312 F.R.D. 278
E.D.N.Y2015Background
- Fidelis (plaintiff), a New York managed-care PHSP, sued Academy entities and individuals alleging they submitted false billing claiming Academy was the direct supplier of durable medical equipment when third-party providers actually supplied the items; Fidelis seeks RICO treble damages (~$9M), common-law fraud, unjust enrichment, and declaratory relief.
- Academy (defendants) contend it operated as an Independent Practice Association (IPA) billing on behalf of a network of third-party suppliers, that Fidelis knew or was on notice of this arrangement, and that the dispute is fundamentally contractual.
- The parties executed a long-running provider relationship (1995/1998 agreements) and a November 1, 2014 "2014 Fidelis Agreement" referencing a sole proprietorship named "Academy O & P Associates"; Academy later formed/used "Academy IPA."
- Fidelis terminated the 2014 Agreement in 2015 for alleged material breach (use of uncredentialed providers / acting as an IPA), alleging concealment of IPA status and omission of third-party NPIs from claims.
- Academy counterclaimed and third‑partied against Fidelis, Healthfirst, and an executive, asserting breach of contract and torts and arguing termination was pretextual and retaliatory (related to whistleblowing/investigations).
- The sole basis for federal jurisdiction was Fidelis's RICO claims (18 U.S.C. § 1962(c) & (d)); the court held those RICO claims insufficient and dismissed the case for lack of subject‑matter jurisdiction, declining supplemental jurisdiction over state claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Fidelis pleaded a substantive RICO violation based on wire fraud | Fidelis alleges a scheme: Academy used a "front" (Academy O & P) to conceal IPA activity and submitted thousands of fraudulent wire communications to obtain payments | Academy says this is a contract dispute; billing identified service facilities; no scheme, scienter, or concealment shown | Dismissed — RICO not pleaded; allegations reduce to contract interpretation, not wire‑fraud predicate acts |
| Whether Fidelis alleged an association‑in‑fact enterprise | Fidelis treats Academy O & P and Academy IPA as an enterprise used to submit fraudulent claims | Academy contends there was only one Academy entity and the sole‑proprietorship reference was a misnomer; no separate enterprise alleged | Dismissed — enterprise allegation inadequate and controverted by documentary record |
| Whether Fidelis pleaded predicate acts and a pattern (continuity) of racketeering | Fidelis points to >50,000 billing entries over ~3 years as repeating wire fraud predicate acts showing closed‑ and open‑ended continuity | Academy argues plaintiff fails to plead scheme, scienter, variety of victims/participants, or continuity; mere repeated transmissions insufficient | Dismissed — plaintiff failed to plead requisite predicate acts and continuity; transmissions alone insufficient |
| Whether Rule 9(b) particularity and scienter requirements were satisfied | Fidelis produced a claims chart and contends omissions (NPI concealment) and incentives to third parties show intent | Academy points to documents showing service facility disclosure on claims and prior communications; scienter not supported by facts | Dismissed — 9(b) and scienter not met; documentary record undermines concealment claim |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- H.J., Inc. v. N.W. Bell Tel. Co., 492 U.S. 229 (1989) (closed‑ and open‑ended continuity for RICO pattern)
- Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008) (distinguishing statutory mail/wire fraud from common‑law fraud; reliance not an element of predicate offense)
- Neder v. United States, 527 U.S. 1 (1999) (materiality is an element of mail/wire fraud)
- Moss v. Morgan Stanley Inc., 719 F.2d 5 (2d Cir.) (RICO claim elements and private right of action)
- Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229 (2d Cir. 1999) (continuity and pattern analysis in civil RICO)
- Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473 (2d Cir. 2014) (careful scrutiny of mail/wire based RICO claims; predicate acts regularity)
- DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104 (2d Cir. 2010) (materials a court may consider on Rule 12(b)(6))