United States District Court, E.D. New York
GOVERNMENT EMPLOYEES INSURANCE COMPANY, GEICO INDEMNITY COMPANY, GEICO GENERAL INSURANCE COMPANY, Plaintiffs,
WELLMART RX, INC., SIMON DAVYDOV, RUSLAN NEKTALOV A/K/A RUSS NEKTA, MICHAEL JOCOBI, M.D., JOANNE MAGRO, M.D., CONRAD CEAN, M.D., DENNY RODRIGUEZ, M.D., ANDREW PATRICK, M.D., RAFAEL DELACRUZ-GOMEZ, M.D., RADHA GARA, M.D., VIVIANE ETIENNE, M.D., MIHAELA DAJDEA, P.A., CLAUDIA GERIS, P.A., CARLINE BOUBERT, P.A., AND JOHN DOES NOS. “1” THROUGH “5, ” Defendants.
MEMORANDUM & ORDER
A. Matsumoto United States District Judge
Government Employees Insurance Company, GEICO Indemnity
Company, GEICO General Insurance Company, and GEICO Casualty
Co. (together, “plaintiffs” or
“GEICO”), commenced this litigation against
defendants on July 31, 2019. (ECF No. 1, Compl.) The instant
motion seeks two forms of relief. First, GEICO seeks to stay
all collection arbitrations arising under New York's
No-Fault Insurance law, and pending before the American
Arbitration Association (“AAA”), between
defendant Wellmart RX, Inc. (“Wellmart”) and
GEICO, until resolution of the instant federal action. (ECF
No. 68-2, Memorandum of Law in Support of Plaintiffs'
Motion (“Mot.”), 1.) Second, GEICO moves to
enjoin Wellmart, along with its record owners, Ruslan
Nektalov and Simon Davydov (collectively, the “Pharmacy
Defendants”), from commencing any new No-Fault
collection arbitrations or civil collection lawsuits against
GEICO on behalf of Wellmart, until this action is resolved.
reasons stated below, plaintiffs' motion is granted.
New York's No-Fault Insurance Laws
York enacted the Comprehensive Automobile Insurance
Reparations Act, New York Insurance Law (“N.Y. Ins.
Law”) §§ 5101-5109, for the purpose of
“ensur[ing] 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.”
Med. Soc'y of State of N.Y. v. Serio, 800 N.E.2d
728, 731 (N.Y. 2003) (citing Governor's Mem. approving L.
1973, ch. 13, 1973 McKinney's Session Laws of N.Y., at
2335). No-Fault insurers, like GEICO, may reimburse patients
up to $50, 000 without proof of the other driver's fault;
reimbursements may include necessary expenses incurred for
medical or other professional health services. See
N.Y. Ins. Law §§ 5102(a)(1), (b). Insurers are
required to verify a claim, and then pay or deny the claim
within 30 days. See N.Y. Ins. Law § 5106(a);
N.Y. Comp. Codes R. & Regs. (“NYCRR”) tit. 11
§§ 65-3.8(a), (c). Under New York law, an insured
may assign his or her benefits “directly to providers
of health care services.” 11 NYCRR § 65-3.11(a).
The regulations specify the criteria needed for a health care
provider to receive direct payment from the insurer.
See 11 NYCRR § 65-3.11(b).
5106 of the New York Insurance Law creates a “[f]air
claims settlement” procedure for all No-Fault claims.
No-Fault benefits are deemed overdue if they are not paid or
denied within 30 calendar days after proof of claim is
submitted. See N.Y. Ins. L. § 5106(a); 11 NYCRR
§ 65-3.8(c). If an insurer fails to comply with this
timeframe, it will be precluded from asserting many (but not
all) defenses to coverage, including most fraud-based
defenses. See Fair Price Med. Supply Corp. v. Travelers
Indem. Co., 10 N.Y.3d 556 (N.Y. 2008); Cent. Gen.
Hosp. v. Chubb Grp. of Ins. Cos., 90 N.Y.2d 195, 199,
659 N.Y.S.2d 246 (N.Y. 1997). A claimant may bring an action
in state court to recover overdue No-Fault benefits, and in
any such action the claimant need only show that the
prescribed statutory billing forms were mailed and received
and that the benefits are overdue. See Viviane Etienne
Med. Care, P.C. v. Country-Wide Ins. Co., 25 N.Y.3d 498,
506 (N.Y. 2015). In addition, insurers are required to
include a clause in their policies allowing the claimant to
seek arbitration of their claims for No-Fault benefits.
See N.Y. Ins. L. § 5106(b); 11 NYCRR §
York's No-Fault Insurance law establishes the procedures
for arbitration of disputed claims. See 11 NYCRR
§ 65-4.5. By statute, the New York Department of
Financial Services Superintendent has designated AAA as the
body responsible for administration of the No-Fault
arbitration process. Id. § 65-4.2(a)(2).
Insurers generally bear the costs associated with the
arbitration process in direct proportion to the frequency
with which they are named as respondents. Id. §
65-4.2(c)(1). The Second Circuit has commented that the
“arbitration process for No-Fault coverage is an
expedited, simplified affair meant to work as quickly and
efficiently as possible. Discovery is limited or
non-existent. Complex fraud and RICO claims, maturing years
after the initial claimants were fully reimbursed, cannot be
shoehorned into this system.” Allstate Ins. Co. v.
Mun, 751 F.3d 94, 99 (2d Cir. 2014) (citing 11 NYCRR
insurer who pays No-Fault benefits and subsequently discovers
fraud may bring an action for damages. See State Farm
Mut. Auto. Ins. Co. v. James M. Liguori, M.D., P.C., 589
F.Supp.2d 221, 229-235 (E.D.N.Y. 2008); State Farm Mut.
Auto. Ins. Co. v. CPT Med. Servs., P.C., 2008 WL
4146190, at *6-7 (E.D.N.Y. Sept. 5, 2008). The insurer may
also bring an action for a declaratory judgment that it is
not liable for any unpaid claims where the provider has
committed fraud or breached applicable No-Fault regulations.
See 28 U.S.C. § 2201; Gov't Emps. Ins.
Co. v. Jacques, 2017 WL 9487191, at *9-*11 (E.D.N.Y.
Feb. 13, 2017), report and recommendation adopted,
2017 WL 1214460 (E.D.N.Y. Mar. 31, 2017); State Farm Mut.
Auto. Ins. Co. v. Cohan, 2009 WL 10449036, at *4
(E.D.N.Y. Dec. 30, 2009), report and recommendation
adopted, 2010 WL 890975 (E.D.N.Y. Mar. 8, 2010).
However, if an insurer is precluded from asserting a defense
to coverage (such as provider fraud) due to its noncompliance
with the 30-day rule, it will also be precluded from
obtaining a declaratory judgment on those same grounds.
See Allstate Ins. Co. v. Williams, 2015 WL 5560543,
at *7 (E.D.N.Y. Aug. 28, 2015), report and
recommendation adopted, 2015 WL 5560546
(E.D.N.Y. 2015); Gov't Emps. Ins. Co. v. AMD
Chiropractic, P.C., 2013 WL 5131057, at *8 (E.D.N.Y.
Sept. 12, 2013).
alleges that, since 2015, the Pharmacy Defendants have
submitted more $7.3 million in fraudulent billing to GEICO
for medically unnecessary pharmaceutical products as part of
a scheme designed to exploit New York's No-Fault
Insurance law. (Compl. ¶ 2.) The scheme allegedly
operated as follows. The Pharmacy Defendants entered into
illegal, collusive agreements with various prescribing
healthcare providers, including eight New York-licensed
physicians and three physician assistants (collectively,
“Prescribing Defendants”). (Id.) In
exchange for kickbacks, the Prescribing Defendants generated
boilerplate and medically unnecessary prescriptions for
“pain-relieving” pharmaceuticals using template
prescription forms supplied by the Pharmacy Defendants.
(Id. ¶ 1.) The prescriptions were dispensed to
individuals involved in automobile accidents and eligible for
No-Fault coverage under GEICO insurance policies.
(Id.) The Prescribing Defendants would also produce
generic, pre-printed examination reports to justify the
continued dispensation of excessive/unnecessary
pharmaceutical products to patients. (Id. ¶
70.) As part of the scheme, Wellmart also mass-produced and
dispensed topical compound pain creams (“Fraudulent
Compounded Pain Creams”), in pre-set formulations that
were neither FDA-approved nor tailored to the individual
needs of patients, and thus, violative of federal and state
regulations. (Id. ¶ 4.)
complaint seeks a declaration by the court, pursuant to 28
U.S.C. §§ 2201, 2202, that GEICO is not legally
obligated to reimburse Wellmart for over $5, 700, 100 in
pending No-Fault claims that defendants either submitted or
caused to be submitted through Wellmart. (Compl. ¶ 6.)
GEICO also seeks recovery of approximately $1, 190, 700 in
fraudulent bills paid to Wellmart, and asserts causes of
action under the Racketeering Influenced and Corrupt
Organizations Act (“RICO”), conspiracy to violate
RICO, common law fraud, aiding and abetting fraud, and unjust
enrichment. (Id. ¶¶ 215-62.)
to a declaration submitted by GEICO Claims Manager Robert
Weir, Wellmart is currently prosecuting more than 1, 500
collection arbitrations against GEICO before AAA. (ECF No.
68-4, Declaration of Robert Weir (“Weir Decl.”),
¶ 5.) In addition, Wellmart is prosecuting 45 civil
court suits in New York City Civil Court, Kings County.
(Id.) These arbitrations and civil suits seek to
collect on charges that are the subject of GEICO's
declaratory judgment claim before this court. (Id.)
Notably, Wellmart commenced almost 1, 200 of the pending 1,
500 collection arbitrations after the commencement of this
suit, including 644 arbitrations in November 2019 alone.
(Id. ¶ 6.) In all, the arbitrations seek to
recover more than $4, 144, 000 in No-Fault claims, and
Wellmart's civil court lawsuits seek more than $112, 000
in claims against GEICO. (Id. ¶¶ 6, 7.)
support of plaintiffs' requested relief, Weir asserts the
procedures and practices in No-Fault arbitration proceedings
impose critical handicaps on insurers like GEICO. Insurers
generally are not permitted to seek or obtain pre-hearing
discovery beyond the discrete bill and claim at issue, which,
for practical purposes, obviates an insurer's ability to
demonstrate a pattern of medically unnecessary treatment or
fraudulent billing practices across multiple patients and
claims. (Id. ¶ 15.) During the pendency of this
case, the Pharmacy Defendants have continued to pursue
collection of individual bills through arbitration and state
court proceedings. (Mot. 9.) GEICO avers that defendants are
well aware that the statutorily expedited No-Fault
arbitration procedures and civil court proceedings cannot
accommodate the time or resources needed for GEICO to
demonstrate the complex fraudulent scheme that generates each
individual bill, and are therefore trying to litigate
Wellmart's individual bills on a piecemeal basis.
Dissipation of Wellmart's Assets
their pre-motion letter, the Pharmacy Defendants represented
that Wellmart had recently sold its assets and terminated its
business operations “more than three months before the
filing of the [instant] lawsuit.” (ECF No. 66,
Defs.' Pre-Mot. Ltr., p.3.) The Pharmacy Defendants,
however, have not identified the buyer of Wellmart's
assets. Further, GEICO claims that, according to bank records
obtained through a non-party subpoena, Wellmart has
transferred over $1.2 million out of its bank account in the
12-month period from June 2018 to May 2019. (ECF No. 68-3,
Declaration of Michael A. Sirignano (“Sirignano
Decl.”) ¶ 20.) These withdrawals have taken the
form of myriad small MoneyGram transfers, usually for less
than $10, 000 each. (Id; Mot. 7.) GEICO's claims
are substantiated by Wellmart's bank statements, which
are appended as an exhibit to the motion. (ECF No. 68-12,
Wellmart Bank Statements.) The court will discuss
Wellmart's financial records below in connection with the
irreparable harm prong of plaintiffs' motion.
moves to stay and enjoin defendants' No-Fault collection
proceedings. GEICO's dual requests are considered in
tandem as a motion to stay and a motion for a preliminary
injunction to prevent additional actions from being filed.
Courts look to the preliminary injunction standard under such
circumstances. See Gov't Emps. Ins. Co. v. Cean,
No. 19CV2363PKCSMG, 2019 WL 6253804, at *4 (E.D.N.Y. Nov. 22,
2019) (citing Allstate Ins. Co. v. Elzanaty, 929
F.Supp.2d 199, 217 (E.D.N.Y. 2013)); see also Moore v.
Consol. Edison Co. of N.Y., 409 F.3d 506, 510 (2d Cir.
2005). “In order to justify a preliminary injunction, a
movant must demonstrate (1) irreparable harm absent
injunctive relief; and (2) ‘either a likelihood of
success on the merits, or a serious question going to the
merits to make them a fair ground for trial, with a balance
of hardships tipping decidedly in the plaintiff's
favor.'” Metro. Taxicab Bd. of Trade v. City of
New York,615 F.3d 152, 156 (2d Cir. 2010) (quoting
Almontaser v. New York City Dept. of Educ., 519 F.3d
505, 508 (2d Cir. 2008)). “The showing of irreparable
harm is [p]erhaps the single ...