United States District Court, D. Massachusetts
GOVERNMENT EMPLOYEES INSURANCE COMPANY et al.
ANALGESIC HEALTHCARE, INC. and ROY EDGERTON
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO
Richard G. Stearns UNITED STATES DISTRICT JUDGE
Employees Insurance Company and several subsidiary and sister
auto insurers (collectively GEICO) allege that defendant
Analgesic Healthcare, Inc. (AHI), and its principal, Roy
Edgerton, perpetrated a scheme to bilk GEICO into reimbursing
the purchase of transcutaneous electrical nerve stimulation
(TENS) devices and associated accessories. According to
the Complaint, although TENS devices retail at approximately
$40-$55, AHI typically sought a payment of $795 per unit.
AHI, in turn, kicked back a portion of the hyper-inflated
price to health care providers for prescribing its equipment.
AHI captures orders for durable medical equipment by bribing
and paying kickbacks to health care providers. AHI pays $200
to each doctor, physical therapist, and chiropractor who
prescribes and orders portable pain-reduction equipment for
privately-insured patients. In large-scale facsimile
transmissions, AHI admits that practitioners receive $200 per
“file” that they “identify” for
ordering AHI equipment.
Compl. ¶ 2. In addition, “AHI profits from its
bribes and kickbacks by intentionally engaging in several
deceptive and abusive patterns of conduct, i.e.,
excessively inflating prices for equipment, over-reporting
the quantity of supplies issued to patients, and replenishing
supplies far earlier than necessary.” Id.
¶ 4. GEICO's Complaint sets out eight claims:
Violations of The Racketeer Influenced and Corrupt
Organization Act (RICO), 18 U.S.C. § 1962(c) as to
Edgerton (Count I); Conspiracy to Violate RICO, 18 U.S.C.
§ 1962(d) (Count II); Common Law Fraud (Count III);
Money Had and Received as to AHI (Count IV); Unfair and
Deceptive Trade Practices (Count V); Breach of Fiduciary Duty
(Count VI); Participation in Breach of Fiduciary Duty by
Another (Count VII); and Declaratory Judgment as to AHI
Edgerton move to dismiss the Complaint, asserting, inter
alia, that GEICO has failed to state a viable RICO
claims because the allegations do not meet the specificity
requirement of Fed.R.Civ.P. 9(b), and because AHI owed no
duty to GEICO to disclose its $200 kickbacks to providers.
Defendants also contend that GEICO failed to plausibly allege
an association-in-fact to sustain the enterprise element of
the RICO conspiracy set out in Count II. RICO makes it
“unlawful for any person employed by or associated with
any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate,
directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering
activity or collection of unlawful debt.” 18 U.S.C.
§ 1962(c).The term “enterprise”
“includes any individual, partnership, corporation,
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal
entity.” 18 U.S.C. § 1961(4). Count I of the
Complaint alleges that “AHI constitutes an
‘enterprise.'” Compl. ¶ 284. Count II
does not separately identify an enterprise, but alleges that
“Edgerton and AHI intentionally conspired with each
other, as well as other persons known and unknown to GEICO,
to further facilitate, support, and/or operate an
association-in-fact enterprise.” Compl. ¶ 319.
first argue that, with respect to Count II, AHI cannot both
be an alleged co-conspirator and the “enterprise”
within the meaning of RICO, because “the
‘person' alleged to be engaged in a racketeering
activity (the defendant, that is) must be an entity distinct
from the ‘enterprise;' under § 1962(c) the
enterprise is not liable.” Odishelidze v. Aetna
Life & Cas. Co., 853 F.2d 21, 23 (1st Cir. 1988).
GEICO does not dispute this point of law, but in its briefs,
contends instead that AHI's “referral
network” of healthcare providers is the distinct
association-in-fact of Count II. “[T]he referrers were
separate from and outside AHI itself; the agreements
used by AHI, emphasize that referrers are
‘independent.'” Opp'n. at 11 (emphasis in
from the RICO actor, however, is not the only requirement of
From the terms of RICO, it is apparent that an
association-in-fact enterprise must have at least three
structural features: a purpose, relationships among those
associated with the enterprise, and longevity sufficient to
permit these associates to pursue the enterprise's
purpose. As we succinctly put it in [United States
v.] Turkette, an association-in-fact enterprise
is “a group of persons associated together for a common
purpose of engaging in a course of conduct.” 452 U.S.
[576, ] 583 [(1981)].
Boyle v. United States, 556 U.S. 938, 946 (2009).
GEICO maintains that the network of healthcare providers
exhibit the structural features of Boyle because the
providers “all opted-in  as
‘independent' ‘agent, '
‘contractor, ' or ‘representative' of
AHI, ” Opp'n at 11 (emphasis in original),
“as being familiar with defendants' unsolicited
facsimile advertisements, would have been aware that
defendants' referral network is extensive, ”
id., and “had a common purpose to aid AHI in
obtaining insurance benefits for [durable medical equipment]
prescribed by the network, ” id. at 12.
court agrees with defendants, however, that the allegations
of the Complaint do not support the inference that the
healthcare providers “associated together for a common
purpose.” According to the Complaint, the providers -
including doctors, physical therapists, and chiropractors -
hail from “at least 45 states and a U.S.
territory.” Compl. ¶ 142. While the diverse and
geographically disparate providers are alleged to have
engaged in parallel conduct - that they each prescribed AHI
equipment to a GEICO insured and received kickbacks from AHI
- the Complaint says nothing about how the providers
coordinated or collaborated with each other, or even knew one
another to be participants in the same scheme. See
Boyle, 556 U.S. at 946 (“The concept of
‘associat[ion]' requires both interpersonal
relationships and a common interest.”).
Supreme Court has made clear, allegations that
“individuals, independently and without coordination,
engaged in a pattern of crimes listed as RICO
predicates” fail to make out the existence of an
association-in-fact enterprise. Id. at 947 n.4. In
In re Insurance Brokerage Antitrust Litigation, 618
F.3d 300 (3d Cir. 2010), the Third Circuit dismissed as
inadequate allegations of RICO associations-in-fact where
defendant insurance brokers allegedly funneled particular
clients to particular groups of insurers in a scheme intended
to control prices and improperly curtail competition.
“[A]lthough plaintiffs had adequately alleged bilateral
agreements (regarding the steering of business and the
payment of contingent commissions) between each broker and
its insurer-partners, plaintiffs had failed to plead facts
plausibly suggesting collaboration among the insurers. The
asserted hub-and-spoke structures therefore lacked a
“unifying ‘rim.'” Id. at 374.
Similarly, while GEICO adequately alleges that each provider
accepted AHI's offer of a kickback in exchange for the
prescription of AHI equipment, there is no “unifying
rim” even hinting that that the providers acted
case of In re Lupron Mktg. & Sales Practices
Litig., 295 F.Supp.2d 148 (D. Mass. 2003), this court
rejected a highly analogous theory that physicians who
prescribed an expensive prostate cancer drug constituted a
RICO association-in-fact in an alleged scheme to artificially
inflate drug prices.
“Common purpose” does not mean commonality of
motive, it means coordinated activity in pursuit of a common
objective. See [Libertad v.]
Welch, 53 F.3d [428, ] 443 [(1st Cir. 1995)]
(“[S]imilarity of goals and methods does not suffice to
show that an enterprise exists; what is necessary is evidence
of systematic linkage, such as overlapping leadership,
structural or financial ties, or continuing
coordination.”). Here, as defendants point out, there
are no allegations (and it is difficult to see how there
could be) that the thousands of doctors who benefitted from
discounted purchases or free samples of Lupron® were
associated together in any meaningful sense, or were even
aware of one another's existence as participants in a
scheme to defraud. See Feinstein [v. Resolution Trust
Corp.], 942 F.2d [34, ] 41 n. 7 [(1st Cir. 1991)];
Blue Cross of California v. SmithKline Beecham Clinical
Labs., Inc., 62 F.Supp.2d 544, 553 (D. Conn. 1998).
Without the elements of organization and control, whether
informal or formal, and the existence of an association,
whether legal or factual, any group of persons sharing a
common occupation, e.g., urologists and lawyers, and
a similar motive, e.g., greed, could be held to
constitute a RICO enterprise. This essentially is all that
plaintiffs have alleged.
Id. at 173-174. Because GEICO's Complaint also
alleges a “group of persons sharing a common occupation
. . . and a similar motive, ” but goes no further in
establishing an association among these persons, Count II
does not adequately plead ...