Judge Randolph M. Hammock, Case Number: 22STCV11349, Date: 2024-03-14 Tentative Ruling

Judge: Randolph M. Hammock, Case: 22STCV11349, Date: 2024-03-14 Tentative Ruling

Plaintiff Allstate Insurance Company brings this action on behalf of itself and the State of California under the California Insurance Frauds Prevention Act and the Unfair Competition Law. Plaintiff alleges that Defendants Jaklin Benji, Mathew Rashidi, Michael Rashidi, Precise MRI Corp., and Yokhevet, LLC—who are not licensed medical professionals—acted as “MRI brokers” to connect injured persons with legitimate MRI facilities. Defendants would pay the MRI facilities a fee for the MRI services, and then turn around and bill insurers like Allstate at a substantial markup, falsely representing that they had conducted the MRI services themselves. Plaintiff alleges that Defendant radiologists Ranon Udkoff, M.D. and Stuart E. Strausberg, D.O. aided this scheme by conducting or reviewing MRIs, but knowingly permitting the other unlicensed Defendants to pass-off the services as their own at a substantial upcharge. Plaintiff brings causes of action against all Defendants for (1) violation of California Insurance Code section 1871.7 and (2) violation of the UCL.

Defendants Ranon Udkoff, M.D., and Stuart E. Strausberg, D.O., now demurrer to the FAC. Defendants Jaklin Benji, Mathew Rashidi, Michael Rashidi, Precise MRI Corp., and Yokhevet, LLC, separately move to strike portions of the FAC. Plaintiff opposed both motions.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (CCP § 430.30(a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, 147 Cal.App.4th at 747.)

First, Defendants argue that Plaintiffs have not pled their fraud claim with the requisite specificity, as Plaintiff “does not identify the role of each Moving Defendant allegedly played which was fraudulent.” (Dem. 8: 10-12.)

Generally, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc.¿(2009) 171 Cal.App.4th 1356, 1384, internal quotations omitted.) “The normal policy of liberally construing pleadings against a demurrer will not be invoked to sustain a fraud cause of action that fails to set forth such specific allegations. (Id.)” The heightened pleading standard for fraud requires “pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Id.)

Plaintiff alleges a scheme by Defendant Benji, the Rashidis, and the entities they controlled to defraud insurance companies by billing for MRI services that Defendants themselves did not (and legally could not) provide. (FAC ¶¶ 54-57.) Plaintiff further alleges that these Defendants contracted with the moving Defendant radiologists, whereby Drs. Strausberg and Udkoff would “read and interpret MRI scans and to prepare written reports of their findings and diagnoses, and to grant absolute control to Benji and the Rashidis in the billing and collection of professional healthcare services.” (Id. ¶ 76; see also ¶ 78.) In other words:

While Benji and the Rashidis are at the scheme’s helm, their fraudulent conduct could not occur without the aid and assistance of the imaging facilities and radiologists with whom they contract. On information and belief…Defendants Strausberg [and] Udkoff…[1] Agree to the payment of reduced fees for their efforts; [2] Knowingly relinquish control of billing, collection, and profit for their technical and professional services to Benji and the Rashidis in exchange for a steady flow of patient referrals; and [3] Knowingly allow and enable Benji and the Rashidis to pass off their technical and professional services as those of Precise and mark up the fees for each of those services so that they can impermissibly share in them.

Based on that arrangement, Plaintiffs allege that the moving Defendants “’employ’ Benji and the Rashidis under California Insurance Code section 1871.7(a) to ‘steer’ patients to them by allowing them to bill as they please” in exchange for a split of the profits. (Id.)

Considering these allegations, Plaintiff has alleged Defendants’ knowing involvement in a scheme—with the requisite specificity—aimed at defrauding insurers. It is also worth noting that the facts of the arrangement are likely within the knowledge of the moving parties. (Comm. On Children's Television, Inc. v. Gen. Foods Corp. (1983) 35 Cal. 3d 197, 217 [“Less specificity is required when ‘it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy.’”].) Accordingly, this argument fails.

Section 1871.7(a) of the Insurance Code makes it “unlawful to knowingly employ runners, cappers, steerers, or other persons to procure clients or patients to perform or obtain services or benefits pursuant to Division 4 (commencing with Section 3200) of the Labor Code or to procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or his or her insurer.” (Emphasis added.) The question therefore becomes whether there are sufficient allegations in the FAC that the moving Defendants “knowingly employed” Defendants Benji and the Rashidis as “steerers.”

Plaintiffs allege that the radiologist Defendants agreed to a reduced fee to read and interpret MRI scans, then would “grant absolute control to Benji and the Rashidis” in making claims with insurers at a significantly higher fee. (FAC ¶¶ 70, 76.) The radiologists were paid on a “piece-work” basis, usually through monthly billing statements summarizing the number of MRI scans reviewed at the agreed rate. (Id. ¶ 77.)

In some sense, it appears the moving Defendants were not the employer, but rather the employees. Indeed, Plaintiff alleges the radiologists “were paid on a ‘piece-work’ basis as independent contractors.” (Id.) Be that as it may, there would appear to be some question as to the precise arrangement of the scheme, including the moving Defendants’ role in the same. Therefore, for pleadings purposes, Plaintiff has alleged facts to support the “knowingly employed” element of their claim.

The demurrer fails for another reason. As noted in Plaintiff’s opposition, the alleged violation of section 1871.7(a) forms only one portion of the First Cause of Action. It is well-settled that “a demurrer cannot rightfully be sustained to part of a cause of action.” (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal. App. 4th 1028, 1047.) To be sustained, “[a] demurrer must dispose of an entire cause of action.” (Fremont Indem. Co. v. Fremont Gen. Corp. (2007) 148 Cal. App. 4th 97, 119.)

As already discussed, Plaintiff alleges the moving Defendants’ violated the Insurance Code section 1871.7(a) by knowingly employing steerers. But in that same cause of action, Plaintiff alleges that Defendants also violated section 1871.7(b) by “aiding, abetting, soliciting, assisting, or conspiring with other Defendants in the violation of [California Penal Code] sections 549 and 550…” (FAC ¶ 105.)

Considering the allegations already discussed, Plaintiff has alleged that the moving Defendants “aided and abetted” the scheme to defraud Allstate in violation of the Insurance Code. Therefore, the conclusion that the moving Defendants did not employ the other Defendants would not completely dispose of the entire cause of action.

Business and Professions Code section 17200 defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice....” “The scope of section 17200 is broad, encompassing ‘anything that can properly be called a business practice and that at the same time is forbidden by law.’ ... It governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’” [Citations.] (Linear Tech. Corp. v. Applied Materials, Inc., (2007) 152 Cal. App. 4th 115, 133). Whether a practice violates the section “is generally a question of fact which requires ‘consideration and weighing of evidence from both sides’ and which usually cannot be made on demurrer.” [Citation]. (Id.)

Here, Plaintiff has alleged the doctors knowingly engaged in a scheme—or at minimum, aided and abetted that scheme—to unlawfully or fraudulently bill insurers for services not rendered. (FAC ¶¶ 70, 76, 77.) When characterizing a complaint or cross-complaint, it is policy to “emphasiz[e] substance over form” (Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1386), and to “construe [it] liberally.” (C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal. App. 3d 1055, 1062.) Doing so here, this court concludes that for pleadings purposes, Plaintiff has stated a claim against the moving Defendants.

Given the broad applicability of section 17200 and the requirement that a court “weigh[] evidence from both sides,” the demurrer is improper. Plaintiff has properly alleged facts, that if proven true, could violate the UCL.

A motion to strike lies either (1) to strike any irrelevant, false or improper matter inserted in any pleading; or (2) to strike any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court. (CCP § 436.)

The court incorporates its discussion of the allegations underlying the claims against the Defendants above by reference here. Plaintiff further alleges that “there was a unity of interest between Precise, Yokhevet, Benji, Matthew Rashidi, and Michael Rashidi, and thus any individuality and separateness between them ceased. (FAC ¶ 27.) “Allstate is informed and believes and alleges that Benji, Matthew Rashidi, and Michael Rashidi, are each, therefore, the alter ego of Precise and of Yokhevet, which were and are mere shells, instrumentalities, and conduits through which Benji, Matthew Rashidi, and Michael Rashidi carried on their business. (Id. ¶ 28.)

Adherence to the fiction of the separate existence of Precise and Yokhevet, as distinct from Benji, Matthew Rashidi, and Michael Rashidi,” Plaintiff alleges, “would permit an abuse of the corporate privilege and would promote injustice by protecting Benji, Matthew Rashidi, and Michael Rashidi from liability for their wrongful acts.” (Id. ¶ 29.) “Allstate is also informed and believe and allege that Benji, Matthew Rashidi, and Michael Rashidi had common supervision, control, management, officers, and a unity of interest in ownership of Precise and Yokhevet, which is reflected in the commingling and pooling of their earnings, expenses, and losses; they are thus the same and the alter ego of one another.” (Id. ¶ 30.) “The ‘alternative’ alter ego relationship between Precise, Yokhevet, Benji, Matthew Rashidi, and Michael Rashidi should therefore be recognized to prevent an injustice. If the alter ego relationship between these Defendants should not be recognized, an inequity would result because individuals responsible for wrongdoing would be shielded from liability.” (Id. ¶ 31.)

It is accepted that alter ego allegations may be pled generally, and the principal factors for piercing the corporate veil—individual dominated the affairs of the corporation, unity of interest and ownership, corporation is a mere shell, diversion of income, inadequate capitalization, failure to issue stock and observe corporate formalities, adherence to fiction of separate corporate existence would work an injustice—may be alleged in conclusory terms. (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-916; see also Camenisch v. Superior Court (1996) 44 Cal.App.4th 1689, 1699 [noting courts are given “broad discretion” when ruling on a motion to strike].)

Determining whether the facts alleged are true will necessarily require fact-finding that cannot be resolved when ruling on this demurrer. Thus, for pleadings purposes, Plaintiff has adequately alleged the alter ego status of the moving Defendants.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.