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Luttrell v. Brannon

United States District Court, D. Kansas

June 19, 2018

CHARLES R. LUTTRELL, Plaintiff,
v.
JAMES K. BRANNON, M.D.; ORTHOPEDIC SCIENCES, INC.; JOINT PRESERVATION INSTITUTE OF KANSAS, L.L.C.; DOCTORS HOSPITAL, L.L.C.; MAURICIO GARCIA, M.D.; THE HEADACHE & PAIN CENTER, P.A.; and PATIENTFIRST HEALTHCARE ALLIANCE, P.A., Defendants.

          MEMORANDUM AND ORDER

          John W. Lungstrum United States District Judge

         This matter comes before the Court on various motions to dismiss filed by James Brannon and Joint Preservation Institute of Kansas, L.L.C. (“JPI”) (Doc. # 87); by Orthopedic Sciences, Inc. (“OSI”) (Doc. # 85); by Mauricio Garcia and The Headache & Pain Center, P.A. (“HPC”) (Doc. # 106); and by PatientFirst Healthcare Alliance, P.A. (“PatientFirst”) (Doc. # 108); and on a motion for judgment on the pleadings or for summary judgment by Doctors Hospital, L.L.C. (“DH”) (Doc. # 131). For the reasons set forth below, each motion is granted in part and denied in part. Specifically, the following claims are dismissed:

RICO (Count III): Claims for damages other than those representing payments by plaintiff for unnecessary medical treatment; claims based on predicate acts of mail fraud or wire fraud (plaintiff may amend); claims based on predicate acts of controlled substance violations under Kansas law; claims against JPI, OSI, DH, and PatientFirst based on predicate acts of controlled substance violations under federal law (plaintiff may amend); claims based on predicate acts of money laundering (plaintiff may amend); claims under 18 U.S.C. § 1962(a).
Fraud (Count V): All claims.
KCPA (Count VI): All claims (plaintiff may amend to allege claims based on acts of billing).
Conspiracy (Count IV): All claims (plaintiff may amend to allege claims based on surviving RICO and KCPA claims).
Product liability (Counts VII and VIII): All claims against JPI, HPC, DH, and PatientFirst; claim against OSI for failure to warn based on direct (not vicarious) liability (Count VIII).

         With respect to certain claims, as more fully set forth herein, plaintiff is granted leave to file, on or before July 3, 2018, a second amended complaint, by which he may attempt to cure certain pleading deficiencies. Defendants' motions are otherwise denied.

         I. Background

         By his first amended complaint, plaintiff alleges that he was prescribed medications by Dr. Brannon and Dr. Garcia for pain management and that Dr. Brannon performed various surgeries on him. Included in that treatment by Dr. Brannon was hip surgery using a BGSS device; plaintiff alleges that the surgery failed (requiring another procedure by another doctor) and that the surgery recommended and performed by Dr. Brannon was not appropriate given plaintiff's actual medical condition. Plaintiff alleges that the two physicians entered into a scheme that also involved the other defendants, which entities are related to the doctors and to each other. According to plaintiff's complaint, JPI was Dr. Brannon's practice entity; OSI, the manufacturer of the device, was majority owned by Dr. Brannon, who also invented the device; DH (whose president was Dr. Garcia) and HPC (for whom Dr. Brannon and Dr. Garcia were directors) provided facilities for plaintiff's treatment; and DH and HPC were entirely owned by PatientFirst, whose owners and directors included Dr. Brannon and Dr. Garcia and whose president was Dr. Garcia.

         Plaintiff has asserted various claims against defendants. In Counts I and II, plaintiff asserts medical malpractice claims against Dr. Brannon. He asserts federal RICO claims against all defendants in Count III. In Counts IV and V, he asserts civil conspiracy and fraud claims against all defendants. In Count VI, he asserts a claim under the Kansas Consumer Protection Act against all defendants other than Dr. Garcia. In Counts VII and VIII, plaintiff asserts product liability claims (implied warranty of fitness, strict liability failure to warn) against all defendants other than Dr. Garcia and HPC. In Counts IX and X, plaintiff asserts than OSI, JPI, and PatientFirst are vicariously liable for the acts of Dr. Brannon, and that PatientFirst is the alter ego of subsidiaries HPC and DH. Finally, in Count XI, plaintiff asserts a claim for punitive damages against all defendants.

         II. Motion to Dimsiss Standard

         The Court will dismiss a cause of action for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) only when the factual allegations fail to “state a claim to relief that is plausible on its face, ” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), or when an issue of law is dispositive, see Neitzke v. Williams, 490 U.S. 319, 326 (1989). The complaint need not contain detailed factual allegations, but a plaintiff's obligation to provide the grounds of entitlement to relief requires more than labels and conclusions; a formulaic recitation of the elements of a cause of action will not do. See Bell Atlantic, 550 U.S. at 555. The Court must accept the facts alleged in the complaint as true, even if doubtful in fact, see id., and view all reasonable inferences from those facts in favor of the plaintiff, see Tal v. Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006). Viewed as such, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic, 550 U.S. at 555. The issue in resolving a motion such as this is “not whether [the] plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         III. Initial Procedural Matters

         Separate motions and briefs have been filed by defendants Brannon/JPI, Garcia/HPC, OSI, DH, and PatientFirst. In addition to making particular arguments for dismissal of particular claims against them, defendants (except for OSI) have also joined in other arguments by other defendants that would also apply to them. The Court appreciates such economy; it notes, however, that if one defendant's legal argument turns on its own particular circumstances, the Court will not necessarily consider that argument as made by another defendant that has not specifically briefed how the argument applies also to it.

         Defendant DH filed an answer to plaintiff's amended complaint, and it subsequently filed a motion to dismiss or for summary judgment. Plaintiff correctly notes that a party may not move to dismiss under Rule 12(b)(6) once it has answered. The Rules also provide for a motion for judgment on the pleadings, however, see Fed. R. Civ. P. 12(c), and the Court has therefore considered DH's motion under that rule.

         Defendant HPC did not file an answer before filing its motion to dismiss. Nevertheless, plaintiff argues that HPC should be precluded from pursuing such relief because DH has answered and DH and HPC are both alter egos of defendant PatientFirst. The Court rejects this argument. HPC and DH are separate parties, and plaintiff has not cited any authority suggesting that his allegations of alter ego liability somehow preclude the two defendants from acting separately in litigating this suit. In addition, as with DH, there can be no prejudice to plaintiff, as HPC could simply pursue the same arguments in a motion for judgment on the pleadings.

         IV. RICO

         A. Injury to Business or Property

         In Count III of his amended complaint, plaintiff asserts claims against all defendants under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. RICO allows for a civil action by a person “injured in his business or property” by a violation of Section 1962 of the Act. See Id. § 1964(c); see also Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496-97 (1985) (a RICO plaintiff “only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the offenses”). Congress has thus excluded personal injuries from the kinds of injury that may underlie a RICO claim. See RJR Nabisco, Inc. v. European Community, 136 S.Ct. 2090, 2108 (2016). A private plaintiff cannot recover for emotional, personal, or speculative future injuries under RICO. See Safe Streets Alliance v. Hickenlooper, 859 F.3d 865, 888-89 (10th Cir. 2017). The circuit courts agree that the requirement of injury to “business or property” excludes all personal injuries including pecuniary losses flowing therefrom. See Jackson v. Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556, 564-65 & n.4 (6th Cir. 2013) (citing cases).

         Defendants argue that plaintiff's RICO claims should be dismissed because he has not plausibly alleged an injury to his business or property as required. In his amended complaint, plaintiff alleges as follows:

Plaintiff has standing to bring these RICO claims because Plaintiff was economically injured and experienced violations of Plaintiff's property in the following included, but not limited to ways: co-pays, out-of-pocket medical costs, increased Medicaid liens, reduced earning capacity, lost wages, incidental costs and future medical costs including drug rehabilitation treatment, therapy, orthopedic surgery, among other economic damages to be proved at trial.

         Defendants argue that any such damages constitute personal injuries or pecuniary damages that flow from his personal injuries sustained as a result of the allegedly negligent medical care.

         In response, plaintiff argues that although he seeks personal injury damages in his other claims, his RICO claims are limited to damages for the money he paid, as a result of defendants' scheme to defraud, for unnecessary medical treatment, which payments constitute an injury to property under the statute. Plaintiff thus does not dispute that other damages listed in the allegation quoted above would not be recoverable under RICO. For instance, damages for reduced earning capacity, lost wages, and future medical costs would represent pecuniary damages that flowed directly from the personal injury suffered from the alleged medical malpractice. Accordingly, plaintiff's RICO claims are dismissed to the extent that they seek damages other than amounts that he paid out of pocket for unnecessary medical treatment.[1]

         In arguing that his payments for unnecessary treatment constitute an injury to property under RICO, plaintiff relies on the recent case of Blevins v. Aksut, 849 F.3d 1016 (11th Cir. 2017). In that case, the Eleventh Circuit recognized the general rule precluding claims under RICO for both personal injuries and pecuniary losses flowing therefrom. See Id. at 1021. It nevertheless held that “[i]n the context of unnecessary medical treatment, payment for the treatment may constitute an injury to property” under RICO, because the payments themselves are economic injuries that were for the procedures and did not flow from any personal injuries. See id.

         Defendants urge the Court not to follow Blevins. They argue that Blevins goes against the majority rule recognized by the Sixth Circuit in Jackson; but the Eleventh Circuit recognized that general rule (even citing Jackson for it) and held that the alleged injuries fell outside the scope of that prohibition because they did not flow from personal injuries. See Id. (citing Jackson, 731 F.3d at 565). Moreover, the cases cited by defendant as establishing that majority rule did not discuss how the rule applied to payments for unnecessary medical treatment. Defendants have cited only one unpublished case that involved such an injury, Gotlin ex rel. County of Richmond v. Lederman, 483 Fed.Appx. 583 (2d Cir. 2012). In Gotlin, the plaintiff alleged that the defendants fraudulently misrepresented the efficacy of a particular medical treatment, which caused the victims to undergo therapy unnecessarily. See Id. at 585. With no analysis, the court upheld the district court's conclusion that the monetary losses for the amounts paid for the treatment were incidental to personal injuries and thus did not confer standing under RICO. See Id. at 586.

         The Court concludes that the Tenth Circuit would most likely follow Blevins in this case. See, e.g., Cory v. Aztec Steel Bldg., Inc., 468 F.3d 1226, 1232 (10th Cir. 2006) (noting Congress's directive that RICO be liberally construed to effectuate its remedial purposes). Plaintiff's alleged injury in paying for unnecessary treatment did not flow from any personal injury suffered because he received that treatment; rather, the personal injury resulted from his decision to have the allegedly unnecessary treatment in the first place. In addition, the Court rejects defendants' argument that plaintiff has not pleaded sufficient facts to state a plausible claim that he underwent unnecessary medical treatment. Accordingly, defendants' motion to dismiss plaintiff's RICO claims on the basis of a lack of standing is denied to the extent that plaintiff seeks damages consisting of payments that he made for unnecessary medical treatment.

         B. Enterprise Under 18 U.S.C. § 1962(c)

         Plaintiff has asserted claims under both Section 1962(a) and Section 1962(c) of RICO. Section 1962(c) provides in relevant part as follows:

It shall be unlawful for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . . .

See 18 U.S.C. § 1962(c). “Enterprise” is defined by the Act to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” See Id. § 1961(4). The Supreme Court has confirmed that “to establish liability under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person'; and (2) an ‘enterprise' that is not simply the same ‘person' referred to by a different name.” See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). Defendants argue that plaintiff has not satisfied this distinctness requirement because he generally alleges that all of the defendants formed a single group, acted for each other, and essentially are indistinguishable from each other.

         The Court rejects this argument at the pleading stage. Plaintiff has alleged that defendants collectively formed an association-in-fact and thus formed an enterprise under the statute. It is true that plaintiff has alleged that PatientFirst is the alter ego of its two subsidiaries, DH and HPC, and he has alleged that corporate entities are vicariously liable for the acts of Dr. Brannon. Plaintiff has also alleged an “interconnected” and “interwoven” group of defendants. The Supreme Court has held, however, that a corporate enterprise and its employee are distinct from each other for purposes of this requirement, even if the employee is the corporation's sole owner. See Id. at 163. Thus, the fact that the parties forming the enterprise may be related by ownership does not necessarily doom plaintiff's RICO claims. Defendants cite Roberts v. C.R. England, Inc., 318 F.R.D. 457 (D. Utah 2017), in which the court rejected a RICO claim for lack of distinctness. See Id. at 489-90. In that case, however, plaintiff had alleged that the defendant and the enterprise were alter egos of each other. See Id. at 489. In this case, plaintiff has not alleged that all of the defendants are alter egos of each other.

         The Court also rejects OSI's argument that plaintiff's complaint fails to satisfy the requirement in Section 1962(c) that the person have conducted or participated in the enterprise's affairs. OSI notes that the Tenth Circuit has held that the defendant must have had some part in directing the enterprise's affairs. See Safe Streets, 859 F.3d at 883. Moreover, “a defendant must do more than simply provide, through its regular course of business, goods and services that ultimately benefit the enterprise.” See Id. at 884 (quoting George v. Urban Settlement Servs., 833 F.3d 1242, 1251 (10th Cir. 2016)). OSI argues that it simply provided the BGSS device that was implanted in plaintiff during surgery. According to plaintiff's allegations, however, OSI was not simply a disinterested party who did nothing more than supply a good that ultimately benefited the enterprise; rather, plaintiff has alleged that OSI joined with others in a scheme to benefit its owner. In Safe Streets, the Tenth Circuit also reiterated that “the defendant need not have primary responsibility for the enterprise's affairs, a formal position in the enterprise, or significant control over or within the enterprise to be liable under RICO, ” and that the enterprise member need only have played “a bit part” in conducting the enterprise's affairs. See Safe Streets, 859 F.3d at 883-84 (internal quotations omitted) (quoting George, 833 F.3d at 1251). The Court concludes that plaintiff has alleged sufficient facts to satisfy the enterprise element of liability under Section 1962(c).[2]

         C. Continuity

         Both Section 1962(c) and Section 1962(a) require a showing of a pattern of racketeering activity, consisting of at least two predicate acts. See 18 U.S.C. §§ 1961(5), 1962(a), (c). In order to satisfy this requirement, there must be both a relationship between the predicate acts and some element of continuity. See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989). The Supreme Court has explained the continuity requirement as follows:

“Continuity” is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition. It is, in either case, centrally a temporal concept---and particularly so in the RICO context, where what must be continuous, and the relationship these predicates must bear one to another, are distinct requirements. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct. Often a RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated.

See Id. at 241-42 (citations omitted) (emphasis in original).

         Defendant OSI argues that plaintiff has not pleaded facts (such as a those involving other victims) to support a reasonable inference that there is a threat of future violations by defendants here. In the above excerpt, however, the Supreme Court made clear that the continuity requirement may be satisfied either by showing an open-ended pattern, with the threat of violations continuing into the future, or a closed-ended pattern consisting of repeated conduct in the past of sufficient duration. Plaintiff has alleged predicate acts occurring over a period of several years with respect to his medical treatment. Thus, plaintiff has pleaded sufficient facts to meet this requirement.

         D. Predicate Acts - Mail Fraud and Wire Fraud

         In his complaint, plaintiff asserts four types of predicate violations: mail fraud in violation of 18 U.S.C. § 1341; wire fraud in violation of 18 U.S.C. § 1343; dealing in a controlled substance in violation of 18 U.S.C. § 841 and Kansas statutes; and money laundering in violation of 18 U.S.C. § 1956. See 18 U.S.C. § 1961(1) (defining “racketeering activity” to include particular violations). Plaintiff alleges that defendants committed mail and wire fraud in billing and accepting payments for unnecessary medical treatments relating to his pain management through prescription medications and to his hip surgery. Plaintiff also alleges wire fraud based on false advertising with respect to an article in the Kansas City Business Journal concerning the price of surgery using the BGSS device.

         OSI argues that it cannot have committed mail fraud or wire fraud because it was not involved in the mailing of the bills or the receipt of payments for plaintiff's treatment. OSI further notes that plaintiff has alleged that “defendants” generally committed the predicate acts. In a case cited by OSI, however, the First Circuit noted that predicate acts under RICO may include aiding and abetting the listed offenses, see Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1560 (1st Cir. 1994), and this Court has reached the same conclusion, see Independent Drug Wholesalers Group, Inc. v. Denton, 1993 WL 191393, at *3 (D. Kan. May 13, 1993) (Lungstrum, J.). In addition, a person who “knowingly causes [something] to be delivered by mail” may be guilty of mail fraud, see 18 U.S.C. § 1341, and a person causes the mails to be used if he “does an act with knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended.” See Pereira v. United States, 347 U.S. 1, 8-9 (1954); see also Aetna, 43 F.3d at 1560 (“plaintiff does not need to prove that each defendant personally used the mails but only that the defendant acted ...


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