united states district court for the district of new jersey · · 2013-11-09united states...

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

GOVERNMENT EMPLOYEES INSURANCE CO., GEICO INDEMNITY CO., GEICO GENERAL INSURANCE COMPANY AND GEICO CASUALTY CO.,

Plaintiffs,

vs.

MLS MEDICAL GROUP LLC and MARK L. SCHWARTZ, D.O. a/k/a MARK SCHWARTS, D.O.,

Defendants.

Civil Action No. 2:12-cv-07281-FSH-PS

Filed Electronically

Return Date: March 4, 2013

BRIEF IN SUPPORT OF DEFENDANTS MLS MEDICAL GROUP LLC

AND MARK L. SCHWARTZ, D.O.’S MOTION TO DISMISS THE

AMENDED COMPLAINT

WOLFF & SAMSON PC

One Boland Drive West Orange, NJ 07052 (973) 325-1500 Attorneys for Defendants

MLS Medical Group, LLC and

Mark L. Schwartz, D.O. On the Brief:

A. Ross Pearlson, Esq. Lindsay A. Smith, Esq.

Case 2:12-cv-07281-SRC-CLW Document 26-2 Filed 01/31/13 of 26 PageID: 455

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT .................................................................................................... 1

FACTS ................................................................................................................................ 3

A. Parties.......................................................................................................... 3

B. Allegations Regarding Purported Kickbacks.............................................. 4

C. Allegations Regarding Medical Claims ...................................................... 4

1. Initial Examinations and Diagnoses................................................ 5

2. NCVs, EMGs, and Follow-up Services .......................................... 5

3. Billing ............................................................................................. 6

D. The Complaint ............................................................................................ 7

E. Related Complaints..................................................................................... 8

LEGAL ARGUMENT.................................................................................................................... 8

I. THIS COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER GEICO’S CLAIM DISPUTES THAT ARE ALREADY THE SUBJECT OF PENDING PIP ARBITRATIONS ................................................................................................... 8

II. PLAINTIFFS’ ATTEMPTS TO RELITIGATE AND RECOVER FOR CLAIMS THAT WERE ALREADY THE SUBJECT OF AN ARBITRATION DETERMINATION ARE BARRED BY THE DOCTRINE OF COLLATERAL ESTOPPEL..................................................... 12

III. PLAINTIFFS HAVE FAILED TO SUFFICIENTLY PLEAD FRAUD WITH THE REQUISITE PARTICULARITY PURSUANT TO RULE 9(b) ................................................................................ 16

A. The Alleged Kickback Scheme................................................................. 16

B. RICO......................................................................................................... 19

C. Common Law Fraud, NJIFPA, and Unjust Enrichment ........................... 21

CONCLUSION............................................................................................................................. 22


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TABLE OF AUTHORITIES

Cases Page

Allstate Ins. Co. v. Sabato, 380 N.J. Super. 463 (App. Div. 2005) .......................................................................................9

Barker v. Barker, 346 N.J. Super. 558 (App. Div. 2002) .....................................................................................13

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).................................................................................................................20

CareOne, LLC v. Burris, Docket No. 10-cv-2309, 2011 WL 2623503 (D.N.J. June 28, 2011) ................................ 17-18

Delpome v. Travelers Ins. Co., Docket No. L-10020-11, 2012 WL 6632802 (N.J. App. Div. Dec. 21, 2012) ....................9, 12

District 1199P Health and Welfare Plan v. Janssen, L.P., 784 F. Supp. 2d 508 (D.N.J. 2011) .................................................................................... 17-18

Endo Surgi Center, P.C. v. Liberty Mut. Ins. Co., 391 N.J. Super. 588 (App. Div. 2007) .....................................................................................11

Habick v. Liberty Mutual Fire Insurance Company, 320 N.J. Super. 244 (App. Div.) certif. den., 162 N.J. 149 (1999).............................. 13-14, 16

Kozlowski v. Smith, 193 N.J. Super. 672 (App. Div. 1984) .....................................................................................15

Miltner v. Safeco Ins. Co. of Am., 175 N.J. Super. 156 (Law Div. 1980) ......................................................................................15

Orthopaedic Assocs. v. Dept. of Banking and Ins., 405 N.J. Super. 54 (App. Div. 2009) ................................................................................. 14-15

Poling v. K. Hovnanian Enterprises, 99 F. Supp. 2d 502 (D.N.J. 2000) ................................................................................ 16-17, 19

Robbins v. U.S. Foodservices, Inc., Docket No. 11-cv-4599, 2012 WL 3781258 (D.N.J. Aug. 30, 2012)......................................13

Sacharow v. Sacharow, 177 N.J. 62 (2003) ...................................................................................................................13

Silverstein v. Percudani, 2006 WL 3521892 (3d Cir. Dec. 6, 2006) ...............................................................................18


TABLE OF AUTHORITIES

Page

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State Farm Insurance Company v. Sabato, 337 N.J. Super. 393 (App. Div. 2001) ............................................................................... 11-12

State Farm Mut. Auto. Ins. Co. v. Molino, 289 N.J. Super. 406 (App. Div. 1996) ................................................................................. 9-11

Thompson v. Nienaber, 239 F. Supp. 2d 478 (D.N.J. 2002) ............................................................................................8

U.S. v. Kreimer, 609 F.2d 126 (5th Cir. 1980) ...................................................................................................19

United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)..............................................................21

STATUTES AND OTHER AUTHORITIES

18 U.S.C. § 1341............................................................................................................................17

18 U.S.C. § 1343............................................................................................................................17

N.J.S.A. 2A:23A-13.......................................................................................................................15

N.J.S.A. 39:6A-5.1.....................................................................................................................8, 11

N.J.S.A. 39:6A-5.1(c) .......................................................................................................... 9-10, 12

Fed. R. Civ. P. 7.............................................................................................................................11

Fed. R. Civ. P. 9(b) ................................................................................................................ Passim

Fed. R. Civ. P. 12(b)(1)..........................................................................................................2, 8, 12

Fed. R. Civ. P. 12(b)(6).......................................................................................................... Passim

N.J.A.C. 11:3-5.6(g) ......................................................................................................................15


PRELIMINARY STATEMENT

For years, Plaintiffs Government Employees Insurance Co., Geico Indemnity Co., Geico

General Insurance Company and Geico Casualty Co. (“GEICO”) have paid, settled and litigated

claims submitted by Defendants MLS Medical Group LLC and Dr. Mark. L. Schwartz, D.O. for

medical services provided to GEICO’s insureds in the statutorily mandated Personal Injury

Protection (“PIP”) arbitration forum. Indeed, notwithstanding the allegations GEICO makes

here -- that Defendants have purportedly engaged in a massive fraudulent scheme -- GEICO

continues to litigate the same issues of medical necessity and improper billing in these PIP

arbitrations it now raises in this lawsuit without so much as mentioning the word “fraud.”

Notably, GEICO has not sought a stay of these arbitrations pending this litigation despite its

contention in the Complaint that every one of Defendants’ claims is fraudulent.

It is readily apparent that this generic Complaint is nothing more than GEICO’s improper

attempt to circumvent the statutorily mandated PIP arbitration process by dressing up as “fraud”

and RICO what are, in reality, common PIP disputes, in order to find a more favorable forum in

federal court. GEICO is apparently dissatisfied with the results of these arbitrations, most likely

because Dispute Resolution Professionals (the “DRPs” or “arbitrators”) have consistently

determined these very same issues as to medical necessity and billing against it. As a result,

GEICO has brought this cookie cutter complaint, and numerous others just like it, against

Defendants and several other medical providers as part of a wave of litigation designed to

improperly invoke federal jurisdiction and remove these disputes from the statutory PIP

arbitration process through baseless and conclusory allegations of fraud.1

1Since 2010, GEICO has filed over three dozen cases in this District, the Eastern District of New York and the Western District of New York making virtually identical allegations to those asserted here. In each of those cases, which assert claims of fraud, RICO and unjust enrichment,


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GEICO, however, cannot invoke this Court’s jurisdiction with respect to its request for a

declaratory judgment that it does not have to pay Defendants’ pending claims (Count I).

Specifically, pursuant to Federal Rule of Civil Procedure 12(b)(1), this Court lacks jurisdiction

over the claims pending in arbitration because Defendants have properly elected the statutorily

prescribed and mandated PIP arbitration process to resolve the exact same issues that purportedly

form the basis of Plaintiffs’ fraud-based claims. GEICO’s efforts to cloak its allegations in fraud

does not alter the fact that arbitration is the proper forum for resolution of these claims.

Moreover, the vast majority of paid claims for which GEICO now seeks reimbursement

through its causes of action under New Jersey Insurance Fraud Prevention Act (“NJIFPA”)

(Count II), Racketeer Influenced and Corrupt Organizations Act (“RICO”) (Count III), common

law fraud (Count IV) and unjust enrichment (Count V) have already been litigated by the parties

and paid by GEICO pursuant to binding arbitration decisions that necessarily involved the same

issues of medical necessity and improper billing that GEICO seeks to raise here. Accordingly,

GEICO’s attempts to relitigate these claims are barred by the doctrine of collateral estoppel.

Finally, all of GEICO’s claims are facially deficient in that they are devoid of the

requisite particularity sufficient to meet the pleading requirements of Rule 9(b). GEICO purports

to base its claims on bald and conclusory allegations that every claim and service provided by

Defendants was fraudulent and provided pursuant to a purported kickback arrangement between

Defendants and certain unnamed and unidentified medical providers. The Complaint not only

fails to identify the alleged co-conspirators in this purported scheme, but also fails to set forth the

who, what and when of the alleged scheme that Rule 9(b) requires. Therefore, the Complaint

should be dismissed in its entirety for failure to state a claim pursuant to Rule 12(b)(6).

GEICO claims that every one of the providers’ claims is fraudulent. See e.g., D.N.J. 12-cv-07074-NLH-JS, E.D.N.Y. 12-cv-4236-MKB-CLP, W.D.N.Y. 12-cv-0030-RJA-HKS.


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FACTS2

A. Parties

Plaintiffs Government Employees Insurance Co., GEICO Indemnity Co., GEICO General

Insurance Company and GEICO Casualty Co. are Maryland corporations with their principal

places of business in Chevy Chase, Maryland. (Complaint, ¶ 6). GEICO is authorized to

conduct business and to issue automobile insurance policies in New Jersey. (Id.). Under New

Jersey’s No Fault Laws, an insured can assign his or right to Personal Injury Protection Benefits

(“PIP Benefits”) to a medical provider of healthcare services in exchange for those services.

Pursuant to a duly executed assignment, a healthcare provider may submit claims directly to an

insurance company like GEICO in order to receive payment for medically necessary services

provided to insureds by using the required claim forms. (Complaint, ¶ 13). GEICO is required

to pay for PIP Benefits for all treatments and services provided to its insureds that are

reasonable, necessary and appropriate and submitted in accordance with the applicable statutes

and regulations. (Complaint, ¶¶ 14-19).

Defendant MLS Medical Group LLC (“MLS”) is a New Jersey medical professional

limited liability company with its principal place of business in New Jersey. (Complaint, ¶ 7).

MLS was organized on or about August 15, 2006. (Id.). MLS provides medical services to

individuals who have been involved in automobile accidents and are eligible for insurance

coverage under GEICO no-fault insurance policies. (Complaint, ¶¶ 1, 3(i)).

Defendant Dr. Mark Schwartz, D.O. (“Dr. Schwartz”) resides in and is a citizen of New

Jersey and has been licensed to practice medicine in New Jersey since on or about April 19,

1996. (Id.). Dr. Schwartz owns MLS and provides services to patients on behalf of MLS from

2 The following allegations are taken from the Complaint and, for purposes of this motion only, are presumed to be true.


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the offices of a network of healthcare providers located throughout central and northern New

Jersey, who specialize in treating patients with no-fault insurance who claim to have been injured

in automobile accidents. (Complaint, ¶ 3(iii)). GEICO alleges that Dr. Schwartz is not certified

in the subspeciality of electrodiagnostic medicine. (Complaint, ¶ 8).

B. Allegations Regarding Purported Kickbacks

GEICO alleges that purported “Fraudulent Services were performed . . . pursuant to

illegal kickback arrangements between MLS . . . Dr. Schwartz, and the healthcare providers who

referred the insureds to MLS.” (Complaint, ¶ 2(iii), 4(iii)). In support of this claim, the

Complaint alleges that “MLS does not advertise or market its services to the general public, and

is a transient provider that does not provide services at a single, fixed location.” (Complaint,

¶ 23). Therefore, according to the Complaint, “MLS and Schwartz gain access to the offices of

these healthcare providers by paying kickbacks to these healthcare providers in exchange for

patient referrals.” (Complaint, ¶ 24). The Complaint does not identify who these “healthcare

providers” are, when the kickbacks took place or the alleged amounts that were involved.

Indeed, the only “details” concerning these alleged kickbacks are that they allegedly come in the

form of fees to “lease” space or personnel from these healthcare providers, baldly labeling them

“pay-to-play” arrangements. (Id.). GEICO contends that these kickbacks that Defendants

purportedly pay to these healthcare providers are “generally” based on the volume of insureds

that the healthcare providers refer to MLS. (Complaint, ¶ 25). The final allegations regarding

kickbacks are that somehow these kickbacks are “essential to the success of the Defendants’

fraudulent scheme.” (Complaint, ¶ 28).

C. Allegations Regarding Medical Claims

GEICO also alleges the Defendants have submitted PIP claims for certain tests or

services that were performed -- or not performed -- for insureds that (a) were not medically


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necessary, (b) were exaggerated and/or misrepresented, and (c) were done pursuant to the alleged

kickback scheme. (Complaint, ¶ 2). These tests and services include initial examinations and

diagnoses as well as nerve conduction velocity tests (“NCVs”), electromyography tests

(“EMGs”) and other follow-up tests. GEICO alleges Defendants consequently billed GEICO for

these tests or services for which Defendants are not entitled to payment. (Complaint, ¶¶ 30-100).

GEICO fails to specify the dates or claims as to those tests or services that were

purportedly not performed. Instead, GEICO bases the Complaint on broad blunderbuss

allegations that all such tests or services were purportedly fraudulent.

1. Initial Examinations and Diagnoses

GEICO alleges that certain initial examinations were medically unnecessary and/or

exaggerated in that they misrepresented the time Dr. Schwartz spent with a patient or the extent

and nature of the examination. (Complaint, ¶¶ 30-52). GEICO thereafter alleges that, in their

medical reports, Defendants provided “boilerplate diagnoses” as to every GEICO insured.

(Complaint, ¶¶ 53-55). GEICO avers that these “boilerplate diagnoses” were, at times,

contravened by the police reports generated following the insureds’ accidents, including, for

example, because Dr. Schwartz diagnosed long-term conditions from what GEICO believed,

based solely on the descriptions in the police reports, to be minor injuries or accidents. Dr.

Schwartz also found lasting effects from soft-tissue injuries when GEICO determined in

hindsight that these injuries should have healed. (Complaint, ¶¶ 58-59). GEICO also alleges

that Defendants made phony diagnoses in order to perform and bill for NCVs and EMGs.

(Complaint, ¶ 61).

2. NCVs, EMGs, and Follow-up Services

NCVs and EMGs are medically necessary tests used to determine whether insureds have

radiculopathies, or “pinched” nerves. (Complaint, ¶¶ 65-66). GEICO alleges that Defendants


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directed virtually every insured to return after the initial examination for “medically unnecessary

EMGs and NCVs” and treatment options that were supposedly overbroad, excessive, contrary to

recommended policies, and “not tailored to the unique circumstances of the Insureds and that

[were] designed to maximize the Defendants’ billing, rather than to benefit the Insureds.”

(Complaint, ¶¶ 56, 62, 71-78, 89-93).

Like the initial examinations, GEICO alleges that the NCVs and EMGS were also

performed pursuant to unidentified kickbacks paid to unnamed medical providers. (Complaint,

¶¶ 70, 87-88). GEICO also alleges that because in one instance it found a single mistake in an

NCV report that duplicated waveforms and numerical data across different patients, this

somehow means Defendants intentionally “fabricated phony NCV test results” in a copy and

paste job on multiple other occasions indicating an elaborate scheme to defraud insurers.

(Complaint, ¶¶ 80-84). Notably, none of these “other occasions” are specifically referenced.

According to GEICO, Defendants mis-diagnosed radiculopathies in insureds who were in

only minor accidents in order to “create the appearance of severe injuries and thereby provide a

false justification for the medically unnecessary Fraudulent Services provided through the

Defendants, and a false justification for the laundry-list of other medically unnecessary services

rendered by the providers who refer Insureds to the Defendants in exchange for kickbacks from

the Defendants”; however, the Complaint does not identify these providers or this “laundry-list”

of services they supposedly provided. (Complaint, ¶ 98).

3. Billing

GEICO avers that Defendants submitted forms and reports to GEICO seeking payment

for these services for which Defendants were not entitled because they were false and misleading

to the extent the services were improper, false or misleading. (Complaint, ¶¶ 99-100).


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D. The Complaint

GEICO’s Complaint seeks a declaratory judgment (Count I) that it is not obligated to pay

more than $1,320,00.00 in purportedly fraudulent pending claims for medical services

Defendants provided to GEICO’s insureds because, as stated above, the services were not

medically necessary or, in some cases, not performed in the first instance; the services were

ordered and performed -- to the extent that they were performed at all -- as part of a pre-

determined fraudulent treatment and billing protocol designed solely to financially enrich the

Defendants rather than to benefit the insureds; the bills systematically misrepresented and

exaggerated the level of the services and the nature of the services that purportedly were

provided; and the services were pursuant to an illegal kickback arrangement between MLS, Dr.

Schwartz, and unnamed referring providers. (Complaint, ¶¶ 2, 109-115). GEICO contends that

all of these pending claims are fraudulent.

GEICO also seeks to recover more than $345,000.00 in charges GEICO has already paid

to Defendants in purported fraudulent claims in connection with the aforementioned initial

examinations, NCVs and EMGs for the past four years. (Complaint, ¶¶ 1, 107).3 The Complaint

asserts claims for violations of NJIFPA (Count II) (Complaint, ¶¶ 116-118), for violations of

RICO predicated on mail fraud (Count III) (Complaint, ¶¶ 119-125), for common law fraud

(Count IV) (Complaint, ¶¶ 126-132), and for unjust enrichment (Count V) (Complaint, ¶¶ 133-

138) to recover these amounts paid. As with the pending claims, in the Complaint GEICO

alleges that all of the paid claims were fraudulent as well.

3 GEICO attached as Exhibit 1 to the Complaint a chart that purportedly sets forth a representative sample of the fraudulent claims that were submitted to and paid by GEICO between February 2009 and October 2012. (Complaint, ¶ 5).


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E. Related Complaints

GEICO has recently filed multiple lawsuits in this and other jurisdictions with the same

cookie cutter allegations and fraud claims identified in this Complaint. In fact, almost

contemporaneously with the Complaint, GEICO filed three other Complaints in the District of

New Jersey that essentially “copy and paste” the same conclusory fraud-related allegations found

here. See Docket Nos. 12-cv-07074-NLH-JS, 12-cv-06442-CCC-JAD, and 12-cv-07310-KSH-

PS.

LEGAL ARGUMENT

I. THIS COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER

GEICO’S CLAIM DISPUTES THAT ARE ALREADY THE SUBJECT OF

PENDING PIP ARBITRATIONS

In a transparent attempt at forum-shopping, GEICO uses a smokescreen of fraud and

RICO to seek a declaratory judgment (Count I) that it is not obligated to pay more than

$1,320,000 in pending PIP claims. In reality, GEICO seeks to circumvent the statutorily

mandated PIP arbitration process for resolving what, on their face, are commonplace disputes

over medical necessity, improper coding, and other issues that are typically addressed in the PIP

arbitration forum. GEICO’s end-run around the PIP arbitration process is motivated largely by

the fact that they have been litigating and losing on these issues before the DRPs. This Court

therefore lacks subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) over

such pending claims because these “disputes” fall squarely within the jurisdiction of the

arbitrators. See Thompson v. Nienaber, 239 F. Supp. 2d 478 (D.N.J. 2002) (dismissing

complaint under Rule 12(b)(1) that was subject to arbitration).

Defendants’ right to proceed to arbitration to resolve PIP claim disputes is premised on

N.J.S.A. 39:6A-5.1, which provides:

Any dispute regarding the recovery of medical expense benefits or other benefits


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provided under personal injury protection coverage . . . may be submitted to dispute resolution on the initiative of any party to the dispute, as hereinafter provided.

Indeed, Courts have consistently interpreted this statute as conferring the right on either party to

compel mandatory and binding arbitration of any “dispute” regarding PIP benefits if timely

elected. See Delpome v. Travelers Ins. Co., No. L-10020-11, 2012 WL 6632802, at *2 (N.J.

App. Div. Dec. 21, 2012) (defendant had the statutory right to compel arbitration of plaintiff’s

claim for PIP benefits associated with diagnosis and treatment of injuries notwithstanding that

plaintiff first filed in state court) (all unreported decisions are attached hereto as Exhibit A);

Allstate Ins. Co. v. Sabato, 380 N.J. Super. 463, 470 (App. Div. 2005) (a dispute over a PIP

claim may proceed to court only if neither side chooses alternative dispute resolution); State

Farm Mut. Auto. Ins. Co. v. Molino, 289 N.J. Super. 406, 408 (App. Div. 1996) (same).

N.J.S.A. 39:6A-5.1(c) spells out the types of PIP claim “disputes” that are to be decided

in these mandatory PIP arbitration proceedings -- and explicitly incorporates the precise

“disputes” raised by GEICO in this Complaint -- stating:

Disputes involving medical expense benefits may include, but not necessarily be limited to, matters concerning: . . . (2) whether the treatment or health care service which is the subject of the dispute resolution proceeding is in accordance with the provisions of section 4 of P.L. 1972, c.70 (C.39:6A-4) or section 4 of P.L. 1998, c.21 (C.39:6A-3.1) or the terms of the policy; (3) the eligibility of the treatment or service for compensation; (4) the eligibility of the provider performing the treatment or service to be compensated under the terms of the policy or under regulations promulgated by the commissioner, including whether

the person is licensed or certified to perform such treatment; (5) whether the

disputed medical treatment was actually performed; (6) whether diagnostic tests performed in connection with the treatment are those recognized by the commissioner; (7) the necessity or appropriateness of consultations by other

health care providers; (8) disputes involving application of and adherence to the

fee schedules promulgated by the commissioner; and (9) whether the treatment

performed is reasonable, necessary, and compatible with the protocols provided for pursuant to P.L.1998, c.21 (C.39:6A-1.1 et al.) (emphasis added).


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Clearly the allegations in the Complaint constitute “disputes” that fall squarely within

N.J.S.A. 39:6A-5.1(c) that, upon the election of Defendants, are within the exclusive jurisdiction

of arbitration before a DRP with the relevant expertise to handle them. Indeed, the factual

allegations in the Complaint mirror the “disputes” expressly identified in the statute as subject to

the mandatory PIP dispute resolution process, including GEICO’s allegations regarding (1)

whether Dr. Schwartz is qualified to perform certain services; (2) whether services were

performed; (3) whether services were exaggerated and/or misrepresented; (4) whether services

were properly coded and/or billed and (5) whether the services were reasonable, necessary, and

causally related to the automobile accident in question. See N.J.S.A. 39:6A-5(1)(c). The fact

that GEICO attempts to dress these claims up with trappings of fraud does not alter the fact that

arbitration is the appropriate forum for their resolution.

Moreover, while the statute identifies certain “disputes” that can be decided by a DRP,

the word “dispute” is unqualified and certainly not limited to those “disputes” listed in the

statute. Molino, 289 N.J. Super. at 410. In this regard, the Appellate Division has made clear

that, “any ‘dispute’ concerning a ‘payment’ of PIP benefits due ‘pursuant to this act’ is subject to

binding arbitration” and that the statute should be interpreted as broadly as possible, stating, “to

the extent ‘dispute under this section’ creates any ambiguity, we must construe it liberally to

harmonize the arbitration provision with our firm policy favoring prompt and efficient resolution

of PIP disputes without resort to the judicial process.” Id. at 410-411 (arbitrators can determine

issues of law or fact so that any “dispute” concerning a “payment” of PIP benefits due “pursuant

to this act” is subject to binding arbitration at the claimant’s option). Moreover, “[c]arriers

should not be empowered to avoid arbitration simply by characterizing PIP disputes as questions

of ‘entitlement’ or ‘coverage’ and then seeking judicial resolution of those issues.” Id.


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In State Farm Insurance Company v. Sabato, 337 N.J. Super. 393 (App. Div. 2001), the

court specifically held that insurer’s fraud-related claims were “disputes” subject to arbitration.

In that case, which is directly analogous, the medical provider filed an application for PIP

benefits on behalf of three brothers alleged to be injured in a motor vehicle accident. The trial

court enjoined the arbitration upon insurer’s request and held a hearing on the claims, concluding

that one of the brothers lied to the insurer regarding his social security number, while another

brother provided evasive information. However, the Appellate Division held that the trial court

should have had the claims proceed to statutory arbitration, that the arbitrator in such a

proceeding is empowered to determine the issues of coverage and fraud and that the judgment on

appeal should therefore be reversed and the matter remanded for arbitration. Id. at 394. In so

finding, the Court held that the “defenses asserted by State Farm -- be they fraud or some other

basis for alleged non-coverage -- should have been resolved by an arbitrator.” Id. at 396;see also

Endo Surgi Center, P.C. v. Liberty Mut. Ins. Co., 391 N.J. Super. 588, 595 (App. Div. 2007)

(medical service provider could not maintain a common law fraud and bad faith action against

insurer for improper denial of PIP benefits because sole remedy for wrongful denial is statutorily

prescribed, and “if an insured were allowed to pursue a common law claim for an alleged bad

faith denial of PIP benefits, under which there would be an entitlement to a jury trial, this would

open the door to circumvention of the statutorily mandated alternative dispute resolution

procedure provided by N.J.S.A. 39:6A-5.1”).4

4 If GEICO did not think that these pending claims disputes were properly before a DRP, GEICO should have followed the proper procedures to seek dismissal of these arbitrations for lack of subject matter jurisdiction. See AAA Rule 7; Molino, 289 N.J. Super. at 411 (internal quotation omitted) (statutory directive is that arbitration proceedings shall “be administered and subject to procedures established by the American Arbitration Association” (AAA)). Incredibly, not only has GEICO failed to seek dismissal of these pending arbitrations, but GEICO has continued to move forward with these pending arbitrations -- and even pay claims -- without any reference to


12

GEICO cannot circumvent the statutorily prescribed arbitration process for these pending

claims that clearly constitute “disputes” under N.J.S.A. 39:6A-5.1(c), merely by dressing them

up with bald and conclusory allegations of fraud. See Sabato, 337 N.J. Super. 393. Moreover,

litigating these claims and issues before this Court, while, at the same time, they are being

arbitrated, would unnecessarily risk inconsistent rulings and a waste of judicial resources. Based

on the foregoing, the request for a declaratory judgment (Count I) should be dismissed for lack

of subject matter jurisdiction pursuant to Rule 12(b)(1), and these claims allowed to proceed to

arbitration.

II. PLAINTIFFS’ ATTEMPTS TO RELITIGATE AND RECOVER FOR CLAIMS

THAT WERE ALREADY THE SUBJECT OF AN ARBITRATION

DETERMINATION ARE BARRED BY THE DOCTRINE OF COLLATERAL

ESTOPPEL

GEICO seeks to recover $345,000 in payments it has already made to the Defendants on

the basis of fraud (See Counts II - V of the Complaint). However, the vast majority of these

claims have been fully and fairly litigated and paid pursuant to a binding arbitration

determination. Accordingly, because the claims determinations in those arbitrations necessarily

encompass the same issues of medical necessity and coding that Plaintiffs raise here, they cannot

be relitigated as they are barred by the doctrine of collateral estoppel.5 See Delpome, 2012 WL

this pending, specious lawsuit. GEICO also has the opportunity to appeal these claims to the Superior Court if it is displeased with the result, which appeal rights do not include bringing claims in federal court. See Point II, infra.

5 At the present juncture, Defendants are unable to determine exactly which claims identified on Exhibit 1 of the Complaint have been subject to a binding arbitration decision, particularly where additional claims have continued to proceed to arbitration since the Complaint has been filed while other claims have been misidentified as MLS claims in the first place. However, some examples from Exhibit 1 of claims that have been subject to a binding arbitration decision and should be barred by collateral estoppel include RICO Claim Numbers 0399209090101029, 0363808070101016, 0422363280101017, 0346754770101025, 0318600630101016, 0324295260101028, 0373559730101015, 0314292200101040, and 0356214760101029. In this regard, Defendants are seeking a general ruling that the Complaint is barred to the extent GEICO


13

6632802, at *2 (“Where a PIP dispute has been previously decided through arbitration, a party

may be collaterally estopped from retrying an issue necessary to the claim that was determined

against that party in the prior proceeding.”).

The doctrine of collateral estoppel is an equitable doctrine designed to “promote efficient

justice by avoiding the re-litigation of matters which have been fully and fairly litigated and fully

and fairly disposed of.” Barker v. Barker, 346 N.J. Super. 558 (App. Div. 2002). The party

asserting the doctrine of collateral estoppel must establish (1) the issue to be precluded is

identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the

prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4)

the determination of the issue was essential to the prior judgment; and (5) the party against

whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding.

See Robbins v. U.S. Foodservices, Inc., 11-cv-4599, 2012 WL 3781258, at * 4 (D.N.J. Aug. 30,

2012) (quoting Ivan v. County of Middlesex, 595 F. Supp. 2d 425, 474 (D.N.J. 2009) and citing

Seborowski v. Pittsburgh Press co., 188 F.3d 163, 169 (3d Cir. 1999)); see also Sacharow v.

Sacharow, 177 N.J. 62 (2003). Section 27 of the Restatement, adopted by New Jersey and the

Federal Courts, sets forth the basic rule of collateral estoppel:

When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.

Habick v. Liberty Mutual Fire Insurance Company, 320 N.J. Super. 244, 257 (App. Div.) certif.

den., 162 N.J. 149 (1999).

seeks to recover on claims paid pursuant to a final arbitration decision by the doctrine of collateral estoppel.


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New Jersey Courts have determined that a decision in PIP arbitration has “the same

preclusive effect as a prior judicial determination.” Id. at 255. While an arbitration result may

affect a litigant’s right to litigate a given issue, the doctrine of collateral estoppel will minimize

the prospect of conflicting results and thus promote judicial economy. Id. at 257.

In Habick v. Liberty Mutual Fire Insurance Company, 320 N.J. Super. 244, for example,

the Appellate Division recognized the preclusive effect of a PIP arbitration. In that case, the

plaintiff filed a demand for arbitration after the insurer denied payment of a claim on grounds

that the treatment was not for an injury causally related to the motor vehicle accident, and the

PIP arbitrator ultimately denied the plaintiff’s claim. Recognizing the collateral estoppel effects

of the arbitration’s binding determination on her subsequent uninsured motorist (“UM”)

litigation, the plaintiff filed a verified complaint in the Law Division seeking to either (1) vacate

the award or (2) modify the award “to reflect that it be without prejudice to any claim plaintiff

may have outside the scope of the PIP arbitration proceedings.” Id. at 247. However, the Court

found that the PIP arbitration had a preclusive effect because the elements of the doctrine of

collateral estoppel had all been met, and there was nothing inherently unfair in giving the

arbitration decision preclusive effect. Id. at 257-58. Specifically, the Court held that “there can

be no question that plaintiff had the opportunity in a PIP arbitration to present all of the evidence

respecting causation that she could bring in a UM arbitration . . . [a]lthough plaintiff’s PIP and

UM claims seek different remedies, the parties are identical, the several issues of medical

causation that will arise in the UM arbitration were decided in the PIP arbitration,” so preclusive

effect was warranted. Id. at 259.

In fact, Courts have not hesitated to bar claims in Court based on the preclusive effect of

a prior PIP arbitration decision. See Orthopaedic Assocs. v. Dept. of Banking and Ins., 405 N.J.


15

Super. 54 (App. Div. 2009) (finding health care provider was barred by res judicata from seeking

to re-litigate its claim against insurer for reimbursement of the disputed PIP benefits); Kozlowski

v. Smith, 193 N.J. Super. 672 (App. Div. 1984) (plaintiff was collaterally estopped from linking

the cardiac condition to the accident wherein the causal connection had already been litigated

and determined against the plaintiff in a PIP action against her insurer in Superior Court).

Against this backdrop, collateral estoppel should also be applied here, where the elements

are easily met and fairness so requires. As an initial matter, when seeking payment for medical

bills in a PIP arbitration, the burden rests upon the provider, including inherently to establish that

the services were rendered, that they were rendered by someone qualified and that they were

reasonable, necessary and causally related to the automobile accident in question. See e.g.,

Miltner v. Safeco Ins. Co. of Am., 175 N.J. Super. 156 (Law Div. 1980). Therefore, when a

DRP makes a determination that an insurance carrier owes payment to a medical provider for

services rendered, necessary in that determination are findings regarding the precise questions

and allegations raised in this Complaint. It also follows that any determination by a DRP in

favor of the medical providers includes a finding of proper billing and coding. Yet, these are

precisely the issues GEICO is seeking to relitigate here.

Moreover, determinations in PIP arbitrations “shall be binding upon the parties, but

subject to clarification/modification and/or appeal as provided by the rules of the dispute

resolution organization, and/or vacation, modification or correction by the Superior Court in an

action filed pursuant to N.J.S.A. 2A:23A-13 for review of the award.” N.J.A.C. 11:3-5.6(g).

And, where an action to review an arbitration award in the Superior Court is not pursued and the

time to do so expires, the DRP’s decision becomes final, and the doctrine of res judicata will bar

a party from relitigating the claim. Orthopaedic Associates, 405 N.J. Super. 54. Therefore, the


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claims raised in GEICO’s Complaint that were subjected to arbitration have been reduced to a

final determination akin to a final judgment on the merits. See Habick, 320 N.J. Super. at 255.

As a party to these arbitrations, represented by competent counsel, GEICO was provided

with a full and fair opportunity to litigate the issues raised in the Complaint in the underlying

arbitrations. It lost. GEICO should not be given another bite at the apple with regard to claims

paid pursuant to arbitration simply because they are displeased with the results and are now

claiming “fraud.” Accordingly, Counts II - V should be dismissed pursuant to Rule 12(b)(6) to

the extent they are based on claims that were paid pursuant to a DRP’s award at arbitration.

III. PLAINTIFFS HAVE FAILED TO SUFFICIENTLY PLEAD FRAUD WITH THE

REQUISITE PARTICULARITY PURSUANT TO RULE 9(b)

GEICO has also failed to plead adequately any of its claims proffered in its Complaint,

which are predicated in fraud and subject to the specificity requirements of Rule 9(b). Therefore,

the Complaint should be dismissed in its entirety pursuant to Rule 12(b)(6) on this independent

basis as well.

A. The Alleged Kickback Scheme

GEICO has failed to adequately plead its alleged fraudulent kickback scheme. To plead

fraud with sufficient particularity, plaintiffs must “plead with particularity the ‘circumstances’ of

the alleged fraud in order to place the defendants on notice of the precise misconduct with which

they are charged, and to safeguard defendants against spurious of immoral and fraudulent

behavior.” Poling v. K. Hovnanian Enterprises, 99 F. Supp. 2d 502, 508 (D.N.J. 2000) (quoting

Seville Indus. Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir.

1984), cert. denied, 469 U.S. 1211 (1985)). “To satisfy the pleading requirement, plaintiffs may

plead the specific conduct alleged to be fraudulent along with the ‘date, place and time’ that the

alleged fraud occurred or use some ‘alternative means of injecting precision and some measure


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of substantiation into their allegations of fraud.’” Id. (dismissing RICO claims predicated on

mail fraud pursuant to Rule 12(b)(6) for failure to plead with particularity under Rule 9(b)). In

other words, the pleading must contain the “who, what, when and where details of the alleged

fraud.” District 1199P Health and Welfare Plan v. Janssen, L.P., 784 F. Supp. 2d 508, 527

(D.N.J. 2011) (internal quotation omitted).

This Court’s decision in CareOne, LLC v. Burris, Docket No. 10-cv-2309, 2011 WL

2623503 (D.N.J. June 28, 2011), is instructive here. In that case, the plaintiffs similarly brought

RICO actions predicated on mail fraud premised on allegations that a former employee

orchestrated and operated a kickback scheme with several construction vendors whom he

directed to fraudulently inflate their invoices in order to line his own pockets in exchange for

dispensing with competitive bidding. Id. at *1-2. The Complaint stated that the invoices were

fraudulent because they “were for work performed at an inflated price, made possible by the lack

of competitive bidding and the kickbacks.” Plaintiff attached the invoices to the complaint that it

believed resulted in the use of mails or interstate wires. Id.

After all other parties settled, the remaining defendant vendor pursued a motion to

dismiss pursuant to Rule 12(b)(6) on grounds that the complaint was devoid of detail as to the

nature of the vendor’s alleged fraudulent conduct other than the assertion that the employee

transmitted “false invoices, checks, and wires, in furtherance and as a result of the schemes and

artifices to defraud, in violation of 18 U.S.C. § 1341 and 18 U.S.C. § 1343.” Id. at *3. The

Court agreed and found that the plaintiffs failed to identify what aspect of the invoices were

fraudulent, stating conclusorily only that the invoices were “false” and “padded and excessive.”

Listing the allegedly fraudulent transactions was also insufficient to meet the particularity

requirement. Without detail, the plaintiffs failed to place defendant vendor on notice of the


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precise misconduct against which he had to defend, and the Court therefore granted defendant

vendor’s motion to dismiss the RICO claims regarding the kickback arrangement for failure to

plead with the requisite particularity pursuant to Rule 9(b).6 Id. at *11; see also District 1199P

Health and Welfare Plan, 784 F. Supp. 2d at 529 (dismissing complaint for failure to provide

necessary specificity under Rule 9(b) for RICO violation predicated on mail fraud where

plaintiffs alleged that defendants engaged in “[m]ultiple instances of bribery in violation of state

statutes” by providing physicians with financial incentives, such as expensive dinners and lavish

vacations, but made no effort to delineate the elements of the bribery); Silverstein v. Percudani,

2006 WL 3521892 (3d Cir. Dec. 6, 2006) (affirming dismissal of RICO violation predicated on

fraud for failure to plead with particularity where, although complaint explained overall scheme,

complaint failed to provide details regarding the harm plaintiff suffered).

Here, the allegations regarding the purported kickbacks are even more bare bones than

those this Court found deficient in CareOne. Here, the only allegations regarding kickbacks state

that there was a kickback arrangement between Defendants and unnamed healthcare providers

who referred insureds to Defendants, wherein Defendants gained access to the offices of

healthcare providers and their patients in exchange for paying some sort of kickback in the form

of a “lease.” (Complaint, ¶¶ 23-28). However, the Complaint fails to identify who the

healthcare providers are, what the terms of the purported “leases” are, how often these leases are

paid, the amounts allegedly paid and the details of how this alleged scheme works. Importantly,

GEICO has also failed to allege how it has been deceived or injured by this purported kickback

6 Interestingly, the court noted that the statutory term “defraud” found in the mail fraud statute, was generally defined as the deprivation of something of value “by trick, deceit, chicane or overreaching,” and the court recognized that the complaint was also lacking a description of the “trick.” Id. at *11-12 (internal quotation omitted).


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scheme. These contentions fall woefully short of Rule 9(b)’s specificity requirements.

Therefore, to the extent GEICO’s claims rely on a purported kickback scheme, they should be

dismissed with prejudice as a matter of law for failure to state a claim under Rule 12(b)(6).

B. RICO

GEICO’s Complaint fails to state a RICO violation predicated on mail fraud. Section

1962(c) of the RICO Act provides:

(c) It shall be unlawful for any person employed by or associated with an enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

To state a claim of RICO violation, a plaintiff must plead: (1) conduct (2) of an

enterprise (3) through a pattern (4) of racketeering activity. Poling v. K. Hovnanian Enterprises,

99 F. Supp. 2d 502, 508 (D.N.J. 2000). Additionally, plaintiffs must allege that they have been

injured in their business or property as a result of the alleged racketeering activity. Id.

Where, as here, the predicate RICO acts GEICO relies on are based in fraud -- i.e., mail

fraud -- the fraud allegations must comport with Federal Rule of Civil Procedure 9(b)’s

heightened pleading standard. Id. Because the mail fraud statute’s “condemnation of a ‘scheme

or artifice to defraud’ only implicates plans calculated to deceive,” proof of the defendants’

“conscious knowing intent to defraud” is also essential. U.S. v. Kreimer, 609 F.2d 126, 128 (5th

Cir. 1980).

Here, GEICO has not and cannot plead “fraud” with the requisite particularity because

there was no fraud. Therefore, GEICO is instead forced to rely on general categories of

“Fraudulent Services” (as defined in the Complaint) allegedly provided by Defendants, claiming

that each and every service in that category was fraudulent, without providing any specific

instances or examples as to what the fraud entailed. In fact, all of GEICO’s “fraud” allegations


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are based on conclusory assumptions and specious postulation that could, at best, be “consistent

with” liability, which “specific” allegations are still woefully insufficient to withstand this

motion. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 577 (2007). For example, GEICO

contends that because there was a single instance where GEICO found a mistake in one patient’s

NCV report that somehow this means that Defendants intentionally “fabricated phony NCV test

results” on multiple other patients’ reports establishing an elaborate scheme to defraud.

(Complaint, ¶¶ 80-84). Moreover, the simple passage of time between an accident and

Defendants’ diagnoses cannot, without more, create the inference of fraud necessary to withstand

this motion. (Complaint, ¶¶ 58-59).

GEICO merely feigns specificity in Paragraphs 58 and 59 of the Complaint by

identifying patients and then claiming their respective diagnoses were fraudulent. In this regard,

the Complaint fails to provide any indicia of how or why these diagnoses were fraudulent as

opposed to being made pursuant to the reasonable exercise of Dr. Schwartz’s medical judgment.

(Complaint, ¶¶ 58 and 59). Notwithstanding, there is no way for Defendants to decipher the

status of the claims identified in Paragraphs 58 and 59 of the Complaint. If these claims are

either the subject of pending arbitration or have been paid pursuant to a binding arbitration

determination, these claims should be dismissed for the reasons set forth respectively in Point I

and II, supra, and cannot, therefore, be utilized to support a pleading of fraud.

Essentially, GEICO has utilized a cookie cutter approach to litigation by copying and

pasting general allegations of lack of medical necessity, misrepresentations, and improper billing

replete with legal jargon from other complaints it has filed in this and other jurisdictions.

Virtually the only thing it has claimed is the name of the Defendants. Evidence of the fact that

GEICO copy and pasted its Complaint is the fact that GEICO failed to even change the name of


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a prior defendant in another GEICO lawsuit in Paragraph 110 of the Complaint when it

references “ENA” rather than “MLS” in alleging that “[t]here is an actual case in controversy

between GEICO and ENA regarding more than $1,320,000.00 in pending fraudulent billing for

the Fraudulent Services that has been submitted to GEICO.” (Complaint, ¶ 110).

Based on the foregoing, GEICO’s purported fraud allegations in support of its RICO

claim are devoid of the requisite specificity to meet the pleading requirements of Rule 9(b) and,

therefore, the RICO claim, and request for declaratory judgment predicated on these same

allegations, should be dismissed with prejudice pursuant to Rule 12(b)(6).

C. Common Law Fraud, NJIFPA, and Unjust Enrichment

GEICO’s remaining claims of common law fraud, violations of the NJIFPA, and unjust

enrichment rest on the same allegations as the RICO claim and should also be dismissed for

failure to state a claim. Moreover, as the Supreme Court stated in United Mine Workers of

America v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966), “if the

federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense,

the state claims should be dismissed as well.” As has been demonstrated above, Plaintiffs have

not stated a RICO claim against Defendants. Accordingly, there is no basis to assert pendent

jurisdiction and Plaintiffs’ state claim should be dismissed.


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CONCLUSION

Based on the foregoing, Defendants respectfully request that Plaintiffs’ Complaint be

dismissed with prejudice and in its entirety.

January 31, 2013

Respectfully submitted, WOLFF & SAMSON PC Attorneys for Defendants MLS Medical Group LLC and

Mark L. Schwartz, D.O.

By: /s/ A. Ross Pearlson___ A. ROSS PEARLSON


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