State Farm Mutual Automobile Insurance Company v. Fayda et al
Filing
143
ORDER granting 116 Motion to Compel: For the foregoing reasons, State Farm's motion to compel (Docket no. 116) is granted. The Kiner Defendants' request for oral argument is denied. The requested documents shall be produced within fourteen days of the date of this order. (Signed by Magistrate Judge James C. Francis on 12/3/2015) Copies Transmitted By Chambers. (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
STATE FARM MUTUAL AUTOMOBILE
: 14 Civ. 9792 (WHP) (JCF)
INSURANCE COMPANY,
:
:
MEMORANDUM
Plaintiff,
:
AND ORDER
:
- against :
:
YURI FAYDA, M.D., et al.,
:
:
Defendants.
:
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE
In
this
action,
plaintiff
State
Farm
Mutual
Automobile
Insurance Company (“State Farm”) alleges that various healthcare
providers, including defendants Arkady Kiner and Contemporary
Acupuncture P.C. (together, the “Kiner Defendants”), submitted
fraudulent insurance claims for services that were not medically
necessary.
State Farm has filed a motion to compel the Kiner
Defendants to produce financial records as well as documents from
other acupuncture practices he controls.
The motion is granted.
Background
New York law requires an automobile insurer, like State Farm,
to provide its insureds with certain personal injury protection
benefits, known as “no-fault benefits,” which include up to $50,000
in coverage for various healthcare expenses.
State Farm Mutual
Automobile Insurance Co. v. Fayda, No. 14 Civ. 9792, 2015 WL
4104840, at *1 (S.D.N.Y. June 18, 2015). An insured may assign his
right to such benefits to a healthcare provider, who then submits
claims directly to the appropriate insurer to collect payment. Id.
Here, State Farm alleges a racketeering enterprise operated out of
1
a shared medical facility at 100 Dyckman Street in Manhattan in
which the defendants, including the Kiner Defendants, submitted
bills for services that either were not performed or were not
medically necessary.
Id.
The allegedly fraudulent conduct “was
the product of an alleged ‘predetermined treatment protocol’”
pursuant
to
which
patients
were
not
legitimately
“examined,
diagnosed, or treated in accord with legitimate medical standards.”
Id.
The Kiner Defendants are named in counts alleging fraud;
violation of the Racketeering Influenced Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1961 et seq., based on mail fraud; RICO
conspiracy; and unjust enrichment.
Id.
The complaint explains that the defendant healthcare providers
gained access to patients by paying kickbacks, sometimes disguised
as rent for the subleasing of space at the facility, to nonphysicians, including defendant Stanislav Lentsi, who actually
controlled the facility and its main tenants’ medical practice.
(Complaint, ¶¶ 42-44).
Discovery already produced indicates that
Contemporary Acupuncture paid the entities from which it rented
space an amount far in excess of the purported rent, made payments
to certain business entities at the direction of Mr. Lentsi, and
wrote checks totaling over $160,000 to a check-cashing outfit that
“was at the center of multiple indictments concerning the avoidance
of currency reporting requirements and unlawful laundering of
proceeds from healthcare fraud.”
(Memorandum of Law in Support of
Plaintiff State Farm’s Motion to Compel Complete Responses to State
Farm’s First Set of Interrogatories and Document Requests to Kiner
2
Defendants (“Pl. Memo.”) at 4).
In addition, there is evidence
that Mr. Kiner provided an interest-free loan of $30,000 -- which
has not been re-paid -- to a co-defendant to start the medical
practice from which Contemporary Acupuncture allegedly leases
space.
(Pl. Memo. at 4).
Finally, at his deposition, Mr. Lentsi
asserted his Fifth Amendment privilege in response to questions
regarding whether Mr. Kiner paid kickbacks and whether Mr. Lentsi
shared in the proceeds of Contemporary Acupuncture.1
(Pl. Memo. at
5-6).
State Farm seeks bank records for bank accounts in Mr. Kiner’s
name, Mr. Kiner’s tax returns for the years 2009 through the
present, and information related to professional corporations and
healthcare practices other than Contemporary Acupuncture, including
“(a) agreements, including leases regarding activities at [these
other practices]; (b) documents reflecting or relating to payments
relating to such agreements; and (c) transcripts of testimony” from
examinations under oath.
(Pl. Memo. at 7, 14).
The Kiner
Defendants object, arguing that the information is both irrelevant
and private.
Discussion
A.
Legal Standard
The 2015 amendments to the Federal Rules of Civil Procedure
“govern in all proceedings in civil cases” commenced after December
1
Although it would have been advisable, the plaintiff does
not include such evidence in its submission. However, its counsel
represents that this evidence exists, and the Kiner Defendants do
not argue that these representations are false.
3
1, 2015, and, “insofar as just and practicable, all proceedings []
pending” on that date.
Order re: Amendments to Federal Rules of
Civil Procedure (April 29, 2015).2
No party has argued that the
application of the amended rules to this dispute is unfair or
impracticable, and I find no reason that they should not be applied
to this dispute.
The amendments to Rule 26(b)(1) allow discovery of
any nonprivileged matter that is relevant to any party’s
claim or defense and proportional to the needs of the
case, considering the importance of the issues at stake
in the action, the amount in controversy, the parties’
relative access to relevant information, the parties’
resources, the importance of the discovery in resolving
the issues, and whether the burden or expense of the
proposed discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(1).
As the advisory committee notes, the
proportionality factors have been restored to their former position
in the subsection “defining the scope of discovery,” where they had
been located prior to the 1993 amendments to the rules.
Fed. R.
Civ. P. 26(b)(1) advisory committee’s notes to 2015 amendment.
Relevance is still to be “construed broadly to encompass any matter
that bears on, or that reasonably could lead to other matter that
could bear on” any party’s claim or defense.
Inc. v. Sanders, 437 U.S. 340, 351 (1978).
Oppenheimer Fund,
However, the amended
rule is intended to “encourage judges to be more aggressive in
identifying and discouraging discovery overuse” by emphasizing the
need to analyze proportionality before ordering production of
relevant
information.
Fed.
R.
2
Civ.
P.
26(b)(1)
advisory
The order of April 29, 2015, can be found
http://www.supremecourt.gov/orders/ordersofthecourt/14.
4
at
committee’s notes to 2015 amendment.
The burden of demonstrating
relevance remains on the party seeking discovery, and the newlyrevised rule “does not place on the party seeking discovery the
burden of addressing all proportionality considerations.”
Id.
In
general, when disputes are brought before the court, “the parties’
responsibilities [] remain the same” as they were under the
previous iteration of the rules, so that the party resisting
discovery has the burden of showing undue burden or expense.
Id.;
see also Fireman’s Fund Insurance Co. v. Great American Insurance
Co. of New York, 284 F.R.D. 132, 135 (S.D.N.Y. 2012) (“Once
relevance has been shown, it is up to the responding party to
justify curtailing discovery.”).
Moreover, information still
“need not be admissible in evidence to be discoverable.”
Fed. R.
Civ. P. 26(b)(1).
B.
The July 21, 2015 Order
State Farm repeatedly contends I have already found this
information to be discoverable and that therefore the law of the
case doctrine requires its production.
(Pl. Memo. at 11; State
Farm’s Reply in Support of its Motion to Compel Complete Responses
to State Farm’s First Set of Interrogatories and Document Requests
to Kiner Defendants (“Reply”) at
2).
Previously, State Farm
requested similar information from defendants Yuri Fayda, M.D.,
Dyckman Neighborhood Medical, P.C., and Hadassah Orenstein, M.D.
(Letter of Michael M. Rosensaft and Matthew J. Conroy dated July 8,
2015 (“7/8/15 Letter”) at 1).
I found that tax records of Dr.
Orenstein, bank records of Dr. Orenstein and Dr. Fayda, and
5
information
locations
regarding
other
discoverable.
than
health
100
(Memorandum
care
Dyckman
practices
Street
Endorsement
by
were
dated
defendants
at
relevant
and
July
21,
2015).
However, State Farm argued in part that the information was
relevant to show that Dyckman Neighborhood Medical was not owned by
either Dr. Fayda or Dr. Orenstein, but, rather, by Mr. Lentsi, who
is not a physician. (7/8/15 Letter at 2-5). This would assertedly
establish that the medical practice was “illegally incorporated and
ineligible to bill for services, and every bill it submitted to
State Farm representing that its services were reimbursable was
false.”
(7/8/15 Letter at 2).
As the Kiner Defendants point out, State Farm does not allege
that Contemporary Acupuncture is similarly illegally incorporated.
(Memorandum of Law on Behalf of Defendants’ [sic] Arkady Kiner and
Contemporary Acupuncture P.C. in Opposition to State Farm’s Motion
to Compel (“Def. Memo.”) at 4-7).
Thus, the Kiner Defendants are
not situated similarly to Dr. Orenstein and Dr. Fayda, so that the
July 21 Order does not mandate the outcome here.3
3
State Farm notes that the Kiner Defendants have conceded
that the financial records would be relevant to a cause of action
based on fraudulent incorporation, and argues that “nothing
prevents [State Farm] from conducting discovery to determine if
Contemporary [Acupuncture] is, in fact, fraudulently incorporated.”
(Reply at 3-4, 6).
That is not necessarily so.
Discovery is
generally limited to “information related to ‘the actual claims and
defenses involved in the action.’”
Guan Ming Lin v. Benihana
National Corp., No. 10 Civ. 1335, 2010 WL 4007282, at *3 (S.D.N.Y.
Oct. 5, 2010) (quoting Fed. R. Civ. P. 26(b)(1) advisory
committee’s note to 2000 amendments)). The 2015 amendments do not
change this, although the advisory committee points out that
“[d]iscovery that is relevant to the parties’ claims or defenses
may [] support amendment of the pleadings” and that the court may
order appropriately focused discovery into the “subject matter” of
6
C.
Bank Records and Tax Returns
State Farm argues that the bank records and tax returns are
“crucial” to showing that the medical providers at the facility
“paid kickbacks for access to patients, and that treatment was not
provided because it was medically necessary but because money was
paid to the people who controlled the patients.”
(Reply at 4).
According to the plaintiff, the financial records sought will
enable them to show that the Kiner Defendants were financially
dependent on the individuals who referred the patients to the
practice by demonstrating that the amount the Kiner Defendants
earned
by
treating
these
patients
“represented
portion of [their] overall annual compensation.”
a
significant
(Pl. Memo. at
10). This, in turn, would provide a motive for their participation
in the alleged scheme to submit fraudulent bills for medicallyunnecessary treatment.
Case law indicates that evidence of a defendant’s motive for
participation in a fraudulent medical billing scheme is relevant to
such
claims
and
that
financial
documents
discoverable to establish that motive.
like
these
are
See, e.g., State Farm
Mutual Automobile Insurance Co. v. CPT Medical Services, P.C., 375
F. Supp. 2d 141, 155-56 (E.D.N.Y. 2005) (financial records “may be
relevant
to
establishing
that
defendants
profited
from
their
willingness” to order medically-unnecessary tests); see also State
the action. Fed. R. Civ. P. 26(b)(1) advisory committee’s notes to
2015 amendments.
As noted, State Farm has not alleged that
Contemporary Acupuncture was fraudulently incorporated.
It is
therefore difficult to see how discovery targeting possible
fraudulent incorporation would be relevant.
7
Farm Mutual Automobile Insurance Co. v. Warren Chiropractic and
Rehab Clinic, P.C., No. 4:14 CV 11521, 2015 WL 4094115, at *6 (E.D.
Mich. July 7, 2015); State Farm Mutual Automobile Insurance Co. v.
McGee, No. 10 CV 3848, 2012 WL 8281725, at *2 (E.D.N.Y. Feb. 21,
2012) (financial records sought to establish healthcare provider
financially dependent on co-defendants “relevant to demonstrate his
motive in participating in the fraud,” among other things).4
The
Kiner Defendants, however, argue that this argument is “inane. The
motive for fraud is money.
It is a given.
There is no need to
look at money in Kiner[’s] and his family’s financial records and
say, in effect, ‘hey I see money -- that is the motive for fraud.’”
(Def. Memo. at 17).
The concession that money can be a motive for
participation in fraud is well-taken.
Having admitted this,
however, it is unclear why the Kiner Defendants would imagine that
discovery tending to establish such motive -- that is, discovery
revealing sources and amounts of the Kiner Defendants’ profits -is irrelevant.
It would be an unlikely trial strategy for the
plaintiff to argue to the fact-finder that the Kiner Defendants
participated in the fraud and RICO enterprise for financial gain
but then fail to put on evidence of such gain.
In addition, the plaintiff asserts it has uncovered evidence
of complex financial transactions that may have been used “to
4
The Kiner Defendants insist that, in McGee, disclosure was
ordered “solely based on the allegation that [the defendant] did
not own his medical practice and instead the medical practice was
owned by laypersons.” (Def. Memo. at 20). But the opinion is
clear that the information sought was also relevant to the
defendant’s motive for fraudulently billing for unnecessary medical
services.
8
conceal assets or income.”
(Pl. Memo. at 9, 11).
As State Farm
argues, such evidence could be used to show consciousness of guilt.
Consciousness of guilt, in turn, could be used to establish the
Kiner Defendants’ intent to defraud (an element of a fraud claim
under New York law, Wynn v. AC Rochester, 273 F.3d 153, 156 (2d
Cir. 2001), and an element of mail fraud, United States v. Von
Barta, 635 F.2d 999, 1005 n.14 (2d Cir. 1980), which is the
predicate offense for State Farm’s civil RICO claim.
See, e.g.,
United States v. Paccione, 949 F.2d 1183, 1199 (2d Cir. 1991)
(evidence of consciousness of guilt relevant to show intent).
Thus, the requested financial records are relevant.
The Kiner Defendants also argue that they should not be
required
to
produce
the
records
because
the
discovery
is
disproportionate to the needs of the case and because the records
are private.
Neither objection succeeds.
Rule 26(b)(1) instructs parties and courts to evaluate whether
the benefit of the discovery sought is proportional to the burden
of
producing
it,
taking
into
account
issues
like
access,
importance, and available resources. Fed. R. Civ. P. 26(b)(1); see
also In re Weatherford International Securities Litigation, No. 11
Civ. 1646, 2013 WL 2355451, at *5 (S.D.N.Y. May 28, 2013) (“A
proportionality analysis requires the court to balance the value of
the requested discovery against the cost of its production.”). The
Kiner Defendants allege that State Farm paid them approximately
$12,000 and that the discovery requested is therefor of little
value to the case.
(Def. Memo. at 1, 4).
9
However, they have
failed to rebut State Farm’s showing that the financial records are
relevant and material to its case against them.
Nor have they
established that the plaintiff has an alternative source for the
information or that producing it would be particularly burdensome.
See Fed. R. Civ. P. 26(b)(1) advisory committee’s notes to 2015
amendment (noting that “the [2015 amendments] do[] not place on the
party
seeking
discovery
the
burden
of
addressing
all
proportionality considerations” because, for example, “a party
requesting discovery . . . may have little information about the
burden or expense of responding”); see also
In re Weatherford,
2013 WL 2355451, at *5 (ordering discovery where parties opposing
production “have not shown that the information sought is not
sufficiently germane, nor, on the other side of the scale, have
they provided any specific evidence of burden”).
Therefore, their
proportionality argument fails.
Federal courts regularly entertain objections to discovery
requests based on a “constitutionally-based right of privacy.”
A.
Farber and Partners, Inc. v. Garber, 234 F.R.D. 186, 191 (C.D. Cal.
2006) (quoting Keith H. v. Long Beach Unified School District, 228
F.R.D. 652, 657 (C.D. Cal. 2005)).
recognized
“quasi-privilege
that
Indeed, there is a wellattaches
to
tax
returns,”
Trustees of New York City District Council of Carpenters Pension
Fund v. Halcyon Construction Corp., No. 15 Civ. 1191, 2015 WL
6509022, at *1 (S.D.N.Y. Oct. 26, 2015), because of “‘the private
nature of the sensitive information contained therein’ and ‘the
public interest in encouraging the filing by taxpayers of complete
10
and accurate returns,’” Rahman v. Smith & Wollensky Restaurant
Group, No. 06 Civ. 6198, 2007 WL 1521117, at *7 (S.D.N.Y. May 24,
2007) (quoting Smith v. Bader, 83 F.R.D. 437, 438 (S.D.N.Y. 1979)).
Nevertheless, a court will order tax returns and other sensitive
financial information produced where it is relevant to the action
and there is a compelling need for the documents because the
information is not otherwise readily available.
1521117, at *7.
Rahman, 2007 WL
“[T]he party resisting disclosure should bear the
burden of establishing alternative sources for the information.”
Id. (quoting United States v. Bonanno Organized Crime Family of La
Cosa Nostra, 119 F.R.D. 625, 627 (E.D.N.Y. 1988)).
State Farm has demonstrated the relevance of this information.
As noted above, however, the Kiner Defendants have not attempted to
show that there are alternative sources for the information.
Rather,
they,
through
their
counsel,
merely
insist
that
the
information is sensitive:
Let me be straight -- I would not want an organization
like State Farm and its buff [sic] investigators and
cadre of attorneys and the [National Insurance Crime
Bureau] looking at my personal finances. The lingerie I
may have purchased for my wife; my liquor store
purchases; the possible purchases of other romantic
enhancements -- even Viagra, etc.
Even the football
equipment I purchase for my son -- I do not want an
organization like State Farm soiling my family.
The
Kiner family feels the same way.
(Def. Memo. at 20).
They are also concerned because among the
accounts for which bank records are sought are a joint account held
by Mr. Kiner and his parents and a joint account held by Mr. Kiner,
his wife, and their son.
objections
constitutes
(Def. Memo. at 1).
a
reason
11
to
wall
Neither of these
off
this
relevant
information, especially since it will be designated confidential
pursuant to the protective order entered in this case.
See, e.g.,
State Farm Mutual Automobile Insurance Co. v. Physiomatrix, Inc.,
No. 12 CV 11500, 2013 WL 10572229, at *3 & n.3 (E.D. Mich. Aug. 13,
2013) (ordering production of relevant financial records, including
accounts
held
jointly
with
non-party
wives,
over
privacy
objection);5 A. Farber and Partners, 234 F.R.D. at 191 (ordering
production of financial records where impact of disclosure could be
lessened by entry of protective order).
D.
Information About Other Practices
State Farm asserts it is entitled to production of “(a)
agreements, including leases, regarding activities at [Mr.] Kiner’s
other practices; (b) documents reflecting or relating to payments
relating to such agreements; and (c) transcripts of testimony.”6
(Reply at 7).
It argues that the testimony sought is relevant to
5
The Physiomatrix Court quashed the subpoena seeking banking
records to the extent that it required production of information
about an account one of the defendants held with his elderly
parents, reasoning that “[c]hildren are often placed on the
personal accounts of their elderly parents for completely innocuous
reasons.” Id. at *4. But the court ordered production of records
from other jointly-held accounts because the defendant had control
over the accounts and could easily move funds among them. Id. at
*3.
That is also true of an account jointly-held with one’s
parents. In any case, the Kiner Defendants do not argue here that
the joint account with Mr. Kiner’s parents should be treated any
differently from the other accounts.
6
The testimony at issue appears to be “testimony relating to
treatment by other professional corporations [] other than
Contemporary [Acupuncture]” (Letter of Michael M. Rosensaft and
Raymond Joseph Zuppa dated Aug. 25, 2015, at 7) given in connection
with examinations under oath “taken pursuant to the insurance
regulations that are incorporated into all no fault contracts of
insurance that compel the provider to attend or not be paid for the
services rendered” (Def. Memo. at 24).
12
whether unnecessary medical treatment like that alleged in the
complaint was provided at other practices.
(Reply at 8).
As to
the agreements and financial documents, State Farm notes that if
they reveal financial arrangements similar to those at the 100
Dyckman Street facility
it would tend to show that [Mr.] Kiner did not provide
care because it was medically necessary, but because of
the financial relationships he had with lay ‘gatekeepers’
who controlled the locations.
Conversely, if the
financial arrangements were different at other locations
because reimbursement was paid by a source other than NoFault benefits -- or the care patients received at other
locations was different -- this would also support State
Farm’s theory, that the scheme at 100 Dyckman was
designed to take full advantage of the No-Fault system.
(Reply at 8).
The Kiner Defendants again contend that this information is
not relevant because the fraud alleged against them deals only with
whether treatment they performed at the 100 Dyckman Street facility
was medically necessary.
(Def. Memo. at 23).
However, as noted,
State Farm argues that comparing the treatment and financial
arrangements at other facilities with those at 100 Dyckman Street
may provide evidence as to the fraud alleged against the Kiner
Defendants in the complaint.
to
production
of
The Kiner Defendants further object
transcripts
of
“examinations
under
oath.”
According to them, these examinations
are specific between the insurance company that insured
the patient and the applicant for benefits. [They]
involve[] patient information and confidentiality since
[they are] compelled. It is generally understood that
insurance companies after taking [an examination under
oath] are not free to send the transcript . . . to
another insurance company. That would be grounds for
sanction by the Department of Finance.
13
(Def. Memo. at 24).
this proposition.
The Kiner Defendants cite no authority for
However, even assuming that it is true, patient
confidentiality can be preserved by redacting patient names and by
designating the records as confidential pursuant to the protective
order.
E.
Future Cooperation
Counsel for the Kiner Defendants states that his working
relationship with counsel for the plaintiff “has grown quite
contentious.”
There
is
(Letter of Raymond J. Zuppa dated Oct. 23, 2015).
disheartening
evidence
in
the
submissions
made
in
connection with this motion that the relationship between counsel
has eroded. The rhetoric of the Kiner Defendants’ opposition brief
is overblown and intemperate, characterizing State Farm’s arguments
as
“duplicitous
“delusional,”
and
and
deceitful,”
“inane,”
and
“desperate,”
accusing
the
“obtuse,”
plaintiff,
its
investigators, and its attorneys of attempting to “soil[]” Mr.
Kiner’s family.
(Def. Memo. at 7, 10, 13, 16-17, 20).
For its
part, State Farm asserts that because the Kiner Defendants are
“willing to produce medical records from [] [o]ther [p]ractices,”
they have “implicitly conced[ed] that treatment at other locations
is relevant.”
(Pl. Memo. at 16). Treating as a “concession” an
opponent’s cooperation in resolving a discovery dispute, while not
an ethical violation as the Kiner Defendants imply (Def. Memo. at
21-22), is both a losing argument and a short-sighted strategy that
is likely to curtail cooperation among counsel.
for
the
Kiner
Defendants
asserts
14
that
Indeed, counsel
this
conduct
is
"unprofessional" and that he is "well within [his] rights to never
negotiate with
[the]
[pl laintiff' s
dispute that may arise."
is mistaken.
counsel about any and every
(Def. Memo. at 22)
The federal rules require,
Of course, counsel
and this Court expects,
that counsel will cooperate to resolve any future disputes and will
behave respectfully toward each other and toward the Court.
Conclusion
For
the
(Docket no.
foregoing
116)
reasons,
is granted.
oral argument is denied.
State
Farm's
motion
The Kiner Defendants'
to
compel
request for
The requested documents shall be produced
within fourteen days of the date of this order.
SO ORDERED.
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE
Dated: New York, New York
December 3, 2015
Copies transmitted to:
Michael M. Rosensaft, Esq.
Katten Muchin Rosenman, LLP
575 Madison Ave.
New York, NY 10022
Raymond J. Zuppa, Esq.
The Zuppa Firm PLLC
53 Herbert St.
Suite 1
Brooklyn, NY 11222
15
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