The opinion of the court was delivered by: Gene E.K. Pratter, J.,
If at first you don't succeed, try, try again. Such is the case of State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company's (collectively "State Farm") attempts to bring claims of insurance fraud against several doctors and their respective medical offices. In now its Second Amended Complaint, State Farm alleges once again that Drs. Stephen Ficchi, J. William Knox, and Frank Shenko, and their associated practices conspired to defraud State Farm of money by submitting false claims for services not actually rendered and not medically necessary, by referring patients to each other for such services, and by treating all patients according to a standardized and predetermined treatment plan.
State Farm contends that the doctors and their respective practices committed fraud, statutory insurance fraud, conspiracy, and concerted tortious action, that they violated and conspired to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"), that the doctors and their practices were unjustly enriched by their actions and that State Farm is entitled to restitution as a result.
The defendants have filed two separate motions to dismiss the Second Amended Complaint, and Drs. Shenko and Knox and their associated medical practices have filed a motion for Rule 11 sanctions against counsel for State Farm. For the reasons that follow, the Court denies all three motions.
II. FACTUAL AND PROCEDURAL HISTORY
Dr. Ficchi, the owner of Ficchi P.C., Olney Pain Management, LLC, Bensalem Pain Management Center, LLC, and South Philadelphia Pain Management LLC, provides chiropractic, medical, diagnostic, and physical therapy treatment, testing, services and goods to individuals injured in accidents. Second Am. Compl. ¶¶ 2-5, 7, 19. Dr. Shenko, the owner of Ortho-Sport Rehabilitation, LLC, provides physical therapy services including consultations, evaluations, kinesio taping, and strapping. Id. ¶¶ 6, 8, 20, 28. Dr. Knox operates a business in his personal name that provides services including consultations, evaluations, psychological services, and biofeedback. Id. ¶¶ 9, 21, 32.*fn1
As with its two previously filed complaints, State Farm alleges that
the Ficchi Defendants and the Knox/Shenko Defendants were active
participants in a conspiracy and scheme to defraud State Farm.
Specifically, State Farm contends that the Defendants*fn2
submitted false, fraudulent or misleading bills and medical
records to State Farm on behalf of individuals involved in accidents
to induce State Farm to make payments to the defendants for insurance
claims. Id. ¶¶ 14, 52. State Farm contends that individuals claiming
to be injured in motor vehicle accidents*fn3 went to
the Defendant Medical Offices, often at the referral of their personal
injury attorneys. Then, instead of assessing patients, identifying
their injuries, and providing individualized treatment, Drs. Ficchi,
Shenko, and Knox placed patients on a standardized and predetermined
treatment plan established and implemented by the doctors. Id. ¶¶
22-23. The treatment plan included referrals for unnecessary
consultations, examinations, and services, and was implemented not for
the medical necessity or benefit to the patients, but to magnify or
misstate the condition of the patients, which provided a basis for
past and future billing for services and supported claims asserted in
personal injury lawsuits.*fn4 Id. ¶ 23. This, in turn,
further encouraged the referral of patients from personal injury
attorneys. Id. ¶¶ 22-23.
The fraudulent documents the defendants allegedly submitted to State Farm listed false and exaggerated medical conditions, and noted treatments that either were: (1) not provided, (2) not provided for the medical necessity or medical benefit to the patient, (3) misrepresented as if provided specifically by Dr. Ficchi or a licensed provider when in fact that did not occur, (4) excessive, (5) inappropriate and represent significant, gross and intentional deviations from accepted standards of care, (6) not reimbursable under applicable law, and (7) not provided pursuant to applicable law. Id. ¶¶ 25, 26, 43, 44.
Examples of these purportedly fraudulent documents are detailed in paragraphs 39(a)-(o) and 52 of the Second Amended Complaint. Specifically, State Farm identifies in paragraph 52, the records of 48 patients that it alleges were sent through the mails or wires in furtherance of the scheme to defraud described above. See id. ¶¶ 39, 52. For each of these specific individuals listed in paragraph 52, State Farm identified the patient's name, the claim number, the date the defendants sent the medical records, the specific sender of the record, and the recipient of the allegedly fraudulent records. Id. ¶ 52. Moreover, in paragraph 39(a)-(o), State Farm attempted to add substantive detail to 15 of the 48 allegedly fraudulent examples listed in paragraph 52. Id. ¶ 39.
State Farm asserts that the defendants, with the knowledge and consent of Drs. Ficchi, Shenko, and Knox, prepared these false reports and bills and sent them to State Farm to obtain payments. Id. ¶¶ 37, 38. State Farm further alleges that the defendants knew that the submissions were false and that State Farm would rely on the false submissions when making payment decisions. Id. ¶¶ 50, 54-56. State Farm also alleges that Drs. Ficchi, Knox and Shenko communicated with each other regarding the allegedly unwarranted patient services and knew that the patients were to be treated according to the standardized plan for which they could bill State Farm. All understood how the actions of the others benefitted them all, however each acted for his "sole financial benefit." Id. ¶¶ 23, 31, 35, 37.
State Farm contends that the Knox/Shenko Defendants paid kickbacks to the Ficchi Defendants in exchange for the exclusive right to provide and bill for services at the Ficchi Defendants' medical offices, and the exclusive referral of patients from the Ficchi Defendants regardless of the patients' complaints, injuries, prognosis, or actual medical needs. Id. ¶¶ 29-30, 33-34, 36. The Knox/Shenko Defendants would then confirm the diagnosis of the first doctor, conclude falsely that the patient had an abnormal condition as a result of an accident, and recommend additional, unnecessary treatment. Id. ¶¶ 30, 34. The supposed independent diagnoses and conclusions of Drs. Knox and Shenko further supported the need to make payments and facilitated the scheme to defraud the insurance company. Id. ¶ 57.
State Farm alleges the defendants advanced their scheme and kept State Farm from discovering the scheme by falsifying documents, providing false testimony, and altering patient files. Id. ¶ 59. Due to the concerted efforts of all defendants to conceal their fraudulent activities, State Farm did not discover its injury and the source of the injury until February 8, 2008. Id. ¶ 60. As a result of the described behavior, from 2004 to the present, State Farm alleges it paid at least $1.5 million to the defendants. Id. ¶¶ 47, 48.
In February 2010, State Farm filed a complaint alleging that Dr. Ficchi, in concert with Drs. Shenko and Knox and the treatment centers operated by the doctors, committed insurance fraud by billing for treatments that did not occur and prescribing unnecessary treatments for patients covered by State Farm and billing for the same. After the defendants filed a motion to dismiss, State Farm filed a First Amended Complaint on June 3, 2010, alleging eight counts: (1) fraud, (2) statutory insurance fraud, (3) RICO, (4) conspiracy to violate RICO, (5) conspiracy to commit fraud, (6) concerted tortious action (a scheme to defraud), (7) unjust enrichment, and (8) restitution. The defendants promptly filed a second motion to dismiss.
On June 13, 2011, the Court granted the defendants' motion to dismiss without prejudice to State Farm filing a second amended complaint. State Farm Mut. Auto. Ins. Co. v. Ficchi, No. 10-555, 2011 WL 2313203, at *1 (E.D. Pa. June 13, 2011). The Court ruled that State Farm failed to plead its claims sounding in fraud with the requisite particularity required by Rule 9(b). Id. at *6-8. After noting that State Farm had alleged the "general outline" of an insurance fraud in "superficially rigorous detail," the Court explained that "regardless of the extent of the detail contained in that description of the fraud's general design, or the ardor and passion that underscores the allegations," merely alleging the contour of a fraud, as State Farm did in its First Amended Complaint, is not sufficient in and of itself to overcome a motion to dismiss. Id. at *5. Specifically, the Court observed that in paragraph 49 of the First Amended Complaint, State Farm identified 87 examples (relating to 42 claim numbers) of invoices and records that it alleged contained fraudulent information and which one or more of the defendants sent via mail or wire to an attorney or State Farm in furtherance of the billing fraud scheme. State Farm added that for each of those claim numbers, Drs. Shenko and/or Knox sent records to an unidentified recipient on a specific date. Id.*fn5
The Court determined that State Farm's examples of allegedly fraudulent communications pled in this manner failed to inject sufficient particularity as is required by Rule 9(b). Id. at *6-8. With respect to the alleged fraudulent representations purportedly implicating all defendants (i.e., allegations like subparagraph (pp)), the Court ruled that State Farm's pleadings failed to identify the specific actor who made the material misrepresentations at issue and did not provide a date for or specify the type of action alleged to be contained in the misrepresentation. Id. at *7.*fn6 Regarding the allegations specific to Drs. Knox, Shenko and their constituent businesses, the Court concluded State Farm failed to specify "to whom these misrepresentations were made," and failed to clarify "the substance of the misrepresentation[s]." Id. at *8. Accordingly, the Court dismissed the fraud claims alleged against the defendants. In light of State Farm's failure to adequately plead fraud, State Farm's RICO, conspiracy, and other counts in which fraudulent intent was an element failed as well. However, the Court analyzed each count in full and concluded that State Farm had sufficiently pled the remaining elements of each claim.*fn7
In an effort to remedy the deficiencies in its prior two complaints, on July 15, 2011, State Farm filed a Second Amended Complaint seeking to inject the requisite particularity to survive a motion to dismiss. State Farm's allegations in its Second Amended Complaint, presently before the Court, mirror, in most respects, the allegations contained in its First Amended Complaint, particularly with respect to the general design of the purported fraud.*fn8 The primary substantive changes in State Farm's Second Amended Complaint include replacing the "and/or" phrase with "and," removing the phrase "upon information and belief," adding paragraph 39(a)-(o), and consolidating and adding detail to paragraph 52 (paragraph 49 in the First Amended Complaint).*fn9
In spite of the changes made to State Farm's pleadings, the Ficchi Defendants and the Knox/Shenko Defendants maintain that State Farm still fails to clarify the substance of the allegedly fraudulent representations in the documents submitted to State Farm, listed in paragraph 52, and described in paragraph 39. Accordingly, the two sets of defendants filed separate motions to dismiss. Approximately two months after the Court held oral argument, the Knox/Shenko Defendants filed a motion for Rule 11 sanctions against counsel for State Farm.
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, 550 U.S. 544, 553-55 (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). Specifically, "[f]actual allegations must be enough to raise a right to relief above the speculative level . . . ." Id. at 555 (citations omitted). 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, 556 U.S. 662, 678-79 (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, 550 U.S. at 555 (stating that courts must assume that "all the allegations in the complaint are true (even if doubtful in fact)"). The Court must also 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, however, 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).
Both the Ficchi Defendants and the Knox/Shenko Defendants argue that the allegations in the Second Amended Complaint are insufficient to state a claim for relief under the pleading standards of Rule 8(a), as interpreted by Twombly and Iqbal, or of Rule 9(b). As with their motion to dismiss State Farm's First Amended Complaint, both sets of defendants argue that State Farm failed to plead the allegedly fraudulent communications underlying each of the various fraud-based counts of its Second Amended Complaint with the particularity required by Rule 9(b). The defendants also assert that State Farm's RICO and state law conspiracy claims must be dismissed because State Farm failed to allege the Defendants acted with a commonality of purpose. Finally, the Knox/Shenko Defendants filed a separate motion against counsel for ...