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State Farm Mutual Automobile Insurance Co. v. Elite Health Centers Inc.

United States District Court, E.D. Michigan, Southern Division

July 2, 2019

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff,
v.
ELITE HEALTH CENTERS, INC., ELITE CHIROPRACTIC, P.C., ELITE REHABILITATION, INC., MIDWEST MEDICAL ASSOCIATES, INC., PURE REHABILITATION, INC., DEREK L. BITTNER, D.C., P.C., MARK A. RADOM, DEREK LAWRENCE BITTNER, D.C., RYAN MATTHEW LUKOWSKI, D.C., MICHAEL P. DRAPLIN, D.C., NOEL H. UPFALL, D.O., MARK J. JUSKA, M.D., SUPERIOR DIAGNOSTICS, INC., CHINTAN DESAI, M.D., MICHAEL J. PALEY, M.D., DEARBORN CENTER FOR PHYSICAL THERAPY, L.L.C., MICHIGAN CENTER FOR PHYSICAL THERAPY, INC., and JAYSON ROSETT Defendants.

          Avern Cohn, District Judge

          OPINION AND ORDER GRANTING IN PART AND DENYING IN PART STATE FARM MUTUAL'S MOTION TO COMPEL MICHAEL MORSE TO PRODUCE DOCUMENTS RESPONSIVE TO STATE FARM MUTUAL'S SUBPOENA (DE 384) AND STRIKING DE 483 FROM THE DOCKET

          ANTHONY P. PATTI, UNITED STATES MAGISTRATE JUDGE

         I. Introduction

         This matter is before the Court for consideration of Plaintiff State Farm Mutual Automobile Insurance Company's (“State Farm's”) Motion to Compel Michael Morse to Produce Documents Responsive to State Farm's Subpoena (DE 384), non-party Michael Morse's response in opposition (DE 403), State Farm's reply brief (DE 409), and the joint statement of resolved and unresolved issues (DE 455). All discovery matters have been referred to me for hearing and determination (DE 229), and a hearing was held on this motion on May 10, 2019, at which time the Court took this matter under advisement. (DE 474.)

         II. Background

         A. Factual Allegations

         On August 22, 2016, Plaintiff State Farm brought this action against 18 defendants - doctors, chiropractors, physical therapy, health care and chiropractic clinics, and other individual defendants-all of whom are alleged to have played a role in a scheme to defraud State Farm:

by submitting or causing to be submitted, bills and supporting documentation for services that are purportedly rendered to individuals (“patients”) who have been in automobile accidents and are eligible for personal injury protection benefits (“No-Fault Benefits”) under State Farm Mutual policies when, in fact, the services are either not rendered or are not medically necessary.

(DE 1, ¶ 1.)[1] State Farm alleges claims for fraud, civil conspiracy and unjust enrichment. (Id. ¶¶ 222-265.)

         State Farm's 116-page Complaint, with 32 exhibits, and its 40-page brief in support of its motion to compel here, with 114 exhibits, provide a detailed and exhaustive discussion of the facts, allegations, and documentary evidence supporting its claims against Defendants regarding the 221 State Farm insureds whose claims are at issue in this case, and State Farm's allegations regarding non-party attorney Michael Morse's involvement in the alleged fraudulent scheme. In addition, State Farm's counsel provided an extensive, detailed summary and chronology of the alleged fraudulent scheme at a prior hearing held on March 22, 2019, the bulk of which focused on Morse's contributions to and benefit from the alleged fraudulent medical billing scheme at issue here. (DE 432 at 25-56.) Based on all of that, the following is a broad summary of the alleged fraudulent scheme, as supported by this very extensive record:

         1. Solicitation of clients

         According to State Farm, the first step in Defendants' alleged fraudulent scheme was the unlawful solicitation of accident victims, using “runners, cappers, and steerers (collectively “Solicitors”)” to obtain patients, as well as through the purchase of unapproved police reports, and also “receiv[ing] referrals from personal injury attorneys pursuant to their apparent cross-referral relationships with them.” (DE 1, ¶¶ 80-81.) State Farm alleges that “[t]his is an important first step because patients are the lifeblood of the scheme, both for Defendants and for the personal injury attorneys with whom Defendants have critically important cross-referral relationships.” (Id. ¶ 80.) As discussed in more detail below, State Farm has shown that Morse was involved in the solicitation of accident victims, both for representation by him and for treatment at Defendants' clinics, through quid pro quo cross-referral relationships.

         2. The “Predetermined Protocol”

         State Farm alleges that the Defendants next proceed pursuant to a predetermined treatment protocol (the “Predetermined Protocol”) whereby the contacted patients are typically evaluated initially by an Elite chiropractor, who makes a list of predetermined findings and diagnoses and then recommends a predetermined chiropractic treatment protocol (which is not individually tailored to the particular patient), typically consisting of treatment three times per week for up to 12 weeks. During that treatment, patients are sent to one of the Defendant Elite clinics for evaluation by a physician who in turn conducts a fraudulent examination and prescribes physical therapy pursuant to the Predetermined Protocol at one of the Defendant physical therapy clinics, while continuing (often duplicative) chiropractic treatment. Defendant chiropractors and doctors also order unnecessary MRIs for patients, performed at one the MRI facilities in which Defendants (and Morse) have an ownership or other financial interest either Horizon Imaging, LLC (“Horizon”) or Defendant Superior Diagnostics, Inc. (“Superior”). This cycle continues until either the patient voluntarily stops treatment or State Farm stops paying, based on the result of an independent medical examination (“IME”).

         The three defendants who owned and controlled the clinics and MRI facilities at issue are: (1) Derek Bittner, D.C.; (2) Mark Radom (Morse's former brother-in-law); and (3) Jayson Rosett.

         3. Morse, Radom, PIF and Bio-Magnetic

         According to State Farm, and as set forth in detail in its motion, although not a named defendant in this case, attorney Michael Morse is an integral part of the alleged scheme to defraud State Farm. By way of background, State Farm states that Morse was instrumental in Defendant Radom (Morse's then brother-in-law) being hired in 2009 by Plaintiff Investment Funding, LLC (“PIF”), a Michigan company that makes cash advances at very high interest rates to individuals with personal injury claims. Morse was responsible for about 40% of PIF's referrals, and PIF operated out of Morse's former office and paid more than $450, 000 in rent to entities owned by Morse.

         Morse also played a key role in Radom being hired as a “marketer” in late 2009 or early 2010 by Bio-Magnetic, an MRI facility owned by Dr. Ram Gunabalan that did MRI reads for many of Morse's clients. State Farm contends that Morse pressured Bio-Magnetic for abnormal MRI reads, complaining that, “We are seeing a lot of negatives” and that normal MRI interpretations were “killing [him]” and would “put [him] out of business.” (DE 384 at 14, citing 384-4 to 384-6.) According to State Farm, Morse required Bio-Magnetic to pay $80, 000 in salary to Radom in exchange for Morse's continued referrals to Bio-Magnetic.

         State Farm further contends that Radom did not appear to have provided any services to PIF or Bio-Magnetic beyond guaranteeing referrals to those entities from Morse, and that this arrangement was consistent with Morse's practice of demanding kickbacks from providers in exchange for referring his clients to them.[2] State Farm states that this arrangement with Bio-Magnetic ended when Radom, potentially as a straw owner or partner of Morse, acquired an interest in Horizon Imaging, LLC, another MRI facility that State Farm contends provided fraudulent MRIs to 84 of the State Farm 221 insureds at issue (65 of whom were represented by Morse).

         4. Morse, Radom and Horizon

         According to State Farm, Morse decided to form Horizon Imaging, LLC in the fall of 2010, through which he could profit directly from his clients' MRIs by virtue of an undisclosed majority ownership interest. Starting in September 2010 and through December 2010, Morse began negotiating to acquire a majority ownership interest in Horizon, but at the last minute arranged for Radom to acquire the majority interest instead, seemingly as a straw man. (DE 384 at 18-19.) While an earlier draft operating agreement for Horizon was to be between Morse and Scott Zack and Cory Mann (or entities they owned), a draft operating agreement dated on or around October 18, 2010 was revised to be between Mann's and Zack's companies, and a third party, referenced in the first paragraph as ___“ (‘other').” (Id. at 19, citing DE 384-20.) This blank was for Morse's entity and replaced an explicit reference in the earlier draft operating agreement to Morse as Horizon's third member. (Id.) In an October 28, 2010 email to the attorney setting up the corporation, Morse stated he had “read the agreement” and asked if the confidentiality agreement was strong enough because he did not “want them to be able to mention my name to anyone, anytime about anything short of a court order or with [his] written permission.” (DE 384 at 20, citing DE 384-21.) Subsequent emails show that the parties replaced Morse's name with Radom's on the operating agreement, but that Morse, through his attorney, continued to be involved in negotiating the final operating agreement. (DE 384 at 20-22, citing DEs 384-21 to 384-27.)

         Radom (and his then-wife Amy) formed HI Investor, LLC and HI Group, LLC in December 2010 to acquire a membership interest in Horizon.[3] The final Horizon operating agreement, dated January 11, 2011, makes no reference to Morse or any entity owned by him, but instead to HI Investor (Radom) and three other members: Mann Global (Cory Mann), Zack Global (Scott Zack), and Professional Holdings Unlimited (Vincent Celetano). (DE 504-1.)

         State Farm contends that between January 2011 and June 2015, Horizon paid HI Investor at least $5.8 million pursuant to HI Investor's 38% membership interest in Horizon, and that Radom then transferred at least $1.6 million of this money from HI Investor to or on behalf of Morse. (DE 384 at 23-25, citing DEs 384-30 to 384-36, 386-24.) During that time period, Morse continued to receive financial statements from the other members of Horizon LLC, was closely tracking patient referrals, and was requiring his clients get their MRIs at Horizon. (DEs 384 at 27-28, 388 at 28-29, citing DEs 504-3 to 504-8, 504-11.) Radom further directed the other owners of Horizon to conceal his ownership interest in Horizon, stating, “I am the Director of Marketing at Horizon and that is it. No. one is ever to know that I own a percentage of the practice. People are sniffing around and assuming things and asking questions. In our agreement, no one is to mention that I own anything. Let's all be consistent with that message no matter what you are asked or faced with.” (DEs 384 at 28-29, 388 at 29-30, citing DE 504-12.) Radom then forwarded this email to Morse. (Id.)

         5. Morse, Radom/HI Investor, Bittner and the Elite Entities

         On January 3, 2011, eight days before the Final Horizon Operating Agreement was signed, Morse met with Bittner to discuss a business deal. (DEs 384 at 29, 388 at 30, citing DEs 504-13 to 504-14.) Five months later, in the summer of 2011, Bittner and Radom, through HI Investor, formed the three Defendant Elite Entities (Elite Health Centers, Inc. (“Elite Health”), Elite Chiropractic, P.C. (“Elite Chiro”), and Elite Rehabilitation, Inc. (“Elite Rehab”) (with Elite Health and Elite Rehab set up as non-profits)). According to State Farm, through March 2014, these clinics treated 112 of the 221 insureds at issue, at least 63 of whom were represented by Morse.

         In March 2014, Radom, through HI Investor, and Bittner formed as nonprofit corporations Defendants Pure Rehabilitation, Inc. (“Pure Rehab”) and Midwest Medical Associates, Inc. (“Midwest”), to replace the Elite Entities. Pure Rehab and Midwest continued with the same Predetermined Protocol and operated from the same locations and with the same staff and same patients as the Elite entities.

         6. Morse, Radom/HI Investor, Bittner and Superior

         Also in March 2014, around the same time as Defendants created Pure Rehab and Midwest, Radom through HI Investor, and Bittner formed Superior as a non-profit corporation, to serve as the primary MRI provider for patients treating at Pure Rehab and Midwest. Around that same time, HI Investor pulled out of Horizon following a business dispute and subsequent arbitration. State Farm contends that Morse had a similar role in Superior as Horizon. As with Horizon, Morse continued to receive reports and financial statements from Radom for Superior. (DEs 384 at 32-33, 388 at 33-34, citing DEs 504-14 to 504-16.) For example, Radom sent Morse Superior's profit and loss statement on August 13, 2015, and Morse responded that he “want[ed] to be able to log in and click and see what is up. Real time. Up to date. Whenever I want. Make it happen!” (DE 504-16.)

         In sum, Morse's clients who treated at Defendants' clinics had MRIs: (1) at Horizon from 2011 to February 2014; (2) at ¶ 1 Imaging (co-owned by Joshua Katke and Defendant Chintan Desai) from February to July 2014; and, (3) at Superior from July 2014 to present. (DE 385-27.)

         7. Radom, Bittner and D&M Management LLC

         State Farm contends that, because Radom and Bittner could not lawfully profit from the non-profit clinics, and Radom (as a layperson) could not lawfully profit from Elite Chiro, they used a purported management company they co-owned, D&M Management LLC (“D&M”), to siphon off more than $4 million from the Elite Entities under the guise of “management fees” - paying more than $3.2 million to Radom and more than $2.2 million to Bittner. (DE 384 at 33.)

         8. Jayson Rosett, AIB and the illegal purchase of unauthorized police reports, and solicitation of clients

         According to State Farm, Defendant Jayson Rosett, the owner of Defendants Michigan Center for Physical Therapy, Dearborn Center for Physical Therapy and Oak Park Center for Physical Therapy, started illegally purchasing unapproved police reports regarding automobile accidents from Detroit police officers in late 2009 or early 2010 - before they were publicly available to law enforcement, attorneys, or insurers - in order to solicit auto accident victims and refer them to personal injury attorneys. Rosett first solicited clients for his college friend, attorney Ron Applebaum, and by June 2010, after he formed the first of his physical therapy clinics, for Morse. In exchange, Morse's marketing director, Janet Rosenberg, directed chiropractors who treated Morse's clients to refer them to Rosett's physical therapy clinics. (See DEs 385-33 to 385-36.)

         These quid pro quo, cross-referral relationships between Morse and the healthcare providers continued. By September 2010, Janet Rosenberg, Morse's marketing director, figured out a way to connect Rosett's calls with potential clients directly to Morse's office. (DE 385-39.) In 2011, Rosett began obtaining unapproved police reports from Detroit Police Officers Karen Miller and Carol Almeranti, and delivering them to Morse's firm, where they were used to solicit auto accident victims. Those “converted” auto accident victims were then referred to one of two chiropractors, who in turn would refer them to Rosett's physical therapy clinic. In an August 12, 2011 email, Morse told Rosett, “Let's do the police report thing. Just get them to me and I will get you more active treating patients. It will work.” (DE 384 at 35, citing DE 386.) State Farm contends that Rosett started to hand-deliver unapproved police reports to Morse daily. (DEs 386-1, 386-2.) In a September 14, 2011 email, Morse inquired “Reports today? Are you starting to order more? I am spending a s**t load on new mailers so keep them coming!” to which Rosett responded, “Yes, they are o[u]t to you now. I'm also spending a ton. I can't wait for the first one to hit. Do you want me to drop off reports tomorrow and Friday? If so, please make sure that they fall into the right hands.” (DE 386-1.) Morse then replied, “Yes. Bring them over.” (Id.) According to State Farm, obtaining these unapproved police reports gave Morse, Rosett and the Elite Defendants a competitive edge because they then had access to this accident information and potential clients before it was available to anyone else.

         This cross-referral practice continued in mid-2012, at which time Rosett formed an entity called Accident Information Bureau (“AIB”). AIB was used as a “call center” to solicit clients for Morse and patients for Defendants taking the names from the unapproved police reports, which had been put into spreadsheets, to solicit the auto accident victims to treat at Elite Health and Elite Chiro, who would then refer them to Morse, and who were then referred to physical therapy at either the Rosett clinics or the Elite clinics.[4] (See DEs 470-3 to 470-5.) Elite Health paid $2, 000.00 per week to AIB for the police reports (resulting in approximately $200, 000.00 total), and Bittner documented a protocol to refer the patients to Morse, which included providing a “Morse pamphlet” and “giv[ing] them Tony or Jan['s] [presumably Morse law firm attorney Anthony Chapman and marketing director Janet Rosenberg] name. Elite recommended, ” and noting that the sooner the patient “sign[s] with an attorney that works with us, the more likely they will continue to care with us.” (DEs 384 at 36-37, 388 at 37-38, citing DE 504-17.) Bittner followed up by sending an email to Radom a couple of weeks later, attaching a memo which included the “protocol[] for referring out. Attorney, ” stating to “let them know you have found injuries related to MVA and that you recommend them speaking to an attorney to know their rights, ” giving them a “Morse pamphlet and give them Tony or Jan name, ” and to “[l]et each staff know that each auto pt [patient] is like a piece of GOLD.” (DE 504-18 (emphasis added).)

         9. 2014 Anti-Solicitation Law

         A new law went into effect in Michigan in January 2014, prohibiting solicitation of auto accident victims within 30 days after an accident. See MCL 750.410 (prohibiting “solicitation of personal injury claims” by an attorney and/or a non-attorney working on his behalf prior); MCL 750.410b (prohibiting solicitation by any person “until the expiration of 30 days after the date of th[e] motor vehicle accident”).[5]

         10. Overview of Morse's involvement

         According to State Farm, Defendants' financial success was closely tied to Morse. Morse represented at least 126 of 178 insureds at issue in this case who treated at Defendants' clinics and who were represented by an attorney. And, State Farm contends, bank records for those clinics reflect that, from December 2010 to January 2018, more than $6.3 million was deposited into Defendants' bank accounts from Michael J. Morse, PC (“Morse PC”). (DE 384 at 39-40.) In sum, Morse is alleged to have benefited both coming and going: (1) by being a silent owner in the medical providers which were submitting fraudulent claims; (2) by receiving kickbacks in connection with referrals to providers who submitted fraudulent invoices; and (3) by driving up the value of his clients' personal injury claims with artificially favorable diagnoses and extensive, albeit unnecessary, treatment records.

         B. The Morse Subpoena

         1. The February 6, 2018 Subpoena

         On or about February 6, 2018, State Farm issued a document subpoena to Michael Morse (hereinafter “the Subpoena”). (DE 386-17.)[6] The Subpoena consists of 16 document requests, which, according to State Farm, fit within four categories of requests: (1) financial arrangements with or payments made to or received from Defendants and related third-parties (Request Nos. 1, 3, 4, 13, 14, 15, 16); (2) communications with Defendants or related third parties (Request Nos. 2, 5, 6, 7); (3) documents related to the patients at issue (Request Nos. 8, 9, 12); and, (4) documents related to MRI entities (Request Nos. 10, 11). (Id.)

         2. Morse's general objections

         Morse did not object or otherwise respond to the 16 specific document requests in the Subpoena, and refused to produce any responsive documents. Instead, on March 21, 2018, Morse served general, blanket objections to the Subpoena, in which he broadly objects that the Subpoena as a whole improperly: (1) seeks information to defend actions brought by Morse's law firm's clients against State Farm and its insureds, or to assert a claim against Morse or his law firm, or to share with other person(s) for use in their potential actions; (2) seeks documents that do not relate to the core issues in this case; (3) imposes an undue burden and expense; and, (4) requests documents that can be obtained from other sources and that the Subpoena is only intended to harass him. (Id.)

         Morse continues that, to the extent his response to the Subpoena is compelled, he requests a protective order prohibiting the use or sharing of the documents in any other action or proceeding. (Id. at 4.) He further objects to producing documents: (1) that relate to his dealings with non-parties; (2) that relate to the time period before August 22, 2010; (3) that relate to Horizon or the “Patients” (because State Farm will not provide the names of the 221 Patients at issue until Morse signs the Stipulated Protective Order in this case, and Morse does not want to sign that protective order); and, (4) that are not relevant to the claims or defenses in this action. (Id. at 4-5.) He also objects to the definition of “You” as improperly encompassing persons other than Morse, or producing documents protected from disclosure by privilege or work product, that relate to any client of the Mike Morse law firm, without that client's consent. (Id. at 5-6.)

         C. The ...


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