GEICO v. Tri County Neurology
17-2113
| 3rd Cir. | Jan 10, 2018Background
- Tri-County Neurology Rehabilitation (provider) submitted ~$2.21M in PIP claims to GEICO; GEICO alleged the claims were fraudulent or improperly coded.
- GEICO sued in federal court for a declaratory judgment that it was not obligated to pay the pending PIP claims and also pleaded other statutory and common-law claims (some later dismissed/repleaded).
- The District Court initially abstained under Burford, finding New Jersey’s statutory PIP arbitration scheme was the appropriate forum, but later reversed and reinstated GEICO’s declaratory judgment claim on reconsideration.
- On interlocutory appeal, the Third Circuit reviewed whether Burford abstention applied and whether the declaratory judgment claim was legally cognizable given New Jersey’s PIP arbitration statute.
- The Third Circuit held Burford abstention did not apply because GEICO challenged defendants’ allegedly fraudulent conduct under the regulatory scheme, not the validity of the scheme itself.
- The court nevertheless concluded the declaratory judgment claim must be dismissed for failure to state a claim because New Jersey law requires arbitration of disputes over PIP claims, including fraud allegations, and federal courts cannot declaratorily withhold those claims from the arbitration process.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Burford abstention required federal court to decline jurisdiction | Burford abstention appropriate because adjudication would undermine state PIP regime | Burford inapplicable; GEICO challenges defendants’ conduct, not the statute | Burford does not apply; GEICO challenges conduct under the scheme, not the scheme itself |
| Whether GEICO may obtain declaratory relief in federal court to withhold payment of disputed PIP claims | GEICO may seek a declaratory judgment that it owes no payment due to alleged fraud | Disputes over PIP payments (including fraud) must be resolved via statutorily mandated arbitration | Declaratory relief is not available; claim must be dismissed because arbitration statute covers these disputes |
| Scope of New Jersey PIP arbitration | GEICO: this controversy is an exception permitting court resolution (citing Lopez) | Tri-County: statute grants broad arbitration authority, including legal/factual questions and fraud defenses | Arbitration statute is broad; arbitrators may decide factual and legal issues including fraud; Lopez is limited to extraordinary circumstances |
| Proper procedural disposition | GEICO: claim should proceed in federal court | Tri-County: claim should be dismissed or compelled to arbitration | Court reversed District Court and remanded with instruction to dismiss GEICO’s declaratory judgment claim |
Key Cases Cited
- Burford v. Sun Oil Co., 319 U.S. 315 (federal abstention where state regulatory scheme merits deference)
- New Orleans Public Serv., Inc. v. Council of New Orleans, 491 U.S. 350 (framework for Burford abstention analysis)
- Riley v. Simmons, 45 F.3d 764 (two-step Burford analysis applied in Third Circuit)
- Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399 (Burford applies only to challenges to the regulatory scheme itself)
- State Farm Ins. Co. v. Sabato, 767 A.2d 485 (N.J. appellate decision broadly construing PIP arbitration; arbitrators can decide fraud/disqualification)
- State Farm Mut. Auto. Ins. Co. v. Molino, 674 A.2d 189 (N.J. authority supporting arbitrators’ ability to decide legal and factual PIP disputes)