Decided on March 22, 2016

Civil Court of the City of New York, Kings County

[*1]

Civil Court of the City of New York, Kings County, February 9, 2016

APPEARANCES OF COUNSEL

Lawrence Robert Miles, Long Island City, for defendant.

Perchekly Law Group, P.C., Brooklyn, for plaintiff.

Defendant’s motion for summary judgment, submitted on default and without written opposition or appearance by the plaintiff, is decided as follows:

Factual Background

In this action to recover assigned first-party no-fault benefits, plaintiff submitted claims for payment for medical services it rendered to Kenia Perez in August, September and October 2013. Defendant does not contest that it received the claim from plaintiff, but denied the claim [*2]because it claims plaintiff did not bill the services in accordance with the applicable fee schedule. Defendant recalculated the amount pursuant to its reading of the fee schedule, and paid plaintiff the amount it calculated.

Discussion

Defendant moves for summary judgment on the basis that it paid plaintiff the amount to which plaintiff was entitled pursuant to the fee schedule. Defendant further contends that, under the amended version of 11 NYCRR 65-3.8, which applies to services rendered after April 1, 2013, plaintiff must prove it billed in accordance with the fee schedule in order to make its prima facie case.

Pursuant to 11 NYCRR 65-3.8 (g) (1),

“[p]roof of the fact and amount of loss sustained pursuant to Insurance Law section 5106(a) shall not be deemed supplied by an applicant to an insurer and no payment shall be due for such claimed medical services under any circumstances: . . .

“(ii) for those claimed medical service fees that exceed the charges permissible pursuant to Insurance Law sections 5108(a) and (b) and the regulations promulgated thereunder for services rendered by medical providers.”

Defendant argues that the amendments to 11 NYCRR 65-3.8 (g) (1) change the nature of plaintiff’s prima facie proof. As set forth below, this court holds that the insurer’s objection to plaintiff’s alleged over-billing remains an affirmative defense. Thus, the only issue is whether the defense is precluded or not precluded if it is rendered later than 30 days after defendant receives the claim (see Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 25 NY3d 498, 510 [2015]).{**51 Misc 3d at 443}

As the Court of Appeals made clear in Viviane Etienne,

“a medical provider seeking reimbursement from a no-fault insurer demonstrates its entitlement to reimbursement of overdue benefits when it proves that it submitted a completed claim form to the insurer. A claim is overdue if it is not denied or paid within 30 days of the insurer’s receipt of proof of claim” (id. at 507).

The language of 11 NYCRR 65-3.8 (g) (1) does not conflict with the holding in Viviane Etienne. The regulation does not place any additional requirements on the medical provider, such as a requirement, in the general case, to substantiate the calculation of its fees. The plain language of the regulation requires that the insurance company determine if the medical provider billed its services in accordance with the applicable fee schedule. If the insurance company determines that the bill contravenes the fee schedule, the regulation states that the insurance company need not pay the bill. Therefore, the burden remains on the insurer to assert a defense that the provider billed in excess of the fee schedule.

Although the amendment does not change plaintiff’s prima facie burden, I find that the new language establishes that a fee schedule defense, for services after April 1, 2013, is not precluded if it is not asserted within 30 days of receipt of the claim. The regulation appears to be a carve-out from 11 NYCRR 65-3.8 (a) (1), which states that “[n]o-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 section 65-3.5 of this Subpart.” Conversely, 11 NYCRR 65-3.8 (g) (1) imposes no deadline on the insurance company’s determination. At least two courts in the First Department concur with this court’s interpretation of 11 NYCRR 65-3.8 (g) (1) (see Saddle Brook Surgicenter, LLC v All State Ins. Co., 48 Misc 3d [*3]336, 344-345 [Civ Ct, Bronx County 2015]; Surgicare Surgical Assoc. v National Interstate Ins. Co., 50 Misc 3d 85, 87 [App Term, 1st Dept 2015]).

Based on this interpretation of 11 NYCRR 65-3.8 (g) (1), defendant may assert in this action a defense that plaintiff’s claim exceeds the applicable fee schedule. In support of this defense, defendant submits the affidavit of Veronica Pabon, a certified medical coder and biller employed by defendant as a fee schedule team leader (Rogy Med., P.C. v Mercury Cas. Co., 23 Misc 3d 132[A], 2009 NY Slip Op 50732[U], *2 [App Term,{**51 Misc 3d at 444} 2d Dept, 2d, 11th & 13th Jud Dists 2009]). Ms. Pabon states that defendant paid plaintiff, an acupuncturist, in accordance with the rate paid to chiropractors for the same services (see Great Wall Acupuncture, P.C. v GEICO Ins. Co., 26 Misc 3d 23, 24-25 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2009]). Ms. Pabon described the process by which defendant calculated the fees and supported those calculations with reference to the applicable fee schedule. Defendant also provided copies of the checks it sent to plaintiff. Based on this unopposed evidence, defendant paid plaintiff in accordance with the fee schedule, and does not owe plaintiff any additional payment.

For the foregoing reasons, defendant’s motion for summary judgment is granted and plaintiff’s complaint is dismissed.

[*1]

Civil Court of the City of New York, Kings County, October 22, 2015

APPEARANCES OF COUNSEL

Gary Tsirelman, P.C., Brooklyn, for plaintiff.

Law Offices of Deirdre J. Tobin & Associates, Garden City, for defendant.

In 2004, plaintiff Downtown Acupuncture, a medical services provider, filed this action to recover assigned first-party no-fault benefits for acupuncture services in the amount of $914.33 from defendant State Wide Insurance Co. Citing to a declaratory{**50 Misc 3d at 463} judgment by Supreme Court, Nassau County involving a different insurance company—State Farm Mutual Ins. Co.—that found the instant plaintiff and other acupuncture professional corporations (PCs) to be unlawfully incorporated, defendant argued [*2]that plaintiff was collaterally estopped from arguing that it was eligible to recover assigned no-fault benefits in the instant matter and moved to dismiss the complaint with prejudice. It is salient to note that defendant State Wide did not move to amend its answer to include collateral estoppel as an affirmative defense or raise at any time the defense of fraudulent incorporation. This action therefore raises the issue of whether under this set of facts, a defendant insurance company, which was not a party to a previous declaratory judgment action, may proactively invoke collateral estoppel to bar a plaintiff medical provider, which was a party to the previous action, from recovering no-fault benefits due to the finding of fraudulent incorporation.

In March 2010, State Farm brought an action in Supreme Court, Nassau County for a declaratory judgment (State Farm Mut. Ins. Co. v Anikeyeva, Sup Ct, Nassau County, Jaeger, J., index No. 4399/2010 [declaratory judgment]) that alleged that the instant plaintiff Downtown, as well as a number of other acupuncture PCs, were not owned and controlled by licensed acupuncturists, as required by New York law and regulations, and that the services provided therein were performed by independent contractors, also in violation of the state regulations. Specifically, the complaint alleged that in 2004, defendant received no-fault claims from a number of corporations owned by one Valentina Anikeyeva, a licensed acupuncturist. State Farm’s investigation revealed that Valentina formed professional corporations for her husband, Andrey, who was not licensed in New York State to operate, own, and control the acupuncture businesses and that Andrey, in turn, hired independent contractors to perform acupuncture services at the PC defendants’ offices. State Farm sought declaratory judgment that it need not reimburse the PC defendants for assigned claims submitted under the no-fault law.

At some point the parties in the declaratory judgment action entered into a stipulation, so-ordered on November 20, 2012, which granted plaintiff’s motion to compel discovery and conditionally struck defendant PCs’ answer unless they fully complied with all of the discovery demands. In relevant part, Justice Jaeger directed that “[PC defendants’] answer is conditionally stricken unless Defendants fully comply with all{**50 Misc 3d at 464} of [State Farm’s] discovery demands by [January 7, 2013].” Plaintiff State Farm subsequently moved for a default judgment based upon the PCs noncompliance with discovery.

By decision dated April 29, 2013 (2013 NY Slip Op 34010[U] [2013]), Justice Jaeger granted State Farm’s motion to strike the defendants’ answer resulting in the nonappearance of the defendants and entitling plaintiff to a judgment of default. In so ruling, the court found that the PC defendants’ pattern of noncompliant behavior was “willful and contumacious.” (2013 NY Slip Op 34010[U], *11.) He also noted that defendants had stipulated to the consequences of their conduct and “proffered no adequate excuse for their noncompliance [with discovery]” (2013 NY Slip Op 34010[U], *13). Moreover, the defendants attempted to avoid the consequences of the conditional order by serving responses about a month late which were “evasive, unresponsive and consisting mostly of objections.” (Id.)

Despite defendants’ default, Justice Jaeger noted that the court still had to reach the legal conclusion that plaintiff’s now undisputed factual allegations established a prima facie case. (2013 NY Slip Op 34010[U], *14, citing to Walley v Leatherstocking Healthcare, LLC, 79 AD3d 1236 [3d Dept 2010].) After reviewing the voluminous record (see id. at *6 n 2) Justice Jaeger concluded that plaintiff had established a prima facie case of fraudulent incorporation in that defendants had violated both Business Corporation Law §§ 1507 and 1508 and 11 NYCRR 65-3.16 and 65-3.11 (a):

“In sum, the overwhelming evidence indicates that the P.C. defendants were not owned [*3]and controlled by a licensed acupuncturist, therefore rendering them ineligible to receive reimbursement, and to collect payment on outstanding claims. Additionally, a billing provider which utilizes an independent contractor to provide the services in question, is not a ‘provider’ of the services in question and is not entitled to recover direct payment of assigned no-fault benefits from the defendant insurer.” (2013 NY Slip Op 34010[U], *18.)

Furthermore, on May 31, 2013, Justice Jaeger signed an order granting judgment to State Farm by default against all PC defendants, including Downtown. The order stated that “[the PC defendants] are unlawfully incorporated and are not entitled to collect No-Fault Benefits for any charges which they{**50 Misc 3d at 465} have submitted to State Farm” and that “State Farm is not obligated to pay the PC defendant” or their assignors for any health benefits provided. The order also decreed that “the PC defendants are not entitled to collect, and State Farm is not obligated to pay, No-Fault benefits for any charges that the PC defendants submitted to State Farm as such professional health services were provided by independent contractors or other non-employees of the PC defendants.” (Defendants’ exhibit A2.) The order with notice of entry was apparently served upon Gary Tsirelman, P.C., the attorney for then defendants Anikeyeva and Downtown and current attorney for plaintiffs herein. The Second Department affirmed this decision finding that defendants had failed to demonstrate reasonable excuse for their default in complying with the terms of the conditional order and a meritorious defense to the complaint. (State Farm Mut. Auto. Ins. Co. v Anikeyeva, 130 AD3d 1007, 1008 [2015].)

Before the instant trial began in late 2014, the defendant moved to have the case dismissed based on the doctrine of collateral estoppel. Defendant argued that Justice Jaeger’s order and decision precluded Downtown from arguing that it is eligible to receive no-fault benefits. Although defendant discussed its intention to utilize collateral estoppel in a pretrial conference, it never sought leave to amend its answer. In its brief, Downtown argued that defendant is barred from raising collateral estoppel because of defendant’s failure to amend its answer and the inapplicability of collateral estoppel in this case. Plaintiff also argued that collateral estoppel should not apply because the prior judgment was granted on default.

Collateral Estoppel or Issue Preclusion

It is well settled that a party may invoke the common-law doctrine of collateral estoppel to preclude another party from relitigating in a subsequent proceeding an issue clearly raised in a prior action and decided against that party or those in privity, whether or not the causes of action are the same. (In re Ferrandina, 533 BR 11 [ED NY 2015]; Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984]; Lavian v Bleier, 2010 NY Slip 31542[U] [Sup Ct, NY County 2010]; see Abrahams v Commonwealth Land Tit. Ins. Co., 120 AD3d 1165 [2d Dept 2014].) The issue must have been essential to the decision rendered in the first action and must be the point to be decided in the second action such that “a different judgment in the second would destroy or impair rights or interests established in the{**50 Misc 3d at 466} first.” (Psychology YM P.C. v Travelers Prop. Cas. Ins. Co., 33 Misc 3d 1201[A], 2011 NY Slip Op 51744[U], *2 [2011], citing Ryan at 501.)

Collateral estoppel bars relitigation of an issue when “[1] the identical issue [was] . . . decided in the prior action and [is] decisive [in] the present action, and [2] the party to be precluded from [*4]relitigating the issue . . . had a full and fair opportunity to contest the prior [issue].” (Kaufman v Eli Lilly & Co., 65 NY2d 449, 455 [1985]; see also Evans v Ottimo, 469 F3d 278, 281 [2d Cir 2006]; Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481, 485 [1979].) The proponent of collateral estoppel must demonstrate the identity of the issues whereas the party seeking to defeat its application has the burden of establishing the “absence of a full and fair opportunity to contest the prior determination.” (Buechel v Bain, 97 NY2d 295, 304 [2001]; Kaufman, 65 NY2d at 456; see Jeffreys v Griffin, 1 NY3d 34, 39 [2003]; Morrow v Gallagher, 113 AD3d 827, 828-829 [2d Dept 2014]; Nappy v Nappy, 100 AD3d 843, 845 [2d Dept 2012]; Windowizards, Inc. v S & S Improvements, Inc., 11 Misc 3d 130[A], 2006 NY Slip Op 50310[U], *2-3 [App Term, 2d Dept, 2d & 11th Jud Dists 2006].)

As to the first prong, preclusive effect will only be given where the particular issue was “actually litigated, squarely addressed and specifically decided.” (Crystal Clear Dev., LLC v Devon Architects of N.Y., P.C., 97 AD3d 716, 717-718 [2d Dept 2012].) To satisfy the “actually litigated” prong of this test, it “must have been properly raised by the pleadings or otherwise placed in issue and actually determined in the prior proceeding.” (Evans v Ottimo, 469 F3d at 282, citing D’Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 667 [1990]; Matter of Abady, 22 AD3d 71, 81 [1st Dept 2005].) For an identity of issues to exist, the issues presented must involve substantially identical legal theories and causes of action, and have no significant factual differences. (Kaufman, 65 NY2d at 455; see also Restatement [Second] of Judgments § 27, Comment c [1982] [court should consider whether there is substantial overlap between the evidence or argument, whether the new evidence or argument involves application of the same rule of law, whether pretrial preparation and discovery relating to the matter presented in the first action could be reasonably expected to have embraced the matter sought to be presented in the second, and how closely related the claims involved in the two proceedings are].){**50 Misc 3d at 467}

As to the second prong, a determination as to whether a full and fair opportunity was provided requires consideration of the “realities of the prior litigation” including the importance of the claim in the prior litigation, the forum and extent of the litigation, the incentive and initiative to litigate, the competence and expertise of counsel and the forseeability of future litigation. (Psychology YM at 5-6, citing to Ryan at 501; Gilberg v Barbieri, 53 NY2d 285, 292 [1981]; see Focus Radiology, P.C. v New York Cent. Mut. Ins. Co., 24 Misc 3d 126[A], 2009 NY Slip Op 51218[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2009].) An issue is not actually litigated if “there has been a default, a confession of liability, [a failure to provide discovery], a failure to place a matter in issue by proper pleading or even because of a stipulation” (Kaufman at 456-457; Matter of Abady at 83), and therefore a dismissal on these grounds will not usually be on the merits so as to bar a subsequent identical action. (Choicenet Chiropractic, P.C. v Clarendon Ins. Co., 24 Misc 3d 1216[A], 2009 NY Slip Op 51472[U] [Civ Ct, Richmond County 2009].)

A limited exception applies “where the party against whom collateral estoppel is sought to be invoked has appeared in the prior action or proceeding and has, by deliberate action, refused to defend or litigate the charge or allegation that is the subject of the preclusion request.” (Matter of Abady, 22 AD3d at 83-84; see Kalinka v Saint Francis Hosp., 34 AD3d 742, 744 [2d Dept 2006] [res judicata applies where dismissal in prior action was upon the grant of an order of [*5]preclusion after court determined that Kalinka willfully and contumaciously failed to comply with disclosure]; Kanat v Ochsner, 301 AD2d 456, 458 [1st Dept 2003] [collateral estoppel applies to judgment obtained upon default where defendants appeared and answered in prior action and engaged in extensive motion practice caused in large part by their “wilful and contumacious pattern of selective, partial responses to . . . pretrial discovery demands.” They therefore had a full and fair opportunity to fully litigate the underlying merits of the prior action “but affirmatively chose not to by their own failure to comply with court orders”]; Matter of Latimore, 252 AD2d 217 [1st Dept 1999] [collateral estoppel applies where respondent had ample opportunity to contest allegations in prior action yet allowed a default judgment to be entered against her and then failed to persuade the court to vacate said default].) To that end, a judgment issued as a result of preclusion after a party has refused to comply with discovery{**50 Misc 3d at 468} “is in fact a judgment on the merits” and must be given collateral effect. (Lavian v Bleier, 2010 NY Slip 31542[U], *6; see Strange v Montefiore Hosp. & Med. Ctr., 59 NY2d 737 [1983].)

Collateral estoppel may be invoked offensively as a sword in subsequent litigation by a nonparty to the prior litigation, provided that the party seeking to apply collateral estoppel can show that his opponent participated in the prior litigation and had a full opportunity to litigate the action on its merits. (B. R. DeWitt, Inc. v Hall, 19 NY2d 141, 147-148 [1967]; see also Windowizards, 11 Misc 3d 130[A], 2006 NY Slip Op 50310[U], *6 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Klein v Gutman, 38 Misc 3d 1211[A], 2012 NY Slip Op 52427[U] [Sup Ct, Kings County 2012]; Uptodate Med. Servs., P.C. v State Farm Mut. Auto. Ins. Co., 23 Misc 3d 42 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2009] [where insurer offensively utilized collateral estoppel based on prior declaratory action finding the provider was fraudulently incorporated].) Again, the proponent of collateral estoppel must show that the decisive issue was necessarily decided in the prior action and the party opposing collateral estoppel must show the absence of a full and fair opportunity to litigate the issue at hand. (Windowizards, 2006 NY Slip Op 50310[U], *4, citing Buechel v Bain, 97 NY2d at 304.)

Discussion

In the instant proceeding, defendant State Wide seeks to use collateral estoppel against Downtown based upon a declaratory judgment, granted on default, that Downtown and other PC defendants were unlawfully incorporated and therefore not entitled to receive no-fault benefits. The predicate for the Supreme Court finding was that the purported owner of Downtown and other acupuncture PCs, Valentina Anikeyeva, did not actually own and control the PCs which were actually owned and controlled by unlicensed acupuncturists, in violation of New York law and regulations, and that the services provided therein were performed by independent contractors also in violation of the state regulations. As set forth above, State Wide may assert this doctrine even though it was not a party to the previous action brought by a different insurance company—State Farm—because Downtown was a party to the prior action.

[1] In the prior proceeding, Downtown Acupuncture and its purported owner had more than a full and fair opportunity to litigate the issue of fraudulent incorporation. Downtown{**50 Misc 3d at 469} submitted answers in the declaratory judgment action, was represented by the same attorney appearing on behalf of Downtown herein, and had ample opportunity to comply with Justice Jaeger’s conditional order [*6]of preclusion. Justice Jaeger found that all of the PCs, including Downtown, had engaged in “willful and contumacious” behavior by failing to comply with plaintiff’s discovery demands and his conditional order of preclusion. He also found that defendants had stipulated to the consequences of their conduct and proffered “no adequate excuse for their noncompliance.” Finally, rather than merely basing his decision on defendants’ default, Justice Jaeger searched the record based upon plaintiff’s “now undisputed factual allegations” and found that plaintiff had legally made out a prima facie case of fraudulent incorporation.

[2] However, at this juncture, defendant State Wide cannot meet the first prong of the test for collateral estoppel—that there is “an identity of issues” between the two cases involving the same legal theories and causes of actions. State Wide never amended its answer to include the defense of unlawful incorporation and thus has not met the threshold of even raising the issue of fraudulent incorporation. As it has not raised the issue, it cannot now argue that there is an identity of issues warranting collateral estoppel. It must first amend its answer.

[3] The defense of fraudulent incorporation, also known as the “Mallela defense,“^[FN*] is a “statutory defense” arising from a claimant’s failure to comply with the Business and Education Laws, as opposed to a policy exclusion or extent of coverage issue provided by a contract of exclusion. (Manhattan Med. Imaging, P.C. v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 1144[A], 2008 NY Slip Op 51844[U] [Civ Ct, Richmond County 2008], citing Eastern Med., P.C. v Allstate Ins. Co., 19 Misc 3d 775 [Dist Ct, Nassau County 2008].) Healthcare service providers are not eligible to receive no-fault benefits if they are incorporated in violation of the applicable New York licensing requirements{**50 Misc 3d at 470} contained in Business Corporation Law §§ 1507, 1508 and Education Law § 6507 (4) (c) (I). (See Liberty Mut. Ins. Co. v Excel Imaging, P.C., 879 F Supp 2d 243, 256 [ED NY 2012]; Concourse Chiropractic, PLLC v State Farm Mut. Ins. Co., 35 Misc 3d 1213[A], 2012 NY Slip Op 50676[U], *4-5 [Dist Ct, Nassau County 2012] [“The factual foundation of a Mallela defense involves proof that persons not licensed to practice the profession for (which) the professional corporation . . . was formed are the actual owner or are actually controlling the operation of the business”]; Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 39 [App Term, 2d Dept, 2d & 11th Jud Dists 2007].) “Nor may a medical services corporation bill for services provided by physicians who are not employees of the corporation, such as independent contractors.” (Liberty Mut. Ins. Co., 879 F Supp 2d at 257; see 11 NYCRR 65-3.11 [a].)

The Mallela defense is not subject to preclusion and hence is non-waivable. (Lexington Acupuncture, P.C. v General Assur. Co., 35 Misc 3d 42, 48 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]; see Lexington Acupuncture, P.C. v State Farm Ins. Co., 12 Misc 3d 90, 92 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Concourse Chiropractic, PLLC v State Farm Mut. Ins. Co., 35 Misc 3d 1213[A], 2012 NY Slip Op 50676[U], *5 [Dist Ct, Nassau County 2012]; Manhattan Med. Imaging, P.C. v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 1144[A], 2008 NY Slip Op 51844[U] [Civ Ct, Richmond County 2008].) A defendant may plead this defense at any time since the courts have interpreted 11 NYCRR 65-3.16 (a) (12) to bar reimbursement of no-fault benefits without regard to when the services were rendered. (Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 39 [App Term, 2d Dept, 2d & 11th Jud Dists 2007], citing Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407, 408 [1st Dept 2006]; Urban Radiology, P.C. v GEICO Ins. Co., 28 Misc 3d 1230[A], 2010 NY Slip Op 51554[U], *1 [Civ Ct, Kings County 2010].) A court may even grant a motion for summary judgment on this unpleaded defense where a plaintiff has not asserted any surprise or prejudice. (Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d at 39; see also Ingordo v Square Plus Operating Corp., 276 AD2d 528 [2d Dept 2000].) Therefore, even if defendants did not include the Mallela defense in their answer they could raise it before the trial.

However, defendant is two steps removed from asserting collateral estoppel in the instant matter. The proper way to assert a claim of fraudulent incorporation is to plead it as a defense{**50 Misc 3d at 471} to an action to obtain reimbursement of assigned no-fault benefits or to bring a declaratory action seeking judgment that the provider is not eligible to obtain no-fault benefit because it has failed to comply with the licensing requirements of 11 NYCRR 65-3.16 and 65-3.11 (a). (Concourse Chiropractic, PLLC v State Farm Mut. Ins. Co., 35 Misc 3d 1213[A], 2012 NY Slip Op 50676[U], *6 [Dist Ct, Nassau County 2012].) Here, defendant never even sought to amend its answer to include the Mallela defense and must do so prior to even raising collateral estoppel as an affirmative defense.

Similarly, collateral estoppel is an affirmative defense that should generally be pleaded in the answer or a pre-answer motion to dismiss. (CPLR 3018, 3211 [a] [5]; see also Surlak v Surlak, 95 AD2d 371, 383 [2d Dept 1983].) While the courts have considerable discretion to permit amendment of pleadings in the absence of a showing of prejudice (CPLR 3025 [b]; see also Aurora Loan Servs., LLC v Dimura, 104 AD3d 796, 796 [2d Dept 2013]; Worthen-Caldwell v Special Touch Home Care Servs., Inc., 78 AD3d 822, 823 [2d Dept 2010]), the proponent seeking to amend the pleadings must make a formal motion. (See Laundry v Bolton, 43 Misc 3d 1205[A], 2014 NY Slip Op 50498[U] [Sup Ct, Kings County 2014]; Fernandez v The New Happy Nail, Inc., 2014 WL 8735152 [Sup Ct, Queens County 2014]; CPLR 3025 [b].)

This court cannot even entertain defendant’s request for collateral estoppel until it seeks to amend its answer to raise Mallela as a defense and hence create an apparent identity of issues between the declaratory judgment action and the instant matter. In the same motion to amend it can also assert collateral estoppel. After defendant formally moves to amend, plaintiff will be afforded the opportunity to argue how it would be prejudiced by such a motion. The court is quite dubious that plaintiff will be able to show any prejudice or surprise since the Appellate Term noted as early as 2012 that “[t]here exists a rich history of litigation, involving a multitude of cases before the Appellate Term, in which health care facilities allegedly owned by Ms. Anikeyeva have been asked to supply Mallela discovery.” (Lexington Acupuncture, P.C., 35 Misc 3d at 49 [Golia, J. concurring].) However, sometimes form over substance does matter and plaintiff must be afforded the opportunity to argue prejudice or disclaim the apparent identity of issues.

Footnotes

Footnote *:In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the Court of Appeals held that professional corporations that are improperly incorporated or licensed are ineligible to recover no-fault benefits and that insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims. At issue in Mallela was the prohibition of “nonphysicians . . . owning or controlling medical service[s] corporations.” (Id. at 321; see Lexington Acupuncture, P.C. v General Assur. Co., 35 Misc 3d 42, 45 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012].)

[*1]

Civil Court of the City of New York, Kings County, September 11, 2015

APPEARANCES OF COUNSEL

Law Office of Melissa Betancourt, P.C., Brooklyn, for plaintiffs.

Bruno, Gerbino & Soriano, LLP, Melville, for defendant.

Plaintiffs move, via order to show cause (OSC), for an order pursuant to CPLR 2304, 2303, and 311, quashing defendant’s judicial subpoena duces tecum and granting plaintiffs a protective order pursuant to CPLR 3103 (a). Defendant opposes.

After a review of the papers presented, all relevant statutes and case law, the court grants the OSC in part and denies it in part.

The instant action was commenced to recover first-party no-fault benefits in the amount of $3,674.68, for medical services rendered to plaintiffs’ assignor as a result of injuries he allegedly sustained in an automobile accident occurring on or about May 19, 2012. Plaintiffs commenced the action via service of a summons and complaint on or about May 17, 2013. Defendant interposed its answer on or about August 22, 2013.

On or about April 2, 2014, defendant served a subpoena duces tecum upon TD Bank, located at 1701 Route 70, East Cherry Hill, NJ 08034. The subject subpoena indicates that the information sought is related to the time period of “January 1, 2008 or the date of the account origination, whichever is earlier, to the present.” Additionally, the subpoena demands the production of all documentation related to specific account number (REDACTED). No names of any individuals appear therein.

The following documentation sought includes:

“a) monthly account transaction statements; b) copies of all checking statements, cancelled checks, including both the front of the check and the back; c) copies of all bank reconciliations; d) account formation and governance documents, including but not limited to signature cards, powers of attorney and corporate resolutions; e) all documents{**49 Misc 3d at 928} reflecting or relating to deposits and/or cash withdrawals, electronic fund transfers and/or wire transfers, including but not limited to all deposit and/or withdrawal slips; f) copies of all documentation relating to any and all loan accounts and/or investment accounts, including but not limited to mortgages and lines of credit, and any and all statements, payments and loan draws; and g) all correspondence between the bank and each of the account holders identified above.”

Plaintiffs argue that their OSC to quash the subject subpoena is an absolute necessity in view of said subpoena’s numerous fatal defects. First, they argue that the subpoena was not properly served in accordance with the methods promulgated by CPLR 311, and also that no proof of service has been submitted. Next, they argue that defendant’s subpoena fails to tender, in advance, traveling expenses to the witness(es) as required by CPLR 2303. Plaintiffs further argue that since the subpoena is overly broad, excessive, and fails to name the holder of the aforementioned account number, it is tantamount to the proverbial “fishing expedition,” where the sole intent is to “ascertain [*2]whether documents exist rather than to compel the production of specific documents” (OSC ¶ 8). Lastly, plaintiffs argue that this court should grant their request for a protective order, so as to shift the burden on defendant to prove that the information it seeks is “material and necessary” for its defense in this action (id. ¶ 17).

In opposition, defendant argues that it properly served the subpoena on the nonparty witness, TD Bank, pursuant to CPLR 2303. Defendant annexes a copy of the affidavit of service demonstrating that on April 18, 2014, personal service was effected upon Michael Esposito, “Store Manager,” of the TD Branch located at 2025 Broadhollow Road, Farmingdale, NY 11735 (aff in opp, exhibit A). Said affidavit also indicates that Ryan LeGrady, the individual who served same, requested Mr. Esposito to provide photo identification. In response, Mr. Esposito produced a New York State driver’s license. Defendant also argues that the absence of the witness fee requirement does not render the subpoena defective, in that the instant{**49 Misc 3d at 929} subpoena seeks documents, as opposed to the actual appearance of any individual(s). Defendant further argues that plaintiffs lack standing to challenge the basis of the subpoena because they simply “do not have a proprietary or possessory interest in the bank records sought” (id. ¶ 7).

Furthermore, defendant argues that it is entitled to the production of the demanded documents because they are material and necessary evidence related to defendant’s Mallela defense (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]). In Mallela, the Court of Appeals held that a

“medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§ 1507, 1508, and N.Y. Education Law § 6507 (4)(c) [is not] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq., and its implementing regulations, [even] for medical services rendered by licensed medical practitioners” (Mallela, 4 NY3d at 320).

In support of its Mallela argument, defendant annexes the examination under oath transcript of Dr. Brij Mittal, owner of plaintiff Jamaica Wellness Medical, P.C., as its exhibit E. Defendant argues that Dr. Mittal’s testimony raises increasing suspicion regarding the formation and ownership of Jamaica Wellness Medical, P.C. Specifically, Dr. Mittal testified that his license had previously been revoked for misuse and that he took over a “fully functional medical practice, with support staff, without any payment or agreement” (aff in opp ¶ 15). Furthermore, defendant asserts that this testimony unequivocally demonstrates that “Dr. Mittal is completely unfamiliar with the practice of retaining physical therapists from an ‘agency’ whose name he does not know and that Dr. Mittal admitted to practices that constitute improper billing for services rendered by non-employees in violation of the No-Fault Regulations” (id.).

Therefore, defendant argues that it has demonstrated that its Mallela-based defenses are meritorious and that the subpoena at issue seeks material related to said defenses. Furthermore, defendant argues that since its disclosure demands are made with good cause, plaintiffs are not entitled to the issuance of a protective order.

Conclusions of Law

The court first finds that service of the subject subpoena was proper, in that it was personally served “upon [a] domestic . . . {**49 Misc 3d at 930}corporation, to [a] . . . managing . . . agent,” in accordance with CPLR 311 (a) (1). The court rejects plaintiffs’ contention that defendant’s subpoena is defective in that defendant failed to tender traveling expenses in advance to the witness as required by CPLR 2303. The subject subpoena specifically pertains to the production of documents, not any individual, and clearly states that said documents may be mailed to defendant’s attorney.

The court now addresses what it perceives to be the more significant issue at hand, that is the substance and relevance of the subject subpoena. The court finds defendant’s argument that plaintiffs lack standing to contest the subpoena to be unavailing. A motion to quash may be made by the nonparty witness or “by one of the parties or a party’s lawyer” (McDaid v Semegran, 16 Misc 3d 1102[A], 2007 NY Slip Op 51227[U], *3 [Sup Ct, Nassau County 2007]; see also Snedeker v Schiff Hardin LLP, 2010 NY Slip Op 30151[U] [Sup Ct, Nassau County 2010]). “An application to quash a subpoena should be granted ‘[o]nly where the futility of the process to uncover anything legitimate is inevitable or obvious’ . . . or where the information sought is ‘utterly irrelevant to any proper inquiry’ ” (Matter of Kapon v Koch, 23 NY3d 32, 38 [2014]; see also Anheuser-Busch, Inc. v Abrams, 71 NY2d 327, 331-332 [1988], citing Matter of Edge Ho Holding Corp., 256 NY 374, 382 [1931]). The party moving to vacate the subpoena bears the burden of establishing that the subpoena should be vacated under such circumstances (see Matter of Dairymen’s League Coop. Assn., Inc. v Murtagh, 274 App Div 591 [1st Dept 1948]; Ledonne v Orsid Realty Corp., 83 AD3d 598, 599 [1st Dept 2011]).

In contemplating the relevance and extent of the disclosure/discovery demanded in a subpoena duces tecum, one must first look to CPLR 3101 for guidance and instruction. Pursuant to CPLR 3101 (a) (4), a party may obtain discovery from a nonparty in possession of material and necessary evidence, provided that the nonparty is informed of the circumstances or reasons disclosure is sought. CPLR 3101 provides in pertinent part: “(a) Generally. There shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof, by: . . . (4) any other person, upon notice stating the circumstances or reasons such disclosure is sought or required.”

“The [phrase] ‘material and necessary’ [is] . . . to be interpreted liberally to require disclosure, upon request, of any{**49 Misc 3d at 931} 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” (Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968]; see also Yoshida v Hsueh-Chih Chin, 111 AD3d 704, 705 [2d Dept 2013]; Medical Polis, P.C. v Progressive Specialty Ins. Co., 34 Misc 3d 153[A], 2012 NY Slip Op 50342[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]; Lexington Acupuncture, P.C. v General Assur. Co., 35 Misc 3d 42 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2012]).

CPLR 3101 (a) (4) also contains a notice requirement with regard to nonparties, wherein the subpoenaing party must first state either on the face of the subpoena, or in a notice accompanying it, “the circumstances or reasons such disclosure is sought or required” (Kapon v Koch, 23 NY3d at 34). It is evident that the CPLR imposes more rigid and stringent requirements for disclosure demands made on a nonparty as opposed to an actual party, “presumably to afford a nonparty who has no idea of the parties’ dispute or a party affected by such request an opportunity to decide how to respond” (Velez v Hunts Point Multi-Serv. Ctr., Inc., 29 AD3d 104, 110 [1st Dept 2006]).

In Kapon, the Court of Appeals rejected the argument “that CPLR 3101 (a) [(4)] contains distinctions between disclosure required of parties and nonparties” (Kapon at 36), and has also instructed that CPLR “3101 (a) (4) imposes no requirement that the subpoenaing party demonstrate that it cannot obtain the requested disclosure from any other source” (id. at 38). Moreover, if the subpoenaing party complies with the notice requirement promulgated by CPLR [*4]3101 (a) (4), it merely needs to establish that the discovery it seeks is “material and necessary” to the prosecution or defense of the action (id.). However, with a motion to quash a subpoena, the party or nonparty still must establish that the discovery sought is “utterly irrelevant” to the action or that the “futility of the process to uncover anything legitimate is inevitable or obvious” (id., citing Matter of Edge Ho Holding Corp. at 382; see also Ferolito v Arizona Beverages USA, LLC, 119 AD3d 642, 643 [2d Dept 2014]).

This court has witnessed the meteoric rise of the Mallela defense in the past year. In some cases, the carrier denies a plaintiff no-fault benefits based solely on the mere suspicion of fraudulent activity. In other cases, the carrier establishes a well articulated and reliable basis for its denial. Consequently, with regard to the issue of whether a professional entity is{**49 Misc 3d at 932} fraudulently incorporated, the court has grappled with the two profound competing interests involved. These interests are a plaintiff’s right to privacy with regard to its financial records and business affairs, and defendant’s right to the disclosure of and access to “relevant” information in its legitimate quest to expose a fraudulently incorporated professional service corporation. Indeed, this appears to be the primary reason that “[t]he supervision of discovery, the setting of reasonable terms and conditions for disclosure, and the determination of whether a particular discovery demand is appropriate, are all matters within the sound discretion of the trial court, which must balance competing interests” (Kooper v Kooper, 74 AD3d 6, 17 [2d Dept 2010]).

In the case at bar, the court acknowledges defendant’s zealous attempt to illuminate what, quite frankly, does appear to be illegal conduct. However, the deficiency inherent in the subpoena it relies on to obtain proof of same, severely undermines its efforts. Simply put, defendant’s subpoena fails to state on its face, or via an accompanying notice, “the circumstances or reasons such disclosure is sought or required” (Kapon, 23 NY3d at 39). This is a procedural defect which this court cannot overlook.

“As to motions for a protective order, CPLR 3103(a) not only permits a non-party witness to seek such an order in his/her own right, but also permits any party opposing the disclosure to make the motion” (McDaid v Semegran, 2007 NY Slip Op 51227[U], *2, quoting Matter of MacLeman, 9 Misc 3d 1119[A], 2005 NY Slip Op 51675[U], *5 [Sur Ct, Westchester County 2005]; see also Snedeker v Schiff Hardin LLP; Nexray Med. Imaging PC v Allstate Ins. Co., 39 Misc 3d 1237[A], 2013 NY Slip Op 50910[U] [Nassau Dist Ct 2013]). The burden is on the moving party to establish the need for a protective order (see Koump v Smith, 25 NY2d 287, 294 [1969]; Vivitorian Corp. v First Cent. Ins. Co., 203 AD2d 452, 452-453 [2d Dept 1994]).

“A motion for a protective order . . . is addressed to the sound discretion of the trial court” (Boylin v Eagle Telephonics, 130 AD2d 538, 538 [2d Dept 1987]). CPLR 3103 (a) provides that

“[t]he court may at any time on its own initiative, or on motion of any party or of any person from whom or about whom discovery is sought, make a protective order denying, limiting, conditioning or regulating the use of any disclosure device. Such{**49 Misc 3d at 933} order shall be designed to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts.”

Therefore, in accordance with the foregoing, it is hereby[*5] ordered that the portion of plaintiffs’ OSC wherein they seek to quash the subpoena is granted based on defendant’s failure to provide the nonparty witness with the notice required under CPLR 3101 (a) (4); and it is further ordered that the portion of plaintiffs’ OSC wherein they seek a protective order is denied; and it is further ordered that defendant may serve the subpoena again, accompanied by the required notice.

720728/12

Evan Polansky, Esq.
Counsel for plaintiffs
Gary Tsirelman, PC
129 Livingston Street
Brooklyn, NY 11201

Richard C. Aitken, Esq.
Bruno, Gerbino & Soriano, LLP
Counsel for defendant
445 Broad Hollow Road
Suite 220
Melville, NY 11747

Stephen Goldblatt, Esq.
Counsel for defendant
3315 Nostrand Avenue
Suite L1-A
Brooklyn, NY 11229

In this action to recover assigned first-party no-fault insurance benefits, three medical providers sought reimbursement for services rendered to the assignor as the result of an automobile accident that occurred on August 4, 2010, in Brooklyn, New York. Defendant [*2]insurance carrier averred that plaintiffs may not obtain payment of first-party insurance benefits as a result of the accident because the assignor’s policy was terminated ab initio due to material misrepresentations in securing the policy. In opposition, plaintiffs contended that Rhode Island law does not permit termination of an automobile insurance policy ab initio. The parties stipulated to the facts, leaving the court to determine only whether a Rhode Island automobile insurance policy issued by the Rhode Island Automobile Insurance Plan may be terminated ab initio.

Pursuant to a deposition of Felix Cordova, the assignor, recorded on November 22, 2010, the parties agreed that Mr. Cordova did not know his Rhode Island address by memory and had to read it from his driver’s license. Mr. Cordova resided at 703 Ditmas Avenue, Brooklyn, New York for thirteen to fourteen years with his wife, daughter and granddaughter, and resided in Rhode Island only on weekends for three years at a property that was owned by friends. Mr. Cordova purported to be the owner of the Brooklyn property, although his wife is listed as the owner. Mr. Cordova owns a car repair shop/dealership located in Bridgeton, New Jersey. The parties further stipulated that the assignor made a material misrepresentation in his application for the subject policy and defendant issued a reservation of rights letter on October 28, 2010, and a denial letter on March 14, 2011.

The parties agreed that if plaintiffs prevailed, 37th Avenue Medical, P.C. would be entitled to reimbursement in the amount of $1,903.68, Elective Acupuncture, P.C. would receive $2,472.53, and AKA Chiropractic, P.C. would receive $526.54, and that although Rhode Island does not provide no-fault medical reimbursement, as in New York, coverage would be provided under the “out of state accident” coverage clause of the policy, which requires the insurer to provide the minimum coverage required in the state where the accident occurred.

Rhode Island General Laws § 31-33-8 (a) governs certain specialty automobile insurance plans, and provides,

After consultation with the insurance companies authorized to issue automobile liability and/or physical damage policies in this state, the insurance commissioner shall approve a reasonable plan or plans fair to the insurers and equitable to their policy holders, for the apportionment among the companies of applicants for motor vehicle liability and/or physical damage insurance who are in good faith entitled to but are unable to procure insurance through ordinary methods.

The policy at issue is such a liability and property damages policy issued through the Rhode Island Automobile Insurance Plan (see also Rhode Island General Laws § 31-47-16). The only portion of the policy in dispute here is the liability section since no claim for property damages was asserted.

Regulation 16, section 10, which was promulgated by Rhode Island General Laws §§ 27-8-11, 27-9-1 et seq., 31-47-4 and 42-14-17, governs cancellation and renewal of all Rhode Island automobile insurance policies, unless specifically exempted. It states:

No insurer may rescind ab initio coverage required by the terms of R.I. Gen Laws § 31-47-1 et seq. [requiring mandatory automobile liability insurance]. Whether or not rescission ab initio is available for other coverages is not addressed by this Regulation and shall be governed by the applicable statutory and case law of this state. Nothing in [*3]this section shall vary the ability of the insurer to cancel automobile liability coverage on a prospective basis, as long as the requirement of all statutes and Regulations governing cancellation are met [emphasis added].

Thus, according to Regulation 16, rescission ab initio is generally not permitted for Rhode Island automobile liability insurance policies.

Moreover, Regulation 16, sections 4, 5 and 6, prescribe the grounds for cancellation and non-renewal of automobile policies and the required notices. Specifically excluded is liability insurance policies issued through the Rhode Island Insurance Plan. The court will not presume that this omission was inadvertent.

The Rhode Automobile Insurance Plan Handbook and Rhode Island Department of Business Regulation provide further guidance as to the rules of cancellation and rescission of the insurance policy here. Section 15 (B) (g) (2) of the Rhode Automobile Insurance Plan Handbook states that rescission is only allowed to the extent permitted by law. The Rhode Island Department of Business Regulation also addressed this issue in Insurance Bulletin 2003-3, dated January 31, 2003, and provided as follows:

It is the Department’s position that the common law right of rescission of contracts has been preempted by the enactment of the Motor Vehicle Reparations Act R.I. Gen. Laws § 31-47-1 et seq. with regard to automobile liability insurance. Therefore, an insurer may not rescind an automobile liability insurance policy on any ground which may have been available at common law. In cases where automobile liability is one of a number of coverages in the policy, the automobile liability portion is severed from the remainder of the policy for this purpose and the remainder of the policy is subject to rescission pursuant to the legal requirements for such action. This position does not affect an insurer’s ability to prospectively cancel an Automobile Liability policy in accordance with all statutes and Regulation governing cancellation (2003 WL 25270929 [RI INS BUL]).

Therefore, it is apparent that Rhode Island has elected not to terminate automobile liability insurance policies retroactively even when procured by material misrepresentations. As such, the automobile liability insurance policy here may not be rescinded ab initio.

Accordingly, plaintiffs are entitled to judgment. The Clerk of the Court shall enter judgment in favor of 37th Avenue Medical, P.C. in the amount of $1,903.68, Elective Acupuncture, P.C. in the amount of $2,472.53, and AKA Chiropractic, P.C. in the amount of $526.54. In addition, plaintiffs shall each be compensated for costs, statutory interest, and attorney’s fees.

This constitutes the decision and order of the court.

____________________

Hon. Reginald A. Boddie

Acting Supreme Court Justice

[*1]

Civil Court of the City of New York, Kings County, July 1, 2015

APPEARANCES OF COUNSEL

Deirdre J. Tobin & Associates, Garden City, for defendant.

Gary Tsirelman P.C., Brooklyn (Stefan Belinfanti of counsel), for plaintiff.

Plaintiff AR Medical Rehabilitation P.C., a medical services provider, seeks to recover no-fault benefits for services it provided to its assignors. Defendant State-Wide Insurance Co. moves to dismiss the claim on the ground that plaintiff failed to establish its prima facie case by offering proof of mailing. The issue is whether a plaintiff may offer an NF-10 denial of claim form into evidence to prove that it mailed the subject claim form and that the insurer received it.

The Second Department has repeatedly held that a plaintiff no-fault provider establishes its prima facie entitlement to judgment by submitting proper evidentiary proof that it generated and mailed the prescribed statutory billing forms to the defendant insurer, that the defendant [*2]received it, and that the no-fault benefits were overdue. (Westchester Med. Ctr. v Progressive Cas. Ins. Co., 89 AD3d 1081, 1082 [2d Dept 2011]; see New York Hosp. Med. Ctr. of Queens v QBE Ins. Corp., 114 AD3d 648 [2d Dept 2014]; Lexington Acupuncture PC v MVAIC, Civ Ct, Kings County, 2012, index No. 13328/09; New York Hosp. Med. Ctr. of Queens v Motor Veh. Acc. Indem. Corp., 12 AD3d 429 [2d Dept 2004]; Mary Immaculate Hosp. v Allstate Ins. Co., 5 AD3d 742, 742-743 [2d Dept 2004].)

In Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co. (25 NY3d 498, 506 [2015]), the Court of Appeals affirmed the aforementioned precedent, stating that in a no-fault summary judgment motion where benefits are overdue, the plaintiff must prove that the “statutory claim forms were mailed to and received by the insurer,” citing with approval New York Hosp. Med. Ctr. of Queens v QBE Ins. Corp. Amplifying on this standard, the Court ruled that a medical provider must “submit proof of mailing through evidence in admissible form,” which proof may include “the verification of treatment form and/or an affidavit from a person or entity (1) with knowledge of the claim and how it was sent to the insurer or (2) who has relied upon the forms in the performance of their business.” (Id. at 507.)

{**49 Misc 3d at 920}In affirming the Second Department holding, the Court of Appeals also upheld the lower court’s holding that the burden of proving submission is generally met by an affidavit of a billing agent or an employee averring that he or she personally mailed the claim forms to the insurer or averring that a standard office practice or procedure designed to ensure that items were properly addressed and mailed was followed. (Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 114 AD3d 33, 45 [2d Dept 2013]; see also NYU Hosp. for Joint Diseases v Country Wide Ins. Co., 84 AD3d 1043, 1043-1044 [2d Dept 2011] [Plaintiff established its prima facie case by submitting, among other things, the certified mail receipt, and the signed return receipt card referencing the patient and the forms, which demonstrated that the plaintiff mailed the necessary billing documents to the defendant]; Residential Holding Corp. v Scottsdale Ins. Co., 286 AD2d 679, 680 [2d Dept 2001] [“The presumption (of mailing) may be created by either proof of actual mailing or proof of a standard office practice or procedure designed to ensure that items are properly addressed and mailed”].) The Court of Appeals emphasized that affidavits in support of the motion for summary judgment, which presumably would include affidavits of mailing, must fall within the business record exception in CPLR 4518 to the rule against hearsay.

Neither the Court of Appeals nor the Second Department in Viviane Etienne addressed whether at trial a medical provider could forgo evidentiary proof of its mailing procedure by relying upon its receipt of a denial form from the insurer. Prior to Viviane Etienne, the Appellate Term, Second Department found that a medical provider’s receipt of an NF-10 denial form from the insurer was sufficient to establish that the claim form was sent by the medical provider and received by the insurer. (See Eagle Surgical Supply, Inc. v Allstate Ins. Co., 42 Misc 3d 145[A], 2014 NY Slip Op 50343[U] [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2014]; EMC Health Prods., Inc. v Geico Ins. Co., 43 Misc 3d 139[A], 2014 NY Slip Op 50786[U], *1 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2014]; Oleg Barshay, D.C., P.C. v State Farm Ins. Co., 14 Misc 3d 74 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Accessible & Advance Med. P.C. v Allstate Ins. Co., 12 Misc 3d 147[A], 2006 NY Slip Op 51599[U], *1 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Prestige Med. & Surgical Supply, Inc. v Clarendon Natl. Ins. Co., 13 Misc 3d 127[A], 2006 NY Slip Op 51672[U], {**49 Misc 3d at 921} *2 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; see also AR Med. Rehabilitation, P.C. v State-Wide Ins. Co., 47 Misc 3d 1215[A], 2015 NY Slip Op 50631[U] [Civ Ct, Kings County 2015].) This is because plaintiff is not trying to use the denial as its own business record pursuant to CPLR 4518 (a) but rather as an admission by defendant that the claim form has been received. (Eagle Surgical, 2014 NY Slip Op 50343[U], *1; EMC Health Prods., 2014 NY Slip Op 50786[U], *1 [“Defendant’s denials admitted the receipt of the bills at issue . . . and plaintiff was not required to establish a CPLR 4518 foundation for the bills”]; King’s Med. Supply Inc. v Country-Wide Ins. Co., 5 Misc 3d 767, 770 [Civ Ct, Kings County 2004].)

Accordingly, a plaintiff may establish its prima facie case by submitting a copy of its proof of claim form accompanied by an affidavit or testimony of its billing manager as to his personal knowledge of the issuance of the claim and a copy of the defendant’s denial form indicating when defendant received the claim and when it denied it. (Oleg Barshay; King’s Med. Supply at 770.) The Viviane Etienne ruling does not alter this equation since the NF-10 is not being admitted for the truth of the matters asserted therein and therefore does not need to fall within the business records exception delineated in the Etienne decisions.

In light of the above, the court finds that plaintiff’s submission into evidence of the NF-10 denial is sufficient to establish that defendant received the claim. Plaintiff therefore established its prima facie case. As defendant did not present any witnesses to establish its defense, judgment is awarded to plaintiff.

70806/2005

Gary Tsirelman, PC
Attorney for Plaintiff
129 Livingston Street
Brooklyn, NY 11201
by Stefan Belinfanti, Esq.

Law Office of Deirdre J. Tobin & Assoc.
Attorney for Defendant
P.O. Box 9330
Garden City, NY 11530
by Janine Gentile, Esq.

Plaintiff brought this action to recover assigned first-party no-fault benefits in the amount of $3,960.57. Trial commenced on February 13, 2015, and was continued over several days. The issues presented were whether plaintiff may establish submission and receipt of its claim through the use of defendant’s witness and whether defendant insurer asserted a valid defense in denying payment.

At trial, instead of the customary method of establishing a prima facie case by calling a witness of the provider, plaintiff called defendant’s claims examiner, Ms. Dachs. Ms. Dachs testified that defendant received plaintiff’s bills for dates of service 11/17/03-1/19/04.

The denial, dated 7/26/04, indicated bills in the amount of $3,962.57, for dates of service 11/17/03-1/19/04, were received between 1/23/03 [sic] and 3/1/04. It also stated, “By the claimants [sic] own admission he allegedly was treated by a chiropractor and acupuncturist. [*2]However carrier received bills from an orthopedic [sic] and a physical therapist as well. Claimant stated that the receptionist at the chiropractors [sic] office gave him supplies, not an outside vendor as carrier was billed from. Carrier questions validity of claim/treatment.” Neither party presented the actual bills and defendant relied on these latter statements as the basis for the denial. Both parties rested and moved for a directed verdict. The court reserved decision and heard closing arguments.

In no-fault insurance cases, plaintiff’s prima facie burden requires establishing proof of submission to the defendant of the claim and that defendant failed to pay or deny the claim within thirty days or issued a denial that was vague, conclusory or without merit as a matter of law (see Insurance Law § 5106 [a]; Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co., 114 AD3d 33 [2d Dept 2013]; Ave T MPC Corp. v Auto One Ins. Co., 32 Misc 3d 128[A], 2011 NY Slip Op 51292[U], *1 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]; see Westchester Med. Ctr. v Nationwide Mut. Ins. Co., 78 AD3d 1168 [2d Dept 2010]).

The Appellate Term reached a similar result in Prestige Med. & Surgical Supply, Inc. v Clarendon Natl. Ins. Co. (13 Misc 3d 127[A], 2006 NY Slip Op 51672[U], *1 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]). There, the court, albeit in the context of a motion for summary judgment, found that although a “provider [ordinarily] establishes the submission’ of the claim form by demonstrating proof of proper mailing, which gives rise to the presumption that the claim form was received by the addressee,” where plaintiff’s proof was insufficient to establish mailing, the “deficiency was cured by defendant’s acknowledgment of receipt in its denial of claim forms [citations omitted] and by the admissions of the claims’ receipt in the affidavits by defendant’s claims adjusters” (id. at *2). As such, the court found plaintiff met its prima facie burden and the burden shifted to defendant to demonstrate triable issues of fact (id. [citations omitted]).

Thus, after the provider establishes submission of the bills, defendant’s burden is to prove that it paid or denied the claims within 30 days as required by statute (see Insurance Law § 5106 [a]; Insurance Department Regulations [11 NYCRR] § 65-3.8 [c]). Defendant may extend its time to pay or deny the claims by issuing timely requests for verification (11 NYCRR 65-3.5 [b]). However, it is well-established that delay letters that do not timely request verification will not serve to toll the time to pay or deny a claim (see 11 NYCRR 65-3.5 [a] [1]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535 [2d Dept 2005] [citations omitted]).

Here, rather than the customary method of establishing submission and receipt of the claim through introduction of a witness of the assignee or its billing company, as was articulated in Viviane Etienne (114 AD3d at 45), plaintiff proved such through the testimony of defendant’s witness and the introduction of the denial into evidence, which referenced the bills at issue. The court finds plaintiff was not constrained to prove its case through the conventional method of producing its own witness, but was permitted to prove such through admissible evidence using the documents and witnesses of the defendant insurer (Prestige Med. & Surgical Supply, Inc., 13 Misc 3d 127[A], 2006 NY Slip Op 51672[U], at * 2; Optimal Well-Being Chiropractic, P.C., [*3]46 Misc 3d 129[A], 2014 NY Slip Op 51807[U], at *1-*2; East Acupuncture, P.C. v Electric Ins. Co., 16 Misc 3d 128[A], 2007 NY Slip Op 51281[U], *1 [App Term, 2d Dept, 2d & 11th Jud Dists 2007] [holding NF-10 claim denial forms and affidavits of defendant’s claims examiner cured deficiencies in plaintiff’s proof of mailing]).

Furthermore, it is well-settled that “a medical provider is not required, as part of its prima facie case, to demonstrate the admissibility of its billing records or the truth of their content under the business records exception to the hearsay rule” (New York Hosp. Med. Ctr. of Queens v QBE Ins. Corp., 114 AD3d 648 [2d Dept 2014], citing see CPLR 4518 [a]; Viviane Etienne Med. Care P.C., 114 AD3d at 45). Where the insurer fails to timely contest the adequacy of the claims forms at the claims stage, as here, it is precluded from relying on any deficiencies in those forms or raising evidentiary challenges to the admissibility of the contents of the billing forms under the business records exception at the litigation stage (New York Hosp. Med. Ctr. of Queens, 114 AD3d at 649 [citations omitted]).

Therefore, defendant’s attack on the validity of the bills at trial here will not suffice to defeat plaintiff’s proof of a prima facie case. The testimony of Ms. Dachs and the denials were accepted into evidence and treated as admissions of receipt of the bills and the amount billed and not as a testament to the truth of their content (see Viviane Etienne Med. Care, P.C., 114 AD3d at 45). This result is consistent with the regulatory scheme for the prompt payment and processing of no-fault claims (see id.). Thus, plaintiff sufficiently met its prima facie burden by eliciting the credible testimony of defendant’s witness and admission of defendant’s denials. By establishing submission and receipt of the bills, the plaintiff shifted the burden to defendant to establish a valid defense for its failure to timely issue payment (see Viviane Etienne Med. Care, P.C., 114 AD3d at 45, 47; see Westchester Med. Ctr., 78 AD3d at 1169).

Defendant failed to meet its burden of establishing a justiciable defense because it failed to pay or deny the claims within 30 days as required by statute (see Insurance Law § 5106 [a]; 11 NYCRR 65-3.8 [c]). Defendant also failed to extend its time to pay or deny the claims by issuing timely requests for verification (11 NYCRR 65-3.5 [b]). As defendant is sufficiently aware, delay letters, as here, that do not timely request verification will not suffice to toll the time to pay or deny a claim (see 11 NYCRR 65-3.5 [a] [1]; Nyack Hosp. v Encompass Ins. Co., 23 AD3d 535 [2d Dept 2005]). After the fact, only a non-precluded defense will suffice to prevent payment (see 11 NYCRR 65-3.8). Further, although defendant denied these claims based on alleged fraud, no fraud was demonstrated at trial and defendant failed to produce a competent witness or other evidence from which same could be adduced.

Accordingly, based on the credible testimony of Ms. Dachs and examination of the denial and other exhibits admitted into the record, the court finds plaintiff met its prima facie burden of establishing proof of submission of the bills to defendant, receipt of the bills, and that payment is overdue (see Viviane Etienne Med. Care, P.C., 114 AD3d 33; see Westchester Med. Ctr., 78 AD3d 1168; see Ave T MPC Corp., 32 Misc 3d 128[A]). Defendant failed to establish an adequate defense to payment (see 11 NYCRR 65-3.8; see Viviane Etienne Med. Care, P.C., 114 AD3d at 45-47; see Nyack Hosp. v Encompass Ins. Co., 23 AD3d at 536). Therefore, plaintiff is entitled to a judgment.

The Clerk of the Court shall enter judgment for the plaintiff in the amount of $3,960.57 plus statutory costs, interest, and attorney’s fees. The motions for directed verdict are denied as moot. This constitutes the Decision and Order of the Court.

_________________________

Hon. Reginald A. Boddie

Acting Supreme Court Justice

[*1]

Civil Court of the City of New York, Queens County, April 24, 2015

APPEARANCES OF COUNSEL

Bruno, Gerbino & Soriano, LLP, Melville (Lienne Pisano of counsel), for defendant.

The Odierno Law Firm, P.C., Melville (Paul Bargellini of counsel), for plaintiff.

Defendant’s motion for summary [*2]judgment is decided as follows:

This is an action to recover assigned no-fault benefits for chiropractic services allegedly rendered to plaintiff’s assignor on February 20, 2013 in the billed amount of $1,365.68. Defendant seeks an order dismissing this action based upon plaintiff’s alleged violation of Insurance Department Regulations Implementing the Comprehensive Motor Vehicle Insurance Reparations Act (11 NYCRR) § 65-3.16 [a] [12]), which states as follows:

“A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the Insurance Law 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.”

On July 8, 2013, as established by Lori Mann, a claims representative employed by defendant, a timely denial of plaintiff’s bill was issued, based, inter alia, upon plaintiff’s alleged illegal fee-splitting. On February 10, 2014, defendant served a notice to admit, pursuant to CPLR 3123, upon the plaintiff, seeking to admit a copy of a contract purportedly entered into between plaintiff and its billing company, Systems Management Group, Inc. (SMG). The purported contract states that “[t]he Practice will pay SMG 6% of all fees charged & ultimately collected by SMG.” The court notes that the purported contract is not in admissible form as defendant has failed to lay a sufficient foundation for its admission (see Bajaj v General Assur., 18 Misc 3d 25 [App Term, 2d Dept, 2d & 11th Jud Dists 2007]). Defendant also submits the deposition transcript of Dr. Lucas Bottcher, DC, a member of the plaintiff’s practice. Therein, Dr. Bottcher admitted that plaintiff employs SMG and they are paid a fixed fee of five percent of collections. Defendant argues that since plaintiff allegedly pays six (or five) percent of its fees to its billing company, that its billing company owns six percent of plaintiff’s practice.

In opposition, plaintiff correctly argues that no court has found improper fee-splitting to be fraud nor a licensing requirement. Furthermore, defendant failed to present any case law{**47 Misc 3d at 1077} that improper fee-splitting is a defense in a no-fault action. Finally, plaintiff contends there is no support for the assertion that payment of six percent of receivables constitutes any form of ownership or control over the plaintiff. As such the parties have presented a case of first impression.

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313 [2005]), the Court of Appeals upheld the Insurance Department’s regulation and held that a medical corporation that was fraudulently incorporated under Business Corporation Law §§ 1507 and 1508, and Education Law § 6507 (4) (c) is not entitled to be reimbursed by insurers, under Insurance Law § 5101 et seq. Business Corporation Law §§ 1507 and 1508, as applied to this action, prohibit non-chiropractors from owning any shares of or serving on the board of a professional corporation authorized to provide chiropractic services. Mallela and its progeny (Metroscan Imaging, P.C. v GEICO Ins. Co., 13 Misc 3d 35 [App Term, 2d Dept, 2d & 11th Jud Dists 2006]; Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2013]) have consistently held that ownership of a professional corporation by non-professionals renders that corporation ineligible to [*3]recover no-fault benefits and that a carrier may conduct an investigation and look beyond the licensing documents in order to identify improper ownership and control of a professional corporation.

Defendant alleges that plaintiff has violated a licensing requirement by engaging in impermissible fee-splitting, in violation of the Rules of the Board of Regents (8 NYCRR) § 29.1 (b) (4) and Education Law §§ 6509-a and 6530 (19), with its billing company, Systems Management Group, Inc. Pursuant to 8 NYCRR 29.1 (b) (4) and Education Law § 6530 (19), unprofessional conduct shall include:

“permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice [the same profession], or a legally authorized trainee practicing under the supervision of a licensed practitioner. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a professional licensee constitutes{**47 Misc 3d at 1078} a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice.”

In Necula v Glass (231 AD2d 457 [1st Dept 1996]), the Appellate Division found that the Department of Social Services had properly found that petitioner had engaged in illegal fee-splitting pursuant to 8 NYCRR 29.1 (b) (4) where petitioner had entered into contracts with management companies under which the management companies were to provide facilities, supplies, equipment and staff necessary to operate his professional practice and petitioner was to pay the companies a percentage of his receipts. In Sachs v Saloshin (138 AD2d 586, 587 [2d Dept 1988]), the Appellate Division found that “by tendering a percentage of his patient fees to the plaintiffs, [defendant] violated the public policy of this State as reflected in Education Law § 6509-a [and] the rules for professional conduct established by the Board of Regents (8 NYCRR 29.1 [b] [4]).” A common thread throughout all of the cases cited by defendant is that while courts will refuse to enforce a contract which violates 8 NYCRR 29.1 (b) (4) and the Education Law, any punishment for unprofessional misconduct as defined by those sections is imposed by the State Board for Professional Medical Conduct. In cases where the State Board has imposed punishments, the role of the courts has been to review those punishments in the context of a CPLR article 78 proceeding.

In Mallela (4 NY3d at 322), the Court found that in the licensing context, carriers will be unable to show “good cause” unless they can demonstrate behavior tantamount to fraud and that technical violations will not do. In every case where 11 NYCRR 65-3.16 (a) (12) has been successfully used as a complete and non-precludible defense in a no-fault action, the provider has been found to have committed violations of Business Corporation Law §§ 1507 and 1508 and Education Law § 6507 (4) (c) and appears to have never been based upon impermissible fee-splitting alone. The issue in this case is the definition of the term “licensing requirement.” The Court in Mallela (at 321) highlighted that the medical service corporation in that case “exists to receive payment only because of its willfully and materially false filings with state regulators.” Furthermore, the Court noted in footnote 2 that the Superintendent of Insurance promulgated 11 NYCRR 65-3.16 (a) (12) “to combat rapidly growing incidences of fraud in the no-fault regime, fraud that he has identified as correlative with the corporate practice of medicine by nonphysicians” (Mallela at 320 n 2).

{**47 Misc 3d at 1079}In this case, plaintiff has not been shown to have filed any fraudulent documents with the State and has not allowed non-physicians to control any aspect of their practice. As such, it is the conclusion of this court that impermissible fee-splitting, standing alone, is not a violation of a licensing requirement, does not constitute an available defense to a no-fault action and, as such, any action is solely within the purview of the appropriate state licensing board.

For the foregoing reasons, defendant’s motion is hereby denied in its entirety.

[*1]

Civil Court of the City of New York, Bronx County, April 7, 2015

APPEARANCES OF COUNSEL

Peter C. Merani, P.C., New York City (Joshua Youngman of counsel), for defendant.

Cohen & Jaffe, LLP, Lake Success (Aaron J. Perretta of counsel), for plaintiff.

Plaintiff initiated this action against defendant to recover assigned first-party no-fault benefits for medical services it provided on October 21, 2013 to its assignor for injuries sustained by its assignor resulting from a June 18, 2013 accident. Defendant now moves for summary judgment, pursuant to CPLR 3212.

Factual and Procedural Background

Plaintiff’s assignor, Hector Flores, was involved in a motor vehicle accident on June 18, 2013. After the accident, Mr. Flores underwent outpatient surgery at plaintiff’s facility in Saddle Brook, New Jersey, on October 21, 2013.{**48 Misc 3d at 338}

Plaintiff as the assignee of Mr. Flores submitted a claim to defendant in the amount of $11,778. Defendant received the claim on November 29, 2013, and issued a payment in the amount of $1,629.75 on January 3, 2014. Defendant denied the balance of plaintiff’s claim by a denial of claim form dated January 3, 2014 and mailed no later than January 6, 2014 to plaintiff. Defendant denied the balance of the claim because the amount billed exceeds the New Jersey fee schedule. Plaintiff commenced this action to recover the full $11,778 alleging that “[t]here has been no payment of the subject [b]ill” despite defendant’s payment of $1,629.75.

Arguments

Defendant seeks summary judgment on the ground that plaintiff’s bill exceeds the amount allowed under the New Jersey fee schedule in contradistinction to 11 NYCRR 68.1. Defendant annexes to its summary judgment motion an affidavit from a claims representative, who has received training in no-fault regulations and workers’ compensation fee schedules and is a certified coder, describing how she determined that plaintiff’s bill for the medical services provided on October 21, 2013 exceeds the New Jersey fee schedule. Defendant tacitly acknowledges that it did not issue its denial for the balance of the claim within the 30-day time frame required under 11 NYCRR 65-3.8 by arguing that the timeliness of its denial is irrelevant because a recent amendment to 11 NYCRR 65-3.8 makes the defense of billing above the fee schedule a non-waivable defense.

Plaintiff opposes defendant’s summary judgment motion arguing that appellate case law has explicitly established that failure to deny a bill within 30 days of its receipt precludes an insurance company from denying the claim. Plaintiff cites Mercury Cas. Co. v Encare, Inc. (90 AD3d 475 [1st Dept 2011]) and Westchester Med. Ctr. v American Tr. Ins. Co. (17 AD3d 581 [2d Dept 2005]) for the proposition that “defenses predicated upon a proper rate of payment for services rendered must be preserved within a proper and timely denial of claim.” Plaintiff tacitly concedes that it billed above the New Jersey fee schedule but argues that because it is an out of state provider, 11 NYCRR 68.6 governs not 11 NYCRR 68.1 and 11 NYCRR 68.6 does not constrain plaintiff to billing at the rate set forth in the New Jersey fee schedule. According to plaintiff, 11 NYCRR 68.6 does not limit out of state providers to the provider’s{**48 Misc 3d at 339} state’s fee schedule rate but merely requires plaintiff to charge for its services at the prevailing rate for its geographic location. Plaintiff asserts that if New York wanted to require out of state providers to charge at the fee schedule rate for their geographic location, the New York Legislature would have explicitly mandated that fees for out of state medical services be billed at the fee schedule for the provider’s geographic location. Plaintiff’s opposition does not include an affidavit from an individual who is familiar with coding and fee schedules. Instead, plaintiff posits that it need not submit an affidavit from someone with personal knowledge of coding and fee schedule issues because defendant has failed to make a prima facie showing that it is entitled to summary judgment as a matter of law.

Analysis

The proponent of a motion for summary judgment bears the initial burden of coming forward with evidence showing prima facie entitlement to judgment as a matter of law, and, unless that burden is met, the opponent need not come forward with any evidence at all. (Penava Mech. Corp. v Afgo Mech. Servs., Inc., 71 AD3d 493, 495-496 [1st Dept 2010], citing Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980].)

Once the movant establishes prima facie entitlement to judgment, the burden shifts to the opposing parties to “demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action” (Zuckerman at 560). While all “facts must be viewed ‘in the light most favorable to the non-moving party’ ” (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012], quoting Ortiz v Varsity Holdings, LLC, 18 NY3d 335, 339 [2011]), mere conclusory allegations or defenses are insufficient to defeat summary judgment (see Zuckerman, 49 NY2d at 562).

Billing Rate

[1] Under New York’s no-fault insurance statutory and regulatory scheme a New York State medical provider may bill for eligible services in an amount not in excess of the amount allowed under the workers’ compensation fee schedule. (Insurance Law § 5108 [a]; 11 NYCRR 68.1.) “The purpose of the [no-fault] statute and the fee schedules promulgated thereunder is to ‘significantly reduce the amount paid by insurers for medical services, and thereby help contain the no-fault premium’ ” {**48 Misc 3d at 340}(Goldberg v Corcoran, 153 AD2d 113, 118 [2d Dept 1989], quoting Governor’s Program Bill, 1977 McKinney’s Session Laws of NY at 2449, and citing Governor’s Mem in Support of Assembly Bill A7781-A).

However, for health services performed outside New York State, pursuant to 11 NYCRR 68.6, the medical provider may charge for its services according to “the prevailing fee in the geographic location of the provider.” As noted above plaintiff argues that if the New York Legislature intended out of state providers to be limited to billing for their services at the applicable fee schedule for their geographic location, the legislature would have explicitly said so in section 68.6 rather than allowing the providers to bill at the prevailing fee for their geographic location.

The court disagrees with plaintiff’s argument for three reasons. First, allowing plaintiff to bill at a rate above the New Jersey fee schedule would undermine the purpose of the no-fault scheme, “to significantly reduce the amount paid by insurers . . . thereby help[ing] to contain the no-fault premium.” (Goldberg, 153 AD2d at 118 [internal quotation marks omitted].) Indeed, the circumstances of this case illustrate that point. Plaintiff billed $11,778 for the medical services it provided to its assignor on October 21, 2013. Defendant’s certified fee coder determined, using New Jersey’s fee schedule, that plaintiff was entitled to a payment in the amount of $1,629.75 for the services plaintiff provided on [*4]October 21, 2013, a $10,148.25 difference or over six times the amount allowed under the New Jersey fee schedule. If plaintiff and those providers similarly situated were allowed to bill for their services at such an increased rate above what the fee schedule allows for their geographic location, no-fault premiums would likely increase, a result the no-fault statutory and regulatory scheme was designed to avoid. (Id.)

In support of its argument that had the New York Legislature intended out of state providers to limit their fees to the fee schedule for their geographic location it would have specifically said so in section 68.6, plaintiff refers to New Jersey Administrative Code (NJAC) § 11:3-29.4 (d) (2) which provides in pertinent part that “[w]hen the service or equipment is provided by reason of the election by the insured to receive treatment outside the State of New Jersey, the reasonable and necessary costs shall not exceed fees set forth in the fee schedules for the geographic region in which the insured{**48 Misc 3d at 341} resides.” Comparing section 68.6 with NJAC § 11:3-29.4 (d), plaintiff concludes that “[h]ad the New York Legislature intended for the ‘prevailing fee schedule’ to act as the de facto rate by which medical services rendered outside of New York state are measured, it would have specifically enumerated such within [section 68.6] as the New Jersey legislature did with its Administrative Code.” However, plaintiff misreads New Jersey’s rule and thereby undercuts its argument. New Jersey’s rule does not limit providers to the fee schedule amount for the provider’s geographic location as plaintiff suggests, but rather limits providers to the fee schedule amount where the claimant/insured resides. In this court’s opinion, New York’s out of state provider reimbursement rule more accurately compensates out of state providers since it takes into account the economic vagaries of the provider’s region rather than imposing on the provider the fee schedule rate of the claimant/insured which may not reflect the same economic conditions as the fee schedule in the provider’s geographic location.

Moreover, plaintiff’s argument that if the New York Legislature wanted to limit out of state providers to the fee schedule for their geographic location the legislature would have explicitly said so is premised upon the assumption that every other state has enacted no-fault statutes. The New York Legislature likely set out of state provider rates at the prevailing fee for their geographic locations rather than at the fee schedule rates in order to take into account providers located in regions that do not have no-fault statutes and/or fee schedule rates.

Finally, plaintiff’s argument that it is not limited to billing at the New Jersey fee schedule is not supported by another goal of the no-fault statute which is “to reduce the burden on the courts.” (Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 317 [2007].) Adopting plaintiff’s reading of section 68.6 would require the court to hold a hearing every time the claimant received medical treatment from an out of state provider to determine the “prevailing fee” for the provider’s geographic location thereby increasing the burden on the courts manyfold.

Accordingly, for all of these reasons the court holds that the “prevailing fee” as that term is used in section 68.6 is the amount permitted under New Jersey’s fee [*5]schedule. (Surgicare Surgical v National Interstate Ins. Co., 46 Misc 3d 736, 744{**48 Misc 3d at 342} [Civ Ct, Bronx County 2014] [holding “that, when services are rendered outside of New York but in a jurisdiction which utilizes a fee schedule, the insurer complies with section 68.6 by paying . . . the amount permitted by that jurisdiction’s fee schedule”].)

Timeliness of Denial

[2] 11 NYCRR 65-3.8 (a) (1) provides in pertinent part that “[n]o-fault benefits are overdue if not paid within 30 calendar days after the insurer receives proof of claim.” Here there is no dispute that defendant did not deny plaintiff’s claim within 30 calendar days after it received proof of plaintiff’s claim.

“There are substantial consequences [for] an insurer’s failure to pay or deny a claim within 30 days.” (A.M. Med. Servs., P.C. v Progressive Cas. Ins. Co., 101 AD3d 53, 65 [2d Dept 2012] [internal quotation marks omitted], citing Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312 [2007].) Where an insurance carrier fails to deny a claim within the 30-day period, it is generally precluded from asserting a defense against payment of that claim. (Id., citing Presbyterian Hosp. in City of N.Y. v Maryland Cas. Co., 90 NY2d 274, 282-283 [1997].) However, a narrow exception to this preclusion rule is recognized in “situations where an insurance company raises a defense of lack of coverage.” (Hospital for Joint Diseases, 9 NY3d at 318.) Under these circumstances, “an insurer who fails to issue a timely disclaimer is not prohibited from later raising the defense because the insurance policy does not contemplate coverage in the first instance, and requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed.” (Hospital for Joint Diseases, 9 NY3d at 318 [internal quotation marks omitted].)

The test for “determining whether a specific defense is precluded . . . or available . . . entails a judgment: Is the defense more like a ‘normal’ exception from coverage (e.g., a policy exclusion), or a lack of coverage in the first instance (i.e., a defense ‘implicat[ing] a coverage matter’)?” (Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556, 565 [2008].) An example of a normal exception from a coverage/policy exclusion is where the insurer alleges the billed for services were never rendered. (Id.) Thus, an insurer is precluded from raising this defense unless timely raised in its denial. (Id.) An example of a lack of coverage in the first instance is an insurer’s “founded belief that the alleged injury does not arise out of an insured incident.” (Central Gen. Hosp. v Chubb Group of Ins.{**48 Misc 3d at 343} Cos., 90 NY2d 195, 199 [1997].) An insurer is not precluded from raising this defense even though it failed to issue a denial within the 30-day period under Insurance Law § 5106 (a) and 11 NYCRR 65-3.8 (a). (Id.)

Appellate authority stands for the proposition that a defense that the provider’s bill exceeds the maximum allowed under the fee schedule is a policy exclusion defense and thus precluded if not preserved within a timely issued denial of claim. (Mercury [*6]Cas. Co. v Encare, Inc., 90 AD3d 475 [1st Dept 2011], lv denied 18 NY3d 810 [2012] [holding fee schedule defense does not fit within narrow exception for denials based on lack of coverage]; Okslen Acupuncture, P.C. v N.Y. Cent. Mut. Fire Ins. Co., 37 Misc 3d 127[A], 2012 NY Slip Op 51887[U], *1 [App Term, 1st Dept 2012] [holding “insurer did not timely deny the claim for first-party no-fault benefits within the prescribed 30-day period, (therefore,) it is precluded from asserting the defense that the fees charged were excessive”].)

However, a February 2013 amendment to the insurance regulations regarding timeliness of fee schedule defenses calls into question whether Mercury Cas. Co. and Okslen Acupuncture P.C. are still controlling authority. 11 NYCRR 65-3.8 provides in pertinent part that

“(g) (1) [p]roof of the fact and amount of loss sustained pursuant to Insurance Law section 5106 (a) shall not be deemed supplied by an applicant to an insurer and no payment shall be due for such claimed medical services under any circumstances:

“(i) when the claimed medical services were not provided to an injured party; or

“(ii) for those claimed medical service fees that exceed the charges permissible pursuant to Insurance Law sections 5108 (a) and (b) and the regulations promulgated thereunder for services rendered by medical providers.”^[FN*]

Here the parties agree that the medical services were provided to an “injured party,” someone having a claim for {**48 Misc 3d at 344}benefits pursuant to New York’s statutory and regulatory no-fault insurance scheme, and this case does not involve an issue under Insurance Law § 5108 (a), a New York fee schedule dispute.

The relevant portion of section 65-3.8 (g) (1) for this case is subparagraph (ii) and its reference to Insurance Law § 5108 (b). This case is within the rubric of section 5108 (b) because the court is called upon to interpret 11 NYCRR 68.6, a regulation promulgated by the insurance superintendent, and as already stated above, the court interprets 11 NYCRR 68.6 as requiring plaintiff to bill for its services at the applicable New Jersey fee schedule rate for its geographic location. As such, this case involves a [*7]fee that exceeds the charges permissible pursuant to Insurance Law § 5108 (b) requiring the court to interpret and determine the applicability of 11 NYCRR 65-3.8 (g) (1) (ii).

The parties do not cite to a case interpreting section 65-3.8 (g) (1) (ii) and the court did not find such a case. Therefore, it appears to be a question of first impression whether 65-3.8 (g) (1) (ii) allows an insurer to assert a fee schedule defense even though it did not issue a denial of claim within 30 days of receipt of the claim asserting that the provider billed at a rate above the amount permitted under the applicable fee schedule for the provider’s geographic location.

Parsing section 65-3.8 (g) (1) assists in its interpretation. 11 NYCRR 65-3.8 (g) (1) relieves insurers from the obligation to pay first-party no-fault benefits under two sets of circumstances. Section 65-3.8 (g) (1) (i) relieves an insurer from paying a claim when the medical provider renders services to a patient who is not an injured party. In other words, the insurance company is not required to reimburse a provider for medical services provided to someone who is not an accident victim as that term is understood under the Insurance Law. (See Insurance Law § 5108 [b].) Section 65-3.8 (g) (1) (i) codifies an example of a defense that is more akin to a lack of coverage in the first instance because coverage never legitimately came into existence. (Fair Price Med. Supply Corp., 10 NY3d at 565.)

The court determines that the superintendent intended the same result for section 65-3.8 (g) (1) (ii). The court reaches this determination for two reasons. First, the plain language of the regulation relieves an insurer of paying the provider “under any circumstances” when the claimed medical service fees exceed the permissible amount pursuant to the applicable fee{**48 Misc 3d at 345} schedule for the provider’s geographic location. (Klein v Empire Blue Cross & Blue Shield, 173 AD2d 1006, 1009 [3d Dept 1991] [noting that “(g)enerally, the plain language used in a regulation should be construed in its natural and most obvious sense” (citation omitted)].) Therefore, “any circumstances” includes instances where the insurer fails to issue a denial raising the fee schedule as an issue within 30 days of its receipt. Second, the preceding subparagraph (i) is a codification of a defense that falls squarely within the realm of defenses that are more akin to lack of coverage in the first instance. (Matter of MHG Enters. v City of New York, 91 Misc 2d 842, 846 [Sup Ct, NY County 1977] [reasoning that “(i)n interpreting the language of a statute or regulation, the court must give meaning to its words ‘in the context of their particular setting’ ”], quoting Motor Veh. Acc. Indem. Corp. v Eisenberg, 18 NY2d 1, 3 [1966].)

This interpretation of section 65-3.8 (g) (1) (ii) conflicts with the holdings of Mercury Cas. Co. and Okslen Acupuncture P.C. wherein the First Department Appellate Division and Appellate Term held that fee schedule defenses are precluded if not raised in a timely issued denial. However, those cases predate the amendment to section 65-3.8 (g) (1) and the court determines that subparagraph (ii) abrogates Mercury Cas. Co. [*8]and Okslen Acupuncture P.C. The court reaches this determination because “[a]n administrative agency’s exercise of its rule-making powers is accorded a high degree of judicial deference, especially when the agency acts in the area of its particular expertise” (Matter of Consolation Nursing Home v Commissioner of N.Y. State Dept. of Health, 85 NY2d 326, 331 [1995]) and where the regulation is “in harmony with the statute’s over-all purpose.” (Matter of General Elec. Capital Corp. v New York State Div. of Tax Appeals, Tax Appeals Trib., 2 NY3d 249, 254 [2004] [internal quotation marks and citation omitted].) Here, the regulation pertains to an area of expertise within the Insurance Division of the Department of Financial Services. (Consolation Nursing Home, 85 NY2d at 331.) Furthermore, allowing an insurer to raise a fee schedule defense even though it was not preserved in a timely issued denial is in harmony with the no-fault statute’s goal of significantly reducing “the amount paid by insurers . . . thereby help[ing] [to] contain the no-fault premium.” (Goldberg, 153 AD2d at 118; General Elec. Capital Corp., 2 NY3d at 254.)

For these reasons, the court holds that where an insurer fails to issue a denial within 30 days of its receipt of a claim{**48 Misc 3d at 346} raising a fee schedule issue, under 11 NYCRR 65-3.8 (g) (1) (ii) the insurer is not precluded from raising its defense that the provider billed above the applicable amount permitted under the fee schedule for the provider’s geographic location in an action by the provider for first-party no-fault benefits.

Conclusion Defendant has established prima facie entitlement to summary judgment against plaintiff pursuant to defendant’s fee schedule defense under 11 NYCRR 65-3.8 (g) (1) (ii), by demonstrating that plaintiff’s bills for services provided sought amounts in excess of the amount permitted under the New Jersey fee schedule and that defendant made partial payment of plaintiff’s claim in accordance with the New Jersey fee schedule. Plaintiff has failed to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action.

Accordingly, defendant’s motion for summary judgment is granted in its entirety and plaintiff’s claim is dismissed with prejudice.

The Clerk is directed to enter judgment in favor of defendant.

Footnotes

Footnote *:Insurance Law § 5108 provides in pertinent part that

“(a) [t]he charges for services . . . shall not exceed the charges permissible under the schedules prepared and established by the chairman of the workers’ compensation board . . .

“(b) The superintendent, after consulting with the chairman of the workers’ compensation board and commissioner of health, shall promulgate rules and regulations implementing and coordinating the provisions of this article.”

029970/14

Jaffe & Koumourdas appeared for Country-Wide Insurance Company

Law Offices of Gary Tsirelman appeared for New Century Acupuncture P.C. A/A/O William Dew

This proceeding arises out of an arbitration in which respondent New Century Acupuncture P.C. (“New Century”) sought reimbursement from petitioner Country-Wide Insurance Company (“Country-Wide”) for healthcare services which New Century allegedly provided to its assignor, William Dew, following a motor vehicle accident which occurred on May 23, 2011.

A hearing on this claim, together with seven similar claims, was held on May 20, 2014 before Michael Rosenberger, an arbitrator designated by the American Arbitration Association (“AAA”).^[FN1] Country-Wide argued that New Century’s claim for no-fault benefits should be dismissed on the grounds, inter alia, that New Century was fraudulently incorporated. Specifically, it claimed that New Century falsely represented in its certificate of incorporation that it was owned or controlled solely by licensed professionals. See, generally, State Farm Mut. Auto Insurance Co. v Mallela, 4 NY3d 313 (2005).

Country-Wide contends that New Century was actually owned or co-owned and controlled by an individual named Andrey Anikeyev, who pleaded guilty on February 15, 2013 to conspiracy to commit mail fraud and health care fraud, in violation of Title 18, United States Code, Section 371.^[FN2] As part of his plea, Mr. Anikeyev was required to forfeit his right to a number of bank accounts, including a bank account under New Century’s name.

In the Arbitration Award, issued on May 28, 2014 in favor of New Century, the arbitrator noted that Dr. Kondranina, the disclosed owner of New Century, had not been charged by any governmental agency with any crimes. He further found that there was no evidence showing Dr. Kondranina knew Mr. Anikeyev was in possession of the bank account or that Dr. Kondranina gave a substantial portion of his profits to Mr. Anikeyev.^[FN3]

The arbitrator thus concluded that Country-Wide failed to meet its burden of showing by clear and convincing evidence that New Century is actually owned by Mr. Anikeyev.

Country-Wide then pursued an appeal through AAA’s Master Arbitration process in which it argued, inter alia, that Arbitrator Rosenberger failed “to disclose a relationship, direct or indirect, with New Century Acupuncture PC and its attorneys [which] mandates vacatur.” Specifically, Country-Wide alleged that the arbitrator “is or was” a named partner of Rapuzzi Palumbo & Rosenberger, P.C., a law firm which “is closely related to” the firm of Gabriel & Shapiro, P.C., which has represented and continues to represent [*2]New Century in other no-fault proceedings.^[FN4]

The master arbitrator, Victor D’Ammora, issued a Master Arbitration Award dated August 26, 2014, upholding the Arbitration Award, finding that “[t]here is nothing in the record before me to indicate that Arbitrator Rosenberger’s decision was arbitrary, capricious, or incorrect as a matter of law.” He further determined that “[t]he issue of any possible bias or fraud by Arbitrator Rosenberger cannot be raised for the first time in this Master Arbitration and will not be considered.”

Country-Wide then filed the instant petition in which it seeks an order pursuant to CPLR §§ 7511(b)(1)(i) and 7511(b)(1)(iii) vacating the Master Arbitration Award and permanently staying the arbitration of New Century’s claim against Country-Wide for no-fault benefits on the ground that the Master Arbitrator exceeded his authority by confirming the Arbitration Award.

Country-Wide argues, inter alia, that the Award must be vacated based on Arbitrator Rosenberger’s failure to disclose his past and/or present relationship with New Century and its attorneys.

It is well settled that

[t]he judiciary should minimize its role in arbitration as judge of the arbitrator’s impartiality. That role is best consigned to the parties, who are the architects of their own arbitration process, and are better informed of the prevailing ethical standards and reputations within their business.

Matter of J.P. Stevens & Co., Inc. V Rytex Co., 34 NY2d 123, 128 (1984), quoting Commonwealth Coatings Corp. v Continental Cas. Co., 393 US 145 (1968) (White, J., concurring).

However, the parties’ role in this process “can only be achieved if, prior to the commencement of the arbitration, the arbitrator discloses to the parties all facts which might reasonably cause one of them to ask for disqualification of the arbitrator.” Matter of J.P. Stevens & Co., Inc. v Rytex Co., supra at 128.

Therefore, ” it is incumbent upon an arbitrator to disclose any relationship which raises even a suggestion of possible bias’ (citation omitted).” Matter of Kern v 303 East 57th Street Corp. 204 AD2d 152, 153 (1st Dep’t 1994), lv to app denied, 84 NY2d 210 (1994). See also, Matter of Soma Partners, LLC v Northwest Biotherapeutics Inc., 41 AD3d 257 (1st Dep’t 2007), app. dism’d, 9 NY3d 942 (2007); Matter of Catalyst Waste-to-Energy Corp. of Long Island v City of Long Beach, 164 AD2d 817, 820 (1st Dep’t 1990), app. dism’d, 76 NY2d 1017 (1990).

The failure of an arbitrator to disclose facts that might give rise to an inference of bias mandates vacatur of the arbitrator’s award. See, Matter of Soma Partners, LLC v Northwest Biotherapeutics Inc., supra; Matter of Morgan Guaranty Trust Company of New York v Solow Building Co., LLC, 279 AD2d 431 (1st Dep’t 2001).

New Century argues that this Court, like the master arbitrator, should decline to review the allegation that the arbitrator failed to disclose a potential bias because Country-Wide failed to raise any objection at the initial arbitration. See, Matter of J.P. Stevens & Co., Inc. v Rytex Co., supra at 129, which held that “a party to an arbitration may [not] sit idly back and rely exclusively upon the arbitrator’s disclosure” where that party has “actual knowledge of the arbitrator’s bias, or of facts that reasonably should have prompted further, limited inquiry.”

However,

[w]hile such responsibility to ascertain potentially disqualifying facts does rest upon the parties, the major burden of disclosure properly falls upon the arbitrator. After all, the arbitrator is in a far better position than the parties to determine and reveal those facts that might give rise to an inference of bias. Further, the very nature of the arbitrator’s quasi-judicial function, particularly since it is subject to only limited judicial review, demands no less a duty to disclose than would be expected of a Judge (citations omitted).”

Matter of J.P. Stevens & Co., Inc. v Rytex Co., supra at 129. See also, Matter of Milliken Woolens, Inc. v Weber Knit Sportswear, 11 AD2d 166 (1st Dep’t 1960), aff’d, 9 NY2d 878 (1961).

There is no evidence that Country-Wide was aware of a potential conflicting relationship before or at the time of the [*3]hearing, nor is there any indication that Country-Wide possessed sufficient facts that reasonably should have prompted it to conduct a further inquiry.^[FN5] Therefore, the issue of the arbitrator’s potential bias is properly before this Court.^[FN6]

New Century alternatively argues that there is no basis to vacate the Arbitration Award absent any evidence that Mr. Rosenberger ever directly represented New Century in any matter. It contends that Country-Wide has, at most, established a remote or mere occasional association between the arbitrator and the law firm of Gabriel & Shapiro. See, Tricots Liesse (1983), Inc. v Intrex Industries, Inc., 284 AD2d 226, 227 (1st Dep’t 2001), lv to app. denied, 97 MY2d 606 (2001); Matter of Chernuchin v Liberty Mutual Insurance Company, 268 AD2d 521, 522 (2nd Dep’t 2000).

Here, however, there is considerable evidence that the arbitrator had more than a remote or occasional association with Gabriel & Shapiro, which has and continues to represent New Century in various no-fault proceedings.

There is no dispute that Mr. Rosenberger co-published an article in the New York Law Journal in 2013 with Jason A. Moroff, a partner at Gabriel & Shapiro, who apparently represented New Century at a AAA hearing as recently as May 28, 2014, the same day Mr. Rosenberger issued the Arbitration Award at issue in this proceeding.

There is also no dispute that the arbitrator’s law firm, Rapuzzi Palumbo & Rosenberger, shared space with Gabriel & Shapiro at 3361 Park Avenue in Wantagh, New York. Moreover, New Century does not refute Country-Wide’s representation that Rapuzzi Palumbo & Rosenberger is listed on the New York Division of Corporations Database under the “current entity name” of Gabriel [*4]& Shapiro, P.C.

Finally, there is no dispute that Gabriel & Shapiro’s current website is located at www.rprlawfirm.com, an address which appears to strongly suggest an affiliation or continuing connection with the law firm of Rapuzzi Palumbo & Rosenberger.

New Century contends that these factors merely show that Rapuzzi Palumbo & Rosenberger was “taken over” by Gabriel & Shapiro. However, New Century has failed to submit any documents clarifying the nature and circumstances of the alleged takeover or merger of the firms at issue. Moreover, New Century has failed to submit an affidavit from any attorney at Gabriel & Shapiro (which would presumably be amenable to assisting its client in this matter) attesting that Mr. Rosenberger has severed all financial and professional ties with that firm.

Therefore, based on the papers submitted and after hearing oral argument, this Court finds that the failure of the arbitrator to disclose his connection to Gabriel & Shapiro and to provide Country-Wide with a timely opportunity to reasonably ask for his disqualification based on a potential bias, mandates vacatur of the Arbitration Award.

Accordingly, it is

ORDERED and ADJUDGED that the Petition is granted, and the Arbitration Award is vacated.

This constitutes the decision and order of this Court.

Dated: April 1, 2015____________________________

Hon. Michael L. Katz

J.C.C.

Footnotes

Footnote 1:Five of the parallel claims are the subject of nearly identical motions filed under Index Numbers 029968/14, 029971/14, 029972/14, 029973/14, and 029974/14.

Footnote 2:Mr. Anikeyev acknowledged on the record before the Hon. J. Paul Oetken, a Judge of the United States District Court, Southern District of New York, that he had “submitted bills through mail to various insurance companies for acupuncture services which [he] knew were false. Some of these mailings were to insurance companies located in Manhattan, New York. These bills requested payments for health care services for time periods in excess of the actual time period the patient spent with acupuncturist.” He further admitted that he committed these actions “with intent to obtain money from various insurance companies which was not rightfully [his].”

Footnote 3:The arbitrator considered factors discussed in Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 42 Misc 3d 30 (App. Term, 2nd Dep’t 2013) in determining whether or not Mr. Anikeyev, who is not a licensed acupuncturist, had exercised substantial control over the professional corporation.

Footnote 4:There is no dispute that New Century was represented by the Tsirelman Law Firm (and not by Gabriel & Shapiro) in the arbitration at issue in this proceeding.

Footnote 5:Country-Wide does not dispute that it was aware that Gabriel & Shapiro represented New Century in various matters, including several cases involving Country-Wide’s current counsel. However, there is no evidence that either Country-Wide or its counsel was aware of any connection between the arbitrator and Gabriel & Shapiro.

Footnote 6:This Court rejects New Century’s argument that this Court must assume that it is a proven fact that Mr. Rosenberger had no conflict simply because AAA (which requires arbitrators to disclose their affiliations) scheduled the hearing.