[*1]

Supreme Court, Appellate Term, Second Department, October 5, 2010

APPEARANCES OF COUNSEL

Law Office of Alden Banniettis, Brooklyn (Jeff Henle of counsel), for appellant. Carman, Callahan & Ingham, LLP, Farmingdale (Adeel Jamaluddin of counsel), for respondent.

{**29 Misc 3d at 88} OPINION OF THE COURT

Memorandum.

Ordered that the order is reversed without costs, defendant’s motion to vacate the default judgment is denied, and the judgment is reinstated.

In this action by a provider to recover assigned first-party no-fault benefits, plaintiff moved for summary judgment in July 2003, which motion it subsequently withdrew. In May 2004, plaintiff made a second motion for summary judgment. When defendant failed to submit written opposition thereto, plaintiff’s motion was granted on default and, in September 2007, a default judgment in the sum of $15,457.33 was entered against defendant. In March 2009, defendant moved, inter alia, to vacate the default judgment pursuant to CPLR 5015 (a) (3). Defendant argued that the default judgment had been obtained through plaintiff’s fraud, misrepresentation or misconduct since the claim forms plaintiff had annexed to its motions contained handwritten notations which were not on the original claim forms included with the complaint and provided to defendant, and the motions were supported by affidavits containing false statements. By order entered April 24, 2009, the Civil Court granted defendant’s motion, finding that defendant was deprived of the opportunity to timely oppose plaintiff’s motion for summary judgment since plaintiff had failed to provide defendant with a courtesy copy of its motion, which the court found to be “tantamount to fraud.” The instant appeal by plaintiff ensued.

CPLR 5015 (a) (3) provides that a judgment may be vacated on the ground of “fraud, misrepresentation, or other misconduct of an adverse party.” When a defendant’s CPLR 5015 (a) (3) motion alleges intrinsic fraud—i.e., that the plaintiff’s allegations are false—the defendant must also provide a reasonable excuse for its default (see Bank of N.Y. v Stradford, 55 AD3d 765 [2008]; Bank of N.Y. v Lagakos, 27 AD3d 678 [2006]).{**29 Misc 3d at 89}

In support of its motion, defendant argued that plaintiff had submitted affidavits which contained false statements and that plaintiff had annexed to its motion papers false documentation. Defendant was, thus, alleging that plaintiff had obtained the default judgment through “intrinsic fraud” (Bank of N.Y. v Lagakos, 27 AD3d at 679). Consequently, defendant was required to show a reasonable excuse for its default (see Bank of N.Y. v Stradford, 55 AD3d at 765-766), which defendant failed to do. The affirmation of defendant’s attorney did not show that counsel had personal knowledge of any facts pertaining to the alleged law office failure and, therefore, the affirmation was insufficient to establish an excuse for the default (see Incorporated Vil. of Hempstead v Jablonsky, 283 AD2d 553, 554 [2001]). Further, since defendant’s attorney’s “supplemental” affirmation was, in fact, a reply affirmation, the factual allegations asserted for the first time therein must be disregarded (see McNair v Lee, 24 AD3d 159 [2005]; Juseinoski v Board of Educ. of City of N.Y., 15 AD3d 353, 355 [2005]).

In view of the foregoing, we find that the Civil Court improvidently exercised its discretion in granting defendant’s motion. Accordingly, the order is reversed, defendant’s motion to vacate the default judgment is denied and the judgment is reinstated.

Golia, J. (dissenting and voting to affirm the order in the following memorandum). In my opinion, defendant’s default was excusable as the result of law office failure. The recognized and viable excuse of law office failure, in conjunction with the meritorious defense of intrinsic fraud committed by plaintiff, constitutes sufficient grounds to have the default judgment vacated.

It is well settled in New York that a defendant seeking to vacate a default judgment must demonstrate a reasonable excuse for its default and a meritorious defense to the action (see CPLR 5015 [a] [1]; see also Fidelity & Deposit Co. of Md. v Andersen & Co., 60 NY2d 693 [1983]; Stewart v Warren, 134 AD2d 585 [1987]). It is also settled law that, under CPLR 2005 and supporting case law, a court may, in its discretion, accept a claim of law office failure as satisfying the reasonable excuse requirement (see CPLR 2005; Vierya v Briggs & Stratton Corp., 166 AD2d 645 [1990]; Searing v Anand, 127 AD2d 582 [1987]; Alternative Automotive v Mowbray, 101 AD2d 715 [1984]). Here, law office failure is established through the affirmations of defendant’s attorneys.{**29 Misc 3d at 90}

Unlike the majority, I find that the affirmations submitted in support of defendant’s motion to vacate the default judgment established sufficient knowledge of the facts asserted.

“Personal knowledge is not presumed from a mere positive averment of the facts. A court should be shown how the deponent knew or could have known such facts and if there is no evidence from which the inference of personal knowledge can be drawn then it is presumed that such does not exist (1 Carmody-Wait 2d, NY Prac § 4:28, at 644)” (Bova v [*2]Vinciguerra, 139 AD2d 797, 798 [1988] [citation omitted]).

The affirmation of defendant’s attorney, Adeel Jamaluddin, is prefaced by a statement of personal knowledge of the within matter. The affirmation of another of defendant’s attorneys, Paul Barrett, detailed his employment with the firm responsible for the law office failure. These affirmations, in conjunction with the attorneys’ obvious familiarity with the facts of the instant case, clearly establish the requisite personal knowledge demanded of an affirmation. Defendant’s law firm inadvertently lost essential documents, i.e., plaintiff’s 2003 motion papers for summary judgment, and subsequently miscalendared the December 2004 court date, all as a result of personnel turnover (at a minimum five different assigned counsels and one law assistant). As the foregoing clearly constitutes law office failure, defendant established a reasonable excuse for its default.

In addition to demonstrating an excusable default, defendant must also establish a meritorious defense. It is alleged from the documents submitted herein that plaintiff committed intrinsic fraud. Unlike extrinsic fraud, which is intended to induce a judgment as a result of the opposing party’s default, intrinsic fraud is a more subtle concept based on a misrepresentation made to the court, in this case the alteration of documents (see generally 60A NY Jur 2d, Fraud and Deceit § 3; Bank of N.Y. v Lagakos, 27 AD3d 678 [2006]). The handwritten entries on the submitted documents herein could appear both to influence the court’s attention and to direct it to matters that plaintiff deems important, as well as to disfavor other matters. Clearly, it is axiomatic that documents entered into the record should never be altered in any way, for any purpose. Such an alteration of submitted documents constitutes a meritorious defense of intrinsic fraud. Based on the foregoing, I would affirm the Civil Court’s order.{**29 Misc 3d at 91}

Pesce, P.J., and Rios, J., concur; Golia, J., dissents in a separate memorandum.

[*1]

Supreme Court, Appellate Term, Second Department, June 3, 2010

APPEARANCES OF COUNSEL

Rubin, Fiorella & Friedman LLP, New York City (Joseph Federici and Harlan R. Schreiber of counsel), for appellant. Lewin, Goodman, Baglio, LLP, Melville (James E. Coughlin of counsel), for respondent.

{**28 Misc 3d at 56} OPINION OF THE COURT

Memorandum.

Ordered that the appeal from the decision is dismissed; and it is further, ordered that the judgment is reversed without costs and the matter is remitted to the Civil Court where the parties may stipulate to a more definite statement of facts or proceed to trial on the disputed issue in accordance with the decision herein.

After issue was joined in this action by a provider to recover assigned first-party no-fault benefits, the parties submitted an agreed statement of facts to the court for a determination (see Bhutta Realty Corp. v Sangetti, 165 AD2d 852, 853 [1990] [invoking CPLR 3222]; Coccio v Parisi, 151 AD2d 817 [1989] [same]). The sole legal issue presented by the submission was whether it was ascertainable, within one year of the subject accident, “that further expenses may be incurred as a result of the injury” (Insurance Law § 5102 [a] [1]). The Civil Court concluded that, because plaintiff’s assignor had submitted an application for no-fault benefits within two months of the subject accident, the injuries that would possibly require treatment were ascertainable, with minimal investigation or a simple inquiry, within a year of the date of the accident. A judgment was entered in plaintiff’s favor.

Insurance Law § 5102 (a) (1) provides for the payment of necessary medical and other expenses “all without limitation as to time, provided that within one year after the date of the accident causing the injury it is ascertainable that further expenses may be incurred as a result of the injury.” The no-fault regulations state that “an insurer shall not be liable for the payment of medical and other benefits enumerated in section 5102(a)(1) if, during a period of one year from the date of the accident, no such expenses have been incurred by the applicant”{**28 Misc 3d at 57} (Insurance Department Regulations [11 NYCRR] § 65-3.16 [a] [3]). No-fault expenses are incurred at the time treatment is received (see Todaro v GEICO Gen. Ins. Co., 46 AD3d 1086, 1088 [2007]).

While the parties stipulated that plaintiff’s assignor had been involved in an accident on [*2]December 12, 2005, that plaintiff’s assignor had submitted an application for no-fault benefits on February 1, 2006, that plaintiff had provided services between January 3, 2007 and May 14, 2007, that plaintiff had established its prima facie case, and that defendant had not received any no-fault claims on plaintiff’s assignor’s behalf until January 18, 2007, the stipulation is silent as to whether plaintiff’s assignor had received any relevant treatment from any provider, and therefore incurred any relevant expenses, within the one-year period following the accident. “It is well established that a stipulation of facts pursuant to CPLR 3222 must cover all points in dispute” (Bhutta Realty Corp., 165 AD2d at 853; see also CPLR 3222 [b] [5]; Coccio, 151 AD2d 817 [1989]). In our opinion, the absence of this relevant information precludes a determination of the action upon the submission of agreed upon facts. The submission should have been dismissed as inadequate, and the parties permitted to submit a more definite statement of facts or proceed to a trial on the disputed issue (see Bhutta Realty Corp., 165 AD2d 852 [1990]; Coccio, 151 AD2d 817 [1989]).

Golia, J.P., Pesce and Rios, JJ., concur.

[*1]

Supreme Court, Appellate Term, Second Department, April 9, 2010

APPEARANCES OF COUNSEL

Gary Tsirelman, P.C., Brooklyn (Massimiliano Valerio of counsel), for appellant. McDonnell & Adels, P.L.L.C., Garden City (Martha S. Henley of counsel), for respondent.

{**27 Misc 3d at 90} OPINION OF THE COURT

Memorandum.

Ordered that the order, insofar as appealed from, is affirmed without costs.

In this action by a provider to recover assigned first-party no-fault benefits, by order entered October 16, 2008, insofar as appealed from, the Civil Court denied plaintiff’s motion for summary judgment and granted defendant’s cross motion “to the extent that plaintiff shall . . . respon[d] to defendant’s discovery requests on the subject of corporate status and/or other issues not precluded by defendant’s failure to timely deny the subject claims . . . [and] plaintiff must produce witnesses who have not appeared for depositions in response to defendant’s demands.” The instant appeal by plaintiff ensued.

In opposition to plaintiff’s motion and in support of its cross motion to, among other things, compel discovery, defendant established that while facts may exist that are essential to justify the denial of plaintiff’s summary judgment motion, defendant was unable to set forth sufficient facts to establish one of its defenses, to wit, plaintiff’s alleged fraudulent incorporation (see Insurance Department Regulations [11 NYCRR] § 65-3.16 [a] [12]; State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]), since such information was within plaintiff’s possession and plaintiff had not complied with defendant’s discovery demands therefor (see CPLR 3212 [f]). As plaintiff failed to{**27 Misc 3d at 91} challenge the propriety of defendant’s discovery demands, the Civil Court should have granted defendant’s cross motion to compel plaintiff to provide the information sought in defendant’s interrogatories and notice for discovery and inspection with the exception of requests which were palpably improper or which sought information or documents which were privileged (see Fausto v City of New York, 17 AD3d 520 [2005]; Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008 NY Slip Op 52468[U] [App Term, 2d & [*2]11th Jud Dists 2008]; Great Wall Acupuncture v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 136[A], 2008 NY Slip Op 51529[U] [App Term, 2d & 11th Jud Dists 2008]). Defendant is also entitled to examinations before trial (see CPLR 3101 [a]; Sharma Med. Servs., P.C. v Progressive Cas. Ins. Co., 24 Misc 3d 139[A], 2009 NY Slip Op 51591[U] [App Term, 2d, 11th & 13th Jud Dists 2009]; Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008 NY Slip Op 52468[U] [2008]; Great Wall Acupuncture v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 136[A], 2008 NY Slip Op 51529[U] [2008]).

Furthermore, there is no merit to plaintiff’s contention that the Civil Court lacks subject matter jurisdiction to address a defense predicated upon Mallela because it would amount to a declaratory judgment over which only the Supreme Court has jurisdiction pursuant to CPLR 3001. Defendant is clearly not seeking a declaratory judgment. Rather, defendant seeks a determination as to whether plaintiff established its prima facie entitlement to summary judgment. In any event, the Civil Court would have subject matter jurisdiction in a declaratory judgment involving an obligation of an insurer in which the underlying amount sought to be recovered did not exceed $25,000 (see Rivera v Buck, 25 Misc 3d 27 [App Term, 2d, 11th & 13th Jud Dists 2009]).

Plaintiff’s remaining contentions are either unpreserved for appellate review or lack merit. Accordingly, the order, insofar as appealed from, is affirmed.

Golia, J.P., Weston and Rios, JJ., concur.

[*1]

Supreme Court, Appellate Term, Second Department, April 9, 2010

APPEARANCES OF COUNSEL

Gary Tsirelman, P.C., Brooklyn (Darya Klein of counsel), for appellant.

{**27 Misc 3d at 68} OPINION OF THE COURT

Memorandum.

Ordered that the order, insofar as appealed from, is reversed without costs, the branch of defendant’s motion which sought summary judgment on the ground that the action was barred by collateral estoppel is denied, and the matter is remitted to the Civil Court for a determination of the remaining branch of defendant’s motion.

In this action by a provider to recover assigned first-party no-fault benefits for medical equipment provided to its assignors following automobile collisions on April 29, 1999 (assignors Elkin and Andreeva) and on June 8, 2000 (assignors Anderson and Leveile), defendant moved for summary judgment. Plaintiff opposed the motion and cross-moved for summary judgment, alleging, inter alia, the absence of proof of a defense that survived the preclusive effect of defendant’s concededly untimely denials. The Civil Court denied plaintiff’s cross motion for summary judgment, a determination that plaintiff does not challenge on this appeal, and granted defendant’s motion on the sole ground that default judgments issued by the Supreme Court, Nassau County, rendered plaintiff’s action “without merit.” Plaintiff appeals and we reverse.

Nearly two years after plaintiff had submitted its claims, and before plaintiff commenced this action, defendant obtained declaratory judgments, on default, in the Nassau County Supreme Court, which absolved defendant of its contractual duty to indemnify “any . . . person” seeking a monetary recovery for property damage or personal injury arising from the incidents of April 29, 1999 and June 8, 2000, on proof that the incidents were staged to defraud defendant. In the instant motion for summary judgment, defendant argued that the default judgments collaterally estopped plaintiff from recovering no-fault benefits on the basis of any claim arising from{**27 Misc 3d at 69} those incidents. In the alternative, defendant sought summary judgment on the ground that its proof established, prima facie, a lack of coverage, in that the incidents involved a scheme to defraud, a defense that survived the preclusive effect of its untimely denials. [*2]

Plaintiff herein was neither named nor served in the declaratory judgment actions nor, at the time, was it in privity with someone who was, and plaintiff otherwise had no full and fair opportunity to appear and defend its interests in those proceedings. Accordingly, the judgments do not collaterally estop plaintiff from recovering in this action (Gramatan Home Invs. Corp. v Lopez, 46 NY2d 481 [1979]; Mid Atl. Med., P.C. v Victoria Select Ins. Co., 20 Misc 3d 143[A], 2008 NY Slip Op 51758[U] [App Term, 2d & 11th Jud Dists 2008]; see also Green v Santa Fe Indus., 70 NY2d 244, 253 [1987]). Moreover, as the declaratory judgments were obtained on default, there was no actual litigation of the issues and, therefore, no identity of issues (Kaufman v Eli Lilly & Co., 65 NY2d 449, 456-457 [1985]; Zimmerman v Tower Ins. Co. of N.Y., 13 AD3d 137, 139-140 [2004]; Chambers v City of New York, 309 AD2d 81, 85-86 [2003]; Holt v Holt, 262 AD2d 530, 530 [1999]).

As the Civil Court did not address the alternative ground asserted by defendant in its motion for summary judgment, the matter must be remitted to the Civil Court for a determination of that ground (e.g. McElroy v Sivasubramaniam, 305 AD2d 944 [2003]).

Golia J.P. (dissenting and voting to affirm the order, insofar as appealed from, in the following memorandum). My dissent turns on the unique nature and reality of the assignment of claims for first-party benefits under the Insurance Law and the no-fault regulations of this State.

Prior to addressing this issue, it is important to note the specific circumstances herein. In the case at bar, the indicia of fraud are so significant and unabashed that it is difficult to relegate them to the level of a “founded belief.” Even the most cursory examination of the facts of this case should elicit the reaction, “Are you kidding?”

Further, it should be noted that the two underlying collisions before this court were previously addressed by the Supreme Court in the Tenth Judicial District. Two different Justices independently found that each of these collisions was actually part of a scheme to defraud the insurance carrier. Both Supreme{**27 Misc 3d at 70} Court Justices determined that the underlying policies were null and void as regards the collisions, and declared that all the individuals allegedly involved therein were not eligible injured persons.

Specifically, the April 29, 1999 collision involved a car that was owned by Mr. Rgevsky, driven by Mr. Vistocci, and had the assignors Mr. Elkin and Ms. Andreeva as passengers who were allegedly injured in that incident. That same auto, still being driven by Mr. Vistocci but bearing another passenger, was then involved in a collision approximately 10 hours later.

A mere three days thereafter, on May 2, 1999, that same auto was involved in a third collision. Amazingly, Ms. Andreeva, who was an allegedly injured passenger in Mr. Rgevsky’s car on April 29, 1999, is now an allegedly injured passenger in the car that Mr. Rgevsky’s car struck.

In addition, Mr. Rgevsky owned other vehicles which were involved in numerous other collisions. The driver, Mr. Vistocci, also owned several vehicles which were involved in several collisions. Coincidentally, Mr. Vistocci, although the owner of these vehicles, was not the driver involved in these numerous collisions. Additionally, I note that these vehicles were in collisions within 10 to 15 days of first being insured and the policies were then cancelled shortly thereafter [*3]due to nonpayment of premiums.

The June 8, 2000 collision involving assignors Anderson and Leveile is no less suspect. In fact, the subject collision was the second accident on that night involving the same car. Similar to the April 29, 1999 collisions, these collisions involved a car that was owned by one individual and driven by another and contained different passengers for each of the two collisions that occurred on the same date. In this instance, the two collisions were less than two hours apart. In addition, the driver involved in these two collisions was also involved in three more collisions within one month of the June 8, 2000 collisions. The facts establish that this driver was involved in at least five collisions in less than 12 days.

Furthermore, Mr. Anderson, one of the allegedly injured parties in one of the June 8, 2000 collisions, was also a passenger in a July 17, 2000 collision and also obtained insurance coverage in his own name on August 22, 2000. Six days later, he was then involved in his own collision on August 28, 2000 and again on September 6, 2000.{**27 Misc 3d at 71}

Several of the individuals involved herein simply failed to appear at defense-requested examinations under oath (EUOs). Mr. Anderson, however, appeared at an EUO and stated that he went for acupuncture once and refused to go again, which clearly contradicts the claim submitted for 43 separate acupuncture treatments.

It is important to note that, practically, the methodology of obtaining assignments under no-fault is directly opposite, indeed the mirror image, of obtaining assignments in many other circumstances where rights and obligations are assigned.

In those other circumstances, generally the assignor has either obtained or has otherwise come into possession of an obligation to receive something of value. The assignor thereafter assigns that obligation to the assignee, who then stands in the shoes of the assignor and possesses the right to demand payment of the obligation or receipt of the item of value under the terms of the original agreement. The assignee is now possessed with the right to any legal remedy that the assignor had possessed.

However, in nearly every instance involving the assignment of a no-fault claim, the claim only comes into existence after the assignment of first-party benefits is executed. In general terms, an individual (eligible injured person) who has been in an automobile accident goes to a medical provider for necessary medical treatment. Prior to obtaining that treatment, the medical provider obtains an executed “assignment of benefits” form that assures the medical provider that payment will be forthcoming from the insurance carrier. It is at that juncture that treatment is provided to the individual, and a claim is then generated and sent to the insurance carrier for payment.

There is another difference. Under the No-Fault Law, an insurance carrier is obligated to pay for any and all necessary medical treatments covered under the policy if that claim is properly completed and properly filed within 45 days of the treatment that was rendered. It is highly unusual outside the world of no-fault for an assignee to participate in “creating” the claim that is being assigned to them. Furthermore, under no-fault, the claim is, of necessity, always submitted after treatment is rendered and in almost every instance is submitted by the medical provider, which has first obtained an assignment from its patient. Indeed, this practice is so prevalent that the courts have held that an assignment need only contain a stamp which states “signature on file.” Additionally, another distinction,{**27 Misc 3d at 72} no less important, is that an assignor who [*4]fails to comply with his obligations under the no-fault regulations remains financially responsible for the cost of treatment in the event the claim is then denied by the insurance carrier.

My colleagues find support in the well-reasoned decision by the Court of Appeals, to wit, Gramatan Home Invs. Corp. v Lopez (46 NY2d 481 [1979]). In that case, the defendant homeowners purchased vinyl siding for their home and financed the cost by entering into a retail installment contract backed by a mortgage on the home. The note and bond were assigned to the plaintiff shortly after they were executed. Approximately two years later, the New York State Attorney General commenced a consumer-fraud action against the plaintiff’s assignor and obtained a judgment which declared the contract between the assignor and the homeowner void. The assignee then sued for payment, and the defendant homeowner moved for dismissal under the theory of collateral estoppel.

The Court of Appeals analyzed the doctrine of collateral estoppel and its purpose, as well as the broader doctrine of res judicata. The Court’s analysis first addressed the issue of privity and found that although there is no requirement that collateral estoppel be confined to those named in the previous action, there must nevertheless be privity between those two parties. The Court then found that there must be “privity” in an assignor-assignee relationship inasmuch as such relationship “denote[s] a mutually successive relationship of the same rights to the same property” (id. at 486).

The Gramatan Court acknowledged that an assignor-assignee relationship is effectively a mutually successive relationship but found that the

“crucial inquiry focuses upon the juncture at which the relationship between the party to the first action and the person claimed to be his or her privy is established. In the assignor-assignee relationship, privity must have arisen after the event out of which the estoppel arises. Hence, an assignee is deemed to be in privity with the assignor where the action against the assignor is commenced before there has been an assignment” (id. at 486-487 [emphasis added]).

The reasoning for this determination is set forth in the very next sentence: “In that situation, at the time the assignee succeeded to the rights of the assignor . . . the assignee is charged{**27 Misc 3d at 73} with notice that his rights to the assignment are subject to [a] competing claim” (id. at 487).

I submit that this set of circumstances could not be possible in the realities of a no-fault claim. The simple fact is that a filed claim could not exist prior to the assignment of that claim. It would, therefore, be impossible for an action to be commenced prior to the assignment of a claim that had not yet come into existence.

Clearly, an important distinction in the realm of no-fault is that there is more than the simple privity borne of succession between the assignor (eligible injured person) and the assignee (medical provider). There is a virtual identity of interests by the very existence of the claim. In fact, there is an inextricable connection between the assignor eligible injured person and the assignee medical provider that is acknowledged by Insurance Department Regulations (11 NYCRR) § 65-3.11 (d), which provides for direct payments to the medical provider and states that”[i]f an assignment has been furnished to an insurer, the assignor . . . shall not unilaterally revoke the assignment after the services for which the assignment was originally executed were [*5]rendered.”

Under subdivision (b) (1) of the same section, the regulation allows for direct payment to the medical provider by means of an authorization to pay benefits, which provides for the payment of benefits but does not transfer all rights. Under those circumstances the assignor may still remain ultimately responsible for payment of the bill.

It is for these reasons that both the eligible injured person and the medical provider share the same identity when we view a no-fault claim for medical services.

The argument set forth in Gramatan, which is certainly applicable in the general circumstances of assignments, does not apply to no-fault assignments where the assignment comes simultaneously with the service provided and well before the “claim” is submitted. This interpretation was borne out in Long Is. Radiology v Allstate Ins. Co. (36 AD3d 763 [2007]), which essentially denied payment of assigned no-fault benefits to the assignee-plaintiff (medical provider), for services performed based entirely on the actions of the assignor (eligible injured person), which did not occur until after the assignment was made. In simple terms, the eligible injured person was involved in an accident and went to a medical provider, who determined that the insured needed to have an MRI study done and wrote a{**27 Misc 3d at 74} prescription for it. The eligible injured person went to a radiology group with the prescription, assigned his no-fault benefits and had the MRI study performed. The radiology group filed a claim, and it was denied because medical necessity was not established. In such case, the defendant’s objection to such treatment was not and could not have been raised until after the MRI study was done and after the assignment was completed. Nevertheless, the Appellate Division had no difficulty in dismissing the assignee’s claim.

To avoid any possible confusion that might arise by a comparison between my dissent in this matter and concurrence in the holding of Mid Atl. Med., P.C. v Victoria Select Ins. Co. (20 Misc 3d 143[A], 2008 NY Slip Op 51758[U] [App Term, 2d & 11th Jud Dists 2008]), I will address the facts in that case.

In Mid Atlantic, the actual named insured had made material misrepresentations on his application for the subject insurance policy, and, subsequently, a court in Virginia issued a declaratory judgment holding the policy to be void ab initio. Like the case at bar, the declaratory judgment action in Virginia was not commenced until after the eligible injured persons had assigned their rights to the medical provider claimants.

However, unlike the case at bar, those eligible injured persons were in no conceivable way involved in the fraudulent acts of the named insured when he made his material misrepresentations on his application for insurance. Therefore, unlike the case at bar, the assignors were completely unaware of any improper conduct or failure to comply with the requirements of no-fault such as would create grounds for a denial of payment.

Those circumstances are completely different from the matter at bar in which all the eligible injured persons were found to have been involved in a scheme to defraud the insurance carrier and the “accident” was found to have simply never occurred.

My colleagues who are in the majority in the present matter were also in the majority in A.B. Med. Servs. PLLC v Commercial Mut. Ins. Co. (12 Misc 3d 8 [App Term, 2d [*6]Dept 2006]) and held “that only innocent third parties who are injured are protected . . . and not a health care provider who deals with the assignor-insured at its peril in accepting an assignment of the insured’s no-fault benefits” (id. at 11).

In the case before us now, as opposed to the case of Mid Atlantic, the individuals who allegedly obtained medical treatment and assigned their rights knew at the time that they did{**27 Misc 3d at 75} not present themselves with clean hands in this case, that there was no legitimate accident, and that there were no necessary medical treatments required for an accident that did not occur.

That now resolves a further issue also relied on by the majority predicated on the clear holding of the Court of Appeals in Kaufman v Eli Lilly & Co. (65 NY2d 449, 456-457 [1985]):

“[It is well settled that] collateral estoppel . . . [applies only] to matters actually litigated and determined in a prior action. If the issue has not been litigated, there is no identity of issues between the present action and the prior determination. An issue is not actually litigated if . . . there has been a default” (internal quotation marks and citations omitted).

It is my belief that such holding is inapplicable in this case, largely for the reasons set forth above, that is, that the medical provider and the eligible injured person are so inextricably connected to each other and to the creation of the claim at issue, that the actions of one must be referable to the legal position of the other.

The Court of Appeals understood that there are a myriad of circumstances which cannot be anticipated by the courts. Therefore, any analysis of the application of collateral estoppel requires

“consideration of the realities of litigation . . . [and] competing policy considerations, including fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results. No rigid rules are possible, because even these factors may vary in relative importance depending on the nature of the proceedings” (Staatsburg Water Co. v Staatsburg Fire Dist., 72 NY2d 147, 153 [1988] [internal quotation marks and citations omitted]).

My findings are that the circumstances in this case, as set forth in some detail above, require a finding that fairness, consistency and societal interests are best served by dismissing this action.

In addition, as is demonstrated in the recent case of Gaston v American Tr. Ins. Co. (11 NY3d 866 [2008]), the Court of Appeals does not adhere to a hard and fast rule that “[a]n issue is not actually litigated if . . . there has been a default” (Kaufman, 65 NY2d at 456-457). In fact, the Court of Appeals’ holding in Gaston stated that{**27 Misc 3d at 76}

“[t]he plaintiffs proffered two default judgments that resolved the coverage issue against the insurer while the insurer demonstrated that the same . . . question had been adjudicated in a third proceeding resulting in a judgment in the insurer’s favor. In light of these conflicting judgments on the same issue, application of the [*7]doctrine of collateral estoppel was not warranted” (11 NY3d at 867-868 [emphasis added]).

As can be seen, the Court of Appeals considered the default judgments as adjudications that were in conflict with another judgment holding the opposite position on the same issue. Inasmuch as the Court of Appeals considers default judgments as adjudications on the merits for the purpose of denying collateral estoppel, we should not consider the statement in Kaufman as much a bright-line rule as it appears.

Finally, I disagree with the majority’s finding that the order of the Civil Court which is the subject of this appeal granted defendant’s motion solely on the grounds of collateral estoppel and that it did not address the second ground for relief, to wit, “that the underlying incidents . . . were staged events rather than ‘accidents.’ ”

The Civil Court in its order stated that “[d]efendant has shown, upon papers and proof submitted, that plaintiff’s cause of action is without merit” (emphasis added). The court then went on to state, “A declaratory judgment has the effect of a final judgment even when issued on default.”

Clearly, the second statement cited relates to the first branch of defendant’s motion which seeks dismissal of the complaint pursuant to the doctrine of res judicata, of which collateral estoppel is a subset. Indeed, in the first statement from the court’s decision, the judge found that defendant had submitted proof that established that plaintiff’s cause of action was without merit. That was not a finding of issue preclusion due to collateral estoppel, but rather a finding on the merits that plaintiff’s cause of action lacked merit.

It is for all these reasons that I dissent and vote to affirm the order of the Civil Court, insofar as appealed from.

Pesce and Rios, JJ., concur; Golia, J.P., dissents in a separate memorandum.

[*1]

Supreme Court, Appellate Term, Second Department, March 10, 2010

APPEARANCES OF COUNSEL

Amos Weinberg, Great Neck, for appellants. Law Offices of Teresa M. Spina, Woodbury (Emilio A. Cacace of counsel), for respondent.

{**27 Misc 3d at 53} OPINION OF THE COURT

Memorandum.

Ordered that the order, insofar as appealed from, is reversed without costs, and defendant GEICO Casualty Insurance Co.’s cross motion for summary judgment dismissing the complaint as against it is denied.

In this action by providers to recover assigned first-party no-fault benefits, plaintiffs moved for summary judgment. Defendant GEICO Casualty Insurance Co. opposed the motion and cross-moved for summary judgment dismissing the complaint as against it on the ground that the matter raised a dispute of priority of payment as between insurers, which was subject to mandatory arbitration pursuant to Insurance Law § 5105, and that plaintiffs had failed [*2]to state a cause of action. The District Court granted defendant GEICO’s cross motion for summary judgment dismissing the complaint as against it and denied plaintiffs’ motion for summary judgment as academic. As limited by their brief, plaintiffs appeal from so much of the order as granted GEICO’s cross motion.

On July 23, 2005, Leon Regis, plaintiffs’ assignor, was injured in an accident in New York while driving a vehicle registered to Sandra Dixon, a New Jersey resident. The record is unclear as to whether the vehicle was insured by defendant Mercury Indemnity Insurance Company of America or by Mercury Insurance Group. After Mercury Insurance Group received an NF-2 form on Mr. Regis’s behalf, it notified plaintiffs that although Mr. Regis was driving Ms. Dixon’s vehicle at the time of the accident, he was not entitled to no-fault benefits under her Mercury Insurance Group policy since he was neither listed on her insurance policy nor a resident relative of the insured. However, plaintiffs were advised to contact Mr. Regis’s counsel since it appeared that Mr. Regis may have been entitled to coverage “as a named insured or member of the named insured’s family residing in his household under the terms of another policy” (NJ Stat Ann § 39:6A-7 [b] [3]). Shortly thereafter, plaintiffs determined that there was another policy under which Mr. Regis might be entitled to no-fault benefits, and thereafter{**27 Misc 3d at 54} notified GEICO of the claims. By letter of November 11, 2005, GEICO acknowledged receipt of a “Notification of Commencement of Treatment” for Mr. Regis, but stated that Mr. Regis had “undetermined eligibility” (see NJ Admin Code § 11:3-25.3 [f]) for no-fault benefits afforded under GEICO’s policy with the insured, Larry Goodwin, a New Jersey resident (who is apparently Mr. Regis’s father). That policy was also issued in New Jersey. In an accompanying letter of the same date, GEICO described the no-fault claims procedure used for those seeking benefits under New Jersey policies. Ultimately, GEICO, in a letter dated March 17, 2006, denied no-fault benefits under its policy issued to Mr. Goodwin. Thereafter, plaintiffs brought the instant action, claiming that payment of no-fault benefits was overdue. Plaintiffs, alleging that Mercury Indemnity Insurance Company of America was not subject to jurisdiction in New York, since it did not appear in the “Insurance Company Search” section of the Web site maintained by the New York State Department of Insurance, only served process on GEICO. Plaintiffs ultimately sought summary judgment against GEICO, claiming that the vehicle which Mr. Regis drove should be treated as an uninsured vehicle, and that GEICO was therefore responsible for payment of no-fault benefits.

In the instant case, there is a conflict between New Jersey law and New York law with respect to the procedure involving the submission of claims. In Careplus Med. Supply, Inc. v Selective Ins. Co. of Am. (25 Misc 3d 48 [App Term, 9th & 10th Jud Dists 2009]), this court, faced with a similar conflict in an action by a provider to recover assigned first-party no-fault benefits, followed the “center of gravity” or “grouping of contacts” approach adopted by the Court of Appeals in Auten v Auten (308 NY 155 [1954]), which gives controlling effect to the law of the state that has “the most significant relationship to the transaction and the parties” (Restatement [Second] of Conflict of Laws § 188 [1]). In addition to the traditional determinative factor of the place of contracting, which should be given “heavy weight” in a grouping of contacts analysis (see Haag v Barnes, 9 NY2d 554, 560 [1961]), the places of negotiation and performance, the location of the subject matter of the contract, and the domicile or place of business of the contracting parties are also to be considered (see Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 317 [1994]; Restatement [Second] of Conflict of Laws § 188 [2]).

We find, upon the application of a “center of gravity” or “grouping of contacts” analysis, that the dispositive factors{**27 Misc 3d at 55} weigh in favor of New Jersey, and that its law should control (see Careplus Med. Supply, Inc., 25 Misc 3d 48 [2009]). Although the accident occurred in New York, the vehicle involved in the accident was registered in New Jersey to an insured who lived in New Jersey. The relevant insurance policies were apparently entered into in New Jersey either by Sandra Dixon, who resided in New Jersey, or by GEICO’s insured, who also resided in New Jersey. There is a question of fact as to which insurer is responsible for payment since the record does not establish as a matter of law that plaintiffs’ assignor was a resident relative of a New Jersey insured. Indeed, there are numerous issues of fact which must be resolved at trial under New Jersey law. Consequently, GEICO is not entitled to summary judgment dismissing the complaint as against it.

Accordingly, the order, insofar as appealed from, is reversed, and GEICO’s cross motion for summary judgment dismissing the complaint as against it is denied.

Nicolai, P.J., Molia and Iannacci, JJ., concur.

[*1]

Supreme Court, Appellate Term, Second Department, January 28, 2010

APPEARANCES OF COUNSEL

Amos Weinberg, Great Neck, for appellants. Law Offices of Teresa M. Spina, Woodbury (Emilio A. Cacace of counsel), for respondent.

{**26 Misc 3d at 96} OPINION OF THE COURT

Memorandum.

Ordered that the order is affirmed without costs.

In this action by providers to recover assigned first-party no-fault benefits, plaintiffs moved for “partial summary judgment,” asserting that, pursuant to CPLR 3212 (e) or, in the alternative, CPLR 3212 (g), the District Court should determine that plaintiffs had established their prima facie case with respect to their first cause of action. In opposition to the motion, defendant argued, among other things, that there was a lack of medical necessity for the services at issue. The District Court denied plaintiffs’ motion, and this appeal by plaintiffs ensued.

Plaintiffs’ contention that, pursuant to either CPLR 3212 (e) or, in the alternative, CPLR 3212 (g), they were entitled to “partial summary judgment” determining that they had established their prima facie case with respect to their first cause of action lacks merit. The branch of plaintiffs’ motion seeking “partial summary judgment” pursuant to CPLR 3212 (e) was properly denied as the relief requested would not conclusively dispose of the merits of plaintiffs’ first cause of action or even a part of that cause of action (see CPLR 3212 [e]).

Similarly, relief pursuant to CPLR 3212 (g) is not available to plaintiffs. This provision states that “[i]f a motion for summary judgment is denied or is granted in part, the court, by examining the papers before it and, in the discretion of the court, by interrogating counsel, shall, if practicable, ascertain what facts are not in dispute or are incontrovertible.” As the court did [*2]not deny, or grant in part, a motion which sought summary judgment conclusively disposing of the merits of plaintiffs’ cause of action, plaintiffs’ motion seeking a limitation of issues of fact for trial pursuant to CPLR 3212 (g) was properly denied (see Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3212:35; see generally E.B. Metal & Rubber Indus. v County of Washington, 102 AD2d 599 [1984]). Accordingly, the order is affirmed.{**26 Misc 3d at 97}

Nicolai, P.J., Tanenbaum and LaCava, JJ., concur.

[*1]

Supreme Court, Appellate Term, Second Department, December 9, 2009

APPEARANCES OF COUNSEL

Picciano & Scahill, P.C., Westbury (Jason Tenenbaum of counsel), for appellant. Ilona Finkelshteyn, P.C., Brooklyn, for respondent.

{**26 Misc 3d at 40} OPINION OF THE COURT

Memorandum.

Ordered that the order is affirmed without costs.

In this action by a provider to recover assigned first-party no-fault benefits, defendant served various discovery requests, seeking, among other things, to conduct an examination before trial of plaintiff. Subsequently, defendant served plaintiff’s assignor with a notice of deposition and notified plaintiff’s counsel of the deposition request. When the assignor failed to appear for the deposition, defendant moved to dismiss the complaint, arguing that, by virtue of the assignment, party status may be imputed to the assignor and, even if such status could not be so imputed, the assignor was under the plaintiff assignee’s control (see CPLR 3126 [3]). The Civil Court denied the motion, and defendant appealed.

By its terms, the CPLR 3126 (3) dismissal sanction is applicable only to the disclosure violations of parties, not nonparties (see Siegel, NY Prac § 367 [4th ed]). By virtue of their assignment of no-fault benefits to their providers, eligible injured persons have divested themselves of their interest in those benefits, and they are not parties to actions commenced by their assignees (see e.g. Leon v Martinez, 84 NY2d 83, 88 [1994]; Cardtronics, LP v St. Nicholas Beverage Discount Ctr., Inc., 8 AD3d 419, 420 [2004]; 6A NY Jur 2d, Assignments §§ 59, 85). Similarly, a provider’s party status cannot be imputed to the assignor by virtue of an assignment. Thus, since plaintiff’s assignor is not an officer, member or employee of plaintiff or otherwise under plaintiff’s control, the Civil Court properly denied the motion for sanctions as against plaintiff pursuant to CPLR 3126 (Connors, Practice Commentaries, McKinney’s Cons Laws of [*2]NY, Book 7B, CPLR C3101:20; see Doelger, Inc. v L. Fatato, Inc., 7 AD2d 1003 [1959]; National Bank of N. Hudson v{**26 Misc 3d at 41} Kennedy, 223 App Div 680 [1928]; see also Schneider v Melmarkets Inc., 289 AD2d 470 [2001]; Zappolo v Putnam Hosp. Ctr., 117 AD2d 597 [1986]; Andrew Carothers, M.D., P.C. v GEICO Indem. Co., 20 Misc 3d 143[A], 2008 NY Slip Op 51756[U] [App Term, 2d & 11th Jud Dists 2008]; A.M. Med. Servs., P.C. v Allstate Ins. Co., 14 Misc 3d 143[A], 2007 NY Slip Op 50384[U] [App Term, 2d & 11th Jud Dists 2007]).

Rios, J.P., Pesce and Golia, JJ., concur.

Supreme Court, Kings County

15550/08

Plaintiff was represented by Jonathan Stein, Esq. of McDonnell & Adels, PLLC. Defendants were represented by Bruce Rosenberg, Esq. of Rosenberg Law, PC.

Jack M. Battaglia, J.

The Complaint of plaintiff New York Central Mutual Insurance Company seeks a declaratory judgment pursuant to CPLR 3001 that it “is under no obligation to pay any insurance claims submitted by” any of the 13 named defendants. The named defendants are John McGee, D.O., and 12 professional corporations, referred to collectively in the Complaint as the “PC Defendants”, each of which is alleged to be a “professional medical testing and treatment corporation . . . owned by Dr. John McGee, a licensed medical doctor” (Complaint, ¶ ¶ 6-17.)

Specifically, Plaintiff seeks a declaration that it

“is not legally obligated to pay any claims, outstanding or otherwise, because of Defendants’ wrongful conduct, which includes, but is not limited to, plaintiff’s assertions that:

(a) the PC DEFENDANTS are not wholly owned, and/or controlled, and/or operated by licensed physicians, as required by New York State statues [sic], regulations, and judicial precedent;

(b) the PC DEFENDANTS submitted bills seeking payment of no-fault benefits for services that were not provided;

( c) the PC DEFENDANTS have failed to provide verification requested by the plaintiffs [sic]; and

(d) the PC DEFENDANTS have failed to attend EUOs as requested by the plaintiffs [sic].” (Complaint, ¶ 13.)

The Complaint does not indicate the total “outstanding” claims or bills, either by number or total amount. There is attached, however, an Exhibit A, that is described as a chart of bills submitted to Plaintiff in 2007 that were “subject to EUO requests,” i.e., examination under oath, and perhaps other requests for bill verification, “totaling no less than $155,000 dollars.” (Id., ¶ ¶ 70-71.) The Exhibit lists 195 bills submitted by four of the 12 named PC Defendants for services purportedly rendered to 13 insureds.

In an Answer and Affirmative Defenses & Counterclaims, Defendants allege 23 “Affirmative Defenses” and 10 “Counterclaims.”

Plaintiff moved initially by Notice of Motion for an order, among other things, pursuant [*2]to CPLR 3211 (a) and (b), dismissing the Affirmative Defenses and Counterclaims. Before that motion was heard, Plaintiff moved by Order to Show Cause for, among other relief, “an immediate stay of all lawsuits and arbitrations pending against [Plaintiff], filed by Defendants.”

The Order to Show Cause, which is dated July 22, 2009 and signed by Hon. Ellen M. Spodek, includes an interim “stay,” specifically “that all no-fault lawsuits and arbitrations including, but not limited to, those set forth in Exhibit A’, annexed hereto, filed by Defendants and pending against Plaintiff, are hereby stayed pending the hearing of this motion.” This Exhibit lists 85 claims totaling $382,871.13, representing services purportedly provided to 38 insureds during the period 2005-2009 by seven of the PC Defendants, only three of which are providers named in the Exhibit A attached to the Complaint.

On the return date for the two motions, this Court refused to extend the “stay” contained in the Order to Show Cause, and the Court sua sponte raised the issue of severance, at least insofar as relief is sought against each of the 12 PC Defendants. (See CPLR 603.) “Because CPLR 603, unlike CPLR 602, does not use the words upon motion,’ it is widely assumed that the court can order a severance or separate trial sua sponte.” (Vincent C. Alexander, Practice Commentaries to CPLR 603 [McKinney’s 2006]; see also Valery A. Berger, M.D. v Liberty Mut. Ins. Co., 10 Misc 3d 139 [A], 2005 NY Slip Op 52204 [U] [App Term, 9th & 10th Jud Dists 2005]; St. Vincent’s Hosp. of Richmond v State Farm Mut. Auto. Ins. Co., 18 Misc 3d 1127 [A], 2007 NY Slip Op 52534 [U], * 3 [Sup Ct, Nassau County 2007].) The parties were requested to submit supplemental memoranda on the issue, which they did.

Generally, “[s]everance is inappropriate where . . . there are common factual and legal issues involved in the . . . causes of action, and the interests of judicial economy and consistency of verdicts will be served by having a single trial.” (See Naylor v Knoll Farms of Suffolk County, Inc., 31 AD3d 726, 727 [2d Dept 2006]; see also Curreri v Heritage Prop. Invt. Trust, Inc., 48 AD3d 505, 507-08 [2d Dept 2008].) Appellate courts in the Second Department have had several occasions to apply these general standards to first-party no-fault claims of the type that are the subject of the instant action, although almost always on a defendant/insurer’s motion to sever.

The Second Department has upheld severance of claims for first-party no-fault benefits where the claims were for services rendered to as few as five insureds. (See Mount Sinai Hosp. v Motor Veh. Acc. Indem. Corp., 291 AD2d 536, 536-37 [2d Dept 2002]; see also Sunshine Imaging Association/wny MRI v Government Employees Ins. Co., 2009 NY Slip Op 6984, * 1- * 2 [4th Dept Oct. 2, 2009] [severance upheld/14 insureds]; compare Hempstead Gen. Hosp., 134 AD2d 569, 569-70 [2d Dept 1987] [denial of severance upheld/29 “claims”].) The Second Department has required severance of no-fault claims for 47 insureds. (See Poole v Allstate Ins. Co., 20 AD3d 518, 519 [2d Dept 2006].) “[I]t was an improvident exercise of discretion to deny the motion to sever, since a single trial of all the claims would prove unwieldy and confuse the trier of fact.” (Id.) [*3]

Appellate Term for the Second and Eleventh Judicial Districts has both upheld and required severance of no-fault claims for as few as three insureds. (See Astoria Quality Med. Supply v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 144, 144 [App Term, 2d & 11th Jud Dists 2008] [severance upheld]; Metro Med. Diagnostics, P.C. v Motor Veh. Acc. Indem. Corp., 6 Misc 3d 136 [A], 2005 NY Slip Op 50238 [U], * 1 [App Term, 2d & 11th Jud Dists 2005] [severance required]; see also Ladim DME, Inc. v GEICO Gen. Ins. Co., 15 Misc 3d 139 [A], 2007 NY Slip Op 50997 [U], * 1- * 2 [App Term, 2d & 11th Jud Dists 2007] [severance required/5 insureds]; Valery A. Berger, M.D. v Liberty Mut. Ins. Co., 2005 NY Slip Op 52204 [U], * 1- * 2 [severance upheld/14 insureds].) “In light of the recent trend in cases involving the severance of no-fault causes of action under similar circumstances, . . . the particular facts herein relating to each claim are likely to raise few, if any, common issues of law or fact, even if the . . . insurance policies are identical.” (Metro Med. Diagnostics, P.C. v Motor Veh. Acc. Indem. Corp., 2005 NY Slip Op 50238 [U], at *1.)

In Civil Court of the City of New York, which has seen most of the first-party no-fault actions that have buried the trial courts of limited jurisdiction, a directive was issued by the Administrative Judge, Hon. Fern A. Fisher, directing the clerk “to reject any no-fault summons and complaint filed in the court which contains either multiple plaintiffs or multiple assigned claims unless an affirmation is filed with the papers signed by the attorney for the plaintiff, . . . outlining the reason for the joinder”; and directing Civil Court judges “to review the reasons for joinder of multiple plaintiffs or assigned claims whenever a case appears before them.” (Directives and Procedures, Severance of No-fault Plaintiffs or Assigned Claims, August 3, 2006.)

Here, again, the list of pending actions and arbitrations names 38 insureds who assigned 85 claims for first-party no-fault benefits to one or more of seven PC Defendants. This Court has little doubt that, were those 85 claims the subject of a single action by the providers against Plaintiff for payment, severance would be required. The only difference here is that Plaintiff is seeking a declaratory judgment that payment need not be made, asserting defenses to payment that it could assert, and undoubtedly has asserted, in the pending proceedings. To the extent, therefore, that Plaintiff’s contentions here as grounds for relief require the same type of individualized factual determinations, as would be required in a provider’s action for payment, severance would be required.

Three of the four grounds for relief asserted by Plaintiff – – that the PC Defendants “submitted bills seeking payment of no-fault benefits for services that were not provided,” “failed to provide verification requested,” and “failed to attend EUOs as requested” – – are defenses routinely asserted in provider actions for payment, and, most importantly, will require determination in accordance with the facts and attendant legal consequences particular to each insured, if not each bill for services. At the least, therefore, unless these grounds for relief are discontinued in this action, there must be severance. Because there are multiple providers as well as multiple insureds, no resulting action should include more than five insureds. [*4]

The remaining ground for relief asserted by Plaintiff, i.e., that the PC Defendants “are not wholly owned, and/or controlled, and/or operated by licensed physicians, as required by New York State statues [sic], regulations, and judicial precedent,” is different, because the focus is on the provider itself, and not the insured or any claim for benefits. As to this ground as to each PC Defendant, therefore, severance might not be required, or even warranted, notwithstanding that the number of insureds would require or justify severance as to other grounds for non-payment. (See Midwood Acupuncture, P.C. v State Farm Mut. Auto. Ins. Co., 14 Misc 3d 131 [A], 2007 NY Slip Op 50052 [U], * 2 [App Term, 2d & 11th Jud Dists 2007].)

This ground, which has come to be known as the “fraudulent incorporation” defense (see id.), is founded on the Court of Appeals opinion in State Farm Mutual Automobile Insurance Co. v Mallela (4 NY3d 313 [2005].) Answering a certified question from the Second Circuit, the Court held that “insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims.” (Id. at 319.) The Court relied on a regulation of the Superintendent of Insurance stating, “A provider of health care services is not eligible for reimbursement [of first-party no-fault benefits] if the provider fails to meet any applicable New York State licensing requirement.” (See id. at 320-22; 11 NYCRR § 65-3.16 [a] [12].) The Business Corporation Law “prohibit[s] non-physicians from sharing ownership in medical service corporations.” (See id. at 320 [footnote omitted]; Business Corporation Law § 1507.)

“State law mandates that professional service corporations be owned and controlled by licensed professionals . . . , and that licensed professionals render the services provided by such corporations.” (One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738, 740 [2d Dept 2008 [citing Business Corporation Law § § 1503 [a], 1504 [a], 1507, 1508].) In an action by insurers of automobile insurance policies alleging that professional medical service corporations “were fraudulently incorporated in the names of licensed healthcare professionals while, in fact, the PCs were owned, operated, and controlled by unlicensed persons and their management companies in violation of applicable statutes and regulations” (see id. at 739], the plaintiffs successfully opposed a motion for summary judgment by a licensed physician and one of the PCs by submitting “sufficient evidentiary proof to raise an issue of fact as to whether [the PC] was actually controlled by a management company owned by unlicensed individuals in violation of the Business Corporation Law” (see id. at 740 [emphasis added].) The physician and PC had made a prima facie showing on their motion with evidence that the physician was the sole shareholder of the PC, “performed or oversaw all medical services provided by” the PC, and was the sole signatory on the PC’s bank account. (See id.)

No appellate court has given further meaning to the “actual control” requirement, or has otherwise elaborated on the concept of “fraudulent incorporation,” in the four-plus years since Mallela was decided. Which is not to say that the courts have not been dealing with issues raised by the decision; as of this writing, Mallela has been cited in approximately 100 published opinions of New York trial and appellate courts, the latter mostly from Appellate Term for the Second and Eleventh Judicial Districts, and in 13 published decisions of federal courts in the [*5]Southern and Eastern Districts. An appellate opinion might recite that an insurer “set forth detailed and specific reasons for believing that plaintiff may be ineligible to recover no-fault benefits as a fraudulently incorporated professional service corporation” (see Sharma Med. Servs., P.C. v Progressive Cas. Ins. Co., 24 Misc 3d 139 [A], 2009 NY Slip Op 51591 [U] [App Term, 2d & 11th Jud Dists 2009]), but not repeat or summarize those reasons for the benefit of trial judges.

Trial judges, nonetheless, struggle with fundamental questions raised by Mallela, such as whether a finding of “fraudulent incorporation” requires a finding of “fraud.” (See Andrew Carothers, M.D., P.C. v Bruno, Gerbino & Soriano, LLP, 2009 NY Slip Op 29413, * 6- * 8 [Civ Ct, Richmond County 2009] [Sweeney, J.].) Several published trial court opinions provide insight into the court’s identification and assessment of various factors, such as the ultimate disposition of the profits of the professional practice, without offering, probably wisely, any standard or threshold, quantitative or qualitative, of “actual control.” (See id. at * 1- * 6; AIU Ins. Co. v Deajess Med. Imaging, P.C., 2009 NY Slip Op 29079, * 3- * 8 [Sup Ct, Nassau County 2009] [Bucaria, J.]; Lenox Neurophychiatry Med., P.C. v State Farm Ins. Co., 22 Misc 3d 1118 [A], 2009 NY Slip Op 50178 [U], * 2- * 4 [Civ Ct, Richmond County 2009] [Levine, J.]; Utica Natl. Ins. Group v Luban, 22 Misc 3d 1107 [A], 2008 NY Slip Op 52610 [U], * 3- * 4 [Sup Ct, Queens County 2008] [Kitzes, J.]; A.B. Med. Servs. PLLC v Travelers Ind. Co., 20 Misc 3d 509, 510-14 [Dist Ct, Nassau County 2008] [Goodsell, J.]; Montgomery Med., P.C. v State Farm Ins. Co., 12 Misc 3d 1169 [A], 2006 NY Slip Op 51116 [U], * 4- * 5 [Dist Ct, Nassau County 2006] [Marber, J.]; Devonshire Surgical Facility v GEICO, 14 Misc 3d 1208 [A], 2006 NY Slip Op 52450 [U], * 2- * 3 [Civ Ct, NY County 2006] [Jaffe, J.]; see also Matter of Total MRI Mgt. LLC v Greenfield Imaging Assoc. Imaging, LLP, 11 Misc 3d 1062 [A], 2006 NY Slip Op 50367 [U], * 7 [Sup Ct, Nassau County 2006] [Austin, J.].)

Without a specific factual context, this Court will not offer more. It is clear from a review of the published opinions, particularly the only one that follows a trial on the issue ( see Andrew Carothers, M.D., P.C. v Bruno, Gerbino & Soriano, LLP, 2009 NY Slip Op 29413), that the inquiry is highly fact-intensive. Here, except for the respective places of business and respective dates of incorporation of the PC Defendants, the Complaint is absent of individualized or particularized allegations; rather, the Complaint speaks conclusorily throughout of the “PC Defendants.” Of substantial importance for the present motions, except for the allegations that each of the PC Defendants is “owned by Dr. John McGee, a licensed medical doctor” (Complaint, ¶ 6-17), there is virtually nothing to connect any one of the PC Defendants to any one or more of the others. Each of the practices operate at a different location, and except for two of the PCs that were incorporated on May 11, 1998, the other 10 were incorporated at different dates from March 1, 2001 through May 2, 2007. (Id.) There is nothing to suggest, moreover, that Dr. McGee’s relationship with each of the PC Defendants is the same, other than that he “owns” each of them.

In an action instituted by over 20 insurance companies against “three groups of defendants each comprised of some licensed defendants, provider defendants, and management [*6]defendants,” in which the insurers seek, in part, “a declaratory judgment concerning fraudulent incorporation,” Supreme Court granted a defense motion to the extent of severing “the causes of action against each group of defendants.” (See Autoone Ins. Co. v Manhattan Hgts. Med., P.C., 24 Misc 3d 1228 [A], 2009 NY Slip Op 51662 [U], * 7- * 8 [Sup Ct, Queens County 2009] [Markey, J.].) The court determined that “each group of defendants operated separately from other groups , . . . [that] the plaintiffs did not demonstrate that there is a logical connection between the activities of each,” and that “combining the multitude of claims by the numerous plaintiffs against three groups of defendants is likely to cause juror confusion.” (See id. at * 8.)

Here, again, there is nothing to link any one of the PC Defendants to any one or more of the others, except for the common ownership by Dr. McGee, which in and of itself does not establish “fraudulent incorporation” (see Great Wall Acupuncture v State Farm Mut. Auto. Ins. Co., 20 Misc 3d 136 [A], 2008 NY Slip Op 51529 [U] [App Term, 2d & 11th Jud Dists 2008] [plaintiff’s owner was sole shareholder of not less than 20 professional service corporations].) The potential for juror confusion remains a factor in a declaratory judgment action (see State Farm Mut. Auto. Ins. Co., 25 AD3d 777, 778-779 [2d Dept 2006].) In the absence of evidence that Dr. McGee’s relationship with two or more of the PC Defendants is the same, there is no possibility of inconsistent verdicts. There should be at least sufficient factual allegations to meet the requirement for permissive joinder that the claims for relief “aris[e] out of the same transaction, occurrence, or series of transactions or occurrences” (see CPLR 1002 [a].)

Indeed, here, there is not sufficient information available for the Court to determine whether the action may continue against more than one of the PC Defendants in a single action. For the present, the Court will allow the action to proceed under this index number against Dr. McGee and three of the PC Defendants, of Plaintiff’s choosing, provided that an amended complaint contain sufficient allegations to permit joinder. If, moreover, in addition to “fraudulent incorporation,” Plaintiff seeks relief on any of the other grounds alleged in the Complaint, the separate action(s) may seek that relief with respect to the claims made by no more than five insureds.

As to Plaintiff’s motion for a “stay,” it must be treated as a motion for preliminary injunction. (See St. Paul Travelers Ins. Co. v Nandi, 15 Misc 3d 1145 [A], 2007 NY Slip Op 51154 [U], * 7 [Sup Ct, Queens County 2007].) “The party seeking a preliminary injunction must demonstrate a probability of success on the merits, danger of irreparable injury in the absence of an injunction and a balance of equities in its favor.” (Nobu Next Door, LLC v Fine Arts Hous., Inc., 4 NY3d 839, 840 [2005].) In actions similar to this one, i.e., seeking a declaration as to “fraudulent incorporation,” trial judges have granted the injunction based upon evidentiary showings by the respective plaintiffs. (See Autoone Ins. Co. v Manhattan Hgts. Med., P.C., 2009 NY Slip Op 51663 [U], at * 3); St. Paul Travelers Ins. Co. v Nandi, 2007 NY Slip Op 51154 [U], at * 7.)

Here, there may be a question as to whether, even as a pleading, the Complaint sufficiently alleges “fraudulent incorporation” (see Autoone Ins. Co. v Manhattan Hgts. Med., [*7]P.C., 2009 NY Slip Op 51662 [U], at * 4; CPLR 3013; CPLR 3016 [b]; CPLR 3211 [a] [7]); and, even if it does, there is no evidentiary support for injunctive relief.

The Court sua sponte orders severance of the causes of action alleged in the Complaint; within sixty (60) days from the date of this Decision and Order, Plaintiff shall serve an amended complaint that complies with this Decision and Order, particularly as to number of defendants and insureds.

Plaintiff’s motions are denied, with leave to renew after joinder of issue on an amended complaint, and otherwise in accordance with this Decision and Order.

November 25, 2009___________________

Jack M. Battaglia

Justice, Supreme Court

[*1]

Supreme Court, Appellate Term, Second Department, November 17, 2009

APPEARANCES OF COUNSEL

Law Offices of Eva Gaspari, PLLC, Brooklyn, and Mischel & Horn, P.C., New York City (Scott T. Horn of counsel), for appellant. Law Offices of Teresa M. Spina, Woodbury (Emilio A. Cacace of counsel), for respondent.

{**26 Misc 3d at 24} OPINION OF THE COURT

Memorandum.

Ordered that the judgment is affirmed without costs.

In this action by a provider to recover assigned first-party no-fault benefits, defendant had partially paid plaintiff’s claim prior to the commencement of the action. At trial, the parties stipulated to plaintiff’s prima facie case and further agreed that defendant had timely denied the unpaid portion of the claim on the ground that the charges for acupuncture treatments exceeded the maximum fees under the appropriate fee schedule. Additionally, pursuant to the parties’ stipulation, the claim form and the denial of claim form were admitted into evidence. After a nonjury trial on the issue of the propriety of the fees charged, the Civil Court granted judgment to defendant dismissing the complaint, and this appeal by plaintiff ensued.

A person who seeks to practice acupuncture must be either licensed (Education Law § 8214) or certified (Education Law § 8216) to do so (see Education Law § 8212). The training to obtain a license remains the same even if the person seeking to practice acupuncture has a license in a different profession, such as a chiropractic license (see 8 NYCRR 52.16 [b]; cf. 8 NYCRR 52.16 [a]). Indeed, at trial, plaintiff’s witness, who was both a licensed acupuncturist and a licensed chiropractor, so testified. Accordingly, in light of the licensure requirements, we hold, as a matter of law, that an insurer may use the workers’ compensation fee schedule for acupuncture services performed by chiropractors to determine the amount which a licensed acupuncturist is entitled to receive for such acupuncture services (see Great Wall Acupuncture v GEICO Gen. Ins. Co., 16 Misc 3d 23 [App Term, 2d & 11th Jud Dists 2007]; see also AVA Acupuncture, P.C. v GEICO Gen. Ins. Co., 23 Misc 3d 140[A], 2009 NY Slip Op 51017[U] [App Term, 2d, 11th & 13th Jud Dists 2009]; AVA Acupuncture, P.C. v GEICO Gen. Ins. Co., 17 Misc 3d 41 [App Term, 2d & 11th Jud Dists 2007]; Ops Gen Counsel NY Ins Dept No. 04-10-03 [Oct. 2004] [http://www.ins.state.ny.us/ogco2004/rg041003.htm (accessed Nov. 25, 2009)]). Consequently, [*2]since it is undisputed that the instant defendant reimbursed{**26 Misc 3d at 25} plaintiff pursuant to the workers’ compensation fee schedule for acupuncture services rendered by a chiropractor, plaintiff is not entitled to any additional reimbursement. Accordingly, the judgment dismissing the complaint is affirmed.

Weston, J.P., Rios and Steinhardt, JJ., concur.

Supreme Court, Queens County

25257/08

For the Plaintiffs: John E. McCormack, P.C., 41 Hilton Ave., Hempstead, NY 11550

For Defendants Bronx Park Medical, P.C., Inwood Hill Medical P.C., Dr. Noel Worrell Howell, Alexander Freed, Innessa Drabkin, Silver Pines Management Corp., Integra CBA Co., Inc., PKH Corp., and Michael Mazur: Lifshutz & Lifshutz, P.C., by Gary Burgoon, 501 Fifth Ave., suite 506, NY, NY 10017

For Defendant Healthbay Medical, P.C.: George T. Lewis, Jr., P.C., 485 Underhill Blvd., suite 101, Syosset, NY 11791

For Defendants Jean D. Miller, D.O., Jean Miller, D.O., P.C., and Acadian Medical P.C.: Kern Augustine Conroy & Schoppman, P.C., by Douglas M. Nadjari, Esq., 1325 Franklin Ave., Garden City, NY 11530

For Defendants Josh Vainer and SVG MGMT., Inc.: Matthew J. Conroy & Associates, P.C., by Matthew J. Conroy and Maria Campese Diglio, Esqs., 350 Old Country Road, suite 106, Garden City, NY 11530

For Defendants Simon Pevzner, ASPG MGNT., Inc., Veritas Management Corp., Group Square I.S. Ltd., Kritek, Inc., Strob, Inc., and Lokh Corp.: Schlam Stone Dolan, LLP, by Thomas A. Kissane and Samuel L. Butt, Esqs., 26 Broadway, NY, NY 10004

Other Defendants are either Pro Se and/or have not appeared.

Charles J. Markey, J.

The plaintiffs have moved for a preliminary injunction, inter alia, prohibiting defendant Pueblo Medical Treatment, PC, defendant Nagle Medical Plaza, PC, defendant Kingsbridge Community Medical, PC, defendant Inwood Hill Medical, PC, defendant Bronx Park Medical, PC, and defendant Healthbay Medical, PC from the further prosecution of pending lawsuits and arbitration proceedings brought by them against the plaintiffs to recover No Fault first-party medical benefits.

The complaint alleges that the plaintiffs are domestic and foreign insurance companies that issue automobile policies in New York State providing benefits payable pursuant to the Comprehensive Automobile Insurance Reparations Act (the No-Fault Law) presently codified in article 51 of the Insurance Law. The plaintiffs are required by law to pay an insured’s No-Fault benefits directly to a health care provider who has been assigned his right to benefits covering medically necessary treatments and tests. Some of the defendants, termed “the Management Defendants,” are the true owners of certain medical facilities also named in the complaint and termed “the provider defendants.” Some of the defendants, termed “the licensed defendants,” hold or did hold medical licenses and fronted as the owners of the provider defendants. The licensed defendants “essentially sold the use of their names and licenses to “the Management Defendants.”

There are three groups of defendants each comprised of some of the licensed defendants, provider defendants, and management defendants:
(1) The Pevzner management group allegedly using the licenses of Dr. Miller, Dr. Mukendi, and Dr. Kadianakis (Group 1),
(2) the Kargman management group allegedly using the licenses of Dr. Garcia, Dr. Iroku, Dr. Richie, and Dr. Chiarmonte (Group 2), and
(3) the Drabkin/Freed management group allegedly using the licenses of Dr. Howell and Dr. Iroku (Group 3).

The following chart sets forth the three groups of defendants: [*2]

Group 1

Group 2

Group 3

The defendants have allegedly defrauded the plaintiff insurers by submitting bills pursuant to New York State’s No-Fault Law for medical services rendered by corporations not truly owned by holders of medical licenses. On or about October 15, 2008, the plaintiffs (over 20 insurance companies) began this lawsuit asserting six causes of action, the first for common-law fraud, the second for unjust enrichment, the third for a declaratory judgment concerning fraudulent incorporation, the fourth for declaratory judgment concerning illegal fee splitting, the fifth for reimbursement based on Public Health Law § 238-a, and the sixth for a declaratory judgment concerning medical services allegedly rendered by independent contractors.

In order to obtain a preliminary injunction, the plaintiffs had to show (1) a likelihood of ultimate success on the merits, (2) irreparable injury if provisional relief is withheld, and (3) a weight of the equities in their favor (see, Aetna Insurance Co. v. Capasso, 75 NY2d 860 [1990]; McNeil v. [*3]Mohammed, 32 AD3d 829 [2nd Dept. 2006]). The plaintiffs successfully carried this burden (see, St. Paul Travelers Ins. Co. v Nandi, 2007 WL 1662050, 2007 NY Slip Op 51154[U] [Sup Ct Queens County, Dollard, J.] [in action involving alleged fraudulently incorporated medical providers, preliminary injunction granted prohibiting defendants from prosecuting pending lawsuits and commencing future lawsuits against No Fault insurer]).

In regard to the first requirement, the plaintiffs established a likelihood of ultimate success on the merits by making a prima facie showing that they can prove their causes of action based on fraudulent incorporation (see, McNeil v Mohammed, 32 AD3d 829, supra ; Trimboli v Irwin, 18 AD3d 866 [2nd Dept. 2005]; Four Times Square Associates, L.L.C. v Cigna Investments, Inc., 306 AD2d 4 [1st Dept. 2003]). The verified complaint, the affidavit of James Beadle (an investigator for plaintiff Autoone Insurance Company), and the deposition and examination transcripts from other cases show prima facie that certain of the licensed defendants did not truly own and operate the provider defendants against whom injunctive relief is sought. “State law mandates that professional service corporations be owned and controlled only by licensed professionals (see, Business Corporation Law §§ 1503[a]; 1507, 1508), and that licensed professionals render the services provided by such corporations (see, Business Corporation Law § 1504[a])” (One Beacon Ins. Group, LLC v Midland Medical Care, P.C., 54 AD3d 738, 740 [2nd Dept. 2008]).

In State Farm Mut. Auto. Ins. Co. v Mallela, (4 NY3d 313 [2005]), an action for, inter alia, a declaratory judgment brought by an insurer against defendants allegedly operating the same type of scheme allegedly involved in the case at bar, the Court of Appeals held that, on the basis of 11 NYCRR 65-3.16(a)(12), insurers may deny no-fault payments to fraudulently incorporated health care providers to which patients have assigned their claims. In regard to the requirement of irreparable injury, the plaintiffs adequately demonstrated that equitable relief is a more efficient remedy than monetary damages (see, People by Abrams v Anderson, 137 AD2d 259 [4th Dept. 1988]; Poling Transp. Corp. v A & P Tanker Corp., 84 AD2d 796 [2nd Dept. 1981]).

The plaintiffs have shown that the issuance of a preliminary injunction is necessary to prevent the repetitive litigation and arbitration of numerous No Fault claims for reimbursement by medical providers where the insurers raise the same defense of fraudulent incorporation. In regard to the weight of the equities (see, Reuschenberg v Town of Huntington, 16 AD3d 568 [2nd Dept. 2005]; Credit Index, L.L.C. v Riskwise Intern. L.L.C., 282 AD2d 246 [1st Dept. 2001]; McLaughlin, Piven, Vogel, Inc. v W.J. Nolan & Co., Inc., 114 AD2d 165 [2nd Dept.], appeal denied, 67 NY2d 606 [1986]; Metropolitan Package Store Ass’n, Inc. v Koch, 80 AD2d 940 [3rd Dept. 1981]; Nassau Roofing & Sheet Metal Co., Inc. v Facilities Development Corp., 70 AD2d 1021 [3rd Dept], appeal dismissed, 48 NY2d 654 [1979]; 67A NY Jur2d, “Injunctions,” § 31), the issuance of a preliminary injunction will not unduly cause hardship to any of the defendants, but, to the contrary, all parties will benefit from having the issue of fraudulent incorporation determined in one action.

Accordingly, the plaintiffs’ motion for a preliminary injunction is granted. The parties may submit affidavits concerning the proper amount of the undertaking at the time of the settlement of the order to be entered hereon (see, NSA, Inc. V. L.I.C. Food Court, Inc., 2009 WL 1904683, 2009 NY Slip Op 51411 [U] [Sup Ct Queens County 2009] [decision by the undersigned]; Chiu Cheuk Chan v. 28-42, LLC, 2009 WL 129893, 2009 NY Slip Op 50080 [U] [Sup Ct Queens County 2009] [decision by the undersigned]; Nand Land LAL v. Shiri Guru Ravidas Sabha of New York Inc., 2008 NY Slip Op 51720[U] [Sup Ct Queens County 2008]; Daily Bread Café Inc. v. City Lights at Queens [*4]Landing Inc., 2007 WL 3375899, 2007 NY Slip Op 52158 [Sup Ct Queens County 2007]; Molyneux-Petraglia v. Northbridge Capital Mgmt. Inc., 2007 WL 1203597, 2007 NY Slip Op 50845[U] [Sup Ct NY County 2007]; Citadel Mgt. Inc. v. Hertzog, 182 Misc 2d 902, 906 [Sup Ct Queens County 1999]; Connor v. Cuomo, 161 Misc 2d 889, 897 [Sup Ct Kings County 1994]; Jewelry Realty Corp. v. 55 West 47 Co., 90 Misc 2d 407, 408 [Sup Ct NY County 1977].)

Settle order.

___Hon. Charles J. MarkeyJustice, Supreme Court, Queens County

Appearances: