United States v. Zemlyansky

• Decision Date: 20 May 2013
• Docket Number: No. 12 Cr. 171(JPO).,12 Cr. 171(JPO).
• Citation: 945 F.Supp.2d 438
• Parties: UNITED STATES of America v. Mikhail ZEMLYANSKY, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

945 F.Supp.2d 438

UNITED STATES of America

v.Mikhail ZEMLYANSKY, et al., Defendants.

No. 12 Cr. 171(JPO).

United States District Court, S.D. New York.

May 20, 2013.

Daniel Sachs Goldman, Jason Harris Cowley, U.S. Attorney's Office, Carolina A. Fornos, New York, NY, Nicholas Lloyd McQuaid, U.S. Attorney's Office, White Plains, NY, for United States of America.

Ronald P. Fischetti, Phyllis Ann Malgieri, Ronald P. Fischetti, Andrew Leopoldo Mancilla, Law Offices of Eric Franz, PLLC, Arthur Gershfeld, Arthur Gershfeld, PLLC, Eric P. Franz, Eric Franz, PLLC, Michael Rosen, Michaelrosen, Esq., Eric M. Creizman, Creizman PLLC, Frederick Phillip Hafetz, Noah Ephraim Shelanski, Hafetz Necheles & Rocco, Richard Bruce Lind, Richard Lind Attorney at Law, Jonathan Paul Bach, Cooley Godward Kronish LLP, Kenneth Alan Paul, Law Office of Kenneth A. Paul, Michael Andrew Blasie, Cooley L.L.P., Mark Lawrence Furman, Hoffman Polland & Furman, Barry A. Bohrer, Jacob Walter Mermelstein, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C., James E. Neuman, James E. Neuman, Esq., Richard Milton Asche, Litman, Asche & Gioiella, LLP, Henry Edward Mazurek, Clayman & Rosenberg, LLP, Megan Wolfe Benett, Kreindler & Kreindler, Lori Cohen, Cohen & Funk, P.C., Aaron M. Goldsmith, Law Office of Aaron M. Goldsmith, P.C., Scott B. Tulman, Law Offices of Scott B. Tulman, Gerald B. Lefcourt, Faith Alison Friedman, Renato Christian Stabile, Gerald B. Lefcourt, P.C., Sarita Kedia, Sarita Kedia, Esq., John Rapawy, Louis Grandelli, P.C., Joel Mark Stein, Joel M. Stein, Esq., Roman V. Popik, Esq., Law Office of Roman Popik, P.C, John Francis Kaley, Doar, Rieck, Kaley & Mack, Joshua D. Kirshner, Brafman & Associates, P.C., Stanislao A. German, Law Office of Stanislao A. German, Kafahni Nkrumah, Kafahni Nkrumah, Esq., James Michael Roth, Hurwitz Stampur & Roth, Karloff Cylton Commissiong, Adams & Commissiong LLP, Glenn Andrew Garber, Glenn A. Garber, P.C., Jonathan Marc Davidoff, Katie Allison Butler, Davidoff Law Firm, PLLC, Jeremy Leonard Gutman, Jeremy Gutman Esq., Donna Rita Newman, Law Offices of Donna R. Newman, Alexandra Vera Tseitlin, Law Office of Alexandra V. Tseitlin, P.C., Frederick Harvey Cohn, Law Office of Frederick

H. Cohn, David Zapp, David Wikstrom, New York, NY, Paul A. Lemole, Lemole McCarthy & Associates, Patrick V. Parrotta, Law Office of Patrick V. Parrotta, Vincent John Martinelli, The Law Offices of Vincent J. Martinelli, Staten Island, NY, James R. Froccaro, Jr., James R. Froccaro Attorney at Law, Port Washington, NY, Bruce A. Barket, Barket Marion Epstein & Kearon, LLP, Raymond Joseph Zuppa, The Zuppa Firm PLLC, Stephen P. Scaring, Stephen P. Scaring, P.C., Garden City, NY, Geoffrey Batsiyan, Law Office of Geoffrey Batsiyan, PLLC, James Dipietro, James J. Dipietro, Esq., Tony Mirvis, Mirvis & Associates, P.C., Michael Craig Farkas, Michael C. Farkas, Esq., PLLC, George A. Farkas, George A. Farkas, Esq., Brooklyn, NY, Gary Tsirelman, Gallo & Iacovangelo, LLP, Rochester, NY, Norman Alexander Pattis, The Pattis Law Firm, Bethany, CT, Alfredo Felix Mendez, Lake Success, NY, Albert Yukhanan Dayan, Albert Y. Dayan, Law Office, Kew Gardens, NY, Jill R. Shellow–Lavine, Law Offices of Jill R. Shellow–Lavine, Southport, CT, Richard David Willstatter, Green & Willstatter, White Plains, NY, for Defendants.

MEMORANDUM AND ORDER

J. PAUL OETKEN, District Judge:

The Indictment in this case charges 36 defendants with conspiracy to commit racketeering, health care fraud, mail fraud, and money laundering in connection with an allegedly fraudulent no-fault insurance scheme. Presently before the Court are several pretrial motions filed by certain Defendants. Oral argument on these motions was held on April 19, 2013. For the reasons set forth below, the motion to suppress evidence seized from the Tri–State Billing office is granted, while Defendants' other motions are denied.¹

I. Motion to Strike the Fraudulent Incorporation Theory from the Indictment

Defendants Yuriy Zayonts, Michael Danilovich, and Boris Treysler, joined by several other Defendants, move to strike portions of the Indictment insofar as they are based on the Government's theory of “fraudulent incorporation,” arguing that the theory is legally insufficient to support a conviction for mail fraud or health care fraud (or conspiracy or RICO charges premised on those offenses).

A. Background

The Indictment charges a complex scheme to defraud automobile insurance companies through New York's No Fault Comprehensive Motor Vehicle Insurance Reparation Act (the “No–Fault Law”), N.Y. Ins. Law § 5102 et seq. With respect to the fraudulent incorporation theory, the Indictment alleges as follows:

5. At all times relevant to this Indictment, pursuant to New York State Law, all medical clinics in New York State must have been incorporated, owned, operated, and/or controlled by a licensed medical practitioner in order to be eligible for reimbursement under the No–Fault Law. Insurance companies would deny all billings for medical treatments from a medical clinic that was not actually owned, operated and controlled by a licensed medical practitioner.

6. In actuality, the No–Fault Clinics were not owned, operated, and controlled by a licensed medical practitioner; instead, the actual owners, operators,and controllers of the No–Fault Clinics were individuals who were not licensed medical practitioners and who were not identified on documents filed with the New York State authorities (the “No–Fault Clinic Controllers”). The No–Fault Clinic Controllers, among other things, paid a fee and/or salary to licensed medical professionals (the “No–Fault Doctors”) so that the No–Fault Doctors would (1) incorporate a professional corporation under which a No–Fault Clinic could bill insurance companies; (2) open a bank account for the Clinic; (3) sign the lease for the Clinic property; (4) sign the Clinic's bills for treatments under the No–Fault Law; and/or (5) make the excessive and unnecessary prescriptions and referrals for additional treatments and medical supplies to other fraudulent medical clinics. In addition, the No–Fault Clinic Controllers, among other things, invested the initial funds to establish the No–Fault Clinics; identified the locations for the Clinics; negotiated the rent for the Clinics' leases; sourced and paid for the Clinics' equipment; arranged for Patients to receive treatment; and/or received most, if not all, of any proceeds from the No–Fault Clinics.

7. Furthermore, the No–Fault Clinic Controllers arranged for other similarly fraudulently incorporated entities to provide excessive and unnecessary medical treatments based on referrals from the No–Fault Doctors (the “Modality Clinics”).... In return, the No–Fault Clinic Controllers received cash kickbacks for each referral from other individuals who fraudulently owned, operated and controlled the Modality Clinics (the “Modality Clinic Controllers”). Similar to the No–Fault Clinics, many of the Modality Clinics were fraudulently incorporated by licensed medical practitioners who did not own, operate and/or control the Modality Clinics (the “Modality Professionals”).

(Indictment ¶¶ 5–7.)

New York's No–Fault Law requires automobile insurance companies to reimburse drivers and passengers for “[a]ll necessary expenses” up to $50,000 resulting from personal injuries arising out of motor vehicle accidents. N.Y. Ins. Law § 5102. Pursuant to regulations promulgated by the New York State Superintendent of Insurance, an insured may assign his or her benefits to the health care provider, which may then receive direct payment for the services provided. 11 N.Y.C.R.R. § 65–3.11(a). The regulations further provide:

A provider of health care services is not eligible for reimbursement under section 5102(a)(1) of the [New York] Insurance Law if the provider fails to meet any applicable New York State or local licensing requirement necessary to perform such service in New York or meet any applicable licensing requirement necessary to perform such service in any other state in which such service is performed.

11 N.Y.C.R.R. § 65–3.16(a)(12).

The New York State Department of Education is authorized to issue a certificate of authority to a “qualified professional service corporation” that is organized pursuant to Section 1503 of the New York Business Corporation Law. N.Y. Educ. Law § 6507(4)(c). Section 1503 provides that such an entity's certificate of incorporation

(i) shall state the profession or professions to be practiced by such corporation and the names and residence addresses of all individuals who are to be the original shareholders, directors and officers of such corporation, and (ii) shall have attached thereto a certificate or certificatesissued by the licensing authority certifying that each of the proposed shareholders, directors and officers is authorized by law to practice a profession which the corporation is being organized to practice and, if applicable, that one or more of such individuals is authorized to practice each profession which the corporation is authorized to practice.

N.Y. Bus. Corp. Law § 1503(b). Section 1507(a) of that statute provides that “[a] professional service corporation may issue shares only to individuals who are authorized by law to practice in this state a profession which such corporation is authorized to practice....” Section 1508 states that “[n]o individual may be a director or officer of a professional service corporation unless he is authorized by law to practice in this state a profession which such corporation is authorized to practice and is either a shareholder of such corporation or engaged in the practice of his profession in such corporation.”

In short, New York licensing requirements are structured so as to “prohibit nonphysicians from owning or controlling medical service corporations.” State Farm Mut. Auto. Ins. Co. v. Mallela, 4 N.Y.3d 313, 320–21, 794 N.Y.S.2d 700, 827 N.E.2d...