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Allied Medical Associates v. State Farm Mutual Automobile Insurance Co.

April 16, 2009

ALLIED MEDICAL ASSOCIATES, PLAINTIFF,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY AND STATE FARM FIRE AND CASUALTY COMPANY, DEFENDANTS/COUNTERCLAIM-PLAINTIFFS,
v.
ALLIED MEDICAL ASSOCIATES, DAVID KIRSTEIN, D.C., AND BRYAN EHRLICH, D.C., COUNTERCLAIM-DEFENDANTS.



The opinion of the court was delivered by: Yohn, J.

Memorandum and Order

On May 23, 2008, Allied Medical Associates ("Allied") commenced this civil action against State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (collectively, "State Farm"). Allied seeks, inter alia, reimbursement for medical procedures it allegedly provided to State Farm's insureds. State Farm answered Allied's complaint on November 11, 2008, raising several affirmative defenses and asserting a counterclaim against Allied, David Kirstein and Bryan Ehrlich*fn1 (collectively, "counterclaim-defendants"). Presently before the court is counterclaim-defendants' motion to dismiss State Farm's counterclaim and certain affirmative defenses for failure to state a cause of action upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, I will grant in part and deny in part counterclaim-defendants' motion.

I. Factual and Procedural Background

State Farm's counterclaim asserts three counts against Allied, Kirstein and Ehrlich: (I) fraud; (II) statutory insurance fraud under 18 Pa. Con. Stat. § 4117; and (III) unjust enrichment. To support these counts, State Farm makes the following allegations, which the court must accept as true for purposes of a motion to dismiss. State Farm, an insurer, provides its customers insurance coverage for medical expenses that arise out of automobile accidents. (Countercl. ¶ 1.) Allied operates a business that provides "chiropractic, medical, diagnostic, and/or physical therapy treatment, testing, services and/or goods . . . ." (Id. ¶ 2.) David Kirstein, D.C. and Bryan Ehrlich, D.C.serve as "proprietor[s], owner[s], officer[s], agent[s] and/or shareholder[s] of Allied." (Id. ¶¶ 3-4.)

State Farm contends that counterclaim-defendants are engaged in a form of insurance fraud that began in 2003 (if not earlier). (Id. ¶ 30.) Specifically, counterclaim-defendants are "active participants in a conspiracy and scheme to defraud [State Farm] by doing acts including, but not limited to, producing and submitting false, misleading, inaccurate and/or fraudulent medical records, reports, bills, and/or other documents . . . ." (Id. ¶ 11.) The scheme is aimed at inducing State Farm to reimburse counterclaim-defendants for, inter alia, unnecessary medical services allegedly provided by counterclaim-defendants. (Id. ¶ 12.) To further their scheme, counterclaim-defendants instituted an incentive system, which offered incentives to "employees and/or agents" who would "provide unnecessary, inappropriate and/or unreasonable treatment."

(Id. ¶ 21.)

State Farm alleges that counterclaim-defendants conducted their insurance fraud scheme as follows: Counterclaim defendants would solicit individuals who were involved in motor vehicle accidents. (Id. ¶¶ 16-17.) Those who chose to treat at Allied were "placed on a standardized and predetermined treatment plan[,]" which included "physical therapy and/or chiropractic treatment, electromyography (EMG) and nerve conduction testing, orthopedic consultation and/or other testing . . . ." (Id. ¶ 19.) The treatment plan was not implemented for the benefit of the patient, but rather "for the financial benefit of Counterclaim Defendants and/or other entities and/or individuals and/or to support past and future treatment and services and/or to support uninsured, underinsured and liability claims brought by individuals who treated at Allied . . . ." (Id.) Counterclaim-defendants did not provide many of the procedures for which they sought reimbursement and certain procedures counterclaim defendants did provide were not medically necessary. (Id.) State Farm cites seventeen bills submitted by counterclaim-defendants that sought reimbursement for treatment that Allied did not, in fact, provide to patients. (Id.) State Farm also cites four examples where counterclaim-defendants provided medical treatment that was inconsistent with the patients' injuries. (Id. ¶ 25.) In addition to Allied's own provision of unnecessary treatment, counterclaim-defendants also referred patients to other healthcare providers to receive unnecessary treatment and medical tests. (Id. ¶¶ 21-22.)

To obtain reimbursement from State Farm, counterclaim-defendants prepared, or had other Allied employees prepare, "fraudulent, misleading, and/or inaccurate . . . medical reports, bills and/or other documents . . . ." (Id. ¶ 24; see id. ¶ 11.) Counterclaim-defendants obtained reimbursement by using "current procedural terminology" codes in their billing forms to classify the medical procedures for which they sought reimbursement.*fn2 (Id. ¶ 28.) State Farm relied on these codes when it assessed and granted counterclaim-defendants' reimbursement requests. (Id.) As a result of counterclaim-defendants' fraud, which State Farm avers occurred in all (or at least many) of the reimbursement requests,*fn3 (id. ¶ 33), State Farm has paid at least $2,000,000 to counterclaim-defendants, (id. 31).

On May 23, 2008, Allied filed its complaint against State Farm. In its complaint, Allied asserts several state law claims centering on State Farm's refusal to remit payment to Allied in satisfaction of Allied's reimbursement requests. Prior to answering, State Farm filed a counterclaim against Allied. (Doc. No. 22.) On November 12, 2008, counterclaim-defendants filed a motion to dismiss and/or strike State Farm's first counterclaim, arguing that State Farm's counterclaim was procedurally improper. (Doc. No. 41.) By order of March 26, 2009, I granted counterclaim-defendants' motion and dismissed State Farm's first counterclaim.

State Farm filed its answer on November 11, 2008. (Doc. No. 37.) The answer raised several affirmative defenses and incorporated by reference the language of the counterclaim originally (but improperly) filed as Doc. No. 22. (See Answer at 26.) On November 17, 2008, counterclaim-defendants filed a second motion to dismiss, seeking to dismiss State Farm's counterclaim and several of State Farm's affirmative defenses. (Doc. No. 44.) State Farm filed its response to Allied's second motion to dismiss on December 15, 2008, and later, with the court's permission, supplemented its response on December 18, 2008. Counterclaim-defendants filed a reply on January 2, 2009. On February 24, 2009, counterclaim-defendants supplemented their motion to dismiss; State Farm responded on March 13, 2009. Thus, the issues presented by counterclaim-defendants' motion are ripe for review.

II. Standard of Review

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint.*fn4 Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). When evaluating a motion to dismiss, the court must accept as true all well-pleaded allegations of fact in the plaintiff's complaint and must view any reasonable inferences that may be drawn therefrom in the light most favorable to the plaintiff. See Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008); Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996).

The complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed. R. Civ. P. 8(a)(2). This statement must "'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. 1964-65(citations and alterations omitted). Furthermore, "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 1965 (citations and footnote omitted); see also Phillips, 515 F.3d at 232.

III. Discussion

A. Rule 9(b) Pleading ...


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