United States District Court, E.D. New York
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For Plaintiff: Gary Tsirelman, Stefan Belinfanti, Daniel Joseph Grace, Nicholas Paul Bowers, and Sarah A. Adam, Gary Tsirelman, P.C., Brooklyn, NY.
For SCS, Brittis, Cole, Dagan, Ehrlich, Ferrante, Kritzberg, Mann, Sohn, Sukhov, Weber, Weisman, and Westerband, Defendants: Andrew Leslie Zwerling and Justin M. Vogel, Garfunkel Wild P.C., Great Neck, NY.
For Patient Focus, Sharahy, and Vakhidova, Defendants: Glenn Michael Jones, Offit Kurman,, Bethesda, MD.
For Nationwide, B. Osiashvili, M. Osiashvili, S. Osiashvili, and Vayner, Defendants: David S. Douglas, Gallet Dreyer & Berkey LLP, New York, NY.
For D. Martins and Kerness, Defendants: E. Christopher Murray, Ruskin Moscou Faltischek, P.C., Uniondale, NY.
For S. Ross, Defendant: Peter S. Gordon, Gordon & Gordon, PC, Forest Hills, NY.
Cohen, Defendant, Pro se.
MEMORANDUM AND ORDER
JOSEPH F. BIANCO, United States District Judge.
Plaintiff Sky Medical Supply, Inc. (" Sky Medical" or " plaintiff" ) commenced this action on December 27, 2012, against close to ninety individual and corporate defendants, alleging violations of the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (" RICO" ) and numerous state law claims. On July
31, 2013, plaintiff filed an amended complaint, which reduced the number of defendants to forty-four. The gravamen of the amended complaint is that defendants--vendors who handle independent medical examinations (" IMEs" ) and peer reviews for no-fault insurance companies, their owners, and the doctors who claim to have performed these IMEs and peer reviews--have colluded to generate fraudulent IME and peer review reports that result in the denial of no-fault insurance claims. As a medical equipment provider who has submitted claims to no-fault insurers for the reimbursement of benefits furnished to injured parties, many of which have been denied, plaintiff asserts financial loss as a result of defendants' alleged scheme.
Numerous defendants have moved to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motions to dismiss are granted in part, and plaintiff's request for leave to file a second amended complaint is granted. First, the Court cannot determine at this juncture whether plaintiff's RICO claims are time-barred, particularly in light of plaintiff's allegations of fraudulent concealment. Second, the Court concludes that plaintiff has adequately alleged RICO violations (both its substantive and conspiracy provisions) as to all moving defendants who are actually named defendants in the RICO causes of action. Third, the Court concludes that plaintiff has failed to satisfy RICO's ripeness requirement, i.e., to allege clear and definite damages that were caused by the alleged RICO violations. According to plaintiff's own representations to the Court, plaintiff is currently challenging the denials of an unknown number of its no-fault claims in arbitration proceedings and state court actions. At issue in those proceedings are the same no-fault claims whose denials have prompted this action. Thus, the full extent of plaintiff's RICO damages is contingent upon the results in pending proceedings, and is not clear and definite at this time. Under these circumstances, clear Second Circuit law requires dismissal of plaintiff's RICO claims, as to all defendants, without prejudice to plaintiff bringing its RICO claims once its damages have become clear and definite. Fourth, the Court concludes that plaintiff has adequately alleged the causation element of a RICO claim. In sum, the Court concludes that plaintiff's RICO claims must be dismissed without prejudice. Because the RICO claims are plaintiff's only federal claims, the Court declines to exercise supplemental jurisdiction over plaintiff's remaining state law claims.
The Court also considers plaintiff's request for leave to file a second amended complaint. Specifically, plaintiff's counsel indicated at oral argument that plaintiff could remedy its inadequate allegations of RICO damages by including in a second amended complaint a list of all denied no-fault claims underlying this lawsuit, along with information about whether each claim is pending or not in state court or arbitration proceedings. Given plaintiff's counsel's representation at oral argument, and the fact that plaintiff's RICO claims are otherwise well-pleaded, the Court grants plaintiff leave to amend its RICO claims within thirty days of this Memorandum and Order. If plaintiff does not file a second amended complaint within thirty days, then the Court will order the Clerk of the Court to close the case and enter judgment of dismissal, without prejudice to plaintiff bringing a new action when its RICO injury has become clear and definite.
A. New York No-Fault Insurance Law
Under New York's no-fault automobile insurance scheme, an insurer can deny an insured's claim for medical treatment if the treatment is not medically necessary. See
N.Y. Comp. Codes R. & Regs. tit. 11, § 65-1.1; see also McGee v. State Farm Mut. Auto. Ins. Co., No. 08-CV-392 (FB) (CLP), 2009 WL 2132439, at *1 (E.D.N.Y. July 10, 2009) [hereinafter McGee I ]; Healing Hands Chiropractic, PC v. Nationwide Assurance Co., 5 Misc.3d 975, 787 N.Y.S.2d 645, 647 (N.Y. Civ. Ct. 2004). To verify a treatment's medical necessity, an insurer may require the claimant to " submit to medical examination by physicians selected by, or acceptable to, the [insurer], when, and as often as, the [insurer] may reasonably require." N.Y. Comp. Codes R. & Regs. tit. 11, § 65-1.1. " These examinations are referred to as 'independent medical examinations' ('IMEs')." McGee I, 2009 WL 2132439, at *1. An insurer may also submit the injured party's medical and other records to a third party physician, who reviews the records and renders an opinion on the medical necessity of the treatment at issue in a so-called " peer review report." See, e.g., Consol. Imaging P.C. v. Travelers Indem. Co., 30 Misc.3d 1222[A], 924 N.Y.S.2d 308, 2011 N.Y. Slip Op 50159[U] (N.Y. Civ. Ct. 2011). The insurer may deny a claim for lack of medical necessity on the basis of an IME or peer review report. See, e.g., Healing Hands, 787 N.Y.S.2d at 647.
After an insurer denies a claim, the claimant " is entitled to 'seek immediate redress, and to recover both the amount of any overdue claim and reasonable attorney's fees in securing payment.'" Hosp. for Joint Diseases v. Allstate Ins. Co., 5 A.D.3d 441, 773 N.Y.S.2d 427, 428 (N.Y.App.Div. 2004) (quoting Roggio v. Nationwide Mut. Ins. Co., 66 N.Y.2d 260, 262, 487 N.E.2d 261, 496 N.Y.S.2d 404 (1985)). Specifically, the claimant has two options: (1) " file suit seeking payment of the claim," or (2) " pursuant to Insurance Law § 5106(b), submit the dispute to arbitration, pursuant to simplified procedures promulgated by the Insurance Department." Id. at 428-29.
B. Allegations in the Amended Complaint and Amended RICO Statement
The following facts are taken from the amended complaint, amended RICO statement, and the exhibits attached thereto, and are not findings of fact by the Court. Instead, the Court will assume these facts to be true and, for purposes of the pending motions to dismiss, will construe them in a light most favorable to plaintiff, the non-moving party.
1. The Parties
Plaintiff is a medical equipment provider that furnishes medical equipment to injured
parties who are covered by no-fault insurance. (Am. Compl. ¶ ¶ 72-75.) In exchange for plaintiff's medical equipment, an individual assigns plaintiff his insurance claim. ( Id. ¶ 73.) Plaintiff then submits a claim for reimbursement to the individual's no-fault insurer. ( Id. ¶ ¶ 72-75.)
Defendant SCS is a medical consulting vendor that contracts with no-fault insurance carriers to perform IMEs and peer reviews. ( Id. ¶ ¶ 12, 79.) SCS is owned by defendant Linda Ackerman (" Ackerman" ), but defendant Eitan Dagan (" Dagan" ) manages and controls all of SCS's operations. ( Id. ¶ 13, 79.)
Defendant Patient Focus provides back office and clerical services to no-fault IME and peer review vendors like SCS. ( Id. ¶ ¶ 13, 80.) Although Patient Focus is a professional corporation, plaintiff alleges that unlicensed individuals are the actual owners of Patient Focus, in violation of New York law. ( Id. ¶ 102.) Specifically, Patient Focus is formally owned by defendant Tatiana Sharahy (" Sharahy" ). ( Id. ¶ 13, 31, 80.) However, plaintiff asserts that Patient Focus is actually owned and operated by defendants Svetlana Osiashvili (" S. Osiashvili" ), Benjamin Osiashvili (" B. Osiashvili" ), Mikael Osiashvili (" M. Osiashvili" ), Aleksey Vayner (" Vayner" ), and five unidentified individuals. ( Id. ¶ ¶ 13, 80.) S. Osiashvili, B. Osiashvili, and M. Osiashvili operate Patient Focus through their management company, defendant Nationwide Management Inc. (" Nationwide" ); Vayner operates Patient Focus through his management company, defendant BAB Management Inc. (" BAB" ); and the five unidentified individuals operate Patient Focus through their own, unidentified management companies. ( Id. ¶ ¶ 13, 80.) The amended complaint outlines specific steps that these individuals have allegedly taken to obscure Patient Focus's true ownership. ( See id. ¶ ¶ 103-07.) These steps include the alleged creation of fake rental invoices and lease agreements, forgery, perjury, and the failure to file certain financial documents with the New York Department of Taxation and Finance. ( Id. ¶ 103.)
Defendants Sharahy, Mitchell Ehrlich (" Ehrlich" ), Joseph C. Cole (" Cole" ), Julio Westerband (" Westerband" ), William A. Ross (" W. Ross" ), Warren Cohen (" Cohen" ), Renat R. Sukhov (" Sukhov" ), William S. Kritzberg (" Kritzberg" ), Robert A. Sohn (" Sohn" ), Stanley Ross (" Ross" ), Mitchell L. Weisman (" Weisman" ), Mark Weber (" Weber" ), Gary J. Florio (" Florio" ), Antonio Martins (" A. Martins" ), Damion A. Martins (" D. Martins" ), Dante Brittis (" Brittis" ), Christopher Ferrante (" Ferrante" ), Brian Freindlich (" Freindlich" ), Wayne Kerness (" Kerness" ), Denis Mann (" Mann" ), Andrew Miller (" Miller" ), Andrew Bazos (" Bazos" ), and Drew Stein (" Stein" ) (collectively, the " Doctor Defendants" ) are medical doctors and independent medical consultants who provide IME and peer review reports in response to requests made by SCS and Patient Focus. ( Id. ¶ ¶ 31-53; Am. RICO Statement, at 9-24.)
2. The Alleged Fraud
Dagan, S. Osiashvili, B. Osiashvili, M. Osiashvili, Vayner, and the five unidentified individuals (collectively, the " Manager Defendants" ) allegedly partnered to generate a mass production of fraudulent IME and peer review reports. (Am. Compl. ¶ 81.) Under their arrangement, Dagan--operating through SCS--contracted with no-fault insurers to perform IMEs and
peer reviews. ( Id.) Pursuant to these contracts, SCS agreed to scan all medical records at the insurer's place of business, to find the medical consultants who would conduct the peer reviews and IMEs, and to provide a venue for the IMEs to be administered. ( Id. ¶ ¶ 81-82.) The remaining Manager Defendants--operating through Patient Focus--handled the administrative duties essential to carrying out these tasks. ( Id. ¶ 83.) They provided the personnel necessary to scan the medical records, selected the doctors whose names would appear on the reports, arranged for doctors to perform IMEs, and scheduled court appearances for those doctors to testify in support of their reports. ( Id.)
According to the amended complaint, no doctor was ever involved in the preparation or review of the IME and peer review reports. ( Id. ¶ 89.) Instead, after the medical records were scanned in New York, they were sent to Florida, where individuals working at the direction of Yaniv Dagan, Dagan's brother, used a computer software program to create and electronically sign peer review reports. ( Id. ¶ 84.) The results of each IME and peer review report were predetermined to conclude that the medical treatment at issue was not medically necessary; they did not depend on the individual circumstances of a particular claim. ( Id. ¶ 89(a)-(b).) However, each report contained the name and signature of a doctor, who averred that he or she had prepared and read the report, " certif[ied] and affirm[ed]" the findings and conclusions in the report, and stated that he or she had reviewed all medical records in the file. ( Id. ¶ ¶ 84, 89(c)-(f).) Contrary to these representations, plaintiff asserts that the Manager Defendants used unlicensed individuals to prepare the reports, whose results were predetermined, and paid the Doctor Defendants for the use of their names on the reports. ( Id. ¶ ¶ 85-86, 89.) Once the reports were completed and signed, they were sent by mail and e-mail to the insurance carriers, who relied on the reports to determine whether to deny a given insurance claim for medical treatment as not medically necessary. ( Id. ¶ 84.) Because there is no review of IME or peer review reports (other than by filing a lawsuit or commencing arbitration), plaintiff claims that the defendants have been able to perpetuate this alleged scheme without detection. ( Id. ¶ ¶ 77-78.)
By allowing SCS and Patient Focus to create and sign IME and peer review reports in their names, the Doctor Defendants were allegedly paid for the creation of more IME and peer review reports than they possibly could have genuinely produced. ( Id. ¶ 85.) For instance, over an unspecified period of time, Sharahy, W. Ross, and Florio each have purportedly reviewed between 750,000 and one million pages of medical records, and over 23,000 reports bearing one of the three's names have been submitted to no-fault insurers with a recommendation that the claimed treatment was not medically necessary. ( Id. ¶ 91.) In addition, more denials of no-fault claims led to more court appearances for the Doctor Defendants, who were paid to give testimony in support of their IME and peer review reports. ( Id. ¶ ¶ 85-86.) Specifically, in 2010, Sharahy, W. Ross, and Florio each appeared in court to testify in support of IME and peer review reports on at least one hundred days. ( Id. ¶ 91.) They were paid only to appear in court--not to review the underlying reports--which plaintiff asserts is " an indication that testimony would be predetermined." ( Id.)
As further evidence that the Doctor Defendants never created the IME and peer review reports at issue, the amended complaint alleges that many of the IME and peer review reports submitted through
SCS were nearly identical. ( Id. ¶ 92.) In fact, plaintiff alleges that it has submitted dozens of sample IME and peer review reports to a linguistics expert, who found " evidence of plagiarism and common authorship." ( Id. ¶ 93.) Not only do the reports contain common language, but also the analysis in these reports " never varie[d] in any meaningful way, regardless of the merits of the claims and medical conditions of the injured parties whose records are allegedly reviewed." ( Id. ¶ 94.) Moreover, the peer review reports at issue consistently cited the same medical literature that the Doctor Defendants allegedly knew to be outdated or irrelevant. ( Id. ¶ 95.) These reports also " fail[ed] to discuss in any detail how the medical records allegedly reviewed by the Doctor Defendants factored into their determinations." ( Id. ¶ 97)
As the assignee of injured parties' insurance claims, plaintiff has submitted claims for reimbursement to no-fault insurers. In many cases, plaintiff's claims have been denied based on the conclusions of the IME and peer review reports created by SCS and Patient Focus. ( Id. ¶ ¶ 130-31.) Although plaintiff has not specified precisely how many of its insurance claims were denied on the basis of the alleged fraud, plaintiff has appended to the amended complaint a " Report and Denial Chart," which is " a sample of the claims, which is certainly not exhaustive, that were denied as a direct result of Defendants' collective activity." ( Id. ¶ 134.) Specifically, this chart shows in table form the following information for 103 peer review reports: (1) the date the report was mailed, (2) the name of the Doctor Defendant that appears on the report, (3) the state to which the report was mailed from Florida, (4) the date the insurer denied plaintiff's claim, (5) the name of the injured party, and (6) the allegedly false statements contained in the report. ( Id. ¶ 134 & Ex. 1.) Plaintiff has alleged that the following five statements in each report are fraudulent: (1) the Doctor Defendant certified and affirmed that he or she had prepared and read the report, (2) the Doctor Defendant certified and affirmed his or her findings and conclusions, (3) the Doctor Defendant ...