Opinion
119638/04.
Decided December 19, 2005.
Upon the foregoing cited papers, and after conference, it is ordered that plaintiff's motion for an order, pursuant to CPLR 3212, granting summary judgment is denied and defendant's cross motion for an order, pursuant to CPLR 3212, granting summary judgment is granted and the complaint is dismissed.
Inasmuch as the adjourned date of the motion was ten months after the original return date, and inasmuch as there had been an intervening order amending defendant's answer, on consent of the parties, all papers were accepted and the parties were permitted to submit supplemental papers briefing the remaining issues for the Court.
In order to succeed on a motion for summary judgment, the movant must tender admissible evidentiary proof demonstrating the absence of any genuine issues of material fact for trial. (CPLR 3212; Winegrad v. New York University Medical Center, 64 NY2d 851.) Civil Practice Law and Rules 3212 (b) provides that a motion for summary judgment shall be supported by an affidavit by a person "having knowledge of the facts; it shall recite all the material facts; and it shall show that there is no defense to the cause of action or that the . . . defense has no merit." The affirmation of an attorney, even one without personal knowledge of the facts, may serve as the vehicle for the submission of acceptable attachments which provide evidentiary proof in admissible form. ( See Zuckerman v. New York, 49 NY2d 557.) An attorney's affirmation could also be accepted with respect to admissions of a party made in the attorney's presence. (Id.) Once a prima facie showing of entitlement to judgment as a matter of law is made, the burden shifts to the nonmovant to produce evidentiary proof sufficient to establish the existence of material issues of fact which require a trial of the action. (Alvarez v. Prospect Hospital, 68 NY2d 320.)
According to the annexed complaint, this is an action brought pursuant to Insurance Law 5101 et seq and the regulations of the New York State Insurance Department (11 NYCRR 65.10 et seq), to recover the cost of health care services rendered by plaintiff to its assignor, Herbert Paige, for dates of treatment in May and June 1999.
Defendant's answer contains sixteen affirmative defenses and, by Court Order dated September 9, 2005, and on consent of the parties, the answer was amended to add two more affirmative defenses: fraud in the incorporation and that the services were provided by an independent contractor and not by plaintiff or its employee such that plaintiff is not entitled to receive direct payment from defendant.
In support of the motion, plaintiff submits an affidavit of Joseph Indelicato, Ph.D., plaintiff's owner, in which he does not attest to personal knowledge of this claim but states that he is "fully familiar with all the policies, practices and procedures" of plaintiff. This statement, however, is insufficient to lay a foundation for the exhibits attached to the moving papers. (CPLR 4518; People v. Kennedy, 68 NY2d 569.) Significantly, plaintiff fails to establish the mailing of its claim to defendant, a necessary element of its prima facie case. ( See Mary Immaculate Hosp. v. Allstate Ins. Co., 5 AD3d 742 [2d Dept 2004; Residential Holding Corp v. Scottsdale Insurance Co, 286 AD2d 679 [2d Dept 2001].)
Plaintiff has failed to tender evidence, by proof in admissible form, to establish the cause of action sufficient to warrant summary judgment. ( See Zuckerman v. City of New York, 49 NY2d 557.) Accordingly, as the burden does not shift to defendant on plaintiff's prima facie case, the motion is denied without regard to the opposition. ( See Winegrad v. NYU Med Center, 64 NY2d 851.)
Defendant, as cross movant, argues that it is entitled to summary judgment as a matter of law on several grounds: (1) at the time services were rendered to its assignor, plaintiff's corporate structure was defective as it did not have a psychologist as an owner and under Business Corporation Law, all professional service corporations that are licensed to practice medicine must be owned and controlled only by licensed physicians, ( See BCL 1507 and 1508), (2) services were rendered by independent contractors and not an employee of plaintiff, (3) plaintiff's billing is fraudulent, and (4) the assignment of benefits form is defective.
In support of its cross motion, defendant submits a certified examination under oath of Kathryn Clark, Psy. D., signed by the witness, in which she states that at no time did she give her consent to plaintiff to use her name as a member of the corporation as the designated psychologist of the corporation and that plaintiff did so without her knowledge and consent. Further, the witness states that she began working for plaintiff as an independent contractor towards the end of 1998 until 2000, but that she may have done very little work for plaintiff in 2001. The witness stated that she had never been an employee of plaintiff. Defendant annexes copies of Department of Treasury — IRS Form 1099 for the years 1998-2000, listing plaintiff as the "PAYER" and Dr. Clark as the "RECIPIENT," and which provide information for each of those years in Box 7 of the form, entitled "nonemployee compensation."
In further support of its cross motion, defendant submits plaintiff's responses to discovery notices which include, inter alia: (1) two bills from plaintiff regarding its assignor, addressed to defendant, and which include, under plaintiff's letterhead and type written "Kathryn L. Clark, PhD/NY Lic No. 012553-1/Tax ID # 11-3450114," (2) a "Letter of Medical Necessity Regarding Psychological Testing" and a "Psychological Assessment," both on plaintiff's letterhead and signed by Kathryn L. Clark, Psy.D. regarding plaintiff's assignor, Herbert Paige, and (3) the filing receipt from the New York State Secretary of State for "Multiquest Psychological Acupuncture Services, PLLC" indicating that the articles of organization were filed on July 14, 1998. While plaintiff's discovery responses do not include said articles of incorporation, a certificate of amendment of the articles of organization dated September 28, 2001 and signed by Joseph Indelicato, are included as well as a Department of the Treasury-IRS Form W9, again signed by Joseph Indelicato indicating that plaintiff's tax payer identification number is 11-3450114, the same tax number indicated on plaintiff's bills for Kathryn Clark.
Defendant submits the original articles of organization, missing from plaintiff's response, naming Kathryn Clark as an original member and manager of plaintiff corporation. In its reply papers, defendant annexes a March 2000 amendment to plaintiff's articles of organization amending plaintiff's name to "Multiquest Psychological, Acupuncture, Massage Therapy Social Work Services, PLLC" and which indicates that Kathryn L. Clark is licensed to practice psychology.
The affidavit of Mike Bruno, submitted in support of the cross motion was not considered as it was executed out of state and fails include the required certificate of conformity. (CPLR 2309[c]; Real Property Law 299-a.) The two Opinion Letters issued by the Department of Insurance on the issue of independent contractors, also annexed to the motion, are, according to their own terms, informal and not binding on any court. ( See State Farm Mut Auto Ins Co v. Mallela, 372 F3d 500 [2d Cir 2004].)
Defendant argues that it is entitled to summary judgment on the basis that plaintiff was fraudulently incorporated at the time of treatment and thus not entitled to reimbursement. Plaintiff opposes the cross motion arguing that the regulations in effect at the time services were rendered did not bar payment on that basis.
Since 1973, when the New York State Legislature passed the Comprehensive Motor Vehicle Insurance Reparations Act ("No-Fault Law"), replacing common law tort remedies for the majority of injuries associated with automobile accidents the legislative purpose has been to protect the "right of an injured party to prompt and full compensation" ( See L 1973, ch 13; Ins Law 5101 et seq; Gurnee v. Aetna Life Cas Co, 55 NY2d 184, 193, [1982] cert den 459 US 837.) The goal was to create a simple, efficient system that would provide prompt compensation to accident victims without regard to fault, and in that way reduce costs for both courts and insureds. ( See NY Medical Soc'y v. Serio, 100 NY2d 854.) The legislation, however, was considered a compromise: "prompt payment for basic economic loss to injured persons regardless of fault, in exchange for a limitation on litigation to cases involving serious injury." ( Pommels v. Perez, 4 NY3d 566 citing Montgomery v. Daniels, 38 NY2d 41). This "tradeoff" allowed insurers to contest fraudulent claims but only within "a strict, short-leashed contestable period and process designed to avoid prejudice and red-tape dilatory practices." ( Presbyterian Hosp v. Maryland Cas Co, 90 NY2d 274, 285.)
The issue of insurance fraud, however, has undermined the goal of No-Fault Law and recent Court of Appeals decisions involving No-Fault Law have directly addressed it. ( See Pommells v. Perez, 4 NY3d 566 "[Abuse . . . abounds]"; State Farm Mut. Auto. Ins. Co. v. Mallela, 4 NY3d 313 "rapidly growing incidences of fraud in the no-fault regime"]; Med Soc'y v. Serio, 100 NY2d 854) ["suspected automobile insurance fraud increased by 275%"].) Thus, the salutary purpose of No-Fault law has been hampered considerably by the rise in illegitimate and fraudulent claims.
For the past thirty years, the responsibility of administering the No-Fault Law has belonged to the Superintendent of Insurance who has the broad power to interpret, clarify, and implement the legislative policy through the promulgation of the "Regulations Implementing The Comprehensive Motor Vehicle Insurance reparations Act" also known as Regulation 68 and codified at 11 NYCRR part 65. ( See Insurance Law 301 and 5101 et seq; Med. Soc'y v. Serio, 100 NY2d 854 supra; Ostrer v. Schenck, 41 NY2d 782). The Superintendent's "interpretation, if not irrational or unreasonable, will be upheld in deference to his special competence and expertise with respect to the insurance industry, unless it runs counter to the clear wording of a statutory provision." ( See Matter of Medical Malpractice Ins Assn v. Superintendent of Ins of State of NY, 72 NY2d 753; Matter of NYPIRG, Inc v. New York State Dept of Ins, 66 NY2d 444. The Superintendent of Insurance must, however, follow the State Administrative Procedure Act's requisite procedures for promulgating regulations, otherwise the regulations will be struck down as unconstitutional. (SAPA 202; Medical Soc'y of NY, Inc v. Levin, 185 Misc 2d 536 [Sup Ct NY County] affd 280 AD2d 309 [1st Dept 2002].).
In an effort to combat the widespread abuse in no fault insurance claims, in 1999, the Superintendent proposed an amended Regulation 68, with an effective date of February 1, 2000. ( See Med Socy v. Serio, 100 NY2d 854, supra.) The amended rule pertinent to this action provided: "[a] provider of health care services is not eligible for reimbursement under section 5102 [a][1] of the Insurance Law if the 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].) As above stated, under Business Corporation Law, all professional service corporations that are licensed to practice medicine must be owned and controlled only by licensed physicians. ( See BCL 1507 and 1508.)
Prior to the effective date for the Amended Regulation 68, in January 2000, the Superintendent of Insurance issued two Opinion Letters, both of which addressed the requirement that providers who are given an assignment by an eligible injured person and become the claimant for purposes of reimbursement must be properly licensed to perform services, so as not to engage in the corporate practice of medicine. Again, those Opinion Letters have no binding effect. ( State Farm Mut Auto Ins Co v. Mallela, 372 F3d 500 [2d Cir 2004].) On June 9, 2000, the amended regulations were struck down for failure to substantially comply with the State Administrative Procedure Act. ( Matter of the Medical Society of the State of New York, Inc. v. Levin, 280 AD2d 309, supra.) Thus, as of the date of that decision, the additional licensing requirement in the regulation still had no force and effect. While an appeal from that decision was pending, the Superintendent again revised Regulation 68 which was later approved by the Court of Appeals. ( Med Socy v. Serio, 100 NY2d 854, supra.)
In 2005, on the same issue of a provider's licensing status, by certified question from the United States Court of Appeals for the Second Circuit, in 2005 the Court of Appeals answered the following question affirmatively: "Whether, under our "no-fault" insurance laws (see Insurance Law §§ 5101, et seq. and implementing regulations), insurance carriers may withhold payment for medical services provided by fraudulently incorporated enterprises to which patients have assigned their claims." ( See State Farm Mut Auto Ins Co v. Mallela, 4 NY3d 313, supra.) By so doing, the Court held that 11NYCRR 65-3.16[a][12] which requires compliance with New York State licensing laws in order to be reimbursed, was valid, had the force of law, and was to be enforced as written. In the decision, the Court noted in two instances that the effective date of the regulation was April 4, 2002. ( State Farm Mut Auto Ins Co v. Mallela, 4 NY3d 313, 320 and 322, supra.) What the Court did not expressly do was to give 11NYCRR 65-3.16[a][12] retroactivity.
Generally, retroactivity will be applied only where the language of the law expressly allows for such an application. ( See Kaye v. Whalen, 44 NY2d 754.) Had the Court given the rule retroactivity, it would have rewritten the Regulation, sidestepped the required procedures of the State Administrative Procedure Act and it would have made "an abrupt shift in controlling decisional law." (See SAPA 201 and 202; Gurnee v. Aetna Life Casualty Co., 55 NY2d 184, supra.; Medical Soc'y of NY, Inc. v. Levin 280 AD2d 309, supra.)
At the time plaintiff's assignor was treated in 1999, the amended Regulation 68 had not yet taken effect and the regulation that was then in effect provided only that "upon assignment by the applicant . . ., [an insurer] shall pay the providers of services . . . directly." ( 11 NYCRR 65.15[j][1].) Although defendant has demonstrated that there is no issue of fact as to plaintiff's fraudulent incorporation and plaintiff has failed to raise an issue of fact in that regard, as the rule then in effect contained no further requirement as to licensing, that part of the motion seeking summary judgment based on the retroactivity of the amended regulation is denied. While mindful of the extent that fraud has undermined the policy of No-Fault Law, as above cited in detail, and notwithstanding an undesirable result, nevertheless, the regulation should not be applied retroactively.
Defendant's next basis for arguing that it is entitled to summary judgment as a matter of law is that the treating provider was in fact an independent contractor and thus plaintiff is not entitled to reimbursement.
In opposition to the cross motion, plaintiff argues that defendant's allegations are vague and unsubstantiated and that no distinction should be made between an independent contractor and an employee of plaintiff. In its reply, defendant submits an affirmation from its attorney, James K, Hogan, in which he states that in another matter pending in Civil Court, Bronx County, on September 28, 2005, he conducted the deposition of plaintiff's current owner, Joseph Indelicato, Ph.D., during which deposition Dr. Indelicato admitted under oath that all psychologists employed by Multiquest were employed as independent contractors until 2002.
A billing provider seeking to recover no-fault benefits for services which were not rendered by it or its employees, but by a provider who is an independent contractor, is not a "provider" of the medical services rendered within the meaning of the applicable insurance regulations and is therefore not entitled to recover direct payment of assigned no-fault benefits from the defendant insurer. ( AB Med Servs PLLC v. New York Cent Mut Fire Ins Co, 7 Misc 3d 1018 A, 2005 NY Slip Op 50662U [App Term 2d 11th Jud Dists].) A provider's entitlement to recovery of no-fault benefits directly from the insurer is contingent upon an assignment of such benefits, and the assignment must be made to the "providers of services." ( See Rockaway Blvd Med PC v. Progressive Ins, 2005 NY Slip Op 25278 [App Term 2d 11th Jud Dists].) ( See Rockaway Blvd Med PC v. Progressive Ins, 2005 NY Slip Op 25278 [App Term 2d 11th Jud Dists].) A defense that the plaintiff in an assigned first-party no-fault action may not maintain the action because it is not a "provider" within the meaning of the insurance regulations "is non-waivable and not subject to the preclusion rule." (Id. at 2)
In light of the above, defendant has demonstrated, through proof in admissible form, including the EUO transcript, the IRS forms and plaintiff's owner's admission, that there is no issue of fact that the treating provider Kathryn Clark who rendered services to plaintiff's assignor was an independent contractor such that plaintiff may not recover no-fault benefits. In opposition, plaintiff's evidence fails to raise an issue of fact in this regard notwithstanding the additional opportunity it was given to do so.
In view of the foregoing, the motion is denied and the cross motion dismissing the complaint is granted. As defendant's cross motion is granted, its remaining arguments will not be addressed.
The Clerk shall enter judgment accordingly.
This constitutes the decision and order of the Court.