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November 15, 2017

Nationwide Affinity Ins. Co. of Am. v Acuhealth Acupuncture, P.C. (2017 NY Slip Op 08007)

https://www.beynensonlaw.com/case-law/nationwide-affinity-ins-co-of-am-v-acuhealth-acupuncture-p-c-2017-ny-slip-op08007/

Court
Appellate Division, Second Department
Decided
November 15, 2017
Citation
2017 NY Slip Op 08007 · 155 AD3d 885
Posture
Summary judgment
Outcome
Provider prevailed
Later treatment
Distinguished in 1 and contrasted (cf., but see) in 2 later decisions (see Cited by)
Issues
Fraudulent incorporation (Mallela)
Legal questions
Fraudulent incorporation (Mallela) (see the maps)
Cite as
Nationwide Affinity Ins. Co. of Am. v Acuhealth Acupuncture, P.C., 155 AD3d 885 (2d Dept 2017)

Posture, outcome, issues and treatment by other decisions are Beynenson Law’s classification. Treatment labels are assigned by a language model reading the citing decision; negative and appeal-history labels are checked by a second reader.

Summary

Editorial summary by Beynenson Law, not part of the court’s decision.

A nonphysician's guilty plea and forfeiture allegations did not establish that the providers were fraudulently incorporated. The Appellate Division, Second Department, reversed the order granting the insurers summary judgment declaring no obligation to pay the providers' claims and denied the motion. Under Mallela, 11 NYCRR 65-3.16 (a) (12), and Business Corporation Law § 1503 (a), § 1507 and § 1508, nonprofessional ownership and control can bar reimbursement. The federal information described mail and health care fraud generally and identified forfeitable funds in provider accounts, but did not explain the fraud or show ownership, business control, or participation in profits and losses. Control over bank accounts alone would not establish ownership and control. The providers' remaining contentions were not reached.

Reported in New York Official Reports at Nationwide Affinity Ins. Co. of Am. v Acuhealth Acupuncture, P.C. (2017 NY Slip Op 08007)

Nationwide Affinity Ins. Co. of Am. v Acuhealth Acupuncture, P.C.
2017 NY Slip Op 08007 [155 AD3d 885]
November 15, 2017
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected through Wednesday, January 3, 2018

[*1]

 Nationwide Affinity Insurance Company of America et al., Respondents,
v
Acuhealth Acupuncture, P.C., et al., Appellants.

Gary Tsirelman, P.C., Brooklyn, NY (Stefan Belinfanti and David M. Gottlieb of counsel), for appellants.

McCormack & Mattei, P.C., Garden City, NY (John E. McCormack, Kevin A. Mattei, and Nicole Holler of counsel), for respondents.

In an action, inter alia, for a judgment declaring that the plaintiffs are not obligated to pay any past, pending, or future claims for no-fault benefits submitted to them by the defendants, the defendants appeal from an order of the Supreme Court, Nassau County (Bruno, J.), entered January 28, 2016, which granted the plaintiffs’ motion for summary judgment on the complaint.

Ordered that the order is reversed, on the law, with costs, and the plaintiffs’ motion for summary judgment on the complaint is denied.

The plaintiffs, which issue automobile insurance policies that include coverage under the No-Fault Automobile Insurance Law (see Insurance Law § 5101 et seq.), commenced this action against the defendants, five professional medical service corporations. The complaint sought, inter alia, a judgment declaring that the plaintiffs are not obligated to pay any past, pending, or future claims for no-fault benefits submitted to them by the defendants on the basis that the defendants were fraudulently incorporated in the names of licensed medical professionals, while in fact they were owned, operated, and controlled by Andrey Anikeyev, a nonphysician. The plaintiffs moved for summary judgment on the complaint. The Supreme Court granted the motion, and the defendants appeal.

“Insurance Law § 5102 et seq. requires no-fault carriers to reimburse patients (or, as in this case, their medical provider assignees) for ‘basic economic loss’ ” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 320 [2005]). However, “[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” (11 NYCRR 65-3.16 [a] [12]). “State law mandates that professional service corporations be owned and controlled only by licensed professionals” (One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738, 740 [2008]; see Business Corporation Law §§ 1503 [a]; 1507, 1508). Thus, an insurance carrier may withhold payment for medical services provided by a professional corporation which has been “fraudulently incorporated” to allow nonphysicians to share in its ownership and control (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 319, 321; see Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 150 AD3d 192, 194 [2017]; Liberty Mut. Ins. Co. v Raia Med. Health, P.C., 140 AD3d 1029, 1030-1032 [2016]; One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 [*2]AD3d at 739-740).

Here, the plaintiffs failed to meet their prima facie burden of demonstrating that the defendants were fraudulently incorporated in this manner. In support of their motion, the plaintiffs submitted nothing more than Anikeyev’s plea of guilty to a federal court Information that charged him generally with mail and health care fraud, and charged that substantial funds held in the defendants’ accounts were subject to forfeiture. The Information does not describe the manner in which the fraud was committed or how the funds came to be held in the defendants’ accounts. Thus, this evidence did not demonstrate, prima facie, that Anikeyev exercised dominion and control over the defendants and their assets and shared the risks, expenses, and interest in their profits and losses, or that he had a significant role in the guidance, management, and direction of their business (see Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 150 AD3d at 201). Moreover, even assuming, as the plaintiffs do, that the presence of the forfeited funds in the defendants’ bank accounts demonstrated some level of control by Anikeyev over the bank accounts, such control could not, on its own, support a finding that he owned and controlled the defendants (id. at 202).

Since the plaintiffs failed to demonstrate their prima facie entitlement to judgment as a matter of law, the Supreme Court should have denied their motion for summary judgment without regard to the sufficiency of the defendants’ opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]).

In light of our determination, we need not reach the defendants’ remaining contentions. Dillon, J.P., Sgroi, Hinds-Radix and Iannacci, JJ., concur.

Legal questions

A question of no-fault law this decision rules on, from our Legal Questions pages. Bars count the decisions on the question by year and court, coloured by category; circles are this decision and the decisions on the question it cites or that cite it. Point at a bar or circle for details. The categories and summaries are Beynenson Law’s classification, made by a language model and checked by a second reading.

Fraudulent incorporation (Mallela)

Open the full map

On the merits, when may a no-fault insurer withhold payment because unlicensed persons own or control the provider (Mallela)?

This decision: Insurer's proof of unlicensed ownership/control insufficient

Reversed summary judgment for the insurers because a nonphysician's guilty plea to a general fraud information, and forfeitable funds in the providers' accounts, did not show he owned, controlled or shared the providers' profits.

  • Court of AppealsCt App 2
  • Appellate DivisionApp Div 8
  • Appellate TermApp Term 26
  • Trial courtsTrial 23
2019, Court of Appeals: 1 decision (1 Defense established)2025, Court of Appeals: 1 decision (1 Not a Mallela ground)2019, Appellate Division: 4 decisions (2 Defense established, 2 Defense not established)2017, Appellate Division: 2 decisions (1 Defense established, 1 Defense not established)2016, Appellate Division: 1 decision (1 Triable issue)2008, Appellate Division: 1 decision (1 Triable issue)2020, Appellate Term: 1 decision (1 Not a Mallela ground)2013, Appellate Term: 1 decision (1 Defense established)2012, Appellate Term: 1 decision (1 Not a Mallela ground)2010, Appellate Term: 6 decisions (2 Defense established, 1 Triable issue, 2 Defense not established, 1 Not a Mallela ground)2009, Appellate Term: 5 decisions (2 Defense established, 2 Triable issue, 1 Not a Mallela ground)2008, Appellate Term: 4 decisions (1 Defense established, 1 Triable issue, 2 Defense not established)2007, Appellate Term: 5 decisions (1 Defense established, 4 Triable issue)2006, Appellate Term: 2 decisions (1 Triable issue, 1 Defense not established)2015, Appellate Term: 1 decision (1 Defense not established)2019, Trial courts: 1 decision (1 Triable issue)2017, Trial courts: 2 decisions (1 Defense not established, 1 Not a Mallela ground)2015, Trial courts: 2 decisions (1 Defense established, 1 Not a Mallela ground)2013, Trial courts: 1 decision (1 Defense not established)2010, Trial courts: 1 decision (1 Not a Mallela ground)2009, Trial courts: 2 decisions (1 Defense established, 1 Triable issue)2008, Trial courts: 4 decisions (1 Defense established, 2 Triable issue, 1 Defense not established)2007, Trial courts: 2 decisions (1 Defense established, 1 Triable issue)2006, Trial courts: 3 decisions (3 Triable issue)2005, Trial courts: 4 decisions (3 Defense established, 1 Defense not established)2004, Trial courts: 1 decision (1 Not a Mallela ground)This decision
20052010201520202025
Defense establishedTriable issueDefense not establishedNot a Mallela groundThis decisionCites it or cited by itCited or followedDistinguished or limited

Of the 59 decisions on this question in the Second Department courts and the Court of Appeals, 13 (this one included) are in the same category. One decision in other departments that cites or is cited by this one is on the full map.

Cited in this decision

A label shows how this decision treated the case it cites.

  • State Farm Mut. Auto. Ins. Co. v Mallela (2005 NY Slip Op 02416) FollowedFraudulently incorporated medical providers are ineligible for no-fault reimbursement under 11 NYCRR 65-3.16 (a) (12).
  • One Beacon Ins. Group, LLC v Midland Med. Care, P.C. (2008 NY Slip Op 06813)The insurers raised a triable issue of fraudulent incorporation despite evidence of physician ownership and oversight of the provider.
  • Carothers v Progressive Ins. Co. (2017 NY Slip Op 02614) FollowedA fraudulent-incorporation defense does not require proof of common-law fraud or fraudulent intent when the provider was incorporated.
  • Liberty Mut. Ins. Co. v Raia Med. Health, P.C. (2016 NY Slip Op 04916)The insurers established grounds to enjoin a provider's no-fault proceedings pending a licensing and control challenge.

Cited by

A label shows how the later decision treated this one.

  • Matter of Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co. (2019 NY Slip Op 07246) DistinguishedA master arbitration award with evidentiary support and a rational basis is not subject to judicial vacatur for mere legal error.
  • Matter of V.S. Care Acupuncture, P.C. v Country-Wide Ins. Co. (2019 NY Slip Op 07264) Contrasted (cf., but see)The provider failed to establish grounds to vacate a master award upholding denial of benefits for fraudulent incorporation.
  • Matter of V.S. Care Acupuncture, P.C. v Country-Wide Ins. Co. (2019 NY Slip Op 07265) Contrasted (cf., but see)A master arbitrator may assess legal sufficiency but may not weigh evidence or make independent factual findings.
  • Matter of Country-Wide Ins. Co. v Bay Needle Care Acupuncture, P.C. (2018 NY Slip Op 03929)The insurer's Mallela challenge failed because it presented no evidence that the provider was fraudulently incorporated.
  • Apazidis, M.D., P.C. v State Farm Mut. Auto. Ins. Co. (2021 NY Slip Op 50498(U))The insurer's summary judgment motion failed on hearsay proof of good cause and verification notices naming a different provider.
  • Jiang Acupuncture PC v State Farm Ins. Co. (2023 NY Slip Op 50961(U))The insurer failed to prove good cause for licensing verification with admissible evidence supporting summary judgment.
  • Renelique v Foremost Signature Ins. Co. (2023 NY Slip Op 51226(U))The insurer's renewed summary judgment motion based on a declaratory judgment was denied as untimely without good cause.

Similar decisions

  • Midborough Acupuncture P.C. v State Farm Ins. Co. (2006 NY Slip Op 26360)An insurer's fraudulent-incorporation defense survives an untimely denial, and discovery into provider ownership and licensing is material.
  • Crossbay Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co. (2007 NY Slip Op 27135)The insurer raised issues concerning the provider's actual operation and control that required discovery before summary judgment.
  • State Farm Mut. Auto. Ins. Co. v Anikeyeva (2011 NY Slip Op 08580)A pre-answer motion to dismiss declaratory claims tests whether a justiciable controversy is pleaded, not entitlement to relief.
  • Midwood Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co. (2007 NY Slip Op 50052(U))Fraudulent licensing under 11 NYCRR 65-3.16 (a) (12) is a nonwaivable defense outside the 30-day preclusion rule.
  • Matter of Country-Wide Ins. Co. v Bay Needle Acupuncture, P.C. (2018 NY Slip Op 08238)The insurer's billing-fraud evidence did not establish a Mallela defense exempt from the 30-day denial deadline.
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