Puerto Rico Medical Emergency Group, Inc. v. Iglesia Episcopal Puertorriquena, Inc. et al

Filing 117

OPINION AND ORDER re 84 Motion to Dismiss for Failure to State a Claim. Defendants' motion to dismiss is DENIED. Signed by Judge Francisco A. Besosa on 06/16/2016. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
PUERTO RICO MEDICAL EMERGENCY
GROUP, INC.
Plaintiff,
v.

Civil No. 14-1616 (FAB)

IGLESIA EPISCOPAL
PUERTORRIQUEÑA, INC., et al.,
Defendants.

OPINION AND ORDER1
BESOSA, District Judge.
Before the Court is defendants’ motion to dismiss the second
amended complaint.

(Docket No. 84.)

For the reasons explained

below, the Court DENIES defendants’ motion.
I.

PROCEDURAL BACKGROUND

On August 11, 2014, Puerto Rico Medical Emergency Group, Inc.
(“PRMEG”)

filed

a

complaint

against

Iglesia

Episcopal

Puertorriqueña, Inc. (“IEP”), Hospital Episcopal San Lucas, Inc.
(“HESL”),
Servicios

Servicios
de

“defendants”).

Generales

Salud

Episcopales,

Episcopales

(Docket No. 1.)

Inc.

(“SSE”),

(“SGE”),

and

(collectively,

The complaint alleged violations

of sections 1962(b) and 1962(c) of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., (“RICO”) and

1

Nathanael R. Krevor, a second-year student at The George
Washington University Law School, assisted in the preparation of
this Opinion and Order.

Civil No. 14-1616 (FAB)

2

raised several state law claims.
complaint on December 2, 2014.

Id.

PRMEG filed an amended

(Docket No. 20.)

to dismiss the amended complaint.

Defendants moved

(Docket Nos. 35, 45.)

On August 7, 2015, the Court granted in part and denied in
part defendants’ motions to dismiss.

(Docket No. 50.)

The Court

dismissed with prejudice PRMEG’s section 1962(b) RICO claim.
at p. 20.

Id.

As to PRMEG’s section 1962(c) RICO claim, the Court held

that PRMEG did not meet the heightened pleading standard required
by Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) to allege the
predicate acts of mail and wire fraud.

Id. at pp. 14-18.

Despite

the deficiency, the Court did not dismiss the claim and instead
granted PRMEG leave to file a second amended complaint.

Id. at pp.

17-18.
On September 22, 2015, PRMEG filed a second amended complaint.
(Docket No. 69.) Defendants now move to dismiss the second amended
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6)
(“Rule 12(b)(6)”), (Docket No. 84), and PRMEG opposes, (Docket No.
91).
II.

RULE 12(b)(6) STANDARD

Rule 12(b)(6) allows the Court to dismiss a complaint when the
pleading fails to state a claim upon which relief can be granted.
Fed. R. Civ. P. 12(b)(6).

In resolving a motion to dismiss, the

Court employs a two-step approach.

First, the Court “isolate[s]

and ignore[s] statements in the complaint that simply offer legal

Civil No. 14-1616 (FAB)

3

labels and conclusions or merely rehash cause-of-action elements.”
Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st
Cir. 2012).

Second, the Court “take[s] the complaint’s well-pled

(i.e., non-conclusory, non-speculative) facts as true, drawing all
reasonable inferences in the pleader’s favor, and see[s] if they
plausibly narrate a claim for relief.”

Id.

The appropriate

inquiry “in assessing plausibility is not whether the complaint
makes any particular factual allegations but, rather, whether ‘the
complaint warrant[s] dismissal because it failed in toto to render
plaintiffs’ entitlement to relief plausible.’”

Rodriguez-Reyes v.

Molina-Rodriguez, 711 F.3d 49, 55 (1st Cir. 2013) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 569 n.14 (2007)).
III.
A.

FACTUAL ALLEGATIONS IN THE SECOND AMENDED COMPLAINT

The Parties
Plaintiff PRMEG is a corporation that provides emergency room

administration

services

hospitals in Puerto Rico.

and

treatment

to

patients

various

(Docket No. 69 at p. 4.)

All four defendants are corporations.
p. 3.)

in

IEP owns HESL, SGE, and SSE.

(Docket No. 69 at

Id. at p. 4.

HESL and SSE

manage several hospitals in Puerto Rico.

Id. at pp. 4-5.

bills for the services that HESL provides.

Id. at p. 27.

B.

SGE

The PRMEG-HESL Contract
On September 25, 2007, PRMEG entered into a contract with HESL

pursuant to which PRMEG would manage and provide medical coverage

Civil No. 14-1616 (FAB)

4

for the HESL emergency room.

(Docket No. 69 at p. 8.)

The

contract provided that HESL would pay PRMEG $155,000 per month for
the first three months and $133,000 per month thereafter.
p. 10.

Id. at

The contract also gave PRMEG the right to bill insurance

companies directly for the services PRMEG provided to patients in
the HESL emergency room, and required HESL to notify the insurance
companies with which it did business that PRMEG had retained the
right to bill.

Id. at pp. 10-11.

PRMEG never agreed to amend the

contract, nor did it authorize HESL to bill for services PRMEG
provided.

Id. at pp. 9-10.

Although the contract specified that absent action by HESL,
its terms would expire on September 24, 2010, HESL continued to use
PRMEG’s services pursuant to the contract until the contract was
cancelled on May 2, 2014.
C.

(Docket No. 69 at p. 9.)

Defendants’ False Representations
After the PRMEG-HESL contract was executed, defendant SSE

negotiated

and

signed

agreements

with

insurance

companies,

representing to those insurance companies that HESL and SSE were
entitled to bill for the services PRMEG provided.
at pp. 12-16.)

(Docket No. 69

For example, on January 2, 2008, Ivette Segarra

Roman of SSE sent through U.S. mail a proposed contract regarding
the billing arrangement for services provided in HESL’s emergency
room, including services provided by PRMEG, to insurance company
Medical Card System Corporation (“MCS”).

Id. at pp. 12-13.

MCS

Civil No. 14-1616 (FAB)

5

sent a counter-proposal through U.S. Mail to Jaime Rivera of SSE on
June 23, 2008.

Id. at p. 13.

On August 7, 2008, SSE sent a fax

accepting MCS’s proposal. Id. As another example, on April 14 and
17, 2010, employees of SSE and Pan-American Life Insurance Company
(“PALIC”) sent letters through the U.S. mail negotiating and
accepting

a

proposed

contract

for

fee

arrangements

regarding

services provided in the HESL emergency room, including services
provided by PRMEG.

Id. at pp. 15-16.

Defendants HESL and SSE then began billing the insurance
companies, through defendant SGE, for the services PRMEG provided.
(Docket No. 69 at pp. 16-17.)

Defendants billed the insurance

companies by sending thousands of invoices through the mail or
electronically from 2007 through 2014, and defendants received
numerous payments in return.
through 69-6.)

(Docket Nos. 69 at pp. 32-33; 69-1

For example, SSE sent reimbursement claims through

e-mail for services provided by PRMEG in HESL’s emergency room to
PALIC on hundreds of occasions, including on September 6, 2007;
December 23, 2008; April 16, 2009; February 2, 2010; February 11,
2011; May 3, 2012; March 7, 2013; and June 10, 2014.
69 at pp. 33-34; 69-5 at pp. 1-3, 6, 10, 17, 24, 31.)
defendants based on those claims.

(Docket Nos.
PALIC paid

(Docket No. 69-5.)

All the while, PRMEG was billing the insurance companies for
the same services.

(Docket No. 69 at p. 28.)

Defendants knew that

Civil No. 14-1616 (FAB)

6

PRMEG was billing for the same services, but continued to represent
to PRMEG that there was no issue with PRMEG’s billing.
D.

Id.

PRMEG Discovers the Double Billing
In late 2013, MCS issued a claim letter to PRMEG seeking over

$600,000 in reimbursements for payments MCS made for services PRMEG
provided to MCS-covered patients.

(Docket No. 69 at p. 19.)

On

January 14, 2014, after many requests from PRMEG, an HESL officer
gave PRMEG a list containing the statuses of HESL’s contracts with
insurance companies.

Id. p. 18.

From this list, PRMEG discovered

that HESL had contracts with insurance companies that permitted it
to bill for services PRMEG was providing.

Id.

MCS continues to claim over $600,000 from PRMEG.
No. 69 at p. 20.)
business

(Docket

Defendants’ billing scheme damaged PRMEG’s

operations,

financial

infrastructure,

and

business

reputation, and also caused millions of dollars of losses to thirdparty insurance companies.

Id. at pp. 24-25.

IV.

DISCUSSION

Defendants move to dismiss PRMEG’s section 1962(c) RICO claim
and urge the Court to decline to exercise supplemental jurisdiction
over PRMEG’s Puerto Rico law claims.
A.

(Docket No. 84.)

Section 1962(c) RICO Claim
RICO

section

1962(c)

makes

it

unlawful

“for

any

person

employed by or associated with any enterprise engaged in, or the
activities of which affect, interstate or foreign commerce, to

Civil No. 14-1616 (FAB)

7

conduct or participate, directly or indirectly, in the conduct of
such

enterprise’s

affairs

through

a

pattern

activity or collection of unlawful debt.”

of

racketeering

18 U.S.C. § 1962(c).

RICO section 1964(c) permits a “person injured in his business or
property by reason of a violation of section 1962” to bring a civil
RICO suit.

Id. § 1964(c).

Thus, to state a section 1962(c) RICO

civil claim, a plaintiff must allege:

(1) injury caused by, (2)

conduct, (3) of an enterprise, (4) through a pattern, (5) of
racketeering activity.
Cir. 2005).

Giuliano v. Fulton, 399 F.3d 381, 386 (1st

The Court previously found the first four elements of

PRMEG’s RICO claim sufficiently pled, see Docket No. 50, and now
considers only the fifth element in the context of PRMEG’s second
amended complaint.
1.

Racketeering Activity – Heightened Pleading for Fraud
Defendants

argue

that

PRMEG’s

mail

and

wire

fraud

allegations fail to meet Rule 9(b)’s heightened pleading standard,
and thus, that PRMEG has not sufficiently alleged a predicate act
of racketeering activity.
RICO

provides

(Docket No. 84 at pp. 5-8.)
that

“racketeering

activity”

violations of the federal mail and wire fraud statutes.
§ 1961(1)(B); see id. §§ 1341, 1343.
predicate

acts

of

mail

and

wire

fraud

includes
18 U.S.C.

RICO claims that plead
must

comply

heightened pleading standard set forth in Rule 9(b).

with

the

Feinstein v.

Resolution Trust Corp., 942 F.2d 34, 42 (1st Cir. 1991).

Rule 9(b)

Civil No. 14-1616 (FAB)

8

requires that, “[i]n alleging fraud or mistake, a party must state
with

particularity

mistake.”

Fed.

R.

the
Civ.

circumstances
P.

constituting

9(b).

To

satisfy

fraud

Rule

or

9(b)’s

particularity requirement, a plaintiff must “go beyond a showing of
fraud and state the time, place and content of the alleged mail and
wire communications perpetrating that fraud.” Cordero-Hernandez v.
Hernandez-Ballesteros, 449 F.3d 240, 244 (1st Cir. 2006) (quoting
N. Bridge Assocs., Inc. v. Boldt, 274 F.3d 38, 43 (1st Cir. 2001)).
Rule 9(b) does not require allegations of every fraudulent claim;
rather, “provid[ing] some representative examples of [defendants’]
alleged fraudulent conduct” satisfies Rule 9(b)’s particularity
requirement
allegations.

and

allows

defendants

to

respond

to

specific

U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc., 441

F.3d 552, 557 (8th Cir. 2006).
Here, in its second amended complaint, PRMEG provides
dates, senders, receivers, and modes of delivery for communications
in furtherance of the fraudulent scheme.
12-16;

69-1

through

69-5.)

PRMEG

(Docket Nos. 69 at pp.

details

the

contractual

negotiations and agreements conducted by defendants using the mail
and wires with specific insurance companies, including dates of
transmission and modes of delivery.

(Docket No. 69 at pp. 12-16.)

PRMEG also provides over 200 pages of fraudulent claims that SSE
submitted to insurance companies MCS, PALIC, and MAPFRE using email, including dates of transmission, claim codes to identify the

Civil No. 14-1616 (FAB)

9

services for which defendants billed, and claim dollar amounts.
(Docket Nos. 69 at p. 33; 69-1 through 69-6.)

The exhibits

attached to PRMEG’s second amended complaint list thousands of
fraudulent claims submitted from 2007 to 2014.
through 69-6.)

(Docket Nos. 69-1

Contrary to defendants’ argument that the exhibits

themselves do not contain false representations, (Docket No. 84 at
p.

8),

PRMEG

references

the

exhibits

in

its

second

amended

complaint and states that the exhibits list claims for which only
PRMEG had the right to bill, establishing them as connected to the
fraudulent scheme, (Docket No. 69 at pp. 33-34).
PRMEG responded adequately to the Court’s instructions in
its previous Opinion and Order.

Its second amended complaint

satisfies the Rule 9(b) heightened pleading standard for alleging
fraud.

Accordingly, defendants’ motion to dismiss PRMEG’s section

1962(c) RICO claim for failing to meet the Rule 9(b) heightened
pleading standard is DENIED.
2.

Mail and Wire Fraud
Defendants argue that PRMEG does not allege sufficient

facts to state a claim of mail and wire fraud.

(Docket No. 84.)

The elements of mail and wire fraud are (1) a scheme to defraud;
(2) knowing and willful participation in the scheme with the intent
to defraud; and (3) the use of the mails or interstate wire in
furtherance of the fraudulent scheme.

See Bonilla v. Volvo Car

Corp., 150 F.3d 62, 66 (1st Cir. 1998).

Because defendants do not

Civil No. 14-1616 (FAB)
contest

the

10

allegation

that

they

knowingly

and

willfully

participated in the scheme with the intent to defraud, the Court
addresses

defendants’

arguments

regarding

the

remaining

two

elements.
a.

Scheme to Defraud
Defendants argue (1) that there was no affirmative

misrepresentation
affirmative
premised

on

their

part;

misrepresentation,

on

a

non-disclosure

(2)

mail

that

and

without

in

wire

an

the

absence

of

fraud

cannot

be

independent

duty

to

disclose; and (3) that PRMEG’s allegations amount merely to a
breach of contract, which does not constitute a predicate act of
racketeering.

(Docket No. 84 at pp. 6-9.)
A scheme to defraud “must be intended to deceive

another,

by

means

of

false

or

fraudulent

pretenses,

representations, promises, or other deceptive conduct.”

McEvoy

Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 791
(1st Cir. 1990).

“[T]he locus classicus of fraud is a [party’s]

affirmative false statement or a half truth, i.e., a statement that
is

literally

omission.”

true

but

is

made

misleading

by

a

significant

Bonilla, 150 F.3d at 69; see United States v. Tum, 707

F.3d 68, 72 (1st Cir. 2013) (explaining that a scheme must employ
“false

or

omitted

statements

that

a

reasonable

person

would

consider important in deciding what to do”). Although dependent on
context, there are circumstances where non-disclosure amounts to

Civil No. 14-1616 (FAB)
fraud.

11

See Sanchez v. Triple-S Mgmt., Corp., 492 F.3d 1, 10 (1st

Cir. 2007) (citing cases in which courts found fraud based on nondisclosure where defendant’s statements required further disclosure
to avoid being misleading or where defendant withheld information
with the intent to deceive); Bonilla, 150 F.3d at 70 (accepting
arguendo that the sale of a car “where the salesman made no formal
representations about the car, although knowing it to have a . . .
lawnmower engine in place of a car engine,” could be fraud); United
States v. Keplinger, 776 F.2d 678, 697-99 (7th Cir. 1985) (finding
evidence of fraud where laboratory omitted from toxicity report an
opinion that a drug had some toxic effects because without that
opinion the report implied that the drug was completely harmless).
Here, contrary to defendants’ argument, PRMEG does
allege

that

defendants

Specifically,

in

their

made

affirmative

negotiations

with

misrepresentations.
various

insurance

companies, defendants misrepresented that they had contracted for
the right to bill the insurance companies for PRMEG’s services in
HESL’s emergency room.

(Docket No. 69 at pp. 12-16.)

At a

minimum, a failure to disclose to the insurance companies that
PRMEG retained the right to bill for services provided in HESL’s
emergency
misleading.

room

would

render

the

entire

negotiation

process

Like the example provided in Bonilla, 150 F.3d at 70,

of the car salesman who sells a car with a lawnmower engine, the
right to submit reimbursement claims to insurance companies for

Civil No. 14-1616 (FAB)

12

PRMEG’s services is an essential element of defendants’ contracts
with those insurance companies, and the failure to disclose that
fact pushes the negotiations from good salesmanship to fraud.
Defendants

also

misrepresented

to

PRMEG

that

there

were

no

conflicts with PRMEG directly billing insurance companies for
services performed in HESL’s emergency room.
28.)

(Docket No. 69 at p.

Finally, by sending claims for reimbursement to various

insurance companies, defendants affirmatively misrepresented that
they were entitled to reimbursement.
examples,

as

alleged,

are

Id. at pp. 33-34.

affirmative

actions

These

performed

by

defendants.
PRMEG’s allegations amount to much more than a
breach of contract.

The RICO claim is not dependent on the fact

that defendants breached their contract with PRMEG by failing to
terminate contracts with insurance companies. It is the fraudulent
misrepresentations that establish the scheme to defraud.

At this

stage

PRMEG’s

of

the

litigation,

the

Court

accepts

as

true

allegation that the contract gave it, not defendants, the right to
bill insurance companies for services PRMEG provided in HESL’s
emergency room.
Defendants’

motion

to

dismiss

PRMEG’s

section

1962(c) RICO claim for failing to allege a fraudulent scheme is
DENIED.

Civil No. 14-1616 (FAB)
b.

13

Use of the Mails and Wires
Defendants

argue

that

PRMEG

failed

to

plead

sufficient facts to allege that defendants used the mails and wires
in

furtherance

negotiations

of

and

their

contracts

fraudulent
transmitted

scheme

because

between

(1)

the

defendants

and

insurance companies were “routine mailings”; and (2) the claims
listed in the exhibits attached to PRMEG’s second amended complaint
were not falsified.

(Docket No. 84 at pp. 7-9.)

The third element of mail and wire fraud is the use
of the mails or interstate wire in furtherance of a fraudulent
scheme.

See 18 U.S.C. § 1341 (mail fraud); id. § 1343 (wire

fraud).

For this element to be met, “the use of the mails need not

be an essential element of the scheme but need only be ‘incident to
an essential part of the scheme’ or ‘a step in the plot.’”

United

States v. Stergios, 659 F.3d 127, 133 (1st Cir. 2011) (quoting
Schmuck v. United States, 489 U.S. 705, 710-11 (1989)) (holding
that defendant’s request and receipt by mail of ATM and debit cards
used to make fraudulent charges and withdrawals satisfied the use
of the mails element).

The element may be met even though no false

information is transmitted through the mails or wire. Schmuck, 489
U.S. at 715 (acknowledging cases of mail fraud where the mailings
are “innocent” and “routine”); United States v. Martin, 228 F.3d 1,
16

(1st

Cir.

2000)

(“[T]he

e-mails

themselves

need

not

be

fraudulent; rather, it is the scheme itself that must rely on false

Civil No. 14-1616 (FAB)
pretenses.”).

14

The operative requirement is that the use of the

mails and wires “perpetuate[s]” or “conceal[s]” the fraud.

See

Feinstein, 942 F.2d at 46 (holding that billing notices not related
to fraudulent scheme did not satisfy the use of the mails or wires
element).
Here, the use of the mails and wires was related to
the fraudulent scheme and necessary to execute it.

Defendants

mailed documents to insurance companies to enter into contracts for
the purpose of later submitting fraudulent claims.
at pp. 12-16.)
reimbursement

(Docket No. 69

Furthermore, defendants submitted claims for

through

e-mail

to

solicit

payment

provided by PRMEG, which was the goal of the scheme.
Not

only

did

these

communications

involve

for

services

Id. at p. 33.
affirmative

misrepresentations, none of these communications was required to be
false to satisfy the use of the mails and wire element of mail and
wire fraud.

See Schmuck, 489 U.S. at 715; Martin, 228 F.3d at 16.
Thus, defendants’ motion to dismiss PRMEG’s 1962(c)

RICO claim for failing to allege the use of the mails and wires in
furtherance of a fraudulent scheme is DENIED.
B.

Puerto Rico Law Claims
Defendants finally argue that, if PRMEG’s federal claims are

dismissed,

the

Court

should

decline

to

exercise

jurisdiction over its Puerto Rico law claims.
pp. 9-11.)

supplemental

(Docket No. 84 at

Because PRMEG’s section 1962(c) federal RICO claim

Civil No. 14-1616 (FAB)

15

remains and grounds jurisdiction, defendants’ motion to dismiss the
Puerto Rico law claims is DENIED.
V.
For

the

reasons

CONCLUSION

discussed

above,

defendants’

motion

to

dismiss, (Docket No. 84), is DENIED.
IT IS SO ORDERED.
San Juan, Puerto Rico, June 16, 2016.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE