Injunctive Relief Granted in Mallela-Type Action

NO-FAULT – MALLELA CLAIM – FRAUDULENT INCORPORATION – INJUNCTIVE RELIEF – CHANGE OF VENUE
One Beacon Insurance Group, LLC v. Halima
(Sup. Ct., Suffolk Co., decided 7/15/2008)

OneBeacon, AutoOne and General Assurance brought this Mallela-type action against three groups of defendants, the Halima defendants, the Minick defendants and the Glassman defendants, alleging that all the various defendants and entities had engaged in a systematic scheme to defraud OneBeacon by submitting bills for reimbursement of no-fault related services allegedly rendered to individuals involved in automobile accidents. One Beacon contended that the named individual defendants who are physicians sold their names and allowed the use of their medical licenses to form the related professional corporations also named as defendants for the sole basis of obtaining benefits from OneBeacon, among others. OneBeacon alleged that the professional medical corporations were actually created and owned by laypersons, chiropractors and a now disbarred attorney. All but defendant Mark Slamowitz of the Halima defendants defaulted.

Claiming that it was currently litigating claims by the defendants in excess of $456,682.11, OneBeacon moved for injunctive relief seeking to stay all current and future no-fault proceedings against the defendants as well as payments pending resolution of this lawsuit. The Minick defendants moved to dismiss various causes of action of the complaint, including ones for declaratory relief (1st and 2nd), fraud (3rd), punitive damages (4th) and unjust enrichment (5th), based on the asserted failure of the complaint to state valid causes of action. Defendant Slamowitz also moved to change the action's venue from Suffolk County to Kings County.

On OneBeacon's motion for injunctive relief, Suffolk County Supreme Court Justice Peter Fox Cohalan ruled:

The plaintiff has established irreparable harm, likelihood of ultimate success on the merits and that the balancing of the equities lies in their favor. Trimboli v. Irwin, 18 AD3d 866, 796 NYS2d 659 (2nd Dept. 2005). However, because preliminary injunctive relief is an equitable remedy, the award of such relief is not only discretionary with this Court, but may be tailored to protect the interests of all the parties. See, Paddock Construction LTD. v. Automated Swim Pools. Inc., 130 AD2d 894, 515 NYS2d 662 (3rd Dept. 1987); Antinelli v. Toner, 74 AD2d 996,427 NYS2d 99 (4th Dept. 1980) appeal after remand, 78 Ad2d 576,432 NYS2d 421. Therefore, as to the defaulting defendants named, injunctive relief is granted without opposition; as to those defendants appearing in this action, the injunctive relief sought is granted unless these defendants present and file with the plaintiff, the corporate documents establishing a licensed medical professional is the owner, operator and in principal control of the corporation seeking reimbursement of no-fault benefits provided. A failure to so provide the corporate documents, resolutions and identity of the officers of the corporation seeking benefit payments will continue the injunction as to all defendants failing to provide such proof. The defendants are directed to provide to the Court copies of all documents identifying the principals in control of the various entities seeking payment for benefits provided under the no-fault provisions. The defendants are granted leave to renew their objections to injunctive relief if they have been unfairly denied reimbursement after having provided the documentation and proof required by this order. See, CPLR § 6314. The plaintiff is directed to file an undertaking in the amount of $100,000.00 pursuant to CPLR § 6312 (b).

Justice Fox Cohalan denied the Minick defendants' motion to dismiss the complaint based on their argument that the complaint failed to state valid causes of action:

CPLR § 3016 requires an action sounding in fraud to be pled with particularity and to set forth sufficient detail to clearly inform the defendant with respect to the incidents complained of. The plaintiff has set forth in detail that the named defendants and the corporations controlled by them are but shell corporations in the name of licensed medical physicians but are actually owned and controlled by nonlicensed non-medical individuals, such as Michael Scott Minick, a chiropractor, using the “dummy” corporations to bill the no-fault carrier for services allegedly not performed or performed contrary to law. The plaintiff provides an affidavit from Halima, a defaulting defendant and a cooperating one, as well as an affidavit from Nichole Matthews, an investigator for Autoone Insurance Company, that Halima, among others, sold his name to non-licensed non-medical professionals to incorporate “dummy or shell” corporations owned and controlled by others but carrying a licensed physician’s name to provide no-fault services which were billed to the named plaintiff seeking reimbursement for these no-fault services. While there may be some missing details, the New York Court of Appeals has held that the misconduct of the defendants complained of must be shown in some detail but particularity and/or specific conduct may await further discovery where it is impossible at this stage of the proceedings to detail the fraud.

* * * * *

As to the 4th cause of action sounding in punitive damages, the courts have long recognized that punitive damages are warranted where the conduct of the party being held liable evidences a high degree of moral culpability, where the conduct is so flagrant as to transcend mere recklessness or where the conduct constitutes wilful or wanton negligence or recklessness. * * * Since the plaintiff alleges in its complaint the commission of a tort in the nature of a fraud, independent of any contractual claim, the cause of action alleging punitive damages is proper. * * *

A review of the plaintiff's complaints and submissions demonstrates sufficient claims and principles well recognized in the New York Court of Appeals' decision in State Farm v. Mallela, supra, that there is no entitlement to no-fault reimbursement for a fraudulently incorporated medical corporation and the failure of the defendants to cooperate into a full airing of the underlying ownership and control of the various corporate entities by the individual defendants named is subject to the relief requested if established. For those reasons, the motion to dismiss the 1st and 2nd causes of action seeking declaratory judgment relief is denied.

Finally, the court denied defendant Slamowitz' motion to change venue to Kings County, finding that Suffolk County was a proper venue because OneBeacon maintains an office there, defendant Slamowitz failed to make a timely demand or motion to change venue, and failed to establish the identity of the witnesses of the movant who allegedly will be inconvenienced, their willingness to testify and the nature of their anticipated testimony.