Downtown Acupuncture PC v. State Wide Ins. Co.
| Decision Date | 22 October 2015 |
| Citation | 21 N.Y.S.3d 548,50 Misc.3d 461 |
| Parties | DOWNTOWN ACUPUNCTURE PC a/a/o Linnette Thomas, Plaintiff, v. STATE WIDE INS. CO., Defendant. |
| Court | New York Civil Court |
Gary Tsirelman, P.C., Brooklyn, Attorneys for plaintiff.
Law Office of Deirdre Tobin & Associates, Garden City, Attorneys for defendant.
In 2004, plaintiff Downtown Acupuncture ("Downtown" or " plaintiff"), a medical services provider, filed this action to recover assigned first-party no-fault benefits for acupuncture services in the amount of $914.33 from defendant State Wide Insurance Co. ("State Wide" or "defendant"). Citing to a declaratory judgment by Supreme Court Nassau County involving a different insurance company—State Farm Mutual Ins. Co. ("State Farm")—that found the instant plaintiff and other acupuncture PCs to be unlawfully incorporated, defendant argued that plaintiff was collaterally estopped from arguing that it was eligible to recover assigned no-fault benefits in the instant matter and moved to dismiss the complaint with prejudice. It is salient to note that defendant State Wide did not move to amend its answer to include collateral estoppel as an affirmative defense or raise at any time the defense of fraudulent incorporation. This action therefore raises the issue of whether under this set of facts, a defendant insurance company, who was not a party to a previous declaratory judgment action, may pro actively invoke collateral estoppel to bar a plaintiff medical provider, who was a party to the previous action, from recovering no-fault benefits due to the finding of fraudulent incorporation.
In March 2010, State Farm brought an action in Supreme Court, Nassau County for a declaratory judgment ( that alleged that the instant plaintiff Downtown, as well as a number of other acupuncture PCs, were not owned and controlled by licensed acupuncturists, as required by New York law and regulations, and that the services provided therein were performed by independent contractors, also in violation of the state regulations. Specifically, the complaint alleged that in 2004, defendant received no fault claims from a number of corporations owned by one Valentina Anikeyeva, a licensed acupuncturist. State Farm's investigation revealed that Valentina formed professional corporations for her husband, Andrey, who was not licensed in New York State to operate, own, and control the acupuncture businesses and that Aubrey, in turn, hired independent contractors to perform acupuncture services at the PC defendants' offices. State Farm sought declaratory judgment that it need not reimburse the PC defendants for assigned claims submitted under the no-fault law.
At some point the parties in the DJ action entered into a stipulation, so-ordered on November 20, 2012 which granted plaintiff's motion to compel discovery and conditionally struck defendant PCs answer unless they full complied with all of the discovery demands. In relevant part, Justice Jaegar directed that "... [PC defendants'] answer is conditionally stricken unless Defendants fully comply with all of [State Farm's] discovery demands by [January 7, 2013] ...". Plaintiff State Farm subsequently moved for a default judgmentbased upon the PCs non-compliance with discovery.
By decision dated April 29, 2013, Justice Jaeger granted State Farm's motion to strike the defendants answer resulting in the non-appearance of the defendants and entitling plaintiff to a judgment of default. In so ruling, the court found that the PC defendants' pattern of noncompliant behavior was "willful and contumacious." (Def. Exh. A 1 at 11). He also noted that defendants had stipulated to the consequences of their conduct and "proffered no adequate excuse for their noncompliance (with discover)" Id. at 13. Moreover, the defendants attempted to avoid the consequences of the conditional order by serving responses about a month late which were "evasive, unresponsive and consisting mostly of objections." Id. at 13.
Despite defendant's default, Justice Jaegar noted that the court still had to reach the legal conclusion that plaintiff's now undisputed factual allegations established a prima facie case. Id. at 14 citing to Walley v. Leatherstocking Healthcare, LLC, 79 A.D.3d 1236, 913 N.Y.S.2d 380 (3rd Dept.2010). After reviewing the voluminous record (see pp. 15–18) Justice Jaeger concluded that plaintiff had established a prima facie case of fraudulent incorporation in that defendants had violated both BCL §§ 1507 and 08 and NYCRR §§ 65–3.16 and 65–3.11(a):
In sum, the overwhelming evidence indicates that the P.C. defendants were not owned and controlled by a licensed acupuncturist, therefore rendering them ineligible to receive reimbursement, and to collect payment on outstanding claims. Additionally, a billing provider which utilizes an independent contractor to provide the services in question, is not a "provider" of the services in question and is not entitled to recover direct payment of assigned no-fault benefits from the defendant insurer. Id. at 18.
Furthermore, on May 31, 2013, Justice Jaeger signed an order granting judgment to State Farm by default against all PC defendants, including Downtown. The Order stated that "[the PC defendants] are unlawfully incorporated and are not entitled to collect No–Fault Benefits for any charges which they have submitted to State Farm" and that "State Farm is not obligated to pay the PC defendant" or their assignors for any health benefits provided. The Order also decreed that "the PC defendants are not entitled to collect, and State Farm is not obligated to pay, No–Fault benefits for any charges that the PC defendants submitted to State Farm as such professional health services were provided by independent contractors or other non-employees of the PC defendants." (Defendant's Exhibit A2). The Order with Notice of Entry was apparently served upon Gary Tsirelman, P.C., the attorney for then defendants Anikeyeva and Downtown and current attorney for plaintiffs herein. The Second Department affirmed this decision finding that defendants had failed to demonstrate reasonable excuse for their default in complying with the terms of the conditional order and a meritorious defense to the complaint. State Farm Mut. Auto. Ins. v. Anikeyeva, 130 A.D.3d 1007, 1008, 14 N.Y.S.3d 458 (2015).
Before the instant trial began in late 2014, the defendant moved to have the case dismissed based on the doctrine of collateral estoppel. Defendant argued that Justice Jaegar's Order and Decision precluded Downtown from arguing that it is eligible to receive no-fault benefits. Although defendant discussed its intention to utilize collateral estoppel in a pre-trial conference, it never sought leave to amend its answer. In its brief, Downtown argued that defendant is barred from raising collateral estoppel because of defendant's failure to amend its answer and the inapplicability of collateral estoppel in this case. Plaintiff also argued that collateral estoppel should not apply because the prior judgement was granted on default.
It is well settled that a party may invoke the common law doctrine of collateral estoppel to preclude another party from relitigating in a subsequent proceeding an issue clearly raised in a prior action and decided against that party or those in privity, whether or not the causes of action are the same. De Curtis v. Ferrandina, 533 B.R. 11 (Bankr.E.D.N.Y.2015) ; Ryan v. v. N.Y. Telephone Co., 62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 467 N.E.2d 487 (1984) ; Lavian v. Bleier, 2010 N.Y. Slip. Op. 31542(U), 2010 WL 2573474, 2010 N.Y. Misc. LEXIS 3109 (Sup.Ct., N.Y.Co.2010). See, Abrahams v. Commonwealth Land Tit. Ins. Co., 120 A.D.3d 1165, 992 N.Y.S.2d 537 (2d Dept.2014). The issue must have been essential to the decision rendered in the first action and must be the point to be decided in the second action such that "a different judgment in the second would destroy or impair rights or interests established in the first." Psychology YM P.C. v. Travelers Prop. Cas. Ins. Co., 2011 N.Y. Slip Op. 51744(U), 33 Misc.3d 1201(A), 2011 WL 4447007 (2011) (citing Ryan, supra, at 501, 478 N.Y.S.2d 823, 467 N.E.2d 487 ).
Collateral estoppel bars relitigation of an issue when "(1) the identical issue was decided in the prior action and is decisive in the present action, and (2) the party to be precluded from relitigating the issue had a full and fair opportunity to contest the prior issue." Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455, 492 N.Y.S.2d 584, 482 N.E.2d 63 (1985). See also, Evans v. Ottimo, 469 F.3d 278, 281 (2d Cir.2006) ; Gramatan Home Invs. Corp. v. Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328 (1979). The proponent of collateral estoppel must demonstrate the identity of the issues whereas the party seeking "to defeat its application has the burden of establishing the "absence of a full and fair opportunity to contest the prior determination." Buechel v. Bain, 97 N.Y.2d 295, 304, 740 N.Y.S.2d 252, 766 N.E.2d 914 (2001) ; Kaufman, supra, 65 N.Y.2d at 456, 492 N.Y.S.2d 584, 482 N.E.2d 63. See, Jeffreys v. Griffin, 1 N.Y.3d 34, 39, 769 N.Y.S.2d 184, 801 N.E.2d 404 (2003) ; Morrow v. Gallagher, 113 A.D.3d 827, 828–829, 979 N.Y.S.2d 395 (2d Dept.2014) ; Nappy v. Nappy, 100 A.D.3d 843, 845, 955 N.Y.S.2d 102 (2d Dept.2012) ; Windowizards, Inc. v. S & S Improvements, Inc., 2006 N.Y. Slip Op. 50310(U) at *2, 11 Misc.3d 130(A), 2006 WL 543050 (App.Term 2nd & 11th Jud.Dists.2006)
As to the first prong, preclusive effect will only be given where the particular issue was "actually litigated, squarely addressed and specifically decided". Crystal Clear Development, LLC v. Devon Architects of New York, P.C., 97 A.D.3d 716, 949 N.Y.S.2d 398 (2d Dept.2012). To satisfy the "actually litigated" prong of this test, it "must have been...
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