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Peter Schatzberg, D.C., et al v. State Farm Mutual Automobile Insurance Company

July 12, 2012


The opinion of the court was delivered by: Gene E.K. Pratter, J.,



Peter Schatzberg, D.C., and his medical practice, Philadelphia Pain Management, Inc., bring a six count Amended Complaint against State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company (collectively "State Farm") alleging that State Farm is attempting to eliminate his medical practice by (1) falsely accusing him of having engaged in fraudulent business activity, (2) creating the false perception in the community that he has engaged in professional impropriety, and (3) engaging in a pattern of racketeering activity with others in order to systematically pay significantly less than is legally owed on treatment provided by Plaintiffs to State Farm insureds.

State Farm filed the present Motion to Dismiss the Amended Complaint (Doc. No. 14). State Farm seeks to have five counts of the Amended Complaint dismissed for failure to state a claim under Rule 12(b)(6), and to have Count III, a state law claim, dismissed for lack of independent jurisdiction, or alternatively to dismiss the Plaintiffs' demand for attorney's fees as to that Count. For the reasons that follow, the Court grants in part and denies in the part the Motion to Dismiss.


Dr. Schatzberg is a licensed chiropractor and owner of a large chiropractic and pain management practice with four locations in the greater Philadelphia area, including Philadelphia Pain Management, Inc. Am. Compl. ¶ 7. Many of Dr. Schatzberg's patients have suffered injuries as a result of automobile accidents, and his treatment is sometimes billed to insurance companies like State Farm pursuant to the Pennsylvania Motor Vehicle Financial Responsibility Law (75 Pa. Cons. Stat. § 1701, et seq.) ("MVFRL"). Id. ¶ 8. Dr. Schatzberg alleges that because of his large practice, which is "a significant source of auto claim expense to State Farm . . . [his] practice has been targeted for destruction by State Farm pursuant to a revenue strategy implemented by State Farm beginning in the 1990's called ACE." Response at 15 (citing Am. Compl. ¶¶ 10-41).

According to Dr. Schatzberg, State Farm began implementing the "Advancing Claims Excellence" ("ACE") program in an effort to reduce claim payouts by approximately one billion dollars per year. Id. ¶¶ 16-23. One element of this cost reduction program is to characterize all claims for soft tissue injuries in motor vehicle accidents as potentially fraudulent, and to pursue the doctors who treat such injuries for perpetuating such fraud. Id. ¶¶ 28-31. State Farm allegedly executes the ACE program by enlisting State Farm's fraud unit, the Special Investigations Unit ("SIU"), and outside counsel to investigate and litigate against any and all claimants who have sustained, and doctors who have treated, soft tissue injuries in motor vehicle accidents regardless of whether cause for suspicion exists. Id. ¶¶ 30-31. These fraud investigations are designed to create a public perception that the claimants and the doctors are suspected of fraud or other wrongdoing. Id. ¶¶ 51-52, 64. Accordingly, once the legal and medical communities learn of a State Farm investigation, word spreads, and the stigma of a fraud investigation quickly serves to isolate and destroy the business of the targeted provider or facility irrespective of wrongdoing. Id. Dr. Schatzberg claims that the ACE program allegedly achieves success when it can eliminate the business of a provider that represents a significant source of claim expense for State Farm. Id. ¶¶ 40-53.

In the Philadelphia region, SIU adjuster Mr. Doug Babin, and the law firm of attorney Cy Goldberg are allegedly most often involved in implementing the ACE program and performing investigations. Id. ¶¶ 44, 59. Mr. Goldberg is alleged to have a reputation for using aggressive tactics to target medical providers for fraud in civil litigation on behalf of State Farm. Id. ¶¶ 58-69. In particular, Dr. Schatzberg claims that Mr. Goldberg "uses the civil process to collect information about providers and provide[s] an opinion as to whether State Farm might be able to use said information to bring a civil lawsuit alleging fraud against the targeted provider." Id. ¶ 62. Indeed, since 2001, State Farm has retained Mr. Goldberg to investigate and bring at least eight (8) different lawsuits against various medical providers that were flagged by the SIU.*fn1 Id. ¶ 67. It is further alleged that because of Mr. Goldberg's reputation for aggressively pursuing fraud claims on behalf of State Farm, "his involvement alone sends State Farm's desired message that a facility is being targeted." Id. ¶ 69.

In addition to supposedly aggressive investigative and litigious practices, State Farm also allegedly reduces claims payouts pursuant to the ACE program by manipulating the peer review process of the MVFRL.*fn2 Id. ¶ 117. State Farm contracts with specific peer review organizations, such as Rehabilitation Planning, Inc., according to Dr. Schatzberg, to obtain favorable peer review reports in exchange for giving the peer review organization a steady source of business. Id. ¶¶ 129, 131-32. In particular, Rehabilitation Planning, Inc. purportedly assigns a great many of these alleged "sham" peer reviews of chiropractic treatments to Jane McBride, D.C. Id. ¶¶ 138-39.

Dr. Schatzberg alleges that State Farm has singled him and his chiropractic practice out for destruction in accordance with its ACE program. Id. ¶ 74. State Farm has allegedly targeted Dr. Schatzberg in a number of ways. First, Mr. Babin allegedly called Ms. Arlene O'Brien and other current and former employees of Dr. Schatzberg to (1) inform them that he is a "fraud investigator," (2) explain that State Farm was investigating Dr. Schatzberg's billing practices, and (3) give these individuals the impression that State Farm possesses facts that establish Dr. Schatzberg is engaged in fraud. Id. ¶¶ 75-82.

Second, at State Farm's direction, Mr. Goldberg allegedly began investigating and pursuing civil litigation against Dr. Schatzberg in various third and first party cases. Id. ¶ 83-85. Dr. Schatzberg alleges that these cases were brought for the dual purposes of conducting a fishing expedition into his billing practices and to send a message that State Farm has information suggesting Dr. Schatzberg is engaged in fraud. Id. Specifically, in one case, Mr. Goldberg, on behalf of the defendant against the plaintiff, Mr. Terry Martin, a patient of Dr. Schatzberg, allegedly (1) compelled the deposition of a billing clerk to inquire about the administration and mechanics of Dr. Schatzberg's practice, and (2) refused to take the trial testimony of a chiropractor via videotape to accommodate his work schedule. Id. ¶¶ 90-91.

Third, in the case of Mr. Anthony Fullwood, another patient of Dr. Schatzberg, an SIU adjuster from State Farm named Nova Crespo sent a letter to the offices of Dr. Schatzberg and Mr. Fullwood's attorney on March 11, 2010 stating that Mr. Fullwood's claim for payment of Dr. Schatzberg's medical bills was "under investigation." Id. ¶ 102. Ms. Crespo sent the same letter to the offices of both Dr. Schatzberg and Mr. Fullwood's attorney two more times on April 12, 2010 and May 20, 2010. Id. ¶ 103. Likewise, on May 11, 2010, Mr. Goldberg's colleague, Mr. Matthew Moroney, allegedly sent a letter to Mr. Fullwood's attorney advising him that he had been asked by State Farm to assist in reviewing Mr. Fullwood's claim for medical benefits, and requesting that Mr. Fullwood provide a sworn statement regarding Dr. Schatzberg's practice. Id.

¶¶ 104-108.

Finally, State Farm allegedly conspired with Rehabilitation Planning and Dr. McBride to create and utilize sham peer review reports in an effort to cut off payments to Dr. Schatzberg. Id.

¶ 156. Dr. Schatzberg offers, by way of example, the case of his patient, Mr. James Nelson, a State Farm insured who was injured in an automobile accident. Id. ¶ 166. Dr. Schatzberg alleges that after he submitted invoices to State Farm for Mr. Nelson's treatment, (1) State Farm forwarded only a portion of Mr. Nelson's records to Rehabilitation Planning, (2) Rehabilitation Planning assigned the case to Dr. McBride, and (3) Dr. McBride determined that the only reasonable and necessary treatments were those no longer legally reviewable under MVFRL. Id.

¶¶ 167-199. Thus, on the basis of Dr. McBride's report, State Farm denied payment to Dr. Schatzberg and Philadelphia Pain Management.

Dr. Schatzberg and Philadelphia Pain Management filed a six count Amended Complaint against State Farm alleging various state and federal law claims. Now before the Court is State Farm's Motion to Dismiss (Doc. No. 14) for failure to state a claim upon which relief can be granted.


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 complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (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).


Dr. Schatzberg claims, in his individual capacity, that State Farm defamed him (Count I) and invaded his privacy by portraying him in a false light (Count II). He further claims on behalf of Philadelphia Pain Management that State Farm violated the MVFRL (Count III). Finally, both Plaintiffs assert that State Farm violated the Pennsylvania Bad Faith Insurer Statute (Count IV), and that it violated and conspired to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO") (Counts V & VI).

State Farm moves to dismiss Counts I, II, IV, V, and VI of the Amended Complaint for failure to state claims, and Count III for lack of independent jurisdiction. The Court will address each claim in turn.

A. Defamation

Dr. Schatzberg alleges in Count I of his Amended Complaint that State Farm defamed him through oral and written representations to third parties and consequently has harmed his reputation and lowered him in the estimation of the community.

In order to state a defamation claim, a plaintiff must allege "(1) The defamatory character of the communication[;] (2) [i]ts publication by the defendant[;] (3) [i]ts application to the plaintiff[;] (4) [t]he understanding by the recipient of its defamatory meaning[;] (5) [t]he understanding by the recipient of it as intended to be applied to the plaintiff[;] (6) [s]pecial harm resulting to the plaintiff from its publication[; and] (7) [a]buse of a conditionally privileged occasion." 42 Pa. Cons. Stat. § 8343(a). Additionally, Pennsylvania law requires that the plaintiff "demonstrate that the statement results from fault amounting at least to negligence, on the part of the defendant." Ruder v. Pequea Valley Sch. Dist., 790 F. Supp. 2d 377, 399 (E.D. Pa. 2011).

Courts are charged, in the first instance, with determining whether a particular statement is capable of a defamatory meaning. Allied Med. Assocs. v. State Farm Mut. Auto. Ins. Co., No. 08-2434, 2008 WL 4771850, at *3 (E.D. Pa. Oct. 30, 2008) (noting that a jury decides if the statement was actually defamatory to a reader or listener). "To ascertain this meaning, the court must view the statements in context." Id. (citing Tucker v. Phila. Daily News, 848 A.2d 113, 124 (Pa. 2004)) (internal quotations omitted). A statement is defamatory if it "tends to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him," Tucker, 848 A.2d at 124, or if it "ascribes to another conduct, character or a condition that would adversely affect ...

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