Shnitkin v Healthplex IPA, Inc.

[*1] Shnitkin v Healthplex IPA, Inc. 2009 NY Slip Op 50723(U) [23 Misc 3d 1113(A)] Decided on April 3, 2009 Supreme Court, Nassau County Warshawsky, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 3, 2009
Supreme Court, Nassau County

Mark Paul Shnitkin, DDS, Petitioner,

against

Healthplex IPA, Inc., Respondent.



021860/2007

Ira B. Warshawsky, J.

PRELIMINARY STATEMENT

The Petitioner moves to confirm the determination of David E. Daniels, a Referee appointed by the American Health Lawyers Association (AHLA), pursuant to the arbitration clause in the Agreement between the Respondent and the Petitioner, as a participating dentist.[FN1] The hearing officer rendered a decision dated August 7, 2008, and a further decision dated October 3, 2008, in which he awarded the maximum permissible damages of $50,000. The Petitioner seeks an increase in damages of $27,414, based on a claimed delay in reinstating him.

BACKGROUND

The Petitioner and Respondent entered into an Agreement dated January 14, 2004. The Respondent is an Independent Practice Association (IPA), formed to arrange for the provision of dental health services by dentists and other dental and oral health professionals to managed care entities. The Petitioner is a dentist who sought to participate in the program administered by the Respondent. Under the terms of the Agreement, the IPA was authorized to negotiate payment schedules (Payor Agreements). [FN2] The term of the Agreement was for one year from the date of execution, with an automatic renewal from year to year, unless terminated in accordance with additional terms. [FN3] [*2]

The manner of reimbursement to the dentist is either a Fee-for-Service, or Monthly Capitation Fee. [FN4] Subdivision "E" of ¶ 5 states as follows:

E. Participating Dentist understands and agrees that IPA shall have the right to modify any term(s) of the Compensation Program, upon prior written notice to Participating Dentist. If Participating Dentist does not accept the modified term(s), participating Dentist may terminate this Agreement in accordance with Paragraph VIII.B.1.

In late December 2006 and early January 2007, when the Agreement was subject to renewal, IPA advised Shnitkin that he would be switched from the "fee-per-service" to the "capitation" payment schedule. He was dissatisfied with the proposal and, after some discussions, IPA offered him a hybrid capitation/fee-for-service arrangement, which he also rejected. During a conversation on this subject, an employee of IPA reported a bizarre comment involving Shnitkin's dream of getting a gun and shooting her since, as it was his turn to accept capitation, it was her turn to be shot. IPA continued Shnitkin on the fee-for-service basis into 2007, when a notice of non-renewal was sent to him on October 22, 2007. [FN5] Shnitkin, after initially seeking judicial review, commenced the arbitration proceeding which is the subject of this motion.

Of some concern to the Respondent, the designated arbitrator, Mr. Daniels, had his office request of Respondent that they forward an additional $3,000 toward his fees in the matter.[FN6]

In their Reply, Petitioner's counsel note that they too were called upon to pay an additional $3,000 by Mr. Daniels. [FN7]

THE ARBITRATION

The hearing was conducted on June 25, 2008; trial briefs were submitted on or about July 24, 2008; and the Decision was reported on August 7, 2008. [FN8] The arbitrator reiterated the factual background with respect to the change in fee-payment proposed by the Respondent and the Petitioner's dissatisfaction with such an arrangement, as well as his request for reconsideration of their determination to not renew his Agreement when it expired on January 14, 2008. Among the conclusions reached by the arbitrator are the following:

•the failure of IPA to have a meeting with Petitioner was a breach of the Agreement;

•the decision of IPA to change the compensation arrangement from fee-for-service to capitation was a breach of the agreement;

•the comment by Shnitkin about dreaming of buying a gun and telling Ms. Weeks [*3]that it was now her turn, just as it was his to switch to capitation fees, was not a threatening statement. This is so because Shnitkin subsequently apologized. Furthermore, Weeks did not record it in the call log, as she had the threat, and it was not recorded by IPA;

•the Agreement had no termination date, and, under Public Health Law

§ 4406-d, termination can only be effective as of January 1 of any year. The October 22, 2006 notice of non-renewal provided for termination as of January 14, 2007 was therefore ineffective;

•the non-renewal was also ineffective because, pursuant to Public Health Law § 4406-d, a provider cannot be terminated for any of the following reasons:

• advocacy on behalf of an enrollee;

• filing a complaint against the health care plan; or,

• appealing a decision of the health care plan.

The arbitrator treated the January 4, 2007 telephone call from Shnitkin to IPA as an appeal, and further concluded that this was the reason for non-renewal. He also concluded that

the refusal to meet with Shnitkin to discuss the payment arrangement was itself a breach of the Agreement. As such, there can be no legitimate claim by IPA that the decision of non-renewal was based upon Shnitkin's refusal to negotiate terms of payment with them.

Upon receipt of the decision, by letter dated August 28, 2008, counsel for Respondent communicated with the arbitrator, requesting that he withdraw from the matter for the following reasons:

•his implication that a motion to vacate the August 7 decision would have an impact on the calculation of damages;

•his conversation with Shnitkin's counsel concerning reinstatement at a time that counsel for IPA was unavailable, and known to be so by the arbitrator;

•the improper increase of fees immediately preceding the opinion. [FN9]

The letter went on further to comment on the grant of equitable relief in the form of reinstatement, with the accompanying threat by the arbitrator to consider the failure to immediately reinstate Shnitkin in the award of damages. This is despite the fact that the award had not yet been confirmed. The Petitioner is now seeking ongoing damages in the amount $9,138.10 for each month until reinstatement, despite the fact that it is this pending motion for confirmation which will either uphold or deny reinstatement.

DISCUSSION

Matters such as this continue to explore the outer limits of the degree to which deference is owed to arbitrators. The standards by which courts are bound have been expansively explored by the Court of Appeals as recently as 2006. [FN10] This well-traveled matter involved an effort to remove Helmsley-Spear, Inc. as managing agent of 11 properties. Wein & Malkin, LLP, successors to Lawrence A. Wien, deceased, the father-in-law of Malkin, commenced arbitration. The managing agent sought to confirm an arbitration award in its favor and the motion was [*4]granted. The Appellate Division affirmed, [FN11] and the Court of Appeals denied leave to appeal. The owners petitioned for writ of certiorari to the United States Supreme Court, [FN12] which vacated the judgment and remanded the matter to the Appellate Division for further proceedings in accordance with a recent determination of the Court. [FN13] On remand, the Appellate Division vacated the arbitrator's decision [FN14], and granted leave to appeal to the Court of Appeals.

In reversing the Appellate Division the Court stated that "(s)ince arbitral judgments are owed substantial deference and there was no showing that the arbitration panel manifestly disregarded the law, the award should be reinstated."[FN15] In so doing, it took pains to analyze the basis for the United State Supreme Court's earlier decision, and the impact of Citizens Bank. In vacating the Appellate Division's earlier decision of 2002, the Supreme Court directed consideration of their decision in Citizens Bank, which noted that the Federal Arbitration Act encompassed a wider range of transactions than those actually "in commerce." The Court's point was that if the subject matter of an arbitration merely affected interstate commerce the FAA would apply. [FN16]

The Appellate Division then reasoned, that under the FAA, the issue was whether or not the award exhibited a "manifest disregard of the law" so as to warrant vacatur. Relying upon its own jurisprudence, [FN17] the court held that the arbitration panel committed clear legal error and manifestly disregarded both contract law and the applicable agreements. It found that the conduct of Leona Helmsley and the Defendants principals in agreeing to assign personal services contracts to the defendant was a clear violation of well-settled principles of law. It also determined that the new Helmsley-Spear entity was more than a mere "change of form", and that the panel ignored the fact that there were different officers, directors, shareholders, management personnel, financial structure, and fewer properties under management than the former entity. In addition, the court found that the arbitrators erred in concluding that, because of a defect in the proxy procedure, Wein & Malkin was bound to retain Helmsley-Spear as managing agent. In so doing the Court stated:

Contrary to the findings of the arbitration panel, the partnership agreements did not provide for a particular method of solicitation of proxies for a vote to terminate the managing agents and did not establish a fiduciary duty to them. Nor was there any showing that Peter Malkin fraudulently [*5]induced the partners to give him their prosies [FN18]

The Appellate Division granted leave to appeal to the Court of Appeals and certified the following question: "Was the order of this Court, which reversed the judgment of Supreme Court properly made?" The Court of Appeals concluded that it was not. Acknowledging that judicial review of arbitration is extremely limited, they stated that "(a)n arbitration award must be upheld when the arbitrator offer(s) even a barely colorable justification for the outcome reached. ' " [FN19] They further noted that they have said, time and time again, that arbitrators' awards should not be vacated for errors of law, and that courts should not assume the role of overseers to conform the award to their sense of justice. "A court cannot examine the merits of an arbitration award and substitute its judgment for that of the arbitrator because it believes its interpretation would be the better one."[FN20]

As the Court noted, the FAA permits vacatur of an arbitration award on four grounds, all of which involve fraud. While the Respondents allude to claimed misconduct of the arbitrator such as to lead to their request for his recusal, there is nothing which rises to the level of the requirements of the FAA. These grounds are where the award was procured by corruption, fraud, or undue means; where there was evident partiality or corruption of the arbitrators, or either of them; where the arbitrators were guilty of misconduct in refusing to grant a postponement on reasonable grounds shown, refusing to hear pertinent evidence, or other misbehavior prejudicial to a party; or where the parties exceeded their powers, or so imperfectly executed thm that a mutual, final, and definite award upon the subject matter was not made.[FN21]

Accepting the admonitions of the Court of Appeals in Wein, can it be said that the arbitrator in this case offered even a barely colorable justification for the outcome reached. As low a standard as this constitutes, the Court determines that the arbitrator in this case failed to meet it. The circumstances are far different from those in Wein, particularly with respect to the complexity of the issues presented.

When Wein & Malkin, LLP sought to oust the management company, Helmsley-Spear was owned 99.9% by Leona Helmsley, and .1% by Irving Schneider and Alvin Schwartz, both former executives in the former Helmsley-Spear Corporation. Mrs. Helmsley reached a settlement with Wein & Malkin, and Schwartz died in 2001. In 1997 Mrs. Helmsely negotiated with Schneider and Schwartz, who had options to purchase all of Helmsley-Spear, and ultimately sold them substantially all of the assets of Helmsley-Spear. They formed a new organization named Helmsley-Spear, Inc., and they possessed the rights to manage the eleven properties. They also had Leona Helmsley's irrevocable proxy to vote in favor of Helmsley-Spear's retention as managing agent of the properties, as long as Schneider and Schwartz remained as managers of [*6]Helmsley-Spears.

The application for the removal of Helmsley-Spear as managing agent was referred to a distinguished panel, including the former United States Attorney General, and Under Secretary of State Nicholas deB. Katzenbach, William L.D. Barrett and John M. Wilkinson. [FN22] Helmsley-Spear was declared to be the lawful successor to the former Helmsley-Spear Corporation, and to have validly exercised the option agreement of 1970, which authorized the acquisition by Schneider and Schwartz of Helmsley-Spears shares from Helmsley Enterprises.

In a 134 page decision, the panel denied Wein & Malkin's request to relieve Helmsley- Spear as managing agent. Helmsley-Spear was declared the valid successor in interest to Helmsley-Spear Corporation, and to have validly exercised its 1970 option agreement. Wien & Malkin were enjoined for interfering with the voting agreement between Leona Helmsley and Helmsley-Spear, and they were also enjoined from calling a partnership meeting for the purpose of removing Helmsley-Spear, except under an outlined 11-step procedure.

Hemsley-Spear moved to confirm and Wein & Malkin moved to vacate the arbitration decision. When the matter finally reached the Court of Appeals, the Court noted that vacatur on the ground of manifest disregard of the law is rare. It then took issue with the three bases considered by the Appellate Division in vacating the 2001 panel award. First, the Appellate Division disagreed with the panel's finding that Schneider and Schwartz exercised the option agreement and determined that Helmsley-Spear was not a successor, but an assignee. They next concluded that an assignment of a personal service contract without the approval of the principal was invalid, and therefore Helmsley-Spear was not the manager of the 11 properties. Lastly, the Appellate Division found that the 1997 transaction was more than a mere change of form. The panel had concluded that the 1997 transaction, classified as a sale of assets of the existing Helmsley-Spear corporation, rather than a purchase of stock, was merely a change of form, done for tax reasons involving certain "parked" properties unrelated to the issues of that case.[FN23]

Whether the 1970 option agreement was exercised was a question of fact, the determination of which should not be disturbed. [FN24] Thus the claim of Helmsley-Spear being an assignee, as opposed to a successor, and the failure to obtain consent of the principal to assign a personal services contract, was not open to consideration. The Appellate Division found error in the panel's determination that the 1997 transaction was merely a change in form, and that it ignored the facts that Helmsley-Spears had different officers, directors, shareholders, management personnel, financial structure and fewer properties under management than the former Helmsley-Spear. In reviewing the history between and among the various parties, the Court of Appeals concluded that the panel was fully justified in determining that the foregoing differences between the old and new Helmsley-Spear entities was merely a "technical matter' and that Wein and Malkin failed to prove that "the change in form had any other consequence to the [*7]parties."[FN25]

The factual and legal conclusions of the panel in Wien were determined to have been well-founded, and the Court noted that interference with such well-founded and honest judgments in this respect would undermine the speedy resolution of grievances by private mechanisms. Given the relationships, the panel did not manifestly disregard the law when it concluded that Helmsley-Spear remained the valid manager of the properties after the 1997 transaction.

By contrast, the determinations and conclusions of the arbitrator in this matter find no basis in the record, and, in the Court's opinion, are in manifest disregard of the law. The significant determinations of the arbitrator are dealt with seriatim.

The failure to meet with the Petitioner to discuss his dissatisfaction with the selection of a capitation rate instead of a fee-for-services rate was a breach of the Agreement. As previously noted ¶ V E gives IPA the right to modify any terms of the Compensation Program, upon prior written notice to the Participating Dentist. The relationship between the parties is governed by the January 14, 2004 Agreement. ¶ XI speaks of dispute resolution, and provides that "(t)he IPA and Participating Dentist agree to meet and confer in good faith, to resolve any problems or disputes that may arise under this Agreement . . ." The IPA had the absolute right to change the fee arrangement, but nevertheless offered a hybrid arrangement, which Shnitkin rejected. The fact that they may not have been face-to-face during such discussions is irrelevant.

The determination to change the compensation arrangement for Shnitkin was a breach of the Agreement because the only basis for such modification is geographic considerations, and in such event, the change must be uniform in the same geographical area. Exhibit "C" to the Agreement states in pertinent part that "(d)epending on the geographic area, compensation will be either of the following: þ an agreed upon capitated rate, per member/per month with no additional co-payments; þ an agreed upon fee for services schedule for allowances with not additional co-payments"

As a starting point, perhaps as a direct result of Shnitkin's negotiating tactics, IPA has never stopped compensating him on a fee-for-service basis. They did, however, notify him by letter dated October 22, 2006 that they were terminating him. While Exh. "C" makes reference to "geographical area" for the selection of compensation arrangements, it is certainly not clear that this means that everyone in the same geographic area must be compensated on the same basis, and may well mean the opposite, that a geographic area should have a mix of fee-for-service and capitation participants. The issue is moot, however, since he continued to perform on a fee-for-service basis until terminated.

The comment by Shnitkin with respect to obtaining a gun and advising Ms. Weeks that it was her turn was not a threatening statement. This is so because he subsequently apologized, Ms. Weeks did not note the apology in the IPA records, and no recording of the statement was produced. While the arbitrator may find the implication that a participating dentist is thinking about getting a gun to let a worker at the IPA know that it is now her turn, neither Ms. Weeks, nor almost any other rational person would be so blase about the incident. The fact that Shnitkin apologized confirms that he said it. There is no evidence that all telephone calls from [*8]participating dentists are recorded, nor does the failure of Ms. Weeks to note the apology render the event any less threatening.

The failure of the Respondent to schedule a meeting with the Petitioner after the latter's request following the notice of non-renewal constitutes a breach of the Agreement. The authority to terminate a participating dentist by IPA is set forth in the Agreement [FN26] and is governed by Public Health Law § 4606-d. There has been no issue raised that the notice of October 22, 2006 was somehow deficient under the terms of the statute. Rather, the holding of the arbitrator was that the threatening telephone conversations between Shnitkin and Weeks was not threatening for the reasons previously stated, and the real reason for termination was his appeal of the decision to change his method of compensation. Public Health Law § 4406-d provides in part as follows:

5. No health care plan shall terminate a contract or employment, or refuse to renew a contract, solely because a health care provider has: (a) advocated on behalf of an enrollee; (b) filed a complaint against the health care plan; (c) appealed a decision of the health care plan; (d) provided information or filed a report pursuant to

section forty-four hundred six-c of this article; or (e) requested a hearing or review pursuant to this section. There never was an appeal of the compensation arrangement, because there was nothing to appeal. As a result of Shnitkin's conduct, the IPA decided to terminate his services and took the appropriate steps to do so. To avoid potential confrontation, they continued to pay him on a fee-for service basis during the balance of the term of his service.

The only "appeal" is the relief sought to set aside the non-renewal notice. It would be absurd to say that Shnitkin was not renewed for membership because he appealed his notice of non-renewal. Nothing he did was on behalf of an enrollee, since he would continue to be able to provide care under either method of payment. He has not filed a complaint against the plan, nor has he appealed a decision, other than the one to not renew his relationship with the plan. There is no indication in the record that Shnitkin provided a report or information pursuant to Public Health Law § 4406-c, or requested a hearing or review as described in subdivision (e).

It is obvious that § 4406-d was designed to prevent an HMO from improperly controlling the relationship between health care providers and their patients. Participants must be free to dispute such determinations of "lack of medical necessity" on behalf of patients, and to appeal denials of payment for services they consider medically appropriate. It would be unconscionable for the IPA to terminate a contract because of a provider's complaints or appeals on behalf of patients. Here, however, the only complaint voiced by Shnitkin prior to the notice of non-renewal related solely to his method of compensation. As a result of intimidation, he succeeded in obtaining payment which the IPA had no intention of paying him. This is the conduct for which he was terminated, not zealous conduct on behalf of his patients.

Because there was no termination date in the January 14, 2004 contract, the termination could not occur on any day other than the 1st day of January, and the termination notice as of [*9]January 14, 2007 was somehow therefore defective. ¶ VIII of the Agreement defines the term as commencing for one year from "the date first written above" (January 14, 2000). The expiration date was therefore January 14, 2005, except for the stated automatic annual renewal provision. The termination date was correct, but if it should have been January 1, 2007, all it means is that Shnitkin was paid for two weeks more than he should have been.

The foregoing are not good-faith misinterpretations of complicated issues of law or fact. They are clear and obvious misinterpretations of law and fact such as to constitute manifest disregard of the law. The decision of the arbitrator dated August 7, 2008 is vacated in its entirety. Since the Respondent did not breach its agreement with Petitioner, there have been no monetary damages sustained and the award of $50,000 to the Petitioner by Decision dated October 3, 2008 is vacated. The request for additional damages in the amount of $9,138.10 is denied. In addition to the fact that the Petitioner has not shown that the Respondent has breached their Agreement, the simple fact is that since the termination notice, his income has increased, rather than decreased.[FN27]

This constitutes the Decision and Order of the Court.

Submit Judgment on Notice.

Dated:April 3, 2009

J.S.C. Footnotes

Footnote 1: Exh. "A" to Cross-motion.

Footnote 2: Id. at IV, p. 7.

Footnote 3: Id. at VIII A.

Footnote 4: Id. at V, p. 7.

Footnote 5: Affidavit of Anne Weeks, attached to Cross-motion, at ¶¶ 10 €" 16.

Footnote 6: Exh. "G" to Cross-motion.

Footnote 7: Reply Affirmation of Scott A. Ksoltun at p. 3.

Footnote 8: Exh. "H" to Cross-motion.

Footnote 9: Exh. "J" to Cross-motion.

Footnote 10: Wien & Malkin, LLP v. Helmsley-Spear, Inc., 6 NY3d 471 (2006).

Footnote 11: 300 AD2d 32 (1st Dept. 2002).

Footnote 12: 540 U.S. 801 (2003).

Footnote 13: Citizens Bank v. Alafabco, Inc., 509 U.S. 52 (2003).

Footnote 14: 12 AD3d 65 (1st Dept. 2004).

Footnote 15: Wien & Malkin, LLP v. Helmsley-Spear, Inc. 6 NY3d 471, 475 (2006).

Footnote 16: Id. at fn. 8.

Footnote 17: Sawtelle v. Waddell & Reed, 304 AD2d 103, 108 (1st Dept. 2003).

Footnote 18: Wein & Malkin, LLC at 479.

Footnote 19: Matter of Andros Cia. Maritima, S.A. [Marc Rich & Co., A.G.], 579 F.2d 691 (2d Cir. 1978).

Footnote 20: Wien & Malkin, LLC at 479 €" 480 (internal citations omitted).

Footnote 21: Id. at 481, fn. 9.

Footnote 22: Id. at 477.

Footnote 23: Id. at 481 €" 482.

Footnote 24: Id. at 483.

Footnote 25: Id. at 484.

Footnote 26: Exh. "A" to Cross-motion at ¶ VIII B (2).

Footnote 27: Exh. "M" to Cross-motion.