Okslen Acupuncture, PC v State Farm Mut. Auto. Ins. Co. (2021 NY Slip Op 50652(U))

CV-35369/10

Counsel for plaintiff: Gary Tsirelman PC

Counsel for defendant: McDonnell Adels & Klestzick PLLC

In this action for the payment of no-fault benefits, defendant seeks an order pursuant to CPLR § 3126, striking the complaint for plaintiff’s failure to provide court-ordered discovery. Defendant contends that despite this Court’s two prior orders, one of which conditionally calls for preclusion, and both requiring responses to defendant’s discovery demands and that plaintiff appear for a deposition, plaintiff has failed to provide the responses requested and has failed to appear for a deposition. Plaintiff opposes the instant motion, asserting that it has fully complied with the prior orders by providing responses to defendant’s discovery demands, that defendant has waived plaintiff’s deposition by refusing to hold and/or attend the same, and that insofar as this Court’s prior order is a self-executing order of preclusion, the instant motion seeks duplicative relief.

For the reasons that follow hereinafter, defendant’s motion is granted, in part.

The instant action is for the payment of medical benefits pursuant to Article 51 of the New York State Insurance Law. It is alleged that secondary to a motor vehicle accident on April 1, 2006, plaintiff provided medical services to PABLO BELLO, who assigned his no-fault benefits under the Insurance Law and defendant’s policy to plaintiff. Plaintiff, upon presenting proof of the foregoing services, requested payment totaling $1,560. Defendant has failed to pay the foregoing amount and thus, plaintiff seeks a judgment in the amount of $1,560.

Within its answer, defendant interposes a legion of affirmative defenses, including number 21, wherein defendant alleges that it is not obligated to pay plaintiff “[b]ecause the services at issue were not conducted and/or supervised by a licensed physician/medical professional.”

Defendant’s motion seeking to strike the complaint based on plaintiff’s failure to provide complete and meaningful responses to defendant’s Demand for Interrogatories and Notice for Discovery and Inspection is granted to the extent of striking the complaint should plaintiff fail to [*2]provide the discovery previously ordered by this Court and reiterated below. As will be discussed hereinafter, plaintiff was required to produce the discovery at issue pursuant to the Court’s two prior orders. Although the last order conditionally ordered sanctions for plaintiff’s noncompliance, such sanction did not accord defendant complete relief and instead incentivized plaintiff’s noncompliance.

In support of the instant motion, defendant submits its Demand for Interrogatories and Notice for Discovery and Inspection dated June 19, 2014 ^[FN1] . To the extent relevant, question six of the Demand for Interrogatories seeks information regarding plaintiff’s owners and shareholders. Question eight seeks salary information for plaintiff’s owners and shareholders. Similarly, many requests in defendant’s Notice for Discovery and Inspection seek information related to the plaintiff’s corporate structure. For example, question two seeks lease information for plaintiff’s office space and questions seven and 12 seek tax information for Oksana Lendel (Lendel), purportedly plaintiff’s owner.

Defendant submits the Court’s (Doherty, J.) prior order dated June 14, 2017, which was issued in response to defendant’s first motion to strike plaintiff’s Notice of Trial, strike the complaint, and/or compel plaintiff to comply with defendant’s discovery demands. Within said order, the Court directed that plaintiff “provide complete and verified responses to defendant’s discovery demands within 60 days.” The Court also ordered that plaintiff was to appear for a deposition within 60 days.

Defendant also submits plaintiff’s first response to defendant’s Demand for Interrogatories and Notice for Discovery Inspection, dated July 12, 2017. A review of the responses evinces that plaintiff objected to disclosure of much of the information sought. For example, plaintiff objected to questions six and eight in the Demand for Interrogatories and questions seven and 12 of defendant’s Notice for Discovery and Inspection, which sought tax and financial records for plaintiff and Lendel.

Defendant submits a letter it sent to plaintiff dated June 29, 2017, wherein defendant scheduled Lendel’s deposition for August 14, 2017. Defendant submits a deposition transcript dated August 14, 2017, wherein defendant’s counsel states that he was present for plaintiff’s deposition but that neither anyone on plaintiff’s behalf, Lendel, nor its counsel appeared.

Defendant submits the Court’s (Semaj, J.) order dated January 7, 2020, wherein in response to defendant’s second motion to strike the complaint and compel discovery, the Court again ordered that plaintiff provide “complete and verified responses to defendant’s discovery demands within 30 days.” The Court also ordered the same with regard to plaintiff’s deposition and indicated that the failure to comply with the foregoing would result in preclusion at trial.

Defendant submits plaintiff’s second response to defendant’s Demand for Interrogatories and Notice for Discovery Inspection, dated January 24, 2020. A review of the responses evinces that they are similar to the responses previously provided in that plaintiff still objected to the disclosure of much of the information sought. For example, plaintiff still objected to question eight in the Demand for Interrogatories, seeking salary information for plaintiff’s owner and its [*3]shareholders and questions seven and 12 of defendant’s Notice for Discovery and Inspection, seeking tax and financial information for plaintiff and Lendel.

Defendant submits an affidavit by Joseph Aterno (Aterno), an Investigator employed by defendant, who states, in pertinent part, as follows. Defendant has been investigating plaintiff with regard to its treatment methods, procedures and billing practices. Defendant suspects that plaintiff is not properly licensed, thereby violating, inter alia, the Business Corporation Law. Defendant also believes that plaintiff has been rendering treatment via independent contractors. Significantly, defendant believes that Lendel, who per documents filed with the Department of Education of the State of New York, is plaintiff’s owner, does not actually own plaintiff, a corporation. Instead, defendant believes that plaintiff is actually owned and controlled by individuals not licensed to practice medicine, which is a violation of New York State Law. Aterno states that plaintiff renders medical treatment in at least eight locations and each location is affiliated with other providers who are under investigation by defendant for illegal incorporation and for ties to management companies, which are owned by unlicensed laypersons.

In addition to plaintiff, Lendel owns JOV Acupuncture PC (JOV). It is defendant’s belief that plaintiff and JOV are reincarnations of prior acupuncture clinics owned by Valentina Anikeyeva (Anikeyeva), which defendant found were controlled and operated by her husband, Andrey Anikeyeva (Andrey). Significantly, on July 28, 2009, at a deposition, Anikeyeva testified that Andrey was responsible for almost every aspect of Anikeyeva’s clinics. On May 4, 2007, at an arbitration, Andrey testified that he was the only person authorized to sell shares of Anikeyeva’s clinic’s shares. Plaintiff was formed in 2004, just as Anikeyeva closed her clinics in 2005. After Lendel incorporated JOV, he then took over Anikeyeva’s practice at the same locations where Anikeyeva’s clinics had previously been. On March 7, 2006, at a deposition, Lendel testified that JOV and plaintiff used the same treatment locations as Anikeyeva’s prior clinics, used the same acupuncturists, employees, billing department, and attorney.

“The purpose of disclosure procedures is to advance the function of a trial, to ascertain truth and to accelerate the disposition of suits” (Rios v Donovan, 21 AD2d 409, 411 [1st Dept. 1964]). Accordingly, our courts possess wide discretion to decide whether information sought is “material and necessary” to the prosecution or defense of an action (Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968]). The terms

material and necessary, are, in our view, to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason. CPLR 3101 (subd. [a]) should be construed, as the leading text on practice puts it, to permit discovery of testimony which is sufficiently related to the issues in litigation to make the effort to obtain it in preparation for trial reasonable

(id. at 406 [internal quotation marks omitted]). In other words, information that is relevant to an issue in a case is discoverable (Wadolowski v Cohen, 99 AD3d 793, 794 [2d Dept 2012] [“It is incumbent on the party seeking disclosure to demonstrate that the method of discovery sought will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims, and unsubstantiated bare allegations of relevancy are insufficient to establish the factual predicate regarding relevancy.”]; Crazytown Furniture, Inc. v Brooklyn Union Gas Co., 150 AD2d 420, 420 [2d Dept 1989]). Whether information is [*4]discoverable does not hinge on whether the information sought is admissible and information is therefore discoverable merely if it “may lead to the disclosure of admissible proof” (Twenty Four Hour Fuel Oil Corp. v Hunter Ambulance, 226 AD2d 175, 175 [1st Dept 1996]). That said, however, “unlimited disclosure is not mandated, and the court may deny, limit, condition, or regulate the use of any disclosure device to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts” (Diaz v City of New York, 117 AD3d 777, 777 [2d Dept 2014]). Thus, the trial court has broad discretion in determining the scope and breadth of discovery, must supervise disclosure and set reasonable terms and conditions therefor (id.). Absent an improvident exercise of discretion, the trial court’s determinations should not be disturbed on appeal (id.).

Pursuant to CPLR § 3126,

[i]f any party, or a person . . . refuses to obey an order for disclosure or wilfully fails to disclose information which the court finds ought to have been disclosed pursuant to this article, the court may make such orders with regard to the failure or refusal as are just, among them . . . an order prohibiting the disobedient party from supporting or opposing designated claims or defenses, from producing in evidence designated things or items of testimony, or from introducing any evidence of the physical, mental or blood condition sought to be determined, or from using certain witnesses; or . . . an order striking out pleadings or parts thereof.

It is well settled that “[t]he nature and degree of a penalty to be imposed under CPLR 3126 for discovery violations is addressed to the court’s discretion” (Zakhidov v Boulevard Tenants Corp., 96 AD3d 737, 738 [2d Dept 2012]). Striking a party’s pleading for failure to provide discovery, however, is an extreme sanction, and warranted only when the failure to disclose is willful and contumacious (Bako v V.T. Trucking Co., 143 AD2d 561, 561 [1st Dept 1999]). Similarly, since the discovery sanction imposed must be commensurate with the disobedience it is designed to punish, the less drastic sanction of preclusion is also only appropriate when there is a clear showing that a party has willfully and contumaciously failed to comply with court-ordered discovery (Zakhido at 739; Assael v Metropolitan Transit Authority, 4 AD3d 443, 444 [2d Dept 2004]; Pryzant v City of New York, 300 AD2d 383, 383 [2d Dept 2002]). Willful and contumacious behavior can be readily inferred upon a party’s repeated non-compliance with court orders mandating discovery (Pryzant at 383). When a party adopts a pattern of willful non-compliance with discovery demands (Gutierrez v Bernard, 267 AD2d 65, 66 [1st Dept 1999]) and repeatedly violates discovery orders, thereby delaying the discovery process, the striking of pleadings is warranted (Moog v City of New York, 30 AD3d 490, 491 [2d Dept 2006]; Helms v Gangemi, 265 AD2d 203, 204 [1st Dept 1999]). Stated differently, discovery sanctions should ensue when there is a willful failure to “disclose information that the court has found should have been disclosed” (Byam v City of New York, 68 AD3d 798, 801 [2d Dept 2009]).

Where the failure to disclose is neither willful nor contumacious, and instead constitutes a single instance of non-compliance for which a reasonable excuse is proffered, the extreme sanction of striking of a party’s pleading is unwarranted (Palmenta v Columbia University, 266 AD2d 90, 91 [1st Dept 1999]). Nor is the striking of a party’s pleading warranted merely by virtue of “imperfect compliance with discovery demands” (Commerce & Industry Insurance [*5]Company v Lib-Com, Ltd, 266 AD2d 142, 144 [1st Dept 1999]).

Under 11 NYCRR 65-3.16(a)(12), a provider need only be licensed for reimbursement. However, it is also settled that in New York, while “a fraudulently incorporated medical company is a provider of health care services within the meaning of the regulation[s]” (State Farm Mut. Auto. Ins. Co. v Robert Mallela, 4 NY3d 313, 321 [2005]), such provider is not entitled to reimbursement under the no-fault laws (id. at 320 [“We accepted the certification and now answer that such corporations are not entitled to reimbursement.”]). Indeed, merely being licensed is not dispositive because “[t]he 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 320). Whether a corporation is fraudulently incorporated for purposes of reimbursement turns on whether the corporation runs afoul of BCL § 1508(a), which states that

[n]o individual may be a director or officer of a professional service corporation unless he is authorized by law to practice in this state a profession which such corporation is authorized to practice and is either a shareholder of such corporation or engaged in the practice of his profession in such corporation.

Accordingly, in cases where there is an issue as to whether a medical provider is entitled to reimbursement under the no-fault law for medical services provided to an injured party on grounds that said provider was fraudulently incorporated, in violation of state and local law, disclosure of said provider’s financial records is warranted as they are material and necessary (One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738, 740 [2d Dept 2008] [“The Supreme Court properly granted that branch of the plaintiffs’ cross motion which was for disclosure of certain financial documents. Contrary to the appellants’ contention, the plaintiffs were not required to make a showing of “good cause” for such disclosure, as the documents were material and necessary in the prosecution of this action”] [internal citation and quotation marks omitted].). Indeed, in cases where fraudulent incorporation is at issue, broad discovery on that issue, meaning information to determine whether plaintiff was fraudulently incorporated, is warranted (Midborough Acupuncture P.C. v State Farm Ins. Co., 13 Misc 3d 58, 60 [App Term 2006] [“Consequently, we find that discovery requests seeking information to determine whether the owners of a medical service corporation are improperly licensed are germane to the question of whether said corporation is eligible for reimbursement.”]; Lexington Acupuncture, P.C. v State Farm Ins. Co., 12 Misc 3d 90, 93 [App Term 2006]; Val. Physical Medicine and Rehabilitation P.C. v New York Cent. Mut. Ins. Co., 193 Misc 2d 675, 676 [App Term 2002]). Such discovery extends to information related to a provider’s licensing status and corporate structure (Val. Physical Medicine and Rehabilitation P.C. at 676).

Based on the foregoing, defendant’s motion must be granted to the extent of striking the complaint should plaintiff fail to provide the information requested within defendant’s Demand for Interrogatories and Notice for Discovery Inspection, dated June 19, 2014. The same is true should plaintiff fail to appear for a deposition. Here, it is clear that given the Court’s two prior orders requiring plaintiff to produce the information within the aforementioned discovery demands, plaintiff’s failure to respond, by objecting and withholding discovery, constitutes a clear violation of the Court’s orders.

Any contention that plaintiff complied with the Court’s prior orders because it was only [*6]required to respond to the foregoing demands and it reserved its right to object, is without merit. To be sure, while the prior orders facially merely required that plaintiff respond to defendant’s discovery demands, it is clear – given the nature of the motions giving rise to the orders and the submissions therewith – that the Court meant to compel compliance with defendant’s demands such that plaintiff was precluded from interposing objections. This is more true here, where defendant, after receiving plaintiff’s first response to its demands, moved to compel discovery pursuant to CPLR § 3124.

CPLR § 3124 allows a court to compel disclosure “[i]f a person fails to respond to or comply with any request, notice, interrogatory, demand, question, or order.” Thus, when a party responds to discovery demands but provides inadequate responses, the proper remedy is a motion to compel pursuant to CPLR § 3124 as opposed to a motion to strike or preclude pursuant to CPLR § 3126 (Double Fortune Property Investors Corp. v Gordon, 55 AD3d 406, 407 [1st Dept 2008] [“Plaintiff having responded to defendant’s discovery requests, the proper course for defendant, rather than moving to strike the complaint pursuant to CPLR 3126, was first to move to compel further discovery pursuant to CPLR 3124.”]). Thus, by ordering plaintiff to provide further responses to defendant’s demand, it stands to reason that the Court found plaintiff’s objection inappropriate, requiring disclosure of the information to which plaintiff objected.

Notably, although plaintiff previously cross-moved for a protective order pursuant to CPLR § 3103, it did so belatedly and the fact that the prior Court orders are silent on that issue indicates that no such relief was granted. Indeed, when a party fails

to challenge the propriety of a notice for discovery and inspection pursuant to CPLR 3120 within the time prescribed by CPLR 3122 [such failure] forecloses inquiry into the propriety of the information sought, except as to material which is privileged under CPLR 3101 or as to requests which are palpably improper

(Muller v Sorensen, 138 AD2d 683, 684 [2d Dept 1988]). A review of the case law, however, evinces that generally, in order to avoid a waiver of the right to challenge requested discovery, a party must not merely object, but must also timely move for a protective order pursuant to CPLR 3103 (Roman Catholic Church of Good Shepherd v Tempco Sys., 202 AD2d 257, 258 [1st Dept 1994]; Zurich Ins. Co. v State Farm Mut. Auto. Ins. Co., 137 AD2d 401, 401 [1st Dept 1988]; Wood v Sardi’s Rest. Corp., 47 AD2d 870, 871 [1st Dept 1975]).

Pursuant to CPLR §3103, a court, by issuing a protective order, can limit or preclude disclosure. CPLR §3103 reads, in pertinent part,

[t]he court may at anytime on its own initiative, or on motion of any party or any person from whom discovery is sought, make a protective order denying, limiting, conditioning or regulating the use of any disclosure devise. Such order shall be designed to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the court.

Thus, by issuing a protective order, a court can circumscribe the otherwise liberal scope of discovery, and in the exercise of its discretion, regulate the discovery process (Church & Dwight Co., Inc., v UDDO & Associates, Inc., 159 AD2d 275, 276 [1st Dept 1990]).

While CPLR § 3103 states that a motion for a protective order can be made at any time, a review of the case law indicates that with respect to discovery demands made pursuant to CPLR § 3120 or CPLR § 3121, such motion must be made within the 20 days prescribed by CPLR § [*7]3122, namely the time within which to assert any objections to duly served discovery demands (Roman Catholic Church of Good Shepherd at 258 [citing CPLR § 3122 as prescribing the time period within which to make a timely motion for a protective order]; Haller v North Riverdale Partners, 189 AD2d 615, 616 [1st Dept 1993] [same]). As noted above, the failure to timely move for a protective order within the 20 days prescribed by CPLR § 3122 constitutes a waiver and generally bars a party from obtaining a protective order (Coffey v Orbachs, Inc., 22 AD2d 317, 319-320 [1st Dept 1964]. The exception to this general rule only arises when a discovery demand is palpably improper (Haller at 616; 2 Park Avenue Associates v Cross & Brown Company, 60 AD2d 566, 566-567 [1st Dept 1977]; Wood at 870; Zambelis v Nicholas, 92 AD2d 936, 936-937 [2d Dept 1983]). When the discovery for which a protective order is sought is palpably improper, failure to timely move for a protective order will not constitute a waiver (id.).

Here, aside from the absence of any mention of a protective order – specifically, that one was granted – in the Court’s prior order, insofar as plaintiff made its prior cross-motion on or about February 8, 2016 and defendant’s demands are dated June 19, 2014, it is clear that the plaintiff sought such relief almost two years after 20 days within which to make a timely motion pursuant to CPLR § 3103 had expired. As such, plaintiff cannot object to any of the discovery demands sought.

Indeed, in order to foreclose all doubt about plaintiff’s obligation to produce all of the information requested in defendant’s discovery demand and because this Court’s two prior orders were very brief short form orders, bereft of any discussion of the law and how it applies to the facts in the record, the Court will now endeavor to detail why the discovery sought is both material and necessary, thereby requiring plaintiff to produce the same.

As noted above, when a party adopts a pattern of willful non-compliance with discovery demands (Gutierrez at 66) and repeatedly violates discovery orders, thereby delaying the discovery process, the striking of pleadings is warranted (Moog at 491; Helms at 204). Stated differently, discovery sanctions should ensue when there is a willful failure to “disclose information that the court has found should have been disclosed” (Byam at 801). With respect to discovery and what information can be discovered, the test is whether the information sought is material and necessary in that it bears “on the controversy which will assist preparation for trial by sharpening the issues” (Allen at 406). Stated differently, if the information sought is relevant to the issues raised by a party, it ought to be discovered (Wadolowski at 794; Crazytown Furniture, Inc. at 420). In cases where fraudulent incorporation is at issue, broad discovery on that issue, meaning information to determine whether plaintiff was fraudulently incorporated, is warranted (Midborough Acupuncture P.C. at 60; Lexington Acupuncture, P.C. at 93; Val. Physical Medicine and Rehabilitation P.C. at 676). Such discovery extends to information related to a provider’s licensing status and corporate structure (Val. Physical Medicine and Rehabilitation P.C. at 676).

Here, given defendant’s affirmative defense, sounding in fraudulent incorporation and Aterno’s affidavit, which in discussing facts which call into question whether plaintiff was fraudulent incorporated in violation of applicable laws, it is clear that the discovery sought by defendant, which seeks to discover plaintiff’s corporate structure by way of corporate, tax, and financial records, is relevant – material and necessary – and thus, discoverable. To be sure, if plaintiff was fraudulently incorporated, in that it is owned by non-medical laypersons, then [*8]plaintiff would not be entitled to no-fault payments for any treatment rendered. Indeed, it is precisely because of this very finding that the Court previously granted defendant’s two applications seeking to compel the very disclosure which plaintiff has sought to shield.

To the extent that plaintiff avers that it has already been sanctioned for its noncompliance – in that the Court (Semaj, J.) already issued a self-executing order of preclusion – such argument is without merit. To be sure, a defendant bears the burden of establishing all affirmative defenses (Flatau v Fairchild Camera & Instrument Corp., 40 AD2d 990, 990 [2d Dept 1972] [“The burden of such proof was on defendant in connection with its affirmative defense that procurement of Workmen’s Compensation benefits was plaintiff’s exclusive remedy.”]; Averbuck v Becher, 134 NYS 1112, 1113 [App Term 1912] [“The burden was on defendant to prove the affirmative defense.”]). Accordingly, here, where the information necessary to establish defendant’s defense is squarely in plaintiff’s possession, the remedy of preclusion only serves to shield that information from defendant, and incentivizes plaintiff from producing the same. As such, the appropriate remedy is dismissal of the action – meaning the striking of the complaint – should plaintiff fail to provide the discovery requested.

Contrary to plaintiff’s assertion, defendant’s decision to cancel the deposition scheduled for March 23, 2020 did not constitute a waiver of the same. As urged by defendant, in the absence of the document discovery sought by defendant, plaintiff’s deposition would have been relatively fruitless. Thus, defendant is entitled to plaintiff’s deposition once plaintiff complies with the Court’s two prior orders and this one. It is hereby

ORDERED that the plaintiff provide defendant with all of the information requested in defendant’s Demand for Interrogatories and Notice for Discovery and Inspection, dated June 19, 2014, within 60 days hereof. It is further

ORDERED that plaintiff is precluded from interposing objections to any of the foregoing discovery demands and unless it does not posses the information requested, it must provide the same. It is further

ORDERED that should plaintiff fail to comply with the foregoing directives, the complaint is automatically stricken and this case is dismissed, without further leave of court. It is further

ORDERED that plaintiff appear for a deposition at a date and time mutually convenient to all parties within 90 days hereof. It is further

ORDERED that defendant serve a copy of this Decision and Order with Notice of Entry upon plaintiff within thirty (30) days hereof.

This constitutes this Court’s decision and Order.

Dated: July 9, 2021

Bronx, New York
FIDEL E. GOMEZ, JCC

Footnotes

Footnote 1:Defendant’s submissions primarily consist of its prior two motions seeking discovery sanctions and the Court discusses only those documents contained therein, which are pertinent to the instant decision.