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Andrew Carothers, M.D., P.C. v Progressive Ins. Co.

Court of Appeals of New York

 May 1, 2019, Argued ; June 11, 2019, Decided

No. 39

Opinion

 [***28]   [**155]   [*393]  Fahey, J.

Only licensed physicians may practice medicine in New York. The unlicensed are not bound by the ethical rules that govern the quality of care delivered by a physician to a patient. By statute, regulation, and the common law, the corporate form cannot be used as a device to allow nonphysicians to control the practice of medicine.

In State Farm Mut. Auto. Ins. Co. v Mallela (4 NY3d 313, 827 NE2d 758, 794 NYS2d 700 [2005]), we held that, ] pursuant to 11 NYCRR 65-3.16 (a) (12), an insurer may withhold payment for medical services provided [*394]  by a professional corporation when there is "willful and material failure to abide by" licensing and incorporation statutes (Mallela, 4 NY3d at 321). Today we clarify that Mallela does not require a finding of fraud for the insurer to withhold payments to a medical service corporation improperly controlled by nonphysicians. The trial court did not err in declining to give a charge requiring the jury to find fraudulent intent or conduct "tantamount to fraud" (id. at 322), in order to reach a verdict in favor of the [****2]  insurers.

The factual background is essential in understanding our legal conclusion. The plaintiff in this case, Andrew Carothers, [**156]  [***29]  M.D., P.C., a professional service corporation, was formed by Andrew Carothers, M.D., a radiologist, in 2004. The company provided magnetic resonance imaging (MRI) services. Plaintiff was incorporated after Carothers met Hillel Sher, a nonphysician who owned and controlled two companies that together held long-term leases for three, fully equipped, operational MRI facilities in New York City. They had been introduced by an MRI equipment repair technician who knew that Carothers was in financial distress and that Sher was "looking for a doctor." In 2005-2006, plaintiff subleased the facilities and associated equipment from Sher's companies.

Specifically, plaintiff agreed in January 2005 to lease the premises and MRI equipment for a fee comprised of $547,000 per month for the equipment1 and $30,000 per month for the three premises. Sher had the right to terminate each lease without cause, regardless of payment, on 30 days' notice. No similar provision allowed plaintiff to terminate the leases without cause. Indeed, the leases contained clauses whereby they [****3]  automatically renewed unless terminated by Sher, giving plaintiff no exit.

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33 N.Y.3d 389 *; 128 N.E.3d 153 **; 104 N.Y.S.3d 26 ***; 2019 N.Y. LEXIS 1641 ****; 2019 NY Slip Op 04643; 2019 WL 2424476

 [1]  Andrew Carothers, M.D., P.C., as Assignee of Audrey White, Appellant, v Progressive Insurance Company, Respondent.

Prior History: Appeal, by permission of the Appellate Division of the Supreme Court in the Second Judicial Department, from an order of that Court, entered April 5, 2017. The Appellate Division affirmed an order of the Appellate Term of the Supreme Court in the Second Judicial Department, Second, Eleventh, and Thirteenth Judicial Districts (op 42 Misc 3d 30, 979 NYS2d 439 [2013]), which had affirmed, insofar as appealed from, a judgment of the Civil Court of the City of New York, Richmond County. The Civil Court had, upon a jury verdict and after denying plaintiff's motion pursuant to CPLR 4404 (a) to set aside the verdict (Peter Paul Sweeney, J; op 26 Misc 3d 448, 888 NYS2d 372 [2009]), dismissed the complaint. The following question was certified by the Appellate Division: "Was the opinion and order of this Court dated April 5, 2017, properly made?"

Andrew Carothers, M.D., P.C. v Progressive Insurance Company, 2017 N.Y. App. Div. LEXIS 9503 (N.Y. App. Div. 2d Dep't, Oct. 27, 2017), affirmed.Andrew Carothers, M.D., P.C. v Progressive Ins. Co., 150 AD3d 192, 51 NYS3d 551, 2017 N.Y. App. Div. LEXIS 2556, 2017 NY Slip Op 2614 (Apr. 5, 2017)

Disposition: Order affirmed, with costs, and certified question not answered as unnecessary.

CORE TERMS

licensed, leases, reimbursement, professional corporation, nonphysicians, fraudulently, professional services, medical services, trial court, incorporation, unlicensed, insurance carrier, deposition, no-fault, patients, adverse inference, fraudulent intent, medical practice, insurers, regulation, profits, insurance company, billing, invoked, certified question, withhold payment, shareholders, invocations, common-law, facilities

Insurance Law, Liability & Performance Standards, Bad Faith & Extracontractual Liability, Payment Delays & Denials, Business & Corporate Compliance, Professional Associations & Corporations, Business & Corporate Law, Professional Associations & Corporations, Constitutional Law, Fundamental Rights, Procedural Due Process, Self-Incrimination Privilege