Wind it up

BR Clinton Chiropractic, P.C. v GEICO Ins. Co.., 2020 NY Slip Op 20291 (App. Term 2d Dept. 2020)

(1) “Pursuant to Business Corporation Law §§ 1509 and 1510, when professionals lose their license, they are required to sever 70 Misc 3d at 28} their ties with the professional service corporation. If the professional does not sever those ties, section 1509 grants the professional service corporation the authority to force the professional to do so, and failure to enforce this requirement constitutes a ground for forfeiture of the professional service corporation’s certificate of incorporation and its dissolution. Section 1510, among other things, directs the professional service corporation to repurchase the professional’s shares within six months of his disqualification. None of these requirements is self-executing.”

(2) “Here, the professional has not complied with section 1509 and the professional service corporation has not repurchased his shares pursuant to section 1510, so the professional remains the corporation’s sole shareholder. No one has moved for forfeiture of plaintiff’s certificate of incorporation or its dissolution. Despite revocation of its shareholder’s professional license, plaintiff continued to exist and is entitled to wind up its affairs and seek to recover no-fault benefits for the services it rendered to its assignor prior to June 28, 2010”

(3) “Section 1510 directs plaintiff to take actions that it concededly failed to do. It does not hold, however, that such a violation makes otherwise valid contracts unenforceable or that the{**70 Misc 3d at 29} corporation’s debtor should be entitled to withhold payment for services legally rendered”

Discovery penalty: dismissal

Queens-Roosevelt Med. Rehabilitation, P.C. v Response Ins. Co., 2019 NY Slip Op 50608(U)(App. Term 2d Dept. 2019)

“Contrary to the finding of the Civil Court, the questions at issue were “designed to elicit information which was material and necessary to the appellant’s defense of this action” (Parker v Ollivierre, 60 AD3d 1023, 1024 [2009]), as Dr. McGee’s involvement in other medical service corporations, including how much time he spent at those entities, could necessarily affect his involvement in the daily activities and management of plaintiff, and were relevant to whether Dr. McGee was plaintiff’s “bona fide owner [and] operator.” Moreover, counsel’s “directions not to answer [the questions at issue] were not otherwise authorized by [Uniform Rules for the Conduct of Depositions] 22 NYCRR [§] 221.2” (id. at 1024). In light of plaintiff’s failure to fully comply with discovery over many years, plaintiff’s refusal to answer the questions at issue may be presumed to be willful and contumacious (see e.g. Honghui Kuang v MetLife, 159 AD3d 878 [2018]); therefore, a sanction is warranted. Given that certain of plaintiff’s claims have already been struck based upon its noncompliance with discovery and that Dr. McGee has already been deposed twice, we find that striking plaintiff’s complaint is the appropriate sanction (see id.).”

This case is interesting for a bunch of reasons. First, Dr. McGee should have had shells on his payroll to administer the tests and treatments at his facility, so he could account for his large practice. Second, the direction not to answer a question is just dangerous unless the question is palpably improper. Example: “What’s her motivation for saying that you lied”. Clearly palpably improper. Better question: “Are you aware of why she said you lied?” But, I suppose McGee asked for this outcome.

Yet, don’t you think in light of Dr. McGee appearing twice – a remedy short of dismissal with prejudice (SOL makes it with prejudice) – perhaps a third deposition or preclusion might be a proper remedy?

Carothers to the COA (I missed it)

Andrew Carothers, M.D., P.C. v Progressive Insurance Company, 2017 NY Slip Op 90794(U)(2d Dept. 2017)

For some reason, I missed this decision and order.  I read the Court of Appeals order stating that the court was without jurisdiction to grant leave.  Some of you may be unaware that the Court of Appeals may not grant leave to hear a civil cause that starts in the Civil Court, District Court, City Court, Justice Court, County Court (first or second departments), Town Court or Village Court.  On the criminal side, an appeal from one of the above Courts to the Appellate Term or County Court (upstate) bypasses the Appellate Division and goes to the Court of Appeals (if leave is granted).

I was unaware that following the Court of Appeals order, Carothers went back to the Second Department and sought leave to appeal.  Furthermore, I also was unaware that leave was actually granted.  This will mean that this matter will result in four published opinions.  Judge Sweeney, Appellate Term (it was not a U cite), Appellate Division (signed opinion) and now the Court of Appeals.

“ORDERED that the motion is granted, and the following question is certified to the Court of Appeals: Was the opinion and order of this Court dated April 5, 2017, properly made?

Questions of law have arisen, which, in our opinion, ought to be reviewed by the Court of Appeals (see CPLR 5713).”

Who would have thought.

Mallela not supported

Nationwide Affinity Ins. Co. of Am. v Acuhealth Acupuncture, P.C., 2017 NY Slip Op 08007 (2d Dept. 2017)

(1) “However, “[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” (11 NYCRR 65-3.16[a][12]). “State law mandates that professional service corporations be owned and controlled only by licensed professionals” (One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738, 740; see Business Corporation Law §§ 1503[a]; 1507, 1508). Thus, an insurance carrier may withhold payment for medical services provided by a professional corporation which has been “fraudulently incorporated” to allow nonphysicians to share in its ownership and control”

(2) “Thus, this evidence did not demonstrate, prima facie, that Anikeyev exercised dominion and control over the defendants and their assets and shared the risks, expenses, and interest in their profits and losses, or that he had a significant role in the guidance, management, and direction of their business (see Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 150 AD3d at 201). Moreover, even assuming, as the plaintiffs do, that the presence of the forfeited funds in the defendants’ bank accounts demonstrated some level of control by Anikeyev over the bank accounts, such control could not, on its own, support a finding that he owned and controlled the defendants ”

It is interesting that the regulation (65-3.16[a][12]) is limited to the situation where the medical provider is “controlled” by an ineligible professional.  The evidence, which various arbitrators, master arbitrators and the First Department have ruled upon, does not conclusively support this showing.

Failure to cooperate

Country-Wide Ins. Co. v Gotham Med., P.C., 2017 NY Slip Op 07538 (1st Dept. 2017)

(1) “The refusal by defendant’s principal, Dr. Alexandre Scheer, to answer questions at an examination under oath (EUO) about his compliance with a consent agreement and order he had entered into with the Office of Professional Medical Conduct (OPMC) constituted a failure to comply with the request for an EUO, a condition precedent to coverage under the insurance policy (see Hertz Corp. v Active Care Med. Supply Corp., 124 AD3d 411 [1st Dept 2015]).”

This is the second time the Appellate Division opined on the issue of not answering questions at the EUO.  The intentional refusal to comply “voided” coverage.

(2) “Defendant also argues that plaintiffs had no independent right to determine whether Scheer was in compliance with the consent agreement and order and that any determination by them of noncompliance would not render him “unlicensed” to practice medicine. This argument is unavailing. The consent agreement and order provides that any medical practice in violation of the term permitting Scheer to practice only when monitored “shall constitute the unauthorized practice of medicine.” An unlicensed health care provider is ineligible to receive no-fault reimbursement (11 NYCRR 65-3.16[a][12]), and an insurer may make a good faith determination that a medical provider assignee seeking no-fault benefits is ineligible to receive such benefits (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313, 322 [2005]).”

The facts on this one were highly advantageous to the insurance carrier.  You had a wounded warrior, tried to put the dagger into him and he refused to allow that to occur.

(3) “Defendant waived the defenses of res judicata and award and arbitration (CPLR 3211[e]; see Mayers v D’Agostino, 58 NY2d 696 [1982]). While the arbitral awards in its favor were not issued until after it had filed its answer in this action, there is no indication on the record before us that defendant ever moved to amend its answer to assert either of those defenses.”

I think this is the most important point to take from this case.  It is the danger of being forced to allow these matters to proceed to arbitration.

Mallela preservation

K.O. Med., P.C. v USAA Cas. Ins. Co., 2017 NY Slip Op 51089(U)(App. Term 2d Dept. 2017)

Contrary to plaintiff’s argument, a “Mallela defense” need not be preserved in a timely denial (see Matter of Acuhealth Acupuncture, P.C. v Country-Wide Ins. Co., 149 AD3d 828 [2017]; All Boro Psychological Servs., P.C., 39 Misc 3d 9; First Help Acupuncture P.C. v State Farm Ins. Co., 12 Misc 3d 130[A], 2006 NY Slip Op 51043[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2006]).

This should be compared with relevant First-Department precedent: Country-Wide Ins. Co. v Valdan Acupuncture, P.C., 150 AD3d 560, 560-561 (1st Dept. 2017):

“Assuming without deciding that an insurer’s defense of fraudulent  incorporation cannot be precluded (see AVA Acupuncture, P.C. v AutoOne Ins. Co., 28 Misc 3d 134[A], 958 N.Y.S.2d 59, 2010 NY Slip Op 51350[U] [App Term 2d Dept 2010]; Bath Med. Supply, Inc. v Allstate Indem. Co., 27 Misc 3d 92, 95, 902 N.Y.S.2d 875 [App Term 2d Dept 2010]), we conclude that the master arbitrator properly confirmed the award of the arbitrator, who reviewed petitioner’s submissions relating to the plea of guilty to no-fault insurance fraud by a man married to the owner of respondent, found that respondent was not mentioned once in the “hundreds of pages” submitted, and rejected petitioner’s attempt to hold the owner “responsible by association.”

The sad man’s DJ

Mapfre Ins. Co. of N.Y. v Soltanov, 2017 NY Slip Op 31520(U)(Sup. Ct. NY Co. 2017)

We previously discussed that the poor man’s DJ that did not go over too well.  This is the sad man’s DJ.  I read the papers last weekend.  Justice Bluth, who is not afraid to call out fraud (V.S. Med. Servs., P.C. v. Allstate Ins. Co., 11 Misc. 3d 334, 335 [Civ. Ct. 2006], was not impressed either.

The allegations are far reaching and serious.  And to be honest, I would not be surprised if they may be true.   It pleads common law fraud and Mallela causes of action at its base.  Following that, it pleads causes of action based upon “self referral” and “independent contractor actions”.  The former is never actionable on a no-fault claim (Allstate Prop. & Cas. Ins. Co. v. New Way Massage Therapy P.C., 134 A.D.3d 495 [1st Dept 2015], leave to appeal denied, 28 N.Y.3d 909 [2016]).  The latter is only actionable if the claim is timely denied on that basis.

Thus, this is a Mallela and fraud case.

The evidence is the DOH admonishing Dr. Arguilles, SIU investigators discussing matters (some of which is clearly outside their expertise) and an expert who says the billing is fraudulent.  Missing was what you need to prove this type of case: EUO testimony and claims specific evidence to back up the allegations.  An expert who opines on matters without a factual basis is guilty of promoting junk science.    I learned that – in all places- at  matrimonial CLE.

For instance, I just read a Rico on an Allstate case.  Putting aside the substantive issue in that case of whether pattern act mail fraud was committed, presented was EUO testimony to attempt to prove some of the allegations presented in the complaint.

This DJ is based upon information and belief and innuendo.  So, while I give myself the title for the poor man’s DJ, this should get the award for the sad man’s DJ.

As a stay was not granted and discovery (should the matter survive a 3211[a][7] motion and appeal) will be ongoing, this looks to be an exercise in something.


Carothers v Progressive Ins. Co., 2017 NY Slip Op 02614 (2d Dept. 2017)

Discussion of BLC

(1)  “To incorporate, the licensed individual must obtain a “certificate . . . issued by the [New York State Department of Education (DOE)] certifying that each of the proposed shareholders, [*4]directors and officers is authorized by law to practice a profession which the corporation is being organized to practice” (Business Corporation Law § 1503[b]). The DOE may not issue a certificate of authority to a professional service corporation that does not meet these qualifications (see Education Law § 6507[4][c][i]). Once the professional corporation is formed, shareholders may not transfer their voting power to any person who is not a licensed professional in the field (see Business Corporation Law § 1507[a])” Any agreement by a shareholder transferring the voting power of his/her share to individuals who are not authorized by law to practice the profession is void (see Business Corporation Law § 1507[a]).


“insurers may look at the actual ownership and operation of the practice, to wit, whether the practice was actually controlled or owned by an unlicensed individual in violation of state and local law (see id. at 321; United States v Gabinskaya, 829 F3d 127, 133 [2d Cir]). In this context, however, the Court of Appeals cautioned that insurance carriers could not delay payments of reimbursement claims to pursue investigations unless they had “good cause” (State Farm Mut. Auto. Ins. Con v Mallela, 4 NY3d at 322; see 11 NYCRR 65-3.2[c]; Dynamic Med. Imaging, P.C. v State Farm Mut. Auto. Ins. Co., 29 Misc 3d 278, 285 [Nassau Dist Ct]) and that, in the licensing context, “carriers will be unable to show good cause’ unless they can demonstrate behavior tantamount to fraud”

Jury Charge

Factors to determine whether there was fraudulent incorporation:

(1) “As the Appellate Term correctly determined, the charge properly focused the jury on the question of whether Carothers was a mere nominal owner of the plaintiff, and if, in actuality, nonphysicians Sher and Vayman owned or controlled the plaintiff such that the profits were funneled to them. The Civil Court properly instructed the jury to consider whether Sher and/or Vayman shared in the profits of the plaintiff, and that the jury could consider whether the leases entered into between the plaintiff and Sher’s companies were arms’ length or meant to funnel profits to Sher. The Civil Court charged the jury that, in order to succeed on its defense, the defendant was required to establish, by clear and convincing evidence, that Sher and/or Vayman, two nonphysicians, were “de facto owners” of the plaintiff or exercised “substantial control” over the plaintiff; and that to find de facto ownership, the jury must find that either Sher and/or Vayman exercised “dominion and control over” the plaintiff and its assets and that they “shared the risks, expenses, and interest in the profits and losses” of the plaintiff. To find control, the jury was instructed that they must find that Sher and/or Vayman had a “significant role in the guidance, management, and direction of the business.”

(1a) ” Likewise, although Malella instructed that “[t]echnical violations” such as a failure to hold an annual meeting, pay corporate filing fees, or submit paperwork on time would not establish the defense of fraudulent incorporation (State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d at 322), a failure to follow corporate formalities is a relevant factor for the jury to consider, in conjunction with other factors, in determining the ultimate issue of ownership and control and whether the plaintiff was a proper professional corporation or merely a vehicle operated by nonphysicians to funnel profits to themselves”

(2) “Although the plaintiff is correct that certain of the factors enumerated in the non-exhaustive list of factors with which the jury was charged that it might wish to consider, could not, standing alone, support a finding of fraudulent incorporation, these factors were relevant for the jury to consider in determining the ultimate issues of de facto ownership and substantial control, and the jury was properly instructed to consider the totality of the circumstances”

(3) “Good faith compliance with the requirements of a professional corporation at the time of incorporation does not end when the certificate of incorporation is filed and does not defeat a claim of fraudulent incorporation if the evidence demonstrates that at some point after the initial incorporation, the nominal physician owner turned over control of the business to nonphysicians in contravention of state regulations”

(4) “In light of the jury’s determination that the evidence at trial met this more stringent standard of proof than required by the preponderance of the evidence standard, we do not reach the issue of which is the appropriate standard of proof in establishing the defense of fraudulent incorporation

The Court discussed harmless error, and found the 5th Amendment issue insufficient to overturn the jury verdict.


What did I take out of the case?   First, the Court punted on clear and convincing versus preponderance.    Second, individual violations of the BCL and Education law are not separately actionable to deny a provider his/her no-fault benefits.  We learned this in Allstate v. New Way Massage Therapy, P.C.  Third, we have a non-exhaustive list of factors that could be cited to discern whether a cause of action or triable issue of fact exists as to a Mallela defense.

On a side note, you have to wonder how any of this can be used to shape or reshape Rico actions.  The predicate acts are usually mail/wire fraud and based upon Mallela issues.  Can the smart provider attorney reshape the central inquiry?  Contrariwise, can an insurance carrier attorney reformulate the Mallela factors to fit a pattern act from Federal criminal law?  There is a lot to digest here – the intuitive practitioner can play with this case and draft a crafty memorandum of law.

Of course, most cases are just not this egregious.

Preliminary injunction denied – the analysis is questionable

Liberty Mut. Ins. Co. v Branch Med., P.C., 2016 NY Slip Op 31706(U)(Sup. Ct. NY Co. 2016)

(1)  In connection with one such claim, at an examination under oath (EUO) held on March 31, 2014, Nicholas testified that he and his brother, Scott, solely owned and controlled Branch, that their compensation was tied to company profits, and that defendant Mark Levitan served as Branch’s “administrative executive,” overseeing company staff, marketing, bookkeeping, and internal HIPAA procedures, with online access to Branch’s bank account. He was not a physician. When questioned further about Levitan, Nicholas was instructed by counsel not to answer questions about Levitan’s compensation relative to his and Scott’s, nor whether Levitan had been involved in any business owned by Nicholas before Branch.

(2) “Nothing in Nicholas’s testimony evidences fraud, nor do the unanswered verification requests. Moreover, the requests were improper. (See Is. Chiropractic Testing, P. C. v Nationwide Ins. Co., 35 Misc 3d 1235[A], 2012 NY Slip Op 51001[U], *2 [Dist Ct, 3d Dist, Suffolk County 2012] [request for documents pertinent to fraudulent incorporation defense inappropriate for verification request]”

(3) “Even if the alleged gaps in Nicholas’s testimony support an inference that Levitan earned more than him and Scott, it is consistent with Levitan, as staff, earning a salary, whereas Nicholas and Scott, as owners/shareholders, earned compensation based on the corporation’s profits. And even if Levitan was affiliated with a prior business owned by Nicholas, it proves nothing absent evidence he owned or controlled it.”

(4) Plaintiffs’ remaining allegations are unsubstantiated and based on speculation, and to the extent that plaintiffs rely on Springer’s EUO, they fail to provide or point to the pertinent portions of his testimony. Plaintiffs thus fail to establish, by clear and convincing evidence, the likelihood of success on the merits of their claim that Branch and Windsor were fraudulently incorporated and ineligible to receive no-fault benefits”

This one is interesting.  I never liked the whole directing not to answer thing.  The questions were relevant regarding compensation of the administrator of the practice.  Ultimately, the amount of his compensation relative to his bona-fide verifiable job duties would lead to legitimate verification requests for financial documents.  The Court got that wrong, simple.

As to the Court applying District Court decisions disallowing verification of financial documentation, the regulations prefer that these document exchanges take place pre-suit.  Remember the case where Supreme Court was reversed when the Court granted discovery in the form of financials during arbitration?  The Court cited 65-3.5 and 65-3.6.

I think the decision is wrong and should be appealed.  Unless, I am missing something?

By the way, I do not disagree that a practice manager could or maybe should make more than the principals.  But, the insurance carrier should have been entitled to ask more questions at the EUO and, only if the answers to the questions raise legitimate concerns, should further documentary discovery be required.


An unincorporated solo practitioner using his own social security number.

Hu-Nam-Nam v New York Cent. Mut. Fire Ins. Co., 2016 NY Slip Op 26237 (App. Term 2d Dept. 2016)

A billing provider seeking to recover no-fault benefits for services rendered to an assignor must provide, at the bottom of the claim form, a taxpayer identification number either in the form of a social security number or an employer identification number. Social security numbers are used to identify individual persons, while employer identification numbers are used to identify employers (see 26 CFR 301.6109-1 [a] [1] [ii]). “An individual … who is an employer or who is engaged in a trade or business as a sole proprietor should use an employer identification number” (26 CFR 301.6109-1 [a] [1] [ii] [b]), since an employer identification number is required if the taxpayer “[p]ay[s] wages to one or more employees” (IRS Publication No. 334 [Tax Guide for Small Business]). Thus, it is permissible for a billing provider operating as a sole proprietor to use his or her own social security number on the claim form if it is the billing provider who rendered the services in question. However, where, as here, a doctor bills for services rendered by a treating provider in that doctor’s employ, it is impermissible for the doctor to bill using his or her own social security number.

Nothing better than putting your social security number on documents to be distributed to the world.  That is the vehicle for classic fraud.  Legally, this is the type of “technical issue” that the Court of Appeals warned against in Malella.  Yet, this is not  a Malella defense since and is deemed an improper billing defense.  The Court held as follows: “As defendant demonstrated that the claim form submitted by plaintiff was for services performed by plaintiff’s employee, that the claim form was submitted under plaintiff’s social security number, and that the denial of claim form based upon improper billing was mailed within 30 days of defendant’s receipt of the claim form, defendant established its entitlement to summary judgment.”

I am not sold this is a defense, but you do not have to sell me on it.  I am not the court.