A Crying Sham

The New Jersey Supreme Court reversed an Appellate Division decision finding that an attorney and a chiropractor did not knowingly violate the law

 In this appeal, the Court reviews the Appellate Division’s determination that the trial court erred in finding a knowing violation of the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -30. After a bench trial, Robert P. Borsody, Esq., a New York attorney, and Daniel H. Dahan, a California chiropractor, were found to have violated the IFPA to the extent they promoted and assisted in the creation of a practice structure designed to circumvent regulatory requirements with respect to the control, ownership, and direction of a medical practice.

 N.J.A.C. 13:35-6.16(f), codified in 1992, explicitly provides that a medical doctor with a plenary scope of practice may not be employed by a licensee with a more limited scope of practice, such as a chiropractor. In 1995, the Executive Director of the State Board of Medical Examiners (Board), issued a letter-opinion in response to a hypothetical scenario in which a professional association was divided between a chiropractor holding a seventy-percent interest and a doctor holding a thirty-percent interest. The director wrote that “[The Board] would find it inappropriate for a physician with a plenary scope of practice (M.D./D.O.) to be in a position where the practitioner with a limited scope of practice (here, a [chiropractor]) can compel—by the simple fact of majority voting rights—the medical doctor to accept contracts for the provision of all manner of services.”

In the 1990s, Dahan began organizing a series of lectures throughout the country through his company, “Practice Perfect.” Practice Perfect lectures were marketed toward chiropractors and focused on the creation of multi-disciplinary practices in which chiropractors work with physicians and other medical professionals. Borsody made presentations at Practice Perfect lectures on the legal issues arising from such multi-disciplinary practices.

In late 1996, New Jersey-licensed chiropractor John Scott Neuner attended a two-day Practice Perfect seminar at which both Dahan and Borsody presented. The practice model, developed by Borsody and pitched at Dahan’s programs, included a number of safeguards to prevent the nominal doctor-owner of the medical corporation from seizing control of the practice from the real investor—the chiropractor. Prior to the seminar attended by Neuner, Borsody wrote at least one trade article that correctly stated that New Jersey requires a majority of the ownership interest in a medical corporation to be owned by medical doctors.

In March 1997, after attending the Practice Perfect seminar described above, Neuner signed a contract with Dahan to become a client of Practice Perfect. Neuner hired Dr. Robban A. Sica, M.D., as the initial doctor-owner of Northfield. Neuner also hired several doctors to work at Northfield who held no ownership interest in the practice.

In late 1998, Allstate, which had been receiving insurance claims for treatment provided at Northfield, began investigating the legality of Northfield’s practice structure. Neuner retained Borsody to represent him and, in January 1999, Borsody wrote that because the doctors hired to work at Northfield did not own stock in the medical practice, Neuner’s employment of those doctors likely violated existing guidance from the Board. As a result of its investigation, Allstate refused payment on approximately $330,000 in claims of patients treated by Northfield.

Allstate filed the instant action on October 19, 1999, against Neuner, Northfield, Dahan, Borsody, and a number of additional defendants. Neuner settled with Allstate early in the proceedings, in part in exchange for his agreement to testify against his co-defendants. For present purposes, the salient charges of the complaint allege that Borsody and Dahan (collectively, defendants) violated the IFPA by knowingly assisting Neuner in the creation and operation of a multi-disciplinary practice whose insurance claims were fraudulent under the IFPA. Allstate’s theory of the case relies on the practice’s failure to comply with governing standards on the corporate practice of medicine, a necessary precondition to a valid insurance claim.

The trial court found that Borsody and Dahan violated the IFPA when they “knowingly assisted, conspired with and urged Neuner to operate in a fashion that violated the law.” In an unpublished opinion, the Appellate Division reversed, concluding that the evidence did not support a finding that defendants knowingly violated the IFPA. The Court granted Allstate’s petition for certification. 223 N.J. 555 (2015).

Held

Defendants extensively promoted a professional practice structure that a fact-finder could reasonably conclude was little more than a sham intended to evade well-established prohibitions and restrictions governing ownership and control of a medical practice by a non-doctor. In light of the broad anti-fraud liability imposed under the IFPA, holding defendants responsible for promoting and assisting in the formation of an ineligible medical practice was not a novel or application of the statute. The trial court correctly applied a plain-language understanding of “knowing,” and its finding of a knowing violation of the IFPA is amply supported in this record.

 (Mike Frisch)