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Counterclaim based upon precludable fraud rebuffed



Quality Psychological Servs., P.C. v GEICO Ins. Co., 2010 NY Slip Op 51423(U)(Civ Kings. 2010) Here are the five statements from this case that are important.

(1) “In an action to recover assigned first party no-fault benefits, defendant seeks leave to amend its answers, strike the notices of trial, and compel discovery, including a deposition.”

(2) “Though defendant admits that it did not deny plaintiff’s bills on the basis of fraudulent billing, it maintains that it has a cause of action to recover benefits paid under a theory of fraud or unjust enrichment.  Defendant therefore seeks leave to amend its answers to interpose counterclaims for fraud and unjust enrichment.”

(3) “Herein, defendant’s counterclaims for fraud and unjust enrichment are palpably insufficient and patently devoid of merit because the claims were not denied on the grounds of fraudulent billing.”

(4) “As all evidence indicates that the counterclaims pertain to a precluded defense, defendant may not assert them in an amended answer. See Cornell Med., P.C., 24 Misc 3d at 60 (App. Term, 2d Dept. 2009) (“In our opinion, since defendant’s proposed counterclaim [for unjust enrichment] pertains to a defense which is precluded due to defendant’s untimely denials, the Civil Court properly denied the branch of defendant’s motion seeking leave to amend the answer to assert the counterclaim.”).”

Civil Court decided to cite Cornell Medical twice, which is fine.  But does anyone out there even factually know what Cornell was about? Cornell was not about fraud.  Never was and never will be.  It involved a medical provider who believed that every visit within his practice was a consultation, and that the ground rule that limits x-ray reimbursement to 75% for each subsequent x-ray on the same date of service should not apply to that Plaintiff.   Cornell involved “greedy billing” or “stupid billing”.  However, it did not involve fraud.

The Appellate Term in Cornell made an unnecessarily broad statement when it held that a counterclaim would not be allowed for any precludable defense.  Insofar as Cornell did not involve “fraud”, the portion of the holding which held that a counterclaim would not lie upon any precludable defense, including fraud, should be read as dicta. As to this case, we never reached the merits of what the so-called fraud is.  But, if it really was fraud, then why would anyone prosecute that case?  Then again, if a civil action that seeks to recoup moneys paid out to a provider who engaged in some type of fraud may not be maintained, then perhaps I am wrong for even suggesting that this type of case should not be prosecuted.