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.

Survey of Recent Appellate Term, 2nd Department No-Fault Decisions

NO-FAULT – MEDICAL PROVIDER SUIT – 3-YEAR SOL UNDER CPLR § 214(2)
Boulevard Multispec Med., P.C. v MVAIC
(App. Term, 2nd Dept., decided 4/14/2008)

In Boulevard Multispec Med., P.C. v. MVAIC, the court granted MVAIC's motion for summary judgment, dismissing the provider's suit, based on its finding that the provider had not commenced suit within 3 years of when payment of the bills in question became due. The 3-year SOL of CPLR § 214(2) applied because the provder's action against MVAIC was one "to recover upon a liability, penalty or forfeiture created or imposed by statute" and not based on contract. The court rejected the provider's argument that MVAIC should be equitably estopped from asserting the SOL defense because it had previously taken the position that its verification requests were not untimely. The submission of an untimely verification request did not toll the payment due date and, therefore, the accrual date of the provider's statutory claim against MVAIC. "We disagree with plaintiff's position that its gratuitous compliance with a verification request issued beyond the payment due date, or its apparent willingness now to unilaterally waive the time limit for the sending of a verification request, can render a belated verification request timely and, ultimately, postpone the accrual date of its cause of action. Neither the relevant statute nor the applicable regulations provide for such a waiver." See, also, Kings Highway Diagnostic Imaging, P.C. v. MVAIC (App. Term, 2nd Dept., decided 4/14/2008).

NO-FAULT – MEDICAL PROVIDER SUIT – INDEPENDENT CONTRACTOR – DEFENSE NOT PRECLUDED
Health & Endurance Med., P.C. v. Liberty Mut. Ins. Co.
(App. Term, 2nd Dept., decided 4/14/2008)

In Health & Endurance Med., P.C. v. Liberty Mut. Ins. Co., the court AFFIRMED the lower court's denial of plaintiff's motion and granting of defendant's cross motion for summary judgment. Where a billing provider seeks to recover no-fault benefits for services which were not rendered by it or its employees, but rather by a treating provider who is an independent contractor, it is not a "provider" of the medical services rendered within the meaning of Insurance Department Regulations (11 NYCRR) § 65-3.11 (a) and is therefore not entitled to recover "direct payment" of assigned no-fault benefits from the defendant insurer.

In this case, the claim forms submitted by plaintiff in support of its motion for summary judgment stated that the treating professional was an independent contractor and, in opposition to defendant's cross motion, plaintiff conceded that the services were rendered by an independent contractor. Contrary to plaintiff's contention, that defense is nonwaivable and not subject to the preclusion rule. As a result, the court properly denied plaintiff's motion for summary judgment and granted defendant's cross motion for summary judgment dismissing the complaint.

NO-FAULT – MEDICAL PROVIDER SUIT – BUSINESS RECORDS – DOCUMENT RETENTION POLICY
First Aid Occupational Therapy, PLLC v. New York Cent. Mut. Fire Ins. Co.
(App. Term, 2nd Dept., decided 4/8/2008)

In First Aid Occupational Therapy, PLLC v. New York Cent. Mut. Fire Ins. Co., the court REVERSED the lower court's granting of plaintiff's motion for summary judgment, agreeing with defendant insurer that plaintiff provider had not made a prima facie showing because plaintiff failed to establish the admissibility of the claim forms annexed to its moving papers. " Inasmuch as the affirmation submitted by plaintiff's billing manager was insufficient to establish that she possessed personal knowledge of plaintiff's office practices and procedures so as to lay a foundation for the admission, as business records, of the documents annexed to plaintiff's moving papers, plaintiff failed to make a prima facie showing of its entitlement to summary judgment. The fact that copies of documents were stored in compliance with a document retention policy is not sufficient to establish that the documents were business records in the absence of a showing as to how and when the documents were generated (see CPLR 4518). "

NO-FAULT – MEDICAL PROVIDER SUIT – PRIOR INJUNCTION
A.T. Med., P.C. v. State Farm Ins. Co.
(App. Term, 2nd Dept., decided 4/24/2008)

In A.T. Med., P.C. v. State Farm Ins. Co., the court REVERSED and vacated the lower court's order granting plaintiff's motion for summary judgment. State Farm demonstrated on appeal that in a separate action brought by State Farm against various health care providers including the plaintiff, Nassau County Supreme Court had enjoined the providers from commencing suit against State Farm to recover no-fault benefits during the pendency of that action. State Farm successfully argued that plaintiff's summary judgment motion in this action, therefore, was improperly made, the Appellate Term agreeing that the injunction barred the motion.

NO-FAULT – MEDICAL PROVIDER SUIT – ILLEGIBLE PEER REVIEW REPORTS
Boris Kleyman, P.C. v. Kemper Ins. Co.
(App. Term, 2nd Dept., decided 4/24/2008)

In Boris Kleyman, P.C. v. Kemper Ins. Co., the court REVERSED the lower court's order denying plaintiff provider's motion for summary judgment. The peer review reports submitted by Kemper in support of its defense that the services rendered were not medically necessary were illegible. Thus, the Appellate Term held that Kemper failed to demonstrate the existence of a triable issue of fact as to medical necessity.