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Allstate Insurance Co. v. St. Anthony's Spine & Joint Institute

February 10, 2010


The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge


Before the Court is Defendants Melvin D'Souza, D.C. ("Dr. D'Souza") and St. Anthony's Spine and Joint Institute, P.C.'s ("St. Anthony's") (collectively "Defendants") Motion for Summary Judgment. In their Complaint, Plaintiffs Allstate Insurance Company, Allstate Indemnity Company, and Allstate Property and Casualty Company (collectively "Allstate") allege that Dr. D'Souza, a chiropractic physician and the sole shareholder of St. Anthony's, defrauded Allstate by submitting false and misleading medical reports, records, and billing statements for chiropractic and diagnostic services. (R. 1-1, Compl. ¶ 1.) Specifically, Allstate claims that Dr. D'Souza routinely ordered "unnecessary and unwarranted diagnostic testing" such as video fluoroscopy in the form of dynamic motion x-rays ("DMX"). According to Allstate, it suffered harm when it "made direct payments to defendants on first party claims submitted by its own insureds pursuing medical payments claims, and uninsured and underinsured motorist claims" based on Defendants' alleged fraudulent bills. Id. at ¶ 2. In other instances, Allstate made "substantial payments based upon settlements and verdicts obtained against plaintiffs' insureds in third party personal injury claims and lawsuits" in which Defendants "submitted physicians liens through the U.S. mail to Plaintiffs purporting to assert their alleged right to attach towards any potential settlement and/or resolution reached in each particular case." Id. Dr. D'Souza denies that his statements are false and unsubstantiated and further denies that his DMX testing was unnecessary or that his billing was fraudulent.

There are six remaining claims in Allstate's Complaint. Count I alleges a civil Racketeer Influenced and Corrupt Organizations Act ("RICO") claim, pursuant to 18 U.S.C. § 1964. In addition to the RICO claim, the remaining counts allege insurance fraud in violation of 720 ILCS 5/46-5 (Count II), common law fraud and misrepresentation (Count IV), unjust enrichment (Count V), and two counts of negligent spoliation of DMX studies (Counts VI and VII). Defendants have raised nineteen affirmative defenses, including unclean hands, and have counterclaimed for bad faith insurer conduct pursuant to 720 ILCS 5/46-5(b). For the following reasons, the Court grants in part and denies in part Defendants' Motion for Summary Judgment. The Court further denies Defendants' Motion to Strike Affidavit Testimony of Catia Monforton, and grants in part and denies in part Defendants' Motion to Strike Affidavit Testimony of Jim Ryan.


I. Northern District of Illinois Local Rule 56.1

When determining summary judgment motions, the Court derives the background facts from the parties' Local Rule 56.1 statements. Specifically, Local Rule 56.1 assists the Court by "organizing the evidence, identifying undisputed facts, and demonstrating precisely how each side propose[s] to prove a disputed fact with admissible evidence." Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 527 (7th Cir. 2000). Local Rule 56.1(a)(3) requires the moving party to provide "a statement of material facts as to which the moving party contends there is no genuine issue." Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir. 2009). "The opposing party is required to file 'a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon.'" Id. (citing N.D. Ill. R. 56.1(b)(3)(B)). In addition, Local Rule 56.1(b)(3)(C) requires the nonmoving party to present a separate statement of additional facts that require the denial of summary judgment. See Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th Cir. 2008). Pursuant to the Local Rules, the Court will not consider any additional facts proposed in the nonmoving party's Local Rule 56.1(b)(3)(B) Response, but instead must rely on the non-movant's Local Rule 56.1(b)(3)(C) Statement of Additional Facts when making factual determinations. See id. at 643; Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 809 (7th Cir. 2005) ("Local Rule 56.1 requires specifically that a litigant seeking to oppose a motion for summary judgment file a response that contains a separate 'statement . of any additional facts that require the denial of summary judgment.'") (emphasis in original).

Moreover, the purpose of Rule 56.1 statements is to identify the relevant evidence supporting the material facts, not to make factual or legal arguments, see Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006), and thus the Court will not address the parties' arguments made in their Rule 56.1 statements and responses. Also, the requirements for responses under Local Rule 56.1 are "not satisfied by evasive denials that do not fairly meet the substance of the material facts asserted." Bordelon, 233 F.3d at 528. Further, the Court may disregard statements and responses that do not properly cite to the record. See Cichon, 401 F.3d at 809-10. Finally, "hearsay is inadmissible in summary judgment proceedings to the same extent that it is inadmissible in a trial." Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997). With these standards in mind, the Court turns to the relevant facts of the case.

II. Relevant Facts

Allstate Insurance Company is an Illinois professional corporation with its principal place of business in Northbrook, Illinois. (R. 183-1, Def.'s Rule 56.1 Stmt. Facts, p. 1.)*fn1

Allstate Indemnity Company is an Illinois corporation with its principal place of business in Northbrook, Illinois. Id. Allstate Property and Casualty Company is also an Illinois corporation with its principal place of business in Northbrook, Illinois. Id. This case involves a series of claims submitted to Allstate by claimants who were treated by Dr. D'Souza and other physicians and assistants employed by chiropractic clinics operated by Dr. D'Souza. In 2000, Dr. D'Souza opened a chiropractic clinic in Chicago, Illinois. (R. 198-1, Pl.'s Rule 56.1(b)(3)(C) Stmt. Facts, ¶ 1.) Between 2000 and January 2005, Dr. D'Souza opened at least five additional chiropractic clinics at locations in and around Chicago, Illinois. Id. Dr. D'Souza hired chiropractic physicians and assistants to staff the clinics. Id. at ¶ 4. Prior to January 28, 2005, Dr. D'Souza operated the clinics as sole proprietorships. Id. at ¶ 2. On January 18, 2005, Dr. D'Souza incorporated the clinics as one corporate entity, St. Anthony's, an Illinois professional corporation. Id. at p. 1.

A. Allstate's Investigation

Allstate's Special Investigation Unit ("SIU") investigates insurance claims that Allstate suspects of being fraudulent. (R. 183-1, ¶ 1.) SIU employees include (i) investigators who investigate and resolve suspected fraud claims not in litigation, (ii) litigation specialists who are responsible for investigating and resolving suspected fraud claims in litigation, and (iii) analysts who have the ability to review data from all claims involving a particular medical provider to escalate an investigation into a "project." (Id. at ¶ 2; R. 183-1, Ex. 3, Monforton Dep., pp. 17-21; R. 198-1, ¶ 14.) Projects look at a providers' activities on a more global perspective rather than on a file-by file basis. (R. 198-1, ¶ 21; R. 183-1, Ex. 3, Monforton Dep., pp. 17-21.) Analysts do not handle individual investigations, but "assist and oversee[]" the overall project. Id. Specifically, an analyst's role is to analyze patterns of fraud, and then put together a team of investigators to develop evidence. (Pl. Ex. 8, Crespo Dep., p. 16.) Analysts also have the authority to recommend to their supervisors that a project be presented to senior management at Allstate for the purposes of pursuing legal action against any provider that it determines to be engaging in a clear pattern and practice of fraud. (R. 198-1, ¶ 23.)

Numerous Allstate employees were involved in the investigation of Dr. D'Souza. From November 2001 until March 2005, Danielle Crespo worked an investigator, and for a brief time as a litigation specialist, in the SIU, and in March 2005 she became an analyst. (R. 183-1, ¶ 3.) Barbara Johnston (2000 to the inception of the lawsuit), Williams Watts (2000 to the inception of the lawsuit), Raymond Summins (2001 to the inception of the lawsuit), Jesus Ortiz (2001-2002, and 2003 to the inception of the lawsuit), and Larry Arbetman (2002 to 2005) also worked as investigators in the SIU. Id. at ¶ 3. From 2000 to the inception of the lawsuit, James Ryan was a litigation specialist in the SIU. Id. Catia Monforton was the initial analyst Allstate assigned to the Dr. D'Souza investigation and remained the analyst on the project until March 2005. (R. 198-1, ¶ 29.) At that time, Danielle Crespo took over the analyst responsibilities for the project. Id. After Crespo left Allstate at the end of 2007, Monforton again took over the project regarding Dr. D'Souza. Id. Monforton remains the analyst on the case. Id. at ¶ 18.

As the initial step in an investigation, Allstate sends a claim to the SIU if there is an unusual circumstance or pattern of circumstances that are not typical and indicate that there might be dishonesty or misrepresentation on the part of a party involved in the claim. (Pls.' Ex. 7, Summins Dep., pp. 24-25.) During the pendency of an investigation, SIU personnel work together and share information regarding medical providers, as they did with information relating to Dr. D'Souza. (R. 183-1, ¶ 7.) While investigators do not review claim files other than those to which they are assigned, analysts have the ability to review all claims relating to a particular provider in order to detect a pattern of fraud. (Defs' Ex. 4, Monforton Dep., p. 87.) To conduct their investigations, SIU investigators employ medical bill review software, MBRS or Mitchell Decision Point, for individual claims. (Def. Ex. 7, Ryan Dep., pp. 31-33.) Analysts employ BRIO, a computerized system that permits an analyst to review all inputted claims in the claim file system relating to a provider for patterns and practices. Id.

Between 2000 and 2001, Allstate transferred insurance claims regarding Dr. D'Souza's clinics to Allstate's Chicago-area SIU to investigate suspected allegations of fraud. (R. 198-1, ¶ 7; R. 183-1, ¶ 8.) In the early stages of the investigation, SIU personnel reviewed statements on insurance claims that revealed discrepancies in Defendants' medical records and billing statements, suspected billing for higher levels of services than were rendered, suspected billing for treatments that had not been rendered, and suspected potential treatment by lay persons rather than licensed medical professionals. (R. 198-1, ¶ 12.) Some of the claims Allstate transferred to the SIU involved the use of DMX (id. at ¶ 13), or video fluoroscopy in the form of dynamic motion x-rays, which Dr. D'Souza began using in 2000 or 2001. (R. 183-1, ¶ 23; Def. Ex. 28, p. 19.)

During the time period when Defendants were submitting claims for DMX studies on patients to Allstate, SIU investigators and litigation specialists had not encountered diagnostic studies using DMX from any other medical providers in the Chicago area. (R. 198-1, ¶ 14.) Indeed, Allstate employees may have transferred claims to the SIU, at least in part, to investigate Dr. D'Souza's use of DMX. (R. 183-1, ¶ 16; Def. Ex. 4, Crespo Dep., pp. 53-58.) Sometime in late 2001 or early 2002, after the initial transfer of some of Dr. D'Souza's claims to the SIU, Allstate designated Dr. D'Souza a "provider on hold," meaning the SIU would closely scrutinize any files concerning claims involving Dr. D'Souza's patients or clinics. (R. 183-1, ¶ 9.) After being placed "on hold," Allstate required Dr. D'Souza to submit his entire medical records, including narrative reports, to the SIU which SIU employees then reviewed. Id. at ¶ 9. The fact that a provider's bills are placed "on hold" does not necessarily mean that a provider is defrauding the company, but that Allstate requires SIU personnel to more closely review the provider's files in order to verify that the provider actually provided the treatments being billed before Allstate takes steps to resolve a claim. (R. 198-1, ¶ 10.)

During the investigation of Dr. D'Souza and after conducting research on the use of DMX in soft-tissue injury cases, various SIU employees began to question the medical necessity of providing DMX tests. (R. 198-1, ¶ 16.) Allstate's SIU personnel premised their beliefs that Dr. D'Souza's use of DMX was fraudulent on a range of evidence. (R. 183-1, ¶ 28.) Most of the patients whom Defendants treated and whose claims are the subject of this litigation purportedly sustained "soft-tissue" injuries, such as sprains or strains, in car accidents. (R. 183-1, ¶ 27.) SIU employees Arbetman, Ryan, Summins and Crespo all believed that soft-tissue injuries typically resolved within a few days and did not pose risks of serious complications or permanent injuries. Id. at ¶ 47. Allstate personnel also viewed soft-tissue injuries, including the stains and sprains diagnosed by Dr. D'Souza, as "subjective injuries." Id. at 49-50.

In addition, various SIU personnel believed that Dr. D'Souza's use of DMX was medically unnecessary. (R. 183-1, ¶ 16; Def. Ex. 8, Summins Dep., pp. 56-57; Def. Ex. 4, Crespo Dep., pp. 74-76; Def. Ex. 10, Johnston Dep., pp. 26-27; Def. Ex. 7, Ryan Dep. pp. 73-74.) Indeed, SIU personnel, including Johnston and Crespo, formed these beliefs as early as 2001 and early 2002. Id. at ¶¶ 42-43. Crespo and Ryan also testified that it was their understanding that videofluoroscopic (DMX) x-rays could only be used in surgical procedures and that they do not have utility to chiropractic physicians. (R. 183-1, Def.'s Rule 56.1 Stmt., ¶ 29.) Crespo and Ortiz believed that videofluoroscopic x-rays had no usefulness to chiropractic physicians. Id. at ¶ 33. In fact, Crespo communicated with employees of other insurance companies who shared the view that use of DMX was inappropriate to evaluate soft-tissue injuries. Id. at ¶ 30. Ortiz, Ryan and Arbetman also believed that every time Dr. D'Souza employed DMX studies for his patients, he was doing so only to increase the patient's bill. Id. at ¶ 34. In addition, Ryan believed that Dr. D'Souza took unnecessary conventional x-rays. (Def. Ex. 7, Ryan Dep., pp. 83-88.) Ryan and Arbetman believed that Dr. D'Souza's use of computerized range of motion and muscle strength (ROM-MS) tests were medically unnecessary. (R. 183-1, ¶ 38.)

Some of the investigators premised their beliefs on information contained on Dr. D'Souza's website. Dr. D'Souza's website claimed that DMX had the ability to find injuries that were never seen before, and that it could provide objective information that could not be disputed. (R. 198-1, ¶ 17.) The website targeted potential personal injury claimants and attorneys by purporting to represent that DMX could assist in settling and/or resolving claims for more money. Id. at ¶ 18. Crespo was aware that Dr. D'Souza promoted the use of DMX on his website and Crespo believed that his advertisements were inappropriate. (R. 183-1, ¶ 35; Def. Ex. 4, Crespo Dep., pp. 228-229.)

Throughout the pendency of the investigation of Dr. D'Souza, from 2002 to 2004, the SIU investigators, litigation specialists, and analysts reviewed Dr. D'Souza's claim files on a case-by-case basis, visited Defendants' clinics, conducted surveillance of Defendants' clinics, researched DMX generally and as a diagnostic tool, attended SIU meetings where Defendants and other suspected fraudulent providers were discussed, and obtained statements from insured and claimants in personal injury claims at issue. (R. 198-1, ¶ 20.) By 2004, the SIU investigators and litigation specialists began to notice that they were being bombarded with insurance claims from multiple clinics that Defendants operated in the Chicago area. Id. at ¶ 25. After seeing increasing numbers of claims, the SIU employees began to see other issues of potential misconduct. Id. at ¶ 26. The other areas of misconduct included inappropriate use of form medical reporting, deceptive use of letterhead and other records, unnecessary use of computerized range of motion testing, unnecessary x-rays, and exaggeration of the nature and extent of the diagnosed injuries. Id. at ¶ 27.

As a result of the increasing patterns of misconduct, in mid-2004, Monforton, the assigned SIU analyst, approved the escalation of the SIU investigation into a "project" to look at Defendants' practices on a global level rather than on an individual level. (Pl. Ex. 9(a), Ryan Aff., ¶ 17.) The project allowed for a more focused investigation into Defendants' operations and practices on a global level. (R. 198-1, ¶ 31.) Although the date Allstate first communicated with Allstate in-house counsel regarding Dr. D'Souza is unclear, (Def.'s Ex. 4, Crespo Dep., pp. 73-75; 315-316), in June 2004, Allstate retained legal counsel, LaRose & Bosco, as defense counsel in various personal injury cases being pursued by patients treated by Defendants. (R. 198-1, ¶ 33.) Allstate's counsel then secured depositions of Dr. D'Souza and his employees, as well as statements of the personal injury plaintiffs who allegedly received the treatments and diagnostic testing billed by Defendants. Id. at ¶ 34.

In 2005, Allstate also retained chiropractic experts, including Dr. Tara Reinke, to conduct peer reviews of cases involving Defendants' clinics. Id. at ¶¶ 35-36. Allstate used Dr. Reinke's opinions when making the decision to go forward with the filing of a lawsuit against Defendants in December 2006. (Pl. Ex. 8, Crespo Dep., p. 127.) In May of 2006, Allstate again retained Dr. Reinke to determine whether she could verify that patterns and practices of misconduct existed in all of the personal injury related insurance claims submitted by Defendants to Allstate. (R. 198-1, ¶ 38.) Ultimately, Dr. Reinke opined that Dr. D'Souza routinely misrepresented the nature and extent of patients' injuries, provided excessive and unnecessary treatment and diagnostic testing, and billed for examinations, treatments and diagnostic testing that he never actually rendered. Id. at ¶ 39.*fn2

Due to the patterns of fraud revealed by Allstate's investigation, Crespo ultimately recommended to her superiors that Allstate file a lawsuit against Dr. D'Souza. Specifically, based on her review of the evidence obtained during the investigation of the project and on her own independent review of "hundreds" of claims involving Defendants' clinics, Crespo ultimately presented the project to her manager, Kevin Meritt. (Id. at ¶ 40; Def.'s Ex. 4, Crespo Dep., pp. 127-128.) After Meritt reviewed the investigation, he presented it to Edward Moran, head of the SIU Claims Department, for authority to pursue the insurance fraud action against Defendants that Allstate ultimately filed on December 19, 2006. Id. at ¶ 41.

B. Allstate's Settlement of Dr. D'Souza's Claims

During the pendency of the investigation, Allstate settled cases brought by Dr. D'Souza's patients on the basis of such factors as liability factors, litigation costs, and the possibility of adverse settlements. (R. 183-1, ¶¶ 54-56.) Crespo testified that, on occasion, Allstate would convey to these plaintiffs' attorneys that it believed that Dr. D'Souza was engaged in a fraud scheme, but that Allstate evaluated each case on its merits and "never completely denied every one of [Dr. D'Souza's] bills." (Def. Ex. 4, Crespo Dep., ¶¶ 143-148.) Allstate also settled third party claims on a lump sum basis without separating out payments for Dr. D'Souza. (R. 183-1, ¶ 58.) Summins testified that every time Allstate investigated a case, "we had to evaluate a case on its own merits. Certainly there are many aspects of an insurance claim involving any specific injury party . . . which would sometimes necessitate us to -- in order to protect our policy holders and to protect Allstate [--] make sure that they settled the case instead of denying the case." (Pl. Ex. 7, Summins Dep, pp. 192-193.) Similarly, Ryan testified that while he thought that Dr. D'Souza might be engaging in fraud, that he still settled cases involving Dr. D'Souza due to other factors that Allstate considers in settling claims. (Pl. Ex. 9, Ryan Dep., pp. 156-157.) Ryan testified that, "frequently I have cases where I suspected we had evidence of billing for services not rendered or something inappropriate that took place, up-coding, late treatment, but my first obligation is to protect my policyholder and resolve the claim." Id.

C. Damages

Allstate initially provided Defendants with a spreadsheet prepared by SIU analyst Crespo that listed the names of all claimants, amounts Defendants billed for alleged chiropractic treatment, amounts Allstate paid to resolve those claims, and expenses Allstate incurred in resolving the claims. (R. 198-1, ¶ 46.) Crespo personally reviewed hundreds of claims at issue involving Defendants' clinics and had the ability to conduct global reviews of the claims. Id. at ¶ 68. Later in discovery, and subsequent to the Court granting Defendants' request for Allstate to identify for each bill at issue the "specific charges that Plaintiffs claim are fraudulent, evidence of racketeering, or otherwise actionable," Allstate responded by identifying hundreds of bills at issue in this litigation. (R. 183-1, ¶¶ 61-62.) Magistrate Judge Denlow entered an order stating that Allstate would be "bound by the disclosure made in discovery for purposes of trial and motions." Id. at ¶ 62. Thereafter, in response to Defendants' request to state the specific charge in each bill that is "fraudulent, evidence of racketeering, or otherwise actionable," Allstate ultimately stated that "each and every one of the [claims in Exhibit A] were based in whole or part upon the fraud, racketeering, or otherwise actionable activities of the defendants." (Def. Ex. 15, Plaintiffs' Answers to First Set of Interrogatories, p. 3.)

In an interrogatory, Defendants also requested that Allstate identify "each and every alleged false, misleading, deceptive, or fraudulent representation by the Defendants upon which you base the claims of your Complaint and/or upon which you intend to rely upon to support your claims at trial," as well as detailed information regarding, inter alia, the content, date and person responsible for the misrepresentations. (R. 183-1, ¶ 63.) In response, Allstate identified depositions of various witnesses who testified in civil actions relating to personal injury claims, as well as information contained in Defendants' patient files and billing statements. Allstate also referred Defendants to the list of all claims at issue in the litigation and statements and depositions of various claimants previously provided to Defendants. In accordance with Magistrate Judge Denlow's November 19, 2007 order, Allstate also provided Defendants with 10 exemplar claims that contained specific and detailed examples of fraudulent billing, and other improper practices. (Def. Ex. 21, Allstate's Answers to Defendants' Third Set of Interrogatories, p. 5.)

On January 23, 2008, in response to Defendants' interrogatory regarding Allstate's employee witnesses, Allstate identified both Crespo and Monforton and explained that Monforton took over the position of analyst on the investigation of Dr. D'Souza when Crespo left Allstate at the end of 2007. Id. at p. 6. In their supplemental Rule 26(a) disclosures, Allstate identified Crespo as having knowledge regarding ...

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