Order of judgment - · PDF fileprepared by the court: allstate insurance company, allstate...

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PREPARED BY THE COURT: ALLSTATE INSURANCE COMPANY, ALLSTATE INDEMNITY COMPANY, ALLSTATE NEW JERSEY INSURANCE COMPANY, Plaintiff(s), vs. NORTHFIELD MEDICAL CENTER, P.C.; ROBBAN ARIEL SICA, M.D.; J. SCOTT NEUNER, D.C.; JSM MANAGEMENT COMPANY, INC.; DANIEL H. DAHAN, D.C.; ROBERT P. BORSODY, ESQ., PRACTICE PERFECT; MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., et al., Defendant(s). FILED JAN 18 2012 $ll'llAI4 t.IWtMffl. J.S.e. SUPERIOR COURT OF NEW JERSEY LAW DIVISION-MORRIS COUNTY Docket No. MRS-L-3228-99 Civil Action ORDER OF JUDGMENT THIS MATTER, having come before the Court for a bench trial on June 13, """"' ,. 2011, June 14, 2011, June 15, 2011, June 16, 2011, June 17, 2011, June 20, 2011, June 21, 2011, June 22, 2011, June 23, 2011, June 27, 2011, June 28, 2011, June 29, 2011 and June 30, 2011; and the Court having reserved decision pending additional submissions and summations of counsel; Thomas J. Hall, Esq. of Pringle, Quinn Anzano, P.C., appearing for plaintiffs, ALLSTATE INSURANCE CO., et al.; Christopher B. Turcotte, Esq. appearing for defendants, DANIEL H. DAHAN, D.C., PRACTICE PERFECT and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC.; and

Transcript of Order of judgment - · PDF fileprepared by the court: allstate insurance company, allstate...

Page 1: Order of judgment - · PDF fileprepared by the court: allstate insurance company, allstate indemnity company, allstate new jersey insurance company, plaintiff(s), vs. northfield medical

PREPARED BY THE COURT:

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

Plaintiff(s),

vs.

NORTHFIELD MEDICAL CENTER, P.C.; ROBBAN ARIEL SICA, M.D.; J. SCOTT NEUNER, D.C.; JSM MANAGEMENT COMPANY, INC.; DANIEL H. DAHAN, D.C.; ROBERT P. BORSODY, ESQ., PRACTICE PERFECT; MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., et al.,

Defendant(s).

FILED JAN 18 2012

$ll'llAI4 t.IWtMffl. J.S.e.

SUPERIOR COURT OF NEW JERSEY LAW DIVISION-MORRIS COUNTY Docket No. MRS-L-3228-99

Civil Action

ORDER OF JUDGMENT

THIS MATTER, having come before the Court for a bench trial on June 13,

""""' "'"··~\

,.

2011, June 14, 2011, June 15, 2011, June 16, 2011, June 17, 2011, June 20, 2011,

June 21, 2011, June 22, 2011, June 23, 2011, June 27, 2011, June 28, 2011, June

29, 2011 and June 30, 2011; and the Court having reserved decision pending

additional submissions and summations of counsel; Thomas J. Hall, Esq. of Pringle,

Quinn Anzano, P.C., appearing for plaintiffs, ALLSTATE INSURANCE CO., et al.;

Christopher B. Turcotte, Esq. appearing for defendants, DANIEL H. DAHAN, D.C.,

PRACTICE PERFECT and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC.; and

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Lawrence S. Lustberg, Esq. of the law firm of Gibbons, P.C. appearing for

defendant, ROBERT P. BORSODY; Carl D. Poplar, Esq. appearing for defendant, J.

SCOTT NEUNER, D.C.; and the Court having heard testimony and having

considered the submissions and summations of counsel; and for good cause shown;

IT IS on this 18th day of January, 2012;

ORDERED that judgment be, and hereby is, entered in favor of plaintiffs

against defendants, DANIEL H. DAHAN, D.C., ROBERT P. BORSODY, ESQ.,

PRACTICE PERFECT and MEDICAL NEUROLOGICAL DIAGNOSTICS, INC., in

an amount to be determined in a subsequent proceeding. The Court finding said

defendants violated the Insurance Fraud Protection Act, N.J.S.A. 27:33A-1; and it is

further

ORDERED that the cross-claims of defendant, J. SCOTT NEUNER, D.C., as

to defendants, DANIEL H. DAHAN, D.C. and ROBERT P. BORSODY, ESQ., be,

and hereby are, denied.

ORDERED that a case management conference for the purpose of

determining the process to determine damages be scheduled for February 10,

2012, at 1:30 p.m.; and it is further

ORDERED that counsel submit proposals regarding the process to determine

damages on or before February 6, 2012.

The Court has served a copy of this order upon all counsel of record in this

action.

SEE STATEMENT OF REASONS ATTACHED

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ALLSTATE INSURANCE COMPANY. et als. v NORTFHIELD MEDICAL CENTER. P.C. et als.

Docket No. MRS-L-3228-99

STATEMENT OF REASONS

On October 19, 1999, plaintiffs initiated litigation against a host

of parties asserting ten Counts. In June of 2011, a bench trial

commenced, the parties all having agreed to withdraw the demand for

jury. The remaining defendants included only Daniel A. Dahan, D.C.

("Dahan") and Robert P. Borsody, Esq. ("Borsody") The sole

remaining Count was Count Three. That Count asserted that by virtue

of violations of N.J.A.C. 13:35-6.14, 13:35-6.16 and 13:35-2.5(b),

defendants Dahan and Borsody had violated the Insurance Fraud

Protection Act, N.J.S.A. 27:33A-1, et seq. ("IFPA") With the consent

of the parties and the Court, the issue of damages in the event the

Court found a violation of the IFPA was not presented; that issue left

to another day.

Although this Court took responsibility of this matter in 2009

when it was already ten years old, one of the reasons for the length of

time taken related to the standard of proof required in violations of

IFPA. This matter was resolved by the New Jersey Supreme Court in

2006 in the matter of Liberty Mutual Insurance Co. v. Land, 186 N.J.

163 (2006). The Supreme Court held that the standard of proof was a

preponderance of the evidence.

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In its most simple terms, plaintiffs allege that defendants Dahan

and Borsody promoted a concept of inter-disciplinary medical practice,

medical doctors and chiropractors, which resulted in a chiropractor

controlling the practice even though the practice employed medical

doctors. This violated various regulations of the Board of Medical

Examiners which prohibited a lesser licensed practitioner to be the

employer of a plenary licensed practitioner. Plaintiffs assert,

therefore, that when Northfield Medical Center, P.C. submitted claims

to it for services provided by medical doctors and chiropractors,

insurance fraud was committed because the organization was not

established consistent with Board of Medical Examiner regulations.

Simplistically stated, defendants assert that prior to Allstate

Insurance Co. v. Schick, 328 N.J. Super. 611 (Law Div. 1999), the law

was unclear at the time and, therefore, they cannot be found to have

committed fraud. Other various defenses, including lack of proximate

cause, were also presented.

FACTUAL BACKGROUND

The facts are straightforward and not in particular dispute.

Plaintiffs are insurance companies authorized to issue automobile

insurance policies in the State of New Jersey. Defendant Borsody is an

attorney licensed in the State of New York. Defendant Dahan is a

chiropractor licensed in the State of California. Some time in the early

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1990's, Dahan established a multi-disciplinary medical practice in the

State of California. He owned 49% of the medical center while a

medical doctor owned 51%. Based upon his successful establishment

of the multi-disciplinary practice, he began producing educational

seminars under the name of "Practice Perfect" which promoted

establishment of similar practices. That same year, he asked Borsody

to provide the legal portion of these seminars. In addition, an

accountant spoke, as well as a billing specialist.

In or about 1995, Practice Perfect presented a seminar in New

York and Philadelphia. In attendance at one of those seminars was J.

Scott Neuner, D.C., a chiropractor licensed in the State of New Jersey

("Neuner").

Neuner was impressed with the proposed practice model

presented at the Practice Perfect seminar and purchased the model

and the services of Dahan in setting up a multi-disciplinary practice in

Southern New Jersey. In addition to the consulting services, he

purchased a book of forms from a company entitled, "Management

Legal Services." (''MLS") 1 He was given the name of MLS by Dahan.

He was advised to obtain local counsel and he did so, retaining John

Grossman, Esq. ("Grossman") as local counsel.

1 The evidence established that defendant Dahan had obtained the forms from Borsody and then simply sold them through a business his sister managed, MLS. Borsody was not informed, nor did he share any benefit from the sale of these forms. Dahan made approximately $100,000.00 on the sale of these forms alone.

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Neuner fully implemented the proposed business model and

began submitting claims to Allstate thereafter.

The business model was, as follows. The business model led

Neuner to create two corporations. A management corporation was

formed of which he was the sole owner. The management corporation

leased space and equipment to the medical practice. The medical

corporation was owned by a medical doctor. The establishment of the

management corporation, which was owned by someone other than a

medical doctor, had been approved previously in Women's Medical

Center v. Finley, 192 N.J. Super. 44 (App. Div. 1983).

Practice Perfect, specifically Borsody, taught those attending the

seminars that chiropractors, however, could actually be in control of

the business rather than medical doctors. He testified that an earlier

experience in the State of New York led him to conclude that his

chiropractor clients needed protection from ruthless medical doctors.

In that case, the controlling medical doctors simply walked away with

the business abandoning the chiropractor. He repeatedly stated that

his purpose was to establish sufficient power in the chiropractor to

prevent him from being taken advantage of by the medical doctors.

He, therefore, promoted the following.

When the medical doctor owner of the medical corporation was

selected, that person was to execute in blank resignation, assignment

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of stock and a statement that the stock was either lost or had never

been issued. The chiropractor would then hold these documents until

a time of his choosing. In the event that he was unsatisfied with the

performance of the medical doctor owner, he could simply execute the

documents, remove the medical doctor and replace the medical doctor

with a new one. In addition, however, contracts were executed which

required significant payments from the medical corporation to the

business corporation and substantial penalties in the event of contract

termination. The purpose of these documents was to leave the

medical corporation dry and, in effect, to permit the business

corporation to control the medical corporation by creating significant

financial obligations. Dahan, though MLS, sold the documents which

were necessary to implement the above business plan. The

"Renewals" provision of the Sublease Agreement provided that the

Sublease shall renew automatically each year unless and until JSM

Management gives notice of its intent not to renew. The Termination

of Agreement provision of the Sublease Agreement did not include a

provision that Northfield Medical could ever terminate the Sublease

without the consent of Neuner's management company. 2 The Service

Agreement was designed and intended to render Northfield Medical

profitless, and to keep it indebted at all times to the management

2 Similar finding of facts was reached in the decision of summary judgment of Judge Villanueva, April 27, 2001.

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company, thereby making Northfield valueless to both Dr. Sica and Dr.

David. 2

The Service Agreement achieved this purpose through Section

l.C "Compensation," and Schedule A to the Service Agreement.

Amounts owed by Northfield Medical to the management company are

calculated entirely by Neuner and the employees of the management

company, who tally each new patient "file/record" and each patient

visit every month.

To prevent the plenary licensed physician from attempting to

circumvent the provisions of the Service Agreement or even dissolving

the medical corporation, the Service Agreement provides under

Section IX, "Non-Termination and Damages," that

Medical Corp. agrees not to dissolve the Medical Corp. without six months prior notification to the Management Company, or to terminate or breach this Agreement for any reason. The Medical Corp. agrees to pay liquidated damages in the amount of One Hundred Thousand Dollars ($100,000) in the event of any material breach of this agreement.

This provision discouraged the plenary licensed physician from

attempting to take control of the medical facility. 2

The lack of bona fide ownership interest of Dr. Sica and Dr.

David in Northfield Medical is also surprisingly evident from the

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absence of a relationship between both Dr. Sica and Dr. David with

Neuner. Neuner confirmed that at no time during their purported

ownership of Northfield Medical did either Dr. Sica or Dr. David ever

meet Neuner in person or ever visit any office of Northfield Medical,

nor did the doctors ever meet or treat any patient of Northfield

Medical, or ever supervise any employee of Northfield Medical. 2

As constructed, Neuner decided the compensation of Sica and

David and hired and fired medical doctors.

Neuner retained Grossman who incorporated the two

corporations. He initially requested that Grossman also prepare all of

the contracts. Grossman indicated, however, that he would not simply

"fill in the blanks" but would require his own analysis of New Jersey

law and that it would be expensive and could well result in either new

forms or substantial modification of the Dahan forms.

Dahan recommended that Robban Sica, M.D. ("Sica), as the

medical doctor, would appear as the owner of the medical corporation.

Although licensed in New Jersey, Sica resided in Connecticut. The

testimony was clear that she never performed any services for the

corporation other than serving as its titular head for which she was

paid an annual fee. As noted in Allstate Insurance Co. v. Schick, 328

N.J. Super. 611, at 616 (Law Div. 1999), Dr. Neuner's company,

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Northfield Medical Center, was one of approximately two dozen

medical corporations that Sica allegedly owned in New York and New

Jersey.

Grossman prepared the documents for Sica, including the blank

resignation, stock transfer and lost stock certificate. Interestingly, the

initial set of those documents was prepared in a manner that would

require notarization. Neuner then called Grossman and told him to

remove the notarization. Clearly, if they were notarized, the date of

the signature would have to appear thereby prohibiting their use as

evidence of a subsequent voluntary resignation. Grossman also

testified that he was somewhat familiar with documents such as these

signed in blank. However, he also advised he would never have

implemented them without Dr. Sica advising him that she wished to do

so. In effect, the documents he prepared for Sica then, in his mind,

were designed to simply avoid the necessity of signing once Dr. Sica

decided to resign.

Some time thereafter, Sica indicated a desire to begin

participating in the practice. At that point, the documents were

completed, her resignation effectuated and a replacement suggested

by Dahan provided. Borsody's plan of protecting the chiropractor and

placing him in control was used and was effective.

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NEW JERSEY INSURANCE FRAUD PREVENTION ACT

The New Jersey Insurance Fraud Prevention Act (IFPA) became

effective on November 28, 1983. Its purpose was "to confront

aggressively the problem of insurance fraud in New Jersey ... " (N.J.S.A.

17:33A-2) The actions which constitute a violation of that act are set

forth in N.J.S.A. 17:33A-4. The Appellate Division, in Allstate

Insurance v. Orthopedics Evaluatons, Inc. 300 N.J. Super. 510 (App.

Div. 1997), concluded that submitting a claim form by an organization

whose structure does not comply with regulations constitutes a

violation of the IFPA. Section (b) of N.J.S.A. 17:33A-4 states that: "A

person or practitioner violates this Act if he knowingly assists,

conspires or urges any person or practitioner to violate any of the

provisions of this Act." Liberty Mutual v. Land, supra., 175-176,

established the proposition that a violation of the !SPA does not

require proof of reliance, damages or knowledge of misrepresentation

as material.

In 1992, the Board of Medical Examiners, pursuant to its

authority, established in N.J.S.A. 45:9-1, et seq. promulgated

regulations which, among other things, permitted establishing medical

practices with combined professions. N.J.A.C. 13:35-6.16 establishes

the parameters of professional practice structure. Section (b) states:

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"The practice shall be conducted in a business form consistent with the

principles set forth in this rule ... " Section (f) established the types of

professional practice forms which would be permitted. Sections f (1)

and (2), in the Court's view, provide two alternative kinds of practice­

solo or partnership or professional association. The balance of the

regulation, Section f (3) through f (5) provides various explanations

relating to the two types of professional practices. Of specific interest

in this matter is Section f (3) (i.) which states: "Thus, a practitioner

with a plenary license shall not be employed by a practitioner with a

limited scope of license, nor shall a practitioner with a limited license

be employed by a practitioner with a more limited form of limited

license. By way of example, a physician with a plenary license may be

employed by another plenary licensed physician, but an M.D. or D.O.

may not be employed by a podiatrist (D.P.M.) or chiropractor (D.C.) or

midwife or certified nurse (R.M., C.N.M) ... " A reading of Sections f (4)

and (5) make clear that the five numbered paragraphs do not provide

five alternate forms of professional practice model. Section 3 defines

the nature of the relationships which can be permitted in solo or

partnership form, while Section 4 deals with "shareholder or employee

of a general business corporation" and Section 5 discusses equity or

employment interests in a professional practice. This conclusion was

noted in Allstate Insurance Co. v. Schick, supra. Although defendants

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argue that the law was unclear until Allstate Insurance Co. v. Schick,

the Court disagrees.

The language off (3)(i) states people, not corporations.

Defendants argue that a medical doctor may be employed by a

corporation which consists principally of those who are not medical

doctors but not the individuals themselves. This narrow interpretation

of this regulation is rejected. The purpose of this language is to assure

that a medical doctor has the independent ability to manage patient

care. Whether the employee is a person or a corporation is irrelevant.

DANIEL H. DAHAN. D.C. AND ROBERT P. BORSODY. ESQ.

Neuner clearly established the business model presented by

Borsody at the Practice Perfect seminars created and presented by

Dahan. The evidence is clear that Neuner attended the seminar,

retained Practice Perfect and purchased the forms promoted by

Practice Perfect to create an inter-disciplinary practice group in which

he, as the chiropractor, would be in control. Dahan's responsibility is

clear. For example, under the guise of Management Legal Services, he

encouraged Neuner to purchase a book of forms. The opening

document in that package is a welcome letter signed by AI

Ness,Program Coordinator. The testimony is clear that AI Ness was an

employee of Kinkos in California whose sole role in these documents

was to provide as many copies as Dahan requested at the local Kinkos

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store. AI Ness had nothing to do with the creation or distribution of

forms. He simply made copies for which Kinkos was paid.

In that letter, Dahan represents: "In an attempt to help doctors

around the country create multi-discipline centers, we have through

extensive research prepared the most comprehensive legal package

available today in the U.S.A. Our legal team of experts has developed

a self start-up kit which will help you set up the corporate structure of

your multi-discipline M.D/D.C. center. This kit is by far the easiest and

most expedient way to open up your center."

It should be remembered that these are the forms that Borsody

created for Dahan's personal use which Dahan then sold through MLS

for a considerable profit. Borsody knew nothing of this plagiarism. Of

considerable interest is that at no place in this document does it

suggest that the laws of each state differ and one would be well

advised to retain local counsel. To the contrary, it implies that these

forms will work anywhere. Dahan conferred with Neuner and provided

the names of the "doctor owners."

The order form itself had a space to insert the state of the

proposed practice. Dahan testified that information wasn't necessary

for these forms, but applied to other legal forms MLS sold.

Dahan testified that he did orally advise Neuner and others to

retain local counsel. As discussed more fully hereafter, this hollow

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recommendation is of little significance. Had Neuner obtained full

advice of a knowledgeable health care attorney, he would have been

told to ignore everything that Practice Perfect preached that Dahan

and Borsody urged since it clearly did not comply with the relevant

regulations.

Neuner discussed Grossman's proposed fee with Dahan and was

told that it was too much. As a result, Neuner just filled in the blanks

of the Dahan forms and implemented the plans.

Borsody urged the creation of a corporate model that appeared

to comply with appropriate state regulations as to ownership and

control, but due to various devices, undated documents, penalty

clauses and one-sided agreements created in actuality a business

entity which was not owned as it appeared by a medical doctor, but

actually by a chiropractor. His knowledge of this manipulation is

clearly established through trial. He consistently testified that his goal

was to help his client, the chiropractor, so as to prevent control by the

medical doctor. His documents created a subterfuge that was clearly

misleading.

His advice at seminars also included clearly erroneous advice.

Don't bother with malpractice insurance he advised. If the medical

corporation is sued, simply start another so that when trial comes, the

first corporation will have no assets and judgments would be

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meaningless. Don't file Medicare or Medicaid claims with this practice

model he urged. The Federal government is more diligent than the

States in enforcing the regulations prohibiting a chiropractor to control

a medical doctor. In essence, he taught how to break the law without

being caught.

As a "national expert" on health care law, Borsody was familiar

with the matter of Flynn Bros., Inc .. et al. v. First Medical Associates,

715 SW 2"d 782 (1986). The Court stated, at 785: "The parties

admit that the whole contractual scheme was developed to do

indirectly that which they freely concede they could not do directly

under the Medical Practices Act. The design, effect and purpose of the

management agreement contravenes the Medical Practices Act and

therefore will not be enforced by the courts of this state." This stands

for the clear proposition that subterfuge in developing medical

practices is untenable. This same specific conclusion was stated in

detail in the letter of Kevin B. Earl dated November 16, 1995.

Defendants argue that a subsequent letter of Deborah W.

Levine, Deputy Attorney General, dated June 11, 1997, continued the

alleged lack of clarity. The Court disagrees. The last paragraph must

be read as a whole. The final sentence cannot be read in isolation.

The last two sentences read together are, as follows: "However, it is

important to note that the licensees must maintain professional

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discretion of their judgment in the rendering of professional services.

There is no statutory or regulatory provision requiring that the licensee

with the greater scope of practice hold the majority of the stock in the

professional corporation." The last sentence, it is conceded, is true.

However, the sentence before it makes it clear that the professional

judgment of a medical doctor, for example, cannot be affected by a

chiropractor. Although the letter lacks the clarity and thoroughness of

the Earl letter, it does not support a position that the Practice Perfect

model is legal.

Borsdody himself testified on June 30, 2011 that he knew every

State, including New Jersey, prohibited chiropractors from employing

medical doctors.

Borsody asserted there was little guidance available in the 90's

and that what he advised was not expressly prohibited. He referred to

Women's Medical Center v. Finley, supra, as one of the cases upon

which he relied. Although he concluded it approved the use of

management companies, he seemed to overlook other language. At

50, the Appellate Division state: "In short, all medical judgments are

made by or under the control and supervision of the physicians and

the management company does not either directly or indirectly

influence medical decisions. The clear statement of policy was stated

again at 53-54, 55 and 56. The essential premise of the court's

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decision to allow management companies to participate is that their

involvement would not affect medical decisions.

Defendants presented an expert in corporate law, Gregory Mark,

the Assistant Dean of Rutgers Law School. He testified that in the

corporate world, signing documents in blank in advance of their use

was commonplace. He conceded he had no particular knowledge of

health care law. More significantly, however, he testified, consistent

with Grossman, that there must be a triggering event which would

cause the documents to be filled in and released. The triggering event

cannot be the whim of the holder of the documents, but must be an

event agreed to by the parties in advance. Just as Grossman testified

he would not have released the documents without Sica's approval, so

did the defendants' expert confirm that it is not an acceptable general

practice to simply hold resignations in blank to be used at the whim of

the holder. It must again be stressed that the context of this matter is

within the field of health care. A considerable public interest is

presented which must be assumed as a first step in an analysis of any

law or regulation. The Practice Perfect plan, as implemented, would

place the chiropractor in control of the medical doctor which clearly

had the potential to affect health care services to patients. The person

with the lesser license and, therefore, lesser scope and knowledge of

practice, is in the driver's seat as to care and services provided by a

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medical doctor. It is noted and conceded by plaintiffs, however, that

this potential was not realized. Plaintiffs take no issue with the

services provided to patients and no evidence of same was presented

during trial.

The Court heard the testimony of three experts; one on behalf of

the plaintiff and two on behalf of defendants.

As to the battle of the health care experts, the Court accepts the

testimony of Dr. John Reiss. The essential difference between the two

experts is that Dr. Reiss read the rules and regulations as one entity

and reached the conclusion that the Practice Perfect model violated

state regulations. Further, he testified that the law was not

ambiguous during the relevant period 1995 to 1999. With this

conclusion, the Court agrees. As previously noted, (f) 1 and (f) 2

discuss alternate means by which a practice may be established. (f) 3,

(f) 4 and (f) 5 discuss related issues but are not alternatives to (f) 1

and (f) 2. Therefore, the prohibition contained in (f) 3 applies to all

types of organizations.

The Court, therefore, rejects the piece meal approach of

defendants' expert, J. Anthony Manger, J.D.

Borsody and Dahan promoted what they knew was essentially a

lie. The business model they promoted was intended to appear to be

one way and yet, in reality, be another way. They both were

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motivated to provide to the chiropractor the ability to manage a

practice which included medical doctors. Dahan knew that a

chiropractor could not own a majority interest of a multi-disciplinary

practice since his California corporation was established so that he was

a minority shareholder himself. Borsody knew that he was placing in

the hands of the chiropractor the control that was lacking in his first

experience in New York. The simple fact that the practice was

intended to look as though a medical doctor was in control yet, with

various side agreements, he was not, constitutes a sufficient basis for

the Court to conclude that Borsody knew what he was doing was not

proper. It was contrary to the very premise of the 1983 Women's

Medical Center v. Finley decisions. The truth can only stand the light

of day. It need not hide in the shadows of side agreements.

The Practice Perfect plan placed the "public at risk by failing to

provide the professional supervision and control deemed essential buy

by the Board (of Medical Examiners)." Allstate Ins. v. OEI, supra, at

517. In 2002, the court concluded in Material Damage Adj. v. Open

MRI, 352 N.J. Super. 216, 227 (Law Div. 2002). "A belief even a good

faith belief that one is performing these services in a reasonable or

otherwise sound manner is not a defense. As a matter of law, entities

wishing to engage in a highly regulated business which directly

impacts upon the welfare of the public, such as the delivery of health

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care, are constructively on notice of the existence of legal

requirements governing the practice and operation." This admonition

was adopted by the Appellate Division in Open MRI v. Frieri, 405 N.J.

Super. 576 (App. Div. 2009).

JOHN GROSSMAN WAS NOT AN INTERVENING CAUSE

John Grossman's role was limited. Although he was retained

initially by Neuner to establish the business model taught by Borsody

and promoted by Practice Perfect and Dahan, he did not do so. He

incorporated the two corporations. He drafted the undated

resignation, stock assignment and statement of lost or non-issued

certificates and held them after Sica signed them. However, he

specifically testified that he would not have released them without

Sica's direction. He was asked to do the various contracts. However,

Neuner did not retain him for that purpose. Dahan told Neuner he was

too expensive. Grossman said he would have to undertake New Jersey

research to make certain that the documents he prepared would be

consistent with New Jersey law. He also indicated there would be an

expense which Neuner was unwilling to endure. Neuner then himself

or a staff member typed up the various contracts. Grossman,

therefore, stopped short of advising Neuner that the entire business

model was consistent with New Jersey law. Grossman was not the

predominant cause of Neuner's conduct.

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The Supreme Court stated in Conklin v. Hannoch Weisman, 145

N.J. 395, 418 (1996): "The negligent attorney, however, often does

not 'create' the risk of intervening harm (the attorney does not make

the borrower more likely to become insolvent), but rather fails to take

the steps that competent counsel should take to protect a client from

the risks that ultimately produce the injury." There is no evidence that

Grossman failed to take the steps that competent counsel should take.

He testified he would hold the Sica documents until Dr. Sica authorized

their release. He incorporated two corporations which in itself creates

no violation of the Insurance Fraud Protection Act. He advised Neuner

he could not complete the task he was requested to complete without

legal research.

Both plaintiffs and defendant Dahan have discussed the Second

Restatement of Torts, Section 442, considerations important in

determining whether an intervening force is a superseding cause. Six

factors are discussed as set forth below.

(a) The fact that its intervention brings about harm different in

kind from that which would otherwise have resulted from the actor's

negligence. Even if Grossman were as responsible as defendants, the

harm is no different.

(b) The fact that its operation or the consequence thereof

appear after the event to be extraordinary rather than normal in view

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of the circumstances existing at the time of its operation. Grossman's

conduct cannot be considered extraordinary. He simply moved the

ball a little ways down the field and not even over the goal line.

(c) The fact that the intervening force is operating

independently of any situation created by the actor's negligence, or,

on the other hand, is or is not a normal result of such situation.

Grossman's limited role was in furtherance of the direction of Borsody

and Dahan. He incorporated two legitimate corporations and arranged

for execution of documents to be held in escrow.

(d) The fact that the operation of the intervening force is due

to a third person's act or the failure to act. As noted above,

Grossman's conduct does not constitute a failure to act. His actions

are not inconsistent with New Jersey law.

(e) The fact that the intervening force is due to an act of a

third person which is wrongful towards the other and, as such,

subjects the third person to liability to him. Again, Grossman

performed no wrongful conduct in simply incorporating two New Jersey

corporations and arranging for the execution of undated documents to

be held in escrow until the signer authorized their release.

(f) The degree of culpability of a wrongful act of a third person

which sets the intervening force in motion. There is little doubt that

Neuner was intent on creating a New Jersey business model based

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upon the Practice Perfect model. His relationship with Grossman was

terminated prematurely by him. Grossman gave no advice that the

plan as fully implemented was consistent with New Jersey law.

For these reasons, Grossman cannot be considered as

superseding cause relieving defendants from liability.

FRIENDLY OR CAPTIVE P.C.'S

Defendants assert that the Practice Perfect model is employed by

hospitals. The argument goes, presumably, that if a hospital can do it,

a chiropractor can do it. Stated in this simple fashion, the argument

clearly fails. The Board of Medical Examiner regulations in question in

this case do not extend to hospitals. They are regulated by the

Department of Health and Senior Services and the Department of

Community Affairs. The fact that a person with a more restricted

license cannot be in control of a person with a plenary license applies

to two licensed doctors. Defendants have not offered any analysis of

applicable regulations governing hospitals. The simple argument is

well, if they can do it, so can we. The Court is not persuaded that a

hospital lies in the same position as a chiropractor.

Defendants next argue that Garcia v. Health Net of New Jersey.

Inc. 2009 WL 3849685 (N.J. App. Div. November 17, 2009) supports

their theory, a lack of knowledge. In Garcia, the Court was faced with

the definition of "knowing." The Board of Medical Examiners had

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issued an Advisory Opinion on November 12, 1997 approving of the

manner in which plaintiffs were submitting their bills. The finding of

that Advisory Opinion was inconsistent with the "Codey Law", N.J.S.A.

45:9-22.5 then in existence, the trial court, as affirmed by the

Appellate Division, concluded that there was no knowing violation of

the Act. The facts in Garcia are clearly distinguishable from this case.

The very fact that defendants felt it necessary to create documents

which altered the power structure of the certificates of incorporation

cannot be said to create a lack of knowledge.

As previously noted, the defendants argument that they didn't

know the model violated the law is unimpressive. The plan itself

appeared to place control in the medical doctor, but it didn't.

Women's Medical Center v. Finley. supra, clearly stated the policy

contrary to the Practice Perfect model. At best, their conduct must be

considered willful blindness. As our Supreme Court noted In the

Matter of Skevin. 104 N.J. 476, 486 (1986), that is sufficient fo find

"knowledge."

The Court concludes, therefore, that defendants Borsody and

Dahan did violate the provisions of the New Jersey Insurance Fraud

Protection Act for the reasons stated herein.

Both knowingly assisted, conspired with and urged Neuner to

operate in a fashion that violated the law, therefore, violating the

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IFPA. N.J.S.A. 17:33A-4(b) Their business model was the proximate

cause of Neuner's structure and the fraudulent claims.

Defendants have argued that they are not bound to the decision

made previously in this case as to Dr. Neuner because they were not

permitted to oppose the motion for summary judgment previously

entered in this matter. This argument is deemed not to be relevant.

This decision is based upon the trial evidence before this Court and

although consistent with the prior decision, is made independent of the

prior decision based upon the trial record here.

J. SCOTT NEUNER. D.C.

Dr. Neuner has certain counterclaims in this matter against co­

defendants. Plaintiffs were granted summary judgment as to Neuner

in 2001 and so trial did not proceed as to Dr. Neuner.

For the following reasons, the Court declines to grant relief to

Dr. Neuner as to co-defendants. This is for several reasons.

First, the Court accepts the argument that Allstate's claims

against Neuner were listed on his Bankruptcy Petition. Therefore, the

pursuit of the claims must be approved by the Bankruptcy Court and

authorized by the Bankruptcy Court. (See Luppino v. Mizrahi, 326 N.J.

Super. 182 (App. Div. 1995), at 186) The control of this claim is in

the hands of the trustee. There is no evidence that these steps were

taken.

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However, dealing with the merits in this case, the Court also

denies the relief requested by Neuner.

There is an old adage that when something is too good to be

true, it usually isn't true. Dr. Neuner was presented with a plan which

clearly used subterfuge. Knowing that he held a lesser license than

medical doctors, he participated in a plan which placed him in control

of a medical doctor. He hired and fired medical doctors and replaced

Dr. Sica. He rejected Mr. Grossman's recommendation that he be

permitted to undertake more legal research to determine the legality

of the Practice Perfect model. He simply took form contracts that he

purchased from Dahan and had them filled in and subsequently

executed.

Four claims remain--Count Three, Violation of the Consumer

Fraud Act, Count Four, Breach of Contract as to Dahan Count Six,

Intentional Fraud, Count Eight, Fraud, and Count 10, Conspiracy to

Defraud or to Commit Fraud as to both defendants.

As to the Consumer Fraud Act, the Court accepts that the

learned profession exception applies. Both defendants are licensed to

practice their professions in different states, New York and California.

Even though not licensed in New Jersey, the Court accepts the premise

that they are regulated by the appropriate licensing bureaus of their

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states and are, therefore, not subject to the Consumer Fraud Act. See

Macedo v. Delio Russo, 178, N.J. 340 (2004).

As to the balance of the allegations, it can be argued that

Neuner was a victim. However, the Court does not find that he was an

innocent victim. He knowingly participated in the preparation of

documents which on their face presented control within the medical

profession, but sub rosa gave him control. The effect was to put in the

hands of a licensed chiropractor the authority over someone with a

plenary license. The Court cannot conclude that he was, therefore, an

innocent victim. For these reasons, as well as the bankruptcy issue,

the Court declines to award the cross-claims as to Neuner.