Liberty Mut. Ins. Co. v. Hyman

• Decision Date: 26 June 2000
• Citation: 334 N.J. Super. 400,759 A.2d 894
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, v. Cimmie HYMAN, Siata Davis Lydia Franklin, Kathy Franklin, Rhonda Williams, Easton Chiropractic Associates, Inc., Powers Street Ortho Rehab Center, P.A., Kavita Sinha, M.D., Nicola Chiropractic Center, P.A., Spinal and Head Trauma P.C., and Brunswick Imaging Center, Inc., Defendants.
• Court: New Jersey Superior Court

759 A.2d 894

334 N.J. Super. 400

LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, v. Cimmie HYMAN, Siata Davis Lydia Franklin, Kathy Franklin, Rhonda Williams, Easton Chiropractic Associates, Inc., Powers Street Ortho Rehab Center, P.A., Kavita Sinha, M.D., Nicola Chiropractic Center, P.A., Spinal and Head Trauma P.C., and Brunswick Imaging Center, Inc., Defendants.

Superior Court of New Jersey, Law Division, Morris County.

Decided June 26, 2000.

Thomas O. Mulvihill, Parsippany, for plaintiff (Maloney and Katzman, attorneys).

No one appeared for defendants.

VILLANUEVA, J.A.D. (retired and temporarily assigned on recall).

Plaintiff, Liberty Mutual Insurance Company ("Liberty Mutual"), filed suit seeking a declaration that, in part, it is not obligated to provide defendant Easton Chiropractic Associates, Inc. ("Easton") with personal injury protection ("PIP") benefits for services rendered to defendants Rhonda Williams, Cimmie Hyman, Kathy Franklin, Siata Davis and Lydia Franklin since Easton, a general business corporation, was engaged in the improper practice of rendering chiropractic services without a license and violated the Professional Service Corporation Act, N.J.S.A. 14A:17-1 to -18. Easton has not filed an answer to the complaint, and a default has been entered. Liberty Mutual now moves for the entry of a default judgment against Easton.

Liberty Mutual also seeks an order of partial summary judgment declaring that it is not obligated to provide Cimmie Hyman or Siata Davis with PIP and/or uninsured motorist ("UM") benefits on the basis that they knowingly made material misrepresentations of fact to Liberty Mutual during the course of its investigation of their claims, thereby voiding their entitlement to coverage.

I.

Liberty Mutual issued a policy of automobile insurance to Cimmie Hyman. In accordance with the laws of the State of New Jersey, this policy provided for the payment of PIP and UM benefits.

On or about September 28, 1998, Liberty Mutual received notice from its insured, Cimmie Hyman, that she had been involved in a hit-and-run automobile accident in Newark, New Jersey. During the course of her initial report, Cimmie Hyman advised Liberty Mutual that the only passengers in her vehicle at the time of the accident were Lydia Franklin and Kathy Franklin.

Liberty Mutual ultimately received claims for PIP and UM benefits from Cimmie Hyman, Lydia Franklin, Kathy Franklin, Rhonda Williams and Siata Davis, all of whom claimed to have been passengers in Cimmie Hyman's automobile at the time of the subject accident.

Liberty Mutual conducted an investigation of the defendants' claims, the result of which indicates that Rhonda Williams and Siata Davis were not present in Cimmie Hyman's automobile when the subject accident occurred.

On November 1, 1998, Cimmie Hyman executed an Application for PIP Benefits in which she indicated that she was employed by Delco Battery (a Division of Delphi Automotive Systems) from September 5, 1994 until September 27, 1998, and she had lost approximately $2,000 in wages as a result of the subject accident. In fact, Cimmie Hyman was not employed by Delco Battery on September 27, 1998. Cimmie Hyman's personnel file revealed that she obtained an educational leave from Delco Battery on July 17, 1998.

On October 7, 1998, Siata Davis executed an Affidavit of No Insurance which she submitted to Liberty Mutual stating that she was injured in this accident which occurred on September 27, 1998, and she represented that she was not the registered owner of a motor vehicle on the date of the accident.

On October 23, 1998, Siata Davis executed a second Affidavit of No Insurance in which she again affirmed that she was not the registered owner of a motor vehicle on the date of loss.

On March 19, 1999, Siata Davis provided Robert Doherty of Liberty Mutual with a recorded statement. During the course of the statement, Siata Davis advised Liberty Mutual that she then owned a 1989 Nissan Sentra and that she had owned the vehicle for approximately one year (i.e., March 1998 through March 1999). She further admitted that the vehicle was registered and license plates were on the vehicle on the date of loss. Siata Davis further advised Liberty Mutual that she never insured her 1989 Nissan Sentra.

The individual defendants allegedly treated with Easton for the injuries they allegedly sustained in the subject automobile accident. Liberty Mutual conducted a corporate search of Easton Chiropractic Associates, Inc. and determined that this medical provider was incorporated as a general business corporation. The Certificate of Incorporation for Easton Chiropractic Associates, Inc. revealed that Scott Greenberg, D.C. is the corporation's President, Charles Greenberg is the corporation's Treasurer and Edith Greenberg is the corporation's Vice President and Secretary. Neither Charles Greenberg nor Edith Greenberg are licensed to practice medicine or chiropractic in New Jersey.

II.

The practice structure of Easton is contrary to longstanding jurisprudence in this state, and elsewhere, holding that professional services such as law and medicine may not be practiced in a corporate format, except pursuant to specific, legislative or regulatory exceptions.¹ There is no such legislative or regulatory exception available to Easton to authorize, or legitimize, its practice structure and the services it rendered.

Indeed, if Easton's corporate structure were deemed to be lawful, it will have succeeded in creating a health care practice structure that is capable of extraordinary abuse, yet free of regulatory oversight, regardless of the nature or gravity of the conduct in which a non-licensee owner has previously or may engage.

III.

In 1968, New Jersey adopted the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 to -9. Under this act, "[a] corporation may be organized ... for any lawful business purpose or purposes except to do in this State any business for which organization is permitted under any other statute of this State unless such statute permits organization under this act." N.J.S.A. 14A:2-1. The foregoing statute makes it clear that in order to lawfully incorporate as a general business corporation, the entity must not be permitted to incorporate under an alternative statute unless the alternative statute permits the entity to also incorporate as a general business corporation.

In 1969, New Jersey adopted the Professional Service Corporation Act, N.J.S.A. 14A:17-1 to -18 (the "Act"), which states that "[i]t is the legislative intent to provide for the incorporation of an individual or group of individuals to render the same professional service to the public for which such individuals are required by law to be licensed or to obtain other legal authorization." N.J.S.A. 14A:17-1. The Legislature specifically defined the term "[p]rofessional service" to mean "any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization...." N.J.S.A. 14A:17-3. The Legislature specifically identified chiropractors as individuals rendering a service coming within the definition of "[p]rofessional service," as defined by the statute. Ibid. Importantly, the Legislature specifically noted that chiropractors could not lawfully render services in the corporate form prior to the passage of the Professional Service Corporation Act. The Legislature stated that "prior to the passage of this act and by reason of law [chiropractic] could not be performed by a corporation." Ibid.

Significantly, the Professional Service Corporation Act does not permit chiropractors to incorporate as a general business corporation. See N.J.S.A. 14A:17-3. In fact, whenever a shareholder of a professional service corporation shall cease to hold his professional license, the shareholder is then required to sever all ties with the professional service corporation and, if he does not do so, the corporation is automatically "converted into ... a [general] business corporation...." See N.J.S.A. 14A:17-11 and -13(b). Accordingly, since the Act does not permit alternative incorporation as, for example, a general business corporation, chiropractors are barred from doing so by N.J.S.A. 14A:2-1.

In Limongelli v. New Jersey State Board of Dentistry, 137 N.J. 317, 645 A.2d 677 (1993), the Supreme Court considered the effect of the revocation of a dentist's license upon the dentist's ability to be a shareholder of a professional service corporation and the ability of a general business corporation to render dental services. The plaintiff, a dentist, was the sole share-holder of two professional service corporations through which he practiced as a dentist. Id. at 322, 645 A.2d 677. On January 9, 1986, plaintiff's license to practice dentistry was revoked. Id. at 321, 645 A.2d 677. Upon the revocation of his license, the plaintiff did not divest himself of his interests in his corporations as required by law. Id. at 322, 645 A.2d 677. The Court noted that, upon the revocation of his license, the plaintiff should have transferred his share in the professional corporations to a duly licensed practitioner within ninety days of the date of disqualification. Id. at 331, 645 A.2d 677. The plaintiff was also required to sever all employment with the corporation and to terminate the receipt of any financial benefits from the corporation. Id. The Court also noted that if the plaintiff was the sole shareholder of a professional service corporation, then the professional service corporation would automatically be converted into a general business corporation. Id. Significantly, the Court noted that a general business corporation cannot engage in the practice of dentistry. Ibid.

In Dalton, Dalton, Little, Inc. v. Mirandi, 412 F.Supp. 1001 (D.C.N.J.1976), the District Court considered whether a contract entered into between a foreign general...