Mallela defense must be arbitrated upon demand of Applicant

Matter of Countrywide Ins. Co. v DHD Med., P.C., 2011 NY Slip Op 05864 (1st Dept. 2011)

“Petitioner argues that respondent is a fraudulently incorporated medical services provider and therefore is not only ineligible for reimbursement of no-fault payments (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]) but is also precluded from demanding arbitration pursuant to Insurance Law § 5106(b) (and the no-fault policy issued by petitioner). Contrary to this argument, the defense of fraudulent incorporation is “for the arbitrator and not for the courts” (see Matter of Nassau Ins. Co. v McMorris, 41 NY2d 701 [1977]; Matter of MVAIC v Interboro Med. Care & Diagnostic PC, 73 AD3d 667, 667 [2010]).”

I take it this was a Special proceeding commenced through an Article 75, seeking injunctive relief.  I think this decision would have been different had an affirmative lawsuit been commenced seeking Mallela based relief prior to the filing of an arbitration.

I would also note that this decision should not impact IME non-coop and EUO non-coop based DJ’s since those are “coverage” cases.  Mallela is a standing based issue.

Appellate Term delves deeper into Mallela – and the plaintiff bar is plunging into ever so deeper water

Radiology Today, P.C. v GEICO Gen. Ins. Co., 2011 NY Slip Op 21161 (App. Term 2d Dept. 2011)

Holding #1: “Plaintiff contends that the discovery order was improper because, in the answer and in support of its motion to compel discovery, defendant failed to “state[] in detail” the “circumstances constituting the wrong,” citing CPLR 3016 (b). There is no requirement that a defense predicated upon the failure to comply with “New York State or local licensing requirement[s]” (Insurance Department Regulations [11 NYCRR] 65-3.16 [a] [12]) be pleaded with particularity pursuant to CPLR 3016 (b) (see generally V.S. Med. Servs., P.C. v Allstate Ins. Co., 25 Misc 3d 39 [App Term, 2d, 11th & 13th Dists 2009]). In addition, while mere conclusory allegations are never sufficient to obtain discovery with respect to a Mallela-based defense, defendant’s motion papers were sufficient to demonstrate that a Mallela-based defense [*3]was potentially meritorious.”

Holding #2: “The defense that plaintiff is ineligible to receive no-fault benefits because it failed to comply with state or local licensing requirements “is not waived by the failure to assert it in a denial of claim form . . . nor is it precluded as a result of an untimely denial” (Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 39 [App Term, 2d & 11th Jud Dists 2007] [citations omitted]). No-fault benefits may not be paid to medical service corporations which submit “materially false filings with state regulators” (Mallela, 4 NY3d at 321)”

So we all got the answer we have waited for: Mallela based “fraud” need only be proved through a preponderance of the evidence.  As a corollary, the evidence needed to obtain Mallela based discovery is sufficiently less than what could possibly be sought under a clear and convincing fraud standard.  This is quite interesting to say the least.

Also, the Appellate Term seems to hold that a PHL 238 violation standard separate and apart from a true “Mallela” violation.  The door has opened that much further.  The better question, however, is why the heck can’t all of this information be obtained in EUO-verification, under penalty of the policy being void ab initio

Public Health Law 238-a defense?

Stephen Matrangalo, DC, PC v Allstate Ins. Co., 2011 NY Slip Op 50517(U)(App. Term 1st Dept. 2011)

“Public Health Law § 238-a prohibits a practitioner from making a referral to a health care provider where the referring practitioner (or immediate family member of such practitioner) has a “financial relationship” with the health care provider (Public Health Law § 238-a[1][a]). A “financial relationship” is defined in section 238(3) of the Public Health Law as “an ownership interest, investment interest or compensation arrangement.” Critically, a “compensation arrangement” means “any arrangement involving any remuneration between a practitioner, or immediate family member, and a health care provider” (Public Health Law § 238-a[5][a]), but does not include “payments for the rental or lease of office space” if there is a lease that meets specific enumerated requirements, i.e., is in writing, for a term of at least one year, with a rent consistent with fair market value and not based upon the volume or value of any referrals, and would be commercially reasonable even if no referrals were made (Public Health Law § 238-a[5][b][i]).”

To simplify this, let me ask the following question: What makes this any different than precludable provider fraud?  Is there coverage?  Yes.  Is PHL 238-a an explicit condition precedent to coverage set forth in the policy?  No.  Is PHL 238-a a Mallela based violation?  Probably not.

So, absent proof of a timely denial, the court should not have reached the merits of the case.  That is the law, as nutty as it may seem.

An unproven Mallela defense will cost State Wide millions

The Rabiner cases

I just saw this on No-Fault Paradise and thought it was an interesting decision for a few reasons.  First, the court left open the issue as to whether a Mallela defense must be proven by clear and convincing evidence.  See, State Farm Mut. Auto. Ins. Co. v. Robert Mallela 4 N.Y.3d 313 (2005)(“In the licensing context, carriers will be unable to show “good cause” unless they can demonstrate behavior tantamount to fraud. Technical violations will not do.”).  Second, I found the following statement interesting: “To the extent that defendant sought to establish at trial that the management company hired by plaintiff was the entity that actually operated the plaintiff’s corporations, the record is devoid of facts establishing any of the indicia of ownership by one other than plaintiff’s licensed professional.

I am curious what this “indicia” is that is necessary to substantiate a Mallela defense.  It also looks like a Mallela defense is not as easy to substantiate at trial as many on the defense bar, who throw around the word Mallela, would like us all to believe.

I wonder how much compounded interest is out there in these cases since there was no toll.  My guess is probably close to the one million dollar mark.

I also am curious to see what is now going to become of the rest of the Rabiner claims that are pending, e.g., Allstate v. Belt Parkway.  While this decision is not res judicata against Allstate in the aforementioned case, it probably should have some bearing on how aggressive Allstate wants to be in prosecuting these pending actions.  Good job to Dave Barshay on behalf of his client.


This case can be cited as: Parkway MRI, P.C. v State Wide Ins. Co, 2010 NY Slip Op 52232(U)(App. Term 2d Dept. 2010)

Ins Law 5109 and the failure to promulgate regulations thereto is not fatal to a Mallela defense

Allstate Ins. Co. v Belt Parkway Imaging, P.C., 2010 NY Slip Op 08783 (1st Dept. 2010)

“Section 5109(a) states, “The superintendent, in consultation with the commissioner of health and the commissioner of education, shall by regulation, promulgate standards and procedures for investigating and suspending or removing the authorization for providers of health services to demand or request payment for health services as specified in” Insurance Law § 5102(a)(1). However, the Superintendent of Insurance has issued no regulations pursuant to § 5109(a). Thus, if — as defendants contend — only the Superintendent can take action against fraudulently incorporated health care providers, then no one can take such action. In light of the [*2]fact that “[t]he purpose of the regulations of which [11 NYCRR] 65-3.16(a)(12) is a part was to combat fraud” (Allstate Ins. Co. v Belt Parkway Imaging, P.C., 33 AD3d 407, 409 [2006]), this would be an absurd result, and we reject it (Statutes § 145).”

While ultimately unsuccessful, this case shows that there is no want of creative thinking within the no-fault bar.

Consolidation and belated discovery denied

SEE COMMENTS FROM DAMIN TOELL, ESQ. – for further explanation of this case.

Kipor Medicine, P.C. v GEICO, 2010 NY Slip Op 51247(U)(App. Term 2d Dept. 2010)

The branch of defendant’s motion seeking consolidation should have been denied since defendant failed to demonstrate that the actions it sought to consolidate had common questions of law or fact (see CPLR 602 [a]; S & B Neurocare, P.C. v GEICO Ins. Co., 20 Misc 3d 132[A], 2008 NY Slip Op 51450[U] [App Term, 2d & 11th Jud Dists 2008]). In addition, the branch of [*2]defendant’s motion seeking leave to amend the answer should have been denied since defendant’s papers presented no evidence that the proposed amendment might have merit (see CPLR 3025 [b]; Ingrami v Rovner, 45 AD3d 806, 808 [2007]). Defendant sought to amend its answer to assert that plaintiff’s certificate of incorporation had been revoked following the surrender, in April 2006, of the medical license of plaintiff’s sole shareholder. Plaintiff, however, is entitled to wind up its affairs and seek to recover no-fault benefits for the services it rendered to its assignors prior to April 2006 (see e.g. A.B. Med. Servs., PLLC v Travelers Indem. Co., 26 Misc 3d 69 [App Term, 9th & 10th Jud Dists 2009]). Defendant has not demonstrated that the facts herein are akin to a fraudulent incorporation (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]).

Moreover, since defendant failed to submit an affidavit specifying that any unusual or unanticipated conditions had developed after the notice of trial had been filed which made it necessary for defendant to engage in further pretrial proceedings (see Uniform Rules for New York City Civ Ct [22 NYCRR] § 208.17 [d]; S & B Neurocare, P.C. v GEICO Ins. Co., 20 Misc 3d 132[A], 2008 NY Slip Op 51450[U]), the branch of defendant’s motion seeking to compel plaintiff to respond to discovery demands and produce its sole shareholder for an examination before trial should also have been denied.

Two points.  One, consolidation motions seem to have the same rules as severance motions.  While it is easy to sever, it is equally as difficult to consolidate.  Two, belated discovery following the filing of a notice of trial is shunned upon.

A better question is assuming the facts as presented by Justice Golia are accurate (see below), why would anybody prosecute this type of action.  Does this make the law firm prosecuting this action a co-conspirator or accessory after the fact to a fraud?  I am not sure –

“Unlike the majority, I do not find that defendant failed to demonstrate that the actions it sought to consolidate had common questions of law or fact,” or that defendant’s papers presented no evidence that the proposed amendment might have merit,” or that additional discovery should also have been denied.” Notwithstanding the foregoing, I agree with the majority in the ultimate result in that defendant waited nearly two years from the time it knew that Dr. Meisher had committed insurance fraud and was losing his medical license. Indeed, it was this very defendant, GEICO, that was the named victim” in the case to which Dr. Meisher entered his guilty plea. I can find no valid reason for this particular defendant to have ignored these concerns for such an extended period of time. Certainly, if defendant had submitted the same motion within a reasonable time, I would have voted to affirm the order of the Civil Court.”

Geico v. Vista Medical Diagnostic (the complaint and Rico pattern act rider)

I think i fixed the bugs.  Please let me know if you can download on explorer.

I have finally relented and am posting the relevant documents I downloaded from Pacer.

Geico v. Vista Medical Diagnostic

Rico Pattern Act

Mallela based discovery

B.Y., M.D., P.C. v Lancer Ins. Co., 2010 NY Slip Op 50493(U)(App. Term 2d Dept. 2010)

“However, defendant seeks discovery, inter alia, to support its defense that B.Y. is ineligible to recover no-fault benefits as a fraudulently incorporated professional service corporation (see State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]), a defense which is not precluded (see New Era Acupuncture, P.C., 24 Misc 3d 134[A], 2009 NY Slip Op 51396[U]). As a result, discovery of certain items requested by defendant is not palpably improper, and B.Y. did not demonstrate that such information was privileged. Consequently, defendant is entitled to production of the documents and information demanded in items 1 through 7, 9, 10, 12 through 16, 19, 41, and 42 of its notice for discovery and inspection, and to responses to questions 1, 6 through 9, and 23 through 25 of its “demand for verified written interrogatories” insofar as the information sought relates to B.Y. (see CPLR 3101 [a]; One Beacon Ins. Group, LLC v Midland Med. Care, P.C., 54 AD3d 738 [2008]; Midwood Acupuncture, P.C. v State Farm Fire & Cas. Co., 21 Misc 3d 144[A], 2008
NY Slip Op 52468[U] [App Term, 2d & 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]).”

The “good cause” standard does not regulate Mallela based discovery matters.  As we all know, no-fault matters brought in court are subject to the full scope of CPLR 3101.  But here is the unresolved question: what factual presentation is necessary to allow this type of broad based corporate structure discovery?  Since One Beacon, it is rare that one sees a Mallela discovery-based case, where the application for discovery based sanctions is denied.

I do not think the good cause standard was proper.  I also do not think baseless allegations, without a sufficient evidentiary presentation, should allow this type of discovery.  Some articulated threshold standard is necessary, so the bar can have some clarity on this issue.  And so we wait.

Appellate Term holds CPLR 3212(f) relief is inappropriate under three separate circumstances

Bath Med. Supply, Inc. v Allstate Indem. Co., 2010 NY Slip Op 20059 (App. Term 2d Dept. 2010)

First, the Appellate Term, Second Department, appears to have, for the first time that  I can recall, denied a 3212(f) application when the defense is based upon a corporate structure issue.  The court found it relevant that many of the corporate documents, which the 3212(f) defense was based upon, are readily available.

Second, the portion of the 3212(f) application, which was based upon the purported need for an EBT of the assignor based upon an allegation that the assignor received the supplies, was denied since the defense may have been precluded.

Third, even if the defense was not precluded, a deposition of the assignor without a subpoena, as we know, is palpably improper.

“The court denied plaintiff’s motion for summary judgment pursuant to CPLR 3212 (f) on the ground that defendant was entitled to discovery pertaining to its contention that plaintiff had billed insurance companies for medical supplies which were never provided. However, defendant failed to make any showing that its denial of claim forms were timely mailed and that it is not precluded from raising fraudulent billing as a defense (see Fair Price Med. Supply Corp. v Travelers Indem. Co., 10 NY3d 556 [2008]; Presbyterian Hosp. in City of NY v Maryland Cas. Co., 90 NY2d 274, 282 [1997]). Consequently, the court’s determination that discovery was necessary to obtain facts relevant to this precluded defense was improper, and, thus, plaintiff’s motion for summary judgment should not have been denied on that basis.

A defense that plaintiff may be ineligible to recover no-fault benefits because it failed to adhere to applicable statutes (cf. State Farm Mut. Auto. Ins. Co. v Mallela, 4 NY3d 313 [2005]) is not precluded, notwithstanding defendant’s failure to demonstrate that its denial of claim forms were timely sent. However, defendant has offered no factual basis for its contention that plaintiff was not properly incorporated as a provider of durable medical equipment or failed to obtain any license that may have been required at the time it delivered medical equipment to its assignor. Further, in light of the availability of public records documenting plaintiff’s licensing status, defendant “failed to demonstrate that discovery was needed in order to show the existence of a triable issue of fact (see CPLR 3212 [f])” (Delta Diagnostic Radiology, P.C. v Interboro Ins. Co., 25 Misc 3d 134[A], 2009 NY Slip Op 52222[U] [App Term, 2d, 11th & 13th Jud Dists 2009]; see also Corwin v Heart Share Human Servs. of NY, 66 AD3d 814, 815 [2009] [summary judgment should be deferred pending discovery only when the opponent “offer[s] an evidentiary basis to suggest that discovery might lead to relevant evidence and that facts essential to justify opposition to the motion were exclusively within the knowledge and control of the plaintiff”]).”

We note that, insofar as the order conditioned the grant of defendant’s cross motion on the nonappearance of plaintiff’s assignor for an examination before trial, the order was improper. As plaintiff’s assignor is neither a party to this action nor under plaintiff’s control (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), the sanctions provided by CPLR 3126 (3) for nondisclosure cannot be imposed on plaintiff for failing to produce its assignor for an examination before trial (MIA Acupuncture, P.C. v Mercury Ins. Co., ___ Misc 3d ___, 2009 NY Slip Op 29509 [App Term, 2d, 11th & 13th Jud Dists 2009]).

Interesting Mallela case from the Appellate Term, Second Department

May a physician who does not practice acupuncture bill for the services of an acupuncturist he or she hires?  That almost sounds like a question that I would start one of my appellate briefs with.

The Appellate Term, Second Department says “no” in  Quality Med. Care, P.C. v New York Cent. Mut. Fire Ins. Co., 2010 NY Slip Op 50262(U)(App. Term 2d Dept. 2010).

You can read the case if you want, but it follows the logic of Justice Dollard’s opinion in St. Paul Travelers Ins. Co. v Nandi, 15 Misc 3d 1145(A)(Sup. Ct. Queens Co. 2007).  I like the “c.f.” to Healthmakers Med. Group, P.C. v Travelers Indem. Co., 13 Misc 3d 136(A)(App. Term 1st Dept. 2006).

I will pass on offering my opinion on this one.  You cannot have my opinion on every PIP issue now.  I do not accept Pay Pal, sorry.