United States District Court, D. Minnesota
Liberty Mutual Fire Insurance Company, LM Insurance Corporation, LM General Insurance Corporation, the First Liberty Insurance Corporation, Safeco Insurance Company of Indiana, and Safeco Insurance Company of Illinois, Plaintiffs,
Acute Care Chiropractic Clinic P.A., Arthur Guzhagin D.C., Healthy Living Chiropractic Clinic P.C., Lake Nicollet Clinic P.A., Midwest Chiropractic Clinic P.C., Najah Ibrahim, Southwest Management LLC, and St. Paul Wellness Clinic P.A., Defendants
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Travis J. Adams and Bryan J. Chant, Law Offices of Thomas P. Stilp, Golden Valley, Minnesota, for Plaintiffs.
Adam A. Gillette and Douglas L. Elsass, Fruth, Jamison & Elsass, Minneapolis, Minnesota, for Defendants Acute Care Chiropractic Clinic P.A., Arthur Guzhagin D.C., Healthy Living Chiropractic Clinic P.C., Lake Nicollet Clinic P.A., St. Paul Wellness Clinic P.A., and Midwest Chiropractic Clinic P.C.
Leny K. Wallen-Friedman, Paul M. Floyd, and Diana Young Morrissey, Wallen-Friedman & Floyd, P.A., Minneapolis, MN, for Defendants Najah Ibrahim and Southwest Management LLC.
MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, United States District Judge.
This matter is before the Court on Defendants Acute Care Chiropractic Clinic P.A., Arthur Guzhagin D.C., Healthy Living Chiropractic Clinic P.C., Lake Nicollet Clinic P.A., Midwest Chiropractic Clinic P.C., and St. Paul Wellness Clinic P.A.'s (collectively, " Defendants" ) Motion to Dismiss [Doc. No. 8]. For the reasons set forth below, the motion is denied.
In 1974, the State of Minnesota enacted the Minnesota No-Fault Automobile Insurance Act, or the " No-Fault Act", in order to facilitate the orderly and efficient administration of justice within the state, in response to the detrimental impact of
automobile accidents on uncompensated injured persons. See Minn. Stat. § 65B.42 (2014). The No-Fault Act calls for a minimum payment of $20,000 in medical expense benefits and $20,000 in income loss, replacement services loss, funeral expense loss, survivor's economic loss, and survivor's replacement services loss benefits to victims of automobile accidents, without regard to fault for the accident. See Minn. Stat. § 65B.44, subd. 1. Victims of motor vehicle accidents who are seeking medical treatment for their injuries are required to submit benefit applications with their primary insurance companies. See Minn. Stat. § 65B.55, subd. 1.
A. The Parties
Plaintiffs Liberty Mutual Fire Insurance Company, LM Insurance Corporation, LM General Insurance Corporation, The First Liberty Insurance Corporation, Safeco Insurance Company of Indiana, and Safeco Insurance Company of Illinois are insurance companies that do business in the State of Minnesota and issue policies that conform to the No-Fault Act. See Minn. Stat. § 65B et. seq. (Compl. ¶ 4 [Doc. No. 1].)
Defendants Acute Care Chiropractic Clinic P.A., Healthy Living Chiropractic Clinic P.C., Lake Nicollet Clinic P.A., Midwest Chiropractic Clinic P.C., and St. Paul Wellness Clinic P.A [hereinafter, " Defendant Clinics" ], are health clinics and providers who provide chiropractic care for car accident victims (id. ¶ 26), and submit patient bills to Plaintiffs pursuant to the No-Fault Act (id. ¶ 43). Dr. Arthur Guzhagin is a licensed chiropractor in the State of Minnesota and is the " paper owner" of the Defendant Clinics.(Id. ¶ 16.) Najah Ibrahim is a layperson, who is a citizen of Minnesota, and is not a licensed medical professional. (Id. ¶ 19.) Southwest Management, LLC [hereinafter, " Southwest Management" ] is a lay, limited liability company, whose sole member is Ibrahim. (Id. ¶ 20.)
B. Defendants are Allegedly " Associated-in-Fact"
This lawsuit arises from Defendant Clinics allegedly fraudulently billing Plaintiffs for medical treatment provided to car accident victims. Plaintiffs claim that while each clinic is legally incorporated separately, Defendants are " associated-in-fact." (Id. ¶ 53.) Or, in other words, Defendants are allegedly run as a single enterprise. Plaintiffs allege that Defendants " colluded [in order] to submit illegal and unlawful charges to insurance carriers, including Plaintiffs." (Id.)
Specifically, Plaintiffs claim that:
Upon information and belief, Defendant Clinics are operated in a consolidated fashion . . . [as] Defendant Clinics commingle funds between their various financial accounts, operate in an underfunded fashion and pay expenses for one
clinic from another clinics operating account, use same or similar electronic patient care record systems, grant direct and indirect access to confidential patient care records to chiropractors working at other Defendant Clinics.
Id. ¶ 25.)
To support their claim that Defendant Clinics are run in an underfunded fashion, Plaintiffs allege that the " Defendant Clinics do not pay practice relief physicians for services rendered." (Id. ¶ 41.) In fact, Plaintiffs claim that " Defendant Clinics require  employee chiropractors [to] pay practice relief physicians from their personal financial accounts." (Id.) As an example, Plaintiffs allege that Confidential Informant 4 [hereinafter, " CI-4" ], a practice relief physician employed by Acute Care, was paid by Giles from Giles' personal checking account. (Id. ¶ 38.)
Plaintiffs support their claim that Defendant Clinics are a single enterprise with several alleged facts. First, Plaintiffs allege that the interconnected relationship between all Defendant entities is demonstrated by the fact that a single clinic's employees receives payment from a different clinic or entity, for whom the employee does not actually work. (See id. ¶ 36.) For instance, Confidential Informant 3 [hereinafter, " CI-3" ] was hired to serve as a full-time physician at Healthy Living, Midwest Chiropractic, and St. Paul Wellness. (Id.) CI-3 was allegedly paid by certain Defendant Clinics for services that he rendered while working at a completely different Defendant Clinic. Specifically, (1) St. Paul Wellness, (2) Southwest Management, (3) Healthy Living, and (4) Midwest Chiropractic, allegedly paid CI-3 for chiropractic services that he actually rendered only at St. Paul Wellness. (Id.) Moreover, although he was never employed by Southwest Management, Southwest Management issued an IRS-1099 tax form to CI-3 for his work at St. Paul Wellness. (Id. ¶ 40.)
To further substantiate their claim that Defendants are associated-in-fact, Plaintiffs claim that Brooke Giles, a licensed chiropractor and employee of Dr. Guzhagin, provided deposition testimony on November 22, 2013, in the matter of Ali v. Safeco Insurance Company, wherein she confirmed that at least three of the Defendant Clinics are " one in the same." (Id. ¶ 37.) Giles discussed the singular, overarching ownership structure of Acute Care, Midwest Chiropractic, and Lake Nicollet, while also explaining that these three facilities share access to patient health care records. (Id.)
C. Defendant Clinics are Allegedly Owned by Layperson Defendant Ibrahim and/or Lay Company Defendant Southwest Management
In addition to alleging that Defendant Clinics are associated-in-fact, Plaintiffs claim that although Defendant Guzhagin incorporated and legally owns each Defendant Clinic, Defendant Clinics are actually owned by lay person Ibrahim and/or his corporation Southwest Management. (Id. ¶ 25.)
Plaintiffs bolster their allegation about Ibrahim's ownership-in-fact by describing Ibrahim's relationship with the Defendant Clinics. Specifically, Plaintiffs allege that " Ibrahim and/or Southwest Management is an established 'marketer' or runner having operated services such as 1-800-PAIN-TEAM and promotes the Defendant Clinics by bringing new patients to the Defendant Clinics for treatment after motor vehicle accidents." (Id. ¶ 26.) In fact, Confidential Informant 1 [hereinafter, " CI-1" ] stated that as an employee of Healthy Living Chiropractic, he was aware that Ibrahim worked as a " marketer" for that clinic. (Id. ¶ 34.) However, Minnesota law prohibits Defendant Clinics from
employing a " runner", or someone " who for a pecuniary gain directly procures or solicits prospective patients . . . at the direction of, or in cooperation with, a health care provider when the person knows or has reason to know that the provider's purpose is to perform or obtain services or benefits under or relating to a contract of motor vehicle insurance." (Id. ¶ 28 (citing Minn. Stat. § 609.612 (2013).)
Chiropractors who work for the Defendant Clinics are allegedly told that Ibrahim is a " friend of Guzhagin." (Id. ¶ 26.) For instance, Giles stated in deposition testimony in another case that Ibrahim was a friend of Guzhagin and would refer patients to the clinics. (Id. ¶ 37.) Additionally, " Ibrahim is [allegedly] granted access to office space at the Defendant Clinics and is considered by the Confidential Informants to have influence on the management and operation of the clinics." (Id. ¶ 26.)
Plaintiffs further allege that Defendant Guzhagin affirmatively misrepresented that the Defendant Clinics were operated separately and owned solely by Dr. Guzhagin. (See id.
¶ 61.) They claim that Dr. Guzhagin wrote, in an undated letter to Michael Struebing of Liberty Mutual Insurance Company, that " I am the sole owner of the clinics. You also asked whether the facilities work in conjunction with one another or are operated separately. The clinics are operated separately." (Id.) Although the letter was undated, Struebing allegedly received this letter on July 11, 2013. (Id.)
Plaintiffs claim that Ibrahim's alleged ownership of the clinics violates the Corporate Practice of Medicine Doctrine (" CPMD" ), which prohibits chiropractic clinics from being owned in whole, or part, by unlicensed laypersons. See, e.g., Isles Wellness, Inc. v. Progressive N. Ins. Co., 725 N.W.2d 90, 95 (Minn. 2006) [hereinafter, " Isles II" ]; Isles Wellness, Inc. v. Progressive N. Ins. Co., 703 N.W.2d 513, 517 (Minn. 2005) [hereinafter, " Isles I" ]; Granger v. Adson, 190 Minn. 23, 250 N.W. 722 (Minn. 1933). Moreover, Plaintiffs argue that Defendant Guzhagin was aware of the CPMD and knowingly violated it because: (1) the Minnesota Board of Chiropractic Examiners released a notice in January 1999, explaining that all owners and decision makers of professional firms must be comprised of persons licensed to practice those services; and thus, he was likely aware of this notice when he acquired his chiropractic license on February 1, 2006 (see Compl. ¶ 59 [Doc. No. 1]); and (2) Defendant Guzhagin acknowledged the CPMD in Guzhagin v. State Farm Mut. Auto. Ins. Co., 566 F.Supp.2d 962, 970 n.8 (D. Minn. 2008), a previous lawsuit to which he was a party (see Compl. ¶ 59 [Doc. No 1]).
Defendant Clinics submitted patient bills to Plaintiffs on Health Insurance Claim Forms or HCFA-1500 forms. (Compl. ¶ 43 [Doc. No. 1].) Plaintiffs allege that Defendants represented, by submitting HCFA-1500 forms, that: " (1) the services on the form were medical indicated [sic] and necessary for the health of the patient; (2) the services were personally furnished by that medical provider or by a qualified employee under the medical provider's personal direction; and [most importantly,] (3) the medical provider was authorized to perform such services." (See Compl. ¶ 43 [Doc. No. 1].)
In relevant part, the HCFA-1500 form contains two separate notices. One warns that: " [a] person who knowingly files a statement of claim containing any misrepresentation or any false, incomplete or misleading information may be guilty of a criminal act punishable under law and may be subject to civil penalties." (See Gillette Aff., Ex. A [Doc. No. 19-1].) The other notice pertains specifically to physicians or
suppliers completing the form and states that " [a]ny one who misrepresents or falsifies essential information to receive payment from Federal funds requested by this form may upon conviction be subject to fine and imprisonment under applicable Federal laws." (See id.) Plaintiffs contend that by completing the physician or supplier information on the HCFA-1500 forms, Defendants implied that they were eligible for reimbursement, and that they were not operating in violation of Minnesota law or the CPMD.
According to Plaintiffs, each claim form Defendants submitted was fraudulent because each form contained misleading information, insofar as it implied that the clinics were lawfully owned and operated, and therefore, eligible for reimbursement under the No-Fault Act. (See Compl. ¶ 43 [Doc. No. 1].) In addition to Defendants allegedly misrepresenting their essential ownership information on federal forms, Defendant Guzhagin allegedly lied to Plaintiffs more directly. Plaintiffs allege that, on July 11, 2013, Defendant Guzhagin directly stated to Plaintiffs in a letter that he is the sole owner of the clinics. (See id. ¶ 63 [Doc. No. 1].)
HCFA-1500 forms, as well as supporting documentation, were sent to Plaintiffs via United States Postal Service, facsimile, and/or wire. (Id. ¶ ¶ 44, 60-63.) Plaintiffs allege that Defendants unlawfully billed Plaintiffs over $834,060 because the clinics are owned, at least in part, by a layperson or lay company. (Id. ¶ 6.) Plaintiffs explain that Defendants' alleged misrepresentation was " material because the information submitted to Plaintiffs . . . largely determined whether Plaintiffs would voluntarily issue payment." (Id. ¶ 114.) In other words, Plaintiffs would have not issued payment for the bills submitted by Defendants if they knew of Defendants' alleged corporate practice of medicine.
D. Additional Facts Alleged
Unrelated to Plaintiffs' claims of corporate ownership and fraud stemming from Defendants' corporate ownership, Plaintiffs allege several other facts. Plaintiffs claim that " Defendant Clinics attempt to treat accident victims regardless of injury status," and on at least one occasion, a patient reported that a chiropractor at Midwest Chiropractic deliberately intended to injure the patient's neck in order to substantiate an insurance claim. (Id. ¶ 33.)
Plaintiffs also allege that according to Confidential Informant 2 [hereinafter, " CI-2" ], Dr. Guzhagin " would attempt to influence her treatment recommendations by making comments to her about the treatment that she had rendered without ever personally treating the patient." (Id. ¶ 35.) Similarly, Plaintiffs note that Defendant Clinics treated patients " unnecessarily and/or without objective evidence of injury." (Id. ¶ 33.) Thus, Plaintiffs appear to allege that some unidentified number of claims by unidentified patients at unidentified clinics were not medically necessary. (See id.)
Finally, Plaintiffs claim that Dr. Guzhagin " has been involved in other schemes to knowingly and intentionally violate the corporate practice of medicine." (Id. ¶ 45.) Plaintiffs' discussion of Dr. Guzhagin's former fraud scheme, which was allegedly perpetrated in 2009 in conjunction with a non-board certified doctor, is not directly relevant to the facts pertaining to this case. Plaintiffs' claim about poor or unnecessary treatment that occurs at Defendant Clinics is also not directly relevant to Plaintiffs' allegation of Defendants' corporate ownership. Rather, it appears that Plaintiffs include these allegations to demonstrate that it is plausible that Dr. Guzhagin is involved in a fraudulent scheme in this case, since he allegedly recommended
unnecessary medical treatments and was involved earlier in a similar fraud scheme. (See id.)
E. Procedural Posture and Plaintiffs' Claims
Plaintiffs filed their Complaint on July 2, 2014. (See generally Compl. [Doc. No. 1].) Plaintiffs' Complaint is based upon eight causes of action. In Count I, Plaintiffs allege that Defendants engaged in mail fraud and wire fraud in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et. seq., by submitting bills to Plaintiffs by mail and by wire under the false pretense that Defendant Clinics were properly incorporated, properly owned, and legally authorized to render treatment in the State of Minnesota. (Id. ¶ ¶ 46-68.) In Count II, Plaintiffs claim that Defendants violated the CPMD, which prohibits chiropractic clinics from being owned in whole, or in part, by unlicensed laypersons. (Id. ¶ ¶ 69-78.) In Count III, Plaintiffs allege that Defendants violated the Minnesota Professional Firms Act by issuing and/or authorizing legal, or in-fact, ownership interests to persons and/or limited liability companies not licensed to render at least one category of the pertinent professional services. (Id. ¶ ¶ 79-91.) In Count IV, Plaintiffs claim that Defendants would be unjustly enriched if the Court permits them to retain funds received through violations of the CPMD and the Minnesota Professional Firms Act. (Id. ¶ ¶ 92-97.)
In Count V, Plaintiffs seek to recover the Minnesota No-Fault benefits they paid as a result of Defendants' alleged intentional misrepresentations regarding their lay ownership. (Id. ¶ ¶ 98--104.) In Count VI, Plaintiffs allege that Defendants violated the Minnesota Consumer Protection Act, Minn. Stat. § 325F, by utilizing false information and/or deceptive practices when they represented that they were properly owned and legitimate. (Id. ¶ ¶ 105-12.) In Count VII, Plaintiffs contend that Defendants engaged in common law fraud by falsely representing that the services they performed for Plaintiffs' insureds were legal and proper, when, in fact, Defendants were aware that their operations were in violation of Minnesota law. (Id. ¶ ¶ 113-19.) Finally, in Count VIII, Plaintiffs allege that Defendants engaged in negligent misrepresentation by failing to use reasonable care or competence in communicating billing information to Plaintiffs, because Defendants falsely represented to Plaintiffs that they were not lay-owned and not operating in violation of Minnesota law. (Id. ¶ ¶ 120-25.)
Plaintiffs allege that Defendants are jointly and severally liable for Counts II through VIII because Defendants acted in a common scheme and plan to defraud Plaintiffs. (See id. ¶ ¶ 77, 90, 97, 104, 112, 119, 125.) Accordingly, Plaintiffs seek to enjoin the clinics from operating in violation of law (id. at 34), and they seek to recover an amount in excess of $75,000 from Defendants for amounts paid or billed (id. ¶ 6).
Defendants filed a Motion to Dismiss Plaintiffs' Complaint on September 2, 2014 [Doc. No. 8], along with a supporting memorandum [Doc. No. 18], and an affidavit
with an attached exhibit [Doc. No. 19]. Plaintiffs filed an opposition memorandum on October 20, 2014 [Doc. No. 20], with a declaration and an attached exhibit [Doc. No. 21]. Defendants filed a reply brief on October 27, 2014 [Doc. No. 22], and the matter was heard on November 10, 2014 [Doc. No. 23]. Plaintiffs filed a supplemental opposition memorandum on November 13, 2014 [Doc. No. 24].
A. Standard of Review
Defendants move to dismiss Plaintiffs' Complaint for lack of subject matter jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(1), and for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6). (See Defs.' Mot. to Dismiss [Doc. No. 8].)
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for lack of subject matter jurisdiction. When considering a Rule 12(b)(1) motion, a district court may consider matters outside the pleadings. Satz v. ITT Fin. Corp., 619 F.2d 738, 742 (8th Cir. 1980). " [N]o presumptive truthfulness attaches to the plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiff will have the burden of proof that jurisdiction does in fact exist." Osborn v. United States, 918 F.2d 724, 730 (8th Cir. 1990). Federal district courts have subject matter jurisdiction over civil actions that involve a federal question or diversity of citizenship. See 28 U.S.C. § § 1331-1332. Federal question jurisdiction exists when the action arises " under the Constitution, laws, or treaties of the United States." Id. § 1331. Diversity jurisdiction exists when the case is between citizens of different states and the amount in controversy exceeds $75,000. Id. § 1332(a).
When evaluating a motion to dismiss under Rule 12(b)(6), the Court assumes the facts in the Complaint to be true and construes all reasonable inferences from those facts in the light most favorable to Plaintiff. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). However, the Court need not accept as true wholly conclusory allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions Plaintiff draws from the facts pled,Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). In addition, the Court ordinarily does not consider matters outside the pleadings on a motion to dismiss. See Fed.R.Civ.P. 12(d). The Court may, however, consider exhibits attached to the complaint and documents that are necessarily embraced by the pleadings, Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003), and may also consider public records, Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007).
To survive a motion to dismiss, a complaint must contain " enough facts to state a claim to relief that is plausible on its face." Bell A. Corp. v. Twombly,550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a complaint need not contain " detailed factual allegations," it must contain facts with enough specificity " to raise a right to relief above the speculative level." Id. at 555. " Threadbare recitals of the elements of a cause of action, supported by mere conclusory ...