NYSSIU Legal Update 2019-2020 Edition

 LEGAL UPDATE

I have been privileged since incorporating the New York State Chapter of Special Investigation Units (NYSSIU) in 1997 to serve as its Counsel.  Many times I have prepared and presented the NYSSIU Legal Update to members and guests at NYSSIU meetings.  Some of those updates even made it to NYSSIU's website.  

On May 6, 2020, my son Ryan Mura prepared and virtually presented the 2019-2020 edition of the NYSSIU Legal Update.  That edition digests eight no-fault, six property and two criminal law case decisions, as well as providing updates on New York legislative and regulatory developments affecting New York property and casualty insurers. 

You can read that Legal Update here.  Case decisions are hyperlinked within.  Questions can/should be directed to Ryan.

Form Over Substance Does Matter -- Having Not Asserted Collateral Estoppel as an Affirmative Defense, No-Fault Insurer Is Denied Dismissal of Provider's Recovery Action

NO-FAULT – COLLATERAL ESTOPPEL – MALLELA DEFENSE  
Downtown Acupuncture PC v. State Wide Ins. Co.
(NYC Civ. Ct., Kings Co., decided 10/22/2015)

In 2010, State Farm Mutual Automobile Insurance Company commenced a declaratory judgment action in Nassau County Supreme Court against Downtown Acupuncture PC and other PCs purportedly owned not by licensed professionals but by Valentina Anikeyeva, In 2013, Supreme Court granted State Farm's motion to strike the defendant PCs' answer in that action based on the defendants' non-compliance with a so-ordered discovery stipulation and, based on the defendants' default in pleading, further granted judgment to State Farm, finding that

the overwhelming evidence indicates that the P.C. defendants were not owned and controlled by a licensed acupuncturist, therefore rendering them ineligible to receive reimbursement, and to collect payment on outstanding claims. Additionally, a billing provider which utilizes an independent contractor to provide the services in question, is not a "provider" of the services in question and is not entitled to recover direct payment of assigned no-fault benefits from the defendant insurer. 

In July 2015 the Second Department affirmed that decision, finding that the defendant PCs had failed to demonstrate reasonable excuse for their default in complying with the terms of the conditional order and a meritorious defense to the complaint. 

In this 2004-commenced action, defendant State Wide Insurance Company moved on the eve of trial in late 2014 to dismiss this action based on the doctrine of collateral estoppel, arguing that the Nassau County Supreme Court order and judgment in the State Farm DJ action precluded plaintiff from arguing that it was entitled to receive no-fault benefits.  

Noting that a New York no-fault insurer's Mallela defense is not subject to preclusion "and hence is non-waivable", Kings County Civil Court Judge Katherine Levine nevertheless denied State Wide's dismissal motion, holding:  

This Court cannot even entertain defendant's request for collateral estoppel until it seeks to amend its answer to raise Mallela as a defense and hence create an apparent identity of issues between the DJ action and the instant matter. In the same motion to amend it can also assert collateral estoppel. After defendant formally moves to amend, plaintiff will be afforded the opportunity to argue how it would be prejudiced by such a motion. The Court is quite dubious that plaintiff will be able to show any prejudice or surprise since the Appellate Term noted as early as 2012 that "(t)here exists a rich history of litigation, involving a multitude of cases before the Appellate Term, in which health care facilities allegedly owned by Ms. Anikeyeva have been asked to supply Mallela discovery." Lexington Acupuncture PC, supra, 35 Misc 3d at 49 (Golia, J. concurring). However, sometimes form over substance does matter and plaintiff must be afforded the opportunity to argue prejudice or disclaim the apparent identity of issues.

Justice delayed is justice denied?  Probably not in this case, given Judge Levine's expressed dubiousness. I see a motion to amend and dismiss coming.  

New York Insurance Law § 5109 Does Not Preempt a No-Fault Insurer's Mallela-Based Recovery Action

NO-FAULT – MALLELA DEFENSE – INSURANCE LAW § 5109
Allstate Ins. Co. v. Belt Parkway Imaging, P.C.
(1st Dept., decided 11/30/2010)

While we're talking about Dr. Rabiner's MRI facilities (see post below), defendant providers contended in this case that the New York State Legislature's post-Mallela enactment of Insurance Law § 5109 overruled Mallela or preempts or precludes Mallela-based recovery actions such as this one.  New York County Supreme Court (Eileen Bransten, J.) rejected that argument in denying defendant providers' motion for summary judgment, and the Appellate Division, First Department, AFFIRMED, holding:

"A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement" (11 NYCRR 65-3.16[a][12]).  Pursuant to this regulation, the Court of Appeals held that "insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises" (see State Farm Mut. Auto Ins. Co. v Mallela, 4 NY3d 313, 319, 321 [2005]). Mallela was decided on March 29, 2005.  The Legislature subsequently enacted Insurance Law § 5109, which became effective on August 2, 2005.

There is no indication in § 5109 that the statute overrules Mallela. Nor is there any such indication in its legislative history, which "must be reviewed in light of the existing decisional law which the Legislature is presumed to be familiar with" (Matter of Knight-Ridder Broadcasting v Greenberg, 70 NY2d 151, 157 [1987]).

Section 5109(a) states, "The superintendent, in consultation with the commissioner of health and the commissioner of education, shall by regulation, promulgate standards and procedures for investigating and suspending or removing the authorization for providers of health services to demand or request payment for health services as specified in" Insurance Law § 5102(a)(1). However, the Superintendent of Insurance has issued no regulations pursuant to § 5109(a). Thus, if — as defendants contend — only the Superintendent can take action against fraudulently incorporated health care providers, then no one can take such action.  In light of the fact that "[t]he purpose of the regulations of which [11 NYCRR] 65-3.16(a)(12) is a part was to combat fraud" (Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407, 409 [2006]), this would be an absurd result, and we reject it (Statutes § 145).

Appeal Outcome of a Mallela-esque Trial

Over in No-Fault Paradise, Dave Barshay reports on the recent appeal outcome of the 2008 trial of 30 consolidated cases of Dr. Herbert Rabiner of Metroscan Imaging, P.C., Belt Parkway Imaging, P.C., Diagnostic Imaging, P.C., and Parkway MRI, P.C. no-fault notoriety.  Those of you who fancy yourselves no-fault dorks (Barshay's moniker) should head over to No-Fault Paradise and read Dave's post and the Appellate Term's December 20th decision. 

Among the Mallela-esque issues before the Appellate Term was whether a Mallela defense must be proven by clear and convincing evidence, as the trial judge Bernice Daun Siegel had ruled, or a preponderance of the evidence, as defendant State Wide Insurance Company contended.  It is important to note that the Appellate Term did not reach and decide that issue, finding that "the evidence adduced at trial was insufficient to establish,  even by a preponderance of the evidence, that plaintiffs were operated in violation of state licensing requirements."

The Appellate Term also found that the trial court properly determined that because State Wide never issued any denial of claim forms to the providers, the accrual of compound interest (the contested dates of service were before the April 5, 2002 amendment of Regulation 68) was never tolled and commenced from 30 days after the claims were submitted to State Wide for payment.  Over at his No Fault Defender blog, Jason Tenenbaum notes that this decision could cost State Wide millions in compound interest.

"Because We Don't Have the Money" -- Andrew Carothers and Former Counsel Fight Over Fees

NO-FAULT – MALLELA DEFENSE – ATTORNEYS' FEES – OVERBILLING – FRAUD
Collier, Halpern, Newberg, Nolletti & Bock, LLP v. Andrew Carothers, M.D., P.C.
(Sup. Ct., Westchester Co., decided 7/2/2010)

Someone should submit this case to Wikipedia as a footnote for its irony entry.

New York no-faulters will recall that in August 2008, a Richmond County (Staten Island) civil court jury rejected Andrew Carothers MD, PC's $23 million in consolidated claims for MRI services against 50 insurance companies, finding that the corporation rather than being owned by Dr. Carothers had been "fraudulently incorporated", i.e., the Mallela defense.

In Matter of Andrew Carothers, M.D., P.C. v Insurance Cos. Represented by Bruno Gerbino & Soriano, LLP, 26 Misc 3d 448 (NYC Civ. Ct., Richmond Co., decided 10/14/2009), Richmond County Civil Court Judge Peter Sweeney denied the plaintiff PC's post-trial motion to set aside the jury's verdict.  Those wishing to understand what a fraudulent incorporation or Mallela defense looks like should read Judge Sweeney's summary of the trial evidence in that case.  It is my understanding that the verdict has been appealed. 

The plaintiff law firm Collier, Halpern, Newberg, Nolletti & Bock, LLP did not represent Andrew Carothers, MD, PC (ACMDPC) in that case; the once über confident Mark W. Smith of Smith Valliere, PLLC, did (and is defending ACMDPC and Dr. Carothers in this action). Collier Halpern brought this action against ACMDPC, Dr. Carothers personally, and other defendants to recover $402,626.44 in legal fees and disbursements ACMDPC and Dr. Carothers allegedly failed to pay.  Collier Halpern had billed the PC and Dr. Carothers a total of $892,190.99 for defending them in 13 actions brought by various no-fault insurance companies.  The total amount of billings at issue in 11 of those 13 actions was $47,937.60. 

On defendants' motions to dismiss, the court dismissed the complaint against the Medtrex defendants and the quantum meruit and fraud causes of action against defendants ACMDPC and Carothers.  The Carothers defendants then answered and asserted nine affirmative defenses.  After discovery and the filing of a note of issue, plaintiff moved for summary judgment on the grounds of breach of the retainer agreement and account stated.  In support of their motion, plaintiff argued that there were no issues fact to preclude summary judgment because at his deposition when asked by plaintiff why its invoices were not paid Dr. Carothers replied "Because we don't have the money." Further, when asked if there was any other reason why plaintiff was not being paid, Dr. Carothers answered "No."

In addition to opposing plaintiff's motion on various grounds,the Carothers defendants cross-moved for leave to amend their answer to assert four counterclaims against the plaintiff for its alleged "gross overbilling" based on breach of contract, unjust enrichment, breach of fiduciary duty, and fraud.  In support of their cross motion, the Carothers defendants contended that in view of the fact that they allege plaintiff misstated the number of hours expended on various matters and marked up out-of-pocket expenses when only the actual cost of the expenses were to be charged, there was a valid claim for fraud.

In denying plaintiff's motion for summary judgment, Westchester County Supreme Court Justice William Giacomo ruled:

Here, there are significant questions of fact regarding the reasonableness of the legal fees billed in this case. There is no dispute that plaintiff charged approximately $900,000 in legal fees for cases worth about $48,000. Notably, the legal fees are about 20 times the value of the no-fault cases! While the Court is mindful of the fact that the avoidance of particular outcome in first party benefit no fault cases can be worth more than the medical reimbursement at stake, to wit, a finding that the health care provider was unlicensed or fraudulently licensed providers (see State Farm Mut. Auto. Ins. Co. v. Robert Mallela, 4 NY3d 313 320-22 [2005][Such a determination renders these entities "not eligible" for reimbursement .], it still seems to this Court that legal bills in excess of 20 times value of the no-fault cases warrants denial of summary judgment as the reasonableness of attorney's fees is always subject to court scrutiny. (See Matter of First Natl. Bank v Brower, 42 NY2d 471 [1977]; D'Antoni v. Ansell, 184 AD2d 678 [2nd 1992]; Reisch & Klar v Sadofsky, 78 AD2d 517 [2nd Dept 1980]).

As the First Department noted in Collier, Cohen, Crystal & Bock v. MacNamara, 237 AD2d 152 [1st 1997]), a similar case in which a law firm [a predecessor firm to the plaintiff?] was trying to collect fees which seemed on their face to be unreasonable, "[f]urther militating against summary disposition of this matter is the question of the reasonableness of the fees the firm is attempting to collect, to wit, $155,000 for less than six months work for defendant's interest in a partnership valued at less than $30,000. It is recognized that the courts possess the traditional authority "to supervise the charging of fees for legal services under the courts' inherent and statutory power to regulate the practice of law" (id at 152; see also Gair v Peck, 6 NY2d 97 [1959], cert denied 361 US 374 [1960]; Finkelstein v Kins, 124 AD2d 92, 100 [1st Dept 1987], appeal dismissed 69 NY2d 1023 [1987]).

Based on the foregoing, summary judgment is DENIED because "[t]he reasonableness of plaintiff's fees can be determined only after consideration of the difficulty of the issues and the skill required to resolve them; the lawyers' experience, ability and reputation; the time and labor required; the amount involved and benefit resulting to the client from the services; the customary fee charged for similar services; the contingency or certainty of compensation; the results obtained and the responsibility involved." (Morgan & Finnegan v. Howe Chemical Co., Inc., 210 AD2d 62 [1st Dept 1994]; see also Matter of Freeman, 34 NY2d 1, 9 [1974]; Marshall v New York City Health & Hosps. Corp., 186 AD2d 542, 543 [2nd 1992]; Gutin v Gutin, 155 AD2d 586, 587 [2nd 1989]; cf., Kramer, Levin, Nessen, Kamin & Frankel v Aronoff, 638 F Supp 714 SDNY 1986]).

The court also granted the Carothers defendants' cross motion to amend their answer to assert four counterclaims against plaintiff, holding:

Here, although the note of issue has been filed there can be no doubt that the allegations raised in the Carothers defendant's counterclaims are not a surprise to plaintiff. The amount and propriety of legal fees billed by plaintiff is the heart of the dispute between the parties. Therefore, the four proposed counterclaims arguable have merit. 

A fraudulent billings counterclaim being asserted by the Carothers defendants against the attorneys who defended them in actions alleging that Carothers fraudulently incorporated and billed under ACMDPC.  See the irony?

Nassau District Court Rules that a No-Fault Insurer May Not Obtain Documentary Material Relating to a Mallela Defense in an EUO Request

NO-FAULT – VERIFICATION – PROVIDER EUO – DOCUMENT REQUESTS – MALLELA DEFENSE
Dynamic Med. Imaging, P.C. a/a/o Staffa Pasqualino v State Farm Mut. Auto. Ins. Co.
(Nassau Dist, 1st Dist., decided 7/15/2010)

From the judge who last inspired me to quote Lewis Carroll's Jabberwocky comes this decision, another head scratcher.

New York no-fault mavens know that the Mallela defense is not subject to the 30-day pay-or-deny preclusion rule of Insurance Law § 5106(a) and 11 NYCRR § 65-3.8(a)(1).  They may also know that under New York procedural law, a litigant must have a good faith basis for alleging something that's in a complaint or an answer.  Having a good faith basis to allege something usually depends on having already obtained some factual information about the allegation or defense.  

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the New York Court of Appeals held that a health care provider which is fraudulently incorporated or organized in violation of New York Business Corporation Law §§ 1507, 1508, and New York Education Law § 6507(4)(c) is not entitled to reimbursement from no-fault insurers for medical services rendered by licensed medical practitioners.  New York state licensing requirements prohibit nonphysicians from owning or controlling medical service corporations. Only an appropriately licensed professional licensed may be the owner of a profession corporation [Business Corporation Law §1507], a professional limited liability company [Limited Liability Company Law §1207]or a professional limited liability partnership [Partnership Law §121-1500(q)], and only licensed professionals can obtain payment of no-fault benefits. 11 NYCRR § 65-3.16(a)(12).

Plaintiff submitted bills to State Farm for lumber and cervical MRIs and 3D renderings ordered by the assignor's treating chiropractor.  State Farm sought to determine whether the plaintiff, Dynamic Medical Imaging, P.C., was properly incorporated and operating, so it requested that the PC's purported owner, Steven Brownstein, M.D., appear for an examination under oath (EUO) and produce the following documents and records:

(i) documents evidencing ownership of the P.C., at the time of the treatment for which you seek payment, by one or more licensed professionals, including but not limited to a copy of the certificate of incorporation for the P.C., receipts for filing, stock certificates, and the stock ledger for the P.C.;

(ii) documents relating to the income and expenses of the P.C., including but not limited to tax returns and general ledgers of the P.C. for the past twelve months;

(iii) a list of the individuals who provided and/or supervised the health care services for which you seek payment, identification of the type of professional license each individual holds, and documents (i.e, W-2, 1099, etc.) identifying the relationship between the individual and the P.C. (e.g. whether the individual is an employee or independent contractor and how that individual is compensated);

(iv) a list of days of the week and hours that any owner of the P.C. provides or supervises services for the P.C. during the period for which payment is sought for services rendered;

(v) all documents, including all schedules, attachments or addenda, relating to the relationship between the P.C., and/or any entity of individual that leases equipment or space to or from the P.C., or provides management, consulting, administrative or billing services to the P.C. and any payments made to any person or entity that rendered such services to the P.C.; and

(vi) complete, sign and return the enclosed NF-3 form.

Dr. Brownstein twice did not appear for the EUO, scheduled for October 30, 2007 and November 19, 2007, and none of the requested documents was provided to State Farm.  By letter dated December 12, 2007, State Farm denied payment of the plaintiff's bills, based on Dr. Brownstein's failure to appear for an EUO and the provider's failure to comply with 11 NYCRR 65-3.16(a)(12).  Plaintiff commenced this action on January 24, 2008 to recover payment of its bills, and State Farm moved for summary judgment.

In DENYING State Farm's motion, Justice Fred Hirsh concluded that by requesting Mallela materials, State Farm's EUO request was "palpably improper" and that a no-fault insurer should not be allowed to obtain what in essence Justice Hirsh believes constituted pre-action discovery in conjunction with a duly requested EUO:

No-fault is a statutory/regulatory system. See, Medical Society of the State v. Serio, 100 NY2d 854 (2003). No fault is in derogation of the common law. East Acupuncture, P.C. v. Allstate Ins. Co., 61 AD3d 202 (2nd Dept. 2009).  The rights of an insurer are limited to those expressly provided for by the statute and regulations. Presbyterian Hosp. in City of NY v. Maryland Cas. Co., 90 NY2d 274, rearg. denied 90 NY2d 937 (1997)The regulation provide for an examination under oath. The term "examination under oath" is not defined by the no-fault regulations. Word used in regulations that are not specifically defined in the regulations are to be given their ordinary meaning. Oefelein v. Town of Thomson Planning Board, 9 AD3d 556 (3rd Dept. 2004); Parker v. Kelly, 140 AD2d 993 (4th Dept. 1988); McCarter v. Beckwith, 247 App.Div 289 (2nd Dept. 1936: and McKinney's Statutes §76. Examination is defined as the questioning of a witness by an attorney. See, Law.Com Law Dictionary. Examination can also be defined as a formal interrogation. Webster's Unabridged Dictionary 2nd Ed. (1998) p.673. Therefore, the term "examination under oath" as used in the no-fault regulations means the insurer can request the injured party or the assignee of the injured party appear and give oral testimony after having been sworn or under affirmation.

The regulations do not provide an insurer with the right to obtain written documentation other than such documentation as may be demanded as verification. In addition to appearing for an examination under oath, the assignee can be compelled to execute a written proof of claim under oath and provide other pertinent information as may assist the insurer in determining the amount due and payable. 11 NYCRR 65-1.1. The regulation do not give the insurer to right to ask an assignee to produce documents relating to the corporate structure or finances of a medical provider. 11 NYCRR 65.3.5(a). Upon receipt of the completed verification form, the insurer can request additional verification. 11 NYCRR 65-3.5(b). The regulations only permit the insurer to obtain written information to verify the claim. 11 NYCRR 65-3.5(c). See generally, V.M.V. Management Co, Inc. v. Peerless Ins., 15 AD3d 647 (2nd Dept,. 2005). Nothing in the No-Fault regulations permits an insurer to request an assignee to produce corporate organizational and financial documents a week in advance of an EUO.

An examination under oath permits the insurer to question the injured party or the its assignee regarding the claim. While an examination under oath has been treated by the courts as condition precedent to coverage, the no fault regulations treat the examination under oath as a form of verification. Thus, where a carrier properly demands an examination under oath, "...the verification is deemed to have been received by the insurer on the day the examination was performed." 11 NYCRR 65-3.8(a)(1). The insurer has 30 days from the day the EUO is conducted to is conducted to pay or deny the claim. Id. 

The purpose for demanding verification is to extend or toll the carriers time to pay or deny the claim so the carrier can obtain information regarding the claim. Hospital for Joint Disease v. New York Central Mutual Fire Ins. Co., 44 AD3d 903 (2nd Dept. 2007); and 11 NYCRR 65-3.5(c); and 11 NYCRR 65-3.8(a)(1). The extension of time in which to pay or deny the claim is extremely important in circumstances in which the insurer is seeking information regarding a defense the insurer would be precluded from raising if the defense is not stated in a timely served denial. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., 10 NY3d 556 (2008); and Lincoln General Ins. Co. v. Alev Medical Supply Inc., 25 Misc 3d 1019 (Dist. Ct. Nassau Co. 2009).

However, this rationale does not apply to a Malella [sic] defense since a Malella [sic] defense is non-precludable. State Farm Mutual Ins. Co. v. Malella [sic], 4 NY3d 313 (2005).

While Malella [sic] has been called a fraudulent incorporation defense, the rationale underlying Malella [sic] is that only an appropriately licensed professional licensed may be the owner of a profession corporation [Business Corporation Law §1507], a professional limited liability company [Limited Liability Company Law §1207]or a professional limited liability partnership [Partnership Law §121-1500(q)] and only licensed professionals can obtain payment of no-fault benefits. 11 NYCRR 65-3.16(a)(12). The Malella [sic] defense permits an insurer to look behind a facially proper business structure to determine if persons not duly licensed to practice the profession are the actual owners of the medical provider. Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, 26 Misc 3d 448 (Civil Ct. Richmond Co. 2009). If the provider is not owned by a licensed professional or if the provider is controlled by a non-professional, then the provider may not obtain payment of no-fault benefits. State Farm Mutual Ins. Co. v. Malella [sic], supra.

If a carrier believes the provider/assignee is subject to a Malella  [sic] defense, the proper way to assert it as an affirmative defense it in its answer. New York First Acupuncture P.C. v. State Farm Mut. Auto. Ins. Co., 25 Misc 3d 134(A) (App Term2nd, 11th & 13th Jud. Dists. 2009). 

The document demand contained in State Farm's EUO letters to Dynamic and Dr. Brownstein are essentially a demand for pre-action discovery regarding a Malella  [sic] defense. CPLR 3102(c) permits pre-action discovery only by court order and only to aid in bringing an action. Some of the documentation requested in the EUO letters State Farm might not be able to obtain even if it had been requested in a duly served notice for discovery and inspection.^[FN3]

The oft stated purpose of the No-fault Law is to insure prompt payment for medical services rendered to persons injured in motor vehicle accidents. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra; and Hospital for Joint Diseases v. Travelers Property Casualty Ins. Co., 9 NY3d 312 (2007); and Presbyterian Hosp. in City of NY v. Maryland Cas. Co., supra. Permitting an insurer to obtain what would be tantamount to full discovery regarding a Malella  [sic] defense as part of an EUO would defeat that purpose and is beyond the scope of the No-fault Law and regulations relating to EUO.

Permitting an insurer to demand what has been demanded by State Farm in this action for an EUO is fraught with the potential for abuse. See, Unitrim Advantage Ins. Co. v. Carothers, 17 Misc 3d 1121(A) (Sup. Ct. NY Co. 2007); and Gegerson v. State Farm Ins. Co., 27 Misc 3d 1207(A) (District Ct. Nassau Co. 2010). An insurer should not be able to defeat no fault claims by making an onerous and improper document demand relating to an EUO.

If an insurer has a reasonable basis for believing a medical provider cannot obtain payment of no-fault benefits because the provider is "fraudulently incorporated", then it should assert the defense in its answer and litigate the issue on the merits in the action brought by the provider for no-fault benefits. The insurer should move to consolidate all of the actions brought by the provider and have the issue of whether the provider is subject to a Malella  [sic] defense determined in one action. See, Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, supra. Alternatively, an insurer can commence a declaratory judgment action seeking a judgment declaring the provider ineligible to receive no-fault payments. See, State Farm Mutual Ins. Co. v. Malella  [sic] , supra.

While State Farm may have reason to believe Dynamic is not eligible to receive no-fault benefits for Malella  [sic] reasons, State Farm cannot use a palpably improper EUO demand not subject to court review as a basis for obtaining summary judgment. See, Westchester Medical Center v. Progressive Casualty Ins. Co., 51 AD3d 1012 (2nd Dept. 2008). 

Since the EUO demand was improper, defendant's motion for summary judgment is denied.

Expect an appeal.  And a reversal, in my opinion.   In my respectful view, Justice Hirsh's misunderstanding of the Mallela decision and its defense is not confined to its spelling.  Denying no-fault insurers an opportunity to obtain verification of a provider's proper licensing and ownership in conjunction with the verification of their bills would force insurers to do something the New York courts have repeatedly said litigants should not do, i.e., allege something in a complaint or answer without a good faith, factual basis for doing so. And as to Footnote # 2, an NF-3 is the prescribed Verification of Treatment by Attending Physician or Other Provider of Service form, not the Verification of Hospital Treatment form, which is an NF-4.  Here's a bookmark of the current forms.

Mallela Acquaints a Firm with Strange Bedfellows

NO-FAULT – MALLELA DEFENSE – INDEPENDENT CONTRACTOR DEFENSE – DISCOVERY OF PROVIDERS' CORPORATE STRUCTURE RECORDS
Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC v. Comprehensive Mental Assessment & Med. Care, P.C.
(Sup. Ct., Nassau Co., decided 1/8/2010)

Wasn't it William Shakespeare who wrote in The Tempest, "Mallela acquaints a man with strange bedfellows"?  Or was that misery? 

In a lengthy decision regarding whether turnabout is indeed fair play, Nassau County Supreme Court Justice Ira Warshawsky ordered the provider PC defendants, former clients of Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC, now embroiled in cross litigation for fees and alleged legal malpractice damages, to respond to BSBGFM&N's supplemental notice for discovery and inspection of:

(1)  for the period January 2001 through the present, originals, if available, and if not, copies of any and all general ledgers maintained for each defendant;

(2)  for the period of January 2001 through the present, copies of any and all corporate, federal and state tax returns for each defendant;

(3)  for the period of January 2001 through the present originals, or if no originals are available, copies of all bank statements used in connection with the operation of the defendants' businesses;

(4)  for the period of January 2001 through the present, copies of all 1099s or W-2s issued to all employees of, or persons or entities providing services to the defendants;

(5)  for the period of January 2001 through the present, copies of all lease agreements between the defendants and any other person or entities relating to space utilized by the defendants in the operation of their businesses; and

(6)  for the period of January 2001 through the present, copies of all management agreements between the defendants and any other person or entities relating to the operation of their business.

In October, 2007, the defendant PCs commenced an action against BSBGFM&N in Kings County Supreme Court for conversion, breach of contract, and ancillary damages.  In November, 2007, BSBGFM&N commenced an action in Nassau County Supreme Court against the defendant PCs for, among other things, a declaratory judgment, and damages from defendants' alleged breach of contract, quantum merit, retaining lien and tortuous interference with contract.  The actions were consolidated into BSBGFM&N's Nassau County action, with the provider PCs' claims becoming counterclaims.   The court appointed a special referee to supervise the many discovery disputes that arose in the action, and the referee was able to resolve all but the parties' dispute over BSBGFM&N's supplemental demand for discovery and inspection of records relating to the provider PCs' corporate formation and structure.

BSBGFM&N contended that the Mallela defense represented a complete defense to the provider PCs' counterclaims for legal malpractice.  BSBGFM&N asserted that it should be entitled to review documentation that goes to the issue of whether there was a fraudulent corporate structure for the defendant provider PCs, arguing that if it could show that the provider PC defendants were never entitled to no-fault recovery of monies because of their fraudulent corporate structure, then there can be no basis for a legal malpractice claim against BSBGFM&N.  BSBGFM&N also alleged that the defendant provider PCs provided health care services through independent contractors, and therefore, were not entitled to no-fault benefits. According to BSBGFM&N, there could be no legal malpractice claim set forth against it on this basis, as well.

Accusing BSBGFM&N of attempting to "play for another side", the provider PC defendants argued that the "Mallela defense" is available only to insurance carriers as a statutory defense arising out of a claimant's failure to comply with applicable sections of Business Corporation Law, Limited Liability Law and Educational Laws and that there are no reported cases where such a defense against a claim for legal malpractice was deemed valid by a court.  The provider PC defendants further contended that BSBGFM&N's supplemental demands were nothing short of a fishing expedition and that, if permitted, would open a floodgate of baseless inquiries into every expense and disbursement.  Counsel for the provider PC defendants asserted that after "making loud statements of the Defendants' integrity and having made a small fortune off the Defendants' claims for a number of years and signing off on release documents, it is disingenuous and, even improper, for Plaintiff to pursue this frivolous and dilatory demand for voluminous documents to examine Pincusovich Defendants' corporate and financial affairs from 2001 up to date".

After taking briefs from the parties on the discovery dispute, which are outlined in his decision, Justice Warshawsky reviewed the Mallela and independent contractor defenses, found that the records BSBGFM&N sought in its supplemental notice for discovery and inspection were material and necessary to its defense against the provider PCs' legal malpractice claims, and directed the provider PCs to respond to BSBGFM&N's supplemental demand within 35 days of the court's decision.  Justice Warshawsky concluded:

Nothwithstanding the Pincusovich Defendants' argument to the contrary, it is the view of the Court that Baker Sanders has not waived its right to assert the Mallela defense. This Court is in agreement with counsel for the Plaintiff in that the inquiry is not whether certain defenses are available today, i.e., after the execution of the release, but rather whether the defenses were available during the underlying litigation. As discussed, supra, Baker Sanders should be permitted to defend the case within a case scenario, and thus, the requested documentation is material and necessary.

The Court is troubled by the possibility that plaintiff law firm knew or believed that its client was unlawfully collecting benefits under the no-fault laws when it assisted in said collection efforts.  However, the impact of that "fact" on the malpractice case, or even the main action, will be determined at a later time.

A tempest, indeed.

Appellate Term, Second Department, No-Fault Decisions

NO-FAULT – MAILING – PROVING IME NO-SHOW
Radiology Today, P.C. a/a/o Charles Rawlins v. GEICO Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of Richmond Civil (Katherine Levine, J.) REVERSED.  Defendant's unopposed motion for summary judgment dismissing the complaint should have been granted.

• Affidavit of a manager employed by the independent medical review service retained by defendant to schedule and conduct IMEs sufficiently set forth the standard office practice and procedure for the generation and mailing of IME notices designed to ensure that said notices were properly addressed and mailed.
• The affirmations and affidavits of the medical professionals who were to perform the IMEs established that plaintiff's assignor failed to appear for said IMEs.

NO-FAULT – SUFFICIENCY OF PEER REVIEW
Richmond Radiology, P.C. a/a/o Arkady Polevoy v. GEICO Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of New York Civil (Diane A. Lebedeff, J.) denying plaintiff's motion for summary judgment AFFIRMED. 

• The doctor performing the peer review did not conclude that he had insufficient information upon which to base a conclusion. Instead, the affirmed report raised a triable issue of fact because "the report clearly indicates that the pertinent [treating] physician's reports and other documentation had been requested and provided for the purpose of conducting a peer review, and the conclusion of lack of medical necessity is based on the peer reviewer's opinion, in effect, that there was no substantiation in the reports and documents reviewed of medical necessity for the [services] provided[.]"

NO-FAULT – PROOF OF MAILING – USE OF WORKERS' COMPENSATION FEE SCHEDULE FOR ACUPUNCTURE SERVICES
New Wave Oriental Acupuncture, P.C. a/a/o Gerard Ikezi v. Government Employees Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of New York Civil (Robin S. Garson, J.) granting summary judgment to plaintiff REVERSED. 

• The affidavit submitted by defendant sufficiently established that the denial of claim forms were timely mailed in accordance with defendant's standard office practices and procedures.
• It was proper for defendant to use the workers' compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which plaintiff was entitled to receive.

NO-FAULT – LEAVE TO AMEND ANSWER – FRAUDULENT INCORPORATION DEFENSE  – COMPELLING DEPOSITION OF PROVIDER'S OWNER
New York First Acupuncture, P.C. a/a/o Anitta Allen v. State Farm Mut. Auto. Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Order of Richmond Civil (Diane A. Lebedeff, J.) granting defendant's motion to amend its answer to assert a fraudulent incorporation defense and compel plaintiff to produce its owner for a deposition AFFIRMED.

• The Civil Court did not improvidently exercise its discretion in granting defendant's application for leave to amend its answer in order to interpose the affirmative defense of fraudulent incorporation, in the absence of any showing that prejudice or surprise would result therefrom and since the proposed affirmative defense was neither devoid of merit nor palpably insufficient as a matter of law.
• Plaintiff's contention, that the defense of fraudulent incorporation must be asserted in a timely denial of claim form, is without merit. 
• Defendant sufficiently demonstrated that the deposition testimony of plaintiff's owner, Valentina Anikeyeva, regarding plaintiff's corporate structure was material and necessary so as to warrant the granting of the branch of its motion seeking to compel Ms. Anikeyeva's deposition.

Justice Golia's concurring memorandum is worth a look:

While I agree with the ultimate disposition in the decision reached by the majority, I strenuously disagree with the majority gratuitously raising a nonexistent issue, namely that a Mallela defense (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]) may be disallowed if "prejudice or surprise would result therefrom." This impression was created by the majority in choosing here to excise an important requirement with regard to the law of amending an answer. The actual statement by the Court of Appeals in McCaskey, Davies & Assoc. v New York City Health & Hosps. Corp. (59 NY2d 755, 757 [1983] [emphasis added, citations and internal quotations marks omitted]) is that, "Leave to amend the pleadings shall be freely given absent prejudice or surprise resulting directly from the delay."

Inasmuch as it is inconceivable that a Mallela defense of fraudulent incorporation could ever create prejudice or surprise that resulted directly from the delay in raising such defense, it is clear that such analysis is unwarranted.

To me, it is extremely unlikely that an individual who creates a fraudulent entity for the purpose of defrauding an insurance company would forget that he/she did so and be prejudiced or surprised when it was discovered. Such would be akin to a person running a "Ponzi" scheme deciding to invest in his own firm because it was obtaining such good results.

So is Dave Gottlieb's observation on Justice Golia's point.  What do you think?  I get Justice Golia's point on the no surprise part, but I guess whether the "absent prejudice or surprise" aspect attaches to an insurer's leave to amend its answer to add a Mallela defense depends on one's definition of "prejudice". 


NO-FAULT – UNTIMELY PROOF OF CLAIM – WAIVER
Delta Diagnostic Radiology, P.C. a/a/o Frank Louigarde v. Interboro Ins. Co.
(App. Term, 2nd Dept., 2nd, 11th & 13th, decided 10/23/2009)

Judgment of Queens Civil (William A. Viscovich J.) in favor of plaintiff AFFIRMED.

• Although plaintiff's claim was submitted more than 45 days after the services at issue were rendered, defendant waived its reliance on the 45-day rule as a basis to deny the claim because defendant had failed to communicate to plaintiff, as required by the No-Fault Regulations, that late submission of the proof of claim will be excused where the applicant can provide a reasonable justification for the late submission. 
• Defendant also failed to demonstrate that discovery was needed in order to show the existence of a triable issue of fact.

Declaratory Judgment and Order of Restitution of No-Fault Payments Granted Based on Annulment of PC's Certificate of Incorporation

NO-FAULT – FRAUDULENT INCORPORATION – MALLELA – ANNULMENT OF MEDICAL PC'S CERTIFICATE OF INCORPORATION
Allstate Ins. Co. v. Plainview Professional Med., P.C.
(Sup Ct., Nassau Co., decided 9/24/2009)

Three Allstate companies brought this action against Plainview Professional Medical, P.C., Bruce Bromberg, D.C., Rafael Garcia, M.D., PPP Healthcare Management, Inc., and Handon Management, Ltd.: (1) for a declaration that the Allstate plaintiffs were under no obligation to pay pending, previously denied or future no-fault claims submitted to them by defendants since Plainview Professional Medical PC's certificate of incorporation was annulled by order of the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008; and (2) to recoup payments made to defendants pursuant to New York State s no-fault law from April 4, 2002 through and including July 18, 2006, predicated on causes of action sounding in fraud and unjust enrichment/restitution.

Plaintiffs moved for summary judgment, contending that, as a consequence of their failure to comply with the state licensing requirements of § 1503(a) of the Business Corporation Law, defendants were not eligible to receive in excess of $600,000 in no-fault payments paid to them by the Allstate plaintiffs.  Specifically, Allstate argued that Plainview was formed in violation of Business Corporation Law § 1503 in that Rafael Garcia was not, in fact, Plainview's true owner and Plainview's certificate of incorporation was annulled by the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008 after an evidentiary hearing at which neither Rafael Garcia nor Plainview appeared to contest the charges. The Hearing Committee found that unqualified individuals were instrumental in operating, controlling and/or handling Plainview's financial and operational affairs, to wit: according to the Findings of Fact contained in the Determination and Order of the Hearing Committee, Plainview "evaded the legal restrictions on incorporation, ownership and/or control of (Professional Corporations) by concealing * * * that legally unqualified individuals incorporated, owned, operated and controlled medical service corporations . While Rafael Garcia, M.D. was listed on Plainview's certificate of incorporation, filed with the Secretary of State on March 8 , 2000 as Plainview's sole shareholder, director and officer, he did not operate or control Plainview from its inception through the present. Although he apparently did not practice medicine at Plainview since in or about the summer of2000, he was compensated for the use of his name.

Allstate also asserted that once he surrendered his medical license, effective February 6, 2008, pursuant to Public Health Law § 230.12, defendant Rafael Garcia was no longer authorized to practice medicine, a further violation of §§ 1503(a) and (b) and 1504(a) of the Business Corporation Law.

Court Weighs Impact of Fair Price Medical Decision on No-Fault Fraud-Related Defenses

NO-FAULT – IMPACT OF FAIR PRICE MEDICAL ON NO-FAULT FRAUD-RELATED DEFENSES – MALLELA DEFENSE – STAGED ACCIDENT DEFENSE
Manhattan Med. Imaging, P.C. a/a/o Jessica Rodriguez v. State Farm Mut. Auto. Ins. Co.
(NYC Civil, Richmond Co., decided 9/4/2008)

I spoke about this case at yesterday's NYSSIU quarterly meeting in Cicero. Kudos to all who made it there in spite of the snow, and welcome new NYSSIU officers and directors.

The decision dates back to September of last year, but its rulings are noteworthy and important to no-fault practitioners. I've had some of this post in draft for some time, and yesterday's discussion motivated me to finish it.

When the New York Court of Appeals issued its decision in Fair Price Medical in June of last year, the New York no-fault community wondered what fraud-related defenses could and would survive beyond 30 days from an insurer's receipt of a bill (even for services or devices that may not actually have been administered or delivered to patients) or requested verification of a claim. If billing fraud for services or devices not actually administered or delivered to patients would be subject to the 30-day pay or deny preclusion rule, what other types of no-fault claimant and provider fraud wouldn't be? The incline on the "coverage defense" slipperly slope had just gotten radically steeper.

Enter Judge Katherine Levine of Richmond County New York City Civil Court, whose prodigious vocabulary and prolific writing on no-fault issues provide ample grist for this blawger's mill. In this case, Judge Levine addressed “the murky issue of what precise evidence a defendant insurer must present in support of its late denial based upon fraud to withstand the granting of summary judgment to a plaintiff medical services provider in a No-Fault case.” Also at issue was whether the Court of Appeals’ Fair Price Medical decision requires an insurer to proffer the defense that a provider is fraudulently incorporated within 30 days or whether that defense remains non-waivable.

On the first issue, Judge Levine reiterated that a staged accident defense is not subject to the 30-day preclusion rule and held that State Farm’s proffer of the assignors’ transcribed recorded statements, although unsworn and unsigned but certified by the transcriber, together with a signed and sworn affidavit of State Farm’s special investigator was sufficient to create a question of fact on whether the claim was fraudulent, precluding summary judgment. State Farm’s special investigator memorialized inconsistencies in the various assignors' statements, including the color and make of the car they were in that was supposedly involved in the accident, different reasons as to why they were all together with the same driver, who was seated in the front of the car at the time of the accident and whether the car was stopped at the point of the accident. Judge Levine commented:

While this court does not believe that defendant presents a strong case of a staged accident, it presents enough inconsistencies to rise above the base level of "unsubstantiated hypothesis and suppositions" so as to permit this defense to go to trial. The court is not troubled that the statements of the assignors were not verified or signed since their transcribed statements were certified by the transcriber. See R.M. Newell Co. v. Rice, 236 AD2d 843, 844 (4th Dept. 1997), (deposition transcripts certified as accurate by transcriber admissible on summary judgment motion even though unsigned). Nor is the court concerned that Fink was not present during the taking of the statements. See, e.g., PDG Psychological, supra, Northern Medical, P.C., supra (trial held despite late denial based upon SIU investigator's finding that there was a staged accident based upon his review of the file for the first time a few weeks before the trial and his running a prior claim history on the assignor).

On Fair Price Medical's impact on the Mallela (fraudulent incorporation) defense, Judge Levine also ruled that the Court of Appeals’ decision does not preclude a no-fault insurer from raising a fraudulent incorporation defense beyond 30 days from receipt of billings or verification, provided the insurer presents a "founded belief" that the corporation is ineligible to obtain no-fault benefits by reason of a fraudulent corporate filing:

Defendant herein alleges that Dr. Brownstein is not the sole owner of Manhattan Medical but rather shares his ownership responsibilities with Sam Stern, a non physician. The attorney's affirmation cites a number of certificates of incorporation which allegedly show a labyrinth of interconnections between plaintiff Manhattan Medical and Universal Diagnostic Imaging, the latter of which is purportedly owned by Stern. Defendant also alleges that Brownstein owns at least five other imaging companies and is allegedly facing civil fraud lawsuits stemming from his ownership of other entities. Also attached is an EBT of the assistant office manager of plaintiff who indicates that Stern is one of the other owners of plaintiff and the testimony of plaintiff's business manager in another where she testified that Stern is a general partner of plaintiff.

The court finds that defendant has articulated a "founded belief" that plaintiff is fraudulently incorporated as it is actually controlled by a non-licensed professional. Defendant has therefore made allegations sufficient to raise an issue of fact as to whether plaintiff is fraudulently incorporated.

Through this morning, Judge Levine's decision in this case has been cited only once -- again by Judge Levine in her New Year's Eve ruling in Yklik, Inc. a/a/o Tammy Agosto v. Allstate Ins. Co. concerning a no-fault insurer's fee schedule defense, a decision with which, by the way, I take a most respectful exception for reasons given in my post on that case.

A Spate of No-Fault Decisions from the Appellate Term, Second Department

NO-FAULT – NOTARY PUBLIC'S JURAT – TECHNICAL DEFECT – PEER REVIEW – MEDICAL NECESSITY
Complete Orthopedic Supplies, Inc. a/a/o Ana Valencia v. State Farm Mut. Auto. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Appeal from a Queens Civil judgment for plaintiff DME provider on its motion for summary judgment.

REVERSED and State Farm's cross motion for summary judgment was granted. The notary public's jurat was missing the year State Farm's affidavits of mailing were signed. The Appellate Term held that this was a "technical defect" that the Civil Court should have disregarded since it did not prejudice a substantial right of a party, and plaintiff had raised no objection to it. State Farm's affirmed peer review report established prima facie that there was no medical necessity for the supplies provided by plaintiff, which proof plaintiff did not rebut. As a result, State Farm's cross motion for summary judgment dismissing the complaint should have been granted.


NO-FAULT – UNTIMELY SUBMISSION OF CLAIMS
Long Is. Multi-Medicine Group, P.C. a/a/o Sumira Lund v. Travelers Ins. Co.
(App. Term, 2nd Dept., decided 1/8/2009)

Appeal from a Queens Civil judgment for plaintiff on its motion for summary judgment.

AFFIRMED. Civil Court had granted plaintiff's motion based on its finding that Travelers waived its defense of claim submission untimeliness, since it failed to advise plaintiff that the claim would be reconsidered upon a showing of impossibility to timely submit the claims. The Appellate Term affirmed the judgment, not on that ground, but because Travelers' opposition motion papers annexed denial of claim forms that did not correspond to the claim forms upon which plaintiff sought summary judgment. As such, the court held that Travelers had failed to establish that it timely denied the subject claims and, as such, failed to raise a triable issue of fact with respect to the claims at issue.


NO-FAULT – ADMISSIBILITY OF BUSINESS RECORDS
Union Physician Healthcare, P.C. a/a/o Christopher Kelly v. Utica Mut. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Appeal from a Kings Civil judgment for plaintiff on its motion for summary judgment.

REVERSED and plaintiff's motion denied. The affidavit by plaintiff's officer submitted in support of plaintiff's motion for summary judgment failed to lay a proper foundation for the admission of the documents annexed to plaintiff's moving papers and, as a result, plaintiff failed to establish a prima facie case. The affidavit submitted by plaintiff's officer was insufficient to demonstrate that he possessed personal knowledge of plaintiff's practices and procedures so as to lay a foundation for the admission, as business records, of the documents annexed to plaintiff's moving papers. Accordingly, plaintiff failed to make a prima facie showing of its entitlement to summary judgment (see Art of Healing Medicine, P.C. v Travelers Home & Mar. Ins. Co., 15 Misc 3d 144[A], 2007 NY Slip Op 51161[U] [App Term, 2d & 11th Jud Dists 2007], affd 55 AD3d 644 [2008]; Bath Med. Supply, Inc. v Deerbrook Ins. Co., 14 Misc 3d 135[A], 2007 NY Slip Op 50179[U] [App Term, 2d & 11th Jud Dists 2007]; Dan Med., P.C. v New York Cent. Mut. Fire Ins. Co., 14 Misc 3d 44 [App Term, 2d & 11th Jud Dists 2006]).


NO-FAULT – MVAIC – NOTICE OF CLAIM – INSURANCE LAW § 5208(A)
M.N.M. Med. Health Care, P.C. a/a/o Erick Papillion v. MVAIC
(App. Term, 2nd Dept., decided 1/9/2009)

Appeal from a Queens Civil order denying defendant MVAIC's motion for summary judgment.

REVERSED and MVAIC's motion granted, dismissing the complaint. The filing of a timely affidavit providing MVAIC with notice of intention to file a claim is a condition precedent to the right to apply for payment from MVAIC pursuant to New York Insurance Law § 5208(a). Compliance with the statutory requirement of timely filing a notice of claim must be established in order to demonstrate that the claimant is a "covered person" who is entitled to recover no-fault benefits from MVAIC. MVAIC's submissions in support of its motion for summary judgment made a prima facie showing that plaintiff's assignor failed to timely file a notice of claim. By defaulting on the motion, plaintiff did not demonstrate that its assignor timely filed a notice of claim or sought leave to file a late notice of claim. Thus, MVAIC's motion for summary judgment should have been granted.


NO-FAULT – NOTICE TO ADMIT – PRIMA FACIE CASE SHOWING
All Mental Care Medicine, P.C. a/a/o Augustin Martes v. State Farm Mut. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Vista Surgical Supplies, Inc. a/a/o Tyrone Pearson v. State Farm Mut. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Judgments for State Farm dismissing the complaints AFFIRMED. An admission that defendant received plaintiff's claim form is not a concession of the facts set forth in said claim form (Bajaj v General Assur. Co., 18 Misc 3d 25, 28 [App Term, 2d & 11th Jud Dists 2007]; Midborough Acupuncture, P.C. v New York Cent. Mut. Fire Ins. Co., 13 Misc 3d 132[A], 2006 NY Slip Op 51879[U] [App Term, 2d & 11th Jud Dists 2006]). By only submitting the notices to admit and producing no witnesses at trial, plaintiffs failed to make a prima facie case for recovery of no-fault benefits.


NO-FAULT – MOTION TO AMEND ANSWER TO ADD AFFIRMATIVE DEFENSES – RES JUDICATA – COLLATERAL ESTOPPEL BASED ON PRIOR ARBITRATION DECISION – FRAUDULENTLY INCORPORATED PC
Uptodate Med. Serv., P.C. a/a/o Jean Alberic v. State Farm Mut. Auto. Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Appeal from a Queens Civil judgment for plaintiff on its motion for summary judgment.

REVERSED, granting State Farm's motion to amend its answer and, upon such amendment, summary judgment dismissing the complaint. The Civil Court improperly denied State Farm's motion to amend its answer to add the affirmative defenses of res judicata and collateral estoppel. Generally, leave to amend a pleading pursuant to CPLR 3025 (b) should be granted where there is no significant prejudice or surprise to the opposing party and where the proof submitted in support of the motion indicates that the amendment may have merit. State Farm sought to add those affirmative defenses because there was a prior arbitration proceeding between the parties in which plaintiff had sought to recover assigned first-party no-fault benefits for services rendered from August 2003 through January 14, 2004, in which proceeding the arbitrator had determined that plaintiff was ineligible to receive reimbursement of no-fault benefits because it was a fraudulently incorporated professional service corporation. Plaintiff did not demonstrate prejudice or surprise from the proposed amendment.

State Farm established that the issue of whether plaintiff was ineligible to receive reimbursement of no-fault benefits because it was a fraudulently incorporated professional service corporation was identical to the issue previously decided by the arbitrator. In opposition to State Farm's cross motion, plaintiff failed to address the branch of the cross motion which sought summary judgment dismissing the complaint on the ground of collateral estoppel. Therefore, plaintiff failed to establish that it did not receive a full and fair opportunity to litigate in the arbitration proceeding. Thus, the branch of defendant's cross motion seeking summary judgment should have been granted.


NO-FAULT – ADMISSIBILITY OF BUSINESS RECORDS
V.S. Med. Servs., P.C. a/a/o Mohamad Nazir v. Travelers Ins. Co.
(App. Term, 2nd Dept., decided 1/9/2009)

Appeal from a Queens Civil judgment after non jury trial for Travelers dismissing plaintiff's complaint.

AFFIRMED. While plaintiff produced a witness to testify regarding the claim forms plaintiff sought to have admitted into evidence, because said witness did not testify at all as to the generation of such claim forms, they were not admissible as business records (see CPLR 4518). Accordingly, plaintiff failed to establish a prima facie case (see Bajaj v General Assur., 18 Misc 3d 25 [App Term, 2d & 11th Jud Dists 2007]).

Malella-Based Recovery Action Proceeds & Discovery of Financial Documents Granted

NO-FAULT – FRAUDULENT INCORPORATION – COMMON-LAW FRAUD & UNJUST ENRICHMENT CLAIMS – SUMMARY JUDGMENT – DISCOVERY OF FINANCIAL DOCUMENTS
One Beacon Ins. Group, LLC v. Midland Med. Care, P.C.
(2nd Dept., decided 9/9/2008)

OneBeacon brought this action against numerous medical PCs, management companies and the individuals who owned them, and licensed healthcare professionals, alleging that the PCs were fraudulently incorporated in the names of licensed healthcare professionals while, in fact, the PCs were owned, operated, and controlled by unlicensed persons and their management companies in violation of applicable statutes and regulations. Under theories of common-law fraud and unjust enrichment, OneBeacon sought recovery of no-fault bills already paid to the PC defendants, as well as a declaration that it was not obligated to pay outstanding claims.

Defendants David Stemerman and his radiology practice, Proscan Imaging, P.C. moved for summary judgment to dismiss OneBeacon's complaint, which was denied, Nassau Supreme finding a triable issue of fact to exist as to whether Proscan was fraudulently incorporated, and ordering those defendants' disclosure of certain financial documents to OneBeacon.

In AFFIRMING the lower court's order, the Second Department pointed out:

Applicable provisions of the no-fault law require insurers to reimburse patients or their medical provider assignees for "basic economic loss" (Insurance Law § 5102[a][1]). A provider of healthcare services is not eligible for reimbursement, however, "if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York" (11 NYCRR 65-3.16[a][12]). The Court of Appeals has interpreted 11 NYCRR 65-3.16(a)(12) to allow insurance carriers to withhold reimbursement for no-fault claims from fraudulently licensed medical corporations and to "look beyond the face of licensing documents to identify willful and material failure to abide by state and local law" (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 321). State law mandates that professional service corporations be owned and controlled only by licensed professionals (see Business Corporation Law §§ 1503[a]; 1507, 1508), and that licensed professionals render the services provided by such corporations (see Business Corporation Law § 1504[a]).

In the Second Department's view, although the appealing defendants had shown their entitlement to summary judgment by by submitting evidence that Stemerman, a licensed physician, was the sole shareholder of Proscan, performed or oversaw all medical services provided by Proscan, and was the sole signatory on Proscan's bank account, OneBeacon had submitted sufficient evidentiary proof to raise an issue of fact as to whether Proscan was actually controlled by a management company owned by unlicensed individuals in violation of the New York Business Corporation Law.

On the discovery dispute, the Second Department ruled that Nassau Supreme had properly granted that branch of OneBeaon's cross motion for disclosure of certain financial documents:

Contrary to the appellants' contention, the plaintiffs were not required to make a showing of "good cause" for such disclosure (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322; see Matter of Andrew Carothers, M.D., P.C. v Insurance Cos., 13 Misc 3d 970, 972-973), as the documents were "material and necessary in the prosecution" of this action (see CPLR 3101[a]).

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.