Nicholas Malfitano May 27, 2016, 12:30pm


PHILADELPHIA – Once dismissed, an amended fraud action brought by State Farm Mutual Insurance Company against a pair of medical providers and their employees has been given the green-light to proceed in federal court.

On May 16, Judge J. Curtis Joyner of the U.S. District Court for the Eastern District of Pennsylvania ruled State Farm’s complaint alleging the filing of false and fraudulent insurance claims by defendants Eastern Approach Rehabilitation, Aquatic Therapy of Chinatown, Inc. Leonard Stavropolskiy, P.T., D.C. and Joseph Wang, P.T., D.C., would move forward.

A prior iteration of State Farm’s complaint met with dismissal in the District Court on Feb. 17. Per court records, an amended version followed on March 7, along with the defendants’ motion to dismiss on March 16.

Wang and Stavropolskiy are owners and shareholders of Eastern Approach and Aquatic Therapy, respectively, which provide chiropractic and medical examinations, treatment, testing, and services to patients.

State Farm alleges the defendants “colluded together to engage in this alleged insurance fraud scheme, which consisted of billing for treatment and services not provided and that they fabricated medical records to exaggerate claims or include findings that were not actually observed.”

Further, State Farm alleges the defendants then submitted these false claims to plaintiffs in order to receive payments. State Farm alleges the defendants committed common law fraud, statutory insurance fraud and obtained unjust enrichment in excess of $850,000 through the aforementioned actions, which they claim began in 2010 and continued to the present day.

In addition to damages and restitution, State Farm seeks a declaratory judgment.

Through their motion to dismiss, the defendants argued “the plaintiffs have not alleged that any of the medical records submitted were false, the plaintiffs have not shown that they justifiably relied, and the claims are barred by the statute of limitations.”

Joyner addressed each of the defendants’ arguments in turn.

“Defendants argue that State Farm alleges fraud ‘based entirely on the use of synonyms’. In fact, throughout the amended complaint, plaintiffs allege that defendants have deliberately created and submitted inaccurate records,” Joyner explained. The use of ‘synonyms’ is only brought up as it relates to a tactic plaintiffs allege defendants employ to conceal the similarity of the medical records.”

Joyner therefore denied the defendants’ initial argument saying the plaintiffs failed to adequately plead misrepresentation – and moved on to their second argument revolving around justifiable reliability of the allegedly falsified medical records.

“As plaintiffs correctly point out, it is not necessary to show reliance, let alone justifiable reliance, when pleading insurance fraud under Pennsylvania statutory law,” Joyner said. “The plaintiffs claim the submissions from the defendants are not individually implausible, but rather that they are implausible ‘across the patient population,’ ‘across such a wide swath of patients,’ and ‘across time and across patients.”

It is this pattern of similarity, Joyner said, which led them to suspect the individual claims were fraudulent.

“Plaintiffs allege the individual records appeared to be legitimate and individualized, and that defendants took steps to evade detection, making it difficult to recognize the fraud,” Joyner said. “Whether State Farm’s reliance on the submissions by the defendants was reasonable or justified is a question of fact; this is precisely the kind of inquiry that is best decided by a jury and would be improper for a court to dismiss at this stage. Accordingly, we deny the motion to dismiss on this ground.”

Finally, Joyner addressed the issue of the statute of limitations in this case, which for fraud would be a time span of two years and for unjust enrichment, would be a time period of four years.

“State Farm does not dispute that some of the allegedly fraudulent records were submitted outside of the statute of limitations period. Instead, they argue that the amended complaint does not demonstrate, as a matter of law, whether the discovery rule applies, and therefore it also does not demonstrate when the statute of limitations period began to run. We agree with State Farm,” Joyner stated.

Joyner indicated the plaintiffs claimed they were not aware of the fraud until evaluating many of the defendants’ claims, which revealed the improbable similarities common to them.

“Nothing in the amended complaint indicates plaintiffs had knowledge during the relevant time period. Dismissal on this ground would therefore be improper. Accordingly, we deny defendants’ motion to dismiss on this ground,” Joyner said.

The plaintiffs are represented by Matthew A. Moroney and Richard Michael Castagna of Goldberg Miller & Rubin in Philadelphia, plus Eric T. Gortner of Katten Muchin Rosenman, in Chicago.

The defendants are represented by Andrew Patrick Baratta of Baratta Russell & Baratta, in Huntingdon Valley.

U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-05929

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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