Connecticut General Life Insurance v. New Images of Beverly Hills

321 F.3d 878
Court of Appeals for the Ninth Circuit·Decided March 3, 2003·No. No. 02-55883·Published·Cited by 1 cases

Opinion

OPINION

MICHAEL DALY HAWKINS, Circuit Judge.

Defendant Haya Zilka appeals from the district court’s grant of a preliminary injunction freezing her assets. She attacks the injunction on a variety of grounds, many of which were never presented to the district court. All are without merit and we affirm.

The background of this case is long and colorful. Plaintiffs — branches of four major medical insurance companies' — -filed a complaint in 1999 against dozens of individuals involved in an alleged insurance [880]*880fraud scheme at ten outpatient surgery-clinics in Southern California. The alleged scheme involved surgeons who would perform elective cosmetic surgeries and then submit fraudulent bills and medical records to plaintiffs, assigning bogus diagnoses and misrepresenting the surgeries performed. For example, various facial cosmetic surgeries were documented and billed as procedures to correct deviated septums; breast implants were billed as biopsies; tummy tucks became hernia or gynecological surgeries. The fraud was aided by patient recruiters who sought patients, primarily Asian-American women, from all over the country and were paid a fee per patient.

Haya’s now ex-husband Ezeekiel Zilka was a surgeon at several of the clinics during the time these fraudulent acts occurred. Plaintiffs obtained a judgment of over five million dollars against Ezeekiel on two RICO claims. Plaintiffs then attempted to determine Ezeckiel’s assets to enforce their judgment against him, and served discovery on him, his wife Haya and their son. The Zilkas resisted discovery and defied various court orders, which eventually led the district court to find them in contempt and to incarcerate Haya and Ezeekiel. We affirmed their incarceration for civil contempt in January, 2002.

Shortly thereafter, plaintiffs amended their complaint to add Haya Zilka and her company DAS International (“DAS”) as defendants, alleging that she was involved in the fraud scheme as a patient recruiter. The complaint alleged that DAS received 29 checks from the Westwood Clinic (one of the hotbeds of the insurance fraud) as payments for patient recruiting, totaling more than $260,000.

Plaintiffs then sought a temporary restraining order and preliminary injunction against Haya to freeze her assets and prevent her from making material asset transfers. Plaintiffs cited previous intra-family transfers that appeared to be for the purpose of frustrating creditors. These transfers included the purchase of the Zilkas’ Beverly Hills mansion in their son’s name and the sale of the Pacific Wilshire Surgery Center to Haya’s company for only $20,000. Plaintiffs also pointed out that the Zilkas filed for divorce shortly after the district court issued its order compelling discovery, and that the divorce settlement purports to vest all the family’s significant assets with Haya.

In support of their allegations against Haya, plaintiffs submitted declarations from two insiders who testified that Haya was a patient recruiter. Plaintiffs also submitted the checks from Westwood to DAS for $261,000, and the checks from DAS to “sub-recruiters,” most in standard per-patient multiples of $1500, $1600 or $1700. In her opposition, Haya did not submit a declaration explaining the checks, but asserted that the checks by themselves did not prove she was a recruiter. She also argued that the insider declarations were inadmissible because they were not based on first-hand knowledge.1

Judge Letts granted plaintiffs’ motion to amend their complaint, granted the temporary restraining order, and issued an order to show cause why an injunction imposing similar restraints should not issue. The restraining order precluded Haya from transferring any assets without consent, except for payment of expenses in the ordinary course of living and business expenses not exceeding $2500 per month. Shortly thereafter, Judge Letts recused [881]*881himself voluntarily after Haya’s counsel filed a scathing declaration criticizing the judge.2 Judge Terry Hatter then took over the case. In May 2002, Judge Hatter granted the preliminary injunction, finding that the Zilkas had previously engaged in misconduct and attempts to conceal assets and that it was probable Zilka would engage in similar and additional misconduct in the future.

A. Preliminary Injunction Standard

A preliminary injunction should be vacated “only if the district court abused its discretion by basing its decision on an erroneous legal standard or on clearly erroneous factual findings.” FTC v. Affordable Media, LLC, 179 F.3d 1228, 1233 (9th Cir.1999). To obtain a preliminary injunction, a party must make a clear showing of either (1) a combination of probable success on the merits and a possibility of irreparable injury, or (2) that its claims raise serious questions as to the merits and that the balance of hardships tips in its favor. F.D.I.C. v. Garner, 125 F.3d 1272, 1277 (9th Cir.1997).

Haya asserts that plaintiffs have not shown a likelihood that they will succeed on the merits. Plaintiffs, however, presented fairly significant evidence of Haya’s involvement in the fraudulent scheme, including that her acts were sufficiently related to the other illegal acts, were over a sufficient period of time, and that she was a substantial participant. See Howard v. America Online, Inc., 208 F.3d 741, 746 (9th Cir.2000) (discussing requirements of RICO claim). Moreover, while attacking the merits of plaintiffs’ RICO claim, Haya ignores the viability of plaintiffs’ claims under the Unfair Competition Act and for unjust enrichment. Furthermore, Haya has provided no legitimate explanation for the money she received from the corrupt clinics. On these facts, the district court could have easily concluded plaintiffs have a probability of success on the merits of their claims.

Haya also claims that plaintiffs did not bear their burden of establishing the possibility of irreparable injury or that the balance of hardships tipped in their favor. The district court, however, expressly found that it was not only possible, but probable that Haya would engage in misconduct to conceal or dissipate assets. This finding was not clearly erroneous in light of the Zilka family’s history of fraudulent intra-family transfers, their refusal to disclose asset information in defiance of court order and their convenient divorce settlement.

Haya also contends that the delay in adding her as a defendant is evidence that no irreparable injury would occur. Plaintiffs had known of Haya’s activities as a patient recruiter since some time in 2000, but did not add her to the complaint until January 2002. However, the irreparable injury that forms the basis of the injunction did not stem from Haya’s activities as a patient recruiter; rather, it was the more recent discovery of the Zilkas’ divorce and suspect property settlement in December 2001 that led to adding Haya as a defendant and seeking the injunction. Thus, plaintiffs actually acted promptly to attempt to avoid the harm of dissipating assets.

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Connecticut General Life Insurance v. New Images of Beverly Hills, 321 F.3d 878 (9th Cir. 2003).

321 F.3d 878 (Connecticut General Life Insurance v. New Images of Beverly Hills) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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