STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al v. STAVROPOLSKIY et al

Filing 28

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE J. CURTIS JOYNER ON 5/16/2016. 5/18/2016 ENTERED AND COPIES E-MAILED.(sg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STATE FARM MUT. AUTO. INS. CO.,
ET AL.,

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Plaintiffs,
v.
LEONARD STAVROPOLSKIY, ET AL.,

Defendants.

CIVIL ACTION

NO. 15-cv-5929

MEMORANDUM AND ORDER
Joyner, J.

May 16, 2016

Before the Court are Defendants’ Motion to Dismiss Plaintiffs’
Amended Complaint (Doc. No. 22), Plaintiffs’ Response in Opposition
thereto (Doc. No. 25), Defendants’ Reply in Further Support thereof
(Doc. No. 26), and Plaintiffs’ Sur-reply is Further Opposition
thereto (Doc. No. 27). For the reasons below, the Court will deny
the Motion. An Order follows.
I. Factual and Procedural Background1
This

action

is

brought

by

Plaintiffs

State

Farm

Mutual

Automobile Insurance Company and State Farm Fire and Casualty
Company (collectively, “State Farm”) against Defendants Eastern

1

Facts for this section are taken from the Amended Complaint.

1

Approach Rehabilitation, LLC (“Eastern Approach”); Aquatic Therapy
of Chinatown, Inc. (“Aquatic Therapy”); Leonard Stavropolskiy,
P.T., D.C. (“Stavropolskiy”); and Joseph Wang, P.T., D.C. (“Wang”).
Eastern Approach and Aquatic Therapy are facilities that provide
chiropractic and medical examinations, treatment, testing, and
services to persons, including those who have been injured in
automobile

accidents.

Stavropolskiy

and Wang

are

proprietors,

owners, officers, employees, agents, and shareholders/members of
both. Plaintiffs are corporations with their principal places of
business in Illinois. They provide insurance coverage to their
customers for medical payments, uninsured and underinsured motorist
benefits, and liability for bodily injury arising out of automobile
accidents.
Plaintiffs allege the Defendants conspired and continue to
conspire to file false and fraudulent insurance claims with State
Farm. The scheme involves the following fraudulent conduct: 1)
failing to legitimately examine patients, 2) creating records with
predetermined

findings

rather

than

properly

recording

what

transpired during examinations, and 3) providing the same treatment
for nearly every patient, regardless of whether or not it was
medically necessary. Amend. Compl. ¶ 3. The fraudulent records are
then submitted to State Farm to induce payments. Id. at ¶ 7. State
2

Farm provided payment for these services, with damages totaling
over $850,000. Id. at ¶ 9.
In support of their allegations, Plaintiffs note that the
records submitted by the Defendants indicate observations and
treatment for a variety of patients, and across multiple visits,
that is implausibly similar. See Id. at ¶ 24. In particular, in the
initial examination, nearly all patients are reported as having
“moderate-to-severe joint dysfunctions, pain, and muscle spasms
across multiple regions of the spine” and pelvis. Id. at ¶¶ 29, 47.
Records from subsequent visits contain the same findings as in the
initial examinations, suggesting they were copied and pasted from
the initial examination. Id. at ¶¶ 30, 54, 63. The treatment
recorded is not “uniquely tailored” to the individual patient, but
instead “predetermined” for a large number of patients. Id. at ¶
31.
Plaintiffs allege this practice has been ongoing since 2010,
and continues today. Id. at ¶ 8. They allege that the Defendants
took deliberate steps to “conceal the nature of their activities in
order to insulate themselves from liability” by changing the
language in the records to make the observations, diagnoses, and
treatment appear to vary from patient to patient and visit to
visit. Id. at ¶ 77. Defendants used “WritePad” software, which
3

would “randomize” certain phrases into synonymous ones so as to
conceal the similarity in observations, diagnoses, and treatment.
Id. at ¶¶ 5, 32, 68-70. The different phrases made it “appear that
the reported complaints, findings, and diagnoses were legitimate
and individualized” when in fact they were not.” Id. at ¶ 70
(emphasis in the original). Plaintiffs maintain that because of the
active steps taken by the Defendants to conceal their illegal
behavior, Plaintiffs were unable to discover the fraud until
recently. See Id. at ¶ 78.
Plaintiffs filed this action on October 30, 2015. On December
2, 2015, the Defendants filed a Motion to Dismiss (Doc. No. 3), and
the Court granted that Motion while also granting Plaintiffs leave
to amend the complaint (Doc. No. 17). On March 7, 2016, Plaintiffs
filed their Amended Complaint (Doc. No. 20). As in their first
Complaint, Plaintiffs allege the Defendants committed common law
fraud, statutory insurance fraud, and obtained unjust enrichment,
and they seek damages, restitution, and a declaratory judgment.
Defendants filed the present Motion to Dismiss on March 16, 2016
(Doc. No. 22). Plaintiffs and Defendants filed subsequent pleadings
(Doc. Nos. 25-27).
II. Jurisdiction
This Court has jurisdiction to hear this matter pursuant to 28
4

U.S.C. § 1332.
III. Legal Standard
A party may move to dismiss a complaint for failure to state
a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6).
In considering such a motion, a district court must “accept as true
the

factual

allegations

in

the

complaint

and

all

reasonable

inferences that can be drawn therefrom.” Nami v. Fauver, 82 F.3d
63, 65 (3d Cir. 1996) (citation omitted). “To survive a motion to
dismiss,

a

complaint

must

contain

sufficient

factual

matter,

accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim
has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. (citation
omitted). “Threadbare” recitations of the elements of a claim
supported only by “conclusory statements” will not suffice. Id.
(citation omitted). Rather, a plaintiff must allege some facts to
raise the allegation above the level of mere speculation. Great W.
Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 176 (3d
Cir. 2010) (citing Twombly, 550 U.S. at 555).
IV. Discussion
In their Motion to Dismiss, Defendants argue the following: 1)

5

Plaintiffs

have

not

alleged

that

any of

the

medical

records

submitted were false, 2) Plaintiffs have not shown that they
justifiably relied, and 3) the claims are barred by the statute of
limitations. We will address each in turn.
A. Misrepresentation
Defendants argue that State Farm has failed to allege any
misrepresentation in their Amended Complaint. Under both common law
fraud and Pennsylvania statutory insurance fraud, a plaintiff must
plead that the defendant submitted false or misleading information.
See 18 Pa. C.S.A. § 4117(a). Defendants argue that State Farm
alleges fraud “based entirely on the use of synonyms.” Doc. No. 22
at 1 of 17 (emphasis in the original). This appears to be a
misunderstanding of Plaintiffs’ claim that Defendants used software
to change the language in the records to avoid detection. In fact,
throughout the Amended Complaint, Plaintiffs allege that Defendants
have deliberately created and submitted inaccurate records. See,
e.g., Amend. Compl. ¶¶ 29-31, 33, 47, 48, 50, 63, 64. The use of
synonyms is only brought up as it relates to a tactic Plaintiffs
allege Defendants employ to conceal the similarity of the medical
records. These records are similar, they maintain, because they do
not reflect what actually transpired with regard to observations
and treatment; instead, they were copied from previous patients and
6

visits.

In

other

words,

the

records

submitted

were

false.

Accordingly, we find that Defendants’ argument has no merit, and we
deny their motion to dismiss on this ground.2
B. Justifiable Reliance
Defendants argue that because State Farm claims that the
records are false on their face, they cannot also claim they
justifiably relied on their accuracy. As Plaintiffs correctly point
out, it is not necessary to show reliance, let alone justifiable
reliance,

when

pleading

insurance

fraud

under

Pennsylvania

statutory law. See State Farm Mut. Auto. Ins. Co. v. Lincow, 715
F.Supp.

2d

617,

633

(E.D.

Pa.

2010);

18

Pa.C.S.

§

4117(a).

Therefore this argument only applies to the common law fraud claim.
See Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d
123, 136 (3d Cir. 2005) (noting that justifiable reliance is one
element of common law fraud under Pennsylvania law). “Courts must
consider ‘the relationship of the parties involved and the nature
of the transaction’ when determining whether one party’s reliance

2

Defendants argue that they are using WordPad as it is intended, to
provide varied language in medical reports, and so, if the Plaintiffs take
issue with that they ought to go after the creators of WordPad. The service
provided by WordPad, however, does not violate Pennsylvania insurance fraud
law. The alleged crime here is submitting records of medical diagnoses and
treatment that do not reflect what actually transpired or what is medically
necessary. To the extent that Defendants can be shown to have deliberately
changed the language in the records in order to avoid detection of fraud, the
use of the WordPad software is relevant. It is not, as Defendants suggest, the
use of synonyms that is alleged to be a crime.

7

on

the

allegedly

fraudulent

representations

of

another

is

justifiable.” Tran v. Metropolitan Life Ins. Co., 408 F.3d 130, 135
(3d Cir. 2005) (quoting Rempel v. Nationwide Life Ins. Co., Inc.,
370 A.2d 366, 368 (Pa. 1977)).
Again, Defendants are mistaken as to what the Plaintiffs are
alleging. The Plaintiffs claim the submissions from the Defendants
are

not

individually

implausible,

but

rather

that

they

are

implausible “across the patient population,” “across such a wide
swath of patients,” and “across time and across patients.” Amend.
Compl. ¶¶ 28, 47, 63. It is clear from the Amended Complaint that
it is the pattern of similarity, according to the Plaintiffs, that
led them to suspect the individual claims were fraudulent.
Additionally, State Farm alleges that through the use of
WordPad, Defendants have attempted to conceal the similarity among
claims, making it difficult for State Farm to have recognized the
pattern. Defendants do not address this claim, nor the claim that
it is only by viewing the submissions collectively that Plaintiffs
were able to detect the fraud. Instead, they respond as though
Plaintiffs say something else entirely in their Amended Complaint
– that each individual record was obviously fraudulent at the time
Plaintiffs received it. We find this to be an unreasonable reading
of the Amended Complaint. Instead, Plaintiffs allege the individual
8

records appeared to be legitimate and individualized, and that
Defendants took steps to evade detection, making it difficult to
recognize

the

fraud.

Whether

State

Farm’s

reliance

on

the

submissions by the Defendants was reasonable or justified is a
question of fact; this is precisely the kind of inquiry that is
best decided by a jury and would be improper for a court to dismiss
at this stage. Accordingly, we deny the motion to dismiss on this
ground.
C. Statute of Limitations
Defendants argue that the claims against them that fall
outside of the relevant statute of limitations period must be
dismissed. In Pennsylvania, fraud claims are subject to a two-year
statute of limitations. 42 Pa.C.S.A. § 5524(7). Unjust enrichment
and restitution claims are subject to a four-year statute of
limitations. 42 Pa.C.S.A. § 5525(a). If the statute of limitations
“bar is not apparent on the face of the complaint, then it may not
afford the basis for a dismissal of the complaint under Rule
12(b)(6).” Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)
(internal quotation and citation omitted). A complaint need not
“anticipate or overcome affirmative defenses; thus, a complaint
does not fail to state a claim simply because it omits facts that
would

defeat

a

statute

of

limitations
9

defense.”

Id.

at

248

(citations omitted).
“‘The discovery rule is a judicially created device which
tolls the running of the applicable statute of limitations until
the point where the complaining party knows or reasonably should
know that he has been injured and that his injury has been caused
by another party’s conduct.’” Id. at 251 (quoting Crouse v. Cyclops
Indus., 745 A.2d 606, 611 (Pa. 2000)). The inquiry “focuses on
whether the plaintiff was reasonably diligent in discovering his
injury.” Id. (quotation omitted). In Schmidt, the Third Circuit
noted that while generally a plaintiff bears the burden of showing
the discovery rule tolls the statute of limitations, a plaintiff is
also not required to plead responses to anticipated affirmative
defenses in the complaint. Id. The Third Circuit resolved that
tension in finding “that when ‘the pleading does not reveal when
the limitations period began to run ... the statute of limitations
cannot justify a Rule 12 dismissal.’” Id. (alteration in the
original) (quoting Barefoot Architect, Inc. v. Bunge, 632 F.3d 822,
835 (3d Cir. 2011)).
State
fraudulent

Farm

does

records

not

were

dispute
submitted

that some
outside

of

of

the allegedly

the

statute

of

limitations period. Instead, they argue that the Amended Complaint
does not demonstrate, as a matter of law, whether the discovery
10

rule applies, and therefore it also does not demonstrate when the
statute of limitations period began to run. We agree with State
Farm. As we have addressed above, the Plaintiffs claim that they
were not aware of the fraud until reviewing a large number of
claims revealed the implausible similarities among them. Nothing in
the Amended Complaint indicates Plaintiffs had knowledge during the
relevant time period. Dismissal on this ground would therefore be
improper. Accordingly, we deny Defendants’ motion to dismiss on
this ground.
IV. Conclusion
For the reasons explained above, the Motion to Dismiss is
denied. An Order follows.

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