Opinion
CV-00-4923 (CPS)
November 18, 2002
MEMORANDUM AND ORDER
In a second amended complaint ("Complaint"), plaintiff State Farm Mutual Automobile Insurance Company ("State Farm") brings declaratory judgment, fraud, and unjust enrichment claims against defendants Robert Mallela, Swapnadip Lahiri, Alan Cohen, Douglas Spiel, and William Battaile (collectively, the "Licensed Defendants"), David Bass, Lewis Bazokas, George Bonetti, Igor Brodsky, Jack Camarda, Gerard Fusaro, Glenn Gallo, Olga Gazonas, Frank Gomez, Roger Kaplan, Lawrence Lefcourt, Kevin McPartland, Joseph Mills, Donald Musafi, Dipak Nandi, Steven Nissenbaum, Harold Orr, Alan Perlmutter, Ruth Rodgers, Paul Schneider, and Peter Swerz (collectively, the "Unlicensed and Chiropractor Defendants"), Allied Medical Healthcare, P.C. ("Allied"), Astoria Physical Medicine and Rehabilitation, P.C. ("Astoria"), Atlantic Medical Practice, P.C. ("Atlantic"), Avenue U Medical Services, P.C. ("Avenue U"), Bay Medical Health Care Diagnostic, P.C. ("Bay Medical"), Bettercare Health Care Pain Management and Rehab., P.C. d/b/a Firstcare of Bettercare Healthcare ("Bettercare"), Canarsie Medical Services, P.C. ("Canarsie"), Central Medical Rehabilitation, P.C. ("Central Medical"), Central Suffolk Medical Services, P.C. ("Central Suffolk"), DAKA Medical, P.C. d/b/a Island Health Professionals ("DAKA"), Farragut Medical Care, P.C. ("Farragut"), First Queens Physical Medicine and Rehabilitation, P.C. ("First Queens"), Flatbush Medical Services, P.C. ("Flatbush"), Franklin Medical Rehabiliatation, P.C. ("Franklin"), Grand Central Healthcare and Physical Medicine, P.C. ("Grand Central"), Mid-Island Medical Healthcare, P.C. ("Mid-Island"), Mid-Queens Medical Services, P.C. ("Mid-Queens"), Millennium Medical Diagnostics, P.C. ("Millennium"), Oceanview Medical Care, P.C. ("Oceanview"), Patient's Choice Medical Services, P.C. ("Patient's Choice"), Pelham Physical Medicine and Rehabilitation, P.C. ("Pelham"), Sterling Medical Diagnostic, P.C. ("Sterling"), Triborough Medical Diagnostic, P.C. ("Triborough"), Urban Medical Diagnostics, P.C. ("Urban"), Valley Physical Medicine Rehabilitation, P.C. ("Valley Physical"), Valley Rehabilitation and Medical Offices, P.C. ("Valley Rehabilitation"), Victory Medical, P.C. ("Victory"), and Yonkers Medical Services, P.C. d/b/a Injury Relief Medical Care of New York, P.C. ("Yonkers") (collectively, the "PC Defendants"), Allied Managements Services, Inc., A.P.P. Healthcare Management, Inc., Astoria Healthcare Management Corp. ("Astoria Healthcare"), Atlantis Healthcare Management, Inc. ("Atlantis Healthcare"), Babylon Health Care Management, Inc., Bonis Management Corporation ("Bonis"), Camelot Management Services, Inc. ("Camelot"), Carle Place Health Management Corp. ("Carle Place"), Criscay Management Corporation ("Criscay"), Franklin Healthcare Management Corporation ("Franklin Healthcare"), GBI Management Corp. ("GBI"), Jeffsam Corp., Niagara Diagnostics Inc., Office Masters, Inc. ("Office Masters"), Omega Management Corporation ("Omega"), RMK Management Corp., Inc., Triborough Healthcare Management, Inc., and Universal Express, Inc. ("Universal Express") (collectively, the "Management Company Defendants")
Plaintiff previously brought these claims in its amended complaint ("Prior Complaint") which I dismissed on September 20, 2001, in a Memorandum and Order ("Prior Order"). The gravamen of plaintiff's Complaint, as well as plaintiff's Prior Complaint, is that defendants engaged in a fraudulent scheme in which the PC Defendants, Unlicensed and Chiropractor Defendants, and Management Company Defendants falsely used the names of the Licensed Defendants on certificates of incorporation filed with New York State to obtain certificates of authority to practice medicine. Plaintiff, which issues automobile insurance policies and has compensated the PC Defendants for services rendered to plaintiff's policyholders, seeks monetary, declaratory, and injunctive relief.
Defendants Bass, Bazokas, Bonetti, Brodsky, Camarda, Gallo, Gazonas, McPartland, Mills, Musaffi, Nissenbaum, Orr, Perlmutter, Spiel, Swerz, Astoria, Bay Medical, Bettercare, Camelot, Carle Place, Central Medical, Franklin, GBI, Grand Central, Mid-Queens, Millennium, Office Masters, Omega, Pelham, Sterling, Triborough, Urban, Valley Physical, Valley Rehabilitation, Yonkers, Astoria Healthcare, Atlantis Healthcare, Bonis, Criscay, Franklin Healthcare, and Universal Express (collectively, the "Moving Defendants") now move under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss plaintiff's Complaint. Bonetti, Nissenbaum, and Bonis ("Bonis Defendants") also move to dismiss plaintiff's Complaint under Rule 12(b)(1). All of the Moving Defendants except for Astoria, Grand Central, and Yonkers move for sanctions under Rule 11.
Defendants Spiel and Bay Medical jointly move under Rule 12(c), instead of 12(b)(6). Because their motion is in substance a motion to dismiss since it assumes the truth of the factual averments in plaintiff's Complaint, I treat their motion, like the others filed by Moving Defendants in this case, as a motion brought under Rule 12(b)(6).
For the reasons set forth below, plaintiff's claims against Moving Defendants are dismissed, and the motions for sanctions are denied.
BACKGROUND
The factual background to this case was set forth in detail in my Prior Order, familiarity with which is presumed. Here, I provide only those facts necessary to decide the motions currently before the Court. The following facts are drawn from plaintiff's Complaint, unless otherwise noted, and are assumed to be true for the purposes of Moving Defendants' motions to dismiss.
State Farm engages in the business of selling automobile insurance in New York. Licensed Defendants are licensed to practice medicine in New York. Unlicensed and Chiropractor Defendants are not licensed to practice medicine in New York. PC Defendants are all New York professional service corporations whose certificates of incorporation falsely state that at least one of the Licensed Defendants has been, at varying points in time, the PC Defendants' sole shareholder, director, and officer.
According to the Complaint, the Licensed Defendants were in fact sham shareholders, directors, and officers, who were paid a fee to allow the true owner or owners of each PC Defendant to obtain unlawfully a certificate of authority for the PC Defendant to practice medicine. Licensed Defendants have signed various documents allegedly designed to conceal that the Unlicensed and Chiropractor Defendants control and profit from the operation of PC Defendants. These documents include lease agreements, management fee agreements, security agreements assigning management and service fees, restrictions on Licensed Defendants' ability to transfer their shares in PC Defendants or compete with PC Defendants, and undated letters of resignation.
PC Defendants have submitted charges to plaintiff for professional health services provided to plaintiff's insureds. The physicians employed by PC Defendants helped those defendants submit these charges and were aware that the Licensed Defendants were sham shareholders, directors, and officers of PC Defendants.
The Statutory Scheme
Having described the relevant statutory scheme in detail in the Prior Order, it is unnecessary to do so here. However, due in part to certain changes made to the applicable regulations since the issuance of the Prior Order, a brief overview of the statutory scheme is useful.
Under New York's Comprehensive Motor Vehicle Insurance Reparation Act (the "no-fault law"), New York Insurance Law §§ 5101 et seq., State Farm, as an automobile insurer, is obligated to indemnify its insureds for, inter alia, reasonable and necessary medical services for injuries sustained by occupants of its insureds' covered motor vehicles that arise from the use or operation of those vehicles. Specifically, plaintiff is required "to reimburse a [covered) person for basic economic loss on account of personal injury arising out of the use or operation of a [covered] motor vehicle," § 5102(b), where "basic economic loss" is defined to include:
[a]ll necessary expenses incurred for: (I) medical, hospital (including services rendered in compliance with article forty-one of the public health law, whether or not such services are rendered directly by a hospital), surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; (ii) psychiatric, physical and occupational therapy and rehabilitation; (iii) any non-medical remedial care and treatment rendered in accordance with a religious method of healing recognized by the laws of this state; and (iv) any other professional health services.
The Superintendent of Insurance ("Superintendent") has issued regulations that interpret and implement the no-fault law. As I observed in the Prior Order, "the No-fault regulations were substantially revised effective February 1, 2000." (Prior Order at 25.) These revised regulations were subsequently found unconstitutional under the New York State Constitution. ( Id.) Accordingly, I disregarded these revised regulations in the Prior Order and relied instead upon the pre-existing set of regulations ("Prior Regulations"). Subsequently, a new set of revised regulations were promulgated, effective September 1, 2001 ("Current Regulations"). See 11 N.Y.C.R.R. §§ 65-1, et seq. These regulations have survived legal challenge, see In re Med. Soc'y of N.Y., No. 116519/01 (N.Y.Sup.Ct. Feb. 19, 2002), and are now the effective no-fault regulations.
The Current Regulations, like the Prior Regulations, provide that, if a health care provider receives an assignment of benefits from a covered person who is treated by that provider, the covered person's insurer "shall pay the provider of services . . . directly." 11 N.Y.C.R.R. § 65-3.11; see also Prior Regulations § 65.15(j)(1). The Current Regulations and Prior Regulations also both limit the term "any other professional health services," as used in the no-fault law, to "those services that are required or would be required to be licensed by the State of New York if performed within the State of New York" and are "necessary for the treatment of the injuries sustained and within the lawful scope of the licensee's practice." 11 N.Y.C.R.R. 65-3.16(a)(6); see also Prior Regulations § 65.15(o)(1) (vi). Both versions of the no-fault regulations also observe that charges for the services "shall be covered pursuant to schedules promulgated under section 5108 of the Insurance Law and Part 68 of this Title" ("Fee Schedules"). Id.; see also Prior Regulations § 65.15(o)(1) (vi).
Unlike the Prior Regulations, the Current Regulations specify that "[a] provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York." 11 N.Y.C.R.R. 65-3.16(a) (12). In a notice published prior to the effective date of the Current Regulations, the Department of Insurance stated that this language "has been added to clarify that a health care provider must be properly licensed to be eligible for reimbursement under no-fault." N.Y.S. Register/May 9, 2001, Revised Rule Making Activity at 3(B)(9).
Distinct from the no-fault law is New York's Business Corporations Law ("BCL"), which requires professional health service corporations to be owned and controlled only by individuals who are licensed to practice medicine. ( See Prior Order at 7-8, 23-24 (discussing N.Y. Bus. Corp. Law §§ 1503, 1507, 1508 and Educ. Law § 6507(4)(c)).)
The Claims
Each claim set forth in the Complaint was made in the Prior Complaint. As plaintiff itself states, the Complaint "repeats the allegation that the PC Defendants are not entitled to recover No-Fault benefits because they were not lawfully licensed and were not acting within the lawful scope of their licenses when the services were rendered." (Pl.'s Mem. at 4.) On the basis of this argument, plaintiff concludes that defendants are liable for fraud and unjust enrichment and seeks a judgment pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, declaring that "neither State Farm nor the patients who purportedly received professional health care services from the PC Defendants are obligated to pay for such services" and that "the PC Defendants are enjoined from submitting to State Farm any unlawful request for payment for any professional health care service, and initiating or prosecuting against State Farm any other legal proceedings, including arbitration proceedings, seeking payment for any such service." (Compl. ¶ 384.)
All citations to "Pl.'s Mem." refer to plaintiff's Memorandum of Law in Opposition to Moving Defendants' Motions to Dismiss the Complaint.
Plaintiff's fraud claim is based on defendants' making the following allegedly false representations and intentionally concealing the following allegedly material facts in order to induce plaintiff to pay for medical and acupuncture services:
Material Facts Falsely Represented:
(1) that PC Defendants were lawfully authorized to practice medicine or acupuncture in New York, and were operating in adherence with New York statutes governing the rendering of such services; (ii) the licensed professionals who allegedly rendered the services did so within the lawful scope of their practices, (iii) the charges billed in the names of the PC Defendants were authorized under the Fee Schedules, and (iv) that State Farm and the patients who purportedly received the services were obligated to pay for them.
(Compl. ¶ 386.)
Material Facts Intentionally Concealed:
(I) the PC Defendants were actually owned and controlled by the [Unlicensed and Chiropractor Defendants]; (ii) the PC Defendants fraudulently obtained certificates of authority from the [Department of Education] to provide medical services and were not adhering to New York laws governing the rendition of such services; (iii) the PC Defendants were de facto diagnostic and treatment centers operating without the requisite license; (iv) that the medical and acupuncture services purportedly provided were rendered outside the lawful scope of the practices of the physicians, acupuncturists and other health care professionals who were secretly employed and supervised by and splitting fees with the [Unlicensed and Chiropractor Defendants] when they provided them; (v) the charges submitted by the [Unlicensed and Chiropractor Defendants] in the names of the PC Defendants were not authorized under the Fee Schedules; and (vi) that the charges submitted by the [Unlicensed and Chiropractor Defendants] in the names of the PC Defendants were void, illegal, against public policy, unenforceable and non-compensable under New York law generally and the No-Fault Laws.
(Compl. ¶ 387.)
Plaintiff claims defendants were unjustly enriched because defendants "wrongfully obtained payments from State Farm through their fraudulent billing scheme, and they are not entitled to payments from State Farm." (Compl. ¶ 396.)
While acknowledging that its allegations are very similar to the allegations made in the Prior Complaint, plaintiff states that it has made three new allegations in support of its claims:
Consistent with the [Prior] Order, the [Complaint] . . . sets forth new allegations that: (I) the individuals who purportedly rendered the services in question did so outside the lawful scope of their licenses; (ii) at least 123,000 of the PC Defendants' charges were not authorized by the . . . Fee Schedule, which applies to claims brought under the No-Fault Laws; and (iii) the charges were illegal, against public policy and unenforceable under New York law generally.
(Pl.'s Mem. at 4.)
The Prior Order
In the Prior Order, I dismissed plaintiff's claims for fraud and unjust enrichment, as well as its request for a declaratory judgment, holding that plaintiff's Prior Complaint failed to state a claim upon which relief could be granted. Specifically, I concluded that the allegedly fraudulent ownership of the PC Defendants by unlicensed individuals does not eliminate plaintiff's obligation to pay the PC Defendants for professional health services provided to persons covered under New York Insurance Law. I based this conclusion, in part, on the following reasoning:
If an insured receives reasonable and necessary medical services from a licensed practitioner who demands that the insured pay her directly rather than assign his right to benefits, the insured's right to payment from his insure does not depend on whether his practitioner is employed by an entity that has fraudulently obtained a certificate of authority to practice medicine. Because an insured may, under current law, effectively assign his right to benefits to any "provider of services," without any requirement that the provider have a certificate of authority or a validly obtained certificate of authority, the fact that the claims at issue here were and are submitted by the PC Defendants rather than the insureds themselves does not relieve plaintiff of its statutory obligation to pay those claims.
(Prior Order at 27.) I noted that, "[i]f plaintiff were to allege and prove, on the other hand, that the practitioners themselves were unlicensed or that the services provided [to plaintiff's insureds] were non-medical and did not need to be licensed," then plaintiff's insured would not have incurred basic economic loss under the no-fault regulations, and, therefore, plaintiff would not be obliged to pay for the services provided. ( Id.) Accordingly, I granted plaintiff "leave to amend its complaint to state valid claims describing actionable frauds . . . if it may do so within the confines of Rule 11 of the Federal Rules of Civil Procedure." ( Id. at 42.) Plaintiff made no motion to reconsider the Prior Order and subsequently filed the Complaint.
DISCUSSION
The Moving Defendants move to dismiss plaintiff's Complaint for failure to state a claim under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. Additionally, the Bonis Defendants move to dismiss plaintiff's claims against them under Rule 12(b)(1) of the Federal Rules of Civil Procedure, arguing that plaintiff does not have standing to bring these claims against them. All of the Moving Defendants except for Astoria, Grand Central, and Yonkers move for sanctions under Rule 11 of the Federal Rules of Civil Procedure. I will first consider the standing issue and then turn to the motions to dismiss for failure to state a claim and the requests for sanctions.
Rule 12(b)(1) Motion
The Bonis Defendants argue that plaintiff's claims against them should be dismissed because plaintiff has not met the standing requirements imposed by Article III of the Constitution. Article III standing requires
(1) that the plaintiff has suffered "an injury in fact," i.e., an injury that is "concrete and particularized" as well as "actual or imminent," rather than merely "conjectural or hypothetical": (2) that there be a "causal connection between the injury and the conduct complained of," i.e. that the injury be "fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court"; and (3) that it be likely that the injury complained of would be "redressed by a favorable decision."St. Pierre v. Dyer, 208 F.3d 394, 401 (2d Cir. 2000) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). The Bonis Defendants argue that plaintiff fails to allege an "injury in fact" because plaintiff "merely was required to pay claims that it was required to pay under the No-Fault law." (Bonis Defendants' Mem. at 28.) They also argue that, even if plaintiff does allege an injury, plaintiff fails to allege a causal connection between the injury and the Bonis Defendants' conduct because none of the Bonis Defendants directly received payment for services provided to plaintiff's insureds.
The Second Circuit has emphasized that the fundamental aspect of standing is its focus on the plaintiff and not on the issues the plaintiff wishes to have adjudicated. United States v. Vazguez, 145 F.3d 74, 80 (2d Cir. 1998). The aim of a court's investigation into a plaintiff's standing is to determine "whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf." Warth v. Seldin, 422 U.S. 490, 498-99 (1975) (internal quotation omitted). The standing issue must therefore be resolved "irrespective of the merits of [the] substantive claims." Bordell v. Gen. Elec. Co., 922 F.2d 1057, 1060 (2d Cir. 1991). When standing is challenged on the basis of the pleadings, the court must "accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth, 422 U.S. at 501.
The Bonis Defendants' arguments are directed at the issues plaintiff wishes to adjudicate, rather than whether plaintiff has alleged a personal stake in the outcome of this action. Plaintiff alleges that defendants "collected at least $702,664 from State Farm pursuant to fraudulent charges they submitted to State Farm." (Compl. 98.) If plaintiff is correct on the merits of its substantive claim, it has lost at least $702,644. This monetary loss is a sufficiently specific injury to meet Article III standing requirements. Even if, as the Bonis Defendants argue, the PC Defendants were legally entitled to the money they collected, this does not eliminate plaintiff's standing. To hold otherwise would convert every motion to dismiss or motion for summary judgment into an Article III standing issue. similarly, plaintiff's allegation that the Bonis Defendants facilitated the submission of fraudulent charges to plaintiff is sufficient to meet the "causal connection" requirements of Article III. The question of whether these allegations are sufficient to state a claim under substantive law should be addressed in a motion to dismiss under Rule 12(b)(6), not a challenge to plaintiff's Article III standing. Accordingly, I now turn to the motions made by the Bonis Defendants and the other Moving Defendants to dismiss the Complaint for failure to state a claim.
Rule 12(b)(6) Motions
Faced with a motion to dismiss a complaint for failure to state a claim upon which relief may be granted, a court must "tak[e] as true all allegations in the complaint, and draw[) all reasonable inferences therefrom in the [plaintiff's] favor." Koppel v. 4987 Corp., 167 F.3d 125, 130 (2d Cir. 1999) (quotations omitted). A court must not dismiss the complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Easton v. Sundrarn, 947 F.2d 1011, 1014-15 (2d Cir. 1991) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Moving Defendants argue that plaintiff's declaratory judgment claim should be dismissed because (1) the claim is precluded by this Court's Prior Order under the doctrine of collateral estoppel, res judicata, or law of the case, (2) plaintiff does not have a right, under New York's Business Corporation Law, to annul or dissolve a corporation for failure to comply with corporate form requirements, (3) New York's no-fault law does not permit an insurer to refuse to pay a benefits claim by challenging (I) a professional service corporation's facially valid license, (ii) the lawfulness of a licensed physician's provision of medical services based on the physician's employment by a professional service corporation with an unlawful, although facially valid, license, or (iii) a professional service corporation's compliance with the fee schedules based on the unlawfulness of the corporation's facially valid license, (4) insofar as plaintiff's claim relates to benefits claims submitted over 30 days before plaintiff filed its Complaint, it is time barred.
Not all the Moving Defendants make each of these arguments. Nonetheless, because the reasoning underlying each of these arguments applies equally to all PC Defendants, I construe each motion to dismiss as raising all of these arguments.
As both Moving Defendants and plaintiff note, plaintiff's Complaint is very similar to plaintiff's Prior Complaint. Because this Court dismissed the Prior Complaint for failure to state a claim, it is necessary to consider what sort of preclusive effect the Prior Order has on Moving Defendants' motions. The doctrine of the law of the case, rather than res judicata or collateral estoppel, applies in a case, such as this one, where there has been no final judgment. 18B Charles Alan Wright et al., Federal Practice Procedure § 4478 (2d ed. 2002). The doctrine of the law of the case states that, "when a court has ruled on an issue, that decision should generally be adhered to by that court in subsequent stages in the same case." United States v. Uccio, 940 F.2d 753, 758 (2d Cir. 1991) (citing Arizona v. California, 460 U.S. 605, 618 (1983)). Courts should adhere to their own prior rulings in a given case "absent cogent or compelling reasons" to deviate, such as "an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Id. (internal quotations and citations omitted). Courts may, in their discretion, alter the law of the case where an intervening change in controlling law has occurred. See Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 5 (2d Cir. 1996). A dismissal without prejudice for failure to state a claim may have a binding effect on later motions to dismiss "'so long as the determination being accorded preclusive effect was essential to the dismissal.'" Washinqton v. Sheinberg, No. 95 Civ. 897, 1996 WL 118557, at *3 (E.D.N.Y. 1996) (quoting Deutsch v. Flannery, 823 F.2d 1361, 1364 (9th Cir. 1987)); see also Morley v. Ciba-Geigy Corp., 66 F.3d 21 (2d Cir. 1995) (holding that submitting an amended complaint with a request for damages that the court had previously held were unavailable was sanctionable under Rule 11 as frivolous).
Plaintiff argues that amendments to the no-fault regulations that became effective after this Court's Prior Order, along with federal decisions, state decisions, and arbitration rulings that were issued after the Prior Order, provide a compelling reason for this Court to alter the legal determinations made in the Prior Order. Central to plaintiff's argument are the changes to the no-fault regulations described above. The New York Court of Appeals has stated that interpretations of New York's Insurance Law set forth in regulations issued by the Superintendent on behalf of the DOI, "if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision." N.Y. Pub. Interest Research Group, Inc. v. N.Y.S. Dep't of Ins., 66 N.Y.2d 444, 448 (1985). Accordingly, while a change in the no-fault regulations would not itself constitute a "change in controlling law," a new interpretation issued by the Superintendent could represent a compelling reason to exercise my discretion to alter the law of the case.
Plaintiff argues that, by specifying that a "provider of health care services is not eligible for reimbursement . . . if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York," the Superintendent announced that insurers may decline to pay a benefits claim whenever the provider has acted in a manner that would render any license required for operating a health care service invalid under New York law. In support of this interpretation, it quotes the DOI's notice statement that this regulatory language "has been added to clarify that a health care provider must be properly licensed to be eligible for reimbursement under no-fault." Moving Defendants argue that this new regulatory language does not authorize insurers to deny claims based on challenges to a facially valid license.
The regulatory language itself does not resolve this interpretive dispute, and the DOI's notice statement does not clarify the ambiguity. Requiring health care providers to be "properly licensed" and "meet any applicable . . . licensing requirements" before they are eligible for reimbursement could be reasonably interpreted as a requirement that health care providers have all the licenses that are required under state law for professional service corporations that provide health care services to individuals insured under no-fault law. This language could also be reasonably interpreted as requiring health care providers to meet every precondition for every license that professional service corporations providing health care services are required to have under state law. Furthermore, it is unclear whether this regulatory licensing requirement is intended to authorize insurers to deny benefits claims on the basis of violations of the requirement.
When resolving a dispute over the interpretation of a New York statute, a federal court must "endeavor to predict how the highest court of the state" would resolve the issue. U.S.E. Telecomms., Inc. v. U.S.W. Communications Servs., Inc., 38 F.3d 1289, 1296 (2d Cir. 1994). While the New York Court of Appeals has not addressed the precise issue before me, it has set forth in some detail how conflicting interpretations of New York's Insurance Law and no-fault regulations should be resolved. See, e.g., Presbyterian Hosp. in the City of New York v. Md. Cas. Co., 90 N.Y.2d 274 (1997) Aetna Life and Cas. Co. v. Nelson, 67 N.Y.2d 169 (1986). The Court of Appeals has observed that "the no-fault law does not codify common-law principles; it creates new and independent statutory rights and obligations in order to provide a more efficient means for adjusting financial responsibilities arising out of automobile accidents." Aetna Life, 67 N.Y.2d at 175 (citing Montgomery v. Daniels, 38 N.Y.2d 41, 45 (1975)). Accordingly, the Court of Appeals has refused to read rights or obligations that were not expressly created by the legislature or the Superintendent into the no-fault law or regulations:
The interpretive canon of inclusio unius, exclusio alterius helps us to conclude that had the Superintendent or Legislature intended to [limit the express preclusion of a remedy], they would have done so . . . expressly in order to avoid the anomalies and confusion that would otherwise ensue — as demonstrated in this very case. Analogously, we have noted that "the failure of the Legislature to include a matter within a particular statute is an indication that its exclusion was intended."Presbyterian Hospital, 90 N.Y.2d at 284-85 (quoting Pajak v. Pajak, 56 N.Y.2d 394, 397 (1982)). Additionally, the Court of Appeals has noted that "No-fault reform was enacted to provide prompt, uncontested first-party insurance benefits." Id. at 285; see also Aetna Life, 67 N.Y.2d at 176 ("One of the primary purposes of the No-Fault Law is to guarantee immediate compensation for basic economic loss, including lost wages and medical expenses, to persons injured in automobile accidents."). Thus, "part of the price paid to eliminate common-law contested lawsuits" is limiting insurers' ability "to contest ill-founded, illegitimate and fraudulent claims [to] a strict, short-leashed contestable period and process designed to avoid prejudice and red-tape dilatory practices." Id.
The "strict process" for contesting illegitimate and fraudulent claims is set forth in § 5106 of New York's Insurance Law and § 65-3 of the Current Regulations. As I noted in the Prior Order, "Section 5106 of the no-fault law and the regulations pursuant thereto provide thirty days within which an insurer must either pay or deny a claim for benefits." (Prior Order at 6.) An insurer that believes there is some grounds for denying a benefits claim must request "verification" of the claim within ten days of receiving the claim by "forward[ing] . . . those prescribed verification forms it will require prior to payment of the initial claim.'" ( Id. at 7 (quoting Prior Regulations § 65.15(d)(1) (corresponding to 11 N.Y.C.R.R. § 65-3.5(a)).) "Subsequent to the receipt of one or more of the completed verification forms, any additional verification required by the insurer to establish proof of claim shall be requested within 15 business days of receipt of the prescribed verification forms." 11 N.Y.C.R.R. § 65-3(b).
Plaintiff's interpretation of the no-fault regulations would create for the insurer a right to deny benefits claims by asserting that a health care provider was unlicensed or that there was some justification under state or local law for denying the health care provider's license. This, in turn, would create an obligation on the health care provider to provide the insurer with proof of compliance with every prerequisite to holding the applicable state licenses in order to complete the "verification" of its claim. Such an obligation would directly undermine the no-fault law's purpose of providing prompt, uncontested first-party insurance benefits. The challenge that plaintiff now makes to defendants' compliance with licensing requirements is not the type of challenge that can be swiftly resolved by requesting "verification" information. Plaintiff is not basing its claim on allegations that PC Defendants or the physicians that provided services to plaintiff's insureds did not have the appropriate licenses required by law. Plaintiff's claims are based on allegations that, although the PC Defendants state in their certificates of incorporation that Licensed Defendants are the shareholders, directors, and officers of the PC Defendants, in fact the true ownership and control of the PC Defendants rests with Unlicensed and Chiropractor Defendants. (Compl. ¶ 20.) According to the Complaint, defendants conceal the identity of the true owners by feloniously filing false documents and refusing to file required documents with public agencies including the Department of Education and the Department of Health. ( Id. ¶¶ 20, 25.) Defendants allegedly concealed the true ownership of PC Defendants through a complex web of legal documents, including lease agreements, management fee agreements, security agreements assigning management and service fees, restrictions on Licensed Defendants' ability to transfer their shares in PC Defendants or compete with PC Defendants, and undated letters of resignation signed by Licensed Defendants. ( Id. ¶¶ 21-23) It is unlikely that such a scheme would be revealed in a verification form submitted by a professional service corporation controlled by individuals willing to feloniously deceive state agencies and able to conceal their actions through complex corporate structuring agreements. Thus, challenging benefits claims on the grounds upon which plaintiff currently relies would typically require a level of investigation into the corporate structure of health care providers that was not anticipated in the claim challenging process set forth in § 65-3 of the Current Regulations. Neither should it be thought that the type of challenge that plaintiff makes here would be infrequent. In this case alone, plaintiff challenges over 123,000 charges made in claims submitted by dozens of medical service providers. Permitting insurers to make the type of challenge plaintiff makes here could dramatically diminish the no-fault law's ability to quickly and efficiently provide uncontested insurance benefits.
Additionally, plaintiff references 67 other arbitration decisions and cases, some of which involved many claims, involving similar challenges to submitted no-fault claims. ( See Pl.'s Mem., App. A (collecting 67 no-fault arbitration decisions and cases).)
There are, moreover, myriad grounds for challenging the licenses of a professional service corporation. For example, a professional service corporation could fail to hold an annual meeting or pay the appropriate license renewal fees. Plaintiff's interpretation of the regulations would permit insurers to demand information about compliance with any and all such requirements before paying benefits. Taken to a logical extreme, an insurer could question a provider about whether all of its owners and physicians have been making their child support payments, because failure to pay child support in New York triggers the revocation of professional licenses under Domestic Relations Law § 244-c.
Adopting plaintiff's interpretation of the Current Regulations would be contrary to the reasoning in Presbyterian Hospital, where the New York Court of Appeals refused to adopt an interpretation of the no-fault regulations that "would materially frustrate the purposes and retard the goals of the speedy payment objective of the No-Fault Law. Those goals, a driving force behind both the no-fault and liability coverage insurance laws, focus on avoiding prejudice to insureds by providing for prompt payment or disclaimers of claims." 90 N.Y.2d at 284. The Court of Appeals concluded as follows:
If more harmony and clarity are to be achieved, we earnestly invite the Legislature to study and remedy the Rube-Goldberg-like maze. In the meantime, we discern no justification for penalizing injured parties or their provider assignees by recognizing disincentives against prompt attention and action for otherwise valid, first-party insurance payment claims.Id. at 286. Similarly, I am reluctant to undermine the legislative goal of speedy payment in order to permit insurers such as plaintiff to avoid paying licensed medical service providers for medically necessary services provided to insured individuals by licensed physicians. Accordingly, the recent changes in the no-fault regulations do not provide a compelling reason for abandoning the holding set forth in the Prior Order that an insurer may not refuse to pay a benefits claim based upon an allegation that the provider has a true owner, unlisted on the provider's certificate of incorporation, who does not possess a license to practice medicine.
Neither am I persuaded to alter this holding based upon the recent decisions cited by plaintiff. Plaintiff repeatedly refers to "67 decisions by no fault-arbitrators, master no-fault arbitrators and state courts which have squarely held that assignee providers of service like the PC Defendants must be lawfully licensed and operating within the lawful scope of such licenses to be eligible for No-Fault benefits." (Pl.'s Mem. at 3; see also id. at 21, 41.) of these 67 decisions, 48 were issued before the Prior Order. The decisions that preceded the Prior Order cannot create a change of law justifying setting aside the law of the case. Moreover, in the Prior Order I considered the existing decisions that plaintiff cites as directly supporting its position. ( See Prior Order at 31-32 n. 12.)
Of the remaining decisions, plaintiff cites seven in support of its claim for declaratory relief. Three of these decisions are arbitration awards made by the American Arbitration Association, rather than a state or federal court. See In re Kew Forest Med. P.C./Rafael Yakubov and Allstate Ins. Co., AAA Case No. 17 991 15553 1 (Mar. 2002) (Ritzer); In re N. Bronx Med. P.C./Mirella Pinela and Allstate Ins. Co., AAA Case No. 17 990 25845 0 (Dec. 2001) (Insdorf); In re N. Bronx Med. P.C./Paulette Cleckley and Allstate Ins. Co., AAA Case No. 17 991 15890 1 (Dec. 2001) (Ritzer). These decisions do not qualify as new controlling law and do not purport to announce any new law or rely upon any new section of the no-fault regulations.
Having considered these arbitration awards for their persuasive value, I do not find that they provide compelling support for reversing my prior ruling. Insdorf bases her award on the reasoning offered in an earlier arbitration decision by Jackie Gallers in which Gallers reasoned that "to maintain the integrity of the No-fault system it is essential that the arbitration forum resolve questions of licensing and ownership of medical facilities to insure that the general public is being treated by those practitioners who are duly licensed and certified by the State of New York." In re N. Bronx Med. P.C./Mirella Pinela, AAA Case No. 17 990 25845 0, at 3 (quoting N. Bronx Med. a/a/o Nazmul. Alam and State Farm Ins. Co., AAA Case No. 17 991 65850 00). The two decisions authored by Ritzer also rely primarily on the reasoning in Gallers' arbitration award, although they only explicitly hold that the no-fault regulations "mandate that no-fault arbitrators deny payment to an unlicensed provider" and do not address the issue of whether insurers may refuse to pay licensed providers by challenging their facially valid licenses. In re Kew Forest Med. P.C./Rafael Yakubov and Allstate Ins. Co., AAA Case No. 17 991 15553 1, at 2-3 (emphasis added); see also In re N. Bronx Med. P.C./Paulette Cleckley and Allstate Ins. Co., AAA Case No. 17 991 15890 1, at 2-3. As stated above, where, as here, there is no allegation that the treatment being offered to the general public is unnecessary or deficient and there is no allegation that the physician providing treatment is unlicensed or is even employed by an unlicensed professional service corporation, there is little threat to the general public. The threat of having competent, properly licensed physicians employed by unlawfully licensed professional service corporations providing necessary medical care to injured individuals is more than offset by the risk of "penalizing injured parties or their provider assignees" by permitting insurers like plaintiff to substantially delay payment of thousands of otherwise valid claims. Presbyterian Hosp., 90 N.Y.2d at 284. Furthermore, even were I to be persuaded that the position advocated by plaintiff is a better policy for the general public, I would be unwilling to step in and create a substantial set of new rights and obligations for insurers and medical service providers in the absence of a clear mandate from the legislature or the Superintendent.
The remaining four decisions cited by plaintiff are New York State Supreme Court decisions. Two of these decisions, State Farm Ins. Co. v. North Bronx Medical, P.C., No. 117539/01 (Sup.Ct. Jan. 17, 2002), and State Farm Ins. Co. v. North Bronx Medical, P.C., No. 118995/01 (Sup.Ct. Mar. 20, 2002), were made in proceedings to confirm arbitration awards. In such a proceeding, the court's review is limited to determining whether the award lacked a rational basis or was arbitrary and capricious. Petrofsky v. Allstate Ins. Co., 54 N.Y.2d 207, 211 (1981). As Justice Wetzel stated in State Farm, No. 117539/01, it is irrelevant in such a proceeding whether the arbitrator was mistaken about New York's no-fault law, so long as the overall award had some rational basis and was not arbitrary or capricious. No. 117539/01, slip op. at 2 (citing Motor Vehicle Accident Indemnification Corp. v. Aetna Cas. Insurity Co., 89 N.Y.2d 214 (1996)). Even if these decisions were in some way binding on this Court, they would have no precedential value on Moving Defendants' motions. Moreover, these two decisions lack persuasive value. Justice Wetzel's decision concludes that the Prior Order is "in conflict with the established law in the New York State Courts," but fails to support this conclusion by citing any section of New York's no-fault law or citing a single decision made by a New York State court. Id. The other arbitration confirmation decision cited by plaintiff, State Farm, No. 118995/01, is a judgment confirming eight arbitration awards, issued in response to an unopposed petition to confirm these awards submitted to the court by plaintiff State Farm. It also fails to cite the no-fault law or any state decision.
This is the only New York State court decision cited by plaintiff that mentions the Prior Order.
The remaining two cases, Advanced Care of New York, Inc. v. Friscia, No. 32528/99 (Sup.Ct. Feb. 22, 2000), and Kew Forest Medical, P.C. v. Progressive Insurance Co., No. 9568/01 (Sup.Ct. Mar. 21, 2002), are also distinguishable. In Advanced Care, the medical service provider did not possess a license and was seeking to enforce an illegal fee-splitting agreement with a licensed physician. No. 32528/99, slip op. at 8. In this case, PC Defendants do possess licenses and are not attempting to enforce fee splitting agreements or any other illegal contractual arrangement. In Kew Forest, a plaintiff professional service corporation sought a declaratory judgment claim that (1) a Dr. Kogan was the plaintiff's actual owner, (2) the plaintiff is properly licensed under New York law, (3) it can pursue claims for services actually rendered to insured individuals from whom lawful assignments were obtained, and (4) matters relating to its ownership are not arbitrable. The plaintiff also sought a permanent injunction enjoining certain insurers from raising defenses in arbitration or judicial actions based on the assertion that Dr. Kogan is not the plaintiff's real owner. Justice Dye dismissed the complaint on three grounds: (1) there is insufficient evidence for the court to make a declaration regarding whether Dr Kogan was the plaintiff's actual owner; (2) having elected to arbitrate no-fault claims, the plaintiff may not challenge the arbitrator's determination of whether the plaintiff is lawfully authorized to bill for no-fault services under New York State law; (3) the determination of whether the plaintiff will be eligible to seek payment of claims it has not yet filed is better made by an arbitrator or court after the claim is filed. Kew Forest, No. 9568/01, slip op. at 9-11. None of these rationales support plaintiff's interpretation of no-fault law.
In addition to the state court decisions and arbitration awards issued after the Prior Order, plaintiff, as well as Moving Defendants, rely on two federal district court decisions that discuss the Prior Order. In Universal Acupuncture Pain Services v. State Farm Mutual Automobile Insurance Co., 196 F. Supp.2d 378 (S.D.N.Y. 2002), Judge Scheindlin concluded that, under New York State law, an insurer may not state a claim for fraud or unjust enrichment against a medical service provider based on allegations that the medical service provider concealed, in violation of the BCL, that it is actually owned by an unlicensed individual. Id. at 387. She rejected State Farm's argument that there is an implied right of action under the BCL, as well as State Farm's argument that, even absent an implied right of action under the BCL, it could sue a medical service provider for common law fraud based on the injury it suffered from the provider's false representations regarding its ownership. Id. at 386-87. In rejecting the latter theory, Judge Scheindlin reasoned that "State Farm has lost no benefit, nor suffered an injury, that exists independently of [the provider's) violation of [the BCL]." Id. at 387. She also referred to the body of "state court and arbitral opinions cited by State Farm" but was not persuaded that these decisions supported the conclusion that an insurer could "prosecute [a medical service provider's] violation of the [BCL]." Id. at 386 n. 11. Judge Scheindlin did not decide whether a medical service provider with a facially valid, but unlawful, license could sue for no-fault benefits assigned to it by an insured individual. Accordingly, Universal does not support plaintiff's interpretation of no-fault law and explicitly rejects plaintiff's position that an insurer may recover no-fault benefit payments made to medical service providers based on the unlawfulness of the providers' licenses.
Plaintiff also cites several cases discussing other states' insurance regulations. See, e.g., Allstate Ins. Co. v. Northfield Med. Ctr., No. MRS-L-3228-9 (N.J.Super.Ct. Law Div. Apr. 27, 2001) (New Jersey law); Material Damage Adjustment Corp. v. Open MRI of Fairview, No. HUB-L-1941-00 (N.J. Super Ct. Mar. 8, 2002) (same); Diagnostic Imaging Ctr. of N.J., Inc. v. State Farm Mut. Ins. Cos., No. MON-L-3550-00 (N.J.Sup.Ct. Mar. 26, 2002) (same); Allstate Ins. Co. v. Receivable Fin. Co., No. 3-01-CV-2247-M (N.D. Tex. Jan. 25, 2002) (Texas law). As I stated in the Prior Order, cases that do not discuss New York's no-fault law are inapt because those decisions can shed little light on "New York's statutory and regulatory 'maze' of a No-Fault scheme." (Prior Order at 33 n. 12 (quoting Presbyterian Hosp., 90 N.Y.2d at 286).)
While Judge Scheindlin did express the opinion that the Prior Order "is now in conflict with several state court rulings and a growing number of arbitral decisions," 196 F. Supp.2d at 386, she did not decide whether the state court rulings and arbitral decisions were the correct interpretation of state law. See id. at 388 (observing that the medical service provider with an unlawful license ("may not have been liable" for the reimbursement of benefits claims).
Plaintiff also argues that its interpretation of the Current Regulations is supported by Judge Wexler's decision in Great South Bay Medical Care, P.C. v. Allstate Insurance Co., 204 F. Supp.2d 492 (E.D.N.Y. 2002). In Great South Bay, a medical service provider brought claims for defamation, breach of contract, unjust enrichment, and fraud against an insurer. Judge Wexler dismissed the claim on abstention grounds. He considered the Prior Order in the context of determining whether state or federal law provides the rule of decision on the merits, one of six abstention factors he discussed. See 204 F. Supp.2d at 497-99. Judge Wexler correctly observed that the Prior Order did not alter the fact that the disputed issues concerned state law and that, therefore, this factor weighed in favor of abstention. Id. at 498-99 ("[I)n view of the fact that forum shopping is not to be encouraged, the presence of an arguably favorable federal court decision on a matter of state law has little or no bearing on the abstention decision."). He also noted that the Prior Order is distinguishable from Great South Bay because in Great South Bay the insurer's "allegations of improper and fraudulent billing . . . are broader than the allegations of impropriety set forth in [the Prior Order)." Id. at 499. For example, the insurer in Great South Bay alleged that the medical service provider "billed at higher rates for non-medical services and that unnecessary procedures were performed." Id. I agree with Judge Wexler that these cases are distinguishable and conclude that his explicit refusal to consider whether the Prior Order is a correct statement of New York law supports neither party in this case. See id. ("While [the Prior Order) may or may not be "the ultimate interpretation of state law by the courts of that state, its application here would not be dispositive.").
Having considered the legal developments that have occurred since the issuance of the Prior Order, I conclude that there has been no intervening change in the controlling law that provides a compelling reason for reversing my ruling that an insurer may not refuse to pay a benefits claim based upon an allegation that the provider has a true owner who does not possess a license to practice medicine.
Plaintiff argues that, even if the no-fault law has not changed, the Complaint contains new allegations that bring the Complaint outside the law of the case. specifically, plaintiff alleges that (I) the individuals who purportedly rendered the services in question did so outside the lawful scope of their licenses; (ii) PC Defendants' charges were not authorized by the Fee Schedules; and (iii) the charges were illegal, against public policy, and unenforceable under New York law generally. In fact, these are not new factual allegations at all, but, rather, new legal arguments in support of plaintiff's central claim that the (previously alleged) fact that PC Defendants were actually owned by individuals without licenses justifies plaintiff's refusal to pay benefits claims submitted by PC Defendants. Such arguments, which were not presented to this Court before the Prior Order issued, could not have been presented in a motion for reconsideration or reargument. See Randell v. United States, 64 F.3d 101, 109 (2d Cir. 1995). Courts in the Second Circuit are reluctant to permit parties such as plaintiff to avoid both the filing deadlines of a motion for reconsideration and the legal requirements of such a motion by disguising such a motion as an amended pleading or as another motion. See Church of Scientology Int'l v. Time Warner, No. 92 Civ. 3024, 1997 WL 538912, at *3 (holding that a movant may not avoid the strictures of filing requirements for reconsideration motions through artful drafting and listing cases in which courts have treated such motions as motions for reargument). However, in the interest of reaching a fully informed decision, I exercise my discretion to consider these new arguments. See Arizona v. California, 460 U.S. 605, 618 (1983) ("Law of the case directs a court's discretion; it does not limit the tribunal's power."); Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 815 (1988) ("A court has the power to revisit prior decisions of its own . . ., although as a rule courts should be loath to do so in the absence of extraordinary circumstances.").
Plaintiff argues that it is justified in refusing to pay the benefits claims submitted by PC Defendants because the physicians who provided medical services to plaintiff's insureds were acting outside the scope of their licenses. This argument attempts to bring plaintiff's claims within the language of the Current Regulations, which state that "professional health services should be necessary for the treatment of the injuries sustained and within the lawful scope of the licensee's practice." 11 N.Y.C.R.R. § 65-3.16(a)(6); see also Prior Regulations at § 65.15(o)(1). However, plaintiff does not allege that the medical services provided were outside the scope of the physicians' licenses, but rather that the physicians acted outside the scope of their licenses by aiding and abetting the Unlicensed and Chiropractor Defendants in their scheme to own and control licensed professional service corporations in violation of the BCL and thereby derive economic benefit from illegitimate charges. Plaintiff's view that the Superintendent intended to create a right to deny payment of benefit fees based on the assertion that the treating physician has facilitated the violation of the BCL distorts the Superintendent's clear intent to only allow physicians licensed to perform a certain kind of treatment to perform that treatment. For example, a licensed chiropractor performing dental surgery would be performing treatment outside the scope of the chiropractor's license. Plaintiff has cited no cases directly supporting its strained reading of the no-fault regulations. Rather, plaintiff supports its interpretation by citing cases involving physicians who were disciplined by the State of New York for engaging in professional misconduct. See, e.g., Necula v. Glass, 231 A.D.2d 457 (N.Y.Sup.Ct. 1996); Okere v. State of New York, 129 A.D.2d 373 (N.Y.Sup.Ct. 1987); Pomerantz v. New York State Dep't of Social Servs., 228 A.D.2d 242 (N.Y.Sup.Ct. 1996). As I stated in the Prior Order, this is precisely the avenue for discipline that the New York legislature intended when it drafted the BCL. ( See Prior Order at 27-28; see also id. at 8 (quoting the requirement set forth in N.Y. Ins. Law. § 5108(c) that "[e]very insurer report to the commissioner of health any patterns of . . . improper actions by a health provider within thirty days after such insurer has knowledge of such a pattern").) These cases do not imply that plaintiff has a private right of action to enforce the BCL or that plaintiff may deny benefits claims on the basis of physicians' alleged facilitation of BCL violations. Furthermore, such an interpretation would undermine the central purpose of the no-fault regulations and the interpretive approach to the no-fault regulations set forth by the New York Court of Appeals, as described in detail above, by permitting insurers to delay the payment of claims by alleging that the licensed physicians providing treatment engaged in some sort of professional misconduct, even if completely unrelated to the treatment provided to the insured. Accordingly, I am unpersuaded by this argument to alter the law of the case.
For the same reason, plaintiff's argument that defendants' provision of medical services is unlawful because PC Defendants are de facto diagnostic and treatment centers ("DT Centers") operating without the special licenses required for DT Centers provides no independent basis for concluding that plaintiff is permitted to deny PC Defendants' benefits claims by alleging that Licensed Defendants are not PC Defendants' true owners.
Plaintiff also argues that it is justified in refusing to pay the benefits submitted by PC Defendants because the charges submitted by PC Defendants were not authorized by the Fee Schedules. Section 5108 of the New York Insurance Law states that charges for health care services may not exceed the fees set forth in the Fee Schedules promulgated by the Superintendent. The Fee Schedules set forth the amount that medical service providers may charge for certain services. In certain cases the amount that providers may charge varies depending on the type of license held by the service provider. For example, a licensed chiropractor cannot charge as much for a hot pack, diathermy, and ultrasound as can a licensed physician. Plaintiff argues that the Fee Schedules do not authorize any charges for services provided for unlicensed medical service providers, and therefore the charges submitted by PC Defendants violate the Fee Schedules. Plaintiff has not alleged that PC Defendants are unlicensed, much less that the individuals providing treatment to its insureds are unlicensed. Furthermore, plaintiff cites no decision by any court in support of its view that § 5108 and the Fee Schedules expand insurers' right to challenge professional service corporations' adherence to state licensing requirements. This argument is simply another version of the argument discussed at length above that this Court should create a right for insurers to deny claims by challenging a facially valid license, except without any supporting citations to regulations, case law, or arbitration decisions. For the reasons provided at length in the section above, as well as the complete lack of any support for the significance plaintiff attributes to the Fee Schedules, I am unpersuaded that defendants violated the Fee Schedules or that a violation of this sort would permit plaintiff to deny the benefits claims of its insureds.
The only decision plaintiff cites in support of its interpretation of the scope of the Fee Schedules is Queens Spinal Testing Rehab a/a/o Joseph Cohen and GEICO, No. 5378/95 and 5385/95 (N.Y.Sup.Ct. Apr. 4, 1997), where the court refused to permit a corporation without a physical medicine license to submit charges for physical medicine services that were provided by a physician that was not employed by that corporation. Unlike the professional service corporation in Queens Spinal Testing, the PC Defendants are licensed to perform the services for which plaintiff is charged and do employ the treating physicians.
The final new argument offered by plaintiff is a catch-all argument that it is justified in refusing to pay the benefits claims submitted by PC Defendants because the charges "were illegal, against public policy and unenforceable under New York law generally." (Pl.'s Mem. at 4.) In support of this argument plaintiff cites dozens of decisions in which New York State courts have refused to enforce contracts that violate statutory provisions that are intended to protect public health and safety. First of all, as I noted in the Prior Order, the New York Court of Appeals has made clear that "[a]llowing parties to avoid their contractual obligation is especially inappropriate where there are regulatory sanctions in place to redress violations of the law." Lloyd Capital Corp. v. Pat Henchar, Inc., 80 N.Y.2d 124, 128 (1992). There are already mechanisms in place for New York State to redress violations of the BCL. Second, unless the violation at issue is malum in se and unless public policy mandates otherwise, a contract in violation of a statute should be enforced. See id.; see also Benjamin v. Koeppel, 85 N.Y.2d 549 (1995) (holding that a legal services contract is not void for failure of attorney to satisfy registration requirements) As I stated in the Prior Order, "[t]he violation at issue here is not evil in itself." (Prior Order at 36.) Third, and perhaps most significant, plaintiff is not asking the Court to invalidate a contract, but rather to make a declaratory judgment immediately affecting hundreds of thousands of charges submitted pursuant to a complex statutory scheme that the New York Court of Appeals has unanimously described as a "Rube-Goldberg-like maze." Presbyterian Hasp., 90 N.Y.2d at 286; id. at 287 (dissenting opinion). Here there is no contract to invalidate, but, rather, a body of statutory and regulatory law that creates a complex set of rights and obligations for insurers and medical service providers. If neither the state legislature nor the Superintendent has chosen to alter this scheme to address the public policy issues that concern plaintiff, "New York law generally" certainly does not authorize this Court to "invalidate" New York's no-fault law for public policy reasons.
Plaintiff has alleged no deficient treatment of patients or submission of charges for treatment that was unnecessary or not performed and has given the Court no reason to believe that ownership of PC Defendants by non-physicians is evil in itself. Furthermore, the federal Health Care Financing Administration ("HCFA") has concluded that the participation of non-physicians in the ownership and management of medical service providers may enhance, rather than undermine, the ability of professional corporations to provide quality medical care. This conclusion was set forth in a notice published by the Department of Health and Human Services discussing why new regulations promulgated by the HCFA permitted entities with corporate structures similar to PC Defendants to qualify as "group practices" under Section 1877 of the Social Security Act and, thus, share in profits from designated health services provided under the Medicare program. 66 Fed. Reg. 856 (Jan. 4, 2001). The HCFA noted that sometimes "management companies . . . [or] for profit corporations . . . form a 'captive' or 'friendly' professional corporation with one physician owner who holds the ownership rights to the professional corporation in trust for the corporation." Id. at 899. In the scenario described by the HSCFA, "[t]he friendly corporation directly employs physicians who then form the group practice. The corporation manages the business of the group practice, with the sole physician shareholder acting primarily as a 'figurehead.'" Id. The HCFA observed that such structures were sometimes necessary to comply "with State laws governing the corporate practice of medicine" and concluded that, "[s]ince we have amended the group practice definition to cover groups that consist of one physician owner and one or more physician employees, we believe [such] 'captive' or 'friendly' professional corporations . . . can both meet our definition [of 'group practice' I and comply with corporate practice of medicine requirements." Id. The HCFA also stated that the amendments to the group practice definition were necessary "to minimize . . . regulatory intrusiveness" and avoid the risk of intruding "too far into the business and financial operations of physician practices, and chill[ing] group practice integration that is crucial in an increasingly managed care environment." Id. at 895.
Thus, not only does the HCFA not believe that involvement of unlicensed corporations in the management of medical service providers is evil in itself, it amended its definition to permit such structures. Moreover, the HCFA's comments suggests that not all states impose the corporate structure requirements that are imposed by New York's BCL. The HCFA's conclusion that non-physician ownership of medical service providers is not malum in se accords with Judge Scheindlin's conclusion that "good conscience" entitles medical service providers who violate the BCL, but provide medically necessary services through licensed physicians "to retain the money paid for services rendered." Universal Acupuncture, 196 F. Supp.2d at 388.
Plaintiff has provided no compelling reason to depart from my ruling in the Prior Order. Accordingly, to the extent that plaintiff seeks, in claim one, a declaration that neither State Farm nor patients who purportedly receive professional health care services from the PC Defendants is obligated to pay for such services and an injunction enjoining the PC Defendants from submitting to State Farm any unlawful request for payment for any professional health care service, and initiating or prosecuting against State Farm any other legal proceedings, including arbitration proceedings, seeking payment for such services, its claim fails as a matter of law. I also decline to entertain plaintiff's request for a declaration that the PC Defendants fraudulently obtained from the DOE their certificates of authority and failed to adhere to New York laws governing their authority to provide the services, that the PC Defendants were de facto diagnostic and treatment centers operating without the requisite license, that the services were rendered outside the lawful scope of the practices of the licensed physicians and other health care professionals who purportedly rendered them, that the charges submitted by the Unlicensed and Chiropractor Defendants in the names of the PC Defendants were not authorized by the Fee Schedules, and that the charges submitted by the Unlicensed and Chiropractor Defendants in the names of the PC Defendants were void, illegal and against public policy, unenforceable and non-compensable under New York law generally and the no-fault laws. Such a declaration, even if provided, would not "'serve a useful purpose in clarifying and settling the legal relations in issue [or] . . . terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.'" (Prior Order at 33 (quoting Broadview Chem. Corp. v. Loctite Corp., 417 F.2d 998, 1001 (2d Cir. 1969)).)
Having adhered to my earlier ruling that under New York law plaintiff may not refuse to pay the benefits claims submitted by PC Defendants based upon the allegations made in this action, plaintiff's claims for fraud and unjust enrichment are barred under the law of the case. As I reasoned in the Prior Order, plaintiff's fraud claim "faile[s] because the alleged misrepresentations and concealed facts are not material to the claims submitted to plaintiff [and) plaintiff was not damaged by its payment of claims that it was required to pay." (Prior Order at 34.) Plaintiff's unjust enrichment claim fails because "[i]t is not against equity and good conscience to permit the PC Defendants to retain the benefits they received from plaintiff." (Prior Order at 35.) "Accepting plaintiff's allegations as true, plaintiff has done no more than pay claims it was required by law to pay." ( Id.) Plaintiff's claims against Moving Defendants are, therefore, dismissed with prejudice, and it is unnecessary to consider Moving Defendants' other arguments for dismissing the Complaint.
As one of its two reasons for submitting claims in the Complaint that "are similar to those in the [Prior Complaint]," plaintiff states that it "seeks to preserve the claims for appeal" (Pl.'s Mem. in Opp. to Motions for Sanctions at 4) and states that "'a dismissal with leave to replead is not a final order that is immediately appealable.'" ( Id. at 9 (quoting Stern v. Leucadia Nat'l. Corp., 844 F.2d 997, 1004 (2d Cir. 1988)).) In order to permit plaintiff to appeal the dismissal of the Complaint, I dismiss the Complaint with prejudice.
Motions for Sanctions
The motions for Rule 11 sanctions address the decision made by plaintiff's counsel to file an amended complaint that, under this Court's prior rulings, fails to state a claim. Rule 11 states in pertinent part:
By presenting to the court . . . a pleading . . . an attorney . . . is certifying that to the best of [his or her) knowledge, information and belief, formed after an inquiry reasonable under the circumstances, . . . it is not being presented for any improper purpose such as to harass or to cause unnecessary delay or needless increase in the cost of litigation [and) the claims . . . are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.
. . . .
If . . . the court determines that [the attorney's certification does not comply with these requirements), the court may . . . impose an appropriate sanction upon the attorneys, law firms, or parties that [violated these requirements] or are responsible for the violation.
There can be little doubt that filing the Complaint increased the cost of this litigation. The memoranda of law submitted in connection with the motions to dismiss the Complaint contain over 250 pages of legal argument, supplemented with thousands of pages of appendixes and other submissions. Furthermore, in certain circumstances, federal courts have imposed sanctions where parties submit motions that are "utterly baseless" because of the law of the case. See Fonar Corp. v. Magnetic Resonance Plus, Inc., 935 F. Supp. 443, 450 (S.D.N.Y. 1996). The Second Circuit has even upheld the imposition of sanctions on parties who submit motions that are barred under the law of the case in cases where it held that the motion was justified by existing law. Virgin Atlantic Airways, Ltd. v. National Mediation Bd., 956 F.2d 1245, 1254-55 (2d Cir. 1992) (reversing the district court's denial of a motion to dismiss but upholding the imposition of sanctions on the moving party because the party re-filed the motion to dismiss based only on the argument that "its original motion had been 'reaffirmed' by intervening case law").
However, the legal argument underlying plaintiff's submission of the Complaint is not frivolous. In particular, plaintiff's argument that the Superintendent's issuance of a new body of no-fault regulations provided a compelling reason for the Court to alter the law of the case was not frivolous. This is not a case "where it is patently clear that a claim has absolutely no chance of success" and where "no reasonable argument can be advanced to extend, modify or reverse the law as it stands." Stern v. Leucadia Nat'l Corp., 844 F.2d 997, 1005 (2d Cir. 1988). Furthermore, sanctions are inappropriate because there is no independent evidence that plaintiff filed the Complaint for an improper purpose. See Kovian v. Fulton County Nat'l Bank and Trust Co., 857 F. Supp. 1032, 1042 (N.D.N.Y. 1994) (refusing to impose sanctions on the defendant, despite the fact that defendant's disguised motion for reconsideration was repetitive and, thus, barred by the law of the case, and failed to comply with the filing requirements for a motion for reconsideration, because "the record is devoid of evidence that [the attorney] raised his arguments in bad faith or for an improper purpose"). Accordingly, I decline to exercise my discretion to impose sanctions under Rule 11.
CONCLUSION
For the reasons stated above, the Moving Defendants' motions to dismiss are granted, and plaintiff's claims against the Moving Defendants are dismissed with prejudice. The motions for sanctions are denied.
The Clerk is directed to furnish a filed copy of the within to all parties and to the magistrate judge.
SO ORDERED.