Disqualified yet able to collect his receivables?

A.B. Med. Servs., PLLC v Travelers Indem. Co. 2009 NY Slip Op 29510 (App. Term 2d Dept. 2009)

“Plaintiff, as a “professional service limited liability company” (Limited Liability Company Law § 1201 [f]), could render professional services only through individuals authorized by law to render such professional services (Limited Liability Company Law § 1204 [a]). Here, plaintiff’s sole member was Dr. Braver. Once his medical license was suspended, he became legally disqualified from practicing medicine within the state and was disqualified from continuing as a member of plaintiff (see Limited Liability Company Law § 1209). Dissolution occurred on the effective date of the suspension of Dr. Braver’s medical license since, at that point, there were no remaining members of the professional service limited liability company (see Limited Liability Company Law § 701 [a] [4] [a “limited liability company is dissolved and its affairs shall be wound up . . . at any time there are no members”]). We note that although articles of dissolution have now been filed, there is no statutory requirement that articles of dissolution be filed before commencement of the winding up process.

After dissolution, the affairs of the limited liability company are to be wound up (see Limited Liability Company Law § 703 [a]). Where a professional service limited liability company has other members remaining in the company, and continues to render professional [*3]services, a disqualified member must “sever all employment with and financial interests” in such company (Limited Liability Company Law § 1209). However, where, as here, the disqualified member was the sole member of such company, he may wind up the professional service limited liability company’s affairs by, among other things, prosecuting and/or defending an action on behalf of the professional service limited liability company (Limited Liability Company Law § 703 [b] [“the persons winding up the limited liability company’s affairs may, in the name of and for and on behalf of the limited liability company . . . prosecute and defend suits, whether civil, criminal or administrative, settle and close the limited liability company’s business”). Since the instant action could still be maintained in plaintiff’s name despite its dissolution, a stay of the proceedings, pursuant to CPLR 2201, was not warranted, and we strike such provision.”

According to the Appellate Term, it is better to lose your license and have no one else legally able to take over the affairs of the PLLC, then it is to lose your license and have a licensed individual able to run the PLLC.

Why does a Malella defense surive an untimely disclaimer, while a workers compensation defense doesn’t?

In New York First Acupuncture, P.C. v. State Farm Mut. Auto Ins. Co., 2009 NY Slip Op 52217(u), the Appellate Term in the context of an improper incorporation defense stated again that:

“Plaintiff’s contention, that the defense of fraudulent incorporation must be asserted in a timely denial of claim form, is without merit (Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 38-39 [App Term, 2d & 11th Jud Dists 2007]).”

What is interesting, and I have stated this before, is that it seems illogical that a Workers Compensation defense requires a timely disclaimer in order to be preserved (Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 60 AD3d 1045 (2d Dept. 2009), while a Mallela styled defense is exempt from the timely disclaimer requirement of Ins. Law 5106(a).  Both of these defenses do not implicate coverage.  Rather, these defenses are based upon whether a party has standing to prosecute an action.  Compare 11 NYCRR 65-3.16(a)(12), with, 11 NYCRR 65-3.16 (a)(9).

A little consistency would be nice.

Why does a Malella defense surive an untimely disclaimer, while a workers compensation defense doesn't?

In New York First Acupuncture, P.C. v. State Farm Mut. Auto Ins. Co., 2009 NY Slip Op 52217(u), the Appellate Term in the context of an improper incorporation defense stated again that:

“Plaintiff’s contention, that the defense of fraudulent incorporation must be asserted in a timely denial of claim form, is without merit (Multiquest, P.L.L.C. v Allstate Ins. Co., 17 Misc 3d 37, 38-39 [App Term, 2d & 11th Jud Dists 2007]).”

What is interesting, and I have stated this before, is that it seems illogical that a Workers Compensation defense requires a timely disclaimer in order to be preserved (Westchester Med. Ctr. v Lincoln Gen. Ins. Co., 60 AD3d 1045 (2d Dept. 2009), while a Mallela styled defense is exempt from the timely disclaimer requirement of Ins. Law 5106(a).  Both of these defenses do not implicate coverage.  Rather, these defenses are based upon whether a party has standing to prosecute an action.  Compare 11 NYCRR 65-3.16(a)(12), with, 11 NYCRR 65-3.16 (a)(9).

A little consistency would be nice.