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HEALTHCARE RADIOLOGY AND DIAGNOSTIC SYSTEMS, PLLC, Plaintiff, v. Jeffrey GOLDMAN, M.D., Defendant.
In accordance with CPLR 2219 (a), the decision herein is made upon considering all papers filed in NYSCEF as submitted relative to the motion of plaintiff HEALTHCARE RADIOLOGY and DIAGNOSTIC SYSTEMS, PLLC (Mot. Seq. 2), made pursuant to CPLR 3001 and 3212, for an order granting summary judgment on the complaint as to its first cause of action and dismissing all counterclaims of defendant JEFFREY GOLDMAN, M.D.; and the cross motion of defendant JEFFREY GOLDMAN, M.D. (Mot. Seq. 3), made pursuant to 3001 and 3212, for an order granting summary judgment with respect to defendant's second counterclaim and dismissing plaintiff's causes of action.
Plaintiff, a medical practice specializing in medical imaging and radiology services, is the former employee of defendant, a radiologist. The parties entered into an employment agreement dated May 1, 2010. Plaintiff's practice was a radiology practice operating in Westchester County and defendant was employed by plaintiff as a full-time physician.
Paragraph 2.4.1 of the employment agreement, titled “Liability Insurance,” required defendant to secure medical malpractice insurance naming plaintiff as an additional insured, with minimum coverage equal to the coverage maintained by the shareholders and other employees of plaintiff. Paragraph 2.4.1 further states that defendant “will provide [plaintiff] with a certificate of insurance evidencing such coverage by the Effective Date and at such other times during the term of this [Employment] Agreement as [plaintiff] shall request”; that “[s]uch certificates of insurance shall require the insurer to notify [plaintiff] of any changes made to or termination of such insurance; and that plaintiff “shall pay all premiums associated with the malpractice insurance.” Exhibit A to the employment agreement, titled “Benefits,” states that defendant “shall be entitled to ․ (benefits to be prorated accordingly): [r]eimbursement for the cost of ․ medical malpractice premiums for an occurrence policy that satisfies the requirements of the [Employment] Agreement, all subject to [plaintiff's] general policies with respect to such reimbursement.” In accordance with Exhibit C to the employment agreement titled “Compensation,” defendant was to be paid an annual salary of $420,000 per year, together with “[p]articipation in any bonus plans or programs provided by [plaintiff] to its physicians,” subject to “withholding taxes and other employment taxes as required to compensation paid by an employer to an employee.”
The medical malpractice policy in effect for defendant was maintained through Medical Liability Mutual Insurance Company (MLMIC) until 2016 (under policy number 3191806), when MLMIC was purchased by National Indemnity Insurance Company (NICO) pursuant to a demutualization plan overseen by the New York State Department of Insurance and the Superintendent of the Department of Financial Services (hereinafter DFS). Insurance Law § 7307 governs a conversion plan (and proposed conversions) such as the one at issue here,1 which includes, inter alia, a determination as to how much of a refund, if any, a policyholder is to receive when there is a refund of premiums (plus investment) due to the mutual owners resulting from the consideration paid by the purchasing insurer from the selling insurer, equal to 1.9 times the sum of the premiums that were paid on the policy, and are applicable to a three-year period (see Insurance Law § 7307 [e] ). In this case, that period ranged from July 15, 2013 through July 14, 2016, during which time defendant was employed by plaintiff.
As a result of the plan of conversion that was adopted by the Board of Directors on May 31, 2018 and revised by MLMIC on June 15, 2018, disputes arose as to which party, the employer practice or the employee physician (the parties herein), was entitled to the share of the refund allocated to the particular physician. By statute, MLMIC, upon receiving notice that there was a dispute, is required to hold the disputed amount in escrow, pending further direction from the parties or by court order. Definitions alone, such as to who is the plan administrator — i.e., the party presumably entitled to the refund — is not wholly determinative of the issue, as the issue of which party is entitled to the refund may depend upon the facts and circumstances of the case. Pursuant to the controlling valuation formula, the cash consideration to be paid with respect to the subject policy was $254,263.70. Although that sum was maintained by and for the benefit of defendant, it now remains deposited in escrow with MLMIC, the entitlement of which is at issue here.
This action ensued in February 2019 when plaintiff filed a summons with notice. In June 2019, plaintiff filed a complaint seeking, among other things, a declaratory judgment pursuant to CPLR 3001, claiming that it is entitled to the MLMIC funds and that defendant would be unjustly enriched from receipt thereof. Plaintiff's second cause of action is predicated on unjust enrichment, alleging that it, not defendant, made full payments of the insurance premiums for the MLMIC policy, in addition to defendant's salary and benefits in connection with his employment, and that plaintiff solely controlled and administered the insurance policy for defendant's benefits.
In July 2019, defendant answered, asserting seven affirmative defenses and two counterclaims. His second counterclaim seeks a declaratory judgment for entitlement to all proceeds of the MLMIC insurance policy as the policyholder with a membership interest in MLMIC, while plaintiff should not be entitled to receive any portion of the demutualization proceeds. Prior to the close of discovery, the parties now make competing summary judgment motions as set forth above.
Plaintiff argues that it is entitled to the full refund because it paid the insurance premiums while defendant made no contributions whatsoever and, so, defendant would be unjustly enriched by a refund. In response, defendant contends that there is an inherent dispute as to which party paid the insurance premiums for the MLMIC policy. More specifically, he asserts that the MLMIC policy was initially purchased by him before he entered into the employment agreement with plaintiff; that the premium expenses for the policy were deducted from his compensation; and that the expense of the MLMIC policy was actually paid by the hospitals serviced by plaintiff, as a cost included in plaintiff's charges for services rendered under its exclusive services contracts with the hospitals it serviced, such that it was not an out-of-pocket cost for the MLMIC premium expenses. Defendant claims that it was not plaintiff, but rather affiliates of plaintiff's principal who paid those premiums.
Defendant avers that in 2013, plaintiff reduced his compensation package by 10% to account for increases in malpractice insurance premiums, while plaintiff refutes there was any deduction from defendant's salary for the expense of the MLMIC premiums. Plaintiff maintains that the payment of the premiums was merely a benefit of employment and not a measure of compensation.
It is well settled that the proponent of the summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact (see CPLR 3212 [b]; Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 ; Winegrad v. New York Univ. Med. Center, 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 ; Zuckerman v. City of New York, 49 N.Y.2d 557, 560, 427 N.Y.S.2d 595, 404 N.E.2d 718 ; De Souza v. Empire Tr. Mix, Inc., 155 A.D.3d 605, 606, 63 N.Y.S.3d 473 [2d Dept. 2017]). Importantly, “[o]nce this showing has been made, the burden then shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action” (Alvarez v. Prospect Hosp., 68 N.Y.2d at 324, 508 N.Y.S.2d 923, 501 N.E.2d 572; see De Souza v. Empire Tr. Mix, Inc., 155 A.D.3d at 606, 63 N.Y.S.3d 473). “[M]ere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient” to create a material issue of fact” (Zuckerman v. City of New York, 49 N.Y.2d at 562, 427 N.Y.S.2d 595, 404 N.E.2d 718; see Hammond v. Smith, 151 A.D.3d 1896, 1898, 57 N.Y.S.3d 832 [4th Dept. 2017], lv denied 153 A.D.3d 1677, 60 N.Y.S.3d 912 ).
On a summary judgment motion, a court is obligated to determine whether there are issues of fact that militate against granting that relief to the parties. Moreover, “[i]t is not the court's function on a motion for summary judgment to assess [issues of] credibility” (Chimbo v. Bolivar, 142 A.D.3d 944, 945, 37 N.Y.S.3d 339 [2d Dept. 2016]; Garcia v. Stewart, 120 A.D.3d 1298, 1299, 993 N.Y.S.2d 90 [2d Dept. 2014]), nor to “engage in the weighing of evidence” (Chimbo v. Bolivar, 142 A.D.3d at 945, 37 N.Y.S.3d 339; Scott v. Long Is. Power Auth., 294 A.D.2d 348, 348, 741 N.Y.S.2d 708 [2d Dept. 2002]). “Resolving questions of credibility, determining the accuracy of witnesses, and reconciling the testimony of witnesses are for the trier of fact” (Bykov v. Brody, 150 A.D.3d 808, 809, 51 N.Y.S.3d 900 [2d Dept. 2017]; accord Kahan v. Spira, 88 A.D.3d 964, 966, 932 N.Y.S.2d 76 [2d Dept. 2011]). Thus, “[a] motion for summary judgment should not be granted where the facts are in dispute, where conflicting inferences may be drawn from the evidence, or where there are issues of credibility” (Ruiz v. Griffin, 71 A.D.3d 1112, 1115, 898 N.Y.S.2d 590 [2d Dept. 2010]).
As is relevant here, Insurance Law § 7307 (e) (3) provides that, when a mutual insurance company converts to a stock insurance company, a plan of conversion “shall ․ provide that each person who had a policy of insurance in effect at any time during the three year period immediately preceding the date of adoption of the [conversion] resolution ․ shall be entitled to receive in exchange for such equitable share, without additional payment, consideration payable in voting common shares of the insurer or other consideration, or both.”
Here, plaintiff submits, among other things, an affidavit from Paul Khoury, M.D., president and chief executive officer (CEO) of plaintiff. Khoury states that plaintiff “paid for and managed professional liability insurance policies for all physicians in its employ,” including the entirety of the premiums for the MLMIC policy under which defendant was insured while employed by plaintiff. Khoury further states that plaintiff performed all necessary administrative functions concerning the MLMIC policy, including communicating with MLMIC concerning the policy, receiving the benefits of dividends issued on the policy, and issuing dividends which were deducted from the premium amounts due and inured to the benefit of plaintiff's practice. Khoury emphasized that defendant “never took any steps to administer, manage, or otherwise oversee the policy, nor did he make any payments towards the premiums,” which continued until defendant resigned from plaintiff's practice in April 2016.
In contrast, defendant submits, among other things, his affidavit wherein he states that he is the only individual entitled to receive the pro-rata proceeds for the MLMIC policy as a result of the demutualization. He avers that, despite Khoury's assertions, plaintiff did not receive any dividends issued by MLMIC on the policy; rather, any dividend that MLMIC issued was automatically credited by MLMIC toward the payment of future premiums for the policy. Also, defendant alleges that, as the policy administrator, he “personally enrolled in and attended risk management seminars run by MLMIC on multiple occasions for the purpose of obtaining discounts on premium payments” in connection with the policy. Defendant conceded that plaintiff “may have remitted some payments to MLMIC” for [the] Policy premiums during the eligibility period,” but maintains that plaintiff failed to proffer documents demonstrating that it made any payments of the MLMIC premiums during the eligibility period. Notably, plaintiff states that “between tax year 2012 and tax year 2014,” plaintiff reduced his salary by approximately $41,000 and that “a sizeable portion of that reduction was used to pay [his] MLMIC premiums.” However, defendant did not submit tax returns or other financial documentation substantiating his assertion that he continued to pay those premiums. Defendant adds that he never consented to or authorized plaintiff or Khoury to serve as the policy administrator during the course of his employment. He avers that Khoury “falsely claimed to be the administrator for the policy” because he had been informed that policy administrators were the only entity or individual who could prevent the MLMIC demutualization distribution from being distributed to him. Further, defendant claims that he did not appoint plaintiff as his designee to receive the demutualization cash consideration, nor did he agree to assign the cash consideration to plaintiff.
In Maple Medical LLP v. Scott, 64 Misc. 3d 909, 105 N.Y.S.3d 823  and six related cases involving the same parties (see id. at 910 n. 2, 105 N.Y.S.3d 823), this court issued a decision, order, and judgment in July 2019 awarding the MLMIC refund to an employer such as the plaintiff (N.Y. St. Cts ElecFiling [NYSCEF] Doc No. 72, Decision/Order/Judgment, in aple Medical LLP v. Scott, Sup. Ct., Westchester County, index No. 51103/2019). he court's decision in that case was based on the authority set forth in Matter of Schaffer, Schonholz & Drossman, LLP v. Title ,171 A.D.3d 465, 96 N.Y.S.3d 526 [1st Dept. 2019] [holding that awarding a physician-employee the cash proceeds of MLMIC's demutualization would result in unjust enrichment where the employer had paid the insurance policy premium]).2 Critically, in Maple Medical, this court was not squarely confronted with an assertion by the physician that his compensation was reduced by the premium expense for the MLMIC policy; hence, there was no issue of unjust enrichment in that matter. In this case, the record is unclear insomuch as there are issues of fact warranting denial of summary judgment to any party. Defendant presses that his salary was reduced by plaintiff in order to pay the MLMIC insurance premiums, which plaintiff wholly denies. Conversely, plaintiff urges that defendant would be unjustly enriched, thus requesting a declaration that the cash consideration must be distributed to it.
Prior to the conversion, MLMIC was a mutual insurance company since it was owned by, maintained, and operated for the benefit of its members (see generally Insurance Law § 1211 [a]; Schoch v. Lake Champlain OB-GYN, P.C., 184 A.D.3d 338, 341, 126 N.Y.S.3d 532 [3d Dept. 2020]). As the stakeholder in this dispute, MLMIC is awaiting direction from the parties, or from the court, as to who is entitled to the funds being held.3 The issue of who is the policy administrator, or who is the insured, in the absence of a direction or assignment of membership rights, is not wholly dispositive of the issue. The employment agreement under which defendant was working is apparently silent on this issue because the parties had not contemplated that such a dispute would arise when they entered into the agreement. Indeed, Khoury states in his affidavit that the parties “never anticipated that MLMIC would demutualize” and, thus, there is no agreement between them governing entitlement to the cash consideration (see Columbia Mem. Hosp. v. Hinds, 188 A.D.3d 1337, 133 N.Y.S3d 344, 2020 N.Y. Slip Op. 06329, *2 [3d Dept. 2020] [reaffirming that “entitlement to the MLMIC funds is not contingent on who paid the premiums for the subject policy[;] [r]ather, the sole policyholder ․ [the physician,] is entitled to receive said funds unless he or she executed an assignment of such rights to third party”]; see also Insurance Law § 7307). In any event, plaintiff stresses that defendant never bargained for its benefit and, so he is not entitled to any additional monies following his separation from employment.
In the present matter, there are issues of fact that must be resolved to determine which party is entitled to the refund. The parties provide conflicting accounts as to who was the designated policy administrator for the policy in dispute (compare Cordaro v. AdvantageCare Physicians, P.C., 69 Misc.3d 787, 131 N.Y.S.3d 523, 527 [Sup. Ct., New York County 2020]; Sullivan v. Med. Liab. Mut. Ins. Co., 2019 N.Y. Slip Op. 33566 [U], *2-3, 2019 WL 6496820 [Sup. Ct., New York County 2019]). Also, there is an issue of fact as to whether defendant consented to assign his respective legal rights to the cash considerations over to plaintiff inasmuch as he denies doing as much (compare e.g. Columbia Mem. Hosp. v. Hinds, 2020 N.Y. Slip Op. 06329, *1-2 ). Of note, per the DFS, a party's status as “policy administrator” does not entitle that party to the cash consideration; rather, such is an issue for the court to determine based upon the facts and circumstances of the parties' relationship (see Insurance Law § 7307 [e] ; see also Cordaro v. AdvantageCare Physicians, P.C., 131 N.Y.S.3d at 529 [noting that the First Department's holding in Matter of Schaffer adopted the same view of DFS' interpretation of the Insurance Law]). This issue must be further fleshed out in disclosure.
In Matter of Schaffer, the First Department essentially found that the medical practice was entitled to the demutualization payments because it paid the annual insurance premiums each year on behalf of the physician (see Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d at 465, 96 N.Y.S.3d 526). On this record however, the court cannot resolve which party is rightfully entitled to the cash consideration being held in escrow, which ought to be more fully explored during discovery proceedings (compare Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984, 985-986, 122 N.Y.S.3d 840 [4th Dept. 2020] [granting the physician-defendant's motion to dismiss pursuant to CPLR 3211 (a) (1) where the plaintiff-employer failed to allege, through documentary evidence, any facts or circumstances from which it could be established that it was entitled to the demutualization payments]; 4 see also Columbia Mem. Hosp. v. Hinds, 2020 N.Y. Slip Op. 06329 at *1-2 [documentary evidence established that defendant-physician was the named policyholder and “specifically declined” to execute any assignment of his right to receive the MLMIC funds] [emphasis added]). Insomuch as there is clearly a split among the First Department (see Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d at 465, 96 N.Y.S.3d 526), and the Third and Fourth Departments (see Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984, 985-986, 122 N.Y.S.3d 840; Columbia Mem. Hosp. v. Hinds, 2020 N.Y. Slip Op. 06329 at *1-2; see also Cordaro v. AdvantageCare Physicians, P.C., 131 N.Y.S.3d at 528 n. 3), and the Second Department has not squarely addressed the narrow issue of which party is rightfully entitled to the demutualization payments, this court declines to take a contrary view to that of the First Department.
In sum, the conflicting affidavits of the parties here warrants denial of summary judgment. Therefore, each of the parties' motions is denied.
The court has considered the additional contentions of the parties not specifically addressed herein. To the extent any relief requested by the parties was not addressed by the court, it is hereby denied. Accordingly, it is hereby:
ORDERED that the motion of plaintiff HEALTHCARE RADIOLOGY and DIAGNOSTIC SYSTEMS, PLLC (Mot. Seq. 2), made pursuant to CPLR 3001 and 3212, for an order granting summary judgment on the complaint as to its first cause of action and dismissing the counterclaims of defendant JEFFREY GOLDMAN, M.D., is denied; and it is further
ORDERED that the cross motion of defendant JEFFREY GOLDMAN, M.D. (Mot. Seq. 3), made pursuant to 3001 and 3212, for an order granting summary judgment with respect to defendant's second counterclaim and dismissing plaintiff's causes of action, is denied; and it is further
ORDERED that the parties shall appear at the Compliance Conference Part of the Court on November 24, 2020, as was directed in the Referee Report & Order dated November 10, 2020, so ordered by the Hon. Joan B. Lefkowitz, J.S.C. (NYSCEF Doc No. 102).
The foregoing constitutes the decision and order of the court.
1. Insurance Law § 7307 describes the policyholders who are entitled to vote on the conversion and those that are entitled to receive a share of the cash consideration which, here, was to be paid by NICO to acquire MLMIC.
2. The court considered the two related cases decided by the Third Department this year, namely, Schoch v. Lake Champlain OB-GYN, P.C., 184 A.D.3d 338, 126 N.Y.S.3d 532 [3d Dept. 2020] and Shoback v. Broome Obstetrics & Gynecology, P.C., 184 A.D.3d 1000, 126 N.Y.S.3d 212 [3d Dept. 2020] — both decided unanimously — where the Third Department declined to follow Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465, 96 N.Y.S.3d 526 [1st Dept.], reasoning that the First Department's decision was “summarily made ․ without any analysis” (Schoch v. Lake Champlain OB-GYN, P.C., 184 A.D.3d at 347-348, 126 N.Y.S.3d 532; compare Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984, 985-986, 122 N.Y.S.3d 840 [4th Dept. 2020]). Despite the Third Department's decisions in those cases, the court finds that factual issues exist on this record which do not require consideration of stare decisis effect of either decision. Moreover, the Second Department has yet to rule on this particular issue.
3. In his affidavit, Khoury represents that “[n]either party knows the exact amount of Cash Consideration MLMIC is currently holding in escrow.”
4. The Fourth Department took the approach that the Insurance Law only confers an ownership interest in the cash compensation to the policyholder, regardless of the party who pays the premium (see Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984, 985-986, 122 N.Y.S.3d 840 [4th Dept. 2020]; see also Cordaro v. AdvantageCare Physicians, P.C., 69 Misc.3d 787, 131 N.Y.S.3d 523, 528 n. 3 [Sup. Ct., New York County 2020]; Wyckoff Hgts. Med. Ctr. v. Leonora Monroe & MLMIC Ins. Co., 2020 N.Y. Slip Op. 32580 [U], 10-11, 2020 WL 4561195 [Sup. Ct., Kings County 2020]).
Lawrence H. Ecker, J.
Response sent, thank you
Docket No: 53234/2019
Decided: November 20, 2020
Court: Supreme Court, Westchester County, New York.
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