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 Thomas C. Platt dealt with plaintiffs' claims of municipal liability pursuant to 42 U.S.C. §1983 in connection with fatal injuries to a Latino male at the hands of police officers. Judge Arthur D. Spatt rejected a variety of claims by defendants in a civil suit following their federal conviction for holding workers in servitude. Judge Spatt also upheld a RICO complaint against a Rule 9(b) challenge. And Judge Nicholas G. Garaufis dismissed RICO claims as "extraterritorial."

Municipal Liability – §1983

In Gonzalez v. County of Suffolk, 09 CV 1023 (EDNY, March 14, 2011), Judge Platt denied defendants' motion for judgment on the pleadings as to plaintiffs' municipal liability claims under §1983, while granting defendants' motion for judgment on the pleadings as to some of plaintiffs' related claims. The case arose from the fatal injury to a Latino man after a vehicle stop and beating by Suffolk County Police.

The complaint alleged the following: Kenny Lazo was driving his car on a Southern State Parkway entrance ramp when police officers stopped him and beat him with a flashlight and other weapons, leading to his death. Mr. Lazo did nothing to warrant the use of deadly force by the police. The officers failed to inform medical personnel of Mr. Lazo's severe injuries. About 45 minutes after the stop, Mr. Lazo was found unresponsive on the floor of his holding cell at the police department. There were attempts to revive him through cardiopulmonary resuscitation and intubation before he arrived at a hospital for emergency treatment. Mr. Lazo was pronounced dead 20 minutes after he reached the hospital.


The complaint went on to allege that the District Attorney waited nearly seven months before presenting the circumstances of the homicide to a grand jury and that the delay in investigating and presenting the case resulted in its dismissal. Before the investigation was completed, and three months before presentation of the case to the grand jury, the Suffolk County Police Department and its Commissioner released a memorandum exonerating defendant police officers. The memorandum stated (in part) that the officers "used the minimum force necessary to subdue Mr. Lazo" to protect themselves.

Judge Platt turned first to the §1983 municipal liability claims against the county, the police commissioner, the district attorney and his chief trial prosecutor. In upholding the complaint and authorizing discovery to proceed, the court pointed to the following factors (among others):

  • The seven-month delay in presenting the "homicide" to the grand jury "may" suggest an impropriety if similar cases-a death ruled a homicide, with known police suspects-proceeded more expeditiously.
  • More discovery is needed to determine if the chief trial prosecutor was a "policymaker" in "the area at issue" whose conduct, or ratification of others' conduct, could expose the municipality to liability.
  • Alleged delay in releasing the names of defendant police officers could have violated Mr. Lazo's rights if such delay was not a customary practice.
  • Depending on the circumstances, the memo exonerating the officers could show a policy of ratifying police conduct before the facts were known.

Plaintiffs fared less well in claiming that defendants conspired to deprive Mr. Lazo of his rights because of his Latino heritage, in violation of 42 U.S.C. §§1985(2) and 1983. There were simply "no facts, much less plausible facts, demonstrating that (1) defendants conspired against Lazo, and (2) that any conspiracy was based on Lazo's Latino heritage." Slip op. 20. Plaintiffs' claim under §1981-alleging that defendants deprived Mr. Lazo of his constitutional rights, privilege and immunities because of his Latino heritage-suffered from the same failure to cite any fact showing discriminatory intent. The court gave plaintiffs 30 days to amend their complaint to cure these deficiencies.

Judge Platt declined to consider plaintiffs' alternative argument that, contrary to current law, respondeat superior should be a basis for municipal liability. Slip op. 24-25.

Collateral Estoppel

In Samirah v. Sabhnani, 08 CV 2970 (EDNY, March 25, 2011), Judge Spatt held that persons convicted of holding domestic workers in a state of forced peonage in violation of federal law were collaterally estopped from relitigating their guilt in a civil suit by their victims.

Defendants relied on Gelb v. Royal Globe Insurance Co., 798 F.2d 38 (2d Cir. 1986), which allows collateral estoppel against criminal defendants only if, inter alia, they had a full and fair opportunity to actually litigate the matter on which estoppel is sought. Defendants argued that, because they had invoked the Fifth Amendment when opposing the criminal charges, Gelb would not permit preclusion. Granting summary judgment on all but one of plaintiffs' claims, Judge Spatt noted that the issues concerning defendants' conduct were identical in the criminal and civil matters, and "defendants were free to testify on their own behalf in the criminal proceeding…but nevertheless chose to remain silent when the stakes were highest." Slip op. 8-9.

The court rejected defendants' argument that, because they had already been subject to an order of restitution in the criminal matter, civil liability would constitute double jeopardy or cruel and unusual punishment. The constitutional principles defendants relied upon were not relevant to civil proceedings by non-state actors, and any argument that restitution payments should offset defendants' liability "is an issue relevant to the calculation of damages, not an issue that affects the validity of the plaintiffs' cause of action." Slip op. 18.

Judge Spatt also granted summary judgment on plaintiffs' state-law overtime claims. Although the U.S. Court of Appeals for the Second Circuit had modified the criminal restitution award to eliminate overtime on the ground that federal law does not provide for overtime to domestic workers residing in their employers' household, state law had no such limitation, and the findings of the criminal jury were sufficient to establish liability. Slip op. 19-20. Summary judgment was denied plaintiffs only as to their common law assault claim against one of the two defendants, who the criminal jury had found used threats and coercion, rather than "physical acts that placed the plaintiffs in imminent fear of harmful contact." Slip op. 24 (emphasis in original).

Standard on Rule 9(b) Motion

In Allstate Insurance Company v. Rozenberg, 08 CV 565 (EDNY, March 18, 2011), Judge Spatt, denying a motion to dismiss by two defendants added in the amended complaint, found that plaintiffs had adequately pleaded the RICO predicate act of mail fraud with the specificity required by Rule 9(b).

Plaintiffs, a group of nine insurers, alleged that defendants conspired to violate New York's no-fault insurance law in order to obtain payment for medical services and diagnostic tests that were not medically necessary or not performed at all. Some defendants were medical corporations that billed plaintiffs for medical procedures performed on patients insured by plaintiffs.

Defendant Alexander Rozenberg, a licensed neurologist, was listed as the owner of these medical corporations, but played no role in their operation or management. Instead, the medical corporations were owned by defendant management companies, which were owned, in turn, by individual defendants. Defendants allegedly created and submitted fraudulent medical reports and invoices, including bills for services not rendered and excessive fees for unnecessary medical treatment, all to be paid to professional medical corporations owned by non-licensed individuals.

The court had previously upheld the sufficiency of claims under RICO and for common law fraud and deceptive business practices under the New York General Business Law, and had granted plaintiffs' requests for prejudgment attachments on the assets of the initial defendants. Defendants Artek Management and Dimitry Sheynkman, named as defendants and co-conspirators in the amended complaint, made the motions at issue here. Artek Management Inc. was owned by Mr. Sheynkman and, according to the decision, "used by Sheynkman as a tool to illegally own and control YMA and to siphon-off revenues generated by YMA through billings submitted to Allstate for healthcare services." Slip op. 7. YMA (Yonkers Medical Art, P.C.) is the entity that was supposed to be owned by Dr. Rozenberg, but really owned by entities such as Artek and others who were not medical professionals. It was used to submit the false medical bills for reimbursement.

The court denied Mr. Sheynkman's motion to dismiss for insufficient service of process, finding that four failed attempts at personal service justified "nail and mail" procedures.

Contrary to claims by Mr. Sheynkman and Artek that plaintiffs failed to plead the RICO predicate act of mail fraud with sufficient particularity, the allegations that defendants participated in the fraudulent scheme through mail fraud associated with their illegal ownership of the medical services company and with billing for fraudulent medical services did not require pleading of specific claims sent through the mail. Regarding allegations of fraudulent billing, if "the nature of the RICO scheme is sufficiently pleaded so as to give notice to the defendants," the RICO complaint does not have to be specific as to each mail or wire fraud allegation. Slip op. 14. Additionally, to plead a claim for relief based on fraudulent incorporation, "the Plaintiffs were only required to allege with specificity that the material misrepresentations were fraudulent because the Defendants were not entitled to recover the No-Fault benefits." Slip op. 16.

The court had previously held that the original complaint adequately pled a detailed description of the fraudulent scheme, the management companies' role in the scheme, and fraudulent misrepresentations in furtherance of that scheme. In the amended complaint, Judge Spatt found, plaintiffs adequately pled facts demonstrating that Mr. Sheynkman, through Artek, owned and controlled one of the medical clinics involved and used this control to facilitate the fraudulent billing. Thus, plaintiffs plausibly alleged the role of the new defendants in the mail fraud.

Judge Spatt denied plaintiffs' motion for prejudgment attachment of Mr. Sheynkman's and Artek's assets, because plaintiffs have neither "specifically alleged, nor have they provided any evidence that Sheynkman or Artek transferred any of the money they received from YMA to any of the money laundering entities." Slip op. 26.

Application of RICO

In European Community v. RJR Nabisco Inc., 02 CV 5771 (EDNY, March 7, 2011), a suit alleging that defendants engaged in a practice of smuggling and money laundering in relation to cigarette transactions, Judge Garaufis dismissed plaintiffs' RICO claims and reserved decision on whether to dismiss the common law claims. After a long procedural journey to the Supreme Court and back, plaintiffs – the European Community and 10 European countries – alleged in a Second Amended Complaint that defendants engaged in a global money-laundering scheme. According to this alleged scheme: (1) Colombian and Russian criminal organizations smuggled cocaine and heroin into Europe, generating large cash proceeds in Euros, and traded the Euros into local currency in their home countries through a black market; (2) illicit cigarette importers purchased the Euros on the black market and used the Euros to purchase defendants' cigarettes from U.S. and European wholesalers; and (3) the wholesalers purchased cigarettes from defendants and shipped them to importers.

Plaintiffs also alleged that to handle the transaction, defendants used "certain companies" that shipped to customers defendants knew were involved in criminal activities. Defendants also allegedly traveled around the world to negotiate business agreements with individuals who defendants knew or should have known were involved in the laundering of narcotics proceeds.

Defendants contended that Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), which prohibits the extraterritorial application of federal statutes where those statutes are silent or unclear on extraterritorial application, barred the RICO claims. As the Second Circuit has concluded, the RICO statute is silent on extraterritoriality. Judge Garaufis examined the focus of the RICO statute to determine the activities the statute seeks to regulate and parties the statute seeks to protect, concluding that the focus of RICO is to punish "racketeering activity in connection with an 'enterprise.'" Slip op. 9. To find the location of the enterprise in this case, Judge Garaufis looked for "the decisions effectuating the relationships and common interest of its members, and how those decisions are made." Slip op. 12.

Judge Garaufis found no evidence that defendants had any hand in the alleged drug smuggling, currency swap or currency purchase steps of the operation of the enterprise, which were directed by organized criminal organizations in Europe and South America. In the court's view, "[d]efendants appear to be nothing more than sellers of fungible goods in a complex series of transactions directed by South American and Russian gangs." Slip op. 14. Any "overall corporate policy" issued from criminal organizations located in South America and Russia, not the defendants based in the United States. The RICO claims were therefore extraterritorial and did not state a cause of action under Morrison.

Judge Garaufis requested additional briefing to determine whether the European Community may bring the remaining state law claims on diversity grounds. The parties agreed that there clearly would be diversity if the European Union withdrew, so Judge Garaufis reserved decision pending notification by plaintiffs' counsel on whether the European Community would remain in the suit or not. Slip op. 14-15.

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 April 8, 2011, issue of the New York Law Journal. Copyright © 2011 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]