In Liberty Mutual Ins. Co v. Branch Med., P.C., 2016 NY Slip Op 31706(U),,%20P.C.

Defendants are licensed physicians sued by the insurer based on Mallela allegations stemming from their alleged EUO testimony.

In one of the underlying collection cases, an examination under oath (EUO) was held where one of the owner/doctors testified that he and his brother, solely owned and controlled the Defendant P.C., and that their compensation was tied to company profits, and that the third Defendant who was not a doctor, served as the P.C.’s administrative executive,” overseeing company staff, marketing, bookkeeping, and internal HIPAA procedures, with online access to Branch’s bank account.  The aforementioned owner/doctor was instructed by counsel at the EUO not answer questions having to do with the administrative executive’s compensation.  A year after the EUO, insurer served Windsor and Branch with verification requests seeking copies of leases and subleases, bank statements, invoices, federal and state tax returns, payroll records, identifying information of third-party technicians, and Levitan’s employment agreement with each entity.  The medical P.C. provided their technicians’ credentials and intake/referral records, and objecting to the rest as “onerous, improper, immaterial and unnecessary,” or concerning matters already addressed at the EUO.  Insurer then commenced this action, asserting 12 causes of action, including, inter alia, declarations that the medical P.C. were fraudulently incorporated entities ineligible to receive no-fault benefits.  Two and a half years later, the insurer sued and asked for a preliminary injunction of the underlying collection matters.

The Court said:

Pursuant to CPLR 6301, the court may grant a preliminary injunction “where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff’s rights.” To obtain a preliminary injunction, the moving party has the burden of demonstrating, by clear and convincing evidence, the likelihood of success on the merits, a danger of irreparable injury, and that the balance of equities is in its favor. (Hairman v Jhawarer, 122 A.D.3d 570, 571-572 [2d Dept 2014]; Gilliland v Acquafredda Enter., LLC, 92 A.D.3d 19, 24 [1st Dept 2011]). While the proponent need not provide conclusive proof of the claim, he or she must nonetheless establish “a clear right to that relief under the law and the undisputed facts upon the moving papers”; conclusory statements lacking factual detail to that end are insufficient to warrant the drastic remedy. (1234 Broadway LLC v W. Side SRO Law Project, 86 A.D.3d 18, 23 [1stDept 2011], quoting Gagnon Bus Co. v Vallo Transp., Ltd., 13 A.D.3d 334, 335 [2d Dept 2004]).

Under New York’s no-fault insurance law, claimants and their assignees may obtain compensation from no-fault carriers for economic loss resulting from automobile accidents. (Insurance Law §§ 5102, 5103; Aetna Health Plans v Hanover Ins. Co., 27 N.Y.3d 577, 582 [2016]). However, a carrier is under no obligation to reimburse claims for medical expenses “if the [medical services] 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]), such as where a medical services corporation is fraudulently incorporated or owned and controlled by nonphysicians (State Farm Mut. Auto. Ins. Co. v Mallela, 4 N.Y.3d 313, 320-321 [2005]; Liberty Mut. Ins. Co. v Raia Med. Health, P.C., 140 A.D.3d 1029, 1031 [2d Dept 2016]; Allstate Ins. Co. v Belt Parkway Imaging, P.C., 78 A.D.3d 592, 592 [1st Dept 2010]; see also BCL §§ 1503[b], 1507, 1508).

 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];Concourse Chiropractic, PLLC v State Farm Mut. Ins. Co., 35 Misc.3d 1213[A], 2012 NY Slip Op 50676, *5 [Dist Ct, 1st Dist, Nassau County 2012], affd as modified 42 Misc.3d 131[A], 2013 NY Slip Op 52225[U] [App Term, 2d Dept, 9th & 10th Jud Dist 2013] [same]). 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.

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 this 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. (Cf. Liberty Mut. Ins. Co., 140 AD3d at 1032 [plaintiffs demonstrated likelihood of success on merits by establishing that professional corporation’s principal had no pertinent qualifications, that corporation’s predecessor was controlled by nonphysician, and that predecessor’s “medical director” had been charged by New Jersey AG for being “employed by unlicensed MRI facilities and negligently misreading MRI studies”]).

Moreover, the prospect of further litigation and additional expenditure does not constitute irreparable harm absent a preliminary injunction. (See eg, Founders Ins. Co. Ltd. v Everest Natl. Ins. Co., 41 A.D.3d 350, 351 [1st Dept 2007] [“The cost of arbitration does not constitute irreparable injury.”]).

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