DocketNumber： Case No. 14-cv-11700
Citation Numbers： 107 F. Supp. 3d 772, 2015 U.S. Dist. LEXIS 67999, 2015 WL 3403359
Judges： Borman
Filed Date： 5/27/2015
Status： Precedential
Modified Date： 10/18/2024
OPINION AND ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS (ECF NOS. 20, 21, 23, 25, 32, and 46) and DENYING DEFENDANTS’ MOTION TO STRIKE (ECF NO. 22)
This matter is before the Court on Defendants’ Motions to Dismiss (ECF Nos. 20, 21, 23, 25, 32, 46) and Defendants’ Motion to Strike (ECF No. 22). Plaintiff State Farm Mutual Automobile Company (“State Farm”) filed responses and Defendants filed, in most instances, replies. The Court held hearings on April 17 and April 23, 2015. For the reasons that follow, the Court DENIES the motions to dismiss and DENIES the motion to strike.
INTRODUCTION
In this action, State Farm seeks to recover money it alleges was fraudulently obtained through the coordinated efforts of the Defendants in submitting hundreds of bills and false documentation to obtain payment of benefits under Michigan’s No-Fault Act for treatments and services that were either never performed or not medically necessary. In these motions, Defendants move to dismiss Plaintiffs Complaint on a number of theories and move to strike certain allegations of the Complaint.
I. BACKGROUND
State Farm’s Complaint describes a multi-faceted scheme involving rehabilitation facilities, prescribing clinics and physicians, and a diagnostic testing facility, all of whom are alleged to have conspired to provide medically unnecessary treatment and to submit false and fraudulent documentation to State Farm for the payment of No-Fault benefits for patients who were involved in motor vehicle accidents and were thus eligible to obtain Personal Insurance Protection (“PIP”) Benefits under Michigan’s No-Fault Act. See Mich. Comp. Laws §§ 500.3105, .3107(l)(a). State Farm alleges that the scheme began as early as December, 2007, and claims to have paid over $775,000 for various allegedly fraudulent treatments and tests and has refused to pay additional bills that have been submitted by certain of the Defendants. Plaintiffs’ Complaint asserts causes of action for common law fraud, unjust enrichment and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) and (d) against all Defendants and seeks declaratory relief against the Treatment Facilities (defined infra) and Defendant Bio-Magnetic Resonance, Inc.
A. The Defendants and Their Alleged Role in the Scheme
1. The Management Group
The Complaint alleges that a “Management Group,” comprised of Defendants Dr. Ram Gunabalan, Sherif EI-Sayed, and Amale Bazzi secretly owned and/or con
2. The Treatment Facilities
Three Treatment Facilities are alleged to have participated in the scheme: (1) Pointe Physical Therapy, LLC (“Pointe”), a Michigan LLC located in Eastpointe, Michigan, which is alleged to have submitted fraudulent bills and documentation from 2009 to November; 2013; (2) New Era Physical Therapy, P:C. (“New Era I”), a Michigan corporation with its principal place of business in Flint, Michigan, which is alleged to have submitted fraudulent bills and documentation from December, 2007 through October, 2009; New Era PT Services, Inc. (“New Era II”), a Michigan corporation with its principal place of business in Flint, Michigan, which is alleged to have submitted fraudulent bills and documentation from 2010 through October, 2013. Compl. ¶¶ 158-60. New Era I and New Era II are alleged to be alter egos of one another based upon unity of interest and ownership. Id. ¶ 159. The Treatment Facilities are alleged to be the center of the scheme. State Farm alleges that the bills and supporting documentation ‘submitted by the'Treatment Facilities were fraudulent because the services either were not performed or were performed pursuant to a fraudulent predetermined protocol that did not address the unique needs of individual patients. Id. ¶¶ 2, 66. The -Treatment Facilities are alleged to have provided the same physical therapy modalities to virtually every patient on álmóst every visit for as long as possible, regardless of the patient’s unique conditions, needs and progress or lack of progress. Id. ¶ 3. State Farm alleges that in October or November, 2010, Pointe and New Erá began to employ an occupational therapist in addition to their physical therapists. The addition of the occupational therapist, according to the Complaint, resulted in additional fraudulent and double billings. Id. ¶ 3-4. Patients are alleged to have arrived at the Treatment Facilities “by the van-load,” some of whom had been in minor automobile accidents. Id. ¶ 18. Patients are alleged to have been referred to the Treatment Facilities by a cadre of personal injury attorneys and “investigators” who solicited patients who had been involved in automobile accidents and encouraged them to obtain treatment at the Treatment Facilities. Id. ¶¶ 69-71.
3. The Prescribing Clinics
Three Prescribing Clinics, Michigan Visiting Physicians, P.C. d/b/a Choice House Call (“Choice”), Mundy Pain Clinic, P.C. (“Mundy”) and Medical Evaluations, P.C. (“Medical Evaluations”), are alleged to have employed physicians who evaluated patients and provided prescriptions for
4. The Prescribing Physicians
Five Prescribing Physicians, Ram Gunabalan, M.D. (“Gunabalan”), Martin Quiroga, D.O. (“Quiroga”), Andrew Ruden, M.D. (“Ruden”), James Beale, Jr., M.D. (“Beale”) and Sean John Hoban, M.D. (“Hoban”), are alleged to have evaluated patients and written prescriptions for the medically unnecessary therapy provided by the Treatment Facilities. Id. ¶ 5. The Complaint alleges that because Michigan law requires a prescription from a physician for physical therapy treatment, the Management Group set up the Prescribing Clinics and hired the Prescribing Physicians, who are alleged to have written prescriptions according to a predetermined protocol that had no relation to the individual patient’s needs or diagnoses. Id. ¶¶ 5, 81-82,110-30. The Complaint alleges that the Prescribing Physicians examine patients and prescribe physical and/or occupational therapy to be obtained at the Treatment Facilities, and the Treatment Facilities continue to provide the same modalities on almost every visit for as long as possible to maximize the amounts that can be billed to State Farm and to increase the value of the patients’ personal injury claims for the benefit of a small group of personal injury attorneys with whom Defendants have substantial quid pro quo referral relationships. Id. ¶¶ 9, 79, 82. The Prescribing Physicians are also alleged to have written prescriptions for medically unnecessary Magnetic Resonance Imaging (“MRI”) studies and directed patients to have the studies performed at an MRI facility owned by Gunabalan. Id. ¶ 7.
5. The Diagnostic Testing Facility
One MRI facility, Bio-Magnetic Resonance, Inc. (“Bio-Magnetic”), which is alleged in the Complaint to be owned and controlled by Gunabalan, performed unnecessary MRIs on patients who were referred by the Prescribing Clinics and Prescribing Physicians. Id. ¶¶ 5, 131-32. The Complaint alleges that the MRIs were medically unnecessary and were part of the predetermined protocol applied to patients by the Prescribing Physicians and Prescribing Clinics. Id. ¶ 133-39. The performance of MRIs is alleged to have been very lucrative, the testing facility charging over $5,000 to perform an MRI on regions of the spine. Id. ¶ 140.
B. Harm to State Farm
State Farm alleges that it justifiably relied on the bills, medical records and supporting documentation submitted by the Defendants, which represented that the Defendants were providing services that were actually and lawfully rendered and reimbursable when in fact the services were either not performed or performed pursuant to a generic predetermined protocol to enrich Defendants by maximizing their collection of the patients’ No-Fault benefits. ECF No. 1, Complaint ¶ 149. State Farm claims that it was statutorily and contractually obligated to promptly pay for medically services that were lawfully rendered. Id. ¶ 150. In the case of Defendants’ allegedly fraudulent charges, State Farm claims it has paid claims in excess of $775,000, and has been presented with additional fraudulent bills that it has refused to pay. Id. at 151-52.
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a case where the complaint fails to state a claim upon which relief can be granted. When reviewing a motion to dismiss under Rule 12(b)(6), a court must “construe the complaint in the light most favorable to the plaintiff,'accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.” Directv Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir.2007). But the court “need not accept as true legal conclusions or unwarranted factual inferences.” Id. (quoting Gregory v. Shelby County, 220 F.3d 433, 446 (6th Cir.2000)). “[L]egal conclusions masquerading as factual allegations will not suffice.” Eidson v. State of Tenn. Dep’t of Children’s Servs., 510 F.3d 631, 634 (6th Cir.2007).
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the Supreme Court explained that “a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level____” Id. at 555, 127 S.Ct. 1955 (internal citations omitted). Dismissal is appropriate if the plaintiff has failed to offer sufficient factual allegations that make the asserted claim plausible on its face. Id. at 570, 127 S.Ct. 1955. The Supreme Court clarified the concept of “plausibility” in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009):
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” [Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ]. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 556, 127 S.Ct. 1955. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’ ” Id., at 557, 127 S.Ct. 1955 (brackets omitted).
Id. at 1948-50. A plaintiffs factual allegations, while “assumed .to be true, must do more than create speculation or suspicion of a legally cognizable cause of action; they must show entitlement to relief.” LULAC v. Bredesen, 500 F.3d 523, 527 (6th Cir.2007) (emphasis in original) (citing Twombly, 127 S.Ct. at 1965). Thus, “[t]o state a valid claim, a complaint must contain either direct or inferential allegations respecting all the material elements to sustain recovery under some viable legal theory.” Bredesen, 500 F.3d at 527 (citing Twombly, 127 S.Ct. at 1969).
In ruling on a motion to dismiss, the Court may consider the complaint as well as (1) documents that are referenced in the plaintiffs complaint or that are central to plaintiffs claims (2) matters of which a court may take judicial notice (3) documents that are a matter of public record and (4) letters that constitute decisions of a government agency. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). See also Greenberg v. Life Ins. Co. of Virginia, 177 F.3d 507, 514 (6th Cir.1999) (finding that documents attached to a motion to dismiss that are referred to in the complaint and central to the claim are deemed to form a part of the pleadings).
III. ANALYSIS
A. Motion to Dismiss RICO Claims for Failure to State a Claim Under Fed.R.Civ.P. 12(b)(6) and 9(b) by Gunabálan, Michigan Visiting Physicians, Mundy and Bio-Magnetic (ECF No. 20)
In this action, in addition to claims of common law fraud, unjust enrichment and claims for declaratory relief, State Farm alleges claims under RICO, 18 U.S.C. §§ 1962(c) and (d). Those sections provide:
(c) It shall be unlawful, for any person employed by or associated with any enterprise engaged in, or the activities' of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.
(d) It Shall be unlawful for any person to conspire to violate any of the provisions of 'subsection (a), (b), or (c) of this section.
18 U.S.C. § 1962(c), (d). To establish a violation of this section of the RICO statute, plaintiff must establish “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). “Racketeering activity consists of acts which are indictable under a number of federal statutes listed in 18 U.S.C. § 1961(1)(B).” Heinrich v. Waiting Angels Adoption Servs., 668 F.3d 393, 404 (6th Cir.2012). Included among the indictable offenses that satisfy the “predicate act” requirement is mail fraud, 18 U.S.C. §§ 1341, 1343, which Plaintiff relies on in this case to establish the alleged racketeering activity. To prove mail fraud, Plaintiff must demonstrate (1) “a scheme to defraud,” (2). “use of the mails in furtherance of the scheme,” and (3) “scienter .... which is satisfied by showing the defendant acted' either with a specific intent to defraud or with recklessness .... ” Heinrich, 668 F.3d at 404. State Farm alleges that the Defendants, using the mails to submit hundreds of fraudulent claims and documentation pursuant to a coordinated scheme to defraud State Farm, committed the predicate acts of mail fraud knowing their submissions were false and/or fraudulent.
Gunabalan, Michigan Visiting Physicians, Mundy and Bio Magnetic move to dismiss State Farm’s § 1962(c) RICO claim (Count II) for failure to state a claim arguing that: (1) the Sixth Circuit’s decision in Jackson v. Sedgwick Claims Mgt. Servs., Inc., 731 F.3d 556 (6th Cir.2013) (en banc), cert. denied, — U.S.-, 134 S.Ct. 2133, 188 L.Ed.2d 1123 (2014), bars recovery under RICO in this action; (2) State Farm fails to plausibly plead an enterprise; (3) State Farm fails to plausibly plead the distinct conduct of the Defendants; (4) State Farm fails' to plead mail fraud with particularity; and (5) State Farm’s § 1962(d) conspiracy claim (Count III) fails for these same reason.
Defendants argue that State Farm’s RICO claims are barred by the Sixth Circuit’s decision in Jackson because State Farm fails to allege an “injury to business or property.” Jackson involved the claims of a purported class of former employees of Coca Cola who were denied workers’ compensation benefits for injuries suffered while employed by Coca Cola. Plaintiffs in Jackson alleged that Sedgwick (Coca Cola’s third-party benefits claims administrator) retained certain “cutoff’ doctors who examined Plaintiffs and, pursuant to a fraudulent scheme orchestrated by Coca Cola and Sedgwick that utilized the mails, falsely reported to Sedgwick that Plaintiffs did not suffer from a work related disability so that Sedgwick could deny or cease the payment of workers’ compensation benefit. 731 F.3d at 561. The Sixth Circuit, concluding that Plaintiffs’ claims, which sought payment of benefits related to their injuries, were plainly derivative of the personal injuries they suffered, held that Plaintiffs failed to allege “injury to business or property” as that phrase is understood for purposes of RICO:
Courts interpreting RICO have remained faithful to this distinction by excluding damages “arising directly out of’ a personal injury, even though personal injuries often lead to monetary damages that would be sufficient to establish standing if the plaintiff alleged a non-personal injury. The reason why these expenses do not constitute an injury to property is because a personal injury does not lead to “a proprietary type of damage.” Although courts have used various terms to describe the distinction between non-redressable personal injury and redressable injury to property, the concept is dear: both personal injuries and pecuniary losses flowing from those personal injuries fail to confer relief under § 1964(c).
731 F.3d at 565-66 (internal quotation marks and citations omittéd). Finding that “the losses [Plaintiffs] allege áre simply a shortcoming in the compensation they believed they were entitled to receive for a personal injury,” the Sixth Circuit concluded that such losses “do[ ] not constitute an injury to ‘business or property1 under RICO.” Id. at 567.
By contrast, State Farm’s alleged injury derives not from personal injury but from business transactions that resulted in a proprietary loss, ie. the submission to it, and its payment, of, allegedly fraudulent claims. . The Supreme Court has recognized. that in general “[w]hen a commercial enterprise suffers a loss of money it suffers an injury to both its ‘business’ and its ‘property.’ ” Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). As recognized by several courts around the country and in this district, resolving this same challenge on indistinguishable facts, the type of .injury alleged by State Farm satisfies the RICO “business or property” injury requirement. See State Farm Mutual Auto. Ins. Co. v. Universal Health Grp., Inc., No. 14-10266, 2014 WL 5427170, at *8 (E.D.Mich. Oct. 24, 2014) (“Jackson does not bar a corporation that sells insurance covering personal injury claims from bringing a RICO suit, because the injuries alleged in relation to an enterprise seeking fraudulent reimbursements for services performed are to the business or property of the corporation.”); Allstate Ins. Co. v. Medical Evaluations, P.C., No. 13-14682, 2014 WL
2. State Farm plausibly pleads an association-in-fact enterprise.
RICO makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, .interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” 18 U.S.C. § 1962(c). “The statute does not specifically define the outer boundaries of the “enterprise” concept but states that the term includes any individual, partnership, corporation, association, or other legal entity, and any union or group of .individuals associated in fact although not a .legal entity.’ § 1961(4). This enumeration of included enterprises is obviously broad, encompassing ‘any ... group of individuals associated in fact.’ Ibid.” Boyle v. United States, 556 U.S. 938, 944, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009) (footnote omitted). “[A]n association-in-fact enterprise must have at least three structural features: a- purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.” Id. at 946, 129 S.Ct. 2237 (alteration added).
In attacking the Complaint for failure to adequately plead the purpose of the enterprise, Defendants ignore several allegations of the Complaint, which of course the Court must accept as true at this pleading stage. The Complaint alleges that the association-in-fact enterprise shared the common purpose of submitting false claims to State Farm (Compl. ¶ 181) and further alleges facts supporting the claim that the Defendants worked together, through referrals and utilization of common billing services- and forms, (Compl. ¶¶ 13 — 43, 72-79) to • achieve that purpose. Defendants insist that such coordination of effort would have been against each of the Defendants’ self-interest, but of course this introduces facts outside those pleaded in the Complaint, matters that are not properly considered at this pleading stage. The Complaint alleges in some detail the roles of each of the Defendants in the RICO scheme to
As other Judges in this district have recognized when analyzing substantially similar pleadings, such allegations are sufficient to plead an association-in-fact enterprise:
State Farm has sufficiently alleged the existence of an enterprise and that Dr. Abu Farha participated in it. State Farm alleged (1) the purpose of the enterprise (the submission of fraudulent claims); (2) the relationships between those associated with the enterprise (the doctors, physical therapy clinics, and the personal injury attorneys with whom they had quid pro quo cross-referral relationships); and (3) sufficient longevity to permit the enterprise’s purpose (from October 2007 to the present).
State Farm Mut. Auto. Ins. Co. v. Physiomatrix, Inc., No. 12-1150, 2013 WL 509284, at *5 (E.D.Mich. Feb. 12, 2013). In accord Universal Health, 2014 WL 5427170, at *4 (finding that State Farm successfully pled an association-in-fact enterprise through allegations delineating the “specific roles and relationships of the defendants,” alleging “an ongoing enterprise since at least 2007,” and alleging “that it functioned for the common purpose of submitting fraudulent bills for reimbursement”). See also Kugler, 2011 WL 4389915, at *6 (finding that State Farm’s complaint plausibly alleged an association-in-fact enterprise where it described the “interrelationships between each set of defendants and their respective roles in the scheme,” and also demonstrated how the enterprise functioned with “sufficient longevity to permit its members to pursue the illicit purpose of the enterprise”); Empire Title Servs., Inc. v. Fifth Third Mortg. Co., No. 10-2208, 2013 WL 1337629, at *6 (N.D.Ohio March 29, 2013) (noting that an association-in-fact can exist even though the membership of the enterprise may fluctuate and the participants may vary). The Court concludes that the Complaint adequately alleges an association-in-fact enterprise.
3. The Complaint plausibly alleges that the Defendants conducted the affairs of the enterprise.
RICO requires Plaintiffs to prove that the Defendants “conducted the affairs of the enterprise” through the pattern of racketeering activity. The Supreme Court defined the contours of this requirement in Reves v. Ernst & Young, 507 U.S. 170, 179, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), holding that “[i]n order to ‘participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one must have some part in directing those affairs.” The Sixth Circuit made clear in United States v. Fowler, 535 F.3d 408, 418 (6th Cir.2008), that Reves does not require proof that the defendant had a “managing” role in the enterprise. It is sufficient under Reves to allege that a defendant had some part in directing the affairs of the enterprise “either by making decisions on behalf of the enterprise or by knowingly carrying them out.” 535 F.3d at 418.
¶ 180. Pointe, New Era I, New Era II, Choice, Mundy, Medical Evaluations, Gunabalan, Quiroga, Ruden, Beale, Ho-ban, El-Sayed, Bazzi, and Bio-Magnetic formed an association-in-fact “enterprise” (the “Treatment Enterprise”) as that term is defined in 18 U.S.C, § 1961(4), that engages in, and the activities of which affect, interstate commerce.
¶ 181. The members of the Treatment Enterprise are and have been joined in a common purpose, have relationships with and among each other, and have associated through time sufficient to permit those associated to pursue the enterprise’s purpose. Pointe, New Era I, New Era II, Choice, Mundy, Medical Evaluations, Gunabalan, Quiroga, Ru-den, Beale, Hoban, El-Sayed, Bazzi, and Bio-Magnetic forged symbiotic relationships and needed and depended upon the participation of the others to accomplish their common purpose of defrauding State Farm through fraudulent personal injury claims. Specifically, the Treatment Facilities, Pointe, New Era I and New Era II, profited by billing State Farm for the physical therapy and occupational therapy but depend on prescriptions issued by the Prescribing Clinics and the Prescribing Physicians. The Prescribing Clinics and Prescribing Physicians profit by fraudulently billing State Farm directly for each instance in which they purportedly examine patients who they treat and benefit when the Treatment Facilities refer the patients back to them for continuing treatment and re-diagnosis. The Management Group participates in each of these activities, own and/or control the Treatment Facilities and the Prescribing Clinics, profit from the treatment provided at the Treatment Facilities and the Prescribing Clinics, and funnel patients into treatment at the Treatment Facilities. Additionally, Gunabalan himself purports to treat patients, prescribe therapy and other medical services. The MRI Facility profited by billing State Farm for medically unnecessary MRI tests performed on patients of the Treatment Facilities and depend on prescriptions issued by the Prescribing Clinics and the Prescribing Physicians. The participation and role of each of the Defendants was necessary to the success of the scheme. Neither Pointe, New Era I, New Era II, Choice, Mundy, Medical Evaluations, Gunabalan, Quiroga, Ruden, Beale, Hoban, El-Sayed,*787 Bazzi, nor Bio-Magnetic was capable of carrying out the scheme without the participation of the others.
This is not “group pleading” as Defendants suggest. Discreet paragraphs’ of the Complaint further delineate exactly the offending conduct of -each individual Defendant. See, e.g. ¶¶6-7, 1327, 49-55, 67-80, 74-79, 81-142, 161-66, 167-71. Each of the Defendants is on fair notice of what it is they are alleged to have done for their part in carrying out the alleged fraudulent scheme to obtain payment for medically unnecessary services and tests. Their claims that they were just carrying on them normal business routines, independent of one another, of course are of no moment at this pleading stage. See, e.g., Universal Health, 2014 WL 5427170, at *5 (finding that State Farm plausibly alleged the participation of each of the defendants in the conduct of the affairs of the enterprise where the complaint alleged “the course of conduct each defendant engaged in with regard to the enterprise”); Kugler, 2011 WL 4389915, at *6 (finding that allegations that individual doctors knowingly rendered unnecessary testing and procedures and submitted fraudulent bills through their employers, and that other defendants participated through their ownership interests in these defendants sufficiently explained “how each individual defendant' participated in either the operation or management of the enterprise for purpose of satisfying Reves”); State Farm Mut. Auto. Ins. Co. v. Valery Kalika, No. 04-4631, 2006 WL 6176152, at *17 (E.D.N.Y. March 16, 2006) (allegation that defendant physician “was a vital component in the scheme to treat insureds with unnecessary tests and then providing false documentation to support the tests” sufficient to satisfy Reves). The Court concludes that the Complaint plausibly alleges that each of the Defendants participated in the conduct of the affairs of the enterprise.
4. State Farm’s Complaint pleads mail fraud with sufficient particularity.
State Farm’s Complaint alleges that the racketeering activity in this case consists of predicate acts of mail fraud, i.e. the submission through the mail of fraudulent bills and documentation. To prove mail fraud, Plaintiff must demonstrate (1) “a scheme to defraud,” (2) “use of the mails in furtherance of the scheme,” and (3) “scienter ... which is satisfied by showing the defendant acted either with a specific intent to defraud or with recklessness .... ” Heinrich, 668 F.3d at 404. State Farm alleges that the Defendants, using the mails to submit hundreds of fraudulent claims and documentation pursuant to a coordinated scheme to defraud State Farm, committed the predicate acts of mail fraud knowing their submissions were false and/or fraudulent.
Federal Rule of Civil Procedure 9(b)’s heightened pleading standard applies to Plaintiffs’ mail fraud claims, and requires .that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting the fraud or mistake. Malice, intent* knowledge, and other conditions of a person’s mind may be alleged generally.” Fed.R.Civ.P. 9(b). “When pleading predicate acts of mail and wire fraud, in order to satisfy the heightened pleading requirements of Rule 9(b), a plaintiff must ‘(1) specify'the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent/ ” Heinrich, 668 F.3d at 404 (quoting Frank v. Dana Corp., 547 F.3d 564, 570 (6th Cir.2008)). “Rule 9(b) requires not only specifying the false statements and by
Nonetheless, “[w]hen faced with a motion to dismiss for failure to plead fraud ‘with particularity as required by Rule 9(b) ..., ‘a court must factor in the policy of simplicity ip pleading which the drafters of the Federal Rules codified in Rule 8.’ ” Whalen v. Stryker, Corp., 783 F.Supp.2d 977, 982 (E.D.Ky.2011) (quoting Michaels Building Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir.1988)). “Rule 9(b) is not to be read in isolation, but is to be interpreted in conjunction with Federal Rule of Civil Procedure 8.” United States ex rel. Bledsoe v. Community Health Systems, Inc., 501 F.3d 493, 503 (6th Cir.2007) (quoting Michaels, 848 F.2d at 679). “When read against the backdrop of Rule 8, it is clear that the purpose of Rule 9 is not to reintroduce formalities to pleading, but is instead to provide defendants with a more specific form of notice as to the particulars of their alleged misconduct.” Ibid. “The threshold test is whether the complaint places the defendant on sufficient notice of the misrepresentation allowing the defendants to answer, addressing in an informed way plaintiff[’]s claim of fraud.” Coffey v. Foamex L.P., 2 F.3d 157, 162 (6th Cir.1993) (quotation marks omitted). “So long as [the plaintiff] pleads sufficient detail — in terms of time, place and content, the nature of a defendant’s fraudulent scheme, and the injury resulting from the fraud — to allow the defendant to prepare a responsive pleading, the requirements of Rule 9(b) will generally be met.” United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir.2008).
JAC Holding Enterprises, Inc. v. Atrium Capital Partners, LLC, 997 F.Supp.2d 710, 726 (E.D.Mich.2014). In a complex case, involving multiple actors and spanning a significant period of time, where there has been no opportunity for discovery, “the specificity requirements of Rule 9(b) [should] be applied less stringently.” Id. at 727 (quotation marks and citation omitted) (alteration in original). “ ‘It is a principle of basic fairness that a plaintiff should have an opportunity to flesh out her claim through evidence unturned in discovery. Rule 9(b) does not require omniscience; rather the Rule requires that the circumstances of the fraud be pled with enough specificity to put defendants on notice as to the nature of the claim.’ ” Id. (quoting Williams v. Duke Energy Int’l, Inc., 681 F.3d 788, 803 (6th Cir.2012)).
Defendants argue that State Farm has failed to plausibly plead a pattern of racketeering activity because it has not pled acts of mail fraud with the particularity required by Rule 9(b). The Court rejects this argument. As Judge O’Meara observed in Physiomatrix, analyzing similar allegations of mail fraud with a substantially similar quantum of particularity as State Farm has offered here:
In the context of a RICO action, State Farm has alleged fraud with sufficient particularity. “In complex civil RICO actions involving multiple defendants, Rule 9(b) does not [] require that the ‘temporal or geographic particulars of each mailing made in furtherance of the fraudulent scheme be stated with particularity, but only that the plaintiff delineate, with adequate particularity in the body of the complaint, the specific circumstances constituting the overall fraudulent scheme.’ ”
Plaintiff has provided a nearly ninety-page description of how the defendants’ alleged mail fraud worked, coupled with charts demonstrating the types of claims submitted as a part of this purportedly fraudulent enterprise. Each defendant has received sufficient notice of the misrepresentations it is alleged to have made. A party that causes a fraudulent bill to be submitted to an insurer may be as hable for fraud as the person whose name was on the fraudulent submission. As it did in [Physiomatrix ], plaintiff has provided a listing of several hundred claims which each defendant is alleged to have contributed to or orchestrated. Each of these actions ultimately contributes to the fraudulent submission to plaintiff, in which each member has contributed in whole or in part to one of the hundreds of false representations specifically referenced in the complaint. Accordingly, plaintiff has adequately pled that all defendants either executed or caused the execution of the mail fraud scheme at issue here.
Universal Health, 2014 WL 5427170, at *4-5 (citations omitted) (alteration added).
Here, as in Physiomatrix and Universal Health, Plaintiff has sufficiently put each Defendant on notice of the misrepresentations allegedly made so that each can reasonably know where to begin the task of responding to the allegations. The following allegations in the Complaint flesh out the details of the alleged scheme to defraud, the use of the mails in furtherance of that scheme and the facts from which scienter can be inferred:
¶ 173. Defendants intentionally and knowingly made false and fraudulent statements of material fact to State Farm by submitting, and causing to be submitted, hundreds of fraudulent bills and related documentation that contained false representations of material fact.
¶ 174. The false representations of material fact include that (a) the Prescribing Physicians and physicians employed by and associated with the Prescribing Clinics legitimately examined and prescribed physical therapy and occupational therapy that was medically necessary and tailored to the unique needs of each patient, when in fact they did not do so; (b) the Prescribing Physicians and physicians employed by and associated with the Prescribing Clinics legitimately determined that patients were disabled; (c) the Treatment Facilities provided treatments that were medically necessary and tailored to the unique needs of each patient, when in fact they were not, if they were provided at all; (d) both physical therapy and occupational therapy services were necessary and performed when in fact they were not; (e) MRI tests were ordered that were medically necessary and tailored to the unique needs of each patient, when in fact they were not; and (f) the services were lawfully rendered and were reimbursable, when in fact they violated Michigan’s prohibition on self-referrals. The fraudulent bills and dates of first mailings are described in Exs. 1, 2 and 27. Representative samples of these bills and supporting documentation are attached as Exs. 13, 28 and 29.
¶ 173. Defendants knew that the above-described misrepresentations made to State Farm relating to the purported*790 examination, evaluation, diagnoses, and treatment of patients were false and fraudulent when they were made.
¶ 182. Pointe, New Era I, New Era II, Choice, Mundy, Medical Evaluations, Gunabalan, Quiroga, Ruden, Beale, Ho-ban, El-Sayed, Bazzi, and Bio-Magnetic are or have been employed by and associated with the Treatment Enterprise. ¶ 188. Pointe, New Era I, New Era II, Choice, Mundy, Medical Evaluations, Gunabalan, Quiroga, Ruden, Beale, Ho-ban, El-Sayed, Bazzi, and Bio-Magnetic have knowingly conducted and/or participated, directly or indirectly, in the conduct of the Treatment Enterprise’s affairs through a pattern of racketeering activity consisting of repeated violations of the federal mail fraud statute, 18 U.S.C. § 1341, based upon the use of United States mails to submit to State Farm hundreds of fraudulent claims, consisting of bills and supporting documentation that were fraudulent in that they were for examinations, diagnoses, MRIs, arid treatments, which were not performed, were performed pursuant to a Predetermined Protocol that was' designed and carried out to enrich Defendants by maximizing collection of the patients’ No-Fault Benefits, and not to benefit the patients. The false representations of riiaterial fact include that (a) the Prescribing Physicians and physicians employed by and associated with the Prescribing Climes legitimately examined and prescribed physical therapy and occupational therapy that was medically necessary and tailored to the unique needs of each patient, when in fact they did not do so; (b) the Prescribing Physicians and physicians employed by and associated with the Prescribing Clinics legitimately determined that patients were disabled; (c) the Treatment Facilities provided treatments that were medically necessary and tailored to the unique needs of each patient, when in fact they were not, if they were provided at all; (d) both physical therapy and occupational therapy services were necessary and performed when in fact they were not; (e) MRI tests were ordered that were medically necessary and tailored to the unique needs of each patient, when in fact they were not; and (f) the services were lawfully rendered and were reimbursable, when in fact they violated Michigan’s prohibition on self-referrals.
¶ 184. The fraudulent bills and corresponding mailings which comprise the pattern of racketeering activity identified through the date of this Complaint are described, in part, in Exs. 1, 2 and 27. Representative samples of these bills and supporting documentation are attached as Exs. 13, 28 and 29.'
Paragraphs 85 and 112 of the Complaint allege particular patient testimony in support- of the allegation that some services were billed for but never in fact provided.
The Charts attached as Exhibits to‘ the Complaint, referenced in these paragraphs of the Complaint, identify the Defendant involved in a-particular course of treatment and submission to State Farm and reveal when the false services were rendered with respect to the identified patients. The Charts identify a representative fraudulent mailing by 'date for each RICO event. These Charts also reveal the dates of service that are alleged to have involved fraudulent conduct, ie. they identify the first and last dates of service and the total number of visits involved, which State Farm alleges identifies the entire range of services, each one of which they claim to have been a part of the fraudulent scheme. Defendants question how Plaintiff intends to establish that each and every visit in the treating time frame involved a fraudulent service provided pursuant to the alleged predetermined protocol.- But that is what has been alleged and
The fact that Defendants may have to read the allegations of the Complaint in conjunction with the detail provided in the Exhibits does not render the pleading insufficient to put them on notice of the fraud that they are alleged to have committed or of which they are alleged to have been a part. “Each of these actions ultimately contributes to the fraudulent submission to plaintiff, in which each member has contributed in whole or in part to one of the hundreds of false representations specifically referenced in the complaint.” Universal Health, 2014 WL 5427170, at *3. See also Physiomatrix, 2013 WL 509284, at *5 (“In addition to the list of allegedly fraudulent claims, State Farm has specified the overall fraudulent scheme in the complaint, thereby satisfying the pleading requirements.”); Allstate Ins. Co. v. Linea Latina De Accidentes, Inc., 781 F.Supp.2d 837, 847 (D.Minn.2011) (“Where a plaintiff alleges a systematic practice of the submission of fraudulent claims over an extended period of time, the plaintiff need not allege the specific details of every fraudulent claim. Instead, the plaintiff must allege some representative examples-of the fraudulent conduct with particularity.”) (citing United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 557 (8th Cir.2006)); Allstate Ins. Co. v. Lyons, 843 F.Supp.2d 358, 372-73 (E.D.N.Y.2012) (finding that in the RICO context, a pleading that explains the details of the allegedly fraudulent scheme and provides several representative examples of the claims at issue satisfies the pleading requirement of Rule 9(b)). State Farm’s Complaint provides a level of detail that is sufficient at the pleading stage to satisfy-the particularity requirement of Rule 9(b).
5. State Farm has adequately pled a RICO conspiracy.
Defendants only argument for dismissal of State Farm’s RICO conspiracy claim is that because State Farm has failed to plausibly plead one or more elements of its § 1962(c) claim, its § 1962(d) claim must also be dismissed. Because the Court concludes, as discussed supra, that State Farm has plausibly pled a § 1962(c) claim, it .likewise concludes that it has adequately pled a RICO conspiracy. See Lyons, 843 F.Supp.2d at 374 .(finding that because substantive- RICO allegations are legally sufficient to state a claim, conspiracy claim likewise survives motion to dismiss). ,
B. Motion to Dismiss Time-Barred Claims by Gunabalan, Michigan Visiting Physicians, Mundy and Bio-Magnetic (ECF No. 21)
Defendants argue that some portion of State Farm’s RICO, common law fraud, unjust enrichment and declaratory relief claims, are barred by the applicable statutes of limitation.'
1. The Court cannot conclude, at this pleading stage, that the RICO claims are time-barred as a matter of law.
“RICO does not provide an express statute of limitations for actions
The defendant further argues that the injury occurrence rule for when a cause of action accrues applies to civil RICO claims, as, according to the defendants, the Supreme Court will likely adopt this rule when it considers the issue. However, the rule in the Sixth Circuit, at least for the present, is that the statute of limitations does not begin to run until “a party knew, or through exercise of reasonable diligence should have discovered, that the party was injured by a RICO violation.” Sims v. Ohio Cas. Ins. Co., 151 Fed.Appx. 433, 435 (6th Cir.2005) (citing Rotella v. Wood, 528 U.S. 549, 553-55, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000)); see also Taylor Group v. ANR Storage Co., 24 Fed.Appx. 319, 325 (6th Cir.2001) (“The limitations period for RICO claims accrues when a plaintiff knew or should have known of an injury.”) (citing Rotella, 528 U.S. at 554-55, 120 S.Ct. 1075). The plaintiff alleges that it did not discover the fraudulent scheme until 2007. That allegation is sufficient to preclude dismissal at this stage of the proceedings on statute of limitations grounds.
811 F.Supp.2d at 1340.
So too here. Even were the Court persuaded by Defendants’ “passionate” appeal for application of the injury occurrence rule, the Court is persuaded, if not compelled, by the decisions of the Sixth Circuit also to apply the injury discovery rule.
Judge Levy applied this same accrual rule in Universal Health, holding that under the “knew or should have known” accrual rule, Plaintiffs’ RICO claims survived the challenge at the pleading stage where their claim that they learned of the fraud only shortly before filing suit could not be defeated at the pleading stage by defendants’ argument that they “should” have known. 2014 WL 5427170, at *7. Defendants similarly argue
2. State Farm plausibly pleads fraudulent concealment and therefore the common law fraud and unjust enrichment claims survive Defendants’ motion to dismiss on statute of limitations grounds.
The “statute of limitations is tolled where the defendants engaged in conduct masking the existence of claims.” State of Mich. ex rel. Kelley v. McDonald Dairy Co., 905 F.Supp. 447, 450 (W.D.Mich.1995). This rule is codified in Michigan law at Mich. Comp. Laws § 600.5855 which provides:
If a person who is or may be liable for any claim fraudulently conceals the existence of the claim or the identity of any person who is liable for the claim from the knowledge of the person entitled to sue on the claim, the action may be commenced at any time within 2 years after the person who is entitled to bring the action discovers, or should have discovered, the existence of the claim or the identity of the person who is hable for the claim, although the action would otherwise be barred by the period of limitations.
“Plaintiffs must allege three elements to establish fraudulent concealment []: 1) wrongful concealment by the defendants of their actions; 2) failure of the plaintiffs to discover the operative facts that are the basis of the cause of action within the statute of limitations; and 3) plaintiffs’ exercise of due diligence until discovery of the facts.” Kelley, 905 F.Supp. at 451 (alteration added). State Farm has plausibly alleged fraudulent concealment. First, State Farm alleges that the fraudulent bills and documentation appeared legitimate on their face but that Defendants knew the bills and documentation were false, thus adequately pleading wrongful concealment. State Farm alleges that the manner in which the bills were submitted also concealed thé fraud, i.e. they appeared facially legitimate, they were submitted over time and from multiple entities whose interconnectedness had been disguised. “The second and third elements of fraudulent concealment are best addressed together.” Id. at 453. State Farm alleges that it reasonably assumed that the Defendants were complying with their ethical obligation to act honestly and with integrity and therefore could not have discovered the fraudulent scheme until it was able to review hundreds of bills and documentation together, “revealing the predetermined protocol.” Compl. ¶ 150, 152. Without expressing any opinion as to the merit of these allegations, the Court finds them sufficient, at this pleading stage, to plausibly allege a claim of fraudulent concealment. See Universal Health, 2014 WL 5427170, at *7 (“It is premature at this stage of the litigation to dismiss a claim on statute of limitations grounds where plaintiff has plausibly pled that its claim arose within the statute of limitations.”) Because fraudulent concealment operates to
3. State Farm’s declaratory judgment claim also survives the pleading challenge.
Defendants’ argue that the declaratory judgment claims fail because the underlying claims for substantive relief must fail. Because the Court concludes that the underlying-claims do not fail'substantively at this pleading stage, it denies the motion to dismiss the declaratory judgment claims.
C. Defendant Pointe Physical Therapy, LLC’s Motion to Dismiss the Complaint Pursuant to Fed. R.Civ.P. (9)(b) and 12(b)(6) (ECF No. 23)
Pointe fílés this motion: (1) repeating the arguments made by the Gunabalan Defendants regarding the-pleading sufficiency of the fraud allegations of the Complaint, (2) arguing that the punitive damages claim must be dismissed because punitive damages are not allowed under Michigan law, (3) seeking dismissal of the declaratory judgment claim because it is vague, (4) arguing that Plaintiff lacks standing to assert claims based on alleged violations of the Michigan self-referral law, and (5) seeking dismissal of Plaintiff’s unjust enrichment claim because it arises from an express contract. For the reasons that follow, the Court DENIES this motion.
1. State Farm’s fraud claims are alleged with sufficient particularity.
As the Court discussed supra in section IIIA4, State Farm has pled its fraud claims with sufficient particularity to put each of the Defendants on notice as to the claims that are made against them and to enable them to prepare their defense to those claims. More particularly responding to the alleged pleading deficiencies raised in the Pointe motion, the Defendants have again failed to demonstrate that the allegations fail to apprise them of the claims against them.
Charts 1 and 2 attached as Exhibits to the Complaint identify 209 “RICO Events” which include, as to each “RICO Event,” the claim number, the Prescribing Clinic and/or Prescribing Physician, the first and last dates of service at the Treatment Facilities, the duration of the treatment, the date on which a bill for services was mailed. Additional Exhibits to the Complaint reference the same “RICO Event” numbers, giving the Defendants all of the information needed to discern which claims are involved, which Defendants are allegedly involved as to each RICO Event, which treatments are in question, and which bills are claimed to fraudulent. State Farm does not have to prove its claims in the Complaint and supporting documentation. It only has to put the Defendants on notice of the claims with sufficient particularity that the Defendants can identify the claims and begin to prepare their defense.
The Court concludes that the allegations of the Complaint, along with the supporting Exhibits and Charts (and in some in
Defendants argue that State Farm has not provided the type of detail found sufficiently particularized by Judge Lawson in State Farm Mut. Auto. Ins. Co. v. Qadir, No. 11-11442 (E.D.Mich.2010) (ECF No. 64, Defs.’ Reply 5.) In fact, however, the very detail that Defendants claim is lacking is present in State Farm’s Complaint: each fraudulent claim (by number), the first and last dates of service (in this case, unlike in Qadir, State Farm alleges that all -services provided in the relevant time frame, and all bills submitted for those services, were fraudulent), the services allegedly provided, the date of a representative billing, and the details of the allegedly illegitimate practice (i.e. that the duration and types of treatments billed for were not provided or unnecessary). State Farm does not have ,to establish at this point that in fact the services were not provided, or that they were unnecessary. These allegations the Court must accept as true at this pleading stage. What is significant at this stage, and for purposes of this motion, is that the Defendants are sufficiently apprised of the claims that are alleged to have been fraudulent, the dates of service and the nature of services rendered that State Farm claims were either excessive or not provided. Defendants of course can attempt to demonstrate, 'as the case procéeds, that prescribing the same treatment and the same modalities for each patient, and for the durations described, was a legitimate' form of treatment in each instance, ie. that the alleged “predetermined protocol” was in fact a perfectly legitimate treatment plan. It is sufficient for our present purposes that State Farm identifies 209 RICO Events with sufficient particularity and alleges with specificity the reasons why they were false, ie. ¶¶44, 174, 183. Defendants can determine from this the nature of the. claims against them and where to begin to prepare their defense that each of the identified claims was not false or fraudulent.
2. Michigan law doés allow for recovery of exemplary damages.
State Farm’s counsel acknowledged at the hearing that it had improper
The terms “punitive” and “exemplary” damages have frequently been confused or used' interchangeably. However, the focus of the two damages is different. Punitive damages are awarded solely to punish or to make an example of a defendant because of the malice or recklessness with which he acted. Wronski v. Sun Oil Co., 89 Mich.App. 11, 27, 279 N.W.2d 564 (1979), lv. den. 407 Mich. 863 (1979), Ray v. Detroit, 67 Mich.App. 702, 704, 242 N.W.2d 494 (1976), lv. den. 397 Mich. 828 (1976). Exemplary damages are awarded for injury to feelings and for the sense of indignity and humiliation suffered by a plaintiff because of injury maliciously and wantonly inflicted. Ray, supra. In short, the former focuses on “punishing” the defendant and the latter focuses on “compensating” the plaintiff.
American Central Corp. v. Stevens Van Lines, 103 Mich.App. 507, 514-15, 303 N.W.2d 234 (Mich.Ct.App.1981). Similarly, the Michigan Court of Appeals, in Jackovich v. Gen’l Adjustment Bureau, Inc., 119 Mich.App. 221, 326 N.W.2d 458 (1982) reiterated this maxim of Michigan law:
“The terms ‘exemplary1 damages, ‘punitive’ damages and ‘‘vindictive’ damages have frequently been confused or used interchangeably. However, in Michigan only exemplary damages which are compensatory in nature are allowable. They are recoverable for injury to feelings and for the sense of indignity and humiliation resulting from injury maliciously and wantonly inflicted. Recovery is restricted to the party who has received the physical injury. They are never allowed, however, for the purpose, of punishing or making an example of a defendant. Smith v. Jones, 382 Mich. 176, 169 N.W.2d 308 (1969) (concurring opinion of Justice Adams), Ross v. Leggett, 61 Mich. 445, 28 N.W. 695 (1886), McFadden v. Tate, 350 Mich. 84, 85 N.W.2d 181 (1957), Detroit Daily Post Co. v. McArthur, 16 Mich. 447 (1868), Hyatt v. Adams, 16 Mich. 180 (1867).”
119 Mich.App. at 235-36, 326 N.W.2d 458 (quoting Ray v. Detroit, 67 Mich.App. 702, 704, 242 N.W.2d 494 (1976)).
State Farm urges the Court to consider the allegations of the Complaint, specifically paragraph 178, which complains of Defendants’ “wilful, reckless, and/or wanton conduct,” rather than the label that State Farm improperly placed on its pleading. These are adjectives that Michigan courts have invoked when defining conduct that can serve as the basis for a claim for exemplary damages. Defendants do not dispute that “exemplary” damages are allowed. The Court concludes that although labeled as “punitive,” the nature of the special damages State Farm seeks fits comfortably within the definition of exemplary damages under Michigan láw and therefore are properly pled in the Complaint.
3. State Farm’s Declaratory Judgment claim is not impermissibly vague.
Defendants argue that State Farm’s declaratory judgment claim is impermissibly vague and should be dismissed because State Farm does not identify the claims that are at issue in this Count. The Defendants argue that the declaratory judgment Counts could be read as precluding the Defendants from submitting any bills to State Farm in the future. State Farm responds that Defendants are not precluded from submitting bills for payment. State Farm argues in response that it
This Court already addressed this argument to a degree in its prior Opinion and Order, noting that a substantial controversy of sufficient immediacy has been alleged in this Count. State Farm has clarified that it “is seeking declaratory relief only with respect to ‘State Farm’s obligation as to pending bills and does not seek a declaration that Bio-Magnetic and the Treatment Facilities cannot submit future bills.’ ” (ECF No. 70 at 16) (quoting ECF No. 49, State Farm’s Resp. 22 n. 13). In fact, Defendants do not address this argument in their Reply.
4. State Farm does not attempt to assert a claim under the Michigan self-referral laws.
Defendants argue that State Farm does not have standing to assert a claim under Michigan self-referral law. True but irrelevant. The parties are in agreement that State Farm cannot assert a private cause of action against the Defendants under Michigan’s self-referral laws. State Farm never attempted to assert such a claim. State Farm argues that one category of fraudulent statements made by Defendants is comprised of alleged misrepresentations that the services for which they sought reimbursement were lawfully rendered and reimbursable when in fact, so State Farm alleges, the services actually were provided in violation Michigan’s self-referral laws. State Farm argues that when Defendants submitted documentation and bills for payment that represented that the charges and documentation complied with the law, these statements were false representations of fact and were therefore predicate acts of mail fraud.
Defendants argue that State Farm cannot rely on these mailings as RICO predicate acts because violation of the Michigan self-referral laws is not among the statutes listed in RICO. Defendants argue that allegations that a defendant violated a statute not enumerated among those listed in the RICO statute cannot form the basis for a RICO claim. But Defendants argument misses the mark. State Farm alleges predicate acts of mail fraud based on the false and fraudulent documents and bills submitted by the Defendants which sought payment for services that they represented had been lawfully rendered when in fact providing such services in some instances violated Michigan’s self-referral laws. State Farm is not attempting to assert a claim for relief under the Michigan statute prohibiting self-referrals; it is pointing to alleged violations of that statute, which are necessarily misrepresented when Defendants assert that their services have been lawfully rendered, as part of its premise for its fraud and racketeering claims.
Defendants argue that the Michigan Supreme Court’s decision in Miller v. Allstate Ins. Co., 481 Mich. 601, 751 N.W.2d 463 (2008) precludes State Farm’s reliance on a violation of Michigan’s self-referral laws as a basis to deny a claim and therefore precludes reliance on such violations as a basis for a predicate act under RICO or for a common law fraud claim. In Miller the Michigan Supreme Court held that because the Michigan Business Corporations Áct (“BCA”) contained an irrebuttable presumption that “the mere filing of articles of incorporation constitutes ‘conclusive evidence’ of the corporation’s legality,” Allstate did not have standing to challenge plaintiffs’ claims for payment on the basis that they provided services in violation of the BCA. Id. at 611-12, 751 N.W.2d
Because Defendants cannot support their claim that State Farm would be precluded from challenging claims for payment based on services provided by the Defendants that were rendered in violation of Michigan’s self-referral laws, the Court concludes that nothing precludes State Farm from relying on these alleged violations as a basis for their assertion that the Defendants’ bills and documentation were false and fraudulent when Defendants represented that the services were rendered in compliance with all applicable laws. In accord Physiomatrix, 2013 WL 509284, at *2' (finding defendants’ argument that State' Farm did not have standing to bring, a private right of action under the Michigan Insurance Code to be a “red herring” because State Farm was not seeking relief under the Michigan Insurance Code but brought common law fraud and unjust enrichment claims).
5. . State Farm’s unjust enrichment claim will go forward.
As Judge Levy noted in Universal Health, because State Farm denies the existence of an express contract between itself and Defendants, State Farm is permitted to plead unjust enrichment. “ ‘[U]nless it is undisputed that there is an express contract between the same parties covering the same subject matter, State Farm is entitled to plead unjust enrichment as an alternative claim of relief.’” Universal Health, 2014 WL 5427170, at *11 (quoting Physiomatrix, 2013 WL 509284, at *5) (alteration in original).
D. New Era . Physical Therapy, PC, New Era PT Services Inc., Sherif El-Sayed, Amale Bazzi, Medical Evaluations, PC, James Beale, Jr., and Sean Hoban (collectively “the New Era Defendants” move to dismiss pursuant to 12(b)(6) and
The New Era Defendants file this motion arguing (1) that State Farm’s Complaint is precluded by provisions of the Michigan Insurance Code, (2) that State Farm’s Complaint must be dismissed because the legal theories underlying the Complaint are based on statutes that do not create a private cause of action, and (3) that the Complaint fails to plead fraud with' sufficient particularity.
1. Nothing in the Michigan Insurance Code precludes State Farm’s claims.
Defendants premise this argument by characterizing State Farm’s Complaint as an “intimidation suit” ágainst health care providers who specialize in treating automobile accident victims. (ECF No. 25, 3-5.) Defendants allege that “the insurance industry has targeted providers who specialize in providing services to auto accident victims and has made self-serving determinations of fraud and abuse on the part of such providers as a mechanism of waging economic warfare against them.” Id. at 6. Of course none of these allegations are found on the face of Plaintiffs Complaint and cannot be considered by the Court on this motion to dismiss.
Defendants cite three cases which they assert support the contention that courts have “recognized the nature of these suits and.have not countenanced them.” Id. at 5. None of these cases stands for the proposition that the Michigan Insurance Code precludes an insurer from maintaining a fraud suit against a health care provider. In Allstate Ins. Co. v. A & A Medical Transport Servs., Inc., No. 260766, 2007 WL 162477 (Mich.Ct.App. Jan. 23, 2007), the court of appeals addressed the question presented in Miller, supra, and concluded that a health care provider’s failure to properly incorporate did not relieve an insurer of the obligation to make no-fault payments. As discussed supra, State Farm does allege such a claim here and Medical Transport, like Miller, is inapt. In Allstate Ins. Co. v. Lewerenz, No. 260766, 2006 WL 2986611 (Mich.Ct.App. Oct. 19, 2006), the court of appeals reviewed the trial court’s grant of the health care providers’ motion for summary disposition. The court of appeals affirmed the trial court’s determination that plaintiff failed to present sufficient documentary evidence to establish a genuine issue of material fact as to plaintiffs claims that defendants fraudulently billed the plaintiff for services not rendered or for unnecessary services. Id. at *8-9. Nothing in this case stands for the proposition that such a fraud claim is precluded under the Michigan Insurance Code. Finally, in Allstate Ins. Co. v. Global Medical Billing, Inc., No. 09-14975, 2011 WL 721299 (E.D.Mich. Feb. 23, 2011), Judge Zatkoff found that Allstate, whose fraud allegations were based on claims for which they had received reimbursement from the- Assigned Claims Facility (“ACF”), lacked constitutional standing because it failed to allege injury. Id. at *3. Judge Zatkoff also noted that Allstate did not have standing to bring a claim under Mich. Comp. Laws § 500.4511, which sets forth the criminal sanctions for a fraudulent insurance act. Id. On appeal, the Sixth Circuit affirmed the trial court’s ruling that plaintiff lacked constitutional standing as to claims for which they had received reimbursement (a point which plaintiff in fact conceded) and refused to reverse Judge Zatkoffs denial of plaintiffs motion for reconsideration, in
The Court is also persuaded to reject this argument based on the numerous substantially similar fraud actions that are pending in this district, several of which are discussed supra, none of which has found such actions to be barred by provisions of the Michigan Insurance Code. See, e.g., Physiomatrix, Universal Health, Medical Evaluations, supra and State Farm Mut. Ins. Co. v. Qadir, No. 11-11442 (E.D.Mich.2011).
2. The absence of a private cause of action under the Michigan Insurance Code, Michigan’s Anti-Solicitation Statute and the federal Stark Law does not preclude State Farm from bringing its common law fraud, RICO and unjust enrichment claims.
As discussed supra, the fact that no private cause of action is available under the statutes which State Farm alleges in the Complaint that Defendants have violated is irrelevant. State Farm is not attempting to assert claims under any of these of statutes. See, e.g. Physiomatrix, 2013 WL 509284, at *2 (acknowledging that the Michigan Insurance Code does not provide a private right of action for State Farm’s claim of insurance fraud but finding this argument “a bit of a red herring” because State Farm did not seek relief under M.C.L. 500.4511 but rather brought common law fraud and unjust enrichment claims).
3. State Farm’s Complaint pleads fraud with sufficient particularity.
The Court has already discussed this issue supra (see sections IIIA4 and IIIC1) in some detail. The New Era Defendants present nothing new that would persuade the Court to reach a different result. The Defendants’ argument that disputes regarding “medical necessity” are matters of opinion and therefore cannot be the basis for a fraud claim has necessarily been rejected by implication by every one of the multiple courts, discussed supra, that have permitted such claims to proceed. See also, e.g., Allstate Ins. Co. v. Palterovich, 653 F.Supp.2d 1306, 1323 (S.D.Fla.2009) (finding allegations of false and misleading statements concerning third parties’ medical conditions alleged misstatements concerning material facts). The New Era Defendants have not cited one case in which a RICO claim or a common law fraud claim by an insurer against a health care provider has been dismissed based upon a finding that “medical necessity” is a matter of opinion and therefore statements regarding medical necessity cannot form the basis for a fraud claim. Accordingly, and in view of the number of cases that have proceeded on such theories, the Court rejects this argument.
E. Gunabalan, Michigan Visiting Physicians, Mundy and Bio Magnetic’s Motion to Strike from the Complaint, Pursuant to Fed. R.Civ.P. 12(f), Allegations Pertaining to Non-Parties Michigan Bio-Tech, Maple Millennium and Michigan Orthopedic Surgeons
Defendants claim in this motion that State Farm has “gratuitously” 'inserted material into the Complaint regarding non-parties Michigan Bio-Tech Partners, LLC (“Biotech”), Maple Millennium Medical Center, LLC (“Millennium”) and Michigan Orthopedic Surgeons, P.C. (“Orthopedic • Surgeons”), who are not defendants in this case and are not alleged to have participated in the alleged fraudulent scheme. Defendants move, under Fed.R.Civ.P. 12(f), to strike allegations relating to these parties. Federal Rule of Civil Procedure 12(f) states that “[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f).
“While this Court has wide discretion to strike ‘redundant, immaterial, impertinent, or scandalous’ material from a pleading, courts tend to disfavor motions to strike and they are infrequently granted, because a motion to strike ‘proposes a drastic remedy.’” L and L Gold Assoc., Inc. v. American Cash for Gold, LLC, No. 09-10801, 2009 WL 1658108, at *1 (E.D.Mich. June 10, 2009) (quoting Stanbury Law Firm v. IRS, 221 F.3d 1059, 1063 (8th Cir.2000)). “An allegation is ‘impertinent’ or ‘immaterial’ when it is not relevant to the issues involved in the action. ‘Scandalous’ generally refers to any allegation that unnecessarily reflects on the moral character of an individual or states anything in repulsive language that ‘detracts from the dignity of the court.’” Id. (quoting Cobell v. Norton, 224 F.R.D. 1, 5 (D.D.C.2004)).
Here State Farm alleges, and Defendants do not deny, that Defendant Gunabalan has an ownership interest in Biotech, Millennium and Orthopedic Surgeons. The allegations of the Complaint relating to Biotech are as follows:
132. Gunabalan and physicians acting under his direction at the Prescribing Clinics referred patients of the Prescribing Clinics to the MRI Facility in which Gunabalan has an ownership interest, namely Bio-Magnetic. In addition, Gunabalan and the Prescribing Physicians and Clinics also sent patients to another MRI Facility that Gunabalan owns and/or controls, Michigan Biotech Partners LLC (“Michigan Biotech”). Michigan Biotech operates under an assumed name, The Imaging Center, though it submits bills under the name Michigan Biotech and from Bio-Magnetic’s address at 30781 Stephenson Highway, Madison Heights, Michigan. See Ex. 24. Michigan Biotech d/b/a The Imaging Center and Bio-Magnetic are part of a single group of MRI Facilities referenced on a common webpage and on reports of MRI results, with the web-page and National Plan and Provider Enumeration System identifying Gunabalan as President of the group. See Ex. 25.
164. Defendant Ram Gunabalan resides in and is a citizen of Michigan. Gunabalan has been a licensed medical doctor in Michigan since 1973. At all relevant times, he owned and/or controlled the Treatment Facilities and Prescribing Clinics, and thus, directed their activities and the activities of those who were employed by and associated with them. In addition, Gunabalan owns Bio-Magnetic, the MRI Facility where many of the patients who purported to*802 treat at the Prescribing Clinics and Treatment Facilities were sent for MRIs. Gunabalan also owns Michigan Biotech, another MRI facility which submits bills from Bio-Magnetic’s address and to which Gunabalan and the Prescribing Physicians and Clinics also sent patients. Additionally, Gunabalan also has a financial interest in. Orthopedic Surgeons P.C. and Maple Millennium Medical Center, LLC, which purported to provide spinal injections to patients who treated at the. Prescribing Clinics and Treatment Facilities. See Ex. 26.
The additional allegations of the Complaint relating to Millennium and Orthopedic Surgeons are as follows:
141. In addition to the provision of unnecessary MRIs, patients who treated at the Treatment Facilities and received pain management' injections received these injections through entities owned or affiliated with Gunabalan, namely Orthopedic Surgeons P.C. and Maple Millennium Medical Center, LLC.
142. Thus, Gunabalan profited not only from the patients’ physical and occupational therapy at the Treatment Facilities and medical examinations performed at the Prescribing Clinics, but also from spinal injections performed at Orthopedic Surgeons and Maple Millennium.
Certainly there is nothing “scandalous” about these allegations, nor can the Court conclude at this point that they are completely irrelevant to the issues in this case. Biotech, while not named as a Defendant, is alleged to have a been a referral facility for allegedly unnecessary MRI tests ordered by the Prescribing Physicians and Clinics. The Complaint also alleges that Biotech sends bills from the same mailing address as Bio-Magnetic, .the Defendant MRI facility owned by Gunabalan. With regard to Millennium and Orthopedic Surgeons, the Complaint alleges that patients who treated at the Prescribing Clinics and Treatment Facilities received pain injections at theses facilities, in which Gunabalan has an ownership interest. State Farm need not establish at this stage of the.litigation how it intends to utilize such non-party evidence at trial but the Court concludes that the allegations are of sufficient potential relevance that it will exercise its discretion to deny the motion to strike. See, e.g., SKS Constructors, Inc. v. Drinkwine, 458 F.Supp.2d. 68, 80 (E.D.N.Y.2006) (finding “that allegations of essentially the same scheme perpetrated on unnamed parties may be alleged to support a claim of closed-ended continuity”).
F. . Defendants Ruden and Quiroga’s Motions to Dismiss (ECF Nos. 32, 46)
On April 23, 2015, the Court held a continuation of the motion hearing on the motions to dismiss to permit Defendants Ruden and Quiroga an opportunity to argue their individual motions. Defendant Ruden proceeds in this matter pro se and Defendant Quiroga is represented by counsel different from counsel representing the other moving Defendants. Thus, both were given an opportunity to speak in support of their motions. Both Ruden and Quiroga steadfastly deny the allegations of the Complaint as directed at them and their arguments focused on what they perceived as the paucity of allegations against them. They deny that they prescribed treatments pursuant to predetermined protocol. They maintain that their diagnoses were independently arrived at with respect to each individual patient based on that patient’s unique presentation and that their prescriptions were in all instances consistent with the standard of care.
The allegations against Ruden are contained in paragraphs 1, 29, 37, 41, 42, 99-101,161,162,163 and 168 of the Complaint and against Quiroga in paragraphs 1, 70, 84, 96-98, 161, 162 and 167. ' Individual RICO events involving Ruden are found in Exhibit 2 to the Complaint and individual RICO events involving Quiroga are found in both Exhibits 1 and 2 to the Complaint. The Complaint alleges a connection between these Defendants and the Management Group and Treatment Facilities. The Complaint alleges that the Management Group steers patients to them and alleges that these Defendants participate in the alleged fraudulent scheme by treating and ordering therapy and/or tests pursuant to the alleged predetermined protocol. See, e.g. ¶¶42, 70, 84, 96-98, 99-101. Specifically, the Complaint alleges that these Defendants facilitated the submission of false and fraudulent documentation that resulted in Pointe and New Era’s submission of fraudulent bills as set forth on Exhibits 1 and 2 to the Complaint.
The law does not require that the individual Defendants were the masterminds of the alleged scheme, only that their conduct contributed to the overall fraudulent scheme. Fowler, 536 F.3d at 418 (finding that it is sufficient to allege that a defendant had some part in directing the affairs of the enterprise “either by making decisions on behalf of the enterprise or- by knowingly carrying them out.”). Nor is there any requirement that the Defendants have been affiliated with the scheme from its inception or that they have been involved for any specific length of time. See Universal Health, 2014 WL 5427170, at *5 (“There is • no requirement under RICO that an enterprise remain static from the moment of its inception; members may come and go, and those who joined even years after the enterprise began are just as liable for their unlawful acts under RICO as founding members.”) (citing Boyle, 556 U.S. at 952, 129 S.Ct. 2237).
To reiterate the Court’s reasoning supra, the Charts attached as Exhibits to Plaintiffs Complaint, that are further referenced in 'the paragraphs of the Complaint,- identify Ruden and Quiroga as individuals who submitted the fraudulent bills and documentation submitted to State Farm' and reveal when the alleged fraudulent statements were made with respect to the identified patients. As the Court noted supra, Defendants question how Plaintiff intends to establish that each and every visit in the treating time frame involved a fraudulent service provided pursuant to the alleged predetermined protocol. But that is what has been alleged and this is a factual matter not appropriately addressed at this pleading stage. "What is important here is that the allegations of the Complaint, read in conjunction with the detail provided in the Exhibits, contains sufficient factual content to put Defendants on notice of the fraud that they are alleged to have committed or of which they are alleged to have been a part. “Each of these actions ultimately contributes to the fraudulent submission to plaintiff, in which each member has contributed in whole or in part to one of the hundreds of false repre
IV. CONCLUSION
For the foregoing reasons, the Court DENIES Defendants’ motions to dismiss (ECF Nos. 20, 21, 23, 25, 32, 46) and DENIES Defendants’ motion to strike (ECF No. 22).
. Also joining in this motion are: Pointe Physical Therapy (ECF No. 26); New Era
. Joining in:. Pointe Physical Therapy (ECF No. 26); New Era Physical Therapy, New Era PT Services, El-Sayed, Bazzi, Medical Evaluations, Beale and Hoban (ECF No. 28); Quiroga (ECF No. 32); Ruden (ECF No. 46). The Court’s disposition of the principal motion also resolves all parties’ joinders in this motion.
. Also joining in this motion are: Gunabalan, Bio-Magnetic, Michigan Visiting Physicians, Mundy (ECF No. 27); New Era Physical Therapy, New Era PT Services, El-Sayed, Bazzi, Medical Evaluations, Beale and Hobart (ECFNo. 28); Quiroga (ECF No. 32); Ruden (ECF No. 46). The Court's disposition of the principal motion also resolves all parties’ joinders in this motion.
. Defendants argue that the charts attached as Exhibits to Plaintiff’s Complaint violate HIPPA. This is a red herring and is irrelevant to the issues before the Court.
. Joining in: Pointe Physical Therapy (ECF No. 26); Gunabalan, Bio-Magnetic, Michigan Visiting Physicians, Mundy (ECF No. 27); Quiroga (ECF No. 32); Ruden (ECF No. 46). The Court’s disposition of the principal motion also resolves all parties’ joinders in this motion.
. Joining in: Pointe Physical Therapy (ECF No. 26); New Era Physical Therapy, New Era PT Services, El-Sayed, Bazzi, Medical Evaluations, Beale and Hoban (ECF No. 28). The Court’s disposition of the principal motion also resolves all parties’ joinders in this motion.