Kuriansky v. Bed-Stuy Health Care Corp.

• Decision Date: 16 February 1988
• Docket Number: BED-STUY
• Citation: Kuriansky v. Bed-Stuy Health Care Corp., 525 N.Y.S.2d 225, 135 A.D.2d 160 (N.Y. App. Div. 1988)
• Court: New York Supreme Court — Appellate Division
• Parties: , Medicare & Medicaid Guide P 37,009 Edward J. KURIANSKY, Deputy Attorney General for Medicaid Fraud Control, et al., Respondents, v.HEALTH CARE CORPORATION, et al., Appellants, et al., Defendant.

Page 225

525 N.Y.S.2d 225

135 A.D.2d 160, Medicare & Medicaid Guide P 37,009

Edward J. KURIANSKY, DeputyAttorney General for Medicaid Fraud Control, et al., Respondents, v.BED-STUY HEALTH CARE CORPORATION, et al., Appellants, et al., Defendant.

Supreme Court, Appellate Division, Second Department.

Feb. 16, 1988.

Hoffinger Friedland Dobrish Bernfeld & Hasen, New York City(Mark W. Geisler, Leon B. Polsky, and Stephen L. Weiner, of counsel), for appellantsBed-Stuy Health Care Corp., Sheldon Weinberg, Roslyn Weinberg and Presidential Limousine, Inc.

Mudge Rose Guthrie Alexander & Ferdon, New York City(Jed S. Rakoff, Howard W. Goldstein, Martin L. Feinberg and James I. Glasser, of counsel), for appellantJay E. Weinberg.

Edward J. Kuriansky, Deputy Atty.Gen. for Medicaid Fraud Control, New York City(Arthur A. Munisteri, Donald Zuckerman and Elizabeth T. Bogren, of counsel), for respondentState of N.Y.

Edward J. Kuriansky, Deputy Atty.Gen., pro se.

Before BRACKEN, J.P., and BROWN, WEINSTEIN and SPATT, JJ.

SPATT, Justice.

This case concerns the new and rapidly developing field of the law of "forfeiture".In this civil action, the plaintiffs the State of New York and the Deputy Attorney General for Medicaid Fraud Control (hereinafter the "claiming authority") seek, inter alia, to recover damages arising from an alleged fraudulent scheme to improperly obtain public funds under the State Medicaid Program.Simultaneous with the prosecution of criminal charges against the defendantsBed-Stuy Health Care Corporation(hereinafter "Bed-Stuy"), Ronald Weinberg, Sheldon Weinberg and Jay E. Weinberg(hereinafter "the criminal defendants"), this civil action was commenced under CPLR article 13-A to declare the forfeiture of the proceeds of the crimes for which these defendants were indicted, and pursuant to Social Services Law § 145-b, to recover treble damages in the sum of $39,000,000 claimed to be resulting from the alleged fraud.

On this appeal, we are called upon to determine (1) whether the Supreme Court properly granted the plaintiffs' request for the imposition of provisional remedies against certain assets of the defendants, (2) whether the imposition of such relief effectively deprived those defendants subject to criminal charges of their constitutional right to obtain paid counsel of their own choosing by virtue of the freezing of their assets, and (3) whether the court erred in directing the criminal defendants to disclose certain financial information in violation of their constitutional right against self-incrimination.For the reasons which follow, we conclude that affirmance is warranted as to criminal defendants Bed-Stuy and Sheldon Weinberg and non-criminal defendantsRoslyn Weinberg and Presidential Limousine, Inc., (hereinafter "Presidential").With regard to the criminal defendantJay Weinberg, we remit to the Supreme Court for further consideration under the rules set forth herein.

I

Initially, we review the relevant statutes underlying this appeal.

Article 13-A of the CPLR, effective August 1, 1984, authorizes District Attorneys and the Attorney General, as "claiming authorities", to recover, as against the criminal defendants, real property, personal property, money, negotiable instruments, securities or other items of value, which constitute the proceeds, substituted proceeds or instrumentalities of crime, or to recover a money judgment in an amount equivalent in value to the property which constituted the proceeds of the crime, the substituted proceeds or an instrumentality of crime (CPLR 1311[1] ).A civil forfeiture action may be commenced and provisional remedies, such as attachment, may be obtained prior to a conviction, but no actual forfeiture or money judgment may be recovered until after a conviction.In fact, the civil action is stayed during the pendency of the criminal proceeding, but the stay does not prevent the granting of provisional remedies (CPLR 1311[1][a] ).

The crimes upon which a forfeiture action may be based are of two types: (1) postconviction forfeiture crimes, meaning any felony as defined under the Penal Law or other chapter of the consolidated laws (CPLR 1310[5] ); and (2) preconviction forfeiture crimes which are drug-related crimes (CPLR 1310[6] ) not involved in this case.The criminal defendants in this case have been indicted for crimes under the postconviction forfeiture crime category, permitting the claiming authority to commence this forfeiture action and obtain provisional remedies, including attachment, prior to conviction.The statutory plan also permits an action against the noncriminal defendants with recovery limited to the proceeds, substituted proceeds or instrumentalities of the crime.

Under CPLR 1312, the provisional remedies of attachment, injunction, receivership and notice of pendency are available upon the court's determination that the following three-pronged standard is satisfied: (1) there is a substantial probability that the claiming authority will prevail on the issue of forfeiture; (2) failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court or otherwise unavailable for forfeiture, and (3) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate.

CPLR 1326 permits the Court to order disclosure at any time after the granting of an order of attachment upon motion of "any interested person" for information regarding any property in which the defendant may have any interest or to whom debts may be owed.In this case, the court order at issue directed the criminal defendantsSheldon Weinberg, Ronald Weinberg and Jay Weinberg to each execute and deliver to the claiming authority a sworn financial disclosure statement and signed authorizations, permitting the claiming authority to obtain their Federal and State tax returns and other financial information.The order also states that it "shall not prevent the invocation of the self-incrimination privilege as to any information sought by [the financial disclosure form]".

The forfeiture statute provides a number of safeguards designed to protect the defendants from an improper deprivation of their property as a result of provisional remedies.If a defendant recovers judgment or succeeds in proving, by the preponderance of the evidence, that the claiming authority acted without reasonable cause and not in good faith in securing the provisional remedy, the claiming authority is liable for "all costs and damages, including reasonable attorney's fees, which may be sustained by reason of the attachment"(CPLR 1318[4]; 1337).

Other significant safeguards are contained in CPLR 1329, which permits a defendant to move to vacate or modify an order of attachment, and CPLR 1336, which permits a defendant to "move at any time" to vacate or modify a preliminary injunction or temporary restraining order.

With regard to the cause of action by the State, Social Services Law § 145-b provides that it is unlawful to fraudulently obtain payment from public funds for medical services purportedly furnished.The statute further provides that "the state shall have a right of action to recover civil damages equal to three times the amount by which any figure is falsely overstated."Provisional relief is available to the State in an action under the Social Services Law pursuant to CPLR articles 62 and 63.

Finally, CPLR 6201 sets forth the grounds for the nonforfeiture provisional remedy of attachment.The ground justifying attachment relevant to this appeal is subdivision 3 of CPLR 6201 which provides that an order of attachment may be granted if it is shown that "the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts".

II

Bed-Stuy is a diagnostic and treatment center licensed pursuant to Public Health Law article 28, operating at two sites in Brooklyn.As an article 28 diagnostic and treatment center, Bed-Stuy was entitled to charge the State's Medicaid Program a fixed fee for each visit a Medicaid recipient made to the facility, regardless of the number or nature of the procedures performed during the visit.Sheldon Weinberg is its president and 94% shareholder; his wife, noncriminal defendantRoslyn Weinberg, is the corporate secretary and owns the remaining shares.It is alleged that their sons, Jay Weinberg and Ronald Weinberg, were the licensed administrators of Bed-Stuy and supervised its day-to-day operation.

By Kings County IndictmentNo. 6319/87, the criminal defendants were charged with grand larceny in the first degree, conspiracy in the fourth degree, offering a false instrument for filing in the first degree (37 counts), and falsifying business records in the first degree (26 counts).These charges arose from an alleged fraudulent scheme which commenced in or about 1980, and continued to 1987, whereby claims for reimbursement were submitted to the State Medicaid program for thousands of patient visits that never actually occurred.According to the State authorities, by a conservative estimate, the aggregate proceeds of these crimes is in the total sum of at least $13,000,000.Also, by a separate pending indictment (Kings County IndictmentNo. 6244/87), Jay Weinberg and a codefendant were charged with committing arson with regard to a fire at the Bed-Stuy Fulton Street location which destroyed many of the clinic's medical records.

On August 4, 1987, the plaintiffs obtained an order to show cause containing an ex parte temporary restraining order based upon (1) the claiming authority's motion for provisional remedy relief under CPLR article 13-A to restrain the criminal defendants' assets to the extent of...