STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, STATE FARM FIRE AND CASUALTY COMPANY, Plaintiffs-Appellees-Cross-Appellants, v. TRI-BOROUGH NY MEDICAL PRACTICE P.C., METRO PAIN SPECIALISTS P.C., LEONID SHAPIRO, M.D., REUVEN ALON, AKA ROB ALON, COLUMBUS IMAGING CENTER LLC, MEDAID RADIOLOGY LLC, YAN MOSHE, AKA YAN LEVIEV, HACKENSACK SPECIALTY ASC LLC, FKA DYNAMIC SURGERY CENTER LLC, INTEGRATED SPECIALTY ASC LLC, FKA HEALTHPLUS SURGERY CENTER LLC, Defendants-Appellants-Cross-Appellees.
Docket Nos. 22-1318-cv, 22-1362-cv, 22-1386-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Argued: January 11, 2024 Decided: October 24, 2024
August Term, 2023
KEARSE, LYNCH, and NARDINI, Circuit Judges.
Defendants-Appellants-Cross-Appellees, who are health care providers and related individuals and entities that treat automobile accident victims, appeal from an order of the United States District Court for the Eastern District of New York (Brodie, Ch. J.) granting in part a motion for a preliminary injunction made by Plaintiffs-Appellees-Cross-Appellants State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Insurance Company (collectively, “State Farm“). This appeal concerns benefits provided under New York‘s Comprehensive Motor Vehicle Insurance Reparations Act (“No-Fault Act“) to reimburse covered individuals injured in automobile accidents for necessary health expenses, without regard to fault. State Farm alleges that Defendants engaged in a scheme to fraudulently obtain No-Fault benefits and pursued baseless arbitrations and state-court proceedings to seek reimbursement of unpaid bills. The district court granted the motion for a preliminary injunction in part by enjoining Defendants from proceeding with the pending arbitrations and from initiating new arbitrations and state-court proceedings, but denied an injunction of the pending state-court proceedings. In resolving this appeal, we address four key issues: (1) our appellate jurisdiction; (2) the propriety of the preliminary injunction; (3) whether the Federal Arbitration Act,
ROBERT T. SMITH, Katten Muchin Rosenman LLP, Washington, DC (Mary C. Fleming, Ally Jordan, Katten Muchin
PETER STROILI (Kevin Joseph Windels, Matthew Lee, on the brief), Kauffman Dolowich & Voluck LLP, New York, NY, for Defendants-Appellants-Cross-Appellees Tri-Borough NY Medical Practice P.C., Metro Pain Specialists P.C., and Leonid Shapiro, M.D.
KEITH J. ROBERTS, Brach Eichler LLC, Roseland, NJ (Charles H. Horn, The Russell Friedman Law Group, LLP, Garden City, NY, on the brief), for Defendants-Appellants-Cross-Appellees Reuven Alon, AKA Rob Alon, Columbus Imaging Center LLC, Medaid Radiology LLC, Yan Moshe, AKA Yan Leviev, Hackensack Specialty ASC LLC, FKA Dynamic Surgery Center LLC, and Integrated Specialty ASC LLC.
GERARD E. LYNCH, Circuit Judge:
Plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Insurance Company (collectively, “State Farm“) provide automobile insurance coverage in New York and are required under New York‘s Comprehensive Motor Vehicle Insurance Reparations Act (“No-Fault Act“) to reimburse covered individuals injured in automobile accidents for necessary health expenses, without regard to fault. See
State Farm accordingly brought this lawsuit in the United States District Court for the Eastern District of New York, asserting claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO“),
First, as to Defendants’ appeal, we conclude that the district court did not exceed its discretion in granting a preliminary injunction and correctly determined, albeit for different reasons than our own, that the arbitration agreements here are unenforceable under the FAA. Second, as to State Farm‘s cross-appeal, we disagree with the district court‘s conclusion that the AIA bars an injunction of the pending state-court proceedings here. Accordingly, we REVERSE the district court‘s orders declining to enjoin the pending state-court proceedings, AFFIRM its orders in all other respects, and REMAND the matter for further proceedings consistent with this opinion.
BACKGROUND
I. New York‘s No-Fault Insurance Regime
New York‘s No-Fault Act requires insurers to compensate victims of automobile accidents for their injuries regardless of fault. See
The Act‘s implementing regulations allow covered individuals to assign their statutory benefits to licensed health care providers in exchange for services, and the providers in turn can submit claims directly to the insurance companies for medically necessary expenses.
In the event of a dispute regarding an insurer‘s obligation to pay No-Fault benefits, the No-Fault Act specifies that “[e]very insurer shall provide a claimant with the option of submitting any dispute involving the insurer‘s liability to pay first party benefits, or additional first party benefits, . . . to arbitration,” and such arbitrations are held “pursuant to simplified procedures.”
II. Factual Background1
A. The Parties
Plaintiffs are insurance companies that issue automobile insurance policies
Metro Pain is a medical practice that operates approximately thirty multidisciplinary clinics in the New York area serving individuals injured in automobile accidents. Metro Pain staffs those clinics with physicians and other health care providers, such as physical therapists, acupuncturists, and chiropractors, who sublease space from Metro Pain. Four of its locations operate as “gatekeeper” clinics where Metro Pain conducts initial examinations of patients and then refers them for further treatment and services, which are often performed at Metro Pain clinics by the various providers who work there.2 Metro Pain has accordingly submitted claims to State Farm for reimbursement under the No-Fault program for treatment and services provided to patients. Metro
The second group of Defendants-Appellants includes Reuven Alon (also known as Rob Alon) (“Alon“), Columbus Imaging Center LLC (“Columbus Imaging“), Medaid Radiology LLC (“Medaid Radiology“), Yan Moshe (also known as Yan Leviev) (“Moshe“), Dynamic Surgery, and HealthPlus Surgery (collectively, “MRI and ASC Defendants“). Alon is a businessman, not a physician, who allegedly owns Columbus Imaging and Medaid Radiology, which provide MRI services for Metro Pain patients, and which have submitted bills to State Farm for such services. Alon also owns the Beshert Corp.
Moshe is Alon‘s cousin and a businessman who allegedly owns several health care entities, but he is not a physician or a licensed health care professional. Moshe allegedly owns many ASCs, including Excel Surgery, Dynamic Surgery, HealthPlus Surgery, and Hudson Regional, which serve individuals injured in automobile accidents. State Farm further alleges that Moshe secretly owns and controls companies that provide MRI services including Citimedical I, PLLC (“Citimedical I“), Citimedical Services P.C., and Citimed Complete Medical Care P.C., as well as anesthesia provider Citimed Services P.A. (collectively, “Citimed Companies“), all of which are owned on paper by Moshe‘s sister, Dr. Regina Moshe (“Dr. Moshe“). Finally, Moshe owns and controls Med Capital LLC (“Med Capital“), which is a medical receivables financing company.
Beginning in November 2016 and continuing since then, Shapiro, Alon, and Moshe allegedly dеvised a scheme to profit from New York‘s No-Fault regime by submitting fraudulent claims for reimbursement to State Farm. State Farm alleges that Shapiro, Alon, and Moshe jointly orchestrated the scheme, and that the relationship among them is symbiotic such that they each play important roles to mutually benefit one another and further the scheme.
The alleged fraudulent scheme generally operates as follows: As a first step, Metro Pain and Tri-Borough Medical conduct initial examinations of patients at the gatekeeper clinics that are not intended to diagnose and treat patients’ conditions, but rather are predetermined to find various injuries requiring extensive treatment. Then, Metro Pain and Tri-Borough Medical refer patients for further unnecessary treatment to health care providers within their clinics or to Moshe‘s and Alon‘s health care centers. Alon advances the scheme by providing Shapiro‘s and Moshe‘s health care entities access to patients through Beshert, which receives compensation in return for those marketing services. Moshe profits through Metro Pain‘s and Tri-Borough Medical‘s referral of patients for unnecessary treatment at his ASCs and some of the Citimed
As a final step in the alleged scheme, Defendants routinely initiate litigation in state court and arbitration actions if State Farm denies Defendants’ claims for reimbursement. As of December 2021, Defendants had commenced over 2,450 arbitrations and approximately 480 suits in state court seeking reimbursement of No-Fault benefits from State Farm to further the alleged scheme.3 Id. at 255. State Farm contends that those arbitrations and state-court proceedings are baseless and advance the scheme in two ways. First, the proceedings help monetize the scheme as further attempts to obtain No-Fault
More specifically, State Farm alleges that the No-Fault claims are fraudulent for three key reasons: (1) predetermined treatment protocols, (2) kickbacks and “pay-to-play” financial arrangements, and (3) violations of licensing requirements.
1. Predetermined Treatment Protocols
First, State Farm alleges that Defendants provide treatment and services that are not medically necessary. As mentioned above, the Metro Pain Defendants operate several multidisciplinary clinics, at least four of which operate as gatekeeper clinics that conduct initial examinations of patients to determine additional treatment and services. State Farm alleges that the initial examinations are not legitimately performed to diagnose a patient‘s condition and genuine needs but are rather performed to justify unnecessary care through identical treatment plans. Regardless of the patient‘s actual needs, the
2. Kickbacks and “Pay-to-Play” Financial Arrangements
In addition to providing medically unnecessary treatment and services, some Defendants allegedly provide kickbacks in exchange for patient referrals and have entered into other illegal “pay-to-play” financial arrangements with each other. State Farm alleges that Defendants disguise some of those kickbacks as rent. Specifically, the Metro Pain Defendants lease spaces to oрerate its gatekeeper clinics and then sublease those spaces to physicians and other health care professionals who provide services like chiropractic, acupuncture, and physical therapy treatment after patients’ predetermined initial examinations with Metro Pain and Tri-Borough Medical. Those providers accordingly pay Metro Pain “rent” for the sublease, but State Farm alleges that the payments are intended to compensate Metro Pain for referring its patients to the providers for further treatment. For example, State Farm alleges that Metro Pain paid a monthly rent of approximately $8,500 for a particular clinic, but it received about
Aside from disguised rent payments, State Farm alleges that there are many other illegal financial arrangements among Defendants that further the scheme. Pursuant to one such arrangement, Metro Pain performs every pain management and orthopedic procedure for its patients at Moshe-owned facilities such as Dynamic Surgery, HealthPlus Surgery, SurgiCare, Citimed Surgery, and Hudson Regional, and those patients receive anesthesia from Shapiro- or Moshe-owned providers. That arrangement resulted from an alleged kickback relationship between Shapiro, Moshe, Alon, and Alon‘s marketing сompany Beshert, through which Metro Pain obtains access to patients in exchange for
3. Violation of Licensing Requirements
Finally, State Farm alleges that Defendants’ claims are fraudulent because many Defendants operate in violation of licensing requirements. For example, although on paper Dr. Moshe owns Citimedical I and Citimed Services, her brother Moshe effectively owns and controls them in violation of New York licensing laws, such that any claims submitted by those companies are ineligible for reimbursement. As another example, State Farm alleges that Metro Pain
State Farm also alleges that Shapiro was not a true and qualified medical director of Dynamic Surgery and HealthPlus Surgery, in violation of licensing requirements. Specifically, State Farm alleges that Shapiro was “in no position to perform his regulatory duties as a medical director because his own professional corporations were significantly expanding.” Id. at 102. State Farm elaborates that Moshe had a pattern and practice of hiring nominal medical directors even before Shapiro. Accordingly, State Farm alleges that any claims submitted by those ASCs when Shapiro served as the nominal medical director are ineligible for reimbursement and that the alleged violations of various licensing requirements altogether render claims submitted by some Defendants fraudulent.
III. Procedural Background
State Farm filed this lawsuit in October 2021 and amended its complaint in December 2021 (“First Amended Complaint” or “FAC“). The FAC brought
In June 2022, State Farm moved for reconsideration of the district court‘s order declining to stay the pending state-court proceedings, and the district court denied that motion in August 2022. Defendants appealed while the motion for reconsideration was pending. State Farm then cross-appealed.4
Before we can address the propriety of the preliminary injunction, we must ensure that the case is properly before this Court. Although the parties did not raise the issue of appellate jurisdiction in their briefs, we have an independent obligation to ensure that we have jurisdiction over the appeal. See Stafford v. Int’l Bus. Machs. Corp., 78 F.4th 62, 68 (2d Cir. 2023). Thus, after oral argument, this Court ordered the parties to brief the issue of this Court’s appellate jurisdiction. Having reviewed the parties’ submissions, we conсlude that this appeal is not moot and that we have jurisdiction over the district court’s orders. But before explaining the basis for our jurisdiction, we review certain aspects of the procedural history that bear directly on the question of our appellate jurisdiction.
In January 2023, while the appeal was pending in this Court, State Farm moved for leave to file a Second Amended Complaint (“SAC”) in which it added sixteen new Defendants and further details about the alleged fraud. To cover the newly-added Defendants, State Farm also moved for a temporary restraining order and to modify the scope of the previously entered preliminary injunction. Chief Judge Brodie granted the temporary restraining order in February 2023 and district court’s reconsideration decision.
Then, in September 2023, Chief Judge Brodie denied State Farm’s motion to modify the scope of the existing preliminary injunction. Referring back to her prior decision granting the temporary restraining order, Chief Judge Brodie stated that because the existing injunction already covered the newly-added Defendants, there was no need to modify the injunction. She elaborated that “each of the newly-added entities is closely associated with or controlled by one or more of the existing Defendants, while each of the newly-added individuals owns an entity alleged to have provided unnecessary treatments under the challenged scheme.” State Farm Mut. Auto. Ins. Co. v. Metro Pain Specialists P.C. (“State Farm II”), No. 21-CV-5523 (MKB), 2023 WL 7181653, at *4 (E.D.N.Y. Sept. 13, 2023). Thus, the district court declined to modify the preliminary injunction, which remains unchanged since the district court granted it in May 2022.
Generally, “[o]nce an amended pleading is interposed, the original pleading no longer performs any function in the case.” Laza v. Reish, 84 F.3d 578, 581 (2d Cir. 1996) (internal quotation marks omitted). Building upon that understanding, a growing number of unpublished decisions from this Court have concluded that the “filing of an amended complaint will generally moot a pending appeal when . . . the appeal would require the Court to analyze factual allegations contained in the superseded complaint.” Medidata Sols., Inc. v. Veeva Sys. Inc., 748 F. App’x 363, 365 (2d Cir. 2018) (summary order); see also Tripathy v. McClowski, No. 21-3094, 2022 WL 2069228, at *2 (2d Cir. June 9, 2022) (summary order) (holding that the appeal of a preliminary injunction was moot because the amended complaint filed while the appeal was pending requested new injunctive relief); Adamou v. Doyle, 674 F. App’x 50, 52 (2d Cir. 2017) (summary order) (ruling that the “appeal became moot upon the filing of the . . . amended complaint because the operative facts changed” and the Court therefore “lack[ed] jurisdiction to review an order that was based on an old universe of facts”).
As these cases suggest, the filing of an amended complaint will generally moot the appeal of a preliminary injunction, because an amended complaint will commonly “change[]” the “operative facts,” Adamou, 674 F. App’x at 52, on which the district court based the injunction. As a result, once a new set of fаcts is alleged, there is typically no point in assessing whether the now-superseded “universe of facts,” id., supported the injunction.
But that will not invariably be the case. Two of our sister courts of appeals, in determining whether such appeals are moot, have analyzed whether the revised pleadings in fact affect the substantive basis for a district court’s order. See Auto Driveaway Franchise Sys., LLC v. Auto Driveaway Richmond, LLC, 928 F.3d 670, 674–75 (7th Cir. 2019) (concluding that the appeal was not moot because the “new pleadings did no more than to add” a party and “had no effect on [the plaintiff’s] basic grievance”); see also Johnson v. 3M Co., 55 F.4th 1304, 1309 (11th Cir. 2022) (determining that the court had jurisdiction over the appeal of an immunity order because the “key point” was that the amended complaint did not change the allegations on which the immunity defense was based, “leav[ing] the status of th[e] appeal of the immunity order unaffected”).
We agree with that reasoning and conclude that whether a revised pleading renders an appeal moot turns on whether that pleading materially changes the substantive basis for the appeal. Here, the SAC borrows heavily from the FAC, with the primary difference between the two complaints being that the SAC adds sixteen Defendants and further details about the alleged fraudulent scheme. The newly-added Defendants do not meaningfully alter the substantive basis of the appeal because, as the district court found, they are either closely associated with or controlled by the existing Defendants, or provided unnecessary treatments under the scheme. Neither party disputes that finding on appeal.
The preliminary injunction thus remains in place, unmodified, and continues to constrain Defendants by preventing them from commencing new
MERITS DISCUSSION
I. Standards of Review
We review the grant or denial of a preliminary injunction for abuse of discretion. Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 24 (2d Cir. 2004). “A district court ‘abuses’ or ‘exceeds’ the discretion accorded to it when (1) its decision rests on an error of law . . . or a clearly erroneous factual finding, or (2) its decision—though not necessarily the product of a legal error or a clearly erroneous factual finding—cannot be located within the range of permissible decisions.” Zervos v. Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir. 2001)
II. Analysis
We first consider Defendants’ appeal, which challenges (1) the propriety of the preliminary injunction issued by the district court and (2) the district court’s conclusion that the arbitrations can be enjoined, notwithstanding the FAA. Then, we consider State Farm’s cross-appeal, which challenges the district court’s conclusion that the pending state-court proceedings cannot be enjoined under the AIA.
A. Preliminary Injunction
First, Defendants challenge the preliminary injunction insofar as it stays the pending arbitrations and enjoins them from commencing any new arbitrations or state-court proceedings. A preliminary injunction “‘is an extraordinary and drastic remedy, one that should not be granted unless the
Defendants argue that the district court abused its discretion in granting the preliminary injunction. We disagree.
1. Irreparable Harm
The irreparable harm requirement is “‘the single most important prerequisite for the issuance of a preliminary injunction.’” Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 118 (2d Cir. 2009), quoting Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1999). This requirement must therefore be satisfied before the other requirements for an injunction can be considered. Kamerling v. Massanari, 295 F.3d 206, 214 (2d Cir. 2002). To make this showing, the moving party “‘must demonstrate that absent a preliminary injunction [it] will suffer an injury that is neither remote nor speculative, but actual and imminent, and one that cannot be remedied if a court waits until the end of trial to resolve the harm.’” Faiveley, 559 F.3d at 118, quoting Grand River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 66 (2d Cir. 2007). Thus, irreparable harm exists “where, but for the grant of equitable relief, there is a substantial chance that upon final resolution of the action the parties cannot be returned to the positions they previously occupied.” Brenntag Int’l Chems., Inc. v. Bank of India, 175 F.3d 245, 249 (2d Cir. 1999). But “[w]here there is an adequate remedy at law, such as an award of money damages, injunctions are unavailable except in extraordinary circumstances.” Moore, 409 F.3d at 510. Therefore, the moving party must show that “there is a continuing harm which cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation.” Kamerling, 295 F.3d at 214 (internal quotation marks omitted).
We discern no error, much less an abuse of discretion, in the district court’s conclusion that State Farm satisfied the irreparable harm requirement. To begin, State Farm plausibly alleges that the arbitrations and state-court proceedings often involve single claims for a single date of service, so that these fragmented proceedings end up obscuring what State Farm contends is an elaborate and complex fraudulent scheme. Although a state court or arbitrator reviewing an individual claim may conclude that the claim involves necessary medical treatment under the No-Fault Act, State Farm sufficiently alleges that the massive fraudulent scheme here becomes apparent only when the claims are analyzed
That risk of harm is amplified by the potential preclusive effect of the state-court proceedings and arbitrations. It is settled law that state-court judgments can have a preclusive effect in federal court. See Whitfield v. City of New York, 96 F.4th 504, 522 (2d Cir. 2024) (noting that federal courts are required “to give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered” (internal quotation marks omitted)). It is likewise settled “that res judicata and collateral estoppel apply to issues resolved by arbitration where there has been a final determination on the merits, notwithstanding a lack of confirmation of the award.” Jacobson v. Fireman’s Fund Ins. Co., 111 F.3d 261, 267–68 (2d Cir. 1997)
Those harms also threaten to continue absent an injunction. To establish irreparable harm, the moving party must show “a continuing harm which cannot be adequately redressed by final relief on the merits.” Kamerling, 295 F.3d at 214 (internal quotation marks omitted and emphasis added). Without the preliminary injunction currently in place, Defendants would continue bringing new actions to recover the remaining unpaid claims for No-Fault benefits, which total around $9 million as of December 2021. State Farm contends that Defendants use those very proceedings “to monetize their fraud against the State Farm Companies,” such that they are “essentially financing their fraudulent practices with proceeds paid by” State Farm. Appellees’ Br. 37–38. Thus, we conclude that State Farm has sufficiently demonstrated a risk of irreparable harm that threatens to continue absent an injunction.
Allstate Insurance Co. v. Harvey Family Chiropractic, on which Defendants place principal reliance, is not to the contrary. 677 F. App’x 716 (2d Cir. 2017) (summary order). In that case, an insurer brought a RICO action alleging that the
Although both cases involve allegations of fraudulent claims for No-Fault benefits, Harvey is readily distinguishable from the instant action.6 To begin, the
Furthermore, we review the decision to grant or deny a preliminary injunction for abuse of discretion, not de novo. Sunward Elecs., 362 F.3d at 24. Harvey is therefore also distinguishable because the district court there denied a preliminary injunction, whereas the district court here granted an injunction, and
2. Serious Questions on the Merits
Second, State Farm must demonstrate “either a likelihood of success on the merits” or “serious questions on the merits.” North American Soccer League, 883 F.3d at 37. “The ‘serious questions’ standard permits a district court to grant a preliminary injunction in situations where it cannot determine with certainty that the moving party is more likely than not to prevail on the merits of the underlying claims, but where the costs outweigh the benefits of not granting the injunction.” Citigroup, 598 F.3d at 35. This standard is also frequently referred to as the “fair ground for litigation” standard. Able v. United States, 44 F.3d 128, 131 (2d Cir. 1995).
Before resolving whether this standard is satisfied here, we address Defendants’ contention that the district court erred in relying on unsworn and unverified allegations to determine that there were serious questions going to the
Defendants do not appear to have requested an evidentiary hearing on the preliminary injunction motion in the district court, and they have thus forfeited their right to such a hearing. Moreover, although the district court could have cultivated a fuller record by conducting an evidentiary hearing, it has greater flexibility to resolve the motion on the papers when it relies on the “serious questions” standard as opposed to the more rigorous “likelihood of success” standard. The “serious questions” standard allows courts to “assess[] the merits of a claim at the preliminary injunction stage” by affording considerable “flexibility in the face of varying factual scenarios and the greater uncertainties
We further conclude that the district court did not err in determining that State Farm demonstrated sufficiently serious questions going to the merits. In the 159-page FAC, State Farm alleges in substantial detail that Defendants have participated in an elaborate RICO scheme spanning several years. The allegations describe a web of interconnected relationships among the various Defendants, illegal financial arrangements tying many of the Defendants together, medically unnecessary treatment and services provided to patients, and unauthorized ownership or operation of medical facilities by some Defendants.
In particular, State Farm’s allegations describe the (1) history and operation of the four “gatekeepеr clinics” and the specific amounts in “rent” kickbacks that providers paid for patient referrals at each of those locations; (2) predetermined
3. Balance of Hardships
Third, we consider whether State Farm demonstrated that the balance of hardships tips decidedly in its favor. See Citigroup, 598 F.3d at 35. In determining whether State Farm has satisfied this requirement, “we must ‘balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief.‘” Yang v. Kosinski, 960 F.3d 119, 135 (2d Cir. 2020), quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). This factor is “related” to the irreparable harm requirement as “both . . . consider the harm to the parties” with the relevant harm being that which “(a) occurs to the parties’ legal interests and (b) cannot be remedied after a final
Defendants argue that in balancing the hardships, the district court failed to consider the financial impact of an injunction on them given the millions of dollars in unpaid bills and the risk of policy exhaustion resulting from the $50,000 limit on patients’ No-Fault benefits. But the district court expressly considered the economic impact on Defendants and weighed that hardship against the thousands of arbitrations and state-court proceedings State Farm faces absent an injunction. The district court noted that unlike State Farm, Defendants do not “face a similar level of uncertainty in their competing concern of policy exhaustion” and acknowledged “the impact of the COVID-19 pandemic on the healthcare industry,” but concluded that Defendants could recover any balance owed plus interest if they eventually prevail on the merits. State Farm I, 2022 WL 1606523, at *20-22. Defendants undoubtedly face some hardship as relatively small companies or individual medical providers. But State Farm raises serious and substantial allegations that demonstrate actual and imminent irreparable harm absent an injunction, whereas Defendants’ alleged hardships of economic impact can be remedied by monetary damages should they later
4. Public Interest
Fourth, we consider whether the preliminary injunction is in the public interest, which concerns the “public consequences in employing the extraordinary remedy of injunction.” Yang, 960 F.3d at 135-36 (internal quotation marks omitted). Preventing fraud, especially the kind of elaborate and complex RICO scheme alleged here, is plainly in the public interest. See Allstate Ins. Co. v. Mun, 751 F.3d 94, 100 (2d Cir. 2014) (stating that “the prevention of insurance fraud for the protection of consumers in New York” is an “important public policy interest” (internal quotation marks omitted)); Perl v. Meher, 18 N.Y.3d 208, 214 (2011) (“No-fault abuse still abounds today. In 2010, no-fault accounted for 53% of all fraud reports received by the Insurance Department.“).
New York‘s No-Fault regime is aimed at ensuring prompt compensation for victims of automobile accidents without regard for fault. Insurers are integral components of that expedited regime as they are uniquely positioned to combat
Finally, the MRI and ASC Defendants argue that the district court erred in declining to require State Farm to post a bond.7 We disagree.
Here, the MRI and ASC Defendants argue that the district court erred because other district courts have sometimes required plaintiff insurers to post bond in actions involving No-Fault benefits. But that does not mean that the district court‘s decision here involved an error of law or a clearly erroneous factual finding, or cannot otherwise be located within the range of permissible
B. Federal Arbitration Act
Having determined that the district court‘s grant of the preliminary injunction meets the standards generally applicable to such provisional relief, we turn to Defendants’ remaining contention, that the FAA prohibits injunctions barring them from instituting or proceeding with arbitrations. That is a question of law that we review de novo. See Briggs, 792 F.3d at 241. Originally enacted in 1925, the FAA aimed to “reverse the longstanding judicial hostility to arbitration
New York‘s No-Fault Act specifies that “[e]very insurer shall provide a claimant with the option of submitting any dispute involving the insurer‘s liability to pay first party benefits, or additional first party benefits, the amount thereof or any other matter which may arise pursuant to subsection (a) of this section to arbitration pursuant to simplified procedures.”
We apply “a two-part test to determine the arbitrability of claims,” considering “(1) whether the parties have enterеd into a valid agreement to arbitrate, and, if so, (2) whether the dispute at issue comes within the scope of the arbitration agreement.” In re Am. Express Fin. Advisors Sec. Litig. (”American Express“), 672 F.3d 113, 128 (2d Cir. 2011). The parties here dispute only the first part of this test, disagreeing about whether the arbitration agreement was “privately negotiated” and therefore valid and enforceable. The Supreme Court has acknowledged that “the purpose behind [the FAA‘s] passage was to ensure judicial enforcement of privately made agreements to arbitrate,” and the FAA
Here, the district court agreed with State Farm that because the arbitration provision is mandated by New York law, it is not “privately negotiated” and is therefore unenforceable under the FAA. Defendants respond that the arbitration provision is “privately negotiated” because State Farm chose to do business in New York and therefore agreed to be bound by its laws, including the No-Fault Act.
The parties’ and district court‘s focus on the “privately negotiated” requirement, however, is misguided. Because “[p]ersons are generally entitled to
That understanding of the “privately negotiated” requirement finds further support in other cases concluding that even adhesion contracts containing arbitration provisions that were offered on a take-it-or-leave-it basis are not necessarily invalid. See, e.g., Gilmer, 500 U.S. at 33 (holding that an arbitration agreement was enforceable even when an employer required arbitration because there was no indication that the employee was “coerced or defrauded into agreeing to the arbitration clause“); Ragone v. Atl. Video Manhattan Ctr., 595 F.3d 115, 122 (2d Cir. 2010) (rejecting the argument that an arbitration agreement was signed under “procedurally unconscionable” conditions because it was offered on a take-it-or-leave-it basis). We have even enforced arbitration agreements against non-signatories in certain situations. See Ross v. Am. Express Co., 478 F.3d 96, 99 (2d Cir. 2007) (noting that this Court has “recognized a number of common law principles of contract law that may allow non-signatories to enforce an arbitration agreement“). Thus, the crux of the “privately negotiated” requirement is to ensure that parties consent to arbitration and are not coerced or defrauded into agreeing to arbitrate.
There was no such coercion here. It is undisputed that State Farm and the insureds knowingly agreed to enter into insurance policies that included a provision to arbitrate certain disputes regarding No-Fault benefits. There is no allegation that the arbitration provision was extracted by fraud, coercion, duress, or in some other unconscionable way that would render the provision invalid. Moreover, State Farm chose to do business in New York, and that choice requires it to comply with New York law (including the No-Fault Act). Thus, State Farm аnd the insureds both “agreed in advance to submit such grievances to arbitration,” AT & T Techs., Inc. v. Commc‘ns Workers of Am., 475 U.S. 643, 648-49 (1986) (emphasis added), and their relationship is ”governed by an agreement to arbitrate,” Sokol, 542 F.3d at 358 (emphasis added).
State Farm would have us hold that an agreement to arbitrate is not “privately negotiated” solely because governing law mandates such arbitration. In its view, and in the view of the district court, an arbitration agreement lacks consent where applicable law requires parties to arbitrate because the provision was not “bargained for.” We decline to adopt an interpretation of the “privately negotiated” requirement that would have such sweeping consequences. Not only would such an interpretation call into question the validity of all sorts of arbitration agreements that are required by federal or state law, but those consequences may even extend to other types of contractual terms that are mandated by law. That cannot be what Congress intended in enacting the FAA. Thus, given that both State Farm and the insureds consented to policies that include arbitration provisions, we conclude that the provisions here are “privately negotiated” under the FAA.
But although we depart from the district court‘s conclusion on this specific issue, we nonetheless agree with the district court that it was permitted to enjoin the arbitrations, notwithstanding the FAA, because of the unique circumstances
The “effective vindication” exception serves as a way to “reconcile[] the . . . FAA . . . with all the rest of federal law” and “prevent arbitration clauses from choking off a plaintiff‘s ability to enforce congressionally created rights.” Italian Colors, 570 U.S. at 240 (Kagan, J., dissenting). The exception therefore furthers the purposes of the FAA, which “reflects a federal policy favoring” the enforcement of valid contracts for arbitration — “that is, arbitration as a streamlined ‘method of resolving disputes,’ not as a foolproof way of killing off valid claims.” Id. at 243-44, quoting Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 481 (1989). The exception accordingly stems from the principle that other federal statutes are on equal footing with the FAA.
Since Italian Colors, we have applied the “effective vindication” doctrine in other contexts. In Gingras v. Think Finance, Inc., for example, this Court considered arbitration agreements in which “borrowers [we]re forced to disclaim the application of federal and state law in favor of tribal law.” 922 F.3d 112, 126 (2d Cir. 2019). We noted that “the Supreme Court has made clear that arbitration agreements that waive a party‘s right to pursue federal statutory remedies are prohibited,” and the arbitration agreements were therefore unenforceable because they appeared to “foreclose [borrowers] from vindicating rights granted by federal and state law.” Id. at 127, citing Italian Colors, 570 U.S. at 235-36. Most recently, this Court applied the “effective vindication” exception in Cedeno, where we held that “courts will not enforce provisions in arbitration agreements that prevent a party from effectively vindicating their statutory rights and securing their statutory remedies.” 100 F.4th at 396. In Cedeno we considered whether an arbitration agreement was unenforceable because it “purport[ed] to limit [employee benefit plan] participants or beneficiaries to seeking relief in
Bearing in mind a healthy regard for the federal policy in favor of enforcing valid arbitration agreements, we recognize that the “effective vindication” exception applies in rare cases where an arbitration agreement “prevent[s] parties from effectively vindicating their statutory rights.” Id. at 395. We believe this is just the kind of unusual case the exception intended to address. Among other claims, State Farm brings federal statutory claims under RICO, which can be the subject of arbitration agreements generally. See Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 238 (1987). Critically, here, State Farm alleges that the thousands of arbitrations, like the state-court proceedings discussed
Although the terms of the arbitration agreement here do not expressly prohibit State Farm from bringing federal statutory claims, enforcement of the agreement would have the effect of preventing State Farm from effectively vindicating its RICO claims given the unusual circumstances in this case. See
We recognize the strong federal policy favoring parties’ ability to agree on arbitration as a mechanism for dispute resolution. See Morgan, 596 U.S. at 418. Ultimately, however, arbitration is an issue of contract, and the “effective vindication” exception intends to balance the liberal federal policy favoring the enforcement of valid arbitration agreements with the recognition that other
C. Anti-Injunction Act
Finally, we turn to State Farm‘s cross-appeal. State Farm contends that the district court erred in declining to include in the preliminary injunction a provision enjoining Defendants from proceeding with already-pending state-court litigation, on the ground that the AIA bars federal courts from enjoining such state-court proceedings. State Farm argues that various exceptions to the AIA‘s general prohibition on such injunctions apply to the unusual facts of
Almost as old as the Constitution, the AIA today provides that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”
In this case, the district court declined to enjoin the pending state-court proceedings, concluding that no exceptions to the AIA apply here. Application of the AIA is a question of law that we review de novo. See Wyly, 697 F.3d at 137. In
As mentioned, the first exception to the AIA allows federal courts to enjoin state-court proceedings when “expressly authorized by Act of Congress.”
In Mitchum, the Supreme Court held that an injunction of state-court proceedings under
Since Mitchum, the Supreme Court has addressed that issue only in Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623 (1977). In Vendo, the Court split three ways on whether Section 16 of the Clayton Act fell within the “expressly-authorized” exception. See id. Section 16 of the Clayton Act authorizes federal courts to issue injunctions against the “threatened loss or damage by a violation of the antitrust laws.”
Justice Rehnquist‘s view, however, failed to command a majority of the Court. Instead, a majority of the Court concluded that an injunction of state-court proceedings under Section 16 of the Clayton Act could fall within the scope of the “expressly-authorized” exception under “narrowly limited circumstances” that were not present in Vendo. Id. at 643–45 (Blackmun, J., concurring). Those circumstances include where the “pending state-court proceedings . . . are themselves part of a pattern of baseless, repetitive claims that are being used as an anticompetitive device, all the traditional prerequisites for equitable relief are satisfied, and the only way to give the antitrust laws their intended scope is by staying the state proceedings.” Id. at 644 (internal quotation marks omitted). In other words, Justice Blackmun, joined by Chief Justice Burger, concluded in a concurring opinion that where the state-court proceedings furthered an antitrust violation, they could be enjoined to give the antitrust laws their full scope. See id. at 644–45. Similarly, the dissent, authored by Justice Stevens and joined by Justices Brennan, White, and Marshall, agreed that “[Section] 16 of the Clayton Act . . . expressly authorizes an injunction against a state-court proceeding which
Those six Justices disagreed only on whether the facts in Vendo satisfied that standard. Justice Blackmun‘s concurrence concluded that the “expressly-authorized” exception did not apply in Vendo because there was no “pattern of baseless, repetitive claims” with “[o]nly one state-court proceeding . . . involved in th[e] case.” Id. at 644–45 (Blackmun, J., concurring) (internal quotation marks omitted). The dissenters, in contrast, would have found the injunction proper even on those facts. See id. at 661–62 (Stevens, J., dissenting). But that disagreement should not obscure the fact that a solid, six-Justice majority of the Vendo Court agreed that the “expressly-authorized” exception applied at least where pending state-court proceedings were “themselves part of a pattern of baseless, repetitive claims” that furthered a violation of a federal statute that
In pre-Mitchum cases, this Court had similarly сoncluded that the “expressly-authorized” exception applies where the state-court proceedings themselves further a violation of the federal statute at issue. For example, in Studebaker Corp. v. Gittlin, we held that Section 21(e) of the Securities Exchange Act expressly authorized an injunction of a state-court proceeding where that proceeding furthered a violation of the securities laws. See 360 F.2d 692, 697-98 (2d Cir. 1966); Vernitron Corp. v. Benjamin, 440 F.2d 105, 108 (2d Cir. 1971) (explaining that the “expressly-authorized” exception applied in Studebaker because “the prosecution of the state action there . . . would itself have furthered the violation of the Securities Exchange Act“). Although we have not subsequently specifically opined on the narrow path carved by Vendo, we now
Applying Mitchum and Vendo, we agree with State Farm that a preliminary injunction of the hundreds of pending state-court proceedings here falls within the “expressly-authorized” exception to the AIA. Under the Mitchum test, we first consider whether RICO is a “specific and uniquely federal right or remedy, enforceable in a federal court of equity.” 407 U.S. at 237. The RICO statute provides for private civil actions by “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter” and specifies
Substantively, RICO makes it unlawful, inter alia, “for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise‘s affairs through a pattern of racketeering activity or collection of unlawful debt” or to conspire to do so.
Importantly, RICO‘s legislative history demonstrates that Congress modeled civil RICO on the Clayton Act, see Horn v. Med. Marijuana, Inc., 80 F.4th 130, 135 (2d Cir. 2023) (noting the legislative history), cert. granted on other grounds, 144 S. Ct. 1454 (2024), which all the Justices in Vendo agreed was a specific and uniquely federal right or remedy, see 433 U.S. at 632 (Rehnquist, J., joined by Stewart, J., and Powell, J.); id. at 643-644 (Blackmun, J., concurring, joined by Burger, C.J.); id. at 656-57 (Stevens, J., dissenting, joined by Brennan, J., White, J., and Marshall, J.). The Supreme Court has stressed that the “close similarity of [RICO and the Clayton Act] is no accident” as the “‘clearest current’ in the legislative history of RICO ‘is the reliance on the Clayton Act model,‘”
Moreover, RICO‘s legislative history reveals that in adopting the RICO statute, Congress was animated by concerns similar to those underlying
RICO‘s legislative history thus reflects Congress‘s concern that the state courts might be ineffective against a racketeering enterprise, principally because of the possible involvement of state courts in organized crime. Although there are no allegations of state judicial corruption here, RICO‘s legislative history shows that Congress was nonetheless concerned about state courts being used to further a violation of RICO and accordingly contemplated that state-court proceedings could be enjoined to “prevent and restrain violations” of RICO.
Turning to the second part of the Mitchum test, we conclude that RICO could be given its intended scope only by a stay of the hundreds of pending
Here, State Farm contends that “Defendants are using a pattern of baseless state no-fault proceedings to monetize and perpetuate their violations of RICO” in order “to harass and injure” State Farm. Appellees’ Br. 64. State Farm
We agree with State Farm that the unusual circumstances here fall squarely within Vendo. The state-court proceedings further the alleged RICO violation in two key ways. First, the proceedings help finance the purported scheme because whenever State Farm denies claims for No-Fault benefits, Defendants typically commence allegedly baseless litigation in state court (or arbitration actions) to fraudulently obtain the benefits. Second, because the state-court proceedings often concern individual claims, the piecemeal nature of those proceedings obscures the overall complex scheme, which becomes apparent only when one zooms out to view the alleged predetermined treatment protocols and “pay-to-
We thus conclude that state litigation of the kind alleged here – involving hundreds of baseless state-court proceedings that are part of a massive fraudulent scheme – may itself further a RICO violation, which in this case consists of alleged repeated violations of the federal mail fraud statute,
Given that both parts of the Mitchum test are therefore satisfied, we conclude that enjoining the pending state-court proceedings here falls within the “expressly-authorized” exception to the AIA. We again note that our decision today is narrow and limited to the unusual circumstances alleged here, which involve a massive scheme including hundreds of purportedly meritless state-court proceedings that help further a RICO viоlation, such that RICO can only be given its intended scope if those proceedings are enjoined.15
CONCLUSION
We have considered all of the parties’ remaining arguments and conclude that they are without merit. For the foregoing reasons, we REVERSE the district