Government Employees Insurance Company v. VVX, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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GOVERNMENT EMPLOYEES INSURANCE

COMPANY, et al.,

MEMORANDUM & ORDER

Plaintiffs, 19-CV-6048(EK)(RER)

-against-

GRAIG GRANOVSKY, D.C., GRAIG

GRANOVSKY CHIROPRACTIC, P.C., VVX,

INC., and YEFIM KLIKSHTEYN,

Defendants.

------------------------------------x

ERIC KOMITEE, United States District Judge:

The Government Employees Insurance Company brought

this action together with certain related companies

(collectively, “GEICO”). GEICO alleges that it has been the

target of a prolific insurance-fraud scheme carried out by the

defendants. The list of defendants includes VVX, Inc., a

medical device supplier; VVX’s owner, Yefim Klikshteyn; and

certain medical clinics and doctors. GEICO contends that the

defendants have submitted a very large (and growing) number of

bills for durable medical equipment that was medically

unnecessary or that the defendants did not actually provide at

all. GEICO seeks a declaratory judgment establishing, among

other things, that it is not obligated to pay the claims

submitted by the defendants. Compl. ¶ 154, ECF No. 1. In

addition to seeking the declaratory judgment, the complaint

asserts claims for common law fraud and unjust enrichment.1

GEICO moves now for injunctive relief pending the

disposition of this action — specifically, an order (1) staying

“all collection lawsuits pending in the state courts of New York

between any of the Plaintiffs and Defendant VVX seeking No-Fault

insurance benefits” and (2) enjoining VVX and anyone acting on

its behalf from “commencing any lawsuit in the state courts of

New York or arbitration before the American Arbitration

Association against GEICO seeking No-Fault insurance benefits.”

Pl. Proposed Order Granting Inj. 1-2, ECF No. 58-13.2 For the

following reasons, I deny the request to stay the state-court

cases that are currently pending. I grant, however, the request

for an injunction against prospective collection actions by VVX

or Klikshteyn against GEICO, whether in state court or

arbitrations.

I. Background

A. Factual Background

GEICO has submitted substantial evidence in support of

its claim of fraud. Among other things, its outside counsel has

1 The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332

as plaintiffs are citizens of Maryland, Compl. ¶ 7, all defendants are

citizens of New York, id. ¶¶ 8, 11, 25, and the amount in controversy exceeds

$75,000. Id. ¶ 26.

2 All page numbers to record citations refer to ECF pagination.

furnished a sworn declaration marshaling the evidence that has

been adduced so far in discovery. See Decl. of Michael Vanunu

(“Vanunu Decl.”) ¶ 15-24, ECF No. 58-2. That affidavit also

summarizes the landscape of state-court litigation that GEICO is

asking to stay. Id ¶ 10. GEICO also relies on submissions from

a medical expert, Dr. James Dillard, and certified orthotist,

Bradley Smith, who identified various irregularities in the

treatment of GEICO’s insureds. See Decl. of James Dillard

(“Dillard Decl.”), ECF No. 58-4; Decl. of Bradley Smith (“Smith

Decl.”), ECF No. 58-5. GEICO supplements these opinions with

affidavits from two doctors who were previously defendants here;

both now deny having signed certain prescriptions submitted by

VVX that purport to bear their signatures. Aff. of Dr. Yang Zhi

Gang (“Gang Aff.”) ¶¶ 9-12, ECF No. 58-6; Aff. of Dr. Haiyin Hua

(“Hua Aff.”) ¶¶ 9-12, ECF No. 58-7. In addition, GEICO has

submitted a sworn declaration from a Claims Manager named

Kathleen Asmus. She discusses the volume of claims GEICO has

received from the defendants, GEICO’s obligations to promptly

pay or deny those claims under New York’s No-Fault Insurance

Law, and certain alleged difficulties associated with litigating

GEICO’s fraud defenses on a case-by-case basis in state court.

Decl. of Kathleen Asmus (“Asmus Decl.”), ECF No. 58-3. Finally,

GEICO relies on the deposition testimony of defendant

Klikshteyn, who admitted that he often chose what specific DME

to give to insureds based on his own assessment (despite not

being a certified orthotist). See Dep. of Yefim Klikshteyn

(“Klikshteyn Dep.”) 91:23-92:9, ECF No. 58-9. Except where

otherwise noted, the findings of fact contained in this order

are based on this evidence, which (as noted below) the

defendants have not meaningfully contested.

GEICO alleges a wide-ranging scheme conducted by

defendant VVX, a supplier of durable medical equipment, in

concert with several “no-fault” medical clinics and certain

doctors employed at those clinics. Vanunu Decl. ¶ 4. Broadly

speaking, the modus operandi of the scheme allegedly was as

follows:

The doctor- and clinic-defendants prescribed

substantial quantities of DME to insured patients, regardless of

medical necessity. Dillard Decl. ¶¶ 7, 14-15. Dr. Dillard

avers that the clinics and doctors often prescribed the exact

same DME to large swaths of patients. Id. ¶ 7. For example,

Dr. Yang Zhi Gang of Shamrock Medical “virtually always” issued

the same two prescriptions after his initial examination,

regardless of the patient’s specific injuries. Id. ¶ 15. The

first prescription included a cervical collar, lumbosacral

support, and a “general use cushion,” and the second included an

infrared lamp with stand, egg crate mattress, pressure board for

a mattress, cold-water circulating unit, and whirlpool. Id.

GEICO’s evidence demonstrates that in many cases, the

doctors’ signatures on these prescriptions were forged. GEICO

invokes the sworn declarations of Drs. Gang and Haiyin Hua, who

were previously named as defendants but are now cooperating with

GEICO. See Gang Aff. ¶¶ 9-12; Hua Aff. ¶¶ 9-12. They reviewed

a sample of prescriptions purporting to bear their signatures

that were submitted to VVX to fill. The signatures, they

attest, were forged. Both doctors attest further that they made

no medical determination that the items prescribed on those

scripts were actually necessary. Gang Aff. ¶ 12; Hua Aff. ¶ 12.

On still other occasions, VVX submitted claims for

reimbursement to GEICO that misrepresented the type of DME

provided, a tactic commonly referred to as upcoding. Smith

Decl. ¶¶ 7, 15. Specifically, VVX billed under codes applicable

to custom-fitted orthotic devices — devices required to be bent,

molded and trimmed by a professional orthotist to fit a

particular patient — when in fact VVX supplied cheaper medical

equipment and did no professional fitting. See id. ¶¶ 15, 19-

23.

The clinics facilitated this upcoding by issuing

prescriptions with generic language. Id. ¶ 7. One of GEICO’s

medical experts, Bradley Smith, reviewed bills and prescriptions

from 398 different patient claim files. Id. ¶ 9. Smith

concluded that the prescriptions in question “did not provide

sufficient detail to VVX to identify a medically necessary

device.” Id. ¶ 7.

GEICO says it has now received “thousands” of claims

for reimbursement pursuant to this scheme. Vanunu Decl. ¶ 4.

These claims total more than $980,000.00. Asmus Decl. ¶ 8. New

York’s no-fault insurance law, N.Y. Ins. L. §§ 5101-5109, does

not leave GEICO much time to investigate these claims before

reimbursement is required; under the law, insurers are required

to pay or deny the claim within 30 days after receiving “proof

of claim.” N.Y. Ins. L. § 5106(a). As a result, GEICO has

already paid out more than $230,000 to the defendants, which it

now seeks to recover. Vanunu Decl. ¶ 9.

And the defendants have made aggressive efforts to

collect on the claims that GEICO has not yet paid. Ms. Asmus,

GEICO’s claims manager, declares that the defendants ”are

currently prosecuting 160 civil court” collection suits against

GEICO, seeking to collect more than $267,000. Asmus Decl. ¶ 10.

She also declares that VVX has submitted 149 additional bills,

totaling more than $171,000, that are not yet the subject of

litigation or arbitration (but could be in the near future,

absent injunctive relief). Id. ¶¶ 11-12. It is these actions —

pending and potential — that GEICO seeks to stay and prevent in

its application for equitable relief.

Defendants do not dispute any of GEICO’s evidence.

Despite having requested and received two extensions of the

briefing schedule, Defendants submitted only one document in

opposition to GEICO’s motion for a stay: an affidavit from

defense counsel Lloyd Eisenberg. See Decl. of Lloyd Eisenberg

in Resp. to Pl. Mot. to Stay and Enjoin (“Eisenberg Decl.”)

¶¶ 5-6, ECF No. 58-14. That affidavit does not dispute GEICO’s

factual assertions. Instead, Eisenberg avers that Defendants

offered to have their “claims for payment resolved in a single

forum” — namely, this Court. Id. ¶¶ 5-6. Eisenberg labels the

Plaintiffs’ request for injunctive relief “disingenuous” because

Plaintiffs declined that offer. Id.

II. GEICO’S Application to Stay Pending State Cases

In support of its request to stay 160 pending state-

court cases in a single order, GEICO invokes Fed. R. Civ. P. 65,

the Court’s inherent power, and the All Writs Act. Notice of

Mot. to Stay and Enjoin 1, ECF No. 58; Pl. Mem. in Supp. of Mot.

(“Pl. Mem.”) 25, ECF No. 58-1. The All Writs Act authorizes

federal courts to “issue all writs necessary or appropriate in

aid of their respective jurisdictions and agreeable to the

usages and principles of law.” 28 U.S.C. § 1651. The statute

codifies certain inherent powers “traditionally exercisable by

courts in equity.” State Farm Mut. Auto. Ins. Co. v. Parisien,

352 F. Supp. 3d 215, 224 (E.D.N.Y. 2018). These include, among

other things, a federal court’s power to “enjoin actions in

other jurisdictions that would undermine” the court’s “ability

to reach and resolve the merits of the federal suit before it.”

Id.3

This power must be measured against the limitations in

another federal statute, the Anti-Injunction Act (“AIA”), which

restricts federal courts’ authority to enjoin pending state

court proceedings. Since it was last amended in 1948, that law

has provided:

A court of the United States may not grant an

injunction to stay proceedings in a State court except

as expressly authorized by Act of Congress, or where

necessary in aid of its jurisdiction, or to protect or

effectuate its judgments.

28 U.S.C. § 2283. GEICO argues that this case falls within two

of the listed exceptions: that the stay is “necessary in aid of”

my jurisdiction, and that it will serve “to protect or

effectuate” the judgment in this case.4 Pl. Mem. 22.

3 Unless otherwise noted, when quoting judicial decisions this order

accepts all alterations and omits citations and internal quotation marks.

4 GEICO’s brief focuses almost exclusively on the aid-of-jurisdiction

exception, but also mentions the protect-or-effectuate exception in passing.

Pl. Mem. 22-24. The exception for protecting or effectuating judgment

applies after a federal court has issued a judgment. See, e.g., Wyly v.

Weiss, 697 F.3d 131, 139 (2d Cir. 2012) (exception applies when a party

pursues in state court “a claim or issue that previously was presented to and

decided by the federal court”) (emphasis added); see also Chick Kam Choo v.

Exxon Corp., 486 U.S. 140, 140 (1998) (a prerequisite for applying the

relitigation exception is that the issues “actually have been decided by the

federal court”). That is not, of course, the case here.

There is no direct authority in Supreme Court or

Second Circuit cases that would support the application of these

exceptions here. But a growing string of courts in this

district have entered injunctions staying state court cases in

factual circumstances largely indistinguishable from the instant

case. See GEICO v. Tolmasov, 2022 WL 1438602, at *8 (E.D.N.Y.

May 3, 2022); GEICO v. Landow, 2022 WL 939717, at *13 (E.D.N.Y.

Mar. 29, 2022); GEICO v. Wallegood, Inc., No. 21-CV-1986, ECF

No. 36 (E.D.N.Y. July 16, 2021); Parisien, 352 F. Supp. 3d at

224-28; but see State Farm Mut. Auto. Ins. Co. v. Metro Pain

Specialists P.C., No. 21-CV-5523, 2022 WL 1606523, at *8-*13

(E.D.N.Y. May 20, 2022) (declining to enjoin pending state cases

against State Farm in similar factual and procedural posture).

In granting such relief, those cases rely on the “in aid of

jurisdiction” exception to the AIA. See, e.g., Parisien, 352 F.

Supp. 3d at 224; Landow, 2022 WL 939717, at *13. These cases

are comprehensively reasoned (especially Parisien, which began

the line); but I read the applicable Supreme Court and Second

Circuit precedent to place the relief they grant outside the

scope of the AIA’s exceptions.

The Supreme Court has observed that the Anti-

Injunction Act “in part rests on the fundamental constitutional

independence of the States and their courts.” Atl. Coast Line

R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 287 (1970).

Accordingly, the Court has counseled caution in identifying new

applications of the exceptions. Id. at 297 (“Any doubts as to

the propriety of a federal injunction against state court

proceedings should be resolved in favor of permitting the state

courts to proceed in an orderly fashion to finally determine the

controversy.”); id. at 287 (instructing that “the [AIA’s]

exceptions should not be enlarged by loose statutory

construction”).

Applying a prior version of the AIA a hundred years

ago, the Supreme Court limited the necessary-in-aid-of-

jurisdiction exception to in rem, rather than in personam,

actions. Kline v. Burke Constr. Co., 260 U.S. 226 (1922). The

Court reasoned that the effect of filing an in rem action in

federal court “is to draw to the federal court the possession or

control, actual or potential, of the res,” and a state court’s

exercise of jurisdiction “necessarily impairs, and may defeat”

the federal court’s jurisdiction. Id. at 229; see also Wyly v.

Weiss, 697 F.3d 131, 137-38 (2d Cir. 2012). But since Kline,

the Supreme Court “has never held that a district court may

enjoin, as necessary in aid of the district court’s

jurisdiction, a parallel in personam state action.” Ret. Sys.

of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419, 426 (2d Cir.

2004) (citing Vendo Co. v. Lektro–Vend Corp., 433 U.S. 623, 642

(1977) (plurality opinion) (“We have never viewed parallel in

personam actions as interfering with the jurisdiction of either

court . . . .”)).

The Second Circuit appears to have applied the

necessary-in-aid-of-jurisdicton exception to an in personam case

in only one instance. In In re Baldwin–United Corp., 770 F.2d

328 (2d Cir. 1985), the Court of Appeals upheld a district court

injunction against an action brought by the State of New York in

state court. At the time, the federal district court was

presiding over a “consolidated, multi-district, class action”

brought by a class of annuity holders against twenty-six broker

dealers who had sold the annuities. See id. at 331 (district

court was presiding over “the consolidated proceedings of more

than 100 federal securities lawsuits”). By the time the

district judge issued the injunction, he had been presiding over

the action for years; eighteen of the broker-dealer defendants

had signed stipulations of settlement with the plaintiff class;

and the court had given preliminary approval to that settlement

and scheduled a fairness hearing. Id. at 332. In affirming the

district court’s injunction, the Court of Appeals concluded that

the class action proceeding was “so far advanced that it was the

virtual equivalent of a res over which the district judge

required full control.” Id. at 337.

But the Second Circuit has since taken pains to

clarify that Baldwin-United “did not create a blanket rule or

presumption that a federal court in any multidistrict action may

enjoin parallel state proceedings.” Ret. Sys. of Ala., 386 F.3d

at 427. Baldwin-United’s facts were sui generis: the

multidistrict litigation there was truly of “extraordinary

complexity.” United States v. Schurkman, 728 F.3d 129, 137-38

(2d Cir. 2013). And it was “crucial to [the Second Circuit’s]

analysis that most of the defendants had already settled, and

that there was a substantially significant prospect that the

other eight defendants [would] settle in the reasonably near

future.” Ret. Sys. of Ala., 386 F.3d at 428.

Those crucial factors are not present here, and the

factors that GEICO invokes now are simply not sufficiently

analogous (in my view) to merit application of the necessary-in-

aid-of-jurisdiction exception. Unlike the district court in

Baldwin-United, I have not presided over this case for years.

This is not a multidistrict litigation; there is no plaintiff

class; and (most critically) the parties and the Court have not

expended substantial resources crafting a large number of

individual settlements that would be blown up by the state cases

that GEICO seeks to stay. Accordingly, Plaintiff cannot

overcome the AIA’s limitations. See Metro Pain Specialists

P.C., 2022 WL 1606523, at *8-*13; see also, e.g., Hinds Cnty.,

Miss. v. Wachovia Bank N.A., 790 F. Supp. 2d 125, 132 (S.D.N.Y.

2011) (holding that it “would be neither lawful nor appropriate”

to enjoin pending state cases where, unlike in Baldwin-United,

the court had not yet certified a class and there were more than

a dozen defendants not a party to a settlement); In re Visa

Check/Mastermoney Antitrust Litig., No. 96-CV-5238, 2005 WL

2100930, at *4 (E.D.N.Y. Aug. 31, 2005) (declining to enjoin

state case because although the federal action was “no doubt a

large, complex federal class action,” it was not “on the verge

of settling” at the time); Oneida Indian Nation of N.Y. State v.

Cnty. of Oneida, N.Y., 132 F. Supp. 2d 71, 75 (N.D.N.Y. 2000)

(distinguishing Baldwin-United and declining to enjoin a state

court action because “settlement negotiations in this case have

ceased, and there is no foreseeable hope that this land claim

litigation will be resolved through such a process”).

GEICO reasons that it faces an impossible predicament.

It says it will be unable, for one, to present the “full

contours” of Defendants’ fraud in any one state case. Pl. Mem.

24. And, GEICO argues, any judgment issued in the state no-

fault proceedings will be res judicata — in effect, that if it

loses a single collection action in state court, I will be

precluded from granting the declaratory judgment they seek here.

Id. at 23-24. GEICO further argues that it will effectively be

deprived of “a fair opportunity to present its fraud claims” in

state court “as there is no practical method where the [state]

Civil Court could hear all of the claims at issue.” Id. at 24.

Accordingly, GEICO contends, to deny the stay would be to deny

GEICO its day in court.

It is far from clear, however, that the state courts

will be at such a loss to contend with this alleged scheme. For

starters, there is no obvious reason why a state court will be

unable to “fully consider the full contours of a fraudulent

scheme involving patterns of fraudulent behavior” that are “not

readily apparent from the face of any individual bill or

treatment record.” Pl. Mem. 24. New York state courts, like

federal courts, allow the admission of other-bad-acts evidence

when necessary to establish motive, intent, the absence of

mistake or accident, or a common scheme or plan, or among other

things. See Matter of Brandon’s Est., 55 N.Y.2d 206, 210-11

(1982) (explaining that other-acts evidence is admissible to

establish intent and has “often been applied in cases where

fraud is alleged”); Dlugosz v. New York Cent. Mut. Fire Ins.

Co., 518 N.Y.S.2d 237, 238 (App. Div. 1987) (affirming trial

court’s decision, in homeowner’s insurance dispute, to admit

evidence of past filed claims in support of insurer’s

affirmative defense of fraud).

Plaintiffs’ res judicata argument, too, is overblown.

It is true that “a final judgment on the merits of an action

precludes the parties or their privies from relitigating issues

that were or could have been raised in that action.” Monahan v.

New York City Dept. of Corrections, 214 F.3d 275, 284 (2d Cir.

2000). Whether the prior judgment has preclusive effect, in

turn, “depends in part on whether the same transaction [or]

series of transactions is at issue, whether the same evidence is

needed to support both claims, and whether the facts essential

to the second were present in the first.” Id. at 285. But the

existence of one valid claim for payment from GEICO would not

automatically impact all — or even any — other claims under the

doctrine of res judicata. Even on Plaintiff’s recitation of the

facts, the defendants’ scheme did not function identically from

claim to claim. See, e.g., Compl. ¶ 51 (clinic representatives

“often supplied . . . prescriptions that were never actually

signed” by the relevant doctors); ¶ 52 (“In many cases, the

products purportedly dispensed . . . were inexpensive . . . .”)

(emphases added). On these facts, it strains credulity to

assert that one state plaintiff’s victory would seal GEICO’s

fate across the board.5

In addition, GEICO has not eliminated the possibility

that it has other avenues to success in the state courts.

5 Moreover, if GEICO is correct that losing a single state case would

preclude the declaratory relief they seek here, that could turn out to be

well and good (at least in theory). For example, it may be that defendants’

victories in one or more state cases reveal the overbreadth of the

declaration that ”VVX has no right to receive payment on any pending bills

submitted to GEICO.” Compl. ¶ 154 (emphasis added). In that circumstance,

it would be entirely proper if the state cases erode “this Court’s authority

to issue a declaratory judgment and . . . award complete relief as to GEICO’s

claims in this action.” Pl. Mem. 24-25.

Depending on the factual overlap, GEICO could seek to

consolidate two or more of the pending cases under C.P.L.R.

§ 602(a). It may be that consolidation is generally “highly

disfavored” in New York no-fault cases, see Parisien, 352 F.

Supp. 3d at 229 (citing Urban Radiology, P.C. v. GEICO Ins. Co.,

2010 WL 3463018, at *1 (N.Y. Civ. Ct. Kings Cnty. Aug. 23,

2010)). But GEICO argues that this particular series of New

York cases is truly extraordinary, and if that is so, then even

a generally disfavored remedy may be appropriate. Indeed,

Defendants have claimed that they “welcome the opportunity” to

have all the disputed claims resolved in a single court (albeit

a federal court). Eisenberg Decl. ¶¶ 4-6. At a minimum, GEICO

should explain why consolidation is impractical, but it has not

done so persuasively in this case.

There are other potential rejoinders to GEICO’s

argument that it is helpless to stem the tide in state court.

If it is true that all 160 state cases involve the attempt to

collect on fraudulent claims, then the New York courts will be

able to contemplate sanctions against the parties (and, perhaps,

attorneys) bringing them. See 22 N.Y.C.R.R. § 130-1.1. Indeed,

that is the very purpose of sanctions under Section 130-1.1: to

discourage frivolous (let alone fraudulent) litigation. See

e.g., Gordon v. Marrone, 616 N.Y.S.2d 98, 100 (App. Div. 1994)

(observing that sanctions were necessary because “[f]rivolous

claims and abusive litigation practices were causing

unjustifiable burdens on an already overcrowded court system”).

At bottom, the necessary-in-aid-of-jurisdiction

exception applies (by definition) when necessary to protect the

Court’s jurisdiction — not when it is desirable, or even

necessary, to protect a private party’s litigation position.

Given the Supreme Court’s clear directive (and the Second

Circuit’s guidance) that new applications of the necessary-in-

aid-of-jurisdiction exception are to be made sparingly, I

decline to apply the exception here.

III. GEICO’s Application to Enjoin Prospective State

Collection Suits and Arbitrations

GEICO also moves to enjoin future collection actions

and arbitration proceedings that the defendants might file while

this case is pending. The federal-state comity considerations

discussed above are not applicable to Plaintiffs’ motion to

enjoin future efforts at collection. The Anti-Injunction Act

“does not prevent a federal court from restraining a party from

instituting future state proceedings.” Pathways, Inc. v. Dunne,

329 F.3d 108, 114 (2d Cir. 2003); see also GEICO v. Relief Med.,

P.C., 554 F. Supp. 3d 482, 496-97 (E.D.N.Y. 2021) (granting

prospective injunction on similar factual showing).

Federal courts in this Circuit have issued a steady

stream of prospective injunctions against state-court cases and

arbitrations under this standard. See, e.g., GEICO v. Beynin,

No. 19-CV-06118, 2021 WL 1146051, at *10 (E.D.N.Y. Mar. 25,

2021) (enjoining defendants from commencing arbitration

proceedings involving same types of insurance claims at issue

here); GEICO v. Wellmart RX, Inc., 435 F. Supp. 3d 443, 456

(E.D.N.Y. 2020) (enjoining prospective arbitrations and state

court actions); Landow, 2022 WL 939717, at *14 (same);

Wallegood, No. 21-CV-1986, at 21 (same); GEICO v. Big Apple Med

Equipment, Inc., No. 20-CV-5786, ECF No. 52 at 22 (E.D.N.Y. Mar.

25, 2021) (same); Relief Med., P.C., 554 F. Supp. 3d at 506

(same); Parisien, 352 F. Supp. 3d at 235 (same).

The Second Circuit has, like other circuits, framed

alternative tests for a preliminary injunction. Under the

traditional test, a party seeking a preliminary injunction must

demonstrate (1) “a likelihood of success on the merits”; (2) “a

likelihood of irreparable injury in the absence of an

injunction”; (3) “that the balance of hardships tips in the

plaintiff’s favor”; and (4) “that the public interest would not

be disserved by the issuance of an injunction.” Benihana, Inc

v. Benihana of Tokyo, LLC, 784 F.3d 887, 895 (2d Cir. 2015).

The alternative test, referred to as the “serious questions

standard,” requires a lesser showing on the merits — only that

there exists “sufficiently serious questions going to the merits

to make them a fair ground for litigation” — but a higher

showing as to the balance of hardships. Citigroup Glob.

Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598

F.3d 30, 35 (2d Cir. 2010). That balance must tip “decidedly”

toward the party requesting the preliminary relief. Id. The

alternatives allow courts “flexibility in the face of varying

factual scenarios and the greater uncertainties inherent at the

outset of particularly complex litigation.” Id. Whichever test

is applied, Plaintiffs must establish the elements by a

preponderance of the evidence. AFA Dispensing Grp. B.V. v.

Anheuser-Busch, Inc., 740 F. Supp. 2d 465, 471 (S.D.N.Y. 2010).6

For the reasons set out below, I conclude that GEICO

has demonstrated (1) that it will suffer irreparable harm absent

injunctive relief, (2) the existence of a “serious question”

going to the merits, (3) that the balance of hardships tips

decidedly in its favor and (4) that the injunction is in the

public interest.

A. Irreparable Harm

Irreparable harm is “a continuing harm which cannot be

adequately redressed by final relief on the merits and for which

money damages cannot provide adequate compensation.” Kamerling

v. Massanari, 295 F.3d 206, 214 (2d Cir. 2002). A number of

6 Though Defendants do not make this argument, the Court also notes the

Federal Arbitration Act is no bar to the Court enjoining Defendants’ from

initiating no-fault arbitration proceedings. See Beynin, 2021 WL 1146051, at

*8-*9 (collecting cases).

judges in this district have concluded that a large number of

potentially fraudulent collection suits faced by a plaintiff in

this context would cause a plaintiff irreparable harm absent

temporary relief. See, e.g., Landow, 2022 WL 939717, at *5;

Wallegood, No. 21-CV-1986 at 9-10; Big Apple Med Equipment,

No. 20-CV-5786 at 9-10.

As of January 25, 2022, Defendants had submitted 149

claims that remained unpaid and were not yet the subject of

litigation or arbitration. Asmus Decl. ¶¶ 10-11. GEICO has

shown by a preponderance that it would suffer irreparable harm

if Defendants were allowed to bring additional suits during the

pendency of this case because the outcome of those actions could

be inconsistent with one another and, perhaps, the ruling in

this case. See, e.g., Landow, 2022 WL 939717, at *12;

Wallegood, No. 21-CV-1986 at 9-10. The court put it well in

Allstate Ins. Co. v. Elzanaty, describing the:

concern here with wasting time and resources in an

arbitration with awards that might eventually be, at

best, inconsistent with this Court's ruling, and at

worst, essentially ineffective. The Court need not

address now the precise effect of an inconsistent

declaratory judgment from this Court on certain

arbitration awards. It is sufficient to recognize the

large realm of potential problems this may cause on

the validity of those awards, especially in light of

their multitude and internal inconsistency with each

other. Thus, the Court agrees that allowing a large

number of proceedings to be heard by a mix of

arbitrators, each of whom will likely come to their

own independent and potentially contradictory

conclusions, will result in harm to Allstate from

which it cannot recover.

929 F. Supp. 2d 199, 222 (E.D.N.Y. 2013). This constitutes

irreparable harm for purposes of Rule 65 even if it is not

sufficient to overcome the limitations of the Anti-Injunction

Act, as discussed above. See Wellmart RX, Inc., 435 F. Supp. 3d

at 449-50 (noting that courts in the Second Circuit have

“reiterated time and again” that this type of harm is

irreparable, and collecting cases).

This risk of inconsistent judgments is in addition to

the expenditure of time, effort and money that will be required

on GEICO’s part absent relief. The morass of litigation that

the company faces would hijack the resources of even a large

entity’s legal department. Adequately addressing these suits

will require a massive effort at coordination. It is hard

enough to fight a two-front war; a 149-front one is another

story entirely. This harm would not be cured by money damages.

Important, too, is that VVX has few assets that GEICO

could reach if it is ultimately successful. GEICO’s evidence

suggests that VVX is not currently in operation. Its

investigator, John Cataldi, visited VVX’s business address in

Brooklyn in January 2022. Declaration of John Cataldi, ¶¶ 5-7,

ECF No. 58-12. He saw no signs of VVX’s presence, and an

individual who emerged from the commercial space said that he

worked for a transportation business. Id. ¶¶ 7-8. Nor,

according to GEICO’s assert search, does VVX have any personal

or real property. Asmus Decl. ¶ 13. GEICO alleges, further,

that VVX’s most significant assets are its accounts receivable,

which are themselves the subject of state collection actions,

arbitration proceedings and the instant action. See id. ¶¶ 9,

13; Pl. Mem. 14. If GEICO is right that VVX’s receivables are

predicated on fraudulent claims, then those assets will be

worthless.

“The unlikelihood that defendants . . . would, in any

event, be able to satisfy a sustain damage award further

supports a finding of irreparable harm.” WPIX, Inc. v. ivi,

Inc., 691 F.3d 275, 286 (2d Cir. 2012); see also Landow, 2022 WL

939717, at *12; Wallegood, No. 21-CV-1986 at 10. And taken

together, the combined risks of inconsistent judgments, the

complexity of dealing with a continuing avalanche of suits, and

VVX’s likely inability to pay damages easily satisfy the

irreparable harm requirement.

B. Serious Question Going to the Merits

“The ‘serious questions’ standard permits a district

court to grant a preliminary injunction in situations where it

cannot determine with certainty that the moving party is more

likely than not to prevail on the merits of the underlying

claims, but where the costs outweigh the benefits of not

granting the injunction.” Citigroup Glob. Markets, Inc., 598

F.3d at 35. “District courts in the Second Circuit have

generally found that likelihood of success is not the focus at

the early stages of a case involving an alleged scheme to

defraud an insurer of assigned no-fault benefits because any

likelihood of success inquiry would be premature.” Relief Med.,

P.C., 554 F. Supp. 3d at 498 (citing cases). The serious-

questions standard is appropriate here for these reasons.7

GEICO seeks a declaration that “VVX has no right to

receive payment on any pending bills” submitted to GEICO because

the bills are the product of fraud and misrepresentation. See

Compl. ¶¶ 153-54 (setting out the declaratory relief GEICO

seeks). The Declaratory Judgment Act authorizes a federal court

to “declare the rights and other legal relations of any

interested party seeking such declaration, whether or not

further relief is or could be sought.” 28 U.S.C. § 2201(a).

Declaratory judgment actions are ripe for adjudication when

“there is a substantial controversy, between parties having

7 Indeed, GEICO has established a strong likelihood that it will be able

to prove the various defendants’ participation in a massive scheme to

defraud, based on the facts discussed above and below. See generally Compl.

¶¶ 155-161 and 168-176 (asserting fraud claims in Counts Two and Four). The

“serious question” standard is more appropriate than the “likelihood of

success on the merits” standard, however, because of the complexities

associated with the Plaintiffs’ sweeping requests for declaratory relief.

See, e.g., Compl. ¶ 154(i) (requesting a declaration that “VVX has no right

to receive payment on any pending bills submitted to GEICO because it

knowingly made false and fraudulent misrepresentations to GEICO . . .”).

adverse legal interests, of sufficient immediacy, and reality to

warrant the issuance of a declaratory judgment.” Duane Reade,

Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d 384, 388 (2d

Cir. 2005). In deciding “whether to entertain an action for

declaratory judgment, [the Second Circuit has] instructed

district courts to ask: (1) whether the judgment will serve a

useful purpose in clarifying or settling the legal issues

involved; and (2) whether a judgment would finalize the

controversy and offer relief from uncertainty.” Id. at 389.

GEICO’s request for declaratory relief will meet that mark

because whether Defendants are entitled to payment under New

York’s insurance law is a substantial controversy between the

parties — one that this Court can resolve by testing GEICO’s

substantial evidence of fraud at trial.

And GEICO has adduced sufficient evidence at this

point to establish at least a serious question going to the

merits of that claim. The evidence adduced so far tends

overwhelmingly to demonstrate that (1) the DME billed to GEICO

was not medically necessary and that (2) Defendants fraudulently

billed GEICO for durable medical equipment they never provided

to beneficiaries (they instead provided cheaper items and

pocketed the difference). New York provides a defense to

insurers in collection proceedings if they can show that the

items provided were not medically necessary. See Long Island

Radiology v. Allstate Ins. Co., 830 N.Y.S.2d 192, 194 (App. Div.

2007) (discussing the “defense of lack of medical necessity”).

New York’s no-fault insurance law provides for reimbursements of

“all necessary expenses.” Id. The insurer has the burden of

proving lack of medical necessity, and may do so by “presenting

proof in evidentiary form establishing a factual basis and

medical rationale for concluding the treatment and testing was

not medically necessary.” Boulevard Multispec Med., P.C. v.

Tri-State Consumer Ins. Co., 982 N.Y.S.2d 864, 866 (Dist. Ct.

2014); see also Sunshine Imaging Ass’n/WNY MRI v. Gov’t Emp.

Ins. Co., 885 N.Y.S.2d, 557, 558-59 (App. Div. 2009) (observing

that “defendant raised a triable issue of fact by submitting its

denial of claim forms setting forth that the services for which

plaintiff sought to recover no-fault benefit were not medically

necessary”).

On a related note, New York state also allows insurers

to demonstrate fraud as a basis for denying payment. E.g.,

Parisien, 352 F. Supp. 3d at 221-22; see also Presbyterian Hosp.

in the City of New York v. Maryland Cas. Co., 90 N.Y.2d 274, 285

(1997) (explaining that New York’s “no-fault reform still allows

carriers to contest ill-founded, illegitimate and fraudulent

claims”). This defense has five elements: “(1) a material

misrepresentation or omission of fact (2) made by defendant with

knowledge of its falsity (3) and intent to defraud; (4)

reasonable reliance on the part of the plaintiff; and (5)

resulting damages to the plaintiff.” Crigger v. Fahnestock and

Co., Inc., 443 F.3d 230, 234 (2d Cir. 2006).

GEICO has produced evidence that raises serious

questions going to the merits of these questions (which in turn

underpin its request for declaratory relief). Among other

things, GEICO has submitted the affidavits from Drs. Gang and

Hua attesting that prescriptions issued in their names were

forged. See Gang Aff. ¶¶ 9-12; Hua Aff. ¶¶ 9-12. Dr. Gang goes

on to declare, for instance, that “the DME was prescribed

without my knowledge or consent, and without me first

determining whether such DME was medically necessary.” Gang

Aff. ¶ 10.

Dr. Hua speaks of similar conduct. He, too, reviewed

a sample set of claims submitted to GEICO that included

prescriptions bearing his signature. Hua Aff. ¶¶ 9-10. He

“noticed that [his] signature was photocopied and used to

prescribe DME without [his] knowledge or consent” and also that

some prescriptions bore dates on which he was not present at his

medical office. Id. Both Gang and Hua declare that, despite

defendant Klikshteyn’s deposition testimony that he spoke with

them and that they approved DME items he showed them, they “do

not know” him and have “never had a conversation with Klikshteyn

about DME or anything else.” Hua Aff. ¶ 21; Gang Aff. ¶ 14.

In addition, GEICO provides the expert report and

declaration of Dr. James Dillard. He reviewed, among other

things, bills from VVX to GEICO, the prescriptions underlying

those bills, copies of treatment and billing records, and

photographs of DME produced for inspection by VVX. See Dillard

Decl. ¶ 4. Dr. Dillard explains that these files cannot

demonstrate medical necessity, as ”virtually all of the

patients” were given “extremely similar treatment plans

regardless of their individual complaints, symptoms, or

presentations.” Id. ¶ 9. These patients were provided “nearly

identical prescriptions.” Id. Dr. Dillard describes this

pattern with particularity as to each doctor. See id. ¶ 15. By

way of example, defendant Dr. Granovsky “virtually always issued

a prescription” for an orthopedic pillow, back cushion, cervical

collar, EMS Unit, and lumbosacral support after “an initial

examination.” Id. Dr. Dillard concludes, and his analysis

demonstrates persuasively, that the DME that Defendants provided

was not medically necessary.

GEICO also identifies a serious question going to the

merits in its claim that Defendants deliberately misrepresented

the items provided to beneficiaries. To that end, GEICO points

to the report and declaration of certified orthotist Bradley

Smith, who compares the billing codes that Defendants used to

the items actually delivered. See Smith Decl. ¶ 7. Smith’s

comparison shows that Defendants billed GEICO using codes for

substantially more expensive items than those actually provided.

See id. ¶¶ 15-23. For example, VVX billed GEICO using a billing

code for a back cushion at the cost of $382.02, when it actually

provided a cushion that, in Smith’s view, should have been

reimbursable under a different code at a maximum rate of $22.04.

Id. ¶ 18.

Klikshteyn’s deposition testimony further supports

GEICO’s position. Klikshteyn acknowledged that, in certain

circumstances, he selected the DME to supply in response to the

vague prescriptions at issue. Klikshteyn Dep. 99:13-100:05. He

also acknowledged that he is not certified by the American Board

of Certification in Orthotics and Prosthetics or the Board for

Orthotist and Prosthetist Certification. See id. 25:10-25

(Klikshteyn explaining that he has no certification or training

in orthotics and prosthetics other than a single certification

from a DME manufacturer instructing him on how to use their

equipment).8 In response to repeated inquiries about why he

chose the specific equipment he did, Klikshteyn could say only

that he thought it was the “best” product for the patient.

8 GEICO’s orthotist explains that VVX should only have used billing

codes for custom-fit DME if such fitting and modification were “performed by

a practitioner with expertise, which by definition, is a practitioner

certified by the” boards that Klikshteyn admitted had not certified him.

Smith Decl. ¶ 21-22.

Klikshteyn Dep. 91:23-92:9, 97:14-19, 99:13-100:05; see also

Smith Decl. ¶¶ 10-13.

This evidence supports GEICO’s defense of lack of

medical necessity. For example, whenever VVX received

prescriptions for “lumbar-sacral support,” Klikshteyn provided

one specific type of lumbar-sacral support. Smith Decl. ¶ 12.

But on Smith’s expert review, the vague prescriptions at issue

could apply to eighteen different types of DME, with each one

having their own billing code and reimbursement rate. Id. As

noted, Defendants do not dispute any of these specific factual

contentions.

At bottom, the contrast between the evidence produced

by GEICO and Defendants’ lack of evidence resolves the inquiry

at this stage. GEICO has raised serious questions going to the

merits of its claim for declaratory judgment. See, e.g.,

Landow, 2022 WL 939717, at *12; Wallegood, No. 21-CV-1986 at 11-

13; Big Apple Med Equipment, Inc., No. 20-CV-5786 at 14-17;

Beynin, 2021 WL 1146051, at *6-*7; Parisien, 352 F. Supp. 3d at

234.

C. Balance of Hardships

The balance of hardships tips decidedly in GEICO’s

favor. Were new actions and arbitration proceedings not

enjoined, Plaintiffs would, for the reasons stated above, suffer

irreparable harm. See also Parisien, 352 F. Supp. 3d at 234

(explaining that in these types of cases, “the irreparable harm

factors . . . tip the equities squarely” in Plaintiffs’ favor);

Landow, 2022 WL 939717, at *12 (same). From Defendants’

perspective, the only harm the Court can anticipate (since

Defendants do not raise any hardships in their papers) is the

risk of delay during these proceedings. See Beynin, 2021 WL

1146051, at *8 (concluding that, if stay was granted, a

defendant’s hardship was only that recovery would “at worst, be

delayed”). This delay is limited by the fact that a trial in

this case is currently scheduled for February 13, 2023. Docket

Order of February 11, 2022. In any event, both parties may

benefit from future disputes being subjected to declaratory

relief. See, e.g., Wallegood, No. 21-CV-1986 at 14 (explaining

that “granting the stay and injunction will actually save all

parties time and resources”).9

9 The Court does not take lightly the decision to prohibit Defendants’

access to the forum of their choosing, at least for the duration of the

preliminary injunction. In the context of permanent filing injunctions (as

opposed to the preliminary relief granted here), courts must consider the

litigant’s “history of litigation” and “motive” as well as whether the

litigant is “represented by counsel,” “has caused needless expense to other

parties or has posed an unnecessary burden on the courts and their

personnel,” and “whether other sanctions would be adequate.” Eliahu v.

Jewish Agency for Israel, 919 F.3d 709, 714 (2d Cir. 2019). Under any

standard, however, this relief is appropriate here, given GEICO’s compelling

showing that it is currently the target of a massive and concerted fraud

scheme.

D. Public Interest

Finally, the Court must consider the public interest.

Here, the public interest in an injunction against the filing of

additional collection actions is clear. The public has an

interest in the efficient use of limited judicial resources.

The public interest is, of course, disserved by the court system

(state or federal) being deluged by a massive, broadly

distributed set of potentially fraudulent allegations, which for

obvious reasons would slow the pace of other cases. Granting

injunctive relief will stop Defendants from filing further

collection actions and arbitration proceedings that may be

resolved through this Court’s adjudication of the declaratory

judgment claim. More broadly, an efficient resolution of

serious healthcare fraud claims is in the public interest too.

See Relief Med., P.C., 554 F. Supp. 3d at 504-05 (concluding

that “there [wa]s no indication of public harm as a result of a

stay” granted in similar circumstances).

E. Security

Plaintiffs also ask the Court to use its discretion to

waive the security requirement of Fed. R. Civ. P. 65(c). Rule

65(c) provides that “the court may issue a preliminary

injunction or a temporary restraining order only if the movant

gives security in an amount that the court considers proper to

pay the costs and damages sustained by any party found to have

been wrongfully enjoined or restrained.” Courts in this

district have repeatedly concluded that claims of fraud

pertaining to New York’s no-fault insurance laws, and fraud

against the healthcare system generally, implicate the

“enforcement of public interests,” an exception to Rule 65(c)’s

requirement of security. See Wallegood, No. 21-CV-01986, at 19-

20; Landow, 2022 WL 949717, at *14. Defendants have not

demonstrated that they will be prejudiced by the entry of a

preliminary injunction such that security is necessary. The

Court therefore waives Rule 65(c)’s security requirement.

IV. Conclusion

For the reasons stated above, GEICO’s motion is

granted in part and denied in part. GEICO’s request to stay

pending state civil court proceedings against GEICO by VVX is

denied. GEICO’s request to enjoin Defendants prospectively is

granted: VVX, Klikshteyn and anyone acting on their behalf are

enjoined from filing any new collection actions against GEICO

seeking no-fault insurance benefits, whether in state court or

in arbitration proceedings before the American Arbitration

Association, pending resolution of this declaratory judgment

action, absent further order of this Court. Plaintiffs’

obligation to post security is waived.

SO ORDERED.

/s/ Eric Komitee

ERIC KOMITEE

United States District Judge

Dated: June 02, 2022

Brooklyn, New York