HKP Physical Therapy, P.C. v Government Empls. Ins. Co. (2019 NY Slip Op 29381)

[*1]

Civil Court of the City of New York, New York County, December 2, 2019

APPEARANCES OF COUNSEL

Rivkin Radler LLP (Angelica M. Barcsansky, Andrea C. Sacks, Garin Scollan and Amy Wiedmann of counsel) for defendant.

Law Offices of Leon Kucherovsky (David Forman of counsel) for plaintiffs in the first and second above-entitled actions.

These actions, addressed together here solely for the purposes of this decision, relate to assigned, unpaid no-fault claims submitted by plaintiffs Taira RX Corp., a pharmacy, and HKP Physical Therapy, P.C. (collectively plaintiffs), a medical clinic, to defendant Government Employees Insurance Company (Geico). In every Taira action, Geico moves pursuant to CPLR 3212 for summary judgment, alleging that plaintiffs filed these actions prematurely because verification requests remain outstanding, and that Geico had no obligation to deny the claims before receiving a complete verification response. In the HKP action, Geico argues that the denials were justified because HKP failed to respond to reasonable verification requests. Plaintiffs oppose each motion, arguing that the requests are inappropriate and/or unjustified, and that plaintiffs have substantially complied. Plaintiffs also ask the court to search the record and grant summary judgment in their favor. For the reasons below: (1) Geico’s motions in the Chen (index No. CV-702201/17), Devito (index No. CV-702185/17), Generoso (index No. CV-700042/18), Nauth (index No. CV-702243/17), Williams (index No. CV-702247/17), Xu (index No. CV-703115/17), and Zahmoul (index No. CV-700208/18) actions are granted and those complaints are dismissed without prejudice as premature; (2) Geico’s motion in the Hyppolite action (index No. CV-702191/16) is granted, and the complaint dismissed with prejudice; (3) Geico’s motion in the Gomez action (index No. CV-701984/17) is granted in part and denied in part; and (4) the Flores (index No. CV-702233/17) and Fores (index No. CV-702213/17) motions are denied and summary judgment is granted in favor of plaintiffs.

Background Facts and Procedural History

I. Taira

A. Facts Common to All Taira Actions

In 2016, prior to any relevant claim submission, the owner of MSB Rx, doing business as Forest Drugs (MSB), Michael Bassanell, sold MSB to Taira, which continued to operate Forest Drugs.^[FN1] According to Geico, its investigation revealed “an alarming increase in the amount of prescription drug products{**67 Misc 3d at 285} prescribed to no-fault patients suffering from minor injuries sustained in fender-bender type automobile accidents” (defendant/Sacks affirmation ¶ 11). Geico alleges that the prescriptions were “medically unnecessary,” prescribed at “no-fault clinics” operating as “medical mills . . . for the sole purpose of submitting inflated, fraudulent billing” (id.).

In furtherance of Geico’s investigation, in addition to document requests including financial and prescription records, Geico sought an examination under oath (EUO) of Bassanell. After Bassanell’s EUO on April 27, 2017, Geico requested additional categories of documentation that it determined to be necessary and reasonable for its investigation (defendant’s reply, exhibit 2):^[FN2]

1. contracts/agreements between MSB Rx Corp./Bassanell and Taira/Mikhail Borukhov relating to the sale, transfer, and ongoing relationship between the two entities;

2. applications, registration forms, and accompanying documents submitted by or on behalf of Taira and/or MSB Rx Corp. to the New York State (NYS) Board of Pharmacy in connection with its request for registration or licensing;

3. documents filed with NYS evidencing the sale, transfer, and/or change in ownership of MSB Rx Corp. from Bassanell to Taira and Mikhail Borukhov;

4. tax forms, payroll tax returns, and employment agreements for all persons who have performed work for or on behalf of Taira as a pharmacist or pharmacy technician;

5. 2016 and 2017 federal, NYS, and NYC quarterly payroll tax returns prepared or filed by Taira and MSB Rx Corp.;

6. purchase invoices, wholesale receipts, or related documentation evidencing the purchase of all pharmaceutical products, including those used in any compounded drugs;

7. information regarding the prescriptions relating to diclofenac gel, diclofenac/lidocaine compound cream, lidocaine patches, and flector patches from June 2016 onward; and

8. the number of prescriptions that Taira dispensed from June 2016 onward pursuant to prescriptions from Mani Ushyarov,{**67 Misc 3d at 286} Solomon Halioua, Oleg Fuzaylov, Terry-Jan Blackett-Bonnett, and Danny Fuzaylov.^[FN3]

B. Specific Taira Actions^[FN4]

1. Gengguan Chen (index No. CV-702201/17)

a. Bills 1-3 ($357.32, $7.07, $13.16 for Mar. 6, 2017 Prescriptions)

On June 22, 2017, Geico received the first bill (Geico exhibit A [Chen action]).^[FN5] Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 1, 2017, then again on August 11, 2017 (id.). Geico has not yet issued a denial.

b. Bills 4-5 ($56.90, $313.28 for June 14, 2017 Prescriptions)

On July 14, 2017, Geico received the subject bills (Geico exhibit B [Chen action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 31, 2017, then again on August 31, 2017 (id.). Geico has not yet issued a denial.

2. John Devito (index No. CV-702185/17)

a. Bills 1-2 ($2,364, $232.19 for June 1, 2017 Prescriptions)

On July 6, 2017, Geico received the subject bills (Geico exhibit A [Devito action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 26, 2017, then again on August 28, 2017 (id.). After a January 3, [*4]2018 exam by Dr. Russ, on January 10, 2018, Geico issued a denial of all future benefits, but this claim remains pending (Taira exhibit G [Devito action]).

3. Angie Flores (index No. CV-702233/17)

a. Bills 1-3 ($399, $2,364, $125.02 for May 15, 2017 Prescriptions)

On June 7 and 8, 2017, Geico received the subject bills (Geico exhibit A [Flores action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, {**67 Misc 3d at 287}Geico sought verification on June 26, 2017, then again on August 10, 2017 (id.).^[FN6] After a January 3, 2018 exam by Dr. Yang, on October 27, 2017, Geico issued a denial of all future benefits, but this claim remains pending (Taira exhibit G [Flores action]).

4. Damarys Fores (index No. CV-702213/17)

a. Bill 1 ($1,432.05 for May 15, 2017 Prescription)

On June 8, 2017, Geico received the subject bill (Geico exhibit A [Fores action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on June 26, 2017, then again on August 10, 2017 (id.).^[FN7] After receiving some of the requested items, Geico sent a subsequent letter on October 31, 2017, outlining which items Geico considered to be outstanding (id.). Geico has not yet issued a denial.

5. Michael Generoso (index No. CV-700042/18)

a. Bill 1 ($1,528.80 for June 26, 2017 Prescription)

On August 7, 2017, Geico received the subject bill (Geico exhibit A [Generoso action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on August 18, 2017, then again on September 19, 2017 (id.). After receiving some of the requested items, Geico sent a subsequent letter on November 1, 2017, outlining which items Geico considered to be outstanding (id.). After a July 17, 2017 exam by Drs. Silverman and Lyons, Geico issued a denial of all future benefits on October 27, 2017, but this claim remains pending (Taira exhibit G [Flores action]).

6. Jose Gomez (index No. CV-701984/17)

a. Bill 1 ($891.50 for May 3, 2017 Prescription)

On June 21, 2017, Geico received the subject bill (Geico exhibit A [Gomez action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 10, 2017, then again on August 11, 2017 (id.). Geico has not yet issued a denial.

b. Bill 2 ($703 for May 3, 2017 Prescription)

On June 21, 2017, Geico received the subject bill (Geico exhibit A [Gomez action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, {**67 Misc 3d at 288}Geico sought verification on July 10, 2017, then again on August 11, 2017 (id.). On July 12, 2017, Geico denied the claim for lack of medical necessity based on a November 8, 2016 exam by Dr. Hershon (Geico exhibit B [Gomez action]).

7. Deonarine Nauth (index No. CV-702243/17)

a. Bill 1 ($313.28 for May 16, 2017 Prescriptions)

On June 22, 2017, Geico received the subject bill (Geico exhibit A [Nauth action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 11, 2017, then again on August 14, 2017 (id.).^[FN8] After receiving some of the requested items, Geico sent a subsequent letter on November 1, 2017, outlining which items Geico considered to be outstanding (id.). After a September 12, 2017 exam by Dr. Krishnan, Geico issued a denial of all future benefits on September 21, 2017, but this claim remains pending (Taira exhibit G [Flores action]).

8. Armmeen Williams (index No. CV-702247/17)

a. Bill 1 ($1,700.11 for May 8, 2017 Prescriptions)

On June 22, 2017, Geico received the subject bill (Geico exhibit A [Williams action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 12, 2017, then again on August 15, 2017 (id.). After receiving some of the requested items, Geico sent a subsequent letter on November 1, 2017, outlining which items Geico considered to be outstanding (id.). After a July 25, 2017 exam by Dr. Littman, Geico issued a denial of all future benefits on July 31, 2017, but this claim remains pending (Taira exhibit G [Williams action]).

b. Bill 2 ($1,700.11 for May 31, 2017 Prescriptions)

On June 22, 2017, Geico received the subject bill (Geico exhibit A [Williams action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on July 26, 2017, then again on August 28, 2017 (id.). After receiving some of the requested items, Geico sent a subsequent letter on November 1, 2017, outlining which [*6]items Geico considered to be outstanding (id.). After a July 25, 2017 exam by Dr. Littman, Geico issued a denial of all future benefits on July 31, 2017, but this claim remains pending (Taira exhibit G [Williams action]).{**67 Misc 3d at 289}

9. Ke Xu (index No. CV-703115/17)

a. Bill 1 ($1,442.61 for July 19, 2017 Prescriptions)

On August 11, 2017, Geico received the subject bill (Geico exhibit A [Xu action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on August 23, 2017 (id.). Geico sent a follow-up verification request letter on September 27, 2017 (id.). After Taira responded with some of the documents and objections to the other categories, Geico sent another follow-up letter on November 3, 2017, outlining which items remained outstanding (id.). Geico has not yet issued a denial.

b. Bill 2 ($1,184.50 for Aug. 3, 2017 Prescriptions)

On September 1, 2017, Geico received the subject bill (Geico exhibit B [Xu action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on September 12, 2017 (id.). Geico sent a follow-up verification request letter on October 16, 2017 (id.). After Taira responded with some of the documents and objections to the other categories, Geico sent another follow-up letter on November 7, 2017, outlining which items remained outstanding (id.). Geico has not yet issued a denial.

10. Hiba Zahmoul (index No. CV-700208/18)

a. Bills 1-2 ($703 and $1,432.05 for July 14, 2017 Prescriptions)

On September 7, 2017, Geico received the subject bill (Geico exhibit A [Zahmoul action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on September 22, 2017, then again on October 24, 2017 (id.). After receiving some of the requested items, Geico sent a subsequent letter on November 1, 2017, outlining which items Geico considered to be outstanding (id.). Geico has not yet issued a denial.

b. Bill 3 ($1,432.05 for July 29, 2017 Prescriptions)

On September 25, 2017, Geico received the subject bill (Geico exhibit A [Zahmoul action]). Due to the concerns raised in its investigation, including those raised by the Bassanell EUO, Geico sought verification on October 3, 2017, then again on November 1 and 6, 2017, one of which explicitly outlined which items Geico considered to be outstanding (id.). Geico has not yet issued a denial.

C. Requests and Responses Common to All Taira Actions

Taira’s responses to the verification requests, as reflected in all of its submissions here, [*7]are identical. Taira’s first response{**67 Misc 3d at 290} dated August 8, 2017, contains a litany of objections including, as relevant here, that no “good faith basis” existed for Geico’s verification requests (Taira exhibit A). On August 28, 2017, Geico objected to Taira’s “voluminous boilerplate objections” and characterized Taira’s response as “minimal” (Geico exhibit C). Geico justified its request by noting that Dr. Ushyarov had been sued multiple times in connection with no-fault fraud, that “New York State has numerous laws and regulations governing the licensing of pharmacies,” and that there were numerous deficiencies in Bassanell’s testimony (id.).

Taira also sent a further “comprehensive reply” on August 17, 2017 (Taira exhibit B). Taira’s August 17 reply again argued that there was no good faith, case-specific basis for the verification request and asserted numerous objections, but provided a limited response (Taira exhibit C). In a response on September 7, 2017, Geico argued that its requests were reasonable by invoking various concerns including the nature and frequency of the pharmaceutical products prescribed and dispensed, arrangements between Taira and physicians and clinic locations, compounding formulations and practices, billing and coding practices, and compliance with licensing laws (Geico/McCarthy aff ¶ 4; Geico exhibit C). Part of the alleged scheme involved a transfer by Michael Bassanell, Pharm.D., of an entity known as MSB Rx, doing business as Forest Drugs, to Taira Rx, owned by Mikhail Borukhov, Bassanell’s former assistant (Geico/McCarthy aff ¶ 6). According to Geico, the investigation ultimately revealed practices, including inaccurate billing, meant to maximize profits rather than meet medical necessity, as well as potential noncompliance with licensing laws (Geico/McCarthy aff ¶¶ 5, 8, 9). The Bassanell EUO raised additional questions, including Bassanell’s continuing role with Taira as a supervising pharmacist and the practice of continuing to pay the salary of all employees—including Taira’s employees—from MSB Rx’s bank account, even after the transfer of MSB Rx to Taira (Geico/McCarthy aff ¶ 10). Similarly, one doctor associated with Taira, Mani Ushyarov, has twice been sued by insurance carriers (Geico/McCarthy aff ¶ 11). According to Geico’s September 7, 2017 letter, “multiple claimants have indicated . . . that they did not actually receive the prescriptions that were purportedly written by Dr. Ushyarov and Dr. Sudberg and then billed to [Geico]” (Geico reply, exhibit 2).

Taira’s subsequent objection on October 17, 2017, summarized its prior compliance, again asserting that Geico had not{**67 Misc 3d at 291} justified its request, and arguing among other things that Geico had not asserted which pharmaceutical laws or regulations had allegedly been violated (Taira exhibit C). Geico replied again on October 17, 2017, this time identifying several specific deficiencies: (1) complete records of the number of Dr. Ushyarov’s prescriptions submitted by Taira to Geico; (2) wholesale invoices which “would have a direct bearing on the fees that [Taira] can charge to . . . Geico”; (3) “documents concerning the number of prescriptions originating from certain high-volume prescribing physicians, and certain federal and state documents” (id.).

Geico’s subsequent replies, dated November 22, 2017, and August 8, 2018, supplemented its responses to Taira’s objections and provided further justification for Geico’s requests, including citation to provisions of New York laws and regulations pertaining to pharmacies and kickbacks (see Geico reply, exhibit 2, citing Education Law §§ 6530 [18], [38]; 6811, 6509-a; 8 NYCRR 29.1 [b] [3]). Taira’s final response is dated July 19, 2018, essentially reiterating its objections (Taira exhibit E).

II. HKP (index No. CV-702191/16)

On February 15, 2016, Geico conducted EUOs of Hitenkumar Patel, P.T. and Chin Yeung Chan, LAc (Geico/Scollan affirmation ¶ 2, exhibit 4). Those depositions, as well as other Geico investigations, raised suspicions that HKP could, among other things, “be engaged in unlawful fee-splitting arrangements and illegal kickback schemes with non-physicians” and billing improperly with “pre-determined treatment protocols” to maximize profits (Geico/Scollan affirmation ¶ 6; Geico/Simmons aff ¶ 4). According to Geico, several factors contributed to this suspicion: (1) one of HKP’s locations in Brooklyn having been implicated in layperson control, unlawful referral relationships, and predetermined treatment protocols; (2) bills regularly exceeding the actual care that patients received; (3) “anonymous calls” advising patients to treat at the Brooklyn location and that they would be represented by the Mandel Law Firm downstairs from HKP’s Lynbrook location; (4) the use of employees or independent contractors essentially conceded in Patel’s EUO (Geico/Simmons aff ¶¶ 6-8, citing exhibit 4). Based on the prior investigation, preliminary investigation here, and EUOs, on March 22, 2016, Geico requested (Geico/Simmons aff ¶ 9, exhibit B):

1. written agreement between Achiever United Inc. (an employment agency) and Patel and/or HKP;{**67 Misc 3d at 292}

2. invoices from and payments to George Davinner’s taxi company to Patel and/or HKP for the past six months;

3. written lease agreement between Patel and/or HKP and Rexco Property, LLC for the location at 225-21 Linden Boulevard, Cambria Heights along with cashed rent checks for the last six months;

4. W-2s of all HKP employees;

5. intake forms for all of the patients subject to the EUO;

6. HKP’s incorporation documents;

7. copies of cashed rent checks (front and back) from Patel and/or HKP to Dr. August at 4009 Church Avenue, Brooklyn for the past six months;

8. invoices from and payments to “Mike” for transportation service to Patel and/or HKP for the past six months; and

9. corporate bank records from Chase Bank to HKP for the past six months.

Geico concedes that it received some of the requested information, but did not receive: (1) copies of cashed checks paid to “Mike” for transportation services from Patel and/or HKP for all six months prior to claim submission, specifically September through December 2015; (2) HKP’s Chase records for six months; or (3) proof of rent payments from subtenants to Patel and/or HKP at the Cambria Heights location (Geico/Scollan affirmation ¶ 11). According to Geico, these records are necessary to determine whether illegal kickback payments were disguised as rent or transportation payments (Geico/Scollan affirmation ¶ 12).

Geico sent second requests for the subject claims on April 25, 2016 (Geico exhibit C; Geico/Lamirande aff [discussing Geico’s mailing procedures]). On July 27, 2016, having failed to receive a response, Geico denied the subject claims for September 19, 2015 treatment totaling $122.53, [*8]September 29 through October 24, 2015 treatment totaling $246.40, and November 5 through November 24, 2015 treatment totaling $369.60 (Geico exhibits D-L). On July 27, 2017, one year after Geico’s denial, HKP responded in writing to Geico, making essentially the same arguments made here: (1) that at the EUO, HKP provided a justification for not responding to the verification requests: they could not produce the subtenant’s checks because they were returned; and (2) the other arguments addressed below; in sum and substance, that the demands were improper (HKP exhibit A, citing Geico exhibit 4 at 86-87).{**67 Misc 3d at 293}

Discussion

I. Threshold Considerations

A. Denial of Future Claims Based on Lack of Medical Necessity (Devito [index No. CV-702185/17], Flores [index No. CV-702233/17], Generoso [index No. CV-700042/18], Nauth [index No. CV-702243/17], Williams [index No. CV-702247/17])

Taira asserts in various actions that Geico’s post-independent medical examination denial of future no-fault benefits obviates Taira’s responsibility to respond to any outstanding verification demands. Indeed, “[a]n insurance carrier may not, after repudiating liability, create grounds for its refusal to pay by demanding compliance with proof of loss provisions of the policy. Rather, the insurance carrier must stand or fall upon the defense upon which it based its refusal to pay” (Matter of State Farm Ins. Co. v Domotor, 266 AD2d 219, 220-221 [2d Dept 1999] [internal quotation marks omitted]). The denials here, however, pertain to “further acupuncture, chiropractic, massage therapy, diagnostic testing, and supplies treatment [sic],” not the pharmaceutical treatment at issue here (see generally Taira exhibit G). Moreover, even if the denial did pertain to pharmaceutical treatment, the denial explicitly limits treatment going forward, not the prior charges at issue here. Accordingly, with the limited exception of the Gomez action discussed below, this branch of Taira’s motion is denied.

B. Estoppel (All Actions)

Plaintiffs also assert that Geico’s arguments should be estopped because more than a dozen arbitrations involving the same or similar parties and issues were decided in Taira’s favor. Geico also cites numerous decisions in its favor. However, because no-fault arbitrations are designed as “expedited, simplified affair[s] meant to work as quickly and efficiently as possible” with “limited or non-existent” discovery, complex fraud claims—like the one asserted here by Geico—”cannot be shoehorned into this system” (21st Century Ins. Co. v Gladstein, 2015 NY Slip Op 30527[U],*6 [Sup Ct, NY County 2015], quoting Allstate Ins. Co. v Mun, 751 F3d 94, 95 [2d Cir 2014] [emphasis omitted]). Accordingly, no-fault arbitration decisions are not afforded preclusive effect and this branch of plaintiffs’ motion is denied.

II. Summary Judgment

“[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to{**67 Misc 3d at 294} judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a [*9]denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986] [citations omitted]; CPLR 3212 [b]).

A. Taira Actions

1. Flores (index No. CV-702233/17) and Fores (index No. CV-702213/17) Actions (Timeliness of Verification Follow-Up)

“Where there is a timely original request for verification, but no response to the request for verification is received within 30 calendar days thereafter, or the response to the original request for verification is incomplete, then the insurer, within 10 calendar days after the expiration of that 30-day period, must follow up with a second request for verification” (see Sound Shore Med. Ctr. v New York Cent. Mut. Fire Ins. Co., 106 AD3d 157, 163 [2d Dept 2013]; 11 NYCRR 65-3.6 [b]).

“At a minimum, if any requested [additional] verifications has not been supplied to the insurer 30 calendar days after the original request, the insurer shall, within 10 calendar days, follow up with the party from whom the verification was requested” (11 NYCRR 65-3.6 [b]).

With the two exceptions noted here and in footnote 5 above, the court finds that both parties have demonstrated through attached affidavits that all mailings, including claims, initial post-EUO verification requests, follow-up letters, subsequent follow-up letters, responses, and denials referenced in the papers and recounted above, were properly and timely sent pursuant to the no-fault regulations. The parties do not dispute receipt of any of the relevant documents.

In the Flores and Fores actions, however, Geico timely sought verification on June 26, 2017, but did not send a follow-up{**67 Misc 3d at 295} until August 10, 2017 (Geico exhibit A [Flores/Fores actions]).^[FN9] Where an insurer does not follow up within the 10-day period, “guided by the principle that the no-fault regulations are in derogation of the common law and must be strictly construed,” an insurer’s time to deny a claim is not tolled (Sea Side Med., P.C. v State Farm Mut. Auto Ins. Co., 12 Misc 3d 1127, 1130-1131 [Civ Ct, Richmond County 2006]). Accordingly, Geico’s motion for summary judgment is denied.

Additionally, in searching the record pursuant to Taira’s request and CPLR 3212 (b), the court also finds that, on these two actions, plaintiff has set forth the fact and amounts of the loss and the fact that payment is overdue, thereby demonstrating entitlement to judgment (Sea Side Med., P.C., 12 Misc 3d at 1131, citing Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742, 742-743 [2d Dept 2004] [“the plaintiff hospitals made a prima facie showing of their entitlement to judgment as a matter of law by submitting evidentiary proof that the prescribed [*10]statutory billing forms had been mailed and received, and that payment of no-fault benefits was overdue”]). Accordingly, the court awards summary judgment to plaintiff in these actions.

2. Gomez Action (index No. CV-701984/17) (Medical Necessity Defense)

In the Gomez action (index No. CV-701984/17), Geico denied the second claim for lack of medical necessity (Geico exhibit B [Gomez action]; see Background Facts and Procedural History [I] [B] [6] [b] at 287-288). Taira correctly argues that a denial of the second Gomez claim would, pursuant to Domotor, absolve Taira of any responsibility to respond to outstanding verification requests (see Discussion [II] [A], supra; Domotor, 266 AD2d at 220-221). The court finds that the affidavit of Michael Tamburo, DO sufficiently rebuts Geico’s prima facie demonstration of a lack of medical necessity (Taira exhibit H [Gomez action]). Accordingly, while the court, for the reasons below, finds the first claim subject to severance and dismissal, summary judgment on the second claim (Taira’s first and second causes of action) is denied based on an issue of fact.

3. All Other Taira Actions (Validity of Verification Requests/Responses)

In all actions involving Taira as plaintiff, Taira argues that corporate verification requests are inappropriate because{**67 Misc 3d at 296} pharmacies, unlike medical providers, are not subject to the same scrutiny, particularly in the context of corporate structure, and in any event that plaintiffs have substantially complied. Geico argues that this action is premature because the demands are justified and remain outstanding. While the court agrees that the considerations applicable to actions involving medical providers and pharmacies are not identical, they are similar enough to justify Geico’s verification requests, and therefore justify dismissal, as premature, of any actions in which Taira has failed to fully respond to timely verification requests.

[1] “The insurer is entitled to receive all items necessary to verify the claim directly from the parties from whom such verification was requested” (11 NYCRR 65-3.5 [c] [emphasis added]). Upon request, an insured individual or their assignee must, among other things, “provide any other pertinent information that may assist the [insurer] in determining the amount due and payable” (11 NYCRR 65-1.1 [d] [sec I] [Proof of Claim. Medical, Work Loss, and Other Necessary Expenses] [d]). “No-Fault benefits are overdue if not paid within 30 calendar days after the insurer receives proof of claim, which shall include verification of all of the relevant information requested pursuant to [11 NYCRR 65-3.5]” (11 NYCRR 65-3.8 [a] [1]).

As Taira argues, however, insurers must not demand verification of facts unless there are good reasons to do so. The lodestar for “good cause” was, until recently, State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]). In Mallela, the Second Circuit certified to the Court of Appeals the question whether

“a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§ 1507, 1508, and N.Y. Education Law § 6507(4)(c) [is] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq., and its implementing regulations, for medical services rendered by licensed medical practitioners” (Mallela, 4 NY3d at 320, citing State Farm Mut Auto. Ins. Co. v Mallela, 372 F3d 500, 510 [2004]).

The Court of Appeals held that such providers were not eligible for reimbursement, but also that “carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law,” provided that “[t]he regulatory scheme, however, does not permit abuse of the truth-seeking opportunity that 11 NYCRR 65-3.16 (a) (12){**67 Misc 3d at 297} authorizes” (Mallela, 4 NY3d at 321-322). Importantly, the Court of Appeals found that “carriers will be unable to show ‘good cause’ unless they can demonstrate behavior tantamount to fraud. Technical violations will not do” (id. at 322).

The Mallela Court addressed the concern that carriers might “turn this investigatory privilege into a vehicle for delay and recalcitrance” (Mallela, 4 NY3d at 321-322). That is, while “carriers may look beyond the face of licensing documents to identify willful and material failure to abide by state and local law, . . . [t]he regulatory scheme . . . does not permit abuse of the truth-seeking opportunity that 11 NYCRR 65-3.16 (a) (12) authorizes” (Mallela, 4 NY3d at 321-322; see also Pomona Med. Diagnostic P.C. v Adirondack Ins. Co., 36 Misc 3d 127[A], 2012 NY Slip Op 51165[U],*1 [App Term, 1st Dept 2012] [to avoid employing “pretrial discovery as a fishing expedition (without) a reliable factual basis for what amounts to, at best, mere suspicions,” a defendant must set forth “case-specific allegations” to justify pretrial disclosure]; Omega Diagnostic Imaging, P.C. v MVAIC, 29 Misc 3d 129[A], 2010 NY Slip Op 51779[U],*1 [App Term, 1st Dept 2010] [action was not premature for outstanding verification request where there was “no good reason” for defendant to demand that plaintiff and its assignor obtain an “affidavit of no insurance” from the out-of-state driver who struck the assignor]; cf. Brownsville Advance Med., P.C. v Country-Wide Ins. Co., 33 Misc 3d 1236[A], 2011 NY Slip Op 52255[U], *2-3 [Nassau Dist Ct 2011] [no-fault law’s purpose “not served when an insurer repeatedly request the same verification from the same provider, especially in the situation where the material demanded has previously been provided or is readily obtainable from easily accessible public records”]; see also American Chiropractic Care, P.C. v GEICO Ins., 57 Misc 3d 529, 535 [Civ Ct, Kings County 2017] [to balance the need to address no-fault fraud with burden on medical professionals of preparing and appearing for EUOs, insurer could and should have responded to provider’s request for explanation “to demonstrate a good faith basis for the EUO”]).

Where the record reveals “detailed and specific reasons for believing that plaintiff may be ineligible to recover no-fault benefits as a fraudulently incorporated professional service corporation,” special circumstances exist which justify disclosure of documents such as “plaintiff’s certificate of incorporation, management agreements, and the names of plaintiff’s{**67 Misc 3d at 298} shareholders” (Midborough Acupuncture, P.C. v State Farm Ins. Co., 21 Misc 3d 10, 12 [App Term, 2d Dept, 2d & 11th Jud Dists 2008], citing Mallela, 4 NY3d 313; see also Dore v Allstate Indem. Co., 264 AD2d 804, 804-805 [2d Dept 1999] [finding, based on “indicia of fraud,” special circumstances to warrant the disclosure of income tax returns, bank account information, and employment records]).

Numerous post-Mallela cases focused on a similar concern—whether an insurer can deny a medical claim (or pursue more information) when there is good cause to believe that a medical practice is fraudulently incorporated—for example, if the provider was not wholly owned or controlled by physicians (see e.g. Pro-Align Chiropractic, P.C. v Travelers Prop. Cas. Ins. Co., [*12]58 Misc 3d 857, 861 [Suffolk Dist Ct 2017]). Indeed, disclosure aimed at investigating that concern has come to be known as Mallela material (see Victory Med. Diagnostics, P.C. v Nationwide Prop. & Cas. Ins. Co., 36 Misc 3d 568, 574 [Nassau Dist Ct 2012]). The contested issues here, however, are whether Mallela disclosure is available for other regulated disciplines, including—as relevant here—pharmacies, and what type of alleged conduct constitutes “good cause” for the purposes of requesting Mallela-type disclosure. The governing statutes and regulations, together with a recent Court of Appeals decision, Andrew Carothers, M.D., P.C. v Progressive Ins. Co. (33 NY3d 389 [2019]), support Geico’s position.^[FN10]

The Carothers Court revisited Mallela‘s holding that “[i]n the licensing context, carriers will be unable to show ‘good cause’ unless they can demonstrate behavior tantamount to fraud” (33 NY3d at 405). In determining that the trial judge did not err in declining to issue a charge requiring a “tantamount to fraud” finding by the jury, the Carothers Court determined that “[a] corporate practice that shows ‘willful and material failure to abide by’ licensing and incorporation statutes may support a finding that the provider is not an eligible recipient of reimbursement under 11 NYCRR 65-3.16 (a) (12) without meeting the traditional elements of common-law fraud” (33 NY3d at 405-406 [“The no-fault insurance regulations make providers ineligible for reimbursement when their violations of the cited statutes are more than merely technical and ‘rise to the level of’ a grave violation such as fraud”]).

{**67 Misc 3d at 299}Although Carothers, like Mallela, addressed “good cause” in the context of medical licensing, nothing in either case, the Insurance Law, or laws and regulations governing pharmaceutical practice suggest that pharmaceutical practice is not subject to regulation. Generally, Insurance Law § 5102 et seq. requires no-fault carriers to reimburse patients (or their assignees) for “basic economic loss” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 320 [2005]). “Basic economic loss” includes, as relevant here,

“[a]ll necessary expenses incurred for . . . medical, hospital (including services rendered in compliance with article forty-one of the public health law, whether or not such services are rendered directly by a hospital), surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; . . . and . . . any other professional health services” (Insurance Law § 5102 [a] [1] [emphasis added]).

Providers are not, however, eligible for reimbursement by a carrier “if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed” (11 NYCRR 65-3.16 [a] [12] [emphasis added]; Mallela, 4 NY3d at 320).

Of course, “New York State or local licensing requirement[s]” are not limited to medicine and include pharmaceutical practice. Although Geico concedes that pharmacies, unlike medical practices, may be owned by a layperson, Geico identifies—and identified in at least one letter to Taira—additional statutory and regulatory bases for its verification requests. These include Education Law § 6530 (18) and (38), which define, respectively, professional [*13]misconduct as “[d]irectly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or in connection with the performance of professional services” and “[e]ntering into an arrangement or agreement with a pharmacy for the compounding and/or dispensing of coded or specially marked prescriptions”; Education Law § 6811 (7), which makes it unlawful for “[a]ny person to enter into an agreement with a physician, dentist, podiatrist or veterinarian for the compounding or dispensing of secret formula (coded) prescriptions”; Education Law § 6509-a, which prohibits regulated professionals, including pharmacists, {**67 Misc 3d at 300}from “directly or indirectly request[ing], receiv[ing] or participat[ing] in the division, transference, assignment, rebate, splitting or refunding of a fee for, or . . . directly request[ing], receiv[ing] or profit[ing] by means of a credit or other valuable consideration as a commission, discount or gratuity in connection with the furnishing of . . . drugs [or] medication” (citing Education Law § 6800 et seq.); and 8 NYCRR 29.1 (b) (3), which prohibits any professional licensee from “directly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or client or in connection with the performance of professional services.”

To investigate potential violations of those provisions—thereby rendering Taira ineligible for benefits—Geico justified the requests in its verification letters. Geico noted in those letters, among other things, that “Bassanell was unable to testify as to the medical necessity of the prescriptions at issue,” that Bassanell stayed on as Taira’s supervising pharmacist despite owning two other pharmacies, that “certain doctors repeatedly prescribed the same exorbitantly priced items,” that Bassanell continued to control Taira’s bank account despite selling the business, and that individuals working for Taira are not Taira employees (defendant’s reply, exhibit 2). These requests (and accompanying demonstrations of good cause) would have been sufficient even under Mallela, which required behavior “tantamount to fraud. Technical violations will not do” (Mallela, 4 NY3d at 322). But the requests were certainly appropriate under Carothers, which clarified that Mallela‘s holding was not limited to “behavior tantamount to fraud,” thereby bolstering this court’s finding of “good cause.” The requests are appropriately tailored to the nature of the pharmacy sale, licensing, payroll, pricing, individual prescriptions, and prescriptions by individual doctors.

[2] Moreover, just as an insurer must have “good cause” to demand verification, so too must a provider have a “reasonable justification” for refusal to provide a response. 11 NYCRR 65-3.8 (b) (3) provides, with exceptions not relevant here, that “an insurer shall not issue a denial of claim form . . . prior to its receipt of verification of all of the relevant information requested pursuant to sections 65-3.5 and 65-3.6 . . . (e.g., medical reports, wage verification, etc.).” A 2013 amendment aimed to correct two shortcomings of the prior regulations: that the regulations{**67 Misc 3d at 301}

“(1) impose[d] no deadline for responding to a verification request nor permit[ted] an insurer to deny a claim if it never receives the requested verification, allowing some claims to remain open indefinitely; [and] (2) d[id] not address how a verification request, notice . . . , or denial of claim should be treated when the document contains an immaterial defect or omission, resulting in unnecessary legal actions and arbitrations” (NY St Dept of Fin Servs, Notices of Adoption, 11 NYCRR 65-3.5, 65-3.8, available at 2013 NY Reg Text 292688 ¶ 3 [eff Apr. 1, 2013]).

One of the amendments granted additional discretion to the insurer, providing that “an [*14]insurer may issue a denial if, more than 120 calendar days after the initial request for verification, the applicant has not submitted all such verification under the applicant’s control or possession or written proof providing reasonable justification for the failure to comply” (11 NYCRR 65-3.8 [b] [3] [emphasis added]). The second required that “[a]n applicant from whom verification is requested shall, within 120 calendar days from the date of the initial request for verification, submit all such verification under the applicant’s control or possession or written proof providing reasonable justification for the failure to comply” (11 NYCRR 65-3.5 [o] [emphasis added]).

The amendments, read together in the context of its stated regulatory aims and in the context of the verification process generally, demonstrate clear overlap and an inverse relationship between “good cause” for verification requests and “reasonable justification” for denial; that is, the more “good cause” there is, the less “reasonable” any justification for denial, and vice versa. Because Geico has made a strong showing of good cause, Taira’s justification for withholding any responsive items within its control must be equally compelling. To the extent, however, that Taira’s arguments merely categorize the verification requests as irrelevant (because pharmacies are not regulated in precisely the same manner as medical practices), unduly burdensome, or moot because they have already been substantially complied with, the arguments cannot prevail. Taira’s opposition papers, in ably delineating which requests it believes are reasonable or unreasonable, undermine its own argument that it was unable to identify what materials it had chosen or refused to provide.

Accordingly, Geico’s requests are reasonably tailored toward investigation of Taira’s eligibility for benefits. Because the{**67 Misc 3d at 302} claims at issue here were never affirmatively denied, and because Geico had no obligation to do so, these actions are premature and summary judgment dismissing the complaints is appropriate.

The court is not persuaded by Taira’s citations to several cases standing for the proposition that “an insurer is not entitled to obtain documentary material relating to a potential Mallela or fraudulent corporation defense” (plaintiffs’ affirmation), as none are binding upon this court. Indeed, in one of the few appellate cases on this issue, the Appellate Term, First Department held that “[d]efendant is entitled to discovery pertaining to its defense of fraudulent incorporation” (Statewide Med. Servs., P.C. v Travelers Ins. Co., 16 Misc 3d 127[A], 2007 NY Slip Op 51253[U],*1 [App Term, 1st Dept 2007], revg 9 Misc 3d 1124[A], 2005 NY Slip Op 51773[U],*8 [Civ Ct, Bronx County 2005] [denying depositions because “defendant’s submission in this case lacks a reliable foundation to infer that the medical providers are engaging in behavior that can be described as ‘tantamount to fraud’ ”]).

Accordingly, the court holds that Geico’s post-EUO verification requests were appropriate, and therefore finds Taira’s response deficient. Because certain items, according to Taira’s own responses, are admittedly outstanding, summary judgment dismissing the complaints as premature is therefore appropriate.

4. HKP Action

HKP argues that “once an application appears for an EUO the carrier is not entitled to [*15]further disclosure and must pay or deny the claim within 30 days of the applicant’s appearance at an EUO” (plaintiffs/Forman affirmation ¶ 21 [HKP action]). The court cannot identify any support for the proposition that all post-EUO demands are improper, including in HKP’s own citation in support of that proposition; to the contrary, the no-fault regulations explicitly provide that “[t]he insurer is entitled to receive all items necessary to verify the claim directly from the parties from whom such verification was requested” (11 NYCRR 65-3.5 [c] [emphasis added]). Notably, HKP did not argue that a physical therapy practice would not be subject to inquiries into corporate or employment structure; rather, it repeated the pharmacy arguments made in the Taira action—despite the fact that HKP is not a pharmacy—which the court addressed above (plaintiffs/Forman affirmation ¶ 23 et seq. [HKP action]).

{**67 Misc 3d at 303}HKP also argues that it has substantially complied with the verification requests and cannot produce the remainder of the records. Specifically, HKP focuses on Patel’s EUO testimony that HKP could not produce records of its subtenant’s payments because it did not possess the rent checks (plaintiffs/Forman affirmation ¶¶ 34-38, citing Geico exhibit 4 at 86-87 [HKP action]). Relying on this testimony, HKP argues that responding to Geico’s follow-up demands was unnecessary because Geico “did not respond to [or acknowledge HKP’s] objection at the EUO” (plaintiffs/Forman affirmation ¶ 39 [HKP action]). But Geico did respond; in addition to the subsequent letters, Geico’s counsel followed up Patel’s statements regarding the rent check by asking if HKP could produce rent invoices (Geico exhibit 4, tr at 87, lines 7-24).

In any event, however, other than disputing that the requests were inappropriate, HKP does not argue that it substantially complied with the other verification requests seeking checks to “Mike” for transportation services from Patel and/or HKP from September through December 2015 or Chase records. Based on the court’s holding that such requests were appropriate, the regulations authorized Geico’s denial of HKP’s claims for HKP’s failure to respond to timely verification requests. Accordingly, summary judgment dismissing the HKP action is appropriate.

Conclusion and Order

For the above reasons, it is hereby ordered that in Chen (index No. CV-702201/17), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Devito (index No. CV-702185/17), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Flores (index No. CV-702233/17), Geico’s motion for summary judgment (seq No. 001) is denied, and upon searching the record, it is ordered and adjudged that in Flores (index No. CV-702233/17), the Clerk of Court shall enter judgment for plaintiff on the first and second causes of action in the [*16]amount of $2,364, plus interest at 2% per month from August 7, 2017, pursuant to 11 NYCRR 65-3.9 (a) and attorneys’ fees pursuant to 11 NYCRR 65-4.6; and it is further ordered and adjudged that in Flores (index No. CV-702233/17), the Clerk of Court shall enter judgment for plaintiff on the third and fourth causes of action in the amount of $125.02, plus interest at 2% per month{**67 Misc 3d at 304} from August 7, 2017, pursuant to 11 NYCRR 65-3.9 (a) and attorneys’ fees pursuant to 11 NYCRR 65-4.6; and it is further ordered and adjudged that in Flores (index No. CV-702233/17), the Clerk of Court shall enter judgment for plaintiff on the fifth and sixth causes of action in the amount of $399, plus interest at 2% per month from August 7, 2017, pursuant to 11 NYCRR 65-3.9 (a) and attorneys’ fees pursuant to 11 NYCRR 65-4.6; and it is further ordered that in Fores (index No. CV-702213/17), Geico’s motion for summary judgment (seq No. 001) is denied; and upon searching the record, it is further ordered and adjudged that in Fores (index No. CV-702213/17), the Clerk of Court shall enter judgment for plaintiff on the first and second causes of action in the amount of $1,432.05, plus interest at 2% per month from August 7, 2017, pursuant to 11 NYCRR 65-3.9 (a) and attorneys’ fees pursuant to 11 NYCRR 65-4.6; and it is further ordered that in Generoso (index No. CV-700042/18), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Gomez (index No. CV-701984/17), Geico’s motion for summary judgment (seq No. 001) is granted in part and denied in part to the extent that Taira’s third and fourth causes of action shall be severed and dismissed without prejudice as premature; and it is further ordered that in Nauth (index No. CV-702243/17), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Williams (index No. CV-702247/17), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Xu (index No. CV-703115/17), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further ordered that in Zahmoul (index No. CV-700208/18), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed without prejudice as premature; and it is further[*17] ordered that in Hyppolite (index No. CV-702191/16), Geico’s motion for summary judgment (seq No. 001) is granted, and the complaint shall be dismissed with prejudice; and it is further ordered that Geico shall serve a copy of this order with notice of entry for each action under separate cover/index number within 20 days of receipt.

Footnotes

Footnote 1:In early 2019, Geico sued MSB, Bassanell, and several others in the federal Eastern District of New York, alleging a “massive, on-going fraudulent scheme . . . spearheaded by a pharmacist, Michael Slava Bassanell, who has used a series of three pharmacies . . . to submit thousands of fraudulent no-fault insurance charges for medically unnecessary, illusory, ‘pain relieving’ prescription drug products” (defendant’s reply, exhibit 1; ED NY, case No. 1:19-cv-00232-NG-PK).

Footnote 2:Defense counsel submitted numerous, unpaginated letters as one exhibit, and also failed to paginate affirmations (defendant’s reply, exhibit 2). In the future, given the size and detail of such submissions, counsel are encouraged to submit and flag each communication as individual exhibits.

Footnote 3:These individuals were also named in the federal complaint (see n 1).

Footnote 4:While each Geico submission is tailored to its respective claim, it appears that Taira’s responses are all identical. Accordingly, they are addressed together below.

Footnote 5:It appears that Taira did not submit the bills within 45 days after services were rendered. However, 11 NYCRR 65-1.1 permits extension when “the eligible injured person submits written proof providing clear and reasonable justification for the failure to comply with such time limitation” and, in any event, Geico does not dispute that the claim was timely.

Footnote 6:As discussed in detail below, though Geico characterizes this follow-up as timely, it is not.

Footnote 7:Geico attaches letters dated June 26 and June 28, 2017, which appear to be identical.

Footnote 8:As discussed in Background Facts and Procedural History (I) (C) below, in this action and others in which Geico sent a follow-up letter in mid-to-late August, Taira’s first consolidated response is dated August 8, 2017, but likely not received and processed until after Geico’s follow-up letter.

Footnote 9:To the extent a second letter, also attached as exhibit A, bears a June 28, 2017 date, the August 10, 2017 letter is nevertheless untimely.

Footnote 10:Carothers was decided before these motions were argued and fully submitted, and was discussed by counsel at oral argument.