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Collateral estoppel in the declaratory judgment action does not necessarily apply to the underlying no-fault action

Magic Recovery Med. & Surgical Supply Inc. v State Farm Mut. Auto. Ins. Co., 2010 NY Slip Op 20130 (App. Term 2d Dept. 2010)

“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”

Much can be said about this case.  Had Plaintiff Assignee been named and a default was entered, then this would be a closer call.  My concern about this case is the line “[n]or, at the time, was it in privity with someone who was…”

Assume that Claimant, after executing an assignment, violates one of the several conditions precedent to coverage, and the claims are timely and properly denied based upon a violation of a condition precedent to coverage.  I am thinking of  IME no-shows, EUO no-shows and possibly the 30-day written notice rule.

I would posit that those defenses would not apply if the majority’s privity rule is taken to its logical conclusion.  I also have grave reservations about the applicability of the “standing in the shoes” rule, which the Appellate Division, Second Department has asserted numerous times in these types of cases.

Justice Golia’s dissent, besides recounting a fact pattern that leads the reader to the conclusion that the accidents in this matter were intentional and probably offends most people on both sides of the bar, makes some good points.  He pretty much says what I have said above and have always believed, to wit, that the no-fault law and regulations somewhat modify the traditional notions of the common law assignment.

The Courts realize this fact and even said so in A&S Medical, P.C. v. Allstate Ins. Co., 196 Misc.2d 322 (App. Term 1st Dept. 2003), aff’d, 15 AD3d 170 (1st Dept. 2005), whose ultimate outcome I agreed with, when the following was held: “To the extent defendant seeks to invoke the general rule that an assignee is subject to the same defenses as would be available against its assignor (see, General Obligations Law § 13-105), the rule, as codified, finds no application in circumstances where, as here, the assigned claim is “regulated by special provision of law” (id.).

I tend to believe that this case probably should not be appealed any further since the Plaintiff Assignee providers were not named in the complaint.  This is an issue, however, that on proper papers needs to be addressed by the Appellate Division.

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