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Government Employees Insurance Co. v. MLS Medical Group LLC

United States District Court, Third Circuit

December 6, 2013

MLS MEDICAL GROUP LLC, et al., Defendants.


STANLEY R. CHESLER, District Judge.

This matter comes before the Court upon the motion filed by Defendants MLS Medical Group LLC and Mark L. Schwartz, D.O. ("collectively "Defendant" or "MLS") to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiffs Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Company and GEICO Casualty Co. (collectively, "Plaintiff" or "GEICO") have opposed the motion. The Court has considered the papers filed by the parties and proceeds to rule on the motion without oral argument, pursuant to Federal Rule of Civil Procedure 78. For the reasons expressed below, the Court grants Defendant's motion but gives Plaintiff leave to replead certain claims.


GEICO underwrites automobile insurance policies in New Jersey. Pursuant to state statute, those policies provide benefits for personal injuries sustained in an accident involving the covered automobile, regardless of whether the driver was at fault for the accident. This coverage in auto insurance is known as personal injury protection, commonly abbreviated as "PIP." In connection with receiving treatment for injuries, insureds may assign their right to PIP benefits to medical providers. Defendant MLS is one such provider, which, according to the Amended Complaint, has submitted and received payment on PIP claims for treatment rendered to GEICO insureds. Defendant Schwartz is a doctor who owns MLS and treats patients in the practice. According to the Amended Complaint, MLS does not market its services to the general public or maintain a fixed location for its practice. Rather, it alleges, MLS is a "transient provider" that operates from the offices of a network of healthcare providers who specialize in treating patients with no-fault automobile accident insurance and refer those patients to MLS.

This action arises out of GEICO's allegations that numerous pending and already-paid PIP claims made by MLS to GEICO are fraudulent. GEICO alleges that MLS obtains patients, including GEICO-insured individuals, by paying the referring healthcare providers kickbacks disguised as leasing fees for MLS to use the office space and/or personnel of the referring provider. Then, GEICO further alleges, MLS conducts an initial examination of these GEICOinsured patients and order phony or needless electrodiagnostic tests, despite playing "no genuine role in the treatment or care of the Insureds." (Am. Compl. ¶ 27.) According to the Amended Complaint, pursuant to benefits assignments executed by the patient-insureds, MLS submits PIP claims to GEICO for treatment and tests that were either not medically unnecessary or not actually administered at all. It alleges that MLS collects payment from GEICO based on misrepresentations made mainly through billing forms, known as HCFA-1500 forms, in which MLS charges GEICO using medical billing codes, known as "CPT codes, " which correspond to diagnoses, services and tests that a presenting patient's condition did not warrant. GEICO refers to this scheme in the Amended Complaint as MLS's fraudulent treatment and billing protocol.

The Amended Complaint alleges that GEICO has been defrauded out of $345, 000 in PIP benefits paid to MLS as a result of the fraudulent treatment and billing protocol. It seeks to disgorge these amounts under various legal theories of relief: violation of the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1, et seq.; violation of the federal Racketeering. Influenced Corrupt Organizations statute ("RICO"), 18 U.S.C. § 1962(c); common law fraud and unjust enrichment. GEICO also asserts a claim pursuant to the Declaratory Judgments Act, 28 U.S.C. § 2201, asking this Court to declare that over $1 million in pending claims which have been submitted to GEICO by MLS are fraudulent and thus not payable to MLS. It also crossmoves for an order staying all pending PIP arbitrations between GEICO and MLS while the declaratory judgment claim proceeds.

MLS moves to dismiss the Amended Complaint in its entirety pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). It argues that the Court lacks subject matter jurisdiction over the claim for declaratory relief because it concerns PIP benefits claims that are currently the subject of pending arbitration proceedings. It further argues that the remainder of the claims must be dismissed for failure to meet the pleading standards of Federal Rules of Civil Procedure 8(a) and 9(b), the heightened requirement applicable to fraud claims.


A. Legal Standards

MLS moves to dismiss, in part, pursuant to Rule 12(b)(1), which provides that an action. must be dismissed when the Court lacks subject matter jurisdiction. They maintain that the declaratory judgment claim fails to present a justiciable "case or controversy." Article III of the Constitution limits federal court jurisdiction to "Cases" and "Controversies." "The case or controversy requirement must be met regardless of the type of relief sought, including declaratory relief." Armstrong World Indus., Inc. v. Adams , 961 F.2d 405, 410 (3d Cir.1992 (citation omitted).

Defendant also moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), which governs dismissal for failure to state a claim upon which relief can be granted. A complaint will survive a motion under Rule 12(b)(6) only if it states "sufficient factual allegations, accepted as true, to state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atlantic v. Twombly , 550 U.S. 544, 570 (2007 "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id . (citing Twombly, 550 U.S. at 556.) Following Iqbal and Twombly, the Third Circuit has held that, to prevent dismissal of a claim, the complaint must show, through the facts alleged, that the plaintiff is entitled to relief. Fowler v. UPMC Shadyside , 578 F.3d 203, 211 (3d Cir. 2009). The Court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and then determine whether a reasonable inference may be drawn that the defendant is liable for the alleged misconduct." Argueta v. U.S. Immigration and Customs Enforcement , 643 F.3d 60, 74 (3d Cir. 2011). While the Court must accept all factual allegations as true, it need not accept a "legal conclusion couched as a factual allegation." Baraka v. McGreevey , 481 F.3d 187, 195 (3d Cir. 2007); Fowler , 578 F.3d at 210-11; see also Iqbal , 556 U.S. at 679 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations."). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, will not suffice." Iqbal , 556 U.S. at 678. In a Rule 12(b)(6) motion, the Court is limited in its review to a few basic documents: the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents if the complainant's claims are based upon those documents. See Pension Benefit Guar. Corp. v. White Consol. Indus. , 998 F.2d 1192, 1196 (3d Cir.1993).

The claims in the Amended Complaint are predicated on allegations of fraudulent conduct. A claim sounding in fraud must meet the heightened pleading requirement of Federal Rule of Civil Procedure 9(b). Rule 9(b) states: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." As interpreted and applied by the Third Circuit, Rule 9(b) requires "plaintiffs to plead the who, what, when, where, and how: the first paragraph of any newspaper story.'" In re Advanta Corp. Sec. Litig. , 180 F.3d 525, 534 (3d Cir.1999) (quoting DiLeo v. Ernst & Young , 901 F.2d 624, 627 (7th Cir.1990)); see also Frederico v. Home Depot , 507 F.3d 188, 200 (3d Cir.2007) (holding that Rule 9(b) requires a party alleging fraud to state the circumstances of the alleged fraud "with sufficient particularity to place the defendant on notice of the precise misconduct with which [it] is charged.'"

B. Declaratory Judgment Claim

Plaintiff seeks a declaration that MLS has no right to recover the PIP benefits it seeks in countless pending claims submitted to GEICO. GEICO alleges that these claims are based on fraudulent bills generated by the kickback scheme and/or by medically unnecessary treatment, which GEICO asserts are expenses that it is not obligated to cover under its applicable automobile insurance policy and under the governing New Jersey PIP statute. GEICO also argues that MLS has no right to a recovery of medical expense benefits under the PIP statute because the entire relationship between patient-insureds and MLS is founded on the alleged kickback scheme and therefore, according to GEICO, the benefits assignments made by the patient-insureds in favor of MLS are invalid. Defendant argues that the disputes over these pending PIP benefits claims must be decided through the statutorily mandated ...

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