Berkowitz v. Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Einiger, LLP

Full title: MORRIS BERKOWITZ d/b/a MORRIS PARK NURSING HOME AND REHAB CENTER and…

Court: SUPREME COURT OF THE STATE OF NEW YORK — NEW YORK COUNTY PART 37

Date published: Aug 15, 2014

2014 N.Y. Slip Op. 32299 (N.Y. Sup. Ct. 2014)

Opinion

INDEX NO. 152368/13

08-15-2014

MORRIS BERKOWITZ d/b/a MORRIS PARK NURSING HOME AND REHAB CENTER and MORRIS PARK NURSING HOME AND REHAB CENTER, Plaintiffs, v. ABRAMS, FENSTERMAN, FENSTERMAN, EISMAN, FORMATO, FERRARA & EINIGER, LLP and RICHARD T. YARMEL, ESQ., Defendants.

Hon. Arthur F. Engoron Justice

NYSCEF DOC. NO. 45 PRESENT: Hon. Arthur F. Engoron Justice MOTION DATE 3/3/14
MOTION SEQ. NO. 001
DECISION AND ORDER

Preliminary Statement

The instant motion to dismiss is one of the most difficult this Court has had to decide in 11+ years on the bench. This is due to the fact that the Court has been called upon to interpret documents full of the arcane language of "Medicaid Reimbursement," an area of human activity hitherto unknown to the Court. However, after countless readings and re-readings, several drafts and re-drafts, and much head-scratching, the Court believes that it has finally "cracked the code," at least sufficiently to decide this motion correctly. In retrospect, the matter was not that complicated; but hindsight is always 20-20.

Background

In this action, plaintiffs Morris Berkowitz d/b/a Morris Park Nursing Home and Rehab Center and Morris Park Nursing Home and Rehab Center claim that defendants Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Einiger, LLP ("Abrams") and Richard T. Yarmel ("Yarmel") committed malpractice in their representation of plaintiffs in a dispute with non-party Office of the Medicaid Inspector General ("OMIG"). Defendants now move, pursuant to CPLR 3211(a)(1) and (a)(7), to dismiss the complaint based on documentary evidence and for failure to state a cause of action. These two grounds will be discussed in reverse order.

The Complaint - CPLR 3211(a)(7)

The complaint consists of 38 numbered paragraphs and numerous pages of exhibits (A-H). It alleges as follows: Plaintiffs own and operate a nursing home, Morris Park Nursing and Rehab Center ("Morris Park"), that accepts Medicaid reimbursements (Cplt. ¶ 1). The reimbursements are "subject to periodic review and audits" by New York State (ibid.). Defendant Abrams is a law firm specializing in health care law with significant experience representing nursing homes (Cplt. ¶ 2). At the times here in issue, defendant Richard Yarmel was a partner at Abrams (Cplt. ¶ 3) The Office of the Medicaid Inspector General ("OMIG") sent Morris Park letters dated September 29, 2011 and October 31, 2011 (Cplt. ¶ 4, Exh. A). The September 29 letter stated that an OMIG audit "for base year 1981 ... resulted in downward adjustments of your 1983 through 1993 rates"; that "[t]he 1981 base year is also used to calculate the operating portion of the January 1, 1994 through March 31, 2009 rates"; that Morris Park had been overpaid $428,536; and that if that amount was not remitted within 20 days, or other arrangements were not made, OMIG would commence withholding 50% of future reimbursements until that amount, plus any interest and/or penalties, was paid. The October 31 letter, "Notice of Withholding," states that the 50% withholding is beginning "effective immediately." The September 29 letter "utiliz[ed] an improper base year" and was "based on a mistake of fact; namely the adjustment was erroneously based on a 1981 Base Year when by law, it should have been [based] on a 1983 Base Year" (Cplt. ¶ 4). On or before November 2, 2011, plaintiffs retained defendants "to dispute" the OMIG letters (Cplt. ¶¶ 4, 6). On or about November 7, 2011 Yarmel wrote OMIG (Cplt. ¶5, Exh. B), "challenging the ability of OMIG to extend this audit beyond the six-year period [i.e., 2005-2011]" (see 10 NYCRR 86-2.7) and "requesting that any withholds be at the 15% level [plaintiffs originally hoped for 10%] ... and only for the permitted six-year period beginning in 2005 [and ending in 2011]." "Yarmel failed to deny the approximately fifteen years of adjustment claimed by OMIG [i.e., 1994-2009] as being erroneously construed" (Cplt. ¶ 5). [Plaintiffs appear to be saying that Yarmel (correctly) asked for a reduction in the percentage of withholding, and that he (correctly) asked that the audit be limited to six-years retroactively (2003 to 2009), but that he (incorrectly) failed to claim that the base year should have been 1983.] "OMIG's failure to reconsider its decision constituted a 'final action' ... which should have been contested via an Article 78 proceeding instituted by Defendants" (ibid.). Furthermore, from on or about November 30, 2011 through May 1, 2012, despite being asked, defendants failed to provide plaintiffs with status updates on "the impending withholding of significant funds" (ibid.). OMIG "has placed the full amount of $428,536.00 [plus interest at prime-plus-2%] on the 'takeback list,'" and in or about March of 2013 began withholding 15% of all plaintiffs' Medicaid reimbursements (Cplt. ¶ 7). In or about July 2012 new counsel for plaintiffs filed a 42 USC 1983 action in the District Court for the Southern District of New York, alleging that OMIG "claimed a rate adjustment based on the previously audited 1981 base year, but in fact used 1983 as a base year," because of which the audit should have been based on " 1983 base year costs" (id. ¶¶ 8-9). However, OMIG never conducted an audit of 1983 costs (id. ¶ 9). [Simply put, that lawsuit claimed that OMIG used 1983 as a base year, but conducted an audit, or used an audit, based on 1981 costs, rather than 1983 costs, the former being significantly lower than the latter (inflation of medical costs being what it is, or at least being what it was back then)]. OMIG never conducted an audit based on plaintiffs' 1983 costs (id. ¶ 9). Thus, plaintiffs "never had an opportunity to review or object to said base year [i.e., 1983] figures" (ibid.). In an order dated September 24, 2012, the federal court dismissed the 42 USC 1983 action with prejudice, for the reasons set forth in a Memorandum Order dated January 4, 2013 (Cplt. ¶ 10 and Exh. E). In short, "plaintiffs have no § 1983 claim [because they] failed to avail themselves of an Article 78 proceeding in New York state courts" (Cplt. ¶ 11 and Exh. E at 3). Judge Rakoff noted the "glaring fact that plaintiffs never sought an Article 78 review in this case" (Cplt. ¶ 11 and Exh. E at 7). [Obviously, you cannot run to federal court and claim that state action has deprived you of your federal constitutional rights if you failed to use the state procedure specifically designed to vindicate those rights.] "Defendants failed to commence an Article 78 proceeding to dispute the findings of OMIG's September and October 2011 letters within the four month Statute of Limitations set forth in CPLR 217" (Cplt. ¶ 14). This failure "constitute[d] gross negligence" (ibid ¶ 15). [Solely for purposes of the instant motion, and without waiver, prejudice, etc., defendants do not argue that plaintiffs did not ask defendants to commence an Article 78 proceeding.] The nursing home Medicaid "reimbursement rates for rate years 1986 and beyond are to be based on the home's audited 1983 base year costs" (Cplt. ¶ 16, citing 10 NYCRR § 86-2.10).

Defendant Yarmel relied on a [May 1994] Stipulation between [plaintiffs] and the NY State Department of Social Services [see Cplt. Exh. F] which he received via email from OMIG Counsel, instead of objecting to OMIG Counsel's assertion that pursuant to said Stipulation, which was based on a 1988 Audit of [plaintiffs'] 1981 Base Year, the 1981 adjusted base year would be used going forward to establish the future years [sic] rates including those of January 1994 - March 2009 which are contained in OMIG's September and October [2011] letters.

Cplt. ¶ 17.

The Stipulation is very clear; that the agreement only applies to the rate years 1983 to 1985 and is only applicable to the 1981 base year or cost period. The parties neither agreed to, nor adjusted, [plaintiffs'] audited 1983 base year costs.

Cplt. ¶ 18.

Defendants relied on their adversary's faulty assumption and failure to properly challenge OMIG's finding of overpayment based on a 1983 base year rate ... .



This Stipulation merely adjusts Morris Park's 1981 base year costs relative to its
1983 to 1985 rate year-it does not establish Morris Park's 1983 base year numbers/costs; that would require a new audit ... .

Cplt. ¶ 19.

Either OMIG's rate adjustment for the period in question [January 1994 - March 2009) was based on a reading of the Stipulation that all future years going forward would be evaluated based on a 1981 Base Year, or that a 1983 Base Year was created based on the same Stipulation rather than the 1983 Rate Year having merely been adjusted based on changes to the 1981 Base Year and the Stipulation. Both of these assumptions are erroneous [because the 1981 Base Year was only to be used for the 1983-1985 Rate Years, not succeeding years; and because the Stipulation simply adjusted the 1983 Rate Year based on changes to the 1981 Base Year audit; it did not create a 1983 Base Year] and in violation of 10 NYCRR 86.2 subparagraphs 10 and 7 respectively.

Cplt. ¶ 20.

Defendants relied on their adversary's faulty assumption and failure to properly challenge OMIG's finding of overpayment based on a 1983 base year rate which was never properly audited nor, therefore, properly established, or based on an equally improper 1981 Base year.

Cplt. ¶ 21. "Had defendants conducted a complete investigation they would have raised [various] issues [with] OMIG" (Cplt. ¶ 22). Had defendants properly filed an Article 78 action [sic] to contest the use of an improper base year, an audit would have taken place to establish a proper 1983 base year which would have resulted in no overcharges alleged by OMIG" (Cplt. ¶ 23). "Due to plaintiffs' reliance on Defendants' expertise in handling such matters, and Defendants' failure to commence an Article 78 proceeding, the plaintiff sustained financial injury [of] not less than $428,536.00 plus interest" (Cplt. ¶ 24). As plaintiffs were not required to maintain records going back more than six years, 10 NYCRR 86-2.7, "OMIG would have been limited to review only such period" (Cplt. ¶ 29). "10 NYCRR 86-2.7 is clear that in the absence of an Audit of the 1983 Base Year, the rate of payment contained in the 1988 cost report was by operation of law a final rate not subject to Audit past 1989" (Cplt. ¶ 30). See also, 18 NYCRR 517.3, establishing a 6-year limitations period for audits (ibid.). Had defendants commenced a timely CPLR Article 78 proceeding "challenging OMIG's ability to look back past ... six years," OMIG's audit would have demonstrated overpayment of only $120,329; thus, defendants' failure cost plaintiffs $308,207 [$428,536 - $120,329 = $308,207]. "Howard Fensterman, a named partner of Abrams[,] is an active member of the Public Health Council, an Agency under the purview of the New York State Department of Health, the same Department which contains OMIG. * * * None of Defendants ever disclosed this inherent conflict of interest to Plaintiffs, nor sought a waiver thereof. This conflict of interest may well have prevented or played a role in preventing Defendants from starting an action [sic] against the NY State Agency with which Fensterman is inexorably linked" (Cplt. ¶¶ 33-35).

Analysis - CPLR 3211(a)(7)

"[A] complaint should not be dismissed on pleadings as long as, giving plaintiff the benefit of every possible favorable inference contained in his allegations, a cause of action exists." Donnelly v Morace, 162 AD2d 247, 247-48 (1st Dept 1990). The cause of action at issue here is legal malpractice. A malpractice complaint must allege negligence, proximate cause, and damages. The complaint here alleges negligence in defendants' failing to contest the September 29, 2011 letter; proximate cause in that had defendants contested the letter, plaintiffs would have prevailed against OMIG [the "case within the case"]; and damages in the medicaid reimbursement withholdings.

Analysis-CPLR 3211(a)(1)

CPLR 3211(a)(1) motions are nestled in the niche between motions to dismiss for failure to state a cause of action ("even assuming everything you say is true, I am not liable to you") and CPLR 3212 motions for summary judgment ("you may have stated facts that, if true, would make me liable to you, but you cannot support them with admissible evidence, so there is no need for a trial"). In the simplest of 3211(a)(1) situations, the complaint states that defendant only paid $500 of the contract price, and the defendant moves to dismiss, attaching a copy of the subject contract clearly indicating that the contract price was, indeed, $500. Here, as best this Court remembers, defendants never quite come out and say exactly what document(s) they are relying on. The key, however, appears to be the May, 1994 Stipulation. And the nub of the matter appears to be defendants' contention that in that Stipulation, plaintiffs agreed to set their 1983 base year costs and agreed not to challenge them; that an Article 78 proceeding would have been fruitless because the Stipulation established that base year and plaintiffs agreed not to challenge it; and that therefor plaintiffs could not win "the case within the case." Defendants are correct in much of what they say, including that the standard for overturning an administrative action, such as OMIG's here, is difficult to satisfy. However, this Court disagrees that the May 1994 stipulation, on its face, set plaintiffs' 1983 base year costs. This is that unusual case in which the "Whereas" clauses are determinative, at least for present purposes. The Stipulation (Moving Exh. 3) begins with the following statement:

WHEREAS, the New York State Department of Social Services ... has audited [plaintiffs] for the base period year January 1, 1981 through December 31, 1981 used to establish Medicaid rates of payment for the period January 1, 1983 through December 31, 1985; and

Towards the bottom of that first page the stipulation states as follows: Whereas [the parties thereto] have agreed to settle the outstanding audit issues for the base periods and rate periods above cited." Later on, the Stipulation states (¶ 2 D), "1983 reported expense in [sic] decreased by $58,906 to reflect the 1981 and 1982 liability booked in 1983." In this Court's view, that statement does not establish the 1983 base year for at least three reasons. First, it does not say what the expense is, only an amount by which it is decreased. Second, the statement does not use the word "base" or the word "rate," so its purpose is ambiguous. Finally, and most importantly, if the purpose is to adjust the 1983 "base year," it conflicts with the clear language of the preamble (the "Whereas" clauses). Thus, from defendants' perspective, at best, this language is ambiguous, and not suitable for 3211 (a)(1) determination. Schedule A of the Stipulation indicates the source of the $58,906 figure, and it talks about a "1983 base year adjustment," but, again, it does not provide an actual base year amount (only a reduction thereof), and, more importantly, it conflicts with the preamble. Thus, plaintiffs' first two causes of action, both for legal malpractice, are not subject to dismissal. The third cause of action, also for legal malpractice, but based on the alleged conflict of interest, is also not subject to dismissal (although on its alleged facts it appears, to this Court, tenuous). However, plaintiffs' fourth cause of action, for attorney's fees, is dismissed without prejudice pursuant to CPLR 3211(a)(7). Plaintiffs have failed to provide a basis (such as statute, court rule, contract, or egregious conduct) for the recovery of attorney's fees.

Disposition

Thus, the instant motion is denied except to the extent that plaintiffs' fourth cause of action, for attorney's fees, is hereby deemed dismissed. The parties shall appear for a preliminary conference in this matter on October 1, 2014 at 9:30 a.m. in Room 328, 80 Centre Street, New York, NY. Dated: August 15, 2014

/s/__________

Arthur F. Engoron, J.S.C.