Pleading RICO Claims Against “Fly-By-Night” No-Fault Fraud Rings

The federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) has become a potent tool in the New York automobile insurance industry’s efforts to combat no-fault insurance fraud. The author of this article describes how insurers may successfully plead and prove their RICO claims – with the attendant treble damages and attorneys’ fees – by alleging “open-ended” patterns of racketeering activity in their civil RICO complaints. 

The federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act[1] – particularly its provisions permitting civil lawsuits – has become a potent tool in the New York automobile insurance industry’s efforts to combat no-fault insurance fraud.[2] All the same, increasingly efficient and effective insurer anti-fraud investigations have forced changes in the typical no-fault fraud ring’s business model – changes that threaten to undermine the viability of insurers’ civil RICO suits. In an attempt to avoid detection, more and more fraud rings have refrained from submitting a large volume of billing over an extended period of time through any single professional corporation or under any individual tax identification number. This “fly-by-night” approach, in turn, presents a challenge for insurers seeking to allege and prove the “closed-ended” pattern of racketeering activity that in some cases is necessary to meet the RICO pleading standards. Even so, insurers often may successfully plead and prove their RICO claims – with the attendant treble damages and attorneys’ fees – by alleging “open-ended” patterns of racketeering activity in their civil RICO complaints.    

General RICO Pleading Requirements in the Context of No-Fault Fraud

To state a claim under the RICO statute, insurers must plead: (i) that the defendants; (ii) through the commission of two or more acts; (iii) constituting a pattern; (iv) of racketeering activity; (v) directly or indirectly conduct or participate in; (vi) an enterprise; (vii) the activities of which affect interstate or foreign commerce.[3]

In addition, an insurer must allege that it was “injured in its business or property by reason of the conduct constituting the RICO violation.”[4]

As might be expected, the typical no-fault fraud scheme, involving the use of one or more professional corporations to submit hundreds if not thousands of fraudulent health care bills to insurers through the mails, is highly susceptible to attack under the civil RICO statute. For instance, the professional corporations – which typically provide the vehicles through which the fraudulent billing is submitted – may constitute the requisite RICO “enterprises.”[5]

To properly plead a civil RICO claim, insurers not only must allege an enterprise, but also must allege that the defendants “conducted or participated in” the enterprise through a “pattern of racketeering activity.” The Supreme Court has interpreted “participation” in the RICO context to mean “participation in the operation or management of the enterprise.”[6] Under the “operation or management” test, to conduct or participate, directly or indirectly, in the conduct of an enterprise’s affairs, “one must have some part in directing those affairs.”[7] That said, RICO liability is not limited to those with primary responsibility, nor to those with a formal position in the enterprise, but some part in directing the enterprise’s affairs is required.[8]

Accordingly, insurers pleading civil RICO claims against alleged no-fault fraud rings frequently focus on three classes of defendants whose “participation” in the RICO enterprises is sufficient to support RICO liability: (i) the physicians or other licensed health care professionals who own, or purport to own, the professional corporations through which the fraudulent billing is submitted; (ii) the physicians or other licensed health care professionals who purport to perform the services that are billed to insurers through the professional corporations; and/or (iii) the unlicensed laypersons or lay entities that in many cases are alleged to secretly and unlawfully control the professional corporations, often through complex financial arrangements meant to conceal their involvement in the schemes.[9]

Of course, insurers seeking to make out a civil RICO claim also must allege “racketeering activity.” The RICO statute defines “racketeering activity” as certain specific enumerated crimes, including mail fraud.[10] Therefore, when a no-fault fraud ring submits fraudulent billing to an insurer through the mails, it is committing predicate acts of “racketeering activity” as that term is defined in the RICO statute.

Isolated acts of racketeering activity are insufficient to support RICO liability. Rather, the acts of racketeering activity must be sufficient to “constitute a pattern.”[11] The RICO statute provides that a “pattern of racketeering activity” must consist of “at least two acts of racketeering activity” undertaken within 10 years.[12] To establish a “pattern” sufficient to satisfy the statute, however, an insurer not only must allege at least two acts of racketeering activity within 10 years, but also must allege facts tending to show that “the racketeering predicates are related, and that they amount to or pose a threat of continuing criminal activity.”[13] “The latter so-called ‘continuity’ requirement can be satisfied either by showing a ‘closed-ended’ pattern – a series of related predicate acts extending over a substantial period of time – or by demonstrating an ‘open-ended’ pattern of racketeering activity that poses a threat of continuing criminal conduct beyond the period during which the predicate acts were performed.”[14]

While what constitutes a “substantial period of time” necessary to demonstrate a closed-ended pattern of racketeering activity is open to some debate, the Second Circuit has indicated that it is disinclined to find closed-ended continuity where the predicate acts occurred over less than two years’ time.[15]

Nonetheless, until recently insurers have had little difficulty pleading closed-ended patterns of racketeering activity because the mechanics of no-fault insurance fraud generally require submission of fraudulent billing over the course of more than two years. As noted above, the typical no-fault fraud ring controls one or more professional corporations, which are used as vehicles to submit fraudulent claims to insurers. These professional corporations obtain these claims by taking assignments of no-fault benefits from eligible injured persons – in other words, people who claim to have been injured in automobile accidents.[16] Because New York’s no-fault laws limit recovery to $50,000 per eligible injured person, only a fraction of which typically can be recovered by a single healthcare provider, the characteristic no-fault fraud ring must submit a large number of claims – and, by extension, remain in business for more than two years – in order to realize the full fruits of its scheme.[17]

Efficient Insurer Investigations Make it Increasingly Difficult to Plead Closed-Ended Patterns of Racketeering Activity in Support of Civil RICO Claims

Because insurers have, in the past, been able to satisfy these RICO pleading standards – and the concomitant requirement that mail fraud be pleaded with specificity – alleged no-fault fraud rings generally have been unsuccessful in their attempts to secure dismissal of insurers’ civil RICO suits.[18]

Most of these motions to dismiss focused on a fairly standard set of attacks against the insurers’ RICO and mail fraud allegations. For instance, alleged no-fault fraud rings have contended that:

• the insurers did not plead the predicate acts of mail fraud with the specificity required by Fed. R. Civ. P. 9(b); 
• the insurers failed to plead reasonable reliance on misrepresentations in the allegedly fraudulent billing; 
• the insurers failed to plead a RICO defendant that was distinct from the alleged RICO enterprise; and  
• the insurers failed to plead how an individual defendant or group of defendants participated in the operation or management of the RICO enterprise.

Though courts consistently have rejected these arguments, alleged no-fault fraud rings continue to raise them. This approach has resulted in a significant body of precedent sustaining existing insurer RICO claims and providing helpful guidance to insurers on how to properly allege future RICO claims.[23]

While alleged no-fault fraud rings have not, as of yet, met with any great success in their attempts to secure dismissal of insurers’ RICO claims, insurer responses to the no-fault fraud epidemic have opened the door to a new argument.

As noted above, in New York no-fault fraud rings typically can recover only a fraction of $50,000 from any assigned claim. In order to maximize their ill-gotten gains, such groups therefore must submit billing on a consistent basis over an extended period of time. In recent years, however, insurer investigations have made it all-but-impossible to submit large-scale fraudulent billing through a single professional corporation over any lengthy period.

Specifically, when placed in the service of a no-fault fraud scheme, professional corporations have a limited lifespan – inasmuch as large-scale fraudulent billing submitted through any individual professional corporation inevitably will draw the attention of insurers. This, in turn, generally results in delayed or denied claims, as the insurers demand additional verification from a suspicious professional corporation as a condition precedent to payment.

Faced with insurers’ investigations, no-fault fraud rings increasingly have elected to shutter whatever professional corporations they previously used, and carry on their scheme using one or more newly-incorporated professional corporations with new tax identification numbers. In other cases, rather than open and close a number of professional corporations in sequence, a no-fault fraud ring will operate several professional corporations at once, use them to simultaneously submit a large volume of fraudulent billing over a short period of time, and then decamp with the proceeds of the scheme when any one of the entities comes under suspicion.

These tactics make it difficult for insurers to allege a closed-ended pattern of racketeering activity in support of their civil RICO claims, in that – increasingly – fraud rings do not submit billing through any one professional corporation for a period of two or more years. As discussed above, the Second Circuit has indicated that the closed-ended continuity sufficient to demonstrate a RICO pattern generally will not exist where the predicate acts of racketeering activity occurred over the course of less than two years.[24]

In this context, insurers may be unable to plead a closed-ended pattern of racketeering activity by alleging that identical defendants submitted fraudulent billing through a series of professional corporations which – if considered together – extended over a period of more than two years. Rather, the alleged “pattern of racketeering activity” generally must be specific to an individual professional corporation, inasmuch as RICO requires that the defendant “conduct or participate in” the enterprise through the pattern of racketeering activity.[25]

Put another way, even if, after a year and a half, a RICO defendant stopped submitting fraudulent billing through one professional corporation, only to immediately begin submitting fraudulent billing through a second corporation for another year and a half, the defendant would be able to argue that he did not conduct any single enterprise through a “pattern of racketeering activity” that spanned more than two years. Accordingly, he would be able to argue that there was no closed-ended pattern of racketeering activity sufficient to support RICO liability.

Alleged no-fault fraud rings have raised this type of defense in at least one recent case. Specifically, in Government Employees Insurance Co., et al. v. Gabinskaya, et al.,[26] the insurer-plaintiffs alleged civil RICO claims based – among other things – on allegations that the defendants submitted at least 1,200 fraudulent bills through a single professional corporation, beginning in late 2009.[27] In their motions to dismiss, the defendants raised many of the same arguments that already have been advanced by other alleged no-fault fraud rings and rejected by the courts. Notably, however, the Gabinskaya defendants also contended that – because the alleged acts of mail fraud spanned a period of less than 10 months – the plaintiff-insurer could not establish the closed-ended continuity necessary to demonstrate a “pattern” of racketeering activity.

While the Gabinskaya defendants’ motions to dismiss have yet to be decided, the plaintiffs in Gabinskaya took an approach in their complaint that may obviate the need to allege any closed-ended pattern of racketeering activity. Specifically, the Gabinskaya plaintiffs pleaded facts which demonstrate an “open-ended” pattern of racketeering activity.

In Most Cases, Insurers Can Support Their Civil RICO Claims With Allegations Demonstrating an Open-Ended Pattern of Racketeering Activity

Where appropriate, as noted, a civil RICO plaintiff can plead an open-ended pattern as an alternative to a closed-ended pattern. To establish an open-ended pattern, a plaintiff need not show that the predicate acts of mail fraud extended over a substantial period of time (in other words, over the course of more than two years), but rather “must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed.”[28]

This threat of continuing criminal activity must exist at the time when the predicate acts are committed, and an evaluation of the threat – or lack thereof – “cannot be made solely from hindsight.”[29] Put another way, “the Court must consider the totality of the circumstances surrounding the commission of the predicates to determine whether there is a threat of continuing criminal activity.”[30]

In this context, “[t]he key considerations to the question of open ended continuity are the nature of the enterprise and the predicate acts alleged.”[31] The threat of continuing criminal activity necessary to demonstrate an open-ended pattern of racketeering activity “is generally presumed when the enterprise’s business is primarily or inherently unlawful.”[32]

By contrast, “if the enterprise is engaged in a legitimate business, an allegation of open ended continuity requires evidence supporting an inference that the predicate acts are the regular way of doing business, or that the nature of the predicate acts themselves implies a threat of continuing criminal activity.”[33] Furthermore, when the alleged enterprise primarily conducts a legitimate business, “the business at issue [must be] ongoing, thereby making it likely that the racketeering acts will continue into the future.”[34]

To date, only two cases within the Second Circuit have substantively addressed open-ended continuity in the context of a no-fault fraud case brought by an insurer. For instance, in Kalika, the court defined an open-ended pattern as “past conduct that by its nature projects into the future with a threat of repetition.”[35] Then, the court found that the insurer had sufficiently pleaded open-ended continuity by alleging “1,256 separate fraudulent claims submitted over a four-year period, that are continuing to today in that defendants are seeking to collect additional amounts on claims submitted but not yet paid.”[36]

The Kalika court based its determination on the fact that the insurer had alleged that the defendants committed the predicate acts as a “regular way of conducting the defendants’ ongoing business,” and that the defendants operated as part of a long-term association that existed for criminal purposes.[37]

The Kalika court therefore predicated its finding of an open-ended pattern on three considerations: First, the court plainly felt that many individual fraudulent mailings submitted over an extended period of time not only satisfied the closed-ended pattern requirement, but also intrinsically satisfied the open-ended requirement – in that such relentless racketeering activity by its nature posed a threat of repetition. (Notably, the Kalika court found, in the alternative, that the billing was submitted over a sufficiently long period of time to qualify as a closed-ended pattern, as well as an open-ended pattern).

Second, the court took the defendants’ persistent attempts to collect on the fraudulent billing into account. While the collection attempts – unlike the fraudulent mailings themselves – did not constitute predicate acts of mail fraud for RICO purposes, the court clearly viewed the collection attempts as a harbinger of continued fraudulent activity. In other words, if the defendants brazenly sought to realize the profits of their fraud, then it would be a fair assumption that they would engage in additional acts of mail fraud, moving forward.

Third – and along the lines set forth in G-I Holdings and SKS Constructors, Inc. – even if the alleged RICO enterprise in Kalika was engaged in a legitimate business, the court found that the insurer sufficiently had alleged that predicate acts of mail fraud were the regular way in which the defendants conducted the business.

The Kalika court found support in State Farm Mut. Auto. Ins. Co. v. Cohan,[38] in which an insurer moved for default judgment on its RICO claims after the defendants failed to timely appear or answer.[39] In determining that the insurer’s RICO claims sufficiently alleged both and open- and closed-ended pattern of racketeering activity, the court noted that: (i) the defendants’ fraudulent scheme was carried out over the course of many years; and (ii) the professional corporations persisted in attempting to collect on the fraudulent billing.[40] As was the case in Kalika, the Cohan court reasoned that many individual acts of mail fraud carried out over an extended period not only met the requirements for a closed-ended pattern, but also innately raised a specter of continuing criminal activity sufficient to satisfy the open-ended pattern requirements. Likewise, the Cohan court recognized that – by persisting in collection attempts on fraudulent billing – the defendants demonstrated an unabashed disregard for the law that foretold of continuing criminal activity.  

While Kalika and Cohan are instructive, each of these cases included fraudulent billing submitted over a sufficiently long period of time to qualify as either an open- or closed-ended pattern. Furthermore, in both Kalika and Cohan the defendants allegedly persisted in attempting collection on fraudulent billing. These cases may be less helpful where the RICO defendant submits its billing over the course of less than two years, and is not attempting collection on the billing at the time when the RICO complaint is filed. Unfortunately, increased insurer vigilance has the perverse effect of ensuring that this often is the case: Many fraud rings no longer submit fraudulent billing through any single professional corporation for more than two years, and opt to walk away from old billing in the face of insurer investigations. After all, they can simply open a new professional corporation and start all over again.

Therefore, insurers seeking to effectively plead an open-ended pattern of racketeering activity in support of their civil RICO claims therefore should consider the approach recently taken by the Gabinskaya plaintiffs – which has since been developed even further in a number of other recently-filed civil RICO cases against alleged no-fault fraud rings. Specifically:

Where Appropriate, Allege That the Predicate Acts of Mail Fraud are the “Regular Way” in Which the Defendants Conduct the Professional Corporation Through Which the Billing is Submitted

As noted, where an alleged RICO enterprise is engaged in an ongoing, legitimate business, an insurer can demonstrate an open-ended pattern of racketeering activity by pleading facts supporting an inference that the predicate acts are the regular way in which the business operates.[41] Where appropriate, insurers therefore always should allege that the predicate acts of mail fraud are the regular way in which the defendants conduct the professional corporation through which the billing is submitted (i.e., the RICO “enterprise”). Insurers also should make sure to allege, when appropriate, that the professional corporation in question is an “ongoing” business.

In cases where the alleged mail fraud is based on misrepresentations regarding the proper licensure and corporate legitimacy of the professional corporation, this will be fairly simple. For instance, in Gabinskaya the insurers alleged that the billing submitted by the defendants systematically misrepresented that the professional corporation was properly licensed and therefore eligible to bill for and to collect no-fault benefits. The insurers further alleged that, in actuality, the professional corporation was not eligible to bill for or to collect no-fault benefits because – among other things – it was fraudulently incorporated, owned and controlled by unlicensed individuals, and unlawfully split fees with unlicensed individuals. The insurers therefore were able to allege that the predicate acts of mail fraud were the regular way in which the defendants operated the professional corporation, insofar as the professional corporation never was eligible to bill for or collect no-fault benefits, and acts of mail fraud therefore were essential in order for the professional corporation to function.

Where a properly incorporated professional corporation submits fraudulent billing, the issue becomes more complicated, in that insurers cannot contend – as a matter of law – that every bill submitted through the entity is fraudulent. Nonetheless, there is authority to support the argument that even a relatively small sample of identifiably fraudulent billing submitted through a professional corporation will support an inference that the predicate acts are the “regular way” in which the business operated.[42]

As a general matter, insurers should have little difficulty in alleging that the professional corporations through which fraudulent billing is submitted constitute “ongoing” businesses.[43] Typically, when a no-fault fraud ring stops submitting billing through a professional corporation, it does not dissolve the entity, nor does it stop attempting collection on fraudulent billing that it previously submitted through the entity. The continued existence of a corporate entity – particularly where the entity continues to attempt collection on outstanding billing – generally should be sufficient to demonstrate that the entity’s business is “ongoing,” even where the entity no longer is submitting new billing.

For instance, in Kalika, the insurer alleged that the defendants’ scheme was ongoing, and that fraudulent bills that previously had been submitted remained outstanding. However, from the face of the Complaint it did not appear as if the Kalika defendants continued to submit new fraudulent billing. Even so, in determining that the insurer pleaded an open-ended pattern, the court noted that the defendants’ business was “ongoing” – considering that the professional corporation through which the billing was submitted continued to exist, and the defendants continued to attempt collection on billing submitted through the professional corporation.[44]

Accordingly, in virtually every instance, insurers will be able to – and should – allege that predicate acts of mail fraud are the “regular way” in which no-fault fraud rings operate the professional corporations through which fraudulent billing is submitted.

Where Appropriate, Allege That the Nature of the Predicate Acts Implies a Threat of Continued Criminal Activity

As set forth above, an open-ended pattern may be demonstrated where the nature of the predicate acts implies a threat of continued criminal activity.[45]

For instance, in G-I Holdings, the defendant law firm allegedly created false affidavits in support of asbestos litigation, and apparently mailed them. The court found that these predicate acts – by their nature – implied a threat of continuing criminal activity. Significantly, the court’s determination was predicated on the fact that more than 200 affidavits allegedly were falsified, and that the incentive to falsify affidavits likely would persist. The court noted:

First, the alleged “fixing” involved 200 affidavits, rather than merely one or two or even a handful of affidavits. The sheer scope of the predicate acts ratchets up the seriousness and suggests a future threat. Second, a supervisor gave the instruction to “fix” the affidavits, suggesting that it was not merely the independent actions of paralegals who, in the future, may be advised to act differently. Instead, the management was involved. …  Further, the sort of asbestos litigation performed by [defendant law firm] involves, conservatively, hundreds of clients and thousands of documents. Another group of paralegals almost inevitably has been and will be faced with a similar situation, even if not of the same magnitude. Given the factors discussed above, there is a threat that the affidavits again will be “fixed.”[46]

A number of other cases, likewise, support the proposition that where predicate acts are carried out at a high volume, and where the incentive to continue committing predicate acts is likely to remain, the nature of the predicate acts will imply a threat of continued criminal activity.[47]

As suggested by Kalika, insurers should have little difficulty alleging that predicate acts of mail fraud – as typically practiced in the context of a no-fault insurance scheme – by their nature carry a threat of continued criminal activity. As noted above, the typical no-fault bill is for a relatively small amount – say between $500 and $3,000. Most no-fault fraud rings therefore are required to submit hundreds, if not thousands, of discrete bills to any given insurer in order to realize the full fruits of their scheme.

Wherever possible, insurers, therefore, should allege that a high volume of billing, even if submitted within a relatively short time-frame, implies a threat of continued criminal activity. As suggested by Kalika and Cohan, insurers also should allege that ongoing collections efforts – which generally continue beyond the period in which the billing actually is submitted – provide further indication that the defendants are committed to fraud and are likely to persist in their unlawful endeavors.

Where Appropriate, Allege That the Business of the Professional Corporation is Racketeering Activity

As discussed above, the threat of continuing criminal activity and, by extension, an open-ended pattern of racketeering activity, generally is presumed when the enterprise’s business is primarily unlawful.[48]  

To date, there appear to be no decisions from within the Second Circuit determining that the business of a professional corporation employed by a no-fault fraud ring was primarily unlawful. As noted above, the court in Kalika appeared to find open-ended continuity based – at least in part – on a determination that the professional corporation at issue was a legitimate business, but that the insurer had sufficiently pleaded that the predicate acts of mail fraud were the regular way in which the defendants operated that business.

In most cases, however, no-fault fraud rings exist for the purpose of submitting fraudulent billing to insurers, and every aspect of the process leading to the submission of the bill is fraudulent to some degree. For instance, charges will be submitted for healthcare goods and services that are not medically necessary, or not provided in accordance with basic, legitimate standards, or not provided at all. Where the goods or services actually are provided, the billing tends to misrepresent the nature or quality of the items so as to facilitate much higher charges. In other cases, charges will be submitted through fraudulently incorporated, improperly licensed professional corporations that are not entitled to bill for or to collect no-fault benefits in the first instance. As a result, no-fault fraud rings typically do not intersperse legitimate billing in with their fraudulent billing – all of the billing or, in any case, the vast majority, tends to contain misrepresentations of one type or another.

Therefore, insurers often will be able to allege that – where a no-fault fraud ring submits fraudulent billing through a professional corporation – the business of the professional corporation is racketeering activity. By extension, insurers can allege that the enterprise’s business is primarily unlawful, a threat of continuing criminal activity therefore should be presumed, and an open-ended pattern of racketeering activity therefore exists.

Conclusion

In most cases, insurers will be able to plead at least some facts demonstrating open-ended patterns of racketeering activity in support of their RICO claims. Given the mechanics of no-fault fraud, in many cases there will be multiple ways to allege an open-ended pattern. While the case law applying the open-ended pattern rules in the no-fault context continues to develop, existing authorities indicate that fraud rings will not be able to avoid RICO liability by operating on a short-term, “fly-by-night” basis.

NOTES

[1] 18 U.S.C.S. §§ 1961, et seq.

[2] While this article concentrates on RICO in the context of New York no-fault insurance fraud, it is worthwhile to note that insurers successfully have pleaded RICO claims against alleged no-fault fraud rings in other states, as well. See, e.g., Allstate Ins. Co. v. Linea Latina De Accidentes, Inc., 2011 U.S. Dist. LEXIS 16221 (D. Minn. 2011)(denying motion to dismiss civil RICO claims against alleged no-fault fraud ring in Minnesota); Allstate Ins. Co. v. Palterovich, 653 F. Supp. 2d 1306 (S.D. Fla. 2009)(granting insurer default judgment on, among other things, civil RICO claims against alleged no-fault fraud ring in Florida). While most of the authorities cited herein are drawn from the Second Circuit in general – and, particularly, from the Eastern District of New York, the venue for the substantial majority of RICO cases that heretofore have been filed against alleged no-fault fraud rings – there is no reason to believe that the arguments discussed in this article would not apply in other federal courts.

[3] See Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir.1983); see also Qader v. Cohen & Slamowitz, 2011 U.S. Dist. LEXIS 2388 at * 18 – * 19 (S.D.N.Y. 2011).

[4] See Moss, supra, 719 F.2d at 17; see also Qader, supra at * 19.

[5] See 18 U.S.C. § 1961(4)(defining “enterprise” for RICO purposes as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.”).

[6] De Falco v. Bernas, 244 F.3d 286, 309 (2d Cir. 2001) citing Reyes v. Ernst & Young, 507 U.S. 170, 179-185 (1993).

[7] Id.; see also Conte v. Newsday, Inc., 703 F. Supp. 2d 126, 135 (E.D.N.Y. 2010).

[8] Id.

[9] See, e.g., Allstate Ins. Co. v. Etienne, 2010 U.S. Dist. LEXIS 113995 (E.D.N.Y. October 26, 2010); Allstate Ins. Co. v. Ahmed Halima, 2009 U.S. Dist. LEXIS 22443 (E.D.N.Y. March 19, 2009); Allstate Ins. Co. v. Rozenberg, 590 F. Supp. 2d 384 (E.D.N.Y. December 29, 2008); State Farm Mut. Auto. Ins. Co. v. CPT Med. Servs., P.C., 2008 U.S. Dist. LEXIS 71156 (E.D.N.Y. Sept. 3, 2008); State Farm Mut. Auto. Ins. Co. v. Kalika, 2006 U.S. Dist. LEXIS 97454 (March 16, 2006). The author’s law firm, Rivkin Radler LLP, represented the insurers in the Etienne and Halima cases.

[10] See 18 U.S.C. § 1961(1)(B).

[11] See, e.g., United States v. Burden, 600 F.3d 204, 216 (2d Cir. 2010)(noting that the “pattern” requirement is meant to prevent application of RICO liability to perpetrators of isolated or sporadic criminal acts).

[12] See 18 U.S.C. §1965(1).

[13] See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989); see also Acme Am. Repairs, Inc. v. Katzenberg, 2010 U.S. Dist. LEXIS 100803 at * 19 (E.D.N.Y. 2010).

[14] Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008).

[15] See, e.g., Spool, supra, 520 F.3d at 184 (noting that, while the two-year period is not a “bright-line requirement,” conduct persisting for a shorter period of time rarely will be sufficient to establish closed-ended continuity).

[16] See 11 N.Y.C.R.R. § 65-3.11 (providing that eligible injured persons may assign their claims to no-fault benefits in exchange for healthcare goods and services). Florida, Michigan, and New Jersey likewise permit assignment of no-fault claims to healthcare providers. See, e.g., Fla. Stat. § 627.736(5); MCLS § 500.3157; N.J. Stat. § 39:6A-4. Notably, these states – like New York – have reported significant problems with no-fault fraud on the part of healthcare providers. See, e.g., Ch. 2001-271, § 1, at 1749-1750 Fla. Sess. Law. Serv. (noting, in legislative findings accompanying amendments to Florida no-fault law, fraud by healthcare providers in the context of no-fault claims); N.J. Stat. § 39:6A-1.1 (noting, in legislative findings accompanying amendments to New Jersey no-fault law, that fraud had effect of increasing New Jersey automobile insurance premiums).

[17] See N.Y. Ins. Law §§ 5101, et seq. Florida and New Jersey – which like New York have experienced significant problems with no-fault fraud – also limit recovery for medical costs by eligible injured persons or their assignees. Michigan, however, places no dollar limit on recovery for medical costs.

[18] See, e.g., State Farm Mutual Automobile Insurance Company v. Eastern Medical, P.C., CV 05-3804  at Docket No. 148 (ENV)(December 20, 2010); Etienne, supra; Allstate Ins. Co. v. Valley Physical Med. & Rehab., P.C., 2009 U.S. Dist. LEXIS 91291 (E.D.N.Y. Sept. 30, 2009); State Farm Mut. Auto. Ins. Co. v. Grafman, 655 F. Supp. 2d 212  (E.D.N.Y. September 21, 2009); Halima, supra; Rozenberg, supra; CPT Med. Servs., P.C., supra; Kalika, supra (all denying alleged no-fault fraud rings’ motions to dismiss civil RICO claims predicated on mail fraud). The author’s law firm, Rivkin Radler LLP, served as counsel or co-counsel for the insurers in Eastern Medical, Grafman, and, as previously noted, in Etienne and Halima.

[19] See, e.g., Eastern Medical, Etienne, Grafman, Halima, Rozenberg, CPT, Kalika, supra.

[20] See, e.g., Eastern Medical, Valley Physical, Grafman, Halima, supra.

[21] See, e.g., Eastern Medical, Etienne, Valley Physical, Rozenberg, supra.

[22] See, e.g., Eastern Medical, Rozenberg, CPT, Kalika, supra.

[23] See, e.g., Eastern Medical, Etienne, Valley Physical, Grafman, Halima, Rozenberg, CPT, Kalika, supra.

[24] See Spool, supra, 520 F.3d at 184; see also Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 Fed. Appx. 94, 98 (2d Cir. 2008)(“As we have repeatedly observed, we have never found a closed-ended pattern where the predicate acts spanned fewer than two years.”)(Internal quotations and citation omitted).

[25] See, e.g., United States v. Pizzonia, 577 F.3d 455, 463 (2d Cir. 2009) quoting United States v. Russotti, 717 F.2d 27, 33 (2d Cir. 1983)(“it is neither the enterprise standing alone nor the pattern of racketeering activity by itself which RICO criminalizes,” but “[r]ather, the combination of these two elements … .”).

[26] E.D.N.Y. Docket No. CV 10-4286 (DLI)(MDG).

[27] The author’s law firm, Rivkin Radler LLP, represents the insurers in Gabinskaya.

[28] Conte, supra, 703 F. Supp. 2d at 138 quoting Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242 (2d Cir. 1999).

[29] Metro. Transp. Auth. v. Contini, 2005 U.S. Dist. LEXIS 13345 at * 10 (E.D.N.Y. 2005) quoting United States v. Aulicino, 44 F.3d 1102, 1112 (2d Cir. 1995).

[30] Andrea Doreen Ltd. v. Bldg. Material Local Union 282, 299 F. Supp. 2d 129, 157 (E.D.N.Y. 2004)(emphasis added).

[31] SKS Constructors, Inc. v. Drinkwine, 458 F. Supp. 2d 68, 78 (E.D.N.Y. 2006).

[32] Spool, supra, 520 F.3d at 185.

[33] SKS Constructors, Inc., supra; see also G-I Holdings v. Baron & Budd, 238 F. Supp. 2d 521, 544 (S.D.N.Y. 2002)(same).

[34] Purchase Real Estate Group, Inc. v. Jones, 2010 U.S. Dist. LEXIS 87571 at * 34 (S.D.N.Y. 2010).

[35] Kalika, supra at * 43.

[36] Id. at * 46.

[37] Id. at * 47.

[38] 2009 U.S. Dist. LEXIS 125653 (E.D.N.Y. 2009) adopted 2010 U.S. Dist. LEXIS 21376 (E.D.N.Y. 2010) aff’d 409 Fed. Appx. 453 (2d Cir. 2011).

[39] The author’s law firm, Rivkin Radler LLP, represented the insurer in Cohan.

[40] Id. at * 29 – * 30.

[41] See, e.g., Kalika at * 46; see also Acme Am. Repairs, Inc., supra at * 20 (E.D.N.Y. 2010)(“When the alleged enterprise is … an ostensibly legitimate business, … there must exist evidence that either gives rise to an inference that the predicate acts were the regular way of operating the business or that their very nature implies a threat.”).

[42] See, e.g., Serin v. Northern Leasing Sys., 2009 U.S. Dist. LEXIS 130899 at * 27 – * 34 (S.D.N.Y. 2009)(plaintiffs sufficiently alleged that acts of mail fraud were the “regular way” in which defendants operated ostensibly legitimate leasing business by pleading 20 discrete acts of mail fraud); Air China Ltd. v. Li, 2009 U.S. Dist. LEXIS 27482 at * 18 (S.D.N.Y. 2009)(allegations of about 20 individual acts of mail fraud sufficient to plead that defendants operated the enterprise through fraudulent misrepresentation); First Interregional Advisors Corp. v. Wolff, 956 F. Supp. 480, 485-487 (S.D.N.Y. 1997)(allegations regarding “several” acts of mail fraud sufficient to plead that predicate acts of racketeering activity were the regular way in which defendants operated ostensibly legitimate business).

[43] See, e.g., Purchase Real Estate Group, Inc., supra (noting that, where defendants are alleged to regularly conduct a legitimate business through racketeering activity, the business must be “ongoing”); see also Grimes v. Fremont Gen. Corp., 2011 U.S. Dist. LEXIS 57149 at * 83 – * 84 (S.D.N.Y. 2011)(same).

[44] See also Purchase Real Estate Group, Inc., supra at 32 – * 34 (suggesting that existence of business would be sufficient to demonstrate “ongoing” business); G-I Holdings v. Baron & Budd, supra, 238 F. Supp. 2d at 544-546 (same).

[45] See, e.g., Serin, supra at * 29 (S.D.N.Y. 2004)(plaintiffs may satisfy the continuity requirement by showing that “the nature of the predicate acts themselves implies a threat of continued criminal activity”)(internal citation omitted).

[46] Id., 238 F. Supp. 2d at 544.

[47] See, e.g., Beauford v. Helmsley, 865 F.2d 1386, 1391 (2d Cir.) (en banc), vacated and remanded, 492 U.S. 914, adhered to on remand, 893 F.2d 1433, cert. denied, 493 U.S. 992 (1989)(allegations that defendants had engaged in a one-time mailing of 8,000 copies of fraudulent documents in connection with a condominium conversion plan sufficient to plead an open-ended pattern of racketeering activity, where there was a basis to infer that similar mailings would occur in the future); Azrielli v. Cohen Law Offices, 21 F.3d 512, 521 (2d Cir. 1994)(a series of fraudulent sales of securities over at least one year, coupled with the fact that the defendants apparently had been trying to continue to sell securities, permitted a jury to find a RICO pattern); Kalika, supra (citing large number of predicate acts and continued attempts to collect on fraudulent billing as sufficient to allege open-ended pattern).

[48] See, e.g., Spool, supra, 520 F.3d at 185; see also Rafter v. Bank of Am., 2009 U.S. Dist. LEXIS 21542 at * 58 – * 59 (S.D.N.Y. 2009)(threat is presumed when an enterprise’s business is primarily racketeering activity).

Reprinted with permission from the October 2011 issue of the Financial Fraud Law Report.  All rights reserved.