Multiquest, P.L.L.C. v Allstate Ins. Co. (2007 NY Slip Op 51776(U))

Nassau Dist Ct

31712/05

Attorneys for Plaintiff: Belesi & Conroy, P.C.

Attorneys for Defendant: Bruno, Gerbino & Soriano, LLP

Andrew M. Engel, J.

The Plaintiff commenced this action to recover no-fault first party benefits for medical services allegedly provided to its assignor on various dated between October 31, 2001 and January 8, 2002, in the total sum of $1,574.35.00, which has not been paid. Issue was joined on or about October 11, 2005. Among the Defendant’s twenty-two affirmative defenses, the Defendant alleges that the treatment in question was performed by an unlicensed psychologist; that at the time the services in question were rendered the Plaintiff’s organizational structure was defective, as it did not have a psychologist as an owner; that the Plaintiff limited liability company was fraudulently formed; and that the psychologists who preformed the subject services were not employees of the Plaintiff, but independent contractors. The Defendant now moves for summary judgment based upon these affirmative defenses. The Plaintiff opposes the motion.

Summary judgment is a drastic remedy, Sillman v. Twentieth Century-Fox Film Corporation, 3 NY2d 395, 165 NYS2d 498 (1957), which should not be granted where there is any doubt as to the existence of a triable issue of fact. Rotuba Extruders, Inc. v. Ceppos, 46 NY2d 223, 413 NYS2d 141 (1978) To prevail, the movant must first make a showing of entitlement to judgment, as a matter of law, Bank of New York v. Granat, 197 AD2d 653, 602 NYS2d 942 (2nd Dept. 1993), tendering evidentiary proof in admissible form. Friends of Animals, Inc. v. Associate Fur Manufacturers, Inc., 46 NY2d 1065, 416 NYS2d 790 (1979). It is only thereafter incumbent upon the party opposing summary judgment to “demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action or tender an acceptable excuse for his failure so to do.” Zuckerman v. City of New York, 49 NY2d 557, 427 NYS2d 595 (1980). A movant’s failure to make such a showing, regardless of the sufficiency of opposing papers, mandates the denial of a summary judgment motion. Winegrad v. New York University [*2]Medical Center, 64 NY2d 851, 487 NYS2d 316 (1985)

The Defendant alleges that the Plaintiff was originally formed in July of 1998 as a Professional Service Limited Liability Company, in the name of “Multiquest Psychological & Acupuncture Services, PLLC.” In support thereof, the Defendant submits a certified copy of the Plaintiff’s Articles of Organization dated July 13, 1998. The Defendant further alleges, and the Plaintiff’s Articles of Organization confirm, that there were only two individuals listed as the “original members and the original managers of the Company,” Yeugeny Gorbatov and Kathryn Clark.

In further support of its motion, the Defendant submits the transcript of an examination under oath of Katheryn Clark, dated April 26, 2004, which has been signed and sworn to by Ms. Clark. In pertinent part, Ms. Clark testified that she was never a member or manager of the Plaintiff; that she never gave anyone permission to use her name as a member or manager of the Plaintiff; that she never had an ownership interest in the Plaintiff; and that the use of her name was a sham. Ms. Clark also testified that, while she did perform work for the Plaintiff, she did so as an independent contractor.

Corroborating Ms. Clark’s testimony is the testimony offered by one Joseph Indelicato, Ph.D., given on September 28, 2005 at an examination before trial conducted in a action pending in Bronx County entitled Multiquest, PLLC a/s/o Raymond Blackwell v. Allstate Insurance Company. In his signed and sworn transcript Dr. Indelicato testified that the inclusion of Ms. Clark as a member or manager of the Plaintiff was “by accident.” (Indelicato Transcript 9/28/05, p. 174 l. 5) and that

Mr. Indelicato further testified that he took over as an owner of the Plaintiff in September 2001; and, at that time there were only two members of the Plaintiff, Yevgeny Gorbatov and someone named Kateriana Chizhova. Neither of these individuals was a psychologist. According to Dr. Indelicato he purchased his interest in the Plaintiff either from Mr. Gorbatov or from an Oleg Nemtsov; he was not sure. The only document ever proffered by the Plaintiff supporting this claim, however, is the face page of a certificate dated September 6, 2001, purporting to show that Joseph Indelicato is the owner of ninety-nine shares of “Multiquest Psychological & Acupuncture Services, PLLC.” The Plaintiff has offered nothing, however, to show that “the said Limited Liability Company has caused this Certificate to be signed by its duly authorized Member(s)/Manager(s) and to be sealed with the Seal of the Limited Liability Company,” as represented on the face of the certificate. Moreover, Mr. Indelicato himself testified that either he was the only one to sign the certificate or it may have been signed by someone else, but he does not know for sure.

Contradicting Mr. Indelicato’s unsupported testimony is a Certificate of Amendment of the Plaintiff’s Articles of Organization dated June 30, 2001, and filed with the Department of State on September 26, 2001, after Dr. Indelicato’s alleged purchase of an interest in the Plaintiff. The Certificate of Amendment indicates that “The Articles of Organization of the Limited Liability Company were filed with the Secretary of State of New York under the original name Multiquest Psychological & Acupuncture Services, PLLC’ on the 14th day of July, 1998[;]” and are amended to change the name of the company to “Psychological and Social Work Services, PLLC.” No where does the Certificate of Amendment indicate that there has been any change in the members and/or managers of the Plaintiff. Confirming this fact is the consent to this filing [*3]issued by the State Education Department, dated September 24, 2001, which lists the only members and managers of the Plaintiff as Yekaterina Chizhova, who is not a psychologis and Kathryn L. Clark, who was erroneously listed as an owner of the Plaintiff.

In opposition to the Defendant’s motion, the Plaintiff relies exclusively upon the affirmation of counsel, which is of no probative value on this motion. Zuckerman v. City of New York, supra .; Heifets v. Lefkowitz, 271 AD2d 490, 706 NYS2d 438 (2nd Dept. 2000); Warrington v. Ryder Truck Rental, Inc., 35 AD3d 455, 826 NYS2d 152 (2nd Dept. 2006) Nevertheless, based upon the evidence produced by the Defendant, the Plaintiff argues that genuine issues of material fact exist concerning the lawful formation of the Plaintiff and whether or not the specific services in question were performed by an employee of the Plaintiff or by an independent contractor. With regard to the former argument, the Plaintiff suggests that the testimony of Kathryn Clark “is inadmissible because it is likely that her testimony is biased.” (Kallos Affirmation 8/10/87, ¶ 4) With regard to the latter argument, counsel erroneously argues that the services in question were provided by a Dr. Desh D. Sachdev and that the Defendant “makes no specific allegations that Dr. Sachdev is not an employee of Multiquest, but rather, an independent contractor.” (Kallos Affirmation 8/10/87, ¶ 14) The Plaintiff further argues that whether or not the services in question were provided by an independent contractor, the Plaintiff may still properly recover for the services billed.

INDEPENDENT CONTRACTORS

Insurance Department Regulation, 11 N.Y.C.R.R. § 65-3.11(a) provides, in pertinent part, “An insurer shall pay benefits for any element of loss, other than death benefits, directly to providers of health care services as covered under section five thousand one hundred two (a) (1) of the Insurance Law ….” Contrary to the Plaintiff’s argument, this regulation mandates that payments be made “directly to the providers of health care services” and not to companies which secure independent contractors to perform such services. The Plaintiff’s reliance upon New Way Medical Care, P.C. v. Liberty Mutual Insurance Co., 12/23/04, NYLJ 17 (Col. 1) is misplaced. As is apparent from the numerous appellate decisions on the issue, the holding of New Way Medical Care, P.C. v. Liberty Mutual Insurance Co., id. has been overruled sub silentio.

In A.B. Medical Services PLLC v. Liberty Mutual Insuarnce Co., 9 Misc 3d 36, 801 NYS2d 690 (App.Term 2nd & 11th Dists. 2005) the court noted, “Pursuant to 11 NYCRR 65.15(j)(1) [now 11 N.Y.C.R.R. § 65-3.11(a)], a provider’s entitlement to seek recovery of no-fault benefits directly from the insurer is contingent upon an assignment of such benefits, and the assignment must be made to the providers of services.'” In recognition thereof, the court held that a billing provider, which utilizes an independent contractor to provide the services in question, is not a “provider” of the services in question “and is hence not entitled to recover direct payment’ of assigned no-fault benefits from the defendant insurer.”

Similarly, in V.S. Medical Services P.C. v. Allstate Insurance Co., 14 Misc 3d 130(A), 836 NYS2d 490 (App.Term 2nd & 11th Jud. Dists 2007) the court explicitly held:

Where a billing provider seeks to recover no-fault benefits for services which were not rendered by it or its employees, but rather by a treating provider who is an independent contractor, it is not a “provider” of the medical services rendered within the meaning of 11 NYCRR 65-3.11(a) and is therefore not entitled to recover “direct payment” of assigned no-fault benefits from the defendant insurer

[*4]See also: Rockaway Boulevard Medical P.C. v. Progressive Insurance, 9 Misc 3d 52, 802 NYS2d 302 (App.Term 2nd & 11th Dists. 2005); Metroscan Imaging, P.C. v. Geico Insurance Company, 13 Misc 3d 35, 823 NYS2d 818 (App.Term 2nd and 11th Judicial Districts 2006)

Turning to the facts of the case before this court, there is no support in the record for the Plaintiff’s proposition that the services in question were provided by Dr. Sachdev, who the Defendant fails to discuss. The bills submitted by the Plaintiff indicate that the services in question were provided by Joseph Indelicato, Ph.D. Moreover, the Plaintiff’s Response to Demand for Interrogatories dated December 6, 2005, which are verified by Dr. Indelicato, advise that “Treatment was provided by JOSEPH INDELICATO, Ph.D.” (Plaintiff’s Response to Demand for Interrogatories 12/6/05, ¶ 5) Nevertheless, genuine questions of fact exist concerning Dr. Indelicato’s status with the Plaintiff, i.e. employee vs. independent contractor, on the dates of service here in issue.

On the one hand, the Defendant has submitted testimony from Dr. Indelicato confirming that at one time he performed services for the Plaintiff as an independent contractor. This is corroborated by 1099 Miscellaneous Income Tax reporting forms issued by the Plaintiff to Dr. Indelicato in 2001 for “Nonemployee compensation.” On the other hand, the Defendant submitted testimony from Dr. Indelicato to the effect that sometime before September 2001the independent contractors who performed psychology services for the Plaintiff either became employees of the Plaintiff or ceased performing services for the Plaintiff. This is corroborated by employee W-2 tax reporting forms issued by the Plaintiff in 2001, including one issued to Dr. Indelicato, which the Defendant has submitted. The Defendant has offered nothing other than this conflicting evidence concerning Dr. Indelicato’s employment status with the Plaintiff between October 2001 and January 2002, when the services here in question were rendered.

Recognizing that the court’s function on this summary judgment motion is issue finding, not issue determination, Sillman v. Twentieth Century-Fox Film Corporation, supra .; Ferrante v. American Lung Association, 90 NY2d 623, 665 NYS2d 25 (1997); Miele v. American Tobacco Co., 2 AD3d 799, 770 NYS2d 386 (2nd Dept. 2003), the Defendant’s motion cannot be granted based upon this issue. There remains, however, the question of the propriety of the Plaintiff’s formation.

FRAUDULENT FORMATION

Implementing Insurance Law §§ 5101, et seq., 11 N.Y.C.R.R. § 65-3.16(a)(12) provides:

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

BCL § 1507 provides:

A professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice and who are or have been engaged in the practice of such profession in such corporation or a predecessor entity, or who will engage in the practice of such profession in such corporation within thirty days of the date such shares are issued. [*5]

BCL § 1508 further provides that, “No individual may be a director or officer of a professional service corporation unless he is authorized by law to practice in this state a profession which such corporation is authorized to practice and is either a shareholder of such corporation or engaged in the practice of his profession in such corporation.” Limited Liability Company Law §§ 1203 and 1207 are to the same effect.In State Farm Mutual Automobile Insurance Co. v. Mallela, 4 NY3d 313, 794 NYS2d 700 (2005) the Court of Appeals was ask to determine “whether a medical corporation that was fraudulently incorporated under NY Business Corporation Law §§ 1507, 1508 and NY Education Law § 6507(4)(c) [is] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101, et seq., and its implementing regulations, for medical services rendered by licensed medical practitioners'” on the corporation’s behalf. The court unequivocally answered that question in the negative.

It has since been held that 11 N.Y.C.R.R. § 65-3.16(a)(12) applies to fraudulently formed limited liability companies as well as to fraudulently formed corporations. Multiquest, P.L.L.C. v. Allstate Insurance Company, __ Misc 3d __, __ NYS2d __, 2007 NY Slip Op. 27366,

2007 WL 2682879 (App. Term 2nd and 11th Judicial Districts 2007) It has also been held that this regulation bars payment to a fraudulently formed entity, regardless of whether the unpaid services in question were performed before or after the date on which the regulation took effect [April 2, 2002]. Multiquest, P.L.L.C. v. Allstate Insurance Company, supra ., Metroscan Imaging, P.C. v. Geico Insurance Company, 13 Misc 3d 35, 823 NYS2d 818 (App. Term 2nd and 11th Judicial Districts 2006) The proper licensing of the “provider,” here the limited liability company, has been held to be a condition precedent to payment. Valley Physical Medicine and Rehabilitation P.C. v. New York Central Mutual, 193 Misc 2d 675, 753 NYS2d 289 (App. Term 2nd Dept. 2002); Metroscan Imaging, P.C. v. Geico Insurance Company, supra .; Multiquest, PLLC v. Allstate Insurance Company, 9 Misc 3d 1031, 805 NYS2d 255 (Civ.Ct. Queens Co. 2005)

Like a number of courts which have reviewed the formation of this Plaintiff, See: Multiquest, P.L.L.C. v. Allstate Insurance Company, __ Misc 3d __, __ NYS2d __, 2007 NY Slip Op. 27366, 2007 WL 2682879 (App. Term 2nd and 11th Judicial Districts 2007) [defendant proved that “plaintiff performed psychological services in violation of Limited Liability Company Law sections 1203 and 1207.”]; Multiquest, PLLC v. Allstate Insurance Company, 9 Misc 3d 1031, 805 NYS2d 255 (Civ.Ct. Queens Co. 2005) [“the plaintiff has failed to proffer sufficient evidence to rebut defendant’s allegations that the medical provider was fraudulently incorporated”]; Multiquest, P.L.L.C. v. Allstate Insurance Company, 10 Misc 3d 1061(A), 814 NYS2d 563 (Civ.Ct. Queens Co. 2005)^[FN1] [“at the time it provided psychological services to its assignor and filed its claim in 1998, plaintiff was in violation of the licensing requirements for PLLCs and was fraudulently organized, having filed false articles of organization representing that Clark was an original owner and/or manager, when, in fact, she was neither.”]; Multiquest PLLC v. Allstate Insurance Company, 10 [*6]Misc 3d 1069(A), 814 NYS2d 563 (Civ.Ct. Queens Co. 2005)^[FN2] [“defendant has demonstrated that there is no issue of fact as to plaintiff’s fraudulent incorporation and plaintiff has failed to raise an issue of fact in that regard”], it is the opinion of this court that the Plaintiff has failed to rebut the substantial evidence proffered by the Defendant of the Plaintiff’s fraudulent formation.^[FN3]

The fact that the dates of service in the matter sub judice were subsequent to the dates of service in the above cited “Multiquest” cases is irrelevant. As in Multiquest, P.L.L.C. v. Allstate Insurance Company, __ Misc 3d __, __ NYS2d __, 2007 NY Slip Op. 27366, 2007 WL 2682879 (App. Term 2nd and 11th Judicial Districts 2007), “[t]here is no dispute that plaintiff’s articles of organization stated that the company was to provide, inter alia, psychological services and listed a licensed psychologist [Katheryn Clark] as the provider of those services. However, the named psychologist testified under oath that she was never an owner or member of plaintiff and that she never received a stock certificate or any compensation based on an ownership interest.” As previously indicated hereinabove, while Joseph Indelicato, Ph.D. baldly testified that he purchased an interest in the Plaintiff prior to the dates of service herein, neither Dr. Indelicato nor the Plaintiff has offered any proof to that effect. Moreover, as similarly reported by the Appellate Term, “Defendant also proved that plaintiff’s ownership has changed since its initial organization, and while certain other health services were variously added and dropped, the same psychologist [Katheryn Clark], and no other, continued to be listed as a member and manager of plaintiff.” The Plaintiff has simply failed to offer any evidence to rebut the substantial evidence presented by the Defendant demonstrating that the Plaintiff remained fraudulently organized on the dates of service in issue. Dr. Indelicato’s bald, unsupported and inconsistent testimony, at best, does nothing more than raise a shadowy semblance of an issue of fact, which is insufficient to defeat this summary judgment motion. Orange County-Poughkeepsie Limited Partnership v. Bonte, 37 AD3d 684, 830 NYS2d 571 (2nd Dept. 2007);110 Sand Co. v. Nassau Land Improvement Co., Inc., 7 AD3d 497, 775 NYS2d 578 (2nd Dept. 2004); Spodek v. Park Property Development Associates; 263 AD2d 478, 693 NYS2d 199 (2nd Dept.1999)

Accordingly, the Defendant’s motion is granted and the Complaint is dismissed.

This constitutes the decision and order of this court.

Dated: Hempstead, New York

September 20, 2007 [*7]

___________________________

ANDREW M. ENGEL

J.D.C.

Footnotes

Footnote 1: Judge Kerrigan’s holding that 11 N.Y.C.R.R. § 65-3.16(a)(12) is not to be applied retroactively was recently overruled in Multiquest, P.L.L.C. v. Allstate Insurance Company, __ Misc 3d __, __ NYS2d __, 2007 NY Slip Op. 27366, 2007 WL 2682879 (App. Term 2nd and 11th Judicial Districts 2007).

Footnote 2: Judge Pineda-Kirwan’s refusal to apply 11 N.Y.C.R.R. § 65-3.16(a)(12) retroactively was recently overruled in Multiquest, P.L.L.C. v. Allstate Insurance Company, __ Misc 3d __, __ NYS2d __, 2007 NY Slip Op. 27366, 2007 WL 2682879 (App. Term 2nd and 11th Judicial Districts 2007)

Footnote 3: If properly raised by the Defendant, the doctrine of collateral estoppel should have prevented the Plaintiff’s repeated re-litigation of this issue. Ryan v. New York Telephone Co., 62 NY2d 494, 478 NYS2d 823 (1984); Capital Telephone Co., Inc. v. Pattersonville Telephone Co., Inc., 56 NY2d 11, 451 NYS2d 11 (1982); Choi v. State, 74 NY2d 933, 550 NYS2d 267 (1989)