MCELROY, DEUTSCH, MULVANEY & CARPENTER, LLP John Zen Jackson (011041975) Attorneys for the Medical Society of New Jersey And the American Medical Association 1300 Mount Kemble Avenue P.O. Box 2075 Morristown, NJ 07962-2075

ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, ALLSTATE NEW JERSEY INSURANCE COMPANY,

:SUPREME COURT OF NEW JERSEY

'.DOCKET NUMBER A-27-15 (07,6069)

APPELLATE DIVISION PLAINTIFFS-PETITIONERS, DOCKET NOS.: A-636-12T4 &

A-964-2T4 v.

NORTHFIELD MEDICAL CENTER, P.C.; ET AL.,

DEFENDANTS,

AND

DANIEL H. DAHAN, D.C., PRACTICE PERFECT; MEDICAL NEUROLOGICAL DIAGNOSTICS, INC.; ROBERT P. BORSODY, ESQUIRE,

DEFENDANTS-RESPONDENTS

BRIEF ON BEHALF OF THE MEDICAL SOCIETY OF NEW JERSEY

AND THE AMERICAN MEDICAL ASSOCIATION AS AMICI CURIE

John Zen Jackson, Esq. McElroy. Deutsch, Mulvaney & Carpenter, LLP 1300 Mount Kemble Avenue P.O. Box 2075 Morristown, NJ 07962-2075 Tel: 973-993-8100 Attorneys for Medical Society of New Jersey And the American Medical Association as amici curiae

TABLE OF CONTENTS

PRELIMINARY STATEMENT AND INTEREST OF THE PROPOSED AMICI .. 1

PROCEDURAL HI STORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . • 7

STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

LEGAL ARGUMENT

THE PREDICATE KNOWLEDGE FOR A "KNOWING" VIOLATION OF THE INSURANCE FRAUD PROTECTION ACT SHOULD BE CONSTRUED IN ITS ORDINARY SENSE OF ACTUAL KNOWLEDGE AND NOT IN A LOOSER FASHION OF "KNEW OR SHOULD HAVE KNOWN." GOOD FAITH MISTAKES IN THE COMPLEX AREA OF MEDICAL BILLING SHOULD NOT RESULT IN EXPANSIVE LIABILITY UNDER THE ACT ............ 14

An Erroneous Medical Bill Does Not Equal A Fraudulent Medical Bill ...•.•••••••••..........•.•• 22

State Government Should Maintain Control Over Enforcing Its Regulations .••......•.•.....•.....•.... 24

The Impact Of Inadequate Or Inaccurate Guidance From The State Or Private Insurance Payers......................... 26

CONCLUSION ............................................... 35

TABLE OF AUTHORITIES

Cases

Allstate Insurance Co. v. Orthopedic Evaluations, Inc., 300 N.J. Super. 510 (App. Div. 1997), certif. granted and remanded, 151 N.J. 67 (1997), aff'd

Page(s)

after remand, 304 N.J. Super. 278 (App. Div. 1997) ......... 25

Allstate Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999) .................... 12, 25

Betancourt v. Trinitas, 415 N.J. Super. 301 (App. Div. 2010) ........................ 5

Blecker v. State, 323 N.J. Super. 434 (App. Div. 1999) ....................... 21

Cmty. Hosp. v. More, 183 N.J. 36 (2005) .......................................... 5

Cooper Univ. Hosp. v. Sebelius, 636 F.3d 44 (3d Cir. 2010) ............................. 20, 21

DiProspero v. Penn, 183 N.J. 447 (2005) .................................... 14, 15

Dul tz v. Velez, 726 F. Supp. 2d 480 (D.N.J. 2010) .......................... 21

Endo Surgi Ctr. v. Liberty Mutual Ins. Co., 2010 N.J. Super. Unpub. LEXIS 1988 (App. Div. August 17, 2010) .................................................. 25

Garcia v. Health Net of N.J., Inc., 2007 N.J. Super. Unpub. LEXIS 2995 (Ch. Div. Nov. 20, 2007), aff'd, 2009 N.J. Super. Unpub. LEXIS 2858 (App. Div. Nov. 17, 2009), certif. denied, 201 N.J. 442 (2010) ................................................. 24

Garcia v. Health Net of New Jersey, 2009 N.J. Super. Unpub. LEXIS 2858 (App. Div. Nov. 17, 2009), certif. denied, 201 N.J. 442 (2010) ............. 18

Hirsch v. New Jersey State Bd. of Med. Exam' rs, 128 N.J. Super. 160 (App. Div. 1992) ............................ 5

11

Howard v. UMDNJ, 172 N.J. 537 (2002) ......................................... 5

In re License Issued to Zahl, 186 N.J. 341 (2006) ......................................... 5

In re Plan for the Abolition of the Council on Affordable Housing, 214 N.J. 444 (2013) ........................................ 16

Jarrell v. Kaul, 223 N.J. 294 (2015) ........................................ 24

Johnson v. Braddy, 186 N.J. 40 (2006) .......................................... 5

Liguori v. Elmann, 191 N.J. 527 (2007) .......................................... 5

Macedo v. Della Russo, 178 N.J. 340 (2003) ......................................... 5

Morlino v. Med. Ctr., 152 N.J. 563 (1997) ......................................... 5

MSNJ v. New Jersey Dep't of Law & Pub. Safety, Div. of Consumer Affairs, 120 N.J. 18 (1990) .......................................... 5

Murray v. Plainfield Rescue Squad, 210 N.J. 581 (2012) .................................... 15, 20

New Jersey Ass'n of Health Plans v. Farmer, 342 N.J. Super. 536 (App. Div. 2000) ........................ 5

New Jersey Ass'n of Nurse Anesthetists, Inc. v. New Jersey State Bd. of Med. Exam' rs, 183 N.J. 605 (2005) ......................................... 5

Nicholas v. Mynster, 213 N.J. 463 (2013)

OHS Compcare v. KASB Risk Mgmt. Servs.,

5' 16

270 P. 3d 1230 .............................................. 21

Open MRI of Morris & Essex, L.P. v. Frieri, 405 N.J. Super. 576 (App. Div. 2009) ....................... 25

1l1

Petrocco v. Dover Gen. Hosp., 273 N.J. Super. 501 (App. Div. 1994) ........................ 5

Rehab. Ass'n v. Kozlowski, 42 F.3d 1444 (4th Cir. Va. 1994), cert. denied, 516 U.S. 811 (1995) ............................................ 20

Ryan v. Renny, 203 N.J. 37 (2010) ........................................... 5

Selective Ins. Co. of Am. v. Rothman, 209 N.J. 580 (2012) ......................................... 5

State v. Afanador, 134 N.J. 162 (1993) ........................................ 14

State v. Deschenes, 2010 N.J. Super. Unpub. LEXIS 1871(App. Div. Aug. 3, 2010) ...................................................... 18

State v. Robert Goodwin, 2016 N.J. LEXIS 7 (Jan. 19, 2016) .......................... 17

State v. Williams, 218 N.J. 476 (2014) ........................................ 14

United States ex rel. Conner v. Salina Reg'l Health Ctr., 543 F.3d 1211 (10th Cir. 2008) ............................. 26

United States ex rel. Hagood v. Sonoma County Water Agency, 2929 F.2d 1416 (9ili Cir. 1991) .......................... 22, 28

United States ex rel. Hochman v. Nackman, 145 F.3d 1069 (9th Cir. 1998) ............................... 23

United States ex rel. Swafford v. Borgess Medical Center, 98 F. Supp.2d 822 (W.D. Mich. 2000), aff'd, 24 Fed.Appx. 491 (6th Cir. 2001), cert. denied, 535 U.S. 1096 (2002) ....................................... 26, 27

United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295,310 (3d Cir. 2011) ............................ 26

Varano, Damian & Finkel, L.L.C. v. Allstate Ins. Co., 366 N.J. Super. 1 (App. Div. 2004) ......................... 25

IV

Wang v. FMC Corp. ' 975 F. 2d 1412 (9th Cir. 1992) ............................... 28

Webb v. Witt, 379 N.J. Super. 18 (App. Div. 2005) ......................... 5

Wilson ex rel. Manzano v. City of Jersey City, 209 N. J. 558 (2012) ........................................ 15

Women's Medical Center v. Finley, 192 N.J. Super. 44 (App. Div. 1983), certif. denied, 96 N.J. 279 (1984) ...................................... 9, 10

Statutes

31 U.S. C. 3729 (b) (1) .......................................... 19

42 u. s. c. 1320a-7b ............................................ 29

N.J.S.A. 2A:32C-2 ............................................. 19

N.J.S.A. 2C:2-2(b) (2) ..................................... 17, 19

N.J.S.A. 14A:l7-3 .............................................. 8

N.J.S.A. 14A:l7-5 .............................................. 8

N.J.S.A. 17:33A-l et seq . ..................................... 1

N.J.S.A. 17:33A-4 ......................................... 13, 16

N.J.S.A. 17:33A-5 .............................................. 1

N.J.S.A. 17:33A-7 .............................................. 1

N.J.S.A. 26:2K-29 ............................................. 15

N.J.S.A. 39:6A-l.l et seq . ................................... 15

Regulations

64 Fed. Reg. 63,518 (Nov. 19, 1999) ....................... 30, 31

N.J.A.C. 13:35-6.16 ........................................... 8

Other Authorities

Black's Law Dictionary (10th ed. 2014) .................... 17, 18

v

K.S. Okamoto, Teaching Transactional Lawyering, 1 Drexel L.Rev. 69 (2009) .................................... 33

o.w Holmes, Jr., THE COMMON LAW(l881) ........................... 17

Richard Doan, The False Claims Act and the Eroding Scienter in Healthcare Fraud Litigation, 20 Annals of Health Law 49 (2011) .................................... 21

Webster's New World College Dictionary (2014) ................. 17

APPENDIX: OPINIONS NOT APPROVED FOR PUBLICATION IN ACCORDANCE WITH R.1:36-3

Endo Surgi Ctr. v. Liberty Mutual Ins. Co., 2010 N.J. Super. Unpub. LEXIS 1988 (App. Div. August 17, 2010)

Garcia v. Health Net of N.J., Inc., 2007 N.J. Super. Unpub. LEXIS 2995 (Ch. Div. Nov. 20, 2007)

Garcia v. Health Net of New Jersey, 2009 N.J. Super. Unpub. LEXIS 2858 (App. Div. Nov. 17, 2009)

State v. Deschenes, 2010 N.J. Super. Unpub. LEXIS 187l(App. Div. Aug. 3, 2010)

State v. Robert Goodwin, 2016 N.J. LEXIS 7 (Jan. 19, 2016)*

VI

PRELIMINARY STATEMENT AND INTEREST OF THE PROPOSED AMICI

The Medical Society of New Jersey (MSNJ) and the

American Medical Association (AMA) as amici curiae seek to

present comments to the Court on the appropriate standard

for determining if there has been a "knowing" violation of

the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-

1 et seq. Recognizing the important public interest in

vigorous anti-fraud enforcement, MSNJ and AMA nonetheless

present concerns regarding the dangers of an overly broad

and sweeping imposition of liability, particularly in

relation to the operation of reimbursement programs where

insurers may assert "fraud" to deny payment, which can have

devastating economic and professional consequences for

members of the medical community. 1

The foundation of modern physician ethics is embodied

in the American Medical Association's (AMA) nine Principles

of Medical Ethics. These nine principles inform the ethics

1 A determination of liability for a violation of the Insurance Fraud Prevention Act can result in monetary damages that are to be trebled if there is a "pattern" of violating the Act consisting of five or more related violations as far as the same victim or same action on the part of the person charged with the violations. N. J. S .A. 17:33A-7. The same conduct may be the subject of an action by the Commissioner of Insurance with imposition of penalties as well as referral for criminal prosecution or to the appropriate licensing board for institution of disciplinary proceedings. N.J.S.A. 17:33A-5.

policy-making bodies of organized medicine in the drafting

and composition of ethics opinions. The Medical Society of

New Jersey (MSNJ) recognizes the AMA's Principles of Ethics

as the basic guide for the ethical conduct of its members.

The second Principle of Medical Ethics is a statement of

the physician's ethical responsibilities with regard to

honesty in professional interactions and reads as follows:

A physician shall uphold the standards of professionalism, be honest in all professional interactions, and strive to report physicians deficient in character or competence, or engaging in fraud or deception, to appropriate entities.

There is no argument to support deliberate fraud in

the performance of medical care or the submission of bills

seeking reimbursement for medical care. But there is a

continuum at least between deliberate fraud and mistake.

An appropriate standard and definition of "knowing''

prevents that continuum from becoming a slippery slope that

punishes healthcare practitioners who reasonably believe

that they are in conformance with their professional

ethical obligations and with state law.

Participation by MSNJ and the AMA as amici curiae on

behalf of their physician memberships will sharpen the

focus on physician-related issues presented on this appeal.

Such participation will also add to and to some extent

2

respond to the contribution made by other organizations

seeking recognition as amicus curiae.

The MSNJ is a non-profit professional society

organized under the laws of the State of New Jersey and is

located at 2 Princess Road, Lawrenceville, New Jersey. It

was founded in 1766. It was the first state society of

physicians in the nation and is the primary organization of

physicians in New Jersey.

The AMA, an Illinois non-profit corporation, is the

largest professional association of physicians and medical

students in the United States. Additionally, through state

and specialty medical societies and other physician groups

seated in its House of Delegates, substantially all United

States physicians, residents and medical students are

represented in the AMA's policy making process. The AMA was

founded in 1847 to promote the science and art of medicine

and the betterment of public health, and these still remain

its core purposes. AMA members practice in every state,

including New Jersey, and in every specialty.

affiliate and constituent member of the AMA.

MSNJ is an

The AMA and MSNJ join this Brief on their own behalves

and as representatives of the Litigation Center of the

American Medical Association and the State Medical

Societies. The Litigation Center is a coalition among the

3

AMA and the medical societies of each state, plus the

District of Columbia, whose purpose is to represent the

viewpoint of organized medicine in the courts.

The MSNJ and the AMA have played important roles in

advocating on behalf of their members over the years. For

250 years, the MSNJ has been an advocate of quality health

care and health services for all citizens of this State,

and has offered leadership and assistance to its physician

members. The MSNJ regularly participates in important

issues in the judicial, legislative and regulatory arenas.

Particularly germane to the issues before the Court in

this matter is the AMA' s experience in promulgating the

billing codes that are part of Current Procedural

Terminology (CPT), the most widely accepted source for

medical nomenclature used to report medical procedures and

services under public and private insurance plans. There

have been numerous instances in which allegations of

"fraud" have been made against healthcare providers based

on the incorrect use of a CPT code.

The MSNJ, frequently joined by the AMA, has

participated in the judicial arena either as a party, as an

amicus or in a representational capacity, on behalf of the

medical profession and the physicians of New Jersey as a

whole, in a number of cases before the Supreme Court of New

4

Jersey, the Appellate Division and in the federal courts. 2

These were all cases involving issues of importance to the

medical profession or to the patients whom the members of

that profession are privileged to serve. The issues have

included the process for adjudicating questions of quality

of care provided to patients and also the economics of and

access to medical care.

Through participation in state and federal lawsuits

and testimony before legislative bodies such as United

States Senate committees, the AMA and MSNJ have been

involved in challenging the flaws in the methodology used

to determine payment for physician services. Because of the

importance of the issue of appropriate reimbursement for

medical services, the confrontation of physicians with

2 See, e.g, Nicholas v. Mynster, 213 N.J. 463 (2013); Selective Ins. Co. of Am. v. Rothman, 209 N.J. 580 (2012); Ryan v. Renny, 203 N.J. 37 (2010); Liguori v. Elmann, 191 N.J. 527(2007); In re License Issued to Zahl, 186 N.J. 341 (2006); Johnson v. Braddy, 186 N.J. 40 (2006); New Jersey Ass'n of Nurse Anesthetists, Inc. v. New Jersey State Bd. of Med. Exam'rs, 183 N.J. 605 (2005); Cmty. Hosp. v. More, 183 N.J. 36 (2005); Macedo v. Della Russo, 178 N.J. 340 (2003); Howard v. UMDNJ, 172 N.J. 537 (2002); Morlino v. Med. Ctr., 152 N.J. 563 (1997); Betancourt v. Trinitas, 415 N.J. Super. 301 (App. Div. 2010); Webb v. Witt, 379 N.J. Super. 18 (App. Div. 2005); New Jersey Ass'n of Health Plans v. Farmer, 342 N.J. Super. 536 (App. Div. 2000), Petrocco v. Dover Gen. Hosp., 273 N.J. Super. 501 (App. Div. 1994); Hirsch v. New Jersey State Bd. of Med. Exam' rs, 128 N.J. Super. 160 (1992); MSNJ v. New Jersey Dep't of Law & Pub. Safety, Div. of Consumer Affairs, 120 N.J. 18 (1990).

5

questionable assertions of fraudulent billing, the

likelihood of its repetition, and the involvement generally

of these professional associations in developing the law

and public policy in cases affecting the practice of

medicine, the MSNJ together with the AMA wish to

participate and be heard as amici curiae in the issues in

the present appeal.

6

PROCEDURAL HISTORY

On October 19, 1999, plaintiff Allstate Insurance

Company (Allstate) filed a multi-count, multi-defendant

complaint in the Superior Court for Morris County. The

named defendants included a number of health providers and

entities, some of which were physicians and others

chiropractors. The defendants also included the respondents

in the matter now before the Court Robert P. Borsody, an

attorney specializing in healthcare law, and Daniel H.

Dahan, D. c., a chiropractor and his two business entities

known as Practice Perfect and Medical Diagnostics, Inc.

After prolonged litigation of a variety of issues, a

bench trial was held, resulting in a judgment on October

15, 2012 against Dahan and Borsody, jointly and severally,

in the amount of $3,961,240.20. Defendants appealed.

A panel of the Appellate Division composed of Judges

Alvarez, Waugh, and Maven heard oral argument on December

10, 2014. An opinion, not approved for publication, was

issued on May 4, 2015 reversing the finding of liability.

Plaintiff Allstate filed a petition for certification

on May 22, 2015. The petition was granted on November 20,

2015 with a posting on the Judiciary website that same day.

7

STATEMENT OF FACTS

This matter arises out of events in the mid-1990s

involving

healthcare

attempts

services

to

to

structure entities

receive reimbursement

providing

that might

otherwise not have been available. Defendants Borsody and

Dahan had designed a business model that was intended to

allow investment by non-physicians (primarily

chiropractors) in medical practices. The model was

designed to allow such investment to lawfully occur

notwithstanding against regulatory provisions limiting the

activities of plenary licensees of the Board of Medical

Examiners, that is, physicians, and limited licensees such

as chiropractors or podiatrists. In essence, regulations

of the Board of Medical Examiners prohibited general

business corporations from the practice of medicine and

prohibited

licensees.

limited licensees from employing plenary

At the same time, both New Jersey statutory

law, N.J.S.A. 14A:17-3; 14A:17-5, and Board of Medical

Examiners regulation, N.J.A.C. 13:35-6.16(f), permitted the

association of physicians and chiropractors as "closely

allied professionals" in a professional corporation.

The predominant requirement was that the plenary

licensed medical professional -- the physician -- was in a

8

position to exercise independent medical judgment for the

benefits of patients. Similarly, the increased burden of

administrative detail and paperwork on private practice

physicians was increasingly addressed through the use of

outside management companies. Such management agreements

received judicial approval in Women's Medical Center v.

Finley, 192 N.J. Super. 44 (App. Div. 1983)' certif.

denied, 96 N.J. 279 (1984) . The court held that an

appropriate "private physician practice" was present even

though the physician had made no direct capital investment

in the off ice equipment and received reduced prof its

because of payments to the management company for the

equipment and other services as long as the values were

equivalent to what the market would bring in the specialty.

Equally of no meaningful concern was the handling of non-

professional matters such as who paid the office expenses,

who maintained business records, who paid the rent, who

hired non-professional staff, and whether or not there was

advertising. The Appellate Di vision captured the essential

point:

[I]n any private practice all of these business, administrative and management chores must or may be performed. If the manner of their performance does not impinge upon the ordinary patient-private physician relationship and does not impinge upon professional control by the physicians of the medical practice and does not affect the essential character and commonly

9

understood attributes of private practice, then it is evident that the "in-house" versus "out-of-house" business and administrative management of the practice has no fundamental impact on the "modality" of delivery of health care services. [192 N.J. Super. at 47-SS(emphasis added).]

Consistent with the practice of regulatory agencies,

the Board of Medical Examiners had issued advisory letters

on matters involving its regulations and the practice of

medicine. Two letters authored by Kevin Earle, the then

Executive Director of the BME, dated November 16, 1995 and

April 28, 1997 are central to the issues arising under the

IFPA in this case. There is a third letter written by

Debra Levine, a Deputy Attorney General assigned to the

BME, on June 11, 1997 that is also germane.

The first Earle letter addressed the division of

ownership in a multi-disciplinary practice with a

disproportionate share of stock being held by a

chiropractor. See Ja2948-50. Even though the physician-

stockholder was to be designated the medical director of

the practice, the letter expressed some reservations about

such a structure even though it left open the possibility

that a limited licensee could own up to 49% of the

practice, as well as other corporate models in which "the

physician's professional judgment" would be safeguarded.

Ja2948. The second Earle letter posed a question in a

10

circumstance where the physician was the majority

shareholder. In addition to noting that a chiropractor was

a licensed health care professional with whom a physician

could form a professional corporation, the BME Executive

Director responded to the inquiring lawyer: "Your

interpretation as to who shall be a majority shareholder of

such an entity is also correct." [Ja2951] The Deputy

Attorney General's letter, however, provided a different

and indeed conflicting position as to the formation of a

professional corporation by a physician and a chiropractor.

While reiterating that such a corporation could be formed,

the letter continued: "There is no statutory or regulatory

provision requiring that the licensee with the greater

scope of practice hold a majority of the stock in the

professional corporation." (Ja3143] From the Deputy

Attorney General's letter it seemed that the state of the

law concerning the extent of a chiropractor's permissible

involvement in a medical practice was at the very least

open to question at the time.

These informal advisory opinions on behalf of the BME

are generally known to healthcare lawyers. However, not

surprisingly, healthcare lawyers at times differed as to

the legal conclusions to be drawn from such regulatory

guidance. On balance, aspects of the regulatory regime

11

were in flux.

Relying on his understanding of corporate and

healthcare law, Borsody developed a business model

utilizing management agreements and other corporate

documents that was intended to allow a chiropractor to

invest in a medical practice with limited risk of losing

the investment in the event of the physician's departure

and without running afoul of the BME regulatory requirement

concerning acceptable practice structures. 3 Borsody made

several public presentations regarding this multi-

disciplinary practice model through the consulting company

operated by Dahan. One of these presentations was attended

by defendant J. Scott Neuner, D. C., a New Jersey

chiropractor.

After hearing the presentation by Borsody, Neuner

worked with Dahan and in consultation with his own

corporate lawyer established such a practice in June 1997.

Known as Northfield Medical Center, it submitted

reimbursement claims to Allstate for medical services

provided to automobile accident victims. This eventually

3 Borsody's view that the model complied with New Jersey law changed with the court decision in Allstate Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999). This opinion was issued in November 1999, a little over a month after the Complaint was filed in this matter.

12

led to Allstate's institution of the IFPA litigation

charging that Northfield Medical Center was not entitled to

receive such insurance benefits because it was not properly

organized. The claim against Borsody and Dahan was that

they violated N.J.S.A. 17:33A-4(b) and (c) in that they had

"knowingly assist[ed), conspire[d) with, or urge[d) any

person or practitioner to violate any of the provisions of

this act" and "due to the assistance, conspiracy or urging

of any person" the other defendants "knowingly benefit[ed),

directly or indirectly, from the proceeds derived from a

violation of this act."

13

LEGAL ARGUMENT

THE PREDICATE KNOWLEDGE FOR A "KNOWING" VIOLATION OF THE INSURANCE FRAUD PROTECTION ACT SHOULD BE CONSTRUED IN ITS ORDINARY SENSE OF ACTUAL KNOWLEDGE AND NOT IN A LOOSER FASHION OF "KNEW OR SHOULD HAVE KNOWN." GOOD FAITH MISTAKES IN THE COMPLEX AREA OF MEDICAL BILLING SHOULD NOT RESULT IN EXPANSIVE LIABILITY UNDER THE ACT.

In its unpublished opinion, the Appellate Division

panel focused on "[t]he crucial question" in the appeal:

[W] hether, by a preponderance of the evidence, Allstate proved that Borsody and Dahan "knowingly" violated the IFPA. In other words, whether Dahan and Borsody knowingly assisted Neuner in violating New Jersey law, or even knew that the law in the relevant 1995-to-1997 time frame clearly prohibited the multi­disciplinary practice model they advanced. [PSCa29]

In analyzing this "crucial question," the panel noted

that the IFPA did not define the terms "knowing" or

"knowingly." Accordingly, it invoked and followed the

long-standing approach articulated by this Court: "Absent

any explicit indication of a special meaning, the words in

a statute carry their ordinary and well-understood

meaning." [PSCA31 citing State v. Williams, 218 N.J. 476,

586 (2014); State v. Afanador, 134 N.J. 162, 171 (1993) .]

This proposition is by no means confined to criminal

statutes as suggested by the citations relied on by the

Appellate Division. It is found repeatedly in a civil

context as well. For example in DiProspero v. Penn, 183

14

N.J. 447 (2005) involving the 1998 Automobile Insurance

Cost Reduction Act (AICRA), N.J.S.A. 39:6A-l.l et seq.,

Justice Albin wrote:

The Legislature's intent is the paramount goal when interpreting a statute and, generally, the best indicator of that intent is the statutory language.

We ascribe to the statutory words their ordinary meaning and significance, ... and read them in context with related provisions so as to give sense to the legislation as a whole, ... It is not the function of this Court to "rewrite a plainly-written enactment of the Legislature []or presume that the Legislature intended something other than that expressed by way of the plain language. We cannot "write in an additional qualification which the Legislature pointedly omitted in drafting its own enactment," or "engage in conjecture or surmise which will circumvent the plain meaning of the act," "Our duty is to construe and apply the statute as enacted." [183 N.J. at 492 (citations omitted).]

To similar effect is Murray v. Plainfield Rescue Squad, 210

N.J. 581, 592 (2012) concerning potential immunity for a

rescue squad as an entity under N.J.S.A. 26:2K-29 as

opposed to or in addition to its members. Pointedly,

Justice Albin observed: "The Legislature knows how to

write an immunity statute covering both an entity and its

individual members . " Id. at 593. Once again writing for

the Court, in Wilson ex rel. Manzano v. City of Jersey

City, 209 N.J. 558 (2012), Justice Albin provided a

succinct review of these principles. The paramount goal is

to give ef feet to the Legislature's intent. "When that

15

intent is revealed by a statute's plain language

ascribing to the words used 'their ordinary meaning and

significance' - we need look no further." It is only where

the language is sufficiently ambiguous that it might be

susceptible to more than one and conflicting

interpretation(s) that the court may turn to extrinsic

evidence. Id. at 572. Accord, Nicholas y. Mynster, 213 N.J.

463, 480 (2013).

Or as Chief Justice Rabner put it in very simple

terms: "Words make a difference." In re Plan for the

Abolition of the Council on Affordable Housing, 214 N. J.

444, 470 (2013).

The words chosen here by the Legislature when it

enacted N.J.S.A. 17:33A-4 in 1983 were "knowing" and

"knowingly." Although there were amendments to this

statutory provision in 1991, 1995, and 1997' 4 the

Legislature did not change, revise or modify those words.

Those words should guide the court's disposition of this

matter.

Doing some wrongful action with knowledge and

awareness of one's actions as being wrongful merits greater

blame and more severe sanctions than does doing that same

4 There was a further amendment in 2015 to address "reverse rate evasion" with regard to automobile insurance.

16

wrongful action negligently or even recklessly. As Justice

Oliver Wendell Holmes, Jr. famously put it, "even a dog

distinguishes between being stumbled over and being

kicked." o.w Holmes, Jr., THE COMMON LAW at 7 (1881).

The appellate panel here perceived a difference

between the use of the term "knowing," given its ordinary

meaning and that used in the criminal code definition in

N.J.S.A. 2C:2-2(b) (2) for culpability. There are recognized

resources for determining the contours of these

definitions. 5 Given its ordinary meaning, "knowing" is

"having knowledge or information deliberate,

intentional" According to Webster's New World College

Dictionary (2014). The ordinary "legal" definition of

"knowing" as set forth in Black's Law Dictionary (10th ed.

2014) is "(l) having or showing awareness or understanding,

well-informed; (2) deliberate, conscious." In contrast, the

New Jersey criminal statute defines these terms as follows:

A person acts knowingly with respect to the nature of his conduct or the attendant circumstances if he is aware that his conduct is of that nature, or that such circumstances exist, or he is aware of a high probability of their existence. A person acts knowingly with respect to a result of his conduct if he is aware that it is practically certain that his

s The Court recently chose to rely on these particular dictionaries to ascertain the general meaning of the term "material" in the context of criminal insurance fraud. See State v. Robert Goodwin, 2016 N.J. LEXIS 7 at *21-22 (Jan. 19' 2016).

17

conduct will cause such a result. "Knowing," "with knowledge" or equivalent terms have the same meaning.

Other panels of the Appellate Division have approached

the statutory language of "knowing" and "knowingly" in a

similar fashion. See, e.g., Garcia v. Health Net of New

Jersey, 2009 N.J. Super. Unpub. LEXIS 2858 at *7 (App. Div.

Nov. 17, 2009), certif. denied, 201 N.J. 442 (2010)(using

Black's Law Dictionary in connection with allegedly

improper self-referral and structure of physician-owned

ambulatory surgery center) . To similar effect is the

decision under the criminal healthcare fraud statute

regarding "knowing" in State v. Deschenes, 2010 N.J. Super.

Unpub. LEXIS 1871 at *15-16 (App. Div. Aug. 3, 2010),

employing the criminal code definition in vacating a

finding of fraud based on a dentist's inclusion of an

erroneous date in a claim form. The court in Deschenes

noted the definition in Black's Law Dictionary and observed

that in the context of civil law there was a distinction

between actual knowledge, which necessitates proof that the

actor actually became aware of the information in question,

as opposed to construe ti ve knowledge, wherein such

awareness is presumed or imputed. It endorsed sensitivity

to these distinctive gradations of an actor's potential

state of mind."

18

In any event, the panel here perceived a distinction

in these two definitions and concluded that Allstate had

not established a knowing violation of the IFPA by a

preponderance of the evidence. However, both Allstate and

respondents Borsody and Dahan are in agreement that the

Appellate Division's stance in this regard was "a

distinction without a difference." [Ppc28; DBrpc24; DBsb7-

8; DDrpcl6] The parties instead dispute how either an

ordinary definition of "knowing" as far as being aware or

the criminal code state of mind definition in N.J.S.A.

2C: 2-2 (b) (2) applies to the facts in this matter.

But none of the parties urge some lesser meaning of

"knowing.• This Court should not embrace the definition of

"knowing" as specified in the New Jersey False Claims Act.

It is a leap that the Court should not make.

The New Jersey False Claims Act has a specific

provision defining "knowing." It is found at N.J.S.A.

2A:32C-2. Enacted in 2007 and similarly to the Federal

False Claims Act, 31 U.S.C. §3729 (b) (1), this statute

defines the terms "knowing" or "knowingly" to mean that a

person:

(1) has actual knowledge of the information; or

(2) acts in deliberate ignorance of the truth or falsity of the information; or

19

(3) acts in reckless disregard of the truth or falsity of the information. [(Emphasis added.)]

This is a knew-or-should-have known standard. It

presents the imminent risk of liability based on negligence

or even mistake.

To invoke Justice Albin' s observation in Murray v.

Plainfield Rescue Squad, the Legislature knows how to

define a state of mind when it means something other than

the ordinary meaning. It did not do so with regard to the

IFPA when originally enacted or at the time of any of the

several amendments. This Court should not embrace or

import into the IFPA such definitions for the term

\'knowing" or \\knowingly. /1

There are, however, some important lessons to be drawn

from the Federal statutes in this area. Even with a lower

standard for "knowing," these decisions show that a good

faith belief that one is doing is lawful does not satisfy

the "knowingly" standard.

To begin with, more than one court has observed that

the coding and billing regulations for Medicare and

Medicaid reimbursement "are among the most completely

impenetrable texts within human experience." Rehab. Ass' n

v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. Va. 1994), cert.

denied, 516 U.S. 811 (1995). Accord, Cooper Univ. Hosp. v.

20

Sebelius, 636 F.3d 44, 45 (3d Cir. 2010); Dultz v. Velez,

726 F. Supp. 2d 480, 482 n.2 (D.N.J. 2010); Blecker v.

State, 323 N.J. Super. 434, 441 (App. Div. 1999). One

commentator has observed: "The federal government cannot

reasonably expect unsophisticated healthcare providers to

navigate the maze of 15,000 Medicare regulations, 400 pages

of Medicare laws, thousands of pages of CMS literature,

7,000 CPT codes, and 51 idiosyncratic state Medicaid

programs." Richard Doan, The False Claims Act and the

Eroding Scienter in Healthcare Fraud Litigation, 20 Annals

of Health Law 49, 74 (2011).

Similarly, the complexity in medical billing is

captured in OHS Compcare v. KASE Risk Mgmt. Servs., 270

P.3d 1230 at *1-2 (Kan. Ct. App. 2012, which discussed the

use of Current Procedural Terminology, developed by the

American Medical Association (AMA) to facilitate accuracy,

quality, and communication between heal th care providers

and third-party payors and described the process for using

its codes and guidelines.

Notwithstanding the availability of the CPT, medical

coding and billing is complex, fact specific, and

frequently subject to good faith differences of

interpretation.

21

The Kentucky court noted that to assist in this

process there were supplemental American Medical

Association (AMA) resources, including CPT Assistant

newsletters and the Centers for Medicare and Medicaid

Services Documentation Guidelines for Evaluation and

Management Services (1995 CMS guidelines), to ensure the

accuracy and quality of E & M codes. In short, this is an

area where there are instances of black and white but also

many areas that are varying shades of gray.

An Erroneous Medical Bill Does Not Equal A Fraudulent Medical Bill

In this complex, challenging, and at times perplexing

area, mistakes are bound to happen.

Submitting an erroneous claim for reimbursement in

good faith should not be equated to submitting a fraudulent

claim. This has been recognized in the case law under the

Federal False Claims Act (FCA).

In United States ex rel. Hagood v. Sonoma County Water

Agency, 929 F.2d 1416 (9th Cir. 1991), the Court of Appeals

emphasized the "crucial" need for proof that the defendant

"knew that the information was false" to establish FCA

liability at trial. Id. at 1421. In doing so, it commented

on the statutory definition of "knowingly." It stated:

22

Innocent mistake is a defense to the criminal charge or civil complaint. So is mere negligence. The statutory definition of "knowingly" requires at least "deliberate indifference" or "reckless disregard." [Id.]

In United States ex rel. Hochman v. Nackman, 145 F.3d

1069 (9th Cir. 1998), several employees of a VA clinic

brought a false claim action alleging that the defendants

submitted and approved inaccurate at'tendance records for

clinic physicians and charged the government for time not

spent at the clinic. The district court granted defendants'

motion for summary judgment. It was affirmed on appeal.

The Ninth Circuit noted that as with many FCA cases, the

resolution of the case was "highly dependent" on its

particular facts. Id. at 1073. It restated its concept of

the "critical" scienter requirement:

The False Claims Act defines "knowing" as having actual knowledge of the information, or acting in either deliberate indifference to or reckless disregard for the information's truth or falsity. Congress specifically amended the False Claims Act to include this definition of scienter, to make "firm ... its intention that the act not punish honest mistakes or incorrect claims submitted through mere negligence." ... This Court has further explained that the requisite scienter is "the knowing presentation of what is known to be false" ... and that "'known to be false' does not mean scientifically untrue; it means a lie." [Id.]

It found that the four areas of alleged misconduct did

not meet this test. "The plaintiffs at best have shown only

innocent mistake or mere negligence, neither of which can

23

form the basis for False Claims Act liability." Id. at

1074.

State Government Should Maintain Control Over Enforcing Its Regulations

Basing private IFPA actions on lack of compliance with

governmental regulations, such as the appropriate structure

for a healthcare practice, has the potential for mischief.

As noted by Judge Cantillo in Garcia v. Health Net of N.J.,

Inc., 2007 N.J. Super. Unpub. LEXIS 2995, at *32-33

(Ch.Div. Nov. 20, 2007), aff'd, 2009 N.J. Super. Unpub.

LEXIS 2858 (App.Div. Nov. 17, 2009), certif. denied, 201

N.J. 442 (2010), there is a difference between "whether the

doctors violated a statute or regulation governing the

practice of medicine [and) whether they perpetrated a fraud

as defined in IFPA." This Court has urged caution in

recognizing a private cause of action based on violation of

a statute or regulation when such cause of action had not

been provided for by the Legislature. See, e.g., Jarrell

v. Kaul, 223 N.J. 294, 307-08 (2015) (rejecting patient

cause of action for physician's failure to have malpractice

insurance as required by BME regulation and statute) . While

the Appellate Division has upheld selected IFPA actions

based on violation of Board of Medical Examiners

regulations, see, e.g., Varano, Damian & Finkel, L.L.C. v.

24

Allstate Ins. Co., 366 N.J. Super. 1, 5 (App. Div. 2004);

Open MRI of Morris & Essex, L.P. v. Frieri, 405 N.J. Super.

576, 584 (App. Div. 2009), this Court has not addressed

that issue. Moreover, there is a difference between

requiring la healthcare provider to comply with any

"significant qualifying requirements" in a BME regulation

to be eligible for payments, Allstate Insurance Co. v.

Orthopedic Evaluations, Inc., 300 N.J. Super. 510, 516

(App. Div. 1997), certif. granted and remanded, 151 N.J. 67

(1997), aff'd after remand, 304 N.J. Super. 278 (App. Div.

1997), and basing an IFPA action on such regulatory non-

compliance. Cf. Endo Surgi Ctr. v. Liberty Mutual Ins.

Co., 2010 N.J. Super. Unpub. LEXIS 1988 at *31-32 (App.

Div. August 17, 2010) (Defendant overreads decision in

Allstate v. OEI regarding the consequence of not being

qualified for payments. "Nothing in Allstate entitles an

insurer to recoup payments already made. Nor do we discern

from our decision in Allstate any intent to so require. In

the absence of an IFPA violation, we agree with the judge's

conclusion that Liberty Mutual has provided 'no basis at

law to order disgorgement. ' We therefore reject the

arguments raised in Liberty Mutual's cross-appeal.")

Indeed, the Federal courts have recognized that

allowing FCA suits based on regulatory violations "would

25

short-circuit the very remedial process the government has

established to address noncompliance with those

regulations." United States ex rel. Wilkins v. United

Health Group, Inc., 659 F.3d 295,310 (3d Cir. 2011). The

private relators in these whistleblower lawsuits could

punish violators even when the agency involved believes no

action is warranted, has pursued an administrative remedy,

or has secured changes in future conduct. See United States

ex rel. Conner v. Salina Reg'l Health Ctr., 543 F.3d 1211,

1222 (10th Cir. 2008) ("It would be curious to read

the FCA, a statute intended to protect the government's

fiscal interests, to undermine the government's own

regulatory procedures.") The availability and clarity of

regulatory guidance and enforcement action along with the

analysis of such information is an important factor in the

occurrence of a "knowing" violation that should be the

subject of liability under the IFPA. It goes directly to

the good faith belief that what one is doing is lawful.

The Impact Of Inadequate Or Inaccurate Guidance From The State Or Private Insurance Payers

A good faith belief that one is acting lawfully would

not satisfy a "reckless," let alone a "knowing" standard

for imposing liability. In United States ex rel. Swafford

v. Borgess Medical Center, 98 F. Supp.2d 822 (W.D. Mich.

26

2000), aff'd, 24 Fed.Appx. 491 (6th Cir. 2001), cert.

denied, 535 U.S. 1096 (2002), although the court found no

"false" claim to have been submitted, it nevertheless

addressed whether the "scienter" element of the FCA was met

by showing that the physicians' practice with regard to the

interpretation of the ultrasound studies "amounts to

deliberate ignorance of, or reckless disregard for,

applicable guidelines for submissions of claims for venous

ultrasounds with a 26 modifier." It concluded that there

was insufficient evidence to sustain the claim of reckless

disregard "because the reckless disregard must be of

applicable regulations to the submission of claims." As

noted, it found that there were none. With regard to the

issue of deliberate indifference, the court found that a

defendant representative had attempted to obtain

information from the Government as to guidelines for this

type of procedure with a 26 modifier and was told that

there were none.

plaintiff points

" [Tl he evidence of internal discussions

to cuts against his argument that

defendant physicians were deliberately ignorant,

concern

and

and instead suggests defendants evinced

investigated the questions of what procedures were required

to submit a proper claim." 98 F.Supp.2d at 832-33.

27

The Hagood paradigm was used in Wang v. FMC Corp., 975

F.2d 1412 (9th Cir. 1992), in which the court upheld the

grant of summary judgment for the defendant. An engineer

alleged that his former employer's performance of various

defense contracts was defective, and therefore fraudulent.

The court concluded that relator had failed to establish

the existence of a "knowingly" presented false claim. It

used the Hagood paradigm and concluded that relator had no

evidence that FMC committed anything more than "'innocent

mistakes' or 'negligence. '" It pointed to the allegedly

false statements. These consisted of a faulty calculation

and other engineering errors. It commented that " [b] ad

math is no fraud" and "[p]roof of one's mistakes or

inabilities is not evidence that one is a cheat." Id. at

1420-21. It also noted that the government knew of FMC' s

mistakes in the project and concluded that this suggested

that FMC was "groping for solutions," Id. at 1421, but it

was not cheating the government in the effort.

This phenomenon of a regulated person or entity

"groping for a solution" in attempting to fulfill its legal

obligations has particular relevance to the matter before

the Court as it does in other contexts significant to

amici. Thus, among the tools used by the Federal

Government to combat healthcare fraud is the Anti-Kickback

28

Statute codified at 42 u.s.c. § 1320a-7b. That statute

prohibits the knowing and willful offer, payment,

solicitation, or receipt of any remuneration, in cash or in

kind, to induce or in return for referring an individual

for the furnishing or arranging of any item or service for

which payment may be made under a Federal health care

program. Remuneration means anything of value and can

include gifts, under-market rent, or payments that are

above fair market value for the services provided. There

are criminal penalties for violation and claims for

reimbursement that include items or services resulting from

a violation may constitute false or fraudulent claims under

the False Claims Act. The Anti-Kickback Statute provides

safe harbors for certain arrangements, such as personal

services and rental agreements, investments in ambulatory

surgery centers, and payments to bona fide employees. A

transaction fitting within a safe harbor is immunized from

criminal prosecution or administrative sanction. The

limited number of statutory safe harbors have been expanded

through regulations promulgated by the Department of Health

and Human Services.

It is important to understand the nature of these

safe-harbor provisions, and how they shield providers from

criminal or administrative sanctions under the anti-

29

kickback law and how counsel for providers interface with

this entire structure. Safe harbors reflect the fact that

the anti-kickback law describes the elements that must be

satisfied for conduct to be deemed illegal. Because it is a

general description of illegal conduct, standing alone, the

reach of the anti-kickback law is broad. According to the

Department's Office of Inspector General (OIG), the purpose

of safe-harbor provisions is "'to limit the reach of the

[anti-kickback] statute somewhat by permitting certain non-

abusive arrangements, while encouraging beneficial and

innocuous arrangements. '" Clarification of the Initial OIG

Safe Harbor Provisions and Establishment of Additional Safe

Harbor Provisions Under the Anti-Kickback Statute, 64 Fed.

Reg. 63,518, 63,518 (Nov. 19, 1999). Precise compliance

with the narrow terms of any given safe harbor will shield

a provider from prosecution under the statute. However,

given how narrowly drawn the safe harbors are, many

transactions will not fit their requirements exactly.

Nevertheless, failure to comply precisely with a safe

harbor does not automatically result in a criminal

prosecution or exclusion under the statute. The OIG has

explained:

[I] n many prosecutorial pursue cases

(but not necessarily all) instances, discretion would be exercised not to

where the participants appear to have

30

acted in a genuine good-faith attempt to comply with the terms of a safe harbor, but for reasons beyond their control are not in compliance with the terms of the safe harbor. In other instances, there may not even be an applicable safe harbor, but the arrangement may appear innocuous. Thus, it is not true that every arrangement that does not comply with a safe harbor is suspect under the antikickback statute, though such arrangements may be suspect in particular circumstances. Parties seeking guidance about their specific arrangements may request an OIG advisory opinion ... [Id. at 63,521 (emphasis added).]

Transactions that do not fit safe-harbor parameters may

violate the letter of the broad provisions of the statute

and constitute technical violations; however, they are not

necessarily actionable based on the government's assessment

of the risk of fraud posed by the arrangement.

Several examples arising from the Affordable Care Act

illustrate the complexity and potential quagmire facing

health care practitioners.

There is substantial empirical evidence indicating

that replacing more traditional paper-based medical record

systems with electronic heal th record ("EHR") systems can

lead to considerable health care savings, reduction of

medical errors, and an overall improvement in the health of

a population. Recognizing these benefits, the federal

government promoted health information technology as a

partial solution to achieving these goals. However, not

surprisingly, implementing EHR systems is a costly

31

undertaking and physicians began looking for ways to access

capital. Recognizing the mutual benefit of implementing EHR

systems, larger organizations with more ready access to

capital (such as hospitals and health systems) gave

consideration to subsidizing the adoption of physician EHR

systems for physicians who are not directly employed by the

organization.

But Federal regulatory provisions, such as the Anti­

Kickback Statute, are skeptical of any benefit provided by

hospitals and health systems to their referral-source

physicians. Initially there was no applicable self-harbor

and attempts to pursue implementation of EHR systems were

made with caution.

Similarly, the Affordable Care Act promotes the

development of so-called Accountable Care Organizations

(ACOs) to encourage health care providers to work together

to improve health care delivery and lower costs, especially

for Medicare patients. But the objectives of CMS' OIG and

the Federal Trade Commission as well as the Department of

Justice with regard to antitrust issues were not

necessarily coordinated. The formation of such integrated

entities even if improving patient outcomes faces the

challenge of anticompetitive effects resulting from the

combined entity's ability to use its market share to

32

negotiate higher rate or charge more for services which can

run afoul of the antitrust laws.

The dramatic changes in the health care industry have

created significant barriers to providers who seek to cope

with financial pressures and find innovative arrangements

that may mean the difference between survival and the

termination of a practice and career.

Health care providers appropriately rely on legal

advice to guide them toward compliance with regulatory

requirements, especially in areas that are not crystal

clear but particularly gray and murky. In this regard, it

appears that Borsody in particular sought to be a creative

problem solver. This is not a pejorative comment regarding

a lawyer. See generally K.S. Okamoto, Teaching

Transactional Lawyering, 1 Drexel L.Rev. 69, 83 (2009) ("The

essence of lawyering is 'creative problem solving' under

conditions of uncertainty and complexity.")

The Appellate Division provided an apt summary at the

end of its opinion:

Certainly, both Dahan and Borsody were fully aware that what they proposed gave the limited license holder control not affirmatively authorized by any medical board. But to their economic advantage, and that of the limited license holder, they believed that the scheme was a legitimate tool for accomplishing the goal of allowing limited license holders to increase their earnings by creating multi-disciplinary

33

practices. the IFPA.

That cannot [PSCa41]

be considered a violation of

The utilization management policies by which private

insurance carriers deny, reduce, or terminate patient

benefits have increasingly frustrated licensed health care

providers throughout New Jersey. Indeed, providers that

submit claims to carriers on behalf of their patients often

find themselves subjected to three very unsettling

circumstances. First and foremost, claim denials from most

carriers are rarely accompanied by anything more than a

generic denial code or boilerplate language that fails to

adequately explain the particular deficiencies of the

submitted claim. Second, and perhaps even more alarming,

once a claim is submitted, processed, and paid, carriers

now routinely conduct post payment audits, the express

purpose of which is to recoup previously-paid benefits

which may have been paid for medically appropriate services

that were actually rendered to patients by fully licensed

practitioners. Thirdly, there is the chilling threat of a

"fraud investigation" and denial of all payments, followed

by an action pursuant to the IFPA with its award of treble

damages, attorneys' fees, and investigative costs as well

as potential professional licensure and disciplinary

action.

34

CONCLUSION

Public policy and common sense requires that a

clear delineation be made between administrative short­

comings and abject fraud.

The detection and prevention of insurance fraud must

be a two-way street. With the considerable latitude that

has been afforded to insurance carriers in rooting out the

reprehensible conduct of a select few, comes an equally

great responsibility to demonstrate restraint as it relates

to the vast majority of health professionals who strive on

a daily basis to meet the needs of their patients.

Unfortunately, when left to their own devices, many

insurance carriers are incapable of demonstrating any

semblance of balance and the enforcement pendulum appears

to have swung too far in the insurance industry's favor.

This Court should not push it even further by

accepting a standard of "knowing" that is less than actual

knowledge so as to permit these lawsuits based on mere

negligence or mistake.

35

The judgment of the Appellate Division dismissing the

claims against these defendants should be upheld and

affirmed.

Respectf~lly,

MCELROY, DEUTSCH, MULVANEY & CARPENTER, LLP Attorneys for Medical Society of New Jersey

and the American Medical Association

jjackson@mdmc-law.com

Dated: February 3, 2016

36

APPENDIX: OPINIONS NOT APPROVED FOR PUBLICATION IN ACCORDANCE WITH R.1:36-3

Page 1

LexisNexis®

ENDO SURGI CENTER, P.C., Plaintiff-Appellant/Cross-Respondent, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant/Third-Party Plain­

tiff-Respondent/Cross-Appellant, v. SAMIAPPAN MUTHUSAMY, PRADEEP P.S. MAHAL, SURESH JAIN, DAVID H. YU, EYAD BAGHAL and PAVAN SACHAN,

Third-Party Defendants-Appellants/Cross-Respondents.

DOCKET NO. A-4611-07T3

SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION

2010 N.J. Super. Unpuh. LEXIS 1988

February 22, 2010, Argued August 17, 2010, Decided

NOTICE: NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION.

PLEASE CONSULT NEW JERSEY RULE I:36-3 FOR CIT A TI ON OF UNPUBLISHED OPINIONS.

PRIOR HISTORY: (*!] On appeal from the Superior Court of New Jersey,

Law Division, Union County, Docket No. L-0228-06. Endo Surgi Center, P.C. v. Liberty Mut. Ins. Co., 39I N.J. Super. 588, 9I9 A.2d I66, 2007 N.J. Super. LEXIS IOI (App.Div., 2007)

COUNSEL: Charles X. Gormally argued the cause for appellants/cross-respondents Endo Surgi Center, P.C., Samiappan Muthusamy, Pradeep P.S. Mahal, Suresh Jain, David H. Yu, Eyad Baghal and Pavan Sachan, (Brach Eichler L.L.C., attorneys; Mr. Gormally, of counsel and on the briefs; Sean A. Smith, on the brief).

Clifford J. Giantonio argued the cause for respond­ent/cross-appellant Liberty Mutual Insurance Company (Law Offices of Baumann and Viscomi, attorneys; Mr. Giantonio, on the brief).

JUDGES: Before Judges R. B. Coleman, Baxter and Alvarez.

OPINION

PERCURIAM

This is a dispute between plaintiff, Endo Surgi Cen­ter, P.C. (Endo) and defendant, Liberty Mutual Insurance Company (Liberty Mutual), over the latter's refusal to

pay facility fees that were billed by Endo when surgeons performed ambulatory surgery procedures at Endo on Liberty Mutual's insureds. In particular, Liberty Mutual justified its refusal to pay Endo's facility fees by alleging that Endo and its physician-owners violated the Codey Law's prohibition against self-referrals to a health care service in which a physician has an ownership interest. See N.J.S.A. 45:9-22.5(a).

After [*2] the Law Division rendered its March 26, 2008 judgment denying Endo's claim for payment of $ 363,813 of unpaid facility fees and denying Liberty Mu­tua1's counterclaim seeking reimbursement from Endo of facility fees it had already paid, the Legislature amended the Codey Law. Those amendments, which are to be applied retroactively, see N.J.S.A. 45:9-22.5, would enti­tle Endo to payment of the disputed facility fees, pro­vided that Endo has obtained the license that is now re­quired by the statutory amendments. We thus order a limited remand to enable the Law Division to make that determination. If the court finds that Endo did, in fact, obtain the required license during the one-year safe har­bor period created by the amendments, then the Law Division is directed to enter judgment in favor of Endo in the amount of$ 363,813. If Endo did not obtain such license, then the Law Division shall issue a ruling on the consequences of such failure. We thus vacate the dis­missal of Endo's complaint, and remand for the limited proceeding we have just described.

On Liberty Mutual's cross-appeal, we affirm the Law Division's conclusion that Liberty Mutual was not entitled to an order requiring Endo to [*3] reimburse

Page 2 2010 N.J. Super. Unpub. LEXIS 1988, *

Liberty Mutual for the$ 171,704 of facility fees Liberty Mutual had already paid.

I.

In January 1995, Endo began operation as an ambu­latory surgical center performing out-patient gastrointes­tinal endoscopy and pain management procedures. En­do's sole owner was Dr. Samiappan Muthusamy, who also maintained a gastroenterology practice known as the Center for Digestive Diseases (CDD). The Endo facility was comprised of an operating room, along with a dedi­cated recovery area where a patient could be closely monitored and observed until discharged. Muthusamy's medical practice and Endo were both located at 1201 Morris Avenue in Union.

At the time Muthusamy opened Endo, he was the only physician intending to use the Endo Surgi Center. Consequently, the Department of Health (DOH) notified him that he was exempt from the requirement of obtain­ing a Certificate of Need (CON). 'When Dr. Muthusamy expanded his practice by hiring a second physician, Peter Carosella, M.D., Muthusamy sought, and obtained, per­mission from DOH to continue to operate without ob­taining a CON.

A CON is a pre-condition for the operation of a "health care facility" or a "health care service." N.JS.A. 26.·2H-2(a), [*4] (b).

Over time, the ownership of both CDD and Endo changed. In particular, in 1998, three physicians, who were not associated with Muthusamy's practice at CDD, purchased partial ownership of Endo. Dr. Suresh Jain and Dr. Pradeep Mahal, gastroenterologists, purchased five percent and forty percent interests, respectively. Dr. David Yu, a board-certified anesthesiologist, purchased a two and one~half percent interest. Yu1s practice was known as Union County Pain Management, and was located at a different location from Endo, namely at 1308 Morris Avenue in Union.

At Endo, Yu performed epidural nerve blocks and other anesthesiology procedures. He testified at his dep­osition that when discussing an upcoming procedure with a patient, he routinely advised the patient of his owner­ship interest in Endo. Yu is the only owner-physician for whom Liberty Mutual has challenged the facility fees charged by Endo.

In 1999 and 2003, Muthusamy expanded his practice at CDD by adding two partners, Dr. Eyad Baghal and Dr. Pavan Sachan. Each of them purchased an eight percent ownership interest in Endo, but both had been perfonn­ing medical procedures there before they became owners of Endo. Liberty Mutual points [*SJ to the use of Endo

by Baghal and Sachan as a basis for its claim that Endo was required to have obtained a license from DOH.

At the time this action was commenced, Liberty Mutual had been sending its personal injury protection (PIP) insureds ' to Endo for several years for out-patient pain management procedures. Prior to rendering services on behalf of Liberty Mutual's policyholders, Endo ob­tained pre-certification approval from Liberty Mutual for each patient's treatment. Among the procedures for which Liberty Mutual granted such pre-certification were the anesthesiology procedures perfonned by Dr. Yu.

2 PIP is the portion of an automobile insurance policy that affords an insured up to $ 250,000 in medical benefits as part of the premium paid for the purchase of the policy. N.JS.A. 39:6A-2, -4 and -5.

The dispute that led Endo to file its complaint against Liberty Mutual for payment of outstanding facil­ity fees arises from eighty-one anesthesiology procedures perfonned on Liberty Mutual insureds by Dr. Yu at En­do. Endo's facility fee invoices were issued in the name of "Endo Surgi Center, P.C." and listed Dr. Yu, by name and license number, as the 11attending physician.n The corresponding [*6] bills from Dr. Yu for the medical procedures he perfonned at Endo were issued in the name of 11Union County Pain Management, P.C."

In its complaint, Endo sought payment from Liberty Mutual of$ 363,813 for unpaid facility fees, plus interest and attorney's fees. Each of the insureds assigned his or her claim for payment to Endo. Liberty Mutual filed an answer denying any obligation to pay the sums demand­ed in Endo's complaint, asserting that Endo violated the Codey Law's prohibition on self-referrals, see N.JS.A. 45:9-22.5, by receiving referrals from its owner physi­cians. In particular, Liberty Mutual alleged that because the Endo facility was not located at Yu's medical office and because patients treated at Endo were not billed by Yu in Yu's name, Endo had violated the Codey Law. Second, Liberty Mutual asserted that because N.J.A. C. /3:35-6.17{h)(5) allows ambulatory care facilities, such as Endo, to charge a facility fee only if such ambulatory care facility is licensed, Endo, an unlicensed facility, was not entitled to charge a facility fee. Liberty Mutual relied on those two provisions as a basis for denying payment of the outstanding bills submitted by Endo, and also as a basis [*7] for its counterclaim and third-party complaint seeking reimbursement of $ 171, 704 in facility fees it had previously paid.

After oral argument, the judge issued a written opinion in which he addressed the threshold issue of whether Endo was required to have obtained a facility license from DOH. The judge observed that if a facility

Page 3 2010 N.J. Super. Unpub. LEXIS 1988, *

license was required, Endo's failure to have obtained such a license would, standing alone, justify Liberty Mutual's refusal to pay Endo's facility fees, without re­gard to the Codey Law violation Liberty Mutual had also asserted.

The judge concluded Endo was not required to se­cure a license as a "surgical facility," and therefore Lib­erty Mutual was not permitted to withhold payment of Endo's facility fees on that basis. He did, however, agree with Liberty Mutual's assertion that Endo had violated the Codey Law's ban on self-referrals because Yu had referred his patients to Endo while having a financial interest in the facility, and Yu's self-referral did not qual­ify for any exception to the Codey Law's provisions. The judge accordingly rejected Endo's claim for payment of facility fees in the amount of$ 363,813 and granted par­tial summary judgment to Liberty [*8] Mutual.

On Liberty Mutual's counterclaim, the judge con­cluded that plaintiffs billing practices did not violate a provision of the Insurance Fraud Prevention Act (IFPA), NJ.SA. 17:33A-4(a)(I), because there was no evidence demonstrating that Endo was aware that its billing prac­tices violated the Codey Law, or that it had submitted facility fee invoices to Liberty Mutual while knowing it was not entitled to receive payment. The court held that in the absence of an IFPA violation, Liberty Mutual had "provided this court with no basis at law to order dis­gorgement." Thus, the judge dismissed Liberty Mutual's counterclaim against Endo and its third-party complaint against Muthusamy, Mahal, Jain, Yu, Baghal and Sa­chan, and granted partial summary judgment to Endo. Both sides appealed.

On appeal, Endo argues: I) the trial judge erred by applying the Codey Law's prohibition on self-referrals to Endo which is a facility, even though by its terms, the Codey Law applies only to practitioners, and not to facil­ities; 2) because the Codey Law places sole responsibil­ity for enforcement of the Codey Law with the Attorney General, and because the Codey Law did not establish a private cause of action, [*9] such as the one maintained here by Liberty Mutual, the judge erred when he con­cluded that a violation of the Codey Law disqualifies a surgical facility from obtaining payment of its facility fees from an insurer; 3) the judge's conclusion that Endo had violated the Codey Law impermissibly ignored two prior letter opinions issued to other surgical practices by the Board of Medical Examiners (BME) that held to the contrary; and 4) even ifthe practices of Endo constituted a Codey Law violation, there is no support for the judge's conclusion that such violation entitles an insurer to deny payment of claims that are otherwise proper. Endo did, however, agree with Judge Anzaldi's conclusion that because Endo qualified as a "surgical practice," as de-

fined by NJ.A.C. 8:43A-l.3, it was not required to obtain the license that is required for a "surgical facility."

In its cross-appeal, Liberty Mutual argues the judge erred in ruling that: 1) Endo did not require a facility license under NJ.A.C. 8:43A-l.3; and 2) Liberty Mutual had not established a violation of the IFPA and was therefore not entitled to recoup facility fees previously paid to Endo.

This appeal arises from orders granting and [*10] denying motions for summary judgment. Consequently, we apply the Brill standard, which requires us to review the record to determine whether there are material factual disputes and, if not, whether the undisputed facts viewed in the light most favorable to the party opposing the mo­tion nonetheless entitle the moving party to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 NJ. 520, 540, 666 A.2d 146 (1995). Because there are no disputed issues of fact, we review the trial court's determination of these summary judgment motions de nova, applying the same legal standards the trial judge applied. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 NJ. Super. 162, 167, 704 A.2d 597 (App. Div), certif. denied, 154 NJ. 608, 713 A.2d 499 (1998).

II.

We tum first to the portion of Liberty Mutual's cross-appeal that presents the threshold issue of whether the judge erred when he concluded that Endo was not obligated to obtain a facility license. Relying on NJ.A. C. I 3:35-6.17(h)(5), ' Liberty Mutual maintains that if a facility qualifies as a "surgical facility," as defined in NJ.A.C. 8:43A-l.3, it is not entitled to charge a facility fee unless it has obtained a license from DOH. Endo agrees with Liberty Mutual [*II] that NJ.A.C. 13:35-6.17(h)(5) requires a "surgical facility" to obtain a license from DOH before it may bill for facility fees; however, Endo maintains that it is not a 11 surgical facili­ty," and therefore was not required to obtain a facility license.

3 NJ.A.C. 13·35-6.17(h)(5) provides:

A licensee who owns or prac­tices in premises used for the per­formance of personal medical ser­vices including, but not limited to, ambulatory surgery services but not holding a Certificate of Need from the State Department of Health, shall not charge, or permit or condone a charge or "facility fee" separate from the fee for pro­fessional services. A facility fee may, however, be charged by a Ii-

Page 4 2010 N.J. Super. Unpub. LEXIS 1988, *

censee who is a registered Medi­care provider of surgical services, who is billing pursuant to criteria for such fee established by rules of the United States Department of Health and Human Services.

In reaching the conclusion that Endo was not re­quired to obtain a license as a "surgical facility," the judge relied upon the definition of "surgical facility" contained in N.J.A.C. 8:43A-l.3. The regulation defines that term as follows:

1. One or more rooms dedicated for use as operating rooms, which are specif­ically equipped [*12] for the perfor­mance of surgery, designed and con­structed to accommodate invasive diag­nostic and surgical procedures;

2. One or more postanesthesia care units or a dedicated recovery area where the patient may be closely monitored and observed until discharged; and

3. Is not a surgical practice.

[N.J.A.C. 8:43A-l.3 (emphasis add­ed).]

Thus, as is evident from N.J.A.C. 8:43A-l.3, a facil­ity will be exempt from the licensure requirements ap­plicable to a "surgical facility" if the facility satisfies the definition of a "surgical practice." N.J.A.C. 8:43A-l.3 defines a 11 surgical practice 11 as having three elements, the first two of which are identical to the first two ele­ments of the definition of "surgical facility." However, the third element of the definition of a "surgical prac­tice," which is the element that is in dispute here, pro­vides as follows:

3. Established by a physician or physi­cian professional association surgical practice solely for his/her/their private medical practice.

[N.J.A.C. 8:43A-l.3 (emphasis add­ed).]

Thus, if non-owner or non-employee physicians make use of the ambulatory surgical facility, a license is re­quired.

Liberty Mutual argues that two of the physicians performing [*13] surgery at the center, Dr. Baghal and Dr. Sachan, who were part-owners of Muthusamy's medical practice, COD, performed surgery at Endo be­fore they acquired an ownership interest in Endo.

In support of its argument that licensure is required, Liberty Mutual relies upon our decision in Seashore Ambulatory Surgery Center, Inc. v. New Jersey Depart­ment a/Health, 288 N.J. Super. 87, 671A.2d1088 (App. Div. 1996). In Seashore, an anesthesiologist, Dr. Morris Antebi, operated an ambulatory surgery center known as Seashore Ambulatory Surgery Center, Inc. Id at 89. An­tebi also maintained an anesthesiology practice through a professional association, Pain Specialists, P.A., of which he was the sole owner. Id at 89-90. DOH determined, under the then-existing regulations governing surgical facilities, N.J.A.C. 8:33S-l.I to -1.7, that Antebi's prac­tice could use the surgery center without obtaining a CON so long as Antebi's office used only one operating room and limited use of that operating room "to physi­cians who are associates or employees of Dr. Antebi's professional association until a CON is obtained." Id. at 90.

We held that DOH did not err in concluding that the surgical center would no longer be exempt [*14] from the requirement of obtaining a CON if physicians not affiliated with Antebi's medical practice were permitted to use the operating room. Id. at JOO. We reasoned that:

[B]oth the statutory and regulatory language amply support the Assistant Commissioner's determination that the CON exemption does not extend to a situ­ation where a physician invites other phy­sicians outside his professional associa­tion to perform surgical procedures in his operating room, regardless of his partici­pation in the procedures.

Were Dr. Antebi, an anesthesiologist, pennitted to invite outside surgeons to use his facility as he proposes, the facility would no longer be used for services pro­vided by him in his private practice. The services provided would be those of out­side surgeons performed on their patients, in Dr. Antebi's operating room. The pa­tients and surgical procedures would nec­essarily be determined by the private practices of unassociated surgeons and, therefore, it could no longer be said that the practice is limited to [Dr. Ante bi's] ... private practice.

Page 5 2010 N.J. Super. Unpub. LEXIS 1988, *

[Id. at 100-01 (internal quotations omitted) (second emphasis added).]

We reject Liberty Mutual's contention that Seashore stands for the 1*15) proposition that only the owners of an unlicensed ambulatory surgery center are permitted to use such facility. Seashore merely held that "physicians outside [the] professional association" were prohibited from performing procedures at an unlicensed center. Id. at I 00. An employee of a professional medical associa­tion cannot, under any reasonable interpretation, be deemed to be "outside" such association or medical prac­tice group.

This distinction makes sense given the language of N.J.S.A. 26:2H-2 when read in conjunction with N.J.S.A. 26:2H-7(a). The latter statute requires any "health care service," as that term is defined in N.J.S.A. 26:2H-2, to obtain a CON. N.J.S.A. 26:2H-7(a). However, N.J.S.A. 26:2H-2(b) specifically exempts from its definition of "health care service" -- for which N.J.S.A. 26:2H-7(a) would require a CON -- the "services provided by a phy­sician in his private practice .... 11 Thus, other physicians who are part of the professional association that uses the surgical facility would not violate the requirement that it only be used for the physician's private medical practice, as those physicians are involved in the private medical practice in question.

Here, Drs. [*16) Baghal and Sachan were employ­ees of Muthusamy's professional association when they performed procedures at Endo. They were certainly not the "unassociated surgeons" whose presence required a CON in Seashore, supra, 288 N.J. Super. at 101. Thus, the medical services rendered by Baghal and Sachan at Endo, before they became owners of Endo, satisfy the requirement of N.J.A.C. 8:43A-l.3 that the services ren­dered in a "surgical practice" be provided "solely for his/her/their private medical practice." We agree with the judge's conclusion that the physicians in question, who were members of Muthusamy's medical group, but were not yet owners of Endo, were entitled to perform surgery at Endo without subjecting Endo to the requirement of obtaining a facility license because they were, as the judge found, "part of the same professional association and the [Endo] facility was used for the private practice of medicine, obviating the need for a license. 11 We thus reject the claim Liberty Mutual advances in this portion of its cross-appeal.

III.

We tum next to Endo's appeal, in which it argues that the judge erred when he concluded that the Codey Law applied to Endo and that Endo had violated it.

1*17) Endo maintains that the Codey Law applies only to "practitioners'1 and thus the statute's provisions cannot be applied to a "facility" such as Endo. Endo also maintains that the Codey Law does not establish a private cause of action, and that any violations are to be addressed solely in an action maintained by the Attorney General, see N.J.S.A. 45:9-22.8 and 45: 1-25. Endo therefore argues that the judge erred when he essentially permitted Liber­ty Mutual to act in the stead of the Attorney General and thereby obtain a private benefit, namely, avoiding the obligation to pay facility fees that were, in all other re­spects, proper.

We need not address these contentions, as we are satisfied that the retroactive amendments to the Codey Law, which became effective on March 1, 2010, would require Liberty Mutual to pay the disputed facility fees so long as Endo satisfies all of the conditions of the ret­roactive amendments. At the time Judge Anzaldi ren­dered his decision, a practitioner violated the Codey Law if he referred a patient to a facility in which he had a financial interest, unless the facility was located at the same premises where the physician maintained his med­ical practice, and both 1*18] invoices bore the same physician name or medical practice name. See N.J.S.A. 45:9-22.5(c) (as existing prior to the amendments con­tained in L. 2009, c. 24). Because Yu's medical office was located at a different location from the premises where Endo was situated, the judge concluded that Yu's referral of his patients to Endo, of which he was a part owner, did not qualify for the N.J.S.A. 45:9-22.5(c) ex­ception to the Codey Law's ban on self-referrals.

The retroactive amendments to N.J.S.A. 45:9-22.5 eliminate the same-premises requirement that was in effect at the time Judge Anzaldi rendered his order and decision. Thus, so long as Endo satisfies the four condi­tions contained in the amendments, Endo would be deemed retroactively compliant with N.J.S.A. 45:9-22.5(c), and would be entitled to payment of the disputed $ 363,813. However, before discussing the re­cent amendments any further, we shall briefly describe the goals of the Codey Law when it was enacted in 1989.

Originally enacted in 1989, the Codey Law, ' N.J.S.A. 45:9-22.4 to -22.9, was designed to prevent physicians from referring patients to a health care facility in which the physician or the physician's immediate fam­ily had [*19] a significant financial interest. In his Re­consideration and Recommendation Statement to L. 1989, c. 19, codified at N.J.S.A. 45:9-22.4, Governor Kean explained that:

Physicians and other health care pro­viders are becoming increasingly diversi­fied in the health care field by acquiring financial interests in a broader spectrum

Page 6 2010 N.J. Super. Unpub. LEXIS 1988, *

of health care services. Many practitioners are thus placed in a position in which they routinely refer patients to related health care services in which they share a finan­cial interest. While this phenomenon may have benefits in terms of efficiency and convenience for both the practitioner and the patient, I want to insure that the refer­ral of patients to specific health care ser­vices continues to be based on purely medical considerations and that the deci­sion not be influenced, or appear to be in­fluenced, by any financial gain that may accrue from the referral. This legislation will assure that patients are properly ad­vised of any apparent conflicts.

4 The legislation is named for its sponsor, Sen­ator Richard Codey.

In its original form in 1989, N.JS.A. 45:9-22.5(a) provided that:

A practitioner shall not refer a patient or direct an employee of the practitioner [*20] to refer a patient to a health care service in which the practitioner, or the practitioner's immediate family, or the practitioner in combination with practi­tioner's immediate family has a significant beneficial interest .... 5

[N.JS.A. 45:9-22.5(a).]

However, the statute's ban on self-referrals contained an exception for "a health care service that is provided at the practitioner's medical office and for which the patient is billed directly by the practitioner . . . ." N.J.S.A. 45:9-22.5(c)(J) (as existing prior to the amendments contained in L. 2009, c. 24). Yu's use of the Endo facili­ty, as we have noted, did not qualify for that exception because his office was located elsewhere, and the Endo facility fee invoices were not issued in Yu's name.

5 A 11significant beneficial interest" was de­fined as 11any financial interest" other than as a lessor ofa building. N.JS.A. 45:9-22.4.

The March 21, 2009 amendments, which became effective on March 1, 2010, see P.L. 2009, c. 24, dra­matically changed the landscape by broadening the scope of permissible self-referral of patients. The amendments permit a physician to refer patients to an ambulatory sur-

gical center in which the physician has [*21] a financial interest, under certain conditions:

c. The restrictions on referral of pa­tients established in this section shall not apply to:

(3) ambulatory surgery or procedures requiring anesthesia performed at a surgi­cal practice registered with the Depart­ment of Health and Senior Services pur­suant to subsection g. of section 12 of P.L. 1971, c. 136 (C. 26:2H-12) or at an am­bulatory care facility licensed by the De­partment of Health and Senior Services to perform surgical and related services, if the following conditions are met:

(a) the practitioner who provided the referral personally performs the proce­dure;

(b) the practitioner's remuneration as an owner of or investor in the practice or facility is directly proportional to his ownership interest and not to the volume of patients the practitioner refers to the practice or facility;

( c) all clinically-related decisions at a facility owned in part by non-practitioners are made by practitioners and are in the best interests of the patient; and

( d) disclosure of the referring practi­tioner's significant beneficial interest in the practice or facility is made to the pa­tient in writing, at or prior to the time that the referral is made, [*22] consistent with the provisions of section 3 of P.L. 1989, c. 19 (C. 45:9-22.6).

[L. 2009, c. 24 (N.JS.A. 45:9-22.5).]

This amendment to the Codey Law applies retroac­tively in certain instances:

a. A referral for ambulatory surgery or a procedure requiring anesthesia made prior to the effective date [March 21, 2009} of this section of P.L. 2009, c. 24 by a practitioner to a surgical practice or ambulatory care facility licensed by the Department of Health and Senior Services to perform surgical and related services

Page 7 2010 N.J. Super. Unpub. LEXIS 1988, *

shall be deemed to comply with the provi­sions of section 2 of P.l. I989, c. I9 (C. 45:9-22.5) if the practitioner personalty performed the procedure that is the sub­ject of the referral.

b. As used in this section, "surgical practice" means a structure or suite of rooms that has the following characteris­tics:

(I) has no more than one room dedi­cated for use as an operating room which is specifically equipped to perform sur­gery, and is designed and constructed to accommodate invasive diagnostic and surgical procedures;

(2) has one or more post-anesthesia care units or a dedicated recovery area where the patient may be closely moni­tored and observed until discharged; and

(3) is established [*23] by a physi­cian, physician professional association surgical practice, or other professional practice form specified by the State Board of Medical Examiners pursuant to NJ.A.C. 13:35-6.I6(/) solely for the phy­sician's, association's or other professional entity's private medical practice.

"Surgical practice" includes an unli­censed entity that is certified by the Cen­ters for Medicare and Medicaid Services as an ambulatory surgery center provider.

[ N.J.S.A. 45.9-22.5a (emphasis add­ed).]

Thus, pursuant to NJ.SA. 45:9-22.5 of the amended Codey Law, a restriction on self-referrals of patients to an ambulatory surgical center in which the referring phy­sician has an interest shall be deemed to comply with the amended Codey Law so long as: the ambulatory surgery center is licensed; the practitioner who made the referral personally performed the procedure; the practitioner's remuneration as an owner in the facility is directly pro­portional to his ownership interest and not to the volume of patients referred; alt clinically-related decisions at the facility are made by practitioners; and disclosure of the referring practitioner's significant beneficial interest is made to the patient in writing. [*24] These amendments were made retroactive in NJ.SA. 45:9-22.5a(a).

The amendments, which were enacted on March 21, 2009, did not take effect until March 1, 2010. Thus, pur-

suant to the retroactivity portion of the statute, any am­bulatory surgical center that did not possess a facility license on March 21, 2009 was afforded a one-year safe harbor period, until March 1, 2010, to secure a facility license from the Department of Health and Senior Ser­vices (DHSS). '

6 Subsequent to the enactment of the original legislation in 1989, the name of the Department of Health was changed to the Department of Health and Senior Services.

Thus, the location of Yu's medical office at a differ­ent location from the Endo premises no longer disquali­fies Endo from receiving payment of a facility fee for ambulatory surgical procedures Yu performed there. At appellate oral argument Liberty Mutual implicitly con­ceded that the 2009 amendments, if applied retroactively to Yu, would require payment by Liberty Mutual of the disputed$ 363,813. Liberty Mutual argued before us that we should not permit the amendments to be applied ret­roactively because any such retroactive application would 1) be violative of its due [*25) process rights, and 2) create a manifest injustice.

In support of that argument, Liberty Mutual relies upon Nobrega v. Edison Glen Associates, I67 NJ. 520, 772 A.2d 368 (2001), in which the Court considered the retroactivity provisions of the New Residential Real Es­tate Off-Site Conditions Disclosure Act, NJ.SA. 46:3C-I to -I2, id. at 526, against a claim by the affected plaintiffs that such retroactivity would result in "an un­constitutional interference with vested rights," see Phil­lips v. Curiale, I28 N.J. 608, 6I7, 608 A.2d 895 (I992) (internal quotations omitted), or would create a "manifest injustice," see State Troopers Fraternal Ass'n of N.J. v. State, I49 N.J. 38, 55, 692 A.2d 5I9 (1997).

Observing that it had long "favor[ ed] interpretation of statutes that afford prospective relief only," Nobrega, supra, I67 N.J. at 536, (citing Gibbons v. Gibbons, 86 N.J. 5I5, 52I, 432 A.2d 80 (I98I)), the Court in Nobrega nonetheless recognized its obligation to honor an "'une­quivocal expression of contrary legislative intent."' Ibid. (quoting Dewey v. R.J. Reynolds Tobacco Co., I2I N.J. 69, 95, 577 A.2d I239 (1990)). The Court noted, howev­er, that its obligation to do so was limited to those in­stances where the concerns identified in Phillips and

' State 1*26] Troopers are not presented. Id. at 537.

Turning to the due process/vested rights doctrine, the Court observed that a "vested right" constitutional violation will be found "'only under the most egregious of circumstances/ 11 id at 545 (quoting E. Enters. v. Ap­fel, 524 U.S. 498, 550, JJ8 S. Ct. 2I3I, 2I59, I4I l. Ed. 2d 45I, 488 (I998) (Kennedy, J., concurring)), and that a mere claim to the right to the continued existence of a

Page 8 2010 N.J. Super. Unpub. LEXIS 1988, *

present law or statute is an insufficient basis for such a violation, id. at 540 (citing Levin v. Twp. of Livingston, 62 N.J. Super. 395, 404, 163 A.2d 221 (Law Div. 1960) (observing that "mere expectation as may be based upon an anticipated continuance of the present general laws" does not constitute "a vested right"), ajj'd in part, rev'd in part, 35 N.J. 500, 173 A.2d 391 (1961)). So viewed, Lib­erty Mutual's claim of a violation of a "vested right" must fail, as it is based on nothing more than a claimed right to the continued existence of the 1989 version of the statute, which the Court in Nobrega held is insuffi­cient to establish a due process violation. Ibid.

As to Liberty Mutual's claim of a "manifest injus­tice," the Court observed in Nobrega that the "manifest injustice" test "'does [*27] not flow from constitutional requirements, but instead is based on equitable con­cerns."' Id. at 545 (quoting Edgewater Inv. Assocs. v. Borough of Edgewater, 103 N.J. 227, 239, 510 A.2d 1178 (1986)). The Court defined the scope of the "mani­fest injustice" inquiry in the following terms:

The essence of this inquiry is whether the affected party relied, to his or her prejudice, on the law that is now to be changed as a result of the retroactive ap­plication of the statute, and whether the consequences of this reliance are so dele­terious and irrevocable that it would be unfair to apply the statute retroactively.

[ Id. at 546 (quoting Gibbons v. Gibbons, 86 N.J. 515, 523-24, 432 A.2d 80 (1981).]

Here, it is evident that Liberty Mutual has not relied to its detriment on the continued existence of the pre-amendment version of the Codey Law. Liberty Mu­tual has abandoned no otherwise settled right, nor has it changed any previous position, in reliance on the original version of the Codey Law remaining in effect. Thus, Liberty Mutual would suffer no "manifest injustice" if the 2009 amendments are applied retroactively. We thus reject the Nobrega claims Liberty Mutual has asserted, and conclude that there is no impediment, constitutional [*28] or otherwise, to the retroactive application of the 2009 amendments to N.J.S.A. 45:9-22.5(c).

Having rejected Liberty Mutual's claim that retroac­tive application of the Codey Law amendments to the present dispute would violate its due process rights and create a manifest injustice, we turn to a determination of how the amendments affect the order under review. As we have discussed, Yu's office being situated at a differ­ent location from the Endo facility no longer disqualifies

Endo from receiving payment for any use of its facility by Yu. That particular portion of the Codey Law was eliminated when the 2009 amendments took effect.

Under the present, and retroactive, amendments to the Codey Law, Endo is entitled to payment of its $ 363,813 facility fees provided that: "the practitioner who provided the referral personally performs the procedure," N.J.S.A. 45:9-22.5(c)(3)(a), which condition is satisfied because Yu provided the referral and performed the pro­cedures in question; "remuneration as an owner or in­vestor in the ... facility is directly proportional to his ownership interest and not to the volume of patients the practitioner refers to the practice or facility," N.J.S.A. 45.·9-22.5 (c)(3)(b), [*29] a provision which Liberty Mutual did not challenge before us; the "clinical­ly-related decisions at a facility owned in part by non-practitioners are made by practitioners and are in the best interests of the patient," N.J.S.A. 45:9-22.5(c)(3)(c), which Liberty Mutual also did not dispute; and "disclo­sure of the referring practitioner's significant beneficial interest in the ... facility is made to the patient in writ­ing," N.J.S.A. 45:9-22.5(c)(3)(d), which Liberty Mutual did not dispute.

Thus, the only section of the amendments that be­came effective on March 1, 2010 potentially in dispute is the requirement that the ambulatory care facility in ques­tion be licensed by DHSS to perform surgical services. At appellate oral argument, counsel for Endo informed us that he had not questioned his client as to whether such license had been obtained in the one-year safe har­bor period created by the amendments to the Codey Law. Thus, the obtaining of the license is the only factor that could conceivably disqualify Endo from receiving the benefit of the amendments. We thus vacate the dismissal of Endo's complaint and order a limited remand for the sole purpose of determining whether, prior to [*30] March 1, 2010, Endo obtained the license required by N.J.S.A. 45:9-22.5(c)(3). if, during the remand, the judge determines that Endo obtained the required license prior to March I, 2010, the judge shall enter judgment in En­do's behalf requiring the payment of the disputed $ 363,813 in facility fees. If Endo did not obtain the re­quired license prior to March I, 2010, the judge shall determine the legal effect of any such failure to obtain the required license.

IV.

Last, we tum to the remaining portion of Liberty Mutual's cross-appeal, in which it asserts the judge erred when he dismissed its counterclaim and third-party com­plaint seeking return of facility fees already paid to En­do. Liberty Mutual's counterclaim and third-party com­plaint are based upon Liberty Mutual's claim that Endo violated the IFPA.

Page 9 2010 N.J. Super. Unpub. LEXIS 1988, *

Reasoning that a "[v]iolation of the Codey Law does not automatically amount to a violation of the IFPA " the judge found that there was no evidence that plaintiff at­tempted to hide its structure from Liberty Mutual. The judge held that Endo reasonably believed it was in com­pliance with the Codey Law and there was no evidence to demonstrate that Endo knowingly failed to disclose its ownership [*31] structure or knowingly benefited from billing for facility fees under a different name than the name of the referring physician. The court thus found that Liberty Mutual could not maintain a cause of action under the IFPA, and granted summary judgment to Endo on Liberty Mutual's counterclaim.

The IFPA is violated whenever a person or practi­tioner:

[p ]resents or causes to be presented ~ny written or oral statement as part of, or m support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy ... , knowing that the statement contains any false or misleading mformation concerning any fact or thing material to the claim[.]

[N.JS.A. 17:33A-4(a)(l).]

Liberty Mutual relies on Allstate Insurance Co. v. Orthopedic Evaluations, Inc., 300 N.J Super. 510, 693 A.2d 500 (App. Div.) certif granted, 151 N.J 67, 697 A.2d 541 (I997) (directing this court to address an argu­ment on remand) as support for its contention that it is entitled to recoup all sums paid to a provider that violat­ed a statute. Liberty Mutual overreads our decision in Alls1:1te. We hel.d in Allstate that an entity providing medical diagnosl!c services, and which had "place[ d] the public at risk" by violating a BME regulation [*32] that required such diagnostic facilities to be "owned and un­der the responsibility" of a licensed physician, did not qualify for PIP reimbursement. Id. at 5I7.

Nothing in Allstate entitles an insurer to recoup payments already made. Nor do we discern from our decision in Allstate any intent to so require. In the ab­sence of an IFPA violation, we agree with the judge's conclusion that Liberty Mutual has provided "no basis at law to order disgorgement." We therefore reject the ar­guments raised in Liberty Mutual's cross-appeal.

v. On Endo's appeal, vacated and remanded. On Liber­

ty Mutual's cross-appeal, affirmed.

Page I

Lexis Nexis@

JOSEPH GARCIA, M.D., JEFFREY GINSBURG, M.D., KEVIN KEARNEY, M.D., MARC KITROSSER, M.D., KENNETH REMSEN, M.D., HOWARD TAYLOR,

M.D., Plaintiff(s) v. HEALTH NET OF NEW JERSEY, INC., Defendant, WAYNE SURGICAL CENTER, LLC, et al., Third Party Defendants

DOCKET NO. C-37-06

SUPERIOR COURT OF NEW JERSEY, CHANCERY DIVISION, BERGEN COUNTY

2007 N.J. Super. Unpub. LEXIS 2995

November 20, 2007, Decided November 20, 2007, Filed

NOTICE: NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION.

PLEASE CONSULT NEW JERSEY RULE 1:36-3 FOR CIT A TI ON OF UNPUBLISHED OPINIONS.

SUBSEQUENT HISTORY: Subsequent appeal at Gar­cia v. Health Net of N.J., Inc., 2009 N.J. Super. Unpub. LEXIS 2858 (App.Div., Nov. 17, 2009)

COUNSEL: 1*1] Robert H. Solomon, Esq., (Nagel Rice, LLP) appearing for the Plaintiffs, Joseph Garcia, M.D.; Jeffrey Ginsburg, M.D.; Kevin Kearny, M.D., Marc Kitrosser, M.D.; Kenneth Remsen, M.D.; and Howard Taylor, M.D.

Thomas A. Gentile (Lampf, Lipkind, Prupis & Pietgrow) appearing for certain individual surgeon counter-claim defendants, and counterclaim defendant Wayne Surgical Center, LLC.

Daniel Orr, Esq. (Morgan, Lewis & Beckius, LLP) ap­pearing for the Defendant, Health Net of New Jersey, Inc.

JUDGES: ROBERT P. CONTILLO, J.S.C.

OPINION BY: ROBERT P. CONTILLO

OPINION

DECISION ON CROSS-MOTIONS FOR FOR SUMMARY JUDGMENT

This matter is before the Court upon the Plaintiffs' and Counterclaim-Defendants' Motion for Summary Judgment and Defendant's Motion for Summary Judg­ment.

PAPERS RECEIVED

. The defendant's motion papers.

. The plaintiffs' and third-party defendants' motion papers.

. The defendant's opposition.

. The plaintiffs' and third-party defendants' opposi-ti on .

. The defendant's reply.

. The plaintiffs' and third-party defendants' reply.

STATEMENT OF THE CASE

Background

This case involves the relationship between three groups: defendant Health Net of New Jersey, Inc. ("Health Net"), a provider of health insurance; third-party defendant 1*2] Wayne Surgical Center (the "Center"), an ambulatory surgical center; and plaintiff and third-party defendant medical doctors (the "counter­claim-defendants"), the physician-owners of the Center. Health Net provides insurance coverage to the doctors' patients at the doctors' private practices. The private practices are within the Health Net coverage network,

Page 2 2007 NJ. Super. Unpub. LEXIS 2995, *

but the Center is not. The doctors own varying percent­ages of the Center and are compensated with a share of the profits, based on this percentage.

When the doctors' patients require surgery, the doc­tors refer medically appropriate candidates to the Center. When a Health Net subscriber is referred to the Center, Health Net must reimburse the Center for the facility fee on covered patients, despite the facility's out-of-network status. But when Health Net reimburses out-of-network services, it requires the patient to pay a portion of the total fee, called "co-insurance11 (as distinct from "co-pay, 11 which is a portion of the doctor's fee that Health Net requires patients to pay for in-network ser­vices), The Center's policy is to not collect co-insurance from the patients the physician-owners refer to the Cen­ter. Instead the Center accepts [*3] as payment in full the assignment of the patient's right to reimbursement from Health Net.

With regard to these practices, there are three issues before the Court. First, did the doctors and the Center violate the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30? Second, did the doctors breach the implied covenant of good faith and fair dealing in their provider contracts with Health Net? Third, were the doctors and the Center unjustly enriched? Fourth, and finally, did the doctors and the Center tortiously interfere with Health Net's contracts with its subscribers? All of these issues are based on one or both of the following fact patterns; I) The insurance claims for surgery per­formed at the Center on patients who the doctors referred from their private practices; and 2) the Center's practice of not collecting co-insurance payments from patients.

The Defendant's Argument

A. The IFPA claims.

A person violates 1FPA if he presents or prepares any written or oral statement in support of, or opposition to, an insurance claim, knowing that the statement con­tains any false or misleading information concerning any fact or thing material to the claim. N.J.S.A. 17:33A-4. Health [*4] Net argues that all the physicians submitted such information in the form of bills and other docu­ments. A person may be liable even if he just "knowingly benefits" from a violation of the Act N.J.S.A. 17:33A-4{c), and Health Net alleges that every physician at least knowingly benefited from the purported fraud. Health Net emphasizes that, as a matter of policy, the Supreme Court of New Jersey has construed the Act lib­erally, to achieve a broad remediation of fraudulent in­surance claims. Liberty Mutual v. land. 186 N.J. 163,172-173, 892 A.2d 1240 (2006).

Health Net's first theory of fraud is that the counter­claim-defendants violated IFPA when the Center sought reimbursement for patients referred in violation of the Codey Act. N.J.S.A. 45:9-22.5, which prohibits a physi­cian from referring patients to an entity in which the physician has a financial interest. The Codey Act itself does not give Health Net a private cause of action against the doctors or the Center, but the violation, Health Net argues, strips the Center of Us entitlement to reimburse­ment. And if the Center was not entitled to reimburse­ment, it was fraudulent to seek reimbursement.

The second theory of fraud rests upon the [*5] Center's practice of accepting Health Net's coverage as payment-in-full for its services, writing off the difference between what Health Net pays and what the subscrib­er-patient owes. Health Net argues that a routine waiver of co-insurance violates the law. And under the same reasoning as above, the violation of this law and the subsequent submission of reimbursement claims consti­tute statutory insurance fraud.

Health Net argues that these violations constitute a pattern, therefore entitling them to statutory treble dam­ages. N.J.S.A. 17:33A-3 (permitting treble damages where there are five or more violations of IFPA) In all, Health Net claims $ 15,280,044.30, plus additional damages incurred since January 1, 2007.

Health Net takes pains to demonstrate that the doc­tors and the Center should be found to have had "knowledge" of the acts constituting the alleged frauds. In a permutation of the maxim, "ignorance of the law is no defense," Health Net argues that knowledge of health care statutes and regulations is imputed to medical pro­viders. Under this theory, the doctors and the Center "knew" that their referral scheme violated the Codey Act, and they "knew" that a routine failure to collect [*6] co-insurance violated the law. According to Health Net's position, this satisfies whatever scienter requirement there may be under JFPA.

B. Breach of the Implied Covenant of Good Faith and Fair Dealing; Unjust Enrichment; Tortious Interfer­ence with Contract

Health Net argues that the practices of the doctors and the Center violate the covenant of good faith and fair dealing implied in its provider contracts with the physi­cians. Its theory is that the doctors agreed to provide ser­vices at a predetermined rate but then circumvented this restriction by referring patients to another entity and charging inflated rates. Likewise, the waiver of co-insurance destroyed the patients' incentive to dispute excessive medical fees, thereby destroying a mechanism upon which Health Net supposedly relied to keep costs down. These practices, in Health Net's opinion, injured its right to receive the full fruits of the contract with its

Page 3 2007 N.J. Super. Unpub. LEXIS 2995, *

subscribers, which is a breach of the implied duty of good faith and fair dealing.

Under a quasi-contractual theory. Health Net argues that the waiver of co-insurance constitutes unjust en­richment. Unjust enrichment entitles a party to restitution for services rendered or [*7) monies paid, if the cir­cumstances render the transaction unjust. As per Health Net's theory of injustice: If the Center collected money from the insurance company for services rendered in violation of the Codey Act, the Center was not entitled to the money, so any monies paid were received unjustly.

Lastly, Health Net argues that the counter­claim-defendants tortiously interfered with its contractual relations with its subscribers. Health Net bases this claim solely on the Center's failure to collect co-insurance. The argument is that 1) there is no contract between Health Net and the Center; 2) the Center accepts reimburse­ments from Health Net under an assignment of benefits from the patients' contracts with Health Net; 3) the Cen­ter and its owners encouraged patients to seek treatment at the Center by promising to waive co-insurance, which destroyed the patients' economic incentive to consider the cost of the services; and 4) the Center charged fees in excess of what Health Net would have paid otherwise. Thus, according to Health Net, the Center and the doc­tors defeated Health Net's reasonable expectation of economic advantage from the contract with its subscrib­ers.

The Plaintiffe' 1*8] and Third-party Defendants' Argu­ments

A. IFPA Claims

a. The Codey Act

The counterclaim-defendants' summary judgment motion is a rebuttal of Health Net's arguments that have evolved during the course of the litigation. In response to the JFPA claims, they offer four main arguments. First, the doctors argue that they cannot be liable individually for insurance fraud, because it was the Center, not they, that submitted the claims. So because the IFPA require­ment that there be a "written" or "oral" statement cannot apply to the doctors as individuals, the insurance fraud claims must be directed toward the Center only.

Second, the Center and the doctors argue that there was no IFPA violation with regard to the Codey Act, because under their reading of an Advisory Opinion of the State Board of Medical Examiners (the "Board"), on November 12, 1997, the ownership structure of the Cen­ter is legal. If the structure is legal, it is a not a material concern under IFPA. The doctors support the legality of the practice with the following evidence and analysis:

I. The Board opinion found that an ambulatory surgical center in which a physician holds an interest is merely an extension of his own office, [*9] which is consistent with a safe harbor under the federal anti-kickback statute, 42 C.F.R. § JOOl.952(r). In the Center's view, New Jersey has adopted this safe harbor through policy. (Health Net rebuts by ar­guing that even if the safe harbor applied to this case, the Center would not fall within its technical provisions.)

2. The State's active regulation of ambulatory surgical centers, which are primarily physician-owned in New Jersey, evidences a governmental acceptance of this physician-owned business model.

3. The policy rationale for prohibiting self-referrals does not apply. The doctors receive diffuse financial benefits for re­ferring any single patient--that is, they are compensated with the Center's profits, re­gardless the numbers of patients they re­fer. Under this rationale, there is no dan­ger that the doctors will subordinate their professional judgment to the financial in­centives of referral.

Third, the doctors argue that no one "knowingly" vi­olated IFPA. because they all believed (and believe) the arrangements to be perfectly legal. This was the belief of the Center's Chief Operating Officer, Dennis Simmons, who oversaw the facility's compliance and had previous­ly investigated [*10) the legal issue, and it is the view of all the participant doctors. The doctors' expert witness, Andrew McBride, certified that the healthcare commu­nity at large believes these arrangements to be legal. (Gentile Ex. EE). And although knowledge of the law is imputed to the doctors, the doctors argue that this im­puted knowledge must also include an at least arguably supportive New Jersey Board of Medical Examiner's opinion and other circumstantial authorities that suggest the practice is completely legal. Given this state of knowledge, the doctors argue that Health Net cannot establish the scienter prong of IFPA.

Fourth, the doctors contend that any omissions in submissions to Health Net were immaterial. Given the widespread nature of this ownership structure and the documents evidencing the Center's ownership that were in Health Net's possession, the doctors argue that Health Net could not have reasonably believed the nondisclo­sures in the claim documents to be important in deter-

Page 4 2007 N.J. Super. Unpub. LEXIS 2995, *

mmmg whether it should pay out claims. (Health Net rebuts by alleging it does not have access to the complete list of the Center's owners and that the Center did not comply with certain regulations mandating [*II] dis­closure of the ownership interests).

b. The Co-Insurance

The doctors argue that the Center did not violate IFPA with regard to its practices involving co-insurance. First, they argue that the Center's patients were always "legally" obligated to pay co-insurance, regardless of whether the Center actually collected it Second, the doc­tors say they believed and believe that not collecting co-insurance is legal. According to the doctors, this in­terpretation of New Jersey law is reasonable because there is no explicit requirement to collect co-insurance at ambulatory surgical centers, while New Jersey dentists and out-of-state ambulatory surgical centers are both subject to explicit regulations. Third, the doctors argue that they could not have made a material misstatement with regard to co-insurance, because the precise infor­mation regarding co-insurance is not available to them at the time they fill out the industry-standard claim form. One of the doctors' experts submitted a certification say­ing that throughout the industry, the portions of the form indicating co-insurance are left blank.

B. Breach of the Implied Covenant of Good Faith and Fair Dealing; Unjust Enrichment; Tortious Interfer­ence [*12] with Contract

First, the doctors argue that the inherent legality of their activities precludes a cause of action under any of these theories. Second, they argue that Health Net cannot demonstrate the "malice" necessary for a breach of the implied covenant of good faith and fair dealing. Third, they reason that there is no unjust enrichment claim, be­cause the patient's received the value of the medical ser­vices they paid for. Fourth, the doctors assert that Health Net cannot establish interference with contract. They argue that even ifthe co-insurance argument is valid, and the Center actually did overstate its prices, this did not interfere with the subscriber contract between Health Net and its customers. This is because the alleged interfer­ence diminished the Center's responsibility to pay Health Net the co-insurance collected from the patients, but it did not diminish any amount of money that the patients owed to Health Net under their subscriber contracts.

C. Damages

The doctors and the Center contest Health Net's measure of damages, assuming liability was established. Health Net's calculation, they note, is based on a theory of total disgorgement--any tainted transactions would [*13] have to be reimbursed fully to Health Net. The doctors argue that the proper measure of damages would

be compensatory damages, which are meant to put Health Net in as good of a position as it would have been had the conduct not occurred. They suggest the Court should calculate the damages using a multi-pronged test articulated in New Jersey Manufacturers Insurance Co. v. Gonsalves. 366 N.J. Super. 459, 841 A.2d 512 (Law Div. 2003). Under this authority, the doctors believe that Health Net cannot prove any damages.

The asserted difficulty that Health Net will have proving damages is also the basis for the doctors' argu­ment that Health Net lacks standing to sue under IFPA. The statute permits any insurance company that suffered damages as a result of insurance fraud to sue. So, say the doctors: no damages, no standing.

DECISION OF THE COURT

Summary Judgment Standard

A party is entitled to summary judgment where there is no genuine issue as to any material fact and the mov­ing party is entitled to judgment as a matter of law. Brill v. Guardian Life Insurance Co. of America, 142 N.J. 520, 666 A.2d 146 (1995); R. 4:46-2(c). When assessing genuineness, a court shall grant all reasonable and fa­vorable [*14] inferences to the non-moving party. R.4:46-2(c). Nonetheless, the non-moving party is obli­gated to resist the motion with more than a scintilla of evidence. Pressler, Current New Jersey Court Rules, comment 2. I on R 4:46-2(c) (2008). Here, both parties seek to prevail on summary judgment, arguing that the facts established in the matter entitle them to judgment as a matter oflaw.

Findings of Fact

Although the parties dispute many minor factual is­sues, the papers are in agreement as to the essential facts necessary to adjudicate the motions. There is no dispute that the doctors referred patients to a facility in which they possessed an ownership interest. There is also no real dispute that the Center routinely and intentionally forwent its right to collect co-insurance payments, re­gardless the existence of any continued, theoretical "legal right" to collect it.

Finally, I find that the doctors and the Center be­lieved and believe that both the referrals and the co-insurance waiver were entirely lawful. The reasona­bleness of that belief will be discussed later in this Deci­sion.

Legal Analysis

I. The IFPA Claims

a. The Self-Referrals

Page 5 2007 N.J. Super. Unpub. LEXIS 2995, *

The Codey Act plainly prohibits a practitioner from referring [*15] a patient to a health care service in which the practitioner has a financial interest. It states:

A practitioner shall not refer a patient or direct an employee of the practitioner to refer a patient to a health care service in which the practitioner, or the practitioner's immediate family, or the practitioner in combination with practitioner's immediate family has a significant beneficial interest; except that, in the case of a practitioner, a practitioner1s immediate family or a prac­titioner in combination with the practi­tioner's immediate family who had the significant beneficial interest prior to the effective date of P.L. 1991, c. 187, the practitioner may continue to refer a pa­tient or direct an employee to do so if that practitioner discloses the significant bene­ficial interest to the patient. (Emphasis added.)

N.JSA. 45:9-22.5.

The Act defines usignificant beneficial interest" as "any financial interest" except leases and publicly traded securities. N.JSA, 45:9-22.4 The term "provider" in­cludes "a physician, chiropractor or podiatrist." N.JS.A. 45:9-22.4. And the statute expressly prohibits self-referrals to facilities that provide "ambulatory sur­gery", including those facilities [*16] defined as a "health care service." N.JSA. 45: 9-22.4; see also, N.JA.C. 13:35-6.l?(a)-(b) (prohibiting the same). The statute is clear.

The defendants contest this plain reading of the stat­ute. referring to it as simplistic. The Court finds, rather, that the language of the statute is plain and simple, and can yield no other conclusion but that the defend­ant-doctors' referrals of their private patients to the am­bulatory surgical center, in which each of them has a significant beneficial interest, runs afoul of the Codey Act ban on such self-referrals.

The strongest counter argument advanced by the Center and the physicians is that this "business model" is widespread in New Jersey, and has been for years, and that the enforcing authorities of the State of New Jersey are well aware of it but have taken no steps to declare the practice unlawful. In that regard, I find that the practice here under examination is indeed widespread, and the enforcing authorities are indeed well aware of it and have taken no steps to halt the practice or prosecute the practi­tioners. The Office of the New Jersey Attorney General

was specifically invited by the parties to join this litiga­tion, but declined [*17] to do so.

The Court can only deal with the law as it is and the facts as I find them to be. Here, the facts plainly establish non-compliance with the Codey Act ban on self-referrals. Yes, the State has not taken sides in the current litigation, but I do not interpret that as an endorsement of the posi­tion of either side to this dispute.

Much reliance is placed by the doctors and the Cen­ter on an advisory opinion issued by the Executive Committee of the New Jersey State Board of Medical Examines on November 12, 1997. There, the Board opined that "it does not deem a surgeon's referral of his or her own patient to an ACS [ambulatory surgical cen­ter] in which he has an interest an impermissible self-referral." The Court is urged to defer to this admin­istrative "validation" of the arrangement between the physicians and the Center. Generally, the courts of New Jersey will give deference to an administrative agency's interpretation of its own regulations. See In re Adoption of N.JA.C. 7.·26£-1.13, 186 N.J 81, 891 A.2d 1203 (2006). A close examination of that advisory opinion, however, and the reasons articulated in support of its conclusions, does not lead to validation of the structure at [*18] issue in this litigation.

First, to be clear, when a private patient of one of the investor-physicians goes to Wayne Surgical Center, for surgery by his physician, he goes there because he has been referred to the Center, by his doctor and he concurs with her referral. The doctors refer their patients to the Center. The aversion to the word referral in the context of this case has no basis in the record. These are refer­rals, plain and simple. Indeed, the advisory opinion at issue acknowledges that the arrangement under consid­eration is a 11referral."

The opinion itself notes that it is application is lim­ited to the specific facts set forth by the entity seeking the opinion ("Please be advised that this letter is prom­ised on the Board's interpretation of the specific facts you outlined in your request for an opinion. JI). Tne opinion seeker had described the proposed arrangement as antic­ipating joint ownership in the ACS with a licensed New Jersey hospital, an affiliation entirely absent from the doctor-Center relationship under consideration here. The hospital affiliation was an important component of the Board's reasoning, as that affiliation was itself in com­pliance with Board regulations [*19] (N.JA.C. 13:35-6-16([), (i)), and because that arrangement "ap­pears to protect" the professional judgment of the doctors from being "impacted by the business decisions of the hospital." The hospital-physician nexus is not present in the arrangement presently under consideration, and to

Page 6 2007 N.J. Super. Unpub. LEXIS 2995, *

that extent the opinion, regardless of its administrative origin or its strength, is distinguishable.

Next, the opinion is at pains to emphasize that the facility-fees compensation derived from the structure by the physician-investors is de minimus as compared to what the physician-investor earns from his professional fees: 11 The scenario you describe assumes the portion of the facility fee the investor surgeon receives pursuant to his ownership interest in the facility is generally nominal in relation to the professional services fee." In the present case, the defendant physician-investors assert that the amount an individual physician-investor receives as compensation attributable to the facility fee charged by the Center to his patient is indeed nominal in comparison to what he came from the professional fee he receives for performing the surgery. This I find to be a fact Jn part because there are [*20) so many physician-investors involved in the Center, the amount of money that even­tually finds its way into that individual doctor's hands, from the Center, attributable to the facility fee paid to the Center for that single patient's single surgical procedure, is indeed nominal when compared to the professional earned by that physician-investor for that particular sur­gical procedure on that particular patient

But viewed with a broader lens, the picture is quite different. I will not discuss specific compensation in this opinion, as the information has been redacted, by consent of the parties, but that factual data is not disputed. The record establishes, and I so find, that many of the physi­cian-investors earned more money from the Center1s fa­cility fees, than they do from practicing medicine full-time. And, on average, each physician-owner of the Center earned between 33% and 70% of his 2006 gross personal income from his portion of the Center's facili­ties fees.

This is not nominal. The income being derived from the physician-investor from the Center's facility fees is not nominal--either in and of itself or in proportion to earned professional fees. It is significant, and indeed it [*21) does raise the concern of whether a climate has been created where the very ills meant to be cured by the Codey Act ban on self-referrals, (medical judgment im­pacted by financial interest) can occur. Clearly, the phy­sician-investors have a financial incentive to refer their patients to their Center, not because of the nominal mon­ies they may eventually receive from the Center as their share of the facility fee attributable to that single partic­ular patient "transaction", but because, cumulatively, the income to be derived by the physician-investors from referring their patients to their Center will be determined based on how many patients, overall, are referred there by that doctor and by his investor-colleagues.

The physicians and the Center seek to" inoculate themselves from these conclusions by noting that the amount an individual physician-investor receives as his annual share of the Center's facility fees is dependent entirely on that physician's percentage of ownership in­terest in the Center, not on the number of patients that the doctor referred to the Center that year. That inocula­tion fails, for two reasons. First, it defies common sense to suppose that a physician who repeatedly [*22) fails to generate facility fees for the Center would nonetheless continue to enjoy the profits attributable to the facility fees generated by his colleagues, based merely on his percentage of ownership in the Center. But even if the normal rules of productivity and compensation and hu­man nature are indeed suspended at the Center, the fact remains that each physician-investor's ownership per­centage was itself established by what he could be ex­pected to generate in facility-fees income for the Center. As established in the deposition testimony of the Center's Chief Operating Officer, Dennis Simmons, the owner­ship interest the physician is permitted to acquire in the Center depends upon what the Center con­cludes--following a review of the prospective investor's practice records--the number of patients the Center ex­pects that physician "can bring to Wayne Surgical," to­gether with the "payor mix of those patients" (i.e., Medi­caid versus non-Medicaid), and, overall, "how much gross revenue can their surgical cases which they bring to the center generate and what the profit is." Thus, there is an undisputed nexus between the physician-investor's percentage interest in the Center and the income [*23] the Center expects him to generate for the Center. This, coupled with the fact that the physician investor has a direct financial incentive to refer his patients to the Cen­ter, creates a self-referral arrangement that plainly vio­lates the language and purpose of the Codey Act, unsaved by the non-binding, inapplicable advisory opinion of 1997.

Thus, I conclude that the specific hypothetical phy­sician-owned ambulatory surgical center the Board was asked to contemplate--an affiliation with a hospital where 11the facility fee the investor surgeon receives pur­suant to his ownership interest in the facility is generally nominal in relation to the professional services fee"--is not the circumstance presented by Wayne Surgical Cen­ter and the physician-investors in the case at hand.

The Board also asserted that its "rationale for allow­ing a self-referral in this context is that the service of­fered is so integral to the practice of the surgeon that it may be perceived as an extension of his/her medical of­fice practice." Pursuant to NJ.SA. 45:9-22.5(c){J), the Codey Act restrictions against self-referrals do not apply to "a health care service that is provided at the practi-

Page 7 2007 NJ. Super. Unpub. LEXIS 2995, *

ti oner's medical office I *24] and for which the patient" is billed directly by the practitioner."

Obviously, the ambulatory surgical center here at issue is not the individual practitioner's medical office. It is a distinct facility, at a different location from the indi­vidual doctors' variously located medical offices. The support staff at the Center-- the clinical staff, the nurses, the medical assistants and technicians--are not employ­ees of the individual doctor (he does not bring in his people, in tow, for each procedure) but rather are em­ployed by a distinct, legal entity, Wayne Surgical Center, LLC. They are not the staff or employees of any indi­vidual doctor, The Center is not the medical office of any physician, and therefore, it can not be plausibly con­tended that surgical procedures performed at the Center are being performed at the doctor's office. Plainly they are not. They are being performed at the Center, which is not the doctor's office. Simply calling the Center the doctor's office does not advance the analysis and, in­stead, eviscerates the plain language of the Codey Act (N.J.S.A. 45:9-22.5) as well as Board regulations (N.J.A.C. 13:35-6.17), both of which bar self-referrals to ambulatory surgery 1*251 centers.

The statute provides no warrant for allowing prohib­ited self-referrals to surgical centers that are character­ized as "merely an extension of the surgeon1s office," and to that extent I depart from this unwarranted assumption in the advisory opinion. The facility fee is billed by Wayne Surgical Center, to insurers like Health Net, and then paid by Health Net, to the Center. The insurance claim for the professional services of the subscrib­er-patient is prepared by the physician's own medical office, (afrer assignment) and submitted to the insurer, like Health Net, and then paid by Health Net, to the phy­sician. That the physician-investor has not out-sourced the billing of his professional fee, to the Center, nor out­sourced to the Center the processing of the insurance claim for that professional fee, does not transform the surgical center into the physician's office, nor into an amorphous "extension of her office," but rather high­lights that the Center is indeed not the physician's medi­cal office, nor an extension of her medical office. It is a separate and distinct facility, separately owned and oper­ated, with separate and distinct insurance and billing functions.

If the doctor 1*261 performed the "health care ser­vice" (e.g., the surgical procedure) at her own medical office, and billed the patient directly for it, that arrange­ment would not violate the Codey Act ban on self-referrals because that would satisfy the statutory exception afforded to doctors who perform such proce­dures in their own medical office and bill the client di­rectly for it. N.J.S.A. 45:9-22.5(c}(J). There is no "refer­ral" in such a process. That limited exception is simply

inapplicable to what the uncontroverted record estab­lishes in the case at hand.

The conclusion that the self-referrals from the de­fendant-physician to the Center run afoul of the Codey law can not be avoided in this case. That said, there is nothing in the record to even suggest that any patient was ever referred to the Center for a procedure that was not needed, nor that the decision to recommend the surgery, or to perform the surgery, was in any way colored by the fact that the doctor had an ownership interest in. the fa­cility at which the procedure ultimately took place. The legislative history makes clear that the legislature sought to eliminate the financial incentives to practitioners to refer patients to entities in [*27] which they have a fi­nancial interest, because of the belief that practitioners with financial interests in entities are more likely to base their referrals on financial motives instead of sound medical decision-making. See "Governor 1s Reconsidera­tion and Recommendation Statement 11

• Senate Nos. 734 and 2091 - L. 1989, C. 19.; see also Allstate Insurance Co. v. Greenberg, 376 N.J. Super. 623. 635, 871 A.2d 171 (law Div. 2004) (Villanueva, J.A.D., retired and temporarily assigned on recall). I wish to emphasize that there is no evidence in the voluminous record of this case, nor any claim by Health Net, that the doctors' deci­sions to refer their patients to the Center for their surger­ies was anything but sound, medical decision-making. There is no proof or claim that any patient referred to the Center should--from a purely medical and patient-care perspective--have been referred instead to a hospital, or some other arrangement.

Furthermore, there is evidence in the record to sup­port the claim that important considerations of efficiency and convenience are served by having appropriate surgi­cal candidates undergo their necessary procedures in a Center owned in part by the patient's physician, [*281 as opposed to having the exact same necessary procedure performed in a hospital. And the very ubiquitousness of physician-owned ambulatory surgical centers, receiving referrals from physician investors, is proof positive that this mechanism for delivering health care to the public is serving a need. The absence of any evidence that this surgical center--or any other New Jersey physi­cian-owned ambulatory surgical center--has perpetrated what the Act was designed to blunt (unnecessary health care services, or medical judgment impacted by financial incentives) is further evidence that beneficial public ob­jectives may be achievable though legislative tolerance of this sort of mechanism for delivering health care ser­vices.

But the legislation, as is, plainly and unambiguously bars physician self-referrals to ambulatory surgical cen­ters in which the physician owns a significant beneficial interest, and so the Court concludes that the arrangement

Page 8 2007 N.J. Super. Unpub. LEXIS 2995, *

violates the strictures of the Codey Act. That violation is not undone by the fact that there is no evidence that the particular doctors in this case have let their medical judgment be clouded by their financial stake in the Cen­ter.

Despite the Codey [*29] Act violations, the doctors did not commit insurance fraud as defined in Insurance Fraud Prevention Act, unless that statute is also shown to have been violated. The Codey Act itself affords Health Net no private cause of action against either the individ­ual doctors or the Center. Under IFPA, a person commits statutory insurance fraud ifhe or she:

a. (1) Presents or causes to be present­ed any written or oral statement as part of, or in support of opposition to, a claim for payment or other benefit pursuant to an insurance policy . . ., knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or

(2) Prepares or makes any written or oral statement that is intended to be pre­sented to any insurance company or any insurance claimant in connection with, or in support of or opposition to any claim for payment or other benefit pursuant to an insurance policy, knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or

(3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person1s initiaJ or continued right or entitlement to (a) [*30] any in­surance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled ...

b. A person or practitioner violates this act if he knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act.

c. A person or practitioner violates this act if, due to the assistance, conspira­cy or urging of any person or practitioner, he knowingly benefits, directly or indi­rectly, from the proceeds derived from a violation of this act.

N.JSA. 17:33A-4.

Each element of an IFPA violation--knowledge, materiality, and a false or misleading statement--must be proved by a preponderance of the evidence. Liberty Mu­tual Life Insurance Co. v. Land, 186 N.J, 163, 175, 892 A.2d 1240 (2006). Although the parties put forth argu­ments on the issues of materiality and whether the doc­tors individually are culpable", the "knowledge" element is dispositive to the Court's granting the doctors and the Center summary judgment on this issue.

While no New Jersey case satisfactorily addresses the scienter element of IFPA claims, there is ample au­thority to guide this Court at the federal level. "The fed­eral statutory counterpart to IFPA [is] [*31] the False Claims Act (FCA), 31 USC § 3729." Liberty Mutual, supra, 186 N.J at 176. To establish a violation of the FCA. there nwst be a demonstration that "the defendant possessed guilty knowledge or intent to cheat the gov­ernment." United States v. Thomas. 709 F.2d 968, 971-72 (5th Cir. 1983). "Violations of laws, rules, or regulations alone do not create a cause of action under the FCA. It is the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit. It United States v. Anton. 91F.3d1261, 1266 (9th Cir. 1996).

For instance, the Ninth Circuit held that "the FCA requires more than just a false statement-~it requires that [the defendant] knew the claim was false. A contractor relying on a good faith interpretation of a regulation is not subject to liability, not because his or her interpreta­tion was correct or 'reasonable' but because the good faith nature of his or her action forecloses the possibility that the scienter requirement is met." United States v. Parsons Co.,195 F.3d 457, 460 (9th Cir. 1999) (finding that innocent misinterpretation of accounting regulations was not actionable under the FCA). Likewise [*32] in United States v. Straus, 84 F, Supp.2d 427 (S.D.N. Y. 1999), the court held that a former employee could not satisfy the scienter element on the part of the physicians she worked for, where the physicians had submitted claims for Medicare payments. Even though the former employee had informed the physicians that they were not performing certain medical tests properly, her allegations did not show the physicians had actual knowledge that claims submitted were untrue or demonstrate that the physicians did not investigate, or remained intentionally ignorant about, their entitlement to reimbursement.

Health Net's refrain throughout this litigation has been that the doctors and the Center are charged with knowledge of the pertinent healthcare regulations, citing Material Damage Adjustment Corp. v. Open MRI of Fairview. 352 N.J Super. 216, 227, 799 A.2d 731 (Law Div. 2002), But although ignorance of the law is no de­fense to having to comply with the law, it is still highly relevant whether the counterclaim-defendants were

Page 9 2007 N.J. Super. Unpub. LEXIS 2995, *

aware of their violations of the Codey law. This is not a case about whether the doctors violated a statute or reg­ulation governing the practice of medicine, but rather 1*33] it is about whether they perpetrated a fraud as de­fined in IFPA. Certainly, if this case was about the Codey Act alone, the Court would pay no attention to what the doctors' states of mind were. But an IFPA claim is one step removed from a simple violation of a regula­tion--it requires at least a reckless disregard of whether there is an entitlement to reimbursement, which means that the doctors' objectively reasonable interpretation of their entitlement to reimbursement is at the forefront of the Court's analysis.

The Court recognizes that some language in Allstate Ins. Co. v. Greenberg. when juxtaposed with other parts of the opinion, suggests that a violation of the Codey Act violates IFPA, regardless the party's knowledge of the law,

Since Greenberg held a financial inter­est in Middlesex Diagnostic, every refer­ral from a Greenberg chiropractic facility to Middlesex Diagnostic generated pay­ment to Greenberg, which constituted an impermissible referral fee [under the Codey Act]. The fees for services ren­dered by Middlesex Diagnostic based upon referrals from the Greenberg chiro­practic facilities were therefore not eligi­ble for PIP reimbursement as a matter of Jaw.

This court is clearly (*34] and con­vincingly satisfied that Dr. Greenberg and his corporations knowingly violated NJS.A !7:33A-4(a)(I),(2), and (3). No reasonable jury could conclude that they did not knowingly conceal material in­formation and were not legally entitled to PIP benefits.

Greenberg, supra, 376 N.J Super. at 637, 640.

To the extent that Greenberg. a trial court decision, supports the proposition that a defendant's reasonable belief in its entitlement to reimbursement is irrelevant to IFPA's "knowledge" prong, this Court respectfully disa­grees. The federal authorities articulate a more flexible standard that will prevent the courts from having to find parties liable for "innocent" fraud, brought on by the slightest regulatory infraction. And, in any event, the Greenberg court noted numerous factors that suggested Dr. Greenberg knew he didn't have a right to reimburse-

ment and that "[ c]ommon sense dictates" he had no right to payments. Id. at 631, 638.

In the current case, in light of the surrounding cir­cumstances, common sense did not dictate a clear course of action .. As determined supra, no reasonable fact find­er could conclude that the doctors and the Center acted with recklessness, or with knowledge [*35] of illegali­ty. There has been no showing that the doctors hid the Center's ownership structure, which, in any event, is publicly published, or otherwise acted culpably. The prominence of the Board of Medical Examiners' advisory opinion, the lack of clear guidance on the application of the Codey Act, the ubiquitousness of the Center's type of ownership structure here in New Jersey, and the inaction in the face of this widespread practice by state regulatory authorities, all suggest that there was not even negligence on the part of the doctors, let alone conscious wrongdo­ing, or reckless indifference to wrongdoing. The self-referral arrangement between these doctors and the Center violates the Codey Act ban on such self-referrals, but the Codey Act embodies no private course of action, and there is no actionable violation of the Insurance Fraud Prevention Act, because the doctors -- and, by extension, the Center -- reasonably believed the ar­rangement to be lawful.

Therefore, summary judgment shall be entered in favor of the physicians, and the Center, against Health Net, because the proven Codey Act violations do not constitute insurance fraud under the IFPA.

d. The Co-insurance

Next, Health (*36] Net claims that the physicians and the Center committed insurance fraud, in violation of IFPA. by not collecting co-insurance from patients re­ferred by the physicians to the Center.

As aforesaid, when the doctors* patients require surgery, the doctors routinely refer appropriate candi­dates to the Center. When a Health Net subscriber is re­ferred to the Center, Health Net must pay the Center the Center's facility fee on covered patients, despite the fa­cility's out-of-network status. But when Health Net re­imburses out-of-network services, it requires the patient to pay a portion of the total fee, called "co-insurance" (as distinct from "co-pay", which is a portion of the doctor1s fee that Health Net requires patients to pay for in-network services). The Center's policy is to not collect co-insurance from the patients they referred to the Cen­ter. Instead it accepts as payment in full the assignment of the patient's right to reimbursement from Health Net.

With two exceptions, none of the physicians have advised patients that they may be liable for co-insurance for treatment at the Center, and the Center itself does not so advise patients. The policy of the Center is to write off

Page JO 2007 N.J. Super. Unpub. LEXIS 2995, *

the co-insurance [*37] obligation of the patient. Only in those cases where the Center otherwise pursues the pa­tient for bill payment (as, for example, where the patient receives and retains the payment from the insurer), does the Center pursue the co-insurance. The Center never represented to Health Net that it did collect co-insurance from patients; nor did the Center ever represent to Health Net that it did not collect co-insurance. While a theoreti­cal right to pursue co-payment from the patient exists, it is virtually never pursued by the Center.

New Jersey does not expressly prohibit the practice of waiving co-insurance in the context of ambulatory surgical centers. Other states apparently do. No New Jersey decisional authority prohibits the practice. Mere non-collection of the outstanding balance not covered by insurance is lawful and of itself. See Trustmark Life Ins. Co. v. Univ. of Chi. Hosp., 207 F.3d 876, 884 (7th Cir. 2000). A contractual waiver of the Obligation to pay the deficiency is, by contrast, unlawful. See Kennedy v. Comm. Cen. Life Ins., 924 F.2d 698 (7th Cir. 199!). But where the legal obligation to repay is created, as against the recipient of the health care service, no fraud is [*38] created by mere non-pursuit of the deficiency. Id. at 702.

The alert published by the American Medical Asso­ciation, warning doctors that routine waivers of co-insurance may be unlawful, is, obviously, not author­ity for the proposition that the practice is unlawful, nor evidence of the parameters beyond which the practice may become unlawful. And, in any event, that alert re­lates expressly, and only, to "co-payments11

, which arise in the in-network context, without reference to "co-insurancen, which arises in the out-of-network con­text and which is the subject matter of this case.

Health Net relies upon the case of Feiler v. N.J. Dental Ass'n., 191 N.J. Super. 426, 467 A.2d 276 (Ch. Div. 1983), aff d 199 N.J. Super. 363, 489 A.2d 116! (App. Div. !984), cert, denied, 99 N.J. 162, 49! A.2d 673 (1984), to rebut the argument that no New Jersey case law mandates pursuit of co insurance from patients with private insurance. Feiler is a case involving dentists, who have their own regulatory framework, and was not an Insurance Fraud Prevention Act case, a point emphasized by the appellate court. Id. at 367. IF.PA requires scienter, as established in the prior discussion of self-referrals, and requires false statements or [*39] omissions to an in­surer. The case involved a private dispute between a dental association and a dentist who was publicly adver­tising waiver of co-payment, something akin to binding oneself in advance not to create a legal obligation to be responsibility for deficiencies, as condemned in the Kennedy case, above. Here, the patient is legally bound to pay the co-insurance; it simply is not pursued (in all but the rarest cases). That is not fraud.

Lastly, Health Net relies upon the case of Aetna Health Care, Inc. v. Carabasi. Docket No. BUR-L-3345-03, 2006 WL 66460 (App. Div. 2006), for the proposition that a provider who waives co-insurance and bills an insurer for the entire portion of its services has misrepresented its charges and failed to disclose a material fact affecting the patient's right to benefits.

A careful review of that case shows that the trial court found just the opposite; "[T]he Court is not satis­fied that when a chiropractor submits a bill for $ 100 and does not collect a co-pay, when he is not obligated to collect a co-pay, and when he does not disclose that he is [not] collecting a co-pay, that he in any way committed a fraud or deceptive practice." The Appellate Division [*40] did not reverse this trial court finding, but found it, in the context of ft motion to dismiss, "premature," pending the matter being fleshed out through discovery.

Accordingly, I find no authority to establish that the doctors or the Center acted unlawfully in routinely fail­ing to enforce the obligation of Health Net subscribers to pay co-insurance.

And, as this is an IF.PA case, there is no evidence of scienter: reckless indifference or conscious disregard of an obligation imposed by law to enforce a co-insurance obligation. No fraud is perpetrated by the failure of the Center to pursue these patients. No violation of law oc­curred.

ADDITIONAL FINDINGS

Neither patients nor Health Net are misinformed as to the ownership of the Center. If patients ask, they are told of their doctor's interest in the Center, and the matter is, of necessity, of public record, by law. Occasional im­perfections in the Center's reporting obligations do not remotely rise to the level of fraud. No one was misled, and any misinformation in the disclosures not being strictly timely are immaterial in the context of this case.

The failure to disclose the amount of co-insurance on claim forms is likewise not a fraudulent [*41] act where, as here, the amount cannot be known at the time the form is submitted, and where there is no misrepre­sentation as to the amount of the co~insurance, nor that it has or will be collected.

II. The Good Faith and Fair Dealing, Unjust Enrichment, and Tortious Interference with Contract Claims.

a. Good Faith and Fair Dealing

Within every contract is an implied duty of good faith and fair dealing. Price v. N.J. Mfrs, Ins. Co., 182 NJ. 519, 526, 867 A.2d l 181 (2005). And for the pur­poses of the present analysis, the Court is willing to ac­cept that an assignee of the benefits from a contract owes

Page 11 2007 N.J. Super. Unpub. LEXIS 2995, *

a duty of good faith and fair dealing to the contracting parties. A court determines good faith on a case-by-case basis. Brunswick Hills Racquet Club. Inc. v. Route I 8 Shopping Ctr. Assocs., I82 N.J. 2IO, 225, 864 A.2d 387 (2005). While this precludes the Court's applying a black-and-white standard, the New Jersey Supreme Court has articulated a guideline that fairly encompasses the case at bar; "[A] plaintiff may get reliefifit relies to its detriment on a defendant's intentional misleading as­sertions." Id at 226.

Again, the issue boils down to intent, with the addi­tional element of reliance. Here, the [*42) Court has already found that no facts support a finding of intent to defraud on the part of the doctors or the Center, Like­wise, in the good-faith-and-fair-dealing context, the Court finds that there was no intent to mislead. For rea­sons identical to the analysis, supra, the Court grants summary judgment in favor of the counter­claim-defendants. And because the Court makes this finding, there is no need to determine whether Health Net actually "relied" on the Center's representations as to its bills.

b. Unjust Enrichment

Health Net asserts a claim of unjust enrichment. To establish a claim for unjust enrichment, ma plaintiff must show both that defendant received a benefit and that re­tention of that benefit without payment would be unjust.' That quasi-contract doctrine also 'requires that plaintiff show that it expected remuneration from the defendant at the time it performed or conferred a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual rights."' Iliadis v, Wal-Mart Stores, Inc., I9I N.J. 88, IIO, 922 A.2d 710 (2007) (quoting VRG Corp v. GKN Realty Corp., I 35 N.J. 539, 554, 641 A.2d 519 (1994)). Courts apply this theory with caution. [*43] Callano v. Oakwood Park Homes Corp., 91 N.J. Super, 105, 2I9 A.2d 332. 108-09(1965).

The claim for unjust enrichment fails as a matter of law. This is not a case where Health Net conferred a benefit with the expectation that it would be remunerat­ed. Instead, the Center submitted claims under an as­signment of benefits it received from the contract Health Net had with its patients. There was never any payment that Health Net expected from the Center. For these rea­sons, which are nearly identical to those enumerated in Aetna Health. Inc. v. Carabasi Chiropractic Center. Inc., Docket No. BUR-L-3345-03, 2006 WL 66460 (App. Div,) (unpublished), the Court grants summary judgment in favor of the doctors and the Center on the unjust en­richment claim.

c. Tortious Interference with Contract

Health Net also alleges that the doctors and the Center tortiously interfered with the contracts between Health Net and its subscribers, when the Center did not collect co-insurance from its patients. For the following reasons, the Court grants summary judgment in favor of the Center and its owners, To establish such a claim Health Net must show: "(!) actual interference with a contract; (2) that the interference [*44) was inflicted intentionally by [the doctors and the Center,] who [were] not [parties] to the contract; (3) that the interference was without justification; and (4) that the interference caused damage." Delio Russo v. Nagel. 358 N.J. Super. 254, 268, 817 A.2d 426 (App. Div. 2003). "[T]he complaint must allege facts claiming that the interference was done intentionally and with malice." Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 75I, 563 A.2d 3I(l989). Malice is the intentional commission of a wrongful act without justification or excuse. Levin v, Kuhn Loeb & Co., 174 N.J. Super 560, 573, 417 A.2d 79 (App. Div. 1980). The determination of whether the act is wrongful is based on factors, including the nature of the actor's conduct, the actor's motive, and the proximity of the actor's conduct to the interference. Restatement (Second) a/Torts§ 767 (19791

Here, the contract was between Health Net and its subscribers. After the Center rendered facility services to patients, the patients assigned their rights to reimburse­ment under the Health Net subscriber contract, to the Center. The claim fails, because Health Net has failed to demonstrate malice. The act of not collecting or [*45) pursuing co-insurance payment itself is not fraudulent under the Court's analysis above. Health Net cannot demonstrate that the Center acted from a motive of harming Health Net. And the acts of interference are removed from the alleged harm. These considerations militate conclusively against a finding of malice. Be­cause there cannot be a finding of malice, the Court need not reach the issues of causation and damages, and the Court grants judgment in favor of the counter claim-defendants.

SUMMARY

The Court finds that the defendants have violated the Codey Act by referring patients to the Wayne Surgical Center, an ambulatory surgical center in which they have significant, beneficial interests, and which center is not their medical office, That violation is not a violation of the Insurance Fraud Practice Act, however, because it was not a knowing Codey Act violation. The co-insurance waivers are not fraudulent nor otherwise unlawful. The claims for breach of the implied covenant of good faith and fair dealing, unjust enrichment, and tortious interference are denied.

2007 N.J. Super. Unpub. LEXIS 2995, *

A form of Judgment shall be submitted by counsel for the physicians and/or the Center, within 5 days.

Isl Robert P. Contillo

ROBERT P. CONTILLO, J.S.C. [*46]

Dated: November 20, 2007

Page 12

LexisNexis(t'

JOSEPH GARCIA, M.D.; JEFFREY GINSBURG, M.D.; KEVIN KEARNEY, M.D.; MARC KITROSSER, D.P.M.; KENNETH REMSEN, M.D.; HOWARD TAYLOR, M.D.; ROBERT BAZZINI, M.D.; JOHN CECE, M.D.; MICHAEL D'ANTON, M.D.; SHARON LI, M.D.; WILLIAM MATARESE, M.D.; LAW-

RENCE PIZZO, M.D.; ABAS REZV ANI, M.D.; JOHN SANZONE, M.D.; JOHN SCHEIBELHOFFER, M.D.; BURTON SCHLECKER, M.D.; KENNETH GAR­RETT, M.D.; CLIFFORD GORDON, M.D.; JEANAE MAZZONE, D.O.; LEON­ARD NICOSIA, M.D.; ROBERT SCHLIEN, M.D.; LISA STEVENS, M.D.; and ARTHUR SUFFIN, M.D., Plaintiffs-Respondents, v. HEALTH NET OF NEW

JERSEY, INC., Defendant/Third-Party Plaintiff-Appellant, v. WAYNE SURGICAL CENTER, LLC; JOSEPH BARATTA, M.D.; BRUCE CALIGARO, D.P.M.; EN­DOSCOPY GROUP, LLC; RAMTIN KASSIR, M.D.; WILLIAM MATARESE, M.D.; LA WREN CE PIZZO, M.D.; ABAS REZV AN!, M.D.; JOSEPH TART A,

M.D.; ALAN WASSERSTRUM, M.D.; WAYNE GYNECOLOGICAL SURGEONS, LLC; and WSCAG INVESTMENT GROUP, LLC, Third-Party Defend­

ants-Respondents.

DOCKET NO. A-2430-07T3

SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION

2009 N.J. Super. Unpuh. LEXIS 2858

October 5, 2009, Argued November 17, 2009, Decided

Page I

NOTICE: NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION.

PLEASE CONSULT NEW JERSEY RULE I:36-3 FOR CIT A TI ON OF UNPUBLISHED OPINIONS.

SUBSEQUENT HISTORY: Certification denied by Garcia v. Health Net of NJ, 20IO N.J LEXIS 352 (N.J, Mar. I6, 20IO)

PRIOR HISTORY: i*l] On appeal from the Superior Court of New Jersey,

Chancery Division, Bergen County, Docket No. C-37-06. Garcia v. Health Net of N.J, Inc., 2007 N.J Super. Un­pub. LEXIS 2995 (Ch.Div., Nov. 20, 2007)

Thomas A. Gentile argued the cause for respondents, Robert Bazzini, M.D., John Cece, M.D., Michael D'An­ton, M.D., Sharon Li, M.D., John Sanzone, M.D., John Scheibelhoffer, M.D., Burton Schlecker, M.D., Clifford Gordon, M.D., Jeanae Mazzone, D.O., Leonard Nicosia, M.D., Kenneth Garrett, M.D., Robert Schlien, M.D., Lisa Stevens, M.D., and Arthur Suffin, M.D. and respondents Wayne Surgical Center, LLC, Joseph Baratta, M.D., Bruce Caligaro, D.P.M., Endoscopy Group, LLC, Ram­tin Kassir, M.D, William Matarese, M.D., Abas Rezvani, M.D., Joseph Tarta, M.D., Alan Wasserstrum, M.D., Wayne Gynecological Surgeons, LLC, and WSCAG Investment Group, LLC (Lampf, Lipkind, Prupis & Pe­tigrow, attorneys; Mr. Gentile and Neil L. Prupis, of counsel; Mr. Gentile, on the joint brief).

COUNSEL: Robert A. White argued the cause for ap­pellant, Health Net of New Jersey, Inc. (Morgan, Lewis & Bockius, L.L.P., attorneys; Mr. White and Daniel E. Orr, on the briefs).

Bruce H. Nagel argued the cause for respondents, Joseph Garcia, M.D., Jeffrey Ginsburg, M.D., Kevin Kearney, M.D., Marc Kitrosser, D.P.M., Kenneth Remsen, M.D., 1*2] and Howard Taylor, M.D. (Nagel Rice, L.L.P. at­torneys; Mr. Nagel, on the brief).

Page 2 2009 N.J. Super. Unpub. LEXIS 2858, *

Jennifer E. Fradel argued the cause for amicus curiae, State of New Jersey (Anne Milgram, Attorney General, attorney; Melissa H. Raksa, Deputy Attorney General, of counsel; Ms. Fradel and John C. Grady, Deputy Attorney General, on the brief).

Boies, Schiller & Flexner, L.L.P., attorneys for amicus curiae, The Medical Society of New Jersey and The American Medical Association (David S. Stone, Eric H. Jaso, and Jason C. Spiro, on the brief).

Pringle Quinn Anzano, P.C., attorneys for amicus curiae, Insurance Counsel of New Jersey and Property Casualty Insurers Association of America (Paul Anzano and Lisa Levine, on the brief).

Wardell, Craig, Annin & Baxter, L.L.P., attorneys for amicus curiae, New Jersey Association of Health Plans (Edward S. Wardell and Christine S. Orlando, on the brief).

JUDGES: Before Judges Rodriguez, Yannotti and Chambers.

OPINION

PERCURIAM

Health Net of New Jersey, Inc. (Health Net) appeals from an order entered by the trial court on December 11, 2007, which granted summary judgment in favor of plaintiffs and third-party defendants on Health Net's claims against them, and denied its motion for summary [*3] judgment on those claims. We affirm.

The relevant facts are essentially undisputed. Wayne Surgical Center (WSC) is an ambulatory surgical center licensed by the New Jersey Department of Health and Senior Services. WSC is owned by physicians who per­form procedures there on patients from the physicians' private practices. Health Net provides health insurance coverage to the physicians' patients. The physicians con­tracted with Health Net to provide services as part of its network; however, WSC is not part of Health Net's net­work of health care providers.

Health Net receives at least two insurance claims when one of its subscribers undergoes surgery at WSC. The first is a claim by the treating physician for his or her professional fees. The other is a claim by WSC for its facility fees. Since WSC is not part of the Health Net network, the subscriber is responsible for payment of nco-insurance, 1

' which is a percentage ofWSC 1s charge.

Before undergoing surgery at WSC, each patient is required to sign a form stating that he or she is "fully responsible for 100 percent of [the center's] charge." It was, however, WSC's practice to waive the co-insurance

obligation for most patients. WSC only pursued [*4] payment of co-insurance when a patient was directly reimbursed for WSC's facility charge but failed to turn over the money received to WSC.

Plaintiffs are physicians with ownership interests in WSC. In January 2006, they filed a complaint against Health Net alleging that it had unlawfully refused to re­new their contracts to provide health care services as part of its insurance network. In February 2006, Health Net filed a counterclaim against plaiutiffs and a third-party complaint against WSC and other physician-owners of WSC, in which it asserted claims under the Insurance Fraud Prevention Act (IFPA), N.J.S.A. J7:33A-1 to -30, as well as claims for breach of the implied covenant of good faith and fair dealing, unjust enrichment and tor­tious interference with Health Net's subscriber contracts.

Thereafter, the parties filed cross-motions for sum­mary judgment. The trial court filed a written opinion dated November 20, 2007, and corrected on November 21, 2007, in which it determined that plaintiffs and third-party defendants were entitled to summary judg­ment on the claims asserted against them, and Health Net was not entitled to summary judgment on its claims. The court filed another opinion [*5] dated November 30, 2007, finding that summary judgment should be granted to Health Net on plaintiffs' claims. The court entered an order dated December 11, 2007, memorializing its deci­sions on the motions.

This appeal followed. We granted motions to appear as amicus curiae by the Medical Society of New Jersey and the American Medical Association; the New Jersey Association of Health Plans; the Insurance Council of New Jersey and Property Casualty Insurers Association of America; and the State of New Jersey.

On appeal, Health Net raises the following issues for our consideration: I) the trial court applied an "erroneous knowledge" standard to the IFPA claims; 2) the trial court erred by holding that insurance claims of a provider who waives payment of co-insurance do not misrepresent the provider's charges; 3) and the trial court erroneously granted summary judgment to plaintiffs and third-party defendants on its common law claims.

Having thoroughly reviewed the record and the legal arguments presented by the parties and amici, we con­clude that Health Net's appeal is without merit. We ac­cordingly affirm the order granting summary judgment to plaintiffs and third-party defendants substantially [*61 for the reasons stated by Judge Robert P. Cantillo in his thorough and comprehensive opinion. We add the fol­lowing comments.

In this matter, Health Net alleged that plaintiffs and third-party defendants violated the IFPA because they

Page 3 2009 N.J. Super. Unpub. LEXIS 2858, *

knowingly submitted claims that were false and mis­leading. Health Net maintained that submission of the claims violated the IFPA because the referrals by plain­tiffs and third-party defendants of their patients to WSC violated the provisions of the so-called "Codey Law" that were in effect at the time the referrals were made. Health Net also alleged that plaintiffs and third-party defendants violated the IFPA by submitting claims that did not dis­close that WSC waived payment of co-insurance by Health Net's subscribers.

The (*7) trial court found that there were no genu­ine issues of material fact and plaintiffs and third-party defendants were entitled to judgment on the IFPA claims as a matter of law. The trial court held that WSC and its physician-owners did not submit claims to Health Net knowing that they were false and misleading. Health Net argues that, in reaching these conclusions, the trial court applied an erroneous knowledge standard to the IFPA. We disagree.

The IFP A provides in pertinent part that an individ­ual violates that act if he

(!) [p ]resents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim[.)

[N.JS.A. 17:33A-4(a)(l).]

The IFPA does not define the term "knowing." There­fore, we must interpret the statutory language in light of its ordinary meaning. DiProspero v. Penn, 183 N.J 477, 492, 874 A.2d 1039 (2005). The term "knowing" gener­ally means "showing awareness of; understanding; [or] well informed." Black's Law Dictionary 888 (8th ed. 2004).

Here, the trial court [*8] found that when the phy­sicians referred their patients to WSC, the Codey Law barred such referrals. At the time the referrals were made, the Codey Law provided that:

[a] practitioner shall not refer a patient or direct an employee of a practitioner to refer a patient to a heath care service in which the practitioner, or the practitioner's immediate family, or the practitioner in combination with practitioner's immediate family has a significant beneficial interest; except that in the case of a practitioner, a

practitioner's immediate family or a prac­titioner in combination with the practi­tioner's immediate family who had the significant beneficial interest prior to the effective date of P.L. 1991, c. 187, the practitioner may continue to refer a pa­tient or direct an employee to do so if that practitioner discloses the significant bene­ficial interest to the patient.

[N.JS.A. 45:9-22.5.]

A "significant beneficial interest" means "any financial interest" except ownership of a building that is leased to another and publicly traded secunttes. N.JS.A. 45:9-22.4. The term "health care service" includes facili­ties that provide ambulatory surgery. N.JS.A. 45:9-22.4.

The trial court determined, [*9) however, that a reasonable fact finder could not conclude that WSC's physician-owners acted with knowledge of illegality when they submitted their claims to Health Net. The court noted that the Executive Committee of the New Jersey State Board of Medical Examiners had issued an advisory opinion dated November 12, 1997, in which it concluded that a physician's referral of patients to an ambulatory surgical center in which the physician had a financial interest was permissible because the center was jointly owned by a hospital and the facility fees derived from the center were nominal in relation to the profes­sional services fee.

The trial court found that the advisory opinion was inconsistent with the plain language of the Codey Law but determined that the opinion provided WSC's physi­cian-owners with a reasonable basis to believe that the referrals of their patients to WSC were lawful. In further support of that finding, the trial court pointed out that WCS's ownership structure had not been hidden, there was a lack of clear guidance from the regulatory agencies as to the application of the Codey Law to ambulatory surgery centers, and WSC's ownership structure was typical of the ownership [*IO] structures of such facili­ties.

The trial court additionally determined that WSC and its physician-owners did not violate the IFP A be­cause they failed to disclose that they waived collection of co-insurance due on WSC's facility charge. The court noted that WSC had all of its patients sign agreements in which they agreed to pay co-insurance and elected in most instances not to collect this money. The court ob­served that, at the time WSC submitted its claims to Health Net, it did not know whether it would enforce the subscriber's agreement to pay co-insurance. The court found that the practice was not unlawful and WSC and

Page 4 2009 N.J. Super. Unpub. LEXIS 2858, *

its physician-owners did not knowingly submit false and misleading claims by failing to disclose the practice.

In our judgment, the trial court's decision does not represent the application of an erroneous knowledge standard to IFP claims. Here, the trial court did not re­quire Health Net to show an intent to deceive. See State v. Nasir, 355 N.J Super. 96, 106, 809 A.2d 796 (App. Div. 2002) (holding that IFPA does not require proof of an intent to deceive), certif. denied, 175 N.J 549, 816 A.2d 1051 (2003). Rather, the court determined that Health Net failed to establish that plaintiffs and third-party [*11] defendants submitted claims knowing that they were false and misleading, as required by N.JS.A. 17:33A-4(a)(I). Thus, the trial court applied the knowledge standard drawn from the plain language of the IFPA.

Health Net and the State argue, however, that the trial court's decision is inconsistent with Open MRI of Morris & Essex, L.P. v. Frieri, 405 N.J Super. 576, 966 A.2d 48 (App. Div. 2009). We disagree. Jn that case, two insurers asserted a claim under the IFPA against Open MRI of Morris & Essex, alleging that the facility had submitted insurance claims for MRI services which it was not licensed to perform. Id. at 582. We held that summary judgment was warranted on the IFPA claim because the facility had twice been informed that it re­quired a license to operate but it had operated without a license "solely for economic reasons." Id. at 584.

We also stated that that the facility was charged with notice of the license requirement, observing that

"[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 safety [*12] and welfare of the public, such as the delivery of health care, are constructively on notice of the existence of legal requirements governing its prac­tice and operations. Those who, nonethe­less, venture forth without first obtaining the required governmental approvals, whether out of ignorance or arrogance, do

so at their own risk and must face the le­gal consequences for their actions. Sound public policy can accept no lesser stand­ard."

[Ibid. (quoting Material Damage Adj. Corp. v. Open MRI of Fairview, 352 N.J Super. 216, 227, 799 A.2d 731 (Law Div. 2002)).]

This case is significantly different from Fieri. There, the licensed facility provided health care services not­withstanding a clear and unequivocal directive from the regulatory agency mandating compliance with the statu­tory licensing requirement. By contrast, in this case, the physicians had a reasonable basis to believe that the re­ferrals of their patients to WSC was lawful. ' Further­more, there was no statute, regulation or regulatory di­rective from any licensing agency barring the waiver of a contractual right to collect co-insurance. Thus, as indi­cated in Fieri, there may be cases in which knowledge of illegality may be imputed to an entity [*13] operating in a highly-regulated industry. This is not such a case.

We note that the Codey Law was amended by L. 2009, c. 24, to permit under certain circum­stances the referral of patients to ambulatory sur­gical centers in which the referring practitioner has a financial interest. The amendment applies retroactively to certain referrals made prior to its effective date. N.JS.A. 45:9-22.5a(a). Plaintiffs and third-party defendants argue that the enact­ment of this amendatory legislation retroactively authorized the referrals at issue here. We have determined that even if the Codey Law barred the referrals at the time they were made, WCS and its physician-owners did not submit insurance claims knowing that they were false and misleading. Therefore, we need not address this issue.

We have considered the other contentions raised by Health Net and find them to be of insufficient merit to warrant comment in this opinion. R. 2:1 l-3(e)(l)(E).

Affirmed.

Page 1

Lexis Nexis®

STATE OF NEW JERSEY, Plaintiff-Respondent, v. PETER J. DESCHENES, JR., D.D.S., Defendant-Appellant.

DOCKET NO. A-0570-09TI

SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION

2010 N.J. Super. Unpub. LEXIS 1871

May 26, 2010, Argued August 3, 2010, Decided

NOTICE: NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION.

PLEASE CONSULT NEW JERSEY RULE 1:36-3 FOR CITATION OF UNPUBLISHED OPINIONS.

PRIOR HISTORY: [*I] On appeal from the Superior Court of New Jersey,

Law Division, Somerset County, Docket No. L-1312-07.

COUNSEL: Stephen H. Schechner argued the cause for appellant (Law Offices of Stephen H. Schechner, attor­neys; Mr. Schechner, of counsel; Christine M. Gefaell and Mr. Schechner, on the brief).

Joan M. Scatton, Deputy Attorney General, argued the cause for respondent (Paula T. Dow, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Scatton, on the brief).

Arthur Meisel argued the cause for arnicus curiae New Jersey Dental Association.

JUDGES: Before Judges Stern and Sabatino.

OPINION

PERCURIAM

The New Jersey Insurance Fraud Protection Act ("the IFPA" or "the Act"), NJ.SA. 17:33A-1 to -30, among other things, subjects a health care professional or other person to civil penalties if he or she "[p]resents or causes to be presented any written or oral statement" in support of an insurance claim "knowing that the state­ment contains any false or misleading information con­cerning any fact or thing material to the claim" NJ.SA. 17:33A-4(a){J). Applying that provision, the trial court

granted summary judgment to plaintiff, the State of New Jersey, against defendant, Peter J. Deschenes, [*2] Jr., D.D.S. ("Dr. Deschenes"), finding that Dr. Deschenes had violated the Act in signing a dental insurance claim form that misstated the correct dates on which Dr. Deschenes inserted six crowns in one of his patients. The trial court also imposed a $ 1000 fine and ordered Dr. Deschenes to reimburse the state $ 20,438 in counsel fees and investigative costs.

We vacate the summary judgment order and remand for a trial in the Law Division, at which the factfinder will determine in a plenary fashion whether, as the State contends, Dr. Deschenes actually knew at the time that he signed the claim form prepared by his office that the treatment dates listed within it were incorrect, or wheth­er, as the defense contends, Dr. Deschenes lacked such conscious awareness, and that the situation is not one of a "knowing11 misrepresentation but rather one of an in­nocent clerical mistake. We remand for a trial because there are genuine and material factual issues regarding Dr. Deschenes's state of mind that require testimonial proof and associated credibility assessments.

I.

Dr. Deschenes is a dentist with offices in Warren Township. He has been licensed to practice dentistry in New Jersey for thirty [*3] years. There is no indication in the record before us that Dr. Deschenes has ever been charged with insurance fraud, other than with respect to the single claim form at issue in this appeal.

At the times relevant to this matter, Dr. Deschenes was a participating dental provider for patients insured by the Delta Dental Plan of New Jersey ("Delta Dental"). In connection with that role as a provider, Dr. Deschenes agreed to abide by the insurer's policies and procedures.

Page 2 2010N.J. Super. Unpub. LEXIS 1871, *

Those policies and procedures included obtaining, for certain specified kinds of treatments, prior approval from Delta Dental and a corresponding estimate of the insur­ance benefits to be paid. Dr. Deschenes also agreed to complete and submit to Delta Dental signed claim forms after the procedures had been approved and the patient had been treated.

Jn June 2000, Dr. Deschenes examined one of his Jong-standing patients, M.C., ' who was insured by Delta Dental. Based upon his diagnosis, Dr. Deschenes deter­mined that M.C. needed to have six crowns inserted, specifically for teeth numbered 6, 7, 8, 9, I 0 and I!.

For privacy reasons, we use initials to refer to the patient, who is not a party to the litigation.

Following M.C.'s [*4] diagnosis, Dr. Deschenes's office submitted to Delta Dental on June 20, 2000 a pre-treatment claim form. The submission sought the insurer's authorization for the installation of the six crowns, with an estimated billing charge of $ 750 per crown, for a projected billing total of $ 4500. The pre-treatment claim form, which Dr. Deschenes signed, left blank the actual dates of service, since the work had yet to be performed.

On July 5, 2000, Delta Dental responded to Dr. Deschenes's office with a written "Pre-Treatment Esti­mate of Benefits Voucher." The voucher indicated that the insurer anticipated paying $ 1614.50 in benefits for the six crowns--$ 525 each for the first three crown in­sertions; $ 39.50 for the fourth; and nothing for the fifth and sixth. The column on the voucher entitled "Date Service Completed" was left blank.

The terms of M.C.'s coverage with Delta Dental ap­parently capped the annual benefits payable within a given calendar year at $ 2000. Because of that coverage limitation, the voucher issued by Delta Dental in July 2000 initially assumed that all six crowns would be in­serted within the same calendar year, thereby resulting in only $ 39 .50 in estimated benefits to [*5] M.C. for the fourth crown and no benefits for the fifth and sixth crowns.

After receiving Delta Dental's authorization to pro­ceed with the six crown insertions, Dr. Deschenes origi­nally scheduled to have three of the crowns installed on December 18, 2000 and the three remaining crowns to be inserted in January 2001. According to Dr. Deschenes's deposition testimony, the crown procedures were delib­erately planned to straddle two calendar years in order to "get the maximum insurance benefit" under M.C.'s dental plan.'

2 The State does not dispute that sequencing the crown insertions in this fashion over two cal-

endar years, in order to maximize the patient's insurance benefits, was not inherently wrongful.

When M.C. arrived at Dr. Deschenes's office as scheduled, on December 18, 2000, Dr. Deschenes ob­served that she had extensive gingival bleeding. In Dr. Deschenes's professional judgment, the bleeding required treatment before any of the crowns could be inserted. Consequently, the crown insertions were postponed while M.C.'s bleeding problems were addressed.

M.C. returned to Dr. Deschenes's office on Decem­ber 29, 2000, at which time she was reexamined and given a prescription for mouth [*6] rinses. On January 9, 200 I, M.C. was seen again by Dr. Deschenes, at which time he made a pre-surgical impression for the six crowns.

Dr. Deschenes's office completed and returned the voucher, which functions as a claim form, to Delta Den­tal on January 12, 2001. In the "Date Service Completed" column on the voucher, the date of "12/18/00" is hand­written alongside the entry for the first three crowns, and the date of "1/9/01" is handwritten next to the entry for the last three crowns. Dr. Deschenes admittedly signed the voucher. His signature appears above a signature line and below preprinted language in small print, certifying that "the procedures as indicated by date have been com­pleted[.]"

After receiving the returned voucher, Delta Dental paid Dr. Deschenes's practice the sum of $ 3150 for all six crowns combined--$ 1575 for the listed December 18, 2000 appointment date and$ 1575 for the January 9, 2001 listed appointment date.

On March 5, 2001, Dr. Deschenes completed the necessary procedures and physically inserted all six crowns into M.C.'s mouth. When subsequently asked by the State's investigators why his office had submitted the completed voucher for M.C. in January 2001 after [*7] her crown impressions were taken, but before the crowns were actually inserted in March 200 l, Dr. Deschenes reportedly told them that there was confusion because 11 some companies want you to bill on the date of impres­sion" and others "want [] you to bill on the date of inser­tion." Dr. Deschenes acknowledged, however, that under his provider agreement with Delta Dental, the crown insertion date, not the impression date, functions as the billing trigger, and that he is bound by those billing re­quirements.

Meanwhile, pursuant to its claim auditing functions, Delta Dental sent a letter to Dr. Deschenes dated Febru­ary 5, 2001, requesting M.C.'s office records, her corre­sponding financial ledger, and the laboratory receipts for the six crowns. ' Dr. Deschenes's office did not respond to that first letter, so Delta Dental sent a second letter on

Page 3 2010 N.J. Super. Unpub. LEXIS 1871,'

April 22, 2004 ' requesting the same paperwork. Both letters went unanswered. At his deposition, Dr. Deschenes did not recall receiving either of those letters.

3 Although defense counsel has characterized this request as part of a "random" audit by the insurer, the State contends that many carriers such as Delta Dental regard claims for service straddling (*8] the end of calendar year and the start of a new year as 11red flag" events that war­rant closer examination, and that such multi-year charges are routinely audited for that reason. 4 The record does not explain the three-year gap between Delta Dental's first two information­al requests.

On August 16, 2004, Delta Dental sent a third letter to Dr. Deschenes, again seeking the same information concerning M.C.'s treatment and billing. Dr. Deschenes did recall receiving that third letter. In fact, the letter prompted Dr. Deschenes to review M.C.'s patient rec­ords. According to Dr. Deschenes, after completing that review, he first noticed that the wrong insertion dates had been handwritten on the 200 I payment voucher.

Consequently, without receiving any specific request from Delta Dental for a refund, Dr. Deschenes mailed a check to Delta Dental on August 24, 2004, in the amount of$ 1575. The check amount represented the$ 1285 that Delta Dental was erroneously billed for and had paid, plus $ 290, representing the balance of insurance benefits available to M.C. for the 200 I calendar year. A letter from Dr. Deschenes accompanied the check, explaining that "[t]reatment was claimed incorrectly." (*9] Dr. Deschenes did not bill M.C. for these refunded sums.

In August 2005, Delta Dental alerted the Division of Criminal Justice to a potential violation by Dr. Deschenes of the IFPA in connection with the claim for M.C.'s six crowns. This led the State to investigate Dr. Deschenes to determine if he had violated the IFPA. During that investigation, Dr. Deschenes spoke with the State's investigators and supplied requested information, apparently in a cooperative manner.

On August 15, 2007, the State filed a civil complaint in the Law Division against Dr. Deschenes for violating the IFPA in connection with the insurance claim for his work on M.C.'s six crowns. Among other things, the complaint accused Dr. Deschenes of "knowingly submit­ting" false material billing information to Delta Dental, thereby allegedly violating N.JS.A. 17:33A-4.

While discovery was still incomplete, Dr. Deschenes moved for summary judgment. That motion was denied by the Law Division judge who was then handling the case ("the first motion judge"). ' Thereafter, discovery proceeded, including the deposition of Dr. Deschenes

and the deposition of the Delta Dental auditor who had investigated the circumstances involving [*10] the in­surance claim. The State then itself moved for summary judgment. Dr. Deschenes opposed the motion, but did not cross-move for summary judgment in his own right.

5 The parties have not supplied us with a tran­script of the first motion judge's oral decision, and that transcript is not necessary for our review of the ensuing summary judgment order entered by the second motion judge.

Following oral argument before another Law Divi­sion judge who had, by that point, assumed responsibility for the case ("the second motion judge"), the State was denied summary judgment. In his decision, the second motion judge determined that the record, when viewed in a light most favorable to defendant as the non-moving party, contained "no indication that (Dr. Deschenes) willfully submitted a fraudulent claim.'' The judge fur­ther noted that "[a]though the date of the claim was in­correct, the record indicates that it was merely a mistake, and it was a mistake that was corrected, albeit after a length of time[.]"

The State then renewed its motion for summary judgment, this time attaching additional discovery mate­rials and also relying in its new brief on this court's then-recent opinion in Open MRI of Morris & Essex, LP. v. Frieri, 405 N.J Super. 576, 966 A.2d 48 {App. Div. 2009) 1*11] ("Open MR/")(holding that proof of a civil violation of the IFPA does not require evidence of defendant's intent to deceive an insurance company). The State also moved to recover$ 35,641 in counsel and in­vestigative fees.

Dr. Deschenes opposed the State's renewed sum­mary judgment motion. He also cross-moved for recon­sideration of his earlier application for summary judg­ment, which the first motion judge had denied.

Upon examining the parties' additional submissions and points of law, including our opinion in Open MRI, the second motion judge reconsidered his initial views of the case. In a written decision on August 14, 2009, the judge granted the State summary judgment and denied Dr. Deschenes's cross-motion.

The second motion judge stated in his opinion that 11on reflection, 11 his first decision was incorrect and not consistent with the purposes or requirements of the IFP A. In particular, the judge noted that, although the facts in Open MRI were "distinguishable" from the in­stant case, the opinion did reaffirm the legal principle that "intent to commit insurance fraud [is] not a neces­sary element of a violation of the IFPA." The judge also was ultimately persuaded by the State's assertion (*12] that, because Dr. Deschenes was "the person who actu-

Page 4 2010 N.J. Super. Unpub. LEXIS 1871, *

ally performed the services" on M.C., he necessarily "knew" that the dates listed for those services on the claim form were incorrect. The judge characterized the actual date of service as an "objective fact which was known by defendant." Consequently, on final reflection, the judge concluded that "there was knowledge by the defendant that he submitted a material false statement in the insurance claim involved here[,]" and that "[n]o re­sponsible jury could conclude that defendant did not knowingly submit false information in the insurance claim." 6

6 The judge does not explain why he referred to a potential jury trial. See State v. Sailor, 355 NJ Super. 315, 322, 810 A.2d 564 (App. Div. 2001) (noting that there is no right to a jury trial in civil penalty actions brought under the IFPA).

The second motion judge invited the parties to sub­mit arguments concerning the appropriate penalty for the IFPA violation, and also directed the State to submit an updated certification in support of its request for counsel fees and costs. Following those submissions, the court entered an order on August 3 I, 2009 memorializing its grant of summary judgment to the [*13] State, impos­ing a $ !000 fine, and ordering Dr. Deschenes to pay the State a modified sum of$ 20,438 in fees and costs.

Dr. Deschenes now appeals the trial court's final disposition. In essence, he argues that the inclusion of the incorrect treatment dates in the claim form was merely a clerical error, and that the trial court erred in summarily determining that he had "knowingly" submitted false and material treatment information to Delta Dental. He seeks reversal of the summary judgment order or, at a mini­mum, requests that this court vacate the order and allow the factfinder at a plenary trial to decide ifhe actually did engage in any "knowing" falsehood. Further, Dr. Deschenes argues that the trial court erred in denying his own motion for summary judgment, and that the facts and circumstances here can only be reasonably construed as presenting a situation of an innocent mistake on his part.

The New Jersey Dental Association, appearing as amicus curiae, likewise argues that the trial court erred in finding a violation of the IFPA in this case. It main­tains that the statute should not be construed in a fashion that penalizes dental practitioners for mere clerical er­rors. Amicus [*14] further argues that the trial court's construction of the statute, if adopted by our courts, would have ttvery broad 11 adverse implications. Amicus asserts that "[i]n most dental offices ... information that either is included on dental claim forms or is provided in electronic [claim] transmissions typically is entered by [the practitioner's] office staff," and thereby "a violation

of the IFPA could occur almost any time there is an er­ror, whether intentional or inadvertent."

The State maintains that the trial court's ultimate construction and application of the IFPA was proper, and was consistent with the strong anti-fraud policies under­lying the statute. It contends that no genuine material issues of fact exist here to justify a trial.

IL

We approach the issues presented in this appeal mindful of the strong public policies underlying the Leg­islature's adoption of the IFPA in 1983. That comprehen­sive statute codifies the State's intent "to confront ag­gressively the problem of insurance fraud[.]" NJSA. 17:33A-2; see also State v. Fleischman, 189 NJ 539, 545, 9 I 7 A.2d 722 (2007); Liberty Mut Ins. Co. v. Land, 186 NJ 163, 170-72, 892 A.2d 1240 (2006).

The Legislature recognized that insurance fraud is "a problem 1*15] of massive proportions that currently results in substantial and unnecessary costs to the general public in the form of increased rates." Merin v. Maglaki, 126 NJ 430, 436, 599 A.2d 1256 (1992). The IFPA aims to address those societal harms "by facilitating the detec­tion of insurance fraud, eliminating the occurrence of such fraud through the development of fraud prevention programs, requiring the restitution of fraudulently ob­tained insurance benefits, and reducing the amount of premium dollars used to pay fraudulent claims." NJSA. 17:33A-2; see also Sailor, supra, 355 NJ Super. at 319 (quoting and applying these legislative purposes).

The key provision of the Act relevant to this civil penalty action by the State, NJSA. 17:33A-4(a)(1), provides that "a person or practitioner" violates the IFPA if he or she:

presents or causes to be presented any written or oral statement as part of, or in support of ... a claim for payment or oth­er benefit pursuant to an insurance policy ... knowing that the statement contains any false or misleading information con· cerning any fact or thing material to the claim[.]

[N.JSA. 17:33A-4(a)(1) (emphasis added).]

The critical term "knowing" is not defined within [*16] NJSA. 17:33A-4(a}(J), nor, for that matter, with­in various definitions of other terms in the Act set forth at NJSA. 17:33A-3. Consequently, we must consider the most commonly-understood legal meaning of

Page 5 2010 N.J. Super. Unpub. LEXIS 1871, *

"knowing" when interpreting and applying that statutory tenn. See State v. Afanador, 134 N.J. 162, 171, 631 A.2d 946 (1993) ("Absent any explicit indications of special meanings, the words used in a statute carry their ordinary and well-understood meanings.").

The most logical and proximate . definition of "knowingly" appears in the Code of Criminal Justice, N.J.S.A. 2C:2-2(b)(2). We consult that definition from the Criminal Code, not only because it is one of long-standing and widespread application, but also be­cause a "knowing" state of mind of a defendant is com­parably required in criminal, as opposed to civil, prose­cutions for insurance fraud. See N.J.S.A. 2C:2 l-4.6.

As defined in N.J.S.A. 2C:2-2(b}(2):

(2) Knowingly. A person acts know­ingly with respect to the nature of his conduct or the attendant circumstances if he is aware that his conduct is of that na­ture, or that such circumstances exist, or he is aware of a high probability of their existence. A person acts knowingly with respect to a result [*17] of his conduct if he is aware that it is practically certain that his conduct will cause such a result. "Knowing," "with knowledge 11 or equiva­lent terms have the same meaning.

[N.J.S.A. 2C:2-2(b) (emphasis add­ed).]

This classic definition, which is rooted in Section 2. 02 of the Model Penal Code, distinguishes a "knowing" state of mind from a more-culpable "purposeful" state of mind, see N.J.S.A. 2C:2-2(b}(I), and a less-culpable "reckless11 or "negligent11 state of mind, see N.J.S.A. 2C.2-2(b)(3)-(4).

"A person acts purposely with regard to the nature of his conduct or a result thereof if it is his conscious object to engage in conduct of that nature or to cause such a result." N.J.S.A. 2C:2-2(b)(I}. By comparison, a "know­ing" state of mind does not require that certain outcomes be the actor's "conscious objecti" but rather that he is naware" of the nature or attendant circumstances of the conduct or at least a 11 high probability of their existence. 11

N.J.S.A. 2C:2-2(b)(2). On the other hand, a "knowing" state of mind goes beyond merely "negligent" behavior, which, under the Criminal Code, requires that the actor "should be aware of a substantial and unjustifiable risk" that a material element will [*18] flow from his or her conduct, and that the actor's failure to perceive that risk "involves a gross deviation from the standard of care that a reasonable person would observe in the actor's situa-

tion." N.J.S.A. 2C:2-2(b)(4). This definition of "know­ing" conduct is instructive in this civil setting under the IFPA, recognizing that the State's burden of proof is a lesser standard of the preponderance of the evidence, rather than the criminal standard of proof beyond a rea­sonable doubt. Liberty Mut. Ins. Co., supra, 186 N.J. at 175-79.

Moreover, civil law at times distinguishes between actual knowledge, which necessitates proof that the actor actually became aware of the information in question, as opposed to 11 constructive 11 knowledge, wherein such awareness is presumed or imputed. See, e.g., Sourlis v. Red Bank, 220 N.J. Super. 434, 440, 532 A.2d 740 (App. Div. 1987). In that vein, Black's Law Dictionary defines "knowing" as ''having or showing awareness or under­standing; [or] well infonned." Black's Law Dictionary 876 (7th ed. 1999).

The published cases arising under the IFPA have re­flected a sensitivity to these distinctive gradations of an actor's potential state of mind. For example, it is now well-established [*19] that proof of a civil violation of the IFPA does not require "proof of an intent to deceive." Open MRI, supra, 405 N.J. Super. at 583 (citing State v. Nasir, 355 N.J. Super. 96, 106, 809 A.2d 796 (App. Div. 2002), certif denied, 175 N.J. 549, 816 A.2d 1051 (2003)). In Open MRI, we found that the State was enti­tled to summary judgment in proving that the principal defendants in that case had violated the IFPA by know­ingly operating an MRI facility without a license, having been previously told on two occasions that the facility required such a license before commencing operations. Id at 584-85.

In Nasir, a policyholder was found liable under the IFPA for knowingly providing false statements on an application for disability benefits and on an associated claim fonn to recover such benefits. Nasir, supra, 355 N.J. Super. at I 00 In that case, the defendant falsely an­swered "no" to the questions "(!) '[h]ave you had any physical, mental or emotional condition, injury, or sick­ness in the past 5 years?', and (2) '[h]ave you consulted or been attended by a physician or practitioner for any cause during the past 5 years?"' Id at 106. In fact, the defendant had actually been consulted by a physician two weeks prior to [*20] his submission of the applica­tion. Id at JOO. These circumstances supported the find­ing of a 11 knowing 11 misstatement to the insurer. Id at 106.

In Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 651 A.2d 92 (1995), a beneficiary on a life insur­ance policy was denied coverage because the decedent had materially misrepresented his health on a policy ap­plication only two months before his death. Id at 632. In particular, the decedent had misrepresented his health by

Page 6 2010 N.J. Super. Unpub. LEXIS 1871, *

falsely responding to several questions on the applica­tion. Ibid. Among other things, the decedent falsely stat­ed that he had not consulted with any other physicians in the past five years, when in fact he had recently consult­ed at least two other physicians within the three months prior to his application. Id. at 632-33. The insured also falsely asserted that certain thyroid tests that he had un­dergone "came back [ok]" when, in reality, he was told that those tests had revealed nodules and possible cancer in his thyroid gland. Ibid.

Although Ledley was not a case brought under the IFPA, the Supreme Court found particularly significant that the insured had given false answers about "objec­tive" statements of fact, such as the existence [*21] or non-existence of consultations with doctors, as opposed to "subjective" questions that may call for personal opinions. Id. at 635-37. Consequently, the Court found that the decedent had "knowingly" misrepresented mate­rial facts relating to his health, and that the insurance company had no duty to conduct an independent investi­gation of the truth of those objective assertions, at least in the absence of the insurer's knowledge of conflicting facts. Id. at 631-32.

On the other hand, our case law has also recognized that patients and medical providers may at times present inaccurate information to insurance companies that, alt­hough material, comprise innocent mistakes resulting from no more than simple oversight, carelessness, or negligence. In Longobardi v. Chubb Ins. Co., 121 N.J 530, 540, 582 A.2d 1257 {1990), the Supreme Court ex­plained that forfeiting the coverage of an insured who commits such an "honest mistake" is unwarrented. In support of that proposition, the Court cited the IFPA, N.JS.A. 17:33A-4(a)(I) and the statute's requirement ofa nknowing" misrepresentation by an insured. Ibid. More­over, such an expansive application of the statute would discourage individuals from correcting such I *22] sim­ple errors in the future.

We apply these various state-of-mind principles here in the context of reviewing a trial court's grant of a mo­tion for summary judgment. Jn that context, the court, even on appeal, must consider the facts in a light most favorable to the non-moving party. See Liberty Surplus Ins. Corp., Inc. v. Nowell Amoroso, P.A., I89 NJ 436, 445, 9I6 A.2d 440 (2007). The court must determine '"whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."' Id. at 445-46 (quoting Brill v. Guardian Life Ins. Co. of Am., 142 NJ 520, 536, 666 A.2d I46 (I995)); see also R. 4:46-2(a). "A 'genuine issue of material fact' does not exist, if there is only one 'unavoidable resolution of the alleged disputed issue of fact."' Id. at 446 (quoting Brill, supra, I42 N.J at 540). It is also well-established

that state-of-mind issues are frequently not suited for disposition through the pretrial device of summary judgment, and must instead await plenary testimony at a trial and credibility assessments by the factfinder. See, e.g., Mayo, Lynch & Assocs., Inc., v. Pollack, 35 I N.J Super. 486, 500, 799 A.2d I2 (App. Div. 2002).

Having 1*23] closely examined the record in light of these governing legal principles, we conclude that the trial court erred in this case by granting summary judg­ment to the State, although parenthetically we agree that the penalty imposed and counsel fees awarded were rea­sonable if liability were established at an ensuing trial.

Viewing the record in a light most favorable to Dr. Deschenes, there are genuine issues of material fact as to whether he consciously "knew" at the time he signed the claim form that the dates contained within it were incor­rect. The dates were not made up out of thin air, but in­stead appeared to correspond to the two dates on M.C.'s chart originally planned for her crown insertions. Alt­hough Dr. Deschenes is professionally responsible for the entries on the claim form, as prepared by his office staff, see NJ.A.C. I3:30-8.IO(b) and -8.IO(d), that vi­carious responsibility does not necessarily mean that he realized when he signed the form, or had "a high proba­bility" of awareness when he signed it, that the dates contained within it were incorrect.

We recognize that the date of a surgical or medical procedure is an objective fact. Even so, we do not read the statute to require [*24] a practitioner's perfect recall of treatment dates when he or she signs a claim form, or to impose strict liability for civil penalties arising out of what truly may be an innocent clerical or administrative error. Conversely, for the State to establish liability, the defendant need not have admitted actual knowledge of the misstatement, and the State can attempt to prove such knowledge circumstantially. The surrounding circum­stances must be examined to test the doctor's assertions of an "honest mistake," including but not limited to such considerations as: whether there were multiple incorrect statements; whether they occurred on multiple occasions; the manner in which the claim form was prepared and presented for signature; the reliability of the internal of­fice procedures in place to reduce errors; the promptness by which the error was rectified once it was spotted; and whether the misstatement resulted in a pecuniary or other benefit to the provider.

If the State's interpretation of the statute were taken to its logical outer limits, a simple unnoticed typograph­ical error contained in a submitted claim form could produce a finding of insurance fraud. For example, a single digit [*25] within a date on the form could be mistakenly set forth (e.g., "2000" rather than "200 I"), which is a common sort of error that easily can escape

Page 7 2010 N.J. Super. Unpub. LEXIS 1871, *

the attention of even the most astute proofreader. The statute cannot sensibly or fairly be read to justify civil penalties in such innocuous and commonplace situations. Moreover, we must bear in mind that a finding of insur­ance fraud can generate significant adverse collateral consequences for a defendant, although we were advised at oral argument in the present case that Dr. Deschenes's licensure and his ability to treat insured patients has not, thus far, been jeopardized by the instant judgment.

The fact that Dr. Deschenes unilaterally sent a full refund to Delta Dental, before even receiving a request for one, after he allegedly first became aware of the mis­take, is also relevant to, although not dispositive of, the state-of-mind analysis. Because there are circumstances here reasonably suggestive of a benign state of mind on the part of Dr. Deschenes, summary judgment in favor of the State was inappropriately granted.

On the other hand, we reject Dr. Deschenes's con­tention that the chronology of events and the other proofs are so one-sided [*26] as to warrant summary judgment in his own favor. In particular, the fact that Dr. Deschenes signed and his office submitted the claim form and accepted payment on the claim in January 200 !--before the crowns were actually placed in March 2001--is problematic, and weighs against his assertion that the form was submitted as the result of a clerical error. At trial, the judge will have to assess the veracity of Dr. Deschenes's explanation that he was confused about Delta Dental's procedures, and that he had mistak­enly believed at the time that the insurer would accept and process claims after crown impressions were made but before they were actually inserted. The paper record before us does not suffice to make such credibility as­sessments. Instead, they are reserved for the trial judge, who will develop a "feel for the case" and have the

chance to see the witnesses first-hand. Rova Farms Re­sort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84, 323 A.2d 495 (1974). To be sure, the fact that Dr. Deschenes submitted the claim form and was paid by Delta Dental before he completed his work on M.C.'s crowns raises significant concerns, but those concerns do not pennit affirmance of the trial court's ruling [*27] in light of the applicable summary judgment standards.

Consequently, this matter must be remanded for a plenary trial to assess, in particular, whether Dr. Deschenes signed and authorized the submission of the claim form "knowing11 that it contained incorrect treat­ment dates. We realize fhat it has been nearly a decade since the events in question took place, and that memo­ries may well have faded and relevant witnesses might not be readily available to the parties. Even so, the dis­crete and important state-of-mind assessment required in this case necessitates such additional proceedings, no matter how remote in time the underlying events may be.

Out of an abundance of caution, and without by any means presuming that a bench trial could not be fairly conducted by either of the two successive judges who ruled on the summary judgment motions, we direct that a different Law Division judge preside over the ttial and serve as the ultimate factfinder on remand. See State v. Henderson, 397 N.J. Super. 398, 416, 937 A.2d 988 (App. Div.) certif. granted on other grounds, 195 N.J. 521, 950 A.2d 908 (2008); State v. Gomez, 341 N.J. Su­per. 560, 579, 775 A.2d 645 (App. Div.) certif. denied, 170 N.J. 86, 784 A.2d 719 (2001).

Vacated and remanded for further [*28] proceed­ings consistent with this opinion. Jurisdiction is not re­tained.

Page I

Lexis Nexis®

STATE OF NEW JERSEY, Plaintiff-Appellant, v. ROBERT GOODWIN (a/k/a ROBERT EBBS, MICHAEL KINK, ROBERT JAMES, KENNY ROBERTS,

FRANK KIRK, MICHAEL KIRK, MICHAEL ROBINSON, MICHAEL ROB­ERTSON, ROBERT E. GOODWIN, ROBERT KIRK, ROBERT GOODMAN, MICHAEL GOODWIN AND RONALD ROBINSON), Defendant-Respondent.

A-20 September Term 2014, 074352

SUPREME COURT OF NEW JERSEY

2016 N.J. LEXIS 7

November 10, 2015, Argued January 19, 2016, Decided

PRIOR HISTORY: 1*11 On certification to the Superior Court, Appellate Division, State v. Goodwin, 2014 NJ. Super. Unpub. LEXIS 916 (App.Div,, Apr, 23, 2014)

SYLLABUS

(This syllabus is not part of the opinion of the Court, It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interest of brevity, portions of any opinion may not have been summarized.)

State of New Jersey v. Robert Goodwin (A-20-14) (074352)

Argued November 10, 2015 -- Decided January 19,2016

ALBIN, J., writing for a unanimous Court.

In this appeal, the Court determines whether a de­fendant can be convicted of insurance fraud under NJ.SA. 2C:21-4.6(a) even when an insurance carrier is not induced by a false statement to pay a damage claim.

Defendant began a relationship with "Stacey" in 2004, and, while still dating Stacey, began a secret rela­tionship with "Linda" in 2008 (the names of the two women are fictitious to protect their privacy), Defendant and Stacey lived together in an apartment on South 11th Street in Newark, New Jersey, In April 2009, Stacey purchased a 1999 Chevy Tahoe, which she insured through Progressive Insurance Company.

On September 13, 2009, defendant took the SUV, which typically was parked in front of the South [*2) 11th Street building, and went to Linda's apartment. Around 3:00 a.m,, he and Linda parked the SUV on South 9th Street Between 6:00 and 7:00 a,m,, Linda and defendant found the SUV severely damaged from a fire, Defendant told Stacey that the SUV had been stolen and burned, and advised her to call the police. Defendant and Stacey reported to the police that the SUV had been sto­len. Detective Anthony Graves, an arson investigator with the Newark Fire Department, concluded that the fire was intentionally set with gasoline and that whoever took the SUV had the ignition key.

Stacey filed a theft and fire claim with Progressive. On April 12, 2010, defendant informed a Progressive investigator that he had the only set of keys and had parked the SUV in front of the South I Ith Street building on the evening it was stolen. However, he later admitted that he had parked the SUV in the location where it was found and had lied so that Stacey would not learn he was cheating on her. Although defendant denied setting the SUV on fire, the investigator determined that, in light of defendant's misrepresentation of the facts, it was impos­sible to verify anything. Consequently, Progressive de­nied the claim. [*3]

Defendant was charged with second-degree arson, third-degree attempted theft by deception, and se­cond-degree insurance fraud. In accordance with the rel­evant Model Jury Charge (Criminal), the trial court in­structed the jury that a person is guilty of insurance fraud if he "knowingly makes or causes to be made a false , .. or misleading statement of material fact . , . in connec-

Page 2 2016 NJ. LEXIS 7, *

lion with a claim for payment, reimbursement, or other benefit from an insured's company." The court added that "the state111ent of fact is material if it could have reason­ably affected the decision by an insurance company ... to pay a claim." The jury found defendant guilty of se­cond-degree insurance fraud, but not guilty of arson and attempted theft. He was sentenced to a seven-year prison term.

Defendant appealed, and the Appellate Division re­versed his conviction, finding that the case involved two separate insurance claims, one for theft and one for fire damage, and that any false statement had to correspond to one of those claims. The panel reasoned that defendant was not guilty of insurance fraud because Progressive knew that the SUV was not stolen and did not pay the claim. With respect to the fire-damage [*4) claim, the panel determined that defendant's assertion that he did not set fire to the SUV was not a false statement unless the jury convicted him of the arson or theft charges. His acquittal on those charges meant that he could not be convicted of insurance fraud because he made no false statement of material fact affecting Progressive's deci­sion to provide coverage for or pay the claim. By con­cluding that defendant was wrongfully convicted of a crime he did not commit, the panel effectively acquitted him of the insurance-fraud charge. The Court granted the State's petition for certification. 220 NJ 42, IOI A.3d 1083 (2014).

HELD: A person violates the insurance fraud stat­ute, NJS.A. 2C:21-4.6{a), even if an insurance carrier is not induced by that person's false statement to pay a damage claim.

1. The Court's interpretation of a statute is de novo. The relevant portion of the insurance-fraud statute at issue here, N.JS.A. 2C:21-4.6(a), states that a defendant "is guilty of the crime of insurance fraud if [he] know-ingly makes, or causes to be made ... a false ... state-ment of material fact ... as part of ... a claim for pay-ment ... pursuant to an insurance policy." The statute does not contain any language stating that criminal lia­bility only [*5] attaches where an insurance company suffers a Joss resulting from its reliance on a false state­ment. Rather, the statute requires only the knowing sub­mission of a false or fraudulent statement of material fact.

2. Since "material" is not defined in NJ.SA. 2C: 21-4. 6 or the related definitional provision, the Court turns to the word's ordinary meaning and views it within the context of the legislation as a whole. The Court notes that, in the context of the perjury statute, NJS.A. 2C:28-I {b), material falsification is defined as that which "could have affected the outcome of the proceeding or the disposition of the matter." This definition of materi-

ality, which does not require that the false statement ac­tually corrupt the outcome of a proceeding, is consistent with the way federal courts have construed statutes criminalizing false statements, as well as with the legal definition of "material" in Black's Law Dictionary and the general definition in Webster's New World College Dictionary. It is presumed that the Legislature, when enacting the insurance-fraud statute, was aware of these definitions and did not intend an entirely different mean­ing.

3. The Court's paramount goal in construing a statute is to give effect to [*6) the Legislature's intent. Here, the objectives of the Legislature in enacting the insur­ance-fraud statute, including the punishment of wrong­doers and deterrence of others, further indicate that it did not intend a definition of the term "false statement of material fact" that would limit the scope of criminal prosecutions to only those cases in which an individual succeeded in inducing an insurance company to pay a false claim. The statute contains no provision stating that the carrier must rely on the misrepresentation to its det­riment for criminal liability to attach.

4. While the Model Jury Charge (Criminal), "Insur­ance Fraud: Making False Statement (Claims)" (2010), as a whole, correctly defines "material fact" under the insurance-fraud statute, the Court instructs that, going forward, only the following portion of the charge should be used in defining "material fact" in order to avoid any confusion and to focus the jury's task as finder of fact: "[T]he statement of fact is material if it could have rea­sonably affected the decision by an insurance company to provide insurance coverage to a claimant or the deci­sion to provide any benefit pursuant to an insurance pol­icy or the decision [*7] to provide reimbursement or the decision to pay a claim."

5. The Court rejects the Appellate Division's conclu­sion that a conviction of insurance fraud required a pred­icate finding by the jury that defendant was guilty be­yond a reasonable doubt of arson or theft by deception, and finds that there is no inconsistency between the ver­dicts. However, even if the verdicts were inconsistent, the acquittals do not provide a basis to collaterally attack the guilty verdict of insurance fraud. Based on the evi­dence, a rational jury was free to conclude that defend­ant's knowingly made false statements could have rea­sonably affected Progressive's decision whether to pay the claim.

The judgment of the Appellate Division is RE­VERSED, defendant's conviction is REINSTATED, and the matter is REMANDED to the trial court for en­try of judgment consistent with this opinion.

Page 3 2016 N.J. LEXIS 7, *

COUNSEL: Frank J. Ducoat, Special Deputy Attorney General/ Acting Assistant Prosecutor, argued the cause for appellant (Carolyn A. Murray, Acting Essex County Prosecutor, attorney).

Linda Mehling, Designated Counsel, argued the cause for respondent (Joseph E. Krakora, Public Defender, attor­ney).

JUDGES: JUSTICE ALBIN delivered the opinion of the Court. CHIEF [*8] JUSTICE RABNER; JUSTICES LAVECCHIA, PATTERSON, and SOLOMON; and JUDGE CUFF (temporarily assigned) join in JUSTICE ALBIN's opinion. JUSTICE FERNANDEZ-VINA did not participate.

OPINION BY: ALBIN

OPINION

JUSTICE ALBIN delivered the opinion of the Court.

A jury found defendant Robert Goodwin guilty of second-degree insurance fraud, N.J.S.A. 2C:2!-4.6. In doing so, the jury necessarily concluded that defendant knowingly made or caused to be made false statements of material fact concerning an insurance claim for dam­age to his girlfriend's sport utility vehicle (SUV). The heart of the State's case was that defendant falsely re­ported the theft of his girlfriend's vehicle, which was found severely damaged as the result of arson. The in­surance company discovered the lie during an investiga­tion when defendant recanted his earlier story that his girlfriend's SUV had been stolen. As a result, the carrier did not reimburse the loss.

The Appellate Division overturned defendant's con­viction because the jury was not told that a finding of insurance fraud could be returned only if the carrier ac­tually relied on defendant's false statements. In the Ap­pellate Division's view, the trial court erred by charging a relaxed standard -- that guilt [*9] could be found if the false statements had the capacity to influence the insur­ance company's decision to pay the claim.

We now reverse. A person violates the insurance fraud statute, N.J.S.A. 2C:2 l-4. 6(a), even if he does not succeed in duping an insurance carrier into paying a fraudulent claim. A false statement of material fact is one that has the capacity to influence a decision-maker in determining whether to cover a claim. If the falsehood is discovered during an investigation but before payment of the claim, a defendant is not relieved of criminal respon­sibility. Here, defendant falsely reported that his girl­friend's vehicle was stolen. It was for the jury to deter­mine whether the series of false statements about the

theft generated by defendant had the capacity to influ­ence the insurance carrier in deciding whether to reim­burse for the damage caused by the arson.

Because we conclude that the trial court did not err in its charge to the jury, we reinstate defendant's convic­tion.

I.

A.

Defendant was charged in a three-count indictment with second-degree aggravated arson, N.J.S.A. 2C:l7-I(a){2); third-degree attempted theft by deception, N.J.S.A. 2C:20-4 and N.J.S.A. 2C:5-l; and se­cond-degree insurance fraud, N.J.S.A. 2C:2!-4.6. The record in this case consists of the testimony [*10] pre­sented by the State and defendant during a four-day jury trial.

Defendant and "Stacey" had been involved in a ro­mantic relationship since 2004 and lived together on the third floor of an apartment at 303 South I Ith Street in Newark, New Jersey.' In April 2009, Stacey purchased an SUV, a 1999 Chevy Tahoe, which cost over $6000. Stacey made a $3000 down payment and financed the remainder through a loan. Defendant co-signed the loan. The loan payments on the SUV were approximately $282 per month. Stacey secured automobile insurance from Progressive insurance Company. The automobile insurance payments were $283 per month. Because Stacey had only a permit to drive, defendant was the primary operator of the SUV.

We use fictitious names for the two women who shared a relationship with defendant to pro­tect their privacy.

In 2008, defendant secretly began dating "Linda," who lived in the same apartment building as Stacey's mother on South 8th Street in Newark.

On September 13, 2009, defendant was residing in a first-floor apartment at 303 South I Ith Street, following an argument with Stacey. That evening, defendant took the SUV, which was typically parked in front of the South I Ith Street building, [* 11] and went to Linda's apartment. The two then drove to a cookout and arrived back at Linda's home shortly after 3 :00 a.m. They parked the SUV on South 9th Street, away from Linda's apart­ment, to avoid detection by Stacey's mother. Defendant spent the night at Linda's apartment.

According to Linda's testimony, between 6:30 a.m. and 7:00 a.m., she and defendant walked to the SUV because he was going to drive her to work. They found the vehicle severely damaged due to a fire. Linda pro-

Page 4 2016 N.J. LEXIS 7, *

ceeded to work, and defendant went to Stacey's apart­ment to report the destruction of the SUV.

Stacey testified that she had last seen the SUV parked outside of her apartment at about 9:30 p.m. or I 0:00 p.m. the previous evening. Defendant told Stacey that the SUV had been stolen and "burnt" up and advised her to call the police, which she did. Defendant and Stacey met officers of the Newark Police and Fire De­partments at the vehicle's location on South 9th Street. There, Detective Anthony Graves, an arson investigator with the Newark Fire Department, instructed them to meet him at his office later that morning. Stacey de­scribed the SUV as "burnt to a crisp in the inside."

Earlier that morning, at approximately [*12] 4:30 a.m., Detective Graves had responded to the scene when the interior of the SUV was ablaze. City firefighters quickly extinguished the fire. Detective Graves observed that the SUV's windows were broken and a screwdriver had been used to tamper with the driver's side door lock. The ignition, however, was not damaged. The SUV's anti-theft device prevented the operation of the vehicle without the ignition key. Other than the damage caused by the fire, the vehicle was intact. Detective Graves con­cluded that whoever took the vehicle had the ignition key and that the fire was intentionally set using gasoline.

Later that morning, defendant and Stacey met De­tective Graves at his office. Defendant and Stacey com­pleted separate questionnaires in which they attested that the SUV had been parked in front of 303 South I Ith Street at 3:30 a.m. In his investigation report, Detective Graves concluded that the vehicle had been stolen.

That same day, Stacey filed a theft and fire claim with her automobile carrier, Progressive Insurance Company. The carrier initiated an investigation into the claim.

On April 12, 20 I 0, Michael Goldman, of the Special Investigation Unit at Progressive, examined both de­fendant [*13] and Stacey under oath regarding the claim. In response to questioning, defendant claimed that he had the only set of keys to the SUV and that he had parked the vehicle in front of the South 11th Street apartment on the evening it was stolen. Investigator Goldman advised defendant that the SUV could not have been operated without the keys. Shortly thereafter, de­fendant admitted that he had parked the SUV in the spot where it was found in flames. Defendant explained that he lied about the location where he had parked the SUV so that Stacey would not learn that he had been cheating on her. Defendant denied that he had set the vehicle on fire.

According to Investigator Goldman, "based on the misrepresentation of the total facts of what happened,

there was no way anything could be verified." Ultimate­ly, Progressive denied the claim based on defendant's misrepresentations about the theft.

B.

In instructing the jury on the law, the trial court charged that a person is guilty of insurance fraud if he 11knowingly makes or causes to be made a false ... or misleading statement of material fact ... in connection with a claim for payment, reimbursement, or other bene­fit from an insured's company." [*14] The charge mir­rored Model Jury Charge (Criminal), "Insurance Fraud: Making False Statement (Claims)" (2010). In particular, the court instructed the jury that "[a]n insured's mis­statement is material if when the statement was made, a reasonable insurer would have considered the misrepre­sented [fact] relevant to its concerns and important in determining its course of action." The court added that "the statement of fact is material if it could have reason­ably affected the decision by an insurance company ... to pay a claim."

The jury found defendant guilty of second-degree insurance fraud, but not guilty of arson and attempted theft. Defendant was sentenced to a seven-year prison term and ordered to pay fines and penalties.

C.

The Appellate Division reversed defendant's insur­ance-fraud conviction. In an unpublished opinion, the panel held that defendant was "wrongfully convicted" because the jury charge "did not accurately reflect the facts and issues. n

The panel maintained that the case involved two separate insurance claims, "the theft claim and the fire damage claim," and that any false statement had to cor­respond to one of those claims. It reasoned that the al­legedly false statement that (*15] the SUV was stolen "was relevant only to the theft claim" and that the alleg­edly false statement that defendant did not set fire to the vehicle 11 was relevant only to the fire damage claim. 11 The panel asserted that defendant was not guilty of insurance fraud on the theft claim because Progressive knew that the SUV was not stolen and did not pay the claim. On the fire-damage claim, it determined that defendant's asser­tion that he did not set fire to the SUV was not a false statement unless the jury convicted him of the arson or theft charges. In view of defendant's acquittal of those charges, the panel stated that "defendant could not be convicted of insurance fraud because he made no false statement of material fact that affected Progressive's lia­bility to provide coverage for or pay the fire damage claim." In concluding that "defendant was wrongfully convicted of a crime he did not commit, 11 the panel, in

Page 5 2016 N.J. LEXIS 7, *

effect, entered a judgment of acquittal on the insur­ance-fraud charge.

We granted the State's petition for certification. State v. Goodwin, 220 N.J. 42, 101A.3d1083 (2014).

II.

A.

The State argues that the Appellate Division erred in two significant ways. First, the State contends that the panel's decision stands for the erroneous proposition f*l6f that "a misrepresentation is only 'material' if it somehow prejudices the insurance company" -- that is, if the carrier "reimburse[ s) defendant for his fraudulent claims." The State maintains that the question is not "whether an insured's false statements actually affected the insurer's liability" to pay a claim, but only whether "the person made false statements that could have af­fected the judgment" of a reasonable insurer in resolving the claim.

Second, the State asserts that the appellate panel wrongly concluded that, under N.J.S.A. 2C:21-4.6(a), a conviction of insurance fraud required that the jury first find defendant guilty of the predicate offense of arson or theft by deception.

B.

In response, defendant counters that N.J.S.A. 2C:21-4.6(a) requires the State to prove that an insurance company suffered prejudice to secure a conviction for insurance fraud. Defendant emphasizes that although a false statement of "material fact" is undefined in N.J.S.A. 2C:21-4.6(a), the Legislature did not intend to broadly criminalize conduct that did not cause or threaten harm, a point he claitns is made clear by the statute's de minimis provision. To the extent that the term "material" is am­biguous, defendant argues that a criminal "statute must be construed against f*l7] the State."

Defendant contends that Progressive did not suffer prejudice or incur liability from his false statement that the SUV was stolen because, in fact, the vehicle was not stolen and because the authorities knew where the SUV was located before the report of the theft. He also asserts that the jury verdict acquitting him of arson and theft by deception was a validation of the truthfulness of his statement that he did not set the SUV on fire. In sum, defendant urges that we affirm the Appellate Division and 11hold that a misrepresentation to an insurance com­pany that neither prejudices it, nor exposes it to liability, does not satisfy the material-misrepresentation element of insurance fraud."

III.

Our primary task is to determine whether a defend­ant can be convicted of insurance fraud under N.J.S.A. 2C:21-4.6(a) even when an insurance carrier is not in­duced by a false statement to pay a damage claim. Stated differently, can a defendant be convicted of insurance fraud if the false statement is capable of influencing a reasonable examiner to pay a claim even though the car­rier ultimately denies the claim?

The answer to this question depends on how we in­terpret the language of N.J.S.A. 2C:21-4.6(a), and in par­ticular the words [*18] "a false ... statement of materi­al fact. u

11 In construing the meaning of a statute, our re­view is de nova." Murray v. Plainfield Rescue Squad, 210 N.J. 581, 584, 46 A.3d 1262 (2012) (citing Ma­nalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378, 658 A.2d 1230 (1995)). Accordingly, the Appellate Divi­sion's interpretative conclusions are owed no deference, and we review the statute with "fresh eyes." Fair Share Haus. Ctr., Inc. v. N.J. State League of Municipalities, 207 N.J. 489, 493 n. I, 25 A.3d 1063 (2011).

We begin our analysis with the language of the stat-ute.

IV.

A.

The insurance-fraud statute, N.J.S.A. 2C:2 l-4.6(a), in relevant part, provides:

A person is guilty of the crime of in­surance fraud if that person knowingly makes, or causes to be made, a false, ficti­tious, fraudulent, or misleading statement of material fact in, or omits a material fact from, or causes a material fact to be omitted from, any record, bill, claim or other document, in writing, electronically, orally or in any other form, that a person attempts to submit, submits, causes to be submitted, or attempts to cause to be submitted as part of, in support of or op­position to or in connection with: (I) a claim for payment, reimbursement or oth­er benefit pursuant to an insurance policy, or from an insurance company.

[(Emphasis added).]

Pruned to the language relevant to this case, the statute states that a defendant "is guilty of the crime of insurance fraud if [he) knowingly makes, or causes to [*19] be made ... a false ... statement of material fact ... as part

Page 6 2016 N.J. LEXIS 7, *

of ... a claim for payment ... pursuant to an insurance policy." Ibid.

First, the statute contains no language stating that criminal liability is dependent on an insurance company actually relying on a false statement and suffering a loss. Cf N.J.S.A. 2C:20-3 ("A person is guilty of theft if he unlawfully takes ... movable property of another with purpose to deprive him thereof."). Rather, the statute merely requires the knowing submission of a false or fraudulent statement of material fact for criminal liability to attach.

Second, the term 11material" is not defined in N.J.S.A. 2C:21-4.6 or in the definitional provision of the insurance-fraud statute, N.J.S.A. 2C:21-4.5. Unsurpris­ingly, the parties contest the meaning of a "material fact 11

as used in the statute. Defendant argues that a false statement of 11material facf1 is one that causes an insur· ance company to suffer prejudice or incur liability. Be­cause Progressive did not pay the damage claim, de­fendant submits that he cannot be convicted of insurance fraud.

We believe that such a constricted interpretation of 11material fact" is not consistent with either the common understanding or usage of that term or its [*20] intend­ed purpose within the insurance-fraud statute. In con­struing N.J.S.A. 2C:21-4.6(a), we must "ascribe to the statutory words their ordinary meaning and significance 11

and view those words in context, rather than in a vacu­um, 11 so as to give sense to the legislation as a whole.ti State v. Crawley, 187 N.J. 440, 452, 901 A.2d 924 (quoting DiProspero v. Penn, 183 N.J. 477, 492, 874 A.2d !039 (2005)), cert. denied, 549 US. !078, 127 S. Ct. 740, 166 L. Ed. 2d 563 (2006).

Although "material" is not defined in the insur­ance-fraud statute, it is defined in another section of the Code of Criminal Justice (Code) -- the perjury statute. N.J.S.A. 2C:28-l(a) states that "[a] person is guilty of perjury ... if in any official proceeding he makes a false statement under oath or equivalent affirmation ... when the statement is material and he does not believe it to be true." (Emphasis added). The meaning of material is spelled out in N.J.S.A. 2C:28-1(b), which provides that a "[f]alsification is material ... if it could have affected the course or outcome of the proceeding or the disposition of the matter." Thus, in the perjury context, to be material, a false statement does not have to actually corrupt the out­come of a proceeding; it is enough if the false statement has the potential to "affect[] the course or outcome of the proceeding." Ibid. Even under common-law perjury, the focus on materiality concerned "the potential [*21] effect of the false testimony on the outcome of the judi­cial proceeding." State v. Neal, 361 N.J. Super. 522, 533, 826 A.2d 723 (App. Div. 2003) (emphasis added) (quot-

ing State v. Winters, 140 N.J. Super. 110, 118, 355 A.2d 221 (Cty. Ct. 1976)). The 1971 comments to the perjury statute, N.J.S.A. 2C:28-I, explained that in defining "materiality," the Code's "formulation ('could have af­fected the course or outcome of the proceeding') is equivalent to the 'capable of influencing' rule found in many judicial opinions." 2 New Jersey Penal Code: Fi­nal Report of the New Jersey Law Commission § 2C:28-l, commentary at 271 (1971).

This definition of materiality finds support in other contexts. For example, the federal false-statements stat­ute, 18 U.S.C.A. § JOOJ(a)(2), makes it a crime for a person to "knowingly and willfully ... make[] any mate­rially false, fictitious, or fraudulent statement or repre­sentation" to a federal officer or body. The common un­derstanding among federal courts that have construed statutes criminalizing false statements, such as 18 U.S. C.A. § I 00 I, is that a material misrepresentation is one that "'has a natural tendency to influence, or was capable of influencing, the decision of the decisionmak­ing body to which it was addressed." Kungys v. United States, 485 U.S. 759, 770, 108 S. Ct. 1537, 1546, 99 L. Ed. 2d 839, 852 (1988) (quoting Weinstock v. United States, 231F.2d699, 701, 97 US. App. D.C. 365 (D.C. Cir. 1956)).

Consistent with the definition of material misrepre­sentation in our state perjury statute and the federal false-statements statute [*22] is one of the legal defini­tions of "material" in Black's Law Dictionary 1124 (I 0th ed. 2014) -- "[o]f such a nature that knowledge of the item would affect a person's decision-making" -- and the general definition of "material" in Webster's New World College Dictionary 900 (5th ed. 2014) -- "important enough to affect the outcome of a case, the validity of a legal instrument. n

We can fairly presume that the Legislature, when enacting the insurance-fraud statute in 2003, was aware of the definition of "material" false statement in the much earlier-enacted perjury statute and in other con­texts. See In re Expungement Petition of J.S., 223 NJ. 54, 75, 121 A.3d 322 (2015) ("[The Legislature] is pre­sumed to [be] 'thoroughly conversant with its own [prior] legislation and the judicial construction of its statutes.''.' (third alteration in original) (quoting Nebesne v. Crocetti, 194 NJ. Super. 278, 281, 476 A.2d 858 (App. Div. 1984))). It is highly improbable that the Legislature in­tended an entirely different meaning, one that would conflict with the broad objectives of the statutory scheme criminalizing insurance fraud.

The Legislature set forth its purpose in criminalizing insurance fraud in the statute itself. The Legislature de­clared that "[i]nsurance fraud is inimical to public safety, welfare and order within the State of New Jersey" and

Page 7 2016 N.J. LEXIS 7, *

that "[a]ll New [*23] Jerseyans ultimately bear the so­cietal burdens and costs caused by those who commit insurance fraud," N.J.S.A. 2C:21-4.4(a); that "[t]he prob­lem of insurance fraud must be confronted aggressively by facilitating the detection, investigation and prosecu­tion of such misconduct," N.J.S.A. 2C:21-4.4(b); and that the "prosecution of criminally culpable persons who knowingly commit or assist or conspire with others in committing fraud against insurance companies 11 is nec­essary "to punish wrongdoers and to appropriately deter others from such illicit activity," N.J.S.A. 2C:21-4.4(c).

Those objectives strongly suggest that the Legisla­ture did not intend a crabbed definition of the term "false statement of material fact" -- one that would limit the scope of criminal prosecutions to only those cases in which a fraudster succeeded in inducing an insurance company to pay a false claim but not to those cases in which the fraudster was caught beforehand. In construing a statute, our paramount goal is to give effect to the Leg­islature's intent. DiProspero, supra, 183 N.J. at 492-93, 874 A.2d 1039. The Legislature clearly did not intend for a person, who knowingly filed a false statement that could have reasonably affected the decision of an insur­ance carrier to pay a claim, to evade criminal prosecution merely because [*24] the carrier's thorough investiga­tion revealed the fraud before money passed hands. The statute contains no provision stating that the carrier must rely on the misrepresentation to its detriment for criminal liability to attach. Regardless, investigations spurred by false statements necessarily result in the expenditure of a carrier1s resources that eventually lead to increased in­surance costs passed on to consumers.

The provision in the insurance-fraud statute, allow­ing for an assignment judge to dismiss a charge based on a de minimis infraction, N.J.S.A. 2C:21-4.6(g}, is not proof, as defendant suggests, that the Legislature intend­ed that an insurance carrier must actually rely on a mis­representation as a prerequisite for an insurance-fraud conviction. The de minimis provision acts as a safety valve, permitting dismissal of a charge that is too trivial to warrant prosecution. So, for example, if the conduct "[d]id not actually cause or threaten the harm or evil sought to be prevented by the law defining the offense or did so only to an extent too trivial to warrant the con­demnation of conviction," an assignment judge may dis­miss a prosecution. N.J.S.A. 2C:2-JJ(b); see, e.g., State v. Nevens, 197 N.J. Super. 531, 534, 485 A.2d 345 (Law Div. 1984) (dismissing charge against defendant for tak­ing five [*25] pieces of fruit from buffet-style restau­rant after defendant had paid for lunch). A fraudulent reimbursement claim seeking more than $6000 for dam­age to a vehicle is not a trivial infraction.

The definition of material in Model Jury Charge (Criminal), "Insurance Fraud: Making False Statement

(Claims)" (2010) is consistent with the way that term is defined in our state perjury statute, in multiple federal statutes, in the common law, and in legal and general dictionaries. The Model Charge states that a misstate­ment

is material if, when the statement was made, a reasonable insurer would have considered the misrepresented fact rele­vant to its concerns and important in de­termining its course of action. In other words, the statement of fact is material if it could have reasonably affected the de­cision by an insurance company to pro­vide insurance coverage to a claimant or the decision to provide any benefit pur­suant to an insurance policy or the deci­sion to provide reimbursement or the de­cision to pay a claim.

[Ibid (emphasis added) (footnote omitted).]

As a whole, this Model Charge, given by the trial court, correctly defines a "material fact1' under the insur­ance-fraud statute. However, going [*26] forward, the emphasized portion above is a more precise explication of the term "material" for purposes of this statute and should be solely used to avoid any confusion and to fo­cus the jury's task as finder of fact.'

B.

2 The non-emphasized language in the model criminal jury charge comes from Longobardi v. Chubb Insurance Co. of New Jersey, a civil case defining "material" in a "Concealment or Fraud 11

clause in an insurance policy. 121 N.J. 530, 541-42, 582 A.2d 1257 (1990). In Longobardi, the insurer declined coverage on a loss claim be­cause of an insured's alleged material misrepre­sentations. Id at 534-36, 582 A.2d 1257. We ex­plained that "[a]n insured's misstatement is mate­rial if when made a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action." Id at 542, 582 A.2d 1257. We do not disavow that interpretation in the context of that insurance-coverage case. However, in the context of the present criminal case, a single, precise definition of a statement of material fact will give a greater degree of clarity in guiding the jury's task under the insurance-fraud statute.

Page 8 2016 N.J. LEXIS 7, *

We reject the Appellate Division's conclusion that a conviction of insurance fraud required a predicate find­ing by the jury that [*27] defendant was guilty beyond a reasonable doubt of arson or theft by deception. The acquittals of arson and theft by deception reveal nothing more than that the State failed to meet the high standard of proof required in a criminal prosecution of those of­fenses. To find defendant guilty of knowingly making a false statement of material fact for reimbursement on an insurance claim did not require predicate convictions. Therefore, we see no inconsistency between the verdicts.

However, even if the verdicts were inconsistent, the acquittals are not a basis to attack collaterally the guilty verdict of insurance fraud. We accept inconsistent ver­dicts in our criminal justice system, understanding that jury verdicts may result from lenity, compromise, or even mistake. State v. Banko, 182 N.J. 44, 53, 861 A.2d I JO (2004) (citing State v. Grey, 147 N.J. 4, 11, 685 A.2d 923 (1996)). We therefore must resist the temptation to speculate on how the jury arrived at a verdict. Ibid. Ra­ther, "we determine whether the evidence in the record was sufficient to support a conviction on any count on which the jury found the defendant guilty." State v. Mu­hammad, 182 N.J. 551, 578, 868 A.2d 302 (2005).

Here, the false statements made and caused to be made by defendant concerning the theft of the SUV could have reasonably affected the decision by Progres­sive to pay the [*28] damage claim caused by the arson. As Progressive's investigator testified at trial, the lie that

the SUV was stolen infected the credibility of the entire claim, including defendant's denials that he was not in­volved in setting the vehicle on fire. The decision whether to pay the claim was not dependent on the in­surance carrier's ability to prove beyond a reasonable doubt that defendant was involved in the arson. Addi­tionally, Progressive did not have to believe defendant's account given to Investigator Goldman that the reason for his lie was to cover up a romantic relationship. Pro­gressive was entitled to infer that, once caught in a mate­rial lie, the remainder of his claims could not be be­lieved. Based on the evidence, a rational jury was free to conclude that defendant's knowingly made false state­ments could have reasonably affected Progressive's deci­sion whether to pay the claim.

v.

For the reasons expressed, we reverse the judgment of the Appellate Division, which vacated the jury verdict convicting defendant of second-degree insurance fraud. Defendant's insurance-fraud conviction is therefore rein­stated. We remand to the trial court for entry of judgment consistent with this opinion. [*29]

CHIEF JUSTICE RABNER; JUSTICES LaVEC­CHIA, PATTERSON, and SOLOMON; and JUDGE CUFF (temporarily assigned) join in JUSTICE ALBIN's opinion. JUSTICE FERNANDEZ-VINA did not partici­pate.