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Queens Court Upholds No-Fault Payment Eligibility for Chiropractic Practice Despite Illegal Fee-Splitting

Posted: May 20th, 2015

In H&H Chiropractic Services, P.C. a/a/o Jesus Jimenez v. Metropolitan Property and Casualty Insurance Company[1], a Queens County Civil Court has chipped away at the Malella armor with which insurers have protected themselves since the State Farm Mut. Auto Ins. Co. v. Mallela [2] ruling. Specifically, using Malella, insurers have convinced courts time and again to disallow payments to medical providers or chiropractors who violate Mallela’s prohibition against fraudulent incorporation. Under Mallela, the New York Court of Appeals held that professional practices may not bill no-fault insurance carriers for services if the professional entity has been “fraudulently incorporated.” Traditionally, “fraudulent incorporation” has been held to include instances where non-professionals exercised ownership or control over the professional entity, thus rendering the professional license holder who owns the entity as a mere paper owner without actual control.

In H&H Chiropractic, Metropolitan Insurance argued that the billing contract that the chiropractic practice had with its billing company, SMG, violated New York’s fee-splitting prohibition. SMG’s contract stated, “The Practice will pay SMG 6% of all fees charged & ultimately collected by SMG….” Under New York Law, a chiropractor or a medical provider commits professional misconduct if she splits a fee with an unlicensed entity.[3]

Metropolitan alleged that H&H Chiropractic’s and SMG’s billing contract effectively made SMG, an unlicensed entity, a 6% owner of the P.C., and thus constituted a fraudulent incorporation prohibited under Mallela. The H&H Chiropractic Court held that in all prior decisions favoring insurers, the professional corporations committed other violations of the New York Business Corporation Law and the New York Education Law. No prior court had addressed whether a professional corporation is fraudulently incorporated based upon impermissible fee-splitting alone.

The H&H Court noted that illegal fee-splitting is addressed by New York State licensing boards, who may discipline the offending professionals. The court also held that H&H Chiropractic did not file any false documentation with New York State, nor did it permit non-licensed professionals to control any aspect of their practice. The Court held that illegal fee-splitting alone did not rise to the level of fraudulent incorporation encountered in Malella, and it could not serve as a basis to deny no-fault benefit payments to H&H Chiropractic.

Many billing companies charge on a percentage of collections basis, and providers have constantly had questions about the permissibility of the practice. State regulatory agencies have mixed guidance on the issue, and it appears the New York State Education Department still maintains the right to commence professional misconduct proceedings against licensed professionals who violate the fee-splitting prohibition. However, unless an appellate court overrules this case, providers now have precedent to justify receiving no-fault benefit payments from insurers if the only objection is the fee-splitting aspect of their billing contracts.

[1] [2015 N.Y. Slip Op. 25132 (Civil Court, Queens County)].

[2] [4 N.Y.3d 313 (2005)].

[3] [See, e.g. N.Y. Education Law §§ 6509-a, 6530(19), and 8 NYCRR 29.1(b)(4)].

Legal Fees or No Legal Fees – Court Determines Reasonableness

Posted: May 20th, 2015

Generally speaking, the two ways a party can recover attorneys’ fees if it is successful in litigation are: (1) by statute based on the claims asserted; or (2) by contract if the parties include a provision entitling the successful party to recover attorneys’ fees. While parties often believe this entitles them to a dollar for dollar reimbursement for attorneys’ fees, Courts will award only “reasonable” attorneys’ fees. Courts are often looked upon to analyze the reasonableness of attorneys’ fees. A recent decision from the Commercial Division in Kings County provided a thorough analysis of the factors Courts look at in determining the reasonableness of attorneys’ fees.

In PNL Phoenix, LLC v. Janton Industries, Inc., et al. (J. Demarest), plaintiff PNL Phoenix, LLC had acquired a $1.2 million loan from Sovereign Bank as well as a $750,000 line of credit loan. The borrowers were Janton Industries, Inc. and Designcore, Ltd. (as well as other guarantor defendants), were in default at the time plaintiff acquired the loans. After the defendants defaulted again under a subsequent forbearance agreement, plaintiff commenced two separate lawsuits – one seeking an order of seizure to recover collateral that secured the line of credit loan, and the other to foreclose on the $1.2 million loan. Defendants claimed they had been making payments on both loans and had paid the balances down considerably. Ultimately, the defendants refinanced and paid off both loans. However, one issue remained – plaintiff’s attorneys’ fees.

Under the loan documents, plaintiff was entitled to recover its reasonable attorneys’ fees and costs for having to enforce or effectuate any of the terms of the agreement and other loan documents. As a result, plaintiff sought to recover $90,969.75 in attorneys’ fees and expenses (plus another $9,498.40 in connection with the settlement and application for attorneys’ fees). Along with its application for attorneys’ fees, plaintiff’s counsel submitted an affirmation with his qualifications and experience, attached a document list of all papers filed in both actions, and provided contemporaneous time records showing the time billed by the firm. Plaintiff’s counsel also noted that, while his hourly rate is normally $620/hour, he provided plaintiff with a 20% discount on his hourly rate. Other attorneys who worked on the files for plaintiff also discounted their hourly rates by 20%.

In reviewing plaintiff’s attorneys’ fees, the Court noted that the attorneys’ fees must be “reasonable and warranted for the services actually rendered.” Kamco Supply Corp. v. Annex Contracting, Inc., 261 A.D.2d 363, 365 (2d Dep’t 1999). The Court must consider the following factors: “time and labor required, the difficulty of the questions involved, and the skilled to handle the problems presented; the lawyer’s experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved.” Matter of Freeman, 34 N.Y.2d 1, 9 (1974).

The defendants argued that plaintiff’s attorneys’ fees were unreasonable and inflated and that plaintiff engaged in unnecessary and frivolous litigation. As an initial matter, the Court found that plaintiff did not commence frivolous litigation. Even if defendants were paying down the loans, they were still in default, plaintiff was permitted to accelerate the loans under the loan documents, and they even acknowledged their default in the forbearance agreement.

As far as defendants’ argument that certain filings by plaintiff (an unauthorized reply to an order to show cause) were unreasonable, the Court agreed because the Commercial Division Rules prohibit submission of a reply to an order to show cause absent prior approval of the Court. As a result, the Court struck 6.35 hours from plaintiff’s billings for the reply. The Court, however, did not agree with defendants regarding a reply to an ex parte application, which is not prohibited. The Court also found that the summary judgment motions filed in both cases were not duplicative of one another as defendants contended.

Next, the defendants argued that plaintiff’s invoices were not reliable because the time entries were commingled amongst the two actions and that plaintiff artificially separated the entries after the fact. The Court did not have an issue with this and found that, due to the similarities between the two actions, the parties, and the loan documents, the fact that entries were commingled was to be expected. The fact that the time entries were later separated was done merely as a convenience to the Court.

Defendants also argued that the discounted hourly rate of $496 was also unreasonable, far in excess of customary hourly rates in Kings County, and that the work was not so complex to require the time spent by a senior partner. On these issues, the Court held that the hourly rate was reasonable but did find that some of the work, such as basic research and filing tasks, should have been performed by a less expensive attorney at the firm. As a result, the Court reduced the plaintiff’s billings by 5%. The Court also found some of the time performed by the senior partner to be excessive and knocked off an additional 10% from the total billings, and also reduced additional billings in connection with the application for attorneys’ fees.

In total, although plaintiff incurred approximately $100,000 in attorneys’ fees and costs, it only recovered $72,799.95 – an approximate 30% reduction in plaintiff’s attorneys’ fees. Unfortunately, this type of reduction is not an uncommon occurrence. Courts will often significantly reduce the total attorneys’ fees that can be recovered in a case because the Court believes the fees are unreasonable, even if the time spent was necessary. The lesson to be learned for litigants is that important decisions, such as how or whether to proceed with litigation, should not be based on the possibility of recovering attorneys’ fees at the end of a case.

Supreme Court to Decide Whether Patent Holders Are Entitled to Royalties After Patents Expire

Posted: May 20th, 2015

If a primary purpose of the patent system is to encourage innovation and the disclosure of new ideas, should patent holders receive royalty payments once their patents have expired? The Supreme Court heard arguments on this question on March 31, 2015.

The case stems from a Spiderman string-shooting toy for which Stephen Kimble obtained a patent in 1990. Kimble brought a patent infringement suit against Marvel Enterprises Inc. several years later when the company began distributing a similar toy. After years of litigation, Marvel purchased the patent and agreed to pay royalties to Kimble. The agreement did not include an expiration date for the payment of royalties. The parties found themselves entangled in litigation once again a few years later when they disagreed over the payment of royalties to Kimble from a licensing agreement between Marvel and Hasbro Inc.

The magistrate in the case applied Brulotte v. Thus Co., a 1964 Supreme Court decision in which the Court held that the purchaser of a patent need not continue making royalty payments to the seller of the patent once the patent expired. Because by design patents have expiration dates, the Court determined, to compensate the patent seller would effectively extend the time limit of the patent beyond its expiration date. The Court granted Marvel’s motion for summary judgment, and Kimble appealed to the Ninth Circuit, where the decision was affirmed. In its decision, however, the Ninth Circuit noted that Brulotte has been heavily criticized.

In December 2014, the Supreme Court agreed to hear the case to determine whether Brulotte, which invalidated the royalty agreement between Kimble and Marvel, should be overruled. Arguments were heard this spring. Kimble’s argument focused on the Ninth Circuit’s apparent reluctance to invalidate the agreement based on Brulotte, presenting that decision as a relic of a past era in intellectual property rights. The opposition emphasized that in the decades of patent law decisions and changes in the decades since Brulotte, Congress never disturbed the outcome of that case.

Thus, the Court may decide to maintain the status quo—or usher in a new era in patent rights.

For more information:

Ronald Mann, “Argument analysis: Justices apparently dubios about overturning long-standing precedent on patent misuse.” SCOTUSblog, http://www.scotusblog.com/2015/04/argument-analysis-justices-apparently-dubious-about-overturning-long-standing-precedent-on-patent-misuse/ (Accessed May 17, 2015)

“Kimble v. Marvel.” Oyez U.S. Supreme Court Media, http://www.oyez.org/cases/2010-2019/2014/2014_13_720 (Accessed May 17, 2015)

Court documents: http://www.scotusblog.com/case-files/cases/kimble-v-marvel-enterprises-inc/ (Accessed May 17, 2015)

United States Supreme Court Rules on the Accommodation of Pregnant Workers

Posted: May 20th, 2015

By Christine Malafi

Last year, I wrote about the then-new pregnancy guidelines issued by the Equal Employment Opportunity Commission (EEOC), under the Pregnancy Discrimination Act (PDA) and the Americans with Disability Act (ADA), which apply to all employers with more than fifteen employees. While a “normal” pregnancy does not constitute a disability under the ADA, it is a serious health condition under the Family Medical Leave Act (FMLA), entitling a pregnant employee to FMLA leave. The EEOC’s 2014 Guidelines addressed the “middle” ground, where a pregnant employee is not “disabled” and does not seek leave, but requests light duty instead. The EEOC requires that employers reasonably accommodate a pregnant employee with light duty or modified assignments.

Earlier this year, the United States Supreme Court decided the case of Young v. United Parcel Service, 575 U.S. ___ (2015). In that case, UPS denied a pregnant worker’s request for light duty after her doctor told her not to lift heavy packages. She was a part-time UPS driver and her position required her to be able to lift up to 70 pounds. Her doctor told her to lift no more than 20 pounds. In response to her request, UPS told her that light duty was only available to employees with job-related injuries or to those employees with disabilities recognized under the ADA. In Young, the Supreme Court held that if accommodations are given to employees with similar activity restrictions (albeit for other reasons), similar accommodations must be provided to pregnant employees who request accommodation.

The case had been dismissed outright by the lower courts, and the Supreme Court found a “genuine dispute as to whether UPS provided more favorable treatment to at least some employees whose situation cannot reasonably be distinguished from [Ms.] Young’s.” The Court asked “why, when [UPS] accommodated so many, it not accommodate pregnant women as well?” The Court did not go so far as to find that UPS had discriminated against Ms. Young, but the decision enables Ms. Young to continue her lawsuit, and to argue that the reason she was not accommodated was her pregnancy.

Employers who have “neutral” light duty accommodations should consider how to reasonably accommodate pregnant workers as well, in light of the Supreme Court’s decision in Young.

The Uniform Bar Exam Comes to New York for July 2016

Posted: May 20th, 2015

By Scott Middleton

Let me begin by saying that I am not a fan of the uniform bar exam (“UBE”). There was a time when the uniqueness of New York (and most other states for that matter) truly meant something. That, of course, included being a New York attorney.

Now we’re moving to join 15 other states in the march toward the nationalization of the bar exam. When was the last time anything being nationalized worked out for the better? The founding of this country was premised upon the unique and differing qualities of the various states.

Here in New York, as in most other states, we have specific laws, rules, and ways of practicing law. There may be some practice areas that translate well across state lines. One that comes to mind is criminal law, due to its interaction with constitutional law. Even criminal law has state specific procedural rules. Think about how different New York’s Family and Domestic Relations Laws are, not to mention our General Municipal Law and our civil procedures. The most significant distinction is probably our evidentiary rules. Despite this, New York is moving to the UBE next summer.

Some of the reasons given for the adoption of the UBE are: 1) handling matters across state lines (our firm has been doing this for years already), 2) that we live in a more mobile and interconnected society, and 3) economically, it will help newly minted lawyers to find work.

Law schools, both here and in other states, care about the bar pass rate for their students. In the past they have geared a good portion of the curriculum to readying students to take and pass the New York bar exam. As a result, young lawyers have a proper foundation in New York practice. I fear that this will no longer be the case once the UBE goes into effect. In answer to this, the New York State Bar has indicated that perhaps providing additional training for new lawyers would remedy this shortcoming. When I heard this, I had to ask myself, isn’t that what law school is for? I don’t see how pushing this off to firms or post bar exam training helps from an economic standpoint.

As it stands, we have 15 law schools in New York State, and each year, approximately 15,000 people take the New York State Bar Exam. Opening the doors by way of the UBE will, in my estimation, make it more difficult for young lawyers desirous of staying and practicing in their home state from accomplishing this goal. In all likelihood, it will increase the number of out-of-state applicants for admission to the New York State Bar. It may make it easier for New York State law school graduates to move out of state to one of the other 15 states. How does this help New Yorkers? I don’t think that it does. What we will end up with are young lawyers who know less about state specific practice areas, which will prove to be a disservice to their employers and their clients alike.

Estate Planning for People with Vacation Homes

Posted: May 20th, 2015

By: Martin Glass, Esq. email

Tags: elder law, estate planning

Now that spring is finally here, people start to make plans to spend time in their vacation home. Then they start to think, what happens to this home if I die? The first thing you need to do is check whose name is on the title. Is it just in your name, or is it you and your spouse or your siblings? When two spouses hold a title jointly, there are certain automatic survivorship rights.

If both spouses’ names are on the title, the property passes directly to the surviving spouse upon the death of the first spouse. This is called Tenants by the Entirety. It’s as if each spouse owns 100% of the property. When one spouse dies, the other still owns 100% of the property. Nothing has to be done. But, if one of the spouses intended the property to pass to one or more children, it may make more sense to hold it in one spouse’s name.

If the property was bought with co-investors (i.e., someone other than a spouse) it will be necessary to work out whether it’s being held as Joint Tenants with Rights of Survivorship (JTROS) – in which the remaining co-owners automatically inherit the decedent’s share, or as Tenants in Common (TiC), meaning the decedent names who inherits his or her share of the property. If nothing is written on the deed, the default is Tenants in Common.

So the real question is, who do you want to get the property after you? That will often determine how that transfer should be structured. Real estate left directly to multiple family members automatically results in a TiC ownership, unless otherwise specified. That can create issues. If one owner in such an arrangement wants to sell his or her part and the others don’t want to buy up that share, they can go to court to force a sale of the property. With a TiC ownership, one owner can also renovate the property, rent it out to a third party, or sell out his or her share, without needing any sort of permission or agreement from the other owners.

Obviously, it’s hard to look down the generations and figure out how co-owners are going to get along. One option is to create a limited liability company that owns the vacation home. An LLC can set up a framework for maintaining the property, scheduling use by various family members and setting limits on the transfer of pieces of ownership. You can even grant interest in the LLC that owns the vacation home to other people, while still retaining management decisions for the LLC.

There are other concerns that many of us don’t even think of. Many people own summer homes in a neighboring state, which can cause a lot of confusion when it comes to one’s estate, if the Will isn’t carefully crafted. If you own real estate in a different state at the time of death, the executors of that person’s Will may be required to go through a second probate proceeding in the state where the property lies, in addition to the probate proceeding in their home state.

You also may like the idea of giving away the summer home before your death. This is usually done for estate tax reasons. A vacation home that has been turned into an LLC can be gifted to children, in part or in whole. Another alternative is to create a qualified personal residence trust, or QPRT. This is an irrevocable trust to which you can transfer ownership of the vacation home, while still retaining the right to use it for a specified number of years. As long as you survive that term, you can pass the home to your children in equal shares. Unfortunately, if you die before the end of the QPRT’s term, the entire interest in the property goes back into your estate and is passed down according to the Will.

All in all, a vacation home is usually a great thing to have and to enjoy for many years. You just have to remember that it is another piece of the estate planning puzzle.

CMM Welcomes the Law Office of Frederick Eisenbud, THE Environmental Law Firm

Posted: May 7th, 2015

Campolo, Middleton & McCormick Welcomes the Law Office of Frederick Eisenbud, THE Environmental Law Firm

Ronkonkoma, NY – Campolo, Middleton & McCormick LLP, a premier law firm, is pleased to announce that Frederick Eisenbud has joined the firm Of Counsel and is bringing his Commack-based environmental law firm practice to CMM’s team, effective May 2015, increasing our capacity to serve a broad range of client needs.

As the founder of the Law Office of Frederick Eisenbud, THE Environmental Law Firm, Fred will head CMM’s new environmental practice group, focusing on environmental law and litigation concerns of individuals, companies, municipalities, and community groups. An AV-rated attorney (Martindale-Hubbell’s highest attorney rating), Fred brings his thirty years of experience as an environmental attorney to CMM.

“CMM and the Law Offices of Frederick Eisenbud have a shared mission of devotion to client service,” said Joe Campolo, managing partner of CMM. “We are aligned in our belief that our success is driven by the success of our clients. Having Fred join the team improve our ability to serve clients in the area of environmental law and strengthens our presence in the Long Island community.”

“We are thrilled to be part of the superb team of lawyers at CMM and to be able to offer a full range of services to our clients,” Eisenbud added.

April 2015 Legal Brief – Firm Newsletter

Posted: April 30th, 2015

May 13: CMM Executive Breakfast “Lost Knowledge: What is the Cost?”

Posted: April 28th, 2015

May 13, 2015

Featuring Gail L. Trugman-Nikol, President of Unique Business Solutions

Lost Knowledge: What is the Cost?

What would you do if you could see your processes and vulnerabilities more clearly? Do you know what they are? If you document your procedures before selling your company or key employees leave, the documentation ensures that employees follow best practices, no matter who does the task. The cost savings are tremendous!

Come discuss how to manage risk in your business currently and in the future. Learn about a solution that has a long term positive impact on your business.

EVENT DETAILS

Breakfast & Registration: 8:30am – 9:00am
Presenting Speaker: 9:00am – 9:45am
Q&A and Discussion 9:45am – 10:00am

REGISTRATION: All events are FREE but registration is required.
Complimentary breakfast will be served.

LOCATION: Meetings are held at the CMM Ronkonkoma location.

RSVP to vtringone@cmmllp.com