State Farm Mutual Automobile Insurance Company v. Family Practice and Rehab, Inc.

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

ORLANDO DIVISION

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY and STATE

FARM FIRE AND CASUALTY

COMPANY, □

Plaintiffs, □

v. Case No: 6:18-cv-223-Orl-28LRH

FAMILY PRACTICE AND REHAB, INC. =

and GILSON MORTIMER,

Defendants.

ORDER

State Farm Mutual Automobile Insurance Company (“State Farm Mutual”) and State

Farm Fire and Casualty Company (“State Farm Fire”) (collectively “State Farm’) bring the

instant action for fraud, unjust enrichment, and declaratory judgment against □□□□□

Practice and Rehab, Inc. (“Family Practice”) and Gilson Mortimer.’ State Farm now move:

for summary judgment against Gilson Mortimer. (Doc. 36).2 As set forth below, State

Farm’s motion is granted in part and denied in part.

I. Background

Health care clinics operating in Florida are required to be licensed by the Agency

for Health Care Administration (“AHCA”) unless they qualify for an exemption. Fla. Stat

§ 400.991 (2012). A clinic does not lawfully provide services if it does so without obtaining

‘This Court has subject-matter jurisdiction under 28 U.S.C. § 1332(a). (Compl.

Doc. 1, at 1-2).

? Mortimer filed a Response (Doc. 44) to the motion.

required licenses or meeting the standards for an exemption. Section 400.9905(4)(g)

Florida Statutes, provides an exemption for clinics that are “wholly owned by one or mor

licensed health care practitioners . . . if one of the owners who is a licensed health care

practitioner is supervising the business activities and is legally responsible for the entity’:

compliance with all federal and state laws.” A Florida statute pertaining to personal injur

protection (“PIP”) benefits also provides exemptions to licensing requirements for entitie:

“wholly owned” by a physician licensed under chapters 458 or 459, or by a chiropracti

physician licensed under chapter 60. Id. § 627.736(5)(h). “An insurer or insured is no

required to pay a claim or charges . . . for any service or treatment that was not lawful a

the time rendered [or] [t]lo any person who knowingly submits a false or misleadin:

Statement relating to the claim or charges.” Id. § 627.736(b)(1).

Family Practice was incorporated in Florida in March 2012 with Dr. Charle:

Richard—a doctor of osteopathic medicine—as the corporation’s president and Mortimer—

a non-physician—as its vice president.2 (Mortimer Dep. Ex. 2).4 Family Practice operatec

as a chiropractic clinic in Orlando, Florida, until 2015, when it was dissolved. (Mortime

Dep. at 20, 116; Richard Decl. at 3). Family Practice was not licensed by AHCA, insteac

asserting entitlement to an exemption based on Dr. Richard’s purported whole □□□□□□□□□

of the clinic.

State Farm Mutual and State Farm Fire are insurers who routinely pay medica

providers for services rendered to their insureds under PIP policies. While Family Practice

> Fritz A. Nicolas was listed as the secretary, but he has not been implicated in thi:

rae 4 Mortimer’s deposition and corresponding exhibits, as well as the other exhibits tc

State Farm’s motion, are filed as Docs. 36-1 through 36-9. Citations are to deposition page

numbers rather than to page numbers in the electronic record.

was in operation, State Farm Mutual paid $377,846.72 and State Farm Fire paid $6,549.5:

to Family Practice for such services. (Mortimer Dep. at 125). In this lawsuit, State Farn

claims that Mortimer was an owner of Family Practice and that therefore Family Practice

was not exempt from AHCA licensure under Florida law. State Farm thus contends that |

had—and has—no obligation to pay Family Practice, and State Farm seeks to recover the

sums that it did pay. State Farm further asserts that because Mortimer admitted to retainin:

the benefits from State Farm’s payments to Family Practice, State Farm may recover a

payments from Mortimer directly.®

Ul. Summary Judgment Standards

“The court shall grant summary judgment if the movant shows that there is nc

genuine dispute as to any material fact and the movant is entitled to judgment as a matte

of law.” Fed. R. Civ. P. 56(a). The Court must construe the facts and all reasonable

inferences therefrom in the light most favorable to the nonmoving party. Reeves v

Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). However, when faced with <

“properly supported motion for summary judgment, [the nonmoving party] must come

forward with specific factual evidence, presenting more than mere allegations.” Gargiul

v. G.M. Sales, Inc., 131 F.3d 995, 999 (11th Cir. 1997). “[A]t the summary judgment stage

the judge’s function is not himself to weigh the evidence and determine the truth of the

° Family Practice did not respond to State Farm’s Complaint, and the Clerk enterec

a default against Family Practice. (Doc. 16). State Farm then moved for default fina

judgment, (Doc. 24), and the assigned magistrate judge denied the motion withou

prejudice, (Doc. 25), allowing State Farm to refile the motion after the case agains

Mortimer is resolved. State Farm brings the current motion for summary judgment only as

to Mortimer.

matter but to determine whether there is a genuine issue for trial.” Anderson v. Libert

Lobby, Inc., 477 U.S. 242, 249 (1986).

“[J]udges [are not] required to submit a question to a jury merely because □□□□

evidence has been introduced by the party having the burden of proof, unless the □□□□□□□□□

be of such a character that it would warrant the jury in finding a verdict in favor of that part

....[I]n every case, before the evidence is left to the jury, there is a preliminary questior

for the judge, not whether there is literally no evidence, but whether there is any upon whict

a jury could properly proceed to find a verdict for the party producing it, upon whom the

onus of proof is imposed.” Id. at 251 (quoting Improvement Co. v. Munson, 14 Wall. 442

448 (1872)). The inquiry is “whether the evidence presents a sufficient disagreement tc

require submission to the jury or whether it is so one-sided that one party must prevail as

a matter of law.” Id. at 251-52. Summary judgment may be granted if no “reasonable jury

could return a verdict for the nonmoving party.” Id. at 248.

tl. Discussion

A. “Wholly Owned”

State Farm argues that it is entitled to summary judgment on the question o

ownership of the clinic because there is no genuine issue of material fact as to whethe

Family Practice was “wholly owned” by one or more licensed health care practitioners. The

record evidence establishes that State Farm is correct. Mortimer—who claims to have

been the Family Practice office manager—admits that there are no texts, emails

documents, or other forms of records to substantiate any of his assertions of non-

ownership. Mortimer’s evidence against ownership is his own deposition testimony, which

is riddled with contradictory statements and evasive answers. Further, Mortimer’s

deposition directly contradicts his answers to interrogatories on many issues. Even □□□□□□□

Mortimer’s statements and their discrepancies in the light most favorable to him, as the

Court must, there is not evidence of a “sufficient disagreement to require submission to the

jury” on the issue of ownership. Anderson, 477 U.S. at 251-52.

State Farm does not need to show that Mortimer was the sole owner of Famil

Practice in order to prove that the clinic was providing services unlawfully. State Farm onh

needs to show that Mortimer—or another non-physician—was, in reality, a partial owner o

Family Practice such that Dr. Richard—a physician—was not the sole owner. State Farn

has done so.

Section 627.732(17), Florida Statutes, defines “entity wholly owned” to mean ar

entity “in which licensed health care practitioners are the business owners of all aspects o

the business entity, including, but not limited to, being reflected as the business owners or

the title or lease of the physical facility, filing taxes as the business owners, being accoun

holders on the entity's bank account, being listed as the principals on all incorporatior

documents required by this state, and having ultimate authority over all personnel anc

compensation decisions relating to the entity.” Courts have provided additional factors tc

aid in determining whether an entity is “wholly owned” by licensed health care practitioners

including financial factors such as whether a non-physician signed company checks, usec

company checks and debit cards for personal expenses, wrote company checks tc

themselves and family members, withdrew cash from business accounts for personal use

directed payments to other businesses that the individual owned or their businesses

vendors, or had the company pay for a personal vehicle. See State Farm Mut. Auto. Ins

Co. v. First Care Sol., Inc., 232 F. Supp. 3d 1257, 1263-67 (S.D. Fla. 2017); State Farm Mut

Auto Ins. Co. v. Med. Serv. Ctr. of Fla., 103 F. Supp. 3d 1343, 1351-53 (S.D. Fla. 2015).

Other factors that courts have considered relate to incorporation and corporat

control, such as whether a non-physician: made capital investments in the entity, receivec

profits or suffered losses, had the ability to sell or dissolve the business, had authority t

retain and direct the activities of attorneys, hired the company’s accountants, participatec

in the preparation and filing of tax returns, owned equipment in the facility, handled the

winding up of the business and storage of equipment and patient records, or □□□□□□□□

participated in management and control of the business. See State Farm Fire & Cas. Co

v. Silver Star Health & Rehab, 739 F.3d 579, 585 (11th Cir. 2013); First Care, 232 F. Supp

3d at 1263-67; Med. Serv. Ctr., 103 F. Supp. 3d at 1351-53. Additionally, courts have

listed factors more related to the management of daily clinic activities, such as whether <

non-physician: possessed keys and alarm codes for the facility, was responsible for vendo

bills, was involved in day-to-day operational activities, determined amounts billed tc

insurers, controlled payroll, maintained patient records, or dictated office policies anc

decisions pertaining to pricing, advertising, and personnel. See Silver Star, 739 F.3d a

585; Med. Serv. Ctr., 103 F. Supp. 3d at 1351-53: First Care, 232 F. Supp. 3d at 1263-67

1. Financial Control

Perhaps most indicative of Mortimer’s ownership of Family Practice is his use anc

control of the finances of the business. As described in more detail below, Mortimer (1

was a signer on the clinic’s bank account, (2) used company checks and debit cards fo

personal expenses, (3) wrote company checks to himself and family members, (4

withdrew cash for personal use, (5) directed payments to other businesses that he □□□□□

and those businesses’ vendors, and (6) had the company pay for his personal vehicle.

Mortimer claims Family Practice had no bookkeeping system and that he kept n

payroll or other financial records relating to Family Practice’s obligations to him, his wife,

or his other personal businesses. (Mortimer Dep. at 54, 72-79, 92~93). Yet he pai

himself, his wife, and at least four of his other personal businesses large sums of mone’

that he states were for backpay, repayment of his loans to the business, and service

rendered by his other businesses. He does not dispute that he used Family Practice’

bank account to withdraw $62,139.50, spend $113,661.26 in debit card transactions, write

$37,500 in checks to himself and his personal entities, and pay $64,538.48 to his wife. (Id

at 126-29). He even directly paid vendors to whom his personal businesses—unrelate:

to Family Practice—owed money. (Id. at 96—99). On the other hand, Dr. Richard avers he

never signed any checks on behalf of the clinic,’ (Richard Decl. at 2), and Dr. Richard’:

total withdrawals from the clinic's bank account were $15,788.15; total debit car

transactions were $23,912.12; and total check payments were $12,000, including al

payment for services he rendered as a chiropractor at the clinic. (Mortimer Dep. Ex. 39).

There are also $1,235,156.53 in unspecified withdrawals that Mortimer does no

have accountings for; he claims he gave money to Dr. Richard because Dr. Richard wa:

going through a divorce and did not want the funds tracked back to him. (Mortimer Dep. a

6 Mortimer stated in his deposition that his wife did some work for the clinic, but he

said there was no calculation for how he made the payments to her from Family Practice

(Mortimer Dep. at 46-56). He later also stated that some of the payments to her were

actually for undocumented backpay owed to him. (Id.). In 2015, Dr. Richard received les:

W-2 pay from Family Practice than Mortimer’s wife did. (Id. at 48).

’ Mortimer does not refute these assertions made by Dr. Richard in his declaration

127). Oddly, this account of events is first introduced by Mortimer at the very end of his

deposition. (Id.)

Mortimer repeatedly used Family Practice’s bank account to pay for persona

expenses, including the down payment on his Land Rover. (Id. at 94). He used his Famih

Practice debit card to make personal purchases at places like Red Lobster, Advance Autc

Parts, Victoria's Secret, Guess, Publix, Burlington, Armani Exchange, and several hotels

(Id. at 105-10). After reviewing bank records showing charges at Publix and other entities

Mortimer was asked:

Q: And then towards the bottom of the page, there’s a charge on your account fo

Victoria’s Secret; correct?

A: Correct.

Q: And those are all for personal or household transactions; correct?

A: No.

Q: What business purpose did you have for a purchase at Victoria’s Secret on you

business card?

A: None.

(Id. at 106-07). Mortimer later explained:

A: ... Any time | used the card, you know, it’s either | didn’t get paid my full pay

and | used it for my personal use, and Dr. Richard authorized me to use it.

Q: All right. Any documentation to evidence that Dr. Richard authorized you to use

your ATM card for personal, non-business purchases?

A: There is no document besides him adding me on to the account.

(Id. at 108). Even if Mortimer's statements are taken as true regarding Dr. Richard’s

consent and the payments being reimbursement for amounts owed to him, the fact tha

Mortimer had the ability to do these things is overwhelming evidence of his exercise o

control over Family Practice’s finances. Cf. Eckhardt v. United States, 463 F. App’x 852

856-57 (11th Cir. 2012) (discussing similar personal uses of funds as clear evidence o

dominance and control in the context of alter ego liability).

Mortimer’s control is further evident in his use of the Family Practice bank accour

to make wire transfers totaling roughly $59,000 for his personal purchase of a commercie

property. (Mortimer Dep. at 81-84). Mortimer then proceeded to lease the property t

commercial tenants for personal gain. (Id.) He also used the Family Practice bank accoun

to pay a man to do work on his new, personal rental property. (id. at 101-02).

2. Incorporation and Corporate Control

There is also clear evidence of Mortimer’s involvement in the clinic’s incorporatio!

and his exercise of corporate control, including Mortimer's: (1) being listed as the vice

president on incorporation documents; (2) handling many of the clinic startup tasks, suct

as hiring employees and obtaining equipment; (3) filing income tax returns as a busines:

owner, including listing profits and losses attributable to the clinic; (4) handling the

preparation and filing of the clinic’s taxes, as well as using the same accountant to file his

personal and the clinic’s tax returns; (5) handling the winding up of the business afte

dissolution; and (6) maintaining possession of the clinic’s equipment and patient records

well after dissolution.

Mortimer claims that he did not work for Family Practice until January or Februan

2013, but he is listed in the Articles of Incorporation as the vice president in 2012, (Mortime

Dep. at 21, 28-29); assisted with licensing in 2012, (id. at 33); became a signer on the

clinic bank account and began writing and signing checks starting with the first check ir

June 2012, (id. at 36); and is named on the IRS's letter requesting Family Practice’s EIN

dated January 4, 2013, (id. at 112-13). Mortimer also arranged for equipment to be

delivered to the clinic, for computers and furniture to be set up, and for the hiring o

employees. (Id. at 33). Although not named on the lease, Mortimer participated in finding

the clinic location and negotiating the lease. (Id. at 22, 121). Mortimer arranged for an

insurance coverages needed by Family Practice, (id. at 35-36), and although he claim

not to have known he was an officer of the company, (id. at 28-29), he signed at least on

insurance application as an owner/officer in February 2013, (id. at 34~—36; Mortimer Dep

Ex. 7). Thus, although he claims not to have been an owner or employee, he was clear!

thoroughly involved in the clinic at the time of incorporation and setup.

Mortimer asserts that when he was officially hired, his title at Family Practice wa:

“office manager.” However, he has no idea about basic recordkeeping practices. Fo

example, although there is no documentation of it, Mortimer claims that he personally made

loans to the clinic. (Mortimer Dep. at 25-26, 28). These loans, he says, were after the

business was already started, not for start-up costs. (Id.). Mortimer testified that only Dr

Richard contributed money to start the business, but Mortimer has no documentation o

this and is indecisive on how he obtained this knowledge and how the money wa:

contributed:

Q: So going back to the initial capital that was necessary for Family Practice, where

did that money come from, the initial money that you needed to start Family

Practice?

A: | didn’t start Family Practice.

Q: The money that was needed to start Family Practice, where did it come from?

A: Dr. Richard.

Q: All right. How do you know that money came from him individually?

A: Because | know he did it.

Q: You saw the checks?

A: Yes.

Q: You saw the checks that he wrote?

A: | don’t remember exactly, you know, how it - - | don’t remember everything.

(Id. at 23~24, 26-28).

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During the relevant time period, Mortimer claimed income, expenses, and net profit:

and losses from Family Practice on his federal income tax returns as coming □□□□

business that he “materially participated in the operation of’ rather than as W-2 wages. (Id

at 87-92). Dr. Richard, on the other hand, claims he never paid any taxes for Famih

Practice.? (Richard Decl. at 2). Mortimer used the same person to prepare his persona

tax forms and Family Practice’s tax forms, (Mortimer Dep. at 84), and, according to Dr

Richard, Mortimer changed Family Practice’s accountant without Dr. □□□□□□□□□

knowledge.’ (Richard Decl. at 2).

Mortimer also handled the winding up of the business. Although Mortimer claims

that he did not own the equipment, furniture, or computers in the clinic, upon dissolution o

Family Practice he moved everything into storage, where it remained at the time of his

deposition. (Mortimer Dep. at 118). He also still had the patient records in storage at the

time of his deposition. (Id. at 120). After dissolution, he helped another physician whc

worked at Family Practice set up a chiropractic clinic called “Family Wellness” at the same

location with the same employees. (Id. at 117-20). He also continued to approve lingerinc

Family Practice litigation settlements and sign checks—including checks to himself, his

wife, and his other personal businesses. (Id. at 54-55, 64-65).

3. Daily Management

The record evidence also shows that Mortimer participated heavily in the daily

management of Family Practice. Mortimer admittedly (1) ran day-to-day operations; □□

8 Mortimer did not refute these assertions made by Dr. Richard in his declaration.

* Mortimer admits in his deposition that Family Practice changed accountants—

without specifying who made the change, (Mortimer Dep. at 84-85)—and he does not

refute Dr. Richard’s statement in any other way.

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managed personnel matters; (3) handled advertising and other primary office decisions

(4) was responsible for vendor bills; (5) coordinated billing to insurers and payments

received from insurers; and (6) possessed keys and alarm codes for the clinic.

Although Dr. Richard was the president of Family Practice, he only visited the clinic

a few days per month. (Mortimer Dep. at 34; Richard Decl. at 1). Conversely, Mortime

was at the clinic every day and handled the day-to-day operations, including marketing

hiring and scheduling employees, treating patients,'° managing payroll, paying the rent

handling building issues with the landlord, coordinating and paying vendors, arranging fol

equipment to be serviced, maintaining patient records, and obtaining supplies. (Mortime

Dep. at 32-35, 39-43). Mortimer also contracted with a billing company for ar

arrangement whereby he sent the medical records to the company, the company billed the

insurers, and Mortimer deposited the checks from the insurers. (Id. at 112-15). Mortimer

had keys to the office and knew the alarm code, (id. at 32), while Dr. Richard, the supposec

sole owner, did not have a key to the clinic or know the alarm code, (Richard Decl. at □□□□

4. Mortimer Was an Owner of Family Practice

Considering the factors identified by the Florida statute and courts, these

admissions from Mortimer and other evidence indicate that Mortimer was an owner of

Family Practice. Given this overwhelming evidence of ownership and the lack of evidence

to the contrary, no reasonable jury could find that Mortimer was not a partial owner of

Family Practice. See Anderson, 477 U.S. at 249-50 (“If the evidence is merely colorable, or

is not significantly probative, summary judgment may be granted.” (internal citations

omitted)). State Farm has thus established that Family Practice was not exempt from

‘© Mortimer was certified as a chiropractic assistant. (Mortimer Dep. at 11).

‘1 Mortimer did not refute these assertions made by Dr. Richard in his declaration.

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licensure and therefore was not lawfully entitled to payments from State Farm

Accordingly, the Court now turns to State Farm’s claims for fraud, unjust enrichment, anc

declaratory judgment.

B. Claims

1. Fraud

The Court finds that there are genuine issues of material fact as to whether Mortime

committed common law fraud. “The ‘essential elements’ of common law fraud unde

Florida law are: (1) a false statement of fact; (2) known by the person making the statemen

to be false at the time it was made; (3) made for the purpose of inducing another to act ir

reliance thereon; (4) action by the other person in reliance on the correctness of the

statement; and (5) resulting damage to the other person.” State Farm Mut. Auto. Ins. Co

v. Altamonte Springs Diagnostic Imaging, Inc., No. 6:11-cv-1373-Orl-31GJK, 2011 U.S

Dist. LEXIS 146926, at*9 (M.D. Fla. Dec. 21, 2011) (citing Gandy v. Trans World Compute

Tech. Grp., 787 So. 2d 116, 118 (Fla. 2d DCA 2001)). Florida law also provides tha

insurers are not required to pay “any person who knowingly submits a false or misleading

statement relating to the claim or charges.” Fla. Stat. § 627.736(5)(b)1.c. (2012). The

same part of the statute prohibits billing insurers for medical services provided by an □□□□□□

that was not properly licensed to perform the services. Id. § 627.736(5)(d) (2012).

Mortimer coordinated Family Practice’s billing from initially contracting with the

billing company through depositing the insurer checks. The bills were submitted to induce

State Farm to rely on their accuracy and pay for the services—which they did. State Farrr

had no legal obligation to do so and, thus, suffered damages. However, there are genuine

issues of fact as to whether Mortimer knowingly made a false statement of fact. Althougt

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it is clear from the record evidence that Mortimer was a partial owner, State Farm has no

clearly established that he knew he was violating the statute. Accordingly, summar

judgment is not appropriate on State Farm’s claim for common law fraud.

2. Unjust Enrichment

State Farm also argues that it is entitled to recover payments made to Mortimer anc

Family Practice under a theory of unjust enrichment. “[T]o establish the elements of :

cause of action for unjust enrichment, State Farm must show that: (1) plaintiff has conferrec

a benefit on the defendant, who has knowledge thereof; (2) defendant voluntarily accept:

and retains the benefit conferred; and (3) the circumstances are such that it would be

inequitable for the defendant to retain the benefit without paying the value thereof to the

plaintiff.” Med. Serv. Ctr., 103 F. Supp. 3d at 1355.

Charges for services rendered by clinics not properly licensed are “unlawfu

charge[s] and [are] noncompensable and unenforceable.” Fla. Stat. § 400.9935(3); see

Silver Star, 739 F.3d at 583. Courts have recognized a cause of action for unjus

enrichment to allow insurers to recover payments made for these unlawful charges. See

Silver Star, 739 F.3d at 584-86; Med. Serv. Ctr., 103 F. Supp. 3d at 1355. “If [State Farm

showed that the [clinic was] in fact operating in violation of the Clinic Act, then it was entitlec

to recover the amounts it paid to the clinic[]....” Allstate Ins. Co. v. Vizcay, 823 F.3c

1326, 1330 (11th Cir. 2016).

Mortimer admitted that he retained a direct benefit from State Farm’s payments tc

Family Practice. (Mortimer Dep. at 133). These payments were for unlawful charges tha

were “noncompensable and unenforceable.” Therefore, it would be unjust to allov

14

Mortimer to retain these benefits. The Court concludes that State Farm is entitled t

summary judgment on the issue of liability on its claim for unjust enrichment.

3. Declaratory Judgment

Courts have recognized a declaratory cause of action for insurers when there are

pending payments due for services unlawfully rendered. See Silver Star, 739 F.3d at 584

Med. Serv. Ctr., 103 F. Supp. 3d at 1355-56. However, State Farm brought its claim for «

declaratory judgment against only Family Practice; whereas, State Farm is now moving fo

summary judgment against only Mortimer. As such, entry of a declaratory judgment in thi:

Order is not proper.

C. Damages

Although State Farm is entitled to damages, there are genuine issues of materia

fact as to the amount of damages attributable to Mortimer. Although Mortimer admitted tc

directly benefiting from the payments made by State Farm, it is unclear that he should be

held jointly and severally liable for the full value of payments conferred to Family Practice

Thus, the amount of damages to which State Farm is entitled remains an issue for trial.

IV. Conclusion

It is hereby ORDERED that Plaintiffs’ Motion for Summary Judgment (Doc. 36) is

DENIED IN PART and GRANTED IN PART. The motion is DENIED as to Counts | & □

and is GRANTED as to liability on Count II.

DONE and ORDERED in Orlando, ee on Sepfember VE, sor.

_

JOHN ANTOON II

United States District Judge

Copies furnished to:

Counsel of Record

Unrepresented Parties

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