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Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, July 12, 2013

APPEARANCES OF COUNSEL

Law Office of Alden Banniettis, Brooklyn (Jeff Henle of counsel), for appellant. Law Office of Teresa M. Spina, Woodbury (Peter J. Molesso of counsel), for respondent.

{**43 Misc 3d at 28} OPINION OF THE COURT

Memorandum.

Ordered that, on the court’s own motion, the notice of appeal from the decision dated December 10, 2010 is deemed a premature notice of appeal from the judgment entered February 16, 2011 (see CPLR 5520 [c]); and it is further, ordered that the judgment is reversed, with $30 costs, the complaint is reinstated, and the matter is remitted to the Civil Court for a new trial.

In a nonjury trial of this action by a provider to recover assigned first-party no-fault benefits, the Civil Court denied plaintiff’s motions to admit into evidence, among other things, plaintiff’s assignment of benefits form, document delivery receipt, and claim form. Defendant presented no witnesses. Plaintiff appeals from a written decision after trial in which the court found for defendant. A judgment was subsequently entered, from which we deem the appeal to have been taken (CPLR 5520 [c]). On appeal, plaintiff contends, among other things, that it had laid a proper foundation for the admission into evidence of its assignment of benefits form, [*2]delivery receipt and claim form. We agree.

At the outset, we note that plaintiff was not required to lay a CPLR 4518 (a) foundation for the assignment of benefits form. An assignment of benefits is not hearsay; like a contract, it has independent legal significance and need only be authenticated to be admissible (see Kepner-Tregoe, Inc. v Leadership Software, Inc., 12 F3d 527, 540 [5th Cir 1994]; see also Beal-Medea Prods., Inc. v NY Cent. Mut. Fire Ins. Co., 36 Misc 3d{**43 Misc 3d at 29} 135[A], 2012 NY Slip Op 51347[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]). However, plaintiff was attempting to use the delivery receipt and claim form to prove the transactions recorded therein, and so was required to lay a CPLR 4518 (a) foundation for those records.

“The essence of the business records exception to the hearsay rule is that records systematically made for the conduct of a business as a business are inherently highly trustworthy because they are routine reflections of day-to-day operations and because the entrant’s obligation is to have them truthful and accurate for purposes of the conduct of the enterprise” (People v Kennedy, 68 NY2d 569, 579 [1986]).

If a record is made in the regular course of business, it is the regular course of business to make the record, and the record is made at or about the time of the event being recorded, the record can be admitted into evidence pursuant to the CPLR 4518 (a) business records hearsay exception.

A review of the evidence adduced at trial shows that plaintiff’s witness was employed by plaintiff prior to, during, and after the time that plaintiff had provided the supplies to its assignor. The witness testified he and another person who was no longer employed by plaintiff had generated all of plaintiff’s claim forms, and that his father, who was the owner of plaintiff, had generated the delivery receipts. The witness also testified, albeit inartfully, that he was familiar with plaintiff’s office routine and that plaintiff’s delivery receipts and claim forms were routinely and contemporaneously made in the course of plaintiff’s business, and that it is plaintiff’s regular business practice to make such records. The Civil Court sustained defendant’s objection to the admission of the foregoing documents into evidence on the ground that the witness was not a proper person to lay a foundation for their admission.

It is not necessary to call the person who actually made a record in order to establish a proper foundation for its admission into evidence pursuant to the business record exception of CPLR 4518 (a). As plaintiff’s witness was an employee who was familiar with plaintiff’s office routine, it was proper for him to testify that the aforementioned records had been contemporaneously and routinely made in the course of plaintiff’s business and that it is plaintiff’s regular business practice to make such records (see People v Kennedy, 68 NY2d at 579). In addition, CPLR 4518 (a) provides that a witness’s lack of personal knowledge affects{**43 Misc 3d at 30} the weight of the record, not the admissibility of the record. Inasmuch as the witness had satisfied the foundational requirements of CPLR 4518 (a), plaintiff’s exhibits 1 and 2 should have been admitted into evidence.

Accordingly, the judgment is reversed, the complaint is reinstated, and the matter is remitted to the Civil Court for a new trial.

Pesce, P.J., Weston and Rios, JJ., concur.

Supreme Court, New York County

150235/09

Plaintiff:

Galvano & Xanthakis, PC

150 Broadway, Ste 2100

New York, New York 10038

Defendants:

Brand Glick & Brand, PC

600 Old Country Rd, Ste 440

Garden City, New York 11530

Doris Ling-Cohan, J.

The following papers, numbered 1 – 7 were considered on this motion and cross-motion for summary judgment:

PAPERSNUMBERED

Notice of Motion/Order to Show Cause, — Affidavits — Exhibits1, 2, 3,

Answering Affidavits — Exhibits ________________________________

Replying Affidavits ____________________________________________7

Cross-Motion:[ ] Yes[ X ] No4, 5, 6

Upon the foregoing papers, it is ordered that this motion and cross-motion are decided as indicated below.

BACKGROUND

Plaintiff Calvin Alford commenced this action against defendant Fiduciary Insurance Company of America (Fiduciary Ins.) seeking no-fault benefits for injuries he sustained in an automobile accident. The facts of this action are uncontested. Plaintiff, a resident of the State of New York, did not own a car, nor did he reside with anyone who owned a car. In February 2009, plaintiff, a pedestrian, was struck, while crossing the street, by a vehicle insured by defendant Fiduciary Ins. Plaintiff was taken from the scene, to the hospital, by ambulance. Subsequently, plaintiff, and his counsel, attempted to obtain the identity of the vehicle that struck him, but was unable to ascertain such information until June 1, 2009. Nonetheless, in April 2009, plaintiff filed a timely application for benefits with the Motor Vehicle Accident Indemnification Corporation (MVAIC), and continued his efforts to discover the identity of the vehicle that struck him. On June 1, 2009, MVAIC responded to plaintiff’s application for no-fault benefits, stating that the vehicle that struck plaintiff was insured by defendant Fiduciary Ins. Through counsel, [*2]plaintiff immediately contacted defendant Fiduciary Ins., by telephone, to file a no-fault application, claim number 20082280, which was denied on June 3, 2009 pursuant to 11 NYCRR 65-1.1.

Such denial stated that plaintiff did not provide written notice of the claim, and that such claim was untimely. The denial further states that the “late notice denial will be reconsidered if the injured party submits written proof that provides clear and reasonable justification for the failure to comply with the notice requirement”. Notice of Motion, Exh. K, Denial of Claim Form, p. 1. Plaintiff unsuccessfully sought a reconsideration of the denial by telephone on several occasions. On July 17, 2009, plaintiff submitted a written request for reconsideration detailing the inability to ascertain the identity of the offending vehicle until June 1, 2009, when plaintiff received a response from MVAIC. Thereafter, plaintiff received no response to his written request for reconsideration, and commenced this action on December 10, 2009.

Plaintiff now moves for summary judgment against defendant Fiduciary Ins., declaring that defendant Fiduciary Ins. must provide no-fault benefits to plaintiff. Defendant Fiduciary Ins. cross-moves for summary judgment dismissing the summons and complaint.

DISCUSSION

The standards of summary judgment are well settled. Summary judgment should only be granted if the moving party has sufficiently established that it is warranted as a matter of law. Alvarez v Prospect Hosp., 68 NY2d 320, 324 (1986). To grant summary judgment, it must be clear that no material or triable issues of fact are presented. See Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 (1957). “The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case”. Winegrad v New York University Medical Center, 64 NY2d 851, 853 (1985). Once such entitlement has been demonstrated by the moving party, the burden shifts to the party opposing the motion 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…to do [so]”. Zuckerman v City of New York, 49 NY2d 557, 560 (1980).

Here, there is no dispute as to the facts. Plaintiff argues that after numerous attempts, made by himself and his counsel, he was unable to obtain a copy of the police report, or any other document, to ascertain the identity of the vehicle that struck him. In support, plaintiff proffers, inter alia, his affidavit detailing his attempt to obtain the police report, as well as documents requesting such police report.

Defendant Fiduciary Ins., in arguing that the summons and complaint must be dismissed, contends that timely notice of claim was not provided, that written notice was not provided until July 17, 2009, and that it is not reasonable for plaintiff to wait over two months to file an application with MVAIC merely because plaintiff was attempting to obtain a copy of the police report. Defendant Fiduciary Ins. also argues that plaintiff lacks standing to bring the instant action, as plaintiff has assigned his rights for recovery of medical expenses to his medical provider and that plaintiff has not provided proof of payment for the medical bills to the medical provider. [*3]

“It is well settled that delay on the part of an injured party to give notice may be excused, upon a showing of diligence, where he had difficulty ascertaining the identity of the insured or insurer”. Berman v County-Wide Ins. Co., 819 NYS2d 208 (Civil Ct., Queens Cty. 2006). See also Hartford Accident & Indemnity Co. v CNA Ins. Companies, 99 AD2d 310, 314 (1st Dep’t 1984). Here, plaintiff has shown entitlement to summary judgment as a matter of law. While defendant Fiduciary Ins. is correct in asserting that plaintiff’s notice of claim was technically late, 11 NYCRR 65-3.5(1) specifically states that, for the standards of review where applicants have provided late notice, “such standards shall include…appropriate consideration for pedestrians and non-related occupants of motor vehicles who may have difficulty ascertaining the identity of the insurer.” Plaintiff, a pedestrian hit by a vehicle while crossing the street, was rushed from the scene by ambulance. Plaintiff has documented his diligent attempts, and those of his counsel, in obtaining the identity of the vehicle that struck him. The Appellate Division, First Department, has held that “notice by an injured claimant is not judged by the same standard as governs notice by the insured”. Id. Thus, plaintiff has established entitlement to summary judgment.

Defendant Fiduciary Ins. argues that plaintiff failed to provide written notice. However, defendant Fiduciary Ins.’s denial of plaintiff’s oral claim specifically stated that plaintiff’s late notice would be reconsidered upon submission of a written claim. It is undisputed that plaintiff submitted such written notice. Defendant Fiduciary Ins., nevertheless, failed to reconsider plaintiff’s claim. Thus, defendant’s argument that plaintiff failed to timely provide written notice is unpersuasive. Defendant Fiduciary Ins.’s remaining argument, based on standing, is similarly inapposite. Aside from defendant Fiduciary Ins.’s conclusory allegation that plaintiff assigned his rights for recovery of medical expenses to his medical provider, defendant Fiduciary Ins. has failed to provide any evidence of such alleged assignment. The Court of Appeals has made clear that bare allegations or conclusory assertions are insufficient to create genuine, bona fide issues of fact necessary to defeat a motion for summary judgment. See Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223, 231 (1978). Thus, defendant Fiduciary Ins.’s cross-motion for summary judgment must be dismissed.

Accordingly, it is

ORDERED that plaintiff’s motion for summary judgment against defendant Fiduciary Ins. is granted in its entirety, and the Clerk is directed to enter judgment accordingly in favor of plaintiff; and it is further

ORDERED, ADJUDGED and DECLARED that the defendant Fiduciary Ins. Must provide no-fault benefits, and provide coverage, to plaintiff with regards to the February 2009 automobile accident; and it is further

ORDERED that defendant Fiduciary Ins.’s cross-motion for summary judgment is denied; and it is further

ORDERED that the issue of the amount of no-fault benefits is respectfully referred to a Special Referee in accordance with CPLR §4317(b), to hear and determine; and it is further

ORDERED that within 45 days of entry of this order, plaintiff shall serve a copy of this order with notice of entry upon defendant Fiduciary Ins., as well the Clerk of the Judicial Support Office to arrange a calendar date for the reference to a Special Referee. [*4]

This is the decision and order of the court.

Dated:

DORIS LING-COHAN, J.S.C.

Check one:[ X ] FINAL DISPOSITION[ ] NON-FINAL DISPOSITION

Check if Appropriate: [ ] DO NOT POST C:HTFormatf5107430.txt

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Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, July 5, 2013

APPEARANCES OF COUNSEL

Smith Valliere PLLC, New York City (Mark W. Smith and Timothy A. Valliere of counsel), for appellant. McCormack & Mattei, P.C., Garden City (Barry I. Levy and John E. McCormack of counsel), for respondent.

{**42 Misc 3d at 33} OPINION OF THE COURT

Memorandum.

Ordered that the judgment is affirmed, without costs.

Plaintiff Andrew Carothers, M.D., P.C. (ACMDPC) is a professional corporation which performed MRIs for patients allegedly injured in motor vehicle accidents. ACMDPC operated out of three facilities—one in Brooklyn, one in Queens and one in the Bronx. At the time the MRI services in question were rendered, Dr. Andrew Carothers was a board-certified, licensed radiologist, who had been listed on ACMDPC’s corporate filings as its sole shareholder, officer and director.

ACMDPC’s patients assigned to ACMDPC their right to reimbursement of first-party no-fault benefits. ACMDPC submitted the assigned claims for reimbursement to the various responsible insurers and self-insurers, including defendant Progressive Insurance Company (Progressive). After the insurers and self-insurers failed to pay the claims in question, ACMDPC commenced thousands of actions against them.{**42 Misc 3d at 34} [*2]

A joint trial was held of actions pending in Richmond County and Kings County between ACMDPC and 53 insurers and self-insurers, including the instant action. The total amount sought for the claims in all of these actions was approximately $18 million. The defense asserted was that ACMDPC was not entitled to reimbursement of the claims because of ACMDPC’s failure to comply with Insurance Department Regulations (11 NYCRR) § 65-3.16 (a) (12), which renders a provider ineligible to recover no-fault benefits under Insurance Law § 5102 (a) (1) if the provider fails to meet “any applicable” state or local licensing requirement necessary to perform its services in New York. On July 17, 2008, after a joint trial, the jury returned a verdict in favor of all 53 defendants. By order entered October 14, 2009 (26 Misc 3d 448 [2009]), the Civil Court (Peter Paul Sweeney, J.) denied plaintiff’s motion, pursuant to CPLR 4404 (a), to set aside the jury verdict. Thereafter, it was agreed, by so-ordered stipulation, that, with the exception of the instant action, judgments would not be entered pending the disposition of this appeal. A judgment in this action, dismissing the complaint, was entered on December 7, 2010, from which this appeal is taken.

We note at the outset that there is no merit to plaintiff’s contention that the Civil Court, as a court of limited monetary jurisdiction (see CCA 202), lacked jurisdiction to adjudicate this case because the aggregate amount in controversy was approximately $18 million. This was a joint trial where the Civil Court had before it separate causes of action, each of which was within the monetary jurisdiction of the Civil Court (see generally Board of Mgrs. of Mews at N. Hills Condominium v Farajzadeh, 189 Misc 2d 38 [App Term, 2d Dept, 9th & 10th Jud Dists 2001]).

Plaintiff argues that the defense that plaintiff was ineligible to recover no-fault benefits was barred by the doctrine of res judicata because some of the defendants, including Progressive, had been involved in litigation with plaintiff in prior actions in which plaintiff had prevailed, and had failed to raise or litigate that defense in those prior actions. Responding to the same argument, the Civil Court (Peter Paul Sweeney, J.), in its April 27, 2009 order denying plaintiff’s motion for summary judgment (23 Misc 3d 1118[A], 2009 NY Slip Op 50831[U], *4 [2009]), stated that the fact that the ineligibility defense could have been litigated in the prior actions was not determinative, as “the inquiry must always be as to the point or question actually litigated and determined in the original action, not what{**42 Misc 3d at 35} might have been thus litigated and determined” (quoting Cromwell v County of Sac, 94 US 351, 353 [1877]). The Civil Court noted that the claims for first-party no-fault benefits at issue in this joint trial differed from the claims for first-party no-fault benefits that had been litigated in the prior actions, and that plaintiff had presented the court with no proof that the ineligibility defense had been “actually and necessarily” determined in any of the prior actions (Smith v Kirkpatrick, 305 NY 66, 70 [1953]). In our view, the Civil Court’s determination was proper.

“While a valid final judgment bars future actions between the same parties on the same cause of action, a subsequent action will not be barred by res judicata where the nature or object of the second action is distinct from that in a prior action in which a judgment was rendered.

“Where a second action is upon a different claim, demand, or cause of action, the established rule is that the judgment in the first action operates as an estoppel only as to the points or questions actually litigated and determined. Thus, where the two causes of action are different, not in form only but also in the rights and interests affected, the estoppel is limited to the point actually determined” (9 Carmody-Wait 2d § 63:474).

As noted, the essence of the defense in this case was plaintiff’s ineligibility to recover [*3]no-fault benefits due to plaintiff’s failure to comply with New York State’s licensing requirements, based firstly on ACMDPC’s alleged failure, as a professional corporation, to be owned and controlled only by licensed professionals engaged in the practice of such profession in such corporations (see Business Corporation Law §§ 1503 [a]; 1507, 1508). The theory underlying this defense was that Dr. Carothers was not the true owner, or at least not the sole owner, and operator of ACMDPC, which allegedly was actually owned or co-owned and controlled by nonparties Hillel Sher and Irina Vayman, two individuals who were not physicians, but who had received the bulk of ACMDPC’s profits. Thus, in order to find that plaintiff was not entitled to reimbursement, the jury had to find that plaintiff was actually owned, co-owned or controlled by unlicensed individuals (see e.g. One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738 [2008]). A second theory of the defense was that Dr. Carothers had violated Business Corporation Law § 1507 because, as sole shareholder, he had not been personally “engaged in the practice” of medicine in ACMDPC during the time ACMDPC had been in business.{**42 Misc 3d at 36}

Prior to the commencement of the trial, Sher, who had leased the premises in which the MRI facilities were located, and the equipment therein, to Dr. Carothers, and Vayman, who had served as ACMDPC’s office manager, had been deposed. Both had invoked their Fifth Amendment privilege in response to virtually all the questions posed of them during their respective depositions. Although the parties agreed that neither Sher nor Vayman was available to testify at the trial, within the meaning of CPLR 3117 (a) (3), plaintiff’s counsel asked the Civil Court to direct the defense not to read the deposition transcripts to the jury, claiming that the deposition testimony was of no probative value and only served to prejudice plaintiff. The Civil Court, finding that the testimony was relevant to the issues at trial, permitted the defense to read the deposition transcripts to the jury, and ultimately charged the jury that an adverse inference could be drawn against plaintiff based upon Sher’s and Vayman’s invocation of their Fifth Amendment privilege.

The Civil Court had also granted the defense’s motion in limine to preclude plaintiff from referring to the approximately $18 million in accounts receivable which, plaintiff contended, it might have generated had the claims at issue in the various pending actions been paid.

At trial, the defense contended that even though Dr. Carothers was ACMDPC’s nominal owner, and was listed as its only shareholder, officer and director, it was actually Sher and Vayman who were the de facto owners of ACMDPC. Among the primary defense witnesses were a seller of used MRI and CT scan equipment, who testified about the valuation and market for MRI equipment, and whose testimony indicated that the MRI equipment at the ACMDPC facilities was outdated and that ACMDPC’s monthly payments for that equipment were significantly above market value; a board-certified neuroradiologist, who testified about the poor radiological quality of the MRI scans, many of which could not be read, as indicative of Dr. Carothers’ lack of quality control, direction and supervision of ACMDPC; and a forensic accountant and certified valuation analyst, who analyzed the flow of money into and out of ACMDPC, most of which ultimately went into accounts controlled by Sher or Vayman. Defendant also called as a witness Dr. Carothers, who was questioned about, among other things, his relationship with Sher and Vayman, as well as about his actual practice of medicine within ACMDPC. [*4]

Plaintiff claimed that, at all relevant times, Sher and Vayman had merely assisted ACMDPC: Sher in his role as the lessor of{**42 Misc 3d at 37} the premises in which the MRI facilities were located and of the equipment therein, and Vayman as ACMDPC’s office manager. Among plaintiff’s witnesses at trial were Wayne Hickey, a licensed accountant and the chief financial officer of Medtrx, a company which served both as plaintiff’s billing agent and as plaintiff’s lender, who testified about Medtrx’s billing and collection practices vis-à-vis ACMDPC, as well as its role as a secured lender of ACMDPC; an attorney specializing in structuring and incorporating medical practices, who testified about custom and usage in MRI practices; and an expert in the business valuation aspects of MRI practices. (A more in-depth summary of the trial may be found in the Civil Court’s order denying plaintiff’s motion to set aside the jury verdict [26 Misc 3d 448].)

The Civil Court instructed the jury that, in order to find that ACMDPC was “fraudulently incorporated,” it had to find that the business relationships of Sher and Vayman were, in effect, partnerships or arrangements in which Sher and Vayman were so entangled with the affairs of ACMDPC that reasonable people would say that they were the de facto owners of ACMDPC or that they exercised substantial dominion and control over ACMDPC and its assets, and that they shared risks, expenses and interest in ACMDPC’s profits and losses. The jury was instructed that it could look beyond the certificate of incorporation but that, in order to find that Sher and Vayman had exercised substantial control over ACMDPC, it must find that they had a significant role in the guidance, management and direction of the business of ACMDPC. The jury was told to look at the totality of the circumstances, and the court enumerated 13 different factors which the jury might consider relevant in order to determine whether Sher and Vayman were de facto owners of ACMDPC or whether they had exercised substantial control over ACMDPC. Those factors were: (1) whether the agreements between ACMDPC and the entities owned by Sher, which leased the facilities and the equipment to ACMDPC, were the product of arm’s-length transactions or whether the terms of those agreements were designed to give Sher and those entities substantial control over ACMDPC and to channel its profits to Sher; (2) whether and to what extent Sher and Vayman{**42 Misc 3d at 38} had exercised dominion and control over ACMDPC’s assets, including its bank accounts; (3) whether and to what extent Dr. Carothers, Sher and Vayman had made capital investments in ACMDPC; (4) whether and to what extent Sher and Vayman had used ACMDPC funds for personal rather than for corporate purposes; (5) whether and to what extent Sher and Vayman had the ability to bind ACMDPC to legal obligations with third parties; (6) whether and to what extent Sher and Vayman had been responsible for hiring, firing and/or payment of ACMDPC salaries, and the extent to which they had dictated policy decisions; (7) whether and to what extent the day-to-day formalities that are part and parcel of the corporate existence (including the issuance of stock, election of directors, holding of corporate meetings, keeping of books and records and filing of corporate tax returns) had been followed; (8) whether and to what extent ACMDPC and Sher’s companies shared common office space, addresses, employees and telephone numbers; (9) whether and to what extent Dr. Carothers had played a substantial role in the day-to-day operation of ACMDPC; (10) whether and to what extent Sher and/or Vayman had assumed the financial obligations of ACMDPC as if they were their own; (11) whether and to what extent ACMDPC funds had been commingled with those of the other entities owned by Sher; (12) whether and to what extent Dr. Carothers, Sher and Vayman had shared the risks, expenses and interest in the profits and losses of the corporation; and (13) [*5]whether and to what extent Sher and Vayman had been involved in making professional medical decisions regarding the practice of ACMDPC.

The Civil Court then asked the jury to decide whether Dr. Carothers was engaged in the practice of medicine in ACMDPC, within the meaning of Business Corporation Law § 1507, during the time ACMDPC was in business. It instructed the jury that the practice of medicine included “diagnosis by way of MRI scans” and that a physician is engaged in the practice of medicine “if he either directly or indirectly is involved with the making of professional medical decisions concerning individual clients or patients.”

Regarding Sher’s and Vayman’s invocation of their Fifth Amendment privilege at their depositions, the Civil Court told the jury that it could, but was not required to, infer, by their refusal to answer questions regarding de facto ownership and control over ACMDPC, that their answers would have been adverse to ACMDPC’s interest. The jury could not, however, rely on such an adverse inference, should it choose to draw one, as the only basis for concluding that ACMDPC was not solely owned or controlled by Dr. Carothers.

The jury found that the defense had proved by clear and convincing evidence both that ACMDPC was “fraudulently {**42 Misc 3d at 39}incorporated” and that Dr. Carothers had not engaged in the practice of medicine in ACMDPC during the time ACMDPC was in business. Plaintiff thereafter moved, pursuant to CPLR 4404 (a), to set aside the verdict and to enter judgment in its favor, or to grant a new trial, contending that the Civil Court had: (1) improperly instructed the jury on “fraudulent incorporation”; (2) erroneously instructed the jury on the “practice of medicine”; (3) erroneously permitted the jury to consider and draw an adverse inference against plaintiff based upon Sher’s and Vayman’s invocation of their Fifth Amendment privilege; and (4) made numerous erroneous evidentiary rulings throughout the course of the trial. The motion was denied by the Civil Court in an October 14, 2009 order (26 Misc 3d 448), and a judgment dismissing the complaint was subsequently entered.

On appeal, plaintiff asks this court to reverse the judgment, to set aside the jury verdict, and either to enter judgment in its favor or to grant a new trial, claiming, with respect to the “fraudulent incorporation” defense, that the Civil Court’s erroneous and prejudicial orders and various trial rulings deprived it of a full and fair opportunity to refute that defense. Among the trial rulings highlighted by plaintiff are those involving the Civil Court’s decision to permit the reading of the depositions of nonparties Sher and Vayman, in which they, respectively, had invoked their Fifth Amendment privilege, coupled with the court’s later decision to instruct the jury that it could draw a negative inference against plaintiff based upon Sher’s and Vayman’s invocation of their Fifth Amendment privilege. Plaintiff also argues that the Civil Court’s decision to preclude evidence of ACMDPC’s financial profile, in particular the approximately $18 million in accounts receivable that was allegedly owed to ACMDPC by the insurance companies, prejudiced plaintiff’s ability to respond to the “fraudulent incorporation” defense. The most egregious errors warranting reversal, contends plaintiff, were in the Civil Court’s instructions to the jury regarding the “fraudulent incorporation” defense, particularly because the Civil Court, among other things: (1) failed to recognize that such defense requires a finding of fraud and fraudulent intent at the time of incorporation and did not instruct the jury thereon; and (2) developed a novel 13-factor test to be applied in this situation, which test was inappropriate and misleading, instead of providing instructions on common-law fraud, sham transactions, and [*6]the business-judgment rule. Plaintiff further contends that it was error for the Civil Court to instruct the jury regarding the “practice of medicine.”

{**42 Misc 3d at 40}The question of whether an “unlawfully incorporated” professional corporation was eligible for no-fault reimbursement was certified to New York’s Court of Appeals by the United States Court of Appeals for the Second Circuit in State Farm Mut. Auto. Ins. Co. v Mallela (372 F3d 500, 501 [2d Cir 2004]), where the Second Circuit noted that New York law forbade nonphysicians from employing physicians or controlling their practices because of New York’s long-standing concern that the “corporate practice of medicine” would create ethical conflicts and undermine the quality of care afforded to patients (372 F3d at 503). In response to the certified question, New York’s Court of Appeals concluded that insurers were entitled to withhold payment of no-fault benefits for medical services provided by “fraudulently incorporated” enterprises to which patients had assigned their claims (4 NY3d 313 [2005]). The Court noted that the complaint therein centered on fraud “in the corporate form rather than on the quality of care provided” (id. at 320), and specifically rejected the providers’ argument that the patients had received appropriate care from licensed professionals, which care was within the scope of the licenses of those who had treated the patients. “The fact remains that the reimbursement goes to the medical service corporation that exists to receive payment only because of its willfully and materially false filings with state regulators” (id. at 321). The Court also indicated that a professional corporation’s mere failure to observe corporate formalities, such as failing to hold an annual meeting, or failing to pay corporate filing fees or to timely submit paperwork, would not render a provider ineligible, but that carriers could “look beyond the face of licensing documents to identify willful and material failure to abide by state and local law,” and that such conduct, “tantamount to fraud,” would render the provider ineligible for no-fault reimbursement (id. at 321, 322).

We disagree with plaintiff’s contention that the Civil Court erroneously instructed the jury on the essential aspects of the Mallela defense by failing to instruct the jury regarding the elements of fraud and by failing to instruct the jury that defendant must have established that there was a fraudulent intent at the time of the provider’s incorporation. Although both the United States Court of Appeals for the Second Circuit and New York’s Court of Appeals employed the term “fraudulently incorporated” in the Mallela case, which was the term used in the certified question, the essence of the defense in that case, as here,{**42 Misc 3d at 41} was the provider’s “lack of eligibility,” which does not require a finding of fraud or fraudulent intent, but rather, addresses the actual operation and control of a medical professional corporation by unlicensed individuals.

As noted above, a reading of the Mallela case demonstrates that the case involved fraud “in the corporate form” (id. at 320) rather than the more traditional forms of common-law fraud. In fact, the New York Court of Appeals, in Mallela, noted that the Superintendent of Insurance, in an amicus curiae brief, had asserted that Insurance Department Regulations (11 NYCRR) § 65-3.16 (a) (12) had been promulgated in order to combat no-fault fraud which was correlative with the corporate practice of medicine by nonphysicians, and suggested that carriers look beyond the licensing documents in order to identify a provider’s “willful and material failure to abide by state and local law” (4 NY3d at 321), thereby triggering issues of eligibility and coverage.

With respect to plaintiff’s contention that the issue of “fraudulent incorporation” must be [*7]determined by reference to the time that the certificate of incorporation was filed, we initially note that Insurance Department Regulations (11 NYCRR) § 65-3.16 (a) (12) does not, by its terms, limit a provider’s ineligibility to those instances where it fails to meet a licensing requirement at the time of incorporation. Moreover, the Court of Appeals, in Mallela, in analyzing the alleged facts, specifically addressed the allegations made therein regarding the post-incorporation operation of the practice—i.e., the operation of the practice by nonphysicians; the hiring of management companies owned by the nonphysicians which billed the practice at inflated rates; and the channeling of the actual profits of the practice to the management companies—and stated that, if a professional corporation was “fraudulently licensed,” it would not be entitled to reimbursement for no-fault benefits (4 NY3d at 321, 322). The Mallela decision thereby clearly indicated that a professional corporation would be ineligible for no-fault reimbursement if it was in violation of licensing requirements regardless of whether the nominal physician-owner had intended to yield control to unlicensed parties at the time the professional corporation had been formed or had done so at some later time. Finally, the Appellate Division, Second Department, in One Beacon Ins. Group, LLC (54 AD3d 738), after discussing the Mallela case, found that the insurers therein had submitted sufficient evidentiary proof to raise an issue of fact as{**42 Misc 3d at 42} to whether the provider “was actually controlled by a management company owned by unlicensed individuals in violation of the Business Corporation Law” (id. at 740). In short, the inquiry does not end once the certificate of incorporation is filed.

Although plaintiff contends that the list of 13 factors was so overbroad as to be present in virtually every well-managed medical practice, in our opinion, it was not error for the Civil Court to set forth the list of factors to assist the jury in determining the issue of Sher’s and Vayman’s control over ACMDPC, particularly since the court specifically told the jury that it should consider “the totality of the circumstances” (26 Misc 3d at 455). Contrary to plaintiff’s argument, it cannot be said that any single factor weighed more than any other in the jury’s factual determination as to Sher’s and Vayman’s ownership, co-ownership or control of ACMDPC. Moreover, the fact that, of the several enumerated factors, a particular factor may have been considered a “technical violation” (see Mallela, 4 NY3d at 322) and should therefore not have been considered does not require a reversal. The jury was instructed to consider the evidence as a whole, before it even heard the factors, and, presumably, it did so. Furthermore, it is not inappropriate to ask a jury to consider and weigh a number of factors in making its determination of “control” (see e.g. PJI 2:238, PJI 2:255 [which, in the context of vicarious liability, ask the jury to consider various factors in order to determine an entity’s “direction and control”]). Nor, as plaintiff contends, was it necessary for the Civil Court to define terms such as “dominion and control,” “substantial control,” or “arm’s length,” as such terms are common enough to be accorded their everyday meanings. Finally, plaintiff’s proposed charges on “sham transactions” and “the business-judgment rule” were irrelevant and inappropriate, and it was not error for the Civil Court to decline to instruct the jury with respect thereto.

As noted above, there were two theories on which the defense that ACMDPC was not entitled to reimbursement was predicated: the “fraudulent incorporation” defense, i.e., that Dr. Carothers was not the true owner of ACMDPC; and the “practice of medicine” defense, i.e., that Dr. Carothers was not personally engaged in the practice of medicine at ACMDPC.

With regard to the second basis on which the jury found that defendant had proved its [*8]defense that ACMDPC was ineligible to recover assigned first-party no-fault benefits, to wit, that Dr. Carothers, as sole shareholder of ACMDPC, had not engaged in{**42 Misc 3d at 43} the practice of medicine in ACMDPC during the time ACMDPC had been in business (see Business Corporation Law § 1507), plaintiff argues that it was error for the Civil Court to instruct the jury on the “practice of medicine” because that aspect of a plaintiff’s eligibility to recover no-fault benefits was not covered by the Mallela case. Plaintiff further argues that, even if Mallela supported such an instruction, the Civil Court improperly restricted the definition of the term “practice” to instances where the physician-owner personally and actively treats patients through the professional corporation. Plaintiff contends that the portion of the jury’s verdict which found that Dr. Carothers was not engaged in the practice of medicine must be set aside as against the weight of the evidence since the evidence showed that Dr. Carothers was actively engaged in the practice of medicine in ACMDPC.

It is true that the “practice of medicine” requirement of Business Corporation Law § 1507 was not addressed in Mallela, as it was not an issue in that case. Nevertheless, a reading of the statute establishes that the failure of a shareholder physician to actually be engaged in the practice of medicine within the professional corporation renders such professional corporation ineligible to recover assigned first-party no-fault benefits. As noted above, under Business Corporation Law § 1507, it is unlawful for a physician to be a shareholder in a professional corporation authorized to practice medicine unless he or she is engaged in the practice of medicine in that professional corporation. Education Law § 6521 defines the practice of the profession of medicine as “diagnosing, treating, operating or prescribing for any human disease, pain, injury, deformity or physical condition.” The Civil Court’s instruction that the practice of medicine included “diagnosis by way of MRI scans,” was proper and, when read as a whole, the charge adequately conveyed the correct legal principles to the jury (see Casella v City of New York, 69 AD3d 549, 550 [2010]; Manna v Don Diego, 261 AD2d 590, 591 [1999]).

Nevertheless, we agree with plaintiff’s argument that this portion of the jury verdict should be set aside as contrary to the weight of the evidence{**42 Misc 3d at 44}. A jury verdict should not be set aside as contrary to the weight of the evidence unless the jury could not have reached the verdict by any fair interpretation of the evidence (see Lolik v Big V Supermarkets, 86 NY2d 744, 746 [1995]; Nicastro v Park, 113 AD2d 129 [1985]). Whether a jury verdict should be set aside as contrary to the weight of the evidence does not involve a question of law, but rather requires a discretionary balancing of many factors (see Cohen v Hallmark Cards, 45 NY2d 493, 498-499 [1978]; Nicastro v Park, 113 AD2d at 134-135). Upon our review of the record, we conclude that this portion of the jury verdict should be set aside since it is not based upon a fair interpretation of the evidence.

Notwithstanding the foregoing, we conclude that the jury’s determination that ACMDPC was ineligible to receive reimbursement based upon the first theory of the defense, i.e., the “fraudulent incorporation” or Mallela defense, is amply supported by the record, and it is on this basis that we affirm the judgment.

Plaintiff contends that it was error to permit Sher’s and Vayman’s deposition testimony, in which both had invoked their Fifth Amendment privilege, to be read to the jury, because the probative value of reading the depositions was outweighed by its prejudicial effect. Plaintiff argues that such error was further compounded by the Civil Court’s instruction to the jury that it [*9]could draw an adverse inference against plaintiff based upon their invocation of said privilege.

We agree with the dissent that it was error for the Civil Court to permit the defense to read to the jury the deposition transcripts of nonparties Sher and Vayman, especially where each of the more than 100 questions asked yielded a response invoking the Fifth Amendment. The error was compounded by the repeated references to the nonparties’ depositions in the defense summation to the jury, and in the decision of the court to charge an adverse inference. While it is proper for the court to give such an instruction to the jury in a civil action when a party invokes his or her Fifth Amendment privilege (see Marine Midland Bank v Russo Produce Co., 50 NY2d 31 [1980]), generally, the adverse inference is inappropriate when it is based on a nonparty’s decision to remain silent (see Access Capital v DeCicco, 302 AD2d 48, 52 [2002]; State of New York v Markowitz, 273 AD2d 637 [2000]). However, exceptions have been recognized where the nonparty witness is the alter ego of the defendant (see Searle v Cayuga Med. Ctr. at Ithaca, 28 AD3d 834 [2006]) or where other unique circumstances exist involving the conduct of a nonparty (see LiButti v United States, 107 F3d 110 [2d Cir 1997]). In recognizing the Civil Court’s errors, we are cognizant that any trial record will reveal blemishes, for rarely are trials error free (see United States v Birnbaum, 373 F2d 250 [2d Cir 1967]; People v Kingston, 8 NY2d 384 [1960]).{**42 Misc 3d at 45} As such, an appellate court is charged with assessing the prejudicial effect of an error to determine if the verdict should be reversed.

The improper admission of evidence by a trial court will be considered harmless as long as there is no indication that the evidence had a “substantial influence upon the result of the trial” (Walker v State of New York, 111 AD2d 164, 165 [1985]; see CPLR 2002; see also Ewanciw v Atlas, 65 AD3d 1077 [2009]; Rizzuto v Getty Petroleum Corp., 289 AD2d 217 [2001]; Barracato v Camp Bauman Buses, 217 AD2d 677 [1995]; Catalan v Empire Stor. Warehouse, 213 AD2d 366 [1995]). Similarly, harmless error analysis will apply where evidence has been improperly excluded (see Geary v Church of St. Thomas Aquinas, 98 AD3d 646 [2012]; Duke v Town of Riverhead, 77 AD3d 702 [2010]; Parlante v Cavallero, 73 AD3d 1001 [2010]; Division Seven, Inc. v HP Bldrs. Corp., 58 AD3d 796 [2009]). The question then is whether, in applying the foregoing principle to the facts of this case, the Civil Court’s error in admitting into evidence the deposition testimony of Sher and Vayman, coupled with the subsequent errors flowing therefrom—i.e., the references to such testimony in the defense summation and the Civil Court’s instruction to the jury regarding drawing an adverse inference against plaintiff—so prejudiced plaintiff as to warrant a new trial, or whether the outcome of this case would have been the same notwithstanding such errors. In making our determination, we must assess the effect of the errors in relationship to all the evidence offered at trial, in order to decide the extent to which the erroneously admitted evidence, and the errors which directly and indirectly resulted from its admission, may have contributed to the jury’s verdict. Among the factors we may consider is the strength of the properly admitted evidence presented by the defense against plaintiff to prove its defense that Dr. Carothers was not plaintiff’s true owner (see e.g. Sakin v Fryman, 147 AD2d 626, 627 [1989] [improper questioning of defendant’s expert was not so prejudicial as to have denied defendant a fair trial where “(t)he nature of the evidence of the defendant’s liability was extremely convincing”]).

Considering the ample evidence of Sher’s and Vayman’s control over the hiring of office employees, management of the offices, administration of the billing, demonstrated manipulation [*10]of the financial accounts of ACMDPC, and excessive charges for various rentals, including the medical imaging machines, the jury had more than enough evidence to conclude that{**42 Misc 3d at 46} plaintiff was in violation of the requirement of Business Corporation Law § 1507 that it be owned and controlled solely by licensed professionals. Accordingly, any error committed by the Civil Court may be considered harmless.

Turning to plaintiff’s argument that the exclusion of evidence of ACMDPC’s approximately $18 million in accounts receivable for unpaid no-fault claims prevented plaintiff from responding to the defense, we find such contention to lack merit. As the Civil Court noted, plaintiff’s inability to determine the outcome of litigation involving thousands of these pending claims rendered the value of its accounts receivable too speculative and uncertain. Indeed, it would have been too unwieldy to have permitted trials within this trial as to the potential viability of all of the pending claims against the various insurance companies. In any event, the jury was aware that there were pending claims with a value of approximately $18 million, as both Dr. Carothers and Mr. Hickey testified to that effect.

In view of the foregoing, as defendant demonstrated that ACMDPC had failed to comply with New York State’s licensing requirement that professional corporations be owned and controlled solely by licensed professionals, we conclude that there is sufficient evidence in the record to support the jury’s determination regarding the first theory of the defense, based upon the “fraudulent incorporation” or Mallela defense, and it is on this basis that we affirm the judgment.

Accordingly, the judgment is affirmed.

Solomon, J. (dissenting and voting to reverse the judgment and order a new trial in the following memorandum). I must respectfully dissent. I find that the errors in this matter require a new trial.

At the outset, it should be noted that this was a framed-issue trial in which the roles of the plaintiff and defendant were reversed. The joint trial order of September 21, 2006 framed the issue as “solely limited to the issue of whether plaintiff was fraudulently incorporated within the meaning of . . . Mallela.” Thus, this matter was tried solely on the defense that plaintiff professional corporation was not owned or controlled by Dr. Carothers but was de facto owned and controlled by nonparties Sher and Vayman. The roles of the defendant and the plaintiff were reversed throughout the trial, including the initial opening and final summation by defendant.

I agree with the majority that, in limited circumstances, the invocation of a Fifth Amendment privilege by a nonparty witness{**42 Misc 3d at 47} may result in a negative inference being taken against a party (see Searle v Cayuga Med. Ctr. at Ithaca, 28 AD3d 834 [2006]; State of New York v Markowitz, 273 AD2d 637 [2000]; Califano v City of New York, 212 AD2d 146 [1995]).

In this matter, the Civil Court relied on the Second Circuit decision in LiButti v United States (107 F3d 110 [2d Cir 1997]), which delineated factors to be considered in determining whether a negative inference is warranted. The Civil Court found that the evidence submitted in connection with plaintiff’s summary judgment motion was a sufficient foundation to find that the nonparty witnesses, Sher and Vayman, were the alter egos of the corporate plaintiff and that, as a result of these nonparty witnesses’ invocation of their Fifth Amendment rights and refusal to [*11]answer questions, negative inferences could be taken against plaintiff professional corporation.

During the trial, very substantial portions of these depositions were read to the jury. The court permitted defense counsel to read 214 questions put to Sher and his responsive assertion of his Fifth Amendment privilege, and 189 questions put to Vayman and her responsive assertion of the privilege. In both cases, prior to defense counsel’s reading of the deposition “testimony,” the court instructed the jury that the reading can be “considered by you as evidence in this case just as if [the witness] was seated in front of you.” On summation, defense counsel again read 15 of these questions and non-answers to the jury. The court failed to charge, as a preliminary “threshold” issue, that the jury must find the appropriate fact or facts before drawing an inference against a party by the invocation of Fifth Amendment privilege by a nonparty (see NY PJI 1:76, Comment). The negative-inference instruction was charged to the jury as a permissive inference, with the caveat that the jury could not make its findings based solely on the inference.

I agree with the majority that permitting the use of these “transcripts” in this manner was error. It is axiomatic that questions without answers are not evidence. The standard opening charge, as set forth in the Pattern Jury Instructions, includes: “You may not draw any inference or conclusion from an unanswered question” (PJI 1:7). The standard closing charge includes: “Furthermore, you may not draw any inference from an unanswered question” (PJI 1:21). Indeed, I note that the preliminary instructions of the New York Criminal Jury Instructions (see CJI2d[NY] Preliminary Instructions—Presentation of Evidence) use even clearer and firmer language with respect to{**42 Misc 3d at 48} the presentation of evidence, stating: “A question by itself is not evidence. It is the question with the answer that is the evidence.” Identical or similar language is found in Howard G. Leventhal, Charges to the Jury and Requests to Charge in a Criminal Case in New York §§ 3:2, 4:82.50, 5:10, 5:12, 41:37, and 69:7.

There is no actual probative value to such “testimony.” In fact, it is not testimony at all but the failure to produce testimony that one would reasonably expect to be offered in support of a party’s position, which results in the negative inference. The prejudicial impact on the jury of hearing this invocation over 400 times is extremely substantial and was compounded by the erroneous charges and the repetition of the questions without answers on defendant’s summation.

The role of Vayman and Sher in the corporation was the essential issue in the case. Undoubtedly, the fact that, when questioned, they felt the necessity to avail themselves of their privilege against self-incrimination reflects poorly on the strength of plaintiff’s case. Nevertheless, this cannot be considered evidence-in-chief for the defense but only “may be considered by a jury in assessing the strength of evidence offered by the opposite party on the issue which the witness was in a position to controvert” (Marine Midland Bank v Russo Produce Co., 50 NY2d 31, 42 [1980]; see also Stolowski v 234 E. 178th St. LLC, 12 Misc 3d 1159[A], 2006 NY Slip Op 50965[U] [Sup Ct, Bronx County 2006]; cf. Matter of Commissioner of Social Servs. v Philip De G., 59 NY2d 137, 141 [1983]).

The manner in which the Fifth Amendment operates in this context would not be widely known. To avoid the possibility of an inadvertent waiver, a witness who legitimately fears that his or her testimony may be used against him or her in a prosecution would be well advised to decline to answer any questions. In that case, whether the witness is asked one question or hundreds of questions, the answer will be the same invocation of privilege, and there is no meaningful difference between a single invocation and hundreds of invocations.

At their depositions, Sher and Vayman invoked their Fifth Amendment privilege and essentially declined to answer any questions. Upon hearing the invocation some 400 times, the [*12]average juror could well be led to believe that there were a great many independent decisions to invoke, not a blanket determination to invoke as to all questions. The average juror would find this exercise far more meaningful than it actually is.{**42 Misc 3d at 49}

It is very doubtful that the average juror would grasp that a witness may easily and inadvertently waive the privilege by answering any questions.

” ‘A witness who fails to invoke the Fifth Amendment against questions as to which he could have claimed it is deemed to have waived his privilege respecting all questions on the same subject matter’ ([United States v] O’Henry’s Film Works, Inc., 598 F2d [313, 317 (1979)], citing Rogers v United States, 340 US 367 [1951] . . .)” (Matter of East 51st St. Crane Collapse Litig., 30 Misc 3d 521, 534 [Sup Ct, NY County 2010]).

“[A] witness who foregoes the protection of the constitutional privilege against self-incrimination by giving testimony to his advantage or to the advantage of his friends cannot in the same proceeding assert the privilege and refuse to answer questions that are to his disadvantage or the disadvantage of his friends (People v Cassidy, 213 NY 388, 394)” (People v Bagby, 65 NY2d 410, 414 [1985]).

The role of the nonparty witnesses, Vayman and Sher, in the professional corporation was a crucial and essential issue for the jury on questions number one and number two of the verdict sheet regarding whether plaintiff was “fraudulently incorporated.” The central thesis of the defense was that these individuals were the de facto owners and people in control of the professional corporation. The errors in allowing the deposition “transcripts” to be widely read, the charge that these unanswered questions could be considered as evidence, and their re-reading to the jury on summation corrupted the central issue in the case.

Undoubtedly, there is significant evidence that supports the verdict. There was, however, evidence which, if credited, supports plaintiff’s position that Dr. Carothers solely owned and controlled the professional corporation. There is a reasonable view of the evidence that Dr. Carothers had rather bad business judgment, was a poor manager who put far too much trust in, and delegated too much authority to, his office manager, and was a very mediocre administrator, but nevertheless owned and controlled the professional corporation. Had the jury found for plaintiff, I do not believe the evidence is so overwhelming as to warrant a judgment notwithstanding the verdict.

I disagree with the majority on whether the misuse of the deposition “transcripts” and the erroneous charge is reversible error. {**42 Misc 3d at 50}The majority finds that the error is harmless because “there is no indication that the evidence had a ‘substantial influence upon the result of the trial.’ ” I must respectfully disagree.

The Court of Appeals has held that, in determining whether an error was harmless, “[t]he correct rule is that an error is only deemed harmless when there is no view of the evidence under which appellant could have prevailed (2A Weinstein-Korn-Miller, NY Civ Prac, par 2002.03, p 20-12)” (Marine Midland Bank v Russo Produce Co., 50 NY2d at 43). Where erroneously excluded evidence “could have affected the outcome of the trial[, the] exclusion of the evidence . . . [is not] harmless error. Hence, reversal is warranted” (Garricks v City of New York, 1 NY3d 22, 27 [2003] [citations omitted]).

The Appellate Division, Second Department, considers the impact of the error on the proof in the case.

“The error . . . cannot be considered harmless, as it bore on the ultimate issue to be determined by the jury (see Cheul Soo Kang v Violante, 60 AD3d at 992; Noakes v [*13]Rosa, 54 AD3d 317 [2008]; Hatton v Gassler, 219 AD2d 697 [1995]; Gagliano v Vaccaro, 97 AD2d 430 [1983]; Murray v Donlan, 77 AD2d 337 [1980])” (Sanchez v Steenson, 101 AD3d 982, 983 [2012]; see also Conners v Duck’s Cesspool Serv., 144 AD2d 329 [1988]).

The cumulative effect of the errors is an important consideration (see McGloin v Golbi, 49 AD3d 610 [2008]; Bayne v City of New York, 29 AD3d 924 [2006]).

Under this analysis, I am unable to find that the errors were harmless. The errors bore directly on the ultimate issues in the case and the cumulative effect of the errors was not harmless.

Finally, I concur with the majority concerning setting aside the verdict on the third and fourth questions on the verdict sheet, regarding Dr. Carothers’ actual practice of medicine in connection with the professional corporation. In addition to finding this defense lacking adequate support in the evidence to support the verdict, I also find that plaintiff was not given fair notice that this issue would be submitted for the jury’s consideration.

For the reasons stated herein, I would reverse the judgment and order a new trial.

Rios, J.P., and Aliotta J., concur; Solomon, J. dissents in a separate memorandum.

[*1]

Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, June 17, 2013

APPEARANCES OF COUNSEL

Joseph Sparacio, P.C., Staten Island (Joseph Sparacio of counsel), for appellant. Law Offices of Karen C. Dodson, New York City (Tricia D. Prettypaul of counsel), for respondent.

{**40 Misc 3d at 78} OPINION OF THE COURT

Memorandum.

Ordered that the order, insofar as appealed from, is affirmed, with $25 costs.

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff mailed to defendant insurer, pursuant to CPLR 312-a, a copy of the summons and verified complaint, dated February 13, 2004. The record contains no signed acknowledgment of receipt, as is required by CPLR 312-a. On March 24, 2004, defendant served a verified answer, in which it asserted the affirmative defense of lack of personal jurisdiction as service of process had not been “perfected.”

There was no further activity in the case until February 13, 2009, when plaintiff purchased an index number and, for the first time, filed with the Civil Court the 2004 summons and complaint, along with defendant’s 2004 answer. There is no proof of service upon defendant of the summons and complaint following the 2009 Civil Court filing (see CCA 411). On [*2]November 30, 2009, plaintiff mailed a notice of trial and certificate of readiness to defense counsel, and filed it with the Civil Court on December 1, 2009.

By notice of motion dated April 23, 2010, defendant moved for, among other things, leave to amend its answer to interpose the affirmative defense that the action had not been commenced within the time prescribed by law and that it was therefore barred by the statute of limitations, and, upon such amendment, for summary judgment dismissing the complaint. Plaintiff appeals from so much of an order of the Civil Court entered July 29, 2010 as implicitly granted the branch of defendant’s motion seeking leave to amend the answer and, upon such amendment, dismissed the complaint. The court held that plaintiff’s action had not been properly commenced within the period of the statute of limitations because defendant had not executed an acknowledgment of receipt, and, therefore, service had not been properly effectuated in accordance with the provisions of CPLR 312-a.

On appeal, plaintiff contends that the action was properly commenced “upon service of the summons and complaint.” Although {**40 Misc 3d at 79}plaintiff admits that defendant did not return the acknowledgment of receipt required by CPLR 312-a, plaintiff claims that by serving its answer on March 24, 2004, defendant made an appearance in the action, which is “equivalent to personal service of the summons” (CPLR 320 [b]), and then waived its defense of improper service by failing to move to dismiss the complaint on this ground within 60 days of service of its answer, as required by CPLR 3211 (e). Plaintiff further argues that any “mistake, omission, defect or irregularity . . . in the filing process” may be disregarded (CPLR 2001).

CPLR 312-a, as an alternative to the other methods of personal service authorized by CPLR 307, 308, 310, 311 or 312, permits personal service to be made by first class mail, by mailing a copy of the summons and complaint, together with two copies of a statement of service by mail and acknowledgment of receipt, with a return envelope, postage prepaid, addressed to the plaintiff (CPLR 312-a [a]). The defendant must complete the acknowledgment of receipt and mail or deliver it within 30 days from the date of receipt. Under CPLR 312-a, service is complete on the date the signed acknowledgment of receipt is mailed or delivered to the plaintiff (but cf. CCA former 410 [b]). The signed acknowledgment of receipt constitutes proof of service (CPLR 312-a [b] [1]; 306 [d]).

In 2004, when plaintiff sought to serve defendant pursuant to CPLR 312-a, the “commencement-by-service” system was still in effect in the Civil Court, i.e., an action in the Civil Court was commenced by service of the summons (CCA former 400). Service of the summons was complete upon filing proof of service (CCA former 410 [b]), or, in the case of service pursuant to CPLR 312-a, by filing the acknowledgment of receipt, which constitutes proof of service (CPLR 312-a [b] [1]; 306 [d]). The filing of the acknowledgment of receipt has the effect of establishing the completion of service for purposes of initiating the time in which a defendant must respond (see Deepdale Gen. Hosp. v American Colonial Ins. Co., 144 Misc 2d 917 [App Term, 2d Dept, 9th & 10th Jud Dists 1989]), but here there was no acknowledgment of receipt, thus, none was filed and, technically, no action had been commenced by virtue of plaintiff’s actions (see Nagy v Heuss House Drop In Shelter for the Homeless, 198 AD2d 115 [1993]). Consequently, defendant’s time to answer did not commence to run. As has been noted, plaintiff, until early 2009, attempted no other means of service (CPLR 312-a [e]) nor otherwise took any further measures. [*3]

{**40 Misc 3d at 80}Although no action had been commenced and, thus, defendant’s time to answer had not yet commenced, on March 24, 2004, defendant nevertheless served plaintiff with an answer, in which it asserted, as an affirmative defense, lack of personal jurisdiction. Thus, having preserved its jurisdictional defense, the answer could not be deemed the “equivalent to personal service of the summons upon” defendant (CPLR 320 [b]). The question remains, however, whether, under the circumstances presented, defendant was required, pursuant to CPLR 3211 (e), to move to dismiss the “action” on that ground within 60 days of serving its answer, or risk waiver of that defense. Defendant failed to make such a motion. However, as there was no viable pending action, defendant cannot be deemed to have waived its defense of lack of personal jurisdiction by failing to make a motion to dismiss this “action.” Therefore, since plaintiff had never served the summons and complaint, the action was never commenced in 2004.

In February 2009 (after the commencement-by-filing system had gone into effect in 2005 in the New York City Civil Court), plaintiff purchased an index number and filed the 2004 summons and complaint, as well as defendant’s 2004 answer, in the Civil Court. In December 2009, plaintiff served and filed its notice of trial and certificate of readiness. Since, under the current version of CCA 400 (1), “[a]n action is commenced . . . by filing a summons and complaint,” plaintiff clearly commenced its action in 2009. Plaintiff did not, however, serve upon defendant a copy of the summons and complaint, and, therefore, plaintiff did not acquire personal jurisdiction over defendant under the new system (see CCA 400 [2]). Since there was no service, there could be no filing of proof of service (CCA 410 [b]), which filing would mark the date when service was complete and from which defendant’s time to answer would commence to run. The fact that plaintiff filed defendant’s 2004 answer with the summons and complaint did not mean that it had acquired jurisdiction over defendant, and did not represent proof of service.

Thereafter, defendant successfully moved to amend its 2004 answer to add the affirmative defense that the action was barred by the statute of limitations and, upon such amendment, to dismiss on that ground. Even if we assume that defendant thereby waived its defense based on lack of personal jurisdiction (see e.g. CPLR 3211 [e]), there was merit to defendant’s statute of limitations defense.{**40 Misc 3d at 81}

The time within which an action must be commenced is computed “from the time the cause of action accrued to the time the claim is interposed” (CPLR 203 [a]). A defendant asserting a statute of limitations defense must establish that the plaintiff commenced the action after the expiration of the statute of limitations. A no-fault cause of action accrues when payment of no-fault benefits becomes “overdue” (see Insurance Law § 5106 [a]; see also Matter of Travelers Indem. Co. of Conn. v Glenwood Med., P.C., 48 AD3d 319, 320 [2008]; Mandarino v Travelers Prop. Cas. Ins. Co., 37 AD3d 775 [2007]; Acupuncture Works, P.C. v MVAIC, 27 Misc 3d 131[A], 2010 NY Slip Op 50646[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2010]). For statute of limitations purposes, plaintiff’s claim accrued on January 14, 2003, the date that defendant issued and mailed its denial of claim form. Since the six-year statute of limitations applies to the claim involved herein (CPLR 213 [2]; see Mandarino v Travelers Prop. Cas. Ins. Co., 37 AD3d 775 [2007]), in order for plaintiff’s action to be timely, it had to have been commenced by January 14, 2009. As we view the action as having first been commenced on February 13, 2009, when plaintiff purchased the index number and filed with the Civil Court the [*4]2004 summons and complaint along with defendant’s answer, the action is, necessarily, time-barred.

Accordingly, the order, insofar as appealed from, is affirmed.

Weston, J.P., Pesce and Rios, JJ., concur.

[*1]

Supreme Court, Kings County, March 29, 2013

APPEARANCES OF COUNSEL

McDonnell & Adels, PLLC, Garden City (Evan W. Klestzick of counsel), for plaintiff. Gary Tsirelman, P.C., Brooklyn (Sarah A. Adam of counsel), for Utopia Equipment, Inc., defendant.

{**40 Misc 3d at 173} OPINION OF THE COURT

Wayne P. Saitta, J.

Plaintiff, Lancer Insurance Company, moves this court for an order pursuant to CPLR 3212 for summary judgment against the insured participant defendants and for a default judgment against defendants Juana Torres and Catherine Duran.

Plaintiff’s motion is denied for the reasons set forth below.

Plaintiff brings this motion seeking a default judgment in its declaratory action against Torres and Duran, stating that a motor vehicle accident of June 5, 2010 (the accident), was staged, and that plaintiff has no obligation to provide no-fault coverage or indemnity or defense to any of the participants named in its declaratory action. The motion also seeks dismissal of the counterclaims of defendant Utopia Equipment for no-fault benefits as assignee of the named defendants and seeking attorneys’ fees for the cost of defending this action.

Plaintiff brought this declaratory action and effectuated service against all of the defendants with the exceptions of Torres and Duran. Plaintiff was granted a default judgment as against each defendant except Torres and Duran.

Plaintiff thereafter obtained an order to serve Torres and Duran by publication on November 15, 2011. Plaintiff served defendants by publication but neither defendant has appeared or answered.

The November 15, 2011 order also granted a judgment against the defaulting defendants declaring that the accident of June 5, 2010 was an intentional and uncovered event, and that Lancer had no duty to afford any insurance coverage to those defendants.

The declaratory judgment was not granted as to defendants Torres and Duran. The [*2]order made no determinations as to Utopia’s rights under the policy by the purported assignments of Torres and Duran.

Plaintiff submits the affidavit of a supervisor for Lancer, Jim Dunn, in support of its motion. Dunn states his opinion is based in part on the depositions of several defendants and the police accident report. However, since Dunn does not reference the{**40 Misc 3d at 174} sources of his information, it is unclear where he obtained certain of his facts as they are not found in the depositions or the police report annexed to the plaintiff’s motion.

Dunn alleges that Marleny Reyes contacted D. Wiltshire Stretch Limo Inc. for a ride to an event. The limo, driven by Leslie Lezea, picked up Reyes and two other female passengers at 141st Street and Cyprus Avenue, Bronx, New York. Dunn states the passengers directed Lezea to take them to a liquor store and then to return to 141st and Cyprus to pick up four more passengers. They then directed Lezea to take a particular route to a location in Manhattan for a birthday party. While en route, at approximately Cyprus and 135th Street, the limo was struck by a minivan. Plaintiff alleges a minivan intentionally sideswiped the limo.

Plaintiff argues that because the passengers in the limo were all intoxicated when they entered the limo, they cannot testify about any fact related to the loss. Plaintiff alleges that although the passengers did not know one another, they all sought the same treatment at the same facilities. The police officer who reported to the scene stated that he “concludes accident is suspicious and injuries questionable.”

Plaintiff argues that evidence gathered in that investigation supports the fact that the accident was staged. Among the facts it argues are indicia of fraud are that Laura Ezequiel purchased the minivan a month prior to the loss for $800, she obtained insurance on it but did not know from whom she purchased the vehicle, that she was out of work and had to borrow money to purchase the vehicle, and that she changed her cell phone number after the accident and did not remember it. Plaintiff also argues that similarities between the passengers in the limo and Ezequiel support its position that the accident was staged, including the fact that they are all Honduranian. Plaintiff also points out that Ezequiel was going drinking that day, and that the passengers in the limo were drunk.

Plaintiff argues that it is entitled to a declaratory judgment that the accident of June 5, 2010 was intentionally staged and therefore an uncovered event and it owes no coverage, indemnification or defense to any party to this action.

Plaintiff argues that Utopia’s counterclaims for no-fault benefits assigned to it by Torres and Duran should be dismissed as the accident was staged and thus an uncovered event. Plaintiff argues that Utopia’s claims for attorneys’ fees should be denied for the additional reasons that it is premature and{**40 Misc 3d at 175} that neither it nor its assignors were named insureds on the policy.

Utopia argues that it is an assignee of the two injured defendants who remain in the case, Torres and Duran, and that Utopia is entitled to their no-fault medical benefits as it provided medical equipment to the defendants in reliance on the understanding that Utopia would be compensated for its services under the terms of the policy issued by Lancer.

Utopia argues that the order granting a declaratory judgment against defaulting defendants does not extinguish Utopia’s claims.

[*3]Default Judgment against Torres and Duran

Plaintiff argues that it is entitled to a default judgment against defendants Torres and Duran as they were served by publication but failed to answer or appear in this action.

Plaintiff’s motion for a default judgment against defendants Torres and Duran must be denied as the order which permitted service by publication did not comply with the provisions of CPLR 316 (a). CPLR 316 (a) specifically requires that the order designate the publications most likely to give notice to the person to be served.

Since the November 15, 2011 order did not specify the publications in which the notice was to be published, it was necessary for plaintiff to obtain a further order of the court designating the publications to be used. The service made without first having the court designate the publications to be used was improper and insufficient to obtain jurisdiction over the defendants. Having failed to obtain jurisdiction over Torres and Duran, plaintiff is not entitled to a default judgment against them.

Declaratory Judgment

That part of plaintiff’s motion seeking a declaratory judgment against the defendants that the accident of June 5, 2010 was intentionally staged must also be denied.

Even accepting all the facts asserted by plaintiff as true, at best they provide some circumstantial evidence that a fraud might have occurred.

The allegations that the defendants were drunk and that they were Hondurans are of no probative value. The allegation that certain of the passengers did not know other passengers in the limousine is open to a variety of different interpretations. The allegation that the passengers all treated at the same facility after the accident is merely some circumstantial evidence that{**40 Misc 3d at 176} could, together with other evidence, support an inference that the accident was staged.

Dunn’s affidavit, submitted by Lancer, is not based on personal knowledge but refers to findings from an investigation allegedly conducted by Esurance, the insurer of the minivan that struck the limousine. However, the report of the investigation by Esurance is not admissible and Lancer does not submit any admissible evidence to support Esurance’s findings. There is no affidavit from any person with knowledge as to any investigation or the findings which resulted.

Dunn states in his affidavit that “CLINTON PLACE MEDICAL, PC referred the insured passengers to their attorneys.” He then cites the depositions of Reyes, Bernardez, Saravia, Guity and Mariano. In fact, only Bernardez and Mariano in their depositions stated that they were referred to their attorneys by Clinton. Reyes testified someone who she did not identify gave her a card for an attorney and Saravia and Guity were not asked, nor did they mention, being referred to an attorney.

Dunn also states that the insured passengers were provided transportation to the clinic for treatment, and cites the depositions of Reyes, Bernardez, Saravia, Guity and Mariano. While Bernardez, Guity and Mariano acknowledged this to be true, neither Reyes nor Saravia was asked or commented about transportation.

Dunn further states that none of the same passengers was ever given the results of their MRIs. Both Reyes and Bernardez state they did not receive MRI results. Saravia’s testimony is unclear, and neither Guity nor Mariano were asked if they received MRI results. [*4]

Circumstantial evidence may permit a finding of negligence, but only when the proof is so convincing and the response to that proof results in an inescapable finding of negligence. (Simmons v Neuman, 50 AD3d 666, 667 [2d Dept 2008].)

At best plaintiff makes out a circumstantial case from which a reasonable jury could infer either that this was or that this was not a staged accident. The circumstantial evidence presented in the moving papers is not sufficient to meet the burden for summary judgment.

Assignment of Torres’ and Duran’s Rights

As passengers in the vehicle insured by Lancer, Torres and Duran have a right to first-party benefits from Lancer, which they also had the right to assign. An accident victim may assign{**40 Misc 3d at 177} his or her no-fault claim to a medical provider who has provided a medical service (see 11 NYCRR 65-3.11). Lancer has not contested the validity of the assignment. In this case it is clear that Lancer was aware of the assignment as it joined Utopia as a defendant.

An assignee “stands in the shoes” of an assignor. (Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765 [2d Dept 2007].) Where there is a valid assignment of a claim, the assignor is divested of all control and right to the cause of action. The assignee is the proper party in interest and has the right to commence and prosecute an action in its own name without joining the assignor as a necessary party. (Cardtronics, LP v St. Nicholas Beverage Discount Ctr., Inc., 8 AD3d 419 [2d Dept 2004].)

An assignee is bound by the acts of the assignor which occur prior to the assignment, but not those which occur after the assignment. (Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481 [1979].)

Utopia was assigned the right to payment from the insureds prior to Lancer’s initiation of the declaratory action and therefore the rights assigned to Utopia would be unaffected in the event that Torres and Duran should default, as any default would be subsequent to the assignment of the rights.

Right to Recover Attorneys’ Fees

An insured is entitled to recover legal expenses incurred in defending a declaratory judgment brought as a result of an insurer’s disclaimer. (Fischer v Michigan Millers Mut. Ins. Co., 103 Misc 2d 508 [1st Dept 1980]; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12 [1979]; see also Glens Falls Ins. Co. v United States Fire Ins. Co., 41 AD2d 869, 870 [1973].)

Utopia is entitled to the same rights that Duran and Torres would have been entitled to if they defended against Lancer’s declaratory judgment and prevailed.

As a preliminary matter, the fact that Lancer denied coverage for what it asserts is fraud does not affect Utopia’s right to attorneys’ fees should it successfully defend against the declaratory judgment action. If the defense were successful, it would necessarily mean there was no finding that the accident was staged.

Also, while Utopia is not entitled to attorneys’ fees unless it is successful in the declaratory judgment action, it is not premature for Utopia to seek attorneys’ fees as a counterclaim in the same action. The counterclaims would only be awarded in the event Utopia defeats the declaratory judgment action.{**40 Misc 3d at 178} [*5]

An insured is entitled to recover the expenses of defending a declaratory judgment action brought as a result of an insurer’s breach of its obligation to defend a tort action. (Johnson v General Mut. Ins. Co., 24 NY2d 42 [1969]; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12 [1979].) The courts have generally related the right to recover to the breach of the insurance contract, specifically, a provision to provide a defense. The Court of Appeals in Mighty Midgets v Centennial, noted that when a party is cast in a defensive posture, “an insurer’s responsibility to defend reaches the defense of any actions arising out of the occurrence,” including declaratory judgments to deny coverage. (47 NY2d at 21.)

The cases dealing with the right to attorneys’ fees for successfully defending a declaratory judgment action by an insurer all involve insureds who were defendants in personal injury actions. There appear to be no reported decisions involving attorneys’ fees for successfully defending against a declaratory judgment action to deny first-party benefits under no fault.

The right to attorneys’ fees when an insured has been cast in a defensive posture by the legal steps taken by the insurer to free itself from its obligations under the policy arise from the provision in the policy to provide defense to the insured. “[T]he right to such recovery is derived exclusively from the contractual relationship between the insured and the insurer.” (Fischer v Michigan Millers Mut. Ins. Co., 103 Misc 2d 508, 511 [1st Dept 1980].)

Insurance Law § 5103 (a) (3) provides that any New York resident who does not otherwise have coverage for first-party benefits “is entitled to first party benefits” through the liability policy of the insured. The statute does not provide that such residents are deemed insureds under the policy.

Since the Insurance Law does not deem passengers insureds, the question is whether the policy, by its terms, makes the passengers insureds, and therefore entitled to defense, including attorneys’ fees under the policy. In some policies, the definition of “persons insured” may include persons in addition to the named insured or policyholder, such as those operating the vehicle with the permission of the named insured. (Fischer v Michigan Millers Mut. Ins. Co., 103 Misc 2d 508 [1st Dept 1980].) Whether passengers are deemed “persons insured” depends on the specific terms of the policy.

Even if the passengers are deemed insureds under the policy, they would only be entitled to attorneys’ fees for defending this{**40 Misc 3d at 179} action if the policy required the insurer to provide them with defense, as well as indemnity. If the policy entitled them to indemnification for losses incurred only, they would not be entitled to attorneys’ fees for defending a declaratory judgment action. If passengers are deemed insureds and if they are entitled to defense and indemnification, the scope of the duty to defend and whether it would extend to the defense of a declaratory judgment would be determined by the terms of the policy, specifically the provision to defend.

A provision that the insurer would provide defense for all actions arising from an occurrence would include defense of declaratory judgment actions. However, a more restrictive defense clause which, for example, limited defense to personal injury actions or third-party actions might not.

Since the policy was not provided to the court, it cannot be determined at this time whether Utopia’s defense of this action would be covered under the terms of the policy. Therefore, that part of the motion to dismiss Utopia’s counterclaims for attorneys’ fees for [*6]defending this action must be denied.

Wherefore, plaintiff’s motion for a default judgment against defendants Torres and Duran, for summary judgment on its claim for a declaratory judgment, and for dismissal of Utopia’s counterclaims is denied.

[*1]

Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, March 18, 2013

A-Quality Med. Supply v GEICO Gen. Ins. Co., 30 Misc 3d 485, reversed.

APPEARANCES OF COUNSEL

Law Offices of Teresa M. Spina, Woodbury (Lawrence J. Chanice of counsel), for appellant. Gary Tsirelman, P.C., Brooklyn (Irena Golodkeyer of counsel), for respondent.

{**39 Misc 3d at 25} OPINION OF THE COURT

Memorandum.

Ordered that the judgment is reversed, with $30 costs, and the matter is remitted to the Civil Court for further proceedings consistent herewith.

In this action by a provider to recover assigned first-party no-fault benefits, a nonjury trial was held solely with respect to defendant’s defense of lack of medical necessity. Defendant’s witness identified the peer review reports at issue, all but one of which he had authored. He testified, based upon his review of the documentation upon which all of the peer reviews were based, that the supplies at issue were not medically necessary. The Civil Court declined to consider the peer review reports, on the ground that some of them were not dated, signed or notarized, and held, in its posttrial decision, that the peer review reports could not serve as a valid basis for defendant’s denials. The court awarded judgment to plaintiff without consideration of the testimony of defendant’s witness. Defendant appeals and we reverse.

The Insurance Department Regulations require merely that a “copy” of a peer review report be produced to a provider upon written demand (Insurance Department Regulations [11 NYCRR] § 65-3.8 [b] [4]; A.B. Med. Servs., PLLC v GEICO Cas. Ins. Co., 39 AD3d 778, 779 [2007]; A.B. Med. Servs., PLLC v Liberty Mut. Ins. Co., 39 AD3d 779 [2007]). Moreover, the Insurance{**39 Misc 3d at 26} Department Regulations do not prescribe a format for a peer review report. It is only when a peer review report is being submitted in support of or in opposition to a motion that it must be properly sworn or affirmed (see CPLR 3212 [b]; see e.g. BLR Chiropractic, P.C. v American Tr. Ins. Co., 35 Misc 3d 141[A], 2012 NY Slip Op 50882[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]; Points of Health Acupuncture, P.C. v GEICO Ins. Co., 33 Misc 3d 127[A], 2011 NY Slip Op 51843[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]). Thus, the Civil Court incorrectly held that the peer review reports involved herein were an insufficient basis for defendant’s denial of the claims.

Since defendant’s expert witness testified regarding the factual basis and medical rationale for his opinion that the supplies furnished lacked medical necessity, such testimony should have been considered by the court (Radiology Today, P.C. v Progressive Ins. Co., 32 Misc 3d 144[A], 2011 NY Slip Op 51724[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]; Psychology YM, P.C. v GEICO Gen. Ins. Co., 32 Misc 3d 130[A], 2011 NY Slip Op 51316[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]). In light of the foregoing, and the fact that the court never passed upon the credibility of defendant’s witness, a new trial is required. We note that, at trial, the issue of medical necessity is to be resolved based upon the testimony given by medical experts. A peer review report, unlike a witness, is not subject to cross-examination and is not admissible by defendant to prove lack of medical necessity. Indeed, admission of a peer review report into evidence as part of a defendant’s proof of lack of medical necessity may constitute impermissible bolstering of its expert’s testimony (see generally Cohn v Haddad, 244 AD2d 519 [1997]).

Accordingly, the judgment is reversed and the matter is remitted to the Civil Court for a new trial.

Weston, J.P., Aliotta and Solomon, JJ., concur.

[*1]

Supreme Court, Appellate Term, First Department, March 12, 2013

APPEARANCES OF COUNSEL

Picciano & Scahill, P.C., Westbury (Albert J. Galatan of counsel), for appellant. Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC, Garden City (Steven J. Neuwirth of counsel), for respondent.

{**39 Misc 3d at 16} OPINION OF THE COURT

Per Curiam.

Order, entered April 17, 2012, affirmed, without costs.

A related Supreme Court action brought by the defendant insurer against various medical providers resulted in a declaration that defendant was entitled to deny all no-fault claims arising from injuries allegedly sustained by plaintiff’s assignor (Cuffie) in the underlying July 2, 2008 motor vehicle accident. Since the plaintiff medical supplies provider was not a party to the declaratory judgment action it is not bound by Supreme Court’s determination, as it did not have a full and fair opportunity to contest the issues in that proceeding (see Gilberg v Barbieri, 53 NY2d 285, 291 [1981]). Although plaintiff’s assignor was a named party in the prior action, plaintiff cannot be deemed to be in privity with its assignor, since the declaratory judgment action was commenced after the assignment (see Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481, 486-487 [1979]).

Schoenfeld, J. (concurring). In light of the Court of Appeals’ holding in Gramatan Home Invs. Corp. v Lopez (46 NY2d 481 [1979]), I join my colleagues in voting to affirm the order denying summary judgment to the defendant insurer. Considerations of due process prohibit binding a party to the result of an action in which that party has not been given an opportunity to be heard. I write separately to [*2]acknowledge that the outcome reached today does not serve to promote the purposes of this State’s No-Fault Law to provide a less costly, more efficient automobile accident reparation system and to ease court congestion (see Montgomery v Daniels, 38 NY2d 41, 50-51 [1975]).

As (now retired) Justice Golia properly recognized in closely analogous circumstances, no-fault actions do not fit squarely within the Gramatan rule, given “the unique nature and reality of the assignment of claims for first-party benefits under the Insurance{**39 Misc 3d at 17} Law and the no-fault regulations of this State” (Magic Recovery Med. & Surgical Supply Inc. v State Farm Mut. Auto. Ins. Co., 27 Misc 3d 67, 69 [2010 dissenting op]). That being so, and in view of the prior Supreme Court judgment declaring that plaintiff’s assignor and the assignee providers named as defendants in that action “are not entitled to first-party benefits” stemming from the subject motor vehicle accident due to the assignor’s “material misrepresentations in the procurement of the insurance policy,” it is not unreasonable to say that the denial of summary judgment dismissing this assignee provider’s claim tends to exalt form over substance, delaying the seemingly inevitable dismissal of the claim until after trial. Nonetheless, on balance, I feel compelled to adhere to the rule set forth in Gramatan without a signal to the contrary from a higher appellate authority. Lastly, and parenthetically, it is noted that in the event the plaintiff assignee does not ultimately succeed against defendant on the no-fault claim, plaintiff could seek redress against the assignor under the clear terms of the assignment of benefits form.

Lowe, III, P.J., and Torres, J., concur; Schoenfeld, J., concurs in a separate opinion.

[*1]

Supreme Court, Kings County, March 11, 2013

APPEARANCES OF COUNSEL

Freiberg, Peck & Kang, LLP, Armonk (Jason T. George of counsel), for petitioner. The Geller Law Group, P.C., Brooklyn (Jeffrey Silber of counsel), for respondent.

{**39 Misc 3d at 583} OPINION OF THE COURT

Francois A. Rivera, J.

By order to show cause and petition filed on November 26, 2012, petitioner Infinity Insurance Company sought an order pursuant to CPLR 7503 (b) to temporarily stay an arbitration that was demanded by the respondent, Daily Medical Equipment Distribution Center, Inc., until the court decided Infinity’s request for a permanent stay.

Daily Medical has opposed the petition.

Background

On November 26, 2012, Infinity commenced the instant special proceeding pursuant to CPLR 7503 (b) seeking a permanent stay of an arbitration demanded by Daily Medical by filing an order to show cause and verified petition. Infinity’s petition alleges, among other things, that it issued an automobile insurance policy to Derrick St. Louis which it rescinded pursuant to Pennsylvania law based on a misrepresentation made by St. Louis in the procurement of the subject policy.

Daily Medical, as assignee of St. Louis, filed a request to arbitrate with the American Arbitration Association (AAA) seeking reimbursement of approximately $1,800 for no-fault benefits it provided to St. Louis. AAA set a hearing date of January 15, 2013. Infinity contends that Daily Medical has no right to arbitrate because of the proper rescission of the subject policy ab initio.

Motion Papers

Infinity’s motion papers consist of an order to show cause, a verified petition, two affirmations of its counsel, an affidavit of its claim adjuster and seven exhibits labeled A through G. Exhibit A is a copy of AAA’s notice of arbitration. Exhibit B is described as [*2]the declaration page of the subject policy. Exhibit C is described as the insured’s application for the subject policy. Exhibit D is described as a rescission letter purportedly sent to the insured. Exhibit E is described as correspondence sent to the insured. Exhibit F is described as a check which was purportedly sent to St. Louis to return the premiums he paid on the subject policy. Exhibit G is described as correspondence sent to the Pennsylvania Attorney General’s office.{**39 Misc 3d at 584}

Daily Medical’s opposition papers consist of the affirmation of its counsel and three annexed exhibits labeled A through C. Exhibit A is the respondent’s demand for arbitration. Exhibit B is the answer dated August 10, 2012, which Infinity served upon AAA and upon Daily Medical in response to Daily Medical’s arbitration demand. Exhibit C is described as a document from the website maintained by the New York State Department of Financial Services which lists the petitioner as an entity authorized to do business in the State of New York.

Infinity replied with an affirmation of its counsel.

Law and Application

Infinity claims that under Pennsylvania law, it had the right to rescind St. Louis’ insurance policy based on a misrepresentation he made regarding where the car was garaged when he first applied for insurance. Infinity further claims that its rescission of the subject policy voids the arbitration clause contained therein, such that there is no longer any insurance coverage or any agreement to arbitrate.

Daily Medical contends, among other things, that Infinity’s petition is time-barred and supported by uncertified and inadmissible documents. Daily Medical also contends that Infinity cannot seek a stay because it has already answered and participated in the arbitration proceeding.

By order issued on January 11, 2013, at oral argument of the instant petition, the court denied Infinity’s application for a temporary stay of the subject arbitration and reserved decision on the petition for a permanent stay. For the reasons set forth below Infinity’s application for a permanent stay must be denied.

It is always useful to bear in mind that the announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties (Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co. of Am., 37 NY2d 91, 95 [1975]; see also McSpedon v Profile Elec., 137 AD2d 669, 670 [2d Dept 1988]).

Pursuant to CPLR 7503 (b), a party may apply to stay an arbitration on the grounds that a valid agreement to arbitrate has not been made or has not been complied with, or that the claim would be barred by the relevant statute of limitations had the claim been asserted in a court of the State (see Matter of County of Rockland [Primiano Constr. Co.], 51 NY2d 1 [1980]). Further, a court may stay arbitration when the particular claim{**39 Misc 3d at 585} to be arbitrated is not within the scope of the arbitration agreement (Matter of New York City Tr. Auth. v Amalgamated Tr. Union of Am., AFL-CIO, Local 1056, 284 AD2d [*3]466, 468 [2d Dept 2001]).

In instances when the existence or validity of an arbitration agreement is timely raised by a party seeking a stay of arbitration or opposing an application to compel arbitration, issues relating to the validity of the contract must be determined by the court (Housekeeper v Lourie, 39 AD2d 280 [1st Dept 1972], appeal dismissed 32 NY2d 832 [1973]).

CPLR 7503 (c) mandates that an application to stay arbitration be made within 20 days after service of the demand for arbitration (see Matter of State Farm Mut. Auto. Ins. Co. v Urban, 78 AD3d 1064, 1065 [2d Dept 2010]). “An insurer which fails to seek a stay of arbitration within 20 days after being served with a notice of intention or demand to arbitrate under CPLR 7503 (c) is generally precluded from objecting to the arbitration thereafter” (Matter of Liberty Mut. Ins. Co. v Argueta, 59 AD3d 446, 447 [2d Dept 2009]).

Infinity’s motion papers contain a copy of the notice it received from AAA dated October 26, 2012. However, Infinity did not state whether it received a demand for arbitration other than the October 26, 2012 notice from AAA. Daily Medical, on the other hand, claimed that it served a demand to arbitrate on August 1, 2012. It is unclear whether the documents submitted by Daily Medical included a complete copy of its demand to arbitrate.

A demand to arbitrate that fails to identify the agreement under which arbitration is sought or omits the 20-day warning specified by CPLR 7503 (c) deprives the party seeking arbitration of the preclusive effect of the statute. In other words, the opponent may raise threshold issues after the expiration of 20 days from receipt of the demand (see Allstate N.J. Ins. Co. v Tse, 102 AD3d 473 [1st Dept 2013]).

Therefore, based on the date the instant petition was commenced, Infinity’s instant petition may be untimely. However, the court cannot definitely determine that issue without a complete copy of the demand notice.

CPLR 7503 (b) specifically states in pertinent part that a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration may apply to stay arbitration on the ground that a valid{**39 Misc 3d at 586} agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502.

“Because arbitrability is a threshold question going to the arbitrator’s power to resolve the dispute, a party can seek judicial intervention to determine whether the dispute is arbitrable before consenting to arbitration. Moreover, the CPLR requires that in order to raise the ‘did-they-agree-to-arbitrate’ prong of arbitrability in a motion to vacate, a party must move to stay before participating in arbitration” (Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 79 [2003]).

Daily Medical annexed a copy of the cover letter and enclosures that Infinity sent [*4]to AAA in support of its contention that Infinity had participated in an arbitration proceeding. Infinity claimed in its reply affirmation sending these documents to AAA did not constitute participation in the arbitration.

The cover letter dated August 10, 2012 acknowledged Infinity’s receipt of Daily Medical’s arbitration request. It stated that the claim was for an accident that occurred in New Jersey under Infinity’s Pennsylvania policy. It opined that New York State no-fault benefits did not apply, and because of that its belief that arbitration through AAA also should not apply. It advised that the claim was being investigated and would be paid if appropriate in accordance with Pennsylvania law. It further requested that Daily Medical consider voluntarily withdrawing its arbitration request. It also stated that there were enclosures without specifying what they were. The enclosed documents included a New Jersey police crash investigation report of St. Louis’ car accident. Also included was a copy of the declaration page of the subject policy and three letters denominated as “explanation of benefits.” Each one of the explanation of benefits letters stated that Infinity received Daily Medical’s request for reimbursement on April 16, 2012. In one letter Daily Medical sought $844.13, in the other it sought $502.63 and in the third it requested $464.44. Infinity stated in each of the letters that it would not pay the claim. Also included was another copy of the cover letter showing a postmark by AAA dated August 20, 2012.

Two months after submitting the August 10, 2012 letter to AAA and Daily Medical, Infinity commenced the instant special{**39 Misc 3d at 587} proceeding by order to show cause seeking a temporary stay pending resolution of its application for a permanent stay of the arbitration. CPLR 7503 (b) entitles only a party who has not participated in the arbitration to apply to stay arbitration on the ground that a valid agreement was not made. (Matter of Commerce & Indus. Ins. Co. v Nester, 90 NY2d 255, 263 [1997].) Therefore, when parties to arbitration of a claim, including parties who never executed an agreement to arbitrate, participate in the arbitration, they waive their right to a judicial determination of the arbitrability of the claim. (Matter of United Fedn. of Teachers, Local 2, AFT, AFL-CIO v Board of Educ. of City School Dist. of City of N.Y., 1 NY3d 72, 78-79 [2003].) Once they have taken part in the arbitration proceeding by serving and filing an answer to an arbitration demand and participated in selecting the arbitrator, they no longer are entitled to stay further progress of the arbitration proceeding, even if they are not subject to any arbitration agreement (Nachmani v By Design, LLC, 74 AD3d 478, 479 [1st Dept 2010]).

Contrary to Infinity’s contention, by sending the aforementioned documents to AAA it did participate in the arbitration proceeding. Infinity’s participation in the subject arbitration effectively bars its application for a stay of arbitration pursuant to CPLR 7503 (b). In light of the foregoing, the court need not and does not address Daily Medical’s contention that Infinity’s instant petition was untimely and supported by uncertified and inadmissible documents.

Therefore, Infinity’s motion for a permanent stay of the subject arbitration is denied and [*5]the instant special proceeding is dismissed.

[*1]

Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, February 8, 2013

APPEARANCES OF COUNSEL

Gary Tsirelman, P.C., Brooklyn (Irena Golodkeyer of counsel), for appellant. Abrams, Cohen & Associates, New York City (Barry Cohen of counsel), for respondent.

{**39 Misc 3d at 10} OPINION OF THE COURT

Memorandum.

Ordered that the order is affirmed, with $25 costs.

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff appeals from an order of the Civil Court which denied plaintiff’s motion for summary judgment and granted defendant’s cross motion to compel plaintiff to provide full and complete responses to defendant’s discovery demands and to produce Vladimir Grinberg for an examination before trial (EBT).

Plaintiff was required, but failed, to challenge the propriety of defendant’s discovery demands pursuant to CPLR 3120 within the time prescribed by CPLR 3122. As a result, plaintiff{**39 Misc 3d at 11} is obligated to produce the information sought except as to matters which are palpably improper or privileged (see Fausto v City of New York, 17 AD3d 520 [2005]; Marino v County of Nassau, 16 AD3d 628 [2005]; Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008 NY Slip Op 52468[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2008]). To the extent the discovery demands concern matters relating to defenses which defendant is precluded from raising, they are palpably improper notwithstanding the fact that plaintiff did not specifically object thereto (see Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008 NY Slip Op 52468[U] [2008]; Great Wall Acupuncture v State Farm Mut. Auto. Ins. Co., 20 Misc 3d{**39 Misc 3d at 12} 136[A], 2008 NY Slip Op 51529[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2008]).

Pursuant to CPLR 3124, if a party fails to respond to or comply with any request, notice, interrogatory, demand or order under article 31 of the CPLR, the party seeking disclosure may move to compel compliance (see also CPLR 3126). There is no requirement upon the movant other than to show that no response had been received. Thus, in the case at bar, defendant was not required to demonstrate that its discovery demands were not palpably improper. Rather, in order to successfully oppose defendant’s cross motion to compel, plaintiff would have had to show that defendant’s defense of billing fraud was precluded because it was not asserted in a timely NF-10 denial of claim form, which plaintiff did not do.

Defendant set forth detailed and specific reasons for believing that plaintiff is a professional service corporation which fails to comply with applicable state or local licensing laws and, thus, is ineligible to recover no-fault benefits (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]), a defense which is not precluded. By obtaining discovery of certain documents, such as plaintiff’s financial records, defendant will be able to ascertain whether plaintiff is ineligible for reimbursement of no-fault benefits (see e.g. CPLR 3101 [a]; One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738 [2008]). In addition, defendant is entitled to an EBT of Vladimir Grinberg (see CPLR 3101 [a]; Sharma Med. Servs., P.C. v Progressive Cas. Ins. Co., 24 Misc 3d 139[A], 2009 NY Slip Op 51591[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2009]; Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008 NY Slip Op 52468[U] [2008]; Great Wall Acupuncture v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 136[A], 2008 NY Slip Op 51529[U] [2008]). Consequently, the Civil Court properly denied plaintiff’s motion for summary judgment (see CPLR 3212 [f]) and granted defendant’s cross motion to compel plaintiff to provide full and complete responses to defendant’s discovery demands and to produce Vladimir Grinberg for an EBT.

Accordingly, the order is affirmed.

Pesce, P.J., Rios and Solomon, JJ., concur.

[*1]

Supreme Court, Appellate Term, Second Department, 2d, 11th and 13th Judicial Districts, January 14, 2013

APPEARANCES OF COUNSEL

Freiberg, Peck & Kang, LLP, New York City (Yilo J. Kang of counsel), for appellant. Mandell & Santora, Lynbrook (Eitan Nof of counsel), for respondent.

{**38 Misc 3d at 57} OPINION OF THE COURT

Memorandum.

Ordered that the judgment is reversed, without costs, and the complaint is dismissed.

At a nonjury trial of this action by a provider to recover assigned first-party no-fault benefits, the parties’ attorneys stipulated that plaintiff had established a prima facie case regarding the submission of his claim in the amount of $1,310.94; that, some time after the receipt of plaintiff’s claim, defendant, a Florida insurer, had issued letters rescinding plaintiff’s assignor’s insurance policy ab initio on the ground that material misrepresentations had been made during the application process; and that defendant had refunded the assignor’s premiums. The parties’ attorneys further stipulated to the admission into evidence of plaintiff’s claim form, defendant’s rescission letter, the policy application, and the insurance policy. Finally, the parties agreed that the sole issue for the Civil Court to decide was “whether or not Defendant has to establish the reason for rescinding its policy.” After trial, the Civil Court found for plaintiff, holding that New York law applied and that defendant was required, but failed, to present evidence in support of the underlying basis for its rescission of the policy. A judgment was subsequently entered, from which the appeal is deemed to have been taken (see CPLR 5512 [a]).

Contrary to the conclusion of the Civil Court, New York law does not govern this matter. Rather, applying a “grouping of contacts” analysis (see Matter of Eagle Ins. Co. v Singletary, 279 AD2d 56 [2000]), we find that Florida law applied since Florida had the most significant contacts with the contracting party and the contract (see also W.H.O. Acupuncture, P.C. v Infinity Prop. & Cas. Co., 36 Misc 3d 4 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]).

Florida Statutes Annotated § 627.409 permits the retroactive rescission of an insurance policy if there has been a material misrepresentation in an application for insurance. Where, as{**38 Misc 3d at 58} here, an insurer is not seeking a judicial decree of rescission in the action, but, rather, is seeking to establish that the policy had, in fact, been retroactively rescinded to a time prior to the commencement of the action, the insurer must simply demonstrate that it complied with the Florida statute by giving the requisite notice of the rescission to the insured and that it returned or tendered all premiums paid within a reasonable time after the discovery of the grounds for avoiding the policy (see Leonardo v State Farm Fire & Cas. Co., 675 So 2d 176, 179 [Fla Dist Ct App, 4th Dist 1996]; see also W.H.O. Acupuncture, P.C., 36 Misc 3d 4). Given the posture of this case, the insurer, under Florida law, does not have the burden of proving its good faith basis for the termination of the insurance policy (see generally Castellon v American Skyhawk Ins. Co., 785 So 2d 552 [Fla Dist Ct App, 3d Dist 2001] [cancellation of policy]). As the parties stipulated that the sole issue for trial was whether the insurer had to establish the reason for its rescission of the policy, and it was therefore essentially conceded that defendant had given notice of the rescission to the insured and had returned all premiums, defendant is entitled to judgment dismissing the complaint. We reach no other issue.

Accordingly, the judgment is reversed and the complaint is dismissed.

Rios, J. (dissenting and voting to affirm the judgment in the following memorandum). Plaintiff commenced this action to recover assigned first-party no-fault benefits. Plaintiff’s assignor was insured under an automobile insurance policy issued in the State of Florida, which contained a provision allowing for the retroactive cancellation of the policy if the policyholder made a “false, misleading” statement in the application for insurance. Six months following the accident involving plaintiff’s assignor, defendant disclaimed coverage based on its decision to void the policy ab initio. At trial, the insurance company presented no evidence other than its conclusion that the policy had been cancelled.

As the insurance policy was contracted in Florida, that state’s laws regarding cancellation are applicable (see Matter of Eagle Ins. Co. v Singletary, 279 AD2d 56 [2000]). While Florida law allows for the retroactive cancellation of an automobile policy based on a material misrepresentation (see Fla Stat Ann § 627.409), the courts of Florida require the production of evidence that establishes the material misrepresentation.{**38 Misc 3d at 59}

An insurer seeking to rescind a policy pursuant to Florida Statutes Annotated § 627.409 must prove detrimental reliance on the false statement (see Griffin v American Gen. Life & Acc. Ins. Co., 752 So 2d 621 [Fla Dist Ct App, 2d Dist 1999]; Boca Raton Community Hosp., Inc. v Brucker, 695 So 2d 911 [Fla Dist Ct App, 4th Dist 1997]), and it is for the trier of fact to determine if the breach is material (see United Servs. Auto. Assn. v Clarke, 757 So 2d 554 [Fla Dist Ct App, 4th Dist 2000]). In applying Florida law to the issue of cancellation, the Appellate Division held that sufficient evidence was required to demonstrate that the policy would not have been issued but for the misrepresentation (see Varshavskaya v Metropolitan Life Ins. Co., 68 AD3d 855 [2009]).

Here, no competent evidence was presented to establish the claim of misrepresentation other than the conclusion of the insurer (see Matter of Centennial Ins. Co. v Capehart, 220 AD2d 499 [1995]; Matter of Electric Ins. Co. v Woods, 101 AD2d 840 [1984]; Viuker v Allstate Ins. Co., 70 AD2d 295 [1979]; Sanchez v Maryland Cas. Co., 67 AD2d 681 [1979]; see also Penaranda v Progressive Am. Ins. Co., 747 So 2d 953 [Fla Dist Ct App, 2d Dist 1999]). Therefore, I would affirm the judgment in favor of plaintiff on this ground.

Pesce, P.J., and Aliotta, J., concur; Rios, J., dissents in a separate memorandum.