Allstate Insurance v. Rozenberg, 771 F. Supp. 2d 254

Background

Plaintiffs are insurers alleging a No-Fault fraud scheme involving numerous defendants; action filed February 12, 2008 under N.Y. Ins. Law § 5101 et seq., common law fraud, unjust enrichment, Gen. Bus. L. § 349, and RICO.
Earlier decisions largely sustained the complaint and ordered prejudgment attachments; amended complaint on April 21, 2010 added ten defendants involved in ownership/control of the PC Defendants and alleged money laundering.
Defendants Sheynkman and Artek moved to dismiss under Rule 12(b)(6) for failure to plead with Rule 9(b) particularity and to dismiss for lack of personal jurisdiction and service; attachments remained at issue for the new defendants.
The court consolidated consideration of the 12(b)(6) and CPLR 6201 motions, denying in part and granting in part relief; specifically, the court denied the 12(b)(6) dismissal as to Sheynkman and Artek and denied prejudgment attachment against them without prejudice, while granting attachment as to Prestige.
The Amended Complaint alleges YMA was controlled by non-medical managers (e.g., First Neptune and Artek) and used to employ physicians, control practices, and funnel revenues through money laundering to siphon funds from claims submitted to insurers.
Court’s decision: deny Sheynkman/Artek’s Rule 12(b)(2)/(4)/(5) motions; deny in part and grant in part the fourth motion for prejudgment attachment—granting as to Prestige and denying attachment for Sheynkman/Artek without prejudice.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Personal jurisdiction and service adequacy	Polack-affiliates sought service; nail-and-mail valid after due diligence.	Service insufficient; due diligence lacking before nail-and-mail.	Diligence satisfied; service proper; jurisdictional and service challenges denied.
Rule 9(b) particularity for fraud claims against Sheynkman/Artek	Detailed scheme descriptions and exhibits satisfy Rule 9(b) in a complex RICO context.	Plaintiffs fail to tie revenue to ownership/control and fraud with specificity.	Amended Complaint plausibly alleges ownership/control of YMA and involvement in the fraud; Rule 9(b) satisfied for pleading.
Fraudulent incorporation pleading under No-Fault law	Plaintiffs alleged fraudulent incorporation to obtain No-Fault benefits; need not plead every medical claim.	Need more specific misrepresentations tied to particular services.	Pleading fraudulent incorporation adequate; plaintiffs need allege misrepresentation that entities were properly licensed to obtain benefits.
Prejudgment attachment under CPLR § 6201(3) as to Prestige, Artek, Sheynkman	Money laundering and asset concealment evidence show intent to defraud creditors; likelihood of success on merits.	No specific transfer evidence from YMA to money laundering entities by Sheynkman/Artek; attachment improper for them.	Attachment granted for Prestige; denied without prejudice for Sheynkman and Artek due to lack of evidence of transfers; sua sponte limitations noted.

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for Rule 12(b)(6))
Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (twombly-ienforced plausibility and non-conclusory pleading)
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242 (2d Cir. 1987) (Rule 9(b) particularity standard for fraud)
Allstate Ins. Co. v. Halima, No. 06-CV-1316, 2009 WL 750199 (E.D.N.Y. 2009) (fraud and ownership issues in No-Fault context)
Allstate Ins. Co. v. Rozenberg, 590 F. Supp. 2d 384 (E.D.N.Y. 2008) (prior detailed description of scheme and roles)
State Farm Mut. Auto. Ins. Co. v. Grafman, 655 F. Supp. 2d 212 (E.D.N.Y. 2009) (fraudulent incorporation and recovery of No-Fault payments)
Allstate Ins. Co. v. Rabiner, 749 F. Supp. 2d 94 (E.D.N.Y. 2010) (fraud/unjust enrichment in No-Fault context; incorporation theory)
Allstate Ins. Co. v. CPT Med. Servs., No. 04-CV-5045, 2008 WL 4146190 (E.D.N.Y. 2008) (no-fault mail-fraud pleading standards in complex schemes)
Allstate Ins. Co. v. Grafman, 655 F. Supp. 2d 212 (E.D.N.Y. 2009) (sufficient allegations of money siphoning in fraud claims)
Allstate Ins. Co. v. Otero, 353 F. Supp. 2d 415 (S.D.N.Y. 2004) (due diligence for service under CPLR 308(4))
Nassau County v. Gallagher, 43 A.D.3d 972 (2d Dep't 2007) (quality of delivery attempts supports due diligence)
McSorley v. Spear, 50 A.D.3d 652 (2d Dep't 2008) (due diligence in service analysis under CPLR 308(4))
Allstate Ins. Co. v. Rozenberg, 590 F. Supp. 2d 384 (E.D.N.Y. 2008) (described scheme and defendants' roles; basis for RICO claims)