State Farm Mutual Automobile Insurance v. Grafman

274 F.R.D. 442, 2011 U.S. Dist. LEXIS 53382, 2011 WL 1869387
CourtDistrict Court, E.D. New York
DecidedApril 4, 2011
DocketNo. 04-CV-2609 (NG)(SMG)
StatusPublished

This text of 274 F.R.D. 442 (State Farm Mutual Automobile Insurance v. Grafman) is published on Counsel Stack Legal Research, covering District Court, E.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
State Farm Mutual Automobile Insurance v. Grafman, 274 F.R.D. 442, 2011 U.S. Dist. LEXIS 53382, 2011 WL 1869387 (E.D.N.Y. 2011).

Opinion

[444]*444 OPINION & ORDER

GERSHON, United States District Judge:

Plaintiff State Farm Mutual Automobile Insurance Company (“State Farm”) brings this action against numerous defendants, including defendants Jacob Kagan and Mirka United, ine. (“Mirka United”), the subjects of this motion, based on a wide-ranging fraudulent scheme designed to recover exorbitant and improper reimbursements under New York’s No-Fault insurance laws, N.Y. Ins. Law § 5105 et seq., and the regulations promulgated thereunder, 11 NYCRR § 65 et seq.

During the course of nearly five years of discovery, which only recently came to a conclusion with the deposition of defendant Kagan, plaintiff has encountered numerous instances of discovery abuse by defendant Kagan, including the intentional destruction of critical evidence in Kagan’s possession. Plaintiff now brings, under Federal Rule of Civil Procedure 37(b)(2)(A), a Motion for Case Terminating Sanctions against Jacob Kagan and Mirka United, of which Kagan is the sole owner/operator.1

FACTS

In support of its Motion for Sanctions, plaintiff provides a detailed and uncontradicted account, supported by record evidence, of defendant Kagan’s failure to obey court orders throughout the course of discovery in this action. Defendants’ two-and-a-half page response makes only a cursory, unsupported, unsworn assertion that defendants are in compliance with the court’s orders. Defendants’ arguments regarding compliance are therefore rejected.

Background and Procedural History of the Action

Plaintiff is an insurance company and, under New York’s No-Fault insurance laws, is required to reimburse individuals eligible for benefits under policies issued by plaintiff (“Insureds”) for necessary medical equipment (“Supplies”) and other services required as a result of an automobile accident. See N.Y. Ins. Law § 5106. Insureds, in turn, may assign their rights to benefits to medical providers in order to reimburse the providers for the necessary equipment and/or services. Medical providers may then submit requests for payment directly to plaintiff insurer. 11 NYCRR § 65-3.11.

In June 2004, plaintiff brought this action against nearly thirty-five defendants, alleging a widespread scheme to obtain fraudulently inflated and otherwise improper reimbursements for Supplies and services. In September 2007, plaintiff amended its complaint to include nearly ninety defendants. An earlier opinion, in which I denied certain defendants’ motions to dismiss and motions for judgment on the pleadings, detailed plaintiffs allegations, State Farm v. Grafman, 655 F.Supp.2d 212 (E.D.N.Y.2009), and therefore I will discuss only those facts and allegations that relate specifically to defendant Kagan and his company Mirka United.

In its amended complaint, plaintiff alleges that defendant Kagan owned and controlled various Supplies retailers (“Retailer defendants”) and also secretly, and illegally, owned, operated and controlled medical clinics (“Clinic defendants”) that were fraudulently incorporated.2 It is undisputed that, among the Retailer defendants Kagan owned was Mirka United. Plaintiff alleges that Kagan, through his illegal control of certain Clinic and Retailer defendants, including Mirka United, initiated the creation of false paperwork necessary for submission of fraudulent invoices to plaintiff for reimbursement and that his clinics provided services that were either unnecessary or never provided. Plaintiff further alleges that Kagan, through Mirka United and other Retailer defendants, purchased Supplies from wholesalers at inflated prices and then received secret cash kickbacks in exchange for doing business with a particular wholesaler. Ka[445]*445gan then submitted the inflated invoices to State Farm.

State Farm alleges violations of the Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., as well as New York common law claims of fraud and unjust enrichment. The charges involving defendant Kagan individually are counts 2 (substantive RICO violation), 3 (RICO Conspiracy), 4 (common law fraud), 6 (RICO Conspiracy), 9 (RICO Conspiracy), 52 (common law fraud), and 53 (unjust enrichment). Counts 4, 52 and 53 also include Mirka United.

In May 2008, defendant Kagan, among others, filed a motion for judgment on the pleadings. On September 21, 2009, I rejected each of Kagan’s arguments in support of his motion. See Grafman, 655 F.Supp.2d 212. Defendant Kagan renewed many of these arguments, and included certain new arguments, in May 2010 when he moved for summary judgment on all counts against him. On September 21, 2010, I denied defendant Kagan’s motion, holding that, to the extent defendant Kagan’s arguments had not been rejected previously in connection with his motion to dismiss, they raised fact questions inappropriate for summary judgment. Discovery Disputes Leading to the Instant Motion

Defendants Kagan and Mirka United have been involved in a variety of discovery disputes with plaintiff since nearly the outset of this litigation. They have missed court-ordered deadlines for discovery, failed to produce relevant documents, and failed to make timely disclosures mandated by the Federal Rules of Civil Procedure. For instance, on April 11, 2006, Mirka United was ordered to produce to plaintiff its corporate tax forms and general ledgers. After nearly four years’ time, several motions to compel, and threatened sanctions, Mirka United finally complied on January 15, 2010. Most recently, defendant Kagan failed to produce certain wiretap recordings and transcripts this court ordered to be produced (“Wiretap Materials”), prompting plaintiff to bring the motion currently before the court.

Although plaintiff points to numerous instances of discovery abuse, I will focus primarily on three instances of misconduct, including the spoliation of evidence,3 that, especially given the overall context, provide more than sufficient basis for granting plaintiffs motion.

Failure to Produce the Wiretap Materials

From January 2005 until November 2006, the New York State Office of the Attorney General (“OAG”) conducted an investigation into the same activities of defendant Kagan, among others, that form the basis for plaintiffs action. As a part of this investigation, the OAG obtained nine months’ worth of court-ordered wiretaps which recorded conversations between Kagan and many of his co-conspirators. On September 10, 2008, the legality of the wiretaps was upheld by Justice Chun of the New York Supreme Court, Kings County. Thereafter, the OAG provided them to Kagan through discovery in the criminal case. On January 22, 2010, Kagan pled guilty to one count of money laundering; he is now serving a prison term.

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Bluebook (online)
274 F.R.D. 442, 2011 U.S. Dist. LEXIS 53382, 2011 WL 1869387, Counsel Stack Legal Research, https://law.counselstack.com/opinion/state-farm-mutual-automobile-insurance-v-grafman-nyed-2011.