served process on all four named defendants in late February 2012; in particular, it served Klikshteyn personally and effected service on Right Solution by delivering the summons and Complaint to the New York Secretary of State. DE 1; DE 4; DE 5; DE 6. None of the defendants responded to the Complaint and, on March 21, 2012, GEICO asked the Clerk to enter the default of each. DE 8; DE 9; DE 10; DE 11. The Clerk did so the same day. DE 12; DE13; DE 14; DE 15.
On June 12, 2012, Right Solution and Klikshteyn filed the instant motion to vacate their default. DE 17. In an affidavit accompanying the motion, Klikshteyn acknowledged that he had been personally served with the summons and complaint, but stated that Right Solution had not received those documents because the company was no longer operating at the address registered with the Secretary of State, and the Post Office had failed to forward the summons and complaint to Right Solution's new address, despite a standing instruction to forward the company's mail. DE 17-1 (Affidavit of Yefim Klikshteyn) ("Klikshteyn Aff.") ¶ 3. Klikshteyn stated further that, at the time he was personally served with the summons and complaint, he did not understand that the documents were intended to provide notice of a new action; instead, he claimed that he mistakenly believed that the papers were related to separate pending litigation between GEICO and Right Solution. Id. ¶ 6. When Klikshteyn showed the documents to his attorney, she informed him that they related to a new lawsuit, but stated that she could not represent him in the new matter due to a potential conflict of interest. Id. Klikshteyn thereafter searched for an attorney to represent him in this case. Id. ¶¶ 6-7. On March 15, 2012, he spoke with attorney John Tasolides ("Tasolides") about the case; he formally retained Tasolides on March 29, 2012. Id. ¶ 7.
Tasolides reviewed the docket and discovered that Klikshteyn and Right Solution were already in default. Id. ¶ 7. He then immediately contacted GEICO's counsel to seek its consent to vacate his clients' defaults and engage in settlement discussions. Id.; DE 17-2 (Letter from Tasolides to Justin Calabrese). GEICO declined to consent to vacating the defaults, but agreed to refrain from filing a motion for default judgment while the parties discussed settlement. Klikshteyn Aff. ¶ 7. Two months later, the parties had failed to come to an agreement, and Tasolides filed his notice of appearance along with the instant motion and supporting papers. DE 16; DE 17; see DE 17-3 (memorandum of law) ("Memo.").
GEICO submitted its response to the motion on June 20, 2012. DE 19 (memorandum of law in opposition) ("Opp."); DE20 (supporting declaration of counsel, with exhibits) ("Levy Dec."). I heard argument on the motion on June 26, 2012, and solicited further evidentiary submissions. See DE 24 (minute entry); DE 27 (transcript) ("Tr.") at 9-17. The defendants filed their ...