Allstate Insurance Company v. Tapper, M.D. et al
Filing
155
MEMORANDUM DECISION AND ORDER dated 11/9/15 granting plaintiff's 151 Motion for Default Judgment. Plaintiff is directed to file a letter containing a revised prejudgment interest calculation as described above, with a date ending two days after the date of docketing of this decision. Upon receipt of that submission, the Court will direct entry of judgment. ( Ordered by Judge Brian M. Cogan on 11/9/2015 ) (Guzzi, Roseann)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------------------------------- X
:
ALLSTATE INSURANCE COMPANY,
:
: MEMORANDUM
Plaintiff,
: DECISION AND ORDER
:
- against : 14-cv-5410 (BMC)
:
WINSTON TAPPER, M.D., et al.,
:
:
Defendants.
:
:
----------------------------------------------------------- X
COGAN, District Judge.
In this multi-defendant RICO case, plaintiff has settled or dismissed its claims against all
but two of the defendants: Jean Claude Demetrius, M.D. and D&H Rehabilitation Medical, P.C.
The Clerk has entered default against those defendants, and plaintiff now seeks default judgment,
consisting of a declaratory relief and a money judgment in the amount of $1,384,634.84. For the
reasons set forth below, the motion is granted.
BACKGROUND
The complaint, affidavits and exhibits submitted on this motion show a wide ranging
scheme of no-fault accident insurance fraud. To put it succinctly, the submissions addressing the
misconduct of the defendants at issue on the present motion show that those defendants
submitted phony bills for reimbursement to Allstate. The bills were phony for a variety of
reasons, but the principal ones were overstating the complexity of the examination; billing for
tests that were never performed; cutting and pasting the data from prior tests and representing
that it was the data from more recent tests; performing testing that was not medically necessary,
just to generate reimbursable bills; misrepresenting that defendants’ employees had performed
the medical tests when in fact independent contractors, who were not eligible for reimbursement,
had performed them; and misrepresenting that defendants were in compliance with state and
local licensing laws entitling them to receive no-fault insurance reimbursement when, in fact,
defendants were not in compliance because, at least, they were paying kickbacks to their
patients.
This scheme, according to the complaint, entailed hundreds of fraudulent charges that
were mailed to plaintiff over a five-year period. The scheme was perpetrated under the corporate
name of defendant D&H but orchestrated through its owner, defendant Dr. Demetrius (he has
since lost his medical license). Based on these allegations, plaintiff has stated claims under the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) against Dr. Demetrius
and common law fraud and unjust enrichment against Dr. Demetrius and D&H. These claims
seek recovery of $388,809.87 that plaintiff has paid to D&H, plus trebling of that amount under
RICO, plus interest on the principle amount. In addition, plaintiff seeks a declaratory judgment
that it does not have to pay $49,627.81 in bills that D&H has submitted but plaintiff has not yet
paid.
DISCUSSION
In light of defendants’ default, all of the well-pleaded allegations in plaintiffs’ complaint
pertaining to liability are deemed true. However, “[e]ven when a default judgment is warranted
based on a party’s failure to defend, the allegations in the complaint with respect to the amount
of the damages are not deemed true.” Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d
151, 155 (2d Cir. 1999). Rule 55(b)(2) provides that when granting a default judgment, a court
may conduct a hearing if it is necessary to “determine the amount of damages” or to “establish
the truth of any allegation by evidence.” According to the Second Circuit, however, it is not
2
necessary to conduct a hearing if a district court has “ensured that there was a basis for the
damages specified in the default judgment,” such as by relying on detailed affidavits and
documentary evidence. Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109
F.3d 105, 111 (2d Cir. 1997) (internal quotation marks omitted).
Notwithstanding the principle that defendants are deemed to have admitted the factual
allegations as to liability in plaintiff’s complaint, plaintiff’s memorandum of law in support of its
motion for default judgment is directed entirely to establishing liability, and does not mention
how damages should be calculated except to establish its right to treble damages under RICO
and interest. Plaintiff goes to considerable length to show that it has established each element of
RICO and, separately, of fraud. Plaintiff’s determination to offer this level of detail may reflect,
in part, its concern that with its claims principally based on the relatively complex theories of
RICO and common law fraud, this Court might apply a high degree of scrutiny to its liability
theories, notwithstanding that the default establishes the facts that give rise to liability.
It is true that in the default context, various decisions within this district could be
interpreted as raising issues sua sponte that a defendant itself could and would have waived by
appearing and failing to raise them. As one decision recently held:
The fact that a complaint stands unanswered … does not suffice to establish
liability on its claims. A default does not establish conclusory allegations, nor
does it excuse any defects in the plaintiffs’ pleading. Moreover, allegations that
are “contrary to uncontroverted material in the file of the case” cannot be deemed
well-pleaded, and may therefore be disregarded. Thus, a defendant’s default does
no more than concede the complaint’s well-pleaded factual allegations; it remains
the plaintiffs’ burden to demonstrate that those uncontroverted allegations,
without more, establish the defendant’s liability on each asserted cause of action.
Mateo v. Universal Language Corp., No. 13 Civ. 2495, 2015 WL 5655689, *4 (E.D.N.Y. Sept. 4,
2015) (citations omitted). Indeed, there are Second Circuit decisions, some of which are cited in
3
Mateo, which, albeit in dictum, would support the notion that the district court must, or at least
may, scrutinize the complaint to make sure that it would suffers from no legal infirmities that
would cause it to crumble under a Rule 12(b)(6) motion. See Greathouse v. JHS Sec. Inc., 784
F.3d 105, 116 n. 17 (2d Cir. 2015).
I have no difficulty with this principle to the extent it directs a district court not to enter a
default judgment on a frivolous complaint, see Fitzgerald v. First East Seventh Street Tenants
Corp., 221 F.3d 362, 364 (2d Cir. 2000), or on one that is inherently contradictory or is
contradicted by the motion for default judgment itself, see Ho v. Calabrigo, No. 15 Civ. 3730,
2015 WL 5719738 (E.D.N.Y. Sept. 29, 2015). But I think the use of this power in the default
context has to be carefully circumscribed.
For one thing, the holdings of the Second Circuit, as opposed to its dictum, do not appear
to distinguish between deemed admissions of fact giving rise to liability and the establishment of
liability itself. See Bambu Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849, 854 (2d Cir. 1995)
(“[t]here is no question that a default judgment establishes liability”); Trans World Airlines, Inc.
v. Hughes, 449 F.2d 51, 70 (2d Cir. 1971) (“there was no burden on [the plaintiff] to show that
any of [the defendant’s] acts pleaded in the complaint violated the antitrust laws nor to show that
those acts caused the well-pleaded injuries, except as we have indicated that it had to for the
purpose of establishing the extent of the injury caused [to the plaintiff], in dollars and cents”),
rev'd on other grounds, 409 U.S. 363, 93 S.Ct. 647 (1973); see also Vermont Teddy Bear Co.,
Inc. v. 1-800 Beargram Co., 373 F.3d 241 (2d Cir. 2004) (comparing unopposed motion for
summary judgment, which requires scrutiny of the record and a determination of entitlement,
with a motion for a default judgment, which, as to liability, does not).
4
More fundamentally, it is inappropriate and, indeed, unseemly for a court to act as the
lawyer for a defendant that has chosen to default. Judge Korman discussed this phenomenon at
some length in his recent partial concurring opinion in Greathouse, where he observed:
There is something wrong when a case or controversy, to the extent that it exists,
is principally between a plaintiff and the judges deciding the case.…
The magistrate in the case essentially took it upon himself to act as counsel for
parties who had not bothered themselves to appear in court. Acting as both
counsel and judge, the magistrate – affirmed by the district judge – sua sponte
denied damages on a previously entered default judgment on the basis of a
defense that the defendants may have waived if they had appeared and not timely
raised it. Then, we appointed counsel to defend on appeal the lawyering of these
judicial officers on behalf of parties who never even appeared in court. Thus,
through the magistrate judge, the district court judge, and the able counsel
appointed by this Court, defendants may have obtained far more capable
representation than they would have obtained had they not chosen voluntarily to
default and instead retained their own counsel.
784 F.3d at 119, 120-21 (citation omitted).1 Presumably, most federal judges could provide at
least as capable a defense in the Rule 12(b)(6) context as most attorneys who would be retained
by a defendant who chooses to default in a case. But that is not, it seems to me, the role that
courts should play.
In addition, there may be strategic reasons why a defendant, if it were to appear, would
choose not to raise a Rule 12(b)(6) challenge to a complaint, even a defective complaint. For
example, if a defense attorney knows that a motion is likely to prevail, but that leave to amend is
likely, and expects that the plaintiff will be able to successfully amend, and the operative statute
provides for fee-shifting (as is the case under RICO and the FLSA), then a successful Rule
12(b)(6) motion will achieve nothing but running up his client’s fee-switched bill. Similarly, an
able defense attorney may conclude for reasons of fee-switching that his client should allow the
1
Other than the footnote cited above, the majority in Greathouse spent no time on this issue. It seems clear that it
was most interested in reaching the substantive issue in the case – whether a retaliation claim under the Fair Labor
Standards Act encompasses oral complaints from an employee to his employer rather than merely a written
complaint to the Department of Labor.
5
default and spend his time protecting his assets, rather than increasing the judgment by running
up a double (plaintiff’s switched fee and his own) attorneys’ bill. I see no reason why courts
should interject themselves in the deliberate decision of defendants not to appear and supply a
free defense that a defendant has elected to forego.
I therefore would not undertake the level of strict scrutiny of a complaint on a default
judgment motion that I observe in some of the cases to ascertain the existence of any possible
defenses, and would instead apply a standard of plain inadequacy. If the complaint is contrary to
the purpose of the statute or the law, or a judgment would tend to reflect negatively on the court
in light of that purpose, then a default judgment should be denied. But the fact that a complaint
could have been pled with more particularity, or raises potential but not determinative issues
with regard to waivable affirmative defenses, then it is not the business of the court to inject
itself. That is the defendant’s option, and it has chosen not to utilize it.
Applying that standard, I have no difficulty finding that plaintiff’s submissions
adequately establish liability. It easily satisfies the elements of RICO. It is a five year, closed
end scheme of fraudulent bills that were sent through the mail. Plaintiff has alleged that D&H
constitutes an “enterprise” and I see no plain inadequacy about that legal conclusion. Dr.
Demetrius is alleged to have directed the enterprise and thus obviously participated in it.
Both plaintiff’s RICO claim and its fraud claim could have contained greater
particularity. The fraudulent statements are pled as a group, and no particular statement is
identified as fraudulent, nor is there any indication of time, place and manner as to those
statements. Again, however, those issues were for defendants to raise. There is nothing
inherently implausible or contradictory about the facts that plaintiff has set forth. The facts are
sufficient to establish liability.
6
As to damages, as noted, I do not have the benefit of argument from plaintiff as to its
proof. It appears to be proceeding on the theory that it can simply total all amounts that it paid to
defendants, treble it, add interest to the principle, and recover that amount. Having carefully
considered the matter, I am prepared to accept plaintiff’s theory. But it is not nearly as
straightforward as plaintiff seems to suggest.
The difficulty with plaintiff’s theory is that it effectively requires the Court to find that
there was not a single bill that defendants submitted that reflected a proper amount billed for a
necessary service by a bona fide employee of D&H. Because plaintiff has not given me the
particulars of every bill, this conclusion is not self-evident. It requires some extrapolation to
conclude that every bill that plaintiff paid over a five year period was fraudulent without some
evidence to that effect. Even plaintiff’s audit report on electrodiagnostic testing, which has not
been submitted on this motion but is only summarized in the amended complaint, references
nine “match groups” consisting of a total of 17 patients to conclude that the billings were
fraudulent bills and does not reach a conclusion that there were no bona fide bills.
Notwithstanding the less-than-robust showing on damages, I accept plaintiff’s theory for
several reasons. First, two of plaintiff’s allegations, which are related, and are deemed admitted
for purposes of liability, make all of the bills improper, whether they were for fraudulent tests or
not. These are: (1) defendants classified all of their employees as independent contractors, and
thus had no right under state and local law to obtain reimbursement for their services; and (2)
defendants paid kickbacks to patients in at least some instances, which also disqualified D&H
from participating as a state no-fault provider under state and local law. These false statements
made the submission of every bill improper.
7
Second, although plaintiff has not demonstrated the falsity of every bill individually, the
17 patients tested and found to have received fraudulent results are sufficient to establish a prima
facie case that they all were. In reaching this conclusion, I have to recognize that putting an
insurance company to the burden of proving every bill fraudulent would likely be cost
prohibitive. There is only so much time and money that a court can reasonably expect an
insurance company to commit to chase down a de-licensed doctor and what appears to be a shell
company. The fact is that these no-fault fraudulent insurance schemes drive up the premiums for
all consumers, and placing an undue burden on the insurance company to prove the conduct
beyond any doubt would only make it worse.
Finally, and relatedly, I am willing to somewhat relax plaintiff’s burden of proof because
if defendants had wished to reduce their damage exposure, they could have appeared even at the
default stage to demonstrate the bona fides of at least some the services that they rendered. They
have not.
Having found that plaintiff has sufficiently, if not overwhelmingly, demonstrated its
entitlement to recovery of all amounts paid, the rest of its claims fall readily into place. It has
established the amounts paid as $388,809.87 through documentary evidence. It has shown that
this amount, because it is based, in part, on fraud, is subject to mandatory prejudgment interest
under state law of 9%. See N.Y. C.P.L.R. §§ 5001, 5004. It computes that as of each January 1
following the year in which payments were made, but I think that is cumbersome, and I direct
plaintiff to recalculate the amounts owed as of the mid-date of the fraudulent scheme since the
scheme was ongoing. See C.P.L.R. § 5001(b); Allstate Insurance Co. v. Nazrov, No. 11 Civ.
6187, 2015 WL 5774459, at *22 (E.D.N.Y. Sept. 30, 2015). It also follows that the principal
amount is subject to trebling under RICO. Finally, plaintiff is entitled to a declaration that it has
8
no obligation to pay any bills that have been submitted but remain unpaid, which it asserts total
$49,627.81.
CONCLUSION
Plaintiff’s motion for a default judgment is granted. Plaintiff is directed to file a letter
containing a revised prejudgment interest calculation as described above, with a date ending two
days after the date of docketing of this decision. Upon receipt of that submission, the Court will
direct entry of judgment.
SO ORDERED.
Digitally signed by
Brian M. Cogan
U.S.D.J.
Dated: Brooklyn, New York
November 9, 2015
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?