Globe Surgical Supply v GEICO Ins. Co. (2006 NY Slip Op 51446(U))

Supreme Court, Nassau County

9808/04

Locks Law Firm, PLLC

Attn: Seth R. Lesser, Esq.

Andrew P. Bell, Esq.

Attorneys for Plaintiff

110 East 55th Street

New York, NY 10022

Thomas W. Alfano, Esq.

Attorney for Plaintiff

400 Garden City Plaza

New York, NY 11530

Balesi & Donovan, P.C.

Attn: John Balesi, Esq.

Attorneys for Plaintiff

1225 Franklin Avenue

Suite 400

Garden City, NY 11501

O’Melveny & Myers, LLP Attn: Ralph P. DeSanto, Esq.

Attorneys for Defendant

Times Square Tower

7 Times Square

New York, NY 10036

Thomas P. Phelan, J.

Motion by plaintiff for an order: (a) granting plaintiff re-argument and/or granting his requested extension of time to serve the instant motion on or before March 3, 2006; and (b) certifying the above-captioned action, pursuant to CPLR 901 and 902, as a class action is denied, except that plaintiff’s time to serve this motion is extended nunc pro tunc to March 3, 2006 and is deemed timely.

In a prior order dated March 24, 2005, this Court dismissed plaintiff’s first, third and fourth causes of action. Plaintiff’s second cause of action for breach of contract remains as the only predicate for the proposed class action. As such, plaintiff, a retail supplier of durable medical equipment (DME), brings this breach of contract action to recover on behalf of the Class for defendant’s alleged refusal to pay the regulatory rate of reimbursement for DME no-fault claims submitted by entities and/or persons in New York State.

More specifically, plaintiff alleges that: “Defendant GEICO arbitrarily, unilaterally, and without any basis in law or pursuant to any contractual terms, reduced the amounts it would reimburse claimants and/or their assignees from New York State ( Claimants’) based upon the results of ad hoc surveys that a Geico claims examiner conducted to come up with their own idea of what should be a reasonable and customary’ charge for certain DMEs. [and that] In conjunction with reducing such reimbursements, Geico stated to each such Claimant that the claimed amounts were reduced to a reasonable reimbursement of 150%’ of the industry average’ or of the average retail price’ for the particular DME for which a claim was submitted.” (Plaintiff’s memorandum of law dated March 3, 2006 [plaintiff’s memo] at pp. 1-2; see complaint ¶¶2, 22-23, 39).

Plaintiff contends that: “This case is a perfect one for class certification. Under New York law, a determination of whether GEICO breached its contracts will not require the trier of fact to look at the circumstances of individual transactions” (plaintiff’s memo at p.2). The Court does not agree that this is a perfect case for class certification or that individual transactions will not have to be examined. On this motion, the burden of proof is on plaintiff to establish “compliance with the statutory requirements for class action certification under CPLR 901 and 902.” (Rallis v City of New York, 3 AD3d 525, 526). Plaintiff has not made the necessary showing.

CPLR 901 contains five enumerated “prerequisites”. CPLR §902 lists five additional “considerations”. These will be addressed seriatim.

The first prerequisite set forth in CPLR 901 (a) is that “the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable.” Plaintiff has failed to establish the first prerequisite. Counsel for plaintiff alleges in plaintiff’s memorandum of law that: while plaintiff contends that “the Class certainly numbers in the multiple dozens of entities encompassing hundreds if not thousands of claims on behalf of hundreds and thousands of individual New Yorkers who were injured, and through New York’s DME suppliers, filed claims for reimbursement” (plaintiff’s memo at p. 14), actual evidence showing numerosity is not provided. Class action certification will not be granted until there is a determination of “at least the approximate size of the class.” (82 NY Jur2d, Parties, § 276; see Spatz v Wide World Travel Service, Inc., 80 AD2d 519, 520; Simon v Cunard Line Ltd., 75 AD2d 283, 289).

The second prerequisite set forth in CPLR 901 (a) is that “there are questions of law or fact common to the class which predominate over any questions affecting only individual members.” Plaintiff has failed to establish the second prerequisite as well. Plaintiff contends that “there are no individual issues whatsoever, except as to the amount of damages recoverable by each Class member” (plaintiff’s memo, p. 15). The Court disagrees. There is only one legal question common to the alleged class — whether GEICO breached its insurance contracts with class members by unilaterally reducing the amounts of reimbursement based [*2]upon what GEICO determined was a “reasonable and customary” charge for certain DMEs. All of the other legal and factual questions are case specific.

Each DME transaction must be examined separately to see whether the class member has a prima facie case. First of all, each class member must submit an executed assignment of benefits form and copies of proofs of the claim which were mailed to GEICO. (See Inwood Hill Med. P.C. v Allstate Ins. Co., 3 Misc 3d 1110A, 2004 NY Slip Op 50565U at p. 12). Furthermore, class members “must document the cost of the supplies or equipment to the provider and must show that this cost was paid for the specific supplies or equipment provided to the assignor.” (Careplus Med. Supply Inc. v Allstate Indem. Co., 5 Misc 3d 1002A, 2004 NY Slip Op 51148U at p. 3). Of course, separate assessments of damages must be made for each class member who is found to be entitled to reimbursement.

Additionally, the timeliness of GEICO’s denial of all or part of a class member’s claim must be considered in order to determine whether defenses other than lack of coverage can be raised. The Court of Appeals has held that “an insurer, despite its failure to reject a claim within the 30-day period prescribed by Insurance Law § 5106 (a) and 11 NYCRR 65.15 (g) (3), may assert a lack of coverage defense premised on the fact or founded belief that the alleged injury does not arise out of an insured incident.” (Cent. Gen. Hosp. v Chubb Group of Ins. Cos., 90 NY2d 195, 199). This would include cases of fraud, which, “if proven, would establish that there was no coverage at all for the claim.” (Carepluss Med. Supply Inc. v State Farm Mut. Auto. Ins. Co., 5 Misc 3d 1014A, 2004 NY Slip Op 51373U at p. 3). It would not, however, include cases of fraud involving excessive DME costs. (See Valley Psychological, P.C. v Liberty Mut. Ins. Co., 2006 NY App Div LEXIS 7500, 2006 NY Slip Op 4480 at p. 2).

The third prerequisite set forth in CPLR 901 (a) is that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” The third prerequisite has been established. As alleged, “plaintiff and all other members of the Class have virtually identical claims: they all had claims for reimbursement of DMEs reduced by GEICO based upon an average price’ that GEICO unilaterally and illegally implemented” (plaintiff’s memo, p. 17). All that is required is that plaintiff’s claim arise out of the same practice or course of conduct and be based upon the same legal theory as the claims of the other class members. (See Freeman v Great Lakes Energy Partners, 12 AD3d 1170, 1171; Ackerman v Price Waterhouse, 252 AD2d 179, 201; Friar v Vanguard Holding Corp., 78 AD2d 83, 99). Such is the case here.

The fourth prerequisite set forth in CPLR 901 (a) is that “the representative parties will fairly and adequately protect the interests of the class.” Plaintiff has failed to establish the fourth prerequisite. The deposition testimony of Jean M. Francois, owner and President of P.Z.F. Management Co., Inc., d/b/a Globe Surgical Supply, (“Globe” or “PZF”) and the exhibits supplied by GEICO indicate that plaintiff, as the assignee of Remy Gallant, may not be able to [*3]prove Mr. Gallant’s no-fault claim against GEICO. In such case, the class action would fail as well. (82 NY Jur2d, Parties, § 267; see Banks v County of Suffolk, 133 AD2d 438; Estruch v Volkswagenwerk, 97 AD2d 978; Funderburke v Uniondale Union Free Sch. Dist. No. 15, 172 Misc 2d 963, 967, aff’d 251 AD2d 622).

Plaintiff, in its complaint, alleges that on February 10, 2001, Remy Gallant was injured in an accident with a GEICO policyholder and that, on July 26, 2001, Gallant purchased a Tens Unit (i.e., a device for relieving pain by electrical stimulation of nerves) from Globe pursuant to a doctor’s prescription [complaint, ¶12]. Plaintiff further alleges that: “The item cost Globe $340.00, and Globe obtained an assignment of Mr. Gallant’s claim in order to obtain reimbursement from [GEICO] under the provisions of the No-Fault Insurance Law” [Id.]. It is additionally alleged that: “On April 30, 2001, Globe submitted a claim to [GEICO], as Mr. Gallant’s assignee, setting forth a balance owed to Globe by [GEICO] … in the amount of $510.00 (which, as provided for in Part E [i.e., 11 NYCRR § 68, Appendix 17-C, Part E] is 150%, or, in this case less than 150%, of $340.00). On May 23, 2001, [GEICO] denied the claim and reimbursed Globe for only $200.00 for that item” [Id., ¶22].

Part of GEICO’s Exhibit G and of Exhibit C to Plaintiff’s Memorandum of Law is Remy Gallant’s claim to GEICO, dated April 30, 2001, for $1,048.25, which includes a Tens Unit for $510.00. Also included as part of these same exhibits is Invoice # 5692 from Certified Health Products, dated July 20, 2000, to Globe which includes a Tens Unit for $340.00. Since this July 20, 2000 invoice is dated almost seven (7) months prior to Mr. Gallant’s February 10, 2001 accident and more than one (1) year prior to the date Globe allegedly sold the Tens Unit to Mr. Gallant, it cannot be accepted as proof of what the Tens Unit allegedly sold to Mr. Gallant cost Globe.

Furthermore, at his February 21, 2006 deposition, Mr. Francois admitted to the practice of submitting the same invoices multiple times. (Transcript, pp. 138, 141-142, 146). Mr. Francois explained that he reuses the same invoices because it’s “convenient.” (Transcript, p. 138). With respect to the Tens Units, Mr. Francois testified that he randomly picks an invoice and sends it over and over. (Transcript, p. 146). Mr. Francois also testified that Globe was never asked by any company to provide a specific invoice corresponding to the exact date of purchase. (Transcript, p. 146). When asked whether he has the invoices for the Tens Units purchased from Certified Health Products which have not been produced, Mr. Francois answered: “I don’t know where they are.” (Transcript, p. 147).

Mr. Francois’ deposition testimony additionally indicates that he will be unable to produce a cancelled check showing that Globe actually paid for the Tens Unit allegedly sold to Mr. Gallant. At his February 21, 2006 deposition, Mr. Francois testified that in the ordinary course of business he would have paid invoices from Certified Health Products by check. (Transcript, p. 159). At the deposition, counsel for GEICO advised Mr. Francois that a subpoena had been sent to Washington Mutual Bank for “all checks drawn on the PZF [*4]Management account from 2000 until mid 2004.” (Transcript, p. 159). Counsel then asked Mr. Francois whether he could “explain why there are no checks to Certified Heath Products in the production from Washington Mutual Bank between the dates of 2000 and early 2004?” (Transcript, p. 160). Mr. Francois responded that he didn’t know. (Transcript, p. 160).

According to counsel for GEICO, Globe’s bank has produced only 6 checks written on PZF’s account to Certified Health Products, none of which relate to the DME transaction at issue. In this regard, Mr. Francois testified that there are no other bank accounts with respect to Globe and/or PZF other than the one at Washington Mutual Bank. (Transcript, p.162). Under the circumstances, the Court cannot find that Globe would make an adequate representative party. Mr. Francois’ practice of using the same invoices over and over again when filing no-fault claims to document the cost of DMEs gives the appearance of insurance fraud and is to be condemned. Furthermore, Mr. Francois’ inability to produce the actual invoice for the Tens Unit allegedly sold to Mr. Gallant and a cancelled check to prove payment adds to that appearance.

The fifth and final prerequisite set forth in CPLR 901 (a) is that “a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” Plaintiff has failed to establish the fifth prerequisite. Pursuant to Insurance Law §5106[b], a no fault claimant has the option of submitting their disputed claim to binding arbitration. Further, a successful claimant is entitled to recover penalty interest at the rate of “two percent per month” plus attorneys’ fees (Insurance Law § 5106 [a]). Plaintiff has not shown how a one-issue class action is superior to the remedies provided to individual claimants by the Insurance Law.

The fifth prerequisite set forth in CPLR 901 (a) additionally ties into the third consideration set forth in CPLR 902, which requires the Court to take into account: “the extent and nature of any litigation concerning the controversy already commenced by or against members of the class.” While plaintiff has failed to present any evidence or information as to this consideration, GEICO has submitted copies of arbitration awards and court decisions showing the existence of litigation and arbitration proceedings concerning the issue sought to be determined in the proposed class action. (See GEICO’s Appendix of Unreported, Out-of-State and Other Legal Authorities, etc.). It is likely that an appellate court will decide the legal issue that is the basis for the proposed class action in the near future — a consideration which weighs against plaintiff’s application.

The first consideration set forth in CPLR 902 requires the Court to take into account: “the interest of members of the class in individually controlling the prosecution or defense of separate actions.” This consideration weighs against plaintiff’s application as well. The Appellate Division, First Department, has held that: “Where . . . a choice of remedies is available to each member of an alleged class, class action status should be denied.” (Martinez v American Export Industries, Inc., 48 AD2d 803; see, also, 82 NY Jur2d, Parties, § 280). The First Department has also held that “the fact that wrongs were committed pursuant to a [*5]common plan or pattern does not permit invocation of the class action mechanism where the wrongs done were individual in nature or subject to individual defenses.” (Mitchell v Barrios-Paoli, 253 AD2d 281, 291; see, also, 82 NY Jur2d, Parties, § 280). As noted above, the Insurance Law provides each claimant with a choice of remedies and the timeliness or untimeliness of GEICO’s denial of coverage will determine what defenses GEICO can raise.

The second consideration set forth in CPLR 902 requires the Court to take into account: “the impracticality or inefficiency of prosecuting or defending separate actions.” Plaintiff has failed to present evidence concerning this consideration. There is no proof that the relatively small amounts of each claim are discouraging any prospective class members from pursuing their claims individually. To the contrary, the arbitration awards and court decisions collected in GEICO’s Appendix of Unreported, Out-of-State and Other Legal Authorities, etc., show that separate actions and arbitrations are being pursued. Thus, this consideration too weighs against plaintiff’s application.

The fourth consideration set forth in CPLR 902 requires the Court to take into account: “the desirability or undesirability of concentrating the litigation of the claim in the particular forum.” Plaintiff has failed to show that this Court is a desirable forum for the proposed class action. With the relatively small amount of each claim, it seems unlikely that claimants from all over New York State would choose Supreme Court, Nassau County, as the forum to litigate their claims. This consideration also weighs against plaintiff’s application.

The fifth and last consideration set forth in CPLR 902 requires the Court to take into account: “the difficulties likely to be encountered in the management of a class action.” This consideration similarly weighs against plaintiff’s application. Once the one common legal issue is decided, each claim would have to be adjudicated separately, with evidence and witnesses coming from all over New York State. Coordinating the mini-trials of numerous small claims would present a logistical and scheduling nightmare.

Inasmuch as plaintiff has failed to establish four out of the five prerequisites for class action certification set forth in CPLR 901 and all five considerations set forth in CPLR 902 weigh against granting class action certification, plaintiff’s application for class action certification is denied.

This decision constitutes the order of the court.

Dated: JULY 19, 2006 THOMAS P. PHELAN

J.S.C.

Locks Law Firm, PLLC

Attn: Seth R. Lesser, Esq.

Andrew P. Bell, Esq.

Attorneys for Plaintiff

110 East 55th Street

New York, NY 10022

Thomas W. Alfano, Esq.

Attorney for Plaintiff

400 Garden City Plaza

New York, NY 11530

Balesi & Donovan, P.C.

Attn: John Balesi, Esq.

Attorneys for Plaintiff

1225 Franklin Avenue

Suite 400

Garden City, NY 11501

O’Melveny & Myers, LLP

Attn: Ralph P. DeSanto, Esq.

Attorneys for Defendant

Times Square Tower

7 Times Square

New York, NY 10036