State Farm Mut. Auto. Ins. Co. v Kissena Med. Imaging, PC

[*1] State Farm Mut. Auto. Ins. Co. v Kissena Med. Imaging, PC 2009 NY Slip Op 52094(U) [25 Misc 3d 1214(A)] Decided on October 13, 2009 Supreme Court, Nassau County Palmieri, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 13, 2009
Supreme Court, Nassau County

State Farm Mutual Automobile Insurance Company, Petitioner,

against

Kissena Medical Imaging, PC, Respondent.



014437/09



Rivkin Radler, LLP

Attorney for Petitioner

926 Rexcorp Plaza

Uniondale, NY 11556

Law Offices of Economou & Economou, PC

Attorneys for Respondent

485 Underhill Blvd.

Syosset, NY 11791

Daniel R. Palmieri, J.

Petitioner's application to compel discovery in aid of arbitration and to stay certain arbitration proceedings pending the completion of discovery, is granted. CPLR §3102(c), CPLR §2201.

Petitioner (State Farm) and respondent (Kissena) are parties to 15 pending arbitration cases which are identified in the petition (the Pending Arbitrations). They have also participated in the recent past in several other, now completed arbitrations. All of the arbitration proceedings concern claims made by Kissena for medical services rendered to persons insured or covered by automobile insurance polices issued by State Farm pursuant to Article 51 of the Insurance Law (No Fault Law).

State Farm has in the past and desires to assert in the Pending Arbitrations, a defense that Kissena is not a bona fide provider of medical services and is ineligible to receive payment of No Fault benefits assigned to it by injured parties. State Farm contends that Kissena is not really owned by the doctor who purportedly claims ownership, i.e. Dr. Lawrence N. Diamond, and that as such, Kissena may not properly bill State Farm for services performed by Dr. Diamond by way of and through Kissena. See State Farm Mutual Ins., Co. v. Malella, 4 NY3d 313 (2005); 11 NYCRR §65-3.16 (a)(12); VA Acutherapy Acupuncture, P.C. v. State Farm Ins. Co. 16 Misc 3d 126(A) (App. Term 2d and 11th [*2]Districts 2007). State Farm asserts that it is not Dr. Diamond who really owns Kissena but others who may not be physicians, and thus Kissena would be deemed to be fraudulently incorporated and not eligible to receive No Fault payments.

State Farm submits that it has a good faith basis to assert the foregoing defense for reasons that are set forth in an affidavit submitted by an investigator in its employ.

In order to obtain evidence in support of its defense, State Farm moves here to obtain discovery of records pertaining to the ownership, management and operation of Kissena and an oral deposition of its stated principal, Dr. Diamond. Although Kissena assails the credibility of the affidavit, it is not necessary for the Court to decide issues of credibility with respect to the contents of the investigation because the sole issue here is whether State Farm should be afforded the requested discovery, and, ancillary to such relief, whether the arbitrations should be stayed until such discovery is completed.

Both sides have submitted copes of arbitration awards where discovery has been denied by the arbitrator and where the defense of fraudulent incorporation has been rejected. Where the defense has been denied it has in some cases been based on failure of proof. Thus, a respondent in the position of State Farm is trapped in a cycle whereby it is unable to obtain discovery of material and necessary evidence, and then is unable to prove its defense because of the lack of evidence.

The standard to obtain discovery is whether the matter sought is material and necessary in the prosecution or defense of an action. CPLR §3101(a). Discovery by Court order may be obtained to aid in arbitration. CPLR §3102(c). Decisional precedent has declared that disclosure in aid of arbitration should not be ordered under the CPLR unless there are extraordinary circumstances present. Matter of Moock v. Emanuel, 99 AD3d 1003 (1st Dept. 1984).This requirement appears to be rooted in the notion that because litigants have voluntarily chosen arbitration as a means of dispute resolution, presumably with the knowledge that discovery is either not available or very limited, they have surrendered the benefit of judicial assistance of their endeavors. DeSapio v. Kohlmeyer, 35 NY2d 402 (1974); Matter of Katz, 3 AD2d 238 (1st Dept. 1957).

In this case, a showing of extraordinary circumstances should not be required. The Pending Arbitrations are compulsory to State Farm, rather than an election on its part to resolve its disputes by alternate means.

Insurance Law §5106(b) mandates that Kissena, as a claimant be given the option to select arbitration as a means of dispute resolution. Arbitration by State Farm is compulsory. Nyack Hosp. v. Government Employees Ins. Co., 139 AD2d 515 (2d Dept. 1988).Judicial involvement in cases of compulsory arbitration can be distinguished from judicial involvement where arbitration is voluntary. When arbitration is compulsory, a court must apply a heightened standard of review of an arbitrator's decision, incorporating the arbitrary and capricious test of CPLR Article 78. Matter of Petrofsky (Allstate Insurance Company), 54 NY2d 207 (1981); Matter of Selimis v. General Acc. Ins., 264 AD2d 738 (2d Dept. 1999). [*3]

By extension of the foregoing principles, it is inconsistent in a case of compulsory arbitration, where discovery is not available, to burden a participant with the need to demonstrate not only that the discovery is material and necessary but also that special circumstances are present. The CPLR requires judicial approval of discovery in aid of arbitration, which provides a layer of protection against burdensome requests, and imposes an added requirement to be satisfied by the seeker.

Despite the absence from the CPLR of a need to demonstrate extraordinary circumstances in order to obtain discovery in aid of arbitration, the Court need not take issue with such requirement because here, even when applying the more restrictive standard, the Court finds that extraordinary or special circumstances are present such that discovery in the Pending Arbitrations is appropriate and required in order to present a proper case in the arbitration forum. Matter of Allstate Ins. Co.v. Baez, 269 AD2d 392 (2d Dept. 2000); Hendler and Murray, P.C. v. Lambert, 127 AD2d 820 (2d Dept. 1987).

In No Fault Law cases, be they in arbitration or otherwise, insurers are limited in the number of available defenses, but fraudulent incorporation stands as one of such available defenses. See One Beacon Ins. Group, LLC v. Midland Medical Care, P.C., 54 AD3d 738 (2d Dept. 2008); VA Acutherapy Acupuncture, P.C. v. State Farm Ins. Co., supra. Since the information necessary to prove its defense lies solely within the knowledge of Kissena and is not otherwise available, special circumstances are present.

The discovery sought may be applicable to several of the Pending Arbitrations and thus efficient and economical discovery may lead to evidence which, if employed in the Pending Arbitrations, might lead to more consistent results, Kissena has not demonstrated any prejudice that might result form a brief delay in order to complete discovery, and has not sought a protective order. Nor has it contended that discovery is not material and necessary or that the request is onerous, burdensome or seeks privileged information. While there may be some inconvenience to Dr. Diamond, that inconvenience is a necessary adjunct to the business in which he has chosen to operate.

Finally, Kissena's argument that the demand for a stay to enable discovery has been waived because the demand was not made for a stay within 20 days is unsupported by any legal authority. The request for a stay is not made pursuant to CPLR §7501 and 7503(b), but rather to temporarily abate the Pending Arbitrations until discovery is complete.It has been held that arbitration may be stayed pending compliance with discovery demands. Matter of Phoenix Ins. Co. v. Amereno, 297 AD2d 381 (2d Dept. 2002); Peerless Ins. Co. v. McDonough, 269 AD2d 398 (2d Dept. 2000).

Based on the foregoing Kissena shall produce (a) within 10 days from the date of this decision and order, the information requested in Paragraph 32(b) of State Farm's moving affirmation and (b) within 30 days from the date of this decision and order, Dr. Lawrence Diamond for an examination before trial. Document discovery shall take place at the offices of Kissena, between the hours of 8:00 a.m. and 6:00 p.m, on any day that Kissena is ordinarily open for business. The cost of photocopying shall be borne by State Farm. [*4]

The deposition of Dr. Diamond shall take place upon 5 days prior written notice from State Farm to counsel for Kissena, at the Nassau County Court House, any day that the Court House is open to the public between the hours of 9:30 a.m. and 4:30 p.m. and shall continue uninterrupted until completed.

The Pending Arbitrations are stayed until February 1, 2010 in order to allow for completion of discovery.

The Court shall retain jurisdiction for the purposes of insuring compliance with the above.

This shall constitute the Decision and Order of this Court.

Submit Judgment.

ENTER

DATED: October 13, 2009

_______________________

HON. DANIEL PALMIERI

Acting Supreme Court Justice

TO:

Rivkin Radler, LLP

Attorney for Petitioner

926 Rexcorp Plaza

Uniondale, NY 11556

Law Offices of Economou & Economou, PC

Attorneys for Respondent

485 Underhill Blvd.

Syosset, NY 11791