GOVERNMENT EMPLOYEES INSURANCE CO. et al v. TRI-COUNTY NEUROLOGY AND REHABILITATION, LLC et al

Filing 98

OPINION fld. Signed by Judge Madeline C. Arleo on 8/2/16. (sr, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
GOVERNMENT EMPLOYEES INS.
:
CO., GEICO INDEMNITY CO., et al., :
:
Civil Action No. 14-8071 (MCA)
Plaintiffs,
:
:
v.
:
OPINION
:
TRI- COUNTY NEUROLOGY AND
:
REHABILITATION, LLC, et al.,
:
:
Defendants.
:
____________________________________:
ARLEO, UNITED STATES DISTRICT JUDGE
This matter comes before the Court by way of Plaintiffs Government Employees
Insurance Co., GEICO Indemnity Co., GEICO General Insurance Co. and GEICO CASUALTY
(collectively “GEICO” or “Plaintiffs”) motion for reconsideration of this Court’s November 30,
2015 Order and December 4, 2015 Opinion to the extent the Court granted Defendants’ motion
to dismiss Count One of Plaintiffs’ Complaint with prejudice. Dkt. No. 39.

Defendants Tri-

County Neurology and Rehabilitation, LLC (“Tri-County”), Nabil Yazgi, M.D. (“Dr. Yazgi”),
and Thomas Senatore, D.C. (“Dr. Senatore”) (collectively, “Defendants”) oppose the motion.
Dkt. No. 44. The Court decides the motion on the papers pursuant to Fed. R. Civ. P. 78. For the
reasons set forth herein, Plaintiffs’ motion for reconsideration is GRANTED.
I.

BACKGROUND
The facts of this case are set forth at length in the Court’s December 4, 2015 Opinion

(“December Opinion”). See Dkt. No. 38. The below facts are relevant to this motion.

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On December 29, 2014, Plaintiffs filed a Complaint asserting claims for declaratory
judgment, violation of the New Jersey Insurance Fraud Prevention Act (“IFPA”), violation of
RICO, common law fraud, and unjust enrichment, pertaining to an alleged scheme by
Defendants to recover fraudulent personal injury protection (“PIP”) benefits. Original Compl.,
Dkt. No. 1. On April 20, 2015, Defendants moved to dismiss Plaintiffs’ Complaint in its
entirety. Dkt. No. 23. The Court held oral argument on November 30, 2015, and granted
Defendants’ motion to dismiss Count One for declaratory judgment with prejudice,1 and the
remaining claims without prejudice. Dkt. No. 36.2 On December 4, 2015, the Court issued a
written Opinion to supplement its ruling on the record. December Opinion, Dkt. No. 38.
In the December Opinion, the Court, relying on Gov’t Emps. Ins. Co. v. MLS Med.
Group LLC, No. 12-7281, 2013 U.S. Dist. LEXIS 171983 (D.N.J. Dec. 6, 2013), and the Third
Circuit’s decision in Chiropractic Am. v. Lavecchia, 180 F.3d 99 (3d Cir. 1999), declined to
exercise jurisdiction over Plaintiffs’ declaratory judgment claim pursuant to Burford abstention.
See December Opinion at 5-7. The Court first found that adequate and timely state law review
was available to the parties through the statutorily mandated arbitration of PIP claims as set forth
in N.J. Stat. Ann. § 39L6A-5.1(a). Id. at 7. Next, the Court found that adjudication of the PIP
claims was a matter of public concern, that New Jersey’s no-fault insurance scheme is a complex

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In Count One of the Original Complaint, Plaintiffs sought a declaration that GEICO is not
obligated to pay $2,279,000.00 in pending PIP claims submitted by Tri-County to GEICO.
Plaintiffs claimed that Tri-County has no right to receive payment for any pending bills
submitted to GEICO because Tri-County and the services it provided were not in compliance
with the law, the services were not medically necessary and were performed pursuant to predetermined fraudulent protocols, and the billing codes used for the services misrepresented,
unbundled and exaggerated the level of services that purportedly were provided in order to
inflate charges submitted to GEICO. See Original Compl. ¶¶ 172-75, Dkt. No. 1
2
On January 1, 2016, Plaintiffs filed an Amended Complaint re-pleading the claims that were
dismissed without prejudice. See Am. Compl., Dkt. No. 42.
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regulatory scheme, and that federal review would interfere with New Jersey’s efforts to establish
and maintain its no-fault insurance scheme. Id. at 7-8.
On December 14, 2015, Plaintiffs moved for reconsideration of this Court’s Order and
December Opinion to the extent it granted Defendants’ motion to dismiss Count One for
declaratory judgment with prejudice. Dkt. No. 39. Plaintiffs contend that the decision contains
errors of law relating to Burford abstention, and that Defendants’ motion to dismiss Count One
should have been denied, or at the very least dismissed without prejudice. Id. For the reasons
set forth below, the Court agrees.
II.

LEGAL STANDARD
Local Civil Rule 7.1 allows a party to seek a motion for reconsideration of “matter[s] or

controlling decisions which the party believes the Judge or Magistrate Judge has overlooked . . .
.” Local Civ. R. 7.1(i). The purpose of a motion for reconsideration, “is to correct manifest
errors of law or fact or to present newly discovered evidence.” Harsco Corp. v. Zlotnicki, 779
F.2d 906, 909 (3d Cir. 1985). To prevail on a motion for reconsideration, the movant must
show: (1) an intervening change in the controlling law; (2) the availability of new evidence that
was not available when the court . . . [rendered the judgment in question]; or (3) the need to
correct a clear error of law or fact or to prevent manifest injustice. U.S. ex rel. Shumann v.
Astrazeneca Pharm. L.P., 769 F.3d 837, 848-49 (3d Cir. 2014) (citing Max’s Seafood Café ex
rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999)).
III.

ANALYSIS
Plaintiffs seek reconsideration of this Court’s December Opinion, claiming the Court

erred by improperly: (1) applying a “state law review” standard rather than the proper “statecourt review” in the first step of the Burford analysis; (2) shifting the burden to Plaintiffs to
demonstrate that this “state law review” was unavailable; and (3) determining that Plaintiffs had
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the ability to seek timely and adequate state law review of the issues underlying their declaratory
judgment claim, when in fact they had no ability to seek timely and adequate state-court review
of those issues.
Burford abstention “calls for a two-step analysis.” Riley v. Simmons, 45 F.3d 764, 771
(3d Cir. 1995) (citing New Orleans Pub. Serv., Inc. v. Council of New Orleans (“NOPSI”), 491
U.S. 350, 361 (1989)). The first question is whether “timely and adequate state-court review” is
available. Id. at 771. “Only if a district court determines that such review is available, should it
turn to other issues and determine if the case before it involves difficult questions of state law
impacting on the state’s public policy or whether the district court’s exercise of jurisdiction
would have a disruptive effect on the state’s efforts to establish a coherent public policy on a
matter of important state concern.” Id. The second prong of the Burford doctrine, as refined in
NOPSI, requires a court to examine three issues: “(1) whether the particular regulatory scheme
involves a matter of substantial public concern; (2) whether it is the sort of complex technical
regulatory scheme to which the Burford abstention doctrine usually is applied; and (3) whether
federal review of a party’s claims would interfere with the state’s efforts to establish and
maintain a coherent regulatory policy.” Chiropractic Am., 180 F.3d at 105.
Plaintiffs claim that the Court applied the wrong standard in step one of the Burford
analysis when it found that “a court must determine whether timely and adequate state law
review is available.” The Court agrees.
In the December Opinion, the Court overlooked the majority of decisions in the Third
Circuit and the District Court in which the “state court review” standard was routinely applied.
See, e.g., Riley, 45 F.3d at 771; Culinary Serv. of Del. Valley, Inc. v. Borough of Yardley, 385
F. App’x 135, 144 (3d Cir. 2010); Chiropractic Am., 180 F.3d at 104; Raritan Baykeeper, Inc. v.

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NL Indus., 713 F. Supp. 2d 448, 457 (D.N.J. 2010). A careful review of Third Circuit law makes
clear that “timely and adequate state court review” is the proper standard.
Applying that standard, the Court finds that there is timely and adequate state courtreview available for Plaintiffs’ declaratory judgment claim. Plaintiffs here are not directly
challenging a particular PIP determination, and no party has elected to submit any singular
dispute regarding recovery of PIP benefits to arbitration.3 Rather, Plaintiffs are seeking a
declaration that they are not obligated to reimburse Defendants for any pending PIP claims
because of a fraudulent insurance scheme perpetrated by the doctors and/or owners that applies
across the board to multiple PIP claims. Plaintiffs have also asserted violations of the IFPA,
RICO, and common law fraud. New Jersey courts have jurisdiction to hear these matters, and
have routinely adjudicated declaratory judgment claims in cases involving fraud and payment of
PIP benefits. See, e.g., Allstate Ins. Co. v. Orthopedic Evaluations, Inc., 300 N.J. Super. 510
(Super. Ct. App. Div. 1997); Prudential Prop. & Cas. Ins. Co. of N.J. v. Nardone, 332 N.J. Super.
126, 128 (Super. Ct. 2000); Allstate N.J. Ins. Co. v. Lajara, 222 N.J. 129, 152, 117 A.3d 1221,
1234 (2015). In fact, New Jersey state courts routinely stay pending PIP arbitrations and enjoin
parties from filing any new PIP arbitrations pending the disposition of an insurer’s declaratory
judgment and IFPA claims. See Gershenoff Decl. Exs. A, D, Dkt. Nos. 39-4, 39-7, Allstate
Indemnity, et al. v. Yazgi, No. BER-L-6264-13 (Super. Ct. New Jersey 2014) (declaratory
judgment and IFPA case involving same defendants as here); see also Gershenoff Decl. Ex. C
3

If state court review was limited to arbitration and subsequent appeal to the New Jersey
Superior Court, Appellate Division, the Court would be inclined to find that there was not
adequate state court review available. In the arbitration, there would be no mechanism for
Plaintiffs to obtain discovery on the licensing of the healthcare providers, billing practices, and
the corporate structure and ownership interests of the Defendant entities, all of which are critical
to Plaintiffs’ declaratory judgment claim. Moreover, the limited review of arbitration awards by
New Jersey state courts is limited and would be insufficient to adequately address the fraud
issues raised here.
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(collecting cases), Dkt. No. 39-6.4 As such, there is adequate and timely state-court review
available for the type of fraud claims Plaintiffs assert here.
Next, Plaintiffs claim the Court erred at step two of the Burford analysis. The second
step of Burford provides that if there is state-court review available, the Court then examines
three issues: (1) whether the particular regulatory scheme involves matters of substantial public
concern, (2) whether it is the sort of complex, technical regulatory scheme to which Burford is
usually applied, and (3) whether federal review of Plaintiffs’ claims would interfere with New
Jersey’s efforts to establish and maintain a coherent regulatory policy. Chiropractic Am., 180
F.3d at 105. Plaintiffs claim the Court erred because adjudication of their declaratory judgment
claim would not interfere with New Jersey’s efforts to maintain a coherent PIP regulatory policy.
Pls. Moving Br. at 15, Dkt. No. 39.
Plaintiffs concede, and the Court agrees, that the PIP regulatory scheme presents a matter
of public concern. See December Opinion at 7. However, upon reconsideration, the Court finds
that the second and third prong of the Burford analysis are not met.
In the December Opinion, this Court relied on the Third Circuit’s decision Chiropractic
Am., 180 F.3d at 105, to find that New Jersey’s no-fault insurance scheme is the sort of complex
regulatory scheme to which Burford abstention applies. The court in Chiropractic Am. abstained
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See, e.g., Allstate Indemnity Co. v. Burger, et al., BER-L-000627-13 (staying defendant
healthcare providers’ pending PIP arbitration, and enjoining them from filing any new PIP
arbitration, pending disposition of insurer’s declaratory judgment and IFPA claims); Allstate Ins.
Co., et al. v. Market Street Surgical Ctr., LLC, et al., SOM-L-1108-11 (case involving
allegations that healthcare providers had illegal corporate structure where court stayed
defendants’ pending PIP arbitration, and enjoining them from filing any new PIP arbitration,
pending disposition of insurer’s declaratory judgment and IFPA claims). Selective Ins. Co. of
New Jersey v. Khanthan, et al., SSX-L-321-08; Selective Ins. Co of Am. v. Medical Alliances,
LLC, 362 N.J. Super. 392, 394 (Law Div. 2003); Material Damage Adjustment Corp. v. Open
MRI of Fairview, 352 N.J. Super. 216, 233-34 (Law Div. 2002); Prudential Property and Cas.
Ins. Co. of New Jersey v. Nardone, 332 N.J. Super. 126, 128, 139 (Law Div. 2000); Allstate Ins.
Co. v. Schick, 328 N.J. Super. 611, 615 (Law Div. 1999).
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under Burford because the case involved a direct constitutional challenge to certain PIP
regulations. See id. at 104-06. It involved a challenge to the scheme itself. Here, Plaintiffs are
not challenging the validity of New Jersey’s no-fault automobile insurance statute or the PIP
regulations but rather the application of the statute to Defendants. This distinction is crucial.
The Third Circuit has held that “[t]o implicate the sort of technical, complex regulatory
scheme to which Burford abstention is usually applied, the action must challenge the scheme
itself, rather than just actions taken under color of the scheme.” Culinary Serv. of Del. Valley,
385 F. App’x at 144 (citing Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399, 40910 (3d Cir. 2005); Gwynedd Props., Inc. v. Lower Gwynedd Twp., 970 F.2d 1195, 1202-03 (3d
Cir. 1992); Izzo v. Borough of River Edge, 843 F.2d 765, 769 (3d Cir. 1988)).5 Here, Plaintiffs
are seeking a declaration that Defendants were not entitled to collect on any of its pending nofault insurance billing because of Defendants’ fraudulent conduct, including, but not limited to,
an illegal practice structure, improper referrals, miscoded examinations, and unnecessary testing.
This is not a challenge to the validity of New Jersey’s no-fault automobile insurance statute or
the PIP regulations. See, e.g., Culinary Serv. of Del. Valley, 385 F. App’x at 144 (holding factor
not implicated because Plaintiffs are not challenging the validity of the gambling regulations but

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Courts outside this circuit faced with similar facts and claims have declined to abstain under
Burford on similar grounds. See, e.g., Gov’t Employees Ins. Co. v. Uptown Health Care Mgmt.,
Inc., 945 F. Supp. 2d 284, 290-291 (E.D.N.Y. 2013) (collecting cases, and concluding that
Burford abstention did not apply because the plaintiffs “challenge[d] [the defendant’s] fraudulent
conduct, rather than New York’s regulatory scheme”); State Farm Mutual Automobile Ins. Co. v.
Mallela, 175 F. Supp. 2d 401 (E.D.N.Y. 2001) (holding abstention not warranted because “[t]his
case [will] not involve federal courts in supervising, interrupting, or meddling in state policies by
interfering in state regulatory matters”); Allstate Ins. v. Elzanaty, 916 F. Supp. 2d 273, 290
(E.D.N.Y. 2013) (holding Burford not appropriate because case doesn’t challenge the regulatory
framework or the State’s authority with regard to licensing determinations); State Farm Mut.
Auto. Ins. Co. v. Warren Chiropractic & Rehab Clinic P.C., No. 14-11521, 2015 U.S. Dist.
LEXIS 104332, at *1 (E.D. Mich. Aug. 10, 2015) (rejecting claim of Burford abstention that was
based on argument that Michigan’s no-fault law is “unique”).
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rather the application of the rules to the Games); see also Am. Express Travel Related Servs. Co.
v. Sidamon-Eristoff, 755 F. Supp. 2d 556, 572 (D.N.J. 2010) (explaining “Burford abstention has
no application when the Court is called upon to interpret an uncomplicated state statute”).
Plaintiffs’ declaratory judgment claim, therefore, does not implicate the type of complex,
technical regulatory scheme to which Burford properly applies.
Finally, the Court must consider whether federal review of Plaintiffs’ claims would
interfere with New Jersey’s efforts to establish and maintain a coherent regulatory policy. On
reconsideration, the Court is satisfied that this standard is not met here. Nothing in the present
case would interfere with New Jersey’s efforts to maintain its no-fault automobile insurance
regulations. This Court would apply the same substantive law that would be applied in a New
Jersey state court proceeding to resolve Plaintiffs’ claims.6 Thus, federal review would not
interfere with New Jersey’s interest in a coherent scheme of regulation of the no-fault insurance
industry.
Importantly, the Court notes that Burford abstention is the “extraordinary and narrow
exception,” not the rule, see Heritage Farms, Inc. v. Solebury Twp., 671 F.2d 743, 746 (3d Cir.
1982), and should be exercised only where the district court is sufficiently satisfied that
withholding of jurisdiction is warranted. See Colo. River Water Conservation Dist. v. United
States, 424 U.S. 800, 813 (1976). Here, upon review, the Court finds that Burford abstention is
inappropriate in this case.7

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In addition, this Court will already be interpreting whether Defendants complied with New
Jersey’s no-fault insurance laws through Plaintiffs’ claims in their Amended Complaint for
IFPA, RICO, common law fraud, and unjust enrichment. See Am. Compl., Dkt. No. 42.
7
The Court also notes that if Burford abstention was appropriate here, then an insurer would be
able to sue an allegedly illegally-organized healthcare provider under the IFPA or RICO and
seek to recover money it already paid to the healthcare provider, but then would be without any
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IV.

CONCLUSION
For the reasons set forth above, Plaintiffs’ motion for reconsideration is GRANTED.

Count One of Plaintiffs’ Original Complaint is hereby reinstated.8 Defendants shall file an
answer to this Count by August 12, 2016.

An appropriate Order accompanies this Opinion.

Dated: August 2, 2016
/s Madeline Cox Arleo___________
HON. MADELINE COX ARLEO
UNITED STATES DISTRICT JUDGE

remedy to prevent the healthcare provider from continuing its fraudulent scheme and collecting
outstanding unpaid bills. This is illogical.
8
In opposition to Plaintiffs’ motion for reconsideration, Defendants contend that even if Burford
abstention was not appropriate, that on the record during oral argument the Court ruled that
Plaintiffs failed to state a claim in Count One. The Court, however, did not dismiss Count One
for failure to state a claim. Instead, it declined to exercise jurisdiction over the claim pursuant to
Burford. See December Opinion at 8. Regardless, the Court finds that Plaintiffs have stated a
plausible claim for relief in their declaratory judgment claim.
9