[*1]

Second Department, February 17, 2009

East Acupuncture, P.C. v Allstate Ins. Co., 15 Misc 3d 104, affirmed.

APPEARANCES OF COUNSEL

Gary Tsirelman, P.C., Brooklyn (Max Valerio of counsel), for appellant.

Saiber LLC, New York City (Agnes I. Rymer, David J. D’Aloia and McDonnell & Adels, P.C. [Martha S. Henley] of counsel), for respondent.

Andrew M. Cuomo, Attorney General, New York City (Benjamin N. Gutman and Peter Karanjia of counsel), amicus curiae, for Superintendent of Insurance of State of New York.

{**61 AD3d at 203} OPINION OF THE COURT

Balkin, J.

The principal issue on this appeal, which is a matter of conflicting decisions within our trial courts,^[FN1] is whether a toll on the accrual of statutory interest on overdue [*2]no-fault claims pursuant to 11 NYCRR 65-3.9 (c) applies to claims submitted to insurers by medical providers as assignees of policyholders, or is restricted to claims submitted directly by the policyholders themselves. We hold that the tolling regulation applies to both.

I.

The following facts are essentially undisputed. The plaintiff, East Acupuncture, P.C. (hereinafter East Acupuncture), a health care provider, treated several individuals injured in automobile{**61 AD3d at 204} accidents between July 20, 2000 and June 21, 2001 (hereinafter the injured persons), and received assignments of their no-fault benefits under automobile insurance policies issued by the defendant Allstate Ins. Co. (hereinafter Allstate). East Acupuncture, as an assignee, submitted claims for no-fault benefits to Allstate; in response, Allstate timely denied some claims, issued no denials for some claims, and untimely denied other claims.

As a result, by summons and verified complaint dated June 18, 2004, East Acupuncture, as the assignee of the injured persons, commenced the instant action against Allstate in the Civil Court of the City of New York, Kings County to recover the claimed no-fault benefits, alleging, in relevant part, that it timely submitted bills and claims to Allstate for the payment of such services, but that they remained unpaid. Contemporaneously therewith, by notice of motion dated July 19, 2004, East Acupuncture moved for summary judgment in its favor for the amount of the principal sums demanded in the complaint plus statutory interest, arguing that Allstate had failed to establish that it paid or denied East Acupuncture’s claims within the required 30 days under Insurance Law § 5106 (a).

While that motion was pending, East Acupuncture and Allstate engaged in negotiations and ultimately entered into a stipulation of settlement providing that East Acupuncture would receive: 80% of the outstanding principal of all the assigned no-fault claims for which it sought payment; 100% of interest, accrued from the date East Acupuncture filed its complaint, on claims that Allstate had timely denied; and 90% of interest, accrued from 30 days after Allstate received proof of claim, on claims that Allstate had not denied. Finally, for claims that Allstate had untimely denied, the stipulation entitled East Acupuncture to recover 100% of interest “beginning either from [30] days after insurer received the claim or the date [East Acupuncture]’s complaint was filed to be DETERMINED BY THE COURT.”

In their affirmations submitted to the Civil Court in support of and in opposition to East Acupuncture’s motion for summary judgment, East Acupuncture and Allstate disagreed as to whether the interest toll pursuant to 11 NYCRR 65-3.9 (c)^[FN2] applied to the no-fault claims of medical [*3]providers as assignees of{**61 AD3d at 205} policyholders (hereinafter provider/assignees), such as East Acupuncture, or was limited to the claims submitted by the injured persons directly. More pointedly, East Acupuncture sought interest from 30 days after the claims’ submission, while Allstate insisted that interest accrued only from the commencement date of the action. By order dated June 27, 2005, the Civil Court granted that branch of East Acupuncture’s motion which was for summary judgment awarding it interest on the untimely denied claims, with such interest accruing from 30 days after Allstate received proof of the claims. The Civil Court concluded that the interest toll pursuant to 11 NYCRR 65-3.9 (c) applied only to the claims of the injured persons, not to those of provider/assignees (see East Acupuncture, P.C. v Allstate Ins. Co., 8 Misc 3d 849, 851-852 [Civ Ct, Kings County 2005]).

Allstate appealed from that order to the Appellate Term of the Supreme Court for the Second, Eleventh and Thirteenth Judicial Districts. The parties reiterated their arguments below and were joined by the New York State Superintendent of Insurance (hereinafter the Superintendent), who was granted leave to file a brief and argue as amicus curiae.

Agreeing with Allstate and the Superintendent, the Appellate Term, by order dated January 3, 2007, reversed the order of the Civil Court and remitted the matter for a new calculation of interest on the untimely denied claims, with such interest accruing from the date East Acupuncture filed its complaint. The Appellate Term concluded that the interest toll pursuant to 11 NYCRR 65-3.9 (c) applied to the claims of both types of{**61 AD3d at 206} claimants, the injured persons and provider/assignees (see East Acupuncture, P.C. v Allstate Ins. Co., 15 Misc 3d 104 [App Term, 2d, 11th & 13th Jud Dists 2007]). The Appellate Term additionally noted that although the subject claims predated the no-fault regulations effective April 5, 2002 the regulations at issue had not been modified to any material extent (id. at 105 n).

By decision and order on motion dated August 28, 2007, this Court granted East Acupuncture’s motion for leave to appeal from the order of the Appellate Term. On its appeal, East Acupuncture maintains that the order of the Appellate Term should be reversed, inter alia, because the term “applicant,” as used in 11 NYCRR 65-3.9 (c), refers only to the injured persons, not to provider/assignees. For their part, Allstate and the Superintendent, as amicus curiae, argue that both types of no-fault claimants are subject to the interest toll under this regulation. [*4]

II.

By way of background, in 1973, the New York State Legislature enacted the Comprehensive Automobile Insurance Reparations Act (L 1973, ch 13; hereinafter the No-Fault Law)—presently codified in article 51 of the Insurance Law—supplanting common-law tort actions for most victims of automobile accidents with a system of no-fault insurance (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 281 [1997]; Walton v Lumbermens Mut. Cas. Co., 88 NY2d 211, 214 [1996]).

“Under the no-fault system, payments of benefits ‘shall be made as the loss is incurred’ (Insurance Law § 5106 [a]). The primary aims of this new system were to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists” (Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d 854, 860 [2003]; see Governor’s Mem approving L 1973, ch 13, 1973 McKinney’s Session Laws of NY, at 2335).

In order to fulfill these goals, the Insurance Law provides that a claim for no-fault automobile insurance benefits is overdue “if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained” (Insurance Law{**61 AD3d at 207} § 5106 [a];^[FN3] see New York & Presbyt. Hosp. v Allstate Ins. Co., 30 AD3d 492, 493 [2006]), and “[a]ll overdue payments shall bear interest at the rate of two percent per month” (Insurance Law § 5106 [a]). Building upon these precepts, the Superintendent has promulgated regulations implementing the No-Fault Law for the last 35 years, currently contained in 11 NYCRR part 65.^[FN4] More particularly, under 11 NYCRR 65-3.11 (a), an insurer shall pay benefits directly to the “applicant,” or, upon assignment by the applicant, “shall pay benefits directly to providers of health care services.” Pursuant to 11 NYCRR 65-3.8 (c), “[w]ithin 30 calendar days after proof of claim is received, the insurer shall either pay or deny the claim in whole or in part.” Under 11 NYCRR 65-3.8 (a) (1), “[n]o-fault benefits are overdue if not paid within 30 calendar days after the insurer receives proof of claim” (see Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d at 278; Cardinell v Allstate Ins. Co., 302 AD2d 772, 774 [2003]).

Relevant to the instant dispute, 11 NYCRR 65-3.9 governs the accrual of interest on overdue no-fault payments. Pursuant to 11 NYCRR 65-3.9 (a), “[a]ll overdue mandatory and additional personal injury protection benefits due an applicant or assignee shall bear interest at a rate of two [*5]percent per month” (see Hempstead Gen. Hosp. v Insurance Co. of N. Am., 208 AD2d 501 [1994]). However, 11 NYCRR 65-3.9 (c) provides that

“[i]f an applicant does not request arbitration or institute a lawsuit within 30 days after the receipt of a denial of claim form or payment of benefits calculated pursuant to Insurance Department regulations, interest shall not accumulate on the disputed claim or element of claim until such action{**61 AD3d at 208} is taken” (emphasis supplied), thereby providing a toll on the accrual of the statutory interest.

III.

The critical issue before this Court is whether the toll on the accrual of statutory interest on overdue no-fault claims pursuant to 11 NYCRR 65-3.9 (c) applies to claims submitted to insurers by provider/assignees (see 11 NYCRR 65-3.11 [a]), or is restricted to claims submitted directly by the injured persons. East Acupuncture contends that because 11 NYCRR 65-3.9 (a) uses the terms “applicant” and “assignee,” the omission of the term “assignee” in 11 NYCRR 65-3.9 (c) evidences that the interest toll applies only to claims submitted by the injured persons. In contrast, Allstate argues that, for interest tolling purposes, there is no reason to distinguish between claims submitted by provider/assignees and claims submitted by the injured persons because the term “applicant” is used in 11 NYCRR 65-3.9 (c) to refer generically to both provider/assignees and injured persons. In an amicus curiae brief, the Superintendent argues that the term “applicant,” as used in the no-fault regulations, encompasses provider/assignees and that this interpretation is consistent with prior case law and the expression of the Superintendent’s intent.

In matters of statutory and regulatory interpretation, “legislative intent is the great and controlling principle, and the proper judicial function is to discern and apply the will of the [enactors]” (Matter of ATM One v Landaverde, 2 NY3d 472, 476-477 [2004], quoting Mowczan v Bacon, 92 NY2d 281, 285 [1998] [internal quotation marks omitted]).

“Legislative intent may be discerned from the face of a statute, but an apparent lack of ambiguity is rarely, if ever, conclusive . . . Generally, inquiry must be made of the spirit and purpose of the legislation, which requires examination of the statutory context of the provision as well as its legislative history” (Matter of Sutka v Conners, 73 NY2d 395, 403 [1989]; see Matter of ATM One v Landaverde, 2 NY3d at 477; Mowczan v Bacon, 92 NY2d at 285).

Moreover, “regulations . . . should be construed to avoid objectionable results” (Matter of ATM One v Landaverde, 2 NY3d at 477).

Because the statutory text is the clearest indicator of legislative intent, “the starting point in any case of interpretation{**61 AD3d at 209} must always be the language itself, giving effect to the plain meaning thereof” (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]; see Matter of Jansen Ct. Homeowners Assn. v City of New York, 17 AD3d 588, 589 [2005]). “Pursuant to the maxim of statutory construction expressio unius est exclusio alterius, ‘where a law expressly describes a particular act, thing or person to which it shall apply, an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted and excluded’ ” (Matter of Town of Eastchester v New York State Bd. of Real Prop. Servs., 23 AD3d 484, 485 [2005], quoting McKinney’s Cons Laws of NY, Book 1, Statutes § 240). Nonetheless, “a statute or ordinance must be construed as a whole and . . . its various sections must be considered together and with reference to each other” (People v Mobil Oil Corp., 48 NY2d 192, 199 [1979]; see Matter of Notre Dame Leasing v Rosario, 2 NY3d 459, 464 [2004]; Levine v Bornstein, 4 NY2d 241, 244 [1958]).

Responsibility for administering the Insurance Law rests with the Superintendent, who has broad power to interpret, clarify, and implement the legislative policy by promulgating regulations (see Insurance Law § 301; Raffellini v State Farm Mut. Auto. Ins. Co., 9 NY3d 196, 201 [2007]; Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d at 863-864). “[T]he interpretation given to a regulation by the agency which promulgated it and is responsible for its administration is entitled to deference if that interpretation is not irrational or unreasonable” (Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d 337, 342 [2004] [internal quotation marks [*6]omitted]; see Matter of Brooklyn Assembly Halls of Jehovah’s Witnesses, Inc. v Department of Envtl. Protection of City of N.Y., 11 NY3d 327, 334 [2008]; Matter of Visiting Nurse Serv. of N.Y. Home Care v{**61 AD3d at 210} New York State Dept. of Health, 5 NY3d 499, 506 [2005]). However, “courts are not required to embrace a regulatory construction that conflicts with the plain meaning of the promulgated language” (Matter of Visiting Nurse Serv. of N.Y. Home Care, 5 NY3d at 506).

Applying these principles to the matter at bar, we find that the term “applicant” as used in 11 NYCRR 65-3.9 (c) refers to both provider/assignees and injured persons. Since the Superintendent’s parallel interpretation is neither irrational nor unreasonable, it is entitled to deference (see Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d at 342; Matter of Visiting Nurse Serv. of N.Y. Home Care v New York State Dept. of Health, 5 NY3d at 506). In light of the fact that the no-fault regulations do not provide a general definition of the term “applicant,” the plain meaning of this term in 11 NYCRR 65-3.9 (c) would seem to refer to any entity, whether an injured person or a provider/assignee, who submits a claim or applies to an insurance company for no-fault benefits (see Majewski, 91 NY2d at 583). Indeed, in some instances, these regulations use the term “applicant” as a generic reference to both provider/assignees and injured persons (see e.g. 11 NYCRR 65-3.2 [b]; 65-3.3 [a]; 65-4.2 [b] [1] [i]); while, in other instances, the term “applicant” is used to refer specifically to injured persons (see e.g. 11 NYCRR 65-3.5 [e]; 65-3.8 [g]). However, construing the no-fault regulations as a whole and considering their various sections in reference to each other, as we must (see People v Mobil Oil Corp., 48 NY2d at 199), the Superintendent’s interpretation of the term “applicant,” as used in 11 NYCRR 65-3.9 (c), as a generic reference to both provider/assignees and injured persons is entitled to deference not only because the no-fault regulations do not use this term consistently and exclusively as a reference to injured persons, but because the Superintendent’s definition is consistent with the manner in which it is used in certain other instances.

The Superintendent’s interpretation of 11 NYCRR 65-3.9 (c) is additionally consistent with the spirit and purpose of the No-Fault Law (see generally Matter of ATM One v Landaverde, 2 NY3d at 477). One of the primary aims of the no-fault system is to ensure prompt payment of claims (see Matter of Medical Socy. of State of N.Y. v Serio, 100 NY2d at 860; Cardinell v Allstate Ins. Co., 302 AD2d at 774). The interest which accrues on overdue no-fault benefits at a rate of two percent per month (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.9 [a]) is a statutory penalty designed to encourage prompt adjustments of claims and inflict a punitive economic sanction on those insurers who do not comply (see Dermatossian v New York City Tr. Auth., 67 NY2d 219, 224 [1986]; Cardinell v Allstate Ins. Co., 302 AD2d at 774). Interpreting 11 NYCRR 65-3.9 (c) as applying the interest toll only to injured persons would allow a provider/assignee, who delays commencing legal action or requesting arbitration on denied claims, to continue to accrue interest pursuant to Insurance Law § 5106 (a) throughout this period of delay. Rewarding such delay with what amounts to essentially a windfall of punitive interest payments is at odds with the legislative goal of promptly resolving no-fault claims.{**61 AD3d at 211}

IV.

Finally, the Superintendent’s interpretation conforms with the general principle that an assignee stands in the shoes of an assignor and thus acquires no greater rights than those of its assignor (see Matter of International Ribbon Mills [Arjan Ribbons], 36 NY2d 121, 126 [1975]; Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765 [2007]; TPZ Corp. v Dabbs, 25 AD3d 787, 789 [2006]). ” ‘It is axiomatic concerning legislative enactments in derogation of common law . . . that they are deemed to abrogate the common law only to the extent required by the clear import of the statutory language’ ” (Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 3 NY3d 200, 206 [2004], quoting Morris v Snappy Car Rental, 84 NY2d 21, 28 [1994]). Under the interpretation of 11 NYCRR 65-3.9 (c) urged by East Acupuncture, a provider/assignee would not be subject to the toll on the accrual of [*7]statutory interest provided for by that regulation even though the toll would apply to its assignor, the injured person, if the injured person had submitted the same claim for no-fault benefits to the insurer itself. Because such an abrogation of the common law is not required by the language of 11 NYCRR 65-3.9 (c) (see Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., 3 NY3d at 206), the Superintendent’s contrary interpretation is neither irrational nor unreasonable and is, again, entitled to due deference (see Matter of 427 W. 51st St. Owners Corp. v Division of Hous. & Community Renewal, 3 NY3d at 342).

V.

We further find that East Acupuncture’s reliance upon LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co. (46 AD3d 1290, 1291-1292 [2007], lv granted 10 NY3d 717 [2008]) is misplaced. In LMK, the Appellate Division, Third Department rejected the no-fault insurer’s contention that the trial court improperly awarded interest to the provider/assignees by not tolling interest for the period between 30 days after they received the claim denial until commencement of their action (see LMK Psychological Servs., P.C., 46 AD3d at 1291). Although noting that this contention was not raised by the insurer in the lower court and thus unpreserved for appellate review, the Appellate Division, Third Department went on to conclude that the interest toll only applied to no-fault claims timely denied by the insurer (id. at 1291-1292). Likewise, East Acupncture’s reliance on New York & Presbyt. Hosp. v Allstate Ins. Co. (30 AD3d at 494) is also misplaced.{**61 AD3d at 212}

This ruling, enunciated as dicta, is inapposite since it did not confront the precise issue presented by this appeal: whether the term “applicant,” as used in 11 NYCRR 65-3.9 (c), refers to both injured persons and provider/assignees (see Sabella and Lustig, Outside Counsel, Accrual Date for Payment of Interest in No-Fault Cases, NYLJ, May 29, 2008, at 4, col 4).

VI.

In conclusion, we hold that the term “applicant,” as used in 11 NYCRR 65-3.9 (c), refers to both provider/assignees and injured persons and that the toll on statutory interest provided for therein applies to no-fault claims submitted to insurers by both types of claimants. Accordingly, the Appellate Term properly determined that interest pursuant to Insurance Law § 5106 (a) did not begin to accrue on the claims that were untimely denied by Allstate until East Acupuncture filed its complaint. Thus, the Appellate Term properly reversed the order of the Civil Court and remitted the matter for the new interest calculation.

East Acupuncture’s remaining contentions are either not properly before this Court or without merit.

VII.

In accordance with the foregoing, the order dated January 3, 2007 is affirmed.

Mastro, J.P., Miller and McCarthy, JJ., concur.

Ordered that the order dated January 3, 2007 is affirmed, with costs.

Footnotes

Footnote 1: Among the conflicting decisions within our trial courts in the Second Judicial Department are: Brooklyn Chiropractic Assoc., P.C. v Progressive Cas. Ins. Co. (17 Misc 3d 13, 15 [App Term, 2d & 11th Jud Dists 2007] [interest accrues upon commencement of arbitration or action]), Vista Surgical Supplies, Inc. v State Farm Mut. Auto. Ins. Co. (15 Misc 3d 1143[A], 2007 NY Slip Op 51127[U] [Civ Ct, Kings County 2007] [same]), Tsai Chao v Country-Wide Ins. Co. (11 Misc 3d 1090[A], 2006 NY Slip Op 50794[U] [Dist Ct, Nassau County 2006] [same]), and Elmont Open MRI & Diagnostic Radiology, P.C. v Country-Wide Ins. Co. (15 Misc 3d 552 [Dist Ct, Nassau County 2007] [interest accrues 30 days after claim submission]).

Footnote 2: 11 NYCRR 65-3.9 specifically provides, in relevant part, the following:

“(a) All overdue mandatory and additional personal injury protection benefits due an applicant or assignee shall bear interest at a rate of two percent per month, calculated on a pro rata basis using a 30-day month. When payment is made on an overdue claim, any interest calculated to be due in an amount exceeding $5 shall be paid to the applicant or the applicant’s assignee without demand therefor. . . .

“(c) If an applicant does not request arbitration or institute a lawsuit within 30 days after the receipt of a denial of claim form or payment of benefits calculated pursuant to Insurance Department regulations, interest shall not accumulate on the disputed claim or element of claim until such action is taken. If any applicant is a member of a class in a class action brought for payment of benefits, but is not a named party, interest shall not accumulate on the disputed claim or element of claim until a class which includes such applicant is certified by court order, or such benefits are authorized in that action by Appellate Court decision, whichever is earlier.

“(d) If an applicant has submitted a dispute to arbitration or the courts, interest shall accumulate, unless the applicant unreasonably delays the arbitration or court proceeding” (emphasis added).

Footnote 3: Insurance Law § 5106 (a) (“Fair claims settlement”) provides, in relevant part, as follows:

“Payments of first party benefits and additional first party benefits shall be made as the loss is incurred. Such benefits are overdue if not paid within thirty days after the claimant supplies proof of the fact and amount of loss sustained. If proof is not supplied as to the entire claim, the amount which is supported by proof is overdue if not paid within thirty days after such proof is supplied. All overdue payments shall bear interest at the rate of two percent per month” (emphasis added).

Footnote 4: Although East Acupuncture’s claims predate the current version of the no-fault regulations, which became effective April 5, 2002, the regulations at issue were not materially amended and are cited herein as presently promulgated.

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 9th and 10th JUDICIAL DISTRICTS

Appeal from an order of the District Court of Nassau County, Third District (Robert H. Spergel, J.), entered January 9, 2008. The order, insofar as appealed from, granted defendant’s cross motion for summary judgment dismissing the complaint.

Order, insofar as appealed from, affirmed without costs.

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff moved for summary judgment and defendant cross-moved for summary judgment dismissing the complaint on the ground that plaintiff’s assignor had failed to appear for independent medical examinations (IMEs). In support of its cross motion, defendant submitted, inter alia, an affidavit of an employee of Independent Physical Exam Referrals, Inc. (IPER), the company which scheduled the IMEs. The District Court granted defendant’s cross motion for summary judgment dismissing the complaint. On appeal, plaintiff argues only that defendant’s cross motion for summary judgment should have been denied because the affidavit executed by IPER’s employee was insufficient to establish that defendant’s request and follow-up request for an IME were mailed to plaintiff’s assignor.

Contrary to plaintiff’s contentions, the affidavit submitted by defendant was sufficient to establish that defendant’s requests and follow-up requests for IMEs were mailed to plaintiff’s assignor (see Chi Acupuncture, P.C. v Kemper Auto & Home Insurance Co., 14 Misc 3d 141[A], 2007 NY Slip Op 50352[U] [App Term, 9th & 10th Jud Dists 2007]). Accordingly, the order, insofar as appealed from, is affirmed.

Rudolph, P.J., Tanenbaum and LaCava, JJ., concur. [*2]
Decision Date: February 13, 2009

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from a judgment of the Civil Court of the City of New York, Queens County (Diane A. Lebedeff, J.), entered September 21, 2007. The judgment, entered pursuant to an order granting plaintiff’s motion for summary judgment, awarded plaintiff the principal sum of $2,217.50.

Judgment reversed without costs, order granting plaintiff’s motion for summary judgment vacated and plaintiff’s motion for summary judgment denied.

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff moved for summary judgment. In opposition, defendant argued, inter alia, that there was an issue of fact as to the medical necessity of the supplies furnished by plaintiff. By order dated August 22, 2007, the court granted plaintiff’s motion for summary judgment. Judgment was subsequently entered pursuant to the order. The instant appeal by defendant ensued.

On appeal, defendant argues that the affidavit of plaintiff’s billing manager and corporate officer, submitted in support of plaintiff’s motion, failed to lay a proper foundation for the admission of the documents annexed to plaintiff’s moving papers and that, as a result, plaintiff failed to establish its prima facie case. We agree. The affidavit submitted by plaintiff’s billing manager and corporate officer was insufficient to establish 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 [*2]44 [App Term, 2d & 11th Jud Dists 2006]). Consequently, plaintiff’s motion for summary judgment should have been denied.

Pesce, P.J., Weston Patterson and Steinhardt, JJ., concur.
Decision Date: February 13, 2009

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Kings County (Loren Baily-Schiffman, J.), entered October 29, 2007. The order, insofar as appealed from, denied plaintiff’s motion to, inter alia, compel the deposition of defendant.

Order, insofar as appealed from, reversed without costs and plaintiff’s motion granted to the extent that defendant is ordered to appear for a deposition within 30 days of the date of the order entered hereon.

In this action to recover assigned first-party no-fault benefits, plaintiff moved to, inter alia, compel the deposition of defendant. Defendant failed to oppose plaintiff’s motion or to seek a protective order. Accordingly, the motion should have been granted to the extent of compelling defendant to appear for a deposition (see Crossbay Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co., 15 Misc 3d 110, 112 [App Term, 2d & 11th Jud Dists 2007]).

Pesce, P.J., Weston Patterson and Steinhardt, JJ., concur.
Decision Date: February 13, 2009

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Kings County (Kenneth P. Sherman, J.), entered September 4, 2007. The order granted defendant’s motion for summary judgment dismissing the complaint.

Order reversed without costs and defendant’s motion for summary judgment dismissing the complaint denied.

In this action by a provider to recover assigned first-party no-fault benefits, defendant moved for summary judgment dismissing the complaint on the ground of lack
of medical necessity. In opposition, plaintiff asserted, inter alia, that defendant did not establish that the subject denial of claim form was timely mailed. The court granted defendant’s motion. This appeal by plaintiff ensued.

The affidavit submitted by defendant’s litigation examiner failed to establish that defendant timely mailed its denial of claim form based upon its standard office practice or procedure designed to ensure that items are properly addressed and mailed, since it merely stated that the denial of claim form was mailed and did not sufficiently set forth the steps which comprise defendant’s mailing practices and procedures (see New York & Presbyt. Hosp. v Allstate Ins. Co., 29 AD3d 547 [2006]; Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679 [2001]; Align for Health Chiropractic, P.C. v New York Cent. Mut. Fire Ins. Co., 20 Misc 3d 144[A], 2008 NY Slip Op 51862[U] [App Term, 2d & 11th Jud Dists 2008]; Horton Med., P.C. v New York Cent. Mut. Fire Ins. Co., 20 Misc 3d 142[A], 2008 NY Slip Op 51682[U] [App Term, 2d & 11th Jud Dists 2008]). As a result, defendant failed to establish that its defense of lack of medical necessity was not precluded (see e.g. Delta Diagnostic Radiology, P.C. v Republic W. Ins. Co., 15 Misc 3d 33 [App Term, 2d & 11th Jud Dists 2007]). [*2]Accordingly, the order granting defendant’s motion for summary judgment is reversed and defendant’s motion is denied.

In light of the foregoing, we reach no other issue.

Weston Patterson, J.P., Rios and Steinhardt, JJ., concur.
Decision Date: February 11, 2009

[*1]

Supreme Court, Nassau County, February 10, 2009

APPEARANCES OF COUNSEL

Stern & Montana, LLP, New York City (Robert A. Stern, Sandra P. Burgos and James A. McKenney of counsel), for AIU Insurance Company and others, plaintiffs, and Allstate Insurance Company and another, declaratory judgment defendants. Edward K. Blodnick & Associates, P.C., Garden City (Edward K. Blodnick of counsel), for Deajess Medical Imaging, P.C. and others, defendants/declaratory jugment plaintiffs. Rivkin Radler, LLP, Uniondale (Michael P. Versichelli of counsel), for State Farm Insurance Company. Short & Billy, P.C., New York City (Skip Short and Ioanna Zevgaras of counsel), for GEICO Insurance Company and another. Katten Muchin Rosenman LLP, New York City (Jay Shapiro of counsel), for Travelers Indemnity Company. Bruno, Gerbino & Soriano, LLP, Melville (Kevin W. O’Leary of counsel), for MetLife Auto and Home Insurance Company and another. Curtis, Vasile, Devine, Merrick (Roy W. Vasile of counsel), for Lancer Insurance Company. Martyn Toher & Martyn, Mineola (David C. Smith of counsel), for Liberty Mutual Fire Insurance Company and others. DeMartini & Yi, Williston Park (Arthur J. DeMartini of counsel), for Lumbermens Mutual Casualty Ins. Co. and others. Epstein, Rayhill & Frankini, Woodbury (Elsa Rodriguez Preston of counsel), for Nationwide Insurance Company. Law Offices of Cohen & Jaffe, LLP, Lake Success (Villard S. Bastien of counsel), for Citiwide Auto Leasing, Inc. Jaffe & Nohavicka, New York City (Paul Koumourdas and Ian T. Williamson of counsel), for Country Wide Insurance Company and another. Law Offices of Moira A. Doherty, Uniondale, for Clarendon Insurance Company. McDonnell & Adels, P.C., Garden City (Patrick McDonnell and John E. McCormack of counsel), for AutoOne Insurance Company and others. [*2]

{**24 Misc 3d at 164} OPINION OF THE COURT

Stephen A. Bucaria, J.

This motion, by defendant (in the initial action) Dr. Robert Schepp and related parties (as plaintiffs in the declaratory judgment action), for summary judgment is granted in part and denied in part.

This is an action for a declaratory judgment that the defendant health care providers are ineligible for no-fault reimbursement because of failure to comply with state licensing requirements. In addition to declaratory relief, plaintiffs seek to recover previously paid no-fault claims, asserting causes of action for fraud and unjust enrichment.

Dr. Robert Schepp is a radiologist whose practice is devoted primarily to patients injured in automobile accidents. He practices through a group of professional service corporations which have submitted a large number of no-fault claims to the plaintiff insurance companies. The insurers have paid many of these claims but have denied many others on the ground that the professional corporations are ineligible for no-fault reimbursement. The insurers assert that the professional corporations are in violation of state licensing requirements because they are controlled by an individual not licensed to practice medicine. The insurers further argue that the corporations are ineligible for reimbursement because the radiology services were performed by independent contractors. Finally, the insurers argue that the corporations lack standing because they assigned the no-fault claims to finance companies pursuant to accounts [*3]receivable financing agreements.

Prior to this declaratory judgment action, the corporations had commenced a large number of civil court actions and demanded a large number of arbitrations, seeking to recover no-fault claims. Some of the actions and arbitrations have been resolved, but many are still pending. Pursuant to a series of{**24 Misc 3d at 165} orders dated January 19, February 2, and March 27, 2006, the court stayed 344 actions and 44 proceedings to stay arbitration and consolidated them with the present declaratory judgment action.

The Schepp parties move for partial summary judgment, asserting that a professional corporation is ineligible for no-fault reimbursement only if the professional who formed the corporation intended to turn control over to an unlicensed individual. They additionally request partial summary judgment as to their standing and independent contractor defenses. Finally, they request partial summary judgment on the grounds that the insurers are raising a “collateral attack” on judgments and arbitration awards previously rendered in the Schepp parties’ favor. Before proceeding to the merits of the parties’ claims, the court will consider whether declaratory relief is appropriate. While declaratory judgment is discretionary, it is not an extraordinary remedy (Church of St. Paul & St. Andrew v Barwick, 67 NY2d 510, 518 [1986]; Matter of Morgenthau v Erlbaum, 59 NY2d 143, 147 [1983]). Declaratory judgment may be an appropriate vehicle for settling disputes as to contract rights and obligations, where a mandatory mechanism is not provided in the agreement (Kalisch-Jarcho, Inc. v City of New York, 72 NY2d 727, 731-732 [1988]). Although the claimant has the option of submitting a no-fault dispute to arbitration, declaratory judgment may be an appropriate vehicle for settling disputes concerning no-fault benefits (see Bennett v State Farm Ins. Co., 147 AD2d 779 [3d Dept 1989]).

Declaratory judgment is not an exception to the principle of res judicata and does not permit a trial court to review another court’s judgment (Goldstein v Massachusetts Mut. Life Ins. Co., 32 AD3d 821 [2d Dept 2006]). Therefore, the concern that the court will “undo thousands of no fault claims” is misplaced. “[D]eclaratory judgment does not entail coercive relief, but only provides a declaration of rights between parties that, it is hoped, will forestall later litigation” (Morgenthau, 59 NY2d at 148). Thus, declaratory relief by this court will not, of itself, result in the vacating of any other court’s judgment. To the extent that this court’s decision is inconsistent with any previously granted arbitration award, it is not intended to provide grounds for vacatur (see CPLR 7511 [a]). To the extent that the court’s decision is inconsistent with the judgment of any other [*4]court, whether to grant relief from that judgment is within the discretion of that court (see Ruggiero v Long Is. R.R., 161 AD2d 622{**24 Misc 3d at 166} [2d Dept 1990]). The court notes that plaintiffs are not requesting this court to take any action with respect to any judgment or arbitration award. Furthermore, the insurers themselves have requested declaratory relief in one of the consolidated declaratory judgment actions. Because of the large number of actions and arbitrations involving the common question of the Schepp entities’ eligibility for no-fault reimbursement, the court concludes that declaratory relief is appropriate.

Pursuant to Insurance Law § 5103, every automobile insurance policy must provide for payment of so-called “no fault,” or “first party benefits,” to occupants of a covered vehicle who sustain loss through the use or operation of the vehicle. Section 5102 (b) of the Insurance Law defines “[f]irst party benefits” as payment to reimburse the injured person for “basic economic loss,” less certain deductions. Under Insurance Law § 5102 (a), “basic economic loss” means necessary medical expenses and lost earnings up to $50,000. Thus, in accordance with the statutory scheme, expenses for necessary x-rays and MRIs are ordinarily reimbursable no-fault benefits.

However, Insurance Department Regulations (11 NYCRR) § 65-3.16 (a) (12) provides

“A provider of health care services is not eligible for reimbursement under § 5102 (a) (1) of the Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or . . . any other state in which such service is performed.”

If the health care provider is a professional service corporation, section 1507 of the Business Corporation Law requires that any individual who holds shares in the professional corporation be licensed to practice the profession. Section 1508 of the Business Corporation Law provides that an individual must be licensed to be a director or officer of a professional service corporation. The insurers assert that Dr. Schepp’s professional corporations fail to meet state licensing requirements because they are owned and controlled by management companies, which are controlled by an unlicensed individual. [*5]

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313, 319 [2005]), known to the no-fault bar as “Mallela III,” the Court of Appeals held that an insurer may withhold payment for medical services provided by “fraudulently incorporated” enterprises to which patients have assigned their no-fault claims. In Mallela III, unlicensed individuals paid physicians to use their{**24 Misc 3d at 167} names on certificates of incorporation and other documents filed with the Department of State to establish medical service corporations (4 NY3d at 319). Once the medical service corporations were established under the cover of the nominal physician-owners, the nonphysicians actually operated the companies (id.). The nonphysicians caused the corporations to hire management companies owned by the nonphysicians, which billed the medical corporations at inflated rates for routine services (id. at 319-320). Thus, the corporations’ profits did not go to the nominal owners but were channeled to the nonphysicians who owned the management companies. The court held that although the patients received appropriate care from licensed professionals, the insurers could withhold payment for no-fault benefits.

In moving for partial summary judgment, the Schepp parties argue that a professional service corporation is ineligible for no-fault reimbursement only if it was “fraudulently incorporated.” Movants construe this term as meaning that the professional corporation was formed by a licensed professional who intended to turn control of the corporation over to an unlicensed party. They assert that Dr. Schepp’s professional corporations were not fraudulently incorporated because Dr. Schepp intended to retain control when he formed the professional corporations.

In Mallela III, the question of whether an “unlawfully incorporated” medical corporation was eligible for no-fault law reimbursement had been certified to the Court of Appeals by the United States Court of Appeals for the Second Circuit (State Farm Mut. Auto. Ins. Co. v Mallela, 372 F3d 500, 501 [2d Cir 2004]). In certifying this question, the Second Circuit noted our state’s longstanding concern that the “corporate practice of medicine” would create ethical conflicts and undermine the quality of care afforded to patients (372 F3d at 503). Additionally, the court noted that the corporate practice of medicine was associated with more traditional forms of fraud, such as billing for services not provided, billing for services that were medically unnecessary, and billing for services at the wrong rate (id. at 504, 507).

In answering the certified question, our Court of Appeals stated that the fraud was “in the corporate form rather than in the quality of care provided” (Mallela III, 4 NY3d at 320). The Court indicated that mere failure to observe corporate formalities would not render the provider ineligible (id. at 322). However, “willful and material failure to abide [*6]by state and local law,” conduct tantamount to fraud, would render the{**24 Misc 3d at 168} provider ineligible for no-fault reimbursement (id. at 321). The Court further stated that if a medical service corporation is “fraudulently licensed,” it is not entitled to be reimbursed for no-fault benefits (Mallela, 4 NY3d at 321, 322). Thus, the Court of Appeals intimated that a medical service corporation will be ineligible for no-fault reimbursement if it is in violation of licensing requirements, regardless of whether the doctor intended to yield control to unlicensed parties at the time he formed the corporation.

Moreover, 11 NYCRR 65-3.16 (a) (12) renders a health care provider ineligible for reimbursement if it fails to meet “any applicable” licensing requirement. The regulation does not render a provider ineligible only when it fails to meet licensing requirements at the time of its incorporation. In view of the fraudulent practices associated with the corporate practice of medicine, a regulation prohibiting reimbursement to unlicensed providers is eminently reasonable. Thus, if the Schepp entities are under the control of an unlicensed individual, the insurers will be entitled to a declaration that they may deny defendants no-fault reimbursement, regardless of whether defendants were “fraudulently incorporated.” The declaratory judgment plaintiffs’ motion for partial summary judgment on the ground that the professional corporations were not fraudulently incorporated is denied.

In Mallela III, the Court of Appeals stated that “no cause of action for fraud or unjust enrichment [will] lie for any payments made by the carriers before [the] regulation’s effective date of April 4, 2002” (4 NY3d at 322). Thus, insurers may not recover no-fault claims paid prior to April 4, 2002 on the ground that the provider was ineligible for reimbursement at the time the claim was submitted. Nevertheless, Mallela III left open the question of whether insurers may deny claims submitted prior to April 4, 2002 on the ground that the provider subsequently became ineligible for no-fault reimbursement. Movants argue that the insurers may not deny such claims on the ground of current ineligibility and may not predicate a cause of action for fraud on claims submitted prior to March 29, 2005, the date of the Mallela III decision.

Movants stress that, prior to Mallela III, 11 NYCRR 65-3.16 had not been interpreted as entitling insurers to deny no-fault reimbursement to health care providers who were not in compliance with licensing requirements. Indeed, in certifying the question to our Court of Appeals, the Second Circuit noted that New{**24 Misc 3d at 169} York law was unclear and no “controlling precedent” governed the case (372 F3d at 507). [*7]

Subsequently, in Allstate Ins. Co. v Belt Parkway Imaging, P.C. (33 AD3d 407, 408 [1st Dept 2006]), the Appellate Division held that insurers could deny claims for services performed prior to April 4, 2002 because the “clear import” of the regulation was that unlicensed providers were no longer eligible for reimbursement as of the regulation’s effective date. The court reasoned that “[a]meliorative or remedial legislation” should be given retroactive effect to effectuate its “beneficial purpose,” and similar effect should be given to an ameliorative or remedial regulation (id. at 408). The court noted that the purpose of 11 NYCRR 65-3.16 was “to combat fraud,” and the regulation’s notice of adoption urged that the public receive “the benefits of reduced fraud and abuse . . . at the earliest possible moment” (33 AD3d at 409). The court ruled that section 65-3.16 did not “impair[ ] vested rights” and noted that Mallela itself involved “pre-April 4, 2002 claims” (33 AD3d at 409, 408). Thus, the insurers will be entitled to a further declaration that they may deny no-fault claims for services performed prior to April 4, 2002, if they establish that the Schepp entities are currently ineligible for no-fault reimbursement. Defendants’ motion for partial summary judgment is granted as to claims paid prior to April 4, 2002 but denied as to pre-April 4, 2002 claims which are still pending.

Movants argue that a cause of action for fraud, based upon a no-fault claim submitted prior to the date of Mallela III, is legally insufficient. The essential elements of a cause of action for fraud are a representation of a material existing fact, falsity, scienter, deception, and injury (New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995]). The movants argue that their ineligibility for no-fault reimbursement was not an “existing fact” before Mallela III was decided. Thus, they argue that the insurers may not assert a cause of action for fraud based on pre-Mallela III claims.

The eligibility of a professional corporation for no-fault reimbursement is a mixed question of fact and law which “turns on the combined consideration of factual and legal factors” (Matter of Fisher [Levine], 36 NY2d 146, 150 [1975]). Nevertheless, a representation as to the corporation’s eligibility for no-fault reimbursement may provide the basis for a fraud cause of action. The Court of Appeals has stated that it is an “over-simple dichotomy” to distinguish between law and fact for the{**24 Misc 3d at 170} purposes of an action in deceit (National Conversion Corp. v Cedar Bldg. Corp., 23 NY2d 621, 627 [1969]). “[A] statement as to the law, like a statement as to anything else, may be intended and understood either as one of fact or one of opinion only, according to the circumstances of the case” (id. at 628, quoting Prosser, Torts, at 741 [3d ed]). Indeed, a false opinion of the law, if represented as a “sincere opinion,” may, as any other opinion, give rise to a fraud claim if it is reasonably relied upon by the other party (id.). A misrepresentation as to the law is more likely to induce [*8]reasonable reliance where it is made by one possessing superior knowledge as to the subject of the representation (Lukowsky v Shalit, 110 AD2d 563, 567 [1st Dept 1985]). Since a misrepresentation as to the law may give rise to an action for fraud, so may a misrepresentation as to a mixed question of fact and law, such as eligibility for no-fault reimbursement.

Prior to Mallela III, Dr. Schepp may not have known that his professional corporations were ineligible for no-fault reimbursement. However, in submitting no-fault claims, the Schepp entities impliedly represented that they{**24 Misc 3d at 171} were wholly owned by licensed physicians. They clearly had superior knowledge as to the licensing status of the individual in control of the professional corporations. If a representation as to licensing status was false, the insurers suffered damages by paying the claims in reliance upon the representation, even though the legal effect of the falsity had not yet been determined. In Allstate Ins. (supra), the Appellate Division affirmed the dismissal of the insurer’s cause of action for fraud based upon payments made prior to April 4, 2002. The court’s failure to dismiss a fraud claim as to payments made prior to the date of Mallela III confirms the viability of a fraud cause of action. The motion for partial summary judgment is denied as to claims submitted subsequent to April 4, 2002 but prior to the date of the Mallela III decision.

The movants argue that the insurers’ fraud causes of action have not been stated in sufficient detail pursuant to CPLR 3016 (b). The purpose of this pleading requirement is to inform a defendant of the incidents which form the basis of the action (Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]). Where it is impossible to state the circumstances constituting the fraud in detail, CPLR 3016 (b) should not be so strictly interpreted as to prevent plaintiff from asserting an otherwise valid cause of action (id.). As noted above, in submitting no-fault claims, the Schepp entities impliedly represented that they were wholly owned by licensed physicians. While the extent to which they relied upon that representation may vary with the circumstances of the individual claim, the insurers have alleged sufficient detail to comply with CPLR 3016 (b)’s pleading requirement.

11 NYCRR 65-3.11 (a) provides, “An insurer shall pay benefits for any element of loss . . . directly to the applicant or . . . upon assignment by the applicant . . . shall pay benefits directly to providers of health care services.” According to the insurers, the Department of Insurance has issued an opinion letter to the effect that a health care provider is not permitted to seek reimbursement for services provided by an independent contractor (see NY Ins Dept op letter, Feb. 21, 2001). The movants do not dispute [*9]the insurers’ interpretation of the opinion letter but claim that, as a matter of law, the radiology technicians who performed the services were employees of the professional corporations.

On a motion for summary judgment, it is the proponent’s burden to make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 384 [2005]). Failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers (id.). However, if this showing is made, the burden shifts to the party opposing the summary judgment motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]).

The Schepp entities submit the affidavit of Dr. Schepp which states that all of the MRI technicians worked under his supervision and control. Dr. Schepp further states that while the technicians worked for different corporations, they were paid by Robert Scott Schepp, M.D., P.C., they received W-2 tax forms, and their salary expenses were apportioned among the various corporations. The court concludes that the Schepp entities have established, prima facie, that the MRI technicians were employees, and the burden shifts to the insurers to come forward with evidence showing that the technicians were independent contractors.

In opposition to the motion, the insurers have submitted considerable evidence indicating that Dr. Schepp may have yielded control of the professional corporations to a management{**24 Misc 3d at 172} company. However, they have submitted no evidence that the MRI technicians were not employees of the professional corporations. The court concludes that the Schepp entities are entitled to a declaration that the professional corporations are not ineligible for no-fault reimbursement by reason of utilizing MRI technicians who were not employees. The motion for partial summary judgment is granted as to the independent contractor defense.

The insurers argue that the professional corporations lack standing because they assigned their no-fault claims to finance companies pursuant to accounts receivable financing agreements. The movants respond that they purported to assign only the proceeds because a medical provider is not permitted to assign a no-fault claim. [*10]

An unequivocal and complete assignment extinguishes the assignor’s rights against the obligor and leaves the assignor without standing to sue the obligor upon the assigned claim (Aaron Ferer & Sons Ltd. v Chase Manhattan Bank, N.A., 731 F2d 112, 125 [2d Cir 1984]). However, implicit in any assignment for security is a reservation to the assignor of a right to pursue the claim if the assignee chooses not to do so (Fifty States Mgt. Corp. v Pioneer Auto Parks, 44 AD2d 887 [4th Dept 1974]). Where no-fault claims are factored, it is particularly appropriate for the assignor to retain standing because the assignee is not permitted to seek no-fault arbitration (Insurance Law § 5106 [b]; Insurance Department Regulations [11 NYCRR] § 65-4.2 [b]).

Article 9 of the Uniform Commercial Code, governing secured transactions, ordinarily applies to a sale of accounts intended as a financing arrangement (UCC 9-109 [a] [3]). Pursuant to UCC 9-406 (a), an account debtor may discharge its obligation by paying the assignor, until the account debtor has received notice of the assignment. Thus, a no-fault insurer who pays the health care provider is not exposed to the risk of double-paying a factored claim. The court concludes that the Schepp entities are entitled to a declaration that the professional corporations are not ineligible for no-fault reimbursement by reason of having assigned the claims pursuant to an accounts receivable financing agreement. The motion for partial summary judgment is granted as to insurers’ defense of lack of standing.

The Schepp entities’ motion for summary judgment is granted and denied to the extent indicated above. The court will defer granting a declaratory judgment in accordance with this decision{**24 Misc 3d at 173} pending resolution of whether the professional corporations are controlled by an individual not licensed to practice medicine.

SUPREME COURT OF THE STATE OF NEW YORK

APPELLATE TERM: 2nd, 11th and 13th JUDICIAL DISTRICTS

Appeal from an order of the Civil Court of the City of New York, Queens County (Diane A. Lebedeff, J.), entered December 5, 2007. The order denied defendant’s motion for summary judgment.

Order reversed without costs and defendant’s motion for summary judgment dismissing the complaint granted.

In this action by a provider to recover assigned first-party no-fault benefits, defendant moved for summary judgment dismissing the complaint on the ground that the services allegedly rendered to plaintiff’s assignor lacked medical necessity. Although the Civil Court found that defendant had timely denied the claims, the court denied defendant’s motion, apparently on the ground that the independent chiropractic examination report, upon which defendant had based its denials, was not in admissible form, notwithstanding the accompanying affidavit executed by the chiropractor. This appeal by defendant ensued.

Defendant demonstrated that it had timely mailed the denial of claim forms at issue based upon its standard office practice or procedure designed to ensure that items are properly addressed and mailed (Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679 [2001]; Delta Diagnostic Radiology, P.C. v Chubb Group of Ins., 17 Misc 3d 16 [App Term, 2d & 11th Jud Dists 2007]). Defendant’s independent chiropractic examination report, together with the affidavit of the chiropractor, provided a factual basis and medical rationale for the chiropractor’s [*2]opinion that the services rendered were not medically necessary (see Delta Diagnostic Radiology, P.C. v Progressive Cas. Ins. Co., 21 Misc 3d 142[A], 2008 NY Slip Op 52450[U] [App Term, 2d & 11th Jud Dists 2008]; Crossbridge Diagnostic Radiology, P.C. v Progressive Ins. Co., 20 Misc 3d 143[A], 2008 NY Slip Op 51761[U] [App Term, 2d & 11th Jud Dists 2008]). As plaintiff failed to present any evidence to refute that showing, defendant’s motion for summary judgment dismissing the complaint should have been granted (see Delta Diagnostic Radiology, P.C., 21 Misc 3d 142[A], 2008 NY Slip Op 52450[U]; A. KhodadadiRadiology, P.C. v N.Y. Cent. Mut. Fire Ins. Co., 16 Misc 3d 131[A], 2007 NY Slip Op 51342[U] [App Term, 2d & 11th Jud Dists 2007]).

Pesce, P.J., Weston Patterson and Steinhardt, JJ., concur.
Decision Date: February 09, 2009

—[*1] Joseph Henig, P.C., Bellmore, N.Y., for appellants.

Huenke & Rodriguez, Melville, N.Y. (Christopher C. Vassallo of counsel), for respondent.

In an action to recover no-fault medical benefits under insurance contracts, the plaintiffs St. Vincent’s Hospital & Medical Center and Mount Sinai Hospital appeal from an order of the Supreme Court, Nassau County (Murphy, J.), dated September 5, 2008, which denied the motion of the plaintiff St. Vincent’s Hospital & Medical Center to hold the defendant in contempt for failure to comply with an information subpoena, and granted the defendant’s cross motion, inter alia, to vacate a judgment of the same court entered January 24, 2008, upon its default in appearing or answering the complaint, which was in favor of the plaintiff St. Vincent’s Hospital & Medical Center and against the defendant in the principal sum of $72,721.53.

Ordered that the appeal by the plaintiff Mount Sinai Hospital is dismissed, as it is not aggrieved by the order appealed from (see CPLR 5511); and it is further,

Ordered that the order is affirmed on the appeal by the plaintiff St. Vincent’s Hospital & Medical Center; and it is further,

Ordered that one bill of costs is awarded to the defendant payable by the plaintiff St. Vincent’s Hospital & Medical Center.

Under the circumstances of this case, the Supreme Court properly exercised its discretion in [*2]vacating the default judgment (see New York & Presbyt. Hosp. v American Home Assur. Co., 28 AD3d 442 [2006]; see also DeStaso v Bottiglieri, 52 AD3d 453 [2008]). The remaining contentions of the plaintiff St. Vincent’s Hospital & Medical Center are without merit (see CPLR 3211 [a] [1]; Wheels Am. N.Y., Ltd v Montalvo, 50 AD3d 1130 [2008]), or not properly before this Court. Santucci, J.P., Angiolillo, Belen and Chambers, JJ., concur.

Civil Court of the City of New York, Richmond County

42103/04

Katherine A. Levine, J.

This case raises again the issue of what type of evidence a defendant insurance company must present, in support of its claim that a medical service provider is fraudulently incorporated, to warrant an order from the court directing extensive discovery or EBT’s. .

Plaintiff Lenox Neuropsychiatry Medical (“Lenox” or “plaintiff”) commenced this action against defendant pursuant to Insurance Law § 5106 (a) to recover $ 3,888.79 in unpaid bills for acupuncture services rendered to its assignor Leon Murray (“Murray”). The defendant, State Farm Insurance Co., (“State Farm” or “defendant”) alleges that plaintiff is fraudulently incorporated in violation of 11 NYCRR § 65.3.16(a)(12) and moves to dismiss plaintiff’s complaint, with prejudice, for plaintiff’s failure to provide complete and meaningful responses to defendant’s discovery demands. In the alternative, defendant moves to compel plaintiff to fully comply with plaintiff’s discovery demands and to produce plaintiff’s purported owner, Dr. Azim Etemadi (“Etemadi”) for an EBT, pursuant to CPLR §3124. In support of its motion, defendant presents an affirmation from its attorney chronicling the web of fraud allegedly surrounding plaintiff and a number of other medical providers as well as an affidavit from one Dr. Ahmed Halima (“Halima”), a doctor who has worked for a number of medical providers, that purportedly implicates Etemadi in this fraudulent scheme.

Plaintiff opposes the motion, stating that defendant is not entitled to extensive discovery or to take an EBT since it has failed to provide any coherent evidence to support its allegation that plaintiff is fraudulently incorporated. Accordingly, plaintiff moves this court for a protective order pursuant to CPLR §3103(a).Plaintiff also alleges that the defendant’s motion is defective since it failed to annex a denial of claim to its motion.

Article 31 of the CPLR governs discovery actions and its disclosure provisions do not [*2]condition discovery upon a showing of “good cause.”The guiding principle behind Article 31 of the CPLR is that there should be “full disclosure of all matter material and necessary in the prosecution and defense of an action” (CPLR §3101 (a)). The words “material and necessary” are to be interpreted liberally and the test is “one of usefulness and reason” to assist in the preparation for trial by sharpening the issues. Cambridge Medical v. Nationwide Prop. & Cas. Ins. Co., 19 Misc 3d 1110A, 859 NYS2d 901(Civil Ct., Richmond Co. 2008), citing Carothers v. Insurance Companies et al, 13 Misc 3d 970, 973 (Civil Ct., Richmond Co. 2006). Although the bar against which to measure whether the defendant has shown that its discovery requests are warranted on the issue of fraudulent incorporation is quite low, Bay Plaza Chiropractic v. State Farm Mutual Automobile Ins. Co., 2008 NY Slip Op 51925U, 21 Misc 3d 1102A (Civil Ct., Richmond Co.2008), citing Carothers, supra , unsupported conclusions and “suspicions” as well as “unsubstantiated hypotheses and suppositions” are nevertheless insufficient to raise a triable issue of fact pertaining to the assignor’s alleged fraud. A.B. Medical Services PLLC v Eagle Ins. Co., 3 Misc 3d 8, 10 (App. Term, 2d Dept. 2003).

Insurers have the burden to come forward with proof in admissible form to establish the factual basis of their allegations. Mt. Sinai Hospital v Triboro Coach Inc., 263 AD2d 11, 20 (2d Dept 1999). In fact, in Mallela, the Court of Appeals specifically permitted insurers to “look beyond the face of licensing documents to identify willful and material failure to abide by state and local law,” State Farm Mutual Automobile Insurance Co., Appellant, v. Mallela et al., 4 NY3d 313, 321 [3d Dept 2005], in assessing whether to withhold reimbursement of no-fault claims to medical corporations they believe to be fraudulently incorporated. Id., see, One Beacon Ins. Co. v. Midland Medical Care, 54 AD3d 738, (2d Dept 2008).

In Bay Plaza v. State Farm, this court addressed the issue of what constitutes a sufficient showing for purposes of allowing defendant additional discovery into plaintiff’s matters to determine if it is fraudulently incorporated. There, the defendant submitted an affidavit from its Special Investigations Unit (“SIU”) investigator with personal knowledge of the investigation as well as other documentation which included clearly marked insurance claim forms evidencing duplicative claims and even of more importance, affirmation from defendant’s attorney, explaining the logical connection between the plaintiff and fraud. Accordingly, this court found that defendant has articulated a “founded belief” that plaintiff is actually controlled by a non-licensed professional and made allegations sufficient to raise an issue of fact as to whether plaintiff was fraudulently incorporated.

In contrast, here, the defendant has submitted unsubstantiated hypotheses and suppositions and has not articulated a founded belief that Lenox is fraudulently incorporated so as to warrant the extensive discovery it is seeking. Defendant attempts to question whether Dr. Etemadi is the true owner of Lenox by weaving an intricate pattern of alleged fraud premised upon the fact that defendant received bills from Dr. Etemadi for services he allegedly rendered while working at different medical providers. Since Lenox, as well as the other medical [*3]providers from whom Dr. Etemadi submitted. bills use the same billing companies, and since two of these billing companies have the same address and phone numbers,” a hallmark of improperly owned PCs” is present (affirmation of Joseph A. Schwarzenberg , Esq, “attorney’s affirmation, ¶¶ 7-9 ). Defendant then asserts that Dr. Etemadi also renders services for another entity, “Livingston Medical,” which along with its purported owner have been implicated in “doc in the box activity” (attorney affirmation, ¶13, 14) because the U.S. Attorney indicted an attorney who was associated with Livingston and other medical clinics, with “participating in a conspiracy to commit health care and insurance fraud related to automobile accidents “(attorney affirmation, ¶¶ 13-16). However, even this assertion does not implicate Livingston per se much less Lenox or Dr. Etemadi.

Finally, defendant refers to an affidavit of Dr. Halima that has no caption or index number, and is dated 2006, which laboriously details clinics which are purportedly owned and controlled by individuals who are not doctors. It is salient to note that Dr. Halima never implicates Lenox is this scheme and only refers to once to a Dr. Atamedi, which defendant’s attorney argues in reality is Etemadi. Defendant also attempts to implicate Etemadi because one medical facility he worked for lists a service of process contact name that sounds similar to a name of individual Halima claims is implicated in fraud.

The court finds this alleged web of fraud to be beyond the six degrees of separation that could conceivably connect these various medical providers to one another ^[FN1].The court first takes issue with defendant’s claim that Dr. Etemadi is synonymous with the Dr. Atamedi mentioned in Halima’s affidavit. Furthermore, the court can give little credence to Dr. Halima’s affidavit since it apparently was borrowed from some unknown and unrelated case and does not even mention Lenox Neuropsychiatry! Second, while defendant has made a valiant attempt to implicate Lenox and Neuropsychiatry with numerous billing companies and one other medical provider which somehow may be implicated in a fraudulent scheme by virtue of the acts of an attorney, there simply is no direct or indirect connection between Lenox or Etemadi and actual or attempted fraud.

Given the above, this court does not find defendant has articulated a “founded belief” that plaintiff is actually controlled by a non-licensed professional so as to warrant a broad based trial on fraud or to warrant extensive discovery on fraudulent incorporation. In fact, defendant’s attempts to link plaintiff to fraudulent incorporation are too convoluted as to even provide guidance as to what reasonable discovery would be warranted. However, although not specifically articulated by defendant, this court is curious as to why Dr. Etemadi would render services for a number of medical clinics if he is in fact the owner of Lenox, which would [*4]theoretically require him to devote his time and energy to overseeing the operation of Lenox. As such, this court finds that it is material and necessary for defendant to conduct a limited EBT of Etemadi to ascertain the extent of his work with clinics separate and apart of Lenox, whether any of these clinics have actually been found by a court to have been fraudulently incorporated, and the extent of his knowledge as to the actual operations of these other clinics.

In light of the above, the motion is denied except for the limited EBT that will be allowed of Dr. Etemadi. The court directs defendant to notice Etemadi for an EBT within the next twenty days of receipt of this decision and that the EBT be conducted within the next 45 days.

The foregoing constitutes the decision and order of the court.

Dated:January 29, 2009

Staten Island, NYHON. KATHERINE A. LEVINE

Judge, Civil Court

ASN by ________ on ____________.

___

Footnotes

Footnote 1:Six degrees of separation is the theory that anyone on the planet can be connected to each other through a chain of acquaintances that has no more than five intermediaries. The theory was first proposed in 1929 by the Hungarian writer Frigyes Karinthy in a short story called “Chains”.

APPELLATE TERM OF THE SUPREME COURT, FIRST DEPARTMENT

Defendant appeals from an order of the Civil Court of the City of New York, New York County (Shlomo S. Hagler, J.), entered March 14, 2007, which denied its motion to “revise” the award of attorney’s fees issued to plaintiff in this first party no-fault benefits action.

Per Curiam.
Order (Shlomo S. Hagler, J.), entered March 14, 2007 affirmed, with $10 costs, for the reasons stated by Shlomo S. Hagler, J., at Civil Court. (See 15 Misc 3d 766 2007). (See also LMK Psychological Servs., P.C. v State Farm Mut. Auto. Ins. Co., 46 AD3d 1290, 1292 [2007], lv granted 10 NY3d 717 [2008].)

THIS CONSTITUTES THE ORDER OF THE COURT.
Decision Date: January 29, 2009