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Court of Appeal:
‘First-to-File’ Rule Not Complete Bar to Second Fraud Suit
Justice Moore Says State Farm May Sue Under Insurance Fraud Protection Act Where Defendants Are Already Being Sued by Allstate to the Extent Claims Cover Different Patients or Different Types of Services
By a MetNews Staff Writer
The “first-to-file rule” that bars a private attorney general action against an alleged insurance fraudster who is already facing such a lawsuit does not preclude a second plaintiff from suing that same defendant for fraudulent billings that are not covered by the original action, Div. Four of the Fourth District Court of Appeal declared yesterday in a case of first impression.
Justice Eileen Moore authored the opinion which reverses a judgment of dismissal of State Farm’s action under the Insurance Fraud Protection Act (“IFPA”) against Newport Beach pain specialist Dr. Sonny Rubin and Sonny Rubin M.D., Inc., which handles billings, and Newport Institute of Minimally Invasive Surgery, owned and controlled by Rubin. The dismissal followed Orange Superior Court Judge William D. Caster’s sustaining of a demurrer without leave to amend.
State Farm can’t maintain an action against Rubin and his outfits, Caster ruled, because Allstate is already suing him in a qui tam action (under which a private party, as a “relator,” sues on behalf of the state, receiving a portion of any penalties that are assessed).
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SONNY RUBIN Medical doctor |
Limit to Preclusion
But, Moore said, Allstate is only suing for allegedly false billings to itself, while State Farm is seeking penalties for Rubin’s purported efforts to cheat all insurers that have been targets of his asserted scheme.
“[E]ven if the two complaints allege the same fraud,” she wrote, “State Farm is only precluded from pursuing IFPA penalties for the false claims that defendants billed to Allstate.”
The jurist also pointed out that while both insurers were suing over billings for epidural steroid injections, only State Farm’s complaint alleges false billings for magnetic resonance imaging—“MRI”s.
“For the portion of State Farm’s action based on MRI charges billed independently from epidural spinal injections, State Farm may pursue penalties for any false claims that defendants submitted to any insurer, including Allstate,” Moore declared.
Allstate’s Interpretation
Addressing a point raised by Allstate in an amicus curiae brief, in which it narrowly interpreted Insurance Code §1871.7, the portion of the IFPA authorizing the qui tam actions, Moore said:
“Nothing in the statute suggests an insurer-relator can only pursue penalties for the false claims involving its own insureds. Indeed, a relator can bring a qui tarn action under the IFPA even if it has not suffered an injury….As such, it stands to reason an insurer can bring a broad IFPA action covering all the false claims a defendant has billed to any insurer. Besides, limiting insurers to IFPA actions involving their own insureds would subvert the IFPA’s goal of fighting insurance fraud. Such a rule would arbitrarily limit the scope of IFPA actions, likely reducing the total amount of penalties recovered against a defendant.”
That doesn’t mean, she added, that suing for harms to all insurers is mandated, noting that such could deter actions from being filed based on the potential breadth and daunting expense.
Piecemeal Litigation
Looking at the practicalities, Moore provided this discussion:
“We recognize this analytical framework risks creating piecemeal IFPA litigation, in which multiple suits are pending against the same defendant for the same fraud based on different victim pools. This risk is mitigated by several factors. First, the financial incentive of a large bounty will encourage relators to bring broad IFPA actions. Second, the IFPA’s public disclosure rule precludes parasitic IFPA actions….Third, if necessary, the State can intervene, take over separate lawsuits, and consolidate or coordinate them….Similarly, if an initial IFPA action seeks penalties based on an overly narrow group of insurer-victims, the government may intervene to enlarge the scope of the action. Finally, in the event multiple lawsuits are pending involving the same fraud but different victims, we trust our trial courts can coordinate proceedings and transfer cases as necessary to avoid or reduce any inefficiencies.”
(The “public disclosure rule” in §1871.7 says: “No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” Moore said in a footnote: “This opinion is not intended to have any affect on the public disclosure rule.”
The case is People ex rel. State Farm Mutual Automobile Ins. Co. v. Rubin, G059509.
Earlier Case
Moore authored an earlier opinion involving Rubin and the companies he controls, filed last June 28 and certified for publication July 12. The opinion attracted wide attention within the medical and insurance communities.
There, Div. Three affirmed Caster’s denial of an anti-SLAPP motion. Allstate alleged in its complaint that the defendants “engaged in a conspiracy, scheme, or plan to prepare and present false, fraudulent, and/or misleading narrative reports, operative reports, and billing statements...in support of, or in connection with” claims against it and other insurance companies.
The defendants argued in their special motion to strike under Code of Civil Procedure §425.16 that the conduct complained of is protected conduct under the right-to-petition (which includes litigation), explaining that their patients are “currently seeking a personal injury claim and [are] therefore represented by an attorney for the purposes of litigation” and that the preparation of bills and reports therefore constitutes “prelitigation activities.”
Moore set forth:
“Rubin has failed to provide evidence establishing the written medical reports or billing statements for its lien patients were made ‘in anticipation of litigation contemplated in good faith and under serious consideration.’…Rubin’s preparation of medical reports and bills in support of insurance claims against Allstate were apparently his routine and usual course of business, which may or may not have resulted in litigation….That is, unless negotiations with Allstate failed, or Allstate denied a demand for payment, litigation was simply a possibility, and that ‘possibility’ of litigation does not rise to protected prelitigation activity under the anti-SLAPP statute.”
Gilbert’s Decision
Another significant decision involving allegations of fraudulent billing against a pain management clinic was handed down last Dec. 21 by Div. Six of this district’s Court of Appeal. Pain Management Specialist Medical Group and other defendants contended that an arbitration clause in a contract with Aetna Health Management, LLC was applicable in an action the insurer brought under IFPA.
Presiding Justice Arthur Gilbert wrote:
“Here we decide the qui tam action is not subject to arbitration because it is brought on behalf of the state which is not a party to the contract between the insurance company and the surgical center.”
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