Matter of New York City Tr. Auth. v Heights Med. Care P.C.

[*1] Matter of New York City Tr. Auth. v Heights Med. Care P.C. 2016 NY Slip Op 51153(U) Decided on August 2, 2016 Supreme Court, New York County Edmead, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 2, 2016
Supreme Court, New York County

In the Matter of the Application of New York City Transit Authority, Petitioner,

against

Heights Medical Care, P.C., Respondent.



450499/2016
Carol R. Edmead, J.

Petitioner, New York City Transit Authority ("NYCTA"), brings this action pursuant to Insurance Law 5106(c) for a judgment, upon de novo review, declaring that Petitioner is not liable for first party no-fault benefits to Jose Vargas ("Vargas") arising from an incident of March 12, 2014, and thereby vacating a no-fault arbitration award exceeding $5,000 in favor of Respondent Heights Medical Care P.C. ("Heights Medical"), to whom benefits were assigned by Vargas. Heights Medical cross-moves for attorneys' fees.

For the reasons below, the Petition is granted and the arbitration award is vacated, and Heights Medical's cross-motion for attorneys' fees is denied.

BACKGROUND FACTS

Vargas was allegedly a passenger on an M116 bus owned by NYCTA on March 12, 2014, when he was injured by an explosion at Park Avenue and 116th Street in New York, New York. Vargas sought medical treatment at the office of Heights Medical. In addition to submitting a notice of no-fault claim to the New York City Comptroller on March 18, 2014, Vargas first sought reimbursement of his claims directly from NYCTA on April 4, 2014 (Pet'r Exh D). NYCTA responded with a "Verification of Facts" for Vargas to complete, including a boilerplate request to provide a copy of the back of the metrocard used on the date of the accident, if any (id. at p. 2). NYCTA sent a second request on May 30, 2014, unaware that Vargas had already mailed a completed Verification of Facts on May 29, 2014 (id.). Vargas's response indicated that he had used a metrocard but, despite the instructions listed on the Verification of Facts, did not include a copy (id.). NYCTA's next communication was on October 24, 2014 and affirmatively requested a copy of the metrocard from Vargas (id. at p. 5). On April 28, 2015, having not received any [*2]response, NYCTA issued a general denial of claim, citing Vargas's failure to provide verification (the metro card) within 120 days (Exh 3 at 16).

Sometime thereafter, Vargas assigned his rights to recover the expenses for his medical treatment to Heights Medical (Resp Affirm ¶ 4), which subsequently sought arbitration pursuant to Insurance Law § 5106(b) on October 21, 2014. After a hearing, Arbitrator Charles Sloane (the "Lower Arbitrator") issued a decision on October 31, 2015 (Exh A/Exh 2; the "Lower Award"), finding that Vargas complied with his responsibilities by sending a completed Verification of Facts to NYCTA and that NYCTA did not timely request additional documentation, and awarding Heights Medical $8,729.48 in reimbursement, plus fees and costs.

NYCTA appealed to Master Arbitrator Hon. Alfred J. Weiner (ret.) (the "Master Arbitrator"), who affirmed the Lower Award on January 21, 2016 (Exh 5/Exh B; the "Master Award"). Applying Article 75 standards, the Master Arbitrator found that the lower award was not arbitrary, capricious, or contrary to the law, and awarded additional fees and costs (id.).

In support of its Petition, NYCTA argues that the Court should review the Master Award de novo and enter a judgment declaring that NYCTA is not liable to Heights Medical (or Vargas) for no-fault benefits because Vargas's injuries did not arise from the "use or operation of a motor vehicle" as contemplated by the no-fault law. The Petition is supported by the affidavit of Joan Jones ("Jones"), an NYCTA Claims Examiner assigned to Vargas's claim, which sets forth NYCTA's claims procedure and the basis for the denial of Vargas's claim.

In opposition, and in support of its cross-motion for attorneys' fees, Heights Medical argues: first, that because this Petition constituted a new proceeding, service upon counsel only (without also serving Heights Medical) was improper; second, since NYCTA has conflated the standards for review in this proceeding, this proceeding is limited to CPLR 7511's deferential "arbitrary and capricious" standard and declaratory relief is unavailable to NYCTA; third, that NYCTA's "use or operation" argument cannot be considered by the Court because it is a fact-sensitive argument that was not raised before the Lower Arbitrator, and therefore could not be considered for the first time by the Master Arbitrator or this Court; fourth, that if the Court finds that this matter is one for de novo review, the Court should convert this action pursuant to CPLR 103 and permit respondent to file an answer; fifth, that the application should be dismissed because it excludes Vargas, a necessary party, and because it relies on unreliable evidence and hearsay, including the Jones affidavit; and sixth, that the no-fault regulations pertaining to an appeal of a master arbitrator's decision entitles Heights Medical to recover attorneys' fees.

In reply, NYCTA argues: first, that the Court can properly consider the issues de novo under the applicable regulations, which require the use of the Article 75 special proceeding mechanism, and issue declaratory relief; second, that any procedural defects such as the failure to implead an indispensable party can be remedied without dismissal; third, that NYCTA's "use or operation" argument was raised below and, in any event, is non-precludable; third, that NYCTA properly served Heights Medical via counsel and the Secretary of State and that Heights Medical waived any defects in service by opposing the Petition on its merits; fourth, that NYCTA's use of newspaper articles as evidence is permissible, but Heights Medical's use of hearsay evidence is not; and fifth, that Heights Medical is not entitled to legal fees because its arguments will not prevail or, alternatively, that such an award should be capped at $650.

DISCUSSION

I. Procedural Arguments

a. Service upon counsel

For our courts to obtain jurisdiction, a special proceeding must be commenced through proper filing and service (Vento v All. Holding Companies, Ltd, 139 AD3d 530, 530 [1st Dept 2016], citing Matter of Star Boxing, Inc. v DaimlerChrysler Motors Corp., 17 AD3d 372, 792 NYS2d 564 [2nd Dept 2005] (failure to properly serve notice of petition required dismissal for lack of jurisdiction over respondent)). Notably, CPLR 2001, which allows for correction of technical, non-prejudicial error, does not encompass service errors (Professor Alexander, Practice Commentaries, citing Achtziger v Fuji Copian Corp., 209 AD2d 946, 750 NYS2d 413 [4th Dept 2002] (plaintiff's failure to serve process on defendant precluded court from permitting correction of defendant's name in caption)).

Heights Medical does not, contrary to NYCTA's argument, waive its jurisdictional objections merely by opposing NYCTA's motion or substantive allegations, or by cross-moving for attorneys' fees (Calloway v National Services Industries, Inc., 93 AD2d 734, 735461 NYS2d 280 [1st Dept 1980] (participation in the defense of an action does not waive a defense of lack of personal jurisdiction contained in the answer, the determination of which may be delayed "until the trial itself"); Turkish v Turkish, 126 AD2d 436, 439, 510 NYS2d 582 [1st Dept 1987] (defendant did not waive his objection based on the lack of personal jurisdiction by actively defending on the merits and cross-moving for affirmative relief)).

Additionally, contrary to NYCTA's argument, service of the Petition upon counsel for NYCTA did not confer jurisdiction. While CPLR 2103 allows papers to be served upon a party via that party's attorney, it allows such service only in a "pending action." However, because review of an arbitration award is a "first application arising out of an arbitrable controversy," it must be commenced via the filing of initiating pleadings—in the case of this special proceeding, a petition (CPLR 304; Eagle Ins. Co. v Republic W. Ins. Co., 21 Misc 3d 1121(A) [Sup Ct, Nassau County 2008], citing Star Boxing, Inc. v DaimlerChrysler Motors Corp., 17 AD3d 372 [2d Dept 2005]; accord Vento v All. Holding Companies, Ltd, 139 AD3d 530, 530 [1st Dept 2016]). Pursuant to CPLR 403[c], a notice of petition must be served in the same manner as a summons—service upon a party's attorney alone is not sufficient.

Nevertheless, jurisdiction over Heights Medical was plainly conferred via service upon the Secretary of State—Heights Medical has not disputed that service, or its status as a New York corporation (NYCTA Reply ¶ 22; NYSCEF 26; CPLR 311 [a] [1], citing Business Corporation Law ["BCL"] 306).

b. Indispensable Parties

CPLR 1001(a) provides that "persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants." If a party is not necessary, analysis goes no further; that is, consideration of CPLR 1001(b), whether an action can proceed in that party's absence, is not required (Alexander, Practice Commentaries, CPLR 1001:1). Dismissal should be a last resort (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 821 [2003]).

An assignor of an insurance policy is not a necessary party to an action to recover under the policy (Bergman v Liverpool & London & Globe Ins. Co., 269 AD 103, 104 [1st Dept 1945]). In situations where a defendant is concerned by another party's rights, that defendant may protect itself by impleading that other party (id.). Moreover, where the valid assignment of a claim is absolute on its face and the assignor is divested of all control and right to the cause of action, the assignee is the proper party in interest and has the right to commence and prosecute an action in its own name without joining the assignor as a necessary party (Cardtronics, LP v St. Nicholas Beverage Discount Ctr., Inc., 8 AD3d 419, 420 [2d Dept 2004]). To the extent that the assignment is unchallenged, and that Heights Medical has failed to demonstrate why the action cannot proceed without Vargas, the Court finds that Vargas is not a necessary party.[FN1]

c. Standard For and Nature of Proceedings

Insurance Law § 5106 provides that

The award of a master arbitrator shall be binding except for the grounds for review set forth in [CPLR Article 75], and provided further that where the amount of such master arbitrator's award is five thousand dollars or greater, exclusive of interest and attorney's fees, the insurer or the claimant may institute a court action to adjudicate the dispute de novo (emphasis added).

In turn, the applicable insurance regulation, provides that, in an appeal from a master arbitrator's award,

A decision of a master arbitrator is final and binding, except for: (i) court review pursuant to an article 75 proceeding; or

(ii) if the award of the master arbitrator is $5,000 or greater, exclusive of interest and attorney's fees, either party may, in lieu of an article 75 proceeding, institutea court action to adjudicate the dispute de novo(11 NYCRR 65-4.10[h][1] [emphasis added]).

Where an insurer seeks a de novo adjudication, there is authority suggesting that the insurer is, in practical effect, seeking declaratory judgment as to the insured's entitlement to no-fault benefits (Gersten v Am. Tr. Ins. Co., 161 Misc 2d 57, 59-60 [Sup Ct, NY County 1994], citing State Farm Mut. Auto. Ins. Co. v Becker, 118 Misc 2d 806, 808 [Sup Ct 1983]; see also Alexander, Practice Commentaries, CPLR 3001:10 ["the declaratory judgment is so commonly used to resolve disputes in the insurance realm that one often hears the phrase DJ action' in this context"]). "A de novo review, by its very nature, is not a review of the arbitration proceeding itself or the arbitration award but a review of the underlying dispute, as if an arbitration proceeding never occurred, thus contemplating a full adjudication, on the merits, of the parties claims" (Sachs v. Zito, 28 Misc 3d 567, 901 N.Y.S.2d 818 [Supreme Court, Orange County 2010]).

Contrary to Heights Medical's contention, NYCTA did not seek relief "pursuant to" [*3]Article 75. Neither Article 75 nor its standards of review are mentioned in the Petition—rather, the Petition requests that the Court vacate the arbitration decisions by de novo review pursuant to the Insurance Law and declare that Petitioner has no duty to provide no-fault first party benefits related to Vargas' alleged incident. Courts have upheld such relief (Progressive Ins. Co. v Strough, 55 AD3d 1402, 1403 [4th Dept 2008] (holding that Supreme Court properly granted plaintiff's cross-motion seeking a de novo determination of plaintiff's duty to indemnify defendant for no-fault benefits)).

The parties' dueling interpretations stem from 11 NYCRR 65-4.10 [h] [2], which states that "a party who intends to commence an article 75 proceeding or an action to adjudicate a dispute de novo shall follow the applicable procedures as set forth in CPLR article 75" (11 NYCRR 65-4.10 [h] [2] [emphases added]). However, contrary to Heights Medical's position, the use of Article 75 procedures does not implicate Article 75's substantive standards; instead, it merely provides a mechanism by which to bring the action. This comports with "the natural and plain words of the statute . . . [which] require that if the monetary predicate is satisfied, the entire subject matter in controversy, including both the liability and benefits components, is subject to plenary judicial determination" (Matter of Greenberg, 70 NY2d 573, 577 [1987] [emphasis added]).

In any event, and contrary to Heights Medical's assertions, Petitioner's commencement of this matter by Petition rather than by Summons and Complaint does not warrant outright dismissal. Courts are empowered to convert actions into their proper form (Greenberg v. Ryder Truck Rental, Inc., 110 AD2d 585, 487 N.Y.S.2d 797 [1st Dept 1985] (holding that, where petitioner moved pursuant to Insurance Law Section 675 to set aside the arbitration award and sought a determination of liability on the ground that the evidence was insufficient to establish the identity of the offending truck, "the court below erred in not converting the notice of petition and petition [for a de novo trial] into a summons and complaint and in not reviewing the case on its merits"); Liberty Mut. Ins. Co. v. Mastropaolo, 216 AD2d 395628 N.Y.S.2d 519 [2d Dept 1995] (holding that "under the particular circumstances of this case, the Supreme Court should have converted its special proceeding into a plenary action for a de novo determination of the issues that had been previously submitted to arbitration")).

Additionally, to the extent that Heights Medical argues that NYCTA's Petition for de novo review is untimely (Heights Medical Affirm in Opp ¶ 16), that argument is mistaken. If an arbitration award is sent by mail, the 90-day time limit for an application to vacate or modify the award runs from the date of receipt, not the date of mailing (Bletas v Subway Intern. BV, 96 AD3d 442 [1st Dept 2012]; accord In re Lowe (Erie Ins. Co.), 56 AD3d 130, 133 [4th Dept 2008]). Though the Master Award was mailed on January 21, 2016, because NYCTA received the Award on January 26, 2016, the Petition, filed less than 90 days later on April 22, 2016, was timely (NYCTA Affirm ¶¶ 15-16; Master Award at 5).

Accordingly, pursuant to CPLR 301, this proceeding is converted into a plenary action for a de novo determination of whether Vargas's injury was the result of his "use or operation" of the vehicle (Greenberg, supra, citing CPLR 301 ("once jurisdiction is acquired, the court will retain it and direct that the action or proceeding continue in its appropriate form")).

II. Substantive Arguments

A. Use or Operation

As an initial matter, the Court rejects Heights Medical's argument that NYCTA's "use or operation" argument was improperly raised for the first time before the master arbitrator, and therefore cannot be considered here. Whether the claim was specifically raised before the lower arbitrator or not, failure to consider the argument would potentially have the effect of impermissibly awarding benefits to Heights Medical, which would "not advance the goals of no-fault legislation" (Hosp. for Joint Diseases v Travelers Prop. Cas. Ins. Co., 9 NY3d 312, 313 [2007]). Courts may consider such arguments even when denial of coverage and assertion of a non-coverage defense are delayed or beyond the deadlines set forth in the insurance regulations (Cent. Gen. Hosp. v Chubb Group of Ins. Companies, 90 NY2d 195, 200 [1997]). Stated another way, courts must consider even tardy non-coverage arguments because coverage may not be imputed where it never existed.

New York's no-fault insurance law, formally known as the "Comprehensive Automobile Insurance Reparations Act," was designed to establish a quick, sure, and efficient system for obtaining compensation for economic loss suffered as a result of such accidents (Walton v Lumbermens Mut. Cas. Co., 88 NY2d 211, 214 [1996]). It states that first-party benefits are available only if the injury sustained arose out of the use or operation of the motor vehicle (see Insurance Law § 5102[b]; § 5103[a][1]; Walton, 88 NY2d at 215 [1996]).

More specifically, no-fault coverage requires use or operation of the motor vehicle qua motor vehicle (Reisinger v Allstate Ins. Co., 58 AD2d 1028, 1028 [4th Dept 1977], affd sub nom, 44 NY2d 881 [1978] (holding that injuries sustained from a gas stove in a motor home were not covered by no-fault insurance because they did not stem from the motor vehicle qua motor vehicle)). The common thread in cases denying coverage is that "no-fault liability will not attach when the injury is caused by something other than a motor vehicle because in such circumstances the incident cannot be considered an accident related to the use of the motor vehicle (Walton, 88 NY2d at 215—16 [emphasis added] (denying coverage where a defective "levelator" used to assist in unloading a truck caused the injury)). In other words, use of the vehicle itself must be the proximate cause of the injury (Cividanes v City of NY, 95 AD3d 1, 3 [1st Dept 2012], affd, 20 NY3d 925 [2012] (coverage properly denied where plaintiff was injured stepped into a pothole while exiting a bus)).

While Heights Medical is correct that such a determination is generally fact-specific (Heights Medical Affirm, ¶ 24), the only relevant fact is one which it does not dispute, and which the Court credits for purposes of declaratory judgment analysis: that Vargas was present on the bus, and injured "as a result of an explosion when a building near where the bus was operating blew up" (id., citing Lower Award). The other disputed facts — for example, the timing of NYCTA's denial of coverage, the exchange (or non-exchange) of Vargas's metrocard, and the admissibility and relevance of evidence or affidavits — are irrelevant. Heights Medical presents no cases or facts — and presented none below (see e.g. Exh 5) — that compel any conclusion other than the one reached here: because Vargas's injuries were the result of an external explosion unrelated to the use or operation of the bus in which Vargas was a passenger, the bus was not the proximate cause of his injuries.

Absent issues of fact, the court should declare the rights of the parties (Plaza Mgt. Co. v City Rent Agency, 31 AD2d 347, 350, 298 N.Y.S.2d 162350 [1st Dept 1969], citing St. Lawrence Univ. v Trustees of Theol. School of St. Lawrence Univ., 20 NY2d 317, 325 [1967] (denying [*4]motion to dismiss and declaring rights of the parties); accord Town of Riverhead v New York State Dept. of Envtl. Conservation, 193 AD2d 667, 668-69 [2d Dept 1993]). Further, a court need not permit a respondent to file an answer "if the facts are so fully presented in the papers of the respective parties that it is clear that no dispute as to the facts exists and no prejudice will result from the failure to require an answer'" (Kusyk v New York City Dept. of Bldgs., 130 AD3d 509, 510 [1st Dept 2015] (holding that answer was unnecessary because the submitted papers "fail to disclose any possibility of a triable issue of fact")). Because there are no other discernable, relevant issues, an answer and discovery, as requested by Heights Medical in the alternative, are unnecessary.

Accordingly, NYCTA is entitled to declaratory judgment that it is not liable for first party no-fault benefits to Jose Vargas arising from the incident of March 12, 2014.

B. Attorneys' Fees

A prevailing claimant is entitled to recover attorney's fees where a "valid claim or portion" was denied or overdue (Presbyt. Hosp. in the City of New York v Maryland Cas. Co., 90 NY2d 274, 278 [1997]). Given the Court's holding in favor of NYCTA, however, Heights Medical has not prevailed, and is therefore not entitled to any fees.

CONCLUSION

For the foregoing reasons, it is hereby

ORDERED that the branch of New York City Transit Authority's petition seeking declaratory judgment is granted to the extent described below, and with costs and disbursements as taxed by the Clerk; and it is further

ADJUDGED and DECLARED that Petitioner New York City Transit Authority is not liable for any first party benefits under Insurance Law 5103(a)(l) to Jose Vargas arising from the subject incident of March 12, 2014; and it is further

ORDERED that Respondent's cross-motion for attorneys' fees is denied; and it is further

ORDERED that petitioner serve a copy of this order with notice of entry upon all parties within 20 days of entry.

This constitutes the decision, order and judgment of the Court.

Dated: August 2, 2016

________________________

Hon. Carol R. Edmead, J.S.C. Footnotes

Footnote 1:Heights Medical's assertion that it "has no knowledge of the events in question," (Heights Medical Affirm, ¶ 33), is rejected as disingenuous given that it has made substantive factual arguments at three separate levels of review, including this one.