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Illinois Farmers Insurance Co. v. Mobile Diagnostic Imaging, Inc.

United States District Court, D. Minnesota

August 19, 2014

ILLINOIS FARMERS INSURANCE COMPANY; 21ST CENTURY INSURANCE COMPANY; and BRISTOL WEST CASUALTY INSURANCE COMPANY, Plaintiffs,
v.
MOBILE DIAGNOSTIC IMAGING, INC.; MICHAEL A. APPLEMAN; STEVE POSER, D.C.; ELITE HEALTH CHIROPRACTIC, P.C.; AFFINITY HEALTH CHIROPRACTIC, P.A.; ASSIAT BOKE, D.C.; ASSIAT BOKE CHIROPRACTIC, P.A.; RICHARD OTTOMEYER, D.C.; OTTOMEYER CLINICS, PLLC; DANIAL HALL, D.C.; LOIS HALL, D.C.; HALL FAMILY CHIROPRACTIC CLINIC; JOHN VALENTINI, D.C.; MICHAEL B. SHINDER, D.C.; FOUR SEASONS CHIROPRACTIC, LTD.; MATEUS FERRAZ-SOUZA, D.C.; UNIVERSAL CARE CLINICS, INC.; DANIEL G. ANDERSON, D.C.; ANDERSON CHIROPRACTIC CLINIC, P.A.; JEFFREY DANIELSON, D.C.; NORTHERN LIFE CHIROPRACTIC, P.A.; ANDREA RUHLAND, D.C.; LAKEVILLE FAMILY CHIROPRACTIC, LTD.; RICHARD STOFFELS, D.C.; STOFFELS CHIROPRACTIC, LTD.; LOWELL MAGELSSEN, D.C.; FIRST CHIROPRACTIC — SHOREVIEW; ROBIN HARSTAD, D.C.; OVERSTAD CHIROPRACTIC, P.A.; JEFF SCHNEIDER, D.C.; HILLSIDE CHIROPRACTIC CLINIC, INC.; DOROTHY SAUNDERS, D.C., a/k/a Dorothy O'Connor; TEAM CHIROPRACTIC & WELLNESS CENTER, LTD.; STEVEN MOE, D.C.; INTEGRATED HEALTH AND WELLNESS, LTD.; SHAUN GIFFORD, D.C.; PRO ADJUSTER CHIROPRACTIC; SCHEIDEMAN CHIROPRACTIC & BODY SHOP, INC.; BRENT SCHEIDEMAN, D.C.; KATHLEEN A. BLOOM, D.C.; BLOOM CHIROPRACTIC CENTER, P.A.; SCOT PEARSON, D.C.; PEARSON CHIROPRACTIC CLINIC; AARON KIRKING, D.C.; SPINAL HEALTH; MICHAEL LAMPPA, D.C.; ACTIVE LIFE CHIROPRACTIC; LAMPPA CHIROPRACTIC, P.A.; ALLEN TRAN, D.C.; PRESTIGE CHIROPRACTIC, P.A.; DENIS BOERJAN, D.C.; ADVANCE CHIROPRACTIC CLINIC; DENIS BOERJAN, LLC; CARRON PERRY, D.C.; CANDACE SALMI, D.C.; BODYMIND CHIROPRACTIC CENTER; BRENT KVAM, D.C.; HEALTHSTAR CHIROPRACTIC CENTER, P.A.; STEPHAN M. DEHAVEN, D.C.; DEHAVEN CHIROPRACTIC CLINIC; DEHAVEN CHIROPRACTIC CLINIC, INC.; DEREK JOHNSON, D.C.; WELLNESS TEAM OF NISSWA; CYNTHIA STARBUCK, D.C.; HEALING HANDS WELLNESS CENTER, LLC; JOSEPH VIRGA, D.C.; KATHLEEN VIRGA, D.C.; VIRGA CHIROPRACTIC CLINIC, P.A.; MARK REEVE, D.C.; REEVE CHIROPRACTIC CLINIC, P.A.; DOUGLAS EDWARDS, D.C.; ALBERT LEA CHIROPRACTIC, PLC; MICHAEL KILPATRICK, D.C.; NEW PRAGUE FAMILY CHIROPRACTIC; STEPHEN L. ENGEL, D.C.; and ENGEL CHIROPRACTIC, P.A., Defendants.

Bradley L. Doty, Richard S. Stempel, and Jesse W. Busta, STEMPEL & DOTY, PLC, for plaintiffs.

Kristen G. Marttila, David W. Asp, and Eric C. Tostrud, LOCKRIDGE GRINDAL NAUEN PLLP, for defendants Mobile Diagnostic Imaging, Inc. and Michael A. Appleman.

Thomas D. Jensen, Amy Elizabeth Lanser, and Thomas J. Evenson, LIND, JENSEN, SULLIVAN & PETERSON, P.A., for defendants Steve Poser, D.C.; Elite Health Chiropractic, P.C.; Affinity Health Chiropractic, P.A.; Assiat Boke, D.C.; and Assiat Boke Chiropractic, P.A.

ORDER

PATRICK J. SCHILTZ, District Judge.

Plaintiffs Illinois Farmers Insurance Company ("Illinois Farmers"), 21st Century Insurance Company ("21st Century"), and Bristol West Casualty Insurance Company ("Bristol West") allege that defendant Michael A. Appleman - acting through his corporation, defendant Mobile Diagnostic Imaging, Inc. ("MDI") - paid kickbacks to several dozen chiropractors and chiropractic clinics. In return, the chiropractors and clinics referred patients to MDI for magnetic resonance imaging ("MRI") scans. After performing the scans, MDI and Appleman submitted insurance claims to plaintiffs for reimbursement under the Minnesota No-Fault Automobile Insurance Act ("No-Fault Act"), Minn. Stat. §§ 65B.41-65B.71, and plaintiffs paid the claims. Plaintiffs allege, however, that they would not have paid those claims if they had known about the kickback scheme.

Plaintiffs also allege that Appleman - who is not a doctor or a chiropractor or otherwise licensed to practice medicine - is barred under Minnesota law from owning MDI because, plaintiffs say, MDI is a corporation that engages in the practice of medicine. Plaintiffs allege that they would have denied the claims submitted by MDI if they had known that MDI was owned by a layperson.

Finally, plaintiffs allege that, because the alleged kickback scheme created an incentive for chiropractors to refer patients to MDI for MRI scans, the "bribed" chiropractors referred patients who did not have a medical need for an MRI scan. According to plaintiffs, this caused them to pay for medically unnecessary scans, and they are entitled to reimbursement for those payments.

Plaintiffs have filed a 56-page, 283-paragraph, 14-count complaint against MDI, Appleman, and dozens of chiropractors and chiropractic clinics, seeking to recover every penny that they paid on every claim submitted by MDI over a five-year period. Plaintiffs assert claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968; under both federal and state anti-kickback statutes; under the No-Fault Act; and under a host of other laws and doctrines.

"This Court has repeatedly criticized the filing of kitchen-sink' or shotgun' complaints - complaints in which a plaintiff brings every conceivable claim against every conceivable defendant." Gurman v. Metro Hous. & Redev. Auth., 842 F.Supp.2d 1151, 1153 (D. Minn. 2011) (collecting cases). One reason why kitchen-sink complaints are so often criticized is that they "unfairly burden defendants and courts" by "shift[ing] onto the defendant and the court the burden of identifying the plaintiff's genuine claims and determining which of those claims might have legal support." Id. Unfortunately, plaintiffs in this case failed to heed the warnings of this Court, and thus it is now necessary for the Court and the defendants to undertake an onerous, claim-by-claim march through the lengthy complaint to try to separate the wheat from the chaff.

Three groups of defendants have moved to dismiss the complaint: (1) MDI and Appleman; (2) Steve Poser and two of his chiropractic clinics (Elite Health Chiropractic, P.C. ("Elite Health") and Affinity Health Chiropractic, P.A. ("Affinity Health")); and (3) Assiat Boke and her chiropractic clinic (Assiat Boke Chiropractic, P.A.). This matter is before the Court on those motions to dismiss. See ECF Nos. 108 & 112. For the reasons that follow, the motions are granted, and the complaint is dismissed as to the moving defendants.

I. FACTS[1]

MRI scans are often needed to diagnose neck and back injuries. Compl. ¶ 47 [ECF No. 1]. MRI machines are expensive, however, and thus many chiropractors do not own them. When a patient of such a chiropractor requires an MRI scan, the chiropractor will refer the patient to another person or company to perform the scan. MDI is one such company.

Unlike many companies that perform MRI scans, MDI does not keep its MRI machine at a fixed location. Instead, MDI transports its MRI machine on a large trailer, and thus MDI can perform scans at locations that are convenient for a referring chiropractor's patients - such as in the parking lot outside of the chiropractor's office. See id. ¶ 22. After conducting MRI scans, MDI "engages the services" of radiologists "to interpret the scans performed on the patients...." Id. ¶ 122. An interpretative report signed by a radiologist is then forwarded to the referring chiropractor, and the chiropractor, in turn, discusses the report with the patient. Id. ¶¶ 25-26.

MDI is just one of many companies that provide MRI-scanning services in a competitive industry. Because its business model relies on referrals from chiropractors, MDI (through its owner, Appleman[2]) cultivates relationships with chiropractors in an effort to encourage them to refer patients to MDI. For example, Appleman allows students at local chiropractic colleges to vacation at his property in the Cayman Islands. Id. ¶ 49. He also sends gift baskets, flowers, and other tokens of appreciation to practicing chiropractors. Id. ¶ 50. These types of enticements are, of course, common in the business world.

According to plaintiffs, however, MDI used a more pernicious way to give chiropractors an incentive to refer patients to MDI. Under "Confidential Rental Agreement[s]" reached between MDI and referring chiropractors, MDI paid a "use fee" of several hundred dollars to the chiropractors or their clinics, ostensibly for the "use of the [chiropractors'] premises, equipment, personnel, services, and supplies for a scanning day." Compl. Ex. 3 [ECF No. 1-1 at 3] (example of Confidential Rental Agreement). Plaintiffs characterize this "use fee" as a thinly disguised kickback to chiropractors in return for their referral of patients to MDI. Both the payment and the receipt of such kickbacks are illegal under Minnesota and federal law. See Minn. Stat. § 62J.23; 42 U.S.C. § 1320a-7b(b)(1).

When a chiropractor refers a patient who has been injured in a car accident for a scan, MDI asks the patient to sign a medical lien requiring the patient to pay MDI's bill out of any settlement of the patient's insurance claim. See Compl. ¶ 30. MDI then submits a healthinsurance-claim form - known as a CMS 1500 form[3] - to the patient's automobile insurer for reimbursement of the cost of the MRI scan. See id. ¶ 41; Minn. Stat. § 62J.52, subd. 2(a) (2008) (requiring that "all noninstitutional health care services... must be billed using the health insurance claim form CMS 1500...."). Those forms require that the person seeking reimbursement include certain information, such as the patient's name, address, and insurance status; the medical services provided to the patient; and the charges associated with those services. See Compl. ¶ 39; Compl. Ex. 11 [ECF No. 1-1 at 81] (example of form completed by MDI).

Plaintiffs issue automobile insurance in Minnesota. See Compl. ¶¶ 9, 236. The State of Minnesota, through the No-Fault Act, provides a statutory framework "to encourage appropriate medical and rehabilitation treatment of the automobile accident victim by assuring prompt payment for such treatment...." Minn. Stat. § 65B.42(3). For example, the No-Fault Act requires automobile insurers to reimburse insureds for "all reasonable expenses for necessary... medical, surgical, x-ray, optical, dental, chiropractic, and rehabilitative services...." Minn. Stat. § 65B.44, subd. 2. Plaintiffs paid at least $553, 673.99 to MDI and Appleman in response to CMS 1500 forms submitted by those defendants between 2008 and 2013. Compl. ¶ 183; Compl. Ex. 7 [ECF No. 1-1 at 44-70].

Plaintiffs allege that, whenever MDI and Appleman submitted a claim to an insurer, they at least implicitly represented to the insurer that they were entitled to receive payment on the claim. These representations were fraudulent (say plaintiffs) for three reasons:

First, plaintiffs contend that Appleman's ownership of MDI violated Minnesota's corporate-practice-of-medicine doctrine ("CPMD"), as MDI practiced medicine, and as Appleman was not a licensed medical practitioner. See Compl. ¶ 121; Granger v. Adson, 250 N.W. 722, 722-24 (Minn. 1933) (describing the CPMD under Minnesota law). Plaintiffs contend that Appleman knew that he was not permitted to own MDI, and therefore he knew that MDI was not entitled to be paid for the claims that it submitted. By representing to plaintiffs that MDI was entitled to payment, plaintiffs argue, MDI and Appleman committed fraud, and any amounts paid to them should be returned to plaintiffs.

Second, as described above, plaintiffs allege that MDI paid kickbacks to chiropractors in return for patient referrals. Plaintiffs argue that MDI and Appleman knew that, because they had paid kickbacks, they were not entitled to payment of any claim related to any patient of any of the bribed chiropractors. Again, by representing to plaintiffs that MDI was entitled to payment, MDI and Appleman committed fraud, and plaintiffs are entitled to recover all amounts paid to them.

Third, plaintiffs allege that the kickback scheme provided an incentive for chiropractors to refer patients to MDI for scans that were not medically necessary. The No-Fault Act requires plaintiffs to pay for scans only if the scans are medically necessary and reasonably priced. See Minn. Stat. § 65B.44, subd. 2. By submitting CMS 1500 forms on behalf of patients who did not need MRI scans, say plaintiffs, MDI and Appleman fraudulently induced plaintiffs to pay claims that they had no obligation to pay.

Based on these allegations, plaintiffs have sued MDI, Appleman, numerous chiropractors alleged to have participated in the kickback scheme, and numerous clinics owned by those chiropractors. MDI and Appleman now move to dismiss all claims brought against them. Similar motions have been filed by Poser and Boke and their clinics.

II. ANALYSIS

A. Standard of Review

Under Fed.R.Civ.P. 12(b)(6), a court must accept as true a complaint's factual allegations and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir. 2008). Although the plaintiffs' factual allegations need not be detailed, they must be sufficient to "raise a right to relief above the speculative level" and to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). In assessing a claim's plausibility, the Court may disregard any allegation that is conclusory. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (holding that "conclusory" allegations "are not entitled to the assumption of truth").

B. Minn. Stat. § 65B.525

Before turning to plaintiffs' substantive allegations, the Court must address whether and to what extent it has subject-matter jurisdiction over this lawsuit.

Each of the insurance claims submitted by MDI was for less than $10, 000; in fact, it appears that none of the claims exceeded $3, 000. See Compl. Ex. 7. Under the No-Fault Act,

[t]he Supreme Court and the several courts of general trial jurisdiction of this state shall by rules of court or other constitutionally allowable device, provide for the mandatory submission to binding arbitration of all cases at issue where the claim at the commencement of arbitration is in an amount of $10, 000 or less against any insured's reparation obligor for no-fault benefits or comprehensive or collision damage coverage.

Minn. Stat. § 65B.525, subd. 1.

"Generally, arbitration law states that arbitrators are the final judges of both law and fact." Johnson v. Am. Family Mut. Ins. Co., 426 N.W.2d 419, 421 (Minn. 1988). But arbitration under the No-Fault Act is an exception. "[N]o-fault arbitrators are limited to deciding questions of fact, leaving the interpretation of law to the courts." Weaver v. State Farm Ins. Cos., 609 N.W.2d 878, 882 (Minn. 2000) (citing Johnson, 426 N.W.2d at 421). This limitation is jurisdictional; Minnesota state courts lack subject-matter jurisdiction over factual issues related to an insurance claim that is subject to mandatory arbitration under the No-Fault Act. Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 800 (Minn. 2004).

Defendants argue that, under the No-Fault Act, this Court does not have jurisdiction over any claim whose viability depends on a factual finding that an MRI scan conducted by MDI was not medically necessary. Instead, say defendants, any dispute relating to the medical necessity of an MRI scan conducted by MDI must be resolved by an arbitrator. And because (according to defendants) the Court lacks jurisdiction to find that any particular MRI scan was not medically necessary, any claim founded on the purported lack of medical necessity of an MRI scan must be dismissed at the outset.

Unfortunately, the No-Fault Act is not a model of clarity on the subject of mandatory arbitration, and Minnesota courts have not said much about the arbitration provision. In the usual case, the statute is invoked after an insurer fails to pay a claim. See In re the Claims for No-Fault Benefits Against Progressive Ins. Co., 720 N.W.2d 865, 870-71 (Minn.Ct.App. 2006). It does not appear that § 65B.525 has ever been successfully invoked in a case in which an insurer seeks to recover money that it has already paid on a claim. In fact, at least one court has found (albeit in a different context) that claims brought by insurers for reimbursement of claim payments would not be governed by § 65B.525. See Viking Ins. Co. v. Clayburn, No. CX-97-371, 1997 WL 396220, at *2 (Minn.Ct.App. July 15, 1997).

Moreover, it is not obvious from the language of the statute that the legislature intended that arbitrators decide factual disputes when insurers seek restitution after allegedly being defrauded. The statute requires arbitration of claims "against any insured's reparation obligor for no-fault benefits or comprehensive or collision damage coverage." Minn. Stat. § 65B.525, subd. 1. This lawsuit does not involve any "claim" for "no-fault benefits or comprehensive or collision damage coverage" against an "insured's reparation obligor." Thus, it is not clear why § 65B.525 would apply to this litigation.

Finally, this lawsuit includes claims over which the Court has original jurisdiction, such as the civil RICO claim, which is brought under federal law. The Court very much doubts that the Minnesota Legislature can deprive a federal court of the authority to make the factual findings necessary to adjudicate claims under federal law.

Fortunately, the Court need not address these issues in order to rule on the pending motions. Even on defendants' reading, the No-Fault Act deprives the Court only of jurisdiction to decide factual issues relating to the medical necessity of the MRI scans done by MDI. But the Court need not decide any such factual issues at this time. The question of whether plaintiffs' complaint states a claim upon which relief can be granted is answered by examining the face of the complaint, assuming that all factual allegations are true, and applying the law to those assumed-to-be-true allegations. The pending motions require the Court to resolve legal disputes, not factual disputes, and no one contends that § 65B.525 deprives this Court of jurisdiction to decide legal disputes.

C. Federal Claims

1. RICO (Count Three)

Section 1962(c) of Title 18 makes it "unlawful for any person employed by or associated with any enterprise engaged in... interstate... commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity...." Despite this broad language - and despite the frequency with which civil RICO claims are tossed into kitchen-sink complaints - "RICO does not cover all instances of wrongdoing. Rather, it is a unique cause of action that is concerned with eradicating organized, long-term, habitual criminal activity.'" Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 353 (8th Cir. 2011) (quoting Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir. 2006)). Although RICO is a criminal statute, § 1964(c) provides a civil remedy for "[a]ny person injured in his business or property by reason of a violation of" the law's substantive provisions.

To plead a viable RICO claim, a plaintiff must allege "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'" Wisdom v. First Midwest Bank of Poplar Bluff, 167 F.3d 402, 406 (8th Cir. 1999) (quoting Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985)). The elements of a RICO claim must be pleaded with respect to each individual defendant. See Craig Outdoor Adver., Inc. v. Viacom Outdoor, Inc., 528 F.3d 1001, 1027 (8th Cir. 2008). When the alleged racketeering activity is fraud, the elements of a RICO claim must be pleaded with particularity under Fed.R.Civ.P. 9(b). See Crest Constr. II, 660 F.3d at 353.

Plaintiffs allege that MDI and Appleman formed 13 separate association-in-fact enterprises with chiropractors and chiropractic clinics in Minnesota and Wisconsin. See Compl. ¶¶ 142-55. One of those enterprises is alleged to have been formed with Boke and Assiat Boke Chiropractic, P.A., while another is alleged to have been formed with Poser, Elite Health, and Affinity Health. Id. ¶¶ 143-44.

As explained below, the Court finds that the RICO claim fails for two reasons. First, plaintiffs have not adequately pleaded the commission of predicate acts from which a pattern of racketeering activity could be found. Second, plaintiffs have not pleaded facts showing that the alleged enterprises had a structure that was separate and distinct from the racketeering activity itself. See Crest Constr. II, 660 F.3d at 354-55. Accordingly, the RICO claim is dismissed.

a. Predicate Acts

A pattern of racketeering activity "is shown through two or more related acts of racketeering activity that amount to or pose a threat of continued criminal activity.'" Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 428 (8th Cir. 2009) (quoting Wisdom, 167 F.3d at 406). RICO defines "racketeering activity" as the commission of any of several predicate offenses. See 18 U.S.C. § 1961(1). Among those predicate offenses are mail fraud and wire fraud. See 18 U.S.C. § 1341 (mail-fraud statute); 18 U.S.C. § 1343 (wire-fraud statute).

Plaintiffs contend that each of the alleged association-in-fact enterprises, acting through MDI and Appleman, submitted fraudulent insurance claims under the No-Fault Act in violation of the mail-fraud and wire-fraud statutes. These insurance claims constitute the predicate acts upon which the alleged pattern of racketeering activity is based. If plaintiffs have not adequately pleaded facts showing that the insurance claims were fraudulent, then plaintiffs have failed to ...


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