Independent Health Association, Inc. v. DiMarcoIndependent Health Association, Inc. v. DiMarco
Appearances:
David L. Fuchs, Esq. for Defendant David B. DiMarco, M.D.
MEMORANDUM OPINION
David B. DiMarco, M.D. (“Defendant” or “Debtor“) was found liable for fraudulent billing practices by an arbitration panel of the American Health Lawyers Association (“Panel“) by an Order issued on April 1, 2023 and a Final Award issued on August 2, 2023 against David B. DiMarco, M.D., David B. DiMarco, M.D., P.C., and DiMarco Vein Center1 which was confirmed by the Supreme Court of New York
JURISDICTION
The Court has jurisdiction over this matter pursuant to
PROCEDURAL HISTORY
An initial pretrial conference on the Complaint and Answer (Doc. 23) was held on May 29, 2025 where Plaintiffs explained their position that the Final Award was dispositive and controlled the outcome of the issue of nondischargeability in the Complaint. As a result, the Court issued an Order requiring a motion for summary judgment to be filed, and on July 15, 2025, Plaintiffs filed the Motion of Independent Health Association, Inc., Individual Practice Association of Western New York, Inc., Independent Health Corporation, and Independent Health Benefits Corporation for Summary Judgment with Concise Statement of Facts (“Motion“) (Doc. 29) and an accompanying Brief in Support of Motion of Independent Health Association, Inc., Individual Practice Association of Western New York, Inc., Independent Health Corporation, and Independent Health Benefits Corporation for Summary Judgment (Doc. 31) (“Plaintiffs’ Brief“). On August 5, 2025 Defendant filed a Response to Motion for Summary Judgment (“Response“) (Doc. 32) and accompanying Brief in Opposition to Motion for Summary Judgment (Doc. 33) (“Defendant‘s Brief“). Oral argument on the Motion was held on August 22, 2025.
SUMMARY JUDGMENT STANDARD
Plaintiff‘s Motion is governed by
FACTS
Plaintiffs and Defendant previously entered into a total of three “Participating Physician Agreements” which include the “Individual Practice Association of Western New York, Inc. Participating Physician Agreement” dated June 3, 2008, the “Independent Health Corporation Network Physician Agreement” dated March 30, 2005, and the “Independent Health Benefits Corporation Participating Physician Agreement” dated July 11, 2005 (“Agreements“). Pursuant to these Agreements, Defendant submitted claims to Plaintiffs for reimbursement, which Plaintiffs paid. Plaintiffs conducted an internal audit of claims paid to Defendant for the period of March 1, 2016 through February 28, 2018. Based on the results of the audit, Plaintiffs concluded that they collectively overpaid Defendant by $1,725,073.79, and therefore, Plaintiffs initially demanded repayment of the overpaid amounts on October 16, 2018. When Defendant refused to repay, Plaintiffs, pursuant to the various dispute resolution provisions contained in the Agreements, initiated an arbitration proceeding before the American Health Law Association on November 17, 2021 at Case No. 6804 bringing forth claims of breach of contract and common-law fraud against Respondents David B. DiMarco, M.D., David B. DiMarco M.D., P.C., and DiMarco Vein Center.
Defendant originally participated in the arbitration until on or about October 20225 when the Defendant states he ran out of funs to defend the suit.6 On December 16, 2022, Plaintiffs filed a Motion for Summary Judgment with a Supporting Affirmation of Susan Roney, Esq. and Affidavits of Dr. Sean Roddy and Jennifer Fanning. The Arbitration Panel never received a response to Plaintiffs Motion for Summary Judgment, despite reaching out to the Respondents via email and sua sponte extending the response deadline from January 13, 2023 to January 20, 2023. Pls.’ Ex. E, “Order on Motion for Reconsideration and Scheduling Order # 6,” p. 2, American Health Law Association,
Arbitration Panel‘s Final Award7
On August 2, 2023, the Panel issued its Final Award which comprised of a twenty-six-page opinion detailing the Panel‘s findings of liability of the Respondents for breach of contract and fraud. See Pls.’ Ex. G. According to the Final Award, on November 17, 2021, the Statement of Claim was filed by Claimants against Respondents. On March 18, 2022, David DiMarco and DiMarco Vein Center filed an Answer, Affirmative Defenses, and Counterclaims. Each of the Claimants had different dispute resolution clauses in their agreements, so the parties met and conferred and ultimately agreed that the terms of the IPAWNY Agreement along with the Rules of Procedure for Commercial Arbitration would control the proceedings and that New York law would govern the dispute.
On April 27, 2022, Claimants were granted leave to file an Amended Statement of Claim to add David B. DiMarco, M.D., P.C. as a party. On May 13, 2022, in response to the Amended Statement of Claim, Respondents filed a second Answer, Affirmative Defenses and Counterclaims. The Panel noted that Respondents failed to participate after this, and on October 3, 2022, an Order was entered in response to Claimants’ Motion for Sanctions for Respondents’ failure to make all required deposits for the costs of the proceeding, awarding $15,500 to Claimants plus interest for paying Respondents’ share of the costs.
After no response was received by Respondents to Claimants’ December 16, 2022 Motion for Summary Judgment, the Panel requested an allocation of damages to be submitted by Claimants to determine the amount of damages to be apportioned to each Claimant. On February 16, 2023, Claimants filed a Certification of Jennifer R. Fanning to support Claimants’ allocation of damages. No response was received by Respondents by the February 27, 2023 deadline. The Panel conferred and granted summary judgment in favor of IHBC and IHC for breach of contract and in favor of IHA for fraud. After an email sent by Claimants’ counsel pointing out that the Panel‘s reasoning on granting summary judgment on the fraud claim to IHA also applies to IHC and IHBC, the Panel treated the email as a Motion for Reconsideration and informed Respondents they had until March 24, 2023 to respond. When nothing was received, on March 29, 2023, the Panel Chair sent another email to counsel stating Respondents have until the close of business that day to submit a response and gave an additional deadline of March 31, 2023 for Claimants to submit their application for pre-Award and post-Award interest and that Respondents would have ten days thereafter to respond. No response to the Motion to Reconsider was submitted by Respondents. In the April 1, 2023 Order, the Panel clarified that the fraud claims should have also been granted in favor of IHC and IHBC. The Panel went on to state, “Like IHA, the evidence submitted by IHC and IHBC demonstrate that IHC and IHBC also have proven the essential elements of fraud, specifically intentional false statement(s),
The Panel stated that the evidence they considered suggested that some of the services Dr. DiMarco claimed to have performed in his bills, including x-rays, Doppler studies, and ultrasounds, were not performed, and, therefore, Dr. DiMarco‘s submission of bills under CPT code 37241 was improper. After noticing a spike in the use of this code in 2017, Claimants conducted an audit of all payments made under this code. During the audit, Respondents provided medical records under this code but failed to produce any of the underlying sonograms, x-rays, or films. Respondents[sic]8 engaged Dr. Sean Roddy, an independent vascular surgeon to review the medical records. Dr. Roddy found that Dr. DiMarco‘s procedure notes were too generic to identify the services actually performed and could not be “accurately attributed” to the claims or to CPT code 37241. The use of CPT code 37241 resulted in higher payments to Respondents from IHBC and IHC as opposed to what should have been paid if the proper code had been used. The Panel found this to be a breach of the agreements with IHBC and IHC since Respondents represented services to be performed other than those that were actually performed.
The Panel found the Roddy Affidavit provided ample evidence to conclude that Respondents intentionally made false statements to IHA. Specifically, the Panel relied on Dr. Roddy‘s conclusions that “(i) a healthcare provider‘s use of a CPT code is a representation that the code is correct; (ii) that Respondent‘s medical records were ‘cloned’ and showed ‘intentionally generic and vague’ services; and that (iii) Respondents’ rampant and long term use of the wrong CPT code resulted in them ‘systematically misrepresent[ing]’ the actual services provided. [Roddy Affidavit ¶ 13].” Pls. Ex. G, p. 18.
The Panel took an in-depth and considered review of all the evidence provided and deduced that the failure to produce any substantiating medical records either meant that the purported studies were not performed, or they were performed but they did not support the clinical interventions performed by Dr. DiMarco. Pls. Ex. G., p. 20. The Panel concluded “In either event, Respondents’ actions were outrageous and fraudulent” since some of the medical records were “inconsistent to the point of absurdity.” Id. at 21.
The Panel found summary judgment to be appropriate on the count of fraud in favor of all Claimants since all of the Claimants relied on the fraudulent records in making the payments to Respondents. Id. The Panel found that Dr. DiMarco “personally committed the fraud” since “[o]rganizational entities such as DVC and PC only act through their principals, in this instance, Dr. DiMarco.” Id. The Panel further noted that “Dr. DiMarco signed all of the reports of initial consultation and medical necessity, all of the reports of the preoperative studies such as x-rays, Dopplers and ultrasounds (which studies may or may not have been done) and the operative notes for the procedures which were billed by Respondents to Claimants (which operative procedures may or may not have been performed or medically necessary or indicated).” Id. Since Claimants would not
Supreme Court of New York Judgment
On December 8, 2023, the Supreme Court of the State of New York County of Erie entered an Order Confirming Final Arbitration Award and Order for Judgment at Index No. 811492/2023 (“Confirmed Judgment“). See Pls.’ Ex. H (Doc. 29-2). The New York Supreme Court confirmed the August 2, 2023 Final Arbitration Award in its entirety and entered a judgment jointly and severally against each Respondent as of December 7, 2023 in the amount of:
- $1,652,487.24 plus per diem interest of $278.50 awarded to IHBC;
- $629,727.69 plus per diem interest of $106.13 awarded to IHC;
- $165,194.00 plus per diem interest of $40.73 awarded to IHA;
- $20,000 (on account of the second deposit) plus interest in the statutory amount of 9% per annum awarded to IHBC, IHC, IHA, and IPAWNY.
On January 16, 2024, Plaintiffs each timely filed proofs of claim seeking the full amount of the Confirmed Judgment. See Claim Nos. 2, 3, 4, and 5.
PLAINTIFFS’ MOTION
Plaintiffs argue in their Motion that both the theories of collateral estoppel and res judicata10 bar relitigation of the Panel‘s findings that Defendant is liable for fraud. Plaintiffs argue the Final Award and subsequent Confirmed Judgment are entitled to preclusive effect since the Final Award was actually litigated, essential to the final judgment, and the Defendant had a full and fair opportunity to litigate. Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1133 (5th Cir. 1991). Plaintiffs point to the holding of the Panel in the Final Award that the Debtor personally committed fraud and that Plaintiffs had “proven the essential elements of fraud, specifically intentional false statement(s), reliance, and damage,” and argue that the Panel‘s findings satisfy the elements of
Plaintiffs argue the elements of collateral estoppel are satisfied since the Defendant initially participated in the arbitration proceeding until he defaulted on fee payments. Plaintiffs point to the facts that Defendant had full discovery rights in the proceeding and the Panel‘s ruling was a result of cross-motions for summary judgment.11
Plaintiffs also argue that the doctrine of res judicata bars relitigation of the claims since they have been decided on the merits in a final judgment before a court of competent jurisdiction. Plaintiffs argue that
Finally, Plaintiffs’ position is that the Panel‘s holding in the Final Award satisfies the elements of
Plaintiffs argue that the findings of the Panel in the Final Award also meet the standards for nondischargeability under
In addition to seeking summary judgment on Plaintiffs’ claims of nondischargeability, Plaintiffs also seek summary judgment on their claim that the Debtor‘s exemption should be denied under
DEFENDANT‘S RESPONSE
The Defendant argues in his Response and Defendant‘s Brief that he could not meaningfully participate in the arbitration and defend himself against the allegations because he could not afford to pay his attorney. He argues because of his lack of participation, the doctrines of res judicata and collateral estoppel do not bar relitigation of Plaintiffs nondischargeability claims since in his opinion, the claims were not actually litigated. The Defendant maintains that the billing codes used by him and his affiliates were proper, and all billed medical services were performed. The Defendant cites to a string of cases in this District that held a default judgment was not entitled to a preclusive effect in the context of a nondischargeability cause of action. See In re Bertolotti, 470 B.R. 356 (Bankr. W.D. Pa. 2011); In re Masdea, 307 B.R. 466 (Bankr. W.D. Pa. 2004); In re Parker, 250 B.R. 512 (M.D. Pa. 2000). The Defendant argues that based on these cases, the Court cannot give a default judgment a preclusive effect for purposes of a nondischargeability proceeding.
Finally, the Defendant argues that summary judgment as to the Defendant‘s exemptions is improper based on Plaintiffs’ bare assertion without identification of the specific assets alleged to have been transferred. The Defendant argues that the property is properly exempted under the state law tenancy by entireties exemption.
ANALYSIS
The Court will begin its analysis with a question not answered by either side‘s pleadings, that is, which state law applies to the determination of whether the claims herein are barred by the doctrine of collateral estoppel. Although Defendant cites to Pennsylvania case law in support of the notion that default judgments are not “actually litigated” and do not meet the standard for collateral estoppel, for the reasons explained below, New York law should govern on the issue of collateral estoppel.
The governing law on collateral estoppel/res judicata is the law of the jurisdiction where the judgment was entered, which in this case was New York. See In re Bertolotti 470 B.R. 356 (Bankr. W.D. Pa. 2012). In Bertolotti, the court stated that “the Full Faith and Credit Act,
Res Judicata
As to whether the doctrine of res judicata bars relitigation of the issues, this Court finds it does not. Res judicata, also known as claim preclusion dictates, under New York law, that “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy.” Hazan, 2018 WL 4718976 * 5 (quoting Specialized Realty Servs. LLC v. Maikisch, 123 A.D.3d 801, 802 (N.Y. App. Div. 2d Dep‘t 2014)). Plaintiffs’ res judicata argument is misplaced in this instance since the claims of nondischargeability under
Collateral Estoppel
New York courts apply collateral estoppel to issues that were raised in a prior proceeding, actually litigated, and where the determination of the issue was necessary to the outcome. In re Huber, 171 B.R. 740, 748 (Bankr. W.D.N.Y. 1994)(citing Spilman v. Harley, 656 F.2d 224 (3d Cir. 1981)). In the context of a dischargeability complaint, the Second Circuit has held that a judgment in a first action has a collateral estoppel effect as to issues that were “actually litigated and determined.” Matter of Allen, 3 B.R. 355, 357 (2d Cir. 1980) (quoting 46 Am.Jur.2d Judgments § 418 (1969)). Any issues that were actually decided and necessary to the rendering of the judgment are precluded from being relitigated in bankruptcy court. Id. at 359.
In In re Pulver, the court stated that “Although the issue of nondischargeability of a debt is exclusively a matter of federal bankruptcy law, the law is nevertheless clear that the Bankruptcy Court must give collateral estoppel effect to those elements of a non-bankruptcy claim that are identical to the elements required for discharge
Further, the court reiterated that the issue does not have to be fully and completely litigated but there must have been a full and fair opportunity to litigate the issue. Id. (emphasis added). Pulver involved a state court judgment pursuant to a divorce action resulting from the debtor improperly drawing from a home equity line of credit. Id. The state court made findings that the debtor knowingly made false representations with the intent to deceive the plaintiff by assuring her that no withdrawals of the home equity line of credit would take place without her consent, she knowingly relied on the false representations in opening the line of credit, and she suffered a proximate loss of $37,000 as a result of the Debtor‘s actions. Id. at 133. The bankruptcy court held that the debtor, who was plaintiff‘s ex-husband, had a “full and fair opportunity at the State Court trial to be heard on the issues of liability and damages and that the Home Equity Judgment is nondischargeable under Section 523(a)(2)(A) because of the Debtor‘s actions resulted in his obtaining property from Gattalaro [plaintiff/debtor‘s ex-wife] as a result of actual fraud.” Id.
New York courts have found that default judgments can have a collateral estoppel effect if the parties to the action were afforded a fair opportunity to litigate the issue. Evans v. Ottimo, 469 F.3d 278 (2d Cir. 2006). In Evans, the court stated “Under New York law, collateral estoppel bars relitigation of an issue when (1) the identical issue necessarily was decided in the prior action and is decisive of the present action, and (2) the party to be precluded from relitigating the issue had a full and fair opportunity to litigate the issue in the prior action.” Id. at 281 (citing Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455-56 (1985); Khandhar v. Elfenbein, 943 F.2d 244, 277 (2d Cir. 1991)). In Evans, the Ottimos did not dispute they were properly served in state court and afforded the opportunity to contest Evans’ allegations of fraud but failed to answer the complaint, participate in the inquest (a New York state assessment of damages hearing), or appeal the judgment. Id. at 282. In New York, when a party defaults by failing to file an answer, the defaulting litigant may not further contest liability issues. Id. (citing Kelleran, 825 F.2d at 694).
The court in Evans opined that the more difficult question was whether the issue of fraud set forth in
Plaintiffs cite to Universal for the argument that the findings and conclusions of an arbitration panel have the same preclusive effect as a state court award when the elements of collateral estoppel are satisfied. 946 F.2d at 1131. In Universal the court found that an arbitration decision had a preclusive effect on a “vouched in” party who did not personally submit a defense, but instead was the indemnified party to the arbitrated defendant, Universal. Id. at 1142. “In an arbitrable case not involving federal statutory or constitutional rights, courts should use a case-by-case approach to determining the collateral estoppel effects of arbitral findings.” Id. at 1136.
In another case cited by Plaintiffs, In re Zangara, 217 B.R. 26 (Bankr. E.D.N.Y. 1998), Zangara was a stockbroker who performed unauthorized trades on a client‘s account. An arbitration panel issued a memorandum that did not contain specific findings but contained the statutory basis for the award. 217 B.R. at * 29. The memorandum did contain findings that the client‘s testimony that the trades were unauthorized was credible and Zangara‘s testimony that the trades were authorized was not credible. Id. The panel relied on section 27.01 of Texas‘s Business and Commerce Code finding that issuing the award constitutes a finding that Zangara made a false representation to the client with respect to the unauthorized trades which amounted to fraud. Id. at 30. The bankruptcy court looked to whether Texas courts would give the arbitration award a preclusive effect with respect to the determination of fraud. Id. at 31. The Court found that Texas would give preclusive effect to the award, citing to Universal which stated that the decision to give arbitral findings a preclusive effect is in the broad discretion of the district court and the risk of prejudice is at an acceptable level when the arbitrators reduced their findings to a detailed written memorandum. Id. at 32. The court held that the issues of fraud were the same, the issue was fully litigated, and the determination of fraud was necessary for the award. Id. at 33-35. The court held that the decision was not binding as to a finding of “willful and malicious” injury under
Furthermore, in the case at bar, since the findings of the arbitration panel were confirmed by the New York state court, the findings are entitled to the same treatment as a state court judgment. See Boyard, 538 B.R. 645, 651 (Bankr. E.D.N.Y. 2015) (“The findings in the Award are therefore entitled to the same treatment as any other judgment of the Florida Circuit Court, since confirmation of an arbitration award is ‘a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.‘“) (quoting Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776 F.3d 126, 132 (2d Cir.2015) (citing D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 (2d Cir.2006)); In re Drexel Burnham Lambert Grp., Inc., 161 B.R. 902, 907 (S.D.N.Y.1993); In re Clayton, 168 B.R. 700, 705 (Bankr.N.D.Cal.1994) (Once an arbitration award is confirmed, the judgment is as final as any other judgment of the issuing court, and future courts applying the award‘s findings must treat the award as if it had been rendered directly by the court that confirmed it.)).
In Boyard, the court held that an arbitration award that found the Debtor liable for fraud and embezzlement in accepting contribution to a partnership interest for an invention that the Debtor never followed through with barred the Debtor from relitigating the issue, and the debt was nondischargeable under
Based on the record before this Court, it is clear that Mr. DiMarco had a full and fair opportunity to litigate the claims in the Final Award and Confirmed Judgment.17 The Defendant initially participated in the arbitration filing two sets of Answers, Affirmative Defenses, and Counterclaims, and providing some discovery until he decided to stop paying his lawyer,18 and even still, he had notice of the proceedings every step of the way. The Final Award makes it clear that at every juncture where a response deadline was set, the Panel emailed the Defendant to elicit his participation.19 This Court finds that the Defendant had the opportunity to participate and assert a defense and for purposes of collateral estoppel, the Final Award is entitled to the same weight as a state court judgment since it was confirmed by the Supreme Court of New York in the Confirmed Judgment. Now that the Court has determined that the Defendant had a full and fair opportunity to litigate the Final Award, the Court will consider each of the counts in the Complaint and determine whether the issues contained in each claim were actually litigated and necessary to the outcome of the Final Award.
Count I - § 523(a)(2)(A)
Pursuant to
Count II - § 523(a)(4)
Pursuant to
Count III - § 523(a)(6)
Under
Counts IV, V, and VI - Plaintiff‘s Request to Disallow Debtor‘s Claimed Exemptions
As to whether the Court should grant summary judgment in favor of disallowing the Debtor‘s stated exemptions under
(g) Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if--
(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and
(B) the debtor did not conceal such property; or
(2) the debtor could have avoided such transfer under subsection (f)(1)(B) of this section.
Plaintiff has not identified with specificity the alleged transfers and the identity of the recipient of the transfers, nor has the Plaintiff produced evidence that the transfers were fraudulent. Plaintiffs have also not yet produced evidence that the assets that the Debtor has claimed as exempt were funded by the overpayments the Debtor received from the Plaintiffs. Therefore, there is insufficient evidence before
CONCLUSION
The Court will grant summary judgment in favor of the Plaintiffs as to Counts I and III of the Complaint, and the amounts as stated in the Confirmed Judgment (excluding the $20,000 awarded to Claimants for the portion of arbitration fees that they paid on behalf of the Respondents)23 are excepted from discharge under
Dated: 9/19/2025
BY THE COURT:
SIGNED
9/19/25 3:21 pm
CLERK
U.S. BANKRUPTCY
COURT - WDPA
John C. Melaragno, Judge
United States Bankruptcy Court