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PQA Wins $3.9 Million Verdict Against Chiropractor and Lawyer for “Doc-in-a-Box” Scheme

On September 11, 2012, the Honorable Stephan C. Hansbury, a New Jersey Superior Court Judge, entered an Order of Judgment pursuant to the New Jersey Insurance Fraud Prevention Act in the amount of $3,961,240 in favor of PQA’s client, a Fortune 100 insurance company, against a California chiropractor and a New York attorney.  The case arose from a so-called “Doc-in-a-Box” scheme that had been promoted nationally by the chiropractor with the assistance of the lawyer.   The court imposed joint and several liability on the two defendants.

The suit alleged that the scheme was designed to enable chiropractors to fraudulently circumvent regulations in many states that prohibit them from employing plenary licensed physicians such as medical doctors and doctors of osteopathy.  Pursuant to the scheme, a professional services corporation (“the P.C.”) would be formed in the name of a medical doctor, who agreed to serve as a “paper owner.”  But through a series of documents, including an agreement with a management company formed by the chiropractor, all of the P.C.’s profits would be siphoned off by the chiropractor.  At the time of the formation of the P.C., the paper owner M.D. was also required to execute and turn over to the chiropractor an undated letter of resignation, and a pre-signed stock certificate, enabling the chiropractor to replace the paper owner M.D. at any time simply by inserting on the back of the stock certificate the name of a replacement “paper owner.”

“Doc-in-a-Box” was the term used by the New York lawyer defendant during seminars at which he assisted the chiropractor in promoting the scheme.

The suit, which was originally filed  in 1999, was tried during a three-week bench trial before Judge Hansbury in June of 2011 by PQA’s Thomas Hall,  with the assistance of partners Dan Hunczak and Tom Mulvihill.    By agreement of the parties, the issue of damages was not presented during trial, but rather was reserved for subsequent proceedings.  After several months of post-trial motions and oral argument, the court entered an Order of Judgment on the issue of liability in favor of PQA’s client on January 18, 2012.  The parties then briefed the issue of damages, including PQA’s attorneys’ fees and its client’s costs of investigation, which are not only recoverable under the Insurance Fraud Prevention Act, but which must trebled where there is proof that the defendants engaged in a “pattern” of violating the Act.  Oral argument on the issue of damages was finally heard on June 22, 2012.  The court found that PQA’s client had incurred direct damages in the amount of $1,320,413.40, which it then trebled to $3,961,240.02.   Of the direct damages amount, approximately $90,000 represented the amount that PQA’s client had paid out to the New Jersey chiropractor defendant who had used the scheme.  The balance of the damages represented legal fees and costs incurred in investigating and litigating the case.

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