Gary Tsirelman, P.C., Brooklyn, for appellant. McDonnell & Adels, P.L.L.C., Garden City (James J. Cleary, Jr., of counsel), for respondent.
Gary Tsirelman, P.C., Brooklyn, for appellant. McDonnell & Adels, P.L.L.C., Garden City (James J. Cleary, Jr., of counsel), for respondent.
Present: RIOS, J.P., WESTON and GOLIA, JJ.
Appeal from an order of the Civil Court of the City of New York, Kings County (Alice Fisher Rubin, J.), entered August 13, 2009. The order granted defendant's motion to strike the notice of trial and compel disclosure to the extent of striking the notice of trial unless plaintiff provided discovery of certain financial documents and thereafter produced its owner, Valentina Anikeyeva, for an examination before trial, and denied plaintiff's cross motion for a protective order and the imposition of sanctions.
ORDERED that the order is affirmed, without costs.
In this action by a provider to recover assigned first-party no-fault benefits, plaintiff appeals from an order which granted defendant's motion to strike the notice of trial and compel disclosure to the extent of striking the notice of trial unless plaintiff provided discovery of certain financial documents and thereafter produce its owner, Valentina Anikeyeva, for an examination before trial, and denied plaintiff's cross motion for a protective order and the imposition of sanctions. At issue on this appeal is whether defendant's failure to assert a defense pursuant to State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313, 794 N.Y.S.2d 700, 827 N.E.2d 758  precludes it from seeking discovery related to that defense. We conclude that, based on the record before us, defendant made sufficient allegations of fraudulent incorporation to warrant disclosure.
It is well settled that a party is entitled to full disclosure of all matter that is “material and necessary in the prosecution or defense of an action” (CPLR 3101[a] ). What is “material and necessary” is left to the sound discretion of the court and includes “any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason” ( Allen v. Crowell–Collier Publ. Co., 21 N.Y.2d 403, 406, 288 N.Y.S.2d 449, 235 N.E.2d 430 ;Young v. Tierney, 271 A.D.2d 603, 706 N.Y.S.2d 170  ). Where, as here, an insurer requests discovery concerning a Mallela defense, the request should be granted as long as there are sufficient allegations supporting such a defense ( see e.g. Kipor Medicine, P.C. v. GEICO, 28 Misc.3d 129[A], 2010 N.Y. Slip Op. 51247[U], 2010 WL 2802728 [App. Term., 2d, 11th & 13th Jud. Dists. 2010]; Midborough Acupuncture P.C. v. State Farm Ins. Co., 13 Misc.3d 58, 823 N.Y.S.2d 822 [App. Term., 2d & 11th Jud. Dists. 2006]; Lexington Acupuncture, P.C. v. State Farm Ins. Co., 12 Misc.3d 90, 820 N.Y.S.2d 385 [App. Term., 2d & 11th Jud. Dists. 2006] ). A Mallela defense is nonwaivable and may be asserted at any time notwithstanding the absence of a timely denial ( see Midwood Acupuncture, P.C. v. State Farm Auto. Ins. Co., 14 Misc.3d 131[A], 2007 N.Y. Slip Op. 50052[U], 2007 WL 93176 [App. Term., 2d & 11th Jud. Dists. 2007] ).
Here, although defendant never moved to amend its answer to assert a defense based on fraudulent incorporation, it asserted sufficient allegations of fraudulent incorporation. Defendant cited to several cases against a different insurer involving corporations purportedly owned by Ms. Anikeyeva. In some of those cases, the defendant insurer had submitted an affidavit from its investigator which was sufficient to entitle the insurer to discovery on the issue of fraudulent incorporation ( see e.g. Lexington Acupuncture, P.C. v. State Farm Ins. Co., 12 Misc.3d 90, 820 N.Y.S.2d 385). Defendant included, as part of its motion papers, copies of the investigator affidavits from those cases, which set forth Ms. Anikeyeva's close connection with individuals and corporations charged with insurance fraud. Since defendant presented adequate allegations of fraudulent incorporation, the Civil Court did not abuse its discretion in granting those branches of defendant's motion seeking to compel disclosure on that issue and in denying plaintiff's cross motion for a protective order and the imposition of sanctions ( see Kipor Medicine, P.C. v. GEICO, 28 Misc.3d 129[A], 2010 N.Y. Slip Op. 51247[U], 2010 WL 2802728 ).
Accordingly, the order is affirmed. RIOS, J.P., and WESTON, J., concur.
GOLIA, J., concurs in a separate memorandum.
GOLIA, J., concurs in the following memorandum.
While I concur in the result and vote to affirm the order, insofar as appealed from, I find it necessary to address additional issues raised herein.
Plaintiff corporation initiated this action seeking to recover first-party no-fault benefits assigned to it by several assignors who allegedly had received acupuncture treatments from plaintiff. While the action initially involved claims stemming from several assignors, the majority of those claims have in some manner been disposed of and the matter now only involves claims seeking benefits from a single assignor, Waltman Nunez.
In response to a notice of trial filed by plaintiff, as assignee of Nunez, defendant moved to strike the notice, alleging that there remained outstanding discovery to which defendant was entitled. Defendant requested that the court compel plaintiff to supply this discovery, which consisted of responses to interrogatories and the production of Valentina Anikeyeva for an examination before trial. Ms. Anikeyeva is the alleged owner of many health care corporations, of which plaintiff is one.
The Civil Court granted defendant's motion to strike the notice of trial and ordered plaintiff to supply the outstanding discovery. Plaintiff contends on appeal that defendant is not entitled to the requested discovery as the information sought is not material or necessary to any of the affirmative defenses pleaded in defendant's answer. I disagree.
The type of information sought by defendant includes copies of plaintiff's corporate tax returns and bank records, rental and billing agreements, and information concerning the corporate form of plaintiff's business and plaintiff's employees and independent contractors. This information is sought because defendant intends to present a defense in this matter based on State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313, 794 N.Y.S.2d 700, 827 N.E.2d 758 , alleging that plaintiff corporation is improperly incorporated or licensed, and thus not eligible to receive first-party no-fault benefits.
Any medical provider fraudulently incorporated and/or licensed is “ineligible to recover no-fault benefits” ( New York Cent. Mut. Ins. Co. v. McGee, 87 A.D.3d 622, 624, 928 N.Y.S.2d 360 , citing State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d at 319–322, 794 N.Y.S.2d 700, 827 N.E.2d 758). The specific licensing issue addressed in Mallela is the same issue presented in the instant matter, namely the prohibition of “nonphysicians ... owning or controlling medical service corporations” ( Mallela, 4 N.Y.3d at 321, 794 N.Y.S.2d 700, 827 N.E.2d 758).
For a party to claim entitlement to any discovery with respect to a defense, the information sought must be material and necessary to the establishment of that particular defense ( seeCPLR 3101[a] ). The scope of such discovery is limited to those “issues framed by the pleadings” ( Mavroudis v. State Wide Ins. Co., 102 A.D.2d 864, 864, 477 N.Y.S.2d 45  ). Plaintiff argues that defendant has no right to the information sought because defendant's answer did not include an affirmative defense laying out the specific elements of a Mallela claim. I find defendant need not have made such a fact-specific assertion in the answer. Additionally, as discussed later, a Mallela claim is non-precludable and can be raised at any time.
The Mallela Court held that “a medical corporation that was fraudulently incorporated under N.Y. Business Corporation Law §§ 1507, 1508, and N.Y. Education Law § 6507(4)(c) [is not] entitled to be reimbursed by insurers, under New York Insurance Law §§ 5101 et seq. , and its implementing regulations, [even] for medical services rendered by licensed medical practitioners” ( Mallela, 4 N.Y.3d at 320, 794 N.Y.S.2d 700, 827 N.E.2d 758 [internal quotation marks omitted] ). In the verified answer filed by defendant, the first affirmative defense is that “[p]laintiff has failed to state a valid cause of action as to any and all allegations.” The second affirmative defense asserted by defendant is that “[p]laintiff and/or plaintiff's assignor has not met and fully complied with all conditions precedent to bringing an action against the defendant.” Additionally, defendant's fourth affirmative defense alleges “[p]laintiff lacks standing to bring this action, as the benefits were not properly assigned.”
“[P]leadings should be liberally construed and defects ignored unless a substantial right is prejudiced ( seeCPLR 3026), and if there is any doubt as to the availability of a defense, the defendant is entitled to every reasonable intendment of its pleading” ( Youssef v. Triborough Bridge & Tunnel Auth., 24 A.D.3d 661, 661, 808 N.Y.S.2d 362  ). Here, defendant's pleadings challenge plaintiff's standing. Indeed, this court has previously addressed that specific issue, which concerns itself with the ability of a defense challenging a plaintiff's standing to envelop a Mallela claim.
In Quality Med. Care, P.C. v. New York Cent. Mut. Fire Ins. Co., 26 Misc.3d 139[A], 2010 N.Y. Slip Op. 50262[U], *1, 2010 WL 653907 [App. Term., 2d, 11th & 13th Jud. Dists. 2010], the parties stipulated that the plaintiff corporation was “a lawfully constituted professional service corporation wholly owned by a licensed physician, that the physician was not certified to perform acupuncture at the time the acupuncture services at issue were provided, and that the services were provided by a licensed acupuncturist employed by plaintiff. The parties also stipulated that the sole issue for the Civil Court's determination was whether plaintiff had standing to commence th[e] action to recover benefits under the no-fault provisions of the insurance policy” ( id.). The Civil Court found that the plaintiff corporation had standing. The defendant then appealed.
In examining Quality Med. Care, P.C. on appeal, this court found that the plaintiff corporation was not eligible to receive the assigned benefits. It was not enough that the “acupuncture services were rendered by a licensed acupuncturist employed by the corporation” ( id. at *2). “ Where ... a professional service corporation is owned solely by a doctor who is not a certified acupuncturist at the time the acupuncture services at issue were rendered, such professional service corporation is not entitled to reimbursement of assigned no-fault benefits for such services” ( id.). This court then reversed the Civil Court's judgment and dismissed that complaint. As the plaintiff's standing was the “sole issue” involved in the judgment on appeal, the Quality Med. Care, P.C. decision must stand for the proposition that a health care provider's failure to abide by relevant licensing laws denies such corporation standing to bring actions for recovery of assigned first-party no-fault benefits. As defendant here asserted an affirmative defense in the answer challenging plaintiff's standing, defendant is entitled to Mallela discovery.
Defendant's second affirmative defense contends that “[p]laintiff and/or plaintiff's assignor has not met and fully complied with all conditions precedent to bringing an action against the defendant.” In the case of Matter of Medical Socy. of State of N.Y. v. Serio, 100 N.Y.2d 854, 768 N.Y.S.2d 423, 800 N.E.2d 728 , the Court of Appeals addressed the constitutionality of certain no-fault insurance regulations promulgated by the Superintendent of Insurance. In holding these regulations valid, the Court of Appeals noted that these regulations did not improperly create any new exclusions, but rather constituted “condition[s] precedent with which all claimants must comply in order to receive benefits under the statute” ( id. at 866, 768 N.Y.S.2d 423, 800 N.E.2d 728). These regulations were codified in Insurance Department Regulations (11 NYCRR) part 65. Among these conditions precedent is Insurance Department Regulations (11 NYCRR) § 65–3.16(a)(12), which provides that:
“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 or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.”
Thus, when defendant's answer is read in a manner allowing defendant “every reasonable intendment of its pleading” ( Youssef, 24 A.D.3d at 661, 808 N.Y.S.2d 362), a plain reading and logical construction of the pleadings clearly permits respondent to obtain Mallela discovery. A failure by plaintiff to have complied with the relevant licensing laws of New York State would be a failure to satisfy a “condition precedent” (Matter of Medical Socy. of State of NY, 100 N.Y.2d at 866, 768 N.Y.S.2d 423, 800 N.E.2d 728) necessary to recovery of no-fault benefits. Defendant's assertion of an affirmative defense alleging plaintiff's failure to satisfy all conditions precedent is consequently sufficient notice to plaintiff of defendant's intention to pursue a Mallela defense, notwithstanding the plaintiff's contention that an exacting, concise and strict choice of words is necessary.
Further, I take note of the affirmative defense alleging “[p]laintiff has failed to state a valid cause of action as to any and all allegations.” While plaintiff's pleadings appear on their face to state a cause of action for which relief may be granted, a “cause of action seeking relief on behalf of one not legally entitled to such relief fails to state a cause of action” (Dong Wook Park v. Michael Parke Dori Group, Inc., 12 Misc.3d 1182[A], 2006 N.Y. Slip Op. 51376[U], *5, 2006 WL 1982595 [Sup. Ct., Nassau County 2006] ). Furthermore, it must stand that a cause of action premised on a fraud is not a valid cause of action. Here, defendant argues that possible fraudulent licensing or incorporation may render plaintiff not entitled to the recovery of no-fault benefits ( see Mallela, 4 N.Y.3d 313, 794 N.Y.S.2d 700, 827 N.E.2d 758). Indeed, in the interrogatories attached to the verified answer, defendant quite specifically and clearly sought Mallela-based information. Thus, plaintiff then being on notice of defendant's request, defendant is entitled to discovery related to the issues of plaintiff's licensing and incorporation, as such information can establish that plaintiff does not possess a valid cause of action.
Finally, as previously stated by the Appellate Term in Lexington Acupuncture, P.C. v. State Farm Ins. Co. (12 Misc.3d 90, 92, 820 N.Y.S.2d 385 [App. Term, 2d & 11th Jud. Dists. 2006] ), the Mallela defense “is not subject to preclusion.” It would be illogical to effectively deny defendant the ability to raise a nonwaivable defense by denying defendant access to discovery necessary to establish that very defense. Even if one were to say it is impossible to read defendant's answer to include a Mallela defense, the nonwaivable nature of the defense permits respondent to raise the defense now. Accordingly, defendant is permitted to seek discovery which is material and necessary to the establishment of that defense.
The present matter has yet to proceed to trial, and there is no appearance of prejudice to plaintiff in allowing defendant Mallela discovery at this point in the proceedings. I address this issue only in the interest of completeness. Certainly, the nonwaivability of a non-precludable defense attests to the fact that prejudice is a non-issue, excepting instances where fraud is present. Indeed, plaintiff fails to point to any substantial right it possesses which would be prejudiced if defendant were permitted to pursue such a defense. Plaintiff merely states in its brief to this court, without any substantiation, that “undue prejudice to [appellant] should be clear in this case.” It is not clear to me. What is clear to me is that defendant's intention to pursue a Mallela defense was sufficiently apparent since the inception of this claim.
Similarly, plaintiff cannot reasonably plead surprise in response to the raising of the Mallela defense. As with prejudice, surprise presents no logical or material issue. There exists a rich history of litigation, involving a multitude of cases before the Appellate Term, in which health care facilities allegedly owned by Ms. Anikeyeva have been asked to supply Mallela discovery ( e.g. First Help Acupuncture, P.C. v. State Farm Mut. Auto. Ins. Co., 24 Misc.3d 131[A], 2009 N.Y. Slip Op. 51354[U], 2009 WL 1926051 [App. Term., 2d, 11th & 13th Jud. Dists. 2009]; Great Wall Acupuncture v. State Farm Mut. Auto. Ins. Co., 20 Misc.3d 136[A], 2008 N.Y. Slip Op. 51529[U], 2008 WL 2814818 [App. Term., 2d & 11th Jud. Dists. 2008]; AVA Acupuncture, P.C. v. State Farm Mut. Auto. Ins. Co., 16 Misc.3d 138[A], 2007 N.Y. Slip Op. 51756[U], 2007 WL 2701252 [App. Term., 2d & 11th Jud. Dists. 2007] ). Indeed, in the cross motion papers submitted in the Civil Court, plaintiff made specific note of an extended history of attempts by defendant herein to discern who the true owner of plaintiff corporation is. As detailed above, several affirmative defenses included in defendant's answer and interrogatories attached thereto put plaintiff on sufficient notice from the very beginning that Mallela discovery will be sought by defendant. Clearly, “if there is any doubt as to the availability of a defense, the defendant is entitled to every reasonable intendment of its pleading” ( Youssef, 24 A.D.3d at 661, 808 N.Y.S.2d 362).
Consequently, I find the answer sufficient in its own right to permit Mallela discovery.