Key Takeaway
Court rejects insurance carrier's argument that chiropractor's 5% billing company fee constitutes ownership under Mallela doctrine in New York no-fault case.
This article is part of our ongoing mallela issues coverage, with 32 published articles analyzing mallela issues issues across New York State. Attorney Jason Tenenbaum brings 24+ years of hands-on experience to this analysis, drawing from his work on more than 1,000 appeals, over 100,000 no-fault cases, and recovery of over $100 million for clients throughout Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, and the Bronx. For personalized legal advice about how these principles apply to your specific situation, contact our Long Island office at (516) 750-0595 for a free consultation.
H & H Chiropractic Servs., P.C. v Metropolitan Prop. & Cas. Ins. Co., 2015 NY Slip Op 25132 (Civ. Ct. Queens Co. 2015)
Fact
“Defendant also submits the deposition transcript of Dr. Lucas Bottcher, DC, a member of the plaintiff’s practice. Therein, Dr. Bottcher admitted that plaintiff employs SMG and they are paid a fixed fee of five percent of collections. Defendant argues that since plaintiff allegedly pays six (or five) percent of its fees to its billing company, that its billing company owns six percent of plaintiff’s practice.”
Contention
Plaintiff owned by a management conclusion
Court’s conclusion
No sir.
My thought
Carrier is probably overreaching. Was this an arms length transaction? Was it commercially reasonable? Was the PC being operated by people who were unauthorized to operate a medical practice? Many people pay payroll companies a percentage of their payrolls to do process the payroll. Franchisees pay franchisors a percentage of net proceedings for the ability to carry the company’s name. The franchisee is usually guaranteed distributos, advertising, a customer base and marketting support. A medical practice needs a practice manager to perform various tasks. Thus, is a percentage of net or gross of intake to a practice manager who handles the business end inappropriate? I am not sure I would agree to that set up, but it does not make it wrong.
If one can tell me that the practice manager is not telling (explicitly or implicitly) the doctor/healthcare practitioner to perform 25 EMG/s a day, 30 SSEPs a day and bill 200 hours of PT per date of operation, then this might be reasonable. But that is the rub: many times there are people who are not duly licensed and credentialed healthcare practitioners calling the shots as to the medical treatment. Thus, while a 6% percent spread on the net or gross might be an indicia of the latter, this allegation in and of itself should not allow a carrier to issue a blanket disclaimed to the provider.
I think it is an invitation for more disclosure as to financials, but if that does not yield anything, then the end of the line has appeared.
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Legal Context
Why This Matters for Your Case
New York law is among the most complex and nuanced in the country, with distinct procedural rules, substantive doctrines, and court systems that differ significantly from other jurisdictions. The Civil Practice Law and Rules (CPLR) governs every stage of civil litigation, from service of process through trial and appeal. The Appellate Division, Appellate Term, and Court of Appeals create a rich and ever-evolving body of case law that practitioners must follow.
Attorney Jason Tenenbaum has practiced across these areas for over 24 years, writing more than 1,000 appellate briefs and publishing over 2,353 legal articles that attorneys and clients rely on for guidance. The analysis in this article reflects real courtroom experience — from motion practice in Civil Court and Supreme Court to oral arguments before the Appellate Division — and a deep understanding of how New York courts actually apply the law in practice.
About This Topic
Mallela Fraud Defense in No-Fault Insurance
The Mallela defense — named after the Court of Appeals decision in State Farm v. Mallela — allows insurers to deny no-fault claims by proving that a medical provider fraudulently incorporated to circumvent licensing requirements. Establishing a Mallela defense requires extensive investigation and evidence of corporate structure, ownership, and control. These articles analyze the Mallela doctrine, its procedural requirements, and the evolving case law that shapes how courts evaluate fraudulent incorporation claims in no-fault practice.
32 published articles in Mallela issues
Keep Reading
More Mallela issues Analysis
Wind it up
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Apr 30, 2019Appellate Term holds CPLR 3212(f) relief is inappropriate under three separate circumstances
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Feb 25, 2010Mallela not supported
Court ruling shows lack of evidence for Mallela defense in no-fault insurance case involving professional corporation ownership and control requirements.
Nov 17, 2017Reversal of Supreme Court's vacatur on a First Department 75
First Department reverses Supreme Court's vacatur of arbitration award involving Mallela defense burden of proof in no-fault insurance reimbursement case.
Jun 30, 2016A Mallela defense does not have to be pleaded
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Mar 2, 2012Common Questions
Frequently Asked Questions
What are Mallela issues in no-fault insurance?
Mallela issues refer to a defense based on State Farm v. Mallela (2006), where the Court of Appeals held that insurers can deny no-fault claims to medical providers who operate fraudulent enterprises. Under Mallela, if a provider is controlled by unlicensed individuals in violation of Business Corporation Law §1507 or Education Law, the provider is not eligible to receive no-fault reimbursement. Insurers use Mallela defenses in declaratory judgment actions and as affirmative defenses in collection actions.
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About the Author
Jason Tenenbaum, Esq.
Jason Tenenbaum is the founding attorney of the Law Office of Jason Tenenbaum, P.C., headquartered at 326 Walt Whitman Road, Suite C, Huntington Station, New York 11746. With over 24 years of experience since founding the firm in 2002, Jason has written more than 1,000 appeals, handled over 100,000 no-fault insurance cases, and recovered over $100 million for clients across Long Island, Nassau County, Suffolk County, Queens, Brooklyn, Manhattan, the Bronx, and Staten Island. He is one of the few attorneys in the state who both writes his own appellate briefs and tries his own cases.
Jason is admitted to practice in New York, New Jersey, Florida, Texas, Georgia, and Michigan state courts, as well as multiple federal courts. His 2,353+ published legal articles analyzing New York case law, procedural developments, and litigation strategy make him one of the most prolific legal commentators in the state. He earned his Juris Doctor from Syracuse University College of Law.
Disclaimer: This article is published by the Law Office of Jason Tenenbaum, P.C. for informational and educational purposes only. It does not constitute legal advice, and no attorney-client relationship is formed by reading this content. The legal principles discussed may not apply to your specific situation, and the law may have changed since this article was last updated.
New York law varies by jurisdiction — court decisions in one Appellate Division department may not be followed in another, and local court rules in Nassau County Supreme Court differ from those in Suffolk County Supreme Court, Kings County Civil Court, or Queens County Supreme Court. The Appellate Division, Second Department (which covers Long Island, Brooklyn, Queens, and Staten Island) and the Appellate Term (which hears appeals from lower courts) each have distinct procedural requirements and precedents that affect litigation strategy.
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