November 13, 2014

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Leonard D. Wexler rejected a constitutional challenge to New York's statutory restrictions on who may conduct boiler inspections. Judge Frederic Block analyzed particularity and overbreadth issues in denying a motion to suppress evidence seized pursuant to a search warrant. Judge Jack B. Weinstein discussed restitution in criminal cases and specifically focused on how to deal with restitution for a 'victim' who had profited from the charged crimes and his own cooperation. And Judge Roslynn R. Mauskopf dealt with claims of hostile work environment and disparate impact under Title VII.

§204 — Boiler Inspections

In Cityspec Inc. v. M. Patricia Smith, Commissioner of the New York State Department of Labor, 07 CV 1224 (EDNY, May 18, 2009), Judge Wexler, granting summary judgment to defendant, upheld the constitutionality of State Labor Law §204, regulating boiler inspections.

Under the statutory scheme, boiler inspections throughout the state may be conducted by state inspectors and authorized insurance companies. In cities, inspections may be conducted, additionally, by those authorized pursuant to a state-issued variance. This category includes inspection by private entities, even apart from insurance companies, that meet city regulations.

Consistent with §204, the regulation covering the boiler inspection competency exam restricts the test to those 'actually in the employ of the State of New York, a duly authorized insurance company or a qualified city. . . . ' 12 N.Y. C.R.R. §4-2.3(c). The Labor Commissioner has discretion to waive these requirements if 'necessary or convenient for the enforcement or administration of' §204. Id.

Plaintiff Cityspec conducts boiler inspections, and plaintiff Bruno Tucci is a Cityspec employee. Though not an insurance company, Cityspec, taking advantage of the discretionary variance, conducts over 30 percent of the inspections in New York City, Yonkers and Great Neck. The statute precludes a company like Cityspec from expanding its business to include areas within the state that are not cities, such as large areas in Nassau and Suffolk counties. To remedy this restriction, Cityspec applied to the State Department of Labor for a variance, which was denied.

Judge Wexler saw no merit in Cityspec's procedural due process claim. Cityspec alleged a constitutionally protected property and liberty right to engage in a chosen profession, free from arbitrary governmental interference. As the court noted, however, the denial of the requested variance 'interferes not with the right to engage in a profession, but only in the ability to expand market share within a particular area.' Slip op. 12.

Cityspec also had no valid substantive due process claim. First, the protected interest — the right to engage in a chosen profession — is not so broad as to include the right to expand one's business free of regulation. Second, Cityspec failed to show that the challenged regulations lack a rational relationship to a legitimate governmental interest. As Judge Wexler observed:

The state legislature has made the rational connection between an insurer's interest in boiler safety (to minimize the possibility of boiler malfunctions, injury and claims) and conducting a proper inspection. No similar rational relationship has been found to exist between other private entities and boiler safety. (Slip op. 14)

The court also rejected Cityspec's Equal Protection arguments, as well as plaintiff Tucci's claim that the denial of his right to take the competency examination deprived him of his First Amendment right to petition the government.

As to Cityspec's 'public policy' argument, which was based on evidence purporting to show undue public delays in boiler inspections, Judge Wexler chose not to interfere with the Labor Commissioner's discretionary decision not to grant a waiver. Slip op. 18-19.

Search Warrants

In United States v. Cohan, 07 CR 841 (EDNY, June 24, 2009), Judge Block denied defendant's motion to suppress the fruits of a search of his dental office.¹

Defendant was indicted on counts of health care fraud, false statements and related offenses. The charges stemmed from allegedly fraudulent billing practices regarding patients who were Port Authority (PA) employees. Much of the evidence was seized during a search of his dental office pursuant to a warrant issued by Magistrate Judge Cheryl L. Pollak. The warrant contained standard 'probable cause' language, referred to an affidavit by a Port Authority Officer and attached a rider of 'Items to Be Seized.' The officer's affidavit described in detail the theory of fraud and grounds for probable cause.

In essence, the alleged fraud occurred after the Port Authority, in July 2004, agreed to reimburse 80 percent of a dentist's fee, however high (!), provided that the dentist collected the remaining 20 percent from the patient as a co-payment. The co-payment thus became the sole check on the charging of outrageous fees. The insurance claim form required dentists to certify that their fees included the 20 percent co-payment and were the 'actual' fees they charged and 'intended to collect.'

Defendant objected here to the warrant's 'extraordinary breadth' in authorizing the seizure from his office of (in his words) 'every document of every client, from the beginning of time to the present,' creating in effect a de facto general warrant. Defendant argued that the warrant should have been limited to records only of Port Authority patients and only within a limited time frame.

Judge Block found no violation of the Fourth Amendment's particularity requirement. The warrant was not so vague and open-ended as to be invalid. In fact, 'it explicitly lists various types of documents and does not contain a catch-all provision.' Slip op 9. Thus, 'while the warrant embraces a large amount of material, nothing is left to the discretion of the officer executing the warrant.' Id (citation omitted).

In a cautionary aside, Judge Block also observed that, if the warrant were insufficiently particular on its face, the government 'could not rely on the detailed information in the affidavit' to cure the defect because the government 'has not established that the affidavit was attached to the warrant, and it was not specifically incorporated by reference.' Slip op. 11-12.

In support of his 'overbreadth' argument, defendant asserted that the affidavit failed to establish probable cause to seize documents other than those pertaining to Port Authority patients or generated within the time frame of the offense. But as the court found, the supporting affidavit did establish probable cause to seize both Port Authority and non-Port Authority files. Here, 'there was probable cause to believe the 'innocent' non-Port Authority patient files contained material evidence of the alleged fraud on the Port Authority.' Slip op. 16.

Regarding the lack of a time restriction, the warrant could most logically be read to suggest that the fraud began in July 2004, when the Port Authority began relying on co-payments as the only check on fees. Yet, as the court also explained, there was probable cause to believe that records prior to July 2004 could also contain evidence of the fraud. Though there arguably was probable cause to seize records dating as far back as 1990, the warrant here 'contained no time frame at all.' Indeed, 'it allowed the seizure of records dating back arbitrarily far, including even decades-old records of vanishing small relevance.' Slip op.18. The Second Circuit has yet to consider the issue of when, if at all, the absence of a time frame would render a warrant overbroad, and there are conflicting decisions on this question. Slip op. 18-21.

In Judge Block's view there was no need to sort out this aspect of alleged overbreadth here because the 'uncertainty' in the relevant decisions triggers the 'good-faith exception to the exclusionary rule...' Given the uncertain state of the law, Judge Block could not say that the officer's reliance on the magistrate judge's authorization was not objectively reasonable. Suppression was therefore unwarranted. Slip op 22-24.

Restitution in Criminal Cases

In United States v. Agate, 08 CR 76 (EDNY, May 14, 2009), Judge Weinstein accepted a global settlement of restitution obligations in a 62-defendant case against members and associates of the Gambino crime family.

Judge Weinstein was particularly concerned by the proposal to grant restitution to Joseph Vollaro, who was both a cooperating witness and a Gambino crime family associate. Mr. Vollaro had profited from the activities that were part of the crimes charged and from his criminal connections. He waived his right to receive any restitution himself, instead assigning his interest to the Crime Victims Fund. The victims who would receive restitution were the Trustees and Fiduciaries of Local 282 International Brotherhood of Teamsters Welfare, Pension, Annuity, Job Training and Vacation and Sick Leave Trust Funds ('Local 282') and Mr. Vollaro.

Judge Weinstein examined the history of restitution in criminal cases. Congress first granted federal courts discretion to order payment of restitution in 1925, but it was not until the Mandatory Victims Restitution Act (MVRA) was passed in 1996 that restitution became mandatory for a large group of offenses. The MVRA now applies to convictions for crimes of violence and to offenses against property under title 18, including offenses committed by fraud or deceit, as long as an identifiable victim has suffered a physical injury or pecuniary loss.

Reviewing the definition of victim, Judge Weinstein examined situations like Mr. Vollaro's where 'victims' had lost ill-gotten gains. In such instances the court should determine whether the party seeking restitution would have a civil cause of action against defendants for their conduct in committing the offense. The bottom line is that courts deny restitution to parties whose illegally obtained money was subsequently stolen from them. Slip op. 8.

Judge Weinstein discussed the appropriate process to determine restitution. The court first looks to the Probation Department's Pre-Sentence Report, which contains information relating to the losses of each victim, any restitution owed pursuant to a plea agreement and the economic circumstances of each defendant. Then, each defendant files an affidavit describing his or her financial resources, including a list of assets, and the financial needs and earning ability of the defendant and the defendant's dependents. The government provides a list of all amounts subject to restitution after consulting with victims concerning the amounts of their losses. Slip op. 8-10.

The court next determines the amount or type of restitution, depending on defendant's financial situation, and whether payment should be made by lump-sum or by scheduled installments. The court may order a single defendant to pay restitution for all losses or apportion liability among defendants. The court must order restitution for the full amount of the victim's loss, but it may not impose restitution in excess of the amount of that loss. The court has 90 days after sentencing to order restitution. Slip op. 10-11.

In this case, two defendants caused losses to Local 282, and the court ordered each to pay $2,643,530.58 at a rate of $25 per month, with each jointly and severally liable for the entire amount. Judge Weinstein then determined that Mr. Vollaro was a 'victim' within the meaning of the MVRA, because he was directly harmed as a result of the commission of the offenses at issue. Additionally, Mr. Vollaro 'could not be considered a co-conspirator for the purpose of the defendants' convictions because of his status as a government cooperator.' Slip op. 14. Thus, given the punitive justification for criminal restitution, all defendants who caused quantifiable losses to Mr. Vollaro should pay restitution. Slip op. 16.

Mr. Vollaro, however, gained far greater benefits as a government cooperator (and from the charged offenses) than he lost because of defendants' acts, receiving 'substantial personal income from the illegally conducted businesses he and the government used to incriminate the defendants.' Slip op. 17. His waiver of his right to receive the ordered restitution relieved 'the court from the necessity of deciding whether a cooperator who benefits significantly from his cooperation — by economic gains and those from non-prosecution of his own crime — should also be awarded restitution under the MVRA.' Slip op. 16. This reflected a proper resolution, because Mr. Vollaro would not receive any of the restitution, but defendants would still be required to pay for the losses they caused. Consequently, 'the statutory design that restitution be awarded in all criminal cases where there are identifiable victims with quantifiable losses ' would be met. Slip op. 17.

Employment Claims

In Finkelshteyn v. Staten Island University Hospital, 06 CV 4774 (EDNY, March 31, 2009), Judge Mauskopf granted defendant's motion for summary judgment under Title VII as to plaintiff's disparate treatment claim but denied the motion as to plaintiff's hostile work environment claim.

Plaintiff worked as a registered nurse at defendant hospital. In connection with his hostile work environment claim, plaintiff contended that (1) his supervisors condoned anti-Semitic remarks; (2) his direct supervisor made disparaging racial and ethnic remarks about African-American and Chinese employees and anti-Semitic remarks about Jewish patients; and (3) his direct supervisor's anti-Semitic bias manifested itself in giving plaintiff oppressive work assignments. In support of his disparate treatment claim, plaintiff argued that his suspension in November 2005 was motivated by anti-Semitic discrimination. Defendant contended that plaintiff's suspension resulted from his repeated unauthorized absences, some of which occurred because he was working at another hospital.

In finding plaintiff's claims of hostile work environment sufficient to withstand summary judgment, Judge Mauskopf pointed to plaintiff's own observations set forth above and his co-worker's testimony that plaintiff's supervisor had said that the Blacks, Chinese and Jews were problems, that plaintiff was a 'Jew Head,' and that 'we'll get rid of him soon enough.' Slip op. 16. His co-worker's testimony also supported plaintiff's contention that '(a) [his supervisor's] discriminatory animus tended toward anti-Semitism, (b) her discriminatory animus was focused, at least in part, on [plaintiff], and (c) that within the CTU [Cardiothoracic Unit] Community [his supervisor] made her animosity toward [plaintiff] publicly known, and made no secret of her stated intention to "get rid of him."'

Another co-worker corroborated plaintiff's claim that he was deliberately given substantially more difficult work assignments than others. Viewed in context, these incidents were 'sufficient to establish a prima facie case that anti-Semitic hostility within the CTU environment was severe and pervasive, ' even though plaintiff did not attribute his burdensome schedule to anti-Semitism in making initial complaints. Slip op. 17.

Plaintiff failed to establish that his suspension for absenteeism was motivated by religious animus. The court found: (1) Title VII applies to anti-Semitic discrimination; (2) defendant did not contest plaintiff's performance as a nurse; and (3) his two-day suspension was an adverse employment action. But plaintiff did not establish that his suspension resulted from a discriminatory motivation, because he showed no nexus between the discriminatory behavior and his suspension. To the contrary, the record indicated that plaintiff was suspended in strict accordance with the hospital's written policies relating to absences. Plaintiff had a history of absence, and he was consistently rated poorly on attendance. Slip op. 25.

1.  Ronald G. Russo, who represented defendant Cohan, is of counsel to the authors' firm.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the July, 2009, issue of the New York Law Journal. Copyright © 2009 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]