Liberty Mutual Group v. 700 Pharmacy, LLC ( 2022 )

J-A27020-20
2022 PA Super 19LIBERTY MUTUAL GROUP, INC., : IN THE
LIBERTY MUTUAL INSURANCE : SUPERIOR COURT OF
COMPANY, AMERICAN STATES : PENNSYLVANIA
INSURANCE COMPANY, COLORADO :
CASUALTY COMPANY, EMPLOYERS :
INSURANCE COMPANY OF WAUSAU, :
EXCELSIOR INSURANCE COMPANY, :
LIBERTY INSURANCE CORPORATION, :
LIBERTY MUTUAL FIRE INSURANCE :
COMPANY, LIBERTY MUTUAL : No. 3357 EDA 2019
INSURANCE :
COMPANY/CONSOLIDATED :
INSURANCE COMPANY, LIBERTY :
NORTHWEST INSURANCE :
CORPORATION, LM INSURANCE :
CORPORATION, PEERLESS :
INDEMNITY INSURANCE COMPANY, :
PEERLESS INSURANCE COMPANY, :
AND SAFECO INSURANCE COMPANY :
OF ILLINOIS :
:
Appellants :
:
:
v. :
:
:
700 PHARMACY, LLC, INSIGHT :
PHARMACEUTICAL SOLUTIONS, LLC, :
D/B/A INSIGHT PHARMACY, UNITED :
PHARMACY SERVICES, LLC, D/B/A :
UNITED PHARMACY, ARMOUR :
PHARMACEUTICAL SOLUTIONS, LLC, :
D/B/A ARMOUR PHARMACY, OMNI :
PHARMACY SERVICES, LLC, D/B/A :
OMNI PHARMACY, EMPIRE PHARMACY :
SERVICES, LLC, D/B/A EMPIRE :
PHARMACY, MEDARBOR, LLC, D/B/A :
MEDARBOR PHARMACY, 1ST CHOICE :
PHARMACY, LLC, MEDICINE WORX, :
LLC, PHILLIP SHIN, MIROSLAV KESIC, :
MANDEEP GILL, RISHIN A. PATEL, :
N.D., JASON CHONG, MINA NAKHLA, :
J-A27020-20
STEVEN KATSARAKES, YOUNG HOON :
GIM, NINA LUU, GRACJA OSINSKA, :
CHRISTINE VU, HAJIRA EBADY, :
JULIETTA LEUNG, MITESH K. PATEL, :
M.D., MITESWAR PUREWAL, M.D., :
SHAILEN JALALI, M.D., MARK AVART, :
D.O., LAURA SECZECH, PA-C, :
THERESA DIJOSEPH, PA-C, AVNER R. :
GRIVER, M.D., DENNIS W. IVILL, :
M.D., JONAS JOAGUIN GOPEZ, M.D., :
JOSEPH DAVID PAZ, D.O., RONALD :
LUBER, D.O., THOMAS SKEEHAN, :
M.D., UPLEKH PUREWAL, M.D., SCOTT :
EPSTEIN, M.D., MARK ESKANDER, :
M.D., CORY HAWLEY, D.P.M., :
RONALD B. LINCOW, D.O., GERALD E. :
SWORKIN, D.O., STEVEN VALENTINO, :
D.O.
Appeal from the Order Entered September 13, 2019
In the Court of Common Pleas of Philadelphia County Civil Division at
No(s): No. 170901541
BEFORE: STABILE, J., NICHOLS, J., and COLINS, J.*
OPINION BY NICHOLS, J.: FILED FEBRUARY 1, 2022
Appellants, Liberty Mutual Group, Inc., and its related companies,
underwriters, and subsidiaries, appeal from the order granting the motion for
summary judgment filed by Appellees, a group of pharmacies, pharmacists,
physicians, physician assistants, and lay investors, and entering judgment in
favor of Appellees on all claims. We affirm.
We adopt the trial court’s thorough summary of the facts underlying this
matter. See Trial Ct. Order & Op., 9/13/19, at 2-9. By way of brief
background, we note that Appellants filed a complaint against Appellees
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* Retired Senior Judge assigned to the Superior Court.
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alleging fraud, insurance fraud, aiding and abetting, and unjust enrichment.1
Therein, Appellants claimed that Appellees had created an unlawful business
structure under which doctors prescribed topical compound pain creams to
patients who had been injured at work or in automobile accidents. The
patients then filled the prescriptions at pharmacies in which the doctors had a
financial interest. Appellees alleged that the compound pain creams were
formulated by pharmacies for the sole purpose of generating a profit and that
Appellee doctors were receiving unlawful kickbacks.
Specifically, Appellants claimed:
[Appellees] engaged in illegal compounding by producing and
dispensing vast quantities of the fraudulent compounded creams
in set formulations, in violation of federal and Pennsylvania state
regulatory and licensing requirements imposed on drug
manufacturers and outsourcing facilities, rendering them ineligible
to receive reimbursement for their services;
The fraudulent compounded creams were provided pursuant to
predetermined fraudulent treatment protocols designed solely to
financially enrich [Appellees], rather than to treat or otherwise
benefit the patients who purportedly received them;
[Appellees] participated in illegal, collusive relationships in which
licensed physicians prescribed fraudulent compounded creams in
exchange for unlawful kickbacks paid by the Pharmacy
[Appellees];
[Appellees] made false and fraudulent statements and/or
representations to [Appellants] by submitting, or causing to be
submitted for payment, invoices for fraudulent compounded
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1Appellants also alleged that Appellees committed insurance fraud under the
Pennsylvania Workers’ Compensation Act, 77 P.S. § 1039.3(b), and that
Appellees violated the disclosure provision for self-referrals under 35 P.S. §
449.22. However, the trial court dismissed these counts after Appellees filed
preliminary objections.
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creams. These invoices were provided pursuant to invalid,
duplicitous, and formulaic prescriptions; and
[Appellees] made false and fraudulent misrepresentations to
[Appellants] concerning the maximum permissible charges for the
fraudulent compounded creams allegedly provided to the patients
in order to induce [Appellants] to reimburse [Appellees] for
benefits to which they were not entitled.
Am. Compl., 11/6/17, at ¶ 33(i)-(v) (formatting altered).
Appellees subsequently moved for summary judgment, arguing that
Appellants had neither “presented nor produced any evidence to support the
allegations in the [c]omplaint.” See 700 Pharmacy Defendants’ Mot. for
Summary Judgment, 5/9/19, at 1.2 Specifically, Appellees explained:
Rather than produce witnesses and other evidence to support their
claims, [Appellants] have instead failed to produce any fact
witnesses, or any other evidence, to support the assumptions
underlying their complaint and their experts’ reports.
[T]he universe of testimony and documents exchanged during
discovery establishes that [Appellee] pharmacies (1) dispense a
wide range of medications, including compound medications, (2)
are licensed and operate within the boundaries of state and federal
law, (3) have physicians with minority ownership consistent with
state and federal law, (4) paid each owner (whether or not a
physician) profits based solely upon their percentage of
ownership, i.e., there were no kickbacks, (5) did not require
physician owners to prescribe any medications through the
pharmacies, and (6) operated legally even according to William
Welch, who has overseen [Appellants’] investigation since 2014.
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2 In filing their motions for summary judgment, individual defendants
incorporated and fully adopted the arguments raised by other defendants in
this case. See Pa.R.Civ.P. 1019(g) (stating that “[a]ny part of a pleading may
be incorporated by reference in another part of the same pleading or in
another pleading in the same action”). Therefore, for purposes of brevity, we
cite only one of Appellees’ motions.
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Id. at 2. Further, Appellees claimed that the trial court lacked subject matter
jurisdiction because Appellants failed to join indispensable parties, including
at least two doctors who had received dividends from the pharmacies after
prescribing compound pain creams in 2016. Id. at 31-32.
In response, Appellants argued:
The majority of the key evidence in this case comes not from
[Appellants,] but from discovery obtained from [Appellees] in the
form of written documents, including tax documentation, and
deposition testimony, which has revealed a complex scheme
perpetrated by [Appellees] whereby multiple pharmacies were
created to facilitate and promote submission to [Appellees] of
fraudulent claims for compounded medications using pre-printed,
non-individualized prescriptions and letters of medical necessity.
This generated huge profits for [Appellee pharmacies] and insiders
as [Appellee doctors] received huge kickbacks disguised as
dividends and other payouts based on volume of prescribing or
filling of fraudulent scripts for topical pain cream, all to the
detriment of [Appellants] and the public at large by [Appellees’]
billing the insurers thousands of dollars per tube of cream and
raking in millions of dollars in profit as a result.
Appellees’ Opposition to 700 Pharmacy’s Mot. for Summary Judgment,
6/20/19, at 48. Further, Appellees asserted that there was “[e]vidence of
[the] fraudulent scheme” in (1) Appellees’ letters of medical necessity, which
misrepresented that the prescriptions were specifically tailored to the needs
of each patient; (2) the characterization of the prescription pain creams as
compound drugs under Section 503A of the Food, Drug and Cosmetic Act
(FDCA),3 and (3) the illegal structure of Appellees’ business. Id. at 49-53.
____________________________________________
3 21 U.S.C. § 353a.
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Ultimately, the trial court granted summary judgment in favor of
Appellees and dismissed Appellant’s amended complaint. See Trial Ct. Order
& Op., 9/13/19, at 1. The trial court noted that Appellants “failed to produce
evidence to show that [Appellees] made material misrepresentations” to
support their claim of fraud. Id. at 18. With respect to the letters of medical
necessity, the trial court found that it did not have jurisdiction to consider
whether those letters contained misrepresentations about the necessity of
each patient’s medical treatment outside of the Workers’ Compensation Act.
Id. at 11-12. Further, the court concluded that the prescription pain creams
met the definition of a “compound drug” under Section 503A of the FDCA and
that Appellees’ business structure was legal. Id. at 12-18. Finally, the trial
court concluded that there was no evidence to support a claim for unjust
enrichment and that, because Appellants failed to prove an underlying tort by
Appellees, their aiding and abetting claim must also fail. Id. at 18-19.
Appellants filed a timely notice of appeal and a court-ordered Pa.R.A.P.
1925(b) statement. The trial court issued a Rule 1925(a) adopting the legal
analysis set forth in its order and opinion granting summary judgment.4
On appeal, Appellants raise multiple issues, which we have reordered as
follows:
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4 On September 23, 2019, the trial court issued a revised opinion which
included an additional footnote citing to an exhibit. However, for purposes of
clarity, and because that modification does not affect the court’s ruling or our
analysis, we will refer to the trial court’s original opinion in this Court’s opinion.
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1. Whether the [trial] court had subject matter jurisdiction when
[Appellants] did not sue all of the owners of the limited liability
companies operating the pharmacies?
2. Whether the [trial court] had jurisdiction to determine whether
there were any misrepresentations contained in the letters of
medical necessity?
3. Whether there was sufficient evidence of misrepresentations
contained in the letters of medical necessity, regarding the
compound pain creams prescribed, and concerning the legality
of the business structure of the pharmacies, to raise genuine
issues of material fact and preclude the entry of summary
judgment on the common law and statutory insurance fraud
claims?
4. Whether there was sufficient evidence presented to support a
claim for unjust enrichment and to preclude the entry of
summary judgment on that claim?
5. Whether the claim for aiding and abetting would survive a
motion for summary judgment without the predicate common
law and statutory insurance fraud?
Appellant’s Brief at 2-4.
Subject Matter Jurisdiction
Appellants argue that the trial court erred in concluding that it lacked
subject matter jurisdiction based on Appellants’ failure to join indispensable
parties. Specifically, Appellants contend:
[T]here is no subject matter jurisdiction issue presented here.
The pharmacies were limited liability companies that had the
capacity to sue and be sued as entities. Further, the members or
managers had no personal liability except to the extent of their
personal participation in some misconduct. The remaining
members or managers are not indispensable parties. The courts
can fashion appropriate relief without the necessity of dragging
every member of each limited liability company into the case.
Appellants’ Brief at 21.
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Appellees respond that Appellants failed to join indispensable parties,
including “physicians and owners who were part of the allegedly fraudulent
plot.” Appellees’ Brief at 62. In support, Appellees argue that “Appellants
alleged a broad conspiracy in the prescription and dispensing of medication,
and in the creation of the pharmacies. Consequently, Appellants’ failure to
name these parties was a fatal defect warranting summary judgment.” Id. at
62-63.
Whether a court has subject matter jurisdiction presents a question of
law, for which our standard of review is de novo and the scope of our review
plenary. Mazur v. Trinity Area Sch. Dist., 961 A.2d 96, 101 (Pa. 2008).
Notably, “lack of subject-matter jurisdiction is a non-waivable issue, which
may be raised by the parties at any stage of the proceedings and can be raised
by the appellate courts sua sponte.” Weir v. Weir, 631 A.2d 650, 653 (Pa.
Super. 1993) (citations omitted and formatting altered).
“[A] party is indispensable ‘when his or her rights are so connected with
the claims of the litigants that no decree can be made without impairing those
rights.’” City of Phila. v. Commonwealth, 838 A.2d 566, 581 (Pa. 2003)
(citation omitted). “If no redress is sought against a party, and its rights
would not be prejudiced by any decision in the case, it is not indispensable
with respect to the litigation.” Grimme Combustion, Inc. v. Mergantime
Corp., 595 A.2d 77, 81 (Pa. Super. 1991) (citation omitted).
This Court has held that trial courts must weigh the following
considerations in determining if a party is indispensable to a particular
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litigation: (1) whether absent parties have a right or an interest related to the
claim; (2) if so, the nature of that right or interest, (3) whether that right or
interest is essential to the merits of the issue, and (4) whether justice can be
afforded without violating the due process rights of absent parties. Martin v.
Rite Aid of Pa., Inc., 80 A.3d 813, 814 (Pa. Super. 2013). “In determining
whether a party is indispensable, the basic inquiry remains ‘whether justice
can be done in the absence of a third party.’” Pa. State Educ. Ass’n v.
Commonwealth, 50 A.3d 1263, 1277 (Pa. 2012) (PSEA) (citation omitted).
Here, the trial court did not identify the parties that were indispensable
to the instant matter, nor did the court explain why those individuals were
necessary to resolve Appellants’ claims against Appellees. However, as noted
previously, Appellees’ motion for summary judgment claimed that Dr. Bruce
Levin and Dr. Thomas Whalen were indispensable parties because both were
doctors that prescribed pain creams and held an ownership interest in Appellee
1st Choice Pharmacy, LLC, in 2016.
Appellants seek money damages and attorneys’ fees from Appellees for
their alleged involvement in a fraudulent scheme. With respect to the
individual doctors named in this case, Appellants have maintained that
Appellee doctors received “kickbacks” from the pharmacies based on the
quantity of pain creams that they prescribed. See Appellant’s Brief at 31-32
(arguing that “the members received kickbacks for their self-referrals of
patients to the pharmacies that they owned”). If Appellants successfully prove
their claim against Appellee doctors named in this suit, those individuals may
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be personally liable for money damages awarded to Appellants. Such a
remedy generally would not affect the interests of the doctors who were not
named in the suit.5
Moreover, the fact that Dr. Bruce Levin and Dr. Thomas Whalen may
have a pecuniary interest in the financial performance of the companies
named in this suit does not necessarily make them indispensable parties under
the unique facts and circumstances of this case. Typically, individual members
of an LLC are not personally liable for judgments against the company. See
15 Pa.C.S. § 8834(a) (stating that a “debt, obligation or other liability of a
limited liability company is solely the debt, obligation or other liability of the
company” and that a “member or manager is not personally liable, directly or
indirectly, by way of contribution or otherwise, for a debt, obligation or other
liability of the company solely by reason of being or acting as a member or
manager”). Therefore, absent an appropriate claim and identifiable issues of
material fact concerning misconduct by the unnamed defendants, this record
does not establish that they were indispensable parties. See PSEA, 50 A.3d
at 1277; Martin, 80 A.3d at 814. For these reasons, we respectfully disagree
with the trial court’s reasoning that it lacked subject matter jurisdiction.
However, although we conclude that the trial court was incorrect in this
____________________________________________
5 Additionally, no party has cited authority mandating that every investor or
dividend recipient must be individually joined in a fraud case where the
allegations are limited to selected individual actors. Indeed, Appellees
acknowledge that there is no Pennsylvania case law requiring joinder in a fraud
case. See Appellees’ Brief at 63.
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determination, for reasons that are set forth below, Appellant is entitled to no
relief on this basis.
Jurisdiction to Review Letters of Medical Necessity
Appellants also challenge the trial court’s conclusion that it lacked
jurisdiction to review the letters of medical necessity outside of the procedures
established by the Pennsylvania Workers’ Compensation Act. Appellants’ Brief
at 21.
By way of background to this issue, the trial court explained:
[Appellants] allege that the [letters of medical necessity]
contained material misrepresentations because they were form
letters submitted and signed by the physicians without individually
considering the specific patient for whom the combination of the
medications was being prescribed and without explaining the
specific reason why the particular combination was more
appropriate for that particular patient.
As it pertains to these letters, this court is not the proper forum
to evaluate whether the [letters of medical necessity] set forth a
proper explanation as to why the compound medication was
reasonable and necessary for the patient. Disputes regarding the
reasonableness or necessity of treatment must be resolved
through the procedures set forth in the Workers’ Compensation
Act. The administrative process established in the workers’
compensation realm is the appropriate forum to make the
determination of efficacy. The record contains evidence that some
claims submitted by [Appellees] were subject to utilization
reviews. The utilization reviewers, based on the reasonable and
necessary standard, made the decision to pay or not pay the
claims. This court will not second guess decisions made in that
process and will not decide reasonableness and necessity on those
claims which were not submitted for a utilization review but could
have been. Since this court is not the forum to review the [letters
of medical necessity] for efficacy, [Appellants] may not rely upon
the [letters of medical necessity] as a material misrepresentation
for fraud and [Appellants’] claim for fraud based on the [letters of
medical necessity] is dismissed.
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Trial Ct. Op. at 11-12 (footnotes omitted).
On appeal, Appellants reiterate their claim that the trial court incorrectly
“deferred to the administrative process laid out in the workers’ compensation
law” and by declining to “‘decide reasonableness and necessity on those claims
which were not submitted for a utilization review [(UR)].’” Appellant’s Brief
at 22 (citation omitted). Appellants contend that, even if the trial court “were
correct in its deference to the fee review and/or utilization review provisions
of the workers’ compensation act, the argument does not oust the common
pleas court of jurisdiction to decide allegations of fraud.” Id. at 24. Further,
Appellants note that “the automobile accident cases and the New Jersey
workers’ compensation cases would never be subject to the review
procedures” set forth in the Pennsylvania workers’ compensation statutes. Id.
at 18. Therefore, Appellants request that we “engage in de novo review of
the misrepresentation claims based on the letters of medical necessity or . . .
vacate and remand for further proceedings.” Id. at 25.
Section 306(f.1)(6) of the Workers’ Compensation Act provides, in
relevant part, as follows:
[D]isputes as to reasonableness or necessity of treatment by a
health care provider shall be resolved in accordance with the
following provisions:
(i) The reasonableness or necessity of all treatment
provided by a health care provider under this [A]ct may be
subject to prospective, concurrent or retrospective [UR] at
the request of an [employee], employer or insurer. The
[D]epartment shall authorize utilization review
organizations [(UROs)] to perform [UR] under this [A]ct.
[UR] of all treatment rendered by a health care provider
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shall be performed by a provider licensed in the same
profession and having the same or similar specialty as that
of the provider of the treatment under review. Organizations
not authorized by the [D]epartment may not engage in such
[UR].
(ii) The [URO] shall issue a written report of its findings and
conclusions within thirty (30) days of a request.
(iii) The employer or the insurer shall pay the cost of the
[UR].
(iv) If the provider, employer, [employee] or insurer
disagrees with the finding of the [URO], a petition for review
by the [D]epartment must be filed within thirty (30) days
after receipt of the report. The [D]epartment shall assign
the petition to a workers’ compensation judge [(WCJ)] for a
hearing or for an informal conference under [S]ection 402.1
[of the Act, 77 P.S. § 711.15]. The [UR] report shall be part
of the record before the [WCJ]. The [WCJ] shall consider
the [UR] report as evidence but shall not be bound by the
report.
77 P.S. § 531(6).
Further, the Commonwealth Court has explained:
The . . . [UR] process is the exclusive way to challenge
medical bills. Neither a WCJ nor the Board has jurisdiction
to determine the reasonableness of medical treatment
unless and until a report is issued and the URO issues a
determination. Parties may not, even by stipulation, agree
to bypass [UR] and proceed directly to a hearing before a
WCJ. If the health care provider, employer, employee or
insurer disagrees with the determination of the URO, he
may, within 30 days of the URO's determination, seek
review by a WCJ. This hearing before the WCJ is a de novo
proceeding; the WCJ is required to consider the reviewer’s
report as evidence, but he is not bound by it.
Cty. of Allegheny v. Workers’ Comp. Appeal Bd. (Geisler),
875 A.2d 1222, 1226-27 (Pa. Cmwlth. 2005) (emphasis added;
citations and footnote omitted).
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In a “WCJ review of a UR determination[,] . . . ‘either party is free
to offer evidence beyond that considered in the UR process in
meeting their [sic] burden of proof.’” Importantly, “[t]he [WCJ]
has jurisdiction over all [UR] petitions and any alleged technical
deficiency or irregularity in the [UR] process; the de novo hearing
before the [WCJ] provides for a fair review in which both parties
[are] free to offer other evidence.” Carter v. Workers’ Comp.
Appeal Bd. (Hertz Corp.), 790 A.2d 1105, 1109 (Pa. Cmwlth.
2002) . . . .
Notwithstanding,
[UR] is not an alternative to a review by a WCJ, but a
mandatory first step in determining whether a provider’s
treatment is reasonable and necessary. This Court has
consistently held that a WCJ lacks subject matter
jurisdiction to determine the reasonableness and necessity
of medical treatment if the matter has not first gone to [UR].
Burgess v. Workers’ Compensation Appeal Board (Patterson-UTI
Drilling Company LLC), 231 A.3d 42, 46-47 (Pa. Cmwlth. 2020) (some
citations omitted and formatting altered), appeal denied, 240 A.3d 112 (Pa.
2020).
Here, to the extent Appellants challenge the reasonableness or necessity
of the treatment provided to patients who suffered work-related injuries, the
trial court correctly concluded that it did not have jurisdiction to revisit that
issue. See id. at 46-47. However, as noted previously, many of the claims
submitted to Appellants were for patients who were injured in automobile
accidents or in work-related injuries that occurred in New Jersey, which do not
fall under the Pennsylvania Workers’ Compensation Act. Therefore, we agree
with Appellants that the trial court erred in resolving this issue solely based
on the Pennsylvania workers’ compensation statutes. In any event, for
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reasons discussed in greater detail below, our determination on this discrete
claim does not entitle Appellants to appellate relief.
Fraud Claim
Appellants next argue that the trial court erred in granting summary
judgment with respect to fraud because there was “ample evidence” that
Appellees made material misrepresentations in the claims submitted to
Appellants. Appellants’ Brief at 26. Specifically, Appellants refer to (1) the
letters of medical necessity; (2) the characterization of the pain creams as a
compound drug; and (3) the legality of Appellees’ ownership and operation of
the pharmacies. We will address each allegation separately.
In reviewing an order granting summary judgment, we are guided by
the following principles:
Our standard of review is de novo and our scope of review is
plenary. Eclipse Liquidity, Inc. v. Geden Holdings, Ltd., 200
A.3d 507, 509-10 (Pa. Super. 2018). Summary judgment is
appropriate where there is no genuine issue of material fact as to
a necessary element of a cause of action that can be established
by discovery or expert report. Pa.R.C.P. No. 1035.2(1). “In
reviewing an order granting a motion for summary judgment, an
appellate court must examine the entire record in the light most
favorable to the non-moving party and resolve all doubts against
the moving party.” Donegal Mut. Ins. Co. v. Fackler, 835 A.2d
712, 715 (Pa. Super. 2003).
Marion v. Bryn Mawr Trust Company, 253 A.3d 682, 688 (Pa. Super.
2021).
To establish a claim for common law fraud, the plaintiff must
demonstrate:
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(1) A representation; (2) which is material to the transaction at
hand; (3) made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false; (4) with the intent
of misleading another into relying on it; (5) justifiable reliance on
the misrepresentation; and, (6) the resulting injury was
proximately caused by the reliance.
Weston v. Northampton Pers. Care, Inc., 62 A.3d 947, 960 (Pa. Super.
2013) (citation omitted).
This Court has explained:
[A] fraudulent misrepresentation can take many forms: fraud
consists in anything calculated to deceive, whether by single act
or combination, or by suppression of truth, or a suggestion of what
is false, whether it be direct falsehood or by innuendo, by speech
or silence, word or mouth, of look or gesture. It is any artifice by
which a person is deceived to his disadvantage. Where a plaintiff
asserts fraudulent misrepresentation without showing that the
defendant intended to mislead the plaintiff into reliance on the
misrepresentation, the defendant is entitled to judgment as a
matter of law.
Kostryckyj v. Pentron Lab. Techs., LLC, 52 A.3d 333, 339 (Pa. Super.
2012) (citations omitted and formatting altered). “Unsupported assertions
and conclusory accusations cannot create genuine issues of material fact as
to the existence of fraud.” Hart v. Arnold, 884 A.2d 316, 339 n.7 (Pa. Super.
2005) (citation omitted).
The insurance fraud statute provides, in part, that an individual commits
an offense if he:
(2) Knowingly and with the intent to defraud any insurer or self-
insured, presents or causes to be presented to any insurer or self-
insured any statement forming a part of, or in support of, a claim
that contains any false, incomplete or misleading information
concerning any fact or thing material to the claim.
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(3) Knowingly and with the intent to defraud any insurer or self-
insured, assists, abets, solicits or conspires with another to
prepare or make any statement that is intended to be presented
to any insurer or self-insured in connection with, or in support of,
a claim that contains any false, incomplete or misleading
information concerning any fact or thing material to the claim,
including information which documents or supports an amount
claimed in excess of the actual loss sustained by the claimant.
18 Pa.C.S. § 4117(a)(2)-(3).
Letters of Medical Necessity
In their amended complaint, Appellants argued:
In furtherance of their fraudulent scheme, [Appellee] pharmacies
supplied [Appellee] doctors with preprinted prescription forms
from which to select the fraudulent compounded creams. Such
forms thwart the independent medical decision making process on
behalf of a prescribing medical provider. [Appellee] pharmacies
also provided “letters of medical necessity” to submit to insurance
companies like [Appellants] with reasons why the fraudulent
compounded creams were supplied. [Appellee] pharmacies also
provided references and purported supportive medical literature
concerning compounded medications. [Appellees] knew or should
have known the cited medical literature in the letters of medical
necessity were not literature from widely accepted medical or peer
review journals, but rather were untested, non-peer reviewed,
self-serving opinions unrelated to [Appellees’] fraudulent
compounded creams.
Am. Compl. at ¶ 28 (some formatting altered).
On appeal, Appellants reiterate that “[t]here was ample evidence of
misrepresentations” in the letters of medical necessity. Appellants’ Brief at
18. Specifically, Appellants assert that (1) “[t]he letters contained general
information and cited to uncontrolled, non-peer reviewed studies” but that
some “doctors testified that they did not read all of the studies that were cited
in the form letters,” (2) several of the letters stated that topical pain creams
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were required because those patients were suffering from gastrointestinal
upset from oral medication, although gastrointestinal issues were not reflected
in every patient’s medical records, and (3) the topical pain creams did not
reduce opioid levels. Id.
Appellees respond that although the pharmacies provided sample letters
of medical necessity to doctors in order to “assist in explaining the
pharmaceutical science behind the compound cream prescription when
requested by an insurer,” the doctors were also free to draft their own letters.
Appellees’ Brief at 22. Further, Appellees argue that there was “no evidence
that [Appellees] misrepresented or made any inaccurate claims about the
efficacy of the medications prescribed and dispensed.” Id. at 40. Appellees
assert that “[e]ach prescription was compounded for a specific patient and
tailored to the needs of that patient based upon the prescribing physician’s
independent medical judgment.” Id. at 31. Therefore, Appellees argue that
the trial court properly rejected Appellant’s claims.
As noted previously, the trial court did not address whether the letters
of medical necessity contained material misrepresentations. However, based
on our review of the record, we conclude that Appellants have failed to identify
any evidence, let alone material issues of fact, to support this claim.
Specifically, Appellants have failed to establish how the inclusion of
uncontrolled, non-peer reviewed studies, is a fact, or even presents a material
issue of fact, amounting to a material misrepresentation by the medical
providers who submitted the letters of medical necessity as a template for
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their insurance claims. Further, even accepting Appellants’ assertions that
“gastrointestinal issues were not reflected in every patient’s medical records”
or that the creams did not appear to reduce opioid levels, those facts do not
establish that the providers misrepresented their patients’ need for topical
pain creams. Therefore, Appellants are not entitled to relief.
Description of Pain Creams as Compound Drugs
Appellants also argue that Appellees misrepresented that the pain
creams were “compound drugs,” as defined by Section 503A of the FDCA.
Appellants’ Brief at 28-29. In support, Appellants contend that “[a]lthough
the theory behind the compounded medications is that they are formulated
individually for specific patients having unique needs, the evidence showed
that the creams were prefabricated and predetermined by the pharmacists
without input from the medical providers.” Id. at 32. Relying on an opinion
by Appellants’ expert, Jackelyn Rodriguez, Appellants argue that “the
pharmacies did not operate as compounding pharmacies in compliance with
section 503A, but, instead, functioned as outsource facilities under section
503B, thus triggering federal registration and oversight.”6 Id. at 30.
____________________________________________
6 In her report, Rodriguez stated that there was “no variation in the formulas
being prescribed by the doctors,” and that “the list of drug ingredients listed
were the same and the compounding pharmacies followed the same
formulas.” See Ex. 38 at 11. Rodriguez concluded that “[t]his clearly shows
that these compounding pharmacies are not true compounding under the
requirements of [Section 503A] and have been compounding formulas, not
per individual patient requirements, but instead, they are clearly operating as
manufacturing outsource facilities under [Section 503B] of the [FDCA].” Id.
at 12.
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Therefore, Appellants argue that “[w]hile [Appellees] claimed to engage in
allowable anticipatory compounding, [Appellants’] experts contradicted that,
creating issues of fact requiring a trial,” and the trial court should have denied
summary judgment. Id. at 19.
Appellees respond that “Appellants presented no evidence and no legal
argument to support this theory.” Appellees’ Brief at 39. Appellees assert
that anticipatory compounding is permissible in limited quantities under
Section 503A when done based on “a history of the licensed pharmacist
receiving valid prescription orders for the compound AND the order having
been generated solely within an established relationship.”7 Id. at 55
(emphasis in original).
Appellees assert that the prescription requirement of Section 503A
“ensures that non-FDA approved compounded drugs are dispensed based
upon an individual’s specific needs. However, this does not mandate that the
compound be prepared only after receipt of the prescription.” Appellees’ Brief
at 54. Instead, Appellees note that anticipatory compounding is permissible
in limited quantities, which has been defined as “(1) no more than a 30-day
supply to fill valid prescriptions not yet received, and (2) the 30-day inventory
____________________________________________
7 Appellees note that “each doctor and pharmacist explained that every
medication was prepared for an individual patient or in a small batch based
upon prior refill orders[,]” that the “‘largest’ of these batches was for no more
than three patients” and that “no Appellee [p]harmacy had the capability to
make more than 750 grams of compound pain relief cream at any given time.”
Appellees’ Brief at 39 (citing deposition testimony from several doctors and
pharmacists at R.R.1294a-1295a, R.R.1402a, R.R.1485a, R.R.1547a,
R.R.1548a-1549a, R.R.1550a, R.R.1555a-1556a, R.R.1698a-1699a).
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supply must be based on the actual number of valid prescriptions that the
compounder received for actual patients in a 30-day period over the past
year.” Id. at 55. Appellees contend that Appellants presented no evidence
that Appellees failed to comply with these limitations and that, therefore, their
claim must fail. Id.
The trial court addressed Appellants’ claim as follows:
[T]he compound pain creams prescribed by [Appellee] physicians
fit the definition of a compound drug under Section 503A. The
pain creams were ordered by licensed physicians for their specific
individual patients. The prescriptions for the pain creams were
“valid prescriptions” as required by Section 503A since the
prescriptions identify the name of the patient for whom the drug
was prescribed. The use of pre-printed prescriptions or rubber
stamps is not precluded by Section 503A and does not affect the
prescription’s status as a “valid prescription” since the
prescriptions identify the name of the individual patient for whom
the drug is prescribed. Moreover, no evidence has been produced
that the compound drug formulas prescribed by physicians are
commercially available. Prescribing a similar formula for a
compound pain cream to more than one patient does not remove
the pain cream formula from the compound drug designation. The
pain cream formula need only be prescribed for an individual
patient, not solely for one patient. The pain cream formulas
prescribed for one patient may also be beneficial for other patients
who for instance may have an allergy to a dye or may be unable
to swallow pills.
Additionally, Section 503A permits pharmacies to produce
compound drugs in small batches. 21 U.S.C. § [353a](a)(2)[(A)]
of the [FDCA] permits compounding by a licensed pharmacist or
licensed physician in “limited quantities before the receipt of a
valid prescription order for such individual patient.” This is known
as anticipatory compounding. In this situation, compounding may
occur before the receipt of a valid prescription based on the history
of the pharmacy receiving prescriptions for a particular drug
product for an identified individual patient. The compounding
occurs in the context of the relationship between the physician
and the patient. The pharmacist will then compound a batch of
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drugs in anticipation of receiving a valid prescription for the drug.
There is no evidence that any anticipatory compounding occurred
outside these parameters. Since this court finds that the pain
creams prescribed here satisfy the definition of compound drug,
[Appellants’] arguments to the contrary may not form the basis
for a fraud claim.
Trial Ct. Op. at 13-15 (some formatting altered, footnotes omitted).
Based on our review of the record, we find no error in the trial court’s
conclusion that Appellants failed to present evidence to establish that
Appellees failed to comply with Section 503A. Section 503A limits the quantity
of drug product that pharmacies may compound before receiving a
prescription. However, there is nothing in the record to establish that any of
the pharmacies exceeded those limitations. Further, as noted by the trial
court, “[t]he pain cream formula need only be prescribed for an individual
patient, not solely for one patient.” See id. at 15. Therefore, to the extent
Appellants’ expert opined that the pharmacies were operating as “outsource
facilities” because they filled more than one prescription for the same
compound pain cream, that does not present an issue of material fact that
would defeat summary judgment. See Hart, 884 A.2d at 339 n.7 (stating
that “[u]nsupported assertions and conclusory accusations cannot create
genuine issues of material fact as to the existence of fraud”). Therefore,
Appellants are not entitled to relief on this claim.
Appellees’ Business Ownership Structure
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Appellants also claim that Appellees made “misrepresentations
regarding the ownership and operation of the pharmacies.” Appellants’ Brief
at 19. Specifically, Appellants argue:
The medical practitioners supposedly owned minority interests in
the pharmacies. But, the ownership was masked in some
instances, and several of the doctors owned shares in multiple
pharmacies. Moreover, the doctors were the engines that drove
the financial success of the pharmacies. The physicians referred
the patients to the pharmacies they owned so the prescriptions
would be filled. The constant stream of self-referrals for the high-
priced products ensured that the revenue would continue to flow
through the pharmacies and back to the owners in the form of
profit distributions. The outlandish size of these distributions,
together with inconsistencies in the amounts distributed to
seemingly similar ownership interests, and the fluctuating
percentages of ownership create questions of fact regarding the
legitimacy and proportionality of the distributions. The jury should
have been allowed to decide whether the payments were
kickbacks.
Id. at 19-20.
In response, Appellees argue:
The basis for [Appellants’] claims was that the Appellee physicians
owned small (in most cases 1 to 2 percent) non-voting interests
in the Appellee pharmacies to whom the patients were referred,
and the ownership structure amounted to an illegal kickback
scheme. There is nothing improper, however, about Appellees’
business model. Physician ownership of the non-controlling
minority interests in the pharmacies is expressly permitted under
the Pennsylvania Pharmacy Act [35 P.S. § 449.22]. Pennsylvania
law also expressly recognizes the propriety of referrals by the
physicians to these pharmacies, provided proper disclosure is
made.
Appellees’ Brief at 32-33.
The trial court addressed this claim as follows:
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The last category of misrepresentation relates to the illegality of
[Appellees’] ownership structure. Particularly, [Appellants] take
issue with [Appellee] physicians’ minority ownership in [Appellee]
pharmacies. [Appellants] argue that the ownership structure
provides a means for defendant physicians to be paid alleged
kickbacks for the prescriptions written. The Pharmacy Act governs
the practice of pharmacies by its rules and regulations and its
establishment of the State Board of Pharmacy, which is charged
with regulating the practice of pharmacies, licensing pharmacists,
investigating all violations of the Pharmacy Act, and prosecuting
violations where appropriate. The Pharmacy Act clearly indicates
the legislature’s intention to specifically define ‘grossly
unprofessional conduct’ by means of the thirteen enumerated
grounds provided in the statute in order to provide in advance
clear notice of what is prohibited conduct and thus avoid
vagueness defects. Physician ownership is not prohibited by the
Pharmacy Act as long as the medical practitioners holding a
proprietary or beneficial interest in the pharmacy does not
exercise supervision or control over the pharmacist in his
professional responsibilities and duties. [Appellees] admit that
they are investors/owners in the pharmacies. The evidence shows
that the interest owned by the physicians is not more than 49%,
a percentage which has been approved by the Pharmacy Board.
Hence, physician ownership in [Appellee] pharmacies is lawful.
The evidence further shows that the interest held by [Appellee]
physicians is non-voting, non-controlling and non-supervisory.
[Appellants] further argue that the pharmacies business structure
is illegal because defendant physicians engaged in self-referrals
and received “kickbacks” for the number of prescriptions written
for pain creams. According to [Appellants], the “kickbacks” were
in the form of dividends; the more prescriptions written for pain
creams, the larger the dividend. In an effort to support this claim,
[Appellants] attached as exhibits tax returns for the pharmacies
as well as included charts within their response to the motions for
summary judgment for each pharmacy anonymously identifying
the investor by number, the percentage ownership and the
dividend received. However, there is no evidence correlating the
amount of the dividend received by the investor to the number of
prescriptions written and that physician [Appellees] were paid
more dividends based on the number of prescriptions for pain
cream they wrote. Owners were paid dividends based on the
pharmacies’ profits, which included compounded drugs as well as
pills and other medications the pharmacies were authorized to
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dispense and the percentage of ownership in the pharmacy. The
fact that the investors were paid large dividends does not correlate
to illegal kickbacks. The large dividends were in part due to the
fee schedule used by [Appellants] to reimburse the claims. The
evidence shows that the pain creams were billed at the average
wholesale price (AWP), a price which is standard within the
industry and paid based on [Appellants’] use of the standard fee
schedules. As such, while the dollar amount of the dividends paid
to the investors is great, the court does not find the dividend
payment to be a “kickback.”
[Appellants] also rely on the alleged illegality of self-referrals to
support their fraud claim. [H]owever, there is no evidence that
any self-referrals were contrary to the law.
Title 35 P.S. § 449.22 (a) provides as follows: “any practitioner of
the healing arts shall, prior to referral of a patient to any facility
or entity engaged in providing health-related service[s], tests,
pharmaceuticals, appliances or devices, disclose to the patient any
financial interest of the practitioner or ownership by the
practitioner in the facility or entity. In making any referral, the
practitioner of the healing arts may render any recommendations
he considers appropriate, but shall advise the patient of his
freedom of choice in the selection of a facility or entity.”
This statutory provision does not make self-referrals automatically
illegal. On the contrary, a physician may refer a patient to a
pharmacy if the physician disclosed his/her financial interest in the
pharmacy. The record evidence shows that in fact such
disclosures were made. There is no evidence of illegal self-
referrals. Based on the foregoing, the court finds that [Appellants]
have failed to produce evidence to show that [Appellees] made
material misrepresentations.
Trial Ct. Op. at 15-18 (footnotes omitted).
Based on our review of the record, we discern no error of law in the trial
court’s ruling. The trial court thoroughly addressed Appellants’ claim
regarding the legality of Appellees’ business structure and concluded that
there was no evidence of a misrepresentation by Appellees. See id. Although
Appellants disagree with the trial court’s legal analysis, they failed to identify
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reversible error. See Marion, 253 A.3d at 688; see also Pa.R.C.P.
1035.2(2). Therefore, we affirm on the basis of the trial court’s analysis of
this issue. See Trial Ct. Op. at 15-18.
Unjust Enrichment
Appellants next argue that the trial court erred in granting summary
judgment on their unjust enrichment claim. Appellants’ Brief at 36-37. In
support, Appellants assert that Appellees realized benefits that “were unjust[,]
given that they were paid out on claims which were submitted and paid for
medications that were not legitimate compound medications for specific
individuals based upon their unique and documented medical needs.” Id. at
37. Appellants argue that “the prefabricated medicines were supposedly
justified on the basis of false letters of medical necessity which—like the
medicines themselves— were developed by the pharmacies without regard to
the particulars of any patient’s case.” Id. at 38. Further, Appellants claim
that “the presentation of these prescriptions for reimbursement were
fraudulent under the common law and the insurance fraud statute” and that
“[i]t would be unconscionable to allow [Appellees] to retain the entirety of this
huge windfall when all of the other circumstances warrant disgorgement of
the ill-gotten gains.” Id. at 38.
Appellees respond that the unjust enrichment claim was premised on
Appellants’ “belief that Appellees ‘were paid out on claims which were
submitted and paid for medications that were not legitimate compound
medications for specific individuals based upon their unique and documented
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medical needs.’” Appellees’ Brief at 60-61. However, Appellees reiterate that
Appellants paid claims “for specific medications for specific individuals based
upon their unique and documented medical needs.” Id. at 61. Therefore,
Appellees conclude that “because Appellees were paid the amounts to which
they were entitled, there was no basis for an unjust enrichment claim.” Id.
at 58 (some formatting altered).
To succeed on an unjust enrichment claim, the plaintiff must prove: “(1)
benefits [were] conferred on [the] defendant by [the] plaintiff; (2)
appreciation of such benefits by [the] defendant; and (3) acceptance and
retention of such benefits under such circumstances that it would be
inequitable for [the] defendant to retain the benefit without payment of
value.” Wilson v. Parker, 227 A.3d 343, 353 (Pa. Super. 2020) (citation
omitted). “In determining if the doctrine applies, our focus is not on the
intention of the parties, but rather on whether the defendant has been unjustly
enriched.” Id. (citation and emphasis omitted).
Here, the trial court addressed Appellants’ unjust enrichment claim as
follows:
[Appellants’] claim for unjust enrichment fails as a matter of law.
First, while [Appellee] pharmacists, lay investors, physicians and
physician assistants did realize a benefit in the form of dividends
distributed by the defendant pharmacies to them, the dividends
may not be the basis for the unjust enrichment since any
dividends paid arise from the [Appellants’] ownership interest in
the pharmacies. To the extent [Appellee] pharmacists, lay
investors, physicians and physician assistants benefitted, the
benefit was a result of their ownership in the pharmacies and not
from [Appellants]. As for the remaining group of [Appellees], the
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pharmacies, while the claim reimbursements were made directly
to them, there is no evidence that the reimbursements were
unjust. The evidence shows that the pharmacies were paid
pursuant to the workers[’] compensation and [Motor Vehicle
Responsibility Law] fee schedules. There is no evidence that the
pharmacies were paid more than the average wholesale price.
Since there is no evidence of overpayment, the claim for unjust
enrichment fails.
Trial Ct. Op. at 18-19.
Based on our review of the record, we agree with the trial court that
Appellants failed to present evidence, let alone identify any issues of material
fact, to support their unjust enrichment claim. Further, Appellants failed to
establish legal error in the trial court’s legal conclusions. Instead, Appellants
reiterate their assertion that Appellees were unjustly enriched through their
participation in a fraudulent scheme. However, because Appellants have failed
to produce evidence to prove fraud, their unjust enrichment claim must also
fail. Therefore, Appellants are not entitled to relief.
Aiding and Abetting
Finally, Appellants argue that the trial court erred in dismissing the claim
for aiding and abetting. Appellants’ Brief at 50. In support, Appellants claim:
The facts of this case demonstrate without question that
[Appellees] worked together in a common design to form a
network of pharmacies and cross-investors for the sole purpose of
enriching themselves and each other to the tune of thousands,
even millions of dollars at [Appellants’] expense. [Appellants’]
have clearly identified the wrong--the fraudulent prescribe for
profit scam based on compounded drugs that were not in actuality
compounded at all, use of which was justified by letters of medical
necessity which were not individual to patient prescriptions, just
as the drugs were not individually formulated for the specific
patients, as the Food, Drug and Cosmetic Act sets forth in section
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503A. The pharmacy ownership was illegal under the Pharmacy
Act and Anti-Kickback Laws, yet [Appellees] went merrily along
prescribing millions of dollars’ worth of these creams. It was no
coincidence that claims dropped off precipitously when it became
clear to the players that the insurers were on to the scheme and
ready to take on [Appellees].
Accordingly, if this Court were to reverse on the common law or
statutory fraud counts, then it must also reinstate the aiding and
abetting claim as well.
Appellants’ Brief at 52.
Appellees respond that an aiding and abetting claim requires “tortious
conduct, which did not occur here.” Appellees’ Brief at 62. Further, Appellees
contend that “Appellants offer their own legal conclusions that are neither
supported by the record nor consistent with [the trial court’s] detailed analysis
of the facts of record. Consequently, the trial court properly dismissed the
claim of aiding and abetting.” Id.“Section 876 of the Restatement (Second) of Torts addresses the tort of
civil aiding and abetting, which is also known as concerted tortious conduct[.]”
Sovereign Bank v. Valentino, 914 A.2d 415, 421 (Pa. Super. 2006).
Section 876 of the Restatement (Second) of Torts provides:
For harm resulting to a third person from the tortious conduct of
another, one is subject to liability if he
(a) does a tortious act in concert with the other or pursuant to
a common design with him, or
(b) knows that the other’s conduct constitutes a breach of duty
and gives substantial assistance or encouragement to the other
so to conduct himself, or
(c) gives substantial assistance to the other in accomplishing a
tortious result and his own conduct, separately considered,
constitutes a breach of duty to the third person.
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Restatement (Second) of Torts § 876.
Here, the trial court concluded that “[s]ince the claims for fraud and
insurance fraud fail, the underlying unlawful act required to state a claim for
aiding and abetting is nonexistent and therefore the claim is dismissed.” Trial
Ct. Op. at 19.
Based on our review, we agree with the trial court’s conclusion. Because
Appellants failed to establish a cause of action for an underlying tort, the
aiding and abetting claim must also fail. See Restatement (Second) of Torts
§ 876 (requiring plaintiffs to prove “tortious” act or conduct); see also
Valentino, 914 A.2d at 421. Therefore, Appellants are not entitled to relief
on this issue.
In sum, although we conclude that the trial court erred in its resolution
of the jurisdictional issues, i.e. Appellants’ failure to join indispensable parties
and the applicability of the Workers’ Compensation Act, those errors do not
affect our disposition.
Therefore, for the reasons set forth above, we conclude the trial court
correctly granted summary judgment in favor of Appellees based on
Appellants’ failure to present evidence to support their claims of fraud, unjust
enrichment, and aiding and abetting. Accordingly, we affirm.
Order affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/1/2022
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