[*1]

Freiberg, Peck & Kang, LLP, Armonk, NY (Yilo J. Kang of counsel), for appellant.

Catherine M. Charles (Lawrence R. Miles, Long Island City, NY, of counsel), for respondent.

In a proceeding pursuant to CPLR 7511 to vacate two arbitration awards, both dated March 11, 2014, the petitioner appeals from an order and judgment (one paper) of the Supreme Court, Kings County (Silber, J.) entered June 17, 2015, which denied the petition, in effect, dismissed the proceeding, and granted the respondent’s cross petition to confirm the awards.

Ordered that the order and judgment is affirmed, with costs.

Pursuant to Insurance Law § 5105, the respondent, as subrogee of Fatimah Salaam and Kim McCorey, commenced two related loss-transfer arbitration proceedings against the petitioner arising out of payments the respondent made in connection with a collision between two vehicles, one of which had been insured by the petitioner and the other by the respondent. The respondent paid first-party benefits to Salaam and McCorey, who had been passengers in a “for hire” vehicle insured by the respondent that was struck in the rear by the other vehicle, which, at the time of the accident, was insured by the petitioner. The petitioner participated in the arbitration and opposed any payments to the respondent, arguing that, after the accident, it had rescinded its policy retroactively, so that it provided no coverage as of the date of the accident. The arbitrator, rejecting that argument, made two awards in favor of the respondent. The petitioner commenced this proceeding pursuant to CPLR 7511 to vacate the awards, and the respondent cross-petitioned to confirm the awards. In the order and judgment appealed from, the Supreme Court denied the petition and granted the cross petition. The petitioner appeals from the order and judgment, contending, inter alia, that the arbitrator was without jurisdiction to decide the issue and that the arbitrator should have applied Pennsylvania rather than New York law because the subject policy was procured in Pennsylvania. We affirm.

The petitioner’s contention that, pursuant to 11 NYCRR 65-4.11 (a) (6), its “good faith” retroactive denial of insurance coverage divested the arbitrator of jurisdiction is without merit (see State Farm Mut. Auto. Ins. Co. v Nationwide Mut. Ins. Co., 150 AD2d 976, 977-978 [1989]). Insurance Law § 5105 (b) provides that arbitration is the only forum in which a loss-transfer claim may be litigated (see Paxton Natl. Ins. Co. v Merchants Mut. Ins. Co., 74 AD2d 715, 716 [1980]). Moreover, “the contention that a claim proposed to be submitted to arbitration is in excess of the arbitrator’s power is waived unless raised by an application for a stay” (Matter of Silverman [Benmor Coats], 61 NY2d [*2]299, 309 [1984]; see Matter of Allstate Ins. Co. v New York Petroleum Assn. Compensation Trust, 104 AD3d 682 [2013]; Matter of Philadelphia Ins. Co. [Utica Natl. Ins. Group], 97 AD3d 1153 [2012]; Matter of Utica Mut. Ins. Co. v Incorporated Vil. of Floral Park, 262 AD2d 565 [1999]). By failing to apply for a stay of arbitration before arbitration, the petitioner waived its contention that the claim is not arbitrable under Insurance Law § 5105 (see Rochester City School Dist. v Rochester Teachers Assn., 41 NY2d 578, 583 [1977]; Matter of County of Onondaga [Civil Serv. Empls. Assn.], 248 AD2d 1026 [1998]; Matter of Liberty Mut. Ins. Co. [Allstate Ins. Co.], 234 AD2d 901 [1996]; Matter of Arner v Liberty Mut. Ins. Co., 233 AD2d 321 [1996]).

The petitioner also failed to establish any basis under CPLR 7511 (b) (1) to vacate the arbitration awards (see Matter of Domotor v State Farm Mut. Ins. Co., 9 AD3d 367 [2004]). Moreover, any possible error by the arbitrator in applying New York law (see Vehicle and Traffic Law § 313 [1] [a]) rather than Pennsylvania law does not provide a basis for vacatur (see Matter of Yarmak v Penson Fin. Servs. Inc., 146 AD3d 642 [2017]).

The petitioner’s remaining contention is without merit.

Accordingly, we affirm the order and judgment. Rivera, J.P., Roman, Miller and Duffy, JJ., concur.

[*1]

Jaffe & Koumourdas, LLP, New York, NY (Jean H. Kang of counsel), for appellant.

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

In a proceeding pursuant to CPLR 7511 to vacate an award of a master arbitrator dated November 27, 2013, which vacated an arbitration award dated August 28, 2013, awarding the petitioner, inter alia, reimbursements totaling $626.81 for acupuncture treatments, Country-Wide Ins. Co. appeals from an order of the Supreme Court, Kings County (Velasquez, J.), dated December 15, 2014, which granted the petition, vacated the award of the master arbitrator, and reinstated and confirmed the award of the arbitrator.

Ordered that the order is reversed, on the law, with costs, the award of the master arbitrator is reinstated and confirmed, and the petition is denied.

“The power of [a] master arbitrator to review factual and procedural issues is limited to ‘whether the arbitrator acted in a manner that was arbitrary and capricious, irrational or without a plausible basis’ ” (Matter of Liberty Mut. Ins. Co. v Spine Americare Med., 294 AD2d 574, 575 [2002], quoting Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d 207, 211 [1981]). “If the determination of the arbitrator is challenged based upon an alleged factual error, the master arbitrator must uphold the determination if it has a rational basis” (Matter of Liberty Mut. Ins. Co. v Spine Americare Med., 294 AD2d at 575-576). “However, pursuant to 11 NYCRR 65.19 (a) (4) [(now 11 NYCRR 65-4.10 [a] [4])], the review powers of the master arbitrator include the power to determine if the arbitrator’s award was ‘incorrect as a matter of law’ ” (id. at 576, quoting Matter of Smith [Firemen’s Ins. Co.], 55 NY2d 224, 231 [1982]; Matter of Petrofsky [Allstate Ins. Co.], 54 NY2d at 211). “If the master arbitrator vacates the arbitrator’s award based upon an alleged error of ‘a rule of substantive law,’ the determination of the master arbitrator must be upheld unless it is irrational” (Matter of Liberty Mut. Ins. Co. v Spine Americare Med., 294 AD2d at 576, quoting Matter of Smith [Firemen’s Ins. Co.], 55 NY2d at 232). Here, the master arbitrator correctly found that the arbitrator had erroneously held that the carrier’s claim of fraudulent incorporation (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 322 [2005]), was precluded because it was not raised in a timely denial (see Lexington Acupuncture, P.C. v General Assur. Co., 35 Misc 3d 42, 44 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]; Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 38-39 [App Term, 2d Dept, 2d & 11th Jud Dists 2007]). The master arbitrator’s [*2]award setting aside the arbitrator’s award based on that erroneous refusal to consider the claim of fraudulent incorporation was not irrational. Accordingly, the Supreme Court erred in granting the petition to vacate the award of the master arbitrator (cf. Matter of Singh v Allstate Ins. Co., 137 AD3d 1046, 1047 [2016]). Rivera, J.P., Balkin, Barros and Brathwaite Nelson, JJ., concur.

[*1]

Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30, affirmed.

APPEARANCES OF COUNSEL

Smith Valliere PLLC, New York City (Mark W. Smith and Gregory Zimmer of counsel), for appellant.

McCormack & Mattei, P.C., Garden City (John E. McCormack and Barry I. Levy of counsel), for respondent.

New York State law mandates that professional service corporations be owned and controlled only by licensed professionals. In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the Court of Appeals held that under the no-fault insurance law (Insurance Law § 5101 et seq.), an insurance carrier may withhold payment for medical services provided by a professional corporation which has been “fraudulently incorporated” to allow nonphysicians to share in its ownership and control. The primary issue we are called upon to determine, for the first time, is what elements are necessary to establish the defense of fraudulent incorporation recognized by Mallela. For the reasons which follow, we find that the jury in this case was properly instructed on the elements of a fraudulent incorporation defense.

Background of the Action

In July 2004, Andrew Carothers, a radiologist, formed a professional service corporation, the plaintiff, Andrew Carothers, M.D., P.C., to perform MRI scans at three existing MRI facilities in Brooklyn, Queens, and the Bronx. The plaintiff leased the three MRI facilities, and all of the medical and office equipment used at the facilities, from companies owned and controlled by nonparty Hillel Sher. In 2005 and 2006, approximately 38,000 MRI scans were performed at the three facilities. The majority of the scans performed were for patients allegedly injured in motor vehicle accidents. These patients assigned their right to receive first-party no-fault insurance benefits to the plaintiff, and the plaintiff billed insurance companies to recover payment on the assigned claims. Because payment was not made in many instances, the plaintiff commenced thousands of [*2]actions against insurers, including this action against the defendant, Progressive Insurance Company, to recover unpaid claims of assigned first-party no-fault insurance benefits.{**150 AD3d at 195}

As a defense to nonpayment, the insurers contended that the plaintiff was not entitled to payment of the unpaid claims because, pursuant to Mallela, it was fraudulently incorporated. Specifically, the insurers contended that the plaintiff was not solely owned and controlled by Carothers, who was listed on corporate filings as the plaintiff’s only owner, shareholder, director, and officer. Rather, the insurers alleged that Carothers was merely a nominal owner, while the plaintiff was actually owned and controlled by the plaintiff’s landlord, Hillel Sher, and the plaintiff’s executive secretary, Irina Vayman, both nonphysicians. The insurers additionally contended that the plaintiff was not entitled to payment because Carothers did not personally engage in the practice of medicine within the professional corporation, as required by Business Corporation Law § 1507.

Sher and Vayman were both deposed prior to trial. However, both invoked their Fifth Amendment (US Const Fifth Amend) privilege against self-incrimination in response to virtually all the questions posed to them during their respective depositions.

A joint trial was held on actions pending in Kings County and Richmond County between the plaintiff and 53 insurers and self-insurers, including this action. During the course of the lengthy trial, the defendant insurers called several expert witnesses, who provided testimony in support of their claims that the plaintiff’s profits were funneled to Sher and Vayman through grossly inflated equipment lease payments made to a company owned and controlled by Sher, and through Vayman’s transfers of funds to her own personal accounts. For example, while the plaintiff paid $547,000 per month for two years to lease old MRI equipment, an expert in the field of selling and leasing of MRI equipment testified that the plaintiff could have purchased the same equipment for a onetime payment of $600,000. In addition, the defendants’ expert forensic accountant noted that Sher, through one of his companies, leased one of the machines in 2001 for approximately $9,800 per month and then charged the plaintiff $75,000 per month for the same machine. In the forensic accountant’s view, the lease agreements between the plaintiff and Sher’s companies were not made at arm’s length because the terms of those agreements were not mutually beneficial to both parties. To illustrate this point, the forensic accountant noted that the equipment lease permitted Sher to terminate the lease without cause and made{**150 AD3d at 196} no warranties as to the condition of the equipment. The facilities lease also contained the same one-sided termination provision and provided that, if the equipment lease was terminated, the facilities lease would terminate as well.

The evidence presented by the defendant insurers further showed that Carothers had no real involvement with the management of the plaintiff. Vayman hired all of the personnel and signed all of the checks of the plaintiff’s operating account. The only checks that Carothers signed on behalf of the plaintiff were from a new account that was set up around the time that the plaintiff ceased its operation. With respect to that account, Carothers received $52,000 and Vayman and her company received $75,000. The forensic accountant also testified that he found a web of eight different accounts associated with the plaintiff and that he could ascertain no business purpose for that number of accounts. He testified that the plaintiff’s money went to Sher’s companies each month, leaving no money in the accounts, that no tax returns were filed on behalf of the plaintiff, and that no books or records were maintained on behalf of the plaintiff. According to this expert, $8.7 million from one of the accounts, the plaintiff’s operating account, went to one of Sher’s companies, Forum Medical Group, and Vayman received $882,600 of those funds, which were immediately transferred from that company’s account into Vayman’s personal account.

In the two-year period during which the plaintiff operated the practices, Sher and Vayman received a total of $12.2 million, while Carothers earned $133,000.

In contrast, when called to testify, Carothers was unable to account for such transactions. He asserted that the payments to Vayman’s personal account were for back wages and payment of corporate expenses and that the only payments for Sher’s benefit were to repay a $400,000 bridge loan, for which he presented no proof. Although Carothers testified that a general ledger compiled by an accounting firm in 2007 accounted for all transactions, no general ledger was admitted into evidence. Carothers’ testimony also revealed that he did not recognize the names of employees, some of whom were Sher’s relatives, and that he lacked knowledge about the operation and finances of the plaintiff.

Although the parties agreed that neither Sher nor Vayman was available to testify at the trial within the meaning of CPLR 3117 (a) (3), the Civil Court, over the plaintiff’s objection,{**150 AD3d at 197} permitted the defense to read the transcripts of their deposition to the jury. The court also [*3]charged the jury that an adverse inference could be drawn against the plaintiff based upon the invocation of the Fifth Amendment by Sher and Vayman.

Before the Civil Court delivered its jury charge, the plaintiff requested that the jury be instructed that in order to prove fraudulent incorporation, the defendants were required to prove, by clear and convincing evidence, the traditional elements of common-law fraud, including the element of fraudulent intent. The plaintiff further requested that the jury be charged that the defendants were required to prove that such fraudulent intent was present at the time it was incorporated in July 2004. In addition, the plaintiff requested that the jury be charged on the business judgment rule and instructed to consider the rule in evaluating whether Carothers’ decisions were reasonable and whether he engaged in sham transactions as that term is defined under federal tax law. The court denied these requests.

In charging the jury on the fraudulent incorporation defense, the Civil Court instructed the jury that the defendants had to establish that Sher and/or Vayman were de facto owners of the plaintiff or that they exercised substantial control over the plaintiff. To find de facto ownership, the jury was told that it must find that Sher and/or Vayman exercised dominion and control over the plaintiff and its assets, and that they shared risks, expenses, and interests in the profits and losses of the plaintiff. However, the court advised the jury that salary and other compensation and rents should not be considered as profits if it found such salary and leases were negotiated in good faith and were not in actuality a means to channel profits to Sher and/or Vayman. To find control, the jury was instructed that it must find that Sher and/or Vayman had a significant role in the guidance, management, and direction of the plaintiff. In determining the issue of whether Sher and/or Vayman were de facto owners or exercised substantial control over the plaintiff, the jury was instructed to consider the totality of the circumstances and any relevant factor. The court also gave the jury a list of 13 factors it might want to consider, including whether Sher’s dealings with the plaintiff were arm’s length or were instead designed to give Sher and his companies substantial control over the plaintiff and channel profits to him; whether Sher and Vayman exercised dominion and control over the plaintiff’s assets, including the plaintiff’s bank accounts;{**150 AD3d at 198} whether and to what extent the plaintiff’s funds were used by Sher and Vayman for personal rather than corporate purposes; whether Sher and Vayman were responsible for the hiring, firing, and payment of salaries of the plaintiff’s employees; whether the day-to-day formalities of corporate existence were followed, including the issuance of stock, election of directors, holding of corporate meetings, keeping books and records, and filing tax returns; whether the plaintiff shared common office space and employees with Sher’s companies; and whether Carothers played a substantial role in the day-to-day and overall operation and management of the plaintiff.

The jury returned a verdict finding, inter alia, that the defendants proved their defense by clear and convincing evidence, i.e., that the plaintiff was fraudulently incorporated. The jury further found that Carothers was not engaged in the practice of medicine during the time the plaintiff was in business as required by Business Corporation Law § 1507 (a).

The Civil Court denied the plaintiff’s motion pursuant to CPLR 4404 (a) to set aside the verdict and for judgment as a matter of law, or, in the alternative, to set aside the verdict as contrary to the weight of the evidence or in the interest of justice and for a new trial, and a judgment was entered in favor of the defendant and against the plaintiff in this action, dismissing the complaint. Upon the plaintiff’s appeal, the Appellate Term set aside as contrary to the weight of the evidence so much of the verdict as determined that Carothers failed to practice medicine, but upheld so much of the verdict as found that the plaintiff was fraudulently incorporated, affirming the judgment on that basis (see Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30 [2013]). The Appellate Term rejected the plaintiff’s contention that the Civil Court erroneously instructed the jury on the essential elements of a fraudulent incorporation defense as set forth in Mallela, and determined that it was not error for the Civil Court to set forth a list of factors to assist the jury in determining the issue of whether Sher and Vayman were de facto owners or exercised substantial control over the plaintiff. This Court granted the plaintiff leave to appeal. We affirm the Appellate Term’s order insofar as appealed from.

Business Corporation Law

New York State permits licensed professionals to incorporate if they are the sole organizers, owners, and operators of the corporation (see Business Corporation Law §§ 1503 [a], [b]; {**150 AD3d at 199}1508). To incorporate, the licensed individual must obtain a “certificate . . . issued by the [New York State Department of Education (DOE)] certifying that each of the proposed shareholders, [*4]directors and officers is authorized by law to practice a profession which the corporation is being organized to practice” (Business Corporation Law § 1503 [b]). The DOE may not issue a certificate of authority to a professional service corporation that does not meet these qualifications (see Education Law § 6507 [4] [c] [i]). Once the professional corporation is formed, shareholders may not transfer their voting power to any person who is not a licensed professional in the field (see Business Corporation Law § 1507 [a]); only shareholders or the licensed professionals engaged in the practice may be directors and officers (see Business Corporation Law § 1508 [a]). Any agreement by a shareholder transferring the voting power of his/her share to individuals who are not authorized by law to practice the profession is void (see Business Corporation Law § 1507 [a]). Thus, New York State law mandates that professional service corporations be owned and controlled only by licensed professionals (see Business Corporation Law §§ 1503 [a]; 1507 [a]; 1508 [a]) and that licensed professionals render the services provided by such corporations (see Business Corporation Law § 1504 [a]). In short, New York State law prohibits unlicensed individuals from organizing a professional service corporation for profit or exercising control over such corporations.

The parties agree that the plaintiff is a professional corporation in the business of providing MRI scanning services at three locations and is subject to the Business Corporation Law.

Governing Provisions of Insurance Law

Pursuant to New York State’s Comprehensive Motor Vehicle Insurance Reparations Act (no-fault law), insurers such as the defendant are required to indemnify all covered persons for reasonable and necessary medical services (see Insurance Law §§ 5102, 5104). Insureds or their medical provider assignee are entitled to reimbursement for “basic economic loss” (Insurance Law § 5102 [a] [1]). A provider of healthcare services, however, is not eligible for reimbursement if the provider “fails to meet any applicable New York State or local licensing requirement necessary to perform such service” (11 NYCRR 65-3.16 [a] [12]). The purpose of the regulations is to “combat fraud” (Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407, 409 [2006]).

The Court of Appeals has interpreted 11 NYCRR 65-3.16 (a) (12) to allow insurance carriers to withhold reimbursement for{**150 AD3d at 200} no-fault claims “provided by fraudulently incorporated enterprises to which patients have assigned their claims” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 319) and to “look beyond the face of licensing documents to identify willful and material failure to abide by state and local law” (id. at 321).

In Mallela, the Court of Appeals answered a certified question from the United States Court of Appeals for the Second Circuit as to whether a medical corporation that was fraudulently incorporated under Business Corporation Law §§ 1507 and 1508 and Education Law § 6507 (4) (c) was entitled to be reimbursed for assigned no-fault claims (see id. at 320). The Court of Appeals answered the question in the negative, determining that a provider which was not solely owned and controlled by physicians, as required by Business Corporation Law §§ 1507 (a) and 1508 (a), was ineligible for no-fault reimbursements, and that insurers may look at the actual ownership and operation of the practice, to wit, whether the practice was actually controlled or owned by an unlicensed individual in violation of state and local law (see id. at 321; United States v Gabinskaya, 829 F3d 127, 133 [2d Cir 2016]). In this context, however, the Court of Appeals cautioned that insurance carriers could not delay payments of reimbursement claims to pursue investigations unless they had “good cause” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322; see 11 NYCRR 65-3.2 [c]; Dynamic Med. Imaging, P.C. v State Farm Mut. Auto. Ins. Co., 29 Misc 3d 278, 285 [Nassau Dist Ct 2010]) and that, in the licensing context, “carriers will be unable to show ‘good cause’ unless they can demonstrate behavior tantamount to fraud” (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322). The Court further cautioned that “[t]echnical violations will not do. For example, a failure to hold an annual meeting, pay corporate filing fees or submit otherwise acceptable paperwork on time will not rise to the level of fraud” (id.).

Jury Charge at Issue

On appeal to this Court, the plaintiff maintains that the Civil Court’s jury charge on fraudulent incorporation was improper because it permitted the jury to make a finding of fraudulent incorporation without a showing that Carothers possessed fraudulent intent at the time he incorporated the plaintiff, or engaged in criminal or fraudulent behavior. The plaintiff also contends that the Civil Court erred in setting{**150 AD3d at 201} forth a list of 13 factors the jury could consider in determining whether Sher and Vayman were de facto owners of the plaintiff or exercised substantial control over it. The plaintiff asserts that the list of factors impermissibly allowed the jury to consider “technical violations” of corporate formalities such as the failure to hold annual meetings, and administrative [*5]activities routinely performed by office managers, such as paying personnel. The plaintiff additionally argues that the Civil Court erred in denying its requests for charges on the business judgment rule and sham transactions.

[1] Contrary to the plaintiff’s contention, the jury charge on fraudulent incorporation, read as a whole, adequately conveyed the correct legal principles articulated by the Court of Appeals in Mallela (see Nestorowich v Ricotta, 97 NY2d 393, 401 [2002]; Hatzis v Buchbinder, 112 AD3d 890, 890 [2013]; Winderman v Brooklyn/McDonald Ave. Shoprite Assoc., Inc., 85 AD3d 1018, 1019 [2011]). As the Appellate Term correctly determined, the charge properly focused the jury on the question of whether Carothers was a mere nominal owner of the plaintiff, and if, in actuality, nonphysicians Sher and Vayman owned or controlled the plaintiff such that the profits were funneled to them. The Civil Court properly instructed the jury to consider whether Sher and/or Vayman shared in the profits of the plaintiff, and that the jury could consider whether the leases entered into between the plaintiff and Sher’s companies were arm’s length or meant to funnel profits to Sher. The Civil Court charged the jury that, in order to succeed on its defense, the defendant was required to establish, by clear and convincing evidence, that Sher and/or Vayman, two nonphysicians, were “de facto owners” of the plaintiff or exercised “substantial control” over the plaintiff; and that to find de facto ownership, the jury must find that either Sher and/or Vayman exercised “dominion and control over” the plaintiff and its assets and that they “shared the risks, expenses, and interest in the profits and losses” of the plaintiff. To find control, the jury was instructed that they must find that Sher and/or Vayman had a “significant role in the guidance, management, and direction of the business.” The court also sufficiently explained the relevant definitions of these terms.

Although the plaintiff is correct that certain of the factors enumerated in the non-exhaustive list of factors with which the jury was charged that it might wish to consider, could not, standing alone, support a finding of fraudulent incorporation,{**150 AD3d at 202} these factors were relevant for the jury to consider in determining the ultimate issues of de facto ownership and substantial control, and the jury was properly instructed to consider the totality of the circumstances (see United States v Gabinskaya, 829 F3d at 132). For example, the fact that Vayman controlled the plaintiff’s bank accounts and was responsible for hiring and paying employees could not, on its own, support a finding that she owned and controlled the plaintiff. However, since the jury was instructed to look to the totality of the circumstances to determine whether Sher and/or Vayman were de facto owners or exercised substantial control over the plaintiff, factors such as Vayman’s control of the bank accounts and Carothers’ limited day-to-day management were relevant to that issue. Likewise, although Mallela instructed that “[t]echnical violations” such as a failure to hold an annual meeting, pay corporate filing fees, or submit paperwork on time would not establish the defense of fraudulent incorporation (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322), a failure to follow corporate formalities is a relevant factor for the jury to consider, in conjunction with other factors, in determining the ultimate issue of ownership and control and whether the plaintiff was a proper professional corporation or merely a vehicle operated by nonphysicians to funnel profits to themselves.

[2] Further, the Civil Court did not err in declining to instruct the jury as to common-law fraud, fraudulent intent at the time of incorporation, and the business judgment rule. Mallela involved fraud “in the corporate form” rather than the more traditional forms of common-law fraud (id. at 320). With respect to fraudulent intent at the time of incorporation, Mallela instructs that even if a professional corporation did not intend to yield control to unlicensed parties at the time of incorporation, it nonetheless would be ineligible for no-fault reimbursement if the nominal physician owner yielded control of the corporation at some later date (see id. at 322). Good faith compliance with the requirements of a professional corporation at the time of incorporation does not end when the certificate of incorporation is filed and does not defeat a claim of fraudulent incorporation if the evidence demonstrates that at some point after the initial incorporation, the nominal physician owner turned over control of the business to nonphysicians in contravention of state regulations (see id.). Similarly, with respect to the plaintiff’s requested charge as to the business judgment rule, which is typically charged in actions alleging a{**150 AD3d at 203} breach of fiduciary duty and bars inquiry into actions of corporate directors taken in good faith in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes (see Auerbach v Bennett, 47 NY2d 619, 629 [1979]; Mobarak v Mowad, 117 AD3d 998, 999-1000 [2014]), the evidence presented at the trial did not support such a charge. Carothers failed to account for the vast majority of funds transferred by Vayman from the plaintiff to her personal account and to Sher’s companies. Further, Carothers provided no proof in support [*6]of his testimony that payments made to Sher were for the purpose of repaying a $400,000 bridge loan. Moreover, Carothers’ testimony displayed his almost complete lack of knowledge about the operation and finances of the plaintiff. In short, there was no evidentiary basis for a business judgment rule charge under the facts elicited at trial (see generally Dotson v City of New York, 296 AD2d 372, 372-373 [2002]; Mejia v Coleman, 168 AD2d 245, 246 [1990]). Accordingly, the Civil Court properly declined to give the plaintiff’s requested charges on common-law fraud, fraudulent intent, and the business judgment rule.

Finally, the Civil Court properly denied the plaintiff’s request to charge the jury, in accordance with federal tax law, that a “sham transaction” is one that has no business purpose or economic substance (see DeMartino v Commissioner of Internal Revenue, 862 F2d 400, 406 [2d Cir 1988]). Nonetheless, the jury was properly instructed that salary and lease payments should not be considered as profits if it found that they were negotiated in good faith and were not in actuality a means to funnel profits to nonphysicians.

In sum, the jury charge, read as a whole, adequately conveyed the correct legal principles on “fraudulent incorporation” as established by Mallela. The instructions asked the jury to consider whether, under the totality of the circumstances, the plaintiff was operating as a proper professional medical corporation in compliance with state regulations or whether, in order to obtain money that insurers were otherwise entitled to deny, the plaintiff was organized under the facially valid cover of Carothers but was, in actuality, operated and controlled by Sher and Vayman to funnel profits to themselves.

Harmless Error

[3] While a party’s invocation of the privilege against self-incrimination can generally be used to draw an adverse inference against that party in a civil action (see Marine Midland {**150 AD3d at 204} Bank v Russo Produce Co., 50 NY2d 31, 42-43 [1980]), no such inference may be drawn where, as here, the privilege is invoked by a nonparty witness (see Access Capital v DeCicco, 302 AD2d 48, 52 [2002]; State of New York v Markowitz, 273 AD2d 637, 646 [2000]). Accordingly, the Appellate Term properly determined that the Civil Court erred in permitting the defendants to read into evidence the transcripts of the depositions of Sher and Vayman, in which they invoked their Fifth Amendment privilege against self-incrimination and declined to answer questions, and in instructing the jury that it could draw an adverse inference against the plaintiff based on their refusal to answer questions (see Access Capital v DeCicco, 302 AD2d at 52; State of New York v Markowitz, 273 AD2d at 646). However, given the evidence adduced at trial, the error could not have affected the outcome of the trial, and thus was harmless (see CPLR 2002; see generally Parris v New York City Tr. Auth., 140 AD3d 938, 940 [2016]; Rizzuto v Getty Petroleum Corp., 289 AD2d 217, 218 [2001]).

In evaluating whether the error in permitting the deposition testimony to be read into evidence affected the outcome of the trial, we note as an initial matter that the jury determined that the defendant established fraudulent incorporation by clear and convincing evidence (see Tahir v Progressive Cas. Ins. Co., 12 Misc 3d 657, 662-663 [Civ Ct, NY County 2006]; cf. Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330, 350 [1999]). In light of the jury’s determination that the evidence at trial met this more stringent standard of proof than required by the preponderance of the evidence standard, we do not reach the issue of which is the appropriate standard of proof in establishing the defense of fraudulent incorporation (see e.g. Matter of State of New York v Dennis K., 27 NY3d 718, 742 [2016]). Nonetheless, the evidence clearly favored a verdict in the defendant’s favor. The evidence demonstrated that Carothers was merely the nominal owner of the plaintiff and that the plaintiff was actually owned and controlled by nonphysicians Sher and Vayman, who funneled the plaintiff’s profits to themselves, and that the outcome of the trial would have been the same absent the error arising from the charge relating to the invocation by Sher and Vayman of the right against self-{**150 AD3d at 205}incrimination pursuant to the Fifth Amendment.

In light of the overwhelming evidence establishing fraudulent incorporation, the error arising from the charge pertaining to the invocation by Sher and Vayman of the right against self-incrimination pursuant to the Fifth Amendment was harmless and the judgment was properly affirmed.

The plaintiff’s remaining contention is without merit.

Accordingly, the order is affirmed insofar as appealed from.

Leventhal, J.P., Miller and Maltese, JJ., concur.

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

[*1]

The Law Office of Jason Tenenbaum, P.C., Garden City (Jason Tenenbaum of counsel), for appellant.

Costella & Gordon, LLP, Garden City (Matthew K. Viverito of counsel), for respondent.

Order, Supreme Court, Bronx County (Fernando Tapia, J.), entered October 24, 2016, which denied the petition seeking to vacate the award of a master arbitrator, dated August 12, 2016, to the extent it affirmed a lower arbitrator’s award of no-fault compensation to respondent in the unadjusted amount of $2,679.39, unanimously reversed, on the law, without costs, the petition granted to the extent of vacating that portion of the master arbitration award, and the matter remanded to a different arbitrator for arbitration of the fee schedule defense on the merits.

Respondent sought recovery for physical therapy services provided to its assignor before April 1, 2013, and petitioner insurer disclaimed parts of the claim on the ground that it had already reimbursed a different provider for “eight units” for services on some of the same dates. Respondent checked the box on the prescribed disclaimer form indicating that it was relying on a “fee schedule” defense, specifically the “eight unit rule.” The lower arbitrator held that respondent was precluded from asserting its defense because the disclaimer was insufficiently specific in that the other provider was not named. Respondent appealed to the master arbitrator, arguing that it adequately preserved its defense. The master arbitrator, without addressing the issue of preservation, incorrectly found that the lower arbitrator had “considered the fee schedule defense” and “determined that [r]espondent failed to provide evidence as to the other provider.”

The master arbitrator’s award was arbitrary, because it irrationally ignored the controlling law presented on the preservation issue (Matter of Global Liberty Ins. Co. v Professional Chiropractic Care, P.C., 139 AD3d 645, 646 [1st Dept 2016]; see generally Matter of Smith [Firemen’s Ins. Co.], 55 NY2d 224, 232 [1982])—namely, that an insurer adequately preserves its fee schedule defense “by checking box 18 on the NF-10 denial of claim form to assert that plaintiff’s fees [were] not in accordance with the fee schedule” (Megacure Acupuncture, P.C. v Lancer Ins. Co., 41 Misc 3d 139[A], 2013 NY Slip Op 51994[U] *3 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013] [internal quotation marks omitted]; Surgicare Surgical v National Interstate Ins. Co., 46 Misc 3d 736, 745-746 [Civ Ct, Bronx County 2014], affd 50 Misc 3d 85 [App Term, 1st Dept 2015]). Accordingly, we remand the matter to the extent indicated. Concur—Sweeny, J.P., Renwick, Mazzarelli and Manzanet-Daniels, JJ.

[*1]

D’Agostino, Levine, Landesman & Lederman LLP, New York (Bruce H. Lederman of counsel), for appellant.

Bruno, Gerbino & Soriano, LLP, Melville (Nathan Shapiro of counsel), for respondent.

Order, Supreme Court, New York County (Manuel J. Mendez, J.), entered on or about July 14, 2016, which granted plaintiff’s motion for reargument of defendant’s motion to sever the breach of contract cause of action or, in the alternative, for a stay of the severance order pending appeal, only to the extent of extending plaintiff’s time to commence separate actions in Civil Court for the 198 claims asserted in the breach of contract cause of action, unanimously affirmed, with costs.

Although the order on reargument purported to deny plaintiff’s motion to reargue defendant’s severance motion, it is appealable, because the court addressed the merits of the motion, in effect, granting it and adhering to the original determination (see Jackson v Leung, 99 AD3d 489, 490 [1st Dept 2012]).

The court properly severed the breach of contract cause of action, since the 198 unrelated no-fault claims asserted therein raise no common issues of fact or law (see CPLR 603; Radiology Resource Network, P.C. v Fireman’s Fund Ins. Co., 12 AD3d 185 [1st Dept 2004]). Plaintiff’s contention that the defense of fraudulent incorporation presents common factual and legal issues that predominate is unavailing, since defendant has made clear that it does not intend to pursue that defense.

The court properly denied plaintiff’s motion for a stay, since adjudication of the separate breach of contract claims in Civil Court is not dependent on a determination of the declaratory judgment cause of action (see Hunter v Hunter, 10 AD2d 937 [1st Dept 1960]). Concur—Acosta, J.P., Renwick, Moskowitz, Feinman and Gesmer, JJ. [Prior Case History: 2016 NY Slip Op 31336(U).]

[*1]

Israel Israel & Purdy, LLP, Great Neck, NY (Justin Skaferowsky of counsel), for appellant.

Printz & Goldstein, Woodbury, NY (Lawrence J. Chanice of counsel), for respondent.

Motion by the appellant for leave to reargue an appeal from so much of an order and judgment (one paper) of the Supreme Court, Nassau County (Feinman, J.), entered March 3, 2015, as denied that branch of its cross petition which was for an award of an additional attorney’s fee pursuant to Insurance Department Regulations (11 NYCRR) § 65-4.10 (j) (4), which was determined by decision and order of this Court dated May 18, 2016, or for leave to appeal to the Court of Appeals from the decision and order of this Court.

Upon the papers filed in support of the motion and the papers filed in opposition thereto, it is,

Ordered that the branch of the motion which is for leave to appeal to the Court of Appeals is denied; and it is further,

Ordered that the branch of the motion which is for leave to reargue is granted, and, upon reargument, the decision and order of this Court dated May 18, 2016 (Matter of GEICO Ins. Co. v AAAMG Leasing Corp., 139 AD3d 947 [2016]), is recalled and vacated, and the following decision and order is substituted therefor:

In a proceeding pursuant to CPLR article 75 to vacate a master arbitration award dated August 4, 2014, AAAMG Leasing Corp., as assignee of Dawn Channer, appeals from so much of an order and judgment (one paper) of the Supreme Court, Nassau County (Feinman, J.), entered March 3, 2015, as denied that branch of its cross petition which was for an award of an additional attorney’s fee pursuant to Insurance Department Regulations (11 NYCRR) § 65-4.10 (j) (4).

Ordered that the order and judgment is reversed insofar as appealed from, on the law and in the exercise of discretion, with costs, and that branch of the cross petition of AAAMG Leasing Corp., as assignee of Dawn Channer, which was for an award of an additional attorney’s fee pursuant to Insurance Department Regulations (11 NYCRR) § 65-4.10 (j) (4) is granted, and the matter is remitted to the Supreme Court, Nassau County, for a determination of the amount of the additional attorney’s fee.

[*2] AAAMG Leasing Corp., as assignee of Dawn Channer (hereinafter the appellant), is a medical provider which made a claim for no-fault benefits from the petitioner insurance carrier. The petitioner denied the claim, stating that the supplies provided were not medically necessary.

The appellant sought arbitration of the claim, and in an award dated April 28, 2014, the arbitrator awarded the appellant the sum of $3,870.45, plus interest, and an attorney’s fee in the sum of $850.

The petitioner sought review of the arbitrator’s award by a master arbitrator. In a determination dated August 4, 2014, the master arbitrator affirmed the original arbitration award, and awarded an additional attorney’s fee in the sum of $650 pursuant to Insurance Department Regulations (11 NYCRR) § 65-4.10 (j) (2) (i), which the master arbitrator stated was the maximum allowable fee.

The petitioner then commenced the instant proceeding pursuant to CPLR article 75 to vacate the master arbitration award dated August 4, 2014. The appellant cross-petitioned to confirm the arbitration award, and sought an additional attorney’s fee pursuant to Insurance Department Regulations (11 NYCRR) § 65-4.10 (j) (4). The petitioner opposed that demand for relief. In the alternative, the petitioner stated that the appellant’s fee should be limited to $650.

In the order and judgment appealed from, the Supreme Court confirmed the arbitration award. That branch of the cross petition which was for an award of an additional attorney’s fee was denied without comment. The appeal is limited to so much of the order and judgment as denied that branch of the cross petition which was for an award of an additional attorney’s fee.

The general rule is that in proceedings involving arbitration, as in other litigation, an attorney’s fee is not recoverable unless provided for by agreement or statute (see Myron Assoc. v Obstfeld, 224 AD2d 504 [1996]). Pursuant to Insurance Law § 5106 (a), if a valid claim or portion of a claim for no-fault benefits is overdue, “the claimant shall also be entitled to recover his attorney’s reasonable fee, for services necessarily performed in connection with securing payment of the overdue claim, subject to [the] limitations promulgated by the superintendent in regulations.” As applicable here, the superintendent’s regulations provide that an attorney’s fee for services rendered in connection with “a court appeal from a master arbitration award . . . shall be fixed by the court adjudicating the matter” (Insurance Department Regulations [11 NYCRR] § 65-4.10 [j] [4]). The term “court appeal” applies to a proceeding such as this, taken pursuant to CPLR article 75 to vacate or confirm a master arbitration award (see Matter of Hempstead Gen. Hosp. v National Grange Mut. Ins. Co., 179 AD2d 645 [1992]).

Here, the appellant sought an attorney’s fee for services rendered in connection with the court proceedings on the petition to vacate the master arbitrator’s award and the cross petition to confirm the award. The Supreme Court denied the requested relief without stating the basis for that determination. To the extent the court denied relief on the ground that it lacked authority to award an additional attorney’s fee, the court erred. To the extent the court denied relief on the merits, the basis for that determination is not evident from the record. Accordingly, the matter must be remitted to the Supreme Court, Nassau County, for a determination of the amount of the additional attorney’s fee to which the appellant is entitled, stating the evidentiary basis for the award. We note that the court shall not consider any time spent by the appellant’s attorney in applying for and substantiating his fee, as the appellant is not entitled to a “fee upon a fee” (Matter of Hempstead Gen. Hosp. v National Grange Mut. Ins. Co., 179 AD2d at 646). Leventhal, J.P., Hall, Hinds-Radix and LaSalle, JJ., concur.

[*1]

Jaffe & Koumourdas, LLP, New York (Jean H. Kang of counsel), for appellant.

Frank S. Patruno Law Offices P.C., Montgomery (Frank S. Patruno of counsel), for respondent.

Order and judgment (one paper), Supreme Court, New York County (Manuel J. Mendez, J), entered August 11, 2015, denying the unopposed petition to vacate a master arbitration award, dated March 17, 2015, which affirmed an arbitrator’s award that had granted respondent no-fault insurance benefits, unanimously reversed, on the law, without costs, the petition granted, and the award vacated. The Clerk is directed to enter judgment accordingly.

The master arbitrator’s award was arbitrary because it irrationally ignored petitioner’s uncontroverted evidence establishing that the assignor failed to appear at the three scheduled examinations under oath (cf. Hertz Corp. v Active Care Med. Supply Corp., 124 AD3d 411 [1st Dept 2015]; Easy Care Acupuncture P.C. v Praetorian Ins. Co., 49 Misc 3d 137[A], 2015 NY Slip Op 51524[U] [App Term, 1st Dept 2015]). Concur—Friedman, J.P., Richter, Kapnick and Kahn, JJ.

[*1]

Stern & Montana, LLP, New York, NY (Richard Montana of counsel), for appellant.

In an action for a judgment declaring, inter alia, that the plaintiff is not obligated to reimburse certain no-fault medical payments with respect to a motor vehicle collision that occurred on September 11, 2011, the plaintiff appeals from an order of the Supreme Court, Kings County (Ruchelsman, J.), dated January 9, 2014, which denied its unopposed motion pursuant to CPLR 3215 for leave to enter a judgment against the defendants Sharine Carrier, Roland Sebastian-Hall, Enis Sebastian, Jennine Eastmond, Active Care Medical Supply Corp., Amy M. Kott, MT, Graham Wellness Medical, P.C., Heel to Toe Foot Center, LLC, Immediate Imaging, P.C., Jing Luo Acupuncture, P.C., Precision Medical Diagnostics of NY, P.C., and Ultra Ortho Products, Inc., upon their failure to appear or answer the complaint.

Ordered that the order is reversed, on the law, without costs or disbursements, and the plaintiff’s motion pursuant to CPLR 3215 for leave to enter a judgment against the defendants Sharine Carrier, Roland Sebastian-Hall, Enis Sebastian, Jennine Eastmond, Active Care Medical Supply Corp., Amy M. Kott, MT, Graham Wellness Medical, P.C., Heel to Toe Foot Center, LLC, Immediate Imaging, P.C., Jing Luo Acupuncture, P.C., Precision Medical Diagnostics of NY, P.C., and Ultra Ortho Products, Inc., declaring that (a) a motor vehicle collision that occurred on September 11, 2011, was an excluded act and all claims arising from that accident are excluded under the terms and conditions of an automobile liability insurance policy issued to the defendant Enis Sebastian, and (b) the plaintiff is not obligated to reimburse certain no-fault medical payments, defend and indemnify the defendant Enis Sebastian against any third-party claims, or provide coverage for any uninsured or underinsured motorist claims with respect to the subject motor vehicle collision is granted.

On September 11, 2011, the defendants Sharine Carrier, Roland Sebastian-Hall, and Jennine Eastmond (hereinafter collectively the claimants) allegedly were injured when their vehicle was sideswiped by a U-Haul truck. After the accident the claimants sought medical treatment from, among others, the defendants Active Care Medical Supply Corp., Graham Wellness Medical, P.C., Heel to Toe Foot Center, LLC, Immediate Imaging, P.C., Jing Luo Acupuncture, P.C., Precision Medical Diagnostics of NY, P.C., and Ultra Ortho Products, Inc. (hereinafter collectively the corporate medical providers), and the defendant Amy M. Kott, MT. Thereafter, the corporate medical providers and Kott sought reimbursement of no-fault benefits under an automobile liability insurance policy issued to the defendant Enis Sebastian by the plaintiff, Allstate Property & Casualty Insurance Company, the insurer of the claimants’ vehicle. On November 21, 2012, the plaintiff commenced this action for a judgment declaring, inter alia, that it is not obligated to reimburse the [*2]no-fault medical payments made by the medical providers with respect to the subject motor vehicle collision. The individual defendants were served pursuant to CPLR 308 (4) and the corporate medical providers were served via the secretary of state. On December 20, 2012 the plaintiff served the corporate medical providers with an additional copy of the summons and complaint pursuant to CPLR 3215 (g) (4). After the individual defendants and the corporate medical providers failed to appear or answer, the plaintiff moved by notice of motion dated August 13, 2013, for leave to enter a default judgment against them. The Supreme Court denied the unopposed motion.

On a motion for leave to enter a default judgment under CPLR 3215, a plaintiff must submit proof of service of the summons and the complaint, the facts constituting the causes of action, and the defendant’s default (see CPLR 3215 [f]; Roy v 81E98th KH Gym, LLC, 142 AD3d 985 [2016]; Gershman v Ahmad, 131 AD3d 1104, 1105 [2015]; Dupps v Betancourt, 99 AD3d 855, 855 [2012]; Atlantic Cas. Ins. Co. v RJNJ Servs., Inc., 89 AD3d 649, 651 [2011]). Here, the plaintiff provided copies of the affidavits of service, a complaint verified by the plaintiff’s authorized agent, an affidavit of merit, documentary evidence, and proof that the individual defendants and the corporate medical providers had defaulted in answering the complaint. The plaintiff’s proof was sufficient to establish a viable cause of action (see Woodson v Mendon Leasing Corp., 100 NY2d 62, 70 [2003]). Accordingly, the plaintiff’s unopposed motion for leave to enter a default judgment against the individual defendants and the corporate medical providers should have been granted. Rivera, J.P., Dillon, Chambers and Hinds-Radix, JJ., concur.

[*1]

The Rybak Firm, PLLC, Brooklyn (Maksim Leyvi of counsel), for appellants.

Rubin, Fiorella & Friedman LLP, New York (Harlan R. Schreiber of counsel), for respondent.

Order and judgment (one paper), Supreme Court, New York County (Anil C. Singh, J.), entered February 19, 2015, to the extent appealed from, granting plaintiff’s motion for summary judgment and declaring that plaintiff is not obligated to provide no-fault benefits to defendants Adelaida Physical Therapy, P.C., Charles Deng Acupuncture, P.C., Delta Diagnostic Radiology, P.C., Island Life Chiropractic Pain Care, PLLC, Maiga Products Corp., and TAM Medical Supply Corp. as a result of a motor vehicle accident, due to claimants’ failure to appear for their scheduled examinations under oath (EUO), unanimously reversed, on the law, without costs, the judgment vacated and the motion denied.

Although the failure of a person eligible for no-fault benefits to appear for a properly noticed EUO constitutes a breach of a condition precedent, vitiating coverage (see 11 NYCRR 65-1.1; see also Hertz Corp. v Active Care Med. Supply Corp., 124 AD3d 411 [1st Dept 2015]; Allstate Ins. Co. v Pierre, 123 AD3d 618 [1st Dept 2014]), plaintiff failed to supply sufficient evidence to enable the court to determine whether the notices it had served on the injury claimants for EUOs were subject to the timeliness requirements of 11 NYCRR 65-3.5 (b) and 11 NYCRR 65-3.6 (b) (see Mapfre Ins. Co. of N.Y. v Manoo, 140 AD3d 468, 470 [1st Dept 2016]) and, if so, whether the notices had been served in conformity with those requirements (see National Liab. & Fire Ins. Co. v Tam Med. Supply Corp., 131 AD3d 851 [1st Dept 2015]). Specifically, plaintiff failed to provide copies of any completed verification forms it may have received from any of the health service provider defendants or any other evidence reflective of the dates on which plaintiff had received any such verification forms, or otherwise assert that it never received such forms. Thus, plaintiff failed to meet its burden of establishing either that the EUOs were not subject to the procedures and time frames set forth in the no-fault implementing regulations or that it properly noticed the EUOs in conformity with their terms (see Unitrin Advantage Ins. Co. v Bayshore Physical Therapy, PLLC, 82 AD3d 559 [1st Dept 2011], lv [*2]denied 17 NY3d 705 [2011]; Allstate Ins. Co. v Pierre, 123 AD3d at 618).

In view of our disposition, we need not reach defendants’ remaining contentions. Concur—Saxe, J.P., Moskowitz, Gische, Kahn and Gesmer, JJ.

[*1]

Law Office of Gregory A. Goodman, P.C., Hauppauge (Gregory A. Goodman of counsel), for appellant.

Law Offices of Daniel J. Tucker, Brooklyn (Joshua M. Goldberg of counsel), for respondent.

Order, Supreme Court, New York County (Arthur F. Engoron, J.), entered July 11, 2016, which granted plaintiff’s motion for a default judgment pursuant to CPLR 3215 declaring that it owes no duty to pay any pending or future no-fault claims arising out of a September 24, 2014 motor vehicle accident, and denied the cross motion of defendant Innovative Medical Heights, P.C. (Innovative Medical) for summary judgment dismissing the complaint as against it and for attorneys’ fees, unanimously affirmed, without costs.

Supreme Court properly granted plaintiff’s motion for a default judgment. The record demonstrates that plaintiff submitted proof that it served Innovative Medical with the summons and complaint, Innovative Medical does not deny that it was received, and Innovative Medical failed to set forth a reasonable excuse as to why it failed to timely answer the complaint (see CPLR 3215 [a], [f]). Innovative Medical’s claim that plaintiff accepted its untimely answer by failing to reject it fails, because plaintiff moved for the default judgment within 13 days of its receipt (see e.g. Katz v Perl, 22 AD3d 806, 807 [2d Dept 2005]).

Furthermore, Innovative Medical’s cross motion was properly denied. Since Innovative Medical never properly filed an answer, it may not ask the court to reach the merits of the action because CPLR 3212 (a) expressly provides that a motion for summary judgment may only be made after joinder of issue (see Afco Credit Corp. v Mohr, 156 AD2d 287 [1st Dept 1989]). Concur—Friedman, J.P., Sweeny, Richter, Manzanet-Daniels and Kapnick, JJ.