North Queens Med. P.C. v State Farm Mut. Auto. Ins. Co. (2013 NY Slip Op 51519(U))

District Court of Nassau County, First District

CV-002143-03

Werner, Zaroff, Slotnick, Stern & Ashkenazy, LLP

Attorneys for Plaintiff

360 Merrick Road

Lynbrook, New York 11563

516-568-1850

Rivkin Radler LLP

Attorneys for Defendant

926 RXR Plaza

Uniondale, New York

516-357-3000

Michael Ciaffa, J.

New York’s no-fault scheme is designed to encourage the prompt resolution of no-fault claims. Toward that end, courts have the power and duty to apply the law in a manner consistent with that broad objective.

This ten year old case places the issue in sharp focus. Over the past several years, defendant, State Farm Mutual Automobile Ins. Co., has been stymied in its efforts to obtain a final resolution of the subject claim and related matters. The death of plaintiff’s sole shareholder in 2008 has compounded the difficulty of moving the case forward. [*2]What, if anything, can a court do, when the sole owner of a PC dies, and no one has the present authority to pursue a pending claim?

As demonstrated below, the law allows two possible remedies. First, the defendant can seek dismissal under CPLR 1021, by showing that the representatives of the deceased doctor’s estate have failed to obtain de facto authority to pursue the PC’s claims within a reasonable time after the doctor’s death. Second, it can request an order retroactively denying plaintiff’s right to obtain statutory interest upon the claim (see Ins. L. 5106[a]), based upon proof of unreasonable delay (see 11 NYCRR §65-3.9[d]).

With regard to the first potential remedy, State Farm moves for an order dismissing plaintiff’s complaint pursuant to CPLR 1021, due to plaintiff’s “failure to make timely substitution for the plaintiff whose sole shareholder is deceased” (affirmation of Glen Egor, Esq. in support of defendant’s motion). Plaintiff, through its attorney, opposes the motion.

As the court file shows, this no-fault action was filed more than ten years ago, in January, 2003. Apart from the filing of an answer, the matter has not progressed. On November 7, 2008, plaintiff’s sole shareholder and owner (Robert Hard, M.D.) passed away. Nearly five years have elapsed since Dr. Hard’s death. Since then, this case and related matters have been in limbo. Despite the passage of many years, “an administrator has yet to be appointed to manage his estate” (affirmation of Hymen S. Ashkenazy, Esq., in opposition to defendant’s motion, ¶3).

In a series of previously issued motion decisions, judges in the civil parts of this Court have consistently denied motions by defendant, State Farm, seeking dismissal of plaintiff’s no-fault actions on various grounds, which have included arguments for dismissal made pursuant to CPLR 3404 (dismissal of abandoned cases), CPLR 3216 (want of prosecution), or CPLR 3126 (penalties for refusal to disclose). In at least two of those decisions, this Court concluded that defendant could seek to protect its rights by moving to dismiss under CPLR 1021 (see North Queens Medical, P.C. v State Farm Ins. Co., index nos. 2143/03 and 30310/02, orders dated January 25, 2011). Likewise, in a different case involving the plaintiff and Nationwide Insurance Co., another judge of the District Court concluded that “dismissal pursuant to CPLR 1021 is permissible” (see North Queens Medical, P.C. v Nationwide Ins. Co., index no. 10974/03, decision dated December 21, 2010 [Chaikin, J]). Defendant’s current motion accordingly seeks dismissal pursuant to the latter provision.

At the outset, the Court reiterates its opinion that CPLR 1021 can be applied to a case like this one. When the language of CPLR 1021 is read together with related provisions in article 10, it clearly provides that the “successors or representatives” of a party may move for “substitution” in cases involving a party’s death (see CPLR 1015), or upon “any transfer of interest” of a party’s rights (see CPLR 1018).

As a practical matter, in cases where a PC’s sole shareholder dies, the PC “is [*3]powerless to continue prosecuting its claims” until “someone with authority” is appointed to proceed with the litigation (see Eastern Star Acupuncture, PC v Allstate Ins. Co., 36 Misc 3d 41, 42 [App Term 2d Dept, 2012]). When such an appointment is made, it effectively constitutes a de facto substitution of an estate representative in the place of the deceased shareholder for the purpose of allowing pending cases to move toward conclusion. Consequently, this Court believes that the death of a PC’s sole shareholder may be deemed “an event requiring substitution” (CPLR 1021). While such a de facto substitution allows the action to continue in the name of the PC, it serves the same purpose as an order substituting an estate for a deceased party, or an order substituting a successor party upon a transfer of a party’s interest in a given claim.

It follows that if such a de facto substitution is not made within a reasonable time, “the action may be dismissed…” (CPLR 1021). To hold otherwise would unduly limit the Court’s ability to bring matters like this to final conclusion. Since the CPLR should be “liberally construed to secure the just, speedy and inexpensive determination of every civil judicial proceeding” (CPLR 103), the Court holds that dismissal is, indeed, an authorized remedy in cases where the representatives of a deceased doctor’s estate have failed to obtain de facto authority to pursue the PC’s claims within a reasonable time after the doctor’s death.

On the other hand, a decision to dismiss the matter on such grounds ordinarily requires a compelling showing of unreasonable and prejudicial delay. In cases involving a party’s death, the courts “have shown relative liberality” in applying the “reasonable time” provision of CPLR 1021, “presumably because of the normal delays that can arise in connection with the process of having a personal representative appointed” (see Vincent C. Alexander’s Practice Commentary to McKinney’s CPLR, at C1021:1). Nevertheless, “the time to effect proper substitution should not extend indefinitely” (id., quoting Silvagnoli v Consolidated Edison Employees Mutual Aid Society, 112 AD2d 819).

In arguing for dismissal under the latter line of cases, defendant contends that “[m]ore than a reasonable time has elapsed since the death of the plaintiff’s sole shareholder” and that “no motion for substitution has been made by any person interested in the estate of the deceased plaintiff” (affirmation of Glen Egor, Esq. in support of defendant’s motion). However, in its papers opposing dismissal under CPLR 1021, plaintiff’s attorney avers that proceedings in the Surrogate’s Court are currently ongoing, and that the Queens County Surrogate “is in the process of appointing a public administrator to oversee the estate of Dr. Hard”(affirmation of Hyman S. Ashkenazy, Esq., in opposition, ¶4).

In view of that ongoing process, and in the absence of more detailed information respecting the current status of those efforts, defendant’s request for dismissal pursuant to CPLR 1021 is DENIED, without prejudice to renewal upon further proof of unreasonable delay. While the delays at the Surrogate’s Court are regrettable, they are beyond this [*4]Court’s power to address. Moreover, based upon plaintiff’s counsel’s representation, it appears that some efforts are currently being undertaken to resolve the estate matter. Consequently, notwithstanding the five year delay since the date of Dr. Hard’s death, the Court would not be inclined to dismiss the matter at this time.

In any event, before a dismissal may be ordered under CPLR 1021, “persons interested in the decedent’s estate” must be afforded an opportunity to “show cause” why the action should not be dismissed (CPLR 1021). Defendant’s moving papers do not identify such persons, nor do they seek an order directing service of the motion upon them. For this reason as well, the motion to dismiss under CPLR 1021 is DENIED without prejudice.

Since the request for dismissal is being denied in deference to the Surrogate’s primary authority over the affairs of the Estate of Dr. Hard, the Court further concludes that all proceedings in this action should be stayed (CPLR 2201), as requested by plaintiff’s counsel, until such time as the Surrogate appoints an administrator of Dr. Hard’s estate (see e.g. North Queens Medical, P.C. v Allstate Ins. Co., index no. 07377/03, order dated December 17, 2010 [Dist Ct Nassau Co.]). In issuing such a stay, however, the Court has the authority to impose “such terms as may be just” (CPLR 2201).

Under the unusual circumstances presented, defendant persuasively argues that the Court should “stay the accrual of interest in this matter retroactively” (reply affirmation of Glen Egor, Esq.). In view of the ten year history of this matter, and in the absence of proof of diligent efforts by plaintiff’s counsel to move the matter forward, the Court believes it would be extremely unfair and prejudicial to defendant to allow plaintiff’s no-fault claim to accrue ten years’ worth of interest after the date the lawsuit was commenced. As the parties are well aware, overdue no-fault claims normally accrue statutory interest at a punitive rate of 2% per month (see East Acupuncture, PC v Allstate Ins. Co., 61 AD3d 202, 210 [2d Dept 2009]; Ins. L. 5106[a]).

As a general rule, a court is powerless to deny statutory interest to a party seeking breach of contract damages upon a claim at law. In contrast to actions “of an equitable nature” which are subject to “the court’s discretion” (CPLR 5001[a]), the same section states that interest “shall be recovered upon a sum awarded because of a breach of performance of a contract” (id.).

However, no-fault claims, while grounded in contract, are subject to special rules concerning interest upon overdue claims. Critically, the no-fault regulations include a provision that “interest shall accumulate unless the applicant unreasonably delays the…court proceeding” (see 11 NYCRR §65-3.9[d]). Medical providers pursuing assigned claims for no-fault benefits have been held subject to this proviso (East Acupuncture, PC v Allstate Ins. Co., supra). Therefore, notwithstanding the command of CPLR 5001(a), the Court is empowered to deny interest upon a no-fault claim in cases falling within the ambit of the regulation.

Lower court judges have “rarely ruled upon [the] issue” of what constitutes an [*5]“undue delay” justifying denial of no-fault interest (see Arzu v NYC Transit Authority, 35 Misc 3d 210 [Civ Ct Kings Co. 2012]). However, in the latter case, a plaintiff’s “egregious” five year delay in prosecuting a no-fault claim was found to justify a retroactive tolling of interest. As the Civil Court (Katherine A. Levine, J) explained, the applicable no-fault regulation “acts as an incentive for both insurers and claimants to act promptly” (id. at 213). Once an insurer issues a timely denial, “the incentive to act promptly switches to the applicant who … must then not unreasonably delay prosecution of the case in order to avoid the tolling of interest” (id.).

Plaintiff’s ten year delay in this case appears to be equally “egregious,” thereby warranting an order granting defendant’s request for a retroactive toll of no-fault interest in this matter.

Given plaintiff’s extreme ten year delay, granting a retroactive toll of no-fault interest is both necessary and appropriate. “[T]o do otherwise would reward … plaintiff with a windfall of punitive interest payments and would contravene the legislative goal of promptly resolving no fault claims” (Arzu v NYC Transit Authority, supra, quoting Devonshire Surgical Facility v American Transit Ins. Co., 2011 NY Slip Op 50793 [Civ Ct NY Co]).

Accordingly, as permitted by 11 NYCRR §65-3.9(d), the Court concludes, based upon plaintiff’s unreasonable delay in pursuing the matter between the date the action was commenced (January 2003) and the date of Dr. Hard’s death (November 2008), and the absence of proof of appropriate diligent and expeditious efforts to obtain an order from the Queens Surrogate which would have allowed the action to proceed after Dr. Hard’s death, any judgment in plaintiff’s favor in this matter shall carry post-commencement no-fault interest only from a date, going forward, when the requisite Surrogate’s approval is obtained, and may be subject to further tolling if there are additional unreasonable delays in the prosecution of the action.

So Ordered:

District Court Judge

Dated:September 13, 2013