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Allstate Insurance Co. v. Northfield Medical Center, P.C.

Supreme Court of New Jersey

May 4, 2017

ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, ALLSTATE NEW JERSEY INSURANCE COMPANY, Plaintiffs-Appellants,
v.
NORTHFIELD MEDICAL CENTER, P.C.; ROBBAN ARIEL SICA, M.D.; SCOTT DAVID, D.O.; J. SCOTT NEUNER, D.C.; JSM MANAGEMENT COMPANY, INC.; TILTON CHIROPRACTIC CENTER, P.C.; TILTON CHIROPRACTIC CENTERS, SOUTH DIVISION, P.C.; ARNOLD BACARRO, M.D.; PANKAJ ANAND AGRAWAL, M.D. a/k/a "PANKAJ ANAND"; ALAN CARR, D.O.; VORRIE MACOM, M.D.; ALONSO V. CORREA, M.D.; ALONSO V. CORREA, M.D., P.C.; CORREA MEDICAL DIAGNOSTICS, P.C.; MEDICAL INNOVATIONS, INC., Defendants, and DANIEL H. DAHAN, D.C.; PRACTICE PERFECT; MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., Defendants-Respondents, and ROBERT P. BORSODY, ESQ., Defendant-Respondent, and AMERICAN ARBITRATION ASSOCIATION, Defendant in Interest.

         SYLLABUS

         This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interest of brevity, portions of any opinion may not have been summarized.

          Argued January 4, 2017

         On certification to the Superior Court, Appellate Division.

          Thomas J. Hall argued the cause for appellants (McGill & Hall and Pashman Stein, attorneys; Mr. Hall and Michael S. Stein, on the briefs).

          Lawrence S. Lustberg argued the cause for respondent Robert P. Borsody, Esq. (Gibbons, attorneys; Mr. Lustberg and Amanda B. Profess, on the briefs).

          Christopher B. Turcotte argued the cause for respondents Daniel H. Dahan, D.C., Practice Perfect and Medical Neurological Diagnostics, Inc.

          John Zen Jackson argued the cause for amici curiae Medical Society of New Jersey and the American Medical Association (McElroy, Deutsch, Mulvaney & Carpenter, attorneys).

          Arthur Meisel submitted a brief on behalf of amicus curiae New Jersey Dental Association.

         LaVecchia, J., writing for a unanimous Court.

         In this appeal, the Court reviews the Appellate Division's determination that the trial court erred in finding a knowing violation of the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. After a bench trial, Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor, were found to have violated the IFPA to the extent they promoted and assisted in the creation of a practice structure designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

         N.J.A.C. 13:35-6.16(f), codified in 1992, explicitly provides that a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor. In 1995, the Executive Director of the State Board of Medical Examiners (Board), issued a letter-opinion in response to a hypothetical scenario in which a professional association was divided between a chiropractor holding a seventy-percent interest and a doctor holding a thirty-percent interest. The director wrote that "[The Board] would find it inappropriate for a physician with a plenary scope of practice (M.D./D.O.) to be in a position where the practitioner with a limited scope of practice (here, a [chiropractor]) can compel-by the simple fact of majority voting rights- the medical doctor to accept contracts for the provision of all manner of services."

         In the 1990s, Dahan began organizing a series of lectures throughout the country through his company, "Practice Perfect." Practice Perfect lectures were marketed toward chiropractors and focused on the creation of multi-disciplinary practices in which chiropractors work with physicians and other medical professionals. Borsody made presentations at Practice Perfect lectures on the legal issues arising from such multi-disciplinary practices.

         In late 1996, New Jersey-licensed chiropractor John Scott Neuner attended a two-day Practice Perfect seminar at which both Dahan and Borsody presented. The practice model, developed by Borsody and pitched at Dahan's programs, included a number of safeguards to prevent the nominal doctor-owner of the medical corporation from seizing control of the practice from the real investor-the chiropractor. Prior to the seminar attended by Neuner, Borsody wrote at least one trade article that correctly stated that New Jersey requires a majority of the ownership interest in a medical corporation to be owned by medical doctors.

         In March 1997, after attending the Practice Perfect seminar described above, Neuner signed a contract with Dahan to become a client of Practice Perfect. Neuner hired Dr. Robban A. Sica, M.D., as the initial doctor-owner of Northfield. Neuner also hired several doctors to work at Northfield who held no ownership interest in the practice.

         In late 1998, Allstate, which had been receiving insurance claims for treatment provided at Northfield, began investigating the legality of Northfield's practice structure. Neuner retained Borsody to represent him and, in January 1999, Borsody wrote that because the doctors hired to work at Northfield did not own stock in the medical practice, Neuner's employment of those doctors likely violated existing guidance from the Board. As a result of its investigation, Allstate refused payment on approximately $330, 000 in claims of patients treated by Northfield.

         Allstate filed the instant action on October 19, 1999, against Neuner, Northfield, Dahan, Borsody, and a number of additional defendants. Neuner settled with Allstate early in the proceedings, in part in exchange for his agreement to testify against his co-defendants. For present purposes, the salient charges of the complaint allege that Borsody and Dahan (collectively, defendants) violated the IFPA by knowingly assisting Neuner in the creation and operation of a multi-disciplinary practice whose insurance claims were fraudulent under the IFPA. Allstate's theory of the case relies on the practice's failure to comply with governing standards on the corporate practice of medicine, a necessary precondition to a valid insurance claim.

         The trial court found that Borsody and Dahan violated the IFPA when they "knowingly assisted, conspired with and urged Neuner to operate in a fashion that violated the law." In an unpublished opinion, the Appellate Division reversed, concluding that the evidence did not support a finding that defendants knowingly violated the IFPA. The Court granted Allstate's petition for certification. 223 KI 555 (2015).

         HELD: Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor. In light of the broad anti-fraud liability imposed under the IFPA, holding defendants responsible for promoting and assisting in the formation of an ineligible medical practice was not a novel or unanticipated application of the statute. The trial court correctly applied a plain-language understanding of "knowing, " and its finding of a knowing violation of the IFPA is amply supported in this record.

         1. N.J.S.A. l7:33A-4(b) instructs that "[a] person or practitioner violates [the IFPA] if he knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act." Defendants were found to have knowingly assisted or conspired with Neuner in violating the IFPA by promoting and helping Neuner with the construction of an impermissible professional practice structure that enabled the chiropractor to benefit from proceeds derived from his submission of medical claims for reimbursement, in violation of N.J.S.A. 17:33 A-4(a), (c). Proof of such violation need only be found to exist based on a preponderance of the evidence, (pp. 24-26)

         2. This is not a criminal case. The trial court rightly did not import aspects of a "knowing" mens rea from the Criminal Code into the civil liability section of the IFPA at issue. Rather, the court correctly applied a plain-language understanding of "knowing, " which is well understood to be an awareness or knowledge of the illegality of one's act. That knowledge need not come from a prior decision holding that the precise conduct at issue gives rise to a violation of a legal requirement. There is ample precedent supporting the proposition that a party's knowledge as to the falsity or illegality of his conduct may be inferred from the surrounding factual circumstances, (pp. 26-35)

         3. Defendants claim that they could not have knowingly violated the IFPA because it was not clear that compliance with practice-structure regulations was "material" to insurance submissions. The Court does not accept that a reasonable actor would not have known that compliance with the regulatory provisions governing the organization, supervision, and control of a medical practice was material to an insurance submission by that medical practice. Health care services are highly regulated. One cannot claim, or feign, ignorance of those regulatory requirements and restrictions until there is an express command applicable to a precise set of facts, (pp. 35-38)

         4. The Court reviews the regulatory requirements in place governing the lawful structures for medical practices when Borsody and Dahan promoted their practice model and notes that the 1995 letter makes plain that the Board would allow no subterfuge to shield the existence of a real or potential corrupting influence that could be exercised by a management company or by a professional association where a licensee with a lesser scope of practice, like a chiropractor, could actually wield control over the practice of medicine by a plenary licensee, (pp. 38-40)

         5. Based on the regulations in effect at the time and the testimony at trial, the trial court here could reasonably conclude that Borsody, as well as Dahan, knew of the regulatory requirements at issue, promoted a practice scheme specifically designed to circumvent those requirements while appearing compliant, and therefore knowingly assisted in the provision of services, the foreseeable result of which was the submission of invalid and misleading claims under the IFPA. The documents and structure promoted and designed by defendants accomplished what the regulations sought to avoid. They placed control over the medical practice in the hands of a chiropractor, subjecting plenary licensees to his effective control. The lengths that defendants went to in shielding the true controller of this practice from view undermine any basis for interfering with the trial court's assessment of the mixed question of fact and law that was presented to the court, (pp. 40-44)

         The judgment of the Appellate Division is REVERSED. The case is REMANDED to the Appellate Division for proceedings consistent with this opinion.

          CHIEF JUSTICE RABNER and JUSTICES PATTERSON, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE LaVECCHIA's opinion. JUSTICE ALBIN did not participate.

          OPINION

          LaVECCHIA, JUSTICE

         Plaintiff Allstate Insurance Company (Allstate) filed a complaint alleging statutory claims of insurance fraud against defendants Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor (collectively, defendants). After a bench trial, defendants were found to have violated the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30, by assisting a New Jersey chiropractor in the late 1990s in the creation of an unlawful multi-disciplinary practice, which submitted medical insurance claims to Allstate. The trial court determined that Borsody and Dahan violated the IFPA to the extent they promoted and assisted in the creation of a practice structure that was designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

         The Appellate Division reversed that judgment. In doing so, the panel relied on defendants' arguments that Allstate had not established that defendants actually knew that their practice model violated regulatory requirements governing the lawful ownership and control of a medical practice, and that, even if evidence of such knowledge could be found in this record, Allstate had not established that defendants knew that a violation of those regulatory requirements could constitute insurance fraud under the provision of the IFPA that creates liability for one who "knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of [the IFPA]." N.J.S.A. l7:33A-4(b). The Appellate Division concluded that the trial court erred in finding a knowing IFPA violation on the facts presented.

         Allstate sought our review of that determination, and we now reverse.

         Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor. Further, in light of the broad anti-fraud liability imposed under the IFPA, holding defendants responsible for promoting and assisting in the formation of an ineligible medical practice -- created for the obvious purpose of seeking reimbursement for medical care delivered by that practice -- was not a novel or unanticipated application of the statute. We conclude that the trial court's finding of a knowing violation of the IFPA is amply supported in this record, which contains compelling evidence demonstrating how the structure shielded from view its effective circumvention of regulatory rules.

         For the reasons that follow, we reverse on the sole issue found to be determinative by the Appellate Division. Because there were other issues not reached by the panel, we remand to the Appellate Division to allow for their evaluation.

         I.

         Fair consideration of this matter necessitates, first and foremost, an understanding of the rules and requirements for ownership, control, and direction of a physician's practice. Accordingly, before addressing the facts, we identify the requirements in place at the time relevant to this appeal.

         A.

         The State Board of Medical Examiners (Board) -- the entity responsible for establishing standards for professional practice by licensed physicians -- has addressed the permissible types of professional practice forms. A regulation, adopted by the Board in 1992 and codified at N.J.A.C. 13:35-6.16, figures prominently in this matter.

         With the codification of N.J.A.C. 13:35-6.16, the Board established limits on the corporate practice of medicine. Section 6.16(f) lists the appropriate types of private practices -- for example, solo practice, partnership, and medical corporation -- and explicitly provides that a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor. In directing the proper structure of a medical practice, the regulation provides that

[a] practitioner may practice solo and/or may employ or otherwise remunerate other licensed practitioners to render professional services within the scope of practice of each employee's license, but which scope shall not exceed that of the employer's license. The practitioner may employ ancillary non-licensed staff in accordance with Board rules, if any, and accepted standards of practice.
[N.J.A.C. 13:35-6.16(f) (1) .]

         Subsection (f)(2) directs that

[a] practitioner may practice in a partnership, professional association, or limited liability company, but such entity shall be composed solely of health care professionals, each of whom is duly licensed or otherwise authorized to render the same or closely allied professional service within this State.
[N.J.A.C. 13:35-6.16(f)(2).]

         Next, subsection (f)(3) defines employment as "an ongoing associational relationship between a licensee and professional practitioner(s) or entity on the professional practice premises for the provision of professional services, whether the licensee is denominated as an employee or independent contractor, for any form of remuneration." N.J.A.C. 13:35-6.16(f)(3). Thereafter, subsection f(3)(i) provides that

[a] practitioner may be employed, as so defined, within the scope of the practitioner's licensed practice and in circumstances where quality control of the employee's professional practice can be and is lawfully supervised and evaluated by the employing practitioner. Thus, a practitioner with a plenary license shall not be employed by a practitioner with a limited scope of license, nor shall a practitioner with a limited license be employed by a practitioner with a more limited form of limited license. By way of example, a physician with a plenary license may be employed by another plenary licensed physician, but an M.D. or D.O. may not be employed by a podiatrist (D.P.M.) or chiropractor (D.C.) or midwife or certified nurse midwife (R.M., C.N.M.). A podiatrist may not employ a chiropractor. This section shall not preclude any licensee from employing licensed personnel such as nurses, x-ray technologists, physical therapists, ophthalmic dispensers and ophthalmic technicians, etc., as appropriate to the primary practice of the employer.
[N.J.A.C. 13:35-6.16(f) (3) (i) .]

         In addition to the above-mentioned parts of section 6.16, N.J.A.C. 13:35-6.17 bears noting, specifically subsections (h) and (i), which permit administrative contracts between a management company and a professional practice. The permissibility of a medical practice's use of a ...


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