United States District Court, E.D. New York
GOVERNMENT EMPLOYEES INSURANCE CO., GEICO INDEMNITY CO., GEICO GENERAL INSURANCE CO., GEICO CASUALTY CO., Plaintiffs,
FIVE BORO PSYCHOLOGICAL SERVICES, P.C., ALL BORO PSYCHOLOGICAL SERVICES, P,C., FIVE BORO PSYCHOLOGICAL AND LICENSED MASTER SOCIAL WORK SERVICES P.L.L.C., VLADIMIR GRINBERG, JOHN R. BRAUN, PH.D., Defendants
For Plaintiffs: By: Max S. Gershenoff, RIVKIN RADLER, LLP, Uniondale, NY.
For Defendants: By: Nicholas P. Bowers, Gary Tsirelman, GARY TSIRELMAN, P.C., Brooklyn, NY.
JOHN GLEESON, United States District Judge.
MEMORANDUM & ORDER
In this civil action, Plaintiffs Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Company, and GEICO Casualty Co. (collectively referred to here by the singular " GEICO" ) seek to recover, before trebling, over $2 million in damages arising fro its payment of Defendants' allegedly fraudulent bills for no-fault insurance benefits. GEICO also seeks a declaration that it is not obligated to pay almost $8 million dollars in what GEICO alleges are " pending fraudulent" no-fault bills for psychological services. Compl.¶ ¶ 1, 2., ECF No. 1. GEICO asserts claims against Defendants Five Boro Psychological Services, P.C., All Boro Psychological Services, P.C., Five Boro Psychological and Licensed Master Social Work Services, P.L.L.C. (the " P.C. Defendants" ), and Vladimir Grinberg and John R. Braun, Ph.D, (the " Management Defendants" ).
GEICO's claims fall into three categories: (1) efforts to recoup money from past no-fault bills that GEICO paid in full; (2) efforts to recoup money from past no-fault bills that GEICO partially paid; (3) a declaration that unpaid no-fault bills -- many of which are the subject of pending state court litigation -- need not be paid at all.
On September 7, 2012, the P.C. Defendants and John R. Braun (the " Moving Defendants" or " Defendants" ) moved pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 and N.Y. Ins. Law § 5106(b) for an order compelling arbitration of the first two categories of claims. Defs.' Mem. of Law in Support of Mot. to Compel Arbitration 2-6, 7-8, Sept. 7, 2012, ECF No. 35. As for the third category, Defendants first ask the Court to abstain from resolving GEICO's declaratory judgment action with respect to " unpaid claims that are already being adjudicated in other forums," id. at 8. In the alternative, they move to compel arbitration of GEICO's claim for declaratory relief with respect to all other pending claims. Id. Plaintiffs oppose the motion. Pls.' Mem. of Law in Opp'n to Mot. to Compel, Oct. 5, 2012, ECF No. 45.
Oral argument on the motion was heard on December 3, 2012. For the reasons set forth below, Defendants' motion is denied in part and granted in part. First, for the reasons discussed in my prior decision in Allstate Insurance Company v. Lyons, 843 F.Supp.2d 358 (E.D.N.Y. 2012), GEICO's affirmative claims to recover no-fault benefits that they already paid in reliance on Defendants' fraudulent billing do not fall within the scope of N.Y. Ins. Law § 5106(b) and, accordingly, Defendants have no right to compel arbitration of disputes over those claims. Second, abstention is inappropriate with respect to GEICO's Declaratory Judgment claim. Defendants' motion to compel arbitration of GEICO's disputes about pending and unpaid claims, which are currently the subject of hundreds of pending lawsuits brought by the Defendants in various state courts, is denied because the Defendants have waived their right to arbitrate by electing to litigate those disputes to the brink of fruition in those courts. Third, Defendants' motion to compel arbitration is granted with respect to the portion of the declaratory judgment claim relating to pending or unpaid claims that are not currently being litigated in state court (unless the Defendants choose to litigate those claims in state court or in this case).
A. GEICO's Allegations
On May 15, 2012, GEICO brought sixteen causes of action against the Defendants. Six of them allege violations of the Racketeer Influenced and Corrupt Organizations Act (" RICO" ). Specifically, GEICO alleges that it paid at least $729,000 (purportedly for psychological services) pursuant to fraudulent bills submitted by " Five Boro, P.C.," $1,249,000 pursuant to fraudulent bills submitted by " All Boro," and $147,000 pursuant to fraudulent bills submitted by " Five Boro, PLLC." See id . ¶ ¶ 113, 120, 147, 154, 181, 188. Six causes of action allege common law fraud and aiding and abetting fraud, and three causes of action allege unjust enrichment. Id. ¶ ¶ 130, 137, 171, 198, 205. Finally, GEICO seeks a declaratory judgment pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 and § 2202, that Defendants " have no right to receive payment for any pending bills submitted to GEICO." Id. ¶ 103. The complaint annexes exhibits that " summarize, in part, the fraudulent charges identified to date that Defendants have submitted, or caused to be submitted, to GEICO." Id. ¶ 5. This exhibit lists approximately 15,350 individual claims submitted between April 2004 and May 2011. See Ex. 2-4, ECF No. 1.
B. The Alleged Fraudulent Scheme
The factual allegations set forth herein, which are assumed true for purposes of this motion, are drawn from the well-pleaded allegations in the Complaint and its incorporated exhibits. At the core of its complaint are allegations that GEICO paid monies to the Defendants in reliance on bills the Defendants submitted for reimbursement, which GEICO later discovered were fraudulent. GEICO alleges that the Defendants engaged in a " complex fraudulent scheme" to inflate charges, provide useless or unnecessary services, obtain access to insured persons through kickbacks, and provide services through fraudulent, pre-determined protocols. See id . ¶ ¶ 29-76. Defendants " systematically . . . concealed their fraud," going to " great lengths to accomplish this concealment," thereby " induc[ing] GEICO to promptly pay the fraudulent charges for the fraudulent psychological services," id. ¶ 91. GEICO " did not discover and could not reasonably have discovered that its damages were attributable to fraud until shortly before it filed" the instant Complaint. Id. ¶ 100.
Defendants obtained access to persons who claim to have been injured in automobile accidents " though the payment of kickbacks . . . to healthcare clinics located throughout the New York area." Id. ¶ 31. In exchange for kickbacks, these clinics referred insured persons to the Defendants for psychological treatment, and, in turn, the Defendants submitted fraudulent bills for medically and psychologically unnecessary services. Id. ¶ ¶ 1, 2, 28, 65, 75, 105. Since the payment of kickbacks for patient referrals is " prohibited by, inter alia, the New York Education Law, 8 N.Y.C.R.R. § 29.1 and 29.12,"  id. ¶ 26, GEICO alleges that Defendants are in violation of these regulations and, therefore, their bills " misrepresent that the PC Defendants are lawfully licensed and eligible to bill and collect No-Fault Benefits, when in fact they are not." Id. ¶ 92
Moreover, the bills were fraudulent insofar as the services provided did not involve " any independent assessment of any Insured's discrete symptoms," id. ¶ 43. Each insured was " subjected to a virtually identical series of unnecessary psychological services . . . pursuant to a fraudulent, pre-determined protocol" designed to maximize billings. Id. ¶ 38; see also ¶ ¶ 44, 53, 65. Defendants inflated the amount of time spent on the services solely to maximize billing, id. ¶ 46, " use[d] boilerplate language from pre-existing reports," id. ¶ 50, and then " sign[ed] the reports . . . without reviewing them," id. ¶ 50. As a result, the Defendants made " phony" diagnoses of serious psychological ailments " regardless of [the patients'] individual circumstances," and despite that fact that " virtually every claim [at issue] . . . involve[d] . . . . trivial 'fender benders.'" Id. ¶ ¶ 54, 58. The Defendants billed for diagnostic interview examinations " either not performed at all, or . . . not meant to have any benefit for the Insureds," id. ¶ 69, and then charged GEICO for psychotherapy sessions that " materially misrepresent[ed] and exaggerate[ed] the level of services provided," id. ¶ 76. Since the services were provided as a result of a kickback arrangement, the bills were fraudulent for the additional reason that they were provided by persons not " lawfully licensed" even if the services billed were actually provided. Id. ¶ ¶ 124, 158, 192.
C. New York State No-Fault Law
In 1973, the New York State Legislature enacted the Comprehensive Automobile Insurance Reparations Act, see N.Y. Ins. Law § § 5101 through 5109, " to create a simple, efficient system that would provide prompt compensation to accident victims." State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500, 502 (2d Cir. 2004). The " primary aims" of this law were " to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts[,] and to provide substantial premium savings to New York motorists." Matter of Med. Soc'y of State of N.Y. v. Serio, 100 N.Y.2d 854, 860, 800 N.E.2d 728, 768 N.Y.S.2d 423 (2003).
The Superintendent of Insurance promulgated regulations implementing the No-Fault Law, currently codified in 11 N.Y.C.R.R. part 65. These regulations require no-fault insurers to reimburse ...