Government Employees Insurance Company et al v. Analgesic Healthcare, Inc. et al
Judge Richard G. Stearns: ORDER entered granting 23 Motion to Dismiss. "For the forgoing reasons, defendants' motion to dismiss is ALLOWED. The Clerk will enter the dismissal and close the case." (RGS, int2)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 16-11970-RGS
GOVERNMENT EMPLOYEES INSURANCE COMPANY et al.
ANALGESIC HEALTHCARE, INC. and
MEMORANDUM AND ORDER ON
DEFENDANTS’ MOTION TO DISMISS
March 28, 2017
Government Employees Insurance Company and several subsidiary
and sister auto insurers (collectively GEICO) allege that defendant Analgesic
Healthcare, Inc. (AHI), and its principal, Roy Edgerton, perpetrated a
scheme to bilk GEICO into reimbursing the purchase of transcutaneous
electrical nerve stimulation (TENS) devices1 and associated accessories.
According to the Complaint, although TENS devices retail at approximately
$40-$55, AHI typically sought a payment of $795 per unit. AHI, in turn,
kicked back a portion of the hyper-inflated price to health care providers for
prescribing its equipment.
TENS devices reduce feelings of pain by sending electrical currents to
AHI captures orders for durable medical equipment by bribing
and paying kickbacks to health care providers. AHI pays $200
to each doctor, physical therapist, and chiropractor who
prescribes and orders portable pain-reduction equipment for
transmissions, AHI admits that practitioners receive $200 per
“file” that they “identify” for ordering AHI equipment.
Compl. ¶ 2. In addition, “AHI profits from its bribes and kickbacks by
intentionally engaging in several deceptive and abusive patterns of conduct,
i.e., excessively inflating prices for equipment, over-reporting the quantity of
supplies issued to patients, and replenishing supplies far earlier than
necessary.” Id. ¶ 4. GEICO’s Complaint sets out eight claims: Violations of
The Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. §
1962(c) as to Edgerton (Count I); Conspiracy to Violate RICO, 18 U.S.C. §
1962(d) (Count II); Common Law Fraud (Count III); Money Had and
Received as to AHI (Count IV); Unfair and Deceptive Trade Practices (Count
V); Breach of Fiduciary Duty (Count VI); Participation in Breach of Fiduciary
Duty by Another (Count VII); and Declaratory Judgment as to AHI (Count
AHI and Edgerton move to dismiss the Complaint, asserting, inter alia,
that GEICO has failed to state a viable RICO claims because the allegations
do not meet the specificity requirement of Fed. R. Civ. P. 9(b), and because
AHI owed no duty to GEICO to disclose its $200 kickbacks to providers.
Defendants also contend that GEICO failed to plausibly allege an
association-in-fact to sustain the enterprise element of the RICO conspiracy
set out in Count II. RICO makes it “unlawful for any person employed by or
associated with any 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.” 18 U.S.C. § 1962(c).2
The term “enterprise” “includes any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). Count I
of the Complaint alleges that “AHI constitutes an ‘enterprise.’” Compl. ¶ 284.
Count II does not separately identify an enterprise, but alleges that
“Edgerton and AHI intentionally conspired with each other, as well as other
persons known and unknown to GEICO, to further facilitate, support, and/or
operate an association-in-fact enterprise.” Compl. ¶ 319.
Defendants first argue that, with respect to Count II, AHI cannot both
be an alleged co-conspirator and the “enterprise” within the meaning of
RICO, because “the ‘person’ alleged to be engaged in a racketeering activity
Under 18 U.S.C. § 1962(d), “[it] shall be unlawful for any person to
conspire to violate” a substantive provision of RICO.
(the defendant, that is) must be an entity distinct from the ‘enterprise;’ under
§ 1962(c) the enterprise is not liable.” Odishelidze v. Aetna Life & Cas. Co.,
853 F.2d 21, 23 (1st Cir. 1988). GEICO does not dispute this point of law, but
in its briefs, contends instead that AHI’s “referral network” of healthcare
providers is the distinct association-in-fact of Count II. “[T]he referrers were
separate from and outside AHI itself; the agreements used by AHI,
emphasize that referrers are ‘independent.’” Opp’n. at 11 (emphasis in
Distinctness from the RICO actor, however, is not the only requirement
of an association-in-fact.
From the terms of RICO, it is apparent that an association-in-fact
enterprise must have at least three structural features: a purpose,
relationships among those associated with the enterprise, and
longevity sufficient to permit these associates to pursue the
enterprise’s purpose. As we succinctly put it in [United States v.]
Turkette, an association-in-fact enterprise is “a group of persons
associated together for a common purpose of engaging in a
course of conduct.” 452 U.S. [576,] 583 [(1981)].
Boyle v. United States, 556 U.S. 938, 946 (2009). GEICO maintains that the
network of healthcare providers exhibit the structural features of Boyle
because the providers “all opted-in  as ‘independent’ ‘agent,’ ‘contractor,’
or ‘representative’ of AHI,” Opp’n at 11 (emphasis in original), “as being
familiar with defendants’ unsolicited facsimile advertisements, would have
been aware that defendants’ referral network is extensive,” id., and “had a
common purpose to aid AHI in obtaining insurance benefits for [durable
medical equipment] prescribed by the network,” id. at 12.
The court agrees with defendants, however, that the allegations of the
Complaint do not support the inference that the healthcare providers
“associated together for a common purpose.” According to the Complaint,
the providers – including doctors, physical therapists, and chiropractors –
hail from “at least 45 states and a U.S. territory.” Compl. ¶ 142. While the
diverse and geographically disparate providers are alleged to have engaged
in parallel conduct – that they each prescribed AHI equipment to a GEICO
insured and received kickbacks from AHI – the Complaint says nothing
about how the providers coordinated or collaborated with each other, or even
knew one another to be participants in the same scheme. See Boyle, 556 U.S.
at 946 (“The concept of ‘associat[ion]’ requires both interpersonal
relationships and a common interest.”).
As the Supreme Court has made clear, allegations that “individuals,
independently and without coordination, engaged in a pattern of crimes
listed as RICO predicates” fail to make out the existence of an association-infact enterprise. Id. at 947 n.4. In In re Insurance Brokerage Antitrust
Litigation, 618 F.3d 300 (3d Cir. 2010), the Third Circuit dismissed as
inadequate allegations of RICO associations-in-fact where defendant
insurance brokers allegedly funneled particular clients to particular groups
of insurers in a scheme intended to control prices and improperly curtail
“[A]lthough plaintiffs had adequately alleged bilateral
agreements (regarding the steering of business and the payment of
contingent commissions) between each broker and its insurer-partners,
plaintiffs had failed to plead facts plausibly suggesting collaboration among
the insurers. The asserted hub-and-spoke structures therefore lacked a
“unifying ‘rim.’” Id. at 374. Similarly, while GEICO adequately alleges that
each provider accepted AHI’s offer of a kickback in exchange for the
prescription of AHI equipment, there is no “unifying rim” even hinting that
that the providers acted collectively.
In the case of In re Lupron Mktg. & Sales Practices Litig., 295 F. Supp.
2d 148 (D. Mass. 2003), this court rejected a highly analogous theory that
physicians who prescribed an expensive prostate cancer drug constituted a
RICO association-in-fact in an alleged scheme to artificially inflate drug
“Common purpose” does not mean commonality of motive, it
means coordinated activity in pursuit of a common objective.
See [Libertad v.] Welch, 53 F.3d [428,] 443 [(1st Cir. 1995)]
(“[S]imilarity of goals and methods does not suffice to show that
an enterprise exists; what is necessary is evidence of systematic
linkage, such as overlapping leadership, structural or financial
ties, or continuing coordination.”). Here, as defendants point
out, there are no allegations (and it is difficult to see how there
could be) that the thousands of doctors who benefitted from
discounted purchases or free samples of Lupron® were
associated together in any meaningful sense, or were even aware
of one another’s existence as participants in a scheme to defraud.
See Feinstein [v. Resolution Trust Corp.], 942 F.2d [34,] 41 n. 7
[(1st Cir. 1991)]; Blue Cross of California v. SmithKline Beecham
Clinical Labs., Inc., 62 F. Supp. 2d 544, 553 (D. Conn. 1998).
Without the elements of organization and control, whether
informal or formal, and the existence of an association, whether
legal or factual, any group of persons sharing a common
occupation, e.g., urologists and lawyers, and a similar motive,
e.g., greed, could be held to constitute a RICO enterprise. This
essentially is all that plaintiffs have alleged.
Id. at 173-174. Because GEICO’s Complaint also alleges a “group of persons
sharing a common occupation . . . and a similar motive,” but goes no further
in establishing an association among these persons, Count II does not
adequately plead the enterprise element of RICO and will be dismissed.
Absent the presence of AHI as a RICO defendant, the remainder of the
Complaint will be dismissed for improper venue. Under the RICO venue
statute, “[a]ny civil action or proceeding under this chapter against any
person may be instituted in the district court of the United States for any
district in which such person resides, is found, has an agent, or transacts his
affairs.” 18 U.S.C § 1965(a). GEICO has not rebutted defendants’ assertion
that the Complaint does not establish any jurisdictional contacts between
Edgerton, a Florida resident and the sole remaining RICO defendant, and
the state of Massachusetts. See Mem. at 13 n.8. Under the general venue
statute, a civil action may be brought in
(1) a judicial district in which any defendant resides, if all
defendants are residents of the State in which the district is
(2) a judicial district in which a substantial part of the events or
omissions giving rise to the claim occurred, or a substantial part
of property that is the subject of the action is situated; or
(3) if there is no district in which an action may otherwise be
brought as provided in this section, any judicial district in which
any defendant is subject to the court’s personal jurisdiction with
respect to such action.
28 U.S.C § 1391(b). As AHI and Edgerton are both Florida residents, and
Massachusetts is one of “at least 45 states and a U.S. territory” where the
alleged kickback scheme took place, this state is not “a judicial district in
which a substantial part of the events . . . giving rise to the claim occurred”
and is not the proper venue for this dispute.
For the forgoing reasons, defendants’ motion to dismiss is ALLOWED.
The Clerk will enter the dismissal and close the case.
/s/ Richard G. Stearns
UNITED STATES DISTRICT JUDGE
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