Allstate Insurance Company v. Northfield Medical Center P.C.(076069) (Morris County and Statewide) , 228 N.J. 596 ( 2017 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Allstate Insurance Company v. Northfield Medical Center, P.C. (A-27-15) (076069)
Argued January 4, 2017 -- Decided May 4, 2017
LaVecchia, J., writing for a unanimous Court.
In this appeal, the Court reviews the Appellate Division’s determination that the trial court erred in finding
a knowing violation of the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. After a bench trial,
Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor, were found to have
violated the IFPA to the extent they promoted and assisted in the creation of a practice structure designed to
circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.
N.J.A.C. 13:35-6.16(f), codified in 1992, explicitly provides that a medical doctor with a plenary scope of
practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor. In 1995,
the Executive Director of the State Board of Medical Examiners (Board), issued a letter-opinion in response to a
hypothetical scenario in which a professional association was divided between a chiropractor holding a seventy-
percent interest and a doctor holding a thirty-percent interest. The director wrote that “[The Board] would find it
inappropriate for a physician with a plenary scope of practice (M.D./D.O.) to be in a position where the practitioner
with a limited scope of practice (here, a [chiropractor]) can compel—by the simple fact of majority voting rights—
the medical doctor to accept contracts for the provision of all manner of services.”
In the 1990s, Dahan began organizing a series of lectures throughout the country through his company,
“Practice Perfect.” Practice Perfect lectures were marketed toward chiropractors and focused on the creation of
multi-disciplinary practices in which chiropractors work with physicians and other medical professionals. Borsody
made presentations at Practice Perfect lectures on the legal issues arising from such multi-disciplinary practices.
In late 1996, New Jersey-licensed chiropractor John Scott Neuner attended a two-day Practice Perfect
seminar at which both Dahan and Borsody presented. The practice model, developed by Borsody and pitched at
Dahan’s programs, included a number of safeguards to prevent the nominal doctor-owner of the medical corporation
from seizing control of the practice from the real investor—the chiropractor. Prior to the seminar attended by
Neuner, Borsody wrote at least one trade article that correctly stated that New Jersey requires a majority of the
ownership interest in a medical corporation to be owned by medical doctors.
In March 1997, after attending the Practice Perfect seminar described above, Neuner signed a contract with
Dahan to become a client of Practice Perfect. Neuner hired Dr. Robban A. Sica, M.D., as the initial doctor-owner of
Northfield. Neuner also hired several doctors to work at Northfield who held no ownership interest in the practice.
In late 1998, Allstate, which had been receiving insurance claims for treatment provided at Northfield,
began investigating the legality of Northfield’s practice structure. Neuner retained Borsody to represent him and, in
January 1999, Borsody wrote that because the doctors hired to work at Northfield did not own stock in the medical
practice, Neuner’s employment of those doctors likely violated existing guidance from the Board. As a result of its
investigation, Allstate refused payment on approximately $330,000 in claims of patients treated by Northfield.
Allstate filed the instant action on October 19, 1999, against Neuner, Northfield, Dahan, Borsody, and a
number of additional defendants. Neuner settled with Allstate early in the proceedings, in part in exchange for his
agreement to testify against his co-defendants. For present purposes, the salient charges of the complaint allege that
Borsody and Dahan (collectively, defendants) violated the IFPA by knowingly assisting Neuner in the creation and
operation of a multi-disciplinary practice whose insurance claims were fraudulent under the IFPA. Allstate’s theory
of the case relies on the practice’s failure to comply with governing standards on the corporate practice of medicine,
a necessary precondition to a valid insurance claim.
The trial court found that Borsody and Dahan violated the IFPA when they “knowingly assisted, conspired
with and urged Neuner to operate in a fashion that violated the law.” In an unpublished opinion, the Appellate
Division reversed, concluding that the evidence did not support a finding that defendants knowingly violated the
IFPA. The Court granted Allstate’s petition for certification. 223 N.J. 555 (2015).
HELD: Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude
was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and
control of a medical practice by a non-doctor. In light of the broad anti-fraud liability imposed under the IFPA, holding
defendants responsible for promoting and assisting in the formation of an ineligible medical practice was not a novel or
unanticipated application of the statute. The trial court correctly applied a plain-language understanding of “knowing,”
and its finding of a knowing violation of the IFPA is amply supported in this record.
1. N.J.S.A. 17:33A-4(b) instructs that “[a] person or practitioner violates [the IFPA] if he knowingly assists,
conspires with, or urges any person or practitioner to violate any of the provisions of this act.” Defendants were
found to have knowingly assisted or conspired with Neuner in violating the IFPA by promoting and helping Neuner
with the construction of an impermissible professional practice structure that enabled the chiropractor to benefit
from proceeds derived from his submission of medical claims for reimbursement, in violation of N.J.S.A. 17:33A-
4(a), (c). Proof of such violation need only be found to exist based on a preponderance of the evidence. (pp. 24-26)
2. This is not a criminal case. The trial court rightly did not import aspects of a “knowing” mens rea from the
Criminal Code into the civil liability section of the IFPA at issue. Rather, the court correctly applied a plain-
language understanding of “knowing,” which is well understood to be an awareness or knowledge of the illegality of
one’s act. That knowledge need not come from a prior decision holding that the precise conduct at issue gives rise
to a violation of a legal requirement. There is ample precedent supporting the proposition that a party’s knowledge
as to the falsity or illegality of his conduct may be inferred from the surrounding factual circumstances. (pp. 26-35)
3. Defendants claim that they could not have knowingly violated the IFPA because it was not clear that compliance
with practice-structure regulations was “material” to insurance submissions. The Court does not accept that a
reasonable actor would not have known that compliance with the regulatory provisions governing the organization,
supervision, and control of a medical practice was material to an insurance submission by that medical practice.
Health care services are highly regulated. One cannot claim, or feign, ignorance of those regulatory requirements
and restrictions until there is an express command applicable to a precise set of facts. (pp. 35-38)
4. The Court reviews the regulatory requirements in place governing the lawful structures for medical practices
when Borsody and Dahan promoted their practice model and notes that the 1995 letter makes plain that the Board
would allow no subterfuge to shield the existence of a real or potential corrupting influence that could be exercised
by a management company or by a professional association where a licensee with a lesser scope of practice, like a
chiropractor, could actually wield control over the practice of medicine by a plenary licensee. (pp. 38-40)
5. Based on the regulations in effect at the time and the testimony at trial, the trial court here could reasonably
conclude that Borsody, as well as Dahan, knew of the regulatory requirements at issue, promoted a practice scheme
specifically designed to circumvent those requirements while appearing compliant, and therefore knowingly assisted
in the provision of services, the foreseeable result of which was the submission of invalid and misleading claims
under the IFPA. The documents and structure promoted and designed by defendants accomplished what the
regulations sought to avoid. They placed control over the medical practice in the hands of a chiropractor, subjecting
plenary licensees to his effective control. The lengths that defendants went to in shielding the true controller of this
practice from view undermine any basis for interfering with the trial court’s assessment of the mixed question of fact
and law that was presented to the court. (pp. 40-44)
The judgment of the Appellate Division is REVERSED. The case is REMANDED to the Appellate
Division for proceedings consistent with this opinion.
CHIEF JUSTICE RABNER and JUSTICES PATTERSON, FERNANDEZ-VINA, SOLOMON, and
TIMPONE join in JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN did not participate.
2
SUPREME COURT OF NEW JERSEY
A-27 September Term 2015
076069
ALLSTATE INSURANCE COMPANY,
ALLSTATE INDEMNITY COMPANY,
ALLSTATE NEW JERSEY INSURANCE
COMPANY,
Plaintiffs-Appellants,
v.
NORTHFIELD MEDICAL CENTER,
P.C.; ROBBAN ARIEL SICA, M.D.;
SCOTT DAVID, D.O.; J. SCOTT
NEUNER, D.C.; JSM MANAGEMENT
COMPANY, INC.; TILTON
CHIROPRACTIC CENTER, P.C.;
TILTON CHIROPRACTIC CENTERS,
SOUTH DIVISION, P.C.; ARNOLD
BACARRO, M.D.; PANKAJ ANAND
AGRAWAL, M.D. a/k/a “PANKAJ
ANAND”; ALAN CARR, D.O.;
VORRIE MACOM, M.D.; ALONSO V.
CORREA, M.D.; ALONSO V.
CORREA, M.D., P.C.; CORREA
MEDICAL DIAGNOSTICS, P.C.;
MEDICAL INNOVATIONS, INC.,
Defendants,
and
DANIEL H. DAHAN, D.C.; PRACTICE
PERFECT; MEDICAL NEUROLOGICAL
DIAGNOSTICS, INC.,
Defendants-Respondents,
and
ROBERT P. BORSODY, ESQ.,
Defendant-Respondent,
and
1
AMERICAN ARBITRATION
ASSOCIATION,
Defendant in Interest.
Argued January 4, 2017 – Decided May 4, 2017
On certification to the Superior Court,
Appellate Division.
Thomas J. Hall argued the cause for
appellants (McGill & Hall and Pashman Stein,
attorneys; Mr. Hall and Michael S. Stein, on
the briefs).
Lawrence S. Lustberg argued the cause for
respondent Robert P. Borsody, Esq. (Gibbons,
attorneys; Mr. Lustberg and Amanda B.
Protess, on the briefs).
Christopher B. Turcotte argued the cause for
respondents Daniel H. Dahan, D.C., Practice
Perfect and Medical Neurological
Diagnostics, Inc.
John Zen Jackson argued the cause for amici
curiae Medical Society of New Jersey and the
American Medical Association (McElroy,
Deutsch, Mulvaney & Carpenter, attorneys).
Arthur Meisel submitted a brief on behalf of
amicus curiae New Jersey Dental Association.
JUSTICE LaVECCHIA delivered the opinion of the Court.
Plaintiff Allstate Insurance Company (Allstate) filed a
complaint alleging statutory claims of insurance fraud against
defendants Robert P. Borsody, Esq., a New York attorney, and
Daniel H. Dahan, a California chiropractor (collectively,
defendants). After a bench trial, defendants were found to have
violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A.
2
17:33A-1 to -30, by assisting a New Jersey chiropractor in the
late 1990s in the creation of an unlawful multi-disciplinary
practice, which submitted medical insurance claims to Allstate.
The trial court determined that Borsody and Dahan violated the
IFPA to the extent they promoted and assisted in the creation of
a practice structure that was designed to circumvent regulatory
requirements with respect to the control, ownership, and
direction of a medical practice.
The Appellate Division reversed that judgment. In doing
so, the panel relied on defendants’ arguments that Allstate had
not established that defendants actually knew that their
practice model violated regulatory requirements governing the
lawful ownership and control of a medical practice, and that,
even if evidence of such knowledge could be found in this
record, Allstate had not established that defendants knew that a
violation of those regulatory requirements could constitute
insurance fraud under the provision of the IFPA that creates
liability for one who “knowingly assists, conspires with, or
urges any person or practitioner to violate any of the
provisions of [the IFPA].” N.J.S.A. 17:33A-4(b). The Appellate
Division concluded that the trial court erred in finding a
knowing IFPA violation on the facts presented.
Allstate sought our review of that determination, and we
now reverse.
3
Defendants extensively promoted a professional practice
structure that a fact-finder could reasonably conclude was
little more than a sham intended to evade well-established
prohibitions and restrictions governing ownership and control of
a medical practice by a non-doctor. Further, in light of the
broad anti-fraud liability imposed under the IFPA, holding
defendants responsible for promoting and assisting in the
formation of an ineligible medical practice -- created for the
obvious purpose of seeking reimbursement for medical care
delivered by that practice -- was not a novel or unanticipated
application of the statute. We conclude that the trial court’s
finding of a knowing violation of the IFPA is amply supported in
this record, which contains compelling evidence demonstrating
how the structure shielded from view its effective circumvention
of regulatory rules.
For the reasons that follow, we reverse on the sole issue
found to be determinative by the Appellate Division. Because
there were other issues not reached by the panel, we remand to
the Appellate Division to allow for their evaluation.
I.
Fair consideration of this matter necessitates, first and
foremost, an understanding of the rules and requirements for
ownership, control, and direction of a physician’s practice.
4
Accordingly, before addressing the facts, we identify the
requirements in place at the time relevant to this appeal.
A.
The State Board of Medical Examiners (Board) -- the entity
responsible for establishing standards for professional practice
by licensed physicians -- has addressed the permissible types of
professional practice forms. A regulation, adopted by the Board
in 1992 and codified at N.J.A.C. 13:35-6.16, figures prominently
in this matter.
With the codification of N.J.A.C. 13:35-6.16, the Board
established limits on the corporate practice of medicine.
Section 6.16(f) lists the appropriate types of private practices
-- for example, solo practice, partnership, and medical
corporation -- and explicitly provides that a medical doctor
with a plenary scope of practice may not be employed by a
licensee with a more limited scope of practice, such as a
chiropractor. In directing the proper structure of a medical
practice, the regulation provides that
[a] practitioner may practice solo and/or may
employ or otherwise remunerate other licensed
practitioners to render professional services
within the scope of practice of each
employee’s license, but which scope shall not
exceed that of the employer’s license. The
practitioner may employ ancillary non-
licensed staff in accordance with Board rules,
if any, and accepted standards of practice.
[N.J.A.C. 13:35-6.16(f)(1).]
5
Subsection (f)(2) directs that
[a] practitioner may practice in a
partnership, professional association, or
limited liability company, but such entity
shall be composed solely of health care
professionals, each of whom is duly licensed
or otherwise authorized to render the same or
closely allied professional service within
this State.
[N.J.A.C. 13:35-6.16(f)(2).]
Next, subsection (f)(3) defines employment as “an ongoing
associational relationship between a licensee and professional
practitioner(s) or entity on the professional practice premises
for the provision of professional services, whether the licensee
is denominated as an employee or independent contractor, for any
form of remuneration.” N.J.A.C. 13:35-6.16(f)(3). Thereafter,
subsection f(3)(i) provides that
[a] practitioner may be employed, as so
defined, within the scope of the
practitioner’s licensed practice and in
circumstances where quality control of the
employee’s professional practice can be and is
lawfully supervised and evaluated by the
employing practitioner. Thus, a practitioner
with a plenary license shall not be employed
by a practitioner with a limited scope of
license, nor shall a practitioner with a
limited license be employed by a practitioner
with a more limited form of limited license.
By way of example, a physician with a plenary
license may be employed by another plenary
licensed physician, but an M.D. or D.O. may
not be employed by a podiatrist (D.P.M.) or
chiropractor (D.C.) or midwife or certified
nurse midwife (R.M., C.N.M.). A podiatrist
may not employ a chiropractor. This section
shall not preclude any licensee from employing
licensed personnel such as nurses, x-ray
6
technologists, physical therapists,
ophthalmic dispensers and ophthalmic
technicians, etc., as appropriate to the
primary practice of the employer.
[N.J.A.C. 13:35-6.16(f)(3)(i).]
In addition to the above-mentioned parts of section 6.16,
N.J.A.C. 13:35-6.17 bears noting, specifically subsections (h)
and (i), which permit administrative contracts between a
management company and a professional practice. The
permissibility of a medical practice’s use of a management
company was also addressed, to an extent, in a 1983 Appellate
Division decision.
In Women’s Medical Center v. Finley, the Appellate Division
considered whether three obstetrics and gynecological practices
that were performing on-site abortions were subject to the
Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, or
instead were exempt as a “private practice,” a term not defined
under that Act. 192 N.J. Super. 44 (App. Div. 1983), certif.
denied, 96 N.J. 279 (1984). The Appellate Division held that
medical practices contracting with outside management companies
“for the provision of a full range of non-professional office
management services” were properly considered private medical
practices under New Jersey regulatory law. Id. at 48.
Anticipating the importance of physician control over the
practice, the panel reasoned that
7
[i]f the manner of [the services’] performance
does not impinge upon the ordinary patient-
private physician relationship and does not
impinge upon professional control by the
physicians of the medical practice and does
not affect the essential character and
commonly understood attributes of private
practice, then it is evident that the “in-
house” versus “out-of-house” business and
administrative management of the practice has
no fundamental impact on the . . . delivery of
health care services.
[Id. at 58.]
B.
In addition to the administrative regulations governing the
subject of ownership and control of a physician’s medical
practice, there are also other forms of guidance issued for the
benefit of members of the public and regulated entities.
Consistent with its administrative responsibility for licensure
and oversight of the practice of medicine, the Board has on
several occasions issued informal guidance in response to
inquiries on the propriety of particular practice arrangements.
The following informal opinions bear on the dispute at hand.
On November 16, 1995, the Board’s Executive Director, Kevin
B. Earle, issued an extensive letter-opinion in response to a
hypothetical scenario in which a professional association was
divided between a chiropractor holding a seventy-percent
interest and a doctor holding a thirty-percent interest. It is
the most comprehensive letter-opinion issued on the subjects
involved in this appeal. In that letter-opinion (hereinafter
8
“Earle I”), the director noted that the Board had not “had
occasion to consider a specific shareholder arrangement
involving unequal ownership within a practice.” However,
Director Earle wrote that, in the context suggested by the
inquiry, the Board “would find that division especially
questionable and inappropriate.” Because of its importance, we
quote the explanation in full:
[The Board] would find it inappropriate for a
physician with a plenary scope of practice
(M.D./D.O.) to be in a position where the
practitioner with a limited scope of practice
(here, a [chiropractor]) can compel -- by the
simple fact of majority voting rights -- the
medical doctor to accept contracts for the
provision of all manner of services to the
Professional Association. The potential for
override of the physician’s professional
judgment, as well as the determination as to
how the practice shall be conducted, is deemed
to be even more inappropriate where the
management company itself is wholly owned by
the 70% shareholder of the Professional
Association who is a limited licensee.
Further, your scenario appears to contemplate
that other physicians shall be hired by the
Professional Association. Current Board
[R]ule N.J.A.C. 13:35-6.16(f)(3)(i)
specifically prohibits the hiring of a plenary
licensed physician by a limited licensed
practitioner. While we recognize that it is
nominally the Professional Association which
is the “employer” rather than the
chiropractor, for our purposes that would be
a distinction without a difference. For that
quality control reason, the Board has always
held that a multi-disciplinary practice cannot
employ physicians who are not themselves
shareholders in the practice.
9
You have also indicated that the other
licensed professionals who would be employed
by this Professional Association would not
necessarily be under the supervision of the
medical doctor/Medical Director. We find this
to be inappropriate. Employees of any form of
professional practice, whether independently
licensed or not, are expected to remain under
the general supervision of the employer,
including a Medical Director, if any. See
Board [R]ule N.J.A.C. 13:35-6.16(b), (d) and
(e).
Earle I also touches on administrative contracts between
the proposed practice and management company, noting that,
although “N.J.A.C. 13:35-6.17(h) and (i) specifically permit[]”
administrative contracts between a management company and a
professional practice, the Board nevertheless “expects that a
licensee shall retain the right to terminate any such contract
for legally permissible reasons including for cause.”
Summarizing the advice on such arrangements, Earle I states that
the Board would find it “highly imprudent for a physician
(through the Professional Association) to enter into a contract
with the same management company which also leases space and
equipment and provides administrative services” because (1) “the
physician would be subject to coercive influences including
foreseeable total disruption of an ongoing professional practice
if the physician later sought to cease using the management
company to provide any of those individual services”; and (2)
“termination might well be impossible because of the 70%
ownership in the Professional Association of the person who also
10
owns the management company.” The Earle I advisory letter
underscored the need to neuter any coercive influences by
cautioning that, at a minimum, “each such contract should be
separate and without any interlocking features.”
Finally, the Earle I letter addressed a proposal to allow
the management company to make above-market-rate loans to the
practice, calling that proposal particularly concerning to the
Board because it created “a clear potential to adversely affect
the professional judgment of the minority shareholder in
numerous ways.” The Earle I document added that designating the
minority shareholder physician as the Medical Director “cannot
save the scenario from the potential abuse and coercion inherent
in the various circumstances described.”
A few weeks before the incorporation of the disputed
practice at issue here, Director Earle issued a second advisory
letter (hereinafter “Earle II”) on April 28, 1997, confirming
the opinion-seeker’s interpretation “that a medical doctor and a
chiropractor [may] form a professional corporation and both may
own shares in such a corporation,” but that the medical doctor,
as the licensee with a plenary scope of practice, must own a
majority of the stock in the corporation.
After the incorporation of the practice involved in this
appeal, another advisory letter touching on the topic at hand
was written on June 11, 1997, by a Deputy Attorney General in
11
her capacity as a counsel to the Board. That letter stated that
a chiropractor and a medical doctor may join their practices in
a professional corporation, but that “it is important to note
that the licensees must maintain professional discretion of
their judgment in the rendering of professional services.” The
letter also noted that “[t]here is no statutory or regulatory
provision requiring that the licensee with the greater scope of
practice hold a majority of the stock in the professional
corporation.”
With that state regulatory background in mind, we turn to
the record in this matter.
II.
A.
Defendants’ appeal comes to us on the basis of a completed
bench trial. The backdrop to this matter involves actions taken
by a New Jersey-licensed chiropractor, John Scott Neuner.
Neuner testified in the trial of the IFPA complaint filed by
Allstate against the multi-disciplinary practice that he had
incorporated as Northfield Medical Center (Northfield), as well
as the various other professional entities and persons named as
defendants. To set the stage for the issue determined to be
dispositive by the Appellate Division, we begin by summarizing
how Neuner and the two defendants came into contact with one
another, leading to the incorporation of Northfield and how it
12
was structured and operated. We recite the facts giving due
respect to the trial court’s findings of fact, which
incorporated credibility determinations.
1.
In the 1990s, Dahan, a chiropractor licensed in California,
began organizing a series of lectures throughout the country
through his company, “Practice Perfect.” Practice Perfect
lectures were marketed toward chiropractors and focused on the
creation of multi-disciplinary practices in which chiropractors
work with physicians and other medical professionals. Borsody,
a New York-based healthcare attorney, made presentations at
Practice Perfect lectures on the legal issues arising from such
multi-disciplinary practices.
In late 1996, Neuner attended a two-day Practice Perfect
seminar at which both Dahan and Borsody presented. According to
Neuner, Borsody explained that a chiropractor may not own a
majority interest in a medical practice, may not split fees with
a doctor, and must refrain from self-referrals and kickbacks.
Borsody proposed a model form of practice that he had developed
for a multi-disciplinary center, which allowed an investing
chiropractor to retain control of the finances of a medical
practice. Borsody’s practice model relied on a series of
contracts between a management company owned by the investing
chiropractor and a separate medical corporation owned by a
13
doctor. The stated goal of the interconnected contracts was to
protect the chiropractor’s financial investment in the medical
practice.
Borsody’s model included three key types of contracts: (1)
space rental leases, (2) equipment leases, and (3) management
contracts. The overarching purpose of each of those contracts
was to allow the chiropractor-owned management company to
extract profits from and maintain control over the affiliated
medical corporation. Borsody explained that a majority of the
stock in the medical corporation should be owned by a medical
doctor, but he clarified that this doctor need not participate
in the day-to-day treatment of patients. Separately, other
doctors would be employed by the medical corporation to see and
treat patients. All profits from the endeavor would be paid to
the management company, which would be owned by the
chiropractor, in exchange for the provision of management
services, leased space, and leased equipment.
The practice model, developed by Borsody and pitched at
Dahan’s programs, included a number of safeguards to ensure
continued control of the practice by the chiropractor-manager.
First, the doctor designated as the owner of the medical
corporation would be asked to sign an undated resignation
letter. Second, the doctor would be asked to sign an undated
“AFFIDAVIT OF NON ISSUED OR LOST CERTIFICATE,” bearing an
14
unexecuted notary attestation for the doctor’s signature and the
date. Through those two documents, the chiropractor could, if
necessary, remove the doctor from his or her position and have
it appear that the controlling interest in stock certificates
previously held by the doctor was being transferred from the
departing physician to another physician.1 Third, Borsody told
lecture participants that the leases between the management
company and the medical corporation should include a “break fee”
of $100,000 to penalize the medical practice’s doctor-owner for
breaking the lease. That combination of measures was intended
to prevent the nominal doctor-owner of the medical corporation
from seizing control of the practice from the real investor --
the chiropractor.
In addition to hearing Neuner’s description of the
information conveyed at the lecture on how the practice
structure was designed to operate and hearing a tape from
another Practice Perfect seminar -- described by Neuner as
“substantially” the same in its content -- the trial court also
admitted into the record a descriptive article authored by
Borsody. Specifically, prior to the seminar attended by Neuner,
Borsody wrote at least one trade article discussing the law of
1 That “AFFIDAVIT OF NON ISSUED OR LOST CERTIFICATE” enabled the
chiropractor to maintain control and never be forced to trust
the removed doctor to actually transfer to another doctor stock
that either was never issued or purportedly was lost.
15
multi-disciplinary practices, including the legal requirements
for ownership. That article, which the trial court had before
it, correctly stated that New Jersey requires a majority of the
ownership interest in a medical corporation to be owned by
medical doctors. Borsody stated in the article that this rule
is in place because non-doctor ownership “would risk
interference with clinical decisions of [doctors] employed in
those practices.” Addressing the contractual relationships
between practices and outside management companies, Borsody
wrote that courts have “smile[d] upon contracts which make
clearly nonprofessional services available on an arms-length
basis” and “[f]rowned upon . . . contracts that show excessive
control over the corporate activities of the [practice] (e.g.,
the right to replace the shareholder); that show control over
hiring, firing and disciplining of employed [doctors]; and that
have excessive control over financial affairs of the
[practice].” Borsody’s article warned that concentration of
nonprofessional services in a management company, and inclusion
of those “frowned upon” contractual provisions, would be
“fraught with peril.”
2.
On March 28, 1997, after attending the Practice Perfect
seminar described above, Neuner signed a contract with Dahan to
become a client of Practice Perfect. Neuner spoke with Borsody
16
about establishing a medical corporation and management company
as had been described. He learned that Borsody’s fee to set up
a multi-disciplinary practice would be about $9000. When Neuner
relayed that fee information to Dahan, the latter called the fee
“outrageous” and provided Neuner with a phone number that he
could call to obtain form documents for the creation of the
necessary entities. Neuner ultimately paid $2600 for those form
documents. Unbeknownst to Neuner, the source of those documents
was a separate firm owned by Dahan that was reproducing and
distributing contracts previously drafted by Borsody, without
Borsody’s knowledge or permission. Neuner used the forms to
incorporate JSM Management, a management company, and
Northfield, a medical corporation. Neuner also consulted a New
Jersey attorney but was advised by Dahan that it was not
necessary to “reinvent the wheel” by having an attorney redraft
legal documents already included in the forms provided by
Dahan’s consulting firm.
Neuner hired Dr. Robban A. Sica, M.D., as the initial
doctor-owner of Northfield. Neuner had never met Dr. Sica
before Dahan referred Neuner to her. Neuner also hired several
doctors to work at Northfield. Those doctors held no ownership
interest in the practice. In April 1998, due to a disagreement
between Dr. Sica and Neuner, Neuner replaced her with a new
doctor-owner. According to the new owner, Dr. Scott David,
17
D.O., he was told that he “could be like a hired CEO, [or] like
a figure head on a board, and [he] would get compensation for
that with limited time.” Dr. David also testified that Borsody
told him that he did not need malpractice insurance because he
would not be treating patients at Northfield.
In late 1998, Allstate, which had been receiving insurance
claims for treatment provided at Northfield, began investigating
the legality of Northfield’s practice structure and ceased
paying claims to the practice. Neuner retained Borsody to
represent him with respect to the investigation. On January 28,
1999, Borsody wrote to Neuner, informing him that because the
doctors hired to work at Northfield did not own stock in the
medical practice, Neuner’s employment of those doctors likely
violated existing guidance from the Board.
As a result of its investigation, Allstate refused payment
on approximately $330,000 in claims of patients treated by
Northfield.
B.
1.
Allstate filed the instant action on October 19, 1999,
against Neuner, Northfield, JSM Management, Dahan, Borsody, and
a number of additional defendants. The matter has a tortuous
procedural history, and not all of its details are relevant to
the issue in this appeal. However, we note that Neuner settled
18
with Allstate early in the proceedings, in part in exchange for
his agreement to testify against his co-defendants. For present
purposes, the salient charges of the complaint allege that
Borsody and Dahan violated the IFPA by knowingly assisting
Neuner in the creation and operation of a multi-disciplinary
practice whose insurance claims were fraudulent under the IFPA.
Allstate’s theory of the case relies not on any false claim
submitted by Neuner’s practice, but on the practice’s failure to
comply with governing standards on the corporate practice of
medicine, a necessary precondition to a valid insurance claim.
2.
At the bench trial, Neuner and others testified to the
facts already described about the lectures, the roles that
Borsody and Dahan played in the establishment and structure of
the Northfield practice, and the respective roles of the various
parties. Borsody also testified about his knowledge of relevant
legal restrictions concerning multi-disciplinary practices,
which testimony deserves separate attention.
Borsody described the information he conveyed in his
lectures at Practice Perfect seminars. He stated that he
covered “the legal aspect of the multi-disciplinary structures,”
including the decision in Finley and a case from Texas that he
deemed relevant. Specifically, Borsody referenced Flynn Bros.,
Inc. v. First Medical Associates, 715 S.W.2d 782 (Tex. App.
19
1986), which involved the issue of whether, as a result of a
management company’s inappropriate influence over a medical
practice, the management company effectively engaged in the
unlicensed practice of medicine.2
Borsody acknowledged in his testimony that he was familiar
with the Earle I letter and had considered it when developing
the material covered in the lectures. He described the lectures
as covering the corporate-practice-of-medicine doctrine,
including its application in New Jersey, although he stated that
he did not discuss N.J.A.C. 13:35-6.16 specifically.
In his testimony, Borsody explained that he developed the
practice model after a previous experience in which chiropractor
clients of his lost their investment in a multi-disciplinary
practice because the doctor they were working with “walked off
with the practice.” Accordingly, the model Borsody developed to
prevent that from happening again relied on terms in the
equipment lease, property lease, and management contract between
the medical corporation and the management company, which
2 The opinion in Flynn Bros., supra, explains that under Texas
law, “when a corporation comprised of lay persons employs
licensed physicians to treat patients and the corporation
receives the fee, the corporation is unlawfully engaged in the
practice of medicine.” 715 S.W.2d at 785. Although the doctor
in that case was not an employee under the management agreement,
the court found that “the practical effect was the same” because
the contractual arrangements between the doctor’s practice and
the management company “[were] developed to do indirectly that
which [the company’s owners] freely concede[d] they could not do
directly under the Medical Practices Act.” Ibid.
20
“[made] it look as tough as possible” for the designated medical
director to take control of the practice. Those provisions,
which were implemented in Northfield’s governing documents,
included a security interest held by the management company in
all of the medical corporation’s assets and a $100,000
termination penalty should the medical corporation breach its
lease.
Borsody asserted that he believed his model was lawful
based on his reading of Finley and the laws of various states
where he advocated that model. He testified that, during the
period at issue, “most states” required “the medical practice
[to be] under the supervision and control of a licensed medical
doctor” and “every State, including New Jersey, prohibited
chiropractors from employing medical doctors.” However, he
testified that he thought that vesting “bare legal title” of the
medical practice in a medical doctor was sufficient to comply
with those prohibitions. According to Borsody, it was not clear
that medical practices using his model might violate New Jersey
law until the Law Division issued its decision in Allstate
Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999).3
Borsody also emphasized that he advised Practice Perfect
3 Schick, supra, held that medical corporations violate the IFPA
if they submit claims to insurers while under the “dominion and
control” of non-physicians. 328 N.J. Super. at 628.
21
attendees to retain local counsel who could confirm that his
model complied with local law.
In addition to hearing testimony from Borsody, as well as
Dahan, the court heard from a number of experts on the
healthcare laws at issue.
C.
Based on the record presented, the trial court found that
Borsody and Dahan violated the IFPA when they “knowingly
assisted, conspired with and urged Neuner to operate in a
fashion that violated the law.” The trial judge rejected
defendants’ argument that, because the law was unclear prior to
the Law Division’s decision in Schick, the evidence did not
establish a knowing violation of the Act. In doing so, the
court made combined conclusions of law and findings of fact that
were, in part, credibility-based.
The judge observed that both Flynn Bros. and the Earle I
letter, each of which Borsody was admittedly familiar with,
established “the clear proposition that subterfuge in developing
medical practices is untenable.” The court focused on the facts
showing that a chiropractor was really in control of this
medical practice, although on paper there was a trail suggesting
otherwise. Despite Borsody’s claimed lack of knowledge of a
violation of regulatory requirements, or that a regulatory
misstep would provide a platform for a finding of an IFPA
22
violation for assisting another to submit fraudulently
ineligible medical claims, the trial court found the evidence
otherwise. In a Statement of Reasons, the trial court set forth
the essence of its determination:
Borsody and Dahan promoted what they knew was
essentially a lie. The business model they
promoted was intended to appear to be one way
and yet, in reality, be another way. They
both were motivated to provide to the
chiropractor the ability to manage a practice
which included medical doctors. Dahan knew
that a chiropractor could not own a majority
interest of a multi-disciplinary practice
since his California corporation was
established so that he was a minority
shareholder himself. Borsody knew that he was
placing in the hands of the chiropractor the
control that was lacking in his first
experience in New York. The simple fact that
the practice was intended to look as though a
medical doctor was in control yet, with
various side agreements, he was not,
constitutes a sufficient basis for the Court
to conclude that Borsody knew what he was
doing was not proper.
The trial judge rejected defendants’ claimed reliance on
the Deputy Attorney General’s guidance letter, issued after
Northfield was established, and found that, at best, defendants
had exhibited “willful blindness” to the illegality of the model
at issue.
In an unpublished opinion, the Appellate Division reversed
the trial court’s judgment based on the panel’s conclusion that
the evidence did not support a finding that defendants knowingly
violated the IFPA. The panel noted that in his lectures Borsody
23
discussed the requirement that only a medical doctor was
permitted to own the majority share of a medical corporation and
that, in light of the existing case law and informal guidance,
Borsody had a basis to believe his model was lawful.4 The
Appellate Division found it relevant that the practice model
“was similar to others used in business between corporations to
enable the exercise of economic control.” Expanding its
discussion to Dahan, and noting that the IFPA does not define
“knowing,” the Appellate Division concluded that “[t]here is not
sufficient evidence that New Jersey law at the time was settled
enough to hold [him] responsible for knowing that the corporate
structure he was advocating was illegal.”
We granted Allstate’s petition for certification. 223 N.J.
555 (2015). Amicus curiae status was granted to the Medical
Society of New Jersey, the American Medical Association, and the
New Jersey Dental Association.
III.
A.
In relevant part, the IFPA provides as follows:
a. A person or a practitioner violates this
act if he:
(1) Presents or causes to be
presented any written or oral
4 Like the trial court, the Appellate Division correctly placed
no stock in defendants’ arguments based on the letter-opinion
issued by the Deputy Attorney General after the incorporation of
Northfield.
24
statement as part of, or in support
of or opposition to, a claim for
payment or other benefit pursuant to
an insurance policy or the
“Unsatisfied Claim and Judgment
Fund Law,” P.L.1952, c. 174 (C.39:6-
61 et seq.), knowing that the
statement contains any false or
misleading information concerning
any fact or thing material to the
claim; or
(2) Prepares or makes any written or
oral statement that is intended to
be presented to any insurance
company, the Unsatisfied Claim and
Judgment Fund or any claimant
thereof in connection with, or in
support of or opposition to any
claim for payment or other benefit
pursuant to an insurance policy or
the “Unsatisfied Claim and Judgment
Fund Law,” P.L.1952, c. 174 (C.39:6-
61 et seq.), knowing that the
statement contains any false or
misleading information concerning
any fact or thing material to the
claim; or
(3) Conceals or knowingly fails to
disclose the occurrence of an event
which affects any person’s initial
or continued right or entitlement to
(a) any insurance benefit or payment
or (b) the amount of any benefit or
payment to which the person is
entitled.
[N.J.S.A. 17:33A-4(a)(1)-(3) (emphases
added).]
N.J.S.A. 17:33A-4(b) further instructs that “[a] person or
practitioner violates this act if he knowingly assists,
conspires with, or urges any person or practitioner to violate
any of the provisions of this act.” Furthermore, N.J.S.A.
25
17:33A-4(c) provides that “[a] person or practitioner violates
this act if, due to the assistance, conspiracy or urging of any
person or practitioner, he knowingly benefits, directly or
indirectly, from the proceeds derived from a violation of this
act.”
In pertinent part, defendants were found to have knowingly
assisted or conspired with Neuner in violating the IFPA under
N.J.S.A. 17:33A-4(b) by promoting and helping Neuner with the
construction of an impermissible professional practice structure
that enabled the chiropractor to benefit from proceeds derived
from his submission of medical claims for reimbursement, in
violation of the act, N.J.S.A. 17:33A-4(a), (c). Proof of such
violation need only be found to exist based on a preponderance
of the evidence. See Liberty Mut. Ins. Co. v. Land, 186 N.J.
163, 174-75 (2006) (holding that “the proper standard of proof
is a preponderance of the evidence” as opposed to “clear and
convincing evidence”).
B.
The parties’ disagreement before this Court centers on the
standard for a knowing violation under the IFPA and its
application in this instance.
1.
Allstate focuses on the error it perceives in the standard
applied by the Appellate Division, which hinged on whether there
26
was any dispositive case or interpretive guide to instruct
defendants that (1) the practice structure involved here
contravened medical practice requirements or restrictions, and
(2) the regulatory failing would provide a basis to support a
knowing IFPA violation for promoting and assisting in the
construction of such an impermissible practice used to submit
medical insurance claims.
Allstate maintains that the trial court had sufficient
evidence to support the finding of a knowing violation of the
IFPA. It urges application of a plain-meaning understanding of
the term “knowing” using the concept of awareness of illegality,
taking into account the reasonableness of the basis for
defendants’ claimed lack of knowledge of illegality.
Allstate argues that the trial court had ample evidence
from which to infer defendants’ knowledge that their practice
model, denoted by Allstate as the “Doc-in-the-Box” model,
violated the permissible medical practice requirements in New
Jersey as those standards were stated in regulation and
explained by regulatory agents, in particular through the Earle
I letter-opinion. Moreover, Allstate points to the trial
court’s reliance on defendants’ efforts to conceal the real
impact of the chiropractor-owner’s control over the medical
practice in theory and in reality through the interconnected
27
management and other contracts and agreements, supporting a
knowing violation of the IFPA.
In rebutting defendants’ arguments, Allstate argues that
although Schick “was the first case to hold expressly that
[d]efendants’ sham Doc-in-the-Box scheme was illegal in New
Jersey,” nothing in that opinion “suggest[ed] that the [issue]
was a difficult or even a close call.”5 Schick involved many of
the same players involved in this action, but Allstate claims
that defendants do not get a free pass until the Schick court
declared them to have engaged in an illegal practice scheme. In
a similar vein, Allstate points to Varano, Damian & Finkel,
L.L.C. v. Allstate Ins. Co., 366 N.J. Super. 1 (App. Div. 2004),
as further demonstrating that the illegality of defendants’
“Doc-in-the-Box” scheme was not a close question. As in Schick,
the Varano matter involved Dr. Sica as the “nominal” owner of a
medical practice, Ramsey Medical, which, like Northfield, was
5 Allstate would have us note that the Schick matter involved
similar facts to the present case: (1) Dr. Sica was the nominal
owner of five of the “sham medical centers”; (2) Dr. Sica signed
“undated resignation letters and stock assignments”; and (3) the
Schick “[d]efendants used management companies and service
agreements similar to those used by Neuner . . . to control the
hiring of physicians and to extract all of the profits from the
medical centers.” As Allstate notes in its briefing to this
Court, the Schick court concluded that “[i]t would be difficult
to conceive of a network of healthcare and management facilities
better designed to facilitate the funneling of PIP benefits into
the hands of non-licensees than the complex enterprises devised
and operated by the defendants herein” (quoting Schick, supra,
328 N.J. Super. at 621).
28
controlled by a chiropractor through the use of a management
company and service contract. Allstate contends that the
Appellate Division readily found the practice structure in
Varano illegal. Allstate relies on language in Varano that
“[i]t [was] apparent from even a cursory review of Allstate’s
allegations and the relevant case law that plaintiffs’ conduct,
as portrayed by Allstate, constituted a serious breach of law
and policy.” Varano, supra, 366 N.J. Super. at 8. According to
Allstate, “[t]he fact that the Schick and Varano decisions were
not handed down until after the Practice Perfect Seminar
[attended by Neuner] cannot override the obvious fact that the
corporate structure advocated by Borsody and Dahan relied on
subterfuge.”
2.
As defendants see it, the Appellate Division rightfully
expressed concern that an ordinary-meaning definition of
“knowing” -- one that considers whether defendants were “aware
of” or “had knowledge” of the illegality of their actions --
might not establish, through proof by a preponderance of the
evidence, a knowing violation of the IFPA under N.J.S.A. 17:33A-
4(b) and (c), where the alleged violators made no direct
submission to the insurer themselves. Defendants stress that
violation of the IFPA would require their knowledge both of the
illegality of the practice structure they are charged with
29
promoting and assisting Neuner in establishing and that
promotion and assistance with that non-compliant medical
practice would lead to an IFPA violation based on the practice’s
submission of insurance claims.
Although the panel stated that it did not adopt the
Criminal Code definition of “knowing” found in N.J.S.A. 2C:2-
2(b)(2), which defendants had urged before the panel,
defendants’ argument before us in essence continues to rely on
the meaning of “knowing” in the Criminal Code. Defendants argue
that a demonstration of actual knowledge or awareness of
illegality is the level of knowledge that should be necessary
under an ordinary-meaning application of “knowing” in this
context. In the alternative, defendants contend that under the
Criminal Code’s requirement in N.J.S.A. 2C:2-2(b)(2), a
defendant must be shown to have (a) acted “knowingly with
respect to the nature of his conduct or the attendant
circumstances,” and (b) acted “knowingly with respect to a
result of his conduct,” requiring proof that he was “aware that
it is practically certain that his conduct will cause such a
result.” Defendant Borsody, in particular, contends that
Allstate could not show that his conduct was practically certain
to cause Neuner and Northfield to file false or misleading
claims, or that he was practically certain at the time of his
30
conduct that the false or misleading information in those claims
would be material to an insurer such as Allstate.
Defendants now ask this Court to endorse the standard that
the panel utilized, which would require Allstate’s proofs to
establish that Borsody and Dahan had to know, from dispositive
case law or other binding interpretive action, that the practice
model defendants devised and promoted for use by Neuner violated
New Jersey statute or regulation. According to the panel, that
standard was not met in this matter. The panel also rejected
willful blindness as an acceptable standard for a knowing
violation when the violation involves the interpretation of a
statutory or regulatory requirement.
In urging this Court to affirm the proof standard applied
by the Appellate Division, defendants assert that, until the
definitive 1999 decision in Schick declared the practice
structure at issue to be in violation of law, defendants could
not, and should not, be held to have knowingly violated the
IFPA. Further, defendants maintain that, until Allstate
Insurance Co. v. Orthopedic Evaluations, Inc., 300 N.J. Super.
510 (App. Div. 1997), no defendant would have known that a mere
violation of regulatory restrictions applicable to the business
structure of a medical practice could render invalid and
ineligible a medical-service insurance claim, and thus place at
31
risk the third party who assisted in the promotion and
construction of that form of medical practice.
Amicus New Jersey Dental Association urges the Court to
import the Legislature’s definition of “knowing” from New
Jersey’s False Claims Act, N.J.S.A. 2A:32C-1 to -15, -17 to -18,
or, alternatively, to apply the Criminal Code definition. The
remaining amici argue against application of the False Claims
Act definition and emphasize that a plain-language understanding
of “knowing” does not include concepts of recklessness or
constructive knowledge.
IV.
A.
The standards we apply in reviewing the findings and
conclusions of a trial court following a bench trial are well-
established:
[W]e give deference to the trial court that
heard the witnesses, sifted the competing
evidence, and made reasoned conclusions. See
Rova Farms Resort v. Investors Ins. Co., 65
N.J. 474, 483-84 (1974). Reviewing appellate
courts should “not disturb the factual
findings and legal conclusions of the trial
judge” unless convinced that those findings
and conclusions were “so manifestly
unsupported by or inconsistent with the
competent, relevant and reasonably credible
evidence as to offend the interests of
justice.” Id. at 484 (citation and internal
quotation marks omitted); see, e.g., Seidman
v. Clifton Sav. Bank, 205 N.J. 150, 169 (2011)
(same).
32
[Griepenburg v. Township of Ocean, 220 N.J.
239, 254 (2015); see also H.S.P. v. J.K., 223
N.J. 196, 215 (2015).]
Questions of law receive de novo review. Manalapan Realty, L.P.
v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
B.
In this matter, we are called on to assess the trial
court’s application of a “knowing” standard that is required for
a violation of the IFPA, specifically N.J.S.A. 17:33A-4(b)
(instructing that “[a] person or practitioner violates this act
if he knowingly assists, conspires with, or urges any person or
practitioner to violate any of the provisions of this act”); see
also N.J.S.A. 17:33A-4(a), (c).
This is not a criminal case. And, the Legislature did not
incorporate the criminal definition of a “knowing” mens rea in
its adoption of a knowing violation for IFPA civil liability, as
is applicable in criminal insurance fraud prosecutions. See
N.J.S.A. 2C:21-4.6. The trial court rightly did not import
aspects of a “knowing” mens rea from the Criminal Code into the
civil liability section of the IFPA at issue. Rather, the court
correctly applied a plain-language understanding of “knowing” as
a term of normal language usage for the Legislature to have
employed in the IFPA. There is no need for contortions in
understanding the word. “Knowing” is well understood to be an
awareness or knowledge of the illegality of one’s act. See
33
Knowing, Black’s Law Dictionary 950 (9th ed. 2009) (“[h]aving or
showing awareness or understanding; well-informed”). That
knowledge need not come from a prior decision holding that the
precise conduct at issue gives rise to a violation of a legal
requirement.
There is ample precedent supporting the proposition that a
party’s knowledge as to the falsity or illegality of his conduct
may be inferred from the surrounding factual circumstances.
This Court has held, in a prosecution for false swearing, that
proof that a defendant’s statement was knowingly false “need not
be met by direct evidence. The intent may be inferred from the
circumstances surrounding the occurrence, the defendant’s
demeanor, his intellect, etc.” State v. Haines, 18 N.J. 550,
562 (1955) (applying N.J.S.A. 2A:131-6 (repealed 1978) (current
version at N.J.S.A. 2C:28-2)). “[A]s has oftentimes been
stated, circumstantial evidence is not only sufficient but may
also be ‘more certain, satisfying and persuasive than direct
evidence.’” State v. Goodman, 9 N.J. 569, 581 (1952) (quoting
State v. O’Connor, 134 N.J.L. 536, 539 (Sup. Ct. 1946)).
“Inferring mental state from circumstantial evidence is
among the chief tasks of factfinders.” United States v. Wright,
665 F.3d 560, 569 (3d Cir. 2012) (explaining that jury may
permissibly rely on circumstantial evidence to reach verdict on
federal conspiracy and fraud charges); see also United States v.
34
Brodie, 403 F.3d 123, 147 (3d Cir. 2005) (“A jury may infer a
willful violation of a known legal obligation from the facts and
circumstances surrounding the case.”). In the criminal context,
the prosecution “can prove the requisite mental state through
either direct evidence or circumstantial evidence.” McFadden v.
United States, 576 U.S. ___, 135 S. Ct. 2298, 2304 n.1, 192 L.
Ed. 2d 260, 269 n.1 (2015). In a civil action under the IFPA,
no less than in a criminal trial, the defendant’s knowledge of a
violation may be proven by circumstantial evidence.
With that standard in mind, we turn to defendants’ argument
that knowledge in this instance could come only from a prior
decision that would have, or should have, informed defendants of
the certainty of the illegality of their practice model. And,
further, we address the argument that defendants similarly
required a definitive holding that would have informed them that
a regulatory business-practice requirement, relating to
permissible practice models, could provide the platform from
which a knowing violation of the IFPA could emanate. We address
the latter first.
V.
A.
Defendants claim that, even if their practice model
violated the Board’s regulations governing the permissible
business structures for the organization of a medical practice,
35
defendants could not have knowingly violated the IFPA because it
was not clear at the time that compliance with those practice-
structure regulations was “material” to insurance claims
submissions. See N.J.S.A. 17:33A-4. Defendants seemingly
concede that the Appellate Division’s May 1997 decision in
Orthopedic Evaluations, Inc., supra, 300 N.J. Super. at 516-17,
at about the time that Northfield was being incorporated, was
the earliest point at which practitioners could have known that
the Board’s regulatory provisions are material for purposes of
insurance coverage.
We do not accept the proposition that, prior to Orthopedic
Evaluations, Inc., a reasonable actor would not have known that
compliance with the regulatory provisions governing the
organization, supervision, and control of a medical practice was
material to an insurance submission by that medical practice.
Addressing coverage under the Automobile Reparation Reform Act,
N.J.S.A. 39:6A-1 to -35, the appellate panel in Orthopedic
Evaluations, Inc., supra, observed that “[a] fair reading of the
Act . . . requires the conclusion that any healthcare service
authorized by the Act, in order to be eligible for recognition,
must also comply with any other significant qualifying
requirements of law that bear upon rendition of the service.”
300 N.J. Super. at 516. As a matter of public policy, “[t]he
law should accord no recognition to such entities and operations
36
which place the public at risk by failing to provide the
professional supervision and control deemed essential by the
Board.” Id. at 517. See also Varano, supra, 366 N.J. Super. at
6 (same); Prudential Prop. & Cas. Ins. Co. v. Midlantic Motion
X-Ray, Inc., 325 N.J. Super. 54, 60 (Law Div. 1999) (“The
failure of a [healthcare] provider or service to adhere to
[N.J.A.C. 13:35-2.5(b)], or any other significant state statute
or agency regulation, renders that provider or service
ineligible for reimbursement under [N.J.S.A. 39:6A-1 to -35].”).
The theory of all those cases reflects that in New Jersey a
practice entity must comply with all statutes and regulations
governing the permissible structures for control, ownership, and
direction of a medical practice, including the use of
professional services interconnected with a medical practice.
Health care services are highly regulated, and
professionals engaged in the provision of health care --
including persons such as defendants, who undertook to
facilitate that activity -- are on notice of the legal
requirements applicable to their practice and operations.
Material Damage Adjustment Corp. v. Open MRI of Fairview, 352
N.J. Super. 216, 227 (Law Div. 2002). We do not deal here with
an honest mistake made in the course of completing a
reimbursement form submitted to an insurer. This case goes to
the basic structure of a practice and how it is owned,
37
controlled, and directed. Those concerns go to the core of who
may practice medicine in this State. The practice of medicine
is a privilege to be exercised in accordance with all licensing
and practice requirements and restrictions. One cannot claim,
or feign, ignorance of those regulatory requirements and
restrictions until there is an express command applicable to a
precise set of facts.
Accordingly, we turn next to the regulatory requirements in
place governing the lawful structures for medical practices when
Borsody and Dahan promoted their practice model and the manner
in which their model was constructed to work on paper and in
practice.
B.
As previously discussed, N.J.A.C. 13:35-6.16 establishes
the proper structure of a medical practice and incorporates the
manner in which the corporate practice of medicine may be
employed. See N.J.A.C. 13:35-6.16(f)(1)-(3). Subsection (f)(3)
defines employment as “an ongoing associational relationship
between a licensee and professional practitioner(s) or entity on
the professional practice premises for the provision of
professional services, whether the licensee is denominated as an
employee or independent contractor, for any form of
remuneration.” In adopting section 6.16 in 1992, the Board
explained that subsection (f)(3) bars “a licensee with a more
38
limited scope of practice -- however competent within the scope
of license -- [from] professionally supervis[ing] the quality of
work of a plenary licensee.” 24 N.J.R. 626, 630 (1992).
N.J.A.C. 13:35-6.16(f)(3)(i) states simply and without ambiguity
that a practitioner with a plenary license “shall not be
employed by a practitioner with a limited scope of license.”
Although N.J.A.C. 13:35-6.16 allows for a solo practice as
well as a partnership or professional association, employment is
broadly defined to include even an ongoing associational
relationship between a licensee and a professional practitioner
or entity on the professional practice premises for the
provision of professional services, regardless of whether the
plenary licensee is labelled an employee or independent
contractor. Within the breadth of the concept of “employment,”
the regulation reinforces the theme of maintaining professional
discretion in form and substance, depriving anyone or any
corporate entity of the opportunity to control or attempt to
exert control over the exercise of professional discretion by a
plenary licensee. See ibid. That protection against control
over the plenary licensee is brought about through the clear
prohibitions expressed through the concept of employment in the
regulation. In addition, the Earle I opinion also clearly
states the same.
39
In answering the question put to the Board, the Earle I
letter addresses many ways in which the formal design of a
corporate medical practice would have an impermissible corrosive
effect on the professional discretion expected to be exercised
by the plenary licensee. The guidance informs that the formal
design of the relationship is not dispositive of whether there
is the risk of inappropriate encroachment on a plenary
licensee’s discretion. The letter states expressly, “[w]hile we
recognize that it is nominally the Professional Association
which is the ‘employer’ rather than the chiropractor, for our
purposes that would be a distinction without a difference.” The
thrust of the entire Earle I letter makes plain that the Board
would allow no subterfuge to shield the existence of a real or
potential corrupting influence that could be exercised by a
management company or by a professional association where a
licensee with a lesser scope of practice, like a chiropractor,
could actually wield control over the practice of medicine by a
plenary licensee.
C.
Based on the regulations in effect at the time and the
testimony at trial, the trial court here could reasonably
conclude that Borsody, as well as Dahan, knew of the regulatory
requirements at issue, promoted a practice scheme specifically
designed to circumvent those requirements while appearing
40
compliant, and therefore knowingly assisted in the provision of
services, the foreseeable result of which was the submission of
invalid and misleading claims under the IFPA.
Based on the plain language of the regulation and the
clarity of expression in the guidance of Earle I, we find no
basis for crediting the argument that defendants could not have
known that their structure violated the Board’s regulatory
requirements. The documents and structure promoted and designed
by defendants accomplished what the regulations sought to avoid.
They placed control over the medical practice in the hands of a
chiropractor, subjecting plenary licensees to his effective
control through interconnected contracts and the imposition of
the threat of substantial monetary penalties. Importantly, the
plan sought to conceal those features to appear compliant.
The scheme vested bare legal title in a physician.
However, the physician, besides being subject to direction and
financial control by a chiropractor-owner of a management
company, in reality was a stranger to the medical practice and
was not operationally in control, having been demonstrated to
have “sold” her license to multiple practices utilizing the so-
called “Doc-in-the-Box” structure in New Jersey and many other
states. In fact, she was recommended to Neuner for use as the
nominal medical owner of Northfield. And, when she and Neuner
had a disagreement, the veneer of her “control” over the
41
practice was shattered. The chiropractor exercised his ability
to utilize her previously required, undated resignation form and
affidavit of non-issued or lost certificate to make it appear
that she voluntarily transferred her “ownership” in Northfield
to the next medical doctor, who was selected by Neuner to own
the medical practice.
That structure was found by the trial court to have
violated the requirements governing ownership, control, and
direction of a medical practice. The trial court reached its
conclusions based on those harsh facts, having heard the
witnesses and examined the structure of this practice design,
formulated in such a way as to make it appear that a medical
doctor was “in charge” of the Northfield practice.
Clearly, with the 1999 decision in Schick, supra, the
practice structure at issue here was first held to constitute
both a violation of N.J.A.C. 13:35-6.16’s form-of-practice
requirements and a potential avenue for finding an IFPA
violation. 328 N.J. Super. at 621. As noted in the parties’
arguments, following that decision, other courts have reasoned
similarly. See, e.g., Varano, supra, 366 N.J. Super. at 6 (“A
provider in violation of N.J.A.C. 13:35-6.16 is not eligible to
receive PIP benefits.”). That said, we reject the contention
that the Schick decision was required to have been issued in
order to render the practice structure here incompatible with
42
regulatory requirements and to provide a platform for a
conclusion that a knowing IFPA violation could be proved under
N.J.S.A. 17:33A-4(b).
Here, there was an abundance of proof that the contracts
and penalties -- imposed on the doctor named as nominal owner in
title of this practice -- placed control of the medical practice
in the hands of a chiropractor. That clearly supported finding
is not overcome by any form-over-substance argument based on the
placement of bare legal title in the plenary licensee who
participated in this scheme. The trial court demonstrated
clarity of vision in recognizing that this medical practice
structure violated both the letter and spirit of the Board’s
rule.
Moreover, the lengths that defendants went to in shielding
the true controller of this practice from view undermine any
basis for interfering with the trial court’s assessment of the
mixed question of fact and law that was presented to the court.
It is apparent to us, as a reviewing court, that the fact-finder
was also incorporating credibility findings in assessing the
reasonableness of the scheme defendants were seeking to defend
in this IFPA matter. We extend a wide berth of deference to the
fact-finder in such matters. Considering all of the
circumstances involved in defendants’ interactions with Neuner,
the trial court could reasonably conclude that defendants
43
knowingly assisted Neuner in violating the Board’s rules and
submitting ineligible and fraudulent medical claims for
reimbursement through that practice structure, contrary to law.
In conclusion, knowledge or a “knowing” state of mind for
purposes of a statutory civil violation under the IFPA may be
inferred here. We find ample evidence to support the trial
court’s finding of the existence of an IFPA violation on this
record.
VI.
The judgment of the Appellate Division is reversed, and the
case is remanded for proceedings consistent with this opinion.
CHIEF JUSTICE RABNER and JUSTICES PATTERSON, FERNANDEZ-VINA,
SOLOMON, and TIMPONE join in JUSTICE LaVECCHIA’s opinion. JUSTICE
ALBIN did not participate.
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