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transcript
PREPARED BY THE COURT:
ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, ALLSTATE NEW JERSEY INSURANCE COMPANY,
Plaintiff(s),
vs.
NORTHFIELD MEDICAL CENTER, P.C.; ROBBAN ARIEL SICA, M.D.; J. SCOTT NEUNER, D.C.; JSM MANAGEMENT COMPANY, INC.; DANIEL H. DAHAN, D.C.; ROBERT P. BORSODY, ESQ., PRACTICE PERFECT; MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., et al.,
Defendant(s).
FILED JAN 18 2012
$ll'llAI4 t.IWtMffl. J.S.e.
SUPERIOR COURT OF NEW JERSEY LAW DIVISION-MORRIS COUNTY Docket No. MRS-L-3228-99
Civil Action
ORDER OF JUDGMENT
THIS MATTER, having come before the Court for a bench trial on June 13,
""""' "'"··~\
,.
2011, June 14, 2011, June 15, 2011, June 16, 2011, June 17, 2011, June 20, 2011,
June 21, 2011, June 22, 2011, June 23, 2011, June 27, 2011, June 28, 2011, June
29, 2011 and June 30, 2011; and the Court having reserved decision pending
additional submissions and summations of counsel; Thomas J. Hall, Esq. of Pringle,
Quinn Anzano, P.C., appearing for plaintiffs, ALLSTATE INSURANCE CO., et al.;
Christopher B. Turcotte, Esq. appearing for defendants, DANIEL H. DAHAN, D.C.,
PRACTICE PERFECT and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC.; and
2
Lawrence S. Lustberg, Esq. of the law firm of Gibbons, P.C. appearing for
defendant, ROBERT P. BORSODY; Carl D. Poplar, Esq. appearing for defendant, J.
SCOTT NEUNER, D.C.; and the Court having heard testimony and having
considered the submissions and summations of counsel; and for good cause shown;
IT IS on this 18th day of January, 2012;
ORDERED that judgment be, and hereby is, entered in favor of plaintiffs
against defendants, DANIEL H. DAHAN, D.C., ROBERT P. BORSODY, ESQ.,
PRACTICE PERFECT and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., in
an amount to be determined in a subsequent proceeding. The Court finding said
defendants violated the Insurance Fraud Protection Act, N.J.S.A. 27:33A-1; and it is
further
ORDERED that the cross-claims of defendant, J. SCOTT NEUNER, D.C., as
to defendants, DANIEL H. DAHAN, D.C. and ROBERT P. BORSODY, ESQ., be,
and hereby are, denied.
ORDERED that a case management conference for the purpose of
determining the process to determine damages be scheduled for February 10,
2012, at 1:30 p.m.; and it is further
ORDERED that counsel submit proposals regarding the process to determine
damages on or before February 6, 2012.
The Court has served a copy of this order upon all counsel of record in this
action.
SEE STATEMENT OF REASONS ATTACHED
ALLSTATE INSURANCE COMPANY. et als. v NORTFHIELD MEDICAL CENTER. P.C. et als.
Docket No. MRS-L-3228-99
STATEMENT OF REASONS
On October 19, 1999, plaintiffs initiated litigation against a host
of parties asserting ten Counts. In June of 2011, a bench trial
commenced, the parties all having agreed to withdraw the demand for
jury. The remaining defendants included only Daniel A. Dahan, D.C.
("Dahan") and Robert P. Borsody, Esq. ("Borsody") The sole
remaining Count was Count Three. That Count asserted that by virtue
of violations of N.J.A.C. 13:35-6.14, 13:35-6.16 and 13:35-2.5(b),
defendants Dahan and Borsody had violated the Insurance Fraud
Protection Act, N.J.S.A. 27:33A-1, et seq. ("IFPA") With the consent
of the parties and the Court, the issue of damages in the event the
Court found a violation of the IFPA was not presented; that issue left
to another day.
Although this Court took responsibility of this matter in 2009
when it was already ten years old, one of the reasons for the length of
time taken related to the standard of proof required in violations of
IFPA. This matter was resolved by the New Jersey Supreme Court in
2006 in the matter of Liberty Mutual Insurance Co. v. Land, 186 N.J.
163 (2006). The Supreme Court held that the standard of proof was a
preponderance of the evidence.
2
In its most simple terms, plaintiffs allege that defendants Dahan
and Borsody promoted a concept of inter-disciplinary medical practice,
medical doctors and chiropractors, which resulted in a chiropractor
controlling the practice even though the practice employed medical
doctors. This violated various regulations of the Board of Medical
Examiners which prohibited a lesser licensed practitioner to be the
employer of a plenary licensed practitioner. Plaintiffs assert,
therefore, that when Northfield Medical Center, P.C. submitted claims
to it for services provided by medical doctors and chiropractors,
insurance fraud was committed because the organization was not
established consistent with Board of Medical Examiner regulations.
Simplistically stated, defendants assert that prior to Allstate
Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999), the law
was unclear at the time and, therefore, they cannot be found to have
committed fraud. Other various defenses, including lack of proximate
cause, were also presented.
FACTUAL BACKGROUND
The facts are straightforward and not in particular dispute.
Plaintiffs are insurance companies authorized to issue automobile
insurance policies in the State of New Jersey. Defendant Borsody is an
attorney licensed in the State of New York. Defendant Dahan is a
chiropractor licensed in the State of California. Some time in the early
3
1990's, Dahan established a multi-disciplinary medical practice in the
State of California. He owned 49% of the medical center while a
medical doctor owned 51%. Based upon his successful establishment
of the multi-disciplinary practice, he began producing educational
seminars under the name of "Practice Perfect" which promoted
establishment of similar practices. That same year, he asked Borsody
to provide the legal portion of these seminars. In addition, an
accountant spoke, as well as a billing specialist.
In or about 1995, Practice Perfect presented a seminar in New
York and Philadelphia. In attendance at one of those seminars was J.
Scott Neuner, D.C., a chiropractor licensed in the State of New Jersey
("Neuner").
Neuner was impressed with the proposed practice model
presented at the Practice Perfect seminar and purchased the model
and the services of Dahan in setting up a multi-disciplinary practice in
Southern New Jersey. In addition to the consulting services, he
purchased a book of forms from a company entitled, "Management
Legal Services." (''MLS") 1 He was given the name of MLS by Dahan.
He was advised to obtain local counsel and he did so, retaining John
Grossman, Esq. ("Grossman") as local counsel.
1 The evidence established that defendant Dahan had obtained the forms from Borsody and then simply sold them through a business his sister managed, MLS. Borsody was not informed, nor did he share any benefit from the sale of these forms. Dahan made approximately $100,000.00 on the sale of these forms alone.
4
Neuner fully implemented the proposed business model and
began submitting claims to Allstate thereafter.
The business model was, as follows. The business model led
Neuner to create two corporations. A management corporation was
formed of which he was the sole owner. The management corporation
leased space and equipment to the medical practice. The medical
corporation was owned by a medical doctor. The establishment of the
management corporation, which was owned by someone other than a
medical doctor, had been approved previously in Women's Medical
Center v. Finley, 192 N.J. Super. 44 (App. Div. 1983).
Practice Perfect, specifically Borsody, taught those attending the
seminars that chiropractors, however, could actually be in control of
the business rather than medical doctors. He testified that an earlier
experience in the State of New York led him to conclude that his
chiropractor clients needed protection from ruthless medical doctors.
In that case, the controlling medical doctors simply walked away with
the business abandoning the chiropractor. He repeatedly stated that
his purpose was to establish sufficient power in the chiropractor to
prevent him from being taken advantage of by the medical doctors.
He, therefore, promoted the following.
When the medical doctor owner of the medical corporation was
selected, that person was to execute in blank resignation, assignment
5
of stock and a statement that the stock was either lost or had never
been issued. The chiropractor would then hold these documents until
a time of his choosing. In the event that he was unsatisfied with the
performance of the medical doctor owner, he could simply execute the
documents, remove the medical doctor and replace the medical doctor
with a new one. In addition, however, contracts were executed which
required significant payments from the medical corporation to the
business corporation and substantial penalties in the event of contract
termination. The purpose of these documents was to leave the
medical corporation dry and, in effect, to permit the business
corporation to control the medical corporation by creating significant
financial obligations. Dahan, though MLS, sold the documents which
were necessary to implement the above business plan. The
"Renewals" provision of the Sublease Agreement provided that the
Sublease shall renew automatically each year unless and until JSM
Management gives notice of its intent not to renew. The Termination
of Agreement provision of the Sublease Agreement did not include a
provision that Northfield Medical could ever terminate the Sublease
without the consent of Neuner's management company. 2 The Service
Agreement was designed and intended to render Northfield Medical
profitless, and to keep it indebted at all times to the management
2 Similar finding of facts was reached in the decision of summary judgment of Judge Villanueva, April 27, 2001.
6
company, thereby making Northfield valueless to both Dr. Sica and Dr.
David. 2
The Service Agreement achieved this purpose through Section
l.C "Compensation," and Schedule A to the Service Agreement.
Amounts owed by Northfield Medical to the management company are
calculated entirely by Neuner and the employees of the management
company, who tally each new patient "file/record" and each patient
visit every month.
To prevent the plenary licensed physician from attempting to
circumvent the provisions of the Service Agreement or even dissolving
the medical corporation, the Service Agreement provides under
Section IX, "Non-Termination and Damages," that
Medical Corp. agrees not to dissolve the Medical Corp. without six months prior notification to the Management Company, or to terminate or breach this Agreement for any reason. The Medical Corp. agrees to pay liquidated damages in the amount of One Hundred Thousand Dollars ($100,000) in the event of any material breach of this agreement.
This provision discouraged the plenary licensed physician from
attempting to take control of the medical facility. 2
The lack of bona fide ownership interest of Dr. Sica and Dr.
David in Northfield Medical is also surprisingly evident from the
7
absence of a relationship between both Dr. Sica and Dr. David with
Neuner. Neuner confirmed that at no time during their purported
ownership of Northfield Medical did either Dr. Sica or Dr. David ever
meet Neuner in person or ever visit any office of Northfield Medical,
nor did the doctors ever meet or treat any patient of Northfield
Medical, or ever supervise any employee of Northfield Medical. 2
As constructed, Neuner decided the compensation of Sica and
David and hired and fired medical doctors.
Neuner retained Grossman who incorporated the two
corporations. He initially requested that Grossman also prepare all of
the contracts. Grossman indicated, however, that he would not simply
"fill in the blanks" but would require his own analysis of New Jersey
law and that it would be expensive and could well result in either new
forms or substantial modification of the Dahan forms.
Dahan recommended that Robban Sica, M.D. ("Sica), as the
medical doctor, would appear as the owner of the medical corporation.
Although licensed in New Jersey, Sica resided in Connecticut. The
testimony was clear that she never performed any services for the
corporation other than serving as its titular head for which she was
paid an annual fee. As noted in Allstate Insurance Co. v. Schick, 328
N.J. Super. 611, at 616 (Law Div. 1999), Dr. Neuner's company,
8
Northfield Medical Center, was one of approximately two dozen
medical corporations that Sica allegedly owned in New York and New
Jersey.
Grossman prepared the documents for Sica, including the blank
resignation, stock transfer and lost stock certificate. Interestingly, the
initial set of those documents was prepared in a manner that would
require notarization. Neuner then called Grossman and told him to
remove the notarization. Clearly, if they were notarized, the date of
the signature would have to appear thereby prohibiting their use as
evidence of a subsequent voluntary resignation. Grossman also
testified that he was somewhat familiar with documents such as these
signed in blank. However, he also advised he would never have
implemented them without Dr. Sica advising him that she wished to do
so. In effect, the documents he prepared for Sica then, in his mind,
were designed to simply avoid the necessity of signing once Dr. Sica
decided to resign.
Some time thereafter, Sica indicated a desire to begin
participating in the practice. At that point, the documents were
completed, her resignation effectuated and a replacement suggested
by Dahan provided. Borsody's plan of protecting the chiropractor and
placing him in control was used and was effective.
9
NEW JERSEY INSURANCE FRAUD PREVENTION ACT
The New Jersey Insurance Fraud Prevention Act (IFPA) became
effective on November 28, 1983. Its purpose was "to confront
aggressively the problem of insurance fraud in New Jersey ... " (N.J.S.A.
17:33A-2) The actions which constitute a violation of that act are set
forth in N.J.S.A. 17:33A-4. The Appellate Division, in Allstate
Insurance v. Orthopedics Evaluatons, Inc. 300 N.J. Super. 510 (App.
Div. 1997), concluded that submitting a claim form by an organization
whose structure does not comply with regulations constitutes a
violation of the IFPA. Section (b) of N.J.S.A. 17:33A-4 states that: "A
person or practitioner violates this Act if he knowingly assists,
conspires or urges any person or practitioner to violate any of the
provisions of this Act." Liberty Mutual v. Land, supra., 175-176,
established the proposition that a violation of the !SPA does not
require proof of reliance, damages or knowledge of misrepresentation
as material.
In 1992, the Board of Medical Examiners, pursuant to its
authority, established in N.J.S.A. 45:9-1, et seq. promulgated
regulations which, among other things, permitted establishing medical
practices with combined professions. N.J.A.C. 13:35-6.16 establishes
the parameters of professional practice structure. Section (b) states:
10
"The practice shall be conducted in a business form consistent with the
principles set forth in this rule ... " Section (f) established the types of
professional practice forms which would be permitted. Sections f (1)
and (2), in the Court's view, provide two alternative kinds of practice
solo or partnership or professional association. The balance of the
regulation, Section f (3) through f (5) provides various explanations
relating to the two types of professional practices. Of specific interest
in this matter is Section f (3) (i.) which states: "Thus, a practitioner
with a plenary license shall not be employed by a practitioner with a
limited scope of license, nor shall a practitioner with a limited license
be employed by a practitioner with a more limited form of limited
license. By way of example, a physician with a plenary license may be
employed by another plenary licensed physician, but an M.D. or D.O.
may not be employed by a podiatrist (D.P.M.) or chiropractor (D.C.) or
midwife or certified nurse (R.M., C.N.M) ... " A reading of Sections f (4)
and (5) make clear that the five numbered paragraphs do not provide
five alternate forms of professional practice model. Section 3 defines
the nature of the relationships which can be permitted in solo or
partnership form, while Section 4 deals with "shareholder or employee
of a general business corporation" and Section 5 discusses equity or
employment interests in a professional practice. This conclusion was
noted in Allstate Insurance Co. v. Schick, supra. Although defendants
11
argue that the law was unclear until Allstate Insurance Co. v. Schick,
the Court disagrees.
The language off (3)(i) states people, not corporations.
Defendants argue that a medical doctor may be employed by a
corporation which consists principally of those who are not medical
doctors but not the individuals themselves. This narrow interpretation
of this regulation is rejected. The purpose of this language is to assure
that a medical doctor has the independent ability to manage patient
care. Whether the employee is a person or a corporation is irrelevant.
DANIEL H. DAHAN. D.C. AND ROBERT P. BORSODY. ESQ.
Neuner clearly established the business model presented by
Borsody at the Practice Perfect seminars created and presented by
Dahan. The evidence is clear that Neuner attended the seminar,
retained Practice Perfect and purchased the forms promoted by
Practice Perfect to create an inter-disciplinary practice group in which
he, as the chiropractor, would be in control. Dahan's responsibility is
clear. For example, under the guise of Management Legal Services, he
encouraged Neuner to purchase a book of forms. The opening
document in that package is a welcome letter signed by AI
Ness,Program Coordinator. The testimony is clear that AI Ness was an
employee of Kinkos in California whose sole role in these documents
was to provide as many copies as Dahan requested at the local Kinkos
12
store. AI Ness had nothing to do with the creation or distribution of
forms. He simply made copies for which Kinkos was paid.
In that letter, Dahan represents: "In an attempt to help doctors
around the country create multi-discipline centers, we have through
extensive research prepared the most comprehensive legal package
available today in the U.S.A. Our legal team of experts has developed
a self start-up kit which will help you set up the corporate structure of
your multi-discipline M.D/D.C. center. This kit is by far the easiest and
most expedient way to open up your center."
It should be remembered that these are the forms that Borsody
created for Dahan's personal use which Dahan then sold through MLS
for a considerable profit. Borsody knew nothing of this plagiarism. Of
considerable interest is that at no place in this document does it
suggest that the laws of each state differ and one would be well
advised to retain local counsel. To the contrary, it implies that these
forms will work anywhere. Dahan conferred with Neuner and provided
the names of the "doctor owners."
The order form itself had a space to insert the state of the
proposed practice. Dahan testified that information wasn't necessary
for these forms, but applied to other legal forms MLS sold.
Dahan testified that he did orally advise Neuner and others to
retain local counsel. As discussed more fully hereafter, this hollow
13
recommendation is of little significance. Had Neuner obtained full
advice of a knowledgeable health care attorney, he would have been
told to ignore everything that Practice Perfect preached that Dahan
and Borsody urged since it clearly did not comply with the relevant
regulations.
Neuner discussed Grossman's proposed fee with Dahan and was
told that it was too much. As a result, Neuner just filled in the blanks
of the Dahan forms and implemented the plans.
Borsody urged the creation of a corporate model that appeared
to comply with appropriate state regulations as to ownership and
control, but due to various devices, undated documents, penalty
clauses and one-sided agreements created in actuality a business
entity which was not owned as it appeared by a medical doctor, but
actually by a chiropractor. His knowledge of this manipulation is
clearly established through trial. He consistently testified that his goal
was to help his client, the chiropractor, so as to prevent control by the
medical doctor. His documents created a subterfuge that was clearly
misleading.
His advice at seminars also included clearly erroneous advice.
Don't bother with malpractice insurance he advised. If the medical
corporation is sued, simply start another so that when trial comes, the
first corporation will have no assets and judgments would be
14
meaningless. Don't file Medicare or Medicaid claims with this practice
model he urged. The Federal government is more diligent than the
States in enforcing the regulations prohibiting a chiropractor to control
a medical doctor. In essence, he taught how to break the law without
being caught.
As a "national expert" on health care law, Borsody was familiar
with the matter of Flynn Bros., Inc .. et al. v. First Medical Associates,
715 SW 2"d 782 (1986). The Court stated, at 785: "The parties
admit that the whole contractual scheme was developed to do
indirectly that which they freely concede they could not do directly
under the Medical Practices Act. The design, effect and purpose of the
management agreement contravenes the Medical Practices Act and
therefore will not be enforced by the courts of this state." This stands
for the clear proposition that subterfuge in developing medical
practices is untenable. This same specific conclusion was stated in
detail in the letter of Kevin B. Earl dated November 16, 1995.
Defendants argue that a subsequent letter of Deborah W.
Levine, Deputy Attorney General, dated June 11, 1997, continued the
alleged lack of clarity. The Court disagrees. The last paragraph must
be read as a whole. The final sentence cannot be read in isolation.
The last two sentences read together are, as follows: "However, it is
important to note that the licensees must maintain professional
15
discretion of their judgment in the rendering of professional services.
There is no statutory or regulatory provision requiring that the licensee
with the greater scope of practice hold the majority of the stock in the
professional corporation." The last sentence, it is conceded, is true.
However, the sentence before it makes it clear that the professional
judgment of a medical doctor, for example, cannot be affected by a
chiropractor. Although the letter lacks the clarity and thoroughness of
the Earl letter, it does not support a position that the Practice Perfect
model is legal.
Borsdody himself testified on June 30, 2011 that he knew every
State, including New Jersey, prohibited chiropractors from employing
medical doctors.
Borsody asserted there was little guidance available in the 90's
and that what he advised was not expressly prohibited. He referred to
Women's Medical Center v. Finley, supra, as one of the cases upon
which he relied. Although he concluded it approved the use of
management companies, he seemed to overlook other language. At
50, the Appellate Division state: "In short, all medical judgments are
made by or under the control and supervision of the physicians and
the management company does not either directly or indirectly
influence medical decisions. The clear statement of policy was stated
again at 53-54, 55 and 56. The essential premise of the court's
16
decision to allow management companies to participate is that their
involvement would not affect medical decisions.
Defendants presented an expert in corporate law, Gregory Mark,
the Assistant Dean of Rutgers Law School. He testified that in the
corporate world, signing documents in blank in advance of their use
was commonplace. He conceded he had no particular knowledge of
health care law. More significantly, however, he testified, consistent
with Grossman, that there must be a triggering event which would
cause the documents to be filled in and released. The triggering event
cannot be the whim of the holder of the documents, but must be an
event agreed to by the parties in advance. Just as Grossman testified
he would not have released the documents without Sica's approval, so
did the defendants' expert confirm that it is not an acceptable general
practice to simply hold resignations in blank to be used at the whim of
the holder. It must again be stressed that the context of this matter is
within the field of health care. A considerable public interest is
presented which must be assumed as a first step in an analysis of any
law or regulation. The Practice Perfect plan, as implemented, would
place the chiropractor in control of the medical doctor which clearly
had the potential to affect health care services to patients. The person
with the lesser license and, therefore, lesser scope and knowledge of
practice, is in the driver's seat as to care and services provided by a
17
medical doctor. It is noted and conceded by plaintiffs, however, that
this potential was not realized. Plaintiffs take no issue with the
services provided to patients and no evidence of same was presented
during trial.
The Court heard the testimony of three experts; one on behalf of
the plaintiff and two on behalf of defendants.
As to the battle of the health care experts, the Court accepts the
testimony of Dr. John Reiss. The essential difference between the two
experts is that Dr. Reiss read the rules and regulations as one entity
and reached the conclusion that the Practice Perfect model violated
state regulations. Further, he testified that the law was not
ambiguous during the relevant period 1995 to 1999. With this
conclusion, the Court agrees. As previously noted, (f) 1 and (f) 2
discuss alternate means by which a practice may be established. (f) 3,
(f) 4 and (f) 5 discuss related issues but are not alternatives to (f) 1
and (f) 2. Therefore, the prohibition contained in (f) 3 applies to all
types of organizations.
The Court, therefore, rejects the piece meal approach of
defendants' expert, J. Anthony Manger, J.D.
Borsody and Dahan promoted what they knew was essentially a
lie. The business model they promoted was intended to appear to be
one way and yet, in reality, be another way. They both were
18
motivated to provide to the chiropractor the ability to manage a
practice which included medical doctors. Dahan knew that a
chiropractor could not own a majority interest of a multi-disciplinary
practice since his California corporation was established so that he was
a minority shareholder himself. Borsody knew that he was placing in
the hands of the chiropractor the control that was lacking in his first
experience in New York. The simple fact that the practice was
intended to look as though a medical doctor was in control yet, with
various side agreements, he was not, constitutes a sufficient basis for
the Court to conclude that Borsody knew what he was doing was not
proper. It was contrary to the very premise of the 1983 Women's
Medical Center v. Finley decisions. The truth can only stand the light
of day. It need not hide in the shadows of side agreements.
The Practice Perfect plan placed the "public at risk by failing to
provide the professional supervision and control deemed essential buy
by the Board (of Medical Examiners)." Allstate Ins. v. OEI, supra, at
517. In 2002, the court concluded in Material Damage Adj. v. Open
MRI, 352 N.J. Super. 216, 227 (Law Div. 2002). "A belief even a good
faith belief that one is performing these services in a reasonable or
otherwise sound manner is not a defense. As a matter of law, entities
wishing to engage in a highly regulated business which directly
impacts upon the welfare of the public, such as the delivery of health
19
care, are constructively on notice of the existence of legal
requirements governing the practice and operation." This admonition
was adopted by the Appellate Division in Open MRI v. Frieri, 405 N.J.
Super. 576 (App. Div. 2009).
JOHN GROSSMAN WAS NOT AN INTERVENING CAUSE
John Grossman's role was limited. Although he was retained
initially by Neuner to establish the business model taught by Borsody
and promoted by Practice Perfect and Dahan, he did not do so. He
incorporated the two corporations. He drafted the undated
resignation, stock assignment and statement of lost or non-issued
certificates and held them after Sica signed them. However, he
specifically testified that he would not have released them without
Sica's direction. He was asked to do the various contracts. However,
Neuner did not retain him for that purpose. Dahan told Neuner he was
too expensive. Grossman said he would have to undertake New Jersey
research to make certain that the documents he prepared would be
consistent with New Jersey law. He also indicated there would be an
expense which Neuner was unwilling to endure. Neuner then himself
or a staff member typed up the various contracts. Grossman,
therefore, stopped short of advising Neuner that the entire business
model was consistent with New Jersey law. Grossman was not the
predominant cause of Neuner's conduct.
20
The Supreme Court stated in Conklin v. Hannoch Weisman, 145
N.J. 395, 418 (1996): "The negligent attorney, however, often does
not 'create' the risk of intervening harm (the attorney does not make
the borrower more likely to become insolvent), but rather fails to take
the steps that competent counsel should take to protect a client from
the risks that ultimately produce the injury." There is no evidence that
Grossman failed to take the steps that competent counsel should take.
He testified he would hold the Sica documents until Dr. Sica authorized
their release. He incorporated two corporations which in itself creates
no violation of the Insurance Fraud Protection Act. He advised Neuner
he could not complete the task he was requested to complete without
legal research.
Both plaintiffs and defendant Dahan have discussed the Second
Restatement of Torts, Section 442, considerations important in
determining whether an intervening force is a superseding cause. Six
factors are discussed as set forth below.
(a) The fact that its intervention brings about harm different in
kind from that which would otherwise have resulted from the actor's
negligence. Even if Grossman were as responsible as defendants, the
harm is no different.
(b) The fact that its operation or the consequence thereof
appear after the event to be extraordinary rather than normal in view
21
of the circumstances existing at the time of its operation. Grossman's
conduct cannot be considered extraordinary. He simply moved the
ball a little ways down the field and not even over the goal line.
(c) The fact that the intervening force is operating
independently of any situation created by the actor's negligence, or,
on the other hand, is or is not a normal result of such situation.
Grossman's limited role was in furtherance of the direction of Borsody
and Dahan. He incorporated two legitimate corporations and arranged
for execution of documents to be held in escrow.
(d) The fact that the operation of the intervening force is due
to a third person's act or the failure to act. As noted above,
Grossman's conduct does not constitute a failure to act. His actions
are not inconsistent with New Jersey law.
(e) The fact that the intervening force is due to an act of a
third person which is wrongful towards the other and, as such,
subjects the third person to liability to him. Again, Grossman
performed no wrongful conduct in simply incorporating two New Jersey
corporations and arranging for the execution of undated documents to
be held in escrow until the signer authorized their release.
(f) The degree of culpability of a wrongful act of a third person
which sets the intervening force in motion. There is little doubt that
Neuner was intent on creating a New Jersey business model based
22
upon the Practice Perfect model. His relationship with Grossman was
terminated prematurely by him. Grossman gave no advice that the
plan as fully implemented was consistent with New Jersey law.
For these reasons, Grossman cannot be considered as
superseding cause relieving defendants from liability.
FRIENDLY OR CAPTIVE P.C.'S
Defendants assert that the Practice Perfect model is employed by
hospitals. The argument goes, presumably, that if a hospital can do it,
a chiropractor can do it. Stated in this simple fashion, the argument
clearly fails. The Board of Medical Examiner regulations in question in
this case do not extend to hospitals. They are regulated by the
Department of Health and Senior Services and the Department of
Community Affairs. The fact that a person with a more restricted
license cannot be in control of a person with a plenary license applies
to two licensed doctors. Defendants have not offered any analysis of
applicable regulations governing hospitals. The simple argument is
well, if they can do it, so can we. The Court is not persuaded that a
hospital lies in the same position as a chiropractor.
Defendants next argue that Garcia v. Health Net of New Jersey.
Inc. 2009 WL 3849685 (N.J. App. Div. November 17, 2009) supports
their theory, a lack of knowledge. In Garcia, the Court was faced with
the definition of "knowing." The Board of Medical Examiners had
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issued an Advisory Opinion on November 12, 1997 approving of the
manner in which plaintiffs were submitting their bills. The finding of
that Advisory Opinion was inconsistent with the "Codey Law", N.J.S.A.
45:9-22.5 then in existence, the trial court, as affirmed by the
Appellate Division, concluded that there was no knowing violation of
the Act. The facts in Garcia are clearly distinguishable from this case.
The very fact that defendants felt it necessary to create documents
which altered the power structure of the certificates of incorporation
cannot be said to create a lack of knowledge.
As previously noted, the defendants argument that they didn't
know the model violated the law is unimpressive. The plan itself
appeared to place control in the medical doctor, but it didn't.
Women's Medical Center v. Finley. supra, clearly stated the policy
contrary to the Practice Perfect model. At best, their conduct must be
considered willful blindness. As our Supreme Court noted In the
Matter of Skevin. 104 N.J. 476, 486 (1986), that is sufficient fo find
"knowledge."
The Court concludes, therefore, that defendants Borsody and
Dahan did violate the provisions of the New Jersey Insurance Fraud
Protection Act for the reasons stated herein.
Both knowingly assisted, conspired with and urged Neuner to
operate in a fashion that violated the law, therefore, violating the
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IFPA. N.J.S.A. 17:33A-4(b) Their business model was the proximate
cause of Neuner's structure and the fraudulent claims.
Defendants have argued that they are not bound to the decision
made previously in this case as to Dr. Neuner because they were not
permitted to oppose the motion for summary judgment previously
entered in this matter. This argument is deemed not to be relevant.
This decision is based upon the trial evidence before this Court and
although consistent with the prior decision, is made independent of the
prior decision based upon the trial record here.
J. SCOTT NEUNER. D.C.
Dr. Neuner has certain counterclaims in this matter against co
defendants. Plaintiffs were granted summary judgment as to Neuner
in 2001 and so trial did not proceed as to Dr. Neuner.
For the following reasons, the Court declines to grant relief to
Dr. Neuner as to co-defendants. This is for several reasons.
First, the Court accepts the argument that Allstate's claims
against Neuner were listed on his Bankruptcy Petition. Therefore, the
pursuit of the claims must be approved by the Bankruptcy Court and
authorized by the Bankruptcy Court. (See Luppino v. Mizrahi, 326 N.J.
Super. 182 (App. Div. 1995), at 186) The control of this claim is in
the hands of the trustee. There is no evidence that these steps were
taken.
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However, dealing with the merits in this case, the Court also
denies the relief requested by Neuner.
There is an old adage that when something is too good to be
true, it usually isn't true. Dr. Neuner was presented with a plan which
clearly used subterfuge. Knowing that he held a lesser license than
medical doctors, he participated in a plan which placed him in control
of a medical doctor. He hired and fired medical doctors and replaced
Dr. Sica. He rejected Mr. Grossman's recommendation that he be
permitted to undertake more legal research to determine the legality
of the Practice Perfect model. He simply took form contracts that he
purchased from Dahan and had them filled in and subsequently
executed.
Four claims remain--Count Three, Violation of the Consumer
Fraud Act, Count Four, Breach of Contract as to Dahan Count Six,
Intentional Fraud, Count Eight, Fraud, and Count 10, Conspiracy to
Defraud or to Commit Fraud as to both defendants.
As to the Consumer Fraud Act, the Court accepts that the
learned profession exception applies. Both defendants are licensed to
practice their professions in different states, New York and California.
Even though not licensed in New Jersey, the Court accepts the premise
that they are regulated by the appropriate licensing bureaus of their
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states and are, therefore, not subject to the Consumer Fraud Act. See
Macedo v. Delio Russo, 178, N.J. 340 (2004).
As to the balance of the allegations, it can be argued that
Neuner was a victim. However, the Court does not find that he was an
innocent victim. He knowingly participated in the preparation of
documents which on their face presented control within the medical
profession, but sub rosa gave him control. The effect was to put in the
hands of a licensed chiropractor the authority over someone with a
plenary license. The Court cannot conclude that he was, therefore, an
innocent victim. For these reasons, as well as the bankruptcy issue,
the Court declines to award the cross-claims as to Neuner.