P. ex rel. State Farm Mutual Automobile Ins. Co. v. Rubin ( 2021 )

Filed 12/14/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
THE PEOPLE ex rel. STATE FARM
MUTUAL AUTOMOBILE INSURANCE
COMPANY, G059509
Plaintiff and Appellant, (Super. Ct. No. 30-2019-01107066)
v. OPINION
SONNY RUBIN et al.,
Defendants and Respondents.
Appeal from a judgment of the Superior Court of Orange County, William
D. Claster, Judge. Reversed and remanded.
Katten Muchin Rosenman, Ryan M. Fawaz and Christopher B. Maciel for
Plaintiff and Appellant.
Khouri Law Firm, Michael J. Khouri and Behzad Vahidi for Defendants
and Respondents.
* * *
The Insurance Fraud Protection Act (IFPA) allows qui tam plaintiffs to file
lawsuits on the government’s behalf and seek monetary penalties against perpetrators of
insurance fraud. Under the IFPA, a defrauder is assessed penalties for each fraudulent
insurance claim it presented to insurers. To prevent duplicative lawsuits, the IFPA
contains a “first-to-file rule” that bars parties from filing subsequent actions related to an
already pending lawsuit. Here, plaintiff State Farm Mutual Automobile Insurance
Company (State Farm) filed an IFPA action alleging defendants Sonny Rubin, M.D.,
Sonny Rubin, M.D., Inc., and Newport Institute of Minimally Invasive Surgery
(collectively, defendants) fraudulently billed insurers for various services performed in
connection with epidural steroid injections. A month prior, however, another insurer,
Allstate (defined below), filed a separate IFPA lawsuit against the same defendants,
alleging they were perpetrating a fraud on Allstate, also involving epidural steroid
injections.
In this action, the trial court sustained defendants’ demurrer to State Farm’s
complaint under the IFPA’s first-to-file rule, finding it alleges the same fraud as
Allstate’s complaint. State Farm appeals, arguing its complaint alleges a distinct fraud.
We agree the demurrer was incorrectly sustained, but for another reason. In applying the
rule, the court and both parties only focused on whether the two complaints allege the
same fraudulent scheme. But, in this matter of first impression, we find the IFPA’s first-
to-file rule requires an additional inquiry. Courts must also review the specific insurer-
victims underlying each complaint’s request for penalties. If each complaint seeks
penalties for false insurance claims relating to different groups of insurer-victims, the
first-to-file rule does not apply. A subsequent complaint is only barred under the first-to-
file rule if the prior complaint alleges the same fraud and seeks penalties arising from the
false claims, submitted to the same insurer-victims.
Here, both complaints largely seek penalties relating to separate pools of
victims. Allstate’s complaint only seeks IFPA penalties for the false insurance claims
2
that defendants presented to Allstate. State Farm’s broader action seeks penalties for all
the false insurance claims that defendants submitted to any insurer. Allstate is the only
overlapping victim. Thus, even if the two complaints allege the same fraud, State Farm is
only precluded from pursuing IFPA penalties for the false claims that defendants billed to
Allstate. As to the other inquiry, there is partial overlap between the fraudulent schemes
alleged in the complaints. Both complaints allege a common scheme in which defendants
presented false claims to insurers pertaining to epidural steroid injections. However,
State Farm’s complaint also alleges a distinct scheme involving false charges for
magnetic resonance imaging (MRI) interpretations that defendants billed independently
from epidural spinal injections.
Based on these findings, as to the portion of State Farm’s IFPA action
relating to epidural steroid injections, the first-to-file rule only bars State Farm from
pursuing penalties for the false claims that defendants allegedly submitted to Allstate. It
may still pursue penalties for any false claims that defendants submitted to other insurers.
For the portion of State Farm’s action based on MRI charges billed independently from
epidural spinal injections, State Farm may pursue penalties for any false claims that
defendants submitted to any insurer, including Allstate.
For these reasons, we find the demurrer was wrongly sustained and reverse
the judgment.
I
FACTS AND PROCEDURAL HISTORY
A. Statutory Background
1
The IFPA (Ins. Code, § 1871 et seq.) was enacted in 1993 to combat
workers’ compensation fraud. (People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107
Cal.App.4th 534, 547 (Weitzman).) It was extended to insurance fraud through a 1994
1
Subsequent statutory references are to the Insurance Code unless otherwise stated.
3
amendment. (Id. at pp. 547-548.) As described in a senate committee report, the purpose
of the 1994 amendment was “‘to enact a comprehensive package of laws to assist in the
prevention, identification, investigation, and prosecution of insurance fraud.’” (Id. at
pp. 548-549.) Likewise, the amendment’s sponsor declared its purpose was “‘[t]o help
state and local law enforcement agencies and insurers to fight insurance fraud, without
creating expensive new bureaucracies and breaking the bank in [a] tight budget year.’”
(Ibid.)
To assist in the fight against insurance fraud, the IFPA contains a qui tam
provision empowering interested persons to file lawsuits on behalf of the government
against perpetrators of insurance fraud. “Under subdivision (b) of Insurance Code
section 1871.7, ‘[e]very person’ who engages in insurance fraud . . . is subject to
penalties and assessments. [Citation.] Section 1871.7, subdivision (e)(1) expressly
authorizes any ‘interested person[]’ to bring a qui tam action to recover damages and
penalties for fraudulent insurance claims both for that person and for the State of
California. [Citations.] The person who brings the qui tam action, called the ‘relator,’
stands in the shoes of the People of the State of California, who are deemed to be the real
party in interest. [Citations.] The relator in a qui tam action under section 1871.7 does
not personally recover damages but, if successful, receives a substantial percentage of the
recovery as a bounty.” (People ex rel. Strathmann v. Acacia Research Corp. (2012) 210
Cal.App.4th 487, 500 (Strathmann).) Penalties are assessed for each fraudulent claim
presented by a defendant to a victim-insurer. (§ 1871.7, subd. (b).)
“The relator’s complaint must be served on the district attorney and the
Insurance Commissioner, who have 60 days to decide whether to intervene and proceed
with the lawsuit. [Citation.] If the district attorney and the Insurance Commissioner both
decline to take over the action [citation], the relator may proceed with the action and
recover a bounty of 40 to 50 percent of the recovered proceeds, plus reasonable expenses
and attorney fees . . . .” (People ex rel. Alzayat v. Hebb (2017) 18 Cal.App.5th 801, 813–
4
814.) “‘A qui tam relator is essentially a self-appointed private attorney general, and his
recovery is analogous to a lawyer’s contingent fee. The relator has no personal stake in
the damages sought—all of which, by definition, were suffered by the government.’”
(Strathmann, supra, 210 Cal.App.4th at pp. 500-501.) “The IFPA’s civil penalties are
intended to be remedial and not punitive [citation], and they are not the exclusive
remedies available for insurance fraud [citation].” (People ex rel. Alzayat, at pp. 813-
814.)
This enforcement mechanism is intended to “‘“provid[e] . . . incentives for
individual citizens to come forward with information uniquely in their possession and to
thus aid the Government in [ferreting] out fraud.”’ [Citation.] The bounty advances the
public purpose and benefit by encouraging private qui tam actions; ‘[i]ndeed, this
prospect of reward may be the only means of inducing such private parties to come
forward with their information.’” (Strathmann, supra, 210 Cal.App.4th at p. 502.)
Section 1871.7 also contains several provisions that bar repetitive lawsuits.
It contains a “public disclosure rule,” that precludes “parasitic or opportunistic actions by
persons simply taking advantage of public information without contributing to or
2
assisting in the exposure of the fraud.” (Weitzman, supra, 107 Cal.App.4th at pp. 558-
559, 564.) The provision at issue here, section 1871.7, subdivision (e)(5), is generally
known as a “first-to-file rule.” As explained below, other state and federal statutory
schemes contain similar first-to-file rules. The IFPA’s first-to-file rule provides that
“[w]hen a person or governmental agency brings an action under this section, no person
2
Specifically, the public disclosure rule provides that “[n]o court shall have jurisdiction
over an [IFPA] action . . . based upon the public disclosure of allegations or transactions
in a criminal, civil, or administrative hearing in a legislative or administrative report,
hearing, audit, or investigation, or from the news media, unless the action is brought by
the Attorney General or the person bringing the action is an original source of the
information.” (§ 1871.7, subd. (h)(2)(A).) This opinion is not intended to have any
affect on the public disclosure rule.
5
other than the district attorney or commissioner may intervene or bring a related action
based on the facts underlying the pending action unless that action is authorized by
another statute or common law.” (§ 1871.7, subd. (e)(5), italics added.)
B. This Action
On October 23, 2019, State Farm filed this qui tam action under the IFPA
against defendants, which are comprised of Sonny Rubin, M.D. (Dr. Rubin) and two
entities he controls: Sonny Rubin M.D., Inc. (Rubin Inc.), the medical corporation
through which Dr. Rubin bills the services he performs, and Newport Institute of
Minimally Invasive Surgery (Newport Institute), an ambulatory surgery center owned
and controlled by Dr. Rubin.
Dr. Rubin specializes in pain management procedures, including patients
experiencing neck and/or back pain. State Farm alleges Dr. Rubin fraudulently billed for
various services performed in connection with epidural steroid injections, a form of pain
management. These services included: (1) fluoroscopy, (2) epidurography,
3
(3) myelography, and (4) evaluation and management services.
Fluoroscopy is used to obtain images of the internal structures of the body.
A physician injects a dye into the targeted area and uses special equipment to view the
flow of the dye. Epidural spinal injections are commonly performed under fluoroscopic
guidance to ensure proper placement of the needle and flow of medication during the
injection. When fluoroscopy is performed to assist with an epidural spinal injection, they
3
State Farm alleges there are various forms of epidural steroid injections. The ones at
issue here are translaminar and interlaminar injections. The distinctions between these
injections are immaterial for purposes of this appeal, so we simply refer to them as
epidural steroid injections. We also note the medical information in this opinion is taken
from State Farm’s complaint. Given the procedural posture of this case, we assume these
allegations are true. (Mathews v. Becerra (2019) 8 Cal.5th 756, 761-762.) Also, the
medical information alleged by State Farm is not contested by defendants.
6
are billed together using the same Current Procedural Terminology (CPT) code. CPT
codes are standardized five-digit numeric codes established by the American Medical
Association. They are used by healthcare providers to quickly describe to insurers the
services for which the provider is billing. According to State Farm, when one CPT code
includes multiple components of a service or procedure, healthcare providers must use
that code to support a single charge. A provider cannot “unbundle” that CPT code and
separately bill for each individual component of the bundled code. State Farm alleges
defendants inflated bills by improperly unbundling fluoroscopy services and charging
them separately from epidural steroid injection procedures. This alleged creation of two
separate charges fraudulently inflated defendants’ total bills for these services.
Epidurography uses fluoroscopic imaging to assess the condition of a
patient’s epidural space in the spine. The physician injects a dye into the epidural space,
without penetrating the dura (the membranous sheath that protects the spinal cord), to
view its flow and determine the condition of the space. This is typically done if a
physician believes the patient’s epidural space may contain abnormalities that could
impede or disrupt the flow of the injected solution. Myelography is similar to
epidurography. While the latter is used to visualize the epidural space (the space outside
the dura), myelography is used to visualize the space inside the dural membrane.
State Farm alleges Dr. Rubin submitted false bills for epidurography and
myelography services purportedly done in connection with epidural spinal injections.
State Farm claims these services were not performed or, if they were performed, were not
medically necessary. Among other things, Dr. Rubin’s medical records failed to note the
clinical basis or rationale for either of these procedures. Nor did they contain summaries
of any findings from the purportedly performed procedures, and Dr. Rubin was unable to
produce any images or reports from these procedures when requested by State Farm.
Further, a myelogram should not be performed on the same day as an epidural steroid
7
4
injection to protect patient safety. Yet Dr. Rubin’s bills show these services were
performed at the same time. According to State Farm, this suggests these myelograms
were not actually performed.
Physicians also provide evaluation and management services in connection
with epidural spinal injections, such as obtaining medical histories, performing
examinations, and rendering medical advice. These services are normally a routine part
of an epidural spinal injection. As such, they are typically bundled together and charged
through the same CPT code as the injection. If a patient has a condition requiring
abnormal evaluation and management services, the physician may submit a separate
charge for those services using a separate CPT code. State Farm asserts Dr. Rubin
improperly billed for evaluation and management services with a separate CPT code
when he did not provide any special service warranting a separate charge.
In addition to the above services, State Farm also alleges defendants
engaged in fraudulent billing relating to MRI interpretations. MRI is a procedure that
produces images of the muscle, bone, tissue, and nerves. These images must be
interpreted by a physician, typically a radiologist. State Farm asserts Dr. Rubin falsely
billed for MRI interpretations that he did not perform. Instead, he relied on the
interpretations of third party radiologists, for which he could not bill. To the extent he
did perform any independent MRI interpretations, State Farm alleges those services were
not medically necessary. Among other things, Dr. Rubin did not provide independent
written reports to support these MRI interpretation charges.
While the allegedly false charges for the other four procedures
(fluoroscopy, epidurography, myelography, and evaluation and management services)
4
Epidural steroid injections contain a preservative that can damage the spinal cord.
Because myelography involves penetration of the dural membrane, epidural steroid
injections should not be performed on the same day to ensure the injected solution does
not get near the spinal cord.
8
were all billed in connection with epidural steroid injections, the MRI charges largely
were not. This is apparent from State Farm’s complaint, which contains spreadsheets
showing all the allegedly fraudulent charges billed by defendants to State Farm. Though
a handful of the allegedly false MRI charges were billed in connection with epidural
spinal injections, the bulk were not and are identified on the spreadsheet as standalone
charges.
Based on the above allegations, State Farm asserts two IFPA causes of
action against defendants. The first, against Dr. Rubin and Rubin, Inc., is based on the
false claims Dr. Rubin made to insurers for all five services identified above
(fluoroscopy, epidurography, myelography, evaluation and management services, and
MRI interpretations). The second, against Dr. Rubin and Newport Institute, is based on
false claims and fraudulent facility fee charges relating to certain fluoroscopy and
myelography services purportedly performed by Dr. Rubin. For both causes of action,
State Farm seeks broad relief, requesting penalties for all the false claims that defendants
presented to any insurer under the same fraudulent scheme. Neither the Insurance
Commissioner nor any district attorney intervened in State Farm’s lawsuit.
C. The Allstate Lawsuit
On September 27, 2019, a few weeks before State Farm filed this action,
Allstate Insurance Company and several of its affiliates (collectively, Allstate) filed their
own IFPA lawsuit against defendants and several other entities connected to Dr. Rubin.
Allstate’s complaint was still sealed when State Farm filed this action. Accordingly,
there is no reason to believe State Farm’s complaint derived any material information
from Allstate.
The allegations in Allstate’s complaint are far more generalized than State
Farm’s. Allstate asserts Dr. Rubin “exaggerated the severity of his patients’ medical
conditions and recommended pre-ordained courses of treatment without regard to patient
9
need, patients’ medical histories, test results, imaging studies, and subjective complaints.
For every patient that [Dr. Rubin] examined, he prepared . . . templated narrative reports
containing uniform findings, used to support his pre-determined, ‘one-size-fits-all’
treatment regimens, including repeated epidural steroid injections and facet blocks, which
were billed at exorbitant rates . . . .”
Allstate also alleges that “[t]hrough the manipulation of billing codes to
maximize reimbursement, bills submitted by [defendants] grossly inflate[d] the value of
the services rendered and often contain[ed] charges for treatment that was never provided
or multiple charges for the same treatment.” In particular, Dr. Rubin “engaged in several
types of fraudulent billing practices, including ‘unbundling’ [CPT] codes, billing for
treatment not rendered, and double billing when only one service was provided. The
billing statements were knowingly presented to . . . [Allstate] by Defendants . . .
including numerous instances of false, fraudulent, or misleading use of CPT codes to
make it falsely appear that more treatment was rendered [than] actually occurred.”
Significantly, though, Allstate’s action only seeks IFPA penalties for the
fraudulent claims that defendants presented to Allstate. It does not seek penalties for any
false claims that defendants billed to other insurers. As with this action, neither the
district attorney nor the Insurance Commissioner intervened in Allstate’s lawsuit.
D. Defendants’ Demurrer
In this action, defendants demurred to State Farm’s complaint on grounds it
was barred by Allstate’s action under the IFPA’s first-to-file rule. The trial court agreed,
finding the two “complaints allege[d] the same form of fraud, i.e., fraudulent billing
through the manipulation of CPT codes.” It sustained the demurrer but granted leave to
amend. State Farm did not amend, and the court entered judgment against it. State Farm
now appeals, arguing the court incorrectly sustained the demurrer. Generally, it
maintains the first-to-file rule does not apply because the two complaints at issue allege
10
different frauds. While we agree the demurrer should have been overruled, we reach that
conclusion using a different analytical framework than that advanced by the parties.
II
DISCUSSION
A. Defendants’ Request for Judicial Notice
In first-to-file-rule analysis, the court’s review is generally “limited to the
four corners of the relevant complaints.” (United States v. Millenium Laboratories, Inc.
(1st Cir. 2019) 923 F.3d 240, 253 (Millenium Laboratories).) “The first-to-file bar is
designed to be quickly and easily determinable, simply requiring a side-by-side
comparison of the complaints.” (In re Natural Gas Royalties Qui Tam Litigation (10th
Cir. 2009) 566 F.3d 956, 964.) Judicial notice may be appropriate in certain cases. (See,
e.g., Millenium Laboratories, supra, 923 F.3d at pp. 244-245, fn. 2 [court took judicial
notice of the government’s complaint in intervention and the subsequent settlement
agreement between the government and the defendant].) Generally, however, courts
should “look[] at the facts as they existed at the time [the second action] was brought.”
(Grynberg v. Koch Gateway Pipeline Co. (10th Cir. 2004) 390 F.3d 1276, 1279.)
Here, defendants request judicial notice of an opposition to an anti-SLAPP
motion and supporting evidence that Allstate filed in its action eight months after State
Farm’s complaint. They intend to use these documents to show Allstate’s action
encompasses the fraud alleged in State Farm’s complaint. As explained below, in
determining whether the two complaints allege the same fraudulent scheme, our analysis
focuses on whether the initial complaint (Allstate’s) provided the government with
sufficient information to investigate the fraud alleged in the subsequent complaint (State
Farm’s). (United States ex rel. Batiste v. SLM Corp. (D.C. Cir. 2011) 659 F.3d 1204,
1209 (Batiste).) Consequently, this portion of our analysis focuses on the information
already available to the government when State Farm filed its complaint. Allstate filed
11
the relevant documents months after State Farm filed its action, and it does not appear
any of these documents were ever provided to the government. As such, they are not
relevant to our analysis, and we deny defendants’ request for judicial notice.
B. Applicable Law
As described above, the IFPA’s first-to-file rule generally prevents a party
from bringing an action that is related to an already pending lawsuit. (§ 1871.7, subd.
(e)(5).) “[A] ‘related action’ as an action that is based on the facts underlying the
pending section 1871.7 action.” (State of California ex rel. Metz v. CCC Information
Services, Inc. (2007) 149 Cal.App.4th 402, 419-420 (Metz).) Related does not mean
identical. A subsequent lawsuit is barred even if it alleges new details regarding the fraud
asserted in the pending lawsuit. (Ibid.)
Only one California case, Metz, has interpreted the IFPA’s first-to-file rule.
In Metz, the plaintiff suffered a car accident and submitted a claim to his auto insurer.
(Metz, supra, 149 Cal.App.4th at p. 406.) His insurer deemed the car a total loss. To
calculate the plaintiff’s payout, the insurer received total loss valuations for the car from
three providers: Creative Automotive Consultants (Creative), B.I.D. Enterprises, Inc.
(B.I.D.), and CCC Information Services, Inc. (CCC). The plaintiff eventually settled the
claim with his insurer based on these valuations. (Id. at pp. 409-410.) He later filed an
IFPA action alleging his insurer had relied on false valuations from all three providers,
which unfairly reduced the value of his claim. Creative and B.I.D. were named as
defendants, but CCC was not. (Id. at pp. 407-408.) Nearly two years later, the plaintiff
filed a separate lawsuit against CCC alleging it had provided his insurer with a false
valuation. (Id. at p. 408.) While the plaintiff’s second lawsuit was based on the same
insurance claim as the initial suit, it provided additional allegations explaining the falsity
of CCC’s valuation. (Id. at pp. 410-411.)
12
The court sustained CCC’s demurrer based on the statute of limitations and
the first-to-file rule. As to the latter theory, the court explained the two actions were
based on the same facts: “Indeed, although [the plaintiff] did not name CCC as a
defendant in the [first] action, he alleged that CCC participated in making the same
valuations that he contends were fraudulent . . . for purposes of both . . . actions. Neither
the fact that CCC was not a named party to the prior action nor the presence in the
subsequent action of additional allegations concerning CCC serves to make the prior
action any less related. Those additional allegations all arose out of the facts of the prior
action.” (Metz, supra, 149 Cal.App.4th at p. 420.)
Though helpful, Metz’s analysis of the IFPA’s first-to-file rule is limited.
The opinion primarily discusses the statute of limitations, devoting only about a page of
discussion to the first-to-file rule. (See Metz, supra, 149 Cal.App.4th at pp. 415-20.)
Further, in Metz it was apparent both actions involved the same fraud. Both lawsuits
involved the same insurance transaction, and both complaints alleged CCC had provided
a false valuation for the same car. Here, the relatedness of the two complaints is not so
apparent. This case requires a deeper look at the IFPA’s first-to-file rule, reviewing its
underlying policy and purpose as well as analogous statutory schemes.
1. The Federal False Claims Act’s First-to-File Rule
Since there is limited California authority interpreting the IFPA’s first-to-
file rule, we look to other statutory schemes for guidance. Namely, cases interpreting a
similarly worded first-to-file rule within the federal False Claims Act (FCA; 31 U.S.C.
§ 3729, et seq.). Section 1871.7 was modeled after the California False Claims Act (State
ex rel. Wilson v. Superior Court (2014) 227 Cal.App.4th 579, 596), which was
“[p]atterned after the federal False Claims Act . . . .” (State ex rel. Bartlett v. Miller
(2016) 243 Cal.App.4th 1398, 1405-1406.) The IFPA, California False Claims Act, and
FCA all contain first-to-file rules, and the FCA’s rule is substantially similar to the
13
IFPA’s: “When a person brings an action under [the FCA], no person other than the
Government may intervene or bring a related action based on the facts underlying the
5
pending action.” (31 U.S.C. § 3730, subd. (b)(5), italics added.)
Further, the IFPA and FCA share a similar design and purpose. They are
qui tam statutes designed to supplement government enforcement to uncover and
prosecute fraudulent claims. (United States v. Northrop Corp. (9th Cir. 1995) 59 F.3d
953, 963; State ex rel. Wilson v. Superior Court, supra, 227 Cal.App.4th at p. 596.)
While the IFPA focuses on insurance fraud, the FCA targets fraud perpetrated against the
federal government. (Stoner v. Santa Clara County Office of Education (9th Cir. 2007)
502 F.3d 1116, 1126.) Both statutes provide the government the opportunity to take over
the lawsuit shortly after it is filed. Under each, a complaint must be filed under seal for
60 days and served on the government. The complaint cannot be served on the defendant
until ordered by the court, presumably to allow the government sufficient time to decide
whether to intervene. (See 31 U.S.C. § 3730, subd. (b)(2); § 1871.7, subd. (e)(2);
Strathmann, supra, 210 Cal.App.4th at p. 500; United States ex rel., Sequoia Orange Co.
v. Baird-Neece Packing Corp. (9th Cir. 1998) 151 F.3d 1139, 1143.) Given the
relatedness of these statutes, it is appropriate here to consider authority construing the
FCA’s first-to-file rule. (See San Francisco Unified School Dist. ex rel. Contreras v.
Laidlaw Transit, Inc. (2010) 182 Cal.App.4th 438, 446.)
The FCA’s first-to-file “rule is ‘part of the larger balancing act of the
FCA’s qui tam provision, which “attempts to reconcile two conflicting goals, specifically,
preventing opportunistic suits, on the one hand, while encouraging citizens to act as
5
Similarly, the California False Claims Act’s first-to-file rule provides that “[w]hen a
person brings an action under this subdivision, no other person may bring a related action
based on the facts underlying the pending action.” (Gov. Code, § 12652, subd. (c)(10).)
As with the IFPA, there are few cases interpreting the California False Claims Act’s first-
to-file rule, and we are not aware of any material to this appeal.
14
whistleblowers, on the other.”’” (Millenium Laboratories, supra, 923 F.3d at p. 252.)
All federal circuits that have interpreted the rule apply the same standard. A subsequent
action is barred if it “alleg[es] the same material elements of fraud described in an earlier
suit, regardless of whether the allegations incorporate somewhat different details.”
(United States ex rel. Lujan v. Hughes Aircraft Co. (9th Cir. 2001) 243 F.3d 1181, 1189.)
Some circuits apply the same standard but use the term “‘essential facts’” instead of
6
“‘material elements of fraud.’” (See, e.g., United States ex rel. Duxbury v. Ortho
Biotech Products, L.P. (1st Cir. 2009) 579 F.3d 13, 32.)
The FCA’s standard is applied by comparing the two complaints. “[I]f the
first-filed complaint contains enough material information (the essential facts) about the
potential fraud, the government has sufficient notice to launch its investigation. At that
point, the purpose of the qui tam action under [the FCA] is satisfied. If a later-filed
action, filed while the first one is pending, offers merely additional facts and details about
the same scheme, the later-filed action will be barred because it is duplicative of the first
suit. The reason for allowing private persons to bring qui tam actions is to reduce fraud
against the government. A later-filed complaint that mirrors the essential facts as the
pending earlier-filed complaint does nothing to help reduce fraud of which the
government is already aware.” (United States ex rel. Heineman-Guta v. Guidant Corp.
6
Along with the First and Ninth Circuits, the Second, Third, Fourth, Fifth, Sixth,
Seventh, Tenth, and D.C. Circuits have adopted the same standard. (United States ex rel.
Wood v. Allergan, Inc. (2d Cir. 2018) 899 F.3d 163, 169; United States ex rel. LaCorte v.
SmithKline Beecham Clinical Laboratories, Inc. (3d Cir. 1998) 149 F.3d 227, 232-233;
United States ex rel. Carson v. Manor Care, Incorp. (4th Cir. 2017) 851 F.3d 293, 302;
United States ex rel. Branch Consultants v. Allstate Ins. Co. (5th Cir. 2009) 560 F.3d 371,
378; Walburn v. Lockheed Martin Corp. (6th Cir. 2005) 431 F.3d 966, 971; United States
ex rel. Chovanec v. Apria Healthcare Group Inc. (7th Cir. 2010) 606 F.3d 361, 363;
Grynberg v. Koch Gateway Pipeline Co. (10th Cir. 2004) 390 F.3d 1276, 1279; United
States ex rel. Hampton v. Columbia/HCA Healthcare Corp. (D.C. Cir. 2003) 318 F.3d
214, 217.) It appears the Eighth and Eleventh Circuits have not yet construed the FCA’s
first-to-file rule.
15
(1st Cir. 2013) 718 F.3d 28, 35-36 (Heineman-Guta).) “The first-filed claim provides the
government notice of the essential facts of an alleged fraud, while the first-to-file bar
stops repetitive claims.” (United States ex rel. Lujan v. Hughes Aircraft Co., supra, 243
F.3d at p. 1187.)
Still, under the FCA’s first-to-file rule, “[i]t is not enough that [FCA]
claims be related in the loose sense that they arise out of the same general kind of
wrongdoing . . . .” (United States ex rel. Chovanec v. Apria Healthcare Group Inc.,
supra, 606 F.3d at p. 363.) The FCA’s rule does not apply if the two actions “allege
different frauds with different mechanisms.” (Millenium Laboratories, Inc., supra, 923
F.3d at p. 253.) The complaints must share facts in common to trigger application of the
FCA’s first-to-file rule. (United States ex rel. Chovanec, at p. 363.) The initial complaint
must also contain enough specificity to properly inform the government of the fraudulent
scheme alleged. It has to provide “the essential facts to give the government sufficient
notice to initiate an investigation into [the] allegedly fraudulent practices.” (Heineman-
Guta, supra, 718 F.3d at pp. 36-37.) “In other words, [the court] must determine whether
the [second action] alleges a fraudulent scheme the government already would be
equipped to investigate based on the [initial action].” (Batiste, supra, 659 F.3d at
p. 1209.)
2. Distinctions Between the FCA and IFPA
While interpretations of the FCA’s first-to-file rule are instructive, there are
material differences between the IFPA and FCA we must consider. Notably, an FCA
claim involves a single victim – the federal government. “The goal of the [FCA] is to
recoup government funds lost through the fraud of federal contractors. In other words,
when a federal contractor fraudulently overcharges the government, public monies are
lost. The federal government is the [only] direct victim. . . . The relator recovers a
bounty for bringing the fraud to light. If a federal contractor’s fraud on the federal
16
government were the subject of multiple Federal False Claims Act proceedings, the
amount of money recovered by the government would be diminished.” (Weitzman,
supra, 107 Cal.App.4th at p. 561.)
The IFPA seeks to prevent insurance fraud. Insurers, not the federal
government, are the direct victims of the fraud. Unlike an FCA claim, the same
fraudulent insurance scheme can have numerous direct victims. (Weitzman, supra, 107
Cal.App.4th at pp. 561-562.) And, generally, many of those victims will be unknown to
the party filing the initial IFPA action since the scope of the defendant’s fraudulent
scheme will likely be unclear when the action is filed. In contrast, the direct victim in an
FCA action will always be clear from the start—the federal government. Significantly,
while multiple FCA proceedings reduce the amount of funds recovered by the
government, “for each such successful prosecution [of an IFPA claim] by an insurer-
relator, the government recovers more, not less, money.” (Id. at p. 562, italics added.)
3. Analytical Framework for the IFPA’s First-to-File Rule
Relying on case law construing the FCA’s first-to-file rule, defendants and
State Farm both assert the only relevant inquiry is whether the State Farm and Allstate
complaints allege the same fraud. Allstate, however, filed an amicus brief arguing the
first-to-file rule does not apply here because the two complaints involve different pools of
victims. Allstate only seeks IFPA penalties for the false insurance claims involving its
insureds. And although State Farm seeks penalties for the false claims involving all
insureds, Allstate appears to suggest State Farm can only pursue penalties for the false
claims involving its own insureds; it cannot seek penalties for the false claims that
7
defendants submitted to any other insurer. Allstate concludes that since “the two
7
It is unclear whether Allstate intended to make this argument or whether it
misinterpreted the scope of State Farm’s complaint. Nonetheless, this issue is relevant to
our analysis and was addressed by the parties at oral argument.
17
complaints involve different fraud victims and distinct claim populations each giving rise
to distinct liability, ‘[t]he alleged frauds . . . exist completely independent of one
another.’” (Quoting United States ex rel. Hartpence v. Kinetic Concepts, Inc. (9th Cir.
2015) 792 F.3d 1121, 1131.)
State Farm and defendants disagree with Allstate. Both sides believe it is
irrelevant whether the two complaints involve different victims, and State Farm contends
it can seek penalties for all the false claims that defendants submitted to any insurer.
While an appellate court will generally not consider new issues raised in an amicus brief,
this rule is not absolute. An appellate court has discretion to consider legal issues raised
in amicus briefs that concern important policy issues. (Lavie v. Procter & Gamble Co.
(2003) 105 Cal.App.4th 496, 502-503.) We exercise that discretion here. First, the
relevant issues are legal, not factual. Second, given the lack of cases interpreting the
IFPA’s first-to-file rule, this decision involves an important issue of policy. Third, the
relevant issues have been adequately addressed by the parties. State Farm and defendants
filed written responses to the amicus brief and addressed the pertinent issues at oral
argument.
As explained in this section, we adopt a standard that is partially based on
the FCA’s first-to-file rule but also accounts for the differences between the FCA and
IFPA. The FCA’s material facts test focuses on whether the two complaints allege a
common fraudulent scheme; the identity of the direct victim is immaterial. But, as
discussed below, the identity of the insurer-victims underlying an IFPA action is material.
A nonparasitic IFPA action that alleges the same fraud as a pending suit is not barred if it
seeks penalties based on a distinct victim pool. Thus, under the IFPA’s first-to-file rule, a
court must determine – in any order – whether the two complaints (1) seek penalties
based on distinct victim pools, and (2) allege the same fraud.
To start, contrary to Allstate’s suggestion, an insurer-relator can pursue
IFPA penalties for all the false insurance claims submitted to any insurer that are part of
18
the same fraud. Nothing in the statute suggests an insurer-relator can only pursue
penalties for the false claims involving its own insureds. Indeed, a relator can bring a qui
tam action under the IFPA even if it has not suffered an injury. (People ex rel. Alzayat v.
Hebb, supra, 18 Cal.App.5th at p. 831.) As such, it stands to reason an insurer can bring
a broad IFPA action covering all the false claims a defendant has billed to any insurer.
Besides, limiting insurers to IFPA actions involving their own insureds would subvert the
IFPA’s goal of fighting insurance fraud. Such a rule would arbitrarily limit the scope of
IFPA actions, likely reducing the total amount of penalties recovered against a
8
defendant. (See Weitzman, supra,107 Cal.App.4th at pp. 561-562.)
Whether to pursue a narrow or broad IFPA action is within the discretion of
the relator. Nothing in the text of section 1871.7 requires a relator to pursue penalties for
all the false insurance claims a defendant billed to all the insurer-victims under the same
fraud. The statute does not mandate an all or nothing approach. And we see no reason to
conclude an insurer (or any relator) cannot pursue IFPA penalties for only the false
insurance claims billed to a subset of victims.
As a matter of policy, relators should be allowed to control the scope and
risk of their IFPA lawsuits. The enticement of a bigger bounty will certainly encourage
many relators to pursue broad IFPA actions covering all the false claims within the same
scheme. Still, some relators (such as smaller insurers) may not want to undertake the
expense and risk of a large-scale IFPA action, especially since the full scope of a
fraudulent scheme may be unclear when an IFPA action is first filed. When weighing
these variables, a relator may reasonably desire to pursue a limited IFPA action that is
less expensive, involves clearly defined direct victims, and carries reduced risk. Indeed,
narrow IFPA actions do not appear uncommon. (See, e.g., People ex rel. Government
8
Among other things, the IFPA’s public disclosure rule would likely prevent other
insurers from filing subsequent lawsuits using information made public by the initial
complaint. (§ 1871.7, subd. (h)(2)(A).)
19
Employees Ins. Co. v. Cruz (2016) 244 Cal.App.4th 1184, 1187-1188, fn. 7 [insurer filed
an IFPA action covering only the false claims involving its insureds].) In contrast,
requiring relators to seek broad relief might discourage some from filing an IFPA action
to avoid the expense and/or risk of a large-scale lawsuit. This would interfere with the
IFPA’s purpose of uncovering and deterring insurance fraud. (See id. at p. 1192.)
Next, we conclude a nonparasitic IFPA action that alleges the same fraud as
a pending action is not barred if it seeks penalties based on a separate pool of victims.
This departure from the FCA is necessary due to the distinctions between the IFPA and
FCA. The identity of the victim is not a material fact under the FCA’s first-to-file rule.
An FCA action always seeks to “recover funds fraudulently obtained directly from the
government. In FCA cases, the government itself is the direct, and only, victim.”
(California v. AbbVie Inc. (N.D. Cal. 2019) 390 F.Supp.3d 1176, 1180.) Allowing
multiple FCA actions for the same fraud and same direct victim reduces the total amount
of money recovered by the government. (Weitzman, supra, 107 Cal.App.4th at pp. 561-
562.)
In contrast, an insurance fraud scheme typically involves numerous direct
victims; specifically, the defrauded insurers. And unlike an FCA action, an IFPA relator
can seek penalties based on the false claims a defendant billed to a single insurer, to a
limited group of insurers, or to all insurers. The identity of the specific victims
underlying a relator’s request for penalties is material in an IFPA action. IFPA penalties
are intended to be remedial and aimed towards “disgorging unlawful profit, restitution,
compensating the state for the costs of investigation and prosecution, and alleviating the
social costs of increased insurance rates due to fraud.” (§ 1871.7, subd. (c).) But due to
the discretion afforded them, an IFPA relator may not seek full remediation for all the
direct victims that were defrauded under the same scheme. Allowing nonparasitic
lawsuits based on separate victim pools will benefit the government “in terms of fraud
prevention and financially.” (See Weitzman, supra, 107 Cal.App.4th at p. 562.) Unlike
20
the FCA, the government recovers more money “for each . . . successful prosecution by
an insurer-relator.” (Ibid.) The additional funds recovered from such lawsuits will assist
the government’s efforts in fighting insurance fraud. Moreover, if a relator chose to file a
narrow IFPA action, it would create an unreasonable windfall for the orchestrators of the
fraud. They would be protected from further nonparasitic lawsuits, allowing them to
unfairly evade payment of additional restitution for their fraudulent scheme.
To be clear, the scope of the initial IFPA action determines whether any
additional, nonparasitic lawsuits may be brought based on the same fraud. If the victim
pool at issue in a later-filed IFPA lawsuit is completely subsumed by a prior IFPA
lawsuit, it is barred. The later-filed suit may only proceed if it seeks penalties based on
victim-insurers that were not covered by the first lawsuit and if it is not barred by any
other rule, such as the public disclosure rule (§ 1871.7, subd. (h)(2)(A)).
In addition to determining whether two IFPA complaints cover distinct
victims, courts must also evaluate whether they allege the same fraudulent scheme.
When two IFPA relators file complaints alleging the same fraud and the same victims,
the subsequent suit unfairly shares in the bounty. It adds no extra remedial benefit and
does nothing to reduce insurance fraud. Nor does it disgorge any additional unlawful
profit. Accordingly, the standard applied for the FCA’s first-to-file rule is relevant to this
portion of the IFPA analysis: we determine whether the allegations in the first complaint
provided sufficient notice for the government to investigate the fraud alleged in the
subsequent complaint. (See Millenium Laboratories, supra, 923 F.3d at pp. 252-253;
Heineman-Guta, supra, 718 F.3d at pp. 35-36; Batiste, supra, 659 F.3d at pp. 1209-
1210.) The adoption of this standard is warranted given the similarities between the
statutes discussed above.
We recognize this analytical framework risks creating piecemeal IFPA
litigation, in which multiple suits are pending against the same defendant for the same
fraud based on different victim pools. This risk is mitigated by several factors. First, the
21
financial incentive of a large bounty will encourage relators to bring broad IFPA actions.
Second, the IFPA’s public disclosure rule precludes parasitic IFPA actions. (§ 1871.7,
subd. (h)(2)(A); Weitzman, supra, 107 Cal.App.4th at p. 564.) Third, if necessary, the
State can intervene, take over separate lawsuits, and consolidate or coordinate them. (See
State ex rel. Aetna Health of California, Inc. v. Pain Management Specialist Medical
Group (2020) 58 Cal.App.5th 1064, 1070.) Similarly, if an initial IFPA action seeks
penalties based on an overly narrow group of insurer-victims, the government may
intervene to enlarge the scope of the action. Finally, in the event multiple lawsuits are
pending involving the same fraud but different victims, we trust our trial courts can
coordinate proceedings and transfer cases as necessary to avoid or reduce any
inefficiencies.
C. Analysis
1. Victim Pools
The two complaints primarily involve separate victim pools. Allstate only
seeks penalties for the false insurance claims that defendants presented to Allstate, while
State Farm seeks penalties for all the false claims that defendants billed to any insurer.
Though the only overlapping victim is Allstate, we must still examine whether the two
complaints allege the same fraud. Before doing so, however, we first clarify the scope of
this inquiry. Since the two complaints only share one common victim, even if we find
below that they allege the same fraud, State Farm would only be barred from pursuing
IFPA penalties for the false claims involving Allstate’s insureds. In this scenario, it
would not be precluded from pursuing penalties for the false claims presented to any
other insurer. Conversely, if we find the two complaints do not allege the same fraud,
State Farm may pursue its IFPA action without limitation.
22
2. Fraudulent Scheme
The relevant question is “whether [State Farm’s complaint] allege[d] a
fraudulent scheme the government [was] already . . . equipped to investigate based on
[Allstate’s complaint].” (Batiste, supra, 659 F.3d at p. 1209.) Allstate’s complaint must
contain “enough material facts to alert the government” of the fraudulent scheme alleged
in State Farm’s complaint. (Heineman-Guta, supra, 718 F.3d at pp. 37-38.) If so, it is
immaterial whether State Farm’s complaint “incorporate[ed] additional or ‘somewhat
different details.’” (Ibid.)
Allstate’s complaint informed the relevant government agencies that
defendants were perpetrating a medical billing fraud involving epidural spinal injections
and the manipulation of billing codes. The introduction of the complaint describes the
alleged scheme. It states Dr. Rubin “routinely recommend[ed] predetermined ‘one-size-
fits-all’ treatment plans without regard to medical necessity or patient safety, to
fraudulently increase the value of the patients’ claims and to maximize his own revenue,
profit, and income.” In furtherance of this scheme, defendants “prepared bills for
treatment and procedures represented to have been rendered by [Dr. Rubin],” which
contained false statements about the “nature of services allegedly provided, the cost of
such services, and the location of where services were provided.” The introduction then
explains in part how this scheme was accomplished: “[t]hrough the manipulation of
billing codes to maximize reimbursement, bills submitted by [defendants] grossly
inflate[d] the value of the services rendered and often contain[ed] charges for treatment
that was never provided or multiple charges for the same treatment.”
Allstate’s complaint provides further details in paragraphs 38 and 40.
These paragraphs specify that Dr. Rubin’s one-size-fits-all treatment plans included
“repeated epidural steroid injections . . . , which were billed at exorbitant rates.” They
also allege Dr. Rubin recommended “epidural steroid injections, without regard to
medical necessity or patient safety, knowing that such recommendations would
23
fraudulently inflate the value of the patient’s claim.” Paragraph 43 then explains that Dr.
Rubin’s entities “falsified billing statements and invoices regarding the services
purportedly rendered, through the fraudulent manipulation of billing codes with the intent
to maximize the reimbursement value of the treatment.” These fraudulent practices
included “‘unbundling’ [CPT] codes, billing for treatment not rendered, and double
billing when only one service was provided.” (Fn. omitted.)
Similarly, State Farm alleges Dr. Rubin engaged in a fraudulent scheme
concerning epidural spinal injections. Generally, Dr. Rubin manipulated billing codes to
improperly bill for services performed in connection with these injections. State Farm’s
complaint intricately explains how defendants improperly unbundled CPT codes for
fluoroscopic imaging and for separate evaluation and management services that were not
warranted. They also billed for epidurography and myelography procedures that were
either not performed or not medically necessary. Importantly, these four services were
all falsely billed by defendants solely in connection with epidural steroid injections.
As to these four services (fluoroscopy, epidurography, myelography, and
evaluation and management services), the fraud alleged by State Farm was already
alleged in Allstate’s complaint. The two complaints involve the same timeframe and
allege a scheme in which defendants defrauded insurers by inflating bills related to
epidural steroid injections. Both also allege the fraud involved unbundling CPT codes,
double billing, and billing for services that were never rendered. Allstate’s complaint is
broader, as it covers other types of procedures such as facet blocks that were part of
defendants’ alleged “one-size-fits-all” treatment regimen. And State Farm’s complaint is
more granular in describing how defendants specifically defrauded insurers when billing
for epidural spinal injections. But these differences are immaterial here. (See Heineman-
Guta, supra, 718 F.3d at pp. 35-36; United States ex rel. Ven-A-Care of The Florida
Keys, Inc. v. Baxter Healthcare Corp. (1st Cir. 2014) 772 F.3d 932, 941-942.) Allstate’s
complaint provided the government with sufficient notice to investigate Dr. Rubin’s
24
allegedly fraudulent practices for epidural steroid injections, which was the focus State
Farm’s complaint.
Aside from the four services identified above, State Farm also alleges
Dr. Rubin and Rubin, Inc., falsely billed for MRI interpretations. Unlike the other four
services, these MRI charges were largely billed as an independent service, unconnected
with any other procedure. Though a handful of the MRI charges were billed in
connection with epidural steroid injections, the vast majority were not. And nothing in
Allstate’s complaint suggests State Farm’s MRI allegations share any essential facts with
the “one-size-fits-all” treatment plan alleged by Allstate. At most, Allstate’s complaint
provided sufficient notice for the government to investigate a fraction of the allegedly
fraudulent MRI charges – those that Dr. Rubin billed in connection with epidural steroid
injections. But nothing in its complaint suggests it prepared the government to
investigate any independently billed MRI charges. As to these charges, sufficient notice
was not provided. As such, we conclude Allstate’s complaint has no bearing on State
Farm’s ability to pursue penalties for the allegedly false MRI charges that were not billed
in connection with epidural steroid injections.
The Insurance Commissioner (the real party in interest) filed a statement of
interest in support of State Farm, in which it contends “the Allstate complaint did not put
the Commissioner on notice of the fraud alleged in [State Farm’s] complaint.” Likewise,
it maintains that “without the benefit of [State Farm’s] complaint, [it] could have
discovered the fraud alleged by [State Farm] only through an intensive and resource-
9
consuming investigation. While we give some consideration to the Commissioner’s
position, the ultimate responsibility for interpreting the first-to-file rule rests with the
court. (Tower Lane Properties v. City of Los Angeles (2014) 224 Cal.App.4th 262, 276.)
9
We requested supplemental briefing as to how much deference and weight we should
give to the Insurance Commissioner’s opinion. Both State Farm and defendants
submitted supplemental briefs in response.
25
The Insurance Commissioner’s argument does not discuss the significance
of the separate victim pools alleged in the two complaints. Thus, it has no bearing on that
portion of our analysis. As to whether the two complaints allege the same fraud, we
agree Allstate’s complaint did not put the Commissioner on notice of the independent
MRI charges alleged in State Farm’s complaint. As to the remainder of State Farm’s
complaint, we also agree it provides greater detail about defendants’ scheme involving
epidural steroid injections. State Farm’s complaint likely would have aided the Insurance
Commissioner in investigating this fraud. But that is not the standard. State Farm’s
allegations regarding defendants’ epidural-spinal-injection scheme overlap with the
fraudulent scheme alleged in Allstate’s complaint. The additional details provided in
State Farm’s complaint are immaterial. (United States ex rel. Ven-A-Care of The Florida
Keys, Inc. v. Baxter Healthcare Corp., supra, 772 F.3d at pp. 941-942.)
Further, there is no evidence the Insurance Commissioner ever attempted to
investigate Allstate’s claims. Nor is there any evidence of the steps the Commissioner
would have taken had it commenced such an investigation. Based on the record, it is
entirely speculative as to what information the Commissioner would have discovered had
it investigated the fraud alleged by Allstate and how long it would have taken to discover
such information. The IFPA’s first-to-file rule “asks about what is related to the ‘facts
underlying the pending action.’ It does not make anything turn on whether the
[government] puts those facts to their best use.” (United States ex rel. Chovanec v. Apria
Healthcare Group Inc., supra, 606 F.3d at p. 365.)
In summary, as to the portion of State Farm’s IFPA action relating to
fluoroscopy, epidurography, myelography, evaluation and management services, and the
MRI charges billed in connection with epidural spinal injections, State Farm may pursue
penalties for the false claims that defendants presented to any insurer except Allstate. As
to the remaining MRI charges, State Farm may pursue penalties for those charges that
defendants billed to any insurer, including Allstate, that were not billed in connection
26
with an epidural spinal injection. Given these findings, defendants’ demurrer did not
entirely dispose of either of State Farm’s IFPA causes of action and should have been
overruled. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th
97, 119.)
III
DISPOSITION
The judgment is reversed. On remand, the court is instructed to overrule
defendants’ demurrer. The parties shall bear their own costs on this appeal.
MOORE, J.
WE CONCUR:
O’LEARY, P. J.
FYBEL, J.
27