Devonshire Surgical Facility v AIU Ins. Co. (2007 NY Slip Op 51034(U))

Civil Court of the City of New York, New York County

64123/05

For plaintiffs:

Christopher McCollum, Esq.

Law Offices of Christopher McCollum

57 W. 57th St., Suite 502

New York, NY 10019

917-407-5690

For defendant:

Allison B. Frischling, Esq.

Bruno, Gerbino & Soriano, LLP

445 Broad Hollow Road, Suite 220

Melville, NY 11747

631-390-0010

Barbara Jaffe, J.

By notice of motion dated January 25, 2007, defendant moves for an order granting it leave to renew and reargue my decision and order of December 6, 2006 granting summary judgment to plaintiffs on their claims for unpaid no-fault insurance benefits, statutory interest, and attorney fees. For the following reasons, the motion is denied.

I. PRIOR DECISION

In granting plaintiffs summary judgment, I held that they had established, prima facie, that their office manager had personally mailed the pertinent no-fault claim forms to defendant and that defendant had failed to deny plaintiffs’ claims timely. Defendant raised no objection to plaintiffs’ prima facie case.

In holding that defendant had failed to establish good cause for seeking discovery relating [*2]to its defenses and plaintiffs’ corporate structure, I found that: 1) in light of plaintiffs’ counsel’s affirmation that plaintiff Devonshire Surgical Facility (Devonshire) was officially converted from a general partnership into a limited liability corporation and notwithstanding the absence of its name from lists maintained on the websites of the New York State Education Department’s Office of Professions and the New York Department of State Division of Corporations, defendant failed to demonstrate sufficiently that at the time the healthcare services were rendered, Devonshire was fraudulently incorporated; 2) defendant failed to demonstrate sufficiently that the revocation of Allen Chamberlin’s license to practice medicine based on conduct he engaged in during 1998 constitutes good cause to believe that his facility, defendant Carnegie Hill Orthopedic Services (Carnegie Hill), was fraudulently incorporated in 2001 when the services in issue were rendered; 3) because the revocation of Chamberlin’s license was based on his excessive and unnecessary treatments and fraudulent billing for services never provided, which are forms of provider fraud, and absent any indication that defendant had interposed a timely denial based on those defenses, plaintiffs are not precluded from seeking reimbursement; and 4) defendant failed to interpose in its answer any contention that an independent contractor had provided the services at issue and that Chamberlin had violated the prohibition against self-referral.

II. RE-ARGUMENT

A motion for leave to reargue “shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion.” (CPLR 2221[d][2]).

A. Defendant’s discovery demands relating to Carnegie Hill’s corporate structure

1. Contentions

Defendant argues that there exists good cause for discovery relating to Carnegie Hill’s corporate structure, again relying solely on the 2005 administrative finding that Chamberlin engaged in fraudulent billing and fraudulent and excessive medical practices in 1998 as evidence that he engaged in those practices in 2001. As Chamberlin’s license was revoked based on conduct he engaged in during 1998, defendant argues, his license must be deemed revoked as of 2001, and if Chamberlin was not authorized to practice medicine in 2001, then Carnegie Hill had issued him shares in violation of Business Corporation Law (BCL) § 1507(a) and was thus fraudulently incorporated in 2001. (Affirmation of Alison B. Frischling, Esq., dated Jan. 25, 2007 [Frischling Aff.]). Defendant thus attempts to avoid preclusion of a defense based on provider fraud by characterizing it as one sounding in fraudulent incorporation.

In opposition, plaintiffs observe that I had rejected the same argument in my December 2006 decision. (Affirmation of Christopher McCollum, Esq., dated Mar. 12, 2007 [McCollum Aff]).

2. Analysis

Pursuant to 11 NYCRR 65-3.16 (a) (12), effective April 4, 2002, unlicensed or fraudulently licensed healthcare providers are ineligible to receive reimbursement for no-fault medical services provided by them. In affirming the dismissal of an insurer’s causes of action for fraud and unjust enrichment, the Court of Appeals held in State Farm Mut. Auto. Ins. Co. v Mallela, that no such causes of action lie for payments made by insurers before April 4, 2002. (4 [*3]NY3d 313, 322 [2005]). The Court also observed that insurers may withhold payment for medical services provided by enterprises incorporated in violation of BCL §§ 1507 and 1508 and Education Law § 6507(4)(c). Pursuant to BCL §1507, a professional service corporation may issue shares only to those individuals who are authorized by law to practice the profession which the corporation is authorized to practice.

Here, it is undisputed that Chamberlin was authorized by law to practice medicine when Carnegie Hill was organized. And, although Chamberlin’s license has now been revoked and he must now disassociate himself from Carnegie Hill (BCL § 1509 [if shareholder of professional service corporation becomes legally disqualified to practice his profession, he must sever all employment with and financial interests in corporation]), absent any indication that the revocation is retroactive or that any of the governing statutes, regulations, or case law requires that lawfully issued shares be invalidated retroactively, there is no basis for finding that Carnegie Hill was fraudulently incorporated when formed merely because Chamberlin’s license was revoked thereafter. (See CKC Chiro. v Republic Western Inc. Co., 5 Misc 3d 492 [Civ Ct, Kings County 2004] [provider may be reimbursed for services rendered when she was properly licensed or registered, even if she subsequently became unlicensed or unregistered]).

I also observe that the conduct underlying the revocation of Chamberlin’s license relates to defenses which, if this action arose in the Second Department, are precluded if not timely denied. (Careplus Med. Supply Inc. v State-Wide Ins. Co., 11 Misc 3d 29 [App Term, 2d & 11th Jud Dists 2005] [fraudulent billing or performance of excessive or unnecessary medical treatment are forms of provider fraud]; Fair Price Med. Supply Corp. v Travelers Indemn. Co., 9 Misc 3d 76 [App Term, 2d Dept 2005] [defense based on fraudulent scheme to obtain no-fault benefits precluded due to untimely denial]; Ocean Diagnostic Imaging, PC v Utica Mutual Ins. Co., 9 Misc 3d 138[A], 2005 NY Slip Op 51745[U], *1 [App Term, 9th & 10th Jud Dists 2005] [alleged irregularities in the treatment and billing process did not support defense that survived preclusion]). Although no appellate court in the First Department has addressed the issue of whether a defense based on services billed but never rendered is subject to preclusion for untimely denial, and a judge in the Eastern District of New York disagrees with the Appellate Term’s decision in Fair Price, 9 Misc 3d 76, that a defense based on services billed but not rendered is subject to preclusion (Allstate Ins. Co. v Valley Physical Med. & Rehab., P.C., 475 F Supp2d 213 [US Dist Ct, EDNY 2007]), here, defendant did not even allege that plaintiffs billed for services that were not rendered.

In any event, evidence that Chamberlin fraudulently or excessively billed or unnecessarily treated patients in 1998 is inadmissible to prove that he engaged in such conduct in 2001. (Prince, Richardson on Evidence § 4-517 [11th Ed Farrell]; see Matter of Brandon, 55 NY2d 206 [1982]; Hand v Stanper Food Corp., 224 AD2d 584 [2d Dept 1996] [evidence that defendant’s principal broke two signs in front of defendant’s premises over five-year period prior to alleged accident, without more, insufficient to support inference that he broke sign at issue]; Kelly v Ryder Truck Rental, Inc., 14 Misc 3d 127[A], 2006 NY Slip Op 52467[U] [App Term 1st Dept 2006] [evidence of prior accident inadmissible to support inference of fraud absent any claim that prior accident was staged]; Maraziti v Weber, 185 Misc 2d 624 [Sup Ct, Dutchess County 2000] [motion in limine granted as to prior findings of Department of Health]). If Carnegie Hill excessively billed for its services or billed for services never rendered, defendant would have had [*4]the means of proving it without relying on inadmissible evidence of a disposition to engage in fraud. Rather, it seeks to rely solely on inadmissible evidence of prior misconduct.

As defendant failed to establish that it properly sought discovery from Carnegie Hill based on a non-precluded defense (A.B. Med. Svces., PLLC v Utica Mut. Ins. Co., 11 Misc 3d 71 [App Term, 2d & 11th Jud Dists 2006]), that it has good cause to believe that Carnegie Hill was fraudulently incorporated, and that Carnegie Hill was required to respond to defendant’s discovery requests on these issues (see A.B. Med. Svces., PLLC, 11 Misc 3d 71 [discovery demands relating to precluded defenses are “palpably improper” and plaintiff healthcare provider need not respond to them]; Devonshire Surgical Facility and Carnegie Hill Orthopedic Services v GEICO, NYLJ, Apr. 7, 2006, at 20, col 1 [Civ Ct, New York County] [defendant may not allege provider fraud if not asserted in denial]), it has failed to demonstrate that I overlooked or misapprehended any matter of fact or law in deciding the prior motion.

B. Defendant’s discovery demands relating to Devonshire’s corporate structure

Defendant claims that discovery relating to Devonshire’s corporate structure is warranted as it may reveal that Devonshire was not a properly licensed entity when the services in issue were rendered. It relies, as it did in its opposition to plaintiff’s motion for summary judgment, on the results of two website searches which do not list Devonshire as a professional medical corporation prior to 2006. (Frischling Aff.). Devonshire denies that defendant’s allegations against it, even if true, constitute a defense of fraudulent incorporation, and claims that a violation of the Business Corporation Law is curable and that Devonshire was and continues to be a properly licensed entity. (McCollum Aff.).

As Devonshire was not incorporated at the time the services in issue were rendered, Mallela, 4 NY3d 313, as well as Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407 (1st Dept 2006), are inapposite absent any requirement that an entity offering professional services be incorporated. I observe that BCL §1503(a) merely permits one or more individuals authorized by law to render the same professional service to organize a professional service corporation.

I also observe that only business and not for profit corporations, limited partnerships, limited liability companies and limited liability partnerships, as well as other miscellaneous businesses, are listed on the New York Department of State’s Division of Corporation’s website; general partnerships, sole proprietorships, and limited liability partnerships are expressly excluded from it. Consequently, as the absence of Devonshire’s name from the website list prior to 2006 reflects only that Devonshire was not incorporated as a business or not for profit corporation, limited partnership, limited liability company, or limited liability partnership before that time, it is immaterial.

Pursuant to Education Law § 6507(4)(c), the New York State Education Department is required issue a certificate of authority to a qualified professional service organization organized pursuant to BCL § 1503. As Devonshire was not organized pursuant to BCL § 1503, Education Law § 6507(4)(c) is not applicable.

I also find that defendant’s conclusory allegations that an independent contractor provided the services in issue and that Chamberlin violated the prohibition against self-referral form no basis for discovery as defendant did not plead such defenses and did deny the claims based thereon. Defendant has thus failed to demonstrate good cause to assert, nor has it even argued, [*5]that at the time that Devonshire rendered the services at issue, it was owned, operated, controlled or otherwise involved with unlicensed individuals or entities.

Accordingly, plaintiffs were not required to respond to discovery demands on these issues.For all of these reasons, defendant has failed to establish good cause to believe that Devonshire was fraudulently incorporated before May 2006, and absent such good cause, defendant is not entitled to discovery on this issue. Consequently, defendant has failed to establish that I overlooked or misapprehended any matter of fact or law in deciding the prior motion.

C. Triable issues of fact

Defendant also includes in its motion for leave to reargue a claim that there exist triable issues of fact as to whether Devonshire was ever a properly licensed entity and whether Carnegie Hill improperly issued shares to Chamberlin. It argues, without any explanation, that Devonshire’s registration with the Department of State as a “domestic limited liability company” rather than “professional limited liability company” raises a triable issue as to whether it is a licensed provider. (Frischling Aff.).

I first observe that defendant’s opposition to plaintiff’s motion for summary judgment was based solely on plaintiffs’ failure to respond to its discovery demands. Consequently, these new arguments may not be considered. (CPLR 2221[d][1]; Mariani v Dyer, 193 AD2d 456 [1st Dept 1993] [motion to reargue not appropriate vehicle to assert arguments different from those asserted on original motion]). In any event, defendant cites no authority in support of its proposition that licensed health care providers must be registered only as professional limited liability companies.

I thus find that defendant failed to establish that I overlooked or misapprehended any of its evidence or relevant decisions in granting plaintiffs summary judgment on their claims. For all of these reasons, I adhere to my prior decision and deny defendant’s motion to reargue.

III. RENEWAL

A motion for leave to renew “shall be based upon new facts not offered on the prior motion that would change the prior determination or shall demonstrate that there has been a change in the law that would change the prior determination, and shall contain reasonable justification for the failure to present such facts on the prior motion. (CPLR 2221[e][2], [3]).

A. Retroactivity of fraudulent incorporation regulation

In moving to renew, defendant relies on Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407 (1st Dept 2006), for the proposition that a provider’s prior fraudulent conduct may be used to prove that the provider conducted itself similarly on a subsequent occasion. Counsel maintains that the First Department held that “a providers [sic] fraudulent conduct can be applied retroactively.” (Frischling Aff.). It maintains that the decision constitutes a change in law which would change my prior determination, and that the regulation applies to the period during which plaintiffs rendered the services in issue. It thus argues that as there is reason to believe, based on the subsequent revocation of Chamberlin’s license, that plaintiffs were fraudulently licensed or had engaged in fraudulent conduct when the services were rendered, plaintiffs may not be entitled to reimbursement for those services. (Id.).

The First Department recently applied Mallela to claims for services rendered prior to April 4, 2002, rejecting a provider’s argument that it was entitled to be reimbursed for claims [*6]relating to services rendered prior to the effective date of the regulation, reasoning that “[t]he very word reimbursement,’ used in the regulation, implies that the services had already been provided . . . [and that] it would be illogical to read [Mallela] as applying only to claims submitted on or after April 4, 2002.” (Belt Parkway, 33 AD3d 407). Thus, unlicensed and fraudulently licensed health care providers and those that are incorporated in violation of BCL

§§ 1507 and 1508 and Education Law § 6507(4)(c) are ineligible to be reimbursed even if their services were rendered prior to April 4, 2002.

While the court applied the regulation retroactively, it did not even address the issue raised by defendant, namely, whether a provider’s fraudulent conduct on one occasion may be utilized to prove that it engaged in fraudulent conduct on another occasion. As noted supra (II.A.2.), evidence of prior misconduct is generally inadmissible to prove later alleged misconduct.

Consequently, the decision in Belt Parkway does not change my determination that defendant failed to establish good cause to seek discovery concerning Carnegie Hill’s alleged fraudulent incorporation.

B. Plaintiffs’ prima facie case

Defendant maintains that recent decisions compel the finding that the affidavit supporting plaintiffs’ motion for summary judgment was insufficient to lay a foundation for the admission in evidence of plaintiffs’ business records or demonstrate that the claims were overdue. (Frischling Aff.). Plaintiffs argue that the supporting affidavit was based on their office manager’s personal knowledge of the contents of the mailings and the mailings themselves. (McCollum Aff.). In reply, defendant argues that the affidavit is insufficient as plaintiffs’ office manager fails to set forth her knowledge of plaintiffs’ business practices and procedures or any specifics concerning the claims at issue, such as the date of the accident, dates of service, and amounts in dispute. (Reply Affirmation of Allison B. Frischling, Esq., dated March 29, 2007 [Frischling Reply Aff.]).Here, plaintiffs’ officer manager swore that she had personal knowledge of the documents, that she personally verified that they were contained in the envelopes, that she mailed the envelopes, and that defendant neither paid nor denied the claims within thirty days. She also stated that she has been plaintiffs’ office manager for more than seven years, that one of her responsibilities is the supervision of all billing procedures and mailing of claim forms, and that based on her personal knowledge and review of the file, the claims forms annexed to the motion papers were made by plaintiffs’ employees who had the obligation to make the record in the regular course of business and who had the actual knowledge of the events recorded or received the information from someone within the business who had actual knowledge and was under a business duty to report the events to the maker of the records, and that the documents were made at the time of the transaction or occurrence or a reasonable time thereafter.

In Dan Medical, P.C. v NY Central Mutual Fire Ins. Co., 14 Misc 3d 44 (App Term, 2d Dept 2006), the plaintiff submitted the affidavit of its corporate officer stating that the documents attached to the plaintiff’s motion papers were its business records. The court held that the plaintiff “failed to demonstrate that the officer possessed sufficient personal knowledge of [its] office practices and procedures so as to lay a foundation for the admission of the annexed documents as business records.” (14 Misc 3d at 46).

Here, plaintiffs’ office manager had personal knowledge of plaintiffs’ business practices [*7]and procedures for creating the claims, as well as personal knowledge that the claims were mailed to defendant. Thus, her affidavit satisfies the requirements for admitting in evidence as business records the claims and annexed documents.

Moreover, plaintiffs’ office manager set forth in her affidavit the amounts plaintiffs billed defendant for the services at issue and the date on which she mailed the claims to defendant, and she states that defendant did not pay or timely deny the claims. She also refers to the claim forms and other documents annexed to plaintiffs’ papers which indicate the dates of service and types of services provided by plaintiffs.

In PDG Psych., P.C. v Ntl. Grange Mut. Ins. Co., 14 Misc 3d 136(A), 2007 NY Slip Op 50242(U) (App Term, 2d & 11th Jud Dists 2007), the court held that the plaintiff’s officers’ affidavit was too vague and conclusory to support plaintiffs’ prima facie case as the officer did not identify what services were rendered, when they were rendered, the amounts which were owed or the dates on which the claims were mailed, but only alleged that the bills were accurate and that proof of mailing was available for inspection.

Here, the affidavit references the annexed documents for which a sufficient evidentiary foundation was laid, thereby providing the specific details of the amounts billed, the dates of service and services rendered, and the date the claims were mailed. Consequently, the affidavit was sufficient to satisfy plaintiffs’ prima facie burden.

I thus find that as defendant failed to demonstrate that there has been any change in the law that would change the prior determination, leave to renew is denied.

IV. SHORT SERVICE

In its reply, defendant claims that plaintiffs did not serve their opposition to its motion by March 16, 2007, the date agreed to in the parties’ stipulation dated February 26, 2007. (Frischling Reply Aff.).

While plaintiffs’ affidavit of service of the opposition papers reflects that the papers were served on March 19, 2007, defendant replied on the merits to the papers and alleges no prejudice. I thus find that it waived plaintiffs’ late service. (See Piquette v City of New York, 4 AD3d 402 [2d Dept 2004] [although motion made on insufficient notice, plaintiffs waived objection to it by opposing it on merits]; Adler v Gordon, 243 AD2d 365 [1st Dept 1997] [petitioner waived right to contest late service of motion by opposing it on merits]).

V. CONCLUSION

Accordingly, defendant’s motion for leave to reargue is granted and re-argument is denied, and defendant’s motion for leave to renew is denied. This constitutes the decision and order of the court.

_______________________________

Barbara Jaffe, JCC

DATED:May 21, 2007

New York, New York [*8]