Antitrust Law Daily Wrap Up, RICO—E.D. Mich.: State Farm sufficiently alleged that health care providers submitted fraudulent claims, (Feb 17, 2015)

By Dan Selcke, J.D.

Allegations that a Michigan physician had submitted fraudulent claims to State Farm stated a civil RICO claim with sufficient specificity to overcome a motion to dismiss, the federal district court in Ann Arbor, Michigan ruled (State Farm v. Louis N. Radden, D.O., February 13, 2015, O’Meara, J).

State Farm brought claims for common law fraud against Dr. Louis N. Radden and Spine Specialists of Michigan (SSOM), unjust enrichment against both defendants, violations of the federal RICO statute against Dr. Radden, and for a declaratory judgment against SSOM. The defendants filed a motion to dismiss, and State Farm filed a motion to supplement its response with a December 2014 opinion from the court

Pleading standard for fraud. First, the court shot down the defendants’ argument that State Farm had not pleaded its fraud claims with the specificity required under Federal Rule of Civil Procedure 9(b). State Farm alleged that the defendants had submitted bills and supporting documents falsely representing that Dr. Radden had performed legitimate exams, procedures, and injections on patients. In reality, State Farm alleged, these submissions were misleading. It identified the specific misrepresentations regarding medical services purportedly rendered to each patient, as well as the date State Farm received the bill and supporting documents, the services billed, the dates of those services, and the claim numbers. This was enough to satisfy Rule 9(b).

State Farm’s complaint also alleges that Dr. Radden directed SSOM to submit bills and documents he knew to contain fraudulent misrepresentations. This was enough to expose him to liability for the common law fraud and RICO claims, as the allegations accused him of colluding with others to cause fraudulent statements to be made.

RICO claim. Next, the court rejected the defendants’ argument that State Farm failed to plead mail fraud with specificity and thus failed to plead a pattern of racketeering activity under RICO. Actually, State Farm’s complaint described a scheme involving nearly 700 acts of mail fraud involving fraudulent claims that occurred over a three-year period, which was specific enough for RICO’s purposes. The defendants also argued that State Farm waived its right to contest their allegedly fraudulent claims because it could have objected to payment within 30 days of each claim being presented. The court, however, was swayed by State Farm’s argument that such an interpretation of the law would only punish those who were incompetent fraudsters, letting their more intelligent or devious colleagues off the hook.

Unjust enrichment. The court also held that State Farm had stated a claim for unjust enrichment, despite the defendants’ argument that the express insurance contracts between State Farm and the insureds barred such a claim. Unjust enrichment claims, the court reasoned, were not barred where there was no express contract between the same parties covering the same subject matter.

Remaining claims. Finally, the court held that State Farm’s causes of action for RICO, fraud, and unjust enrichment were not time-barred. The defendants’ argument that State Farm should have known about the fraud earlier could not be proven at this stage. The court also opted to exercise jurisdiction over State Farm’s declaratory judgment claim, as it would not be wise to do otherwise when that claim was inextricably connected to the underlying, substantive claims. Having considered all of the arguments before it, the court denied the defendants’ motion to dismiss and granted State Farm’s motion for leave to file supplemental authority.

The case number is: 14-13299

Attorneys: David D. O'Brien (Miller, Canfield) for State Farm Mutual Automobile Insurance Co. Daniel V. Padilla (Padilla Law Group) for Spine Specialists of Michigan , PC.

Companies: State Farm Mutual Automobile Insurance Co.; Spine Specialists of Michigan , PC

Cases: RICO MichiganNews