GOVERNMENT EMPLOYEES INSURANCE COMPANY, GEICO INDEMNITY COMPANY, GEICO GENERAL INSURANCE COMPANY, GEICO CASUALTY COMPANY v. IGOR MAYZENBERG, MINGMEN ACUPUNCTURE, P.C., SANLI ACUPUNCTURE, P.C., LAOGONG ACUPUNCTURE, P.C.
Docket No. 22-2537
United States Court of Appeals For the Second Circuit
November 12, 2024
August Term, 2023
(Argued: February 15, 2024 Decided: November 12, 2024)
Plaintiffs-Appellees,
-v.-
IGOR MAYZENBERG, MINGMEN ACUPUNCTURE, P.C., SANLI ACUPUNCTURE, P.C., LAOGONG ACUPUNCTURE, P.C.,
Defendants-Appellants,
TAMILLA DOVMAN, AKA TAMILLA KHANUKAYEV, IGOR DOVMAN, JOHN DOE
Defendants.*
* The Clerk of Court is respectfully directed to amend the caption as set forth above. When Defendants-Appellants originally filed this appeal, their case was consolidated with an appeal filed by Defendants Igor Dovman and Tamilla Dovman. Since then, the Dovmans have settled with Plaintiffs-Appellees and voluntarily dismissed their appeals under
Before: LIVINGSTON, Chief Judge, LYNCH, AND ROBINSON, Circuit Judges.
This appeal raises an important, but unsettled, question of state law concerning New York‘s “no-fault” auto insurance system. Plaintiffs-Appellees—four insurance entities commonly known as GEICO—presented evidence that the Defendants-Appellants—whom we collectively call the “Mayzenberg Defendants“—paid third parties for referring patients who were eligible for medical benefits under their no-fault insurance coverage to Defendant Mingmen, P.C. Under
GEICO says yes. GEICO characterizes the patient referrals as an illegal “kickback” scheme, arguing that when a provider breaches its ethical duties, it necessarily violates the underlying terms of its licensure. In turn, under the Eligibility Regulation, the provider would not be entitled to receive no-fault payments.
The Mayzenberg Defendants disagree. They argue that paying for patient referrals may constitute professional misconduct, thereby subjecting the provider to licensure-related consequences, but does not constitute violation of a “licensing requirement” under the Eligibility Regulation. The Mayzenberg Defendants suggest that a “licensing requirement” refers to registration paperwork filed with the state to secure or maintain a license.
The United States District Court for the Eastern District of New York (Glasser, J.), agreed with GEICO. On cross motions for summary judgment, it awarded GEICO declaratory judgment on the question. The district court also granted GEICO summary judgment on its common law claim of fraud and statutory claims under the Racketeer Influenced and Corrupt Organizations Act,
Because we cannot confidently predict how the New York Court of Appeals would interpret the Eligibility Regulation in this context, we hereby CERTIFY a question to that Court.
BARRY I. LEVY (Michael A. Sirignano, Henry M. Mascia, Steven T. Henesey, on the brief), Rivkin Radler LLP, Uniondale, NY for Plaintiffs-Appellees.
MATTHEW J. CONROY, Schwartz, Conroy & Hack, PC, Garden City, NY, for Defendants-Appellants.
ROBINSON, Circuit Judge:
The first question presented by the parties’ cross-motions for summary judgment is whether the summary judgment record viewed in the light most favorable to the Mayzenberg Defendants establishes as a matter of law that the Mayzenberg Defendants paid third parties for patient referrals to Mingmen. If so, the second question—the unsettled question of New York law—is whether those facts render Mingmen ineligible to receive no-fault medical benefits from GEICO.
Under
GEICO says yes. According to GEICO, complying with the state‘s standards of professional conduct is necessary to maintaining a license. Thus, if a provider pays “kickbacks” for patient referrals in breach of its ethical duties, Appellee‘s Br. at 26, the provider necessarily violates the underlying
The Mayzenberg Defendants disagree. They suggest that when the Eligibility Regulation talks about a “licensing requirement,” it refers to registration paperwork filed with the state to obtain or maintain a license. They also argue that GEICO‘s reading would allow insurance companies to engage in all sorts of delay tactics to avoid paying no-fault claims.
The United States District Court for the Eastern District of New York (Glasser, J.), agreed with GEICO as to both the facts and the law. It granted GEICO‘s motion for summary judgment and entered a declaratory judgment absolving GEICO of any obligation to pay Mingmen‘s pending claims. See Government Employees Insurance Company v. Mayzenberg, 2022 WL 5173745, at *13 (E.D.N.Y. Aug. 24, 2022) (declaring that “Mingmen is ineligible for reimbursement on its pending no-fault claims . . . .“). The district court also granted GEICO summary judgment on its common law claim of fraud and its statutory claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO“),
The Mayzenberg Defendants appealed, challenging the district court‘s rulings on the declaratory judgment and fraud claims. They argue that GEICO failed to demonstrate that any kickbacks for referrals actually occurred here. They also contend that even if they had paid referral fees, or “kickbacks” for patient referrals, that would not be a basis to deny payment for Mingmen‘s medical services or to recoup payments already made.
We conclude that the undisputed facts, taken in the light most favorable to the Mayzenberg Defendants, establish that they paid referral fees to third parties. What‘s less clear is whether that ethical violation renders Mingmen ineligible to receive payments for no-fault benefits.
To date, the New York Court of Appeals has not decided whether engaging in a patient-referral scheme constitutes a failure to satisfy a “licensing requirement” under the Eligibility Regulation. A handful of decisions from New York‘s intermediate appellate and trial courts considering related “licensing requirements” have reached inconsistent outcomes. Because we cannot confidently predict how the New York Court of Appeals would rule on this issue, which underlies the various counts within the judgment that the Mayzenberg Defendants challenge on appeal, and because this question is a frequently recurring one that potentially requires assessment of public policy considerations in a highly regulated industry, we hereby CERTIFY a question to the New York Court of Appeals.
BACKGROUND
Below, we begin with an overview of New York‘s no-fault insurance system before considering the relevant facts and procedural history of this lawsuit.
I. New York‘s No-Fault Insurance System
Under New York‘s Comprehensive Motor Vehicle Insurance Reparations Act and its implementing regulations, auto insurance companies must provide “no-fault benefits” to policyholders. See
New York enacted these measures to displace most of the state‘s common law tort regime for injuries arising from automobile accidents. See Matter of Medical Society of State of N.Y. v. Serio, 100 N.Y.2d 854, 860 (2003). In so doing, the legislature hoped that the no-fault system would ensure prompt compensation for individuals injured in motor vehicle accidents without regard to fault, reduce litigation burdens on the courts, and lead to premium savings for New York motorists. Id.; see also Montgomery, 38 N.Y.2d at 50–51 (explaining that, under the common law system, litigation “was excessively and needlessly expensive and inefficient,” that one quarter of injured persons “received no compensation whatsoever,” and for those who received compensation, “minor injuries were often overcompensated“).
Under the Act‘s implementing regulations, insureds can assign their no-fault benefits to healthcare providers, who, in turn, can bill the insurance company directly and receive payment.
For example, if an insurer wants to verify a claim, it must send specific forms to the provider within 10 business days of receiving an application for no-fault benefits.
Once the insurer receives adequate evidence of proof of loss, it must pay benefits within 30 calendar days.
Critical to this appeal is the Eligibility Regulation, which an insurer can invoke as a ground to investigate a claim further and to deny payment.2 The Eligibility Regulation says:
A provider of health care services is not eligible for reimbursement under [N.Y. Ins. Law § 5102(a)(1)—the no-fault statute] if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York . . . .
II. Factual Background
At the time of the parties’ cross-motions for summary judgment, Mayzenberg was a naturalized U.S. citizen living in Brooklyn, New York. He was licensed to practice acupuncture, and he is the sole owner of Mingmen, Laogong, and Sanli—three acupuncture professional services corporations (“PCs“) formed under New York law. Of these three PCs, only Mingmen treated patients between January 2012 to February 2019, the relevant time period for this lawsuit. Laogong and Sanli, on the other hand, have not treated a patient since 2012 and 2011, respectively.
From January 2012 to February 2019, Mingmen treated more than 1,300 individuals injured in motor vehicle accidents who were eligible for no-fault benefits. It filed nearly $4.9 million in no-fault claims with GEICO, of which nearly $3.2 million remained outstanding as of February 2019.
Although Mingmen was the only PC actively treating patients during this time period, Mayzenberg‘s two other PCs—Laogong and Sanli—made payments to others via check. Of these check recipients, the most prominent in the record and the most discussed in the briefing are a group of entities owned and controlled by Igor Dovman and his spouse, Tamilla Dovman. The record shows that the Dovmans served as the president or owner of at least twenty-three companies (the “Dovman Companies“) that received payments from Laogong and Sanli. Igor and Tamilla Dovman were also the signatories for the Dovman Companies’ bank accounts.
Between September 2015 and August 2017, Laogong and Sanli paid the Dovman Companies nearly $390,000, often in installments exceeding $10,000. Even though Laogong and Sanli paid the Dovman Companies large sums of money, the Dovman Companies never sent Laogong, Sanli, or Mingmen an invoice that described what these payments were for. Instead, an unidentified person would call Mayzenberg every month and tell him how much to remit. When Mayzenberg wrote the checks, he sometimes left the “pay to the order” section blank and let an unknown person fill in that line. He also left the “memo” or “for” lines blank for all the
Mayzenberg claims that he paid the Dovman Companies through Laogong and Sanli to do legitimate advertising work for Mingmen. Notwithstanding this explanation, Mayzenberg could not identify any advertising activities undertaken by the Dovman companies. Mayzenberg did not have copies of any flyers, nor could he name a newspaper in which a supposed advertisement ran for Mingmen. He also did not know whether the Dovman Companies had any phone number and could not name a person associated with a Dovman Company. Additionally, none of the Dovman Companies paid any identifiable employees, legitimate vendors, government agencies, or tax collectors. They did not own or lease any office space, and they did not maintain a website or social media presence advertising their services. And, for at least three Dovman Companies, the certificate of incorporation used someone else‘s name as an incorporator, when, in fact, the named incorporators never authorized the use of their identity for such purposes.
In addition, a few Dovman Companies bore names suggesting they did not engage in any advertising work at all, such as “ML Garbage Removal, Inc.,” “MN Surgical Supplies, Inc.,” and “Rig Testing and Supply, Inc.” When pressed about the incongruity of paying a garbage removal company for marketing, Mayzenberg responded, “I don‘t care what the name of the company is. . . . If garbage removal company can find people, people in garbage there, and sends them to the clinic, I don‘t care how garbage company is called.” App‘x at 175.
And when asked why Laogong and Sanli paid the Dovman Companies, as opposed to Mingmen (the purported beneficiary of the advertising work), Mayzenberg said that was easier for him. Because Mingmen treats the patients, it was “an overload of a company” that required him to issue many checks for many expenses. App‘x at 136. In his view, because all three PCs belonged to him, it didn‘t matter where the money came from.
During discovery, when GEICO sought information from Igor Dovman, he repeatedly invoked his Fifth Amendment privilege against self-incrimination. For example, in response to interrogatories that asked him to identify the nature of his relationship with the Mayzenberg Defendants and to describe the business activities of each Dovman Company, Igor Dovman invoked the Fifth Amendment. He did the same during his deposition, in which he was asked whether he had ever received payment from the Mayzenberg Defendants in exchange for patient referrals. In fact, Igor Dovman declined to answer any of the questions about any of his companies, including whether he was the president of them.
In addition to paying the Dovman Companies, Mayzenberg‘s inactive PCs also paid four others—a personal injury attorney named Daniel Corley, a salon owner named Desiree Reid, and two entities named Nina Brouk Advertisement and Dona Catalina Marketing. On twelve occasions, Sanli issued checks to Corley, which were deposited into his attorney operating account. Corley‘s account also issued 197 checks—a total of $1.4 million—to companies owned by Igor Dovman. Curiously, the checks issued from Corley‘s attorney operating account bore Igor Dovman‘s handwriting. When GEICO asked Corley
The record evidence regarding the checks to Desiree Reid, Nina Brouk Advertisement, and Dona Catalina Marketing is less robust, and the details are not particularly relevant to our decision to certify.3
III. District Court Proceedings
In 2017, GEICO filed its original complaint against the Mayzenberg Defendants, which was later superseded by an amended complaint. Of the eight claims asserted in the amended complaint, only four are before us: GEICO‘s claim for declaratory judgment, its New York common law claim of fraud, and its two statutory RICO claims—a civil RICO conspiracy and a substantive RICO violation.
GEICO‘s claim for declaratory judgment sought a declaration that Mingmen could not receive payment for its pending no-fault claims.
The declaratory judgment claim is premised on the factual assertion that Mingmen improperly paid fees for patient referrals, and the legal assertion that under the Eligibility Regulation, this conduct renders Mingmen ineligible to receive no-fault benefits as the assignee of its insured patients. As to its claim of fraud, GEICO alleges in relevant part that Mayzenberg and Mingmen falsely represented that Mingmen could receive no-fault payments, when, in fact, it was not entitled to such reimbursement by virtue of its participation in a patient referral scheme.4 As for its RICO claims, GEICO alleged that Mayzenberg repeatedly committed mail fraud, in violation of
After discovery closed, GEICO and the Mayzenberg Defendants filed cross motions for summary judgment. The district court ruled in GEICO‘s favor, awarding it summary judgment on all claims except unjust enrichment. See Mayzenberg, 2022 WL 5173745, at *13–14. The district court first concluded that there was no genuine dispute that the Mayzenberg Defendants paid the Dovmans and others for improper patient referrals. Id. at *5. In the district court‘s view, Mayzenberg‘s “bare assertion[]” that he paid the Dovman Companies for legitimate advertising work did not create a triable issue of fact. Id.
Because it concluded that the patient referral scheme violated a licensing requirement, the district court held that under
These initial rulings formed the basis for the district court‘s subsequent ones. Because Mingmen was ineligible for no-fault payments, the district court granted summary judgment on GEICO‘s claim of common law fraud. See id. at *8–9. It explained that when Mingmen submitted its claims to GEICO, it knowingly omitted a material fact—that Mingmen got its patients through an unethical patient referral arrangement. Id. The district court then found that, as a matter of law, the evidence conclusively showed Mingmen intended for GEICO to rely on that omission to its detriment. Id. at *8. Because a reasonable factfinder could not find for the Mayzenberg Defendants, the district court granted summary judgment on GEICO‘s claim of fraud. Id. at *9.
So too with GEICO‘s RICO claims. See id. at *12–13. In the district court‘s view, there was no genuine dispute that Mayzenberg engaged in a pattern of racketeering when he repeatedly mailed fraudulent no-fault claims to GEICO, in violation of the federal mail fraud statute. Id. at *11-12. It also found that Mayzenberg, Laogong, and Sanli conspired to further this racketeering enterprise when they funneled money to the Dovman Companies. Id. at *13.
Lastly, because New York law does not permit recovery on an unjust enrichment claim that is duplicative of a conventional tort claim, the district court dismissed the unjust enrichment claim as moot. Id. at *13 (citing Scifo v. Taibi, 198 A.D.3d 704, 706 (2d Dep‘t 2021)). Given its rulings in GEICO‘s favor, the district court denied the Mayzenberg Defendants’ cross-motion for summary judgment, id. at *14, and this timely appeal followed.
DISCUSSION
The Mayzenberg Defendants make two main arguments on appeal: (1) there is a genuine issue of material fact as to whether the Mayzenberg Defendants paid fees for patient referrals, and (2) paying for patient referrals, in violation of
With respect to the first argument—the factual one—we agree with the district court that based on the summary judgment evidence, a rational factfinder would be compelled to conclude that the Mayzenberg Defendants paid fees to third parties for patient referrals. The second question—the legal one—is a close one. For the reasons set forth below, we certify the question to the New York Court of Appeals.
I. The Factual Question
“We review without deference the district court‘s grant of summary judgment when, as here, the parties filed cross-motions for summary judgment and the district court granted one motion but denied the other.” Loomis v. ACE American Insurance Company, 91 F.4th 565, 572 (2d Cir. 2024). “Summary judgment is proper when there are no genuine disputes of material fact and the movant is entitled to judgment as a matter of law.” Id. And where a movant has shown the existence of a material fact and the nonmovant wishes to challenge it, the nonmovant bears the burden of production to point to “significant probative evidence” (that is, more than “a scintilla of evidence“) from which a reasonable factfinder could find for the
Here, there is no genuine dispute about the fact that the Mayzenberg Defendants paid the Dovmans for patient referrals to Mingmen. The parties don‘t dispute the following: For almost two years, Mayzenberg‘s clinically inactive PCs paid the Dovman Companies nearly $390,000. Although Mayzenberg insists that these payments were for general advertising and marketing work, Mayzenberg had no invoices or flyers to support this factual assertion. Nor could Mayzenberg point to a single individual from the Dovman Companies with whom he had contact about the supposed advertising work. Plus, not only is the summary judgment record bereft of any named employee who did advertising work, the record undisputedly shows the Dovman Companies paid no employees. Nor did they pay any vendors, government agencies, or tax collectors. The Dovman Companies did not own or lease any office space, and they did not maintain any website or social media presence to show that any entity did advertising work.
Moreover, Mayzenberg essentially admitted that he paid the Dovman companies to send him patients. When asked about a check written to a Dovman company named “ML Garbage Removal, Inc.,” he said, “I don‘t care what the name of the company is. . . . If garbage removal company can find people, people in garbage there, and sends them to the clinic, I don‘t care how garbage company is called.” App‘x at 175. This admission, coupled with his inability to furnish sufficient evidence to contradict GEICO‘s evidence, entitles GEICO to judgment as a matter of law on the factual issue in this case—whether Mayzenberg paid the Dovmans for patient referrals.
Although the Mayzenberg Defendants dispute these facts, they have not met their burden of production to create a triable issue over them. See McKinney v. City of Middletown, 49 F.4th 730, 738 (2d Cir. 2022) (“[T]he nonmoving party must come forward with evidence that would be sufficient to support a jury verdict in its favor.“). Mayzenberg‘s bare assertion that the Dovman Companies did advertising work, unsupported by any detail or evidence, and contradicted by the undisputed evidence about the nature of the Dovman Companies as well as his own admission, is insufficient to create a disputed issue of fact.
Because the Mayzenberg Defendants have failed to point to more than “a scintilla” of evidence sufficient to create a triable issue of fact, Anderson, 477 U.S. at 252, and no rational factfinder could find for the Mayzenberg Defendants on this issue, the district court did not err in assessing the facts for purposes of its summary judgment ruling.
II. The Legal Question
The legal question is tougher—that is, whether paying for patient referrals, in violation of
A. The Statutes and Regulations at Issue
Recall that the Eligibility Regulation says a provider cannot receive no-fault reimbursements if it “fails to meet any applicable New York State or local licensing requirement necessary to perform [the services it‘s licensed for] in New York.”
B. New York Caselaw
To date, the New York Court of Appeals has issued two decisions addressing the scope of the Eligibility Regulation: State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313, 320–21 (2005) (”Mallela II“) and Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 33 N.Y.3d 389, 404 (2019). These decisions explain that PCs owned and controlled by people outside of the PCs’ practice area have failed to meet a necessary “licensing requirement” under the Eligibility Regulation. Mallela II, 4 N.Y.3d at 319–22; Carothers, 33 N.Y.3d at 393–94, 397, 403–07. See also
1. Mallela I and II
In Mallela I, an insurer sued several individuals and PCs in federal court, alleging that nonphysicians fraudulently incorporated the PCs by paying doctors to use their names in the PCs’ registration paperwork, even though the nonphysicians actually owned and operated the companies. 372 F.3d at 503–04. The insurer argued that the PCs’ fraudulent incorporation disqualified them from receiving reimbursement under the Eligibility Regulation. Id. at 504. The district court dismissed the insurer‘s operative pleading, id. at 502, and on appeal, we certified to the New York Court of Appeals the following question: “Is a medical corporation that was fraudulently incorporated . . . entitled to
The New York Court of Appeals said no. Mallela II, 4 N.Y.3d at 320. Citing the Eligibility Regulation, the Court of Appeals concluded that if the insurer‘s allegations were true, the defendant PCs “undisputedly fail[ed] to meet the applicable state licensing requirements, which prohibit nonphysicians from owning or controlling medical service corporations.” Id. at 320–21. It rejected the argument that PCs were entitled to payment because the patients received necessary medical care from licensed providers operating within the scope of their licenses, explaining that the reimbursement would still go to a medical service corporation that exists solely “because of its willfully and materially false filings with state regulators.” Id. at 321. In response to the argument that its interpretation of the Eligibility Regulation would undermine the prompt payment goals of the no-fault system, the Court of Appeals deferred to the expertise of the Superintendent of Insurance in adopting a reasonable regulation. Id. It held that “on the strength of [the Eligibility Regulation], carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law.” Id.
Responding to the argument that its interpretation would invite insurers to abuse the verification process authorized by statute, the Court of Appeals explained that by regulation, carriers may delay the payment of claims to pursue investigations solely for “good cause,” and in the licensing context, carriers would “be unable to show ‘good cause’ unless they can demonstrate behavior tantamount to fraud.” Id. at 322. It continued: “Technical violations will not do. For example, a failure to hold an annual meeting, pay corporate filing fees or submit otherwise acceptable paperwork on time will not rise to the level of fraud.” Id.
What‘s not clear from Mallela II is whether its holding reaches only fraudulent conduct connected with the formation and initial licensure or relicensure of a PC, or whether it reaches any conduct that can lead to revocation of an otherwise valid license.
2. Carothers
Likewise, Carothers, the only other decision from the Court of Appeals on the Eligibility Regulation‘s reach, does not resolve the issue. Carothers was primarily concerned with how a trial court handled a request for a specific jury instruction. 33 N.Y.3d at 400. Like Mallela II, Carothers involved PCs that were nominally owned by a physician but actually controlled by nonphysicians. Id. at 397. During the trial, the PCs requested a jury instruction that would explain the traditional elements of common law fraud. Id. at 399. Emphasizing Mallela II‘s language about conduct that is “tantamount to fraud,” the PCs argued an insurer could only deny payment under the Eligibility Regulation if the PCs’ conduct satisfied the elements of common law fraud. Id. The trial court declined to issue the requested instruction. Id. Instead, it told the jury that it could find the PCs were fraudulently incorporated if it found the nonphysicians were either the actual owners of, or exercised substantial control over, the PCs. Id.
The Court of Appeals affirmed the trial court‘s ruling. Id. at 405–06. It noted that the confusion over the phrase “tantamount to fraud” likely stemmed from the fact that we, the Second Circuit, used the term “fraudulently incorporated” when we certified our question in Mallela I. Id. at 405. Carothers acknowledged that Mallela II‘s discussion of the word “fraud” was “misleading,” and it clarified that insurers, PCs, and courts should not read too much into Mallela I‘s use of the word. Id. Rather, the focus should center on whether a corporate practice showed a “willful and material failure to abide by licensing and incorporation statutes,” which may or may not satisfy the traditional elements of fraud. Id. And where a PC fails to abide by such licensing and incorporation statutes, Carothers reiterated Mallela II‘s guidance that insurers can only withhold payment where such violations are “grave” ones rather than merely “technical” ones. Id. at 406.
Though Carothers reaffirmed that the Eligibility Regulation only authorizes non-payment for sufficiently severe violations, it tells us no more than Mallela II about whether the Eligibility Regulation can reach beyond “licensing and incorporation statutes” to professional misconduct that could implicate a provider‘s licensure.
3. Decisions from New York‘s Intermediate and Trial Courts
The handful of cases from New York‘s intermediate and trial courts that touch more directly on the question before us yield conflicting answers. In H & H Chiropractic Servs., P.C. v. Metropolitan Prop. & Cas. Ins. Co., a trial court in Queens County essentially rejected an argument similar to the one GEICO presses here. See 47 Misc.3d 1075 (N.Y. Civ. Ct. 2015). There, an insurer denied payment because a PC engaged in “impermissible fee splitting,” which violated two statutes,
The trial court said no. It first noted that the lawsuit presented a case of first impression. Id. at 1077. To the best of its knowledge, all cases involving the “successful[]” use of the Eligibility Regulation involved fraudulent incorporation and never impermissible fee splitting alone. Id. at 1078. H & H observed that
H & H concluded that “impermissible fee-splitting, standing alone, is not a violation of a licensing requirement, does not constitute an available defense to a no-fault action and, as such, any action is solely within the purview of the appropriate state licensing board.” Id. at 1079. Both the First Department and a trial court in Bronx County have adopted H & H‘s approach. See Matter of Allstate Prop. & Cas. Ins. Co. v. New Way Massage Therapy P.C., 134 A.D.3d 495, 495 (1st Dep‘t 2015); Harvey Family Chiro PT & Acup, PLLC v. Ameriprise Ins. Co., 68 Misc.3d 556, 560 (N.Y. Civ. Ct. Bronx Cty. 2020). In New Way Massage, the First Department issued a brief, two-paragraph decision that cited H & H and held that impermissible fee splitting alone “does not constitute a defense to a no-fault action.” 134 A.D.3d at 495. It explained that consequences flowing from impermissible fee splitting was “solely a matter for the appropriate state licensing board.” Id. In Harvey, a trial court in Bronx County summarily said impermissible fee splitting, alone, did not violate a licensing requirement under the Eligibility Regulation. 68 Misc.3d at 560.
But a trial court in New York County went the other way on this issue. See HKP Physical Therapy, P.C. v. Government Empls. Ins. Co., 67 Misc.3d 282 (N.Y. Civ. Ct. N.Y. Cty. 2019). There, an insurer alleged a doctor wrote medically unnecessary prescriptions, and a colluding pharmacy filled them. Id. at 284–85, 290–91. The insurer believed the pharmacy not only dispensed unnecessary medications, but it also conspired with the doctor to engage in an improper patient referral scheme. Id. at 285, 299–300. It therefore requested documents so it could verify or dispel its suspicions in processing the pharmacy‘s no-fault claims. Id. at 285, 290–91.
The trial court held that a pharmacy that participates in a patient referral scheme, in violation of
In light of H & H, New Wave Massage, and Harvey, there‘s a persuasive argument that the district court should not have entered declaratory judgment for GEICO—especially because New Wave Massage is a decision from the First Department
Moreover, H & H and New Wave Massage make a compelling point that under
But HKP offers worthy insights of its own. The Eligibility Regulation disqualifies a provider that “fails to meet any applicable New York State or local licensing requirement” from receiving no-fault payments.
True, extending Mallela II and Carothers beyond the incorporation and initial licensure or relicensure context could open the door to denying payment based on a large swath of conduct. For example,
GEICO, not surprisingly, aligns with the HKP approach. In addition to relying on the terms of the statute, GEICO leans on policy arguments. In GEICO‘s view, if the Eligibility Regulation‘s goal is to prevent PCs from morphing into profit-maximizing operations, then that principle should guide our analysis here. That is to say, if PCs controlled by non-physicians are ineligible for no-fault reimbursements because they prioritize personal riches over a patient‘s quality of care, the same should be true for PCs that pay others for patient referrals. Both practices lead to costly, unnecessary treatment at the expense of insured motorists who ultimately have to pay higher premiums as a result of this misconduct. GEICO also analogizes the manipulative aspects of a fraudulently incorporated PC to those of a patient referral scheme. In the same way that fraudulently incorporated PCs are puppeteered by nonphysicians, patient referral schemes are subject to an analogous form of marionetting: No payment to the referrer, no patients. No patients, no money.
The Mayzenberg Defendants take a different view that aligns with H & H. They emphasize that the prohibition against referral fees is a disciplinary regulation, not a licensing one. Moreover, the Mayzenberg Defendants contend that extending the Regulation‘s reach to the rules of professional conduct would create perverse incentives on the part of insurance companies, opening the floodgates to an “onslaught of verification requests” to see if a PC has committed any form of professional misconduct. Appellant‘s Br. at 24.
For the reasons set forth below, we conclude that the New York Court of Appeals
III. Certification
The New York Court of Appeals authorizes us to certify claim-determinative questions of New York law where there is no controlling Court of Appeals precedent.
As set forth above, the New York Court of Appeals has not considered whether compliance with
Three other considerations drive our decision to certify. First, answering the question presented would require us to decide an issue that is not only likely to be frequently litigated, but also one that comprises a vast portion of the dockets of arbitral tribunals and courts. Second, deciding the question would require us to make important policy judgments affecting a highly regulated industry—something “we are singularly unsuited to decide.” Mallela I, 372 F.3d at 508. And third, the answer to the certified question would be determinative of this appeal.
A. The Issue Is Frequently Recurring
In general, no-fault disputes are frequently litigated. In 2007, a trial court in Queens County commented on the high-volume of no-fault litigation in New York‘s courts:
In calendar year 2006 alone, the New York City Civil Court had approximately 100,000 new no-fault case filings, of which roughly 70,000 were filed in Queens County Civil Court. In Queens County Civil Court, on a typical 2007 court day, a trial judge may be assigned two to seven no-fault trials and, on the summary judgment no-fault motion calendar, 100 or so motions may appear; considering a larger time frame of the last six months of 2006 in that same court and all types of no-fault motions, a total of almost 11,000 no-fault motions were resolved on the no-fault motion calendars, with more than 3,000 cases marked disposed, primarily by and before this judge.
To provide a more recent picture, we only need to look at the instant lawsuit. Before discovery closed in this case, GEICO sought a preliminary injunction to pause numerous pending proceedings and prevent the Mayzenberg Defendants from initiating new ones. See Government Employees Insurance Co. v. Mayzenberg, 2018 WL 6031156, at *11–12 (E.D.N.Y. Nov. 16, 2018). When GEICO sought a preliminary injunction, the Mayzenberg Defendants had already opened more than 500 lawsuits and 180 arbitration proceedings against GEICO for refusing to pay outstanding claims. Id. at *2. In a lengthy decision, the district court granted GEICO‘s motion in part and stayed all pending and future arbitration proceedings, but not any pending New York state litigation. Id. at *11. The district court also enjoined the Mayzenberg Defendants from opening any new state lawsuits. Id.
Because no-fault litigation—including those implicating improper patient referral arrangements—consume a substantial portion of the dockets of arbitration tribunals and courts, we are loathe to decide this appeal without the benefit of the Court of Appeals’ guidance, as any decision will have an immense impact on arbitral fora, state courts, and the federal courts.
B. Important Policy Concerns Are Implicated
We are also mindful that our decision would require us to make policy judgments affecting a highly regulated industry. On one hand, the no-fault system was enacted to streamline litigation and claims processing. Serio, 100 N.Y.2d at 860. Expanding the Eligibility Regulation to encompass Education Law
On the other hand, fraud is a serious concern in the no-fault insurance industry. Twenty years ago, when we certified our question in Mallela I, we noted that “between 1992 and 2001, reported incidents of automobile insurance fraud, the bulk of which occurred in the no-fault area, increased by 1700 percent . . . .” Id. (citing Serio, 100 N.Y.2d at 861). This dramatic uptick in instances of fraud “added an estimated $100 per year to the insurance costs of the average New York driver.” Id. More recently, New York‘s Department of Financial Services reported that in 2023, it received 33,646 reports of suspected no-fault fraud. Adrienne A. Harris, Superintendent of New York State‘s Department of Financial Services, Investigating and Combating Health Insurance Fraud, at 2 (Mar. 15, 2024), https://www.dfs.ny.gov/system/files/documents/2024/03/2023-health-fraud-annual-report.pdf [https://perma.cc/99JE-XG6Q] (last accessed Nov. 8, 2024). By far, suspected no-fault fraud is the most common form of fraud that the Department processes. The 33,646 reports received by the Department represent 94% of all healthcare fraud reports received by the Department in 2023 and 75% of all fraud reports generally. Id. at 4-5. Given these concerns, a holding in GEICO‘s favor would further another policy goal of New York‘s no-fault system—“to provide substantial premium savings to New York motorists.” Serio, 100 N.Y.2d at 860.
As
C. The Answer to the Certified Question Bears Heavily on Remaining Issues
Lastly, the answer to our certified question will be substantially determinative of this appeal. If the district court incorrectly concluded that a violation of
Because resolution of this appeal hinges on the threshold question of whether the Eligibility Regulation applies to violations of
CONCLUSION
Given the considerable stakes at issue and the risk that we may do harm to New York law, we conclude that the New York Court of Appeals should have the opportunity to decide the important and challenging question we have been called to answer. See Loomis, 91 F.4th at 581. Pursuant to our Local Rule 27.2 and
If an insurer determines a healthcare provider has improperly paid others for patient referrals, in violation of
New York Education Law § 6530(18) and8 N.Y.C.R.R. § 29.1(b)(3) , can the insurer deny payment for no-fault benefits on the ground that the provider “fail[ed] to meet” a “necessary” State or local licensing requirement under11 N.Y.C.R.R. § 65-3.16(a)(12) ?
Consistent with our usual practice, we do not intend to limit the scope of the New York Court of Appeals’ analysis through the formulation of our question, and we invite the Court of Appeals to expand upon or alter this question as it should deem appropriate. This panel will retain its jurisdiction.
It is therefore ORDERED that the Clerk of this Court transmit to the Clerk of the Court of Appeals of the State of New York a Certificate, as set forth below, together with a complete set of briefs and appendices, and the record filed in this Court by the parties.
CERTIFICATE
The foregoing is hereby certified to the Court of Appeals of the State of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes, Rules, and Regulations Title 22, section 500.27(a), as ordered by the United States Court of Appeals for the Second Circuit.