E.D.N.Y.: Medical Providers May Not Seek Contribution or Indemnity for Billing Fraud

On May 13, 2011, in a case of apparent first impression, Judge John Gleeson of the United States District Court for the Eastern District of New York held that medical services defendants may not implead their billing company where the Government, after intervening in a False Claims Act suit, asserts claims for unjust enrichment and payment by mistake.

At issue in U.S. ex rel. Ryan v. Staten Island University Hospital, et al. was the motion of Regency Alliance Services, Inc. (“Regency”) and Physicians Medical Group (“PMG”) to dismiss the Third Party Complaint filed by Dr. Gilbert Lederman, and his professional corporation, Gilbert Lederman, M.D., P.C.  The Government’s underlying Compliant alleged that Dr. Lederman and Lederman P.C. (the Lederman Parties), among others, submitted hundreds of false and fraudulent claims to Medicare for stereotactic radiosurgery treatments that were not legitimately covered by the Medicare program.  Based on this allegedly fraudulent activity, the Government alleged claims under the False Claims Act, as well as the claims for unjust enrichment and payment by mistake. 

The Lederman Parties’ Third Party Complaint alleged that Regency and PMG, who the Lederman Parties claimed served as medical billing and coding experts for Lederman P.C., were liable under theories of both contribution and indemnification for any damages suffered by the Government as a result of the false claims submitted to Medicare.

Judge Gleeson disagreed, and granted Regency’s and PMG’s motions to dismiss.  With respect to the contribution claim, Judge Gleeson conducted an exhaustive review of New York law and concluded that the right of contribution, which is governed by N.Y. CPLR § 1401, does not exist unless the underlying claim sounds in tort law, and where both the third party plaintiff and third party defendant owed a duty to the injured party.  Judge Gleeson reasoned that, because claims for unjust enrichment and payment by mistake are not tort claims, but rather equitable claims that do not require the breach of a preexisting duty, no right of contribution exists.

The Lederman Parties’ claim for indemnification was also dismissed, based on similar reasoning.  Indemnity exists to prevent unjust enrichment through the inequitable allocation of the burden for making a plaintiff whole for a given loss.  Given the equitable nature of the Government’s claims, however, no such burden would be apportioned to Dr. Lederman or to Lederman P.C. without the Court first determining that it was equitable to do so.  Accordingly, the Lederman Parties’ claim for indemnity was wholly redundant of one of their defenses to the Government’s claim.  Stated somewhat differently, if the Lederman Parties were held liable for unjust enrichment or payment by mistake, any subsequent claim for indemnification would necessarily fail, because the Court would have already determined that it was equitable and just to impose the burden for the loss on the Lederman Parties. 

This holding, if followed in other jurisdictions, should benefit relators and the Government by streamlining qui tam cases involving state law equitable and quasi-contract claims such as unjust enrichment, money had and received, and payment by mistake.

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