GOVERNMENT EMPLOYEES INSURANCE CO. et al v. PORETSKAYA et al

Filing 81

OPINION. Signed by Judge John Michael Vazquez on 4/5/18. (cm, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GOVERNMENT EMPLOYEES INSURANCE
CO., GEICO INDEMNITY CO., GEICO
GENERAL INSURANCE COMPANY and
GEICO CASUALTY CO.,

Civil Action No.: 16-08448

Plaintiffs,

OPINION

v.
LYUDMILA PORETSKAYA, M.D., et al.

Defendants.

John Michael Vazguez, U.S.D.J.
I.

INTRODUCTION
This matter comes before the Court on Plaintiffs Government Employees Insurance Co.,

GEICO Indemnity Co., GEICO General Insurance Company, and GEICO Casualty Co.’s
(collectively, “Plaintiffs” or “GEICO”) unopposed motion for default judgment against Defendant
Grigory Shtender, M.D. (“$htender” or “Defendant”) under Federal Rule of Civil Procedure 55(b).
D.E. 80. The Court reviewed all submissions made in support of the motion, and considered the
motion without oral argument pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule
78.1(b). For the reasons that follow, Plaintiffs’ motion is GRANTED.

II.

FACTS1 AND PROCEDURAL HISTORY

Defendant is a licensed physician practicing in New Jersey. D.E. 1, Complaint (“Compi.”)
at ¶ 12. Between mid-2010 and mid-2012, Defendant and his co-Defendants submitted billing for
fraudulent services through North Jersey Diagnostic & Pain, P.A. (“North Jersey Diagnostic”). Id.
at

¶

$8. During this period, Defendant created “phony initial examination reports” on insured

patients involved in automobile accidents, and then used the results from those reports as “a false
basis to perform medically unnecessary electrodiagnostic tests” on the patients. Id. at

¶ 89.

He

also created false electrodiagnostic testing reports to diagnose insured patients with nerve injuries,
and used those diagnoses to subject the insured patients to “medically unnecessary pain
management injections.” Id.
In late 2012, Defendant’s co-Defendants created a new company, New Jersey Pain
Management & Rehab, P.A. (“New Jersey Pain”). Id. at ¶ 94. Thereafter, Defendant began billing
for the fraudulent electrodiagnostic testing through New Jersey Pain. Id. at

¶

95. Defendant

continued to bill New Jersey Diagnostics for pain management injections during this time. Id. at

¶ 96.

In 2014, Defendant’s co-Defendants again created two new companies, Doctor Poretskaya

Medical Practice P.C. (“Poretskaya PC”) and PL PMR Medical, P.C. (“PMR”), for the purposes
of continuing to fraudulently bill Plaintiffs. Id. at

¶

9$. After those companies were created,

Defendant ceased billing Plaintiffs through New Jersey Pain, and instead continued to fraudulently
bill through Poretskaya PC and PMR. Id. at ¶ 99.
Defendant was also part of a “pay-to-play” scheme where he and his co-Defendants paid
“unlawful compensation” to medical offices in exchange for “medically unnecessary referrals.”

The facts of this matter derive from the Complaint as well as the affidavits and exhibits submitted
in conjunction with Plaintiffs motion for default judgment. See D.E. 20.
2

Id. at

¶ 112-113, 115. This unlawful compensation included payments disguised as legitimate

fees for lease space, when in fact Defendant and his co-Defendants did not regularly operate out
of the supposed offices for which they made payments. Id. at

¶ 118. Furthermore, the “lease”

payments were not fixed fees nor were they paid over a regular lease term; rather, Defendant and
his co-Defendants only made payments on dates where the offices referred patients for fraudulent
services.

Id. at

¶J 117-118. The improper compensation also included return referrals for

“medically unnecessary chiropractic services.” Id. at

¶

123.

In furtherance of this scheme,

Defendant created false examination reports and diagnoses to refer insured patients to chiropractor
offices owned by his co-Defendants for additional baseless chiropractic services. Id. at ¶ 111.

On November 11, 2016, GEICO filed a fifly-three-count complaint against Defendant and
his co-Defendants seeking punitive, compensatory, and treble damages. D.E. 1. Defendant was
served with the Complaint, and proof of service was filed with the Court. D.E. 13; D.E. 80-1,
Plaintiffs’ Memorandum of Law in Support of Motion for Entry of Default Judgment Against
Defendant Grigory $htender, M.D. (“Memo”) at 2. Defendant failed to appear or respond.
On January 6, 2017, Plaintiffs requested an entry of default against Defendant, which was
entered that same day. D.E. 14. Plaintiff then filed a motion for default judgment as to Defendant
as well as co-Defendants: Konstantine Fotiou, D.C.; First Care Chiropractic Center, LL.C.; Joseph
Nieroda, D.C.; Elizabeth Avenue Chiropractic Center, P.C.; and Mora Chiropractic Center, P.C.
D.E. 35. On September 14, 2017, the Court denied the motion as to Defendant without prejudice.
D.E. 65. On March 8, 2018, Plaintiffs filed the instant motion. D.E. 80.

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III.

LAW AND ANALYSIS
A. Standard of Review

“Once a party has defaulted, the consequence is that ‘the factual allegations of the
complaint, except those relating to the amount of damages, will be taken as true.” Teamsters
Pension fttnd ofPhila. & Vicinity v. Am. Helper, Inc., No.11-624, 2011 WL 4729023, at *2 (D.N.J.

Oct. 5, 2011) (quoting DIRECTV. Inc. v. Pepe, 431 F.3d 162, 165 & n.6 (3d Cir.2005)). “The
entry of a default judgment is largely a matter ofjudicial discretion, although the Third Circuit has
emphasized that such ‘discretion is not without limits, however, and [has] repeatedly state{d] [its]
preference that cases be disposed of on the merits whenever practicable.”

Chanel, Inc. v.

Gordashevskv, 558 F. Supp. 2d 532, 535 (D.N.J. 2008) (quoting Hritz v. Woma Corp., 732 F.2d
1178, 1181 (3dCir.1984)).
Prior to entering a default judgment, the court is required to: “(1) determine it has
jurisdiction both over the subject matter and parties; (2) determine whether defendants have been
properly served; (3) analyze the Complaint to determine whether it sufficiently pleads a cause of
action; and (4) determine whether the plaintiff has proved damages.” Moroccan oil, Inc. v. JMG
freight Grp. LLC, No. 14-5608, 2015 WL 6673839, at *1 (D.N.J. Oct. 30, 2015). Additionally,

the Court must consider the following factors: “(1) prejudice to the plaintiff if default is denied,
(2) whether the defendant appears to have a litigable defense, and (3) whether defendant’s delay
is due to culpable conduct.” Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000); see
also Nationwide Mttt. Ins. Co. v. Starlight Ballroom Dance Club, Inc., 175 F. App’x 519, 522 (3d

Cir. 2006).

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B. Jurisdiction and Service

“Before entering a default judgment as to a party ‘that has not filed responsive pleadings,
the district court has an affirmative duty to look into its jurisdiction both over the subject matter
and the parties.” HICA Ethic. Loan Corp. v. Surikov, No. 14-1045, 2015 WL 273656, at *2
(D.N.J. Jan. 22, 2015) (quoting Ramada Worldwide, Inc. v. Benton Harbor Han Ohm, L.L. C., No.

08—3452, 2008 WL 2967067, at *9 (D.N.J. July 31, 2008)).
i. Subject Matter Jurisdiction

This Court has original jurisdiction pursuant to 28 U.S.C.
1$ U.S.C.

§ 1331 over claims brought under

§ 1961 et seq. (the Racketeer Influenced and Corrupt Organizations (“RICO”) Act).

Because the claims against Defendant arises out of the same case and controversy as the RICO
claims, this Court has supplemental jurisdiction over the state law claims pursuant to 2$ U.S.C.

§

1367 etseq.
ii. Personal Jurisdiction

“Where a forum seeks to assert specific jurisdiction over an out-of-state defendant... th[e]
‘fair warning’ requirement is satisfied if the defendant has ‘purposefully directed’ his activities at
residents of the forum... and the litigation results from alleged injuries that ‘arise out of or relate
to’ those activities.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473-474 (1985) (internal
citations omitted). Defendant is a resident of New York, but has been licensed as a physician in
New Jersey since 2005. Moreover, Defendant performed the fraudulent billing practices and other
improper conduct in New Jersey. Compl. at

¶ 12. By practicing in New Jersey, Defendant has

“purposefully directed” his activities at the residents of New Jersey. The Court has, at a minimum,
specific personal jurisdiction over Defendant as to the activity alleged in the Complaint.

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iii. Sufficiency of Proof of Service
“Before the Court can enter default judgment, it must find that process was properly served
on the Defendant.” Teamsters Pension fund of Philadelphia, 2011 WL 4729023, at *2 (citing
Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 19 (3d Cir.1985)). Federal Rule of Civil

Procedure 4 governs service of a summons and complaint. Here, true and correct copies of the
Complaint were personally served on Defendant and proof of service was subsequently filed with
the Court. D.E. 13. Thus, this Court finds that Plaintiffs properly served Defendant.
C. Sufficiency of Causes of Action and Damages

Plaintiffs allege causes of action for insurance fraud, common law fraud, aiding and
abetting fraud, and unjust enrichment. D.E.

Plaintiffs seek treble damages against Defendant

.

plus interest, costs for investigation, costs incurred in relation to the prosecution of this action, and
any other relief the Court deems proper. Id. at 2.
A practitioner violates the New Jersey Insurance Fraud Prevention Act (IfPA) if he
[p]resents or causes to be presented any written or oral statement as
part of, or in support of or opposition to, acclaim for payment or
other benefit pursuant to an insurance policy, knowing that the
statement contains any false or misleading information concerning
any fact or thing material to the claim; or. [p]repares or makes any
written or oral statement that is intended to be presented to any
insurance company or any insurance claimant in connection with, or
in support of or in opposition to any claims for payment or other
benefit pursuant to an insurance policy, knowing that the statement
contains any false or misleading information concerning any fact or
thing material to the claim...
.

2

.

Defendant is charged with Counts Two, F our, Seven, Eight, Ten, Seventeen, Eighteen, Twenty,
Twenty-Seven, Twenty-Nine, Thirty, Thirty Two, F orty-Eight, fifty, fifty-Two and Fifty-Three.
6

N.J.S.A. 17:33A-4. Here, the facts state that Defendant has repeatedly, since mid-2010, created
false reports, examinations, and diagnoses for the purpose of receiving unlawful payment from

GEICO. See Compl. at

¶J

88-118. Accordingly, Plaintiffs have sufficiently alleged a cause of

action for a violation of IFPA.
To establish a claim for common law fraud in New Jersey, plaintiffs must allege the
following: “(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or
belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable
reliance thereon by the other person; and (5) resulting damages.” Stockroom, Inc. v. Dydacomp
Development Corp., 941 F.$upp.2d 537, 546 (D. N.J. 2013) (citing Gennari v. Weichert Co.

Realtors, 148 N.J. 582, 610 (1997)). GEICO sufficiently alleges a cause of action based on
common law fraud. The facts state that Defendant intentionally misrepresented information in his
medical examinations in order to support false diagnoses for unnecessary medical treatment.
Cornpl. at ¶J 88-89. GEICO justifiably relied on these misrepresentations, and as a result GEICO
paid “at least $300,000.00” to satisfy the fraudulent billing submitted by Defendant. Id. at ¶ 434.
Thus, Plaintiffs have met all elements to establish a cause of action for common law fraud.
“To state a claim for unjust enrichment, a plaintiff must allege “(1) that the defendant
has received a benefit from the plaintiff, and (2) that the retention of the benefit by the defendant
is inequitable.” Hassler v. Sovereign Bank, 644 F. Supp. 2d 509, 519 (D.N.J. 2009), aff’d, 374
F. App’x 341 (3d Cir. 2010). Here, Defendant received the benefit of being paid for bills that
were fraudulent at GEICO’s expense. Cornpl. at ¶ 512-515. Therefore, these facts sufficiently
establish a cause of action for unjust enrichment.
To properly allege aiding and abetting of common law fraud, Plaintiff must show that
Defendant willfully and knowingly gave substantial assistance to others who perpetrated the

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underlying fraud. fail/a v. Cite ofPassaic, 146 f.3d 149, 158 (3d Cir. 1998). Here, Defendant
created fraudulent examination reports that misrepresented insured patients’ symptoms and
conditions to get unlawful referrals for pain-management injections, electrodiagnostic testing.
Compi. at ¶J 111-123. Defendant also created these false reports knowing that his co-Defendants
working in chiropractic offices would use the reports to legitimize the unnecessary services they
claimed to provide to the insured patients. See id. at ¶J 111-130. Defendant further made improper
payments to other doctors for their unnecessary referrals to him and the affiliated chiropractic
clinics. Id. at

¶J 112-113, 115. Thus, the facts sufficiently establish a cause of action for aiding

and abetting fraud.
B. Default Judgment

“Before imposing the extreme sanction of default judgment, district courts must make
explicit factual findings as to (1) whether the party subject to default has a meritorious defense,
(2) the prejudice suffered by the party seeking default, and (3) the culpability of the party subject
to default.” Teamsters Pension fund of Phi/a., 2011 WL 4729023, at *4 (quoting Dottg Brady,
Inc. v. NJ. Bldg. Laborers Statewide funds, 250 F.R.D. 171, 177 (D.N.J. 2008)).

Here, all three factors weigh in favor of entering default judgment. First, considering that
Defendant has not responded in this matter, “Defendant has put forth no evidence or facts
containing any information that could provide the basis for a meritorious defense.” HICA Ethic.
Loan Corp., 2015 WL 273656, at *3 As for the second factor, without a default judgment,
“Plaintiff has no other means of seeking damages for the harm allegedly caused by Defendant[s].”
Gowan v. Cont’l Airlines, Inc., No. 10-1858, 2012 WL 2838924, at *2 (D.N.J. July 9, 2012).

Lastly, Defendant’s failure to answer, without providing any reasonable explanation, demonstrates
his culpability in the default. See Days Inns Worldwide, Inc. v. Mangur LLC, No. 1 5-CV-2027,

8

2016 WL $45141, at *4 (D.N.J. Mar. 4, 2016). For those reasons, the Court finds that default
judgment is warranted.
E. Remedies
Final judgment may be entered if damages are articulated for a certain sum. Fed. R. Civ.
P. 55(b)(2). The Court need not accept a plaintiffs’ allegations regarding damages as true.

Chanel, Inc. v. Gordashevslcy, 558 F. Supp. 2d 532, 535 (D.N.J. 2008). Instead, a plaintiff must
provide adequate proof to establish damages.

Under IFPA, “a successful claimant under

subsection a. shall recover treble damages if the court determines that the defendant has engaged
in a pattern of violating this act.” N.J.S.A. 17:33A-7(b) (emphasis added); see Material Damages
Adjustment Corp. v. Open MRI of Fairview, 799 A.2d 731, 740 (N.J. Super. Ct. App. Div. 2002)
(“The statute also mandates treble damages...”) (emphasis added). A “pattern” is defined as five
violations, or violations that “involve either the same victim, or same or similar actions on the part
of the person or practitioner charged with violating the Fraud Act.” Allstate Ins. Co. v. Greenberg,
376 N.J. Super. 623, 640 (N.J. Super. Ct. App. Div. 2004) (quoting N.J.S.A. 17:33A-4) (internal
quotations omitted). Under this analysis, “each false claim constitutes a separate fraudulent act.”

Id. (citing Merin v. Maglaki, 599 A.2d 1256, 1259 (N.J. 1992)).
Plaintiffs seek a total of $7,537,801.11 from Defendant.

Memo at 24.

This amount

represents $2,512,600.37 in actual damages, trebled to $7,537,819.11. Id.; see also D.E. 80-4
(“Root Decl.”) ¶ 3. Plaintiffs provide a detailed Declaration of a GEICO employee to support their
claim of damages amounting to S2,5 12,600.37 as the amount GEICO paid in reliance on claims

This number is the total of claims paid to North Jersey Diagnostic & Pain ($905,837.13), New
Jersey Pain Management & Rehab, P.A. ($533,395.21), First Care Chiropractic Center, L.LC.
($291,553.21), and Elizabeth Avenue Chiropractic Center, P.C. ($781,814.82). See Root Decl. at
¶5.
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Defendant “submitted or caused to be submitted” to GEICO for payment.

Id. at ¶4.

The

Declaration further describes in sufficient detail the calculation process GEICO used.
Furthermore, Plaintiffs are successful claimants under IFPA. Plaintiffs show that Defendant has
exhibited a pattern of IFPA violations, as evidenced by the repeated instances of fraudulent
examinations and corresponding fraudulent billing. Compi. at

¶

82-381. See Gov ‘t Emps. Ins.

Co., et al. v. Hamilton Health C’are Ctr. P. C., et al., 2018 WL 1226105 at * I (D.N.J. Mar. 9, 2018)
(describing the same underlying conduct occurring since 2008 and granting treble damages); see
also Gov’tEmps. Ins. Co., eta?. v. Zuberi, No. 15-4895 2017 WL 4790383 (D.N.J. Oct. 23, 2017)
(describing the same underlying conduct occurring over ten years and granting treble damages).
Defendant’s pattern of unlawful and fraudulent conduct warrants statutory treble damages.
IV.

CONCLUSION
For the reasons set forth above, Plaintiffs motion for a default judgment is granted. An

appropriate Order accompanies this opinion.

Dated: AprilS,2018

John Michael Vazquez,

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