No Private Right of Action for Person Who Claims a Wrongful Report of Fraud

The United States Court of Appeals for the Second Circuit certified the following question to the Court of Appeals of New York:

Does New York Public Health Law [§ ] 230 (11) (b) create a private right of action for bad-faith and malicious reporting to the Office of Professional Medical Conduct?

In Dr. Robert D. Haar, M.D. v. Nationwide Mutual Fire Insurance Company, No. 81, 2019 NY Slip Op 08445, Court of Appeals of New York (November 21, 2019) Dr. Haar, an orthopedic surgeon licensed to practice medicine in New York, treated four patients who were injured in automobile accidents and insured by defendant Nationwide Mutual Fire Insurance Company. Plaintiff submitted claims to defendant in connection with each patient, and defendant either fully or partially denied each claim. Nationwide, thereafter, filed complaints with the Office of Professional Medical Conduct (OPMC) alleging insurance fraud. After an investigation, OPMC declined to impose any discipline against Dr. Haar who then sued asserting that Nationwide’s complaints to OPMC lacked a good-faith basis in violation of Public Health Law § 230 (11) (b), and interposed a separate cause of action for defamation.

Defendant removed the action to federal court and moved to dismiss the complaint, arguing that Public Health Law § 230 (11) (b) did not expressly or impliedly provide plaintiff with a right of action and that the defamation claim was time-barred. The United States District Court for the Southern District of New York granted defendant’s motion to the extent of dismissing the cause of action premised on section 230 (11) (b). The District Court subsequently concluded that plaintiff’s defamation cause of action was time-barred.

ANALYSIS

Public Health Law § 230 governs professional medical misconduct proceedings. Section 230 (11) sets forth the procedures for reporting “information . . . which reasonably appears to show that a licensee is guilty of professional misconduct,” as defined by the Education Law (Public Health Law § 230 [11] [a]). To that end, the statute requires that certain organizations and licensees like Nationwide, report suspected medical misconduct, although the statute also permits “any other person” to submit complaints to OPMC. The provision provides that any person who reports or provides information to [OPMC] in good faith, and without malice shall not be subject to an action for civil damages or other relief as the result of such report.

Absent explicit legislative direction, it is for the courts to determine, in light of the statutory provisions, particularly those relating to sanctions and enforcement, and their legislative history, and of existing common-law and statutory remedies, with which legislative familiarity is presumed, what the legislature intended.

To determine if there is a private right of action a court must determine:

1. whether the plaintiff is one of the class for whose particular benefit the statute was enacted;
2. whether recognition of a private right of action would promote the legislative purpose; and
3. whether creation of such a right would be consistent with the legislative scheme.

All three factors must be satisfied before an implied private right of action will be recognized.

Beginning with the first factor, plaintiff failed to demonstrate that he falls within the class the legislature intended to benefit by enacting the statute. Subdivision 11 was subsequently added and amended, providing immunity from civil litigation for making good-faith reports to OPMC. On the face of this provision, there is no indication that the legislature intended to benefit medical professionals accused of misconduct, as opposed to persons or entities that report suspected medical misconduct. To alleviate the concern that the reporting persons or entities would be sued for making the reports required by the statute, and to increase the reports of unprofessional conduct to OPMC, section 230 (11) (b) was codified specifically to afford immunity from civil suit.

The pertinent legislative history makes clear that section 230 (11) (b) was not added to the Public Health Law to protect physicians, such as plaintiff, accused of misconduct. Rather, that provision was intended to protect the public from medical misconduct by encouraging reporting.

There is no indication that physicians accused of misconduct were the intended beneficiaries of section 230 (11) (b). The first, and perhaps most easily satisfied, prong for determining whether a statute implies a private right of action is not satisfied in this case.

Because plaintiff failed to establish the first prong of the well-settled analysis, the appellate court found it must conclude — regardless of its consideration of the other two factors — that there is no implied right of action under Public Health Law § 230 (11) (b).

Plaintiff seeks to imply a private right of action based on negative implication; he argues that the “good faith” language implicitly recognizes that bad-faith reporting is actionable.

The court rejected plaintiff’s argument here that the language of Public Health Law § 230 (11) (b) creates an implied right of action by negative implication. Moreover, common law remedies exist, thereby undercutting plaintiff’s argument that there is no other method of deterring bad-faith reporting.

The third and final factor — whether creation of such a right would be consistent with the legislative scheme also militates against recognition of an implied right of action. The legislature enacted Public Health Law § 230 (11) to encourage robust reporting. The implied right of action plaintiff seeks would diminish the effectiveness of this statutory scheme. Recognizing an implied right of action in section 230 (11) (b) could discourage mandatory reporters from complying with their statutory duties out of concern that even a good-faith report could spawn litigation under that section. This result would be antithetical to the legislature’s clear objective.

In sum, Public Health Law § 230 (11) (b) was not enacted for the benefit of persons similarly situated to plaintiff, and a private right of action is inconsistent with the legislative purpose and broader statutory scheme. Because there is no indication that the legislature intended to create a private right of action in section 230 (11) (b), the appellate court answered the certified question in the negative.

ZALMA OPINION

Insurance fraud, and fraud by medical practitioners, has increased logarithmically over the last two decades. States, like New York, recognize how expensive fraud is to the public. It created a statute requiring reports of fraud to the state and, to encourage reporting, provided the person or entity reporting, immunity for a good faith report of fraud. That statute, without question, protected Nationwide from Dr. Haar’s suit. If the doctor could prove malice he still has the right to sue under the common law but could not create a private right of action from a statute designed to do the opposite.

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Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.