November 15, 2017

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

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 Jack B. Weinstein allowed  Monell claims against the City of New York to proceed, premised on an alleged widespread practice of false arrests. Judge Raymond J. Dearie denied a motion to dismiss "disquieting" claims, brought under the False Claims Act, alleging billing improprieties and other misconduct relating to a hospital residency program. And Judge Dora L. Irizarry found that an indictment had not adequately alleged smuggling under 18 U.S.C. §554.

Municipal Liability-§1983

In  Cordero v. City of New York, 15 CV 3436 (EDNY, Oct. 17, 2017), Judge Weinstein denied summary judgment seeking dismissal of  Monell claims under 42 U.S.C. §1983 against the City of New York and four police officers.

Under  Monell v. Department of Social Services, 436 U.S. 658 (1978), a municipality can be held liable under §1983 for Constitutional violations where plaintiff demonstrates both "1) ... a municipal policy or custom beyond a single bad act by an officer; [and] 2) ... a causal connection between the custom or policy and the plaintiff's loss of liberty." Slip op. 16, citing  K.D. ex rel. Duncan v. While Plains Sch. Dist., 921 F. Supp. 2d 197, 204 (S.D.N.Y. 2013)Vippolis v. Vill. of Haverstraw, 768 F.2d 40, 44 (2d Cir. 1985).

Plaintiff alleged that he and others had been subjected to false arrest and related misconduct by the individual defendant officers in order to secure overtime, and that this was part of a municipal policy or custom that the City authorized or permitted. Weinstein bifurcated the case, ordering trial first of the claims against the individual officers, to be followed, if individual misconduct is found, by trial on the claims of municipal liability. Slip op. 5-6.

Weinstein noted that, while "New York's police department is widely admired for its overall effectiveness," there had been extensive press coverage "of a wide-spread practice of false arrests at the end of tours of duty in order to obtain overtime and that [the City] has failed to sufficiently address this practice." Slip op. 3, 4 & fn. 2. Were underlying acts of misconduct by the individual officers to be found at the first trial, there would be "sufficient evidence for plaintiff to proceed," in a second trial, "on the grounds that: (1) New York city's overtime policy incentivizes officers to make false arrests; and (2) police malfeasance in general and as related to the overtime policy is inadequately monitored to prevent abuse." Slip op 20.

False Claims Act

In  United States, ex rel. Gelman v. Donovan, 12 CV 5142 (E.D.N.Y., Sept. 25, 2017), Judge Dearie denied defendants' motion to dismiss an action brought under the False Claims Act (FCA), 31 U.S.C. §§3729, et seq., finding the allegations of the complaint sufficient to state a claim.

In the complaint the qui tam relator Irina Gelman, formerly a resident in Coney Island Hospital's podiatric medicine and surgery residency program, alleged that the hospital violated important statutory standards, regulatory requirements, and contractual obligations. The complaint makes three basic charges against defendants Glenn Donovan, DPM, director of the program, and the hospital. First, Donovan abdicated his responsibility as director to supervise the program, but billed Medicaid and Medicare for the podiatric services rendered by the students as if he had performed them himself. Second, Donovan allowed two residents to render services without the permit required by law to participate in a hospital residency, and then claimed Medicaid and Medicare reimbursement for their services. Third, Donovan concealed the improprieties to avoid jeopardizing federal and state funds earmarked for approved Graduate Medical Education programs such as the Coney Island Hospital residencies.

The FCA imposes liability on a person who knowingly presents a false or fraudulent claim for payment or approval. Dearie found enough factual content in the Amended Complaint to permit a reasonable inference that defendants are liable for the alleged misconduct. The court applied the theory developed by the Second Circuit in  U.S. ex rel. Chorches v. American Medical Response, 865 F.3d 71 (2d Cit. 2017), called "implied false certification," which makes omissions actionable when they are material. Under  Chorches, plaintiff's failure to plead the filing of specific false bills is excused "provided that the filing of  specific false claims is  strongly and  plausibly inferable from her allegations." Slip op. 13-14 (emphasis in original).

Dearie found the specific facts plaintiff alleged compelling, including "the outright falsification of outpatient records by the program's own director, the open practice of podiatry by residents lacking the basic permit required by state law, the doctoring of residents' academic records to avoid jeopardizing accreditation (and in turn, federal program funding), and abdication of the supervision that is the sine qua non of an  educational program." Slip op. 14 (emphasis in original). The court, using "common sense," drew the strong inferences that "something was seriously amiss at Coney Island Hospital's podiatry residency program" and that Donovan viewed the patient and resident records he falsified as important and therefore material.  In addition, the retaliation against plaintiff by firing her after she tried to expose the improprieties made all the allegations more credible and serious.

Dearie cautioned plaintiff that, although the complaint survived the motion to dismiss by plausibly pleading the regulatory and other violations and their relevance to the payment decision, she would later have to meet the rigorous materiality requirement of the FCA-an evidentiary question.

Smuggling Count Dismissed

In  United States v. Lin, 15 CR 601 (S-1) (E.D.N.Y., Sept. 13, 2017), Chief Judge Irizarry dismissed Count One of an indictment, charging defendant Ying Lin with smuggling, 18 U.S.C. §554, for failure to state an offense within the meaning of that statute.

Lin, an employee of an air carrier at JFK Airport, was charged with smuggling and other offenses, including conspiracy to obstruct justice. Count One alleged that Lin had violated 18 U.S.C. §554 by facilitating the transport of "unaccompanied luggage" to China on AirChina passenger flights, in violation of that airline's policy against unaccompanied baggage pursuant to TSA implementing regulations.

In the court's view, "from a plain reading of the statute" the alleged conduct was not "smuggling." 18 U.S.C. §554 imposes up to 10 years' imprisonment for anyone who "fraudulently or knowingly exports or sends from the United States ...  any merchandise, article or object contrary to any law or regulation of the United States, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment or sale of  such merchandise, article or object, prior to exportation, knowing the same to be intended for exportation contrary to any law or regulation of the United States [.]" (emphasis added).

The highlighted language, Irizarry stated, shows that "there are two ways to violate" the statute: by exporting an illegal item or, prior to exportation, by facilitating the exportation of an illegal item knowing that it is intended for illegal exportation. As the court explained:

"In the first clause "contrary to any law or regulation" modifies "merchandise, article, or object," and that language is imported into the second clause with the phrase "such merchandise, article, or object."... The second clause also contains the phrase "contrary to any law or regulation," to modify "exportation." The effect of this is that the knowledge element varies in each clause. In the first, a defendant may be convicted of smuggling for knowingly exporting an illegal item, whereas a defendant may be convicted of smuggling under the second clause by facilitating the exportation of an illegal item, knowing that the item is intended for  illegal export. (emphasis in original.)"

The court emphasized the statute's omission of a comma between "any merchandise, article, or object" and the next phrase, "contrary to any law or regulation ..." In its opposition brief the government "rework[ed]" the punctuation by inserting a comma between "objects" and "contrary", thereby changing the meaning of the statute to include activity contrary to any law or regulation, whether or not the subject merchandise is illegal to export. Slip op. 3-5.

Irizarry rejected this reworking, and found the indictment's allegations insufficient under the statute. "First, [Lin] could not have violated §554 by exporting merchandise contrary to the TSA regulations" cited by the government, because they "do not prohibit objects for export," but only prescribe "a way for a foreign carrier to implement its own security program." Slip op. 5.

Second, the government has alleged nothing about the content of the baggage, and

"'unaccompanied baggage' speaks to the method of exportation, not the objects for export contained within. Baggage is not illegal for export  per se, and the Government has not pointed to a United States law or regulation that prohibits illegal baggage."

While dismissing the smuggling count with prejudice, Irizarry upheld the obstruction counts. Slip op. 6-9.

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.