Antitrust Law Daily Wrap Up, RICO—S.D. Tex.: RICO, Texas common law claims move forward against clinic for alleged fraudulent billing and unnecessary medical treatment in order to collect insurance payouts, (Jul 22, 2024)

By Wendy Biddle, J.D.

The insurance giant investigated nearly 500 patients of the clinic and found evidence of fraud, unnecessary treatments.

Automobile insurer State Farm alleged that a clinic, its two doctors, and a holding company engaged in a scheme to provide medically unnecessary treatment and created fraudulent billing records for alleged accident victims in order to collect from State Farm. State Farm alleged RICO violations against the doctors and common law “money had and received” claim against all of the defendants. The district court in Houston held that State Farm failed to show proximate cause on nine of the numbered RICO claims and granted summary judgment in favor of the doctors’ on those claims. The court denied summary judgment on the allegations that State Farm failed to show mail fraud or evidence of conspiracy. As to the common law claim, the court concluded that the defendants failed to negate the discovery rule and show that State Farm should have discovered the fraud. The court did however, concluded that State Farm failed to show that the two doctors were paid by funds that State Farm owned and granted the doctors motion for summary judgment on the common law claim (State Farm Mutual Automobile Insurance Co. v. Complete Pain Solutions, LLC, No. 4:20-cv-02606 (S.D. Tex. July 18, 2024)).

Background. State Farm alleged that the defendants, which include a medical clinic, two doctors, and a holding company known as MMRI Holdco Rollover LLC (MMRI), engaged in a fraudulent scheme involving predetermined and medically unnecessary medical treatment as well as the creation of fraudulent records and bills used by their patients who were claimants in automobile insurance claims.

State Farm investigated nearly 500 individual patients of the Complete Pain Solutions, LLC clinic. State Farm filed suit, alleging two causes of action under the Racketeer Influenced and Corrupt Organization (RICO)statutes against the doctors and one claim under Texas common law against all defendants. To limit discovery expense, the court ordered phased discovery to determine if the facts supported the claims. The plaintiffs selected 27 patients as an initial test group to do discovery on. The parties investigated the medical history and billing related to those patients.

The defendants filed a joint motion for summary judgment after the initial discovery period.

RICO claims. State Farm alleged that the clinic was a RICO enterprise and that the two doctors were either associated with or employed by the enterprise. They also alleged that the clinic’s affairs were conducted through a pattern of racketeering by creating and presenting fraudulent bills and other documents for medical services that were either not legitimately performed or were not medically necessary. Those documents caused State Farm to mail settlement checks. Additionally, State Farm alleged that the clinic committed repeated mail fraud violations by submitting fraudulent bills and related documentations which resulted in State Farm mailing settlement checks.

Proximate cause. The doctors argued that State Farm failed to provide any facts that show State Farm suffered any discernible injury that was proximately caused by the alleged RICO activity and therefore lacks standing under 18 U.S. C. § 1962(c). The doctors argued that State Farm cannot establish either a “but for” causation or the proximate cause requirement for their claimed injuries. The doctors alleged that State Farm must show that they would not have paid the claim but for the doctors’ billing for unreasonable or medically unnecessary services and that there was no evidence that the claimants would have accepted any lesser settlement amount. The doctors also alleged that State Farm provided no evidence that anyone relied upon the fraudulent invoices.

State Farm countered that although it is their burden to raise an issue of material fact as to causation, they are not required to show that conduct was the sole cause, only a substantial cause. State Farm argued that they have shown that the doctors’ fraudulent conduct was a substantial factor in causing them harm, that State Farm was the target of the scheme, and that there was a direct relationship between the conduct and the harm.

The court found that both sides were partially correct. The court found that State Farm does not have to prove that it would not have settled the claims, but must prove that they would not have paid as much as they did but for the doctors’ conduct. The court also concluded that State Farm’s reliance on the argument that they were not harmed by chance and therefore satisfied their burden of proof was misplaced. State Farm, rather than give the court specific evidence that would support their claim, in their brief referred to certain exhibits, but did not describe for the court nor explain to the court what in the exhibits the court should look for, putting an undue burden on the court.

The court did find that there was evidence that raised a fact issue on 18 of the 27 claims. The remaining nine claims, however, the court concluded that State Farm failed to raise an issue of material fact, regardless of the standard used, and granted the doctors’ motion for summary judgment as to those nine claims.

Evidence of conspiracy. The doctors next argued that they were entitled to summary judgment because there was no evidence that either of the doctors were involved in conducting the affairs of the clinic/enterprise. State Farm countered that the defendants do not have to be called a manager or supervisor to be liable under RICO. The court noted that the Fifth Circuit has made it clear that a defendant must have some supervisory involvement in an enterprise to satisfy RICO’s requirement.

The doctors were the sole medical providers that performed the alleged unnecessary services. Neither of the doctors were supervised by any personnel and they both knew the clinic was billing for their services. Each doctor was in charge of their own record keeping and each made their own diagnoses and treatment plans. The alleged scheme would not have been successful without the doctors. State Farm provided evidence of over 200 medically unnecessary procedures that the clinic billed and the bills were created using the doctors’ names. The court therefore concluded that there was sufficient evidence to raise a factual issue of the doctors’ role. The court denied the motion for summary judgment as to the conspiracy.

Evidence of mail fraud. Mail fraud was the sole predicate act that State Farm pleaded and the doctors argued that no mail fraud existed because there was no intent to deceive and there was no factual issue as to a false or fraudulent representation.

State Farm argued that the evidence that the medical records and bills in over 450 cases were false or had evidence of unnecessary treatment and that information was circumstantial evidence that the doctors participated in a scheme to defraud, rather than just the inability to correctly diagnose. Additionally, an expert witness for State Farm concluded that over 250 patient charts contained the same diagnosis, prognosis, and treatment. The court found that there was sufficient circumstantial evidence to show that fraudulent intent was present and denied the motion for summary judgment.

“Money had and received” claim. The defendants argued that the common law claim for money had and received was controlled by a two year statute of limitations and any claims maturing before July 23, 2018 were time barred. State Farm countered that that statute began to run when the money was received, and a majority of the payments were received by the defendants within the two year period. Even if the claims were outside of the two year period, State Farm argued that they were entitled to rely on the application of the discovery rule in a fraudulent claim and the defendants needed to prove that State Farm should have discovered the mail fraud.

The court agreed with State Farm, holding that the burden of proof on the affirmative defense is on the defendants to negate the discovery rule and show that State Farm should have discovered the fraud. The defendants did not negate the application of the discovery rule and the facts demonstrated the existence of a factual dispute regarding when State Farm discovered or should have discovered the nature of the injuries, therefore the court denied the motion for summary judgment as the claim was time barred.

Existence of contract. The defendants next argued that the existence of a written agreement precluded the application of an equitable doctrine like the “money had and received” claim. State Farm argued that no such contract existed nor was any presented in record. The only agreement attached to the summary judgment motion was a release pertaining to an accident and neither the plaintiff or defendants were parties to the release. The court concluded that it was not clear that the defendants benefitted from the release and therefore the court declined to grant summary judgment as a matter of law on the issue.

Proof of ownership of funds. Lastly, the defendants moved for summary judgment on the “money had and received” claim alleging that State Farm was unable to establish their claim that the funds in question belonged to them. The funds were paid to the underlying claimant in exchange for that claimant releasing her claims. Then either the claimants or their attorneys paid the clinic. In Texas, the general rule is that title to money transfers when it is exchanged for valuable consideration (the release in the instant case).

State Farm argued that the money can be traced from State Farm to the claimants to the clinic and then onto MMRI. MMRI allegedly kept all the clinic’s profits. The court concluded that the facts raise a factual issue as to the clinic and MMRI but not the doctors. The doctors were paid for their services at the time of service. Neither doctor directly or indirectly received funds from State Farm, and the funds the doctors received never came through the clinic or MMRI as a result of payment by State Farm. The court granted the motion for summary judgment on the Texas common law claim as to the doctors, but denied summary judgment as to the clinic and MMRI.

The Case is No. 4:20-cv-02606.

Judge: Hanen, A.

Attorneys: Adrian Jonak (Katten Muchin Rosenman LLP) for State Farm Mutual Automobile Insurance Co. and State Farm County Mutual Insurance Co. of Texas. Jason Murray Davis (Davis & Santos Attorneys & Counselors, PC) for Complete Pain Solutions LLC. Robert G. Smith Jr. (Mayer LLP) for See Loong Chin. Forrest Jacob Wynn (Hicks Davis Wynn PC) for MMRI Holdco LLC.

Companies: State Farm Mutual Automobile Insurance Co.; State Farm County Mutual Insurance Co. of Texas; Complete Pain Solutions LLC; MMRI Holdco LLC

Cases: RICO TexasNews