Allstate Insurance Company v. Kumar et al

Filing 98

REPORT AND RECOMMENDATION: re: 1 Complaint, filed by Allstate Insurance Company. To the HONORABLE KATHERINE B. FORREST, U.S.D.J.: On October 28, 2010, Allstate Insurance Company ("Allstate") commenced this action against Puneet Kumar, M.D ., John Cosby, M.D. ("Nominal Owner Defendants"); ABL Medical P.c., Cosby Medical, P.C., Magenta Medical, P.c. (collectively, "P.C. Defendants"); Leonard Gerchick; Alexander "Doe"; Christopher Montana, D.C.; David Slidov ker a/k/a Dmitry Slidovker; Anatta Levinsky; Hamlet Balbuena; Yvette Williams; Inwood Management, Inc.; Solid Management & Billing, Inc.; Soma Health Care Billing and Management Inc.; and EV Health Care Management, Inc. (collectively, "Managemen t Defendants") seeking declaratory judgment pursuant to 28 U.S.C. 2201 and 2202 and alleging violations of 18 U.S.C. 1962(c) and (d), state fraud, and unjust enrichment. (Compl. 91-175.) Allstate moved for entry of default against all defendants and the Clerk of the Court entered the defaults. Allstate is seeking trebled damages pursuant to 18 U.S.C. 1964(c) and prejudgment interest pursuant to New York C.P.L.R. 5001 and 5004. Mem. of Law in Support of Pl. Mot. for Default Against Def. Leon ard Gerchick ("Mot.") 14; Supp. Mem. of Law on Damages 2-7 ("Supp. Mem."). For the reasons set forth above, I respectfully recommend that the court grant Allstate relief in the amount of $1,636,217.20, to be divided in accord ance with the following: (1) ABL and Inwood be jointly and severally liable for $362,283.30; (2) Inwood be liable for $653,808.59; (3) Balbuena, Solid and Cosby be jointly and severally liable for $144,083.40; (4) Balbuena and Solid be jointly and severally liable for $216,452.90; and (5) Magenta be liable for $259,589.11. Pursuant to Rule 72, Federal Rules of Civil Procedure, the parties shall have fourteen(14) days after being served with a copy of the recommended dis position to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court and served on all adversaries, with extra copies delivered to the chambers of the Honorable Katherine B. Forrest, 500 Pe arl Street, Room 730, and to the chambers of the undersigned, Room 1970. Failure to file timely objections shall constitute a waiver of those objections both in the District Court and on later appeal to the United States Court of Appeals. Objections to R&R due by 6/20/2013 (Signed by Magistrate Judge Ronald L. Ellis on 6/3/2013) (rsh).

USDCSDNY
DOCtJ~fENT

ELECTRONICALLY flU'"
OOC#:

UNITED STATES DISTRICT COURT

§9UTHERN DISTRICT OF NEW YORK ,,_,,_ _

OJ\i'E F'(-I.e-.o-:-,-<O---3--.....,\~3!""">

~I

ALLSTATE INSURANCE COMPANY,
REPORT AND
RECOMMENDATION

Plaintiff,
- against-

10 Civ. 8166 (KBF) (RLE)
PUNEET KUMAR, M.D., et aI.,
Defendants.
To the HONORABLE KATHERINE B. FORREST, U.S.D.J.:
I.

INTRODUCTION

On October 28,2010, Allstate Insurance Company ("Allstate") commenced this action
against Puneet Kumar, M.D., John Cosby, M.D. ("Nominal Owner Defendants"); ABL Medical
P.c., Cosby Medical, P.C., Magenta Medical, P.c. (collectively, "P.C. Defendants"); Leonard
Gerchick; Alexander "Doe"; Christopher Montana, D.C.; David Slidovker a/k/a Dmitry
Slidovker; Anatta Levinsky; Hamlet Balbuena; Yvette Williams; Inwood Management, Inc.;
Solid Management & Billing, Inc.; Soma Health Care Billing and Management Inc.; and EV
Health Care Management, Inc. (collectively, "Management Defendants") seeking declaratory
judgment pursuant to 28 U.S.C. § 2201 and § 2202 and alleging violations of 18 U.S.C. §§
1962(c) and (d), state fraud, and unjust enrichment. (Compi.

~~

91-175.) Allstate moved for

entry of default against all defendants and the Clerk of the Court entered the defaults. Allstate is
seeking trebled damages pursuant to 18 U.S.C. § 1964(c) and prejudgment interest pursuant to
New York C.P.L.R. § 5001 and § 5004. Mem. of Law in Support of PI. Mot. for Default Against
Def. Leonard Gerchick ("Mot.") 14; Supp. Mem. of Law on Damages 2-7 ("Supp. Mem.").
This inquest on damages was referred on October 26,2011. For the reasons set forth
below, Trespectfully recommend that: (1) Defendants ABL and Inwood be jointly and severally

liable for $362,283.30, reflecting $221,269.53 in damages under common law fraud and unjust
enrichment, plus $151,013.77 for prejudgment interest; (2) Defendant Inwood be liable for
$653,808.59, reflecting $663,808.59 in treble damages, minus the $10,000 settlement payment
by Defendant Kumar; (3) Defendants Balbuena, Solid, and Cosby be jointly and severally liable
for $89,083.40, reflecting $90,484.30 in damages under common law fraud and unjust
enrichment, plus $53,599.10 in prejudgment interest,; (4) Defendant Balbuena and Solid be
jointly and severally liable for $271,452.90 in treble damages, minus the $55,000 settlement
payment by Defendants Montana, Slidovker, Levinski and Soma; (5) Defendant Magenta be
liable for $278,026.93, reflecting $171,046.77 in damages under common law fraud and unjust
enrichment, plus $106,980.16 in prejudgment interest, minus the $45,000 settlement payment by
Defendants Williams and EV.

II.

BACKGROUND

New York permits health care providers such as medical professional corporations to
submit claims to a medical insurer for no-fault benefit medical services rendered and to receive
payments in return. 11 NYCRR § 65-3.11. A fraudulently incorporated medical professional
corporation may not be reimbursed for false billing practices. 11 NYCRR § 3.16(a)(12). Under
New York law, medical professional corporations must be owned and operated by licensed
physicians. N.Y. Bus. Corp. § 1507. Allstate claims that Management Defendants are not, and
never have been, licensed physicians, and that they unlawfully incorporated, owned, and
controlled a series of medical professional corporations, including P.C. Defendants. (Compl.
~~

1-3.) It asserts that Management Defendants illegally purchased the use of Nominal Owners

Defendants' medical licenses for the purpose of submitting false claims for payment under New
York's no-fault insurance laws. (Id.

~

32.)

2

Allstate alleges that the Management Defendants entered into contracts with the
fraudulently incorporated medical professional corporations, P.C. Defendants, for billing and
other management services. (/d.

~~

37-39.) The Management Defendants billed the P.C.

Defendants to maintain the latter in constant debt to the former. (/d.) Management Defendants
funneled insurance payments from the fraudulently incorporated medical professional
corporations to themselves. (/d.

~

39.)

Allstate filed its Complaint, which invokes this court's diversity jurisdiction, on October
28, 2010. It asserted claims of common law fraud and unjust enrichment against all Defendants,
and Racketeer Influenced and Corrupt Organizations ("RICO") Act violations against all
Defendants, save the P.C. Defendants, which Allstate regards as the enterprises used as tools in
the racketeering conspiracy or activity. (CompI.

~~

95-175.)

Allstate seeks a judgment in the amount of the payments it made to the P.C. Defendants,
plus prejudgment interest, minus the settlement payments already received from other
Defendants who have previously agreed to settle this matter, and treble damages under RICO
against all defaulting Defendants, plus prejudgment interest minus the settlement payments.
Allstate requests that all related defaulting Defendants be held jointly and severally liable for
damages.

3

The Defendants were organized as follows:
P .C. Defendants
ABL Medical

Cosby Medical

Magenta Medical

Management
Defendants

Leonard Gerchick,
Alexander "Doe,"
and Inwood
Management

Christopher
Montana, David
Slidovker (a.k.a.
Dmitry Slidovker),
Anatta Levinsky,
Hamlet Balbuena,
Solid Management &
Billing, Inc., and
Soma Health Care
Billing &
Management, Inc.

Yvette Williams, and
EV Health Care
Management, Inc.

Nominal Owner
Defendants

John Cosby, M.D. or
Peneet Kumar, M.D.

John Cosby, M.D. or
Peneet Kumar, M.D.

John Cosby, M.D. or
Peneet Kumar, M.D.

i

III.
A.

DISCUSSION

Default Judgment and Reasonable Certainty

Upon entry of a default judgment, the defaulting defendants are regarded as having
admitted the truth of the allegations in the complaint. Transatlantic Marine Claims Agency, Inc.
v. Ace Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997). The court may not, however, "just

accept [plaintiffs] statement of the damages." ld. at Ill. After entry of a default judgment, the
court must determine the amount of damages to a reasonable certainty. ld. Under Rule 55(b)(2)
of the Federal Rules of Civil Procedure, a reasonable certainty means that there is "a basis for
the damages specified in the default judgment." Id. (quotations omitted).
Cynthia Wilcox, Special Investigator for Allstate, submitted copies of the tax
identification number payment runs ("TIN Runs") to show the amount of payments made by
Allstate to Defendants ABL, Cosby and Magenta, noting:
4

The TIN Runs draw payment infonnation from Allstate's earnings reporting system,
from which IRS Forms 1099-MISC are generated for payees and to report to the
Internal Revenue Service. When a payment to a healthcare provider is authorized by
Allstate, the designated information is inputted into Allstate's systems, which in turn
generates a check that is issued and catalogued according to the tax identification
number of the payee. The TIN Runs reflect every individual payment that Allstate
makes to a provider with the pertinent tax identification number. The information in
Allstate's earnings reporting system from which the TIN Runs are generated is
compiled and maintained in the ordinary course of Allstate's business.
(Cynthia Wilcox Decl. ,-r 4.)
B.

Entitlement to RICO Damages
The purpose of The Racketeer Influenced and Corrupt Organizations Act ("RlCO") is to

"[protect] legitimate business from the infiltration of organized crime." 18 U.S.C. §§ 1961-64;
United States v. Porcelli, 865 F.2d 1352,1362 (2d Cir. 1989). Section 1964(c) of the Act

provides that the plaintiff "shall recover threefold the damages he sustains." Under § 1964(c),
the plaintiff may seek trebled damages only if he alleges that: (1) the defendant committed the
predicate RlCO violation under § 1962, (2) the plaintiff was hanned in his business, and (3) the
defendant caused injury to plaintiff's business by reason of his violation. Sedima, S.P.R.L. v.
Imrex Co., 473 U.S. 479, 496 (1985); Lerner v. Fleet Bank, NA., 318 F.3d 113, 120 (2d Cir.
2003); Reed Canst. Data Inc. v. AlcGraw-Hill Companies, 745 F. Supp. 2d 343 (S.D.N.v' 2010).

A plaintiff may have a cause of action only if the alleged RICO violation was the
proximate cause of his injury. Holmes v. Securities Investor Protection Corp., 503 U.S. 258,
268-69 (1992). There must be "some direct relation between the injury asserted and the
injurious conduct alleged." Id. at 268; see also Lerner, 318 F.3d at 123; Anza v. Ideal Steel
Supply Corp., 547 U.S. 451,459-60 (2006) (upholding Holmes and reasoning that, without

proximate causation, an alleged injury may have been caused by some unknown party and a
calculation of damages would be speculative). Here, default judgment was entered by the

5

District Judge against Defendants and Allstate's RICO claims under § 1962(c) and (d) were
deemed sufficiently pled.

1.

Apportionment of Damages

"(Federal] common law governs whether a defendant in an action brought under federal
law is entitled to a credit against judgment for the settlement by another party to the dispute."

Chloe v. Zarafshan, 2009 WL 2956827, *7 (S.D.N. Y. Sept. 15, 2009) (internal quotations
omitted). When a jointly liable co-defendant has settled, the damages against a non-settling
defendant will be offset based on his proportionate share ofliability. McDermott, 511 U.S. at
212. Under the proportionate share approach, each defendant, or group of defendants, will be
responsible for damages based on his or their share ofliability. !d. at 207. The proportionate
share approach requires "damages be assessed on the basis of proportionate fault when such
allocation can reasonably be made." Id. Defaulting defendants may benefit from the set-off
rule. See State Farm Mut. Auto. Ins. Co. v. Kalika, 2007 WL 4326920, *9 (E.D.N. Y. 2007).
Defendants in a civil RICO suit are jointly and severally liable for damages. Abou-Khadra v.

Mahshie, 4 F.3d ] 071, 1074 n. 1 (2d Cir. 1993); City ofNew York v. Pollack, 2006 WL 522462,
*17 (S.D.N.Y. 2006) (imposing joint and several liability on civil RICO defendants).
Allstate requests that damages be apportioned between groups of defaulting defendants
based on their liability as determined by their level of activity and engagement with the
fraudulently incorporated medical professional corporation that organized the enterprise (e.g.,
Inwood Management, Inc. ("Inwood") is liable for payments made to ABL Medical P.C.
("ABL"), but not for payments made to Magenta or to Cosby Medical). (Supp. Mem. 1-2.)
Allstate has credited settlement amounts to some Defendants within these groups already. In one
instance, Allstate subtracted Defendant Kumar's settlement payment of $10,000 from the trebled

6

damages plus prejudgment interest they seek against Inwood. (See SUpp. Mot. on Damages
("Supp. Mot.").) Therefore, despite the lack of discovery occasioned by entry of a default
judgment against Defendants, damages may be "reasonably" apportioned between them. RLI
Ins. Co. v. King Sha Group, 598 F. Supp. 2d 438,447; lvfcDermott, 511 U.S. at 207. Settlements

made before judgment is entered should be offset after trebling damages. Hydro!eve! Corp. v.
American Soc. ofMechanical Engineers, Inc., 635 F.2d 118, 130 (2d CiT. 1980) (ruling that

compensatory damages should be trebled before subtracting the amount paid in settlements.)

c.

Prejudgment Interest
Allstate is entitled to prejudgment interest on their New York State common law fraud

claim. lvfallis v. Bankers Trust Co., 717 F.2d 683,694-95 (2d Cir. 1983). Allstate seeks to
recover interest on damages under N.Y. C.P.L.R. §§ 5001,5004. (PI. Mot. 14.) The statutes
provide for prejudgment interest on compensatory damages, and federal courts apply this
standard where parties are liable for damages under New York State law. J\fanufacturers
Hanover Trust Co. v. Drysdale Sec. Corp., 801 F.2d 13,28 (2d Cir. 1986) (ruling that since

liability was not established under state common law, it was not mandatory for the federal court
to apply the state prejUdgment statute). Under § 5001, "[where] ... damages were incurred at
various times, interest shall be computed upon each item from the date it was incurred or upon
all of the damages from a single reasonable intermediate date," and that, "[interest] shall be at
the rate of nine per centum per annum." The prejudgment interest rate is not compounded. Id.
An award of prejudgment interest is mandatory for state law fraud, but not under RICO.
Bingham v. Zoft, 810 F. Supp. 100,102 (S.D.N.Y. 1993). Prejudgment interest is not necessary

where trebled damages have sufficiently compensated the plaintiff and where there are no

7

extraordinary circumstances that would otherwise warrant compelling defendants to pay interest.

Id. at 102-03; see also Roth v. Blyth, Eastman Dillon Co., Inc., 637 F.2d 77,87 (2d Cir. 1980)

D.

Calculations
In order to calculate the total prejudgment interest a defendant accumulated from 2002 to

2011, the Court will first determine the prej udgment interest from the money taken from the
plaintiff each year. For each particular year, the Court subtracts the current calculation year
from the last year a defendant took money from the plaintiff. This number is multiplied by the
amount of damages for that particular year, with the total being mUltiplied by nine percent. The
Court must make these calculations for every year from 2002-2011 and add the prejudgment
interest accumulated for each year to obtain the totaL See CPLR §§ 5001, 5004; Max
GershenoffDecl., Ex. A. The total amounts for each defendant are as follows: 1
1.

Inwood and ABL Medical, P.C.

Inwood and ABL are jointly and severally liable for damages under common law fraud,
unjust enrichment, plus prejudgment interest for actions against Allstate from 2002 to 2011. The
total amount of damages incurred from common law fraud and unjust enrichment is
$221,269.53. Inwood and ABL accumulated $151,013.77 in prejudgment interest. Thus,
Inwood and ABL are jointly and severally liable for $362,283.30.
Inwood is liable for treble damages under RICO, 18 US.c. § 1964(c). This total
comprises three times the damages Allstate has sustained from Inwood, $221,269.53, or a total
of$663,808.59. The settlement with Dr. Kumar, results in a $10,000.00 deduction in this
amount, for a total damage award of$653,808.59.

1 Calculation

details are appended to this Report and Recommendation.

8

2.

Balbuena, Solid, and Cosby Medical, P.c.

Balbuena, Solid and Cosby Medical, P.C. ("Cosby") are jointly and severally liable for
damages under common law fraud, unjust enrichment, plus prejudgment interest for actions
against Allstate from 2002 to 2011. The total damages for common law fraud and unjust
enrichment is $90,484.30. The total prejudgment interest is $53,599.1 O. Therefore, Balbuena,
Solid, and Cosby are jointly and severally liable for $144,083.40.
Balbuena and Solid are also liable for damages under RICO, 18 U.S.C. § 1964(c). This
total is composed of three times the damages sustained by Allstate, which was determined to be
$90,484.30. The settlement with Montana, Slidocker, Levinski, and Soma, results in a
$55,000.00 reduction. Therefore, Balbuena and Solid are jointly and severally liable for
$216,452.90 in treble damages.

3.

Magenta Medical, P.c.

Magenta Medical, P.c. (,'Magenta") is liable for damages under common law fraud,
unjust enrichment, and prejudgment interest for its activity involving Allstate from 2002 to 2011.
Magenta is liable for $197,605.90 under common law and unjust enrichment, and $106,983.21
for prejudgment interest. The settlement with Williams and EV, results in a $45,000.00
reduction. Therefore, Magenta is liable for $259,589.1 L
E.

Attorney's Fees
The Federal Rules of Civil Procedure state that a default judgment "shall not be different

in kind from, or exceed in amount, that prayed for in the demand for judgment." Fed. R. Civ. P.
54( c). The plaintiff must make a distinct claim for attorney's fees that does not just consist of

9

boilerplate language, but constitutes "meaningful notice" to the defendants of potential liability
in the event of an entry of a default judgment. Silge v. Merz, 510 F.3d 157, 160 (2d Cir. 2007).
Here, Allstate has not specifically asked for attorney's fees. Boilerplate language is included in
the Complaint, but this is insufficient to entitle Plaintiff to attorney's fees. (See Compl. ~~ 101,
108, 115, 128, 135, 142, 155, 162.)

IV.

CONCLUSION

For the reasons set forth above, I respectfully recommend that the court grant Allstate
relief in the amount of $1,636,217.20, to be divided in accordance with the following:

(1) ABL and Inwood be jointly and severally liable for $362,283.30;
(2) Inwood be liable for $653,808.59;
(3) Balbuena, Solid and Cosby be jointly and severally liable for $144,083.40;
(4) Balbuena and Solid be jointly and severally liable for $216,452.90; and
(5) Magenta be liable for $259,589.11.
Pursuant to Rule 72, Federal Rules of Civil Procedure, the parties shall have fourteen
(14) days after being served with a copy of the recommended disposition to file written
objections to this Report and Recommendation. Such objections shall be filed with the Clerk of
the Court and served on all adversaries, with extra copies delivered to the chambers of the
Honorable Katherine B. Forrest, 500 Pearl Street, Room 730, and to the chambers of the
undersigned, Room 1970. Failure to file timely objections shall constitute a waiver of those
objections both in the District Court and on later appeaJ to the United States Court of Appeals.

See Thomas v. Arn, 474 U.S. 140, 150 (1985); Small v. Sec yo!Health and Human Servs., 892

10

F.2d 15, 16 (2d Cir. 1989) (per curiam); 28 U.S.C. § 636(b)(l) (West Supp. 1995); Fed. R. Civ.

P. 72, 6(a), 6(d).

DATED: June 3, 2013
New York, New York

The Honorable Ronald L. Ellis
United States Magistrate Judge

11

APPENDIX A
Damages against Inwood and ABL
A.

Common Law Fraud, Unjust Enrichment Damages Against Inwood and ABL

Payments From Allstate To ABL Since April 4, 2002

I
I
I

Year

Amount

2002

$69,730.94

2003

$92,918.90

2004

$7,648.26

2005

$11,181.64

2006

$27,214.56

2007

$12,575.23

2008

$0

2009

$0

2010

$0

Total

$221,269.53

B.

Prejudgment Interest Calculation

i

Time
Multiplier

(9%)

Damages

Interest
Multiplier

Year

Interest

(years)

2002

$69,730.94

0.09

9

$56,482.06

2003

$92,918.90

0.09

8

$66,901.60

2004

$7,648.26

0.09

7

$4,818.40

I

2005

$11,181.64

0.09

6

$6,038.08

I

2006

$27,214.56

0.09

5

$12,246.55

2007

$12,575.23

0.09

4

$4,527.08

2008

$0

0.09

3

$0

2009

$0

0.09

2

$0

2010

$0

0.09

1

$0

Total

$151,013.77

Damages under Common Law and Unjust Enrichment: $221.269.53
Prej udgment Interest: $151,013.77

Inwood and ABL jointly and severally liable for: $372,283.30

11

APPENDIXB

Damages against Balbuena, Solid, and Cosby

A.

Common Law Fraud and Unjust Enrichment Damages Against Balbuena, Solid,
and Cosby

Payments From Allstate To Cosby Since April 4, 2002
Year

2002

I

Amount

$0

2003

$29,320.10

2004

$39,121.20

2005

$5,063.10

2006

$1,851.36

2007

$7,945.92

2008

$1,444.78

2009

$5,645.34

2010

$92.50

Total

$90,484.30

i

I
!

B.

Prejudgment Interest Calculation

,

Year

Interest

Time

Multiplier

Multiplier

(9%)

Damages

Interest

(years)

2002

$0

0.09

9

$0

2003

$29,320.10

0.09

8

$21,110.47

2004

$39,121.20

0.09

7

$24,646.35

I

2005

$5,063.10

0.09

6

$2,734.07

I

2006

$1,851.36

0.09

5

$833.11

I

2007

$7,945.92

0.09

4

$2,860.53

I

2008

$1,444.78

0.09

3

$390.09

2009

$5,645.34

0.09

2

$1,016.16

2010

$92.50

0.09

1

$8.32

Total

$53,599.10

Damages under common aw and unjust enrichment: $90,484.30
Prejudgment interest: $53,599.10
Balbuena, Solid, and Cosby be jointly and severally liable for: $144,083.40

11

APPENDIX C

Damages Against Magenta Medical, PC

A.

Common Law Fraud and Unjust Enrichment Damages Defendant Magenta

Payments From Allstate To Magenta Since April 4, 2002

Year
2002

$0

2003

$20,363.95

2004

$113,855.85

2005
I

Amount

$31,411.90

2006

$3,056.68

2007

$0

2008

$2,436.64

2009

$0

2010

$17,701.53

Total

$197,605.90

B.

Prejudgment Interest Calculation

Time
Multiplier

(9%)

Damages

Interest
Multiplier

Year

Interest

(years)

2002

$0

0.09

9

$0

2003

$20,363.95

0.09

8

$14,662.04

2004

$113,855.85

0.09

7

$71,729.18

I

2005

$31,411.90

0.09

6

$16,962.42

I

2006

$3,056.68

0.09

5

$1,375.50

2007

$0

0.09

4

$0

2008

$2,436.64

0.09

3

$657.89

2009

$0

0.09

2

$0

2010

$17,701.53

0.09

1

$1,593.13

Total

$106,983.21

Damages under common law and unjust enrichment: $197,605.90
Prejudgment interest: $106,983.21
Magenta be liable for: $259,589.11

11