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Defaults and interest



This “default” case is quite strange.  SZ Med., P.C. v Lumbermens Mut. Cas. Co., 2010 NY Slip Op 20044 (App. Term 2d Dept. 2010).

The majority and the dissent have a different take on the facts and circumstances of this matter.  At its core, this case involves a summary judgment victory on default, where the lower court vacated the default but the appellate term reversed.  The details are where this case gets nasty.

It is alleged that the judgment on the underlying order was not entered for 4 years after the victory on the motion.  A motion to vacate was not filed for 8 months after a proposed judgment was served upon Defendant.  There are allegations of improprieties involving an attorney promising to work something out, yet allegedly reneging on his promise.  There are checks representing 40% of the balance that are alleged to be cashed, but have the word “void” written on them.  It appears there are no denial of claim forms, so as to substantiate the over billing defense.  I am assuming the affidavit of the carrier is equally devoid of any facts to clarify the matter.  And then, there is 65-3.9(d)(the interest tolling provision involving the failure to prosecute a claim) which made its debut in appellate case law today.  Also, Mr. Amos Weinberg’s name and his suspension from the practice of law were mentioned in the dissent.  A lot of stuff for a 5015(a)(1) vacatur of default case.

That sums up the facts of this case.

The real issue that caused concern, for both the minority and the majority tangentially, involved the plaintiff waiting 4 years to enter a judgment, and collecting 24% per annum on the principle sum from when he was granted leave to enter judgment to when the judgment was entered.  During the pre-LMK era, this was a non-issue because every late denial lost the interest toll.  Thus, nobody concerned themselves with 3.9(d), since there were so many old  denials and defective denials in circulation. The focus was on how to stop Pre-LMK non tolled penalty interest.  Since it has been held that interest always tolls until an action is commenced, save those instances where a bill is not denied, the only way to obtain a return that is 12 times prime is to put a matter into litigation and sit on it.  Some Plaintiffs do this, and given the rate of return that no-fault interest offers, it is not necessarily a bad idea from a business perspective.

But now that we are post LMK, there is now going to be a focus on closing the last loop hole to collect interest: 3.9(d).  I think we all knew this was coming.  Admittedly, this was not the best case to argue this point because the defendant’s papers seeking to vacate the default seemed porous.

As to the part about Mr. Weinberg breaking his promise, this could hold water if there was a better showing of a meritorious defense.  Through reading thousands of decisions, the trend in the Second Department and the other Appellate Divisions is that the better the defense, the more forgiving the court will be as to finding a reasonable excuse.  This is not always true – and we have seen many cases where a showing of a strong meritorious defense did not make up for a weak reasonable excuse.  Since there was no meritorious defense through the presented proofs, the court turned a blind eye to this potential issue.

This is how I read this case.  But mark my words: 3.9(d) will be the next monster that attacks the plaintiffs bar.  And honestly, if an action is not being actively prosecuted, should a medical provider really be earning 24% on that money?  It does not seem equitable to me.

As a footnote, if you want to read about how equity has the ability to turn no-fault practice on its head, read the last no-fault wrap up that Mr. Barshay and Mr Gottlieb published in the New York Law journal.



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