The following named papers numbered 1 - 6

submitted on this motion on February 14, 2012 Papers NumberedNotice of Motion and Affidavits Annexed1-2

Notice of Motion and Affidavits Annexed3-4

Affirmation in Opposition to Defendant's Motion5

Replying Affidavits6

Defendant moves for summary judgment. Plaintiff moves to compel discovery.^[FN1]

Concourse Chiropractic, PLLC ("Concourse") sues as assignee of Odalis Guzman ("Guzman") seeking to recover first party no-fault benefits for chiropractic treatment it provided to Guzman.

Concourse submitted bills for treatment it provided to Guzman for the period 8/5/09 to 8/13/09 in the sum of $150, 9/2/09 in the sum of $33.70, 9/23/09 in the sum fo $33.70 and 11/18/09 in the sum of $33.70. Defendant State Farm Mutual Insurance Company ("State Farm") acknowledges timely receipt of these bills.

Concourse also submitted bills for the treatment rendered to Guzman for the period 11/13/08 to 12/18/08 in the sum of $425.44. State Farm asserts it paid these bills in full with applicable interest and attorney's fees on August 22, 2011.

State Farm's special investigation unit ("SIU") has been investigating the operation of Concourse since 2006. Concourse is owned by Mitchell Zeren, D.C. ("Zeren"). Concourse operates out of 2676 Grand Concourse, Bronx, New York.

State Farm has commenced a civil RICO action against CPT Medical Services, P.C. ("CPTMS") and its owner Dr. Huseyin Tuncel and other medical providers who State Farm [*2]claims are regularly prescribing and performing unnecessary Current Perception Threshold testing ("CPT testing"). During discovery in the civil RICO action, State Farm learned that Zeren was a practitioner who was referring patients to CPTMS for CPT testing. The record before this Court does not reflect how often or how many times Zeren referred patients to CPTMS for CPT testing. The record also does not reflect whether State Farm denied payment for those tests and if it did, whether actions were brought to recover payment of no-fault benefits for these tests and the outcome of those actions.

The record also does not reflect whether Concourse referred Guzman for CPT testing.

Zeren is also listed as the owner of MZJR Chiropractic Care, P.C. which he co-owns with Jeffrey Rauch, D.C., Mitchell Zeren, P.C., Zeren Chiropractic, P.C. and Zeren Family Chiropractic, all of which are located at 2676 Grand Concourse in The Bronx.

Zeren has also submitted bills to State Farm for treatment provided at Kingsbridge Chiropractic.

Vista Medical and Rehab, P.C. ("Vista"), Blue Sky Acupuncture. P.C. ("Blue Sky") and Complete Medical Care Services of NY also submit bills with a billing and treatment address of 2676 Grand Concourse in The Bronx.

State Farm claims it receives bills from Concourse that reflect Concourse is providing treatment to patients three to four times a week. These same patients are also receiving physical therapy treatment from Vista and acupuncture from Blue Sky at the same time. The progress notes submitted by Concourse, Vista and Blue Sky do not reflect the concurrent care regimens.

Bills submitted by Concourse, Vista and Blue Sky use not only the same address but also use the same telephone number. This telephone number is also listed as the telephone number for Zeren Chiropractic, Kingsbridge Chiropractic and Complete Medical Care.

Vista is owned by Abiola Olawale Familusi, M.D. ("Dr. Familusi"). Dr. Familusi is associated with Multiviz Health Management Corp. ("Multiviz"). The New York State Department of State records indicate Belle Solomon ("Solomon") is the CEO of Multiviz. Solomon does not hold any professional licenses.

Concourse, Vista and Blue Sky have previously used Multiviz address as its billing address. The claims in question in this action do not use Multiviz address as a billing address. The claims use Concourse's Grand Concourse address as the billing address.

State Farm asserts Concourse use of Multiviz address as a billing address, the existence of a protocol scheme involving Concourse, Vista and Blue Sky and other information obtained in the civil RICO action raise concerns about the operation of these entities and suggest that someone other than the licensed professional listed as the owners are actually controlling the operation of these entities.

Despite these concerns, Concourse and the other Zeren related practices do not appear to be defendants in the civil RICO action.

Based upon this factual backdrop, State Farm sent a letter to Concourse dated October 1, 2009 acknowledging receipt of its claim for treatment provided to Guzman during the period August 5 through August 13, 2009 and requesting the Concourse appear for an Examination Under Oath ("EUO") at the offices of McDonnell & Adels on October 27, 2009 at 10 a.m. In addition to appearing at the EUO, the letter requested Concourse [*3]produce at least seven days prior to the EUO the documents relating to the ownership of the PLLC, the general ledger and tax returns of Concourse for the past 12 months, a list of individuals who provided and/or supervised the health care treatment for which payment was requested identifying the professional license held by that individual and the relationship of that individual to Concourse (e.g., whether the person was an employee or independent contractor), documents relating to entities that rent space and/or equipment to or from Concourse and a completed and signed NF-3 and an assignment of benefits forms that included the 2004 updated fraud language.

Concourse did not respond this EUO letter, did not provide the documentary material requested in the EUO letter and did not appear for the EUO.

Upon receipt of the claim for the services rendered on September 2, 2009, State Farm send a letter dated October 13, 2009 advising Concourse it would not pay this claim until Concourse produced the material requested in the October 1, 2009 letter and appeared for the EUO requested by the October 1, 2009 letter.

By letter dated November 2, 2009, State Farm notified Concourse that Concourse had failed to appear for an EUO. The letter further acknowledges the receipt of the claim for the services provided on September 23, 2009 and advised Concourse it would not pay these claims until Concourse appeared for an EUO and produced the requested documents.

The letter advised Concourse the EUO to appear for an EUO on November 16, 2009 at 10 a.m. at the Garden City offices of McDonnell & Adels.

Both the October 1, 2009 letter and November 2, letter advise Concourse that if the date, time and location is inconvenient, Concourse is to contact State Farm to reschedule the EUO at for a date, time and location that was convenient for Concourse. Both letters also advise Concourse that the person appearing for the EUO will be reimbursed for lost earnings and reasonable transportation expenses.

Concourse did not respond to this letter in any way and did not appear for the EUO scheduled for November 16, 2009. As a result, on November 18, 2009, State Farm issued a denial of the aforementioned claims. State Farm also denied a claim submitted by Concourse for treatment provided to Guzman on November 18, 2009 on the grounds Concourse had failed to appear for an EUO.

Concourse motion is a standard motion to compel discovery. Concourse served a demand for interrogatories and a demand for expert information upon State Farm. State Farm has not responded to these demands. Concourse seeks an order striking State Farm's answer because it has not responded to the discovery demands or alternatively for an order directing State Farm to respond. Concourse does not assert any of the information it demanded by way of discovery is necessary to oppose State Farm's motion for summary judgment. See, CPLR 3212(f).

Plaintiff's argument that defendant has failed to prove mailing is without merit. All of the cases cited by plaintiff on the issue of mailing were decided prior to St. Vincent's Hosp. of Richmond v. Government Employees Ins. Co., 50 AD3d 1123 (2nd Dept. 2008). St. Vincent's established a carrier could prove mailing by either by providing actual proof of mailing or the existence of an office practice and procedure designed to ensure timely and proper mailing of notices. [*4]

In order to overcome the presumption of mailing, plaintiff must establish the person making the affidavit attesting to the mailing or the carrier's practices and procedures regarding mailing was not employed by the carrier when the notice was mailed and cannot establish the procedures described in the affidavit were in place when the notice was mailed, the carrier did not provide proof in admissible form establish actual mailing of the notice or any other evidence of its standard office practices and procedures for mailing denials and/or notices at the pertinent time. South Nassau Orthopedic Surgery and Sports Medicine, P.C. v. Auto One Ins. Co., 32 Misc 3d 129(A) (App.Term 2nd, 11th & 13th Jud. Dists.); Friendly Physicians, P.C. v. Geico Ins. Co., 29 Misc 3d 128(A) (App.Term 2nd, 11th 7 13th Jud. Dists. 2010);and Points of Health Acupuncture, P.C. v. Geico Ins. Co., 25 Misc 3d 140(A) (App.Term 2md, 11th & 13th Jud. Dists. 2009). In all other cases where mailing has been contested, the Appellate Courts have found proof of mailing to be satisfactory. The Appellate Term has found proof of mailing sufficient even when confronted with an affidavit from plaintiff's medical biller specifically denying receipt of a verification request. Pomona Medical Diagnostic, P.C. v. Travelers Ins. Co., 31 Misc 3d 127(A) (App.Term, 2nd, 11th & 13th Jud. Dists. 2011).

Therefore, the proof submitted is sufficient to establish the EUO requests were mailed to Concourse.

The case raises again the issue of whether an insurer can demand as part of its EUO request material that would constitute discovery that could be obtained in a properly raised Mallela defense [See, State Farm Mutual Ins. Co. v. Mallela,4 NY3d 313 (2005)] and whether an insurer can request documents be produced seven days prior to a scheduled EUO.

State Farm has established it has a factual basis and a founded belief that Concourse may be subject to a Mallela defense. However, the no-fault regulations do not contain any provisions that permit an insurer to demand production of documents in connection with the an EUO. The regulations do not contain any provisions that require a party to produce such material at least 7 days in advance of the EUO.

Verification is permitted to "verify the claim". 11 NYCRR 65-3.5(c).

A Mallela defense has nothing to do with the claim. A Mallela defense relates to the status of the claimant and the claimant's eligibility to obtain payment of no-fault benefits.

While the Court of Appeals uses the language of fraud to describe a Mallela defense, Mallelahas nothing to do with common law fraud. Common law fraud involves "misrepresentation of a material existing fact, falsity, scienter, deception and injury." Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 NY2d 403, 407 (1958). In reality, Mallela is akin to a piercing the corporate veil. TNS Holdings, Inc. v. MKI Securities, Inc., 92 NY2d 335 (1998) and Matter of Morris v. New York State Dept. of Taxation & Finance, 82 NY2d 339 (1993). Mallela is based upon Business Corporation Law §§1507 and 1508 and Education Law §6507(c)(i) that prohibit anyone who is not licensed to practice the profession for which the professional corporation was formed from having an ownership or controlling interest in a professional corporation.

The factual foundation of a Mallela defenseinvolves proof that persons not licensed to practice the profession for with the professional corporation, limited liability company or limited liability partnership was formed are the actual owner or are actually controlling the [*5]operation of the business. The licensed individual has done little more than permit his or her license to be used as a basis to form the business. The licensed professional turned the operation of the corporation over to the non-professionals by signing management agreements that provided for excessive fees for routine office or practice management services, office and equipment leases that provided for excessive lease payments and in all other respects turn the operation of the professional corporation to the non-professionals. Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, 26 Misc 3d 448 (Civil Ct. Richmond Co. 2009).^[FN2]

The court notes that although this has been dubbed a "Mallela defense" the Court of Appeals decision was a result of a action brought by State Farm seeking a declaratory judgment that it was not obligated to pay no-fault claims submitted by Dr. Mallela because his professional corporation was actually controlled by persons not licensed to practice medicine.

The court notes that in dicta in Mallela the Court of Appeals anticipated carriers would delay payment of claims only to pursue investigations for good cause, that the Insurance Department would investigate possible abuses by the carriers and carriers would be able to demonstrate "good cause" only upon a demonstration of conduct tantamount to fraud. The court further notes that Court of Appeals apparently believed that if insurers had good cause to believe a medical provider was "fraudulently incorporated" the insurer would commence a declaratory judgment action seeking to a judgment that the medical provider is not eligible to receive no-fault payments. The court believes that the Court of Appeals did not anticipate an insurer would demand for an EUO and extensive corporate records in connection with a matter in which the carrier has already paid the provider $450 in no fault benefits and the existing dispute involves an unpaid claim for no-fault benefits of $251.

The court notes State Farm paid the no-fault benefits to Concourse after Concourse defaulted in appearing for an EUO. Thus, State Farm paid Concourse no-fault benefits for treatment provided to Guzman even though it had an absolute defense to that claim. See, Unitrin Advantage Ins. Co. v. Bayshore Physical Therapy, P.C., 82 AD3d 559 (1st Dept. 2011) - a carrier can deny all no-fault claims retroactive to the date of the accident if a claimant fails to appear for an EUO.

The demand for information in this case is virtually identical to the demand this Court found impermissible and improper in Dynamic Medical Imaging, P.C. v. State Farm Mutual Automobile Ins. Co., 29 Misc 3d 278 (Dist. Ct. Nassau Co. 2010). See, also, Brownsville Advance Medical, P.C. v. Country Wide Ins. Co., 33 Misc 3d 1236(A) (Dist. Ct. [*6]Nassau Co. 2011) - Mallela type material cannot be obtained as verification of the claim.^[FN3]

Requesting an provider to produce voluminous corporate records in order to obtain payment of a no-fault claim is an abuse of the EUO and the entire verification process.

A Mallela defense is non-precludable and can be raised at any time. Lexington Acupuncture, P.C. v. General Assurance Co., -Misc.3d-, 2012 WL 661685 (App.Term 2nd, 11th & 13th Jud. Dists. 2012). The appropriate way to obtain Mallela material is to properly plead it as a defense to an action to obtain payment of no-fault benefits and establish a reasonable basis for requesting the material [Midborough Acupuncture, P.C. v. State Farm Ins. Co., 21 Misc 3d 10 (App.Term 2nd & 11th Jud. Dists. 2008)] or to bring a declaratory judgment action seeking a judgment declaring the provider is not eligible to obtain no-fault benefits because the licensed professional is a front for a professional corporation that is actually owned and controlled by non-professionals. Such a procedure would also have the advantage by having the parties obtain a full and final disposition of the insurer's assertion the provider is ineligible to obtain payment of no-fault benefits.

The only explanation this court can find for this repeated and repetitive use of a request for an EUO and Mallela verification is the insurer's hope that the provider will not response thus providing the insurer with an absolute defense to an action that is otherwise indefensible.

For the foregoing reasons, the court finds defendant's EUO notice palpably improper. Defendant's motion for summary judgment is denied.

Defendant's motion for summary judgment stayed discovery. CPLR 3214. Defendant did not oppose plaintiff's motion to compel discovery. Defendant should now be given the opportunity to oppose plaintiff's discovery motion.

Therefore, plaintiff's motion to strike defendant's answer for failing to respond to plaintiff's discovery demands is restored to the motion calendar of Civil Part 3, for May 14, 2012 at 9:30 a.m.

SO ORDERED:

Hon. Fred J. Hirsh

District Court Judge

Dated: April 16, 2012

cc:Marcotte & Associates, P.C.

McDonnell & Adels, PLLC