Insurance fraud - whether in the auto, workers' compensation, or health insurance arenas - is an enormous and costly national problem. It hurts policyholders who have to pay increased premiums to offset the cost of fraud, patients who are subjected to fraudulent treatment designed to take advantage of insurance benefits rather than to treat their conditions, the general public whose trust in the country's insurance systems is eroded, and payors who are defrauded into paying claims they do not owe. Prevention of insurance fraud is plainly in the public's interest, and California has taken a unique step to combat it.
Specifically, as part of its multi-pronged effort to fight insurance fraud, the California Legislature enacted a unique and powerful statute, the California Insurance Frauds Prevention Act ("IFPA"), Cal. Ins. Code §§ 1871.7 et seq., which allows "any interested persons, including an insurer" to act as a whistleblower and file a false claims lawsuit based on the presentation of false or fraudulent claims to insurance companies, rather than to the government.1 (Emphasis added.) This article focuses on a critical but underused aspect of the IFPA - the ability of an insurer-whistleblower to take discovery on, litigate and obtain monetary relief for fraudulent claims submitted to all insurers, not just the whistleblower itself. Importantly, however, under the IFPA's first-to-file rule, only one insurer can bring an IFPA action against a defendant based on a single set of underlying facts. These aspects of the IFPA have been examined in several recent IFPA opinions addressing the scope discoverable claims, the first-to-file rule, and a defendant's unsuccessful attempt to consolidate IFPA actions brought by two different insurer-whistleblowers. The key lesson from these rulings is that an insurer must act expeditiously when preparing to file an IFPA action against a health care provider who was engaged in fraud, or another insurer victimized by the same scheme may get to the courthouse steps first.
For background, this article first describes the IFPA's
legislative purpose of encouraging insurers to bring actions under
the statute, as well as key IFPA provisions which underscore its
purpose. Second, the article explains why an
insurer-whistleblower has standing to litigate fraudulent claims
presented to other insurers under the IFPA, namely because
whistleblowers bring IFPA actions on behalf of the People of the
State of California, rather than in their own right, to recover
statutory penalties and treble assessments, as opposed to
damages. Third, this article examines the power of IFPA
whistleblowers to obtain discovery on claims beyond those
specifically alleged in the complaint. Fourth, the article
discusses the IFPA's first-to-file rule which, consistent with
the ability to litigate all fraudulent claims submitted to any
insurer in a single suit, bars successive whistleblowers from
bringing actions based on the same underlying facts as a
first-filed action. The article concludes by emphasizing
important considerations for insurers who have been defrauded as
they consider filing IFPA actions.
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II. IFPA WAS DESIGNED TO ENCOURAGE INSURANCE FRAUD INVESTIGATIONS AND LITIGATION
In enacting the IFPA, California's Legislature recognized that "[t]he business of insurance involves many transactions that have the potential for abuse and illegal activities." Cal. Ins. Code § 1871(a). Specifically, the Legislature found that "fraudulent activities account for 15 to 20 percent of all auto insurance payments," and thus, "[p]revention of automobile insurance fraud will significantly reduce the incidence of severity and automobile insurance claim payments and will therefore produce a commensurate reduction in automobile insurance premiums Id. §§ 1871(b)-(c). Likewise, the Legislature explained that "[w]orkers' compensation fraud harms employers by contributing to the increasingly high cost of workers' compensation insurance and self-insurance and harms employees by undermining the perceived legitimacy of all workers' compensation claims," and accordingly, "[p]revention of workers' compensation insurance fraud may . . . reduc[e] . . . workers' compensation costs" and "will assist in restoring confidence and faith in the workers' compensation system, and will facilitate expedient and full compensation for employees injured at the workplace." Id. §§ 1871(d)-(e). In addition, the Legislature noted that "[h]ealth insurance fraud is a particular problem for health insurance policyholders [and] causes losses in premium dollars and increases health care costs unnecessarily." Id. at § 1871(h).
"It is in the government's interest to have insurers investigate and prosecute [insurance fraud] proceedings. The government serves to gain both in terms of fraud prevention and financially from such actions, especially given limited investigative and prosecutorial resources available to it." People ex rel. Strathmann v. Acacia Research Corp., 210 Cal. App. 4th 487, 504 (2012). Accordingly, the California Legislature enacted the IFPA "to encourage insurers to bring fraud actions." See People ex rel. GEICO v. Cruz, 244 Cal. App. 4th 1184, 1192 (2015). "The clear import of the legislation is to reduce fraud against insurers in order to benefit policyholders." State of Cal. ex rel Nee v. Unumprovident Corp., 140 Cal. App. 4th 442 (2006).
Consistent with its express purpose of reducing insurance fraud, the California Legislature drafted the IFPA as a powerful remedy, modeled after the federal False Claims Act ("FCA"), which expressly permits insurers to sue based on the presentation of fraudulent claims to private payors. Specifically, the IFPA imposes liability on any person who causes a fraudulent claim or writing to be presented to an insurer, and allows "[a]ny interested persons, including an insurer, [to] bring a civil action for a violation of [the IFPA] for the person and for the State of California," which "shall be brought in the name of the state." Cal. Ins. Code § 1871.7(e)(1) (emphasis added).
The IFPA includes provisions favorable to insurer-whistleblowers who, under the statute, do not have to prove they relied on or were damaged by the fraudulent claims. Instead, for each false or fraudulent claim presented to an insurer, regardless of whether it was relied upon or paid, the IFPA imposes a "civil penalty of not less than . . . $5,000 nor more than . . . $10,000, plus an assessment of not more than three times the amount of each claim." Cal. Ins. Code § 1871.7(b). Under the IFPA, a whistleblower stands to collect 30% to 50% of the proceeds of the action or settlement, depending on whether the government intervenes, plus reasonable attorney's fees and costs. Cal. Ins. Code §§ 1871.7(g)(1)-(2).
And, as described next, a defining feature of the IFPA is that claims which may be litigated "are not limited only to those claims filed with [the whistleblower insurer] itself, since in a qui tam action under Insurance Code § 1871.7 the State of California is the real party in interest." See People ex rel. State Farm Mut. Auto. Ins. Co. v. Aghaei, 2019 WL 6872065 at *3 (Cal. Super., Dec. 4, 2019). In other words, insurer-whistleblowers are entitled to discovery on fraudulent claims presented to any insurer. And, ultimately, defendants can be found liable for statutory penalties of $5,000 to $10,000 per fraudulent claim and up to three times the amount of each fraudulent claim for claims presented to both the whistleblower and all other insurers. As a result, the potential recovery for insurer-whistleblowers, as well as the potential exposure for defendants, is substantially increased.
Interestingly, until recently, IFPA case law addressing the
ability of insurer-whistleblowers to take discovery on claims
submitted to other insurers, let alone recover monetary relief for
those claims, has been scarce. Within the last couple
of years, however, insurers have brought these issues to the
forefront, and in doing so, have underscored the importance and
benefits of being the first insurer to file an IFPA action.
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III. ACTION BROUGHT ON BEHALF OF PEOPLE OF STATE OF CALIFORNIA
As a preliminary matter, to understand why an insurer-whistleblower is permitted to litigate claims presented to other insurers, it is critical to recognize that, under the IFPA, whistleblowers file actions on behalf of the state, not in their own right. Indeed, as referenced above, the IFPA expressly allows "[a]ny interested persons, including an insurer, [to] bring a civil action" which "shall be brought in the name of the state." Cal. Ins. Code § 1871.7(e)(1) (emphasis added). Thus, an IFPA whistleblower "stands in the shoes of the People of the State of California, who are deemed to be the real party in interest." Strathmann, 210 Cal. App. 4th at 492. The whistleblower is a "private attorney general." Id.
Under the IFPA, a whistleblower - even an insurer who may have been defrauded into paying claims it puts at issue in the action - does not sue to recover its own damages. See Strathmann, 210 Cal. App. 4th at 502 ("The relator in a qui tam action under section 1871.7 does not personally recover damages . . . ."). Rather, the IFPA permits a whistleblower to bring an action on behalf of the People of the State of California for penalties, assessments, and injunctive relief. See Cal. Ins. Code § 1871.7(b), (e)(1). In other words, the IFPA "allows a private person to sue for a penalty, part of which the government . . . will receive." People ex rel. Allstate Ins. Co. v. Weitzman, 107 Cal. App. 4th 534, 538 (2003). In turn, "if successful, [the whistleblower] receives a substantial percentage of the recovery as a bounty." Strathmann, 210 Cal. App. 4th at 502 (emphasis added) (citing Cal. Ins. Code § 1871.7(g)). Pursuant to the IFPA, statutory penalties are imposed based on the number of fraudulent claims presented to any insurer, and are not limited to claims presented to the whistleblower who filed suit. See Cal. Ins. Code §§ 1871.7(b), (e)(1).
Based on the fundamental premise that a whistleblower does not
bring an IFPA action to seek recovery of its own damages, claims at
issue in IFPA litigation are not limited to those presented to the
whistleblower. This concept is discussed next.
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IV. CLAIMS PRESENTED TO OTHER INSURERS
A. Three Recent California Decisions Allow Discovery Of Claims Submitted To Insurers Other Than Whistleblower Insurer Who Filed Lawsuit Because Claims At Issue Are Not Limited To Those Presented To Whistleblower, But Include All Claims Which Fit Same Fact Pattern, Presented To Any Insurer.
Prior to January 2019, it does not appear that California courts had addressed whether, in an IFPA action, an insurer-whistleblower could take discovery on potentially false or fraudulent claims submitted to other insurers. On January 1, 2019, however, the Los Angeles Superior Court granted a motion to compel filed by whistleblower State Farm, holding in an IFPA action, an insurer whistleblower is permitted to take discovery regarding insurance claims presented to other insurers. People ex rel. State Farm Mut. Auto. Ins. Co. v. United Med. Imaging, Inc. ("UMI"), 2019 WL 188917, at *3 (Cal. Super. Ct. Jan. 1, 2019) (J. Linfield). In doing so the court explained that in IFPA actions, "discovery  goes beyond the claims of the actual plaintiff, because the government, as the real party in interest, would have broader rights if it had brought an enforcement action." Moreover, "the information . . . sought . . . may be admissible to prove Defendants' pattern and practice or knowledge of making false claims." UMI, 2019 WL 188917, at *3.
Eleven months later, on December 4, 2019, in People ex rel. State Farm Mut. Auto. Ins. Co. v. Aghaei, the Los Angeles Superior Court granted another motion to compel the production of documents relating to fraudulent claims the defendant providers presented to insurers other than State Farm, the whistleblower. Aghaei, 2019 WL 6872065 at *3. Specifically, the Court explained, "[a]s to the request for patient information for those who submitted claims to insurers other than State Farm, State Farm persuasively argues that its qui tam claims are not limited only to those claims filed with itself, since in a qui tam action under Insurance Code § 1871.7 the State of California is the real party in interest." Id. (citing Strathmann, 210 Cal. App. 4th at 491-92). Accordingly, the Court unequivocally held, "State Farm's claims are . . . not limited to its own injury." Id. The Court also rejected defendant providers' argument that "patients who submitted claims with other insurers have not waived the right to privacy in their medical records as to State Farm." Id. In particular, the Court explained that "the context of this action as a qui tam ostensibly brought to vindicate the public's interest in fighting medical insurance fraud is significant counterweight to the privacy interests involved." Moreover, "the court understands that these records are necessary to analyze the full scope of [defendant's] referral business." Id.2
Likewise, on July 15, 2020, in People ex rel. State Farm Mut. Auto. Ins. Co. v. Beverly Hills Center for Arthroscopic & Outpatient Surgery, LLC, Case No. BC681073, the Los Angeles Superior Court granted whistleblower State Farm's motion to compel the production of patient records for claims submitted to other insurers. "As State Farm correctly contends, an action brought under Insurance Code section 1871.7 is a qui tam action. As such, the State has an interest in allowing insurers such as State Farm to bring these actions in order to investigate and prosecute fraud." Id. Thus, "the court grant[ed] State Farm's motion as to patient records," including for claims submitted to other insurers besides State Farm. Id.
Provider defendants may object to producing documents pertaining to claims presented to insurers other than the whistleblower, arguing the whistleblower should know the facts of the fraud scheme before filing suit and should not be engaged in fishing expeditions. Whistleblowers can respond by explaining that when filing an IFPA complaint, an insurer is most likely unaware of claims submitted to other insurers. However, an IFPA action is brought "for the State of California" by the whistleblower as a "private attorney general." Strathmann, 210 Cal. App. 4th at 491, 500-01. Thus, claims at issue are not limited to those presented to the whistleblower insurer, but rather any claim prepared and presented, or caused to be presented, by a defendant that could relate to the "general fact pattern" described in the complaint. See, infra, Rolls-Royce Corp., 2013 WL 5348536, at *6. Discovery allows a whistleblower to determine which claims fit that "general fact pattern." As UMI, Aghaei, and Beverly Hills Center illustrate, a whistleblower can obtain discovery on all claims presented to any insurer that fit the general fact pattern alleged to determine the number of fraudulent claims presented to insurers, and correspondingly, the penalties and treble assessments the defendant must pay. See Cal. Ins. Code § 1871.7(b) (each fraudulent claim adds additional penalty of not less than $5,000, and up to three times the amount of the claim).3
B. FCA Cases Allow Discovery Of Acts Beyond Those Alleged In Complaint
The three recent decisions compelling the production of documents pertaining to claims submitted to insurers other than the whistleblower are consistent with FCA case-law, where courts have consistently held the scope of discovery is the same as if the government itself had brought the action.4 For example, in United States ex rel. Walker v. R&F Prop. of Lake County, Inc., 433 F.3d 1349, 1354 (11th Cir. 2005), a whistleblower brought an FCA case based on the submission of false Medicare claims. The district court limited the scope of discovery to time-period in which the relator had direct, personal knowledge of the scheme. Id. at 1355. The Eleventh Circuit reversed, explaining "[t]he United States is the real party in interest in a qui tam action under the FCA" and therefore, the whistleblower "should have been permitted discovery of all information relevant to her claims, on behalf of the United States." Id. at 1359. In other words, "the relator stands in the shoes of the United States government" and should be permitted the same discovery rights the government would have if it brought the action. Id. at 1355. Indeed, courts across the country permit this type of discovery in FCA actions. See, e.g., United States ex rel. Brooks v. Stevens-Henager Coll., Inc., 2018 WL 296088, at *6 (D. Utah Jan. 4, 2018) (in qui tam action, "specific examples of fraudulent behavior pled in the Complaint do not strictly limit discovery to those acts"); United States ex rel. McCartor v. Rolls-Royce Corp., 2013 WL 5348536, at *6 (S.D. Ind. Sept. 24, 2013) ("It is unreasonable . . . to impose a limit on discovery and recovery in qui tam cases to specific examples of fraudulent behavior that relators were able to describe in their complaint."); United States ex rel. Dicken v. Nw. Eye Clinic, P.A., 2018 WL 2980394, at *3 (D. Minn. June 14, 2018) (permitting discovery of defendant's patient files for category of procedures described in complaint); United States ex rel. Fry v. Guidant Corp., 2007 WL 4255275 at *2 (M.D. Tenn. Nov. 30, 2007) (rejecting defendant's argument that only documents relating to patients identified in complaint must be produced); United States ex rel. Fiederer v. Healing Hearts Home Care, Inc., 2014 WL 4666531, at *5 (D. Nev. Sept. 18, 2014) ("Limiting a relator's discovery rights . . . would weaken the [FCA] by placing limits on qui tam actions that do not exist for government-initiated actions.").
V. FIRST TO FILE RULE
Since, under the IFPA, a single whistleblower can litigate false or fraudulent claims presented to all insurers by a defendant, it makes sense that only one IFPA action can proceed against a defendant based on the same set of underlying facts. To that end, the IFPA expressly states, "[w]hen a person or governmental agency brings an action under [the IFPA], no person other than the district attorney or commissioner may intervene or bring a related action based on the facts underlying the pending action." Cal. Ins. Code § 1871.7(e)(5) (emphasis added).
This doctrine, known as the "First to File" rule, is modeled on the language of the FCA. See 31 U.S.C. § 3730(b)(5) ("When a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action"). As explained in the FCA context, the First to File rule "bars qui tam actions based on matters subject to earlier filed actions." United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 232 (3d Cir. 1998). In particular, the rule prevents "successive plaintiffs from bringing related actions based on the same underlying facts." United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir. 2001). Importantly, "[a] later case need not rest on precisely the same facts as a previous claim to run afoul of this statutory bar. Rather, if a later allegation states all the essential facts of a previously-filed claim . . . the later claim [is barred], even if that claim incorporates somewhat different details." LaCorte, 149 F.3d at 232-33; see also Lujan, 243 F.3d at 1188 (rule bars a subsequent action if it is based on the same "material facts" as the first action).
The First to File rule is intended to both "promote incentives for whistle-blowing," and "prevent opportunistic successive plaintiffs." Lujan, 243 F.3d at 1188. Thus, the rule "encourage[s] qui tam plaintiffs to report fraud promptly" and "creates a race to the courthouse among eligible relators, which may . . . spur the prompt reporting of fraud." LaCorte, 149 F.3d at 234.5
A. First To File Rule Recently Invoked To Dismiss IFPA Lawsuit Filed By State Farm Where Allstate Had Already Filed A Related Lawsuit
The First to File rule was addressed in an IFPA case on July 24, 2020, when, in People ex rel. State Farm Mut. Auto. Ins. v. Rubin, M.D., Case No. 30-201-01107066-CU-MC-CXC, the Los Angeles Superior Court, County of Orange dismissed an IFPA complaint filed by whistleblower State Farm against a doctor and two of his medical companies. In reaching this conclusion, the court found that, three weeks before State Farm filed its IFPA complaint, whistleblower Allstate had filed a "related" IFPA complaint against some of the same defendants (which was still under seal when State Farm filed its complaint). The Court relied on the plain language of the IFPA, which provides, "[w]hen a person or governmental agency brings an action under this section, no person other than the district attorney or commissioner may intervene or bring a related action based on the facts underlying the pending action . . . ." The Court went on to explain that " 'related' [does not] mean 'identical.'" Rather, "the fact that the two actions may involve different parties or additional allegations does not prevent application of the first-to-file-bar." Id. (citing State of California ex rel. Metz v. CCC Info. Servc., Inc., (2007) 149 Cal. App. 4th 402, 419.) The court found that both whistleblowers, Allstate and State Farm, sued three of the same defendants and both "alleged fraud in connection with billing for services and facilities fees. The method for accomplishing this alleged fraud is through manipulation of CPT codes, including unbundling CPT codes and using CPT codes for services not performed." Id. The Court rejected State Farm's contention that the cases were not "related" because its complaint contained detailed allegations regarding the alleged fraud, whereas Allstate's allegations were more general.
This very recent decision in Rubin appears to be the first time a court has used the First to File rule to dismiss an IFPA action filed by an insurer on the basis that a related IFPA action alleging the same underlying facts had already been filed by another insurer and remained pending.
B. First To File Rule Also Bars Consolidation Of Lawsuits
Importantly, the First to File rule bars not only subsequent related actions, but also the consolidation of actions. Addressing the FCA, the Fourth Circuit explained in United States ex rel. Carson v. Manor Care, Inc., 851 F.3d 293, 305 (4th Cir. 2017), that there is no "exception to the first-to file rule for consolidated complaints." The "statute does not read that 'no person other than the Government may intervene or bring a related action based on the facts underlying the pending action unless that person's case is consolidated with the earlier-filed case.'" Id. (emphasis in original). See also Capshaw v. White, 2017 WL 3841611, at *4 (N.D. Tex. Jan. 23, 2017) ("[A] relator [cannot] avoid the first-to-file rule by either voluntarily intervening or being consolidated into a previously filed qui tam action."); United States ex rel. Denenea v. Allstate Ins. Co., 2011 WL 231780, at *3 (E.D. La. Jan. 24, 2011) (dismissing subsequent FCA case although "both relators have agreed to consolidate their actions" because "a relator cannot avoid the first-to-file bar by consolidating his claim with an earlier action").
In the IFPA context, a couple health care provider defendants recently lost their fight to consolidate two lawsuits filed against them, first by State Farm and then by Allstate. See People ex rel. State Farm Mut. Auto. Ins. Co. v. Aghaei, Case No. BC656651 (Cal. Super. Ct., Cnty. of Los Angeles, July 20, 2020) (hereinafter "Order Denying Motion to Consolidate"). For background, State Farm filed its IFPA action on April 6, 2017 against a group of ten defendants, including Hedayat Golcheh, M.D. ("Golcheh") and his company, Ventura Imaging & Radiology Center, Inc. ("Ventura"), alleging a fraud scheme that involved the unlawful payment of kickbacks in exchange for MRI and x-ray referrals. Two years later, on May 23, 2019, Allstate filed a separate IFPA action against a group of defendants, including Golcheh and Ventura, which included some similar allegations. See People ex rel. Allstate Ins. Co. v. Golcheh, Case No. 19STCV18142 (Cal. Super. Ct., Cnty of Los Angeles) (the "Allstate-Golcheh Action"). After Allstate's complaint was unsealed, State Farm filed in its own case a notice of related case, alerting the Court to the Allstate-Golcheh Action.6 Allstate opposed the designation of the two cases as related, arguing they "do not involve the same insurance claims, the same motor vehicle accidents or the same injured persons who had x-rays and/or MRIs and therefore, they do not arise from the same or substantially identical transactions, incidents or events and as such, cannot require the determination of the same or substantially identical questions of law or fact." See Allstate Opposition to Notice of Related Case at 14. On January 10, 2020, the Court held, without any explanation, that the cases were not related.
Shortly thereafter, rather than seeking dismissal of the later-filed Allstate-Golcheh Action based on the First to File rule, defendants Golcheh and Ventura filed a motion in State Farm's action to consolidate it with Allstate's case, which both State Farm and Allstate opposed. The Court denied the motion to consolidate. In doing so, the Court explained that defendants' motion was based "on the ground that the [Allstate] case is related to the present [State Farm] action and involves overlapping facts such that allowing the cases to proceed independently would create the possibility of duplicate recovery against [defendants]." See Order Denying Motion to Consolidate at 5. State Farm argued that the "consolidation is available only for cases that have been deemed related, and this court [already] ruled that the two cases are not related." Id. State Farm also argued "that the rules applicable to insurance qui tam actions render relation of related claims improper, and that the proper procedure for [defendants], if the claims indeed seek recovery on the same facts, would be to seek dismissal of the later-filed Allstate action." Id. at 6.7 Allstate, for its part, argued "that the court has already deemed the matters not related," that the motion was "procedurally improper," and "that the cases are substantively unrelated because they involve different parties and different facts."
The Court held that its "determination that the two cases [were] unrelated precludes it from granting the present motion." Id. "Moreover, even if the cases were deemed related, consolidation would not be the appropriate remedy" because, "[a]s State Farm persuasively argues, Insurance Code § 1871.7 contains a 'first-filing' rule which states, 'When a person or governmental agency brings an action under this section, no other person other than the district attorney or commissioner may intervene or bring a related action based on the facts underlying the pending action unless that action is authorized by another statute or common law.'" Id. (citing Cal. Ins. Code § 1871.7(e)(5)). "The proper remedy when faced with a qui tam action under Insurance Code § 1871.7 alleging the same facts as a previously filed qui tam action under the same section is not to consolidate the actions, but to dismiss the later-filed claims." Id. (emphasis added) (citing State of Cal. Ex rel. Metz v. CCC Info. Serv., Inc., (2007) 149 Cal. App. 4th 402, 420 (dismissing later filed qui tam action under section 1871.7 based on same insurance transaction even though alleged against a different party)).
This recent ruling underscores for whistleblower insurers the importance of being the first to file an IFPA suit, since only one whistleblower can litigate a fraud scheme that is based on the same underlying facts, and multiple IFPA actions against the same defendants based on the same underlying facts cannot be consolidated.
C. Cliffhanger: Defendant Provider Argued First To File Rule In Support Of Dismissal Of IFPA Lawsuit Filed By Allstate Where Related Action Was Previously Filed By State Farm
On July 16, 2020, defendants in the Allstate-Golcheh Action filed a motion to dismiss the Allstate-Golcheh Action "based upon the fact that there are two cases filed alleging the same damages on behalf of the People of the State of California." See Golcheh, Case. No. 19STCV18142, Motion to Dismiss Complaint of Allstate Insurance Company et al. or In The Alternative, A Motion For Judgment On the Pleadings. Specifically, according to defendants, "both Actions complain about the same activity performed by the same persons . . . ." Id. at 6. In addition, defendants explained that both actions were alleged to have been brought on behalf of the People of the State of California, and the complaints in both actions contain allegations regarding claims presented to insurers other than the relator. Id. at 6-7. In seeking dismissal of the Allstate-Golcheh Action, defendants also pointed to the motion to compel filed by whistleblower State Farm in Hekmat, discussed supra, where State Farm successfully argued defendants should be compelled to produce medical records for patients whose claims were presented to other insurers, at least in part because "it could recover [statutory penalties and treble assessments] for that group of claimants." Id. at 7-8. Defendants argued these "discovery rulings demonstrate that State Farm is pursuing discovery which encompasses the allegations of [the Allstate-Golcheh Action]." Id. at 8.
Allstate has not yet filed its response, and the hearing on
defendants' motion is not scheduled to take place until January
2021. It is seems likely Allstate will oppose dismissal on
the grounds that the two lawsuits are unrelated, similar to the
arguments it made in opposing the notice of related case filed by
State Farm. However, in light of the ruling from
Rubin dismissing an IFPA action filed by State Farm
because Allstate had previously filed a similar lawsuit, it is
unclear whether Allstate will be able avoid the First to File rule
in the Allstate-Golcheh Action.
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VI. SUMMARY AND LESSONS
The IFPA is an extremely powerful tool in California's fight against insurance fraud. A critical source of the IFPA's strength is that allows whistleblowers to obtain discovery on, and ultimately recover statutory penalties and treble assessments for, fraudulent claims submitted to any non-governmental payor. Such expansive discovery allows whistleblowers to obtain more information about defendants' fraud, including the scope of the scheme, and defendants' motive, intent and knowledge. And, when whistleblowers can take discovery on fraudulent claims presented to all insurers, it may become easier to observe patterns, which are indicative of fraud. See, e.g., United States v. Daniels, 117 F. Supp. 1040, 1041 (D. Kan. 2000) ("defendant's patterns and practices of luring patients into surgery" was "highly relevant to proving defendant's intent, as it shows deliberate and repeated patterns and practices over time, a hallmark of fraud"); In re Matus, 303 B.R. 660, 679 (Bankr. N.D. Ga. 2004) (pervasive pattern of omissions and misrepresentations warrants conclusion that "they were not due to mistake or oversight," but rather "were the result of an intent to deceive"); United States v. Widergren, 8 F.3d 33 (9th Cir. 1993) (documents "reveal[ed] a pervasive pattern of fraud and misrepresentation and omission" and thus, supported convictions for mail fraud, securities fraud and criminal contempt). In addition, insurer whistleblowers' leverage against defendants is substantial when they are permitted to litigate claims presented to other insurers because defendants' expenses and exposure increases, as does the potential financial recovery for the whistleblower.
As a result of the foregoing, and as expressly stated in the IFPA, only one insurer can sue a defendant under the IFPA based on a single set of underlying facts. In this regard, the IFPA presents a stark contrast from other types of insurance fraud litigation where insurers may sue the same providers because they have been victims of the same fraud scheme.8
Since consolidation of two lawsuits is not an option, and a second filed lawsuit is subject to dismissal based on the first-to-file bar, insurers are left with only three options: (1) file the first IFPA complaint against a defendant; (2) coordinate with other insurers before filing an IFPA action and file as co-whistleblowers; or (3) file a lawsuit alleging different causes of action.
If an insurer-whistleblower wants to file an IFPA lawsuit on its own, it should focus on the following:
- Effective, efficient and expeditious fraud investigations;
- Obtaining and taking advice from legal counsel and medical experts regarding simplest and strongest fraud theories;
- Avoiding the temptation to investigate less compelling theories of fraud, even if they are valid;
- Understanding that delay may lead to the inability to litigate an IFPA action.
If an insurer wants to file an IFPA lawsuit as co-whistleblowers with other insurers, the following issues should be considered and discussed in advance with the other insurers:
- The possibility that different insurers may have varying litigation strategies;
- The possibility that different insurers may have different levels of risk tolerance;
- Any appearance of violating anti-trust laws;
- Potential defamation counterclaims based on insurers' communications with one another about defendants;
- Division of work among attorneys;
- Division of monetary recovery (settlement, judgment).
Finally, if an IFPA is not an option, it should be remembered that other causes of action may be available to insurers victimized by fraud, including common law fraud, civil RICO, or even equitable claims like unjust enrichment. Unlike an IFPA action, however, an insurer bringing a claim for fraud will have to prove reliance and damages; for civil RICO they will have to prove proximate causation; and with equitable claims, they may have to trace the funds paid by an insurer to those received by the defendant.
In short, there are many factors an insurer should consider when
deciding whether to bring an affirmative lawsuit based on
fraud. In California, however, the IFPA offers a powerful
remedy that gives insurers tremendous leverage in the fight against
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1. Illinois is the only other state with a statute that allows whistleblowers to sue for fraudulent claims submitted to insurance companies.
2. At the hearing on State Farm's motion to compel in Aghaei, defendants argued that State Farm's action should be limited to claims presented to State Farm. See Affidavit of R. Fawaz submitted by State Farm in opposition to defendants' motion to consolidate, ¶ 2. The court rejected defendants' argument, holding "the State of California is the real party in interest" and "State Farm's claims are  not limited to its own injury." Aghaei¸ 2019 WL 6872065 at *3. Importantly, the court's language goes beyond the discoverability of such claims, and explains that a whistleblower can actually recover penalties and assessments, along with other relief, for such claims.
3. Discovery pertaining to claims presented to other insurers is not just available from defendants. Rather, a whistleblower may subpoena other insurers to determine whether they were victimized by the same fraud scheme and were presented with claims that fit the fact pattern at issue. Responding to such subpoenas may be time-consuming and expensive. Thus, a whistleblower insurer should carefully consider whether to ask another insurer to make a voluminous production.
4. In interpreting the IFPA, California courts routinely look to federal qui tam actions for guidance. See, e.g., Strathmann, 210 Cal. App. 4th at 492, 501 (relying on FCA cases for proposition that People of the State of California are "real party in interest" in IFPA cases and "although qui tam actions allow individual citizens to initiate enforcement against wrongdoers who cause injury to the public at large, the Government remains the real party in interest"); People ex rel. Allstate Ins. Co. v. Muhyeldin, 112 Cal. App. 4th 604, 610 (2003) (analyzing FCA decisions and legislative history in interpreting IFPA); Weitzman, 107 Cal. App. 4th at 552; City of Pomona v. Super. Ct., 89 Cal. App. 4th 793, 802 (2001).
5. Relatedly, the IFPA provides that "[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing[,] in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless . . . the person bringing the action is an original source of the information." Cal. Ins. Code § 1871.7(h)(2) (emphasis added). "'[O]riginal source' means an individual who had direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the district attorney or [insurance] commissioner before filing an action under this section which is based on the information." Id. As with the First to File Rule, "[t]he California Legislature, in adopting subdivision (h)(2), intended to bar parasitic or opportunistic actions by persons simply taking advantage of public information without contributing to or assisting in the exposure of the fraud." See Weitzman, 107 Cal. App. 4th at 564 (following "federal precedent with respect to the general purpose of the jurisdictional bar—that is, to prevent qui tam actions brought by persons who . . . simply copied allegations from a criminal indictment on file, learned of the specific fraudulent conduct at issue through public channels, and who had not contributed or assisted in a material way in exposing the fraud").
6. Pursuant to Cal. Rule of Court 3.300(a), cases are related if they: (1) involve the same parties and are based on the same or similar claims; (2) arise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact; (3) involve claims against, title to, possession of, or damages to the same property; or (4) are likely for other reasons to require substantial duplication of judicial resources if heard by different judges.
7. State Farm also explained that Allstate could not intervene in State Farm's lawsuit because, pursuant to Cal. Ins. Code § 1871.7(e)(5), only the district attorney or insurance commissioner can intervene in an IFPA action.
8. Compare, e.g. State Farm Mut. Auto. Ins. Co. v. Universal Rehab Services, Inc., Case. No. 2:2015cv10993 (E.D. Mich.) (fraud case filed March 2015 against provider defendants, including Summit Medical Group, PLLC and David Jankowski, D.O.) and Allstate Ins. Co. v. Summit Physicians Group, PLLC, Case. No. (E.D. Mich.) (fraud case filed October 2016 against provider defendants, including Summit Medical Group, PLLC and David Jankowski, D.O.); State Farm Mut. Auto. Ins. Co. v. Policherla, M.D., Case. No. 2:08-cv-13939-NGE-MJH (E.D. Mich.) (fraud case filed September 2008 against provider defendants, including Haranath Policherla, M.D., Haranath Policherla, M.D., P.C., and Advanced Neuro-Rehab Services, P.C.) and Allstate Ins. Co. v. Policherla, M.D., Case No. 2:08-cv-15151-NGE-MJH (fraud case filed December 2008 against provider defendants, including Haranath Policherla, M.D., Haranath Policherla, M.D., P.C., and Advanced Neuro-Rehab Services, P.C.)
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