Opinion
EF2018-66053
11-04-2019
WOMEN'S CARE IN OBSTETRICS AND GYNECOLOGY, P.C., Plaintiff, v. Allison HERRICK, Jennifer Kittell, Brittany Krotzer, Emily Scialabba, and Emily Yeast, Defendants.
Drinker Biddle & Reath LLP, New York (Marsha J. Indych of counsel), for plaintiff. Nolan & Heller, LLP, Albany (Justin A. Heller of counsel), for defendants.
Drinker Biddle & Reath LLP, New York (Marsha J. Indych of counsel), for plaintiff.
Nolan & Heller, LLP, Albany (Justin A. Heller of counsel), for defendants.
Robert J. Muller, J.
Defendants are certified nurse midwives and former employees of plaintiff, an obstetrical and gynecological practice with a principal place of business in the City of Glens Falls, Warren County. Allison Herrick was employed by plaintiff from 2014 to 2016; Jennifer Kittell from 2012 to 2015; Brittany Krotzer from 2012 to 2015; Emily Scialabba from 2011 to 2014; and Emily Yeast from 2014 to 2016. Hospitals in this State will not grant privileges to midwives unless they have medical malpractice liability insurance coverage. To that end, plaintiff maintained such coverage for defendants during the course of their employment, with the "Policies, Procedures and Benefits Addendum" given to them at the time of hiring stating as follows:
"[Certified nurse midwives'] malpractice insurance is paid by [plaintiff]. Malpractice insurance is placed with the same malpractice carrier and having the same claims coverage and terms as provided, from time to time, by [plaintiff] to other nurse midwives and nurse practitioners employed by [plaintiff]."
Plaintiff obtained policies for each defendant through Medical Liability Mutual Insurance Company (hereinafter MLMIC). Each defendant then signed a "Policy Administrator—Designation & /or Change" form designating plaintiff as the policy administrator, defined as "the agent of [the i]nsured for the paying of [the p]remium, requesting changes in the policy, including cancellation thereof and for receiving dividends and any return [p]remiums when due." Defendants do not dispute that plaintiff paid all premiums relative to their respective policies.
In June 2018, MLMIC announced that it had been acquired by National Indemnity Company—a subsidiary of Berkshire Hathaway Inc.—and was being converted from a mutual insurance company to a stock insurance company. Under Insurance Law § 7303 (e) (3), when a mutual insurance company converts to a stock insurance company, the plan of conversion
"shall ... provide that each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the resolution [seeking approval of the conversion] shall be entitled to receive in exchange for such equitable share, without additional payment, consideration payable in voting common shares of the insurer or other consideration, or both."
To that end, MLMIC's plan of conversion required that cash distributions be made to all eligible policyholders. The amount of the distributions was calculated in accordance with Insurance Law § 7303 (e) (3), which further provides that
"[t]he equitable share of the policyholder in the mutual insurer shall be determined by the ratio which the net premiums (gross premiums less return premiums and dividend paid) such policyholder has properly and timely paid to the insurer on insurance policies in effect during the three years immediately preceding the adoption of the resolution ... to the total net premiums received by the mutual insurer from such eligible policyholders."
Presumably in recognition of the fact that some eligible policyholders did not pay the premiums on their policies, MLMIC's plan of conversion provided a mechanism whereby policyholders could designate their policy administrators—or others—to receive the cash distributions in their place and stead. The plan of conversion further provided as follows:
"In the event ... a [p]olicy [a]dministrator ... believes that it has a legal right to any [c]ash [c]onsideration allocated to an [e]ligible [p]olicyholder, it may file an objection with MLMIC at any time prior to the date of the ... public hearing [before the Department of Financial Services] and such objection will be resolved in accordance [with the procedures set forth in the plan]."
The objection procedures then provided that
"[i]f MLMIC receive[s] a properly filed objection, the allocated [c]ash [c]onsideration will be held in escrow ... until MLMIC receives joint written instructions from the [e]ligible [p]olicyholder and the [p]olicy [a]dministrator ... as to how the allocation is to be distributed, or a non-appealable order of an arbitration panel or court with proper jurisdiction ordering payment of the allocation to the [p]olicy [a]dministrator ... or the [e]ligible [p]olicyholder."
In July 2018, plaintiff notified defendants—all of whom are eligible policyholders—of their entitlement to cash distributions under MLMIC's conversion plan, with Herrick to receive $89,406.52, Kittell to receive $67,876.34, Krotzer to receive $89,317.62, Scialabba to receive $26,387.52, and Yeast to receive $95,589.41. Plaintiff further requested that defendants each execute a form designating plaintiff as the recipient of their distributions, since it was the administrator of their policies and paid all premiums relative thereto. According to plaintiff, defendants verbally agreed to execute these forms but failed to do so. In August 2018, plaintiff filed objections with MLMIC with respect to defendants' policies and the cash distributions were then placed in escrow. In September 2018, plaintiff received correspondence from counsel for defendants advising that his clients refused to designate plaintiff as the recipient of their respective cash distributions.
Plaintiff commenced this action in January 2019 for a declaratory judgment that it is entitled to defendants' cash distributions. Issue was then joined with defendants asserting counterclaims for a declaratory judgment that they are entitled to the distributions. No discovery has been exchanged. Presently before the Court is defendants' motion for summary judgment dismissing the complaint and granting the relief requested in the counterclaims.
Not surprisingly, there has already been a plethora of litigation on the very issue under consideration here—namely whether the policy administrator or the eligible policyholder is entitled to the cash distribution resulting from MLMIC's demutualization. The Court will begin its analysis with a discussion of these cases and then proceed with consideration of the motion.
The Supreme Court of Erie County (Sedita, J.) was the first to address the issue in Maple-Gate Anethesiologists, P.C. v. Nasrin (63 Misc 3d 703 [Sup Ct, Erie County 2019] ) (hereinafter Maple-Gate ), decided on March 22, 2019. In Maple-Gate , Supreme Court found that the eligible policyholders' "employment agreements provided that the [policy administrator] would pay professional liability insurance premiums as an ‘employment benefit for and on behalf of’ the [eligible policyholder]" ( id at 704 ) and, as a result, the eligible policyholders—and not the policy administrator—were entitled to the cash distributions (see id. at 709-710 ).
The Appellate Division, First Department then addressed the issue in Matter of Schaffer, Schonholz & Drossman, LLP v. Title (171 AD3d 465 [2019] ) (hereinafter Matter of Schaffer ) — decided on April 4, 2019 — "declar[ing] that [the policy administrator was] entitled to the cash proceeds resulting from the demutualization of [MLMIC]" (id. ). In a brief decision, the First Department stated as follows:
"Although [the eligible policyholder] was named as the insured on the relevant MLMIC professional liability insurance policy, [the policy administrator] purchased the policy and paid all the premiums on it. [The eligible policyholder] does not deny that she did not pay any of the annual premiums or any of the other costs related to the policy. Nor did she bargain for the benefit of the demutualization proceeds. Awarding [the eligible policyholder] the cash proceeds of MLMIC's demutualization would result in her unjust enrichment" (id. [citations omitted] ).
On June 7, 2019, the Supreme Court of Saratoga County (Crowell, J.) addressed the issue in Schoch v. Lake Champlain OB-GYN, P.C. (64 Misc 3d 1215[A], 2019 NY Slip Op 51176[U] [Sup Ct, Saratoga County 2019] ) (hereinafter Schoch ), granting the policy administrator's motion for summary judgment for the relief requested in the complaint—namely a declaratory judgment that it was entitled to the eligible policyholder's cash distribution under MLMIC's plan of conversion. Supreme Court stated, in pertinent part:
"The doctrine of stare decisis provides that once a court has resolved a legal issue, it should not be re-examined each and every time it is presented. [The eligible policyholder] discounts the Appellate Division, First Department's decision in [Matter of Schaffer ] based upon its terseness and lack of detail. However terse, the First Department found as a matter of law that an award of the MLMIC proceeds to the named insured doctor would result in her unjust enrichment. The significant facts relied upon by the First Department are not distinguishable from the significant facts in this case. This Court is bound to follow the Appellate Division, First Department until such time as the Appellate Division, Third Department or the Court of Appeal issues a contrary decision" (id. at *2).
The Court notes that, if the Second or Fourth Department were to issue a determination contrary to that of the First Department in Matter of Schaffer , then lower courts in the Third Department would be free to follow either Department unless and until the Third Department or Court of Appeals speaks on the issue (see Matter of Daniel [Motor Veh. Acc. Indem. Corp.] , 181 Misc 2d 941, 952 [Civ Ct, Bronx County 1999] ; 1 Carmody Wait 2d § 2:342 ).
The Supreme Court of Westchester County (Ecker, J.) next addressed the issue in Maple Med. LLP v. Scott (64 Misc 3d 909 [Sup Ct, Westchester County 2019] and five related cases, Maple Med. LLP v. Arevalo (64 Misc 3d 1213[A], 2019 NY Slip Op 51127[U] [Sup Ct, Westchester County 2019] ), Maple Med. LLP v. Goldenberg (64 Misc 3d 1213[A], 2019 NY Slip Op 51128[U] [Sup Ct, Westchester County 2019] ), Maple Med. LLP v. Mutic (64 Misc 3d 1213[A], 2019 NY Slip Op 51129[U] [Sup Ct, Westchester County 2019] ), Maple Med. LLP v. Sundaram (64 Misc 3d 1213[A], 2019 NY Slip Op 51130[U] [Sup Ct, Westchester County 2019] ), and Maple Med. LLP v. Youkeles (64 Misc 3d 1213[A], 2019 NY Slip Op 51131[U] [Sup Ct, Westchester County 2019] ) (hereinafter collectively referred to as the Maple Med. cases)—all decided on July 7, 2019—finding that the policy administrator was entitled to the cash distributions and granting its motions for summary judgment. Just as in Schoch , Supreme Court concluded that "the recent decision of the Appellate Division, First Department in [Matter of Schaffer was] dispositive of the issues raised" ( Maple Med. LLP v. Scott , 64 Misc 3d at 911 ; see Maple Med. LLP v. Areval , 2019 NY Slip Op 51127[U] at *1-2; Maple Med. LLP v. Goldenberg , 2019 NY Slip Op 51128[U] at *1-2; Maple Med. LLP v. Mutic , 2019 NY Slip Op 51129[U] at *1-2; Maple Med. LLP v. Sundaram , 2019 NY Slip Op 51130[U] at *1-2; Maple Med. LLP v. Youkeles , 2019 NY Slip Op 51131[U] at *1-2).
The Supreme Court of Columbia County (Zwack, J.) then addressed the issue in Columbia Mem. Hosp. v. Hinds (65 Misc 3d 1205[A], 2019 NY Slip Op 51508[U] [Sup Ct, Columbia County 2019] ) (hereinafter Columbia Mem. Hosp. )—decided on September 3, 2019—granting the eligible policyholder's motion to dismiss the complaint based upon a finding that he was entitled to the cash distribution as a matter of law. There, Supreme Court found that the eligible policyholder "actually paid the premiums, as the [policy administrator] deducted the amounts it paid for ... malpractice insurance from his incentive compensation" ( Columbia Mem. Hosp. v. Hinds , 2019 NY Slip Op 51508[U] at * 2). Supreme Court thus distinguished Matter of Schaffer , stating as follows:
"The doctrine of stare decisis clearly exists to provide guidance and consistent results in cases that share essentially the same facts. It does not apply where, as here, the facts are not the same. Here, like ... in [Maple-Gate ,] the [eligible policy holder's] insurance premiums were paid in lieu of compensation ..." (id. at *3).
On September 4, 2019, the Supreme Court of New York County (James, J.) addressed the issue in Mid-Manhattan Physicians Servs., PC v. Dworkin (2019 WL 4261348 [Sup Ct, New York County 2019) (hereinafter Mid-Manhattan Physicians ), granting the policy administrator's motion for summary judgment based upon a finding that it was entitled to the cash distribution. Matter of Schaffer was again cited in support of the determination (see id. at *1).
Finally, on September 10, 2019, the Supreme Court of Broome County (Reynolds Fitzgerald, J.) addressed the issue in Shoback v. Broome Obstetrics and Gynecology, P.C. (Sup Ct, Broome County, Sept. 10, 2019, Reynolds Fitzgerald, J., index No. EFCA201800334) (hereinafter Shoback ). There, Supreme Court noted that it was "inclined to agree ... that ... plaintiff, the policy holder[,] should be entitled to receive [the cash distribution]" (id. at 5). With that said, it nonetheless denied plaintiff's motion for summary judgment based upon the contrary holding in Matter of Schaffer , finding that "trial courts must follow a higher court's existing precedent ‘even though they may disagree’ " (id. at 5, quoting People v. Rivera , 5 NY3d 61, 77 n 1 [2005, Ciparick, J., dissenting] ).
Here, defendants contend that the facts of this case are akin to those before Supreme Court in Maple-Gate and Columbia Mem. Hosp. and, as such, they are entitled to summary judgment. In support of this contention, defendants have submitted a joint affidavit stating that "[u]nder the terms of [their] [e]mployment [a]greements with [plaintiff], one of the benefits to be provided ... in exchange for [their] services was the payment of [their] malpractice insurance premiums" Defendants further state as follows:
"[The] employment relationship was simple: We provided midwifery services to [plaintiff's] patients under the terms of our [e]mployment [a]greements, which generated revenue for [plaintiff], and in return [plaintiff] paid us a salary and provided certain benefits (including payment of our malpractice insurance premiums). [Plaintiff's] attempt to obtain an additional benefit from our provision of services—one which we clearly did not agree to—should not be permitted."
In opposition, plaintiff contends that the facts of this matter are more akin to those before the First Department in Matter of Schaffer and—like Supreme Court in Schoch , the Maple Med. cases, Mid-Manhattan Physicians and Shoback— this Court is bound by that determination and must deny defendants' motion. To the extent that the decision in Matter of Schaffer is brief, plaintiff has submitted a copy of the stipulated facts submitted to the First Department in the case. These facts state, in pertinent part:
"A document prepared by [the policy administrator], titled ‘Annual Compensation and Performance Review [for the eligible policyholder]’ ... shows ‘Total Compensation’ in the amount of $321,689 and a breakdown of that number as consisting of the following: ‘Base Salary’ in the amount of $230,000; ‘Merit Bonus’ in the amount of $7,500; ‘Health Insurance’ in the amount of $28,437 and ‘Malpractice Insurance + Excess’ in the amount of $55,752."
Under the circumstances, the Court finds that defendants' motion for summary judgment must be denied. The facts of this case are nearly identical to those before the First Department in Matter of Schafer and the Court is therefore bound by that decision (see Mountain View Coach Lines v. Storms , 102 AD2d 663, 664 [1984] ; Shoback v. Broome Obstetrics and Gynecology, P.C. , Sup Ct, Broome County, index No. EFCA201800334, at 5; Mid-Manhattan Physicians Servs., PC v. Dworkin , 2019 WL 4261348 at * 1 ; Maple Med. LLP v. Scott , 64 Misc 3d at 911 ; Maple Med. LLP v. Areval , 2019 NY Slip Op 51127[U] at *1-2; Maple Med. LLP v. Goldenberg , 2019 NY Slip Op 51128[U] at *1-2; Maple Med. LLP v. Mutic , 2019 NY Slip Op 51129[U] at *1-2; Maple Med. LLP v. Sundaram , 2019 NY Slip Op 51130[U] at *1-2; Maple Med. LLP v. Youkeles , 2019 NY Slip Op 51131[U] at *1-2; Schoch v. Lake Champlain OB-GYN, P.C. , 2019 NY Slip Op 51176[U] at *2). If anything, the facts in Matter of Schafer are more damning to the eligible policyholder than the facts herein. There, the policy administrator listed the premium payment as part of the eligible policyholder's compensation in her Annual Compensation and Performance Review, thus suggesting that she in fact paid the premium. Here, there is nothing to suggest that the premium payment was considered part of defendants' compensation.
The Court further notes that Maple-Gate and Columbia Mem. Hosp. are not binding and, in any event, appear to be distinguishable. Notwithstanding defendants' contentions to the contrary, the record fails to demonstrate as a matter of law that the premium was paid by plaintiff as a benefit of defendants' employment, as Supreme Court found in Maple-Gate . Although the paragraph relative to the payment of premiums was contained within a form entitled "Policies, Procedures and Benefits," there is nothing in the paragraph itself to indicate that such payment was a benefit of employment—and to the extent this may be unclear, it constitutes a question of fact. Indeed, plaintiff's contention that the premium was paid to ensure that defendants had medical malpractice insurance and could obtain privileges at local hospitals is equally plausible. It must also be noted that the premium payment was never deducted from defendants' salaries, as was the case in Columbia Mem. Hosp.
Based upon the foregoing, defendants' motion for summary judgment is denied in its entirety. Counsel are hereby directed to appear for a preliminary conference on November 21, 2019 at 11:00 A.M. at the Warren County Courthouse in Lake George, New York. In lieu of an appearance, counsel may also complete a Preliminary Conference Stipulation and Order—which form is available online at https://www.nycourts.gov/LegacyPDFS/courts/4jd/mt-rules/muller-order.pdf—and submit the same to the Court at least 48 hours prior to the scheduled conference date.
Therefore, the Court having considered the Affirmation of Justin A. Heller, Esq. with exhibits attached thereto, dated January 25, 2019; Joint Affidavit of Allison Herrick, Jennifer Kittell, Brittany Krotzer, Emily Scialabba and Emily Yeast with exhibit attached thereto, sworn to January 22, 2019, January 22, 2019, January 24, 2019, January 22, 2019 and January 24, 2019, respectively; Memorandum of Law of Justin A. Heller, Esq., dated January 25, 2019; Affirmation of Martha J. Indych, Esq., dated February 15, 2019; Memorandum of Law of Martha J. Indych, Esq., dated February 15, 2019; Reply Memorandum of Law of Justin A. Heller, Esq., dated March 1, 2019; Correspondence of Justin A. Heller, Esq. with exhibit attached thereto, dated March 22, 2019; Correspondence of Marsha J. Indych, Esq. with exhibit attached thereto, dated April 17, 2019; Correspondence of Justin A. Heller, Esq., dated April 17, 2019; Supplemental Affirmation of Marsha J. Indych with exhibit attached thereto, dated May 6, 2019; Supplemental Memorandum of Law of Marsha J. Indych, Esq., dated May 6, 2019; Supplemental Affirmation of Justin A. Heller, Esq. with exhibits attached thereto, dated May 6, 2019; Supplemental Memorandum of Law of Justin A. Heller, Esq., dated May 6, 2019; Correspondence of Justin A. Heller, Esq. with exhibit attached thereto, dated September 6, 2019; and Correspondence of Marsha J. Indych, Esq., dated October 28, 2019; and the Court having heard oral argument on October 24, 2019 with Marsha J. Indych, Esq. appearing on behalf of plaintiff and Justin A. Heller, Esq. appearing on behalf of defendants, it is hereby
ORDERED that defendants' motion for summary judgment is denied in its entirety; and it is further
ORDERED that counsel shall appear for a preliminary conference on November 21, 2019 at 11:00 A.M. at the Warren County Courthouse in Lake George, New York or, in lieu of an appearance, complete a Preliminary Conference Stipulation and Order and submit the same to the Court at least 48 hours prior to the scheduled conference date; and it is further
ORDERED that any relief not specifically granted has nonetheless been considered and is denied.
The above constitutes the Decision and Order of this Court.
The original of this Decision and Order has been e-filed by the Court. Counsel for plaintiff is hereby directed serve a copy of the Decision and Order with notice of entry in accordance with CPLR 5513.