State Farm Mut. Auto. Ins. Co. v. Grafman
| Decision Date | 21 September 2009 |
| Docket Number | No. 04-CV-2609.,04-CV-2609. |
| Citation | 655 F.Supp.2d 212 |
| Parties | STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, v. Semion GRAFMAN, Inessa Abramshik a/k/a Inesa Abramovshchik a/k/a Inessa Rubin,<SMALL><SUP>*</SUP></SMALL> Sergei Khokhlov,<SMALL><SUP>*</SUP></SMALL> Vladimir Nabutovsky,<SMALL><SUP>*</SUP></SMALL> Alec Palmer, Oleg Portnov, Aleksey Pugach, Boris Rabinovich a/k/a Bob Rey, Andrei Schultz,<SMALL><SUP>*</SUP></SMALL> Atlas Medical Equipment, Bethel Equipment, Inc., Grafman Quality Products, Inc. Health World AI, Ltd., Rosgal, Ltd., Seaside Wholesale, Ltd., Star Diagnostic Center, Inc. d/b/a Star Medical Systems, Unique Distributor, Inc., (collectively "Wholesale Defendants") Igor Berlovich, Arkadi Chapiro a/k/a Arkadi Shapiro, Lyubov Groysman, Emmanuel Jacobs, Jacob Kagan a/k/a Yakov Kagan,<SMALL><SUP>†</SUP></SMALL> Victoria Kagan, Igor Kats, Dmitriy Kazakov, Margarita Khalavsky,<SMALL><SUP>†</SUP></SMALL> Robert Khalavsky,<SMALL><SUP>†</SUP></SMALL> Larisa Klochkov, Artur Klotsman, Eduard Koretsky,<SMALL><SUP>†</SUP></SMALL> Galina Leykind, Lara a/k/a Elarya Leykind a/k/a Elarya Batkilin, Oleg Leykind, Steven Leykind, Yacov Moin, Ilya Mugerman, Roman Pergament, Alla Shklyar, Eduard Shklyar, Demitry Tsepenyuk, Bohdar Vasechko, Igor Vetoukh, Mariya Vitukhnovskaya a/k/a Mariya Vitukh, Semen Vitukhnovskiy a/k/a Semen Vitukh, Isaak Yakubov, AAA-RAA Medical Supply, Inc., Al Medical And Surgical Supply, Inc., Amaze Medical Supply, Inc., Arbov, Inc., A To Z Medical Supplies, Inc., Ayd Services, Inc., Belachy Supply, Inc., Belford Instruments And Equipment, Inc., Careplus Medical Supply, Inc., Dilon Medical Supply, Corp., Edel Surgical And Medical Supply, Inc., Empire Supply, Inc., Fair Price Medical Supply, Corp., Graham Management Group, Inc., Horizon Management of NY, Inc., Infinity Health Products, Ltd., IVB Medical Supply, Inc., KLM Trading, Ltd., Madera Medical Supply, Inc., Mara Services, Inc., Mirka United, Inc., Model Supply, Inc., Northridge Supply, Inc., Tristate Aja Sergical [sic] Supply, Inc. Vista Surgical Supplies, Inc., Yad Trading & Services, Inc., (collectively "Retail Defendants") Albatros Medical, PC, Alexandrite Medical Care, PC, Almaz Medical Services, PC, Bergamo Medical, PC, Eshel Medical Rehabilitation, LLC, Meridian Medical Of NY, PC, Milan Medical, PC, Palermo Medical, PC Refuah Medical Rehabilitation, LLC, (collectively the "Fraudulently Incorporated PCs") German Laufer, Eleanor Lipovsky, Zoya Maksumova, Lee Craig Nagourney Douglas J. Spiel And Liliya Yanovskaya, (collectively the "Paper Owner Defendants"), Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Barry I. Levy, Rivkin Radler LLP, Uniondale, NY, Jay Shapiro, Michael Francis Gallagher, Scott A. Resnik, Alexis Lauren Cirel, Katten Muchin Rosenman LLP, New York, NY, Cara A. Roecker, Laura A. Bernatowicz, Katten Muchin Rosenman LLP, Chicago, IL, for Plaintiff.
Jude Roberto Cardenas, Bruce S. Rosenberg, Cardenas & Associates, David T. Azrin, Roger L. Stavis, David S. Douglas, Gallet Dreyer & Berkley LLP, Roger V. Rubin, International Law Counsel P.C., Berardino J. Lombardi, Keith Lepack, Keith Lepack, Esq., Laure Salerno, Law Offices Of Laure Salerno, Esq., Roger V. Rubin, International Law Counsel P.C., David S. Zapp, Gary Todd Certain, The Certain Law Firm, PLLC, Paul Stuart Haberman, Victor A. Worms, New York, NY, Benjamin M. Pinczewski, Andrey G. Tikhomirov, Nicholas M. Wooldridge, Law Offices of Benjamin M. Pinczewski, P.C., Allan Raysin, Alla Raysin, P.C., Yasser Helal, Law Office of Yasser Helal, Brooklyn, NY, William E. Betz, William E. Betz, Esq., Port Washington, NY, for Defendants.
Galina Leykind, Staten Island, NY, pro se.
Steven Leykind, Staten Island, NY, pro se.
Laura Leykind, Staten Island, NY, pro se.
On June 4, 2007, plaintiff State Farm Mutual Automobile Insurance Company ("State Farm") filed an Amended Complaint alleging that numerous defendants participated in a scheme to abuse New York's No-Fault insurance laws by improperly collecting reimbursement for medical treatment, tests and durable medical equipment. Plaintiff alleges that certain defendants were fraudulently incorporated in violation of New York law and are not entitled to payment from plaintiff. Plaintiff also alleges that certain defendants made insurance claims at artificially inflated prices or sought payment for items or services that were not medically necessary or, in some cases, were never provided or performed. Plaintiff asserts claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., and claims for New York common law fraud and unjust enrichment.
Defendants German Laufer and Milan Medical P.C., (collectively, the "Laufer defendants"), against whom plaintiff asserts claims for fraud and unjust enrichment, have filed a motion for judgment on the pleadings. Defendants Arthur Klotsman, Yacov Moin, Demitry Tspenyuk, A to Z Medical Supplies, Inc., AYD Services, Inc., YAD Trading & Services Inc. and KLM Trading LLD, (collectively, the "Klotsman defendants"), against whom plaintiff asserts claims of common law fraud and RICO violations, have filed a motion to dismiss the Amended Complaint. Defendant Jacob Kagan, against whom plaintiff asserts claims of common law fraud, unjust enrichment and RICO violations, has filed a motion for judgment on the pleadings.
Plaintiff is an insurance company and, under New York's No-Fault insurance laws, is required to reimburse individuals eligible for benefits under polices issued by plaintiff ("Insureds") for necessary medical equipment and other services required as a result of an automobile accident. See N.Y. Ins. Law § 5106. Insureds, in turn, may assign their rights to these benefits to medical providers in order to reimburse the providers for the necessary equipment and/or services. Medical providers may then submit requests for payment directly to plaintiff.
Pursuant to New York's insurance regulations, these medical providers of durable medical equipment or other necessary medical equipment ("Supplies") are entitled to certain minimum payments (including profit) for Supplies provided to Insureds. Specifically, prior to October 4, 2004, a provider of Supplies was reimbursed up to 150% of its documented costs for Supplies or 155% of the Medicaid fee schedule for orthotics, and, since October 6, 2004, a provider has been entitled to the maximum permissible charge under the state Medicaid program.
Plaintiff alleges that defendants fraudulently abused the No-Fault system in two ways: first, certain defendants falsely represented that medical providers were properly licensed, owned and operated by medical doctors, as required by New York law, and were entitled to payments from plaintiff under the No-Fault laws. Second, certain defendants exploited the No-Fault reimbursement scheme by submitting false invoices to plaintiff for Supplies that were never provided to Insureds or which artificially inflated the prices actually paid by defendants for Supplies.
As described below, the Amended Complaint alleges that the fraudulent scheme was carried out between four groups of defendants: (i) Wholesalers; (ii) Retailers; (iii) Fraudulently Incorporated PCs; and (iv) Paper Owners.
First, certain layperson defendants induced licensed doctors (the so-called "Paper Owners", including moving defendant Dr. German Laufer) to open medical clinics which a non-doctor (including moving defendant Jacob Kagan) secretly owned and controlled. Plaintiff alleges that the clinics established consulting and management arrangements permitting the controlling non-medical personnel to dictate the medical and billing practices of the clinics and to provide for the siphoning of profits to laypersons. Under this scheme, defendants defrauded plaintiff because the clinics were not owned and controlled by doctors, as required by New York law, and, therefore, were not entitled to any reimbursement for services and Supplies provided.
In addition to these fraudulent incorporation allegations, plaintiff alleges that Wholesalers provided Retailers (including the moving Klotsman defendants as well as entities controlled by defendant Kagan) with Supplies at artificially inflated prices, accompanied by invoices reflecting those inflated prices, and Retailers, in turn, submitted those false invoices to plaintiff for reimbursement, supported by "boilerplate prescription forms and letters of medical necessity" from medical clinics. (Am. Compl. ¶ 17.) According to plaintiff, the documentation provided to plaintiff by the Retailer defendants was fraudulent in numerous respects, including: (i) deliberate omission of, or inclusion of fraudulent, information on the invoices in order to "conceal from State Farm the true kind and quality of the items that were provided to the Insureds"; (ii) repeatedly submitting a single invoice to support "charges for items purportedly provided to numerous Insureds"; (iii) submitting invoices requesting reimbursement for Supplies at "grossly inflated" prices; and (iv) submitting invoices which listed Supplies "not actually provided or ... provided but not prescribed." (Id. ¶¶ 21-23.)
Plaintiff also alleges that, in furtherance of the scheme, Retailer defendants issued checks to Wholesaler defendants reflecting payment for Supplies at the inflated prices, and Retailer defendants then used those checks to demonstrate to State Farm the prices they purported to have paid for Supplies. However, Wholesalers would cash the checks from Retailer defendants and then pay secret kickbacks to the Retailers to offset the inflated charges. According to plaintiff, defendants engaged in a "pay to play" system under which Retailers would only use wholesalers that agreed to pay these "secret cash kickbacks." (Id. ¶¶ 16, 19.)
By example, plaintiff explains that a defendant retailer could provide plaintiff with a fraudulent invoice stating that $75 was paid by the retailer for a massager, a common item of durable of medical equipment. However, as alleged...
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