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Liberty Mutual Insurance Co. v. Healthcare Integrated Services

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 2, 2008

LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
v.
HEALTHCARE INTEGRATED SERVICES, INC., DEFENDANT-APPELLANT/CROSS-RESPONDENT, AND EDGEWATER DIAGNOSTIC IMAGING, P.A., HEALTHCARE IMAGING SERVICES OF EDGEWATER, INC., EDGEWATER IMAGING ASSOCIATES, L.P., MONMOUTH DIAGNOSTIC IMAGING, P.A., HEALTHCARE IMAGING SERVICES OF MONMOUTH, INC., MONMOUTH IMAGING ASSOCIATES, L.P., WAYNE MRI, P.A., HEALTHCARE IMAGING SERVICES OF WAYNE, INC., WAYNE IMAGING ASSOCIATES, L.P., HEALTHCARE IMAGING SERVICES OF RITTENHOUSE SQUARE, INC., RITTENHOUSE SQUARE IMAGING, P.C., RITTENHOUSE SQUARE IMAGING ASSOCIATES, L.P., KINGS MEDICAL DIAGNOSTIC IMAGING, P.C., M.R. RADIOLOGY IMAGING OF LOWER MANHATTAN, P.C., HIS IMAGING, L.L.C., MEADOWLANDS DIAGNOSTIC IMAGING, P.A., RIVER IMAGING, P.A., STEPHEN ZINN, M.D., P.A., OMNI MEDICAL IMAGING, INC., SJG MEDICAL, INC., STEPHEN A. ZINN, M.D., PRACTICE MANAGEMENT CORPORATION, ELLIOT H. VERNON, JERALD L. FISHER, SHAWN A. FRIEDKIN, MITCHELL HYMOWITZ, MUNR KAZMIR, M.D., DOMINICK A. POLIMENI, JOSEPH J. RAYMOND, MANMOHAN A. PATEL, MICHAEL WEISS, MICHAEL LICAMELE, LYNN FOX, ROBERT BACA, SCOTT MCGRORY, MARK VERNON, DENISE KANZE, JANET ROMANIELLO, CHRISTINA ORBAN, DENISE KALLAS, DENISE LOTITO, KEVIN ANDERSON, MARTHA MINEHAN, CHRIS SCHEMENSKI, PAULETTE D'AURIA, ROBERT MASKULYAK, COLEEN GAVIN, DON DEMARTINO, MICHAEL RUTKIN, WILLIAM CRESCENZI, CALVIN SPRUNG, A.M. CARRICK, MELANIE BUCKHOLZ, R. TIGHE, PETER LIETO, C. STOUT, M. SARGENT, ABE GROSSMAN, JATIN GAJARAWALA, M.D., ARNOLD OLEFSON, M.D., THURAIASAH VIJAYANATHAN, M.D., JAY GARSMAN, M.D., GEORGE BRAFF, M.D., ARTHUR GREENE, M.D., DILIP KAPADIA, M.D., ROBERT WALLNER, M.D., ALLEN CUMMINGS, M.D., ZELIG WEINSTEIN, M.D. AND STANLEY SPRECHER, M.D., DEFENDANTS.
STATE OF NEW JERSEY, INTERVENOR-RESPONDENT.
STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
HEALTHCARE INTEGRATED SERVICES, INC., DEFENDANT-APPELLANT, AND EDGEWATER DIAGNOSTIC IMAGING, P.A., HEALTHCARE IMAGING SERVICES OF EDGEWATER, INC., EDGEWATER IMAGING ASSOCIATES, L.P., MONMOUTH DIAGNOSTIC IMAGING, P.A., HEALTHCARE IMAGING SERVICES OF MONMOUTH, INC., MONMOUTH IMAGING ASSOCIATES, L.P., WAYNE MRI, P.A., HEALTHCARE IMAGING SERVICES OF WAYNE, INC., WAYNE IMAGING ASSOCIATES, L.P., HEALTHCARE IMAGING SERVICES OF RITTENHOUSE SQUARE, INC., RITTENHOUSE SQUARE IMAGING, P.C., RITTENHOUSE SQUARE IMAGING ASSOCIATES, L.P., KINGS MEDICAL DIAGNOSTIC IMAGING, P.C., M.R. RADIOLOGY IMAGING OF LOWER MANHATTAN, P.C., HIS IMAGING, L.L.C., MEADOWLANDS DIAGNOSTIC IMAGING, P.A., RIVER IMAGING, P.A., STEPHEN ZINN, M.D., P.A., OMNI MEDICAL IMAGING, INC., SJG MEDICAL, INC., STEPHEN A. ZINN, M.D., PRACTICE MANAGEMENT CORPORATION, ELLIOT H. VERNON, JERALD L. FISHER, SHAWN A. FRIEDKIN, MITCHELL HYMOWITZ, MUNR KAZMIR, M.D., DOMINICK A. POLIMENI, JOSEPH J. RAYMOND, MANMOHAN A. PATEL, MICHAEL WEISS, MICHAEL LICAMELE, LYNN FOX, ROBERT BACA, SCOTT MCGRORY, MARK VERNON, DENISE KANZE, JANET ROMANIELLO, CHRISTINA ORBAN, DENISE KALLAS, DENISE LOTITO, KEVIN ANDERSON, MARTHA MINEHAN, CHRIS SCHEMENSKI, PAULETTE D'AURIA, ROBERT MASKULYAK, COLEEN GAVIN, DON DEMARTINO, MICHAEL RUTKIN, WILLIAM CRESCENZI, CALVIN SPRUNG, A.M. CARRICK, MELANIE BUCKHOLZ, R. TIGHE, PETER LIETO, C. STOUT, M. SARGENT, ABE GROSSMAN, JATIN GAJARAWALA, M.D., ARNOLD OLEFSON, M.D., THURAIASAH VIJAYANATHAN, M.D., JAY GARSMAN, M.D., GEORGE BRAFF, M.D., ARTHUR GREENE, M.D., DILIP KAPADIA, M.D., ROBERT WALLNER, M.D., ALLEN CUMMINGS, M.D., ZELIG WEINSTEIN, M.D. AND STANLEY SPRECHER, M.D., DEFENDANTS.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket Nos. L-2189-01 and L-149-01.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 6, 2008

Before Judges Coburn, Fuentes & Grall.

We consolidate these appeals from orders entered in civil actions filed under the New Jersey Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. The actions, which were consolidated in the Law Division, involve the same parties and allegations of violations of N.J.S.A. 17:33A-4. The plaintiffs are Liberty Mutual Insurance Co. (Liberty Mutual) and the State of New Jersey. Healthcare Integrated Services, Inc. (HIS), is one of several defendants in the actions. Liberty Mutual alleged violations of the IFPA and sought compensatory damages, including reasonable costs of investigation and costs of suit and counsel fees, and treble damages, based on a pattern of violation. N.J.S.A. 17:33A-7a, b. The State also alleged violations of the IFPA but sought civil penalties pursuant to N.J.S.A. 17:33A-5.*fn1

HIS appeals from orders granting summary judgment on liability in favor of Liberty Mutual, striking its affirmative defenses, and awarding compensatory damages, including fees and costs, in a total amount of $1,848,139.38.*fn2 Liberty Mutual cross appeals from an order denying a portion of the counsel fees it incurred in pursuing its claim. HIS also appeals from orders granting partial summary judgment on liability in favor of the State, striking HIS's affirmative defenses against the State, and assessing a civil penalty against HIS in the amount of $1,005,000 plus counsel fees of $4920. The orders have been certified as final pursuant to Rule 4:42-2. Other than HIS, none of the defendants in these civil actions are presently participating in either appeal.*fn3

We begin by addressing Liberty Mutual's application to dismiss HIS's appeal as moot. This court previously denied Liberty Mutual's motion but authorized the parties to argue the issue on appeal. Liberty Mutual contends that HIS's appeal is moot because the United States Bankruptcy Court for the District of New Jersey has entered an order which states that "Liberty Mutual Insurance Company's claim be and is hereby allowed in the amount of $2,048,251.50."

The order upon which Liberty Mutual relies does not moot HIS's appeal. Federal law permits the Bankruptcy Court to reconsider an order allowing or disallowing a claim for cause.

11 U.S.C.A. § 502(j). Despite the pendency of HIS's bankruptcy petition, the validity of Liberty Mutual's claims against HIS were litigated in state court pursuant to a grant of relief from the automatic stay. See 11 U.S.C.A. § 362. We have no doubt that the Bankruptcy Court would find cause for reconsideration of its order if this court were to reverse the award in Liberty Mutual's favor, and we see no basis for assuming that the Bankruptcy Court's order reflects an adjudication of the merits of the claim, which were properly determined in state court. See Rooker v. Fid. Trust Co., 263 U.S. 413, 415-16, 44 S.Ct. 149, 150, 68 L.Ed. 362, 365 (1923); D.C. Ct. of App. v. Feldman, 460 U.S. 462, 476, 103 S.Ct. 1303, 1311, 75 L.Ed. 2d 206, 218 (1983).

The violations of the IFPA at issue on HIS's appeal involve claims for personal injury protection (PIP) benefits for diagnostic tests paid by Liberty Mutual during a period beginning in 1995 and ending in 2003. N.J.S.A. 39:6A-4. This court has held that a provider of such services is not entitled to reimbursement for services covered by PIP unless the provider and the services are in compliance with relevant laws and regulations. Allstate Ins. Co. v. Orthopedic Evaluations, Inc., 300 N.J. Super. 510, 516 (App. Div.), certif. granted and cause remanded on other grounds, 151 N.J. 67 (1997). Our courts have also recognized that a violation of the IFPA can be based on a submission of a claim for PIP benefits for medical services rendered by or through an entity that is not in compliance with laws and regulations. Varano, Damian & Finkel, L.L.C. v. Allstate Ins. Co., 366 N.J. Super. 1, 5-7 (App. Div. 2004); Allstate Ins. Co. v. Schick, 328 N.J. Super. 611, 627-29 (Law Div. 1999). HIS does not challenge that proposition.

HIS contends that its violations were not established. On plaintiffs' motions for summary judgment, Judge Villanueva*fn4 found that HIS violated the IFPA because claims for diagnostic tests billed to Liberty Mutual were performed by entities that HIS owned and operated in violation of N.J.A.C. 13:35-2.5 and N.J.A.C. 13:35-2.6. The complex business relationships between HIS and the facilities and medical professionals involved in delivering the services billed, as well as the undisputed facts that led the judge to conclude that HIS was aware of and acted to circumvent regulations prohibiting these arrangements, are fully detailed in Judge Villanueva's written opinion of March 18, 2005. The amount of damages assessed was based on a summary of services billed and paid. HIS did not submit evidence disputing the information contained in the summary.

On May 10, 2005, Judge Villanueva awarded Liberty Mutual treble damages, including reasonable counsel fees and costs. That order was based on the pattern of illegal activity set forth in his March 18 opinion.

On June 27, 2005, the judge granted the State's motion to strike HIS's affirmative defenses; his reasons for that order are set forth in a written opinion issued on the same day. On June 28, 2005, Judge Villanueva awarded partial summary judgment to the State for reasons stated in the March 18 opinion. In accordance with N.J.S.A. 17:33A-5, he imposed civil penalties based on the number of violations.

With respect to HIS's appeals, we affirm the orders substantially for the reasons stated in Judge Villanueva's opinions of March 18 and June 27, 2005. The claims of error raised by HIS on appeal lack sufficient merit to warrant discussion in a written opinion beyond the brief comments that follow. R. 2:11-3(e)(1)(E).

HIS claims error based on the judge's decision to proceed with Liberty Mutual's motion for summary judgment even though Liberty Mutual had filed a second amended complaint while the motion was pending. The second amended complaint alleged a violation of N.J.A.C. 13:35-2.6, a regulation that was not cited in the first amended complaint. HIS also contends that the first amended complaint did not seek a "declaration" that HIS's "owned and operated" diagnostic testing facilities.

HIS misreads the first amended complaint and overstates the significance of the inclusion of a reference to N.J.A.C. 13:35-2.6 in the second amended complaint. Paragraphs 118 through 156 of the first amended complaint include facts that, if established, would demonstrate HIS's ownership and control of operations in the testing facilities. And, the reference to a violation of N.J.A.C. 13:35-2.5 was, in effect, a reference to N.J.A.C. 13:35-2.6. The regulation pertinent to the illegality of HIS's ownership and operation of the facilities, which was formerly set forth in N.J.A.C. 13:35-2.5 and effective until February 20, 2001, was incorporated in N.J.A.C. 13:35-2.6 without any relevant revision when N.J.A.C. 13:35-2.5 was repealed effective February 20, 2001. See 33 N.J.R. 670(a). The conduct at issue here took place on dates before and after February 20, 2001.

Under these circumstances, the judge did not abuse his discretion by proceeding with the motion for summary judgment less than thirty-five days after the second amended complaint was filed. See R. 4:46-1. The judge concluded, as we do, that the filing of the second amended complaint had no impact on the adequacy of the notice or HIS's opportunity or ability to prepare a response to the motion. Because the purpose of the thirty-five-day period specified in Rule 4:46-1 was not thwarted, it was not improper to proceed. See Ziegelheim v. Appollo, 128 N.J. 250, 264 (1992); R. 1:1-2.

HIS also claims that this court cannot affirm the grant of summary judgment because, in considering whether Liberty Mutual was entitled to summary judgment, the judge applied the preponderance of the evidence standard. See R. 4:46-2(c). In Liberty Mut. Ins. Co. v. Land, 186 N.J. 163, 174-81 (2006), decided after the summary judgment motions at issue here, the Court approved that standard of proof. Land overruled Harleysville Insurance Co. v. Diamond, 359 N.J. Super. 34, 38 (Law Div. 2002), which holds that proof by clear and convincing evidence is required to establish a violation of the IFPA. 186 N.J. at 174-81. The judge in this case was not bound by the Law Division's decision in Harleysville, and he provided a cogent explanation of his reasons for concluding that the standard of proof announced in Harleysville was incorrect. See Ferraro v. Ferro Trucking Co., 72 N.J. Super. 519, 523 (Law Div. 1962).

Alleging that it conducted discovery in reliance on the standard of proof established in Harleysville, HIS claims a denial of due process based on the judge's disagreement with Harleysville. HIS does not support its claim of prejudice by identifying an avenue of discovery it did not pursue because of its reliance on a decision the judge was not bound to follow. We see no basis for concluding that application of a standard of proof, which was later deemed appropriate by the Supreme Court, violated HIS's right to due process on this motion for summary judgment. Cf. Green v. Auerbach Chevrolet Corp., 127 N.J. 591, 601 (1992) (noting that "reasonable surprise and prejudice" are relevant to questions of prospective and retrospective application of judicial decisions).

We reject HIS's claim that the judge resolved disputed facts contrary to the principles established in Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Questions of a litigant's knowledge may be resolved on summary judgment when "there is a 'single, unavoidable resolution of the alleged disputed issue of fact . . . .'" Liebling v. Garden State Indem., 337 N.J. Super. 447, 463 (App. Div.) (quoting Brill, supra, 142 N.J. at 540), certif. denied, 169 N.J. 606 (2001); see id. at 463-65 (so holding). The record, including the legal advice of counsel that HIS offered to establish a defense of good faith reliance which the legal advice did not demonstrate, is more than adequate to support the judge's finding.

HIS contends that the IFPA is unconstitutional because the Office of the Insurance Fraud Prosecutor is funded by insurers and because the IFPA permits a practice that "conceals the exchange of information between covert investigators and the insurance industry." HIS provides no legal authority in support of either assertion.

Statutes are entitled to a presumption of validity. State Farm Mut. Auto. Ins. Co. v. State, 124 N.J. 32, 45-46 (1991).

Given that presumption, HIS's sweeping and generalized claims, unsupported by legal authority, do not require any discussion beyond that provided in Judge Villanueva's opinion of June 27, 2005.

We turn to consider Liberty Mutual's cross-appeal from the denial of an award for counsel fees Liberty Mutual had paid to the law firm of Pringle Quinn and Anzano (PQA). An insurer that establishes a violation of the IFPA is entitled to counsel fees. N.J.S.A. 17:33A-7. Although the judge concluded that the fees charged by PQA and paid by Liberty Mutual were reasonable, he denied an award on the ground that PQA had a conflict of interest that it should have discovered before HIS moved for an order disqualifying the firm on that basis.

The following facts are pertinent to the conflict HIS alleged. Anzano, a partner in PQA, previously worked for a law firm that represented HIS. His former firm had given HIS advice related to at least one of the diagnostic testing facilities involved in this case. Anzano submitted a certification in response to HIS's claim of conflict. He asserted the following: his involvement with representation of HIS during his prior employment "was limited to an administrative function, acting as client contact and monitoring billing"; he "did not take any portion of the HIS file with [him]" when he left his former firm; and, since joining PQA, he had not had any "relevant discussions regarding HIS with the exception of those necessitated for [preparation of the] certification" submitted on the motion and was not aware of PQA's involvement in this case.

The questions of conflict of interest presented are whether Anzano has a conflict based on his former firm's representation of HIS, and, if so, whether that conflict is imputed to the members of PQA.

The question of Anzano's conflict is governed by RPC 1.9. Paragraph (a) of the Rule provides for disqualification of a lawyer based on his or her former representation of a client, and paragraph (b) provides for disqualification based on the lawyer's former association with a firm that previously represented a client. The Rule states:

(a) A lawyer who has represented a client in a matter shall not thereafter represent another client in the same or a substantially related matter in which that client's interests are materially adverse to the interests of the former client unless the former client gives informed consent confirmed in writing.

b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client,

(1) whose interests are materially adverse to that person; and

(2) about whom the lawyer, while at the former firm, had personally acquired information protected by RPC 1.6 and RPC 1.9(c) that is material to the matter unless the former client gives informed consent, confirmed in writing.

Notwithstanding the other provisions of this paragraph, neither consent shall be sought from the client nor screening pursuant to RPC 1.10 permitted in any matter in which the attorney had sole or primary responsibility for the matter in the previous firm. [Ibid. (emphasis added).]

If Anzano is not disqualified under RPC 1.9, then there is no conflict to impute to PQA pursuant to RPC 1.10. See RPC 1.10(a), (c).

There is a question of fact that precludes a finding of disqualification pursuant to paragraph (a) of RPC 1.9. HIS contends that Anzano "personally represented" HIS in a matter substantially related to the matters at issue in these proceedings while associated with his former firm. See RPC 1.9(a). Anzano claims that he did not. Thus, on the record that has been developed at this point, a disqualification on that basis is not warranted.

Facts relevant to a violation of paragraph (b) are also disputed. That question is whether Anzano, while associated with his former firm, acquired "information protected by RPC 1.6 and RPC 1.9(c) that is material" to the matters at issue in this case. The record is inadequate to permit a determination of that question.

Because the relevant facts are disputed, we remand for further proceedings to determine whether there is a conflict that warrants exclusion of the fees that Liberty Mutual paid to PQA from the award required by N.J.S.A. 17:33A-7 and, if not, to include appropriate fees in the award.

Affirmed in part; reversed in part, and remanded for further proceedings.


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