Government Employees Insurance Co. et al v. Hollis Medical Care P.C. et al, No. 1:2010cv04341 - Document 80 (E.D.N.Y. 2011)
Court Description: ORDER granting 70 Motion for Reconsideration. For all of the foregoing reasons, Geico's motion for reconsideration is GRANTED. The Court hereby reinstates (1) Geico's Section 1962(c) and 1962(d) claims against the management defendants; and (2) its common law fraud claims against the John Doe management defendants. Ordered by Senior Judge I. Leo Glasser on 11/9/2011.
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Government Employees Insurance Co. et al v. Hollis Medical Care P.C. et al UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x GOVERNMENT EMPLOYEES INSURANCE CO., et al., Plaintiffs, Doc. 80 MEMORANDUM AND ORDER 10 Civ. 4341 (ILG) (RML) - against HOLLIS MEDICAL CARE, P.C., et al. Defendants. ------------------------------------------------------x GLASSER, Senior United States District J udge: In this civil action arising under, am ong other things, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”), plaintiffs the Governm ent Em ployees Insurance Co., Geico Indem nity Co., Geico General Insurance Com pany, Geico Casualty Co. (together “Geico”) have filed a m otion pursuant to Rule 6.3 of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York seeking reconsideration of the Court’s Mem orandum and Order dated Septem ber 1, 20 11 (the “Order”) that granted in part the m otion of several alleged owners and em ployees of Hollis Medical Care P.C. (“Hollis”)—Sim on Davydov, Mikhail Davydov, Ruben Davydov, Em anuel David, Sophia David, Berta Nektalov, and several J ohn Doe defendants (together the “m anagem ent defendants”)—to dism iss Geico’s com plaint pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. Geico specifically seeks reconsideration of the Court’s (1) dism issal of Geico’s substantive RICO and RICO conspiracy claim s against the m anagem ent defendants; and (2) sua sponte dism issal of the com m on law fraud claim s against the J ohn Doe m anagem ent defendants. 1 Dockets.Justia.com For the reasons set forth below, Geico’s m otion is hereby GRANTED. I. BACKGROU N D The background to this action is also in the Order, see Gov’t Em ps. Ins. Co. v. Hollis Med. Care P.C., No. 10 Civ. 4341 (ILG), 20 11 WL 40 12441, at *1-2 (Sept. 1, 20 11), and fam iliarity with the facts underlying this action is assum ed. A brief review of the relevant facts alleged in the com plaint is nevertheless necessary, and they are assum ed to be true for the purposes of this m otion. Geico filed its com plaint on Septem ber 23, 20 10 alleging, am ong other things, fraud, substantive RICO, and RICO conspiracy claim s against the m anagem ent defendants and Hollis’s alleged nom inal owners. Com plaint dated Sept. 22, 20 10 (“Com pl.”) (Dkt. No. 1). The gist of the com plaint is that Hollis, an unlawfully incorporated professional corporation under the direction of the non-physician m anagem ent defendants, obtained two m illion six hundred thousand dollars in “no fault benefits” from Geico for patient healthcare services that Hollis was not entitled to receive. Com pl. ¶¶ 1-2, 33.1 Hollis was not entitled to receive these paym ents because although Hollis has always been nom inally owned by a licensed physician on paper, it is actually operated by the m anagem ent defendants—none of whom is a licensed 1 “Patients covered by no-fault insurance often assign their claim s to their health care providers rather than seek reim bursem ent from insurance carriers directly.” State Farm Mut. Auto Ins. Co. v. Mallela, 4 N.Y.3d 313, 319, 794 N.Y.S.2d 70 0 , 827 N.E.2d 758 (20 0 5) (citing 11. N.Y.C.R.R. § 65-3.11)). 2 physician. Com pl. ¶ 2, 33. 2 The past nom inal owners of Hollis were Drs. Prasad Chalasani, Elizabeth Goldstein, and David Hsu. Com pl. ¶¶ 9-11.3 The m anagem ent defendants’ schem e began on or around J uly 24, 20 0 4 when they recruited Dr. Chalasani to effectively “sell” his m edical license to Hollis. Com pl. ¶ 35. In exchange for a designated salary or other form of com pensation, Dr. Chalasani agreed to falsely represent in Hollis’s certificate of incorporation that he was the true shareholder, director, and officer of Hollis and that he truly owned, controlled and practiced through the corporation, when he in fact had no ownership interest in or control of Hollis and did not practice through it. Com pl. ¶¶ 37-38. Instead, the m anagem ent defendants exercised all decision-m aking authority relating to the operation and m anagem ent of Hollis by, for exam ple, m anaging its bank accounts and records and m aking decisions regarding the hiring and m anagem ent of the doctors, nurses, and others who perform ed services there. Com pl. ¶ 38. In or around J une 20 0 7, Dr. Chalasani transferred his purported ownership interest in Hollis to Dr. Goldstein. Com pl. ¶ 42. Dr. Goldstein did not pay Dr. Chalasani fair value for the ownership interest, invest any of her own m oney in the corporation, or review any of Hollis’s books or records prior to obtaining Dr. Chalasani’s interest in Hollis. Com pl. ¶ 43. And, like Dr. Chalasani, she exercised no control over the 2 3 Only a professionally licensed individual m ay be a director or officer of the professional services corporation such as Hollis, N.Y. Bus. Corp. § 150 8 (McKinney 20 0 5), and thus only physicians m ay share in the corporation’s ownership, see Mallela, 4 N.Y.3d at 319. After Geico and each of the alleged nom inal owners of Hollis reached a settlem ent, the Court dism issed the claim s against them . Order dated May 25, 20 11 (Dkt. No. 54). 3 corporation. Com pl. ¶ 43. More than a year later, in J uly 20 0 8, Hollis ended its relationship with Dr. Goldstein, and the m anagem ent defendants then hired Dr. Hsu to becom e the nom inal owner of Hollis; like Drs. Chalasani and Goldstein before him , he did not pay fair value for the shares he acquired in Hollis, invest any of his own m oney in the corporation, or review any of Hollis’s books or records prior to obtaining the ownership interest. Com pl. ¶ 44. He did not in any way control Hollis either. Com pl. ¶¶ 45-46. Instead, the m anagement defendants exercised com plete control over Hollis and directed the provision of healthcare services to m axim ize the billing subm itted to insurers, including Geico, through the following fraudulent schem es. Com pl. ¶¶ 50 -96. First, Hollis provided initial patient exam inations that were billed at an inflated rate that m isrepresented and exaggerated the level of m edical decision-m aking and services provided by its physicians. Com pl. ¶¶ 53-56. Second, Hollis referred virtually every one of its patients for a consultation with a physiatrist—a physician specializing in rehabilitation—who purportedly perform ed and interpreted various diagnostic tests, an approach not tailored to the needs of each patient or based on m edical necessity. Com pl. ¶¶ 57-62. Third, Hollis billed Geico for, and its physicians purported to perform , m anual range of m otion and m uscle strength testing on nearly every patient despite the fact that each patient had already undergone such testing during his or her initial exam ination. Com pl. ¶¶ 63-67. Fourth, nearly every patient, after receiving an exam ination at Hollis, would be sent for treatm ents such as physical therapy and acupuncture, regardless of m edical necessity or the patients’ desire to have such treatm ents. Com pl. ¶¶ 82-84. These treatm ents were usually perform ed by specialists 4 who rented space from Hollis at its clinic and who paid the m anagem ent defendants kickbacks for these referrals that took the form of rent. Com pl. ¶ 84. Fifth, healthcare providers at or associated with Hollis prescribed m edical equipm ent and devices for patients from a specific m edical supplier without regard to m edical need, and the m anagem ent defendants, in exchange, received kickbacks from the supplier. Com pl. ¶¶ 68-76. Finally, Hollis’s physicians referred patients for psychiatric services at certain facilities without regard to the patients’ con ditions and som etim es over their objections, and the m anagem ent defendants received kickbacks from the facilities in exchange. Com pl. ¶¶ 77-81. In order to obtain paym ents from Geico and other insurers for all of these services, the m anagement defendants either subm itted or caused to be subm itted statutorily prescribed claim form s for No-Fault Benefits (“NF-3 Form s”). Com pl. ¶ 87. These form s not only represented that Hollis was lawfully licensed and therefore eligible to receive no-fault benefits under New York Ins. Law § 510 2 but also that the services were m edically necessary and in fact actually perform ed. Com pl. ¶ 88. Geico has attached to the com plaint a sam ple of the NF-3 Form s the m anagem ent defendants m ailed to it. Com pl. Ex. 7. On December 3, 20 10 , the m anagem ent defendants m oved to dism iss the com plaint pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. Mem orandum of Law in Support of Motion to Dism iss dated Decem ber 3, 20 10 (“Defs.’ Mot. to Dism iss”) (Dkt. No. 31). Geico filed its opposition on February 4, 20 11, Opposition to Motion to Dism iss dated February 4, 20 11 (“Pl.’s Opp’n”) (Dkt. No. 5 35), and the m anagement defendants filed their reply on J une 24, 20 11, Corrected Reply dated J une 24, 20 11 (“Defs.’ Reply”) (Dkt. No. 52). The Court on Septem ber 1, 20 11 granted the m otion of the m anagem ent defendants to dism iss the substantive RICO and RICO conspiracy claim s against them and sua sponte dism issed the com m on law fraud claims against the J ohn Doe m anagem ent defendants. Hollis, 20 11 WL 40 12441, at *3-4 & n.9. On Septem ber 12, 20 11, Geico tim ely filed its m otion for reconsideration of those rulings, see Mem orandum of Law in Support of Motion to Reconsider Order dated Septem ber 12, 20 11 (“Pl.’s Mem .”) (Dkt. No. 71), and the m otion for reconsideration is now fully briefed. Mem orandum of Law in Opposition to Motion to Reconsider Order dated October 21, 20 11 (“Defs.’ Opp’n”) (Dkt. No. 77); Reply Mem orandum of Law in Further Support of Motion to Reconsider Order dated Novem ber 1, 20 11 (“Pl.’s Reply”) (Dkt. No. 78). II. D ISCU SSION A. Le gal Stan d ard Local Civil Rule 6.3 provides, in relevant part, “[a] notice of m otion for reconsideration or reargum ent of a court order determ ining a m otion shall be served within fourteen (14) days after the entry of the Court’s determ ination of the original m otion, . . . . There shall be served with the notice of m otion a m em orandum setting forth concisely the m atters or controlling decisions which counsel believes the Court has overlooked . . . .” Reconsideration of an order pursuant to this rule is appropriate “to correct a clear error or prevent a m anifest injustice.” Virgin Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992) (citations om itted); accord Munafo v. 6 Metro. Transp. Auth., 381 F.3d 99, 10 5 (2d Cir. 20 0 4). “The standard for granting such a m otion is strict, and reconsideration will generally be denied unless the m oving party can point to controlling decisions or data that the court overlooked—m atters, in other words, that m ight reasonably be expected to alter the conclusion reached by the court.” Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). The decision to grant or deny this m otion is within the sound discretion of this Court. See McCarthy v. Manson, 714 F.2d 234, 237 (2d Cir. 1983). Geico m aintains that the Court’s conclusion that the com plaint fails to allege facts sufficient to support a claim that the m anagem ent defendants m eet RICO’s distinctness requirem ent was erroneous because the Court overlooked certain allegations in the com plaint and the applicability of the Suprem e Court’s decision in Cedric Kushner Prom otions, Ltd. v. King, 533 U.S. 158, 121 S. Ct. 20 87, 150 L. Ed. 2d 198 (20 0 1), and its progeny to the circum stances here. Pl.’s Mem . at 3-9. Geico also argues that the Court’s dism issal of the com m on law fraud claim s against the J ohn Doe m anagem ent defendants m isapplied or overlooked relevant case law because the dism issal occurred before Geico had an opportunity to pursue discovery to learn the identity of the parties. Pl.’s Mem . at 12-13. Geico thus seeks reinstatem ent of the RICO and fraud claim s. The Court will address each of these contentions in turn below. B. Civil RICO Act Claim s Geico alleges that the m anagem ent defendants com m itted substantive RICO offenses in violation of 18 U.S.C. § 1962(c) and conspired to violate RICO in violation of 18 U.S.C. § 1962(d). A substantive civil RICO claim has three elem ents: (1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the 7 injury was caused by the violation of Section 1962.4 Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 20 0 8).5 To plead a violation of Section 1962(c), a plaintiff m ust show “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity” for each individual defendant. DeFalco v. Bernas, 244 F.3d 286, 30 6 (2d Cir. 20 0 1) (citations om itted). 1. En te rp ris e Whether Geico’s com plaint adequately pleads a RICO enterprise is the threshold m atter under review here. In the Order, the Court concluded that it did not and dism issed Geico’s substantive RICO and RICO conspiracy claim s against the m anagem ent defendants, reasoning that the allegations in the com plaint did not show that the m anagem ent defendants were sufficiently distinct from Hollis. GEICO, 20 11 WL 40 12441, at *3. Now having the occasion to revisit this ruling, the Court concludes that it was m ade in error and that the Suprem e Court’s decision in Cedric Kushner Prom otions requires that it be confessed. To plead a RICO violation, a plaintiff “m ust allege . . . the existence of two distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that is not sim ply the sam e ‘person’ referred to by a different nam e.” Cedric Kushner Prom otions, 533 U.S. at 161-62; see also Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d 4 5 The m anagem ent defendants do not argue that Geico has failed to sufficiently plead proxim ate cause or injury. 18 U.S.C. § 1962(c) m akes it unlawful for any person em ployed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign com m erce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity . . . . 8 Cir. 1994) (concluding that the sam e corporate entity cannot be the RICO “person” and the RICO “enterprise” under section 1962(c)). 18 U.S.C. § 1961(3) defines a person as including “any individual or entity capable of holding a legal or beneficial interest in property.” Meanwhile, 18 U.S.C. § 1961(4) defines an “enterprise” as including “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” A RICO enterprise “‘is proved by evidence of an ongoing organization, form al or inform al, and by evidence that the various associates function as a continuing unit.’” United States v. Applins, 637 F.3d 59, 73 (2d Cir. 20 11) (quoting United States v. Turkette, 452 U.S. 576, 583, 10 1 S. Ct. 2524, 69 L. Ed. 2d 246 (1981)). The enterprise requirem ent “is m ost easily satisfied when the enterprise is a form al legal entity.” First Capital Asset Mgm t., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir. 20 0 4). Here, Geico alleges that Hollis is the “enterprise” and that the m anagem ent defendants are the RICO persons that have been associated with Hollis and knowingly conducted and/ or participated in its affairs. Com pl. ¶¶ 10 3-0 4, 110 -12.6 Geico correctly notes that under Cedric Kushner Prom otions, these allegations are sufficient to plead the existence of two distinct entities, thus satisfying RICO’s enterprise requirem ent. Pl.’s Mem . at 5. In Cedric Kushner Prom otions, the Suprem e Court reversed and rem anded the Second Circuit’s decision affirm ing the dism issal of the plaintiff’s com plaint alleging 6 Geico does not allege an association-in-fact enterprise and thus, contrary to the m anagem ent defendants’ assertions, Defs.’ Mot. to Dism iss at 21-22, the Court need not consider whether Geico has sufficiently pleaded the “hierarchy, organization, and activities” of the alleged enterprise. Satinwood, 385 F.3d at 174. 9 RICO violations by Don King, the sole shareholder of Don King Productions. 533 U.S. at 161-62. Relying on its own precedent that a corporation and its em ployees cannot constitute an enterprise, the Second Circuit concluded that King was not a “person” who was distinct from “the enterprise,” but rather was part of it. Id. at 161. The Suprem e Court rejected this approach: While accepting the “distinctness” principle, we nonetheless disagree with the appellate court’s application of that principle to the present circum stances—circum stances in which a corporate em ployee, acting within the scope of his authority, allegedly conducts the corporation’s affairs in a RICO-forbidden way. The corporate owner/ em ployee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status. And we can find nothing in the statute that requires m ore “separateness” than that. Id. at 163 (internal citations and quotation m arks om itted). Further, the Suprem e Court distinguished, on factual grounds, the earlier precedent upon which the Second Circuit relied, noting that while the case before it concerned a claim that a corporate em ployee is the “person” and the corporation is the “enterprise,” the earlier precedent “concerned a claim that a corporation was the ‘person’ and the corporation, together with all its em ployees and agents, were the ‘enterprise.’” Id. at 164 (citing Riverwoods, 30 F.3d at 344). The allegations here m eet the distinctness requirem ent because the m anagement defendants—all natural persons—are legally distinct from Hollis—the enterprise—even though they were each em ployees of Hollis. Moreover, unlike in Riverwoods, the com plaint contains no allegation that Hollis was the “person” and that the m anagem ent defendants and Hollis were the enterprise. J ust the opposite; as in Cedric Kushner Prom otions, Geico alleges that the corporation, Hollis, is the “enterprise” and its 10 em ployees, the m anagem ent defendants, the RICO persons. Com pl. ¶¶ 10 3-0 4, 110 -112. The com plaint thus has adequately alleged a valid RICO enterprise as to the m anagem ent defendants. See, e.g., Acm e Am . Repairs, Inc. v. Katzenberg, No. 0 3 Civ. 4740 (RRM) (SMG), 20 10 WL 3835879, at *5 (E.D.N.Y. Sept. 24, 20 10 ) (citing Kushner, 533 U.S. at 164) (enterprise adequately pleaded because corporation alleged to be RICO enterprise had separate legal identity distinct from that of defendant shareholders); Allstate Ins. Co. v. Rozenberg, 590 F. Supp. 2d 384, 391 (E.D.N.Y. 20 0 8) (sam e).7 Since the Order dism issed Geico’s substantive RICO and RICO conspiracy claim s for failure to adequately plead an enterprise, the Court cannot grant Geico the relief it seeks—reinstatem ent of these claim s—without first determ ining whether the com plaint sufficiently pleads the other elem ents of those claim s given the m anagem ent defendants’ m otion to dism iss pursuant to Rules 8(a), 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. Rule 8(a)(2) requires a com plaint to include “a short and plain statem ent of the claim showing that the pleader is entitled to relief.” To survive a m otion to dism iss pursuant to Rule 12(b)(6), Geico’s pleading m ust contain “sufficient factual m atter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1940 , 173 L. Ed. 2d 868 (20 0 9) (quoting Bell Atl. Corp. v. 7 The Court rejects the m anagem ent defendants’ contention that Geico’s m otion for reconsideration should be denied because it raises new argum ents not previously presented to the Court. Defs.’ Opp’n at 2-4. The Court dism issed the substantive RICO and RICO conspiracy claim s against the m anagem ent defendants on grounds not raised in their m otion papers, see Defs.’ Mot. to Dism iss at 13 (arguing that since Hollis is the RICO enterprise, the claim s against it should be dism issed) and GEICO thus never had the opportunity to brief the issue. In any event, reconsideration is appropriate where, as here, there is a need to correct a clear error of law. See, e.g., Munafo, 381 F.3d at 10 5. 11 Twom bly, 550 U.S. 544, 570 , 127 S. Ct. 1955, 167 L. Ed. 2d 929 (20 0 7).8 A claim has facial plausibility “when the plaintiff pleads factual content that allows the Court to draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Iqbal, 129 S. Ct. at 1949. Although detailed factual allegations are not necessary, the pleading m ust include m ore than an “unadorned, the-defendant-unlawfully-harm ed-m e accusation;” m ere legal conclusions, “a form ulaic recitation of the elem ents of a cause of action,” or “naked assertions” by the plaintiff will not suffice. Id. at 1949 (alteration in original) (internal quotations, citations, and alterations om itted). This plausibility standard “is not akin to a ‘probability requirem ent,’ but it asks for m ore than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twom bly, 550 U.S. at 556). In determ ining whether Geico sufficiently pleads the rem aining elem ents of its substantive RICO and RICO conspiracy claim s, the Court will apply these principles in turn below. And, consistent with m anagem ent defendants’ request, Defs.’ Opp’n at 4, the Court will consider the argum ents they previously m ade in support of their m otion to dism iss the com plaint. 2 . Particip atio n The Court m ust first determ ine whether each of the m anagem ent defendants conducted or participated, directly or indirectly, in the conduct of the enterprise’s 8 In addition to the facts alleged in the com plaint, a district court considering a m otion to dism iss pursuant to Fed. R. Civ. P. 12(b)(6) “m ay also consider . . . docum ents attached to the com plaint as exhibits, and docum ents incorporated by reference in the com plaint.” DiFolco v. MSNBC Cable L.L.C., 622 F.3d 10 4, 111 (2d Cir. 20 10 ) (citing Cham bers v. Tim e Warner, Inc., 282 F.3d 147, 153 (2d Cir. 20 0 2)). 12 affairs. 18 U.S.C. § 1962(c). The Suprem e Court has concluded that “to conduct or participate, directly or indirectly, in the conduct” of an enterprise’s affairs “one m ust participate in the operation or m anagem ent of the enterprise itself.” Reves v. Ernst & Young, 50 7 U.S. 170 , 185, 113 S. Ct. 1163, 122 L. Ed. 2d 525 (1993). While it is not necessary under this test for a defendant to have prim ary responsibility over the enterprise’s affairs, or even hold a form al position in the enterprise, a plaintiff m ust still show that the defendant took “som e part in directing those affairs.” State Farm Mut. Autom obile Ins. Co. v. CPT Med. Servs., No. 0 4 Civ. 50 45 (ILG), 20 0 8 WL 4146190 , at *11 (E.D.N.Y. Sept. 5, 20 0 8) (quoting Reves, 50 7 U.S. at 179). It is not enough m erely to “take directions and perform tasks that are necessary and helpful to the enterprise or provide goods and services that ultim ately benefit the enterprise; it is required that the provision of these services allow the defendant to direct the affairs of the enterprise.” Id. (citation, internal quotation m arks, and alterations om itted). Geico’s com plaint offers sufficient factual allegations to show that the m anagem ent defendants participated in the alleged enterprise. Geico alleges that in exchange for paym ents from the m anagem ent defendants, the nom inal owners (1) effectively sold their m edical licenses to Hollis; (2) falsely represented that they were the true owners of Hollis when in fact they played no role in its actual operation and m anagem ent; and (3) along with the m anagem ent defendants and Hollis, entered into a num ber of com plex financial agreem ents designed to vest the m anagem ent defendants with total control over Hollis while concealing the nature of the m anagem ent defendants’ influence. Com pl. ¶¶ 37, 40 , 43, 46-47. Geico further alleges that as a result of their total control of Hollis, the m anagements defendants prepared fraudulent bills 13 that (1) m isrepresented and exaggerated the level of m edical decision-m aking and services provided by Hollis; and (2) were for unnecessary or duplicative m edical services or services never provided. Com pl. ¶¶ 53-67. Likewise, Geico avers that the m anagem ent defendants received kickbacks from a supplier of m edical devices prescribed to patients who didn’t need them by doctors associated with Hollis and from psychiatrists to whom patients were referred without regard to their need for such referrals. Com pl. ¶¶ 68-81. These allegations are sufficient to explain how the m anagem ent defendants participated in the m anagem ent of the enterprise. See, e.g., CPT Med. Servs., 20 0 8 WL 4146190 , at *11 (allegations that non-physician defendants actually controlled m edical corporations, siphoned profits by preparing and subm itting fraudulent bills to insurance company on behalf of m edical corporations and arranged for paym ent of kickbacks sufficient to establish participation in enterprise’s affairs under civil RICO act); Allstate Ins. Co. v. Valley Physical Med. & Rehabilitation, P.C., No. 0 5 Civ. 5934 (DRH) (MLO), 20 0 9 WL 3245388, at *8-9 (E.D.N.Y. Sept. 30 , 20 0 9) (m otion to dism iss civil RICO claim denied where, am ong other things, com plaint alleged that doctor defendants sold the use of their nam es and licenses so that professional corporations could be form ed and that non-physicians actually m anaged the corporations and engaged in fraudulent no-fault billing).9 9 The m anagem ent defendants contend that each of these cases is factually distinguishable from the circum stances here—CPT on the grounds that the tests at issue in that case were of no m edical value, a fact confirm ed by scientific journals and scientific reports, and Valley on the grounds that discovery in a prior case had produced evidence that a non-physician actually owned the professional corporations. Defs.’ Reply at 4-5. The Court disagrees. The question on a 12(b)(6) m otion “is not whether a plaintiff will ultim ately prevail but whether the claim ant is entitled to offer evidence to support the claim s.’” Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir. 20 0 1) (quoting 14 3 . Pre d icate Acts RICO defines “racketeering activity” to include certain predicate crim inal acts including m ail fraud. S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996). A plaintiff asserting a m ail fraud claim m ust allege (1) “the existence of a schem e to defraud, (2) defendant’s knowing or intentional participation in the schem e, and (3) the use of interstate m ails or transm ission facilities in furtherance of the schem e.” Id. at 633 (citation om itted). The allegations, m oreover, m ust m eet the particularity requirem ents of Fed. R. Civ. P. 9(b). See Mills v. Polar Molecular Corp., 12 F.3d 1170 , 1176 (2d Cir. 1993).10 In order to satisfy this requirem ent, the com plaint m ust ordinarily “(1) specify the statem ents that the plaintiff contends were fraudulent; (2) identify the speaker; (3) state where and when the statem ents were m ade; and (4) explain why the statem ents were fraudulent.” Id. at 1175 (citation om itted). The m anagem ent defendants argue that the predicate acts of m ail fraud alleged in the com plaint fail to m eet these requirem ents. Defs.’ Mot. to Dism iss at 14-17. The m anagem ent defendants fail to recognize that in com plex civil RICO actions involving m ultiple defendants, Rule 9(b) does not require that the “‘tem poral or geographic particulars of each m ailing m ade in furtherance of the fraudulent schem e be Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974)). At this stage of the litigation, the com plaint contains sufficient factual allegations regarding the m anagem ent defendants’ participation in the enterprise’s affairs to allow Geico to offer evidence to support its claim s; the fact that evidence supported the allegations at issue in CPT and Valley at the tim e of the filing of the com plaint in those actions is of no consequence here. 10 Fed. R. Civ. P. 9(b) provides that “[i]n alleging fraud or m istake, a party m ust state with particularity the circum stances constituting fraud or m istake. Malice, intent, knowledge, and other conditions of a person’s m ind m ay be alleged generally.” 15 stated with particularity,’” but requires instead only that the “‘plaintiff delineate, with adequate particularity in the body of the com plaint, the specific circum stances constituting the overall fraudulent schem e.’” AIU Ins. Co. v. Olm ecs Med. Supply, Inc., No. 0 4 Civ. 2934 (ERK), 20 0 5 WL 3710 370 , at *11 (E.D.N.Y. Feb. 22, 20 0 5) (quoting In re Sum itom o Copper Litig., 995 F. Supp. 451, 456 (S.D.N.Y. 1998)); see also S. Ill. Laborers’ and Em p’rs Health & Welfare Fund v. Pfizer Inc., No. 0 8 Civ. 5175 (KMW), 20 0 9 WL 315180 7, at *4 n.10 (S.D.N.Y. Sept. 30 , 20 0 9); Evercrete Corp. v. H-Cap. Ltd., 429 F. Supp. 2d 612, 624 (S.D.N.Y. 20 0 6). This com plaint describes the specific circum stances constituting the overall fraudulent schem e in detail, and it includes an exhibit of sam ples of a num ber of the fraudulent subm issions m ailed or caused to be m ailed by the m anagem ent defendants on specific dates and tim es. Com pl. ¶ 10 4 & Ex. 7. Further, the com plaint alleges that each of the m anagem ent defendants are connected to the schem e in that each “could reasonably have foreseen” that the m ail would be used “in the ordinary course of business as a result of” their acts—all that is required under the m ail fraud statute. United States v. Bortnovsky, 879 F.2d 30 , 36 (2d Cir. 1989). Indeed, the very basis of the m anagem ent defendants’ fraudulent schem e was their subm ission of fraudulent bills through Hollis to Geico by use of the m ail. Com pl. ¶¶ 50 -88. Finally, the facts alleged in the com plaint and contained in the exhibits regarding the m anagement defendants’ predicate acts are substantially sim ilar to those that this Court and others in this district have previously found to be sufficient. See, e.g., Allstate Ins. Co. v. Halim a, No. 0 6 Civ. 1316 (DLI) (SMG), 20 0 9 WL 750 199, at *5 (E.D.N.Y. Mar. 19, 20 0 9) (Rule 9(b) satisfied where plaintiffs included with com plaint sam ple of allegedly fraudulent bills subm itted 16 to insurer for m edically unnecessary services); Valley, 20 0 9 WL 3245388, at *9 (Rule 9(b) satisfied where exhibits to com plaint contained specifics such as the patient involved, the dates of allegedly fraudulent bills and when they were m ailed to plaintiff insurer); CPT Med. Servs., 20 0 8 WL 4146190 , at *12 (citing Moore v. Painewebber. Inc., 189 F.3d 165, 173 (2d Cir. 1999)) (Rule 9(b) satisfied where plaintiff attached to com plaint exhibits indicating, am ong other things, the dates certain fraudulent bills regarding m edical treatm ents were subm itted to insurer). Geico thus has adequately pleaded a RICO claim predicated on m ail fraud that satisfies the particularity requirem ents of Rule 9(b).11 4 . Patte rn The com plaint also sufficiently alleges a pattern of racketeering activity. A pattern requires “at least two acts of racketeering activity, . . . the last of which occurred within ten years . . . after the com m ission of a prior act of racketeering activity.” 18 11 The Court rejects the m anagem ent defendants’ argum ent that the com plaint does not allege facts strongly supporting an in ference of scienter. Defs.’ Mot. to Dism iss at 18. In order to satisfy the scienter requirem ent, a plaintiff m ust allege either: (1) facts which dem onstrate that the defendant had both the m otive and a clear opportunity to com m it the fraud; or (2) facts which show strong circum stantial evidence of conscious behavior or recklessness by the defendants. Powers v. British Vita, P.L.C., 57 F.3d 176, 184 (2d Cir. 1995). “When courts speak of ‘clear opportunity to com m it fraud,’ they do not envision the kind of elaborate plot that is alleged to have unfolded in this case.” Id. at 185. The com plaint shows strong circum stantial evidence of conscious behavior by the m anagem ent defendants, however, as it alleges, am ong other things, that the m anagem ent defendants (1) purchased the nom inal owner’s m edical licenses; (2) perm itted Hollis to be illegally incorporated in their nam es; (3) used Hollis as a vehicle for the subm ission of fraudulent claim s to Geico; and (4) directed the provision of m edical services at Hollis in order to m axim ize the subm ission of these fraudulent claim s. 17 U.S.C. § 1961(5). “To establish a pattern, a plaintiff m ust also m ake a showing that the predicate acts of racketeering activity by a defendant are ‘related, and that they am ount to or pose a threat of continued crim inal activity.’” DeFalco, 244 F.3d at 321 (quoting H.J . Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, 10 9 S. Ct. 2893, 10 6 L. Ed. 2d 195 (1989)). “The latter so-called ‘continuity’ requirem ent can be satisfied either by showing a ‘closed-ended’ pattern—a series of related predicate acts extending over a substantial period of tim e—or by dem onstrating an ‘open-ended’ pattern of racketeering activity that poses a threat of continuing crim inal conduct beyond the period during which the predicate acts were perform ed.” Spool, 520 F.3d at 183 (citations om itted). The m anagem ent defendants argue that the com plaint fails to plead both closedended continuity and open-ended continuity. Defs.’ Mot. to Dism iss at 18-21. They m aintain that the com plaint alleges predicate acts of m ail fraud by a sm all num ber of participants against a single victim , involving essentially a single schem e insufficient to establish closed-ended continuity. Id. at 18-20 . Additionally, they argue that the com plaint fails to establish open-ended continuity because it does not allege a threat of continuing crim inal activity by them . Id. at 20 -21. Geico persuasively responds that the com plaint contains sufficient facts to show both open-ended and closed-ended continuity. Pl.’s Mem . at 27-33. “A closed-ended pattern of racketeering activity involves predicate acts ‘extending over a substantial period of tim e.’” Satinwood, Inc., 385 F.3d at 181 (quoting GICC Capital Corp. v. Tech. Fin. Grp., 67 F.3d 463, 466 (2d Cir. 1995)). “Although continuity is ‘prim arily a tem poral concept, other factors such as the num ber and variety 18 of predicate acts, the num ber of both participants and victim s, and the presence of separate schem es are also relevant in determ ining whether closed-ended continuity exists.’” Id. (quoting De Falco, 244 F.3d at 321). Here, Geico alleges that the m anagem ent defendants subm itted or caused to be subm itted via the m ail over 46,0 0 0 separate fraudulent claim s to it over a six year period beginning as early as J uly 20 0 4. Com pl. ¶¶ 1, 7 & Ex. 1. It further alleges that the predicate acts of m ail fraud “are essential in order for Hollis to function.” Com pl. ¶ 10 5. In other words, Geico alleges the m anagem ent defendants com m itted the predicate acts as a “regular way of conducting the [m anagem ent] defendants’ ongoing business.” Nw. Bell Tel. Co., 492 U.S. at 250 . Finally, other victim s of the fraud—the State of New York and other insurers—are alleged as well. See, e.g., Com pl. ¶¶ 6, 37, 91. For all of these reasons, the com plaint sufficiently alleges a closed-ended pattern of racketeering activity.12 See, e.g., Valley, 20 0 9 WL 3245388, at *8 (closed-ended continuity sufficiently alleged where num erous predicate acts occurred over a num ber years and state of New York and other insurers were also alleged as victim s); State Farm Mut. Auto. Ins. Co. v. Valery Kalika, No. 0 4 Civ. 4631 (CBA), 20 0 6 WL 6176152, at *16 (E.D.N.Y. Mar. 16, 20 0 6) (closed-ended continuity established where 1,256 separate fraudulent claim s subm itted to insurer over a four-year period). In sum , Geico has sufficiently alleged that the m anagement defendants com m itted a substantive RICO offense in violation of 18 U.S.C. § 1962(c). Thus, the Section 1962(c) claim s against the m anagem ent defendants are hereby reinstated. 12 In light of this conclusion, the Court need not address the parties’ contentions regarding open-ended continuity. 19 5. Se ctio n 19 6 2 ( d ) Co n s p iracy Claim s Geico’s Section 1962(d) claim s m ust be reinstated as well. “In addition to the substantive elem ents of a RICO claim , to state a claim under Section 1962(d), a plaintiff m ust also allege that ‘each defendant, by words or actions, m anifested an agreem ent to com m it two predicate acts in furtherance of the com m on purpose of a RICO enterprise.’” CPT Med. Servs., 20 0 8 WL 4146190 , at *14 (quoting Colony v. Holbrook, Inc. v. Strata, Inc., 928 F. Supp. 1224, 1238 (E.D.N.Y. 1996)). The Second Circuit has explained that this agreem ent m ay be shown if a defendant “‘possessed knowledge of only the general contours of the conspiracy.’” Applins, 637 F.3d at 75 (quoting United States v. Zichettello, 20 8 F.3d 72, 10 0 (2d Cir. 20 0 0 )); see also United States v. Yannotti, 541 F.3d 112, 122 (2d Cir. 20 0 8) (“[T]o be found guilty of RICO conspiracy, a defendant need only know of, and agree to, the general crim inal objective of a jointly undertaken schem e.” (citing Salina v. United States, 522 U.S. 52, 63, 118 S. Ct. 469, 139 L. Ed. 2d 352 (1997))). Contrary to the m anagem ent defendants’ assertion that the com plaint only contains conclusory allegations regarding an agreem ent am ong them , Defs.’ Mot. to Dism iss at 25, Geico has sufficiently alleged a conspiracy under the relatively low standard set forth above. The com plaint not only alleges that each of the m anagem ent defendants possessed knowledge of the general contours of the conspiracy, but also that they had knowledge of their co-conspirators’ roles in com m itting, or causing to be com m itted, the subm ission of fraudulent claim s to Geico—the predicate acts of m ail fraud. See, e.g., Com pl. ¶¶ 33-51, 87-88 & Ex. 7. Indeed, the com plaint alleges in detail the m anagem ent defendants’ roles in establishing and directing the various schem es at 20 Hollis that ultim ately resulted in the subm ission of these claim s to Geico. Com pl. ¶¶ 5386. Accordingly, “[Geico] has not only alleged that the [m anagem ent] defendants agreed to participate in the schem e, but that they had knowledge that the schem e would ultim ately result in the m ailing of fraudulent bills to [Geico],” and the com plaint therefore has sufficiently alleged violations Section 1962(d) by the m anagem ent defendants. CPT Med. Servs., 20 0 8 WL 4146190 , at *14; see also Allstate Ins. Co. v. Etienne, No. 0 9 Civ. 3582 (SLT) (RLM), 20 10 WL 4338333, at *8-9 (E.D.N.Y. Oct. 26, 20 10 ). Geico’s Section 1962(d) claim s against the m anagem ent defendants are therefore hereby reinstated.13 C. Frau d Claim s Again s t th e Jo h n D o e D e fe n d an ts Having addressed Geico’s contentions in its m otion for reconsideration as to its RICO claim s against the m anagem ent defendants, the Court now turns to its contentions regarding the Court’s sua sponte dism issal with prejudice of the com m on law fraud causes of action against the J ohn Doe m anagem ent defendants. Hollis, 20 11 WL 40 12441, at *4 n.9. Geico m aintains that the Court m isapplied or overlooked relevant case law counseling against dism issal of claim s against J ohn Doe defendants 13 The m anagem ent defendants contend that the Court should “require GEICO to provide a RICO statem ent in the event the Court . . . declines to dism iss the RICO claim s.” Defs.’ Opp’n at 4. They argue that a RICO statem ent is required to “sharpen and clarify the issues, confirm the com pleteness of the Com plaint’s assertions or highlight it [sic] pleading deficiencies.” Defs.’ Mem . at 26. The Court sees no reason to do so. It is not this Court’s practice to require plaintiffs asserting civil RICO claim s to file RICO statem ents as a m atter of course. Moreover, it is clear from the foregoing discussion that Geico has sufficiently pleaded its RICO claim s and that the issues in this case require no further clarification at this juncture. 21 before a plaintiff has had am ple opportunity to pursue discovery to learn their identities. Pl.’s Mem . at 13. The Court agrees. Though it is true that, “as a general rule, the use of ‘J ohn Doe’ to identify a defendant is not favored,” Feliciano v. Cnty. of Suffolk, 419 F. Supp. 2d 30 2, 313 (E.D.N.Y. 20 0 5), the Second Circuit has explained that “courts have rejected the dism issal of suits against unnam ed defendants . . . identified only as ‘J ohn Doe’s,’ until the plaintiff has had som e opportunity for discovery to learn the identities of responsible officials.” Davis v. Kelly, 160 F.3d 917, 921 (2d Cir. 1998) (error for district court to dism iss pro se plaintiff’s section 1983 claim s against unnam ed prison officials without providing him opportunity to learn their identity through discovery); see also Kearse v. Lincoln Hosp., No. 0 7 Civ. 4730 (PAC) (J CF), 20 0 9 WL 170 6554, at *3 (S.D.N.Y. J une 17, 20 0 9) (“Courts typically resist dism issing suits against J ohn Doe defendants until the plaintiff has had som e opportunity for discovery to learn the[ir] identities . . . .” (internal quotation m arks and citation om itted)). And courts in this circuit and others apply this principle to both represented and pro se plaintiffs alike. See, e.g., Bangura v. Cnty. of Nassau, No. 0 7 Civ. 2966 (DRH) (ETB), 20 0 9 WL 57135, at *6 (E.D.N.Y. J an. 7, 20 0 9) (denying represented plaintiff’s m otion for judgm ent on the pleadings on claim against J ohn Doe defendants); 5A C. Wright, et al., Federal Practice & Procedure § 1321 (3d ed. 20 0 5) (citations om itted) (“[M]ost federal courts typically will allow the use of a fictitious nam e in the caption so long as it appears that the plaintiff will be able to obtain that inform ation through the discovery process; should that not prove to be true, the action will be dism issed.”). 22 In light of the Second Circuit’s decision in Davis and because discovery in this case is currently ongoing,14 the Court hereby reinstates Geico’s com m on law fraud claim s against the J ohn Doe m anagem ent defendants. III. CON CLU SION For all of the foregoing reasons, Geico’s m otion for reconsideration is GRANTED. The Court hereby reinstates (1) Geico’s Section 1962(c) and 1962(d) claim s against the m anagem ent defendants; and (2) its com m on law fraud claim s against the J ohn Doe m anagem ent defendants. SO ORDERED. Dated: Brooklyn, New York Novem ber 9, 20 11 / s/ I. Leo Glasser Senior United States District J udge 14 The discovery deadline is February 10 , 20 12. Docket Minute Entry dated J uly 28, 20 11. 23
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