State Farm Mutual Automobile Insurance Company v. McGee et al, No. 1:2010cv03848 - Document 121 (E.D.N.Y. 2012)
Court Description: ORDER denying 96 Motion to Compel Arbitration. Ordered by Judge I. Leo Glasser on 6/25/2012. (Green, Dana)
Download PDF
<![CDATA[
State Farm Mutual Automobile Insurance Company v. McGee et al Doc. 121 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x STATE FARM MUTUAL AUTOMOBILE INS. CO., Plaintiff, Mem orandum an d Order 10 Civ. 3848 - against - J OHN McGEE, et al. Defendants. ------------------------------------------------------x GLASSER, United States District J udge: Plaintiff, State Farm Mutual Autom obile Insurance Com pany (‘State Farm ” or “plaintiff”) filed this action on August 20 , 20 10 against nineteen defendants, alleging claim s pursuant to the Racketeer-Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., New York State Law, and com m on law fraud. On March 5, 20 12 defendants Dr. J ohn McGee (“Dr. McGee”), Advanced Medical Rehabilitation, P.C., Integrated Medical Rehabilitation and Diagnostics, P.C., Yellowstone Medical Rehabilitation, P.C., Queens-Brooklyn Medical Rehabilitation, P.C., and Queens Brooklyn J ewish Medical Rehabilitation, P.C. (the “PC Defendants”) (collectively, “defendants”) m oved to stay proceedings an d com pel arbitration of plaintiff State Farm ’s RICO claim s pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3-4. For the reasons set forth below, defendants’ m otion is den ied. 1 Dockets.Justia.com BACKGROU N D Plaintiff’s factual allegations are set out in the Court’s previous decision, fam iliarity with which is assum ed. See Mem orandum & Order dated February 21, 20 12 (Dkt. No. 90 ) (“Feb. 21 Order”). Briefly, plain tiff alleges that defendants and a num ber of other individuals en gaged in a schem e to defraud State Farm . Com pl. ¶¶ 1-4. As part of that schem e, Dr. McGee, a doctor of osteopathy, treated patients insured by State Farm ’s autom obile insurance who had been injured in autom obile accidents (the “insured individuals”). Id. ¶ 1. Under New York’s Com prehensive Motor Vehicle Insurance Reparations Act, N.Y. Ins. Law § 510 1, et seq.; 11 N.Y.C.R.R. § 65, et seq. (“New York No-Fault Laws”), State Farm is required to provide Personal Injury Protection Benefits of up to $ 50 ,0 0 0 per insured individual for necessary expenses incurred for m edical services. An insured individual m ay assign his or her Person al Injury Protection Benefits to the healthcare provider in exchange for those services, perm itting the healthcare provider to subm it claim s directly to the insurer for paym ent. State Farm alleges that insured in dividuals assigned their ben efits to the defendants. Com pl. ¶¶ 9 , 15. State Farm alleges that Dr. McGee then ordered m edically unnecessary tests and treatm ents, adm inistered by the PC Defendants, in order to fraudulently obtain paym ent from State Farm . Id. ¶¶ 24-26. D ISCU SSION Defendants seek to stay proceedings and com pel arbitration on the grounds that the insurance contracts between State Farm and the insured individuals contained the following provision: 2 In the event any person m aking a claim for first-party benefits and the Com pany do not agree regarding any m atter relating to the clam , such person shall have the option of subm itting such disagreem ent to arbitration pursuant to the procedures prom ulgated or approved by the Superintendent of Insurance. Defendants’ Mem orandum of Law (“Defs.’ Mem .”) at 3 (citing 11 N.Y.C.R.R. § 65-1.1(d)). Defendants argue that because the insured in dividuals validly assigned their rights as first-party beneficiaries under the contracts to the PC Defendants, defendants are now entitled to com pel arbitration. In opposition, plaintiff argues that defendants have waived their right to arbitration, lack standing to elect to arbitrate RICO claim s, an d the RICO claim s are not subject to the arbitration provision in the insurance contracts. Because the Court determ ines that defendants have waived their right to arbitration, it is unnecessary to address plaintiff’s other argum ents. I. D e fe n d an ts ’ H ave W aive d Th e ir Righ t to Arbitratio n The Federal Arbitration Act (“FAA”) requires a federal court to enforce an arbitration agreem ent and stay litigation that contravenes it. See 9 U.S.C. § 2 (“A written provision in . . . a contract evidencing a transaction involving com m erce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable . . . .”). It is well-established that federal public policy strongly favors arbitration. However, where a party has a right to subm it a dispute to arbitration as an alternative to litigation, the opportunity to exercise that right is not indefin ite. By engaging in litigation that prejudices the opposing party, a party m ay be deem ed to have waived the right to arbitration. PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 10 3, 10 7 (2d Cir. 1997) (“[A] party waives its right to arbitration when it engages in protracted litigation that prejudices the opposing party.”). 3 There is “no rigid form ula or bright-line rule for identifying when a party has waived its right to arbitration” and the determ ination depends on the particular facts of each case. Louisiana Stadium & Expo. Dist. v. Merrill Lynch, Pierce, Fenner & Sm ith Inc., 626 F.3d 156, 159 (2d Cir. 20 10 ). Waiver is not to be lightly inferred and “any doubts concerning whether there has been a waiver are resolved in favor of arbitration.” PPG Indus., 128 F.3d at 10 7-0 8. In determ in ing whether a party has waived its right to arbitration, courts in this Circuit consider the following three factors: (1) the tim e elapsed from when litigation was com m enced until the request for arbitration; (2) the am ount of litigation to date, including m otion practice an d discovery; and (3) proof of prejudice. Louisiana Stadium , 626 F.3d at 159 (citations om itted). “Generally, waiver is m ore likely to be found the longer the litigation goes on, the m ore a party avails itself of the opportunity to litigate, and the m ore that party’s litigation results in prejudice to the opposing party.” Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 10 2,10 5 (2d Cir. 20 0 2). Of the three factors, the third—prejudice—is m ost significant. “Waiver of the right to com pel arbitration due to participation in litigation m ay be found only when prejudice to the other party is dem onstrated.” Rush v. Oppenheim er & Co., 779 F.2d 8 8 5, 88 7 (2d Cir. 1985) (em phasis added); accord Thyssen, Inc., 310 F.3d at 10 5 (“The key to a waiver analysis is prejudice.”). Prejudice “‘refers to the inherent unfairness—in term s of delay, expense, or dam age to a party’s legal position—that occurs when the party’s opponent forces it to litigate an issue and later seeks to arbitrate that sam e issue.’” PPG Indus., 128 F.3d at 10 7-0 8. Prejudice has been found “when a party seeking to com pel arbitration engages in discovery procedures not available in 4 arbitration, m akes m otions going to the m erits of an adversary’s claim s, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.” Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993) (internal citations om itted). “No bright line defines [prejudice]—neither a particular tim e fram e nor dollar am ount autom atically results in such a finding—but it is instead determ ined contextually, by exam ining the extent of the delay, the degree of litigation that has preceded the invocation of arbitration, the resulting burdens and expenses, an d the surrounding circum stances.” Kram er v. Ham m ond, 943 F.2d 176, 179 (2d Cir. 1991). In the instant case, defendants have participated in litigation proceedings for alm ost two years without ever raising the defense of arbitration. To justify this delay, defendants argue they were unable to file the m otion to com pel arbitration until March 5, 20 12 after, “the Com puCredit decision in J anuary 20 12 which both reinforced the Suprem e Court’s earlier holding in Shearson[/ Am erican Exp., Inc. v. McMahon, 482 U.S. 220 , 10 7 S. Ct. 2332 (1987),] and altered the landscape with respect to the arbitration of claim s.” Defs.’ Mem . at 9-10 . The Court is unable to discern any reason why defendants were prevented from filing their m otion prior to Com puCredit Corp. v. Greenwood, 565 U.S. _ _ , 132 S. Ct. 665 (20 12), a decision that defen dants im plicitly acknowledge m erely reinforced the Court’s well-established holding that RICO claim s m ay be arbitrated. The m otion to com pel could have been filed im m ediately upon service of the Com plaint; defendants needed no discovery and were well-aware of the language of the insurance contracts. Consequently, defendants have provided no legitim ate explanation for their eighteen-m onth delay, a factor that weighs in favor of finding waiver. See, e.g., S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 8 0 , 8 3 5 (2d Cir. 1998 ) (fifteen m onth delay supported finding of waiver); Com -Tech Assocs. v. Com puter Assocs. Int’l, Inc., 938 F.2d 1574, 1576 (2d Cir. 1991) (eighteen m onth delay supported finding of waiver); Manos v. Geissler, 321 F. Supp. 2d 588, 594 (S.D.N.Y. 20 0 4) (seventeen m onth delay supported a finding of waiver). However, delay alone is not sufficient to infer waiver. Any delay m ust be considered in conjunction with the litigation activity that took place during this tim e period, along with any proof that the party seeking to avoid arbitration suffered prejudice. PPG Indus., 128 F.3d at 10 9. Here, defendants have actively and aggressively engaged in litigation. The docket sheet for this case records m ore than one hundred entries an d defendants’ participation in m ore than ten hearings before the m agistrate judge, prior to filing this m otion. In their brief, plaintiff accurately sum m arizes defendants’ participation in the litigation as follows: [Defendants] answered the Com plaint and did not m ove to dism iss or m ove to com pel arbitration at the tim e, nor did they plead arbitration as an affirm ative defense. Soon thereafter, they participated fully in a discovery conference . . . establishing a schedule for com pletion of discovery. Since that tim e, Defendants . . . . have served interrogatories and two sets of docum ent requests on State Farm , which requests seek 99 categories of docum ents. These requests were not m ere form alities, but required tim e consum ing and expen sive effort on State Farm ’s part to respond, resulting in State Farm ’s ultim ate production of over 190,0 0 0 docum ents representing over 395,0 0 0 pages to date. Defendants have em ployed Federal Rule of Civil Procedure 30 (b)(6) and issued notices of deposition to State Farm seeking depositions of State Farm witnesses with particular knowledge. They have responded to written interrogatories and docum ent requests . . . som e of which have resulted in extensive attorney conferences and m otion practice before the court . . . . Defendants have also used federal subpoena power to seek discovery from third parties, issuing 15 subpoenas to doctors and com panies that adm inister independent m edical exam ination perform ed on State Farm 6 patients. These subpoenas have them selves produced substantial m otion practice. . . . [Defendants] fought State Farm ’s efforts to obtain a protective order to preclude those subpoenas by arguing that discovery was critical an d relevant to their defense and succeeded in convincing the court to allow two of the depositions to take place. Pl.’s Mem . in Opp. at 3. The extent to which defendants have engaged in discovery an d the cost and delay this has im posed on plaintiff com pels a finding of prejudice. See, e.g., S & R Co. of Kingston, 159 F.3d at 8 4 (prejudice found where party engaged in two settlem ent conferences, sought 3 depositions, 19 detailed interrogatories, and the production of m ore than 210 0 pages in docum ents during 15 m onth delay). In addition to responding to defendants’ extensive discovery requests, plaintiff was also subject to the expense of litigating defendants’ appeal of the order of Magistrate J udge Levy com pelling defendants to produce Dr. McGee’s personal tax and banking records and the PC Defendants’ tax and business records. See Order of Magistrate J udge Levy dated J anuary 11, 20 12 (Dkt. No. 82). In a decision dated February 21, 20 12, this Court affirm ed the decision of the m agistrate judge in all respects. See Feb. 21 Order. Shortly thereafter and for the first tim e, defendants sought to com pel arbitration. See Motion to Com pel Arbitration dated March 5, 20 12 (Dkt. No. 95). The inference the Court draws from this sequence of events is that defendants engaged in the discovery process in a calculated fashion: having obtained docum entary discovery from plaintiff, defendants now seek to avoid this Court’s order com pelling their own disclosures. This inference is reinforced by the fact that the day after defen dants filed their m otion to com pel arbitration, they nevertheless subm itted a m otion, seeking to 7 com pel third parties to response to two burdensom e subpoenas. 1 See Motion to Com pel Third-Party Depositions dated March 6, 20 12 (Dkt. No. 97). “[A] litigant is not entitled to use arbitration as a m eans of aborting a suit that did not proceed as planned in the District Court.” Louisiana Stadium , 626 F.3d at 161. Significantly, defendants do not contend that the discovery they have obtained would have been available in arbitration. When a party seeking to com pel arbitration engages in discovery procedures not available in arbitration, this also weighs in favor of a finding of prejudice. Manos, 321 F. Supp. 2d at 595 (“Defendants do not deny that they obtained pre-trial discovery in this action that would not have been available in the arbitral forum . This is sufficient when considered in light of the delay caused by defendants to dem onstrate that plaintiff would be prejudiced if this Court granted defendants’ m otion to com pel.”); see also PPG Indus., 128 F.3d at 10 9 (waiver found where plaintiff “used the judicial process to secure a substantial am ount of inform ation that it otherwise would not have had in its possession.”); Cotton, 4 F.3d at 180 (waiver found where defendant’s extensive pre-trial litigation caused delay and expense an d defendant obtained “discovery that is often unavailable in an arbitral forum ”); Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN Int’l Capital Mkts. Corp., 996 F.2d 1478 , 1479 (2d Cir. 1993) (per curiam ) (waiver found where party engaged in discovery not available in arbitration); Carcich v. Rederi A/ B Nordie, 389 F.2d 692, 696 n.7 (2d Cir. 1968) (noting that taking advantage of judicial discovery procedures not available in arbitration could be sufficient prejudice to warrant finding waiver (citations om itted)). 1 See Minute Entry for Proceedings Before Mag. J . Levy dated March 30 , 20 12 (“[T]he third-party subpoenas to Metro Medical and Dr. Santiago as presently constituted are burden som e and overly broad.”). 8 Defendants attem pt to distinguish this case from those where waiver has been found. They argue that they have not waived arbitration because the parties have not yet litigated any dispositive m otions. Defs.’ Mem . at 6. While this is often a factor in favor of waiver, dispositive m otions are not required before waiver can be found. S & R Co. of Kingston, 159 F.3d at 8 4 (“We have found no case that supports the argum ent that such [dispositive] m otions are required before waiver can be found.” (citation om itted)); Del Turco v. Speedwell Design, 623 F. Supp. 2d 319, 342 (E.D.N.Y. 20 0 9) (“[Prejudice] does not necessarily require filing of dispositive m otions” and can include “serving exten sive discovery requests.”). Defendants also argue waiver should not be found because discovery has not been com pleted. Defs.’ Mem . at 6. Again, waiver is often found when a m otion to com pel arbitration is filed after discovery ends and a trial date is set, but there is no bright-line rule that waiver cannot occur prior to that stage in the litigation. See, e.g., Forrest v. Unifund Financial Grp., Inc., No. 0 4 Civ. 5151 (LTS), 20 0 7 WL 766297, at *6 (S.D.N.Y. Mar. 13, 20 0 7) (waiver based solely on m otion practice, where no discovery had been conducted); Manos, 321 F. Supp. 2d at 594 (participation in three status conferences, taking of plaintiff’s deposition, and m otion practice lim iting discovery sufficient to infer waiver). Considering defendants’ lengthy and unjustified delay in bringing this m otion, the extent to which discovery has been conducted, defendants’ engagem ent in that discovery process an d calculated tim ing in bringing this m otion, and the expense these protracted proceedings have im posed on plain tiff, the Court finds that defendants’ have waived their right to arbitrate plaintiff’s claim s. “To perm it litigants to exercise their contractual rights to arbitrate at such a late date, after they have deliberately chosen to 9 participate in costly and extended litigation would defeat the purpose of arbitration: that disputes be resolved with dispatch and with a m inim um of expense.” Com -Tech Assocs., 938 F.2d at 1578. CON CLU SION For all of the reasons set forth previously, defendants’ m otion to stay the proceedings and com pel arbitration is denied. SO ORD ERED . Dated: Brooklyn, New York J une 25, 20 12 _ _ _ / s/ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I. Leo Glasser United States District J udge 10
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
