For the first time, the Appellate Term has resolved an issue on which the trial courts have differed: whether a fraudulently incorporated medical clinic may collect benefits for services rendered prior to the enactment of the new no-fault regulations (which took effect April 5, 2002. The answer is no.

In State Farm Mutual Auto Ins. Co. v. Mallela, 4 N.Y.3d 313, the Court of Appeals held that fraudulently incorporated medical P.C.s were not entitled to collect no-fault benefits under the new regulations. But that court left open the question of whether such corporations could collect benefits for claims which arose under the old regulations.

In the case at hand, the Civil Court of Queens County (Bernice Daun Siegel, J) held that the new regulations were retroactive and therefore Metroscan could not collect benefits even though the claims arose under the old regulations. Metroscan, represented by Baker, Sanders, Grossman et al., appealed. My firm submitted an Amicus Curie brief.

In its appeal brief, Metroscan stipulated that it was, in fact, fraudulently incorporated.

The Appellate Term held that even under the common law, compensation is denied to an unlicensed provider of services for which a regulatory license is required. Therefore, held the court, even prior to the enactment of the new no-fault regulations, fraudulently incorporated medical corporations were not entitled to recover a judgment against an insurer for assigned first party no-fault benefits. The new regulations merely codified the common law rule....

The Appellate Terms decision was unanimous.

Comment: Now, the question of whether Mallela is retroactive or not is settled. This will end a lot of pending litigation. [IA]

Metroscan Imaging PC a/a/o Barbara Molina et al. v. GEICO, No. 2005-1202 QC (App.Term 2d Dept) (Decided 26 July 2006)