What Is New York's No-Fault Scheme Ill-Equipped to Handle? (The right answer is not "claims".)

NO-FAULT – RICO AFFIRMATIVE ACTION – PRELIMINARY INJUNCTION STAYING COLLATERAL ARBITRATIONS & LITIGATION – MOTION TO DISMISS

GEICO v. Mikhail Strut, MD, RES Physical Medicine & Rehabilitation Services, PC, and Cheryle Hart, MD
(WDNY, 4/10/2020)

Those of you dealing with Mikhail Strut, MD (f/k/a Mikhail Strutsovskiy) and his medical practice,  RES Physical Medicine & Rehabilitation Services, PC, may want to read this decision (click the case name) and follow this case.  

In this decision and order, WDNY Judge Sinatra adopted Magistrate Judge Scott's recommendations to:

• DENY defendants' motion to dismiss GEICO's complaint, which alleges causes of action based on RICO, fraud and unjust enrichment; and

• GRANT GEICO's motion for a preliminary injunction and a stay of all collateral no-fault suits and arbitrations, upon GEICO posting $500,000 security. 

In rejecting Dr. Stut's argument that GEICO was trying "improperly to circumvent New York's no-fault scheme" by litigating Strut's claims in federal court, Judge Sinatra remarked:  "Well, isn't that the pot calling the kettle black?  But the law is clear that Plaintiffs may maintain RICO and fraud claims in federal court, notwithstanding New York's no-fault scheme, because the no-fault scheme is ill-equipped to handle claims involving systemic fraud." 

Okay, Judge Sinatra didn't write the pot/kettle thing.  But he did deny Dr. Strut's motion to dismiss and grant GEICO's preliminary injunction application.  If you're a New York no-fault insurer and are facing growing numbers of suits and arbs while you race to complete a global DJ action to confirm your non-coverage position, consider moving for preliminary injunctive relief.  

Yes, that Mikhail Strut.

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.

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]).