Spine Imaging MRI, L.L.C. v. Liberty Mutual Insurance Company et al
Filing
216
MEMORANDUM OPINION AND ORDER (1) Granting Spine Imaging's 117 Motion to Dismiss/General and/or Strike Defendant Allstate Insurance Company's Counterclaim. Allstate's counter claim for attorneys' fees and costs is dismissed without prejudice. (2) Granting in part and denying in part Spine Imaging's 119 Motion to Dismiss/General Defendant Liberty Mutual Fire Insurance Co mpany's Amended Counterclaims. Motion is granted as to Counterclaims I, II, and V as alleged against Liberty in defendant Liberty Mutual Fire Insurance Company's 126 Answer and Counterclaim and Third Party Complaint. Counterclaim s I, II, and V as alleged against Liberty are dismissed. The motion is denied in all other respects. (3) Granting in part and denying in part Third-Party Defendants William Ford and Northstar Radiology Corporation, P.A.'s 140 Motion to Dismiss/General Third Party Complaint.Motion is granted as to Count V in defendant Liberty Mutual Fire Insurance Company's 126 Answer and Counterclaim and Third-Party Complaint. Count V is d ismissed. The motion is denied in all other respects. (4) Granting in part and denying in part Third-Party Defendants Eduardo Bullon, Hans Michal Castro, Central Medical Clinic, LLC, and Alfonso Morales-U trilla's 142 Motion to Dismiss/General Third Party Complaint. Motion is granted as to Count V in defendant Liberty Mutual Fire Insurance Company's 126 Answer and Counterclaim and Third Party Complaint. Count V is dismissed. The motion is denied in all other respects. (5) Denying American Family Mutual Insurance Company's 181 Motion for Summary Judgment. Defendant American Family Mutual Insurance Company is dismissed without prejudice. (6) Denying American Family Mutual Insurance Company's 198 Motion for Sanctions (Written Opinion). Signed by Judge John R. Tunheim on August 22, 2011. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
SPINE IMAGING MRI, L.L.C., a
Minnesota limited liability company,
Plaintiff,
Civil No. 09-1963 (JRT/AJB)
v.
LIBERTY MUTUAL INSURANCE
COMPANY; ALLSTATE INSURANCE
COMPANY; and AMERICAN FAMILY
MUTUAL INSURANCE COMPANY,
Defendants.
LIBERTY MUTUAL INSURANCE
COMPANY, and ALLSTATE
INSURANCE COMPANY,
Counterclaim Plaintiffs,
v.
SPINE IMAGING MRI, L.L.C.,
Counterclaim Defendant.
LIBERTY MUTUAL INSURANCE
COMPANY,
Third Party Plaintiff,
v.
EDUARDO BULLON, RAFAEL
MENDEZ, CENTRAL MEDICAL
CLINIC, L.L.C., DR. ALFONSO
MORALES-UTRILLA, NORTHSTAR
RADIOLOGY CORPORATION, P.A.,
DR. WILLIAM FORD, and DR. HANS
MICHAEL CASTRO,
Third Party Defendants.
21
MEMORANDUM OPINION
AND ORDER
Eric C. Tostrud, David W. Asp, and Matthew R. Salzwedel, LOCKRIDGE
GRINDAL NAUEN PLLP, 100 Washington Avenue South, Suite 2200,
Minneapolis, MN 55401-2179, for plaintiff/counterclaim defendant Spine
Imaging, MRI, L.L.C., and third-party defendants Eduardo Bullon, Rafael
Mendez, Central Medical Clinic, LLC, Dr. Alfonso Morales-Utrilla, and
Dr. Hans Michael Castro.
Sharie L. Lowden and Michael W. Lowden, LOWDEN LAW FIRM,
4737 County Road 101, Suite 304, Minnetonka, MN 55345, for
defendant/counterclaim plaintiff Liberty Mutual Insurance Company.
Bradley L. Doty, Richard S. Stempel, Robert J. Anthonsen, and Steven P.
Pope, STEMPEL & DOTY PLC, 41 Twelfth Avenue North, Hopkins,
MN 55343, for defendant/counterclaim plaintiff Allstate Insurance
Company.
Paula Duggan Vraa, Mark A. Solheim, and Hilary J. Loynes, LARSON
KING, LLP, 30 East Seventh Street, Suite 2800, St. Paul, MN 551014922, for defendant American Family Mutual Insurance Company.
Alyson M. Palmer and Donald Chance Mark, Jr., FAFINSKI MARK &
JOHNSON, PA, 775 Prairie Center Drive, Suite 400, Eden Prairie, MN
55344, for third-party defendants Northstar Radiology Corporation, P.A.
and Dr. William Ford.
Plaintiff Spine Imaging MRI, L.L.C. (“Spine Imaging”) provides medical imaging
services to individuals with neck and spine injuries. Spine Imaging brought the instant
action against defendant-insurers Liberty Mutual Fire Insurance Company (“Liberty”),
Allstate Insurance Company (“Allstate”) and American Family Mutual Insurance
Company (“American Family”) (collectively, “defendants”), alleging claims for breach
of contract, declaratory judgment, and unjust enrichment arising out of defendants’
refusal to pay for medical imaging services provided by Spine Imaging to defendants’
policyholders. Liberty and Allstate filed counterclaims seeking a declaration that Spine
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Imaging is knowingly operating in violation of the corporate practice of medicine
doctrine (“CPMD”) and seeking recovery of benefits paid to Spine Imaging. American
Family did not file any counterclaims. Liberty filed a third-party complaint against
several other individuals and businesses (“third-party defendants”) associated with Spine
Imaging, asserting the same claims as the counterclaims against Spine Imaging. Before
the Court is Spine Imaging’s motion to dismiss Allstate’s counterclaims, third-party
defendants’ and Spine Imaging’s motions to dismiss Liberty’s claims and counterclaims,
and American Family’s motions for summary judgment and sanctions. Because the
Court finds the declaratory judgment sought by all defendants is the obverse to that
sought by Spine Imaging, those counterclaims are dismissed. The Court also determines
that Liberty’s counterclaims and third-party claims as they plead fraud, recovery of
benefits, and unjust enrichment are sufficient to survive a motion to dismiss, however the
claim of champerty/maintenance fails to state a claim. Finally, because the Court finds
no controversy exists between American Family and Spine Imaging, the Court dismisses
the claims without prejudice for lack of subject matter jurisdiction but denies sanctions
because Spine Imaging had a good faith reason to believe one existed.
BACKGROUND
Spine Imaging provides magnetic-resonance imaging (“MRI”) to assist physicians
and chiropractors in the diagnosis and treatment of various medical conditions, with a
specific focus on the neck and spine. (Second Am. Compl. ¶ 18, Docket No. 103.) MRI
technology provides images of the human body that can be used to assist in diagnosing
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various medical conditions and to assess the most effective course of treatment. (Id. ¶
21.)
Spine Imaging alleges that there are two steps to providing medical imaging
services. The first step, the “technical component,” “involves physically taking the MRI
scan itself. This first step is a mechanical process that can be performed by trained MRI
technicians[,]” which Spine Imagine employs.
(Id. ¶ 25.)
The second step, the
“professional component,” “involves interpreting the image that results from the MRI
scan [which] must be performed by a licensed physician or chiropractor.” (Id. ¶ 26.)
Spine Imaging claims it only provides the technical component of the MRI services, but
maintains “independent-contractor relationships with board certified radiologists,
neuroradiologists, and skeletal radiologists, who provide patients with interpretational
MRI services and prepare summary reports.” (Id. ¶ 28.)
Spine Imaging concedes that it is not owned or operated by a licensed physician or
chiropractor, and also avers that it does not employ licensed physicians or chiropractors
as part of its medical imaging services. (Id. ¶¶ 19-20.) Spine Imaging is solely owned
and operated by Eduardo Bullon. (Id. ¶ 19.) Spine Imaging actively markets its services
to the chiropractic community to provide services to individuals who have suffered neck
and spine injuries in automobile accidents. (Id. ¶ 31.) Spine Imaging’s services have
been in demand. (Id. ¶¶ 32-41.)
In Minnesota, “no-fault” automobile insurance covers the cost of treatment for
most accident victims.
(Id. ¶ 42.)
Defendants all provide “no-fault” automobile
insurance in Minnesota, and some of Spine Imaging’s clients have insurance policies
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with defendants and have received reimbursement from defendants for MRI services
provided by Spine Imaging. (Id. ¶ 43.) In spring 2009, Spine Imaging alleges defendants
ceased reimbursing it for MRIs provided to defendants’ policyholders. (Id. ¶ 49.) Spine
Imaging brought this action, alleging breach of contract and unjust enrichment, and
seeking a declaratory judgment that it was not violating CPMD.
In September 2010, this Court granted in part and denied in part defendants’
motions to dismiss without prejudice on Spine Imaging’s contract and unjust enrichment
claims. It granted the motions, in part, on the basis that Spine Imaging failed to allege
that it had received written assignments from policyholders such that Spine Imaging had
standing to sue the insurers. Spine Imaging MRI, L.L.C. v. Liberty Mut. Ins. Co., 743
F. Supp. 2d 1034, 1045 (D. Minn. 2010).
Spine Imaging filed a second amended
complaint which addressed this deficiency. (See Second Am. Compl. ¶¶ 44-46, Docket
No. 103.)
Liberty answered the Second Amended Complaint and renewed its counterclaims
for a declaratory judgment that Spine Imaging was in violation of the CPMD as a result
of violations of the Minnesota Professional Firms Act, recovery of benefits, or, in the
alternative, unjust enrichment. Spine Imaging moved to dismiss the counterclaims for
lack of particularity, and the Court granted Liberty leave to amend. (Docket No. 98.) In
so amending, Liberty added claims of violation of state and federal anti-kickback laws,
and champerty/maintenance. (Docket No. 107.) Spine Imaging now moves to dismiss,
claiming the new counterclaims impermissibly expand the scope of litigation beyond the
leave granted by the Court and that the counterclaims fail to state a claim.
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Liberty also brought a third-party complaint against individuals and organizations
that worked with Spine Imaging: Eduardo Bullon, Rafael Mendez, Central Medical
Clinic, LLC, Dr. Alfonso Morales, Northstar Radiology, Dr. William Ford, and Dr. Hans
Michael Castro. (Third-Party Compl., Docket No. 126.) The third-party complaint
alleges the same claims as the counterclaims against Spine Imaging. The third-party
defendants move to dismiss those claims on the same bases.
In response to Spine Imaging’s Second Amended Complaint, Allstate brought
counterclaims seeking a declaratory judgment that Spine Imagine is violating the CPMD
and requesting attorney’s fees and costs. (Allstate Countercl. ¶¶ 24-25, Docket No. 106.)
Spine Imaging moves to dismiss the counterclaims.
Finally, American Family seeks summary judgment on Spine Imaging’s claims,
asserting that it has never denied a claim on the basis of a violation of the CPMD,
therefore any litigation over denial of benefits belongs in arbitration as required by the
state No-Fault Act. Further, it seeks Rule 11 sanctions, alleging that Spine Imaging had
no factual basis to bring the claims against it.
ANALYSIS
I.
STANDARD OF REVIEW FOR MOTIONS TO DISMISS
Reviewing a complaint under a Rule 12(b)(6) motion to dismiss, the Court
considers all facts alleged in the complaint as true, and construes the pleadings in a light
most favorable to the non-moving party. See, e.g., Turner v. Holbrook, 278 F.3d 754,
757 (8th Cir. 2002). To survive a motion to dismiss, however, a complaint must provide
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more than “‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause
of action . . . .’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)). That is, to avoid dismissal, a complaint must
include “sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Id. (internal quotation marks omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Where
a complaint pleads facts that are merely consistent with a defendant’s liability, it stops
short of the line between possibility and plausibility,” and therefore must be dismissed.
Id. (internal quotation marks omitted). At the motion to dismiss stage, the record for
review before the Court is generally limited to the complaint, some matters that are part
of the public record, and any documents attached as exhibits that are necessarily
embraced by the complaint. Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th
Cir. 1999).
II.
ALLSTATE’S COUNTERCLAIMS
Spine Imaging moves to dismiss Allstate’s counterclaims for a declaratory
judgment. It argues that where a “proposed counterclaim and the plaintiffs’ claim raise
identical factual and legal issues[, the] proposed counterclaim is redundant and will be
moot upon disposition of the plaintiffs’ claims. A redundant declaratory judgment claim
is not a proper declaratory judgment claim and should be dismissed.” Mille Lacs Band of
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Chippewa Indians v. State of Minn., 152 F.R.D. 580, 582 (D. Minn. 1993) (citing Aldens,
Inc. v. Packel, 524 F.2d 38, 51-51 (3d. Cir. 1975)).
Allstate argues that the Court should be guided instead by courts that have found
an action for a declaratory judgment, if denied, would not resolve all the issues between
the parties.
See, e.g., Altvater v. Freeman, 319 U.S. 359, 363 (1943) (finding a
counterclaim regarding a patent’s validity was appropriate when the original claim was
whether a patent was infringed upon); Iron Mountain Sec. Storage Corp. v. Am. Specialty
Foods, Inc., 457 F. Supp. 1158, 1162 (E.D. Pa. 1978) (holding that a counterclaim
seeking one interpretation of a contract was not redundant to the original claim seeking a
different interpretation). However, a declaratory judgment is a declaration of “the rights
and other legal relations of any interested party seeking such declaration, whether or not
further relief is or could be sought.”
28 U.S.C. § 2201(a). Therefore, a contract or
patent, which are capable of multiple of interpretations, are not analogous to a declaratory
action. Here, a declaration of the rights of Spine Imaging related to the CPMD raises
identical factual and legal issues as the declaration requested by Allstate. As a result, the
Court dismisses the counterclaim for a declaratory judgment because it is redundant.
Allstate further counterclaims for attorneys’ fees and costs alleging Spine Imaging
brought the instant lawsuit without appropriate factual basis . . . .”
(Answer and
Countercl. ¶ 25, Docket No. 106). Such a claim amounts to a claim under 28 U.S.C.
§ 1927 (“Any attorney . . . who so multiplies the proceedings in any case unreasonably
and vexatiously may be required by the court to satisfy personally the excess costs,
expenses, and attorneys’ fees reasonably incurred because of such conduct.”). Such
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attorneys’ fees and costs are available after determination of the underlying claim. See
28 U.S.C. § 2202 (“Further necessary or proper relief based on a declaratory judgment or
decree may be granted, after reasonable notice and hearing, against any adverse party
whose rights have been determined by such judgment.” (emphasis added)). Therefore,
such a counterclaim is premature prior to adjudication. “One pursues § 1927 relief, then,
through an attorney fee petition, not a counterclaim.”
Carbajal-Ramierez v. Bland
Farms, Inc., 234 F. Supp. 2d 1353, 1355 (S.D. Ga. 2001) (citing Durrett v. Jenkins
Brickyard, Inc., 678 F.2d 911, 914 n.3 (11th Cir. 1982)).1 Therefore, the Court dismisses
Allstate’s counterclaim for attorneys’ fees and costs.
III.
MOTIONS TO DISMISS LIBERTY’S CLAIMS AND COUNTERCLAIMS
In the Court’s previous Order, the Court dismissed and then granted Liberty leave
to amend its counterclaim for recovery of benefits under Minnesota Statute § 65B.54
because Liberty had not sufficiently pled “who made the misrepresentations to Liberty or
how the misrepresentations were made.” Liberty Mut. Ins. Co., 743 F. Supp. 2d at 1049.
In its amended counterclaims, Liberty asserts five counterclaims, two of which were not
in its previous pleading: violation of state and federal anti-kickback laws and
maintenance/champerty.
Liberty asserts the same claims against all third-party
defendants.
1
The Court has the right to award fees in a diversity action for declaratory relief whether
brought under federal or state law. See, e.g., Gant v. Grand Lodge of Tex., 12 F.3d 998,
1003 (10th Cir. 1993) (citing 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 2771, at 767 (3d ed.)). However, the Court determines that such relief is also best
pursued in a motion for fees at the conclusion of the case rather than asserted as a counterclaim.
See D. Minn. L.R. 54.3.
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Spine Imaging asserts that the new counterclaims should be dismissed since
Liberty did not seek leave to add then, and the new counterclaims expand the scope of the
litigation.
Further, the third-party defendants and Spine Imaging argue that the
Minnesota Professional Firms Act (“MPFA”) and anti-kickback laws do not give a
private right of action and the claims and counterclaim of maintenance/champerty fail to
allege the elements of the cause of action. They also seek dismissal of the § 65B.54 and
unjust enrichment claims and counterclaims on the basis that they are not pled with
sufficient particularity.
A.
Declaratory Judgment, MPFA, and Anti-Kickback Laws
Liberty’s counterclaim for a declaratory judgment fails as the obverse of Spine
Imaging’s declaratory judgment claim, as described above regarding Allstate’s similar
counterclaim. However, the same is not true for the declaratory judgment claims against
third-party defendants, since they were not a party to Spine Imaging’s complaint. The
Court, therefore, addresses the other arguments that Spine Imaging and third-party
defendants have raised: that Liberty’s claims and counterclaim for a declaratory judgment
fails since there exists no private right of action under the MPFA or federal and state antikickback laws.
Neither the MPFA nor the state and federal anti-kickback laws have an express
private right of action. Minn. Stat. §§ 319B.01-.12, .40; 42 U.S.C. § 1320a-7b; Minn.
Stat. § 62J.23. Absent an explicit private cause of action in a statute, courts can imply a
right of action if “it can be determined by clear implication.” Becker v. Mayo Found.,
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737 N.W.2d 200, 207 (Minn. 2007). A statute implies a private cause of action when:
1) the plaintiff belongs to the class for whose benefit the statute was enacted; 2) the
legislature indicated an explicit or implicit intent to create a civil remedy; and
3) implying a civil remedy would be consistent with the underlying purposes of the
legislative enactment. See id. at 207 n.4 (citing Cort v. Ash, 422 U.S. 66, 78 (1975)).
Supreme Court rulings have indicated that legislative intent is the central factor for
determining if a private cause of action exists through implication. E.g., Touche Ross &
Co. v. Redington, 442 U.S. 560, 575-76 (1979). Further, “it is an elemental canon of
statutory construction that where a statute expressly provides a particular remedy or
remedies, a court must be chary of reading others into it.”
Transamerica Mortg.
Advisors, Inc. v. Lewis, 444 U.S. 11, 19 (1979).
Courts have held that none of the three statutes at issue have an implied private
right of action. Mut. Serv. Cas. Ins. Co. v. Midway Massage, Inc., 695 N.W.2d 138, 14243 (Minn. Ct. App. 2005) (finding no private right of action in the MPFA); W. Allis
Mem’l Hosp., Inc. v. Bowen, 852 F.2d 251, 255 (7th Cir. 1988) (finding no private right of
action in federal anti-kickback laws); Allstate Ins. Co. v. Linea Latina De Accidentes,
Inc., No. 09-3681, 2011 WL 692909, at *10 (D. Minn. Feb. 16, 2011) (finding no private
right of action in state anti-kickback laws).
While third-party defendants and Spine Imaging repeatedly cite Midway Massage
as support for the proposition that 1) there is no private right of action for violation of the
MPFA, therefore 2) declaratory relief is not available, a closer look at Midway Massage
indicates that its holding is severely called into question by the Minnesota Supreme
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Court’s holdings in the Isles Wellness cases. In a footnote in Midway Massage, the
Minnesota Court of Appeals noted that the complaint at issue had contained a claim that
Midway Massage violated the CPMD. Midway Massage, Inc., 695 N.W.2d at 142 n.2.
The court stated that since it had found in Isles Wellness, Inc. v. Progressive N. Ins. Co.,
689 N.W.2d 561 (Minn. Ct. App. 2004), that chiropractic doctors, physical therapists, and
massage therapists could not violate the CPMD – and further questioned whether the
doctrine actually existed in Minnesota – the insurer had failed to state a claim. Midway
Massage, Inc., 695 N.W.2d at 142 n.2. The Court then went on to find that, since for
declaratory relief there must exist an underlying cause of action, and one did not exist on
the MPFA alone, declaratory relief was unavailable. Id. at 143.
However, on appeal, the Minnesota Supreme Court overturned the Court of
Appeals’ Isles Wellness decision and found, the CPMD was a viable claim in Minnesota
and that it was applicable to chiropractic doctors, since the CPMD “is [not] limited to
medicine and . . . appl[ies] to other branches of the healing arts.” Isles Wellness, Inc. v.
Progressive N. Ins. Co., 703 N.W.2d 513, 522 (Minn. 2005) [hereinafter Isles Wellness
I]. Therefore, in addition to the fact that this Court is only bound by Minnesota Supreme
Court interpretations of state law, Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 534
(8th Cir. 2006), the Court also notes that Midway Massage is heavily premised on the
absence of a cause of action for CPMD in Minnesota, which the Minnesota Supreme
Court subsequently ruled does exist.
The Court agrees that Midway Massage correctly determined no implied private
right of action exists for the MPFA alone, and Isles Wellness I did not overturn that
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holding. However, a violation of the MPFA could be the basis of a violation of the
CPMD. The Minnesota Supreme Court, in its second Isles Wellness case, Isles Wellness,
Inc. v. Progressive N. Ins. Co., 725 N.W.2d 90, 95 (Minn. 2006), advised that courts
should determine if a “corporation’s actions show a knowing and intentional failure to
abide by state and local law” for a CPMD claim. Clearly one such failure to abide could
involve a knowing violation of the MPFA or anti-kickback laws.
As a result, the
declaratory judgment at issue in this case may well center on whether Spine Imaging
knowingly violated these laws, as asserted in Liberty’s claims against the third-party
defendants.
1.
MPFA
The MPFA provides that “[o]wnership interests in a professional firm may not be
owned or held, either directly or indirectly, except by . . . professionals who, with respect
to at least one category of the pertinent professional services, are licensed and not
disqualified . . . .” Minn. Stat. § 319B.07. The Act advises: “Individuals who furnish
professional services pursuant to a license, registration, or certificate issued by the state
of Minnesota to practice medicine . . . [and] chiropractic [services]. . . are specifically
authorized to practice any of these categories of services . . . if the individuals are
organized under this chapter.” Id. § 319B.40 (emphasis added). Therefore, physicians,
chiropractors, or other professionals who practice their profession in knowing violation of
the MPFA may also be operating in violation of the CPMD.
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The corporate third-party defendants assert, without citation, that they cannot be in
violation of the MPFA because record lay ownership is the only relevant consideration
under the CPMD and they have record professional ownership. However, the MPFA
includes the word “indirect,” implying that record ownership may not be dispositive.
See Minn. Stat. § 319B.07. Furthermore, the basis of the CPMD doctrine in Minnesota,
Granger v. Adson, 250 N.W. 722 (Minn. 1933), involved a lay owned business that had a
contract with a medical doctor to provide health audits to customers. Id. at 722. The
Minnesota Supreme Court determined that “[w]hat the law intends is that the patient shall
be the patient of the licensed physician not of a corporation or layman. The obligations
and duties of the physician demand no less. There is no place for a middleman.” Id. at
723. Here, the allegations are of just such a middleman:
even though the record
ownership of the corporate third-party defendants complies with the law, the allegations
are that lay people are driving the treatment decisions. As a result, the Court finds this
argument unpersuasive at this stage of the litigation.
2.
Anti-kickback laws
As to the claims and counterclaim of a violation of federal and state anti-kickback
laws, Liberty has alleged no payment to a federal health care program, which is required
under 42 U.S.C. § 1320a-7b.
Therefore, the claims and counterclaim regarding a
violation of the federal anti-kickback law are dismissed. Minnesota’s anti-kickback
statute “restrict[s] financial relationships or payment arrangements involving health care
providers under which a person benefits financially by referring a patient to another
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person, recommending another person, or furnishing or recommending an item or
service.” Minn. Stat. § 62J.23. The statute explicitly refers to the federal anti-kickback
law as the guidepost for analysis of an action under state law. Id.
The third-party defendants and Spine Imaging assert that Liberty’s claims and
counterclaim under the Minnesota anti-kickback statute fails because there is no private
right of action to enforce that statute. Allstate Ins. Co. v. Linea Latina De Accidentes,
Inc., No. 09-3681, 2011 WL 692909, at *10 (D. Minn. Feb. 16, 2011). However, the
Court in Linea Latina recognized that Minnesota courts had allowed claims for breach of
contract to proceed in light of the statute. Id. (citing Alpha Real Estate Co. of Rochester
v. Delta Dental Plan of Minn., 671 N.W.2d 213 (Minn. Ct. App. 2003)). The court in
Alpha Real Estate acknowledged that a contract that violates public policy, such as the
anti-kickback provisions of § 62J.23, can be declared illegal and void. Id. at 217. A
plaintiff must allege a “knowing and willful” violation of the statute in order to bring a
breach of contract claim, which Liberty has done.
By analogy, given federal anti-kickback law is the guidepost for state law, the
Court finds instructive case law linking an alleged violation of the federal law to the
federal false claim laws. Federal courts analyzing the federal law have found an alleged
violation of the anti-kickback statute sufficient to state a claim under the False Claims
Act. See, e.g., United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238
F. Supp. 2d 258, 266 (D.D.C. 2002) (“[T]he government would not have paid the claims
submitted if it had known of the alleged kickback . . . violations [which are] sufficient to
state a False Claims Act claim, [because] compliance with those laws [are] material to the
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government’s contract with (or indirectly with) the defendants.”). The allegations here
mirror the facts and arguments in Pogue: had the insurers known of the illegality they
allege, they would not have paid the claims.
Therefore, for the same reason a knowing violation of the MPFA could establish a
violation of the CPMD, a knowing violation of the state anti-kickback law could also be
dispositive of the declaratory action at issue. Despite dismissing the MPFA and antikick-back counterclaims against Spine Imaging as the obverse of the declaratory
judgment claim that initiated this action, the Court is mindful that discussion of the
MPFA and state anti-kickback laws will be central to a determination of the merits of the
declaratory judgment and are salient to Liberty’s claims against the third party
defendants.
B.
Recovery of Benefits and Unjust Enrichment
Spine Imaging and the third-party defendants also seek dismissal of the § 65B.54
and unjust enrichment claims and counterclaims on the basis that they are not pled with
sufficient particularity. In the Court’s previous Order, the Court found: “Liberty [did] not
plead who made the misrepresentations to Liberty or how the misrepresentations were
made. The Court must assume from the pleadings that Spine Imaging perpetrated the
fraud simply by seeking payments from Liberty, but Liberty does not clearly allege that
basis in the counterclaims.” Liberty Mut. Ins. Co., 743 F. Supp. 2d at 1049. In its
amended complaint, Liberty more clearly articulates that the seeking of payment was the
fraud. (See Second Am. Ans. ¶¶ 147-49, Docket No. 107.) For example, Liberty alleges,
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“[p]laintiff intentionally presented itself as an authorized and legitimate practitioner of
the healing arts when it submitted (89) claims for reimbursement of medical expenses to
Liberty using the HCFA 1500 form, even though it was operating in violation of
Minnesota[’s] CPMD and Minnesota’s Professional Firms Act.” (Id. ¶ 147.)
Spine Imaging and the third-party defendants argue the amended pleading is
insufficient. However, the purpose of pleadings, even in the fraud context, is to give the
defendants notice of the behavior. “[R]ule [9(b) is interpreted] in harmony with the
principles of notice pleading, [such that the] higher degree of notice is intended to enable
the defendant to respond specifically and quickly to the potentially damaging
allegations.” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009). The fraud
alleged for the § 65B.54 claims and counterclaim is based on Spine Imaging and the
third-party defendants submitting the HCFA 1500 forms representing entitlement to
payment, when violations of the CPMD and state anti-kickback laws may mean no such
entitlement existed. These allegations in the amended pleading provide sufficient notice
under Rule 9(b). Therefore, the Court does not dismiss these claims and counterclaim.
Further, because unjust enrichment is an alternative theory for the same relief, the Court
also does not dismiss these claims and counterclaim.
C.
Champerty/Maintenance
The third-party defendants and Spine Imaging seek dismissal of Liberty’s
champerty/maintenance claims and counterclaim asserting that Liberty has not pled
sufficient facts to state a claim.
Champerty/maintenance “gives a nonparty an
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impermissible interest in a suit, impedes the settlement of the underlying case, and
promotes speculation in lawsuits . . . .” Johnson v. Wright, 682 N.W.2d 671, 679 (Minn.
Ct. App. 2004) (citing Rancman v. Interim Settlement Funding Corp., 789 N.E.2d 217,
220 (Ohio 2003)). Typically, when champerty/maintenance occurs, the nonparty has
advanced fees for a litigant or otherwise “encourages, promotes, or extends litigation.”
Rancman, 789 N.E.2d at 220. Here, Spine Imaging has sought a declaration of its own
rights so that it may receive payment on claims legally assigned to it. Therefore, the
Court finds the claims and counterclaim do not sufficiently allege the elements of this
cause of action and dismisses them.
IV.
AMERICAN FAMILY’S MOTIONS
American Family moves for summary judgment asserting that Spine Imaging has
failed to produce any facts to indicate American Family has been denying claims on the
basis of the CPMD. It avers that it is not the policy of American Family to deny claims
on that basis; rather, American Family claims its denials have been based on a lack of
demonstrated medical necessity. As a result, it argues the claims belong in arbitration
pursuant to the No-Fault Act. See Minn. Stat. § 65B.525, subd. 1. Spine Imaging asserts
two facts in support of its claim against American Family: the first is an affidavit from
Spine Imaging owner, Eduardo Bullon, asserting that an attorney for some of Spine
Imaging’s patients had heard American Family lawyers asserting violation of the CPMD
as an alternative basis for denying claims in arbitration. (Decl. of Eduardo Bullon ¶ 7,
May 12, 2011, Docket No. 193.) The second is that the reimbursement rate for American
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Family on Spine Imaging claims (27%) is closer to that of Liberty (19%) than to other
insurance companies. Because Liberty has expressly claimed violation of the CPMD as
the reason for its denial of claims, Spine Imaging argues the comparative reimbursement
rate is indicative of a similar policy. While there has been no discovery, American
Family asserts the facts are in the possession of Spine Imaging such that summary
judgment is not premature. Spine Imaging argues the opposite – because it is not a party
to claims arbitration, it can have no firsthand knowledge of the reasons given for denial
of claims in that setting. American Family asserts that it did an internal review and can
find no claim that was denied on the basis of the CPMD.
“The Eighth Circuit has noted that the ‘[r]elative availability of evidence to the
parties is a circumstance to be considered in determining [summary judgment].’”
Modtland v. Mills Fleet Farm, Inc., No. 04-3051, 2004 WL 2730100, at *3 (D. Minn.
Nov. 28, 2004) (first alteration original) (citing Spencer v. Kroger Co., 941 F.2d 699, 704
(8th Cir. 1991)). Therefore, summary judgment is inappropriate where the moving party
controls the information that may be dispositive of a claim. Id. Aside from the Bullon
affidavit, which is hearsay, see Fed. R. Civ. P. 56(e), Fed. R. Evid. 801(c), Spine Imaging
has no other support for the proposition that American Family has, in fact, been asserting
the CPMD as a primary basis for the denial of claims.
Without determining who has control of the evidence regarding the reason for the
low reimbursement rate of claims, the Court finds the claim fails to present a justiciable
controversy and therefore is more properly dismissed without prejudice. The Declaratory
Judgment Act, Minn. Stat. §§ 555.01 et seq., requires an underlying controversy. See
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Essling’s Homes Plus, Inc., v. City of St. Paul, 356 F. Supp. 2d 971, 984 (D. Minn. 2004)
(“A successful action for declaratory judgment requires a viable underlying cause of
action.”). “[O]nly parties with legal interests threatened in an actual controversy have
standing to sue under the Declaratory Judgment Act.” Collin Cnty., Tex. v. Homeowners
Ass’n for Values Essential to Neighborhoods, 915 F.2d 167, 170 (5th Cir. 1990)
(emphasis added).
Because Spine Imaging asserts American Family is denying claims on the basis of
the CPMD while American Family represents that it is not, the Court has no subjectmatter jurisdiction on the claim. Spine Imaging argues that this Court, in a previous
Spine Imaging case, has already determined that its claims regarding non-payment on the
basis of an alleged violation of the CPMD confer jurisdiction under the federal
Declaratory Judgment Act. See Spine Imaging MRI, L.L.C. v. Country Cas. Ins. Co., No.
10-480, 2011 WL 379100, at *4 (D. Minn. Feb. 1, 2011) (“The essential distinction
between a declaratory judgment action and an action seeking other relief is that in the
former no actual wrong need have been committed or loss have occurred in order to
sustain the action.” (emphasis original) (citing Cnty. of Mille Lacs v. Benjamin, 361 F.3d
460, 464 (8th Cir. 2004))). However, distinguishable from the instant case, in Country
Casualty, the defendant was demanding repayment and asserting that Spine Imaging was
in violation of the CPMD. Id. Such is not the case here because American Family
asserts it has not denied claims based on CPMD and has not raised it as an affirmative
defense. (See Answer, Docket No. 105.) Therefore, Country Casualty is unavailing.
Because there is no actual controversy, the Court does not have subject matter
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jurisdiction, and dismissal without prejudice is warranted. Pinnavaia v. Nat. Arbitration
Forum, Inc., 122 Fed. App’x 862, 863 (8th Cir. 2004) (“Article III prevents federal courts
from dismissing case with prejudice where subject matter jurisdiction is lacking.” (citing
Hernandez v. Conriv Realty Assocs., 182 F.3d 121, 123-24 (2d Cir. 1999)).2
While American Family asserts that the lack of an actual controversy, and the
failure of Spine Imaging to provide an evidentiary basis for its claims, is cause for
Rule 11 sanctions, the Court disagrees. Given the low reimbursement rate of American
Family, the sheer volume of insurance companies with which Spine Imaging is involved
in litigation on these issues, and the fact that Spine Imaging believed the evidence to be
in the hands of American Family, Spine Imaging had a sufficient evidentiary basis to file
a claim. See Fed. R. Civ. P. 11(b) (noting that sanctions are not warranted if “the factual
contentions have evidentiary support or, if specifically so identified, will likely have
evidentiary support after a reasonable opportunity for further investigation or discovery
. . . .”).
In sum, the Court finds that the declaratory judgments sought by Allstate and
Liberty are redundant of the judgment sought by Spine Imaging and thus fail, but that
claims asserted against the third-party defendants does not. Allstate’s counterclaim for
attorneys’ fees and costs is premature and dismissed without prejudice. Liberty’s claims
and
counterclaims
of
violations
of
the
2
federal
anti-kickback
laws
and
This conclusion is bolstered by the behavior of the parties: they have been discussing
dismissal for several months, but been unable to agree to the precise terms, indicating they both
agree that there is no controversy between them.
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champerty/maintenance fail to allege necessary elements of the causes of action.
However, all other claims are sufficiently pled. Finally, there exists no controversy
between American Family and Spine Imaging for this Court to have jurisdiction, but
sanctions against Spine Imaging are not warranted.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Plaintiff Spine Imaging’s Motion to Dismiss/General and/or Strike
Defendant Allstate Insurance Company’s Counterclaim [Docket No. 117] is GRANTED.
Allstate’s counterclaim for attorneys’ fees and costs is DISMISSED without prejudice.
2.
Plaintiff Spine Imaging’s Motion to Dismiss/General Defendant Liberty
Mutual Fire Insurance Company’s Amended Counterclaims [Docket No. 119] is
GRANTED in part and DENIED in part:
a.
The motion is GRANTED as to Counterclaims I, II, and V as
alleged against Liberty in defendant Liberty Mutual Fire Insurance Company’s
Answer and Counterclaim and Third Party Complaint [Docket No. 126].
Counterclaims I, II, and V as alleged against Liberty are DISMISSED.
b.
The motion is DENIED in all other respects.
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3.
Third-Party Defendants Eduardo Bullon, Hans Michal Castro, Central
Medical Clinic, LLC, and Alfonso Morales-Utrilla’s Motion to Dismiss/General Third
Party Complaint [Docket No. 142] is GRANTED in part and DENIED in part.
a.
The motion is GRANTED as to Count V in defendant Liberty
Mutual Fire Insurance Company’s Answer and Counterclaim and Third Party
Complaint [Docket No. 126]. Count V is DISMISSED.
b.
4.
The motion is DENIED in all other respects.
Third-Party
Defendants
William
Ford
and
Northstar
Radiology
Corporation, P.A.’s Motion to Dismiss/General Third Party Complaint [Docket No. 140]
is GRANTED in part and DENIED in part.
a.
The motion is GRANTED as to Count V in defendant Liberty
Mutual Fire Insurance Company’s Answer and Counterclaim and Third-Party
Complaint [Docket No. 126]. Count V is DISMISSED.
b.
5.
The motion is DENIED in all other respects.
Defendant American Family Mutual Insurance Company’s Motion for
Summary Judgment [Docket No. 181] is DENIED. Defendant American Family Mutual
Insurance Company is DISMISSED without prejudice.
6.
Defendant American Family’s Motion for Sanctions Under Rule 11
[Docket No. 198] is DENIED.
DATED: August 22, 2011
at Minneapolis, Minnesota.
____s/
____
JOHN R. TUNHEIM
United States District Judge
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