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State Farm Mutual Automobile Insurance Company, et al v. Stephen Ficchi

June 10, 2011

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, ET AL., PLAINTIFFS,
v.
STEPHEN FICCHI, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gene E.K. Pratter U.S. District Court Judge

MEMORANDUM

Introduction

State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (jointly, "State Farm") filed an eight-count Amended Complaint against several doctors and their associated medical offices. In this insurance fraud action, State Farm alleges that Drs. Ficchi, Knox, and Shenko, along with their respective practices, worked together to bilk State Farm of money by, inter alia, submitting false claims for services that were not actually rendered to State Farm insureds, by providing State Farm insureds with unnecessary services, and by referring patients to each other for unnecessary services. Accordingly, State Farm alleges that the doctors and their practices committed fraud, statutory insurance fraud, conspiracy, and concerted tortious action. State Farm also claims the defendants violated and conspired to violate the civil Racketeering and Corrupt Influence Organizations Act ("RICO"). In addition, State Farm contends that the doctors and their practices were unjustly enriched by their actions, and that the Court should order disgorgement and restitution.

The Defendants move to dismiss State Farm's claims. For the reasons explained below, the Court will grant the Motion, but will permit State Farm to file a second amended complaint.

Factual and Procedural Background

As described in the Amended Complaint, Ficchi P.C. provided chiropractic, medical, diagnostic, and/or physical therapy treatment to persons injured in accidents. Am. Compl. ¶ 2. Dr. Ficchi operated Ficchi P.C. at locations in Bensalem, South Philadelphia, and Olney. Earnings from these facilities (each of which is a named defendant) were paid out to him. Id. ¶ 19. Dr. Shenko operated Ortho-Sport and receipts from that practice were paid to him. Id. ¶ 20. Dr. Knox, in turn, operated a business in his personal name and money from that business was paid over to him. Id. ¶ 21. These individuals, in conjunction with the medical centers they operated, are referred to together as the "Ficchi Defendants" where appropriate in this Memorandum. The medical centers are collectively referred to as "Defendant Medical Offices."

State Farm contends that the Ficchi Defendants were active participants in a conspiracy and scheme to defraud State Farm by producing and submitting "false, misleading, inaccurate, and/or fraudulent medical records, statements, reports, bills and/or documents and/or representations." Id. ¶ 14. These documents relate to patients who were involved in motor vehicle accidents and who went to the Defendant Medical Offices for post-accident treatments. Id. The Ficchi Defendants submitted allegedly false medical reports, bills, statements and other documents with the intention that they would generate payments from State Farm for allegedly reasonable and necessary treatment, testing, and other services performed on either State Farm's insureds, individuals allegedly harmed by State Farm's insureds, or individuals allegedly harmed by individuals without, or without sufficient, motor vehicle insurance. Id. ¶ 15-17. State Farm paid bills related to these alleged services, examples of which State Farm provides in paragraph 49 of its Amended Complaint. Id.

According to State Farm, after motor vehicle accidents, individuals claiming to be injured went to the Defendant Medical Offices and were placed on a predetermined treatment plan established by Dr. Ficchi. This predetermined treatment plan was not implemented because of medical necessity or expected benefit to the patients. Id. ¶ 22. Instead, the predetermined treatment plan allegedly was created to support past and future billing for services used to support injury claims, and to magnify or misstate the condition of the patients. Id. Documented services ostensibly provided to allegedly injured individuals were not actually provided, were not provided for medical necessity, or were excessive. Id. ¶ 24. The Ficchi Defendants also prepared records, statements, bills and other documents which listed false, misleading, or exaggerated medical conditions or injuries allegedly caused by motor vehicle accidents. Id. ¶ 25. Additionally, they generated standard medical reports that contained false or exaggerated reports about individuals with whom there was no doctor-patient relationship, and which were used by attorneys who referred patients to the Ficchi Defendants in order to support personal injury claims. Id. ¶ 26. Fraudulent reports and bills were prepared by the Ficchi Defendants and sent in order to obtain payments from State Farm with the knowledge and consent of Drs. Ficchi, Shenko, and Knox. Id. ¶ 36.

State Farm identifies approximately 80 purportedly unique records that it alleges were sent through mails or wires in furtherance of the scheme to defraud described above. See id. ¶ 49. Some of these identified records include detail as to the claim number and the sender, and some also include the attorney recipient and the approximate range or specific date on which the records were sent to State Farm. Id. State Farm alleges that the Ficchi Defendants knew that the submissions were false and that State Farm would rely on the false submissions when making payment decisions. Id. ¶ 50.

State Farm contends that Drs. Ficchi, Knox and Shenko all communicated with each other regarding the alleged patient services and all knew that the patients were to be treated according to the standardized plan (which included referrals for unnecessary consultations, examinations, and/or services). The Defendants understood how the actions of the others benefitted them all. Id. ¶ 35. Drs. Shenko and Knox paid kickbacks to Dr. Ficchi and his offices for the opportunity to provide extraneous services for which they could bill State Farm. Id. ¶ 28, 31-33. As part of the alleged kickback arrangement, Dr. Shenko would also confirm the diagnosis of the first doctor, falsely conclude that the patient had an abnormal condition as a result of an accident, and recommend additional, but unnecessary, treatment. Id. ¶ 29. The scheme to defraud State Farm by submitting fraudulent records was facilitated by the alleged independent diagnosis/conclusions of Drs. Knox and Shenko, which supported the need to make payments. Id. ¶ 54. The Ficchi Defendants advanced their scheme by falsifying documents, by providing false testimony, and by altering patient files (among other things) to keep State Farm from discovering the scheme. Id. ¶ 56. Due to the concerted efforts of all the Ficchi Defendants to conceal their fraudulent activities, State Farm contends it did not discover its injury and the source of the injury until February 8, 2008. Id. ¶ 57.

State Farm alleges eight counts: fraud, statutory insurance fraud, RICO, conspiracy to violate RICO, conspiracy to commit fraud, concerted tortious action (a scheme to defraud), unjust enrichment, and restitution. As a result of the described behavior, from 2004 to the present, State Farm asserts that it paid at least $1.5 million to the Ficchi Defendants. State Farm seeks to recover this amount as compensatory damages, in addition to costs. Id. ¶ 44.

The Ficchi Defendants timely filed a motion to dismiss the claims.

Legal Standard

A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Although Rule 8 of the Federal Rules of Civil Procedure requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests," Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007) (quoting Conley, 355 U.S. at 47), the plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (citations omitted). The question is, briefly stated, has the claimant presented a "plausible" claim for relief? Specifically, "[f]actual allegations must be enough to raise a right to relief above the speculative level . . . ." Id. at 1965 (citations omitted). The question is not whether the claimant will ultimately prevail but whether the complaint is "sufficient to cross the federal court's threshold." Skinner v. Switzer, 131 S.Ct. 1289, 1296 (2011) (citations omitted); see also Matrixx Initiatives, Inc. v. Siracusano, 131 S.Ct. 1309, 1323 (2011). Nonetheless, to survive a motion to dismiss, a civil complaint must allege "factual content [that] allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (confirming that Twombly applies to all civil cases).

The Court "must only consider those facts alleged in the complaint and accept all of those allegations as true." ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)); see also Twombly, 127 S. Ct. at 1965 (stating that courts must assume that "all the allegations in the complaint are true (even if doubtful in fact)"). Although the Court must accept as true all reasonable inferences that may be drawn from the allegations, and view those facts and inferences in the light most favorable to the non-moving party, Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989), the Court need not accept as true "unsupported conclusions and unwarranted inferences," Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000) (citing City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 n.13 (3d Cir. 1998)), or the plaintiff's "bald assertions" or "legal conclusions," Morse v. Lower Merion Sch. Dist., 132 F.3d. 902, 906 (3d Cir. 1997).

Discussion

In their Motion to Dismiss, the Ficchi Defendants argue that the allegations in the Amended Complaint do not meet the pleading standards of Rule 9(b) or of Rule 8(a) as interpreted by Twombly and Iqbal. Specifically, the Ficchi Defendants argue that the counts of fraud, conspiracy to commit fraud, unjust enrichment (based on fraud), restitution (based on fraud), concerted tortious action (scheme to defraud), and statutory fraud are not pled with the particularity required by Fed. R. Civ. P. 9(b). In particular, the Ficchi Defendants contend that the allegedly fraudulent communications underlying each of these counts do not meet the pleading requirements of Fed. R. Civ. P. 9(b).

The Ficchi Defendants further contend that State Farm's RICO claims fail because they:

(1) contain insufficient allegations that the named defendants worked together; (2) contain insufficient allegations of an association in fact enterprise; (3) violate the "intracorporate conspiracy doctrine" which precludes a RICO charge where an individual allegedly conspires with the organization for which that individual works; and (4) implicate statute of limitations issues. The Ficchi Defendants also argue that the state law claims for conspiracy and concerted tortious action fail because they are pled only in a conclusory manner; that fraudulent concealment is insufficiently pled as a reason to extend the statute of limitations on the state law claims; and that unjust enrichment and restitution are pled with insufficient particularity.

The Court addresses these arguments in turn.

A. Sufficiency of the Fraud Allegations

The Ficchi Defendants contend, and State Farm does not dispute, that Counts I-VI of State Farm's Amended Complaint -- Fraud, Statutory Insurance Fraud, RICO (with mail and wire fraud as the identified predicate offenses), Conspiracy to Violate RICO (mail and wire fraud), Concerted Tortious Action (where the tortious acts are fraud), and Conspiracy (to commit statutory insurance fraud, fraud, and concerted tortious acts) -- sound in fraud and rest upon the allegedly fraudulent communications made by the Ficchi Defendants to State Farm.*fn1 Federal Rule of Civil Procedure 9(b) requires that "in alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). The first ...


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