Antitrust Law Daily Wrap Up, RICO—5th Cir.: Evidence supporting existence of RICO enterprise, causation and damages insures Allstate’s recovery, (Sep 18, 2015)

By Michael Menzhuber, J.D., LL.M.

Evidence that a consortium of telemarketing companies, chiropractic clinics, and affiliated law offices engaged in a scheme to defraud Allstate Insurance Company, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), was sufficient to support a jury verdict in Allstate’s favor, according to the U.S. Court of Appeals in New Orleans (Allstate Insurance Co. v. Plambeck, September 17, 2015, Smith, J.).

Background. The defendants engaged in a scheme to defraud insurance companies, including Allstate, by contacting not-at-fault victims in vehicle accidents and convincing them to receive unnecessary chiropractic services. Media Placement Services (MPS), a telemarketing company owned by Michael Plambeck and managed by Douglas Friedman, purchased police accidents reports. After identifying not-at-fault victims who met certain criteria, an MPS employee contacted that person to offer a free spinal exam to determine whether the accident had caused any injury. At the exam appointment, which was scheduled at a chiropractic clinic owned by Plambeck, the patient would sign several forms including an Assignment of Benefits that allowed the clinic to collect directly from the insurer. The same treatments, typically involving sixteen or twenty visits, were often prescribed. The patients were also referred to law firms with substantial ties to Plambeck. After settlement checks were received, the funds were disbursed to various entities with the accident victim typically receiving less than one-third of the funds.

Allstate sued Plambeck, and more than sixty other individuals, alleging, in part, violations of federal and state RICO statutes. After the district court reduced Allstate’s contested insurance claims from 721 to 555, the jury found that the defendants: (1) had violated the federal RICO statute and Ohio’s RICO statute: (2) had committed fraud; and (3) were unjustly enriched. Allstate was awarded treble damages of $2,836,779.

On appeal, the defendants challenged the sufficiency of the evidence supporting the existence of a RICO enterprise, causation, and damages. They also asserted that some claims were barred by the statute of limitations and that the court erred in admitting certain of Allstate’s experts.

RICO. At trial, Allstate contended that the defendants were, for purposes of definition of a RICO enterprise, an enterprise “associated in fact”. Indispensable to the existence of an “associated in fact” enterprise is a “shared purpose”. Although they pointed to no binding authority, the defendants argued that the only “shared purposed” was to carry out the pattern of racketeering and no “associated in fact” enterprise existed if the “shared purpose” was merely to conduct the racketeering. Noting the Sixth Circuit decision’s in Ouwinga v. Benistar 419 Plan Servs., Inc., 694 F.3d 783 (2012), that held that an association can satisfy the RICO enterprise requirement even if its sole purpose is carry out a pattern of racketeering, the appeals court determined that any error by the district court in find a “shared purpose” was not plain error.

Further, with respect to whether they had engaged in a pattern of racketeering, the defendants asserted that they lacked the requisite intent because: (1) the jury only found liability on those insurance claims involving poor quality x-rays and, therefore, Allstate needed to show some nexus between the x-rays and the defendants; and (2) if the defendants did not take, review or know about the x-rays, how could they have requisite intent.

The appeals court disagreed because: (1) there was significant circumstantial evidence linking them to the x-rays; and (2) Allstate’s theory at trial was that they engaged in a pattern of mail and wire fraud which required only proof that they engaged in a scheme to defraud for which the use of the mail or wires was reasonably foreseeable.

Regarding the causation requirement for RICO, the defendants argued that a RICO plaintiff must show reliance which Allstate did not. The appeals court disagreed because, in cases involving mail or wire fraud, reliance is not necessary. It determined that Allstate had proven proximate cause because there was no plausible argument that the insurers were unforeseeable victims or otherwise wronged by the caprice of chance.

The defendants also challenged the damages award on the basis that Allstate failed to introduce evidence showing that the payments made were solely for unnecessary chiropractic services. The appeals court, however, found that the jury, in awarding damages, distinguished between the portions of bills generated for unreasonable or unnecessary services and the defendants had the chance, at trial to convince the jury that the insurance claims included necessary and appropriate coverage but failed to do so.

The case number is No. 14-10574.

Attorneys: Wade Crosnoe (Thompson, Coe, Cousins & Irons, LLP) and David Kassabian (Kassabian, Doyle & Weatherford, PC) for Allstate Insurance Co., Allstate Indemnity Co., Allstate Property & Casualty Insurance Co., and Allstate County Mutual Insurance Co. Kenneth Richard Stein (Glast, Phillips & Murray, P.C.) and Peter Michael Jung (Strasburger & Price, L.L.P.) for Michael Kent Plambeck, DC.

Companies: Allstate Indemnity Co.; Allstate Property & Casualty Insurance Co.; Allstate County Mutual Insurance

Cases: RICO LouisianaNews MississippiNews TexasNews