United States District Court, E.D. New York
ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, and ALLSTATE PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiffs,
HISHAM ELZANATY, HISHAM AHMED ELSHERBINY, ALAN GOLDENBERG, CAN MEDICAL, P.C., and UPTOWN HEALTH CARE MANAGEMENT, INC., d/b/a EAST TREMONT MEDICAL CENTER, NEW YORK NEURO & REHAB CENTER, and JEROME FAMILY HEALTH CENTER, Defendants
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For the Plaintiffs: Robert Phillip Macchia, Esq., Mehmet F. Gokce, Esq., of Counsel, THE LAW OFFICES OF ROBERT P. MACCHIA & ASSOCIATES, Mineola, NY.
For the Plaintiffs: Michael W. Whitcher, Esq., Nathan A. Tilden, Esq., Richard D. King, Esq., of Counsel, SMITH & BRINK, P.C., Garden City, NY.
For the Plaintiffs: William J. Natbony, Esq., of Counsel, CADWALADER, WICKERSHAM & TAFT, New York, NY.
For the Defendants Hisham Elzanaty, Hosam Ahmend El-Sherbiny, Alan Goldenberg, and Uptown Health Care Management, Inc.: Edward K. Blodnick, Esq., Steven R. Talan, Esq., Thomas R. Fazio, Esq., of Counsel, BLODNICK, CONROY, FAZIO & DIGLIO, P.C., Garden City, NY.
ARTHUR D. SPATT, United States District Judge.
MEMORANDUM OF DECISION AND ORDER
Allstate Insurance Company, Allstate Indemnity Company, and Allstate Property & Casualty Insurance Company (" Allstate" or " the Plaintiffs" ) commenced this action against several individuals and entities that are alleged to have perpetuated an ongoing scheme to bill the Plaintiffs under New York State No-Fault Insurance Laws for medical services rendered to patients involved in motor vehicle accidents, in order to defraud the Plaintiffs of millions of dollars.
Presently pending before the Court is: (1) a second motion to dismiss and stay the counterclaim filed by the Plaintiffs; and (2) a motion to compel filed by Hisham Elzanaty, Hisham Ahmed Elsherbiny, Alan Goldenberg, Uptown Health Care Management, Inc., d/b/a East Tremont Medical Center, New York Neuro & Rehab Center, and Jerome Family Health Center (" the Defendants" or " Uptown" ). As mentioned in a previously issued opinion, " [t]he parties have created a complicated patchwork of litigation in every avenue possible, including arbitration, state, and federal proceedings. Through this complex web of motion practice, the parties seek this Court's assistance in sorting out the confusion they have initiated." Allstate Ins. Co. v. Elzanaty, 916 F.Supp.2d 273, 2013 WL 65986, at *1 (E.D.N.Y. Jan. 7, 2013). The Court has already resolved a motion to dismiss and/or abstain filed by the Defendants, as well as a motion by the Plaintiffs to amend the Complaint. Id. The Court will now proceed to resolve the remaining outstanding motions, as to which the Court previously reserved decision.
The Court will assume the parties' familiarity with the underlying facts of this case. Therefore, the Court will only set forth the relevant facts that are necessary to resolve the pending motions.
A. Factual Background
Allstate is an issuer of motor vehicle accident liability insurance policies. The
Defendants are medical facilities and other related individuals who provided treatment and medical services to Allstate's injured insureds. The Defendants have been assigned first-party benefits by Allstate's injured insureds to which they had provided medical services and treatment. Thus, under this system, medical facilities such as the Defendants, who are the assignees of first-party benefits, may make a direct claim for reimbursement from an insurance company such as Allstate.
Under Allstate's contracts, as required by New York State Insurance Law, the Defendants may elect to arbitrate or judicially litigate any dispute related to these no-fault insurance payments. Specifically, Section 5106(b) of the New York No-fault Insurance Law requires that:
Every insurer shall provide a claimant with the option of submitting any dispute involving the insurer's liability to pay first party benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures to be promulgated or approved by the superintendent.
N.Y. Ins. Law § 5106(b). Subsection (a) of the same provision, in turn, provides that:
Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. If proof is not supplied as to the entire claim, the amount which is supported by proof is overdue if not paid within thirty days after such proof is supplied. All overdue payments shall bear interest at the rate of two percent per month. If a valid claim or portion was overdue, the claimant shall also be entitled to recover his attorney's reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to limitations promulgated by the superintendent in regulations.
Id. § 5106(a). Accordingly, Allstate's Contract provides as follows:
In the event any person making a claim for first-party benefits and the Company do not agree regarding any matter relating to the claim, such person shall have the option of submitting such disagreement to arbitration pursuant to procedures promulgated or approved by the Superintendent of Insurance.
(DE 95-1 at 2631.)
Allstate made substantial payments to the Defendants for first-party benefits over a number of years. However, at a certain point in time, Allstate began to withhold payment of these claims. According to Allstate, they did so because these medical facilities are in violation of their licensing requirements and have committed other illegalities, so that they did not have a legitimate basis to bill Allstate via New York's No-Fault statutes and forfeited their right to do so. Thus, Allstate now seeks to recoup the money it has previously paid to the Defendants and also seeks a declaration that it need not pay on any pending or future claims. On the other hand, the Defendants are still pursuing the many outstanding claims pending before Allstate that it refuses to pay, so that under the relevant statute, disputes involving the insurer's liability to pay first-party benefits have arisen.
B. Procedural History
On August 11, 2011, the Plaintiffs filed the instant case against the Defendants, seeking damages under the federal RICO statute in connection with the Defendants' creation and perpetration of an insurance fraud scheme. The Plaintiffs also seek
declaratory relief and damages under state law, including claims for: (1) common law fraud; (2) unjust enrichment; and (3) unfair and deceptive business practices in violation of N.Y. Gen. Bus. Law § 349. In short, Allstate alleges that the Defendant Hisham Elzanaty, while working in concert with co-conspirator licensed medical professional Jadwiga Pawlowski M.D.; their fraudulently incorporated medical professional services corporations--JP Medical, P.C., Accurate Medical, P.C., Nolia Medical, P.C., and Quality Medical Healthcare Provider P.C. (the " Pawloski Defendants" ); and co-conspirator management company, Uptown, d/b/a East Tremont Medical Center, New York Neuro & Rehab Center, and Jerome Family Health Center (" Uptown" ); defrauded the Plaintiffs of millions of dollars over the course of many years. The Complaint states that the Defendants accomplished their fraudulent scheme by creating fictitious medical facilities that held themselves out to Allstate as legitimately incorporated medical entities under New York State law, so that they could obtain payments from Allstate under New York's No-Fault insurance scheme.
On or about August 29, 2011, instead of initially filing a motion to extend their time to answer and to compel arbitration of any no-fault claims pursuant to the state statute and/or the relevant insurance contracts, the Defendants filed an answer that asserted one counterclaim. This counterclaim asserted that Uptown had provided " necessary medical services to [the] Plaintiffs' assignors" ; that Uptown has submitted all the necessary forms to Allstate to obtain no-fault reimbursements; and that they had made a demand on Allstate for the payment of their no-fault claims but that Allstate had failed to pay these claims. In this regard, Uptown asserted that they had been damaged in the amount of $1,005,436.30 plus statutory interest and attorneys' fees based upon Allstate's " failure to comply with its duties under the Insurance Law and New York State No-Fault regulations."
On September 26, 2011, Allstate filed its initial motion to dismiss thirty-five portions of the Defendants' counterclaim, meaning thirty-five " claims" in which the Defendants were seeking reimbursement from Allstate as to certain medical services that were provided to Allstate's injured insureds. (DE 72-73.) All thirty-five of these claims had been either: (1) already litigated, adjudicated, or settled in another forum; or (2) pending in another forum. However, the Defendants voluntarily withdrew each of the thirty-five matters raised in the Plaintiffs' partial motion to dismiss, from the approximate seventy-six no-fault claims included in the counterclaim. (DE 83.) At that point, the first motion to dismiss was mooted. Thus, this motion is no longer pending.
Despite filing their counterclaim in this action demanding payment of certain no-fault claims, Uptown continued to file claims with the American Arbitration Association (" AAA" ) seeking to arbitrate no-fault claims that were part of its counterclaim, as well as other claims that were outside the scope of the counterclaim. Accordingly, on March 17, 2012, Allstate filed a second motion to dismiss. In this particular motion, the Plaintiffs seek to dismiss and/or stay the other portions of the Defendants' counterclaim which, at the time of the filing of the Plaintiffs' First Motion to Dismiss, were not pending in any forum, but have since been filed with the AAA. In addition, the second motion to dismiss seeks to stay all future arbitration filings. In this motion, Allstate argues that: (1) the AAA is not the appropriate forum to decide global issues regarding Uptown's eligibility to receive no-fault reimbursement; (2) case law from courts in this district as well as New York State courts
support the conclusion that the arbitrations should be stayed; and (3) Allstate would suffer irreparable harm should the matters not be stayed.
Meanwhile, while this motion was pending, some of the pending arbitrations have been resolved and several new arbitrations were initiated. According to the Defendants, at the present time, all seventy-six counterclaims have been adjudicated in arbitration or are currently pending before the AAA. However, the Plaintiffs assert that only forty-six of the seventy-six claims have been adjudicated or settled, with an additional sixteen claims currently being litigated or pending before the AAA. Thus, the Plaintiffs contend that there are fourteen counterclaims that are not yet pending in another forum.
On January 2, 2013, probably in response to the Plaintiffs' motion to temporarily enjoin all pending and future arbitrations, the Defendants filed a motion to compel arbitration. In particular, the Defendants have moved to compel arbitration of their counterclaim and any additional first-party benefit claims against the Plaintiffs pursuant to the arbitration clause in the underlying insurance contracts; the Federal Arbitration Act (" FAA" ), 9 U.S.C. § 1, et seq .; New York Insurance Law § 5106(b); and New York Insurance Regulation 11 N.Y.C.R.R. § 65-1.1. According to the Defendants, they have an absolute right to elect to arbitrate these claims--which have been submitted to Allstate but have not yet been paid--as well as any future claims for payment.
For ease of analysis, the Court will not address the two motions as they were chronologically filed. Instead, the Court will first determine whether the Defendants have a right to compel the pending arbitrations and any additional arbitrations that may be filed in the future. Second, the Court will determine whether the Plaintiffs' request to temporarily stay the pending arbitrations and to enjoin any future arbitrations should be granted. In addition, the Court will decide whether to dismiss the remaining counterclaims that have already been adjudicated or settled.
II. UPTOWN'S MOTION TO COMPEL ARBITRATION
As set forth above, the Defendants have moved to compel arbitration of their counterclaims against the Plaintiffs and any additional claims for reimbursement pursuant to the arbitration clause in the underlying insurance contracts; the Federal Arbitration Act (" FAA" ), 9 U.S.C. § 1, et seq .; New York Insurance Law § 5106(b); and New York Insurance Regulation 11 N.Y.C.R.R. § 65-1.1. According to Uptown, they have an absolute right to elect to arbitrate their pending counterclaim, which includes claims that have been submitted to Allstate but have not yet been paid, as well as any future claims for payment.
A. As to the Precise Claims the Defendants are Seeking to Arbitrate
First, it is necessary to ascertain what precise claims the Defendants are seeking to arbitrate. There are three category of claims at issue: (1) Allstate's claims for damages, which seek the return of no-fault insurance payments that were previously paid to the Defendants--what are otherwise known as " claw back" claims; (2) Allstate's claim for declaratory relief, seeking a declaration that it need not pay the Defendants for any pending or future claims for no-fault insurance payments; and (3) the Defendants' claims against Allstate concerning outstanding and disputed claims for payment involving Allstate's liability to pay first party benefits.
The Defendants' motion is entitled " Memorandum of Law in Support of its Motion to Compel Arbitration of its Counterclaims
of Defendant Uptown Health Care Management, Inc." The motion certainly focuses on compelling arbitration of Uptown's counterclaim and any pending or future arbitration claims that have or may be filed with the AAA pertaining to outstanding claims for reimbursement from Allstate. (See Def. Motion at 3 (" In the instant motion, Uptown seeks to stay its counterclaim and to compel arbitration thereupon." ).) On the other hand, the Defendants entitled one of their subsections as " Moving Defendants Have an Absolute Right to Elect Arbitration of Plaintiff's Declaratory Judgment Claim." Accordingly, in response to the Defendants' motion to compel, the Plaintiffs' opposition addresses not only the Defendants' right to arbitrate their counterclaim, but also the potential of arbitrating Allstate's affirmative claims for recovery as well as the declaratory judgment claim. In turn, the Defendants' reply memorandum states that " Allstate exclusively, albeit irrelevantly, asserts that it need not arbitrate its claims-in-chief despite the clear fact that Uptown has not moved to compel arbitration of Allstate's 'affirmative actions to recover payments' in this action." (Def. Reply at 2.)
Therefore, despite the Defendants' erroneous subheading and the Plaintiffs' substantial devotion to the issue in their opposition memorandum, it appears clear from the Defendants' reply that they are not seeking to arbitrate the Plaintiffs' affirmative claims for recovery and their declaratory judgment claim. Regardless, even if they were, the Court would be in line with several other courts in this district that have unanimously found that the statutory and contractual arbitration provisions at issue do not apply to such " claw back" claims or any related declaratory cause of action. See Allstate Ins. Co. v. Lyons, 843 F.Supp.2d 358, 377-78 (E.D.N.Y. 2012) (addressing " whether the arbitration clause in § 5106(b) reaches . . . an affirmative suit by insurance companies to claw back money already paid to claimants on grounds of fraud", and after extensive analysis, finding that " the rules set forth in subsection (a) are not implicated when an insurer brings a suit for fraud to recover payment promptly made . . . [so that] subsection (b)'s arbitration provision is inapplicable to the suit" ); Allstate Ins. Co. v. Khaimov, No. 11 Civ. 2391, 2012 WL 664771 (E.D.N.Y. Feb. 29, 2012) (finding, as in Lyons, " that the scope of New York Insurance Law § 5106(b) does not reach claims of the sort before me--affirmative suits by insurance companies to claw back money already paid to claimants on the ground that it was fraudulently obtained." ); Government Employees Ins. Co. v. Grand Medical Supply, Inc., No. 11 Civ. 5339, 2012 WL 2577577, at *5 (E.D.N.Y. July 4, 2012) (" Specifically, I find that the language providing defendants with a right to arbitrate when they are 'making a claim for first party benefits' clearly limits that right to disputes in which the claimant is seeking payment under a no-fault policy. It does not apply to an affirmative suit by plaintiffs to claw back allegedly fraudulent payments already made. Thus, defendants do not have a right to compel arbitration under the terms of the insurance policies." ); Liberty Mut. Ins. Co. v. Excel Imaging, P.C., 879 F.Supp.2d 243, 264 (E.D.N.Y. 2012) (" The interpretation of Insurance Law § 5106(b) as outlined in Lyons is adopted. The defendants may not compel plaintiffs to arbitrate claims already paid" ).
Consequently, this Court will only address whether the Defendants can compel arbitration of their own claims for payment from ...